CASE 1.1 MEHTA AUTOMOBILES SUMMARY HISTORY OF MEHTA AUTOMOBILES Mr Mehta is a mechanic.

Due to his excellent work, professional ability, pleasing manners and sense of responsibility, he was soon promoted to the post of a chief mechanic. Because of his abilities, his friends and relatives advised him to start his own automobile repairs shop. Therefore, after consulting with his family he accepted the offers of his friends Mr Nitin and Mr Mohan Kapoor, who offered to give a rental office in a busy street of Ahmedabad and a loan of 1,00,000 respectively to start his business. CURRENT POSITION Mr Mehtas business is well settled small-scale business. He has hired four more assistants in addition to earlier two and also two mechanics and a part-time salesman. He has a small office with necessary furniture, and he stores his goods at his home, which he uses as his small godown. He has also started a small spare parts selling section. He is also assisted by his son Mr Rajendra Mehta for the regular day-to-day activities. NEW VENTURE During his day-to-day activities, Mr Mehta came across an advertisement in a local newspaper, which was about a company, who was in search of a well-known automobile service shop owner, for a sole selling agency of their cars and spare parts in Gujarat. Mr Mehta found this proposal profitable and thus applied for the same. CONDITIONS OF CONTRACT The company specified two conditions which every applying firm in order to get the contract had to fulfil. The conditions are as under: (a) Every firm had to obtain from its bank, a certificate to the effect that a minimum balance of 5,00,000 was maintained in business account. (b) Every firm had to submit a complete current financial position of the business and the results of immediate past period. THE PROBLEM Mr Mehta found the problem, which was to comply with the above, two conditions. The following were the difficulties, which Mr Mehta had to face in order to get the problem. As Mr Mehta did not have any knowledge about how to prepare his financial accounts, he had not prepared any regular accounts. His used to run his business in such a manner that each cash received was deposited in bank and was withdrawn at the time of payment, and as 1

his business was not of a very large scale he was not able to maintain a minimum balance of Rs 5,00,000 in his business account. Thus due to the above problems, he was not able to satisfy the two conditions laid down by the company. THE SOLUTION In order to get the contract, Mr Mehta must fulfil the above two conditions so for that he has to do the following things. (a) Learn the basic things of recording of day-to-day transactions. (b) Collect necessary data for the preparation of last years financial statements. (c) Maintain a daily book to record all the day-to-day transactions of the business. (d) Appoint an accountant, who will prepare all the accounts and financial statements from this daily book. QUESTIONS AND ITS ANSWERS 1. Mr Mehta mentioned that (a) He could not have systematic accounting records because he did not possess specialized accounting skill; and (b) Keeping such records would increase in costs, which he could not afford. How would you respond to these comments? Solution: (a) Here, as Mr Mehtas business is not very vast, recording of day-today transactions does not require any specialised knowledge so he could just learn the basic fundamentals of accounting and start recording the day-to-day transactions in a daily book. This daily book can be recorded systematically by appointing an accountant (Mr Lal). (b) In short term, recording of proper accounts will cost a bit to Mr Mehta but it will be equalized by the long-term benefits by maintaining proper books of accounts. In addition, appointing an accountant (Mr Lal) for such limited size firm would not cost very much as he will not have to be paid a very high amount for his services rendered. 2. What information would Mr Lal require for preparing the financial statements? Solution: Mr Mehta would require three types of information for preparing the financial statements, which are as under. (a) Information related to Trading Account (i) Purchases and sales of goods (ii) Direct expenses (iii) Closing stock of goods (b) Information related to Profit & Loss A/c. (i) Daily revenue expenses of the firm (ii) Daily revenue incomes of the firm 2

(c) Information related to Balance Sheet (i) Information related to liabilities of firm 1. Share capital 2. Other liabilities which include: Reserves & Surplus Secured loan and unsecured loans Current liability Contingent liability (ii) Information related to Assets of the business: 1. Fixed assets 2. Investments 3. Current Assets 4. Miscellaneous expenditure 3. What items would you expect to find in the statements of financial position and profit and loss analysis relating to Mr Mehta? Solution: Following are the items which may appear in the profit and loss account of Mr Mehta: Trading Account of Mr Mehta Particulars Amount Particulars Amount To Opening Stock xxx By Sales xxx To Purchase xxx By Closing Stock xxx To Wages xxx To Gross Profit xxx By Gross Loss xxx Total xxxxx Total xxxxx Profit and loss a/c of Mr Mehta Particulars Amount Particulars Amount To Salary of Assistantsxxx By sale of Assets xxx To Electricity Expensesxxx By Discount Receivedxxx To Telephone Expenses xxxBy Interest on Investmentxxx To Sundry Expensesxxx To Discount Paid xxx To Net Profit xxx By Net Loss xxx Total xxxxx Total xxxxx Balance Sheet of Mr Mehta Liabilities Amount Assets Amount Share Capital Fixed Assets Total ownership capital xxx Land & Building xxx Reserve & Surplus Furniture xxx Profit xxx Equipments xxx Secured Loan Investments Mortgage Loan xxx Investments xxx Unsecured Loan Current Assets Friends Loan xxx Cash Balance xxx Current Liability Bank Balance xxx 3

Bank Overdraft xxx Creditors xxx Total xxxxx

Debtors Stock Total

xxx xxx xxxxx

4. What records would Mr Mehta require to maintain, for controlling his business activities? Solution. Mr Mehta would be required to maintain the following records, for controlling his business activities. (1) Trading Account (a) It tells us what are the net purchase and net sales of the company. (b) It also specifies the direct expenditure, incurred by the company. (c) Information regarding trading account is helpful during time of calculating the gross profit of the company. (d) Other benefits. (2) Profit and Loss Account (a) It specifies the various expenses made by the company. (b) It also specifies the various incomes earned by the company. (c) This account helps us to find out the net profit of the company. (3) Balance Sheet (a) It tells the current financial position of the company. (b) It tells the total assets of the company. (c) It also tells about the total liabilities of the company. Note: A detailed explanation of above statement has been mention in Question 3. CONCLUSION Thus from the above case, we can conclude that the problem mentions in the case is one of the common problems which every unit faces if it does not prepare and maintain necessary accounts. Mr Mehta is one of the persons who are suffering from various problems, which are mentioned in this case, and there are many other problems, which may occur due to non-maintenance of accounts. Thus in order to keep away such problems, every firm big or small should always maintain its accounts in a systematic way.

Case 2.1 Balance Sheet as on April 12, 1946 Liabilities Amount Assets Amount Capital Fixed Assets Mrs Bevan 2,000 Land 2,500 Mrs Maywoods2,000 Add 2,000 4,500 Mr Maywoods2,0006,000 Building 10,500 Secured Loan Equipments 1,000 Mortgage loan 11,500 Current Assets Cash(6,000 4,500)1,500 Total 17,500 Total 17,500 Balance Sheet as on December 11, 1946 Liabilities Amount Amount Assets AmountAmount Capital Fixed Assets Mrs Bevan 2000 Land 4,500 Add: 400 Less: Depreciation 44.45 4,455.55 2,400 Less: Loss 329.34 2070.66 Building 10,500 Less: Depreciation 233.45 10,266.55 Mrs Maywood2,000 Less: Loss 329.34 1670.66 Equipments 1,000 Add: Purchase415.95 Mr Maywood 2,000 1,415.95 Less: Loss 329.34 1670.66 Less: Depreciation 44.19 1,371.76 Current Assets, Secured Loan Loans & Advances Mortgage Loan 10800 Deposit 35 Current Liabilities Stock 100 & Provisions Cash 65.35 Bank 9.78 Bills Payable 92.01 Total 16,303.99 Total 16,303.99 SUMMARY In the year 1946 three partners, Mr Bevan, Mr & Mrs Maywoods, started business contributing $2000 each. They also hire some amount of loan. The cafe was on the highway and frequently visited by truck drivers and voyagers. All of the partners have divided their duty by the mutual understanding. Due to the friendly relationship between one of the partners, namely, Mrs Maywoods with a customer Fred Mead, she finally she run away with him. Mr Maywoods searched her a lot. After this event occurred, Mrs. Bevan decided to dissolve this partnership. Thus they started their business on 12th April 1946 and dissolve on 16th December 1946. The 5

dissolution of business resulted into loss and all the partners equally shared it. As the professional approach was a lacking factor for this partnership, finally it had to be broken up and bear a loss. After briefly analysing the case, we can say that the proper planning was not present in this partnership and they did have the scarcity of funds from the beginning. CASE 2.2 PREMIER ENGINEERING COMPANY LTD. Debtors Account Dr Particulars To Balance b/d To Sales Cr JF Amount Particulars JF Amount - 14,505,000By Sales return 20,000 - 2,90,000,000By Discount 40,000 By Cash - 26,00,00,000 By Balance c/f 4,44,45,000 3,04,50,000 Total 3,04,50,000 Creditors Account Dr Particulars Amount To Cash To Balance c/f Total Dr Particulars Amount To Balance b/d To Bank To Debtors 1,00,03,000 JF Amount Cr Particulars JF

Total

- 14,000,000By Balance b/d - 1,50,00,000 - 2,06,00,000 By Purchase 14,50,00,000 By Supplies - 6,00,000 16,06,00,000 Total 16,06,00,000 Cr Particulars Cash Account JF Amount JF

- 14,10,000 By Machinery - 80,00,000 - 10,00,20,000By Insurance and tax 26,00,000,000By Miscellaneous expenditure By Bank loan 8,00,00,000 By Creditors 14,00,00,000 By Insurance and tax

9,27,000

2,59,65,500 By Dividend By Balance c/f Total 36,14,30,000 6 Total Loan Account 1,39,40,000 69,08,000 36,14,30,000

Dr Cr Particulars JF Amount Particulars JF Amount To retirement of bank loan 8,00,00,000 By Balance b/d 4,00,20,000 To Balance c/f - 6,00,40,000 By Bank loan 10,00,20,000 Total 16,06,00,000 Total 16,06,00,000

Sales Account Dr Cr Particulars JF Amount Particulars JF Amount To Sales return & 20,000 By Debtors - 29,00,00,000 allowances To Sales discount 40,000 To Balance c/f - 28,99,40,000 Total 29,00,00,0000 Total 29,00,00,000 Machinery Account Dr Particulars Amount To Balance b/d 7,88,20,000 To Cash JF Amount Cr Particulars JF

- 22,61,30,000By Depreciation - 80,00,000

(accumulated & current year depreciation By Balance c/f - 15,53,10,000 Total 23,41,30,000

Total

23,41,30,000

Accured Tax Dr Particulars Amount To Balance c/f Total JF Amount Cr Particulars JF 2,59,65,500 2,59,65,500

- 2,59,65,500 By Balance b/d 2,59,65,500 Total

Depreciation Account Dr Particulars Amount To Balance c/f Total JF Amount Cr Particulars JF

- 7,88,20,000 By Balance b/d 4,48,00,000 By P & L a/c - 3,40,20,000 7,88,20,000 Total 7,88,20,000

Trading and Profit & Loss Account For year ending on 31st March 1983 Particulars JF. Amount Particulars JF Amount To Opening stock - 8,32,05,000 By Sales29,00,00,000 To Purchase - 14,56,00,000 Less : To Direct labour 2,40,50,000 Sales return20,000 28,99,40,000 To Indirect labour 48,40,000 Sales discount40,000 To ESIS premium 2,50,000 To Heat, light and power 35,46,000By Closing stock ** 9,26,80,000 To Sales administrative service 4,30,00,500 To Interest 1,00,03,000 To Manufacturing taxes and insurance 8,00,000 To Depreciation 3,40,20,00 To Income tax 29,348,275 To Net profit 3,957,225 Total 38,28,20,000 Total 38,28,20,000 **Calculation of Closing Stock Opening Stock8,32,05,000(5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000) Add: Purchase14,56,00,000 22,88,05,000 Less: Raw Material13,55,20,000 consumed Supplied used6,05,000 13,61,25,000 Closing Stock9,26,80,000 (22,88,05,000 13,61,25,000) Profit & Loss Appropriation Account for year ending on 31st March 1983 JF Amount Particulars 1,39,40,000 By Net profit By Deficit Total 13,940,000 9 - 99,82,775 Total 13,940,000

Particulars Amount To Provision for dividend 39,57,225

JF -

Particulars Amount

Balance Sheet as on 31st March 1983 JF Amount Particulars

JF

Shareholders Fund Equity - 19,10,46,700Fixed Assets Retained earnings 84,97,800 Plant and Equipments 15,53,10,000 Secured Loans Investments Loans 6,00,40,000 Current Liabilities & Current Assets Provisions 2,06,00,000Loans & Advances Creditors 2,93,48,275 Debtors 4,44,45,000 Provision for income tax Cash 69,08,000 Closing stock 9,26,80,000 Prepaid taxes and 80,000 insurance Advance Taxes paid 9,27,000 Less : Expired8,00,000 1,27,000 Misc. Expenditure Deficit 99,82,775 Total 30,95,32,775 Total 30,95,32,775 Premier Engineering Company Ltd., General Budget for 1983 Worksheet Amount Increase in Decrease in Assets Assets

Assets

Net

Changes

Cash 14,10,000 54,98,000 -69,08,000 Debtors 1,45,05,000 2,99,40,000 -4,44,45,000 Raw Materials5,30,00,000 94,80,000 -6,24,80,000 Goods in Process1,00,05,000 ---Finished Goods2,00,00,000 ---Supplies 2,00,000 -5000 1,95,000 Prepaid Taxes & Insu.80,000 ---Manufacturing Plant22,61,30,000 -7,08,30,000 15,53,10,000 Liabilities Amount Increase in Liabilities 10 Decrease in Liabilities Net Changes

Loans 4,00,20,000 2,00,20,000 -6,00,40,000 Creditors 1,50,00,000 56,00,000 -20,600,000 Accursed Taxes2,59,65,500 -2,59,65,500 -Accumulated Dep.4,48,00,000 3,42,20,000 -78,820,000 Equity 19,10,46,700 ---Retained Earnings84,97,800 ---CASE 3.1 MASTERS FUEL OIL COMPANY Income Statement for the year ended 31st December 1958 Particulars Amount Amount Income from Sales & Services Fuel oil, non-budget accounts Burner services & repairs Installations Credit Sales 2,39,776 Closing Stock of burner parts 8,250 2,48,026 Total Income 2,48,026 Cost of Sales & Services Fuel oil delivered Buner parts Installations Subcontract charge Opening stock burner inventory parts 5,490 Credit Purchases 1,58,990 1,64,480 Total Cost of Sale 1,64,480 Gross Profit on Sales Operating Expenses: Utilities 424 Add Outstanding 36 Supplies Telephone Advertising 2,627 Add Outstanding 159 Property Taxes Office & Printing costs Fees for professional services Payroll Taxes Outstanding Rental of Uniforms Vehicles Operation 11 83,546

460 277 231 2,786 972 1,119 1,520 490 512 2,312

Wages Miscellaneous Exp. Depreciations: Furniture & Fixture 148 Delivery & Services Equipment Vehicle (Truck) 202 Building 1,084 Net Profit from operation

9,816 1,949

4,757 6,191 28,635 54,911

12

Master Fuel Oil Company Balance sheet as on 31st Dec. 1958 Liabilities Capital: Leonard Master31,295 Less: Drawing12,650 Profit 27,456 46,101 Louis Webster32,185 Less: Drawing15,000 Profit 27,455 44,640 Amount Assets Fixed Assets: Land 6,000 Furniture & Fixture1,481 Less: Depreciation 566 Allowance Less: Depreciation 148 767 Delivery & Services23,786 Equipment Add: Purchase (Truck)12,133 35,919 Less: Depreciation9,787 Allowance Less: Depreciation495921,173 Building 21,699 Less: Depreciation Allowance7,364 Less: Depreciation1,08413,251 Current Assets: Cash Amount

Current Liabilities Account Payables: Fuel bills 3,962 Utility bills 36 Burner parts 438 Advertising 159 Other Liabilities Total

15,211

4,595 278 95,614

Account Receivables: Regular Accounts18,640 Budget Accounts12,17230,812 Deposit on Commercial bids900 Less: 750 150 Inventory of Burner Part 8,250 Total 95,614

Cash Account DateParticulars Amount Date Particulars Amount 1 Jan.,To Opening Balance b/d13,993 Payable 4,382 1958 Last Years To Regular Customers1,06,478 By Drawing L. Master To Budget Plan Customers97,798 Webster 15,000 To Burner Service & repair12,714 Purchase 1,46,260 13

By

Account

12,650 By Drawing L. By Fuel

To Installation Work4,460 To Deposit Refunds 750

By By By By By

Burner Parts5,905 Installations2,111 Subcontractors314 Utilities 424 Supplies 277 (contd.)

Total

By New Truck 12,133 By Telephone 231 By Advertising 2,627 By Property Taxes972 By Office & Printings1,119 By Fess Pro. Services 1,520 By Liabilities Last Yr256 By Payroll Taxes C.Y212 By Rental of Uniforms 512 By Vehicle Operation 2,312 By Wages 9,816 By Miscellaneous Exp. 1,949 31st Dec By Closing Balance 15,211 2,36,193 Total 2,36,193

Account Receivable (Debtors) A/c Date Particulars Amount Date Particulars Amount 1 Jan.,To Balance b/d12,486 31 Dec.,By Cash A/c (1,06,478 2,21,450 1958 1958 + 97,798 + 12,714 + 4,460) 31 Dec., To Credit Sales 2,39,776 31 Dec.,By Balance c/f : 1958 1958 Regular A/c18,640 Budget A/c12,17230,812 Total 2,52,262 Total2,52,262 Account Payable (Creditors) A/c Date Particulars Amount Date Particulars Amount 31 Dec.,To Cash (4.382 + 1,58,972 1 Jan., By Balance b/d 4,382 1958 1,46,260 + 5.905 + 1958 2111 + 314) 31 Dec.,To Balance c/f (3,962 4,400 31 Dec., By Credit Purchases 1,58,990 14

1958

+ 438) 1958 Total 1,63,372

Total

1,63,372

15

Profit and loss account of the year Ended on 31/3/1982 Dr. Cr. Expenses AmountAmount Income AmountAmount To Depreciation on - 21,815 By Dividend received 1,19,000 office equipment By Bills received 20,79,000 To salary 10,39,920 By Closing Stock 70,000 + Outstanding17,50010,57,420 To office supply3,45,450 + Outstanding45,1503,90,600 To rent 1,70,800 + Outstanding16,8001,87,600 To miscellaneous expenses1,20,400 + Outstanding1,7501,22,150 To Profession fee Exp. 35,000 Bad debts 37,800 Net Profit c/f. 4,15,615 22,68,000 22,68,000 Balance sheet of Latif Khan Architect As on 31/3/1982 Capital AmountAmount Assets AmountAmount Capital 11,86,253 Office equipment 2,18,153 + Net profit4,15,615 - Depreciation 21,815 1,96,338 16,01,868 Investment 3,50,000 Drawing5,60,00010,41,868 + Purchase1,68,000 5,18,000 Outstanding Exp. Debtors 2,91,200 Salary 17,500 Cash at Bank 47,530 Rent 16,800 Closing Stock 70,000 Supplies 45,150 Miscellaneous Exp. 1,750 11,23,068 11,23,068 Cash Account Dr. Particulars Amount To Bal b/d. 1,12,000 To Debtor 23,45,000 To Dividend Int. 1,19,000 Cr. Particulars Amount By Salary & charges10,51,820 By Office supplies 4,02,850 By Rent. 1,84,800 By Profession exp. 35,000 By Purchase shares1,68,000 By Drawing 5,60,000 By Miscellaneous Exp. 16

By Bal. B/d. 47,530 25,76,000 FOR FINDING CAPITAL:Asset: Office Furniture And Investment Cash Debtors Less Outstanding of 1981 Salary Supplies Rent Misc. Capital in the Business FOR FINDING DEBTOR: Op. balance5,95,000 + Bills issued20,79,000 26,74,000 Less 11,900 57,400 14,000 5,600 WORKING NOTES:

1,26,000 25,76,000

Equipment21,8,153 3,50,000 1,12,000 5,95,000 12,75,153

88,900 1,86,253

By cash Received23,45,000 By Bad debts.37,800 23,82,800 Net debtors at end of the year 1982 2,91,200 Cash Received = 17,50,000 + 5,95,000 = 23,45,000 CASE No. 3.3 Profit Reconciliation Statement Particulars Amount Amount Profit as per Bhatia 2,05,000 Less: Acc. Dep 29,000 Provision for Exp. 40,000 Reduction in Value of stock25,00094,000 Add: Prepaid Ins. 2,500 Prepaid Subscription 75 Change in Capital 37,750 17

40,325

Profit as per accountant

1,51,325

18

Opening Statement of Affairs Liabilities Amount Assets Amount Capital 1,16,250 Furniture 1,00,000 Creditors 80,000 Cash & Bank 47,000 Debitors 12,000 Accumulated Dep. 19,000 Stock 56,250 2,15,250 2,15,250 Debtors Account Dr Particulars To Balance To Sales Amount 12,000 10,00,000 By Bal 10,12,000 Dr Particulars To Cash To Cash To Bal 30,000 10,12,000 Cr Amount 80,000 7,50,000 8,30,000 Cr Particulars Amount By Bal 19,000 By Depreciation 10,000 29,000 Particulars By Cash By Cash Cr Amount 12,000 9,70,000

Creditors Account Amount 80,000 6,40,000 1,10,000 8,30,000 Acc. Dep. Account Dr Particulars To Bal Amount 29,000 29,000 Particulars By Bal By Purchase

Balance Sheet as at 31st Dec. 1981 Liabilities Amount Assets Amount Capital 1,16,250 Less: Drawings1,69,000 Furniture 1,00,000 52,750 Add: Profit 1,51,325 98,575 Cash & Bank Debtors 70,000 30,000

Pro. for Service Exp.50,000 Less: Exp. Inc.10,000 40,000 Acc. Dep 19,000

Prepaid Ins. 2,500 Prepaid Subscription75

19

Add. Dep. Creditors

10,000

29,000 1,10,000 2,77,575

Closing Stock

75,000

2,77,575

Income & Exp. A/c for the year ended on the 31st Dec. 1981 Dr Cr Particulars Amount Particulars Amount Opening Stock 56,250 Purchase 7,50,000 Sales of Radios 10,00,000 Dep. on Furniture10,000 of Radio Parts 50,000 Prov. For Service Exp.50,000 Exp. for Services 20,000 (For the radios sold in the Previous Period) Wages & Salaries60,000 Insurance Paid 2,500 Rent Paid 10,000 Selling & Gen. Exp14,850 Subscription 75 Net Profit 1,51,325 10,50,000 10,50,000 CASE 4.1 International Hotels Ltd Date 30th June Particulars Journal-Adjusting Entries LF Debit Credit Rs. Rs. 19,250

Bad debts A/c Dr. 19,250 To Debtors A/c (Being there is a Bad debts arise and deduct from Debtors) P&L A/c Dr. 19,250 To Bad debts A/c (Being Bad debts is recognize and debited to P&L A/c Advertisement Exp. A/cDr. To P&L A/c (Being Advertisement Exp. is carried forward to next year) 20

30th June

19,250

30th June

2,02,500 2,02,500

30th Depreciation A/c Dr. 31,97,250 June To Building & Furniture A/c 31,97,250 (Being Amt. Depreciated to the Building and Furniture) 30th June P&L A/c Dr. 3,197,250 To Depreciation A/c (Being the depreciation recognized and debited to P&L A/c) P&L A/c Dr. 1,92,000 To O/s wages A/c (Being O/s wages is transfer to P&L A/c) 1,92,000 3,197,250

30th June

30th June

General Reserve A/c Dr. 1,46,505 P&L Appro. A/c Dr. 95,13,495 To proposed equity div A/c 96,60,000 (Being the proposed dividend is paid through P&L Appro. A/c and G.R. A/c 30th June P&L A/c Dr. 28,900 To Repairs and maintenance A/c (Being repairs and maintenance is not recorded) Total 1,65,16,400 International Hotels Ltd. 28,900

1,65,16,400

Solution (ii)

Statement showing Profit and Loss Account of the year ended June 30, 1982 Dr. Cr. Particulars Rs. Rs. Particulars Rs. Rs. To Opening stock By sales wine, cigars9,20,000 wine, cigars5,260,000 + food stuff17,89,00027,09,000 + food stuff 13,640,00018,900,000 To purchase By closing stock wine, cigars28,70,000 wine, cigars3,375,000 + food stuff9,430,00012,300,000 + food stuff 4,460,000 7,835,000 To wages & salaries4,245,000 o/s wages & salaries192,0004,437,000 To coal & firewood 493,500 21

To Carriage & freight 121,500 To Gross Profit 6,674,000 26,735,000 26,735,000 To Depreciation To Gross Profit 6,674,000 Land & Building2,550,000 To rent room 8,108,950 Fitting & Furniture647,2503,197,250To Casino Room Earning 142,500 To Bad Debts (T) 0 To golf course Earning 148,500 + Bad Debts (Adj)19,250 To Health club earning 268,250 + B.D.R.(Adj) 0 To Pool side earning 136,400 19,250 To shopping arcade rentals 145,000 B.D.R(T) 0 19,250 To discotheque earnings 125,400 To Adventiserpent Exp.1,254,000 + c/f next year.202,5001,051,500 To Repair & Maintanance637,500 + Not Recover28,900666,400 To rent, Rates, Taxes 1,335,000 To Laundry 122,500 To miscellaneous Exp.876,000 To O/s debenture Int. 4,050,000 To Provision for Tax 2,442,605 To net profit 1,998,495 15,749,000 15,749,000 Statement showing Profit and Loss Appropriation Account of the year ended June 30, 1982 Dr. Cr. Particulars Rs. Particulars Rs. To proposed equity By Bal b/d 6,225,000 share dividend 9,660,000 By P & L A/c 1,998,495 By General reserve 146,505 9,660,000

9,660,000 Statement showing Balance Sheet as on June 30, 1982. Liabilities Rs. Rs. Assets Rs. Rs. Share capital Fixed assets 1207500 Equity share 120,750,000Good will 75,000,000 of Rs. 100 each 75,000,000 Land & building127,500,000 750000 Preference -Dep. @ 2%2,550,000124,950,000 22

share of Rs. 100 each Furniture & Fittings12,945,000 Reserve & surplus - Dep. @ 5%647,25012,297,750 General reserve30,000,000 - Equity share 1,436,50528,563,495 dividend Investment: 40,845,000 Secured loan: 300000 13.5% Current assets: Deb of Rs. 100 each300,000,000 loan & advances +O/s deb. int.4,050,00034,050,000Closing stock: wine, cigars3,375,000 Current liabilities & + food stuffs4,460,0007,835,000 Provision Cash in Hand 330,000 O/s repairs & 28,900 Cash in Bank 11,457,000 maintenance Creditors 6,300,000 Debtors 2,889,000 Proposed equity dividend 9,660,000 - Bad. Debt 19,250 2,869,750 Provision for tax 2,442,605 Carried forward 202,500 O/s wages & salaries 192,000 Adv. exp Miscellaneous Expenses: Preliminary & formation expenses 1,200,000 276,987,000 276,987,000 CASE 4.2: SUMMARY This is the cas of Supreme Paper Company Ltd. Here list of balances is given, from that information following items should be prepared. 1. The adjustment entries. 2. The Profit and loss account for the year ending December 31, 1982. 3. The Profit and loss appropriation account. 4. The Balance Sheet as on December 31, 1982. P&L A/c for the year ended as on Dec. 31, 1982 Particulars Amount (Rs.) Particulars Amount (Rs.) To Tax on dividend 31,400 By Dividend on Investment 1,00,000 To Debenture interest 84000 By Net Loss 20,53,300 + Outstanding interest176000 2,60,000 23

To Un-expired payment 60,000 To Directors fees 40,000 To Interim Dividend 3.45,000 To Depreciation on Land & Building1,00,000 Plant 6,00,000 Furniture 32,000 Vehicles 50,000 7,82,000 To Tax 6,34,900 Total 21,53,300

Total 21,53,300 on Dec. 31, Amount (Rs.) 32,51,700

Profit & Loss Appropriation A/c for the year ended 1982 Particulars Amount (Rs.) Particulars To Debenture Redemption 4,00,000 By balance b/d Reserve To General Reserve 7,00,000 By balance c/f 9,46,140 To provision for dividend 7,20,000 To provision for taxation 3,24,540 To net loss 20,53,300 Total 41,97,840 Total

41,97,840

24

Balance sheet as on 31st December 1982 Liabilities Amount Assets Amount Owners Equity: Fixed Assets: Share capital 60,00,000 Lease hold and & Building16,00,000 Reserves and Surplus: - Depreciation1,00,00015,00,000 General reserve6,00,000 + Extra provision7,00,00013,00,000Plant & machinery42,40,000 - Depreciation6,00,00036,40,000 Debn redm reserve4,00,000 + Extra provision4,00,0008,00,000Furniture & Equip3,20,000 - Depreciation32,0002,88,000 Share premium 1,00,000 Secured Loans: Vehicle 2,00,000 13 % debenture20,00,000 - Depreciation50,0001,50,000 + interest outstanding1,76000 21,76,000 Current Liabilities: Investment: 10,00,000 Other liabilities 600 Current Assets: Creditors & accured charges 40,69,000 Debtors 49,10,000 Stocks & WIP 33,20,000 Provisions: Cash 10,000 Proposed dividend 7,20,000 Bank 5,00,000 Provision for taxation 12,06,540Other assets 1,08,000 By P & L A/C 1,63,72.140 9,46,140 1,63,72,140

Date

Particulars

Adjustment Entries LF No. Debit Credit 1,00,000 1,00,000

March 31 Depreciation A/C Dr. To land & building A/C (Depreciation provided on the Land & Building at the end of the year) March 31 Depreciation A/C Dr. To plant & machinery A/C (Depreciation provided on the plant & Machinery at the end of the year) Mach 31 Depreciation A/C Dr. To vehicle A/C 25

6,00,000 6,00,000

50,000 50,000

(Depreciation provided on the vehicle at the end of the year)

26

March 31 P & L A/C Dr. 7,82,000 To Depreciation A/C 7,82,000 (Transfer of Depreciation A/C to the Profit & Loss A/C March 31 P & L appropriation A/C Dr. 3,24,520 To provision for taxation A/C 3,24,520 (Provision made for the Taxation) March 31 P & L appropriation A/C Dr. 4,00,000 To debenture redemption reserve A/C 4,00,000 (Provision made for the Debenture Redemption Reserve) March 31 P & L appropriation A/C Dr. 7,00,000 To general reserve A/C 7,00,000 (Provision made for the General Reserve) March 31 P & L appropriation A/C Dr. 7,20,000 To provision for dividend A/C 7,20,000 (Provision made for the proposed 12 % Dividend) March 31 Debenture interest A/C Dr. 1,76,000 To debenture A/C 1,76,000 (Outstanding Debenture Interest) March 31 P & L A/C Dr. 1,76,000 To debenture interest A/C 1,76,000 (Outstanding Debenture Interest) TOTAL CASE 4.2 Monarch Trading Corporation Ltd. Trial Balance for the Period ending on March 31, 1982 Particulars Debit Credit Leasehold Land 2,000,000 Buildings 77,00,000 Stock (31 March 1982) Merchandize4,80,000 Cost of Merchandise sold 10,120,000 Carriage inward 95,000 Creditors 4,520,000 Wages 8,850,000 Debtors 9,405,000 Bank overdraft 3,000,000 Interest on Bank overdraft 240,000 Advertisement expenses 328,000 27 56,44,52056,44520

Premium received (Apprentice Scheme) Office administration expenses 192,000 Discount allowed and earned 147,000 101,000 Capital 10,000,000 Salaries 3,553,000 Electricity charges 186,000 Rent and rates 215,000 Retained earnings (1st April 1981) 3,188,000 Commission earned 75,000 Investments & interests on investment 247,500 Sales 2,750,000 30,038,000 Stock of stationery as at 1st April 198145,000 Furniture and fixtures 1,710,000 Salesmens salary and commission1,632,000 Carriage outward 218,000 Purchase on stationery 180,000 Accumulated depreciation 1st April 1981 Buildings 1,750,000 Furniture and Fittings 450,000 Provision for bad debts as on 1st Apr-81 Advance Income tax during the year3,550,000 Total 53,596,000 53,596,000

50,000

176,500

Journal Adjustment Entries Date Particulars LF Debit Credit No. Rs. Rs. P & L A/c Dr. 100,000 To Land A/C 100,000 Wages A/c Dr. 15,000 Salaries A/c Dr. 27,500 To Outstanding wages A/c 15,000 To Outstanding salaries A/c 27,500 Miscellaneous Expense A/c Dr. 160,000 P & L A/c Dr. 40,000 To Advertisement Expense A/c 200,000 Premium of Apprentice A/c Dr. 12,500 To Prepaid Apprentice A/c 12,500 Commission accured A/c Dr. 12,500 To Commission A/c 12,500 P & L A/c Dr. 195,000 To Stationery A/c 195,000 P & L A/c Dr. 470,250 28

To Provision for Bad Debts A/c 4,70,250 P & L A/c Dr. 5,56,000 To Accumulated A/c 5,56,000 Adjusted Trial Balance for the Period ending on March 31, 1982 Particulars Debit Credit Leasehold Land 19,00,000 Buildings 7,70,000 Stock (31 March 1982) Merchandize4,80,000 Cost of Merchandize sold 10,120,000 Carriage inward 95,000 Creditors 4,520,000 Wages 8,850,000 Debtors 9,405,000 Bad Debt Provision 6,46,750 Bank overdraft 3,000,000 Interest on Bank overdraft 240,000 Advertisement expenses 128,000 Miscellanius Expense (Advertisement)160,000 Premium received (Apprentice Scheme) 37,500 Office administration expenses 192,000 Discount allowed and earned 147,000 101,000 Capital 10,000,000 Salaries 3,580,000 Electricity charges 186,000 Rent and rates 215,000 Retained earnings 3,188,000 Commission earned 875,000 Outstanding commission 12,500 Investments & interests 247,500 Sales 2,750,000 30,038,000 Stock of Stationery 30,000 Furniture and fixtures 1,710,000 Salesmens salary and commission1,632,000 Carriage outward 218,000 Accumulated Depreciation Buildings 2,135,000 Furniture and Fixture 6,210,00 Advance Income tax during the year 1982 3,550,000 Outstanding Wages and Salaries 42000 P and L A/c 1,348,750 Total 54664250 54664250 29

Profit and Loss Account and Retained Earning Statement for the Year ended March 31, 1982 Particulars Amount Amount ParticularsAmountAmount To Cost of Marchandise 1,01,20,000By Sales3,00,38,000 To Carriage Inward 95,000 Less: Sales27,50,0002,72,88,000 Return Wages 88,50,000 Add: Outstanding Wages 15,000 88,65,000 To P and L A/c (Gross Profit) 82,08,000 Total To Land A/c To Stationary A/c 2,72,88,000 Total 2,72,88,000 1,00,000 By Trading A/c 82,08,000 1,95,000 By Premium of 12,500 Apprentice To Bad Debt Reserve 4,70,250 To Interest on BOD 2,40,000 By Discount 1,01,000 Earned To Advertisement Expense1,28,000 By Commission 75,000 Earned Add: Adv. Expense40,0001,68,000 Add: Accrued 12,500 87,500 Commission To Office Expense 1,92,000 By Investment 2,47,500 and its Interest To Discount Allowed 1,47,000 To Salaries Paid35,53,000 Add: Outstanding Salary 27,000 35,80,000 To Electric Charges 1,86,000 To Rent & Rates 2,15,000 To Depreciation: Building 3,85,000 Furniture 1,71,000 5,56,000 To Salesman Salary 16,32,000 To Carriage Outward 2,18,000 To Provision of Tax 3,93,770 To Net Profit 3,63,480 Total 86,56,500Total 86,56,500

30

Balance Sheet as on March 31, 1982 Liabilities Amount Amount Assets AmountAmount Capital Fixed Assets: Capital 1,00,00,000 Land 19,00,000 Building 77,00,000 Furniture 17,10,000 Reserve and Surplus: Investments: Retained Earnings 31,88,000 Net Profit 3,63,480 Premium of Apprentice 37,500 Provisions: Current Assets: Accumulated Depreciation Debtors94,05,000 Building 17,50,000 Less: Prov. For6,46,75087,58,250 Bad debts Add: Depreciation3,85,00021,35,000 Furniture 4,50,000 Stock of Merchandice 4,80,000 Add: Depreciation1,71,0006,21,000 Provision For Tax 3,93,770 Stock of Stationary 30,000 Current Liabilities: Loans and Advances: Creditors 45,20,000Accured Commission 12,500 BOD 30,00,000 Advance Tax Paid 35,50,000 (1982) Outstanding Wages 15,000 Outstanding Salary 27,000 Miscellaneous Expenses: Advertisement Expenses2,00,000 Less: Written Off40,0001,60,000 Total 2,43,00,750 Total 2,43,00,750 Stationery Account Dr Particulars Amount To Balance B/d 45,000 To Bank A/c 180,000 Total 225,000 Cr Particulars Amount By P & L A/c 195,000 By Closing Stock 30,000 Total 225,000 CASE 5.1 Oliver Optics Company Trading A/c for year ending 31 December ParticularsAmountAmount ParticularsAmount Amount To purchase 15,130 By Sales 35,210 To gross profit 23,280 By closing stock 3,200 38,410 38,410

31

Expenditure

P&L A/c for year ending 31 December Amt. ($)Amt.($) ParticularsAmt.($)Amt.($) By Gross profit 23,280

To Insurance 50 To Interest on uncles loan 60 To Office & admin. Exp. Salary to Miss Schultz800 Salary to Oliver 1,200 2,000 To Selling Exp. (Shop salaries) (3,500 + 3,200 + 4,800 + 400) To Rent 2,000 To Office supply used 200 To Electricity 430 To Travel and Advertising Exp. To Bad debts 310 To B.D.R. 103 To Depreciation on equipment To Prov. for loss by rejection To Net profit 2,429 23,280

11,900

2,670

800 208 23,280

Balance Sheet As On 31 December Liabilities AmountAmount Assets AmountAmount ($) ($) ($) ($) Capital 5,000 Equipment (W.N-4)5,000 + Net profit2,4297,429 Less Dep. (W.N-5)800 4,200 Provision for loss 208 Debtors 10,250 by rejection Uncles Loan 2,000 Less B.D.R. 10310,147 Creditors for 3,000 Insurance paid in advance 150 Equip. (W.N-4) Creditors 5,130 Interest paid in advance 20 Stock of office supply 50 Closing stock 3,200 17,767 17,767 Particulars WORKING NOTE NO. 1 (W.N.-1) Amount Particulars Amount

To Interest on uncles loan 80 By Capital 5,000 To Interest on equipments 120 By uncles loan2,000 To Installment and down payment 2,000By 24,650 To Salaries paid 13,900 To rent paid 2,000 To Suppliers (Creditors) 10,000 32

Debtors

To To To To

Office supply 250 Electricity and etc. 430 Travel and Advertisement Exp. Insurance paid 200 31,650

2,670 31,650

Working Note No. 2 (W.N.-2) Debtors A/c Particulars Amount ($) Particulars Amount ($) To Sales 35,210 By Cash (Cash a/c)24,650 By Bad Debts 310 By Balance (Cash sales)10,250 35,210

35,210

Working Note No. 3 (W.N.-3) Creditors A/C Particulars Amount ($) Particulars Amount ($) To bank/cash A/C.10,000 By Purchase 15,130 To balance 5,130 15,130 15,130 Working Note No. 4 (W.N.-4) Equipment value Down payment = 1,000 + Instalment (250* 16)= 4,000 Total Cost = 5,000 Working Note No. 5 (W.N.-5) Equipment value Equipment value = 5,000 Less Scrap value= 1,000 Net value = 4,000 Usage period = 5 Years So, Depreciation = 800 p.a Journal Entries Rental received from47,510 employees provided with quarters 4 Entertainment expenses84,720 P&L 32 and dividends 88,480 P&L received on investments 6 Remuneration paid to 3,52,000 P&L managing director 10 Loss on sales of assets2,150 P&L 33 2 Audit fees 5,500 P&L16 P&L

Interest

12 Depreciation (for the11,12,280 P&L year ended Dec 31, 1982) 14 Interest paid on loans 3,68,300 P&L during the year 18 establishment expense2,75,370 P&L 20 Traveling expense1,82,250P&L 22 Insurance expenses for1,15,420 P&L machinery at work site 24 Salaries, wages, bonus,38,91,640 P&L etc 26 Repairs to machinery 3,74,860 P&L and building 28 Power and fuel11,22,760P&L 30 Freight and transpora-31,88,320 P&L 11 Retained earning (jan. 1,43,57,430 P&L tion expenses 1982) APPR. 34 Stores and materials1,05,69,720 P&L consumed 3 Loan given to a sister 4,76,580 B/S 1 Paid up capital 27,70,000 B/S instititution, Capital Stores, a supplier of building materials 19 Debtors 42,780 B/S 5 Unsecured loan from bank6,24,850 B/S 23 Cash in hand4,38,940 B/S 8 Accumulated depreciation80,61,490 B/S Dec. 31, 1982 25 Cash at bank5,35,180 B/S27Interest accured but not86,320 B/S due on unsecured loan 29 Investments in shares 9,88,170 B/S 15 Secured loans (against 53,67,530 B/S work-in-progress and stock of stores and supplies) repayable on Dec. 31, 1986) 31 Fixed Assets1,42,09,400B/S 17on account advances33,52,950 B/S received from customers against uncompleted contracts 33 Advances to suppliers 6,57,450 B/S 21 Creditors 42,72,900 B/S equipment and stores 34

35 Advance income-tax11,23,020 tax payable 21,97,520 B/S 36 Billing to customers*2,21,98,220 reserve 4,40,71,440 B/S 37 Earnest money deposi-1,70,700 ted with the Municipal corporation, Government, etc. against building 7 Stock of stores and25,63,410 supplies-Dec. 31, 19821,02,26,770 9 Value of uncompleted contracts (based on architect certificate and valued at contract price for work done 13 Interest accured on22,510B/S Total 7,52,98,420

B/S 38 B/S B/S

IncomeGeneral

B/S B/S

7,52,98,420

35

Profit and Loss Account for the year 31st Dec. 1982 Particulars Amount Particulars Amount 2 Audit fees 5,500 16 Rental received from47,510 employees provided with quarters 4 Entertainment expenses84,720 32Interest and dividends 88,480 received on investment 6 Remuneration paid to3,52,000 * Contract account profit managing director 10 Loss on sales of assets2,150 12 Depreciation (for the11,12,280 Net Loss 2,05,83,115 year ended Dec 31, 1982) 14 Interest paid on loans3,68,300 during the year 18 Miscellaneous 2,75,370 establishment expense 20 Traveling expense1,82,250 22 Insurance expenses for1,15,420 machinery at work site 24 Salaries, wages, bonus,38,91,640 etc 26 Repairs to machinery3,74,860 and building 28 Power and fuel11,22,760 30 Freight and transpora-31,88,320 tion expenses 34 Stores and materials1,05,69,720 consumed Less: Adj. 2 99,66,220 less: 6,03,500 Adj. 2: Loss on transit2,41,400 Adj. 3: Loss on invest1,75,000 ments: Adj. 4: Provision for bad856 debts Total Particulars Loss b/d 43,57,430 2,14,59,046 Total 2,14,59,046 Profit and Loss Appropriation A/c Amount Particulars Amount 2,05,83,115 Retained earning (Jan. 36

1,

1982)

Proposed dividend2,77,000 General reserve 2,77,000 Balance c/d 1,62,25,685 Total 2,08,60,115 Total 2,08,60,115

37

Balance Sheet as on 31st Dec. 1982 Liabilities Amount Assets AmountAmount Share Capital : 1 Paid up capital 2770000 31Fixed Assets14209400 Reserve and Surplus: 8 Less: Accumulated80614906147910 General reserve Investments Adj.5: Transfer to P&L4379440 29Investments in shares 988170 Approx. A/c debentures Secured Loan Adj.3: Less loss17500813170 15 Secured loans 5367530 Current Assets, Loans and Advances Unsecured Loan: A. Current Assets 5 Unsecured loan from bank 624850 19Debtors 42780 Current Liabilities and Less: Provision for bad 856 41924 Provisions debts A. Current Liabilities 23Cash in hand 438940 27 Interest accured but not due 86320 25 Cash at bank 535180 17 On account Advance:2613009 36Billing to customers* 22198220 Less: Profit margin 739941 Stock of stores and 2563410 21 Creditors 4272900 7 supplies Dec. 31, 38 Income-tax payable2197520 9Value of uncompleted 10226770 contacts (based on architects certificate and valued at contract price for work done B. Provisions 13interest accrued on invest 22510 ments Adj. 5:Proposed dividend 277000 Adj: 2.Insurrance claim 362100 B. Loans 3 Loan given to a sister 476580 institution, Capital Stores, a supplier of building, materials 33Advances to suppliers 657450 of equipment and stores 35Advance income-tax paid 1123020 P&L A/c (net loss) 1,62,25,685 37Earnest money deposited 1,70,700 38

Total Adjustment

62003569

with the Municipal corporation, Government, etc. against building contracts Total 62003569

Adj 1: Contingent liability of Rs. 380000

39

Adj 2: Loss in transit included in cost of material consumed 603500 60% B/S 362100 40% P/L 241400 Adj 3: 250000 Market value decreased due to liquidation 30 paise realizable i.e. 75000 therefore loss on investment 175000 Adj 4: Provision of bad debts on Government contract 2% Assuming Debtor to be of Government contract Adj 5: Last year unpaid dividend decided to be paid No effect Adj 6: Future contract of next accounting year estimated No entries Working note: Contract profit (profit margin) contract Profit margin is to be taken as 2/3rd of total contract profit If less than 50% 1/3rd of total contract profit is realized. Here, 11971450 / 22198220 = 53% Therefore, 5% of 22198220 = 1109911 * 2/3 = 749441 profit margin for current year. CASE No. 5.3 Consumer Product International Ltd. Manufacturing & Trading A/c for the year ended April 30, 1982 Dr. Cr. Particulars Amount Particulars Amount To, Opening Stock By Closing Stock: Raw Material 75544017 WIP-Fin. Goods.63331296 WIP- Fin. Goods.61855426 Raw Material 52830817 Raw Material Purchase427169870 Processing Charge1107096 Power & Fuel 1107096 Freight & Forwarding Ch.16032535 Cost of Goods476575039 592731752 592737152 Cost of Goods476575039 Sales 885342435 Purchase of finished2666275Goods Destroyed by fire55862 Goods Gross Profit 406156983 885398297 885398297
Contract complected Total contract

greater than 50% of

40

Profit & Loss A/c for the year ended April 30, 1982. Dr. Cr. Particulars Amount Amount Particulars Amount Amount To, By, Employee R & B. 37213329 Gross Profit 406156983 Con. of Stores 1652486 Duty draw back 216567 Rent, Rates, Taxes5732667 Other income 3963465 - Prepaid 196625713005 Insurance 1407567 Advt. 31749447 - 50 % 159273730156710 Repair & Maint.1805062 + Un Recorded296501834712 Commission 103130 Interest 773772 Mis. Exp. 16403391 Depri. 2005610 + Extra 2211752226785 Excise Duty 135740481 Tax. 129844757 Bad Debt. 265382 Salaries 2305680 Loss by Fire 10512 Net Profit? 44685316 410337015 410337015 Profit & Loss A/c for the year ended April 30, 1982. Dr. Cr. Particulars Amount Amount Particulars Amount Amount To, By, Interim Dividend 26822250 Net Profit 44685316 Proposed Div. 1965000 General Reserve I 3062203 II 771332810775531 Bal C/F 5122535 44685316 44685316

41

Balance Sheet as on April 30, 1982. Particulars Amount Amount Particulars Amount Amount Share Capital 29475000 Fixed Asset: Building 13514577 Reserve Plant & Machi.6213488 & Surplus: Devel. & Rebate 187400 - Depri. 221175 5992313 General Reserve43028712 Furniture 1781804 +I 3062203 + Depri. (wrongly) 64363 1846167 + II 771332853804243 Auto & truck985282 P & L A/C 5122535 - Depri. 64363 920919 Secured Loan: Investment: Unsecured Loan: C.A. & Loan, Adv. Loan from Foreign 29770426 Current Asset: Store and Spare 1818373 Liability: WIP 743916 Acceptance 45950454 Finished goods 62135880 Creditor 7156668 Debtor 50731705 Unclaimed Div. 408510 - Bad Debt.26538250466323 Adv. From Cust. 614318 Cash in hand 23712 Un paid Salary 2305680 Bank Balance 39848499 Proposed Div. 1965000 Insu. Claim 45350 Un Recorded Main 29650 Prepaid Rent 19662 Creative Ltd. (advt) 1592737 Provision: Closing stock RM 52830817 Tax Provision 6844362 Pro. for Exp. 396367 Loan & Advances: 10859458 Adv. For Capital 6358477 WIP 249197180 249197180

CASE NO. 5.4 CONSOLIDATED STEELS LTD. Consolidated Steels Limited manufactures iron and steel products, steel castings (including alloy steel castings) and various types of Industrial Machinery; e.g. Ball Mills, E.O.T. Cranes, Copper converters, etc. From the following trial balance and adjustments, prepare the Profit and Loss account, the Profit and Loss Appropriation account and the Balance sheet. 42

Trial Balance as on December 31, 1982 Account Heads Dr. (Rs.) Cr. (Rs.) Share Capital 60,558,000 Reserves and surplus 21,955,000 Deferred Payment Liability 113,637,000 Unsecured Loans 35,949,000 Land and Roads 3,360,000 Buildings 34,243,500 Plant and Machinery 117,989,250 Furniture and Fixtures 7,305,750 Vehicles 1,455,000 Accumulated Depreciation - On Building 14,362,500 - On Plant and Machinery 76,370,250 - On Furniture and Fixtures 2,381,250 - On Vehicles 905,250 Capital Work-in-Progress 2,289,000 Investments 4,119,750 Loose Tools (Stock on 31.12.1982)507,000 Stores (Stock on 31.12.1982)53,382,000 Raw Materials (Stock on 31.12.1982)45,777,750 Debtors 53,014,500 Cash and Bank Balances 3,388,500 Loans and Advances 41,090,250 Creditors 57,501,000 Advance received against orders 24,370,500 Unclaimed Dividends 71,250 Sales 497,322,750 Cash subsidy 5,730,000 Raw Materials Consumed158,803,500 Interest 10,689,750 Depreciation 9,591,750 Stores and Spares Consumed126,394,500 Power and Fuel 42,966,000 Subcontracting 31,426,500 Rent, Rates and Taxes 1,378,500 Insurance 988,500 Advertisements 446,250 Repairs and Maintenance 1,895,250 Freight and Carriage 3,060,000 Bad debts and Advances Written off744,000 Miscellaneous Expenses 10,664,250 43

Excise Duty Salaries, Wages, etc. Staff Welfare

6,731,250 67,650,000 5,049,000 911,474,250

911,474,250

Additional Information: (1) The Board of Directors resolved that Rs. 528,000 included in the interest, relating to buying of an imported plant, be capitalized (2) A provision of doubtful debts amounting to Rs. 468,000 to be made. (3) The income-tax liability for the current year was Rs. 14,000. (4) Company XYZ Limited, to which the company has given a loan of Rs. 326,400 went into liquidation. The liquidator informed that all the unsecured creditors would get a 20% dividend. (5) Slow moving stock of the following items had to be written off: Raw Materials Rs. 430,200 Loose Tools Rs. 89,500 Stores Rs. 689,400 (6) A pilferage of Rs. 5,500 was reported from the cash box. This had been included in the cash balance in the Trial balance. (7) Due to shift in the export policy, the company was to receive an additional cash subsidy of Rs. 732,000 (8) Interest accrued and due on the loans taken Rs. 759,650 (9) Dividend (proposed) of Rs. 60,55,550 is to be provided. (10) Closing stock (as on 31.12.82) of the Work-in-progress and Finished goods was: Work-in-progressRs. 57,836,250. Finished goodsRs. 21,807,000. Consolidated Steels Ltd. P&L Account for the year ending on 31st Dec. 1982 Particulars Amount Particulars Amount Opening stock: Sales: 497322750 -work-in-progress53638500 Closing stock: -Finished Goods11434500 Work-in-Progress57836250 Raw Materials Consumed158803500 Finished Goods2180700 Stores & Spares consumed126394500 Power & Fuel 42966000 Subcontracting 31426500 Freight & Carriage 306000 Excise Duty 6731250 Gross Profit 142511250 576966000 576966000 Loss from Pilferage Gross Profit 142511250 Bad Debts (New)261120 44

Bad Debts (Old)744000 B.D.R. 468000 1473120 Interest10689750 + Acc. Interest 759650 11449400 - For Assets52800010921400 Depreciation 9591750 Rent, Rates & Taxes 1378500 Insurance 988500 Advertisement 446250 Repairs & maintenance 1895250 Misc. Expenses 10664250 Salaries, Wages etc., 67650000 Staff Welfare 5049000 Provision for Tax 14000 Loss on Moving Stock 1209100 Net Profit 31224630 Total142511250 Total142511250

P&L Appropriation Account for the year ending on 31st Dec. 1982 Particulars Amount Particulars Amount Proposed Dividend6055550 Net Profit Surplus 25169080 Total31224630 Total 31224630 31224630

45

Consolidated Steels Ltd. Balance sheet As on 31st Dec.-1982 Liabilities Amount Assets Amount 1. Share Capital 60558000 1. Fixed Assets 2. Reserves & Surplus Land & Roads 3360000 Reserves & Surplus21955500 Building 34243500 + Additional 732000 Plant & Machinery117989250 22687500 + Addition to P & M528000 Cash Subsidy5730000 Furniture 7305750 Surplus2516908053586580 Vehicles 1455000 Capital work in process2289000167170500 3. Secured Loans 2- Investments 4119750 4. Unsecured Loans Loans35949000 3. C.A., Loans & Adv. + Unpaid Interest 75965036708650 A. Current Assets 5. C.L & Provisions Closing Stock178100900 A. Current Liabilities Debtors 52546500 Differed payment11363700 Cash & Bank 3383000 Creditors57501000 Unreceived Subsidy732000 Advance against order24370500 234762400 Unclaimed Dividend 71250 B. Loans & Advances 195579750 Loans 41090250 B. Provisions Bad Debts 261120

46

Accumulated depreciation 275591530 - On Building14362500 - On Plant & Mach.76730250 - On Furniture2381250 - On Vehicles9050250 94379250 Tax Provision 14000 Proposed Dividend 6055550 100448800296028550 Total 446881780

40829130

Total

446881780

47

Calculations 1. Closing stock: Loose tools 417500 Stores 52692600 Raw Materials45347550 Work in progress57836250 Finished goods21807000 178100900 2. Lose on moving stock: Loose tools 89,500 Stores 689,400 Raw Materials430,200 Total 1,209,100 Manufacturing Account for the year ended on 31st December 1982. Dr. Cr. Particulars AmountAmount Particulars Amount Amount in 000 in 000 in 000 in 000 To, Opening Inventory By Closing Inventory Raw Material 1850 Raw Material1600 Work in Progress23004150 Work in Progress 2100 3700 To Net Purchase 15800 By Balance C/F. 34061 To Direct Labour 9119 (Cost of Production) To Indirect Labour 1450 To Rent and Rates 825 To Canteen Charges 2781 To Depreciation 225 Plant & Machinery2100 Building 300 2625 To Fire Insu. Premium 120 48

To Power & Light To Service Dept. Total

600 191 37761

Total

37761

Trading Account for the year ended on 31st December 1982 Dr. Cr. Particulars Amount

AmountAmount Particulars Amount

in 000 in 000 in 000 in 000 To, Opening Inventory By Net Sales 48709 Finished Goods 3000 To Cost of Production 34061 By Closing Inventory Finished Goods 2850 To Gross Profit 14498 Total 51559 Total 51559 Profit & Loss Account for the year ended on 31st December 1982 Dr. Cr. Particulars AmountAmount Particulars Amount Amount in 000 in 000 in 000 in 000 To Interest on Debenture 350 By Gross Profit 14498 To Rent and Rates 550 To Depreciation Building 185 Furniture 150 335 To Fire Insu. Premium 60 To Powe & Light 100 To Canteen Charges 515 To Service Dept. 382 To Discount Allowed 520 To Selling Expenses 800 To Packing Charges 760 To Advertising Exp. 1500 49

To Office Salary 2600 To Bad Debt Written Off 250 To Provision for I.T. 2388 To Net Profit 3388 Total 14498 Dr. Liabilities Amount

Total

14498 Cr.

Balance Sheet as on 31st December 1982 AmountAmount in 000 in 000 Share Capital Equity Shares Reserve & Surplus P & L A/c. (Net Profit) 40000 Assets Amount

in 000 in 000 Fixed Assets Land 5000 Buildings 10000 Depreciation3500 6500 Plant & Machinery21000 Depreciation4100

6775

16900 Secured Loan 7% Debenture 3362.4 Unsecured Loan

5000

Furniture & Fixtures 4850 Depreciation1487.6

Investments Fixed Depositors Current Liabilities Creditors 398.4 Investments 4250 4500

Provisions Provision for I.T.

2388

Current Assets, Loans and Advances (A) Current Assets Debtors 11700 Cash in Hand 67 Cash at Bank 4232 Closing Stock Raw Material1600 Work in Progress 2100

50

Finished Goods2850 6550 Total 58811.4 Cost Distribution Schedule of Engineering Ancillaries Ltd. Item Total Basis of Production Sales Administrative Service Amount Distribution Department Department Department Department Power &750,000 Kilo Watt 600000 500000 50000 50000 Light Hours750000 750000 750000 750000 12:1:1:1(12/15) (1/15) (1/15) (1/15) Rent &1650000 Area 825000 225000 325000 275000 Rates Sq. Feet1650000 1650000 1650000 1650000 33:9:13:11(33/66)(9/66) (13/66) (11:66) Canteen3399000 No. of2781000 103000 412000 103000 Charges Employee3399000 3399000 3399000 3399000 27:1:4:1(27/33) (1/33) (4/33) (1/33) Deprec-485000 Cost of 225000 75000 iation on Furniture Furniture 45:17:20:15 85000 100000 (B) Loans & Advances 58811.4 Total

51

Deprec2100000 Cost of2100000 ***** iation on P & Mach. Plant & Machinery Depreciation500000 Cost of 300000 50000 on Building Building 6:1:2:1

*****

*****

50000

100000

Fire Insu.200000 Cost of1200000 20000 20000 Premium Building 6:1:2:1 Proportion573000 **** of Service 1:01:01 Department 191000 191000

40000

191000

CASE NO. 6.1. CHARLES CROWN COMPANY Solution 1 Project 220 Method (a): 102751.5 106230.0 208961.5 49.16775% Method (b): 116970 232294 349264 50.35429%

completed claimed total cost completed. completed claimed total cost completed 52

Net impact on companys B/s: Billing Earned through Method (a):116970 Cost earned through Method (a):102751.5 Net Profit14218.5 Answer: Net profit earned for current year as per Method (a) = 14218.5 49.16775 = 6990.92 Net profit earned for current year as per Method (b) = 14218.5 50.35 = 7159.63 Net Change in P&L statement = 6990.92 7159.63 = Rs. 168.71. Solution 2. Project 221 Method (a):76578.18Task completed 9040.00 85618.18 Total cost 89.44% completed. Method (b): 90780 Task completed 110220 Total Task (cost) 82.36% completed. Net Billing= 90780 70578.18 = Rs. 14201.82 (Net profit) Method (a): 89 unit of 44201.82 = 12702.32 (Net profit earned for current year) Method (b): 82.36% of 44201.82 = 11696.98 (Net profit earned for current year)

Net change in P&L statement: = 12702.32 11696.98 = Rs. 1005.34 (Net effect of changing Method) Project 224: Method (a): 11486.84 completed 100250.00 total task

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111736.84 Total 10.28% task completed. Method (b): 12250 task completed 121950 task task Total 10.05% task completed. Net profit = Net Billing Cost = 12250 11486 = Rs. 763.16. Entire profit will transfer to contingency reserve. Ans 2. Method (a): Capital & Liabilities Assets Reserve & surplus: Contingency Reserve7227.58 Surplus 6990.92 Method (b): Capital & Liabilities Assets Reserve & surplus: Contingency Reserve7058.87 Surplus 5759.63 Answer 3: Net Profit: Additional Billing 8030 (125000 116970) Estimated cost 6230 (106230 100000) Net profit 1800 * Percentage compelation by Method (a) (49.17%)= 885.02 Percentage compeletion by Method (b) (50.35%)= 906.38 Net Effect on profit21.35

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Answer 4: Mr John would prefer Method A, as profitibility of Method A is higher than profitibility of Method B. CASE NO. 6.2 GOLDEN GATE HOLIDAY RESORT LTD. Ans 1. 1. Copntribution from members (fees) can be capitalised. And revenue generating from that would be reserve for the period. 2. Identification of Real value of contribution for 99 years and then amortisation of that fees. Ans 2. Effect of on Accounts: 1. * Contribution on liability side. * Only return will be shown in the P&L Account. 2. * Revenue Income (Amrtised value) = Proporturate Revenue Regonition Real value of contribution/99 years. * If instalment system is followed then proporturate division of EMI will be treated as revenue and will be shown in P&L credit side. Ans 3. Second option is preferable because it reflects the revenue of primary business. CASE NO. 7.3 CALCUTTA MOTORS PVT. LTD. 1. If there is no estimate for future warranty of repair cost, then current years financial statement will show higher profit and results into outflow of current tax and return to stake holders. 2. Mr Bannarji should make estimate for outstanding warranty expenditure on the basis of some reasonable percentage on sale made.

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3. Adding 2% warranty on expenditure (As per Income Tax Act in India) in Profit & Loss account and then profit should be found. The second effect will be on the provision side of Balance Sheet. CASE NO. 7.4 VAT IN DAT As per AS 2, Inventory should be valued net of MODVAT e.g. Purchase Price MODVAT Net value of Inventory MODVAT has been replaced by SENVAT in the year 2004.

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CASE NO. 8.1 CONTROL DATA CORPORATION Solution 1 As manufacturing cost of product is 50% of the selling piece of the listed selling price, it can be possible to spend on maintenance of computer to increase the life of the product. If possible, life of computer can be increased by 2 more years. Given figures of cost of specification of computer it is always possible to increase the life of product. Solution 2 Yes, CDC should change the department policy. Simple WDV would be more preferable for six years. Depreciation rate will end up around 16.677, which will give stability in cost and profit. As depending on nature of business, depreciation shares 317 of the total cost which is considerable. Written Down Value (WDV) method will give constitency in cost structure in long run.. CASE No. 8.2 National Pharma Ltd Solution 1. Managerial factors : *To sustain goodwill of the organisation or net profit is negative with present policy. *To identify appropriate policy for depreciation that suits to the company. *Present performance of the company will not show sound and rosy picture of the organisation so far reporting to shareholders and other external associates some adjustments in financial statement is required. *To sustain dividend policy. For dividend policy decision led to reconsider the policy. Operational Factors : *Profit will turn from negative to positive. It will save the doubts of operational efficiency of business. *To identify appropriate policy for depreciation, in terms of accounting of usage of fund since the doubts are raised

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by the secretary which will demand another thought about companies policy. *Reduction of Net profit ratio from 4% (app.) to 127. (app.) the strong factor to think over operational issues. Depreciation policy is one of them. Financial *To have an ideal Dividend Policy decision for the current year. And use this experience in future to divide such situation. *Interest exp. is increased by more than five times. It will give considerable effect on financial statement as interest are paid to long term loans which are taken for long-term assets in general. *To get an advantage of current amendment of financial policies of government for example revised depreciation rates. Solution 2 Suggested changes in accounting policy for depreciation is valid for the current year. Because profit with suggested policy is getting increased by Rs. 54,89,000. So far the current year, it is better to change the policy. Another reason, This action will reduce current assets (by reducing inventory) of increase in Fixed Assets which is positive move for the better financial reporting. Solution 3 No. change in the depreciation policy is not the permanent solution. This proposed change will differentiate the financial statement from the financial statement reported policy then their would be serious question mark for the past performance. Because it can be taken as c past attempt to create the secrete reserve. Solution 4 Impect of taxation wound be as per the current rate. This action will increase tax. CASE NO. 9.3 RAINBOW PAINTS LTD.

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No Accounting standard for R&D. (A) Amalgumation of Nature of Purchase. Balance Sheet Capital-Liabilities Assets Share capital FA (3000 + 200)3200 (500 + 200) 700 Investment 60 Reserve & Surplus: Current Assets Reserve 1500 (1940 + 75) 2075 Loans (2500 + 50) 2550 Current Liabilities (500 + 25) 525 5275 5275 (B) The company can show the same as the Amalgamation of Nature of merger in which all Assets and Liabilities will merge with acquiring company and Net impact of change will be given to reserve and surplus. Investment (60) will be eliminated from investments.

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