Accounting for Management QuestAns

CASE 1.1

MEHTA AUTOMOBILES

SUMMARY

HISTORY OF MEHTA AUTOMOBILESMr Mehta is a mechanic. Due to his excellent work, professional ability, pleasing manners and sense of responsibility, he was soon promoted to the post of a chief mechanic. Because of his abilities, his friends and relatives advised him to start his own automobile repairs shop. Therefore, after consulting with his family he accepted the offers of his friends Mr Nitin and Mr Mohan Kapoor, who offered to give a rental office in a busy street of Ahmedabad and a loan of 1,00,000 respectively to start his business.

CURRENT POSITIONMr Mehta’s business is well settled small-scale business. He has hired four more assistants in addition to earlier two and also two mechanics and a part-time salesman. He has a small office with necessary furniture, and he stores his goods at his home, which he uses as his small godown. He has also started a small spare parts selling section. He is also assisted by his son Mr Rajendra Mehta for the regular day-to-day activities.

NEW VENTUREDuring his day-to-day activities, Mr Mehta came across an advertisement in a local newspaper, which was about a company, who was in search of a well-known automobile service shop owner, for a sole selling agency of their cars and spare parts in Gujarat. Mr Mehta found this proposal profitable and thus applied for the same.

CONDITIONS OF CONTRACTThe company specified two conditions which every applying firm in order to get the contract had to fulfil. The conditions are as under:

(a) Every firm had to obtain from its bank, a certificate to the effect that a minimum balance of 5,00,000 was maintained in business account.

(b) Every firm had to submit a complete current financial position of the business and the results of immediate past period.

THE PROBLEMMr Mehta found the problem, which was to comply with the above, two conditions. The following were the difficulties, which Mr Mehta had to face in order to get the problem.

As Mr Mehta did not have any knowledge about how to prepare his financial accounts, he had not prepared any regular accounts.

His used to run his business in such a manner that each cash received was deposited in bank and was withdrawn at the time of payment, and as his business was not of a very large scale he was not able to maintain a minimum balance of Rs 5,00,000 in his business account.

Thus due to the above problems, he was not able to satisfy the two conditions laid down by the company.

1

THE SOLUTIONIn order to get the contract, Mr Mehta must fulfil the above two conditions so for that he has to do the following things.

(a) Learn the basic things of recording of day-to-day transactions.(b) Collect necessary data for the preparation of last year’s financial statements.(c) Maintain a daily book to record all the day-to-day transactions of the business.(d) Appoint an accountant, who will prepare all the accounts and financial

statements from this daily book.

QUESTIONS AND ITS ANSWERS

1. Mr Mehta mentioned that(a) He could not have systematic accounting records because he did not possess

specialized accounting skill; and(b) Keeping such records would increase in costs, which he could not afford. How

would you respond to these comments?Solution:

(a) Here, as Mr Mehta’s business is not very vast, recording of day-to-day transactions does not require any specialised knowledge so he could just learn the basic fundamentals of accounting and start recording the day-to-day transactions in a daily book. This daily book can be recorded systematically by appointing an accountant (Mr Lal).

(b) In short term, recording of proper accounts will cost a bit to Mr Mehta but it will be equalized by the long-term benefits by maintaining proper books of accounts. In addition, appointing an accountant (Mr Lal) for such limited size firm would not cost very much as he will not have to be paid a very high amount for his services rendered.

2. What information would Mr Lal require for preparing the financial statements?Solution: Mr Mehta would require three types of information for preparing the financial statements, which are as under.

(a) Information related to Trading Account(i) Purchases and sales of goods

(ii) Direct expenses(iii) Closing stock of goods

(b) Information related to Profit & Loss A/c.(i) Daily revenue expenses of the firm

(ii) Daily revenue incomes of the firm(c) Information related to Balance Sheet

(i) Information related to liabilities of firm1. Share capital2. Other liabilities which include:

Reserves & Surplus Secured loan and unsecured loans Current liability Contingent liability

(ii) Information related to Assets of the business:

2

1. Fixed assets 2. Investments3. Current Assets 4. Miscellaneous expenditure

3. What items would you expect to find in the statements of financial position and profit and loss analysis relating to Mr Mehta?Solution: Following are the items which may appear in the profit and loss account of Mr Mehta:

Trading Account of Mr Mehta

Particulars Amount Particulars Amount

To Opening Stock xxx By Sales xxxTo Purchase xxx By Closing Stock xxxTo Wages xxxTo Gross Profit xxx By Gross Loss xxx

Total xxxxx Total xxxxx

Profit and loss a/c of Mr Mehta


To Salary of Assistants xxx By sale of Assets xxxTo Electricity Expenses xxx By Discount Received xxxTo Telephone Expenses xxx By Interest on Investment xxxTo Sundry Expenses xxxTo Discount Paid xxxTo Net Profit xxx By Net Loss xxx


Balance Sheet of Mr Mehta

Liabilities Amount Assets AmountShare Capital Fixed Assets

Total ownership capital xxx Land & Building xxxReserve & Surplus Furniture xxx

Profit xxx Equipments xxxSecured Loan Investments

Mortgage Loan xxx Investments xxxUnsecured Loan Current Assets

Friend’s Loan xxx Cash Balance xxxCurrent Liability Bank Balance xxx

Bank Overdraft xxx Debtors xxxCreditors xxx Stock xxx


4. What records would Mr Mehta require to maintain, for controlling his business activities?Solution. Mr Mehta would be required to maintain the following records, for controlling his business activities.

(1) Trading Account(a) It tells us what are the net purchase and net sales of the company.(b) It also specifies the direct expenditure, incurred by the company.(c) Information regarding trading account is helpful during time of calculating

the gross profit of the company.(d) Other benefits.

3

(2) Profit and Loss Account(a) It specifies the various expenses made by the company.(b) It also specifies the various incomes earned by the company.(c) This account helps us to find out the net profit of the company.

(3) Balance Sheet(a) It tells the current financial position of the company.(b) It tells the total assets of the company.(c) It also tells about the total liabilities of the company.

Note: A detailed explanation of above statement has been mention in Question 3.

CONCLUSIONThus from the above case, we can conclude that the problem mentions in the case is one of the common problems which every unit faces if it does not prepare and maintain necessary accounts.

Mr Mehta is one of the persons who are suffering from various problems, which are mentioned in this case, and there are many other problems, which may occur due to non-maintenance of accounts.

Thus in order to keep away such problems, every firm big or small should always maintain its accounts in a systematic way.

4

Case 2.1

Balance Sheet as on April 12, 1946

Liabilities Amount Assets Amount

Capital Fixed Assets

Mrs Bevan 2,000 Land 2,500

Mrs Maywoods 2,000 Add 2,000 4,500

Mr Maywoods 2,000 6,000 Building 10,500

Secured Loan Equipments 1,000

Mortgage loan 11,500 Current Assets

Cash (6,000 – 4,500) 1,500

Total 17,500 Total 17,500

Balance Sheet as on December 11, 1946

Liabilities Amount Amount Assets Amount Amount

Capital Fixed AssetsMrs Bevan 2000 Land 4,500Add: 400 Less: Depreciation 44.45 4,455.55

2,400Less: Loss 329.34 2070.66 Building 10,500

Less: Depreciation 233.45 10,266.55Mrs Maywood 2,000Less: Loss 329.34 1670.66 Equipments 1,000

Add: Purchase 415.95Mr Maywood 2,000 1,415.95Less: Loss 329.34 1670.66 Less: Depreciation 44.19 1,371.76

Current Assets,Secured Loan Loans & AdvancesMortgage Loan 10800

Deposit 35Current Liabilities Stock 100& Provisions Cash 65.35

Bank 9.78Bills Payable 92.01

Total 16,303.99 Total 16,303.99

SUMMARYIn the year 1946 three partners, Mr Bevan, Mr & Mrs Maywoods, started business contributing $2000 each. They also hire some amount of loan. The cafe was on the highway and frequently visited by truck drivers and voyagers. All of the partners have divided their duty by the mutual understanding.

Due to the friendly relationship between one of the partners, namely, Mrs Maywoods with a customer Fred Mead, she finally she run away with him. Mr Maywoods searched her a lot. After this event occurred, Mrs. Bevan decided to dissolve this partnership. Thus they started their business on 12th April 1946 and dissolve on 16th December 1946. The dissolution of business resulted into loss and all the partners equally shared it.

As the professional approach was a lacking factor for this partnership, finally it had to be broken up and bear a loss. After briefly analysing the case, we can say that the proper planning was not present in this partnership and they did have the scarcity of funds from the beginning.

5

CASE 2.2

PREMIER ENGINEERING COMPANY LTD.

Debtors Account

Dr CrParticulars JF Amount Particulars JF AmountTo Balance b/d - 14,505,000 By Sales return - 20,000To Sales - 2,90,000,000 By Discount - 40,000

By Cash - 26,00,00,000By Balance c/f - 4,44,45,000

Total 3,04,50,000 Total 3,04,50,000

Creditors AccountDr CrParticulars JF Amount Particulars JF Amount

To Cash - 14,000,000 By Balance b/d - 1,50,00,000

To Balance c/f - 2,06,00,000 By Purchase - 14,50,00,000

By Supplies - 6,00,000

Total 16,06,00,000 Total 16,06,00,000

Cash AccountDr CrParticulars JF Amount Particulars JF Amount

To Balance b/d - 14,10,000 By Machinery - 80,00,000

To Bank - 10,00,20,000 By Insurance and tax - 9,27,000

To Debtors 26,00,000,000 By Miscellaneous - 1,00,03,000 expenditure

By Bank loan 8,00,00,000

By Creditors 14,00,00,000

By Insurance and tax 2,59,65,500

By Dividend 1,39,40,000

By Balance c/f 69,08,000

Total 36,14,30,000 Total 36,14,30,000

Loan AccountDr Cr

Particulars JF Amount Particulars JF Amount

To retirement of bank loan - 8,00,00,000 By Balance b/d - 4,00,20,000

To Balance c/f - 6,00,40,000 By Bank loan - 10,00,20,000

-

Total 16,06,00,000 Total 16,06,00,000

6

Sales AccountDr Cr


To Sales return & - 20,000 By Debtors - 29,00,00,000 allowances

To Sales discount - 40,000 -

To Balance c/f - 28,99,40,000 -

Total 29,00,00,0000 Total 29,00,00,000

Machinery AccountDr CrParticulars JF Amount Particulars JF Amount

To Balance b/d - 22,61,30,000 By Depreciation - 7,88,20,000

To Cash - 80,00,000 (accumulated & current year depreciation

By Balance c/f - 15,53,10,000

Total 23,41,30,000 Total 23,41,30,000

Accured TaxDr CrParticulars JF Amount Particulars JF Amount

To Balance c/f - 2,59,65,500 By Balance b/d - 2,59,65,500

Total 2,59,65,500 Total 2,59,65,500

Depreciation AccountDr CrParticulars JF Amount Particulars JF Amount

To Balance c/f - 7,88,20,000 By Balance b/d - 4,48,00,000

By P & L a/c - 3,40,20,000

Total 7,88,20,000 Total 7,88,20,000

7

Trading and Profit & Loss Account

For year ending on 31st March 1983

Particulars JF. Amount Particulars JF Amount

To Opening stock - 8,32,05,000 By Sales 29,00,00,000 -

To Purchase - 14,56,00,000 Less : -

To Direct labour 2,40,50,000 Sales return 20,000 - 28,99,40,000

To Indirect labour 48,40,000 Sales discount 40,000 -

To ESIS premium 2,50,000

To Heat, light and power 35,46,000 By Closing stock ** 9,26,80,000

To Sales administrative service 4,30,00,500To Interest 1,00,03,000

To Manufacturing taxes and insurance 8,00,000

To Depreciation 3,40,20,00

To Income tax 29,348,275

To Net profit 3,957,225

Total 38,28,20,000 Total 38,28,20,000

**Calculation of Closing Stock

Opening Stock 8,32,05,000 (5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000)

Add:

Purchase 14,56,00,000

22,88,05,000

Less:

Raw Material 13,55,20,000 consumed

Supplied used 6,05,000

13,61,25,000

Closing Stock 9,26,80,000 (22,88,05,000 – 13,61,25,000)

Profit & Loss Appropriation Accountfor year ending on 31st March 1983


To Provision for dividend - 1,39,40,000 By Net profit - 39,57,225

By Deficit - 99,82,775

Total 13,940,000 Total 13,940,000

8

Balance Sheet as on 31st March 1983


Shareholders Fund - -

Equity - 19,10,46,700 Fixed Assets

Retained earnings 84,97,800 Plant and Equipments 15,53,10,000

Secured Loans Investments

Loans 6,00,40,000

Current Liabilities & Current Assets Provisions 2,06,00,000 Loans & Advances

Creditors 2,93,48,275 Debtors 4,44,45,000

Provision for income tax Cash 69,08,000

Closing stock 9,26,80,000

Prepaid taxes and 80,000 insurance

Advance Taxes paid

9,27,000

Less :

Expired 8,00,000 1,27,000

Misc. Expenditure

Deficit 99,82,775

Total 30,95,32,775 Total 30,95,32,775

Premier Engineering Company Ltd.,General Budget for 1983

Worksheet

Assets Amount Increase in Decrease in Net ChangesAssets Assets

Cash 14,10,000 54,98,000 -- 69,08,000

Debtors 1,45,05,000 2,99,40,000 -- 4,44,45,000

Raw Materials 5,30,00,000 94,80,000 -- 6,24,80,000

Goods in Process 1,00,05,000 -- -- --

Finished Goods 2,00,00,000 -- -- --

Supplies 2,00,000 -- 5000 1,95,000

Prepaid Taxes & Insu. 80,000 -- -- --

Manufacturing Plant 22,61,30,000 -- 7,08,30,00015,53,10,000

Liabilities Amount Increase in Decrease in Net ChangesLiabilities Liabilities

Loans 4,00,20,000 2,00,20,000 -- 6,00,40,000

Creditors 1,50,00,000 56,00,000 -- 20,600,000

Accursed Taxes 2,59,65,500 -- 2,59,65,500 --

Accumulated Dep. 4,48,00,000 3,42,20,000 -- 78,820,000

Equity 19,10,46,700 -- -- --

Retained Earnings 84,97,800 -- -- --

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CASE 3.1

MASTERS FUEL OIL COMPANY

Income Statement for the year ended 31st December 1958

Particulars Amount Amount

Income from Sales & ServicesFuel oil, non-budget accountsBurner services & repairsInstallationsCredit Sales 2,39,776Closing Stock of burner parts 8,250 2,48,026Total Income 2,48,026

Cost of Sales & Services

Fuel oil deliveredBuner partsInstallationsSubcontract chargeOpening stock burner inventory parts 5,490Credit Purchases 1,58,990 1,64,480Total Cost of Sale 1,64,480

Gross Profit on Sales 83,546

Operating Expenses:

Utilities 424Add Outstanding 36 460Supplies 277Telephone 231Advertising 2,627Add Outstanding 159 2,786Property Taxes 972Office & Printing costs 1,119Fees for professional services 1,520Payroll Taxes Outstanding 490Rental of Uniforms 512Vehicles Operation 2,312Wages 9,816Miscellaneous Exp. 1,949Depreciations:Furniture & Fixture 148Delivery & Services Equipment 4,757Vehicle (Truck) 202Building 1,084 6,191

28,635

Net Profit from operation 54,911

10

Master Fuel Oil CompanyBalance sheet as on 31st Dec. 1958


Capital: Fixed Assets:

Leonard Master 31,295 Land 6,000

Less: Drawing 12,650 Furniture & Fixture 1,481

Profit 27,456 46,101 Less: Depreciation 566

Allowance

Louis Webster 32,185 Less: Depreciation 148 767

Less: Drawing 15,000

Profit 27,455 44,640 Delivery & Services 23,786

Equipment

Add: Purchase (Truck) 12,133

35,919

Less: Depreciation 9,787

Allowance

Less: Depreciation 4959 21,173

Building 21,699Less: Depreciation Allowance 7,364

Less: Depreciation 1,084 13,251

Current Liabilities Current Assets:

Account Payables: Cash 15,211

Fuel bills 3,962 Account Receivables:

Utility bills 36 Regular Accounts 18,640

Burner parts 438 Budget Accounts 12,172 30,812

Advertising 159 4,595 Deposit on Commercial bids 900

Other Liabilities 278 Less: 750 150

Inventory of Burner Part 8,250

Total 95,614 Total 95,614

Cash Account

Date Particulars Amount Date Particulars Amount

1 Jan., To Opening Balance b/d 13,993 By Account Payable 4,3821958 Last Year’s

To Regular Customers 1,06,478 By Drawing L. Master 12,650

To Budget Plan Customers 97,798 By Drawing L. Webster 15,000

To Burner Service & repair 12,714 By Fuel Purchase 1,46,260

To Installation Work 4,460 By Burner Parts 5,905

To Deposit Refunds 750 By Installations 2,111

By Subcontractors 314

By Utilities 424

By Supplies 277

(contd.)

11

By New Truck 12,133

By Telephone 231

By Advertising 2,627

By Property Taxes 972

By Office & Printings 1,119

By Fess Pro. Services 1,520

By Liabilities Last Yr 256

By Payroll Taxes C.Y 212

By Rental of Uniforms 512

By Vehicle Operation 2,312

By Wages 9,816

By Miscellaneous Exp. 1,949

31st Dec By Closing Balance 15,211

Total 2,36,193 Total 2,36,193

Account Receivable (Debtors) A/c


1 Jan., To Balance b/d 12,486 31 Dec., By Cash A/c (1,06,478 2,21,450

1958 1958 + 97,798 + 12,714 +

4,460)

31 Dec., To Credit Sales 2,39,776 31 Dec., By Balance c/f :1958 1958

Regular A/c 18,640

Budget A/c 12,172 30,812

Total 2,52,262 Total 2,52,262

Account Payable (Creditors) A/c


31 Dec., To Cash (4.382 + 1,58,972 1 Jan., By Balance b/d 4,382

1958 1,46,260 + 5.905 + 1958

2111 + 314)

31 Dec., To Balance c/f (3,962 4,400 31 Dec., By Credit Purchases 1,58,9901958 + 438) 1958

Total 1,63,372 Total 1,63,372

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Profit and loss account of the year Ended on 31/3/1982Dr. Cr.Expenses Amount Amount Income Amount Amount

To Depreciation on - 21,815 By Dividend received 1,19,000

office equipment By Bills received 20,79,000

To salary 10,39,920 By Closing Stock 70,000

+ Outstanding 17,500 10,57,420

To office supply 3,45,450

+ Outstanding 45,150 3,90,600

To rent 1,70,800

+ Outstanding 16,800 1,87,600

To miscellaneous expenses 1,20,400

+ Outstanding 1,750 1,22,150

To Profession fee Exp. 35,000

Bad debts 37,800

Net Profit c/f. 4,15,615

22,68,000 22,68,000

Balance sheet of Latif Khan Architect As on 31/3/1982

Capital Amount Amount Assets Amount Amount

Capital 11,86,253 Office equipment 2,18,153

+ Net profit 4,15,615 - Depreciation 21,815 1,96,338

16,01,868 Investment 3,50,000

– Drawing 5,60,000 10,41,868 + Purchase 1,68,000 5,18,000

Outstanding Exp. Debtors 2,91,200

Salary 17,500 Cash at Bank 47,530

Rent 16,800 Closing Stock 70,000

Supplies 45,150

Miscellaneous Exp. 1,750

11,23,068 11,23,068

Cash AccountDr. Cr.Particulars Amount Particulars Amount

To Bal b/d. 1,12,000 By Salary & charges 10,51,820To Debtor 23,45,000 By Office supplies 4,02,850To Dividend Int. 1,19,000 By Rent. 1,84,800

By Profession exp. 35,000By Purchase shares 1,68,000By Drawing 5,60,000By Miscellaneous Exp.By Bal. B/d. 1,26,000 47,530

25,76,000 25,76,000

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WORKING NOTES:

FOR FINDING CAPITAL:-

Asset: Office Furniture And Equipment 21,8,153

Investment 3,50,000

Cash 1,12,000

Debtors 5,95,000

12,75,153

Less

Outstanding of 1981

Salary 11,900

Supplies 57,400

Rent 14,000

Misc. 5,600

88,900

Capital in the Business 1,86,253

FOR FINDING DEBTOR:

Op. balance 5,95,000

+ Bills issued 20,79,000

26,74,000

Less

By cash Received 23,45,000

By Bad debts. 37,800

23,82,800

Net debtors at end of the year 1982 2,91,200

Cash Received = 17,50,000 + 5,95,000 = 23,45,000

CASE No. 3.3

Profit Reconciliation Statement

Particulars Amount Amount

Profit as per Bhatia 2,05,000

Less:

Acc. Dep 29,000

Provision for Exp. 40,000

Reduction in Value of stock 25,000 94,000

Add:

Prepaid Ins. 2,500

Prepaid Subscription 75

Change in Capital 37,750 40,325

Profit as per accountant 1,51,325

14

Opening Statement of Affairs


Capital 1,16,250Furniture 1,00,000

Creditors 80,000 Cash & Bank 47,000Debitors 12,000

Accumulated Dep. 19,000 Stock 56,2502,15,250 2,15,250

Debtors AccountDr CrParticulars Amount Particulars Amount

To Balance 12,000 By Cash 12,000By Cash 9,70,000

To Sales 10,00,000By Bal 30,000

10,12,000 10,12,000

Creditors AccountDr CrParticulars Amount Particulars Amount

To Cash 80,000 By Bal 80,000To Cash 6,40,000

By Purchase 7,50,000To Bal 1,10,000

8,30,000 8,30,000

Acc. Dep. AccountDr CrParticulars Amount Particulars Amount

By Bal 19,000

To Bal 29,000 By Depreciation 10,000

29,000 29,000

Balance Sheet as at 31st Dec. 1981


Capital 1,16,250

Less: Drawings 1,69,000 Furniture 1,00,000

– 52,750

Add: Profit 1,51,325 98,575 Cash & Bank 70,000

Debtors 30,000

Pro. for Service Exp. 50,000

Less: Exp. Inc. 10,000 40,000 Prepaid Ins. 2,500

Prepaid Subscription 75

Acc. Dep 19,000

Add. Dep. 10,000 29,000 Closing Stock 75,000

Creditors 1,10,000

2,77,575 2,77,575

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Income & Exp. A/c for the year ended on the 31st Dec. 1981Dr CrParticulars Amount Particulars Amount

Opening Stock 56,250

Purchase 7,50,000 Sales

of Radios 10,00,000

Dep. on Furniture 10,000 of Radio Parts 50,000

Prov. For Service Exp. 50,000

Exp. for Services 20,000 (For the radios sold in the Previous Period)Wages & Salaries 60,000

Insurance Paid 2,500

Rent Paid 10,000

Selling & Gen. Exp 14,850

Subscription 75

Net Profit 1,51,325

10,50,000 10,50,000

CASE 4.1

International Hotels Ltd

Journal-Adjusting Entries

Date Particulars LF Debit CreditRs. Rs.

30th Bad debts A/c Dr. 19,250

June To Debtors A/c 19,250

(Being there is a Bad debts

arise and deduct from Debtors)

30th P&L A/c Dr. 19,250

June To Bad debts A/c 19,250

(Being Bad debts is recognize

and debited to P&L A/c

30th Advertisement Exp. A/c Dr. 2,02,500

June To P&L A/c 2,02,500

(Being Advertisement Exp. is

carried forward to next year)

30th Depreciation A/c Dr. 31,97,250

June To Building & Furniture A/c 31,97,250

(Being Amt. Depreciated to

the Building and Furniture)

30th P&L A/c Dr. 3,197,250

June To Depreciation A/c 3,197,250

(Being the depreciation recognizedand debited to P&L A/c)

16

30th P&L A/c Dr. 1,92,000

June To O/s wages A/c 1,92,000

(Being O/s wages is transfer to

P&L A/c)

30th General Reserve A/c Dr. 1,46,505

June P&L Appro. A/c Dr. 95,13,495

To proposed equity div A/c 96,60,000

(Being the proposed dividend

is paid through P&L Appro.

A/c and G.R. A/c

30th P&L A/c Dr. 28,900

June To Repairs and maintenance A/c 28,900

(Being repairs and maintenance

is not recorded)

Total 1,65,16,400 1,65,16,400

Solution (ii) International Hotels Ltd.

Statement showing Profit and Loss Account of the year ended June 30, 1982Dr. Cr.Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock By sales

wine, cigars 9,20,000 wine, cigars 5,260,000

+ food stuff 17,89,000 27,09,000 + food stuff 13,640,000 18,900,000

To purchase By closing stock

wine, cigars 28,70,000 wine, cigars 3,375,000

+ food stuff 9,430,000 12,300,000 + food stuff 4,460,000 7,835,000

To wages & salaries 4,245,000

o/s wages & salaries 192,000 4,437,000

To coal & firewood 493,500

To Carriage & freight 121,500

To Gross Profit 6,674,000

26,735,000 26,735,000

To Depreciation To Gross Profit 6,674,000

Land & Building 2,550,000 To rent room 8,108,950

Fitting & Furniture 647,250 3,197,250 To Casino Room Earning 142,500

To Bad Debts (T) 0 To golf course Earning 148,500

+ Bad Debts (Adj) 19,250 To Health club earning 268,250

+ B.D.R.(Adj) 0 To Pool side earning 136,400

19,250 To shopping arcade rentals 145,000

– B.D.R(T) 0 19,250 To discotheque earnings 125,400

To Adventiserpent Exp. 1,254,000

+ c/f next year. 202,500 1,051,500

To Repair & Maintanance 637,500

+ Not Recover 28,900 666,400

To rent, Rates, Taxes 1,335,000

17

To Laundry 122,500

To miscellaneous Exp. 876,000

To O/s debenture Int. 4,050,000

To Provision for Tax 2,442,605

To net profit 1,998,495

15,749,000 15,749,000

Statement showing Profit and Loss Appropriation Account of the year endedJune 30, 1982

Dr. Cr.

Particulars Rs. Particulars Rs.

To proposed equity By Bal b/d 6,225,000

share dividend 9,660,000 By P & L A/c 1,998,495

By General reserve 146,505

9,660,000 9,660,000

Statement showing Balance Sheet as on June 30, 1982.

Liabilities Rs. Rs. Assets Rs. Rs.

Share capital Fixed assets

1207500 Equity share 120,750,000 Good will 75,000,000

of Rs. 100 each 75,000,000 Land & building 127,500,000

750000 Preference -Dep. @ 2% 2,550,000 124,950,000

share of Rs. 100 each Furniture & Fittings 12,945,000

Reserve & surplus - Dep. @ 5% 647,250 12,297,750

General reserve 30,000,000

- Equity share 1,436,505 28,563,495

dividend

Investment: 40,845,000

Secured loan:

300000 13.5% Current assets:

Deb of Rs. 100 each 300,000,000 loan & advances

+O/s deb. int. 4,050,000 34,050,000 Closing stock:

wine, cigars 3,375,000

Current liabilities & + food stuffs 4,460,000 7,835,000

Provision Cash in Hand 330,000

O/s repairs & 28,900 Cash in Bank 11,457,000

maintenance

Creditors 6,300,000 Debtors 2,889,000

Proposed equity dividend 9,660,000 - Bad. Debt 19,250 2,869,750

Provision for tax 2,442,605 Carried forward 202,500

O/s wages & salaries 192,000 Adv. exp

Miscellaneous

Expenses:

Preliminary &

formation expenses 1,200,000

276,987,000 276,987,000

18

CASE 4.2:

SUMMARY

This is the cas of Supreme Paper Company Ltd. Here list of balances is given, from that information following items should be prepared.

1. The adjustment entries.2. The Profit and loss account for the year ending December 31, 1982.3. The Profit and loss appropriation account.4. The Balance Sheet as on December 31, 1982.

P&L A/c for the year ended as on Dec. 31, 1982

Particulars Amount (Rs.) Particulars Amount (Rs.)

To Tax on dividend 31,400 By Dividend on Investment 1,00,000

To Debenture interest 84000 By Net Loss 20,53,300

+ Outstanding interest 176000 2,60,000

To Un-expired payment 60,000

To Director’s fees 40,000

To Interim Dividend 3.45,000

To Depreciation on

Land & Building 1,00,000

Plant 6,00,000

Furniture 32,000

Vehicles 50,000 7,82,000

To Tax 6,34,900

Total 21,53,300 Total 21,53,300

Profit & Loss Appropriation A/c for the year ended on Dec. 31, 1982

Particulars Amount (Rs.) Particulars Amount (Rs.)

To Debenture Redemption 4,00,000 By balance b/d 32,51,700Reserve

To General Reserve 7,00,000 By balance c/f 9,46,140

To provision for dividend 7,20,000

To provision for taxation 3,24,540

To net loss 20,53,300

Total 41,97,840 Total 41,97,840

19

Balance sheet as on 31st December 1982


Owners’ Equity: Fixed Assets:

Share capital 60,00,000 Lease hold and

& Building 16,00,000

Reserves and Surplus: - Depreciation 1,00,000 15,00,000

General reserve 6,00,000

+ Extra provision 7,00,000 13,00,000 Plant & machinery 42,40,000

- Depreciation 6,00,000 36,40,000

Debn redm reserve 4,00,000

+ Extra provision 4,00,000 8,00,000 Furniture & Equip 3,20,000

- Depreciation 32,000 2,88,000

Share premium 1,00,000

Secured Loans: Vehicle 2,00,000

13 % debenture 20,00,000 - Depreciation 50,000 1,50,000

+ interest outstanding 1,76000 21,76,000

Current Liabilities: Investment: 10,00,000

Other liabilities 600 Current Assets:

Creditors & accured charges 40,69,000 Debtors 49,10,000

Stocks & WIP 33,20,000

Provisions: Cash 10,000

Proposed dividend 7,20,000 Bank 5,00,000

Provision for taxation 12,06,540 Other assets 1,08,000

By P & L A/C 9,46,140

1,63,72.140 1,63,72,140

Adjustment Entries

Date Particulars LF No. Debit Credit

March 31 Depreciation A/C Dr. 1,00,000To land & building A/C 1,00,000

(Depreciation provided on theLand & Building at the end ofthe year)

March 31 Depreciation A/C Dr. 6,00,000To plant & machinery A/C 6,00,000

(Depreciation provided on theplant & Machinery at the endof the year)

Mach 31 Depreciation A/C Dr. 50,000To vehicle A/C 50,000

(Depreciation provided on thevehicle at the end of the year)

20

March 31 P & L A/C Dr. 7,82,000To Depreciation A/C 7,82,000

(Transfer of Depreciation A/Cto the Profit & Loss A/C

March 31 P & L appropriation A/C Dr. 3,24,520To provision for taxation A/C 3,24,520

(Provision made for the Taxation)March 31 P & L appropriation A/C Dr. 4,00,000

To debenture redemption reserve A/C 4,00,000(Provision made for the DebentureRedemption Reserve)

March 31 P & L appropriation A/C Dr. 7,00,000To general reserve A/C 7,00,000

(Provision made for the General Reserve)

March 31 P & L appropriation A/C Dr. 7,20,000To provision for dividend A/C 7,20,000

(Provision made for the proposed12 % Dividend)

March 31 Debenture interest A/C Dr. 1,76,000To debenture A/C 1,76,000

(Outstanding Debenture Interest)

March 31 P & L A/C Dr. 1,76,000To debenture interest A/C 1,76,000

(Outstanding Debenture Interest)

TOTAL 56,44,520 56,44520

CASE 4.2

Monarch Trading Corporation Ltd.

Trial Balance for the Period ending on March 31, 1982

Particulars Debit Credit

Leasehold Land 2,000,000Buildings 77,00,000Stock (31 March 1982) Merchandize 4,80,000Cost of Merchandise sold 10,120,000Carriage inward 95,000Creditors 4,520,000Wages 8,850,000Debtors 9,405,000Bank overdraft 3,000,000Interest on Bank overdraft 240,000Advertisement expenses 328,000Premium received (Apprentice Scheme) 50,000Office administration expenses 192,000

21

Discount allowed and earned 147,000 101,000Capital 10,000,000Salaries 3,553,000Electricity charges 186,000Rent and rates 215,000Retained earnings (1st April 1981) 3,188,000Commission earned 75,000Investments & interests on investment 247,500Sales 2,750,000 30,038,000Stock of stationery as at 1st April 1981 45,000Furniture and fixtures 1,710,000Salesmen’s salary and commission 1,632,000Carriage outward 218,000Purchase on stationery 180,000Accumulated depreciation 1st April 1981

Buildings 1,750,000Furniture and Fittings 450,000

Provision for bad debts as on 1st Apr-81 176,500Advance Income tax during the year 3,550,000

Total 53,596,000 53,596,000

Journal Adjustment Entries

Date Particulars LF Debit Credit

No. Rs. Rs.

P & L A/c Dr. 100,000

To Land A/C 100,000

Wages A/c Dr. 15,000

Salaries A/c Dr. 27,500

To Outstanding wages A/c 15,000

To Outstanding salaries A/c 27,500

Miscellaneous Expense A/c Dr. 160,000

P & L A/c Dr. 40,000

To Advertisement Expense A/c 200,000

Premium of Apprentice A/c Dr. 12,500

To Prepaid Apprentice A/c 12,500

Commission accured A/c Dr. 12,500

To Commission A/c 12,500

P & L A/c Dr. 195,000

To Stationery A/c 195,000

P & L A/c Dr. 470,250

To Provision for Bad Debts A/c 4,70,250

P & L A/c Dr. 5,56,000

To Accumulated A/c 5,56,000

22

Adjusted Trial Balance for the Period ending on March 31, 1982

Particulars Debit Credit

Leasehold Land 19,00,000

Buildings 7,70,000

Stock (31 March 1982) Merchandize 4,80,000

Cost of Merchandize sold 10,120,000

Carriage inward 95,000

Creditors 4,520,000

Wages 8,850,000

Debtors 9,405,000

Bad Debt Provision 6,46,750

Bank overdraft 3,000,000

Interest on Bank overdraft 240,000

Advertisement expenses 128,000

Miscellanius Expense (Advertisement) 160,000

Premium received (Apprentice Scheme) 37,500

Office administration expenses 192,000

Discount allowed and earned 147,000 101,000

Capital 10,000,000

Salaries 3,580,000

Electricity charges 186,000

Rent and rates 215,000

Retained earnings 3,188,000

Commission earned 875,000

Outstanding commission 12,500

Investments & interests 247,500

Sales 2,750,000 30,038,000

Stock of Stationery 30,000

Furniture and fixtures 1,710,000

Salesmens salary and commission 1,632,000

Carriage outward 218,000

Accumulated Depreciation

Buildings 2,135,000

Furniture and Fixture 6,210,00

Advance Income tax during the year 1982 3,550,000

Outstanding Wages and Salaries 42000

P and L A/c 1,348,750

Total 54664250 54664250

23

Profit and Loss Account and Retained Earning Statement for the Year endedMarch 31, 1982

Particulars Amount Amount Particulars Amount Amount

To Cost of Marchandise 1,01,20,000 By Sales 3,00,38,000

To Carriage Inward 95,000 Less: Sales 27,50,000 2,72,88,000

Return

Wages 88,50,000

Add: Outstanding Wages 15,000 88,65,000

To P and L A/c (Gross Profit) 82,08,000

Total 2,72,88,000 Total 2,72,88,000

To Land A/c 1,00,000 By Trading A/c 82,08,000

To Stationary A/c 1,95,000 By Premium of 12,500Apprentice

To Bad Debt Reserve 4,70,250

To Interest on BOD 2,40,000 By Discount 1,01,000Earned

To Advertisement Expense 1,28,000 By Commission 75,000Earned

Add: Adv. Expense 40,000 1,68,000 Add: Accrued 12,500 87,500Commission

To Office Expense 1,92,000 By Investment 2,47,500and its Interest

To Discount Allowed 1,47,000

To Salaries Paid 35,53,000

Add: Outstanding Salary 27,000 35,80,000

To Electric Charges 1,86,000

To Rent & Rates 2,15,000

To Depreciation:

Building 3,85,000

Furniture 1,71,000 5,56,000

To Salesman Salary 16,32,000

To Carriage Outward 2,18,000

To Provision of Tax 3,93,770

To Net Profit 3,63,480

Total 86,56,500 Total 86,56,500

24

Balance Sheet as on March 31, 1982

Liabilities Amount Amount Assets Amount Amount

Capital Fixed Assets:Capital 1,00,00,000 Land 19,00,000

Building 77,00,000Furniture 17,10,000

Reserve and Surplus: Investments:Retained Earnings 31,88,000Net Profit 3,63,480Premium of Apprentice 37,500Provisions: Current Assets:Accumulated Depreciation Debtors 94,05,000Building 17,50,000 Less: Prov. For 6,46,750 87,58,250

Bad debtsAdd: Depreciation 3,85,000 21,35,000Furniture 4,50,000 Stock of Merchandice 4,80,000Add: Depreciation 1,71,000 6,21,000Provision For Tax 3,93,770 Stock of Stationary 30,000Current Liabilities: Loans and Advances:Creditors 45,20,000 Accured Commission 12,500BOD 30,00,000 Advance Tax Paid 35,50,000

(1982)Outstanding Wages 15,000Outstanding Salary 27,000

Miscellaneous Expenses:Advertisement Expenses 2,00,000Less: Written Off 40,000 1,60,000

Total 2,43,00,750 Total 2,43,00,750

Stationery Account

Dr CrParticulars Amount Particulars AmountTo Balance B/d 45,000 By P & L A/c 195,000To Bank A/c 180,000 By Closing Stock 30,000

Total 225,000 Total 225,000

CASE 5.1Oliver Optics Company

Trading A/c for year ending 31 December


To purchase 15,130 By Sales 35,210To gross profit 23,280 By closing stock 3,200

38,410 38,410

25

P&L A/c for year ending 31 December

Expenditure Amt. ($) Amt.($) Particulars Amt.($) Amt.($)

To Insurance 50 By Gross profit 23,280

To Interest on uncle’s loan 60

To Office & admin. Exp.Salary to Miss Schultz 800Salary to Oliver 1,200 2,000

To Selling Exp. (Shop salaries) 11,900 (3,500 + 3,200 + 4,800 + 400)To Rent 2,000To Office supply used 200To Electricity 430To Travel and Advertising Exp. 2,670To Bad debts 310To B.D.R. 103To Depreciation on equipment 800To Prov. for loss by rejection 208To Net profit 2,429

23,280 23,280

Balance Sheet As On 31 December

Liabilities Amount Amount Assets Amount Amount($) ($) ($) ($)

Capital 5,000 Equipment (W.N-4) 5,000+ Net profit 2,429 7,429 Less Dep. (W.N-5) 800 4,200

Provision for loss 208 Debtor’s 10,250 by rejectionUncle’s Loan 2,000 Less B.D.R. 103 10,147Creditors for 3,000 Insurance paid in advance 150 Equip. (W.N-4)Creditors 5,130 Interest paid in advance 20

Stock of office supply 50Closing stock 3,200

17,767 17,767

WORKING NOTE NO. 1 (W.N.-1)


To Interest on uncle’s loan 80 By Capital 5,000To Interest on equipments 120 By uncle’s loan 2,000To Installment and down payment 2,000 By Debtor’s 24,650To Salaries paid 13,900To rent paid 2,000To Suppliers (Creditors) 10,000To Office supply 250To Electricity and etc. 430To Travel and Advertisement Exp. 2,670To Insurance paid 200

31,650 31,650

26

Working Note No. 2 (W.N.-2)Debtor’s A/c

Particulars Amount ($) Particulars Amount ($)

To Sales 35,210 By Cash (Cash a/c) 24,650

By Bad Debts 310

By Balance (Cash sales) 10,250

35,210 35,210

Working Note No. 3 (W.N.-3)Creditor’s A/C

Particulars Amount ($) Particulars Amount ($)

To bank/cash A/C. 10,000 By Purchase 15,130To balance 5,130

15,130 15,130

Working Note No. 4 (W.N.-4)Equipment value

Down payment = 1,000

+ Instalment (250* 16) = 4,000

Total Cost = 5,000

Working Note No. 5 (W.N.-5)Equipment value

Equipment value = 5,000

Less Scrap value = 1,000

Net value = 4,000

Usage period = 5 Years

So, Depreciation = 800 p.a

Journal Entries

2 Audit fees 5,500 P&L 16 Rental received from 47,510 P&L employees provided with quarters

4 Entertainment expenses 84,720 P&L 32 Interest and dividends 88,480 P&L received on investments

6 Remuneration paid to 3,52,000 P&L managing director

10 Loss on sales of assets 2,150 P&L

12 Depreciation (for the 11,12,280 P&L year ended Dec 31, 1982)

14 Interest paid on loans 3,68,300 P&Lduring the year

18 establishment expense 2,75,370 P&L

20 Traveling expense 1,82,250 P&L

22 Insurance expenses for 1,15,420 P&L

machinery at work site

27

24 Salaries, wages, bonus, 38,91,640 P&Letc

26 Repairs to machinery 3,74,860 P&L

and building

28 Power and fuel 11,22,760 P&L

30 Freight and transpora- 31,88,320 P&L 11 Retained earning (jan. 1, 43,57,430 P&L tion expenses 1982)

APPR.

34 Stores and materials 1,05,69,720 P&Lconsumed

3 Loan given to a sister 4,76,580 B/S 1 Paid up capital 27,70,000 B/Sinstititution, CapitalStores, a supplier ofbuilding materials

19 Debtors 42,780 B/S 5 Unsecured loan from bank 6,24,850 B/S

23 Cash in hand 4,38,940 B/S 8 Accumulated depreciation 80,61,490 B/SDec. 31, 1982

25 Cash at bank 5,35,180 B/S 27 Interest accured but not 86,320 B/S

due on unsecured loan

29 Investments in shares 9,88,170 B/S 15 Secured loans (against 53,67,530 B/S

work-in-progress and

stock of stores and

supplies) repayable on

Dec. 31, 1986)

31 Fixed Assets 1,42,09,400 B/S 17 “on account” advances 33,52,950 B/Sreceived from customersagainst uncompletedcontracts

33 Advances to suppliers 6,57,450 B/S 21 Creditors 42,72,900 B/S

equipment and stores

35 Advance income-tax 11,23,020 B/S 38 Income-tax payable 21,97,520 B/S

36 Billing to customers* 2,21,98,220 B/S General reserve 4,40,71,440 B/S

37 Earnest money deposi- 1,70,700 B/S

ted with the Munici-

pal corporation, Gov-

ernment, etc. against

building

7 Stock of stores and 25,63,410 B/Ssupplies-Dec. 31, 1982 1,02,26,770 B/S

9 Value of uncompletedcontracts (based onarchitect certificateand valued at contractprice for work done

13 Interest accured on 22,510 B/S

Total 7,52,98,420 7,52,98,420

28

Profit and Loss Account for the year 31st Dec. 1982

Particulars Amount Particulars Amount2 Audit fees 5,500 16 Rental received from 47,510

employees providedwith quarters

4 Entertainment expenses 84,720 32 Interest and dividends 88,480

received on investment

6 Remuneration paid to 3,52,000 * Contract account profitmanaging director

10 Loss on sales of assets 2,150

12 Depreciation (for the 11,12,280 Net Loss 2,05,83,115year ended Dec31, 1982)

14 Interest paid on loans 3,68,300during the year

18 Miscellaneous 2,75,370establishment expense

20 Traveling expense 1,82,250

22 Insurance expenses for 1,15,420

machinery at work site

24 Salaries, wages, bonus, 38,91,640etc

26 Repairs to machinery 3,74,860

and building

28 Power and fuel 11,22,760

30 Freight and transpora- 31,88,320tion expenses

34 Stores and materials 1,05,69,720consumedLess: Adj. 2 99,66,220less: 6,03,500

Adj. 2: Loss on transit 2,41,400

Adj. 3: Loss on invest 1,75,000ments:

Adj. 4: Provision for bad 856debts

Total 2,14,59,046 Total 2,14,59,046

Profit and Loss Appropriation A/c

Particulars Amount Particulars AmountLoss b/d 2,05,83,115 Retained earning (Jan. 1, 1982) 43,57,430

Proposed dividend 2,77,000 General reserve 2,77,000

Balance c/d 1,62,25,685

Total 2,08,60,115 Total 2,08,60,115

29

Balance Sheet as on 31st Dec. 1982

Liabilities Amount Assets Amount Amount Share Capital : 1 Paid up capital 2770000 31 Fixed Assets 14209400

Reserve and Surplus: 8 Less: Accumulated 8061490 6147910General reserve Investments

Adj.5: Transfer to P&L 4379440 29 Investments in shares 988170Approx. A/c debentures

Secured Loan Adj.3: Less loss 17500 813170

15 Secured loans 5367530 CurrentAssets, Loans andAdvances

Unsecured Loan: A. Current Assets

5 Unsecured loan from bank 624850 19 Debtors 42780

Current Liabilities and Less: Provision for bad 856 41924Provisions debts

A. Current Liabilities 23 Cash in hand 438940

27 Interest accured but not due 86320 25 Cash at bank 535180

17 “On account” Advance: 2613009 36 Billing to customers* 22198220 Less: Profit margin 739941 Stock of stores and 2563410

21 Creditors 4272900 7 supplies – Dec. 31,

38 Income-tax payable 2197520 9 Value of uncompleted 10226770contacts (based on archi-tects certificate andvalued at contract pricefor work done

B. Provisions 13 interest accrued on invest 22510ments

Adj. 5:Proposed dividend 277000 Adj: 2.Insurrance claim 362100

B. Loans

3 Loan given to a sister 476580institution, CapitalStores, a supplier ofbuilding, materials

33 Advances to suppliers 657450

of equipment and stores

35 Advance income-tax paid 1123020

P&L A/c (net loss)1,62,25,685

37 Earnest money deposited 1,70,700with the Municipalcorporation, Govern-ment, etc. againstbuilding contracts

Total 62003569 Total 62003569

Adjustment

Adj 1: Contingent liability of Rs. 380000

30

Adj 2: Loss in transit included in cost of material consumed603500 60% B/S 362100

40% P/L 241400Adj 3: 250000 Market value decreased due to liquidation 30 paise realizable

i.e. 75000therefore loss on investment 175000

Adj 4: Provision of bad debts on Government contract 2%Assuming Debtor to be of Government contract

Adj 5: Last year unpaid dividend decided to be paidNo effect

Adj 6: Future contract of next accounting year estimatedNo entries

Working note:

Contract profit (profit margin) greater than 50% of contract

Profit margin is to be taken as 2/3rd of total contract profitIf less than 50% 1/3rd of total contract profit is realized.Here, 11971450 / 22198220 = 53%

Therefore, 5% of 22198220 = 1109911 * 2/3 = 749441 profit margin for current year.

CASE No. 5.3

Consumer Product International Ltd.

Manufacturing & Trading A/c for the year ended April 30, 1982

Dr. Cr.Particulars Amount Particulars AmountTo, Opening Stock By Closing Stock:

Raw Material 75544017 WIP-Fin. Goods. 63331296

WIP- Fin. Goods. 61855426 Raw Material 52830817

Raw Material Purchase 427169870

Processing Charge 1107096

Power & Fuel 1107096

Freight & Forwarding Ch. 16032535 Cost of Goods 476575039

592731752 592737152

Cost of Goods 476575039 Sales 885342435

Purchase of finished 2666275 Goods Destroyed by fire 55862 Goods

Gross Profit 406156983

885398297 885398297

31

Profit & Loss A/c for the year ended April 30, 1982.

Dr. Cr.Particulars Amount Amount Particulars Amount Amount

To, By,

Employee R & B. 37213329 Gross Profit 406156983

Con. of Stores 1652486 Duty draw back 216567

Rent, Rates, Taxes 5732667 Other income 3963465

- Prepaid 19662 5713005

Insurance 1407567

Advt. 31749447

- 50 % 1592737 30156710

Repair & Maint. 1805062

+ Un Recorded 29650 1834712

Commission 103130

Interest 773772

Mis. Exp. 16403391

Depri. 2005610

+ Extra 221175 2226785

Excise Duty 135740481

Tax. 129844757

Bad Debt. 265382

Salaries 2305680

Loss by Fire 10512

Net Profit? 44685316

410337015 410337015

Profit & Loss A/c for the year ended April 30, 1982.


To, By,

Interim Dividend 26822250 Net Profit 44685316

Proposed Div. 1965000

General Reserve

I 3062203II 7713328 10775531

Bal C/F 5122535

44685316 44685316

32

Balance Sheet as on April 30, 1982.


Share Capital 29475000 Fixed Asset:

Building 13514577

Reserve Plant & Machi. 6213488& Surplus:

Devel. & Rebate 187400 - Depri. 221175 5992313

General Reserve 43028712 Furniture 1781804

+ I 3062203 + Depri. (wrongly) 64363 1846167

+ II 7713328 53804243 Auto & truck 985282

P & L A/C 5122535 - Depri. 64363 920919

Secured Loan: Investment:

Unsecured Loan: C.A. & Loan, Adv.

Loan from Foreign 29770426 Current Asset:

Store and Spare 1818373

Liability: WIP 743916

Acceptance 45950454 Finished goods 62135880

Creditor 7156668 Debtor 50731705

Unclaimed Div. 408510 - Bad Debt. 265382 50466323

Adv. From Cust. 614318 Cash in hand 23712

Un paid Salary 2305680 Bank Balance 39848499

Proposed Div. 1965000 Insu. Claim 45350

Un Recorded Main 29650 Prepaid Rent 19662

Creative Ltd. (advt) 1592737

Provision: Closing stock RM 52830817

Tax Provision 6844362

Pro. for Exp. 396367 Loan & Advances: 10859458

Adv. For Capital 6358477

WIP

249197180 249197180

CASE NO. 5.4CONSOLIDATED STEELS LTD.

Consolidated Steels Limited manufactures iron and steel products, steel castings (including alloy steel castings) and various types of Industrial Machinery; e.g. Ball Mills, E.O.T. Cranes, Copper converters, etc.

From the following trial balance and adjustments, prepare the Profit and Loss account, the Profit and Loss Appropriation account and the Balance sheet.

33

Trial Balance as on December 31, 1982Account Heads Dr. (Rs.) Cr. (Rs.)

Share Capital 60,558,000Reserves and surplus 21,955,000Deferred Payment Liability 113,637,000Unsecured Loans 35,949,000Land and Roads 3,360,000Buildings 34,243,500Plant and Machinery 117,989,250Furniture and Fixtures 7,305,750Vehicles 1,455,000Accumulated Depreciation

- On Building 14,362,500- On Plant and Machinery 76,370,250- On Furniture and Fixtures 2,381,250- On Vehicles 905,250

Capital Work-in-Progress 2,289,000Investments 4,119,750Loose Tools (Stock on 31.12.1982) 507,000Stores (Stock on 31.12.1982) 53,382,000Raw Materials (Stock on 31.12.1982) 45,777,750Debtors 53,014,500Cash and Bank Balances 3,388,500Loans and Advances 41,090,250Creditors 57,501,000Advance received against orders 24,370,500Unclaimed Dividends 71,250Sales 497,322,750Cash subsidy 5,730,000Raw Materials Consumed 158,803,500Interest 10,689,750Depreciation 9,591,750Stores and Spares Consumed 126,394,500Power and Fuel 42,966,000Subcontracting 31,426,500Rent, Rates and Taxes 1,378,500Insurance 988,500Advertisements 446,250Repairs and Maintenance 1,895,250Freight and Carriage 3,060,000Bad debts and Advances Written off 744,000Miscellaneous Expenses 10,664,250Excise Duty 6,731,250Salaries, Wages, etc. 67,650,000Staff Welfare 5,049,000

911,474,250 911,474,250

34

Additional Information:

(1) The Board of Directors resolved that Rs. 528,000 included in the interest, relating to buying of an imported plant, be capitalized

(2) A provision of doubtful debts amounting to Rs. 468,000 to be made.

(3) The income-tax liability for the current year was Rs. 14,000.

(4) Company XYZ Limited, to which the company has given a loan of Rs. 326,400 went into liquidation. The liquidator informed that all the unsecured creditors would get a 20% dividend.

(5) Slow moving stock of the following items had to be written off:

Raw Materials – Rs. 430,200

Loose Tools – Rs. 89,500

Stores – Rs. 689,400

(6) A pilferage of Rs. 5,500 was reported from the cash box. This had been included in the cash balance in the Trial balance.

(7) Due to shift in the export policy, the company was to receive an additional cash subsidy of Rs. 732,000

(8) Interest accrued and due on the loans taken – Rs. 759,650

(9) Dividend (proposed) of Rs. 60,55,550 is to be provided.

(10) Closing stock (as on 31.12.82) of the Work-in-progress and Finished goods was:

Work-in-progress Rs. 57,836,250.

Finished goods Rs. 21,807,000.

Consolidated Steels Ltd.

P&L Account for the year ending on 31st Dec. 1982

Particulars Amount Particulars AmountOpening stock: Sales: 497322750

-work-in-progress 53638500 Closing stock:

-Finished Goods 11434500 Work-in-Progress 57836250

Raw Materials Consumed 158803500 Finished Goods 2180700

Stores & Spares consumed 126394500

Power & Fuel 42966000

Subcontracting 31426500

Freight & Carriage 306000

Excise Duty 6731250

Gross Profit 142511250

576966000 576966000

Loss from Pilferage Gross Profit 142511250

Bad Debts (New) 261120

Bad Debts (Old) 744000

B.D.R. 468000 1473120

Interest 10689750

+ Acc. Interest 759650

11449400

- For Assets 528000 10921400

Depreciation 9591750

Rent, Rates & Taxes 1378500

Insurance 988500

35

Advertisement 446250

Repairs & maintenance 1895250

Misc. Expenses 10664250

Salaries, Wages etc., 67650000

Staff Welfare 5049000

Provision for Tax 14000

Loss on Moving Stock 1209100

Net Profit 31224630

Total 142511250 Total 142511250

P&L Appropriation Account for the year ending on 31st Dec. 1982


Proposed Dividend 6055550 Net Profit 31224630

Surplus 25169080

Total 31224630 Total 31224630

36

Consolidated Steels Ltd.Balance sheet As on 31st Dec.-1982

Liabilities Amount Assets Amount1. Share Capital 60558000 1. Fixed Assets

2. Reserves & Surplus Land & Roads 3360000Reserves & Surplus 21955500 Building 34243500

+ Additional 732000 Plant & Machinery 11798925022687500 + Addition to P & M 528000

Cash Subsidy 5730000 Furniture 7305750Surplus 25169080 53586580 Vehicles 1455000

Capital work in process 2289000 1671705003. Secured Loans

2- Investments 41197504. Unsecured Loans

Loans 35949000 3. C.A., Loans & Adv.+ Unpaid Interest 759650 36708650 A. Current Assets

5. C.L & Provisions Closing Stock 178100900A. Current Liabilities Debtors 52546500

Differed payment 11363700 Cash & Bank 3383000Creditors 57501000 Unreceived Subsidy 732000

Advance against order 24370500 234762400Unclaimed Dividend 71250 B. Loans & Advances

195579750 Loans 41090250B. Provisions Bad Debts 261120Accumulated depreciation 40829130 275591530

- On Building 14362500- On Plant & Mach. 76730250- On Furniture 2381250- On Vehicles 9050250

94379250Tax Provision 14000Proposed Dividend 6055550

100448800 296028550Total 446881780 Total 446881780

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Calculations1. Closing stock:

Loose tools 417500

Stores 52692600

Raw Materials 45347550

Work in progress 57836250

Finished goods 21807000

178100900

2. Lose on moving stock:

Loose tools 89,500

Stores 689,400

Raw Materials 430,200

Total 1,209,100

Manufacturing Account for the year ended on 31st December 1982.


in 000 in 000 in 000 in 000

To, Opening Inventory By Closing Inventory

Raw Material 1850 Raw Material 1600

Work in Progress 2300 4150 Work in Progress 2100 3700

To Net Purchase 15800

By Balance C/F. 34061

To Direct Labour 9119 (Cost of Production)

To Indirect Labour 1450

To Rent and Rates 825

To Canteen Charges 2781

To Depreciation 225

Plant & Machinery 2100

Building 300 2625

To Fire Insu. Premium 120

To Power & Light 600

To Service Dept. 191

Total 37761 Total 37761

Trading Account for the year ended on 31st December 1982Dr. Cr.

Particulars Amount Amount Particulars Amount Amountin 000 in 000 in 000 in 000

To, Opening Inventory By Net Sales 48709Finished Goods 3000

To Cost of Production 34061 By Closing InventoryFinished Goods 2850

To Gross Profit 14498

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Profit & Loss Account for the year ended on 31st December 1982


in 000 in 000 in 000 in 000

To Interest on Debenture 350 By Gross Profit 14498

To Rent and Rates 550

To Depreciation

Building 185

Furniture 150 335

To Fire Insu. Premium 60

To Powe & Light 100

To Canteen Charges 515

To Service Dept. 382

To Discount Allowed 520

To Selling Expenses 800

To Packing Charges 760

To Advertising Exp. 1500

To Office Salary 2600

To Bad Debt Written Off 250

To Provision for I.T. 2388

To Net Profit 3388


Balance Sheet as on 31st December 1982

Dr. Cr.Liabilities Amount Amount Assets Amount Amount

in 000 in 000 in 000 in 000

Share Capital Fixed AssetsEquity Shares 40000 Land 5000Reserve & Surplus Buildings 10000

Depreciation 3500 6500P & L A/c. (Net Profit) 6775

Plant & Machinery 21000Depreciation 4100 16900

Secured Loan7% Debenture 5000 Furniture & Fixtures 4850

Depreciation 1487.6 3362.4Unsecured Loan

InvestmentsFixed Depositors 398.4

Investments 4500Current LiabilitiesCreditors 4250 Current Assets,

Loans andAdvances

Provisions (A) Current Assets

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Provision for I.T. 2388 Debtors 11700Cash in Hand 67Cash at Bank 4232Closing Stock

Raw Material 1600Work in Progress 2100Finished Goods 2850 6550

(B) Loans & Advances

Total 58811.4 Total 58811.4

Cost Distribution Schedule of Engineering Ancillaries Ltd.

Item Total Basis of Production Sales Administrative Service

Amount Distribution Department Department Department Department

Power & 750,000 Kilo Watt 600000 500000 50000 50000

Light Hours 750000 × 750000 × 750000 × 750000 ×

12:1:1:1 (12/15) (1/15) (1/15) (1/15)

Rent & 1650000 Area 825000 225000 325000 275000

Rates Sq. Feet 1650000 × 1650000 × 1650000 × 1650000 ×

33:9:13:11 (33/66) (9/66) (13/66) (11:66)

Canteen 3399000 No. of 2781000 103000 412000 103000

Charges Employee 3399000 × 3399000 × 3399000 × 3399000 ×

27:1:4:1 (27/33) (1/33) (4/33) (1/33)

Deprec- 485000 Cost of 225000 85000 100000 75000

iation on Furniture

Furniture 45:17:20:15

Deprec 2100000 Cost of 2100000 ***** ***** *****

iation on P & Mach.

Plant &

Machinery

Depreciation 500000 Cost of 300000 50000 100000 50000

on Building Building

6:1:2:1

Fire Insu. 200000 Cost of 1200000 20000 40000 20000

Premium Building

6:1:2:1

Proportion 573000 191000 191000 191000 ****

of Service 1:01:01

Department

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CASE NO. 6.1.CHARLES CROWN COMPANY

Solution 1Project 220

Method (a):102751.5 completed106230.0 claimed208961.5 total cost

49.16775% completed.Method (b):

116970 completed232294 claimed349264 total cost

50.35429% completedNet impact on company’s B/s:Billing Earned through Method (a): 116970Cost earned through Method (a): 102751.5

Net Profit 14218.5Answer:

Net profit earned for current year as per Method (a)= 14218.5 × 49.16775 = 6990.92

Net profit earned for current year as per Method (b)= 14218.5 × 50.35 = 7159.63

Net Change in P&L statement = 6990.92 – 7159.63 = Rs. 168.71.

Solution 2. Project 221Method (a): 76578.18 Task completed

9040.0085618.18 Total cost

89.44% completed.Method (b):

90780 Task completed110220 Total Task (cost)

82.36% completed.Net Billing = 90780 – 70578.18

= Rs. 14201.82 (Net profit)Method (a): 89 unit of 44201.82 = 12702.32

(Net profit earned for current year)Method (b): 82.36% of 44201.82 = 11696.98

(Net profit earned for current year)

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Net change in P&L statement:= 12702.32 – 11696.98= Rs. 1005.34 (Net effect of changing Method)

Project 224:Method (a):

11486.84 completed100250.00 total task111736.84

Total 10.28% task completed.Method (b):

12250 task completed121950 task task

Total 10.05% task completed.Net profit = Net Billing – Cost

= 12250 – 11486= Rs. 763.16.

Entire profit will transfer to contingency reserve.Ans 2.

Method (a):Capital & Liabilities AssetsReserve & surplus:Contingency Reserve 7227.58Surplus 6990.92Method (b):Capital & Liabilities AssetsReserve & surplus:Contingency Reserve 7058.87Surplus 5759.63

Answer 3:Net Profit:

Additional Billing 8030 (125000 – 116970)Estimated cost 6230 (106230 – 100000)Net profit 1800

* Percentage compelation byMethod (a) (49.17%) = 885.02

Percentage compeletion byMethod (b) (50.35%) = 906.38

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Net Effect on profit 21.35

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Answer 4:Mr John would prefer Method A, as profitibility of Method A is higher than

profitibility of Method B.

CASE NO. 6.2GOLDEN GATE HOLIDAY RESORT LTD.

Ans 1.1. Copntribution from members (fees) can be capitalised. And revenue generating

from that would be reserve for the period.2. Identification of Real value of contribution for 99 years and then amortisation of

that fees.Ans 2.

Effect of on Accounts:1.* Contribution on liability side.* Only return will be shown in the P&L Account.2.* Revenue Income (Amrtised value) = Proporturate Revenue Regonition

Real value of contribution/99 years.* If instalment system is followed then proporturate division of EMI will be treated

as revenue and will be shown in P&L credit side.Ans 3.

Second option is preferable because it reflects the revenue of primary business.

CASE NO. 7.3CALCUTTA MOTORS PVT. LTD.

1. If there is no estimate for future warranty of repair cost, then current year’s financial statement will show higher profit and results into outflow of current tax and return to stake holders.

2. Mr Bannarji should make estimate for outstanding warranty expenditure on the basis of some reasonable percentage on sale made.

3. Adding 2% warranty on expenditure (As per Income Tax Act in India) in Profit & Loss account and then profit should be found. The second effect will be on the provision side of Balance Sheet.

CASE NO. 7.4VAT IN DAT

As per AS 2, Inventory should be valued net of MODVAT e.g.Purchase Price × × × ×MODVAT × × ×

Net value of Inventory × × × × MODVAT has been replaced by SENVAT in the year 2004.

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CASE NO. 8.1CONTROL DATA CORPORATION

Solution 1As manufacturing cost of product is 50% of the selling piece of the listed selling price, it can be possible to spend on maintenance of computer to increase the life of the product. If possible, life of computer can be increased by 2 more years. Given figures of cost of specification of computer it is always possible to increase the life of product.Solution 2Yes, CDC should change the department policy. Simple WDV would be more preferable for six years. Depreciation rate will end up around 16.677, which will give stability in cost and profit. As depending on nature of business, depreciation shares 317 of the total cost which is considerable. Written Down Value (WDV) method will give constitency in cost structure in long run..

CASE No. 8.2National Pharma Ltd

Solution 1. Managerial factors :*To sustain goodwill of the organisation or net profit is negative with present policy.*To identify appropriate policy for depreciation that suits to the company.*Present performance of the company will not show sound and rosy picture of the

organisation so far reporting to shareholders and other external associates some adjustments in financial statement is required.

*To sustain dividend policy. For dividend policy decision led to reconsider the policy.Operational Factors :

*Profit will turn from negative to positive. It will save the doubts of operational efficiency of business.

*To identify appropriate policy for depreciation, in terms of accounting of usage of fund since the doubts are raised by the secretary which will demand another thought about companies policy.

*Reduction of Net profit ratio from 4% (app.) to – 127. (app.) the strong factor to think over operational issues. Depreciation policy is one of them.Financial

*To have an ideal Dividend Policy decision for the current year. And use this experience in future to divide such situation.

*Interest exp. is increased by more than five times. It will give considerable effect on financial statement as interest are paid to long term loans which are taken for long-term assets in general.

*To get an advantage of current amendment of financial policies of government for example revised depreciation rates.

Solution 2Suggested changes in accounting policy for depreciation is valid for the current year. Because profit with suggested policy is getting increased by Rs. 54,89,000. So far the current year, it is better to change the policy. Another reason, This action will reduce

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current assets (by reducing inventory) of increase in Fixed Assets which is positive move for the better financial reporting.Solution 3No. change in the depreciation policy is not the permanent solution. This proposed change will differentiate the financial statement from the financial statement reported policy then their would be serious question mark for the past performance. Because it can be taken as c past attempt to create the secrete reserve.Solution 4Impect of taxation wound be as per the current rate. This action will increase tax.

CASE NO. 9.3RAINBOW PAINTS LTD.

No Accounting standard for R&D.(A) Amalgumation of Nature of Purchase.

Balance Sheet

Capital-Liabilities Assets

Share capital FA (3000 + 200) 3200(500 + 200) 700 Investment 60

Reserve & Surplus: Current AssetsReserve 1500 (1940 + 75) 2075Loans

(2500 + 50) 2550Current Liabilities

(500 + 25) 525

5275 5275

(B) The company can show the same as the Amalgamation of Nature of merger in which all Assets and Liabilities will merge with acquiring company and Net impact of change will be given to reserve and surplus. Investment (60) will be eliminated from investments.

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Accounting for Management QuestAns

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