ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING
UNIT-1 – BRANCH ACCOUNTS
Type: 80% Theory – 20% Problem
Question & Answers
PART – A ANSWERS
1. What is branch? (Nov – 2014, April-2010)
The word ‘branch’ is any subordinate division of a business, subsidiary shop,
office etc. Business is carried out in different areas scattered over a large territory.
2. What is meant by Invoice price method? (April-2011)
When the goods are sent by the head office to the branch at invoice price
means cost plus some percentage of profit, the branch manager required to sell the
goods at invoice price only.
3. What are the types of branch? (Nov – 2011, Nov – 2012, April-2011, April-2014)
Home branch
Foreign branch
4. What is meant by Independent branch ? (April-2014)
Branch which maintains its own set of books and has freedom to operate
independently. If a branch is big and carries on manufacturing operations also, it is
allowed to operate freely within the framework of head office policies.
5. What are the types of home branch?
Dependent branch
Independent branch
6.
What is meant by Dependent branch? (Nov – 2011, Nov – 2013, April-2010)
These branches are inland branches wholly dependent on the head office
for their requirements. These branches do not maintain their own set of books, and
all the records of the branch are maintained by the head office.
7. What is meant by Debtors system? ( Nov-2010)
This system is adopted in case of branches of small size. Under this
system a branch account is opened separately for each branch in the books of head
office.
8. What is meant by Stock and Debtors system?
Profit or loss of a branch can be found out by preparing branch account , but
there is another method for the same purpose is known as stock and debtors method.
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REGULATION CBCS - 2012
9. What is meant by Wholesale Branch System?( Nov – 2012)
Manufacturers may sell goods to the consumers either through the
wholesalers and approved stockiest or through their branches. The person/corporate
buy the goods at bulk for the purpose of sell.
10. What is meant by Final account system?
The head office can also ascertain the profit or loss of a dependent branch by
preparing branch trading and profit and loss of a dependent branch by preparing
branch trading and profit and loss account at cost.
11. What is meant by Foreign Branch?
The head office in inland and its branch in foreign country, these branches is
called foreign branch. The foreign branch keeps their accounts not in the home
currency the values will be expressed in foreign currency, now the same has to be
converted into home currency.
12. Give journal entries for good sent to branch(April-2013)
Branch a/c
Dr.
To goods sent to Branch A/c
13. Give journal entries for good sent to branch transferred to trading account.
Goods sent to Branch A/c
Dr.
To Trading A/c
14. Give journal entries for profit arises at the branch(April-2013)
Branch A/c
Dr.
To Profit and Loss A/c
15. Give journal entries for cash sent to bank for expenses
Branch A/c
Dr.
To Bank A/c
16. Give the journal entry for closing stock in the branch
Branch stock A/c
Dr.
To Branch
17. Give the journal entry for closing debtors in the branch
Branch Debtors A/c
Dr.
To Branch A/c
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ACADEMIC YEAR: 2016 – 2017
18. Give the journal entry for shortage of stock
Branch adjustment A/c
To Branch Stock A/c
REGULATION CBCS - 2012
Dr.
19. What is meant by Inter-branch transactions ?
The head office has many branches and there is a possibility that some branch
may supply goods or send cash to the other branch are called inter-branch
transactions.
20. What is meant by goods in transit ?
When goods are dispatched by the head office to branch and the branch does
not receive it even upto the end of the year, it is known as goods in transit.
21. What is meant by cash in transit ?
The cash sent by branch to H.O. or the cash sent by H.O. to branch has not
been received by the other party upto the end of the year, it is known as cash in
transit.
22. What is meant by branch adjustment account?
This account is prepared for ascertaining the amount of gross profit earned
by the branch. This is done by eliminating the profit element or the ‘loading’ included
in the value of opening and closing stock at branch, goods sent to branch, less returns
made by branch to head office and in surplus or shortage in branch stock etc.
23. Write down the objectives for goods sent on invoice price.
(a) In order to keep secret from the branch manager the cost price of the
goods and profit made,so that the branch manager may not start a rival and
competitive business with the concern ;and
(b) In order to have effective control on stock i.e., stock at any time must
be equal to opening stock plus goods received from head office minus sales made at
the branch.
24. What are the accounts that should be maintained in Stock and debtors system?
Branch Stock Account.
Branch Debtors Account
Branch Expenses Account.
Branch Adjustment account
Branch profit and loss account and
Goods sent to the branch account
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
PART – B ANSWERS
1. Write down the objectives of branch accounting.( NOV – 2010, Nov – 2014,
April-2010, April-2013, April-2014)
To Ascertain the profit or loss of the branches
To have a better control over the branches by the head office
To know the financial position of the branches
To enable the head office to know the requirements of goods and
cash of each branch
To provide suggestions for improvements
To formulate further programmes and policies relating to the branches.
2. Distinction between wholesale and retail profit at branch.
Sometimes head office also sells goods at retail or list price besides
sending the goods to branches at wholesale prices. The difference between the
retail price and wholesale price will be the profit made by the branch. Suppose if
an article costs to head office Rs. 100 and it is supplied to the branches at Rs. 160
at wholesale price but both head office and branches sell goods at Rs. 200, then,
profit made by the branch will be Rs. 40 (i.e., Rs. 200 –Rs. 160) and not Rs. 100
(Rs. 200-Rs.100).
The goods are sent by the head office to the branches at Wholesale price
and if all the goods are sold there is no problem but if some goods remain unsold
at the end of the accounting year, these unsold goods at the branches must be
reduced to cost price by making a stock reserve for unrealized profit for the
difference between eh wholesale and cost price and will be debited to the head
office profit and loss account, as previously the head office must have earned
profit while sending goods to the branches.
3. Write down the features of independent branch. ()
They need not depend on the Head office for their requirements of supplies of
goods. They can make purchases themselves. Of course, they can also obtain
supplies of goods from the head office as and when they want.
They can only sell goods for cash and credit at any price they consider
profitable.
They need not remit the money received by them from cash sales and debtors
to the Head office periodically. They can retain the funds and meet their dayto-day expenses out of those funds. Finally, if they have surplus cash in their
hands, they can remit the same to the Head office.
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REGULATION CBCS - 2012
They keep a complete set of books for recording their transactions. So, they
can prepare their own Trial Balance, Trading and Profit and Loss Account
and Balance Sheet.
However, as they are ultimately responsible to the Head office, at the end of
every financial period, they are required to submit a copy of their Trial
Balance to the Head office
4. Write down the features of dependent branch. (Nov – 2013)
It do not maintain its books of accounts
Goods are supplied by head office to the branch.
Branch receives the goods and sells them as per the direction of the head
office.
All the expenses of branches are paid directly by the head office.
The head office provides petty cash to the branch to meet some petty
expenses, so only simple petty cash book is maintained at the branch
The branch remits cash to the head office which are from the sale proceeds
and collection from debtors in case of credit sales.
5. Journal entries passed in the books of head office
(i) Branch a/c
Dr.
Invoice value of goods sent.
To goods sent to Branch A/c
(ii) Branch A/c
Dr.
Cash sent for expenses.
To Bank A/c
(iii) Bank A/c
Dr Cash remitted by the branch to the H.O.
To Branch A/c
(Cash consists of sales and receipts from Drs.)
(iv) Branch Stock A/c
Dr. Branch stock (at invoice Price) and branch
Branch Debtors A/c
Dr. debtors at the end of year.
To Branch A/c
(v) Goods Sent to Branch A/c Dr. Invoice price on goods sent to branch adjusted.
To Branch A/c
(Loading on the goods sent)
(vi) Branch A/c
Dr.
Invoice value of closing stock adjusted.
To Branch Stock Reserve A/c
(vii) Branch A/c
Dr.
Profit at branch
To Profit and Loss A/c
(viii) Goods sent to Branch A/c
Dr. Goods sent to Branch Transferred.
To Trading A/c
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
6.Layal company opened a branch at madras on 1.1.89. From the
following particulars the madras branch account for the year 1989 and
1990. (Nov – 2011, Nov – 2013)
1989 Rs.
1990 Rs.
Goods sent to branch
15000
45000
Cash sent to branch for :
Rent
1800
1800
Salaries
3000
5000
Other expenses
1200
1600
Cash received from the branch
24000
60000
Stock on 31st December
2300
5800
Petty cash on 31st December
40
30
Particulars
To balance b/d
TO Goods sent to branch
To Cash:
Rent
Salaries
Other expenses
IN THE BOOKS OF HEAD OFFICE
Madras branch A/c for 1989
Rs.
Rs.
Particulars
NIL By cash
15000 By Balance C/d
Stock
1800
Petty cash
3000
1200
6000
To General P&L A/c
Rs.
Rs.
24000
2300
40
5340
26340
Particulars
To balance b/d
Stock
Petty cash
TO Goods sent to branch
To Cash:
Rent
Salaries
Other expenses
To General P&L A/c
2340
Rs.
26340
Madras branch A/c for 1989
Rs.
Particulars
By cash
2300
By Balance C/d
40
2340 Stock
45000 Petty cash
1800
5000
1600
Rs.
Rs.
60000
5800
30
8400
10090
65830
5830
65830
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
7. Prepare branch accounts for the year 1994. From the following particulars the Madurai
branch account for the year 1994 (Nov – 2011, Nov – 2012, Nov – 2014, April-2010, April2011, April-2013, April-2014)
Stock on 1.1.94
11200
Debtors on 1.1.94
6300
Goods sent to branch
51000
Cash sent to branch for :
Rent
1500
Salaries
3000
Petty cash
500 5000
Sales at branch
Cash
25000
Credit
39000 64000
Cash received from debtors
41200
Stock on 31.12.94
13600
Particulars
To balance b/d
Stock
Debtors
TO Goods sent to branch
To Bank:
Rent
Salaries
Petty cash
To General P&L A/c
Madurai branch A/c for 1994
Rs.
Rs.
Particulars
By Bank :
11200
Cash sales
6300 17500 Cash from debtors
51000
1500
3000
500
By Balance C/d
Stock
5000 Debtors
10400
83900
Rs.
Rs.
25000
41200 66200
13600
4100 17700
83900
8.From the following particulars prepare a branch account showing the profit or loss at the
branch
Rs.
Opening stock at the branch
15000
Goods sent to branch
45000
Sales
60000
Salaries
5000
Other expenses
2000
Closing stock could not be ascertained but it is known that the branch usually sells at cost
plus 20%. The branch manager is entitled to a commission of 5% of the profit of the branch
before charging such commission.
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ACADEMIC YEAR: 2016 – 2017
Particulars
To Opening stock at the
branch
To Goods sent to branch
REGULATION CBCS - 2012
Branch A/c
Rs
Particulars
15000 By Sales
45000 By Closing stock
To Salaries
5000
To Other expenses
2000
To Manager’s commission
To Net profit –transfer to
P & L A/c
Rs
60000
10000
150
2850
70000
70000
9. A Madras head office has a branch at Salem to which goods are invoiced
cost plus 20%. From the following particulars prepare branch a/c in the
books of head office. (Nov – 2012, April-2011, April-2013)
Stock on 1.1.96
7680
Debtors on 1.1.96
24000
Stock on 31.12.96
13440
Goods sent to branch
211872
Total sales
206400
Cash sales
110400
Cash received from debtors
88000
Salem branch A/c for 1996
Particulars
Rs.
Rs.
Particulars
To balance b/d
By Bank :
Stock
7680
Cash sales
Debtors
24000
31680 Cash from debtors
To Goods sent to branch
211872 By Stock Reserve
By Goods sent to
branch - Loading
By Balance C/d
Stock
To Stock Reserve
2240 Debtors
To General P&L A/c
Rs.
110400
88000
Rs.
198400
1280
35312
13440
32000
34640
280432
45440
280432
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
10. A head office sends goods to its branch at 20% less than the list price. Good are sold to
customers at cost plus 100%. From the following particulars ascertain the profit made at
the head office and the branch on whole sale basis.
Head
Particulars
Head office
office
Purchases
200000
Goods sent to branch
80000
Sales
170000
Trading , Profit & Loss A/c
Head
Head
office
Branch Particular office
Particular
To
Purchases
200000
To Goods
received
from H.O
-
To Gross
Profit
To Stock
reserve
To Net
Profit
Branch
170000
80000
80000
-
115000
- By Sales
By
Goods
sent to
80000 branch
By
Closing
16000 stock
65000
16000
315000
96000
315000
96000
115000
16000
115000
16000
By Gross
Profit
6000
109000
16000
115000
16000
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Branch
80000
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
PART – C ANSWERS
1. Difference Between Independent & Dependent Branch. (NOV – 2010)
Sr.
Basis
1.
Accounting System
Independent branch keeps The accounts of branches are
full system of accounting at
maintained at the Head Office level.
their place.
At branch only Cash Register.
Debtors Register are maintained.
2.
Sale of Goods
These branches sell goods
received from head office as
well as from the purchases
made by them.
These branches sell only those
goods which are supplied by the
Head office. They are normally
not allowed to make own purchases.
3.
Point of Payment Branch keep the required
of Expenses
cash to meet the expenses
of regular nature with
themselves.
All branch expenses of regular
nature like salary, Rent normally
paid directly by head office. Branch
managers are allowed to incur petty
expenses only.
4.
Remittance of Cash Independent Branches are All the daily cash sale and
not required to remit all the collection from debtors will be
cash daily to head office.
deposited at local bank or remitted
to H.O.
Trial Balance
A trial balance has been
Trial Balance is not required to be
extracted from the ledger
extracted
as
accounts
are
maintained at branch level. maintained at Head Office.
5.
6.
Reconciliation
7.
Methods
Preparing
Account
Independent Branch
Reconciliation
between
branch Account in books of
head office and head office
Account in the books of
Branch is to be made before
finalising the Accounts.
of Accounting is done on the
Final double entry system basis, so
Trading/P&L
A/c has been prepared in
normal way.
Dependent Branch
There is no need of reconciliation
as accounts are maintained at
head office level itself.
Accounting
under
Dependent
branches can be made by three
different methods are Debtors
system, Final Account system and
Stock and Debtors system.
2. A Limited opened a branch at Shimla in 2002. Goods were invoiced at cost plus 25%. From
the following prepare ledger accounts in the books of A Limited.( April-2010)
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Rs.
40,000
Goods sent to Shimla (Invoice Price)
Sales at Shimla :
Cash Sales
21,000
Credit Sales
16,000
Cash collected from debtors
14,500
Discount allowed
200
Cash sent to Branch for expenses
4,000
Stock at Branch, 31st Dec.2002 (Invoice Price)
Branch A/c
Date
Particulars
Date
Rs.
2002
Dec.31
To Goods sent to
Branch
A/c
To Bank
(Expenses)
Particulars
Rs.
2002
By Bank (Remittance)
21,000
Dec.31 Cash sales
Cash Form Drs. 14,500
40,000
4,000
To Bank stock
Reserve
A/c
To P & L
A/c
transfer
3,200
35,500
3,200
1,300
By Branch Stock A/c
By Branch Debtors
A/c
By Goods sent to
Branch A/c
(loading)
640
8,000
3,360
48,000
48,000
Goods sent to branch A/c
Date
Rs.
Date
Particulars
2002
Dec.31
To Shimla Branch A/c
(Loading)
To Trading A/c
(transfer)
8,000
32,000
40,000
2002
Dec.31
Particulars
By
Shimla
Brach
A/c
Rs.
40,000
40,000
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ACADEMIC YEAR: 2016 – 2017
Date
2002
Dec.31
Particulars
To Sales A/c
REGULATION CBCS - 2012
Branch Debtors A/c
Date
Rs.
16,000
2002
Dec.31
Particulars
By Cash
By Discount
By Balance
c/d
16,000
Date
2002
Dec.31
Particulars
To Shimla
Branch A/c
2002
Dec.31
Particulars
By Balance c/d
2002
Dec.31
Particulars
To Balance c/d
Branch Stock Reserve A/c
Date
Rs.
640
Rs.
3,200
3200
3,200
Date
14,500
200
1,300
16,000
Branch Stock A/c
Date
Rs.
3,200
Rs.
2002
Dec.31
Particulars
By Shimla
Branch A/c
Rs.
640
640
640
3. A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%.
(Nov – 2011, Nov – 2012, Nov – 2013, April-2014)
Opening Balance
Stock
Debtors
Goods sent to Branch (Invoice price)
75,000
Sales at Calcutta
Cash Sales
Credit Sales
Cash collected from Debtors
3,200
1,300
32,000
38,000
33,400
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Discount allowed
Bad Debts written off
Cash sent to Branch for expenses
Stock at end
Date
2002
Dec.3
1
400
250
5,500
7,900
Branch Adjustment A/c
Branch
Date Stock A/c
Particulars
Rs.
Particulars
1,580
To Stock Reserve
2002
By Stock Reserve
Dec.3
1
(closing stock)
A/c
(openi
ng
stock)
300
To br. Stock A/c
(shorta
ge)
R
s.
640
15,000
By Goods sent to
br. A/c
7,150
6,610
To Br. Exp. A/c
To P & L A/c
15,640
Date
2002
Dec.31
Particulars
Goods sent to branch A/c
Date
Rs.
To br. Adjustment
15,000
A/c
(loading) To
15,640
2002
Dec.31
Particulars
By Br.
Stock A/c
Rs.
75,000
60,000
Trading A/c
(Transfer)
75,000
75,000
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ACADEMIC YEAR: 2016 – 2017
Date
2002
Jan.
Particulars
To
Balance
b/d
To Branch
Stock
REGULATION CBCS - 2012
Branch Debtors A/c
Date
Rs.
Particulars
Rs.
2002
1,300
33,400
By Cash
Dec.31
By Branch Exp.
A/c
38,000
(cr.
sales)
Discount
400
Bad Debts
250
By Bal. c/d
650
5,250
39,300
Date
2002
Jan.1
Particulars
To Balance
b /d
To goods sent
t o Branch
A/c
39,300
Branch Stock A/c
Date
Rs.
3,200
Particulars
2002
Jan.1
To Cash Sales
By Branch
Debtors
75,000
2002
To Br. Adjustment
A/c
640
To balance c/d
1580
Dec.
31
38,000
300
By Balance
c/d
7,900
78,200
Branch Stock Reserve A/c
Date
Rs.
Particulars
32,000
By Branch
Adjustment
A/c
78,200
Date
Rs.
Particulars
Rs.
2002
By Balance b/d
640
Dec.31
By Branch Adj.
A/c
1580
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ACADEMIC YEAR: 2016 – 2017
Date
2002
Dec.31
REGULATION CBCS - 2012
Branch Expenses A/c
Date
Rs.
Particulars
To Cash
6,500
To branch Dr.s
A/c
Discount
400
Bad Debts
250
2002
Dec.31
Particulars
By Branch
Adjustment
A/c
Rs.
7,150
650
7,150
7,150
4. Agra head office supplies goods to its branch at Alwar at invoice price which is
cost plus 50%. All Cash received by the branch is remitted to Agra and all branch
expenses are paid by the head office. From the following particulars related to Alwar
Branch for the year 2006, prepare Branch debtors account Branch stock account and
Branch Adjustment Account in the books of the head office so as to find out the gross
profit and net profit made by the branch.
Rs.
Stock with Branch on 1.1.2006 (at invoice price)
66,000
Branch Debtors on 1.1.2006
22,000
Petty cash balance on 1.1.2996
500
Goods received from head office (at invoice price)
2,04,000
Goods returned to Head Office
6,000
Credit Sales
87,000
Sales Returns
3,000
(already adjusted while invoicing)
2,000
Cash received from debtors
93,000
Discount allowed to debtors
2,400
Expenses (cash paid by Head Office)
Rs.
Rent
2,400
Salaries
24,000
Petty Cash
2,000
28,400
Cash Sales
1,06,000
Stock with Branch on 31.12.2006 (at invoice price)
69,000
Petty Cash balance on 31.12.2006
100
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ACADEMIC YEAR: 2016 – 2017
Date
Particulars
REGULATION CBCS - 2012
Branch Adjustment Account
Date
Rs.
To Stock reserve A/c
To Goods sent to Branch A/c
To Branch stock A/c
23,000
2,000
2,000
Particulars
By stock reserve A/c
1,000
To Gross profit
62,000
22,000
(66,000 ×
50/150)
By Goods sent to Branch A/c
To Shortage (Load)
Rs.
68,000
(2,04,000 × 50/150)
c/d
By Gross profit b/d
To Branch expenses A/c
Rent
Salaries
Petty exp.
90,000
90,000
2,400
62,000
24,000
2,400
(500 + 2000 - 100)
To Branch debtors A/c discount
To Shortage
28,800
2,400
2,000
(cost)
To Net profit
28,800
62,000
62,000
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ACADEMIC YEAR: 2016 – 2017
Date
Particulars
REGULATION CBCS - 2012
Branch Debtors A/c
Date
Rs.
To Balance b/d
22,000
To Branch stock
A/c
87,000
Particulars
By Branch Cash
A/c
Rs.
93,000
2,400
By Branch
Expenses A/c
(credit sales)
(Discount
allowed to
Debtors)
3,000
10,600
By Sales
Returns
By Balance c/d
Date
Particulars
1,09,000
Branch stock A/c
Date
Rs.
To balance
b/d
66,000
To Goods
sent to
Branch A/c
2,04,000
To Branches
Debtors A/c
1,09,000
Particulars
By branch A/c-cash
sales
By Branch Debtors A/ccredit sales
Rs.
1,06,000
87,000
By Branch
3,000
Adjustment A/c
2,000
Allowance to
Sales
Return
customer On
selling price
(already Adjusted
while invoicing)
By Goods sent to branch
A/c
Returns
to
H.O.
By Shortage-in-stock A/c
By Balance c/d
2,73,000
6,000
3,000
69,000
2,73,000
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
5. . A head office sends goods to its branch at 25% less than the list price. Good are sold to
customers at cost plus 60%. From the following particulars ascertain the profit made at the
head office and the branch on whole sale basis.
Particulars
Opening stock
(at invoice price in case of branch)
Purchases
Goods sent to branch
Sales
Expenses
Particulars
To opening
stock
To Purchases
To Goods
received
from H.O
To Gross
Profit
To Expenses
To Stock
reserve
To Net Profit
Head office Rs.
50000
Branch Rs.
30000
150000
108000
160000
10000
80000
6000
Trading , Profit & Loss A/c
Head
office Branch Particulars
Head
office
Branch
50000
160000
80000
108000
-
10000
78000
315000
96000
78000
20000
30000 By Sales
150000
By Goods
sent to
branch
108000
780000
By Closing
20000 stock
278000 158000
10000
6000
By Gross
Profit
By Stock
reserve
13000
60000
14000
83000
20000
5000
83000
20000
RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1
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Unit – 1 Answers Page 18 of 18
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING
UNIT-2 – DEPARTMENTAL ACCOUNTS
Type: 20% Theory – 80% Problem
Question & Answers
PART – A ANSWERS
1. What is meant by department accounts? (Nov -2010, April -2011, April -2014)
An organization may produce or buy and sell several products or perform
different services under the same roof or from the same premises. The modern
practice is to divide the organization into independent departments, each of which
may deal in a particular class or goods or render a specialized type of service
2. What is meant by interdepartmental transfer? (Nov -2012, April -2010, April -2014)
Whenever goods or services are provided by one department to another their
cost should be separately recorded and charged to that department benefiting thereby
and credited to that providing it.
3. What is stock reserve? (Nov -2011, April -2011)
Unrealized profit included in unsold inventory at the ending of accounting
period eliminated by creating an appropriate stock reserve by debiting the amount
profit and loss account.
4. Write the basis of allocation of expenses –any two. (Nov -2013, Nov -2014, April 2013, April -2014)
Rent, rates and taxes
- Floor area occupied.
Salaries
- Time allocated to each department.
Selling expenses, Bad debts - Sales of each department
Carriage inwards
- Purchases of each department
5. What are direct expenses? Give some examples. (Nov -2014)
Expenses which are directly identified with or incurred for particular
departments are called as direct expenses. Example: Wages, insurance of stock etc.
6. What is indirect expenses? (April -2014)
Expenses which cannot be identified with a particular department, but
incurred for their common benefit.
7. What is cost price?
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
When the good are sold at the price of which incurred for the production of
goods that means the cost of goods sold is called as cost price.
8. What is selling price?
When the goods are sold at cost price plus profit is known as selling price.
9. Write two advantages of departmental accounts. (Nov -2010, Nov -2012, Nov -2013,
April -2010)
Evaluation of performance
Growth potential of each department
Judgement of efficiency
Planning and control
10. Write two needs of departmental accounts.
To have comparative results of departments
To assesses the stock position of each department
To analyze the result of each department and to draw up a trend for the future.
11. What are the methods and techniques of departmental accounts?
1. Preparation of trading and profit and loss account,
2. Maintenance of Records,
3. Departmentalization of expenses
12. What is meant by elimination of unrealized profit?
When profit added in the inter-department transfers the loading included in the
unsold stock at the end of the year is to be excluded before final accounts are prepared
so as to eliminates any anticipatory profit included therein.
13. What are the two types of departments?
Independent department
Dependent department
14. What is independent department?
Departments which work independently of each other and have negligible
inter department transfer are called Independent Departments.
15. What is dependent department?
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Unit – 2 Answers Page 2 of 10
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Departments which transfer from one department to another department for
further processing are called dependent departments.
16. What are the two sub-divisions of indirect expenses?
Expenses which can be apportioned
Expenses which cannot be apportioned
17. What are expenses which cannot be apportioned? (Nov -2011)
Expenses which have no connection with the departments or those which
have no reasonable basis for apportionment must be shown in the general profit &
loss a/c.
18. What are expenses which can be apportioned?
All indirect expenses which are amenable for division on some logical or
appropriate basis among the departments should be charged to the departments after
dividing them on suitable basis.
19. What are the three basis of interdepartmental transfer?
Cost
Ruling market price
Cost plus agreed percentage of profit.
20. What is meant by common expenses?
Common expenses, the benefit of which is shared by all the departments and
which are capable of precise allocation are distributed among the departments
concerned on some equitable basis considered suitable in the circumstances.
PART – B ANSWERS
1. Explain the advantages of departmental accounting. (Nov -2010, Nov -2013, Nov 2014, April -2011)
Evaluation of performance: The performance of each department can be
evaluated separately on the basis of trading results. An endeavor may be
made to push up the sales of that department which is earning maximum
profit.
Growth potential of each department: The growth potential
as compared to others can be evaluated.
of a department
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Unit – 2 Answers Page 3 of 10
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Judgement of efficiency: It helps to calculate stock turnover ratio of each
department separately, and thus the efficiency of each department can be
calculated.
Planning and control: Availability of separate cost and profit figures for
each department facilitates better control. Thus effective planning
and control can be achieved on the basis of departmental accounting
information.
Justification of capital outlay: It helps the management
justification of capital outlay in each department.
to determine
the
2. Write down the needs of departmental accounting.( April -2013)
To compare the results of each department with the results of previous years and
ascertain the trend.
To know the comparative results of different departments in the same year.
To assess the position of stock in each department.
To identify areas weakness for cost control and improvement of efficiency.
To decide upon expansion, discontinuation and investment policies.
3. Explain the ways of recording transactions in departmental accounts.
a) Unitary method: Under this method, the accounts of each department
are kept separately. The results of the various departments are finally combined
together in one general P & L account.
b) Tabular or columnar method: Under this method, the accounts of each
department are kept in columnar form with a separate column for each
department and also with a separate column for the total. The tabular method
is more popular and is adopted by almost all the departmental undertaking,
Under this method, at the end of the accounting year, Trading and P & L
account is prepared with separate amount column for each of the department and
also for the total. The trading and P & L of a departmental organization kept in the
columnar basis is called Departmental Trading and P & L account. In trading
account, opening stock, purchases, direct expenses and Gross profit are debited
and sales and closing stock credited. Indirect expenses have to be apportioned
between the departments and debited to the P&L account.
4. Difference between branch and departmental accounts. (Nov -2011, April -2010)
BRANCH: Branches are separated from the main organization.
DEPARTMENTS: Departments are attached with the main organization under a
single roof.
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Unit – 2 Answers Page 4 of 10
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
BRANCH: Branches are the outcome of tough competition and expansion of
business.
DEPARTMENTS: Departments are the result of fast human life.
BRANCH: Branches are geographically separated.
DEPARTMENTS: Departments are not separated rather existed under a same
roof.
BRANCH: Branches are of different types like dependent, independent and
foreign.
DEPARTMENTS: There is no such classification in department because all are
common under the same roof.
BRANCH: Allocation of branch common expenses does not arise.
DEPARTMENTS: Allocation of departmental common expenses is a tough job.
BRANCH: To find out the net result of the organization, the reconciliation of
different branch account is a main job.
DEPARTMENTS: In departmental accounting, no reconciliation is necessary
because there is a central account division.
5. The proprietor of large retail store department wished to ascertain approximately the
net profit of the X, Y, Z departments separately for the three months ended 31 st March
1996. It is found impracticable actually to take stock on the date , but an adequate
system of departmental accounting is in use, and normal rates of gross profit for the
three departments concerned are respectively by 40%, 30% and 20% on turnover
before charging the direct expenses. The indirect expenses are charged in proportion
to departmental turnover.
The following are the figures for the department:
X (Rs.)
Y (Rs.)
Z(Rs.)
Opening stock
10000
14000
7000
Purchases
12000
13500
9700
Sales
20000
18000
16000
Direct expenses
2000
1500
700
The total direct expenses for the period(including those relating to other departments)
were Rs.5400 on total turnover of Rs. 108000.
Prepare a statement showing the approximate net profit, making a stock reserve of
10% for each department on the estimated value on 31-3-96. (April -2010)
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
6.Trading , profit and loss account of Janaki radio and gramophone equipment vo., for
the six months ended 31-3-93 is presented to you in the following form.( Nov 2014)
Purchases
Radios(A)
Gramophones(B)
Spare parts(C)
Salaries and wages
Rent
Sundry expenses
Profit
Rs.
140700
90600
64400
48000
10800
11000
34500
400000
Sales
Radios(A)
Gramophones(B)
Spare parts(C)
Stock as on 31-3-93
Radios(A)
Gramophones(B)
Spare parts(C)
Rs.
150000
100000
25000
60100
20300
44600
400000
Prepare departmental accounts for each of the three departments A,B and C
mentioned above after taking into the account of the following:
1.Radios and gramophones are sold at the show room and spares parts at work shop.
2. Salaries and wages are comprises as follows:
Showroom 3/4th and workshop 1/4th.
It was decided to allocate the show room salaries and wages in the ratio of 1.:2
between the departments A and B.
3. The workshop rent is Rs.500 per month. The rent of show room is to be allocated
equally between departments A and B.
4. Sundry expenses are allocated on the basis of turnover of each department.
7. Mixed goods were purchased for Rs.100000 and later they were assorted into three
categories X, Y and Z as follows:
X
1000 Selling price Rs.20 each
X
2000 Selling price Rs.22.50 each
X
2400 Selling price Rs.25 each
All categories yield the same rate of profit. Calculate the purchases price of each
department.
8.A company has two departments A and B. Dept.A supplies good to Dept.B at its usual
selling price. From the following figures prepare departmental trading a/c for the
year 1982.( Nov -2012, Nov -2014, April -2014)
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Unit – 2 Answers Page 6 of 10
ACADEMIC YEAR: 2016 – 2017
Particulars
REGULATION CBCS - 2012
A (Rs.)
Opening stock
Purchases
Transfer to B
Sales
Closing Stock
B (Rs.)
30000
-
210000
-
50000
50000
200000
60000
40000
10000
9. There are two departments X and Y. Good are transferred from Dept.X to Dept.Y at
usual selling price . You are required to compute the stock reserves on stock of
Dept.Y from the following data(April -2013)
G.P. Ratio of the Dept.X
:25% on cost
Opening stock of Dept.y
: Rs.50000
Closing stock of Dept.y
: Rs.75000
10. From the following particulars , prepare departmental trading account.( Nov -2013,
April -2013, April -2014)
Particulars
A (Rs.)
B (Rs.)
Opening stock
9000
8400
Total Purchases
27000
21600
Total Sales
42000
36000
Closing Stock
10800
4800
Credit Purchases
17000
10600
5000
6000
Credit Sales
PART – C ANSWERS
1. What are the bases of apportionment of expenses.( April -2014)
SI.NO
1
EXPENSES
BASIS OF APPORTIONMENT
Sales
expenses
as traveling Sales of each department
salesman, salary and commission,
selling
expenses after sales
service, discount allowed, bad
debts, freight outwards, provision
for discount
on debtors, sales
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Unit – 2 Answers Page 7 of 10
ACADEMIC YEAR: 2016 – 2017
manager's
salary
benefits etc.
2
REGULATION CBCS - 2012
and
other
All
expenses
relating
to
building as rent, rates, taxes,
air
conditioning
expenses,
heating, insurance building etc.
Area or value of floor space
3
Lighting
Lighting points in the department
4
Workmen’s amenities and welfare
expenses
Number of workers in each
department
5
Workmen’s compensation
insurance, ESI, PF etc. payable at
employer
Wages of each department
6
Premium for loss of profits
insurance
7
Power
8
Depreciation of assets, fire
insurance, repairs on such assets.
Value of each assets possessed by
each departments
9
Factory manager’s salary
Time devoted to each department
10
Carriage inwards
Purchase value
Profit of each department in the
previous year
Consumption as per meter, horse
power, time and hours.
2. From the following information , prepare trading , profit and loss account in a
columnar from the three departments of Sharma dry cleaners ltd. (Nov -2010, April 2010, April -2011)
Particulars
Dry cleaning (Rs.)
Darning (Rs.)
Dyeing (Rs.)
Opening stock
400000
340000
940000
Closing stock
330000
438000
817000
Purchases
1959000
697000
1373000
Sales
4000000
2000000
4000000
Wages
728000
300000
246000
Goods were transferred from one dept. to another dept. at cost price as follows:
i)
Darning to dry cleaning Rs.2400 and to dyeing Rs.40200
ii)
Dyeing to dry cleaning Rs.25800 and to darning Rs.18000
iii)
Dry cleaning to darning Rs.3000 and to dyeing Rs.24000
Apportion equally:
Rs.
Stationery
5418
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Unit – 2 Answers Page 8 of 10
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Postage
4050
General expenses
237618
Insurance
10080
Depreciation
32598
Rent & taxes Rs.180000 is to be split in proportion to space occupied, i.e., dry
cleaning 4, darning 2 , dyeing 2 and other space 2.
3. A firm had two departments cloth and readymade garments . The garments were
made the firm itself out of cloth supplied by the cloth department at its usual selling
price. From the following particulars , prepare departmental trading and profit and
loss account for the year ended 31-3-94. (Nov -2012, Nov -2013, April -2014)
Particulars
Opening stock
Closing stock
Purchases
Sales
Transfer to readymade
dept.
Manufacturing expenses
Selling expenses
Cloth dept. (Rs.)
300000
200000
2000000
2200000
Readymade dept.(Rs.)
50000
60000
15000
450000
300000
--200000
--60000
6000
The stock in the readymade garments department may be considered as consisting of
75% of cloth and 25% other expenses. The cloth department earned gross profit
@ 15% in 1992-93. General expenses of business as a whole came to Rs.110000.
4. Modern company has two departments X and Y. Department X sells goods to Y
departments at normal market price. From the following particulars, prepare
departmental trading and profit & loss account for the year ended 31-12-1996. (Nov 2011)
Particulars
Stock on 1-1-96
Purchases
Good from dept. X
Wages
Salaries (departmental)
Closing stock at cost
Sales
Printing & stationery
Machinery
Advertisement
Salaries (general)
Dept X
(Rs.)
15000
250000
15000
7000
80000
260000
2500
-
Dept Y
(Rs.)
40000
40000
20000
5000
20000
145000
1500
15000
-
General total
(Rs.)
12000
18000
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Unit – 2 Answers Page 9 of 10
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Depreciate machinery by 10%. The general unallocated expenses are to be
apportioned in the ratio of 2:1 to the departments X and Y. Half of the closing stock
of department Y represents goods received from the department X.
5. The following purchases were made by a business house having three departments.
(Nov -2011, Nov -2012, April -2011, April -2013, April -2014)
Dept. A
1000 units
Dept. B
2000 units
Dept. C
2400 units
Total cost of purchases for above Rs.100000
Stocks on 1st January were:
Dept. A
120 units
Dept. B
80 units
Dept. C
152 units
Sales were:
Dept. A
1020 units at Rs.20 each
Dept. B
1920 units at Rs.22.50 each
Dept. C
2496 units at Rs.25 each
The rate of gross profit is same each case. Prepare departmental trading account.
-----
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Unit – 2 Answers Page 10 of 10
ACADEMIC YEAR: 2016– 2017
REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING
UNIT-3 – HIRE PURCHASE AND INSTALLMENT
SYSTEM
Type: 20% Theory – 80% Problem
Question & Answers
PART – A ANSWERS
1. What is Hire purchase system?(NOV-2011, NOV-2012, NOV-2013,APRIL2011, APRIL-2014)
Hire purchase is the system under which the property is acquired by payment
made installments, during the period of which the title in the property
remains with the hire vendor.
2. What is Installment system?( NOV-2012, APRIL-2010, APRIL-2014)
Installment payment system (also called the deferred installments) is a system
where the buyer is given the ownership as well as the possession of the goods at
the time of signing the contract. The buyer has the facility to pay the price in
installments.
3. Define Installment system.( APRIL-2010)
According to J.B. Batliboi, “a system under there is an agreement to purchase
and pay by installments, the goods which become the property of the Purchaser
immediately when he receives the delivery of the same.
4. What is meant by lump sum method?
The whole amount of the goods paid immediately at the time of purchase
goods and the ownership also transfer immediately to the buyer.
5. What are the methods to maintain the accounts in the books of hire
purchaser?
A. Outright property method
B. Asset accrual method
C. Interest suspense method
6. Who is Hire purchaser?(NOV-2010,APRIL-2014)
A hire purchaser is a person who possesses the goods under hire purchase
agreement for use within an option to either purchase it or return after use.
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ACADEMIC YEAR: 2016– 2017
REGULATION CBCS - 2012
7. Who is Hire vendor?( NOV-2010, APRIL-2010,APRIL-2014)
A hire vendor is a person who sells the goods under hire purchase agreement.
8. What is meant by Hire purchase price?(NOV-2014,APRIL-2010,APRIL2014)
It is the price at which the goods are sold under ‘hire purchase system’ it
includes cash price of the goods and interest.
9. What is meant by Hire purchase agreement?
It is an agreement between hire purchaser and hire vendor according to section
2(c) of the hire purchase act, 1972 for purchasing of goods according to
agreement.
10. What is Net hire purchase price?
It is the net amount after deducting the delivery charges, registration charges,
insurance charges from hire purchase price.
11. What is meant by termination of hire purchase agreement?
The hirer can terminate the agreement at any time by giving the 14 days
notice to the owner. However whatever the amount is already paid by the hirer is
considered as a hire charges.
12. What is Cash Price?(APRIL-2010, APRIL-2013)
This is the retail price of the articles at which they can be purchased
immediately for cash.
13. What is Hire or Installment?
This is the amount payable by the buyer periodically. The installments may
be equal or different depending on agreement.
14. What is meant by rebate?
It is an amount which is claimed by the hire purchaser from the hire vendor in
case if he decides to remit the balance of the purchase price (future installments)
in lump sum without continuing the hire purchasing agreement.
15. What is meant by down payment?( NOV-2011, NOV-2010, APRIL-2010,
APRIL-2011)
This is the advance payable by buyer while signing the hire purchase
agreement. It is also a part of the hire purchase price.
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ACADEMIC YEAR: 2016– 2017
REGULATION CBCS - 2012
16. What is meant by interest in hire purchase?(APRIL-2010)
This is the additional amount apart from the cash price payable by the buyer
as compensation for postponed payments.
17. What is meant by repossession of goods or repossessed stock?( APRIL-2014,
APRIL-2011)
Repossession of goods means the hirer did not pay installment amount the
goods will be taken up by the hire vendor.
18. What is meant by partial repossession?(NOV-2014, APRIL-2014)
The hirer did not pay installment amount the part of the goods only took by the
hire vendor and left the remaining goods with the hirer equal to the value of
amount paid by the hirer.
19. Write any two contents of Hire purchase agreement.
The hire purchase price of the goods for which the agreement is made
The number of installments in which the hire purchase price has to be paid
20. Give journal entry for down
(APRIL-2013)
Hire vendor A/c
To Bank A/c
21. Give journal entry for down
(NOV-2013, APRIL-2014)
Interest A/c
To Hire vendor A/c
payment in the books of Hire – purchaser.
Dr.
payment in the books of Hire – purchaser.
Dr.
PART – B ANSWERS
1. Write the features of Hire-Purchase System.(NOV-2010, NOV-2014,APRIL2013)
Hire-purchase is a credit purchase.
The price under hire-purchase system is paid in installments.
The goods are delivered in the possession of the purchaser at the time of
commencement of the agreement.
Hire vendor continues to be the owner of the goods till the payment of last
installment.
The hire-purchaser has a right to use the goods as a bailer.
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Unit – 3Answers Page 3 of 8
ACADEMIC YEAR: 2016– 2017
REGULATION CBCS - 2012
The hire-purchaser has a right to terminate the agreement at any time in the
capacity of a hirer.
The hire-purchaser becomes the owner of the goods after the payment of all
installments as per the agreement.
If there is a default in the payment of any installment, the hire vendor will take
away the goods from the possession of the purchaser without refunding him any
amount.
2. Write the features of Installment Payment System.(NOV-2013)
Under this system, there will be an outright sale of goods/assets.
The possession as well as the ownership is passed to the buyer right at the time of
signing the contract.
The buyer can make the payment in installments.
In case of default in payment, the seller cannot repossess the goods, but he can
sue the buyer for the recovery of unpaid price.
The buyer cannot exercise the option of returning the goods and terminate the
contract, unless the same becomes void or voidable under the contract act.
3. Write the advantages and disadvantages of hire purchase.
Advantages:
Costly items can easily be purchased by the consumers which he cannot otherwise
purchase by making entire payment in lump sum.
It increase turnover and enhances the profitability of the enterprise.
It enables the consumer's family to enjoy the possession of the goods before
payment is required.
Hirer has a right to terminate the agreement at any time before the goods is
transferred.
Disadvantages:
Cost of items purchased by hire purchase system is more than the normal price as
the customer has to pay interest on the balance amount.
Hirer does not become the owner of goods hired, until payment of last installment
is made.
Hirer cannot sell or pledge goods hired until he becomes owner of such goods.
4. On 1.1.86, X purchased machinery on hire purchase system. The payment is to be
made Rs.4000 down (on signing of the contract) and Rs.4000 annually for three
years. The cash price of the machinery is Rs.14900 and the rate of interest is 5%.
Calculate the interest in each year’s installment. (APRIL-2010, APRIL-2014)
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5. Mr.X purchased a machine on hire purchase system Rs.3000 being paid on delivery
and the balance in five installments of Rs.6000 each , payable annually on 31st
December. The cash price of the machine was Rs.30000. Calculate the amount of
interest for each year.(NOV-2013, NOV-2014)
6. X purchased a typewriter on hire purchase system. As per terms, he is required to pay
Rs.800 down, Rs.400 at the end of the first year, Rs.300 at the end of the second year
and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the
total cash price of the typewriter and the amount of interest payable in the each
installment.( NOV-2012, APRIL-2014)
7. X purchased a machine on hire purchase system. According to the terms of the
agreement Rs.40000 was to be paid on signing of the contract. The balance was to be
paid in four annual installments of Rs.25000 each plus interest. The cash price was
Rs.140000. Interest is chargeable on outstanding balance at 20% per annum.
Calculate the interest for each year and the installment amount.(NOV-2014)
8. On 1.1.90 X bought some trucks under hire purchase system for Rs.51000 payable by
three equal installments combining principal and interest, the later being a normal rate
of 5% p.a. Calculate the cash price .( The present value of annuity of one rupee for
the three years at 5% is Rs.2.72325)(NOV-2010)
9. From the following details of a businessman who sells goods of
plus 50%. Prepare hire purchase trading account.
1.1.90
Stock out with the customer at H.P price
Stock at the shop at cost price
Installments due but not received
31.12.90
Goods worth Rs.500 repossessed (Inst. Not due Rs.2000)
Cash received from customers
Purchase made during the year
Stock out with the customer at H.P price
Stock at the shop at cost (excluding goods repossessed)
Installments due but not received
small value at cost
Rs.
9000
18000
5000
60000
60000
30000
20000
9000
10. Raman purchased a motor car from bharathan whose cash price is Rs.56000 on
1.1.93. Rs.15000 is paid on signing the contract and the balance is to be paid in three
equal annual installments of Rs.15000 each. The rate of interest is 5% p.a. Calculate
the amount of interest included in the each installments.( NOV-2012)
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11. Mohan purchased a car on hire purchase system the cash price of the car was
Rs.15980, payableRs.4000 being paid down and the three installments of Rs.6000
Rs.5000, Rs.2000 at the end of the first, second and third year respectively. Interest is
charged at 5% p.a. Calculate the amount of interest for each year.(NOV-2011,
APRIL-2014)
12. Mr.X purchased a cycle on hire purchase system for Rs.1000 to be paid as follows:
Rs.800 on signing of contract, Rs.400 at the end of the first year, Rs.300 at the end of
the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a.
Calculate the total cash price of the cycle and the amount of interest payable in
the each installment.
13. Calculate the cash price of the machine from the following information. (APRIL2013)
Down payment
Rs.10000
Four annual installments at the end of each year Rs.10000
Rate of interest 5% per annum
PART – C ANSWERS
1. Differences Between Hire Purchase System and Installment Purchase System.
(NOV-2010, NOV-2011, APRIL-2010, APRIL-2013, APRIL-2014)
Hire-Purchase System
It is a contract of hiring.
It is transferred by seller to buyer only
after payment of all installments.
In this case, the buyer is like a bailee.
Such risk is on the seller.
Installment Purchase
It is a contract of sale.
It is transferred by seller to buyer,
immediately on signing the contract.
In this case, the buyer is not in the position of
a bailee.
Such risk is on the buyer.
On default of payment of any installment On default of payment of any installment by
by the buyer, the seller can repossess the the buyer, seller cannot repossess the goods,
goods.
but can file a suit in the court of law against
the buyer for the recovery of unpaid price.
The buyer can exercise the option of
The buyer cannot exercise the option of
return of goods.
return of goods.
The buyer cannot dispose the goods, The buyer has the right to dispose the goods,
until the payment of last installment. If even if all installments are not yet paid.
disposed, the third party buyer does not
get a better title.
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2. Mr.P purchased 4 cars for Rs.14000 each on 1.1.92 under the hire purchase system.
The hire purchase price for all the 4 cars was Rs.60000 to be paid as Rs.15000down
payment and 3 equal installments of Rs.15000each at the end of each year. Interest is
charged at 5% p.a. The buyer depreciates the car at 10% on straight line method.
From the above particulars give journal entries and relevant A/c’s in the books
of Mr.P and in the hire vendor.(NOV-2011, NOV-2012, APRIL-2011)
3. Knight purchased a truck for Rs.160000 from S.Waugh on 1.1.93 payment to be
made Rs.40000 down and Rs.46000 at the end of the first year, Rs.44000 at the end of
the second year and Rs.42000 at the end of the third year. Interest was charged at 5%
p.a. Knight depreciates truck at 10% p.a on written down value method.
Knight after having paid down payment and first installment at the end of the
first year, could not pay the second installment. The seller took repossession of truck
after spending Rs.4000 on the repairs , sold it away Rs.91500.
Prepare ledger accounts.
4. On 1.1.90 National transport company purchased from Metro motors five trucks
costing Rs.40000 each on the hire purchase system. It was agreed that
Rs.50000should be paid immediately and the balance in three equal installments of
Rs.60000 each at the end of the each year. The Metro motors charges interest at
10%p.a. The buyer depreciates trucks at 10%p.a. on the diminishing balance method.
The buyer paid the down and two installments and failed to last installment.
Consequently the Metro motors repossessed three trucks leaving two trucks with the
buyer and adjusting the value of three trucks against the amount due. The trucks
repossessed were valued on the basis of 30% on the written down value method. The
trucks repossessed were sold by Metro motors for Rs.60000 after necessary repairs
amounting to Rs.10000. Open the necessary ledger accounts in the books of both
the parties.
5. From the following details, set out the hire purchase trading account in the books
of a trader who sells a number of articles of comparatively small value daily on the
hire purchase system, showing his profit on this department of the business for the
year ended 31.12.88. For the purpose of charging his hire purchase customers, he
adds 60% to the cost of the goods.
Rs.
1.1.88 Stock in customers hands at the selling price
1620
31.12.88 Sale of goods on H.P. at selling price
6534
Cash received from H.P customer at selling price
2100
Cost in customer’s hand at selling price
4474
Good repossessed (Installments dueRs.1000) valued at
250
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ACADEMIC YEAR: 2016– 2017
REGULATION CBCS - 2012
6. Krishna sells products on H.P terms, the price being cost plus 33 1/3 % . From the
following particulars for the year ended 31.12.95, prepare the necessary accounts
on stock and debtor system to reveal the profit earned.
Rs.
1.1.95
Stock out on hire at H.P price
1600000
Stock in hand at shop
200000
Installments due (customers still paying)
120000
31.12.95 Stock out on hire at H.P price
1840000
Stock in hand at shop
280000
Installments due (customers still paying)
200000
Cash received during the year
3200000.
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING
UNIT-4 – PARTNERSHIP –BASIC
ADMISSION,RETIREMENT AND DEATH
Type: 20% Theory – 80% Problem
Question & Answers
PART – A ANSWERS
1. Define partnership.(NOV-2010,NOV-2014)
According to Partnership act 1932 define “as the relationship between persons who
have agreed to share the profits of a business carried on by all or any of them acting
for all.”
2. What is the treatment of goodwill at the time of retirement of partner?(APRIL2014)
At the time of retirement of a partner, adjustment for goodwill of the firm, if any, has
to be made as in admission. In retirement too, we confine to the Revaluation Method
only.
3. Who is called as partner?(APRIL-2014)
The persons who have entered into partnership are individually known as ‘Partners’
and collectively as ‘Firm’.
4. What is partnership deed?(APRIL-2010)
It is an outcome of an agreement created orally or in writing between two
or more persons. It is not essential that agreement must be in writing, but to avoid any
disputes between the parties in future.
5. What is profit sharing ratio?(APRIL-2011)
The ratio which is profit or loss shared by the partners in the partnership firm is called
as profit sharing ratio.
6. What is Sacrificing ratio?(NOV-2011, APRIL-2010,NOV-2013)
At the time of admitting the new partner the old partners are giving their ratio of
profit to the new partner it is called sacrificing ratio.
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7. How do we calculate Sacrificing ratio and Gaining ratio? (APRIL-2010,NOV2010)
Sacrificing Ratio = Old ratio – New ratio
Gaining ratio = New ratio – Old ratio
8. What is Revaluation account? (APRIL-2013)
At the time of admission of a partner, the assets and liabilities are revalued so that the
profit and loss arising on revaluation account . The profit or loss may be adjusted in the
old partners’ capital accounts.
9. What is Goodwill?( APRIL-2011,NOV-2011)
A well-established business develops an advantage of good name, reputation and
wide business connections. This helps the business to earn more profits as compared to
a newly set up business. In accounting, the monetary value of such advantage is known
as 'goodwill'.
10. Define admission of partner.
According to Section 31 (1) of the Indian Partnership Act 1932, a person can be
admitted only with the consent of all the existing partners. A person who is admitted is
known as new partner or incoming partner.
11. Define retirement of partner.
According to section 32 (1) of the Indian partnership act 1932, a partner may
retire from the firm.
i. With the consent of all the partners
ii. Where the partnership is at will by giving notice in writing to all other partners of
his intention to retire.
iii. In accordance with an express agreement by the partners.
12. What is death of partner?
Death of a partner dissolves the partnership but the surviving partners usually carry
on the business by purchasing the deceased partners share. But the difference is
retirement may be planned one, death is a permanent retirement.
13. What is gaining ratio?
At the time of retirement of the old partner the remaining partners are sharing the
profit ratio of the retired partner is called gaining ratio.
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REGULATION CBCS - 2012
14. What are the Methods of calculating interest on drawings.
Simple method
Interest on drawings = Amount of drawings X Rate of Interest X Months
100
12
Product Method:
Interest on drawings = Total of products X Rate of Interest X 1
100
12
Average Method:
Interest on drawings = Amount of drawings X Rate of Interest X Average period
100
2
15. What are the methods of capital?
Fixed capital
Fluctuating capital
16. What is Fluctuating Capital method?
Under the fluctuating capital method, only one account, viz., the capital
account for each partner, is maintained. The capital of the partners changed from year to
year.
17. What is Fixed capital method?
Under this method, two accounts are maintained for each partner viz., (i) Capital
account and (ii) Current account. The capital account will continue to show the same
balance from year to year. In the current account, the transactions relating to drawings,
interest on capital, interest on drawings, salary, share of profit or loss etc., are recorded.
18. What is adjusted profit and loss account?
In a partnership firm, the net profit as shown by the Profit and Loss Account need
certain adjustments with regard to interest on capitals, interest on drawings, salary and
commission to the partners. For this purpose, Profit and Loss Appropriation Account
may be prepared.
19. What are the methods of calculating interest on capital?
Simple method
Product method
Average period method
20. What is product method?
The amount of drawings for each period is multiplied by the period for which the
amount is going to be used. Then, the product is summed up.
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REGULATION CBCS - 2012
21. What is average period method?
Interest on drawings is to be calculated with reference to the average of the periods
for which the money is withdrawn.
22. What is average period ?
The average period is calculated to take the period for the average of the periods
applicable to the first installment and the last installment.
23. Write down the three methods of valuation of goodwill?
1) Average Profit method
2) Super Profit method
3) Capitalisation method
24. What is meant by average profit method?
In this method, past profits of a number of years are taken into account. Such profits
are added and the average profit is found out. The average profit is multiplied by a certain
number of years to arrive at the value of goodwill.
25. What is meant by super profit method?
The excess of average profit over normal profit is called super profit. The goodwill
under the Super profits method is calculated by multiplying the super profits by certain
number of years purchase.
26. What is meant by transfer of undistributed profit or loss?
The balance sheet of the partnership firm may show undistributed profits in the
liabilities side and undistributed loss in the assets side of the old Balance Sheet. That
undistributed profit or loss should be transferred to the old partners capital accounts in
the old profit sharing ratio.
27. What is the accounting treatment of undistributed reserves and surplus?
Partners of the firm, may set aside a portion or percentage of the profit earned to
meet the unexpected or unforeseen losses arise in future in the name of Reserve, General
Reserve, Reserve Fund, Contingency Reserve etc. At the time of admission of new
partner, if there is any reserve, it should be transferred to the Capital accounts of the old
partners in the old profit sharing ratio.
28. What are the three methods of goodwill adjusted ?
1. Revaluation Method
2. Memorandum Revaluation Method
3. Premium Method
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REGULATION CBCS - 2012
29. What is meant by Settlement of claim of the retiring partner?
The amount due to the retiring partner is ascertained by preparing his capital account
incorporating all the adjustments. The amount due is either paid off immediately or is
paid in installments. When it is not paid immediately, it will be transferred to his loan
account.
30. Write any two adjustments made at the time of admission of partner.(APRIL2014)
Adjustment in the profit sharing ratio
Adjustment for goodwill
th
31. P and Q are partners sharing profits in the ratio of 3:2. They admit R for 1/5 share as
new partner. Calculate new profit sharing ratio.(APRIL-2010,APRIL-2011,APRIL2013, APRIL-2014,NOV-2014)
32. A and B are partners sharing profits in the ratio of 5:3. They admit C for 1/5 th share of
th
th
future profits which she acquires 4/20 from A and 2/20 from Bi. Calculate new Profit
sharing ratio.(NOV-2012, APRIL-2014)
33. A and B are partners sharing profits in the ratio of 3:2. They admit R for 1/5 th Share
which acquires equally from P and C. Calculate new profit sharing ratio.(NOV2013)
34. Calculate goodwill under average profit method for 2 years purchases of three years
profit which have been Rs.25000, Rs.35000, Rs.30000.(NOV-2014)
PART – B ANSWERS
1. Write down the essentials of partnership.(NOV-2012)
There must be an agreement entered into between two or more persons.
The agreement must be to share the profits of a business.
The business must be carried on by all or any of the persons concerned acting for all.
It is formed to carry on a lawful business and
It is an association of two or more persons.
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REGULATION CBCS - 2012
2. Write down the items debited and credited in Revaluation account
Revaluation Account is credited with the following profit items:
1)
2)
3)
Increase in the value of assets,
decrease in the amount of liabilities and
unrecorded assets now recorded.
Revaluation account is debited with the following loss items:
1)
2)
3)
4)
Decrease in the value of assets,
increase in the amount of liabilities,
unrecorded liabilities now recorded and
creation of a new liability.
3. What are the rules applicable in the absence of partnership deed?
1. Profit sharing ratio: Profits and losses are to be shared equally among the partners.
2. Interest on Loan: On any loan advanced by a partner he is entitled to interest on the
at 6% p.a.
3. Interest on Capital: No interest is to be allowed on capitals.
4. Salary to partners: Partners are not entitled for any salary or other remuneration.
5. Interest on Drawings: No interest is to charged on drawings.
4. Difference between fluctuating capital and fixed capital.
Basis
Fixed capital
The capital normally remains
Change in capital unchanged except under special
circumstances.
Each partner has two accounts,
Number of
accounts
namely, Capital Account and
Current Account.
Balance
Adjustments
Fluctuating capital
The capital is changing
from period to period.
Each partner has only
One account i.e.,
Capital Account.
Capital Account shows always a
Capital Account shows
credit balance.
Current account may sometimes
show debit or credit balance.
always a credit balance.
All adjustments relating to partners
are recorded in the Current
Accounts.
All adjustments relating to
partners are recorded
directly in the Capital
Accounts itself.
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
5. Give journal entries for unrecorded assets and liabilities(Nov-2010)
* For recording an unrecorded asset
Unrecorded Asset A/c
Dr
......
To Revaluation A/c
......
* For recording an unrecorded liability
Revaluation A/c
Dr
To Unrecorded Liability A/c
......
......
6.Draw the specimen for Profit and loss appropriation account.( APRIL-2013)
Profit and loss appropriation account
Particulars
Rs.
Particulars
Rs.
To Interest on capital XXX
To net profit b/d
XXX
To Partner’s salary
XXX
To Interest on
To Commission
XXX
drawings
XXX
To Profit transferred
to capital account
XXX
XXX
XXX
7. Show how the following items will appear in the capital accounts of the
partners, Babu and Gopu When their capitals are fluctuating. (NOV 2010,
NOV-2013, NOV-2014)
Babu
Gopu
Capital on 1.4.2004
800000
700000
Drawings during 2004 - 2005
160000
140000
4000
2000
Share of profit for 2004-05
84000
66000
Interest on capital
48000
42000
Partner’s salary
72000
NIL
Interest on drawings
8. A and B are partners sharing profit and losses in the ratio of 3:2. They admit C and
he paying a premium of Rs.1000 for 1/4th of share of profit. No goodwill account
appears in the books of the firm. They withdraw the amount of goodwill.
Journalise.(NOV-2011,APRIL -2011)
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9. A and B are partners in a firm with capital of Rs.36000 and Rs.32000 respectively.
They decide to admit G into the firm with a capital of Rs.30000. G is given 1/5th share in
the future profits and losses. Give journal entry for goodwill.(NOV-2011,APRIL2011 )
10. A, B and C are the partners sharing profit and losses in the ratio of 5:5:4. D is
admitted as a partner. Goodwill of the firm is valued at 2 years purchases of 3 years
profits which have been Rs.15000, Rs.26000 and Rs.22000. Give journal entries if:
a) There is no goodwill in the books of the firm.
b) The goodwill account appears at Rs.14000 and
c) The goodwill is already standing in the books is Rs.56000. (APRIL-2013)
11. A partner makes a drawings of Rs.2000 p.m. under the partnership deed. Interest is
to be charged 12% p.a. What is the interest that should be charged to the partner if
the amount was drawn (a) in the beginning of the month , (b) in the middle of the
month and (c) at the end of the month.(NOV-2013)
12. X and Y are the partners in the firm sharing profits and losses equally. On 1 st ,
January 1995, their capital were Rs.20000 and Rs.10000 respectively. Interest on
capital is to be allowed at 5% p.a. from the profits prior to the division thereof.
The net profit for the year ending 31st December 1995, before allowing interest on
capital amounted to Rs.9500.
Give the journal entries and prepare profit & loss appropriation account as on 31st
December 1995, showing the division of profit between X and Y.(NOV-2013)
13. Prepare revaluation account from the following information given by the partners
A and B sharing profit and losses in the ratio of 3:2.(NOV-2012, APRIL-2013,
APRIL-2014)
* Increase the value of building Rs.10000
* Provision for doubtful debts be increased by Rs.2000
* Depreciate the value of furniture Rs.3000
* Investment of Rs.10000 was brought into the account.
* Decrease the value of stock Rs.5000.
PART – C ANSWERS
1. Write down the contents of partnership deed.
The name of the firm
Name and address of the partners
Nature of the partnership business
The period of the business if any
The commencement of business
Capital contributed by each partner
Nature of the capital i.e., Fixed or Fluctuating
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
The proportion of sharing the profits or losses
Amount and period of drawings
Interest rate on capital, drawings
Commission salary, allowance etc., payable to partners, if any
Valuation method of goodwill and its treatments on admission, retirement or
death or partners.
Procedure by which a partner’s account has to be settled and mode of
payment.
Rights and duties of partners.
Under what situation the firm stands dissolved
The ways of keeping accounts, their audit etc.
2. Write the adjustments at the time of admission and accounting treatment for
death of partner.
At the time of admission
1. Adjustment in the profit sharing ratio
2. Adjustment for goodwill
3. Adjustment for revaluation of assets and liabilities
4. Adjustment of reserves and other accumulated profits
5. Adjustment for capital
At the time of retirement
1. Revaluation of Assets and Liabilities
2. Transfer all the reserves, profit and loss and accumulated losses to all the
partners capital account.
3. Share of goodwill
4. Capital to his credit
5. Disposal of a deceased partners share.
3. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet stood as
under
on31.12.95(Nov-2011,Nov-2014,APRIL-2010,APRIL-2011,APRIL2013,APRIL-2014)
Liabilities
Rs.
Assets
Rs.
Capital : A
Stock
10000
B
30000
50000 Prepaid Insurance
1000
Salary due
5000 Debtors
Creditors
20000
40000 Less: Provision
8000
7500
Cash
18500
Machinery
500
22000
Buildings
30000
Furniture
6000
95000
95000
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REGULATION CBCS - 2012
C is admitted as a new partner introducing capital of Rs.20000 for his 1/4th share in
future profit.
Following revaluations are made:
Stock be depreciated by 5%
Furniture be depreciated by 10%
Building be revalued at Rs.45000
Provision for bad and doubtful debts be increased to Rs.1000
Pass Journal entries , prepare revaluation A/c and balance sheet after admission.
4. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet is as
follows(NOV-2010,NOV-2012)
Liabilities
Capital : A
B
80000
Reserves
Creditors
40000
Bills payable
Rs.
120000
40000
60000
20000
240000
Assets
Rs.
100000
25000
40000
70000
5000
240000
Buildings
Plant
Stock
Debtors
Cash
C is admitted into partnership for 1/5th share of the business on the following terms:
Buildings is revalued at Rs.120000
Plant is depreciated to 80%
Provision for bad debts is made at 5%
Stock is revalued at Rs.30000
C should introduced 50% of the adjusted capitals of both A and B .
Open various accounts and the new balance sheet after the admission of C.
5. A ,B and C are partners in the firm sharing profit and losses in the ratio of 1/3, ½,
1/6 respectively. Their balance sheet as on 31-12-90 was as follows
Liabilities
Capital : A
B
30000
C
Reserves
40000
Creditors
Bills payable
25000
Rs.
120000
40000
16000
25000
15000
Assets
Buildings
Machinery
Furniture
Stock
Debtors
Less: Provision
Cash
Rs.
50000
40000
10000
25000
18000
17500
8500
500
151000
151000
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
C retires on 31-12-90 subject to the following conditions:
A goodwill account is created in the books for Rs.24000
Machinery is depreciated to 10%
Furniture is depreciated to 5%
Stock to be depreciated by 15% and buildings to be appreciated by 10%.
Reserve for doubtful debts to be raised to Rs.2000.
Prepare necessary ledger accounts and balance sheet of the new firm.
6. X, Y and Z were partners sharing profits equally. Z died on 31.3.91. The balance
sheet of the firm as at 31.12.90 was as under:
Liabilities
Rs.
Assets
Rs.
Capital : X
90000 Goodwill
40500
Y
75000 Buildings
90000
Z
63000 Investments
24000
Reserve Fund
18000 Debtors
Investment
Less: Provision 54000
48600
fluctuation fund
6300 Stock
84000
Creditors
46800 Cash at bank
5400
12000
299100
299100
On the date of death it was found that;
Debtors were all good
Investments were valued at Rs.22500 and taken by X at the value
Stocks were valued at Rs.75000
Building was valued at Rs.171000
A liability of workmen’s compensation for Rs.9000 was to be provided for.
Goodwill was to be valued at one year’s purchase of average profits of last 5 years
Z’ share of the profit upto the date of death was to be calculated on the basis of last
three year’s profit.
The profit of the last 5 years were as under:
1986 – Rs.34500; 1987 – Rs.37500; 1988 – Rs.24000; 1989 – Rs.30000; 1990 –
Rs.36000.
Prepare Revaluation A/c, Capital A/c and balance sheet of the remaining
partners.
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RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4
Answers/VER 1.0
Unit – 4 Answers Page 11 of 11
ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING
UNIT-5–DISSOLUTION OF PARTNERSHIP
Type: 20% Theory – 80% Problem
Question & Answers
PART – A ANSWERS
1. What is dissolution of partnership?(APRIL-2011)
The relation of partnership among different partners is changed without changing
the partnership firm.
2. What is meant by dissolution of firm? (NOV-2013,APRIL-2010)
It means to close the firms activities permanently. It means closing down the
undertaking or suspending permanently the activities of a partnership business.
3. What are the modes of dissolution?(NOV-2014,APRIL-2013)
Compulsory dissolution
Dissolution by agreement
Dissolution by notice
Dissolution by court
Dissolution on happening of certain events.
4. What is meant by dissolution by agreement?( NOV -2010,APRIL-2010)
A Partnership firm can be dissolved at any time by mutual consent of all the
partners.
5. Write some circumstances firm dissolved by court.(APRIL-2010)
When a partner becomes of unsound mind
When a partner gets disabled permanently
6. What is meant by piecemeal distribution?(NOV-2014)
It has been assumed that all the assets are realized immediately on the date of
dissolution and all liabilities are paid off on the same date. But in actual practice, it
seldom happens, the assets are sold gradually to realize the best price for term.
7. What is meant by realization?(APRIL-2014)
The Realization Account is prepared to record the transactions relating to sale
and realization of assets and settlement of creditors. Any profit or loss arising out of
this process is shared by the partners in their profit sharing ratio.
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8. What is meant by insolvency of a partner?(or)Who is an insolvent partner?
(NOV-2010, NOV-2012,NOV-2014,APRIL-2011,APRIL-2014)
In partnership firm when the partners liabilities are more than his assets then
the partners becomes insolvent partner.
9. What is Garner vs Murray rule? (NOV-2011)
The loss arising by default of an insolvent partner is to be borne by the
solvent partners in proportion to their respective capitals instead of their Profit
sharing ratio.
10. Journal entry for closing of assets account in dissolution.(NOV-2013)
Realization a/c
Dr.
To Assets a/c(individually)
Partners’ capital a/c
To Fictitious assets a/c
Dr.
11. Journal entry for closing of liabilities account in dissolution.(APRIL-2013)
External liabilities a/c(Individually)
To Realization a/c
Realization a/c
To Bank a/c
Dr.
Dr.
12. What is fixed capital in dissolution?(APRIL-2010)
The original capitals form the ratio to distribute the loss caused by the default of
an insolvent partner.
13. What is dissolution?
Dissolution means discontinuance. It means closing down the undertaking or
suspending permanently the activities of a partnership business.
14. Write down the expansion of dissolution.
D – Stands for Death of a partner
I – Stands for Incapacity
S – Stands for Shares (transfer)
S – Stands for Serious misconduct of partnership
O – Stands for object of the firm (Completion)
L – Stands for Lunacy of a partner
U – Stands for Unexpected losses of a firm
T – Stands for Term of the expiry of a Partnership
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
I – stands for Insolvency of all the partners
O – Stands for unlawful Object
N – Stands for Notice given by partners
.
15. What is meant by dissolution by notice?
Any partner can dissolve the partnership by giving notice in writing to all
other partners if the partnership is at will.
16. Write down the events happening that the partnership firm is dissolved.
On the expiry of the period for which it was formed.
On the death of a partner.
On the completion of the venture agreed upon.
17. What is the order of payment is adopted, when assets are realized?
* Payment to creditors and other external liabilities
* Payment of partners’ loan rate ably.
* If any amount remains after making above payments, this is utilized in
payment of capitals to the partners.
18. What are the two methods making payment to partners in dissolution?
* Proportionate capital/surplus capital method
* Maximum loss method.
19. What are the accounts settled in dissolution?
(a) Payment of losses, (b) Distribution of assets, (c) payment of firm’s debts and
personal debts and (d) in settling the accounts of a firm after its dissolution.
20. What is meant by payment of liabilities through surrender of assets to creditors?
If any asset has been taken over or accepted by any creditor in full or
part payment of the amount due to him, then the agreed value of the asset will
be deducted from the amount due to the creditor and the payment will be nil, in
case of full settlement or payment will be restricted to the balance amounts.
21. Give journal entry for dissolution expenses.(APRIL-2014)
(a) When realization expenses are paid by the firm
Realization a/c
To Bank a/c
(b)
Dr.
When firm has agreed to pay partner a fixed amount towards realization
expenses irrespective of the actual realization expenses
Realization a/c
To Partners’ capital a/c
Dr.
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
PART – B ANSWERS
1. Journal entries for Undisclosed or unrecorded assets and liabilities. (NOV2010,NOV2014,APRIL-2013,APRIL-2014)
Such asset would never be transferred to realization account, but the entries
would be as under
When sold for cash:
Bank A/c
Dr.
To Realisation A/c
When taken over by a partner: Partner’s Capital A/c
Dr.
To Realisation A/c
No entry if taken over by a creditor
Similarly unrecorded liability will not be recorded in realisation A/c only the
payment made will be shown as :
when paid in cash
:
Realisation a/c
Dr.
To Bank A/c
When taken over or paid by partner: Realisation A/c
Dr.
To Partner’s capital A/c
2 . Explain
Fixed
and
Fluctuating
Capitals
under
dissolution.(APRIL-2011)
In Garner vs. Murray the ratio of capital prior to dissolution formed the
basis for writing off the deficiencies of insolvent partner. In this connection it is
important to note when the capital accounts are fixed; the original capitals form the
ratio to distribute the loss caused by the default of an insolvent partner. But if the
capitals are fluctuating, first of all relevant adjustment regarding Reserve and
business profit and losses are made; capitals, thus but without any adjustment for
realisation loss or profit or taken over of an assets or liability by a partner form the
basis for distribution of loss due to the insolvency of a partners.
3. Discuss Garner vs. Murray Decision - Insolvency of a Partner.
Before the decision in Garner vs. Murray, any loss, arising from insolvency of
any partner, was borne by the solvent partners in the same proportion as they had
shared profits and losses of the business. But after the decision of justice Juice in the
case of Garner vs. Murray, the loss arising by default of an insolvent partner is to
be borne by the solvent partners in proportion to their respective capitals instead of
their Profit sharing ratio. It should be noted that this rule is applied only
where there is no agreement on this point.
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REGULATION CBCS - 2012
The Realisation account is prepared as usual whether this rule is to be applied or not.
The insolvent partner asked to pay whether he can, towards his debit balance. The final
balance in the solvent partners in the ratio of their capital as they stood before
dissolution. The application of ruling of Garner vs. Murray may be the excluded by
the expressed agreement among the partners.
4. Difference between Revaluation account and Realisation Account.
Revaluation account
It is prepared on the admission ,
retirement or death of a partner.
To record necessary adjustments in
the value of assets and liabilities .
The firm continues to function
though with a changed relationship
among the partners.
Difference between the book value
and revised values of assets and
liabilities is recorded is this account.
It is prepared many times during the
life time of a firm.
Realisation account
it is prepared on the Dissolution of
partnership firm.
It is prepared to find out profit or loss
on the sale of assets and repayment of
liabilities.
The firm comes to an end after
preparation of this account.
The realized value of assets and the
actual payment of liabilities is recorded
in this account.
It is prepared only once during the life
time of a firm.
5. Difference between Dissolution of Partnership and Dissolution of firm.
Dissolution of partnership
Change in the exiting agreement
between the partners.
Dissolution of firm
Dissolution of partnership between all
the partners of the firm.
The firm continues its business.
The firm does not continue its business.
Books of accounts may not be closed.
Books of accounts have to be closed.
Dissolution of partnership does not
mean the dissolution of firm.
It is voluntary nature.
Dissolution of firm means the
dissolution of partnership also.
It is voluntary and compulsory nature.
6. Pass journal entries assuming the assets and liabilities already transferred to
realisation account: (APRIL-2014)
a) Unrecorded assets realized Rs.5000
b) Unrecorded liability paid Rs.3000
c) A liability taken over by partner ‘X’ Rs.8000
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
Journal entries:
a) Cash A/c
To Realisation A/c
b) Realisation A/c
To Cash A/c
c) Realisation A/c
To X’s capital
Dr.
50005000-
Dr.
30003000-
Dr.
80008000-
7. Pass journal entries after various assets and third party liabilities transferred
to realisation A/c.(APRIL-2013)
a) Bank loan Rs.12000 is paid.
b) Stock worth Rs.6000 is taken over by partner B
c) Expenses on dissolution amounted to Rs.1500 and were paid by the partner
A.
d) A typewriter completely written off in the books of account was sold for
Rs.200.
Journal entries:
a) Realisation A/c
To Cash A/c
b) B’s capital A/c
To Realisation A/c
c) Realisation A/c
To A’s capital
d) Cash A/c
To Realisation A/c
Dr.
1200012000-
Dr.
60006000-
Dr.
15001500-
Dr.
200200-
8. P, Q, R share the profits and losses in proportion of ½, ¼ and ¼ . On the date of
dissolution their balance sheet was as follows: (APRIL-2010, APRIL-2011, APRIL2013)
Liabilities
Creditors
P’s capital
Q’s capital
R’s capital
Rs.
Assets
14000 Sundry assets
10000
10000
6000
40000
Rs.
40000
40000
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
The assets realized Rs.35500. Creditors were paid in full. Realisation expenses
amounted to Rs.1500. Close the books of the firm.
9. The following is the balance sheet of X, Y and Z on 31-3-94
Liabilities
Creditors
X’s capital
Y’s capital
General reserve
Rs.
Assets
40000
50000
30000
30000
Furniture
Plant & machinery
Stock
Sundry debtors
Cash at bank
Z’s capital
150000
Rs.
40000
20000
40000
20000
12000
18000
150000
Z is insolvent but his estate pays Rs.4000. It is decided to dissolve the partnership.
The assets realized as follows:
Sundry debtors: Rs.15000, Furniture: Rs.28000, Stock: Rs.32000, Plant &
Machinery: Rs.14000. The dissolution expenses amounted to Rs.5000.
Give accounts to close the books of the firm if the capitals are fluctuating.
10. A and B are in equal partnership. Their balance sheet stood as follows:
Liabilities
Creditors
A’s capital
Rs.
Assets
Rs.
3900 Plant & machinery
600 Furniture
Sundry debtors
Stock
Cash at bank
B’s capital
1475
400
500
625
300
1200
4500
4500
The assets were realized as follows:
Sundry debtors: Rs.500, Furniture: Rs.200, Stock: Rs.350, Plant & Machinery:
Rs.700.The cost of collecting and distributing the estate amounted to Rs.150.
A’s private estate is not sufficient even to pay his private liabilities, where as in B’s
private estate, there is a surplus of Rs.50.
Prepare Realisation A/c, Cash A/c, Creditors A/c, Capital A/c’s and the
Deficiency A/c of the partners.
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ACADEMIC YEAR: 2016 – 2017
REGULATION CBCS - 2012
PART – C ANSWERS
1. Explain the various modes of dissolution.(NOV-2010,NOV -201, NOV-2013,APRIL2011,APRIL-2014)
1. Compulsory Dissolution: In certain cases in which a firm becomes illegal and stands
dissolved. The following are such cases
(i)
If all the partners except one or all of them are declared insolvent.
(ii)
When the number of partners exceeds 20
(iii)
When a citizen of an enemy country becomes a partner
(iv)
When the business of the firm is opposed to public interest
(v)
If the business of the firm is opposed to public interest.
2. Dissolution by Agreement: A Partnership firm can be dissolved at any time by mutual
consent of all the partners.
3. Dissolution by notice: Any partner can dissolve the partnership by giving notice in
writing to all other partners if the partnership is at will.
4. Dissolution by court: A court can order the dissolution of the partnership firm in the
following cases:
(i)
When a partner transfers/sells his share to a third party without the consent of
other partners
(ii)
When a partner becomes of unsound mind
(iii)
When a partner gets disabled permanently
(iv)
When a partner is found guilty of misconduct
(v)
When the firm cannot be carried on except with losses.
5. Dissolution on happening of certain events: A firm may also get dissolved in the
following cases.
(i)
On the expiry of the period for which it was formed
(ii)
On the death of a partner
(iii)
On the completion of the venture agreed upon.
2. Journal Entries for dissolution of partnership firm .(NOV-2011,NOV-2013)
1.
2.
For transferring the assets
Realization a/c
To Assets a/c(individually)
Dr.
Partners’ capital a/c
To Fictitious assets a/c
Dr.
For transferring the liabilities
External liabilities a/c(Individually)
To Realization a/c
Dr.
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ACADEMIC YEAR: 2016 – 2017
3.
For sale of assets
Bank a/c(realized price)
To Realization a/c
4.
Dr.
For payment to creditors
Realization a/c
To Bank a/c
6.
Dr.
For an asset taken over by a partner
Partner’s capital a/c
To Realization a/c(Agreed price)
5.
REGULATION CBCS - 2012
Dr.
Settlement with the creditors through transfer of asset
Realization a/c
To Bank a/c
Dr.
Whenever a creditor takes over an asset, there may be two situations :
(a) When a creditor accepts an asset whose value is more than the amount due to him,
he will pay cash. It is recorded as :
Bank a/c
To Realization a/c
Dr.
(b) When a creditor accepts an asset as full and final settlement, no journal entry is
recorded.
7.
Expenses of realization
(a) When realization expenses are paid by the firm
Realization a/c
To Bank a/c
Dr.
(b) When firm has agreed to pay partner a fixed amount towards realization expenses
irrespective of the actual realization expenses
Realization a/c
To Partners’ capital a/c
Dr.
(c) When the actual expenses are paid by the firm on behalf of a partner, the following
entry will be recorded :
Partners’ capital a/c
To Bank a/c
Dr.
(d) However, if a partner himself pays and agreed not to get them reimbursed, no
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REGULATION CBCS - 2012
journal entry is recorded.
(e) When the partner agrees to pay the expenses on behalf of the firm, the entry to be
recorded :
Realization a/c
To Partners’ capital a/c
8.
When liabilities are paid off
Realization a/c
To Bank a/c
9.
Dr.
Dr.
When partner discharges a liability
The liability account is transferred from realization account to partner’s capital account
by recording the following entry :
Realization a/c
To Partners’ capital a/c
Dr.
10. For realization of any unrecorded assets
Bank a/c
To Realization a/c
Dr.
11. Unrecorded asset taken over by a partner
Partners’ capital a/c
To Realization a/c
Dr.
12. For settlement of any unrecorded liability
Dr
.
Realization a/c
To Bank a/c
13. Unrecorded liability taken over by a partner
Realization a/c
To Partners’ Capital a/c
Dr
.
14. When the profit (loss) on realization is transferred to partners’ capital account in their
respective profit sharing ratio :
(a) In case of profit on realization
Realization a/c
Dr.
To Partners’ Capitals a/c(individually)
(b) In case of loss on realization
Partners’ Capitals a/c (individually)
To Realization a/c
Dr.
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REGULATION CBCS - 2012
15. For transferring accumulated profits and reserve
All accumulated profits and reserves are transferred to the partners’ capital account in
their respective profit sharing ratio :
Accumulated profit/reserves
Dr.
To Partners’ capitals a/c (Individually)
16. Transfer of fictitious assets
All accumulated losses and fictitious assets are debited to the partners’ capital accounts
in their profit sharing ratio :
Partners’ capitals a/c (Individually)
Dr.
To Accumulated losses/Fictitious Assets a/c
17. Payment of loans
Any loans due to partners are paid off :
Partner’s loan a/c
To Bank a/c
Dr.
18. Settlement of capital accounts
(a) If the partner’s capital account shows debit balance, he is to bring in the necessary
cash
Bank a/c
Dr.
To Partners’ capital a/c
(b) In case of partners whose accounts show credit balance, the same is paid off :
Partners’ capitals a/c
Dr.
To Bank a/c
3. R, S and M are partners sharing profits and losses as 2:2:1. Their balance sheet as at
30.6.91 was as follows: (NOV-2012)
Liabilities
Creditors
R’s capital
S’s capital
M’s capital
Reserve Fund
Rs.
4000
10000
4000
2000
5000
25000
Assets
Cash at bank
Sundry debtors
Stock
Furniture
Plant & machinery
Rs.
5000
4000
5000
2000
9000
25000
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REGULATION CBCS - 2012
They decide to dissolve the business. The following are the amounts realized.
Machinery Rs.8500, Furniture Rs.1500, Stock Rs.7000, Debtors Rs.3700. Creditors
allowed discount of 2% and R agreed to bear all realisation expenses. For this service,
R is paid Rs.120. Actual expenses amounted to Rs.900 which was withdrawn by him
from the firm. There was unrecorded asset of Rs.500 which was taken over by S at
Rs.400. Pass journal entries and prepare Realisation A/c, Capital A/c’s and Bank
A/c.
4. X, Y and Z sharing profits in the proportion of 3:2:1 decided to dissolve partnership
on 31.12.90. Their balance sheet on that date was as under:
Liabilities
X’s capital
Y’s capital
Z’s capital
Bank loan
Leasehold redemption fund
Life policy fund
Creditors
Rs.
30000
10000
10000
11500
6000
12000
16200
Assets
Leasehold premises
Goodwill
Machinery
Stock
Investments
Joint life policy
Sundry debtors
Less: Reserve
Cash at bank
95700
Rs.
12500
20000
30520
7550
6330
12000
5800
500
5300
1500
95700
A joint life policy is surrendered for Rs.10000. The investments are taken over by Y
for Rs.8000. X agreed to discharges the bank loan. The remaining assets are sold for
Rs.86700. The expenses of realisation amount to Rs.850.
Show the necessary ledger accounts including the accounts of the partners.
5. D, E, F and G are partners sharing 4:3:2:1. Their position statement was as follows:
Liabilities
D’s capital
E’s capital
Creditors
Bank loan
Rs.
90000
60000
120000
60000
330000
Assets
Cash at bank
Machinery
Stock
Sundry debtors
F’s capital
G’s capital
Rs.
4500
132000
60000
120000
10500
3000
330000
The firm is dissolved. All assets realised Rs.246000. The creditors and bank loan
were paid Rs.177000 in full satisfaction. Expenses on dissolution are Rs.1800. G
became insolvent and F paid only Rs.9000.Prepare ledger accounts of the firm.
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