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STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
Page 1 of 25
UNIT CONTENT PAGE Nr
I BRANCH ACCOUNTING 02
II CONTRACT ACCOUNT 06
III HIRE PURCHASE AND INSTALLMENT SYSTEM 10
IV ROYALTY ACCOUNT 16
V INSOLVENCY ACCOUNTS 22
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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UNIT- I BRANCH ACCOUNT
Meaning Large business concerns,in order to expand its business, divide the Business into many
Sections or divisions.These sections or divisionsare established in different places of the same town or different partsof the country.These various divisions of business established in Different places are called “branches”. Objectives:
1. To ascertain the financial results 2. To create accountability among branches 3. To measure individual financial position and performance 4. To exercise proper control 5. To suggest measures for improving efficiency
Types of branches:
1. Dependent branches 2. Independent branches 3. Foreign branches 4. Format of branch account
Particulars Amount Particulars Amount
To balance b/d (all assets) Stock, debtors Furniture, petty cash To goods sent to branch To bank(all expenses) To balance c/d (cl.bal.of liabilities) To general profit &loss (profit)
xxx xxx xxx xxx xxx
By balance b/d all liabilities) Creditors By cash remittances Cash sales Cash from debtors By goods return By balance c/d (closing balance of Assets) By general profit & loss (loss)
xxx xxx xxx xxx xxx xx
Problem:
New Delhi Company has a branch at Chennai. Write up branch account in the books of head office from the following particulars.
➢ Stock on 1.1.2001 10,000 ➢ Goods sent to branch 50,000 ➢ Expenses of branch 3,000 ➢ Petty expenses of branch 1,000 ➢ Goods sold by the branch 1,00,000 ➢ Stock on 31.12.2001 12,000
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Solution:
In the books of NewDelhi company (Head Office) Chennai Branch a/c
Dr Cr
Particulars particulars
To balance b/d: Stock To goods sent to branch To cash: Expenses 3000 Petty expenses 1000 To Genera; P &L a/c
10,000 50,000 4,000 48,000 1,12,000
By Cash remittance: Cash sales By Balance c/d: Stock
1,00,000 12,000 1,12,000
Departmental Accounts:
A trader may deal with more than one type of products less than one roof. Under this situation,the whole business is divided into departments based on the type of products and separate accounts are prepared for each department,it is known as departmental accounts. Basis of allocation of expenses:
Basis of Allocation of Expenses
Common Expenses Basis of Allocation
Sales Related Expenses
• Travelling salesman commission
• Salary of Salesman
• Bad Debts
• Selling expenses
• Carriage outwards
• Discount of Debtors
• Sales Managers Salary Premises related Expenses
• Building Rent & Rates
• Air Conditioning & Heating
• Building Insurance
• Depreciation of Building Lighting Insurance of Stock Plant & Machinery Related
• Insurance
• Depreciation
• Repairs & Renewal Power Employee Related
• Group Insurance
• Salaries
Sales Ratio (Or) Turnover of Each Department Floor Area occupied Number of lights Points In the absence of Light points Floor Area Value of Stock Value of Plant & Machinery Horse Power of Machine
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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• Canteen Expenses
• LaborWelfare Carriage Inward
• Discount Received
No.of Employees Purchase of each Department Purchase of Each Department
Distinction between Department and Branch
Points of Difference Department Branch
Location Book Keeping and Accounting Allocation of Common Expenses Scope of Organization Growth International Trade Foreign Currency Conversion
Same Premises Centralized Allocated in proportion to the usage by departments Confined to local business Does not arise
Different locations Head office consolidated Separate branch does not confront with this situation Paves way for geographic expansion Scope for International trade and conversion of foreign currently to India is necessary to ascertain the profitability
Problem: Ascertainment of Cost of Units Model: The following purchase were made by a firm having three department Dept A - 1000 Units Dept B - 2000 Units Dept C - 2400 Units Stock on 1st January were Dept A - 120 Units Dept B - 80 Units Dept C - 152 Units Stock were Dept A-1020 Units at Rs.20 each Dept B - 1920 Units at Rs.22.50 each Dept C - 2496 Units at Rs 25 each The rate of gross profit is name in each case. Prepare Department Trading Account. Department Trading Account Dr. Cr.
Particulars A B C particulars A B C
To Op. Stock
Rs. 1,920
Rs. 1,440
Rs. 3,040
By Sales
Rs. 20,400
Rs. 43,200
Rs. 62,400
To Purchases 16,000 36,000 48,000 By cl.stock 1,600 28,80 1,120
To Gross Profit
4,080 8,640 12,480
22,000 46,080 63,520 22,000 46,080 63,520
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Workings: 1. Calculation of closing stock (in units)
Closing stock =Opening Stock + Purchases - Sales Dept A =120 + 1000 – 1020 = 100 units DeptB =80 + 2000 – 1920 = 160 units DeptC =152 + 2400 -2496 = 56 units
2. calculation of rate of gross profit: Assuming that all Purchases are sold Then the sale proceeds will be
Dept A =1000 units at Rs. 20 = Rs. 20,000 Dept B =2000 units at Rs.22.50 =Rs. 45,000
Dept C =2400 units at Rs.25 = Rs.60.000 Total Sales 1,25,000 Less: total cost of purchase 1,00,000 Gross profit 25,000
Rate of Gross Profit =Gross profit x100/sales
=25000 x100/125000
=20% on sales 3. Calculation of cost price
Cost Price =selling price – Profit Dept A =20 – 20/100 x 20 =20 – 4 = Rs.16 Dept B = 22.50 – 20/100 x 22.50 =22.50 – 4.50 =Rs. 18 Dept C =25 – 20/100 x 25 =25 – 5 =Rs.20 Note: opening stock, closing stock and Purchases are valued at cost price of each department. From the following details prepare department trading account
Particulars Dept. A Rs.
Dept. B Rs.
Opening Stock 4500 4200
Total Purchase 13500 10800
Total Sales 21000 18000
Closing Stock 5400 2400
Credits Purchases 8500 5300
Credits Sales 2500 3000
DEPARTMENTAL TRADING AC
Particulars A B Particulars A B
To opening stock 4500 4200 By sales 2100 1800
To purchase 13500 5400 By closing
stock 5400 2400
To gross profit 8400 5400
26400 20400 26400 20400
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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UNIT- II CONTRACT ACCOUNT
Meaning
It refers to an agreement between two parties on undertaking andexecution of particular Work or job. For e.g. construction of building,laying of road,installation of plant etc. Format of contract a/c Format Contract Account
Particulars Amount Particulars Amount
To Materials *** By work in progress ***
To Labour *** Work certified ***
To Direct Expenses *** Work Uncertified ***
Indirect Expenses *** Materials at close ***
Notional Profit *** Plant at close ***
Bala Fig *** By profit & Loss a/c ***
Mat, Plant Lost & Damage ***
*** ***
To Profit & Loss A/c *** By Notional Profit ***
To Reserve ***
*** ***
Important terms in contract a/c Material:
It is the matter from which a thing is or can be made. Materials purchased for contract, issued from stores and transferred fromother contracts are debited to contract a/c.The surplus material orunused materials are to be sold at the end of the accounting period.Plantis a place where industrial or manufacturing processtakes place. When the plant, machinery or tools are used exclusively for a particular contract,the contract a/c is debited with its full value. Labour
It is practical work, especially when it involves hard physical effort. The cost of labor to the contract is debited to the contract/c under the head of wages.
Indirect expenses
Sometimes the contractor has more than one contract in process ata time.For that he may have a common office,common staff, common transport to carry men and materials etc. These expenses are called indirect expenses.
Work certified
Usually the contracted pays the contract price to the contractor only on the completion of contract. The agreement between the Contractor and contracted provides for part payments from time to time depending upon the work completed, must be approved by the Contra tee’sengineer, such approved work is called as work certified.
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Work uncertified It is possible that some part of the work completed at the end of the period remain
“unapproved”. Such a work is called work done but not certified or worksuncertified. Profit on Incomplete contract
1. Work completed less than ¼ No profit to be transferred to P&L a/c
2. Work completed more than ¼ but less than ½ 1/3 of the notional profit to be transferred to P&L a/c. Formula, Profit= notional profit*1/3 *cash received/work certified
3. Work completed more than ½ 2/3 of the notional profit to be transferred to P&L a/c. Formula, Profit=notional profit*2/3*cash received/work certified Farm a/cling Farm refers to the land that is used for growing food crops and keeping animals. Arminincludes agriculture, horticulture, animalhusbandry,poultry,dairy,sericulture etc. Farm accounting is intended to keep a record of the farming activities. It explains how the farm books should be keep and how the profit and loss arising from the farming operations should be ascertained. Format of crop a/c
Crop Account
Particulars Amount Particulars Amount
To Opening Stock *** By Sales ***
Purchase *** Closing Stock ***
Crop Expenses *** Wages Crop (Contra) ***
Cattle Expenses *** By drawing
Live Stock Expenses *** Own Consumption consumed by live stock
***
” Wages – Cash ***
Wages – Crop (Contra) ***
Depn. Mach ***
Profit/Loss a/c (bal.fig)
***
*** ***
Problem:
From the following information, prepare ‘crop Account’ to ascertain the profit made by the crop division of the farm. Opening stock: Rs. Wheat 5,000 Seeds 1,000 Fertilizers 1,500 Purchases: seeds 600
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Fertilizers 900 Wages:paid in cash 6,800
Paid in kind – wheat 4,600 Sale of wheat 35,400 Wheat consumed by proprietor 1,600 Depreciation of farm machinery 2,000 Closing Stocks: Wheat 4,000 Seeds 700 Fertilizers 800 Solutions: Dr Cr Rs. Crop Account
Particulars Amount Particulars Amount
To opening stock: Wheat 5000 Seeds 1000 Fertilizers 1500 To purchases: Seeds 600 Fertilizers 900 To wages: In cash 6800 In kind (c) 4600 To Depreciation: Machinery To profit (bal.fig)..
Rs. 7500 1,500 11,400 2,000 24,700 47,100
By Sale of wheat By Wages in kind (c) By Drawings: Own consumption BY closing stock: Wheat 4000 Seeds 700 Fertilizers 800
Rs. 35,400 4,600 1,600 5,500 47,100
Problem: From the following information given below prepare a ‘cattle Account’ to ascertain the
profit made by the cattle division. No value(Rs.) Opening stock of livestock 50 90,000 Closing stock of livestock 60 1,10,000 Purchases of cattle during the year 110 2,05,000 Sale of cattle during the year 95 2,12,000 Sale of slaughtered cattle 6 12,000 Sale of carcasses 4 1000 Cattle food 18,000 Wages of rearing 4,500
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Slaughter house expenses 500 Crop worth Rs. 5000 grown in the farm was used for feeding the cattle. Out of the
cattleborn, two died and their carcasses realized Rs.100.
Solution: Dr Cattle Account Cr
Particulars No.s Amount Particulars No.s Amount
Rs. Rs.
To opening By sale of cattle 95 2,12,000
Stock 50 90,000 Sale of slaught.
To purchase 110 2,05,000 Cattle 6 12,000
To calves born (bal.flg) 7 - By sale of carcasses 4 1,000
To cattle food 18,000 By sale of carcasses
To crop account Of calves 2 100
-cattle feeding 5.000 By closing stock 60 1,10,000
To wages for rearing 4,500
T0 slaughter
House expenses 500
To profit (bal.fig). 12,100
167 3,35,100 167 3,35,100
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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UNIT - III HIRE PURCHASE SYSTEM AND INSTALLMENT SYSTEM
Meaning It is an agreement under which the goods are let on hire and the Hirer has a option
either to hire or to purchase them in accordance with the terms of the agreement. The title of the goods transfers only at the end of the last installment and any time before that the hirerCan terminate the contract.
1. It contains, 2. Hire Purchase Price 3. Cash Price 4. Rate of Interest 5. Down payment 6. No of installments 7. Amount per installments
Installment system Meaning
It is similar to hire purchase,except in terms of transfer ofownership. Theownership of the goods transfer to the buyeron payment of down payment. In the event of default, theseller cannot repossess the asset, but can only sue for recovery of amount.
Distinction between Hire Purchase and Installment System
Hire purchase Installment System
Agreement for hire Agreement for sale
Ownership is transferred on final payment.
Immediate transfer of ownership
Relationship is like a bailer and bailed Relationship is like a debtor and creditor
The contract can be terminated in the middle
The contract cannot be terminated
It is governed by Hire Purchase It is governed by Sale of Goods
Journal Entries as follows,
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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Sl.No Particulars Debit Credit
1 For asset purchased on hire purchase system Asset A/c To hire vendor A/c)
Dr
2 For payment of down payment Hire vendor a/c
To Bank a/c All the end of the year
Dr
3. For interest included in first instatement Interest a/c
To Hire Vender a/c
Dr
4. For payment of first installment Hire Vendor a/c
To Bank a/c
Dr
5. For depreciation: Depreciation a/c
To Asset a/c
Dr
6. For closing depreciation and interest account
Profit and loss a/c To Depreciation a/c
“Interest a/c
Dr
In the subsequent years entries 3-6 are repeated
7. For asset purchased on hire purchase system.
No entry
8. For down payment due Asset a/c
To Hire Vendor a/c
Dr
9. For down payment paid Hire Vendor a/c
To Bank a/c
Dr
10. For first installment due Asset a/c
Interest a/c To Hire Vendor a/c
Dr
11. For first installment paid: Hire Vendor a/c
To Bank a/c
Dr
12. For depreciation: Depreciation a/c
To asset a/c
Dr
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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1. When goods are sold on hire purchase system. Hire Purchaser‘s A/C To Hire Purchase Sales a/c
Dr
2. When down payment is received. Bank a/c To Hire Purchaser ‘s a/c At the end of year
Dr
3. For interest included in first installment. Hire Purchaser ‘s a/c To interest a/c
Dr
4. For receiving the amount of installment: Bank a/c To Hire Purchaser ‘s a/c
Dr
5. For transferring the interest account: Interest a/c To Profit and Loss a/c
Dr
NOTE: Entries 3 – 5 are repeated for every installment.
Important terms
• Cash price This means the price at which the goods may be purchased by the hirerfor cash.
• Hire purchase price It is the total amount payable by the buyer. It includes cash price and interest amount.
Interest
It means the difference of cash price and hire purchase price.
• Down payment It is an initial payment payable by the buyer, at the time of purchasing asset.
• Hirer The buyer of the asset on hire purchase basis
• Hire vendor The seller of the asset on hire purchase basis
7. Installment It is the amount payable by the buyer periodically.
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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Problem
Mr.P purchased 4 cars for rs.14000 each on 1.1.2012 under hire Purchase system. The hire purchase price for all the 4 cars was Rs.60000 to be paid as Rs.15000 down payment and 3 equal annual Installments of rs.15000 each at the end the year. Interest is charged at 5% p.a. The buyer depreciates the car at 10%p.a. on Straight line method. Prepare ledger a/cs a) in the books of P under method 1&2. b)In the books of hire vendor .P .purchased 4 cars for Rs. 14000 each on 1.1.92 under the hire purchase system. The hire purchase price for all the 4 cars was Rs.60,000 to be paid as Rs.15,000 down payment and 3 equal installments of Rs.15000 each at the end of each year. Interest is charged at 5% P.a. The buyer depreciates the car at 10% P.a on straight line method. From the above particulars give journal entries and relevant ledger accounts (i) in the books of P under method (1) & (2)(ii)in the books of hire vendor.
Solution:
Table showing calculation of interest
Particulars (1)
Total cash price (2)
Installment Paid (3)(4+5)
Interest Paid (4)
Cash price Paid (5)
Cash price Less: Down payment Less:1stInstallment Less:2ndInstallment Less: 3rdinstallment
56,000 15,000 41,000 12,950 28,050 13,597 14,453 14,453
15000 15000 15000 15000
- 2050 (410000x5/100) 1403 (28050x5/100) 547 (15000- 14453)
15,000 12,950 13,597 14,453
TOTAL NIL 60000 4000 56,000
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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Journal entries in the books of p Method:1
1.1.92 1.cars a/c To Hire vendor a/c (Being cars purchased on Hire Purchase)
Dr 56000 56000
2.Hire vendor a/c To Bank a/c (Being down payment made)
Dr 15000
15000
31.12.92 3.Interest q/c To Hire Vendor a/c (Being the interest payable)
Dr 2050 2050
4. Hire Vendor a/c (being the Is installment paid)
Dr 15000 15000
5.Depreciation a/c To cars a/c (Being depreciation provided)
Dr 5600 5600
6.profit and loss a/c To Interest a/c To Depreciation a/c (Being interest and depreciation transferred)
Dr 7650 2050 5600
31.12.93 Interest a/c To Hire Vendor a/c (Being the Interest Payable)
Dr 1403 1403
Hire Vendor a/c To Bank a/c (Being 2ndinstallment paid)
Dr 15000
15000
Depreciation a/c To cars a/c (Being depreciation provided)
Dr 5600 5600
Profit and loss a/c To Interest a/c To Depreciation a/c (Being interest and dep. Transferred)
Dr 7003 1403 5600
31.02.94 Interest a/c To Hire Vendor a/c (Being the interest payable)
Dr 547 547
Hire Vendor a/c To Bank a/c (Being 3rdinstallment paid)
Dr 15000 15000
Depreciation a/c To cars a/c (Being depreciation provided)
Dr 5600 5600
Profit and loss a/c To Interest a/c
Dr 6147 547
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To Depreciation a/c (Being int and dep. Transferred)
5600
Dr cars a/c Cr
1.1.92 To Hire Vendor 56.000 31.12.92 By Depreciation 5,600
31.12.92 By Balance c/d 50,400
56,000 56,000
1.1.93 To Balance b/d 50,400 31.12.93 By depreciation 5,600
31.12.93 By Balance c/d 44,800
50,400 50,400
1.1.94 To Balance b/d 44,800 31.12.94 By Depreciation 5,600
31.12.94 By Balance c/d 39,200
44,800 44,800
1.1.95 To Balance b/d 39,200
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UNIT - IV ROYALTY A/C
It is concerned with the assets, both tangible and intangible in nature. Assets
likeland,buildings,mines,copyrights,patents, trademarks etc.The owner of the asset may allow the other party right to use the asset against some consideration. Such considerationis calculatedwith reference to the quantity produced or sold. This payment to the owner by the user of the asset is termed as Royalty.
A lessor is a person who owns the assets and agrees to allow the other person to use his asset for a certain sum. Minimum Rent It is fixed in order to safeguard the interest of the landlord. It is also known as Dead Rent or Rock rent or Fixed rent. Short working
If the actual royalty is less than the minimum rent, the difference isknown as Shortworking.Recoupment of short working.The lesser has the right to recover the short workings in near future. The right to recover the short workings is known as recoupment of short workings strike and Lock Out. The royalty agreement may contain a clause for reduction in the minimum rent, in the happening of a certain event. In case of Strike orLock Out, the minimum rent may be proportionately reduced.
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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Journal entries in the books of lessee
Particulars Debit Credit
1) For royalty payable a) When there are no short workings
Royalty a/c To landlords a/c
dr. xxx
xxx
b)When there are short workings i)If minimum rent a/c need not be shown Royalty a/c Shortworkinga/c To landlord a/c
dr. xxx dr. xxx
Xxx
b)When there are short workings i)If minimum rent a/c need not be shown Royalty a/c Shortworkinga/c To landlord a/c
ii)If minimum rent a/c is required Minimum rent a/c To landlord a/c
dr.xxx
Xxx
Royalty a/c Shortworking a/c To minimum rent a/c
dr. xxx dr. xxx
Xxx
2)For payment of cash a)When there is no recoupment of short workings Landlord a/c To cash a/c
dr.xxx
Xxx
b)when there is recoupment of short workings Land lord a/c
To cash a/c To Shortworking a/c
dr. xxx xxx
xxx
3)For transferring royalty at the end of the year Production a/c Or Profit &Loss a/c To royalty a/c
dr. xxx dr. xxx
Xxx
4)If there are short workings written off Profit &loss a/c To short workings a/c Journal entries in the books of landlord(lessor)
dr.xxx
xxx
1)for royalty receivable a)If there are no short workings Lessee a/c To royalty receivable a/c
dr. xxx
xxx
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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To short working a/c
xxx
2)for receiving cash a)If there is no recoupment of short workings Cash a/c
To lessee a/c
dr. xxx xxx
b)If there is recoupment of short workings Cash a/c Short workings a/c
To lessee a/c
dr. xxx dr. xxx
Xxx
3)for transferring royalty receivable a)If there is no lapse of short workings Royalty receivable a/c To Profit &Loss a/c
dr. xxx xxx
b)If there is short workings written off Royalty receivable a/c Short workings a/c
To profit loss a/c
dr. xxx dr. xxx
Xxx
Problem
Mr. Good wrote a book and got it published with a publishers on the term that royalties will be paid @rs.50 per copy sold subject to a minimum rent of rs.150000 with a right of recoupment of short workings over the first three year of the royalty agreement. Prepare
i. Minimum rent a/c ii. Royalty a/c
iii. Short working a/c iv. Mr. Good a/c
Short workings Account Cr
Rs. Rs.
1996 To Engineer a/c 4000 1996 By Balance c/d 4000
4000 4000
1997 To Balance b/d 4000 1997 By Balance c/d 6000
To Engineer a/c 2000
6000 6000
1998 To Balance b/d 6000 1998 By Engineer a/c 1600
By Profit & Loss a/c 2400
By Balance c/d 2000
6000 6000
1999 To Balance b/d 2000 1999 By Engineer a/c 2000
2000 2000
Illustration: 5 (Minimum Rent a/c Maintained)
Mr. Good wrote a book and got it published with a publisher on the term that royalties will be paid R.50. Per copy sold subject to a minimum rent of 150000 with a right of
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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recoupment of short workings over the first three year of the royalty agreement .From the following details
1. Minimum Rent a/c 2. Royalties a/c 3. Short workings a/c and 4. Mr. Goods a/c
Year No. of copies printed Closing
1993 1994 1995 1996
2000 3000 4000 5000
100 200 400 500
Solution: Calculation of number of copies sold: Number of copies sold = copies printed + opening stock – closing stock 1993 = 2000 + NIL - 100 = 1900 copies 1994 = 3000 + 100 - 200 = 2900 copies 1995 = 4000 + 200 - 400 = 3800 copies
1996 = 5000 + 400 - 500 = 4900 copies Table showing Calculations
Year Minimum Rent
Royalty @ 50 per Copy
Short Workings
Short working
Recouped
Short Working
Unrecouped Transfer .to
P&L a/c
Amount Payable
1993 1994 1995 1996
Rs. 150000 150000 150000 150000
Rs. 95000
145000 190000 245000
Rs. 55000 5000
- -
Rs. - -
40000 -
Rs. - -
20000 -
Rs. 150000 150000 150000 245000
Solution:
In the Books of publishes Journal Entries
Date Particulars Debit credit
1993 1.
Minimum Rent a/c To Mr. Good a/c (Being Minimum Rent Payable)
Dr
Rs. 150000
Rs. 150000
2. Mr. Good a/c To Short workings a/c To Bank
Dr 190000 400000 150000
3. Profit& Loss a/c To Royalty a/c (Being royalty amount transferred to P&L
Dr 190000 190000
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
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a/c)
4. Profit & Loss a/c To Short workings a/c (Being unrecouped SW transferred to P&L a/c)
Dr 20000 20000
1996 1.
Royalty a/c To Mr. Good a/c (Being royalty payable)
Dr
245000
245000
2
Mr.Good a/c To Bank a/c (Being royalty paid)
Dr 245000 245000
3. Profit & loss a/c To royalty a/c (Being royalty paid transferred to P &L a/c)
Dr 245000 245000
Ledger Accounts Dr Minimum Rent Account Cr
1993
To Mr. Good a/c
150000
Rs. 1993
Rs.
By Royalty a/c 95000
By Shortworkings 55000
150000 150000
1994 To Mr. Good a/c 150000 1994 By Royalty a/c 145000
By Shortworkings 5000
150000 150000
Dr Royalty Account Cr
1993 1994 1995 1996
To minimum Rent a/c To minimum Rent a/c To Mr.Good a/c To Mr.Good a/c
Rs. 95000 95000 145000 145000 190000 190000 245000 245000
1993 1994 1995 1996
By Profit& loss a/c By profit& loss a/c By profit & loss a/c By profit & loss a/c
Rs. 95000 95000 145000 145000 190000 190000 245000 245000
Dr short workings Account Cr
1993 1994
To Minimum Rent To Balance b/d To Minimum Rent
Rs. 55000 55000 55000 5000
1993 1994
By Balance c/d By Balance c/d
Rs. 55000 55000 60000
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1995
To Balance b/d
60000 60000 60000
1995
By Mr. Good By Profit & loss a/c
60000 40000 20000 60000
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UNIT -V INSOLVENCY A/C
The term “Insolvency” refers to the state of inability of a personto pay his debts when
they fall due. A person whose liabilities exceed his assets is called “insolvent” or “bankrupt”.In India there are two laws which deal with insolvency. They are
a. The Presidency Towns Insolvency Act1909 b. The Provincial Insolvency Act,1920
The Presidency Towns Insolvency act is applicable to thePresidency towns –
Mumbai,Kolkata, andChennai The provincial Insolvency act applies to the rest of India. Format of statement of affairs STATEMENT OF AFFAIRS
Gross Liability
Liabilities Expected to Rank
Assets Book Value
Estimated to Produce
*** Unsecured creditors as per List -A
*** Properties as per list E
*** ***
*** Fully secured creditors as per List-B
*** i)Cash at Bank ii) cash in Hand iii) cash with solicitors iv) Machinery vi) Fixtures&fitting vii) Furniture’s viii) Life Polities ix) other properties Book Debt
*** *** *** *** *** *** *** *** *** ***
*** *** *** *** *** *** *** *** *** ***
Less Estimated value of securities **** ****
Less Amount
Carried to List C ****
Balance to Contra ****
***
Partly secured creditors As per List C Less Estimated Value of securities ***
****
As per list-F a) Good b) Doubtful e) Bad
*** *** ***
*** *** ***
***
Preferential creditors as per list D **** less Deducted as per contra paid in full ***
---
Bills of Exchange as per List G a) B/R estimated to produce
*** ***
Add Surplus from securities with fully secured creditors (as per contra) ***
***
Less Creditors for preferential debt ***
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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*** *** ***
Deficiency as per List H ***
*** ***
List A: Unsecured creditors
These creditors are those who do not hold any asset of the insolvents security .It includes,
1. trade creditors 2. unsecured loan 3. bank overdraft 4. bill payable 5. *wife’s loan
List B: Fully secured creditors
These creditors hold securities to the full extent for their loan given to the insolvent person.List C, Partly secured creditors. These creditors who hold securities which are insufficient to meet the entire debts .List D, Preferential creditors,these creditors are those unsecured creditors who are entitled to be paid in full before the other creditors can be paid. List E,Properties other than properties given as securities are shown in this list, for e.g. cash in hand, cash at bank, machinery, furniture etc.List F Book debts
It refers to debtors, under the heading of “good”, “bad”and“Doubtful”List G Bill ReceivableBill receivable are listed under this heading. List H Deficiency, The difference of the two sides of the statement of affairs shows either a “deficiency “or “surplus”. Format of Deficiency a/c Deficiency Account
Excess of assets over liabilities
*** Excess of liabilities over assets ***
Net Profit *** Net loss *** Income/profit from other sources (Salary commission, etc)
Bad debts as per List F
Interest on capital *** Expenses incurred other than usual business expenses ie household expenses. ***
Deficiency as per statement of Affairs
*** Drawing ***
*** Other losses Speculation loss Realization loss
*** ***
*** ***
List C: Partly Secured Creditor
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Those creditor who hold securities which are insufficient to meet the entire debts are called partly secured creditors. List D: Preferential Creditors:
These creditors are those unsecured creditors who are entitled to be paid in full before the other creditors can be paid. These creditors are given preference in payment over all other unsecured creditors. List E: Properties List F: Book Debts List G: Bill of Exchange List H: Deficiency a/c
Problem Following is the trial Balance of Mr. Kumar of Chennai who commenced business on 1.1.01
Debit Rs. Credit Rs.
Cash Stock Debtors (all good) Furniture Investment in shares Valve of securities held by – secured creditors Loss (2001) Drawings (uoto Dec.2001)
230 666 13.000 282 500 3,500 2,500 6,916 27,594
Creditors (unsecured) Secured Creditors Preferential Claims for Rent, rates and taxes Capital Profit (1999,2000)
18,000 2,500 190 1,350 5,554 27,594
You are required to prepare statement of affairs of Mr. Kumar and his Deficiency Account on 31- 12 – 2001. (M.S University April 2006)
STUDY MATERIAL FOR B.COM ADVANCED FINANCIAL ACCOUNTING - I
SEMESTER -III, ACADEMIC YEAR 2020-2021
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Solution: STATEMENT OF AFFAIRS OF KUMAR
As on 31 Dec 2001
Gross Liabilities
Liabilities Expected To Rank
Assets Book Values
Estimated To produce
Rs. 18,000 2500 190
Unsecured creditors As per List- A Fully secured creditors As per List –B 2500 Less valve of sec.3500 Surplus to contra1000 Partly secured CRs. As per list – C Preferential creditors As per List _D 190 Less Deducted As per contra 190
Rs.
---------- ----------
18,000
Properties as per List – E Cash Stock Furniture Investment in Shares Book Debts as per list – F Good Bills of Exchange As per List - G Add surplus as Per contra Less preferential Creditors Deducted as Per contra Deficiency As per List - H
Rs.
230 666 282
500
13.000 ---------
Rs.
230 666 282
500
13.000 ---------
14,678
1000 15.678
190 15,488
2,512
18,000
Deficiency Account
Excess of assets over Liabilities Trade Profit (5554- 2500) Defiency as per List – H
Rs.
1,350 3,054 2,512 6,916
Drawings
Rs. 6,916
6,916