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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 1 of 18 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 2 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 3 of 18 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 4 of 18 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 5 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 6 of 18 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 7 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 8 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 9 of 18 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 10 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 11 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 12 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 13 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 14 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 15 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 16 of 18 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 17 of 18 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 Answers/VER 2.0 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? RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 Unit – 2 Answers Page 1 of 10 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? RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 Unit – 2 Answers Page 5 of 10 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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. ----- RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACCII/UNIT-2 Answers/VER 2.0 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 1 of 8 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 2 of 8 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 4 of 8 ACADEMIC YEAR: 2016– 2017 REGULATION CBCS - 2012 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 5 of 8 ACADEMIC YEAR: 2016– 2017 REGULATION CBCS - 2012 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 6 of 8 ACADEMIC YEAR: 2016– 2017 REGULATION CBCS - 2012 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 7 of 8 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. ----- RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Answers/VER 1.0 Unit – 3Answers Page 8 of 8 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 1 of 11 ACADEMIC YEAR: 2016 – 2017 REGULATION CBCS - 2012 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 2 of 11 ACADEMIC YEAR: 2016 – 2017 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 3 of 11 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 4 of 11 ACADEMIC YEAR: 2016 – 2017 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 5 of 11 ACADEMIC YEAR: 2016 – 2017 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 6 of 11 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) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 7 of 11 ACADEMIC YEAR: 2016 – 2017 REGULATION CBCS - 2012 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 8 of 11 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 9 of 11 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-4 Answers/VER 1.0 Unit – 4 Answers Page 10 of 11 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. ----- 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 1 of 12 ACADEMIC YEAR: 2016 – 2017 REGULATION CBCS - 2012 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 2 of 12 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 3 of 12 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 4 of 12 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 5 of 12 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 6 of 12 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 7 of 12 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 8 of 12 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 9 of 12 ACADEMIC YEAR: 2016 – 2017 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. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 10 of 12 ACADEMIC YEAR: 2016 – 2017 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 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 11 of 12 ACADEMIC YEAR: 2016 – 2017 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. ---------- RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-5 Answers/VER 1.0 Unit – 5Answers Page 12 of 12