XII – ACCOUNTINGa4accounting.weebly.com/uploads/7/1/2/8/7128209/xii-2004.pdfOrdinary shares...

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2004

Compiled and Solved by:

S.Hussain

XII – ACCOUNTING

REGULAR /

PRIVATE

http://www.a4accounting.net/

Compiled & Solved by: S.Hussain [email protected]

X I I – A c c o u n t i n g – 2 0 0 4 ( R e g u l a r / P r i v a t e )

ACCOUNTING – 2004

REGULAR / PRIVATE NOTE: Attempt any four questions. Q.No.1 SINGLE ENTRY SYSTEM GIVEN Information given below has been extracted from the book of Ali who maintains his accounting records on single entry system. 1.1.2003 31.12.2003 Cash 3,000 5,000 A/C. receivable 10,000 15,000 Merchandise inventory 20,000 50,000 Office equipment 15,000 15,000 Office furniture 20,000 20,000 A/C. payable 8,000 5,000 Adjustment data on Dec. 31, 2003:

(i) Additional investment Rs.10,000. (ii) Withdrawals Rs.500 p.m. for personal use. (iii) Estimated depreciation expense 10% on fixed assets. (iv) Rent Rs.2,000 p.m. outstanding since Nov. 2003.

REQUIRED (i) Compute the amount of capital on Jan. 01 and Dec. 31, 2003. (ii) Prepare statement of profit or loss for the year ended Dec. 31, 2003. (iii) Prepare opening journal entry on Jan. 01, 2004 if the books were to be converted and

maintained on double entry system with effect from that data. SOLUTION 1 (i) Computation of Capital at Start and Capital at End: 1-1-2003 31-12-2003 Cash 3,000 5,000 Accounts receivable 10,000 15,000 Merchandise inventory 20,000 50,000 Office equipment 15,000 15,000 Office furniture 20,000 20,000

Total assets 68,000 105,000 Less: Total Liabilities: Accounts payable (8,000) (5,000)

Capital balances 60,000 100,000



SOLUTION 1 (ii) ALI

STATEMENT OF PROFIT OR LOSS FOR THE PERIOD ENDED 31 DECEMBER 2003

Capital at end 100,000 Add: Drawings (500 x 12) 6,000

106,000 Less: Capital at start (60,000)

46,000 Less: Additional investment (10,000)

Unadjusted profit 36,000 Less: Operating Expenses: Depreciation expenses – Office equipment (15,000 x 10%) 1,500 Depreciation expenses – Office furniture (20,000 x 10%) 2,000 Rent expense (2,000 x 2) 4,000

Total operating expenses (7,500)

Adjusted net profit 28,500

SOLUTION 1 (iii)

ALI OPENING ENTRIES

FOR THE PERIOD STARTED 1 JANUARY 2004

Date Particulars P/R Debit Credit

1 Cash 5,000 Accounts receivable 15,000 Merchandise inventory 50,000 Office equipment 15,000 Office furniture 20,000 Accounts payable 5,000 Rent payable 2,000 Allowance for depreciation – Office equipment 1,500 Allowance for depreciation – Office furniture 2,000 Capital (60,000 + 10,000 + 28.500 – 6,000) 92,500 (To open the various assets, liabilities and owner’s equity)

Additional Working:

ALI ADJUSTING ENTRIES

FOR THE PERIOD ENDED 31 DECEMBER 2003


1 Depreciation expense 3,500 Allowance for depreciation – Office equipment 1,500 Allowance for depreciation – Office furniture 2,000 (To adjust the depreciation expense for the period)

2 Rent expense 2,000 Rent payable 2,000 (To adjust the accrued rent)



Q.No.2 PARTNERSHIP – ADMISSION GIVEN Rahim and Saeed were partners sharing profit/loss in the ratio of 5:4 respectively, the

balance sheet of the firm as on July 31, 2003 was as under:

Assets Equities Cash 160,000 A/c. payable 80,000 Other assets 640,000 Rahim Capital 400,000 Saeed Capital 320,000

800,000 800,000

On this date they decided to admit Sadiq as a new partner for 1/4 interest in the capital and profit in the situation given below: Situation (i): Sadiq invests cash Rs.360,000 and is credited with full amount of his investment. REQUIRED Prepare journal entries and balance sheet as on July 31, 2003. Situation (ii): Sadiq invests cash Rs.300,000. Total capital of the firm after his admission is increased

only by Rs.300,000. REQUIRED Prepare journal entry for admission of Sadiq. SOLUTION 2 Situation – i: Computation: (Goodwill to Old Partners): (The sentence “credited with full amount of his investment” shows that goodwill goes to old partners). For 1/4 interest, Sadiq’s investment 360,000

Therefore total capital of firm (360,000 x 4/1) 1,440,000

For 3/4 interest, old partners’ capital (1,440,000 x 3/4) 1,080,000 Less: Old partners’ capital before admission (400,000 + 320,000) (720,000)

Goodwill to old partners 360,000

________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 360,000 Sadiq Capital 360,000 (To record the investment of Sadiq)

2 Goodwill 360,000 Rahim Capital (360,000 x 5/9) 200,000 Saeed Capital (360,000 x 4/9) 160,000 (To record the distribution of goodwill)



________ PARTNERSHIP BALANCE SHEET

AS ON 31 JULY 2003

ASSETS EQUITIES

Cash 520,000 Liabilities: Other assets 640,000 Accounts payable 80,000

Goodwill 360,000 Total liabilities 80,000 Owner’s Equity: Rahim Capital 600,000 Saeed Capital 480,000 Sadiq Capital 360,000

Total owner’s equity 1,440,000

Total assets 1,520,000 Total equities 1,520,000

Situation – ii: Computation: (Bonus Method): (The sentence “Total capital of the firm after his admission is increased only by Rs.300,000” represents the bonus method). Old partners’ capital (400,000 + 320,000) 720,000 Add: Sadiq’s investment 300,000

Total capital of firm 1,020,000

For 1/4 interest Sadiq’s capital (1,020,000 x 1/4) 255,000 Less: Sadiq’s investment (300,000)

Bonus to old partners 45,000

________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 300,000 Rahim Capital (45,000 x 5/9) 25,000 Saeed Capital (45,000 x 4/9) 20,000 Sadiq Capital 255,000 (To record the admission of Sadiq)

Q.No.3 NON- PROFIT EARNING CONCERN GIVEN A summary of receipts, expenditure account of Khairpur Sports Club for one year is given below:

Receipts Payments Opening balance 6,000 Salary 4,000 Subscriptions 40,000 Electric charges 1,000 Donations 15,000 Sports expenditure 1,000 Interest 1,000 Sports goods purchased 10,000 Charity show receipts 5,000 Books purchased 8,000 Other expenses 2,000 Charity show expenses 4,000 Investment 10,000 Closing balance 27,000

67,000 67,000



Additional Data: (i) Subscription included Rs.1,000 for 2002 and Rs.500 for the year 2004. (ii) Accrued subscription Rs.2,500 for the year 2003. (iii) Outstanding salary Rs.2,000. (iv) Accrued interest income Rs.500.

On Jan. 1, 2003 the club had the following assets: (a) Sports goods Rs.4,000. (b) Books Rs.5,000. (c) Investment Rs.6,000.

REQUIRED (i) Prepare Income and Expenditure Account for Dec. 31, 2003. (ii) Prepare balance sheet as on Dec. 31, 2003.

SOLUTION 3 (i)

KHAIRPUR SPORTS CLUB INCOME AND EXPENDITURE ACCOUNT


Expenditure Income

Salaries expense (4,000 + 2,000) 6,000 Subscription (40,000–1,000–500+2,500) 41,000 Electric charges 1,000 Donations 15,000 Sports expenditure 1,000 Interest income (1,000 + 500) 1,500 Other expenses 2,000 Charity show receipts 5,000 Charity show expenses 4,000

14,000 Surplus over expenditure 48,500

62,500 62,500

SOLUTION 3 (ii)

KHAIRPUR SPORTS CLUB BALANCE SHEET

AS ON 31 DECEMBER 2003

ASSETS EQUITIES

Current Assets: Liabilities: Cash 27,000 Salaries payable 2,000 Interest receivable 500 Unearned subscription 500

Subscription receivable 2,500 Total liabilities 2,500

Total current assets 30,000 Club Equity: Sports goods 14,000 Accumulated fund 22,000 Books 13,000 Add: Surplus 48,500

Investment 16,000 Total owner’s equity 70,500

Total fixed assets 43,000

Total assets 73,000 Total equities 73,000



Computation of Accumulated Fund: Cash (Openings) 6,000 Sports goods 4,000 Books 5,000 Investment 6,000 Subscription receivable 1,000

Accumulated Fund 22,000

Q.No.4 ISSUE OF SHARES AND DEBENTURES

(a) GIVEN Essani Company Ltd. offered 60,000 shares of Rs.20 each payable full with application. The company received 90% application from public. The remaining shares were sold to underwriter at 10% commission.

REQUIRED Give necessary journal entries.

(b) GIVEN Mehran Company Ltd. completed the following transactions: (i) Issued 15,000 shares of Rs.10 at premium of Rs.2 each for cash. (ii) Purchased building worth Rs.600,000 and issued 61,000 shares of Rs,10 each. (iii) Debentures of Rs.80,000 were settled by issue of sufficient number of shares of Rs.10 each. (iv) Purchased four computers of Rs.60,000 each by issuing sufficient number of shares of Rs.10

each. The market price of each share is Rs.12. (v) The company issued 2,000 10% debentures of Rs.100 each at Rs.96 each payable at Rs.103 after

5 years. REQUIRED Prepare journal entries in the book of company to record the above transactions. SOLUTION 4 (a)

ESSANI COMPANY LTD. GENERAL JOURNAL


1 Bank (54,000 x 20) 1,080,000 Ordinary shares capital applications 1,080,000 (To record the ordinary shares applications received at

par)

2 Ordinary shares applications 1,080,000 Ordinary share capital (54,000 x 20) 1,080,000 (To record the issue of shares at par)

3 Bank (6,000 x 20) 120,000 Ordinary shares capital (6,000 x 20) 120,000 (To record the shares issued to underwriter at par as per

agreement)

4 Commission expense (120,000 x 10%) 12,000 Bank 12,000 (To record the commission paid to underwriter)



SOLUTION 4 (b) MEHRAN COMPANY LTD.

GENERAL JOURNAL


1 Bank (15,000 x 12) 180,000 Ordinary shares capital (15,000 x 10) 150,000 Ordinary shares premium (15,000 x 2) 30,000 (To record the issue of shares at premium)

2 Building 600,000 Ordinary shares discount 10,000 Ordinary share capital (61,000 x 10) 610,000 (To record the purchase of building by issuing shares at

discount)

3 Debentures payable 80,000 Ordinary shares capital (8,000 x 10) 80,000 (To record the shares issued for the settlement of

debentures payable at par)

4 Equipment (60,000 x 4) 240,000 Ordinary shares capital (20,000 x 10) 200,000 Premium on redemption (20,000 x 2) 40,000 (To record the purchase of computers by issuing shares at

premium)

5 Bank (2,000 x 96) 192,000 Loss on redemption (2,000 x 3) 6,000 Discount on debentures (2,000 x 4) 8,000 10% Debentures payable (2,000 x 100) 200,000 Premium on redemption (2,000 x 3) 6,000 (To record the issue of 10% debentures at discount and

payback at premium)

Q.No.5 PARTNERSHIP – FORMATION GIVEN On March 01, 2004 Wasim, Asim and Aqib formed a partnership under the name of VIP Brothers and agreed to share profit and loss in the ratio of 3:1:2 respectively. This ratio is determined on the basis of capital contribution by each partner. As per agreement the total capital of the firm shall be Rs.720,000. Asim: Contributed cash Rs.50,000 and equipment Rs.70,000. Aqib: Contributed furniture worth Rs.180,000 and sufficient cash to make his capital to the

ratio of 1:2 of Asim. Wasim: Contributed sufficient cash to make his capital to the ratio of 3:1:2 with Asim and Aqib. REQUIRED

(a) Journal entries in the book of VIP Brothers. (b) Initial balance sheet as on March 1, 2004.



SOLUTION 5 (a) VIP BROTHERS

GENERAL JOURNAL


1 Cash 50,000 Equipment 70,000 Asim Capital 120,000 (To record the investment of Asim)

2 Cash 60,000 Furniture 180,000 Aqib Capital 240,000 (To record the investment of Aqib)

3 Cash 360,000 Wasim Capital 360,000 (To record the investment of Wasim)

SOLUTION 5 (b)

VIP BROTHERS BALANCE SHEET

AS ON 1 MARCH 2004

ASSETS EQUITIES

Current Assets: Owner’s Equity: Cash 470,000 Asim Capital 120,000

Total current assets 470,000 Aqib Capital 240,000 Wasim Capital 360,000

Fixed Assets: Total owners’ equity 720,000 Equipment 70,000 Furniture 180,000

Total fixed assets 250,000

Total assets 720,000 Total equities 720,000

Computation of Each Partner Capital: Asim Capital = 720,000 x 1/6 = 120,000 Aqib Capital = 720,000 x 2/6 = 240,000 Wasim Capital = 720,000 x 3/6 = 360,000 Total capital 720,000

Q.No.6 COMPANY – DEPRECIATION

(a) Name the following as capital expenditure and revenue expenditure. (i) Transit insurance. (ii) Packing charges. (iii) Maintenance and repairs. (iv) License fee for current year. (v) Test run cost. (vi) Cost resulted increase in life of asset.



(b) Ali Raza and Company purchased a machine at list price of Rs.250,000 with a trade discount of 10% and credit terms 2/10, n/30, sales tax was paid at 5% of net cash price. The company also paid for the following (i) Freight – in Rs.2,475 (ii) Installation expenditure Rs.3,000 (iii) 2 year fire insurance Rs.2,000 (iv) During installation machinery was damaged and repair cost paid Rs.1,500.

REQUIRED (a) Compute total cost of machine. (b) Compute depreciable cost of machine assuming 10% estimated depreciation of total cost of

machine.

(c) On December 05, 2001, Farhan Company purchased two machines of Rs.80,000 each, estimated salvage value of the machine is Rs.10,000 after the useful life of 5 years. The machine started production from Jan. 05, 2002. As per policy, depreciation is charged from the date of production.

REQUIRED Compute depreciation expenditure for Dec. 31, 2002 and for Sept. 30, 2003 under the methods given below:

(i) Fixed Installment Method. (ii) Sum of the Year Digit Method.

SOLUTION 6 (a)

Capital Expenditure Revenue Expenditure

Transit insurance Packing charges Test run cost Maintenance and repairs Cost resulted increase in life of asset License fee for current year SOLUTION 6 (b) Computation of Coat of Machine: List price 250,000 Less: Trade discount (250,000 x 10%) (25,000)

Invoice price 225,000 Less: Cash discount (225,000 x 2%) (4,500)

Net cash price 220,500 Add: Sales tax (220,500 x 5%) 11,025

Net cash price payable 231,525 Add: Additional Cost Incurred: Freight – in 2,475 Installation expenditure 3,000

Total additional cost incurred 5,475

Total cost of machine 237,000

Computation of Depreciable Cost of Machine: Depreciable cost = Cost – Salvage value Depreciable cost = 237,000 – 0 Depreciable cost = 237,000



Computation of Depreciation Expense by Straight Line Method: Annual depreciation = Cost – Scrap value x Rate of depreciation Annual depreciation = (237,000 – 0) x 10% Annual depreciation = 23,700 Depreciation expense for the year = 23,700 SOLUTION 6 (c) Computation of Depreciation Expense by Fixed Installment Method: Annual depreciation = Cost – Scrap value Estimated life in years Annual depreciation = 160,000 – 10,000 5 Annual depreciation = 30,000 Depreciation expense for the period 31 December 2002 = 30,000 Depreciation expense for the period 30 September 2003 = 30,000 x 9/12 = 22,500 Computation of Depreciation Expense by Sum of the Year’s Digit Method: Annual depreciation = Cost – Salvage value (Depreciable cost) x Yearly fraction Fraction = n (n + 1) 2 Fraction = 5 (5 +1) 2 Fraction = 15

Year Depreciable Cost Yearly Fraction Depreciation Expense

2002 160,000 – 10,000 = 150,000 5/15 50,000

2003 150,000 4/15 40,000 x 9/12 = 30,000

Q.No.7 CORPORATION – RESERVE AND FUND

(a) Name the various types of Reserves; give necessary journal entries for their creation and disposal, use imaginary figures.

(b) On December 31, 2003, Adnan Co. Ltd. had a credit balance of Rs.300,000. The income summary account of the company showed a net income of Rs.295,000 which has been transferred to retained earnings. The company made the following decisions:

(i) Cash dividend Rs.15,000. (ii) Reserve for plant extension Rs.122,500. (iii) Reserve for contingencies Rs.23,500. (iv) Reserve for income tax Rs.3,000.

REQUIRED Prepare journal entries in the books of the company to record the above transactions. SOLUTION 7 (a)

(i) Allowance for depreciation on machine is a Valuation Reserve. (ii) Reserve for income tax is a Liability Reserve. (iii) Reserve for contingencies is a Surplus Reserve.



CREATION OF RESERVES GENERAL JOURNAL


1 Depreciation expense 10,000 Allowance for depreciation 10,000 (To record the depreciation expense)

2 Income tax expense 12,000 Reserve for income tax 12,000 (To record the reserve for income tax)

3 Retained earnings 30,000 Reserve for contingencies 30,000 (To record the reserve for contingencies)

DISPOSAL OF RESERVES

GENERAL JOURNAL


1 Allowance for depreciation 10,000 Machine 10,000 (To record the disposal of machine)

2 Reserve for income tax 12,000 Cash/Bank 12,000 (To record the income tax paid)

3 Reserve for contingencies 30,000 Retained earnings 30,000 (To record the disposal of reserve for contingencies)

SOLUTION 7 (b)

ADNAN CO. LTD. GENERAL JOURNAL



1 Expense and revenue summary 295,000 Retained earnings 295,000 (To record the income transferred to retained earnings)

2 Retained earnings 15,000 Cash dividend payable 15,000 (To record the cash dividend declared)

3 Retained earnings 122,500 Reserve for plant extension 122,500 (To record the reserve for plant extension)

4 Retained earnings 23,500 Reserve for contingencies 23,500 (To record the reserve for contingencies)

5 Retained earnings 3,000 Reserve for income tax 3,000 (To record the reserve for contingencies)

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