Foundation Acc Full Sol Set 15.11.2021

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BANK RECONCILIATION STATEMENT

Solutions
ANSWER TO Q. No. 1
Bank Reconciliation Statement as on …………
Particulars Amounts (in Rs.)
Balance as per Cash Book 2,40,000
Add:
Cheques issued but not presented in the bank 1,36,000
Interest credited by bank 1,250
Less:
Cheques deposited in bank but not yet cleared 90,000
Bank Charges 300
Balance as per pass book 2,86,950
ANSWER TO Q. No. 2
Adjusted Cash Book
Dr. Cr.
Particulars Amount (in Rs.) Particulars Amount (in Rs.)
To Balance b/d 6,000 By Bank A/c 1,500
To Dividend A/c 4,000 By Balance c/d 8,700
To Wrong Posting 200
10,200 10,200
Bank Reconciliation Statement as on 31st December

Balance as per Adjusted Cash Book 8,700
Add: Cheques issued but not presented 7,000
Wrong credit by bank 2,000
Less:
Cheques deposited in bank were not cleared 10,000
Balance as per Pass Book 7,700
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ANSWER TO Q. No. 3
Adjusted Cash Book
Dr. Cr.
Particulars Amount (in Rs.) Particulars Amount (in Rs.)
To Balance b/d 2,30,000 By Debtors A/c 2,000
By Party A/c 30,000
By Trade Subscription A/c 15,000
By Balance c/d 1,83,000
2,30,000 2,30,000
Bank Reconciliation Statement as on 31st March

Balance as per Adjusted Cash Book 1,83,000
Add:
Cheques issued but not presented 7,000
Bank credited by mistake 7,000
Less:
Wrong debit by bank 20,000
Balance as per Pass Book 1,77,000
ANSWER TO Q. No. 4
Particulars Amount (Rs.)

Bank overdraft as per cash book (22,45,900)
Add:
Cheque issued but not presented 6,60,000
Subsidy received by back directly 14,25,000
Bills for collection credited by bank 8,36,000
Less:
Interest debited by bank (2,78,700)
Cheque deposited but not cleared (13,50,000)
Amount wrongly debited by bank (7,40,000)
Overdraft per passbook (16,93,600)
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ANSWER TO Q. No. 5
Bank Reconciliation Statement as on ……

Balance as per cash book 1,500
Add:
Cheque issued but not presented 150
Interest allowed by bank 50
Dividend collected by bank 50
Less:
Cheque deposited but not cleared 100
Balance as per passbook 1,650
ANSWER TO Q. No. 6

Bank overdraft as per cash book (5,000)
Add :
Wrongly credited by bank 30,68,000
Less :
Cheque deposited but not cleared 20,00,000
Interest credited by bank 10,00,000
Bank charges 2,500
Balance as per pass book 12.60.500
ANSWER TO Q. No. 7
Bank Reconciliation Statement of X as on …………

Balance as per pass book 5,000
Add:
Interest debited by Bank but no advice received 380
Insurance premium paid by bank as per standing instruction 1,600
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Cash sales were wrongly recorded in the Bank Column of the cash-book 90,000
Less:
Bills for collection credited by the Bank but no advice was received by X 83,000
Wrong credit given by the bank 4,000
ANSWER TO Q. No. 8
Bank Reconciliation Statement as on March 31

Add:
Cheque issued but not presented 1,500
(Ramesh’s cheque)
Less:
Cheque deposited but not cleared 9,800
(Goyal and Patel’s cheque)
Balance as per passbook 3,200
ANSWER TO Q. No. 9
Bank Reconciliation Statement as on 31st December, 2017

Bank Overdraft as per Cash Book (6,340)
Add:
Cheques issued but not cashed 11,68,000
Interest on investment collected by the bank and credited in the Pass
12,00,000
Book
Less:
Interest on overdraft for 160
Bank charges debited in the Pass Book 400
Cheques paid into bank but not cleared 22,17,000
Balance as per Pass Book 1,44,100
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ANSWER TO Q.NO. 10
Dr Adjusted Cash Book (Bank Column only) Cr
Particulars Rs. Particulars Rs.
To bal b/d 8,000 By under casting 100
To wrong Carry forward 3,052 By party A/c 9000
To party A/c 150 By party A/c 131
By bal c/d 1971
11,202 11,202

Bank Overdraft as per adjusted cash book 1,971
Less: Cheques deposited, but not cleared 9,200

Bank overdraft as per pass book 7,229
ANSWER TO Q. No. 11
Bank Reconciliation Statement of Ram as on June 30

Add:
Cheques deposited in bank but not yet cleared 1,62,500
(1,12,500 + 50,000)
Wrong recording in Cash book 160
Debit in Pass book 100
Less:
Wrong credit by bank 1,00,000
Balance as per Cash Book 2,12,760

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ANSWER TO Q. No. 12

Add:
Cheques issued but not presented 4,630
Dividend collected by bank 38
Less:
Cheque dishonoured 730
Cheques paid into bank but not cleared 1,250
Overdraft as per Pass Book 6,652
ANSWER TO Q. No. 13
Bank Reconciliation Statement of Mr. Gadbadwala
as on 31st Dec., 2017
Particulars Amount
(Rs.)
Balance as per the Cash Book 8,36,400
Add:
Mistake in bringing forward Rs.15,260 debit balance as credit 30,520
balance on 18th Dec., 2017
Cheques issued but not presented :
Issued 11,514
Cashed 7,815 3,699
Dividends directly collected by bank 25,000
Cheque recorded twice in the Cash Book 3,50,000
Deposit not recorded in the Bank column 1,50,000
Less:
Wrong casting in the Cash Book 10,000
Cheques issued but not entered in the Bank column 1,31,000
Subscription paid by the bank directly 1,000
Balance as per the Pass Book 12,53,619

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ANSWER TO Q. No. 14

Add:
Draft deposited but not credited 13,500
Wrong debit to company account 7,400
Trade subscription paid by bank 1,500
Less:
Transport subsidy received by bank 42,500
Overdraft as per Cash Book 9,708
ANSWER TO Q. No. 15
Adjusted Cash Book as on 31.3.2017
Particulars Amount Rs. Particulars Amount Rs.
To Balance b/d 32,50,000 By Bank charges 12,500
To Dividend 1,25,000 By Insurance premium 15,900
By Trade receivables 1,30,000
(cheque dishonoured)
By Cash A/c (wrongly 2,55,000
recorded cash sales)
33,75,000 33,75,000
Bank Reconciliation Statement as on 31.3.2017

Particulars Amount Rs.
Bank balance as per the cash book 29,61,600
Add: Cheques issued but not yet presented for payment 35,62,000
Wrong credit given by bank 1,50,000
Less: Cheques deposited but not yet credited by bank (44,75,000)

Balance as per the pass book 21,98,600
-8-
The bank balance of Rs. 29,61,600 will appear in the trial balance as on 31st March, 2017.
Note: Cash sales should have been recorded by passing the following entry:
Cash A/c Dr 2,55,000
To Sales A/c 2,55,000
But it has been wrongly debited to Bank A/c, so following rectification entry has been passed:
Cash A/c Dr 2,55,000
To Bank A/c 2,55,000
ANSWER TO Q. No. 16

Balance as per cash book 1,47,500
Add:
(Simmi and Shilpa’s cheque)
Less:
(Jyoti and Anil’s cheque)
Balance as per passbook 1,43,500
ANSWER TO Q. No. 17

Add:
Amount received directly by bank 1,740
Interest collected by bank 1,200
Wrong credit by bank 2,000
Less:
Interest entered in pass book 160
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ANSWER TO Q.18.
Adjusted Cash Book (Bank Column)
Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Party A/c 16,000 By Balance b/d 4,062
To Customer A/c (Direct 1,17,400 By Bank charges 580
deposit)
To Balance c/d 11,242 By Customer A/c 1,40,000
(B/R dishonoured)
1,44,642 1,44,642
Bank Reconciliation Statement as on 30th September, 2017

Particulars Amount in Rs.
Overdraft as per Cash Book (11,242)
Less: Cheque deposited but not collected (13,14,000)
Less: Cheques issued but not presented for payment 13,26,000
Add: Credit by Bank erroneously on 6th September 20,000
Balance as per bank statement 20,758
ANSWER TO Q.19.
Adjusted Cash Book (Bank column)

in Rs. in Rs.
Dec. 30 To Balance b/d 4,610 Dec. 30 By Party a/c 73,000
(Cheque dishonoured)
To Dividend 3,80,000 By Bank interest and 4,200
charges
By Trade 10,000
Subscription
Dec. 31 By Balance c/d 2,97,410
3,84,610 3,84,610
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Bank Reconciliation Statement as at 30th December, 2017

Particulars Amount Rs.
Balance per cash book 2,97,410
Add: Cheques issued but not yet presented 6,30,000
Deduct: Cheques deposited but not cleared (2,50,000)
Deduct: Cheque wrongly charged by bank (27,000)
Balance as per the bank statement 6,50,410
ANSWER TO Q. No. 20

Add: Cheque issued but not presented 1,510
Interest collected by bank 200
Less: Cheque deposited but not cleared 1,390
Premium paid by bank 250
Bank charges 10
ANSWER TO Q. No. 21

Add: Cheque recorded in cash book 5,000
Bank charges 250
Less:
Amount not recorded in cash book 15,700
Interest credited by bank 1,500
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ANSWER TO Q.22
IN THE BOOKS OF GOPI
ADJUSTED CASH BOOK (Bank Column)
Dr. Cr.
Amount in
Receipts Payments Amount in Rs.
Rs.
To Balance b/d 44,50,000 By Insurance premium A/c 27,000
To Dividend A/c 40,000 By error of undercasting 5,000
To Rent A/c 6,00,000 By Bank charges 1,500
To Bill receivable A/c 59,000 By Bill payable 2,00,000
51,49,000 51,49,000
Bank Reconciliation Statement as on 30th June, 2017
Particulars Amount in Rs.

Adjusted balance as per cash book (Dr.) 49,15,500
Add: Cheques issued but not presented for payment till 30th June, 6,00,000
2017
Less: Cheques paid into bank for collection but not collected till 30th (5,55,000)
June, 2017
ANSWER TO Q. No. 23

Overdraft as per pass book 32,675
Add:
Cheque recorded in cash book
Bank charges 150
Less:
Interest collected by bank 1,200
Overdraft as per cash book 26,238
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ANSWER TO Q. No. 24

Add:
Amount deposited by debtor 5,00,000
Less:
Cheque deposited but not cleared 16,40,000
Cheque dishonoured 4,00,000
Bank charges 2,000
Overdraft as per pass book 3,82,000
ANSWER TO Q. No. 25

Add:
Cheque received but not sent to bank 11,20,000
Insurance premium paid by bank 60,000
Cheque entered twice in cash book 10,000
Credit side of bank column short 2,000
Bill discounted dishonoured 5,00,000
Less:
Cheque deposited not recorded in cash book 5,00,000
Interest credited by bank
Bank charges 2,000
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ANSWER TO Q.NO. 26
Bank Reconciliation Statement of Mr. Anil as on 31st December
Overdraft balance as per pass book (6,000)
Add:
Cheques deposited into bank but not yet collected 9,000
Bank commission 30
Less:
Cheque issued but not yet presented to bank for payment 5,500
Wrong recording in cash book 2,000
Credit balance as per cash book (4,470)
ANSWER TO Q.NO. 27

Debit balance as per cash book 37,20,000
Add:
Cheque issued but not yet presented 7,20,000

Dividend received by bank not entered in cash book 5,00,000
Interest allowed by bank 12,500
Less:
Cheques deposited into bank but not yet collected 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured 3,20,000

House tax paid by bank 3,50,000
Credit balance as per pass book 27,40,500

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ANSWER TO Q.NO. 28
Bank Reconciliation Statement of Mr. P. Roy as on 31st December
Bank Balance as per Cash Book 75,000
Add:
Cheques issued but not presented for payment
8,500
(Rs.3,000, Rs.4,000 & Rs.1500 respectively)
Collection by Bank from a Customer 8,000
Less:
Cheques deposited but not credited in the Pass Book 11,000
Bank charges not recorded in the cash book 30
ANSWER TO Q.NO. 29
Bank Reconciliation Statement of Mr. Suresh as on 31st January

Less:
Cheques deposited but not cleared (7,000 - 4,000) 3,000
Bank commission charged by the Bank 45
Add:
Cheque issued but not presented for payment (15,000 - 9,000) 6,000
Direct deposit by a customer 6,400
Interest on investment credited in the Pass Book only 1,400
Withdrawals of Rs. 3,000 recorded in the Cash Book as Rs. 5,000 2,000
Bank balance as per Pass Book (Cr.) 1,240

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ANSWER TO Q.NO. 30
Less: Cheques issued but not presented till 31st March 5,800
Transfer from fixed deposit 2,000

Direct deposit by M/s Rajesh Traders 400
Add: Cheques deposited but not cleared (5,800 - 2,000) 3,800
Dividend collected excess recorded (1,520 - 1,250) 270
Interest on overdraft 930
Corporation tax paid 1,200

ANSWER TO Q.NO. 31
In the Books of Mr. D
Dr Adjusted Cash Book (Bank Column only) Cr
31 31
To Dividend A/c 90 By Balance b/d 3,630
Mar Mar
To Error By Electric Charges A/c
(under casting in debit 300 (Cheque drawn for Rs. 182 wrongly 54
side) recorded as Rs. 128 )
To Balance c/d 3,732 By S. Gupta’s A/c 210
By Bank Interest 228
4,122 4,122
Bank Reconciliation Statement of Mr. D as at 31st March

Overdraft as per Adjusted Cash Book 3,732
Less: A cheque for Rs. 126 wrongly debited by Bank. 126
A lodgement not credited by Bank 1,080
Add: A cheque was issued in favour of Rath Associates not debited by Bank 1,560
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ANSWER TO Q.NO. 32
Dr. Adjusted Cash Book (Bank column) Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Interest received 400 By Balance b/d 5,000
By collection charges 100

By Bank interest 300
To Balance c/d 5,400 By customer 400

(cheque dishonoured)
5,800 5,800
Bank reconciliation statement as on 31st March

Bank Overdraft as per adjusted cash book 5,400
Less: Cheques deposited, but not cleared 1,200

Add: cheques issued but not encashed 2,400
ANSWER TO Q.NO. 33
Bank Reconciliation Statement of Shri Gupta as on 31st March
Bank overdraft as per cash book 30,000
Less : Cheques deposited but not collected 300
Debit in the pass book for interest on overdraft and bank charges not recorded 2,600
in the cash book (2,000 + 600)

Credit side of the bank column of the cash book undercast 100
Cheques issued to creditor not recorded in the cash book 1,000
Add : Cheques wrongly recorded in the credit side of the cash book 2,000
Cheques issued but not yet presented for payment 4,000
Dividend collected by the bank but not recorded in the cash book 500

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ANSWER TO Q.NO. 34
Bank Reconciliation Statement of Ajay Ghosh as on 31st March
Less :
Cheques entered in cash book but not banked 1,000
Cheques deposited but not collected 500
Cheques deposited but dishonoured 300
Add :
Cheques issued, not presented for payment 1,200
Bill collected, not entered in cash book 3,000
ANSWER TO Q.NO. 35
Bank Reconciliation Statement of Mr. Sircar
Less : Cheques deposited with the bank but not yet credited in pass book 8,505
Add : Cheques issued but not yet presented to bank for payment 12,500
Interest on fixed deposit credited by bank under standing instructions 650

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ANSWER TO Q.NO.36
Bank Reconciliation Statement of Shri Mehta as on 31st March
Bank balance as per bank statement (overdraft) 1,65,000

Less: Cheques issued but not presented for payment 87,500
Add: Cheques deposited with the bank but not collected 1,05,000
Cheques recorded in cash book but not sent to bank for collection 20,000
Bank balance as per adjusted cash book (overdraft) 1,27,500
Adjusted Cash Book

Dr. (Bank Column) Cr.
Date Particulars Rs. Date Particulars Rs.
31.3 To Balance b/d 29,600 31.3 By Bank charges 200
(balancing fig.)
To Customer 35,000 By Customer 30,100
To Balance c/d 1,27,500 By Drawings 1,800

(calculated from BRS) (insurance premium paid by bank)
By Error (overdraft balance 1,60,000
carried over as debit balance)
1,92,100 1,92,100
ANSWER TO Q.NO. 37:

Bank Reconciliation Statement of Ajay Ghosh as on 31st March
Less :
Bill collected but omitted to be entered in pass book 300

Pay off of bills payable not entered in cash book 600
Bank charges 30
Interest on overdraft 170

Add :
Direct deposit of rent into bank 340

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ANSWER TO Q.NO. 38:

Bank Reconciliation Statement of the trader as on 31st March
Particulars Amount (In Rs.)
Less: Cheques deposited with the bank but not yet credited by bank 20,000
Bank charges not yet recorded in the cash book 680
Add:
Interest on securities collected by the bank 2,560
Dividend collected by the bank 2,000
Cheques issued but not yet presented 74,800
ANSWER TO Q.NO. 39:

Bank Reconciliation Statement of Mr.Gupta as on 31st March
Debit Bank Balance 4,800
Less: Cheques deposited but not yet credited by bank 3,610
Bank charges appearing in pass book but not yet recorded in cash book 40
Add:
Cheques issued but not yet presented by payees for payment in the bank 2,050
Collections made by the bank and appearing in pass book but not yet 1,000
recorded in cash book
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ANSWER TO Q.NO. 40:

Bank Reconciliation Statement of the trader as on 31st March

Less: Cheques deposited with the bank on 31st March, but credited by bank 9,200
on 1st April
Bank Charges debited by bank 230
Add:
Cheques issued but not yet presented for payment 8,500
Dividend collected by bank on behalf of the trader 5,000

Wrong entry in cash book 1,000

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VALUATION OF INVENTORIES
Solutions
ANSWER TO Q.NO. 1
In the books of Manufacturer
Total No. of units purchased 2,600
Less: Total No. of units sold 1,600
Closing Stock 1,000
Statement showing the valuation of closing stock by FIFO Method

PARTICULARS Rs.
The value of 800 units @ Rs.47 37,600

Total 49,600
ANSWER TO Q. No. 2
Books of manufactures Stock ledger by LIFO
Date Receipts Issues Balance
Dec Qty Rate Amt Qty Rate Amt Qty Rate Amt
4 900 50 45000 - - - 900 50 45000

5 - - - 500 50 25000 400 50 20000
10 400 55 22000 - - - 400 50 20000

400 55 22000
11 300 55 16500 - - - 400 50 20000
400 55 22000
300 55 16500
19 200 60 12000 - - - 400 50 20000
400 55 22000
300 55 16500
200 60 12000
20 - - - 200 60 12000 400 50 20000
300 55 16500 300 55 16500
100 55 5500
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28 800 47 37600 - - - 400 50 20000

300 55 16500
800 47 37600
29 - - - 500 47 23500 400 50 20000
300 55 16500
300 47 14100
The closing stock consists of 1000 units for Rs. 50,600
ANSWER TO Q. No. 3
Closing Stock 1,000
Statement showing the valuation of closing stock by LIFO Method

Particulars Rs.
Total 50,500
ANSWER TO Q. No. 4
Closing Stock 1,000
Statement showing the valuation of closing stock by Simple Average Method

Particulars Rs.
50 + 55 + 55 + 60 + 47
Calculation of simple average price 53.4
5
The value of 1000 units @ 53.4 53,400
Total 53,400
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ANSWER TO Q. No. 5
Stock ledger by weighted Avg. Method
Dec Q P A Q P A Q P A
4 900 50 45000 - - - 900 50 45000
5 - - - 500 50 25000 400 50 20000
10 400 55 22000 - - - 800 52.5 42000

(WN1)
11 300 55 16500 - - - 1100 53.18 58498
19 200 60 12000 - - - 1300 54.23 70499

20 - - - 600 54.23 32538 700 54.23 37961
28 800 47 37600 - - - 1500 50.37 75562

29 - - - 500 50.37 1000 50.37 50370
Closing stock consists of 1000 units for Rs. 50,370
Working Note
1. (400 x 50) + (400 x 55) divided by 800 = 52.5
ANSWER TO Q. No. 6
Closing Stock 1,000
Statement showing valuation of closing stock by weighted Average Method
Particulars Rs.
The value of 1000 units at weighted average price of Rs.51.19 51,190

Value of Closing Inventory 51,190
- 24 -
Working note
1. Calculation of weighted average price:
Date Quantity Price PxQ
Dec 4 900 50 45000

Dec 10 400 55 22000
Dec 11 300 55 16500
Dec 19 200 60 12000
Dec 28 800 47 37600
2,600 1,33,100
Weighted Average Price = 133100 / 2600 = 51.19
ANSWER TO Q. No. 7
In the books of Hindustan Ltd.
Stock Ledger by FIFO Method
Date Receipts Issues Balance inventory
Mar Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
1 100 1.75 175
5 150 1.5 225 100 1.75 175

150 1.5 225
8 100 1.75 175 50 1.5 75
100 1.5 150
12 300 1.6 480 50 1.5 75
300 1.6 480
18 50 1.5 75 100 1.6 160
200 1.6 320
The value of Closing Stock of 100 units is 160
The value of issues of 450 units is 720
- 25 -
ANSWER TO Q.19.
Statement of Valuation of Stock as on 31st March, 2017
PARTICULARS Rs.
Value of stock as on 1st April, 2016 1,42,500
Add: Purchases 7,62,500
Add: Manufacturing expenses 1,50,000
Less: Cost of goods sold (WN 1) 9,92,500
Value of stock as on 31.3.2017 62,500
WORKING NOTE
Sales 12,45,000
Less: abnormal sales 45,000
Normal sales 12,00,000
Less: GP margin 20% 2,40,000
Cost of normal sales 9,60,000
Cost of abnormal sales (given) (50,000 – 17,500) 32,500
Cost of goods sold 9,92,500

- 26 -
ANSWER TO Q.20.
PARTICULARS Rs.
Value of stock as on 31.3.2017 6,72,000
WORKING NOTE
Sales 52,20,000
Less: abnormal sales 160000


Cost of abnormal sales (given) 1,40,000
ANSWER TO Q.NO.21
Statement showing the valuation of Inventory as on 30th September
Value of Inventory as on 10th October 1,67,500
Less: Cost of old moving items 1,125
Add: NRV of old moving items 525
Value of Inventory as on 30th September 1,66,900

- 27 -
ANSWER TO Q.NO. 22
Selling price of closing inventory = Rs. 50,000
Less: Gross profit Margin @ 20% = Rs. 10,000
Cost price of closing inventory = Rs.40,000
Calculation of gross profit margin:

Rs.
Sales 2,00,000
Add: Closing inventory (at selling price) 50,000
Less: Opening stock Nil
Less: Purchases 2,00,000
Gross Profit 50,000
Calculation of gross profit margin:

50,000
Rate of gross margin =  100 = 20%
2,50,000
ANSWER TO Q.NO. 23
PARTICULARS Rs.

Value of stock as on 31.3.2017 62,500
WORKING NOTE
Sales 12,45,000
Less: abnormal sales 45,000


Cost of abnormal sales (given) (50,000 – 17,500) 32,500
- 28 -
ANSWER TO Q.NO. 24
Statement showing the valuation of Inventory as on 31st March, 2016
Value of Inventory as on 10th April 1,67,500
Add: Cost of goods sold after 31st March till Inventory taking ( Rs.6,875 - Rs.1,719) 5,156
Less: Purchases for the next period (net) (8,100)
Value of Inventory 1,64,556
ANSWER TO Q.NO. 25
Profit and Loss Adjustment Account
To Advertisement 40,000 By Net profit 6,00,000

(samples)
To Sales (goods approved 1,00,000 By Electric fittings / Fixture & fittings 15,000
in April to be taken as (reduction in purchases will increase profit)
April sales: 75,000 + (it is presumed this cost shall be added to
25,000) the cost of shop and shall not be charged to
profit n loss)
By Samples 40,000
(reduction in purchases will increase profit)
By Stock (purchases of 2,50,000
March not included in stock)
By Sales (goods sold in 2,00,000
March wrongly taken
as April sales)
To Adjusted net profit 10,40,000 By Stock (goods sent 75,000
on approval basis not
included in stock)
11,80,000 11,80,000
Calculation of value of inventory on 31st March, 2016

Stock on 31st March, 2016 (given) 3,75,000
Add: Purchases of March, 2016 not included in the stock 2,50,000

(Since invoice is entered therefore no impact on profit, only on stock)
Goods lying with customers on approval basis 75,000
7,00,000
- 29 -
ANSWER TO Q.NO. 26
Statement of valuation of Inventory on 31st March, 2017
Rs. Rs.
Value of Inventory as on 15th April, 2017 5,00,000

Add: Cost of goods sold during the period between 31st March, 2017 to
15th April, 2017
Sales (Rs. 4,10,000 - Rs. 10,000) 4,00,000
Less: Gross Profit (20% of Rs. 4,00,000) 80,000 3,20,000
8,20,000
Less: Purchases during the period from 31st March, 2017 to 15th April, 2017 50,340
7,69,660
ANSWER TO Q.NO. 27
Statement of Valuation of Stock on 30th June, 2016
Value of stock as on 23rd June, 2016 48,00,000
Add: Stock of the goods sent on consignment 2,40,000
Purchases during the period from 23rd June, 2016 to 30th June 4,00,000
Less: Cost of sales
Sales (Rs. 13,60,000 - Rs. 3,20,000) 10,40,000

Less: Gross profit
20% X (Rs. 13,60,000 - Rs. 3,20,000 – Rs.1,20,000) = 1,84,000
Less: loss on abnormal sales = 1,20,000
Gross profit 64,000 9,76,000
Value of stock as on 30th June, 2016 44,64,000
ANSWER TO Q.NO. 28
Statement of Valuation of Physical Inventory
Rs.
Value of Inventory as per books / perpetual inventory 1,50,000

Add: Goods Purchased and included in the physical stock but no entry was made in 10,000
the books
Add: Goods were sold and entered in the books but the stock is yet to be delivered 30,000
Less: Goods were returned to the suppliers but is omitted to be recorded 5,000
Value of the physical inventory 1,85,000

- 30 -
ANSWER TO Q.NO. 29
Calculation of value of inventory

Units Rate Amount Units Rate Amount Units Rate Amount

April 01 Opening 50 44 2,200
Stock
April 02 Purchases 100 47 4,700 150 46 6,900
April 02 Issued 50 46 2,300 100 46 4,600
Closing stock = 100 Units x 46 = 4,600
ANSWER TO Q.NO. 30
Statement of Valuation of Physical Stock as on 31st March, 2016
Rs.
Value of stock as on 9th April, 2016 2,50,000
Add: Cost of sales during the intervening period
Sales 17,200
Less: Gross profit @25% on sales (4,300) 12,900
Less: Purchases actually received during the intervening period:
Purchases from 1.4.2016 to 9.4.2016 1,200

Less: Goods not received upto 9.4.2016 (500) 700
Less: Purchases during March, 2016 received on 4.4.2016 1,000
Value of physical stock as on 31.3.2016 2,61,200

- 31 -
DEPRECIATION ACCOUNTING
Solutions
ANSWER TO Q.1.
Machinery Account
AMOUNT AMOUNT
DATE PARTICULARS DATE PARTICULARS
IN RS. IN Rs.
2015 2015
By Depreciation A/c
July 1 To Bank A/c 15,00,000 Dec. 31 (15,00,000 X 10% X 75,000
6/12)
15,00,000 15,00,000
2016 2016
By Depreciation A/c
Jan. 1 To Balance b/d 14,25,000 Dec. 31 1,50,000
(15,00,000 X 10%)
14,25,000 14,25,000
Depreciation Account
AMOUNT AMOUNT
IN RS. IN Rs.
2015 2015
Dec. 31 To Machinery A/c 75,000 Dec. 31 By Profit & Loss A/c 75,000
75,000 75,000
2016 2016
Dec. 31 To Machinery A/c 1,50,000 Dec. 31 By Profit & Loss A/c 1,50,000
1,50,000 1,50,000
- 32 -
ANSWER TO Q.2.
AMOUNT AMOUNT
IN Rs. IN Rs.
2015 2015
By Depreciation A/c
July 1 To Bank A/c 15,00,000 Dec. 31 (15,00,000 X 10% X 75,000
6/12)
15,00,000 15,00,000
2016 2016
By Depreciation A/c
Jan. 1 To Balance b/d 14,25,000 Dec. 31 1,42,500
(14,25,000 X 10%)
14,25,000 14,25,000
ANSWER TO Q.3.
Dep for I yr
1,00,000 − 10,000
=  5000 = 6250
72,000
1,00,000 − 10,000
II yr =  10,000 = 12500
72,000
1,00,000 − 10,000
III yr  12,000 = 15000
72,000
1,00,000 − 10,000
IV yr  20,000 = 25000
72,000
ANSWER TO Q.4.
1,10,000 − Nil
III =  5000 = 55000
10,000
- 33 -
ANSWER TO Q.5.
SLMDEp
SLM Dep rate =  100
OC
1,00,000 − 20,000
I Dep = = 10,000
8
10,000
Dep rate =  100 = 10%
1,00,000
31000 − 310
II Dep = 4650
6
4650
Dep rate =  100 = 15%
31000
III 30%
IV 16%
ANSWER TO Q.NO. 6
Quarry Lease Account
2013 2013
By Depreciation A/c
Jan To Bank A/c 1,00,00,000 Dec. 31 [(2,000/2,00,000) 1,00,000
 Rs.1,00,00,000]
1,00,00,000 1,00,00,000
Jan. 1
To Balance b/d 99,00,000 Dec. 31 By Depreciation A/c 5,00,000
14
99,00,000 99,00,000
Jan.1, Dec. 31,
To Balance b/d 94,00,000 By Depreciation A/c 7,50,000
15 15
94,00,000 94,00,000
- 34 -
Dec. 31 To Quarry lease A/c 1,00,000 Dec. 31 By Profit & Loss A/c 1,00,000
1,00,000 1,00,000
Dec.31 To Quarry lease A/c 5,00,000 Dec.31 By Profit & Loss A/c 5,00,000
5,00,000 5,00,000
Dec.31 To Quarry lease A/c 7,50,000 Dec.31 By Profit & Loss A/c 7,50,000
7,50,000 7,50,000
ANSWER TO Q. No. 7
Statement of Annual Depreciation under Machine Hours Rate Method
Year Annual Depreciation
3,000
1-3  (Rs.30,00,000 – Rs.2,00,000) = Rs.3,50,000
24,000
2,600
4-6  (Rs.30,00,000 – Rs.2,00,000) = Rs.3,03,333
24,000
1,800
7-10  (Rs.30,00,000 – Rs.2,00,000) = Rs.2,10,000
24,000
- 35 -
ANSWER TO Q.8.
In the books of M/s Akash & Co.

Machinery Account
2015 2015
Jan. 1 To Balance b/d 3,60,000 Dec.31 By Depreciation 80,000
(WN 1) A/c (WN 2)
Dec.31 By Balance c/d 2,80,000
3,60,000 3,60,000
2015 2015
Dec. 31 To Machinery A/c 80,000 Dec. 31 By Profit and Loss A/c 80,000
80,000 80,000
Working Notes:
(1) Total of sum of digit of depreciation for 2010-2014
= (Rs. 10,00,000 - Rs. 1,20,000) × 10 + 9 + 8 +7 + 6

10 (10 + 1)
2
40
= Rs. 8,80,000 × = Rs. 6,40,000
55
Written down value as on 1-1-2015
Rs.10,00,000 – Rs.6,40,000 = Rs.3,60,000
(2) Depreciation for 2015
(Rs. 10,00,000 – Rs. 1,20,000) × 5 / 55 = Rs. 80,000

- 36 -
ANSWER TO Q.9.
Year Annual Depreciation

1-3 20,000
 ( Rs.20,00,000 - Rs.2,00,000) = Rs.2,40,000
1,50,000
4-7 15,000
 ( Rs.20,00,000 - Rs.2,00,000 ) = Rs.1,80,000
1,50,000
8 - 10 10,000
 ( Rs.20,00,000 – Rs.2,00,000) = Rs.1,20,000
1,50,000
ANSWER TO Q.10.
Books of Firm
Machinery Account
2015 2015
Jan. 1 To Bank A/c 6,00,000 Dec. 31 By Depreciation A/c 70,000
July 1 To Bank A/c 2,00,000 By Balance c/d 7,30,000
8,00,000 8,00,000
2016 2016
Jan. 1 To Balance b/d 7,30,000 July 1 By Depreciation on 27,000

sold machine
July 1 To Bank A/c 4,00,000 By Bank A/c 3,86,000
By Loss on sale of 1,27,000

machinery A/c
Dec. 31 By Depreciation A/c 39,000
11,30,000 11,30,000
- 37 -
Working Note:
Book Value of Machines
Machine Machine Machine
I II III
Rs. Rs. Rs.
Cost 6,00,000 2,00,000 4,00,000
Depreciation for (60,000) (10,000)
2014
Written down value 5,40,000 1,90,000
Depreciation for (27,000) (19,000) (20,000)
2016
Written down value 5,13,000 1,71,000 3,80,000
Sale Proceeds (3,86,000)
Loss on Sale 1,27,000
ANSWER TO Q.NO. 14
Total Cost of Asset = Purchased Price + Cost of Cartage and Installation

= Rs. 7,00,000 + Rs. 3,00,000 = Rs. 10,00,000
SLM Depreciation = Total Cost of Asset × Rate of Depreciation × Time period
Accordingly,
(a) If the machine was purchased on 1st April, 2012:
12
Amount of Depreciation = Rs. 10,00,000 × 20% × = Rs. 2,00,000
12
(b) If the machine was purchased on 1st July, 2012

9
12
(c) If the machine was purchased on 1st October, 2012

6
12
(d) If the machine was purchased on 1st January, 2013

3
Amount of Depreciation = Rs. 10,00,000 × 20% × = Rs. 50,000
12
- 38 -
ANSWER TO Q.NO. 15
Dr. Machinery Account Cr.
Rs. Rs.
01.01.11 To Bank A/c 80,000 31.12.11 By Depreciation A/c 8,000
By Balance c/d 72,000
80,000 80,000
01.01.12 To Balance b/d 72,000 31.12.12 By Depreciation A/c 9,200
01.07.12 To Bank A/c 40,000 By Balance c/d 1,02,800
1,12,000 1,12,000
01.01.13 To Balance b/d 1,02,800 31.3.13 By Bank (Sale) A/c 11,000
30.06.13 To P & L A/c 2,076 By Depreciation A/c 285

(Profit on Sale)
To Bank A/c 20,000 30.6.13 By P & L A/c (Loss on 115
Sale)
By Bank A/c (Sale) 26,700
31.12.13 By Depreciation A/c 1,296
By Depreciation A/c 7,048
By Balance c/d 78,432
1,24,876 1,24,876
ANSWER TO Q.NO. 16
The amount of depreciation to be charged in year 2012 = Rs.4,500
Machinery I purchased on 01 Jan 2012:

Cost = Acquisition + Installation charges = Rs.90,000
Depreciation for 2012 @ 10% for 6 months = 90,000 X 10% X 6/12 = Rs.4,500
Machinery II is purchased on last day of the year. Therefore, no depreciation shall be charged in this
year. Depreciation on this machinery shall commence from next year.
- 39 -
ANSWER TO Q.NO. 20
Cost as per supplier’s list Rs.10,40,000
Less: Agreed discount Rs.1,00,000 Rs.9,40,000
Add: Delivery charges Rs.20,000

Add: Erection charges Rs.40,000
Add: Additional components to increase capacity of the machine Rs.80,000
Cost of the machine 10,80,000
Depreciation for the third year by WDV:

10,80,000 – 10% - 10% X 10% = 87,480
ANSWER TO Q.NO. 21
Depreciation for the current year: 1,16,700
On old machinery = WDV of old machinery – scrap
Remaining life
= 5,67,000 – nil / 5 = 1,13,400
On new machinery = Cost of machinery – scrap

Remaining life = 66,000 – nil / 10 = 6,600
6 months depreciation = 6,600 / 2 = 3,300
ANSWER TO Q. No. 23
Particulars Rs.
Depreciation per year = Rs.6,00,000 / 10 Rs.60,000
Depreciation on SLM for three years = Rs.60,000 x 3 Rs.1,80,000

Book value of machine at the end of third year =
Rs.4,20,000
Rs.6,00,000 – Rs.1,80,000
Remaining useful life as per revised estimate 5 years
Depreciation from the fourth year onwards = Rs.4,20,000 / 5 = Rs.84,000 per annum
- 40 -
ANSWER TO Q.NO. 26
Machinery A/c
Jul-01, To Bank A/c 6,40,000 Dec-31, By Depreciation A/c (780000 78,000

2014 2014 X 20% X 6/12)
Jul-01 To Bank A/c 80,000 Dec-31 By balance c/d 7,02,000
Jul-01 To Bank A/c 60,000
7,80,000 7,80,000
Jan-01 To balance b/d 7,02,000 Dec-31 By Depreciation A/c 1,76,000

(780000 X 20%)
(100000 X 20%)
Jan-01 To Bank A/c 1,00,000 Dec-31 By balance c/d 6,26,000
8,02,000 8,02,000
2016 2016
Jan-01 To balance b/d 6,26,000 Jul-01 By Bank A/c 1,34,800
To Bank A/c 50,000 Jul-01 By Depreciation A/c (On 26,000
machinery sold)
Jul-01 By Profit & Loss A/c 21,200
Dec-31 By Depreciation A/c 1,29,000

(520000 x 20%)
(100000 x 20%)
(50,000 x 10%)
Dec-31 By balance c/d 3,65,000
6,76,000 6,76,000
The method of machinery sold as on 1.7.2016 may be obtained as follow:
Rs.
Cost of machinery sold as on 1.7.2014 2,60,000
Less: Depreciation for 2014 (for ½ year) (26,000)

Less: Depreciation for 2015 (52,000)
Less: Depreciation for 2016 (for ½ year) (26,000)

1,56,600
Less: Amount received (1,34,800)
21,200
- 41 -
ANSWER TO Q.NO. 27
MOTOR TRUCK ACCOUNT
2016 To balance b/d 2,92,50,000 2016 By bank A/c 27,00,000
Jan-01 (WN 1) Oct-01
Oct-01 To Profit & Loss A/c 4,50,000 Oct-01 By Depreciation on 6,75,000
(WN 2) asset sold
Oct-01 To Bank A/c 50,00,000 Oct-01 By Depreciation A/c 83,50,000
(WN 3)
Dec-31 By balance c/d 2,29,75,000
3,47,00,000 3,47,00,000
2017 To balance b/d 2,29,75,000 2017 By Depreciation A/c 91,00,000
Jan-01 Dec-31 (WN 4)
Dec-31 By balance c/d 1,38,75,000
2,29,75,000 2,29,75,000
Working Note:
1. Balance b/d = Dep for 2014 = (45,00,000 x 10) x 20% x 9/12 = 67,50,000
Dep for 2015 = (45,00,000 x 10) x 20% = 90,00,000
Balance = 4,50,00,000 – 67,50,000 – 90,00,000 = 2,92,50,000
2. To find out loss on Profit on settlement of truck

Rs.
Original cost as on 1.4.2014 45,00,000
Less: Depreciation for 2014 (6,75,000)
38,25,000
Less: Depreciation for 2015 (9,00,000)
29,25,000
Less: Depreciation for 2016 (9 months) (6,75,000)
22,50,000
Less: Amount received from Insurance (27,00,000)
company
4,50,000
3. Depreciation for 2016 = 45,00,000 x 9 trucks x 20% = 81,00,000

Depreciation on new truck = 50,00,000 x 20% x 3/12 = 2,50,000
TOTAL DEPRECIATION = 83,50,000
4. Depreciation for 2017 = 45,00,000 x 9 trucks x 20% = 81,00,000

Depreciation on new truck = 50,00,000 x 20% = 10,00,000
TOTAL DEPRECIATION = 91,00,000
- 42 -
ANSWER TO Q.NO. 29
Depreciation per year = 12,25,000 – 25,000 / 10 = 1,20,000
Depreciation for 4 years (2010 – 2013) = 1,20,000 X 4 = 4,80,000
Cost to be allocated = 12,25,000 – 4,80,000 + 2,00,000 = 9,45,000
Depreciation for 2014 = 9,45,000 – 25,000 / 6 = 1,53,333

- 43 -
Preparation of final accounts

of sole proprietors
Solutions
ANSWER TO Q.NO. 1
In the books of M/s. ABC Traders
Trading Account for the year ended 31st March, 2016
Rs. Rs. Rs. Rs.
To Opening Inventory 1,00,000 By Sales 11,00,000 10,00,000

Less : Returns Inward (1,00,000)
To Purchases 6,72,000 By Closing Inventory 2,00,000
Less : Returns outward (72,000)
6,00,000
To Carriage Inwards 30,000
To Wages 50,000
To Gross profit 4,20,000
12,00,000 12,00,000
Journal Proper in the Books of M/s. ABC Traders

Date Particulars Debit Amount Credit Amount
2017 Rs. Rs.
Mar. 31 Returns outward A/c Dr. 72,000
To Purchases A/c 72,000
(Being the transfer of returns to purchases

account)
- 44 -
Sales A/c Dr. 1,00,000

To Returns Inward A/c 1,00,000
(Being the transfer of returns to sales account)
Sales A/c Dr 10,00,000
To Trading A/c 10,00,000

(Being the transfer of balance of sales account to
trading account)
Trading A/c Dr. 7,80,000

To Opening Inventory A/c 1,00,000
To Purchases A/c 6,00,000
To Wages A/c 50,000
To Carriage Inwards A/c 30,000

(Being the transfer of balances of opening
Inventory, purchases and wages accounts)
Closing Inventory A/c Dr. 2,00,000

(Being the incorporation of value of closing

Inventory)
Trading A/c Dr. 4,20,000

To Gross Profit 4,20,000
(Being the amount of gross profit) Dr.
Gross profit 4,20,000

To Profit and Loss A/c 4,20,000
(Being the transfer of gross profit to Profit and
Loss Account)
- 45 -
ANSWER TO Q.NO. 2
In the Books of M/s. ABC Traders
Profit and Loss Account for the year ended 31st March, 2016
To Salaries 1,10,000 By Gross Profit 4,20,000
To Legal Charges 25,000 By Discount received 18,000
To Consultancy Fees 32,000
To Audit Fees 1,000
To Electricity Charges 17,000
To Telephone, Postage &Telegrams 12,000
To Stationery 27,000
To Depreciation 65,000
To Discount Allowed 19,000
To Bad Debts 17,000
To Interest 70,000
To Net Profit 43,000
4,38,000 4,38,000
- 46 -
Journal Proper in the Books of M/s. ABC Traders
Date Particulars Amount Amount
2016 Rs. Rs.
March 31 Profit & Loss Account Dr. 3,95,000
To Salaries A/c 1,10,000

To Legal Charges A/c 25,000
To Consultancy Fees A/c 32,000
To Audit Fees A/c 1,000
To Electricity Charges A/c 17,000
To Telephone, Postage & Telegrams A/c 12,000
To Stationery A/c 27,000

To Depreciation A/c 65,000
To Discount Allowed A/c 19,000
To Bad Debts A/c 17,000

To Interest A/c 70,000
(Being the transfer of balances of various expenses
accounts)
Discount Received A/c Dr. 18,000
To Profit & Loss A/c 18,000

(Being the transfer of discount received account balance)
Gross Profit A/c Dr. 4,20,000
To Profit & Loss A/c 4,20,000
(Being the transfer of gross profit from Trading Account)
Profit & Loss A/c Dr. 43,000

To Net Profit A/c 43,000
(Being the ascertainment of net profit)
Net Profit A/c Dr. 43,000
To Capital A/c 43,000
(Being the transfer of net profit to Capital A/c)

- 47 -
ANSWER TO Q.NO. 4
Date Particulars L.F. Rs. Rs.
2017
Dec. Trading Account Dr. 30,20,000

31
To Inventory Account 2,00,000
To Purchase A/c 18,20,000

To Wages A/c 10,00,000
(Being the accounts in the Trial Balance which have to be

transferred to the Trading Account debit side)
Dec. Sales Account Dr. 50,00,000
31
(Being the amount of Sales transferred to the credit of
Trading Account)
Dec. Inventory (Closing) A/c Dr. 2,70,000
31
(Being the value of Inventory on hand on 31st Dec. 2016)
Dec. Trading A/c Dr. 22,50,000

31
To Profit and Loss A/c 22,50,000
(Being the transfer of gross profit.)

Dec. Profit and Loss A/c Dr. 16,50,000
31
To Discount Allowed Account 50,000
To Salaries A/c 10,00,000
To Sundry Office Expenses A/c 6,00,000
(Being the various expense accounts transferred to the P

& L Account)
Dec. Discount Received A/c Dr. 30,000
31
To P & L Account 30,000
(Being the credit balance of discount received transferred
to Profit and Loss A/c)
Dec.31 Profit and Loss A/c Dr. 6,30,000
To Capital A/c 6,30,000
(Being the transfer to Net Profit to the Capital Account)
1,28,50,000 1,28,50,000
- 48 -
Trading Account of the year ended December 31, 2017
To Inventory A/c 2,00,000 By Sales A/c 50,00,000
To Purchases 18,20,000 By Inventory (Closing) 2,70,000
To Wages 10,00,000
To Gross profit transferred. 22,50,000

to P & L A/c
52,70,000 52,70,000
Profit and Loss Account for the year ended December 31, 2017
To Salaries 10,00,000 By Gross profit transferred. From

the Trading Account 22,50,000
To Discount Allowed 50,000 By Discount Received 30,000
To Sundry Office Expenses 6,00,000
To Net Profit transferred to

Capital A/c 6,30,000
22,80,000 22,80,000
- 49 -
ANSWER TO Q.NO. 5
Trading Account for the year ended 31st March
Dr. Cr.
To opening Stock A/c 10,000 By Sales A/c 2,00,000

To Purchases A/c 2,00,000 Less: Returns 5,000 1,95,000
Less: Returns 2,500 1,97,500 By Closing Stock A/c 20,000
To Carriage Inwards A/c 1,500 By Gross Loss transferred to Profit 7,500

and Loss A/c
To Freight inwards A/c 2,500
To Clearing Charges A/c 11,000

2,22,500 2,22,500
Note: Carriage Outwards will be charged to the Profit and Loss Account.
ANSWER TO Q.NO. 6
Dr. Cr.
To Opening Stock A/c 1,50,000 By Sales A/c:
To Purchase A/c Cash Sales 1,60,000
Cash Purchases 1,50,000 Credit Sales 11,00,000
Credit Purchases 9,00,000 12,60,000
10,50,000 Less: Return Inwards 20,000 12,40,000
Less: Returns Outward 10,000 10,40,000 By Closing Stock A/c (Valued at 84,000
cost or market value whichever is
less)
To Freight Inwards A/c 3,000
To Carriage Inwards A/c 3,000
To Wages and Salaries A/c 4,000
To Gross Profit tfd. to P & L A/c 1,24,000
13,24,000 13,24,000
- 50 -
ANSWER TO Q.NO. 7
Trading and Profit and Loss Account of Mr. X
For the year ended 31st March, 2012
Dr. Cr.
To Opening Stock Account 40,000 By Sales Account 1,27,500

Less: Returns 2,000 1,25,500
To Purchases Account 60,000 By Closing Stock Account 35,000
Less: Returns 1,275 58,725
To wages Account 10,000
To Freight Inwards Account 1,000
To Gross Profit c/d 50,775
1,60,500 1,60,500
To Discount Allowed Account 450 By Gross Profit b/d 50,775

To Salaries Account 7,000 By Discount Received Account 800
To Freight outwards Account 1,200
To Rent, Rates and Taxes Account 2,000
To Advertisements Account 2,000
To Net profit transferred to Capital 38,925

Account
51,575 51,575
Balance Sheet
As at 31st March, 2012
Liabilities Rs. Assets Rs.
Sundry Creditors 25,000 Cash at Bank 7,000
Capital: Sundry Debtors 45,000
Opening Balance 1,13,075 Closing Stock 35,000
Add: Net Profit 38,925 1,52,000 Plant and Machinery 90,000

1,77,000 1,77,000
- 51 -
ANSWER TO Q.NO. 8
In the books of Mr. Mohan
To Opening Inventory 1,10,000 By Sales 9,70,000

Less: Returns (20,000) 9,50,000
Less: Returns (12,000) 4,18,000
To Freight Inwards 40,000

11,30,000 11,30,000
Profit and Loss Account for the year ended 31st March
To Depreciation 35,000 By Gross profit 5,62,000

To Salaries 2,10,000 By Discount received 9,000
To Administration expenses 1,50,000
To Discount allowed 19,000
To Bad debts 5,000
To Net profit 1,52,000

5,71,000 5,71,000
Balance Sheet as on 31st March

Liabilities Amount Assets Amount
Rs. Rs.
Capital 6,50,000 Furniture 3,50,000
Add: Net profit 1,52,000 8,02,000 Less: Depreciation (35,000) 3,15,000

Trade payables 1,90,000 Closing Inventory 1,80,000
Trade receivables 2,10,000
Investment in Govt 1,00,000

securities
Cash in Hand and Cash 1,87,000
at Bank
9,92,000 9,92,000
- 52 -
ANSWER TO Q.NO. 10
Books of C. Wanchoo
Dr. Cr.
To Stock Account 2,000 By Sales Account 50,000
To Purchases Account 15,000 By Closing Stock Account 2,700
To Wages Account 10,000
To Fuel and Power Account 3,000
To Factory Lighting Account 200
To Gross Profit Transferred to Profit and Loss Account 22,500
52,700 52,700
Profit and Loss Account

For the year ended 31st March
Dr. Cr.
To Salaries Account 7,000 By Gross Profit 22,500
To Discount Allowed Account 500 By Discount Received Account 300
To Advertisement Account 5,000
To Sundry Office Expenses Account 4,000
To Net Profit 6,300
22,800 22,800
- 53 -
ANSWER TO Q.NO. 11
In the books of Shri Mittal
Trading Account
for the year ended 31st March, 2017
Rs. Rs.
To Opening inventory 72,000 By Sales 12,10,000
Less: Returns (40,000) 11,70,000
To Purchases 6,05,000 By Closing inventory 1,00,000
Less: Returns (30,000) 5,75,000
12,70,000 12,70,000

Rs. Rs.
To Salaries 2,70,000 By Gross profit 6,23,000
To Advertisement 1,10,000
To Other expenses 60,000

6,23,000 6,23,000
Balance Sheet as on 31st March, 2017

Liabilities Rs. Amount Rs. Assets Amount Rs.
Capital 8,70,000 Building 8,90,000
Add: Net profit 1,83,000 10,53,000 Furniture 4,50,000

14% Bank Loan 2,00,000 Trade receivables 90,000
Trade payables 1,70,000 Closing inventory 1,00,000
Overdrafts 1,12,000 Cash in hand 5,000

15,35,000 15,35,000
Note: As loan and overdraft taken at year end so no interest shown.
- 54 -
ANSWER TO Q.NO. 12
Trading and Profit and Loss Account
for the year ending 31st March
To Wages 3,00,000
27,00,000 27,00,000
To Bad Debts 50,000 By Gross Profit 6,50,000
To Depreciation 1,50,000
To Salaries 2,20,000
To Net Profit transferred to Capital A/c 2,30,000
6,50,000 6,50,000
Balance Sheet as at 31st March
Liabilities Rs. Rs. Assets Rs.
Trade payables 9,00,000 Cash in Hand 5,60,000
Capital: Trade receivables 3,50,000
Previous Balance 25,00,000 Closing Inventory 10,00,000

Add : Net Profit 2,30,000 27,30,000
Furniture & Fixtures 1,50,000
Plant & Machinery 15,70,000
36,30,000 36,30,000
- 55 -
ANSWER TO Q.NO. 13
Trading and Profit and Loss Account
For the year ended 31st March
Dr. Cr.
To Opening Stock Account 9,600 By Sales Less Returns Account 24,900

To Purchase Less Returns Account 11,850 By Closing Stock Account 3,500
To Wages and Salaries Account 3,200
To Commission on Purchases Account 200
To Freight Account 300

28,400 28,400
To Trade Expenses Account 20 By Gross Profit b/d 3,250
To Rent Account 200 By Discount on Purchases Account 400
To Bad Debts Account 500
To Repairs to Plant Account 160

To Net Profit 2,770
3,650 3,650
Balance Sheet of Mohan

As at 31st March
Capital: Plant 2,000
Opening Balance 5,000 Closing inventory 3,500

Add: Net Profit 2,770
Less: Income Tax 550
Drawings 650 6,570
Loan 900 Debtors 4,000
Bills Payable 500 Bills Receivable 600

Creditors 2,330 Cash in hand and at Bank 200
10,300 10,300
- 56 -
ANSWER TO Q.NO. 14
In the Books of M/s Dayal Bros.
Balance Sheet
as on 31st March, 2017
Liabilities Rs. Amount Rs. Assets Amount Rs.
Capital: Opening Balance 7,00,000 Land & Building 3,00,000

Add: Net Profit 1,00,000
Less: Drawings (60,000) 7,40,000
Trade payables 40,000 Furniture 2,00,000
14% Term Loan 4,00,000 Inventories in Trade 6,00,000
Loan from M/s D & Co 4,60,000 Trade receivables 4,20,000
Advance to suppliers 1,00,000
Cash in Hand 20,000
16,40,000 16,40,000
ANSWER TO Q.NO. 16
Books of Mr.Popatlal
Opening entry
(Dr.) Rs. (Cr.) Rs.
1.4.2017 Fixed Assets A/c Dr. 1,25,600
Inventories A/c Dr. 2,06,400
Trade receivables A/c Dr. 1,88,000
Cash A/c Dr. 36,200
To Trade payables A/c 1,64,000
To Bank Overdraft A/c 1,46,000
To Provision for Doubtful Debts A/c 6,200

- 57 -
ANSWER TO Q.NO. 17
1) Computation of Net Profit:
Commission Manager = Rate of Commission X Net Profit before charging such commission
So, Commission to manager = 10/100 X Net Profit before charging such commission
=> Rs. 2,00,000 = 10/100 X Net Profit before charging such commission
=> Net Profit before charging such commission = Rs.20,00,000
=> Net Profit (F) = Rs. (20,00,000 - 2,00,000) = Rs.18,00,000
2) Computation of Selling Expenses:
Total income appearing in P&L A/c = Rs.60,00,000
Total expenses other than selling expenses = Rs. (26,00,000 + 13,00,000 + 2,00,000)
= Rs.41,00,000
So,
Selling Expenses + Remaining Expenses + Net Profit = Total Income
=> Selling Expenses = Rs.60,00,000 - Rs.41,00,000 - Rs.18,00,000

=> Selling Expenses = E = Rs.1,00,000
3) Computation of Sales:
We have been given selling expenses amount to 1% of Sales

Selling Expenses
100
So, Sales = 1
=A
= Rs. 100,00,000
- 58 -
4) Computation of Gross Profit:
Sales - COGS
So, Gross Profit (B) = Rs.55,00,000
5) Miscellaneous Income = Total Income in P&L - Gross Profit
= Rs. (60,00,000 - 55,00,000)
= Rs.5,00,000 = D
C = Rs.100,00,000
G = Rs.60,00,000
ANSWER TO Q.NO. 19
Rs.
(i) Salaries to be charged to profit and loss account for the year ended 31st
December, 2016:
Salaries of 8 employees for 12 months @ Rs.33,000 p.m. each 31,68,000
Salaries of 2 trainees for 6 months @ Rs.21,000 p.m. each 2,52,000
34,20,000
(ii) Salaries actually paid in 2016
Salaries of 8 employees for January to November, 2016 paid in February-December, 29,04,000

2016 @ Rs.33,000 for 11 months
Salaries of 2 trainees for July to November paid in August to December @ Rs.21,000 2,10,000
for 5 months
December, 2015 salary paid in January, 2016 2,40,000
(8 employees x 30,000)
33,54,000
(iii) Outstanding salaries as at 31st December, 2016

8 employees @ Rs.33,000 each for 1 month 2,64,000
2 trainees @ Rs.21,000 each for 1 month 42,000
3,06,000
- 59 -
ANSWER TO Q.NO.20:
Calculation of Cost of Goods sold:
Particulars Rs.
Opening Stock 2,00,000
Add: Purchases (Closing stock already adjusted)* 10,00,000
12,00,000
*Since, closing stock appears in Trial Balance, it means following entry has already been passed in
books:
Closing Stock A/c Dr. 3,00,000
To Purchases A/c 3,00,000
Therefore no more adjustment needs to be made on account of closing stock for computing Cost of
goods sold (COGS).
ANSWER TO Q.NO.21:
The Opening Entry : 01-01-2017
Dr.(Rs.) Cr.(Rs.)
Cash A/c Dr. 43,000

Bank A/c Dr. 2,67,500
Trade receivables Dr. 7,49,500
Inventory A/c Dr. 9,00,000
Machinery and Equipment A/c Dr. 6,00,000
To Mahendra & Sons A/c 5,60,000
(Being the balances brought forward)
25,60,000 25,60,000
- 60 -
ANSWER TO Q.NO.22:
i) Computation of Income for the year 2016-17:
Rs.
Money received during the year related to 2016-17 5,00,000
Add: Money received in advance during previous years 1,50,000
Total income of the year 2016-17 6,50,000
ii) Advance from Customers A/c

To Sales A/c 1,50,000 1.4.2016 By Balance b/d 2,00,000

(Advance related to current
year transferred to sales)
31.3.17 To Balance c/d 1,70,000 By Bank A/c 1,20,000
(Balancing Figure)
3,20,000 3,20,000
So, total money received during the year is:

Rs.
Cash Sales during the year 5,00,000
Add: Advance received during the year 1,20,000
Total money received during the year 6,20,000

- 61 -
ANSWER TO Q.NO. 23
In the Books of Mr. Vimal
Manufacturing Account for the Year ended 30.6.2016
Particulars Units Amount Particulars Units Amount
Rs. Rs.
To Opening Work- in Process 10,000 16,000 By Closing Work- in 12,000 20,000

Process
To Raw Materials Consumed: By Trading A/c – Cost 5,00,000 19,00,800
Opening 1,70,000 of finished goods
Add: Purchases 8,20,000 produced during the
Less: Closing 1,90,000 year
8,00,000
To Direct Wages (W.N.1) 4,04,800
To Direct expenses:
Hire charges of machine 3,00,000

(W.N.2)
PRIME COST 15,04,800
To Indirect expenses:
Hire charges of Factory Shed 2,20,000
Repairs Maintenance 1,80,000
OVERHEADS 400,000
19,20,800 19,20,800
Working Notes :
(1) Direct Wages: 5,00,000 units @ Rs. 0.80 Rs. 4,00,000
12,000 units @ Rs. 0.40 Rs. 4,800
Rs.4,04,800
2) Hire charges on Machinery: 5,00,000 units @ Rs. 0.60 Rs.3,00,000

- 62 -
ANSWER TO Q.NO. 24
In the Books Of Mr.Pankaj
Manufacturing Account
For the year ended on 31.03.2016
Particular Amount Particulars Amount
Rs. Rs.
To Opening W.I.P 3,90,000 By Closing Work in 5,07,000
Progress
To Raw Material Consumed: By By - products 20,000

Opening Inventory 3,02,000
Less: Return 18,000
Less: Closing inventory 3,10,000 11,84,000
To Direct Wages 2,10,000 By Trading A/c- 13,21,000
Cost of finished
Goods transferred
Prime cost 13,94,000
To Indirect Material 16,000
To Indirect wages 48,000
Overheads 64,000
18,48,000 18,48,000
- 63 -
ANSWER TO Q.NO.25:
Trading and Profit & Loss Account for the period ended 31st March, 2012
To Opening Stock 11,520 By Sales 1,97,560
Less: Returns (1,360) 1,96,200
To Purchases 80,350 By Closing Stock 13,600
To Wages 20,960
Less: Erection of Shed (4,000) 16,960
To Carriage 4,080
To Fuel & Power 9,460
2,09,800 2,09,800
To Carriage Outward 6,400 By Gross Profit b/d 87,430

To Salaries 30,000
Add: Outstanding 3,000 33,000
To General Expenses 6,000
To Insurance 1,200
Less: Prepaid (170) 1,030
To Provision for Doubtful Debts 1,450
To Net Profit t/f to Capital A/c 32,550

87,430 87,430
Balance Sheet as at 31st March, 2012

Creditors 12,600 Cash in hand 1,080
Outstanding Salaries 3,000 Cash at bank 5,260
Capital: Debtors 29,000
Less: Provision (1,450) 27,550
Opening Balance 1,42,000 Prepaid Insurance 170
Add: Net Profit 32,550 Closing Stock 13,600
Less: Drawings (10,490) 1,64,060 Building (Rs.60,000 + Rs.4,000) 64,000
Land 20,000
Machinery 40,000
Less: Depreciation (4,000) 36,000
Patents 15,000
Less: Depreciation (3,000) 12,000
1,79,660 1,79,660
- 64 -
ANSWER TO Q.NO. 26
Books of M/s Govaskar, Viswanath & Co.
Trading for the year ended 31st March 2017
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening stock 6,20,000 By sales (WN 4) 22,44,000
To Purchases (WN 8) 13,34,000 By closing stock 4,40,000
To Freight on purchases 12,000
26,84,000 26,84,000
To Provision for debts (WN1) 33,000 By Gross profit 7,18,000
To Depreciation (WN5) 1,20,000 By discount Received 16,000
To Interest on Loan (WN9) 33,000
To Salaries 1,10,000
To Godown rent (WN10) 66,000
To Rates & taxes 21,000
To Discount 24,000
To Carriage outward 20,000
To Insurance (WN) 12,000
To Printing & stationery 18,000
To Electricity charges 22,000
To General office expenses 30,000
To Bank charges 16,000
To Motor car 36,000
7,34,000 7,34,000
- 65 -
Balance Sheet As at 31st March 2017
Creditors 4,30,000 Cash In hand 14,000
Loan from Viswanath 3.00,000 Cash at Bank 26,000
Outstanding interest (WN9) 6,000 Debtors 8,60,000

Less: Provision 43,000 8,17,000
Outstanding rent (WN10) 11,000 Stock in Trade 4,40,000
Capital 16,20,000 Prepaid Insurance 3,000

Less: Drawings1,60,000
Add: Profit 1,73,000 16,33,000
Furniture & Fixture (WN3) 1,80,000
Office equipment (WN7) 1,70,000
Buildings 6,00,000
Less: Dep.(WN5) 30,000 5,70,000
Motor car 2,00,000
Less: Dep.(WN5) 40,000 1,60,000
23,80,000 23,80,000
Working Notes:
(1) Provision for bad debts A/c

To bad debts a/c 20,000 By balance b/d 30,000
To balance c/d 43,000 By Profit & Loss A/c (b/f) 33,000

(8,60,000 X 5%)
63,000 63,000
- 66 -
(2)
Bank 14000 Bank 14000
To furniture 14000 To sales 14000
Correct journal Wrong journal

Rectification entry :
Sales A/c Dr. 14000
To furniture A/c 14000
(3)
Furniture
Balance as on 31/03 2,14,000
Less: Sales of furniture (WN2) 14,000
Less: Depreciation @ 10% 2,00,000 x 10% = 20,000
Correct Balance 1,80,000
(4)
Calculation of Correct Sales:
Given Balance 23,00,000
Less: Wrong transaction (WN2) 14,000
Less: Sales Return 42,000
Net Sales 22,44,000
(5)
Depreciation:
Furniture & Fixture 20,000
Office equipment 30,000
Building [6L X 5%] 30,000
Motor car [2L X 20%] 40,000
1,20,000
- 67 -
(6)
Rectification entry :
Office equipment A/c Dr. 40000
To Purchases A/c 40000
(7)
Office Equipment:
Balance 1,60,000
Add: Type writer (WN6) 40,000
Less: Depreciation @ 15% 30,000
1,70,000
(8)
Purchases 14,00,000
Less: Wrong recording 40,000
Less: Purchase return 26,000
13,34,000
(9)
Interest on Loan
3,00,000 X 12% X 11/12 33,000
Interest Paid 27,000
Outstanding 6,000
(10)
Godown rent for 2 months =
Outstanding Rent = 11,000

Paid 55,000
Rent for the year 66,000
(11)
Insurance Premium 55,000
Less: Drawings 40,000
From 01/04/16 – 30/06/17 [15 months] 15,000
- 68 -
Less: 3 Months Prepaid 15,000 X 3 / 15 = 3000

Transfer to Profit & Loss 12,000
ANSWER TO Q.No.27
Calculation of bad and doubtful debts
Rs.
Debtors 30,000
Less: further bad debts 3,000

Net debtors 27,000
Provision for bad debts 10% (27,000 X 10% ) 2,700
ANSWER TO Q.NO.28:
Calculation of Cash Balance
Rs.
Opening balance 1,00,000

Cash sales 50,000
Collection from debtors (Credit sales = 4,50,000 3,50,000

Outstanding debtors = 1,00,000
Therefore, collection from debtors = 3,50,000)
Cash balance 5,00,000
ANSWER TO Q.NO.29:
Dr. Provision for bad debts account Cr.
To bad debts 10,000 By bal b/d 15,000
To bal c/d 20,000 By profit and loss (b/f) 15,000
30,000 30,000
ANSWER TO Q.NO.31:
Profit and Loss Account (Revised)

To Outstanding expenses 1,80,000 By Balance b/d 15,30,000
To NP (correct) 13,70,000 By Prepaid insurance 20,000
15,50,000 15,50,000
- 69 -
Balance Sheet of Thapar
as on 31st December, 2016
Capital 50,00,000 Cash at Bank 10,35,000

Add: Net Profit 13,70,000 Trade receivables 20,00,000
63,70,000 Less: Provision for (1,00,000) 19,00,000

doubtful debts
Less : Drawings (6,00,000) Plant and Machinery 30,00,000
57,70,000 Less: Depreciation (3,00,000) 27,00,000

Add: Interest on capital 3,00,000 60,70,000 Furniture & Fixture 3,00,000
Outstanding expenses 1,80,000 Less: Depreciation (15,000) 2,85,000
Trade payables 11,40,000 Inventories 14,50,000

Prepaid insurance 20,000
73,90 000 73,90,000
ANSWER TO Q.NO.32:
Calculation of purchase price per piece of cover file
Per 100 files 275
Per 1000 files 2750
Add: sales tax 5% = 2750 X 5% 137.5

Add: transport charges 50
Purchase price 2937.5

Purchase price per piece = 2937.5 / 1000 2.9375
ANSWER TO Q.NO.33:
Dr. Debtors account Cr.
To bal b/d 10,200 By sales return 2,700
To sales (b/f) 37,900 By cash 30,400
By bad debts 1,200

By bal c/d 13,800
48,100 48,100
Total sales = cash sales + credit sales = 66,300

- 70 -
ANSWER TO Q.NO.34:
Trading and Profit & Loss Account For the year ended 31st March 2008
To Opening Stock 15,500 By Sales 2,07,300
To Purchases 1,06,000 Less: Sales Returns 5,100 2,02,200
Less: Purchases Returns 2,100 1,03,900 By Closing Stock 14,900
To Freight on Purchases 2,800
To Wages 26,000
Add: Outstanding wages 2,100 28,100
2,17,100 2,17,100
To Salaries 11,000 By Gross Profit b/d 66,800
To Rent 3,000 By Discount 1,200
To Postage and Telegrams 1,400
To Stationery 1,300
To Repairs 4,500
To carriage on sales 4,000
To General Expenses 2,500
Less: Prepaid Insurance 600 1,900
To Interest on Loan @ 9% 1,350
To Bad Debts 600
Add: Provision for bad debts 1,500 2,100
To depreciation on:
Land and Building 700

- 71 -
Plant and Machinery 5,000
Fixtures and Furnitures 750 6,450
To Commission to manager 2,818

(Note)
To Net Profit transferred to 28,182
capital a/c
68,000 68,000
Note: Profit before charging commission is Rs.31,000. commission payable @ 10% of net profit after
charging such commission.
Manager’s Commission
= Net Profit  % of Commission/100 + % of Commission
= Rs.31,000  10/110 = Rs.2,818
Balance Sheet
As at 31st March, 2008
Liabilities Rs. Rs. Assets Rs. Rs.
Sundry Creditors 9,600 Current Assets
Wages outstanding 2,100 Cash in Hand 100
Manager’s commission 2,818 Cash at Bank 6,400

(Note)
Mrs. Ram Narain’s Loan 30,000 Sundry Debtors 30,000
Add: Interest on Loan 1,350 31,350 Less: Provision for 1,500 28,500
Doubtful Debts
Capital Closing stock 14,900
Opening Balance 60,000 Unexpired Insurance 600
Add: Net Profit 28,182 88,182 Fixed Assets
Furniture and Fixtures 5,000
Less: Depreciation 750 4,250

- 72 -
Machinery 50,000
Less: Depreciation 5,000 45,000
Land and Building 35,000
Less: Depreciation 700 34,300
1,34,050 1,34,050
ANSWER TO Q.NO.35:
In the books of Shri Mittal
Trading Account

Rs. Rs.
To Opening inventory 72,000 By Sales 12,10,000
To Purchases 6,05,000 Less: Returns (40,000) 11,70,000
Less: Returns (30,000) 5,75,000 By Closing inventory 1,00,000
12,70,000 12,70,000


Rs. Rs.
To Salaries 2,70,000 By Gross profit 6,23,000
To Advertisement 1,10,000
To Other expenses 60,000
6,23,000 6,23,000
- 73 -

Rs. Rs. Rs.
Capital 8,70,000 Building 8,90,000
Add: Net profit 1,83,000 10,53,000 Furniture 4,50,000
14% Bank Loan 2,00,000 Trade receivables 90,000
Trade payables 1,65,000 Closing inventory 1,00,000
Overdrafts 1,12,000
15,30,000 15,30,000
ANSWER TO Q.NO.36: In the Books of M/s Dayal Bros.

Capital: Balances 7,00,000 Land & Building 3,00,000
Add: Net Profit 1,00,000 Furniture 2,00,000
8,00,000 Inventories in Trade 6,00,000
Less: Drawings (60,000) 7,40,000 Trade receivables 4,20,000

14% Term Loan 4,00,000 Advances to Suppliers 1,00,000
Loan from M/s D & Co. 4,60,000 Cash in Hand 20,000
Trade payables 40,000
16,40,000 16,40,000
ANSWER TO Q.No.37:
C. WANCHOO
Dr. Trading Account of the year ended 31st December Cr.
To Stock A/c 2,000 By Sales A/c 50,000
To Purchases 18,200 By Closing Stock 2,700

To Wages 10,000
To Gross profit trfd. to P & L A/c 22,500
52,700 52,700
- 74 -
Profit and Loss Account for the year ended 31st December
To Salaries 10,000 By Gross profit 22,500

To Discount Allowed 500 By Discount Received 300
To Sundry Office Expenses 6,000
To Net Profit 6,300
22,800 22,800
ANSWER TO Q.NO.38:
Calculation of amount to be paid by suraj without any discount

Rs.
After availing cash discount of 10%, amount paid 1800

So, liability settled for Rs. 1800 x 100/90 2000
After availing cash discount of 5%, amount paid 2850
So, liability settled for Rs. 2850 x 100/95 3000
On account of final settlement = 7000 – 2000 – 3000 2000
ANSWER TO Q.NO.39:
In the books of Mr. Mohan
Trading Account for the year ended 31st March, 2017
Rs. Rs.
To Purchases 4,30,000 Less: Returns (20,000) 9,50,000
Less: Returns (12,000) 4,18,000 By Closing Inventory 1,80,000
To Freight Inwards 40,000

11,30,000 11,30,000
- 75 -

To Depreciation 35,000 By Gross profit 5,62,000

To Salaries 2,10,000 By Discount received 9,000
To Administration expenses 1,50,000
To Discount allowed 19,000
To Bad debts 5,000
5,71,000 5,71,000
ANSWER TO Q.NO.40:
Dr. for the year ended 31st March Cr.
To Expenses on Sale 33,000 By Gross Profit 1,25,000
To Expenses on Administration 18,000
To Financial Charges 6,000
To Net Profit 68,000

1,25,000 1,25,000
- 76 -
SPECIAL TRANSACIONS
Bills of exchange
ANSWER TO Q.NO. 1
Books of Vijay
Journal
2016 Rs. Rs.
1-Apr Pritam Dr. 1,06,000

To Sales Account 1,06,000
(Sales of goods to Pritam as per Invoice No...)
Bills Receivable Account Dr. 1,06,000

To Pritam 1,06,000
(3 months acceptance received from Pritam)
4 – July Pritam Dr. 1,06,000

To Bills Receivable Account 1,06,000
(Pritam acceptance cancelled because of renewal)
Bills Receivable Account Dr. 1,06,000

Cash Account Dr. 1,590
To Pritam 1,06,000
To interest 1,590
[New acceptance for 2 months for Rs.106,000 and Cash (for
interest @ 9%) received from Pritam
7 – Sep Bank Account Dr. 1,06,000
(Cash received against Pritam’s second acceptance)
Books of Pritam
Journal
2016 Rs. Rs.
1-Apr Purchase Account Dr. 1,06,000
To Vijay A/c 1,06,000
(Purchase of goods from Vijay as per Invoice No...)
Vijay A/c Dr. 1,06,000
- 77 -
To Bills Payables Account 1,06,000

(3 months acceptance given to Vijay)
4 – July Bills Payable Account Dr. 1,06,000

To Vijay A/c 1,06,000
(Cancellation of bill because of renewal)
Vijay Account Dr. 1,06,000
Interest Account Dr. 1,590
To Cash Account 1,590
To Bills Payable Account 1,06,000
[New acceptance for 2 months for Rs. 106,000 and Cash (for
interest) paid to Vijay]
7 – Sep Bills Payable Account Dr. 1,06,000

To Bank Account 1,06,000
(Cash paid against second bill)
ANSWER TO Q.2.
Journal Entries in the books of B
Date Particulars Debit Credit
2016 Rs. Rs.
Jan. 1 Purchases account Dr. 10,000
To A’s account 10,000
(Being the goods purchased from A on credit)
A’s account Dr. 10,000
To Bills payable account 10,000
(Being the acceptance of bill given to A)
1-Mar Bills payable account Dr. 10,000

To Bank account 9,900
To Rebate account 100
(Being the bill discharged under rebate @ 12% p.a. for 1 month)
Working Note :
Calculation of rebate:
10,000 x 12/100 x 1/12 = Rs. 100
- 78 -
ANSWER TO Q.3.
Journal of A
Rs. Rs.
Bills receivable (No. 1) A/c Dr. 3000

To B 6,000
(Three bills for Rs. 3,000, Rs. 2,000 and Rs. 1,000 drawn on B and duly
accepted by him received)
B Dr. 3,000
To Bills Receivable (No. 1) A/c 3,000
(Bill received from B cancelled for renewal)

Bill Receivable (No. 4) Account Dr. 1,600
To B 3,000
To Interest Account 100
(Amount received on cancellation of the first bill,50% along with a new bill
for 50% of the amount plus interest Rs. 100)
C Dr. 1,600
(A’s acceptance endorsed in favour of C)
Bank A/c Dr. 1,900

Discount A/c Dr. 100
(Second Bill for Rs. 2,000 discounted with the bank @ 5%)
Note: time is not mentioned in question
B Dr. 2,030
To Bank A/c 2,030
(Second Bill for Rs. 2,000 discounted with the Bank dishonoured, noting
charges Rs. 30 paid by the Bank)
Bank A/c Dr. 1,000

To Bills Receivable (No.3) A/c 1,000
(Amount received on maturity of the third bill)
- 79 -
ANSWER TO Q.4.
Journal Entries in the books of Ankita
Date Particulars Rs. Rs.
2016 Bhavika’s account Dr. 5,00,000

Jan. 1 To Sales account 5,00,000
(Being the goods sold to Bhavika on credit)
Bills receivable account Dr. 5,00,000

To Bhavika’s account 5,00,000
(Being the acceptance of bill received)
1-Mar Bank account Dr. 4,95,000

Rebate on bills account Dr. 5,000
To Bills receivable account 5,00,000
(Being retirement of bill by Bhavika one month before maturity,
the rebate being given to her at 12% p.a.)
Journal Entries in the books of Bhavika

2016 Purchases account Dr. 5,00,000

Jan. 1 To Ankita account 5,00,000
(Being the goods purchased from Ankita on credit)
Ankita Account Dr. 5,00,000

To Bills Payable Account 5,00,000
(Being the acceptance of bill)
1-Mar Bills payable Account Dr. 5,00,000

To Rebate Income Account 5,000
To Bank account 4,95,000
(Being retirement of bill one month before maturity, the rebate
being received at 12% p.a.)
- 80 -
ANSWER TO Q.5.
Books of K. Katrak
Journal Entries
Rs. Rs.
(i) Bills Payable Account Dr. 2,500

Interest Account Dr. 50
To Cash A/c 1,000
To Bills Payable Account 1,550
(Bills Payable to Basu discharged by cash payment of Rs. 1,000 and
a new bill for Rs. 1,550 including Rs. 50 as interest)
(ii) (a) G. Gupta Dr. 4,020

To M. Mehta 4,020
(G. Gupta’s acceptance for Rs. 4,000 endorsed to M Mehta
dishonoured, Rs. 20 paid by M. Mehta as noting charges)
(b) M. Mehta Dr. 4,020

To Bank Account 4,020
(Payment to M. Mehta on withdrawal of bill earlier received from Mr.
G. Gupta)
(iii) Bank Account Dr. 1,990

Rebate Account Dr. 10
To Bills Receivable Account 2,000
(Payment received from D. Dalal against his acceptance for Rs.
2,000. Allowed him a discount of Rs. 10)
(iv) Bills Payable Account Dr. 5,000

To Bills Receivable Account 5,000
(Bills Receivable from P. Mody endorsed to P. Patel in settlement of
bills payable issued to him earlier)
- 81 -
ANSWER TO Q.NO.8
Journal entries in the books of Eknath
Date Particulars L.F. Debit Rs. Credit Rs.
Jan. 1 Vilas A/c Dr. 10,000

To Bills Payable A/c 10,000
(Being the bill draws by him accepted)
Mar. 4 Bills Payable A/c Dr. 10,000

To Bank A/c 9,900
To Rebate A/c 100
(Being retirement of acceptance 1 month before maturity,
interest allowed at 12% p.a.)
ANSWER TO Q.NO.9
Journal entries in the books of Vilas
2016 Bills Receivable A/c Dr. 10,000

Jan. 1 To Eknath A/c 10,000
(Being bill of exchange drawn on Eknath due for payment on
4th April 2016)
Mar. 4 Bank A/c Dr. 9,900

Rebate A/c Dr. 100
To Bills Receivable A/c 10,000
(Being retirement of bill of exchange due for maturity on 4th
April, 2016 by Eknath 1 month before maturity, the rebate
being given to him at 12% p.a.)
- 82 -
ANSWER TO Q.NO. 10
In the books of Harry
Journal Entries
1.7.2016 Gorge’s account Dr. 1,80,000

To Bills payable account 1,80,000
(Acceptance of bill drawn by Gorge)
1.9.2016 Jack’s account Dr. 1,90,000

To Sales account 1,90,000
(Sales made to Jack)
1.9.2016 Bills receivable account Dr. 1,80,000

Bank account Dr. 9,000
Discount account Dr. 1,000
To Jack’s account 1,90,000
(Acceptance received from Jack’s endorsement of bill
received from Gorge for Rs.1,80,000 and Rs.9,000 received
in full settlement of the amount due)
1.9.2016 Bills payable account Dr. 1,80,000

To Bills receivable account 1,80,000
(Own acceptance received from Jack’s endorsement,
cancelled)
1.10.2016 Purchase account Dr. 2,00,000

To Gorge’s account 2,00,000
(Purchases made from Gorge)
Gorge’s account Dr. 20,000

(Amount paid to Gorge after adjusting Rs. 180,000 for
accommodation extended to him)
- 83 -
In the books of Gorge

Journal Entries
1.7.2016 Purchases Account Dr. 1,81,000

To Jack Account 1,81,000
(Purchase of goods from Jack)
1.7.2016 Bills Receivable Account Dr. 1,80,000

To Harry Account 1,80,000
(Acceptance by Harry of bill drawn on him)
1.7.2016 Jack’s account Dr. 1,81,000

To discount Account 1,000
(Harry’s bill endorsed to Jack)
1.10.2016 Harry Account Dr. 2,00,000

To Sales account 2,00,000
(Sales to Harry)
1.10.2016 Bank Account Dr. 20,000

To Harry account 20,000
(Amount received from Gorge after adjusting Rs.180,000 for
accommodation extended by him)
- 84 -
ANSWER TO Q.NO.11
Journal Entries in the books of Mr. David
Jan. 1 Bills receivable (No. 1) A/c Dr. 6,000

Bills receivable (No. 2) A/c Dr. 10,000
To Mr. Thomas’s A/c 16,000
(Being drawing of bills receivable No. 1 due for maturity on
4.3.2016 and bills receivable No. 2 due for maturity on 4.4.2016)
4-Mar Mr. Thomas’s A/c Dr. 6,000
To Bills receivable (No.1) A/c 6,000
(Being the reversal entry for bill No.1 on agreed renewal)
Bills receivable (No. 3) A/c Dr. 6,180
To Interest A/c 180
(Being the drawing of bill of exchange no. 3 due for maturity on
7.5.2016 together with interest at18%p.a. in lieu of the original
acceptance of Mr. Thomas)
20-Mar Bank A/c Dr. 9,900
Discount A/c Dr. 100
To Bills receivable (No. 2) A/c 10,000
(Being the amount received on retirement of bills No.2 before
the due date)
7-May Mr. Thomas’s A/c Dr. 6,180
To Bills receivable (No. 3) A/c 6,180
(Being the amount due from Mr. Thomas on dishonour of his
acceptance on presentation on the due date)
Bank A/c Dr. 3,090

(Being the amount received from official assignee of Mr.
Thomas at 50 paise per rupee against dishonoured bill)
Bad debts A/c Dr. 3,090
(Being the balance 50% debt in Mr. Thomas’s Account arising
out of dishonoured bill written as bad)
- 85 -
ANSWER TO Q.NO.12
In the books of Siriman
Journal Entries
Particulars L.F. Rs. Rs.
Bills Receivable A/c Dr. 1,00,000
To Rita 1,00,000
(Being a 3 month’s bill drawn on Rita for the amount due)
Bank A/c Dr. 99,000

Discount A/c 1,000
To Bills Receivable A/c 1,00,000
(Being the bill discounted)
Rita Dr. 1,00,000

(Being the bill cancelled up due to Rita’s inability to pay it)
Rita Dr. 1,500

To Interest A/c 1,500
(Being the interest due on Rs.5,000 @ 12% for 3 months)
Bank A/c Dr. 51,500
To Rita 51,500
(Being the receipt of a portion of the amount due on the bill
together with interest)
Bills Receivable A/c Dr. 50,000

To Rita 50,000
(Being the new bill drawn for the balance)
Rita Dr. 50,000
(Being the dishonour of the bill due to Rita’s insolvency)
Bank A/c Dr. 20,000

Bad Debts A/c Dr. 30,000
To Rita 50,000
(Being the receipt of 40% of the amount due on the bill from rita’s
estate)
- 86 -
ANSWER TO Q.NO. 13
Books of Don
(a) Ray Dr. 3,040
To Bob 3,040
(Ray’s acceptance endorsed to Bob dishonoured on due date
nothing charges paid by Bob Rs.40)
Bob Dr. 3,040
Interest Dr. 51
To Cash 1,000
(Amount payable to Bob Rs. 3,040 settled by cash payment Rs.
1,000 and issue of new bill for Rs. 2,091 including interest Rs. 51
for three months on Rs. 2,040 @ 10% p.a.)
Bills Receivable A/c Dr. 3,100.80
To Ray 3,040.00
To Interest 60.8
(Bill received from Ray for Rs.3,040 due against earlier
acceptance dishonoured plus Rs. 60.80 interest for two months
@ 12% p.a.)
(b) Bills Payable A/c Dr. 3,160
Discount A/c Dr. 40
To James 3,200
(Cancellation of bills payable to Ralph for Rs. 3,160 in settlement
of Rs. 3,200 due from James)
(c) Bills payable A/c Dr. 4,500
To Discount A/c 50
(Settlement of acceptance issued to Mr. Singh by endorsement
of John’s Acceptance for Rs. 4,450)
(d) Bank A/c Dr. 3,085.30
Discount A/c Dr. 15.5
To Total Bills Receivable A/c 3,100.80
(Amount received from Ray in settlement of Bills Payable, retired
one month before due date)
- 87 -
ANSWER TO Q.NO. 14
In the books of X
Journal Entries
2016 Rs. Rs.
1-Apr Bills receivable account Dr. 4,000 4,000
To Y’s account
(Acceptance received from Y for mutual accommodation)
1-Apr Bank account Dr. 3920

Discount account Dr. 80
To Bills receivable account 4000
(Bill discounted for Rs. 3,920)
Y’s account Dr. 2,000

To Cash account 1,960
To Discount account 40
(Half of proceeds remitted to Y)
Aug. 4 Y’s account Dr. 7,000

(Acceptance given to Y, being unable to remit the due amount)
Bank account Dr. 1,300

To Y’s account 1,500
(Amount received from Y and discount amount credited to him)
Bills payable account Dr. 7,000
To Y’s account 7,000
(Acceptance to Y dishonoured because of insolvency)
Y account Dr. 3,500
To Bank account 875
To Deficiency account 2,625
(Amount paid @ 25 paise in a rupee and balance credited to
deficiency account as being unable to pay)
- 88 -
ANSWER TO Q.NO. 15
In the books of Anil
Journal Entries
2016 Rs. Rs.
5- Apr Bills receivable account Dr. 9,000
To Sanjay’s account 9,000
(Being acceptance received from Sanjay for mutual
accommodation)
8-Apr Bank account Dr. 8,820
To Bills receivable account 9,000
(Being bill discounted with bank)
8-Apr Sanjay’s account Dr. 3,000
To Discount account 60
(Being one-third proceeds of the bill sent to Sanjay)
8-Jul Sanjay’s account Dr. 12,600
(Being Acceptance given)
8-Jul Bank account Dr. 2,220

(Being proceeds of second bill received from Sanjay)
Oct. 11 Bills payable account Dr. 12,600
(Being bill dishonoured due to insolvency)
Oct. 15 Sanjay’s account (12,600 X 2/3) Dr. 8,400
To Deficiency account 4,200
(Being insolvent, only 50% amount paid to Sanjay)
- 89 -
Consignment accounting
ANSWER TO Q.No.27
In the books of Mr. X
Consignment Account
To Goods sent on Consignment 1,50,000 By Y’s account: (Sales) 1,60,000
To Bank account: Freight and 5,500 By Goods sent on consignment 50,000

packing etc. (Cancellation of loading)
To Y’s account: By Inventories on consignment 28,990
Selling expenses 2.000 (W.N.2)
Commission (W.N.1) 16,000
To Inventories Reserve (W.N.3) 10,000
To Profit and loss account (profit 55,490

on consignment transferred)
2,38,990 2,38,990
Trading and Profit and Loss Account for the year ended…….
Particulars Amount Rs. Particulars Amount Rs. Amount Rs.
To Purchases 2,00,000 By Sales 90,000

To Gross profit c/d 26,000 By Goods sent on 1,00,000
consignment 40,000
By Inventories in hand 4,000 36,000
Cost Less: 10%
2,26,000 2,26,000
To Expenses and 3,000 By Gross profit b/d 26,000
commission
To Net profit 78,490 By Consignment A/c 55,490
(profit on consignment)
81,490 81,490
Working Notes:
i. Calculation of commission payable to Y: Rs.
Total sale proceeds of Y 1,60,000
- 90 -
Surplus proceeds realised over Rs.30 per metre

[4,000 x Rs.(40-30)] 40,000
Commission:
5% of total sale proceeds (5% of Rs.1,60,000) 8,000
20% of surplus (20% of Rs.40,000) 8,000
16,000
ii. Inventories on Consignment: Rs.

Cost of consignment Inventories (1000 mtrs@ Rs.30) 30,000
Add: Expenses of consignor (5,500X1/5) 1,100
31,100
Less: Reduction of 10% in cost due to fall in market price
(20,000+1,100) x 10% 2,110
28,990
iii. Loading ( Rs.10 x 1,000 mtrs) 10,000
ANSWER TO Q.No.28
In the books of A
D’s Account
Feb. 1 To Bills payable A/c 6,40,000 Mar. 31 By Cash/Bank A/c 7,62,600
(80% of Rs. 8,00,000) (820 x Rs.930)
Mar. 31 To Cash A/c (expenses) 12,500
To Commission earned A/c 70,520
To Bank A/c 39,580

7,62,600 7,62,600
Value of closing inventory with A

160 cycles at Rs. 640 (cost price including freight) 1,02,400
20 cycles (shop-spoiled) at 50% of the cost i.e. at Rs. 320 each 6,400
Value of closing inventory with A i.e. the amount (net effect of the loading) at which D -
will account for in his books on 31st March, 2016
1,08,800
- 91 -
Working Note: CALCULATION OF COMMISSION:

7.5 % on the invoice price amount (820x Rs. 800) i.e. Rs. 6,56,000 49,200
20% on the surplus price amount (820 x Rs. 130) Rs. 1,06,600 21,320
70,520
ANSWER TO Q.No.29
In the books of Mr. A
Consignment to Mumbai Account
2016 Rs. 2016 Rs.
March To Goods sent on consignment A/c 1,00,000 Dec. 31 By B’s A/cs 1,50,000
1
To Cash A/c (freight and insurance) 12,000
To B’s A/c:
Clearance expenses 3,000
Selling expenses 2,000
Commission
@ 5% on Rs. 1,50,000 7,500
Del-credere commission
@3% on Rs. 1,50,000 4,500 17,000
Dec. To Provision for expenses 260
31 (bank charges)
To Profit and loss A/c 20,740
1,50,000 1,50,000
B’s Account
Dec. To Consignment A/c 1,50,000 Dec. 31 By Consignment A/c
31
Clearance expenses 3,000
Selling expenses 2,000
Commission 7,500
Del-credere commission 4,500 17,000

1,50,000 1,50,000
- 92 -
Bank Account
Jan. 5 To B’s account 1,33,000 Jan. 5 By Bank charges 260
Jan. 5 By Balance c/d 1,32,740

1,33,000 1,33,000
Provision for Expenses Account

Jan. 5 To Bank charges 260 Jan. 1 By Balance b/d 260
260 260
ANSWER TO Q.NO.30
In the books of Mr. A
Consignment Account
T To Goods sent on consignment A/c 7,20,000 By Consignee’s A/c-Sales 8,88,000
(800x Rs.900) (740x100x Rs.12)
To Cash A/c 80,000 By Abnormal Loss Cash A/c 570
(expenses 800x Rs.100) (insurance claim)
To Consignee’s A/c By Profit and loss account 430
Recurring expenses 22,500 (abnormal loss)
Non-recurring expenses 39,950
Commission @ 2% on Rs.8,88,000 17,760
Del-credere commission @ 1% on 8,880
Rs.8,88,000
To Profit and loss A/c 61,860 By Consignment stock A/c 61,950
9,50,950 9,50,950
- 93 -
ANSWER TO Q.NO.31
Journal Entries in the books of Consignee
July 3 Exe Dr. 30,000

July 3 Exe Dr. 2,800
To Bank 2,800
Oct. 6 Bills payable Dr. 30,000
To Bank 30,000
Tradereceivables/Bank Dr. 55,000
To Exe 55,000
Exe Dr. 600
To Trade receivables 600

Exe Dr. 5,500
To Commission Earned A/c 5,500
Exe Dr 16,100
To Bank 16,100
❖ Consignee does not pass any journal entry when he receives goods on consignment.
❖ If the commission includes del-credere commission also, he would not be able to debit Exe for
the bad debt. Instead he will debit “commission earned” account.
ANSWER TO Q.NO.32
In the books of Miss Rakhi
Consignment Account
To Goods send on 9,00,000 By Miss Geeta A/c 9,00,000

Consignment A/c
To Cash A/c By Insurance Co. 35.000
Freight 7,650
Insurance 3,250 10,900
To Miss Geeta A/c By Profit & Loss A/c abnormal 10,545
Carriage 10,500 loss (net)
Repairs 2,500
Commission 54,000 67,000
To Profit & Loss A/c 1,52,036 By Consignment Inventories 1,84,391
11,29,936 11,29,936
- 94 -
Miss Geeta
To Consignment A/c 9,00,000 By Consignment A/c:

Carriage 10,500
Repairs 2,500
By Bank (bal. fig.) 8,33,000
9,00,000 9,00,000
Working Notes:
1. Abnormal loss :
Cost to the consignor: 50 sets @ Rs.900 45,000
Add: Proportionate expenses incurred by the consignor
545
Gross abnormal loss 45,545
Less: Insurance claim (35,000)
Net abnormal loss 10,545
2. Valuation of Inventories
200 sets @ Rs.900
Add: Proportionate expenses of the consignor 2,180
Add: Carriage and customs duty paid by the consignee 2,211

1,84,391
ANSWER TO Q.No.33
Books of Ajay
Consignment to Vijay Account
To Goods sent on Consignment A/c 1,25,000 By Goods sent on Consignment A/c 25,000
(Loading)
To Cash A/c 10,000 By Abnormal Loss 11,000
To Vijay (Expenses) 8,000 By Vijay (Sales) 1,00,000
To Vijay (Commission) 10,938 By Inventories on Consignment A/c 20,250
To Inventories Reserve A/c 3,750 By General Profit & Loss A/c 1,438
1,57,688 1,57,688
- 95 -
Vijay’s Account
To Consignment A/c 1,00,000 By Consignment A/c 8,000

By Consignment A/c 10,938
By Bank A/c 81,062
1,00,000 1,00,000
Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price = Rs.12,500.
Abnormal Loss as a percentage of total consignment = 10%
Hence the value of goods sent on consignment = Rs.12,500 × 100/10 = Rs. 1,25,000.
Loading of goods sent on consignment = Rs. 1,25,000 × 25/125 = Rs. 25,000.
2. Calculation of abnormal loss (10%):

Abnormal Loss at invoice price = Rs.12,500.
Abnormal Loss at cost = Rs.12,500 × 100/125 = Rs.10,000
Proportionate expenses of Ajay (10% of Rs.10,000) = Rs.1,000
Rs,11,000
3. Calculation of closing Inventories (15%):

Ajay’s Basis Invoice price of consignment = Rs.1,25,000
Ajay’s expenses on consignment = Rs.10,000
Rs.1,35,000
Value of closing Inventories = 15% of Rs.1,35,000 = Rs. 20,250
Loading in closing Inventories = Rs.25,000 × 15/100 = Rs.3,750
Where Rs.18,750 (15% of Rs.1,25,000) is the basis invoice price of the goods sent on consignment
remaining unsold.
4. Calculation of commission:
Invoice price of the goods sold = 75% of Rs.1,25,000 = Rs.93,750
Excess of selling price over invoice price = Rs. 6,250 (Rs.1,00,000 – Rs.93,750)
Total commission = 10% of Rs. 93,750 + 25% of Rs.6,250
= Rs. 9,375 + Rs. 1,562.50
= Rs. 10,937.50 OR 10,938
- 96 -
Note:
1. It has been assumed that final payment received from Vijay.
2. Abnormal loss is always calculated at cost even if invoice price of goods is given.
3. Value of inventories always valued at invoice price if invoice price is given.
ANSWER TO Q.NO.34:
Vikram Milk Foods Co. Ltd.

Consignment to Sonepuri Account
Particulars Rs. Rs. Particulars Rs. Rs.
To Goods sent on Consignment By Sunder Stores
A/c
2,000 1 kg. tins @ Rs.10 20,000 1,500 1 kg. tins @ Rs.15 22,500
6,000 1/2 kg. pkts. @ Rs.6 36,000 56,000 4,000 1/2 kg. pkts. @ Rs.7 28,000 50,500
To Sunder Stores: By Insurance - Claim 450
Freight 1,440 By Profit & Loss A/c 65

Rent and insurance 600 By Inventory on consignment 16,915
A/c
To Profit & Loss A/c 7,365

67,930 67,930
Sunder Stores, Sonepuri

To Consignment to Sonepuri Account 50,500 By Consignment to Sonepuri A/c 4,565
By Bank A/c 45,935
50,500 50,500
Working Notes:
(i) Sale value of total consignment:
2,000 1 kg. tins @ Rs.15 30,000
6,000 1/2 kg. pkts. @ Rs.7 42,000
72,000
(ii) Freight @ 2% of above 1,440
(iii) Inventories at the end:
450 1 kg. tins @ Rs.10 (Selling Price Rs.6,750) 4,500
- 97 -
2,000 1/2 kg. pkts. @ Rs.6 (Selling Price Rs.14,000) 12,000

16,500
Add: Freight 2% of (Selling Price Rs.20,750) 415
16,915
Loss in transit: Cost of 50 1 kg. tins @ Rs.10 500
Freight @ 2% of Selling Price Rs.750 15
Gross abnormal Loss 515
Less : Claim (450)
Net abnormal Loss 65
ANSWER TO Q.NO.35
In the books of Shri Mehta
Consignment to Chennai Account
To Goods sent on Consignment 10,00,000 By Sundaram (Sales) 9,80,000
To Bank (Expenses) 50,000 By Loss in Transit (WN 1) 52,500
To Sundaram (Expenses) 31,500 By Consignment Inventory(WN2)

To Sundaram 98,000 In hand 1,59,000
To Profit on Consignment 1,17,000 In transit 1,05,000 2,64,000
12,96,500 12,96,500
Sundaram’s Account
To Consignment to Chennai A/c 9,80,000 By Consignment A/c 1,29,500

9,80,000 9,80,000
WORKING NOTES:
1. Units lost in transit = 50
Cost price = 50 x 1000 50,000
Add: consignor’s expenses = 50000 / 1000 x 50 = 2,500
Total value of goods lost in transit = 52,500
2. Units in stock in hand = 1000 – 700 – 50 – 100 = 150

Cost price = 150 x 1000
Add: consignor’s expenses = 50000 / 1000 x 150
Add: clearing charges = 8500 / 850 x 150
- 98 -
Total value of stock = 159000
Units in stock but in transit = 100

Cost price = 100 x 1000
Add: consignor’s expenses = 50000 / 1000 x 100
Total value of stock = 105000
- 99 -
SALE OF GOODS ON APPROVAL

ANSWER TO Q.NO.16: In the books of CE
Journal Entries
Date Particulars L. Dr. (in Rs.) Cr. (in Rs.)
F.
2016 Trade receivables A/c Dr. 1,00,000
Sept. 15 To Sales A/c 1,00,000
(Being goods sent to customers on sale or return basis)
Oct. 20 Return Inward A/c Dr. 40,000
To Trade receivables A/c 40,000
(Being the goods returned by customers to whom goods
were sent on sale or return basis)
Dec. 31 Sales A/c Dr. 20,000
(Being the cancellation of original entry of sale in respect
of goods on sale or return basis)
Dec. 31 Inventories with customers on Sale or Return A/c Dr. 15,000
To Trading A/c 15,000
(Being the adjustment for cost of goods lying with
customers awaiting approval)
ANSWER TO Q.NO.19: In the books of S. Ltd.

Date Particulars L.F. Rs Rs
2016 Return Inwards A/c (Rs 250 X 50) Dr. 12,500
Dec. 31 To Trade receivables A/c 12,500
(Being the adjustment for 50 units of goods returned by
customers to whom goods were sent on sale or return
basis)
Dec. 31 Sales A/c (Rs 250 X 80) (Note 1) Dr. 20,000
(Being the cancellation of original entry for sale in respect
of 80 units of goods not yet returned or approved by
customers)
Dec. 31 Inventories with Customers on Sale or Return A/c Dr. 16,000
(Being the cost of goods sent to customers on approval
or return basis not yet approved, adjusted)
- 100 -
Note: (1) Quantity of goods lying with dealer as on 31.12.2016 = 200 – 50 – 70 = 80

ANSWER TO Q.NO.20:
Sale or Return Account
2016 To Sundries: Sales 24,000 2016 By Sundries 93,000

31-May 31-May (Goods sent on sale or
return basis)
15-Jun To Sundries: Returned 43,000
15-Jun To Balance c/d 26,000
93,000 93,000
P’s Account
2016 2016
31-May To Sale or Return A/c 15,000 May 31 By Sale or Return A/c 15,000
ANSWER TO Q.NO.21:
In the books of Caly Company
Journal Entries
Date Particulars L.F. Rs Rs
Trade receivables A/c Dr. 6,000
To Sales A/c 6,000
(Being the adjustment for excess price of 20 gas
containers @ 300 each)
Sales A/c Dr. 96,000

(Being the cancellation of original entry for sale in respect
of 80 gas containers @ Rs 1,200 each)
Inventories with Customers on Sale or Return A/c Dr. 72,000

(Being the adjustment for cost of 80 gas container lying
with customers awaiting approval)
- 101 -
ANSWER TO Q.NO.22:
In the books of E Ltd.
Journal Entries
2016 Trade Receivables Account Dr. 84,000

Dec 24 To Sales Account (300 x 280) 84,000
Dec.31 Sales A/c (Rs.30 x 90) Dr. 2,700
(Being the adj. for reduction in the selling price of 90 accounting
machines @ Rs. 30 each)
Dec.31 Sales A/c (Rs. 280 x 210) Dr. 58,800

(Being the cancellation of original entry for sale in respect of 210
accounting machines sent to customers not yet returned or
approved)
Inventories with customers on Sale or Return A/c Dr. 42,000

(Being the cost of 210 accounting machines @ Rs. 200 each
adjusted against Trading Account)
ANSWER TO Q.NO.23:
Journal Entries
Particulars L.F. Rs Rs
2016 Sales A/c Dr. 3,000
31st Dec. To Ritu’s A/c 3,000
(Being cancellation of entry for sale of goods, not yet
approved)
Inventories with customers A/c (Refer W.N.) Dr. 2,250
(Being Inventories with customers recorded at market
price)
Working Note:
Calculation of cost and market price of Inventories with customer
Sale price of goods sent on approval Rs 3,000
Less: Profit (3,000 x 20/120) Rs 500
Cost of goods Rs 2,500
Market price = 2,500 - (2,500 x 10%) = Rs 2,250.
- 102 -
ANSWER TO Q.NO.24:
In the books of ‘X’
Goods on sales or return, sold and returned day book
Date Party to whom Goods sent Sold Returned Balance

2016 goods Rs. Rs. Rs.
sent
Dec.10 M/s. ABC Co. 10,000 10,000 - -
Dec.12 M/s. DEF Co. 15,000 - 15,000 -
Dec.15 M/s. GHI Co. 12,000 10,000 2,000 -
Dec.20 M/s. DEF Co. 16,000 16,000 - -
Dec.25 M/s. ABC Co. 11,000 11,000 - -
Dec.30 M/s. GHI Co. 13,000 - - 13,000
77,000 47,000 17,000 13,000
Goods on Sales or Return Total Account

Rs. Rs.
2016 To Sundries 17,000 2016 By Sundries 77,000
Dec. 31 Dec. 31
To Sundries 47,000
To Balance c/d 13,000
77,000 77,000
- 103 -
ANSWER TO Q.NO.25:
In the Books of A
Journal Entries
2016 Sales A/c Dr. 7,000

March To Trade receivables A/c 7,000
31 (Being the cancellation of original entry for sale in respect of
goods lying with customers awaiting approval)
31-Mar Inventories with Customers on Sale or Return A/c Dr. 5,600

To Trading A/c (Note 1) 5,600
(Being the adjustment for cost of goods lying with customers
awaiting approval)
APRIL
30-Apr Trade receivables A/c Dr. 4,000
To Sales A/c 4,000
(Being goods costing Rs.3,200 sent to Mr. X on sale or return
basis has been accepted by him)
Balance Sheet of A & Co. as on 31st March, 2016 (Extracts)

Liabilities Rs. Assets Rs. Rs.
Trade receivables (Rs.1,00,000–Rs. 7,000) 93,000
Inventories-in-trade 60,000
Add: Inventories with customers on Sale or 5,600 65,600
Return
1,58,600
Notes:
(1) Cost of goods lying with customers = 1/5 x Rs. 7,000 = Rs. 5,600
(2) No entry is required on 10th April, 2016 for goods returned by Mr. Y. Goods should be included
physically in the Inventories-in-trade.
- 104 -
ACCOUNTING PROCESS
Solutions
ANSWER TO Q.NO.1:
Particulars Rs. Rs.
Bank Account Dr. 50,00,000
To Capital Account 50,00,000
(Being capital introduced by Shri Mohan)
(Being cash deposited in Bank)
Furniture Account Dr. 12,00,000
(Being Furniture purchased vide CM No....)
Purchases Account Dr. 4,00,000
(Being goods purchased vide CM No....)
Purchases Account Dr. 10,00,000
To M/s Ram Narain Bros. 10,00,000
(Being goods purchased vide Bill No.....)
(Being goods sold vide CM No....)
Ramesh Dr. 13,00,000
(Being goods sold vide Bill No....)
To Ramesh 13,00,000
(Being cash received against Bill No....)
Rent Account Dr. 1,00,000
(Being rent paid for the month of .......)
Salary Account Dr. 22,000
(Being salary paid to Mr..... for the month of ...........)
To Interest Account 2,20,000
(Being interest received from........ for the period ............)
- 105 -
ANSWER TO Q.NO.2:
Journal
Date Particulars Nature of L.F. Debit (Rs.) Credit (Rs.)
Account
Dec. 1 Bank Account Dr. Personal A/c 4,00,000
To Capital Account Personal A/c 4,00,000
(Being commencement of business)
Dec. 3 Cash Account Dr. Real A/c 2,000
To Bank Account Personal A/c 2,000
(Being cash withdrawn from the
Bank)
Dec. 5 Purchases Account Dr. Real A/c 15,000
(Being purchase of goods for cash)
Dec. 8 Bank Account Dr. Personal A/c 16,000
To Sales Account Real A/c 16,000
(Being goods sold for cash)
Dec. 10 Furniture Account Dr. Real A/c 2,500
(Being purchase of furniture, paid by
cheque)
Dec. 12 Arvind Dr. Personal A/c 2,400
To Sales Account Real A/c 2,400
(Being sale of goods)
Dec. 14 Purchases Account Dr. Real A/c 10,000
To Amrit Personal A/c 10,000
(Being purchase of goods from
Amrit )
Dec. 15 Amrit Dr. Personal A/c 500
To Purchases Returns Account Real A/c 500
(Being goods returned to Amrit)
Dec. 16 Bank Account Dr. Personal A/c 2,300
Discount Account Dr. Nominal A/c 100
To Arvind Personal A/c 2,400
(Being cash received from Arvind in full
settlement and allowed him Rs. 100 as
discount)
- 106 -
Dec. 18 Drawings Account Dr. Personal A/c 1,000

To Purchases Account Real A/c 1,000
(Being withdrawal of goods for
personal use)
Dec. 20 Drawings Account Dr. Personal A/c 2,000
To Cash Account Real A/c 2,000
(Being cash withdrawal from the
business for personal use)
Dec. 24 Telephone Expenses Account Dr. Nominal A/c 110
To Bank Account Personal A/c 110
(Being telephone expenses paid)
Dec. 26 Amrit Dr. Personal A/c 9,500
To Discount Account Nominal A/c 50
(Being cash paid to Amrit and he
allowed Rs. 50 as discount)
Dec. 31 Stationery Expenses Dr. Nominal A/c 200
Rent Account Dr. Nominal A/c 5,000
Salaries Account Dr. Nominal A/c 2,000
(Being expenses paid)
Dec. 31 Advertisement Expenses Account Dr. Nominal A/c 2,000
To Purchases Account Real A/c 2,000
(Being distribution of goods by way of
free samples)
ANSWER TO Q.NO.3:
2017 Explanation Accounts Nature of How Debit Credit
April Involved Accounts affected (Rs. in 000) (Rs. in 000)
1. Rs. 5,000 cash Bank and R’s Asset Increased 5,000
invested in business Capital Capital Increased 5,000
2. Purchased furniture Furniture and Asset Increased 1,200
for Rs. 1,200 Bank Asset Decreased 1,200
3. Paid Rs. 1,100 to Salary & Bank Expense Increased 1,100
employee for salary Asset Decreased 1,100
4. Paid Rent Rs. 1,150 Rent & Bank Expense Increased 1,150
Asset Decreased 1,150
5. Received interest Cash & Interest Asset Increased 2,000
Rs. 2,000 Income Increased 2,000
- 107 -
ANSWER TO Q.NO.5:
Dr. Stationery Account Cr.
1.1.2015 To Balance b/d 480 31.12.2015 By Balance c/d 2,560

5.4.2015 To Bank A/c 800
15.11.2015 To Five Star Stationery 1,280
Mart A/c
2,560 2,560
ANSWER TO Q.NO.7:
JOURNAL
Date Particulars L.F. Dr. Cr.
2017 Amount Amount
April 1 Bank Account Dr. 1 10,00,000
To Capital Account 4 10,00,000
(Being the amount invested by Ramesh in the business
as capital)
April 3 Purchases Account Dr. 7 50,000
To Bank Account 1 50,000
(Being goods purchased for cash)
April 5 Cash Account Dr. 5 10,000
To Bank Account 1 10,000
(Being cash withdrawn from bank)
April 13 Krishna Dr. 9 1,50,000
To Sales Account 11 1,50,000
(Being goods sold to Krishna on credit)
April 20 Purchases Account Dr. 7 2,25,000
To Shyam 10 2,25,000
(Being goods bought from Shyam on credit)

Discount Account Dr. 12 5,000
To Krishna 9 1,50,000
(Being cash received from Krishna and discount allowed
to him)
- 108 -
April 28 Shyam Dr. 10 2,25,000

To Bank Account 1 2,15,000
To Discount Account 12 10,000
(Being cash paid to Shyam and discount allowed by him)
To Sales Account 11 8,00,000
(Being goods sold for cash)
April 30 Rent Account Dr. 15 50,000
Salaries Account Dr. 14 1,00,000
To Bank Account 1 1,50,000
(Being the amount paid for rent and salary)
27,60,000 27,60,000
ANSWER TO Q.NO.8:
Transaction ACCOUNTS NATURE DEBIT OR Journal Entry
INVOLVED CREDIT
Started business with Bank account Personal Debit (Receiver) Bank A/c Dr.
capital of Rs.50,00,000 Capital account Personal Credit (giver) To Capital A/c
Wages and salaries paid Wages/salaries Nominal Debit (expense) Wages/ Salaries Dr.
Bank Personal Credit (giver) To Bank A/c
Rent received Bank Personal Debit (Receiver) Bank A/c Dr.
Rent Nominal Credit (income) To Rent A/c
Purchases made on credit Purchases Nominal Debit (expense) Purchases A/c Dr.
Creditor Personal Credit (giver) To Creditor A/c
Goods sold and payment Bank Personal Debit (Receiver) Bank A/c Dr.
received in cheque Sales Nominal Credit (gains) To Sales A/c
ANSWER TO Q.NO.9:
Cash Account
Date Particulars L.F. (Rs.) Date Particulars L.F. (Rs.)
Jan. 1 To Balance b/d 8,000 Jan.1 By Purchases A/c 3,800

Jan. 4 To Vijay A/c 1,980 Jan. 8 By Plant A/c 300
Jan. 15 To Rahim A/c 300 Jan. 31 By Balance c/d 7,180

Jan. 18 To Sales A/c 1,000
11,280 11,280
- 109 -
Vijay
Jan. 1 To Balance b/d 2,000 Jan.4 By Cash A/c 1,980

By Discount A/c 20
Purchases Account
Jan. 1 To Cash A/c 3,800
Jan. 1 To Discount A/c 200 Jan.31 By Trading A/c 4,000
4,000 4,000
Discount Account
Jan. 4 To Vijay A/c 20 Jan. 1 By Purchases A/c 200
Jan. 31 To P & L A/c 180 Jan.31

200 200
Plant Account
Jan. 8 To Mukesh A/c 5,000 Jan. 31 By Balance c/d 5,300

Jan. 8 To Cash A/c 300
5,300 5,300
Mukesh
Jan. 31 To Balance c/d 5,000 Jan. 8 By Plant A/c 5,000
5,000 5,000
Sales Account
Jan. 31 To Trading A/c 1,600 Jan. 12 By Rahim A/c 600
Jan. 8 Jan. 18 By Cash A/c 1,000
1,600 1,600
- 110 -
Rahim
Jan. 12 To Sales A/c 600 Jan. 15 By Cash A/c 300

Jan. 8 Jan. 15 BY Bad Debts A/c 300
600 600
Bad Debts Account

Jan. 15 To Rahim A/c 300 Jan. 31 By P & L A/c 300
300
ANSWER TO Q.NO.11:
Trial Balance of Anuradha Traders as on 31.03.2016
S.NO. Particulars L.F. Debit balances Credit balances
Rs. Rs.
1. Purchases 1,50,000
2. Sales return 1,000
3. Discount allowed 2,000
4. Expenses 10,000
5. Trade receivables 75,000
6. Investments 15,000
7. Cash at bank and in hand 37,000
8. Insurance paid 2,500
9. Capital 1,00,000
10. Sales 1,66,000
11. Trade payables 25,000
12. Interest received on investments 1,500
Total 2,92,500 2,92,500

- 111 -
ANSWER TO Q.NO.12
Corrected Trial Balance of Mr. Singhania as on 31st March, 2016

S.NO. Particulars L.F. Debit balances Credit balances
Rs. Rs.
1. Singhania’s Capital 1,556
2. Singhania’s Drawings 564

3. Leasehold premises 750
4. Sales 2,750
5. Due from customers 530
6. Purchases 1,259
7. Purchases returns 264
8. Loan from Bank 256

9. Trade payables 528
10. Trade expenses 700
11. Cash at Bank 226
12. Bills payable 100
13. Salaries and Wages 600

14. Inventory (1.4.2015) 264
15. Rent and rates 463

16. Sales return 98
TOTAL 5,454 5,454
Reasons:
1. Due from customers is an asset, so its balance will be a debit balance.
2. Purchases return account always shows a credit balance because assets go out.
3. Balance in Creditors Account is a liability, so its balance will be a credit balance.
4. Bills payable is a liability, so its balance will be a credit balance.
5. Inventory (opening) represents assets, so it will have a debit balance.
6. Sales return account always shows a debit balance because assets
- 112 -
Answer to Question No: 13

Trial Balance as on 30th June, 2017
Heads of Accounts Debit Rs. Credit Rs.
Provision for Doubtful Debts – 200
Bank overdraft – 1,654
Capital – 4,591
Trade payables – 1,637
Trade receivables 2,983 –
Discount Received – 252
Discount allowed 733 –
Drawings 1,200 –
Office furniture 2,155 –
General Expenses 829 –
Purchases 10,923 –
Returns Inward 330 –
Rent & Rates 314 –
Salaries 2,520 –
Sales – 16,882
Inventory 2,418 –
Provision for Depreciation on Furniture – 364
Suspense A/c (balancing figure) 1,175
Total 25,580 25,580

- 113 -
ANSWER TO Q.NO.14:
Purchase Book
Date Particulars Gross Trade Net Sales Freight Total

Amount Discount Price Tax Amount
4 Ajay Enterprises
April 100 Doz chappal @ Rs. 120
per Doz - Rs. 12,000
200 Doz Palki Leather

Chappal @ Rs. 300 per Doz
- Rs. 60,000
Less trade discount @ 10% 72,000 7,200 64,800 6,480 150 71,430
15 Balaji Traders, Delhi
April 50 Doz Max Shoes @ Rs.
400 per Doz - Rs. 20,000
100 pair Sports shoes @ Rs.

140 per pair - Rs. 14,000
Less trade discount @ 10%

34,000 3,400 30,600 3,060 200 33,860
April Tripti Industries, Bahadurgarh
28 40 pair Leather shoes @ Rs.
400 per pair - Rs. 16,000
100 DOZ Rosy Hawai

Chappal @ Rs. 180 per DOZ
- Rs. 18,000
Less trade discount @ 10% 34,000 3,400 30,600 3,060 100 33,760
1,40,000 14,000 1,26,000 12,600 450 1,39,050
- 114 -
Ledgers
Dr. Purchases A/c Cr.
2011 Rs. Rs.

April 30 To amount as per purchase book 1,38,600
Freight A/c
2011 Rs.
April 30 To amount as per purchase book 450
Ajay Enterprises
Rs.
April 4 By purchase A/c 71,280
By Freight A/c 150
Balaji Traders
Rs.

By Freight A/c 200
Tripati Industries
Rs.
By Freight A/c 100
Purchase Account will be debited by net price and sales tax because sales tax is a part of cost
of goods purchased.
- 115 -
ANSWER TO Q.NO.15:
Purchase Returns Book
Date 2016 Debit Note No. Name of supplier L.F. Amount
Jan. 4 101 Goyal Mills, Surat 5,000

Jan. 16 102 Mittal Mills, Bangalore 13,000
Jan. 31 Purchases Returns Account (Cr.) 18,000
In purchase return account this total of 18,000 shall be shown on the credit side.
ANSWER TO Q.NO.16:
Dr. Cash Book Cr.
Date Receipts Amount Date Payments Amount
2016 Rs. 2016 Rs.
Jan. 1 To Balance b/d 1,200 Jan. 07 By Rent A/c 30
Jan. 5 To Ram A/c 300 Jan. 10 By Shyam A/c 700
Jan. 8 To Sales A/c 300 Jan. 27 By Furniture A/c 200
Jan. 31 By Salaries A/c 100
Jan. 31 By Balance c/d 770
1,800 1,800
2016
Feb. 1 To Balance b/d 770
(i) In the simple cash book only the cash receipts and cash payments are recorded.
(ii)The total of debit side is always greater than the total of credit side since the payment cannot
exceed the available cash.
- 116 -
ANSWER TO Q.NO.18:
Petty Cash Book

Receipt Date Particulars Total Conve Carta Statio Postage Wages Sundries
Rs. 2016 -yance -ge -nery Telegram
100 Jan.1 To Cash
2 By .50 .50
Conveyance
By Cartage 2.50 2.50
3 By Postage 5.00 5.00

Telegrams
By Wages 6.00 6.00
4 By Stationery 4.00 4.00
By 2.00 2.00
Conveyance
5 By Repairs to 15.00 15.00
Furniture
By 1.00 1.00
Conveyance
By Cartage 4.00 4.00
6 By Postage 7.00 7.00
Telegrams
6 By 3.00 3.00
Conveyance
6 By Cartage 3.00 3.00
6 By Stationery 2.00 2.00
6 By General 5.00 5.00
Expenses
60.00 6.50 9.50 6.00 12.00 6.00 20.00
By Balance c/d 40.00
100 100
40.00 To Balance b/d
60.00 8 To Cash
- 117 -
ANSWER TO Q.NO.19:
Journal Entries
Particulars L.F. Dr. Cr.
Rs. Rs.
(i) Suspense Account Dr. 54
To Profit and Loss Adjustment A/c 54
(Correction of error by which Purchase Account was over
debited last year- Rs.4,593 carried forward instead of
Rs.4,539)
(ii) Profit & Loss Adjustment A/c Dr. 180
Customer’s Account Dr. 1,326
To Suspense Account 1,506
(Correction of the entry by which (a) Sales A/c was over
credited by Rs.180 (b) customer was credited by Rs.753
instead of being debited by Rs.573)
(iii) Suspense Account Dr. 1,020
To Profit & Loss Adjustment A/c 1,020
(Correction of error by which Returns Inward Account was
debited by Rs.510 instead of Returns Outwards Account
being credited by Rs. 510)
(iv) Suspense Account Dr. 1,240
To C. Dass 620
To G. Dass 620
(Removal or wrong debit to G. Dass and giving credit to C.
Dass from whom cash was received).
(v) Customer’s Account Dr. 840
To Profit & Loss Adjustment A/c 840
(Rectication of the error arising from non- preparation of
invoice for goods delivered)
(vi) Profit & Loss Adjustment A/c Dr 200
Inventory Account Dr. 800
To Customer’s Account 1,000
(The Customer’s A/c credited with Rs.1,000 for goods not yet
purchased by him; cost of the goods debited to inventory and
“Profit” debited to Profit & Loss Adjustment Account)
(vii) Profit & Loss Adjustment A/c Dr. 1,534
To Capital Account 1,534
(Transfer of P & L Adjustment A/c balance to the Capital A/c)
- 118 -
ANSWER TO Q.NO.20:
Journal of Mr. A
DATE PARTICULARS L.F. DR. CR.
RS. Rs.
2015 Mrs. Mala Dr. 2,300
(I) Mr. Lala 2,300
To Suspense A/c 4,600
(Correction of error by which a sale of Rs. 2,300 to Mr. Lala was
posted to the Credit of Mrs. Mala)
(ii) Profit and Loss Adjustment A/c Dr.
To Suspense A/c 1,240 1,240
(Rectification of omission to post the total of Returns Inward
Book for July, 2010)
(iii) (a) Machinery A/c Dr. 5,600
Suspense A/c Dr. 900
(Correction of error by which freight paid for a machine Rs. 5,600
was posted to Freight Account at Rs. 6,500 instead of
capitalising it)
(iv) Suspense A/c Dr. 8,640
(Correction of wrong carry forward of total in the purchase
Account to the next page Rs. 65,590 instead of Rs. 56,950)
(v) Mr. Mehta Dr. 9,000
To Plant & Machinery A/c 6,750
To Prot & Loss Adjustment A/c 2,250
(Correction of omission of a sale of machine on credit to Mr.
Mehta for Rs. 9,000 )
Comments
The Suspense Account will now appear as shown below:
Dr. Suspense Account Cr.

Date Particulars Amount Date Particulars Amount Rs.
Rs.
2015 To Profit and Loss 900 2014 By Balance b/d 830
Adjustment A/c
To Profit and Loss Oct. 1 By Sundries 2,300
- 119 -
Adjustment A/c 8,640 Mrs. Mala 2,300

Mr. Lala
By Profit and Loss 1,240
Adjustment A/c
By balance c/d 2,870
9,540 9,540
Since the Suspense Account still shows a balance, it is obvious that there are still some errors left in
the books
ANSWER TO Q.NO.22:
Computing opening capital: (All figure in Rs.’ 000 )
Closing capital - profits earned during the year
= 35,000 - 5,000
= 30,000
Assets = liabilities + capital

Therefore, opening assets (A) = 12,000 + 30,000
= 42,000
Computation of liabilities at the end of the year:

Total liabilities including capital = 50,000
Less: closing capital = (35,000)
Liabilities at the end of the year (C) = 15,000
Also assets at the end of the year (B) = closing capital + liabilities at the end of the year
= 35,000 + 15,000
= 50,000
ANSWER TO Q.NO.23:
Particulars Dr. Cr.
(i) Suspense Account Dr. 6,160
To Return Outward A/c 6,160
(ii) Suspense Account Dr. 2,640
To Discount Allowed Account 1,320

- 120 -
To Discount Received Account 1,320
(iii) Suspense Account Dr. 10,000
To Sales Account 10,000
(iv) Suspense Account Dr. 270
To Customer Account 270
(v) Suspense Account Dr. 1,500
To Vehicle Account 1,200
To Profit on Sale of Vehicle Account 300
(vi) Telephone Charges Account Dr. 560
To Outstanding Expenses Account 560
(vii) Bad Debts Account Dr. 1,560
To Trade receivables Account 1,560
Provision for Doubtful Debts Account Dr. 164
To Profit and Loss Account 164
(viii) Loose Tools Account Dr. 1,200
To Purchases Account 1,200
(ix) Drawings Account Dr. 1,960
1. Bad debts will be debited in the profit and loss account.

2. Provision @ 10% of Rs.21,560 i.e. 2,156; Excess provision Rs.164 (2320 - 2156 = 164).
ANSWER TO Q.NO.24:
S.No. Increase (+) / Reasons

Decrease (-) / No
Change (0) in
Assets
(a) + Furniture has been purchased making it an increase in assets and also
it being purchased on credit it increases liability and there is no outflow
of assets like cash or bank.
- 121 -
(b) + Cash has flowed in for services provided making it an increase in

assets.
(c) + Here with goods sold there is a decrease in inventory (assets) but
given there is an increase in debtors there will be a net increase in
assets. Though if goods are sold at cost it will result in no change
whereas sale at below cost will result in decrease in assets.
(d) - Here cash has been withdrawn from business resulting in decrease in
assets and capital.
(e) 0 Only hiring of employee has been done resulting in no change in

assets.
(f ) - Outflow of goods has resulted in decrease in assets while money

owed to creditors reduce on the liability side.
(g) - Here both assets and liabilities reduce by same amounts meaning a
decrease in assets.
(h) 0 Only a purchase agreement has been entered into with no transaction
taking place yet.
ANSWER TO Q.NO.25:
Calculation of missing figures:
Trade Receivable Balance (B) = Sales- Amount received during the year
= Rs. (15,55,000 - 15,00,000) = Rs. 55,000.
Assets = Capital + Liabilities

If total liabilities is 14,15,000, Therefore, balance of assets is also Rs.14,15,000
So, total assets:

Total Assets 14,15,000
Less: Machinery (12,00,000)

- 122 -
Less: Inventory (60,000)
Less: Bank (80,000)

Less: Receivables (55,000)
Cash (A) 20,000
Computation of Closing Capital (D):
Opening Capital 10,00,000
Add: Introduced during the year 1,00,000
Less: Loss incurred during the year (35,000)

Closing Capital 10,65,000
So, Loan amount (C) = Total Liabilities - Closing Capital - Trade Payables
= Rs. (14,15,000 - 10,65,000 - 1,00,000) = Rs. 2,50,000
ANSWER TO Q.NO.29:
Journal Entries in the books of Mr. Roy
Date Particulars Dr. Cr.
(1) Motor Vehicles Account Dr. 2,700
To Profit and Loss Adjustment A/c 2,700
(Purchase of scooter wrongly debited to conveyance account now
rectified Rs. 3,000 less 10% depreciation)
(2) Suspense Account Dr. 10,000
(Purchase Account overcast in the previous year now rectified)
(3) Profit & Loss Adjustment A/c Dr. 4,000
To P’s Account 4,000
(Credit purchase from P Rs. 2,000, entered as sales last year; now
rectified)
(4) B’s Account Dr. 1,000
To A’s Account 1,000
(Amount received from A wrongly posted to the account of B; now
rectified
(5) Suspense Account Dr. 1,000
To C’s Account 1,000
(Rs. 500 received from C wrongly debited to his account; now rectified)
- 123 -
(6) Trade receivables Dr. 500

To Suspense Account 500
(Rs. 500 due by Q not taken into trial balance; now rectified)
(7) R’s Account Dr. 2,000
(Sales to R omitted last year; now adjusted)
(8) Suspense Account Dr. 198
To Profit & Loss Adjustment A/c 198
(Excess posting to purchase account last year, Rs. 2,593, instead of Rs.
2,395, now adjusted)
(9) Profit & Loss Adjustment A/c Dr. 10,898
To Roy’s Capital Account 10,898
(Balance of Profit & Loss Adjustment A/c transferred to Capital Account)
(10) Roy’s Capital Account Dr. 10,698
To Suspense Account 10,698
(Balance of Suspense Account transferred to the Capital Account)
Profit and Loss Adjustment Account

(Prior Period Items)
Rs. Rs.
To P 4,000 By Motor Vehicles A/c 2,700
To Roy’s Capital (transfer) 10,898 By Suspense A/c 10,000

By R 2,000
By Suspense Account 198
14,898 14,898
Suspense Account
Rs. Rs.
To Profit & Loss Adjustment Account 10,000 By Trade Receivables (Q) 500
To C 1,000 By Roy’s Capital Account (Transfer) 10,698
To Profit & Loss Adjustment Account 198
11,198 11,198
- 124 -
ANSWER TO Q.NO.30:
Journal Entries
Particulars L.F. Rs. Rs.
(a) Cash Account Dr. 100
To D. Das 100
(Being the amount received)
(b) Returns Inward Account Dr. 100
(Being the mistake in totalling the Returns Inward Book
corrected)
(c) Furniture Account Dr. 300
To Purchases Account 300
(Being the rectification of mistake by which purchase of
furniture was entered in Purchases book and hence
debited to Purchases Account)
(d) Furniture Account Dr. 375
To Wages Account 375
(Being the wages paid to workmen for making show-cases
which should be capitalised and not to be charged to
Wages Account)
(e) Suspense Account Dr. 7
To Creditors (personal) Account 7
(Being the mistake in crediting the Trade payables
Account less by Rs. 7, now corrected)
(f ) P.C. Joshi Dr. 200
To Allowances Account 200
(Being the cheque of P.C. Joshi dishonoured, previously
debited to Allowances Account)
(g) Drawings Account Dr. 1,000
To Miscellaneous Expenses 1,000
(Being the motor cycle purchased for Mr. Dutt debited to
his Drawings Account instead of Miscellaneous Expenses
Account as previously done by mistake)
(h) Returns Inward Account Dr. 100
To Debtors (Personal) Account 100
(Correction of the omission to record return of goods by
customers)
- 125 -
(i) Singh & Co. Dr. 400

(Being the correction of mistake by which the account of
Singh & Co. was credited by Rs. 200 instead of being
debited)
Dr. Suspense Account Cr.

2015 Rs. 2015 Rs.
Dec.31 To Difference in Trial Balance 493 Dec. 31 By Returns Inwards A/c 100
Dec.31 To Trade Payables A/c 7 Dec.31 By Singh & Co. 400
500 500
ANSWER TO Q.NO.31:
Nature of Account
Sl. No. Title of Account Traditional Approach Accounting Equation Approach
a Rent Outstanding Personal Liability
b Closing Inventory Real Asset
c Sales Real Revenue
d Bank Fixed Deposit Personal Asset
e Cash Real Asset
f Bad Debts Nominal Expense
g Capital Personal Capital
h Sales Tax Payable Personal Liability
i Trade receivables Personal Asset
j Depreciation Nominal Expense
k Drawings Personal Drawings

- 126 -
ANSWER TO Q.NO.32: Journal

Particulars L.F. Debit Rs. Credit Rs.
To Capital Account 20,000
(Being commencement of business)
Purchase Account Dr. 4,000
To Y 4,000
(Being purchase of goods on credit)
Y Dr. 2,000
To Cash 2,000
(Being payment of cash to Y)
Z Dr. 4,000
To Sales 4,000
(Being goods sold to Z)
To Z 6,000
(Being cash received form Z)
Purchase Account Dr. 4,000
To Y 4,000
(Being payment of goods from Y)
Y Dr. 2,000
To Cash Account 2,000
(Being payment of cash to Y)
Z Dr. 4,000
To Sales Account 4,000
(Being goods sold to Z)
To Z 2,000
(Being cash received from Z)
TOTAL 48,000 48,000
Dr. Cash Account Cr.

To Capital A/c 20,000 By Y 2,000
To Z 6,000 By Y 2,000
To Z 2,000 By Balance c/d 24,000
28,000 28,000
- 127 -
Dr. Capital Account Cr.

Date Particulars Rs Date Particulars Rs.
Jan. 31 To Balance c/d 20,000 By Cash A/c 20,000
20,000 20,000
Feb. 1 By Balance b/d 20,000
Dr. Purchase Account Cr.

To Y 4,000 Jan 31. By Balance c/d 8,000
To Y 4,000
8,000 8,000
Feb.1 To Balance b/d 8,000
Dr. Y’s Account Cr.

To Cash 2,000 By Purchases 4,000

To Cash 2,000 By Purchases 4,000
Jan. 31 To Balance c/d 4,000
8,000 8,000
By Balance b/d 4,000
Dr. Z’s Account Cr.

To Sales 4,000 By Cash A/c 6,000
To Sales 4,000 By Cash A/c 2,000
8,000 8,000
Dr. Sales Account Cr.

Jan. 31 To Balance c/d 8,000 By Z 4,000
By Z 4,000
8,000 8,000
Feb.1 By Balance b/d 8,000

- 128 -
ANSWER TO Q.NO.34:
(a) 12,50,000
(b) 2,25,000
(c) 75,000
(d) 59,80,000
These have been solved using the Accounting Equation:
Assets = Capital + Liabilities
ANSWER TO Q.NO.35:
Petty Cash Book
Date Receipts Amount Payment Total Statio- Trave- Misc Repair
2015 Rs. Amount nery Rs. lling Exps. Rs.
Rs. Rs. Rs.
Sept. To Balance b/d 134.90 By 49.80 49.80
Stationery
7
To 365.10 By Misc. 20.90 20.90
Expenses
Reimbursemen
By Repairs 156.70 156.70
By 68.50 68.50
Travelling
By 71.40 71.40
Stationery
By Misc. 6.30 6.30
Expenses
By Repairs 48.30 48.30
421.90 121.20 68.50 27.20 205.00
By Balance 78.10
c/d
500.00 500.00
ANSWER TO Q.NO.36:
Particulars L.F. Dr. Rs. Cr. Rs.
(a) Suspense Account Dr. 100

To Sales Account 100
(Being the correction arising from undercasting of Sales Day
Book)
- 129 -
(b) Return Inward Account Dr. 150

To Green & Co 150
(Being the recording of unrecorded returns)
(c) Suspense Account Dr. 500
To Gupta & Co. 500
(Being the correction of the error by which Gupta & Co. was
debited instead of being credited by Rs. 250).
(d) Furniture Account Dr. 1,000
(Being the correction of recording purchase of furniture as
ordinary purchases)
(e) Red & black Dr. 15
To Discount Account 15
(Being the recording of discount omitted to be recorded)
(f ) Discount Account Dr. 18
(Being the correction of omission of the discount allowed from
Cash Book customer’s account already posted correctly).
ANSWER TO Q.NO.37:
Journal
Particulars L.F. Dr. Cr.
Rs. Rs.
(1) Furniture A/c Dr. 500
To Purchases A/c 500
(Correction of wrong debit to Purchases A/c for furniture purchased)
(2) Repairs A/c Dr. 50
To Building A/c 50
(Correction of wrong debit to building A/c for repairs made)
(3) Drawings A/c. Dr. 100
To Trade Expenses A/c 100
(Correction of wrong debit to Trade Expenses A/c for cash withdrawn by
the proprietor for his personal use)
(4) Rent A/c Dr. 100
To Landlord’s Personal A/c 100
(Correction of wrong debit to landlord’s A/c for rent paid)
- 130 -
(5) Salaries A/c Dr. 125

To Clerk’s (Personal) A/c 125
Correction of wrong debit to Clerk’s personal A/c for salaries paid)
(6) Shaw & Co. Dr. 100
To Shah & Co. 100
(Correction of wrong credit to Shaw & Co. Instead of Shah & Co.)
(7) Typewriter A/c Dr. 700
To Office Expenses A/c 700
(Correction of wrong debit to Office Expenses A/c for purchase of
typewriter)
ANSWER TO Q.NO.38:
1. The Purchases Account should receive another debit of Rs.100 since it was debited short
previously: “To Undercasting of Purchases Book for the month of --- Rs.100.”
2. Due to this error the Returns Inward Account has been posted short by Rs. 50 : the correct entry
will be: “To Undercasting of Returns Inward Book for the month of --- Rs.50.”
3. The omission of the debit to the Depreciation Account will be rectified by the entry: “To Omission of
posting on Rs. 250”.
4. The excess debit will be removed by a credit in the Salaries Account by the entry: “By double
posting on Rs. 75”.
5. Rs.1,500 should have been debited to the Bills Receivable Account and not credited. To correct the
mistake, the Bills Receivable Account should be debited by Rs. 3,000 by the entry: “To Wrong posting
of B/R received on Rs. 3,000”
6. The rectification entry will be: “To Wrong posting Rs. 36”.
7. Due to this error, the discount account has been debited short by Rs. 25. The required entry is : “To
Omission of discount allowed to Satish on Rs. 25.”
ANSWER TO Q.NO.39:
Trial balance as on…..
1. Capital Account - 4,00,000
2. Computer Account 25,000 -
3. Air conditioner and furniture Account 1,00,000 -
4. Fixed deposits Account 2,00,000 -
5. Salaries Account 8,00,000 -
6. Fees received Account - 12,00,000
7. Traveling expenses Account 1,50,000 -
8. Rent and office expenses Account 2,40,000 -
9. Cash Account 1,80,000 -
10. Bank overdraft Account - 95,000
Total 16,95,000 16,95,000
- 131 -
ANSWER TO Q.NO.44:
S.NO. NAME OF ACCOUNT DEBIT BALANCE (Rs.) CREDIT BALANCE (Rs.)
1. Cash account 3,180 -
2. Capital account - 10,000

3. Bank account 6,900 -
4. Purchases account 725 -
5. Sales account - 950
6. Krishna’s account - -
7. Salary outstanding account - 5

8. Rent account 150 -
Total 10,955 10,955
ANSWER TO Q.NO.50:
S.NO. NAME OF ACCOUNT DEBIT BALANCE (Rs.) CREDIT BALANCE (Rs.)
1. Capital account - 12,000
2. Furniture account 2,000 -

3. Sales account - 50,000
4. Purchases account 30,000 -

5. Debtors account 10,000 -
6. Creditors account - 5,000
7. Expenses account 19,300 -
8. Cash account 5,700 -

Total 67,000 67,000
Calculations: Capital = Cash + Furniture = 10,000

Cash account: Opening balance = 10,000 + Cash sales = 5,000 + Received from debtors = 35,000
Less: cash purchases = 10,000 Less: payment to creditors = 15,000 Less: expenses paid = 19,300
- 132 -
Theoretical framework
SOLUTION TO Q.16.
1. False: Overhaul expenses are incurred to put second-hand machinery in working condition. So it
should be capitalised.
2. False: It may be reasonably presumed that money spent for reducing revenue expenditure would
have generated long-term benefits to the entity. So this is capital expenditure.
3. True: Legal fee paid to acquire any property is part of the cost of that property. It is incurred to
possess the ownership right of the property and hence a capital expenditure.
4. False: Legal expenses incurred to defend a suit claiming that the firm’s factory site belongs to the
plaintiff are maintenance expenditure of the asset. Maintenance expenditure in relation to an asset
is revenue expenditure.
5. False: Amount spent for replacement of any worn out part of a machine is revenue expense since
it is part of its maintenance cost.
6. False: Repairing and white washing expenses for the first time of an old building are incurred to
put the building in usable / working condition. These are the part of the cost of building.
Accordingly, these are capital expenditure.
7. True: The Cinema Hall could not be started without license. Expenditure incurred to obtain the
license is pre-operative expense (incurred before the working condition) which is capitalised.
8. True: Cost of temporary huts constructed which were necessary for the construction of the cinema
house is part of the construction cost of the cinema house. Therefore such costs are to be
capitalised.
SOLUTION TO Q.17.
1. Money paid Rs. 10,000 for obtaining license to start a factory is a capital expenditure.
2. Rs. 1,000 paid for removal of Inventory to a new site is revenue expenditure. Such expenditure
occur regularly during business.
3. Rs. 5,000 spent in changing Rings and Pistons of an engine to get fuel efficiency is capital
expenditure. This is an expenditure on improvement of a fixed asset resulting in increase in its
efficiency.
4. Money deposited with MTNL for installation of telephone in office is not an expenditure. This is
treated as an asset and the same is adjusted over a period of time against actual telephone bills.
5. Cost of construction of building including cost of temporary huts is capital expenditure. Building is
fixed asset which will generate enduring benefit to the business over more than one accounting
period. Construction of temporary huts is incidental to the main construction. Such cost is also
capitalised with the cost of building.
- 133 -
SOLUTION TO Q.18.
i. The total cost of the furniture should be treated as Rs. 10,200 i.e., all the amounts mentioned
should be capitalised since without such expenditure the furniture would not be available for use.
ii. License for running the cinema house is necessary, hence its cost of Rs.20,000 should be
capitalised. But the fine of Rs.1,000 is revenue expenditure. The renewal fee of Rs.2,000 for the
next year is also revenue expenditure but pertains to the next year; hence, it is a prepaid
expense.
iii. Half of the insurance premium pertains to the year beginning on 1st April, 2016. Hence such
amount should be treated as prepaid expense. The remaining amount is revenue expense for
the current year.
iv. Since the temporary huts were necessary for the construction, their cost should be added to the
cost of the cinema hall and thus capitalised.
SOLUTION TO Q.19.
1. Overhauling expenses are incurred for the engine of a motor car to derive better fuel efficiency.
So this expenditure should be capitalised.
2. Inauguration expenses incurred on the opening of a new unit is in the nature of revenue
expenditure, as this expenditure is not necessary to bring assets into working condition.
3. The amount paid to workers on voluntary retirement is in the nature of revenue expenditure. But
since the magnitude of the amount of expenditure is very high, it is better to capitalize it.
SOLUTION TO Q.20.
i. Capital expenditure since without such expenditure the capital assets would not be available for
use.
ii. Revenue receipt as this receipt is a normal regular receipt of business.
iii. Capital expenditure since the demolition of old building was necessary for the construction of big
building, their cost should be added to the cost of the building.
iv. Capital receipt as this receipt occur once in a while and normally involves huge amount.
- 134 -
SOLUTION TO Q.21.
i. Renovation of cabins increased the number of cabins. This has an effect on the future revenue
generating capability of the business. Thus the renovation expense is capital expenditure in
nature.
ii. Expense incurred to recover installments due from customer does not increase the revenue
generating capability in future. It is a normal recurring expense of the business. Thus the legal
expenses incurred in this case are revenue expenditure in nature.
iii. Expenses incurred on account of transportation of fixed asset are capital expenditure in nature.
- 135 -
COMPANY ACCOUNTS
SOLUTION TO Q.2. A Ltd.
Journal
2017 Particulars Rs. Rs.
May 20 Bank Account Dr. 8,00,000
To Share Application A/c 8,00,000
(Application money on 40,000 shares at Rs.20 per share
received.)
June 1 Share Application A/c Dr. 8,00,000

To Share Capital A/c 8,00,000
(The amount transferred to Capital Account on 40,000
shares at – Rs.20 on application. Directors’ resolution
no...... dated…..)
Share Allotment A/c Dr. 12,00,000
(Being share allotment made due at Rs.30 per share.
Directors’ resolution no...... dated…..)
July 15 Bank Account Dr. 12,00,000

To Share Allotment A/c 12,00,000
(The sums due on allotment received.)
Oct. 1 Share First Call Account Dr. 10,00,000

To Share Capital Account 10,00,000
(Amount due from members in respect of first call-on
40,000 shares at Rs.25 as per Directors, resolution no...
dated...)
Oct. 20 Bank Account Dr. 10,00,000

To Share First Call Account 10,00,000
(Receipt of the amounts due on first call.)
2018 Dr.
Feb. 1 Share Second and Final Call A/c 10,00,000
- 136 -
(Amount due on 40,000 share at Rs. 25 per share on

second and final call, as per Directors resolution no...
dated...)
Mar. 5 Bank Account Dr. 10,00,000

To Share Second & Final Call A/c 10,00,000
(Amount received against the final call on 40,000 shares
at Rs. 25 per share.)
SOLUTION to Q.3
Pioneer Equipment Limited
Journal
2017 (Rs.000) (Rs.000)
Oct. 1 Bank A/c Dr. 6,250
To Equity Share Application A/c 6,250
(Money received on applications for 2,50,000
shares @ Rs. 25 per share)
Oct. 20 Equity Share Application A/c Dr. 6,250

To Equity Share Capital A/c 6,250
(Transfer of application money on allotment to
share capital)
Oct. 20 Equity Share Allotment A/c Dr. 18,750

To Securities Premium A/c 6,250
(Amount due on allotment of 2,50,000 shares @
Rs. 75 per share including premium)
Oct. 31 Bank A/c Dr. 18,750

To Equity Share Allotment A/c 18,750
(Money received including premium consequent
upon allotment)
- 137 -
SOLUTION to Q.4.
Pant Ltd.
Journal
Particulars Rs. Rs.
Bank A/c Dr. 12,00,000

To Equity Share Application A/c 12,00,000
(Being the application money received for 60,000 shares at Rs.20
per share)
Equity Share Application A/c Dr. 12,00,000

To Equity Share Capital A/c 10,00,000
(Being share allotment made for 50,000 shares and excess
refunded.)
Equity Share Allotment A/c Dr. 5,00,000

(Being allotment amount due on 50,000 equity shares at Rs. 10 per
share as per Directors’ resolution no... dated...)
Bank A/c Dr. 4,50,000

Calls in Arrears A/c Dr. 50,000
To Equity Share Allotment A/c 5,00,000
(Being allotment money received for 45,000 shares at Rs.10 per
share.)
SOLUTION to Q.6.
Journal Entries in the Books of the Company
Date Particulars L.F. Debit Credit
Amount Amount
(Rs.) (Rs.)
Jan. 31 Bank A/c Dr. 2,50,000
(Money received on applications for 10,000 shares
@ Rs. 25 per share)
- 138 -
March 1 Equity Share Application A/c Dr. 2,50,000

(Transfer of application money on 10,000 shares to
share capital)
March 1 Equity Share Allotment A/c Dr. 3,00,000

(Amount due on the allotment of 10,000 shares @
Rs. 30 per share)
Bank A/c Dr. 3,00,000

(Allotment money received)
June 1 Equity Share First Call A/c Dr. 2,00,000

(First call money due on 10,000 shares @ Rs. 20
per share)
Bank A/c Dr. 1,92,500

Calls-in-Arrears A/c Dr. 20,000
To Equity Share First Call A/c 2,00,000
To Calls-in-Advance A/c 12,500
(First call money received on 9000 shares and
calls-in- advance on 500 shares @ Rs. 25 per
share)
Alternatively,
Bank A/c Dr. 1,92,500
To Equity Share second n final call A/c 12,500
(First call money received on 9000 shares and
calls-in- advance on 500 shares @ Rs. 25 per
share)
- 139 -
ANSWER TO Q.NO.7:
In the books of A Ltd.
Date Journal Particulars Rs. Rs.
Equity Share Capital A/c (30,000 x Rs. 10) Dr. 3,00,000

To Equity Share Final Call A/c (30,000 x Rs. 4) 1,20,000
To Forfeited Shares A/c (30,000 x Rs. 6) 1,80,000
(Being the forfeiture of 30,000 equity shares of Rs.10 each
fully called-up for non-payment of final call money @ Rs.4
each as per Board’s Resolution No…. dated….)
ANSWER TO Q.NO.8:
Journal Entries in the Books of the Company
Particulars L.F. Debit Credit

(Rs.) (Rs.)
Bank A/c Dr. 2,50,000

(Money received on 1,00,000 shares @ Rs.2.5 per share)

(Transfer of application money on to share capital) Dr.
Equity Share Allotment A/c Dr 3,00,000

(Amount due on allotment 1,00,000 shares @ Rs.3 per share)
Bank A/c Dr. 3,00,000
(Allotment money received)
Equity Share First Call A/c Dr. 2,00,000

(First call money on 1,00,000 shares @ Rs.2 per share)
Bank A/c Dr. 2,25,000

To Calls in Advance A/c 25,000
- 140 -
(Being first call money received along with calls in advance on

10,000 shares at Rs.2.50 per share)
Equity Share Final Call A/c Dr. 2,50,000

(Being final call made due on 1,00,000 shares at Rs.2.50 each)
Bank A/c Dr. 2,22,500

Calls in Advance A/c Dr. 25,000
Calls in Arrears A/c Dr. 2,500
To Equity Share Final Call A/c 2,50,000
(Being final call received for 89,000 shares and calls in
advance for 10,000 shares adjusted)
Interest on Calls in Advance A/c Dr. 750

To Shareholders A/c 750
(Being interest made due on calls in advance of Rs.25,000 at
the rate of 12% p.a.)
Shareholders A/c Dr. 750

To Bank A/c 750
(Being payment of interest made to shareholder)
Shareholders A/c Dr. 41.67

To Interest on Calls in Arrears A/c 41.67
(Being interest on calls in arrears made due at the rate of 10%)
Bank A/c Dr. 2,541.67
To Calls in Arrears A/c 2,500
To Shareholders A/c 41.67
(Being money received from shareholder for calls in arrears
and interest thereupon)
- 141 -
ANSWER TO Q.NO.9: Journal of X Ltd.
2020 Rs. In lakhs Rs. In lakhs

May 1 Bank A/c Dr. 200
To Share Application A/c 200
(Receipt of applications for 10 lakh shares along with
application money of ₹ 20 per share.)
May 1 Share Application A/c Dr. 200
Share Allotment A/c Dr. 300
To Share Capital A/c 500
(The allotment of 10 lakh shares : payable on application ₹20
share and ₹30 on allotment as per Directors’ resolution no….
dated…..)
May 1 Bank A/c Dr. 310
To Shares allotment A/c 300
To Calls in Advance A/c 10
(Receipt of money due on allotment @ ₹30, also the two calls
Directors, resolution no….dated….)
Oct. 1 Share First Call A/c Dr. 300
(The amount dur on 10 lakh shares @ ₹30 on first call, as per
Directors, resolution no… dated…)
Bank A/c Dr. 294
Calls in Advance A/c Dr. 6
To Share First Call A/c 300
(Receipt of the first call on 9.80 lakh shares, the balance
having been previously received and now debited to call in
advance account.)
2021
Feb.1 Share Final Call A/c Dr. 200
(The amount due on Final Call on 10 lakh shares @ ₹20 per
share, as per Directors’ resolution no…dated…)
Feb.1 Bank A/c Dr. 196
Call in Advance A/c Dr. 4
To Share Final Call A/c 200
(Receipt of the moneys due on final call on 9.80 lakhs shares,
the balance having been previously received.)
- 142 -
Feb.1 Interest on calls in Advance A/c Dr. 0.66

To Shareholder A/c 0.66
(Being interest on call in advance made due)
Feb.1 Shareholder A/c Dr. 0.66
To Bank A/c 0.66
(Being interest paid)
Working Note:
The interest on calls in advance paid @ 12% on: ₹
₹ 6,00,000 (first call) from 1st May to 1st Oct., 2020-5 months 30,000
₹ 4,00,000 (final call) from 1st May to 1st Feb., 2021-9 months 36,000
Total Interest Amount Due 66,000
ANSWER TO Q.NO.10: In the books of X Ltd.

Date Particulars Dr. Rs. Rs.
Equity Share Capital A/c (5,000 x Rs.100) Dr. 5,00,000
Securities Premium A/c (See Note) 1,00,000
To Equity Share Allotment A/c (5,000 x Rs.50) 2,50,000
To Equity Share First and Final Call A/c (5000 x Rs.50) 2,50,000
To Forfeited Shares A/c (5000 x Rs.20) 1,00,000
(Being the forfeiture of 5,000 equity shares of Rs.100 each
fully called-up, issued at a premium of 20%, for non
payment of allotment and call money as per Board’s
Resolution No…..dated….)
ANSWER TO Q.NO.11:
Journal Rs. Rs.
Preference Share Capital A/c (2,000 x Rs.75) Dr. 1,50,000
To Preference Share Allotment A/c 50,000
To Preference Share First Call A/c 50,000
To Forfeited Share A/c 50,000
(Being the forfeiture of 2,000 preference shares Rs.75 each
being called up for non-payment of allotment and first call
money as per Board’s Resolution No.... dated.....)
Bank A/c (1,500 x Rs.65) Dr. 97,500

Forfeited Shares A/c (1,500 x Rs.10) Dr. 15,000
To Preference Share Capital A/c 1,12,500
- 143 -
(Being re-issue of 1500 shares at Rs. 65 per share paid-up as

Rs.75 as per Board’s Resolution No…..dated….)
Forfeited Shares A/c Dr. 22,500

To Capital Reserve A/c (Note 1) 22,500
(Being profit on re-issue transferred to Capital/Reserve)
Working Note:
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share = Rs.50,000/2000 = Rs. 25
Loss on re-issue = Rs.75 – Rs.65 = Rs.10
Surplus per share re-issued Rs.15
Transferred to capital Reserve Rs.15 x 1500 = Rs.22,500
ANSWER TO Q.NO.12:
Journal
1. Land and Buildings A/c Dr. 4,00,000

To Y Co. Ltd A/c 4,00,000
(Being the land and buildings purchased from Y Co. Ltd as
per agreement dated…).
2. Y.Co. Ltd A/c Dr. 4,00,000
(Being 40,000 shares of Rs. 10 each issued to Y Co. Ltd. on
purchase of land and building)
3. Bank A/c Dr. 5,00,000
To Equity Share Application & Allotment A/c 5,00,000
(Being the issue of 50,000 shares of Rs.10 each as per
Board’s Resolution No…..dated…)
4. Equity Share Application and Allotment A/c Dr. 5,00,000
(Being shares allotted for application money received.)
- 144 -
Balance Sheet of X Company Limited as at….
Particulars Notes No. Rs.
EQUITY AND LIABILITIES

Shareholders’ funds
Share capital 1 9,00,000
Total 9,00,000
ASSETS
1. Non-current assets
a Property, plant and Equipment
i. Tangible assets 2 4,00,000
2. Current assets
Cash and cash equivalents 3 5,00,000
Total 9,00,000
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Authorised share capital
90,000 Equity shares of Rs.10 each 9,00,000
Issued share capital

Subscribed Share Capital
90,000 Equity Shares of Rs.10 each 9,00,000
Called up and Paid up Capital
90,000 Equity Shares of Rs.10 each 9,00,000
(Out of the above 40,000 shares have been allotted as fully paid up pursuant to
Contract without payment being received in cash)
- 145 -
2. Tangible Assets
Land and Building 4,00,000
3. Cash and cash equivalents

Balances with banks 5,00,000
ANSWER TO Q.NO.13:
Journal of Shreyas Ltd
Date Particulars L.F. Amount Amount
Dr. Cr.
1.7.2016 Calls in Arrears A/c Dr. 30,000
To Equity Share First Call A/c 30,000
(Being amount due on first call on 10,000 shares at
Rs.3 per share transferred to calls in arrears account)
1.4.2017 Bank A/c Dr. 30,000
To Calls in Arrears A/c 30,000
(Being calls in arrears received)
ANSWER TO Q.NO.14:
Delhi Artware Ltd.
Cash Book
To Equity Shares Applications Account 12,50,000 By Balance c/d 14,440,000

(application money on 50,000 shares at Rs.25)
To Preference Share Application A/c
(application money on 1,00,000 shares at 20) 20,00,000
To Equity Share Allotment A/c
(allotment money on 50,000 shares at Rs.20) 10,00,000
To Preference Share Allotment A/c 30,00,000
(allotment money on 1,00,000 shares at Rs.30)
To Equity Shares First Call A/c 15,00,000
(Rs.30 on 50,000 shares)
To Preference Share First Call A/c 20,00,000
(Rs.20 on 1,00,000 shares)
To Equity Shares Final Call A/c 10,50,000
- 146 -
To Preference Share Final A/c 26,40,000

14,440,000 14,440,000
Journal
Rs. Rs.

[The Credit to share capital on allotment of 50,000 equity shares at
Rs.45 per share(Rs.25 on application and Rs.20 on allotment) allotted
as per Directors resolution no.... dated.....]
Preference Share Application A/c Dr. 20,00,000
Preference Share Allotment A/c Dr. 30,00,000
[The credit to Preference Share Capital on allotment of 1,00,000
preference shares at Rs.50 per share (Rs.20 on application and
Rs.30 on allotment), allotted as per Directors’ resolution no... dated...]
Equity Share First Call A/c Dr. 15,00,000
(Amount due on 50,000 equity shares at Rs.30 per share as per
Directors’ resolution no... dated...)
Preference Share First Call A/c Dr. 20,00,000
(Amount due on 1,00,000 preference shares at `20 per share, as per
Directors’ resolution no...dated...)
Equity Share Final Call A/c Dr. 12,50,000
(Amount due on final call on 50,000 equity shares at` 25 per share, as
per Directors’ resolution no... dated...)
Preference Share Final Call A/c Dr. 30,00,000
(Amount due on final call on 1,00,000 preference shares at Rs.30 per
share, as per Directors’ resolution no... dated...)
- 147 -
Note: Students may note that cash transactions have not been journalised as these have been
entered in the Cash Book.
ANSWER TO Q.NO.15:
Balance Sheet as at 31st March, 2017

Total 5,30,000
ASSETS
Current assets
Cash and cash equivalents 2 5,30,000
Total 5,30,000
Notes to accounts
Rs. Rs.
1. Share Capital
Authorised share capital
1,00,000 Equity shares of Rs.10 each 10,00,000
Subscribed share capital
Called up and Paid up share capital
60,000 Equity shares of Rs.10 each Rs.9 called up 5,40,000 5,30,000
Less: Calls unpaid on 5,000 shares @ Rs.2 per share (10,000)
2. Cash and cash equivalents 5,30,000

Balances with banks
- 148 -
ANSWER TO Q.NO.16:
In the books of Beautiful Co. Ltd.

Equity Share Capital A/c (1,500 x Rs.10) Dr. 15,000

Securities Premium A/c (500 x Rs.2) Dr. 1,000
To Equity Share Allotment A/c (500 x Rs.5) 2,500
To Equity Share Call A/c (1,500 x Rs.4) 6,000
To Forfeited Shares A/c 7,500
(Being forfeiture of 1,500 equity shares for non-payment of allotment
and call money on 500 shares and for non-payment of call money on
1,000 shares as per Board’s Resolution No….. dated ….)
Bank A/c Dr. 10,000
(Being re-issue of 1250 shares @ Rs.8 each as per Board’s
Resolution No…..dated….)
To Capital Reserve A/c 3,500
(Being profit on re-issue transferred to Capital Reserve)
Balance Sheet of Beautiful Limited as at……


Reserves and Surplus 2 62,500
Total 3,61,500
ASSETS
Current assets
Cash and cash equivalents (bank) 3,61,500
Total 3,61,500
- 149 -
Notes to accounts
Rs. Rs.
1. Share Capital
Subscribed, called up and paid up share capital

Add: Forfeited shares 1,500 2,99,000
2. Reserves and Surplus

Securities Premium 59,000
Capital Reserve 3,500 62,500
Working Note:
(1) Calculation of Amount to be Transferred to Capital Reserve:
Amount forfeited per share of Shyam Rs. 6

Less: Loss on re-issue per share (Rs.2)
Surplus Rs.4
Transferred to Capital Reserve: Shyam’s Share (750 x Rs.4) Rs.3,000
Amount forfeited per share of Ram Rs. 3

Less: Loss on re-issue per share (Rs.2)
Surplus Rs.1
Transferred to Capital Reserve: Ram’s Share (500 x Re.1) Rs.500
Total Rs.3,500
(2) Balance of Security Premium

Total Premium amount receivable on allotment = 60,000
Less: Amount reversed on forfeiture = (1,000)
Balance remaining = 59,000
- 150 -
ANSWER TO Q.NO.20:
In the Books of B Ltd.
Cash Book (Bank column only)
To Equity Share Application A/c 12,00,000 By Equity Share Application A/c 2,00,000
(Being excess money refunded)
To Equity Share Final Call A/c 3,97,000 By Balance c/d 23,89,500

25,89,500 25,89,500
Journal


To Securities Premium A/c 4,00,000
Equity Share Capital A/c (150 x Rs.100) Dr. 15,000
Securities Premium A/c (150 x Rs.20) Dr. 3,000
To Equity Share Allotment A/c 7,500
To Equity Share Final Call A/c 3,000
To Forfeited Shares A/c 7,500
- 151 -
issue of debentures
ANSWER TO Q.NO.1:
Books of Koinal Chemicals Ltd.
Journal Entries
Particulars Debit Credit
Amount Amount
(Rs.In 000) (Rs. In 000)
Bank A/c Dr. 400
To Debenture Application A/c 400
(Debenture application money received)
Debentures Application A/c Dr. 400
To 10% Debentures A/c 400
(Debenture application money transferred to 10% debenture
account consequent upon allotment)
Debenture allotment A/c Dr. 700
To 10% Debentures A/c 600
To Securities Premium A/c 100
(Call made on allotment of debenture including premium)
Bank A/c Dr. 700
To Debenture Allotment A/c 700
(Money received consequent upon allotment)
ANSWER TO Q.NO.2:
Journal Entries in the books of Kapil Limited
Date Date (Rs.) (Rs.)
2017 Bank A/c Dr. 55,00,000

March 1 To 12% Debentures Application A/c 55,00,000
(Being the money received on 50,000 debentures
@ Rs.110 each including premium of Rs. 10 each)
March 9 12% Debentures Application A/c Dr. 55,00,000
To 12% Debentures A/c 50,00,000
To Securities Premium A/c 5,00,000
(Being the allotment of 50,000 debentures of
Rs.100 each, premium @ Rs.10 each transferred
to Securities Premium Account as per Board’s
Resolution No….dated….)
- 152 -
ANSWER TO Q.NO.3:
Journal Entries in the Books of Country Crafts Ltd.

(Rs.'000 ) (Rs..'000 )
(a) Bank A/c Dr. 10,500
To Debenture Application A/c
(Debenture application money received) 10,500
(b) Debenture Application A/c Dr. 10,500
Loss on Issue of Debenture A/c Dr. 1,000
To Securities Premium A/c 500
To 8% Debentures A/c 10,000
To Premium on Redemption A/c 1,000
(Debenture application money transferred to debenture
account)
ANSWER TO Q.NO.4:
Books of Atul Ltd.
Journal Entries
(Rs.) (Rs.)
Bank A/c Dr. 30,00,00,000
To Debenture Application A/c 30,00,00,000
(Debenture application money received)
Debenture Application A/c Dr. 30,00,00,000
To 8% Debentures A/c 30,00,00,000
(Application money transferred to 8%
debentures account consequent upon
allotment)
Debenture allotment A/c Dr. 60,00,00,000
Discount on issue of debentures A/c Dr. 10,00,00,000
To 8% Debentures A/c 70,00,00,000
(Amount due on allotment)
Bank A/c Dr. 60,00,00,000
To Debenture Allotment A/c 60,00,00,000
(Money received consequent upon
allotment)
- 153 -
ANSWER TO Q.NO.5:
In the books of Simmons Limited
Date Particulars Rs. 000 Rs. 000
April 1 Bank A/c Dr. 11,000

To 12% Debentures Application A/c 11,000
(Being money received on 1,10,000 debentures)
April 7 12% Debentures Application A/c Dr. 1,000
To Bank A/c 1,000
(Being money on 10,000 debentures refunded as per Board’s
Resolution No…..dated…)
April 7 12% Debentures Application A/c Dr. 10,000
(Being the allotment of 10,000 debentures of Rs. 100 each at
par as per Board’s Resolution No….dated…)
ANSWER TO Q.NO.6: Books of Agrotech Ltd.

Journal Entries
(Rs.) Lakhs (Rs.) Lakhs
Bank A/c Dr. 7,500
To Debenture Application A/c 7,500
(Debentures application money received)
Debenture Application A/c Dr. 7,500
(Application money transferred to 9% deb account)
Debenture Allotment A/c Dr. 6,600
Loss on issue of debenture A/c Dr. 1,650
(Call made consequent upon allotment of debentures
issued at discount and redeemable at premium)
Bank A/c Dr. 6,600
To Debenture Allotment A/c 6,600
(Allotment amount received)
Working Notes :
Loss on issue of debentures =
(Amount of discount on issue + Premium payable on redemption) x No. of Debentures
= (6% of Rs.100 + 5% of Rs.100) x 150 lakh = (Rs.6 + Rs.5) x 150 lakh = Rs.1,650 lakh
- 154 -
ANSWER TO Q.NO.7:
In the books of X Limited
Date Particulars Rs. ‘00 Rs. ‘00
2017
May 31 Bank A/c Dr. 10,800
To 12% Debentures Application A/c 10,800
June 9 12% Debentures Application A/c Dr. 1,800
To Bank A/c 1,800
June 9 12% Debentures Application A/c Dr. 9,000
Discount on Issue of Debentures A/c Dr. 1,000 10,000
To 12% Debentures A/c
Bank Account
31.5.17 To 12% Debentures 10,800 9.6.2017 By 12% Debentures 1,800

Application A/c Application A/c
9.6.2017 By Balance c/d 9,000
10,800 10,800
12% Debentures Account

30.6.17 To Balance c/d 10,000 9.6.2017 By 12% Debentures Application A/c 9,000
9.6.2017 By Discount on Issue of Debentures A/c 1,000
10,000 10,000
12% Debentures Application Account

9.6.2017 To Bank A/c 1,800 31.5.2017 By Bank A/c 10,800
9.6.2017 To 12% Debentures A/c 9,000
10,800 10,800
Discount on Issue of Debentures Account

9.6.2017 To12% Debentures A/c 1,000 30.6.2017 By Balance c/d 1,000
1,000 1,000
- 155 -
ANSWER TO Q.NO.8:
Method 1:
No journal entry in the books of accounts; only disclosure in notes to accounts as follows:
Notes to Accounts of X Limited as at…(includes)

Long Term Borrowings Rs.
Secured Loan
IDBI Loan 1,00,00,000
(Collaterally secured by issue of Rs.1,50,00,000 14% First Mortgage Debentures)
Method 2:
Following journal entry shall be made:
Debentures Suspense Account 1,50,00,000
To % Debentures Account 1,50,00,000

(Being the issue of…debentures collaterally as per
Board’s Resolution No…..dated)
The Debentures Suspense Account will appear on the assets side of the Balance Sheet under Other
Non- Current Assets and Debentures on the liabilities side of the Balance Sheet. When the loan is
repaid, the entry is reversed in order to cancel it.
ANSWER TO Q.NO.9:
In the books of X Company Ltd.
(a) Bank A/c Dr. 22,50,000

To Debentures Application A/c 22,50,000
Debentures Application A/c Dr. 22,50,000
Discount on issue of Debentures A/c Dr. 2,50,000
(b) Fixed Assets A/c Dr. 10,00,000
To Vendor A/c 10,00,000
(Being the purchase of fixed assets from vendor)
Vendor A/c Dr. 10,00,000
Discount on Issue of Debentures A/c Dr. 2,50,000
- 156 -
(Being the issue of debentures of Rs. 12,50,000 to vendor to

satisfy his claim)
(c) Bank A/c Dr. 10,00,000
To Bank Loan A/c (See Note) 10,00,000
(Being a loan of Rs.10,00,000 taken from bank by issuing
debentures of Rs.12,50,000 as collateral security)
Note : No entry is made in the books of account of the company at the time of making issue of such
debentures. In the Balance Sheet the fact that the debentures being issued as collateral security and
outstanding are shown under the respective liability.
ANSWER TO Q.NO.10:
Total amount of discount comes to Rs.6,00,000 (Rs.6 X 1,00,000). The amount of discount to be
written-off in each year is calculated as under :
Year end Debentures Ratio in which discount Amount of discount to be
outstanding to be written-off written-off
1st Rs.1,00,00,000 1/5 1/5th of Rs.6,00,000 = Rs.1,20,000
2nd Rs.1,00,00,000 1/5 1/5th of Rs.6,00,000 = Rs.1,20,000

3rd Rs.1,00,00,000 1/5 1/5th of Rs.6,00,000 = Rs.1,20,000
4th Rs.1,00,00,000 1/5 1/5th of Rs.6,00,000 = Rs.1,20,000

5th Rs.1,00,00,000 1/5 1/5th of Rs.6,00,000 = Rs.1,20,000
ANSWER TO Q.NO.11:
Calculation of amount of discount to be written-off
At the Debentures Ratio of Amount of discount to be

Year end Outstanding Benefit written-off
before redemption Derived
2010 Rs.20,00,000 5 5/15th of Rs.1,20,000 = Rs.40,000
2011 Rs.16,00,000 4 4/15th of Rs.1,20,000 = Rs.32,000
2012 Rs.12,00,000 3 3/15th of Rs.1,20,000 = Rs.24,000

2013 Rs.8,00,000 2 2/15th of Rs.1,20,000 = Rs.16,000
2014 Rs.4,00,000 1 1/15th of Rs.1,20,000 = Rs.8,000
TOTAL 15 Rs.1,20,000
- 157 -
ANSWER TO Q.NO.12
CORRECTION IN QUESTION: A COMPANY ISSUED 12% DEBENTURES OF THE
FACE VALUE OF RS.10,00,000
Journal Entries
Date Particulars (Rs.) (Rs.)
1-1-2017 Bank A/c Dr. 9,00,000

Discount/Loss on Issue of Debentures A/c Dr. 1,50,000
To 12% Debentures A/c Dr. 10,00,000
To Premium on Redemption of Debentures A/c 50,000
(For issue of debentures at discount redeemable at
premium)
30-6-2017 Debenture Interest A/c Dr. 60,000

To Debenture holders A/c 54,000
To Tax Deducted at Source A/c 6,000
(For interest payable)
Debenture holders A/c Dr. 54,000
Tax Deducted at Source A/c Dr. 6,000
To Bank A/c 60,000
(For payment of interest and TDS)
31-12- Debenture Interest A/c Dr. 60,000
2017 To Debenture holders A/c 54,000
To Tax Deducted at Source A/c 6,000
(For interest payable)
Debenture holders A/c Dr. 54,000
Tax Deducted at Source A/c Dr. 6,000
To Bank A/c 60,000
For payment of interest and tax)
Profit and Loss A/c Dr. 1,20,000
To Debenture Interest A/c 1,20,000
(For transfer of debenture interest to profit and loss
account at the end of the year)
Profit and Loss A/c Dr. 30,000
To Discount/Loss on issue of debenture A/c 30,000
(For proportionate debenture discount and premium on
redemption written off, i.e., 1,50,000 x 1/5)
- 158 -
PARTNERSHIP ACCOUNTS
ANSWER TO Q.NO.1:
Computation of the value of goodwill:
(i) Average Profit for three years, ending 30th June; before death:
Year ending 30th June, 2014 : Rs. Rs.
1/2 of 2013 profits 33,600
1/2 of 2014 profits 37,800 71,400
Year ending 30th June, 2015 :

1/2 of 2014 37,800
1/2 of 2015 profits 36,000 73,800
Year ending 30th June, 2016 :
1/2 of 2015 36,000

1/2 of 2016 profits 31,200 67,200
Total 2,12,400
Average Profit 70,800
(ii) Average future maintainable profit: Rs.

Average profits earned 70,800
Less : Partner's remuneration 45,000

Less : 8% on capital employed 12,480 (57,480)
13,320
(iii) Goodwill @ three years' purchase 39,960
Adjustment entries for Goodwill

Journal Entries
Particulars Dr. (Rs.) Cr. (Rs.)
Clever's Capital Account Dr. 7,992

Dull's Capital Account Dr. 7,992
To Wise’s Capital Account 15,984
(Adjusted entry passed for share of goodwill of Wise through remaining
partner’s capital accounts in gaining ratio)
- 159 -
Working Note:
Partner New Share Old Share Difference
4 4
Wise - - = −
10 10
Clever 1 - 3 = 2
2 10 10
Dull 1 - 3 = 2
2 10 10
ANSWER TO Q.NO.2: A’s Capital Account

2016 Particulars Rs. 2016 Particulars Rs.
Dec. 31 To Bank A/C - (Drawings) 8,000 Jan. 1 By Bank A/C 30,000
To Balance c/d 33,800 Dec. 31 By Profit and Loss app A/c 1,800
- Interest
By Profit and Loss app A/c – 10,000
(5/8 Profit)
41,800 41,800
B’s Capital Account

To Cash - (Drawings) 10,000 Jan. 1 By Cash 20,000
To Balance c/d 23,200 Dec. 31 By Profit and Loss A/c
- Salary 6,000
-Interest 1,200
By Profit and Loss A/c 6,000
- (3/8 Profit)
33,200 33,200
ANSWER TO Q.NO.3:
Books of Weak, Able & Lazy
Profit and Loss Appropriation Account for the year ended
31st December, 2016
To Weak’s Current a/c 7,500 By Net Profit (Adjusted) 55,750
To Able’s Current a/c 4,000
To Lazy’s Current a/c 3,000
- 160 -
(interest on capital)
To Profit transferred to: By Weak’s Current a/c 630

Weak’s Current a/c 21,400 By Able’s Current a/c 520
Able’s Current a/c 10,700 By Lazy’s Current a/c 400
Lazy’s Current a/c 10,700 (Interest on Drawings)
57,300 57,300
Working Notes:
Adjusted Profit Rs.
Net Profit as per Profit & Loss A/c 60,000
Add : Drawings by Weak : 750

Life Insurance Premium of Weak charged to Miscellaneous Expenditure A/c of the Firm
Add :Drawings by Able : 3,000
Travelling expenses of Able in connection with pleasure trip to U.K. charged to
travelling expenses A/c of the firm
Less: Repairs to Machinery wrongly capitalized (10,000)
Add : Depreciation charged @ 20% 2,000
55,750
Interest on Drawings :
Particulars Weak Able Lazy
Drawings 15,000 10,000 10,000
Add : Rectification adjustments 750 3,000 –

15,750 13,000 10,000
Interest @ 8% p.a. for 6 months 630 520 400
ANSWER TO Q.NO.5:
There is no partnership deed. Therefore, the following provisions of the Indian Partnership Act are to
be applied for settling the dispute.
(i) No interest on capital is payable to any partner. Therefore, Ram is not entitled to interest on
capital.
(ii) No remuneration is payable to any partner. Therefore, Rahim is not entitled to any salary.
- 161 -
(iii) Interest on loan is payable @ 6% p.a. Therefore, Karim is to get interest @ 6% p.a. on Rs.
2,000 instead of 12%.
(iv) The profits should be distributed equally.
Profit and Loss Appropriation Account for the year ended……….
To Interest on Karim Loan A/c 120 By Profit and Loss A/c – 45,000
(Rs. 2,000 x 6/100) (Net profit)
To Reserve A/c – 10% of 4,488
Rs. (45,000-120)
To Share of Profit A/c :
Ram: Rs. 13,464
Rahim: Rs. 13,464
Karim: Rs. 13,464 40,392
45,000 45,000
ANSWER TO Q.NO.6:
Journal Entries
2016 Particulars Dr. (Rs.) Cr. (Rs.)
Jan. 1 Bank Account Dr. 35,000
To Shyam’s Capital Account 35,000
(Being amount brought in by Shyam for capital and goodwill)
Shyam’s Capital Account Dr. 10,000
To Ram’s Capital Account 5,000
To Mohan’s Capital Account 5,000
(Being Shyam’s share of goodwill adjusted to existing partners’
capital accounts in the profit sacrificing ratio 1:1)
Revaluation Account Dr. 5,000
To Plant and Machinery Account 3,000
To Provisions for Doubtful Debts Account 500
To Trade payables Account 1,500
(Being recording of the reduction in the value of assets and the
liability which had been previously omitted)
- 162 -
Building Account Dr. 7,000

To Revaluation Account 7,000
(Being increase in the value of building brought into account)
Revaluation Account Dr. 2,000
To Ram’s Capital Account 1,200
To Mohan’s Capital Account 800
(Being profit on revaluation credited to Ram and Mohan in the
old profit sharing ratio)
Balance Sheet of Ram, Mohan and Shyam as at January 1, 2016

Trade payables 16,500 Buildings 25,000
Capital Accounts : Plant and Machinery 12,000
Ram 26,200 Inventories 12,000

Mohan 30,800 Trade receivables 10,000
Shyam 25,000 82,000 Less : Provision for (500) 9,500

Doubtful Debts
Bank 40,000
98,500 98,500
Working Note: Profit sacrificing ratio:

Ram = 3/5 less 1/2 = 1/10
Mohan = 2/5 less 3/10 = 1/10
ANSWER TO Q.NO.7:
Memorandum Revaluation Account
To Provision for Bad Debts A/c 500 By Freehold premises A/c 40,000
To Inventory A/c 3,000 By Furniture A/c 5,000
To Plant A/c 5,000 By Office equipment A/c 2,500
To Profit on Revaluation A/c
A’s Capital-3/5 23,400
B’s Capital-2/5 15,600
47,500 47,500
- 163 -
To Freehold premises A/c 40,000 By Provision for Bad Debts A/c 500
To Furniture A/c 5,000 By Inventory A/c 3,000

To Office equipment A/c 2,500 By Plant A/c 5,000
Loss on Revaluation A/c
A’s Capital -12/25 18,720
B’s Capital-8/25 12,480
C’s Capital-5/25 7,800

47,500 47,500
Partners’ Capital Accounts

Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To A’s Capital – – 6,000 By Balance b/d 2,00,000 1,00,000 -
A/c
To B’s Capital – – 4,000 By Bank A/c – – 60,000
A/c
To Loss on 18,720 12,480 7,800 By C’s Capital 6,000 4,000 –
revaluation A/c A/c
To Balance c/d 2,10,680 1,07,120 42,200 By Profit on 23,400 15,600 –
revaluation A/c
2,29,400 1,19,600 60,000 2,29,400 1,19,600 60,000
Balance Sheet as at 1.4.2016

Trade payables 50,000 Freehold premises 2,00,000
Capital A/c : Plant 40,000

A 2,10,680 Furniture 20,000
B 1,07,120 Office equipment 25,000
C 42,200 Inventories 30,000

Trade receivables 25,000
Bank 70,000
4,10,000 4,10,000
- 164 -
ANSWER TO Q.NO.8:
(a) Calculation of Effective Capital
A B
Rs.1,00,000 invested for 3 months Rs. 60,000 invested for 6 months i.e.
i.e., Rs. 3,00,000 invested for 1 month 3,00,000 Rs. 3,60,000 invested for 1 month 3,60,000
Rs.1,10,000 invested for 3 months i.e. Rs. 90,000 invested for 6 months i.e.,
Rs. 3,30,000 invested for 1 month. 3,30,000 Rs. 5,40,000 invested for 1 month 5,40,000
Rs.1,15,000 invested for 3 month i.e.,
Rs. 3,45,000 invested for 1 month. 3,45,000
Rs. 75,000 invested for 3 months, i.e.,
Rs. 2,25,000 invested for 1 month. 2,25,000
12,00,000 9,00,000
(b) Calculation of Interest on Capital
A = Rs. 12,00,000 x 12/100 x 1/12 = Rs. 12,000
B = Rs. 9,00,000 x 12/100 x 1/12 = Rs. 9,000
(c) Calculation of Interest on Drawings

A = Rs. 12,000 x 10/100 x 5.5/12 = Rs. 550
B = Rs. 1,000 x 10/100 x 6/12 = Rs. 50
Rs. 5,000 x 10/100 x 3/12 = Rs. 125
ANSWER TO Q.NO.9.
Revaluation Account
April 1 To Provision for bad and 550 April 1 By Inventory in trade 2,500
doubtful debts
To Furniture and fittings 650 By Land and Building 5,000
To Capital A/cs:
(Profit on revaluation
transferred)
Dalal 2,520
Banerji 2,520
Mallick 1,260 6,300
7,500 7,500
- 165 -

Particulars Dalal Banerji Mallick Mistri Particulars Dalal Banerji Mallick Mistri
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

To Dalal – – – 1,000 By Balance 12,000 12,000 5,000 –
b/d
To Banerji – – – 1,000 By General 2,600 2,600 1,300 –
Reserve
To Balance 19,120 18,120 7,560 3,000 By Cash – – – 5,000
c/d
By Mistri 1,000 1,000 – –
By 1,000 – – –
Outstanding
Liabilities
By 2,520 2,520 1,260 –
Revaluation
A/c
19,120 18,120 7,560 5,000 19,120 18,120 7,560 5,000
Working Note:
Calculation of sacrificing ratio

Partners New share Old share Sacrifice Gain
5 2 1
Dalal − —
15 5 15
5 2 1
Banerji − —
15 5 15
Mallick 3 1 No gain No loss
—
15 5
Mistri 2 2
— —
15 15
1
Sacrifice by Mr. Dalal and Mr. Banerji= Rs.15,000 = Rs.1,000 each
15
- 166 -
Balance Sheet of M/s. Dalal, Banerji, Mallick and Mistri as on 1-4-2016

Trade payables 12,850 Land and Buildings 30,000
Outstanding Liabilities 500 Furniture 5,850
Capital Accounts of Inventory of goods 14,250

Partners :
Mr. Dalal 19,120 Trade receivables 5,500
Mr. Banerji 18,120 Less : Provisions (550) 4,950
Mr. Mallick 7,560 Cash in hand 140
Mr. Mistri 3,000 47,800 Cash at Bank 5,960
61,150 61,150
ANSWER TO Q.NO.10:
Profit and Loss Appropriation Account for the year ended March 31, 2017
To Salary to X 360,000 By Profit and Loss A/c ( Net profit) 14,48,000
To Interest on Capital A/c By Interest on Drawings A/c

X 1,60,000 X 22,000
Y 1,28,000 288,000 Y 18,000 40,000
To profit transferred to Capital A/c

X ( 2/3) 5,60,000
Y (1/3) 2,80,000 840,000
1,488,000 1,488,000
Partner’s Capital Accounts

Particulars X Y Particulars X Y
To Drawing A/c 4,80,000 4,80,000 By Balance b/d 20,00,000 16,00,000
To Interest on 22,000 18,000 By Salary A/c 3,60,000 1,28,000

- 167 -
Drawings A/c
To Balance c/d 25,78,000 1,510,000 By Interest on Capital 1,60,000

A/c
By Profit and Loss App 5,60,000 2,80,000
A/c
30,80,000 20,08,000 30,80,000 2,008,000
Working Notes:
1. X’s Share of Profit
= 2,80,000 x 3/1 x 2/3 = 5,60,000
2. Interest on Drawings
X = 4,80,000 x 11/2 x 1/12 x 10/100 = 22,000
Y = 4,80,000 x 9/2 x 1/12 x 10/100 = 18,000
3. Y’s Interest on Capital
= 2,88,000 – 1,60,000 = 128,000
4. Net profit = Salary +Interest on capital + profit transferred to capital accounts – interest on drawings
ANSWER TO Q.NO.11:
Journal Entry
Particulars Dr. (Rs.) Cr. (Rs.)
C’s Capital A/c [Rs.10,000 x 1/4] Dr. 2,500

To A’s Capital A/c 1,250
To B’s Capital A/c 1,250
(Being the share of C in the hidden goodwill adjusted through
capital accounts by crediting sacrificing partners in their sacrificing
ratio)
 4
Note: Hidden Goodwill=  8,000   – (Rs. 7,000 + Rs. 7,000+8,000) = Rs.10,000
 1
ANSWER TO Q.NO.12:
Revaluation Account
Rs. Rs.
To Furniture 870 By Building 3,200
To Inventory 1,070 By Trade payables 1,400

To Provision for doubtful debts 1,550 By Investment 450
(Rs.1,750 - Rs.200)
To Outstanding wages 1,560
5,050 5,050
- 168 -

A B C A B C

To A – – 4,500 By Balance b/d 44,000 36,000 –
To B – – 3,000 By Cash A/c – – 25,000
To Balance c/d 48,500 39,000 17,500 By C 4,500 3,000 –

(working note 2)
48,500 39,000 25,000 48,500 39,000 25,000
Working Notes:
1. Calculation of goodwill:
C’s contribution of Rs.25,000 consists of only 1/6th of capital.
Therefore, total capital of firm should be Rs.25,000 x 6 = Rs.1,50,000
But combined capital of A, B and C amounts Rs.44,000 + 36,000 + 25,000 = Rs.1,05,000
Thus, the hidden goodwill is Rs.45,000 (Rs.1,50,000- Rs.1,05,000).
Goodwill will be shared by A & B in their sacrificing ratio.
2. Calculation of sacrificing ratio

Partners New share Old share Sacrifice Gain
3 3 3
A − —
6 5 30
2 2 2
B − —
6 5 30
C 1 1
— —
6 6
3
Therefore, A will get = Rs.45,000  = Rs.4,500;
30
2
B will get = Rs.45,000  = Rs.3,000; and
30
1
C will be debited on account of goodwill = Rs.45,000  = Rs.7,500
6
- 169 -
ANSWER TO Q.NO.13:
Journal Entries
Date Particulars Dr. (Rs.) Cr. (Rs.)
31.3.2015 K’s Capital A/c Dr. 15,000

L’s Capital A/c Dr. 9,000
M’s Capital A/c Dr. 6,000
To Goodwill A/c 30,000
(Being old goodwill of balance sheet written off)
Profit and Loss Adjustment A/c Dr. 30,000
To Furniture A/c 10,000
To Inventory in Trade A/c 20,000
(Being revaluation of Furniture and inventory in trade
recorded)
K’s Capital A/c Dr. 15,000
(Being net revaluation loss debited to capital accounts of K,
L and M in the ratio 5 : 3 : 2)
Reserve A/c Dr. 50,000
To K’s Capital A/c 25,000
To L’s Capital A/c 15,000
To M’s Capital A/c 10,000
(Being reserve transferred to capital accounts, K, L and M)
To Cash A/c 36,000
To N’s Capital A/c 36,000
(Being 50% of the amount due to L was paid off in cash
and balance was retained in the firm as capital of N)
N’s Capital A/c Dr. 15,000
To L’s Capital A/c 15,000
(Being adjusting entry for goodwill passed in gaining/
sacrificing ratio)
To Bank A/c 14,000
(Being amount paid to M to make his capital proportionate)
- 170 -
Working Note:
1. Calculation for adjustment of Amount of Goodwill
Partner Old Share New Share Gain Sacrifice
K 5 5 – –
10 10
L 3 – – 3
10 10
M 2 2 – –
10 10
N – 3 3 –
10 10
2. Calculation of excess capital paid off to M to make capital proportionate.

Partner Capital Balance Capital Ratio (After P/L Ratio Excess Capital Paid Off
all Adjustments)
K 35,000 5 5 –
N 21,000 3 3 –
28,000
M 28,000 4 2  2 = 14,000
4

Particulars K L M N Particulars K L M N
To Goodwill 15,000 9,000 6,000 - By Bal b/d 40,000 60,000 30,000 -
To Profit and 15,000 9,000 6,000 - By Reserve 25,000 15,000 10,000 -
Loss
Adjustment
To Cash A/c - 36,000 - - By L’s - - - 36,000
Capital A/c
To N’s Capital - 36,000 - - By N’s - 15,000 - -
Capital A/c
To L’s Capital - - - 15,000
To Bank A/c - - 14,000 -
(B/F)
To Balance 35,000 - 14,000 21,000
c/d
65,000 90,000 40,000 36,000 65,000 90,000 40,000 36,000
Balance Sheet of M/s K, M & N

as on 1st April, 2015
- 171 -
Liabilities Rs. Rs. Assets Rs.
Capital Accounts: Furniture 10,000

K 35,000 Trade receivables 50,000
M 14,000 Inventory in Trade 30,000
N 21,000 70,000
Trade payables 20,000
90,000 90,000
ANSWER TO Q.NO.14:
Journal Entries
Particulars Rs. Rs.
1. B’s Capital A/c Dr. 49,500
C’s Capital A/c Dr. 18,000
(Share of revaluation profit Rs. 67,500 including good will due
to A borne by B and C at the gaining ratio 11 : 4)
2. A’s Capital A/c Dr. 1,17,500
To A’s Loan A/c 58,750
To Bank A/c 58,750
(Settlement of A’s claim on his retirement by payment of 50% in
case and transferring the balance to his Loan A/c).
3. Bank A/c Dr. 73,750
To B’s Capital A/c 60,333
(Cash brought in by the continuing partners).
Working Notes:
1. Revaluation Profit Rs.
Goodwill 1,00,000
Sundry Fixed Assets 30,000

Joint Life Policy 5,000
1,35,000
A’s Share Rs. 1,35,000 × 5/10 = Rs. 67,500.

- 172 -
2. Gaining Ratio
B : 2/3 – 3/10 = 11/30
C : 1/3 – 2/10 = 4/30
Gaining Ratio : B : C
11 : 4
3. Total Capital
Rs.
Assets as per Balance Sheet 1,90,000

Additional Bank Balance 15,000
2,05,000
Less : Bank Loan 40,000
Sundry Creditors 30,000
A’s Loan 58,750 (1,28,750)

76,250
B’s Share 50,833
C’s Share 25,417
ANSWER TO Q.NO.15:
Joint Life Policy Premium Account
10th June, 2011 To Bank Account 3,000 31st Dec., 2011 By Profit and Loss A/c 3,000

31st Dec., 2011 To Joint Life Policy

Premium Account 3,000
- 173 -

Joint Life Policy Account

15th April, To Capital A/cs: 15th April, By Bank Account 3,600

2015 (Transfer) 2015
Red 5/10 1,800
White 3/10 1,080
Black 2/10 720
3,600 3,600
Example:
Red, White and Black shared profits and losses in the ration of 5:3:2. They took out a Joint Life Policy
in 2016 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: 2016 nil; 2017 ₹900: 2018 ₹2,000
₹3,600.
Black retires on 15th April, 2020.
Required:
Prepare ledger accounts assuming Joint Life policy Account ins maintained on surrender value basis.
Solution:
Joint Life Policy Account
₹ ₹
10th June, 2016 To Bank A/c 3,000 31st Dec., 2016 By Profit and Loss A/c 3,000
10th June, 2017 To Bank A/c 3,000 31st De., 2017 By Profit and Loss A/c 2,100
By Balance c/d 900
3,000 3,000
1st January, 2018 To Balance b/d 900 31st Dec., 2018 By Profit and Loss A/c 1,900
10th June, 2018 To Bank A/c 3,000 By Balance c/d 2,000
3,900 3,900
- 174 -
1st January, 2019 To Balance b/d 2,000 31st Dec., 2019 By Profit and Loss A/c 1,400
10th June, 2019 To Bank A/c 3,000 By Balance c/d 3,600
5,000 5,000
1st January, 2020 To Balance b/d 3,600 15th April, 2020 By Bank 3,600
3,600 3,600
Profit and Loss Accounts

₹ ₹
31st Dec., 2016 To Joint Life Policy A/c 3,000
ANSWER TO Q.NO.16:
Journal Entries
Particulars Rs. Rs.
(1) F’s Capital A/c Dr. 10,000

(Being the adjustment for goodwill on K’s retirement)
- Refer W.N.
(2) Reserve A/c Dr. 10,000
To F’s Capital A/c 4,000
To G’s Capital A/c 4,000
(Transfer of Reserve to Partners’ Capital A/cs on K’s retirement)
(3) Sundry Fixed Assets A/c Dr. 30,000
Inventory A/c Dr. 10,000
(Increase in the value of Sundry Fixed Assets and inventory
recorded)
(4) Profit and Loss Adjustment A/c Dr. 5,000
To Trade Receivable A/c 5,000
(Loss arising out of dishonoured bill recorded)
(5) Profit and Loss Adjustment A/c Dr. 35,000
- 175 -

(Profit on revaluation transferred to Partners’ Capital A/cs on
K’s retirement)
(6) Bank A/c Dr. 1,04,000
(Cash brought in by F and G as per agreement)
(7) K’s Capital A/c Dr. 79,000
To Bank A/c 79,000
(Payment made to K on retirement)
Working Note:
Adjusting entry for goodwill
Partner Old Share New Share Gain Sacrifice
F 2 3 1 –
5 5 5
G 2 2 – –
5 5
K 1 – – 1
5 5
Working Note:
Adjusting entry:
Particulars Rs. Rs.
F’s Capital A/c (50,000 x 1/5) Dr. 10,000
Balance Sheet
(after K’s retirement)
Capital A/cs: Sundry Fixed Assets 1,80,000
F 1,98,000 Inventories 60,000
G 1,32,000 Trade receivables 65,000
Trade payables 50,000 Bank 75,000
3,80,000 3,80,000
- 176 -

Particulars F G K Particulars F G K
To K’s Capital A/c 10,000 – – By Balance b/d 1,20,000 80,000 60,000
To Balance c/d 1,28,000 98,000 79,000 By F’s Capital 10,000
– –
A/c
By P & L Adj. 14,000 14,000 7,000
A/c
By Reserve 4,000 4,000 2,000
1,38,000 98,000 79,000 1,38,000 98,000 79,000
To Bank – – 79,000 By Balance b/d 1,28,000 98,000 79,000
To Balance c/d 1,98,000 1,32,000 – By Bank 70,000 34,000 –
1,98,000 1,32,000 79,000 1,98,000 1,32,000 79,000
Working Notes:
1. Total Capital Rs.
Sundry Fixed Assets (Rs. 1,50,000 + Rs. 30,000) 1,80,000

Inventory (Rs. 50,000 + Rs. 10,000) 60,000
Trade receivables (Including Bill Receivable of Rs. 15,000) 65,000
Bank 75,000
3,80,000
Less: Sundry Creditors (50,000)

3,30,000
F’s share (3,30,000 × 3/5) 1,98,000
G’s share (3,30,000 × 2/5) 1,32,000
2. Bank Account
To Balance b/d 50,000 By K’s Capital A/c 79,000
To F’s Capital A/c 70,000 By Balance c/d 75,000

1,54,000 1,54,000
- 177 -
ANSWER TO Q.NO.17:
Revaluation Account
July 1 To Building 20,000 July 1 By Investments 3,000

To Plant and Machinery 57,000 By Partners’ Capital A/cs
To Bad Debts 13,900 A (3/10) 26,370
B (2/10) 17,580
C (5/10) 43,950 87,900
90,900 90,900

Particulars A B C D Particul A B C D
ars
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Rev 26,370 17,580 43,950 – By bal 1,04,00 76,000 1,40,00 -
0 0
To B’s and – – – 60,000 By D’s – 40,000 20,000 –
C’s Capital
Capital A/c
A/cs (W.N.1)
To – 25,000 – – By Bank 12,370 – 3,950 1,50,0
Investmen A/c
ts A/c 00
To B’s – 73,420 – –
Loan A/c
To 90,000 – 1,20,00 90,000
Balance
c/d (W.N. 0
2)
1,16,37 1,16,00 1,63,95 1,50,00 1,16,37 1,16,0 1,63,95 1,50,0
0 0 0 0 0 00 0 00
Working Notes:
1. Adjustment of goodwill
Goodwill of the firm is valued at Rs. 2 lakhs
Sacrificing ratio:
A 3/10-3/10 0
B 2/10-0 2/10
C 5/10-4/10 1/10
- 178 -
Hence, sacrificing ratio of B and C is 2:1. A has not sacrificed any share in profits after retirement of B
and admission of D in his place. Adjustment of D’s share of goodwill through existing partners’ capital
accounts in the profit sacrificing ratio:
B : Rs. 60,000 x 2/3 = 40,000
C : Rs. 60,000 x 1/3 = 20,000
2. Capital of partners in the reconstituted firm :

Rs.
Total capital of the reconstituted firm (given) 3,00,000

A (3/10) 90,000
B (4/10) 1,20,000
C (3/10) 90,000
ANSWER TO Q.NO.18:
(i) Journal Entry in the books of the firm
Jan 3 A’s Capital A/c Dr. 500
2016 B’s Capital A/c Dr. 500
To C’s Capital A/c 1,000
(Being the required adjustment for goodwill through the
partner’s capital accounts)
(ii) Revaluation Account

To Furniture A/c 500 By Machinery A/c 850
(Rs. 2,800 - 2,300) (Rs. 5,850 - 5,000)
To Inventory A/c (Rs. 950 - 750) 200
To Partners’ Capital A/cs 150
(A - Rs. 50, B - Rs. 50, C - Rs. 50)
850 850
Partners Capital Accounts

Particulars A (Rs.) B (Rs.) C (Rs.) Particulars A (Rs.) B (Rs.) C (Rs.)
To C 500 500 – By Balance 4,100 4,100 4,500
(Goodwill) b/d
To Cash A/c – – 1,000 By General 500 500 500
Reserve A/c
- 179 -
To Executors – – 5,050 By Revaluation 50 50 50

A/c A/c (Profit)
To Balance 4,150 4,150 – By A – – 500
C/d (Goodwill)
By B – – 500
(Goodwill)
4,650 4,650 6,050 4,650 4,650 6,050
(iii) Provision for Doubtful Debts Account is a credit balance. To close, this account is to be debited. It
becomes a gain for the partners. Therefore, either Partners’ Capital Accounts (including C) or
Revaluation Account is to be credited.
Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars A B C
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2 –
Gain/(Sacrifice) (+) 1/6 (+) 1/6 (-) 1/3
Profit sharing ratio is equal before or after the death of C because nothing has been mentioned in
respect of profit-sharing ratio.
ANSWER TO Q.NO.19:
A’s Capital Account
Sep. 30 To Current A/c 2,550 Jan. 1 By Balance b/d 10,000

(3,000 - 450)
Dec. 31 To Profit and Loss Adjt. 1,000 Dec. 31 By Profit and Loss
(Unrecorded Liability) A/c :
To Balance Transferred to A’s 18,525 Interest on Capital 1,000
Executor’s A/c
Share of Profit 835
- 180 -
B & C (Goodwill) 3,240
Insurance Policies 7,000

A/c
22,075 22,075
Working Notes:
(i) Valuation of Goodwill
Year Profit before Interest on fixed capital Interest Profit after interest
Rs. Rs. Rs.
2013 9,640 2,000 7,640
2014 6,720 2,000 4,720

2015 (-) 640 2,000 (-) 2,640
15,720 6,000 9,720
Rs.
Average 3,240
Goodwill at two years purchase of average net profits 6,480
Share of A in the goodwill 3,240
(ii) Profit on Separate Life Policy
A’s policy 10,000

B and C’s policy @ 20% 4,000
14,000
Share of A (1/2) 7,000
(iii) Share in profit for 2016

Profit for the year 3,670
Less : Interest on capitals (2,000)

1,670
A’s share in profit (1/2) 835

- 181 -
(iv) As unrecorded liability of Rs.2,000 has been charged to Capital Accounts through Profit and Loss
Adjustment Account, no further adjustment in current year’s profit is required.
(v) Profits for 2013, 2014 and 2015 have not been adjusted (for valuing goodwill) for unrecorded
liability for want of precise information.
ANSWER TO Q.NO.20:
(i) Ascertainment of N’s Share of Profit (ii) Ascertainment of Value of Goodwill
2013 42,000 2013 42,000
2014 39,000 2014 39,000
2015 45,000 2015 45,000
Total Profit 1,26,000 Total Profit for 3 years 1,26,000
Average Profit 42,000 Average Profit 42,000
4 months’ Profit 14,000 Goodwill - 3 years
N’s Share in Profit 5,600 Purchase of Average Profit 1,26,000

(2/5th* of Rs. 14,000)
N’s Share of goodwill 50,400
(2/5 of Rs.1,26,000)
* Profit sharing ratio between B and N = 1/2; 1/3; = 3: 2, Therefore N’s share of Profit = 2/5
N’s Executors Account

2016 2016
May 1 To N’s Loan A/c 1,28,000 Jan. 1 By Capital A/c 60,000
May 1 By Reserves 12,000

(2/5th of Rs.30,000)
May 1 By B’s Capital A/c 50,400
(Share of goodwill)
May 1 By P/L Suspense A/c 5,600
(Share of Profit)
1,28,000 1,28,000
182
AVERAGE DUE DATE

SOLUTIONS
SOLUTION TO ILLUSTRATION 1
Considering 3rd July as the starting day the following table is prepared:
Due Dates Amount No. of Days from 3rd July Products
3rd July 500 0 0
2nd August 800 30 24,000
11th September 1,000 70 70,000
2,300 94,000
Average Due Date = 3rd July +

= 3rd July + 41 days = 13th August
Loss of Interest: 13th August to 11th September

Assuming 5% is interest rate, the debtor loses interest due to early payment of ₹ 1,000 for 29 days (from 13th
August to 11th September) i.e., ₹ 4. 1000 × 29/365 × 5/100
Gain of Interest: 3rd July to 13th August and 2 August to 13th August
He however, gains interest, due to late payment on ₹ 500 for 41 days from 3rd July to 13th August and on
₹ 800 for 11 days i.e. ₹ 2.80 + ₹ 1.20, i.e., ₹ 4.
Thus, the debtor neither loses nor gains by payment of all the amounts on 13th August.
It should be noted that in calculating the number of days only one of the dates, either the starting date or the
due date is to be counted.
In the same manner, bill due to one party may be cancelled as against bills of same amount due from the
same party after adjustment of interest for the period elapsing between the two average due dates. Instead of
payment of several bills on the same date as above, other bill starting from the average due date for agreed
period together with interest for the period may be accepted.
Taking 10th January as the base date
Due Date Due Date No. of days Amount Product
(Normal) (Actual) from 10th January. . . ₹
10th January 10th January 0 500 0
26th January 25th January 15 1,000 15,000
23rd March 23rd March 72 3,000 2,16,000
18th August 17th August 219 4,000 8,76,000
8,500 11,07,000
Average Due Date = 10th Jan. + = 10th Jan + 131 days = 21st May
183
January 21
February 28
March 31
April 30
110
(a) If the payment is made on 18th March rebate will be allowed for unexpired time from 18th March to 21th
May i.e., 13 + 30 + 21 i.e. for 64 days. He has to pay the discounted value of the total amount.
Discount = 8,500 x
The amount to be paid on 14th July.

₹ 8,500 + 100.6 = 8600.6
Calculation of Average Due Date
Taking 10th August 2019 as the base date
Date of bill Term Due date- No. of days Amount Product
Maturity Date from 10th
August 2019 ₹ ₹
August 10, 2019 3 months Nov. 13, 2019 95 6,000 5,70,000
October 22, 2019 60 days Dec. 24, 2019 137 5,000 6,85,000
December 04, 2019 2 months Feb. 07, 2020 181 4,000 7,24,000
January 14, 2020 60 days Mar. 18, 2020 220 2,000 4,40,000
March 14, 2020 2 months May 17, 2020 280 3,000 8,40,000
20,000 32,59,000
Average due date = = = 162.95 = 163 days

= 163 days after August 10, 2019 i.e. January 20, 2020.
Days of Grace added as it is case of Bills and it is Negotiable Instrument.
Calculation of the average due date
Taking 4th May as the base date
Sl. No. Date of bill Due Date of Amount No. of days Product
Maturity ₹ from starting
date (4th May)
1 1st March 2020 4th May 400 0 0
2 10th March 2020 13th June 300 40 12,000
3 5th April 2020 8th June 200 35 7,000
4 20th April 2020 23rd May 375 19 7,125
5 11th May 2020 14th July 500 71 35,500
Total : 1,775 61,625
Average Due Date is 61,625/1,775=34.71 i.e., 35 days after the assumed due date, 4th May, 2020. The new
184
bill should be for ₹ 1,775 payable on June 8th, 2020.
Taking May 18th as the zero or base date ( April 18 +One month Credit=18 May)
For Y’s payments:
Date of Due Date Amount No. of days from Products
Transactions the base date (4)
(1) (2) (3) (5)
April 18 May 18 60 0 0
May 15 June 15 70 28 1,960
June 17 July 17 80 60 4,800
Amount Due to X 210 Sum of products 6,760
For X’s payments

The students should note that the same base date should be taken. Therefore, the base date will be May
18th in this case also.
Date of Due Date Amount No. of days from Products
Transactions the base date (4)
(1) (2) (3) (5)
April 23 May 23 52 5 260
May 24 June 24 50 37 1,850
Amount Due to Y 102 Total products 2,110
Excess of Y’s products over X’s = 6,760 – 2,110

= 4,650
Excess amount due to X ₹ 210 – 102 = ₹ 108.
Number of days from the base date to the date of settlement is
Hence the date of settlement of the balance is 43 days after May 18 i.e., on June 30. On June 30, Y has to
pay X, ₹ 108 to clear the account.
Let us take 12.07.2020 as Base date.
Bills receivable
Due date No. of days from 12.07.2020 Amount Product
04/09/2020 54 3,000 1,62,000
08/09/2020 58 2,500 1,45,000
12/07/2020 0 6,000 0
14/08/2020 33 1,000 33,000
23/09/2020 73 1,500 1,09,500
14,000 4,49,500
Bills payable
Due date No. of days from 12.07.2020 Amount Product
01/08/2020 20 2,000 40,000
07/09/2020 57 3,000 1,71,000
12/07/2020 0 6,000 0
11,000 2,11,000
185
Excess of products of bills receivable over bills payable = 4,49,500 – 2,11,000 = 2,38,500
Excess of bills receivable over bills payable = 14,000 – 11,000 = 3,000
Number of days from the base date to the date of settlement is 2,38,500/3,000 = 79.5 (appox.)
Hence date of settlement of the balance amount is 80 days after 12th July i.e. 30th September.
On 30th September, 2020 Sohan has to pay Manoj ₹ 3,000 to settle the account.
Base date-The date of the first transaction - 13.07.2020
Payment to be made by Mr. Khan to Mr. Kapoor
Due date No. of days from base Amount Product
date
04.08.2020 22 400 8,800
22.08.2020 40 750 30,000
28.07.2020 15 1000 15,000
09.09.2020 58 1250 72,500
17.09.2020 66 800 52,800
Total 4200 1,79,100
Payment to be made by Mr. Kapoor to Mr. Khan

Due date No. of days from base Amount Product
date
13.07.2020 0 800 0
25.07.2020 12 950 11,400
14.08.2020 32 1,150 36,800
01.09.2020 50 1,800 90,000
12.09.2020 61 1,250 76,250
Total
5950 2,14,450
Difference in products = Mr. Kapoor to pay to Mr. Khan = 2, 14, 450-1,79,100 = 35350.
Difference in amounts = 5,950-4,200 = 1,750
Average due date = Base date + Difference in product

Difference in amounts
13th July + = 13th July + 20.2 days = 20 days
Average due date = 2nd August 2020
186
Calculation of Average Due Date
Taking 6th January, 2020 as base date
For Green’s payments
Due date Amount No. of days from the base date i.e. Product
6th Jan. 2020
2020 ₹
6th January 6,000 0 0
2nd February 2,800 27 75,600
31st March 2,000 84 1,68,000
Total 10,800 2,43,600
For Red’s payment
2020
6th January 6,600 0 0
9th March 2,400 62 1,48,800
20th March 500 73 36,500
Total
9,500 1,85,300
Excess of Green’s products over Red’s = ₹ 2,43,600 – ₹ 1,85,300 = ₹ 58,300

= ₹ 10,800 – ₹ 9,500 = ₹ 1,300
Number of days from the base date to the date of settlement is 58,300/1,300 = 45 days (approx.)
Hence, the date of settlement of the balance amount is 45 days after 6th January i.e. on 20th February.
On 20th February, 2020, Green has to pay Red ₹ 1,300 to settle the account.
Due date No. of years from 1 Jan 2015
1Jan 2015 0
1Jan 2016 1
1Jan 2017 2
1Jan 2018 3
1Jan 2019 4
1Jan 2020 5
Average=5+4+3+2+1/5=3 years
Average due date = Date of Loan +
= Jan. 1, 2015 +
= Jan. 1, 2015 + 3 years
= 1st Jan., 2018
187
Interest at a certain rate on the instalments paid from the date of payment to any fixed date will be the same
as on ₹ 10,000 (if lent on 1st Jan., 2018 to that fixed date). There will be no loss to either party. Supposing
rate of interest is 5% p.a. and date of settlement is 31st Dec., 2016 then calculation of interest by product
method from both parties’ point of view will be as follows:
Dass Bros. pays interest as follows:
Amount Paid on Money used by Dass Bros upto 31st Dec. 2020 Product
₹ ₹
2,000 1st Jan. 2016 5 Years 10,000
2,000 1st Jan. 2017 4 Years 8,000
2,000 1st Jan. 2018 3 Years 6,000
2,000 1st Jan. 2019 2 Years 4,000
2,000 1st Jan. 2020 1 Year 2,000
30,000
Interest at 5% p.a. on ₹ 30,000 for one year. = = ₹1,500

Dass Bros. will receive interest (if given on 1st Jan., 2018 on ₹ 10,000 from average due date to 31st Dec.,
2020, i.e., for 3 years at 5% p.a. = = ₹1,500
From the above, it can be concluded that if the borrower pays ₹ 2,000 yearly from 1st Jan., 2016 for 5 years
and if the lender gives ₹ 10,000 on 1st Jan., 2018 then both will charge same interest from each other. There
is no loss to any of the parties. But actually lender gives ₹ 10,000 on 1st Jan., 2015, therefore, he has given
loan 3 years in advance and will charge interest on ₹ 10,000 for 3 years.
Interest = = ₹1,500 (to be charged by Dass Bros.)
Due date Amount No. of months from Products
(in ₹) 1.1.2015
1st January 2016 2500 12 30,000
1st January 2017 5500 24 1,32,000
1st January 2018 3000 36 1,08,000
1st January 2019 5000 48 2,40,000
1st January 2020 4000 60 2,40,000
20,000 7,50,000
Average due date = Base date +
1st January 2015 + = 37.5 months = 38 months
Average due date= 1st January 2015+ 38 months = 1st March 2018.
Interest for the 38 months = = 6,340

188
(i) Ordinary System :
A 500 for 9 months = 4,500 for 1 month
800 for 6 months = 4,800 for 1 month
1,000 for 5 months = 5,000 for 1 month
400 for 1 month = 400 for 1 month
14,700 @ 6% for 1 month 14,700 for 1 month
= 1/2% of 14,700
= ₹ 73.50
B 1,000 for 292 days = 2,92,000
500 for 232 days = 1,16,000
400 for 50 days = 20,000
900 for 24 days = 21,600
4,49,600
4,49,600 x = ₹ 73.91
(ii) Average Due Date System:

(a) Taking 1st July as the base date (O-day)
Dates ₹ Months from O-day Products
1st July 500 0 0
30th September 800 3 2,400
A 1st November 1,000 4 4,000
28th February 400 8 3,200
2,700 9,600
Average Due Date = months from 1st July. i.e., 3.556 months i.e. October 17th.
Interest is chargeable from October 17 to March 31 i.e. 5.444 months
= ₹ 73.49
Or,
Taking 1st April as the base date (O-day):
Dates ₹ Months from O-day Products

A 1st July 500 3 1,500
30th September 800 6 4,800
1st November 1,000 7 7,000
28th February 400 11 4,400
2,700 17,700
Average Due Date = months from 1st April. i.e. 6.556 months i.e. 17th October.
189
Interest is chargeable from October 17 to March 31 i.e. 5.444 months.

= ₹ 73.49
(b) Taking 12th June as the base date (Zero-day)
Dates ₹ Days from O-day Products

B 12th June 1,000 0 0
11th August 500 60 30,000
9th February 400 242 96,800
7th March 900 268 2,41,200
2,800 3,68,000
Average Due Date = months from 12th June. i.e. 131 days
June 18
July 31
Aug. 31
Sept. 30
110
131 days -110 days i.e. 21st October

So, interest is chargeable from 21st October to 31st March i.e. for 161 days.
= ₹ 74.10
The Differences in amounts in the two systems (1) and (2) are due to approximation.
Base date= 9th September
Calculation of average due date
Due date Amount No of days from base date Product
9th Sep 2019 900 0 0
10th Oct 2019 1,000 31 31,000
11th Nov 2019 1,100 63 69,300
12th Dec 2019 1,200 94 1,12,800
13th Jan 2020 1,300 126 1,63,800
14th Feb 2020 1,400 158 2,21,200
15th Mar 2020 1,500 187 2,80,500

8,400 8,78,600
Average due date = Base date +

190
9th September 2019 + = 104.60 days = 105 days
Average due date = 9th September 2019 + 105 days = 23rd December 2019
SOLUTION OF PRACTICE QUESTIONS

SOLUTION TO PRACTICE QUESTION 1
Calculation of Interest chargeable from Partners
Taking 1st May as the base date
Dates Amount (₹) Days from 1st Products
May (₹)
Yash 1.5.2019 75,000 0 0

2.7.2019 20,000 62 12,40,000
31.3.2020 15,000 334 50,10,000
1,10,000 62,50,000
Average Due Date = days from 1st May. i.e. 57 days

= 27th June
Interest is chargeable for Yash from 27th June to March 31 i.e. 277 days
₹ 1,10,000 x 10% x 277/365 = ₹ 8,348
Dates Amount (₹) Days from 1st Products

May (₹)
Harsh 15.8.2019 60,000 106 63,60,000
31.12.2019 50,000 244 1,22,00,000
4.3.2020 75,000 307 2,30,25,000
1,85,000 4,15,85,000
Average Due Date = days from 1 May = 225 days.

= 12th Dec.
Interest is chargeable for Harsh from 12 December to 31st March i.e. for 109 days.
₹ 1,85,000 ₹ 5,525
Thus, interest amounting ₹ 8,348 will be charged from Yash and amount of ₹ 5,525 will be charged from
Harsh.
191
SOLUTION TO PRACTICE QUESTION 2
A B C D=B ±C
Principal Amount Interest from Average Due Date to Total amount
Actual date of Payment to be paid
(i) Payment on average due date
₹ 67,500 ₹ 67,500 ₹ 67,500
(ii) Payment on 25th Aug. 2020

₹ 67,500 ₹ 67,500 ₹ 67,833
Interest to be charged for period of 15
days from 10.8.2020 to 25th Aug. 2020
(iii) Payment on 30th July, 2020
₹ 67,500 ₹ 67,500 ₹ 67,256
Rebate has been allowed for unexpired
credit period of 11 days from 30.7.2020
to 10.8.2020
192
ACCOUNT CURRENT
SOLUTIONS TO ILLUSTRATIONS
SOLUTION TO ILLUSTRATION 1 INTEREST TABLE METHOD
Shyam in Account Current with Nath Brothers
(Interest to 1st February, 2020 @ 6% p.a.)
Date Particulars Due Amount Days Interest Date Particulars Due Amount Days Interest
2019 Date ₹ 2019 Date ₹
Sept. To Sales 1st 200 123 4.04 Oct.1 By Cash 1st 90 123 1.82
16 A/c Oct. A/c Oct
Nov.1 To Cash 1st 330 92 5 Oct.21 By 1st 500 62 5.1

A/c Nov. Purchase Dec
A/c
Dec. To Cash 1st 330 62 3.36 Dec.5 By 1st 500 31 2.55
1 A/c Dec. Purchase Jan
A/c
Dec. By 1st 200 31 1.02
10 Purchase Jan
A/c
2020 2020
st
Jan.1 To Cash 1 600 31 3.06 Feb.1 By Balance 4.97
A/c Jan. of interest
Jan.9 To Sales 1st 20 Feb.1 By Balance 194.97 -
A/c Feb c/d
Feb.1 To Interest 4.97
1,484.97 15.46 1,484.97 15.46
Tutorial Notes:
(1) While counting the number of days, the date of due date is ignored and the date upto which the
account is prepared, is included.
(2) While counting the number of days, for opening balances, the opening date as well as date upto
which the account is prepared, is counted
Calculation of days
Transaction
2019 Due Date Oct. Nov. Dec. Jan. Feb. Total Days
16th Sept. 1st Oct. 30+ 30+ 31+ 31+ 1= 123
1st Oct. 1st Oct. 30+ 30+ 31+ 31+ 1= 123
21st Oct. 1st Dec. - - 30+ 31+ 1= 62
1st Nov. 1st Nov. - 29+ 31+ 31+ 1= 92
1st Dec. 1st Dec. - - 30+ 31+ 1= 62
5th Dec. 1st Jan. - - - 30+ 1= 31
10th Dec. 1st Jan. - - - 30+ 1= 31
2020
1st Jan. 1st Feb. - - - 30+ 1= 31
9st Jan. 1st Feb. - - - - -= 0
193
SOLUTION TO ILLUSTRATION 1 USING PRODUCT METHOD

Under this method the number of days are calculated from the due date of the transaction to the date of
closing the account (forward method)
Shyam in Account Current with Nath Brothers

(Interest to 1st February, 2020 @ 6% p.a.)
Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
2019 date ₹ ₹ ₹ 2019 date ₹ ₹ ₹
Sept. 16 To Sales A/c 1st Oct 200 123 24,600 Oct. 1 By Cash A/c Oct.1 90 123 11,070
1 Nov. To Cash A/c 1st Nov 330 92 30,360 Oct.21 By Purchase A/c Dec.1 500 62 31,000
1 Dec. To Cash A/c 1st Dec 330 62 20,460 Dec.5 By Purchase A/c Jan. 1 500 31 15,500
Dec.10 By Purchase A/c 1-Jan 200 31 6,200
2020 2020
Jan.1 To Cash A/c 1-Jan 600 31 18,600 Feb.1 By Balance of 30,250
products
Jan.9 To Sales A/c 1-Feb 20 Feb.1 By Balance c/d 194.97
Feb.1 To Interest 4.97
(30,250x6%)/365
1,484.97 94,020 1,484.97 94,020
2020
Feb To Balance b/d 194.97
(a) Product of individual Transaction Method (Forward Method)
Mr. Y in Account Current with Mr. X (interest to 31st Dec. 2019 @ 18% p.a.)
Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
2019 date ₹ ₹ date ₹ ₹
01.07.19 To Balance b/d 600 184 1,10,400 01.08.19 By Purchase Sep.1 200 121 24,200
30.07.19 To Sales A/c Aug 300 123 36,900 01.09.19 By Cash Sep.1 100 121 12,100
30 A/c
31.12.19 To Interest on Balance 49 01.09.19 By B/R Ac Dec.4 400 27 10,800
for 1 day @ 18%
31.12.20 By Balance 1,00,200

of product
31.12.20 By Balance
c/d
249
949 1,47,300 949 1,47,300
(b) Product of individual Transaction Method (Epoque Method) Backward (or Epoque Method)- Under
194
this method, the number of the days are calculated from the opening date of statement to the due date of
transaction.
Mr. Y in Account Current with Mr. X (Interest to 31st Dec. 2019 @ 18% p.a.)
Date Particulars Due Amt. Days Product Date Particulars Due Amt. Days Product
date ₹ ₹ date ₹ ₹
01.07.19 To Balance 600 184 1,10,400 01.08.19 By Purchase Sep 1 200 121 24,200
b/d A/c
30.07.19 To Sales A/c Aug 30 300 123 36,900 01.09.19 By Cash Sep 1 100 121 12,100
A/c
31.12.19 To interest 49 01.09.19 By B/R A/c Dec 4 400 27 10,800
on Balance
for 1 day @
18%
31.12.20 By Balance 1,00,200

of Products
31.12.20 By Balance 249
c/d
949 1,47,300 949 1,47,300
Mr. Paul in Account Current with Mr. Singh
(Interest to 31st August, 2020 @ 10% p.a.)
Date Particulars Due Amt. ₹ Days Product Date Particulars Due Amt. ₹ Days Product
2020 Date 2020 Date
June 11 To Sales A/c June 1,020 81 82,620 June 15 By Cash A/c June 15 500 77 38,500
11
June 20 To Sales A/c June 650 72 46,800 Aug.8 By Cash A/c Aug.8 1,100 23 25,300
20
July 7 To Sales A/c July 7 700 55 38,500 Aug.31 By Balance of 1,04,120
product
Aug.31 To Interest 28.53 Aug. 31 By Balance c/d 798.53
A/c
2,398.53 1,67,920 2,398.53 1,67,920

195
‘You’ In Account Current with ‘Me’
(Interest to 31st March, 2020 @ 12% p.a.)
2020 Date ₹ Date ₹
Feb 1 To Balance b/d 5,000 59 2,95,000 Feb 08 By Bills May 11 10,000
Receivable
Feb 5 To Sales A/c Apr 07 8,250 Feb 10 By Purchases Mar 10 11,000 21 2,31,000
A/c
Feb 16 To Cash A/c Feb 16 2,500 43 1,07,500 Feb 12 By Bank A/c Apr 12 7,500
Feb 24 To Bills payable Mar 24 5,000 7 35,000 Feb 28 By cash A/c Feb 28 2,500 31 77,500
Mar 31 To Red ink May 11 41 4,10,000 Mar 31 By Red ink Apr 07 7 57,750
product as per Product as per
contra contra
Mar 31 To Red ink Apr 12 12 90,000 Mar 31 By balance of 5,71,250
product as product
contra
Mar 31 To interest 188
(5,71,250×12%
×1/365)
Mar 31 To balance C/d 10,062
31,000 9,37,500 31,000 9,37,500
Balance of ₹ 10,062/- to be paid by me to you.
Bali in Account Current with Ali
(Interest to 31st Dec 2020, @ 8% p.a.)
Date 2020 Particulars Amt. Days Product Date Particulars Amt. Days Product
₹ ₹
Oct.1 To Balance b/d 2,000 92 1,84000 Oct.19 By Purchases A/c 3,200 73 2,33,600
Oct. 25 To Purchase 800 67 53,600 Dec. 18 By Bills 2,400 13 31,200
returns A/c receivable A/c
(drawn for a
month)
Nov. 3 To Sales A/c 5,400 58 3,13,200 Dec 15 By cash A/c 2,000 16 32,000
Nov 30 To bills 3,000 31 93,000 Dec. 31 By Balance of 3,47,000
receivable product
(dishonoured)
Dec. 31 To Interest Ac 76.05 Dec 31 By Balance c/d 3676.05
11,276.05 6,43,800 11,276.05 6,43,800
Calculation of interest: 3,47,000*8%*1/365 = 76.05
196
A. Halder in current Account with Mr. S. Dasgupta
(Interest to 31st December, 2019 @ 5% p.a.)
June 30 To Balance 520 185 96,200 Aug.1 By Cash A/c Aug.1 500 152 76,000
b/d
July 17 To Sales July 17 40 167 6,680 Sep.1 By Cash A/c Sep.1 400 121 48,400
A/c
Aug.19 To Sales Aug.19 720 134 96,480 Sep.1 By Bills Dec.4 300 27 8,100
A/c Receivable
A/c (Note:1)
Aug. 30 To Sales Aug.30 50 123 6,150 Oct.22 By Oct.22 20 70 1,400
A/c Purchases
A/c
Nov.12 To Sales Nov.12 14 49 686 Dec.14 By Cash A/c Dec.14 50 17 850
A/c
Dec.31 By Balance 71,446
of product
31 Dec. To Interest 9.79 Dec.31 By Balance 83.79 ------
A/c b/d
1,353.79 2,06,196 1,353.79 2,06,196
Note: It is assumed that the bill was honoured on due date. The due date of the bill should be treated as date
of payment and days to be calculated from the due date of account.
Workings:
Calculation of Days
Date of Transactions: Due date June July Aug. Sept. Oct. Nov. Dec. Total
Opening Balance 1 +31 +31 +30 +31 +30 +31 = 185

July 17 July 17 - 14 +31 +30 +31 +30 +31 = 167
Aug. 1 Aug. 1 - - 30 +30 +31 +30 +31 = 152
Aug. 19 Aug. 19 - - 12 +30 +31 +30 +31 = 134
Aug. 30 Aug. 30 - - 1 +30 +31 +30 +31 = 123
Sep. 1 Sep. 1 - - - 29 +31 +30 +31 = 121
Sep. 1 Dec. 4 - - - - - - 27 = 27
Oct. 22 Oct. 22 - - - - 9 +30 +31 = 70
Nov. 12 Nov. 12 - - - - - 18 +31 = 49
Dec. 14 Dec. 14 - - - - - - 17 = 17
Note: While counting the number of days, for opening balances, the opening date as well as date upto which
the account is prepared, is counted.
197
B in Account Current with A
(Interest to 31st June 2020, @ 6% p.a.)
Date Particulars Amount Days Products Date Particulars Amount Days Products
2020 ₹ 2020 ₹
Jan.1 To Balance b/d 600 182 1,09,200 Jan.18 By Sales Returns 125 164 20,500
Jan. 11 To Sales A/c 520 171 88,920 Feb. 11 By Bank A/c 400 140 56,000
Apr. 29 To Sales A/c 615 62 38,130 Feb. 14 By B/R A/c (due
date: March 17) 300 105 31,500
June 30 To Interest A/c 15.75 May 15 By Cash A/c 700 46 32,200
June 30 By Balance of 96,050
products
By Balance c/d 225.75
1,750.75 2,36,250 1,750.75 2,36,250
Calculation of interest
‘Y’ In Account Current with ‘X’

(Interest to 30th April, 2020 @ 10% p.a.)
2020 2020
April 7 To Bills June 10 5,000 - - April 1 By Balance 10,000 30 3,00,000
Payable b/d
April To Sales A/c May 10 15,000 - - April By Bank A/c May 15 7,500 - -
10 12 (Cheque
received dated
15.5.2016)
April To Purchase May 15 1,000 - - April By Purchase May 15 6,000 - -
20 Return 15 A/c invoice
dated
15.5.2016
April To Bill April 5,000 10 50,000
20 20
Receivable
A/c
April To Red Ink May 15 15 1,12,500 April By Red Ink June10 - 41 2,05,000
30 product (₹ 30 Product as per
7,500 x15) contra
as per contra (5,000 x 41)
April To Red Ink May 15 15 90,000 April By Red Ink May 10 - 10 1,50,000
30 product (₹ 30 product as per
6,000 x15) contra
as per contra (15,000 x 10)
April To Balance 4,17,500 April By Red Ink May 15 - - 15,000
30 of product 30 product as per
contra
(1,000 x 15)
198
April By Interest A/c 114.38

30 4,17,500 ×
April By Balance c/d 2,385.62

30
26,000 6,70,000 26,000 6,70,000
No entry is required for matured bill on 10th April since party is not contracted.
Vinod Current Account with Allahabad Bank Ltd.
Date Particular Dr. Cr. Dr. or Cr. Balance Days Dr. Product Cr. Product
2020
Jan. 2 By Cash Account 30,000 Cr. 30,000 13 3,90,000
Jan. 15 By Cash Account 12,000 Cr. 42,000 31 13,02,000
Feb. 15 To Self 26,000 Cr. 16,000 25 4,00,000
Mar. 12 By Cash Account 8,000 Cr. 24,000 29 6,96,000
April 10 To Self 30,000 Dr. 6,000 30 1,80,000
May 10 By Cash Account 16,000 Cr. 10,000 36 3,60,000
June 15 To self 14,000 - Dr. 4,000 15 60,000 -
June 30 By Interest A/c 140 Dr. 38,60
June 30 By Balance c/d 3,860
70,000 70,000 2,40,000 31,48,000
* Interest is calculated as follows:
On ₹ 31,48,000 @ 2% for 1 day = ₹ 172.49
On ₹ 2,40,000 @ 5% for 1 day = ₹ 32.88
Net Interest = ₹ 139.61 (₹ 172.49- ₹ 32.88)

199
Roshan’s Current Account with Partnership _rm (as on 30.9.2020)

Date Particulars Dr Cr Balance Dr. or Days Dr. Cr
(₹) (₹) (₹) Cr. Product Product
(₹) (₹)
01.07.20 To Bal b/d 75,000 75,000 Dr. 13 9,75,000
14.07.20 By Cash A/c 1,38,000 63,000 Cr. 15 9,45,000
29.07.20 To Self 97,000 34,000 Dr. 20 6,80,000
18.08.20 By Cash A/c 22,000 12,000 Dr. 22 2,64,000
09.09.20 To Self 11,000 23,000 Dr. 21 4,83,000
30.09.20 To Interest A/c 417 23,457 Dr.
30.09.20 By Bal. c/d 23,417
1,83,471 1,83,417 24,02,000 9,45,000
Interest Calculation:
On ₹ 24,02,000 × 10% × 1/365 = 658
On ₹ 9,45,000 × 8% × 1/365 = (₹ 207)
Net interest to be debited = (₹ 417)
Siva in Account Current with Ram as on 31st Oct, 2019
₹ Days Product ₹ Days Product
(₹) (₹)
01.07.19 To Bal. b/d 750 123 92,250 20.08.19 By Sales 200 72 14,400
Returns
15.08.19 To Sales 1,250 77 96,250 22.09.19 By Bank 800 39 31,200
31.10.19 To Interest 18.48 15.10.19 By Cash 500 16 8,000
By Balance 1,34,900
of Product
31.10.19 By Bal. c/d 518.48
2018.48 1,88,500 2018.48 1,88,500
200
EXAMINATION QUESTION
January 2021 Question 3(b) (5 marks)
Solution:
Piyush in Account Current with Amit for the period ending on 31st December, 2020
2020 ₹ ₹
Sept 1 To Balance 900 122 1,09,800 Oct 20 By Sales 250 72 18,000
b/d Returns
Oct 15 To Sales 1,450 77 1,11,650 Nov 22 By Bank A/c 1,200 39 46,800
A/c
Dec 31 To Interest 32 Dec 15 By Cash A/c 600 16 9,600
A/c
Dec 31 By Balance of 1,47,050
products
By Balance c/d 332
2,382 2,21,450 2,382 2,21,450
Calculation of interest:
Interest = 1,47,050/ 366 days X 8% = ₹ 32 (Rounded off)
Note: 366 days taken for interest calculation since 2020 is a leap year. Alternatively,365 days can also be
taken. In that case amount of interest will be ₹ 32.23 (Rounded off ₹ 32) and amount of balance c/d will
be ₹ 332.23 (Rounded off ₹ 332).
November 2020 Q3(b)(i) (5 marks)

Solution:
Mr. Sunil in Account Current with Mr. Raju

for the period ending on 31stOctober, 2020
2020 ₹ 2020 ₹
July1 To Balance 840 123 1,03,320 Aug. By Sales Returns 240 72 17,280
b/d 20
Aug To Sales 1,310 77 1,00,870 Sept. By Bank A/c 830 39 32,370
15 A/c 22
Oct. To Interest 47.73
31 A/c
Oct. 15 By Cash A/c 560 16 8,960
Oct .31 By Balance of 1,45,580
products
Oct.31 By Balance c/d 567.73
2,197.73 2,04,190 2,197.73 2,04,190
Calculation of interest:
201
Interest = 1,45,580/366 X 12 % = ₹47.73
Note: Year 2020 is a leap year; hence 366 days are taken for interest calculation.
On the assumption of 365 days interest will be as below:-
Interest = 1,45,580/355 x 12% = ₹47.86 (or) ₹48.
Note: The alternative answer based on backward method i.e. Epoque method is also possible.
November 2019 Q3(c)(ii) (5 marks)

Solution:
Ramesh’s Current Account with Partnership firm (as on 30.9.2018)
Date Particulars Dr. Cr. Balance Dr. or Days Dr. Product Cr. Product
(₹) (₹)
(₹) Cr. (₹) (₹)
01.07.18 To Bal b/d 85,000 85,000 Dr. 13 11,05,000

14.07.18 By Cash A/c 1,23,000 38,000 Cr. 15 5,70,000
29.07.18 To Self 92,000 54,000 Dr. 20 10,80,000
18.08.18 By Cash A/c 21,000 33,000 Dr. 22 7,26,000
09.09.18 To Self 11,500 44,500 Dr. 22 9,79,000
30.09.18 To Interest A/c 941
30.09.18 By Bal. c/d 45,441 45,441 Dr.
1,89,441 1,89,441 5,70,000
38,90,000
Interest Calculation:
On₹ 38,90,000 x 10% x 1/365 = 1,066
On ₹ 5,70,000 x 8% x 1/365 = ₹ 125
Net interest to be debited = ₹
941
November 2018 Q2(c)(i) (5 marks)

Solution:
XY in Account Current with AB as on 31st Oct, 2018
(₹) Days Product (₹) Days Product
(₹) (₹)
01.07.18 To Bal. b/d 1,500 123 1,84,500 28.08.18 By Sales 400 64 25,600
Returns
20.8.18 To Sales 2,500 72 1,80,000 25.09.18 By Bank 1,600 36 57,600
31.10.18 To Interest 37 20.10.18 By Cash 1,000 11 11,000
20.10.18 By Balance of 1,037 2,70,300

Products
4,037 31.10.18 By Bal. c/d 4,037 3,64,500
202
Note:
Interest = ₹2,70,000 ×
May 2018 Q2(c)(ii) (5 marks)

Solution:
Bhuvanesh
in Account Current with Avinash
for the period ending on 31st March 2018
2018 ₹ 2018 ₹
Jan.1 To Balance 1,800 90* 1,62,000 Jan.15 By Sales 650 75 48,750
b/d Returns
Jan. 10 To Sales 1,500 80 1,20,000 Feb. 12 By Bank A/c 1,000 47 47,000
A/c
March, To Sales 720 20 14,400 Feb. 20 By B/R A/c 1,500 8 12,000
11 A/c (due date:
March 23)
March, To Interest 24 March, By Cash A/c 800 17 13,600

31 A/c 14
March, By Balance of 1,75,050
31 products
By Balance 94
c/d
4,044 2,96,400 4,044 2,96,400
203
FINANCIAL STATEMENTS OF
NOT-FOR-PROFIT ORGANIZATIONS
TEST YOUR KNOWLEDGE
ANSWERS/HINTS
True and False
1. False: It depicts the cash system of accounting rather than the accrual system, as the cash receipts and
payments pertaining to any year are entered in the Receipts and payments account. The principle of accrual
is not followed with regard to the receipts and payments account of a non-profit organization.
2. False: The income and expenditure account records only the revenue income and expenditure. The capital
transactions are being recorded in the Balance sheet.
3. False: The grass for a sports club is not a capital item, hence the sale of such grass shall be treated as a
revenue receipt.
4. False: They are disclosed under the current assets of the Balance sheet as they will be paid within the next
year and not to be treated as non-current assets.
5. False: Receipts and payments account gives information about the expenses paid in cash for the current
year, previous or the next year. It is only from the additional information we identify the outstanding
expenses.
6. False: Additional information means that information which has been identified just before the
preparation of the final accounts. As NPO follows the double entry system of book keeping, there shall
be 2 effects for each of the additional information.
7. False: The excess of expenditure over the tournament fund shall be debited to the income and expenditure
account and not taken to the closing balance sheet.
8. False: The excess of the income over the expenditure is called as Surplus and not profit for an Non-profit
organisation.
9. False: The Non-profit organisation credits the surplus earned in a year to the general fund maintained
by it.
10. True: It is Fund based accounting that records the fund balances in the balance sheet.
11. False: Subscription is a regular fees paid by the members to keep the membership alive.
12. True: Honorarium refers to the nominal amount paid for the services with a non-commercial intent.
13. False: Insurance Company has a profit motive, hence it is not a non-profit organization.
14. False: It shall be shown in the Balance sheet- where it is to be capitalized.
15. False: It is only the current year income and expenditure which is recorded in the Income and
Expenditure account as per the accrual concept.
16. True: While on the death bed, if there is any will written that the assets of a person shall be donated to
any NPO- then such a donation to the NPO, is termed as LEGACY.
17. True: Where in case of the trading activities, the profit /loss from such activity to be transferred to the
Income and expenditure account in case of consolidated accounts.
18. False: The Non-profit organisation has its very existence to the main base line of serving the members
and the society. Profit earning shall never be its motive.
19. False: Receipts can be both of revenue as well as capital nature. Receipts of both the nature are recorded
in the receipts and payments account.
20. False: It represents a nominal account and is prepared in accordance with the accrual concept, hence
there can be no opening balances.
204
Swaraj Club
Receipts and Payments Accounts for the year ended 31st March, 2020
Receipts ₹ Payments ₹
To Balance b/d (opening bal.) By Salaries and Wages 1,200
Cash in hand 200
To Cash with bank 400 By Purchase of Foodstuff 800
To Entrance Fees 300 By Club Pavilion (Expenditure
To Membership Fees 3,000 on its construction) 11,000
To Donation of Account By General Expenses 600
of Club Pavilion 10,000 By Rent and Taxes 400
To Sales of foodstuff 1,200 By Bank Charges 160
By Balance c/d (closing bal)
Cash in hand 350
Cash in bank 590
15,100 15,100
₹
Amount received 42,000
Add: Outstanding on 31st Dec., 2020 3,000
Less: Received on account of 2020 45,000

1,600
2021 (2,200)
600
42,800
The various accounts will appear as under:
Subscription Outstanding Account
2020 ₹ 2020 ₹
Jan. 1 To Balance b/d 1,600 Dec. 31 By Subscription A/c 1,600
(transfer)
Dec. 31 To Subscription A/c 3,000 Dec. 31 By Balance c/d 3,000
4,600 4,600
205
Subscription Account
2020 ₹ 2020 ₹
Dec. 31 To Subscription Dec. 31 By Cash A/c 42,000
1,600
Outstanding A/c (transfer) Dec. 31 By Subscription
Dec. 31 To Subscription received Outstanding A/c 3,000
in advance A/c 600
To Income and
Dec. 31
Expenditure A/c (transfer) 42,800
45,000 45,000
Subscription received in Advance Account
2020 ₹ 2020 ₹
Dec. 31 To Balance c/d 600 Dec. 31 By Subscription A/c 600
Subscription outstanding ₹3,000 and Subscription received in advance ₹600 will be shown in the balance
sheet on the assets and liabilities side respectively.
Salaries Account
₹ ₹
April, 1 2019 To Prepaid 400 April, 1, By Salaries Outstanding 1,400
Salaries A/c 2019 A/c
March, 31, To Cash 23,000 March, 31, By Salaries Prepaid A/c 600
2020 2020
To Salaries Outstanding 1,800 By Transfer to Income 23,200

A/c & Expenditure A/c
25,200 25,200
Salaries Outstanding Account

206
₹ ₹
April, 1, 2019 To Salaries A/c 1,400 April, 1, 2019 By Balance b/d 1,400
March, 31, 2020 To Balance c/d 1,800 March, 31, 2020 By Salaries A/c 1,800
3,200 3,200
Salaries Prepaid Account
₹ ₹
April, 2019 To Balance b/d 400 April, 1, 2019 By Salaries A/c (transfer) 400
March, 31, 2020 To Salaries A/c 600 March, 31, 2020 By Balance c/d 600
1,000 1,000
In the books of New bird forty Club
Dr Income and expenditure Account for the year ended on 31st March 2020 Cr
Expenditure Amount Income Amount
(₹) (₹)
Salaries and wages 1,65,000 By Subscriptions 4,20,000

Add: Outstanding Salaries Add: Outstanding
for 2020 40,000 2,05,000 Subscriptions
for 2020 55,000
To Office expenses 35,000 Less: Outstanding
To Depreciation (25% × 3,42,000) 85,500 Subscriptions

To Telephone Charges 28,000 for 2019 65,000
4,10,000
To Electricity charges 32,000 By Donations
55,000
To Travelling and conveyance 65,000 By Entrance fees (50% × 85,000)
5,07,500 5,07,500
42,500
Excess of income over expenditure 57,000
Balance sheet as at March 31st 2020 (extract)
Liabilities Amount (₹) Assets Amount (₹)
Match fund 30,000
Add: Donation for match fund 55,000
Add: Proceeds from sale of tickets 20,000
Less: Match expenses (Note 1) (1,05,000)
NIL
Note: Since the expenses incurred are more than the Match fund available ₹ 105,000 we are limiting the
expenses to ₹ 1,05,000. The remaining expenses of ₹ 5000 (1,10,000-1,05,000) will be debited to the
Income and expenditure account.
207
In the books of Jaipur literary society
Dr Subscription A/c (for the year ended on 31st March 2020) Cr
Particulars Amount (₹) Particulars Amount (₹)
To outstanding subscriptions (2019) 20,000 By Advance subscriptions 18,000

(2019)
To Income from Subscriptions A/c 4,37,000 By Bank A/c 4,50,000
To Advance subscriptions (2021) 26,000 By Outstanding subscriptions 15,000

(2020)
4,83,000 4,83,000
Particulars Amount (₹) Particulars Amount (₹)
To Outstanding subscriptions (2019) 45,000 By Advance subscriptions 30,000

(2019)
To Income from subscriptions A/c 3,67,500 By Bank A/c 4,10,000
(300*1050)
To Advance subscriptions (2021) 62,000 By Outstanding 34,500
subscriptions (2019)
4,74,500 4,74,500
208
Income and expenditure Account of Exe Club

For the year ending 31st March, 2020
(all figures in thousand)
Expenditure ₹ Income ₹
To Groundman’s fee 750 By Donations and Subscription 2,550

To Rent of Ground 250 By Receipts from teas 50
To Fares’ Expenses 400 (Fares) less expenses
Less: Contribution (100) 300 (₹300 - ₹250)
To printing & office expenses 260 By Proceeds of Variety
Entertainment
780
To Repairs 460 By Interest (₹30 + ₹20) 50

To Depreciation on Machinery
Opening balance and 2,300
Purchases
Less: Closing Balance (1,750)
550
Less: Sale (80) 470
To Honorarium to Sect. & 600

Treasurer
To Bonus to Groundsman 300
To Excess of Income over 40
Expenditure
3,430 3,430
Balance sheet of Exe Club as on 31st March, 2020

Liabilities ₹ Assets ₹
Outstanding Expenses:
Groundsman Bonus 300 Cash in hand 250
Printing 80 Cash in Deposit A/c 3,090
Honorarium 600 Subscription Due 100
Bank Overdraft (₹260 - ₹150) 110 Interest Due 20
Capital Fund: Opening 3,080 Machinery & Equipments 1,750
Add: Surplus for the year 40 3,120
Tournament Fund (Donation) 1,000
5,210 5,210
209
Balance Sheet as on 1st April, 2019

Outstanding Expenses and Cash in hand 100
Honorarium (₹100 + ₹400) 500 Cash in Deposit A/c 2,230
Capital Fund (Balancing Figure) 3,080 Cash in Current A/c 300
Subscription Due 150
Machinery 800
3,580 3,580
(a) Sportswriters Club

Liabilities ₹ ₹ Assets ₹
Outstanding expenses : Furniture 9,600
Salaries 710 Library Books 5,000
Rent & Electricity 864 Sports Equipment 7,200
Magazines & Newspapers 226 1,800 Fixed Deposit 20,000
Capital Fund (Balancing figure) 47,000 Cash in hand & at Bank 4,820
Prepaid Expenses 417
Subscription receivable 1,263
Interest accrued 500
48,800 48,800
(b) Income and expenditure Account for the year ending 31st march, 2020
To Salaries 11,460 By Subscription 28,912
To Rent & Electricity 7,329 By Interest on FD 2,000
To Magazines & Newspapers 2,286 By Misc. Income 700
To Sundry Expenses 10,075 By Excess of expenditure
To Depreciation : over income 2,888
Furniture 960
Sports Equipment 1,640
Library Books 750 3,350
34,500 34,500
210
(c) Balance Sheet of Sport Writers Club as on 31st March, 2020
Liabilities ₹ ₹ Assets ₹ ₹
Outstanding Expenses: Furniture
Salaries
Rent & Electricity 170 Cost 9,600 8,640
Newspapers 973 Less : Depreciation (960)
340 1,483 Magazines & Sport
Capital Fund:
47,000 Equipment:
Opening balance
Less: Excess of Opening balance 7,200
exp. over income (2,888) 44,112 Addition 1,000 6,560
8,200
Less : Depreciation (1,640)
Library Books:
5,000
Opening Balance
1,000
Addition
6,000
Less : Depreciation (750) 5,250
Fixed Deposit 20,000
Cash in hand & at bank 2,450
Prepaid Expenses 620
Subscription Receivable 1,575
Interest accrued 500
45,595 45,595
Working Notes:
(i) Expenses Salaries Rent & Magazines Sundry
Electricity & News- Expenses
Papers
₹ ₹ ₹ ₹
Paid during the year 12,000 7,220 2,172 10,278
Add : Outstanding on 31.3.2020 170 973 340 –
Add : Prepaid on 31.3.2019 – – – 417
12,170 8,193 2,512 10,695

Less : Outstanding on 31.3.2019
(710) (864) (226) –
Less : Prepaid on 31.3.2020
– – – (620)
Expenditure for the year
11,460 7,329 2,286 10,075
211
Depreciation
(ii) 960
(a) Furniture @10% on ₹9,600
1,640
(b) Sports Equipment @ 20% on ₹8,200
(c) Library books - book 6,000
value Revalued at
(5,250) 750
Subscription
Received in cash 28,600
(iii)
Add : Receivable on 31.3.2020 1,575
30,175
Less: Receivable on 31.3.2019 (1,263)
28,912
The Youth Club Receipts and Payments Account

for the year ended 31st December, 2020
Receipts ₹ ₹ Payments ₹ ₹
To Balance b/d (balancing figure) 1,390 By Salaries 4,750
To Subscriptions as per income &
Expenditure Account 7500 Add: Paid for 2019 400
Add: 2019’s Received 5,150
(450) 4,700
2021’s Received 600 Less: Unpaid for 2020 500 560
270 By General Expenses 60
8,370 Add: Paid for 2021
Less: 2020’s Received in 2019 (450) By Audit fee (2020) 200

7,920 By Secy. Honorarium 1,000
Less: 2020’s Outstanding
(750) 7,170
To Entrance Fees By Stationery & Printing 450
To Contribution for annual 250
By Annual Dinner 1,500
dinner 1,000
Expenses
To Sport meet:
Receipt By Interest & Bank Charges 150
750
By Sports Equipments
[2700 - (2600 - 300)] 400
To Balance b/d By Balance c/d 1,600
10,560 10,560
1,600
212
Balance sheet of youth club as at December 31, 2020

Subscription received Freehold Ground 10,000
in advance 270 Sport Equipment:
Audit Fee Outstanding 250 As per last Balance Sheet
Salaries Outstanding 450 2,600
Bank Loan 2,000 Additions 400

Capital Fund : 3,000
Balance as per previous Less : Depreciation 2,700
(300)
Balance Sheet
11,540 750
Add : Surplus for 2020 600 12,140 Subscription Outstanding
Insurance Prepaid 60
Cash in hand 1,600
15,110 15,110
Balance Sheet of Youth Club as at 31st December, 209
Subscriptions received in advance 450 Freehold Ground 10,000
Salaries outstanding 400 Sports Equipment 2,600
Audit fees unpaid 200 Subscriptions Outstanding 600
Bank Loan 2,000 Cash in hand 1,390
Capital Fund (balancing figure) 11,540
14,590 14,590
Receipts and Payments Account for the year ending 31st March, 2020
To Balance b/d By Upkeep of Ground

(Balancing figure) 4,660 (10,000 + 600) 10,600
To Subscription 17,320 By Printing (1,000 + 240) 1,240
To Interest on Prize Fund Investments 1,000 By Salaries 11,000
To Lecture (fee) 1,500 By Rent 600
To Entrance Fee 2,600 By Prizes 2,000
To Sale of Newspapers (old) 260 By Balance c/d 2,300
To Misc. Income 400
27,740 27,740
213
Note: In order to arrive at the payments under Upkeep of ground and printing, even the payment for 2018-19
has been considered, as receipts and payments A/c shows all the period payments
2019 ₹ 2019 ₹
April To Subscription April 1 By Cash (Balancing figure) 17,320

Outstanding By Subscription
(2018-19) 800 Outstanding (2019-20) 700
To Subscription By Subscription
In Advance (2020-21) 100 in Advance (2018-19) 200
2020
March To Income & 18,220 18,220
Expenditure A/c 17,320
Republic College
Income and Expenditure Account for the year ending 31st March, 2020
Expenditure ₹ ₹ Income ₹ ₹
To Salaries: By Tuitions & other fee 8,80,000

Teaching 8,50,000 By Govt. Grants 5,00,000
Research 1,20,000
To Material & Supplies By Income from Investments 1,85,000
Consumed: By Hostel room Rent 1,75,000
Teaching 50,000 ByMess Receipts 2,00,000
Research 1,50,000 ByProfit-Stores Sales 75,000
To Repairs & Maintenance 1,12,000 BySeminar and
Conferences
To Sports & Games Income 4,80,000
Expenses: By Less: Expenses (4,50,000) 30,000
Cash 50,000 By Consultancy charges:
Materials 25,000 75,000 Income 1,28,000
To Students Welfare
Expenses: Less: Expenses 1,00,000
(28,000)
Cash 38,000 By Donations 50,000
Materials 75,000 1,13,000
To Misc. Expenses 65,000
To Scholarships
80,000
To Depreciation:
Building 80,000
Plant & Equipment 85,000
214
Furniture 60,000
Motor Vehicle 36,000
To Excess of Income over
Expenditure 3,19,000
21,95,000 21,95,000
Republic Collage
Labilities ₹ ₹ Assets ₹ ₹
Capital Fund Fixed Assets:
Opening balance 16,06,000 Land 1,00,000
Add: Excess of Income over Building Cost 16,00,000
Expenditure 3.19,000 19,25,000 Less: Depreciation (5,60,000) 10,40,000
Other Funds Equipment Cost 8,50,000
Research Fund 8,00,000 Less: Depreciation 5,95,000 2,55,000
Building Fund 25,00,000 Furniture & fittings:
Cost 6,00,000
Current Liabilities: Less: Depreciation motor (3,96,000) 2,04,000
Outstanding Expenses 2,25,000 vehicles
Provident Fund 5,10,000
Security Deposit 1,50,000 Cost: 1,80,000
Less: Depreciation (36,000) 1,44,000
Library 3,60,000
Investments:
Capital fund investments 18,50,000
Research Fund Investment 8,00,000
P.F. Investment 5,10,000
Stock (Store)
Material & Supplies 1,25,000
Tuition Fee Receivable 80,000
Cash in hand & at Bank 6,42,000
61,10,000 61,10,000
215
Working Notes:
₹ ₹
(1) Material & Supplies - Closing Stock
Purchases 8,00,000
11,00,000
Less : Cost of Material & Supplies (7,50,000*90% (100-10)) 6,75,000

(9,75,000)
Consumed 3,00,000 1,25,000
Balance
Provisions for Depreciation Plant &
Furniture
(2) Building Equipment
& Fitting
₹
₹
₹ 5,10,000
3,36,000
Opening Balance 4,80,000 85,000
60,000
Addition 80,000
Closing Balance 5,60,000 5,95,000 3,96,000

Note: Expense related to income earned like consultancy
charges, conference expenses are shown as net of income.
Income and expenditure Account of Lion Club for the year ended 31st March, 2020
To Salaries 1,28,000 By Subscription 1,94,750
To Printing and stationary 70,000 By Entrance donation 90,000
To Postage 40,000 By Interest 60,000
To Telephone and telex 52,000 By Miscellaneous income 9,000
To Repairs and maintenance 48,000 By Pro t from operations 92,000
To Glass and table linen 12,000 By Excess of expenditure over income
To Crockery and cutlery 14,000 (deficit) transferred to capital fund 30,250
To Garden upkeep 8,000
To Membership fees 4,000
To Insurance 6,000
To Electricity charges 43,000
To Loss on sale of assets 2,000
4,76,000 4,76,000
216
Balance Sheet of Lion Club as on 31st March, 2020

Capital fund 10,89,600 Fixed assets 4,41,000
Gratuity fund 1,50,000 Stock 2,10,000
Sundry creditors 92,000 Investments 5,00,000
Subscription received in advance 18,000 Subscription outstanding 7,000
Entrance donation refundable 20,000 Interest accrued 2,000
Outstanding 23,000 Bank 2,24,600
Cash 8,000
13,92,600 13,92,600
Working Notes:
1. Opening Balance sheet
Balance sheet of lion club as on 1st April, 2019
Sundry creditors 1,12,000 Fixed assets 5,00,000
Subscription received in advance 15,000 Stock 3,80,000
Entrance donation received in advance 1,00,000 Investments 5,00,000
Gratuity fund 1,50,000 Subscription outstanding 12,000
Capital fund (balance figure) 10,29,850 Prepaid expenses 1,000
Cash 10,000
Bank 3,850
14,06,850 14,06,850
2. Subscription
₹
Subscription received during the year 2,02,750
Add: Outstanding subscription on 31.3.2020 7,000
2,09,750
Add: Received in advance as on 1.4.2019 15,000
2,24,750
Less: Outstanding subscription as on 1.4.2019 (12,000)
2,12,750
Less: Received in advance as on 31.3.2020 (18,000)
1,94,750
3. Entrance donation
₹
Entrance donation received during the year 1,00,000
Add: Received in advance as on 1.4.2019 1,00,000
2,00,000
Less: Entrance donation in respect of ineligible member (20,000)
1,80,000
Less: 50% capitalized (90,000)
Taken to income and expenditure account 90,000
217
4. Loss sale of asset
₹
Cost of asset sold Less: 10,000
Sale proceeds Loss on (8,000)
sale of asset 2,000
5. Depreciation
₹
Fixed asset as per trial balance 5,00,000
Less: Cost of asset sold (10,000)
4,90,000
Depreciation on ₹ 4,90,000 @ 10%
49,000
6. Salaries
₹
Salary paid during the year 1,20,000
Add: Outstanding as on 31.3.2020 8,000
1,28,000
7. Electricity Charge
₹
Electricity charges paid during the year 28,000
Add: Outstanding as on 31.3.2020 15,000
43,000
8. Interest
₹
Interest on 12% Government securities investment (₹5,00,000 @ 12% p.a.) 60,000
Less: Interest received during the year (58,000)
Interest accrued 2,000
Interest credited to income and Expenditure Account 60,000
9. Profit from operation
₹
Cost of goods sold:
Opening stock 3,80,000
Less: Closing Stock 18,80,000
Cost of goods sold (A) (2,10,000)
16,70,000
Receipts from operations:
Receipts from coffee room 10,70,000
Receipts from soft drinks 5,10,000
Receipts from swimming pool 80,000
Receipts from tennis court 1,02,000
Total receipts (B) 17,62,000
218
Profits from operations (B-A) 92,000

10. Insurance
₹
Insurance paid during the year 5,000
Add: Prepaid insurance as on 1.4.2019 1,000
6,000
11. Sundry Creditors
₹
Opening balance as on 1.4.2019 1,12,000
Add: Purchases made during the year 15,00,000
16,12,000
Less: Payments made during the year Closing balance as on 31.3.2020 (15,20,000)
92,000
12. Outstanding expenses
₹
Outstanding salaries 8,000
Outstanding electricity charges 15,000
Outstanding expenses 6,000
13. Fixed assets
₹
Fixed assets as on 1.4.2019 5,00,000
Less: cost of assets sold (10,000)
4,90,000
Less: Depreciation (49,000)
Fixed assets as on 31.3.2020 4,41,000
14. Capital fund
₹
Capital fund as on 1.4.2019 10,29,850
Add. Entrance donation capitalised 90,000
11,19,850
Less: Excess of expenditure over income (30,250)
Balance as on 31.3.2020 10,89,600
219
Income & Expenditure Account (An extract) of Sachin cricket club

₹ ₹
By Subscription 7,50,000
(500 members × ₹ 1,500 per member)
Balance sheet of Sachin Cricket club as on 31st March, 2019 (AN extract)
By Receivable 27,000
(1500 + ₹ 12,000)
Balance sheet of Sachin Cricket Club as on 31st March, 2020 (An extract)
Liabilities ₹ Assets ₹ ₹
Unearned Subscription 18,000 Outstanding Subscription
of 2018-19 15,000
of 2019-20
₹ (7,50,000 – 6,15,000) 1,35,000 1,50,000
Receipts and Payments Account of Bombay Medical Aid Society

To Cash in (Opening) 8,000 By medicine supply 30,000
To Subscription 50,000 By Honorarium to doctors 10,000
To Donation 15,000 By Salaries 28,000
To interest on investment 9,000 By Sundry expenses 1,000
To charity show collections 12,500 By Purchase of equipment 15,000
By Charity show expenses 1,500
By Cash in hand (closing) 9,000
94,500 94,500
Income and Expenditure Account of Bombay Medical Aid Society

To Medicine consumed 29,000 By subscription 51,200
To Honorarium to doctors 10,000 By Donation 15,000
To Salaries 28,000 By Interest on investments 9,000
220
To Sundry expenses 1,000 By Profit on charity show:

To Depreciation on Show collections 12,500
Equipment 6,000 Less: Show expenses (1,500) 11,000
Building 2,000 8,000
To Surplus-excess of income
over expenditure 10,200
86,200 86,200
Balance Sheet of Bombay Medical Aid Society as on 31st December, 2020

Capital fund: Building 50,000
Opening balance 1,80,300 Less: Depreciation (2,000) 48,000
Add: Surplus 10,200 Equipment 21,000
1,90,500 Add: Purchase 15,000
Subscription received in 36,000
advance 700
Amount due for medicine Less: Depreciation (6,000) 30,000
supply 13,000 Stock of medicine 15,000
Investments 1,00,000
Cash in hand 9,000
2,04,200 2,04,200
Working Notes:
Subscription for the year ended 31st December, 2020: ₹
Subscription received during the year 50,000
Less: Subscription receivable on 1.1.2020 1,500
Less: Subscription received in advance on 31.12.2020 700 (2,200)
47,800
Add: Subscription receivable on 31.12.2020 2,200
Add: Subscription received in advance on 1.1.2020 1,200 3,400
51,200
Purchase of medicine:
30,000
Payment for medicine supply
(9,000)
Less: Amounts due for medicine supply on 1.1.2020
21,000
Add: Amounts due for medicine supply on 31.12.2020 13,000
34,000
Medicine consumed:
Stock of medicine on 1.1.2020 10,000
Add: Purchase of medicine during the year 34,000
44,00
Less: Stock of medicine on 31.12.2020 (15,000)
221
29,000
Depreciation equipment:
Value of equiptment on 1.1.2020 21,000
Add: Purchase of equipment during the year 15,000
36,000
Less: Value of equipment on 31.12.2020 (30,000)
Depreciation on equipment for the year 6,000
Balance Sheet of Medical Aid Society as on 1st January, 2020

Capital fund (balancing figure) 1,80,300 Building 50,000
Subscription received in advance 1,200 Equipment 21,000
Amount due for medicine supply 9,000 Stock of medicine 10,000
Investments (₹ 9,000 x 100/9) 1,00,000
Cash in hand 8,000
1,90,500 1,90,500
222
EXAMINATION QUESTION
January 2021 Question 5 (c) (10 marks)
Solution:
ATK Club
Receipts and Payments Account
RECEIPTS ₹ ₹ PAYMENTS ₹ ₹
To Balance b/d (balancing 54,400 4,72,000
By Salaries Paid (W.N.
figure)
2)
To Subscriptions Received 6,53,600 By Audit fee (W.N. 3) 8,000
(W.N.1)
To Entrance Fees 16,000 By Telephone 6,000
To Misc. Income 1,44,000 By Stationery & Printing 24,000
By Postage 2000
By Office expense 48,000
By Bank Interest 22,000
By Annual general 1,00,000
meeting expenses
By Sports 72,000
Equipment’s (W.N.4)
8,68,000 8,68,000
Balance Sheet of ATK Club as at March31, 2020

Capital Fund: Club Premises 7,60,000
Balance as per Sport Equipment
previous 2,52,000
Subscription
Balance Sheet Outstanding
Add: Surplus for 72,000
8,82,400 Cash in hand
2020 1,14,000
Bank Loan 1,20,000 10,02,400
Subscription
received in 1,20,000
advance
Audit Fee
Outstanding
Salaries 33,600
Outstanding
10,000
32,000
11,98,000 11,98,000
223
Balance Sheet of ATK Club as at 31st March, 2019

Subscriptions received in advance 52,000 Club Premises 7,60,000
Salaries Outstanding 24,000 Sports Equipment 2,08,000
Audit fees payable 8,000 Subscriptions 64,000
Outstanding
Bank Loan 1,20,000 Cash in hand 54,400
Capital Fund (balancing figure) 8,82,400
10,86,400 10,86,400
Working Notes:
1. Subscription received in 2019-20
Add: Subscription for 2019-20 on accrual basis 6,80,000
Add: Amount received in advance on 31.03.2020 33,600
Outstanding as on 01.04.2019 received in 2019-20 64,000
7,77,600
Less: Outstanding to be received on 31.03.2020 72,000
Amount of 2019-20 received in 2018-19 52,000
Rs 6,53,600
2. Salary paid in 2019-20
Salary for 2019-20 on accrual basis 4,80,000

Add: Outstanding as on 01.04.2019 paid in 2019-20 24,000
Less: Outstanding to be paid on 31.03.2020 32,000
Rs .4,72,000
3. Audit Fees paid in 2019-20
Audit Fees for 2019-20 on accrual basis 10,000
Add: Outstanding as on 01.04.2019 paid in 2019-20 8,000
Less: Outstanding to be paid on 31.03.2020 10,000
₹ 8,000
4. Sports Equipment purchased during 2019-20
WDV as on 31.03.2020 2,52,000
Add: Depreciation 28,000
Less: WDV as on 31.03.2019 2,08,000
Rs 72,000
224
November 2020 Question 4(b) (10 marks)

Solution:
AS College
Income and Expenditure Account
for the year ending 31st March, 2020
To Salaries: Teaching 8,75,000 By Tutions & other fee 8,92,000
Research 1,25,000 By Govt. Grants 5,01,000
To Material & Supplies By Income from
Consumed Investments 1,75,000
1,65,000
Teaching 52,000 By Hostel room Rent
2,05,000
Research 1,45,000 By Mess Receipts
By Profit-stores sales 1,14,000
To Sports & Games
Expenses
Cash 52,000
24,000 76,000
Materials
To Students Welfare
Expenses
Cash 37,000
Materials 78,000 1,15,000
To Scholarships 85,000
To Depreciation:
Building 77,500
Plant & Equipment 85,000
Furniture 54,000
Motor Vehicle 48,000
To Excess of Income over
3,14,500
Expenditure
20,52,000 20,52,000
AS College
Fixed Assets:
Capital Fund Land 1,50,000
Opening balance 13,08,000 Building Cost 15,50,000
Add: Excess of Income 3,14,500 16,22,500 Less: Dep. (5,67,500) 9,82,500
over
Expenditure
Building Fund 19,10,000 Plant & 8,50,000
Machinery Cost
Current Liabilities: Less: Dep. (5,90,000) 2,60,000
Outstanding 2,35,000
Expenses Furniture &
225
Security Deposit 1,55,000 Fittings:

Cost 5,40,000
Less: Dep. (3,80,000) 1,60,000
Motor Vehicles
Cost: 2,40,000
Less: Dep. (48,000) 1,92,000
Library 3,20,000
Investments 12,75,000
Stock (stores)-
Material & 1,85,000
Supplies
Tuition fees 82,000
receivable
Cash in hand & at
Bank 3,16,000
39,22,500 39,22,500
Working Notes:
(1) Material & Supplies-Closing Stock ₹ ₹
Purchases 8,20,000
11,30,000
Less: Cost of Goods Sold 6,46,000
Material Consumed 2,99,000 (9,45,000)
Balance 1,85,000
(2) Provisions for Depreciation

Building Plant & Furniture
Equipment & Fitting
₹ ₹ ₹
Opening Balance 4,90,000 5,05,000 3,26,000
Addition 77,500 85,000 54,000
Closing Balance 5,67,500 5,90,000 3,80,000
226
November 2019 Question 4 (b) (10 marks)

Solution:
Receipts and Payments Account
for the year ending 31st March, 2019
To Balance b/d By Upkeep of Ground
(Balancing figure) 16,126 (11,000+660) 11,660
To Subscription 19,052 By Printing (1,100+264) 1,364
To Interest on Prize Fund 1,100 By Salaries 11,100
Investments By Furniture (9,900 +1,100) 11,000
To Lecture (fee) 1,650 By Rent 1,660
To Entrance Fee 2,860 By Prizes 2,200
To Sale of Newspapers (old) 286 By Balance c/d 2,530
To Misc. Income 440
41,514 41,514
Note:
₹660 paid for upkeep of ground for 2017-18 and ₹264 paid for printing have been added to the
amount shown as expenditure for the year to arrive at total payment under these heads.
₹ ₹
2018 To Subscription 880 2018 By Subscription 220
April Outstanding (2017-18) April 1 in Advance (2017-18)
To Subscription 110 770
By Subscription
In Advance (2018-19) Outstanding (2018-19) By 19,052
Cash (Balancing figure)
2019
March To Income & 19,052
Expenditure A/c
20,042 20,042
May 2019 Question 5 (b) (10 marks)

Receipts and Payments Account for the year ended 31-03-2019
To balance b/d By Salaries 60,000

Cash and bank 1,10,000 By Purchase of sports goods 10,000
To Subscription received (W.N.1) 2,45,000 ₹ (25,000-15,000)
To Sale of investments (W.N.2) 70,000 By Purchase of machinery 10,000
To Interest received on investment 14,000
227
To Sale of furniture 8,000 ₹ (20,000-10,000) 50,000

By Sports expenses
By Rent paid ₹ (24,000 -2,000) 22,000
By Miscellaneous expenses 5,000
By Balance c/d
Cash and bank 2,90,000
4,47,000 4,47,000
Income and Expenditure account for the year ended 31-03-2019
To Salaries 60,000 By Subscription 3,00,000
Add: Outstanding for 2019 18,000 By Interest on
Investment
78,000 Received 14,000
Less: Outstanding for 2018 (15,000) 63,000 Accrued (W.N.5) 3,500 17,500
To Sports expenses 50,000

To Rent 24,000
To Miscellaneous exp. 5,000
To Loss on sale of furniture 6,000
(W.N.3)
To Depreciation (W.N.4)
Furniture 1,400
Machinery 1,500
Sports goods 2,250 5,150
To Surplus 1,64,350
3,17,500 3,17,500
Working Notes:
1. Calculation of Subscription received during the year 2018-19
₹
Subscription due for 2018-19 3,00,000
Add: Outstanding of 2018 1,40,000
Less: Outstanding of 2019 (2,00,000)
Add: Subscription of 2019 received in advance 30,000
Less: Subscription of 2018 received in advance (25,000)
2,45,000
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2. Calculation of Sale price and profit on sale of investment

Face value of investment sold: ₹ 1,75,000 × 50% = ₹ 87,500 Sales price: ₹ 87,500 × 80% = ₹₹ 70,000
Cost price of investment sold: ₹ 1,40,000 × 50% = ₹ 70,000 Profit/loss on sale of investment: ₹ 70,000 - ₹
70,000 = NIL
3. Loss on sale of furniture
₹
Value of furniture as on 01-04-2018 28,000
Value of furniture as on 31-03-2019 14,000
Value of furniture sold at the beginning of the year 14,000
Less: Sales price of furniture (8,000)
Loss on sale of furniture 6,000
4. Depreciation
Furniture - ₹14,000 × 10% = 1,400

Machinery- ₹10,000 × 15% = 1,500
Sports goods – ₹15,000 × 15% = 2,250
5. Interest accrued on investment
₹
Face value of investment on 01-04-2018 1,75,000
Interest @ 10% 17,500
Less: Interest received during the year (14,000)
Interest accrued during the year 3,500
Note: It is assumed that the sale of investment has taken place at the end of the year.
229
CHAPTER 1: THEORETICAL FRAMEWORK
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
Unit -1 Meaning and Scope of Accounting
1. False : book-keeping and accounting are different from each other. Accounting is a broad subject. It calls
for a greater understanding of records obtained from book-keeping and an ability to analyse and interpret the
information provided by book-keeping records.
Book-keeping is the recording phase while accounting is concerned with the summarising phase of an
accounting system.
2. False : Financial accounting covers the preparation and interpretation of financial statements and
communication to the users of accounts.
3. False : Management accounting is concerned with internal reporting to the managers of a business unit.
4. False : Customers are also concerned with the stability and profitability of the enterprise because their
functioning is more or less dependent on the supply of goods
5. False : Recording is the basic function of accounting. Summarising is concerned with the preparation and
presentation of the classified data in a manner useful to the internal as well as the external users of financial
statements
6. True : Balance Sheet is a statement of the financial position of an enterprise at a given date.
7. True : Book-keeping is concerned with complete recording and combined effect of transactions made
during the accounting period.
Unit -2 Accounting Concepts, Principles And Conventions

1. False : Under matching concept all expenses matched with the revenue of that period should only be taken
into consideration. In the financial statements of the organization if any revenue is recognized then expenses
related to earn that revenue should also be recognized.
2. True : Since the owner invested capital, he has claim on the profits of the enterprise.
3. False : Under accrual concept, the effects of transactions and other events are recognised on mercantile
basis i.e., when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in
the accounting records and reported in the financial statements of the periods to which they relate.
4. False : The Realisation Concept also states that no change should be counted unless it has materialised.
5. False : The concept of consistency does not imply non-flexibility as not to allow the introduction of
improved method of accounting.
6. True : As per materiality principle, all the items having significant economic effect on the business of the
enterprise should be should be disclosed in the financial statements.
Unit -3 Accounting Terminology – Glossary

1. False : The drawee’s signed assent on bill of exchange, to the order of the drawer. This term is also used
to describe a bill of exchange that has been accepted.
2. False : Unexpired Cost - That portion of an expenditure whose benefit has not yet been exhausted.
3. False : Cash Basis of Accounting is the method of recording transactions by which revenues and costs and
assets and liabilities are reflected in the accounts in the period in which actual receipts or actual payments
are made.
4. True : Authorised share capital is number and par value of each class of shares that an enterprise may
issue in accordance with its instrument of incorporation and is sometimes referred as nominal share capital.
5. False : Net Fixed Assets - Fixed assets less accumulated depreciation thereon up-to-date.
6. False : The debit balance in the profit and loss statement is deficit.
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Unit -4 Capital And Revenue Expenditures and Receipts

1. False : For a trader dealing in furniture, purchase of furniture is revenue expenditure but for any other
trade, the purchase of furniture should be treated as capital expenditure and shown in the balance sheet as
asset. Therefore, the nature of business is a very important criteria in separating an expenditure between
capital and revenue.
2. False : Expenditure incurred for major repair of the asset so as to increase its productive capacity is capital
in nature
3. False : Legal expenses incurred to defend a suit claiming that the firm’s factory site belongs to the
plaintiff is maintenance expenditure of the asset. By this expense, neither any endurable benefit can be
obtained in future in addition to that what is presently available nor the capacity of the asset will be
increased. Maintenance expenditure in relation to an asset is revenue expenditure.
4. False : Amount spent for replacement of any worn out part of a machine is revenue expense since it is part
of its maintenance cost.
5. False : Legal fee paid to acquire any property is a part of cost of that property. It is incurred to possess the
ownership right of the property and hence a capital expenditure.
6. True : Since temporary huts were necessary for the construction, their cost should be added to the cost of
the cinema hall and thus capitalised.
Unit -5 Contingent Assets and Contingent Liabilities

1. False : A Contingent liability is required to be disclosed unless possibility of outflow of a resource
embodying economic benefits is remote.
2. False : A contingent liability fails to meet the recognition criteria.
3. False : A claim that an enterprise is pursuing through legal process, where the outcome is uncertain, is a
contingent asset
4. False : When it is probable that the fi rm will need to pay off the obligation, this gives rise to provision.
Unit -6 Accounting Policies

1. False : There cannot be single list of accounting policies, which are applicable to all enterprises in all
circumstances. There would always be different policies chosen by different industries under different
circumstances.
2. False : Accounting policy has big impact on value of items goes under financial statements, hence it
impacts financial performance and financial position of the business.
3. False : A change in accounting policies should be made in the following conditions:
(a) It is required by some statute or for compliance with an Accounting Standard.
(b) Change would result in more appropriate presentation of financial statement.
4. True : For Inventory valuation, an enterprise may adopt FIFO or weighted average method and the
method selected for valuation is called an accounting policy.
5. False : It could understate/overstate the performance and financial position of a business entity.
Unit -7 Accounting as a Measurement Discipline – Valuation Principles, Accounting Estimates

1. False : There are four generally accepted measurement bases or valuation principles
(i) Historical Cost; (ii) Current Cost;
(iii) Realizable Value; (iv) Present Value.
2. True : Historical cost means the acquisition price.
3. False : At Realisable value, assets are carried at the amount of cash or cash equivalents that could
currently be obtained by selling the assets in an orderly disposal.
4. False : Liabilities are carried at the present discounted value of future net cash outflows that are expected
to be required to settle the liabilities in the normal course of business.
5. False : Historical cost is 1000000.
6. True : Since similar machine is purchased at 20,00,000, the current cost of machine is 20,00,000
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Unit -8 Accounting Standards

1. True : Accounting standards are documents covering recognition, measurement, presentation and
disclosure of accounting transactions and events in the financial statements.
2. False : Accounting standards can never override the statute. The standards are required to be framed
within the ambit of prevailing statutes.
3. False : Difficulties in making choice between different treatments is one of the limitation of accounting
standard.
4. False : Benefits of accounting standards are:
- Standardisation of alternative accounting treatments
- Comparability of financial statements
- Requirements for additional disclosures
5. False : ASB stands for Accounting standard Board.
6. False : limitations of accounting standards
- Difficulties in making choice between different treatments
- Restricted scope
Unit -9 Indian Accounting Standards

1. False : The Government of India in consultation with the ICAI decided to converge and not to adopt
IFRSs issued by the IASB. The decision of convergence rather than adoption was taken after the detailed
analysis of IFRS requirements and extensive discussion with various stakeholders.
2. True : Major beneficiaries of convergence with IFRS’s are economy, investors and industry.
3. False : Since India is going global, there was huge demand of global standards for better comparison.
4. False : International Financial Reporting Standards (IFRSs) are considered a “principles-based” set of
standards.
5. False : Government of India has taken ASB support to develop Ind AS standards.
6. False : IASC stands for International Accounting Standards Committee.
232
CHAPTER 2: ACCOUNTING PROCESS
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
Unit -1 Basic Accounting Procedures - Journal Entries
1. True: as per the modern accounting equation approach- it is the basic formula in the accounting process
2. False: In the traditional approach a debtor becomes giver.
3. False: The rule of nominal account states that all expenses & losses are recorded on debit side.
4. True: it is one of the book where in the transactions not entered in the other books are entered in this
book.
5. False: Capital account has a credit balance.
6. True: as it is considered as an expense.
7. False: All the personal & real account are recorded in balance sheet.
8. False: Asset side of balance sheet contains all the personal & real accounts.
9. True: as it is in the name of the proprietor who is bringing in the capital to the business.
10. True: as the transactions are entered first in this book as a first hand record.
Unit -2 Ledgers
1. True: since it classifies all the amounts related to a particular account and then it is used as the base for
preparing the Trial balance.
2. True: being an asset under the modern equation approach.
3. False: Posting is the process of transferring the balances from journal to ledger.
4. False: At the end of the accounting year, all the nominal accounts of the ledger book are totaled and
transferred to P&L A/c.
5. False: Ledger records the transactions in analytical order. But journal records the transactions in a
chronological order.
6. False: IF the total debit side is greater than the total of credit side, we get a debit balance as the opening
balance.
7. True: the increase to an asset shall be debited since the original balance is also debit.
Unit -3 Trial Balance

1. True: which forms the base for the preparation of the final accounts.
2. True: yes only based on the Trial balance we can prepare the financial statements.
3. False: Agreement of Trial balance gives only arithmetical accuracy, there can still be errors in preparing
the trail balance.
4. True: since compensating errors cancel out due to their compensating nature of the amounts, hence
here is no problem in the Trial balance.
5. False: A Trial balance cannot find the missing entry from the journal.
6. False: Suspense account opened in a trial balance is a temporary account
7. True: as purchases is debited, any returns shall be credited (treated in opposite way)
Unit -4 Subsidiary Books

1. True: since cash purchases are taken to the cash book, it is only credit transactions that are recorded in the
purchases book.
2. False: Transactions regarding the purchase of fixed asset are not recorded in the purchase book, only
the credit purchases of goods are recorded in it.
3. False: Credit sales are recorded in the sales book.
4. True: they are maintained as an alternate to the journal.
5. True: yes it is one of the subsidiary book
233
6. False: Return inward book is also known as sales return book.

7. False: Purchase of a second hand machinery will not be recorded in purchase book.
8. True: since it is reduction from the total sales value, it is debited in the sales account.
9. True: yes when there are numerous transactions then there are subsidiary books like the sales book
where there are recorded instead of regular journal entries.
Unit -5 Cash Book

1. True: since the balance is taken to the Trial balance.
2. False: Two column cash book consists of two columns cash column & discount column.
3. True: it is totaled and transferred to the discount allowed or received account.
4. False: Contra entry is passed in a three column cash book in bank and cash columns
5. True: usually the debit side of opening balance shows a favorable balance, where there is unfavorable-
overdraft then it should be shown on the credit side.
6. False: A cash book records only cash transactions.
7. False: Discount column of cash book records the cash discount. Trade discount is not shown in the
books of accounts.
Unit -6 Rectification of Errors

1. True: there are 3 different stages when the mistakes are identified and then the rectification depends on
the stage of identification
2. False: In case of error of complete omission, the trial balance tallies.
3. True: to balance the difference of balances in the trial balance.
4. True: where the accounts being debited is principally incorrect it is termed as error of principle.
5. True: compensating errors cancel out each other when Trial balance is prepared as the mistake pertains to
the same amount being credited and later debited on account of two different mistakes.
6. False: When amount is written on wrong side, it is known as an error of commission.
7. False: On purchase of furniture, the amount spent on repairs should be debited to furniture account as it is
a capital expense.
8. False: ‘Profit & Loss adjustment account’ is opened to rectify the errors detected in the next accounting
period.
9. False: Rent paid to land lord of the proprietors house, must be debited to ‘Drawings account’.
10. False: If the errors are detected after preparing trial balance, then all the errors are not rectified through
suspense account. There may be principal errors, which can be rectified without opening a suspense
account.
234
CHAPTER 3: BANK RECONCILIATION STATEMENT
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
1. False : Bank Reconciliation Statement reconciles bank column of cash book with the balance in the pass
book i.e. customer account in the books of bank.
2. True : These are the three broad categories.
3. False : Adjusting the cash book is mandatory when bank reconciliation is done at the end of the financial
year.
4. False : Debit balance as per cash book should be represented by credit or favourable balance in pass
book.
5. False : Bank charges are example of the transactions that bank carries out by itself and the same has not
been recorded in the cashbook until statement is obtained from the bank.
6. True : Overcasting is an example of an error.
7. True : Since the cheques issued would have been recorded as payments and bank balance was credited
in cash book, we need to add it back as the same is not yet deducted from our bank balance.
8. False : Bank charges should be added when we start with credit or favourable balance in pass book as
bank would have debited the charges.
9. True : Since, we don’t know the causes of difference, matching the two statements is only efficient way
to identify the difference.
10. False : Cheques deposited but not yet cleared should be subtracted from debit or unfavourable balance
in pass book.
11. True : Cheques issued but not yet presented should be added back to a debit balance in cash book to
arrive at pass book balance i.e. ₹ 50,000 + ₹ 60,000 = ₹ 1,10,000.
12. False : Overcasting of credit side means excessive payments are recorded and hence would lower the
bank balance.
13. True: ₹ 25,000 payment is recorded as a receipt and hence it will have to be adjusted twice (once to
nullify and then once to record actual payment) hence causing the difference of double amount.
14. True : It is an example of a payment instructed by customer to be directly debited by bank, and hence
credited in the cash book.
15. True : Reconciliation statement can be prepared in either of the two formats.
16. False : Bank rarely makes mistakes, and hence differences that relate to errors are generally made in cash
book.
17. False : We need to deduct ₹81,600 (i.e. both cheque returned & charges) from debit balance in cash
book to arrive at balance as per pass book.
18. False : Interest allowed by bank is mostly recorded in cash book after the entry has been made in the
pass book or bank statement.
19. True : In absence of any reconciliation, the accountants can mis-utilize the funds temporarily by
recording the entry without actual depositing the cash.
20. False : Timing differences relate to the transactions that are recorded in cash book and pass book in two
different periods.
235
CHAPTER 4: INVENTORIES
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
1. True: Inventories refers to stocks of goods and materials that are maintained in business for revenue
generation.
2. True: For a construction business a building under construction will be inventory. The building is being
built in the normal course of business and will eventually be sold as well as inventory.
3. False: Inventory is valued at lower of cost or net realizable value.
4. False: Under Perpetual Inventory System management have daily information of closing stock.
5. True: A periodic inventory system is suitable to small and micro enterprises, where physical counting of
inventory is not a tedious process.
6. False: When closing inventory is overstated, net income for the accounting period will be overstated.
7. False: Closing stock = Cost of goods sold - (Opening inventory + Purchases + Direct expenses).
8. False: Cost of inventories should comprise all cost of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
9. False: Costs of conversion of inventories include costs directly related to the units of production. They
also include a systematic allocation of fixed and variable overheads.
10. False: Abnormal amounts of wasted materials, labour or other production overheads expenses are
generally not included in the costs of inventories.
11. False: Periodic system requires closure of business for counting of inventory.
12. True: Under Periodic inventory system actual physical count of inventory is taken of all the inventory on
hand at a particular date.
13. True: Value of Closing stock as per average method is more realistic then LIFO.
14. False: The value of stock is shown on the assets side of the balance-sheet as current assets. As it is
realisable within 12 months.
15. False: Under inflationary conditions, LIFO and weighted average will not show lowest value of cost of
goods sold.
16. False: Under FIFO, valuation of inventory is based on the assumption that costs are charged against
revenue in the order in which they occur.
17. True: The conservatism concept states that one shall not account for anticipated profits but shall provide
all prospective losses. Valuing inventory at cost or net realisable value whichever is less, therefore is
based on principle of Conservatism.
18. False: Finished goods are normally valued at cost or market price whichever is lower.
236
CHAPTER 5: CONCEPT AND ACCOUNTING OF DEPRECIATION
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
1. False : It is the decrease in market value as one of the reasons for depreciation. Increase in market value
may result in Revaluation.
2. True : It is not necessary that the asset must be used to be depreciated, thus depreciation may start once
it is brought in the location & condition required to be used.
3. False : Non refundable taxes & duties form part of the cost.
4. False : Inauguration costs shouldn’t be part of cost.
5. True : SLM method results in same amount and Declining method involves same rate of depreciation.
6. True : Revaluation should be done for the whole class of the asset.
7. False : Any decrease in value of asset on account of revaluation should be first debited to Revaluation
Reserve, if any, and then to Profit & Loss account.
8. True : Sum of years digit method depreciation is calculated as 10/55 x (12,00,000 – 1,00,000) = 2,00,000
9. False : Depletion relates to allocation of cost of natural resources
10. True : Depreciation being non cash expense reduces the distributable profits and hence facilitates
replacement of asset when required.
11. False : WDV = ₹ 12,50,000 - ₹ 4,00,000 = ₹ 8,50,000
12. True : Higher depreciation is charged in earlier years under sum of the years digit method.
13. False : It is vice versa as under diminishing balance method; higher depreciation is charged in beginning.
14. False : Land is not depreciated.
15. False : Provision for Depreciation account is credited while charging the depreciation.
16. False : Depreciation is allocation of the cost of an asset over its useful life. Regular repairs may be
required during its life are expensed and depreciation has to be charged anyways.
17. True : At the time of sale of an asset, respective asset account is credited with provision for depreciation
account being debited and any resulting gain or loss being charged to profit & loss account.
18. False: Under diminishing balance method, salvage value is not considered initially as it assumes that at
the end of the asset’s life the remaining value shall be its salvage value.
19. True : Any change in useful life of an asset is accounted for as a change in estimate.
20. False : Whenever any depreciable asset is sold during the year, depreciation is charged on it for the
period it has been used in the sale year.
237
CHAPTER 6: ACCOUNTING FOR SPECIAL TRANSACTIONS

TEST YOUR KNOWLEDGE
ANSWERS/HINTS
True and False
Unit -1 Bill Of Exchange and Promissory Notes
1.False: The bills payable account is a liability account that is disclosed in the balance sheet.
2. False: Bill of exchange contains an order to pay the required amount and not a mere promise to pay.
3. False: 3 Days of grace are added to the due date to arrive at the maturity date.
4. False: There can be more than 2 parties- namely the drawer, acceptor and the payee of the bill.
5. True: When a bill is drawn in the country and is payable outside the country it is termed as a foreign bill.
6. True: In case of the promissory note, it is generally the maker who makes the payment, but in case of the
bill of exchange, the person accepting the bill shall be liable to make the payment to the holder of the bill.
Unit -2 Sale of Goods on Approval or Return Basis

1. False: They are recorded as sales irrespective of whether the customer might accept or reject the goods at
the end of the period given for the approval.
2. False: As per the Sale of goods Act, when the goods are retained by the customer after the given time and
no express intimation is given with regard to rejection- they are deemed sales.
3. False: At the end of the accounting period- if there are goods sold on approval or return basis, without any
information, then the accounting treatment s to reverse the same from the sales and to add it with
the existing closing stock at cost price.
4. True: At the end, already the entries pertaining to the reversal of the sale and the addition to the closing
stock would have been passed. If subsequently if the customer rejects the goods, no further entry needs to be
passed.
5. False: It is the seller who fixes the terms of the period within which the customer has to get back with the
answer of rejection or accepting the goods.
6. False: Only upon accepting the goods expressly or doing some act, inconsistent with the title of goods, the
ownership and risk associated with the goods pass on to the buyer. Mere transfer of possession does no
convey ownership.
Unit -3 Consignment
1. False: The abnormal loss is credited to the consignment account since it is a reduction in the value of the
stock. Alternatively it can be credited to the trading account of the consignor too as there is reduction from
the stock of the goods.
2. False: The sales account shows the balance receivable on account of the sales- both cash and credit.
Whereas the account sales statement is given by the consignee to the consignor on a periodical basis
detailing the transactions done by the former.
3. True: The consignor is the owner of the goods sent on consignment. Consignee is a mere agent appointed
to sell the goods for a commission and the mere transfer of possession does not entitle consignee to become
the owner of the goods.
238
4. False: The del-credere commission is the commission paid to the consignee for bearing the loss of the bad
debts if any.
5. True: It is the consignor who has to record the closing stock of the consigned goods since he is the owner
of the goods. There is no entry passed in the books of the consignee.
6. False: It is a nominal account recording the expenses on the debit and the income on the credit side,
balance being the profit/ loss on the consignment account to the trading account.
7. False: Proforma invoice is given by the consignor to the consignee with regard to the goods sent on
consignment and their price.
8. False: If del credere commission is given to the consignee then, the bad debts are taken into the accounts
of the consignee. It will not appear in the consignment account.
9. False: Abnormal loss occurs due to unforeseen circumstances, but if necessary steps are taken they can be
controlled, it is only the natural loss which cannot be controlled since it occurs due to nature of the product.
10. False: The relationship between the consignor and the consignee is that of a principal and agent. It is
mere arrangement for sale of goods on behalf of the consignor.
Unit -4 Average Due Date

1. True: Where the due date is specifically given, then there is no need of further addition of 3 days grace to
it.
2. True: The rebate is given to the customers who make payment early to the average due date calculate.
3. False: It is single weighted average date calculated in such a way that it does not create any profit / loss
to both the parties involved.
4. False: The date of the earlier or most initial transaction that is considered as the base date for the
purpose of arriving at the average due date.
5. False: If payment made on the average due date, then there is no need to pay interest or provide rebate as
it is a date resulting in no pro-t/loss to either parties.
6. True: This can be understood from the foll ex-where August 15th is the due date, then the revised due date
is 14th- which is considered as sudden holiday, then the due date becomes 13th (preceding working day).
Unit -5 Account Current

1. False: Account current statement of running transaction between two parties to ascertain the amount along
with interest payable. Current account is an account type to be maintained with the bank. In both the interest
is calculate, but then different methods to calculate the interest.
2. True: An extension of the counter transactions between two parties type under the average due date-where
in the date of the initial transaction is considered as the base date from which the no. of days to the date of
rendering the account is calculated.
3. False: The due date is considered for the purpose of calculation of number of days and not the date of
transaction.
4. False: It is B who is preparing and rendering the account current to Mr. A.
5. True: The bills of exchange which is honored will not appear in the account current, only in case of
dishonor, it will be appearing in the account current.
239
CHAPTER 7: PREPARATION OF FINAL ACCOUNTS OF SOLE

PROPRIETORS
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
Unit -1 Final Accounts of Non-Manufacturing Entities
1. True: Profit and loss account shows either net profit or net loss for a particular period.
2. False: Gains from the sale or exchange of assets are considered as the revenue of the business. But this
revenue not in the ordinary course of business so it is capital receipts.
3. True: The salary paid in advance is an asset it is not an expense because it neither reduces assets or nor
increase liabilities.
4. True: A loss is an expenditure of the business which does not bring any gain to the business.
5. False: All liabilities which become due for payment in one year are classified as current liabilities.
6. True: Current assets are all the assets which are expected to be realized or sold or consumed within one
year.
7. True: When an asset is purchase capital expenditure is incurred and when the asset is put to use expenses
are incurred in consumption.
8. True: Debit balance of accounts are treated as expenses whose benefit is already received or expired.
9. True: Gross profit is obtained by deducting cost of goods sold from sales.
10. False: If the debit side of the trading account exceeds its credit side then the balance is termed as gross
loss.
11. False: The provision for bad debts is debited to debited to Profit and loss Account, in Balance Sheet it is
shown either on liability side or deducted from the head Debtors.
12. True: According to the provision of conservatism provision is maintained for the losses to be incurred in
future. Discount on creditors is an income so provision in not maintained.
13. False: The debts written off as bad, if recovered subsequently are credited to Bad Debts Recovered
Account and becomes an income.
14. False: Income received in advance is reduces it from the concerned income in profit and loss account.
And, it is shows it as a liability in the current balance sheet under the head Current Liabilities.
15. False: Premium paid on the life policy of a proprietor is to be debited to capital account, as it is personal
expense.
16. True: Depreciation is charge on each of the asset on a certain percentage. Depreciation is a charge to
profit and loss account and should be debited to profit & loss account by crediting the respective assets. If it
appears in trial balance then it is taken only to profit and loss account.
17. False: Personal purchases included in the purchases day book are deducted from the purchases account
in the Trading account.
18. True: Any benefit given to the staff is debited to the salary account.
19. False: Goods taken by the proprietor for personal use should be credited to Purchase Account as less
goods are left in the business for sale.
20. True: The closing Stock appears in the trial balance only when it is adjusted against purchases by
passing the entry. In this case, closing stock is not entered in Trading Account and is shown only in Balance
Sheet.
Unit -2 Final Accounts of Non-Manufacturing Entities

1. False: By-products generally have insignificant value as compared to the value of main product.
Therefore, they are generally valued at net realizable value.
2. False: The objective of preparing Manufacturing Account is to determine manufacturing costs of finished
goods for assessing the cost effectiveness of manufacturing activities.
3. True: Manufacturing account deals with the raw material, and work in progress.
240
4. True: Raw Material consumed is arrived at after adjustment of opening and closing inventory of raw
materials and purchases.
5. False: The Trading Account will show the quantities of finished goods manufactured and sold and the
opening and closing inventory. It will not show the quantity of raw materials or work-in-progress.
6. False: Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
241
CHAPTER 8: PARTNERSHIP ACCOUNTS
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
Unit -1 Introduction to Partnership Accounts
1. False: In absence of any agreement partners share profits equally and not in capital contribution ratio.
2. True: Profit sharing can be different from the that of the capital introduced by each of the partner. Not
necessary that partner contributing more capital should have a higher profit sharing ratio and vice
versa.
3. False: Registration of firms is not compulsory under Indian Partnership Act 1932.
4. True: Yes loan is given to the firm at a cost. Where the partnership deed is absent, then the interest shall
be paid at a minimum of 6% per annum. So the interest on the loan to be paid to the partner.
5. False: Interest on capital can be paid only if it is provided in the partnership deed.
6. False: Every partner need not take part in the business. Even if a partner does not take part in the
business he is entitled for his share of profit.
7. True: Yes as per the provisions of the law- it is necessary that the interest on loan at 6% per annum shall
be paid to the concerned partner.
8. False: Husband and wife can be partners in the same firm.
9. True: There is no senior or junior partner. Every partner is agent/principal of other partners.
10. True: Concept of agency applies to every partner and the firm as well. So each partner is a principal to
and agent of every other partner and to the firm.
Unit -2 Treatment of Goodwill in Partnership Accounts

1. False: Even though Goodwill is intangible asset it can be valued in terms of money. It can be measured in
terms of physical units.
2. True: Goodwill has to be valued each time when there is a reconstitution to made good the sacrifice
made by few partner due to such reconstitution.
3. True: Goodwill is the brand image the firm has in the market due to which it enjoys an advantageous
position over the other players in the market.
4. False: At the time of admission or retirement of a partner, goodwill can be raised in the books of accounts
and it is immediately written off. It can not remain in the books of accounts as asset in balance sheet as per
accounting standard.
5. False: Weighted average profit method, capaitlisation method, super profits methods also can be used
for valuation of Goodwill.
6. True: It is capacity of the firm to earn excessive profits over the industry normal evidencing the fact that
the firm experiences higher goodwill.
7. True: The rate of return is considered as an average for the industry, which is applied to the capital
employed in the concerned firm.
8. False: Normal profit depends upon Normal Rate of Return only and not on past profits.
9. True: Generally the goodwill at the time of admission id adjusted through the capital accounts and not
shown in the books of the firm.
10. False: Goodwill brought in by new partner is shared by old partners in Sacrifice Ratio and not equally.
Unit -3 Admission of a New Partner

1. False: All the partners have same rights at all times, unless contrary is provided in the partnership deed/
or agreed by the partners.
2. True: With every new partner, remaining old partners have to foregone a proportion in their share which
is called as sacrifice ratio.
3. True: Revaluation is also called as profit and loss adjustment account.

242
4. True: increase in Asset is an income hence credited to revaluation account.

5. True: This can be done by opening Memorandum Revaluation Account.
6. False: New partner is not entitled to have any share in the reserves of the firm prior to his admission.
Such reserves are distributed to old partners in their old profit sharing ratio.
7. False: Any Reserve appearing in the Balance Sheet is credited to existing partners in their old profit
sharing ratio and not equally.
8. False: If revaluation account shows credit balance then it represents profit and therefore it is credited to
all partners in their profit sharing ratio and not equally.
9. True: Every incoming partner shall bring in some amount of capital for the firm
10. False: New partner is not entitled to profit on revaluation, it belongs to old partners in their profit sharing
ratio.
Unit -4 Retirement of a Partner

1. False: Business of a partnership is not closed if any one partner retires, remaining partners continue to
carry on the business.
2. False: At the time of retirement of a partner all the reserves appearing in the balance sheet are transferred
to all the partners in their profit sharing ratio.
3. False: After retirement of a partner, profit sharing ratio of continuing partners does not remain the
same.
4. False: A partner can retire on any day as per his wish.
5. False: Retiring partner is entitled to his share of goodwill in the firm.
6. False: If a partner retires in between the accounting year then he is certainly entitled to the profit from the
date of beginning of the year till his date of retirement.
7. True: Yes the firm is eligible for the surrender value on the JLP taken on the partners.
8. True: As per the surrender policy method, the JLP reserve is distributed to the partners in their profit
sharing ratio through capital account.
9. False: Revaluation account is necessary on retirement of a partner.
10. False: Profit on revaluation is credited to all the partners in their profit sharing ratio.
Unit -5 Death of a Partner

1. False: Surviving partners continue to carry on the business.
2. False: Legal heirs of deceased partners are entitled to dues of the deceased partner. They can not
become partner in the business.
3. True: To find out the actual values of the assets and liabilities, revaluation account is prepared.
4. True: reserves belong to the partners in the same manner the capital contributed by them. Hence it is
distributed to them through the capital account.
5. False: Legal heirs of a deceased partner are entitled to all the dues of deceased partner.
6. False: It is very much necessary to adjust goodwill on death of a partner.
7. TRUE- Yes, it can be continued in the earlier share or in new share- in either case it leads to computing a
new profit sharing ratio.
8. False: On death of a partner the firm gets full value of sum assured of the joint life policy.
9. False: All the partners are entitled to amount received from joint life policy.
243
CHAPTER 9: FINANCIAL STATEMENTS OF

NOT-FOR-PROFIT ORGANIZATIONS
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
1. False: It depicts the cash system of accounting rather than the accrual system, as the cash receipts and
payments pertaining to any year are entered in the Receipts and payments account. The principle of accrual
is not followed with regard to the receipts and payments account of a non-profit organization.
2. False: The income and expenditure account records only the revenue income and expenditure. The capital
transactions are being recorded in the Balance sheet.
3. False: The grass for a sports club is not a capital item, hence the sale of such grass shall be treated as a
revenue receipt.
4. False: They are disclosed under the current assets of the Balance sheet as they will be paid within the next
year and not to be treated as non-current assets.
5. False: Receipts and payments account gives information about the expenses paid in cash for the current
year, previous or the next year. It is only from the additional information we identify the outstanding
expenses.
6. False: Additional information means that information which has been identified just before the
preparation of the final accounts. As NPO follows the double entry system of book keeping, there shall
be 2 effects for each of the additional information.
7. False: The excess of expenditure over the tournament fund shall be debited to the income and expenditure
account and not taken to the closing balance sheet.
8. False: The excess of the income over the expenditure is called as Surplus and not profit for an Non-profit
organisation.
9. False: The Non-profit organisation credits the surplus earned in a year to the general fund maintained
by it.
10. True: It is Fund based accounting that records the fund balances in the balance sheet.
11. False: Subscription is a regular fees paid by the members to keep the membership alive.
12. True: Honorarium refers to the nominal amount paid for the services with a non-commercial intent.
13. False: Insurance Company has a profit motive, hence it is not a non-profit organization.
14. False: It shall be shown in the Balance sheet- where it is to be capitalized.
15. False: It is only the current year income and expenditure which is recorded in the Income and
Expenditure account as per the accrual concept.
16. True: While on the death bed, if there is any will written that the assets of a person shall be donated to
any NPO- then such a donation to the NPO, is termed as LEGACY.
17. True: Where in case of the trading activities, the profit /loss from such activity to be transferred to the
Income and expenditure account in case of consolidated accounts.
18. False: The Non-profit organisation has its very existence to the main base line of serving the members
and the society. Profit earning shall never be its motive.
19. False: Receipts can be both of revenue as well as capital nature. Receipts of both the nature are recorded
in the receipts and payments account.
20. False: It represents a nominal account and is prepared in accordance with the accrual concept, hence
there can be no opening balances.
244
CHAPTER 10: COMPANY ACCOUNTS
TEST YOUR KNOWLEDGE

ANSWERS/HINTS
True and False
Unit -1 Introduction to Company Accounts
1. False: Listed companies are those which are listed on the stock exchange. Shares of listed companies are
open to general public. Every listed company is a public company but every public company is not a listed
company.
2. True: Only the shares of public company are listed on stock exchange. Every listed company is a public
company.
3. False: It is mandatory to incorporate a company under the Companies Act. Without such incorporation, a
company cannot come into existence.
4. True: Company comes into existence through the operation of law. It is a separate entity distinct from it’s
members.
5. False: Company is a separate legal entity created by law. Death, insolvency or change of member does not
affect it’s existence.
6. True: Liability of shareholders is limited to the extent of the unpaid share capital. So, if shares are fully
paid-up, he is subject to no further liability.
7. False: Shares of public company are freely transferable. Transferability of shares is restricted in a private
limited company.
8. True: Financial statements give a true & fair view of the state of affairs of the company. Financial
statements include profit and loss account, balance sheet, etc.
9. False: Schedule III Part I explains form of Balance Sheet.
Unit -2 Issue, Forfeiture and Re-Issue of Shares

1. False: Liability of the holder of shares is limited to the issue price of shares acquired by them.
2. True: Authorised capital is the amount of capital mentioned in ‘capital clause’ of the ‘Memorandum of
Association’. Authorised capital is considered only as presentation and not considered in total of balance
sheet.
3. False: Rate of preference dividend is always fixed.
4. False: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares at a discount
except in the case of issue of sweat equity shares (issued to employees and directors). Thus any issue of
shares at discount shall be void.
5. True: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares at a discount
except in the case of issue of sweat equity shares (issued to employees and directors).
6. False: As per table F, rate of interest on calls in arrears is 10%.
7. False: As per Table F, rate of interest on calls in advance is 12%.
8. False: A share on which only a fixed rate of dividend is paid every year, without any accompanying
additional rights in profits and in the surplus on winding-up, is called ’Non-participating Preference Shares.
Non-participating preference shareholders do not enjoy voting rights.
9. True: Reissue of forfeited shares is not allotment of shares but only a sale.
10. False: Loss on re-issue should not exceed the forfeited amount.
Unit -3 Issue of Debentures

1. False: Debenture holder are the creditors of the company.
2. True: Perpetual debentures, also known as irredeemable debentures are not repayable during the life
time of the company.
3. False: Registered debentures are not easily transferable by delivery. Bearer debentures are transferrable
by delivery.
245
4. True: In case the company cannot repay its loan & the interest thereon on the due date, the lender
becomes debenture holder & them only he is entitled to interest on debentures.
5. False: Debentures suspense account appears on asset side of balance sheet under non-current asset.
6. False: Even if the company incurs or earns profit, it has to pay the interest on debentures.
7. False: At the time of liquidation, debenture holders are paid off before shareholders on priority basis.
8. True: At the time of liquidation, debenture holders are paid off before shareholders on priority basis.
9. False: These debentures are repayable as per the terms of issue, for example, after 8 years from the date of
issue.
10. True: Debentures can be issued for a consideration other than for cash, such as for purchasing land,
machinery etc.

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-1-

BANK RECONCILIATION STATEMENT

Bank Reconciliation Statement as on 31st December

Bank Reconciliation Statement as on 31st March

Particulars Amount (Rs.)

Particulars Amount (Rs.)

Particulars Amount (Rs.)

Particulars Amounts (in Rs.)

Particulars Amount (Rs.)

Particulars Amounts (in Rs.)

Bank Reconciliation Statement as on 31st December

Particulars Amount (Rs.)

Less: Cheques deposited, but not cleared 9,200

Particulars Amounts (in Rs.)

Balance as per Cash Book 2,12,760

Particulars Amounts (in Rs.)

Balance as per the Pass Book 12,53,619

Particulars Amounts (in Rs.)

Bank Reconciliation Statement as on 31.3.2017

Less: Cheques deposited but not yet credited by bank (44,75,000)

Particulars Amount (Rs.)

Particulars Amounts (in Rs.)

Date Particulars Amount Date Particulars Amount

Bank Reconciliation Statement as on 30th September, 2017

Date Particulars Amount Date Particulars Amount

Bank Reconciliation Statement as at 30th December, 2017

Particulars Amount (Rs.)

Particulars Amount (Rs.)

Bank Reconciliation Statement as on 30th June, 2017

Particulars Amount in Rs.

Particulars Amount (Rs.)

Particulars Amount (Rs.)

Particulars Amount (Rs.)

Wrong recording in cash book 2,000

Credit balance as per cash book (4,470)

Bank Reconciliation Statement as on 31st March

Particulars Amount (Rs.)

Cheque issued but not yet presented 7,20,000

Bank charges 2,000

A cheque deposited into bank was dishonoured 3,20,000

Credit balance as per pass book 27,40,500

Bank Balance as per Cash Book 75,000

Cheques deposited but not credited in the Pass Book 11,000

Bank charges not recorded in the cash book 30

Balance as per Pass Book 80,470

Bank Reconciliation Statement of Mr. Suresh as on 31st January

Cheques deposited but not cleared (7,000 - 4,000) 3,000

Bank commission charged by the Bank 45

Direct deposit by a customer 6,400

Interest on investment credited in the Pass Book only 1,400

Bank balance as per Pass Book (Cr.) 1,240

Overdraft as per Pass Book 8,800

Transfer from fixed deposit 2,000

Add: Cheques deposited but not cleared (5,800 - 2,000) 3,800

Dividend collected excess recorded (1,520 - 1,250) 270

Interest on overdraft 930

Corporation tax paid 1,200

Bank Reconciliation Statement of Mr. D as at 31st March

Overdraft as per Adjusted Cash Book 3,732

Less: A cheque for Rs. 126 wrongly debited by Bank. 126