IPCC-PAPER 5: ADVANCED ACCOUNTING
Mock Test -1
Advanced Issues in Partnership Accounts &
Financial Statements of Banking & Insurance companies
Date: 19/09/2015.
Duration: 1 Hr.
Marks: 30 Marks.
1. A, B, C and D are sharing profits and losses in the ratio 5:5:4:2. Frauds committed by C during the
year were found out and it was decided to dissolve the partnership on 31st March, 2012 when their
Balance Sheet was as under :
Liabilities
Assets
`
Capital Accounts
Building
`
1,20,000
A
90,000
Stock
85,500
B
90,000
Investments
29,000
D
35,000
2,15,000 Debtors
42,000
General Reserve
24,000 Cash
14,500
Trade Creditors
47,000 Capital Accounts
Bills Payable
20,000 C
3,06,000
15,000
3,06,000
Following information is given to you:
I. A cheque for ` 4,300 received from debtor was not recorded in the books and was
misappropriated by C.
II. Investments costing ` 5,400 were sold by C at ` 7,900 and the funds transferred to his
personal account. This sale was omitted from the firm’s books.
III. A creditor agreed to take over investments of the book value of ` 5,400 at ` 8,400. The rest
of the creditors were paid off at a discount of 2%.
Page 1 of 8
IV. The other assets realized as follows:
Building
105% of book value
Stock
` 78,000
Investments
The rest of investments were sold at a profit of ` 4,800
Debtors
The rest of the debtors were realized at a discount of 12%
V. The bills payable were settled at a discount of ` 400.
VI. The expenses of dissolution amounted to ` 4,900
VII.
It was found out that realization from C’s private assets would only be ` 4,000.
Prepare the necessary Ledger Accounts.
(16 marks)
2. Prepare Revenue Account in proper form for the year ended 31st March, 2012, from the following
particulars related to New India General Insurance Co. for the year 2011 – 2012:
Particulars
Related to Direct
business
Related to
Reinsurance
business
Premiums:
Amount received
30,00,000
2,40,000
Receivable at the beginning
1,80,000
24,000
Receivable at the end
2,40,000
36,000
Amount paid
--
3,60,000
Payable at the beginning
--
30,000
Payable at the end
--
42,000
18,00,000
1,80,000
60,000
12,000
Payable at the end
1,20,000
18,000
Amount Recovered
--
1,20,000
Receivable at the beginning
--
18,000
Receivable at the end
--
12,000
72000
10,800
--
14,400
Claims:
Amount paid
Payable at the beginning
Commission:
Amount Paid
Amount Received
Page 2 of 8
Additional information:
I. Interest, dividend and rent received ` 30,000
II. Income-tax in respect of above ` 6,000
III. Management expenses including ` 12,000 related to legal expenses regarding claims `
1,32,000
Provision for income tax existing at the beginning of the year was ` 1,95,000, the income-tax
actually paid during the year ` 1,68,000 and the provision necessary at the year end was `
2,07,000.
The net premium income of the company during the year 2010 – 2011 was ` 24,00,000 on which
reserve for unexpired risk @ 50% and additional reserve @ 7 ½ % was created. This year, the
balance to be carried forward is 50% of net premium on reserve for unexpired risk and 5% on
(8 Marks)
additional reserve.
3.
a) From the following information of Great Bank Limited, compute the provisions to be made in the
Profit and Loss account:
Asset Category
` Lakhs
Assets
Standard
20,000
Substandard
16,000
Doubtful
For one year (secured)
6,000
For two years and three years (secured)
4,000
For more than three years
2,000
(secured by mortgage of plant and machinery ` 600 lakhs)
Non-recoverable Assets
1,500
(4 Marks)
b) In X Bank Ltd., the doubtful assets (more than 3 years) as on 31.3.2007 is ` 1,000 lakhs. The
value of security (including DICGC 100% cover of ` 100 lakhs) is ascertained at ` 500 lakhs. How
much provision must be made in the books of the Bank towards doubtful assets?
(2 Marks)
---------Best of Luck-------- Assessed answer papers will be returned by 6th October, 2015.
________________________________________________________________________________________________________________________________________________________________________________________________
Questions and Solutions prepared by Jai Shah, CA & CFA (USA)
M: +91-9601258161; website: www.ashishlalaji.net
Page 3 of 8
Solution to Mock Test -1
Advanced Issues in Partnership Accounts &
Financial Statements of Banking & Insurance companies
1.
Partners Capital A/c
Particulars
A (`)
B (`)
C (`)
D (`)
Particulars
A (`)
B (`)
90,000
90,000
-
35,000
7,500
7,500
6,000
3,000
781
781
-
313
-
-
20,575
-
98,281
98,281
26,575
38,313
98,281
98,281
-
38,313
610
610
-
244
-
-
4,000
-
By A's Cap. A/c
-
-
7,140
-
By A's Cap. A/c
-
-
7,140
-
By A's Cap. A/c
-
-
2,783
-
98,891
98,891
21,063
38,557
To bal. b/d
-
-
15,000
To Debtors A/c
-
-
4,300
- By Gen. Res. A/c
To Inv. A/c
-
-
5,400
- By C's Cap. A/c
To A's Cap. A/c
-
-
781
- By Bal. c/d
To B's Cap. A/c
-
-
781
-
To C's Cap. A/c
-
-
313
-
98,281
98,281
-
38,313
98,281
98,281
26,575
38,313
-
-
20,575
610
610
488
244 By Cash A/c
7,140
7,140
-
2,783 (Real. Loss)
91,141
91,141
To Bal. c/d
To bal. b/d
To Real. A/c
To C's Cap. A/c
To Cash A/c
98,891
98,891
- By Bal. b/d
- By Bal. b/d
35,530 By Cash A/c
21,063
38,557
C (`)
D (`)
Realisation A/c
Liabilities
To Building A/c
Assets
`
1,20,000 By Creditors A/c
To Stock A/c
85,500 By B.P. A/c
To Investment A/c
23,600 By Cash A/c (Assets)
To Debtors A/c (42,000 – 4,300)
37,700 By Partners Capital
To Cash A/c (Creditors)
37,828 A: 610
To Cash A/c (B.P.)
19,600 B: 610
To Cash A/c (Expenses)
`
47,000
20,000
2,60,176
1,952
4,900 C: 488
D: 244
3,29,128
Page 4 of 8
3,29,128
Cash A/c
Liabilities
Assets
`
To Balance B/d
`
14,500 By Creditors A/c
37,828
To Realisation A/c
2,60,176 By Realisation A/c
19,600
To A's Capital A/c
610 By Realisation A/c
4,900
To B's Capital A/c
610 By A's Capital A/c
91,141
To D's Capital A/c
244 By B's Capital A/c
91,141
To C's Capital A/c
4,000 By D's Capital A/c
35,530
2,80,140
2,80,140
Working Notes:
1)
Since the debtors have paid the amount, and C has misappropriated the same, the following
entry needs to be posted for correction:
C’s Capital A/c Dr. 4,300
To Debtors A/c
2)
4,300
Since investments have been sold by C at profit, the share of profit of other partners will be
credit to their account. The following rectification entry will be posted:
C’s Capital A/c Dr. 7,275
3)
To Investment A/c
5,400
To A’s Capital A/c
781
To B’s Capital A/c
781
To D’s Capital A/c
313
Net payment made to Creditors:
`
Gross Creditors
47,000
Less: Value of Investment Taken over
8,400
38,600
Less: Discount @ 2%
772
37,828
4)
Cash received on sale of Assets:
Assets
Working
`
Building
1,20,000 x 105%
1,26,000
Stock
-
78,000
Investment
29,000 - 5,400 - 5,400 + 4,800
23,000
Debtors
(42,000 - 4,300) x 88%
33,176
2,60,176
Page 5 of 8
5)
Loss due to insolvency of C is ` 17,063, to be borne by remaining partners in ratio of Capital,
as per Garner Vs Murray.
Hence, loss is borne by A, B & D in the ratio of 98,281 : 98,281 : 38,313.
2.
FORM B-RA
Perfect General Insurance Company
REVENUE ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2013
C.Y.
Particulars
Schedule
Premiums earned (Net)
1
`
27,03,000
Profit/ Loss on sale/redemption of Investments
Others (to be specified)
Interest, Dividend & Rent – Gross
30,000
TOTAL (A)
27,33,000
Claims Incurred (Net)
2
19,44,000
Commission
3
68,400
Operating Expenses related to Insurance Business
4
1,20,000
TOTAL (B)
21,32,400
Operating Profit/(Loss) from Fire Business
6,00,600
C= (A - B)
Particulars
`
`
Schedule 1: Premium Earned (net)
Premium received from direct business (WN1)
30,60,000
Add:
Premium on reinsurance accepted (2,40,000 + 36,000 – 24,000)
2,52,000
33,12,000
Less:
Premium on reinsurance ceded (3,60,000 + 42,000 – 30,000)
3,72,000
29,40,000
Adjustment for unexpired risk:
Opening Balance of Reserve (24,00,000 x 57.5%)
13,80,000
Less: Reserve for C.Y.
50% of premium for C.Y.
14,70,000
5% Additional Reserve
1,47,000
(2,37,000)
27,03,000
Page 6 of 8
Schedule 2: Claims Incurred (net)
Claims paid (Direct)
18,00,000
Add:
Claim paid on reinsurance accepted
1,80,000
Expense related to claims
12,000
Claims o/s as on 31st March 2013 (1,20,000 + 18,000 – 12,000)
1,26,000
21,18,000
Less:
Claim received on reinsurance ceded
1,20,000
Claims o/s as on 31st March 2012 ( 60,000 + 12,000 – 18,000)
54,000
19,44,000
19,44,000
Schedule 3: Commission Expense
Commission paid
72,000
Add: Commission of reinsurance accepted
10,800
82,800
Less: Commission of reinsurance ceded
14,400
68,400
68,400
Schedule 4: Operating expense related
to insurance business
Expense of management
1,20,000
1,20,000
Working Note:
1) Calculation of premium received from direct business
Particulars
Premium on direct business
`
30,00,000
Add: Premium outstanding at the end
2,40,000
32,40,000
Less: Premium outstanding at the beginning
1,80,000
30,60,000
Page 7 of 8
3.
a) Calculation of amount of provision to be made in the Profit & Loss A/c:
Classification of Assets
Advances
% provision
Provision
Standard assets
20,000
00.40
80
Sub-standard assets
16,000
15.00*
2,400
For one year (secured)
6,000
25.00
1,500
For two to three years (secured)
4,000
40.00
1,600
1,400
100.00
1,400
600
100.00
600
1,500
100.00
1,500
Doubtful assets:
For more than three years
(unsecured)
(secured)
Non-recoverable assets (Loss assets)
Total provision required
9,080
*substandard assets are assumed to be fully secured.
b)
Particulars
` Lakhs
Doubtful Assets (more than 3 years)
1000
Less: Value of security (excluding DICGC cover)
400
600
Less: DICGC cover
100
Unsecured portion
500
Provision:
for unsecured portion @100%
500
for secured portion @ 100% w.e.f. 31.3.2007
400
Total provision to be made
900
________________________________________________________________________________________________________________________________________________________________________________________________
Questions and Solutions prepared by Jai Shah, CA & CFA (USA)
M: +91-9601258161; Website: www.ashishlalaji.net
Page 8 of 8