Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Gurukripa’s Guideline Answers to Nov 2014 Exam Questions

CA IPCC GROUP 1 ACCOUNTING
Question 1 is compulsory (4 × 5 = 20 Marks)
Answer any five questions from the remaining six questions (16 × 5 = 80 Marks). [Answer any 4 out of 5 in Q.7]

Note: Page Number Reference are from “Padhuka’s Ready Referencer on Accounting for CA IPC (Group I)”

Question 1 (a): AS–6 Depreciation 5 Marks

In the books of Optic Fiber Ltd, Plant and Machinery stood at `6,32,000 on 01.04.2013. However, on scrutiny it was found that
Machinery worth ` 1,20,000 was included in the purchases on 01.06.2013. On 30.06.2013, the Company disposed a Machine
having Book Value of ` 1,89,000 on 01.04.2013 at `1,75,000 in part exchange of a new machine costing ` 2,56,000. The
Company charges depreciation @ 20% WDV on Plant and Machinery.
You are required to calculate:
(i) Depreciation to be charged to P&L A/c,
(ii) Book Value of Plant and Machinery A/c as on 31.03.2014
(iii) Loss on Exchange of Machinery.
1. Depreciation for the year
Particulars Computation (`)
3
(a) On Exchanged Machinery for 3 months ` 1,89,000 × 20% × 9,450
12
10
(b) On New purchased Machinery for 10 months ` 1,20,000 × 20% × 20,000
12
9
(c) On New acquired Machinery on exchange for 9 months ` 2,56,000 × 20% × 38,400
12
(d) On Balance of Opening Balance (6,32,000 – 1,89,000) × 20% 88,600
Total Depreciation for the Year 1,56,450
2. Loss on Exchange
Particulars Computation `
Exchange Value 1,75,000
Less: Book Value Opening Balance `1,89,000 – Depreciation `9,450 [WN(1)(a)] 1,79,550
Loss on Exchange (4,550)
3. Plant and Machinery Account
Date Particulars ` Date Particulars `
01.04.13 To Balance b/d 6,32,000 30.06.13 By P&L A/c – Loss on Machinery
01.06.13 To Purchase A/c–M/c Purchase Transfer 1,20,000 Exchange (WN2) 4,550
30.06.13 To Bank A/c–Balance paid on machinery 81,000 30.06.13 By Depreciation A/c (WN1)–
exchange [Depreciation on Machinery 9,450
(2,56,000 – 1,75,000) 31.03.14 Exchanged]
By Depreciation A/c – for the year
31.03.14 for other Machinery (WN 1 b+c+d) 1,47,000

By Balance c/d 6,72,000

Total 8,33,000 Total 8,33,000

Question 1 (b): AS–9 Revenue Recognition 5 Marks

Saritha 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 2014 issue was made in February 2014. The Magazine was published on its
scheduled date. It received ` 2,40,000 on 10.03.2014 and `60,000 on 10.04.2014 for the March 2014 issue.
Discuss in the context of AS – 9 the amount of revenue to be recognized and the treatment of the amount received from
advertisers for the year ending 31.03.2014. What will be the treatment if the publication is delayed till 02.04.2014?

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Refer Para 4 in Page No. B.6.13

Solution:
1. Principle: As per AS–9 “Revenue Recognition”
(a) Revenue should be recognized by an Advertising Agency, only when the service is completed.
(b) For advertising agencies, Media Commission will normally be recognized, when the related advertisement or
commercial appears before the public and the necessary intimation is received by the Agency.
2. Analysis and Conclusion:
(a) The advance of ` 2,40,000 received and the amount balance to be received on 10.04.2014 of ` 60,000 shall be
recognized in the financial year ending on 31.03.2014 as the publication appears before public on 10.03.2014
(within the Financial Year).
(b) If the publication is delayed and the advertisement appears only on 02.04.2014, the Income of ` 2,40,000 should
be recognized as Revenue only in Financial Year 2014–2015. The amount received on 10.03.2014 should be
disclosed as an Advance Received on 31.03.2014.

Question 1 (c): AS–2 Treatment of Normal & Abnormal Loss 5 Marks

Capital Cables Ltd has normal wastage of 4% in the production process. During the year 2013–14, the Company used 12,000
MT of Raw Material costing `150 per MT. At the end of the year 630 MT of Wastage was in Stock. The Accountant wants to
know how this wastage is to be treated in the books. Explain in the context of AS – 2 the treatment of Normal Loss and
Abnormal Loss and also find out the amount of Abnormal Loss if any.

Refer Q. No.26 Page No. B.2.8 – (F N 00), (P M 08)

Solution:
1. Principle: Abnormal Amounts of Waste Material, Labour or other Production costs are excluded from cost of
inventories and such costs are recognized as Expenses in the period in which they are incurred.
2. Analysis and Conclusion: Normal Waste is 4% of 12,000 MT = 480 MT & Abnormal Waste is 630 MT (–) 480 MT= 150MT.
(a) Cost of Normal Waste 480 MT will be absorbed in the Cost of Production and included in determining the Cost of
Inventories (Finished Goods) at the year end.
(b) Cost of Abnormal Waste will be charged in the Profit and Loss Statement.
3. Computation:
12,000 MT ×` 150 18,00,000
(a) Effective Material Cost of Output = = = ` 156.25 per MT
12,000 MT - 4% Normal Waste 11,520
(b) Cost of Abnormal Waste = 150 MT × ` 156.25 = ` 23,437.50
Alternatively, this may be taken at 150 MT × ` 150 = ` 22,500

Question 1 (d): AS–13 Investments – Reclassification 5 Marks

Blue–Chip Equity Investments Ltd wants to re–classify its investments in accordance with AS–13.
(a) Long Term Investments in Company A, costing ` 8.5 Lakhs are to be re–classified as Current. The Company had reduced
the value of these Investments to ` 6.5 Lakhs to recognize a permanent decline in value. The Fair Value on the date of
transfer is ` 6.8 Lakhs.
(b) Long Term Investments in Company B, costing `7Lakhs are to be re–classified as Current. The Fair Value on the date of
transfer is ` 8 Lakhs and Book Value is ` 7 Lakhs.
(c) Current Investment in Company C, costing ` 10 Lakhs are to be re–classified as long–term, as the Company wants to
retain them. The Market Value on the date of transfer is ` 12 Lakhs.
(d) Current Investment in Company D, costing ` 15 Lakhs are to be re–classified as long term. The Market Value on the date of
transfer is ` 14 Lakhs.

Solutions:

Refer Q. No 8, Page No. A.5.37 (F–RTP, M10) (P–RTP, M12)

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

1. Principle
Re–classification of From: Long Term Investments From: Current Investments
Investments To: Current Investments To: Long term Investments
(a) Cost or a) Cost or
Transfers are made at (b) Carrying Amount b) Fair Value
whichever is less, at the date of transfer. whichever is less, at the date of transfer.

2. Treatment:
Invt Transfer at ` Lakhs Treatment of difference between Book Value & Transfer Amount
Carrying amount = Transfer amount = ` 6.5 Lakhs. Hence no adjustment
A Lower of 8.5 or 6.5 = 6.5
necessary, (since already permanent decline is recognized)
B Only at Book Value = 7 Carrying amount = Transfer amount = ` 6.5 Lakhs. Hence no adjustment necessary.
C Lower of 10 or 12 = 10 Carrying amount = Transfer amount = ` 6.5 Lakhs. Hence no adjustment necessary.
D Lower of 15 or 14 = 14 15–14 = ` 1 Lakh debited to Profit and Loss A/c as Loss.

Question 2: NPO – Preparation of Receipts and Payments A/c and Balance Sheet 16 Marks
The following information relates to Country Sports Club for the year ended 31.3.2014. You are required to prepare the Receipts
and Payments Account for the year ended 31.3.2014 and Balance Sheet as on that date.
Expenditure ` Income `
To Salaries 3,36,000 By Subscriptions 8,40,000
To Repairs and Maintenance 88,000 By Receipts for Annual Sports 3,25,000
To Ground Upkeep 1,66,500 Less: Expenses for Sports 2,75,000 50,000
To Electricity Charges 82,600 By Entrance Fees 1,80,000
To Sports Material Used 1,48,000 By Interest on 10% Government Bond 12,000
To Printing and Stationery 42,200 By Rent on Hire of Club Ground 84,000
To Groundsman Wages 80,000 By Profit on sale of Sports Material 10,500
To Depreciation 1,36,000 By Sale of old newspaper 3,500
To Prizes distributed (Net of Fund Income) 4,000
To Surplus carried to Capital Fund 96,700
Total 11,80,000 Total 11,80,000

Additional information:
(a)
Balances as on 01.04.2013 (`) 31.03.2014 (`)
Fixed Assets (Net Block) 6,36,000 7,20,000
Stock of Sports Material 1,24,000 1,38,000
Investment in 10% Government Bond 1,20,000 1,20,000
Subscription Received in Advance 64,000 72,000
Outstanding Subscriptions 1,24,000 88,000
Creditors for Sports Material 78,600 62,500
Salary paid in Advance 32,000 28,000
Prize Fund 2,40,000 2,40,000
Prize Fund Investments 2,36,000 2,36,000
Bank Balance 54,500 ?
(b) During the year, the Club purchased Sports Material of ` 1,80,000, out of which 75% was credit purchase.
(c) 25% of the Entrance Fees is to be capitalized.
(d) As per the Club’s policy, any excess of expense for prized distributed over Prize Fund Income is to be charged to Income
and Expenditure A/c and vice versa:
Prize Fund Income earned during the year `36,000
Prizes distributed during the year `40,000
(e) Interest on Government Bond is received half yearly on 30th June and 31st December each year.

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Refer Q. No.39, Page No. A.4.64 – M 12

A. Receipts and Payments Account for the year ended on 31st March 2014
Receipts ` Payments `
To Balance b/d 54,500 By Sports materials Purchased (Cash) 45,000
To Prize Fund Income 36,000 By Salary 3,32,000
To Annual Sports Receipts 3,25,000 By Repairs and Maintenance (WN7) 77,000
To Entrance Fees (1,80,000 = 75%,
So, Total is 1,80,000/75%) 2,40,000 By Prize Distribution 40,000
To Interest on Government Bond 12,000 By Ground Upkeep (as per Inc. & Exp. A/c) 1,66,500
To Rent on Hire of Club Ground 84,000 By Electricity Charges (as per I & E A/c) 82,600
To Sale of Sports Materials (WN3) 28,500 By Printing & Stationery (as per Inc. & Exp. A/c) 42,200
To Sale of Old newspaper 3,500 By Annual Sports Payments 2,75,000
To Subscriptions Received (WN1) 8,84,000 By Groundsman’s Wages (as per Inc. & Exp. A/c) 80,000
By Fixed Assets Purchase (WN 5) 2,20,000
By Creditors (Amount paid) (WN 6) 1,51,100
By Balance c/d (bal fig) 1,56,100
Total 16,67,500 Total 16,67,500

B. Balance Sheet as on 31st March 2014

Capital and Liabilities ` Properties and Assets `
Capital Fund: Non–Current Assets:
Fixed assets 7,20,000
Government Bond Investments 1,20,000
Prize Fund investments 2,36,000
Opening Balance 9,33,400
Add: Surplus for the year 96,700 Current Assets:
Entrance fees 60,000 Subscription Receivable 88,000
capitalized(1,80,000/75%×25%) Interest on Govt. Bond Receivable 3,000
10,90,100 Stock 1,38,000
Closing Balance Advance Salary 28,000
Non–Current Liabilities: Prize Fund 2,40,000 Cash & Bank Balances (WN A) 1,56,100
Current Liabilities: Subs. Received in Advance 72,000
R& M Expenses Payable 24,500
Creditors for Sports Materl. 62,500
Total 14,89,100 Total 14,89,100

1. Subscription Account
Particulars ` Particulars `
To balance b/d (Opg. Bal. of Subs. Receivable) 1,24,000 By balance b/d (Opg. Bal. of Subs. Recd in Adv) 64,000
To Income and Expenditure A/c – Subs. Income By Receipts and Payments A/c. – Subs.
8,40,000 8,84,000
recognized during the year Received during the year (Balancing fig)
To Balance c/d (ClgBal of Subs. Recd in Adv.) 72,000 By balance c/d (Clsg. Bal of Subs. Rec’ble) 88,000
Total 10,36,000 Total 10,36,000

2. Salary Account
Particulars ` Particulars `
To balance b/d 32,000 By Income and Expenditure A/c (given) 3,36,000
To Bank A/c – Salary paid (bal. fig.) 3,32,000 By balance c/d 28,000

Total 3,64,000 Total 3,64,000

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3. Sports Materials Account

Particulars e` Particulars `
To balance b/d (Opening Stock) 1,24,000 By Income and Expenditure A/c (given) 1,48,000
To Bank – Cash Purchase (25% of 1,80,000) 45,000 By Bank A/c (Sale proceeds – Balancing Figure) 28,500
To Creditors A/c 1,35,000 By balance c/d (Closing Stock) 1,38,000
To Inc. & Exp A/c (Profit on sale) (given) 10,500
Total 3,14,500 Total 3,14,500

4. Balance Sheet as on 01 April 2013 (To find out Opening Balance of Capital Fund)
Capital and Liabilities ` Properties and Assets e`
Capital Fund (balancing figure) 9,33,400 Non–Current Assets:
Non-Current Liabilities: Prize Fund 2,40,000 Fixed Assets 6,36,000
Current Liabilities: Govt. Bond Investments 1,20,000
Subs. Received in advance 64,000 Prize Fund Investments 2,36,000
Expenses Payable 13,500 Current Assets:
Creditors for Sports Materials 78,600 Subscription Receivable 1,24,000
Interest on Govt. Bond Rec’ble (3 Mths) 3,000
Stock 1,24,000
Advance Salary 32,000
Cash and Bank Balances 54,500
Total 13,29,500 Total 13,29,500

5. Fixed Assets Account

Particulars ` Particulars `
To balance b/d 6,36,000 By Depreciation (given) 1,36,000
To Bank – Purchase (balancing figure) 2,20,000 By balance c/d 7,20,000
Total 8,56,000 Total 8,56,000
6. Creditors Account
Particulars ` Particulars `
To Bank–amount paid (bal.fig.) 1,51,100 By balance b/d 78,600
By Sports Materials A/c – Credit Purchases
To balance c/d 62,500 1,35,000
[75% of ` 1,80,000]

Total 2,13,600 Total 2,13,600

7. Repairs and maintenance
Particulars ` Particulars `
To Bank A/c (bal.fig.) 77,000 By balance b/d 13,500
To balance c/d 24,500 By Income and Expenditure A/c (given) 88,000

Total 1,01,500 Total 1,01,500

Question 3 (a): AS-3 Cash Flow Statements – Direct Method 6 Marks

Prepare Cash Flow for Gamma Ltd for the year ending 31.3.2014 from the following information:
(1) Sales for the year amounted to` 135 Crores out of which 60% was cash sales.
(2) Purchases for the year amounted to ` 55 Crores out of which Credit Purchase were 80%.
(3) Administrative and Selling Expenses amounted to ` 18 Crores and Salary paid amounted to`22 Crores.
(4) The Company redeemed Debentures of ` 20 Crores at a premium of 10%. Debenture holders were issued Equity Shares or
` 15 Crores towards redemption, and the balance was paid in Cash. Debenture Interest paid during the year was `1.5 Crores.
(5) Dividend paid during the year amounted to ` 10 Crores. Dividend Distribution Tax @ 17% was also paid.
(6) Investment costing ` 12 Crores were sold at a profit of `2.4 Crores.
(7) ` 8 Crores was paid towards income tax during the year.
(8) A New Plant costing ` 21 Crores was purchased in part exchange of an Old Plant. The book value of the Old Plant was ` 12 Crores
but the Vendor took over the Old Plant at a value of ` 10 Crores only. The balance was paid in Cash to the Vendor.
(9) The following balances are also provided (in ` Crores)

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Item 1.4.2013 1.4.2014

Debtors 45 50
Creditors 21 23
Bank 6
Solution:

Refer Illustration No. 2, Page No. B.3.11 – M 13

Cash Flow Statement for the year ended 31st March 2014 (in Crores) (Direct method)
Particulars In In Crores
Crores
A. CASH FLOW FROM OPERATING ACTIVITIES:
Cash Receipts from Customers for Sale of Goods and Rendering of Services 130
[Cash Sales 60% of 135 = 81+ Collection from Debtors 49 (WN 1)]
Cash Payments to Suppliers for Goods and Services (71)
[Cash Purchases 20% of 55 = 11 + Paid to Creditors 42 (WN 2) + Services (Selling and
Administration Expenses 18)]
Cash Payments to and on behalf of Employees [given] (22)
Cash generated from Operations before Taxes & Extra Ordinary Items 37
Less: Taxes Paid (8)
Net Cash Flow from / (used in) Operating Activities [A] 29
B. CASH FLOW FROM INVESTING ACTIVITIES:
Sale of Investments (Book value 12 + Profit 2.4) 14.4
Purchase of New Plant (Value of New Plant 21 – Exchange Price of old M/C 10) (11)
Net Cash Flow from / (used in) Investing Activities [B] 3.4
C. CASH FLOW FROM FINANCING ACTIVITIES:
Debenture Interest paid (1.5)
Dividends Paid (10)
Dividend Distribution Tax paid (17% on Dividend) (1.7)
Payment of Cash to debenture holders (WN 3) (7)
Net Cash Flow from / (used in) Financing Activities [C] (20.2)
D. Net Increase or Decrease in Cash or Cash Equivalents [A + B + C] 12.2
E. Opening Balance of Cash & Cash Equivalents (given) 6
F. Closing Balance of Cash & Cash Equivalents 18.2

WN 1: Debtors A/c
To Balance b/d 45 By Bank A/c (Collection) (balancing figure) 49
To Sales A/c (135×40%) 54 By Balance c/d 50
99 99

WN 2: Creditors A/c
To Bank A/c (balancing figure) 42 By Balance c/d 21
To Balance c/d 23 By Purchases A/c ( 80% of 55) 44
65 65
WN 3: Redemption amount of Debentures = Face Value + 10% Premium = 20 + 10%= ` 22 Crores. Settlement By Equity
Shares = ` 15 Crores, So, Settlement by Cash = ` 7 Crores (balance)

Question 3 (b): Companies – Financial Statements 10 Marks

From the following particulars furnished by Elegant Ltd, prepare the Balance Sheet as on 31st March 2014 as required under
Companies Act.
Particulars Debit (`) Credit (`)
Equity Share Capital (Face Value of 100 each) 50,00,000
Calls in Arrears 5,000
Land & Building 27,50,000
Plant & Machinery 26,25,000
Furniture 2,50,000

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Particulars Debit (`) Credit (`)

General Reserve 10,50,000
Loan from State Financial Corporation 7,50,000
Stock:
Raw Materials 2,50,000
Finished Goods 10,00,000 12,50,000
Provision for Taxation 3,40,000
Finished Goods 10,00,000
Provision for Taxation 2,13,500
Sundry Debtors 3,00,000
Advances 5,00,000
Proposed Dividend 1,50,000
Profit & Loss Account 12,35,000
Cash in Hand 66,500
Cash at Bank 6,05,000
Preliminary Expenses 10,00,000
The following additional information is also provided:
(a) Preliminary expenses included ` 25,000 Audit Fees and ` 3,500 for out of pocket expenses paid to the Auditors.
(b) 10,000 Equity Shares were issued for consideration other than cash.
(c) Debtors of ` 2,60,000 are due for more than 6 months.
(d) The cost of the Assets were: Building ` 30,00,000,Plant & Machinery ` 35,00,000 and Furniture ` 3,12,500
(e) The balance of ` 7,50,000 in the Loan Account with State Finance Corporation is inclusive of `37,500 for Interest Accrued
but not Due. The loan is secured by hypothecation of Plant & Machinery.
(f) Balance at Bank includes ` 10,000 with Global Bank Ltd, which is not a Scheduled Bank.
Solution:

Refer Q. No. 2, Page No. A.8.26 – N 91

Balance Sheet of Elegant Limited as on 31st March 2014

Particulars as at 31st March Note This Year Prev. Yr
I EQUITY AND LIABILITIES:
(1) Shareholders’ Funds:
(a) Share Capital 1 49,95,000
(b) Reserves and Surplus 2 14,83,500
(2) Non–Current Liabilities:
Long Term Borrowings 3 13,17,500
(3) Current Liabilities:
(a) Trade Payables – Sundry Creditors 10,00,000
(b) Other Current Liabilities – Interest Accrued but not due on Borrowing 37,500
(c) Short Term Provisions 4 6,40,000
Total 94,73,500
II ASSETS
(1) Non–Current Assets
Fixed Assets: Tangible Assets 5 56,25,000
(2) Current Assets:
(a) Inventories 6 12,50,000
(b) Trade Receivables 7 10,00,000
(c) Cash and Cash Equivalents 8 13,85,000
Total 94,73,500

Note 1: Share Capital

Particulars This Year Prev. Yr
Authorised: …………………Equity Shares of …… each
…………………Preference Shares of …… each

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Particulars This Year Prev. Yr

Issued, Subscribed & Paid up: 50,000 Equity Shares of 100 each 50,00,000
(Out of the above, Shares issued for consideration other
than Cash= 10,000 Shares x ` 100 each = ` 10,00,000)
Less: Unpaid Calls (from Others) (5,000)
Total 49,95,000

Note 2: Reserves and Surplus (showing appropriations and transfers) (all figures for this year)
Particulars Opg. Bal. Additions Deductions Clg. Bal
General Reserve 10,50,000 Nil Nil 10,50,000
Prelim Exp. fully w/off (Refer Note) = 38,000
(Given before considering
Surplus (P & L A/c) Nil Proposed Dividend) = Audit fees = 25,000 4,33,500
8,00,000 Out of Pocket Audit Expenses = 3,500
Proposed Dividend = 3,00,000
Total 10,50,000 8,00,000 3,63,000 14,83,500
Note: Audit Fees and Out of Pocket Audit Expenses is not considered in Preliminary Expenses. It is deducted from P&L, Separately.

Note 3: Long Term Borrowings

Particulars This Year Prev. Yr
(a) Term Loans from Banks: From State Finance Corpn. (Secured by Hypothecation of P & M) 7,12,500
(Interest accrued but not due ` 37,500 is included in Other Current Liabilities)
(b) Loans from Other Parties: Unsecured 6,05,000
Total 13,17,500

Note 4: Short Term Provisions

Particulars This Year Prev. Yr
Provision for Taxation 3,40,000
Proposed Dividend 3,00,000
Total 6,40,000

Note 5: Tangible Fixed Assets

Item Gross Block / Cost Depreciation Net Block / WDV
Addns / Addns / As at Yr As at Yr
Opg Bal. ClgBal Opg Bal. ClgBal
(Dedns) (Dedns) Beginning End
Column (1) (2) (3)=1± 2 (4) (5) (6)=4±5 (7)=1–4 (8)=3–6
Land &
30,00,000 2,50,000 27,50,000
Building
Plant &
35,00,000 8,75,000 26,25,000
Machinery
Furniture
3,12,500 62,500 2,50,000
and Fittings
Total 68,12,500 11,87,500 56,25,000
Note: In the absence of information, the Other Columns are not filled up in the above table. (Net Block as per Question)

Note 6: Inventories
Particulars This Year Prev. Yr
Raw Materials 2,50,000
Finished Goods 10,00,000
Total 12,50,000

Note 7: Trade Receivables (assumed as Secured and considered good)

Particulars This Year Prev. Yr
Sundry Debtors:
(a) Debt Outstanding for a period exceeding 6 months from the date they became due 2,60,000
(b) Other Debts (balancing figure) 7,40,000
Total 10,00,000

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Note 8: Cash and Cash Equivalents

Particulars This Year Prev. Yr
Balances with Banks 12,35,000
Cash on Hand 1,50,000
Total 13,85,000
Note: Cash in Bank: With Scheduled Banks and with Non–Scheduled Banks disclosure, not mandatory under Schedule III.

Question 4 (a): Internal Reconstruction 12 Marks

The Balance Sheet of Vaibhav Ltd. as on 31st March 2014 is as follows:
Liabilities Assets
Equity Shares of 100 each 2,00,00,000 Fixed Assets 2,50,00,000
6% Cumulative Pref. Shares of 100 each 1,00,00,000 Investments(Market Value ` 19,00,000) 20,00,000
5% Debentures of 100 each 80,00,000 Current Assets 2,00,00,000
Sundry Creditors 1,00,00,000 Profit & Loss A/c 12,00,000
Provision for Taxation 2,00,000
Total 4,82,00,000 Total 4,82,00,000
The following scheme of Internal Reconstruction is sanctioned:
(a) All the existing Equity Shares are reduced to ` 40 each.
(b) All Preference Shares are reduced to ` 60 each.
(c) The Rate of Interest on Debentures is increased to 6%. The Debenture holders surrender their existing Debentures of ` 100
each and exchange the same for fresh Debentures of ` 70 each for every Debenture held by them.
(d) Fixed Assets are to be written down by 20%
(e) Current Assets are to be revalued at ` 90,00,000
(f) Investments are to be brought to their Market Value.
(g) One of the Creditors of the Company to whom the Company owes ` 40,00,000 decides to forego 40% of his claim. The
Creditor is allotted with 60,000 Equity Shares of ` 40 each in full and final settlement of his claim.
(h) The Taxation Liability is to be settled at ` 3,00,000.
(i) It is decided to write off the Debit Balance of Profit & Loss A/c.
Pass Journal Entries and show the Balance Sheet of the Company after giving effect to above.
Solution:

Refer Illustration No. 12, Page No. A.10.22 – M12, Similar N 92

1. Journal Entries in the books of Vaibhav Ltd
S.No Particulars Dr. (`) Cr (`)
1. Equity Share Capital (at `100 each) A/c Dr. 2,00,00,000
To Equity Share Capital (at ` 40 each) A/c 80,00,000
To Reconstruction A/c 1,20,00,000
(Being 2,00,000 Equity Shares of ` 100 each reduced to Equity Shares of ` 40
each and balance amount transferred to Reconstruction A/c vide approved
Reconstruction Scheme dated…….)
2. 6% Cum. Pref. Share Capital (at ` 100 each) A/c Dr. 1,00,00,000
To 6% Cum. Pref. Share Capital (at ` 60 each) A/c 60,00,000
To Reconstruction A/c 40,00,000
(Being 1,00,0006% Cum. Pref. Shares of ` 100 each reduced to equal number
of 6% Cum. Pref. Shares of ` 60 each and balance amount transferred to
Reconstruction A/c vide approved Reconstruction Scheme dated……)
3. 5% Debentures (at ` 100 each) A/c Dr. 80,00,000
To 6% Debentures (at ` 70 each)A/c 56,00,000
To Reconstruction A/c 24,00,000
(Being 5% Debentures of ` 100 each converted into equal number of 6%
Debentures of ` 70 each and balance amount transferred to Reconstruction
vide approved Reconstruction Scheme dated…….)

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

S.No Particulars Dr. (`) Cr (`)

4. Sundry Creditors A/c Dr. 40,00,000
To Equity Share Capital (at ` 40 each) A/c 24,00,000
To Reconstruction A/c 16,00,000
(Being settlement with one of the Creditors 40% of the claim being given up
and the balance discharged by the issue of 60,000 Equity Shares at ` 40 each)
5. Provision for Taxation A/c Dr. 2,00,000
Reconstruction A/c Dr. 1,00,000
To Current Assets 3,00,000
(Being Liability for Taxation settled)
6. Reconstruction A/c Dr. 1,61,00,000
To Fixed Assets A/c ( 20% of 2,50,00,000) 50,00,000
To Current Assets A/c (2,00,00,000 – 90,00,000) 1,10,00,000
To Investments A/c (20,00,000–19,00,000) 1,00,000
(Being value of Fixed Assets and Current Assets, and Investments written
down as per Reconstruction Scheme)
7. Reconstruction A/c Dr. 12,00,000
To Profit and Loss A/c 12,00,000
To Capital Reserve A/c (WN 2) (balancing figure) 26,00,000
(Being Debit Balance of P & L A/c written off, and balance in Reconstruction
A/c transferred to Capital Reserve)

2. Reconstruction A/c
Particulars Particulars
To Current Assets A/c (Tax paid) 1,00,000 By Equity Share Capital A/c 1,20,00,000
To Fixed Assets A/c (written down) 50,00,000 By 6% Cum. Pref. Share Capital A/c 40,00,000
To Current Assets A/c (written down) 1,10,00,000 By 5% Debentures A/c 24,00,000
To Investments (written down) 1,00,000 By Sundry Creditors A/c 16,00,000
To Profit & Loss A/c (written off) 12,00,000
To Capital Reserve A/c (balancing figure) 26,00,000
Total 2,00,00,000 Total 2,00,00,000

3. Balance Sheet of Vaibhav Ltd as at 31st March 2014 (after Reconstruction)

Particulars as at 31st March Note This Year Prev. Yr
I EQUITY AND LIABILITIES:
(1) Shareholders’ Funds:
(a) Share Capital 1 1,64,00,000
(c) Reserves and Surplus – Capital Reserve 26,00,000
(2) Non–Current Liabilities:
Long Term Borrowings – 6% Debentures 56,00,000
(3) Current Liabilities:
Trade Payables – Sundry Creditors 60,00,000
Total 3,06,00,000
II ASSETS
(1) Non–Current Assets
(a) Fixed Assets: Tangible Assets (250 Lakhs less 20% Decr. under Scheme) 2,00,00,000
(a) Non–Current Investments (Cost 20 Lakhs, taken at Market Value) 19,00,000
(2) Current Assets:
Other Current Assets ( 90 given – 3 Tax paid) 87,00,000
Total 3,06,00,000
Note: Based on the order of information provided, it is assumed that the value of Current Assets after settlement of Tax
Liability is ` 45,00,000.

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Note 1: Share Capital

Particulars This Year Prev. Yr
Authorized: …………………Equity Shares of …… each
…………………Preference Shares of …… each
Issued, Subscribed & Paid up: Equity Shares of `40 each 1,04,00,000
(Out of the above, 60,000 Equity Shares issued for non–Cash consideration to Creditors)
6% Cum. Preference Shares of `60 each 60,00,000
Total 1,64,00,000

Question 4(b): Self balancing / Sectional Balancing System–Creditors Ledger Adjustment A/c 4 Marks
From the following particulars, prepare the Creditors’ Ledger Adjustment Account as would appear in the General Ledger of
Mr. Satish for the month of March 2014.
Date Particulars
1 Purchase from Mr. Akash 7,500
3 Paid 3,000 after adjusting the initial advance in full to Mr. Akash
10 Paid 2,500 to Mr. Dev towards the purchases made in February in full
12 Paid advance to Mr. Giridhar 6,000
14 Purchased goods from Mr. Akash 6,200
20 Returned goods worth 1,000 to Mr. Akash
24 Settled the balance due to Mr. Akash at a discount of 5%
26 Goods purchased from Mr. Giridhar against the advance paid already
29 Purchased from Mr. Nathan 3,500.
30 Goods returned to Mr. Prem1,200. The goods were originally purchased for cash in the month of February 2014.
Solution:
Refer Q. No 11, Page No. A.2.38
Creditors Ledger Adjustment Account (in General Ledger)
Particulars Particulars `
To balances b/d (Advance to Akash)(7,500–3,000) 4,500 By balance b/d (Dev) 2,500
To General Ledger Adj A/c (in Purchase Ledger) By General Ledger Adj. A/c (in Purchase Ledger)
Cash paid to Akash 3,000 Credit Purchases:
Cash paid to Dev 2,500 Akash 7,500
Cash paid to Giridhar 6,000 Akash 6,200
Purchase Returns to Akash 1,000 Giridhar 6,000
Cash paid to Akash [(6,200–1,000) less 5%] 4,940 Nathan 3,500
Discount Received (Akash 260) 260
To balance c/d (Nathan) 3,500
Total 26,900 Total 26,900
Note: Returns to Prem not considered as it is a Cash purchase.

Question 5 (a): Insurance Claims – Loss of Stock 8 Marks

A fire occurred in the premises of M/s Kailash&Co. on 30th September 2013. From the following particulars relating to the period from 1st
April 2013 to 30th September 2013, you are required to ascertain the amount of claim to be filed with the Insurance Company for the loss
of stock. The Company has taken an Insurance policy for `75,000 which is subject to average clause. The value of goods salvaged was
estimated at `27,000. The average rate of Gross Profit was 20% throughout the period.
Particulars Amount in `
Opening Stock 1,20,000
Purchases made 2,40,000
Wages paid (including Wages for the installation of a machine `5,000) 75,000
Sales 3,10,000
Goods taken by the Proprietor (Sale Value) 25,000
Cost of goods sent to Consignee on 20 September 2013, lying unsold with them
th 18,000
Free Samples distributed – Cost 2,500

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Solution:

Refer Q. No 19, Page No. A.5.14 – N 11

Dr. 1. Memorandum Trading Account (1st Apr 2013 to 31st Aug 2013) Cr.
Particulars ` ` Particulars ` `
To Opening Stock 1,20,000 By Sales 3,10,000
To Purchases 2,40,000
Less: Cost of Drawings by Proprietor (20,000)
(25,000 less 20%)
Less: Goods sent to Consignees (18,000) By Stock on the date of fire 1,41,500
Less: Free Samples Distributed (2,500) 1,99,500 (balancing figure)
To Wages (75,000 – 5,000) 70,000
To Gross Profit = 20% on Sales 62,000
Total 4,51,500 Total 4,51,500

`
Closing Stock on the date of fire 1,41,500
Less: Salvaged Stock 27,000
Net Claim 1,14,500
PolicyAmou nt 75,000
Admissible Claim=Net Claim× =`1,14,500× 60,689
Value of Stock 1,41,500

Question 5 (b): Investment Accounts 8 Marks

On 1st April 2014, Hasan has 20,000 Equity Shares of Vayu Ltd, at a Book Value of ` 20 per Share (Face Value of ` 10 each). He
provides the following information:
(a) On 10th June 2014, he purchased another 5,000 shares in Vayu Ltd, at ` 15 per Share.
(b) On 1st August 2014, Vayu Ltd, issued one Bonus Share for every five Shares held by the Shareholders.
(c) On 31st August 2014, the Directors of Vayu Ltd, announced a Rights Issue which entitle the Shareholders to subscribe two
Shares for every six Shares held, at `15 per Share. The Shareholders can transfer their rights in full or in part.
Hasan sold 1/4th of his Right Shares holding to Harsh for a consideration of ` 3 per Share and subscribed the rest on 31st
October 2014. Prepare Investment A/c in the books of Hasan as on 31st October 2014.

Solution:

Refer Illustration 12, Page A.5.58 M 11

Investment (Equity Shares in Vayu Ltd) Account

Shares Shares
Date Particulars ` Date Particulars `
Nos. Nos.
01.04.14 To balance b/d at `20 20,000 4,00,000
10.06.14 To Bank (5,000×15) 5,000 75,000
01.08.14 To Bonus (WN 1) 5,000 ⎯
31.08.14 To Bank(Rights)(WN 4) 7,500 1,12,500 31.10.14 By balance c/d 37,500 5,87,500
Total 37,500 5,87,500 Total 37,500 5,87,500

Working Notes
Particulars Computation Result
1. No. of Bonus Shares (5,000 + 20,000) ÷ 5 5,000 Shares
2
2. No. of Rights Shares eligible (20,000 + 5,000 + 5,000) × 10,000 Shares
6
3. No. of Rights Shares Renounced 10,000 ÷4 = 2,500 Shares at ` 3 will be taken to P&L `7,500
4. No. of Rights Shares subscribed 10,000 – 2,500 = 7,500 Shares at ` 15 `1,12,500

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Question 6: Partnership Accounts–Retirement 16Marks

Anuj, Ayush and Piyush are in Partnership, sharing Profits and Losses in the ratio 2:2:1. Their Balance Sheet as on 31.3.2014
is as follows:
Liabilities ` Assets `
Capital account Fixed Assets
Anuj 3,75,000 Plant 7,87,000
Ayush 2,80,000 Current Assets
Piyush 2,25,000 8,80,000 Stock 1,03,000
General Reserve 1,88,000 Debtors 1,56,000
Creditors 2,16,000 Bank FD 2,25,000
Bank Balance 13,000
12,84,000 12,84,000
Anuj decided to retire with effect from 01.04.2014.
The remaining Partners agreed to share Profits and Losses equally in future.
The following adjustments were agreed to be made upon retirement of Anuj:
(a) Goodwill was to be valued at 1 year purchase of the Average Profits of the preceding 3 years on the date of retirement. The
Average Profits of the past 3 years were as follows:
Year ended `
31.3.2014 (as per draft accounts) 3,30,000
31.3.2013 2,32,000
31.3.2012 2,20,000
The Partners decided not to raise Goodwill Account in the books.
(b) The Assets were revalued as follows:
Plant to be depreciated by 10%,
Creditors amounting to `10,000 were omitted to be recorded,
`6,000 is to be written off from Stock,
Provision for Doubtful Debts to be created @ 5% of the debtors,
Interest accrued on FD amounting to `9,000 was omitted to be recorded.
The above adjustments were to be made from the Profit for the year ended 31.3.2014 before calculation of Goodwill.
(c) Anuj agreed to take over the Bank FD including interest accrued thereon in part payment of his dues and the balance would
remain as a Loan carrying interest of 8% p.a.
(d) Ayush and Piyush agreed to bring sufficient cash to make their capital proportionate and maintain a bank balance of `1,50,000.
You are required to prepare
1) Capital Accounts of partners as on 01.04.2014 giving effect to the above adjustments.
2) Balance Sheet as on 01.04.2014 after Anuj’s retirement.

Solution:

Refer Illustration 27, Page A.6.34 M 94

1. P & L Adjustment A/c (See note below)

Particulars ` Particulars `
To Plant A/c (10% of ` 7,87,000) 78,700By Accrued Interest on FD A/c 9,000
To Creditors A/c 10,000By Loss on Revaluation
To Stock 6,000 – Anuj (93,500×2/5) 37,400
To Provision for Doubtful Debts (5% of 7,800 – Ayush (93,500×2/5) 37,400
1,56,000) – Piyush (93,500×1/5) 18,700 93,500
Total 1,02,500 Total 1,02,500
Note: The question, indicates that the Revaluation Adjustments are to be made from the Profits for the year ended
31.03.2014. Profit and Loss Adjustment Account is prepared instead of Revaluation Account.

2. Computation of Goodwill
Goodwill = 1 year purchase of 3 years’ Average Profits

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Particulars `
Total Book Profits for the past three financial years (2,20,000+2,32,000+3,30,000) 7,82,000
Less: Adjustment in respect of errors in the last financial year – Refer P & L Adjustment A/c (93,500)
Total Corrected Profits for the last 3 years 6,88,500
Average Profit=6,88,500÷3 years 2,29,500
Goodwill of the Firm (Average Profit × 1 Years) 2,29,500
Note: Weighted Average Profits may also be followed in the above calculations

Goodwill Adjustments–
Particulars Anuj Ayush Piyush
Creation (2:2:1) 91,800 Cr. 91,800 Cr. 45,900 Cr.
Reversal (1:1) – 1,14,750 Dr. 1,14,750 Dr.
Net effect 91,800 Cr. 22,950 Dr. 68,850 Dr.

4. Partners’ Capital Accounts

Particulars Anuj Ayush Piyush Particulars Anuj Ayush Piyush
To P & L Adjustment A/c 37,400 37,400 18,700 By balance b/d 3,75,000 2,80,000 2,25,000
To Anuj’s Capital A/c – 22,950 68,850 By Ayush’s Capital 22,950 – –
To Bank FD A/c 2,25,000 – – By Piyush’s Capital 68,850 – –
To Interest Accrued A/c 9,000 – – By General Reserve 75,200 75,200 37,600
(1,88,000 in 2:2:1)
To Anuj’s 8% Loan A/c 2,70,600 – – By Bank – 8,600 1,28,400
To balance c/d (WN3) – 3,03,450 3,03,450
Total 5,42,000 3,63,800 3,91,000 Total 5,42,000 3,63,800 3,91,000

5. Balance Sheet of the Firm as on 1st April (after Anuj’s retirement)

Capital and Liabilities ` Properties and Assets `
Capital Accounts: Non–Current Assets:
– Ayush 3,03,450 Plant and Machinery 7,87,000
– Piyush 3,03,450 6,06,900 Less: Depreciation (78,700) 7,08,300
Non–Current Liabilities
Anuj’s 8% Loan A/c 2,70,600 Current Assets:
Stock (1,03,000 – 6,000) 97,000
Current Liabilities: Sundry Debtors 1,56,000
Sundry Creditors 2,26,000 Less: Provision for Doubtful Debts (7,800) 1,48,200
Cash at Bank 1,50,000
Total 11,03,500 Total 11,03,500

Working Notes:
3. Determination of Final Capital balances of Ayush and Piyush.
(a) Total Assets expected after Retirement 11,03,500
Plant 7,08,300 + Stock 97,000 + Bank 1,50,000 + Debtors 1,48,200
(b) Total Liabilities expected after Retirement 4,96,600
Creditors 2,26,000 + Anuj’s Loan (By Preparing Capital A/c) 2,70,600
(c) Net Capital Balance required 6,06,900
(d) Capital Balance required
Ayush 6,06,900×1/2 =3,03,450
Piyush 6,06,900×1/2 =3,03,450

4. Cross verification with Bank A/c

Particulars ` Particulars `
To Opening Balance b/d 13,000 By Closing Balance c/d 1,50,000
To Ayush Capital A/c 8,700
To Piyush Capital A/c 1,28,300
Total 1,50,000 Total 1,50,000

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Question 7(a): AS–10 4 Marks

From the following information state the amount to be capitalized as per AS–10. Give the explanations for your answer
(i) `5lakhs as routine repairs and `1 Lakh on partial replacement of a part of a machine. (ii) `10 Lakhs on replacement of part of
machinery which will improve the efficiency of a machine.

Solution:

Refer Q. No 39 Page No. B.7.13 – M 04, M 10

1. As per AS – 10, expenditure on improvements / repairs that increases the future benefits from the existing asset
beyond its previously assessed standard of performance should be capitalised. Other expenditures should be charged to
the Statement of Profit & Loss.
2. The following is the breakup of Revenue and Capital expenditure in this case – (in ` Lakhs)
Particulars Reasons / Explanation Total Revenue Capital
Maintenance of assets, rather than increase
(a) Routine Repairs 5.00 5.00 Nil
in future benefits.
Replacement of defective parts, does not
(b) Partial replacement of Part of Machine. 1.00 1.00 Nil
lead to increase in future benefits.
(c) Replacement of Part of a Machinery Improvement in asset functionality, which
10.00 Nil 10.00
(which will improve efficiency) will create benefits of enduring nature.
Total 16.00 6.00 10.00

Question 7(b): Accounting Basics and E–Environment 4 Marks

What are the advantages of Customized Accounting Software?

Solution:

Refer Q. No 8 Page No. A.1.8 – N 08, N 09, N 11

Question 7(c): Hire Purchase Accounting 4 Marks

What are the differences between Hire Purchase and Installment System?

Solution:

Refer Q. No 3 Page No. A.5.69

Particulars Hire Purchase Installment System

Passing of Property in Goods passes only after The property in the goods sold under an Installment Sysem
Property payment of Last Installment. would immediately pass to the Buyer.
Vendor has the right to re–posses goods Vendor does not have the right to recover back the goods.
Repossession for Non–Payment of installments. He can only bring an action against the Purchaser, for the
recovery of unpaid portion of the price of the goods.

Question 7(d): Account Current 4Marks

From the following particulars prepare a Current Account, as sent by Mr. Ram to Mr. Siva as on 31st October 2014 by means of
product method charging interest @ 5% p.a.
2014 Particulars `
1st July Balance due from Siva 750
15th August Sold goods to Siva 1250
20th August Goods Returned By Siva 200
22nd September Siva paid by Cheque 800
15th October Received cash from Siva 500

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 Gurukripa’s Guideline Answers for Nov 2014 CA IPCC Accounting – Group I

Solution:
Refer Illustration 7, Page No. A.2.22 – M 11

In the books of Ram (Ledger from 1st July to 31stOct)

Dr. Siva in Account Current with Ram (Interest upto31st Oct at 5% p.a.) Cr.

Dt Due Particulars ` Days Interest Dt Due Particulars ` Days Interest

st st th th
1 July 1 20 20 By Sales
To bal b/d 750 123 92,250 200 72 14,400
July Aug Aug Return A/c
15th 15th 22nd 22nd
To Sales 1,250 77 96,250 By bank a/c 800 39 31,200
Aug Aug Sep Sep
31st 31st 15st 15st
To Interest 18 By cash a/c 500 16 8,000
Oct Oct Oct Oct
31st 31st By balance of
1,34,900
Oct Oct product a/c
31stoct 31stoct By Balance c/d 518
Total 2018 1,88,500 Total 2018 1,88,500
Note: Interest Receivable: 134900 × 5% × 1/365 = `18 (appx)

Question 7(e): Average Due Date 4 Marks

Kishanlal has made the following sales to Babulal. He allows a credit period of 10 days beyond which he charges interest at
12% per annum.
Date of Sales Amount
26.05.14 12,000
18.07.14 18,000
02.08.14 16,500
28.08.14 9,500
09.09.14 15,500
17.09.14 13,500
Babulal wants to settle his accounts on 30.09.2014. Calculate the interest payable by him using Average Due Date (ADD). If
Babulal wants to save interest of ` 588, how many days before 30.09.2014 does he have to make payment? Also find payment
date in this case.

Solution:

Base Date: 5th June (05/06/14)

Date of Due Date
No of days from Base Date Amount Product
Sale
26/05/14 05/06/14 0 12,000 0
18/07/14 28/07/14 53 18,000 9,54,000
02/08/14 12/08/14 68 16,500 11,22,000
28/08/14 07/09/14 94 9,500 8,93,000
09/09/14 19/09/14 106 15,500 16,43,000
17/09/14 27/09/14 114 13,500 15,39,000
Total 85,000 61,51,000
Total of Products 61,51,000
Average Due Date = Base Date ± = 5th June+ = 5th Jun +73 days (approx.) = 17thAug
Total of Amounts 85,000

Pre–Payment for savings in Interest: Interest p.a. = ` 85000 × 12% = 1230 (for 365 days)
To save Interest of 588, he must pay an interest of (12,310–588) = ` 642
Let the number of days after Average due date to get interest as ` 642 be “X”
Then, X / 365 × 12% × 85,000 = 642 = 23 days from 17th Aug (appx.). Hence, payment should be made on 09/09/14, which is 21
days from 30/09/14.

Nov 2014.16