FINANCIAL ACCOUNTING AND AUDITING PAPER …tktopenightcollege.in/.../2017/02/Financial_Ac_Sem_V.pdfFinancial Accounting Paper V TYBCOM Semester V 2016-17 Pankaj Pandagale, Assistant

Financial Accounting Paper V TYBCOM Semester V 2016-17

Pankaj Pandagale, Assistant Professor of Accountancy, GES’ Dr.T.K.Tope College, Parel, Mumbai 1

Revised syllabus and question paper pattern of course of B.Com. Programme at T.Y.B.Com. Semester V effect

from the Academic Year 2014-2015

FINANCIAL ACCOUNTING AND AUDITING PAPER – VIII

FINANCIAL ACCOUNTING

Modules at a Glance

Sr.No. Modules No.of Lectures

1 Final Account of Co-operative Housing Society 16

2 Ascertainment and Treatment of Profit Prior to Incorporation 10

3 Valuation of Goodwill and Shares 12

4 Accounting for Translation of Foreign Currency Transactions 12

5 Buy Back of Equity Shares 10

Total 60

Maximum Marks : 75 Questions to be Set : 05 Duration : 2½ Hrs. All questions are compulsory 15 Marks each

Q.No. Particulars Marks

1 Objective Questions

(A) Sub questions to be asked 10 and to be answered any 8

(B) Sub questions to be asked 10 and to be answered any 7

Multiple Choice/ True or False/ Match the columns/Fill in the blanks

15

2 Full Length Practical Question

OR

Full Length Practical Question

15


OR


15


OR


15

5 (A) Theory Question ( 8 )

(B) Theory Question ( 7 )

OR

Short Notes (To be asked 05, to be answered 03)

15

Total 75

Note : Full length question of 15 Marks may be divided into two sub questions of 8 or 7

marks.



Co-operative Societies Accounting and Statutory Requirements

Co-operative society came into existence due to the exploitation of the economically and

socially weaker section of the society; by manufactures / big businesspersons / whole / Retailers.

The Co-operative movement first started in Europe; particularly in England and Germany.

When weaker section of society are finding out difficult with less earning; they were organised them

self for mutual help. These organizations lead to firm a Co-operative society.

In Maharashtra Co-op movements, give way to Co-op. Sugar Factories, Left Irrigation, and

Co-op Housing Society. A Co-operating society is a voluntary organisation formed for the purpose of

promoting & protecting interest of its members. The main objective of Co-operative society is to

protecting interest of its members. it does earn profit which may be partly distributed among its

members and partly kept as reserves.

A Co-operative society can be defined as an association of people usually of a limited

means, who have voluntarily joined the organisation making equitable contribution to the

capital required and excepting a share and risks and benefits of the organisation. Normally a Co-

operative society is a service organizations is not interested in making profit.

A Co-operative society is most important form of organisation in Indian economic screen.

Co-operative societies are covered by different state Laws which differs from state to state. In

Maharashtra, we have State Co-operative Societies Act & Rule 1961.

Co-operative societies as form of organistation doing the business is assuming a growing

importance, next to corporate sector on the Indian economic sense. Co-operative Society is a

collective effort of large number of people, operating in various fields of activities such as co-

operative sugar factories, spinning and weaving mills, co-operative credit societies, Urban co-

operative Banks, consumers co-operative societies, Industrial co-operative societies, housing societies

and so on.

Maharashtra is considered as a most progressive state in the development of Co-operative

Societies. The Accounting Procedures and Final Accounts Formats differ from state to state as each

state in India has its own Co-operative Act. Let us study the main provisions of the Maharashtra Co-

operative Societies (MCS) Act, 1960 and the Maharashtra State Co-operative Societies Rules, 1961.

TYPES OF CO-OPERATIVE SOCIETIES :

The Maharashtra Co-operative societies Act classifies societies under various categories as under :

(1) Credit Co-operative Society : This is oldest type of co-operative in India. It comes into existence around 1904 with the

passing of co-operative societies Act 1904.

The main purpose of this type of societies is to provide loans to members, at low rate of interest.

(2) Consumers co-operative society :

Consumers form it. The consumers co-operative society purchases in bulk and in large

quantities and sells it to members / to consumers at reasonable prices and also good quality.

Therefore consumers co-operative society eliminate intermediaries between buyers and sellers /

manufacturers.

Consumers co-operative society can be classified as under :

a. Primary Consumers society :

Such societies meets needs of direct customers. The controller goods purchased from central

stores to which affiliated and others in bulk purchases in open market and sales at reasonal price to

members, in some cases to non-members also.

b. Central Whole Stores :

These type of society deal in whole-sale business, and fulfil the needs of primary society.

c. Departmental stores :

In cities super market / Departmental stores are set up which stock are requirement of

consumers under one roof. These type of societies need substantial amount for capital.

3. Industrial Co-operative Society :



It is organised by small producers to carry out certain production activities e.g. sugar mills /

milk / cotton cloths co- operative societies.

4. Agricultural Marketing Society :

It means that a society which is marketing agricultural produce ii) At least ¾ of its member are

agriculturist.

5. Co-operative Bank : For doing banking business as per section 5 of Bank Companies Act. / For doing Banking

business permission of R.B.I. required.

6. Co-operative Housing Societies :

These type of societies are formed for the purpose providing to its members dwelling houses

or flats acquired by its members with common amenities and services. In Maharashtra house

construction activities are regulated by Maharashtra Ownership Flat Act, 1963.

7. Apex society

8. Central Bank

9. Farming society

10. Crop protection society

11. Federal society: It is a society which has not less than five members are societies and has also regulated 80%

of voting rights is held by co-operative societies.

12. Lift Irrigation society.

Definitions under MCS Act

1. Co-operative Society : Under section 2(27) of the Act, Society means a co-operative society

registered or deemed to be registered under this Act. Co-operative society is corporate body

distinct from its members. Section 167 of Co-operative Societies Act state that provisions of

Companies Act are not applicable to Co-operatives.

2. Working Capital : Under section 2(31) of the Act, ‘Working Capital’means funds at the

disposal of society inclusive of paid up share capital, funds build up out of profits and money

raised by borrowing and other means. The definition of the term is different as generally

working capital means Net Current Assets represented by Current Assets Less Current

Liabilities.

3. Auditor : Rule No.69 of Co-operative Societies Rules states that the audit co-operative

societies shall be conducted either by departments auditor or certified auditors. The term

certified auditors includes the following:

(a) Chartered Accountant

(b) A person who holds a Government diploma in Co-operative Accounts and Audit.

(c) A person who has served as an auditor in the co-operative department of the state

government (Retired officers of the co-operative department.

4. Bye-Laws : Under section 2(5) ‘Bye-laws’registered under this Act and for the time being in

force, and includes registered amendments of such bye-laws. Bye-laws of a co-operative

society may be compared with the articles of a company.

The Provision in the bye-laws cannot be contrary to the Provision of the co-operative

Societies Act. The bye-laws generally include the following clauses for internal management

of co-operative society.

(a) Name and address of company

(b) Area of operation

(c) The manner in which and the limit upto which the funds of the society should be raised.

(d) Objects of society

(e) Maximum amount of share capital that my held by a member

(f) Terms and qualifications for admission of membership

(g) Rights, duties and liabilities of members.

(h) Maximum loan admissible to a member.

(i) Disposal of net profit

Rule no. 8 Maharshtra state Co-operative Societies Rule,1961 give the various details

of the items in the bye-laws of the society.



Any amendments, changes or deletion in bye-laws shall have to be approved by a

resolution at special general meeting and also a written approval from the District

Deputy Registrar is necessary.

The first bye-laws of the society are required to be approved by the Registrar, as per

Rule no.9.

5. Co-operative Year : The Act has fixed 31st day of March as the day of balancing the

accounts of the society. However, any other day can be fixed by the society for this purpose

with the prior approval of the registrar. It means that the co-operative year need not

necessarily be from 1st April to 31st March. Normally, now a days societies follow 31st March

as the year ending to conform with the Income Tax Act.

6. Members: Under section 2(19) , a member of a co-operative society means a person joining

in an application for the registration of a co-operative society, which is subsequently

registered or a person duly admitted to a member. Following are the different types of

members-

(a) Associate Member : Associate member means a member who hold jointly a share of

society with others, but whose name does not stand first in share certificate.

(b) Nominal Member : ‘Nominal Member’means a person admitted to membership as such

after registration in accordance with its laws.

(c) Symoathiser Member : Sympathiser member means a person who symapthises with

aims and objects of the society and who is admitted by society as such manner.

Accounting and Finances

Books of Accounts and Records

According to section 79(1) of M.S.C.S. Act, the Registrar may direct to keep proper accounts in

relation to

(a) All sums of money received and expanded by the society and the matters in respect of which

receips and expenditure take place.

(b) Áll sales and purchases of goods by the society, and of the stock in hand and its valuation.

(c) The assets and liabilities belonging to the society.

(d) He may call the society to furnish such statements and returns and to produce such returns as

he may require from time to time.

Rule no.65 of M.S.C.S. Rules gives a specific list of the following books to be maintained by

society

(1) Cash Book

(2) General Ledger and Personal Ledger

(3) Stock Register

(4) Property Register

(5) Register of audit objections and their rectifications

(6) Such other accounts and books as from time to time be specified by the Government.

Broadly speaking, books of accounts should be so maintained as to give the necessary financial

statistical and other information.

Statutory Registers:

Under section 38 of the co-operative societies act read with Rule no.32, a co-operative society

shall have to maintain a Register of Members in I form. Nominations should be obtained from the

members. According to Rule No.33 read will section 39 the list of members shall have to be

maintained in U form.

Payment by Cheque:

Rule No.107-D prescribes that all payments made by the society exceeding Rs.1,000 shall be

made by cheque, except the loan sanctioned to members.



Maximum cash Balance:

Rule No.107-C prescribed the maximum amount of cash allowable to be kept by different

kind of societies. Some of the limits prescribed by the Rule are as follows:

Types of Society Maximum Cash

Rs.

Sugar Factories 5,000

Consumer Societies 1,000

Dairy Societies 500

Industrial Estates 500

Salary Earners Societies 500

Housing Societies 300

Security From Employees:

Rule No.107-B deals with securities to be taken from the officers and employees of the

society who are required to handle cash, securities and property belonging to the society. The amount

of security shall be different on the basis of paid up Share Capital of the society being either less than

Rs.1.50 Lacs or more than Rs.1.50 Lakhs. It shall be partly in cash and partly in the form of personal

security of Fidelity Guarantee Policy.

Writing off of Bad Debts and Losses:

According to Rule No.49 no bad debts or losses shall be written off without the sanction of

General Body. All Debts which are found irrecoverable and are certified as Bad Debts, by the auditor

appointed U/s 81, shall be written off, first against bad debts fund, and the Balance Sheet if any, may

be written off against the Reserve Fund and the Share Capital of the society. An approval from

Register is necessary before writing off the Bad Debts.

Financial Statement:

According to Rule No.61 of M.S.C.S. Rules, the society will have to prepare, within 45 days

of the close of accounting year, the following financial statements.

(a) Receipts and Payments accounts during the previous year co-operative accounting year

ending 30th June.

(b) The Profit and Loss Account for the year (or Income and Expenditure A/c)

(c) The Balance Sheet as on that date of accounting year i.e. 30th June.

Rule no.62 of M.S.C.S. Rules deals with the prescribed form of Balance Sheet and Profit and Loss

Account (Form N). The Financial statements duly prepared in this form are to be laid down before the

Annual General Meeting, which is to be held within three months from the end of accounting year.

The registrar may permit a particular society to prepare their financial statements in some other form

as per the provision of this rule.

ASCERTAINMENT AND APPROPRIATION OF PROFITS

1. Section 65(1) of the Act, amended in 1985, states that a society shall construct its relevant

annual financial statement and arrive at its consequent net profit or loss in the manner

prescribed. A co-operative society engaged in a business of Manufacturing, Trading or

Banking should adopt mercantile system of accounting to arrive at true and fair profits. The

2. Section 65(2) states that a society may appropriate its Net Profit to the reserve fund or any

other fund for payment of dividend to members on their shares. No parts of the profits shall

be appropriated except with the approval of the General Body.

3. Section 64 of the Act states that no part of the funds other than the dividend equalisation or

Bonus equalisation shall be paid by way to bonus or dividend to its members.

4. According to section 68 every society shall contribute annually towards the Education Fund

and Rule No.53 prescribes the rates of contribution according to the nature of society.

Class of society Rate

1 Primary Consumers Society 2 Paise per Rs.100 of the working capital subject to a maximum of

Rs.1,000.

2 Urban Credit Society 10% of the working capital in respect of those which have earned



profit during the previous year subject to maximum of Rs.500

3 Co-operative Sugar Factories 25 paise per ton of sugarcane crushed subject to maximum of

Rs.25,000.

4 Housing Society Backward

class housing society

Re.1 per member having a tenement Rs.10.

5 Urban credit bank 1/10% of working capital subject to a maximum of Rs.1,000.

RESERVE FUND

Section 66(1) and (2) state that every society deriving profits, shall transfer 25% of the profit

to the Reserve Fund. According to the provision of the section, the registrar may fix the contribution

not less than 10% in some cases of any society having regards to its financial position.

STATUTORY FORMATS OF FINAL ACCOUNTS There is no prescribed format for Trading Account; which can be prepared in the usual manner.

No appropriations can be made unless the accounts are audited and approved by the general body.

Hence no Profit and Loss Appropriation A/c is prepared along with the annual accounts, submitted by

the managing committee to the general body for approval.

FORMAT OF PROFIT AND LOSS ACCOUNT ( N TYPE )

Particulars Amount Amount Particulars Amount Amount

To Gross Loss (if any) ** By Gross Profit ( if any) **

To Interest Paid

Add: Outstanding

Less : Prepaid

**

**

**

**

By Interest Received on Loans /

Investments

**

To Bank Charges ** By Dividend on shares **

To Salaries and Allowances ** By Other incomes

To Contribution ** (a) Share Transfer Fee **

To Provident Fund ** (b) Rent Received **

To Managing Director’s

Allowances and Salaries

** (c) Discount and Interest

Received

**

To Managing committee’s

Remuneration

** (d) Income from Sale of

Forms

**

To Rent, Rates and Taxes ** (e) Sundry Income ** **

To Postage and Telegram ** By Net Loss transferred **

To Audit Fees **

To Printing and Stationery **

To Supervision Charges **

To Depreciation on assets **

To Reserve for Doubtful Debts **

To Other Expenses and Fees, if

any

**

To Net Profit transferred **

Total ** Total **

FORMAT OF Balance Sheet ( N TYPE )

Fig.of

Previous

Year

Liabilities Amount Fig.of

Previous

Year

Assets Amount

Share Capital Cash Balance

Authorised, Issued and Paid-

up

On hand

Purchased by the

Government

At Bank (also called Deposits)

Purchased by Co-operative

Societies

Investments

Purchased by Individuals Government Securities

Shares in Advance Shares in Co-operative Institution

Less : Calls in Arrears Fixed Deposits with Banks



Add: Calls in Advance Provident Fund Investments

Subscription/ Deposits

towards shares

(including advances to provident

fund)

Reserve Fund and Other

Funds

Loans and Advances

Reserve Fund Loans

Building Fund Cash Credit

Development Fund Due from the Managing

Committee

Reserve for Doubtful Debts Sundry Debtors

Depreciation Fund For Credit Sales

Dividend Fund For Advances

Bonus Equalisation Fund Current Assets

Other Equalisation Fund Tools and Equipments

Staff Provident Fund Closing Stock

Debentures Work in Progress

Cash credit Fixed Assets

Overdraft Land and Building

Loans Plant and Machinery

Government Loans Live stocks

Other secured Loans Dead socks

Unsecured Loans Vehicles

From Banks Other Expenses and Losses

From Government (not written off)

Bills payable Preliminary Expenses

Others Advances

Deposits Payment of Taxes

Fixed Deposits Goodwill

Saving Deposits Deferred Revenue Expenses

Recurring Deposits Expenses in connection with issue

of Debentures

Other Deposits Losses

Current Liabilities and

Provisions

Add: Current Loss

Sundry Liabilities

Outstanding Salaries etc.

Advances

Unclaimed Dividend

Interest due but not paid

Other Liabilities

Profit and Loss

Appropriation

Opening Balance

Add: Current Year Profit



Problem No. 1. From the following Trial Balance of Shirpur Co-operative Purchases and Sales society Ltd. As

on 31.06.2014, Prepare Trading and Profit and Loss Account for the year ended 30/03/2014 and Balance Sheet

as on that date, after considering the adjustments given thereafter.

Trial Balance

Particulars Dr. Rs. Cr. Rs. Particulars Dr. Rs. Cr. Rs.

Share Capital 3,36,000 Travelling and Conveyance 18,000

Reserve Fund 60,000 Printing and Stationery 14,000

Creditors 40,000 Admission Fees 2,000

Profit and Loss A/c

01/07/2013

1,76,000 Purchases 63,40,000

Opening stock 3,92,000 Coolie charges, Freight and

Cartage

1,60,000

Furniture and Equipments 1,24,000 Investments 2,40,000

Container Deposits 32,000 Sales 76,20,000

Salaries 3,00,000 Cash in Hand 6,000

Sundry Debtors 60,000 Bank Balance 4,00,000

Commission 88,000 Development Fund 8,000

Rent and Taxes 60,000

Postages 8,000 Total 82,42,000 82,42,000

Adjustments:

1. Closing stock is valued at Rs.4,40,000.

2. Outstanding Rent Rs.4,000 and commission payable Rs.20,000.

3. Rs.8,000 Salary was paid as advance as on 30/06/2014.

4. Accrued Income on Investment Rs.20,000.

5. Provide 10% Depreciation on Furniture and Equipments.

Problem No. 2. From the following Trial Balance of Äkshay Co-operative Consumers society Ltd., Maharshtra

As on 31st March, 2014, Prepare Trading and Profit and Loss Account for the year ended 31st March, 2014 and

Balance Sheet as on that date, after considering the adjustments given thereafter.

Trial Balance


Share Capital 1,60,000 Commission 17,400

Calls in Arrears 10,000 Rent, Rates, Taxes 20,000

Reserve Fund 15,000 Postages 12,100

Common Good Fund 5,000 Land 9,000

Opening Stock of Consumer Goods 1,10,000 Interest on Investment 10,000

Furniture 48,000 Equipments 20,000

Education Fund 8,000 Purchases 16,40,000

Sundry Creditors 20,000 Investments 1,00,000

Sundry Debtors 30,000 Sales 20,60,500

Commission Payable 4,000 Cash in hand 25,000

Salaries 71,000 Cash at Bank 1,70,000

Total 22,82,500 22,82,500

Adjustments:

1. Outstanding rent payable on 31/03/2014 was Rs.1,000.

2. Charge 5% Depreciation on Furniture.

3. Closing stock of consumers goods is valued at cost Rs.1,40,000.

4. Interest accrued on investment Rs.2,000.

5. Outstanding salary on 31/03/2014 was Rs.2,000 and Rs.3,000 paid in advance.

6. Authorised Capital 20,000 shares of Rs.10 each.

Problem No. 3. From the following Trial Balance of Sadhana Consumers’ Co-operative society Ltd., as on 31st

March, 2014, Prepare Trading and Profit and Loss Account for the year ended 31st March, 2014 and Balance

Sheet as on that date, after considering the adjustments given thereafter.

Trial Balance


Share Capital 80,000 Purchases 10,05,000

Deposit from Members 50,000 Customer 30,000

Sales 12,50,000 Carriage Inwards 5,000



Purchase Returns 5,000 Sales Return 2,000

Suppliers 10,000 Rent 10,000

Interest on Investments 12,000 Audit Fees 2,000

Rebate Received 3,000 Sales Tax 3,000

Common Good Fund 4,000 Staff Salary 50,000

Price Fluctuation Fund 8,000 Printing and Stationery 10,000

Reserve Fund 20,000 Investments 2,00,000

Cash in hand 400 Stock in Trade 30,000

Cash at bank 86,000 Interest Paid 2,000

Furniture 6,000 Total 14,42,000 14,42,000

Adjustments:

1. Value of Closing stock on 31st March, 2014 was Rs.60,000.


3. Interest accrued on Deposits Rs.1,500 and Interest accrued on Investment Rs.6,000.

4. Outstanding Salary Rs.3,000.

5. Outstanding Sales Tax of Rs.1,000.

Problem No. 4. From the following Trial Balance of Sayli Consumers’ Co-operative society Ltd., as on 31st



Trial Balance


Share Capital 1,00,000 Purchases 12,05,000

Deposit from Members 50,000 Customer 56,000

Sales 14,50,000 Carriage Inwards 4,000

Purchase Returns 6,000 Sales Return 3,000

Due to Suppliers 11,000 Rent (for 10 months) 10,000

Interest on Investments 11,000 Audit Fees 2,000

Rebate Received 2,000 Sales Tax 3,000

Common Good Fund 4,000 Staff Salary 50,000

Price Fluctuation Fund 3,000 Printing and Stationery 10,000

Reserve Fund 25,000 Investments 2,00,000

Cash in hand 200 Stock in Trade 30,000

Cash at bank 76,200 Interest Paid 2,600

Furniture 10,000 Total 16,62,000 16,62,000

Adjustments:

1. Value of Closing stock on 31st March, 2014 was Rs.75,000.


3. Interest accrued on Deposits Rs.1,500 and Interest accrued on Investment Rs.1,200.

4. Salary includes advance of Rs.6,000 paid against salary of April, 2014.

5. Outstanding Sales Tax of Rs.2,000.

Problem No. 5. From the following Trial Balance of Suyog Co-operative society Ltd., as on 31st March, 2014,

Prepare Trading and Profit and Loss Account for the year ended 31st March, 2014 and Balance Sheet as on that

date, after considering the adjustments given thereafter.

Trial Balance

Debit Rs. Credit Rs.

Loans to members 7,00,000 Share Capital 2,00,000

Contribution to Provident Fund 480 Reserve Fund 18,000

Insurance 1,040 Member’s Deposits 5,40,000

Conveyance 3,420 Unpaid Dividend 400

Printing and stationery 960 Staff Provident Fund 4,800

Salary of M.D. 12,000 Profit and Loss 20012-2013 7,000

Staff Salary 27,200 Interest 86,000

Interest on loans 1,920 Renewal Fees 800

Interest on deposits 19,200 Sundry Income 640

Furniture 1,680 Development Fund 4,000

Fixed Deposits with other banks 60,000 Education Fund 1,200

Cash 4,360



Bank 30,580

8,62,840 8,62,840

Adjustments:

1. Interest due on member deposits Rs.2,000.

2. Interest due but not received Rs.4,800.

3. Salary due Rs.1,200.

4. Audit Fees Due Rs.800.

5. Depreciate Furniture by 5%.

6. Directors propose to pay Dividend of 5%.

7. Transfer Rs.100 to Education Fund and Rs.2,000 to Dividend Equalisation Fund.

8. Appropriations out of Profits of the year 2012-2013 were approved as follow:

Reserve Fund Rs.2,000

Dividend Rs.2,000

Problem No. 6. From the following Trial Balance of Apna Consumer’s Co-operative society Ltd., as on 31st



Trial Balance

Particulars Debit

Rs.

Credit

Rs.

Share Capital (fully paid up) 1,50,000

Reserve Fund 20,000

Stock of Goods 1,10,000

Furniture 48,000

Education Fund 8,000

Creditors 20,000

Debtors 30,000

Commission due 4,000

Salaries 50,000

Rent, Rates and Taxes 27,400

Postage and Stationery 22,100

Building 9,000

Interest on Investment 10,000

Equipments 20,000

Purchases 16,40,000

Investments 1,00,000

Sales 20,60,500

Commission 21,000

Cash in Hand 25,000

Cash at Bank 1,70,000

Total 22,72,500 22,72,500

Additional Information:

(a) Godown Rent Payment on 31st March, 2014 was Rs.14,000.

(b) Depreciate Furniture @ 5% p.a.

(c) Closing Stock of goods valued at coat Rs.1,40,000.

(d) Interest accrued on Investment Rs.2,000.

(e) Salary outstanding on 31st March, 2010 Rs.5,000.

(f) Authorised Capital was Rs.2,00,000 divided into shares of Rs.10 each.

(g) Transfer to Reserve Fund 25% of net profit.

Problem No. 7. From the following Trial Balance and additional information supplied to you, of co-operative

society, for the year ended 31/12/2013 as follows:

Trial Balance

Debit Rs. Credit Rs.

Investments in Shares 50,000 Share Capital 1,00,000

Printing and Stationery 10,000 Bank Loan @ 10% interest pa 3,50,000

Investment in Bank Shares 70,000 Interest on Members Loan 3,50,000

Fixed Assets 50,000 Members Deposits 5,00,000

Members Loan 8,00,000 Sales 13,00,000



Purchases 11,90,000 Reserves and other Funds 4,00,000

Office Rent 1,00,000

Salaries 1,00,000

Travelling Expenses 18,000

Freight 12,000

Coolie charges 10,000

Bank Charges 3,30,000

Bank Interest Paid 2,60,000

30,00,000 30,00,000

Adjustments:

1. Provide Audit Fees for Rs.6,000.

2. Provide Depreciation on Fixed Assets @ 5%.

3. Outstanding Office Salaries Rs.10,000.

4. Closing Stock Rs.3,20,000.

You are required to prepare Trading, Profit and Loss Account for the year ended 31st March, 2014 and Balance

Sheet as on that date.

Problem No. 8. Union Co-operative Society Ltd. is rendering Loans and Rationing facilities to its members.

The Trial Balance of the society as on 31st March, 2014 is as follows.

Trial Balance


Share Capital 10,000 Sale of Rationing Grains 1,30,000

Bank Loan (Simple) 35,100 Office Rent 10,000

Sahakari Sangh Share Purchased 5,000 Salaries 10,000

Stationery and Printing 1,000 Travelling Expenses 1,800

Bank share purchased 7,000 Freight 1,200

Dead Stock 5,000 Coolie Charges 1,000

Interest on Members’Loans 50,000 Bank Current A/c 33,000

Members’Loan 80,000 Bank Interest 26,000

Members’ Deposit 50,000 Reserve and other Funds 40,000

Purchase of Rationing Grains 1,19,000 Cash Balance 100

Total 3,00,100 3,00,100

Adjustments:

1. Provide for Audit Fees due Rs.600.

2. Provide Depreciation on Deadstock at 5%.

3. Outstanding office Salaries is Rs.1,000.

4. Provide Bad Debts Reserve Rs.1,500.

5. Closing stock of Rationing grains on 31/03/2014 was Rs.35,000.

You are required to prepare Trading, Profit and Loss Account for the year ending on 31/03/2014 and Balance

Sheet as on that date.

Rewrite the following statements after choosing correct option 1. Capital of a co-operative society is in the form of

(a)Share Capital (b) ear marked fund ( c) corpus fund (d) none of the above

2. Working capital of a society as defined under the Maharashtra co-o63..Societies Act includes

(a)paid up share capital (b) fund built up out of profit ( c) money raised by borrowing (d)all the above

3. Under the Maharashtra co-op.Societies Act, audit of a co-op.society can be conducted by



(c) A person who has served as an auditor in the co-operative department of the state government

(d) Any of the above

4. Under the Maharashtra co-op.Societies Act, the term ‘member’includes, in addition to a person duly admitted

as a member

(a)only a sympathiser member (b) only an associate member ( c) only a nominal member (d)all the above

5. Under the Maharashtra co-op.Societies Act, a society must prepare the following financial statements for an

accounting year (a)The Profit and Loss A/c and the Balance sheet (b) Receipts and Payments A/c; the

income and exependiture A/c; and the Balance Sheet ( c) The Income and Expenditure A/c; the Balance

Sheet; and the cash flow statement vide AS 3 (d) None of the above.



6.The whole of the day to day management of a co-operative society vests in (a)the General Body (b) the

Managing committee ( c) the secretary (d) the chairman.

7. Under the Maharashtra co-op.Societies Act, a society must prepare the Profit and Loss A/c and the Balance

sheet for an accounting year (a) as per Schedule VI (b) in Form M ( c) in Form N (d) None of the above.

8. A member who hold jointly a share of society with others, whose name does not stand first in share certificate

(a) Nominal member (b) sympathiser member ( c) Associate member (d) Co-member

9. Expulsion of a member can be done

(a) by Managing Committee (b) By the General Body by simple majority

( c) by the General Body by ¾ majority (d) by the chairman

10.Proper custody and maintenance of property belonging to the society is the function of

(a) the Chairman (b) the managing committee ( c) the secretary (d) the treasurer

11. Amendment of bye-laws of the society can be done

(a) by the General Body of 2/3rd majority (b) by the General Body by 2/3rd majority subject to approval

from registrar ( c) by the General Body by simple majority (d) by the General Body by ¾ majority

12. Proper maintenance of accounts related to financial transactions of the society


11.To summon all the meeting including Annual General Meeting and record the proceedings in respective

books (a) the Chairman (b) the managing committee ( c) the secretary (d) the treasurer

12.To keep all the necessary registers and records required by the Act and Rules and bye-laws


13. Register of audit objections is required to be maintained by

(a) Bank (b) Life Insurance Company ( c) General Insurance Company (d) Co-operative Soceity

14.Deadstocks is shown in the Balance Sheet of a co-operative society

(a) Under Fixed Assets (b)Under Current Assets ( c) Separately (d) Miscellaneous Expenditure

15.Tools and Equipments are shown in the Balance Sheet of Co-operative soceity

(a) Under Fixed Assets (b)Under Current Assets ( c) Separately (d) Miscellaneous Expenditure

16. The First item on Assets side of the Balance Sheet of a co-operative society is

(a) Fixed Assets (b)Cash at bank ( c) Cash in hand (d) Deposits

17. In consumers’co-operative societies ___% of net profit is transferred to ‘Dividend Equalisation Reserve’.

(a) 2 (b)25 ( c) 10 (d) 20

18. In consumers’co-operative societies , sales made to members are recorded in

(a) Cash memos (b) Credit Notes ( c) Pass Books (d) Debit Notes

19. The maximum amount of cash allowable to be kept by housing societies

(a) Rs.5,000 (b)Rs.10,000 ( c) Rs.500 (d) Rs.300

20. The maximum amount of cash allowable to be kept by Salary Earners Societies.

(a) Rs.5,000 (b)Rs.10,000 ( c) Rs.500 (d) Rs.300

21. The maximum amount of cash allowable to be kept by Consumer societies

(a) Rs.5,000 (b)Rs.10,000 ( c) Rs.500 (d) Rs.300

22. The maximum amount of cash allowable to be kept by Sugar Factories

(a) Rs.5,000 (b)Rs.10,000 ( c) Rs.500 (d) Rs.300

23.Annual contribution towards Education Fund by a Primary Consumers Society

(a) 2 Paise per Rs.100 of the working capital

(b) 10% of the working capital

( c) Re.1 per member having a tenement

(d) 1/10% of working capital

24.Annual contribution towards Education Fund by a Urban credit Society





25.Annual contribution towards Education Fund by a Housing Society





26.Annual contribution towards Education Fund by a Urban Credit Bank







27.Annual contribution towards Education Fund @10% of the working capital is to be made by

(a) a Urban Credit Society (b) a Housing Society ( c) a Urban Credit Bank (d) Primary Consumers Society

28.Annual contribution towards Education Fund @ 2 paise per Rs.100 of the working capital is to be made by


29.Annual contribution towards Education Fund @10% is to be made by


30.Every Society deriving profits, shall transfer ____% of the profit to the Reserve Fund.

(a) 10 (b) 25 ( c) 15 (d) 5



Accounting for translation of foreign currency transactions AS 11

A transactions taking place between two or more enterprises (concerned) located in the same country are

recorded and finalized in their respective books of accounts in the same currency.

However, when one of these concerns is situated in a different country, each of them must enter the transaction

in its respective currency (domestic currency) in its books of accounts evidenced in the relevant document

quantified in the currency of one of the concerns.

The Accounting Standard 11: Accounting for effects of changes in Foreign Exchange Rates, cames into effect in

respect of accounting periods commencing on or after 1/04/2004 and is mandatory in nature from that date. This

revised standard supersedes the earlier (1993) Accounting standard AS 11.

There are two types of currency

1. Reporting Currency : Reporting Currency is the currency used in presenting the financial statements.

(Eg. INR )

2. Foreign Currency : Foreign Currency is a currency other than the reporting currency of an

enterprise.(Eg. USD$, £, ¥ , €).

There are two parties involved:

1. Importer

2. Exporter

Accounting treatment

a. Journal Entries

b. Ledger

c. Foreign Fluctuation Fund A/c or Exchange Difference A/c

Definitions of Terms (AS – 11 )

1. Average Rate : is the mean of the exchange rates in force during a period.

2. Closing Rate : is the exchange rae at the balance sheet date.

3. Exchange difference : is the difference resulting from reporting the same number of units of a foreign

currency in the reporting currency at different exchange rates.

4. Fair value : is the amount for which an asset could be exchanged, or a liability settled, between

knowledgeable, willing parties in an arm’s length transaction.

5. Sport Rate: A transaction in foreign currency is recorded in the books of accounts on the date on which

the transaction occurs at the exchange rate on that date. This exchange rate is called as the spot rate.

6. Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable

amounts of money, e.g., cash, receivables, payables.

7. Non-monetary items are assets and liabilities other than monetary items e.g. fixed assets, inventories,

investments in equity shares.

8. Settlement date is the date at which a receivable is due to be collected or a payable is due to be paid.

9. Recoverable amount is the amount which the enterprise expects to recover from the future use of an

asset, including its residual value on disposal.

Q.1 DPC, an Indian company, sells goods worth US $ 2,00,000 to Enron Corporation as on 1.7.2013, when

1 US $ = Rs.45. Show how and when this transaction should be recorded as per AS 11 ( Revised ).

Q.2 Nari Ltd. exports on 15.12.2012 goods worth $ 1,00,000 to Orient Traders in New York. The payment

was received on 28.02.2013. On the date of export, the exchange rate was $ 1 = Rs.45. The Dollars were

actually received when the exchange rate was $ 1 = Rs.48. Record the transactions in the books of Nari Ltd. in

accordance with AS-11(Revised). The year ending is 31st March.

Q.3 On 1st January, 2013, Sonali Ltd. imported $ 1,00,000 worth of goods from Robin Traders of USA.

The payment for import was made on 15.4.2013. Sonali Ltd. closed its books on 31st March every year. The

exchange rates on the relevant dates were :

01/01/2013 1 $ = Rs.46

31/03/2013 1 $ = Rs.45



15/04/2013 1 $ = Rs.48

Record the above transactions in the books of Sonali Ltd. in accordance with AS-11.

Q.4 DPC imported goods worth US $ 40,000 from Enron Corporation on 10.8.2012 when the exchange rate

was US $ 1 = Rs.42.90. DPC agreed to pay Enron in two equal instalments on 10.9.2012 and 10.10.2012.

Exchange rates on settlement dates were as follows : 10.9.2012 (Rs.42.75) and 10.10.2012 (Rs.43.50). Show in

the books of DPC Ltd. Journal Entries and Ledger Accounts of Enron Corporation based on AS 11 books are

closed on 31st March.

Mumbai University Problems

Problem No.1. Pass Journal entries for the following transactions in foreign currency and also prepare Foreign

Exchange 16 Fluctuation Account in the books of NSD Ltd. and DBK Industries Ltd.

(a) NSD Ltd. imported raw materials worth US $ 40,000 on 12th December, 2004. The exchange rate for US $ 1

as on 12-12-2004 was Rs. 46.50. The payment for the above transaction was made as under :

Date of Payment Payment made Exchange rate for US $ 1

23-02-2005 US $ 18,000 Rs. 47.75

21-03-2005 US $ 12,000 Rs. 48.25

10-04-2005 US $ 10,000 Rs. 48.50

The accounting year of the company ends on 31st March. The exchange rate as on 31st March, 2005 for US $ 1

was Rs. 45.00. (March, 2006)

Problem No.2. DBK Industries Ltd. invoiced goods to West Germany worth US $ 100,000 on 10th March,

2005 on which date exchange rate for US $ 1 was Rs. 41.00.

The payment for the same was received as under:

Date of Receipt Received Exchange rate for 1 US $

20-03-2005 US $ 40,00 Rs. 42.00

29-03-2005 US $ 35,000 Rs. 41.00

15-04-2005 US $ 25,000 Rs. 44.00

The company closes its accounting year on 31st March. The exchange rate as on 31-03-2005 was 1 US $ Rs.

45.00. (March, 2006)

Problem No.3.Nandlal imported goods from US company worth US $ 5 lac on 10-08-2004 when exchange rate

16 was US $ 1 = Rs. 42.90. He agreed to pay 5 installments as below:

The rate of exchange was Rs. 43.00 as on 31-03-2005. Pass journal entries [including those for cash] in the

books of Nandlal in accordance with AS-11. (October, 2006)

Problem No.4.Madhav exported goods to US Company worth US $1 lac on 01-03-2004 when exchange rate

was US $ 1 = Rs. 43.00. The payment was received as below:â€”

Date Installment (Us S) Rate of Exchange (Rs.)

01-02-2004 20,000 (Advance) 43.25

15-03-2004 25,000 43.50

01-05-2004 Balance 42.75

The rate of exchange was US $ 1 = Rs. 43.75 as on 31-03-2004.

Pass journal entries in the books of Mr. Madhav [including those for cash] in accordance with AS- 11.

(October, 2006)

Problem No.5.Pass journal entries for the following Foreign Exchange transactions the books 'Deepali Ltd. On

1st January, 2006 Deepali Ltd., an importer,purchased $ 42,500/- worth goods from Tom Trading Company of

USA. The payment was made as under.

On 15th January, 2006- $ 8,000

On 15th February, 2006- $9,000

Date Installment (Us S) Rate of Exchange (Rs.)

10-10-2004 75,000 42.75

10-12-2004 1, 50,000 43.50

10-02-2005 60,000 44.80

10-04-2005 75,000 42.90

10-06-2005 Balance 43.00



On 15th March, 2006- $14,500

On 15th April, 2006- $11,000

Deepali Ltd. closes its books on 31st March every year the exchange rate for $ 1 was as follows.

1st January, 2006 Rs. 48.50 15th January, 2006 Rs. 49.25

15th February, 2006 Rs. 48.25 15th March, 2006 Rs. 48.40

31 st March, 2006 Rs. 48.75 15th April, 2006 Rs. 48.60

(March, 2007 )

Problem No.6.Pass journal entries for the following transactions in foreign currency in the books of 'Priyanka

Ltd.' Priyanka Ltd. exported goods to 'Jerry Trading Company' Germany worth US $ 90,000/- on 10th January,

2006 on which date exchange rate of US $ 1 was Rs. 49.50. The payment for the same was received as under

Date of Payment US $ Received Exchange Rate for 1 US $

25th January, 2006 25,000/- Rs. 49.75

23rd February, 2006 24,000/- Rs. 48.90

24th March, 2006 24,000/- Rs, 48.60

28th April, 2006 17,000/- Rs. 48.90

'Priyanka Ltd' closes its books on 31st March every year. The exchange rate on 31 st March, 2006 was 1 US $

Rs. 48.75. (March, 2007 )

Problem No.7.Swapnil Ltd dealer in cosmetics exports goods on 1st January, 2006 worth $ 50,000 to WK Ltd.

in New York. The payment was received on 31st March, 2006. On the date of invoice the exchange rate was $ 1

= Rs. 47 and when the payment was received it was $ 1 = Rs. 48

Journalise the above transactions in the books of Swapnil Ltd. (October, 2007)

Problem No.8.X Ltd. an Indian Company advanced $ 16,000 for import of goods from US Company of USA

on 1st February, 2006. The goods were received alongwith purchase bill for $ 25,000 on 1st March, 2006. The

balance amount was paid on 15th March, 2006.

The rate of exchange on the various dates was as follows.

1-2-2006 $ 1 = Rs. 47.50

1-3-2006 $ 1 = Rs. 48.00

15-3-2006 $ 1 = Rs. 49.00

Pass journal entries for the above transactions in the books of X Ltd. (October, 2007)

Problem No.9. Shyamsundar Ltd. imported goods worth US $ 4,00,000 from M/s. Hogg and Co. of U.S.A. on

10th August, 2007 when the exchange rate was Rs. 41.00. Shyamsundar Ltd. agreed to pay the amounts in four

equal instalments as under

Date Exchange Rate

10/09/2007 Rs.42.25

10/10/2007 Rs.43.00

10/10/2007 Rs.43.50

11/12/2007 Rs.43.70

Prepare Foreign Exchange Fluctuation Account in the books of Shyamsundar Ltd. (March, 2008 )

Problem No.10. Journalise the following transactions in the books of EXIM Ltd. for the year ended 31-3-2007

and also prepare "Foreign Exchange Fluctuation Account" applying AS-11.- 16

(a) On 1st July, 2006, goods worth US $ 1,05,000 were exported to M/s. Pasco Ltd. The amount was realised as

below:

Date Amount Paid in US $

5-11-2006 70,000

11-5-2007 35,000

(b) Goods worth US $ 5,000 were exported on 15-7-2006 to Joe Co. Ltd, USA. The amount was received after

30 days.

(c) On 15-9-2006, Raw Materials worth US $ 20,000 were imported from Robert Ltd. Payable 50% immediate

and the balance on 15-4-2007.

(d) Raw Materials were imported on 31-10-2006 worth US $ 10,000 from Blue Cross Ltd. U.K. The payment

was made after 45 days.

(e) On 15-12-2006 Goods worth US $ 75,000 were exported to Thomas Ltd., UK. The amount was received as

below:.



Date Amount Paid in US $

15-2-2007 30,000

15-3-2007 45,000

(f) Plant & Machinery was imported from California Equipments Ltd. on 1-1- 2007 for US $ 14,000. The

Payment for the same was made on 30-4-2007.

The Exchange Rates for 1 US $ were as below:

Date Exchange Rate

Rs.

Date Exchange Rate Rs.

01-07-2006 41.00 01-01-2007 42.25

15-07-2006 41.25 15-02-2007 42.50

14-08-2006 41.50 15-03-2007 42.75

15-09-2006 41.00 31-03-2007 42.00

31-10-2006 41.75 15-04-2007 42.50

05-11-2006 40.00 30-04-2007 42.75

15-12-2006 42.00 11-05-2007 42.00

Problem No.11. On 1st January, 2013, Marina Ltd., an Indian Importer, purchased $2,50,000 worth goods

from Gemini Trading Company of USA.

The payment for the import was made as follows.

On 10th February, 2013 $ 1,00,000

On 15th March, 2013 $ 75,000

On 20th April, 2013 $ 75,000

Marina Limited closes its books on 31st March every year.

The exchange rate for $ 1 was follows :

On 1st January, 2013 Rs.49.00

On 10th February, 2013 Rs.49.50

On 15th March, 2013 Rs.47.60

On 31st March, 2013 Rs.45.00

On 20th April, 2013 Rs.46.75

a. Pass Journal entires.

b. Prepare Gemini Trading Company Account and Foreign Exchange Fluctuation Account in the books of

Marina Ltd. (October, 2007)

Problem No.12. On 1st January, 2012, John Ltd. imported goods worth $85,000 from Synergy Ltd. USA. The

payment were made as under:

Date Amount ($) Exchange Rate/ Dollar

10/01/2012 16,000 Rs.61

15/02/2012 18,000 Rs.62

15/03/2012 29,000 Rs.63

15/04/2012 22,000 Rs.59

Exchange rate on 01/01/2012 was 1$ = Rs.60.

Books are closed on 31st March, every year. The exchange rate on 31/03/2012 was $ 1 = Rs.63.

Pass necessary journal entries in the books of John Ltd. to record the above transactions and also prepare

Synergy Ltd. USA Account and Foreign Exchange Fluctuation Account in the books of John Ltd. for the year

ended 31/03/2012 and 31/03/2013. (April, 2014 )

Problem No.13. Purab Ltd. exported to Paschim Ltd. as on 1st March, 2013 for Rs.1,00,000 when the

exchange rate was 1US $ = Rs.62. the amount was received in three installment as under:

Date Instalment (US $) Exchange Rate

5th March, 2013 40,000 Rs.61

18th March, 2013 35,000 Rs.63

30th March, 2013 25,000 Rs.60



Pass the journal entries for the above transactions in the books of Purab Ltd. for the year ended, 31st March,

2013. (April, 2014 )

Problem No.14. Journalise the following transactions in the books of M/s Rumani & Co. for the year ended

31st March, 2012.

Date Transactions

30/11/2011 Export of goods worth US $60,000 to M/s Jackson Ltd.

27/12/2011 Import of goods worth US $ 40,000 from M/s Max Ltd.

13/01/2012 Received US $ 25,000 from M/s Jackson Ltd.

27/01/2012 Paid to M/s Max Ltd. US $ 20,000.

19/02/2012 Received from M/s Jackson Ltd. US$ 25,000

31/03/2012 Paid US $ 20,000 to M/s Max Ltd.

Exchange rate per US $ was as follows:

Date Exchange Rate Per US $ (Rs.)

30/11/2011 Rs.47.00

27/12/2011 Rs.48.00

13/01/2012 Rs.50.00

27/01/2012 Rs.49.00

19/02/2012 Rs.45.00

31/03/2012 Rs.49.00

(April, 2013 )

Problem No.15. Aranya Ltd. Imported goods from Bluebirds Ltd. of USA worth US $ 1,50,000 on 1st

December, 2013, when the exchange rate was Rs.60 per US $. The amount to be paid in installments is as

follows:

Date Amount of Installment US $ Exchange Rate Per US $ (Rs.)

31/12/2013 20,000 60

15/01/2014 40,000 62

10/02/2014 60,000 59

30/04/2014 30,000 65

Aranya Ltd. closes the books on 31st March every year. On 31st March, 2014 the exchange rate was Rs.63 per

US $.

You are required to pass journal entries for the years 31st March, 2014 and 31st March, 2015 in the books of

Aranya Ltd.

Also prepare Foreign Exchange Fluctuation Account in the books of Aranya Ltd. for the relevant years.

(April, 2015 )

Problem No.16. Krishna Ltd. imported goods from Skylark Ltd. of USA worth US $ 3,00,000 on 31st October,

2014, when the exchange rate was Rs.65 per US $. The amount to be paid in installments is as follows:

Date Amount of Installment US $ Exchange Rate Per US $ (Rs.)

15/11/2014 1,00,000 64

15/03/2015 50,000 66

20/04/2015 50,000 63

10/01/2016 1,00,000 61

Krishna Ltd. closes the books on 31st March every year. On 31st March, 2015 the exchange rate was Rs.61 per

US $.

You are required to pass journal entries in the books of Krishna Ltd. for the years 31st March, 2015 and 31st

March, 2016.

Also prepare Foreign Exchange Fluctuation Account in the books of Krishna Ltd. for the relevant years.

(April, 2016 )

Problem No.17. Smita Ltd. of Mumbai sold goods worth $ 10,00,000 to Barak Ltd.of America on 31st

January, 2014. Amounts were received from Barak Ltd. as follows:

Date $

01/02/2014 4,00,000

01/03/2014 1,00,000

30/03/201 5,00,000

Accounts are closed on 31st March every year. Exchange rates of $ 1:

Date Rs.

30/01/2014 61

01/02/2014 60

01/03/2014 62



30/03/2014 58

Pass journal entries in the books of Smita Ltd. for the years 31st March, 2014. (April, 2015 )

Fill in the blanks with suitable words.

1. _____ currency is the currency stated while presenting in final account.

2. _____ currency is the currency stated by other party to transaction.

3. Exchange rate is the ratio of ____ of two currencies.

4. As Per AS – 11 the exchange difference arising on date of settlement of monetary item should be ___

in the period to which it relate.

5. As per revise AS – 11 the exchange difference on settlement of liabilities relating to purchase of fixed

asset is transferred to ___.

6. The receivable amount in foreign currency on the date of Balance sheet is converted at ___ rate.

7. Exchange rate on the date of transaction is a ___.

8. Cash is a ___.

9. Creditors A/c is a ___.

10. Debtors A/c is a ___.

11. Investment in Equity shares is a ___.

12. Fixed asset is a ___ item.

13. Inventory is a ____

14. Exchange difference can arise only in respect of ___ items.

15. Account payable is a __ items.

16. ___ Currency used in presenting the financial statement.

17. ____ is the rate of the Balance Sheet.

18. ____ is the mean of the exchange rate during the period.

19. The date on which liability is to be paid is called __ date.

Select the correct alternative and rewrite the sentence:

1. Foreign exchange transactions are governed by AS ____

a.11 b. 13 c. 12 d. 14 (April 2014, 2016)

2. The currency of the enterprise preparing account is called ___

a.Foreign currency b. Home currency c. reporting currency d. own currency

3. The amount of exchange difference is recorded in

a. Foreign Exchange Fluctuation A/c b. General Reserve A/c c. Profit and Loss A/c d. None of the above

4. At the end of the year the balance on Foreign Exchange Fluctuation A/c is transferred to ___

a. Balance Sheet b. General Reserve A/c c. Profit and Loss A/c d. None of the above



Final Accounts of Co-operative Housing Socities 1. How would you disclose following items in the Balance sheet of a cooperative housing society?

(i) Due from members

(ii) Donations received

(iii) Painting Fund

(iv) Education fund payable

(v) Transfer to Reserve Fund

(vi) Interest on painting fund investment

(vii) Transfer fees received

(viii) Premium on transfer from members

(ix) Fire extinguisher

2. Prepare Proforma Balance sheet of a cooperative housing society with imaginary information.

3. Prepare Proforma Income and Expenditure A/c of a Cooperative housing society with imaginary

information.

4. Net Profit earned by a co-operative housing society is Rs.3,75,000 cost of construction of flats

80,00,000.

i. How much should be transfer to Reserve Fund?

ii. How much should be carried to Balance sheet?

iii. How much should be transfer to Repairs fund?

iv. How much should be transfer to sinking fund?

v. How much Honorarium can be paid to office bearers?

5. Ashokvihar Co-op.Hsg.Society Ltd. Mumbai

Trial Balance

As on 31st March, 2014

Cash 973.05 Member’s Contribution for

Maintenance

5,04,000.00

Bank 11,253.00 Interest on Bank A/c 390.00

Debtors 38,95,179.00 Interest from Members 4,90,044.00

Prepaid Insurance 7,746.00 Share Suspense 1,500.00

Prepaid subscription to

Hsg.Federation

2,700.00 Repair Fund 4,62,437.10

Buildings 7,41,000.00 Reserve Fund 3,33,600.00

Electricity Charges 17,670.00 Entrance Fees 84,730.50

Repairs 11,295.00 Loan:

Mahindra

Ruchika

87,990.00

1,35,357.00

Salary 53,700.00 Expenses Payable:

Printing and stationery 10,267.50 Accounting Charges 14,400.00

Electric Lamps 6,201.00 Consultancy Fees 14,250.00

Conveyance 31,461.00 Audit Fees 4,854.00

Postage, Telephone etc 9,681.00 Education Fund 360.00

Accounting Charges 14,400.00 Salary 4050.00

Lease Rent 2,142.00 Electricity Charges 1,200.00

Audit Fess 4,854.00 Professional Charges 1,500.00

Education Fund 360.00 Members’ Contribution towards

Flat

7,41,000.00

Subscription to HSG. Federation 900.00 Income and Expenditure A/c 20,19,265.95

Property Tax 47,190.00

Interest on loan 1,800.00

Legal Expenses 6,213.00

Insurance 9,258.00

Professional Charges 14,250.00

Misc.Expenses 435.00

49,00,928.55 49,00,928.55

Prepare Income and Expenditure A/c for the year ended 31st March, 2014 and Balance sheet as on that

date.



6. Vikas Co-op.Hsg.Society Ltd. Mumbai

Trial Balance


Cash and Bank 2,62,046.02 Capital by Members contribution 41,600.00

Buildings 4,58,33,000.00 Towards Land and Buildings 4,58,33,000.00

Furniture 23,568.00 Sinking Fund 2,83,326.00

Fire Extinguishers 49,866.00 Reserve Fund 56,808.00

Water Pump 14,068.00 Reserve & Maintenance Fund 7,88,044.00

Garbage Trolley 3,192.00 Lease Rent Fund 6,69,600.00

Water Tank 2,612.00 Donations for Library 40,824.00

Investment: TDS 1,084.00

Sinking Fund 63,950.00 Creditors 29,33,416.00

Reserve Fund 50,394.00 Income and Expenditure Account 53,25,81,712.00

Repairs Fund 1,59,084.00 Contribution from Members:

Repairs Fund 31,408.00 Property Tax 3,65,520.00

Other investments 9,810.00 Water Charges 3,07,200.00

Deposits 6,960.00 Lift Maint. 89,760.00

Prepaid Insurance 31,660.00 Service Charges 4,70,400.00

Prepaid Education Fund 480.00 Insurance 42,240.00

Debtors 96,76,496.00 Well water 21,120.00

Electricity Charges 3,40,520.00 Bank Interest 17,636.00

Building Repairs 1,28,994.00 Interest from Members 8,94,920.00

Rent, Rates, Taxes 3,56,454.00 Donation for Annual meeting 13,824.00

Water charges 3,07,200.00 Other income 9,556.00

Salary 32,500.00

Printing and Stationery 23,509.00

Conveyance 1,346.00

Electrical Repairs 12,254.00

Postage 5,282.00

Education Fund 480.00

Subscription to Hsg. Federtion 600.00

Sundry Expenses 1,900.00

Security Charges 2,54,458.00

Lift Maintenance 96,701.00

Fire Insurance 41,524.00

Accounting Charges 36,000.00

Structural Audit 33,708.00

Audit Fees 6,354.00

Meeting Expenses 10,490.00

Bank Charges 950.00

Legal Charges 2,28,104.00

Cultural Program Expenses 7,768.00

5,82,05,695.02 5,82,05,695.02

Adjustments

1. Provide Depreciation on

Furniture at 10%

Fire Extinguishers at 15%

Water Pump at 15%

Garbage Trolley at 15%

Water tank at 15%

2. Transfer 25% of the profit to Reserve Fund.

Prepare Income and Expenditure A/c for the year ended 31/03/2014 and Balance Sheet as on that date.



7. Hill View Co-op.Hsg.Society Ltd. Mumbai

Trial Balance


Bank Balance 7,70,482.00 Contribution from Members

Cash 1,518 Property Tax 36,000

Furniture 12,000 Water Charges 1,70,000

Fire Extinguishers 17,000 Lift Maintenance 80,000

Water Pump 19,000 Service Charges 2,70,000

Garbage Trolley 5,000 Insurance 22,000

Water Tank 7,000 Sinking Fund 25,000

Investment: Repairs Fund 30,000

Sinking Fund 55,800 Interest Bank A/c 16,000

Reserve Fund 40,000 Interest from members 2,24,000

Repairs Fund 1,41,600 Share Capital 1,50,000

Deposit with Reliance 19,000 Sinking Fund 1,60,000

Dues from Members 25,000 Reserve Fund 21,800

Electricity Charges 30,400 Repairs Fund 1,58,000

Rent, Rates 25,100 Income and Expenditure A/c 2,24,000

Water Charges 1,58,000

Salary 51,000

Printing and stationery 22,000

Conveyance 1,100

Postage 4,000

Sundry Expenses 1,800

Security charges 41,800

Lift Maintenance 50,400

Fire Insurance 48,000

Accounting Charges 32,000

Audit Fees 7,000

Bank Charges 800

15,86,800 15,86,800

Adjustments

1. Insurance paid in Adavance Rs.45,00

2. Provide for:

Stationery Rs.500 , Telephone Rs.1,200, Salary Rs.3,500

3. Education Fund Payable Rs.300.

4. Provide Depreciation on

Furniture at 10%

Fire Extinguishers at 15%

Water Pump at 15%

Garbage Trolley at 15%

Water tank at 15%

5. Accrued interest on

Sinking Fund Investment Rs.2,200

Repairs Fund Investment Rs.2,000

Reserve Fund Investment Rs.12,200

Prepare Income and Expenditure A/c for the year ended 31/03/2014 and Balance Sheet as on that date.

8. Following Trial Balance is extracted from the ledger of Vaishali Co-op.Hsg.Society

Trial Balance


To Electricity Charges 3,620.00 By Members’ contribution for Maintenance 11,889.30

To Repairs and Maintenance 4,210.00 By Miscellanies Receipts 203.00

To Security Charges 8,000.00 By Loan 2,350.00

To Sweepers’ Salary 1,700.00 By Income and Expenditure A/c 49,729.60

To Water Charges 4,693.00

To Dues from Members 12,924.90



To cash 285.00

To Bank 28,739.00

64,171.90 64,171.90


a) Security charges payable Rs.4,000.

b) Water Charges payable Rs.2,213.

c) Sweeper Charges payable Rs.950.

d) Audit fees payable Rs.993.

e) Professional charges payable Rs.1,500.

Prepare Income and Expenditure A/c for the year ended 31st March, 2014 and Balance Sheet as on that date.



Fill in the blanks by rewriting the sentence. 1.An amount equal to face value of equity shares bought back out of free reserve, should be

transferred to ______________ account. (General Reserve/Capital Redemption Reserve). (April, 16)

2.Balance Sheet of Co-operative Housing Society should be prepared in From __. (A / N ). (April, 16)

3.Sinking Fund should be disclosed under _________ head in the Balance Sheet of Co-operative

Housing Society. ( Share Capital / Reserve Fund and other funds) (April, 15).

4. Capital of a co-operative society is in the form of

(a)Share Capital (b) ear marked fund ( c) corpus fund (d) none of the above

5. Working capital of a society as defined under the Maharashtra Co-op. Societies Act includes

(a)paid up share capital (b) fund built up out of profit ( c) money raised by borrowing (d)all the above

6. Under the Maharashtra co-op.Societies Act, audit of a co-op.society can be conducted by



(c) A person who has served as an auditor in the co-operative department of the state government

(d) Any of the above

7. Under the Maharashtra co-op.Societies Act, the term ‘member’includes, in addition to a person duly admitted

as a member

(a)only a active member (b) only an associate member ( c) only a nominal member (d)all the above

8. Under the Maharashtra co-op.Societies Act, a society must prepare the following financial statements for an

accounting year (a)The Profit and Loss A/c and the Balance sheet (b) Receipts and Payments A/c; the

income and exependiture A/c; and the Balance Sheet ( c) The Income and Expenditure A/c; the Balance

Sheet; and the cash flow statement vide AS 3 (d) None of the above.

9. . Under the Maharashtra co-op.Societies Act, a society must prepare the Profit and Loss A/c and the Balance

sheet for an accounting year (a) as per Schedule VI (b) in Form M ( c) in Form N (d) None of the above.

10.Contribution towards the sinking fund

(a) 25% of the net profit each year (b) Rs.36 per member per year (c) ¼ of the cost of the flat per annum from

each member (d) Re. 1 per member.

11.Value of share of each member in capital of the society

(a)Rs.250 (b) Rs.300 ( c) Rs.1,500 (d)Rs.3,000

12. Non-occupancy charges

(a)Rs.1 per member (b) at 10% of service charges ( c) Rs.250 (d)Rs.36 per member per year

16. Audit charges

(a)Rs.1 per member (b) at 10% of service charges ( c) Rs.250 (d)Rs.36 per member per year

17. A Co-operative housing society has 51 members. All payments in excess of the following limits shall be

made by means of Crossed A/c Cheque

(a)Rs.1,500 (b) Rs.3,000 ( c) Rs.4,500 (d)Rs.5,000



(a)Rs.1,500 (b) Rs.3,000 ( c) Rs.4,500 (d)Rs.5,000



(a)Rs.1,500 (b) Rs.3,000 ( c) Rs.4,500 (d)Rs.5,000

Write a short note on 1. Reserve fund of Co-operative Housing Society ( April, 2015, 2016)

2. Bye Laws of a Co-operative Society.

3. Define a Co-operative Housing Society.

4. Accounts of Co-operative Housing Society.



Profit Prior To Incorporation Meaning:

“ The profits earned b/w the date of acquisition and the date of incorporation are called profits prior to

incorporation. These profits are of capital nature and these are not available for distribution among

shareholders and transferred to capital reserve account. If there is any loss prior to incorporation, it is

capital loss and debited to goodwill account.

Under company’s act 1956, pre-incorporation profits are capital profits and hence not available has

the

declaration of the dividend. A company comes into existence only when it receives the certificate of

incorporation from the registrar of companies. Sometimes a newly incorporated company acquires a

running business from a date prior to its incorporation. In such a case, the amount of profit earned by

the company from the date of purchase to the date of incorporation is called as “profit prior to

incorporation.”

The profits prior to incorporation can be calculated by following procedure:

1. Prepare trading account. In order to ascertain the amount of gross profit, the trading a/c, for the whole period should be

prepared. The whole period means the period starting from the date of incorporation to the last date of

closing of accounts.

1. Calculation of time ratio. Calculate time ratio by taking into consideration the time falling from the date of purchase of

Business to the date of incorporation and the period b/w the date of incorporation to the last date of

preparing final accounts.

2. Calculate sales ratio. It may be calculated as under:

- sales ratio = sales of pre incorporation period : sales of post incorporation period.

3. Prepare profit and loss a/c for pre incorporation and post incorporation periods

immediately.

This is done on the following basis:

(a) Gross profit should be allocated b/w two periods on the basis of sales ratio.

(b) Expenses that are connected with sales should be allocated on the basis of sales ratio.

Examples of such expenses are : selling expenses are ; advertisement, discount allowed, bad debts etc.

(c)Expenses that are incurred on the basis of time should be allocated on the basis of time ratio.

For example : admn expenses, audit fees, salaries, rent and taxes, misc. Expenses, depreciation,

insurance, electricity charges, general expenses, printing and stationary etc.

(d) Expenses which are incurred after the incorporation of the company like director fees, preliminary

expenses, debenture interest etc. Should be charged wholly to the post incorporation period.

Purpose of profit and loss prior to incorporation

1.How many profits before incorporation or after incorporation of business. The profit before

incorporation is called capital profit and after incorporation profits are called net profit or revenue

profit.

2.A separate profit and loss account is prepared for the pre incorporation period as distinguished from

profit and loss account for post incorporation period which shows profits separately.

3.In the books of the new company, acquisition entries are passed on the same date after taking into

considerations the assets and liabilities on the date of incorporation, which thus would include the

results up to the date.

4.For calculating net profit and loss of respective period after deducting apportioned expenses and

acquisition entries are passed at the end of the accounting year.

5.For the adjusted loss prior to incorporation of business, these losses would be adjusted as follows:

(a)Debited to goodwill account.

(b)Debited to capital reserve account arising from acquisition of business.

(c)Debited to a suspense account which can bewritten off later as a fictitious asset.



From the above points, mainly purpose of company for calculating the profits or loss from pre and

post incorporation of business is that, how much profit is earned from pre incorporation and post

incorporation of business.

These both profits are adjusted in the balance sheet on the liability side.

To know about the profit earned by the company prior to its incorporation, company prepares its

profit and loss account in two columns i.e. one for pre incorporation and other for post incorporation

item.

All the common expenses and incomes are divided in the following appropriate ratio.

1.In sales ratio. Expenses related to sales are apportioned in this ratio like, advertisement,

packing expenses, cartrage outward, commission to selling agent, discount allowed, variable expenses

etc.

2.In time ratio. Expenses such as rent, depreciation salaries, electricity, telephone, interest, audit fees

and other office and admn expenses.

3.In vendor ratio. Interest to vendor will be allocatedin this ratio.

4.Post of incorporation. Like directors fees, interest to vendors, preliminary expenses (if written off)

are recorded in post to incorporation period.If there is profit in the first column, such profit is known

as profit prior to incorporation.

Basis of Allocation

Time Basis Sales Basis Pre – Incorporation Post - Incroportion



Q.1. Following Trial Balance is extracted from the books of Shrikrishna (Pvt.) Ltd. as on 31-03-2012.

The company was Incorporated on 1-08-2011 to take over the business of a proprietary concern from

1-4-2011. The authorised share capital was 50,000 Equity shares of Rs. 10 each. The Purchase

consideration was settled on 1-10-2011, being Rs. 1, 25,000. It was in the form of 10,000 shares of

Rs. 10 each and the balance in the form of debentures of Rs. 100 each.

Trial Balance as on 31st March, 2012

Particular Debit

Rs.

Particular Credit

Rs.

Opening Stock 23,600 Sales 2,14,000

Purchases 75,800 Sundry Creditors 40,200

Carriage Inwards 5,200 Bills Payable 29,000

Salaries 24,000 Capital 1,15,000

Office Expenses 8,100 Interest on Investments 1,800

Postage & Telephones 9,000

Printing & Stationery 9,900

Office Rent 36,600

Carriage Outwards 7,200

Selling Expenses 6,900

Directors' Fees 3,200

Interest on Purchase consideration 5,625

Preliminary expenses 7,500

Sundry Debtors 54,000

Bills Receivable 5,375

Fixed Assets 1,00,000

Investments 18,000

4,00,000

4,00,000

If is further informed that:

1. Closing stock is valued at Rs. 11,200.

2. Fixed Assets include furniture of Rs. 10,000 purchased on 01-10-2011; Depreciation is to be

charged on Fixed Assets @ 10% p.a.

3. Total sales for the post-incorporation period are three times the total sales for the pre-

incorporation period.

4. Rate of Interest on debentures is 10% p.a. while on purchase consideration is 9% p.a.

5. Preliminary expenses should be written off.

6. Investments are purchased by the proprietor during 2010-11.

Prepare Trading and Profit & Loss Account for the Year ending 31-03-2012 showing the treatment of

Pre-incorporation and post-incorporation profits separately. Prepare Balance Sheet as on the same

date. (October, 2006)



Q.2 The following trial balance was extracted from the books of M/s. Jhakharia Pvt. Ltd., which had

taken over business of Mr. Vardhan on 1st April, 2012. The company was incorporated on 1st July,

2012. However no effect of conversion was given in the books which continued thereafter.


Particular Debit Rs. Credit Rs.

Capital Account of Mr. Vardhan on 1/4/2012 ---- 9,00,000

Debtors 80,000 ----

Creditors ---- 1,00,000

Rent 33,000 ----

Office Salary 1,10,000 ----

Carriage outward 54,000 ----

Directors Remuneration 16,000 ----

Travelling Expenses 28,500 ----

Preliminary Expenses 15,000 ----

Administrative Expenses 1,60,000 ----

Bills Receivable 30,000 ----

Bills payable ---- 21,500

Cash at Bank 60,000 ----

Plant & Machinery 2,00,000 ----

Land & Buildings 5,00,000 ----

Furniture 40,000 ----

Stock 1,90,000 ----

Gross Profit ---- 4,95,000

Total : 15,16,500 15,16,500

Further Information:

1. Gross Profit percentage is fixed. Turnover is doubled in April, November and December as

compared to other months.

2. 1/5 of preliminary expenses are to be written off.

3. Purchase consideration Rs. 10, 00,000 to be paid by the issue of 80,000 equity shares of Rs.

10/-each and 2,000 9% preference shares of Rs. 100/- each.

4. Travelling expenses are incurred by, salesmen only.

5. Audit Fee is Rs. 18,000/- for 1st April, 2012 to 31st March, 2013 and is outstanding.

6. Rent of office was paid @ Rs. 2,500/-, per month up to September, 2012 and thereafter, it was

increased by Rs. 500/- per month.

7. Provide depreciation @ 10% p.a. on Plant & Machinery, Land & Building and on Furniture.

Prepare profit and loss account for the year ended 31st March, 2013 appropriating between the pre

and post incorporation period ( April, 2007)

Q.3 A Company was incorporated on 31st August, 2013 to take over the business as going concern

from 1st March, 2011. Trial Balance drawn on 31st December, 2013.

Trial Balance as on 31st December, 2013

Debit Balances Rs. Credit Balances Rs.

Land and Building 1,50,000 Vendor's Capital 2,40,000

Plant and Machinery 50,000 Debentures 10,000

Computer 20,000 Sundry Creditors 2,400



Sundry Debtors 30,000 Bills Payable 2,000

Bank 30,000 Interest Received 5,000

Stock 25,000 Gross Profit 96,000

Management Expenses 12,000

Rent 4,200

Office Expenses 5,500

Directors' Fees 17,000

Postage and Telegrams 500

Bad Debts 2000

Free Samples 800

Formation Expenses 2,000

Debenture Interest 1,000

Commission on Sales 800

Depreciation 3,000

Careiage Outwards 1,600

3,55,400

3,55,400


1. The Purchase consideration was settled at Rs. 2,50,000 by issuing 2,500 equity shares of Rs.

100 each.

2. Total sales for the period from 1st March, 2013to 31st December, 2013 was Rs. 2,56,000 and

out of which Rs. 1,12,000 was for the period from 1st September, 2013 to 31st December,

2013.

3. In lieu of interest on purchase consideration, the vendors would get 50% of the net profit prior

to incorporation.

4. Bad Debts of Rs. 800 are related to sales made in pre-incorporation period.

5. Rent is paid on the basis of floor space occupied which was doubled in post incorporation

period.

6. 40% of Goodwill and 20% of formation expenses are to be written off.

Prepare Profit and Loss Account for the period ended 31st December, 2013 showing pre and Post

incorporation Profit. ( October, 2007)

Q.4. Eeshan Ltd. was incorporated on 1st August ,2008 to acquire a bussiness as on 1st April,2008

The first accounts were closed on 31 st March, 2009 . The following items appeared in the Profit and

Loss Account.

Profit and Loss Account for the year ended 31st March, 2009

Particular Debit Rs. Particulars Credit Rs.

Director's Fees 49,000 By Gross Profit 9,60,000

Rent 85,500

Bad debts 12,000

Salaries 1,83,000

Interest on Debentrue 24,000

Depreciation 66,000

Preliminary Expenses 42,000

General Expenses 49,200

Commission on Sales 36,000



Printing and Stationery 93,000

Advertising 1,20,500

Auditor's Fees 58,600

Electricity Charges 44,400

Insurance Premium 24,000

Land and Buildings 9,60,000

9,60,000

Additional Information: 1. Rent is paid on the basis of floor space occupied. Floor space occupied was doubled in the

post incorporation period.

2. Sales for each month of December 2008 to March, 2009 were double the monthly sales of

April to Nomeber, 2008.

3. Bad debts Rs. 500/- were in respect of sales effected two years ago.

4. Mr. Amit was working partner in the firm entitled to a remuneration @ Rs. 12,000/- p.m.

From 1st August, 2008 he was Managing Director of a Company entitled to salary @ Rs.

15,000/- p.m. The remaining salary is to two Clerks employed during the period 1st July to

30th November, 2008.

You are required to prepare profit and loss account for the year ended 31st March, 2009 and show

'Pre' and 'Post' incorporation period profit or loss. ( April, 2008)

Q.5. ICL Ltd. was incorporated to take over the running business of BC and CI Brothers with effect

from 1st April 2008, The Company was incorporated on list August 2008. The following information

was available from the books of accounts, which were closed on 31st March 2009.

Particular Rs. Rs.

Gross Profit 7,00,000

Share Transfer Fees Received 10,0000

7,10,000

Expenses:

Office Salaries

2,10,000

Partners' Salaries

60,000

Advertising

63,000

Printing Stationery

15,000

Travelling Expenses

40,000

Office Rent

96,000

Auditors' Remuneration

6,000

Directors' Fees

10,000

Bad Debts

12,000

Sales Commission

49,000

Preliminary Expenses

7,000

Debenture Interest

16,000

Interest on Capital

18,000

Depriciation

21,000




1. Monthly sales were Rs. 5,00,000 for pre- incorporation period, while total sales for the year

were Rs. 70,00,000. The sales arose evenly throughout the concerned periods.

2. Office rent was Rs. 84,000 p.a.upto 30th Sept. 2008. It became Rs. 1,08,000 p.a. thereafter.

3. Travelling Expenses included Rs.7,000 towards sales promotion.

4. Auditors' Remuneration was payable for whole year.

5. Bad Debts written off included a debt of Rs. 4,000 taken over from the vendor, while the

remaining were in respect of goods sold in September 2008.

6. Depreciation includes Rs. 6,000 for asset acquired in the post incorporation period. (Oct., 08)

Q.6. Ameya Ltd. was incorporated on 1st August , 2012 to take over a running partnership business

with effect from 1st April, 2012. Following are the details of income and expenses for the year ended

31st March, 2013.

Particulars Rs. Rs.

Gross Profit 19,20,000

Less : Expenses

Directors Fees 98,000

Rent 1,71,000

Bad Debts 24,000

Salaries 3,66,000

Interest on Debentures 48,000

Deprecation 1,32,000

Preliminary Expenses written off 84,000

General Expenses 98,400

Commission on Sales 72,000

Printing and Stationery 1,86,000

Advertisement Expenses 2,41,000

Audit fees 1,17,200

Carriage Charges 1,45,600

Electricity Charges 88,800

Insurance Premium 48,000 19,20,000

Net Profit Nil

Additional information:

a) Rent is paid based on floor space occupied. Floor space occupied was doubled in the post


b) Sales for each month of December 2012 to March 2013 were double the monthly sales of

April 2012 to November 2012.

c) Audit fees is for entire year.

d) Bad debts Rs.1,000 were in respect of sales effected two years ago.

e) Mr. Amog was a working partner in the firm entitled to a remuneration @ Rs.24,000 per

month. From 1st August, 2012, he was made the Managing Director of the company and was

entitled to salary @ Rs.30,000 per month. The remaining salary is to two clerks employed

during the period from 1st July, 2012 to 30th November, 2012.

Prepare a statement showing profits for the pre and post incorporation period separately.

7. Vasant Ltd. was incorporated on 1st August, 2010 to take over the running business of M/s Ankush

Bros., a partnership firm, w.e.f. 1st April, 2010. The company received the certificate of

commencement of business on 1st October, 2010. The following Profit and Loss A/c was prepared for

the year ended 31st March, 2011.

Profit and Loss A/c for the year ended 31.03.2011

Expenses Rs. Income Rs.

To Office & Administrative Expenses 71400 By Gross Profit 160000

To Partner’s Salaries 16100 By Share Transfer Fees 2000



To Selling and Distribution Expenses 24800

To Director’s fees 2000

To Debenture Interest 3200

To Interest on Partner’s Capital 3600

To Bank Charges 900

To Preliminary Expenses 2000

To Net Profit 38000

162000 162000

Sales arose evenly upto date of certificate of commencement of business. Thereafter they recorded an

increase of two –third of the average monthly sales.

Prepare Profit and Loss A/c for the year ended 31st March, 2011, in a columnar form showing the Profit

or loss during ‘Pre’ and ‘Post’ incorporation period separately. ( March, 2012 )

8. Baneshwar Ltd. was incorporated on 1st September, 2009 to take over the business of Ekta & Gomati, a

partnership firm with effect from 1st April, 2009. Following is their Profit & Loss Account for the year

ended 31st March, 2010.


To Salaries 3900 By Gross Profit 180000

To Rent 8000 By Share Transfer Fees 12000

To Bad Debt 11000

To Office Expenses 2400

To Directors Fees 1000


To Salary to Partners 24300

To Printing & Stationary 5000


To Net Profit 91000

192000 192000


a) Average monthly turnover from October, 2009 to March, 2010 was twice the average monthly turnover

from

April, 2009 to September, 2009.

b) Rent is doubled from 1st December, 2009.

c) Bad Debts include Rs.2000 in respect of Sales affected two years ago. Remaining Bad Debts are out of

Sales affected throughout the year.

d) Salaries include Salary of three employees at equal monthly remuneration. However one of them was

appointed as manager from 1st January, 2010. His salary was doubled from that date.

e) In lieu of interest on purchase consideration the vendor would get 40% of the Profit earned in Pre-


f) Interest of Fixed Deposit was received for the entire year.

Prepare Trading and Profit and Loss Account of Baneshwar Ltd. for the year ended 31st March, 2010 in

the columnar form apportioning all the income and expenditure items between Pre-incorporation and

Post incorporation period on suitable basis. ( March, 2011 )

9. Agni Postal Services was taken over by Vayu Telecom Ltd. on 1st June, 2009. However the company

was incorporated on 1st December, 2009.

The following was Profit and Loss Account for the period from 1st June, 2009 to 31st March, 2010.

Particulars Rs. Particulars Rs.

To Printing and Stationery 15000 By Gross Profit 180000

To Rent 8000 By Share Transfer Fees 12000

To Bad Debt 11000

To Office Expenses 2400

To Directors Fees 1000


To Salary to Partners 24300

To Printing & Stationary 5000


To Net Profit 91000



192000 192000

You are further informed that:

a. Salaries were paid @ Rs.96000 p.a. upto 31st October, 2009 and thereafter @ Rs.108000 p.a.

b. Gross Profit percentage is fixed, average monthly sales were 1/3 rd in July, August and

November, 2009 and ½ in January and February, 2010 as compared to remaining months.

c. Purchase consideration was paid on 1st January, 2010 along with interest due thereon.

d. Printing and Stationery expenses includes Rs.5000 paid for printing of wedding cards of Miss

Ladii, daughter of the proprietor of Agni Postal services.

e. The company discontinued practice of credit sales from 1st February, 2010.

f. Advertisement expenses include Rs.2000 p.m. for a hoarding, remaining advertisement

expenses are directly proportional to sales.

You are required to prepare Profit and Loss Account in columnar form for the period from 1st June 2009 to 31st

March, 2010, apportioning various incomes and expenses on suitable basis in the Pre and Post incorporation

period. (Oct, 2011 )

10. Choudhari Ltd. Company was incorporated on 1st May, 1988 to purchase running business of Imran

Khan Ltd. from 1st January, 1988.

Profit and Loss A/c

For the Year ended 31st December, 1988.

Rs. RS.

To Salaries

To Directors Fees

To Rent & Taxes

To Electricity Charges

To Insurance

To Commission

To Advertising

To Discount

To Carriage

To Office Expenses

To Bank charges

To Preliminary Expenses

To Bad Debts

To Interest on Loan

To Net Profit

39,600

5,060

12,000

2,400

3,000

7,600

4,500

3,700

2,800

8,000

1,500

6,500

2,500

3,000

68,340

By Gross Profit 1,70,500

1,70,500 1,70,500

The total sales for the year ended 31st December, 1988 was Rs.5,50,000 out of which Rs.1,37,500 were for the

period from 1st January, 1988 to 1st May, 1988. Find out the profit prior to incorporation and subsequent to

incorporation.

11. Following Trial Balance is extracted from the books of Invent Ltd. as on 31st March, 2009. The

company was incorporated on 1st July, 2008 to take over the business of a proprietary concern with

effect from 1st April, 2008. The authorised share capital of the company was 50000 Equity shares of

Rs.10 each. The purchase consideration Rs.125000 was settled on 1st October, 2008 by issue of 10000

Equity Shares of Rs.10 each at par and balance in the form of 12% Debentures of Rs.100 each issued at

par.


Debit Balances Rs. Credit Balances Rs.

To Opening Stock 23600 By Sales 210000

To Purchases 175800 By Sundry Creditors 30200

To Carriage Inward 5200 By Bills Payable 29000

To Salaries 24000 By Profit on Sale of Investment 5800

To Office Expenses 63600 By 12% Debentures 25000

To Commission on Sales 14100 By Equity Share Capital 100000

To Director’s Fees 3200

To Interest on Purchase Consideration 6250

To Preliminary Expenses (to be written off) 7500

To Sundry Debtors 54000



To Bills Receivable 4750

To Investments 18000

400000 400000


a. Stock as on 31st March, 2009 was Rs.15200 and stock as on 1-07-2008 was Rs.4000.

b. Purchases of Rs.175800 included purchase of computer on 1st March, 2009 for Rs.100000 on

which depreciation is to be charged at 60% p.a.

c. Total purchases for the post incorporation period ( excluding purchase of computer ) are three

times that of Pre incorporation period.

d. Interest at 10% p.a. was paid on Purchase consideration.

e. Investments were sold on 1st May, 2008.

f. Provide for outstanding interest on debentures.

g. Gross Profit for Pre-incorporation period was Rs.30150.

h. Sales in the pre-incorporation period were Rs.70000.

Prepare Trading and Profit and Loss Account of Invent Ltd. for the year ended 31st March, 2009 in the columnar

form apportioning various expenses and incomes between pre and post incorporation period on suitable basis.

( Oct, 2010 )

12. Sunderam Brothers was taken over by Sundaram Ltd. on 1st May, 2008; however , the company was

incorporated on 1st February, 2009.

The following was Trading and Profit & Loss account for the period from 1st May, 2008 to 31st March,

2009

Particulars Rs. Particulars Rs.

To Opening Stock 45000 By Sales 860000

To Purchases 200000 By Closing Stock 165000

To Wages 80000

To Gross Profit c/d 700000

1025000 1025000

To Salaries 72000 By Gross Profit b/d 700000

To Rent ( Net ) 39000 By Discount 7000

To Delivery Van Expenses 14000

To General Expenses 22000

To Advertisement Expenses 350000

To Bad Debts Written off 14000


To Directors Meeting Fees 8000


To Net Profit c/d 112000

707000 707000

You are informed that:

a. Salaries in Pre-incorporation and Post-incorporation period were Rs.6000 p.m. and Rs.9000

p.m. respectively.

b. Gross Profit percentage is fixed. Average monthly turnover is nine times in May, October and

November, 2008as compared to average monthly turnover of remaining months.

c. Audit fees Rs.5500 is to be provided for the above period.

d. Rent on the debit side is after subtracting rent received at Rs.4000 p.m. from 1st December,

2008.

You are required to prepare Profit & Loss Account in columnar form, apportioning various incomes

and expenses on suitable basis in the Pre and Post Incorporation period from 1st May, 2008 to 31st

March, 2009. ( April , 2010 )

13. Ravi Ltd. was incorporated on 1st August, 2007 to take over the business of a firm w.e.f. 1st March,

2007. The company received certificate to commence the business on 1st February, 2008. Its sales upto

1st September, 2007 were Rs.25000 per month. Thereafter, they were Rs.40000 per month upto 31st

January, 2008 and Rs.75000 per month for the remaining months.

Calculate Sales Ratio for Pre and Post incorporation periods for the period ended 31st March, 2008;

when the company closed its books of account for the first time. ( October , 2009 )



14. Wide Ltd. took over the business of M/s Narrow & sons w.e.f.1st April, 2008. Wide Ltd. was

registered on 1st September, 2008. Its Profit and Loss Account for the year ended 31st March, 2009

was as under:

Rs. Rs.

To Salaries 12000 By Gross Profit b/d 75000

To Rent and Taxes 9600

To Carriage Outward 7500

To Audit Fees 1200

To Travelling Expenses 6600

To Printing & Stationery 2400

To Electricity Charges 3000

To Commission on Sales 4800

To Depreciation 8000

To Advertising 2400



To Net Profit c/d 15800

75000 75000


1. Trend of sales during April, 2008 to March, 2009 was as under:

April, May Rs. 8500 p.m.

June, July Rs.10500 p.m.

August, September Rs.12000 p.m.

Ocober, November Rs.14000 p.m.

December onwards Rs.15000 p.m.

2. Out of travelling expenses Rs.3000 were incurred by office staff while remaining expenses were

incurred by salesman.

3. Wide Ltd. took over a machine worth Rs.72000 from Narrow & Sons while it purchased a new

machine on 1st February, 2009 for Rs.48000. It provided depreciation @10% p.a.

4. Audit fees are paid for the whole year.

Prepare Profit and loss Account for the year ended 31st March, 2009 showing profits for pre and post

incorporation periods separately. ( April , 2009 )

15. Huge Company Limited took over the business of Small Associates,w.e.f. 1st April, 2014. The

company was incorporated on 1st November, 2014. Summarised Profit and Loss A/c for the year ended

31st March, 2015 is as under:


To Salaries 2,40,000 By Gross Profit b/d 12,60,000

To Rent and Taxes 1,80,000

To Printing and Stationery 96,000

To Audit Fees 30,000

To Sundry Expenses 24,000

To Carriage Outward 90,000

To Advertising Expenses 63,000

To Electricity Charges 72,000

To Commission on Sales 1,08,000

To Debenture Interest 28,000

To Depreciation 42,000

To Interest on Purchase Consideration 27,000

To Net Profit c/d 2,60,000

12,60,000 12,60,000


1. Sales for each of the month of July, August, September, January, February and March were twice the

sales for each of the month April, May, June, October, November and December.

2. Depreciation shown above, includes depreciation on Furniture worth Rs.2,40,000 @ 10% and on

delivery van worth Rs.90,000 @20%. Both these assets were taken over from Small Associates.

3. Huge Company Ltd. settled purchase consideration on 1st January, 2015.



4. Audit fees are payable for the whole year.

Prepare statement of Profit and Loss for the year ended 31st March, 2015 showing profits for pre incorporation

and post incorporation periods separately. (April, 2016)

A) Match the following columns

Group A Group B

1. Pre-incorporation Profit a. Goodwill

2. Pre-incorporation Loss b. Post - incorporation

3. Company related expenses c. No allocation

4. Vendor related expenses d. Capital reserve

5. Assets e. Pre-incorporaton

B) Match the following columns

Group A Group B

1. Sales related expenses a. Adjust against consideration paid

2. Loans b. Not relevant

3. Time related expenses c. Sales ratio

4. Vendors capital d. No allocation

5. Business certificate date e. Time ratio

One line Answer questions

1. What is incorporation of a company?

2. What is profit to incorporation?

3. How is profit prior to incorporation dealt with?

4. What is time ratio?

5. What is turnover ratio?

6. Mention any five items which can be allocated on time ratio.

7. Mention any five items which can be allocated on turnover basis.

8. How is loss prior to incorporation dealt with?

Multiple choice questions

1. Profit upto date of incorporation is ____

a. Capital reserve b. capital profit c. securities premium d. statutory reserve

2. The relevant date of segregation of income and expense is date of ___

a. Takeover b. incorporation c. business commencement certificate d. balance sheet

3. The expenses relating to the company should be allocated to ___ period.

a. Pre-incorporation b. Post-incorporation c. none d. both

4. The expenses pertaining to vendor should be allocated to ___ period.


5. The share transfer fees received is related to __ period.


6. The interest paid to vendor should be allocated in the ratio of ___.

a. time b. sales c. specific time period d. none

7. The excess of consideration paid over net value of assets taken over is called ___.

a. goodwill b. capital reserve c. securities premium d. reserve capital

8. The loss during pre-incorporation period is called ___

a. goodwill b. capital reserve c. securities premium d. share capital

9. The excess of net assests over consideration paid is called ___

a. Capital reserve b. reserve capital c. goodwill d. securities premium

10. The profit or loss during post incorporation period is transferred to ___.

a. Profit and loss A/c b. goodwill A/c c. Capital reserve d. securities premium



11. New Ltd. took over the running business of 1st January, 2015. The company was incorporated on 1st

May, 2015. Accounts are closed on 31st December, 2015. Sales upto 30th April, 2015 were Rs.3,00,000

out of total sales of Rs.15,00,000 of the year. The sales ratio is ____

a. 1:4 b. 1:2 c. 1:3 d. 1:5

12. Date of take over : 01.01.2015. Date of incorporation : 01.05.2015. Closing Date: 30.09.2015.

Net sales are Rs.8,20,000; the monthly average of which for the first four months is one half of that of

the remaining period. The sales ratio is ___.

a. 1:5 b. 2:5 c. 1:3 d. 3:5

13. Purchase consideration : Rs.30,000. Capital Account : Rs.23,000. The value of goodwill is ___

a. Rs.23,000 b. Rs.53,000 c. Rs.7,000 d. Rs.62,000

14. Commission to salesman is allocated in ___ ratio while calculating profits for the pre and the post

incorporation period.( Time/Sales). (April, 2015)

15. Preliminary expenses written off is a ____ incorporation expense. (pre / Post) (April, 2015)

16. Gross profit is allocated in __ ratio while calculating profits for the pre and post incorporation period (

Time/ sales). (April, 2016)

17. Fixed expenses are allocated in ____ ratio while calculating profits for the pre and post incorporation

period ( Time / Sales). (April, 2016)

Theory Questions

1.Explain the concepts of Time Ratio and sales Ratio while calculating pre and post incorporation profits. (8)

(April, 2016)

2. What are the basis of allocation of expenses for calculating pre and post incorporation profits? (8) (April, 15)

Short Notes on

1. Profit Prior to incorporation

2. Time Ratio

3. Sales Ratio

4. Allocation of expenses

5. Capital reserve

6. Classification of expenses into pre and post incorporation period. (April, 2016)

7. Time ratio and sales ratio while determining pre and post incorporation period. (April, 2015)



Documents

FINANCIAL ACCOUNTING AND AUDITING PAPER …tktopenightcollege.in/.../2017/02/Financial_Ac_Sem_V.pdfFinancial Accounting Paper V TYBCOM Semester V 2016-17 Pankaj Pandagale, Assistant