Academic Year 2024-25

FINANCIAL ACCOUNTING ASSIGNMENT - 1

1. Write a note on:

(a) The Artificial Intelligence (AI) and data analytics in accounting. (Monga Page No. – 1.5)
(b) Events occurring after the balance sheet date. (Tulsian Page No. 2.9)
(c) Prior period items with example. (Tulsian Page No. 2.14)
2. Define and distinguish between exceptional and extra-ordinary items. Give two examples of
each. What are the disclosure requirements in respect of such items? (DU, AY 2023-24)
3. What are the fundamental, accounting assumptions as per AS-1? Explain any two in brief.
(Tulsian Page No. 3.1) (DU, AY 2023-24)
4. List four items of inventory where AS -2 is not applicable. (DU, AY 2023-24)
5. State the accounting principles involved in the following statements: (DU, AY 2023-24)
(a) It assumes that a business enterprise will not be sold or liquidated in the near future.
- Going Concern Concept
(b) Self- generated goodwill is not recorded.
- Cost Concept
(c) Rift between production and marketing manager is not directly disclosed in financial
statements.
- Money Measurement Concept
(d) Value of inventories left unsold is carried forward to next accounting year.
– Matching Concept
(e) Advance received from a customer is not recorded as sales.
– Revenue Recognition Concept
(f) Bike purchased by proprietor from business account is deducted from his capital.
– Separate Entity Concept

6. Indicate in each case the amount of revenue that can be recognised as per AS 9 and date of
recognition of revenue. (DU, AY 2023-24)
(a) ABC Ltd. sold goods on credit to XYZ Ltd. For RS. 250 crores on 8 Nov. 2022. XYZ Ltd was
planning to export these goods but their export order was cancelled in Dec. 2022. On 10h
January 2023 they decided to sell the same goods in the local market. ABC Ltd. was requested
to offer a price discount of 15 % but they agreed to give discount of 10% The directors of
ABC Ltd. want to adjust the sales figure to the extent of the discount given to XYZ Ltd.
Comment.
(b) On 21-3-2023 clothes worth 60:000 were sold to Siya Mart but due to refurbishing of their
showroom being underway on their request, clothes were delivered on 12-4 2023.
Solution: Full Rs. 60,000 recognised as revenue as on 31/03/2023.
The sale is complete but the delivery has been postponed at buyer’s request
(c) Final dividend of Rs. 7,00,000 proposed on 31 March, 2022 for the year 2021-22 was
approved by the shareholders at AGM on 30 September, 2022 and received on 15 October
2022.
Solution: Rs. 7,00,000 recognized as revenue as on 31/03/2023.
Recognized when the owner’s right to receive the dividend is established i.e. the date of
declaration of Final Dividend at AGM (30th September 2022, Financial Year 2022-23)
(d) Interim dividend of Rs. 6,00,000 declared on 31 March 2022, for the year 2021-22, received
on 30 April 2022.
Solution: Rs. 6,00,000 recognized as revenue as on 31/03/2022.
Recognized when the owner’s right to receive the dividend is established i.e. the date of
declaration of Interim Dividend (31st March 2022, Financial Year 2021-22).
(e) On 15th January, 2022 garments worth 4,00,000 were sent to Anand on consignment basis of
which 25% garments unsold were lying with Anand as on 3lst March, 2022.
Solution: Sales of Rs. 3,00,000 recognized as revenue as on 31/03/2022 and unsold goods of
Rs. 1,00,000 treated as closing inventory.
In case of consignment sale revenue is recognized only when the goods are sold to a third
party.
(f) On lst November. 2021 garments worth 2,50,000 were sold on approval basis, The period of
approval was 4 months after which they were considered sold. Buyer sent approval for 75%
goods up to 3lst December, 2021 and no approval or disapproval received for the remaining
goods till 31st March, 2022.
Solution: Rs. 2,50,000 recognized as revenue as on 31/03/2022
In case of goods sold on approval basis revenue can be recognized if the time period for
rejection the had expired..
(g) X Ltd. entered into an agreement with Y Ltd. for sale of goods costing Rs. 2,00,000 at a profit
of 20 % on sale. The sale transaction took place on 1st February, 2021. On the same day X
Ltd. entered into another agreement with Y Ltd. for repurchasing the same goods at Rs.
2,80,000 on 1st August, 2021. The predetermined repurchasing price covers, inter alia, the
holding cost of Y Ltd. Calculate the amount of revenue as per AS - 9 for the financial
statements of X Ltd. for the year 2020–2021.
It is not transaction for sale of goods, it’s a “Financial Transaction.”
 Journal Entries:
01/02/2021 Bank A/c Dr. 2,50,000
To Advance from Y Ltd. A/c 2,50,000
W. Note 1: Cost Rs. 2,00,000 + 20 % profit on sale = Sales Rs. 2,50,000
31/03/2021 Financial Charges A/c Dr. 10,000
To Advance from Y Ltd. A/c 10,000

W. Note 2: Financial Charges = 2,80,000 - 2,50,000 = Rs. 30,000 for 6 months

Financial Charges for 2 months 30,000 X 2/6 = Rs. 10,000
31/03/2021 Profit & Loss A/c Dr. 10,000
To Financial Charges A/c 10,000

(h) Sun Publications publishes a monthly magazine on the 15th of every month. It sells advertising
space in the magazine to advertisers on the terms of 80% sale value payable in advance and the
balance within 30 days of the release of the publication. The sale of space for the March 2023
issue was made in February 2023. The magazine was published its scheduled date. It received
Rs. 3,20,000 on 10-3-2023 and Rs. 80,000 on 10-4-2023 for the March 2023issue.
What will be the treatment if the publication is delayed till 2/4/2023? (DU, AY 2023-24)

7. Murli group had Property, Plant & Equipment (PP&E) with a book value of Rs. 80,00,000 on
31st March 2023. As part of their practice of revaluing the assets on yearly basis, the Fair Value
was assessed on 31st March 2023.
Pass the necessary Journal Entry in following cases:
(a) If Fair Value as a result of Revaluation done on 31st March 2023 was Rs. 86,00,000.
(b) If Last year the property was revalued downwards by Rs. 3,00,000 and decrease of that asset
was recognized in the Profit and Loss Account and Fair Value as a result of Revaluation done
on 31st March 2023 was Rs. 86,00,000.
(c) If Last year the property was revalued upwards by Rs. 8,00,000 and increase of that asset was
recognized in revaluation reserve account and Fair Value as a result of Revaluation done on 31
st March 2023 was Rs. 69,00,000.
(d) If Last year the property was revalued downwards by Rs. 3,00,000 and decrease of that asset
was recognized in the Profit and Loss Account and Fair Value as a result of Revaluation done
on 31st March 2023 was Rs. 78,00,000.
 Journal Entries:

PPE A/c Dr. 6,00,000

(a) To Revaluation Surplus A/c 6,00,000
PPE A/c Dr. 6,00,000
(b) To Profit and Loss A/c Dr. 3,00,000
To Revaluation Surplus A/c 3,00,000
Revaluation Surplus A/c Dr. 8,00,000
(c) Profit & Loss A/c Dr. 3,00,000
To PPE A/c 11,00,000
Profit & Loss A/c Dr. 2,00,000
(d) To PPE A/c 2,00,000

8. A company acquired a patent at a cost of Rs. 50,00,000 for a period of ten years and its product
life cycle is also ten years. The company capitalized the cost and started amortising it as per AS
26. After two years it was found that the product life cycle may continue for another five years
only. The net cash flows from the product during these 5 years are expected to be 9,00,000,
11,50,000. I1,00,000, 10,00,000 and 8,50,000. Find out amortisation expense of the patent for
each of these years company changed amortisation method from straight line method to ratio of
expected cash flows.
Solution:
Straight Line Method Depreciation = 50,00,000 / 10 = Rs. 5,00,000 per annum
I Year Depreciation = Rs. 5,00,000
II Year Depreciation = Rs. 5,00,000
Carrying amount of The assets after 2 year = (50,00,000 – 10,00,000) = RS. 40,00,000
Next 5 years company amortise cost in the assets in net cash flows ratio: 90 : 115 : 110 : 100 : 85
III Year Depreciation = 40,00,000 X 90/ 500 = Rs. 7,20,000
IV Year Depreciation = 40,00,000 X 115/ 500 = Rs. 9,20,000
V Year Depreciation = 40,00,000 X 110/ 500 = Rs. 8,80,000
VI Year Depreciation = 40,00,000 X 100/ 500 = Rs 8,00,000
VII Year Depreciation = 40,00,000 X 85/ 500 = Rs 6,80,000
Rs. 40,00,000
9. Mr. Jatin gives the following information relating to the items forming part of the inventory as on
31.03.2019. His enterprise produces product P using Raw Material X.
(a) 900 units of Raw Material X (purchased (@ 100 per unit). Replacement cost of Raw Material
X as on 31.03.2019 is 80 per unit.
(b) 400 units of partly finished goods in the process of producing P. Cost incurred till date is 245
per unit. These units can be finished next year by incurring additional cost of Rs. 50 per unit.
(c) 800 units of Finished goods P and total cost incurred is 295 per unit. Expected selling price of
product P is 280 per unit, subject to a payment of 5% brokerage on selling price.
Determine how each item of inventory will be valued as on 31.03 2019
Also calculate the value of total Inventory as on 31.03 2019
Solution:
Valuation of Finished Goods:
Finished Goods: Cost of Finished Goods Or NRV of Finished Goods, Whichever is lower
Cost of Finished Goods Rs. 295
NRV of Finished Goods 280 – 5% = Rs. 266
Valuation of Finished Goods = 800 Units X Rs. 266 = Rs. 2,12.800
Valuation of Raw material:
If NRV of Finished Goods > Cost of Finished Goods, Raw material valued at Cost Price and
If NRV of Finished Goods < Cost of Finished Goods, Raw material valued at Replacement Cost
Valuation of Raw material = Units 900 X Rs. 80 = Rs. 72,000
Valuation of WIP:
Cost of WIP = Rs. 245
Cost of Completed Goods = 245 + 50 = Rs. 295 and
NRV of finished goods = 280 – 5% = Rs. 266, whichever is lower
Valuation of WIP = 400 Units X ( Rs. 266 – 50 additional cost to complete) = Rs. 86,400
Valuation of Total Inventory: 2,12.800 + 72,000 + 86,400 = Rs. 3,71,200

10. ASR Advertisers obtained advertisement rights for one day world cup cricket tournament to be
held in May 2022 for Rs. 800 lakhs in February 2022.

By 31/3/2022, they had paid Rs. 500 lakhs to secure these advertisements rights. The balance Rs.
300 lakhs was paid in April 2022. By March 2022, they procured advertisement for 75% of the
available time for Rs. 1000 lakhs. The advertisers paid 60 % of the amount by that date. The
balance 40 % was received in April 2022. Advertisements for balance 25 % time were procured in
April 2022 for Rs. 200 lakhs. The advertisers paid the full amount while booking the
advertisement. 25 % of the advertisement time is expected to be available in May 2022 and
balance in June 2022. Calculate the amount of net revenue as per AS - 9 to be recognized in June,
2022. Record Journal entries.

Solution: Journal Entries

February 2022 Advertisement Rights A/c Dr. 800
To Creditors for Advertisement Rights A/c 800
March 2022 Creditors for Advertisement Rights A/c Dr. 500
To Bank A/c 500
March 2022 Debtors for Advertisement Rights A/c Dr. 400
Bank A/c Dr. 600
To Advertisement Rights A/c 1,000
April 2022 Creditors for Advertisement Rights A/c Dr. 300
To Bank A/c 300
April 2022 Bank A/c Dr. 400
To Debtors for Advertisement Rights A/c 400
April 2022 Bank A/c Dr. 200
To Advertisement Rights A/c 200
May 2022 Advertisement Rights A/c Dr. 100
To Revenue from Advertisement Rights A/c 100
June 2022 Advertisement Rights A/c Dr. 300
To Revenue from Advertisement Rights A/c 300

As per AS- 9, in a transaction involving the rendering of services, performance should measure
either under the completed service contract method or under the proportionate completed
method, whichever relates the revenue to the work accomplished. Such performance should be
regarded as being achieved when no significant uncertainty exists regarding the amount of
consideration that will be delivered from rendering the service. Further, appendix to AS 9
states that revenue from advertising should be recognized when the service is completed.
The service as regard advertisement is deemed to be completed when the related
advertisement appears before the public.
As the 25 % of the advertisement appeared in May. 2022 and 75% in June, 2022, therefore the
net revenue of 400 lakhs [i.e. ( 1000 lakhs + 200 lakhs) ( 800 lakhs)], should be apportioned in
the ratio of 25 % and 75 % in May, 2022 and in June, 2022 respectively.