Final book for publish in 2 colour

CA-IPCC Accounts Past 11 Attempts Question And Answers CA Naveen Joshi
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ACCOUNTANCY
PAST 11 ATTEMPTS QUESTION AND ANSWERS
(CA IPCC GROUP-I)
(CA NAVEEN JOSHI)
Contact: 8800520581, 9716445240 e-mail: canaveenjoshi@yahoo.com

All rights reserved. No part of this book may be reproduced or transmitted in any form or by
any means without written permission from the author.
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(ACCOUNTANCY)
Copyright © 2014 by CA Naveen Joshi
ISBN (XXXXXXXXXXXXX)
Printed in India by JMCS Group
Price: Rs.300/-

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Dedication
Dedicated to my parents,
Family, friends and colleagues,
Who always supported me to step ahead

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Table of Contents
Preface ............................................................................................
Exam Held ......................................................................................
November 2009 ...............................................................................
May 2010 ..........................................................................................
November 2010 ...............................................................................
May 2011 .........................................................................................
November 2011 ...............................................................................
May 2012 .........................................................................................
November 2012 ...............................................................................
May 2013 .........................................................................................
November 2013 ...............................................................................
May 2014 .........................................................................................
November 2014 ...............................................................................

With a pleasure and pride, I place before the reader the first edition of my book Accountancy Past 10
Exams Question and Answers. The aim behind writing this book is to comfort the students during the
exam preparation. The aim is to provide an idea to the students regarding exam patterns and
marking style. This will also help at the time of revision of the course during exam period.
I whole heartedly acknowledge the determined endeavor of my entire team. I also acknowledge the
wholesome support of my family, my friends and my publisher for making my effort a reality.
I hope you will enjoy reading this book and gain as much from it as I gained in writing it. I solicit the
valuable suggestions and views, if any, of my readers through e-mail, letter or any other means of
communication convenient to them.
Naveen Joshi, ACA, B.com
E.mail: canaveenjoshi@yahoo.com
5
Preface
New Delhi

QUESTION1
Q.1(i) On 1st April, 2008, Chhotu started business with an initial Capital of Rs.70,000. On 1st October, 2008, he
introduced additional Capital of Rs.40,000. On 7th of every month, he withdraws Rs.5,000 for household
expenses. On 31st March, 2009 his Assets and Liabilities were Rs.2,00,000 and Rs.70,000 respectively. Ascertain
the profit earned by Chhotu during the year ended 31st March, 2009.
6
NOVEMBER-2009
ANSWER 1(i)
Rs.
Capital as on 31.3.2009 (Rs.2,00,000 – Rs.70,000)
Add: Drawings (Rs.5,000 × 12 months)
Less: Additional Capital introduced as on 1.10.2008
Less: Capital on 01.04.2008
1,30,000
60,000
1,90,000
(40,000)
1,50,000
(70,000)
Profit for the year ended as on 31.3.2009 80,000
Q.1 (ii) Year to year results of a company were not found comparable on the basis of gross profit margin. List
out the probable reasons.
Answer (ii): The probable reasons could be the change in the accounting policy viz.
(a) Change in method of recognition of sales revenue from cash basis to accrual basis or vice versa; or
(b) Change in valuation of closing inventory by adopting different methods year to year such as LIFO to FIFO to
weighted average or vice versa.
Q.1 (iii) MY Ltd. had acquired 200 equity shares of YZ Ltd. at Rs.105 per share on 01.01.2009 and paid Rs.200
towards brokerage, stamp duty and STT. On 31st March, 2009, shares of YZ Ltd. were traded at Rs.110 per
share. At what value investment is to be shown in the Balance Sheet of MY Ltd. as at 31st March, 2009.
Answer (iii)
Rs.
Purchase price of Equity shares of YZ Ltd.(200 shares x Rs.105 per share)
Add: Brokerage, stamp duty and STT
21,000
200
Cost of investment 21,200
If the investment is a long term investment than it will be shown at cost. Therefore value of investment will be
Rs. 21,200. However, if the investment is a current investment, then it will be shown at lower of cost (i.e.
Rs.21,200) or net realizable value (i.e. Rs.200 x110 = Rs.22,000). Therefore value of investment will be Rs.
21,200.
Q.1 (iv) On 1st April, 2008, X, Y and Z enter into partnership introducing Capital of Rs.80,000, Rs.50,000 and
Rs.50,000 respectively. They agree to share Profits and Losses equally. At the end of the accounting year on
31st March, 2009, X claims that he be paid interest on his additional Capital of Rs.30,000 @ 10% per annum,
while Z demands salary of Rs.600 per month for the extra hours devoted by him daily at the shop. The
partnership deed is silent on these matters. Decide the matters with reasons.
Answer (iv) When the partnership deed is silent on the matter of interest on Capitals and salary to partners,
then no partner is entitled to claim interest on Capital and salary. Therefore, claim of X and Z is not tenable.
However, inclusion of specific provision regarding the said issues in partnership deed can make them entitled
for interest on Capital and salary.
Q.1 (v) What are the basic characteristics of a Private Ltd. Company?

Answer 1(v) According to Section 3 (1) (iii), a private company means a company which has a minimum paid-up
Capital of one lakh rupees or such higher paid-up Capital as may be prescribed, and by its articles:
(a) Restricts the rights of members to transfer its shares.
(b) Limits the number of its member to 50 excluding:
(i) Persons who are in employment of the company; and
(ii) Persons who, having been formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the employment ceased. For this purpose
joint holders of shares will be counted as single members.
(c) Prohibits any invitation to the public to subscribe to any shares in, or debentures of, the company.
(d) Prohibits any invitation or acceptance of deposits from persons other than its member, directors, and
relatives.
Q.1 (vi) Sumo Ltd. has a profit of Rs.25 lakhs before charging depreciation for financial year 2008-09.
Depreciation in the books was Rs.11 lakhs and depreciation chargeable under Section 205 comes to Rs.17
lakhs. Compute divisible profit for the year.
7
Answer 1(vi)
Computation of divisible profit (Rs. in lakhs)
Profit for the year 2008-2009
Less: Depreciation chargeable under Section 205
25.00
(17.00)
Divisible profit for the year 8.00
Q.1 (vii) From the following data, find out value of inventory as on 30.04.2009 using (a) LIFO method, and (b)
FIFO method:
(1) 01.04.2009 Purchased 10 units @ Rs.70 per unit
(2) 06.04.2009 Sold 6 units @ Rs.90 per unit
(3)
09.04.2009 Purchased 20 units @ Rs.75 per unit
(4) 18.04.2009 Sold 14 units @ Rs.100 per unit
Answer (vii) (a) Statement showing valuation of closing inventory by LIFO method
Date Receipts Issue Balance
Unit Cost/unit Amount Unit Cost/unit Amount Unit Cost/unit Amount
1.4.09 10 70 700 10 70 700
6.4.09 6 70 420 4 70 280
9.4.09
20 75
1500
4
20
70
75
280
1500
18.4.09
14 75 1050
4
6
70
75
280
450
Value of closing inventory as per LIFO method:
4 units x Rs.70 = Rs.280
6 units x Rs.75 = Rs.450
Rs.730

Unit Cost/unit Amount Unit Cost/unit Amount Unit Cost/unit Amount
8
(b) Statement showing valuation of closing inventory by FIFO method
Date Receipts Issue Balance
1.4.09 10 70 700 10 70 700
6.4.09 6 70 420 4 70 280
9.4.09
20 75
1500
4
20
70
75
280
1500
18.4.09
4
10
70
75
280
750
10 75 750
Value of closing inventory as per FIFO method:
10 Units x Rs.75 = Rs.750
Q.1 (viii) Explain contract costs as per Accounting Standard-7 related to ‘Construction Contracts’.
Answer 1(viii) As per para 15 of AS 7 “Construction Contracts (revised 2002)”, contract cost should comprise:
(a) Costs that relate directly to the specific contract;
(b) Costs that are attributable to contract activity in general and can be allocated to the contract; and
(c) Such other costs as are specifically chargeable to the customer under the terms of the contract.
Q.1 (ix) Omshanti Club has 500 members with annual fee of Rs.1,000 per member. At the end of the accounting
year, accountant noticed that 40 members have not paid annual fee and 70 members had paid fee in advance.
Help the accountant to compute cash receipts of annual fee for the year.
Answer (ix)
Computation of cash receipts of annual fee for the year Rs.
Total fee receivable during the year (500 members × Rs.1,000)
Less: Fee not received (40 members × Rs.1,000)
Add: Fee received in advance (70 members × Rs.1,000)
5,00,000
(40,000)
4,60,000
70,000
Cash received during the year towards annual fee 5,30,000
Q.1 (x) The Companies Act, 1956 limits the payment of managerial remuneration. What is the maximum
managerial remuneration, which can be paid in case of a company consistentlyearning profits and has more
than one managerial person?
Answer (x) Section 198 of the Companies Act, 1956 prescribes the overall maximum managerial remuneration
payable and also managerial remuneration in case of absence or inadequacy of profits. In the given case, the
company is earning profits consistently and has more than one managerial person; therefore, the maximum
limit is 10% of net profit.

9
QUESTION2
(Rs. in lakhs)
Liabilities M Ltd. N Ltd.
Fully paid equity shares of Rs.10 each
10% preference shares of Rs.10 each, fully paid up
Capital Reserve
General Reserve
Profit and Loss Account
8% Redeemable debentures of Rs.1,000 each
Trade Creditors
Provisions
Assets
Plant and Machinery
Furniture and Fixtures
Motor Vehicles
Stock
Sundry Debtors
Cash at Bank
Preliminary Expenses
Discount on Issue of Debentures
3,600
1200
600
2100
780
2421
870
11,571
4,215
2,400
2,370
1,044
1,542
11,571
900
-
-
300
369
93
1,662
468
183
51
444
237
240
33
6
1,662
A new Company MN Ltd. was incorporated with an authorised Capital of Rs.15,000 lakhs divided into shares of
Rs.10 each. For the purpose of amalgamation in the nature of merger, M Ltd. and N Ltd. were merged into MN
Ltd. on the following terms:
(i) Purchase consideration for M Ltd.’s business is to be discharged by issue of 120 lakhs fully paid 11%
preference shares and 720 lakhs fully paid equity shares of MN Ltd. to the preference and equity shareholders
of M Ltd. in full satisfaction of their claims.
(ii) To discharge purchase consideration for N Ltd.’s business, MN Ltd. to allot 90 lakhs fully paid up equity
shares to shareholders of N Ltd. in full satisfaction of their claims.
(iii) Expenses on the liquidation of M Ltd. and N Ltd. amounting to Rs.6 lakhs are to be borne by MN Ltd.
(iv) 8% redeemable debentures of N Ltd. to be converted into 8.5% redeemable debentures of MN Ltd.
(v) Expenses on incorporation of MN Ltd. were Rs.15 lakhs.
You are requested to:
(a) Pass necessary Journal Entries in the books of MN Ltd. to record above transactions, and
(b) Prepare Balance Sheet of MN Ltd. after merger.
Answer:2
In the books of MN Ltd.
Journal Entries
(Rs. in lakhs)
Dr. Cr.
Business Purchase Account
To Liquidator of M Ltd.
To Liquidator of N Ltd.
(Being consideration payable to liquidators of the two companies taken
over)
9300
8400
900
Plant and Machinery Account (4,215+468)
Furniture and Fixtures Account (2,400+183)
Motor Vehicles Account
4,683
2583
51

10
Stock Account (2,370+444)
Sundry Debtors Account (1,044+237)
Cash at Bank Account (1,542+240)
Preliminary Expenses Account
Discount on issue of Debentures Account
Profit and Loss Account (Refer W.N.)
To 8% Redeemable Debentures of N Ltd. Account
To Trade Creditors Account (2,421+369)
To Provisions Account (870+93)
To Business Purchase Account
(Being incorporation of all the assets and liabilities and the excess of
consideration over the share Capital being adjusted against reserves and
surplus)
2814
1281
1782
33
6
120
300
2790
963
9300
Liquidator of M Ltd. Account
Liquidator of N Ltd. Account
To Equity Share Capital Account (7,200+900)
To 11% Preference Share Capital Account
(Being allotment of fully paid shares in discharge of purchase consideration)
8400
900
8100
1200
To Bank Account
(Being payment of liquidation expenses of M Ltd. and N Ltd.)
6
6
Preliminary Expenses Account
To Bank Account
(Being expenses on incorporation of MN Ltd.)
15
15
8% Redeemable Debentures of N Ltd. Account
To 8.5% Redeemable Debentures Account
(Being conversion of 8% Debentures of N Ltd. into 8.5% Debentures)
300
300
Balance Sheet of MN Ltd.
Liabilities Rs. In lakhs Assets Rs. In lakhs
Authorised Share Capital:
15 crore shares of Rs.10 each
Issued, subscribed and paid up:
810 lakhs Equity shares of Rs.10 each,
fully paid
120 lakhs 11% Preference shares of
Rs.10 each, fully paid
(All the above mentioned shares have
been issued for consideration other
than cash)
Secured Loans:
8.5% Redeemable Debentures
Current Liabilities and Provisions:
(A) Current Liabilities
Trade Creditors
(B) Provisions
15000
8100
1200
300
2790
963
Fixed Assets:
Plant and Machinery
Furniture and Fixtures
Motor Vehicles
Current Assets, Loans and
Advances:
(A) Current Assets
Stock
Sundry Debtors
Cash at Bank (1,782–6–15)
B) Loans and Advances
Miscellaneous Expenditure:
Preliminary Expenses (33+15)
Discount on Issue of Debentures
(120+6)
4683
2,583
51
2814
1281
1761
NIL
48
6
126
13,353 13,353

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Working Note:
Profit and Loss Account (Rs. in lakhs)
Total consideration= Rs.(8,400 + 900) lakhs
Less: Share Capital of Companies taken over
[Rs.(3,600+1,200+900) lakhs]
Amount to be adjusted:
Capital Reserve
General Reserve
Profit & Loss A/c
600
2100
780
9300
5700
3600
3480
Debit balance of Profit & Loss Account 120
QUESTION 3
E, F and G were partners sharing Profits and Losses in the ratio of 5:3:2 respectively. On 31st March, 2009
Balance Sheet of the firm stood as follows:
Liabilities Rs. Assets Rs.
Capital A/cs
E 50,000
F 40,000
G 28,000
Creditors
Outstanding Expenses
1,18,000
33,500
1,700
Buildings
Furniture
Stock
Debtors
Cash at Bank
55,000
25,000
42,000
20,000
11,200
1,53,200 1,53,200
On 31st March, 2009, E decided to retire and F and G decided to continue as equal partners. Other terms of
retirement were as follows:
(i) Building be appreciated by 20%.
(ii) Furniture be depreciated by 10%.
(iii) A provision of 5% be created for bad debts on debtors.
(iv) Goodwill be valued at two years’ purchase of profit for the latest accounting year. The firm’s Profit for the
year ended 31st March, 2009 was Rs.25,000. No goodwill account is to be raised in the books of accounts.
(v) Fresh Capital be introduced by F and G to the extent of Rs.10,000 and Rs.35,000 respectively.
(vi) Out of sum payable to retiring partner E, a sum of Rs.45,000 be paid immediately and the balance be
transferred to his loan account bearing interest @ 12% per annum. The loan is to be paid off by 31st March,
2011.
One month after E’s retirement, F and G agreed to admit E’s son H as a partner with one-forth share in
Profits/Losses. E agreed that the balance in his loan account be converted into H’s Capital. E also agreed to
forgo one month’s interest on his loan.
It was also agreed that H will bring in, his share of goodwill through book adjustment, valued at the price on the
date of E’s retirement. No goodwill account is to be raised in the books. You are requested to pass necessary
Journal Entries to give effect to the above transactions and prepare Partners’ Capital Accounts.
Answer:3
1. Building Account Dr. 11,000
To Revaluation Account 11,000
(Being building appreciated)
2. Revaluation Account Dr. 3,500
To Furniture Account 2,500
To Provision for Doubtful Debts Account 1,000
(Being furniture depreciated by 10% and Provision for doubtful debts created @ 5% on Debtors)
3. Revaluation Account Dr. 7,500
To E’s Capital Account 3,750
To F’s Capital Account 2,250

E F G H
E F G H
To F (Goodwill) 6,250 By Balance b/d 42,250 49,500
To G (Goodwill)
6,250
By E’s Loan A/c
33,750
48,500 55,750 33,750 48,500 55,750 33,750
12
To G’s Capital Account 1,500
(Being profit on revaluation transferred to Capital accounts of partners)
4. F’s Capital Account Dr. 10,000
G’s Capital Account Dr. 15,000
To E’s Capital Account 25,000
(Being adjustment for E’s share of goodwill)
5. Bank Account Dr. 45,000
(Being fresh Capital introduced by F and G)
6. E’s Capital Account Dr. 78,750
To Bank Account 45,000
To E’s Loan Account 33,750
(Being settlement of E’s Capital on his retirement)
7. E’s Loan Account Dr. 33,750
To H’s Capital Account 33,750
(Transfer of E’s Loan Account to H’s Capital Account)
8. H’s Capital Account Dr. 12,500
(Being adjustment entry passed for H’s share of goodwill)
Partners’ Capital Accounts
To E (Goodwill) 10,000 15,000 By Balance b/d 50,000 40,000 28,000
To Bank 45,000 By Revaluation A/c 3,750 2,250 1,500
To E’s Loan A/c 33,750 By F (Goodwill) 10,000
To Balance c/d 42,250 49,500 By G (Goodwill) 15,000
By Bank (fresh
Capital)
10,000 35,000
78,750 52,250 64,500 78,750 52,250 64,500
To Balance c/d 48,500 55,750 21,250 By H (goodwill) 6,250 6,250
Working Notes:
1. Calculation of gaining ratio
Partners New ratio Old ratio Gain Sacrifice
E 5/10 5/10
F 1/2 3/10 1/2 - 3/10=2/10
G 1/2 2/10 1/2 - 2/10=3/10
Hence, ratio of gain between F and G = 2:3
2. Value of total goodwill of the firm = Rs.25,000 × 2 = Rs.50,000
E’s share = Rs.50,000*5/10 = 25000
F will bear = Rs.25,000*2/5 = 10000

QUESTION4
Q.4 (a) A fire broke out in the godown of a business house on 8th July, 2009. Goods costing Rs.2,03,000 in a
small sub-godown remain unaffected by fire. The goods retrieved in a damaged condition from the main
godown were valued at Rs.1,97,000.
The following particulars were available from the books of accounts: Stock on the last Balance Sheet date at
31st March, 2009 was Rs.15,72,000. Purchases for the period from 1st April, 2009 to 8th July, 2009 were
Rs.37,10,000 and sales during the same period amounted to Rs.52,60,000. The average gross profit margin was
30% on sales.
The business house has a fire insurance policy for Rs.10,00,000 in respect of its entire stock. Assist the
Accountant of the business house in computing the amount of claim of loss by fire.
Q.4 (b) A trader allows his customers, credit for one week only beyond which he charges interest @ 12% per
annum. Anil, a customer buys goods as follows:
13
G will bear = Rs.25,000*3/5 =Rs 15 000
H’s share of goodwill = Rs.50,000*1/4 = Rs.12,500
F and G share equal profits. Therefore, their sacrificing ratio will also be equal.
Hence, each of them will be credited with Rs.6,250.
Answer 4(a)
Calculation of amount of claim Rs. Rs.
Value of stock as on 8th July, 2009 (Refer W.N.)
Less: Value of stock remaining unaffected by fire
Agreed value of damaged goods
2,03,000
1,97,000
16,00,000
4,00,000
Loss of stock 12,00,000
Applying average clause:
Amount of claim = (Amount of policy/ Stock on the date of fire) xLoss of stock
= (Rs.10,00,000 / Rs.16,00,000) x12,00,000
= Rs. 7,50,000
Working Note:
Memorandum Trading Account for the period from 1st April, 2009 to 8th July, 2009
Rs. Rs.
To Opening Stock
To Purchases
To Gross Profit (30% of sales)
15,72,000
37,10,000
15,78,000
By Sales
By Closing Stock (Bal.Fig.)
52,60,000
16,00,000
68,60,000 68,60,000
Date of Sale/Purchase Amount (Rs.)
January 2, 2009
January 28, 2009
February 17, 2009
March 3, 2009
6,000
5,500
7,000
4,700
Anil settles his account on 31st March, 2009. Calculate the amount of interest payable by Anil using average
due date method.
Answer 4 (b) Let us assume 9th January, 2009 to be the base date:
Date of Sale Due date of
payment
Amount (Rs.) No. of days from 9th
January, 2009
Product
Jan. 2
Jan. 28
Feb. 17
March 3
Jan. 9
Feb. 4
Feb. 24
March 10
6,000
5,500
7,000
4,700
0
26
46
60
0
1,43,000
3,22,000
2,82,000
23,200 7,47,000
Average Due date = Base date + Sum of Product / Sum of amount

Salaries outstanding at the beginning and at the end of the financial year were Rs.8,000 and Rs.10,000
respectively. Sundry expenses included prepaid insurance expenses of Rs.1,200.
The Club owned a freehold ground valued Rs.2,00,000. The Club has sports equipment on 01.04.2008 valued at
Rs.52,000. At the end of the year, after depreciation, the sports equipment amounted to Rs.54,000. The Club
raised a loan of Rs.40,000 from a bank on 01.01.2008, which was unpaid till 31.03.2009. On 31.03.2009, cash in
hand was Rs.32,000.
Prepare Receipts and Payments account of the Club for the year ended 31st March, 2009 and Balance Sheet as
on that date.
14
= 9th January, 2009 + 7,47,000 / 23,200
= 9th January 2009 + 32 days
i.e. 32 days from 9th January, 2009 = 10th February, 2009
Thus, average due date = 10th February, 2009
No. of days from 10th February, 2009 to 31st March, 2009 = 49 days.
Interest payable by Anil on Rs.23,200 for 49 days @ 12% per annum
= Rs.23,200 *49 / 365* 12 / 100 = Rs.373.74
QUESTION5
Q.5 (a) The Income and Expenditure Account of City Sports Club for the year ended 31st March, 2009 was as
follows:
Expenditure Amount (Rs.) Income Amount (Rs.)
To Salaries
To Printing and Stationery
To Rent
To Repairs
To Sundry Expenses
To Annual Dinner Expenses
To Interest to Bank
To Depreciation on Sports
equipment
To Excess of Income over
Expenditure
1,20,000
6,000
12,000
10,000
8,000
30,000
6,000
6,000
12,000
By Subscriptions
By Entrance Fees
By Contribution for Annual
dinner
By Profit on Annual Sports
meet
1,60,000
10.000
20,000
20,000
2,10,000 2,10,000
The above account had been prepared after the following adjustments:
Rs.
Subscriptions outstanding on 31.03.2008
Subscriptions received in advance on 31.03.2008
Subscriptions received in advance on 31.03.2009
Subscriptions outstanding on 31.03.2009
12,000
9,000
5,400
15,000
Answer 5(a)
City Sports Club
Receipt and Payments Account for the year ended 31st March, 2009
Receipts Amount (Rs.) Payments Amount (Rs.)
To Balance b/d (Bal. fig.)
To Subscription:
for 2007-2008
for 2008-2009 (W.N.3)
for 2009-2010
To Entrance Fees
To Contribution for Annual
27,800
12,000
1,36,000
5,400
10,000
20,000
By Salaries:
for 2007-2008
for 2008-2009
By Printing and Stationery
By Rent
By Repairs
By Sundry Expenses (8,000 +
1,200)
8,000
1,10,000
6,000
12,000
10,000
9,200

15
Dinner
To Profit on Annual Sports
Meet
20,000
By Annual Dinner
Expenses
By Interest to Bank
By Sports Equipment (W.N.2)
By Balance c/d
30,000
6,000
8,000
32,000
2,31,200 2,31,200
Balance Sheet as at 31st March, 2009
Liabilities Amount
(Rs.)
Amount
(Rs.)
Assets Amount
(Rs.)
Amount
(Rs.)
Capital Fund (W.N.1)
Add: Excess of
income over
expenditure
Bank Loan
Outstanding Salaries
Subscription in
Advance
2,34,800
12,000
2,46,800
40,000
10,000
5,400
Freehold Ground
Sports Equipment
Add: Additions during the year
(Bal. Fig.)
Less: Depreciation
Subscription in Arrear
Prepaid Insurance
Cash in hand
52,000
8,000
60,000
(6,000)
2,00,000
54,000
15,000
1,200
32,000
3,02,200 3,02,200
Working Notes:
(1) Opening Balance of Capital Fund:
Balance Sheet as at 31st March, 2008
Rs. Rs.
Capital Fund (Bal. Fig.)
Bank Loan
Outstanding Salaries
Subscription in Advance
2,34,800
40,000
8,000
9,000
Freehold Ground
Sports Equipment
Subscription in Arrear
Cash in hand
2,00,000
52,000
12,000
27,800
2,91,800 2,91,800
(2) Sports Equipment Account
Rs. Rs.
To Balance b/d
To Bank Account
52,000
8,000
By Depreciation Account
By Balance c/d
6,000
54,000
60,000 60,000
(3) Subscription received during 2008-09
Rs. Rs.
Subscription for 2008-09
Less:Subscription outstanding as on 31.3.09
Less:Subscription received in advance as on 31.3.08
15,000
9,000
1,60,000
24,000
1,36,000
Q.5(b) Rama Udyog Limited was incorporated on August 1, 2008. It had acquired a running business of Rama &
Co. with effect from April 1, 2008. During the year 2008-09, the total sales were Rs.36,00,000. The sales per
month in the first half year were half of what they were in the later half year. The net profit of the company,
Rs.2,00,000 was worked out after charging the following expenses:
(i) Depreciation Rs.1,08,000, (ii) Audit fees Rs.15,000, (iii) Directors’ fees Rs.50,000, (iv) Preliminary expenses
Rs.12,000, (v) Office expenses Rs.78,000, (vi) Selling expenses Rs.72,000 and (vii) Interest to vendors upto
August 31, 2008 Rs.5,000.
Please ascertain pre-incorporation and post-incorporation profit for the year ended 31st March, 2009.

Post-Incorporation
Rs.
Net Profit (Rs.33,000 being
pre-incorporation profit is
transferred to Capital
reserve Account)
2,00,000
33,000
1,67,000
Working Notes:
1. Sales ratio
The sales per month in the first half year were half of what they were in the later half year. If in the later half
year, sales per month is Re.1 then it should be 50 paise per month in the first half year. So sales for the first
four months (i.e. from 1st April, 2008 to 31st July, 2008) will be 4x.50 = Rs.2 and for the last eight months (i.e.
from 1st August, 2008 to 31st March, 2009) will be (2 × .50 + 6 × 1) = Rs.7. Thus sales ratio is 2:7.
2. Time ratio
1st April, 2008 to 31st July, 2008 : 1st August, 2008 to 31st March, 2009
= 4 months : 8 months = 1:2 Thus, time ratio is 1:2.
3. Gross profit
Gross profit = Net profit + All expenses
= Rs.2,00,000 + Rs.( 1,08,000+15,000+50,000+12,000+78,000+72,000+5,000)
= Rs.2,00,000 +Rs.3,40,000 = Rs.5,40,000.
QUESTION6
Answer any four of the following:
Q. 6(i) Market is full of ready-made accounting software’s. What factors will you consider to choose one of
them for your enterprise?
Answer 6(i) While choosing the accounting software, the following points should be considered:
1. Fulfilment of business requirements: Some packages have few functionalities more than the others. The
purchaser may try to match his requirement with the available solutions.
2. Completeness of reports: Some packages might provide extra reports or the reports match the requirement
more than the others.
3. Ease of use: Some packages could be very detailed and cumbersome compare to the others.
4. Cost: The budgetary constraints could be an important deciding factor. A package having more features
cannot be opted because of the prohibitive costs.
5. Reputation of the vendor: Vendor support is essential for any software. A stable vendor with reputation and
good track records will always be preferred.
6. Regular updates: Law is changing frequently. A vendor who is prepared to give updates will be preferred to a
vendor unwilling to give updates.
Q. 6(ii) As per Accounting Standard-14, what are the conditions which must be satisfied for an amalgamation in
the nature of merger?
16
Answer 5(b) Statement showing pre and post incorporation profit for the year ended 31st March, 2009
Particulars Total
Amount Rs.
Basis of
Allocation
Pre-incorporation
Rs.
Gross Profit
Less: Depreciation
Audit Fees
Director’s Fees
Preliminary Expenses
Office Expenses
Selling Expenses
Interest to vendors
5,40,000
1,08,000
15,000
50,000
12,000
78,000
72,000
5,000
2:7
1:2
1:2
Post
Post
1:2
2:7
Actual
1,20,000
36,000
5,000
-
-
26,000
16,000
4,000
4,20,000
72,000
10,000
50,000
12,000
52,000
56,000
1,000

Answer 6(ii) According to AS 14 “Accounting for Amalgamations”, Amalgamation in the nature of merger is an
amalgamation which satisfies all the following conditions:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities
of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company
(other than the equity shares already held therein, immediately before the amalgamation, by the transferee
company or its subsidiaries or their nominees) become equity shareholders of the transferee company by
virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company
who agree to become equity shareholders of the transferee company is discharged by the transferee company
wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any
fractional shares.
(iv)The business of the transferor company is intended to be carried on, after the amalgamation, by the
transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor
company when they are incorporated in the financial statements of the transferee company except to ensure
uniformity of accounting policies.
Answer 6(iii) A customised accounting software is one where the software is developed on the basis of
requirement specifications provided by the organisation. The choice of customized accounting software could
be because of the typical nature of the business or else the functionality desired to be computerised is not
available in any of the pre-packaged accounting software. An organisation desiring to have an integrated
software package covering most of the functional area may have the financial module as part of the entire
customised system.
Q. 6(iv) Rose Ltd. had made an investment of Rs.500 lakhs in the equity shares of Nose Ltd. on 10.01.2009. The
realisable value of such investment on 31.03.2009 became Rs.200 lakhs as Nose Ltd. lost a case of patent
rights. Rose Ltd. follows financial year as accounting year. How will you recognize this reduction in Financial
statements for the year 2008-09.
Answer 6(iv) Recognition of reduction in value of investment would depend upon the nature of investment and
nature of decline as per Accounting Standard 13 “Accounting for Investments”. As per provisions of the
standard, if the investments were acquired for long term and decline is temporary in nature, reduction in value
will not be recognized and investments would be carried at cost. If the decline is of permanent nature, it will be
charged to profit and loss account. If the investments are current investments, then the reduction should be
recognized and charged to Profit and Loss Account as the current investments are carried at cost or fair value,
whichever is less.
Q. 6(v) A company provided Rs.10,00,000 for dividend payment. Is the Corporate Dividend Tax payable in this
case? If yes, please compute Corporate Dividend Tax assuming rate of 15% plus surcharge of 10% and disclose
as it would appear in profit and loss account of the company.
Answer 6(v) Yes, Corporate Dividend Tax (CDT) is payable by the company which has provided for the payment
of dividend. CDT is payable even if no income tax is payable. This is payable by a domestic company on
distribution of profits to its shareholders. In the given case, Corporate Dividend Tax would be worked out to
Rs.1,65,000 [i.e. (Rs.10,00,000 x 15%) x 110%]. CDT should be accounted for in the same financial year in which
provision for dividend is recognized and made. CDT shall be disclosed in profit and loss account below the line
just after the provision for dividend. Such disclosure would give a proper picture regarding payments involved
with reference to dividends.
17
Q. 6(iii) What do you mean by Customised Accounting Software?

Q. 6(vi) SAD Enterprises, a partnership firm, had purchased business of SWAD enterprises on 01.04.2008 and
paid Rs.50,000 towards goodwill. On 01.04.2009, SAD enterprises decided to admit W as partner and the
goodwill was valued at Rs.1,00,000 for the purpose.
Please explain with reasons, at what price goodwill can be shown in the books of account.
Answer 6(vi) Para 16 of AS 10,’ Accounting for Fixed Assets’ states that goodwill can be recorded in the books
only when some consideration in money or money’s worth has been paid for it. Therefore, only purchased
goodwill should be recorded in the books. In the said case, payment of Rs.50,000 was made towards purchase
of goodwill, hence to this extent goodwill can be recorded in the books. Additional goodwill of Rs.50,000 is self
generated goodwill, which should not be recorded. On admission, death or retirement of a partner, goodwill
adjustments can be carried out through Capital accounts.
18
Disclosure of CDT in the profit and Loss Account will be as follows:
Dividend XXXX
Corporate Dividend Tax XXXX XXXX
Corporate Dividend Tax is also known as ‘Dividend Distribution Tax’.

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