Mock Test Accounts 1

Accounting (Test 001)

PAPER - 1 : ACCOUNTING [CA-IPCC]

MOCK TEST - 001

CA Sachin Jain, Kolkata

09331122556

Answers all questions
Wherever appropriate, suitable assumptions should be made by the candidate.
Working notes should form part of the answer.

Question 1

(10 X 2 = 20 Marks)

Answer all the following questions:
a.	What is "average clause" under insurance claim?
b.	Give the journal entry to be passed for accounting unrealized profit on stock, under amalgamation.
c.	A and M are partners, sharing profits and losses in the ratio of 3:2. G is admitted for 1/4th share. Thereafter, N enters the partnership for 20 Paise in a Rupee. Compute new profit sharing ratio.
d.	Mr. X purchased a machine on hire-purchase system, Rs.30,000 being paid on delivery and the balance in five instalments of Rs.60,000 each, payable annually on 31st December. The cash price of the machine was Rs.3,00,000. Compute the amount of interest for each year.
e.	Mr. T purchased 1,000 nos. 10% debentures of Rs.100 each on 1st April, 2009 at Rs.9 cum-interest, the previous interest date being 31st December, 2008 . Compute cost of investment.
f.	Name two methods of accounting for amalgamations as contemplated by AS 14.
g.	The Managing Director of A Ltd. is entitled to 5% of the annual net profits, as his remuneration, subject to a minimum of Rs.25,000 per month. The net profits, for this purpose, are to be taken without charging income-tax and his remuneration itself. During the year, A Ltd. made net profit of Rs.43,00,000 before charging MD's remuneration, but after charging provision for taxation of Rs.17,20,000. Compute remuneration payable to the Managing Director.
h.	Explain contract cost as per AS-7 related to 'Construction Contract'.
i.	As a result of a recently announced price revision, granted by the government of India with effect from 1st July 1992 , the company stands to receive Rs. 5,20,000 from its customers in respect of sales made in 1992-93. Comment by giving reference to AS-9.
j.	Name the assets not covered by AS-6.

Question 2

a. The balance sheet of A & B, a partnership firm, as at 31st March, 2006 is as follows.
Liabilities		Rs.	Assets	Rs.
Capital accounts:			Goodwill	14,000
A	26,400		Land and building	14,400
B	33,600	60,000	Furniture	2,200
Contingency reserve		6,000	Stock	26,000
Sundry creditors		9,000	Sundry debtors	6,400
			Cash at bank	12,000
		75,000		75,000

A & B share profits and losses as 1:2. They agree to admit C (who is also in business on his own) as a third partner from 1.4.2006.
The assets are revalued as under:

a.	Goodwill Rs. 18,000, land and building Rs. 30,000 and furniture Rs. 6,000.
b.	C brings the following assets into the partnership: goodwill Rs. 6,000, furniture Rs. 2,800 and stock Rs. 13,600.
c.	Profits in the new firm are to be shared equally by the three partners and the capital accounts are to be so adjusted as to be equal. For this purpose, additional cash should be brought in by the partner or partners concerned.

Prepare the necessary accounts and the opening balance sheet of new firm, showing the amounts of cash, if any, which each partner may have to provide.

(10 Marks)

(b) Following is the Balance Sheet of X Co. Ltd. as at 31 st March, 2008 :

Balance Sheet as at 31 st March, 2008

Liabilities	Rs.	Assets	Rs.
Equity share capital (Rs. 100 each)	15,00,000	Land and building	10,00,000
11% Pref. share capital	5,00,000	Plant and machinery	7,00,000
General reserve	3,00,000	Furniture and fittings	2,00,000
Sundry creditors	2,00,000	Stock in trade	3,00,000
		Sundry debtors	2,00,000
		Cash in hand and at bank	1,00,000
	25,00,000		25,00,000

Y Co. Ltd. agreed to take over X Co. Ltd. on the following terms:
(i)	Each equity share in X Co. Ltd. for the purpose of absorption is to be valued at Rs. 80.
(ii)	Equity shares will be issued by Y Co. Ltd. by valuing its each equity share of Rs. 100 each at Rs. 120 per share.
(iii)	11% Preference shareholders of X Co. Ltd. will be given 11% redeemable debentures of Y Co. Ltd. at equivalent value.
(iv)	All the Assets and Liabilities of X Co. Ltd. will be recorded at the same value in the books of Y Co. Ltd.
	(a) Calculate Purchase consideration.
	(b) Pass Journal entries in the books of Y Co. Ltd. for absorbing X Co. Ltd.
(6 Marks)

Question 3	(16 Marks)
The following is the Balance Sheet of Trinity Ltd. as at 31.3.1995 :
*Trinity Ltd.* *Balance Sheet as at* *31st March, 1995*

Liabilities	Rs.	Assets	Rs.
Share Capital		Fixed Assets
Authorised		Gross Block	3,00,000
10,000 10% Redeemable Preference		Less: Depreciation	1,00,000
Shares of Rs. 10 each	1,00,000		2,00,000
90,000 Equity Shares of Rs. 10 each	9,00,000
	10,00,000	Investments	1,00,000
Issued,Subscribed & Paid-up Capital
10,000 10% Redeemable Preference
Shares of Rs. 10 each	1,00,000	Current Assets and Loans
10,000 Equity Shares of Rs. 10 each	1,00,000	and Advances
(A)	200000	Inventory	25,000
Reserves and Surplus		Debtors	25,000
General Reserve	1,20,000	Cash and Bank Balances	50,000
Securities Premium	70,000
Profit and Loss A/c	18,500	Misc. Expenditure	20,000
(B)	2,08,500	(to the extent not written of)
Current Liabilities & Provisions (C)	11,500
Total (A + B + C)	4,20,000	Total	4,20,000

For the year ended 31.3.1996, the company made a net profit of Rs. 15,000 after providing Rs.20,000 depreciation and writing off the miscellaneous expenditure of Rs. 20,000.
The following additional information is available with regard to company's operation :

1.	The preference dividend for the year ended 31.3.2007 was paid before 31.3.2007.
2.	Except cash and bank balances other current assets and current liabilities as on 31.3.2007 was the same as on 31.3.2006.
3.	The company redeemed the preference shares at a premium of 10%.
4.	The company issued bonus shares in the ratio of one share for every equity share held as on 31.3.2007.
5.	To meet the cash requirements of redemption, the company sold a portion of the investments, so as to leave a minimum balance of Rs. 30,000 after such redemption.
6.	Investments were sold at 90% of cost on 31.3.2007.
You are required to
(a)	Prepare necessary journal entries to record redemption and issue of bonus shares.
(b)	Prepare the cash and bank account.
(c)	Prepare the Balance Sheet as at 31st March, 1996 incorporating the above transactions.

Question 4

a. The following are the summarised Balance Sheets of X' Ltd. as on March 31, 2005 and 2006:

Liabilities	As on 31.3.2005	As on 31.3.2006
Equity share capital	10,00,000	12,50,000
Capital Reserve	--	10,000
General Reserve	2,50,000	3,00,000
Profit and Loss A/c	1,50,000	1,80,000
Long-term loan from the Bank	5,00,000	4,00,000
Sundry Creditors	5,00,000	4,00,000
Provision for Taxation	50,000	60,000
Proposed Dividends	1,00,000	1,25,000
	25,50,000	27,25,000
Assets
Land and Building	5,00,000	4,80,000
Machinery	7,50,000	9,20,000
Investment	1,00,000	50,000
Stock	3,00,000	2,80,000
Sundry Debtors	4,00,000	4,20,000
Cash in Hand	2,00,000	1,65,000
Cash at Bank	3,00,000	4,10,000
	25,50,000	27,25,000

Additional Information:

(i)	Dividend of Rs.1,00,000 was paid during the year ended March 31, 2006 .
(ii)	Machinery during the year purchased for Rs.1,25,000,
(iii)	Machinery of another company was purchased for a consideration of Rs. 1,00,000 payable in equity shares.
(iv)	Income-tax provided during the year Rs. 55,000.
(v)	Company sold some investment at a profit of Rs. 10,000, which was credited to Capital reserve.
(vi)	There was no sale of machinery during the year.
(vii)	Depreciation written off on Land and Building Rs. 20,000.
From the above particulars, prepare a cash flow statement for the year ended March, 2006 as per AS-3 (Indirect method).
*(10 marks)*

b) The following particulars are obtained from books of a Self Ltd. for the year ended 31 st March, 2008 :

	Rs.		Rs.
Cash Sales	25,000	Bills Receivable dishonoured	2,500
Credit Purchases	2,80,000	Return Inward	8,500
Collection from Debtors	4,25,000	Payments to creditors	1,62,000
Bills Receivable drawn	20,000	Discount allowed	3,000
Discount Received	2,500	Debtors. cheque returned
Cash Purchases	12,000	dishonoured	7,500
Bills Payable paid	6,500	Credit Sales	4,90,000
Recovery of Bad Debts	1,500	Bills Receivables collected	10,000
Bills Receivable discounted with Bank	8,000	Return outward	3,700
Interest charged on overdue		Bills Receivable endorsed
customers Accounts	1,200	to creditors	7,900
Endorsed Bills Receivable		Overpayments refunded
dishonoured (noting charges Rs.75)	5,500	by suppliers	600
Bills Payable accepted	16,000	Bad Debts	1,000
		Opening Balances
		Sundry Debtors	78,000
		Sundry Creditors	85,000

You are required to prepare the Total Debtors Account and Total Creditors Account.

(6 marks)

Question 5
a)	Sameera Corporation sells Computers on Hire-purchase basis at cost plus 25%. Terms of sales are 5,000/ as Down payment and 10 monthly instalments of Rs. 2,500/- for each Computer. From the following particulars, prepare Hire-purchase Trading A/c for the year 2002-03:
	As on 1 st April, 2002 , last instalment on 20 Computers were Outstanding as these were not due upto the end of the Previous year. During 2002-03, the Firm sold 120 Computers. As on 31 st March, 2003 the position of instalments outstanding were as under:
	Instalments due but not collected	4 Instalments on 4 Computers and Last instalment on 9 Computers.
	Instalment not yet due	6 lnstalments on 50 Computers, 4 Instalments on 20 and Last Instalment on 40 Computers.
	Two Computers on which 8 Instalments were due and one Instalment not yet due on 31.03.2003, had to be repossessed. Repossessed stock is valued at 50% of cost. All other Instalments have been received.
	*(8 marks)*

b)	From the following details, calculate consequential loss claim:
i.	Date of fire: 1st September;;
ii.	Indemnity period: 6 months;
iii.	Period of disruption : 1st September to 1st February;
iv.	Sum insured: Rs. 1,08,900;
v.	Sales were Rs. 6,00,000 for preceding financial year ended on 31st March;
vi.	Net profit for preceding financial year Rs. 36,000 plus insured standing charges Rs. 72,000;
vii.	Rate of Gross profit 18%;
viii.	Uninsured standing charges Rs. 6,000;
ix.	Turnover during the disruption period Rs. 67,500;
x.	Annual turnover for 12 months immediately preceding the date of fire Rs. 6,60,000;
xi.	Standard turnover i.e. for corresponding months (1st September to 1st February) in the year preceding the date of fire Rs. 2,25,000;
xii.	Increase in the cost of working capital Rs. 12,000 with a saving of insured standing charges Rs.4,500 during the disruption period;
xiii.	Reduced turnover avoided through increase in working capital Rs. 30,000;
xiv.	Special clause stipulated:
	(a) Increase in rate of G.P. 2%.
	(b) Increase in turnover (standard and annual) 10%.
	*(8 marks)*

Question 6

(4 X 4 = 16 Marks)

Answer any four of the foloowing :
(i)	As per AS-14, what are the conditions which must be satisfied for an amalgamation in the nature of merger.
(ii)	A company has entered into a firm contract for supply of 1000 units of a certain product for Rs. 690 each. The product is being manufactured by the company in one of its factories and the cost incurred till the balance sheet date is Rs. 460 per unit. The company expects that it will have to incur another Rs. 650 per unit to complete the manufacture and a further sum of Rs. 125 per unit for delivering the product to the location of the customer. How would you value the above item for balance sheet purposes?
(iii)	What are the disclosure of significant accounting policy adopted in the preparation and presentation of the financial statements as per AS-1.
(iv)	The following amounts are due to X by Y. Y wants to pay off (a) on 18.3 .... or (b) on 14.7Interest rate of 8% p.a. is taken into consideration.
	Due Dates	Rs.
	10.1	500
	26.1 (Republic Day)	1,000
	23.3	3,000
	18.8	4,000
	25.1 and 18.8 are Sunday. Determine the amount to be paid in (a) and in (b). Apply Average Due Date.
(v)	Mr. X purchased 500 equity shares of Rs.100 each in Omega Co. Ltd. for Rs. 62,500 inclusive of brokerage and stamp duty. Some years later the company resolved to capitalize its profits and to issue to the holders of equity shares, one equity bonus share for every share held by them. Prior to capitalisation, the shares of Omega Co. Ltd. were quoted at Rs.175 per share. After the capitalisation, the shares were quoted at Rs.92.50 per share. Mr. X. sold the bonus shares and received at Rs.90 per share. Prepare the Investment Account in X's books on average cost basis.
(vi)	What is "Fund Based Accounting" under not-for-profit organisations? Explain by giving example.

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