[Link].

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Subsidiary Books
Assignment
Q. Questions & Solutions
NO.
1

The Rough Book of M/s. Narain & Co. contains the following:
20X0
Feb,1. Purchased from Brown & Co. on credit:

5 gross pencils @ 100 per gross,

gross registers @R 240 per dozen.
1

Less: Trade Discount @ 10%

Feb,2. Purchased for cash from the Stationery Mart;

10 gross exercise books @ 300 per dozen.

Feb,3. Purchased computer for office use from M/s. office
Goods Co. on credit for 30,000.
Feb,4. Purchased on credit from The Paper Co.
5 reams of white paper @ 100 per ream.

10 reams of ruled paper @ 150 per ream.

Less: Trade Discount @ 10%
Feb,5. Purchased one dozen gel pens @I 15 each from M/s. Verma Bros. on credit.
Make out the Purchase Book of M/s Narain & Co.

(ICAI SM July 2021(M)

Sol.
Date Particulars LF
20X0
Feb. 1 M/s. Brown & Co.
5 gross pencils @I 100 per gross 500
1 gross registers @I 240 per dozen 2,880
3,380
Less: 10% trade discount (338)1 3,042

Feb. 4 The Paper Co.

5 reams white paper @ 100 per ream 500
10reams ruled paper @150 per ream 1,500
2,000
Less: 109% trade discount (200) 1,800|

Feb. 5 M/s. Verma Bros.

1 dozen gel pens
@15 each 180 180
Total 5,022
Note: Purchases of cash and purchase of computer cannot be entered in the Purchase
Book.

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2, Enter the following transactions in Purchase Book and post them into ledger.
20X0
April 4 Purchased from Ajay Enterprises, Delhi
100 Dozen Rexona Hawai Chappal @ 120 per dozen.
200 Dozen Palki Leather Chappal @ 300 per Dozen.
Less: Trade discount @ 10%
Freight charged 150.

April 15 Purchased from Balaji Traders, Delhi

50 dozen Max Shoes @400 per dozen.
100 pair Sports Shoes. @ 140 per paid.
Less: Trade discount @ 10%.
Freight charged 200.

April 28 Purchased from Tripti Industries, Bahadurgarh

40 pair leather shoes @ R400 per pair
100 dozen Rosy Hawai Chappal @ 180 per dozen
Less: Trade discount @ 10%.
Freight charged 100. (ICAI SM)
Sol. Purchase Book
Date Particulars Gross Trade Net Freight Total
20X0 Amount Discount Price Amount
April 4 Ajay Enterprises
100 dozen chappal
@120 per dozen-712,000
200 dozen Palki Leather
Chappal @ 300 per dozen -
*60,000
Less: trade discount @ 10% tio72,000 emy7,200 64,800 150 64,950
Concep
April 15 Balaji Traders, Delhi
50 dozen Max Shoes
@{400 per dozen -7 20,000

100 pair Sports shoes

@ 140 per pair - 14,000

Less: Trade discount @ 10% 34,000 3,400 30,600 200 30,800

April 28 Tripti Industries,
Bahadurgarh
40 pair Leather shoes
@400 per pair -* 16,000
100 dozen Rosy Hawai
Chappal: @ 180 per dozen
-* 18,000
Less: Trade discount @ 10% 34,000 3,400 30,600 100 30,700

1,40,000 14,000 1,26,000 450 1,26,450

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Ledger
Dr Purchases A/c Cr
Date Particulars Date Particulars
April To amount as per purchase 1,26,000
30 book

Dr. Freight A/c Cr.

Date Particulars Date Particulars
April |To amount as per purchase 450
30 book

Dr. Ajay Enterprises Cr.

Date Particulars Date Particulars
April By Purchases A/c 64,800
30
|By Freight A/c 150

Dr.
Balaji Traders Cr
Date Particulars Date Particulars
AprilBy Purchases A/c 30,600
15
By Freight A/c 200

Dr. Tripti Industries Cr.

Date Particulars Date Particulars
Grooming Edcation April By Purchases A/c 30,600|
Pioneer in Deoping
28
By Freight A/c 100

The following are some of the transaction of M/s Kishore & Sons of the year 20X0 as per
3

their Waste Book. Make out their Sales Book.

Sold to M/s. Gupta & Verma on credit:
30 shirts @800 per shirt.
20 trousers @ 1,000 per trouser.
Less: Trade Discount @ 10%.

Sold furniture to M/s. Sehgal & Co. on credit 8,000.

Sold 50 shirts of M/s. Jain & Sons @ 800 per shirt.

Sold 13 shirts to Cheap Stores @ 750 each for cash.
Sold on credit to M/s. Mathur & Jain:
100 shirts @750 per shirt.
10 overcoats @ 5,000 per overcoat.
Less: Trade Discount @ 10%. (1CAI SM/Nov. 2020 (M))

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Sol.
Sales Book
Date Particulars Details L.F.

20X0 M/s. Gupta & Verma

30 shirts @800 24,000
20 Trousers @ 1,000 20,000
44,000
Less: 10% Trade discount (4,400) 39,600

M/s. Jain & Sons

50 shirts @800 40,000 40,000

M/s Mathur & Jain

100 shirts @750 75,000

10 overcoats @R 5,000 50,000

1,25,000
Less: 10% (12,500) 1,12,500
Total 1,92,100
Note: Cash sale and sale of furniture are not entered in Sales Book.
4. Post the following into the ledger
Returns Outward Book
Date GroomiParticularson Academ L.E. Details Amount
Concepts
20X0
Nov. 20 Rajindra Prakash & Sons One
36" Usha Ceiling Fan 200.00
Less: Trade Discount @ 10% Modern (20.00)
"30 Electric Company 180.00
100.00
Total 280.00
(ICAISM)
Sol. Ledger
Dr. Rajindra Parkash & Sons Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
20X0
Nov. 20 To Returns 180.00
Outward A/c

Dr. Modern Electric Co. Cr.

Date Particulars Folio| Amount Date Particulars Folid Amount
20X0
Nov. 30 To Returns 100.00
Outward A/c

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Dr. Returns Outward Account Cr.

Date Particulars Folio Amount Date Particulars Folio Amount
20X0
Nov. 30 BySundries as 280.00
per Returns
Outward A/c

5. From the following transactions, prepare the Purchases Returns Book of Alpha & Co., a
saree dealer:
Date Debit Particulars
Note No.
04.01.20X0 101 Returned to Goyal Mills, Surat - 5 polyester sarees @ 1,000.
09.01.20X0 Garg Mills, Kota- accepted the return of goods (which were
-
purchased for cash) from us 5 Kota sarees @400.
-
16.01.20X0 102 Returned to Mittal Mills, Bangalore 5 silk sarees @ 2,600.
30.01.20X0 Returned one computer (being defective) @ 35,000 to B &
Co.
(ICAI SM)
Sol. Purchase Returns Book
Date Debit Name of supplier L.F. Amount
Note No.
20X0
Jan. 4 101 Goyal Mills, Surat 5,000
Jan. 16 102 Mittal Mills, Bangalore 13,000
|Jan. 31 Purchases Returns Account (Cr.) 18,000
Note: Cash purchase and purchase of computer will not be recorded.
6
Enter the following transactions in Sales Book of M/s. Pranat Engineers Ltd., Delhi, and
post them into the ledgerg cer in Caucation Acaderhy
eveloping Concepts

20X0
Jan. 2. Sold to M/s. Ajanta Electricals, Delhi 5 pieces of Ovens@6,000/- each less
trade discount @ 10%.
8 Sold to M/s. Electronics Plaza, 10 pieces of Tablets @ 8,000/- each less
trade discount 5%.
15 Sold to M/s. Haryana Traders, 5 pieces of Juicers @ 3,500/- each less trade
discount@ 10%.
(ICAI SM)

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Sol.
Sales Book
Date Particulars Gross Trade Net
20X0 Amount Discount Price
Jan. 2 Ajanta Electricals 5 pieces of Ovens
@6,000 each
Less: 10% discount
30,000 3,000 27,000
Jan. 8 Electronics Plaza 10 pieces of
Tablets @I8,000 each
Less: 5% trade discount 80,000 4,000 76,000

Jan. 15 Haryana Traders 5 pieces of Juicers

@3,500 each
Less 10% trade discount 17,500 1,750 15,750
1,27,500 8,750 1,18,750
Ledgers
Dr. Ajanta Electricals Cr.

Date Particulars Date Particulars

2.1.20X0 To Sales A/c 27,000

Dr. Electronics Plaza Cr

Date Particulars Date Particulars
8.1.20XO To Sales A/c 76,000

Dr. Haryana Traders Cr.

Date Particulars Date Particulars
15.1.20X0 To Sales A/cng Ed 15,750 cade

Dr. Sales A/c Cr.

Date Particulars Date Particulars
31.1.20X0 By Sundries as per 1,18,750
sales book

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Cash Book
.
Assignment
Questions & Solutions
NO.
1, Enter the following transactions in a simple cash book:
20X0 Particulars
Jan.1 Cash in hand 1,200
"5 Received from Ram 300
"7 Paid Rent 30
"8Sold goods for cash 300
"10Paid to Shyam 700
"27 Purchased Furniture 200
"31 Paid Salaries 100
"31 Rent due, not yet paid, for January 30
(ICAI SM)
Sol.
Dr. Cash Book Cr.
Date Receipts Date Payments
20X0 20X0
Jan. 1 To Balance b/d 1,200 Jan. 07 By Rent A/C 30
"5 To Ram A/c 300 "10 By Shyam A/c 700
"8 To Sales A/c 300 "27 By Furniture A/c 200
"31 By Salaries A/c 100
"31 By Balance c/d 770
Crdominc
1,800 ion Academy 1,800
20X1 Con
Feb.1 To Balance b/d 770
2. Ganesh commenced business on 1st April, 20X0 with 2,000 as capital. He had the
following cash transactions in the month of April 20X0:
Date Particulars Date Particulars
April 1 Purchased furniture and 250 April 7 Paid for petty expenses 15
paid cash
"2 Purchased goods 500 Cash purchases 150
"4 Sold goods for cash 950 "13 Paid for labour 1,000
"5 Paid cash to Ram Mohan 560 Paid Ali & Sons 400
He allowed discount 10 They allowed discount
"6 Received cash from 600
Krishna & Co.
Allowed discount 20

Make out the two-column Cash Book (Cash and discount column) for the month of April,
20X0.
(ICAISM)

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Sol.
Dr. Cash Book Cr
Date Receipts Discount Cash Date Payments Discount Cash
20X0 20X0
Apr. 1 To Capital A/c 2,000 Apr. 1 By Furniture A/c 250
'4 To Sales A/c 950 "2 By Purchases A/c 500
"6 To Krishna A/c 20 600 By Ram Mohan 10 560
By Petty Expenses 15
A/c
"8 By Purchases A/c 150
"13 By wages A/c 1,000
"13 By Ali & Sons 400
"30 By Balance c/d 675
20X0 20 3,550 18 3,550
May 1 To Balance b/d 675

3. Enter the following transactions in Cash Book with Discount and Bank Columns. Cheques
are first treated as cash receipt.
20X0 Particulars
Jan.1 Chandrika commences business with Cash 20,000
"3 He paid into Current A/c 19,000
"4 He received cheque from Kirti & Co. on account 600
"7 He pays in bank Kirty & Co.'s cheque 600
"10 He pays Rattan Co. by cheque and is allowed discount 20
&
330
"12 Tripathi & Co. pays into his Bank A/c 475
"15 He receives cheque from Warshi and allows him discount 35 450
"20 He receives cash 75 and cheque 100 for cash sale
"25 He pays into Bank, including cheques received on 15th and 20th 1,000
27 He pays by cheque for cash purchasecademy 275
"30 He pays sundry expenses in cash 50
(ICAI SM)
Sol.
Dr. Cash Book Cr
Date LF Discount Cash Bank Date Discount Cash
Payments
LE

Receipts Bank
20X0 20X0
Jan. 1 To Capital 20,000| Jan. 3 By Bank A/c C 19,000

3 To Cash C 19,000 By Bank A/c C 600

4 To Kirti & 600 10 By Ratan & Co. 20 330

7 To Cash C 600 25 By Bank A/c C 1,000

12 To Tripathi 475 27 By Purchases 275

A/c
To Warshi By S. Exp. A/c
15 35 450 30 50

20 Sales 175

25 To Cash 1,000 31 By Balance c/d 300 20,745

3521,225 21.075 20 21.225 21.075
Feb.1 To Balance 300 20,745
b/d

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4. Prepare a Petty Cash Book on the imprest System from the following:
20X0 Particulars
Jan. 1 Received 100 for petty cash
2 Paid bus fare 50
2 Paid cartage 2.50
3 Paid for Postage & Telegrams 5.00
3 Paid wages for casual labourers 6.00
4 Paid for stationery 4.00
Paid tonga charges 2.00
5 Paid for the repairs to chairs 15.00
5 Bus fare 1.00
5 Cartage 4.00
6 Postage and Telegrams 7.00
6 Tonga charges 3.00
6 Cartage 3.00
6 Stationery 2.00
6 Refreshments to customers 5.00
[ICAISM/RTP Nov. 2019 (Modified)/Nov. 2021 RTP]
Sol.
Petty Cash Book
Date v. Particulars Sundries
Receipts Conveyance Cartage Stationery Ostage &Wages
|
Total
20X0No. () () (8) rams (3) ()

100 Jan.1 lo Cash

2 1 By Conveyance 50 50
2 By Cartage 2.50| 2.50
3 3 By Postage andmng [Link] Acdemy 5.00
Conce
Telegrams
4 By Wages 6.00| 6.00
4 5 By Stationery 4.00 4.00
6 By Conveyance 2.00 2.00
7 By Repairs to 15.00| 15.00
Furniture
8 By Conveyance 1.00| 1.00
9 By Cartage 4.00| 4.00
6 10 By Postage and 7.00 7.00
Telegrams
11 By Conveyance 3.00| 3.00
12 By Cartage 3.00 3.00
13 By Stationery 2.00 2.00
14 By General 5.00 5.00

Expenses
60.00 6.50 9.50 6.00 12.00 6.00 20.00
By Balance c/d 40.00
100 100.00
40.00 To Balance b/d
60.00| 8 To Cash

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5. Enter the following transaction in Cash Bank with Discount and Bank columns. Cheques
are first treated as cash receipts:
20X0 Particulars
March 1
Cash in Hand 15,000
Overdraft in Bank 500
2 Cash Sales 3,000
3 Paid to Sushil Bros. by cheque 3,400
Discount received 100
5 Sales through credit card 2,800
6 Received cheque from Srijan 6,200
Endorsed Srijan's cheque in favour of Adit
Deposit into Bank 6,800
10 Received cheque from Aviral and deposited the same into Bank by
allowing discount of R 50 3,600
12 Adit informed that Srijan's cheque is dishonoured. Now cash is
received from Srijan and amount is paid to Adit through own
cheque
15 Sales through Debit Card 3,200
24 Withdrawn from Bank 1,800
28 Paid to Sanchit by cheque 3,000
30 Bank charged 1% commission on sales through Debit/Credit Cards
(ICAI SM)
Sol.
Dr Cash Book Cr.
Date Receipts |LF Discount Cash Bank Date Payments LF Discount Cash Bank
20X0 20X0
Mar. To Balance 15,000 Mar. By Balance b/d 500
1
b/d 1
To Sales 3,000 3 By Sushil Bros. 100 3,400
To Sales 2,800 By Adit 6,200
To Srijan 6,200 9 By Bank A/c C 6,800
To Cash GrooniTg 46.800O12 By Adit
6,200
A/c
10 To Aviral 50 3,600 24 By Cash A/c 1,800
12 To Srijan 6.200 28 By Sanchit 3,000
15 To Sales 3,200 30 By 60
Commission
24 To Bank
C

1,800 31 By Balance c/d 19,200 1,440

A/c
50 32,200 16,400 50 32,2 00
16,400
If the received cheque is endorsed to other party on the same day then no entry is required.
However, in the above case posting has been done through cash column as the
endorsement is done on the next day.
6. Shri Ramaswamy maintains a Columnar Petty Cash Book on the Imprest System. The
imprest amount is I 500. From the following information, show how his Petty Cash Book
would appear for the week ended 12th September, 20X0:
Date Particulars
7-9-20XO Balance in hand 134.90
Received Cash reimbursement to make up the imprest 365.10
Stationery 49.80
8-9-20XO Miscellaneous Expenses 20.90
9-9-20X0 Repairs 156.70
10-9-20X0 Travelling 68.50
11-9-20X0 Stationery 71.40
12-9-20XO Miscellaneous Expenses 6.30
Repairs 48.30
(ICAISM)

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Sol.

Petty Cash Book

Date Receipts Date Payments Total Stationery Travelling Misc. Repairs
20X0 (3) 20X0 Amount () () Expense (
(
()
Sept.7 To Balance b/d 134.90 7 By 49.80 49.80
Stationery
To Reimbursement 365.10 8 By Misc. 20.90 20.90
Expenses
9 By Repairs 156.70 156.70
10 By 68.50 68.50
Travelling
11 |By 71.40 71.40|

Stationery
12 By Misc. 6.30 6.30|
Expenses
By Repairs 48.30 48.30
421.90 121.20| 68.50 27.20 205.00
By Balance 78.10
E/d
500 500
13 |To Balance b/d 78.10
7. Prepare a Triple Column Cash Book from the following transactions and bring down the
balance for the start of next month:
20X0 Particulars
Nov. 1
Cash in hand 3,000
1 Cash at bank 12,000
2 Paid into bank 1,000
Bought furniture and issued cheque 1,500
100Ngcalocademy
8 Purchased goods for cashging Coneeyt 500
12 Received cash from Mohan 980
Discount allowed to him 20
14 Cash sales 5,000
16 Paid to Amar by cheque 1,450
Discount received 50
19 Paid into Bank 500
23 Withdrawn from Bank for Private expenses 600
24 Received cheque from Parul 1,430
Allowed him discount 20
26 Deposited Parul's cheque into Bank
28| Withdrew cash from Bank for Office use 2,000
30 Paid rent by cheque 800
[May 2018 RTP/ Nov. 2019 RTP (Modified)/May 2020 RTP/May 2021 RTP (M)]

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Sol.
Dr. Triple Column Cash Book Cr
Date Particulars |Discount Cash Bank Date Particulars Discount Cash Bank
20X0 20X0

Nov, 1 To Balance b/d 3.000 12.000INov. 2

By Bank (C) 1,000
Nov. 2 To Cash (C) 1,000| Nov. 5 By Furniture A/c 1,500
Nov. To Mohan 20 980 |Nov. 8 By Purchase A/c 500
12
Nov To Sales A/c 5.000 Nov. 16|By Amar 50 1,450
14
Nov. To Cash (C) 500 Nov. 19| By Bank (C) 500
19
Nov. To Parul 20 1,430 Nov. 23By Drawings A/c 600
24 (Note 2]
Nov. To Cash (C) 1,430 Nov. 26 By Bank (C) 1,430
26
Nov. To Bank (C) Nov. 28|By Cash (C)
2,000 2,000
28
Nov. 30]By Rent A/c 800
Nov. 30|By Balance c/d 8.980 8.580
40 12,410 14930 12.410 14.930
|Dec. 1 To Balance b/d 8,980 8,580

Note:
1) Discount allowed and discount received 40 and 50 respectively should be posted
in respective Accounts in the ledger.

2) When cheque is not promptly deposited into Bank, first it is entered in the Cash
Column and subsequently at the time of deposit, Bank Account is debited and Cash
Account is credited.
8. From the following transactions, prepare the Purchase Returns Book of Alpha & Co.., a
saree dealer and post them to ledger:
Date Debit Note No. Particularsn Academy
04.01.20X0 101 Returned to Goyal Mills, Surat - 5 polyester sarees
@RI00
09.01.20X0 Garg Mills, Kota - accepted the return of sarees (which
were purchased for cash) - 5 Kota sarees @R40.
16.01.20X0 102 Returned to Mittal Mills, Bangalore - 5 silk sarees
@R260.
30.01.20X0 Returned one typewriter (being defective) @3,500 to
B& Co.

(Nov. 2020 RTP)

Sol. Purchase Return Book
Date Debit Note No. Name of supplier L.F Amount
20X0
Jan.4 101 Goyal Mills, Surat 500
Jan.16 102 Mittal Mills, Banglore 1,300
Jan.31 Purchase Return, Account 1,800
(Cr.)

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Rectification of Errors
Assignment
Q. Questions & Solutions
No.
1. How would you rectify the following errors in the book of Rama & Co before preparation
of trial balance?
1) The total to the Purchases Book has been undercast by 100.
2) The Returns Inward Book has been undercast by 50.
3) A sum of 250 written off as depreciation on machinery has not been debited to
depreciation account.
4) A payment of 75 for salaries (to Mohan) has been posted twice to Salaries
Account.
5) The total of Bills Receivable Book 1,500 has been posted to the credit of Bills
Receivable Account.
6) An amount of 151 for a credit sale to Hari, although correctly entered in the Sales
Book, has been posted as 115.
7) Discount allowed to Satish 25 has not been entered in the Discount Column of
the Cash Book. the amount has been posted correctly to the credit of his personal
account. [ICAI SM]
Sol.1) The Purchases Account should receive another debit of
100 since it was debited short
previously:
"To Undercasting of Purchases Book for the month of --- 100."
|2) Due to this error the Returns Inward Account has been posted short by 50: the correct
entry will be:
"To Undercasting of Returns Inward Book for the month of --. R
50."
3) The omission of the debit to the Depreciation Account will be rectified by the entry:
"To Omission of posting on 250".

4) The excess debit will be removed by a credit in the Salaries Account by the entry:
"By double posting on 75".
5) 1,500 should have been debited to the Bills Receivable Account and not credited. To
correct the mistake, the Bills Receivable Account should be debited by 3,000 by the
entry:
"To Wrong posting of B/R received on 3,000"
6) Hari's personal A/c is debited 36 short. The rectification entry willbe:
"To Wrong posting 36".

7) Due to this error, the discount account has been debited short by [Link] required
entry is: "To Omission of discount allowed to Satish on 25."
2. The following errors were found in the book of Ram Prasad & Sons. Give the necessary
entries to correct them.
1) 500 paid for furniture purchased has been charged to ordinary Purchases Account.
2) Repairs made were debited to Building Account for 50.

3) An amount of 100 withdrawn by the proprietor for his personal use has been
debited to Trade Expenses Account.
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4) 100 paid for rent debited to Landlord's Account.

5) Salary 125 paid to a clerk due to him has been debited to his personal account.
6) 100 received from Shah & Co. has been wrongly entered as from Shaw & Co.
7) 700 paid in cash for a typewriter was charged to Office Expenses Account.
[ICAI SM]
Sol. Journal Entries
[Link]. Particulars L.F. Debit Credit
()
1) Furniture A/c Dr. 500
To Purchases A/c 500
(Correction of wrong debit to Purchases
|A/c for furniture purchased.)
2) Repairs A/c Dr. 50
To Building A/c 50
(Correction of wrong debit to building A/c
for repairs made.))
3) Drawings A/c Dr. 100
To Trade Expenses A/c 100
(Correction of wrong debit to Trade
Expenses A/c for cash withdrawn by the
proprietor for his personal use.)
4) Rent A/c Dr. 100
To Landlord's Personal A/c 100
(Correction of wrong debit to landlord's A/c
for rent paid.)
5) Salaries A/c Dr. 125
To Clerk's (Personal) A/c 125
(Correction of wrong debit to Clerk's
personal A/c for salaries paid.)ducation Ac dem
6) Shaw & Co. Dr. 100
To Shah & Co. 100
(Correction of wrong credit to Shaw & Co.
Instead of Shah & Co.)
7) Typewriter A/c Dr. 700
To Office Expenses A/c 700
(Correction of wrong debit to Office
Expenses A/c for purchase oftypewriter:.)

3 Give journal entries to rectify the following:

1) A purchase of goodsfrom Ram amounting to 150 has been wrongly entered through
the Sales Book.
2) A Credit sale of goods amounting 120to Ramesh has been wrongly passed through
the Purchase Book.

3) On 31st December, 20X0 goods of the value of 300 were returned by Hari Saran and
were taken into inventory on the same date but no entry was passed in the books.
4) An amount of 200 due from Mahesh Chand, which had been written off as a bad
debt in a previous year, was unexpectedly recovered, and had been posted to the
personal account of Mahesh Chand.
5) A Cheque for 100 received from Man Mohan was dishonoured and had been posted
to the debit of Sales Returns Account.
[ICAI SM/Nov. 2006/Dec. 2021(M)]

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Sol. Journal Entries

[Link]. Particulars L.F. Debit (®) Credit

1) Purchases A/c Dr. 150

Sales A/c Dr. 150
To Ram 300
(Correction of wrong entry in the sales
Book for a purchase of goods from Ram.)
2) Ramesh Dr. 240
To Purchases A/c 120
To Sales A/c 120
(Correction of wrong entry in the Purchases
Book of a credit sale of goods to Ram.
3) Returns Inwards A/c Dr. 300
To Hari Saran 300
(Entry of goods returned by him and taken
in inventory omitted from records.)
4) Mahesh Chand Dr. 200
To Bad Debts Recovered A/c 200
(Correction of wrong credit to Personal A/c
in respect of recovery of previously written
off bad debts.)
5) Man Mohan Dr. 100
To Sales Return A/c 100
(Correction of wrong debit to Sales Returns
A/c for dishonour of cheque received from
Man Mohan.)

4 Correct the following errors ()) without opening a suspense account and (ii) opening a
suspense account:
a) The Sales Book has been totalled 100 shorta demy
b) Goods worth 150 returned by Green & Co. have not been recorded anywhere.
c) Goods purchased ? 250 have been posted to the debit of the supplier Gupta & Co.
d) Furniture purchased from Gulab & Bros, 1,000 has been entered in Purchases
Day Book.
e) Discount received from Red & Black 15 has not been entered in the Discount
Column of the Cash Book.
) Discount allowed to Mohan & Co. 18 has not been entered in the Discount
Column of the Cash Book. The account of G. Mohan & Co. has, however, been
correctly posted. [LCAI SM/Nov. 2019]

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Sol. i) Without opening a suspense account:

a) Since sales book has been cast 100 short, the Sales Account has been similarly
credited 100 short. The correcting entry is to credit the Sales Account by 100 as
"By wrong totalling of the Sales Book 100".

b) To rectify the omission, the Returns Inwards Account has to be debited and the
account of Green & Co. credited. The entry:
Returns Inward Account Dr 150

To Green & Co. 150

(Goods returned by the firm, previously
omitted from the Returns Inward Book.)
c) Gupta & Co. have been debited I 250 instead of being credited. This account should
now be credited by 500 to remove the wrong debit and to give the correct debit.
The entry will be on the credit side..."By errors in posting 500".
d) By this error Purchases Account has to be debited by 1,000 whereas the debit
should have been to the Furniture Account. The correcting entry will be:
Furniture Account Dr. 1,000|
To Purchases Account 1,000
(Correction of the mistake by which of the
Furniture Account.)
e) The discount of 15 received from Red & Black should have been entered on the
credit side of the cash book. Had this been done, the Discount Account would have
been credited (through the total of the discount column) and Red & Black would
have been debited. This entry should not be made:
Red & Black Dr.
To Discount Account 15
(Rectification of the error by which the
discount allowed by the firm was not entered
in Cash Book.) Grooming Educatin Acadmy
f) In this case the account of the customer has been correctly posted; the Discount
Account has been debited 18 short since it has been omitted from the discount
column on the debit side of the cash book. The discount account should now be debited
by the entry; "To Omission of entry in the Cash Book 18."
ii) Ifa Suspense Account is opened:
Journal Entries
[Link]. Particulars L.F. Debit Credit
(3) ()
1 Suspense Account Dr. 100
To Sales Account 100
(Being the correction arising from under
casting of Sales Day Book.)
2) Return Inward Account Dr. 150
To Green & Co 150
(Being the recording of unrecorded
returns.)
3) Suspense Account Dr. 500
To Gupta & Co. 500
(Being the correction of the error by which
Gupta & Co. was debited instead of being
credited by 250.)

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4) Furniture Account Dr. 1,000

To Purchases Account 1,000
(Being the correction of recording purchase
of furniture as ordinary purchases.)
5) Red & black Dr. 15
To Discount Account 15
(Being the recording of discount omitted to
be recorded.)
6) Discount Account Dr. 18
To Suspense Account 18
(Being the correction of omission of the
discount allowed from Cash Book
customer's account already posted
correctly.)

Dr. Suspense A/c Cr.

Date Particulars Date Particulars
To Sales A/c 100 By Difference in Trial 582
Balance
To Gupta & Co. 500 (Balancing figure)
By Discount A/c 18
600 600|

Notes:
i) One should note that the opening balance in the Suspense Account will be equal to the
difference in the trial balance.
ii) If the question is silent as to whether a Suspense Account has been opened, the
student should make his assumption, state it clearly and then proceed.
5. Correct the following errors found in the books of Mr. Dutt. The Trial Balance was out by
493 excess credit. The difference thus has been posted to a Suspense Account.
a) An amount of R 100 was received from D. Das on 31st December, 20X0 but has been
omitted to enter in the Cash Book.
b) The total of Returns Inward Book for December has been cast 100 short.
c) The purchase of an office table costing 300 has been passed through the
Purchases Day Book.
d) 375 paid for Wages to workmen for making show- cases had been charged to
"Wages Account".
e) purchase ofR67 had been posted to the trade payables' account as 60.
A

) cheque for 200 received from P. C. Joshi had been dishonoured and was passed
A

to the debit of "Allowances Account".

g) 1,000 paid for the purchase of a motor cycle for Mr. Dutt had been charged to
"Miscellaneous Expenses Account":
h) Goods amounting to R 100 had been returned by customer and were taken into
inventory, but no entry in respect thereof, was made into the books.
i) A sale of 200 to Singh & Co. was wrongly credited to their account. Entry was
made correctly made in sales book.
[ICAI SM]

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Sol. Journal Entries

[Link]. Particulars L.F. Debit () Credit ()
1) Cash Account Dr. 100
To D. Das 100
(Being the amount received.)
2) Returns Inward Account Dr 100
To Suspense Account 100
(Being the mistake in totalling the Returns
Inward Book corrected.)
3) Furniture Account Dr 300
To Purchases Account 300
(Being the rectification of mistake by which
purchase of furniture was entered in
Purchases book and hence debited to
Purchases Account.)
4) Furniture Account Dr 375
To Wages Account 375
(Being the wages paid to workmen for making
show-cases which should be capitalized and
not to be charged to Wages Account.)
5) Suspense Account Dr 7
To Creditors (personal) Account 7

(Being the mistake in crediting the Trade

payables Account less by R 7, now corrected.)
6) P.C. Joshi Dr 200
To Allowances Account 200
(Being the cheque of P.C. Joshi dishonoured,
previously debited to Allowances Account)
7) Drawings Account Dr. 1,000
To Miscellaneous Expenses 1,000
(Being the motor cycle purchased for Mr. Dutt
debited his Drawings Account instead ofdem
Miscellaneous Expenses Account as
previously done by mistake.)
8) Returns Inward Account Dr 100
To Debtors (Personal) Account 100
(Correction of the omission to record return
of goods by customers.)
9) Singh & Co. Dr. 400
To Suspense Account 400
(Being the correction of mistake by which the
account of Singh & Co. was credited by 200
instead of being debited.)

Dr. Suspense A/c Cr.

Date Particulars Date Particulars
20X0 To Difference in Trial 493| 20X0 By Returns Inwards A/c 100
Balance
To Trade payables 7 By Singh & Co. 400

500 500

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6. The following errors, affecting the account for the year 20X0 were detected in the books
of Jain Brothers, Delhi:
1) Sale of old Furniture 150 treated as sale of goods.
2) Receipt of 500 from Ram Mohan credited to Shyam Sunder.
3) Goods worth 100 brought from Mohan Narain have remained unrecorded so far.
4) A return of 120 from Mukesh posted to his debit.
5) A return of 90 to Shyam Sunder posted as 9 in his account.
6) Rent of proprietor's residence, 600 debited to rent A/c.
7) A payment of R215 to Mohammad Sadig posted to his credit as 125.
8) Sales Book added 900 short.
9) The total of Bills Receivable Book I 1,500 left unposted.
You are required to pass the necessary rectifying entries and show how the trial balance
would be affected by the errors. [ICAI SMJ
Sol. Journal Entries
[Link]. Particulars L.F. Debit () Credit(O)
1) Sales Account Dr. 150
To Furniture Account 150
(Rectification of sales of furniture treated as
sales of goods.)
2) Shyam Sunder Dr. 500
To Rama Mohan 500
(Rectification of a receipt from Ram Mohan
credited to Shyam Sunder.)
3) Purchases Account Dr. 100
To Mohan Narain 100
(Purchases of goods from Mohan Narain
unrecorded.)
6) Drawing Account Dr. 600
To Rent Account 600
(Rectification of Payment of rent of
proprietor's residence treated as payment of
office rent.) GroominaEducation AC dem

Note: For 4, 5, 7, 8, 9 no journal entry can be passed as they affect a single account. The
correction will be as under:
4) Credit Mukesh's Account with 240.
5) Debit the account of Shyam Sunder by 81.
7) Debit the account of Mohammad Sadiq by 340.
8) Credit Sales Account by 900.
9) Debit Bills Receivable Account with 1,500.
Effect of the Errors on Trial Balance
1) No effect
2) No effect
3) No effect
4) Trial Balance credit total short by 240.
5) Trial Balance debit total short by 81.
6) No efect
7) Trial Balance debit total short by 340.
8) Trial Balance credit total short by 900.
9) Trial Balance debit total short by 1,500.

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7 Write out the Journal Entries to rectify the following errors, using a Suspense Account.
1) Goods of the value of 100 returned by Mr. Sharma were entered in the Sales Day
Book and posted therefrom to the credit of his account;
2) An amount ofI 150 entered in the Sales Returns Book, has been posted to the debit
of Mr. Philip, who returned the goods;
3) A sale of T 200 made to Mr. Ghanshyam was correctly entered in the Sales Day Book
but wrongly posted to the debit of Mr. Radheshyam as 20;
4) Bad Debts aggregating 450 were written off during the year in the Sales ledger
but were not adjusted in the General Ledger; and
5) The total of "Discount Allowed" column in the Cash Book for the month of
September, 20X0 amounting to 250 was not posted. [ICAI SM]

Sol. Journal Entries

[Link]. Particulars L.F. Debit () Credit ()

1) Sales Account Dr. 100

Sales Returns Account Dr: 100
To Suspense Account 200
(The value of goods returned by Mr. Sharma
wrongly posted to Sales and omission of debit to
Sales Returns Account, now rectified.)
2) Suspense Account Dr 300
To Mr. Philip 300
(Wrong debit to Mr. Philip for goods returned by
him, now rectified.)
3) Mr. Ghanshyam Dr 200
To Mr. Radheshyam 20
To Suspense Account 180
(Omission of debit to Mr. Ghanshyam and wrong
credit to Mr. Radheshyam for sale of 200, now
rectified.)
4) Bad Debts Account Groomning Education Aca Dny 450
To Suspense Account 450
(The amount of Bad Debts written off not
adjusted in General Ledger, now rectified.)
5) Discount Account Dr 250
To Suspense Account 250
(The total of Discount allowed during
September, 20X0 not posted from the Cash
Book; error now rectified.)
8. Mr. Roy was unable to agree the Trial Balance last year and wrote out the difference to the
Profit and Loss Account of that year. Next Year, he appointed a Chartered Accountant who
examined the old books and found the following mistakes:
1) Purchase of a scooter was debited to conveyance account 3,000.
2) Purchase account was over-cast by 10,000.
3) A credit purchase of goods from Mr. P for I 2,000 entered as a sale.
4) Receipt of cash from Mr. A was posted to the account of Mr. B R 1,000.
5) Receipt of cash from Mr. C was posted to the debit of his account, 500.
6) 500 due by Mr. Q was omitted to be taken to the trial balance.
7) Sale of goods to Mr. R for 2,000 was omitted to be recorded.
8) Amount of 2,395 of purchase was wrongly posted as 2,593.
Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.
[ICAI SM/ July 2021]

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Sol. In the Books of Mr. Roy

Journal Entries
[Link]. Particulars L.F. Debit (E) Credit ()
1
Motor Vehicles Account Dr. 2,700
To Profit and Loss Adjustment A/c 2,700
(Purchase of scooter wrongly debited to
conveyance account now rectified
capitalization of 2,700, i.e., I 3,000 less 10%
depreciation.)
2) Suspense Account Dr. 10,000
To Profit & Loss Adjustment A/c 10,000
(Purchase Account overcast in the previous
year; error now rectified.)
3) Profit & Loss Adjustment A/C Dr. 4,000
To P's Account 4,000
(Credit purchase from P 2,000, entered as
sales last year; now rectified.)
4) B's Account Dr. 1,000
To A's Account 1,000
(Amount received from A wrongly posted to
the account of B; now rectified.)
5) Suspense Account Dr. 1,000
To C's Account 1,000
(R 500 received from C wrongly debited to
his account; now rectified.)
6) Trade receivables Dr. 500
To Suspense Account 500
( 500 due by Q not taken into trial balance;
now rectified.)
7) R's Account Dr.
2,000
To Profit & Loss Adjustment A/C 2,000
(Sales toR omitted last year; now adjusted.)o dem
8) Suspense Account Dr. 198
To Profit & Loss Adjustment A/c 198
(Excess posting to purchase account last year,
2,593, instead ofR 2,395, now adjusted.)
9) Profit & Loss Adjustment A/c Dr. 10,898
To Roy's Capital Account 10,898
(Balance of Profit & Loss Adjustment A/c
transferred to Capital Account.)
10) Roy's Capital Account Dr. 10,698
To Suspense Account 10,698
(Balance of Suspense Account transferred to
the Capital Account.)

Profit and Loss Adjustment Account

Dr. (Prior Period Items) Cr.
Particulars Particulars
To P 4,000 By Motor Vehicles A/c 2,700
To Roy's Capital (transfer) 10,898 By Suspense A/c 10,000
By R 2,000
By Suspense Account 198
14,898 14,898

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Dr. Suspense Account Cr.

Particulars Particulars
To Profit & Loss Adjustment 10,000 By Trade Receivables (Q) 500
Account
To C 1,000| By Roy's Capital Account 10,698
(Transfer)
To Profit & Loss Adjustment 198
Account
11,198 11,198
9
The trial balance of Mr. W & H failed to agree and the difference 20,570 was put into
suspense pending investigation which disclosed that:
i) Purchase returns day book had been correctly entered and totalled at 6,160, but
had not been posted to the ledger.
ii) Discounts received 1,320 had been debited to discounts allowed.
iii) The Sales account had been under added byI 10,000.
iv) credit sale of ? 1,470 had been debited to a customer account at 1,740.
A

v) vehicle bought originally for 7,000 four years ago and depreciated
A
to
1,200
had been sold for 1,500 in the beginning of the year but no entries, other than in
the bank account had been passed through the books.
vi) An accrual of 560 for telephone charges had been completely omitted.
vii) A bad debt of 1,560 had not been written off and provision for doubtful debts
should have been maintained at 10% of trade receivables which are shown in the
trial balance at 23,390 with a credit provision for bad debts at 2,320.
viii) Tools bought for 1,200 had been inadvertently debited to purchases.
ix) The proprietor had withdrawn, for personal use, goods worth 1,960. No entries
had been made in the books.
Required:
i) Pass rectification entries without narration to correct the above errors before
preparing annual accounts.
ii) Prepare a statement showing effect of rectification on the reported net profit before
correction of these errors. [ICAI SM]
Sol. i) Journal Entries
[Link]. Particulars Debit () Credit ()
Suspense A/c Dr. 6,160
To Return Outward A/c 6,160
i) Suspense A/c Dr. 2,640
To Discount Allowed A/c 1,320
To Discount Received A/c 1,320
iii) Suspense A/c Dr. 10,000
To Sales A/c 10,000
iv) Suspense A/c Dr. 270
To Customer A/c 270
V) Suspense A/c Dr. 1,500
To Vehicle A/c 1,200
To Profit on Sale of Vehicle A/c 300
vi) Telephone Charges A/c Dr. 560
To Outstanding Expenses A/c 560
vii) Bad Debts A/c Dr. 1,560
To Trade receivables A/c 1,560
Provision for Doubtful Debts A/c Dr. 164
To Profit and Loss A/c 164

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viii) Loose Tools A/c Dr. 1,200

To Purchases A/c 1,200
ix) Drawings A/c Dr. 1,960
To Purchases A/c 1,960

1) Bad debts will be debited in the profit and loss account.

-
2) Provision @ 10% of 21,560 i.e. 2,156; Excess provision 164 (2320 2156 =* 164).
Working Notes:
| [Link]. Particulars
Trade receivables as per books 23,390
Deduction vide item (iv) 270 270
Bad Debts 1,560 1,830
21,560

ii) Suspense Account

Particulars Particulars
To Return outward Account 6,160 By balance b/d 20,570
To Discount allowed Account 1,320
To Discount Received Account 1,320
To Sales Account 10,000
To Customers Account 270
To Vehicles Account 1,200
To Profit on Sale of Vehicle 300
20,570 20,570
10. On-going through the Trial balance of Ball Bearings Co. Ltd. you find that the debit is in
excess by ? 150. This was credited to "Suspense Account". On a close scrutiny of the books
the following mistakes were noticed:
1) The totals of debit side of "Expenses Account" have been cast in excess by 50.
2) The "Sales Account" has been totalled in short by 100.
3) One item of purchase of 25 has been posted from the day book to ledger as 250.
4) The sale return of 100 from a party has not been posted to that account though
the Party's account has been credited.
5) A cheque of ? 500 issued to the Suppliers' account (shown under Trade payables)
towards his dues has been wrongly debited to the purchases.
6) A credit sale ofT 50 has been credited to the Sales and also to the Trade receivables
Account.
You are required to :
i) Pass necessary journal entries for correcting the above;
ii) Show how they affect the Profits; and
ii) Prepare the "Suspense Account" as it would appear in the ledger.
[LCAI SM]

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Sol. i) Journal Entries

[Link]. Particulars | L.E. Debit () Credit ()
1) Suspense Account Dr. 50
To Expenses Account 50
(Being the mistake in totaling of Expenses
Account rectified.)
2) Suspense Account Dr. 100
To Sales Account 100
(Being the mistake in totaling of Sales Accounts
rectified.)
3) Supplier Dr. 225
To Suspense Account 225
(Being the mistake in posting from Day Book to
Ledger rectified.)
4) Sales Returns Account Dr. 100
To Suspense Account 100
(Being the sales return from a party not posted
to "Sales Returns" now rectified.)
5) Trade payables Account Dr. 500
To Purchases Account 500
(Being the payments made to supplier wrongly
posted to purchases now rectified.)
6) Trade receivables Account Dr. 100
To Suspense Account 100
(Being the sales wrongly credited to Customer's
Account now rectified.)

ii) As a result of the above corrections the Net Profit will be:
Particulars Increased by Decreased by
() (3)
Mistake in totalling in "Expenses" 50
Mistake in totalling in "Sales" 100
Mistake in posting from day bookto Ledger underchdemy 500
"Purchases" ing Concep
Omission in posting under "Sales Returns" 100
Total 650 100
Net Increase { 550
As a result of these adjustments, the Profits will be increased by 550.

iii)
Dr. Suspense Account Cr.
Particulars Particulars
To Expenses Account 50 By Difference in Trial Balance 150
To Sales Account 100 By Trade payables 225
To Balance c/d 425 By Sales Returns Account 100
By Trade receivables 100
575 575
By Balance b/d 425

Since the Suspense Account does not balance, it is clear that all the errors have not been
traced.

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11. Mr. closed his books of account on September 30, 20X0 in spite of a difference in the trial
A

balance. The difference was 830 the credits being short; it was carried forward in a
Suspense Account. In 20X1, following errors were located:
i) A sale of 2,300 to Mr. Lala was posted to the credit of Mrs. Mala.
i) The total of the Returns Inward Book for July, 20X0 1,240 was not posted in the
ledger.
iii) Freight paid on a machine 5,600 was posted to the Freight Account as 6,500.
iv) White carrying forward the total in the Purchases Account to the next page, 65,590
was written instead of 56,950.
v) A sale of machine on credit to Mr. Mehta for 9,000 on 30th Sept. 20X0 was not
entered in the books at all. The book value of the machine was 6,750.
Pass journal entries to rectify the errors. Have you any comments to make?
[ICAI SM]
Sol. Journal Entries
[Link]. Particulars L.E. Debit (*) Credit
(3)
1) Mrs. Mala Dr. 2,300
Mr. Lala Dr. 2,300
To Suspense A/c 4,600
(Correction of error by which a sale of
2,300 to Mr. Lala was posted to the Credit of
Mrs. Mala.
2) Profit and Loss Adjustment A/c Dr. 1,240
To Suspense A/c 1,240
(Rectification of omission to post the total
of Returns Inward Book for July, 20XO.)
3) a) Machinery A/c Dr. 5,600
Suspense A/c Grpgming Edycation Ac 900
To Profit & Loss Adjustment A/c 6,500
(Correction of error by which freight paid
for a machine 5,600 was posted to Freight
Account at 6,500 instead of capitalizing
it.
3) b) Profit & Loss Adjustment A/c Dr. 560
To Plant and Machinery A/c 560
(Depreciation @ 10% charged on freight
paid on a machine capitalized.)
4) Suspense A/c Dr. 8,640
To Profit & Loss Adjustment A/c 8,640
(Correction of wrong carry forward of total
in the purchase Account to the next page
65,590 instead ofR 56,950.)
5) Mr. Mehta Dr. 9,000
To Plant & Machinery A/c 6,750
To Profit & Loss Adjustment A/c 2,250
(Correction of omission of a sale of machine
on credit to Mr. Mehta for9,000.)

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Comments:
The Suspense Account will now appear as shown below:

Dr. Suspense Account Cr.

Particulars Particulars
To Profit and Loss 900 By Difference in Trial Balance 830
Adjustment A/c
To Profit and Loss 8,640 By Sundries
Adjustment A/c
Mrs. Mala 2,300
Mr. Lala 2,300
By Profit and Loss Adjustment A/c 1,240
By balance c/d 2,870
9,540 9,540

Since the Suspense Account still shows a balance, it is obvious that there are still some
errors left in the books.
Profit and loss Adjustment A/c
Dr. (For Prior Period Items) Cr.
Particulars Particulars
To Suspense A/c 1,240 By Machinery A/c 5,600
To Plant and Machinery A/c 560 By Suspense A/c 900
To Balance c/d 15,590 By Suspense A/c 8,640
By Mr. Mehta 2,250
17,390 17,390
12. A
merchant's trial balance as on June 30, 20X0 did not agree. The difference was put to a
Suspense Account. During the next trading period, the following errors were discovered:
i) The total of the Purchases Book of one page, 4,539 was carried forward to the next
page asR 4,593. Grooming Education Academy
ii) A sale of 573 was entered in the Sales Book as 753 and posted to the credit of
the customer.
iii) Areturn to a creditor,I 510 was entered in the Returns Inward Book; however, the
creditor's account was correctly posted.
iv) Cash received from C. Das, 620 was posted to the debit of Das. G.

v) Goods worth I840 were despatched to a customer before the close of the year but
no invoice was made out.
vi) Goods worth1,000 were sent on sale or return basis to a customer and entered in
the Sales Book. At the close of the year, the customer still had the option to return
the goods. The sale price was 25% above cost.
You are required to give journal entries to rectify the errors in a way so as to show the
current year's profit or loss correctly. [ICAI SM/January 2021 (modified)]

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Sol. Journal Entries

[Link]. Particulars L.E. Debit (*) Credit ()
1) Suspense A/c Dr 54
To Profit and Loss Adjustment A/c 54
(Correction of error by which Purchase
Account was over debited last year- 4,593
carried forward instead of 4,539.)
2) Profit & Loss Adjustment A/c Dr 180
Customer's A/c Dr 1,326
To Suspense Account 1,506
(Correction of the entry by which (a) Sales
A/c was over credited by 180 (b) customer
was credited by 753 instead of beingdebited
by 573.)
3) Suspense A/c Dr 1,020
To Profit & Loss Adjustment A/c 1,020
(Correction of error by which Returns Inward
Account was debited by 510 instead of
Returns Outwards Account being credited by
R510.)
4) Suspense A/c Dr 1,240
To [Link] 620
To G. Das 620
(Removal or wrong debit to G. Das and giving
credit to C. Das from whom cash was
received.)
5) Customer's Account Dr 840
To Profit & Loss Adjustment A/c 840
(Rectification of the error arising from non
preparation of invoice for goods delivered.)
6) Profit & Loss Adjustment A/c Dr 200
Inventory A/c Grooming Education Ac Dr 800
To Customer's A/c 1,000
(The Customer's A/c credited with 1,000 for
goods not yet purchased by him; cost of the
goods debited to inventory and "Profit"
debited to Profit Loss Adjustment Account.)
&

7) Profit & Loss Adjustment A/c Dr 1,534

To Capital A/c 1,534
(Transfer of Profit & Loss Adjustment A/c
balance to the Capital Account.)

13. M/s Suman & Co. find the following errors in their books of account before preparation of Trial
Balance. You are required to pass necessary journal entries:
i) A purchase of ? 5,600 from M/s Minu & Co. was recorded in the accounts of M/s Mintu
& Co. as 6,500. Day Book entry has also been passed incorrectly.

ii) A sale of 9,800 to M/s Bantu Bros. was recorded in M/s Bindu & Co.'s account as
8,900. Day Book entry has also been incorrectly passed.
iii) Discount allowed 560 (as per Cash Book) has been posted to Commission Account.
But the Cash Book total should be 650, because discount allowed of 90 to M/s Bantu
Bros. has been omitted.
iv) A cheque of I9,700 drawn by M/s Bantu Bros. has been dishonoured, but wrongly
debited to M/s Bhakt & Co.
Should the Trial Balance tally without rectification of errors? (May 2019 RTP)

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Sol. Journal Proper of Suman & Co.

Rectification entries
[Link]. Particulars Dr. (8) Cr. ()
i) M/s Mintu & Co. A/c 6,500
To M/s Minu & Co. A/c 5,600
To Purchases A/c 900
(Rectification of purchase entry for 5,600
dated..as 6,500 in M/s Mintu & Co.'s Account in
place of M/s Minu & Co. A/c.)
ii) M/s Bantu Bros. A/c 9,800
To Sales A/c 900
To M/s Bindu & Co. A/c 8,900
(Rectification of sale entry for 9,800 dated ....as
8,900 in M/s Bindu & Co.'s Account in place of M/s
Bantu Bros. A/c)
iii) Discount Allowed A/c 650
To Commission A/c 560
To M/s Bantu Bros. A/c 90
(Rectification of wrong posting of discount in
commission account and omission of discount
transaction dated....)
iv) M/s Bantu Bros. A/c 9,700
To Bhakt & Co. A/c 9,700
(Wrong posting for the dishonoured cheque dated.
is being rectified.)

*Since all the errors are two-sided in nature, Trial Balance would have tallied even if the
rectifications are not done.
14. Classify the following errors under the three categories - Errors of Omission, Errors of
Commission and Errors of Principle.
i) Sale of furniture credited to Sales Account. Academy
ii)) Purchase worth 4,500 from M not recorded in subsidiary books.
iii) Credit sale wrongly passed through the Purchase Book.
iv) Machinery sold on credit to Mohan recorded in Journal Proper but omitted to be
posted.
v) Goods worth I5,000 purchased on credit from Ram recorded in the Purchase Book
as 500.
[Nov. 2018 RTP/Nov. 2021 RTP/Oct. 2021 MTP]
Sol. i) Error of Principle.
ii) Error of Omission.
iii) Error of Commission.
iv) Error of Omission.
v) Error of Commission.

15. The following errors were committed by the Accountant of Geete Dye-Chem.
i) Credit sale of 400 to Trivedi & Co. was posted to the credit of their account.
ii) Purchase of 420 from Mantri & Co. passed through Sales Day Book as 240. How
would you rectify the errors assuming that:
a) they were detected before preparation of Trial Balance.
b) they were detected after preparation of Trial Balance but before preparing Final
Accounts, the difference was taken to Suspense A/c.
c) they were detected after preparing Final Account.
[May 2018 RTP/Nov. 2019 RTP/Nov. 2020 RTP|

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Sol. i) This is one sided error. Trivedi & Co. Account is credited instead of debit. Amount
posted to the wrong side and therefore while rectifying the account, double the amount
(R800) will be taken.
Before Trial Balance After Trial Balance After Final Accounts
No Entry Trivedi & Co. A/c Dr. 800 Trivedi & Co. A/c Dr. 800
Debit Trivedi A/c with To Suspense A/c 800 To Suspense A/c 800
800

ii) Purchase of 420 is wrongly recorded through sales day book as I 240.
Correct Entry Entry Made Wrongly
Purchase A/c Dr. 420 Mantri & Co. Dr. 240
To Mantri & Co.
420 To Sales 240

Rectification Entry
Before Trial Balance After Trial Balance After Final Accounts
Sales A/c Dr. 240 Sales A/c Dr. 240 Profit & Loss Adj. A/c Dr. 660
Purchase A/c Dr. 420 Purchase A/c Dr. 420 To Mantri & Co. 660
To Mantri & Co. 660 To Mantri & Co. 660
16. Write out the Journal Entries to rectify the following errors, using a Suspense Account.
1) Goods of the value of 10,000 returned by Mr. Sharma were entered in the Sales
Day Book and posted therefrom to the credit of his account;
2) An amount of 15,000entered in the Sales Returns Book, has been posted to the
debit of Mr. Philip, who returned the goods;
3) A sale of ? 20,000 made to Mr. Ghanshyam was correctly entered in the Sales Day
Book but wrongly posted to the debit of Mr. Radheshyam as 2,000;
4) Bad Debts aggregating 45,000 were written off during the year in the Sales
ledger but were not adjusted in the General Ledger; and
5) The total of "Discount Allowed" column in the Cash Book for the month of
September, 20X0 amounting to 25,000 was not posted.
[May 2019 RTP/May 2021 RTP]
Sol. Journal Entries
[Link]. Particulars L.F. Debit () Credit ()
1) Sales A/c Dr. 10,000
Sales Returns A/c 10,000
To Suspense A/c 20,000
(The value of goods returned by Mr. Sharma
wrongly posted to Sales and omission of
debit to Sales Returns Account, now
rectified.)
2) Suspense A/c Dr. 30,000
To Mr. Philip 30,000
(Wrong debit to Mr. Philip for goods
returned by him, now rectified.)
3) Mr. Ghanshyam Dr. 20,000
To Mr. Radheshyam 2,000
To Suspense A/c 18,000
(Omission of debit to Mr. Ghanshyam and
wrong credit to Mr. Radhesham for sale of
20,000, now rectified.)

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Bad Debts A/c Dr. 45,000

To Suspense A/c 45,000
(The amount of Bad Debts written off not
adjusted in General Ledger, nowrectified.)
5 Discount A/c Dr. 25,000
To Suspense A/c 25,000
(The total of Discount allowed during
September, 20X1 not posted from the Cash
Book; error now rectified.)
17. Give journal entries (narrations not required) to rectify the following:
i) Purchase of furniture on credit from Nigam for 3,000 posted to Subham account
as 300.
ii) A Sales Return of 5,000 to Jyoti was not entered in the financial accounts though
it was duly taken in the stock book.

iii) Investments were sold for 75,000 at a profit ofR 15,000 and passed through Sales
account.
iv) An amount of ? 10,000 withdrawn by the proprietor (Darshan) for his personal use
has been debited to Trade Expenses account.
(May 2018/ May 2020 RTP)
Sol. Journal Entries
s. NO. Particulars L.F. Dr. Cr.
(R ()
Subham A/c Dr. 300
Furniture A/c Dr. 2,700
To Nigam 3,000
ii) Sales Returns A/c Dr. 5,000
To Jyoti 5,000
iii) Sales A/c Grooming Education Acadely Dr. 75,000
To P & L A/c (Gain on sale of investments) 15,000
To Investments A/c 60,000
iv) Drawings A/c Dr. 10,000
To Trade Expenses A/c 10,000
18. The following mistakes were located in the books of a concern after its books were closed
and a Suspense Account was opened in order to get the Trial Balance agreed:
i) Sales Day Book was overcast by 1,000.
ii) A sale of 5,000 to X was wrongly debited to the Account of Y.

ii) General expenses 180 was posted in the General Ledger asI 810.
iv) A Bill Receivable for 1,550 was passed through Bills Payable Book. The Bill was
given by P.

v) Legal Expenses 1,190 paid to Mrs. Neetu was debited to her personal account.
vi) Cash received from Ram was debited to Shyam 1,500.
vii) While carrying forward the total of one page of the Purchases Book to the next, the
amount of 1,235 was written as 1,325.
Find out the amount of the Suspense Account and Pass entries (including narration) for
the rectification of the above errors in the subsequent year's books.
[Nov. 2018/May 2020 RTP/Nov. 2021 MTP]

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Sol. Journal Entries

[Link]. Particulars Dr. () Cr. ()
i) P&L AdjustmentA/c Dr. 1,000
To Suspense A/c
1,000
(Correction of error by which sales account was
overcast last year.)
ii) X Dr. 5,000
To Y 5,000
(Correction oferror by which sale of 5,000 to X
was wrongly debited to Y's account.)
iii) Suspense A/c Dr. 630
To P &LAdjustment A/c 630
(Correct of error by which general expenses of
180 was wrongly posted as 810.)
iv) Bills Receivable A/c Dr. 1,550
Bills Payable A/c Dr. 1,550
To P 3,100
(Correction of error by which bill receivable of{
1,550 was wrongly passed through BP book.)
V) P&LAdjustment A/c Dr. 1,190
To Mrs. Neetu 1,190
(Correction of error by which legal expenses paid to
Mrs. Neetu was wrongly debited to her personal
account
vi) Suspense A/c Dr. 3,000
To Ram 1,500
To Shyam 1,500
(Removal of wrong debit to Shyam and giving credit
to Ram from whom cash was received) Academy
vii) Suspense A/c Dr. 90
To P&L Adjustment A/c 90
(Correction of error by which Purchase A/C was
excess debited by 90/-, i.e., I 1,325 -R 1,235.)

Suspense A/c
Particulars Particulars
To P&L Adjustment A/c 630By P&L Adjustment A/c 1,000
To Ramn 1,500| By Difference in Trial 2,720
To Shyam 1,500| Balance
(Balancing figure)
To P&L Adjustment A/C 90
3,720 3,720
19. Miss Daisy was unable to agree the Trial Balance last year and wrote off the difference to
the profit and loss account of that year. On verifying the old books by a Chartered
Accountant next year, the following mistakes were found.
Purchase account was undercast by 8,000.
ii)) Sale goods to Mr. Rahim for 2,500 was omitted to be recorded.
of

iii) Receipt of cash from Mr. Ashok was posted to the account of Mr. Anshu 1,200.
iv) Amount of 4,167 of sales was wrongly posted as 4,617.
v) Repairs to Machinery was debited to Machinery Account 1,800.
vi) A credit purchase of goodsfrom Mr. Paul for 3,000 entered as sale.
Suggest the necessary rectification entries. (May 2018)
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Sol. In the books of Miss Daisy

Journal Entries
Date Particulars Dr. (?) Cr. ()
i) Profit & Loss Adjustment A/c Dr. 8,000
To Suspense*A/c 8,000
(Purchase Account under cast in the previous
year; error now rectified.)
ii) Rahim's Account Dr. 2,500
To Profit & Loss Adjustment A/c 2,500
(Sales to Rahim omitted last year; now adjusted.)
iii) Anshu's Account Dr. 1,200
To Ashok's Account 1,200
(Amount received from Ashok wrongly posted
to the account of Anshu; now rectified.)
iv) Profit & Loss Adjustment A/c Dr. 450
To Suspense* A/c 450
(Excess posting to sales account last year,
74,617, instead of R4,167 now adjusted.)
V) Profit & Loss Adjustment A/c Dr. 1,800
To Machinery A/c 1,800
(Repairs to machinery was wrongly debited to
machinery account, now rectified.)
vi) Profit & Loss Adjustment A/c Dr. 6,000
To Mr. Paul Account 6,000
(Credit purchase of goods from Mr. Paul sale last
year, now rectified.)
vii) Daisy's Capital A/c Dr. 13,750
To Profit and Loss Adjustment Account 13,750
(Being balance in P&L Adjustment Account
transferred to Daisy's Capital A/c Refer W.N.
1.)
viii) Suspense A/c Dr. 8,450
To Daisy's Capital A/c 8,450
(Being balance of Suspense A/ctransferred to
Capital A/C- Refer W.N. 2)

*Considering that the difference was posted to Suspense account.

Working Notes
1)
Dr. Profit and Loss Adjustment Account Cr.
Particulars Particulars
To Suspense A/c 8,000 By Rahim's A/c
2,500
To Suspense A/c To 450 By Daisy's Capital A/c 13,750
Machinery A/c 1,800 (Balance Transfer)
To Mr. Paul's A/c 6,000
16,250 16,250
2)
Dr Suspense Account Cr.
Particulars Particulars
To Daisy's Capital A/c 8,450 By P & LAdj. A/c 8,000
(Balance Transfer) By P & LAdj. A/c 450
8450 8,450

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20. Give journal entries (with narrations) to rectify the following errors located in the books
of a Trader after preparing the Trial Balance:
i) An amount of 4,500 received on account of interest was credited to Commission
account.
ii) A sale of 2,760 was posted from Sales Book to the Debit of M/s Sobhag Traders at
2,670.
ii) 35,000 paid for purchase of Air conditioner for the personal use of proprietor
debited to Machinery A/c.
iv) Goods returned by customer for ? 5,000. The same have been taken into stock but
no entry passed in the books of accounts. (une 2019)
Sol. Journal Entries
[Link]. Particulars Debit Credit
() (3)
1) Commission A/c Dr. 4,500
To Interest Received 4,500
(Correcting wrong entry of interest received into
commission account.)
2) M/sSobhag Traders A/c Dr. 90
To Suspense A/c 90
(Being credit sale of 2,760 posted as 2,670 i.e.
debiting M/s Sobhag Traders A/c less by 90, now
rectified.)
3) Drawing A/c Dr. 35,000
To Machinery A/c 35,000|
(Correction of wrong debit to machinery account for
purchase of air-conditioner for personal use.)
4) Return Inward A/c Dr. 5,000
To Debtors (Personal) A/c 5,000
(Correction of omission to record return of goods
by custtomers.) Grooming Education Academy

22. M/s. Applied Laboratories were unable to agree the Trial Balance as on 31t March, 20X0 and
have raised a suspense account for the difference. Next year the following errors were
discovered:
1) Repairs made during the year were wrongly debited to the building A/c 12,500.
2) The addition for the 'freight" column in the purchase journal was short by 1,500.
3) Goods to the value of {1,050 returned by a customer, Rani & Co., had been posted to the
debit of Rani & Co. and also to sales returns.
4) Sundry items of furniture sold for 730,000 had been entered in the sales book, the total
of which had been posted to sales account.
5) A bill of exchange (received from Raja & Co.) for $2,00,000 had been returned by the
bank as dishonoured and had been credited to the bank and debited to bills receivable
account.

You are required to pass journal

entries to rectify the above mistakes. [Nov. 2020]
Sol. Rectification entries in the books of M/s Applied Laboratories;

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

1. Profit and Loss Adj. A/c Dr 12,500
To Building A/ c 12,500
(Repairs amounting 12,500 wrongly
debited to building account, now rectified)

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2. Profit and Loss Adj. A/c Dr. 1,500

To Suspense A/c 1,500
(Addition of freight column in purchase
journal was under casted, now rectified
entry made)

3. Suspense A/c Dr. 2,100

To Rani & Co. 2,100
(Goods returned by Rani& Co. had been
posted wrongly to the debit of her account,
now rectified)

4. Profit and Loss Adjustment A/c Dr. 30,000

To Furniture A/c 30,000
(Being sale of furniture wrongly entered in
sales book, now rectified)

5. Raja & Co. A/c Dr. 20,000

To Bills Receivable A/c 20,000
(Bill receivable dishonoured debit to bills
receivable account instead of customer
account, now rectified)

Grooming Education Academny

Poneer in Developing Concepes

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Bank Reconciliation Statement

Assignment
|[Link]. Questions & Solutions
1 From the following particulars, prepare a Bank Reconciliation Statement for Jindal outset Ltd.
1) Balance as per cash book is 2,40,000
2) Cheques issued but not presented in the bank amounts to 1,36,000.
3) Cheques deposited in bank but not yet cleared amounts to 90,000.
4) Bank charges amounts to 300.
5) Interest credited by bank amountsto 1,250.
6) The balance as per pass book is 2,86,950.
(ICAI SM/Nov. 2021 MTP)
Sol.
Bank Reconciliation Statement
Particulars Plus Items Minus
() Items ()
Balance as per cash book (Dr) 2,40,000
Cheques issued but not presented in the bank 1,36,000
Cheques deposited in bank but not yet cleared 90,000
Bank Charges 300
Interest credited by bank 1,250
Balance as per pass book (Cr.) 2,86,950
3,77,250 3,77,250
2 On 31st March 20XO, the Bank Pass Book of Namrata showed a balance of 1,50,000 to her credit
while balance as per cash book was I 1,12,[Link] scrutiny of thetwo books, she ascertained the
following causes of difference:
i) She has issued cheques amounting to 80,000 out of which only 32,000 were presented
for payment.
ii) She received a cheque of I5,000 which she recorded in her cash book but forgot to deposit
in the bank.
iii) A cheque of 22,000 deposited by her has not been cleared yet.
iv) Mr. Gupta deposited an amount of 15,700 in her bank which has not been recorded by
her in Cash Book yet.
v) Bank has credited an interest of R 1,500 while charging 250 as bank charges.
Prepare a bank reconciliation statement.
(ICAI SM)
Sol.
Bank Reconciliation Statement
Particulars Plus Items Minus
() Items ()
Balance as per pass book (Cr.) 1,50,000
Cheques issued but not presented for payment (80,000 - 48,000
32,000)
Cheque recorded in Cash Book but not yet deposited 5,000
Cheque deposited but not yet cleared 22,000
Amount deposited but not recorded in Cash Book 15,700
Interest allowed by bank 1,500
Bank Charges debited by bank 250
Balance as per Cash Book (Dr.) 1,12,050
1,77,250 1,77,250

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3. From the following particulars ascertain the balance that would appear in the Bank Pass Book of
A on31st December, 20X0.
1) The bank overdraft as per Cash Book on 31st December, 20X0 6,340.
2) Interest on overdraft for 6 months ending 31st December, 20X0 160 is entered in Pass
Book.
3) Bank charges of { 400 are debited in the Pass Book only.
4) Cheques issued but not cashed prior to 31st December, 20X0, amounted to 11,68,000.
5) Cheques paid into bank but not cleared before 31st December, 20X0 were for {22,17,000.
6) Interest on investments collected by the bank and credited in the Pass Book 12,00,000.
(ICAI SM)
Sol.
Bank Reconciliation Statement
Particulars Plus Items Minus
() Items ()
Overdraft as per Cash Book (Cr.) 6,340
Interest debited in Pass Book but not yet in Cash Book 160
Bank charges 400
Cheque issued but not yet presented 11,68,000
Cheques paid in but not yet credited by the Bank 22,17,000
Interest collected and credited by the Bank in the Pass Book but 12,00,000
not yet entered in Cash Book
Balance as per Pass Book (Cr.) 1,44,100
23,68,000 23,68,000
4. On 30th September, 20X0, the bank account of X,according to the bank column of the Cash- Book,
was overdrawn to the extent of 4,062. On the same date the bank statement showed a debit
balance of 20,758 in favour of X. An examination of the Cash Book and Bank Statement reveals
the following:
1) A cheque for 13,14,000 deposited on 29th September, 20X0 was credited by the bank
only on 3rd October, 20X0
2) A payment by cheque fort 16,000 has been entered twice in the Cash Book.
3) On 29th September, 20X0, the bank credited an amount of 1,17,400 received from a
customer of X, but the advice was not received byX until 1st October, 20X0.
4) Bank charges amounting to 580 had not been entered in the Cash Book.
5) On 6th September, 20X0, the bank credited 20,000 to X in error.
6) A bill of exchange for 1,40,000 was discounted by X with his bank. This bill was
dishonoured on 28th September, 20XO but no entry had been made in the books of X.
7) Cheques issued up to 30th September, 20XO but not presented for payment up to that date
totalled 13,26,000.
You are required:
a) To show the appropriate rectifications required in the Cash Book of X, to arrive at the correct
balance on 30th September, 20X0; and
b) To prepare a bank reconciliation statement as on that date.
[ICAISM/ Aug 2018, Oct 2019 MTP/ Nov 2019 RTP (Modified)/Nov. 2019]

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Sol.
a)
Dr. Adjusted Cash Book (Bank Column) Cr.
Date Particulars Date Particulars
20X0 20X0

Sept. To PartyA/c 16,000 Sept. 30 By Balance b/d 4,062

30
To Customer A/c 1,17,400 By Bank Charges 580
(Direct deposit)
To Balance c/d 11,242 By Customer A/c 1,40,000
(B/R dishonoured)
1,44,642 1,44,642
b

Bank Reconciliation Statement as on 30.09.20XO

Particulars Plus Items Minus
() Items (3)
Overdraft as per Cash Book (Cr.) 11,242
Cheque deposited but not credited by bank 13,14,000
Cheques issued but not presented for payment 13,26,000
Credit by Bank erroneously on 6th September 20,000
Overdraft as per bank statement (Dr.) 20,758
13,46,000 13,46,000
5 On 31st December 20X0, the bank column of A. Philip's cash book showed a debit balance of R
4,610. On examination of the cash book and bank statement, you find that:
) Cheques amounting to 6,30,000 which were issued to trade payables and entered in the
cash book before 31st December 20X0 were not presented for payment until that date.
ii) Cheques amounting to & 2,50,000 had been recorded in the cash book as having been paid
into the bank on 31st December 20X0 but were entered in the bank statement on 1st
January 20X1.
iü) A cheque for 73,000 had been dishonoured prior to 31st December 20X0, but no record
of this fact appeared in the cash book.
iv) A dividend of 3,80,000, paid directly to the bank had not been recorded in the cash book.
v) Bank interest and charges amounting to 4,200 had been charged in the bank statement
but not entered in the cash book.
vi) No entry had been made in the cash book for a trade subscription of 10,000 paid to vide
banker's order in November 20X0.
vii) A cheque for 27,000 drawn by B. Philip had been charged to A. Philip's bank account by
mistake in December 20X0.

You are required:

a) To make appropriate adjustments in the cash book bringing down the correct balance, and
b) To prepare a statement reconciling the adjusted balance in the cash book with the balance
shown in the bank statement.
(ICAI SM)

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Sol. A. Philip
Dr. Cash Book(Bank column) Cr.
Date Particulars Amount Date Particulars Amount
20X0 20X0
Dec. 31 To Balance b/d 4,610 Dec. 31
By Trade receivables 73,000
Cheque dishonoured
To Dividend 3,80,000 By Bank interest and 4,200
received charges
By Trade Subscription 10,000

By Balance c/d 2,97,410

3,84,610 3,84,610
20X1
Jan. 1 To Balance b/d 2,97,410

Bank Reconciliation Statement

as at 31.12.20X0
Particulars Plus Item Minus Item
Balance per cash book (Dr) 2,97,410
Cheques not yet presented 6,30,000
Lodgement not yet recorded by the Bank 2,50,000
Cheque wrongly charged 27,000
|Balance as per the bank statement (Cr.) 6,50,410
9,27,410 9,27,410

6. From the following information, prepare a Bank reconciliation statement as at 31st December,
20X0 for Messrs New Steel Limited:
1)Bank overdraft as per Cash Book on 31st December, 20X0 22,45,900
|2) Interest debited by Bank on no
26th December, 20X0 but advice received 2,78,700
3) Cheque issued before 31st December, 20X0 but not yet presented to Bank 6,60,000
4) Transport subsidy received from the State Government directly by the Bank but
not advised to the company 14,25,000
5) Draft deposited in the Bank, but not credited till 31st December, 20XO 13,50,000
till31st December, 20x0 but no
6)Bills collection credited the
for by Bank advice 8,36,000
received by the company
7) Amount wrongly debited to company account by the Bank, for which no
details are available 7,40,000|

(ICAI SM)
Sol.
Bank Reconciliation Statement as on 31.12.20X0
Particulars Plus Items Minus
() Items ()
Overdraft as per Cash Book (Cr.) 22,45,900
Interest debited in Pass Book but not yet in Cash Book 2,78,700
Cheque issued but not yet presented 6,60,000
Transport subsidy received directly by the Bank 14,25,000
Draft deposited but not yet credited by the Bank 13,50,000
Bills for collection credited by the Bank but not entered in cash 8,36,000
book
Amount wrongly debited by the Bank 7,40,000
Overdraft as per bank statement (Dr.) 16,93,600
46,14,600 46,14,600

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7. The Cash Book of Mr. Gadbadwala shows 8,36,400 as the balance at Bank as on 31st December,
20X0, but you find that it does not agree with the balance as per the Bank Pass Book. On scrutiny,
you find the following discrepancies:
1) On 15th December, 20X0 the payment side of the Cash Book was undercast by 10,000.
2) A cheque for 131,000 issued on 25th December, 20X0 was not taken in the bank column.
3) One deposit of 1,50,000 was recorded in the Cash Book as if there is no bank column
therein.
4) On 18th December, 20XO the debit balance of 15,260 as on the previous day, was
brought forward as credit balance.
5) Of the total cheques amounting to 11,514 drawn in the last week of December, 20X0,
cheques aggregating ? 7,815 were encashed in December.
6) Dividends of ? 25,000 collected by the Bank and subscription of 1,000 paid by it were
not recorded in the Cash Book.
7) One out-going Cheque ofR 3,50,000 was recorded twice in the Cash Book.
Prepare a Reconciliation Statement.
(ICAI SM/Oct. 2021 MTP)
Sol.
Bank Reconciliation Statement as on 31.12.20X0
Particulars Plus Items Minus
) Items ()
Balance as per Cash Book (Dr.) 8,36,400
Wrong casting in the Cash Book on 15th Dec. 10,000
Cheques issued but not entered in the Bank column 1,31,000
Deposit not recorded in the Bank column 1,50,000
Mistake in bringing forward 15,260 debit balance as credit 30,520
balance on 18th Dec., 20X0
Cheques issued but not presented (11,514 - 7,815) 3,699
Dividends directly collected by bank but not yet recorded in 25,000
the cash book
Subscription paid by the bank directly not yet recorded in the 1,000
cash book
Cheque recorded twice in the Cash Book Academy 3,50,000
Balance as per the Pass Book (Cr)ucatton
Developing 12,53,619
13,95,619 13,95,619
The following are the Cash Book (bank column) and Pass Book of Jain for the months of March,
20X0 and April, 20X0:
Dr. Cash Book (Bank Column Only) Cr.
Date Particulars Date Particulars
01/3/20XO To Balance b/d 60,000 03/3/20X0 By Cash A/c 2,00,000
06/3/20XO To Sales A/c 3,00,00007/3/20X0 By Modi 60,000
10/3/20X0 To Ram 65,000 12/3/20XO By Patil 30,000
18/3/20X0 To Singhal 2,70,000 18/3/20X0 By Suresh 40,000
25/3/20X0 To Goyal 33,000 24/3/20X0 By Ramesh 1,50,000
31/3/20x0 To Patel 65,000 30/3/20X0By Balance c/d 3,13,000
7,93,000 7,93,000
Pass Book
Date Particulars Amount Amount Dr. or Cr. Balance
Dr. Cr.
1/4/20X0 By Balance b/d 3,65,000 Cr. 3,65,000
3/4/20X0 By Goyal 33,000 Cr. 3,98,000
5/4/20XO By Patel 65,000 Cr. 4,63,000
7/4/20X0 To Naresh 2,80,000 Cr. 1,83,000
12/4/20X0 To Ramesh 1,50,000 Cr. 33,000
15/4/20XO To Bank Charges 200 Cr. 32,800
| 20/4/20X0 By Usha 17,000 Cr. 49,800
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| 25/4/20X0 By Kalpana 38,000 Cr. 87,800

30/4/20X0 To Sunil 6,200 Cr. 81,600
Reconcile the balance of cash book on 31/3/20X0.
(ICAI SM)
Sol. 1) On scrutiny of the debit side of the cash book of March 20X0 and receipt side of the pass
book of April, 20X0 reveals that two cheques deposited in Bank (Goyal 33,000 and Patel
65,000) in March were not credited by the Bank till 31/3/20X0.
2) On scrutiny of the credit side of the cash book and payment side of the pass book reveals
that a cheque issued to Ramesh for 1,50,000 in March 20X0, had not been presented for
payment in Bank till 31/3/20X0.
So, the Bank Reconciliation statement on 31/3/20X0 will appear as follows:
Bank Reconciliation Statement as on 31/3/20X0

Particulars Amount
()
Balance as per the Cash Book (Dr.) 3,13,000
Add: Cheque issued but not presented for payment 1,50,000
4,63,000
Less: Cheque deposited but not credited by Bank (98,000)
Balance as per the Pass Book (Cr.) 3,65,000

9. When Nikki & Co. received a Bank Statement showing a favourable balance of 10,39,2 00 for
the period ended on 30th June, 20X0, this did not agree with the balance in the cash book.
An examination of the Cash Book and Bank Statement disclosed the following:
1) A deposit of T 3,09,200 paid on 29th June, 20X0 had not been credited by the Bank until
1st July, 20X0.
2) On 30th March, 20X0 the company had entered into hire purchase agreement to pay by
bank order a sum ofR3,00,000 on the 10th of each month, commencing from April, 20X0.
No entries had been made in Cash Book Academy
3) A customer of the firm, who received cash discount of 4% on his account of{ 4,00,000
a
paid the firm a cheque on 12th June. The cashier erroneously entered the gross amount
in the bank column of the Cash Book.
4) Bank charges amounting to 3,000 had not been entered in Cash-Book.
5) On 28th June, a customer of the company directly deposited the amount in the bank?
4,00,000, but no entry had been made in the Cash Book.
6) 11,200 paid into the bank had been entered twice in the Cash Book.
7) A
debit of ? 11,00,000 appeared in the Bank Statement for an unpaid cheque, which had
been returned marked 'out of date'. The cheque had been re-dated by the customer and
paid into Bank again on 5th July, 20X0.
Prepare Bank Reconciliation Statement on 30 June, 20X0. (ICAI SM)

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Sol. Bank Reconciliation Statement as on 30.06.20X0

Particulars Plus Items () Minus
Items ()
Balance as per Pass Book (Cr.) 10,39,200
Deposited with bank but not credited 3,09,200
Payment of Hire Purchase instalments not entered in the 9,00,000
Cash Book ( 3,00,000x3)
Discount allowed wrongly entered in bank column (R 16,000
4,00,000 x 4%)
Bank charges not entered in the Cash Book 3,000
Direct deposit by customer not entered in the Cash Book 4,00,000
Deposit entered in the Cash Book twice 11,200
Cheque returned 'out of date' entered in the Cash Book 11,00,000
Balance as per the Pass Book (Cr.) 29,78,600
33,78,600 33,78,600
10. From the following particulars prepare a bank reconciliation statement as on 31st December
20X0:
On 31st December, 20X0 the cash-book of a firm showed a bank balance of 60,000 (debit
balance).
ii) Cheques had been issued for 15,00,000, out of which cheques worth ? 4,00,000 only
were presented for payment.
ii) Cheques worth 11,40,000 were deposited in the bank on 28th December, 20X0 but had
not been credited by the bank. In addition to this, one cheque for 5,00,000 was entered
in the cash book on 30th December, 20XO but was banked on 3rd January, 20X1.
iv) A cheque from Susan for 4,00,000 was deposited in the bank on 26th December 20X0
but was dishonoured and the advice was received on 2nd January, 20X1.
v) Pass-book showed bank charges of 2,000 debited by the bank.
vi) One of the debtors deposited a sum of 5,00,000 in the bank account of the firm on 20th
December, 20X0 but the intimation in this respect was received from the bank on 2nd
January, 20X1.
vii) Bank pass-book showeda credit balance 3,82,000 on 31st December, 20X0.
of

OTO0TITiy ouoaOn AcTueny

(ICAI SM/January 2021(M)
Sol.
Bank Reconciliation Statement as on 31.12.20X0
Particulars Plus Items()Minus Items (3)
Balance as per Cash Book (Dr.) 60,000
Cheques issued but not yet presented for payment ( 11,00,000
15,00,000 -4,00,000)
Cheques deposited but not yet credited by bank 11,40,000
Cheque received and recorded in cash book but not yet 5,00,000
banked
Cheque dishonoured by the bank; the dishonour entry 4,00,000
not yet passed in cash book
Bank charges not recorded in cash book 2,000
Cheques directly deposited by a customer not yet 5,00,000
recorded in cash book
Balance as per Pass Book (Cr.) 3,82,000
20,42,000 20,42,000

11. According to the cash-book of Gopi, there was a balance of 44,50,000 in his bank on 30th June,
20X0.
On investigation you find that:
i) Cheques amounting to 6,00,000 issued to creditors have not been presented for
payment till the date.
Cheques paid into bank amounting to 11,05,000 out of which cheques amounting to
5,50,000 only collected by the bank up to 30th June 20X0.
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iii) Adividend of 40,000 and rent amounting to 6,00,000 received by the bank and
entered in the pass-book but not recorded in the cash book.
iv) Insurance premium (up to 31st December, 20X0) paid by thebank 27,000 not entered
in the cash book.
v) The payment side of the cash book had been under casted by 5,000.
vi) Bank charges 1,500 shown in the pass book had not been entered in the cash book.
vii) A billpayable 2,00,000 had been paid by the bank but was not entered in the cash
of

book and bill receivable for I 60,000 had been discounted with the bank at a cost of
1,000 which had also not been recorded in cash book.
Required:
a) To make the appropriate adjustments in the cash book, and
b) To prepare a statement reconciling it with the bank pass book.
(ICAI SM/Nov. 1996/Dec. 2021)
Sol. Dr. Adjusted Cash Book (Bank Column) Cr.
Particulars Particulars
To Balance b/d 44,50,000 By Insurance premium A/c 27,000
To Dividend A/c 40,000 By Correction of errors 5,000
To Rent A/c 6,00,000 By Bank Charges 1,500
To Bill receivable A/c 59,000 By Bill payable 2,00,000
By Balance c/d 49,15,500
51,49,000 51,49,000

Bank Reconciliation Statement as on 30.06.20X0

Particulars Plus Items Minus Items
() ()
Adjusted balance as per cash book (Dr.) 49,15,500
Cheques issued but not presented for payment 6,00,000
Cheques paid into bank for collection but not collected 5,55,000
Balance as per pass book (Cr.) 49,60,500
20,42,000 20,42,000
12. Prepare a bank reconciliation statement as on 30th September, 20X0 from the following
particulars:
Particulars
Bank balance as per pass-book 10,00,000
Cheque deposited to the bank but no entry was passed in the cash-book 5,00,000
Cheque received but not sent to bank 11,20,000
Credit side of the bank column cast short 2,000
Insurance premium paid directly by the bank under the standing advice 60,000
Bank charges entered twice in the cash book 2,000
Cheque issued, but not presented to the bank for payment 5,00,000
Cheque received entered twice in the cash book 10,000
Bills discounted dishonoured not recorded in the cash book 5,00,000

(ICAI SM/May 2004)

Sol.
Bank Reconciliation Statement as on 30.09.20X0
Particulars Plus Items Minus
) Items ()
Balance as per Pass Book (Cr.) 10,00,000
Cheque deposited into the bank but no entry was passed in the 5,00,000
cash book
Cheque received but not sent to the bank 11,20,000
Credit side of the bank column cast short 2,000
Insurance premium paid directly not recorded in the cash book 60,000
Bank charges recorded twice in the cash book 2,000

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Cheque issued but not presented to the bank 5,00,000

Cheque received entered twice in the cash book 10,000
Bills dishonoured not recorded in the cash book 5,00,000
Balance as per Cash Book (Dr.) 16,90,000
26,92,000| 26,92,000
13. Prepare a bank reconciliation statement from the following particulars on 31st March, 20X0:
Particulars
Debit balance as per bank column of the cash book 37,20,000
Cheque issued to creditors but not yet presented to the bank for payment 7,20,000
Dividend received by the bank but not yet entered in the cash book 5,00,000
Interest allowed by the bank 12,500
Cheques deposited into bank for collection but not collected by bank up to this 15,40,000
date.
Bank charges 2,000
A cheque deposited into bank was dishonoured, but no intimation received 3,20,000
Bank paid house tax on our behalf, but no information received from bank in 3,50,000
this connection.
[ICAI SM/May 2020 RTP(Modified)/Nov. 2018/Nov. 2002]
Sol. Bank Reconciliation Statement as on 31.03.20XO
Particulars Plus Items () Minus Items )
Balance as per Cash Book (Dr.) 37,20,000
Cheque issued but not yet presented to bank for 7,20,000
payment
Dividend received by bank not entered in cash book 5,00,000
Interest allowed by bank 12,500
Cheques deposited into bank but not yet collected 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured 3,20,000
House tax paid by bank 3,50,000
Balance as per Pass Book (Cr.) 27,40,500
49,52,500 49,52,500
14. Prepare a Bank Reconciliation Statement of Shri Hari as on 31st March, 20X0:
i) Balance as per Pass Book is 10,000.
ii) Bank collected a cheque of 500 on behalf of Shri Hari but wrongly credited it to
Shri Hari's Account (another customer of bank).
iii) Bank recorded a cash deposit of ? 1,589 as 1,598.
iv) Withdrawal column of the Pass Book undercast by 100.
v) The credit balance of 1,500 on page 5 was recorded on page 6 as debit balance.
vi) The payment of a cheque of 350 was recorded twice in the Pass Book.
vii) The Pass Book showed a credit for a cheque of 1,000 deposited by Shri Hari (another
customer of the bank).
(Nov 2018 RTP/Nov. 2021 RTP)
Sol.
Bank Reconciliation Statement as on 31.03.20X0
Particulars Plus Items Minus
() Items ()
Balance as per Pass Book (Cr.) 10,000
Cheque wrongly credited to another customer's A/c 500
Excess credit for cash deposit (R 1,598 - * 1,589) 9
Under casting of withdrawal column 100
Error in carrying forward 3,000
a
Payment of cheque recorded twice 350
Wrong credit 1,000
Balance as per Cash Book (Dr) 12,741
13,850 13,850

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15. On 30th November, 20X0, the Cash Book of Mr. Hari showed an overdrawn position of 4,480
although his Bank Statement showed only 3,200 overdrawn. An examination of the two records
showed the following errors:
) The debit side of the Cash Book was undercast by 400.
ii) A cheque for 1,600 in favour suppliers Ltd. was omitted by the bank from the
of Y

statement, the cheque was debited to another customer's Account.

iii) A cheque for 172 drawn for payment of telephone bill was recorded in the Cash Book as
127 but was shown correctly in the Bank Statement.
iv) cheque for 425 from Mr. Pal paid into bank was dishonoured and shown as such on the
A

Bank Statement, although no entry relating to the dishonoured cheque was made in the
Cash Book.
V The Bank had debited a cheque for 150 to Mr. Hari's Account by mistake, it should have
been debited by them to Mr. Kar's Account.
vi) A dividend of* 100 was collected by the bank but not entered in the Cash Book.
vii) Cheques totalling 1,300 drawn on November was not presented for payment.
viii) Cheque for 1,200 deposited on 30th November was not credited by the Bank.
ix) Interest amounting to 300 was debited by the Bank but yet to be entered in the Cash
Book.
You are required to prepare a Bank Reconciliation Statement on 30th November, 20XO.
(May 2019 RTP)

Sol. Bank Reconciliation Statement as on 30.11.20X0

Particulars Plus Items Minus
Items ()
Bank Overdraft as per Bank Statement (Dr.) 3,200
Cheque issued for R 172 posted in the Cash Book as 127 45
Cheque dishonoured but not recorded in the Cash Book 425
Wrong debit by the Bank to Haris
A/ciucation Academy 150
Cheque deposited but yet to be credited 1,200
Interest debited by the Bank and yet to be entered in the Cash 300
Book
Debit side of the Cash Book was undercast 400
Cheque issued but debited by the Bank to another customer's 1,600
account by mistake
Dividend directly collected by the Bank but not entered the 100
Cash Book
Cheque issued but yet to be presented for payment 1,300
Bank Overdraft as per Cash Book (Cr.) 4,480
6,600 6,600

16. Prepare the Bank Reconciliation Statement of M/s. R.K. Brothers on 30th June 20X0 from the
particulars given below:
i) The Bank Pass Book had a debit balance ofI 25,000 on 30th June, 20X0.
i) A cheque worth 400 directly deposited into Bank by customer but noentry was made
in the Cash Book.
i) Out of cheques issued worth 34,000, cheques amounting to ? 20,000 only were
presented for payment till 30th June, 20X0.
iv) A cheque for ? 4,000 received and entered in the Cash Book but it was not sent to the
Bank.
v) Cheques worth 20,000 had been sent to Bank for collection but the collection was
reported by the Bank as under.

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1) Cheques collected before 30th June, 20X0,E 14,000.

2) Cheques collected on 10th July, 20X0, 7 4,000.
3) Cheques collected on 12th July, 20X0, R 2,000.
vi) The Bank made a direct payment of 600 which was not recorded in the Cash Book.
vii) Interest on Overdraft charged by the bank 1,600 was not recorded in the Cash Book.
viii) Bankcharges worth 80 have been entered twice in the cash book whereas Insurance
charges for 70 directly paid by Bank was not at all entered in the Cash Book.
ix) The credit side of bank column of Cash Book was under cast by 2,000.
(June 2019)
Sol.
Bank Reconciliation Statement as on 30.06.20X0
Particulars Plus Items Minus
) Items()
Overdraft as per Pass Book (Dr.) 25,000

Cheques received, recorded in cash Book but not sent to the 4,000
Bank
Cheques sent to the Bank but not collected 6,000
Direct payment made by the bank not recorded in the Cash 600
book
Interest on overdraft charged by Bank 1,600
Insurance charges not entered in Cash Book 70
Credit side of bank column of Cash Book was undercast 2,000
Cheques issued but not presented ( 34,000- 20,000) 14,000
Cheques deposited into the Bank by Customer but not entered 400
in Cash Book
Bank charges written twice in Cash Book 80
Overdraft as per Cash Book (Cr) 25,210
Grooming Education Academv 39,480 39,480

17. From the following information (as on 31.3.20X0), prepare a bank reconciliation statement
after making necessary adjustments in the Cash book: -
Particulars )
Bank balances as per the Cash book (Dr.) 32,50,000
Cheques deposited, but not yet credited 44,75,000

Cheques issued but not yet presented for payment 35,62,000

Bank charges debited by bank but not recorded in the Cash book 12,500
Dividend directly collected by the bank 1,25,000
Insurance premium paid by bank as per standing instruction not intimated 15,900
Cash sales wrongly recorded in the Bank column of the Cash-Book 2,55,000
Customer's Cheque dishonoured by bank not recorded in the cash-book 1,30,000
|Wrong credit given by the bank 1,50,000

Also show the bank balance that will appear in the trial balance as on 31.3.20X0.
(May 2021 RTP/January 2021)

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Sol. i) Cash Book as on 31.3.20XO

(After making necessary adjustments)
Dr. Cr.
Particulars Particulars 8)
To Balance b/d 32,50,000 By Bank Charges 12,500

To Dividend 1,25,000 By Insurance premium 15,900

By Trade receivables (Cheque 1,30,000
dishonoured)
By Cash A/c (Wrongly recorded Cash 2,55,000
Sales)
By Balance c/d 29,61,600
33,75,000 33,75,000

Bank Reconciliation Statement as on 31.3.20X0

Particulars Details ()
Bank balance as per the cash book 29,61,600
Add: Cheques issued but not yet presented for payment 35,62,000
Wrong credit given by bank 1,50,000 37,12,000
66,73,600
Less: Cheques deposited but not yet credited by bank (44,75,000)
Balance as per the pass book 21,98,600
The bank balance ofT 29,61,600 will appear in the trial balance as on 31st March, 20X0.

Note: -Cash sales should have been recorded by passing the following entry:
-

Cash A/c Dr 2,55,000

To Sales A/c 2,55,000
so
But it has been wrongly debited to Bank A/c, following rectification entry has been
-
passed:
Cash A/c 55,000 A

Groomning DUucation
uucation Acuemy
To Bank A/c Tioneer in Developing Concepts 2,55,000

18. On 31st March, 20X0 the pass book of a trader showed a credit balance of E15,65,000 but the
passbook balance was different for the following reasons from the cash book balance:
Cheques issued to X for 60,000and to "Y' for 3,84,000 were not yet presented for payment.
Bank charged 350 for bank charges and Z directly deposited 1,816 into the bank account,
which were not entered in the cash book.
Two cheques -one from 'A' for 75,15,000 and another from 'B' for 12,500 were collected in the
first week of April, 20X2 although they were banked on 25.03.20X0.
Interest allowed by bank 4,500.
Prepare a bank reconciliation statement as on 31st March 20X0.
(Nov. 2021 RTP/Nov. 2003)
Sol.
Bank Reconciliation Statement as on 13st March, 20X0
Particulars Details Amount
() ()
Credit balance as per the pass book 15,65,000
Add: Cheques deposited into bank but not yet A: 5,15,000
collected
B.
Bank charges debited by the bank 12.500 5,27,500
Less: Cheques issued but not presented for 350 5.27.850
payment
X: 60,000
Y:
Direct deposit of cash in bank by 2 3.84.000 4.44.000
Interest allowed by the bank 1,816 (4.50,316)
Debit balance as per the cash book 4.500 16,42.534
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19. From the following particulars, prepare the Bank Reconciliation Statement as on 30th
September, 20X0:
Date Particulars
L.
Bank overdraft as per Pass book 21,494
2. A cheque deposited as per Pass book, but not recorded in 700
cash book
3
Debit side of Bank column under cast 100
4
A cheque of {5,000 deposited, but credited in pass book as 4,996
5. A party's cheque returned dishonoured as per Pass book only 530
6 Bill collected directly by Bank 3,500
7
Bank charges recorded twice in the cash book 25
8. A Bill of 8,000 discounted for 7,960 returned dishonoured 15
by the bank.
Noting charges being
9 Cheque deposited, but not yet collected bythe bank 2,320
10. Cheque issued, but not yet presented to the bank for payment 1,250
(Nov. 2005)
Sol. Bank Reconciliation Statement
As on 3Qth September, 20XO
| Particulars
Balance as per Pass Book (Dr.) (Overdraft) 21,494
Add: Cheque deposited not recorded in Cash Book 700
Debit side of the bank column under cast 100
Bills collected directly by bank 3,500
Bank charges recorded twice in cash book 25
Cheque issued, but not yet presented 1.250 5,575
27,069
Less: Less credit in pass book for a cheque of 5,000
Party's cheque returned dishonoured 530
Bill of 8,000 discounted for 7,960 returned
dishonoured 8,000
Noting charges Grooming Education Academ 15
Cheque deposited but not yet collected Cocept 2.320 10,869
Balance as per Cash Book (Cr) (Overdraft) 16,200

20. The Bank Pass Book of Account No. 5678 of Mrs. Rani showed an overdraft of 33,575 on 31st
March, 20X0. Ongoing through the Pass Book, the accountant found the following:
1) A Cheque of 1,080 credited in the pass book on 28th March, 20X1 being dishonoured is
debited again in the pass book on 1 April, 20X0. There was no entry in the cash book
about the dishonour of the cheque until 15th April, 20X0.
2) Bankers had credited her account with 2,800 for interest collected by them on her
behalf, but the same has not been entered in her cash book.
3) Out of T20,500 paid in by Mrs. Rani in cash and by cheques on 31st March, 20X0, cheques
amounting to 7,500 were collected on 7th April, 20X0.
4) Out of cheques amounting to 7,800 drawn by her on 27th March, 20X0 a cheque for
{2,500 was encashed on 3rd April, 20X0.
5) Bankers seems to have given her wrong credit for 7500 paid in by her in Account No.
8765 anda wrong debit in respect of a cheque for 300 against her Account No. 8765.
6) Acheque for 1,000 entered in Cash Book but omitted to be banked on 31st March, 20X0.
7) A Bill Receivable for 35,200 previously dishonoured (Discount 200) with the Bank had
been dishonoured but advice was received on 1t April, 20X0.
8) A Bill for 10,000 was retired/paid by the bank under a rebate of 175 but the full
amount of the bill was credited in the bank column of the cash book.
9) A cheque for *2,400 deposited into bank but omitted to be recorded in Cash Book and
was collected by the bank on 31st March, 20X0.
Prepare Bank Reconciliation Statement as on 31st March, 20X0.
(May 2018)
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Sol. In the books of Mrs. Rani

Bank Reconciliation Statement as on 31st March, 20X0
|Particulars |
Balance as per Pass Book (Dr) (Overdraft) 33,575
Add: Dishonour of cheque of 1,080 (Note)
Interest collected by bank 2,800
Cheque drawn but not encashed 2,500
Wrong credit by Bank 500
Rebate not entered in Cash Book 175
Cheque deposited but omitted to be recorded in Cash Book 2.400 8.375
41,950
Less: Cheques paid in but not collected 7,500
Wrong debit by Bank 300
Cheque omitted to be banked 1,000
Bill previously discounted, dishonoured 5,200 14,000

Balance as per Cash Book (Cr.) (Overdraft) 27,950

Note: Since the Pass Book was debited on 1st April, 20X0, on adjustment is required for (1) as
there would be no difference as on 31st March, 20X0.
21. From the following information, ascertain the Cash Book balance of Mr. Bajaj as on 31st March,
20X0:
1) Debit balance as per Bank Pass Book 3,500.
2) cheque amounting to 2,500 deposited on 15th March, but the same was returned by
A

the bank on 24th March for which no entry was passed in the Cash Book.
3) During March, two bills amounting to 2,500 and 500 were collected by the bank but
no entry was made in the cash book.
4) A bill for 5,000 due from Mr. Balaji previously discounted for 4,800 was dishonoured.
The Bank debited the account, but no entry was passed in the cash book.
5) A cheque for 1,500 was debited twice in the cash book.
(July 2021)
Sol. Bank Reconciliation Statement as on 31st March, 20X0

Particulars Amount )
Balance as per Pass Book (Dr.) (3,500)
Add: Cheques deposited but returned on 24th March, 20X0 2,500
Discounted bill from Mr. Balaji dishonoured 5,000
Wrong debit in pass book 1500
5.500
Less: Bill discounted by bank (2,500 + 500) (3.000)
Balance as per Cash book (Dr./Favourable) 2,500

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Inventories
(Basic Assignment)
Q. No
Questions
1, Closing stock is valued by XYZ Stores on generally accepted accounting principles. Stock
taking for the year ended 31st March, 20X0 was completed by 10th April, 20X0, the valuation
of which showed a stock figure of ? 1,67,500 at cost as on the completion date.
After the end of the accounting year and till the date of completion of stock taking: -
Sales for the next year were made for 6,875, profit margin being 33.33 percent on
cost.
Purchases for the next year included in the stock amounted to 9,000 at cost less trade
discount @ 10 percent.
During this period, goods were added to stock of the mark-up price of ? 300 in respect
of sales returns.
After stock taking it was found that there were certain very old slow-moving items costing
1,125 which should be taken at 525 to ensure disposal to an interested customer. Due to
heavy floods, certain goods costing 1,550 were received from the supplier beyond the
delivery date of customer. As a result, the customer refused to take delivery and net realizable
value of the goods was estimated to be 1,250 on 31st March, 20X0.
You are required to calculate the value of stock for inclusion in the final accounts for the year
ended 31st March, 20X0.
[May,2018 RTP/Nov. 2019 RTP/May 2021 RTP (M)/ICAISM/May 1996(M)]
Sol. Statement showing the valuation of stock as on 31St March, 20X0
Particulars
Value of stock as on 10th April, 20X0 1,67,500
Add: Cost of salesafter 31St March till stock taking (T 6,875 - (6,875 x 5,156
25%)[WN) Groogijga Eduero
Less: Purchases net of trade discount (*9 noo2r9 000 109%)
x
(8,100)
Less: Cost of sales returns (R 300 - ( 300 x 25%)) (225)
Less: Loss on revaluation of slow-moving inventories (1,125 - 525) (600)
Less: Reduction in value on account of default ({1,550 -1,250) (300)

Value of Stock as on 31St March 20X0 1,63,43 1

Working Note: Profit margin of 33.33 percent on cost means 25 percent on sale price.

2 Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of each
quarter and the valuation is taken at cost. The company's year ends on 31st March, 20X1 and
their accounts have been prepared to that date. The stock valuation taken on 31st March,
20X1 was however, misleading and you have been advised to value the closing stocks as on
31st March, 20X1 with the stock figure as on 31st December, 20X0 and some other
information is available to you:
The cost of stock on 31st December, 20X0 as shown by the inventory sheet was
I 80,000.
ii) On 31st December, stock sheet showed the following discrepancies:
a) A page total of 5,000 had been carried to summary sheet as 6,000.
b) The total of a page had been undercast by 200.

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iii) Invoice of purchases entered in the Purchase Book during the quarter from January
to March, 20X1 totalled 70,000. Out ofthis 3,000 related to goods received prior
to 31St December, 20X0. Invoices entered in April 20X1 relating to goods received in
March, 2020 totalled 4,000.
iv) Sales invoiced to customers totalled 90,000 from January to March, 20X1. Of this
5,000 related to goods dispatched before 31St December, 20X0. Goods dispatched
to customers before 31st March, 20X1 but invoiced in April, 20X1 totalled 4,000.
v) During the final quarter, credit notes invoiced at value of 1,000 had been issued to
customers in respect of goods returned during that period. The gross margin earned
by the company is 25% of cost.
You are required to prepare a statement showing the amount of stock at cost as on 31St
March, 20X1.
[Nov.,2018 RTP/May 2020 RTP/Nov. 2021 RTP/Nov.2006(M)]
Sol. Valuation of physical stock
as at 31st March, 20X1
Particulars
Stock at cost on 31st December, 20XO 80,000

Over casting of a page total (R 6,000 - * 5,000) (1,000)

Under casting of a page total 200
Goods purchased and delivered during January - March, 20X1 (70,000 -3,000 71,000
+
4,000)
Goods sold and dispatched during January - March, 20X1
(90,000 -5,000 + 4,000) 89,000
Less: Profit margin ( 89,000 x 25/125) (17,800)
(71,200)
Cost of sales return ( 1,000 x 100/125) 800
Value of stock as on 31st March, 20X1ucation Academy 79,800
Note: In the above solution, transfer of ownership is assumed to take place at the time of
delivery ofgoods. If it is assumed that transfer of ownership takes place on the date of invoice,
then 4,000 goods delivered in March 20X1 for which invoice was received in April, 20X1,
would be treated as purchases of the accounting year 20X1-20X2 and thus excluded.
Similarly, goods dispatched in March, 2020 but invoiced in April, 20X1 would be excluded and
treated as sale of the year 20X1-X2.

[As per current law compliance (GST), the movement of goods is possible only after when
invoice is generated. The above question has been solved assuming that sale or purchase is
treated as complete when invoice or physical movement of goods happens whichever is
earlier.]
3. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons,
no stock taking could be possible till 15th April, 20X0 on which date the total cost of goods
in his go down came to 50,000. The following facts were established between 31st March
and 15th April, 20X0.
Sales 41,000 (including cashsales 10,000)
ii) Purchases 5,034 (including cash purchases 1,990)
ii) Sales return ? 1,000.
iv) On 15th March, goods of the sale value of 10,000 were sent on sale or return basis
to a customer, the period of approval being four weeks. He returned 40% of the
goods on 10th April, approving the rest; the customer was billed on 16th April.

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V) The trader had also received goods costing 8,000 in March, for sale on consignment
basis; 20% of the goods had been sold by 31st March, and another 50% by the 15th
April. These sales are not included in above sales.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of inventory as on 31st March, 20X0.
[May,2019 RTP/Nov. 2020 RTP/ICAI SM/May 2003]
Sol. Statement of valuation of stock
as at 31st March, 20X0
| Particulars
Stock at cost on 15th April, 20X0 50,000

Cost of Sales (T 41,000 x 0.80) 32,800

Purchases from 31st March,2020 to 15th April, 20X0 (5,034)
Cost of Sales return (? 1,000 x 0.80) (800)
Cost of goods sent on approval basis (? 10,000 x 0.60 x 0.8) 4,800
Unsold stock out of goods received on consignment basis (30% of 7 8,000) (2,400)
79,366
4. Distinguish between periodic inventory system and perpetual inventory system.
[Nov. 2019]
Sol. S. No. Periodic Inventory System Perpetual Inventory System
1 This system is based on It is based on book records.
physical verification.
2.
This system provides information about It provides continuous
inventory and cost of goods sold at a information about inventory and
particular date. cost of sales.
3 This system determines inventory and It directly
determines cost of goods
takes cost of goods sold as residual Aca
png oncepta
sold and computes inventory as
figure. balancing figure.
4
Cost of goods sold includes loss of goods| Closing inventory includes loss of
as goods not in inventory are assumed goods as all unsold goods are
to be sold. assumed to be in Inventory.
5. Under this method, inventory control Inventory control can be exercised
is not possible. under this system.
6 This system is simple and less expensive. It is costlier method.
7 Periodic system requires closure of Inventory can be determined
business for counting of inventory. without affecting the operations of
the business.
5. M/s X, Y and Z are in retail business, following information are obtained from their records
for the year ended 31st March, 20X0:
Goods received from suppliers ()
to
(subject trade discount and taxes) 15,75,000
Trade discount 3% and sales tax 11%
Packaging and transportation charges 87,500
Sales during the year 22,45,500
Sales price of closing inventories 2,35,000
Find out the historical cost of inventories using adjusted selling price method.
(ICAI SM/]uly 2021(M)

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Sol. Inventory valuation

Particulars
Selling price of closing inventories 2,35,000
Less: Gross Profit Margin ( 2,35,000x28.09%[WNZ]) (66,012)
Value ofInventory at Cost 1,68,988

Working notes:
(1) Determination of cost of purchase
Goods received from supplier 15,75,500
Less: Trade discount @ 3% (47,265)
15,28,235
Add: Sales Tax @ 11% 1,68,106
16,96,341
Add: Packing and transportation charges 87,500
Cost of purchase 17,83,841
(2) Determination of estimated gross profit margin
Sales during the year 22,45,500
Closing inventory at
selling price 2,35,000
Total goods at sale price available for sale 24,80,500
Less: Cost of purchases (WN1) (17,83,841)
Gross Profit 6,96,659
Gross Profit Margin (6,96,659/24,80,500 x100) 28.09

ascertain the value of Inventories as on 31st March, 20X1:

-
6. From the following particulars
Inventory as on 1.4.20X0 1,42,500
Purchases 7,62,500
Manufacturing Expenses 1,50,000
Selling Expenses 60,500
Grooming Education Academy
Administrative Expensesnerin Developing Concept 30,000
Financial Charges 21,500
Sales 12,45,000

At the time of valuing inventory as on 31st March, 20X0, a sum of ? 1 7,500 was written off
on particular item, which was originally purchased for 50,000 and was sold during
a

the year for 45,000. Barring the transaction relating to this item, the gross profit earned
during the year was 20 percent on sales.
(ICAI SM/January 2021 (modified)/May 2004
Sol. Statement of Inventory in trade as on 31st March, 20X1
Particulars
Inventory as on 31st March, 20X0 1,42,500

Less: Book value of abnormal inventory

( 50,000 - 17,500) 32,500 1,10,000
Add: Purchases 7,62,500
Manufacturing Expenses 1,50,000
Cost of goods available for sale 10,22,500
Less: Cost of qoods sold:

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Sales as per books 12,45,000

Less: Sales of abnormal item (45,000)
12,00,000
Less: Gross profit @ 20% 12,00,000
of (2,40,000) 9,60,000
Inventory in trade as on 31st March, 20xX1
62,500

Note: Selling expenses, administrative expenses and financial charges are indirect expenses
and hence, are nott considered in valuation ofinventories.
7. The following are the details of a spare part of Sriram mills:
Date Particulars Details
1/1/20X0 Opening inventory Nil
1/1/20XO Purchases 100 units 30
@ per unit
15/1/20X0 Issued for consumption 50 units
1/2/20XO Purchases 200 units @R 40per unit
15/2/20X0 Issued for consumption 100 units
20/2/20X0 Issued for consumption 100 units

Find out the value of inventory as on 31-3-20X0 if the company follows: -

a) First in first out basis;
b) Last in first out basis; and
c) Weighted average basis
(ICAI SM/Nov.1999)
Sol. (a)
Sriram Mills
Store ledger (FIFO)
Date Receipts Issu Bal.
es
DOmI on A demV
Units Rate Unit Rate Units Rate

1/1/20XO Balance Nil

1/1/20X0 100 30 3,000 100 30 3,000
15/1/20X0 50 30 1,500 50 30 1,500
1/2/20X0 200 40 8,000 50 30 1,500
200 40 8,000
15/2/20X0 50 30 1,500
50 40 2,000 150 40 6,000
20/2/20X0 100 40 4,000 50 40 2,000

of Inventory as on 31-3-20X0: 50 units =

Therefore, the value @40 2,000

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(b)
Sriram Mills
Store ledger (LIF0)
Date Receipts Issues Balan
Ce

Units Rate Units Rate Units Rate

1/1/20X0 Balance Nil
1/1/20XO 100 30 3,000 100 30 3,000
15/1/20X0 50 30 1,500 50 30 1,500
1/2/20XO 200 40 8,000 50 30 1,500
200 40 8,000
15/2/20XO 100 40 4,000 50 30 1,500
100 40 4,000
20/2/20X0 100 40 4,000 50 30 1,500

of Inventory as on 31-3-20X0: 50 units =*

Therefore, the value @30 1,500

(C)
Sriram Mills
Store ledger (Weighted Average)
Date Receip Issu Balan
ts es ce
Units Rate Units Rate Units Rate
1/1/20X0 Balance Ni

1/1/20XO 100 30 3,000 100 30 3,000

oom
15/1/20XO Eduetior50ade30
g
1,500 50 30 1,500
Conc
1/2/20X0 200 40 8,000 250 38 9,500

15/2/20XO 100 38 3,800 150 38 5,700

20/2/20X0 100 38 3,800 50 38 1,900

Therefore, the value of Inventory as on 31-3-20X0: 50 units @38 = 1,900

8
(Imp.) The profit and loss account of Hanuman showed a net profit of 6,00,000, after
considering the closing stock of 3,75,000 on 31st March, 20X0. Subsequently the following
information was obtained from scrutiny of the books:
i Purchases for the year included 15,000 paid for new electric fittings for the shop.
ii) Hanuman gave away goods valued at 40,000 as free samples for which no entry was
made in the books of accounts.
iii) Invoices for goods amounting to 2,50,000 have been entered on 27th March, 20X0, but
the goods were not included in stock.
iv) In March, 20X0 goods of * 2,00,000 sold and delivered were taken in the sales for April,
20X0.
V Goods costing ? 75,000 were sent on sale or return basis in March, 20X0 at a margin of
profit of 33-1/3% on cost. Though approval was given in April, 20X0 these were taken
as sales for March, 20X0.
Calculate the value of stock on 31st March, 20X0 and the adjusted net profit for the year ended
on that date. (ICAI SM/May 2000)

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Sol. (1)
Profit and loss Adjustment A/c
for the year ended 31st March, 20X0
Particulars Particulars
To Advertisement (samples) 40,000 By Net profit 6,00,000
By Electric fittings 15,000
By Samples 40,000
To Sales (goods approved in 1,00,000 By Stock (purchases of March 2,50,000
April to be taken as April not included in stock)
sales: 75,000 + 75,000x 1/3)
By Sales (goods sold in March 2,00,000
wrongly taken as April sales)
To Adjusted net profit 10,40,000 By Stock (goods sent on 75,000
(Balancing figure) approval basis not included
in stock)
11,80,000 11,80,000

(2) Calculation of value of inventory on 31st March, 20X0

Particulars
Stock on 31st March, 20X0 (Given) 3,75,000
Add: Purchases of March, 20X0 not included in the stock 2,50,000
Goods lying with customers on approval basis 75,000
7,00,000
9 (Imp.) Physical verification of stock in a business was done on 23rd june, 20X0. The value of
the stock was 48,00,000. The following transactions took place between 23rd June to 30th
June, 20X0:
i) Out the goods sent on consignment, goods at cost worth 2,40,000 were unsold.
of

i) Purchases of 4,00,000 were made out of which goods worth 1,60,000 were delivered
on 5th Julv. 20X0 Groonming Education Academy
iii) Sales were 13,60,000, which include goods worth 3,20,000 sent on approval. Half of
these goods were returned before 30th June, 20X0, but no information is available
regarding the remaining goods.
iv) Goods are sold at cost plus 25%. However, goods costing 2,40,000 had been sold for
1,20,000.
You are required to determine the value of stock on 30th June, 20X0.
[ICAISM/Nov. 2018 MTP/0ct 2020 MTP (M)/Nov. 2020]

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Sol. Statement of valuation of stock

on 30th June, 20XO
Particulars
Value of stock as on 23rd June, 20X0 48,00,000
Add: Unsold stock out of the goods sent on consignment 2,40,000
2,40,000
Purchases during the period from 23rd June, 20X0 to
30th June, 20X0 ( 4,00,000 - 1,60,000)

Goods in transit on 30th June, 20X0 1,60,000

Cost of goodssent on approval basis (80% of 1,60,000) 1.28,000 Z.68,000
55,68,000
Less: Cost of sales during the period from 23rd June, 20X0
to 30th june, 20X0
-
Sales (R
13,60,000 1,60,000) 12,00,000
Less: Gross profit (WN2) 96.000
11.04,000
Value of stock as on 30th june, 20XO 44.64,.000

Working Notes:
1. Calculation of normal sales:
Actual sales 13,60,000
Less: Abnormal sales (given) 1,20,000
Return of goods sent on approval 1.60,000 (2,80.000)
10,80,000
2.
Calculation of gross profit:9 em
Gross profit on normal sales 2,16,000
(R10,80,000x20/100)
Less: Loss on sale of particular (abnormal) goods (1,20,000)
(R2,40,000-* 1,20,000)
Gross profit 96,000
10. Mr. Ganesh sends out goods on approval to few customers and includes the same in the Sales
Account. On 31.03.20X0, the Trade Receivables balance stood at 75,000 which included
{ 6,500 goods sent on approval against which no intimation was received during the year.
These goods were sent out at 30% over and above cost price and were sent to
Mr. Adhitya 3,900 and Mr. Bakkiram R 2,600.
Mr. Adhitya sent intimation of acceptance on 25th April, 20X0 and Mr. Bakkiram returned the
goods on 15th April, 20X0.
Make the adjustment entries and show how these items will appear in the Balance Sheet as
on 31st March, 20X0. Show also the entries to be made during April, 20X0. Value of Closing
Inventories as on 31st March, 20X0 was T 50,000.
(Nov 2018)

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Sol. In the books of Mr. Ganesh

Journal Entries
Date Particulars Dr. () Cr. ()

20X0 Sale A/c Dr. 6,500

31 March To Trade Receivable A/c 6,500
(Being the cancellation of original entry for sale
in respect of goods lying with the customers
awaiting for approval)
31 March Inventories with customers on sale or Return 5,000
A/c Dr.
To Trading A/c 5,000
(Being the adjustment of cost of goods lying
with customers awaiting approval)
25 April Trade Receivable A/c Dr. 3,900
To Sales A/c 3,900
(Being goods costing worth 3,900 sent to Mr.
Aditya on sale or return basis has been
accepted by him)

Balance Sheet of Mr. Ganesh

as on 31st March, 20X0 (Extract)
Liabilities Assets
Trade receivable 68,500
K75,000 -36,500)
Inventory in trade 50,000
Grooming Ed Add: Inventories
with customer on
sale or return 5,000 55,000
1.23,500

Notes:
1) goods lying with customers = 100/130 *6,500 =5,000
Cost of

2) No entry is required on 15th April, 20X0 for goods returned by Mr. Bakkiram. Goods
should be included physicallyin the inventories.
11. Raj Ltd. Prepared their accounts for financial year ended on 31st March 20X0. Due to
unavoidable circumstances, actual stock has been taken on 10h April 20X0, when it was
ascertained at 1,25,000. It has been found that;
Sales are entered in the Sales Book on the day of dispatch and return inwards in the
Returns Inward Book on the day of the goods received back.
ii) Purchases are entered in the Purchase Book on the day the Invoices are received.
iii) Sales between 1st April, 20X0 to 9th April, 20X0 amounting to20,000 as per Sales Day
Book.
iv) Free samples for business promotion issued during 1st April 20X0 to gth April 20X0
amounting to 4,000 at cost.
v) Purchases during 1st April, 20X0 to gth April, 20X0 amounting to 10,000 but goods
amount to 2,000 not received till the date of stock taking.

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vi) Invoices for goods purchased amounting to 20,000 were entered on 28th March, 20X0
but the goods were not included in stock. Rate of Gross Profit is 25% on cost.
Ascertain the value of Stock as on 31t March 20X0.
(May 2019)
Sol. Statement of Valuation of Physical Stock as on 31st March, 2019
Particulars
Value of stock as on 10th April, 20X0 1,25,000
Add: Cost of sales during the intervening period
Sales made between 1.4.20X0 and 9.4.20X0 20,000
Less: Gross profit @ 20% on sales (4.000] 16,000
Free Sample 4,000
145,000
Less: Purchases actually received during the intervening
period:
Purchases from 1.4.20X0 to 9.4.20X0 10,000
Less: Goods not received up to 9.4.20X0 (2.0001 8,000
1,37,000
Add: Purchases during March, 20X0 but not recorded in stock 20,000
Value of physical stock as on 31.03.20XO 1,57,000

Grooming Education Academy

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Depreciation
Assignment
Q
Questions and Solutions
NO.
1 Jain Bros. acquired a machine on 1st July, 20X0 at a cost of 14,00,000 and spent 1,00,000 on its
installation. The firm writes off depreciation at 10% p.a. of the original cost every year. The books are
closed on 31st December every year.
Required: Show the Machinery Account and Depreciation Account for the year 20X0 and 20X1.
(1CAI SM)
Sol. Dr. Machinery A/c Cr.
Date Particulars Date Particulars
20X0 20X0
July 1 To BankA/c 14,00,000 Dec. 31 By Depreciation A/c 75,000
July 1 To BankA/c -
1,00,000 (10% on 15,00,000 for 6

Installation Expenses months)

Dec. 31 By Balance c/d 14,25,000
15,00,000 15,00,000
20X1 20X1
Jan. 1 To Balance b/d 14,25,000 Dec. 31 By Depreciation A/c 1,50,000
(10% on R 15,00,000)
Dec. 31 By Balance c/d 12,75,000
14,25,000 14,25,000

Dr. Depreciation A/c Cr.

Date Particulars Date Particulars
20X0 20X0
Dec. 31 To Machinery A/c 75,000 Dec. 31 By Profit &
Loss A/c 75,000
75,000 75,000
20X1 20X1
Dec. 31 To Machinery A/c 1,50,000 Dec. 31 Loss A/c
By Profit &
1,50,000
1,50,000 ation Atadem 1,50,000
2 M/s Akash purchased a machine for 10,00,000. Estimated useful life and scrap value were 10 years
and 1,20,000 respectively. The machine was put to use on 1.1.20X0.
Required: Show Machinery Account and Depreciation Account in their books for 20X5 by using sum
of years digit method.
(1CAI SM)
Sol.
In the books of M/s Akash
Dr. Machinery A/c Cr.
Date
| Particulars Date Particulars
20X5 20X5
Jan. 1 To Balance b/d 3,60,000 Dec. 31 By Depreciation A/c(WN3) 80,000
(WN2)

Dec. 31 By Balance c/d 2,80,000

3,60,000 3,60,000
20X6
Jan. 1 To Balance b/d 2,80,000

Dr. Depreciation A/c Cr.

Date Particulars Date Particulars
20X5 20X5
Dec. 31 To Machinery A/c 80,000 Dec. 31 By Profit &
Loss A/c 80,000
75,000 75,000

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Working Notes:
1) Total of sum of digit of depreciation for 20X0-20X4
x
=
(( 10,00,000 -1,20,000) (0tY+8+7+b
10(10+1)
2

=
8,80,000 x= 6,40,000
40

2) Written down valueas on 1-1-20X5

=
=* 10,00,000-*6,40,000 3,60,000
3) Depreciation for 20X5
10,00,000 - * 1,20,000) x=80,000
= (R

3. A machine was purchased for 30,00,000 having an estimated total working of 24,000 hours. The scrap

value is expected to be 2,00,000 and anticipated pattern of distribution of effective hours is as follows:
Year
1-3 3,000 hours per year
4 -6 2,600 hours per year
7-10 1,800 hours per year
Required:
Determine Annual Depreciation under Machine Hour Rate Method. (ICAI SM)
Sol.
Statement of Annual Depreciation under Machine Hours Rate Method
Year Annual Depreciation
1-3 3,000
(* 30,00,000 -* 2,00,000) 24,000
-=*3,50,000
- * x 2,600
4-6 (R30,00,000 2,00,000) =*3,03,333
24,000

7-10 (R 30,00,000 - 2,00,000) x 1,800

24,000
-- 2,10,000 cademy
4 A machine is purchased for 20,00,000. Its estimated useful life is 10 years with a residual value of
2,00,000. The machine is expected to produce 1.5 lakh units during its life time. Expected distribution
pattern of production is as follows:
Year Production
1-3 20,000 units per year
4-7 15,000 units per year
8-10 10,000 units per year
Required:
Determine the value of depreciation for each year using production unit method.
(ICAI SM)
Sol. Statement showing Depreciation under Production Units Method
Year Annual Depreciation
1-3 (R 20,00,000 - * 2,00,000) : 20,000
=2,40,000
1,50,000

4-7 ( 20,00,000 - 2,00,000) x 15,000 =

1,80,000
1,50,000

8-10 (R 20,00,000- *2,00,000): 10,000

=1,20,000
1,50,000

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5 M/s Surya took lease of a quarry on 1-1-20X1 for 1,00,00,000. As per technical estimate the total
quantity of mineral deposit is 2,00,000 tonnes. Depreciation was charged on the basis of depletion
method. Extraction pattern is given in the following table:
Year Quantity of Mineral extracted
20X1 2,000 tonnes
20X2 10,000 tonnes
20X3 15,000 tonnes
Required:
Show the Quarry Lease Account and Depreciation Account for each year from 20X1 to 20X3.
[ICAI SM/ Oct 2018 MTP / Oct 2019 MTP (Modified)]
Sol. Dr. Quarry Lease Account Cr.
Date Particulars Date Particulars
20X1 20X1
Jan. To BankA/c 1,00,00,000 Dec.31 By Depreciation A/c 1,00,000
x
[(2,000/2,00,000)
R1,00,00,000]
Dec.31 By Balance c/d 99,00,000
1,00,00,000 1,00,00,000
20X2 20X2
Jan.1 To Balance b/d 99,00,000 Dec.31 By Depreciation A/c 5,00,000
x
[(10,000/2,00,000)
1,00,00,000]
Dec.31 By Balancec/d 94,00,000
99,00,000 99,00,000
20X3 20X3
Jan.1 To Balance b/d 94,00,000 Dec.31 By Depreciation A/c 7,50,000
»x
((15,000/2,00,000)
1,00,00,000]
Dec.31 By Balance c/d 86,50,000
94,00,000 94,00,000
OTU0y Luucauom Acauemy
Dr. Depreciation Account Cr.
Date| Particulars Date Particulars
20X1 20X1
Dec. 31/To Quarry lease A/c 1,00,000 Dec. 31 By Profit & Loss A/c 1,00,000
1,00,000| 1,00,000
20X2 20X2
Dec. 31 To Quarry lease A/c 5,00,000o| Dec. 31 By Profit & Loss A/c 5,00,000
5,00,000 5,00,000
20X3 20X3
Dec. 31| ToQuarry lease A/c 7,50,00O| Dec. 31 By Profit & Loss A/c 7,50,00O
7,50,000 7,50,000

6. A firm purchased on 1st January, 20X0 certain machinery for 5,82,000 and spent 18,000 on its
erection. On July 1, 20X0 another machinery for 2,00,000 was acquired. On 1st July, 20X1 the
machinery purchased on 1st January, 20XO having become obsolete was auctioned for 3,86,000 and
on the same date fresh machinery was purchased at a cost of 4,00,000.

Depreciation was provided for annually on 31st December at the rate of 10% p.a. on written down
value.
Required:
Prepare machinery account. (ICAI SM/Nov 2019/Nov.2001 (M))

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Sol. Dr. Machinery A/c Cr.

Date Particulars Date Particulars
20X0 20X0
Jan. 1 To Bank A/c 5,82,000 Dec. 31 By Depreciation A/c (WN) 70,000
Jan. 1 To Bank A/c - 18,000 Dec. 31| By Balance c/d 7,30,000
Erection charges
July 1 To Bank A/c 2,00,000
8,00,000 8,00,000
20X1 20X1
Jan. 1 To Balance b/d 7,30,000 July 1 By Depreciation on sold 27,000
machine (WN)
July 1 To Bank A/c 4,00,000 Dec. 31 By Bank A/c 3,86,000
By Profit and Loss A/c (WN) 1,27,000
By Depreciation A/c (WN) 39,000
By Balance c/d 5,51,000
11,30,000 11,30,000
Working Note:

Book Value of Machines

Particulars Machine I
Machine II Machine III
Cost 6,00,000 2,00,000 4,00,000
Less: Depreciation for 20X0
Machine I(R6,00,000x10%) (60,000)
-Machine II 2,00,000x10%x6/12)
R (10,000)
Written down value 5,40,000 1,90,000
Less: Depreciation for 20X1
Machine I (R5,40,000x10%x6/12) (27,000)
-
Machine II (R 1,90,000x 10%)rooming EducatiorAcadeny (19,000)
-
Machine III ( 4,00,000x 10%x6/12) (20,000)
Written down value 5,13,000 1,71,000 3,80,000
Less: Sale Proceeds (3,86,000)
Loss on Sale 1,27,000

7. M/s Anshul commenced business on 1st January 20X0, when they purchased plant and equipment for
7,00,000. They adopted a policy of charging depreciation at 15% per annum on diminishing balance
basis and over the years, their purchases of plant have been:
Date
1-1-20X1 1,50,000
1-1-20X2 2,00,000
On 1-1-20X2, it was decided to change the method and rate of depreciation to straight line basis. On
this date remaining useful life was assessed as 6 years for all the assets purchased before 1.1.20X2 and
10 years for the asset purchased on 1.1.20X2 with no scrap value.

Required:
Calculate the difference in depreciation to be adjusted in the Plant and Equipment Account for the year
ending 31st December, 20X2. (1CAI SM)

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Sol. on written down value basis

Depreciation
Year Particulars Purchased on Purchased on Total
Jan.1,20X0 Jan.1,20X1 Depreciation
20X0 Cost 7,00,000
Depreciation ( 7,00,000x 15%) (1,05,000) 1,05,000
Written Down Value (WDV) 5,95,000
20X1 Cost 1,50,000
Depreciation (? 5,95,000x15%) (89,250)
Depreciation ( 1,50,000x 15%) (22,500) 1,11,750
Written Down Value (WDV) 5,05,750 1,27,500
20X2
Depreciation @ 15% (75,863) (19,125) 94,988
Written Down Value (WDV) 4,29,887 1,08,375
20X3
Depreciation @ 15% (64,483) (16,256) 80,739
Written Down Value (WDV) 3,65,404 92,119

20X4 Depreciation (3,65,404+6) (60,900)

Depreciation (92,119+6) (15,353) 76,253
Written Down Value (WDV) 3,04,504 76,766

Dr. Plant and Equipment Account Cr.

Date Particulars Date Particulars
20X5 20X5
Jan.1 To Balance b/d 4,57,523 Dec.31 By Depreciation A/c 96,253
(*3,65,404+92,119) [60,900+15,353+20,000]
Jan.1 To Bank A/c 2,00,000 Dec.31 By Balance c/d 5,61,270
6,57,523 6,57,523
20X6
Jan.1 To Balance b/d 5,61,270

8 A Machine costing R 6,00,000 is depreciated on straight line basis, assuming 10 years working life and
zero residual value, for three years. The estimate of remaining useful life after third year was reassessed
at 5 years.

Required:
Calculate depreciation for the fourth year. (ICAI SM/May 2020 RTP)
Sol. Depreciation per year = R6,00,000/ 10 =60,000

Depreciation on SLM charged for three years =60,000 x 3 years = 1,80,000

Book value of the computer at the end of third year =* 6,00,000 - 1,80,000 = 4,20,000.
Remaining useful life as per previous estimate = 7 years

Remaining useful life as per revised estimate =5 years

Depreciation from the fourth year onwards = 4,20,000/5 =
*84,000 per annum

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9 A machine of cost 12,00,000 is depreciated straight-line assuming 10 year working life and zero
residual value, for three years. At the end of third year, the machine was revalued upwards by 60,000.
The remaining useful life was reassessed at 9 years.
Required:
Calculate depreciation for the fourth year. |ICAI SM/ May 2020 RTP (Modified)]
Sol. Depreciation per year charged for three years = 12,00,000/ 10 =1,20,000
WDV of the machine at theend of thirdyear = 12,00,000-* 1,20,000 x 3 =I8,40,000.

Depreciable amount after revaluation =8,40,000 +60,000 =9,00,000

Remaining useful life as per previous estimate = 7 years
Remaining useful life as per revised estimate = 9 years
Depreciation for the fourth year onwards =9,00,000/9 = 1,00,000.

10 The following particulars are available from the books of a public company having a large fleet of
vehicles:

Balance in Provision for Repairs and Renewals Account as on 31.3.20X1 11,50,000

|Actual repairs charged/incurred during the year ended 7,50,000
31.3.20X1
31.3.20X2 3,20,000
The company makes an annual provision ofI4,00,000 on repairs and renewals.
Required:
Draw up the Provision for Repairs and Renewals Account for the years 20X0-20X1 and 20X1-20X2.
(ICAI SM)
Sol. Dr Provision for Repairs and Renewal Account Cr.
Date Particulars Date
Particulars
31.3.20X1 To Repairs A/C By
7,50,000 01.4.20X0| Balance b/d 15,00,000
GrdomftatOn ACd
ping Concept (Balancing figure)
|31.3.20X1 To Balance c/d 11,50,000
B1.3.20X1 By Profit and Loss A/c 4,00,000
19,00,000 19,00,000
31.3.20X2 To Repairs A/c 3,20,000l01.4.20x1|By Balance b/d 11,50,000
|31.3.20X2 To Balance c/d 12,30,00031.3.20x2By Profit and Loss A/c 4,00,000
15,50,000 15,50,000
1.4.20X2 By Balance 12,30,000
b/d

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11. A firm's plant and machinery account at 315t December, 20X17 and the corresponding depreciation
provision account, broken down by year of purchase are as follows:

Year of Purchase Plant and Machinery at cost Depreciation Provision

20X0 2,00,000 2,00,000

20X6 3,00,000 3,00,000
20X7 10,00,000 9,50,000
20X8 7,00,000 5,95,000
20X15 5,00,000 75,000
20X16 3,00,000 15,000
30,00,000 21,35,000

Depreciation is at the rate of 10% per annum on cost. It is the Company's policy to assume that all
purchases, sales or disposal of plant occurred on 30th June in the relevant year for the purpose of
calculating depreciation, irrespective of the precise date on which these events occurred.

During 20X17, the following transactions took place:

1
Purchase of plant and machinery amounted to R
15,00,000.
2. Plant that had been bought in 20X6 for 170,000 was scrapped.
3 Plant that had been bought in 20X7 for 90,000 was sold for 5,000.
Plant that had been bought in 20X8 for 2,40,000 was sold for 15,000.
4

You are required to:

Calculate the provision for depreciation of plant and machinery for the year ended 31st December,
20X17. In calculating this provision, you should bear in mind that it is the company's policy to show
any profit or loss on the sale or disposal of plant as a completely se parate item in the Profit and Loss
Account. You are also required to prepare the following ledger accounts during 20X17.
i) Plant and machinery at
costrooming Education Academy
ii) Depreciation provision; Pioneer in Deveoping Concepts,

ii) Sales or disposal of plant and machinery.

(1CAI SM)

Sol. Calculation of provision for depreciation of plant and machinery for the year ended 31st December,
20X17.
|Plant purchased in: Particulars
20X0 Nil

20X6 Nil

20X7 50,000
20X8 1/2 year at 10% on 2,40,000 12,000
year at 10% on 4,60,000
1
46,000 58,000
20X15 10% on 5,00,000 50,000
20X16 10% on 3,00,000 30,000
20X17 1/2 year at 10% on t 15,00,0 00 75,000
2,63,000

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Dr. Plant and Machinery A/c (for 20X17) at Cost Cr.

Particulars Particulars
To Balance b/d 30,00,000 By Disposals account:
To Purchases A/c Scrapped
15,00,000 1,70,000
Sold
3,30,000
By Balance c/d 40,00,000

45,00,000 45,00,000

Dr. Depreciation Provision Account (for 20X17) Cr

Particulars Particulars
To Disposal Account: By Balance b/d 21,35,000
Scrapped - 20X6 1,70,000 By Profit and Loss Account 2,63,000
assets
Sold - 20X7 assets 90,000

Sold - 20X8 assets 2,16,000 4,76,000

To Balance c/d 19,22,000

23,98,000 23,98,000

Dr. Sale or disposal of Plant and Machinery Account (for 20X17) Cr

Particulars Particulars
To Plant and Machinery: Grooning Educat By Provision for Depreciation 4,76,000

Scrapped 1,70,000 By Cash-Sales Proceeds 20,000

Sold 3,30,000 By Loss on sales 4,000

5,00,000 5,00,000
12. a a
The Machinery Account of Factory showed balance of 19,00,000 on 1st January, 20X2. Its accounts
were made up on 31st December each year and depreciation is written off at 10% p.a. under the
Diminishing Balance Method.
On 1st June 20X2, a new machinery was acquired at a cost of 2,80,000 and installation charges
incurred in erecting the machine works out to 8,920 on the same date. On 1st June, 20X2 a machine
which had cost 4,37,400 on 1st January 20X0 was sold fori 75,000. Another machine which had cost
{ 4,37,000 on 1st January, 20X1 was scrapped on the same date and it realised nothing.

Write a plant and machinery account for the year 20X2, allowing the same rate of depreciation as in the
past calculating depreciation to the nearest multiple of a Rupee.
(ICAI SM)

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Sol. Dr. Plant and Machinery Account Cr

Date Particulars Date Particulars

20X2 20X2
Jan.1 To Balance b/d 19,00,000 June 1 By Bank (Sales) 75,000
June 1 To Bank (2,80,000 + 2,88,92 0 By Depreciation (on sold 14,762
8,920) machine)
By Loss on sale (Note i) 2,64,532
By Loss on scrapping the 3,76,912
machine (Note ii)

By Depreciation (on 16,388

scrapped machinery)
By Depreciation (Note iil) 1,32,094
By Balance c/d 13,09,232
21,88,920 21,88,920
Working Note:
) Calculation ofloss on sale of machine on 1-6-20X2

Particulars
4,37,400
Cost on 1-1-20X0
Less: Depreciation @ 10% on R 4,37,400 (43,740)
W.D.V. on 31-12-20X0 3,93,660
Less: Depreciation @ 10% on 3,93,660 (39,366)
W.D.V. on 31-12-20X1 3,54,294
Grooming Education Academny
Less: Depreciation @ 10% on * 3,54,294 for 5 months (14,762)
3,39,532
(75,000)
Less: Sale proceeds on 1-6-20X2
|Loss 2,64,532
i) Calculation of loss on scrapped machine
|Particulars
4,37,000
Cost on 1-1-20X1
(43,700)
Less: Depreciation @ 10% on 4,37,000
3,93,300
W.D.V. on 1-1-20X2
(16,388)
Less: Depreciation @ 10% on 3,93,300 for 5 months
3,76,912
Loss

ii) Depreciation
Particulars
19,00,000
Balance of machinery account on 1-1-20X2
| Less: W.D.V of machinery sold 3,54,294

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W.D.V. of machinery
(7,47,594)
scrapped 3,93,300
11,52,406
W.D.V. of other machinery on 1-1-20X2
1,15,240
Depreciation @ 10% on' 11,52,406 for 12 months
16,854
Depreciation ® 10% on` 2,88,920 for 7 months
1,32,094
13 The LG Transport company purchased 10 trucks at 45,00,000 each on 1st April 20X0. On October 1st,
20X2, one of the trucks is involved in an accident and is completely destroyed and 27,00,000 is
received from the insurance in full settlement. On the same date another truck is purchased by the
company for the sum of 50,00,000. The company write off 20% on the original cost per annum. The
company observe the calendar year as its financial year.
Give the motor truck account for two year ending 31 Dec, 20X3.
(ICAISM/May 2018 RTP/Aug 2018 MTP/January 2021 (M)/November 2021 RTP/December
2021)
Sol. Dr. Motor Truck A/c Cr.
Date Particulars Date Particulars
20X2 20X2
Jan-01 To balance b/d 2,92,50,000 Oct-01 By Bank A/c 27,00,000
Oct-01 To Profit & Loss 4,50,000 Oct-01 By Depreciation on lost 6,75,000
A/c (Profit on assets
settlement)
Oct-01 To Bank A/c 50,00,000 Oct-01 By Depreciation A/c 83,50,000

Dec-31 By Balance c/d 2,29,75,000

3,47,00,000 3,47,00,000
20X3 20X3
To balance b/d 2,29,75,000 Dec-31 By Depreciation A/c 91,00,000
Jan-01
Dec-31 By balance c/d 1,38,75,000
2,29,75,000 2,29,75,000
cation Ac demv

Working Note:

1) Calculation of loss on Profit on settlement of truck

Particulars
Original cost as on 1.4.20X0 45,00,000
Less: Depreciation for 20X0 [R 45,00,000×20/100x9/12] (6,75,000)
38,25,000
Less: Depreciation for 20X1 [R 45,00,000×20/100] (9,00,000)
29,25,000
Less: Depreciation for 20X2 [ 45,00,000×20/100x9/12] (6,75,000)
22,50,000
Less: Amount received from Insurance company (27,00,000)
Profit on settlement of Truck 4,50,000
14 M/s. Green Channel purchased a second-hand machine on 1st January, 20X0 for 1,60,000.
Overhauling and erection charges amounted to40,000. Another machine was purchased for 80,000
on 1st July, 20X0.

On 1st July, 20X2, the machine installed on 1st January, 20X0 was sold for 1,00,000. Another machine
amounted to 30,000 was purchased and was installed on 30th September, 20X2.

Under the existing practice the company provides depreciation @ 109% p.a. on original cost. However,
from the year 20X3 it decided to adopt WDV method and to charge depreciation @ 15% p.a. You are
required to prepare Machinery account for the years 20X0 to 20X3.
(Nov. 2018 RTP/Nov. 2019 RTP/Nov. 2020 RTP/ Nov. 2004 (M))

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Sol. In the books of M/s. Green Channel Co.

Dr. Machinery Account Cr.
Date Particulars Date Particulars
1.1.20XO To BankA/c 1,60,000 31.12.20X0 By Depreciation A/c 24,000
( 20,000 +*4,000)
To Bank A/c 40,000
(Erection charges)
31.12.20X0 By Balance c/d 2,56,000
( 1,80,000 + 76,000)
1.7.20XO To Bank A/c 80,000

2,80,000 2,80,000
1.1.20X1 To Balance b/d 2,56,000 31.12.20X1 By Depreciation A/c 28,000
(R 20,000 +8,000)
31.12.20X1 By Balance c/d 2,28,000
(R 1,60,000 + 68,000)
2,56,000 2,56,000
1.1.20x2 To Balance b/d 2,28,000 1.7.20X2 By Bank A/c 1,00,000
30.9.20X2 To BankA/c 30,000 By Profit and Loss A/c 50,000
(Loss on Sale - W.N. 1)
31.12.20X2 By Depreciation A/c 18,750
(E10,000 + 8,000 +*
750)
Balance c/d (* 60,000 + 89,250
29,250)
2,58,000 2,58,000
1.1.20X3 To Balance b/d 89,250 31.12.20X3 By Depreciation A/c 13,387.5
(9,000 +*4,387.5)
By Balance c/d 75,862.5
(51,000 +24,862.5)
Gro ation Acadehy
89,250 89,250

Working Notes:
Book Value of machines (Straight line method)
|Particulars Machine
Machine Machine

Cost 2,00,000 80,000 30,000

Less: Depreciation for 20X0 20,000 4,000
Written down value as on 31.12.20X0 1,80,000 76,000
Less: Depreciation for 20X1 20,000 8,000
Written down value as on 31.12.20X1 1,60,000 68,000
Less: Depreciation for 20X2 10,000 8,000 750
Written down value as on 31.12.20X2 1,50,000 60,000 29,250
Less: Sale proceeds 1,00,000
Loss on sale 50,000

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15.
A
firm purchased an old Machinery for 37,000 on 1st January, 20X0 and spent 3,000 on its
overhauling. On 1st July 20X1, another machine was purchased for 10,000. On 1stjuly 20X2, the
machinery which was purchased on 1st January 20X0, was sold for 28,000 and the same day a new
machinery costing 25,000 was purchased. On 1st July, 20X3, the machine which was purchased on
1st July, 20X1 was sold for 2,000.

Depreciation is charged ® 10% per annum on straight line method. The firm changed the method and
adopted diminishing balance method with effect from 1st January, 20X1 and the rate was increased to
15% per annum. The books are closed on 31st December every year.
Prepare Machinery account for four years from 1st January, 20X0.
(Nov. 2005/june 2019/Nov. 2021 MTP)
Sol. In the books of Firm
Dr. Machinery Account Cr.
Date Particulars Date Particulars
1.1.20X0 To BankA/c 37,000|31.12.20x0| By Depreciation A/c 4,000
To Bank A/c 3,000 31.12.20XO| By Balance c/d 36,000
(overhauling charges)

40,000| 40,000
1.1.20X1 To Balance b/d 36,000|31.12.20X1| By Depreciation A/c 6,150
((5,400+750)
1.7.20X1 To Bank A/c 10,000|31.12.20X1| By Balance c/d 39,850
(30,600 +9,250)
46,000| 46,000
1.1.20X2To Balance b/d 39,850 1,7.20X2| By Bank A/c(sale) 28,000|
1.7.20X2To Bank A/c 25,000 1.7.20X2 By Profit and Loss A/c (Loss on 305
Sale - W.N. 1)
Groþming E|31.12.20X2}By eDepreciation A/c 5,558
+
(R2,295+1,388
1,875)
|By Balance c/d 30,987
(R 7,862+7 23,125)
64,850| 64,850
1.1.20X3To Balance b/d 30,987 1.7.20X3| By Bank A/c (sale) 2,000
1.7.20X3 By Profit and Loss A/c (Loss on 5,272
Sale - W.N. 1)
31.12.20X3| By Depreciation A/c (R 590 +* 4,059
3,469)
31.12.20X3 By Balance c/d 19,656
30,987 30,987

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Working Note:
Book Value of machines
Particulars Machine Machine Machine
II

Cost of all machinery 40,000 10,000 25,00

0
(Machinery cost for 20X0)
Depreciation for 20X0 4,000
Written down value as on 31.12.20X0 36,000

Purchase 1.7.20X1 (6 months) 10,000

Depreciation for 20X1 5,400 750

Written down value as on 31.12.20X1 30,600 9,250

Depreciation for 6 months (20X2) 2,295

Written down value as on 1.7.20X2 28,305

Sale proceeds 28,000

Loss on sale 305

Purchase 1.7.20X2 25,000

Depreciation for 20X2 (6 months) 1,388 1,875

Written down value as on 31.12.20X2 7,862 23,125

Depreciation for 6 months in 20X3 590

Written down value as on 1.7.20X3 7,272

SYUming Education Acadmy
Sale proceeds Pioneer Deveoping oncepts, 2,000
Loss on sale 5,272

Depreciation for 20X3 3,469

Written down value as on 31.12.20X3 19,656

16. A Machinery costing? 20,00,000 is depreciated on straight line assuming 10 years working life and nil
salvage value for four years. At the end of the fourth year, the machinery was revalued upwards by
80,000. The remaining useful life of the machinery was also reassessed as 8 years at the end of the
fourth year. Calculate the depreciation for 5th Year. (ICAI SM/November 2018/0ct. 2021 MTP)
Sol. Depreciation per year for first 4 years = R 20,00,000/10 = 2,00,000
Thus, WDV of the Machinery at end of the 4th year = 20,00,000 -(* 2,00,000 x 4) =* 12,00,000
Revalued Amount ie., New Depreciable Amount shall be =12,00,000 + 80,000 = 12,80,000
Original remaining useful life is (10 - 4) = 6 Years whereas it is reassessed as 8 Years.
Hence, depreciation for 5th Year = 12,80,000/8 ={ 1,60,000

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17. Amazing group had Property, Plant & Equipment (PP&E) with a book value of 35,00,000 on 31*
December 20X0. The balance in Revaluation Surplus on that date was 3,00,000. As part of their
practice of revaluing the assets on yearly basis, another revaluation was carried out on 31st December
20X0. Evaluate the Impact of Revaluation if the Fair Value as a result of Revaluation done on 31st
December 20X0 was
a) ? 37,00,000
b) 33,00,000
c)31,00,000
Also, give the journal entries. (ICAISM)

Sol. a) Fair Value: 37,00,000

Since this is an upward revaluation and the group had a balance in revaluation surplus (i.e., there was
an upward movement earlier), hence this will result in an additional credit ofI2,00,000 to Revaluation
Surplus and hence the total Revaluation Surplus balance (part of other comprehensive income in
Equity) Shall increase to 5,00,000. The Accounting Journal entry shall be: -

Property, Plant & Equipment A/c Dr 2,00,000

To Revaluation Surplus A/c 2,00,000
-
b) Fair Value: 33,00,000
Since this is a downward revaluation and the group had a balance in revaluation surplus (i.e., there was
an upward movement earlier), hence this will result in a reduction or a debit to Revaluation Surplus to
the extent of balance therein and any excess shall be debited to Profit & Loss A/c. In this Case, there is
a
reduction in fair value of 2,00,000 (35,00,000 - 33,00,000) and hence the entire amount shall be
debited to Revaluation Surplus. Hence, the total Revaluation Surplus balance (part of other
comprehensive income in Equity) Shall decrease to 1,00,000. The Accounting Journal entry shall be:

Revaluation Surplus A/c Dr 2,00,000

To Property, Plant & Equipment A/c 2,00,000
c) Fair Value: *31,00,0 00
Since this is also a downward revaluation and the group hada balance in revaluation surplus (i.e., there
was an upward movement earlier), hence this will result in a reduction or a debit to Revaluation
Surplus to the extent of balance therein and any excess shall be debited to Profit & Loss A/c., In this
case, there is a reduction in fair value of 4,00,000 (35,00,000 -31,00,000) and hence the Revaluation
Surplus A/c shall be debited by 3,00,000 and the balance R 1,00,000 shall be debited to Profit & Loss
Afc. Hence the total Revaluation Surplus balance (part of other comprehensive income in Equity) shall
become Nil, The Accounting Journal entry shall be: -
Revaluation Surplus A/c Dr 3,00,000
Profit & Loss A/c Dr 1,00,000
To Property, Plant &
Equipment A/c 4,00,000
18 M/s Surya Transport purchased 10 Innova cars at 4,50,000 each on 1st April 20X0. On October 1st
20X2, one of the cars is involved in an accident and is completely destroyed and 2,70,000 is received
from the insurance in full settlement. On the same date, another car is purchased by the company for
the Sum of 5,00,000. The company writes off 20% on the original cost per annum. The company
observe the calendar year as its financial year.

You are required to prepare the Innova cars account for years ended 31st Dec, 20X2 and 31st Dec. 20X3
(October 2020 MTP)

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Sol.
Innova Cars A/c
Date Particulars () Date Particulars Amount
20X2 20X2
Jan-01 To Balance b/d 29,25,000 Oct-01 By BankA/c 2,70,000
Oct-01 To Profit & Loss A/c (Profit 45,000 Oct-01 By Depreciation on lost 67,500
on settlement of car) assets

Dec-31 By Depreciation A/c 8,35,000

Oct-01 To Bank A/c 5,00,000 Dec-31 By balance c/d 22,97,500
34,70,000 34,70,000
20X3 20X3
Jan-01 To Balance b/d 22,97,500 Dec-31 By Depreciation A/c 9,10,000
Dec-31 By Balance c/d 13,87,500
22,97,500 22,97,500

-
Working Notes:
1) To Find out loss on Profit on settlement of Innova Car ()
Original cost as on 1.4.20X0 4,50,000
Less: Depreciation for 20X0 67,500
3,82,500
Less: Depreciation for 20X1 90,000
2,92,500
Less: Depreciation for 20X2 (9 months) 67,500
2,25,000
Less: Amount received from Insurance company 2,70,000
45,000
2) Computation of Balance on 1st January 20X2
Cost of 10 Innova cars 45,00,000

Depreciation from 1st April 20x0 to 31st December 20X1 (15,75,000)

29.25,000
19. M/s Roxy purchased a brand-new machinery on 1t January 20X0 for 3,20,000 and also incurred
80,000 on its installation. Another machinery was purchased on 1st July 20X0 for 1,60,000. On 1st July
20X2, the machinery purchased on 1st January 2OX0 was sold for 2,50,000. Another machinery was
purchased and installed on 30h September 20X2 for t 60,000.

Under existing practice, the company provides for depreciation @ 10% p.a. on Original cost, However,
from the year 20X3 it decided to adapt WDV method and charge the depreciation @ 15% p.a. You are
required to show the Machinery Account for the years 20X2 and 20X3 considering the books of
accounts are closed on 31t December each year. (May 2021 RTP)

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Sol. In the books of M/s Roxy

Machinery A/c
Date Particulars () Date Particulars
01.01.20X2 To Balance b/d 4,56,000 01.07.20X2 By Bank A/c 2,50,000
By P &LA/c 50,000
Loss on Sale
30.09.20X2 To Bank A/c 60,000 31.12.20X2 By Depreciation 37,500
By Balance c/d 1,78,500
5,16,000 5,16,000
01.01.20X3 To Balance b/d 1,78,500 31.12.20X3 By Depreciation 26,775
31.12.20X3 By Balance c/d 1,51,72 5
1,78,500 1,78,500

-
Working Notes: Calculation of Book Value of Machines under SLM.

Particulars Machines 1 () Machines 2 () Machines 3 ()

Date of Purchase 01.01.20X0 01.07.2 0xo 30.09.20X2

|Original Cost 4,00,000 1,60,000 60,000
Depreciation for 20xO (SLM) (40,000) (8,000)
WDV on 31.12.20XO 3,60,000 1,52,000
Depreciation for 20X1 (SLM) (40,000) (16,000)
WDV on 31.12.20X1 3,20,000 1,36,000
Depreciation for 20OX2 (SLM) (20,000) (16,000) (1,500)
WDV on 31.12.20X2 (30th June for Machine 1) 3,00,000 1,20,000 58,500
Sale Proceeds (2,50,000)
Loss on Sale 50,000
Depreciation for 20X3 (WDV @ 15%) (18,000) (8,775)
WDV on 31.12.20X3 1,02,000 49,725
20. The balance of Machinery Account of a firm on 1st April, 20X0 was 28,54,000. Out of this, a plant having
book value of 2,16,090 as on 1st April 20X0 was sold on 1s July, 20X0 for 82,000. On the same date a new
plant was purchased for 4,58,000 and 22,000 was spent on its erection. On 1s November, 20X0 a new
machine was purchased for 5,60,000. Depreciation is written off @ 15% per annum under the diminishing
balance method. Calculate the depreciation is written off @ 15% per annum under the diminishing balance
method. Calculate the depreciation for the year ended 31st March, 20X1. (July 2021)
Sol. Calculation of depreciation for the year ended 31.03.2021
Machine Machine Machine Depreciation on
1 2 3 sold machine
(28,54,000 Purchased on 1st Purchased on 1st 4
2,16,000) July Nov

Book value as on 26,38,000 4,80,000 5,60,000 2,16,000

1st April, 2020

Depreciation 3,95,700 (for full 54,000 35,000 8,100

@15% year) (for 9 months) (for 5 months) (for 3 months)

Total depreciation (1+2+ 3+ 4) =4,92,800

21. On April, 20X0 Shubra Ltd. Purchased a machinery for 12,00,000. On Oct 1, 20X2, a part of the machinery
purchased on April 1, 20X0 for 80,000 was sold for 45,000 and a new machinery purchased on April 1,
20X0 for 80,000 was sold for 45,000 and a new machinery at a cost of R1,58,000 was purchased and
installed on the same date. The company has adopted the method of providing 10% p.a. depreciation on the
written down value of the machinery.
Required: Show the necessary ledger accounts for the years ended 31st March 20X1 and 20X3 assuming that;
a) Provision for depreciation Account' is not maintained
b) Provision for depreciation Account is maintained
(ICAI SM)

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Sol. a) When Provision for Depreciation Account' is not maintained.

Dr Machinery Account Cr
| Date Particulars Date Particulars
1.04.18 To Bank A/c 12,00,000 31.03.19 By Depreciation A/c 1,20,000
By Balance c/d 10,80,000
12,00,000 12,00,000
1.04.19 To Balance b/d 10,80,000 31.03.20 By Depreciation A/c 1,08,000
By Balance c/d 9,72,000
10,80.000 10,80,000
1.04.20 To Balance c/d 9,72,000 1.10.20 By Bank A/C 45,000
1.10.20 To Bank A/c 1,58,000 By Profit& Loss A/c 16,560
By Depreciation A/c 3,240

31.3.20 By Dep. (7,900+ 90720) 98,620

By Balance c/d 9,66,580
(8,16,480 +1,50,100)

11,30,000
11,30,000

b) When 'Provision for Depreciation Account' is maintained

Dr. Machinery Account (at original cost) Cr.
| Date Particulars Date Particulars
1.04.18 To Bank A/c 12,00,000 31.03.19 By Balance c/d 12,00,000
1.04.19 To Balance b/d 12,00.000 31.03.20 By Balance c/d 12.00.000
1.04.20 To Balance b/d 12,00,000
1.10.20 By Machinery Disposal
A/c 80,000
1.10.20 To Bank A/c 1,58,000 31.03.21 By Balance c/d 12,78,000
13,58,000 13.58.000

Provision for Depreciation Account

Dr Cr.
| Date Particulars Date Particulars
31.3.19 To Balance c/d 1,20,000 31.03.19 By Depreciation A/c 120,000
31.3.20 To Balance c/d Grodi228.000ucallo1.4.19 By Balance c/d 1,20,000
Cvel By Depreciation A/c
31.03.20 1,08,000
2.28,000 2.28.000
1.10.20 To Machinery Disposal A/c 18,440 1.04.20 By Balance c/d 2,28,000
31.03.21 To Balance c/d 3,11,420 1.10.20 By depreciation A/c 3,240
31.03.21 By Depreciation A/c 98,620
3.29,860 3.29.860

Dr. Machinery Disposal Account Cr.

| Date Particulars Date Particulars
1.10.20 To Machinery Disposal A/c 80,000 1.10.20 By Provision for 18,440
Depreciation A/c
By Bank A/c 45,000
By Profit and Loss A/c 16,560

80,000 80.000
Working Notes:
1. Calculation of Profit/Loss on sale of Machinery
Particulars
A. Original Cost 80,000
B Less: Depreciation @10% WDV p.a. for 2 ½ years 18,440
Book value as on date of sale (A-B) 61,560
Less: Sale proceeds 45,000
E. Loss on Sale (C-D) 16.560

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2, Calculations of Depreciation for Current Year on Machines (other than sold)

Particulars
A On Old Machines of 9,07,200 for 1 year (10% WDV) 90,720
B
On New Machine of 1,58,000 for ½ years 7,900
98,620
22. A firm purchased second hand machinery on 1st January, 20X0 for 3,00,000, subsequent to which t60,000
and 40,000 were spent on its repair and installation, respectively. On 1st July, 20X1 another machinery was
purchased for 2,60,000. On 1t July, 2OX2, the first machinery having become outdated was auctioned for
R3,20,000 and on the same date, another machinery was purchased for (2,50,000.
On 1st July, 20X3, the second machinery was also sold off and it fetched 2,30,000.
Depreciation was provided on machinery@ 10% on the original cost annually on 31t December, under the
straight line method.
Required:
Prepare the following accounts in the books of the company;
1) Machinery Account for the years ending Dec. 31 20XO to 20X3 and
2) Machinery Disposal Account. (ICAI SM)
Sol. Machinery Account
Dr Cr.
| Date Particulars Date Particulars
1.1.2018 To Bank A/c (A) - Cost 3,00,000 31.12.18 By Depreciation (A) 40,000
Repairs 60,000 By Bal. c/d (A) 3,60,000
Installation 40,000

4.00,000 4.00,000

1.1.2019 To Balance b/d 3,60,000 31.12.2019 By Dep.

(A) 40,000
(B) 13.000 53,000
By Balance b/d
1.7.2019 To Bank A/c (B) 2,60,000 (A) 3,20,000
(B) 247.000 5,67,000

6.20.000 6.20,000
1.1.2020 To Balance c/d 5,67,000 01.7.2020 By Machinery
To Bank A/c (C) Gr2.50,000 Disposal A/c (A)
Dmg Educaion Acader By Depreciation A/c
1.07.2020 3,00,000
Bioneer in Develop oncepts
(A) 20,000
(B) 26,000
(C) 12.500 58,500
By Balance c/d
(B) 2,21,000
(C )2.37500 4,58,500

8.17.000 8.17.000
1.01.2021 To Balance b/d 4,58,500 1.07.2021 By Machinery 2,08,000
Disposal A/c (B)
By Depreciation A/c
(B)13,000
(C) 25.000 38,000

By Balance c/d 2,12,500

4.58.500 4.58,500
Dr Machinery Disposal Account Cr.
Date Particulars Date Particulars
1.07.2020 To Machinery A/c (A) 3,00,000 1.07.2020 By Bank A/c 3,20,000
To Profit and Loss A/c 20,000
(Profit)
3.20.000 3.20,000

1.07.2021 To Machinery A/c (B) 2,08,000 1.07.2021 Bank A/c 2,30,000

To P&L (Profit) 22,000
2.30,000 2.30,000

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Issue of Debentures
Assignment
Q. Questions and Solutions
NO.
1. Amol Ltd. issued 40,00,000, 9% debentures of 50 each, payable on application as per term mentioned
in the prospectus and redeemable at par any time after 3 years from the date of issue. Record necessary
entries for issue of debentures in the books of Amol Ltd.
(1CAI SM)
Ans. Books of Amol Ltd.
Date Particulars
Jeuraal L.F. Debit Credit
Amount Amount
(8) K)
Bank A/c Dr. 20,00,00,000
To Debenture Application A/c 20,00,00,000
|(Debenture application money received.)
Debenture Application A/c Dr 20,00,00,000
To 9% Debentures A/c 20,00,00,000
(Application money transferred to 9% debentures
account consequent upon allotment.)

2 Atul Ltd. issued 1,00,00,000, 8% debenture of 100 each at a discount of 10% redeemable at par at
the end of 10th year. Money was payable as follows:
I 30 on application
I 60 on allotment
Record necessary journal entries regarding issue of debenture.
(ICAI SM)
Ans. Books of Atul Ltd.
Grooming on Academy
Pioseet Journal Concept

Date Particulars L.F. Debit Credit

() ()
Bank A/c Dr. 30,00,00,000
ToDebenture Application A/c |30,00,00,000
(Debenture application money received.)
| Debenture Application A/c Dr. 30,00,00,000
To 8% Debentures A/C 30,00,00,000
(Application money transferred to 8% debentures
account consequent upon allotment.)
Debenture allotment A/c Dr. 60,00,00,00
|Discount on issue of debentures A/c Dr.
To 8% Debentures A/c 10,00,00,00
(Amount due on allotment.) 0
|70,00,00,000

Bank A/c Dr. 60,00,00,000

To Debenture Allotment A/c |60,00,00,000
|(Money received consequent upon allotment.)

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3. Koinal Chemicals Ltd. issued 15,00,000, 10% debenture of 50 each at premium of 109%, payable as
20 on application and balance on allotment. Debentures are redeemable at par after 6 years. All the
money due on allotment was called up and received. Record necessary entries when premium money
is included in application money.
(1CAI SM)
Ans. Books of Koinal Chemicals Ltd.
Journal
When premium money is received along with application money:
DateParticulars Debit Credit
Amount Amount
) )
Bank A/c Dr. 3,00,00,000
To Debenture Application A/c 3,00,00,000
(Debenture application money
received)
Debentures Application A/c 3,00,00,000
Dr. 2,25,00,000
To 10% Debentures 75,00,000
A/c To Securities
Premium A/c
(Application money transferred to 10% debentures account and
securities premium account consequent upon allotment.)
Debenture Allotment A/c Dr 5,25,00,000
To 10% Debentures 5,25,00,000
A/c
(Call made consequent upon allotment.)
Bank A/c Dr. 5,25,00,000
To Debenture Allotment A/c 5,25,00,000
(Call made consequent upon allotment money received.)
4
Modern Equipment Ltd. issued 4,00,000, 12% debentures 100 payable as
of

in Deseloping oncepi
follows: On application 30
On allotment 70
The debentures were fully subscribed and all the money was duly received. As per the terms of issue,
debentures are redeemable at 110 per debenture. Record necessary entries regarding issue of
debentures.
(1CAI SM)
Ans. Books of Modern Equipment Ltd.
Date Particulars Jernat Credit
Debit
Amount Amount
(R in Lakhs) ( in
Lakhs)
Bank A/c Dr. 120
To 12% Debentures application A/c 120
(Debenture application money
received.)
12% Debentures Application A/c Dr. 120
To 12% Debentures A/c 120
(Application money transferred to 12% debentures account
consequent to allotment.)

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12% Debentures Alotment A/c Dr 280

Loss on issue of Debentures A/c Dr 4(

To 12% Debentures A/c 280

To Debenture redemption premium A/c 40
(Call made on allotment of debentures at par and entry for
debentures redeemable at premium.)
Bank A/c Dr. 280
To 12% Debentures allotment A/c 280
(Call made consequent upon allotment money received.)
5 Agrotech Ltd. issued 150 lakh 9% debentures of 100 each at a discount of 6%, redeemable at a premium
of
5% after 3 years payable as: 50 on application and 44 on allotment. Record necessary journal
entries for issue of debentures.
(ICAISM)
Ans. Books of Agrotech Ltd.
Journal
Date Particulars Debit Credit
Amount Amount
(Rin Lakhs) ( in Lakhs)
Bank A/c Dr 7,500
To Debenture Application A/c 7,500|
(Debentures application money received.)
Debenture Application A/c Dr. 7,500
To 9% Debentures A/c 7,500|
(Application money transferred to 9% debentures account.)

Debenture Allotment A/c Dr. 6,600

Loss on issue of debenture A/cg Education Academy Dr. 1,650
in eveloping Concept
To 9% Debentures A/c 7,500|
To Debenture redemption premium A/c 7,50|
(Call made consequent upon allotment of debentures issued at
discount and redeemable at premium.)
Bank A/c Dr. 6,600
To Debenture Allotment A/c 6,600
|(Allotment amount received.)
Working Notes:
Loss on issue of debentures
(Amount of discount on issue + Premium payable on redemption) x No. of Debentures
=
(6% of R100 + 59% of 100) x 150 lakhs
=
(6+ 5) x 150 lakhs

=1,650 lakh
6 Simmons Ltd. issued 1,00,000, 12% Debentures of 100 each at par payable in full on application by 1st
April, Application were received for 1,10,000 Debentures. Debentures were allotted on 7th April. Excess
money refunded on the same date.
You are required to pass necessary Journal Entries (including cash transactions) in the books of the
company.
(ICAISM/ Oct 2018 MTP /0ct. 2019)

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Ans. In the books of Simmons Limited

Date Particulars Dr. Cr.
( in 000) (R in '000)
April 1 Bank A/c Dr.
11,000
To 12% Debentures Application A/c 11,000
(Being money received on 1,10,000 debentures.)
|April 7 12% Debentures Application A/c Dr. 1,000
To Bank A/c 1,000
(Being money on 10,000 debentures refunded as per
Board's Resolution No...dated.)
April 7 12% Debentures Application A/c Dr. 10,000
To 12% Debentures A/c 10,000
(Being the allotment of 1,00,000debentures of 100 each
at par, as per Board's Resolution No... dated...)
7 X Ltd. issued 1,00,000 12% Debentures of 100 each at a discount of 10% payable in full on application
by 31st May, 20X0. Applications were received for 1,20,000 debentures. Debentures were allotted on 9th
June, 20X0. Excess monies were refunded on the same date. Pass necessary Journal Entries. Also show
necessary ledger accounts.
(ICAI SM)
Ans. In the books of X Limited
JournalEntries
Date Particulars Dr. Cr.
(t in '000) ( in 000)
May 31 Bank A/c Dr.
10,800
To 12% Debentures Application A/c 10,800
(Being money received for 1,20,000 debentures @{90
GrooMing aUcatoi ACademmy
each.)
June 9 12% Debentures Application A/c Dr. 1,800
To Bank A/c 1,800
(Being excess money on 20,000 debentures @90
refunded as per Board's Resolution No... dated...)
June 9 12% Debentures Application A/c Dr. 9,000
Discount on Issue of Debentures A/c Dr. 1,000
To 12% Debentures A/c 10,000
(Being the allotment of 1,00,000 debentures of 100 each
at a discount of 10 per debenture as per Board's Resolution
No... dated..)

Bank Account
Date Particulars Date Particulars
31.5.20XOTo 12% 10,8009.6.20X0| By 12% Debentures 1,800
Debentures Application A/c
9.6.20X0 By Balance 9,000
Application A/c c/d
10,800 10,800

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12% Debentures Account

Date Particulars Date Particulars
30.6.20XO To Balance c/d 10,0009.6.20X0 By 12% Debentures Application A/c
|
9,000
9.6.20X0 By Discount on Issue of Debentures 1,000
Afc
10,000 10,000

12% Debentures Application Account

Date |Particulars Date Particulars
9.6.20XO To Bank A/c
1,80031.5.20X0 By Bank A/c 10,800
9.6.20XO To 12% Debentures A/c 9,000
10,800 10,800

Discount on Issue of Debentures

Account
Date Particulars Date Particulars
9.6.20X0 To12% Debentures A/c 1,00030.6.20X0 By Balance c/d 1,000

1,000 1,000
8 X a
Ltd. obtains loan from DBI of 1,00,00,000, giving as collateral security of 1,50,00,000 (of 10
each), 14%, First Mortgage Debentures. Show the treatment of the above in the books of X Ltd. when:
a) No entry is made by the company for collateral security.
b) Entry is made by the company for collateral security.
(ICAISM)
Ans.
a) In the Notes to Accounts of Balance Sheet of X Ltd., it is shown as follows:

Notes to Accounts of X Limited as

Grooming at..(includes)
uutUOn ACademy
TioneerievelopinConce
Long Term Borrowings
Secured Loan
IDBI Loan
1,00,00,000
(Collaterally secured by issue of 1,50,00,000 14% First Mortgage Debentures.)

b) In the Books ofX Ltd.

Journal
Date Particulars
Debentures Suspense A/c 1,50,00,000
1,50,00,000
Dr.
To 14% First Mortgage Debentures A/c
(Being the issue of R 15,00,000 debentures @ 10 collaterally
as per Board's Resolution No..dated...)

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Balance Sheet of X Limited as at..

(Extracts)
[Link]. Particulars Notes No.

EQUITY AND LIABILITIES

1. Non-Current Liabilities
1 2,50,00,000
Long Term Borrowings
Total 2,50,00,000
ASSETS
2. Non-current Assets 2 1,50,00,000
Other non- current asset
3. Current Assets
Cash and cash equivalent 1,00,00,000
Total 2,50,00,000

Notes to Accounts
Particulars
1. Long Term Borrowings
Secured Loan
IDBI Loan 1,00,00,000
14% First Mortgage Debentures 1,50,00,000

2.
Non-current asset
Other
Debenture Suspense Account 1,50,00,000
|(Issue of? 15,00,000 14% First Debentures as collateral security as per contra.)
9
X Company Limited issued 10,000 14% Debentures of the nominal value of 50,00,000 as follows:
a) To sundry persons for cash at 90% of nominal value of R 25,00,000.
b) To a vendor for purchase of fixed assets worth 10,00,000 - * 12,50,000 nominal value.
c) To the banker as collateral security for a loan of 10,00,000 - 12,50,000 nominal value.
Pass necessary journal entries.
(ICAISM)
Ans.
In the books of X Company Ltd.
Journal Entries
Date Particulars
a) Bank A/c Dr. 22,50,000
To Debentures Application A/c 22,50,000
(Being the application money received on 5,000
debentures @450 each.)
Debentures Application A/c Dr. 22,50,00
Discount on issue of Debentures A/c Dr. 0
To 14% Debentures A/c 2,50,000
(Being the issue of 5,000 14% Debentures @90% as per 25,00,000
Board's Resolution No... dated...)

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b) Fixed Assets A/c Dr. 10,00,000

To Vendor 10,00,000
A/c
(Being the purchase of fixed assets from vendor)
Vendor A/c 10,00,00
Dr. 0
Discount on Issue of Debentures A/c 2,50,000
Dr 12,50,000
To 14% Debentures A/c
(Being the issue of debentures of R 12,50,000 to vendor to
satisfy his claim.)
c) Bank A/c 10,00,000
Dr. 10,00,000
To Bank Loan A/c (See Note)
(Being a loan of 10,00,000 taken from bank by issuing
debentures of 12,50,000 as collateral security.)

Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the Balance Sheet the fact that the debentures being issued as collateral security
and outstanding are shown under the respective liability.
10. HDC Ltd issues 1,00,000, 12% Debentures of 100 each at 94 on 1st January, 20X0. Under the
terms of issue, the debentures are redeemable at the end of 5 years from the date of the issue.
Calculate the amount of discount to be written-off in each of the 5 years.
(ICAI SM)
Ans. Total amount of discount comes to 6,00,000 ( 6 X 1,00,000). The amount of discount to be
written-off in each year is calculated as under:
Year end Debentures Ratio in which discount Amount of discount to be
Outstanding to be written-off written-off
1st
R
1,00,00,000 ng Eaucq/s Academy 1/5th of
6,00,000 = 1,20,000
{

2nd I 1,00,00,000 1/5 1/5th ofR 6,00,000 =* 1,20,000

3rd I 1,00,00,000 1/5 1/5th of I 6,00,000 = 1,20,000
4th 1,00,00,000 1/5 1/5th ofI 6,00,000 = 1,20,000
5th 71,00,00,000 1/5 1/5th ofR 6,00,000 =*1,20,000
11. HDCLtd. issues 2,00,000, 12% Debentures of 10 each at 9.40 on 1st January, 20X0. Under the
terms of issue, 1/Sth of the debentures are annually redeemable by drawings, the first redemption
occurring on 31st December, 20X0. Calculate the amount of discount to be written-off from 20XOto
20X4.
(Study Material)
Ans.
Calculation of amount of discount to be written-off
At the year Debentures Ratio of benefit Amount of discount to
end Outstanding Derived be written-off
before
redemption
20X0 I 20,00,000 5 5/15th of 1,20,000 = *40,000
20X1 7 16,00,000 4 4/15th of 1,20,000 =32,000
20X2 12,00,000 3 3/15th of 1,20,000 = 24,000
20X3 8,00,000 2 2/15th of { 1,20,000 =* 16,000
20X4 4,00,000 1 1/15th of 1,20,000 = *8,000
TOTAL 15 1,20,000

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12. company issued 12% debentures of the face value of 10,00,000 at 10% discount on 1-1-20X0.
A

Debenture interest after deducting tax at source @ 10% was payable on 30th June and 31st of
December every year. All the debentures were to be redeemed after the expiry of 5 years period at
5% premium. Pass journal entries for the accounting year 20X0. (1CAISM)
Ans. Journal Entries
Date Particulars Dr. () Cr. ()
1-1-20XO Bank A/c Dr. 9,00,000
Discount/Loss on Issue of Debentures A/c Dr 1,50,000
To 12% Debentures A/c 10,00,000
To Premium on Redemption of Debentures A/c 50,000
(For issue of debentures at discount redeemable at
premium.)
30-6-20X0 Debenture Interest A/c Dr 60,000
To Debenture holders A/c 54,000
To Tax Deducted at Source 6,000
A/c (For interest payable.)
Debenture holders A/c Dr 54,000
Tax Deducted at Source Dr. 6,000
A/c To Bank A/c 60,000
(For payment of interest and TDS.)
31-12-20Xo Debenture Interest A/c Dr 60,000
To Debenture holders A/c 54,000
To Tax Deducted at Source A/c 6,000
(For interest payable.)
Debenture holders A/c D
54,000
Tax Deducted at Sourceg Education Academy Dr 6,000
oneer in evelogping Concept
A/c To Bank A/c 60,000
(For payment of interest and tax.)
Profit and Loss A/c Dr. 1,20,000
To Debenture Interest A/c 1,20,000
(For transfer of debenture interest to profit and loss
account at the end of the year.)
Dr
Profit and Loss A/c 30,000
To Discount/Loss on issue of debenture A/c 30,000
(For proportionate debenture discount and premium on
redemption written off, i.e., 1,50,000 x 1/5.)
13.
On 1st April 20X0 Sheru Ltd. issued 1,00,000 12% debentures of 100 each at a discount of 5%,
redeemable on 31 March 20X5. Issue was oversubscribed by 20,000 debentures, who were refunded
their money. Interest is paid annually on 31t March. You are required to prepare:
i) Journal entries at the time of issue of debentures.
ii) Discount on issue of Debenture Account.
ii) Interest account and Debenture holder Account assuming TDS is deducted @ 10%.

(ICAI SM)

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Ans.
i)

Journal in the Books of Sheru Ltd.

Date Particulars Dr. Cr.
({ in 00) (R in `00)
20X0
Apr 1 Bank A/c Dr. 1,14,000
To Debenture Application A/c 1,14,000
(Being debenture application money received for
1,20,000 debentures.)
Debenture Application A/c Dr. 1,14,000
Discount on Issue of Debenture A/c Dr 5,000
To 12% Debenture A/c 1,00,000
To Bank A/c 19,000
(Being application money transferred to debenture
account and excess refunded.)

ii)
Discount on Issue of Debenture A/c
Date Particulars (in`00) Date Particulars (in'00)
1.4.X0 To 12% Debentures A/c 5,000 31.3.X1 By Profit & Loss A/c 1,000
31.3.X1 By Balance c/d 4,000
Grooning 5,000|ion Academy 5,000
once
1.4.X1 To Balance b/d 4,000 31.3.X2 By Profit & Loss A/c 1,000
31.3.X2 By Balance c/d 3,000
4,000 4,000
1.4.X2 To Balance b/d 3,000 31.3.X3 By Profit & Loss A/c 1,000
31.3.X3 By Balance c/d 2,000
3,000 3,000
1.4.X3 To Balance b/d 2,000 31.3.X4 By Profit & Loss A/c 1,000
31.3.X4 By Balance c/d 1,000
2,000 2,000
1.4.X4 To Balance b/d 1,000 31.3.X5 By Profit & Loss A/c 1,000

1,000 1,000

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iüi)

Interest A/c
Date Particulars (in '00) Date Particulars I (in '00)
31.3.X1 To Debenture holder A/c 12,000 31.3.X1 By Profit & Loss A/c 12,000

12,000 12,000
31.3.X2 To Debenture holder A/c 12,000 31.3.X2 By Profit &
Loss A/c 12,000

12,000 12,000
31.3.X3 To Debenture holder A/c 12,000 31.3.X3 By Profit & Loss A/c 12,000

12,000 12,000
31.3.X4 To Debenture holder A/c 12,000 31.3.X4 By Profit & Loss A/c 12,000

12,000 12,000

iv)
Debenture holder A/c
Date Particulars (in 00) Date Particulars (in 00)
31.3.X1 To BankA/c 10,800 31.3.X1 By Interest A/c 12,000
31.3.X1 To TDS A/c Groomng E1,200bn Acaddmy
oncepts
12,000 12,000
31.3.X2 To Bank A/c 10,800 31.3.X2 By Interest A/c 12,000
31.3.X2 To TDS A/c 1,200
12,000 12,000
31.3.X3 To BankA/c 10,800 31.3.X3 By Interest A/c 12,000
31.3.X3 To TDS A/c 1,200
12,000 12,000
31.3.X4 To BankA/c 10,800 31.3.X4 By Interest A/c 12,000
31.3.X4 To TDS A/c 1,200
12,000 12,000
31.3.X5 To Bank A/c 10,800 31.3.X5 By Interest A/c 12,000
31.3.X5 To TDS A/c 1,200
12,000 12,000

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14. Riya Limited issued 20,000 14% Debentures of the nominal value of 1,00,00,000 as follows:
a
To sundry persons for cash at 90% of nominal value of 50,00,000.
b) To a vendor for purchase of fixed assets worth 20,00,000 -R 25,00,000 nominal value.
c) To the banker as collateral security for a loan ofR 20,00,000- 25,00,000 nominal
value.
You are required to prepare necessary journal entries.
(May 2018 RTP/Oct. 2020 MTP (M)/Nov. 2020 (M)
Ans. In the books of Riya Company Ltd.
Journal Entries

Date Particulars Dr. Cr.

a) Bank A/c Dr. 45,00,000

To Debentures Application A/c 45,00,000
(Being the application money received on 10,000
debentures @450 each.)
Debentures Application A/c Dr. 45,00,000
Discount on issue of Debentures A/c Dr. 5,00,000
To14% Debentures A/c 50,00,000
(Being the issue of 10,000 14% Debentures @ 90% as per
Board's Resolution No... dated..)
b) Fixed Assets A/c Dr. 20,00,000
To Vendor A/c 20,00,000
(Being the purchase of fixed assets from vendor.)
Vendor A/C Dr. 20,00,000
Discount on Issue of Debentures A/Ccation Academy Dr. 5,00,000
To 14% Debentures A/cereloping Conceps 25,00,000
(Being the issue of debentures of 25,00,000 to
to
vendor satisfy his claim.)
Bank A/c Dr. 20,00,000
To Bank Loan A/c (See Note) 20,00,000
(Being a loan of 20,00,000 taken from bank by issuing
debentures of R 25,00,000 as collateral security.)

Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the "Notes to Accounts" of Balance Sheet, the fact that the debentures being issued as
collateral security and outstanding are shown by a note under the liability secured.
15.
A Ltd. issued 3,50,000, 12%Debentures of 100 each at par payable in full on application by 1st April,
Application were received for 3,85,000 Debentures. Debentures were allotted on 7th April. Excess
money refunded on the same date.
You are required to prepare necessary journal entries (including cash transactions) in the books of the
company.
(Nov. 2018 RTP / Nov. 2020 RTP)

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Ans. In the books of A

Limited
Date Particulars Dr. Cr.
( in '000) ( in '000)
April 1 Bank A/c Dr 38,500
To 12% Debentures Application A/c 38,500
(Being money received on 3,85,000 debentures.)
April 7 12% Debentures Application A/c Dr. 3,500
To Bank A/c 3,500
(Being money on 35,000 debentures refunded as per
Board's Resolution N...dated...)
April 7 12% Debentures Application A/c Dr 35,000
To 12% Debentures A/c 35,000
(Being the allotment of 3,50,000 debentures of 100
each at par, as per Board's Resolution No...dated...)
16. Suvidha Ltd. purchased machinery worth 1,98,000 from Hemant Ltd. The payment was made by issue
of 12% debentures of ? 100 each. Pass the necessary journal entries for the purchase of machinery and
issue of debentures when: () Debentures are issued at par; (ii) Debentures are issued at 10% discount;
and (iii) Debentures are issued at 10% premium
(May 2019 RTP/Nov. 2021 RTP)
Ans.
Books of Suvidha Ltd.
|ournal
Particulars Dr. Cr.
Machinery A/c Dr 1,98,000
To Hemant Ltd. 1,98,000
(Machinery purchased.)
Case (i) When debentures are issued at par:
GT00ng Euutation Academy
Hemant Ltd. 1ioneer Developin Conces Dr 1,98,000
To 12% Debentures A/c 1,98,000

(12% Debentures issued to Hemant Ltd.)

Case (ii) When debentures are issued at 10% discount:

Hemant Ltd. Dr 1,98,000

Discount on Issue of Debentures A/c Dr 22,000
To 12% Debentures A/c 2,20,000
(12% Debentures issued to Hemant Ltd. at 10% discount.)
Case (iii) When debentures are issued at 10% premium:
Hemant Ltd. Dr 1,98,000
To 12% Debentures A/c 1,80,000
To Premium on Issue of Debentures A/c 18,000

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Workings:
a) Number of
debentures issuedin case of 10% disCount:
)
Face value 100
Less: Discount 10%
Value at which issued 90
Debentures to be issued ( 1,98,000/90) 2,200

b) Number of debentures issued in case of 10o premium:

()
Face value 100
Add: Premium 10% 10

Value at which issued 110

Debentures to be issued (* 1,98,000/ 110) 1,800
17. Pihu Ltd. issued 50,00,000, 9% debentures of 100 each ata discount of 10% redeemable at par at the
end of 10th year. Money was payable as follows:
40 on application
{

50 on allotment
You are required to give necessary journal entries regarding issue of debenture.
(Nov 2019 RTP / Aug 2018 RTP (M)/Aug. 2018 MTP)
Ans. Books of Pihu Ltd.
Journal
Particulars L.F. Debit Credit
()
Bank A/c Grooming Education Academ Dr. 20,00,00,000
Dheveloping Concegls
To Debenture Application Alcin 20,00,00,000
(Debenture application money received.)
Debenture Application A/c Dr 20,00,00,000
To 9% Debentures A/c 20,00,00,000
(Application money transferred to 9% debentures account
consequent upon allotment.)
Debenture allotment A/c Dr 25,00,00,000
Discount on issue of debentures A/c Dr. 5,00,00,000
To 9% Debentures A/c 30,00,00,000
(Amount due on allotment.)
Bank A/c Dr 25,00,00,000
To Debenture Allotment A/c 25,00,00,000
(Money received consequent upon allotment.)
18. Pure Ltd. issues 1,00,000 12% Debentures 10 each at 9.40 on 1st January, 20X0. Under the terms
of

of issue, the Debentures are redeemnable at the end of 5 years from the date of issue.
Calculate the amount of discount to be written-off in each of the 5 years.
(May 2020 RTP/Nov. 2018)

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Ans. Total amount of discount comes to I 60,000 (0.6 X 1,00,000). The amount of discount to be written
off in each year is calculated as under:
Year Debentures Ratio in which Amount of
discount to be written off
end Outstanding discount to be
() written-off
1st 10, 00,000 1/5 1/5th of 60,000 = 12,000
2nd 10, 00,000 1/5 1/5th of 60,000 = 12,000
3rd 10, 00,000 1/5 1/5th of I 60,000 = 12,000
4th 10, 00,000 1/5 1/5th of 60,000 = 12,000
R

5th 10, 00,000 1/5 1/5th 60,000 = 12,000

of

19. On 1st January 20X0, Ankit Ltd. issued 10% debentures of the face value of 20,00,000 at 10% discount.
Debenture interest after deducting tax at source @10% was payable on 30th June and 31st December
every year. All the debentures were to be redeemed after the expiry offive years period at 5% premium.
Pass necessary journal entries for the accounting year 20X0.
(June 2019/MTP Nov. 2021)

Sol.
Date Particulars Dr. () Cr. ()
1-1-20X1 Bank A/c Dr. 18,00,000
Discount/Loss on Issue of Debentures A/c Dr. 3,00,000
To 10% Debentures A/c 20,00,000
To Premium on Redemption of Debentures A/c 1,00,000|

(For issue of debentures at discount redeemable

at premium.)
30-6-20X1 Debenture Interest A/c Dr. 1,00,000
To Debenture holders A/c 90,000
rongEducationConceg
To Tax Deducted at Source A/c
Academy
10,000
(For interest payable.)
Debenture holders A/c Dr. 90,000
|Tax Deducted at Source A/c Dr. 10,000
To Bank A/c 1,00,000|
(For payment of interest and TDS.,)

31-12-20X1| Debenture Interest A/c Dr. 1,00,000

To Debenture holders A/c 90,000
To Tax Deducted at Source A/c 10,000
(For
interest payable.)
Debenture holders A/c Dr. 90,000
Tax Deducted at Source A/C Dr. 10,000
To Bank A/c 1,00,000|
(For payment of interest and tax.)
Profit and Loss A/c Dr. 2,00,000
To Debenture Interest A/c 2,00,000
(For transfer of debenture interest to profit and loss
account at the end of the year.)
Dr 60,000
Profit and Loss A/c

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To Discount/Loss on issue of debenture 60,000

A/c
(For proportionate debenture discount and premium
on redemption written off, i.e., 3,00,000 x 1/5)

Grooming Education Academy

Tioneer in Developing Concepts

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Ans.
Journal Entries

DAo

Grooming Education Academy

Pioneer in Developing Concepts

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Bill of Exchange
Assignment
[Link]. Questions & Solutions
1. Vijay sold goods to Pritam on 1st September, 20X0 for 1,06,000. Pritam immediately
accepted a three months bill. On due date Pritam requested that the bill be renewed for a
fresh period of two months. Vijay agrees provided interest 9% was paid immediately in
cash. To this Pritam was agreeable. The second bill was met on due date. Give Journal entries
in the books of Vijay and Pritam. (ICAI SM)
Sol. In the books of Vijay
Journal Entries
20X0 Particulars Dr. () Cr. (3)
1-Sept. Pritam Dr. 1,06,000
To Sales Account 1,06,000
(Sales of goods to Pritam as per Invoice No...)
Bills Receivable Account Dr 1,06,000
To Pritam 1,06,000
(3 months acceptance received from Pritam for
the amount due from him.)
Dec. 4 Pritam Dr. 1,06,000
To Bills Receivable Account 1,06,000
(Pritam acceptance cancelled because of
renewal.)
Pritam Dr. 1,590
To interest 1,590
(Interest @ 9% on 1,06,000 due from Pritam for
2 months because of renewal.
Bills Receivable Account Dr. 1,06,000
Cash Account Dr. 1,590
To Pritam 1,07,590
(New acceptance for 2 months for 106,000 and
ar
Cash for interest received from Pritam.)
20X1 Cash Account Dr. 1,06,000
Feb. 7 To Bills Receivable Account 1,06,000
(Cash received against Pritam's second
acceptance.)
In the books of Pritam
Journal Entries
20X0 Particulars Dr. () Cr. ()
1-Sept. Purchase Account Dr. 1,06,000
To Vijay A/c 1,06,000
(Purchase of goods from Vijay as per Invoice No.)
Vijay A/c Dr. 1,06,000
To Bills Payables Account 1,06,000
(3 months acceptance given to Vijay for the
amount.)
Dec. 4 Bills Payable Account Dr. 1,06,000|
To Vijay A/c 1,06,000|
(Cancellation of bill because of renewal.)
Interest Account Dr. 1,590|
To Vijay 1,590
(Interest @ 9% on 1,06,000 due to Vijay for 2

months because of renewal.)

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Vijay Account Dr. 1,07,590

To Cash Account 1,590
To Bills Payable Account 1,06,000|
(New acceptance for 2 months for 106,000 and
Cash for interest paid to Vijay.)
20X1
Dr.
Feb. 7 Bills Payable Account 1,06,000|
To Bank Account 1,06,00o
(Cash paid against second bill.)
2, On 1st January, 20X0, Ankita sells goods for 5,00,000 to Bhavika and draws a bill at three
months for the amount. Bhavika accepts it and returns it to Ankita. On 1st March, 20X0,
Bhavika retires her acceptance under rebate of 12% per annum.
Record these transactions in the journals of Ankitaand Bhavika. (1CAI SM/May 1997)
Sol. In the books of Ankita
Journal Entries
Date Particulars Dr. () Cr. (3)
20X0
Jan. 1 Bhavika's account Dr. 5,00,000|
To Sales account 5,00,000|
(Being the goods sold to Bhavika on credit.)
Bills receivable account Dr. 5,00,000|
To Bhavika's account 5,00,000
(Being the acceptance of bill received)
1-Mar Bank account Dr. 4,95,000|
Rebate on bills account Dr. 5,000
To Bills receivable account 5,00,000|
(Being retirement of bill by Bhavika one month
before maturity, the rebate being given to her at 12%
p.a.) Groomina Education

In the books of Bhavika

Journal Entries
Date Particulars Dr. () Cr. ()
20X0
Jan. 1 Purchases account Dr. 5,00,000
To Ankita account 5,00,000
(Being the goods purchased from Ankita on credit)
Dr.
Ankita Account 5,00,000
To Bills Payable Account 5,00,000
(Being the acceptance of bill.)
1-Mar Bills Payable Account Dr. 5,00,000
To Rebate Income Account 5,000
To Bank Account 4,95,000
(Being retirement of bill one month before maturity,
the rebate being received at 12% p.a.)
3 Journalise the following transactions in K. Katrak's books.
i) Katrak's acceptance to Basu for 2,500 discharged by a cash payment of 1,000 and a
new bill for the balance plus R 50 for interest.
ii) G. Gupta's acceptance for 4,000 which was endorsed by Katrak to M. Mehta was
dishonoured. Mehta paid 20 noting charges. Bill withdrawn against cheque.
iii) D. Dalal retires a billfor 2,000 drawn on him by Katrak for 10 discount.

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iv) Katrak's acceptance to Patel for 5,000 discharged by Patel. Mody's acceptance to Katrak
for a similar amount.
(ICAI SM/ Nov. 2018 RTP/Oct. 2019 MTP/May 2021 RTP/Nov. 2021 RTP)
Sol. In the books of K. Katrak
Journal Entries
[Link]. Particulars Dr. () Cr. ()
i) Bills Payable Account Dr 2,500
Interest Account Dr 50
To Cash A/c 1,000
To Bills Payable Account 1,550
(3 months acceptance given to Vijay for the amount.)
ii) G. Gupta Dr 4,020
To M. Mehta 4,020
(G. Gupta's acceptance for 4,000 endorsed to M.
Mehta dishonoured 20 paid by M. Mehta as noting
charges.)
M. Mehta Dr 4,020
To Bank Account 4,020
(Payment to M. Mehta on withdrawal of bill earlier
received from Mr. G. Gupta.)
iii) Bank Account Dr 1,990
Discount Account Dr 10
To Bills Receivable Account 2,000|
(Payment received from D. Dalal against his
acceptance for 2,000. Allowed him a discount of
10.)
iv) Bills Payable Account Dr. 5,000
To Bills Receivable Account 5,000
(Bills Receivable from Mody endorsed to Patel in
settlement of bills payable issued to him earlier.)
4
Mr. David draws two bills of
exchange on 1.1.20X0 for 6,000 and 10,000. The bill of
exchange for 6,000 is for two months while the bill of exchange for 10,000 is for three
months. These bills are accepted by Mr. Thomas. On 4.3.20X0, Mr. Thomas requests Mr.
David to renew the first bill with interest at 18% p.a. for a period of two months. Mr. David
agrees to this proposal. On 20.3.20X0, Mr. Thomas retires the acceptance for 10,000, the
interestrebate i.e. discount being 100. Before the due date of the renewed bill, Mr. Thomas
becomes insolvent and only 50 paise in a rupee could be recovered from his estate.
You are to give the journal entries in the books of Mr. David.
(ICAI SM))

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Sol. In the books of Mr. David

Journal Entries
Date Particulars Dr. () Cr. ()
20X0
Jan. 1
Bills receivable (No. 1) A/c Dr. 6,000
Bills receivable (No. 2) A/c Dr. 10,000
To Mr. Thomas's A/c 16,000
(Being drawing of bills receivable No. 1 due for
maturity on 4.3.20X0 and bills receivable No. 2 due for
maturity on 4.4.20X0.)
4-Mar Mr. Thomas's A/c Dr. 6,000
To Bills receivable (No.1) A/c $ 6,000
(Being the reversal entry for bill No.1 on agreed
renewal.)
4-Mar Bills receivable (No. 3) A/c Dr. 6,180
To Interest A/c 180|
To Mr. Thomas's A/c 6,000
(Being the drawing of bill of exchange no. 3 due for
maturity on 7.5.20X0 together with interest at 18% p.a.
in lieu of the original acceptance of Mr. Thomas.)
20-Mar Bank A/c Dr. 9,900
Discount A/c Dr. 100
To Bills receivable (No. 2) A/c 10,000|
(Being the amount received on retirement of bills No.2
before the due date.)
7-May Mr. Thomas's A/c Dr. 6,180
To Bills receivable (No. 3) A/c 6,180
(Being the amount due from Mr, Thomas on dishonour
of his acceptance on presentation on the due date.)
7-May Bank A/c Dr. 3,090
3,090
To Mr. Thomas's A/c
(Being the amount received from official assignee of
Mr. Thomas at 50 paise per rupee against dishonoured
bill.)
7-May Bad debts A/c Dr. 3,090
To Mr. Thomas's A/c 3,090

(Being the balance 50% debt in Mr. Thomas's Account

arising out of dishonoured bill written as bad.)

5. Rita owed 1,00,000 to Siriman. On 1st October, 20X0, Rita accepted a bill drawn by Siriman
for the amount at 3 months. Siriman got the bill discounted with his bank for 99,000 on
4th October, 20X0. On the due date, Rita approached Siriman for renewal of the bill. Siriman
agreed on the conditions that 50,000 be paid immediately together with interest on the
remaining amount at 12% per annum for 3 months and for the balance, Rita should accept
a new bill at three months. These arrangements were carried out. But afterwards, Rita
became insolvent and 40% of the amount could be recovered from his estate.
Pass journal entries (with narration) in the books of Siriman.
[ICAISM/ May 2018 RTP (Modified)/Nov. 2006 (M)/ May 2019 RTP/ Nov 2019
RTP/Nov. 2020 RTP]|

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Sol. In the books of Siriman

Journal Entries
Date Particulars Dr. () Cr. ()
20X0
Oct. 1 Bills receivable A/c Dr 1,00,000
To Rita 1,00,000
(Being a 3 month's bill drawn on Rita for the
amount due.)
Oct. 4 Bank A/c Dr 99,000
Discount A/c Dr 1,000
To Bills Receivable A/c 1,00,000
20X1 (Being the bill discounted.)
lan. 4 Rita Dr 1,00,000
To Bank A/c 1,00,000
(Being the bill cancelled up due to Rita's inability
to pay it.)
Jan. 4 Rita
D
1,500
To Interest A/c 1,500
(Being the interest due on 50,000 @ 12% for 3
months.)
Jan. 4 Bank A/c Dr 51,500
To Rita 51,500
(Being the receipt of a portion of the amount due
on the bill together with interest.)
Jan. 4 Bills Receivable A/c Dr 50,000
To Rita 50,000
(Being the new bill drawn for the balance.)
Rita cloping Concepts Dr 50,000
To Bills Receivable A/c 50,000|
(Being the dishonour of the bill due to Rita's
insolvency.)
Bank A/c Dr. 20,000
Bad Debts A/c Dr. 30,000
To Rita 50,000
(Being the receipt of 40% of the amount due on the
bill from Rita's estate.)

6 On 1st July, 20XO Gorge drew a bill for 1,80,000 for 3 months on Harry for mutual
accommodation. Harry accepted the bill of exchange. Gorge had purchased goods worth
1,81,000 from Jack on the same date. Gorge endorsed Harry's acceptance to Jack full
settlement. On 1st September, 20X0, Jack purchased goods worth 1,90,000 from Harry.
Jack endorsed the bill of exchange received from Gorge to Harry and paid 9,000 in full
settlement of the amount due to Harry. On 1st October, 20X0, Harry purchased goods worth
2,00,000 from Gorge. Harry paid the amount due to Gorge by cheque.
R

Give the necessary journal entries in the books of Harry and Gorge.
(ICAISM/May 2000)

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Sol. In the books of Harry

Journal Entries
Date Particulars Dr. () Cr. ()
20X0
July
1

Gorge's Account Dr 1,80,000

To Bills payable Account 1,80,000
(Acceptance of bill drawn by Gorge.)
Sept. 1 Jack's Account Dr 1,90,000|
To Sales Account 1,90,000
(Sales made to Jack.)
Sept. 1 Bills receivable Account Dr 1,80,000|
Bank account Dr 9,000
Discount account Dr 1,000
To Jack's Account 1,90,000
(Acceptance received from Jack's endorsement
of bill
received from Gorge for 1,80,000 and R
9,000 received in full settlement of the amount
due.)
Sept. 1 Bills payable Account Dr 1,80,000|
To Bills receivable Account 1,80,000
(Own acceptance received from Jack's
endorsement, cancelled.)
Oct. 1 Purchase Account Dr 2,00,000
To Gorge's Account 2,00,000
(Purchases made from Gorge.)
Gorge's Account Dr 20,000
To Bank Account 20,000
(Amount paid to Gorge after adjusting
180,000 for accommodation extended to him.)

In the books of George

Journal Entries
Date Particulars Dr. () Cr. ()
20X0 Purchases Account Dr. 1,81,000
July 1 To Jack Account 1,81,000
(Purchase of goods from Jack.)
Bills Receivable Account Dr.
July 1 1,80,000
To Harry Account 1,80,000
(Acceptance by Harry of bill drawn on him.)
July 1
Jack's account Dr.
1,81,000
To Rebate Account 1,000
To Bills Receivable Account 1,80,000
(Harry's bill endorsed to Jack.)
Oct. 1 Harry Account Dr.
2,00,000
To Sales Account 2,00,000
(Sales to Harry.)
Oct. 1 Bank Account Dr. 20,000|
To Harry Account 20,000
(Amount received from Gorge after adjusting
180,000 for accommodation extended by him.)

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7 For the mutual accommodation of "X and 'Y' on 1st April, 20X0, X' drew a 4 month' bill on
Y for 4,000."Y returned the bill after acceptance on the same date. 'X discounts the bill
from his bankers @ 6% per annum and remits 50% of the proceeds to "Y'. On due date is X

unable to a
send the amount due and therefore Y' draws bill for 7,000, which is duly
accepted by 'X.Y discounts the bill for 6,600 and sends 1,300 to "X. Before the bill is
due for payment 'X becomes insolvent. Later 25 paise in a rupee received from his estate.
Record Journal entries in the books of 'X. (ICAI SM)
Sol. In the books of 'X
Journal Entries
Date Particulars Dr. () Cr. ()
20X0 Bills receivable Account Dr. 4,000
Apr. 1 To Y's account 4,000
(Acceptance received from Y
for mutual
accommodation.)
Apr. 1 Bank Account Dr. 3,920
Discount account Dr. 80
To Bills Receivable A/C 4,000
(Bill discounted for 3,920.)
Y's account Dr. 2,000|
To Cash Account 1,960
To Discount Account 40
(Half of proceeds remitted to Y.)

Aug. 4 Y's Account Dr. 7,000

To Bills payable account 7,000
(Acceptance given to Y, being unable to remit the due
amount.)
Bank Account Dr. 1300
2.000+1,300 Dr. 200
Discount Accountt x 400]
6,600
To Y's Accountig Education Academy 1,500
(Amount received from Y and discount amount
credited to him.)
Bills payable Account Dr. 7,000|
To Y's Account 7,000
(Acceptance to dishonoured because of insolvency.)
Y

Account
Y Dr. 3,500
To Bank Account 875
To Deficiency Account 2,625
(Being the receipt of 40% of the amount due on the bill
from Rita's estate.)
8. Anil draws a bill for 9,000 on Sanjay on 5th April, 20X0 for 3 months, which Sanjay returns
it to Anil after accepting the same. Anil gets it discounted with the bank for 8,820 on 8th
April, 20X0 and remits one-third amount to Sanjay. On the due date, Anil fails to remit the
amount due to Sanjay, but he accepts a bill fori 12,600 for three months, which Sanjay
discounts it for 12,330 and remits I 2,220 to Anil. Before the maturity of therenewed bill,
Anil becomes insolvent and only 50% was realized from his estate on 15th October, 20X0.
Pass necessary journal entries for the above transactions in the books of Anil.
(ICAISM/Nov. 2004/Nov. 2020 modified/MTP Oct. 2021)|

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Sol. In the books of 'X'

Journal Entries
Date Particulars Dr. () Cr.
()
20X0
5-Apr Bills receivable Account Dr. 9,000
To Sanjay's Account 9,000
(Being acceptance received from Sanjay for mutual
accommodation.)
8-Apr Bank Account Dr. 8,820
Discount Account Dr. 180|
To Bills Receivable A/c 9,000
(Being bill discounted with bank.)
8-Apr Sanjay's Account Dr 3,000
To Bank Account 2,940
To Discount Account 60
(Being one-third proceeds of the bill sent to Sanjay.)
8-Jul Sanjay's Account Dr 12,600
To Bills payable Account 12,600|

(Being Acceptance given.)

8-Jul Bank Account Dr. 2,220
Discount Account (270 x 2/3) Dr. 180
To Sanjay's Account 2,400|
(Being proceeds of second bill received from Sanjay.)
11-0ct Bills payable Account Dr. 12,600
To Sanjay's Account 12,600|
(Being bill dishonoured due to insolvency.)
Oct.15 Sanjay's Account (6,000+2,400) Dr. 8,400
To Bank ACcount
Educatton Academy 4,200
evelopin Concepts
To Deficiency Account 4,200|
(Being insolvent, only 50% amount paid to Sanjay.)

9. A draw upon B three bills of exchange of 3,000, 2,000 and 1,000 respectively. A week
later his first bill was mutually cancelled, B agreeing to pay 50% of the amount in cash
immediately and for the balance plus interest 100, he accepted a fresh bill drawn by A. This
new bill was endorsed to C who discounted the same with his bankers for 1,500. The second
bill was discounted by A at 5%. This bill on maturity was returned dishonored (nothing charge
being 30). The third bill was retained till maturity when it was duly met.
Give the necessary journal entries recording the above transactions in the books of A.
(ICAI SM)

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Sol. Journal Book of A

Date Particulars LF Debit Credit
() ()
1) Bills Receivable A/c Dr. 6,000
To B 6,000
(Three bills for 3,000, * 2,000 and 1,000
drawn on B and duly accepted by him
received.)
2) B Dr. 3,000
To Bills Receivable A/c 3,000
(Bill received from B cancelled for renewal.)

3) Cash A/c Dr. 1,500

Bill Receivable A/c Dr. 1,600
To B 3,000
To Interest A/c 100
(Amount received on cancellation of the first
bill,50% along with a new bill for 50% of the
amount plus interest 100.)
4) C Dr. 1,600
To BillReceivable A/c 1,600
(Bill of exchange endorsed in favor of C.)
5) Bank A/c Dr. 1,900
Discount A/c (* 2,000x0.05) Dr. 100
To Bill Receivable A/c 2,000
(Second bill for 2,000 discounted with the
bank @5%.)
6) B
Grooming Education Academy Dr. 2,030
in Deseloping Concpts
To Bank Alceer 2,030
(Second bill for 2,000 discounted with the
bank dishonored, noting charges 30 paid by
the bank.)
7) Bank A/c Dr. 1,000
To Bills Receivable A/c 1,000
(Amount received on maturity of the third
bill.)
Note: It is assumed that the bill for 1,600 has not yet fallen due for payment.
10. Journalize the following in the books of Don:
i) Bob informs Don that Ray's acceptance for 3,000 has been dishonoured and noting
charges are 40. Bob accepts 1,000 cash and the balance as bill at 3 months at interest
of 10%. Don accepts from Ray his acceptance at two months plus interest @ 12% p.a.
ii) James owes Don 3,200; he sends Don's own acceptance in favour of Ralph for 3,160;
in full settlement.
ii) Don meets his acceptance in favour of Singh for 4,500 by endorsing John's acceptance
for 4,450 in full settlement.
iv) Ray's acceptance in favour of Don retired one month before due date, interest is taken
at the rate of 6% p.a. (ICAI SM)

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Sol. Journal Book of Don

Date Particulars LF Debit () Credit ()

i) Ray Dr. 3,040

a) To Bob 3,040
(Ray's acceptance endorsed to Bob
dishonoured on due date nothing charges
paid by Bob 40.)
b) Bob Dr 3,040
Interest Dr. 51
To Cash 1,000
To Bills Payable A/C 2,091
(Amount payable to Bob 3,040 settled by
cash payment 1,000 and issue of new bill
for 2,091 including interest 51 for three
months on 2,040 @ 10% p.a.)
c) Bills Receivable A/c Dr. 3,100.80
To Ray 3,040
To Interest 60.8
(Bill received from Ray for 3,040 due
against earlier acceptance dishonoured plus
interest for two months @ 12% p.a.)
ii) Bills Payable A/c Dr. 3,160
Discount A/c Dr. 40
To lames 3,200
(Cancellation of bills payable to Ralph for
3,160 in settlement of 3,200 due from
James.)
iii) Bills payable A/coming Education Dr. 4,500
Academy
To Bills Receivable A/celeping Concepte 4,450
To Discount A/c 50
(Settlement of acceptance issued to Mr. Singh
by endorsement of John's Acceptance for
4,450.)
iv) Bank A/c Dr. 3,085.30
Discount A/c Dr. 15.50
To Bills Receivable A/c 3,100.80
(Amount received from Ray in settlement of
Bills Payable, retired one month before due
date.)

11 On 1st January 20X0, Akshay draws two bills of exchange for R 16,000 and 25,000. The bill
of exchange for 16,000 is for two months while the bill of exchange for 25,000 is for
three months. These bills are accepted by Vishal. On 4th March, 20X0, Vishal requests
Akshay to renew the first bill with interest at 15% p.a. for a period of two months. Akshay
agreed to this proposal. On 25th March, 20X0, Vishal retires the acceptance for 25,000, the
interest rebate i.e. discount being 250. Before the due date of the renewed bill, Vishal
becomes insolvent and only 50 paisa in a rupee could be recovered from his estate.
Show the journal entries (with narrations) in the books of Akshay.
(May 2020 RTP /June 2019/Nov. 1995)

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Sol.
Journal Entries in the books of Akshay
20X0 Particulars Dr. Cr.
() )

Jan. 1 Bills receivable (No. 1) A/c Dr 16,000

Bills receivable (No. 2) A/c Dr 25,000
To Vishal A/c 41,000
(Being drawing of bills receivable No. 1 due for
maturity on 4.3.20X0 and bills receivable No. 2
due for maturity on 4.4.20X0.)
March 4 Vishal's A/c Dr. 16,000
To Bills receivable (No.1) A/c 16,000
(Being the reversal entry for bill No.1 on
renewal.)
March 4 Bills receivable (No. 3) A/c Dr 16,400
To Interest A/c 400
To Vishal 's A/c 16,000
(Being the drawing of bill of exchange no. 3 due
for maturity on 7.5.20X0 together with interest
at 15%p.a. in lieu of the original acceptance of
Vishal.)
March 25 Bank A/c Dr 24,750
Discount A/c Dr 250
To Bills receivable (No. 2) A/c 25,000
(Being the amount received on retirement of
bills No.2 before the due date.)
May 7 |Vishal's A/c Dr. 16,400
To Bills receivable (No. 3) A/c 16,400
(Being theo amount udueiofromaVishal on
dishonour of his acceptancenpts On
presentation on the due date.)
May 7 Bank A/c Dr. 8,200
To Vishal's A/c 8,200
(Being the amount received from official
assignee of Vishal at 50 paise per rupee against
dishonoured bill.)
May 7 Bad debts A/c Dr. 8,200
To Vishal's A/c 8,200
(Being the balance 50% debt in Vishal's Account
arising out of dishonoured bill written off as
bad debts.)
12. Ms. Sujata receives two bills from Ms. Aruna dated 1st January 20X0 for 2 months. The first bill
is for 10,200 and the second bill is fort 15,000. The second bill was endorsed in favour or Mr.
sree on 3rd January 20X0, And the First bill is discounted immediately with the bank for
10,000. Pass the necessary Journal entities in the books of Ms. Sujata.
(1CAI SM)

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Sol. In the books of Sujata

Journal Entries

Date Particulars L.F. Dr. () Cr. (3)

01/01/20X0 Bills receivable A/c Dr. 25,200
To Aruna A/c 25,200
(Being 2 bills receivable from Aruna)

03/1/20X0 Sree A/c Dr. 15,000

To Bills receivables A/c
(Being the bill endorsed in favour of Mr. 15,000
Sree)
(Being bill discounted with bank)
04/1/20X0 Bank A/c 10,000
Discount Charges A/c 200
To Bills receivable A/c 10,200
(Being the bills receivable discounted
with the bank at a charge of 200)

13. X draws on Y a bill of exchange for 30,000 on 1st April, 20X0 for 3 months. Y accepts the bill
and sends it to X
who gets it discounted for R 28,800. X immediately remits 9,600 to Y. On
the due date, X, being unable to remit the amount due, accepts a bill for 42,000 for three
months which is discounted by Y for 40,110. Y sends 6,740 to X. Before the maturity of the
bill X becomes bankrupt, his estate paying fifty paise in the rupee. Give the Journal entries in
the books of X and Y. (1CAI SM/ Nov. 2020)
Sol. In the books of X
Journal Entries

Date Particulars L.F. Dr.

() Cr. (®)

1/4/20XO Bill's receivables AlCaton AUp! 30,000

elopinsConcep
To Y A/c 30,000
(Being bill of exchange drawn on Mr.

1/4/20XO Bank A/c Dr 28,800

Discount charges A/c Dr 1,200
To Bills receivable A/c 30,000
(Being the bills receivable discounted
with the bank at a 1,200)
charge of

1/4/20Xo YA/c Dr 10,000

To BankA/c 9,600
To Discount charges 400
(Being the amount remitted to Y along
with his share of the bank charges)
4/7/20X0 YA/c Dr. 42,000
To Bills payable A/c 42,000
(Being the bills draw by Y, due to non
payment of earlier bill)

4/7/20XO Bank A/c Dr. 6,740

Discount Charges A/c Dr. 1,260
To Y A/c 8,000
(Being the amount discounted and
sent it by Y to X)

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Bills payable A/c Dr 42,000

To Y's A/c 42,000
(Being the bill due dishonoured due to
bankruptcy)
YA/C Dr. 28,000
To Bank A/c 14,000
To Deficiency account 14,000
(Being the amount due to Y discharged
by payment of 50 paise in a rupee)

In the books of Y
Journal Entries
Date Particulars L.F. Dr. () Cr. ()
1/4/20XO XA/c Dr. 30,000
To Bills payable A/c 30,000
(Being bill of exchange accepted and
sent to Mr. X)
1/4/20X0 Bank A/c Dr. 9,600
Discount charges A/c Dr. 400
To X A/c 10,000
(Being the amount received from X on
account of the bills receivable.)

4/7/20XO Bills receivable A/c Dr. 42,000

To XA/c 42,000
(Being the bills accepted by X)
4/7/20X0 Bank A/c Dr. 40,110
Discount charges A/c Dr. 1,890
GrToBills receivables A/cademy 42,000
(Being x acceptance discounted with
bank)
Bills payable A/c Dr. 30,000
To Bank A/c 30,000
(being the amount met on the due
date)
XA/c Dr. 8,000
To Bank A/c 6,740
To Discount account 1,260
(Being the amount received and the
discount debited to X)
XA/c Dr. 42,000
To BankA/c 42,000
(Being X's acceptance, which was
discounted dishonoured due to X's
bankruptcy)
Bank A/c Dr. 14,000
Bad debts A/c Dr. 14,000
To XA/c 28,000
14. On 1st January, 20X0, Vilas draws a bill of exchange for 10,000 due for payment after 3
months on Eknath. Eknath accepts to this bill of exchange. On 4thMarch, 20X0 Eknath retires
the bill of exchange at a discount of 12% p.a. You are asked to show the journal entries in the
books of Eknath and Vilas.
[ICAI SM/May 2001 (M)]

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Sol. Journal entries in the books of Eknath

Date Particulars Dr. () Cr. (3)
Jan. 1 Vilas A/c Dr. 10,000
To Bills Payable A/c 10,000
(Being the bill drawn by him
accepted)
Mar. 4 Bills Payable A/c Dr
10,000
To Bank A/c 9,900
To Interest A/c (Discount A/c) 100
(Being retirement of acceptance 1

month before maturity interest

allowed at 12%p.a.)
15. On 12th May, 20X0 'A sold goods to B for 36,470 and drew upon the later two bills one for
16,470 at one month and the other for 20,000 at three months. B accepted both the bills.
On 5th June, 20X0 send both the bills to his banker for collection, B failed to honour the
A

second bill on the due date and the bank had to pay $20 as noting charges.

However, on 16th August, 20X0 it was agreed between A and B would immediately pay 8,020
in cash and accept a new bill at 3 months for 12,480 which included interest for
postponement of the part payment of the dishonoured bill. A immediately sent new
acceptance to its bank for collection on the due date. On 1st Oct. 20X0, B approached A offering
{12,240 for retirement of his acceptance. A Accepted the request.

You are required to pass journal entries of all the above transactions in the books of A.
[December 2021]
Sol. Journal Entries in the books of Mr. A
Date Particulars R

12.05 B's A/c Dr. 36,470

To Sales Account 36,470
(Being goods sold to B on credit)
B/R (1)[Link] Acadmy 16470
Developing Concepts
B/R (2) Afc Dr. 20,000
To B's A/c 36,470
(Being drawing of bills receivable
No.1 due for maturity on 15.06.20
and bills receivable No. 2 due for
maturity on 14.08.20)

05/06 Bills sent for collection A/c Dr. 36,470

To B/R (No.1) A/c 16,470
To B/R (No.2) A/c 20,000
(Being both the bills sent to bank for
collection)

15.06 Bank A/c Dr 16,470

To Bills for collection A/c 16,470
(Being amount received on
retirement of Bills receivable No. 1)

14.08 B's A/c Dr. 20,020

To Bills for collection A/c 20,000
To Noting charges or Bank Charges 20
A/c

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(Being the amount due from Mr.B on

dishonour of his acceptance on
presentation on the due date)

16.08 B's A/c Dr 480

To Interest A/c 480
(Being interest due)

Bank/Cash A/c Dr. 8,020

To B's A/c 8,020
(Being cash received)

Bills receivable (No.3) A/c Dr. 12,480

To B's A/c 12,480
(Being bills receivable (no.3) drawn
accepted by B)

16.08 Bills for collection A/c Dr. 12,480

To Bills receivable (No.3) A/c 12,480
(Being Bills receivable (no. 3) sent to
bank for collection)

01.10 Bank A/c Dr. 12,240

Rebate A/c Dr. 240
To Bills for collection A/c 12,480

(Being amount received on

retirement of Bills receivable (no. 3)

Grooming Education Academy

Pioneer in Developing Concepts

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Final Account
Assignment
Q.
NO. Questions and Solutions
1. The following are the balances as at 31st March, 20X0 extracted from the books of
Mr. XYZ.
Particulars Particulars
Plant and Machinery 19,550 Bad debts recovered 450
Furniture and Fittings 10,250 Salaries 22,550
Bank Overdraft 80,000 Salaries payable 2,450
Capital Account 65,000 Prepaid rent 300
Drawings 8,000 Rent 4,300
Purchases |1,60,000 Carriage inward 1,125
Opening Stock 32,250 Carriage outward 1,350
Wages 12,165 Sales |2,15,300
Provision for doubtful debts 3,200 Advertisement Expenses 3,350
Provision for Discount on Printing and Stationery 1,250
debtors 1,375 Cash in hand 1,450
Sundry Debtors 1,20,000 Cash at bank 3,125
Sundry Creditors 47,500 Office Expenses 10,160
Bad debts 1,100 Interest paid on loan 3,000
Additional Information:
1) Purchases include sales return of 2,575 and sales include purchases return of
1,725.
2) Goods withdrawn by Mr. XYZ for own consumption 3,500 included in purchases.
3) Wages paid in the month of April for installation of plant and machinery amounting
to 450 were included in wagess accoucademy
4) Free samples distributed for publicity costing 825.
5) Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2.5%.

6) Depreciation is to be provided on plant and machinery @ 15% per annum and on

furniture and fittings @ 10% per annum.
7) Bank overdraft is secured against hypothecation of stock. Bank overdraft
outstanding as on 31.3.20X0 has been considered as 80% of real value of stock
(deducting 20% as margin) and after adjusting the marginal value 80% of the
same has been allowed to draw as an overdraft.
Prepare a Trading and Profit and Loss Account for the year ended 31st March, 20X0,
and a Balance Sheet as on that date. Also show the rectification entries.
(May 2005/May 2018 RTP/Nov. 2019 RTP/Nov. 2021 RTP)
Sol.
Rectification Entries
[Link]. Cr.
Particulars Dr.
Amount Amount

Returns inward A/c Dr. 2,575

Sales A/c Dr. 1,725
To Purchases A/c 2,575
To Returns outward A/c 1,725
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(Being sales return and purchases return

wrongly included in purchases and sales
respectively, now rectified.)
ii Drawings A/c Dr. 3,500
To Purchases A/c 3,500
(Being goods withdrawn for own consumption
included in purchases, now rectified.)
iii) Plant and machinery v Dr. 450
To Wages A/c 450
(Being wages paid for installation of plant and
machinery wrongly debited to wages, now
rectified.)
iv) 825
Advertisement expenses A/c Dr

To Purchases A/c 825

(Being free samples distributed for publicity
out of purchases, now rectified.)

Trading and Profit and Loss Account of Mr. XYZ

Dr. for the year ended 31st March, 20X0 Cr.
Particulars Amount Particulars Amount

To Opening stock 32,250 By Sales 2,13,575

To Purchases 1,53,100 Less: Sales return 2,11,000

(2.575)
1,25,000
Less: Purchases (1,725) 1,51,375 By Closing stock
R80,000x1 00/80x1
return 00/80)
To Carriage inward 1,125
Grooming Fduc Academy
To Wages Dioneer 11,715
To Gross profit c/d 1,39,535
3,36,000 3,36,000

To Salaries 22,550 By Gross profit b/d 1,39,535

4,300By Bad debts
To Rent 450
recovered
To Advertisement expenses 4,175
To Printing and stationery 1,250

To Bad debts 1,100

To Carriage outward 1,350
To Provision for doubtful debts
5% of 1,20,000 6,000
Less: Existing provision
(3,2001 2,800
To Provision for discount on
debtors
2.5% of t 1,14,000 2,850
Less: Existing provision
(1.375) 1,475
To Depreciation:
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Plant and machinery

3,000
Furniture and fittings
1.025 4,025
To Office expenses 10,160
To Interest on loan 3,000
To Net profit
(Transferred to capital
account) 83,800
1,39,985 1,39,985

Balance Sheet of Mr. XYZ as on 31st March, 20XO

Liabilities Amount Assets Amount
() ()

Capital account 65,000 Plant and machinery 20,000

Add: Net profit 83,800 Less: Depreciation (3,000) 17,000

1,48,800 Furniture and fittings 10,250
Less: Drawings (11,500)1,37,300| Less: Depreciation (1,025) 9,225
Bank overdraft 80,000 Closing stock 1,25,000
Sundry creditors 47,500 Sundry debtors 1,20,000

Payable salaries 2,450 (-) Provision for doubtful (6,000)

debts
O Provision for bad (2,850)
debts 1,11,150
Grooming {ducatio Prepaid rent 300
Cash in hand
Pioneerieelopng 1,450
Cash at bank 3,125
2,67,250 2,67,250
2. Trial Balance for the financial year (EY) ended 31st March 20X1 of M/s Deepakshi shows
the following details:
Particulars Debit (?) Credit ()
Purchases and Sales 10,00,000 12,00,000
Debtors and Creditors 5,00,000 4,00,000
Opening stock 2,00,000
Closing stock 3,00,000
Other expenses and incomes 7,00,000 9,00,000
Fixed assets and Long-term liabilities 25,00,000 6,00,000
Capital 21,00,000
52,00,000 52,00,000
Creditors as on 31st March 20X0 were 3,00,000.

You are required to calculate:

1) Cost of goods sold; and
2) Amount paid to creditors.
(ICAI SM)

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Sol. i) Calculation of Cost of Goods sold:

Particulars
Opening Stock 2,00,000
Add: Purchases (Closing stock already adjusted)* 10,00,000
Cost of Goods Sold 12,00,000
*Since, closing stock appears in Trial Balance, it means following entry has already been
passed in books:
Closing Stock A/c Dr. 3,00,000
To Purchases A/c 3,00,000

So, we can see purchases have already been reduced by the amount of unsold stock,
thereforeno more adjustment needs to be made on account of closing stock for computing
Cost of goods sold (CoGS).

i) Calculation of amount paidto creditors:

Date Particulars Date Particulars
To Bank A/c 12,00,000 1.4.X0 By Balance b/d 3,00,000
(Balancing
Figure)
31.3.X1 To Balance c/d 4,00,000 By Purchases A/c 13,00,000
(Note:1)
16,00,000 16,00,000

Note: 1) Purchases made during the year can be computed as:

Particulars
Purchases as per Trial Balance Education Academy 10,00,000
Add: Closing Stock already adjustedgConcept 3,00,000
Purchases made during the year 13,00,000

3.
Particulars
Opening lnventory 1,00,000
Purchases 6,72,000
Carriage Inwards 30,000
Wages 50,000
Sales 11,00,000
Returns inward 1,00,000
Returns outward 72,000
Closing Inventory 2,00,000

Required:
From the above information, preparea Trading Account of M/s. ABC Traders for the year
ended 31st March, 20X0 and pass necessary closing entries in the journal proper of M/s.
ABC Traders.
(ICAI SM)

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Sol. In the books of M/s. ABC Traders

Trading Account for the year ended 31st March, 20X0
Particulars Amount Particulars Amount

|To Opening Inventory 1,00,000 By Sales 11,00,000

To Purchases 6,72,000 Less: Returns Inward (1,00,000) 10,00,000
Less: Returns (72,000) 6,00,000 2,00,000
outward By Closing Inventory
To Carriage Inwards 30,000
To Wages 50,000
To Gross profit 4,20,000
12,00,000 12,00,000

Journal Proper in the Books of M/s. ABC Traders

Date Particulars Amount Amount
20X0
Mar, 31 Returns outward A/c Dr. 72,000
To Purchases A/c 72,000|
(Being the transfer of returns to purchases account.)
Sales A/c Dr. 1,00,000
To Returns Inward A/c 1,00,000|
(Being the transfer of returns to sales account.)
Sales A/c Dr. 10,00,000
To Trading A/c 10,00,000|
(Being the transfer of balance of sales account to trading
account.)
Trading A/c Dr. 7,80,000
To Opening Inventory A/c 1,00,000
To Purchases A/c 6,00,000
To Wages A/c 50,000
To Carriage inwards A/clucation Academy 30,000
(Being the transfer of balances of opening Inventory,
purchases and wages accounts.)
Closing Inventory A/c Dr. 2,00,000
To Trading A/c 2,00,000
(Being the incorporation of value of closing Inventory.)
Trading A/c Dr. 4,20,000
To Gross Profit 4,20,000
(Being the amount of gross profit.)
Gross profit Dr 4,20,000
To Profit and Loss A/c 4,20,000
(Being the transfer of gross profit to Profit and Loss
Account.)

4. Revenue, Expenses and Gross Profit Balances of M/s ABC Traders for the year ended on
31st March 20X0 were as follows:
Gross Profit 4,20,000, Salaries 1,10,000, Discount (Cr.), R 18,000, Discount (Dr.)
19,000, Bad Debts 17,000, Depreciation 65,000, Legal Charges 25,000, Consultancy
Fees 32,000, Audit Fees 1,000, Electricity Charges 17,000, Telephone, Postage and
Telegrams 12,000, StationeryI 27,000, Interest paid on Loans 70,000.
Required:
Prepare Profit and Loss Account of M/s ABC Traders for the year ended on 31st March,
20X0. Show necessary closing entries in the Journal Proper of M/s. ABC Traders also.
(ICAI SM)

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Sol.
In the Books of M/s ABC Traders
Profit and Loss Account
Dr. for the year ended 31st March, 20X0 Cr.
Particulars Amount Particulars Amount

To Salaries 1,10,000 By Gross Profit 4,20,000

To Legal Charges 25,000| By Discount received 18,000
To Consultancy Fees 32,000
To Audit Fees 1,000
To Electricity Charges 17,000
To Telephone, Postage & 12,000
Telegrams
To Stationery 27,000
To Depreciation 65,000
To Discount Allowed 19,000
To Bad Debts 17,000
To Interest 70,000
To Net Profit 43,000
4,38,000 4,38,000

Journal Proper in the Books of M/s. ABC Traders

Date Particulars Amount Amount
20X0
March Profit & Loss Account Dr. 3,95,000
31 To Salaries A/c
To Legal Charges A/c 1,10,000
To Consultancy Fees A/c 25,000
To Audit Fees A/c 32,000
To Electricity Charges A/c 1,000
To Telephone, Postage & Telegrams A/eny
cloping Concept 17,000
To Stationery A/c
12,000
To Depreciation A/c
27,000
To Discount Allowed A/c
65,000
To Bad Debts A/c
To Interest A/c 19,000
(Being the transfer of balances of variousexpenses 17,000
accounts.) 70,000
|Discount Received A/c Dr. 18,000
To Profit & Loss A/c 18,000
(Being the transfer of discount received account
balance.)
Gross Profit A/c Dr. 4,20,000
To Profit & Loss A/c 4,20,000
(Being the transfer of gross profit from Trading
|Account.)
Profit & Loss A/c Dr. 43,000
To Net Profit A/c 43,000
(Being the ascertainment of net profit.)
Net Profit A/c Dr. 43,000
To Capital A/c 43,000
(Being the transfer of net profit to Capital A/c.)

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5. On 1st Jan. 20X0 provision for Doubtful Debts existed at 740,000. Trade receivables on
31.12.20X0 were R15,00,000; bad debts totaled 1,00,000. It is required to write off the
bad debts and create a provision equal to 5% of the Trade receivables' balances.
Required:
Show how you would compute the amount debited to the Profit and Loss Account.
(ICAISM)
Sol.
Particulars
Opening Provision (Cr.) 40,000
Bad Debts written off (Dr.) 1,00,000
Short Provision (Dr.) 60,000
Provision required (Dr.) (5% of 14,00,000) 70,000
|Additional amount required for debit to the Profit and Loss Account (Dr.) 1,30,000

The account will appear as follows:

Provision for Doubtful Debts Account
20X0 Particulars 20X0 Particulars
Dec. 31 To Bad Debts Account 1,00,000 Jan. 1 By Balance b/d 40,000
To Balance c/d 70,000 Dec. 31 By Profit and Loss
(required) 1,30,000
A/c (Balancing
Figure)
1,70,000 1,70,000
20X1
Jan
1 By Balance b/d 70,000
6. The following is the Trial Balance ofC. Wanchoo on 31st Dec. 20X0.
Trial Balance on 31st December, 20X0
Gro Particularsotin
Capital Account 10,00,000
Inventory Account 2,00,00
Cash in hand 1,44,000
Machinery Account 7,36,00
Purchases Account 18,20,000|
Wages Account 10,00,000
Salaries Account 10,00,000
Discount Allowed A/C 50,000
Discount Received A/c
30,000|
Sundry Office Expenses Account 6,00,000
Sales Account
50,00,000l
Sums owing by customer (Trade receivables) 8,50,000|
Trade payables (sums owing to suppliers)
3,70,000
Total 64,00,000 64,00,000|
Value of Closing Inventory on 31st Dec. 20X0 was 2,70,000
Required:
Prepare closing entries for the above items and Prepare Trading and Profit and Loss
Account. (ICAI SM)

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Sol.
Journal Proper in the Books of M/s. ABC Traders
Date Particulars Amount Amount
20X0
Dec. 31 Trading Account Dr 30,20,000
To Inventory Account 2,00,000|
To Purchase A/c 18,20,00|
To Wages A/c 10,00,000
(Being the accounts in the Trial Balance
which have to be transferred to the Trading
Account debit side.)
Dec. 31 Sales Account Dr. 50,00,000
To Trading A/c 50,00,00o|
(Being the amount of Sales transferred to
the credit of Trading Account.)
Dec. 31 Inventory (Closing) A/c Dr. 2,70,000
To Trading A/c 2,70,000
(Being the value of Inventory on hand on
31st Dec. 2020.)
Dec. 31 Trading A/c
Dr.
22,50,000
To Profit and Loss A/c 22,50,000|
(Being the transfer of gross profit.)
Dec. 31 Profit and Loss A/c Dr 16,50,000
To Discount Allowed A/c 50,000
To Salaries A/c 10,00,00o
To Sundry Office Expenses A/c 6,00,000
(Being the various expense accounts
transferred to the P &L Account.)
Dec. 31 Discount Received A/c Dr. 30,000
To P &L Account Education Academy 30,000
(Being the credit balance of discount
received transferred to Profit and Loss
A/c.)
Dec. 31 Profit and Loss A/c Dr 6,30,000
To Capital A/c 6,30,000
(Being the transfer to Net Profit to the
Capital Account.)

C. WANCHO0
Trading Account of theyear ended December 31, 20XO
Particulars Particulars
To Inventory A/c 2,00,000 By Sales A/c 50,00,000
To Purchases 18,20,000By Inventory (Closing) 2,70,000
To Wages 10,00,000
To Gross profit transferred to 22,50,000
P&LAJc
52,70,000 52,70,000

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Profit and Loss Account for the year ended

December 31, 20XO
Particulars Particulars
To Salaries 10,00,000 By Gross profit transferred 22,50,000
To Discount Allowed 50,000 from the Trading Account
To Sundry Office Expenses 6,00,000 30,000
|By Discount Received
To Net Profit transferred to
Capital A/c
6,30,000
22,80,000 |22,80,000|
7. Given below Trial Balance of M/s Dayal Bros. as on 31st March, 20X0:
Particulars Debit Balances Credit
Balances

Capital A/c 7,00,000|

Land and Building 14% 3,00,000|
Term Loan 4,00,000|
Loan from M/s. D & Co. 4,20,000 4,60,000
Trade receivables 20,000
Cash in hand 6,00,000
|Inventories in Trade Furniture 2,00,000
Trade payables 40,000
Advances to Suppliers 1,00,000|
Net Profit 1,00,000
Drawings 60,000
17,00,000 17,00,000
Required: Prepare Balance Sheet as on 31st March, 20X0.
(ICAI SM)
Sol. In the Books of M/s Dayal Bros.
Balance Sheet
Groomingas on 31st March, 20X0
Liabilities Assets
Capital: Balances 7,00,000 &
Land Building 3,00,000
Add: Net Profit 1,00,000 Furniture 2,00,000
8,00,000 Inventories in Trade 6,00,000
Less: Drawings (60,000) 7,40,000 Trade receivables 4,20,000
14% Term Loan 4,00,000 Advances to Suppliers 1,00,000
Loan from M/s D & 4,60,000 Cash in Hand 20,000
Co.
Trade payables 40,000
16,40,000 16,40,000
8. The balance sheet of Thapar on 1st January, 20X0 was as follows:
Liabilities Amount Assets Amount

Trade payables 15,00,000| Plant & Machinery 30,00,000

Expenses Payable 1,50,000 Furniture & Fixture 3,00,000
Capital 50,00,000Trade receivables 14,00,000
Cash at Bank 6,50,000
|Inventories 13,000,000
66,50,000 66,50,000
During 20X0, his Profit and Loss Account revealed a net profit of 15,30,000. This was
after allowing for the following:
a) Interest on capital @ 6% p.a.
b) Depreciation on Plant and Machinery @ 10% and on Furniture and Fixtures @ 5%.
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c) A provision for Doubtful Debts @ 5% of the trade receivables as at 31st December,

20X0.

But while preparing the Profit and Loss Account he had forgotten to provide for:
1)outstanding expenses totalling ? 1,80,000 and
2) prepaid insurance to the extent of 20,000.

His current assets and liabilities on 31st December, 20X0 were: Inventories 14,50,000;
Trade receivables R 20,00,000; Cash at Bank 10,35,000 and Trade payables 11,40,000.
During the year he withdrewI 6,00,000 for domestic use.
Required: Draw up his Balance Sheet at the end of the year. (ICAISM)
Sol. Profit and Loss Account (Revised)
Particulars Particulars
To Outstanding 1,80,000| By Balance b/d 15,30,000
expenses To Net 13,70,000| By Prepaid insurance 20,000
profit 15,50,000 15,50,000

Balance Sheet of
Thapar as on 31st December, 20XO
Liabilities Assets
Capital 50,00,000 Cash at Bank 10,35,000
Add: Net Profit 13,70,000 Trade receivables 20,00,000
63,70,000 Less: Provision for
doubtful debts (1,00,000 19,00,000
|Less: Drawings (6,00,000)
57,70,000 Plant and Machinery 30,00,000
Add: Interest on 60,70,00o Less: Depreciation (3,00,000) 27,00,000
3,00,000
capital
Outstanding 1,80,000 Furniture & Fixtures 3,00,000|
expenses Trade 11,40,000|Less: Depreciation (15,000) 2,85,000
payables Inventories
Groomind Educatoprenaid
insurance 14,50,000
Dione Developing
20,000

73,90 000| 73,90,000

9. BALANCE SHEET
As at 31st December, 20XO
Liabilities Assets
Mahendra & Sons 5,60,000lCash in hand 43,000
Capital 20,00,000Cash at Bank 2,67,500
|Trade receivables 7,49,500
Closing Inventory 9,00,000
Machinery and Equipment 6,00,000
25,60,000 25,60,000
Required: From the above given balance sheet prepare the relevant opening entry.
(ICAI SM)

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Sol. The Opening Entry :01-01-20X0

Particulars Dr. Cr.

Cash A/c Dr. 43,000

Bank A/c Dr. 2,67,500
Trade receivables Dr. 7,49,500
Inventory A/c Dr. 9,00,000
Machinery and Equipment A/c Dr. 6,00,000
To Mahendra & Sons A/c 5,60,000
To Capital A/c |20,00,000
(Being the balances brought forward.)
10. Shri Mittal gives you the following Trial Balance and some other information:
Trial Balance as on 31st March, 20X1
Particulars Dr. Cr.

|Capital 8,70,000
Purchases and Sales 6,05,000 12,10,000
Opening Inventory 72,000
Trade receivables and Trade payables 90,000 1,70,000
14% Bank Loan (loan taken at year-end) 2,00,000
Overdrafts (overdraft taken at year end) 1,12,000
Salaries 2,70,000
Advertisements 1,10,000
Other expenses 60,000
Returns 40,000 30,000
Furniture 4,50,000
Building 8,90,000
Cash in Hand 5,000
Grooming Education Academy 25,92,000 25,92,000|

Closing Inventory on 31st March, 20X1 was valued at 1,00,000.

Required: Prepare final accounts of Shri Mittal for the year ended 31st March, 20X1.
(ICAI SM)
Sol. In the books of Shri Mittal
Trading Account for the year ended 31st March, 20X1
Particulars Amount Particulars Amount

To Opening 72,000 By Sales 12,10,000

inventory
To Purchases 6,05,000 Less: Returns (40,000) 11,70,000
Less: Returns (30,000) 5,75,000 By Closing 1,00,000
inventory
To Gross Profit 6,23,000
12,70,000 12,70,000

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Profit and Loss Account

for the year ended 31st March, 20X1
Particulars Amount Particulars Amount

To Salaries 2,70,000 By Gross profit 6,23,000

To Advertisement 1,10,000
To Other expenses 60,000
To Net profit 1,83,000
6,23,000 6,23,000

Balance Sheet as on 31st March, 20X1

Liabilities Amount Assets Amount

Capital 8,70,000 Building 8,90,000

Add: Net profit 1,83,000 10,53,000 Furniture 4,50,000
Trade receivables
14% Bank Loan 2,00,000 Closing inventory 90,000
Trade payables 1,70,000
Cash in hand 1,00,000
Overdrafts 1,12,000 5,000
15,35,000 15,35,00o
Note: As loan and overdraft taken at year end so no interest shown.
11. Mr. Mohan gives you the following trial balance and some other information:
Trial Balance as on 31st March, 20X1
Particulars
Capital 6,50,000
Sales Grooming Education Academy 9,70,000
Tioneer in Developing Concept
Purchases 4,30,000
Opening Inventory 1,10,000
Freights Inward 40,000
Salaries 2,10,000
Other Administration Expenses 1,50,000
Furniture 3,50,000
Trade receivables and Trade payables 2,10,000 1,90,000|
Returns 20,000 12,000
Discounts 19,000 9,000
Bad Debts 5,000
Investments in Government Securities 1,00,000
Cash in Hand and Cash at Bank 1,87,000
18,31,000 18,31,000
Other Information:
i) Closing Inventory was 1,80,000;
ii) Depreciate Furniture @ 10% p.a.
Required:
Prepare Trading and Profit and Loss Account for the year ended on 31.3.20X1 and
Balance Sheet of Mr. Mohan as on that date. (ICAI SM)

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Sol. In the books of Mr. Mohan

Trading Account for the year ended 31st March, 20X1
Particulars Amount Particulars Amount

To Opening Inventory 1,10,000 By Sales 9,70,000

To Purchases 4,30,000 Less: Returns (20,000) 9,50,000
Less: Returns (12,0001 4,18,000 By Closing lnventory 1,80,000
|To Freight Inwards 40,000
To Gross profit 5,62,000

11,30,000 11,30,000|

Profit and Loss Account

for the year ended 31st March, 20X1
Particulars Particulars
To Depreciation 35,000 By Gross profit 5,62,000
To Salaries 2,10,000By Discount received 9,000
To Administration expenses 1,50,000
To Discount allowed 19,000
To Bad debts 5,000
To Net profit 1,52,000
5,71,000 5,71,000

Balance Sheet as on 31st March, 20X1

Liabilities Amount Assets Amount

Capital 6,50,000 Furniture 3,50,000

Add: Net profit 1,52,000 8,02,000|Less: Depreciation (35,000)| 3,15,000
Trade payables Grooming 1,90,000}Closing Inyentory 1,80,000
Tionee Develop
Trade receivables 2,10,000
Investment in Govt
|Securities 1,00,000
Cash in Hand and
Cash at Bank 1,87,000
9,92,000 9,92,000
12. The Balance Sheet of Mr. Popatlal, a merchant on 31st March, 20X1 stood as below:
Liabilities Amount () Assets Amount ()
|Capital 2,40,000Fixed Assets 1,25,600
Trade payables 1,64,000|Inventories 2,06,400
Bank Overdraft 146,000|Trade receivables 1,88,000
Less: Provision (6,200) 1,81,800
Cash 36,200
5,50,000 5,50,000
Required:
Show opening journal entry on 1st April, 20X0 in the books of Mr. Popatlal.
(ICAI SM)

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Sol. Opening entry

Date Particulars Dr. ) Cr. (3)
1.4.20X0 Fixed Assets A/c Dr. 1,25,600
Dr.
Inventories A/c 2,06,400
Dr.
Trade receivables A/c 1,88,000
Cash A/c Dr. 36,200
1,64,000
To Trade payables A/c
1,46,000
To Bank OverdraftA/c
6,200
To Provision for Doubtful Debts A/c
2,40,000
To Capital A/c
I(Being opening entry made.)
13. The following is the schedule of balances as on 31.3.X1 extracted from the books of Shri
Gavaskar, who carries on business under the same name and style of M/s Gavaskar
&
Co., at
Viswanath Bombay:
Particulars Dr. Cr.

Cash in hand 14,000

Cash at bank 26,000
Sundry Debtors 8,60,000
Stock on 1.4.20X0 6,20,000
Furniture & fixtures 2,14,000
Office equipment 1,60,000
Buildings 6,00,000
Motor Car 2,00,000
Sundry Creditors 4,30,000
Loan from Viswanath 3,00,000
Provision for bad debts 30,000
Purchases 14,00,000
Purchase Returns 26,000
Sales Grooming Education Academny 23,00,000
Sales Returns Pionee n Developing onceps 42,000
Salaries 1,10,000
Rent for Go down 55,000
on
Interest loan from Viswanath 27,000
Rates & Taxes 21,000
Discount allowed to Debtors 24,000
Discount received from Creditors 16,000|
Freight on purchases 12,000
Carriage Outwards 20,000
Drawings 1,20,000
Printing and Stationery 18,000
Electricity Charges 22,000
Insurance Premium 55,000
General office expenses 30,000
Bad Debts 20,000
Bank charges 16,000
Motor car expenses 36,000
Capital A/C 16,20,000
Total 47,22,000 47,22,000
Prepare Trading and Profit and Loss Account for the year ended 31st March 20X1 and
the Balance Sheet as at that date after making provision for the following:

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1) Depreciate: (a) Building used for business by 5 percent; (b) Furniture and
fixtures by 10 percent; One steel table purchased during the year for 14,000
was sold for same price but the sale proceeds were wrongly credited to Sales
Account; (c) Office equipment by 15 percent; Purchase of a typewriter during the
year for 40,000 has been wrongly debited to purchase; and (d) Motor car by
20%.
2) Value of stock at the close of the year was 4,40,000.
3) Two month's rent for go-down is outstanding.
4) Interest on loan from Viswanath is payable at 12 percent per annum, this loan
was taken on 1.5.20X0.
5) Reserve for bad debts is to be maintained at 5 percent of Sundry Debtors.
6) Insurance premium includes 40,000 paid towards proprietor's life insurance
policy and the balance of the insurance charges cover the period from 1.4.20X0
to 30.6.X1 (ICAISM)
Sol. M/s Gavaskar Viswanath & Co.
Trading for the year ended 31st March 20X1
Particulars Details Amount Particulars Details Amount

To opening Stock 6,20,000 By Sales 23,00,000

To Purchases 14,00,000 Less: Sale of 14,000
furniture included in
sale
Less: Typewriter 40,000 Less: Sales Returns 42,000 22,44,000
included in purchases
Less: Purchase Returns 26,000 13,34,000 By Closing Stock 4,40,000
To Freight on purchase 12,000
To Gross Profit c/d 7,18,000
26,84,000 |26,84,000

M/s Gavaskar Viswanath & Co.

Profit/Loss Account forthe year ended 31st March 20X1
Particulars Details Amount Particulars Details Amount

To Salaries 1,10,000 By Gross profit b/d 7,18,000

To Rent for Go-down 55,000 By Discount 16,000
Add: Outstanding 11,000 66,000 received
To provision for doubtful debts 33,000
(4) To Rent and Taxes 21,000
To Discount Allowed 24,000|
To Carriage outwards 20,000
To printing and stationery 18,000
To Electricity charges 22,000
To Insurance premium (1) 12,000
To Depreciation (2) 1,20,000
To general office expenses 30,000|
To Bank Charges 16,000
To interest on loan
Add: Outstanding (3) 27,000
To Motor car expenses 6,000 33,000
To Net Profit 36,000|
1,73,000
7,34,000 |7,34,000

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Balance Sheet of M/s Gavaskar Vishwanath & Co. as at 31st March 20X1
Liabilities Details Amount Assets Details Amount

Capital 16,20,000 Building 6,00,000

Add: Net Profit 1,73,000 Less: Dep. (30,000) 5,70,000
Less: Drawings (1,20,000)
Less: Insurance Premium (40,0001 Motor Car 2,00,000
16,33,00o Less: Dep. (40,000) 1,60,000|
Loan from Vishwanath 3,00,000
Add: Outstanding 6,000 3,06,000| Office equipment 2,00,000
Less: Dep. (30,000)
1,70,000
Sundry Creditors 4,30,000
Outstanding rent 11,000 Furniture & 2,00,000
Fixture
Less: Dep. (20,000) 1,80,000

Stock in Trade
4,40,000
Sundry Debtors 8,60,000
Less: Provision (43.0001 8,17,000

for
doubtful debts
Cash at hand 26,000|
Cash in bank 14,000
Prepaid insurance 3,000|
(1)
23,80,000 23,80,000

Working Notes:
Grooming Education Academy
1) Insurance premium
Insurance premium as given in trial balance 55,000
Less: Personal premium (40,000)
Less: Prepaid for 3 months (15,000/1 5x 3) (3,000)
Transfer to Profit and loss A/c 12,000|

2) Depreciation
Building 5% on 6,00,000
@
30,000
Motor Car @ 20% on 2,00,000 40,000
Furniture & Fittings @ 10% on 2,00,000( 2,14,000- 14,000) 20,000
Office Equipment 15% on 2,00,000 (* 1,60,000 + 40,000)
@

30,000
Total 1,20,000
3) Interest on Loan
Interest on Loan (3,00,000 x 12% x 11/12) 33,000
Less: Interest as per Trial Balance P/L Account (Outstanding) (27,000)
6,000

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4)
Provision for bad debts A/c
Particulars Amount Particulars Amount

To bad debts A/c 20,000| By balance b/d 30,000

To balance c/d 43,000 By P&L A/c 33,000
63,000| 63,000
14. Crimpson Ltd.'s profit and loss account for the year ended 31st March, 20X0 includes
the following information:

i) Depreciation 57,500
ii) Bad debts written off 21,000
ii) Increase in provision for doubtful debts 18,000
iv) Proposed dividend 15,000
v) Retained profit for the year 20,000
vi) Liability for tax 4,000

Required:
State which one of the items i) to vi) above are - a) transfer to provisions; b) transfer to
reserves; and c) neither related to provisions nor reserves.
(ICAI SM)
-
Sol. a) Transfer to provisions i), ii) vi)
b) Transfer to reserves - V)
-
c) Neither related to provisions nor reserves ii), iv).
15. From the following particulars extracted from the books of Ganguli, prepare trading and
profit and loss account and balance sheet as at 31st March, 20X1 after making the
necessary adjustments:
Cu aOACauem Particulars
100111

Particulars
Ganguli's capital account 5,40,500 Interest received 72,500
(Cr.)
Stock on 1.4.20X0 2,34,000 Cash with Traders Bank Ltd. 40,000
Sales 14,48,000 Discounts received 14,950
Sales return 43,000 Investments (at 5%) as on 25,000
1.4.20X0
Purchases 12,15,500 Furniture as on 1-4-20X0 9,000
Purchases return 29,000 Discounts allowed 37,700
Carriage inwards 93,000 General expenses 19,600
Rent 28,500 Audit fees 3,500
Salaries 46,500 Fire insurance premium 3,000
Sundry debtors 1,20,000 Travelling expenses 11,650
Sundry creditors 74,000| Postage and telegrams 4,350
Loan from Dena Bank Ltd. 1,00,000 Cash in hand 1,900
(at 12%)
Interest paid 4,500| Deposits at 10% as on 1-4 1,50,000
20X0 (Dr.)
Printing and stationery 17,000 Drawings 50,000
Advertisement 56,000

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Adjustments:
1) Value stock as on 31st March, 20X1 is 3,93,000. This includes goods
of
returned by customers on 31st March, 20X1 to the value of 15,000 for which
no entry has been passed in the books.

2) Purchases include furniture purchased on 1st January, 20X1 for 10,000.

3) Depreciation should be provided on furniture at 10% per annum.
4) The loan account from Dena bank in the books of Ganguli appears as follows:
Date Particulars Date Particulars
31.03.20X1 To Balance b/d| 1,00,000 01.04.20X0 By Balance b/d 50,000
31.03.20X1 By Bank A/c 50,000
1,00,000 1,00,000
5) Sundry debtors include 20,000 due from Robert and sundry creditors
include 10,000 due to him.
6) Interest paid include 3,000 paid to Dena bank.
7) Interest received represents 1,000 from the sundry debtors and the balance
on investments and deposits.
8) Provide for interest payable to Dena bank and for interest receivable on
investments and deposits.
9) Make provision for doubtful debts at 5% on the balance under sundry debtors.
No such provision need to be made for the deposits.
(ICAI SM)
Sol. In the books of Ganguli
Trading and Profit & Loss Account for the year ended 31-3-20X1
Particulars Particulars
To Opening stock 2,34,000 By Sales 14,48,000
To Purchases 12,15,500 Less: Returns (58,000) 13,90,000
Less: Transfer to (10,000) Educatio By Closing stock 3,93,000
Developing
furniture A/c
Less: Returns (29,000) 11,76,500
To Carriage 93,000
inwards
To Gross profit c/d 2,79,500
17,83,000 17,83,000
To Salaries 46,500 By Gross profit b/d 2,79,500
To Rent 28,500 By Interest 17,250
To Advertisement 56,000 By Discount received 14,950
To Printing & 17,000
stationery
To Interest 7,500
To Discount 37,700
allowed
To General 19,600
expenses
To Travelling 11,650
expenses
To Fire insurance 3,000
premium
To Postage & 4,350
telegrams
To Provision for 4,750
doubtful debts
(W.N.)

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To Depreciation 1,150
on furniture
To Audit fees 3,500
To Capital A/c 70,500
(Net profit
transferred)
3,11,700 3,11,700

Balance Sheet as on 31-3-20X1

Liabilities Assets
Capital account: Furniture 9,000
Balance on 1-4-XO 5,40,500 Additions during the 10,000
Add: Net profit 70,500| year 19,000
6,11,000| (1,150) 17,850
Less: Drawings 5,61,000| Less: Depreciation
(50,000)|
Loan from Dena Bank Ltd. 1,00,000| Investments 25,000|
|Insurance accrued on bank 3,000| Deposits 1,50,000
|loan (W.N.2) Interest accrued on 10,000
Sundry creditors 64,000 investment & deposits
(W.N.3)
Stock in trade 3,93,000|
Sundry debtors
95,000
Less: Provision (4,750)
90,250
Cash with Traders Bank 40,000
Ltd.
Cash in hand 1,900
7,28,000| 7,28,000

Working Notes:

3) Calculation of provision for doubtful debts:

Sundry debtors as per trial balance ion Academy 1,20,000

Less: Sales returns not recordedping Concepts (15,000)
1,05,000
Less: Cancellation against sundry creditors (10.000]
Adjusted balance of sundry debtors 95.000
Provision for doubtful debts @ 5% 4,750

2) Accrued interest on bank loan:

Annual interest @12% 6,000
Less: Interest paid to Dena bank (3,000)
Accrued interest 3,000
3)
Interest accrued on investments and deposits:
Annual interest on investments @ 5% 1,250
Annual interest on deposits @ 10% 15,000
16,250
Less: Interest received on investments and deposits (6,250)
Accrued interest 10,000

16. Sengupta & Co. employs a team of eight workers who were paid 30,000 per month
each in the year ending 31st December, 20X0. At the start of 20X1, the company raised
salaries by 10% to 33,000 per month each.
On July 1, 20X1 the company hired two trainees at salary of 21,000 per month each.
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The work force is paid salary on the first working day of every month, one month in
arrears, so that the employees receive their salary for January on the first working day
of February etc.
You are required to calculate:
i) Amount of salaries which would be charged to the profit and loss for the year
ended 31st December, 20X1.
ii) Amount actually paid as salaries during 20X1.
iii) Outstanding Salaries as on 31st December, 20X1. (ICAISM)
Sol. i) Salaries to be charged to profit and loss account for the vear ended 31st
December, 20X1:
Salaries of 8 employees for full year @ 33,000 per month each 31,68,000
Salaries of 2 trainees for 6 months @I 21,000 per month 2,52,000
34,20,000
ii) Salaries actually paid in 20X1
December, 20X0 salaries paid in January, 20X1 (8 x 30,000) 2,40,000
Salaries of 8 employees for January to November, 20X1 paid in
February-December, 20X1 @33,000 for 11 months 29,04,000
Salaries of 2 trainees for July to November paid in August
December @ 21,000 for 5 months 2,10,000
33,54,000
iii) Qutstanding salaries as at 31st December, 20X1
8 employees @33,000 each for 1 month 2,64,000
2 trainees @ 21,000 each for 1 month 42,000
3,06,000
17. You are required, prepare a Trading and Profit and Loss Account for the year ending
31st March, 20X1 and a Balance Sheet as on that date from the Trial Balance given
below:
Particulars Uooaoi Aaae particulars
Debit Balance:
Trade receivables 3,50,000 Salaries 2,20,000
Inventory 1st April, 20X0 5,00,000 Purchases 12,50,00
Cash in Hand 5,60,000 Plant andMachinery 15,70,000
Wages 3,00,000 Credit Balance:
Bad Debts 50,000 Capital 25,00,000

Furniture and Fixtures 1,50,000| Trade payables 9,00,000

Depreciation 1,50,000Sales 17,00,000o|
On 31st March, 20X1 the Inventory was valued at 10,00,000. (ICAI SM)

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Sol. Trading and Profit and Loss Account for the year ending 31st March, 20X1
Particulars Particulars
To Opening Inventory 5,00,000 By Sales 17,00,000
To Purchases 12,50,000 By Closing Inventory 10,00,000
To Wages 3,00,000
To Gross Profit 6,50,000
27,00,000 27,00,000
To Bad Debts 50,000 By Gross Profit 6,50,000
To Depreciation 1,50,000
To Salaries 2,20,000
To Net Profit transferred. 2,30,000
to Capital A/c
6,50,000 6,50,000

Balance Sheet as at 31st March, 20X1

Liabilities Assets
Trade payables 9,00,000 Cash in Hand 5,60,000
Capital Trade receivables 3,50,000
Previous Balance 25,00,000 Closing Inventory 10,00,000 19,10,000
Add: Net Profit 2,30,000 27,30,000
Furniture & Fixtures 1,50,000
Plant & Machinery 17,20,000
15,70,000
36,30,000 36,30,000
18. Mr. Kotriwal is engaged in business of selling magazines. Several of his customers pay
money in advance for subscribing his magazines. Information related to year ended
31st March 20X1 has been given below: Concep
On 1.4.20X0 he had a balance of 2,00,000 advance from customers of which 1,50,000

is related to year 20X0-X1 while remaining pertains to year 20X1-X2. During the year
20X0-X1 he made cash sales of 5,00, 000. You are required to compute:
i) Total income for the year 20X0-X1.
ii) Total money received during the year if the closing balance in advance from
customers account is 1,70,000. (ICAI SM)

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Sol.
) Computation of Income for the year 20X0-X1:
Particulars
Money received during the year related to 20X0-X1 5,00,000
Add: Money received in advance during previous years 1,50,000
Total income of the year 20X0-X1 6,50,000
ii)
Advance from Customers A/c
Date Particulars Date Particulars
To Sales A/c 1,50,000| 14.20X0 By Balance b/d 2,00,000
(Advance related By Bank A/c 1,20,000
to current year (Balancing
transferred to Figure)
sales)
31.3.X1 To Balance c/d 1,70,000
3,20,000 3,20,000
So, total money received during the year is:

Particulars
Cash Sales during the year 5,00,000
Add: Advance received during the year 1,20,000|
Total money received during the year 6,20,000
19. Mr. Birla is a proprietor engaged in business of trading electronics. An excerpt from his
Trading & P&L account is as follows:
ing Education Academy
Trading and P&LA/c for the year ended 31st March, 20X0
Particulars Particulars
To Cost of Goods Sold 45,00,000| By Sales
To Gross Profit c/d D
F
To Rent A/c 26,00,000 By Gross Profit b/d D

To Office Expenses 13,00,000By Miscellaneous Income E

To Selling Expenses B

To Commission to Manager (on Net 2,00,000

Profit before charging such
commission)
To Net Profit A
G 60,00,000
Commission is charged at the rate of 10%. Selling Expenses amount to 1% of total sales.
You are required to compute the missing figures.
[ICAI SM/ Past Exam Nov 2018(Modified)]

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Sol. A)Computation of Net Profit:

Commission Manager = Rate of Commission x Net Profit before charging such
commission
So,Commission to manager = 10/100 X Net Profit before charging such commission
=> =
2,00,000 10/100 X Net Profit before charging such commission
=> Net Profit before charging such commission = 20,00,000
-
=> Net Profit (A) = (20,00,000 2,00,000) =
18,00,000
B) Computation of Selling Expenses:
Total income appearing in P&L A/c =60,00,000
Total expenses other than selling expenses =* (26,00,000 + 13,00,000 + 2,00,000)
={41,00,000
So

Selling Expenses + Remaining Expenses + Net Profit = Total Income

=> Selling Expenses =*60,00,000 - * 41,00,000 - * 18,00,000

=> Selling Expenses =1,00,000

C)
Computation of Sales:
We have been given selling expenses amount to 1% of Sales
= Selling Expenses y 1,00,000 x 100 =
So, Sales 100= 100,00,000
1 1
D)
Computation of Gross Profit:
Trading Account
Particulars Particulars
To COGS Groomn945,00,000] By Sales (from C above) 100,00,000
To Gross Profit 5.00,000 cepts
(Balancing Figure)
Total (F) 100,00,000 Total (F) 100,00,000
= -
E) Miscellaneous Income Total Income in P&L Gross Profit
=* (60,00,000 - 55,00,000)
=5,00,000
F=100,00,000 (As computed in D above)
G=60,00,000 (Total of bothsides of P&L is equal after balancing has been done)

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20. The following is the trial balance of Hari as at 31st December, 20X0:
Particulars Dr. Cr.

Hari's capital account 76,690

Stock 1st January, 20X0 46,800
Sales 3,89,600
Returns inward 8,600
Purchases 3,21,700
Returns outward 5,800
Carriage inwards 19,600
Rent & taxes 4,700
Salaries & wages 9,300
Sundry debtors 24,000
Sundry creditors 14,800
Bank loan @ 14% p.a. 20,000
Bank interest 1,100
Printing and stationary expenses 14,400
Bank balance 8,000
Discount earned 4,440
Furniture & fittings 5,000
Discount allowed 1,800
General expenses 11,450
Insurance 1,300
Postage & telegram expenses 2,330
Cash balance 380
Grooming Education Academy
Travelling expenses Pioneer in Developing Concept 870
Drawings 30,000
5,11,330 5,11,330
The following adjustments are to be made:
1) Included amongst thedebtors is 3,000 due from Ram and included among the
creditors 1,000 due to him.
2) Provision for bad and doubtful debts be created at 5% and for discount @ 2%
on sundry debtors.

3) Depreciation on furniture & fittings @ 10% shall be written off.

4) Personal purchases of Hari amounting to 600 had been recorded in the
purchase day book.
5) Interest on bank loan shall be provided for the whole year.
6) A quarter of the amount of printing and stationary expenses is to be carried
forward to the next year.
7) Credit purchase invoice amounting to 400 had been omitted from the books.
8) Stock on 31.12.20X0 was 78,600.
Prepare i) Trading & profit and loss account for the year ended 31.12.20X0 and (i)
Balance sheet as on 31st December, 20X0. (RTP Nov 2018)
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Sol. Trading and Profit and Loss Account of Mr. Hari

for the year ended 31st December, 20X0
Particulars Particulars
|To Opening stock 46,800| By Sales 3,89,600
To Purchases 3,21,700 Less: Returns 8,600 3,81,000
Add: Omitted 400 By Closing stock 78,600
Invoice
3,22,100
Less: Returns 5,800
3,16,300
Less: Drawings 600 3,15,700
To Carriage 19,600
To Gross profit c/d 77,500
4,59,600 4,59,600
To Rent and taxes 4,700 |By Gross profit b/d 77,500
To Salaries and wages 9,300 By Discount 4,440
To Bank interest 1,100|
Add: Due 1,700 2,800
To Printing and 14,400
stationary
Less: Prepaid (1/4) 3,600| 10,800
To Discount allowed 1,800
To General expenses 11,450
To Insurance 1,300
To Postage & telegram 2,330
expenses
To Travelling expenses 870
To Provision for bad 1,150
debts [WN (ii)] Grooming
To Provision for Eiucatig3cademy
437
Pioneei evelopin
discount on debtors
[WN (ii)]
To Depreciation on 500
Furniture & fittings
To Net profit 34,503
81,940 81,940

Balance Sheet of Hari as at 31st December, 20X0

Liabilities Assets
Capital 76,690 Furniture & fittings 5,000
Add: Net profit 34,503 Less: Depreciation 500 4,500
1,11,193 Sundry debtors (W.N.1) 23,000
Less: Drawings: Less: Provision for bad
Cash 30,000 & doubtful debts (W.N.2) 1,150
Goods 600 30,600 80,593 21,850
Bank loan 20,000 Less: Provision for
Bank interest due 1,700 discount(W.N.2) 437 21,413
Sundry creditors (W.N.3) 14,200 Stock 78,600
Prepaid expenses:
Printing & stationary 3,600
Bank balance 8,000
Cash balance 380
1,16,493 1,16,493

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Working Notes:
1) Sundry debtors:
Balance as per trial balance 24,000
Less: Due to Ram 1,000
23,000

2) Provision for bad & doubtful debts:

@ 5% on 23,000 I1,150
Provision for discount:
2% on 21,850 (23,000 -1,150) { 437

3) Sundry creditors
Balance as per trial balance 14,800
Less: Set off in respect of Ram 1,000
13,800
Add: Purchase invoice omitted 400
14,200
21. The following is the Trial Balance of T on 31st March, 2OX1:
Particulars Dr. Cr.

Capital 6,00,000
Drawings Grooming Education Academy 70,000
Fixed Assets (Opening) ioneer in Developing Concepts 1,40,000
Fixed Assets (Additions 01.10.20X1) 2,00,000
Opening Stock 60,000
Purchases 16,00,000
Purchases Returns 69,000
Sales 22,00,000
Sales Returns 99,000
Debtors 2,50,000
Creditors 2,20,000
Expenses 50,000
Fixed Deposit with Bank 2,00,000
Interest on Fixed Deposit 20,000
Cash 8,000
Suspense A/c 2,000
Depreciation 14,000
Rent (17 months up to 31.8.20X1) 17,000
Investments 12% (01.8.20X0) 2,50,000
Bank Balance 1,69,000
31,19,000 31,19,000

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Stock on 31s March, 20X1 was valued at 1,00,000. Depreciation is to be provided at

10% per annum on fixed assets purchased during the year. A scrutiny of the books of
account revealed the following matters:
i) 20,000 drawn from bank was debited to Drawings account, but out of this
amount withdrawn12,000 was used in the business for day-to-day expenses.
ii) Purchase of goods worth 16,000 was not recorded in the books of account up
to 31.03.20X1, but the goods were included in stock.
iii) Purchase returns of 1,000 was recorded in Sales Return Journal and the
amount was correctly posted to the Party's A/c on the correct side.
iv) Expenses include 6,000 in respect of the period after 31st March,20X1.
Give the necessary journal entries in respect of () to (iv) and prepare the Final Accounts
for the year ended 31st March, 20X1. (RTP May 2019)
Sol. Journal Entries
[Link].
Particulars Dr. () Cr. ()
i) Expenses A/c Dr 12,000
To Drawings 12,000
(Entry for the amount wrongly debited to the latter
A/c, now corrected)
i) Purchase A/c Dr 16,000
To Creditors 16,000
(Entry for purchases not recorded)
ii) Suspense A/c Dr 2,000
To Purchase Returns 1,000
To Sales Returns 1,000
(Rectification entry for amount wrongly entered in
Sales Journal)
iv) Prepaid Expenses A/c Dr. 6,000
To Expenses 6,000
(Prepaid expenses adjusted)

Grooming Education Agademy.

Pioneer in Trading and Profit and Loss
Account of T
Dr. for the year ending 31st March, 20X1 Cr.
Particulars Particulars
To Opening Stock 60,000 By Sales 22,00,000
To Purchases 16,00,000 Less: Sales Return
Add: Amount not 16,000 (99,000- 1,000) 98,000 21,02,000
recorded
16,16,000 By Closing Stock 1,00,000
| Less: Purchases Returns
(69,000+1, 000) 70,000 15,46,000
To Gross Profit c/d 5,96,000
22,02,000 22,02,000
- By Gross Profit
To Expenses (50,000 56,000 5,96,000
6,000 + 12,000)
To Rent (17,000 - 5,000) 12,000| By Interest on Fixed Deposit 20,000
To Depreciation 14,000 By Interest on Investments 20,000
Add: Further 10,000 24,000|(R2,50,000x 12/100x8/12)
Depreciation
(R2,00,000×10/100x6/12)

To Net Profit 5,44,000

6,36,000 6,36,000

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Balance Sheet as on 31st March, 20X1

Liabilities Assets
Capital 6,00,000 Fixed Assets 1,40,000
Add: Profit 5,44,000 Additions 2,00,000
Less: Drawings 3,40,000
(70,000 - 12,000) 58,000 10,86,000 Less: Depreciation 10,000 3,30,000
Creditors 2,20,000 Stock 1,00,000
Add: Purchases Debtors 2,50,000|
not recorded 16,000 2,36,000 Investments 2,50,000
Overdraft 8,000 Interest accrued 20,000
Bank fixed deposit 2,00,000
Prepaid Expenses 11,000
(6000+5000)
Bank 1,69,000
13,30,000 13,30,000
22. The following are the balances extracted from the books of Shri Raghuram as on
31.03.20X1, who carries on business under the name and style of M/s Raghuram and
Associates at Chennai:
Particulars Debit () Credit ()
Capital A/C 14,11,400
Purchases 12,00,000
Purchase Returns 18,000
Sales 15,00,000
Sales Returns 24,000
Freight Inwards 62,000
Carriage Outwards 8,500
Rent of go-down 55,000
Rates and Taxes 24,000
Salaries 72,000
Discount allowed Grooming Education Academy 7,500
Discount received Pionecin Developing Concepts 12,000
Drawings 20,000
Printing and Stationery 6,000
Insurance premium 48,000
Electricity charges 14,000
General expenses 11,000
Bank charges 3,800
Bad debts 12,200
Repairs of Motor vehicle 13,000
Interest on loan 4,400
Provision for Bad-debts 10,000
Loan from Mr. Rajan 60,000
Sundry creditors 62,000
Motor vehicles 1,00,000
Land and Buildings 5,00,000
Office equipment 2,00,000
Furniture and Fixtures 50,000
Stock as on 31.03.20X0 3,20,000
Sundry debtors 2,80,000
Cash at Bank 22,000
Cash in Hand 16,000
Total 30,73,40o 30,73,400

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Prepare Trading and Profit and Loss Account for the year ended 31.03.20X1 and the
Balance Sheet as at that date after making provision for the following:
a) Depreciate Building by 5%, Furniture and Fixtures by 10%, Office Equipment by
15% and Motor Car by 20%.
b) Value of stock at the close of the year was 4,10,000.
c) One month rent for go-down is outstanding.
d) Interest on loan from Rajan is payable @ 10% per annum. This loan was taken on
01.07.2 OX0
e) Reserve for bad debts is to be maintained at 5% of Sundry debtors.
Insurance premium includes 42,000 paid towards proprietor's life insurance
policy and the balance of the insurance charges cover the period from 01.04.20X0
to 30.06.20X1. (RTP May 2020/ Past Exam May 2018)
Sol. M/s Raghuram & Associates
Trading Account for the year ended
Dr. 31st March 20X1 Cr.
Particulars Amount Particulars Amount
() ()
To Opening Stock 3,20,000 By
Sales 15,00,000
To Purchases 12,00,000 Less: Sales Returns (24,000) 14,76,000
Less: Purchases (18,0001 11,82,000By Closing Stock 4,10,000
Returns
To Freight 62,000
To Gross Profit c/d 3,22,000
18,86,000 18,86,000

Profit and Loss Account

Dr. for the year ended 31st March 20X1 Cr.
Particulars Amount Particulars Amount
Srooming Educ ) em ()
To Salaries 72,000| By Gross profit b/d 3,22,000
To Rent for go-down 55,000
Add: Outstanding 5,000 60,000 By Discount received 12,000
To Provision for Doubtful Debts
(W.N.4) 16,200
To Rates and Taxes 24,000
To Discount Allowed 7,500
To Carriage outwards 8,500
To Printing and stationery 6,000
To Electricity charges 14,000
To Insurance premium (W.N. 1) 4,800
To Depreciation (W.N. 2) 80,000
To General expenses 11,000
To Bank Charges 3,800
To Interest on loan 4,400
Add: Outstanding (W.N. 3) 00 4,500
To Motor car expenses (Repairs) 13,000
To Net Profit transferred to
Capital A/c 8,700
3,34,000 3,34,000o

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Balance Sheet ofM/s Raghuram & Associates as at 31t March 20X1

Liabilities Amount Assets Amount
Capital 14,11,400 Land & Building 5,00,000
|Add: Net Profit 8,700 Less: Depreciation (25,000) 4,75,000
Less: Drawings (20,000) Motor Vehicles 1,00,000
Less: Proprietor's Less: Depreciation (20,000) 80,000
Insurance Premium (42,000)| 13,58,100
Loan from Rajan 60,000 Office equipment 2,00,000
Add: Outstanding 100 60,100Less: Depreciation (30,.000) 1,70,000
Interest
Sundry Creditors 62,000 Furniture & Fixture 50,000
Outstanding rent 5,000|Less: Depreciation (5.0001 45,000
Stock in Trade 4,10,000
Sundry Debtors 2,80,000
Less: Provision for doubtful (14.000) 2,66,000
debts
Cash at hand 22,000
|Cash inbank 16,000
Prepaid Insurance (WN 1) 1,200

14,85,200 14,85,200

Working Notes:
1) Insurance premium
Particulars
Insurance premium as given in trial balance 48,000
Less: Personal premium (42,000)
Less: Prepaid for 3 months ( 6,000x3/15) (1,200)
Transfer to Profit and Loss A/Cny
G
4,800

2) Depreciation

Building @ 5% on 5,00,000 25,000

Motor Vehicles @ 20% on 1,00,000 20,000
Furniture & Fittings @ 10% on 50,000 5,000
Office Equipment @ 15% on 2,00,000 30,000
80,000

3) Interest on Loan
Interest on Loan (R60,000 x 10% x 9/12) 4,500
Less: Interest as per Trial Balance (4,400)
Amount (Outstanding) 100

4) Dr. Provision for Bad debts A/c Cr

Cr.
Particulars Amount Particulars Amount
() ()
To bad debts a/c 12,200 By
balance b/d 10,000|
To balance c/d 14,000| By P&L A/c 16,200|
(5% of 2,80,000)
26,200 26,200

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23. Following particulars are extracted from the books of Mr. Sandeep for the year ended 31st
December, 20X0.
Particulars JAmount Particulars Amount
Debit Balances: Credit Balances:
Cash in hand 1,500 Capital 16,000
Purchase 12,000 Bank overdraft 2,000
Sales return 1,000 Sales 9,000
Salaries 2,500 Purchase return 2,000
Tax and Insurance 500 Provision for Bad debts 1,000
Bad debts 500 Creditors 2,000
Debtors 5,000 Commission 500
Investments 4,000 Bills payable 2,500
Opening stock 1,400
Drawings 2,000
Furniture 1,600
Bills receivables 3,000
35,000 35,000

Other information:
i) Closing stock was valued at 4,500
i) Salary of 100 and Tax ofI 200 are outstanding whereas insurance 50 is prepaid.
iii) Commission received in advance is 100.
iv) Interest accrued on investment is 210
v) Interest on overdraft is unpaid 300
vi) Reserve for bad debts is to be kept at 1,000
vii) Depreciation on furniture is to be charged @ 10%
You are required to prepare the final accounts after making above adjustments.
Grooing Eaucation Academy
(Past Exam May 2019)
Ans. Trading & Profit and Loss Account of
Mr. Sandeep for the year ended 31" December, 20X0
Particulars Particulars
|To Opening Stock 1,400 By Sales 9,000
To Purchase 12,000 Less: Sales return (1.0001 8,000
Less: Purchase return (2.000) 10,000 By Closing stock 4,500
To Gross Profit 1100
12,500 12,500
By Gross Profit 1,100|

By Commission 500
Less: Advance (1001 400|
To Salary 2,500
Add: Outstanding salary 100 2,600

To Tax & Insurance 500 By Accrued interest 210

Add: Outstanding 200 By Net Loss 2,500
Prepaid insurance (50) 650
To Bad debt 500
Opening provision (1,000)
Closing provision 1.000 500
To Interest on overdraft 300
To Depreciation on furniture 160
4,210 4,210

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Balance Sheet of Mr. Sandeep as on 31.3.20X0

Particulars Particulars
Capital 16,000 By Furniture 1,600
Less: drawing (2,000) Less: Depreciation (1601 1,440
Net loss (2,5001 11,500 Bill receivable 3,000
Bank overdraft 2,000 Investment 4,000
Add: interest 300 2,300 Add: accrued interest 210 4,210
Creditors 2,000 Debtors 5,000
Bills payable 2,500 Less: Provision on bad 1,000) 4,000
Outstanding expenses: debts
Salary 100 Closing stock 4,500
Tax 200 300 Cash in hand 1,500
Commission received in 100| Prepaid insurance 50
advance
18,700 18,700
24. The trial balance of Kumar as at 31st December, 20XO is as follows:
Particulars Dr. Cr.
()
Kumar's capital account 38,345
Stock 1st January, 20X0 23,400
Sales 1,94,800
Returns inward 4,300
Purchases 1,60,850
Returns outward 2,900
Carriage inwards 9,800
Rent & taxes 2,350
Salaries & wages
Grooming Education Academny
Pioneer in Developing Concepts 4,650
Sundry debtors 12,000
Sundry creditors 7,400
Bank loan @ 14% p.a. 10,000
Bank interest 550
Printing and stationary expenses 7,200
Bank balance 4,000
Discount earned 2,220
Furniture & fittings 2,500
Discount allowed 900
General expenses 5,725
Insurance 650
Postage & telegram expenses 1,165
Cash balance 190
Travelling expenses 435
Drawings 15,000
2,55,665 2,55,665

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The following adjustments are to be made:

1) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
2) Personal purchases of Kumar amounting to 300 had been recorded in the purchase day
book.
3) Depreciation on furniture & fittings @ 10% shall be written off.
4) Included amongst the debtors is ? 1,500 due from Dayal and included among the creditors
500 due to him.
5) quarter of the amount of printing and stationary expenses is to be carried forward to
A

the next year.

6) Credit purchase invoice amounting to 200 had been omitted from the books.
7) Stock on 31.12.20X0 was 39,300.
8) Interest on bank loan shall be provided for the whole year.
You are required to prepare Trading & profit and loss account for the year ended 31.12.20X0.
(MTP Oct 2018)

Sol. Trading and Profit and Loss Account of Mr. Kumar

for the year ended 31st December, 20X0
Particulars Particulars
To Opening stock 23,400 By Sales 1,94,800
To Purchases 1,60,850 Less: Returns 4,300 1,90,500
Add: Omitted 200 By Closing stock 39,300
invoice 1,61,050
Less: Returns 2,900
1,58,150
Less: Drawings 300 1,57,850
To Freight & carriage 9,800
To Gross profit c/d 38,750

2,29,800 2,29,800
To Rent and taxes Groorhing Edudatio2,350 JBy
Gross profit b/d 38,750
To Salaries and wages in Dese 4,650 By Discount 2,220
To Bank interest 550
Add: Due 850 1,400
To Printing and stationary 7,200
Less: Prepaid (1/4) 1,800 5,400
To Discount allowed 900
To General expenses 5,725
To Insurance 650
To Postage & telegram 1,165
expenses
To Travelling expenses 435
To Provision for bad debts 575
[W.N]
To Provision for discount on 219
debtors [W.N.]
To Depreciation on furniture 250
& fittings
To Net profit 17,251
40,970 40,970
Working Note:
Provision for bad & doubtful debts:
@ 5% on 11,500 575
Provision for discount: -
2% on 10,925 (R11,500 575) 219

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The following is the trial balance of Manan as at 31st March 20X1:

-
25.
Particulars Dr. () Cr. ()
Manan's capital account 1,53,380
Stock 1 April, 20X0 93,600
Sales 7,79,200
Returns inward 17,200
Purchases 6,43,400
Returns outward 11,600
Carriage inwards 39,200
Rent & taxes 9,400
Salaries & wages 18,600
Sundry debtors 48,000
Sundry creditors 29,600
Bank loan @ 14% p.a. 40,000
Bank interest 2,200
Printing and stationery expenses 28,800
Bank balance 16,000
Discount earned 8,880
Furniture & Fittings 10,000
Discount allowed 3,600
General expenses 22,900
Insurance 2,600
Postage & telegram expenses 4,660
Cash balance 760
Travelling expenses 1740
Drawings 60,000
10,22,660 10,22,660

The following adjustments are to be made:

1) Included amongst the debtors is 6,000 due from Rahul and included among the
creditors R 2,000 due to him.
2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
3) Depreciation on furniture &fittings @ 10% shall be written off.
4) Personal purchases of Manan amounting to 1200 had been recorded in the purchase's
day book.
5) Interest on bank loan shall be provided for the whole year.
6) A quarter of the amount of printing and stationary expenses is to be carried forward to
the next year.
7) Credit purchaseinvoice amounting to 800 had been omitted from the books.
8) Stock on 31st March 20X1 was 1,57,200.
Prepare:
i) Trading & Profit and loss account for the year ended 31.3.20X1.
ii) Balance Sheet as on 31st March, 20X1. (RTP MAY 2021)

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Sol. Trading and Profit and Loss Account of Mr. Manan

For the year ended 31st March, 20X1
Particulars Particulars
To Opening stock 93,600 By Sales 7,79,200
To Purchases 6,43,400 Less: Returns 17200 7,62,000
Add: Omitted invoice 800 By Closing Stock 1,57,200
6,44,200
Less: Returns 1600
6,32,600
Less: Drawings 1.200 6,31,400
To Carriage 39,200
To Gross profit c/d 1,55,000
9,19,200 9,19,200
To Rent and taxes 9,400| By Gross Profit b/d 1,55,000
ioe and wwages
To Salaries 18,600 [Link]
By 8,880
To Bankinterest 2,200
Add: Due 3.400 5,600
To Printing and stationery 28,800
Less: Prepaid (1/4) 7.200 21,600
To Discount allowed 3,600
To General expenses 22,900
To Insurance 2,600
To Postage & telegram 4,660
expenses
To Travelling expenses 1,740
To Provision for bad debts 2,300
[W.N.(2)]
To Provision for discount 874
on debtors [W.N.(2)]
To Depreciation on 1,000
furniture &fittings
To Net Profit 69,006
1,63,880 1,63,880

Balance Sheet of Manan as at 31st March, 20X1

Liabilities Assets (3)
Capital 1,53,380 Furniture & fittings 10,000
Add: Net Profit 69.006 Less: Depreciation 1.000 9,000
2,22,386 46,000
Sundry debtors (W.N.1)
Less: Drawings; GTOOing EdUcationLess: Provision for bad & doubtful
Pioneer
debts (W.N.2) 2.300
Cash 60,000 43,700
Goods 1200 (61,200) 1,61,186 Less: Provision for discount
(W.N.2) (874) 42,826
Bank loan 40,000 Stock 1,57,200
Bank interest due 3,400 Prepaid expenses:
Sundry creditors (W.N.3) 28,400 Printing & Stationary 7,200
Bank balance 16,000
Cash balance 760
2,32,986 2,32,986

Working Notes:
1) Sundry debtors ()
Balance as per trial balance 48,000
Less: Due to Rahul 2,000
46,000
-
2) Provision for bad & doubtful debts:
@ 5% on 46,000 2,300
Provision for discount:
2% on 43,700 (46,000-2,300) 874
3) Sundry creditors
Balance as per trial balance 29,600
Less: Set off in respect of Rahul 2,000
27,600
Add: Purchase invoice omitted 800
28,400

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26. Karuna decided to start business of fashion garments under the name of M/s. Designer Wear
on 1st April, 20X0. She had a saving of about 10,00,000. She invested 3,00,000 out of her
savings and borrowed equal amount from bank. She purchased a commercial space for
5,00,000 and further spent 1,00,000 on its renovation to make it ready for business.
Loan and interest repaid by her in the first year are as follows:
30th June, 20X0 -* 15,000 principal+9,000 interest
-
30th September, 20X0 15,000 principal +8,550 interest
31st December, 20XO -* 15,000 principal +8,100 interest
-
31t March, 20X1 15,000 principal + 7,650 interest.
In view of further capital requirement, she transferred 2,00,000 from her saving bank
account to the bank account of the business. She paid security deposit of ? 7,000 for telephone
connection. Furniture of 10,000 was purchased, All payments were made by cheque and all
receipts in cash were deposited in the bank.
At the end of the year, her business showed the following results:
Particulars Amount Particulars Amount
Total Sales 20,00,000 Total Purchases 17,00,000
Electricity Expenses paid 40,000 Telephone Charges 50,000
Cartage Outwards 60,000 Travelling Expenses 45,000
Entertainment Expenses 5,000 Maintenance Expenses 25,000
Misc. Expenses 15,000 Electricity Expenses Payable 20,000
Other Information:
i) She withdrew 5,000 by cheque each month for her personal expenses.
i) Depreciation on building @ 5% p.a. and oil furniture @ 10% p.a.
iii) Closing stock in hand as on 31st March, 20X1: 5,50,000
Prepare trading account, profit and loss account for the year ended 31-3-20X1 and Balance
Sheet as on that date.
(uly 2021)
Sol. GroonIn the books of M/s Designer wear
Trading and profit & Loss Account (for the year ending 31.03.20X1)
Dr Cr.
Date Particular Amount Date Particular Amount
(

To Purchases 17,00,000 By Sales 20,00,000

To Gross Profit 8.50.000 By Closing stock 5.50.000
25.50,000 25.50,000

To Interest 33,300 By Gross profit 8,50,000

(9,000+8,550+8,100+7,65
0

To Telephone charges 50,000

To Travelling expenses 45,000
To Maintenance expenses 25,000
To Entertainment 5,000
expenses
To Electricity exp. 40,000
Add: outstanding 20.000 60,000
To Carriage outward
To Depreciation
Building 5% 30,000
Furniture 10% 1000 31,000
To Misc. exp. 15,000
To Net profit 5,25,700

8,50.000 8.50.000

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Balance Sheet as on 31t March, 20X1

Liabilities Assets
Capital 3,00,000 Building 6,00,000
Further Capital 2,00,000 Less: Dep. 30.000 5,70,000
Less: Drawings (60,000) Furniture 10,000
Add: Net profit 5.25.700 9,65,700 Less: Dep. 1.000 9,000
Security deposit 7,000
- telephone
Bank 89,700
Bank Loan
3,00,000 Closing Stock 5.50,000
Less: repayment 60,000 2,40,000

Outstanding 20,000
electricity exp.
12,25,7 00 12,25,700

Working note:
Bank Account
Dr. Cr.
Particulars Particulars
To Capital 3,00,000 By Building 6,00,000
To Further capital 2,00,000 By Furniture 10,000
To Bank loan 3,00,000 By Bank loan repaid 60,000
To Sales 20,00,000 By Interest 33,300
By Security deposit 7,000
By Drawings 60,000
By Purchase 17,00,000
By Telephone charges 50,000
By Travelling expenses 45,000
By Maintenance 25,000
expenses
By Electricity 40,000
By Carriage outward 60,000
By Misc. expenses 15,000
Grooning Education By Balance c/d 89,700
oneer in Developirg Con

28.00,000 28,00,000
27. The balance sheet of Mittal on 1st |anuary, 20X0 was as follows:
Liabilities Amount Assets Amount
Trade Payables 16,00,000 Plant & Machinery 31,00,000
Expenses Payables 2,50,000 Furniture Fixtures &
4,00,000
Capital 51,00,000 Trade Receivables 14,50,000
Cash at Bank 7,00,000
Inventories 13,00,000
69,50,000 69,50,000
During 20X0, his Profit and Loss account revealed a net profit of 15,10,000.
This was after allowing for the following:
i) Interest on Capital @ 6% p.a.
ii) Depreciation on plant and Machinery @10% and furniture and Fixtures @5%.
iii) A Provision for Doubtful debts @ 5% of the trade receivables as at 31st December
20X0.
But while preparing the profit and loss account he had forgotten to provide for (1)
outstanding expenses totaling 1,85,000 and (2) prepaid insurance to the extent of R25,000.
His current assets and liabilities on 31t December, 20X0 were. Trade receivables ?21,00,000:
Cash at Bank 75,20,000 and Trade Payables 13,84,000. During the year he withdrew
t6,20,000 for domestic use.
Closing inventories is equal to net trade receivables at the Year-end.
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You are required Draw up revised Profit and loss Account and Balance Sheet at the end of
the Year.
(Nov. 2019)
Sol. Profit and Loss Account (Revised)
As on 31 Dec. 20XO
Particulars Amount Particulars Particulars Amount
() ()
To Outstanding 1,85,000 By Net profit 15,10,000
exp. By prepaid exp. 25,000
To Net profit 13,50,000
15,35,000 15,35.000

Balance Sheet of Mittal

As on 31st Dec. 20X0

Liabilities Amount Assets Amount

)
Capital 51,00,000 Cash at Bank 5,20,000
Add: N/P 13,50,000 Trade receivables 21,00,000
Add: Int. on capital 3,06,000 Less: PDD: 1.05,000) 19,95,000
Less: Drawings [6.20.000) 61,36,000 Inventory 19,95,000
Furniture and Fix.: 4,00,000
Trade Payable 13,84,000 Less: Dep. (20,000) 3,80,000
Expense Payable 1,85,000 Plant and Mach. 31,00,000
Less: Dep. (3.10.0001 27,90,000
Prepaid Insurance 25,000

77.05,000 77.05.000

Grooming Education Academy

Pioneer in Developing Concepts

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Not for Profit Organisation

Assignment
Questions and Solutions
No.
1 Smith Library Society showed the following position on 31st March, 20X0:
Balance Sheet as on 31st March, 20X0
Liabilities Assets
Capital fund 7,93,000 Electrical fittings 1,50,000
Expenses payable 7,000 Furniture 0,000
Books 4,00,000
Investment in securities 1,50),000
Cash at bank 25,000
Cash in hand 25,000
8,00,000 8,00,000
The receipts and payment account for the year ended on 31st March, 20X1 is given below:

Dr. Cr.

Receipt Payment
To Balance b/d By Electric charges 7,200
Cash at bank 25,000 By Postage and 5,000
stationery
Cash in hand 25,000 50,000 By Telephone charges 5,000
To Entrance fee 30,000 By Books purchased 60,000
Groomirg Educatlc cadem
2,00,000 By Outstanding expenses 7,000
To Membership subscription
paid
1,500 By
Rent 88,000
To Sale proceeds of old papers
To Hire of lecture hall 20,000 | By Investment in 40,000
securities
To Interest on securities 8,000| By Salaries 66,000
By Balance c/d
Cash at bank 20,000
Cash in hand 11,300
3,09,500 3,09,500
Youare required to prepare income and expenditure account for the year ended 31st March,
20X1 and a balance sheet as at 31st, March, 20X1 after making the following adjustments:
a) Membership subscription included 10,000 received in advance.
b) Provide for outstanding rent 4,000 and salaries 3,000.
c) Books to be depreciated @ 10% including additions. Electrical fittings and furniture
are also to be depreciated at the same rate.
d) 75% of the entrance fees is to be capitalized.
e) Interest on securities is to be calculated@ 5% per annum including purchases made on
1.10.20XO for 40,000. [May, 2018 RTP/Nov., 2018 MTP/May 2002]

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Sol. Smith Library Society

Income and Expenditure A/c
Dr. for the year ended 31st March, 20X1 Cr.
Expenditure Income
To Electric charges 7,200 By Entrance fee (25% of 30,000) 7,500

To Postage and 5,000 By Membership subscription

stationery 2,00,000
To Telephone 5,000 Less: Received in (10,000) 1,90,000
charges advance

To Rent 88,000 By Sale proceeds of 1500

Add: Outstanding 4,000 92,000 old papers
By Hire of lecture hall 20,000
To Salaries 66,000
Add: Outstanding 3,000 69,000 By Interest on 8,000
securities
Add: Accrued interest 500 8,500
(WN1)
To Depreciation
Electrical fittings 15,000
(1,50,000x0.10)
Furniture 5,000 By Deficit - excess of expenditure
(50,000x0.10) over income (Balancing figure)
Books 46,000 16,700
(4,60,000x0.10) 66,000

2,44,200 2,44,200
Balance Sheet of Smith Library Society
as on 31st March, 20X1
Liabilities Assets
Capital fund 7,93,000ng Eauca Electrical fittings 1,50,000
Add: Entrance fees 22,500 Less: Depreciation (15,000) 1,35,000
x
(R30,000 0.75)
8,15,500
Less: Deficit (16,700) 7,98,800 Furniture 50,000
Less: Depreciation (5,000) 45,000
Outstanding expenses:
Rent 4,000 Books 4,60,000
(4,00,000+60,00)
Salaries 3,000 7,000 Less: Depreciation (46000) 4,14,000
Membership subscription in advance 10,000 Securities 1,90,000
(1,50,000+40,00)
Add: Accrued 500 1,90,500
interest
Cash at bank 20,000
Cash in hand 11,300
8,15,800 8,15,800

Working Note: (1) nterest on securities

Particulars
Interest @ 5% per annum on 1,50,000 for full year ( 1,50,000x5/100) 7,500
Interest @5% per annum on 40,000 for half year ( 1,000 8,500
40,000×5/100x 1/2)
Less: Interest received during the year (8,000)
Accrued interest 500

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2. The following information of M/s TT Club are related for the year ended 31st March, 20X1:

Balances As on 1/4/20X0 As on 31/3/2 0X1

Stock of sports material 75,000 1,12,500
Amount due for sports material 67,500 97,500
Subscription due 11,250 16,500
Subscription received in advance 9,000 5,250

1) Subscriptionreceived during the year 3,75,000.

2) Payments for sports material during the year 2,25,000.
You are required to:
a) Calculate the amount of subscription and sports material that will appear in income
and expenditure account for the year ended 31.03.20X1 and
b) Also show how these items would appear in the Balance Sheet as on 31.03.20X1.
[Nov., 2018 RTP/ Nov.,2018 MTP/Nov. 2020 RTP/MTP Nov. 2021]
Sol. a
Subscription A/c
Dr. for the year ended 31st March, 20X1 Cr.

Particulars Particulars
To Outstanding subscription 11,250 By Advance subscription 9,000
To Income and expenditure A/c 3,84,000 By BankA/c 3,75,000
(Balancing figure)
To Advance subscription 5,250 By Outstanding subscription 16,500
4,00,500 4,00,500
Sports Material A/c
Dr. Gr
for the year ended 31st March, 20X1 Cr.
Particulars Particulars
To Balance b/d By Balance b/d
Sports material 75,000 Amount due for 67,500
Sports Material
To BankA/c 2,25,000 By Income and expenditure 2,17,500
A/c (Balancing figure)
To Balance c/d By Balance c/d
Amount due for Sports 97,500 Sports material 1,12,500
material
3,97,500 3,97,500

Balance Sheet (An extract)

As on 31st March, 20X1
Liabilities Assets
Advance subscription 5,250 Outstanding subscription 16,500

Amount due for Sports material 97,500 Stock of sports material 1,12,500

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3. (Good) The receipts and payments account of Trust well Club prepared on 31st March, 20X1 is
as follows:
Dr. Cr.

Receipts Payments
To Balance b/d 450 By Expenses (including 6,300
Payment for sports
material 2,700)
To Annual income from
4,590
Subscription
Add: Outstanding of last year 180 By Loss on sale of 180
received this year furniture (cost price
450)
Less: Prepaid of last year (90) 4,680
To Other fees By Balance
1,800 c/d 90,400
To Donation for Building 90,000

96,930 96,930
Additional information:
1) Trust well club had balances as on1.4.2 OX0:
Furniture 1,800; Investment at 5% 27,000; Sports material 6,660.
2) Balances as on31.3.20X1:
Subscription receivable 270; Subscription received in advance 90; Stock of sports
material 1,800.
Do you agree with above receipts and payments account? If not, prepare correct receipts and
payments account and income and expenditure account for the year ended 31st March, 20X1
and balance sheet on that [Link] Education AcadMay, 2019 RTP/ Nov. 2021 RTP]
Sol.
Corrected receipts and payments A/c
Dr. for the year ended 31st March,2 0X1 Cr.
Receipts Payments
To Balance b/d 450 By Expenses (6,300-2,700) 3,600
To Subscription (WN1) 4,500 By Sports material 2,700
To Other fees 1,800 By Balance c/d 90,720
To Donation for Building 90,000
To Sale of furniture (cost price 270
450)
97, 020 97,020

Income and Expenditure A/c

Dr. for the year ended 31st March, 20X1 Cr.
Expenditure Income
To Sundry expenses 3,600 By Subscription 4,590
To Sports material (6,660+2,700 7,560 By Other fees 1,800
1,800)
To Loss on sale of furniture (450 180 By Interest on investment (5% on 1,350
270) 27,000)

By Deficit - excess of expenditure 3,600

over income (Balancing figure)
11,340 11,340

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Balance Sheet of Trust Well Club

as on 31st March, 20X1
Liabilities Assets
Capital fund (WN2) 36,000 Furniture 1,800
Add: Deficit (3,600) 32,400 Less: Sold (450) 1,350
5% Investment 27,000
Building fund 90,000 Accrued in erest on investment 1,350
A vance subscription 90 Sports material 1,800
Outstanding subscription 270
Cash in hand and at bank 90,720
1,22,490 1,22,490
Working Notes:
1) Subscription A/c
Dr. for the year ended 31st March, 20X1 Cr
Particulars Particulars
To Outstanding subscription 180 By Advance subscription 90

To Income and expenditure A/c 4,590 By Bank A/c (Balancing 4,500

figure)
To Advance subscription 90 By Outstanding subscription 270
4,860 4,860

2) Balance Sheet as on 31 March, 20X0

Liabilities Assets
Advance subscription 90 Furniture 1,800
Investment 27,000
Capital fund(Balancing 36,000 Sports material 6.660
tngurerooningEOUce on ACademV
Outstanding subscription 180
Cash in hand and at bank 450
36,090 36,090
4. From the following data, prepare an income and expenditure account for the year ended 31st
December 20X1, and balance sheet as at that date of the Jeevan Hospital:
Receipts and Payments Account
Dr. for the year ended 31st December,20X1 Cr.
Receipts Payments
To Balance b/d By Salaries ( 7,200 for 31,200
20X0)
Cash in hand 800 By Hospital equipment 17,000
Cash at bank 5,200 6,000 By Furniture purchased 6,000
To Subscriptions: By Additions to building 50,000
For 20XO 5,100 By Printing and stationery 2,400
For 20X1 24,500 By Diet expenses 15,600
For 20X2 2,400 By Rent and rates ( 300 for 2,000
To Fees from sundry patients 4,800
20X2)
To Government grant: By Electricity and water 2,400
charges

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For building 80,000

For maintenance 20,000
To Donations (not to be 8,000 By Office expenses 2,000
capitalized)
To Net collections from benefit 6,000 By Investments 20,000
shows
By Balance c/d
Cash in hand 1,400
Cash at bank 6,800
1,56,800 1,56,800
Additional information:
Particulars
Value of building under construction as on 31.12.20X1 1,40,000
Value of hospital equipment on 31.12.2 0X1 51,000
Building fund as on 1.1. 20X1 80,000
Subscriptions in arrears as on 31.12.20X0 6,500
Investments in 8% Govt. securities were made on 1st July, 20X1
[Nov.,2019 RTP/ MTP Oct. 2021]
Sol. Income and Expenditure A/c
Dr. for the year ended 31st December, 20X1 Cr.
Expenditure Income
To Salaries (31,200-7,200) 24,000 By Subscriptions 24,500
To Diet expenses 15,600 By Government grants 20,000
(Maintenance)
To Rent and rates (2,000-300) 1,700 By fees from sundry patients 4,800
To Printing and stationery 2,400 By Donations 8,000
To Electricity and water charges 2,400 By Benefit shows (Net collections) 6,000
To Office expenses Groomig 000 By Interest on investments 800
To Surplus (Balancing figure) 16,000
64,100 64,100

Balance Sheet
as on 31st December, 20X1
Liabilities Assets
Capital fund 49,300 Building (Balancing 90,000
figure)
Add: Surplus 16,000 65,300 Add: Addition 50,000 1,40,000
x
(30,000 0.75)

Building fund 80,000 Hospital equipment 34,000

(Balancing figure)
Add: Government grant 80,000 160,000 Add: Addition 17,000 51,000

Advance subscriptions 2,400 Furniture 6,000

Investment -8% Government 20,000
securities
Accrued interest 800
(20,000x8%x6/12)

Outstanding subscriptions 1,400

(6,500-5,100)

Prepaid rent 300

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Cash at bank 6,800

Cash in hand 1,400

2,27,700 2,27,700
Working notes:
Balance Sheet as on 31st December, 20X0
Liabilities Assets
Building fund 80,000 Building 90,000
Outstanding salaries 7,200 Equipment 34,000
Capital fund (Balancing figure) 49,300 Outstanding subscriptions 6,500
Cash at bank 5,200
Cash in hand 800
1,36,500 1,36,500
5 Doctor Dinesh after retiring from Govt. service, started private practice on 1st April, 20X0 with
1,00,000 of his own and 1,50,000 borrowed at an interest of 129% per annum on the security of
his life policies. His accounts for the year were kept on a cash basis and the following is his
summarized cash account:
Receipts Payments
Own capital 1,00,000 Medicines purchased 1,22,500
Loan 1,50,000Surgical equipment 1,25,000
car
Prescription fees 3,30,000 Motor 1,60,000
Visiting fees 1,25,000 Motor car expenses 60,000
Fees from lectures 12,000 Wages and salaries 52,500
of
Pension received 1,50,000Rent clinic 30,000
General charges 24,500
Household expenses 90,000
Household Furniture 12,500
Grooming Expenses on 1,07,500
Pionee daughter's marriage
Interest on loan 18,000
Balance at bank 55,000
Cash in hand 9,500
One-third of the motor car expense may be treated as applicable to the private use of car and
15,000 of salaries are in respect of domestic servants.

The stock of medicines in hand on 31st March, 20X1 was valued at 47,500.

You are required to prepare his capital account and income and expenditure account for the year
ended 31st March, 20X1 and balance sheet as on that date. Ignore depreciation of fixed assets.
[RTP-May,2020]

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Sol. Income and Expenditure A/c

Dr. for the year ended 31st March, 20X1 Cr.
Expenditure Income
To Medicine consumed By Prescription fees 3,30,000
Purchases 1,22,500 By Visiting fees 1,25,000
Less: Closing stock (47,500) 75,000 By Fees from lectures 12,000
To Motor car expense 40,000
(60,000×2/3)
To Salaries (52,500 - 15,000) 37,500
To Rent for clinic 30,000
To General charges 24,500
To Interest on loan 18,000
To Surplus (Balancing figure) 2,42,000

4,67,000 4,67,000

Capital A/c
Dr. for the year ended 31st March, 20X1 Cr.
Particulars Particulars
To Drawings: By Cash/Bank 1,00,000
Motor car expense (60,000x 1/3) 20,000 By Cash/Bank (Pension) 1,50,000
Household expenses 90,000
Marriage expenses 1,07,500
By Net income from practice 2,42,000
(derived from income and
expenditure A/c)
To Salary of domestic servants 15,000
To Household furniture 12,500
To Balance c/d (Balancing figure) 2,47,000
4,92,000 4,92,000

Balance Sheet as on 31st March, 20X1

daey
Liabilities Assets
Capital 2,47,000 Motor car 1,60,000
Surgical equipment 1,25,000
Loan 1,50,000 Stock of medicines 47,500
Cash at bank 55,000
Cash in hand 9,500
3,97,000 3,97,000
6
You are provided with the following:
Balance sheet
as on 31st March, 20X1
Liabilities Assets
Capital fund 1,06,200 Building 1,50,000
Subscription received in advance 6,000 Outstanding subscription 3,800
Outstanding expenses 14,000 Outstanding locker rent 2,400
Loan 40,000 Cash in hand 20,000
Sundry creditors 10,000
1,76,200 1,76,200

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Receipts and Payments Account

Dr. for the year ended 31st March,20X2 Cr.
Receipts Payments
To Balance b/d By Expenses
Cash in hand 20,000 For 20X0-X1 12,000
To Subscriptions: For 20X1-X2 20,000 32,000
For 20X0-X1 2,000
For 20X1-X2 21,000 By Land 40,000
For 20X2-X3 1,000 By Interest 4,000
To Entrance fees 38,000| By Miscellaneous expenses 4,700
To Locker rent 7,000| By Balance c/d
To Sale proceeds of old 1,000 Cash in hand 18,300
newspapers
To Miscellaneous income 9,000
99,000 99,000
You are requiredto prepare income and expenditure account for the year ended 31st
March, 20X2 and a balance sheet as at 31st March, 20X2 (Workings should form part of
your answer).
[Nov,2018]
Sol. Income and Expenditure A/c
Dr. for the year ended 31st March, 20X2 Cr.
Expenditure Income
To Expenses 20,000 By Subscriptions 21,000
To Interest 4,000 Add: Advance 6,000 27,000
Groomibg Educa subscriptionmy
To Miscellaneous Expenses 4,700
By Locker rent 7,000
Less: Outstanding rent (2,400) 4,600
To Surplus (Balancing figure) 12,900
By Saleproceeds of old 1,000
newspapers
By Miscellaneous income 9,000
41,600 41,600

Balance Sheet
as on 31st March, 20X2
Liabilities Assets
Capital fund 1,06,200 Building 1,50,000
Add: Entrance fee (Note) 38,000
Add: Surplus 12,900 1,57,100 Land 40,000
Loan 40,000Outstanding subscription 1,800
For 20X0-X1: (3,800 - 2,000)
Creditors 10,000 Cash in hand 18,300
Outstanding expenses 2,000
For 20X0-X1: (14,000 - 12,000)
Advance subscription 1,000
2,10,100 2,10,100

Note: Entrance fees should be capitalized and added to the capital fund for all organization. If the
question gives any specific treatment of entrance fees, then it should be followed accordingly.

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7. From the following information supplied by M.B.S. Club, prepare receipts and payments account
and income and expenditure account for the year ended 31st March 20X1.

Particulars 01/04/20X0 31/03/20X1

Outstanding subscription 1,40,000 2,00,000
Advance subscription 25,000 30,000
Outstanding salaries 15,000 18,000
Cash in hand and at bank 1,10,000
10% Investment 1,40,000 70,000
Furniture 28,000 14,000
Machinery 10,000 20,000
Sports goods 15,000 25,000

Subscription for the year amount to 3,00,000. Salaries paid 60,000. Face value of the
investment was R 1,75,000, 50% of the investment was sold at 80% of face value. Interest on
investments was received 14,000. Furniture was sold for 8000 at the beginning of the year.
Machinery and Sports goods purchased and put to use at the last date of the year. Charge
depreciation @ 15% per annum on machinery and sports goods and @10% per annum on
furniture.

Following expenses were made during the year:

Sports expenses: 50,000
Rent: I 24,000 out of which 2,000outstanding
Misc. expenses: 5,000
[May,2019]

Sol. Receipts and Payments Account

Dr. for the year ended 31t March, 20X1 Cr.
Receipts Payments
To Balance b/d By Salaries 60,000
Cash and bank 1,10,000
By Purchase of sports goods 10,000
(25,000-15,000)
By Purchase of machinery 10,000
To Subscription received (WN1) 2,45,000
(20,000-10,000)
By Sports expenses 50,000
To Sale of investments 70,000 By Rent paid (24,000-2,000) 22,000
(WN2)
To Interest received on investment 14,000 By Miscellaneous expenses 5,000
To Sale of furniture 8,000 By Balance c/d

Cash and bank 2,90,000

(Balancing figure)
4,47,000 4,47,000
Income and Expenditure A/c
Dr. for the year ended 31st March, 20X1 Cr.
Expenditure Income
To Salaries 60,000 By Subscription 3,00,000
Add: Outstanding for 18,000
20X1
78,000 By Interest on
investment

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Less: Outstanding for (15,000) 63,000 received 14,000

20X0
Accrued (WN4) 3,500 17,500
To Sports expenses 50,000
To Rent 24,000
To Miscellaneous exp. 5,000
To Loss on sale of furniture (WN3) 6,000
To Depreciation
Furniture (14,000x10%) 1,400
Machinery (10,000x 15%) 1,500
Sports goods 2,250 5,150
(15,000x 15%)

To Surplus (Balancing figure) 1,64,350

3,17,500 3,17,500

Working notes:
1)
Subscription A/c
Dr. for the year ended 31st March, 2 0X1 Cr

Particulars Particulars
To Outstanding subscription 1,40,000 By Advance subscription 25,000
To Income and expenditure A/c 3,00,000 By Bank A/c (Balancing figure) 2,45,000
To Advance subscription 30,000 By Outstanding subscription 2,00,000
4,70,000 4,70,000

2)
Dr. 10 % Investment A/c Cr
Particulars Particulars
To Balance b/d Groom 11,40,000tio By Bank A/c (Sale) 70,00
Delopi
R 1,75,000 x 50% x 80%]

By Balance c/d 70,00

1,40,000 1,40,00
Since, Cost price of investment sold: 1,40,000 x 50% =
70,000. So, there is neither profit nor
loss on sale of investment.

3)
Dr. Furniture A/c Cr
Particulars Particulars
To Balance b/d 28,000 By Bank A/c (Sale) 8,000

By Loss on sale (Balancing 6,000

figure)

By Balance c/d 14,00

28,000 28,000
4)
Interest accrued on investment
Particulars
Face value of investment on 1/4/20X0 1,75,000
Interest @ 10% on face value i.e., 1,75,000 17,500
Less: Interest received during the year (14,000)
Interest accrued during the year 3 500
It is assumed that the sale of investment has taken place at the end of the year.

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8. The receipts and payments for the year ended March, 31st 20XO were:
Entrance fees 300; Membership fees 3,000; Donation for club pavilion 10,000; Food
stuff sales 1,200; Salaries and wages 1,200; Purchase of food stuff 800; Construction
of club pavilion 11,000; General expenses 600; Rent and taxes 400; Bank charges
160
Cash in hand-April, 1st 200, March,31st 350
Cash in bank-April,1s{400, March,31st 590
You are required to prepare receipts and payment account. [ICAI SM]
Sol. Receipts and Payments Account
Dr. for the year ended 31st March,2 0X0 Cr.

Receipts Payments
To Balance b/d By Salaries and wages 1,200
Cash in hand 200 ByPurchase of food stuff 800
Cash in bank 600 By Club pavilion(Expenditure on
400 11,000
construction)
To Entrance Fees 300 By General expenses 600
To Membership Fees 3,000 By Rent andtaxes 400
To Donation for club pavilion 10,000 By Bank charges 160
To Sales of food stuff 1,200 By Balance b/d
Cash in hand 350
Cash in bank 590 940

15,100 15,100

9 Suppose salaries paid during 20X1-X2 were 323,000. The following further information is
available:
Particulars 20X0-X1 20X1-X2
Salaries unpaid Grooming Education Academy 1,400 1,800
Salaries
prepaid 400 600
Calculate the amount to be debited to income and expenditure account in respect of salaries
and also show necessary ledger accounts.
[ICAI SM]
Sol. Salaries A/c
Dr. for the year ended 31st March, 20X2 Cr
Particulars Particulars
To Prepaid salaries A/c 400 By Outstanding salaries A/c 1,400
To Bank A/c 23,000 By Income and expenditure 23,200
A/c (Balancing figure)
To Outstanding salaries A/c 1,800 By Prepaid salaries A/c 600
25,200 25,200
Salaries Outstanding A/c
Dr. for the year ended 31st March, 20X2 Cr.

Particulars Particulars
To Salaries A/c 1,400 By Balance b/d 1,400
To Balance c/d 1,800 By Salaries A/c 1,80
25,200 25,200
By Balance b/d 1,800

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Salaries Prepaid A/c

Dr. for the year ended 31st March, 2 0X2 Cr
Particulars Particulars
To Balance b/d 400 By Salaries A/c (Transfer) 400
To Salaries A/c 600 By Balance c/d 600

25,200 25,200
To Balance b/d 600
10 (Good) The following was the receipts and payments account of Exe Club for the year ended
March 31st, 20X1:
Receipts Payments
Cash in hand 100 Groundsmen's fee 750
Balance at bank as per pass book: Moving Machine 1,500
Deposit account 2,230 Rent of ground 250
Current account 600 Cost of teas 250
Bank interest 30 Fares 400
Donations and subscriptions 2,600 Printing and office expenses 280
Receipts from teas 300 Repairsto equipment 500
Contribution to fares 100 Honorarium to secretary 400
Sale of equipment 80 Cash in hand 250
Net proceeds of variety entertainment 780 Balance at bank as per pass book:
Donation for forth coming tournament 1,000 Deposit account 3,090
Current account 150
7,820 7,820

You are given the following additional information:

Particulars 1/4/20XO 31/03/20X1
Subscription due 150 100
Grooming Education Academ
Amount due for printing etc. oncepts 100 80
Cheques unpresented being payment for repairs 300 260
Estimated value of machinery and equipment 800 1,750
Interest not yet entered in the pass book 20
Bonus to groundsmen outstanding 300

For the year ended March 31st, 20X1, the honorarium to the Secretary are to be increased
by a total of 200.

Prepare the income and expenditure account for period ending 31-03-20X1 and the relevant
balance sheet.
(ICAI SM)
Sol. Income and Expenditure A/c
Dr. for the year ended 31st March, 20X1 Cr
Expenditure Income
To Groundsmen's fee 750 By Donations and Subscriptions 2,550
To Rent of ground 250 (2,600+100-150)
To Fares' expenses 400
Less: Contribution to fares (100) 300 By Receipts from teas 300
Less: Expenses (250) 50
To Printing and office expenses 280
Add: Closing outstanding 80
Less: Opening outstanding (1001 260 By Net proceeds of variety 780
entertainment

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To Repairs to equipment 500

Add: Closing 260 By Bank interest 30
Less: Opening (300) 460 Add: Interest due 20 50

To Depreciation on machinery
Opening balance 800
Add: Purchases 1,500
2,300
Less: Closing balance (1,750)
550
Less: Sale (80) 470

To Honorarium to Secretary 400

Add: Outstanding 200 600

To Bonus to groundsman 300

To Surplus (Balancing figure) 40

3,430 3,430

Balance Sheet
as on 31st March, 20X1
Liabilities R Assets
Capital fund 3,080 Cash in hand 250
Add: Surplus 3,120 Cash in Deposit A/c 3,090
Subscription due 100
Tournament Fund (Donation) 1,000 Interest due 20

Outstanding expenses:
Groundman bonus 300
Printing 80 Machinery and equipment 1,750
Honorarium to secretary (400 Groomin Edu600pn Academy
+ 200) oncepts
Bank overdraft (260-150) 110
5,210 5,2 10
Balance Sheet
as on 1st April, 20X0
Liabilities Assets
Capital fund (Balancing figure) 3,080 Cash in hand 100

Honorarium to secretary 400 Cash in deposit A/c 2,230

Cash in current A/c (600-300) 300
Outstanding printing expenses 100 Subscription due 150
Machinery 800

3,580 3,580
11. The income and expenditure account of the Youth Club for the Year 20X1 is as follows:
Dr. Cr
Expenditure Income
To Salaries 4,750 By Subscriptions 7,500
To General expenses 500 By Entrance fees 250
To Audit Fee 250 By Contribution for annual dinner 1,000
To Secretary's Honorarium 1,000 By Annual Sport meet receipts 750
To Stationery & Printing 450

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To Annual Dinner Expenses 1,500

To Interest & Bank Charges 150
To Depreciation 300
To Surplus 600
9,500 9,500
This account had been prepared after the following adjustments:
Particulars
Subscription outstanding at the end of 20X0 600
Subscription received in advance on 31st December, 20X0 450
Subscription received in advance on 31st December, 20X1 270
Subscription outstanding on 31st December, 20X1 750
Salaries outstanding at the beginning and the end of 20X1 were respectively 400 and 450.
General expenses include insurance prepaid to the extent of 60. Audit fee for 20X1 is as yet
unpaid. During 20X1 audit feefor 20X0 was paid amounting to 200.
The Club owned a freehold lease of groundvalued at 10,000. The club had sports equipment
on 1st January, 20X1 valued at 2,600. At the end of the year, after depreciation, this equipment
amounted to 2,700. In 20X0, the Club has raised a bank loan of 2,000. This was outstanding
throughout 2019. On 31st December, 20X1 cash in hand amounted to 1,600.
Prepare the receipts and payments account for 20X1 and balance sheet as at the end of the year.
(ICAISM)
Sol. Receipts and Payments Account
Dr. for the year ended 31st December,2 0X1 Cr.

Receipts Payments
To Balance b/d 1,390 By Salaries 4,750
(Balancing figure)
To Subscription (WN2) 7,170 Add: Paid for 20X0 400
To Entrance fees Grooning 250 Less: Outstanding for 20X1 (450) 4,700
To Contribution for annual dinner 1,000 By General expenses 500
To Annual Sport meet receipts 750 Add: Prepaid insurance for 60 560
20X2
By Audit fee (20X0) 200
By Secretary honorarium 1,000
By Stationery and printing 450
By Annual dinner expenses 1,500
By Interest and bank charges 150
By Sports equipment 400
(2,700-(2,600-300)]
By Balance c/d 1,600
10,560 10,560
Balance Sheet
as on 31st December, 20X1
Liabilities Assets
Capital fund 11,540 Freehold ground 10,000
Add: Surplus 600 12,140 Sport equipment 2,600
Add: Purchase 400
Outstanding expenses: 3,000
Audit fee 250 Less: Depreciation (300) 2,700
Salary 450

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Subscription 750
outstanding
Bank loan 2,000 Prepaid insurance 60
Cash in hand 1,600
Subscription received in advance 270
15,110 15,110
Working Notes:
1)
Balance Sheet
as on 31st December, 20X0
Liabilities Assets
Subscriptions received in advance 450 Freehold ground 10,000
Salaries outstanding 400 Sports equipment 2,600
Audit fees unpaid 200 Subscriptions outstanding 600
Bank loan 2,000 Cash in hand 1,390
Capital fund (Balancing figure) 11,540
14,590 14,590

2)
Subscription A/c
Dr. for the year ended 31st December, 20X1 Cr.
Particulars Particulars
To Outstanding subscription 600 By Advance subscription 450
To Income and expenditure A/c 7,500 By Bank A/c (Balancing 7,170
figure)
To Advance subscription 270 By Outstanding subscription 750
8,370 8,370
12, The Sportswriters Club gives the following receipts and payments account for the year ended
March 31, 20X1:
Receipts and payments A/c
Dr. For the year ended 31st March, 20X1 Cr.
Receipts Payments
Balance b/d 4,820 Salaries 12,000
Subscriptions 28,600 Rent and electricity 7,220
Miscellaneous income 700 Library books 1,000
Interest on fixed deposit 2,000 Magazines and newspapers 2,172
Sundry expenses 10,278
Sports equipment 1,000
Balance c/d 2,450
36,120 36,120
Figures of other assets and liabilities are furnished as follows:
Particulars 31st March, 20XO 31st March, 20X1
Salaries outstanding 710 170
Outstanding rent and electricity 864 973
Outstanding for magazines and newspapers 226 340
Fixed deposit (10%) with bank 20,000 20,000
Interest accrued thereon 500 500
Subscription receivable 1,263 1,575
Prepaid expenses 417 620
Furniture 9,600
Sports equipment 7,200
Library books 5,000

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The closing values of furniture and sports equipment are to be determined after charging
depreciation at 10% and 20% per annum respectively inclusive of the additions, if any, during the
year. The Club's library books are revalued at the end of every year and the value at the end of
March 31, 20X1 was R5,250.
Required
From the above information you are required to prepare:
a) The Club's balance sheet as at March 31, 20X0;
b) The Club's income and expenditure account for the year ended March 31, 20X1.
) The Club's closing balance sheet as at March 31, 20X1. [ICAI SM/july 2021]
a
Sol.
Balance sheet
As on 31st March, 20X0
|Liabilities Assets
Outstanding expenses: Furniture 9,600
Salaries 710 Library books 5,000
Rent & Electricity 864 Sports equipment 7,200
Magazines & Newspapers 226 1,800 Fixed deposit 20,000
Capital Fund (Balancing figure) 47,000 Cash in hand and at bank 4,820
Prepaid expenses 417
Subscription receivable 1,263
Interest accrued 500
48,800 48,800

b)
Income and expenditure A/c
Dr. For the year ended 31st March, 20X1 Cr.
Expenditure Income
To Salaries 11,460 By Subscription 28,912
(28,600+1,575-1,2 63)
To Rent and electricity 7,329 By Interest on fixed deposit 2,000
To Magazines and newspapersoming Ed2,286 By Miscellaneous income 700
Pio
To Sundry expenses 10,075 By Deficit (Balancing figure) 2,888
To Depreciation:
Furniture (9,600x10%) 960
Sports equipment 1,640
Library books 750 3,350
34,500 34,500
C)
Balance sheet
As on 31st March, 20X1
Liabilities Assets
Outstanding expenses: Furniture 9,600
Salaries 170 Less: Depreciation (960) 8,640
Rent and electricity 973
Newspapers 340 1,483 Magazines and sports 7,200
equipment
Capital fund 47,000 Add: Purchase 1,000
Less: Deficit (2,888)| 44,112 8,200
Less: Depreciation@20% (1,640) 6,560

Library books 5,000

Add: Purchase 1,000
6,000
Less: Depreciation (750) 5,250
(Balancing figure)

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Fixed deposit 20,000

Cash in hand and at bank 2,450
Prepaid expenses 620
Subscription receivable 1,575
Interest accrued 500
45,595 45,595

Working Notes: (1)

Expenses Salaries Rent and Magazines Sundry
electricity and expense
newspapers
Paid during the year 12,000 7,220 2,172 10,278
Add: Outstanding on 31.3.20X1 170 973 340
Add: Prepaid on 31.3.20X0 417
12,170 8,193 2,512 10,695
Less: Outstanding on 31.3.20X1 (710) (864) (226)
Less: Prepaid on 31.3.20X1 (620)
11,460 7,329 2,286 10,075
13 From the following balances and particulars of Republic College, prepare income and expenditure
account for the year ended March, 20X0 and a balance sheet as on the date:
Particulars
Seminars and conference receipts 4,80,000
Consultancy receipts 1,28,000
Security deposit- students 1,50,000
Capital fund 16,06,000
Research fund 8,00,000
Building fund 25,00,000
Provident fund 5,10,000
Tuition fee received 8,00,000
Government grants 5,00,000
Donations 50,000
Interest and dividends on investments 1,85,000
Hostel room rent 1,75,000
Mess receipts (Net) 2,00,000
College stores-sales 7,50,000
Outstanding expenses 2,25,000
Stock of stores and supplies (opening) 3,00,000
-
Purchases stores and supplies 8,00,000
-
Salaries teaching 8,50,000
Research 1,20,000
Scholarships 80,000
Students welfare expenses 38,000
Repairs and maintenance 1,12,000
Games and sports expenses 50,000
Miscellaneous expenses 65,000
Research fund investments 8,00,000
Other investments 18,50,000

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Provident fund investment 5,10,000

Seminar and conference expenses 4,50,000
Consultancy expenses 28,000
Land 1,00,000
Building 16,00,000
Plant and machinery 8,50,000

Furniture and fittings 6,00,000

Motor vehicle 1,80,000

Provision for depreciation:

Building 4,80,000
Plant and equipment 5,10,000
Furniture and fittings 3,36,000
Cash at bank 6,42,000
Library 3,60,000
1,03,85,000 1,03,85,000
Adjustments:
|S. No. Particulars
1) Materials and supplies consumed: (From college stores)
Teaching 50,000
Research 1,50,000
Students welfare 75,000
Games or Sports 25,000
2) Tuition fee receivable from government for backward class scholars 80,000
3) Stores selling prices are fixed to givea net profit of 10% on selling price
4) Depreciation is provided on straight line basis at the following rates:
1) Building 59
2) Plant and equipment 10%
3) Furniture and fixtures 10%
4) Motor vehicle 20%

Sol. Income and expenditure A/c

Dr. For the year ended 31st March, 20XO Cr.
Expenditure Income
To Salaries By Tuitions and 8,80,000
other fees
Teaching 8,50,000 By Government 5,00,000
grants
Research 1,20,000
To Material and By Income from 1,85,000
supplies consumed investmnents
Teaching 50,000 By Hostel room rent 1,75,000
Research 1,50,000 2,00,000 By Mess receipts 2,00,000
To Repairs and 1,12,000 By Profit - store 75,000
Maintenance sales(*7,50,000x 1%)
To Sports and games
expenses

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Cash 50,000 By Seminar and

conferences income 4,80,000
Materials 25,000 75,000 Less: Expenses (4,50,000) 30,000
To Students welfare
expenses
Cash 38,000 By Consultancy
charges:
Materials 75,000 1,13,000 Income 1,28,000
To Miscellaneous 65,000 Less: Expenses (28,000) 1,00,000
expenses
To Scholarships 80,000
To Depreciation: By Donations 50,000
Building (16,00,000x5%) 80,000
Plant and equipment 85,000
(8,50,000x10%)
Furniture (6,00,000x 10%) 60,000
Motor vehicle (1,80,000x 2 0%) 36,000
To Surplus (Balancing 3,19,000
figure)
|21,95,000 | 21,95,000
Balance sheet
as on 31st March, 20X0
Liabilities Assets
Capital fund 16,06,00 Fixed assets:
0
Add: Surplus 3,19,000 19,25,000 Land 1,00,000
Building (cost) 16,00,000
Other funds: Less: Depreciation (5,60,000)| 10,40,000
Research fund 8,00,000
Building fund 25,00,000 Equipment (cost) 8,50,000
Less: Depreciation (5,95,000) 2,55,000
Current Crooming Equcation Academy
Pion elopingoncep
liabilities:
Outstanding 2,25,000 Furniture and fittings 6,00,000
expenses (cost)
Provident fund 5,10,000 Less: Depreciation (3,96,000) 2,04,000
Security deposit 1,50,000
Motor vehicle (cost) 1,80,000
Less: Depreciation (36,000) 1,44,000

Library 3,60,000
Investmnents:
Capital fund investment 18,50,000
Research fund investment 8,00,000
Provident fund 5,10,000
investment

Stock (stores): [WN1]

Materials and supplies 1,25,000

Tuition fees receivable 80,000

Cash in hand and at bank 6,42,000

61,10,000 61,10,000

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Working notes:
1. Materials and supplies - Closing stock
Opening stock 3,00,000
Purchases 8,00,000
11,00,000
Less: Cost of material and supplies 6,75,000
(7,50,000x90%)
Consumed 3,00,000 (9,75,000)
Balance 1,25,000
2. Provisions for Depreciation
Building Plant and Furniture
equipment and
fittings
Opening balance 4,80,000 5,10,000 3,36,000
Addition 80,000 85,000 60,000
Closing balance 5,60,000 5,95,000 3,96,000

Note: Expenses related to income earned like consultancy charges, conference expenses are
shown as net of income.
14 During the year ended 31st March, 20X1, the subscriptions received by the Jaipur Literary
Society were
4,50,000. These subscriptions include 20,000 received for the year ended 31st March,
20X0. On 31st March, 20X1, subscriptions due but not received were 15,000. Advance
subscription received for the year ending 31st March 20X1 but pertaining to year 20X2
amounted to 26,000. The Subscriptions received for the year 31st March 20X1, include the
advance received for the year ending 31 March 20X0 amounted to 18000 What amount
should be credited to Income and Expenditure Account for the year ended 31st March, 2OX1
as income from subscriptions. Show the subscription account in book of the society?
(ICAI SM)
Sol. In the books of Jaipur literary society
Subscription A/c (for year ended on 31* March 20X1)
Particulars Amount Particulars Amount ()

outstanding subscriptions 20,000 Advance subscriptions 18,000

(20X0) (20X0)
Income from Subscriptions 4,37,000 Bank A/c 4,50,000
A/c
Advance subscriptions (20X2) 26,000 Outstanding subscriptions 15,000
(20X1)
4,83,000 4,83,000
15. During 20X1, subscription received in cash is 42,000. It includes 1,600 for 20X0 and 600 for
20X2. Also 3,000 has still to be received for 20X1.
-
Required:
Calculate the amount to be credited to income and Expenditure Account in respect of subscription.
(ICAI SM)
Sol. Particulars ()
Amount received 42,000
Add: Outstanding on 31st Dec., 20X1 3,000
45,000
Less: Received on account of 20X1 1,600

20X2 600 (2,200)

42,800
The various accounts will appear as under:

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Subscription Outstanding Account

Particulars () Particulars (R)
20X1 20X1
Jan 1 To Balance b/d (transfer) 1600 Dec. 31 By Subscription A/c 1,600
Dec. 31 To Subscription A/c 3,000 Dec. 31 By Balance c/d 3,000
4,600 4,600
20X2
Jan 1 To Balance b/d 3,000

Subscription Account
Particulars Particulars ()
20X1 20X1
Dec. 31 To Subscription Dec.31 By Cash A/c 42,000
Outstanding A/c (transfer) 1,600 Dec.31 By Subscription
Dec. 31 To Subscription received Outstanding A/c 3,000
In advance A/c 600
Dec.31 To Income and
Expenditure A/c (transfer) 42,800
45,000 45,000

Subscription received in Advance Account

Particulars () Particulars ()
20X1 20X1
Dec.31 To Balance c/d 600 Dec. 31 By Subscription A/c 600
20X0
Jan. 1 By Balance b/d 600

Subscription outstanding 3,000 and Subscription received in advance t600 will be shown in the
balance sheet on the assets and liabilities side [Link]
16. Following is the Receipts and Payments Account of New Bird Forty Club for the year ended 31st
-

March, 20x2:
Receipts and payments A/c for the year ended on 31st March 20X2
Dr. Cr.
Receipts () Payments (8)
To balance b/d 2,50,000 By Salaries and wages 1,65,000
To Subscription: - By Office expenses 35,000
20X0-20X1 65,000 By Sports equipment 3,42,000
3,55,000 By Telephone Charges
20X1-20X2 28,000
To Donations 55,000 By Electricity Charges 32,000
To Entrance fees 85,000 By Travelling and conveyance 65,000
By balance c/d 1,43,000
8,10,000 8,10,000

-
Additional Information:
a) Outstanding Subscription for the year ended 31st March, 20X2-* 55,000.
b) Outstanding Salaries and Wages-* 40,000 for the year ended on 31st March 20X2.
c) Depreciate Sports equipment by 25% for the year ended on 31st March 20X2.
d) Capitalize 50% of the entrance fees
Prepare Income and Expenditure Account of the club from the above particulars for the year ended
on 31st March 20X2. (ICAI SM)

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Sol.
In the books of new bird forty Club
Income and expenditure Account for the year ended on 31st March 20X2
Dr. Cr.
Expenditure () Income )

To Salaries and wages 1,65,000 By Subscription 4,20,000

Add: Outstanding Salaries for Add: Outstanding Subscription
20X2 40,000 2,05,000 for 20X2 55,000
To Office expenses 35,000 Less: Outstanding Subscription for
20X1 65,000 4,10,000
To Depreciation (25% x 3,42,000) 85,500 By Donations 55,000
To Telephone Charges 28,000 By Entrance fees (50% x
85,000) 42,500
To Electricity Charges 32,000
To Travelling and conveyance 65,000
Excess of Income over expenditure 57,000
5,07,500 5,07,500

17. From the following Income and Expenditure Account and the Balance Sheet of a club, prepare its
Receipts and Payments Account and Subscriptions Account for the year ended 31t March, 20X2: -
Income & Expenditure Account for the year 20X1-X2
Particulars () Particulars ()
To Upkeep of Ground 10,000 By Subscriptions 17,320
To Printing 1,000 By Sale of Newspapers (Old) 260
To Salaries 11,000 By Lectures 1,500
To Depreciation on Furniture 1,000 By Entrance Fee 1,300
To Rent 600 By Miscellaneous Income 400
By Deficit 2,820
23,600 23,600

Balance Sheet as at 31st March, 20X2

Liabilities Groomhg E) catlbn Academ Assets ()
rin De
Subscription in Advance Furniture 9,000
(20X2-X3) 100 Ground and Building 47,000
-

Prize Fund: Prize Fund Investment 20,000

Opening Balance 25,000 Cash in Hand 2,300
Add: Interest 1.000 Subscription (outstanding) (20X1 700
X2)
26,000
Less: Prizes (2,000) 24,000
General Fund: -
Opening Balance 56,420
Less: Deficit (2.820)
53,600
Add: Entrance Fee 1300 54,900
79,000 79,000

The following adjustment have been made in the above account: -

1) Upkeep of ground 600 and Printing 240 relating to 20X0-20X1 were paid in 20X1-X2.
2) One-half of entrance fee has been capitalised by transfer to General Fund.
3) Subscription outstanding in 20X0-X1 was 800 and for 20X1-X2 700.
4) Subscription received in advance in 20X0-X1 was 200 and in 20X1-X2 for 20X2-X3 100.
[ICAI SM/ Nov. 2019]

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Sol. Receipts and Payments Account

For the year ending 31st March, 20X2
Receipts ) Payments ()
To Balance b/d By Upkeep of Ground
(Balancing figure) 4,660 (10,000 + 600) 10,600
To Subscription 17,320 By Printing (1,000 + 240) 1,240
To Interest on Prize Fund Investments 1,000 By Salaries 11,000
To Lecture (fee) 1,500 By Rent 600
To Entrance Fee 2,600 By Prizes 2,000
To Sale of Newspapers (old) 260 By Balance c/d 2,300
To Misc. Income 400
27,740 27,740

Note: - In order to arrive at the payments under Upkeep of ground and printing, even the payment
for 20X0-X1 has been considered, as receipts and payments A/c shows all the period payments.

Subscription Account
Particulars () Particulars (3)
20X1 20X1
April To Subscription Outstanding April 1 By Cash (Balancing Figure) 17,320
(20X0-X1) 800 By Subscription
To Subscription Outstanding (20X1-X2) 700
In Advance (20X2-X3) 100 By Subscription
20X2 In Advance (20X0-X1) 200
March To Income & Expenditure A/c 17,320
18,220 18,22

Grooming Education Academy

18 The following is the Receipts and Payments Account of Lion Club for the year ended 31stMarch,
20X1.
Receipts ) Payments )
Opening balance: - Salaries 1,20,000
Cash 10,000 Creditors 15,20,000

Bank 3,850 Printing and Stationary 70,000

Subscription received 2,02,750 Postage 40,000
Entrance donation 1,00,000 Telephones and telex 52,000
Interest received 58,000 Repairs and maintenance 48,000
Sale of assets 8,000 Glass and table linen 12,000
Miscellaneous income 9,000 Crockery and cutlery 14,000
Receipts at Garden upkeep 8,000
Coffee room 10,70,000 Membership fees 4,000
Soft drinks 5,10,000 Insurance 5,000
Swimming pool 80,000 Electricity 28,000
Tennis court 1,02,000 Closing balance:
Cash 8,000
Bank 2,24,600
21,53,600 21,53,600

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The assets and liabilities as on 1.4.20X0 were as follows:

Particulars (3)
Fixed assets (net) 5,00,000
Stock 3,80,000
Investment in 12% Government securities 5,00,000
Outstanding subscription 12,000
Prepaid Insurance 1,000
Sundry Creditors 1,12,000
Subscription received in advance 15,000
Entrance donation received Pending membership 1,00,000
Gratuity fund 1,50,000

The following adjustments are to be made while drawing up the accounts:

-

i) Subscription received in advance as on 31st March, 20X1 was 18,000.

ii) Outstanding Subscription as on 31st March, 20X1 was 7,000.
iii) Outstanding expenses are salaries 8,000 and electricity 7 15,000.
iv) 50% of the entrance donation was to be capitalized. There was no pending membership as
on 31st March, 20X1.
V) The cost of assets sold net as on 1.4.20X0 was 10,000.
vi) Depreciation is to be provided at the rate of 10% on assets.
vii) sum of 20,000 received in October 20X0 as entrance donation from an applicant was to
A

be refunded as he has not fulfilled the requisite membership qualifications. The refund was
made on 3.6.20X1.
vi) Purchase made during the year amounted 15,00,000.
ix) The value of closing sto ck was 2,10,000.
x) The club as a matter of policy, charges off to income and expenditure account all purchase
made on account of crockery, cutlery, glass and linen in the year of purchase.
You are required to prepare an Income and Expenditure Account for the year ended 31st March,
20X1 and the Balance Sheet as on 31st March, 20X1 along with necessary workings. (1CAI SM)

Sol. Income and Expenditure Account of Lion Club

For the year ended 31st March, 20X1
Expenditure ) Income ))
To Salaries 1,28,000By Subscription 1.94,750
To Printing and stationary 70,000 By Entrance donation 90,000
To Postage 40,000 By Interest 60,000
To Telephone and telex 52,000 By Miscellaneous Income 9,000
To Repairs and maintenance 48,000 By Profit from operations 92,000
To Glass and table linen 12,000 By Excess of expenditure over 30,250
income (deficit) transferred to
capital fund)
To Crockery and cutlery 14,000
To Garden upkeep 8,000
To Membership fees 4,000
To Insurance 6,000
To Electricity charges 43,000
To Loss on sale of assets 2,000
To Depreciation 49,000
4,76,000 4,76,000

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Balance Sheet of Lion Club as on 31st March, 20X1

Liabilities 3) Assets
Capital fund 10,89,600 Fixed assets 4,41,000
Gratuity fund 1,50,000 Stock 2,10,000
Sundry creditors 92,000 Investments 5,00,000
Subscription received in advance 18,000 Subscription outstanding 7,000
Entrance donation refundable 20,000 Interest accrued 2,000
Outstanding expenses 23,000 Bank 2,24,600
Cash 8,000
13,92,600 13,92,600
Working Notes: -
1) Opening Balance Sheet
Balance Sheet of Lion Club as on 1st April, 20X1
Liabilities () Assets ()
Sundry Creditors 1,12,000 Fixed assets 5,00,000
Subscription Received in advance 15,000 Stock 3,80,000
Entrance donation received in advance 1,00,000 Investments 5,00,000
Gratuity fund 1,50,000 Subscription outstanding 12,000
Capital (balance figure) 10,29,850 Prepaid expenses 1,000
Cash 10,000
Bank 3,850
14,06,850 14,06,850

2) Subscription
Particulars ()
Subscription received during the year 2,02,750
Add: Outstanding subscription on 31.3.20X1 7,000
2,09,750
Add: Received in advance as on 1.4.20XO Education Academy 15,000
cer in Developing Concepts
2,24,750
Less: Outstanding subscription as on 1.4.20X0 (12,000)
2,12,750
Less: Received in advance as on 31.3.20X1 (18,000)
1,94,750

3) Entrance donation
Particulars ()
Entrance donation received during the year 1,00,000
Add: Received in advance as on 1,4,20X0 1,00,000
2,00,000
Less: Entrance donation in respect of ineligible member (20,000)
1,80,000
Less: 50% capitalized (90,000)
Taken to income and expenditure account 90,000

4) Loss on sale of asset

Particulars
Cost of asset sold 10,000
Less: Sale Proceeds (8,000)
Loss on sale of asset 2,000

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5) Depreciation
Particulars )
Fixed asset as per trial balance 5,00,000
Less: Cost of asset sold (10,000)
4,90,000
Depreciation on 4,90,000 @ 10% 49,000

6) Salaries
Particulars
Salary paid during the year 1,20,000
Add: Outstanding as on 31.3.20X1 8,000
1,28,000

7) Electricity
charges
Particulars (3)
Electricity charges paid during the year 28,000
Add: Outstanding as on 31.3.20X1 15,000
43,000

81 Interest
Particulars (3)
Interest on 12% Government securities investment ( 5,00,000 @ 12% p.a.) 60,000
Less: Interest received during the year (58,000)
Interest accrued 2,000
Interest credited to Income and Expenditure Account 60,000

9) Profit from operations

Particulars (3)
-
Cost of goods sold: Grooming Education Academy
Opening stock ioneer in Developing oncepte 3,80,000
Add: Purchase 15,00,000
18,80,000
Less: Closing stock (2,10,000)
Cost of goods sold (A) 16,70,000
Receipts from operations: -
Receipts from coffee room 10,70,000
Receipts from soft drinks 5,10,000
Receipts from swimming pool 80,000
Receipts from tennis court 1,02,000
Total receipts (B) 17,62,000
Profits from operations (B-A) 92,000

10) Insurance
Particulars ()
Insurance paid during the year 5,000
Add: Prepaid Insurance as on 1.4.20X0 1,000
6,000

11) Sundry creditors

Particulars
Opening balance as on 1.4.20XO 1,12,000
Add: Purchases made duringthe year 15,00,000

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16,12,000
Less: Payments made during the year (15,20,000)
Closing balance as on 31.3.20X1 92,000

12) Outstanding expenses

Particulars
Outstanding salaries 8,000
Outstanding electricity charges 15,000
Outstanding expenses 23,000

13) Fixed assets

Particulars )
Fixed assets as on 1.4.20X0 5,00,000
Less: Cost of assets sold (10,000)
4,90,000
Less: Depreciation (49,000)
Fixed assets as on 31.3.20X1 4,41,000

14) Capital fund

Particulars )
as on 1.4.20X0
Capital fund 10,29,850
Add: Entrance donation capitalized 90,000
11,19,850
Less: ExXcess of expenditure over income (30,250)
Balance as on 31.3.20X1 10,89,600
19. Summary of receipts and payments of Bombay Medical Aid society for the year ended 31.12.20X0
are as follows: -
Opening cash balance in hand 8,000, Subscription 50,000, donation 15,000 (raised for
meeting revenue expenditure), interest on investments @9% p.a. 9,000, payments for medicine
supply 30,000 Honorarium to doctor 10,000, Salaries 28,000, sundry expenses R 1,000,
equipment purchase 15,000, charity show expenses 1,500, charity show collection 12,500.
-
Additional information:
Particulars 1.1.20XO 31.12.2OX0

Subscription due 1,500 2,200

Subscription received in advance 1,200 700
Stock of medicine 10,000 15,000
Amount due for medicine supply 9,000 13,000
Value of equipment 21,000 30,000
Value of building 50,000 48,000
You are required to prepare receipts and payments account and income and expenditure account
for the year ended 31.12.20X0 and balance sheet as on 31.12.20X0.
[ICAI SM/ Nov.
2001]

Sol.
Receipts and Payments Account of Bombay Medical Aid Society
For the year ended 31st December, 20X0
Receipts Payments (3)_
To Cash in hand (Opening) 8,000 By Medicine supply 30,000
To Subscription 50,000 By Honorarium to doctors 10,000
To Donation 15,000 By Salaries 28,000
To Interest on Investment 9,000 By Sundry expenses 1,000
To Charity show collections 12,500 By Purchase of equipment 15,000
By Charity show expenses 1,500

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By Cash in hand (Closing) 9,000

94,500 94,500

Income and Expenditure Account of Bombay Medical Aid Society

For the year ended 31st December, 20X0
Expenditure ) Income )
To Medicine consumed 29,000 By Subscription 51,200
To Honorarium to doctors 10,000 By Donation 15,000
To Salaries 28,000 By Interest on Investments 9,000
To Sundry expenses 1,000 By Profit on charity show
To Depreciation on Show collections 12,500
Equipment 6,000 Less: Show expenses (1,500) 11,000
Building 2.000 8,000
To Surplus-excess of income over 10,200
expenditure
86,200 86,200

Balance Sheet of Bombay Medical Aid Society

As on 31st December, 20X0
Liabilities
-
() Assets ()
Capital fund: Building 50,000
Opening balance 1,80,300 Less: Depreciation 2.000 48,000
Add: Surplus 10,200 1,90,500 Equipment 21,000
Subscription received in 700 Add: Purchase 15.000
advance 36,000
Amount due for medicine 13,000
Supply Less: Depreciation 6.000 30,000
Grdoming Edud Stock of medicine 15,000
Pioneer in De
Investmentsy 1,00,000
Subscription receivable 2,200
Cash in hand 9,000
2,04,200 2,04,200
-

Working Notes:
-
Subscription for the year ended 31st December,20X1: ()
Subscription received during the year 50,000
Less: Subscription receivable on 1.1.20X1 1,500
Less: Subscription received in advance on 31.12.20X1 700 (2,200)
47,800
Add: Subscription receivable on 31.12.20X1 2,200
Add: Subscription received in advance on 1.1.20X1 1.200 3,400
51,200
Purchase of medicine: -
Payment for medicine supply 30,000
Less: Amounts due for medicine supply on 1.1.20X1 (9.000)
21,000
Add: Amounts due for medicine supply on 31.12.20X1 13,000
34,000
Medicine consumed:
Stock of medicine on 1.1.20X1 10,000
Add: Purchase of medicine during the year 34,000
44,000

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Less: Stock of medicine on 31.12.20X1 (15,000)

29,000
Depreciation on equipment:
-

Value of equipment on 1.1.20X1 21,000

Add: Purchase of equipment during the year 15,000
36,000
Less: Value of equipment on 31.12.20X1 (30,000)
Depreciation on equipment for the year 6,000
Balance Sheet of Medical Aid Society
As on 1st January, 20X1
Liabilities () Assets )
Capital fund (balancing figure) 1,80,300 Building 50,000
Subscription received in advance 1,200 Equipment 21,000
Amount due for medicine supply 9,000 Stock of medicine 10,000
Investments (9,000 x 100/9) 1,00,000
Subscription receivables 1,500
Cash in hand 8,000
1,90,50d 1,90,500

20 The following is the Receipts and payments account of Rotary Club for the year ended on 31 st
March, 20X1
Dr. Receipts and payments A/c for the year ended on 31st March 20X1 Cr.
Receipts ) Payments
To balance c/d 8,450 By Salaries and wages 12,250
To Subscription 23,000 By Supply of refreshment 18,250
To Sale of refreshments 22,000 By Sports equipment 27,500
To Entrance fees 26,000 By Telephone Charges 2,800
To Interest on Investments @ 4,550 By Electricity charges 15,600
7%
By Honorarium charges 6,500
Grdpming Ed By balance c/dny
1,100
84,000 84,000

-
Additional Information:
1) Following are the assets and liabilities on 31st March, 20X0.
Assets-Sports equipment- * 32,000, Subscription in arrearsI7,600: furniture R 12,480.
Liabilities - Outstanding Electricity charges -* 5,400; Subscription in advance-* 6,250
2) Following are the assets and liabilities on 31st March, 20X1 -
Assets - Sports equipment -R 50,500: Subscription in arrears -5,200: furniture -*
11,180.
Liabilities - Outstanding Electricity charges -3,800: Subscription in advance-4,850
3) 50% of the entrance fees to be capitalized.
4) Interest on the investments is being received in full, and the investments have been made
on 1.4.20X0
You are required to prepare Income and Expenditure account and the Closing balance sheet as of
31st March 20X1 in the books of Rotary Club. (RTP
may 2021)
Sol. In the books of Rotary Club
Dr. Income and expenditure Account for the year ended on 31st March, 20X1 Cr.
Expenditure Income )
To Salaries and wages 12,250 By Subscriptions (W.N.4) 22,000
To Depreciation (W.N.3) 10,300 By Net Proceeds from refreshments 3,750
(22,000 - 18,250)
To Telephone Charges 2.800 By Entrance fees (50% x 26,000) 13,000

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To Electricity Charges (W.N.5) 14,000 By Interest on investments 4,550

To Honorarium charges 6,500 By Excess of expenditure over income 2,550
45,850 45,850

Balance sheet as on 31st March, 20X1

Liabilities (3) Assets ()
Opening capital fund: 1,13,880 Sports Equipment 50,500
Less: Deficit (2.550) 1,11,330 Furniture 11,180
Entrance fees 13,000 7% Investments 65,000
Outstanding electricity charges 3,800 Subscription in arrears 5,200
Subscription in advance 4,850 Cash 1,100
1,32,980 1,32,980

-
Working Notes:
Income earned during the year 4.550
1) Investments made Rate of interest
=65,000
7%

2) Balance sheet as on 31st March, 20X0

Liabilities () Assets (3)
Opening capital fund (B/) 1,13,880 Sports Equipment 32,000
Accrued electricity charges 5,400 Furniture 12,480
Subscription in advance 6,250 7% Investments 65,000
Subscription Outstanding 7,600
Cash 8,450
Total 1,25,530 1,25,530

-
3) Computation of depreciation:
Sports Equipment
Particulars
Sports equipment as on 31st March 20XO 32,000
Add: Purchase during the year 27,500
Less: Closing balance of equipment as on 31st March 20X1 (50,500)
Depreciation on sports equipment for the year ended 31st March 20X1 9,000

Furniture
Particulars ()
Furniture as on 31st, March 20X0 12,480
Add: Purchase during the year
Less: Closing balance of equipment as on 31st, March 20X1 (11,180)
Depreciation on furniture for the year ended 31st, March 2OX1 1,300

= 10,300 (9,000 + 1,300)

Total Depreciation

4) Subscription to be credited to income and expenditure account for the year 20X1
Dr. Subscription A/c (year ended on 31st March, 20X1) Cr
Particulars () Particulars ()
To Outstanding at the beginning 7,600 By Advance at the beginning 6,250
(20X0) (20X0)
To Income and Expenditure A/c 22,000 By Receipts and payments A/c 23,000
To Advance at the end (20X2) 4,850 By Outstanding at the end (20X1) 5,200
34,450 34,450

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5) Electricity charges to be debited to Income and expenditure Account.

Particulars
Electricity charges paid for year 20X1 15,600
Add: Outstanding charges for year 20X1 3,800
Less: Outstanding charges for year 20X0 5,400
Electricity charges to be debited to Income and Expenditure A/c 14,000

Grooming Education Academy

Pioneer in Develogping Coeept

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Fundamentals of Partnership
Assignnment
Questions and Solutions
NO.
1. A and B start business on 1st January, 20X0, with capitals of 30,000 and 20,000.
According to the Partnership Deed, B is entitled to a salary of R 500 per month and
interest is to be allowed on capitals at 6% per annum. The remaining profits are to be
distributed amongst the partners in the ratio of 5:3. During 2020 the firm earned a
profit, before charging salary to B and interest on capital amounting to 25,000. During
the year A withdrew I8,000 and B withdrew 10,000 for domestic purposes.
Give journal entries relating to division of profit. (ICAISM)
Sol.
Journal Entries
20X0 Particulars Dr. () Cr. ()
| Dec. 31| Profit and Loss Appropriation Account Dr. 6,000
To B's Capital Account 6,000
(Salary due to B @I500 per month.)
Profit and Loss Appropriation Account Dr 3,000
To A's Capital Account 1,800
To B's Capital Account 1,200
(Interest due on Capital 6% per month.)
@

Profit and Loss Appropriation Account Dr 16,000

To A's Capital Account 10,000|
To B's Capital Account 6,000|
(Remaining profit of{ 16,000 divide between
Aand B in the ratio of 5:3.)
2
Ram, Rahim and Karim are partners in a firm. They have no agreement in respect of
profit-sharing ratio, interest on capital, interest on loan advanced by partners and
remuneration payable to partners. In the matter of distribution of profit they have put
forward the following claims:
0oming Education AAcademy
i) Ram, who has contributed maximum capital demands interest on capital at 10%
p.a. and share of profit in the capital ratio. But Rahim and Karim do not agree.

ii) Rahim has devoted full time for running the business and demands salary at the
rate of
500p.m. But Ram and Karim do not agree.
iii) Karim demands interest on loan of 2,000 advanced by him at the market rate of
interest which is 12% p.a.
How shall you settle the dispute and prepare Profit and Loss Appropriation Account
after transferring 10% of the divisible profit to Reserve. Net profit before taking into
account any of the above claims amounted to 45,000 at the end of the first year of their
business. (ICAI SM)

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Sol. There is no partnership deed. Therefore, the following provisions of the Indian
Partnership Act are to be applied for settling the dispute.
No interest on capital is payable to any partner. Therefore, Ram is not entitled to
interest on capital.
ii)) No remuneration is payable to any partner. Therefore, Rahim is not entitled to
any salary.

iii) Interest on loan is payable @ 6% p.a. Therefore, Karim is to get interest @ 6%

p.a. on 2,000 instead of 12% p.a.

iv) The profits should be distributed equally.

Profit and Loss Appropriation Account for the year ended...
Particulars Particulars
|To Interest on Karim Loan A/c By Profit and Loss A/c
-
45,000
( 2,000 >x 6/100) 120 (Net profit)
To Reserve A/c - [10% of
(45,000-120)] 4,488
To Share of Profit A/c:
Ram: 13,464
Rahim: 13,464
Karim: 13,464 40,392
45,000 45,000
3. A and start business on 1st January, 20X0, with capitals of 30,000 and 20,000.
B
According to the Partnership Deed, B is entitled to a salary of 500 per month and
interest is to be allowed on opening capitals at 6% per annum. The remaining profits
are to be distributed amongst the partners in the ratio of 5:3. During 2020 the firm
earned a profit, before charging salary to B and interest on capital amounting to
25,000. During the year A withdrew 8,000 and B withdrew 10,000 for domestic
purposes.
Prepare Profit and Loss Appropriation Account. (ICAI SM)
Sol. Profit and Loss Appropriation Account
for the year ended 31-Dec-X0

Particulars Particulars
To B's Capital Account-Salary 6,000| By Net Profit 25,000
To A's Capital Account-interest 1,800
To B's Capital Account-interest 1,200
|To Profit transfer to:
A's Capital Account (5/8) 10,000|
B's Capital Account (3/8) 6,000
25,000 25,000
NOTE: Since date of drawing & rate of interest on drawing is not given, it is assumed
drawings are made on last day of year.
4. A and B start business on 1st January, 20X0, with capitals of 30,000 and 20,000.
According to the Partnership Deed, B is entitled to a salary of 500 per month and
interest is to be allowed on opening capitals at 6% per annum. The remaining profits
are to be distributed amongst the partners in the ratio of 5:3. During 2020, the firm
earned a profit, before charging salary to B and interest on capital, amounting to
25,000. During the year A withdrew R 8,000 and B withdrew 10,000 for domestic
purposes.
Prepare Capital Accounts of Partners A and B. (ICAI SM)

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Sol.
Dr. A's Capital Account Cr.
|20X0 Particulars 20X0 Particulars
Dec. To Bank A/c 8,000Jan. 1 By Bank A/c 30,000
31 (Drawings) Dec. 31| By Profit and Loss
-
appropriation A/c
To Balance c/d 33,800| Interest 1,800
By Profit and Loss
-
|appropriation A/c (5/8 10,000|
Profit)
41,800 41,800
|20X1
Jan. 1 By Balance b/d 33,800

Dr. B's Capital Account Cr

|20X0 Particulars 20X0 Particulars F

Dec. To Cash - (Drawings) 10,000|Jan. 1 By Bank A/c 20,000

31 To Balance c/d 23,200 Dec. By Profit and Loss A/c
31
-
Salary 6,000
-Interest 1,200
By Profit and Loss A/c 6,000
-
(3/8 Profit)
33,200 33,200
20X1
Jan. 1 By Balance b/d 23,200
5. A and B are partners sharing profits and losses in the ratio of their effective capital.
They had 1,00,000 and 60,000 respectively in their Capital Accounts as on 1st
January, 20X0.
Grooming Education Acadermy.
A introduced a further capital of 10,000 on 1st April, 20X0 and another 5,000 on 1st
July, 20XO. On 30th September, 20X0 A withdrew40,000.
On 1st July, 20X0, B introduced further capital of 30,000.
The partners drew the following amounts in anticipation of profit.
drew 1,000 per month at the end of each month beginning from January, 20X0. B
A

drew 1,000 on 30th June, and 5,000 on 30th September, 20X0.

12% p.a. interest on capital is allowable and 10% p.a. interest on drawings is
chargeable. Date of closing 31.12.20X0. Calculate: (a) Profit-sharing ratio; (b) Interest
on capital; and(c) Interest on drawings. (LCAI SM)
Sol.
a) Calculation of Effective Capital

For A:
|Capital (K) Months for which capital has been used in the Product
business ()
1,00,000 3 3,00,000
1,10,000 3 3,30,000
1,15,000 3 3,45,000
75,000 3 2,25,000
Total 12,00,000

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For B:
Capital () Months for which capital has been used in the Product
business ()
60,000 6 3,60,000
90,000 6 5,40,000
Total 9,00,000
So, Profit sharing ratio between A and B = 12,00,000:9,00,000 =
4:3
on
b) Calculation of Interest Capital
=*12,00,000 x 12/100 x 1/12 = R 12,000 B=*9,00,000 12/100 x 1/12 = 9,000
A »x

c) Calculation of Interest on Drawings

A
=*12,000 x 10/100 x 5.5/12 = * 550 B=1,000 x 10/100 x 6/12 =50
10/100 x 3/12 = 125
=I5,000 x

6. Ram and Rahim start business with capital of 50,000 and 30,000 on 1st January,
20X0. Rahim is entitled to a salary of R 400 per month. Interest is allowed on capitals
and is charged on drawings at 6% per annum. Profits are to be distributed equally after
the above noted adjustments. During the year, Ram withdrew 8,000 and Rahim
withdrew 10,000. The profit for the year before allowing for the terms of the
Partnership Deed came to 30,000. Assuming the capitals to be fixed, prepare the Profit
and Loss Appropriation Account and the Capital and Current Accounts relating to the
partners. (ICAI SM)
Sol. Profit & Loss (Appropriation) Account
| 20X0 Particulars 20x0| Particulars
Dec. To Rahim's Current A/c - 4,800|Dec. By Net Profit 30,000
31 Salary 31 By Sundries-Interest
on Drawings:
To Sundries
-Interest on Capitals
Ram's Current A/c 3,000| Ram's Current A/c (6% on 240
Rahim's Current A/Cng800n 8,000 for6 months)
A

To Profit transferred to Rahim's Current A/c (6% 300

Ram's Current A/c (1/2)| 10,470| on 10,000 for 6 months)
Rahim's Current A/c 10,470|
(1/2) 30,540| 30,540

Dr. Ram's Capital Account Cr.

|20X0 Particulars 20X0 Particulars
Dec. To Balance c/d 50,000|Jan. 1 By Bank A/c 50,000
31 20X1
Jan. 1 By Balance b/d 50,000
Dr. Rahim's Capital Account Cr.
20X0 Particulars 20X0 Particulars
Dec. To Balance c/d 30,000|lJan. 1 |By Bank A/c 30,000
31 20X1
Jan. 1 By Balance b/d 30,000

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Ram's Current Account

20X0 Particulars 20X0 Particulars
|
Dec. 31|To Cash Bank A/C 8,000| Dec. 31| By Profit and Loss
(Drawings) |Appropriation A/c 3,000
|Interest
To Profit and Loss
Appropriation 240
-
A/c Interest on
Drawings
|By Profit and Loss
To Balance c/d 5,230 Appropriation 10.470
13,470 A/c- 1/2 profit 13,470
20X1
Jan. 1 By Balance b/d 5,230
Rahim's Current Account
20X0 Particulars 20X0 Particulars
To Cash Bank 10,000| Dec. 31 By Profit and Loss
Dec. A/c appropriation A/c
4,800
(Drawings) Salary
31
1,800
To Profit and Loss Interest
300
appropriation A/c
Interest on Drawings
By Profit and Loss
To Balance c/d 6,770 appropriation A/c
Profit 10,470
17,070 17,070
20X1
Jan. 1 By Balance b/d
6,770
7. and were partners ina firm sharing profits and losses in the ratio of 3:2. They admit
A B
C for
1/6th share in profits and guaranteed that his share of profits will not be less than
2,50,00,000. Total profits of the firm for the year ended 31st March, 20X0 were
9,00,00,000. Calculate share of profits for each partner when:
1) Guarantee is given by firm.
2) Guarantee is given by A
3) Guarantee is given by A and B equally. (ICAI SM)

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Sol. [Link] Guarantee is given by firm

Profit and Loss Appropriation Account
for the year ending on 31st March, 20XO
Particulars Particulars
|To A's Capital A/c (3/5 of T 650,00,000)l 3,90,00,000|By Profit and Loss, A/c 9,00,00,000
|To B's Capital A/c (2/5 of T 650,00,000) 2,60,00,000
To C's Capital A/c (1/6 of 9,00,00,000
or 25,000,000 whichever is more) 2,50,00,000
9,00,00,000 9,00,00,000

[Link] Guarantee is given by A

Profit and Loss Appropriation Account

for the year ending on 31st March, 20X0
Particulars Particulars
|To A's Capital A/c (3/6 of ? By Profit and Loss, A/c (Net 9,00,00,000
9,00,00,000) profits)
4,50,00,000
Less: Deficiency
borne for C (1,00,00,.000)1 3,50,00,000

|To B's Capital A/c (2/6 of 3,00,00,000

9,00,00,000)
To C's Capital A/c (1/6 of` 9,00,00,00 0)

1,50,00,000
Add: Deficiency
Recovery from A 1.00,00,000 2,50,00,000

9,00,00,000 9,00,00,000
[Link] Guarantee is given A
by and equally B

Profit and Loss Appropriation Account

for the year ending on 31st March, 20X0
Particulars Particulars
To A's Capital A/c By Profit and Loss, A/c 9,00,00,000
(Net profits)
|(3/6 of 9,00,00,000) 4,50,00,000|
|Less: Deficiency borne
for C (1/2 of 1,00,00,000) (50,00,000) 4,00,00,000
To B's Capital A/c
(2/6 of 9,00,00,000) 3,00,00,000
Less: Deficiency borne (50,00,000) 2,50,00,000
for C (1/2 of 1,00,00,000)
To C's Capital A/c 1,50,00,000
(1/6 of 9,00,00,000)
|Less: Deficiency
Recovery from A 50,00,000
|Less: Deficiency
Recovery from B 50,00,000| 2,50,00,000
9,00,00,000 9,00,00,000

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8 Weak, Able and Lazy are in partnership sharing profits and losses in the ratio of [Link].
It is agreed that interest on capital will be allowed @ 10% per annum and interest on
drawings will be charged @ 8 % per annum. (No interest will be charged/allowed on
Current Accounts).
The following are the particulars of the Capital and Drawings Accounts of the
partners:
Particulars Weak () Able (3) Lazy ()
Capital (1.1.20X0) 75,000 40,000 30,000
Current Account (1.1.20X0) 10,000 5,000 (Dr.) 5,000
|Drawings 15,000 10,000 10,000
The draft accounts for 20X0 showed a net profit of T 60,000 before taking into account
interest on capitals and drawings and subject to following rectification of errors:
a) Life Insurance premium of Weak amounting to 750 paid by the firm on 3Oth June,
20X0 has been charged to Miscellaneous Expenditure A/c.
b) Repairs of Machinery amounting to 10,000 has been debited to Plant Account and
depreciation thereon charged @ 20%.
c) Travelling expenses of 3,000 of Able for a pleasure trip to U.K. paid by the firm on
30th June, 20X0 has been debited to Travelling Expenses Account.
You are required to prepare the Profit and Loss Appropriation Account, Current
Accounts of partners Weak, Able and Lazy for the year ended 31st December,20XO.
(ICAI SM)
Sol. Weak, Able &
Lazy
Profit and Loss Appropriation Account
for the year ended 31st December, 20X0
Particulars Particulars
To Interest on Profit
By Net 55,750
Capital: (Adjusted)
Weak 7,500 By Interest on
Drawings:
Able 4,000g EducatiWeak demy 630
Lazy 3,000 14,500 Able 520
Lazy 400 1,550
To Partner's Current
A/c's Share of
Profit
Weak 21,400
Able 10,700
Lazy 10,700 42,800
57,300 57,300

Working Notes:
i)
Adjusted Profit
Net Profit as per Profit & Loss A/c 60,000
Add: Drawings by Weak: Life Insurance Premium of Weak 750
charged to Miscellaneous Expenditure A/c of the Firm

Add: Drawings by Able: Travelling expenses of Able in 3,000

connection with pleasure trip to U.K. charged to travelling 63,750
expenses A/c of the firm
Less: Repairs to Machinery wrongly capitalized 10,000
Less: Depreciation charged @ 20% (2,000) (8,000)
55,750

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ii) Interest on Drawings:

Particulars Weak Able Lazy
Drawings 15,000 10,000 10,000
Add: Rectification adjustments 750 3,000
15,750 13,000 10,000
Interest @ 8% p.a. for 6 months 630 520 400

Partners' Current Accounts

|Particulars Weak Able Lazy Particulars Weak Able Lazy
To Balance b/d - 5,000| By Balance b/d 10,000 5,000
To Drawings 15,000 10,000 10,000 By 7,500 4,000 3,000
Profit & Loss App.
A/c (Interest on
capital)

To Life 750 21,400 10,700 10,700

By Profit & Loss
Insurance App. A/c
Premium (Share of profit)
To Travelling 3,000
Expenses
To Profit & 630 520 400
Loss App. A/c
(Interest on
drawings)
To Balance c/d 22,520| 6,180 1,700
By Balance c/d
38,900| 19,700 15,400 38,900 19,700 15,400

9. Ram and Rahim are in partnership sharing profits and losses in the ratio of 3:2. As
Ram, on account of his advancing years, feels he cannot work as hard as before, the
chief clerk of the firm, Ratan, is admitted as a partner with effect from 1st January,
20X0, and becomes entitled to 1/10th of the net profits and nothing else, the mutual
ratio between Ram and Rahim remaining unaltered. Before becoming a partner,
Ratan was getting a salary of I 500 p.m. together with a commission of 4% on the net
profits after deducting his salary and commission.
It is provided in the partnership deed that the share of Ratan's profits as a partner in
excess of the amount to which he would have been entitled if he had continued as the
chief clerk, should be taken out of Ram's share of profits.
The net profit for the year ended December 31, 20X0 is 1,10,000. Show the
distribution of net profit amongst the partners. (ICAI SM)
Sol. Amount due to Ratan as a Chief Clerk
Particulars
Salary 6,000
-
Add: Commission 4/104 (*1,10,000 6,000) 4,000
10,000
Less: Share of Profit as a partner (1/10th of 1,10,000) (11,000)
Excess chargeable to Ram 1,000

Profit and Loss Appropriation Account for the year ended 31.12.20X0
Particulars Particulars
To Share of Profit: By Profit and Loss 1,10,000
A/c (Net Profit)
Ram [3/5 of (R 1,10,000 -10,000) -* 59,000
1,000]
Rahim [2/5 of ( 1,10,000 40,000
10,000)]
Ratan [1/10 of 1,10,000] 11,000
1,10,000 1,10,000

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10. X and Y are partners. As per terms of agreement interest is allowed on capital at 8%
p.a. and charge on drawing at 10% p.a. X withdrew 40,000 per month at the end of
each month and Y withdrew 120,000 at the end of each quarter. You are required
to fillthe missing figures in following accounts:

Profit and Loss Appropriation Account for the year ended March 31, 20X0
Particulars Particulars
To ...? By Profit and Loss A/c (Net
profit)
To Interest on Capital A/c By Interest on Drawings A/c
X 1,60,000 X ?
?
Y ? 2,88,000| Y ?

To profit transferred to
Capital A/c
X (2/3) ?
Y (1/3) 2,80,000

Partner's Capital Accounts

Particulars X Particulars X Y

To ...? By ...? ?
To ...? ? ? By Salary A/c 3,60,000 ?
To ...? By ...? 2
? By ...? ?
? 2

Sol. Profit and Loss Appropriation Account for the year ended March 31, 20X0
Particulars Particulars
To Salary to X 360,000| By Profit and Loss A/c (Net 14,48,000
To Interest on Capital A/c profit)
X Gi60000d E288,000 By lnterest on Drawings A/c
eveioping X 22,000
Y 1.28,000
Y 18,000
To profit transferred to Capital A/c 40,000
X (2/3) 5,60,000 840,000|
Y (1/3) 2.80,00014,88,000 14,88,000

Partner's Capital Accounts

Particulars X Particulars
To Drawing A/c 4,80,000 4,80,000By Balance b/d 20,00,000 16,00,000
To Interest on Drawings 22,000 18,000 By Salary A/c 3,60,000 1,28,000
|A/c on
|To Balance c/d 25,78,00o15,10,000|By Interest 1,60,000
|Capital A/c

By Profit and Loss 5,60,000 2,80,000

App
30,80,00020,08,000| 30,80,000 20,08,000|

Working Notes:
1) X's Share of Profit
= 2,80,000 x
3/1 x 2/3 = 5,60,000
2) Interest on Drawings
X = 11/2 x 1/12 x 10/100 = 22,000
4,80,000 x
Y = 9/2 x 1/12 x 10/100 = 18,000
4,80,000 x

3) Y's Interest on Capital

= 2,88,000 - 1,60,000 = 128,000

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11. A, Band C entered into partnership on 1.1.20X0 to share profits and losses in the ratio
of [Link]. A personally guaranteed that C's share of profit after charging interest on
capitals at 5% per annum would not be less than 30,000 in any year. Capitals of A,

B and C were 3,20,000, 2,00,000 and 1,60,000 respectively.

Profits for the year ending 31.12.20XO before providing for interest on partner's
capital was 1,59,000.

You are required to prepare the profit and loss appropriation account.
(May 2018 RTP/May 2020 RTP/Nov. 2021 RPT/May 2005)
Sol.
Profit and loss appropriation A/c
Dr. for the year ended 31st December, 20X0 Cr.
Particulars Particulars
To Interest on capital By Net profit 1,59,000
A (5% of 3,20,000) 16,000
B (5% of I2,00,000) 10,000
C
(5% of ? 1,60,000) 8,000 34,000

To Profit transferred:
1,25, 000) 62,500
Ax
Less: Transferred to C (5,000) 57,500
B(x*1, 25, 000) 37,500
10

C(x*1, 25, 000) 25,000

10

Less: Transferred from A 5,000 30,000

1,59,000 1,59,000
12. Aarti, Bharati and Criti were in partnership sharing profits and losses in the ratio 3:4 :3.
Their capitals as on 1t April 20X0 were 3,00,000, 5,00,000 and 2,00,000 respectively.
According to partnership deed, Criti is entitled to salary of 15,000 p.m., interest on
opening capital is to be allowed @12%p.a. Aarti was entitled to rent @R5,000/- p.m. for
premises belonging to her, used for the partnership business. No interest to be charged
on drawings.

Rent paid to Aarti and salary paid to Criti were debited to drawings account of respective
partners, Bharti had withdrawn 10,000 per month from the business. The profit of the
firm for the year ended 31st March 20X1, before charging interest in capital amounted to
4,60,000. You are required to prepare Profit and Loss appropriation Account and
partners' Capital Accounts. (ICAISM)
Sol. In the b0oks of Aarti, Bharti and Criti
Profit and Loss Appropriation A/c for the year ended 314 March 20X1

Particulars () Particulars ()
Salary to Criti 1,80,000 Net Profit b/d 4,60,000
Interest on Capital
- Aarti 36,000
Bharti 60,000
Criti 24.000 1,20,000
Rent to Aarti 60,000
Net Profit transferred to
Aarti 30,000
Bharti 40,000
Criti 30.000 1,00,000
4,60,000 4,60,000

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Partners' Capital Accounts

Particulars Aarti Bharti Criti Particulars Aarti Bharti Criti

Balance b/d 3,00,000 5,00,000 2,00,000

Interest on 36,000 60,000 24,000
Capital
Drawings 1,20,000 Salary 1,80,000
Rent 60,000
Profit and loss 30,000 40,000 30,000
Appropriation
.A/c
Balance c/d 4,26,000 4,80,000 4,34,000
4,26,00 6,00,00 4,34,00 4,26,000 6,00,000 4,34,000

Working Notes: :

Partners Drawing Account

Particulars Aarti Bharti Criti Particulars Aarti Bharti Criti
bank 60,000 1,20,000 1,80,000 Profit and loss
Appro. A/c 60,000
Profit and loss
Appro. A/c 1,80,000
Capital A/c
1,20,000
60,000 1,20,000 1,80,000 60,000 1,20,000 180,000

13. 1) A, B and C are partners in a firm. On 1st April, 20X0, their fixed capital stood at
R50,000, R25,000 and 25,000 respectively.
As per the provisions of partnership deed:
1) Cwas entitled for a salary of R5,000 p.a. Academy
2) All the partners were entitled to interest on capital at 5% p.a.
3) Profit and losses were to be shared in the ratio of capitals of the partner.

Net profit for the year ended 31st March, 20X1 of E33,000 and 31t March, 20X2 of
R45,000, was divided equally without providing for the above adjustments.
You are required to pass an adjustment journal entry to rectify the above error.
(Dec. 2021)
Sol. Particulars A B C Total
Profit of
firm
1. Amount already credited:
Share of profit (in the ratio of 26,000 26,000 26,000 78,000
[Link]) (20X0-X1, 20X1-X2)

2. Amount which should have

been credited:
C's Salary (20X0-X1,20X1-X2) 10,000
Interest on capital (20X0-X1,
20X1-X2) 5,000 2,500 2,500
29,000 14,500 14,500 58,000
34,000 17,000 27,000
Net Effect (1-2) (8,000) 9,000 (1,000)

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The necessary journal entry will be:

Particulars Dr. () Cr.
()
B's Current A/c 9,000
To A 's Current A/c 8,000
To B's Current A/c 1,000

(Salary to C, Interest on capital charged

and profit shared among partners in the
ratio of capital)

Grooming Education Academny

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CA Foundation
Principles and Practices of Accounting
Assignment
Admission of Partner
Q. Particulars
No.
1. The following is the Balance Sheet of Ram and Mohan, who share profits in the ratio of 3:2 as
on 1st January, 2020:
Liabilities Assets
Trade payables 15,000|Buildings 18,000
Ram's Capital 20,000| Plant and Machinery 15,000
Mohan's Capital 25,000 |Inventories 12,000
|Trade receivables 10,000
Bank 5,000
60,000 60,000

On this date Shyam was admitted on the following:

1. He is to pay 25,000 as his capital and 10,000 as his
share ofgoodwill for one fifth
share in profits.
2. The new profit-sharing ratio will be [Link].
3. The assets are to be revalued as under:
R

Building 25,000
Plant and Machinery 12,000
Inventories 12,000
Trade receivables (because of doubtful debts) 9,500
4. Itwas found that there was a liability for
books.
Give journal entries to record the above. Also, give the Balance Sheet of the partnership
firm after Shyam's admission. Developing Concepts (ICAI SM)

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Sol Journal Entries

2020 Particulars Dr. () Cr. ()
Jan. 1 Bank Account Dr 35,000
To Shyam's Capital Account 35,000
(Being amount brought in by Shyam for capital and
goodwill)
|Shyam's Capital Account Dr 10,000
To Ram's Capital Account 5,000
To Mohan's Capital Account 5,000
(Being Shyam's share of goodwill adjusted to existing partners'
Capital accounts in the sacrificing ratio 1:1)
Revaluation Account Dr. 5,000
To Plant and Machinery Account 3,000
To Provisions for Doubtful Debts Account 500
To Trade payables Account 1,500
(Being recording of the reduction in the value of assets and the
|liability which had been previously omitted)
Dr
Building Account 7,000
To Revaluation Account 7,000
(Being increase in the value of building brought into
account)
Revaluation Account Dr. 2,000
To Ram's Capital Account 1,200
To Mohan's Capital Account 800
(Being profit on revaluation credited to Ram and Mohan in the
old profit-sharing ratio)
Working Note:
Sacrificing ratio:
-
Ram = 3/5 1/2 = 1/10
Mohan 2/5-3/10 =1/10
Balance Sheet of Ram, Mohan and Shyam as at January 1, 2020
R
Liabilities Assets
Trade payables 16,500|Buildings 25,000
Gcapital
Ram
Acounts:O
26,200
OU Inventories
Plant and Machinery
Acade 12,000
12,000
receivablesoncept 10,00
Mohanionee 30,800eveTradeProvision for82.000Less:
Shyam 25,000
Doubtful Debts (500) 9,500
Bank 40,000
98,500 98,500

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2. A and B are partners sharing profits and losses in the ratio of 3:2. Their Balance Sheet as on
31.3.2020 is given below:
Liabilities Assets
Trade payables 50,000| Freehold premises 2,00,000
Capital Accounts: Plant 40,000
A 2,00,000Furniture 20,000
B 1,00,000Office equipment 25,000
Inventories 30,000
Trade receivables 25,000
Bank 10,000
3,50,000 3,50,000
On 1.4.2020 they admit C on the following terms:
1) Cwill bring 50,000 as a capital and 10,000 for goodwill for 1/5 share;
2) Provision for doubtful debts is to be made on Trade receivables @ 2%
3) Inventory to be written down by 10%.
4) Freehold premises are to be revalued at 2,40,000, plant at 735,000, furniture 25,000
and office equipment 27,500.
5) Partners agreed that the values of the assets and liabilities remain the same and, as such,
there should not be any change in their book values as a result of the above mentioned
adjustments.
You are required to make necessary adjustments in the Capital Accounts of the partners and
show the Balance Sheet of
the New Firm.
(ICAI SM)
Sol Memorandum Revaluation Account
Particulars Particulars
ToProvision for Bad Debts A/c 500 By Freehold premises A/c 40,000
Tolnventory A/c 3,000|By Furniture A/c 5,000
ToPlant A/c 5,000 By Office equipment A/c 2,500
ToProfit on Revaluation A/c
A's Capital-3/5 23,400
B's Capital-2/5

ToFreehold premises A/c

15,600|
47,500 ation Acaea
40,000| By Provision for Bad Debts A/c 500
e 5,000 By Inventory
ToFurniture
Aleeer A/ecepts 3,000
ToOffice equipment A/c 2,500 By Plant A/c 5,000
Loss on Revaluation A/c
A'sCapital -12/25 18,720
B's Capital-8/25 12,480
C's Capital-5/25 7,800
47,500| 47,500

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Partners' Capital Accounts

Particulars A B C Particulars A B C

To A's Capital A/c 6,000 By Balance b/d 2,00,000 1,00,000

To B's Capital A/c 4,000
By Bank A/c 60,000
To Loss on 18,720 12,480 7,800
revaluation A/c By C's Capital A/c
on
6,000 4,000
To Balance c/d |2,10,680 1,07,120 42,200|By Profit
revaluation A/c 23,400 15,600
2,29,400 1,19,600 60,000 2,29,400 1,19,60 60,000

Balance Sheet as at 1.4.2 020

Liabilities Assets
Trade payables 50,000|Freehold premises 2,00,000
Plant 40,000
Capital A/c: Furniture 20,000
A 2,10,680Office equipment 25,000
B 1,07,120 | Inventories 30,000
42,200Trade receivables 25,000
|Bank
4,10,000 4,10,000
3. A and B are partners in a firm, sharing profits and losses in the ratio of 3:2. The Balance Sheet
of
and B as on 1.1.2020 was as follows:
A

Liabilities Amount Assets Amount

Trade payables 17,000 Building 26,000

Furniture 5,800
Bank overdraft 9,000|Inventories 21,400
Capital |Trade receivables 35,000
accounts:
A 44,000 |Less: Provision (200) 34,800
B 36,000 80,000| Investment 2,500
Cash 15,500
Ceoaaina
C
1,06,000
was admitted to the firm on the above date on the following terms:
ian Aaa 1,06,000

i) Cis admitted for 1/6 share in the future profits and to introduce a capital of 25,000.
ii) The new profit sharing ratio of A, B and C will be [Link] respectively. tS
iii) C is unable to bring in cash for his share of goodwill, they decide to calculate
goodwill on the basis of Cs share in the profits and the capital contribution made by
him to the firm.
iv) Furniture is to be written down by E870 and Inventory to be depreciated by 5%. A
provision is required for trade receivables @5% for bad debts. A provision would also be
made for outstanding wages for 1,560. The value of buildings having appreciated be
brought up to 29,200. The value of investments is increased by 450.
Itis found that the trade payables included a sum of1,400, which is notto be paid out
Prepare the following:
i) Revaluation account.

i) Partners' capital accounts.

(ICAI SM/RTP May 2019)

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Sol Revaluation Accounts

Particulars Particulars
To Furniture 870 By Building 3,200
To Inventory 1,070 By Trade payables By 1400
To Provision for doubtful debts 1,550| Investment 450
(R1,750 -*200)
To Outstanding wages 1,560|

5,050 5,050

Partners' Capital Accounts

Particulars A B C Particulars A B C

To A 4,500 By Balance b/d 44,000 36,000

To B 3,000 By Cash A/c 25,000
To Balance c/d 48,500 39,000 17,500|By C (working 4,500 3,000
note 2)
48,500 39,000 25,000 48,500 39,000 25,000
Working Notes:
1 Calculation ofgoodwill:
C's contribution of $25,000 consists of only 1/6th of capital.
Therefore, total capitaloffirm should beT25,000 x 6=R1,50,000
But combined capital of A,B and Camounts 44,000+36,000 + 25,000 =*1,05,000
Thus, the hidden goodwill is 45,000 (R1,50,000- 1,05,000).
Goodwill will be shared by A & B in their sacrificing ratio.
2.
Calculation of sacrificing ratio
Partners New share Old share Sacrifice Gain
A 3 3 3
6
B 2
6 5 30
GroonmihaEducatidn
Therefore, A
willget=45,000 x
30
= 4,500;
Acaddm
B will get =
t 45,000 x =3,000; andelOping Concepts
Cwill be debited on accounts of goodwill =45,000 x=7,500
4. Dalal, Banerji and Mallick are partners in a firm sharing profits and losses in the ratio [Link].
Their Balance Sheet as on 31st March, 2020 is as below:
Liabilities Assets
Trade payables 12,850| Land and Buildings 25,000
Outstanding Liabilities 1500 Furniture 6,500
General Reserve 6,500| Inventory of goods 11,750
Capital Account: Trade receivables 5,500
Mr. Dalal 12,000 Cash inhand 140
Mr. Banerji 12,000 Cash at Bank 960
Mr. Mallick 29,000|
5,000
49,850 49,850
The partners have agreed to take Mr. Mistri as a partner with effect from 1st April, 2020 on
the following terms:

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1) Mr. Mistri shall bring 75,000 towards his capital.

2) The value of Inventory should be increased by {2,500 and Furniture should be
depreciated by 10%.
3) Reserve for bad and doubtful debts should be provided at 1 0% ofthe Trade receivables.
4) The value of land and buildings should be enhanced by 20% and the value of the
goodwill be fixed at15,000.
5) The value of the goodwill be fixed at *15,000.
6) General Reserve will be transferred to the Partners' Capital Accounts.
7) The new profit-sharing ratio shall be: Mr. Dalal 5/15, Mr. Banerji 5/15, Mr. Mallick 3/15
and Mr. Mistri 2/15.
8) The outstanding liabilities include1,000 due to Mr. Sen which has been paid by Mr. Dalal.
Necessary entries were not made in the books.
Prepare (i) Revaluation Account, (ii) The Capital Accounts of the partners, (iii) Balance
Sheet of the firm after admission of Mr. Mistri.
(ICAI SM/Past Exam Nov 2018)

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Sol Revaluation Accounts

2020 Particulars 2020 Particulars
April
1Todoubtful debts
Provisionfor bad and 550 April By Inventory in trade 2,500

To Furniture and fittings 650 By Land and Building 5,000

To Capital A/cs:
(Profit on revaluation
transferred)
Dalal 2,520
Banerji 2,520
Mallick 1,260 6,300
7,500 7,500

Partners' Capital Accounts

Particula Dalal Banerj MallickMistri Particulars Dalal Banerji Mallick Mistri
rs
To Dalal 1,000 By Balance b/d 12,000 12,000 5,000

To Banerji 1,000 By General 2,600 2.600 1,300

Reserve
To Balance 19,120 18,120 7,560 3,000 By Cash 5,000
c/d
By Mistri 1,000 1,000
By Outstanding 1,000
Liabilities

By Revaluation 2,520 2,520 1,260

A/c

19,120 18,120 7,560 5,000 19,120 18,120 7,560 5,000

Working Note:
Calculation of sacrificing ratio
Partners New share Old share Sacrifice Gain
Dalal
15 15
Banerji 5
15 15
Mallick No gain no loss
15
Mistri 2
2
15
=
Sacrifice by Mr. Dalal and Mr. Banerji 15,000 x=*1,000 each.
Balance Sheet of M/s. Dalal, Banerji, Mallick and Mistri as on 1-4-2020
Liabilities 10 Assets
Trade payables 12,850 Land and Buildings 30,000
Outstanding Liabilities 500 Furniture 5,850
Capital Accounts of Partners Inventory of goods 14,250

Mr. Dalal 19,12 Trade receivables 5,500

Mr. Banerji 18,12 Less: Provisions (550) 4,950

Mr. Mallick 7,560 Cash in hand 140

Mr. Mistri 3,000 47,800 Cash at Bank 5,960
61,150 61,150

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5. A and B are in partnership sharing profits and losses in the ratio 3:2. They take Cas a new
partner. Calculate the newW profitsharing ratio if -
i) Cpurchases 1/10 share from A
ii) A and B agree to sacrifice 1/10th share to Cin the ratio of
2: 3
ii) Simply gets 1/10th share ofprofit.
(ICAISM)
Sol. ) Newprofitsharingratio:
A
=3/5- 1/10 = 5/10
B=2/5 i.e. 4/10
C=1/10
i.e. [Link] 1

i) A'ssacrifice 1/10x 2/5 = 2/50

B's sacrifice 1/10 x 3/5 = 3/50
New profit-sharing ratio:

A=3/5-2/50 = 28/50
B=2/5-3/50 = 17/50
C= 1/10 ie. 5/50
i.e. [Link]
iii) Let total share be 1

C's share=1/10
Remaining share=1-1/10=9/10
Distribution:
A=9/10 3/5 = 27/50
>x

B=9/10 x 2/5 = 18/50

=
C=1/10.i.e. 5/50
ie. [Link] 5

6.
Crooming
Aand are thein B
Education Academ
partnership sharing profits and losses in the proportion of three-fourth and
one-fourth respectively. Their balance sheet as on 31st March, 2020 was as follows:
Cash 1,000; trade receivables 25,000; Inventory {22,000; plant and machinery 4,000; trade
payables12,000; bank overdraft R15,000; A's capital R15,000; B's capital 10,000.
On 1st April, 2020, they admitted into partnership on the following terms:
C
i) Cto purchase one-third the goodwill for 72,000 and provide 10,000 as capital.
of

Goodwill notto appearin books.

ii) Further profits and losses are to be shared by A, B and Cequally.
iii) Plantand machinery istobe reduced by 10% and 500 isto beprovided forestimated
bad debts. Inventory is to be taken ata valuation of24,940.
iv) By bringing in or withdrawing cash and capitals of A and B are to be made
proportionate to thatofC on their profit-sharing basis.
Set out entries to the above arrangement in the firm's journal and give the partners' capital
accounts in tabular form.
(ICAISM)

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Sol. Journal Entries

as on 1st April,
2020
Particulars Dr. () Cr. ()
Revaluation Account Dr. 900
To Plant and machinery Account 400
To Provision for bad debts Account 500
(Plant & machinery reduced by 10% and 500 provided for bad
debts)
Inventory Account Dr. 2,940
To Revaluation Account 2,940
(Value of inventory increased by 2,940)
Revaluation Account Dr. 2,040
To A's capital Account 1,530
To B's capital Account 510
(Profit on revaluation transferred)
Cash Account Dr. 12,000
To C's capital Account 12,000
(Cash brought in by Cas his capital)
C's Capital Account Dr. 2,000
B's capital Account Dr. 500
To A's capital Account 2,500
(Entry for goodwill purchased by and C) B

A's capital Account Dr. 9,030

B's capital Account Dr. 10
To Cash Account 9,040
(Excess amount of capital withdrawn)

Partners' Capital Accounts

Particulars A B
C Particulars A B
C

Groomng
|To A's capital A/c Euauon Acacdm
500 By Balance b/d 15,000| 10,000|

To Cash Pio 9,030 10eBy Revaluation A/c 1,530 510

To Balance c/d 10,000 10,000 10,000 |By Cash 2,000 10,000
By B's Capital A/c 500

19,030 10,510| 10,000 19,030 10,510 10,000

Working Note:
Calculation of goodwill
C pays 2,000 on account of goodwill for 1/3rdshare of profit/loss.
Total goodwill is $2,000 x 3 =
t6,000.
Gaining ratio:
B: 1/3-1/4 =
1/12
C: 1/3

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Goodwill to be paid to A:

By B R6,000 x =
1/12 500
By C6,000 1/3 =
x {2,000
Total 72,500
7. A and are partners of X & Co. sharing profits and losses in 3:2 ratio between themselves. On
B
31st March, 2020, the balance sheet of the firm was as follows:
Balance Sheet of & Co. as at 31.3.2020X

Liabilities Assets
Capital accounts: Plant and machinery 20,000
A 37,000 Furniture and fittings 5,000
B 28,000 65,000
Inventories 15,000
Trade payables 5,000 Trade receivables 20,000
Cash in hand 10,000
70,000 70,000
X agrees to join the business on the following conditions as and from 1.4.2020:
a) He will introduce $25,000 as his capital and pay $15,000 to the partners as premium for
goodwill for 1/3rd share of the future profits of thefirm.
b) A revaluation of assets of the firm will be made by reducing the value of plant and
machinery to 15,000, Inventory by 10%, furniture and fitting by 1,000 and by
making a provision of badand doubtful debts at 750 on trade receivables.
Prepare profit and loss adjustment account, capital accounts of partners including the
incoming partner X assuming that the relative ratios of the old partners will be in equal
proportion after admission.
(ICAI SM)
Sol.
Profit and Loss Adjustment Account
2020 2020
April 1 April 1
To Plant and machinery A/c 5,000| By Partners' capital accounts
To Inventory A/c 1,500|- Loss on revaluation
To Furniture and fitting A/c 1,000 A(3/5) 4,950
750 3,300 8,250
To Provision for bad and doubtful B(2/5)
debts
8,250 8,250
Partners' Capital Accounts
Particulars A B X Particulars A B X

Pione pine once

To Profit & loss 4,950 3,300 By Balance b/d 37,000| 28,000
adjustment A/c By Cash A/c 40,000
To A's & B's capital A/cs 15,000| By X's capital A/c 12,000 3,000
To Balance c/d 44,050 27,700 25,000| [W. N. (i)]
49,000|31,000| 40,000 49,000|31,000 40,000|
Working Notes:
) New profit sharingratio:
On admission of X who will be entitled to 1/3rd share of the future profits of the firm. A and B
would share the remaining 2/3rd share in equal proportion i.e. 1:1.
A: 2/3 x 1/2 = 1/3
B: 2/3 x1/2 =1/3

X:1/3
A, BandX would share profits and losses in equal ratio.

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ii) Adjustment ofgoodwill:

XpaysT15,000 as premium for goodwill for 1/3rd share ofthe future profits.
Thus, total value of goodwillisR15,000 x3 i.e. R45,000
Sacrificing ratio:
A: 3/5-1/3 =4/15
A: 2/5 - 1/3 = 1/15
Hence, sacrificing ratio is 4:1
Adjustment of X's share of goodwill through existing partners' capital accounts in the sacrificing ratio:

A: 15,000 x 4/5 = 12,000

B: 15,000 x 1/5 = 3,000
15,000
8. A and B are partners with capitals of 7,000 each. They admit C as a partner with 1/4th share
in the profits of the firm. Cbrings T8,000 as his share of capital. Give the necessary journal entry
to record goodwill.
(ICAI SM)
Sol. Journal Entry

Particulars Dr. () Cr. ()

C's Capital A/c [R10,000 x 1/4] Dr. 2,500
To A's Capital A/c 1,250
To B's Capital A/c 1,250
(Being the share of C in the hidden goodwill adjusted through
capital accounts by crediting sacrificing partners in their
sacrificing ratio.)
Note: Hidden Goodwill= (8,000 x)- K7,000 + *7,000+8,000) = 10,000
9. A and B are in partnership sharing profits and losses equally. The Balance Sheet M/s. A and B as
on 31.12.2019, was as follows:

Liabilities Assets
Capital A/cs: Sundry Fixed Assets 60,000
n
GIra Oming Edsboabanes Acade 30,000
B 45,000 Bank 20,000
Trade payableseer inD 20,000
Png Concepts
1,10,000 1,10,000
On 1.1.2020 they agreed to take C as 1/3rd partner to increase the capital base to 1,35,000.
C
agrees to pay 60,000. Show the necessary journal entries and prepare partners' capital
accounts.
(ICAISM)

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Sol. In the Books of M/s. A, Band C

Journal Entries

Particulars Dr. () Cr. ()

Bank A/c Dr 60,000

To C's Capital A/c 60,000
(Cash brought in byC for 1/3rd share)
C's Capital A/c Dr 15,000
To A's Capital A/c 7,500
To B's Capital A/c 7,500
(Amount of goodwill adjusted)
A's Capital A/c Dr 7,500
B's Capital A/c Dr. 7,500
To Bank A/c 15,000
(Amount of goodwill due to A and B with drawn)

Workings:
1) Old Profit Sharing Ratio:1:1
2) New Profit Sharing Ratio: [Link]
3) C's share of capital 1,35,000 x 1/3 =745,000
4) Goodwill R60,000 - 45,000 =15,000 for 1/3rd share.
Total Goodwill:*15,000 ×3 =145,000
Partners' Capital A/cs
Particulars A B C Particulars A B C

To A 7,500| By Balance b/d 45,000 45,000

By
To B 7,500 Bank 60,000
To Bank 7,500 7,500 By C 7,500 7,500
To Balance c/d 45,000 45,000 45,000
52,500 52,500 60,000 52,500 52,500 60,000
10
Laurel and Hardy are partners of the firm LH & Co, from 1.4.2016. Initially, both of them
Contributed 1,00,000 each as Capital. They did not contribute any capital thereafter. They
maintain accounts of the firm on mercantile basis. They were sharing profits and losses in the
ratio of 5:4. After the accounts for the year ended 31.3.2020 were finalized, the partners decided
to share profits and losses equally with effect from 1.4.2016.
It was also discovered that in ascertaining the results in the earlier years, certain adjustments,
details of which are given below, had not been noted.
2017 2018 2019 2020
Year ended 31st March

Profit as per accounts prepared and finalized 1,40,000 2,60,000 3,20,000 3,60,000
Expenses not provided for (as at 31* March) 30,000 20,000 36,000 24,000
Incomes not taken into account (as at 31st 18,000 15,000 12,000 21,000
March)
The partners decided to admit Chaplin as a partner with effect from 1.4.2020. It was decided that
Chaplin would be allotted 20% share in the firm and he must bring 20% of the combined Capital
of Laurel and Hardy.

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Following is the Balance sheet of the firm as on 31.3.2020 before admission of Chaplin and before
adjustment of revised profits between Laurel and Hardy.
Balance Sheet of LH & [Link] at 31.3.2020
Liabilities Assets
Capital Accounts: Plant and machinery 60,000
Laurel 2,11,500 Cash on hand 10,000
at
Hardy 1,51,500 Cash bank 5,000
Trade Payables 2,27,000 Stock in trade 3,10,000
Trade Receivables 2,05,000
5,90,000 5,90,000
You are required to prepare:
i) Profit and Loss Adjustment account;
ii) Capital accounts of the partners; and
Balance Sheet of the firm after the admission of Chaplin.
(MTP August 2018)
Sol

a) Balance sheet
As on 31st March, 2019
Liabilities Assets

Outstanding expenses: Furniture 9,600

Salaries 710 Library books 5,000
Rent &Electricity
864 Sports equipment 7,200
Magazines & Newspapers 226 1,800 Fixed deposit 20,000
Capital Fund (Balancing figure) 47,000 Cash in hand and at bank 4,820
Prepaid expenses 417
Subscription receivable 1,263
Interest accrued 500
48,800 48,800

b) S0oming Education Academy

Income and expenditure A/c
Dr. For the year ended 31st March, 2020 Cr.
Expenditure Income

To Salaries 11,460By Subscription 28,912

(28,600+1,575-1,263)
To Rent and electricity 7,329 By Interest on fixed deposit 2,000
To Magazines and 2,286 By Miscellaneous income 700
newspapers
To Sundry expenses 10,075 By Deficit (Balancing figure) 2,888
To Depreciation:
960
ii) Furniture
(9,600x10%)
1,640
iv) Sports equipment
750 3,350
v) Library books
34,500 34,500

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(C)

Balance sheet

As on 31st March, 2020

Liabilities Assets

Outstanding expenses: Furniture 9,600

Salaries 170 Less: Depreciation (960) 8,640
Rent and electricity 973
Newspapers 340 1,483| Magazines and sports 7,200
equipment
Capital fund 47,000 Add: Purchase 1,000
Less: Deficit (2,888) 44,112 8,200
Less: (1,640) 6,560
Depreciation@ 20%

Library books 5,000

Add: Purchase 1,000
6,000
Less: Depreciation (750) 5,250
(Balancing figure)

Fixed deposit 20,000

Cash in hand and at 2,450
bank
Prepaid expenses 620
Subscription receivable 1,575
Interest accrued 500
45,595 45,595

Working Notes: (1)

Expenses Salaries Rent and Magazines Sundry

rooming Edica electricity

and
newspapers
Paid during the yeare n
Dele12,000g 7220|ept 2172 10,278
Add: Outstanding on 31.3.2020 170 973 340
Add: Prepaid on 31.3.20 19 417
12,170 8,193 2,512 10,695
Less: Outstanding on 31.3.2019 (710) (864) (226)
Less: Prepaid on 31.3.2020 (620)
11,460 7,329 2,286 10,075

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11 The following was the balance sheet of A, B and C who were equal partners on January 1, 2020.
Liabilities Assets
Bills Payable 3,000 Cash 1,000
Creditors 6,000 Debtors 10,000
Capital Accounts: Stock 12,000
A 20,000| Furniture 5,000
B 15,000 Buildings 25,000
C 10,000 Bills Receivable
1,000
54,000 54,000
They agree to take D into partnership and give him a 1/4 share in the profits on the following
terms:
i) that D should bring in t6,000 for goodwill and 10,000 as capital;
i) that one-half of the goodwill shall be withdrawn by old partners;
ii) that stock and furniture be depreciated by 10%.
iv) that a liability of 1,300 be created against bills discounted;
v) that the building be valued at t40,000;
vi) that the values of liabilities and assets other than cash are not to be altered.
Give the necessary entries to give effect to the above arrangement; prepare revaluation account
and opening balance sheet of the firm as newly constituted.
(ICAI SM)

Sol Journal Entries

Particulars Dr. () Cr. ()
Cash Account Dr. 16,000
To D's Capital Account 16,000
(Amount of goodwill and capital brought in by D)
D's Capital Account Dr. 6,000
To A's Capital Account 2,000
To B's Capital Account 2,000
To C's Capital Account 2,000
(Goodwill brought in by D credited to old partners
in sacrifice ratio)
A's Capital Account Dr 1,000
B's Capital Account
C's Capital Account
To Cash Account
ng Educatioh Ai1,000
1,000 dem 3,000
(Half the amount ofgoodwill withdrawn by existing
partners) gonceptS
Memorandum Revaluation Account Dr. 12,000
To A's Capital Account 4,000
To B's Capital Account 4,000
To C's Capital Account 4,000
(Profit on revaluation credited to old partners)
A's Capital Account Dr 3,000
B's Capital Account Dr. 3,000
C'sCapital Account Dr. 3,000
D's Capital Account Dr 3,000
To Memorandum Revaluation Account 12,000
(The profit credited previously to old partners
written off to all partners including D in the new
profit-sharing ratio)

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Memorandum Revaluation Account

Particular Particular
Stock 1,200 Buildings 15,000
Furniture 500
Liability for bills discounted 1,300
Profit transferred to capital
accounts:
A 4,000
B 4,000
C 4,000
15,000 15,000
Buildings 15,000 Stock 1,200
Furniture 500
Liability for bills 1,300
discounted
Loss transferred to capital
accounts:
A 3,000
B 3,000
C 3,000
D 3,000
15,000 15,000

Balance Sheet ofM/s. A, B,Cand D

As at 1st January, 2020
Liabilities Liabilities
Bills Payable 3,000 Cash 14,000
Creditors 6,000 Debtors 10,000
Capital Accounts: Stock 12,000
A 22,000 Furniture 5,000
B 17,000 Buildings 25,000
C 12,000 Bills Receivable 1,000
D 7,000 58,000
67,000 67,000

Grooming Education Academy

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12 Gopal and Govind are partners sharing profits and losses in the ratio 60:40. The firms' balance
sheet as on 31.03.2020 was as follows:
Liabilities Liabilities
Capital accounts: Fixed assets 3,00,000
Gopal 1,20,000 Investments 50,000
Govind 80,000 Current assets 2,00,000
Long term loan 2,00,000 Loans and advances 1,00,000
Current liabilities 2,50,000
6,50,000 6,50,000
Due to financial difficulties, they have decided to admit Guru as partner in the firm from 01.04.2020
on the following terms:
Guru will be paid 40% of the profits.
Guru will bring in cash 1,00,000 as capital It is agreed that goodwill of the firm willbe valued
at 2 years purchase of 3 years' normal average profits of the firm and Guru will bring in cash his
share of goodwill. It was also decided that the partners will neither withdraw their share of
goodwill nor will the goodwill appear in the books of account.

The profits of the previous three years were as follows:

For the year ended 31.3.20 18: profit *20,000 (includes insurance claim received of 40,000).
For the year ended 31.3.2019: loss 80,000 (includes voluntary retirement compensation paid
1,10,000).
For the year ended 31.3.2020: profit of {1,00,000 (includes a profit of 25,000 on the sale of
assets).
It was decided to revalue the assets on 31.03.2020 as follows:

Particulars
Fixed assets (net) 4,00,000
Investments Nil
Current assets 1,80,000
Loans and advances 1,00,000|
The new profit-sharing ratio after the admission of Guru was [Link].
Pass journal entries on admission, show goodwill calculation and prepare revaluation account,
partners capital accounts and balance sheet as on 01.04.2020 after the admission of Guru.
(ICAI SM)
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Sol i) Calculation of Profit/ Loss for the year ended

Particulars 31.3.2018 31.3.2019 31.3.2020
Profit/(loss) for the year 20,000 (80,000) 1,05,000
Add/ (less) : Abnormal items (40,000) 1,10,000 (25,000)
Net Profit/(loss) (20,000) 30,000 80,000

Average profit = (20,000) +30,000 +80,000

=30,000
3
Two years' purchase of average profits = 30,000 x 2 = 60,000
Goodwill to be brought in by Guru = 60,000 x 40% = 24,000

Goodwill brought in by Guru shared (atthe profit sacrificing ratio) by:

Particulars
Gopal (124,000 x 5/8) 15,000
Govind (R24,000 x 3/8) 9,000
24,000

ii)
Journal Entries
Date Particulars Dr. (3) Cr. ()
1.4.2020 Bank A/c Dr. 1,24,000

To Guru's capital A/C 1,24,000

(Amount of capital and goodwill brought in by Guru)
1.4.2020 Guru's capital A/c 24,000
To Gopal's capital A/c Dr 15,000
To Govind's capital A/c 9,000
(Amount of goodwill brought in by Guru credited to
capital accounts of the old partners in the profit
sacrificing ratio 5:3)
1.4.2020 Revaluation A/c Dr. 70,000

Grod Tolnvestment A/c

To Current assets A/c ducation Abad
(Writing down the value of investments to nil and
current assets from 2,00,000 to t 1,80,000 on
50,000
20,000

occasion of admission of Guru)

thecebts
1.4.2020 Fixed assets A/c Dr. 1,00,000

To Revaluation A/c 1,00,000

(Writing up the value of fixedassets from 3,00,000 to
{4,00,000 on the occasion of admission of Guru)
1.4.2020 Revaluation A/c Dr. 30,000

To Guru's capital A/c 18,000

To Govind's capital A/c 12,000
(Net revaluation profit credited to the capital accounts
of the old partner in the old profit-sharing ratio of
60:40)

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ii)
Revaluation Account
Particulars Particulars
To Investments A/C 50,000|By Fixed assetsA/c 100,000
To Current assets A/c 20,000
To Partner's capital A/c:
(Profit on revaluation)
Gopal (60%) 18,000
Govind (40%) 12,000

1,00,000 1,00,000|

iv) Partner's CapitalAccounts

Gopal's Capital Account
Particulars Particulars
To Balance c/d 1,53,000 | By Balance b/d 1,20,000
By Bank A/c 15,000
By Revaluation A/c 18,000
1,53,000 1,53,000

Govind's Capital Account

Particulars Particulars
To Balance c/d 1,01,000 ByBalance b/d 80,000
By Bank A/c 9,000
By Revaluation A/c 12,000
1,01,000 1,01,000

Guru's Capital Account

Particulars Particulars
To Balance c/d 1,00,000 By Bank b/d 1,00,000
1,00,000 1,00,000

Groomind Balance Sheet (after radmision ofcura)

as on 1.4.2020 Cadem
Liabilities Assets
Capital accounts: Fixed assets 4,00,000
Gopal 1,53,000 Current assets 3,04,000
Govind 1,01,000 (including bank balance of
Guru 1,00,000| 3,54,000| R1,24,000)
Long term loan 2,00,000| Loans & advances 1,00,000|
Current liabilities 2,50,000

8,04,000 8,04,000
Working Notes:
1) Calculation of profit sacrificing ratio:
Profit sacrificed by Gopal=60%-35%=25%
Profit sacrificed by Govind =40%-25%=15%
Sacrificing ratio =25%: 15% or 5:3

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2) Bankbalance after admission of Guru:

Bank A/c
Particulars Particulars
To Guru's capital A/c 1,24,000| By Balance c/d 1,24,000
1,24,000 1,24,000
13. Ramu and Mamu were partners in a frm sharing profits and losses in the ratio 3:2 Their Balance
Sheet as on 31st March, 2020 was as followS: -
Liabilities () Assets
Capital: - Land & Building 1,50,000
Ramu 2,10,000 Machinery 1,80,000
Mamu 1,90,000 Furniture 44,000
General Reserve 60,000 Trade Receivables 42,800
Loan from LFC bank 25,000 Inventory 65,200
Trade Payables 21,000 Bank 24,000
5,06,000 5,06,000

Damu was admitted as partner from 1st April, 2020 on the following terms: -
1) He shall bring 1,50,000 as capital and goodwill.
2) He shall get 1/5th share in future profits, to be acquired equally from Ramu and Mamu.
3) Goodwill of the firm to be valued at 2,50,000. It was agreed that goodwill shall not appear in
the books of accounts.
4) Land & Building is to be appreciated by 50% and inventory is revalued at 60,000
5) Machinery to be depreciated by 20%. Debtors of T 2,800 are to be written off as bad debts and
a
Reserve for doubtful debts should be created @ 5% of debtors.
6) Furniture to be reduced to 40,000.
7) After admission of Damu, Capitals of the partners' to be adjusted in their new profit-sharing
ratio, taking Damu's Capital as base.
You are required to prepare: -
1) Revaluation Account
2) Partners' Capital Accounts
3) Cash and bank Accounts
Balance Sheet after admission (RTP may 2021)
Sol. In the books of Ramu, Mamu and Damu
Revaluation A/c
Particulars ) Particulars (3)

Eut
To Machinery
ning oT
To Bad debts
To Reserve for Bad debts
To Furnitureoneer in
2,800
2,000
g
Acade
To Inventory
eve000
5,200 Concepts
To Profit on revaluation
Ramu 15,000
Mamu 10,000 25,000
75,000 75,000

Partner's CapitalA/cs
Particulars Ramu Mamu Damu Particulars Ramu Mamu Damu
To Ramu, Mamu 50,000 By Balance b/d 2,10,000 1,90,000
To Bank (b/ 36,000 99,000 By Bank 1,50,000
To balance c/d 2,50,000 1,50,000 1,00,000 By Damu 25,000 25,000
(Working note) By General reserve 36,000 24,000
By revaluation 15.000 10.000
2,86,000 2,49,000 80,000 2,86,000 2,49,000 1,50,000

Bank A/c

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Particulars ) Particulars )
To balance c/d 24,000 By Ramu's Capital 36,000
To Damu's Capital 1,50,000By Mamu's Capital 99,000
By balance c/d 39,000
1,74,000 1,74,000

Balance Sheet as on 1st April, 2020 (after admission)

Liabilities () Assets (8)
Capital Accounts Land & Building 2,25,000
Ramu 2,50,000Machinery 1,44,000
Mamu 1,50,000 Furniture 40,000
Damu 1,00,000 Trade Receivables 40,000
Loan from HDFC bank 25,000 Reserve for Bad debts 2.000 38,000
Trade Payables 21,000| Inventory 60,000
Bank 39,000
5,46,000 5,46,000

Working Notes: -

Partner Old Share Sacrificed Share New Share

=
Ramu 3/5 1/10 5/10
Mamu 2/5 1/10 =3/10
2/10(gain) =
Damu 2/10
-
Since the capitals of the old partners are adjusted on the basis of the incoming partners share: The
Closing balances will be fixed first as follows: -
Capital and goodwill brought in by Damu ? 1,50,000
His share of goodwill - 2,50,000 x 1/5 (50,000)
Amount brought in as capital R 1,00,000

Total capital of the firm based on his share 1,00,000 x 5 =5,00,000

Remaining capital to be borne by Ramu and Mamu in their new profit sharing ratio
Closing capital of Ramu (5/10th Share) = 5,00,000 Closing capital of Ramu (5/10th Share) =

5,00,000 x5/10 = 2,50,000

Closing capital of Mamu (3/10th Share) 5,00,000 x 3/10 =1,50,000
Based on the above closing balances - the cash will be either brought in or excess cash will be
withdrawn from the bookS.
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14. Dinesh, Ramesh and Naresh are partners in a firm sharing profits and losses in the ratio of [Link]. Their
Balance Sheet as on 31st March, 20X1isas below:
Liabilities ) Assets ()
Trade payables 22,500 Land & Buildings 37,000
Outstanding Liabilities 2,200 Furniture & Fixtures 7,200
General Reserve 7,800 Closing Stock 12,600
Capital Accounts: - Trade Receivables 10,700
Dinesh 15,000 Cash in hand 2,800
Ramesh 15,000 Cash at Bank 2,200
Naresh 10,000 40,000
72,500 72,500

The partners have agreed to take Suresh as a partner with effect from 1st April, 20X1 on the
following items: -
i) Suresh shall bring 8,000 towards his capital.
ii) The Value of Stock to be increased to 14,000 and Furniture & Fixtures to be depreciated by
10%.
iii) Provision for bad and doubtful debts should be provided at 5% of the trade receivables.
iv) The Value of Land & Buildings to be increased by ? 5,600 and the value of the goodwill be
fixed at I 18,000.
v) The new profit-sharing ratio shall be divided equally among the partners.
The outstanding liabilities include 700 due to Ram which has been paid by Dinesh. Necessary
entries were not made in the books.
-

Prepare:
i) Revaluation Account
ii) Capital Accounts of the partners
iii) Balance Sheet of the firm after admission of Suresh. (RTP may 2020)

Sol. Dr. Revaluation A/c Cr

Date Particulars ) Date Particulars )
20X1 20X1
April 1 To Provision for bad 535 April By Inventory in trade 1,400
and doubtful debts
To Furniture and 720 By Land and Building 5,600
fittings
dro To Capital A/cs:
(Profit revaluation
transferred)
Edcatipn Academ
Dinesh2872.50loinConcepts
Ramesh 1,915.00
Naresh 957.50 5,745
7,000 7,000

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Partners' Capital Accounts

Particulars Dinesh Ramesh Naresh Suresh| Particulars Dinesh Ramesh Naresh Suresh
() () () () )) ()
To Dinesh &
1,500 4.500 By Balance 15,000 15,000 10,000
Ramesh
TeRalance c/d b/d
ByGeneral
26,972.50 21,015 10,757.50 3,500 Reserve 3,900 2,600 1300
By Cash 8,000
By Naresh &
Suresh 4,500 1,500
By
Outstanding
Liabilities 700
(Ram)
By
Revaluation 2,872.50 1,915 957.50
A/c
26,972.5 21,015 12,257.50 8,000 26,972.50 21,015 12,257.50 8,000

-
Working Notes:
Calculation of Sacrificing ratio
Partners New Share Old Share Sacrifice Gain
Dinesh 1/4 3/6 6/24
Ramesh 1/4 2/6 2/24
Naresh '/4 1/6 2/24
Suresh 1/4 6/24
Entry for goodwill adjustment
Particulars Dr. (3) Cr. (8)
Naresh (2/24 of 18,000) Dr. 1,500
Suresh (6/24 of * 18,000) Dr 4,500
To Dinesh (6/24 od 18,000) 4,500
To Ramesh (2/24 of { 18,000) 1,500

Balance Sheet of Dinesh, Ramesh, Naresh and Suresh as on 1-4-20X1

Liabilities () Assets ()
Trade payables 22,500 Land and 42,600
Buildings
Outstanding Liabilities 1,500 Furniture 6,480
(2,200-700)
Capital Accounts of Inventory of
Partners:
Mr. Dinesh 26,972.50 ön
receivables
ACalaoo
10,700
Mr. Less:
Rameshee 21,015.00evel 10,757.50
ProvisionsCe(535) 10,165
Mr. Naresh Cash in hand 2,800
Mr. Suresh 3,500.0062,245 Cash at Bank 10,200
(2,200 + 8,000)
86,245 86,245

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15. Cu and Au were in partnership sharing profits and losses in the ratio 5:3. On 1* April 20X5, they
decided admit Ag the partnership on the following terms;
to

1) 2,00,000/- as capital for ½ share.

Ag will bring
2) New profit-sharing ratio shall be [Link] among Cu, Au and Ag.
3) Cu was entitled to salary of 2,000/- p.m., It was revised to R 3,000 p.m. from 1st October
20X3.
4) Interest on capital was paid at 8% p.a.
5) Capitals as on 31st March 20X5 were Cu I 4,00,000 Au 3,00,000, which had remained
unchanged since last four years.
6) Goodwill was to be valued on the basis of 3 years purchase of average adjusted weighted
average profits of past 4 years. The profits of previous four years, before charging interest on
capital and salary to Cu were as follows;

Year Profit
20X1-X2 2,10,000
20X2-X3 2,60,000
20X3-X4 2,10,000
20X4-X5 3,05,000

These profits were subject to following rectification;

a) Machine Costing ? 40,000 purchased on 1s October 20X3 was wrongly charged to revenue.
A
The machinery was depreciated at 20% p.a. on w.d.v method.
b) Stock on 31t March 20X3 was over valued by 20,000/
c) There was a loss by fire amounting to 10,000/- in the year 20X1-X2 which was not
considered in trading account but correctly debited in the PL ac for that year.
d) Debtors as on 31t March 20X5 included bad debts of 5,800/

7) Ag shall bring his share of goodwill in cash.

You are required to calculate amount of goodwillAg is supposed to bring and Journal entry for
the same. (1CAI SM)
Sol. Valuation of Goodwill

Particulars 20X1-X2 20X2-X3 20X3-X4 20X4-X5

Gross profit 2,10,000 2,60,000 2,10,000 3,05,000
Less: salary to Cu (24,000) (24,000) (30,000) (36,000)
Less: interest on capital (56,000) (56,000) (56,000) (56,000)
Add: machine to be capitalized 40,000
|Less: depreciation on above (4,000) (7,200)
Less: over valuation of closing stock (20,000)
Add: over valuation of opening stock 20,000
Add: loss by fire 10,000
Less: bad debt to be written off (5,800)
Adjusted profit 1,40,000 1,60,000 1,80,000 2,00,000
Weight 1 2 3 4
Product 1,40,000 3,20,000 5,40,000 8,00,000

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• Weighted Average Profit - = Total product/Total weights

:18,00,000/10
:1,80,000
• Goodwill =3 years purchase = 3 x 1,80,000
:5,40,000
• Ag's share 4 th = 5,40,000/4
:1,35,000
Adjustment Journal Entry for Goodwill

Particulars L.F. Dr. ) Cr. )

Bank A/c Dr. 1,35,000

To Cu's Capital Account 67,500

To Au Capital Account 67,500
(Adjusting amount brought in by Ag towards goodwill
credited to remaining partners' capital accounts in
sacrifice ratio)

Working Notes: -

Partner New Share Old Share Difference

Cu 2/4 5/8 1/8
Au 1/4 3/8 1/8
Ag 1/4 1/4

Grooming Education Academy

Pioneer in Developing Concepts

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Death of Partner
Assignnent
Q. Questions and Solutions
No.
1 The following was the Balance Sheet of Om & Co. in which X, Y, Z were partners sharing profits
and losses in the ratio of [Link] as on 31.3.20X2. Mr. Z died on 31st December, 20X2. His account
hasto be settled underthe following terms.
Balance Sheet of Om & Co. as on 31.3.2020
Liabilities Assets
Trade payables 20,000|Goodwill 30,000
Bank loan 50,000 Building 1,20,000
General reserve 30,000|Computers 80,000
Capital accounts: |Inventories 20,000
X 40,000 Trade receivables 20,000
80,000 Cash at bank 20,000
80,000 2,00,000|Investments 10,000
3,00,000 3,00,000|

Goodwill is to be calculated at the rate of two years purchase on the basis of average of three
years' profits and losses. The profits and losses for the three years were detailed as below:
Year ending on profit/loss
31.3.20X2 30,000
31.3.20X1 20,000
31.3.20X0 (10,000) Loss

Profit for the period from 1.4.20X2 to 31.12.20X2 shall be ascertained proportionately on the
basis ofaverage profits and losses of the preceding three years.
During the year ending on 31.3.2 0X2 a car costing 40,000 was purchased on 1.4.20X1 and
debited to traveling expenses account on which depreciation is to be calculated at 20% p.a.
This asset is to be brought into account at the depreciated value.
Other values of assets were agreed as
euas tomOwn Academy
Inventory at 16,000, building at 1,40,000, computers at 50,000; investments at t6,000.
Tradereceivables were considered good.
Required:
i) Calculate goodwill and Z's share in the profits of the firm for the period 1.4.20X2 to
31.12.20X2.
ii) Prepare revaluation account assuming that other items of assets and liabilities
remained the same.
iii) Prepare partners' capital accounts and balance sheet of the firm Om & Co. as on
31.12.20x2
(ICAI SM/May 2000)

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Sol. i)Calculation of goodwill and Z's share of profit

a) Adiusted profit for the year ended 313.20X2:
Profit (Given) 30,000
Add: Cost of car wrongly written out 40,000
Less: Depreciation for the year 20X1-X2 (8,000) 32,000
(20% on 40,000)
62,000|
b) Average oflast three year's profits and losses
Year ended on Profit/(loss)

31.3.20XO (10,000)|
|31.3.20X1 20,000|
31.3.20X2 62,000
72.000
Average profit (72,000/3) Goodwill at 2 24,000
C)
years' purchase
R24,000 x 2 =48,000
Z's share of profits from the period 1.4.20X2 to 31.12.20X2
d)
R24,000 >x9/12 x 2/5 = 7,2 00

ii) Revaluation Account

| Particulars Particulars
To Inventory account 4,000 By Building account By 20,000
To Computers account 30,000|Losstransferredto
To Investments account 4,000 X 3,600
Y
7,200
7,200
18,000
38,000| 38,000
Groopartners Cat
Capital Accounts
Particulars X Y Particulars X Y 7

To Revaluation A/c 3,600 7,200 7,200 By Balance b/d 40,000 80,000 80,000
To Z's Executor's A/c 1,12,000|By General reserve By
Y
6,000 12,000 12,000
To Goodwill A/c 6,000 12,000 12,000X and 19,200
To Z 6,400 12,800 By Car A/c 6,400 12,800 12,800
To Balance c/d 36,400 72,800 By Profit and Loss 7,200
suspense A/c
52,400 1,04,800 1,31,200 52,400 1,04,800 1,31,2 00

Balance Sheet of Om & Co. as 31.12.2 0X2

Liabilities Assets
Trade payables 20,000 Building 1,40,000
Bank loan 50,000 Car 32,000
Capital accounts: |Inventories 16,000
X 36,400|Computers 50,000
Y 72,800| Investments 6,000
Z's Executor's account 1,12,000Trade receivables 20,000
Cash at bank 20,000
Profit and Loss suspense 7,200
Account
2,91,200 2,91,200

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Working Note:
Goodwill calculated at the time of death of partner Z 48,000
Partner Old Share New Gain Sacrifice
Share
X 1 2
15
Y 2 2
3 15
7 2 2

Adiusting entry:
X's Capital Account Dr 6,400
Y's Capital Account Dr 12,800
To Z's Capital Account 19,200
(Adjustment for goodwill on the death of Z on the basis of gaining ratio)
-
2. The partnership agreement of a firm consisting of three partners A, B and C (who share
profits in proportion of ½, ½ and 4 and whose fixed capitals are T10,000; R6,000 and 4,000
respectively) provides as follows:
a) Thatpartners be allowed interest at 10 per cent per annum on their fixed capitals, butno
interest be allowed on undrawn profits or charged on drawings.
b) That upon the death of a partner, the goodwill of the firm be valued at two years'
purchase of the average net profits (after charging interest on capital) for the three
years to 31st December preceding the death of a partner.
c) That an insurance policy of 10,000 each to be taken in individual names of each
partner, the premium is to be charged against the profit of the firm.
d) Upon the death of a partner, he is to be credited with his share of the profits, interest on
capital etc. calculated upon 31st Decmber following his death.
e) That the share of the partnership policy and goodwill be credited to a deceased partner
as on 31st December following his death.
) Thatthe partnership books be closed annually on 31st December.
Adied on30th September 20X3, the amount standing to the creditofhis current account on 31st
December, 20X2 was 1450 and from that date to the date of deathhe had withdrawn *3,000
from the business.
An unrecorded liability of R2,000 was discovered on 30th September, 2 OX3. It was decided
to record itand be immediately paid out.
The trading result of the firm (before charging interest on capital) had been as follows: 20X0
Profit 9,640; 20X1 Profit 6,720; 20X2 Loss t640; 20X3 Profit 3,670.
Assuming the surrender value of the policy to be 20 percent of the sum assured.
Required:
Prepare an account showing the amount due to A's legal representative as on 31st
December, 20X3.
(ICAI SM/January 2021/]uly 2021)

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Sol. A's Capital Account

20X3Particulars 20X3 Particulars
Sep. 30 To Current A/c (3,000 2,550|Jan. 1 By Balance b/d 10,000
450) Dec. 31By Profit and Loss A/C:
Dec. 31 To Profit and Loss Adjt. 1,000 Interest on Capital Share of 1,000
(Unrecorded Liability) Profit 835
ToBalanceTransferred td B&C (Goodwill) 3,240
A's Executor's A/c 18,525] Insurance Policies A/c 7,000
22,075 22,075

Working Notes:
i) Valuation of Goodwill
Profitbefore Interest Profit after
Year Interest on fixed interest
capital

20X0 9,640 2,000 7,640

20X1 6,720 2,000 4,720
20X2 O640| 2,000 (-) 2,640
15,720| 6,000 9,720

Average (9,720+3) 3,240

Goodwill attwo years purchase of average net profits 6,480
Share of 'A' inthe goodwill (R6,480/2) 3,240
ii) Profit on Separate Life Policy
A'spolicy 10,000
Band C's policy @ 20% 4,000
14,000
Share ofA (1/2) 7,000
ii) Share in profit for 20X3ng Education Academy
Profit for the year Pioneer in Develping Cocepts
3,670
Less: Interest on capitals (2,000)
1,670
A's share in profit (1/2) 835

iv) As unrecorded liability of 2,000 has been charged to Capital Accounts through
Profit and Loss Adjustment Account, no further adjustment in current year'sprofit is
required.
v) Profits for 20X0, 20X1 and 20X2 have not been adjusted (for valuing goodwill) for
unrecorded liability for want of precise information.

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3 The following is the Balance Sheet of M/s. ABC Bros as at 3 1 st December, 20X0.
Balance Sheet as at 3 1st December, 20X0
Liabilities Assets
Capital Machinery 5,000
A 4,100Furniture 2,800
B 4,100| Fixture 2,100
C 4,500 Cash 1,500
General Reserve 1,500 Inventories 950
Trade payables 2,350Trade receivables 4,500
Less: Provision for Doubtful 300 4,200
debts

16,550 16,550|

C died on 3rd January, 20X1 and the following agreement was to be put into effect.
a) Assets were to be revalued: Machinery to 5,850; Furniture to 2,300; Inventory to
750.
b) Goodwill was valued at 3,000 and was to be credited with his share, without using a
Goodwill Account
c) 1,000 was to be paid away to the executors of the dead partner on 5th January, 20X1
Required to show:
i) The journal entry for goodwill adjustment.
ii) The Revaluation Account and Capital Accounts of the partners.
ii) Which account would be debited and which account credited if the provision for
doubtful debts in the Balance Sheet was to be found unnecessary to maintain at the
death of C.
(ICAI SM/Nov. 2021 RTP)
Sol. Journal Entry in the books of the firm
Date Particulars
Jan 3, 2OX1 |A's Capital A/coming EaucaOn ACaUeiny Dr. 500
B's Capital A/c Dr. 500
1,000
To C's Capital A/c
(Being the required adjustment for goodwill
through the partner's capital accounts)

ii) Revaluation Account

Particulars Particulars
To Furniture A/c (R2,800 - 2,300) To 500 By Machinery A/c 850
- -
Inventory A/c (1950 750) 200|(5,850 5,000)
To Partners' Capital A/cs 150
(A-50, B -50, C -50) 850 850

Partner's Capital Accounts

Particulars A B C Particulars A B C

To C (Goodwill) 500 500 By Balance b/d 4,100 4,100 4.500

By General Reserve A/c
To Cash A/c 1,000 500 500 500
By Revaluation A/c
To Executors A/c 5,050 (Profit) 50 50 50

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To Balance C/d 4,150 4,150 | By A (Goodwill) 500

By B (Goodwill)
500

4,650 4,650 6,050 4,650 4,650 6,050

iii) Provision for Doubtful Debts Account is a credit balance. To close, this account is to
be debited. It becomes a gain for the partners. Therefore, either Partners' Capital
Accounts (including C) or Revaluation Account is to be credited.
Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars A B C
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2
Gain/(Sacrifice) () 1/6| (+) 1/6| ()1/3

Profit sharing ratio is equal before or after the death of C because nothing has been
mentioned in respect of profit-sharing ratio.
4. B and N were partners. The partnership deed provides inter alia:

i) That the accounts be balanced on 31st December each year.

ii) That the profits be divided as follows:
B: One-half; N: One-third; and carried to Reserve Account: One-sixth
iii) That in the event of death of a partner, his executor will be entitled to the following:
a) the capital to his credit at the date of death; (b) his proportion of profit to date of death
based on the average profits of the last three completed years; (C) his share ofgoodwill
based on three years' purchases of the average profits for the three preceding
completed years.
Trial Balance on 31st December, 20X2
Particulars Dr. () Cr. (3)
B's Capital oTO0mng cuucauon Acauemy 90,000
Pionecr Weelopinonce
N's Capital 60,000
Reserve 30,000
Bills receivable 50,000
Investments 40,000
Cash 1,10,000
Trade payables 20,000
Total 2,00,000| 2,00,000
The profits for the three years were 20X0:342,000; 20X1: 39,000 and 20X2:45,000. N died
on 1st May, 2 0X3. Show the calculation of N (i) Share of Profits; (ii) Share of Goodwill; (iii) Draw
up N's Executors Account as would appear in the firms' ledger transferring the amount to the
Loan Account.
[ICAI SM/ Nov 2019 (Modified)]

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Sol.
i) Ascertainment of N's Share of Profit ii) Ascertainment of Value of Goodwill
20X0 42,000 20X0 42,000
20X1 39,000 20X1 39,000
20X2 45,000 |20X2 45,000
Total Profit 1,26,000 Total Profit for 3 years Average 1,26,000
Average Profit 42,000 Profit 42,000
4 months' Profit 14,000 Goodwill -3 years
Purchase of Average Profit 1,26,000
N's Share in Profit (2/5th* d 5,600 N's Share of goodwill (2/5 of 50,400
14,000) R1,26,000)

* Profit sharing ratio between B and N = 1/2; 1/3; = 3: 2, Therefore N's share of Profit = 2/5
N's Executor's Account
Date Particulars Date Particulars
20X3 20X3
May 1, To N's Loan A/c 1,28,000Jan. 1 By Capital A/c 60,000
|May 1 By Reserves
(2/5th of R30,000) 12,000
|May 1 By B's Capital A/c (Share
of goodwill) 50,400
|May 1 By P/L Suspense A/c (Share 5,600
of Profit)
1,28,000 1,28,000

5 The Balance Sheet of Seed, Plant and Flower as at 31st December, 20X3 was as under:
Liabilities Assets
Trade payables 20,000| Fixed Assets 40,000
General Reserve 5,000 Debtors 10,000
Capital: Bills Receivable 4,000
Seed Goomi 25,000cation AcadInventories 16,000
Plant io15,000 Cash at Bank 10,000
Flower 15,000 55,000
80,000 80,000

The profit-sharing ratio was: Seed 5/10, Plant 3/10 and Flower 2/10. On 1st May, 20X4 Plant
died. It was agreed that:
a) Goodwill should be valued at 3 years purchase of the average profits for 4 years. The
profits were:
20X0 10,000 20X2 12,000
20X1 13,000 20X3 15,000

b) The deceased partner to be given share of profits up to the date of death on the basis
of the previous year.
c) Fixed Assetswere to be depreciated by 10%. A bill for 1,000 was found to be worthless.
These are not to affect goodwill.
d) A sum of 7,750 was to be paid immediately, the balance was to remain as a loan with
the firm at 9% p.a. as interest.
Seed and Flower agreed to share profits and losses in future in the ratio of 3: 2.
Give necessary journal entries.
(ICAI SM

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Sol. Journal Entries

20X4 Particulars
May 1 General Reserve Account Dr. 5,000
To Seed's Capital Account 2,500
To Plant's Capital Account 1,500
To Flower's Capital Account 1,000
(General Reserve transferred to Capital Account
on the death of Plant)
Seed's Capital Account Dr. 3,750
Flower's Capital Account Dr. 7,500
To Plant's Capital Account 11,250
(Adjustment for goodwill on the death of Plant on
the basis of gaining ratio)
(Value =3 x (10,000 + 13,000 + +
12,000
15,000) /4)
Revaluation Account Dr. 5,000
To Fixed Assets Account 4,000
To Bills Receivable Account 1,000
(Depreciation of fixed assets @ 10% and writing
out of one bill for 1,000 on Plant's death)
Seed's Capital Account Dr. 2,500
Plant's Capital Account Dr. 1,500
Flower's Capital Account Dr. 1,000
To Revaluation Account 5,000
(Loss on Revaluation transferred to capital
accounts)
Profit and Loss Suspense Account Dr. 1,500
To Plant's Capital A/c (15,000x4/12x3/10) 1,500
(Plant's share of four month's profit based on the
previous year)
Plant's Capital Account Dr. 27,750
To Plant's Executor's Account 27,750
(Amount standing to the credit of Plant's Capitalny
Account transferred to the credit of his
Executor's Account)
Plant's Executor's Account Dr. 7,750
To Bank Account 7,750
(Amount paid to Plant's Executors)

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6 The following is the Balance Sheet of M/s. LMN Bros as at 31st December, 20X0, they share profit
equally:

Balance Sheet as at 31st December, 20X0

Liabilities Assets
Capital 8,200 Machinery 10,000
M 8,200 Furniture 5,600
9,000 Fixture 4,200
General Reserve 3,000 Cash 3,000
Trade payables 4,700 Inventories 1,900
Trade receivables 9,000
Less: Provision for Doubtful [6001 8,400
debts
33,100 33,100
N died on 3rd January, 20X1 and the following agreement was to be put into effect.
a Assets were to be revalued: Machinery to 11,700; Furniture to 4,600; Inventory to
1,500.
b) Goodwillwas valued at 6,000 and was to be credited with his share, without using a
Goodwill Account.
C
7 2,000 was to be paid away to the executors of the dead partner on 5th January, 20X1.
d) After death of N, L and M share profit equally.
You are required to prepare:
i) Journal Entry for Goodwill adjustment.
ii) Revaluation Account and Capital Accounts of the partners.
(Nov 2019 RTP)

Grooming Education Academy

Wionee i Developing oncept

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Sol. Journal Entry in the books of the M/s LMN

Dr. Cr.
Date Particulars
Jan 3 L's Capital A/c Dr. 1,000
20X1 M's Capital A/c Dr. 1,000
To N's Capital A/c 2,000
(Being the required adjustment for goodwill
through partner's capital accounts.)

ii)
Dr. Revaluation Account Cr.

Particulars Particulars
To Furniture A/c 1,000 By Machinery A/c 1,700
(R5,600 -4,600) ({ 11,700-*10,000)
To Inventory A/c 400
(R1,900 -* 1,500)
To Partners' Capital A/cs 300
- -
(L-*100, M 100, N
100)
1,700 1,700

Partners' Capital Accounts

Particulars M Particulars M N
To N (Goodwill) 1.000 1,000 By Balance b/d 8,200 8,200 9,000
To Cash A/c 2,000 By General Reserve A/c 1,000 1,000 1,000

To Executors A/c 10,100| By Revaluation A/c 100 100 100

(Profit)
To Balance c/d 8,300 8,300 By L (Goodwill) 1000
By M (Goodwill)
GoominalEducati 1000
9,300 9,300 12,100 9,300 9,300 12,100

Working Note:

Statement showing the Required Adjustment for Goodwill

Particulars M

Right of goodwill before death 1/3 1/3 1/3

Right of goodwill after death 1/2 1/2
Gain/ (Sacrifice) (+) 1/6 (+) 1/6 )1/3

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7. Monika, Yedhant and Zoya are in partnership, sharing profits and losses equally. Zoya died on 30th
June 20X4. The Balance Sheet of Firm as at 31st March 20X4 stood as:
Liabilities Amount Assets Amount
Creditors 20,000 Land and Building 1,50,000
General Reserve 12,000 Investments 65,000
Capital Accounts: Stock in trade 15,000
Monika 1,00,000 Trade receivables 35,000
Yedhant 75,000 Less: Provision for (2.000) 33,000
doubtful debt
Zoya 75,000 Cash in hand 7,000
Cash at bank 12,000
2,82,000 2,82,000
In order to arrive at the balance due to Zoya, it was mutually agreed that:
i) Land and Building be valued at 1,75,000
ii) Debtors were all good, no provision is required
ii) Stock is valued at 13,500
iv) Goodwill will be valued at one Year's purchase of the average profit of the past five
years. Zoya's share of goodwill be adjusted in the account of Monika and Yedhant.
v) Zoya's share of profit from 1 April 20X4, to the date of death be calculated on the
basis of average profit of preceding three years.
vi) The profit of the preceding five years ended 1st March were:

20X4 20X3 20X2 20X1 20X0

25,000 20,000 22,500 35,000 28,750
You are required to prepare:

1) Revaluationn
ctong Education Academy
2) Capital accounts of the partners and
3) Balance sheet of the firm as at 1s July 20X4.
(May 2019)

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Sol Revaluation Account

Particulars Particulars
To Stock 1,500 By Land & Building 25,000
To Partners: (Revaluation By Provision for doubtful debt 2,000
Profit)
Monika 8,500
Yedhant 8,500
Zoya 8,500
27,000 27,000
Partners' Capital Accounts
Particulars Monika Yedhant Zoya Particulars Monika Yedhant Zoya
To Zoya 4,375 4,375 By Balance
b/d. 1,00,000 75,000 75,000
To Zoya's 98,125| By General reserve 4,000 4,000 4,000
Executor By Monika & Yedhant 8,750
To Bal. c/d 1,08,125 83,125 By Profit and Loss 1,875
Adjustment*
(suspense) A/c
By Revaluation 8,500 8.500 8.500
1,12,500| 87,500| 98,125| 1,12,500 87,500 98,125

*Profit and Loss Adjustment = [(25,000 + 20,000 + 22,500)/3] x3/12 x 1/3 = 1,875
Balance Sheet of Firm as on 1.7.20X4
Particulars Particulars
Monika 1,08,125 Land & Building 1,75,000
Yedhant 83,125 Investment 65,000
Zoya Executor 98,125 Stock 13,500
Creditors 20,000 Trade receivable 35,000
Profit & Loss Adjustment 1,875
7,000
Grooning Educ Cash in bank hand
Cash at 12,000
3,09,375 3,09,375
Calculation of goodwill and Zoya's share
Average of last five year's profits and losses for the year ended on 31st March
31.3.20X0 28,750
31.3.20X1 35,000
31.3.20X2 22,500
31.3.20X3 20,000
31.3.20X4 25,000
Total 1,31,250
Average profit (R1,31,250/5) 26,250
Goodwill at 1 year purchase ={ 26,250 x1 = # 26,250
Goodwill= x =
Zoya's Share of 26,250 1/3 8,750 which is contributed by Monika and Yedhant in
their gaining ratio.
= x
Monika 8750 1/2 =*4375
x
Yedhant= R
8750 1/2 =R 4375

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8 The Balance Sheet of Amitabh, Abhishek and Amrish as at 31.12.20X4 stood as follows:

Liabilities Amount Assets Amount

Capital: Land & Building 74,000

Amitabh 60,000 Investments 10,000
Abhishek 40,000 Advertisement 37,800
suspense
Amrish 40,000 1,40,000 Life Policy (at
surrender value):
Creditors 25,800 Amitabh 2,500

General Reserve 8,000 Abhishek 2,500

Investment Amrish 1,000
Fluctuation Reserve 2,400 Stock 20,000
Debtors 20,000
Less: Provision for
doubtful debts (1.6001 18,400
Cash & bank 10,000
balance
1,76,200 1,76,200

Amrish died on 31st March 20X5, due to this reason the following adjustments were agreed
upon:
i) Land and Buildings be appreciated by 50%.
ii) Investment is valued at 6% less than the cost.
ii) All debtors (except 20% which areAcconsidered as doubtful) were good.
iv) Stock to be reduced to 94%.ion1Academy
V Goodwill to be valued at one year's purchase of the average profits of the past
five years.
vi) Amrish's share of profit to the date of death be calculated on the basis of
average profits of the three completed years immediately preceding the year
of death.
The profits for the last five years are as follows:

Year
20X0 23,000
20X1 28,000
20X2 18,000
20X3 16,000
20X4 20,000
1,05,000
The life policies have been shown at their surrender values representing 10% of the sum
assured in each case. The annual premium of Rs.1,00 is payable every year on 1st August.
You are required to pass necessary journal entries in the books of account of the
reconstituted firm.
(Oct 2018 MTP)

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Sol
Journal Entries
Particulars Amount Amount
1
Insurance Company's A/c Dr. 10,000
To Life Policy A/c (* 1,000+10%) 10,000
(Being the policy on the life of Amrish matured on his
death)
2 Life Policy A/c Dr. 9,000
To Amitabh's Capital A/c 3,000
To Abhishek's Capital A/c 3,000
To Amrish's Capital A/c 3,000
(Being the transfer of balance in life policy account to
all partners' capital accounts)
3. Amitabh's Capital A/c Dr. 12,600
Abhishek's Capital A/c Dr.
12,600
Amrish's Capital A/c Dr. 12,600
To Advertisement suspense A/c 37,800
(Being Advertisement suspense standing in the books
written off fully)
4 Land & Buildings A/c Dr. 37,000
To Revaluation A/c 37,000
(Being an increase in the value of assets recorded)
5. Investment Fluctuation Reserve A/c Dr. 600
To Investment A/c 600
(Being reduction in the cost of investment adjusted through
Investment Fluctuation Reserve)
Revaluation A/c Dr. 3,600
To Stock A/c 1,200
To
Provision for Doubtful Debts A/cation Academy 2,400
Being the fall in value of assets recordedoncepes

Amitabh's Capital A/c Dr. 3,500

Abhishek's Capital A/c Dr 3,500|

To Amrish's Capital A/c 7,000

(Being the share of Amrish's revalued goodwill adjusted
through capital accounts of the remaining partners)
8. Profit & Loss Suspense Account Dr. 1,500
To Amrish's Capital A/c 1,500
(Being Amrish's Share of profit to date of death credited to his
account)
9. Revaluation A/c Dr. 33,400
To Amitabh's Capital A/c 11,133
To Abhishek's Capital A/c 11,133
To Amrish's Capital A/c 11,134
(Being the transfer of profit on revaluation)
10 General Reserve A/c Dr 8,000
Investment Fluctuation Reserve A/c Dr. 1,800
(* 2,400 -600)
To Amitabh's Capital A/c 3,267

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To Abhishek's Capital A/c 3,267

To Amrish's Capital A/c 3,266
(Being the transfer of accumulated profits to capital accounts)
1
Amrish's Capital A/c Dr. 53,300|
To Amrish's Executor's A/c 53,300
(Being the transfer of Amrish's Capital A/c to his Executor's
A/c)
Working Notes:

i) Calculation of Amrish's Share of Amount ()

Profit
Total profit for last three years 18,000+16,000+2 0,000= 54,000
=
Average profit 54,000/3 18,000
Profit for 3 months 18,000x3/12 = 4,500
4,500x 1/3 = 1,500
=

Amrish's share of Profit

ii) Calculation of Goodwill Amount ()

Total Profits for last 5 years 1,05,000
Average profit =
1,05,000/3 = 21,000
Goodwill at one year's purchase =
21,000x1 = 21,000

Grooming Education Academy

Pionee i Developing oncept

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9 Diya Riya & Kiya are partners of M/s. DRK Fabrics sharing profits and losses in the ratio of
[Link].
On 31st March 20X4their Balance Sheet was as under:

Liabilities () Assets ()
Capitals; Goodwill 80,000
Diya 1,50,000 Land & Building 1,65,000
Riya 1,80,000 Furniture 75,000
Kiya 70,000 Joint life Policy 60,000
General Reserve 1,40,000 Inventory 88,740
Trade payables 60,000 Trade Receivable 96,750
Bank 34,510
6,00,000 6,00,000

Kiya died on 30th September, 20X4.

The partnership deed provides as follows;

a) That partner be allowed interest at 12% p.a. on their capitals, but no interest be charged
on drawings.

b) Goodwill appearing in the Balance Sheet on 31t March, 20X6 as it was purchased
goodwill. That upon the death of a partner, the goodwill of the firm be valued at one
year's purchase of the average net profits (after charging interest on capital) for the four
years to 31* March preceding the death of a partner. The profits of the firm before
charging interest on capital were;

20X0-X1 1,62,000ng Education Academy

20X1-X2 1.99.000 Develpng Concegps
20X2-X3 1,87,000
20X3-X4 1,96,000

Average Capital during preceding four years may be assumed as R3,00,000.

c) Profits till the date of death to be ascertained on the basis of average profit of previous
four years
d) Upon the death of a partner, she is to be credited with her share of the profits, interest
on capitals etc. calculated till the date of death

After death of Kiya;

1) 2,00,000 was received from insurance company against Joint life Policy.
2) Land & Building was appreciated by 20%, Furniture to be depreciated by 10%,
inventory to be revalued at 80,000, Bad debts amounted 1760.
3) Amount payable to Kiya was transferred to executor account

You are required to prepare;

1) Revaluation A/c
2) Partners' Capital A/c
Balance Sheet as on 30th September 20X4, assuming other Assets and liabilities
remaining the same. (ICAI SM)

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Sol. Revaluation A/c

Particulars Particulars
Furniture 7,500| Land & Building 33,000
Inventory 8,740
Bad Debts 1,760
Profit on Revaluation
Diya 6,000
Riya 3,000
Kiya 6,000 15,000
33,000 33,000

Partners' CapitalA/C
Particulars Diya () Riya () Kiya () Particulars Diya () Riya () Kiya ()

Goodwill 32,000 16,000 32,000 Balance b/d 1,50,000 ,80,000 70,000

General Reserve 56,000 28,000 56,000
Joint life Policy 56,000 28,000 56,000
Interest on Capital 4.200
revaluation 6,000 3.000 6,000
Kiya Capital 40,000 20,000 Diya & Riya Capital 60,000
Bank 2,47,800 profit & loss 27,600
suspense A/c
Balance c/d 1,96,000 2,03,000
2,68,000 2,39,000 2,79,800 2,68,000 2,39,000 2,79,800

Bank A/c

Particulars Particulars )
Balance b/d 34,510
Bank 2,00,000 Balance c/d 2,34,510
2,34,510 2,34,510

Balance Sheet as on 30th September 20X4

Liabilities ) Assets )
Capitals; Land & Building 1,98,000
Diya 1,96,000 Furniture 67,500
Riya 2,03,000 Inventory 80,000
Trade Receivable 94,990
Trade payables 60,000 Bank 2,34,510
Kiya executor's account 2,47,800| Profit andloss Suspense 31,800
(10C is included)
7,06,800 7,06,800

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Working Notes:

1) Goodwill Valuation;
20X0-X1 1,62,000
20X1-X2 1,99,000
20X2-X3 1,87,000
20X3-X4 1,96,000
Total 7,44,000

Average =7,44,000/4 = 1,86,000

Less: Interest on Capital = 3,00,000 × 129% =
36,000
Adjusted Average Profit = 1,50,000
Goodwill (1 year's = 150,000
purchase)
Kiya's share (2/5) = 60,000

2) Journal Entry for Adjustment of Goodwill;

Particulars L.F. () )

Diya's Capital A/c Dr 40,000

Riya's Capital A/c Dr. 20,000
To Kiya's Capital A/c 60,000
(Share of goodwill adjusted)

3) Kiya's Share of Profit till the date of death;

Average profit for full year before interest onademy = 1,86,000

capital sDeelopinsonceS
6 month's profits = 93,000
Less: Interest on capital 4,00,000 x 12% 6/12 x = 24,000
Adjusted profit till the date of death = 69,000
Kiya's share 2/5th = 27,600

4) The Joint life policy in this question is based on the surrender value method. Where in
the amount shown in the balance sheet shall be deducted from the JLP proceeds received
-
from insurance co, on the death of a partner,

=
I 2,00,000-60,000 (b/s value) 1,40,000-divident in profit sharing ratio between
the partners.

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Issue of Shares
Assignment
[Link]. Questions and Suggested
1 A
company had an authorised capital of 10,00,000 divided into 1,00,000 equity
shares of 10 each. It decided to issue 60,000 shares for subscription and received
applications for 70,000 shares. It allotted 60,000 shares and rejected remaining
applications. Up to 31-3-20X0, has demanded or called ? 9 per share. All
shareholders have duly paid the amount called, except one shareholder, holding 5,000
shares who has paid only 7 per share.
Prepare a balance sheet assuming there are no other details. (ICAI SM)
Sol.
Balance Sheet as at 31st March, 20X0
Particulars Notes
No.
EQUITY AND LIABILITIES
Shareholders' funds
Share capital 1 5,30,000
Total 5,30,000
ASSETS
Current assets
Cash and cash equivalents 2 5,30,000
Total 5,30,000
Notes to accounts
S. No. Particulars
1. Share Capital
Equity share
capital
Authorised 10,00,000
share capital
1,00,000 Equity shares of
R10 each Issued share capitalcation Academy
6,00,000
pn
60,000 Equity shares of
10 each Subscribed share
6,00,000
capital
60,000 Equity shares of 10 each
|Called up and Paid up share capital
|60,000 Equity sharesof 10 each 9 called up 5,40,000
Less: Calls unpaid on 5,000 shares @I2 per share
(10,000) 5,30,000

2 Cash and cash equivalents

Balances with banks
5,30,000

2 A company invited applications for 10,000 equity shares of 50 each payable on

application 15, on Allotment 20, on first and final call 15. Applications are
received for 10,000 shares and all the applicants are allotted the number of shares
they have applied for and installment money was duly received by the company.
Show Journal entries in the books of the company. (ICAI SM)

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Sol. Journal Entries

[Link]. Particulars Dr. Cr.
Amount Amount

i Bank A/c (10,000x*15) Dr. 1,50,000

To Equity share capital A/c 1,50,000
(Being application money received.)
ii) Equity Share Application A/c Dr 1,50,000
To Equity Share Capital A/c 1,50,000
(Being allotment of shares made.)
iii) Equity Share Allotment A/c (10,000xR20) Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Being amount due on allotment.)

Bank A/c Dr.

iv) 2,00,000
To Equity Share Allotment A/c 2,00,000
(Being allotment money received.)
V) Equity Share First Call A/c (10,000x*15)
Dr
1,50,000
To Equity Share Capital A/c 1,50,000
(Being first call money due.)
vi) Bank A/c Dr. 1,50,000
To Equity Share First Call A/c 1,50,000
(Being the call money received.)

3 On 1st April, 20X0, A Ltd. issued 43,000 shares of 100 each payable as follows:
20 on application;
* 30 on allotment;
I 25 on 1st October, 20X0; and
7 25 on
1st February, 20X1.
By 20th May, 40,000 shares were applied for and all applications were accepted.
Allotment was made on 1st June. All sums due on allotment were received on 15th
July; those on 1st call were received on 20th October.

Journalise the transactions when accounts were closed on 31st March, 20X1.
(ICAI SM)
Sol. A Ltd. Journal
20X0 Particulars
May 20Bank Account Dr. 8,00,000
To Share Application A/c 8,00,000
(Being application money on 40,000 shares at 20 per
share received.)
June 1 |Share Application A/c Dr. 8,00,000
To Share Capital A/c 8,00,000
(Being the amount transferred to Capital Account on
40,000 shares at ? 20 on application. Directors'
resolution no... dated.)
| Share Allotment A/c Dr. 12,00,000
To Share Capital A/c
12,00,000
(Being share allotment made due at 30 per share.
Directors' resolution no...dated.)
July 15 Bank Account Dr. 12,00,000
To Share Allotment A/c 12,00,000
(Being sums due on allotment received.)

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Oct. 1 |Share First Call Account Dr. 10,00,000

To Share Capital Account 10,00,000
(Being amount due from members in respect of first call
on 40,000 shares at 25 as per Directors, resolution no.

dated..)
Oct. 20Bank Account Dr 10,00,000
To Share First Call Account 10,00,000
(Being receipt of the amounts due on first call.)
20X1 Share Second and Final Call A/c Dr. 10,00,000
Feb. 1 To Share Capital A/c 10,00,000
(Being amount due on 40,000 shares at 25 per share
on second and final call, as per Directors resolution no..
dated...)
Mar. 31 Bank Account Dr 10,00,000
To Share Second & FinalCall A/c
10,00,000
(Being amount received against the final call on 40,000
|shares at t 25 per share.)

4. Pant Ltd. invited applications for 50,000 equity shares at 50 each, which are payable
as on application 20, on allotment 10 and on first and final call 20. The company
received applications for 60,000 shares. The directors accepted application for 50,000
shares and rejected the rest. Show Journal entries if company refunded the application
money to rejected applicants and allotment money was received for 45,000 shares.
(ICAISM)
Sol. Pant Ltd.
Journal Entries
Particulars
Bank A/c Dr. 12,00,000
To Equity Share Application A/c 12,00,000
ucation Academy
(Being the application money received for 60,000 shares at 20
per share.)
Equity Share Application A/c Dr. 12,00,000
To Equity Share Capital A/c 10,00,000
To Bank A/c 2,00,000
(Being share allotment made for 50,000 shares and excess
refunded.)
Equity Share Allotment A/c Dr. 5,00,000
To Equity Share Capital A/c 5,00,000
(Being allotment amount due on 50,000 equity shares at 10 per
share as per Directors' resolution no... dated..)

Bank A/c Dr. 4,50,000

Calls in Arrears A/c Dr. 50,000
To Equity Share Allotment A/c 5,00,000
(Being allotment money received for 45,000 shares at 10 per
share.)
5. The Delhi Artware Ltd. issued 50,000 equity shares of 100 each and 1,00,000
preference shares of 100 each. The Share Capital was to be collected as under:
Equity Preference
Shares Shares

On Application 25 20
On Allotment 20 30
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First Call 30 20
Final Call 25 30
Allthese shares were subscribed. Final call was received on 42,000 equity shares and
88,000 preference shares. Prepare the cash book and journalise the remaining
transactions in the books of the company. (ICAISM)

Sol.
Delhi Artware Ltd.
Dr Cash Book Cr.
Particulars
To Equity Shares Applications By Balance c/d 1,44,40,000
Account (application money on 12,50,000
50,000 shares at 25)
To Preference Share Application A/c 20,00,000
(application money on 1,00,000
shares at 20)
To Equity Share Allotment A/c 10,00,000
(allotment money on 50,000
shares at 20)
To Preference Share Allotment A/c
30,00,000
(allotment money on 1,00,000
shares at 30)
To Equity Shares First Call A/c
(R 30 on 50,000 shares)
15,00,000
To Preference Share First Call A/c
(R 20 on 1,00,000 shares)
20,00,000
To Equity Shares Final Call A/c
( 25 on 42,000 shares)
10,50,000
To Preference Share Final A/c
(30 on 88,000 shares)
26,40,000
1,44,40,000 1,44,40,000
Grooming Edycation Academy
To Balance b/d 1,44,40,000

Equity Share Application A/c

Equity Share Allotment A/c
Particulars
Journal Entries

Dr
Dr
-
12,50,000
10,00,000
To Equity Share Capital A/c 22,50,000
The Credit to shareoncapital on allotment of 50,000 equity shares at
45 per share ( 25 application and R 20 on allotment) allotted as
per Directors resolution no... dated..]
|Preference Share Application A/c Dr. 20,00,000
Preference Share Allotment A/c Dr 30,00,000
To Preference Share Capital A/c 50,00,000
[The credit to Preference Share Capital on allotment of 1,00,000
preference shares at 50 per share ( 20 on application and 30 on
allotment), allotted as per Directors' resolution no.. dated...]
Equity Share First Call A/c Dr. 15,00,000
To Equity Share Capital A/c 15,00,000
(Amount due on 50,000 equity shares at 30 per share as per
| Directors' resolution no.. dated...
Preference Share First Call A/c Dr. 20,00,000
To Preference Share Capital A/c 20,00,000
(Amount due on 1,00,000 preference shares at 20 per share, as per
Directors' resolution no..dated..]

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Equity Share Final Call A/c Dr. 12,50,000

To Equity Share Capital A/c 12,50,000
(Amount due on final call on 50,000 equity shares at 25 per share,
as per Directors' resolution n... dated...)
Preference Share Final Call A/C Dr 30,00,000
To Preference Share Capital A/c 30,00,000
(Amount due on final call on 1,00,000 preference shares at 30 per
share, as per Directors' resolution no.. dated...)

Note: Students may note that cash transactions have not been journali sed as these
have been entered in the Cash Book.
6. On 1st October, 20XO Pioneer Equipment Limited received applications for 2,50,000
Equity Shares of 100 each to be issued at a premium of 25 per cent payable as:

On Application 25
On Allotment 75 (including premium)

Balance Amount on Shares As and when required

The shares were allotted by the Company on October 20, 20X0 and the allotment
money was duly received on October 31, 20X0.
Record journal entries in the books of the company to record the transactions in
connection with the issue of shares. (ICAI SM)

Sol. Pioneer Equipment Limited

Journal
Date Particulars L.F. Debit Credit
20X0 Amount Amount
(000) (000)
Oct. 1 Bank A/c Grooming Education Acarmy 6,250
Concepts 6,250
To Equity Share Application A/c
(Money received on applications for 2,50,000
shares @R 25 per share.)
|Oct. 20 Equity Share Application A/c Dr. 6,250
6,250
To Equity Share Capital A/c
(Transfer of application money on allotment to
share capital.)
Oct. 20 Equity Share Allotment A/c Dr. 18,750
To Equity Share Capital A/c 12,500
To Securities Premium A/c 6,250
(Amount due on allotment of 2,50,000 shares @
R
75 per share including premium.)
Oct. 31 Bank A/c Dr 18,750
To Equity Share Allotment A/c 18,750
|(Money received including premium consequent
upon allotment.)

Note: Bifurcation of Allotment amount

Security premium per share =

25% x 100 =
25

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Money received on allotment per

share =75

Premium Capital
Per Share 25 {50
No. of Shares (in '000) 250 250
Total Amount (In '000) 6,250 12,500

7
JHP Limited is a company with an authorized share capital of 10,00,000 in equity
shares of 10 each, of which 6,00,000 shares had been issued and fully paid on 30th
June, 20X0. The company proposed to make a further issue of 1,00, 000 of these 10
shares at a price of 14 each, the arrangements for payment being:
a) 2 per share payable on application, to be received by 1st July, 20X0;
b) Allotment to be made on 10th July, 20X0 and a further 5 per share (including the
premium) to be payable;
c) The final call for the balance to be made, and the money received by 3Oth April,
20X1.
Applications were received for 3,55,000 shares and were dealt with as follows:
i) Applicants for 5,000 shares received allotment in full;
ii) Applicants for 30,000 shares received an allotment of one share for every two
applied for; no money was returned to these applicants, the surplus on
application being used to reduce the amount due on allotment;
iii) Applicants for 3,20,000 shares received an allotment of one share for every
four applied for; the money due on allotment was retained by the company,
the excess being returned to the applicants; and
iv) the money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the Journal of
JHP Limited. (ICAISM)
Sol.
Journal of JHP Limited
Date Particulars
20X0
Bank A/c (Note 1- Column 3) Dr. 7,10,000
July
1

To Equity Share Application A/c 7,10,000

(Being application money received on 3,55,000 shares @
|2 per share.)
July 10 Equity Share Application A/c Dr 7,10,000
To Equity Share Capital A/c 2,00,000
To Equity Share Allotment A/c (Note 1 4,30,000
Column 5) 80,000
To Bank A/c (Note 1 - Column 6)
(Being application money on 1,00,000 shares transferred to
Equity Share Capital Account; on 2,15,000 shares adjusted
with allotment and on 40,000 shares refunded as per
Board's Resolution No... dated..)
Equity Share Allotment A/c Dr 5,00,000
To Equity Share Capital A/c 1,00,000
To Securities Premium A/c 4,00,000
(Being allotment money due on 1,00,000 shares @ I5 each
including premium at 4 each as per Board's Resolution
No... dated...)

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Bank A/c (Note 1- Column 8) Dr 70,000

To Equity Share Allotment A/c 70,000
(Being balance allotment money received.)

20X1 Equity Share Final Call Dr 7,00,000

To Equity Share Capital A/c 7,00,000
(Being final call money due on 1,00,000 shares @7 per
share as per Board's Resolution No... dated...)
April 30 Bank A/c Dr. 7,00,000
To Equity Share Final Call A/c 7,00,000
(Being final call money on 1,00,000 shares @7 each
received.)

Working Notes: Calculation for Adjustment and Refund

Category No. of No. of Amount Amount Amount Refund Amount Amount
Shares Shares Received Required on adjusted |3-4+ due on received
Applied Allotted on Application on 5] Allotment on
for (2) Application (4) Allotment Allotment
(1) (3) (5) (7) (8)
(6

5,000 5,000 10,000 10,000 Nil Nil 25,000 25,000

i) 30,000 15,000 60,000 30,000 30,000 Nil 75,000 45,000
iii 3,20,000 80,000 6,40,000 1,60,000 4,00,000 80,000 4,00,000 Nil

TOTAL 3,55,000 1,00,000 7,10,000 2,00,000 4,30,000 80,000 5,00,000 70,000

Also,
i) Amount Received on Application (3) = No. of shares applied for (1) x*2
ii) Amount Required on Application (4)= No. of shares allotted (2) x* 2
8. Shreyas Ltd. did not receive the first callon 10,000 equity shares @I3 per share which
was due on 1.7.20X0. This amount was received on 1.4.20X1.
Open Calls in arrears account and journalise the entries in the books of the company on
1.7.20X0 and 1.4.20X1. Also show an extract of Balance Sheet on 31.3.20X1.
(ICAI SM)
Sol. Shreyas Ltd
Journal
Date Particulars L.F. Amount Amount
Dr Cr,
1.7.20X0 Calls in Arrears A/c Dr. 30,000
30,000
To Equity Share First Call A/c
(Being amount due on first call on 10,000 shares at
3 per share transferred to calls in arrears account.)
1.4.20X1| Bank A/c Dr. 30,000
To Calls in Arrears A/c
30,000
(Being calls in arrears received.)

9. Rashmi Limited issued at par 1,00,000 Equity shares of 10 each payable 2.50 on
application; 3 on allotment; 2 on first call and balance on the final call. All the shares
were fully subscribed. Mr. Nair who held 10,000 shares paid full remaining amount on
first call itself. The final call which was made after 3 months from first call was fully paid
except a shareholder having 1000 shares who paid his due amount after 2 months along
with interest on calls in arrears. Company also paid interest on calls in advance to Mr.
Nair. Give journal entries to record these transactions. (1CAI SM)

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Sol. Journal Entries

Date Particulars L.F Debit AmountCredit Amount
() ()
Bank A/c Dr 2,50,000
To Equity Share Application A/c 2,50,000
(Money received on applications for
1,00,000 shares @R2.50 per share.)
Equity Share Application A/c Dr 2,50,000
To Equity Share Capital A/c 2,50,000
(Transfer of application money on
1,00,000 shares to share capital.)
Equity Share Allotment A/c Dr 3,00,000
To Equity Share Capital A/c 3,00,000
(Amount due on the allotment of 1,00,00o
shares @3 per share.)
Bank A/c Dr 3,00,000
To Equity Share Allotment A/c 3,00,000
(Allotment money received.)
Equity Share First Call A/c Dr 2,00,000
To Equity Share Capital A/c 2,00,000
(Being first call made due on 1,00,000|
shares att 2 per share.)
Bank A/c Dr 2,25,000
To Equity Share First Call A/c 2,00,000
To Calls in Advance A/c 25,000
(Being first call money received along with
calls in advance on 10,000 shares at 2.50|
per share.)
Equity Share Final Call A/c Dr 2,50,000
To Equity Share Capital A/c 2,50,000
(Being final call made due on 1,00,00o
shares at Rs.2.50 each.)
Bank A/c Grooming Education |ADr,demy 2,22,500
C

Calls in Advance Alcer in Dheeloping Dr 25,000

Calls in Arrears A/c Dr. 2,500
To Equity Share Final Call A/c 2,50,000
(Being final call received for 89,000 shares
and calls in advance for 10,000 shares
adjusted.)
Interest on Calls in Advance A/c Dr 750
To Shareholders A/c 750
(Being interest made due on calls in
advance of { 25,000 at the rate of 12% p.a.)
Shareholders A/c Dr 750
To Bank A/c 750
(Being payment of interest made to
shareholder.)
Shareholders A/c Dr 41.67
To Interest on Calls in Arrears A/c 41.67
(Being interest on calls in arrears made
due at the rate of 10%.)
D

Bank A/c 2,541.67|

To Calls in Arrears A/c 2,500
To Shareholders A/c 41.67
(Being money received from shareholder
for calls in arrears and interest
thereupon.)
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10. A Ltd forfeited 30,000 equity shares of 10 fully called-up, held by Mr. X for non
payment of final call @4 each. However, he paid application money @2 per share
and allotment money @ 4 per share. These shares were originally issued at par. Give
Journal Entry for the forfeiture. (ICAI SM)
Sol. In the books of A Ltd.
Journal
Date Particulars

Equity Share Capital A/c (30,000 x * 10) Dr 3,00,000

1,20,000
To Equity Share Final Call A/c
(30,000 x {4) To Forfeited Shares 1,80,000
x
A/c (30,000 *6)
(Being the forfeiture of 30,000 equity shares of 10 each
fully called-up for non-payment of final call money @ 4
each as per Board's Resolution No.. dated..)
11. X Ltd forfeited 20,000 equity shares of I 10
each,I8 called-up, for non-payment of first
money money per share and allotment money
call @2 each. Application @2
per share have already been received by the company. Give Journal Entry for the
@4
forfeiture (assume that all money due is transferred to Calls-in-Arrears Account).
(ICAI SM)

Sol. In the books of X Ltd

Journal
Date Particulars

Equity Share Capital A/c (20,000 x * 8) Dr. 1,60,000

To Calls-in-Arrears A/c 40,000
x 2) To Forfeited
1,20,000
(20,000
Shares A/c (20,000 x6)
(Being the forfeiture of 20,000 equity shares of R 10 each, 8

called-up for non-payment of first call money @ 2 each as per

Board's Resolution No... dated.J)
12. X Ltd. forfeited 5,000 equity shares of100 each fully called-up which were issued at a
premium of 20%. Amount
payable on shares were: on application 20; on allotment
50 (including premium); on First and Final call E 50. Only application money was paid
by the shareholders in respect of these shares. Pass Journal Entries for the forfeiture.
(ICAI SM)
Sol. In the books of X Ltd.
Journal
Date Particulars

Equity Share Capital A/c (5,000 x 100) Dr.

5,00,000
Securities Premium A/c (See Note)
Dr.
1,00,000
To Equity Share Allotment A/c (5,000 x 50) 2,50,000
To Equity Share First and Final Call A/c (5000 x 50) 2,50,000
To Forfeited Shares A/c (5000 x * 20) 1,00,000
(Being the forfeiture of 5,000 equity shares of 100 each fully
called-up, issued at a premium of 209%, for non- payment of
allotment and call money as per Board's Resolution No...
dated..)

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13. Mr. Shami has applied for 1,000 shares of Company XYZ Ltd. paying application money
@R2 per share but has been allotted only 600 shares. The shares have a face value ofR
10 and a premium ofR 2 per share, which are payable as: on Allotment- 5 (including
premium) and on final call 5. Nowin case Mr. Shamidoesn't pay allotment money and
final call and his shares are forfeited, then following entry will be passed on forfeiture:
(ICAISM)
Sol. Journal Entries
Particulars
x *
Share Capital A/c (600 10) Dr 6,000
Securities Premium A/c (600 x* 2) Dr 1,200
To Share Forfeiture A/c 2,000
To Share Allotment A/c 2,200
To Share Final Call A/c (600 x 5) 3,000
(Being 600 shares forfeited due to non-payment of allotment
money and call money as per Board Resolution no....dated...)

Note:

Total Amount Received on application (1,000 x 2) 2,000

Less: Amount used for application money (600 x 2) (1,200)
Excess money received on application 800
Amount due on Allotment (600 x 5) 3,000
For premium (600 x 2) 1,200
For Capital A/c (600 x 3) 1,800
-
Thus, amount not received on allotment (3,000 800) 2,200

For
A/c For Capital A/c
Grooming Education Academy Premium
1.200 71,000
14. Mr. Long who was the holder of 2,000 preference shares of 100 each, on which R 75
per share has been called up could not pay his dues on Allotment and First call each at
25 per share. The Directors forfeited the above shares and reissued 1500 of such
shares to Mr. Short at 65 per share paid-up as 75 per share.
Give journal entries to record the above forfeiture and re-issue in the books of the
company. (ICAI SM)
Ans Journal
Date Particulars
Preference Share Capital A/c (2,000 x 75) Dr. 1,50,000
To Preference Share Allotment A/c
50,000
To Preference Share First Call A/c
To Forfeited Share A/c 50,000
(Being the forfeiture of 2,000 preference shares of 75 50,000
each being called up for non-payment of allotment and
first call money as per Board's Resolution No... dated..)
Bank A/c (1,500 x * 65) Dr 97,500|
Forfeited Shares A/c (1,500 x 10) Dr 15,000|
To Preference Share Capital A/c 1,12,500
(Being re-issue of 1500 shares at 65 per share paid-up
as 75 as per Board's Resolution No...
dated.]
Forfeited Shares A/c Dr. 22,500|
To Capital Reserve A/c (Note 1) 22,500
(Being profit on re-issue transferred to Capital Reserve.)

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Working Note:
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share = 50,000/2000 25
Loss on re-issue = 75 -65 10
Surplus per share re-issued R
15
x
Transferred to capital Reserve 15 1500 { 22,500
15. R
Beautiful Co. Ltd issued 30,000 equity shares of 10 each payable as 3 per share on
Application, R 5 per share (including 2 as premium) on Allotment and 4 per share on
Call. Allthe shares were subscribed. Money due on all shares was fully received except
from Ram, holding 500 shares, who failed to pay the Allotment and Call money and
Shyam, holding 1,000 shares, who failed to pay the Call Money. All those 1,500 shares
were forfeited. Of the shares forfeited, 1,250 shares (including whole of Ram's shares)
were subsequently re-issued to Jaadu as fully paid up at a discount of 2 per share.
Pass the necessary entries in the Journal of the company to record the forfeiture and re
issue of the share. Also prepare the Balance Sheet of the company.
(ICAI SM)
Sol. In the books of Beautiful Co. Ltd.
Journal
Date Particulars
Equity Share Capital A/c (1,500 x { 10) Dr. 15,000
Securities Premium A/c (500 x 2) Dr. 1,000
To Equity Share Allotment A/c(500 x *5)
To Equity Share Call A/c (1,500 x*4)
2,500
6,000
To Forfeited Shares A/c 7,500
(Being forfeiture of 1,500 equity shares for non-payment
of allotment and call money on 500 shares and for non
payment of call money on 1,000 shares as per Board's
Resolution No... dated ...)
Bank A/c Dr. 10,000
Forfeited Shares A/cing Education Academy Dr. 2,500
To Equity Share Capital A/c 12,500
(Being re-issue of 1250 shares @I8 each as per Board's
Resolution No... dated..)]
Forfeited shares A/c Dr.
To Capital Reserve A/c 3,500|
(Being profit on re-issue transferred to Capital Reserve) 3,500

Balance Sheet of Beautiful Limited as at....

Particulars Notes No.
EQUITY AND LIABILITIES
Shareholders' funds
Share capital
1 2,99,000
2 62,500
Reserves and Surplus
Total ASSETS 3,61,500
Current assets
Cash and cash equivalents (Bank)
Total 3,61,500
3,61,500

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Notes to accounts:
[Link]. Particulars
1. Share Capital
Equity share capital
Issued share capital
30,000 Equity shares of 10 each 3,00,000
Subscribed, called up and paid up share capital
29,750 Equity shares of 10 each 2,97,500
Add: Forfeited shares 1,500
2,99,000
2 Reserves and Surplus
Securities Premium 59,000
Capital Reserve 3,500|
62,500

Working Note:
1) Calculation ofamount to be transferred to Capital Reserve

Amount forfeited per share of 3 Amount forfeited per share of Shyam *6

Ram
Less: Loss on re-issue per share (R 2) Less: Loss on re-issue per share (R2)
Surplus Surplus I4

Transferred to Capital Reserve:

Ram share (500 x *1) 7500

Shyam's share (750 x

4) I3.000
Total 3.500

2) Balance of Security Premium

B89Mmgducation Academy
Total Premium amount receivable on allotment 60,000
Less: Amount reversed on forfeiture (1,000)
Balance remaining * 59,000
16. A holds 2,000 shares of 10 each on which he has paid 2 as application money. B
holds 4,000 shares of 10 each on which he has paid 2 per share as application
money and 3 per share as allotment money. C holds 3,000 shares of 10 each and
has paid 2 on application, 3 on allotment and 3 for the first call. They all fail to
pay their arrears on the second and final call and the directors, therefore, forfeited
their shares. The shares are re-issued subsequently for 12 per share fully paid-up.
Journalise the transactions relating to the forfeiture and re-issue. (ICAI SM)
Sol. Journal
Date Particulars
Share Capital A/c (9,000 x R 10) Dr. 90,000
To Share Allotment A/c (2,000 x 3) 6,000
To Share First Call A/c (6,000 x *3) 18,000|
To Share Final Call A/c (9,000 x* 2) 18,000
To Forfeited Shares A/c 48,000
(Being forfeiture of 9,000 shares of R 10 each for non
payment of allotment, first and final call money as per
Board's Resolution No... dated...]

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Bank A/c (9,000 x R 12) Dr. 1,08,000

To Share Capital A/c
90,000
To Securities Premium A/c 18,000
(Being the re-issue of 9,000shares of 10 each @R 12
as per Board's Resolution No.. dated...)
Forfeited Shares A/c Dr. 48,000
To Capital Reserve A/c 48,000
(Being profit on re-issue transferred to Capital
Reserve.)
Working Note:
Money Received Money Not Received On
Shareholders Application Allotment First Final Allotment First Final
Call Call Call Call
A 2,000 2,000 2,000 2,000
B
4,000 4,000 4,000 4,000
C
3,000 3,000 3,000 3,000
TOTAL 9,000 7,000 3,000 2,000 6,000 9,000
Money 2 R3 R2 {2

Receivable 18,000 21,0009,000 t 6,000

18,000 18,000
17. X Co. Ltd. was incorporated with an authorized share capital of 90,000 equity shares
of 10 each. The company purchased land and buildings from Co. Ltd for 4,00,000
Y

payable in fully paid-up shares of the company. The balance of the shares were issued
to the public, which were fully subscribed and paid for.
You are required to pass journal entries and to prepare the Balance Sheet.
(ICAI SM)
Sol. Journal
Date Particulars Debit () Credit ()
Land and Buildings A/c Dr. 4,00,000
To Y Co. Ltd A/cming Education. 4,00,000
Aggdem,
(Being the land and buildings purchased from Y
Co. Ltd as per agreement dated...)
Y Co.
Ltd A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being 40,000 shares of Rs. 10 each issued to Y Co.
Ltd. on purchase of land and building.)
Bank A/c Dr. 5,00,000
To Equity Share Application and Allotment 5,00,000
A/c
(Being the issue of 50,000 shares of 10 each as
per Board's Resolution No... dated...]
Equity Share Application and Allotment A/c Dr. 5,00,000
To Equity Share Capital A/c 5,00,000
(Being shares allotted for application money
received.)
Balance Sheet of X Company Limited as at...
[Link]. Particulars Notes
No.
EQUITY AND LIABILITIES
Shareholders' funds
Share capital 1 9,00,000
Total 9,00,000
ASSETS
1 Non-current assets
a) Fixed asset
i) Tangible assets 2 4,00,000

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2 Current assets
Cash and cash equivalents 3 5,00,000
Total 9,00,000

Notes to accounts
[Link]. Particulars
1 Share Capital
Equity share capital
Authorized share capital
90,000 Equity shares of 10 each
Issued share capital 9,00,000
90,000 Equity shares of ? 10 each
9,00,000
Subscribed Share Capital
90,000 Equity Shares of 10 each 9,00,000
Called up and Paid up Capital
90,000 Equity Shares of T 10 each 9,00,000
(Out of the above 40,000 shares have been allotted as fully paid up
pursuant to contract(s) without payment being received in cash)
2. Tangible Assets
Land and Building 4,00,000
3 Cash and cash equivalents
Balances with banks 5,00,000
18. X Ltd. invited applications for 10 lakhs shares of 100 each payable as follows:
On Application 20
On Allotment (on 1st May, 20X0) 30
On First Call (on 1st Oct., 20X0) 30
On Final Call (on 1st Feb., 20X1) 20
Allthe shares were applied for and allotted. A shareholder holding 20,000 shares paid
the whole of the amount due along with allotment. Journalise the transactions,
assuming all sums due were received. Interest was paid to the shareholder concerned
on 1st February, 20X1. (ICAI SM)
Sol.
Journal ofX Ltd.
Date Particulars Dr. Cr.
( in { in
lakhs) lakhs)
20X0 Bank A/c Dr 200
May 1 To Share Application A/c 200
(Receipt of applications for 10 lakh shares along
with application money of 20 per share.)
May 1
Share Application A/c Dr 200
Share Allotment A/c Dr. 300
To Share Capital A/c 500
(The allotment of 10 lakh shares: payable on
application 20 share and 30 on allotment as
per Directors' resolution no... dated..)
May 1 Bank A/c Dr 310
To Shares Allotment A/c 300
To Calls in Advance A/c 10
[Receipt of money due on allotment @ 30, also
thetwo calls ( 30 and 20) on 20,000 shares.]
Oct. Share First Call A/c 300
1

Dr.
To Share Capital A/c 300
(The amount due on 10 lakh shares @30 on first
call, as per Directors, resolution no.. dated..)

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Bank A/c Dr. 294

Calls in Advance A/c Dr. 6
To Share First Call A/c 300
(Receipt of the first call on 9.80 lakh shares, the
balance having been previously received and now
debited to call in advance account.)
20X1 Share Final Call A/c Dr. 200
Feb. 1 To Share Capital A/c 200
(The amount due on Final Call on 10 lakh shares
@ 20 per share, as per Directors' resolution no...
dated..)

Feb. 1 Bank A/c Dr

196
Calls in Advance A/c Dr. 4
To Share Final CallA/c 200
(Receipt of the moneys due on final call on 9.80
lakhs shares, the balance having been previously
received.)
Feb. 1 Interest on calls in Advance A/c Dr. 0.66
To Shareholder A/c 0.66
(Being interest on call in advance made due.)
Feb. 1 Shareholder A/c Dr 0.66
To Bank A/c 0.66
(Being interest paid.)
Working Note:

The interest on calls in advance paid @ 12% on:

I6,00,000 (first call) from 1st May to 1st Oct., 20X0-5 months 30,000
4,00,000 (final call) from 1st Mayto 1st Feb., 20X1-9 months 36,000
Total Interest Amount Due 66,000
oomincCducation Aeades
19. A limited Company, with an authorized capital of 20,00,000 divided into shares of
100 each, issued for subscription 10,000 shares payable at ? 25 per share on
application, 30 per share on allotment,I 20 per share on first call three months after
allotment and the balance as and when required.
The subscription list closed on January 31, 20X0 when application money on 10,000
shares was duly received and allotment was made on March 1, 20X0.
The allotment amount was received in full but, when the first call was made, one
shareholder failed to pay the amount on 1,000 shares held by him and another
shareholder with 500 shares paid the entire amount on his shares.
Give journal entries in the books of the Company to record these share capital
transactions assuming that all amounts due were received within one month of the
date they were called. (ICAI SM)
Sol. In the Books of the Company
Journal Entries
Date Particulars Debit () Credit (R)
Jan. 31 Bank A/c Dr. 2,50,000
To Equity Share Application A/c 2,50,000
(Money received on applications for 10,000
shares @I 25 per share.)
March 1 Dr.
Equity Share Application A/c 2,50,000
To Equity Share Capital A/c 2,50,000
(Transfer of application money on 10,000
shares to share capital.)

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March 1
Equity Share Allotment A/c Dr 3,00,000
To Equity Share Capital A/c 3,00,000
(Amount due on the allotment of 10,000
shares @I30 per share.)
1
April Bank A/c Dr. 3,00,000
To Equity Share Allotment A/c 3,00,000
(Allotment money received.)
June 1 Equity Share First Call A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(First call money due on 10,000 shares @
20 per share.)
1
July Bank A/c Dr. 1,92,500
Calls-in-Arrears A/c Dr 20,000
To Equity Share First Call A/c 2,00,000
To Calls-in-Advance A/c 12,500
(First call money received on 9000 shares
and calls- in- advance on 500 shares @ 25
per share.)

20. B Ltd. issued 20,000 equity shares of 100 each at a premium of 20 per share
payable as follows: on application 50; on allotment 50 (including premium); on
final call 20. Applications were received for 24,000 shares. Letters of regret were
issued to applicants for 4,000 shares and shares were allotted to all the other
applicants. Mr. A, the holder of 150 shares, failed to pay the allotment and call money,
the shares were forfeited. Show the journal entries and cash book in the books of B
Limited. (ICAI SM)
Sol. In the Books of Ltd.
B
Cash Book (Bank column only)
Particulars Particulars
To Equity Share Application 12,00,000 By Equity Share Application 2,00,000
A/c Groomint Educatior A/demy
(Being application moneyeeloping |(Being excess money
received on 24,000 shares @{ refunded on 4,000 shares @
50 each.) 50 each as per Board's
Resolution No.. dated..)
To Equity Share Allotment A/c 9,92,500 By Balance c/d 23,89,500
(Being allotment money
received on 19,850 shares @I
50 each)
To Equity Share Final Call A/c 3,97,000
(Being final call money
received on 19,850 shares @
20 each)
25,89,500 25,89,500
Journal Entries
Date Particulars
Equity Share Application A/c Dr. 10,00,000
To Equity Share Capital A/c 10,00,000
(Being application money on 20,000 shares @
50 each transferred to Equity Share Capital
Account as per Board's Resolution No... dated..]
Equity Share Allotment A/c Dr 10,00,000
To Equity Share Capital A/c 6,00,000
To Securities Premium A/c 4,00,000
(Being allotment money @ 50 per share
including premium of ? 20 per share being made
due as per Board's Resolution No....dated...]

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Equity Share Capital A/c (150 x* 100) Dr. 15,000

Securities Premium A/c (150 x 20) Dr. 3,000
To Equity Share Allotment A/c 7,500
To Equity Share Final Call A/c 3,000
To Forfeited Shares A/c 7,500
(Being forfeiture of 150 shares for non-payment
of allotment money and final call money as per
Board's Resolution No... dated...)
Note: Here, securities premiumn on forfeited shares has not been realized, so
Securities Premium Account will be debited at the time of forfeiture of these shares.

21. Pihu Limited issued at par 2,00,000 Equity shares of ? 10 each payable 2.50 on
application; 3 on allotment; 2 on first call and balance on the final call. All the shares
were fully subscribed. Mr. Pal who held 20,000 shares paid full remaining amount on first
call itself. The final call which was made after 3 months from first call was fully paid except
a shareholder having 2,000 shares who paid his dues amount after 2 months along with
interest on calls in arrears. Company also paid interest on calls in advance to Mr. Pal.
You are required to prepare journal entries to record these transactions.
(May 2018 RTP)
Sol. Book of Pihu Limited
Journal
Date Particulars L.F. Debit Credit
Amount Amount
()
Bank A/c Dr. 5,00,000
To Equity Share Application A/c 5,00,000
(Money received on applications for 2,00,000
shares @I 2.50 per share.)
Equity Share Application A/c Dr. 5,00,000
To Equity Share Capital A/sation Acader 5,00,000
(Transfer of application money on 2,00,000|
shares to share capital.)
Equity Share Allotment A/c Dr. 6,00,000
To Equity Share Capital A/c 6,00,000
(Amount due on the allotment of 2,00,000
shares @I3 per share.)
Bank A/c Dr. 6,00,000
To Equity Share Allotment A/c 6,00,000
(Allotment money received.)
Equity Share First Call A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being first call made due on 2,00,000 shares at
R 2 per share.)
Bank A/c Dr. 4,50,000
To Equity Share First Call A/c 4,00,000
To Calls in Advance A/c 50,000
(Being first call money received along with calls
in advance on 20,000 shares at 2.50 per
share.)
Equity Share Final Call A/c Dr. 5,00,000
To Equity Share capital A/c 5,00,000
(Being final call made due on 2,00,000 shares at
7 2.50 each.)

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Bank A/c Dr. 4.45,000

Calls in Advance A/c Dr. 50,000
Calls in Arrears A/c Dr 5,000
To Equity Share Final Call A/c 5,00,000
(Being final call received for 1,78,000 shares
and calls in advance for 20,000 shares
adjusted.)
Interest on Calls in Advance A/c Dr. 1,500
To shareholders A/c (* 50,000x12%×3/12) 1,500
(Being interest made due on calls in advance of
R50,000 at the rate of 12% p.a.)
Shareholders A/c Dr. 1,500
To Bank A/c 1,500
(Being payment of Interest made to
shareholders.)
Shareholders A/c (R 5,000x 10%×2/12) Dr. 83.34
To Interest on Calls in Arrears A/c 83.34
(Being interest on calls in arrears made due at
the rate of 10% p.a.)
Bank A/c Dr. 5,083.34
To Calls in Arrears A/c 5,000
To Shareholders A/c 83.34
(Being money received from shareholder for
calls in arrears and interest thereupon.)
22 Mr. Hello who was the holder of 100 each, on which 75
4,000 preference shares of
per share has been called up could not pay his dues on Allotment and First call each
at 25 per share. The Directors forfeited the above shares and re-issued 3,000 of such
shares to Mr. X at 65 per share paid-up as 75 per share.
You are required to prepare journal entries to record the above forfeiture and re-issue
in the books of the company.
(May 2018 RTP/May 2019 RTP/Nov. 2019 RTP)
Sol. GroomiIn the books of Company
Journal
Particulars Dr. Cr.
() ()
x Dr
Preference Share Capital A/c (4,000 75) 3,00,000
To Preference Share Allotment A/c 1,00,000
To Preference Share First Call A/c 1,00,000
To Forfeited Share A/c 1,00,000
(Being the forfeiture of 4,000 preference shares 75 each
being called up for non-payment of allotment and first call
money as per Board's Resolution No... dated...)
Bank A/c (3,000 x 65) Dr 1,95,000
Forfeited Shares A/c (3,000 x 10) Dr 30,000
To Preference Share Capital A/c 2,25,000
(Being re-issue of3,000 shares at 65 per share paid-up as
I 75 as per Board's Resolution No... dated..)
Forfeited Shares A/c Dr. 45,000
To Capital Reserve A/c (Note 1) 45,000
(Being profit on re-issue transferred to Capital Reserve.)

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Working Note:
Calculation of amount to be transferred to Capital
Reserve
Forfeited amount per = 1,00,000/4,000
share =25
Loss on re-issue =75 -65 =10
Surplus per share re-issued =}15
Transferred to capital reserve (15 x 3,000) =
45,000.
23 On 1st April, 20X0, Pehal Ltd. issued 64,500 shares of 100 each payable as follows:
30 on application, 30 on allotment, 20 on 1st October, 20X0; and 20 on 1st
February, 20X1. By 20th May, 60,000 shares were applied for and all applications were
accepted. Allotment was made on 1st June. All sums due on allotment were received
on 15th July; those on 1st call were received on 20th October. You are required to
prepare the Journal entries to record the transactions when accounts were closed on
31st March, 20X1. (Nov 2018 RTP/Nov 2019 RTP)
Sol. Pehal Ltd.
Journal
20X0 Particulars Dr. Cr
) ()
May 20 Bank Account Dr 18,00,000
To Share Application A/c 18,00,000
(Application money on 60,000 shares at 30 per
share received.)
June 1 Share Application A/c Dr 18,00,000
To Share Capital A/c 18,00,00a
(The amount transferred to Capital Account on
60,000 shares 30 on application. Directors'
resolution no.. dated..)Fducation Academy
Share Allotment A/c Dr 18,00,000
To Share Capital A/c 18,00,000
(Being share allotment made due at 30 per
share. Directors' resolution no...dated.)
July 15 Bank Account Dr 18,00,000
To Share Application and Allotment A/c 18,00,000
(The sums due on allotment received.)
Oct. 1 Share First Call Account Dr 12,00,000
To Share Capital Account 12,00,000
(Amount due from members in respect of first
call-on 60,000 shares at 20 as per Directors,
resolution no... dated..)
Oct.
20Bank Account Dr 12,00,000
To Share First Call Account 12,00,000
(Receipt of the amounts due on first call.)
20X1
Feb. 1 Share Second and Final Call A/c Dr 12,00,000
To Share Capital A/c 12,00,000
(Amount due on 60,000 shares at 20 per share
on second and final call, as per Directors
resolution no... dated..) 12,00,000
Mar. 31 Dr
Bank Account
To Share Second & Final Call A/c
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(Amount received against the final call on 12,00,000

60,000 shares at 20 per share.)
24. Mr. P who was the holder of 2,500 preference shares of R 100 each, on which 70 per
share has been called up could not pay his dues on Allotment and First call each at
20 per share. The Directors forfeited the above shares and reissued 2,000 of such
shares to Mr. Q at 60 per share paid-up as 70 per share.
You are required to prepare the Journal Entries to record the above forfeiture and re
issue in the books of the company.
(Nov 2018 RTP/May 2021 RTP(M)/MTP Oct. 2021)
Sol.
Journal entries
Particulars Dr Cr.
)

Preference Share Capital A/c (2,500 x? 70) Dr. 1,75,000

To Preference Share Allotment A/c (2,500 x 20) 50,000
To Preference Share First Call A/c (2,500 x * 20) 50,000
To Forfeited Share A/c 75,000
(Being the forfeiture of 2,500 preference shares 70 each
being called up for non-payment of allotment and first call
money as per Board's Resolution No... dated..]
Bank A/c (2,000 x R60) Dr. 1,20,000
Forfeited Shares A/c (2,000 x {10) Dr. 20,000
To Preference Share Capital A/c 1,40,000
(Being re-issue of 2,000 shares at 60 per share paid-up as
70 as per Board's Resolution No... dated..)
Forfeited Shares A/c Dr. 40,000
To Capital Reserve A/c (Note 1) 40,000
(Being profit on re-issue transferred to Capital Reserve.)
Working Note:
Grooming Education Academy
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share = 75,000/2500 = * 30
Loss on re-issue =770 - 60 -10
Surplus per share re-issued = 20

Transferred to capital Reserve 20 >x

2000 =
40,000.

25. Konica Limited registered with an authorized equity capital of 2,00,000 divided into
2,000 shares of 100 each, issued for subscription of 1,000 shares payable at 25 per
share on application, I 30 per share on allotment, 20 per share on first call and the
balance as and when required. Application money on 1,000 shares was duly received
and allotment was made to them. The allotment amount was received in full, but when
the first call was made, one shareholder failed to pay the amount on 100 shares held
by him and another shareholder with 50 shares, paid the entire amount on his shares.
The company did not make any other call. Give the necessary journal entries in the
books of the company to record these transactions.
(May 2019 RTP/Nov. 2020 RTP)

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Sol. Journal Entries

Particulars Dr. (t) Cr. ()
Bank A/c Dr 25,000
To Equity Share Application A/c 25,000
(Money received on application for 1,000 shares @25 per
share.)
Equity Share Application A/c Dr 25,000
To Equity Share Capital A/c 25,000
(Transfer of application money on 1,000 shares to share
capital.)
Equity Share Allotment A/c Dr 30,000
To Equity Share Capital A/c 30,000
(Amount due on the allotment of 1,000 shares @30 per
share.)
Bank A/c Dr. 30,000
To Equity Share Allotment A/c 30,000
(Allotment money received.)
Equity Share First Call A/c Dr 20,000
To Equity Share Capital A/c 20,000
(First call money due on 1,000 shares @ 20 per share.)
Bank A/c Dr 19,250
Calls-in-Arrears A/c Dr 2,000
To Equity Share First Call A/c 20,000
To Calls-in-Advance A/c 1,250
(First call money received on 900 shares and calls-in
advance on 50 shares @ 25 per share.)
26. Piyush Limited is a company with an authorized share capital of 2,00,00,000 in equity
shares of 10 each, of which 15,00,000 shares had been issued and fully paid on 30th
June, 20X0. The company proposed to make a further issue of
1,30,000 shares of 10
each at a price of 12 each, the arrangements for payment being:
i) 2 per share payable on application, to be received by 1st July, 20X0;
Oomi

ii) Allotment to be made on 10th july, 20X0 and a further 5 per share (including
the premium) to be payable;
iii) The final call for the balance to be made, and the money received by 31st March,
20X1.
Applications were received for 4,20,000 shares and were dealt with as follows:
1) Applicants for 20,000 shares received allotment in full;
2) Applicants for 1,00,000 shares received an allotment of one share for every
two applied for; no money was returned to these applicants, the surplus on
application being used to reduce the amount due on allotment;
3) Applicants for 3,00,000 shares received an allotment of one share for every
five shares applied for; the money due on allotment was retained by the
company, the excess being returned to the applicants; and
4) The money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the journal of
Piyush limited. (May 2020 RTP /May 2018/]anuary 2021 (M))

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Sol. Journal of Piyush Limited

|Date Dr Cr.
20X0 Particulars ( ()
July 1 Bank A/c (Note 1 - Column 3) Dr. 8,40,000
To Equity Share Application A/c 8,40,000
(Being application money received on 4,20,000 shares @
2 per share.)

|July 10 Equity Share Application A/c Dr 8,40,000

To Equity Share Capital A/c (Note 1-Column 4) 2,60,000
To Equity Share Allotment A/c (Note 1-Column 5) 4,00,000
To Bank A/c (Note 1-Column 6) 1,80,000
(Being application money on 1,30,000 shares transferred to
Equity Share Capital A/c and excess amount adjusted
against allotment and refunded.)
Equity Share Allotment A/c Dr 6,50,000|
To Equity Share Capital A/c 3,90,000|
To Securities Premium a/c 2,60,000
(Being allotment money due on 1,30,000 shares @5 eachl
including premium at 2 each as per Board's Resolution
No...dated..]
Bank A/c (Note 1 - Column 8) Dr 2,50,000|
To Equity Share Allotment A/c 2,50,000
(Being balance allotment money received.)
Equity Share Final Call A/c Dr. 6,50,000
To Equity Share Capital A/c 6,50,000|
(Being final call money due on 1,30,000 shares @I5 per
share as per Board's Resolution No ...dated..)
20X1 Bank A/c Dr 6,50,000
Mar,31
To Equity Share Final Call A/c 6,50,000
(Being final call money on 1,30,000 shares @5 each
received.)
Working Note: Grooming Education Academy
Calculation for Adjustment and Refund
Cate No. of No. Amount Amount Amount Refund Amount Amount
gory Shares Shares Received on Required on adjusted on [3-4-5] due on received on
Applied Allotted Application Application Allotment Allotment Allotment
for (1x 2)) (2x2)
(1) (2) (3) (4) (5) (6) (7 (8)
i 20,000 20,000 40,000 40,000 Nill Nill 1,00,000 1,00,000

ii 1,00,000 50,000 2,00,000| 1,00,000| 1,00,000 Ni 2,50,000 1,50,000

iiil 3.00.000 60,000 6,00,000| 1,20,000 3,00,000 1,80,000 3,00,000 Nil

TOTAL 4,20,000 130,000 8,40,00o 2,60,000 4,00,000 1,80,000 6,50,000 2,50,000

27. Bhagwati Ltd. invited applications for issuing 2,00,000 equity shares of 10 each. The
amounts were payable as follows:
per
On application -3 share
On allotment -5 per share
On first andfinal call -*2 per share
Applications were received for 3,00,000 shares and pro-rata allotment was made to all
the applicants. Money overpaid on application was adjusted towards allotment money.
B, who was allotted 3,000 shares, failed to pay the first and final call money. His shares
were forfeited. Out of the forfeited shares, 2,500 shares were reissued as fully paid -up
@6per share.
Pass necessary journal entries to record the above transactions in the books of Bhagwati
Ltd.
(May 2020 RTP /June 2019/Nov. 2020 (M))
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Sol. In the books of Bhagwati Lt.

Journal Entries
Particulars Dr. Cr

Bank A/c Dr 9,00,000

To Equity Share Application A/c 9,00,000
(Being the application money received for 3,00,000 shares at
I3 per share.)
Equity Share Application A/c Dr 9,00,000
To Equity Share Capital A/c (2,00,000 x 3) 6,00,000
To Share allotment A/c 3,00,000
(Being share allotment made for 2,00,000 shares and excess
adjusted towards allotment.)
Equity Share Allotment A/c Dr 10,00,000
To Equity Share Capital A/c 10,00,000
(Being allotment amount due on 2,00,000 equity shares at 5
per share as per Directors' resolution no. dated..)
Bank A/c Dr 7,00,000
To Equity Share Allotment A/c 7,00,000
(Being balance allotment money received for 2,00,000 shares
|at 5 per share.)
Equity Share first and final call A/c Dr 4,00,000
To Equity Share Capital A/c 4,00,000
(Being first and final call amount due on 2,00,000 equity shares
at 2 per share as per Directors' resolution no... dated...)
Bank A/c Dr. 3,94,000
Calls in arrears A/c Dr. 6,000
To Equity Share first and final call A/c 4,00,000
(Being final call received on 1,97,000 shares.)
Share capital A/c (3.000
x 10)9 EaucauonACademy Dr
oncepts
30,000
To Forfeited share A/c (3,000 x*8) 24,000
To Calls in arrears A/c (3,000 x * 2) 6,000
(Being forfeiture of3,000 shares of 10 each fully called-up for
non-payment of first and final call @I 2 as per Directors'
resolution no... dated..)
Bank A/c (2,500 x 6) Dr. 15,000
Forfeited share A/c(2,500 »x{4) Dr. 10,000
To Equity Share Capital A/c (2,500 x R 10) 25,000
(Being re-issue of 2,500shares @ 6.)
Forfeited share A/c (2,500 x{4) Dr. 10,000
To capital reserve A/c (2,500 x4) 10,000
(Being profit on re-issue transferred to capital reserve.)
Working Note:

Calculation of amnount to be transferred to Capital reserve A/c

Forfeited amount per share = 24,000/3,000 = 8
Loss on re issue (R8-4) ={4
Surplus per share =4

Transfer to capital reserve ( 4 x 2,500) =*10,000

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28. Give necessary journal entries for the forfeiture and re-issue of shares:
i) X Ltd. forfeited 300 shares of {10 each fully called up, held by Ramesh for non
payment of allotment money of 3 per share and final call of 4 per share. He
paid the application money of
3 per share. These shares were re-issued to
Suresh for 8 per share.

ii) XLtd. forfeited 200 shares of 10 each ( 7 called up) on which Naresh had paid
application and allotment money of 5 per share. Out of these, 150 shares were
re- issued to Mahesh as fully paid up for t 6 per share.
iii) X Ltd. forfeited 100 shares of R 10 each ( 6 called up) issued at a discount of
10% to Dimple on which she paid 2 per share. Out of these, 80 shares were re
issued to Simple att8 per share and called up fort6 share.
(Nov. 2018/MTP Oct. 2021)
Sol. i)
Journal Entries in the books of X Ltd.
Date Particulars Dr Cr.

a) Equity Share Capital A/c Dr. 3,000

To Equity Share Allotment A/c (300 x 3) 900
To Equity Share Final Call A/c (300 x * 4) 1,200
To Forfeited Shares A/c (300 x3) 900
(Being the forfeiture of 300 equity shares of 10
each for non-payment of allotment money and
final call, held by Ramesh as per Board's resolution
No... dated..)
b) Bank Account (300 x 8) Dr. 2,400
Forfeited Shares Account (300 x 2) Dr. 600
To Equity Share Capital Account 3,000
(Being the re-issue of 300 forfeited shares @8
each as fully paid up to Suresh as per Board's
resolution No.. dated.)
C) Forfeited Shares Account oping Concepes Dr. 300|

To Capital Reserve Account 300

(Being the profit on re-issue, transferred to
capital reserve)

Journal Entries in the books of X Ltd.

Date Particulars Dr Cr

a) Equity Share Capital A/c (200 x7) Dr 1,400

To Equity Share First Call A/c (200 x * 2) 400
To Forfeited Shares A/c (200 x 5) 1,000
(Being the forfeiture of 2 00 equity shares of 10/
((7 called up) for non-payment of first call @ 2
per share as per Board Resolution No.. dated..
b) Bank Account Dr. 900
Forfeited Shares Account Dr 600
To Equity Share Capital Account 1,500
(Being the re-issue of 150 forfeited shares as fully
paid up as per Board's resolution No... dated..)
c) Forfeited Shares Account Dr 150
To Capital Reserve Account 150
(Being the profit on re-issue, transferred to capital
reserve.)

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Working Note:

Balance in forfeited shares account on forfeiture of 150 shares (150 x 5) {750

Less: Forfeiture of 150 shares R6001

Profit on re-issue of shares {
150

iii) Journal Entries in the books of X Ltd.

Date Particulars Dr. Cr.

>x
a Equity Share Capital A/c (100 6) Dr. 600|
To Equity Share Final Call A/c (100 x *3) 300
To Discount on issue ofshares (100 x 1) 100
To Forfeited Shares A/c (100 x 2) 200
(Being the forfeiture of 100 equity shares issued at
a
discount as per Board's resolution No... dated...)
b) Bank Account (80 x 6) Dr. 480
Discount on issue of shares (80 x * 1) Dr. 80
Forfeited Shares A/c (80 x * 1) Dr. 80
To Equity Share Capital Account (80 x *8) 640
(Being the re-issue of 80 shares fully paid up as per
Board's Resolution No... dated...)
C) Forfeited Shares Account 80
To Capital Reserve Account 80
(Being the profit on re-issue, transferred to capital
reserve.)

Working Note:

Balance in forfeited shares account on forfeiture of 100 shares (100 x 2) 200

Forfeited shares balance for 80 shares { 160
Less: Forfeiture of 80 shares ming Education Academy R80)
Concepts
Profit on re-issue of shares I 80

Note: It may be noted that the facts given in the question are not in compliance with
Companies Act, 2013. As per Section 53 of Companies Act, 2013 a company cannot issue
shares at discount except for in case of sweat equity shares and therefore any issue on
discount by the company is void. However, the above answer has been given strictly
based on the information provided in the question.
29. On 1st June, 20X0, Suraj Ltd. issued 86,000 shares of 100 each payable as follows:
R
20 on application;

I 20 on allotment;
First call of 30 on 1st Dec, 20X0; and
Second and final call of 30 on 1st March, 20X1.
By 20th July, 80,000 shares were applied for and all applications were accepted.
Allotment was made 1st Aug, All sums due on allotment were received on 15th Sept;
on
those on 1st call were received on 20th Dec.
You are required to journalise the transactions when accounts were closed on 31st
March, 20X1.
[Aug 2018 MTP /0ct 2018 MTP /Oct. 2019(Modified)]

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Sol. Suraj Ltd.

Journal
20X0 Particulars Dr. Cr.
() ()
July 20 Bank Account Dr. 16,00,000
To Share Application A/c 16,00,000
(Application money on 80,000 shares at 20
per share received.)
Aug 1 Share Application A/c Dr. 16,00,000
To Share Capital A/c 16,00,000
(The amount transferred to Capital Account on
80,000 shares Rs. 20 on application. Directors'
resolution no... Dated..]
Share Allotment Alc Dr. 16,00,000
To Share Capital A/c 16,00,000
(Being share allotment made due at ? 20 per
share. Directors' resolution no... dated..)
Sept15 Bank Account Dr. 16,00,000
To Share Allotment A/c 16,00,000
(The sums due on allotment received.)
Dec. 1 Share First Call Account Dr. 24,00,000
To Share Capital Account 24,00,000
(Amount due from members in respect of first
call-on 80,000 shares at 30 as per Directors,
resolution no... dated...)
Dec. 20 Bank Account Dr. 24,00,000
To Share First Call Account 24,00,000
(Receipt of the amounts due on first call.)
20X1
March 1 Share Second and Final CallA/c Dr. 24,00,000
To Share Capital A/c 24,00,000
(Amount due on 80,000 shares at 30 per share
on second and final call, as per Directors
resolution no... dateduGduorAcaáeIY
March 31| Bank Account Dr. 24,00,000
To Share Second & Final Call A/c 24,00,000
(Amount received against the final call on
80,000 shares at 30 per share.)
30. Alankit Limited issued at par 2,00,000 Equity shares of 100 each payable 25 on
application: 30 on allotment: 20 on first call and balance on the final call. All the shares
were fully subscribed. Mr. Dhawan who held 40,000 shares paid full remaining amount on
first call itself. The final call which was made after 3 months from first call was fully paid
except a shareholder having 4,000 shares who paid his due amount after 2 months along
with interest on calls in arrears. Company also paid interest on calls in advance to Mr.
Dhawan.
You are required to prepare Journal Entries to record these transactions.
(May 2021 RTP)

Sol. Books of Alankit Limited

Journal Entries
Date Particulars LF. Dr. () Cr. ()
Bank A/c Dr 50,00,000
To Equity Share Application A/c 50,00,000
(Money received on applications for 2,00,000 shares
@ 25 per share)
Equity Share Application A/c Dr 50,00,000
To Equity Share Capital A/c 50,00,000
(Transfer of application money on 2,00,000 shares to
share capital)

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Equity Share Allotment A/c Dr 60,00,000

To Equity Share Capital A/c 60,00,000
(Amount due on the allotment of 2,00,000 shares @R
30 per share)
Bank A/c Dr 60,00,000
To Equity Share Allotment A/c 60,00,000
(Allotment money received)
Equity Share First Call A/c Dr 40,00,000
To Equity Share Capital A/c 40,00,000
(Being first call made due on 2,00,000 shares at 20
per share)
Bank A/c Dr 50,00,000
To Equity Share First Call A/c 40,00,000
To Calls in Advance A/c 10,00,000
(Being first call money received along with calls in
advance on 2,00,000 shares at 25 per share)
Equity Share Final Call A/c Dr. 50,00,000
To Equity Share Capital A/c 50,00,000
(Being final call made due on 2,00,000 shares at 25
each)
Bank A/c Dr 39,00,000
Calls in Advance A/c Dr 10,00,000
Calls in Arrears A/c 1,00,000
D

(Being final call received for 1,56,000 shares and calls 50,00,000
in advance for 40,000 shares adjusted)
Interest on Calls in Advance A/c 30,000
To Shareholders A/c 30,000
(Being interest made due on calls in advance ofI
10,000,00 at the rate of 12% p.a.)
Shareholders A/c Dr 30,000
To bank A/c 30,000
(Being payment of interest made to shareholders)
Shareholders A/c Dr 1,667
To Interest on Calls in Arrears A/c 1,667
(Being interest on calls in arrears made due at the rate
of 10%)
Bank A/c Dr. 1,01,667
To Calls in Arrears AJducation Academy 1,00,000
ciop
To Shareholders A/c 1,667
(Being money received from shareholder for calls in
arrears and interest thereupon)
31. Samuel who was the holder of 12,000 preference shares of 100 each, on which 75 per
share has been called up could not pay his dues on Allotment and First call each at 25 per
share. The Directors forfeited the above shares and reissued 10,000 of such shares to Mr.
Robort at 65 per share paid-up as 75 per share.
You are required to prepare Journal entries to record the above forfeiture and re-issue in
the books of the company. (May 2021 RTP)
Ans. Particulars Dr. () Cr. (3)

Preference Share Capital A/c(12,000 x 75) Dr 9,00,000

To Preference Share Allotment A/c 3,00,000
To Preference Share First Call A/c 3,00,000
To Forfeited Share A/c 3,00,000
(Being the forfeiture of 12,000 preference shares R75 each being called
up for non-payment of allotment and first call money as per Board's
Resolution No........dated....)
Bank A/c (10,000 x 65) Dr. 6,50,000
Forfeited Shares A/c (10,000 x 10) Dr. 1,00,000
To Preference Share Capital A/c 7,50,000
(Being re-issue of 10,000 shares at 65 per share paid-up as 75 as
per Board's Resolution No...dated...])
Forfeited Shares A/c Dr. 1,50,000
To Capital Reserve A/c (Working Note) 1,50,000
(Being profit on re-issue transferred to Capital/Reserve)

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Working Notes: -
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share =3,00,000/12,000 25
Loss on re-issue = 75–*65 10
Surplus per share re-issued 15
Transferred to capital Reserve 15 x 10,000 = 1,50,000.
32. Fashion Garments Ltd. Invited applications for issuing 10,000 Equity Share of 10 each. The
amount was payable as follows:

1) On Application {1 per share

2) On Allotment 72 per share
3) On First Call 3 per share
4) On Second and 4 per share
Final Call

The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the
allotment money and his shares were forfeited immediately after the allotment. Shyam to
whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited
after the first call. Afterwards the second and final call was made. Mohan to whom 50 Shares
were allotted failed to pay the second and final call. His shares were also forfeited. All the
forfeited shares were re-issued at 79 share fully paid - up.
Pass necessary journal entries in the book of Fashion Garments Ltd.
(ICAI SM/ Dec. 2021)
Sol. In the books of Fashion Garments Ltd.
Journal Entries

Particulars Dr. () Cr. ()

Bank A/c Dr. 10,000
To Equity Share Application A/c 10,000
(Money received on applications for 10,000
shares @
1 per share)
Equity Shares Application A/Gg Educatibr: 10,000
Acdemy
To Equity Share Capital A/c 10,000
(Transfer of application money on 10,000
Shares to share capital)
Equity Share Allotment A/c Dr. 20,000
To Equity Share Capital A/c 20,000
(Amount due on the allotment of 10,000 shares
R2 per share)
Bank A/c Dr. 19,800
To Equity Share Allotment A/c 19,800
(Allotment money received on 9,900 shares)
Equity Share Capital A/c Dr. 300
To Share Forfeiture A/c 100
To Equity Shares Allotment A/c 200
(100 Shares of Ram forfeited)
Equity Share First Call A/c Dr. 29,700
To Equity Share Capital A/c 29,700
(First call made due on 9,900 shares at 33 per
share)
Bank A/c Dr. 29,250
To Equity Share First Call A/c 29,250
(First call money received on 9,750 shares at 73
per share)

Equity Share Capital A/c Dr. 900

To Share Forfeiture A/c 450
To Equity Share First Call A/c 450
(150 Shares of Shyam forfeited)
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Equity Share Second and Final Call A/c Dr. 39,000

To Equity Share Capital A/c 39,000
(Second and final call made due on 9,750 shares
at 4 per share)
Bank A/c Dr. 38,800
To Equity Share Second and Final Call A/c 38,800
(Second and Final call money received on 9,700
shares at 4 per share)
Equity Share Capital A/c Dr. 500
To Share Forfeiture A/c 300
To Equity Share Second and Final Call A/c 200
(50 Shares of Mohan forfeited)
Bank A/c Dr. 2,700
Share forfeiture A/c Dr. 300
To Equity Share Capital A/c 3,000
(300 Shares reissued at 79 per share)
Share Forfeiture A/c Dr. 300
To Equity Share Capital A/c 300
(300 shares reissued at 19 per share)
Share Forfeiture A/c Dr. 550
To Capital Reserve A/c (W.N.1) 550
(Profit on re-issue transferred to capital
reserve)

Working Note: 1
Calculation of amount to be transferred to capital reserve:
Surplus out of 100 shares of Ram forfeited 7100
Surplus out of 150 shares of Shyam forfeited 450
Surplus out of 50 shares of Mohan forfeited 300
Z850
Less: Loss on re-issue of shares R300
Transferred to Capital Reserve {550
Gruomng EducatiorAUademy
Concepts

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