CASE 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 Mehta’s 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bank and was withdrawn at the time of payment, and as his business was not of a very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.

1
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 year’s 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 Mehta’s business is not very vast, recording of day-to-day
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
(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:

2
 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 Assistants xxx By sale of Assets xxx
To Electricity Expenses xxx By Discount Received xxx
To Telephone Expenses xxx By Interest on Investment xxx
To Sundry Expenses xxx
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
Friend’s Loan xxx Cash Balance xxx
Current Liability Bank Balance xxx
Bank Overdraft xxx Debtors xxx
Creditors xxx Stock xxx
Total xxxxx Total 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.

3
 (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.

4
 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 Maywoods 2,000 Add 2,000 4,500
Mr Maywoods 2,000 6,000 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 Amount Amount
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 Maywood 2,000
Less: Loss 329.34 1670.66 Equipments 1,000
Add: Purchase 415.95
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
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.

5
 CASE 2.2
PREMIER ENGINEERING COMPANY LTD.
Debtors Account
Dr Cr
Particulars JF Amount Particulars JF Amount
To Balance b/d - 14,505,000 By Sales return - 20,000
To Sales - 2,90,000,000 By Discount - 40,000
By Cash - 26,00,00,000
By Balance c/f - 4,44,45,000
Total 3,04,50,000 Total 3,04,50,000

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

Cash Account
Dr Cr
Particulars JF Amount Particulars JF Amount
To Balance b/d - 14,10,000 By Machinery - 80,00,000
To Bank - 10,00,20,000 By Insurance and tax - 9,27,000
To Debtors 26,00,000,000 By Miscellaneous - 1,00,03,000
expenditure
By Bank loan 8,00,00,000
By Creditors 14,00,00,000
By Insurance and tax 2,59,65,500
By Dividend 1,39,40,000
By Balance c/f 69,08,000
Total 36,14,30,000 Total 36,14,30,000

Loan Account
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

6
 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 Cr
Particulars JF Amount Particulars JF Amount
To Balance b/d - 22,61,30,000 By Depreciation - 7,88,20,000
To Cash - 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 Cr
Particulars JF Amount Particulars JF Amount
To Balance c/f - 2,59,65,500 By Balance b/d - 2,59,65,500
Total 2,59,65,500 Total 2,59,65,500

Depreciation Account
Dr Cr
Particulars JF Amount Particulars JF Amount
To Balance c/f - 7,88,20,000 By Balance b/d - 4,48,00,000
By P & L a/c - 3,40,20,000
Total 7,88,20,000 Total 7,88,20,000

7
 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 Sales 29,00,00,000 -
To Purchase - 14,56,00,000 Less : -
To Direct labour 2,40,50,000 Sales return 20,000 - 28,99,40,000
To Indirect labour 48,40,000 Sales discount 40,000 -
To ESIS premium 2,50,000
To Heat, light and power 35,46,000 By 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 Stock 8,32,05,000 (5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000)
Add:
Purchase 14,56,00,000
22,88,05,000
Less:
Raw Material 13,55,20,000
consumed
Supplied used 6,05,000
13,61,25,000
Closing Stock 9,26,80,000 (22,88,05,000 – 13,61,25,000)

Profit & Loss Appropriation Account

for year ending on 31st March 1983
Particulars JF Amount Particulars JF Amount
To Provision for dividend - 1,39,40,000 By Net profit - 39,57,225
By Deficit - 99,82,775
Total 13,940,000 Total 13,940,000

8
 Balance Sheet as on 31st March 1983
Particulars JF Amount Particulars JF Amount
Shareholders Fund - -
Equity - 19,10,46,700 Fixed 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 2,06,00,000 Loans & 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 :
Expired 8,00,000 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
Assets Amount Increase in Decrease in Net
Changes
Assets Assets
Cash 14,10,000 54,98,000 -- 69,08,000
Debtors 1,45,05,000 2,99,40,000 -- 4,44,45,000
Raw Materials 5,30,00,000 94,80,000 -- 6,24,80,000
Goods in Process 1,00,05,000 -- -- --
Finished Goods 2,00,00,000 -- -- --
Supplies 2,00,000 -- 5000 1,95,000
Prepaid Taxes & Insu. 80,000 -- -- --
Manufacturing Plant 22,61,30,000 -- 7,08,30,000
15,53,10,000

Liabilities Amount Increase in Decrease in Net

Changes
Liabilities Liabilities
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 Taxes 2,59,65,500 -- 2,59,65,500 --
Accumulated Dep. 4,48,00,000 3,42,20,000 -- 78,820,000

9
 Equity 19,10,46,700 -- -- --
Retained Earnings 84,97,800 -- -- --

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 83,546
Operating Expenses:
Utilities 424
Add Outstanding 36 460
Supplies 277
Telephone 231
Advertising 2,627
Add Outstanding 159 2,786
Property Taxes 972
Office & Printing costs 1,119
Fees for professional services 1,520
Payroll Taxes Outstanding 490
Rental of Uniforms 512
Vehicles Operation 2,312
Wages 9,816
Miscellaneous Exp. 1,949
Depreciations:
Furniture & Fixture 148
Delivery & Services Equipment 4,757
Vehicle (Truck) 202
Building 1,084 6,191
28,635
Net Profit from operation 54,911

10
11
 Master Fuel Oil Company
Balance sheet as on 31st Dec. 1958
Liabilities Amount Assets Amount
Capital: Fixed Assets:
Leonard Master 31,295 Land 6,000
Less: Drawing 12,650 Furniture & Fixture 1,481
Profit 27,456 46,101 Less: Depreciation 566
Allowance
Louis Webster 32,185 Less: Depreciation 148 767
Less: Drawing 15,000
Profit 27,455 44,640 Delivery & Services 23,786
Equipment
Add: Purchase (Truck) 12,133
35,919
Less: Depreciation 9,787
Allowance
Less: Depreciation 4959 21,173
Building 21,699
Less: Depreciation Allowance 7,364
Less: Depreciation 1,084 13,251

Current Liabilities Current Assets:

Account Payables: Cash 15,211
Fuel bills 3,962 Account Receivables:
Utility bills 36 Regular Accounts 18,640
Burner parts 438 Budget Accounts 12,172 30,812
Advertising 159 4,595 Deposit on Commercial bids 900
Other Liabilities 278 Less: 750 150
Inventory of Burner Part 8,250
Total 95,614 Total 95,614

Cash Account
Date Particulars Amount Date Particulars Amount
1 Jan., To Opening Balance b/d 13,993 By Account Payable 4,382
1958 Last Year’s
To Regular Customers 1,06,478 By Drawing L. Master 12,650
To Budget Plan Customers 97,798 By Drawing L. Webster 15,000
To Burner Service & repair 12,714 By Fuel Purchase 1,46,260
To Installation Work 4,460 By Burner Parts 5,905
To Deposit Refunds 750 By Installations 2,111
By Subcontractors 314
By Utilities 424
By Supplies 277

12
 (contd.)
By New Truck 12,133
By Telephone 231
By Advertising 2,627
By Property Taxes 972
By Office & Printings 1,119
By Fess Pro. Services 1,520
By Liabilities Last Yr 256
By Payroll Taxes C.Y 212
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
Total 2,36,193 Total 2,36,193

Account Receivable (Debtors) A/c

Date Particulars Amount Date Particulars Amount
1 Jan., To Balance b/d 12,486 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/c 18,640
Budget A/c 12,172 30,812
Total 2,52,262 Total 2,52,262

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
1958 + 438) 1958
Total 1,63,372 Total 1,63,372

13
 Profit and loss account of the year Ended on 31/3/1982
Dr. Cr.
Expenses Amount Amount Income Amount Amount
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
+ Outstanding 17,500 10,57,420
To office supply 3,45,450
+ Outstanding 45,150 3,90,600
To rent 1,70,800
+ Outstanding 16,800 1,87,600
To miscellaneous
expenses 1,20,400
+ Outstanding 1,750 1,22,150
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 Amount Amount Assets Amount Amount
Capital 11,86,253 Office equipment 2,18,153
+ Net profit 4,15,615 - Depreciation 21,815 1,96,338
16,01,868 Investment 3,50,000
– Drawing 5,60,000 10,41,868 + Purchase 1,68,000 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. Cr.
Particulars Amount Particulars Amount
To Bal b/d. 1,12,000 By Salary & charges 10,51,820
To Debtor 23,45,000 By Office supplies 4,02,850
To Dividend Int. 1,19,000 By Rent. 1,84,800
By Profession exp. 35,000
By Purchase shares 1,68,000
By Drawing 5,60,000
By Miscellaneous Exp.
By Bal. B/d. 1,26,000
47,530
25,76,000 25,76,000

14
 WORKING NOTES:
FOR FINDING CAPITAL:-
Asset: Office Furniture And Equipment 21,8,153
Investment 3,50,000
Cash 1,12,000
Debtors 5,95,000
12,75,153
Less
Outstanding of 1981
Salary 11,900
Supplies 57,400
Rent 14,000
Misc. 5,600
88,900
Capital in the Business 1,86,253
FOR FINDING DEBTOR:
Op. balance 5,95,000
+ Bills issued 20,79,000
26,74,000
Less
By cash Received 23,45,000
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 stock 25,000 94,000
Add:
Prepaid Ins. 2,500
Prepaid Subscription 75
Change in Capital 37,750 40,325
Profit as per accountant 1,51,325

15
 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 Cr
Particulars Amount Particulars Amount
To Balance 12,000 By Cash 12,000
By Cash 9,70,000
To Sales 10,00,000
By Bal 30,000
10,12,000 10,12,000

Creditors Account
Dr Cr
Particulars Amount Particulars Amount
To Cash 80,000 By Bal 80,000
To Cash 6,40,000
By Purchase 7,50,000
To Bal 1,10,000
8,30,000 8,30,000
Acc. Dep. Account
Dr Cr
Particulars Amount Particulars Amount
By Bal 19,000
To Bal 29,000 By Depreciation 10,000
29,000 29,000

Balance Sheet as at 31st Dec. 1981

Liabilities Amount Assets Amount
Capital 1,16,250
Less: Drawings 1,69,000 Furniture 1,00,000
– 52,750
Add: Profit 1,51,325 98,575 Cash & Bank 70,000
Debtors 30,000
Pro. for Service Exp. 50,000
Less: Exp. Inc. 10,000 40,000 Prepaid Ins. 2,500
Prepaid Subscription 75
Acc. Dep 19,000
Add. Dep. 10,000 29,000 Closing Stock 75,000
Creditors 1,10,000
2,77,575 2,77,575

16
 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 Furniture 10,000 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 & Salaries 60,000
Insurance Paid 2,500
Rent Paid 10,000
Selling & Gen. Exp 14,850
Subscription 75
Net Profit 1,51,325
10,50,000 10,50,000

CASE 4.1
International Hotels Ltd
Journal-Adjusting Entries
Date Particulars LF Debit Credit
Rs. Rs.
30th Bad debts A/c Dr. 19,250
June To Debtors A/c 19,250
(Being there is a Bad debts
arise and deduct from Debtors)
30th P&L A/c Dr. 19,250
June To Bad debts A/c 19,250
(Being Bad debts is recognize
and debited to P&L A/c
30th Advertisement Exp. A/c Dr. 2,02,500
June To P&L A/c 2,02,500
(Being Advertisement Exp. is
carried forward to next year)
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 P&L A/c Dr. 3,197,250
June To Depreciation A/c 3,197,250
(Being the depreciation recognized
and debited to P&L A/c)

17
 30th P&L A/c Dr. 1,92,000
June To O/s wages A/c 1,92,000
(Being O/s wages is transfer to
P&L A/c)
30th General Reserve A/c Dr. 1,46,505
June 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 P&L A/c Dr. 28,900
June To Repairs and maintenance A/c 28,900
(Being repairs and maintenance
is not recorded)
Total 1,65,16,400 1,65,16,400

Solution (ii) International Hotels Ltd.

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, cigars 9,20,000 wine, cigars 5,260,000
+ food stuff 17,89,000 27,09,000 + food stuff 13,640,000 18,900,000
To purchase By closing stock
wine, cigars 28,70,000 wine, cigars 3,375,000
+ food stuff 9,430,000 12,300,000 + food stuff 4,460,000 7,835,000
To wages & salaries 4,245,000
o/s wages & salaries 192,000 4,437,000
To coal & firewood 493,500
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 & Building 2,550,000 To rent room 8,108,950
Fitting & Furniture 647,250 3,197,250 To 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. 202,500 1,051,500
To Repair & Maintanance 637,500
+ Not Recover 28,900 666,400
To rent, Rates, Taxes 1,335,000

18
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 120,750,000 Good will 75,000,000
of Rs. 100 each 75,000,000 Land & building 127,500,000
750000 Preference -Dep. @ 2% 2,550,000 124,950,000
share of Rs. 100 each Furniture & Fittings 12,945,000
Reserve & surplus - Dep. @ 5% 647,250 12,297,750
General reserve 30,000,000
- Equity share 1,436,505 28,563,495
dividend
Investment: 40,845,000
Secured loan:
300000 13.5% Current assets:
Deb of Rs. 100 each 300,000,000 loan & advances
+O/s deb. int. 4,050,000 34,050,000 Closing stock:
wine, cigars 3,375,000
Current liabilities & + food stuffs 4,460,000 7,835,000
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

19
 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 interest 176000 2,60,000
To Un-expired payment 60,000
To Director’s fees 40,000
To Interim Dividend 3.45,000
To Depreciation on
Land & Building 1,00,000
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

Profit & Loss Appropriation A/c for the year ended on Dec. 31, 1982
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Debenture Redemption 4,00,000 By balance b/d 32,51,700
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

20
 Balance sheet as on 31st December 1982
Liabilities Amount Assets Amount
Owners’ Equity: Fixed Assets:
Share capital 60,00,000 Lease hold and
& Building 16,00,000
Reserves and Surplus: - Depreciation 1,00,000 15,00,000
General reserve 6,00,000
+ Extra provision 7,00,000 13,00,000 Plant & machinery 42,40,000
- Depreciation 6,00,000 36,40,000
Debn redm reserve 4,00,000
+ Extra provision 4,00,000 8,00,000 Furniture & Equip 3,20,000
- Depreciation 32,000 2,88,000
Share premium 1,00,000
Secured Loans: Vehicle 2,00,000
13 % debenture 20,00,000 - Depreciation 50,000 1,50,000
+ interest outstanding 1,76000 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 12,06,540 Other assets 1,08,000

By P & L A/C 9,46,140

1,63,72.140 1,63,72,140

Adjustment Entries
Date Particulars LF No. Debit Credit
March 31 Depreciation A/C Dr. 1,00,000
To land & building A/C 1,00,000
(Depreciation provided on the
Land & Building at the end of
the year)
March 31 Depreciation A/C Dr. 6,00,000
To plant & machinery A/C 6,00,000
(Depreciation provided on the
plant & Machinery at the end
of the year)
Mach 31 Depreciation A/C Dr. 50,000
To vehicle A/C 50,000
(Depreciation provided on the
vehicle at the end of the year)

21
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 56,44,520 56,44520

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) Merchandize 4,80,000
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
Premium received (Apprentice Scheme) 50,000
Office administration expenses 192,000

22
 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 1981 45,000
Furniture and fixtures 1,710,000
Salesmen’s salary and commission 1,632,000
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-81 176,500
Advance Income tax during the year 3,550,000
Total 53,596,000 53,596,000

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
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

23
 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) Merchandize 4,80,000
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 commission 1,632,000
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

24
 Profit and Loss Account and Retained Earning Statement for the Year ended
March 31, 1982
Particulars Amount Amount Particulars Amount Amount
To Cost of Marchandise 1,01,20,000 By Sales 3,00,38,000
To Carriage Inward 95,000 Less: Sales 27,50,000 2,72,88,000
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 2,72,88,000 Total 2,72,88,000
To Land A/c 1,00,000 By Trading A/c 82,08,000
To Stationary A/c 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 Expense 1,28,000 By Commission 75,000
Earned
Add: Adv. Expense 40,000 1,68,000 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 Paid 35,53,000
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 86,56,500 Total 86,56,500

25
 Balance Sheet as on March 31, 1982
Liabilities Amount Amount Assets Amount Amount
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 Debtors 94,05,000
Building 17,50,000 Less: Prov. For 6,46,750 87,58,250
Bad debts
Add: Depreciation 3,85,000 21,35,000
Furniture 4,50,000 Stock of Merchandice 4,80,000
Add: Depreciation 1,71,000 6,21,000
Provision For Tax 3,93,770 Stock of Stationary 30,000
Current Liabilities: Loans and Advances:
Creditors 45,20,000 Accured 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 Expenses 2,00,000
Less: Written Off 40,000 1,60,000
Total 2,43,00,750 Total 2,43,00,750

Stationery Account
Dr Cr
Particulars Amount Particulars Amount
To Balance B/d 45,000 By P & L A/c 195,000
To Bank A/c 180,000 By Closing Stock 30,000
Total 225,000 Total 225,000

CASE 5.1
Oliver Optics Company

Trading A/c for year ending 31 December

Particulars Amount Amount Particulars Amount Amount
To purchase 15,130 By Sales 35,210
To gross profit 23,280 By closing stock 3,200
38,410 38,410

26
 P&L A/c for year ending 31 December
Expenditure Amt. ($) Amt.($) Particulars Amt.($) Amt.($)
To Insurance 50 By Gross profit 23,280
To Interest on uncle’s loan 60
To Office & admin. Exp.
Salary to Miss Schultz 800
Salary to Oliver 1,200 2,000
To Selling Exp. (Shop salaries) 11,900
(3,500 + 3,200 + 4,800 + 400)
To Rent 2,000
To Office supply used 200
To Electricity 430
To Travel and Advertising Exp. 2,670
To Bad debts 310
To B.D.R. 103
To Depreciation on equipment 800
To Prov. for loss by rejection 208
To Net profit 2,429
23,280 23,280

Balance Sheet As On 31 December

Liabilities Amount Amount Assets Amount Amount
($) ($) ($) ($)
Capital 5,000 Equipment (W.N-4) 5,000
+ Net profit 2,429 7,429 Less Dep. (W.N-5) 800 4,200
Provision for loss 208 Debtor’s 10,250
by rejection
Uncle’s Loan 2,000 Less B.D.R. 103 10,147
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

WORKING NOTE NO. 1 (W.N.-1)

Particulars Amount Particulars Amount
To Interest on uncle’s loan 80 By Capital 5,000
To Interest on equipments 120 By uncle’s loan 2,000
To Installment and down payment 2,000 By Debtor’s 24,650
To Salaries paid 13,900
To rent paid 2,000
To Suppliers (Creditors) 10,000
To Office supply 250
To Electricity and etc. 430
To Travel and Advertisement Exp. 2,670
To Insurance paid 200
31,650 31,650

27
 Working Note No. 2 (W.N.-2)
Debtor’s 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)

Creditor’s 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

2 Audit fees 5,500 P&L 16 Rental received from 47,510 P&L

employees provided
with quarters
4 Entertainment expenses 84,720 P&L 32 Interest 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 assets 2,150 P&L
12 Depreciation (for the 11,12,280 P&L
year ended Dec
31, 1982)
14 Interest paid on loans 3,68,300 P&L
during the year
18 establishment expense 2,75,370 P&L
20 Traveling expense 1,82,250 P&L
22 Insurance expenses for 1,15,420 P&L
machinery at work site

28
 24 Salaries, wages, bonus, 38,91,640 P&L
etc
26 Repairs to machinery 3,74,860 P&L
and building
28 Power and fuel 11,22,760 P&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 materials 1,05,69,720 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 bank 6,24,850 B/S
23 Cash in hand 4,38,940 B/S 8 Accumulated depreciation 80,61,490 B/S
Dec. 31, 1982
25 Cash at bank 5,35,180 B/S 27 Interest accured but not 86,320 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 Assets 1,42,09,400 B/S 17 “on account” advances 33,52,950 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
35 Advance income-tax 11,23,020 B/S 38 Income-tax payable 21,97,520 B/S
36 Billing to customers* 2,21,98,220 B/S General reserve 4,40,71,440 B/S
37 Earnest money deposi- 1,70,700 B/S
ted with the Munici-
pal corporation, Gov-
ernment, etc. against
building
7 Stock of stores and 25,63,410 B/S
supplies-Dec. 31, 1982 1,02,26,770 B/S
9 Value of uncompleted
contracts (based on
architect certificate
and valued at contract
price for work done
13 Interest accured on 22,510 B/S
Total 7,52,98,420 7,52,98,420

29
 Profit and Loss Account for the year 31st Dec. 1982
Particulars Amount Particulars Amount
2 Audit fees 5,500 16 Rental received from 47,510
employees provided
with quarters
4 Entertainment expenses 84,720 32 Interest and dividends 88,480
received on investment
6 Remuneration paid to 3,52,000 * Contract account profit
managing director
10 Loss on sales of assets 2,150
12 Depreciation (for the 11,12,280 Net Loss 2,05,83,115
year ended Dec
31, 1982)
14 Interest paid on loans 3,68,300
during the year
18 Miscellaneous 2,75,370
establishment expense
20 Traveling expense 1,82,250
22 Insurance expenses for 1,15,420
machinery at work site
24 Salaries, wages, bonus, 38,91,640
etc
26 Repairs to machinery 3,74,860
and building
28 Power and fuel 11,22,760
30 Freight and transpora- 31,88,320
tion expenses
34 Stores and materials 1,05,69,720
consumed
Less: Adj. 2 99,66,220
less: 6,03,500
Adj. 2: Loss on transit 2,41,400
Adj. 3: Loss on invest 1,75,000
ments:
Adj. 4: Provision for bad 856
debts
Total 2,14,59,046 Total 2,14,59,046

Profit and Loss Appropriation A/c

Particulars Amount Particulars Amount
Loss b/d 2,05,83,115 Retained earning (Jan. 1, 1982) 43,57,430
Proposed dividend 2,77,000 General reserve 2,77,000
Balance c/d 1,62,25,685

Total 2,08,60,115 Total 2,08,60,115

30
 Balance Sheet as on 31st Dec. 1982
Liabilities Amount Assets Amount Amount
Share Capital :
1 Paid up capital 2770000 31 Fixed Assets 14209400
Reserve and Surplus: 8 Less: Accumulated 8061490 6147910
General reserve Investments
Adj.5: Transfer to P&L 4379440 29 Investments in shares 988170
Approx. A/c debentures
Secured Loan Adj.3: Less loss 17500 813170
15 Secured loans 5367530 Current
Assets, Loans and
Advances
Unsecured Loan: A. Current Assets
5 Unsecured loan from bank 624850 19 Debtors 42780
Current Liabilities and Less: Provision for bad 856 41924
Provisions debts
A. Current Liabilities 23 Cash in hand 438940
27 Interest accured but not due 86320 25 Cash at bank 535180
17 “On account” Advance: 2613009 36 Billing to customers* 22198220
Less: Profit margin 739941 Stock of stores and 2563410
21 Creditors 4272900 7 supplies – Dec. 31,
38 Income-tax payable 2197520 9 Value of uncompleted 10226770
contacts (based on archi-
tects certificate and
valued at contract price
for work done
B. Provisions 13 interest 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
33 Advances to suppliers 657450
of equipment and stores
35 Advance income-tax paid 1123020
P&L A/c (net loss)
1,62,25,685
37 Earnest money deposited 1,70,700
with the Municipal
corporation, Govern-
ment, etc. against
building contracts
Total 62003569 Total 62003569
Adjustment
Adj 1: Contingent liability of Rs. 380000

31
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 complected
Contract profit (profit margin) greater than 50% of contract
Total 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 Purchase 427169870
Processing Charge 1107096
Power & Fuel 1107096
Freight & Forwarding Ch. 16032535 Cost of Goods 476575039
592731752 592737152
Cost of Goods 476575039 Sales 885342435
Purchase of finished 2666275 Goods Destroyed by fire 55862
Goods
Gross Profit 406156983
885398297 885398297

32
 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, Taxes 5732667 Other income 3963465
- Prepaid 19662 5713005
Insurance 1407567
Advt. 31749447
- 50 % 1592737 30156710
Repair & Maint. 1805062
+ Un Recorded 29650 1834712
Commission 103130
Interest 773772
Mis. Exp. 16403391
Depri. 2005610
+ Extra 221175 2226785
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 7713328 10775531
Bal C/F 5122535
44685316 44685316

33
 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 Reserve 43028712 Furniture 1781804
+I 3062203 + Depri. (wrongly) 64363 1846167
+ II 7713328 53804243 Auto & truck 985282
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. 265382 50466323
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.

34
 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 Consumed 158,803,500
Interest 10,689,750
Depreciation 9,591,750
Stores and Spares Consumed 126,394,500
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 off 744,000
Miscellaneous Expenses 10,664,250
Excise Duty 6,731,250
Salaries, Wages, etc. 67,650,000
Staff Welfare 5,049,000
911,474,250 911,474,250

35
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-progress Rs. 57,836,250.
Finished goods Rs. 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-progress 53638500 Closing stock:
-Finished Goods 11434500 Work-in-Progress 57836250
Raw Materials Consumed 158803500 Finished Goods 2180700
Stores & Spares consumed 126394500
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
Bad Debts (Old) 744000
B.D.R. 468000 1473120
Interest 10689750
+ Acc. Interest 759650
11449400
- For Assets 528000 10921400
Depreciation 9591750
Rent, Rates & Taxes 1378500
Insurance 988500

36
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
Total 142511250 Total 142511250

P&L Appropriation Account for the year ending on 31st Dec. 1982
Particulars Amount Particulars Amount
Proposed Dividend 6055550 Net Profit 31224630
Surplus 25169080
Total 31224630 Total 31224630

37
 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 & Surplus 21955500 Building 34243500
+ Additional 732000 Plant & Machinery 117989250
22687500 + Addition to P & M 528000
Cash Subsidy 5730000 Furniture 7305750
Surplus 25169080 53586580 Vehicles 1455000
Capital work in process 2289000 167170500
3. Secured Loans
2- Investments 4119750
4. Unsecured Loans
Loans 35949000 3. C.A., Loans & Adv.
+ Unpaid Interest 759650 36708650 A. Current Assets
5. C.L & Provisions Closing Stock 178100900
A. Current Liabilities Debtors 52546500
Differed payment 11363700 Cash & Bank 3383000
Creditors 57501000 Unreceived Subsidy 732000
Advance against order 24370500 234762400
Unclaimed Dividend 71250 B. Loans & Advances
195579750 Loans 41090250
B. Provisions Bad Debts 261120
Accumulated depreciation 40829130 275591530
- On Building 14362500
- On Plant & Mach. 76730250
- On Furniture 2381250
- On Vehicles 9050250
94379250
Tax Provision 14000
Proposed Dividend 6055550
100448800 296028550
Total 446881780 Total 446881780

38
 Calculations
1. Closing stock:
Loose tools 417500
Stores 52692600
Raw Materials 45347550
Work in progress 57836250
Finished goods 21807000
178100900

2. Lose on moving stock:

Loose tools 89,500
Stores 689,400
Raw Materials 430,200
Total 1,209,100

Manufacturing Account for the year ended on 31st December 1982.

Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
in 000 in 000 in 000 in 000
To, Opening Inventory By Closing Inventory
Raw Material 1850 Raw Material 1600
Work in Progress 2300 4150 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 & Machinery 2100
Building 300 2625
To Fire Insu. Premium 120
To Power & Light 600
To Service Dept. 191
Total 37761 Total 37761

Trading Account for the year ended on 31st December 1982

Dr. Cr.
Particulars Amount Amount Particulars Amount 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

39
 Total 51559 Total 51559

Profit & Loss Account for the year ended on 31st December 1982
Dr. Cr.
Particulars Amount Amount 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
To Office Salary 2600
To Bad Debt Written Off 250
To Provision for I.T. 2388
To Net Profit 3388
Total 14498 Total 14498

Balance Sheet as on 31st December 1982

Dr. Cr.
Liabilities Amount Amount Assets Amount Amount
in 000 in 000 in 000 in 000
Share Capital Fixed Assets
Equity Shares 40000 Land 5000
Reserve & Surplus Buildings 10000
Depreciation 3500 6500
P & L A/c. (Net Profit) 6775
Plant & Machinery 21000
Depreciation 4100 16900
Secured Loan
7% Debenture 5000 Furniture & Fixtures 4850
Depreciation 1487.6 3362.4
Unsecured Loan
Investments
Fixed Depositors 398.4
Investments 4500
Current Liabilities
Creditors 4250 Current Assets,
Loans and
Advances
Provisions (A) Current Assets

40
 Provision for I.T. 2388 Debtors 11700
Cash in Hand 67
Cash at Bank 4232
Closing Stock
Raw Material 1600
Work in Progress 2100
Finished Goods 2850 6550
(B) Loans & Advances
Total 58811.4 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 Hours 750000 × 750000 × 750000 × 750000 ×
12:1:1:1 (12/15) (1/15) (1/15) (1/15)

Rent & 1650000 Area 825000 225000 325000 275000

Rates Sq. Feet 1650000 × 1650000 × 1650000 × 1650000 ×
33:9:13:11 (33/66) (9/66) (13/66) (11:66)

Canteen 3399000 No. of 2781000 103000 412000 103000

Charges Employee 3399000 × 3399000 × 3399000 × 3399000 ×
27:1:4:1 (27/33) (1/33) (4/33) (1/33)

Deprec- 485000 Cost of 225000 85000 100000 75000

iation on Furniture
Furniture 45:17:20:15

Deprec 2100000 Cost of 2100000 ***** ***** *****

iation on P & Mach.
Plant &
Machinery

Depreciation 500000 Cost of 300000 50000 100000 50000

on Building Building
6:1:2:1

Fire Insu. 200000 Cost of 1200000 20000 40000 20000

Premium Building
6:1:2:1

Proportion 573000 191000 191000 191000 ****

of Service 1:01:01
Department

41
 CASE NO. 6.1.
CHARLES CROWN COMPANY
Solution 1
Project 220
Method (a):
102751.5 completed
106230.0 claimed
208961.5 total cost
∴ 49.16775% completed.
Method (b):
116970 completed
232294 claimed
349264 total cost
∴ 50.35429% completed
Net impact on company’s B/s:
Billing Earned through Method (a): 116970
Cost earned through Method (a): 102751.5
Net Profit 14218.5
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): 76578.18 Task 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

42
 (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
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 Reserve 7227.58
Surplus 6990.92
Method (b):
Capital & Liabilities Assets
Reserve & surplus:
Contingency Reserve 7058.87
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

43
Percentage compeletion by
Method (b) (50.35%) = 906.38
Net Effect on profit 21.35

44
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 year’s
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.
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.

45
 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 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

46
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.
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.

47