Depreciation
Learning Objectives
After completing this unit, the student will be able to
• Understand the meaning and purpose of depreciation
• Understand different methods of providing depreciation
Meaning of Depreciation
It means gradual and permanent decrease in the value of any asset either
in quality or quantity or value of an asset.
Definitions
According to William Pickles “Depreciation is permanent and continuing
Diminution in the quality, quantity or value of and Assets “.
In the words of R.N. Carter “depreciation is the gradual and permanent
decrease in the value of and Assets from any cause”
According to ICMA terminology “Depreciation is the diminition in
intrinsic value of Assets due to use or lapse of time.
From the above said definition we can say that depreciation is the
permanent and continuous decrease in the value of the assets.
Assets are acquired for running a business . These assets are divided
into two types.
110 Office Assistantship
Disadvantages
1. It is difficult to estimate the life of certain assets with accuracy
e.g. machinery.
2. The interest on the amount invested in the purchase of asset is not
taken into consideration.
3. In this method, it becomes difficult to calculate the depreciation on
additions made during the particular year.
4. The same amount of depreciation is charged every year irrespective
of the use of the asset. Thus, it does not take into account the effective
utilization of the asset.
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
Rs.(A) Rs.(A)
Illustration 2 :
On 1st January 2008 , a firm purchased plant and machinery costing
Rs. 52,000. It is estimated that its working life is 5 years and at the end of which
it will fetch Rs.2,000. Show Plant and Machinery account for 3 years, if
depreciation is charged according to straight line method.
Cost of Asset - Scrap Value
Solution : Annual Depreciation =
Estimated life of the asset
Illustration No. 3
A machine was purchased on 1st July 2006 at a cost of A 18,000 and
A 2,000 was spent on its installation . The depreciation was written off at the
rate of 10% on its original cost. The books were closed on 31st December
every year. Show the machinery account and depreciation account for three
years.
Dr. Plant and Machinery Account Cr.
Illustration no 4
Jagadish purchased a second hand machine for A 57,000 on
01.05.2008 and spent A 3,000 for its repairs. On 31.12.2011 the machine
became unsuitable and sold for.A 40,000. The books were closed on
31st December every year. Prepare machinery account from 2008 to 2011
charging depreciation @ 12% p.a. Under fixed installment method.
Note : If the sale value is more than the W.D.V of the asset, it is profit.
If the sale value is less than the W.D.V. of the asset , it is loss.
Diminishing Balance Method
This method is also known as “Written Down value Method” or
“Reducing balance method” The depreciation under this method is calculated at
a fixed percentage on the diminished value of the asset i.e. depreciation is
calculated on the brought down balance of the asset. So the amount of
depreciation at the beginning year will be more when compared to the later
year. So the depreciation charged on every year goes on decreasing.
Advantages
1. Fresh calculation of depreciation is not necessary as and when addition
are made .
2. The Asset is never completely written off, so that charged is made to
revenue every year
3. Higher repair charges at the end of life of the asset are offset by lower
amounts of depreciation.
4. The method is recognised by income tax authorities as well as
Companies Amendment Act,1988.
Disadvantages
1. In this method, the calculation of depreciation is slightly complicated.
2. The value of the asset cannot be brought down to zero.
3. This method lays too much emphasis on the historical cost.
4. It is difficult to determine the suitable rate of depreciation.
5. It does not provide funds to replace the assets.
Illustration No. 5
A trader purchased machinery for A 10.000 on 1.1.2009 Calculate
depreciation@ 10% per annum under diminishing balance method for the first 4
years. Show the Machinery account.
118 Office Assistantship
Illustration No. 6
Mr. Rao purchased a machine for A 44,000 on 1.7.2009 and spent
A 6,000 on it erection on 31.12.2011 the machine became obsolete and was
sold for A 40,000. Calculate depreciation @ 10% p.a. under diminishing Balance
Method. Show the Machinery account.
Profit Loss on sale of Assets :
Cost of Assets (44,000+6,000) A 50,000
Less depreciation
2009 2,500
2010 4,750
Paper - II Accountancy - II 119
2011 4,275
W.D.V. as on 31.12.2012 A 38,475
Less amount realized on sale A 40,000
Dr. Machinery Account Cr.
Profit on the sale of machine A 1,525
Date Particular Amount Date Particular Amount
Rs.(A) Rs.(A)
Illustration No 7
On 1.1.2009 ‘X’ purchased furniture worth A 25.000. on 1st July 2010
He purchased additional second hand furniture worth A 5,000 and spent
A 2,000 for its repairs. Assuming the annual depreciation is charged @ 10%
p.a. Prepare machinery account under diminishing Balance method for 3 years.
Purchased furniture on 01-01-2009 = 25,000
Purchased second hand furniture On 01-07-2010 = 5,000
+ Repairs = 2,000
A 7,000
120 Office Assistantship
Illustration No. 8
On 1.4.2010 a company purchased a machinery for A 30,000.
Depreciation was provided @10% per annum on straight line method at the
end of each year. With effect from 1.1.2011 the company decided to change
the method of depreciation to Diminishing Balance Method @12% per annum.
On 31.3.2012 the machinery became useless and sold for A 21,000. Prepare
Machinery Account.
Working Notes:
Machinery purchased on 1.4.2010 : A 30,000
Rate of depreciation 10%
From 1-1-2011 depreciation charged 12% under diminishing balance
method.
On 31-03-2012, Machinery sold for A 21,000
Paper - II Accountancy - II 121
24,420 24,420
Exercises
Fixed installment Method
1. Furniture is purchased for A 35,000/-. It is decided to depreciate the
asset on straight line method at 10% per annum. Show furniture account for 5
years.
(Ans. Balance A 17,500)
2. A machine is purchased for A 50,000. The rate of depreciation is to
be charged at 20% per annum. Prepare machinery account for four years under
Fixed installment method.
(Ans. Balance A 10,000)
3. A firm purchased a machine for A 1,00,000 on 1.4.2008. Show the
machinery account for 4 years charging depreciation on Fixed Installment Method
@ 15% p.a.
(Ans. Balance A 43,750)
4. Mr. Ravi purchased a machine for A 68,000 on 1st January 2008.
The residual value after 10 year is 8,000. Calculate depreciation chargeable
under equal installment method at the end of 31st December of every year.
Prepare machinery account for 3 Years.
(Ans. Balance A 50,000)
5. A firm purchased a plant and machinery for A 40,000 on 1st January
2009. The life of the asset was estimated to be four years and it was decided to
depreciate 90% of the cost by straight line method over a period of estimated
life. Show the plant and machinery account for 4 years.
(Ans. Annual Depreciation A 9,000, Balance on 1.1.13 A 4,000)
Diminishing balance method
6. On 1st January 2009 a firm purchased a machine for A 30.000.
Assuming the depreciation is charged @10% on diminishing balance method.
Prepare machinery account for three years.
(Ans. Balance A 21,870)
8. A company purchased a plant worth A 25.000 on 31.3.2009
depreciation is calculate @10% per annum, under diminishing balance method.
Show the machinery accounts up to 31st December 2011.
(Ans. Balance A 18,731)
Paper - II Accountancy - II 123
UNIT 2
Accounts of Non-Trading
Concerns
Learning Objectives
After completing this unit, the student will be able to
• Understand the meaning and purpose of depreciation
• Understand different methods of providing depreciation
Meaning of Non-Trading
The purpose of every trading or manufacturing activity is to make profit.
But there are certain charitable and social institutions which are not created
with a profit making object but for promoting and development and welfare
activities; both for the general and public and for its members. Educational
institutions, hospitals, clubs, charitable trusts.., are called Non-Trading Concerns.
These non-profitable institutions are not interested in the quantum of profit
earned by them during the year but certainly they are interested in the quantum
of profits earned by them during the year, but certainly they are not interest in
knowing their Income and expenditure during the year and their financial positions
at the end of each year. To achieved these objectives they prepare the following
statements.
1. Receipts and payments account.
2. Income and expenditure account.
3. Balance Sheet.
Paper - II Accountancy - II 125
other trade charges . All items of revenue expenditure appear in the trading and
profit and loss account.
Revenue expenditure becoming capital expenditure
An expenditure which is primarily of revenue nature but incurred for the
purpose of acquiring any asset or adding to its value, is termed ‘ capitalized
expenditure’. The following are some of the examples of revenue expenditure
becoming capital expenditure.
1. Repairs : Repairs are usually revenue expenditure but, if we
purchase a second hand machinery and pay for repairs necessary as ‘capitalized
expenditure’ . The following are some of the examples of revenue expenditure
becoming capital expenditure.
2. Wages : Wages are usually based as a revenue charge but if paid
to the employees for the construction or erection or installation of fixed assets of
the business, then these will be become capital expenditure and should be added
to the cost of the fixed asset concerned.
3. Legal Expenses : These are usually a revenue charge but, if incured
on acquiring a property, should be added to the cost of the asset acquired cost
of the asset.
4. Freight And Carriage : These are usually a revenue item, but
payments made for transporting newly acquired asset will be treated as a capital
expenditure and will from additional cost of the asset.
5. Interest : Interest on borrowing and capital are generally a revenue
item and is allowed to be treated as capital item if paid during the period of
construction.
6. Preliminary expense : Initial expenses, connected with the
formation of a company through revenue in nature are allowed to be capitalized
and can be shown as an asset in the balance sheet
7. Brokerage and stamp duty : Normally these are revenue items ,
but brokerage and stamp duty paid on the purchase of a property may be treated
as capital expenditure.
8. Development expenditure: In concerns line mines, tea plantations,
collieries, horticulture rubber plantation etc,. a sizeable is spent during the period
of development and such expenses incurred up to the time they begin to earn,
must to be treated as capital expenditure.
Paper - II Accountancy - II 127
Illustration 1
Stadium club kept its account on cash basis and the figures for the year
2011 are given below. You required to prepare Receipts and Payments Account.
Subcription Received A A
2010 800 Salaries 4,800
2011 7,200 Postage 480
Receipt from Stationery 1,200
Common Room 5,000 Rent 2000
Hiring Rooms 400 Cash in hand
Billiards Rooms 2,400 01-01-2011 720
Supplies from Electricity 1600
entertainment room 3,400
Wages to Watchman’s 2,720
132 Office Assistantship
16,520 16,520
To Balance b/d 1,120
xxx xxx
Paper - II Accountancy - II 135
16,700 16,700
Balance Sheet
The Income and Expenditure Account is accompanied by the balance
sheet. In trading concerns, a balance sheet is to be prepared even by non-
trading concerns to complete the double entry. The balance sheet covers all
those items such as Assets, Liabilities and Capital fund.
Capital Fund
Capital fund is similar to capital account of trading concerns, Non-trading
concerns do not have formal capital like that of trading concerns. Hence, excess
of income over expenditure, capital receipts that are capitalized are accumulated
under the heading “Capital Fund” and shown as liability in the Balance Sheet.
Some special terms pertaining to non-trading organization
While preparing final accounts of non-profit organizations the following
items are often used.
Paper - II Accountancy - II 137
34,200 34,200
142 Office Assistantship
21,040 21,040
Dr. Cr.
Receipts Rs.(A) Payments Rs.(A)
To Donations received 35,000 By Salaries 37,500
To Subscriptions 1,15,000 By Help to poor students 37,000
To Life membership fee 50,000 By Expenses on free 34,500
75,000 dispensary
To Legacy
To Interest received 4,000 By Postage and Stationery 3,500
By Furniture 50,000
By Investments 75,000
By Cash in hand 41,500
2,79,000 2,79,000
Additional Information :
1. Subscription outstanding for the year A 5,000.
2. Salaries unpaid A 5,000.
3. Help to poor students promised but unpaid A 16,000.
4. Expenses of dispensary outstanding A 3,000.
5. Postage and Stationary expenses yet to be paid A 4,000.
(Ans: Surplus : A 18,500, B/S Total : A 1,71,500)
18. Vijayawada sports club was started on 1.4.2011. Their Receipts
and Payments a/c for the year 2011-2012 is given below.
The following Adjustments
1. Subscription receivable for the year A 300/-
2. Salaries Unpaid A 170/-
3. Entrance fee is to be capitalized.
4. Insurance is for one year and is premium paid up to 31st Dec 2012.
Prepare the income and Expenditure account for 2011-2012.
144 Office Assistantship
Dr. Cr.
Receipts Rs.(A) Payments Rs.(A)
To Cash in hand 250 By Salary to workmen 2,000
To Cash in Bank 2,250 By Grass cutting machine 1,000
To Subscription 6,750 By Rent 450
To Tournment fund 2,500 By Games expenditure 3,500
To Life membership fee 1,500 By Tournment expenditure 1,000
To Entrance fee 250 By Office expenditure 2,250
To Donation for pavilion 4,000 By Games equipment 1,500
To Sale of grass 200 By Balance c/d
Cash in Hand 750
Cash at Bank 5,250
17,700 17,700
10,650 10,650
Paper - II Accountancy - II 147
Additional Information
1. Subscription received included A 200 of 2010-2011.
2. Rent paid included A 100 for March 2012 monthly rent is Rs.100.
3. Subscriptions due for 2001-2002 A 300.
4. Salaries Payable sold was A 600.
5. Cost of furniture sold was A 640.
(Ans : Deficit : A 20 capital fund 41,940 Balance Sheet total A 43,020).
148 Office Assistantship
UNIT 3
Partnership Accounts - I
Learning Objectives
After studying this unit, the student will be able to
• Learn elements of partnership
• Understand about partnership deed
• Understand about methods of maintaining partners capital account.
• Understand about sharing the profit and losses.
• Know about admission of partner
According to section 4 of the Indian Partnership Act, 1932 the term
“Partnership is the relationship between two or more persons who have agreed
to share the profit of a business carried on by all or any of them acting for all”.
Hence the essence of the partnership is the agreement two or more
persons, who are individually called partners and collectively a firm. A maximum
of 20 persons( 10 in case of banking business) are legally permitted to form a
partnership.
Essential Elements of Partnership
The essential elements of partnership are as under.
1. There must be two or more persons.
2. There must be an agreement entered into by all partners concerned.
Paper - II Accountancy - II 149
d. Any partners who provides loan over and above the agreed amount
of capital shall be paid interest at 6% p.a. on the loan amount.
e. Every partners is entitled to an equal share in the properties if the
firm at the time of sale of the business assets of amalgamation.
Partner have the freedom to agree and decide In a different manner in
the above said issues and include the same. In partnership deed. Partnership
Act comes into force only where partnership deed I silent on any issue.
Methods of Maintaining of Partner’s capital Account
The partner’s capital account may be maintained according to
a. Fluctuating Capital method.
b. Fixed Capital method.
Under fluctuating capital method items affecting the capital accounts of
partners such as interest on capital, interest on drawings, drawings, partners
salaries, commission, their share of profit or loss etc. are passed through capital
account . In short, only one account for each partner is maintained and all the
transactions relating to a partner are recorded in his capital account itself. As a
result of this balance in his capital keeps on fluctuating.
The specimen of capital account under fluctuating capital given below.
Partner’s Capital A/c
Particulars Rs.(A) Particulars Rs.(A)
To Drawing a/c xxx By Balance b/d xxx
To Interest on drawing a/c xxx By Bank/Cash xxx
To P & L appropriation a/c xxx (Additional capital) a/c
(Share of loss if any) By Interest on Capital a/c xxx
To Balance c/d xxxx By Salaries a/c xxx
By Commission a/c xxx
(to partner)
By P&L appropriation a/c xxx
(Share of profit)
xxx xxx
Paper - II Accountancy - II 151
Under fixed capital method, for each partner two accounts namely
“capital account“ current account” are maintained. The transaction relating to
introduction or withdrawal capital are recorded in capital account and other
transaction like interest on capital, Drawings , salary, commission, share to profit
or loss are recorded in current account. As result of these , the capital account
will continue to show the same balance from year to unless some amount of
additional capital is introduced is withdrawn while the balance current accounts
keeps of fluctuating.
The specimen of capital and current accounts under fixed capital method
are given below
Partners Capital A/C
xxx xxx
Admission of a Partner
A new person can be admitted as partner only with the consent of all
existing partners. Since partnership arises of an agreement, it is necessary that
an agreement should be reached, on the one side among the partner themselves
and another side between the existing partners and the incoming partner.
A new partners may be admitted into a firm either for getting additional
capital or skill both. The new partner acquires two rights.
(a) The right to share in the profit of the business and
(b) The right to share in the assets the partnership.
The following points have be discussed in the case of a admission
(a) Treatment of Goodwill.
(b) Calculation of new profit sharing ratio and the sacrificing ratio.
(c) Revaluation of Asset and Liabilities.
(d) Adjustment of undistributed profit or losses and Reserves.
(e) Adjustment of Capital between the partners.
Accounting treatment of good will on admission of a partner
There are several ways of treatment of goodwill which are discussed
here under :
1. At the time of admission the incoming partner gives to each of the
existing partner his shares of goodwill privately. In this case, the amount of goodwill
remains a private adjustment between the existing and incoming partners.,. This
arrangement is not mentioned as well as not recorded in the books of accounts
of partnership firm.
Paper - II Accountancy - II 153
For raising the goodwill account an entry is recorded debiting the goodwill
accounts and crediting the existing partners capital accounts.
Goodwill Account……. Dr. 8,00,000 ---
To Shanti’s ’s Capital Account --- 6,00,000
To Kranti’s Capital Account --- 2,00,000
Subsequently when the goodwill account is proposed to be written off
all the partners capital accounts (including the incoming Shanti’s CapitalAccount)
will be debited and goodwill account will be credited. For this purpose the
partners new profit sharing ratio should be calculated.
Shanti’s and Kranti’s new share
After Sahiti’s admission = Total share- Sahiti Share
1 4
= 1- =
5 5
This combined new share of Shanti and Kranti will be distributed between
both of there in their original profit sharing ratio .
4 3 3
Shanti’s Share = x =
5 4 5
4 1 1
Kranti’s Share = x =
5 4 5
3 : 1 : 1
(Calculation of new profit sharing ratio is discussed in detail subsequently
in this chapter itself).
To write off goodwill account raised earlier. The partners capital accounts
should be debited and goodwill account credited. Goodwill when distributed in
the new profit sharing ration would be as under.
Paper - II Accountancy - II 157
3
Shanti = 8,00,000 x = 4,80,000
5
1
Kranti = 8,00,000 x = 1,60,000
5
1
Sahiti = 8,00,000 x = 1,60,000
5
Illustration 2 (Method 1)
Sathyam and sundaram are partners sharing profit in 7:3 ratio. They
admit Shivam allowing as share of 3/7 in the profits. Calculate new profit sharing
ratio of the partners.
Solution
Total profit =1
3
Shivam’s share =
7
1 3 4
Share of Sathyam and Sundaram together = - =
1 7 7
Sathyam and Sundaram will share this 4 / 7 profit in their original profit
sharing ratio i.e.; 7:3.
4 7 4
Sathyam share = x =
7 10 10
4 3 12
Sundaram = x =
7 10 70
= 28 : 12 : 30
= 14 : 6 : 15
Illustration (Method -2)
Sahityam and Nrityam are partners sharing the profit in 7:3 ratio.
Manikyam secures admission I the firm by purchasing 2/7th share from Sahityam
and 1/7th share from Nrityam. Calculate new profit sharing ratio of the partners.
Paper - II Accountancy - II 159
Solution
Sahityam new share = Sahityam’s original share – portion surrendered
in favour of Manikyam.
7 2 29
= - =
10 7 70
=3:1:1
Sacrificing Ratio
When the partners of a firm invite a new a person to join them as a
partner, it is but nature that the existing partners should be prepared to sacrifice
a portion of their share in the profit in favour of the incoming partner. This obviously
means that the share of the existing partner gets reduced when a new partner is
admitted. The ratio in which the existing partners lose a portion of tier share is
called sacrificing ratio. Different methods followed to calculate the sacrificing
ratio are as follows.
Method – 1.1. When original profit sharing ratio of existing partners
and the ratio of incoming partner is known, and nothing is mentioned about the
sacrificing ratio of existing partners, it is assumed that they have contributed to
the mentioned partners share In their original profit sharing ratio.
Paper - II Accountancy - II 161
Method (II). If original profit sharing ration of existing partners and the
new profit sharing ration of all the partners (Including incoming partner) are
known new share of the existing partners should be deducted from their original
share to find out their sacrificing ratio. This can be done in two different methods.
Illustration 4 (Method 1)
Kousalya and Sumithra are partners sharing profit in 3:2 ratio. They
admit Kaikeyi and allow here 1/7 share in the profit of the firm. Calculate the
sacrificing ratio of Kousalya and Sumithra and their new profit sharing ratio
along with Kaikeyi.
Solution
In this problem , no mention is made as to the extent of Sacrifice made
by Kousalya and Sumithra when they admitted Kaikeyi with 1/7 share in the
profit . Hence it is presumed and they (Kousalya & Sumithra) contributed to
the share of Kaikeyi in their original profit sharing ratio viz.3:2. No. Calculation
is required to obtain the sacrificing ratio. Their original profit sharing ratio itself
id the sacrificing ratio.
New profit sharing ratio is calculated as under.
1
Share of Kaikeyi =
7
1 1 6
What remains for Kousalya and Sumithra is - =
1 7 7
and they share this 6 / 7 of the profit in 3:2 ratio (their original profit sharing
ratio)
6 3 18
Kousalya’s new share = x =
7 5 35
6 2 12
Sumithra’s new share = x =
7 5 35
18 12 5
= : :
35 35 35
= 18 : 12 : 5
Illustration (Method 1&2)
Rohini and Devaki are sharing profit in 4:3 ratio. Yashoda is admitted as
partner and now Rohini, Devaki and Yashoda share profit in 7 : 4 : 3 . Calculate
the sacrificing ratio.
Sacrificing ratio can be calculated in two different methods in such cases.
Methods (i)
Sacrifice by Rohini = Rohini’s original share – Rohini’s new share
4 7 4 2 7 8 7 1
= - =[ x ]- = - =
7 14 7 2 14 14 14 14
8,05,350 8,05,350
Solutions
Before Admitting Goverdhan into Partnership Firm
Journal Entries
Dr. Cr.
Amount Amount
Date Particulars LF Rs. (A) Rs. (A)
2012 Revaluatoin A/c... 33,450 ---
March 31 To Stock A/c --- 22,500
To Furniture A/c --- 2,200
To Provision for bad debts A/c --- 2,750
To Liability A/c --- 6,000
166 Office Assistantship
Dr. Cr.
Amount Amount
Date Particulars LF Rs. (A) Rs. (A)
(Being depreciation on assets and
provision for bad debts and liability)
March 31 Building A/c ......... Dr. 75,000
--
Investment A/c ......... Dr. 21,500
To Revaluation A/c -- 96,500
(Being appreciation on building and
for recording the investments not
entered earlier)
--
March 31 Revaluation A/c 63,050
To Govind’s Capital A/c -- 37,830
To Gopal’s Capital A/c -- 25,220
(Being profit on revaluation
distributed between the partners)
Revaluation Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To Stock Account 22,500 By BuildingAccount 75,000
To Furniture Account 2,200 By Investment Account 21,500
To Provision for bad 2,750
debt.
To Liability Account 6,000
To Govind’s Capital A/c. 37,830
To Gopal’s Capital A/c. 25,220
96,500 96,500
Paper - II Accountancy - II 167
Dr. Cr.
Amount Amount
Date Particulars LF Rs. (A) Rs. (A)
Goodwill Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To Govind A/c 51,000 By Cash Account 85,000
To Gopal’s Capital A/c 34,000
3,65,720 85,000
3,00,000 3,00,000
By Balance b/d 3,00,000
Cash Book
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To Balance b/d 7,100 By Balance c/d 3,92,100
To Goodwill A/c 85,000
To Goverdhan Capital A/c 3,00,000
3,92,100 3,92,100
170 Office Assistantship
82,000 82,000
172 Office Assistantship
Goodwill Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To balance b/d 50,000 By L’s Capital A/c 9,000
(3/5 x 15000)
By M’s Capital A/c 6,000
(2/5 x 5000)
50,000 By Balance c/d 35,000
35,000 50,000
2,00,000 2,00,000
By Balance b/d 2,00,000
Exercises
Admission of a partner
1. A and B are carrying on business in a partnership, sharing profit &
Losses in the ratio of 2 : 3. There Balance sheet as at 31-3-2010 was as under.
Balance Sheet
2. The Balance Sheet of Srinitha & Srihitha who are partners sharing
profit & losses in the ratio 2:1 , on 31-3-2012 was a under .
Balance Sheet
Liabilities Amount Assets Amount
Rs.(A) Rs.(A)
Sundry Creditors 1,00,000 Cash 5,000
Bills payable 3,20,000 Sundry Debtors 4,00,000
Less :
Provision for D.D 5,000 3,95,000
General Reserve 1,80,000 Stock 2,50,000
Capitals Furniture 1,00,000
Srinitha 3,00,000 Buildings 3,00,000
Srihitha 1,50,000 4,50,000
10,50,000 10,50,000
On that date Srinidhi was admitted for 1/3 share to profit on the follows terms
(a) That Srinidhi brings in Cash A 90,000 for Goodwill & A1,50,000 as
Capital.
(b) That half of the goodwill shall be withdrawn by the holds partners.
(c) The provision for bad and doubtful debts is to be increased by
A10,000.
(d) That a liability for A 8,500 be created against outstanding salaries.
(e) That the Stock & Furniture to reduced by 5%.
(f) That the value of Building s be appreciated by 10 %.
Prepare Revaluation a/c, Partners Capital Account & Balance Sheet of
new firm.
(Balance Sheet A 12,47,500, Revaluations Loss A 6,000)
176 Office Assistantship
3. Naveen and Kiran are partners sharing their profits in the ratio of 3:2
on 31-12-2012. The Balance Sheet is as under.
Balance Sheet
Liabilities Amount Assets Amount
Rs.(A) Rs.(A)
Creditors 16,000 Cash in hand 2,000
Bank O.D 10,000 Cash in Bank 10,000
Bills Payable 12,000 Debtors 20,000
Capitals A/cs : Stock 18,000
Naveen 48,000 Furniture 10,000
Kiran 24,000 72,000 Buildings 30,000
Machinery 20,000
1,10,000 1,10,000
Adjustments :
1-1-2012 Rajesh was admitted as partners in the following conditions .
(a) Firm’s Goodwill valued for A10,000
(b) Depreciate stock, furniture , machinery @ 10%.
(c) Appreciate Buildings @ 10%.
(d) Provide Reserve for Bad Debts at 5% on the debtors.
(e) Rajesh has to brings A 16,000/- in cash for his share of Capital.
Prepare necessary accounts & the new balance sheet of the firm after
Rajesh’s entry.
(Ans : Revaluations loss A2,800; Capital A/C Balance- Naveen
A 52,320 ; Kiran A 26,880; Rajesh A 16,000- B/s Total A 1,33,200.
Paper - II Accountancy - II 177
1,93,000 1,93,000
Prepare profit & Adjustment account & new Balance Sheet on 1.1.13
Balance Sheet
4,00,000 4,00,000
‘C’ is admitted as a partner on the date if the Balance Sheet ion the
following terms.
(a) ‘C’ will brings in Rs.1,00,000 as his capital & A 60,000 as his share
of Goodwill for ¼ share of profit.
(b) Plant and Machinery is to be appreciate to A 20,000 &. The value
of Building is to be appreciated by 10%.
(c) Stock is found overvalued by A 4,000.
(d) A provision for bad & doubtful debts is to be created at 5% on
debtors.
(e) Creditors were unrecorded to the extent of A 1,000 /-
Pass the journal entries, prepare the profit & Loss adjustment account
and show the Balance Sheet after the admission of ‘C’.
(Ans : Revaluations profit A 27,000; Capital Account
Balances A- A 2,38,000; B – A 1,79,000; C - A 1,00,000;
Balance Sheet Total A 5,88,000)
Paper - II Accountancy - II 179
6. X and Y were sharing profits in the positions of 2/3 and 1/3 showed
the following as their Balance Sheet on 31-12-2012.
57,950 57,950
1,05,600 1,05,600
UNIT 4
Partnership Accounts - II
Learning Objectives
After studying this unit, the student will be able to
• Understand method for retirement of partner
• Understand about goodwill treatment
• Learn about revaluation of the assets and liabilities
• Understand about sharing the profit and losses.
Retirement of a Partners
Every partners has to right to retire from the firm as and when he
desires. He has to give suitable notice of this purpose. The issues that rise at the
time of retirement of a particulars are almost the same in comparison with the
admission of a partners viz.
(1) Ascertaining the good will amount.
(2) Calculations of the new profit sharing ratio of remaining partners.
(3) Revaluations of Assets and Liabilities of a firm and distribution of
revaluation of profit / loss among the partners.
(4) Distribution of accumulated / undistributed profits/ reserve among
the partners .
Paper - II Accountancy - II 183
change in their profit sharing ratio and hence no fresh calculations is required.
However , if the partner desire that these should be a charge in their profit
sharing ratio their agreement forms the basis for their new profit sharing ratio.
Ion such case also calculations of fresh profit sharing ratio Is not required to be
made.
3. Revaluation of Assets and Liabilities : The retiring partner should
be allowed his share of profit arising out of the adjusted values of assets liabilities.
Similarly he should be held responsible to share the loss if any arising out of the
decrease in the value of assets or increase in the liabilities which did not find a
place in the books of accounts earlier. There for all the necessary adjustment in
the value of asset and liabilities should be made through evaluations account.
The resultant profit and loss should be distributed among the partner (including
the retirement partner) and transferred to their respective capital account . The
procedure required to be adopted is similar to that which was discussed in
detail at the time of admission of a partner.
4. Accumulated Profit/Reserves : The retiring has to right to share
the undistributed and accumulated profits and reserved (general serves only)
maintained till the date of his retirement . Hence such amounts should be
distributed his share in these amounts should be transferred to his capital account.
The procedure is already explained while dealing with a admission of a partner.
5. Adjustment of Capital Balances : If the partner agree that their
capital amounts should be in the same ratio, the difference between the required
amounts and actual amount should be transferred to the current account of the
partner concerned . In such cases, each partner will have two accounts viz.
Capital account and current account in the books of the firm sometimes the
difference can be settled in the form of cash, either by taking away or bringing in
which will affected cash a/c.
Profit Sharing Ratio
On the retirement or death of a partner, it is necessary to know what is
the new ratio in which the remaining partners are going to continue to share their
future profit / loss. The new ratio can be calculated and follows:
Case 1 . When no new profit sharing ratio is specified in the
problem :
In such a case it is presumed that the remaining partners are going to
continue with the same old ratio of their, striking off the retiring partner’s share.
For example A,B, and C are partners sharing profits and losses in the ratio of
3:2:1 and B retires from the firm , then the new ratio of A& C will be 3:1, i.e. ¾
Paper - II Accountancy - II 185
: ¼ after striking off of B’s share. Remember it was 3:2:1 . Now it is only 3:1 and
hence ¾ : ¼. It means the total profit is made into 4 parts of which A gets 3
parts and C gets one parts.
Illustration 1 :
Keshav, Govind and Madhav are three partners and Losses in the ratio
of ½ : 2/5 : 1/10 .Keshav retires from the firm. Find the new profit sharing ratio
of remaining partners.
Solutions : Simply the ratio by taking the common denominator
i.e. ½ : 2/5 : 1/10 can be expressed as 5/10 : 4/10 ; 1/10 i.e. 5:4:1.
Now strike off Keshav’s share and what remains is 4:1 which is the
new ratio of Govind and Madhav i.e. 4/5 : 1/5.
Similarly if Govind is retiring, the new of Keshav and Madhav is 5:1,
1.e, /6 and 1/6 .
5
If Madhav is retiring , then the new ratio of Keshav and Govind would
be 5 : 4 i.e. 5/9 : 4/9.
Case (2) : The share of retiring partner may be purchased by the new
partner. In such a case, the remaining partners will be getting their old share of
profit plus what is purchased from the retiring partners share . It shall be made
clear from the following illustration.
Illustration 2 :
A ,B, and C partners sharing profits and losses in the ratio of 1/5 : 1/3 :
7
/15 respectively. C retires and his share is purchased by A & B in the ratio of
3:2. Calculate the new profit sharing ratio of A & B.
A gets 3/5th of C’s share = 7/15 x 3/5 = 21/75
B gets 2/5th of C’s share = 7/15 x 2/5 = 14/75
Hence A’s new share will be his old share + the portion of C’s share.
i.e.. A’s new share = 1/5 + 21/75 = 15+ 21/75 = 36/75
B’s new share = 1/3 + 14/75 = 25+14/75 = 39/75
Hence the new ratio of A,B = 36 : 39 = 12:13
Gaining Ratio :
When a partner retries, his share Will be adjusted among the other
partner Who continue the business. That means, there is an increased in the
186 Office Assistantship
share of remaining partners. The remaining partners are going to gain on the
retirement of any partner.
The amount which they get extra on the retirement of one partner, in
addition to their old share is known as the gain. The ratio of increase between
the remaining partner is known as gaining ratio.
Gaining ratio = New Ratio – Old ratio.
21
I n the previous example of A ,B and C, A was gaining /75 and B was
14
gaining /75. Hence, the gaining ratio of A,B = 21 : 14 = 3 : 2 .
The gaining ratio can be calculated as under .
Case (1) : When no new ratio is specified.
In such a case, it is understood that the remaining partners are going to
continue with their old share itself, which means that they are to share the retiring
partners share also in the old ratio. Hence, the new ratio of the gaining ratio of
the remaining partners would be the same. It shall be clear from the following
example.
Illustration 3 :
X ,Y and Z share profit of the ratio of 6 : 7 : 8. Y retires calculate the
gaining ratio of X and Z.
Solution : In this problem, the new ratio is not mentioned. Hence the
new ratio of X and Z will be 6 : 8 which remaining after striking off Y ’s share.
We known the gaining ratio = New ratio – Old ratio.
X’s gaining ratio = 6/14 – 6/21 = 18 – 12/42 = 6/42
Z’s gaining ratio = 8/14 – 8/21 = 24-16/42 = 8/42
Gaining ratio of X,Z = 6:8 which is equal to new ratio which is also 6:8.
It is clear from the above illustration that, if the new ratio or the gaining
ratio is not mentioned in the problem, the remaining partners gain in the same
ratio as their new profit sharing ratio.
Case 2 : When the new profit sharing ratio is specified in the
problem.
In such a case , gaining ratio can be calculated by deducting the old
ratio from the new ratio i.e., gaining Ratio = New ratio – old ratio.
Paper - II Accountancy - II 187
Illustration 4:
X,Y & Z are partners with 6 : 7 : 8 ratio Y retires from the firm. X and
Z share the profit in the ratio of 10 : 11. Calculated the gaining ratio and X and Z.
Solution : In this problem the new ratio of X and Z is mentioned. Hence,
gaining ratio = New ratio – Old Ratio.
X’s gaining ratio = 10/12 – 6/21 =10-6/21 = 4/21.
Y’s gaining ratio = 11/21-8/21=3/21
Gaining ratio f X,Z = 4:3
Surrendered by Y is shared by X and Z as 4 to X and 3 to Z.
Journal Entries at the time of retirement
Journal Entries , certain and Accounts in the ledger – At a glance
(1) For any increase in the value of any Asset on revaluation.
Asset A/c………… Dr.
To Revaluation A/c
(2) For any decrease in the value of any asset
Revaluations A/c……. Dr
To Assets A/c
(3) For any increase in the value of Liabilities.
Revaluation A/c……….. Dr
To Liabilities A/c
(4) For any decrease in the value of any liabilities
Liabilities A/c……… Dr
To Revaluation A/c
(5) Balance in Revaluation A/c
(a) In case of profit
(Excess of credit over debit )
Revaluation A/c….. Dr
To All Partners capital A/c
188 Office Assistantship
On the above date ‘A’ decided to retire from the firm on the following
terms.
(c) Furniture ,Plant, & Machinery and stock are to be reduced by 10%.
(e) The amount payable to ‘A’s retirement and Balance Sheet of the
new firm. Also journalize the transactions.
Revaluation Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To Furniture A/c 120 By Leasehold land A/c 6,000
To Plant & Machinery A/c 880 By Building & Premises A/c 6,000
To Stock A/c 100
To P.B.D.D A/c 80
To Capital A/cs
A = 4,328
B = 3,246
C = 2,164
D = 1,082 10,820
(Profit on revaluation 12,000 12,000
transferred to partners)
190 Office Assistantship
18,328 18,328
14,246 14,246
By Balance b/d 14,246
C’s Capital Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs.(A) Rs.(A)
To Balance c/d 13,164 By Balance b/d 9,000
By Goodwill 2,000
By Revaluation a/c 2,164
13,164 13,164
By Balance b/d 13,164
Paper - II Accountancy - II 191
7,082 7,082
By Balance b/d 7,082
Balance Sheet of B,C and D as on 1-1-2013
Liabilities Amount Assets Amount
Rs.(A) Rs.(A)
Sundry Creditors 10,000 Lease hold land 30,000
Bills payable 8,000 +Appreciation 6,000 36,000
Bank Loan 12,000 Bldgs & Pre. 20,000
Capital Accounts + Appreciation 6,000 26,000
B 14,246 Furniture 1,200
C 13,164 - Dep 120 1,080
D 7,082 34,492 P & Machinery 8,800
A’s Loan A/c 18,328 -Dep 880 7,920
Stock 1,000
-Dep 100 900
Sundry Debtors 800
-P.B.D.D 80 720
Cash & Bank 200
Goodwill 10,000
82,820 82,820
192 Office Assistantship
Illustration
A, B and C were carrying on business in partnership sharing profits and
losses in the ratio of 3:2:1. On 31st December 2012, Balance sheet of the firm
stood as follows.
Balance Sheet
Exercises
1) X,Y,Z were partners sharing profits in the ratio of ½,1/6,1/3/ Their
Balance Sheet on 31-12-2012 was as follows.
1,58,000 1,58,000
On the above date, Mounica decided to retire from the firm on the
following conditions.
7,90,000 7,90,000
On above date Madhavi , decided to retire from the firm on the following
conditions
(a) Goodwill of the firm to be valued at A 1,20,000.
(b) Depreciate stock and Machinery by 10 %.
c. Buildings to be appreciated up to A 2,80,000.
d. Provide 5% on debtors towards reserve for doubtful debts.
Pass journal entries, ledger accounts and new balance sheets of the
firm as on 1.4.2012.
(Balance sheet Total A 9,20,500, Revaluations profit A 10,500).
UNIT 5
Hire Purchase and
Installment Purchase System
Learning Objectives
After studying this unit, the student will be able to
• Understand the concept of hirepurchase
• Understand about characteristics features of hirepurchase
• Difference between hire purchase and installment purchase
• Understand about defaulters and repossession of assets
Hire Purchase and Installment Purchase System
According to section 2(c) of the Hire Purchase act, 1972 “Hire
Purchase” agreement means an agreement under which goods are let on hire
and under which the hirer has an option to purchase them in accordance with
the terms of agreement and include an agreement under which (i) possession of
good is delivered by the owner thereof to a person on condition that such
persons pays the agreed amount, in periodical installment, (ii) the property in
the goods is to pass to such a person on the payment of the last installment and
(iii) such person has a right to terminate the agreement any time before the
property so passes”.
Features of Hire Purchase Agreement
1. Hire purchaser obtain only possession of the goods.
2. Ownership of the goods remains with the hire vendor while signing
the agreement.
200 Office Assistantship
5. The relation between hire 5. The relation between the buyer and
purchaser and hire vendor is that seller is that of debtor and creditor
of a bailee and a bailor. till last instalment is paid.
6. The buyer cannot hire out, sell 6. The buyer can hire out, sell, transfer,
transfer, pledge, destroy the pledge the goods.
goods.
7. The buyer may return goods 7. Unless there is default on the part
without further payment, except of the seller, goods cannot be
for instalments already due. returned.
8. If the buyer fails to pay any 8. The seller cannot repossess teh
instalment, the goods can be goods. He can sue the buyer for
repossessed by the seller. the amount due.
9. In case of default, the total 9. In case of default, total amount of
instalments paid is forfeited and instalment paid by the buyer cannot
treated as hire charges. be forfeited
Calculation of Interest
1. When rate of Interest, Cash price and Hire Purchase Price are given
When cash price, rate of interest etc are given interest is calculated on
the total cash price remaining unpaid at the time of paying the installment. While
calculating interest for the last installment, the difference between the installment
payable and the unpaid cash price is taken to be the interest, interest on unpaid
price it not to be calculated. The calculations are explained with the help of an
example.
Example :
Cash price A 17,430. Rate of interest 10%
Down payment A 5,000. Three annual installment of A 5,000 each.
Solution
Note : Interest at 10% on 4,540 amounts to A 454 where as the
interest taken is A 460. The difference is because the installments are rounded
off.
Paper - II Accountancy and Tally - II 203
Less cash price R 30,000 total interest for three years R 6,000. This is
to be divided in the ratio of amount outstanding before paying each installment.
Amount outstanding before paying first installment R 30,000
Amount outstanding before paying second installment R 20,000
Amount outstanding before paying third installment R 10,000
30,000 : 20,000 : 10,000. i:e. 3 : 2 : 1
3
Interest for first year /6 x 6,000 = R 3000
Interest for second year 2/6 x 6000 = R 2000
1
Interest for third year /6 x 6000 = R 1000
3. When cash price is not given : (Back calculation method)
In some cases, cash price is not given. Since the asset purchased cannot
be capitalized at hire purchase price (or installment purchase price). It is necessary
to start with the last installment and deduct interest from it. Interest is calculated
as follows.
Rate of interest
x Amount due
100 + Rate of interest.
Suppose the rate of interest is 10% and A has to pay. R 100, then he
will pay R 10 towards interest , and R 100 towards principal amount, then the
amount due before paying the installment is R 110. Every installment paid includes
interest, hence from the installment paid interest should be deducted. To this last
but one installment should be added and again interest (calculated as per the
formula given above) deducted. This process should be continued till the first
installment. Then Down payment should be added. This will give cash price.
While calculating interest, it should be noted that the amount on which interest is
calculated goes on increasing from third year to second year from second year
of first year, the calculations are made from last year to first year, this methods is
also called ‘ Back calculation methods’.
Example
Rate of interest = 10%. Down payment R 5000. Balance in Four annual
installment of R 10,000 each. Calculate the cash price and interest included in
each installment.
Paper - II Accountancy and Tally - II 205
Solution
Note : While providing depreciation total cash price of the asset and
not the debit balance of the asset account should be taken into consideration.
(iv) When interest and depreciation are closed by transfer to profit and
loss account.
Profit and Loss Account Dr.
To Depreciation A/c
To Interest A/c
Second method
At the time of making down payment
To Interest A/c
To Depreciation A/c
Journal entries in the books of vendor
At the time of signing the contract
\ (i) For sale of goods on hire
purchase
Hire Purchaser’s A/c Dr. (With total cash price of the goods
sold)
To Sales A/c
(ii) For cash received on delivery
Bank Account Dr. (With initial payment)
To Hire purchase A/c
(iii) At the end of the first year
and all subsequent years
Hire Purchase’s A/c Dr. (With interest due)
To Interest A/c
(iv) For receiving the Instalment
Bank Account Dr. (With the instalment received)
To Hire Purchaser’s A/c
(v) For transfer of interest to P&L
account
Interest A/c Dr.
To P&L A/c
Paper - II Accountancy and Tally - II 209
Illustration
Salman purchased a van on Ist January, 2008 the cash price being
A 1,12,000. The purchase is on hire purchase basis, A 30,000 being paid on
signing the agreement and there after A 30,000 being paid annually for 3 years.
Interest was charged at 5% p.a. Depreciation was written off at the rate of
20% p.a. on the reducing installment system. Give necessary ledger account in
the books of Salman.
212 Office Assistantship
Illustration 2
A Ltd purchased on Ist Jan, 2008 from B Ltd a machine on installment
purchase system whose cash price was Rs. 74,500. Payment was to be made
in four installment of Rs.20,000 each, the first payment to be made immediately
and the other three at the end of 2008, 2009 & 2010. Interest was taken to be
5% p.a. depreciation is 10% p.a. on the diminishing value. Give ledger account
in the books of A ltd.
Solution
74,500 74,500
Paper - II Accountancy and Tally - II 215
2009 2009
Jan 1 To Balance b/d 67,050 Dec 31 By Dep. A/c 6,705
67,050 67,050
2010 2010
Jan 1 To Balance b/d 60,345 Dec 31 By Dep. A/c 6,0355
60,345 60,345
2011
Jan 1 To Balance b/d 54,310
5,500 5,500
2009 2009
Jan 1 To Balance b/d 2,775 Dec 31 By Interest A/c 1,861
,,
By Balance c/d 914
2,775 2,775
216 Office Assistantship
2010 2009
Jan 1 To Balance b/d 914 Dec 31 By Interest A/c 914
914 914
B Ltd Account
2008 2008
Jan 1 To Bank 20,000 Jan 1 By Machine A/c 74,500
Dec 31 To Bank 20,000 ,, By Interest
5,500
Dec 31 To Balance c/d
Suspense A/c
40,000
80,000 80,000
2009 2008
Dec 31 To Bank 20,000 Jan 1 By Balance b/d 40,000
Dec 31 To Balance c/d 20,000 ,,
40,000 40,000
2010 2010
Dec 31 To Bank 20,000 Jan 1 By Balance b/d 20,000
20,000 20,000
Paper - II Accountancy and Tally - II 217
Interest Account
2008 2008
Dec 31 To Interest 2,725 Dec 31 By P&L A/c 2,725
Suspense A/c.
2,725 2,725
2009 2008
Dec 31 To Interest 1,861 Dec 31 By P&L A/c 1,861
Suspense A/c.
1,861 1,861
2010 2010
Dec 31 To Interest 914 Dec 31 By P&L A/c 914
Suspense A/c.
1,861 914
Illustration 3
A purchased an Asset from B for A 60,000. Payment to be made
A 20,000 down and three installment of A 15,000 each at end of each year .
Rate of interest charged is 5% p.a. Buyer depreciates asset at 10% p.a. on
written down value method.
Because of financial difficulties, A, after having paid down payment and
first installment till the end of first year, could not pay second installment and
seller took possession of the truck. Seller after spending A 500 on repairs of the
asset, sold it away for A 32,000. Show ledger account in the books of both
parties.
218 Office Assistantship
60,000 60,000
2nd 2nd
Year To Balance b/d 54,000 Year By Dep. A/c 5,400
By B A/c 28,350
By P & L A/c 20,250
54,000 54,000
62,000 62,000
2nd 2nd
Year To Asset A/c 28,350 Year By Balance b/d 27,000
By Interest 1,350
28,350 28,350
Paper - II Accountancy and Tally - II 219
62,000 62,000
2nd 2nd
Year To Balance b/d 27,000 Year By Goods 28,350
repossessed A/c
To Interest 1,350
28,350 28,350
Dr. Cr.
Problems
1. The Hyderabad Transport company purchased motor car from the
Tata motor co. on hire purchase agreement on 1st January 2008 paying cash A
10,000 as down payment and agreeing to pay further three installment of A
10,000 each on 31st December each year. The cash price of the car is A37,250
and the Tata Motor Company charges interest at 5 percent p.a. the Hyderabad
Transport Company writes off 10 percent p.a. as depreciation on the reducing
installment system. Journalize these transaction in the books of both the parties.
(Interest 2008, A 1,363; 2009 A 931 & 2010 A 456)
2. On 1st January 2005 Messrs. Ram & CO. took from Auto car Ltd.
Delivery of a Motor Van on hire purchase system. A 2,000 being paid on delivery
and the balance in five installment of A 3,000 each payable annual on
31st December. The vendor company charges 5 percent p.a. interest on yearly
balances. The cash down value of the van is A 15,000. Show the necessary
ledger account in the books of Ram & Co. the company provides 10% p.a.
depreciation according to reducing Installment system.
(Ans. Interest 1st year, A 650, Second year A 533, 3rd year
A 409, 4th year A 280 and 5th year A128)
4. A company purchased a motor cycle on hire purchase system on
1st January 2008. The first installment of A 6,000 was paid immediately and the
balance by four equal installment of A 6,000 was each to be paid on the last
date of each year. The vendor charged 5% per annum interest on the unpaid
balance. The cash price of the press on delivery was A 27,300. Depreciation
is to charged at 10% on the diminishing balance of the asset.
Draw up Vendor’s Account, Motor cycle account , interest account
and depreciation account in the books of the buyer.
(Ans. Interest A 1,065, A 818, A 559 and A 258)
5. Ashaaz Purchased a machine on hire purchase system , the cash
price of which was A 14,6000. A 11,400 were paid at the time of contract on
1st July 2000 and the balance was to paid by half-yearly installment of A 800
plus interest at 5 percent p.a. Depreciation charged by Ashaaz is 10 percent
p.a. on diminishing balance method. Accounts are closed on 30th June. Prepare
machinery account, hire vendor account , interest account and depreciation
account in Ashaaz’s Ledgers.
(Ans. Interest A 80, A 60, A 40 and A 20)
224 Office Assistantship
of sharing in the surplus after paying specified dividend to equity share holders,
unless other wise stated in the Articles Preference Shares are seemed to be
non-participating.
3. Convertible and Non Convertible preference shares : A
convertible preference share is one which can be converted into equity shares.
When it cannot be converted, it is called non-convertible preference shares.
4. Redeemable preference shares : Redeemable preference share
are those which are redeemable within a stipulated period in accordance with
the terms of issue. After amendment made in 1988 such shares must be redeemed
within a period of ten years.
5. Equity Shares : An equity shares is a share which is not a preference
share. Equity shareholders do not have any right to get fixed rate of dividend.
Rate of dividend may vary from year to year. Equity share holder will get dividend
and repayment of capital after meeting the claims of preference share holders.
Distinction between Preference Shares and Equity Shares
1. Preference Dividend is paid before 1.Equity share holders will get
paying any dividend on equity shares. dividend only after paying dividend
to preference share holders.
2. At the time of liquidation after payment 2. Equity shares are repaid after full
of creditors, preference shares are repayment is made on preference
redeemed before equity shares. shares.
3. The rate of dividend is fixed. 3. Rate of dividend is not fixed, it
may vary from year to year.
4. In case of preference shares (cumulaive 4. There is no questions of
preference shares) arrears of dividends accumulation of arreas of dividend.
will accumulate.
5. Preference shares (conventible pref. 5. Equity shares cannot be
shares) can be converted into equity converted into preference shares.
shares.
6. Preference shareholders donot have 6.Equity shareolders have voting
voting rights unless their rights are affected. right.
7. Redeemable preference share are 7. There is no provision for
redeemable according to the provision of redemption of equity shares.
Sec 80A of the Companies Act.
Paper - II Accountancy - II 229
Classes of Shares
Uses of companies Act, 1956, a public company can issue only two
classes of shares namely preference shares and equity shares. Preference shares
have preference over equity shares for
(i) Payment of dividends and
(ii) Repayment of capital in the event of windings up.
Equity shares do not have any preference for payment of dividend or
repayment of capital. Their clamps arise only after satisfying the claims of
preference shares.
Presentation of information relating to share capital in the
Balance sheet of a company.
The prescribed form of the balance sheet of company given in schedule
IV of the companies act 1946, requires the description of share capital under
followings categories.
1. Authorized or Nominal or Registered Capital : It refers to that
amount which is stated in the memorandum of association as the share capital
or the company. This is the maximum limit of capital which the company is
authorized to issue and beyond which the company cannot issue shares unless
the capital clause in the memorandum is altered.
2. Issued Capital : It refers to that part of the authorized capital of the
company which has actually been offered to the public for subscription.
3. Subscribed Capital : It refers to that part of that issued capital
which has actually has been subscribed by the public and subsequently allotted
to them by the directors of the company.
4. Called up Capital : It refers to that part of the subscribed capital
which has been called up by the company for payment.
5. Paid Up Capital : That part of the called-up capital which is actually
paid by the share holders is known as paid-up- capital. The sum which is still to
be paid Is known as Calls in Arrears.
230 Office Assistantship
Similarly entries are made for second and final calls. Each time entries
are made first for the amount due and then for the amount received.
Note : If cash book entries are asked for 1, 4 and 6 entries should be
shown only in cash book and not in the journal.
Adjustment of excess application money
If the number of shares applied for is more than the number of shares
issues, the shares are said to be oversubscribed . If the applications are rejected
the application money be refused . The entry is
Paper - II Accountancy - II 231
When the shares are allotted on prorata basis (i.e. less shares are allotted
to the person applying for more shares rateably) then excess application money
may be adjusted towards allotment and other calls. For utilization of application
money towards allotment.
To Share Premium
Account (if any)
(b) To promoters for the services rendered by them.
Goodwill A/c Dr (With the nominal value of
share allotted).
To Share Capital A/c..
Illustration : 1
Base Informatics Ltd. offered 1,00,000 Equity shares of the nominal
value of A 10 each. The amount payable on the shares were on application
A 4.00, On allotment A 3.00, on first and final call A 3.00.
The actual subscription was only for A 90,000 shares. All money payable
by share holders were received except form Sudhakar who has taken 1,000
shares but failed to pay the final call. His shares were forfeited and reissued to
Prabhakar at A 6.00 each.
Show journal entries in the books of the Company in respect of the
above (including cash transaction).
Journal Entries in the books of Base Informatics Ltd.
Debit Credit
S.no. Particulars L.F. Amount Amount
Rs. Rs.
Exercises
1. PQR limited issued 10,000 shares of A 10 each payable A 2 on
application A 5 on allotment and the remaining balance on call. Applications
were received for 9,000 shares and the shares were duly allotted. All cash due
236 Office Assistantship
on allotment and call was received .Write the journal entries in the books of
company and prepared cash book.
2. On 1st January 2012 the Directors of Wipro Limited has issued
1,00,000 shares at A 10 per share. The share amount payable is as follows
A 2.50 on application ,A 3.00 on allotment , Rs. 2.50 on first call and balance on
final call. Applications were received for 1,20,000 shares/ The directors of the
company decided to reject the applications for 20,000 shares and to return the
money . The allotment money for 90,000 shares is received .No calls were
made. Write journal entries.
3. Reliance limited invite applications for 60,000 shares at A 100 each
at premium of A 10 per share. The share were payable as follows, on application
A 30, on allotment A 60 including premium, on call A 20. Application were
received for 50,000 shares. Allotment money was received for 38,000 shares.
No calls were made till to date. Write journal entries.
4. A company has issued 80,000 shares A 100 each at premium of
A 20. The authorized capital of this company consist of 1, 00,000 shares of
A 100 each. Applications were received for 60,000 shares and fully paid. Show
how the share capital would be shown in the balance sheet.
5. Base Informatics Limited issued 4,00,000 shares of A 10 each at a
premium of A 2 . All amounts should be paid on application 3,00,000 applications
were received and fully allotted. Journalize the above transactions.
6. XYZ was holding 100 shares A 100 each, A 80 per share called up.
He paid A 30 on application but failed to pay A 20 on allotment and A 30 on
first call. His shares were forfeited. Journalize the above transaction for forfeiture.
7. In accordance with the provisions of the articles of association the
director forfeited 500 ordinary shares of A 20 each on which only A10 per
share was received though fully called, and reissued them upon the payment
of the amount in areas together with a premium of A 2 per share. Journalize the
above transaction.
Problems
1. India Limited was registered with an authorized capital of A 5,00,00
divided into 50,000 shares of A 10 each. It issued 40,000 shares payable as
under.
On application A 2 on first call A 3 .
On Allotment A 3 on final call A 2.
Paper - II Accountancy - II 237
The public applied for 30,000 shares. These were allotted . All the
money due on allotment and call was received except the first call on 1,000
shares on final call on 1,500 shares. Pass journal entries and prepare the opening
balancing sheet.
(Ans. Balance Sheet Total A 2,94,000)
2. Mahesh Company Limited, Issued 5,000 shares of A 100 each The
shares were payable as under.
(Rs) A
On Application 25
On Allotment 20
On First call 30
On Final Call 25
The public applied for 3,000 shares. The directors did not make the
final calls. All money called on shares were received except first call money on
200 shares.
Pass journal entries and prepared the opening balance sheet of the
company.
3. A limited company was formed on January 1, 2012 with an authorized
capital A 3,00,000 divided into 1,000 shares of A 100 each.
On the same date, the company issued a prospectus asking for
subscriptions to 900 shares payable A 25 per share on applications A 40 on
allotment and the remainder on a call.
All share were applied for and allotted and the call cash due on allotment
and call was received.
Give the entries necessary to record the above in the books of the
company and show how share capital will appear in the balance sheet.
(Ans. Balance sheet total A 90,000)
4. ABC Company LTD, Issued 10,000 shares of A 100 each payable
as under
A 30 on application
A 20 on Allotment
238 Office Assistantship
A 20 on First Call
A 30 on Final call
The public applied for 15.000 shares. The allotment was made as under
To the applicants of 8,000 shares - Full
To the applicants of 5,000 shares - 2,000
Subsequently the first final calls were made. Under the terms of issue
surplus application money could be kept against allotment and subsequent calls.
All amount due on calls was received, give journal entries and prepare the opening
balance sheet of the company .
(Ans. Balance Sheet Total A 10,00,000)
5. Base Informatics Limited issued 5,000 equity share of A 10 each at
premium of A 2 per share payable A 2 on application A 5 on allotment (including
premium) A 3 on first call and balance on final call. The shares were all subscribed
and amount received on calls except the first call on 1,000 shares and final calls
on 1,500 shares. Give cash book and journal entries for the above transaction,
also prepare its opening balance sheet.
(Ans. Balance Sheet total A 54,000)
6. Monica Ltd., invite applications for 20,000 shares of A 100 each at
a premium of A 10 per share. The share were payable as follows
On application A 20
On Allotment A 40 (including premium)
On First Call A 30
On Final Call A 20
The public applied for 40,000 shares. Allotment made were as follows
To the application of 16,000 shares – Full
To the application of 16,000 shares – 4000 shares.
To the applications of 8,000 shares - Nil
The Company was authorized to retains all sums over paid for adjustment
against money due to allotment and on calls. The company exercised this power.
The directors made the allotment on 1st April 2011 on first call on 1st July 2012.
By the end of 2012 no further call had been made . All money the due to
Paper - II Accountancy - II 239
allotment were collected and against first call director had received A 5,00,000.
Give journal entries and the balance sheet of the company on 31st December
2012 assuming the directors he paid interest due to share holders in cash at the
rate of 6 percent per annum.
(Balance Sheet total A17,80,000)
7. X ltd issued 25,000 equity shares of 10 each at a discount of 10
percent payable as follows
On Application A 2.00
On Allotment A 2.00
On First Call A 2.50
On Final Call A 2.50
Application were received for 20,000 shares and all of these were
accepted. All money due was received except the final call on 1,000 shares.
Pass necessary journal entries and show how these transactions would appear
in Balance sheet of the company.
(Ans. Balance Sheet total A 1,97,500)
8. Chaya Ltd issued 2,000 Equity shares of A 100 each payable as
follows, A 20 on application A 30 on allotment A 20 on first call money and 30
on the final call were received with the exception of first and final calls on 50
shares. These shares were forfeited and reissued at later date at the rate of A 70
per share. Give journal to record the above transaction and prepare balance
sheet of the company.
(Ans. Balance Sheet A 1,51,000)
240 Office Assistantship
UNIT 7
Company Accounts - II
Learning Objectives
After studying this unit, the student will be able to
• Understand about the gross profit
• Understand about the net profit
• Learn about distribution of profit to the share holders
• Learn how to transfer net profit to reserves
Trading account shows the Gross Profit or the Gross Loss of the business.
Gross profit or Gross loss is the difference between the cost of the goods and
its sale proceeds, plus the value of closing or the unsold stock. Here the cost of
the goods included all direct expenses, connected with the purchase or the
manufacture of the goods.
Trading account is prepared just like any other account. It is debited with
items with the cost of the goods and credited with the sale proceed and the
value of the closing stock.
Items to be written on the debit side of the Trading Account
1. Opening Stock
This is the value of the balance of goods brought, from the previous year,
into the current year.
Paper - II Accountancy - II 241
2. Purchases
This is the value of the goods purchased in the current year.
3. Purchases Return
This is the value of the goods returned to the sellers. Purchases return
reduce the value of goods purchased. So it is deducted from the purchases.
4. Carriage or Freight Inward
This includes all charges of bringing purchased goods to the business place.
They are transport charges and also loading and unloading charges. If in any
trial balance only carriage or freight is given then it should be treated as carriage
inward only.
5. Import Duty and Excise Duty
Import duty increases the cost of the goods imported, and excise duty
increases the cost of the goods manufactured.
6. Marine and Factory Insurance
Marine Insurance is for the safety of the goods imported and factory
insurance is for the safety of the goods manufactured. These are also add to the
cost of the goods.
7. Clearing Charges
Goods, which come by ship or railway require complicated procedure,
before it is delivered to its owner. The expenses incurred to complete this
procedure are called, clearing charges. These are also a part of the cost of the
goods.
8. Factory Rent & Lighting
These are direct expenses for the manufacture of the goods. So they are
also added to the cost of the goods.
9. Fuel and Power
These are the expenses incurred to move machines for production. So
these expenses are also debited in the trading account, as cost of the goods.
10. Manufacturing Wages
Manufacturing wages or simply wages are paid for the production of the
goods. This is a part of the cost of the good manufactured. If in a trial balance
productive wages are separately given, then only the productive wages should
242 Office Assistantship
Apart from the above mentioned expenses all other expenses which are
considered as the direct cost of the goods, either purchased or manufactured
are debited into the trading account.
1. Sales
It represents the amount realised or the sale proceeds from the sale of the
goods, during the year.
2. Sales Return
It represents the value of the goods returned by our customers. Sales return
reduce the actual sales. So it is deducted from the sales.
3. Closing Stock
It is the value of the unsold goods at the end of the trading period. It is
credited into the trading account. Closing stock usually does not appear in the
trial balance. At the end of the trading period the unsold stock or closing stock
is valued. It is called “Stock taking”. Closing stock is valued at the cost price or
the market price, whichever is lower. It should not be valued at the selling price.
It should be noted that the closing stock of the current year, will be the opening
stock for the next year.
After debiting and crediting various items, the trading account is balanced
as any other account. Credit balance in the trading account shows the Gross
profit and debit balance the Gross loss. The Gross profit or the Gross loss of
the trading account is transferred to profit and loss account, to find the Net
Profit or Net Loss of the business. This will close the trading account.
Paper - II Accountancy - II 243
Particulars R R Particulars R R
To Factory Expenses xx
To Gross Profit C/d xx
xxx xxx
Dr. Profit & Loss Account of .......... for the year ending ............... Cr
Particulars Rs. Particulars Rs.
To Gross Loss b/d xxx By Gross Profit b/d xxx
To Salaries & Wages xxx By Discount Received xxx
To Rent, Rates and Taxes xxx By Commission earned xxx
To Fire Insurance Premium xxx By Rent Earned
xxx
To Repairs and Maintenance xxx
By Interest earned xxx
To Depreciation on Assets xxx
By Profit on sale of fxed assets xxx
To Audit Fees xxx
By income from investments xxx
To Bank Charges xxx
By Net loss (transfer to capital) xxx
To Legal Charges xxx
To Discount allowed xxx
To Interest paid xxx
To Carriage outward xxx
To Freight outward xxx
To Commission to salesman xxx
To Travelling Expenses xxx
To Entertainment Expenses xxx
To Reserve for Bad debts xxx
To Advertising and Publicity xxx
To Bad debts xxx
To Loss on goods destroyed xxx
To Interest in Capital xxx
To Interest on Loan xxx
To loss on sale of Fixed Assets xxx
To Net Profit (transfer to capital)xxx
xxx xxx
Paper - II Accountancy - II 245
In case of company it is not necessary to split the profit and loss account
into three sections (i.e. Trading Account, profit and loss account and profit and
loss appropriation account) . Only profit and loss account may be prepared
which may cover items appearing in Trading Account and profit and loss
appropriation account. It is desirable to split the profit and loss account into
three sections so that Gross Profit, Net Profit and Net Profit carried to the
balance sheet may be ascertained. Profit and loss appropriation section of the
profit and loss account shows the appropriation of profit and is popularly
known as ‘Below the line’. It is prepared as follows.
Profit and Loss Appropriation Account
Dr. Cr.
To Transfer to Reserves xxx By Last year’s Balance xxx
To Dividends Paid xxx By Current Year’s Net Profit xxx
(Transferred from profit and
(interim or Final)
loss A/c)
To Dividends proposed xxx
By Excess provisions xxx
To Surplus Carried to xxx (which are no longer required)
Balance sheet
By Reserves withdrawn xxx
(if any)
xxx xxx
5. Dividends
Dividends paid, interim dividends paid. Final dividends paid, given in
trial balance will appear only in profit and loss appropriation account. Students
should not get confused between dividends paid and unclaimed dividends.
Dividends paid will appear in profit and loss appropriation account. Whereas
unclaimed dividends will appear in balance sheet under Current Liabilities.
Proposed dividends given in adjustments will appear in profit and loss
appropriation account debit side and again in Balance sheet on the liabilities
side.
Dividends on equity shares cannot be paid unless preference dividends
is paid in full. Dividends should be always calculated on the paid-up capital of
the company.
6. Transfer to Reserve Fund
If any amount is given in adjustment as to be transferred to Reserve
Fund, dividend equalization fund, Sinking Fund etc., then first it is to be taken
in profit and loss appropriation account debit side and then added to the
concerned fund reserve account in balance sheet on the liabilities side.
Other points to be noted while preparing final accounts.
1. Interest of Sinking Funds Investments should be credited to profit
and loss account (and only directly fund). Then the amount should be debited
to appropriation and credited to Sinking fund account together with the annual
installments.
2. In case of fixed asset , original cost, addition made during the year
cost of the asset sold during year and depreciation written off against the asset
should be shown clearly in Balance Sheet.
3. In case of investment stock, stock loose tools mode of valuation
(cost or market price) is to be shown.
4. In case of sundry debtors and loans and advances, amounts
outstanding for more than six months must be shown separately. The amounts
which are secured and unsecured and which are doubtful and amounts due from
director should be shown.
5. In case of share capital information has to be given regarding different
classes of shares, right of redemption if any, shares issued for consideration
other than cash and shares issued as bonus shares and the source from which
these have been issued.
248 Office Assistantship
Illustration 1 :
From the under mentioned Trial Balance of Kranthi Ltd. Prepare Trading
and Profit and Loss Account for the year ended 31st March 2012 a at that date.
Rs.(A) Rs.(A)
Trading and P&L Account of Kranthi Ltd. for the year ended 31st March 2012
Dr. Cr.
To Op. stock 10,500 By Sales 1,35,000
To Purchases 75,000 By Closing Stock 18,000
To Wages 5,000
To Gross profit 62,500
1,53,000 1,53,000
To Salaries 3,000 By Gross profits 62,500
To Rent 1,800 By Discount 1,200
To Income Tax 12,000 By Transfer fees 150
To Insurance 90
+ Outstanding 30 120
To Dep on
P&L Mach. 3,000
To Provision D.D 563
+ Bad Debts 250 813
To Net Profit 43,117
63,850 63,850
83,117 83,117
250 Office Assistantship
Exercises
1. The following Trial Balance of Wipro Ltd was extracted from their
books on 31st December 2012
You are required to prepare the Trading and P & L appropriation account
for the year ended 31-12-2012, in doing so take the following adjustments into
account.
(a) Plant and machinery is to be depreciated by 10 percent
(b) Stock in trade on 30th June 2005 is A 28,800.
(c) Salaries due but not paid amounts to A 1,200
(d) The Provision for bad debts is to be raised to A 2,400
(e) Insurance paid in advance amounts to A 800
(f) Rates paid in advance amounts to A 1,600
(Ans. Gross Profit 1,04,000, Net Profit A 73,120, Surplus A 55,720)
Paper - II Accountancy - II 251
Rs.
Plant and Machinery ...... 3,30,000
Interim Divident paid on Aug. 1, 2012 ...... 37,500
Stock, 1st January 2012 ...... 75,000
Sundry Debtors ...... 87,000
Purchases ...... 1,85,000
Preliminary Expenses ...... 5,000
Wages ...... 84,865
General Expenses ...... 16,835
Freight and Carriage ...... 13,115
Salaries ...... 14,500
Directors Fees ...... 5,725
Bad Debts ...... 2,110
Debenture Interest Paid ...... 9,000
Subscribed and fully called-up capital ...... 4,00,000
6 % Debentures ...... 3,00,000
Profit and Loss Account (Cr. Balance) ...... 14,500
Sales ...... 4,15,000
General Reserve ...... 25,000
Bad Debts Reserve on 1st Jan 2012 ...... 3,500
Prepare Trading and P&L account and P&L appropriation A/c in proper
form after making the following adjustments. Depreciate Plant and machinery
10% , write off A 500 from preliminary expenses, provide half year debentures
interest due, leave bad and doubtful debts reserve at 5 percent on sundrydebtor.
Stock as on 31st December 2012 was A 95,000.
(Ans. Gross Profit 1,52,020, Net Profit A 60,500, Surplus A 37,500)
252 Office Assistantship
3. From the following balances prepare Trading Account and Profit &
Loss Account, Profit and Loss Appropriation A/c for the year ended 31st
March 2012.
Rs. (A)
Purchases 5,69,842
Stock on 1-4-2011 ...... 68,892
Patents ...... 1,560
Freehold Premises ...... 55,026
Productive wages ...... 25,090
Salaries ...... 22,060
Bad Debts ...... 476
Repairs to Building ...... 5,056
Interest on Bank overdraft ...... 1,260
Plant and Machinery ...... 80,140
Printing and Stationery ...... 33,400
Director’s Fees ...... 6,400
Auditor’s Fees ...... 3,000
Rates and Taxes ...... 7,576
Debtors ...... 45,000
Sundry office expenses ...... 1,052
Share capital (25000 shares of A 10) ..... 2,50,000
Unclaimed dividends ...... 1,106
Reserver for bad debts ...... 1,150
Purchase returns ...... 5,500
Sales ...... 1,91,800
Rents from property ...... 12,260
P&L Credit balance ...... 10,000
Discount received ...... 4,000
Commission received ...... 5,000
Paper - II Accountancy - II 253
UNIT 8
Company Accounts - III
Learning Objectives
After studying this unit, the student will be able to
• Understand about Share capital, Calls in arrears
• Understand about reserves and surplus
• Learn about short term and long term liabilities
• Learn about fixed assets and current assets
Definition
A financial statement that summarizes a company’s assets, liabilities
and shareholders’ equity at a specific point in time. These three balance sheet
segments give investors an idea as to what the company owns and owes, as
well as the amount invested by the shareholders.
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders’ Equity
It’s called a balance sheet because the two sides balance out. This
makes sense: a company has to pay for all the things it has (assets) by either
borrowing money (liabilities) or getting it from shareholders (shareholders’
equity).
Each of the three segments of the balance sheet will have many accounts
within it that document the value of each. Accounts such as cash, inventory and
Paper - II Accountancy - II 257
property are on the asset side of the balance sheet, while on the liability side
there are accounts such as accounts payable or long-term debt. The exact
accounts on a balance sheet will differ by company and by industry, as there is
no one set template that accurately accommodates for the differences between
different types of businesses.
(Simplified) Proforma of Balance Sheet
Liabilities (Rs.) A Assets (Rs.) A
A standard company balance sheet has three parts: assets, liabilities and
ownership equity. The main categories of assets are usually listed first, and
typically in order of liquidity. Assets are followed by the liabilities. The difference
between the assets and the liabilities is known as equity or the net assets or the
net worth or capital of the company and according to the accounting equation,
net worth must equal assets minus liabilities.
Another way to look at the same equation is that assets equals liabilities
plus owner’s equity. Looking at the equation in this way shows how assets were
financed: either by borrowing money (liability) or by using the owner’s money
(owner’s equity). Balance sheets are usually presented with assets in one section
and liabilities and net worth in the other section with the two sections “balancing.”
Paper - II Accountancy - II 259
Buildings 1,01,000
Plant and Machinery 70,400
Furniture 10,200
Motor vehicles 40,800
Cash in hand 30,000
Bills receivable 45,000
Sundry Debtors 1,14,000
Investments 8,000
Share Capital (Issued and Subscribed capital
1,50,000
15,000 shares of A10/- each fully paid up)
Pention fund 40,000
Dividend Equalization fund 20,000
Taxation provision 17,000
Unclaimed dividends 2,000
Public Deposits 3,200
Trade Creditors 1,48,000
8% Debentures 1,00000
Cash at bank 1,06,600
Adjustments :
1. The authorised capital of the company consists of 20,000 shares of
A10 each
2. Stock on March 31, 2012 A 73,200
3. Outstanding expenses : manufacturing expenses A 45,000 and salaries
A 3,000
4. Interest accrued on securities A 200.
262 Office Assistantship
5,82,760 5,82,760
Exercise No. 1
The Mahesh manufacturing company ltd. was registered with a nominal
capital of A 6,00,000 in equity shares of A 10 each. The following is the list of
balances extracted from its books on 31st December 2012.
Authorised capital
50,000 Shares at A10 each. 5,00,000
Subscribed Capital
10,000 shares at A10 each. 1,00,000
Calls in Arrears 6,400
Land 10,000
Building 25,000
Paper - II Accountancy - II 265
Adjustments :
1. Charge depreciation on Buildings at the rate of 2 1/2 %.
2. Charge depreciation on Plant and machinery at 10%
3. Charge depreciation on Furniture and fixture at 10%.
4. Provision of 5% on Sundry Debtors for bad debts
5. Carry forward Fire Insurance A 120.
6. Provide for the following outstanding liabilities
(a) Wages A 3,200
(b) Salaries A 500
(c) Rent and Taxes A 200
7. The value of stock on 30th June 2012 A 30,000
266 Office Assistantship
Exercise No. 3
Ramada Co. Ltd was registered with an authorised Capital of
A 10,00,000 divided into 10,000 ordinary shares of A 50 each and 5,000
10% preference shares of A 100 each. The following Trial balance was extracted
from the books of the company as on 31st December 2012. Prepare balance
sheet as on 31 December 2012.
Adjustments :
1. Depreciate Plant and Machinery at 10%
2. Raise bad debts Reserve at 2.5% of Sundry Debtors
3. Closing stock amounted to A 2,50,000
4. Provision for taxation A 75,000 required.
Paper - II Accountancy - II 267
Base Informatics Ltd. was registered under the companies act. The
following particulars are given, prepare a balance sheet as on 31st March 2012.
Particulars Amount in Rs. (A)
Share Capital 2,50,000
General Reserve 5,000
Land and Building 1,00,000
P & L appropriation account (Credit balance) 20,000
Plant and Machinery 50,000
Long term borrowings 1,00,000
Furniture 20,000
Long term liabilities 50,000
Goodwill 15,000
Short term borrowings 18,060
Non current assets 14,000
Trade payable 30,900
Long term loans and advances 45,000
Other current liabilities 39,800
Short term provisions 1,240
Premises 10,000
Current investments 58,000
Inventories 45,000
Trade receivables 1,00,000
Cash in hand 15,000
Cash at bank 34,000
Prepaid insurance 500
Other current assets 4,000
268 Office Assistantship
Solution
Base Informatics Ltd
Balance Sheet as at 31 March, 2012
Particulars As at 31st
March, 2012
A EQUITY AND LIABILITIES
1 Shareholder’s Fund
(a) Share capital 2,50,000
(b) Reserves and surplus 25,000
(c) Money received against share Warrants ----
1. 2,75,000
2 Share application money pending allotment 2. ----
3 Non-current liabilities 1,00,000
(a) Long-term borrowings ---
(b) Deferred tax liabilities (net) 50,000
(c) Other long-term liabilities ---
(d) Long-term provisions
3. 1,50,000
4 Current liabilities
(a) Short-term borrowings 18,060
(b) Trade payables 30,900
(c) Other current liabilities 39,800
(d) Short-term provisions 1,240
4. 90,000
TOTAL ( 1 + 2 + 3 + 4) 5,15,000
B ASSETS
1 Non-current assets
Paper - II Accountancy - II 269