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Thursday, January 23, 2014

IGNOU SOLVED ASSIGNMENT: ECO - 14 (2015 - 16)

TUTOR MARKED ASSIGNMENT
Course Code: ECO - 14
Course Title: Accountancy - II
Assignment Code: ECO – 14/TMA/2015-16
Coverage: All Blocks
Maximum Marks: 100

Attempt all the questions.
1. (a) Give specimen of company’s balance sheet as per part I of schedule VI of Indian Companies Act, 1956.    (10×2)
Ans: Format of Company’s balance sheet:
Proforma of Balance Sheet
Name of the Company …………………………………….
Balance Sheet as at……………………………………..

Particulars
Note
No.
Amount
(Current Year)
Amount
(Previous Year)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share capital
(b) Reserves and surplus
(c) Money received against share Warrants

(2) Share application money pending allotment

(3) Non – current liabilities
(a) Long term borrowings
(b) Deferred tax liabilities (net)
(c) Other long term liabilities
(d) Long term provisions

(4) Current liabilities
(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short term provisions



Total



II ASSETS
(1) Non-Current Assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work in progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets

(2) Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short term loans and advances
(f) Other current assets



Total




(b) Differentiate between Profit & Loss Account and Profit & Loss Appropriation Account.                          
Ans: Profit and loss account records all the operating and non operating incomes and expenses and incomes to arrive at net profit. This is Net Profit before tax. Further, we record provision for tax on the debit side of the Profit and loss account and get net profit after tax. Profit and Loss Appropriation account show the appropriation of profit. In case of Companies, only transfer to the various reserves and proposed dividend is recorded on the debit side. Whereas, on the credit side appears Net profit after tax brought down from the profit and loss account and the balance brought down from the last year's profit and loss appropriation account. Some of the important difference of profit and loss account and profit and loss appropriation account are given below:
Profit and loss account
Profit and loss appropriation account
It is prepared to show operating efficiency of a firm.
It is prepared for distribution of profit.
It is prepared after trading.
It is prepared after the preparation of profit and loss account.
Profit and loss account is not dependent on profit and loss appropriation account.
Profit and loss appropriation account is dependent of profit and loss account.
Sales and/or Service Revenue, Other income, Operating, Administration, marketing/Selling & other expenses for the period are shown in the P&L A/c
Transfer of Profit to Reserves, Proposed Dividend, Taxes, etc., is shown in Profit and loss  Appropriation A/c
It is prepared on accrual basis of accounting.
It is not prepared on accrual basis of accounting.
In the vertical format P&L A/c items are referred to as
'Above the Line' items
In the vertical format P&L Appropriation items are
referred to as 'Below the Line' items.
Profit and loss account is known as income statement.
Profit and loss appropriation account is known as statement of retained earnings.

2. X Ltd. sends goods to its Karnal branch at cost plus 25%. All expenses are paid by H.O. From the following particulars you are required to show Branch Debtors Account, Branch Stock Account, Stock Adjustment Account and Branch Profit & Loss Account in the books of Head Office:
Particulars
Amount (Rs.)
Opening Stock
36,000
Closing Stock
42,000
Opening Debtors
27,500
Closing Debtors
41,100
Goods Supplied to Branch
1,94,000
Cash received from Customers
98,800
Bad Debts
6,000
Discount
1,600
Expenses
5,200
Cash Sales
58,400
Goods returned by Branch
8,000
Branch’s Furniture (Provide 20% Depreciation)
10,000
Ans:
Branch Stock A/c
To Balance b/d
To Goods sent to Branch A/c

36,000
1,94,000
By Goods sent to Branch A/c (Return)
By Branch Cash A/c (Cash Sales)
By Branch Debtors A/c (Credit Sales)
By Shortage of Goods A/c
By Balance c/d
8,000
58,400
1,20,000
1,600
42,000

2,30,000

2,30,000

Branch Debtors A/c
To Balance b/d
To Branch Stock (Credit Sales)
27,500
1,20,000
By Cash
By Bad Debts
By Discount
By Balance c/d
98,800
6,000
1,600
41,100

1,47,500

1,47,500

Branch Adjustment A/c
To Stock Reserve A/c ( 42,000x25/125)
To Shortage of goods A/c ( 1,600x25/125)
To Gross Profit
8,400
320
35,680
By Goods sent to Branch A/c  (1,86,000x25/125)
By Stock reserve A/c( 36,000x25/125)
37,200
7,200

44,400

44,400
Branch P/L Account
To Expenses
To Depreciation on furniture
To Bad Debt
To Discount
To Shortage of goods (Cost) ( 1,600 - 320)
To Net Profit
5,200
2,000
6,000
1,600
1,280
19,600
By Gross Profit
35,680

35,680

35,680
3. M/s Raj and Bros. purchased a motor car from Sanjaya Automobiles on 1st Jan. 2012 on the hire-purchase system. The cash price of the motor car was Rs. 11,170. Rs. 3,000 was to be paid on signing the agreement and the balance in the three annual installments of Rs. 3,000 each. Interest @ 5% p.a. is charged by the vendor. The purchaser had decided to write off 10% depreciation annually on the written down value method. The purchaser could not pay off the installment due on 31st Dec., 2013 and as a result of this, the vendor took possession of the motor-car and the vendor estimated its value Rs. 5,500 and spent Rs. 400 on it. Later on, this motor-car was sold for Rs. 6,400. Prepare necessary accounts in the books of both the parties.                              (20)
Ans:
 In the Books of Sanjaya Automobiles
M/S Raj & Bros.
1-1-2
31-12-12





1-113

31-12-13
To H.P.Sales A/C
To Interest A/C  (8170ᵡ5%)




To Balanced
TO Mutual A/C
11,170
    409
1-1-12
31-12-12
31-12-12



31-12-13

31-12-13
By Bank A/C  (Down Payment)
By Bank A/C  (1st installment)
By Balance c/d



By Goods repossessed A/C

By Balanced
3,000
3,000
5579
11, 579
11, 579


5500

   358

5579
  279
5858
 5858







Goods Repossessed A/C

31-12-13

31-12-13

31-12-13


TO M/S Raj & Bros

To Bank A/C (Experts)

To Profit loss A/C (profit Sale)


5500

400


5500
31-12-13
By Bank A/C ( Sale of goods repossessed)
6,400

6,400
  6,400
In the Books of M/S Raj and Bros
Sanjaya Automobiles
1-1-12

31-12-12
31-12-12

31-12-13

31-12-13





TO Bank A/C ( Down payment)
To Bank
To Balanced

To Motor Car A/C

To Balanced




3,000
3,000
5,579

1-1-12
31-12-12



1-1-13
31-12-13



By Motor-Car A/C
By Motor-Car A/C (8170ᵡ5%)



BY Balanced
By interest


11,170
     409


11,579
5500
358

11,579
   5579
    279


5,858
5,858
Motor Car Account
1-1-12




1-1-13

To Sanjaya Automobiles




To Balanced

11,170
31-12-13

31-12-13



31-12-13

31-12-13
31-12-13

By Reprising  A/C
(11,170ᵡ10%)
By Balanced



By Reprising A/C
(10053ᵡ10%)
By Sanjaya Automobiles
By Profit& loss A/C
1,117

10,053
11,170

10,053
11,170



5500
3548
10,053
10,053


4. Why are assets and liabilities revalued at the time of admission of a new partner? Prepare a Revaluation Account with the help of imaginary figures.                                                   (20)
Ans: 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

5. Write short notes on the following:                                   (4×5)
(a) Pro-rata Allotment of Shares
Ans: There are instances when applications for more shares of a company are received than the number offered to the public for subscription. This usually happens in respect of share issues of well-managed and financially strong companies and is said to be a case of ‘Over Subscription’.
In such a condition, three alternatives are available to the directors to deal with the situation:
(1) they can accept some applications in full and totally reject the others;
(2) they can make a pro-rata allotment to all; and
(3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.
When the directors opt to make a proportionate allotment to all applicants (called ‘pro-rata’ allotment), the excess application money received is normally adjusted towards the amount due on allotment. In case, the excess application money received is more than the amount due on allotment of shares, such excess amount may either be refunded or credited to calls in advance.
For example, in the event of applications for 20,000 shares being invited and those received are for 25,000 shares, it is decieded to allot shares in the ratio of 4:5 to all applicants. It is a case of pro-rata allotment and the excess application money received on 5,000 shares would be adjusted towards the amount due on the allotment of 20,000 shares.
(b) Issue of shares at discount
Ans: When Shares are issued at a price lower than their face value, they are said to have been issued at a discount. For example, if a share of Rs 100 is issued at Rs.90, then such an issue is called issue of shares at a discount. As a general rule, a company cannot ordinarily issue shares at a discount, except in case of ‘reissue of forfeited shares’ and in accordance with the provisions of Companies Act. But according to Section 59 of company act 2013, a company is permitted to issue shares at discount provided the following conditions are satisfied: -
a)      The issue of shares at a discount is authorised by a resolution passed by the company in its general meeting and sanctioned by the Central Government.
b)      Maximum rate of discount must not exceed 10 per cent of the nominal value of shares. The rate of discount can be more than 10 per cent if the Government is convinced that a higher rate is called for under special circumstances of a case.
c)       At least one year must have elapsed since the company was entitled to commence the business.
d)      The shares are of a class, which has already been issued.
e)      The shares are issued within two months from the date of sanction received from the Government.
(c) Re-issue of forfeited shares
Ans: Forfeited shares are the property of the company. If an article of association of a company permits, the board of directors can reissue these forfeited shares to the third party not to the defaulting shareholders.
All the forfeited shares can be reissued at a time or they may be reissued in parts. Similarly, these shares may be reissued at par or premium or discount. Again, the amount of such reissue is collected in jump sum but not in installment.
Procedure for reissue of forfeited shares
1.       The forfeited shares may then be disposed by sale or in any other manner as directed by the Board.  
2.       Short particulars of reissued shares will be advised to the stock exchange concerned.  
3.       To give effect to the sale of forfeited shares, the Board will authorise some person, preferably the director or Secretary, to transfer the shares sold to the purchaser thereof and to make a declaration in connection therewith.  
4.       The defaulting members will be asked to return the share certificates. If they fail to do so fresh certificates will be issued.  
5.       Public and stock exchange will be advised not to deal with the old certificates.  
6.       Any surplus arising out of sale after adjusting the amount due to the company in respect of the shares will be refunded to the member concerned.
(d) Over subscription of shares
Ans: There are instances when applications for more shares of a company are received than the number offered to the public for subscription. This usually happens in respect of share issues of well-managed and financially strong companies and is said to be a case of ‘Over Subscription’.
In such a condition, three alternatives are available to the directors to deal with the situation:
(1) they can accept some applications in full and totally reject the others;
(2) they can make a pro-rata allotment to all; and
(3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.
The problem of over subscription is resolved with the allotment of shares. Therefore, from the accounting point of view, it is better to place the situation of over subscription within the total frame of application and allotment, i.e. receipt of application amount, amount due on allotment and its receipt from the shareholders, and the same has been observed in the pattern of entries.