OUR OWN PUBLICATION FROM 1ST JULY, 2018 FOR B.COM

1. B.COM FIRST SEMESTER COMPLETE NOTES (CHOICE BASED) WITH SOLVED FINANCIAL ACCOUNTING BOOK
2. B.COM 3RD SEM COMPLETE NOTES WITH SOLVED BOOKS OF:
*ADVANCED FINANCIAL ACCOUNTING
*BUSINESS STATISTICS SOLVED PAPERS OF LAST 7 YEARS
* FINANCIAL MANAGEMENT BOOK
3. B.COM 5TH SEMESTER COMPLETE NOTES WITH SOLVED BOOKS OF MANAGEMENT ACCOUNTING OF JAIN AND NARANG

Thursday, January 24, 2013

IGNOU SOLVED ASSIGNMENTS: ECO - 14 (2014 - 2015)

TUTOR MARKED ASSIGNMENT
Course Code : ECO - 14
Course Title : Accountancy - II
Assignment Code : ECO – 14/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answer of Q.N.1.
Revaluation of Assets and Liabilities on admission of a new partner:
Whenever a new partner is admitted, it is desirable to revalue the assets and liabilities of the firm to show them at their true and fair values. Revaluation of assets and liabilities is necessary because with the passage of time the value of some assets might have been increased while the value of some assets might have been decreased; the same is the case with the liabilities. Generally, no adjustments are made in this respect. Therefore, the actual values of various assets and liabilities may be different from the values stated in the balance sheet. It is, therefore, desirable from the point of view of the new partner as well as old partners the value of assets and liabilities should be revalued.
For the purpose of revaluation, a separate account is opened which is called Revaluation Account. It is a nominal account. The Revaluation account is credited if there is an increase in the value of assets or decrease in the value of liabilities. On the other hand it is debited if there is any decrease in the value of assets or an increase in the value of liabilities. This account is a nominal account and is sometimes also called Profit and Loss adjustment account. The profit or Loss arising due to revaluation is divided among the old partners in their old ratio. A Proforma of revaluation account is given below:
Revaluation Account
Particulars
Amount
Particulars
Amount
Assets [decrease in value]
Liabilities [increase in value]
Liabilities[unrecorded]
Profit transferred to  Capital A/c
[Individually in existing ratio]

Assets [Increase in value]
Liabilities[Decrease in value]
Assets [unrecorded]
Loss transferred to Capital A/c
[Individually in existing ratio]


Example of Revaluation Account
Manu and Tanu are partners sharing profit and losses in the ratio of 5:4.  Their Balance Sheet was as follows:
Balance Sheet of Manu and Tanu as on December 31, 2013
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
Creditors
Bills Payable
Capital:
Manu
Tanu
10,000
7,000

40,000
30,000
Cash in hand
Building
Machinery
Investments
Debtors
Stock
7,000
30,000
20,000
10,000
10,000
10,000

87,000

87,000

Nikhil is admitted as a partner and assets are revalued and liabilities reassessed as follows:
(i) Create a Provision for doubtful debt on debtors at Rs.800.
(ii) Building and investment are appreciated by 10%.
(iii) Machinery is deprecated by 5%
(iv) Creditors were overestimated by Rs.500.
Prepare revaluation account on the admission of Nikhil.

Revaluation Account
Particulars
Amount
Particulars
Amount
To Provision for doubtful debts
To Machinery
To Profit on Revaluation
- Manu = (2700*5/9)
- Tanu  = (2700*4/9)
800
1,000

1,500
1,200
By Building
By Investments
By Creditors
3,000
1,000
500

4,500

4,500


Answer of Q.N.2.
Journal Entries
In the Books of AB Ltd.
Particulars
Dr.
Cr
Bank Account                                                                Dr.
To Equity Share Application Account
 (Application for 3,00,000 shares received) 
6,00,000


6,00,000

Equity Share Application Account                                Dr.
To Equity Share Capital Account
To Equity Share Allotment Account
To Bank Account
(Share application money transferred to respective accounts refund made on rejected applications.)
6,00,000


2,00,000
3,00,000
1,00,000

Equity Share Allotment Account                                    Dr.
To Equity Share Capital Account
(Allotment money and premium credited)
3,00,000


3,00,000
Equity Share 1st and Final Call Account                        Dr.
To Equity Share Capital
(First call amount credited to share capital)
5,00,000 

5,00,000 
Bank Account                                                                 Dr.
Calls in Arrear Account                                                 Dr.
To Equity Share 1st and Final Call Account  
(First call amount received with default on 3,000 shares)
4,85,000
 15,000


5,00,000

Equity Share Capital Account                                        Dr.
To Share forfeiture Account
To Calls in Arrear Account
 (Shares with default forfeited)
30,000


15,000
15000
Bank Account                                     Dr.
Share Forfeiture Account                  Dr
                To Equity Share Capital Account
(Forfeited shares reissued)
24,000
6,000



30,000
Share Forfeiture Account                   Dr.
              To Capital Reserve
(Surplus in the share forfeiture account transferred to Capital reserve )
9,000


9,000


Answer of Q.N.3.
Ledger Accounts
In the Books of Chaudhary Harpal Singh
Escorts Ltd.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year

To Bank Account
(Down Payment)
To Bank Account
(1st Instalment)
To Balance C/d
2,000

6,600

15,000
1st Year
By Tractor Account
By Interest Account
(20,000 * 8%)
22,000
1,600


23,600


23,600
2nd Year
To Bank Account
(2nd Instalment)
To Balance C/d
6,200

10,000
2nd Year
By Balance B/d
By Interest Account
(15,000 * 8%)
15,000
1,200


16,200


16,200
3rd Year
To Tractor Account
19,800
3rd Year
By Balance B/d
By Interest Account
(10,000 * 8%)
By Bank Account
10,000
800

9,000


19,800


19,800


Tractor Account
Date
Particulars
Amount
Date
Particulars
Amount
1st Year

To Escorts Ltd.
22,000

1st Year
By Depreciation Account
(22,000*10%)
By Balance C/d
2,200

19,800


22,000


22,000
2nd Year
To Balance B/d
(2nd Instalment)
To Balance C/d
19,800
2nd Year
By Depreciation Account
(19,800*10%)
By Balance C/d
1,980

17,820


19,800


19,800
3rd Year
To Tractor Account
To Profit and Loss Account
17,820
3,762
3rd Year
By Depreciation Account
(17,820*10%)
By Escorts Ltd.
1,782

19,800


21,582


21,582


Answer of Q.N.4.
(a) Goods in Transit
Normally, the head office sends goods to the branch and it is immediately recorded by head office in its books. But, the branch will record it when the goods are physically received by the branch. Similarly, sometimes the branch returns goods to the head office and is immediately recorded by branch. But the return of goods will be recorded by head office when the returned goods are duly received by them. These goods which are on the way to branch/head office but not received till the end of the accounting year are called 'Goods in Transit'.
Sometimes accounting adjustments is required, if there are goods in transit at the end of the year. It is quite understandable that a difference should arise in the balances of head office and branch accounts due to these transactions. Therefore, to reconcile the accounts, the following journal entry will be passed either in head office books or in branch books:
(a) When the adjustment entry passed in the books of the head office:
Goods in Transit a/c Dr.
To Branch a/c
(Goods in transit taken into books)

(b) When the adjustment entry passed in the books of the branch:
Goods in Transit a/c Dr.
To Head office a/c
(Goods in transit taken into books)
It should be remembered that the above adjustment entry should be passed in one set of books either in the books of head office or in the books of the branch. In the Balance Sheet of Head office, the above item will be shown as an asset. In the next accounting year, the following reverse adjustments entry is passed for goods in transit in the books of head office:
Branch A/c                          Dr.
To Goods in Transit A/c

(b) Cash in Transit
All the branches send cash at regular interval to head office. But, at the end of accounting period, some cash sent by the branch are still in transit. Similarly, Head office also send cash to Branch to meet its day to day expenses but such cash is not received by the branch till the end of the accounting year. The cash which are on the way to branch/ head office till the end of the accounting year is called “Cash-in-transit”.
It is quite understandable that a difference should be arises in the balances of head office and branch accounts due to Cash in transit. Therefore, to reconcile the head office accounts with branch accounts, the following journal entry will be passed either in head office books or in branch books:
(a) When the adjustment entry passed in the books of the head office:
Cash in Transit a/c                            Dr.
To Branch a/c
(Cash in transit taken into books)
(b) When the adjustment entry passed in the books of the branch:
Cash in Transit a/c                            Dr.
To Head office a/c
(Cash in transit taken into books)
It should be remembered that the above adjustment entry should be passed in one set of books either in the books of head office or in the books of the branch. In the Balance Sheet of Head office, the above items will be shown as an asset. In the next accounting year, the following reverse adjustments entry is passed for goods in transit in the books of head office:
Branch A/c                          Dr.
To Cash in Transit A/c

Answer of Q.N.5.
Meaning of funds flow statement:
The financial statement of the business indicates assets, liabilities and capital on a particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. Financial statements are not helpful in analysing such situation. Therefore, a statement of the sources and applications of funds is prepared which indicates the utilisation of working capital during an accounting period. This statement is called Funds Flow statement.
In popular sense the term ‘fund’ is used to denote excess of current assets over current liabilities.
According to R.N. Anthony, “Fund Flow is a statement prepared to indicate the increase in cash resources and the utilization of such resources of a business during the accounting period.”
According to Smith Brown, “Fund Flow is prepared in summary form to indicate changes occurring in items of financial condition between two different balance sheet dates.”
From the above discussion, it is clear that the fund flow statement is statement summarising the significant financial change which have occurred between the beginning and the end of a company’s accounting period.

Difference between Funds Flow Statement and Cash Flow Statement
Basis of Difference
Funds Flow Statement
Cash Flow Statement
Basis of Analysis
Funds flow statement is based on broader concept i.e. working capital.
Cash flow statement is based on narrow concept i.e. cash, which is only one of the elements of working capital.
Objective
The object funds flow statement is to disclose the magnitude, direction and causes of changes in working capital.
The object of cash flow is to disclose the magnitude, direction and causes of changes in cash and cash equivalents.
Source
Funds flow statement tells about the various sources from where the funds generated with various uses to which they are put.
Cash flow statement starts with the opening balance of cash and reaches to the closing balance of cash by proceeding through sources and uses.
Usefulness
Funds flow statement is more useful in assessing the long-term financial position.
Cash flow statement is more useful in assessing the short-term financial position of the business.
Schedule of Changes in Working Capital
In funds flow statement changes in current assets and current liabilities are shown through the schedule of changes in working capital.
In cash flow statement changes in current assets and current liabilities are shown in the cash flow statement.
Causes
Funds flow statement shows the causes of changes in net working capital.
Cash flow statement shows the causes of changes in cash.
Principal of Accounting
Funds flow statement is based on the accrual basis of accounting.
In cash flow statement, data are obtained on accrual basis which are converted into cash basis.
Compulsion
There is no prescribed form for preparation of Funds flow statement.
Cash flow statement is compulsory to be prepared in prescribed proforma as given in AS – 3.
Relationship
Funds flow statement can be prepared from the cash flow statement under indirect method.
But a cash flow statement cannot be prepared from funds flow statement.
Financial Health
Sound fund position does not necessarily mean sound cash position.
But sound cash position is always followed by sound fund position.


Significance of Funds Flow statement in Financial Management
Funds Flow Statement is an analytical tool in the hands of financial manager. The basic purpose of this statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and where there are used during a given period. The utility of this statement can be measured on the basis of its contributions to the financial management. It generally serves the following purposes:
(1) Analysis of Financial Position. The basic purpose of preparing the statement is to have a rich into the financial operations of the concern. It analyses how the funds were obtained and used in the past. In this sense, it is a valuable tool for the finance manager for analyzing the past and future plans of the firm and their impact on the liquidity. He can deduce the reasons for the imbalances in uses of funds in the past and take necessary corrective actions. In analyzing the financial position of the firm, the Funds Flow Statement answers to such questions as-
1. Why were the net current assets of the firm down, though the net income was up or vice versa?
2. How was it possible to distribute dividends in absence of or in excess of current income for the period? 
3. How was the sale proceeds of plant and machinery used?
4. How was the sale proceeds of plant and machinery used?
5. How were the debts retired?
6. What became to the proceeds of share issue or debenture issue?
7. How was the increase in working capital financed?
8. Where did the profits go?
Though it is not an easy job to find the definite answerers to such questions because funds derived from a particular source re rarely used for a particular purpose. However, certain useful assumptions can often be made and reasonable conclusions are usually not difficult to arrive at.
(2) Evaluation of the Firm's Financing. One important use of the statement is that it evaluates the firm' financing capacity. The analysis of sources of funds reveals how the firm's financed its development projects in the past i.e., from internal sources or from external sources. It also reveals the rate of growth of the firm.
(3) An Instrument for Allocation of Resources. In modern large scale business, available funds are always short for expansion programmes and there is always a problem of allocation of resources. It is, therefore, a need of evolving an order of priorities for putting through their expansion programmes which are phased accordingly, and funds have to be arranged as different phases of programmes get into their stride. The amount of funds to be available for these projects shall be estimated by the finance with the help of Funds Flow Statement. This prevents the business from becoming a helpless victim of unplanned action. 
(4) A Tool of Communication to Outside World. Funds Flow Statement helps in gathering the financial states of Business. It gives an insight into the evolution of the present financial position and gives answer to the problem 'where have our resources been moving'? In the present world of credit financing, it provides a useful information to bankers, creditors, financial, it provides a useful information and government etc. regarding amount of loan required, its proposes, the terms of repayment an sources for repayment of loan etc. the financial manager gains a confidence born out of a study of Funds Flow Statement. In fact, it carries information regarding firm's financial policies to the outside world. 
(5) Future Guide. An analysis of Funds Flow Statements of several years reveals certain valuable information for the financial manager for planning the future financial requirements of the firm and their nature too i.e. Short term, long-term or midterm. The management can formulate its financial policies based on information gathered from the analysis of such statements. Financial manager can rearrange the firm's financing more effectively on the basis of such information along with the expected changes in trade payables and the various accruals. In this way, it guides the management in arranging its financing more effectively.