Regards:Awais Ali
ii
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
Regards:Awais Ali
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
CH.
TOPIC
1
Accounting and Reporting Concepts
2
IAS 1: Preparation of Financial
Statements
3
IAS 7: Statement of Cash Flows
4
Income and Expenditure Account
5
Preparation of Accounts From
Incomplete Records
6
Introduction to Cost of Production
7
IAS 16: Property, Plant and Equipment
NOTES
143
IAS 20: Govt. Grants
8
IAS 23: Borrowing Cost
IAS 40: Non-Current Assets: Sundry
Standards
9
IAS 36: Impairment of Assets
10
IFRS 15: Revenue from Contracts with
Customers
11
Interpretation of Financial Statements
12
Revision of some concepts
ii
PRACTICE
ICAP PAST
PAPER
ICAP QB
MCQs
Q
A
Q
A
Q
A
Q
A
151
162
191
204
236
243
257
261
Income & Expenditure Account
LO 1
LO 2
LO 3
LO 4
LO 5
4
OBJECTIVE OF NON-PROFIT ORGANIZATION AND DIFFERENCES WITH PROFIT
MAKING ORGANIZATION
PREPARATION OF INCOME AND EXPENDITURE ACCOUNT
PREPARATION OF RECEIPT AND PAYMENT ACCOUNT
MAIN SOURCES OF REVENUE
OTHER SOURCES OF REVENUE
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
fLO1: OBJECTIVE OF NON-PROFIT ORGANIZATION AND DIFFERENCES WITH PROFIT
MAKING ORGANIZATION
Till now, we have learnt the accounting of organisations whose objective is to earn profit, now we move
to the accounting of those organisations whose objective is not to earn the profit rather they work for the
welfare of society, poor etc.
Edhi Welfare Trust is a typical example where donation received from various people is used to help the
needy. Sometimes young people in a society open up a library or sports club for the benefit of people
living in that locality. You may find a hospital or clinic in a town for the check-up of poor and needy.
Differences among profit and non-profit organization
1.
2.
3.
4.
5.
6.
Profit making Organisation
Prepares Profit and Loss account
Calculates Profit/(loss)
Capital
There is an owner of business
Owner may withdraw money at any time
Cash book
Non-profit Organisation
Prepares Income and Expenditure account
Calculates Surplus/(Deficit)
General fund/ Fund/ Accumulated fund
There is no owner of business
There is no concept of drawings
Receipt and payment account
LO2: PREPARATION OF INCOME AND EXPENDITURE ACCOUNT
It is similar to the profit and loss account prepared by a profit making organisations. By deducting the
expenses from incomes the resultant figure is surplus or deficit.
The main sources of revenue of these organizations are subscriptions, admission fees, donations and
government or other grants.
LO3: PREPARATION OF RECEIPT AND PAYMENT ACCOUNT
A Receipt and Payments Account is a summary of the Cash Book. It gives the opening cash and bank, the
receipts and payments in cash or by cheque during an accounting period and the resultant balance of cash
and bank at the end of the accounting period. All the receipts and payments (whether in cash or cheque)
are shown on the debit side, and all payments (whether in cash or cheque) are shown on the credit side.
LO4: MAIN SOURCES OF REVENUE
i)
Donations
Donation received by non-profit organization can be of two types:
a) For general purpose
b) For specific purpose
a)
General Purpose
A donation which is appearing on the receipt side of receipt and payment account and against which no
detail is provided it will be taken to income. Following journal entry will be passed:
Particulars
;
Cr.
Cash
Xxx
Donation Income
Xxx
b)
For Specific Purpose
It can further be divided in two types:
143
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
i)
Donations to purchase/construct fixed assets
If the donor donating the amount imposes a condition that the amount will be used to construct/ acquire a
fixed asset then we will create a liability in our books to construct a fixed asset in future in an account
styled “specific fund account”.
By the time the asset is constructed it will be debited to asset a/c.
Example
A Social Club has received donation from one of its prestigious client for the purpose of construction of
new building. The amount of Rs. 900,000 is received on April 1, 2010. The building work started
immediately and an expense of Rs. 200,000 is incurred during the year ended December 31, 2010.
Pass the necessary journal entries for Y.E. 31.12.2010.
Journal entries
Date
Particulars
Dr.
Cr.
April 1, 2010
Cash
900,000
Building Fund
900,000
(On receipt of donation for specific purpose)
31.12.2010
Building
200,000
Cash
200,000
(On incurring cost on building)
Dr.
Building Fund Account
Cr.
2010 c/d
900,000 Cash
900,000
The closing balance will appear on liability side.
ii)
Donations to meet a specific expense
If the person donating amount imposes a condition that the amount will be used to meet a specific
expense then it will be credited to the specific fund account (liability to incur expense in future is
increased). As and when the expense is incurred the fund account will be debited (liability to incur
expense is decreased).
Example
A Medical Society has received donation of Rs. 300,000 on February 1, 2012 from one of its prestigious
client for the purpose of meeting certain welfare expenditures. Rs. 100,000 has been expanded in 2012
and the remaining has been incurred in 2013.
The year end is December 31.
Pass the necessary journal entries
Journal entries
Date
Particulars
Dr.
Cr.
February 1, 2012
Cash
300,000
Welfare Fund
300,000
(On receipt of donation for meeting expenses)
2012
Welfare Fund
100,000
Cash
100,000
(On incurring expenses)
2013
Welfare Fund
200,000
Cash
200,000
(On incurring expenses)
Dr.
Cash
2012 c/d
Cash
2013
c/d
144
Welfare Fund Account
100,000 Cash
200,000
200,000 b/d
-
Cr.
300,000
200,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Note: Sometimes as per question requirement donation net of expenses is to be taken to income. This will
be the case normally when activity is completed in the same year in which donation is received.
Specific fund from own sources
Example
A social club in a small town has managed to accumulate a significant balance on its accumulated fund
over the years.
Its members have decided that the club should establish a fund to contribute to the school fees of children
of high promise from the town. Parents of such children would apply to the club for a grant of Rs.50,000.
Rs. 1,500,000 is to be set aside for this purpose.
What journal entries would be required?
Answer
This would be accounted for as follows:
Setting up the fund
Dr.
Accumulated fund
Cr.
Special fund (Education fund)
On the award of a grant
Dr.
Special fund (Education fund)
Cr.
Cash
1,500,000
1,500,000
50,000
50,000
ii)
Subscriptions
It is membership fee paid by the members to avail the services of non-profit organisation. This is the main
source of revenue of all non profit organizations.
Subscription account appears as follows:
Dr.
Subscription account
Cr.
opening receivable
xxx opening advance
Xxx
I and E
(bal.)
xxx Cash and Bank
xxx
closing advance
xxx closing receivable
xxx
xxx
xxx
Practice Questions for subscription account
Question -1
i)
Subscriptions received during the year 2002
Rs. 7,000
ii)
Subscriptions outstanding at the beginning of 2002
Rs. 1,400
iii)
Subscriptions outstanding at the closing of 2002
Rs. 1,600
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
2002.
Question -2
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
2002.
Rs.
i)
Subscriptions received during 2002
12,000
ii)
Subscriptions received in advance for 2003
1,600
iii)
Subscriptions outstanding at the beginning of 2002
2,000
iv)
Subscriptions outstanding at the closing of 2002
700
145
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question -3
Mr. Flier, the treasure of Fly-High Club for the accounting year April 2002 to March 2003, submits the
following data for membership fees.
i)
Cash/cheque received in the year totaled Rs. 100,000.
ii)
As on 1.4.2002, Rs. 2000 was in arrears for 2001-02 (but cleared by 31.3.2003) and Rs. 800 was
received by the previous year’s treasurer for Mr. Flier.
iii)
Mr. Flier received Rs. 1,500 towards the next year’s fees, but has yet not recovered Rs. 1,700
from his current year’s members.
Show the final subscriptions income of the year 2002-03.
Question-4
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
ended December 31, 2002.
Rs.
i)
Subscriptions received during 2002
15,000
ii)
Subscriptions outstanding at the end of 2001
2,000
iii)
Subscriptions received in advance on 31st December 2001
1,000
iv)
Subscriptions received in advance on 31st December 2002
3,000
st
v)
Subscriptions outstanding on 31 December 2002
5,000
Question-5
Prepare an account showing subscriptions received in 2002-03 as per Receipts and Payment Account.
Rs.
i)
Subscriptions Income for 2002-03 as per Income and Expenditure Account
82,000
ii)
Advance subscriptions received in 2001-02
4,000
iii)
Subscriptions outstanding at the end of 2002-03 including Rs. 1,000 for 2001-02
9,500
iv)
Advance subscriptions received for 2003-04
2,000
v)
Subscriptions written-off during 2002-03
500
vi)
Subscriptions receivable on 1.4.2002
5,000
Year ended March 31.
Question-6
The following information was obtained from the Secretary of the Crazy Jay Club:
Subscriptions received in 2002-03 as per Receipts and Payments Account
Advance subscriptions received in 2001-02
Subscriptions outstanding at the end of 2002-03 (including Rs. 1,500 for 2001-02)
Advance subscriptions received for 2003-04
Subscriptions written-off during 2002-03
Subscriptions receivable on 1.4.2002
Prepare account showing the Subscriptions Income for the year ended 31.3.2003.
Rs.
89,000
5,000
12,500
3,000
600
8,400
Question-7
Anderson Club has 300 annual members in the annual general meeting held on 31st December, 2001, it
was decided to raise the subscriptions from the current Rs. 200 p.a. to Rs. 300 p.a. from the year 2002.
The members who have paid in advance will be allowed subscriptions at the old rates.
Subscriptions received in advance on 31.12.2001 was Rs. 2,000 and subscriptions in arrear on 31.12.2001
was Rs. 3,000
146
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Subscriptions in arrear on 31.12.2001 were received during 2002 with the exception of those due from 5
members.
Subscriptions in arrear for the year 2002 are in respect of 15 members.
You are required to prepare Subscriptions Account for the year 2002 and calculate the amount of
subscriptions received in cash during the year 2002.
Answer-1
Dr.
Subscription account
Cr.
Opening Receivable
1,400
Income & Expenditure (bal.)
7,200 Cash
7,000
Closing receivable
1,600
Answer-2
Dr.
Opening Receivable
Income & Expenditure (bal.)
Closing Advance
Answer-3
Dr.
Opening Receivable
Income & Expenditure (bal.)
Closing Advance
Answer-4
Dr.
Opening receivable
I and E (Bal.)
closing advance
Answer-5
Dr.
Opening receivable
I and E
closing advance
Answer-6
Dr.
Opening receivable
I and E (bal.)
closing advance
Answer -7
Dr.
Opening Receivable
(15 x 200)
Income & Expenditure
Closing Advance
Total members
147
Subscription account
2,000 Opening Advance
9,100 Cash
1,600 Closing receivable
Cr.
12,000
700
Subscription account
2,000 Opening Advance
99,000 Cash/Bank
1,500 Closing receivable
Cr.
800
100,000
1,700
Subscription account
2,000 Opening advance
16,000 Cash
3,000 closing receivable
Cr.
1,000
15,000
5,000
Subscription account
5,000 Opening advance
82,000 Cash
Bad debt
2,000 closing receivable
Cr.
4,000
75,000
500
9,500
(bal.)
Subscription account
8,400 Opening advance
95,700 Cash
Bad debt
3,000 closing receivable
Subscription account
3,000 Opening Advance
89,000 Cash
Closing receivable
- 2001 (5 x 200)
- 2002 (15 x 300)
-
Cr.
5,000
89,000
600
12,500
(200 x 10)
(bal.)
Cr.
2,000
84,500
1,000
4,500
300
CHAPTER-4
Subscription income
Members paid in advance
Other members
INCOME AND EXPENDITURE ACCOUNT
(10 x 200)
(290 x 300)
2,000
87,000
89,000
LO5: OTHER SOURCES OF REVENUE
i)
Entrance fees
In addition to the membership fees the new members upon entrance have to pay the entrance fee. This fee
is usually included in the income of the organization for the year in which it is received. However it may
also be decided by the organization to credit it to general fund.
Commonly the entry for this is as follows:
Particulars
Dr.
Cr.
Cash
xxx
Entrance fee Income
xxx
ii)
Legacy
When any thing is given away personally, it is called gift. When any gift is made by a will, it is termed as
legacy. It is generally credited to general fund account in the year of receipt treating it as capital receipt.
Commonly the entry for this is as follows:
Particulars
Dr.
Cr.
Cash
xxx
General Fund
xxx
iii)
Profit from trading activity
Sometimes to meet the expenses non-profit organization opens up a bar shop etc. For this student should
always prepare a trading account showing separately the profit from trading operations.
Opening stock, closing stock appearing in the question is an indication that the non-profit organization is
involved in a trading activity.
For trading activity always prepare the following working:
Profit from trading activity
Revenue
xxx
Less: Cost of sales
Opening stock
xxx
Purchases (Note)
xxx
Direct wages
xxx
Other direct expenses
xxx
Less: Closing Stock
(xxx)
(xxx)
Profit
xxx
(Note) For calculating purchases figure always prepare creditors account if opening closing balances of
creditors are appearing in the question.
iv)
Service activities in a non-profit organization
Sometimes a non-profit organization starts charging a nominal fee for the rendering of services.
a)
Normally the revenue earned through service activity will be appearing on the receipt
side and no related expenses will be appearing on the payment side. In this case the
whole receipt will be shown in income.
Examples
1.
Hospital

OPD charges

X-Ray charges

Laboratory charges

In-patient billing
148
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
2.
b)
Sports club

Billiard takings

Billiard room

Bowling Green

Green fees

Card and billiard room receipt

Swimming pool

Tennis court receipt
3.
Library

Charges for book reading
In other cases revenue earned through service activity will be appearing on the receipt
side and related expense will be appearing on the payment side. In such cases you should
net the revenues with expenses by showing the net figure on the income side.
Activity
Charity show
Competition
Annual dinner
Club activities
Revenues
Charity show proceeds
Games competition receipts
Annual Dinner - Sale of Tickets
Contribution to Club activities
Net proceeds (Club activities)
Expenses
Charity show expenses
Competition prizes
Annual Dinner-Expenses
Club activities expenses
Remuneration to Club coach
Following statements given in question shows that net figure is to be taken to income.

Separate books/accounts/records are kept for service activity

Show profit arising from service activity separately
For this always calculate the profit through following working:
Revenue
Less: All Direct costs
Profit
v)
Interest or gain on disposal of investments
a)
Interest on investments
Example
A non-profit organization purchased investments/ Defence Saving certificates/ National
Saving certificates/ Post office Saving Certificates/ Term Deposit certificates/ shares of a
company by paying Rs. 200,000 on March 1, 2010. The interest received on above
investments on December 31, 2010 amounted to Rs. 30,000.
Pass journal entries
Journal entries
Date
Particulars
Dr.
Cr.
March 1, 2010
Investments
200,000
Cash
200,000
(On investing money)
December 31, 2010
Cash
30,000
Interest income
30,000
(On earning interest)
b)
Gain on sale of investments
Example
Continuing from example in point (a) previously, assume the investments were sold for
Rs. 240,000 on June 30, 2011. The interest earned for the 6 months amounted to Rs.
13,000.
Pass journal entries.
149
xxx
(xx)
xxx
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Journal entries
Date
June 30, 2011
June 30, 2011
vi)
Particulars
Cash
Interest income
(On earning interest)
Cash
I and E (bal.)
Investments
(On withdrawing investments)
Dr.
13,000
Cr.
13,000
240,000
40,000
200,000
Life membership
Instead of paying annual subscription, by paying life membership amount a person becomes
member for whole of the life.
Example
A non-profit organization received Rs. 1,000,000 each from 2 life members in 2012. Year end is
December 31. Prepare the necessary entries for 2012 and 2013 under following scenarios:
1.
Recognize it as income when it is received.
2.
Recognize as income over a period of 5 years.
3.
Recognize it as equity reserve assuming 1 member passed away in 2013.
Option-1
Date
Particulars
Dr.
Cr.
Cash
2,000,000
2012
Life membership Income
2,000,000
(On joining of 2 members)
Option-2
Date
Particulars
Cash
1.1.2012
Deferred Income
(On joining of 2 members)
Deferred Income
31.12.2012
Life membership Income
(2,000,000/5)
Deferred Income
31.12.2013
Life membership Income
(2,000,000/5)
Dr.
2,000,000
Cr.
2,000,000
400,000
400,000
400,000
400,000
Option-3
Date
1.1.2012
2013
Particulars
Cash
Life-membership Fund
(On joining of 2 members)
Life-membership Fund
General Fund
(On death of 1 member)
Dr.
2,000,000
Cr.
2,000,000
1,000,000
1,000,000
Common mistake by students
While calculating the opening balance of fund they ignore the opening balance of cash and bank balance
given in the receipt and payment account.
150
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
PRACTICE QUESTIONS
Question-1
Gulshan Joy Club prepared the following Receipts and Payments Account for the year ended 31.12.2012:
Receipts
Rs
Payments
Rs
Balance b/d
60,500 Sports Equipments
35,000
(purchased on 30.5.2012)
Subscriptions:
Tournament Expenses
6,300
-2011
3,000 Electricity
26,000
-2012
124,500 Salaries and Wages
35,000
-2013
7,500
Entrance Fees
23,000
Donation received
9,600 Balance c/d
125,800
228,100
228,100
Additional information:
(i)
Fixed assets of the club on 1.1.2012 include the following

Sports Equipment-Rs.150,000:

Club Ground-Rs.450,000:

Furniture-Rs.85,000:
(ii)
In 2011, subscriptions for 2012 were collected -Rs.12,000:
(iii)
Unpaid for 2012- subscriptions Rs.8,000; and electricity Rs.3,000.
(iv)
Depreciation to be provided @ 20% p.a. on sports equipment and @ 10% p.a. on furniture.
Required:
Prepare an Income and Expenditure Account for the year ended on 31.12.2012 and a balance sheet as on
that date.
(8)
Question-2
The following is the Receipts and Payments Account of the Friends Association for the year ending 31st
December , 2011:
Receipts
Rs.
Payments
Rs.
Balance b/d
5,000
Subscription
10,500 Rent
3,300
Entrance Fees
2,000 Salaries and Wages
8,750
Interest on Investments
1,500 Furniture
1,500
Donations
750 Repairs
600
Balance c/d
5,600
19,750
19,750
Other Information:
1)
Subscription received in advance during the year is Rs. 500.
2)
Closing subscription receivable is Rs. 2,000
3)
Rent represents payment for 11 months and 1 month's rent is still payable.
4)
Salaries for Rs. 250 are prepaid.
5)
Depreciation on furniture is to be recorded @ 10% for whole year.
Required: From the above information prepare an Income and Expenditure Account for the year ending
31st December 2011.
(8)
151
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-3
The following is the Receipts and Payments Account of the Lahore Sports Club for the year ending 31st
March, 2010:
Receipts
Rs.
Payments
Rs.
Balance (April 1, 2009)
20,000
Entrance Fees
30,000 Rent
60,000
Subscription:
Stationery Expenses
5,000
2008-09
13,500 Wages
12,500
2009-10
160,000 Billiards Table
125,000
2010-11
24,000 Repair and Renewals
13,600
197,500
Locker Rent
24,300 Balance (March 31, 2010)
55,700
271,800
271,800
1)
Locker rents Rs. 5,000 relate to 2008-09 and Rs. 8,500 is still owing
2)
Rent Rs. 6,000 pertained to 2008-09 and Rs. 7,000 pertained to 2010 is still due.
3)
Stationery expenses Rs. 950 related to 2008-09 and prepaid on March 31, 2010 Rs. 780.
4)
Subscription unpaid for 2009-10 Rs. 10,000
5)
Fixed assets (if any) are to be depreciated @ 25% for whole year.
Required:
From the above information you are required to make out an Income and Expenditure Account of the club
for the year ending March 31, 2010 and a Balance Sheet as on that Date
(8)
Question-4
From the following Trial Balance of Lahore Club prepare an Income and Expenditure Account for the
year ended on 31st March. 2003 and a Balance Sheet as on that date (all figures in Rupees):
Particulars
Dr.
Cr.
General Fund
30,000
Cash in hand
2,000
Cash at Bank
3,000
Sundry Debtors
2,400
Sundry Creditors
1,500
Loan @ 15% (01.07.2002)
20,000
Furniture and Fixture
10,000
Clubhouse
40,000
Stock of Bottles (01.04.2002)
500
Rent
6,000
Rates, Taxes and Insurance
600
Secretary's Honorarium
1,200
Entrance Fees
1,000
Rent payable
1,500
Steward's and servant's wages
5,800
Extension of Club house
10,000
Printing and stationery
1,000
Law charges
500
Annual subscriptions
30,000
Card and Billiard room receipts
4,000
Washing of liveries and sundries
1,600
Biscuits, Bottles and Sweets sold
5,000
Repairs to club house and furniture
400
152
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Conversion expenses
Biscuits Bottles and Sweets purchased
Interest on Loan
Total
1,000
4,000
1,000
92,000
92,000
Additional Information:
(i)
Subscriptions for 2002-03 outstanding Rs.2,000;
(ii)
Write-off depreciation @ 10% p.a. on furniture and 2% on Club house including the extension;
(iii)
Stock of Bottles Rs.400: Biscuits Rs.600 on 31.03.2003.
(15)
Question-5
A summary of receipts and payments of Medical Aid Society for the year ended 31.12.2002 is given
below:
Receipts
Rs
Payments
Rs
Balance (1.1.2002)
7,000 Payment for medicines
30,000
Subscriptions
50,000 Honorarium to doctors
10,000
Donations
14,500 Salaries
27,500
Interest on investments @ 7% p.a.
7,000 Sundry expenses
500
Charity show proceeds
10,000 Equipment purchased
15,000
Charity show expenses
1,000
Balance (31.12.2002)
4,500
88,500
88,500
Additional Information (in Rupees):
1.1.2002 31.12.2002
Subscriptions due
500
1,000
Subscriptions received in advance
1,000
500
Stock of medicines
10,000
15,000
Amount due to Medicine suppliers
8,000
12,000
Value of equipments
21,000
30,000
Value of Buildings
40,000
38,000
Required:
Prepare an Income and Expenditure Account for the year ended 31st December, 2002 and the Balance
Sheet as on that date.
(12)
Question-6
The following summary of the Cash Book has been prepared by the Treasurer of a Club:
Receipts
Cash in hand and at bank on April 1, 2002
Members' subscriptions
Entrance fees
Restaurant receipts
Games competition receipts
Miscellaneous income
Rs
4,740
29,720
3,200
56,800
13,640
80
108,180
1)
Payments
Wages-Outdoor staff
Restaurant purchases
Rent-18 months to June 30,2003
Rates
Secretary's salary
Lighting, cleaning and sanitary services
Competition prizes
Printing, postage and sundries
Placed in fixed deposits with bank
Balance in hand and at bank on March
31,2003
Rs
13,380
50,400
7,500
2.200
3,120
7,700
4,000
6,000
8,000
5,880
108,180
On 1 April 2002, the Club's assets were: Furniture and Equipment Rs. 48,000: Restaurant Stocks
Rs.2,600; Stock of Prizes Rs.800. Rs. 5,200 was owing for supplies to the Restaurant.
153
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
2)
On March 31, 2003 the Restaurant Stocks were Rs.3,000 and prizes in hand were Rs.500 while
the Club owed Rs.5,600 for Restaurant Supplies.
3)
It was also found that Members' Subscriptions unpaid at March 31, 2003, amounted to Rs.1,000
and that the figure of Rs.29,720 shown in the Cash Book included Rs.700 in respect of the
previous year and Rs.400 paid in advance for the following year.
Required:
Prepare an account showing the profit or loss made on the Restaurant and a General Income and
Expenditure Account for the year ended 31st March, 2003 together with a Balance Sheet at that date, after
writing 10 percent off on the furniture and equipment.
(12)
Question-7
New Murree Recreation Club consists of a Tennis section and a Badminton section. The Balance Sheet of
the Club as on 1.1.2002 is as under:
Liabilities
Rs.
Assets
Rs.
Accumulated Fund
417,500 Club House
250,000
Courts: Tennis
(Cost Rs.100,000)
80,000
Badminton (Cost Rs.50,000)
35,000
Furniture
25,000
Bank Deposit
10,000
Cash and Bank
17,000
Petty Cash
500
417,500
417,500
The following is the Receipts and Payments Account for the year ended 31.12.2002:
Receipts
Rs.
Payments
Rs.
Balance b/d
17,000 New Tennis Court (1.1.2002)
100,000
Ten-year Tennis Memberships
60,000 Annual Dinner-Expenses
10,500
Subscriptions:
Expenses on Tournament:
General
25,000
Tennis
15,000
Sectional:
Badminton
4,000
Tennis
32,000 Bank Deposits
3,000
Badminton
21,000 General Expenses on:
Tournament Entry Fees:
Tennis
12,000
Tennis
20,000
Badminton
10,000
Badminton
5,000 Rates of Club House
12,000
Annual Dinner-Sale of Tickets
12,000 Miscellaneous Expenses
14,000
New coaching scholarship fund
10,000 Petty Cash
700
Balance c/d
20,800
202,000
202,000
Additional information:
(1)
In order to help pay for the new tennis court, ten-year tennis memberships were offered for sale at
the beginning of 2002 at Rs.2,000 each.
(2)
It is the club's policy to write-off the cost of the tennis and badminton courts over a ten-year
period.
(3)
The petty cash balance on 31.12.2002 was Rs.200. The petty cash float is used exclusively for
postage.
(4)
Rs.10,000 received as donations during the year for the new coaching scholarship fund. This will
be utilised for providing training facilities for promising young sportspersons. It is expected to
make the first award during 2004.
(5)
The balance of the Bank Deposit Account on 31.12.2002 was Rs.14,200.
(6)
Furniture is to be depreciated at 10%.
154
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Required:
Prepare an Income and Expenditure Account for the year ended 31.12.2002 showing the net surplus or
deficit arising separately from the tennis section and badminton section. Also prepare the Balance Sheet
of the Club as on 31.12.2002.
(18)
Question-8
The following is the Receipts and Payments Account of Sydney Club for the year ended 31st March.
2003:
Receipts
Rs.
Payment
Rs.
Opening Balance:
Salaries
120,000
Cash
10,000 Creditors
1,520,000
Bank
3,850 Printing and Stationery
70,000
Subscriptions Received
202,750 Postage
40,000
Entrance Donation
100,000 Telephones and Telex
52,000
Interest Received
58,000 Repairs and Maintenance
48,000
Sale of Assets
8,000 Glass and Table Linen
12,000
Miscellaneous Income
9,000 Crockery and Cutlery
14,000
Receipts at:
Garden Upkeep
8,000
Coffee Room
1,070,000 Membership Fees
4,000
Biscuits
610,000 Insurance
5,000
Swimming Pool
80,000 Electricity
28,000
Tennis Court
2,000 Closing Balance:
Cash
8,000
Bank
224,600
2,153,600
2,153,600
The Assets and Liabilities as on 01.04.2002 were as follows:
Particulars
Rs.
Particulars
Rs.
Fixed Assets (net)
500,000 Sundry Creditors
112,000
Stock
380,000 Subscriptions Received in Advance
15,000
Investment in 12% Government Securities 500,000 Building Fund
250,000
Outstanding Subscriptions
12,000
Prepaid Insurance
1,000
The following adjustments are to be made while drawing up the Accounts:
(i)
Subscriptions received in advance as on 31st March, 2003 was Rs. 18,000.
(ii)
Outstanding subscriptions as on 31st March. 2003 was Rs. 7,000.
(iii)
Outstanding expenses are salaries Rs.8,000 and electricity Rs. 15,000.
(iv)
The WDV of assets sold as on 01.04.2002 was Rs.10,000.These were sold on 1.04.2002.
(v)
Depreciation is to be provided at the rate of 10% on assets.
(vi)
Purchases made during the year amounted to Rs. 1,500,000.
(vii)
The value of closing stock was Rs. 210,000.
(viii) The club as a matter of policy charges-off to Income and Expenditure Account all purchases
made on account of crockery, cutlery, glass and linen in the year of purchase.
Required:
Prepare an Income and Expenditure Account for the year ended 31st March, 2003 and the Balance Sheet
as on 31st March, 2003 along with necessary workings.
(18)
155
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-9
The following information is supplied to you by the Treasurer of The Sargodha Boys Club. From these
details, prepare the Income and Expenditure Account for the year ended 31.12.2002. and the Balance
Sheet as on that date:
(a)
The club was founded five years before when a loan of Rs.200,000 was obtained, free of interest,
from a local authority. A club house was erected at the cost of Rs.175,000 and paid for out of the
Loan Account. Rs. 80,000 has now been repaid on account of the loan.
(b)
Subscriptions received during 2002 totalling Rs.56,950, made up of the following-for 2001
Rs.2,750; for 2002 Rs.53,000; for 2004 Rs.1,200.
In 2001, some subscriptions for 2003 were received in advance, amounting to Rs.2,350.
When the annual accounts for 2001 were prepared, it was estimated that 2001 subscriptions
arrears amounting to Rs.4,400 would be collected in 2002.
On 31.12.2002, it was considered that subscriptions arrears of Rs.3,800 would be received in
2003, but the subscriptions still in arrears for 2001 should by written-off.
(c)
On 31.12.2001, the credit balance on the Life Membership Fund Account was Rs.47,200. During
2002, amount received in respect of life membership amounted to Rs.27,000.
(d)
The net profit on bar during the year was Rs.10,500 after charging 1/2 of salaries. Purchases and
sales of bar during the year amounted to Rs.15,000 and Rs.30,000 respectively. The stock of bar
on 31.12.2002 was Rs.8,000.
(e)
During the year ended, among others, the club paid for the following —
Loan repayment Rs.20,000; Salaries Rs.15,000; Electricity Rs.5,500; Cleaning Rs.2,600; Sundry
expenses Rs.8,200.
(f)
The other assets and liabilities as on 1.1.2002 and 31.12.2002 were as follows (all figures in
rupees)
Date
Cash and Bank
Equipments
Vehicles
furniture
1.12002
25,150
15,000
80,000
40,000
31.12.2002
?
12,000
65,000
36,000
(14)
Question-10
The following is the Receipts and Payments Account of Barisha Recreation Club for the year ended
31.12.2002:
Receipts
Cash in Hand
Cash at Bank
Members' Subscriptions:
Ordinary for 2001
Ordinary for 2002
Ordinary for 2003
Life Membership Subscriptions
Sale of Tickets for Annual Exhibition
Sale of Refreshments
Interest on Investments
Sale of Furniture (on 30.6.2002)
(original cost on 1.1.2001 was Rs.500)
Rs
Payments
500 Rent of Club House
6,000 Painting of club House
Wages of Ground Maintenance
100 General Expenses
1,800 Electricity Charges
200 Investment
2,000 Secretary's Honorarium
10,000 Annual Meeting Expenses
12,000 Sports Equipments
1,300 Purchase of Refreshments
100 Printing and Stationery
Insurance
Cash in Hand
Cash at Bank
34,000
The following information is also available:
(a)
On 31.12.2001, outstanding subscriptions for 2001 were Rs.150.
(b)
On 31.12.2001, advance subscriptions for 2002 received were Rs.50.
(c)
On 31.12.2002, outstanding subscriptions for 2002 were Rs.300.
156
Rs
1,300
700
1,500
1,300
1,800
10,000
600
400
1,800
5,500
500
300
2,000
6,300
34,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(d)
A life membership scheme was introduced in 2001. Under the scheme, life membership
subscription is Rs.500. Life membership subscriptions totalling Rs.2,500 were collected during
2001.
(e)
On 1.1.2002, Investment was Rs.20,000 and interest accrued on investment on 31.12.2002 was
Rs.1,200.
(f)
On 1.1.2001, Furniture costing Rs.8,000 were purchased and it was decided to write off
depreciation on furniture and sports equipments @ 10% p.a. on cost.
(g)
In 2001, a plot of land was purchased for Rs.20,000 to construct club house.
(h)
Other assets and liabilities of the club were: (all figures in rupees)
Stock of
Insurance
Creditors for
Rent accrued
refreshment
prepaid
refreshment
31.12.2001
1,900
70
200
400
31.12.2002
2,100
50
100
500
Required:
Prepare an Income and Expenditure Account for the year ended 31.12.2002 and also a Balance Sheet as
on that date.
(15)
Question-11
The Comrades club makes up its account to 31st December in each year. On 31st December, 2002 the
treasurer left the club premises and has not been seen since. An examination of the records showed that
the books had not been written up for a considerable time, and it was decided to reconstruct the figures
from 1st January 2002.
A summary of the Bank Account for the year showed the following:
Receipts
Rs
Payments
Rs
Balance (1.1.2002)
416 Rent & Rates
460
Bank deposits
42,610 Insurance
40
Electricity
156
Bar purchases
35,067
Telephone
59
Cash withdrawn
5,848
Balance as on 31.12.2002
1,396
43,026
43,026
The following information is also obtained:
1.
The barman places takings in the bank 'night safe' on his way home for crediting to the club
account. The duplicate paying-in-slips total Rs.40,612 for the year. The treasurer had no access to
bar takings or stock.
2.
The receipt counterfoils for members' subscriptions total Rs.3,050 for the year.
3.
A summary of expenditure for petty cash was as follows:
Glasses, crockery and maintenance Rs.1,310; Wages Rs.2,658; National Insurance Rs.210;
Sundry expenses Rs.257.
4.
Outstanding amounts and prepayments at 31st December were:
2001
2002
Rates prepaid
26
28
Rent outstanding
40
82
Electricity outstanding
24
18
5.
The Bar stock on 1st January, 2002 was Rs.3,607 and on 31st December, 2002 was Rs.2,916. The
cash in hand with the treasurer at the beginning of the year was Rs.35.
You are required to prepare:
(i)
A summary of the cash position for the year ended 31st December. 2002 indicating the amount, if
any, to be claimed under the club's fidelity insurance policy;
(ii)
An Income and Expenditure Account for the year 2002.
(15)
157
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-12
Universal Brotherhood Club does not maintain complete double entry books of Account. From the
following details, prepare a Receipts and Payment Account, and an Income and Expenditure Account for
the year ended 31.12.2002, and a Balance Sheet as on that dale (all figures in rupees):
Date
Outstanding
Subscriptions
5%
Advance
Outstanding Advance Cash and
Sports
Investme Furniture
Subscriptions
Salaries
Salaries
Bank
Goods
nts
1.1.2002
14,000
2,800
1,400
14,000 14,000
2,800
31.12.2002
19,600
5,600
700
700
?
7,000
1,400
1)
Subscriptions for the year amount to Rs.70,000.
2)
Salaries paid Rs.15,400.
3)
50% of investments was sold at Rs.6,720 on 1.1.2002.
4)
Interest on investments left unsold was received.
5)
Furniture having book value of Rs.1,400 was sold for Rs.700 at the beginning of the year.
6)
Sports goods were purchased at the end of the year.
7)
Charge 20% depreciation on sports goods and 10% on furniture.
8)
Sports expenses amount Rs.14,000.
9)
Miscellaneous expenses are Rs.4,200 and rent amount to Rs.8,400.
5,600
11,200
(12)
Question-13
The Bilal Sports Club provides the following information:
(1)
The Club conducts all its transactions in cash — any surplus being paid into a Saving Account.
Interest credited to this account for the year to 31.3.2003 was Rs.3,500.
(2)
The Club has 100 members who pay an annual subscription of Rs.50 each. However, on
31.3.2002, ten members had already paid their subscriptions for 2002-03.
(3)
The Club has only two sources of income: subscriptions from members and bar sales. A profit
margin of 30% of selling price is normally applied to determine bar selling prices but during the
year Rs.3,970 of goods were sold at cost.
(4)
A summary of the payments for the year is as follows (all figures in rupees):
Purchase of Equipments (1.4.02)
1,000 Rental of Premises
10,000
Lighting
2,620 Club Match Expenses
6,750
Repairs to Equipments
1,760 Trophies (treated as an expense)
4,240
Bar Creditors
74,550 Refreshments for Visiting Teams
2,350
(5)
The Club has the following other assets and liabilities (all figures in rupees):
Date
Equipments
Saving Account
Bar Stock Bar Creditors
1.4.2002
40,000
46,000
8,400
6,300
31.3.2003
?
?
9,200
4,700
(6)
Equipments are depreciated at 10% of the value of equipments held on 31st March each year.
You are required to prepare:
(a)
A Bar Trading Account for the year ended 31.3.2003;
(b)
A Receipts and Payments Account for the year ended 31.3.2003;
(c)
An Income and Expenditure Account for the year ended 31.3.2003; and
(d)
A Balance Sheet as at 31.3.2003.
(16)
158
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-14
The Balance Sheet of Sandhead Club as on 31.12.2001 was as follows :
Fund and Liabilities
Rs Assets
Rs
Accumulated Fund
102,700 Building
100,000
Life Membership Fund
37,800 Equipments
15,000
Furniture
2,000
Bar Creditors
14,000 Bar Stock
10,000
Subscriptions in Advance
1,000 Bar Debtors
12,000
Cash and Bank
15,000
Subscriptions in Arrear
1,500
155,500
155,500
The following are the transactions during the year 2002:
Subscriptions
The club has 300 annual members. In December 2001: it was decided to raise the subscriptions from the
current Rs.100 p.a. to Rs.150 p.a. from the year 2002. The members who have paid in advance will be
allowed subscriptions at the old rates. Subscriptions in arrear on 31.12.2001 were received during 2002
with the exception of those due from 5 members which is to be treated as bad. Subscriptions in arrear for
the year 2002 are in respect of 15 members.
Life Membership Fund
For many years, life membership of the club cost Rs.1,000 but w.e.f. 1.1.2002, the rate has been increased
by Rs.200. The life membership details on 31.12.2001 were as follows:
During 2002, 4 new members were enrolled and one other member (who had joined in 1998) died.
Donation
At the beginning of 2002, the club received a donation of Rs.50,000. The amount was invested in 10%
Govt. Securities. As per the desire of the donor, the principal amount should be maintained for a period of
10 years, but the income to be generated from that can be used for current operations. The interest accrued
on 31.12.2002 amounted to Rs.4,500.
Bar
The gross profit percentage is 20% on sales. Purchases made during the year were Rs.55,000-out of which
Rs.30,000 on credit. During the year, amount received from debtors was Rs.32,000 and amount paid to
the creditors was Rs.24,000. On 31.12.2002, debtors were Rs.10,000 and the value of the stock was
Rs.25,000. The salaries and other expenses were Rs.4,000.
Furniture
A part of the furniture was sold on 1.1.2002 for Rs.750. On 31.12.2002, the value of the furniture was
Rs.1,080 after charging depreciation @ 10% p.a.
Expenses
During the year, the club paid for the following:
(i) Salaries Rs.12,000; (ii) Repairs Rs.5,000; (iii) Electricity Rs.12,000; (iv) Miscellaneous expenses
Rs.14,000.
You are required to prepare:
(i) Receipts and Payments Account;
(ii) Income and Expenditure Account for the year ended 31.12.2002; and
(iii) Balance Sheet as on that date.
(20)
159
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-15
From the following information, prepare a Receipts and Payments Accounts for the year ended 31st
December.2002.
Receipts:

Donation for Building Rs.60,000;

Sale of old newspapers Rs.500;

Fees for coaching Rs.2,000;

Sundries Rs.200:

Subscriptions realised for 2001 Rs.4,000;

Subscriptions for 2002 Rs.25,000;

Subscriptions for 2003 Rs.600.
Payments:

Salaries Rs.6,000;

Repairs Rs.1,000;

Newspaper Rs.1,000;

Printing and Stationery Rs.500;

Rates and Taxes Rs.1,000;

Electricity Rs.400;

Sundries Rs.200:

Construction of Building Rs.50,000.
Cash-in-Hand:
1st January Rs.1,000; 31st December 2002 Rs.33,200.
Other Information:
(i) Subscriptions to be realised for 2002 Rs.1,200:
(ii) Outstanding Expenses: Repairs Rs.100; Printing Rs.400.
Also pass journal entry for building donation received and construction of building.
(12)
Question-16
The following balances are obtained from the books of Kanpur Cricket Club as on 31.3.2002 and
31.3.2003 (all figures in rupees):
Particulars
31.3.2002 31.3.2003 Particulars
31.3.2002 31.3.2003
Buildings
80,000
85,500 Outstanding Expenses
3,000
1,200
Furniture
40,000
30,600 Sports Equipments
24,000
21,600
Advance Subscriptions
1,500
1,000 Investments
12,000
Arrears of Subscriptions
3,000
5,000 Books
15,000
16,200
Prepaid Expenses
800
1,000 Cash
16,000
17,100
Consider the following information relevant to the year 2002-03:
(i)
Depreciation provided for the year: Building – Rs.4,500; Furniture – Rs.3,400; Sports equipments
– Rs.5,400; Books – Rs.1,800.
(ii)
Some old furniture standing in the books for Rs.6,000 as on 1.4.2002 was sold for Rs.4,000 on
the same date.
(iii)
The Club had 300 members on 31.3.2003 as per the Register of Members. No fresh members
were admitted during the year but 10 members left the Club on 1.10.2002.
(iv)
Subscriptions payable - Rs.15 per month.
(v)
Donation received Rs.5,000 has been capitalised.
(vi)
Considerable expenses were paid during the year.
Required:
Prepare a Receipts and Payments Account and Income and Expenditure Account for the year ended
31.3.2003 and the Balance Sheet as on that date.
(12)
160
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Question-17
Prepare a Receipts and Payments Account of Woodburn Club for the year ended 31.12.2002.
Income & Expenditure Account for the year ended 31.12.2002 is as follows:
Income
Donations
Subscriptions
430
600
1,030
Expenses
Salaries
General expenses
Depreciation of assets
700
200
120
(1,020)
Surplus
10
Adjustments were also to be made for the following items: Subscriptions for 2001 outstanding on 1.1.2002. Rs.80
but Rs.72 only of this amount were realised in 2002. Subscriptions received in advance on 31.12.2001 were Rs.20
and 31.12.2002 were Rs.16. Subscriptions for 2002 outstanding at 31.12.2002 were Rs.28. Fixed Assets on 1.1.2002
were Rs.1,040. Fixed Assets (after depreciation) were Rs.1,080 on 31.12.2002. Cash in hand on 31.12.2002 was
Rs.264.
(12)
Question-18
Income and Expenditure Account of Boat Club for the year ended on 31.12.2002 stood as follows:
Income
Subscriptions
Entrance Fees
Donation
Sale of Old Periodicals
Expenses
Salaries
General Expenses
Audit Fees
Printing and Stationery
Interest and Bank Charges
Rent
Periodicals
Travelling Expenses
Depreciation on Furniture
Surplus
Rs.
38,000
10,500
12,000
500
61,000
19,500
10,000
2,500
6,000
3,000
3,000
4,000
2,500
1,500
(52,000)
9,000
The following is the Balance Sheet of the Club as at 31.12.2001:
Funds and Liabilities
Rs
Assets
Rs
Liabilities for:
Salaries
1,500 Furniture
7,500
Rent
500 Sports Equipment
10,000
Advance Subscriptions (2002)
1,000 Subscriptions Receivable
4,000
General Fund
37,000 Cash and Bank
18,500
40,000
40,000
Other details on 31.12.2002: Salaries outstanding-Rs.2,500; Subscriptions outstanding-Rs.3,000;
Subscriptions received in advance-Rs.1,000.
Required:
Prepare Receipts and Payments Account for 2002 and Balance Sheet as at 31.12.2002.
(14)
161
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
PRACTICE SOLUTIONS
Answer-1
Gulshan Joy Club
Income and Expenditure account
for the year ended December 31, 2012
Incomes
Entrance Fee
Donation
Subscription (W-1)
Rs.
23,000
9,600
144,500
177,100
Expenses
Tournament Expenses
Electricity (W-4)
Salaries and Wages
Depreciation on Sports Equipment (W-2.1)
Depreciation on Furniture
6,300
29,000
35,000
34,083
8,500
(112,883)
64,217
Surplus
Gulshan Joy Club
Balance Sheet
as on December 31, 2012
Capital and liabilities
Capital
Opening Fund
Surplus/(Deficit)
Rs.
(W-5)
Current Liabilities
Subscription Received in advance
Electricity Payable
Total
Assets
Non-Current Assets
Sports Equipment
Club Ground
Furniture
Current Assets:
Subscription Receivable
Cash and Bank Balance
Total
162
736,500
64,217
800,717
7,500
3,000
10,500
811,217
(W-2)
(W-3)
150,917
450,000
76,500
677,417
8,000
125,800
133,800
811,217
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-1)
Dr.
op. receivable
I and E (Bal.)
Cr.
12,000
135,000
cl. advance
Subscription account
3,000 op. advance
144,500 Cash and bank
(3,000+124,500+7,500)
7,500 cl. receivable
(W-2)
Dr.
b/d
Cash and bank
Sports equipment
150,000 Depreciation (W-2.1)
35,000 c/d (bal.)
Cr.
34,083
150,917
(W-2.1)
Depreciation
On opening assets
On additions
(150,000 x 20%)
(35,000 x 20% x 7/12)
8,000
Rs
30,000
4,083
34,083
(W-3)
Dr.
b/d
Furniture
85,000 Depreciation (85,000 x 10%)
c/d (bal.)
Cr.
8,500
76,500
(W-4)
Dr.
Cash and bank
cl.
Electricity
26,000 op.
3,000 I and E (Bal.)
Cr.
29,000
(W-5)
Opening fund
Assets
Sports Equipment
Club Grounds
Furniture
Subscription Receivable
Cash and Bank Balance
Rs.
150,000
450,000
85,000
3,000
60,500
748,500
Liabilities
Subscription Received in advance
12,000
(12,000 )
736,500
Answer-2
Friends Association
Income and Expenditure account
For the year ended December 31, 2011
Incomes
Subscription
Entrance Fee
Interest on Investment
Donation
Expenses
Rent
Salaries and Wages
163
(W-1)
(W-3)
(W-2)
Rs.
12,000
2,000
1,500
750
16,250
3,600
8,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Depreciation on Furniture (1,500 x 10%)
Repairs
150
600
(12,850)
3,400
Surplus
WORKINGS
(W-1)
Dr.
op. receivable
I and E (Bal.)
cl. advance
Subscription account
- op. advance
12,000 Cash and bank
500 cl. receivable
Cr.
10,500
2,000
(W-2)
Dr.
op.
Cash and bank
Salaries expense
I and E (Bal.)
8,750 cl.
Cr.
8,500
250
(W-3)
Dr.
Cash and bank
cl. (3,300/11 x 1)
Rent expense
3,300 op.
300 I and E (Bal.)
Cr.
3,600
Answer-3
Lahore Sports club
Income and Expenditure account
for the year ended March 31, 2010
Incomes
Entrance Fee
Subscription
Locker's Rent
(W-1)
(W-2)
Expenses
Rent
(W-4)
Stationery
(W-3)
Wages
Depreciation on Billiard Tables (125,000 x 25%)
Repair and Renewals
Surplus
Rs.
30,000
170,000
27,800
227,800
61,000
3,270
12,500
31,250
13,600
(121,620)
106,180
Lahore Sports club
Balance Sheet
as on March 31, 2010
Capital and liabilities
Capital
Opening Fund
Surplus/(Deficit)
Current Liabilities
Rent Payable
Subscription received in advance
Total
164
Rs.
(W-5)
31,550
106,180
137,730
7,000
24,000
31,000
168,730
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Assets
Non-Current Assets
Billiard Tables
Current Assets:
Cash & Bank
Subscription Receivable
Locker Rent Receivable
Stationery Prepaid
(125,000 – 31,250)
93,750
55,700
10,000
8,500
780
74,980
168,730
Total
WORKINGS
(W-1)
Dr.
op. receivable
I and E (Bal.)
cl. advance
Subscription account
13,500 op. advance
170,000 Cash and bank
24,000 cl. receivable
Cr.
197,500
10,000
(W-2)
Dr.
op. receivable
I and E (bal.)
cl. advance
Locker rent account
5,000 op. advance
27,800 Cash and bank
0 cl. receivable
Cr.
24,300
8,500
(W-3)
Dr.
Stationery expense
op.
5,000 I and E (bal.)
cl.
Cr.
950
3,270
780
Rent expense
60,000 op.
7,000 I and E (bal.)
Cr.
6,000
61,000
Cash and bank
(W-4)
Dr.
Cash and bank
cl.
(W-5)
Opening fund
Assets
Cash & Bank
Subscription Receivable
Locker Rent Receivable
-
Liabilities
Rent Payable
Stationery Payable
Rs.
20,000
13,500
5,000
38,500
6,000
950
6,950
31,550
Answer-4
Lahore Club
Income and Expenditure account
for the year ended March 31, 2003
Incomes
Card and billiard room receipt
Profit from bar
Subscription
165
(W-l)
(W-2)
Rs.
4,000
1,500
32,000
37,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Expenses
Rent
Rates, taxes and insurance
Secretary’s honorarium
Entrance fees
Steward and servant wages
Printing and stationery
Law charges
Washing of liveries and sundries
Repairs to club house and furniture
Depreciation
(1,000+800+200)
Conversion expenses
Interest on loan
(20,000 x 15% x 9/12)
Surplus/( Deficit)
6,000
600
1,200
1,000
5,800
1,000
500
1,600
400
2,000
1,000
2,250
(23,350)
14,150
Lahore Club
Balance Sheet
as on March 31, 2003
Rs.
Fund and liabilities
Fund
General Fund
Surplus/ (Deficit)
30,000
14,150
44,150
20,000
Loan Payable
Current Liabilities
Creditors
Rent payable
Interest payable
(2,250-1,000)
Total
Assets
Non-Current Assets
Furniture and fixture
Club House
Extension of Club House
(10,000-1,000)
(40,000-800)
(10,000-200)
Current Assets:
Bank
Cash
Debtors
Subscription receivable
Stocks
Total
166
(400+600)
1,500
1,500
1,250
4,250
68,400
9,000
39,200
9,800
58,000
3,000
2,000
2,400
2,000
1,000
10,400
68,400
CHAPTER-4
WORKINGS
(W-l) Profit from bar
Revenue
Less: COS
Op. stock
Purchases
Less: CI. Stock
Profit
INCOME AND EXPENDITURE ACCOUNT
Rs.
Rs.
5,000
500
4,000
(1,000)
(400+600)
(W-2) Dr.
I and E (bal.)
Subscription account
32,000 Cash
cl. receivable
(3,500)
1,500
Cr.
30,000
2,000
Answer-5
Medical Aid Society
Income and Expenditure account
for the year ended December 31, 2002
Incomes
Donations
Interest on investments
Charity show profit
Subscription
Expenses
Medicine consumed
Honorarium to doctors
Salaries
Sundry expenses
Depreciation
- Equipment
- Building
(10,000-1,000)
(W-l)
(W-3)
(21,000+15,000-30,000)
(40,000-38,000)
Surplus/(Deficit)
Rs.
14,500
7,000
9,000
51,000
81,500
29,000
10,000
27,500
500
6,000
2,000
(75,000)
6,500
Medical Aid Society
Balance Sheet
as on December 31, 2002
Fund and liabilities
Fund
Opening fund
Surplus/(Deficit)
Current liabilities
Amount due to medicine suppliers
Subscription in advance
Total
167
Rs.
(W-4)
169,500
6,500
176,000
12,000
500
12,500
188,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Assets
Non-Current Assets
Equipment
Building
30,000
38,000
68,000
100,000
Investments
Current Assets:
Subscription receivable
Stock of medicine
Cash and bank
1,000
15,000
4,500
20,500
188,500
Total
WORKINGS
(W-l)
Dr.
op. receivable
I and E (bal.)
cl. advance
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
op.
Creditors(Purchases) (W-2)
(W-4)
Opening fund
Assets
Subscription receivable
Stock of medicine
Equipment
Building
Investments
Cash and bank
Subscription account
500 op. advance
51,000 Cash
500 cl. receivable
Creditor for medicine
30,000 op.
12,000 Purchase
Cr.
1,000
50,000
1,000
(bal.)
Cr.
8,000
34,000
Medicine stock account
10,000 I and E
(bal.)
34,000 cl.
Cr.
29.000
15,000
Rs
*(7,000/7x100)
Liabilities
Subscription in advance
Amount due to medicine suppliers
500
10,000
21,000
40,000
100,000
7,000
178,500
1,000
8,000
9,000
169,500
* Interest income is grossed up to calculate the opening cost of investment.
If the investments are not appearing on the payment side in receipt and payment account it means that
investments are appearing since last year.
168
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-6
Incomes
Entrance fees
Profit from restaurant
Competition profit
Miscellaneous income
Subscription
Club
Income and Expenditure account
for the year ended March 31, 2003
Rs.
(W-l)
(13,640-(W-4)4,300)
(W-2)
Expenses
Wages
Rent
(7,500/18Mxl2M)
Rates
Secretary's salary
Lighting,, cleaning and sanitary services
Printing, postage and sundries
Depreciation
(48.000x10%)
Surplus/(Deficit)
Club
Balance Sheet
as on March 31, 2003
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
(W-5)
Current Liabilities
Suppliers of restaurant
Subscription in advance
Total
Assets
Non-Current Assets
Furniture and equipment (48,000-4,800)
Fixed Deposit
Current Assets:
Cash and bank
Restaurants stock
Subscription receivable
Prepaid rent (7,500/l8Mx3M)
Prizes in hand
Total
169
3,200
6,400
9,340
80
29,620
48,640
13.380
5,000
2.200
3,120
7,700
6,000
4,800
(42.200)
6,440
Rs.
50,390
6,440
56,830
5,600
400
6,000
62,830
43,200
8,000
5,880
3,000
1,000
1,250
500
11,630
62,830
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-1) Profit/(loss) from restaurant
Revenue
Less; COS
Op. Stock
Purchases
(W-3)
Less: CI. Stock
Profit
(W-2)
Rs.
2,600
50,800
(3,000)
Rs.
56,800
(50,400)
6,400
Dr.
op. receivable
I and E (bal.)
cl. advance
Subscription account
700 op. advance
29,620 Cash and bank
400 cl. receivable
29,720
1,000
(W-3)
Dr.
Cash and bank
cl.
Suppliers for restaurants
50,400 op.
5,600 Purchases (bal.)
Cr.
5,200
50,800
(W-4)
Dr.
op.
Cash (Purchases)
(W-5)
Prizes account
800 I and E
4,000 cl.
(bal.)
Opening fund
Assets
Cash and bank
Furniture and Equipment
Restaurant stocks
Stocks of prizes
Subscription receivable
Incomes
Profit from tennis section
Profit from badminton section
Profit from annual dinner
Interest income
Subscription
170
Cr.
4,300
500
Rs.
4,740
48,000
2,600
800
700
56,840
Liabilities
Rent Payable (1.1.2002 – 31.3.2002) (7,500/18Mx3M)
Suppliers of restaurant
Answer-7
Cr.
1,250
5,200
6,450
`50,390
New Murree Recreation Club
Income and Expenditure account
for the year ended December 31, 2002
(W-l)
(W-l)
(12,000-10,500)
(W-3)
Rs.
11,000
7,000
1,500
1,200
25,000
45,700
CHAPTER-4
Expenses
Rates of club house
Miscellaneous expenses
Postage expense
Depreciation
- Furniture
INCOME AND EXPENDITURE ACCOUNT
12,000
14,000
1,000
(W-2)
(25,000 x 10%)
2,500
(29,500)
16,200
Surplus/(Deficit)
New Murree Recreation Club
Balance Sheet
as on December 31, 2002
Rs.
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
New coaching scholarship fund
Current Liabilities
Tennis membership in advance
Total
Assets
Non-Current Assets
Club house
Tennis court
Less: Accumulated depreciation
Badminton court
Less: Accumulated depreciation
Furniture
417,500
16,200
433,700
10,000
(W-4)
54,000
497,700
250,000
200,000
(40,000)
50,000
(20,000)
22,500
462,500
14,200
(100,000 + 100,000)
(20,000 + 20,000)
(15,000 + 5,000)
(25,000 - 2,500)
Bank deposit account
Current Assets:
Cash and bank
Petty cash
Total
WORKINGS
(W-l) Profit from tennis section and badminton section
Membership subscription
(W-4)
Sectional subscription
Entry fee
Less:
Expenses
On tournament
Depreciation
Tennis court
Badminton court
General expenses
Profit
171
(100,000+100,000)/10
(50,000/10)
20,800
200
21,000
497,700
Tennis
6,000
3 2,000
20,000
58,000
Badminton
15,000
4,000
21,000
5,000
26,000
20,000
12,000
47,000
11,000
5,000
10,000
19,000
7,000
CHAPTER-4
(W-2)
Dr.
op.
Cash and bank
(W-3)
Dr.
op.
Cash and bank
Interest income (bal.)
(W-4)
INCOME AND EXPENDITURE ACCOUNT
Petty cash
500 Postage exp. (bal.)
700 c/d
Bank Deposit account
10,000
3,000
1,200 cl.
Dr.
I and E (bal.)
cl. (60,000/10 x 9)
Tennis membership
6,000 Cash and bank
54,000
Cr.
1,000
200
Cr.
14,200
Cr.
60,000
Answer-8
Sydney Club
Income and Expenditure account
For the year ended March 31, 2003
Incomes
Subscription
Entrance donation
Interest income
Miscellaneous income
Profit from bar
Swimming pool
Tennis court
Expenses
Loss on disposal of assets
Depreciation
Salaries
Printing and stationery
Postage
Telephone and telex
Repairs and maintenance
Glass and Table Linen
Crockery and Cutlery
Garden Upkeep
Membership fees
Insurance
Electricity
(W-2)
(500,000x12%)
(W-l)
(10,000+8,000)
(W-5)
(120,000+8,000)
(W-4)
(28,000+15,000)
Surplus/(Deficit)
Rs.
194,750
100,000
60,000
9,000
10,000
80,000
2,000
455,750
2,000
49,000
128,000
70,000
40,000
52,000
48,000
12,000
14,000
8,000
4,000
6,000
43,000
(476,000)
(20,250)
Sydney Club
Balance Sheet
as on March 31, 2003
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Building Fund account
172
Rs.
(W-7)
1,029,850
(20,250)
1,009,600
250,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Current Liabilities
Salary payable
Electricity payable
Subscription in advance
Creditors
8,000
15,000
18,000
92,000
133,000
1,392,600
(W-3)
Total
Assets
Non-Current Assets
Fixed assets
Government securities
Current Assets:
Cash
Bank
Stock
Interest receivable
Subscription receivable
(W-5)
441,000
500,000
8,000
224,600
210,000
2,000
7,000
451,600
1,392,600
(60,000 - 58,000)
Total
WORKINGS
(W-1) Profit from bar
Revenue
- Coffee room
- Biscuits
Rs.
1,070,000
610,000
1,680,000
Less: COS
Op. stock
Purchases
Less: CI. Stock
Profit
380,000
1,500,000
(210,000)
(W-2)
Dr.
op. Receivable
I and E
(bal.)
cl. advance
Subscription account
12,000 op. advance
194,750 Cash
18,000 cl. receivable
(W-3)
Dr.
Bank
cl.
Creditor for purchases
op.
92,000 Purchases
(W-4)
Dr.
op.
Cash
(W-5)
Dr.
op.
173
Rs.
1,520,000
(bal.)
Insurance expense
1,000 I and E
(bal.)
5,000 cl.
Fixed assets - at WDV
500,000 Disposals
Depreciation
(500,000-10,000 ) x 10%
cl. (bal.)
(1,670,000)
10,000
Cr.
15,000
202,750
7,000
Cr.
112,000
1,500,000
Cr.
6,000
Cr.
10,000
49,000
441,000
CHAPTER-4
(W-6)
INCOME AND EXPENDITURE ACCOUNT
Opening fund
Assets
Cash
Bank
Fixed assets
Stock
Government securities
Subscription receivable
Prepaid insurance
Rs.
10,000
3,850
500,000
380,000
500,000
12,000
1,000
1,406,850
Liabilities
Sundry creditors
Subscription received in advance
Building Fund
Answer-9
Incomes
Profit from bar
Subscription
Expenses
Salaries
Electricity
Cleaning
Sundry expenses
Bad debts
Depreciation
- Equipment
- Vehicle
- Furniture
112,000
15,000
250,000
(377,000)
1,029,850
Sargodha Boys Club
Income and Expenditure account
for the year ended December 31. 2002
Rs.
10,500
56,800
67,300
(W-l)
(W-2)
(15,000x1/2)
7,500
5,500
2,600
8,200
1,650
(15,000 - 12,000)
(80,000 - 65,000)
(40,000 - 36,000)
Surplus/(Deficit)
3,000
15,000
4,000
(47,450)
19,850
Sargodha Boys Club
Balance Sheet
as on December 31, 2002
Fund and liabilities
Fund
Opening fund
Surplus/( Deficit)
Life membership fund
Loan
Current Liabilities
Subscription in advance
Total
174
Rs.
(W-9)
(W-5)
(W-3)
155,000
19,850
174,850
74,200
120,000
3,550
372,600
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Assets
Non-Current Assets
Club house
Equipment
Vehicle
Furniture
Current Assets:
Bar stock
Cash and bank
Subscription receivable
175,000
12,000
65,000
36,000
288,000
8,000
72,800
3,800
84,600
372,600
(W-4)
Total
WORKINGS
(W-1) Profit from bar
Revenue
Less: COS
Op. Stock
Purchases
Less: CI. Stock
Gross profit
Less: Salaries
Profit
(W-2)
Rs.
30,000
(W-8)
Dr.
op. Receivable
I and E (bal.)
Dr.
Cash and bank
cl. (200,000-80.000)
(W-4)
Receipts
b/d
Subscription
Life membership fund
Bar sales
(W-5)
Dr.
c/d (bal.)
175
5,000
15,000
(8,000)
(15,000x1/2)
cl. Advance (1,200+2,350)
(W-3)
Rs.
Subscript on account
4,400 op. Advance
56,800 Cash and bank
Bad debt
(4,400-2,750)
3,550 cl. receivable
Loan account
20,000 op.
120,000
(12,000)
18,000
(7,500)
10,500
Cr.
2,350
56,950
1,650
3,800
(bal.)
Cr.
140,000
Receipt and payment account
Rs.
Payments
25,150 Loan
Bar purchases
56,950 Salaries
27,000 Electricity
30,000 Cleaning
Sundry Expenses
c/d (bal.)
Rs.
20,000
15,000
15,000
5,500
2,600
8,200
72,800
Life membership subscription
b/d
74,200 Cash
Cr.
47,200
27,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-6)
Calculation of gross profit at bar
Net Profit = Gross profit - Expenses (1/2 of salaries)
10,500 = X-(1/2 of 15,000)
X = 18,000
(W-7)
Calculation of cost of sales
Sales - COS = Gross profit (W-6 )
30,000-X = 18,000
X= 12,000
(W-8)
Calculation of opening stock at bar
COS (W-7)
= Op stock + Purchases-cl. Stock
12,000 = X + 15,000 - 8,000
X = 5,000
(W-9)
Opening fund
Assets
Club house
Equipment
Vehicle
furniture
Cash and bank
Subscription receivable
Bar stocks
Rs.
(W-8)
Liabilities
Loan payable
Life member ship fund
Subscription in advance
(W-3)
175,000
15,000
80,000
40,000
25,150
4,400
5,000
344,550
140,000
47,200
2,350
189,550
155,000
Answer-10
Barisha Recreation Club
Income and Expenditure account
for the year ended December 31, 2002
Incomes
Subscription
Sale of tickets for annual exhibition
Interest income
Profit from refreshment
Expenses
Rent expense
Painting of club house
Wages of Ground Maintenance
General Expenses
176
Rs.
(W-2)
(1,300+ 1,200)
(W-1)
(W-5)
2,150
10,000
2,500
6,600
21,250
1,200
700
1,500
1,300
CHAPTER-4
Electricity Charges
Secretary's Honorarium
Annual Meeting Expenses
Printing and Stationery
Insurance
Loss on sale of furniture
Depreciation
- furniture
- Equipment
INCOME AND EXPENDITURE ACCOUNT
1,800
600
400
500
320
325
(W-4)
(500-75) -100
(8,000-500) x 10% + (500 x 10% x 6/12)
(1,800x10%)
Surplus/( Deficit)
775
180
(9,600)
11,650
Barisha Recreation Club
Balance Sheet
as on December 31, 2002
Fund and liabilities
Fund
Opening fund
Surplus/(Deficit)
Life subscription
Current Liabilities
Rent payable
Creditor for refreshment
Subscription in advance
Rs.
(W-7)
(W-6)
100
500
200
800
69,620
'Total
Assets
Non-Current Assets
Land
Sports equipment
Furniture
Less: Accumulated depreciation
Investments
Current Assets:
Interest receivable on investment
Stock of refreshment
Prepaid insurance
Subscription receivable
Bank
Cash
Total
177
52,670
11,650
64,320
4,500
(1,800-180)
(8,000-500)
(800+775-75)
(20,000 + 10,000)
(W-2)
20,000
1,620
7,500
(1,500)
27,620
30,000
1,200
2,100
50
350
6,300
2,000
12,000
69,620
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-1) Profit from refreshment activity
Revenue
Less: COS
Op. stock
Purchases
Less: CI. Stock
Profit
Rs.
Rs.
12,000
1,900
5,600
(2,100)
(5,400)
6,600
(W-2)
Dr.
op. receivable
I and E (bal.)
cl. advance
Subscription account
150 op. advance
2,150 Cash (100+1,800+200)
200 cl. Receivable (300+(150-100)
Cr.
50
2,100
350
(W-3)
Dr.
Bank
cl.
Creditor for purchases
5,500 op.
500 Purchases (bal.)
Cr.
400
5,600
(W-4)
Dr.
op.
Cash
Insurance expense
70 I and E
(bal.)
300 cl.
Cr.
320
50
(W-5)
Dr.
Bank
c/d
Rent expense
1,300 b/d
100 I and E
(W-6)
Dr.
c/d (bal.)
(W-7)
(bal.)
Life membership subscription
b/d
4,500
Cash
Opening fund
Assets
Cash in hand
Cash at bank
Subscription receivable
Stock of refreshment
Prepaid insurance
Investment
Land
Furniture
Less : Accumulated depreciation
Liabilities
Subscription in advance
Life membership subscription
Rent accrued
Creditors for refreshment
178
Cr.
200
1,200
Cr.
2,500
2,000
Rs.
(8,000 x 10%)
500
6,000
150
1,900
70
20,000
20,000
8,000
(800)
55,820
50
2,500
200
400
3,150
52,670
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-11
(i)
Dr.
Op.
Cash account
35 Bank
Glass, crockery etc.
3,050 Wages
5,848 Insurance
40,612 Sundry expense
Insurance receivable (bal.)
cl.
Subscription
Bank
Bar room takings
Cr.
42,610
1,3 10
2,658
210
257
2,500
-
(ii)
Comrades Club
Income and Expenditure account
for the year ended December 31, 2002
Incomes
Profit from bar
Subscription
Rs.
(W-l)
4,854
3,050
7,904
Expenses
Rent and rates
(W-2)
Insurance
(40+210)
Electricity
(W-3)
Telephone
Glass, crockery and maintenance
Wages
Sundry expenses
500
250
150
59
1,310
2,658
257
(5,184)
2,720
Surplus/(Deficit)
WORKINGS
(W-l) Profit from bar
Revenue
Less: COS
Op. Stock
Purchases
Less: CI. Stock
Profit
(W-2)
(W-3)
179
Dr.
b/d
Bank
c/d
Dr.
Bank
cl.
Rs.
3,607
35,067
(2,916)
(W-3)
Rent and Rates expense
26 b/d
460 I and E (bal.)
82 c/d
Electricity expense
156 op.
18 I and E
(bal.)
Rs.
40,612
(35,758)
4,854
Cr.
40
500
28
Cr.
24
150
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-12
Universal Brotherhood Club
Receipt and payment account
for the year ended December 31, 2002
Receipts
Rs.
Payments
op.
14,000 Salaries
Subscription(W-l)
67,200 Sports goods purchased (11,200-5,600)
Investments Sold
6,720 Sports expenses
Interest income (7,000 x 5%)
350 Miscellaneous expense
Disposal
700 Rent
c/d (bal.)
Rs.
15,400
5,600
14,000
4,200
8,400
41,370
Universal Brotherhood Club
Income and Expenditure account
for the year ended December 31, 2002
Incomes
interest income on investments
Subscription
Expenses
Salaries
Sports expenses
Miscellaneous expenses
Rent
Loss on sale of investments
Loss on sale of furniture
Depreciation
- Furniture
Sports goods
(7,000x5%)
(W-2)
(7,000-6,720)
(1,400-700)
(2,800-1,400)x10%
(5,600x20%)
Surplus/( Deficit)
Rs.
350
70,000
70,350
14,000
14,000
4,200
8,400
280
700
140
1,120
(42,840)
27,510
Universal Brotherhood Club
Balance Sheet
as on December 31, 2002
Fund and liabilities
Fund
Opening Fund
Surplus/( Deficit)
Rs.
(W-4)
Current Liabilities
Salaries payable
Subscription in advance
Total
Assets
Non-Current Assets
Furniture account
Sports goods
180
46,200
27,510
73,710
700
5,600
6,300
80,010
(W-3)
(11,200-1,120)
1,260
10,080
11,340
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Investments
Current Assets:
Cash and bank
Subscription receivable
Salaries prepaid
7,000
41,370
19,600
700
61,670
80,010
Total
WORKINGS
(W-l)
Dr.
op. receivable
I and E
cl. advance
(W-2)
Dr.
Subscription account
14,000 op. advance
70,000 Cash and bank (bal.)
5,600 cl. receivable
Cr.
2,800
67,200
19,600
Salaries payable
op.
15,400 I and E (bal.)
700 cl. (Adv.)
Cash and bank
cl.
(W- 3)
Dr.
op.
(W-4)
Opening fund
Assets
Furniture
Sports goods
Investments
Cash and bank
Subscription receivable
Cr.
1,400
14,000
700
Furniture account
2,800 Disposal
Depreciation (2,800-1,400) x 10%
cl. (bal.)
Cr.
1,400
140
1,260
Rs.
2,800
5,600
14,000
14,000
14,000
50,400
Liabilities
Subscription in advance
Salaries payable
2,800
1400
4,200
46,200
Answer-13
(a)
Bilal Sports Club
Bar Trading account
for the year ended March 31, 2003
Rs.
Revenue
Less: COS
Op. stock
Purchase
Less: Cl. Stock
Profit
181
(see below)
(W-2)
8,400
72,950
(9,200)
Rs.
101,370
(72,150)
29,220
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Calculation of sales
Cost of sale
(As above)
Less: Cost of goods which are sold at cost
Cost of goods which are sold at 30% of selling price
Selling price of goods which are sold at profit (68,180/70x100)
Selling price of goods which are sold at cost
Total sales
(b)
Bilal Sports Club
Receipt and payment account
for the year ended March 31, 2003
Receipts
Rs.
Payments
Subscription (W-l)
4,500 Purchase of equipment
Bar sales (part-a)
101,370 Lighting
Repairs to equipment
Bar creditors
Rental of premise
Club match expenses
Trophies
Refreshment for visiting teams
Saving account (bal.)
c/d
(c)
72,150
(3,970)
68,180
97,400
3,970
101,370
Rs.
1,000
2,620
1,760
74,550
10,000
6,750
4,240
2,350
2,600
-
Bilal Sports Club
Income and Expenditure account
for the year ended March 31, 2003
Incomes
Profit from bar
Interest on saving account
Subscription
Rs.
29,220
3,500
5,000
37,720
(part-a)
Expenses
Lighting
Repairs to equipment
Rental of premises
Club match expenses
Trophies
Refreshment for visiting teams
Depreciation
2,620
1,760
10,000
6,750
4,240
2,350
4,100
(31,820)
5,900
Surplus/(Deficit)
(d)
Bilal Sports Club
Balance Sheet
as on March 31, 2003
Fund and liabilities
Fund
Opening Fund
Surplus/( Deficit)
182
Rs.
(W-4)
87,600
5,900
93,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Current liabilities
Bar creditors
Total
Assets
Non-Current Assets
Equipment
Current Assets
Bar stock
Saving account
4,700
98,200
(40,000+1,000-4,100)
9,200
52,100
61,300
98,200
(W-3)
Total
WORKINGS
(W- 1) Dr.
op. Receivable
I and E (100 x 50)
cl. advance
Subscription account
- Op. Advance (10x50)
5,000 Cash and bank (bal.)
- cl. receivable
(W- 2)
Dr.
Cash and bank
cl.
Creditor for bar
74,550 op.
4,700 Purchase (bal.)
(W- 3)
Dr.
b/d
Interest
Cash (put in) (part-b)
Opening fund
Assets
Equipment
Bar stocks
Saving account
Saving account
46,000
3,500
2,600 c/d (bal.)
(W-4)
36,900
Liabilities
Subscription in advance
Bar creditors
Cr.
500
4,500
Cr.
6,300
72,950
Cr.
52,100
Rs.
40,000
8,400
46,000
94,400
500
6,300
6,800
87,600
Answer-14
(i)
Sandhead Club
Receipt and payment account
For the year ended December 31, 2002
Receipts
Rs.
Payments
b/d
15,000 Bar purchases (55,000-30,000)
Bar creditors
Subscription (W-2)
42,250 Bar salaries and exp.
183
Rs.
25,000
24,000
4,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Life mem. fund (W-6)
Donation
Bar sales (W-4)
Bar debtors
Sale of furniture
4,800
50,000
20,000
32,000
750
Govt. Securities
Salaries
Repairs
Electricity
Miscellaneous exp.
c/d
50,000
12,000
5,000
12,000
14,000
18,800
(ii)
Sandhead Club
Income and Expenditure account
for the year ended December 31, 2002
Incomes
Profit from bar
Interest income
Subscription
Expenses
Depreciation furniture
Loss on sale of furniture
Bad debt
Salaries
Repairs
Electricity
Miscellaneous expenses
Rs.
(W-l)
(W-2)
(W-5)
((W-5)800-750)
Surplus/(Deficit)
(iii)
6,000
4,500
44,500
55,000
120
50
500
12,000
5,000
12,000
14,000
(43,670)
11,330
Sandhead Club
Balance Sheet
as on December 31, 2002
Fund and liabilities
Fund
Opening fund
Transferred from life membership fund (W-6)
Surplus/(Deficit)
Donation Fund
Life membership fund
Current Liabilities
Bar creditors
Total
Assets
Non-Current Assets
Building
Equipment
Furniture
Government Securities
184
(W-6)
Rs.
102,700
1,000
11,330
115,030
50,000
41,600
20,000
226,630
100,000
15,000
1,080
116,080
50,000
CHAPTER-4
Current Assets
Cash and bank
Interest receivable
Bar debtors
Bar stock
Subscription receivable
Total
WORKINGS
(W-1)Profit from bar
Revenue
Less: COS
Op. stock
Purchases
Less: CI. Stock
Gross profit
Less: Expenses
Profit
(W- 2)
Dr.
op. receivable
I and E (as below)
cl. advance
INCOME AND EXPENDITURE ACCOUNT
18,800
4,500
10,000
25,000
2,250
60,550
226,630
(W-2)
Rs.
(40,000/80x100)
10,000
55,000
(25,000)
Subscription account
1,500 op. Advance
44,500 Cash (bal.)
Bad debt (5 x 100)
- cl. Receivable (15 x 150)
Rs.
50,000
(40,000)
10,000
(4,000)
6,000
Cr.
1,000
42,250
500
2,250
Subscription income (290 members x Rs. 150) + (10 members x Rs. 100) 44,500
We have received Rs.100/member from 10 members in previous year which is current year income. In the
current year subscription from remaining 290 members @ Rs.150 will also be taken to income of current
year.
(W- 3) Dr.
Creditor for purchases
Cr.
Bank
24,000 op.
14,000
cl. (bal.)
20,000 Purchases
30,000
(W- 4) Dr.
Bar debtors
Cr.
op.
12,000 Bank
32,000
Sale
30,000 c/d
10,000
Cash sale= 50,000-30,000 =
20,000
(W- 5) Dr.
Furniture account
Cr.
op.
2,000 Disposal (see below)
800
Depreciation (see below)
120
(2,000-800) x 10%
cl.
1,080
If book value of assets after depreciation is given then we calculate depreciation charge for the
year and book value of assets excluding disposals.
Depreciation for the year
(1,080/90x10)
120
Opening Book value of assets excluding disposals (1,080/90x100)
1,200
Book value of assets disposed off
(2,000 - 1,200)
800
185
CHAPTER-4
(W- 6)
Dr.
General Fund
c/d
INCOME AND EXPENDITURE ACCOUNT
Life membership fund a/c
1,000 b/d
41,600 Cash (4x1,200)
Cr.
37,800
4,800
Answer-15
Receipts
b/d
Building Fund
Sale of old newspaper
Fee for coaching
Sundries
Subscription
(4,000+25,000+600)
Receipt and payment account
for the year ended December 31, 2002
Rs. Payments
1,000 Salaries
Repair
60,000 Newspaper
500 Printing and stationery
2,000 Rates and taxes
200 Electricity
29,600 Sundries
Building account
c/d
Journal entry for building donation and construction
Cash
Building Fund
(on receipt of specific donation for construction of asset)
Building account
Cash
(On construction of building)
Rs.
6,000
1,000
1,000
500
1,000
400
200
50,000
33,200
Dr.
60,000
Cr.
60,000
50,000
50,000
Answer-16
Receipts
b/d
Subscription (W-1)
Sale of furniture
Donation
Kanpur Cricket club
Receipt and payment account
for the year ended March 31, 2003
Rs. Payments
16,000 Investments (12,000-0)
Buildings (W-2)
52,400 Sports equipment (W-4)
4,000 Books (W-5)
5,000 Expenses (bal.)
c/d
Rs.
12,000
10,000
3,000
3,000
32,300
17,100
Kanpur cricket club
Income and Expenditure account
for the year ended March 31, 2003
Incomes
Subscription
Expenses
Expenses
Loss on sale of furniture
Depreciation
- Building
186
(W-1)
Rs.
54,900
(W-6)
(6,000-4,000)
30,300
2,000
4,500
CHAPTER-4
-
INCOME AND EXPENDITURE ACCOUNT
3,400
5,400
1,800
(47,400)
7,500
Furniture
Sports Equipment
Books
Surplus/(Deficit)
Kanpur Cricket club
Balance Sheet
as on March 31, 2003
Fund and liabilities
Fund
Opening Fund
Donation
Surplus/(Deficit)
Rs.
(W-7)
Current Liabilities
Subscription in advance
Outstanding expenses
1,000
1,200
2,200
189,000
Total
Assets
Non-Current Assets
Building
Furniture
Sports equipment
Books
85,500
30,600
21,600
16,200
153,900
12,000
Investments
Current Assets
Subscription receivable
Prepaid expenses
Cash
5,000
1,000
17,100
23,100
189,000
Total
WORKINGS
(W- 1) Dr.
op. receivable
I and E
cl. advance
Subscription account
3,000 op. advance
54,900 Cash (bal.)
1,000 cl. receivable
Subscription income
Subscription income from April 2002 to September 2002 (310 members x Rs. 15x6 months)
Subscription income from October 2002 to March 2003 (300 members x Rs. 15x6 months)
(W- 2)
187
Dr.
op.
Cash
174,300
5,000
7,500
186,800
Building account
80,000 Depreciation
10,000 cl.
Cr.
1,500
52,400
5,000
27,900
27,000
54,900
Cr.
4,500
85,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W- 3)
Dr.
op.
Cash
(W- 4)
Dr.
op.
Cash
Dr.
op.
Cash
Dr.
Op. prepaid
Cash
(From receipt and payment acc.)
Cl. Payable
Opening fund
Assets
Building
Furniture
Sports equipment
Subscription receivable
Prepaid expenses
Books
Cash
(W- 5)
(W- 6)
(W-7)
Furniture a/c
40,000 Disposal
- Depreciation
cl.
Sports equipment
24,000 Depreciation
3,000 cl.
Books account
15,000 Depreciation
3,000 cl.
Expenses
800 Op. Payable
32,300 I and E (bal.)
1,200 Cl. Prepaid
Liabilities
Subscription in advance
Outstanding expenses
Cr.
6,000
3,400
30,600
Cr.
5,400
21,600
Cr.
1,800
16,200
Cr.
3,000
30,300
1,000
Rs.
80,000
40,000
24,000
3,000
800
15,000
16,000
178,800
1,500
3,000
4,500
174,300
Answer-17
Receipts
b/d (bal.)
Subscription (W-1)
Donations
WORKINGS
(W- 1) Dr.
op. receivable
I and E
cl. advance
188
Woodburn Club
Receipt and payment account
for the year ended December 31,2002
Rs.
Payments
54 Salaries
840 General expenses
430 Fixed assets purchased (W-2)
c/d
Subscription account
80 op. advance
800 Cash (bal.)
16 cl. receivable
- 2001 (80-72)
- 2002
Rs.
700
200
160
264
Cr.
20
840
8
28
CHAPTER-4
(W- 2)
Dr.
b/d
Cash (bal.)
INCOME AND EXPENDITURE ACCOUNT
Fixed assets account
1,040 Depreciation
160 c/d
Cr.
120
1,080
Answer-18
Receipts
b/d
Subscription (W-1)
Entrance fees
Donation
Sale of old periodicals
Boat Club
Receipt and payment account
for the year ended December 31, 2002
Rs.
Payments
18,500 Salaries (W-2)
39,000 General expenses
10,500 Audit fee
12,000 Printing and stationery
500 Interest and bank charge
Rent (W-3)
Periodicals
Travelling expenses
c/d (bal.)
Rs.
18,500
10,000
2,500
6,000
3,000
3,500
4,000
2,500
30,500
Boat Club
Balance Sheet
as on December 31,2002
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Rs.
37,000
9,000
46,000
Current Liabilities
Subscription in advance
Salaries payable
Total
Assets
Non-Current Assets
Furniture
Sports equipment
1,000
2,500
3,500
49,500
(7,500-1,500)
Current Assets:
Cash and bank
Subscription receivable
30,500
3,000
33,500
49,500
Total
WORKINGS
(W- 1) Dr.
op. receivable
I and E
cl. advance
189
6,000
10,000
16,000
Subscription account
4,000 op. Advance
38,000 Cash and bank (bal.)
1,000 cl. receivable
Cr.
1,000
39,000
3,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-2)
Dr.
Cash and bank (bal.)
cl.
Salaries
18,500 Op.
2,500 I and E
Cr.
1,500
19,500
(W-3)
Dr.
Cash and bank (bal.)
cl.
Rent
3,500 Op.
- I and E
Cr.
500
3,000
190
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP PAST PAPER QUESTIONS
QUESTION-1
At October 01, 1999, a club Membership subscription account showed a debit balance of Rs. 200,000 and
a credit balance of Rs. 90,000. During the year ended September 30, 2000, subscription received
amounted to Rs. 480,000. On the same date subscription paid in advance amounted to Rs. 85,000, and
subscription in arrear and expected to be collected amounted to Rs. 50,000.
Required:
The amount to be transferred to the income and expenditure account in respect of subscriptions for the
year ended September 30, 2000.
(05)
(Spring 2001)
QUESTION-2
The Mayfair Sports and Social Club's assets and liabilities for the previous and current year were as
follows:
At December At December
31,2002
31, 2003
Rs.
Rs.
Equipment
125,000
140,000
Subscriptions in arrears
10,000
9,000
Subscriptions in advance
6,500
5,500
Creditors for soft drinks stock
17,500
21,500
Soft Drinks stocks
40,000
30,000
Rent owing
7,500
5,000
Electricity owing
5,250
7,000
Bank balance
36,150
65,000
During the year the cash receipts were:
Subscriptions (including Rs. 3,000 of arrears from
previous year and the balance to be written off)
Soft Drinks takings
Sale of tickets for annual dinner
Sale of raffle tickets
The following payments were made during the year:
Affiliation fees
Purchase of equipment
Soft Drinks stocks
Soft Drinks salesman's wages
Catering
Hire of band
Raffle prizes
Rent of hall
Printing and postage
Electricity
Hon. Secretary's expenses
Repairs to equipment
Required: The Mayfair Sports and Social Club's
(i)
Soft Drinks trading account for the year ended December 31, 2003
(ii)
Income and expenditure account for the year ended Dec. 31, 2003
(iii)
Balance sheet as at 31 December 2003.
191
105,000
205,000
120,000
9,000
5,000
40,000
102,500
37,500
72,000
15,000
3,000
75,000
10,000
29,050
6,100
15,000
(03)
(07)
(05)
(Spring 2004, Q # 4)
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-3
The treasurer of the Karachi Social Club prepared the following Receipts & Payments account for the
year ended 30th September 1993:
Receipt
Rs.
Rs. Payment
Rs.
Rs.
1992 1st Oct. Bal. b/f
1993
Current account
1,320
Payment for bottle purchases
12,230
Deposit account
2,100
Rent & Rates
7,880
Cash in hand
60 3,480 Payment to entertainers
3,360
Printing & stationery
1,720
General expenses
4,490
1993:
Bottle Stewards Wages
8,300
Subscription
13,690
Bottle Sales
24,850 Balance c/f
Other sales from devices etc.
4,570 Current account
6,400
Legacy from former member
2,000 Deposit account
4,600
Bank deposit interest
420 Cash in hand
30
11,030
49,010
49,010
The following information is made available to you:(a)
Opening & Closing balances:
1 Oct. 1992
30 Sep. 1993
Rs.
Rs.
Bottle Stocks
1,630
1,850
Subscription in arrears.
770
620
Subscription in advance
250
310
Creditors for bottle purchases
1,330
1,150
Rent & Rates accrued
750
820
Fidelity bond given by Steward.
200
200
(b)
The bottle sales of Rs.480 on the evening of 30th September 1993 have been retained in the
steward's office and are not included in the above receipts and payments accounts.
Required:
(a)
A trading account to show the Profit arising from the bottle.
(06)
(b)
Income & Expenditure account of the Club for the year ended 30th September 1993, and
(06)
(c)
A Balance Sheet as on that date.
(08)
(May 1996, Foundation Part -1, Q # 5)
QUESTION-4
Following is the Receipts and payments Account of Friends club for the year ended 31st December 1993:
Receipts
Rs. Payment
Rs.
Balance at bank 1st January
1,020 New Furniture
4,500
Club entrance fees
420 Bakery purchases
44,340
Subscriptions
1992
250 Wages
4,160
1993
3,050 Rent
1,860
1994
350 Utilities.
1,280
Club bakery sales
52,270 Postage, Stationery etc.
330
Sales of investments
7,500 Insurance.
180
Sundry expenses.
460
Balance at bank 31st Dec.1993
7,750
64,860
64,860
192
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Additional information:
(1)
On 31st December 1992, the Club held investments which cost Rs.5,000. During the current year
these were sold for Rs.7,500.
(2)
Furniture was valued at Rs.3,000 on 31st December 1992. On 30th June 1993, the club purchased
additional furniture at a cost of Rs.5,200. Depreciation of all furniture is to be provided for at the
rate of 10%p.a.
(3)
31st December
1992
1993
Rs.
Rs.
Utilities expenses due
160
190
Subscription due
250
400
Rent due
180
360
Bakery stock (cost)
2,720
3,150
Creditors for bakery purchases
3,060
3,580
Prepaid Insurance
50
70
Required: Prepare Income and Expenditure Account for the year ended 31st December 1993 and a
Balance Sheet at that date.
(15)
(November 1995, Q# 3)
QUESTION-5
Following is the Receipts and Payments Account of Cessna Sporting Club for the year ended 31st
December, 1993:
RECEIPTS
Rs.
PAYMENTS
Rs.
Cash at bank and in hand on 1st Jan.93
4,000 National Savings Account.
9,800
Receipts from Billiard Room
4,400 Salaries of staff (including Dec. 1992
7,020
salaries Rs. 580)
Receipts from Bowling Green
3,800 Glass, China, Linen etc.
4,400
Receipts from Green Fees
3,980 Sundry Creditors of 1992
1,180
Rent of Lockers 1993
200 Term Deposit.
8,000
Rent of Lockers 1994
1,460 Newspaper & Magazines
1,160
Takings from Dining Room
56,000 Entertainment.
1,480
Imran Khan Pavilion Fund
39,240
Collection
Repairs, Cleaning and Washing
4,840
Sale of tickets for Annual Dinner
3,560 Expenditure of Imran Khan Pavilion
29,780
Sale of tickets for Entertainment
6,000 Secretary's salary
3,000
Entrance Fees
8,720 Printing, Stationery & Postage.
4,660
Annual Subscription 1992
600 Utility bills
2,520
Annual Subscription 1993
26,660 Cost of food etc.
48,000
Annual Subscription 1994
1,000
(in advance)
Cost of Annual Dinner
3,100
Rent, rate & taxes
9,240
Profit on National savings
380
Account
Balance at bank and in hand
21,820
160,000
160,000
(1)
The value of Club assets on 1st Jan. 1993 was:

Furniture & Fixtures Rs. 30,000;

Glass, China, Linen Rs. 6,400;

Stock of Stationery Rs.1,000;

Consumable Stores Rs.2,500.
193
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(2)
On 31st December, 1993 the stocks were:

Stationery Rs. 1,500 and

Consumable stores Rs. 1,900.
(3)
The unpaid subscriptions for 1993 were Rs. 900 and there was a sum of Rs. 980 due to creditors
for food supplied and Rs. 600 due to staff as salary for Dec. 93.
(4)
Depreciation is to be charged @ 10% p.a. on Furniture &Fixtures and 20% on Glass, China Linen
etc.
(5)
Entrance Fees are also to be considered as revenue.
Required:
Prepare an Income and Expenditure Account for the year ended 31 Dec. 93 and a Balance Sheet as on that
date. Also prepare Balance Sheet as on 31 Dec. 92 showing net Club funds as on that date.
(20)
(April 1994, Q# 4)
QUESTION-6
Following is the Receipts and Payments Account of Sehat Club for the year ended 30 June 2011:
Receipts and Payments Account
For the year ended 30 June 2011
Receipts
Rs.
Payments
Rs.
Opening balance
15,000 Salaries
63,500
Subscriptions
201,000 Rent
34,000
Entrance fees
63,000 Travelling expenses
1,500
Donations
38,000 Printing and stationery
1,000
Interest
16,000 General charges
2,500
Receipt on disposal of furniture
500 Periodicals
500
Investments
200,000
Closing balance
30,500
333,500
333,500
Balance Sheet
As on 30 June 2010
Funds & Liabilities
Rs.
Assets
General Fund
172,500 Furniture – net
Liabilities:
Rent
11,000 Sports equipments – net
Salaries
17,500 Investments
Subscription receivable
Interest receivables
Bank balance
201,000
Other details for the year ended 30 June 2011 are as follows:
(i)
Furniture purchased on 1 July 2009 costing Rs. 4,000 was disposed off on 1 January
scrap value of Rs. 500.
(ii)
On 1 July 2010, furniture having written down value of Rs. 6,000 was traded-in
furniture having fair value of Rs. 6,700.
(iii)
Depreciation is charged on diminishing balance basis at 20% on furniture and 15%
equipments.
(iv)
Sports equipments worth Rs. 12,000 were received at year end as donation.
(v)
Following amounts are receivable / outstanding as at 30 June 2011:
Subscription receivable
Entrance fee receivable
Salaries outstanding
Rent outstanding
194
Rs.
40,000
20,000
100,000
15,000
11,000
15,000
201,000
2011 at a
with new
on sports
Rs.
8,000
3,000
4,000
2,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Required:
Prepare an income and expenditure account of Sehat Club for the year ended 30 June 2011 and its balance
sheet on that date.
(18)
(Autumn 2011, Q # 5)
QUESTION-7
The following balances have been obtained from the books of Gulshan Cricket Club:
June 30, 2007 June 30, 2008
Building
6,024,000
6,438,150
Furniture
3,012,000
2,710,800
Books
1,129,500
1,246,950
Sports equipments
1,807,200
1,595,200
Investments
436,000
Advance subscription
86,000
92,000
Prepaid expenses
122,000
176,000
Expenses payable
186,900
207,600
Subscriptions receivable
326,000
357,000
Cash
1,204,800
1,586,500
The following information is also available in respect of the year ended June 30, 2008.
(i)
Depreciation for the year has been credited directly to the asset accounts. The rates of
depreciation are as follows:
Building
5%
Furniture and books
10%
Sports equipments
20%
(ii)
The club had 600 members on June 30, 2008. No fresh members were admitted during the year
but 10 members left the club on January 1, 2008. Subscription per member is Rs. 500 per month.
Required:
(a)
Summary of receipts and payments made during the year ended June 30, 2008.
(b)
Income and Expenditure Account for the year ended June 30, 2008.
(20)
(Autumn 2008, Q # 4)
QUESTION-8
The following information available from the records of ABC Sports Association for the year ended June
30, 2002:
Rs.
- Subscription received
250,000
- Upkeep of play ground
30,000
- Entrance fees received
80,000
- Rent paid
12,000
- Salaries and wages
32,000
- Travelling expenses
9,000
- Stock of equipment on July 1, 2001
90,000
- Tournament expenses
14,000
- Printing and stationery
30,000
- General expenses
60,000
- Tournament fees received
25,000
- Tournament prizes awarded
7,000
- Donations received
110,000
- Stock of refreshments on July 1, 2001
5,400
- Purchases of canteen stores and refreshments
84,600
- Cash and bank balances
470,000
- General fund
300,000
- Subscription arrears
180,000
- Creditors for expenses
33,000
195
CHAPTER-4
(a)
INCOME AND EXPENDITURE ACCOUNT
Subscription in arrears as on June 30, 2002 were as follows:
For 1999-2000
20,000
For 2000-2001
30,000
For 2001-2002
130,000
During the year, arrear subscription totaling Rs. 90,000 relating to earlier periods has been collected.
(b)
Donations of Rs. 110,000 include Rs. 40,000 received on tournament account.
(c)
25 percent of the entrance fees has to be capitalized.
(d)
Stock of refreshments as on June 30, 2002 was as under:
Rs.
Value of provisions, stores, etc.
20,000
Value of eatables and perishables
5,000
Value of mineral water bottles, cigarettes etc.
3,000
(e)
Separate funds and books of account are maintained for tournaments and separate profit is to be
calculated for tournament. The Management Committee decided to value the items as follows:
(i)
To value provisions and stores at cost.
(ii)
The stock of perishables and eatables on the basis of realized sale proceeds on the
subsequent day to the closing of accounts. Sales of eatables and perishables on July 1,
2002 amount to Rs. 2,750.
(iii)
Mineral water bottles and cigarettes are to be valued at 80 percent of their purchase price.
(iv)
A bill for the brochure brought out for the tournament is pending settlement and is for Rs.
12,000.
(v)
Depreciation charge at the rate of 15% on net book value.
Required:
Prepare income and expenditure account for ABC Sports Association only for the year ended June
30,2002.
(18)
(Spring 2003, Q # 5)
QUESTION-9
The accountant of Executive Club has resigned and Mr. Imdad has been assigned the task of preparing the
accounts for the year ended December 31, 2006. On taking charge, Mr. Imdad found that the books had
not been written since January. After searching the available records and discussing various issues with
members of the management committee, he was able to gather the following information:
1.
A member of management committee controls the receipts relating to snooker table charges,
which totaled Rs. 3,225,000.
2.
Members' subscriptions amounting to Rs. 3,650,000 were received during the year. Of these, Rs.
75,000 relate to the year 2007.
3.
Rs. 3,000,000 had been donated for a new building and this sum is to be credited to Building
Reserve account.
4.
The club provides catering services on which a profit margin of 20% of sales is earned. Stocks
and purchases relate to these services.
5.
The carrying value of snooker tables as at January 1, 2006 was Rs. 4,900,000. The cost of the
tables was Rs. 9,000,000. Tables acquired during the year were installed on December 31, 2006.
10 percent deposit on the newly acquired tables was paid on November 1, 2006. Balance is
payable in January 2007. The expected life of each table is six years with nil scrap value.
196
CHAPTER-4
6.
7.
INCOME AND EXPENDITURE ACCOUNT
A summary of the bank account for the year showed the following:
Rs.
Balance at Jan. 1, 2006
198,500 Insurance
Bank deposits (comprising of
26,160,500 Rent and rates
receipts from snooker table
Electricity
charges, subscriptions, donation
Purchases
and catering services)
Communications
Withdrawals
10% deposit on new
snooker tables
Balance at Dec. 31, 2006
26,359,000
A summary of expenditure paid from petty cash is as follows:
Rs.
90,000
1,480,000
735,000
18,155,000
92,500
4,232,500
130,000
1,444,000
26,359,000
Rs.
Glasses and crockery
430,000
Wages
1,975,000
Sundry club expenses
290,000
Repairs to snooker equipment
510,000
8.
Mr. Imdad was also able to ascertain the following balances as at December 31:
2006
2005
Rupees
Rupees
Prepaid rent
150,000
125,000
Electricity bills payable
155,000
120,000
Suppliers balances
2,330,000 1,430,000
Stocks
2,995,000 1,940,000
Stocks of crockery
550,000
685,000
9.
The club has a fidelity insurance policy and any cash deficiency up to a maximum of Rs.
1,000,000 is recoverable under the policy.
Required:
(a)
An income and expenditure account for the year ended December 31, 2006 showing separately,
the results relating to catering services.
(19)
(b)
A balance sheet as at December 31, 2006.
(07)
(Spring 2007, Q# 4)
QUESTION-10
The treasurer of a golf club has produced the following receipts and payments account for the year ended
31 December 2012:
Receipts
Rs.
Payments
Rs.
Balance at 1 January 2012
157,800 Canteen payments
213,000
Subscriptions
654,900 Wages & salaries – clubhouse
284,000
Canteen receipts
331,400 Wages & salaries – canteen
78,900
Golf course fees
284,000 Course repairs
149,900
Events receipts
86,800 Insurance
72,000
Competition fees
46,600 Electricity
47,300
Course equipment sold
19,800 Telephone
19,700
Events expenses
47,300
Sundry expenses
15,000
Competition expenses
12,600
Balance at 31 December 2012
641,600
1,581,300
1,581,300
197
CHAPTER-4
(i)
(ii)
INCOME AND EXPENDITURE ACCOUNT
Opening and closing balances of current assets and liabilities are as follows:
1 January 2012 31 December 2012
-------Amount in Rupees---Canteen trade payables
71,000
55,200
Canteen inventory
60,000
39,500
Subscriptions in arrears
15,800
27,600
Subscriptions in advance
55,200
35,500
Telephone due
3,900
5,900
Competition expenses due
3,200
3,900
Fixed assets balances at 1 January 2012, and the applicable depreciation rates are as follows:
Accumulated
Cost
Rate of dep.
Depreciation
on cost
-----Amount in Rupees---Clubhouse and course
3,156,000
214,600
5%
Fixtures and fittings
552,000
166,000
10%
Course equipment
1,262,000
542,000
20%
(iii)
(iv)
The value of clubhouse and course comprises of freehold land and buildings in the ratio of 60:40.
Course equipment costing Rs. 55,000 was disposed of during the year for Rs. 19,800. The
equipment had been purchased on 1 January 2008. No depreciation is charged in the year of
sale.
(v)
The insurance premium paid during the year covers the period 1 October 2012 to 30 September
2013. The premium for the previous year amounted to Rs. 48,000.
(vi)
The canteen manager is entitled to a bonus equal to 20% of canteen profits after charging his
bonus.
(vii)
NRV of the opening canteen inventory was Rs. 55,200.
Required:
(a) A Canteen Trading Account for the year ended 31 December 2012.
(04)
(b) An Income & Expenditure Account for the year ended 31 December 2012 and a balance sheet of
the club as at that date. Results of canteen, competition and events should be shown separately as
a line item.
(20)
(Spring 2013, Q#2)
QUESTION-11
Seaview Club started its operations on 1 February 2015, Sponsor of the club contributed Rs.50 million
towards general fund for the start of operations and placed the amount in the bank. Following is the
receipts and payments summary for the period from the period from 1 February 2015 to 31 December
2015.
Rs. in ‘000 Payments
Receipts
Rs. in ‘000
50,000 Furniture & fixtures
Sponsor's contribution
1,200
20,800
Van
Joining fees
1,500
Subscription from members
29,952 Salaries
1,000
Sale of beverages
1,500 Rent
3,600
Utilities
570
Insurance
120
Repairs and maintenance
275
Payments for purchase of beverages
1,367
Advance for plot
65,000
Balance
27,620
102,252
102,252
198
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Additional information:
(i)
The joining fee for award of membership is Rs.50,000. Annual subscription is Rs. 24,000. All
new members pay three years' subscription in advance. The memberships were awarded as
follows:
Month
March
June
September
December
No. of members
98
101
105
112
(ii)
All sales of beverages are billed in the first week of the next month and the payment is received
in the same month. Sale of beverages during December 2015 amounted to Rs.150,000.
(iii)
Purchases made during the year of beverages amounted to Rs. 1,760. 25% of total purchases of
beverages made during the year remained unsold at year-end.
(iv)
Salaries are paid on the first day of next month. The amount of salaries includes an advance
amounting to Rs. 10,000 paid to an employee on 1 December 2015. The advance is repayable on
1 February 2016.
(v)
Rent for three years was paid in advance on 1 February 2015.
(vi)
Presently the club is operating on rental premises. However, a plot of land has been purchased on
which construction would commence shortly. Title of land would be transferred after completion
of legal formalities.
(vii)
Payments for utilities include security deposit paid to utility companies amounting to Rs.20,000.
Utility bills are paid on the 7th day of the next month.
(viii) Insurance premium was paid on 1 February 2015 covering a period of 12 months.
(ix)
Repairs and maintenance include an advance of Rs.100,000 paid to contractor for construction of
a parking shed. Repair bills amounting to Rs.7,000 were outstanding at year-end.
(x)
Furniture & fixtures and van were purchased on 1 February 2015. Depreciation on these assets is
to be charged at 10% and 20% respectively.
Required
Prepaid statement of financial position as at 31 December 2015 and income & expenditure account of
Seaview Club for the period ended 31 December 2015.
(20)
(Spring-16 Q.1 CAF-05)
QUESTION-12
The Old Citizen Association furnished the following information for the year ended December 31, 2004:
(1)
They started the year with Rs. 37,600 in the bank and ended with an overdraft of Rs. 45,600,
which was secured by the deposit of investments with the bank.
(2)
They received subscriptions amounting to Rs. 66,800 out of which Rs. 2,000 were arrears,
Rs.60,800 and Rs. 4,000 represented current subscriptions and advance respectively.
(3)
They received Rs. 41,600 donations for the General Fund. Rs. 68,000 donations were received for
Medical Aid Fund out of which Rs. 57,600 was paid.
(4)
Government securities at January 1, amounted to Rs. 160,000. Half of these were sold for
Rs.100,000. These investments produced interest of Rs. 2,800 during the year.
(5)
Office premises were purchased on December 31, 2004 for Rs. 240,000 and a mortgage was
arranged through a bank for Rs. 120,000. Legal expenses amounted to Rs. 8,400. One installment
of Rs. 6,400 was paid to the bank of which Rs. 3,600 was interest. Alterations and decorations of
the premises amounted to Rs. 45,600 of which Rs. 12,000 was still owing.
(6)
Office furniture was valued at Rs. 12,000 at January 1, 2004 Rs. 13,600 was paid for additions on
January1, 2004 and Rs. 5,600 was still owing. Depreciation is estimated at 10 per cent per annum.
(7)
Other payments were:
Rs.
Office Salaries
28,000
Rent and rates
13,600 (Rs. 4,000 was payable on December 31, 2003)
Stationery and postage
12,000
Other expenses
69,200 (of which Rs. 6,400 related to next year)
199
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Required:
(a)
Prepare accounting entry for above transaction
(b)
Prepare balance sheet
(c)
Receipt and Payment Account for the year ended December 31, 2004.
(d)
Income and Expenditure Account for the year ended December 31, 2004.
(09)
(10)
(Spring 2005, Q # 5)
QUESTION-13
The Accountant of Gharib Charitable Hospital has prepared following Receipts & Payment Account for
the year ended on December 31, 1999:
Receipt & Payment Account
For the year ended on December 31,1999
Receipts
Rs.
Payment
Rs.
Cash at bank and in hand
27,342 Medicines
49,131
OPD charges
59,673 X-Rays Film
25,000
X-Rays charges
40,440 Laboratory supplies
8,517
Laboratory charges
24,867 Consultant fees
156,500
In-patient billings
567,230 Salaries
298,450
Donations
345,200 Electricity
324,710
Cleaning & general
38,549
Stationery & supplies
19,825
Repairs & maintenance
25,221
Telephone charges
31,750
Equipment
54,000
Cash at bank and in hand
33,099
1,064,752
1,064,752
Following additional information is available:
a)
Position of certain assets and liabilities as at December 31, 1999 and 1998 was as under:
1999
1998
Salaries due
22,520
26,780
X-Rays charges
2,780
1,600
In-patient billings
57,920
27,270
Laboratory charges
2,100
1,900
Stock of medicines
7,450
6,230
Stock of Laboratory supplies & X-Rays Films
3,980
4,170
Electricity bill due
30,100
24,200
Telephone bill due
2,720
2,100
Cleaning & General due
3,710
2,400
Consultants fees payable
15,500
12,000
Equipment
614,000
560,000
Furniture
100,000
100,000
Creditors for:
- medicines
4,500
4,000
- x-rays films
3,500
4,000
- lab supplies
1,300
1,200
(b)
Both furniture and equipment as at December 31, 1998 were purchased in 1997 when hospital
started its operations.
(c)
It is hospital's policy to charge depreciation @ 10% p.a.
Required:
You are required to prepare:
(a)
Income & Expenditure Account for the year ended on December 31, 1999 and
(b)
Balance Sheet as at that date.
(23)
200
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-14
The accountant of Leisure Club was terminated on account of charges of fraud on 31 December 2016 and
Mr. Emad has been appointed in his place. Emad has gathered the following information in respect of the
year ended 31 December 2016:
(i) The club has 3,300 members and the membership fee is Rs. 10,000 per annum. The fee payable by
each member becomes due on the first day of the quarter in which he became a member. The fee received
in each quarter was as follows:
Quarter
First
Second
Third
Fourth
Total
9,900,000
8,250,000
5,500,000
9,350,000
33,000,000
Subscription received (Rs.)
Last year the fee was Rs. 9,000 per annum. However, the number of members was the same.
(ii) A summary of the bank account for the year is shown below:
Deposits
Rs.
Withdrawals
Rs.
Balance as at 1 Jan. 2016
3,700,500 Insurance
175,000
Cash deposited into bank
37,848,500 Rent and rates
4,200,000
Written off amount recovered
1,860,000 Utilities
4,365,000
Disposal of fixed assets
750,000 Freehold land purchased
17,000,000
Members subscription received
19,800,000 Cash withdrawals from bank
6,120,000
directly in bank account
Payment to creditors
18,155,000
Repairs and maintenance
700,000
Exercise equipment
7,350,000
Balance as at 31 Dec. 2016
5,894,000
63,959,000
63,959,000
(iii)
Amounts paid from petty cash were as follows:
Rs.
Salaries
2,300,000
Sundry expenses
640,000
(iv)
The club has a tuck shop which earns a profit margin of 20% of sales. All sales of tuck shop are
made on cash. During the year, stock costing Rs. 500,000 was destroyed by fire.
(v)
The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was purchased on 1
October 2016. Fixed assets having opening WDV of Rs. 800,000 were disposed off on 31 March
2016. Fixed assets are depreciated @ 20% under the reducing balance method.
(vi)
The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000 respectively.
(vii)
The following balances have been extracted through a scrutiny of the available records:
2016
2015
------Rupees-----Creditors
3,330,000
2,500,000
Prepaid rent
175,000
168,000
Stock- tuck shop
2,500,000
2,300,000
Required:
(a)
Determine the amount of loss incurred by the club due to fraud committed by the previous
accountant.
(09)
(b)
An income and expenditure account for the year ended 31 December 2016.
(05)
(c)
Statement of financial position as at 31 December 2016.
(06)
(Spring 2017, Q # 1)
201
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-15
Violin Family Club was formed in 2016. Following are the details of assets and liabilities of the
club as on 31 December 2017:
Assets
Rs. in '000’ Liabilities
Rs. in '000’
Subscription in arreas:
Bank overdraft
181
2016
15 Subscription in advance for 2018
45
2017
90 Accrued electricity
23
Advance rent
24 Canteen wages
11
Canteen stock
215 Canteen creditors
118
Snooker tables
960
Furniture & equipment
720
2,024
378
Additional information:
(i)
Some of the balances as on 31 December 2018 are as follows:
Assets
Rs. in '000’ Liabilities
Rs. in '000’
Subscription in arrears for
30
Accrued electricity
35
2018
Canteen stock
247
Canteen creditors
142
(ii)
Break-up of the subscription received during 2018 is as follows:
Related to year
Rs. in ‘000’
2017
60
2018
920
2019
75
The club's management has decided to write-off the remaining subscription in arrears
relating to the year 2016 and 2017.
(iii)
A scheme was introduced in 2016 under which a person is awarded life time membership
upon payment of Rs. 120,000. Life memberships received in the years 2016, 2017 and
2018 were 5, 8 and 6 respectively. Life memberships are credited to ‘Life Membership
Fund’ upon receipt and are transferred to income equally over 10 years, starting from the
year of admission.
(iv)
The club operates a canteen. Till last year, the canteen earned a gross profit of 20% of
sales. Effective 1 January 2018, selling prices were increased by 10%.
(v)
Details of some payments during 2018 are as follows:
Rs. in ‘000’
Canteen creditors
512
Salaries
285
Equipment
66
Electricity
263
(vi)
Equipment acquired during the year is only 30% paid and the remaining amount is
payable in February 2019.
(vii)
Wages of canteen staff are paid on 5th of each month.
(viii) The club operates from a rented place. The rent is paid quarterly in advance on 1 March,
1 June, 1 September and 1 December. As per agreement, annual rent was increased by
Rs. 6,000 with effect from 1 September 2018.
202
CHAPTER-4
(ix)
INCOME AND EXPENDITURE ACCOUNT
Balance of snooker tables as at 31 December 2017 represents the book value of 5 similar
tables purchased in 2016. One of the tables was sold to a member for cash during the year
for Rs. 212,000.
(x)
Snooker tables are depreciated at 12.5% on straight line method while furniture &
equipment are depreciated at 20% using reducing balance method. Full year depreciation
is charged in the year of addition whereas no depreciation is charged in the year of
disposal.
Required:
(a)
Prepare income and expenditure account for the year ended 31 December 2018
(12)
(b)
Prepare statement of financial position as on 31 December 2018
(09)
(Spring 2019, Q # 6)
203
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP PAST PAPER SOLUTIONS
Answer-1
Amount to be transferred to income ad expenditure account is (W-1) Rs. 335,000.
(W-1)
Dr.
Subscription account
op. receivable
200,000 op. advance
1 and E
(bal.)
335,000 Cash
cl. advance
85,000 cl. receivable
620,000
Answer- 2
(i)
Profit from soft drinks
Revenue
Less: COS
Op. stock
Purchases
Wages
Less: Cl. Stock
Profit
(ii)
Cr.
90,000
480,000
50,000
620,000
Rs.
Rs.
205,000
40,000
106,500
37,500
(30,000) (154,000)
51,000
Mayfair Sports and Social Club
Income and Expenditure account
for the year ended December 31, 2003
Incomes
Profit from soft drinks
Sale of tickets for annual dinner
Profit of raffle
Subscription
Expenses
Affiliation fees
Catering
Hire of band
Rent of hall
Printing and postage
Electricity
Hon. Secretary expenses
Repairs to equipment
Bad debt
Depreciation
Surplus/ (deficit)
204
(9,000 – 3,000)
(W-2)
(W-5)
(W-6)
(W-2.1)
(W-4)
Rs.
51,000
120,000
6,000
112,000
289,000
5,000
72,000
15,000
72,500
10,000
30,800
6,100
15,000
7,000
25,000
(258,400)
30,600
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(iii)
Mayfair Sports and Social Club
Balance Sheet
as on December 31, 2003
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Rs.
(W-1)
174,400
30,600
205,000
Current Liabilities
Subscription in advance
Creditors for soft drinks
Rent owing
Electricity owing.
5,500
21,500
5,000
7,000
39,000
244,000
Total
Assets
Non-Current Assets
Equipment
Current Assets
Soft drinks stocks
Subscription in arrears
Bank
140,000
30,000
9,000
65,000
104,000
244,000
Total
WORKINGS
(W-1) Opening fund
Assets
Equipment
Soft drinks stocks
Subscription in arrears
Bank
125,000
40,000
10,000
36,150
211,150
Liabilities
Subscription in advance
Creditors for soft drinks
Rent owing
Electricity owing
6,500
17,500
7,500
5,250
(36,750)
174,400
Opening Fund
(W-2)
Dr.
op. receivable
1 and E (bal.)
cl. advance
205
Subscription account
10,000 op. advance
112,000 Cash and bank
Bad debt (W-2.1)
5,500 cl. receivable
127,500
Cr.
6,500
105,000
7,000
9,000
127,500
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Rs.
10,000
(3,000)
7,000
(W-2.1)Opening receivable
Less: Received during the year
Bad debt
(W-3)
Dr.
Cash and bank
cl.
Creditors for soft drinks
102,500 op.
21,500 Purchases (bal.)
124,000
Cr.
17,500
106,500
124,000
(W-4)
Dr.
op.
Cash and bank
Equipment
125,000 Depreciation (bal.)
40,000 c/d
165,000
Cr.
25,000
140,000
165,000
(W-5)
Dr.
Cash and bank
cl.
Rent
75,000 op.
5,000 I and E (bal.)
80,000
Cr.
7,500
72,500
80,000
(W-6)
Dr.
Cash and bank
cl.
Electricity
29,050 op.
7,000 I and E (bal.)
36,050
Cr.
5,250
30,800
36,050
Answer- 3
Profit from Bottles
Bottles sales
(24,850+480)
Less: COS
Op. stock
Purchases
(W-3)
Wages
Less: Cl. Stock
Profit
As Rs. 480 is with steward so we will debit the Cash and credit the Sale.
b)
Karachi Social Club
Income and Expenditure account
for the year ended September 30, 1993
Incomes
Profit from bottles
(part-a)
Subscription
(W-2)
Other sales from devices
Interest on bank deposit
Expenses
Rent and rates
Entertainers expense
Printing and stationery
General expenses
Surplus/ (deficit)
206
(W-4)
Rs.
25,330
1,630
12,050
8,300
(1,850)
(20,130)
5,200
Rs.
5,200
13,480
4,570
420
23,670
7,950
3,360
1,720
4,490
(17,520)
6,150
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Karachi Social Club
Balance Sheet
as on September 30,1993
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
((W-1) 3,350 + 2,000)
Current Liabilities
Subscription in advance
Creditors for bottles purchases
Rent and rates accrued
Fidelity bond given by steward
310
1,150
820
200
2,480
13,980
Total
Assets
Current Assets
Bottles stocks
Subscription in arrears
Current account
Deposit account
Cash
(30+480)
Total
WORKINGS
(W-1) Opening fund
Assets
Bottles stocks
Subscription in arrears
Current account
Deposit account
Cash
Dr.
op. receivable
I and E (bal.)
cl. advance
(W-3)
Dr.
Cash and bank
cl.
207
1,850
620
6,400
4,600
510
13,980
13,980
Rs.
1,630
770
1,320
2,100
60
5,880
Liabilities
Subscription in advance
Creditors for bottles purchases
Rent and rates accrued
Fidelity bond given by steward
(W-2)
Rs.
5,350
6,150
11,500
Subscription account
770 op. advance
13,480 Cash and bank
310 cl. receivable
14,560
Creditors-Bottles purchases
12,230 op.
1,150 Purchases (bal)
13,380
250
1,330
750
200
(2,530)
3,350
Cr
250
13.690
620
14,560
Cr
1,330
12,050
13,380
CHAPTER-4
(W-4)
INCOME AND EXPENDITURE ACCOUNT
Dr.
Cash and bank
cl.
Rent and rates
7,880 op
820 I and E (bal.)
8,700
Cr.
750
7,950
8,700
Answer -4
Friends Club
Income and Expenditure account
for the year ended December 31,1993
Incomes
Club entrance fees
Profit from bakery
Subscription
Profit on sale of investments
Rs.
(W-l)
(W-2)
(7,500-5,000)
Expenses
Wages
Rent expense
Utilities
Postage stationery etc.
Insurance
Sundry expenses
Depreciation
(W-6)
(W-5)
(W-7)
(3,000 x 10%) + (5,200 x 10% x 6/12)
Surplus/ (deficit)
420
7,840
3,450
2,500
14,210
4,160
2,040
1,310
330
160
460
560
(9,020)
5,190
Friends Club
Balance Sheet
as on December 31,1993
Rs.
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Current Liabilities
Utilities expenses due
Rent due
Creditors for bakery purchases
Subscription advance
Payable for furniture
Total
Assets
Non-Current Assets
Furniture
Current Assets
Subscription due
Bakery Stock
Prepaid insurance
Bank
Total
208
8,640
5,190
13,830
(5,200 – 4,500)
(W- 4)
190
360
3,580
350
700
5,180
19,010
7,640
400
3,150
70
7,750
11,370
19,010
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-l) Profit from bakery
Club sales bakery
Less: COS
Op. stock
Purchases
Less: Cl. Stock
Profit
Rs.
52,270
2,720
44,860
(3,150) (44,430)
7,840
(W-3)
(W-2)
Dr.
op. receivable
I and E (bal.)
cl. advance
Subscription account
250 op. advance
3,450 Bank (250+3,050+350)
350 cl. receivable
4,050
Cr.
3,650
400
4,050
(W-3)
Dr.
Bank
cl.
Creditors for bakery purchases
44,340 Op.
3,580 Purchases (bal.)
47,920
Cr.
3,060
44,860
47,920
(W-4)
Dr.
Op.
Additions
(Adjustment 2)
Furniture
3,000
5,200 Dep. (3,000 x 10%+5,200 x 10% x 6/12)
cl.
8,200
Cr.
560
7,640
8,200
(W-5)
Dr.
Bank
cl. payable
Utility expense
1,280 Op. payable
190 I and E (Bal.)
1,470
Cr.
160
1,310
1,470
Dr.
Bank
cl.
Rent expense
1,860 Op.
360 I and E (Bal.)
2,220
Cr.
180
2,040
2,220
Dr.
Op.
Bank
Insurance expense
50 I and E (Bal.)
180 cl.
230
Cr.
160
70
230
(W-6)
(W-7)
(W-8) Opening fund
Assets
Subscription due
Bakery Stock
Prepaid insurance
Bank
Investments
Furniture
209
Rs.
250
2,720
50
1,020
5,000
3,000
12,040
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Liabilities
Utilities expenses due
Rent due
Creditors for bakery purchases
160
180
3,060
3,400
8,640
Answer- 5
Cessna Sporting Club
Income and Expenditure account
for the year ended December 31,1993
Incomes
Billiard room
Bowling Green
Green fees
Rent of lockers
Income from dining room
Profit from entertainment
Entrance fee
Subscription
Profit on National Saving account
Expenses
Salaries to staff
Newspaper and magazine
Repairs, cleaning and washing
Secretary's salary
Printing, stationery and postage
Utility bills
Rent, rates and taxes
Depreciation – Furniture
Stores consumed
(W-4)
(W-l)
(6,000-1,480)
(W-2)
(W-5)
(W-6)
(30,000x10%)
(W-7)
Surplus/ (deficit)
Rs.
4,400
3,800
3,980
200
5,320
4,520
8,720
27,560
380
58,880
7,040
1,160
4,840
3,000
4,160
2,520
9,240
3,000
600
(35,560)
23,320
Cessna Sporting Club
Balance Sheet
as on December 31,1993
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Imran Khan Pavilion Fund
Current Liabilities
Creditors for food
Salary payable to staff
Advance rent of lockers
Advance subscription
Total
210
Rs.
42,740
23,320
66,060
39,240
980
600
1,460
1,000
4,040
109,340
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Assets
Non-Current Assets
Furniture and fixtures
Glass, China, Linen
Imran Khan Pavilion
(30,000 - 3,000)
(6,400 + 4,400 - (W-1) 2,160)
27,000
8,640
29,780
65,420
Investments
National Saving account
Term Deposits
Current Assets
Stationery
Consumable stores
Subscription due
Cash at bank and in hand
9,800
8,000
1,500
1,900
900
21,820
26,120
109,340
Total
WORKINGS
(W-l) Profit from dining room
Takings from dining room
Sale of tickets for annual dinner
Less:
56,000
3,560
59,560
Cost of sales
Purchases
Cost of annual dinner
Depreciation Glass china linen
(W-3)
(6,400 + 4,400) x 20%
48,980
3,100
2,160
Profit
(54,240)
5,320
(W-2)
Dr.
opening receivable
1 and E (bal.)
closing advance
Subscription account
600 opening advance
27,560 Cash and bank (600+26,660+1,000)
1,000 closing receivable
29,160
Cr.
28,260
900
29,160
(W-3)
Dr.
Cash and bank (48,000 + 1,180)
cl.
Creditors for food
49,180 op.
980 Purchases (bal.)
50,160
Cr.
1,180
48,980
50,160
(W-4)
Dr
I and E (bal.)
cl. Advance
Rent lockers
Cash and bank (200 + 1,460)
200
1,460
1,660
Cr.
1,660
Salaries staff
7,020 op.
600 I and E
7,620
Cr.
580
7,040
7,620
1,660
(W-5)
Dr.
Cash and bank
cl.
211
(bal.)
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-6)
Dr.
op.
Cash and bank
Stationery
1,000
4,660 I and E
cl.
5,660
Cr.
(bal.)
4,160
1,500
5,660
(W-7)
Dr.
Op.
Cash and bank
Consumable stores
2,500
- I and E (Bal.)
cl.
2,500
(W-8) Opening fund
Assets
Furniture and fixtures
Glass, China, Linen
Stationery
Consumable stores
Subscription due
Cash at bank and in hand
Cr
600
1,900
2,500
Rs.
30,000
6,400
1,000
2,500
600
4,000
44,500
Liabilities
Creditors
Salary payable to staff
1,180
580
(1,760)
42,740
Answer-6
Sehat Club
Income and Expenditure account
for the year ended June 30, 2011
Incomes
Subscription
Entrance fees
Donations
Interest
Gain on exchange of asset
Expenses
Salaries
Rent
Travelling expense
Printing and stationery
General charges
Periodicals
Depreciation – sports equipment
Depreciation – furniture
Loss on disposal of asset
Surplus
212
(W-1)
(W-2)
(38,000+12,000)
(W-3)
(W-7)
(W-10)
(W-11)
(20,000 x 15%)
(W-9)
(W-6)
Rs.
194,000
66,000
50,000
5,000
700
315,700
50,000
25,000
1,500
1,000
2,500
500
3,000
7,820
2,380
(93,700)
222,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Sehat Club
Balance Sheet
As on June 30, 2011
Fund and liabilities
Fund:
Opening Fund
Surplus/(Deficit)
Rs.
172,500
222,000
394,500
Current liabilities:
Salaries outstanding
Rent outstanding
Total
Assets
Non-Current Assets:
Sports equipment
Furniture
Investments
Current Assets:
Bank
Subscription receivable
Entrance fee receivable
Total
WORKINGS
(W-1)
Dr.
Op. receivable
I and E (bal.)
4,000
2,000
6,000
400,500
(W-4)
(W-5)
(100,000+200,000)
29,000
30,000
59,000
300,000
30,500
8,000
3,000
41,500
400,500
Subscription account
15,000 Cash and bank
194,000 cl. receivable
Cr.
201,000
8,000
(W-2)
Dr.
Op. receivable
I and E (bal.)
Entrance fee account
- Cash and bank
66,000 cl. receivable
Cr.
63,000
3,000
(W-3)
Dr.
Op.
I and E (bal.)
Interest income
11,000 Cash and bank
5,000 cl.
Cr.
16,000
0
(W-4)
Dr.
Op.
Donation (Additions)
Sports equipment
20,000 Depreciation expense
12,000 cl. (bal.)
Cr.
3,000
29,000
(W-5)
Dr.
b/d
Disposal (new)
Furniture account
40,000 Disposal (W-8)
6,700 Disposal
Depreciation expense (W-9)
c/d (bal.)
Cr.
2,880
6,000
7,820
30,000
(W-6)
Dr.
Furniture a/c (old) (W-8)
213
Disposal account (Adj. # i)
2,880 Cash and bank
P and L (bal.)
Cr.
500
2,380
CHAPTER-4
(W-7)
(W-8)
(W-9)
Dr.
Furniture a/c (old)
P/L (bal.)
INCOME AND EXPENDITURE ACCOUNT
Disposal account (Adj. # ii)
6,000 Furniture (new)
700
Entry for exchange:
Furniture (new)
P/L (bal.)
Furniture (old)
WDV of disposals
Cost
Less: Depreciation 30.6.2010 (4,000x20%)
WDV (30.06.2010)
Less: Depreciation till 1.1.2011 (3,200 x 20% x 6/12)
WDV (1.1.2011)
Depreciation expense – furniture
Depreciation – on opening assets excluding disposals
Opening assets WDV
Disposals WDV ((W-8) 3,200+6,000)
Depreciation – on additions
Depreciation – on disposals
(W-10)
Dr.
(W-11)
Cash and bank
cl.
Dr.
Cash and bank
cl.
Salaries account
op.
63,500 I and E (bal.)
4,000
Rent account
op.
34,000 I and E (bal.)
2,000
Cr.
6,700
Dr.
6,700
Cr.
700
6,000
4,000
(800)
3,200
(320)
2,880
40,000
(9,200)
30,800
(6,700x20%)
(W-8)
20%
6,160
1,340
320
7,820
Cr.
17,500
50,000
Cr.
11,000
25,000
Answer-7
It was a good question which tested the analytical skills of the students. Examinees were required to
calculate the additions made to the non-current assets by grossing up the book value using the
depreciation rates given. Further the opening and closing balances of receipt and payment account were
given and no information was given regarding expense incurred during the year so expense paid would be
calculated as a balancing figure in the receipt end payment account. The students which were able to
understand the above mentioned points had no problem in preparing the income and expenditure account.
(a)
Gulshan Cricket Club
Receipt and Payment Account
For the year ended June 30, 2008
Receipts
Rs.
Payments
Rs.
b/d
1,204,800 Building (W-2.1)
753,000
Subscription (W-1)
3,605,000 Furniture (W-2.2)
Books
(W-2.3)
256,000
Equipment (W-2.4)
186,800
Investment
436,000
Expenses (bal. fig.)
1,591,500
c/d
1,586,500
4,809,800
4,809,800
214
CHAPTER-4
WORKINGS
(W-l)
Dr.
b/d
I & E (W-1.1)
c/d
INCOME AND EXPENDITURE ACCOUNT
Subscription a/c
Cr.
326,000 b/d
86,000
3,630,000 Cash (bal. fig.)
3,605,000
92,000 c/d
357,000
4,048,000
4,048,000
(W-1.1) Subscription income for the year
Period Covered
Months
Member
Rate/month
Total
From Jul 1, 2007 - Dec 31, 2007
6
610
500
1,830,000
From Jan 1, 2008 - Jun30, 2008
6
600
500
1,800,000
Total income
3,630,000
(W-2)
For the purpose of calculating additions figure for non-current assets we will prepare the relevant asset
accounts. Opening and closing balances of asset accounts have been given and the rate of depreciation is
given in the question so we can calculate the depreciation figure using the closing book values of asset
accounts. For example if depreciation rate is 5%, it means that closing book value represents 95%. After
calculating the depreciation figure the additions will be the balancing figure.
(W-2.1)
Dr.
Building account
Cr.
b/d
6,024,000 Depreciation (6,438,150x 5/95)
338,850
Additions (bal. fig.)
753,000 c/d
6,438,150
6,777,000
6,777,000
(W-2.2)
Dr.
Furniture account
Cr.
b/d
3,012,000 depreciation (2,710,800 x 10/90)
301,200
Additions (bal. fig.)
- c/d
2,710,800
3,012,000
3,012,000
(W-2.3)
Dr.
Books account
Cr.
b/d
1,129,500 Depreciation (1,246,950 x 10/90)
138,550
Additions (bal. fig.)
256,000 c/d
1,246,950
1,385,500
1,385,500
(W-2.4)
Dr.
Equipment
Cr.
b/d
1,807,200 Depreciation (1,595,200 x 20/80)
398,800
Additions (bal. fig.)
186,800 c/d
1,595,200
1,994,000
1,994,000
(b)
Gulshan Cricket Club
Income and Expenditure Account
for the year ended June 30. 2008
Rs.
Rs.
Income
Subscription
(W-1.1)
3,630,000
Expenditure
Expenses (other than depreciation)
(W-1)
1,558,200
Depreciation
- Building
338,850
- Furniture
301,200
215
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
- Books
- Sports Equipment
Surplus/ (deficit)
138,550
398,800
2,735,600
894,400
WORKINGS
(W-1)
The payment of expenses has already been calculated in the part (a) as balancing figure and the opening
and closing balances of expense payable and prepaid expenses have been given in the question, so putting
all these in the T account we can calculate the expense for the year as balancing figure.
Dr.
b/d
Cash
c/d
(part-a)
Expense account
122,000 b/d
1,591,500 1 &. E (bal. fig.)
207,600 c/d
1,921,100
Cr.
186,900
1,558,200
176,000
1,921,100
As far as the answer is concerned, it is complete, now lets move forward and check the solution. Think for
5 minutes before you proceed that how the solution can be checked.
Gulshan Cricket Club
Balance sheet
as on June 30, 2008
2007
Assets
Building
Furniture
Books
Sports equipments
Investments
Cash
Prepaid expenses
Subscription receivable
Total assets
Liabilities
Expenses payable
Advance subscription
Total liabilities
Fund (Total assets - Total liabilities)
-Fund 2008
Fund 2007
Difference (Surplus/ (deficit) as calculated above)
2008
6,024,000
3,012,000
1,129,500
1,807,200
1,204,800
122,000
326,000
13,625,500
6,438,150
2,710,800
1,246,950
1,595,200
436,000
1,586,500
176,000
357,000
14,546,600
186,900
86,000
272,900
13,352,600
207,600
92,000
299,600
14,247,000
14,247,000
(13,352,600)
894,400
Answer-8
ABC Sports Association
Income and Expenditure account
for the year ended June 30, 2002
Incomes
Entrance fee
Donations
Subscription
Profit on tournament
216
(80,000-25% of 80,000)
(110,000-40,000)
(W-2)
(W-l)
Rs.
60,000
70,000
290,000
32,000
452,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Expenses
Canteen store and refreshment consumed
Upkeep of play ground
Rent
Salaries and Wages
Travelling expenses
Printing and stationery
General expenses
Depreciation – equipment
(W-4)
64,850
30,000
12,000
32,000
9,000
30,000
60,000
13,500
(251,350)
200,650
(90,000 x 15%)
Surplus/ (deficit)
WORKINGS
(W-l) Profit from tournament
Revenue
Donation
Less:
Expenses
Tournament expenses
Tournament prizes awarded
Brochure expense
Profit
(W-2)
Dr.
op. receivable
(20,000+30,000+90,000)
(W-4)
Dr.
b/d
Cash
25,000
40,000
65,000
14,000
7,000
12,000
(33,000)
32,000
Subscription account
Cr.
140,000 Cash
250,000
cl. receivable
180,000
(20,000 + 30,000 + 130,000)
1 and E (bal.)
290,000
430,000
430,000
As the receivable of 2000 and 2001 is outstanding on 30.6.2002, so to arrive at the op. receivable
at 1.7.2001 we have to add in this balance the receipts of previous years received in current year.
(W-3) Stock of refreshment
Cost
Value
Value of provisions, stores etc.
20,000
20,000
Value of eatables and perishables
5,000
2,750
Value of mineral water bottles, cigarettes
(3,000 x 80%)
3,000
2,400
25,150
Subsequent sale of eatables shows that NRV on balance sheet date was Rs. 2,750.
217
Canteen store and refreshment consumed
5,400 I and E (bal.)
84,600 c/d
(W-3)
430,000
Cr.
64,850
25,150
430,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer- 9
(a)
Executive Club
Income and Expenditure account
for the year ended December 31, 2006
Incomes
Receipts from snooker table
Profit from catering services
Subscription
Expenses
Insurance
Rent and rates
Electricity
Communications
Wages
Sundry club expenses
Repairs to snooker equipment
Glass and crockery consumed
Depreciation
Misappropriation expense
Deficit
(b)
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Rs.
3,225,000
4,500,000
3,575,000
11,300,000
(W-l)
(W-2)
90,000
1,455,000
770,000
92,500
1,975,000
290,000
510,000
565,000
1,500,000
6,242,000
(13,489,500)
(2,189,500)
(W-6)
(W-7)
(W-5)
(9,000,000/6)
(W-4.1)
Executive Club
Balance Sheet
as on December 31, 2006
Rs.
(W-9)
Building Reserve account
Current Liabilities
Suppliers
Electricity bills payable
Subscription in advance
Payable for snooker tables
(W-8)
Total
Assets
Non-Current Assets
Snooker table
Less Accumulated depreciation
(9,000,000 + (W-8) 1,300,000)
(4,100,000+1,500,000)
Current Assets:
Bank
Prepaid rent
Stocks
Stocks of crockery
Insurance claim receivable
Total
218
6,298,500
(2,189,500)
4,109,000
3,000,000
2,330,000
155,000
75,000
1,170,000
3,730,000
10,839,000
10,300,000
(5,600,000)
4,700,000
1,444,000
150,000
2,995,000
550,000
1,000,000
6,139,000
10,839,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-1) Profit from catering services
Rs.
Revenue
Less: COS
Op. stock
Purchases
Less: CI. Stock
Profit
(W-1.1)
1,940,000
19,055,000
(2,995,000)
(W-3)
Rs.
22,500,000
(18,000,000)
4,500,000
(W-1.1)
Revenue
= (Cost of sales (W-1) / 80 x 100)
= 18,000,000/ 80 x 100
= 22,500,000
(W-2)
Dr.
I and E
(bal.)
cl. advance
Subscription account
3,575,000 Cash
75,000
3,650,000
Cr.
3,650,000
3,650,000
(W-3)
Dr.
Bank
cl.
Supplier account
18,155,000 op.
2,330,000 Purchases (bal.)
20,485,000
Cr.
1,430,000
19,055,000
20,485,000
Dr.
op.
Snooker table charges
Subscription
Building reserve fund
Revenue
Bank
Cash account
- Glass and crockery
3,225,000 Wages
3,650,000 Sundry club exp.
3,000,000 Repairs
22,500,000 Bank
4,232,500 Misappropriation exp. (bal.)
c/d
36,607,500
Cr.
430,000
1,975,000
290,000
510,000
26,160,500
7,242,000
36,607,500
(W-4)
(W-4.1) Journal entry for cash misappropriation
Insurance claim receivable
I and E (bal.)
Cash
(Cash misappropriation transferred to income and expenditure)
Dr.
1,000,000
6,242,000
Cr.
7,242,000
(W-5)
Dr.
op.
Cash
Glass and crockery account
685,000 I and E (bal.)
430,000 cl.
1,115,000
Cr.
565,000
550,000
1,115,000
(W-6)
Dr.
op.
Bank
219
Rent and rates
125,000 I and E (bal.)
1,480,000 cl.
1,605,000
Cr.
1,455,000
150,000
1,605,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-7)
Dr.
Bank
cl.
Electricity
735,000 op.
155,000 I and E (bal.)
890,000
(W-8) Journal entry for snooker table purchased
Cr.
120,000
770,000
890,000
Dr.
Cr.
Snooker table
(130,000/10 x 100)
1,300,000
Bank
130,000
Payable for snooker table
(bal.)
1,170,000
By grossing up the deposit of 130,000 given in bank account we can calculate the cost.
On additions no depreciation will be charged because these were purchased on December 31.
(W-9) Opening fund
Assets
Snooker table
Less: Accumulated Depreciation
Prepaid rent
Stocks
Stocks of crockery
Bank
Rs.
9,000,000
(4,100,000)
125,000
1,940,000
685,000
198,500
7,848,500
Liabilities
Suppliers
Electricity payable
1,430,000
120,000
(1,550,000)
6,298,500
Opening Fund
Answer-10
(a)
Golf Club
Trading account for canteen
for the year ended December 31, 2012
Rs.
Revenue
Less: Cost of sales
Opening stock
Purchases
Wages
Less: Closing Stock
Profit before bonus
Less: Bonus
Profit after bonus
(Lower of cost or NRV)
(W-1)
(39,600/120 x 20)
55,200
197,200
78,900
(39,500)
Rs.
331,400
(291,800)
39,600
(6,600)
33,000
(b)
Golf Club
Income and Expenditure account
for the year ended December 31, 2012
Incomes
Subscription
Canteen profit
Golf course fees
Event profit
Gain on sale of course equipment
Competition profit
220
(W-2)
(Part-a)
(86,800 - 47,300)
(W-8)
(46,600 - (W-4) 13,300)
Rs.
686,400
33,000
284,000
39,500
8,800
33,300
1,085,000
CHAPTER-4
Expenses
Wages and salaries club house
Course repairs
Electricity
Sundry expenses
Telephone expense
Insurance
Depreciation
Club house and course
Fixtures and fittings
Course equipment
INCOME AND EXPENDITURE ACCOUNT
(W-3)
(W-5)
(3,156,000 x 40%) x 5%
(552,000 x 10%)
(W-7)
Surplus
284,000
149,900
47,300
15,000
21,700
54,000
63,120
55,200
241,400
(931,620)
153,380
Golf Club
Balance Sheet
as on December 31, 2012
Fund and Liabilities
Fund
Opening Fund
Surplus/(Deficit)
Current Liabilities
Canteen trade payable
Subscription in advance
Telephone due
Competition expense due
Bonus payable
Total
Assets
Non-Current Assets
Club house and course
Less: Accumulated depreciation
Fixtures and fittings
Less: Accumulated depreciation
Course equipment
Less: Accumulated depreciation
Current Assets:
Cash and bank
Canteen inventory
Subscription arrears
Insurance prepaid
(W-9)
(part-a)
(214,600 + 63,120)
(166,000 + 55,200)
(W-6)
(W-7)
(W-5)
Total
WORKINGS
(W-1)
Dr.
Cash and bank
cl.
221
Canteen trade payables
213,000 op.
55,200 Purchases (bal.)
4,178,900
153,380
4,332,280
55,200
35,500
5,900
3,900
6,600
107,100
4,439,380
3,156,000
(277,720)
552,000
(221,200)
1,207,000
(739,400)
3,676,680
641,600
39,500
27,600
54,000
762,700
4,439,380
Cr.
71,000
197,200
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-2)
Dr.
op. receivable
I and E (bal.)
cl. advance
(W-3)
Dr.
Cash and bank
cl.
Telephone
19,700 op.
5,900 I and E (bal.)
Cr.
3,900
21,700
(W-4)
Dr.
Cash and bank
cl.
Competition expenses
12,600 op.
3,900 I and E (bal.)
Cr.
3,200
13,300
(W-5)
Dr.
op. (48,000/12 x 9)
Cash and bank
Insurance expenses
36,000 I and E (bal.)
72,000 cl. (72,000/12 x 9)
(W-6)
Dr.
op.
Course equipment
1,262,000 Disposal
cl. (bal.)
(W-7)
Dr.
Disposal (55,000 x 20% x 4)
cl. (bal.)
(W-8)
Dr.
Course equipment
I and E (bal.)
(W-9)
Opening fund
Assets
Cash and bank
Canteen inventory
Subscription arrears
Club house and course
Less: Accumulated depreciation
Fixtures and fittings
Less: Accumulated depreciation
Course equipment
Less: Accumulated depreciation
Prepaid insurance
(W-5)
Liabilities
Canteen trade payables
Subscription advance
Telephone due
Competition expense due
222
Subscription account
15,800 op. advance
686,400 Cash and bank
35,500 cl. receivable
Accumulated depreciation
44,000 op.
739,400 Depreciation
(1,262,000 - 55,000) x 20%
Disposal
55,000 Accumulated dep.
8,800 Cash and bank
Cr.
55,200
654,900
27,600
Cr.
54,000
54,000
Cr.
55,000
1,207,000
Cr.
542,000
241,400
Cr.
44,000
19,800
Rs.
157,800
55,200
15,800
3,156,000
(214,600)
552,000
(166,000)
1,262,000
(542,000)
36,000
4,312,200
71,000
55,200
3,900
3,200
(133,300)
4,178,900
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-11
Seaview Club
Income and Expenditure account
for the year ended December 31, 2015
Rs. in ‘000’
Incomes
Profit from beverages
Joining fee income
Subscription income
(W-1)
(W-2)
Expenses
Insurance
Rent
Salaries
Utilities
Repairs and maintenance
Depreciation
(W-6)
(3,600/36 months x 11 months)
(W-4)
(W-5)
(W-7)
(W-3)
Surplus
330
20,800
4,630
25,760
(110)
(1,100)
(1,089)
(605)
(182)
(385)
(3,471)
22,289
Seaview Club
Statement of Financial Position
as on December 31, 2015
Rs. in ‘000’
General Fund and liabilities
General Fund
General fund balance inserted
Surplus/(Deficit)
50,000
22,289
72,289
Non-current liabilities
Subscription in advance - non current
portion
Current Liabilities
Subscription in advance - current
portion
Creditors
Salary payable
Repair and maintenance payable
Utilities payable
15,338
(W-2)
(W-1.2)
(W-4)
(W-5)
Total
Assets
Non-Current Assets
Furniture and Fixture
Van
Advance rent
Security deposit
223
(1,200 - 110)
(1,500 - 275)
(3,600/36M x (25-12) = 13M)
9,984
393
99
7
55
10,538
98,165
1,090
1,225
2,315
1,300
20
CHAPTER-4
Current Assets:
Receivable of Beverages
Stocks
Advance salary
Advance rent
Advance for plot
Bank
Advance for shed
Prepaid Insurance
INCOME AND EXPENDITURE ACCOUNT
(W-1)
(3,600/36M x 12M)
(W-6)
Total
WORKINGS
(W-1) Profit from beverages
Revenue
Less: COS
Op. stock
Purchases
Less: Closing Stock
Cost of sales
Profit
(W-1.1)
Dr.
Cash
Closing (bal.)
(W-1.2)
Dr.
Op. receivable
Sales (bal.)
(W-2)
Dr.
Op. receivable
I and E (see below)
cl. Advance (bal.)
(W-1.2)
(1,760 x 25%)
Creditor
1,367 Opening
393 Purchases
Debtor account- Beverages
- Cash
1,650 cl. Receivable
Subscription account
- Op. advance
4,630 Cash
25,322 cl. receivable
Income for the year
Income from members entered in March
Income from members entered in June
Income from members entered in September
Income from members entered in December
(112 members x Rs. 24 x 10/12)
(98 members x Rs. 24 x 7/12)
(101 members x Rs. 24 x 4/12)
(105 members x Rs. 24 x 1/12)
Break-up of closing advance in current and non-current portion
Closing advance as per T- account
Less: Current portion (112 + 98 + 101 + 105) x Rs.24
Non-current portion
(W-3) Depreciation Expense for the year
Furniture and Fixture
(1,200 x 10% x 11/12)
Van
(1,500 x 20% x 11/12)
224
150
440
10
1,200
65,000
27,620
100
10
94,530
98,165
Rs.
1,650
0
1,760
(440)
(1,320)
330
Cr.
1,760
Cr.
1,500
150
Cr.
29,952
Rs. in ‘000’
2,240
1,372
808
210
4,630
25,322
(9,984)
15,338
110
275
385
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-4)
Dr.
Cash
cl. Payable (see below)
Salaries paid from February - November
Salary for December yet payable
Salaries account
1,000 I and E (bal.)
99 cl. Advance
(1,000 - 10)
(990/10 months)
Cr.
1,089
10
990
99
(W-5)
Dr.
Cash (570 – 20)
c/d (550/10M x 1M)
Utilities expense
550 I and E (bal.)
55
Cr.
605
Insurance expense
120 I and E (bal.)
c/d (150/12 x 1)
Cr.
110
10
Repair expense
175 I and E (bal.)
7
Cr.
182
(W-6)
Dr.
Cash
(W-7)
Dr.
Cash (275 – 100)
c/d
Answer-12
(a)
Old Citizen Association
Receipt and Payment account
Dr.
for the year ended December 31,2004
Rs.
b/d (opening balance of bank)
37,600
Subscription account
66,800 Medical Aid Fund
General Fund
41,600 Office Premises
Medical Aid Fund
68,000 Premises (legal expense)
Government securities- Sale proceeds
100,000 Loan repayment (6,400-3,600)
Interest on securities
2,800 Interest on loan
Loan (mortgage)
120,000 Premises (alteration and decoration)
(45,600-12,000)
Furniture
Office salaries
Rent and rates
Stationery and postage
c/d (closing O/D balance of bank)
45,600 Other expenses
482,400
Cr.
Rs.
57,600
240,000
8,400
2,800
3,600
33,600
13,600
28,000
13,600
12,000
69,200
482,400
(b)
Old Citizen Association
Income and Expenditure account
for the year ended December 31, 2004
Incomes
Subscription
Profit on sale of Government securities
Interest on Government securities
225
(W-l)
(100,000-(W-2)80,000)
Rs.
60,800
20,000
2,800
83,600
CHAPTER-4
Expenses
Interest on loan
Depreciation
Office salaries
Rent and rates
Stationery and postage
Other expenses
INCOME AND EXPENDITURE ACCOUNT
3,600
3,120
28,000
9,600
12,000
62,800
(119,120)
(35,520)
((W-3)31,200 x 10%)
(W-4)
(W-5)
Surplus/ (deficit)
WORKINGS
(W-1)
Dr.
op. receivable
I and E (bal.)
cl. advance
(W-2)
Dr.
op.
(W-3)
Dr.
op.
Bank
Payable for furniture
(W-4)
Dr.
Bank
(W-5)
Subscription account
2,000 op. advance
60,800 Bank
4,000 cl. receivable
66,800
Government securities
160,000 Disposal (160,000/2)
cl. (bal.)
160,000
Office Furniture account
12,000
13,600
5,600 cl. (bal.)
31,200
Rent and rates
op. payable
13,600 I and E (bal.)
13,600
Other expenses
69,200 I and E (bal.)
cl. Advance
69,200
Note: It is assumed that legal expenses are for the purpose of premises
Journal entries for understanding purposes (Not a part of ICAP question)
(3)
Bank
General Fund
(General fund receipts)
Bank
Medical Aid Fund
(Specific fund receipts to meet expenses)
Medical Aid Fund
Bank
(Expenditure from specific fund)
(4)
Bank
P and L
Government securities (160,000/2)
(Entry for disposal of investment)
226
Cr.
66,800
66,800
Cr.
80,000
80,000
160,000
Cr.
31,200
31,200
Cr.
4,000
9,600
13,600
Dr.
Bank
Cr.
62,800
6,400
69,200
Dr.
41,600
Cr.
41,600
68,000
68,000
57,600
57,600
100,000
20,000
80,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(5)
Premises
Bank
(Purchase of premises)
Bank
Loan (Mortgage)
(Loan arranged for premises)
Premises
Bank
(legal expense paid- assumed for the purpose of premises)
Loan (bal.)
Interest Expense
Bank
(Repayment of loan and interest)
Premises (alteration and decoration)
Bank (bal.)
Payable for alteration and decoration
Answer-13
(a)
Gharib Charitable Hospital
Income and Expenditure account
for the year ended December 31,1999
Incomes
OPD charges
X-Ray charges
(W-1)
Laboratory charges
(W-3)
In-patient billing
(W-2)
Donation
Expenses
Medicines
Laboratory supplies and X-Ray films
Consultant fees
Salaries
Electricity
Cleaning and general
Stationery and supplies
Repairs and maintenance
Telephone charges
Depreciation
Equipment
Furniture
(W-4)
(W-5)
(W-11)
(W-7)
(W-8)
(W-10)
(W-9)
(W-6)
(100,000 x 10%)
Surplus/ (deficit)
(b)
240,000
240,000
120,000
120,000
8,400
8,400
2,800
3,600
6,400
45,600
33,600
12,000
Rs.
59,673
41,620
25,067
597,880
345,200
1,069,440
48,411
33,307
160,000
294,190
330,610
39,859
19,825
25,221
32,370
61,400
10,000
(1,055,193)
14,247
Gharib Charitable Hospital
Balance Sheet
as on December 31, 1999
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
227
Rs.
(W-15)
651,832
14,247
666,079
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Current Liabilities
Salaries due
Electricity bill due
Telephone bill due
Cleaning and general due
Consultant fee payable
Creditors
- Medicine
- X-ray films
- Lab supplies
22,520
30,100
2,720
3,710
15,500
4,500
3,500
1,300
83,850
749,929
Total
Assets
Non-Current Assets
Equipment
Furniture
(W-6)
(100,000-10,000)
Current Assets:
X- Ray charges receivable
In patient billings receivable
Laboratory charges receivable
Stock of medicine
Stock of laboratory supplies and X-ray films
Cash at bank and in hand
2,780
57,920
2,100
7,450
3,980
33,099
107,329
749,929
Total
WORKINGS
(W-1)
Dr.
op.
I and E(bal)
552,600
90,000
642,600
X- Ray charges receivable
1,600 Cash and Bank
41,620 cl.
43,220
Cr.
40,440
2,780
43,220
Dr.
op.
I and E(bal)
In patient billings receivable
27,270 Cash and Bank
597,880 cl.
625,150
Cr.
567,230
57,920
625,150
Dr.
op.
I and E(bal)
Laboratory charges receivable
1,900 Cash and Bank
25,067 cl.
26,967
Cr.
24,867
2,100
26,967
(W-2)
(W-3)
(W-4)
Dr.
op.
Creditor-medicine (W-12)
228
Stock of medicine
6,230 I and E (bal)
49,631 cl.
55,861
Cr.
48,411
7,450
55,861
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-5)
Dr.
Stock of laboratory supplies and X-ray films
op.
4, 170
Creditor X-ray (W-13)
24,500 I and E (bal)
Creditor laboratory supp. (W-14)
8,617 cl.
37,287
Cr.
33,307
3,980
37,287
(W-6)
Dr.
b/d
Equipment
560,000 Depreciation
(560,000+54,000) x 10%
Cash and Bank
54,000 cl.
614,000
It is assumed that all additions took place at the start of the year.
Cr.
61,400
552,600
614,000
(W-7)
Dr.
Cash and Bank
cl.
Salaries expense
298,450 Op.
22,520 I and E (bal)
320,970
Cr.
26,780
294,190
320,970
Electricity bill expense
324,710 Op.
30,100 I and E (bal)
354,810
Cr.
24,200
330,610
354,810
(W-8)
Dr.
Cash and Bank
cl.
(W-9)
Dr.
Cash and Bank
cl.
Telephone bill expense
31,750 Op.
2,720 I and E(bal)
34,470
Cr.
2,100
32,370
34,470
Dr.
Cash and Bank
cl.
Cleaning and general expense
38,549 Op.
3,710 I and E (bal)
42,259
Cr.
2,400
39,859
42,259
Dr.
Cash and Bank
cl.
Consultant fee payable
156,500 Op.
15,500 I and E(bal)
172,000
Cr.
12,000
160,000
172,000
(W-10)
(W-11)
(W-12)
Dr.
Cash and Bank
cl.
Creditor-Medicine
49,131 Op.
4,500 Medicine
53,631
Cr.
4,000
49,631
53,631
Dr.
Cash and Bank
cl.
Creditor-X-ray films
25,000 Op.
3,500 Stock- X ray film (bal.)
28,500
Cr.
4,000
24,500
28,500
(W-13)
229
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-14)
Dr.
Cash and Bank
cl.
Creditor-lab supplies
8,517 Op.
1,300 Stock-Lab. Supplies (bal.)
9,817
(W-15) Opening fund
Assets
X- Ray charges receivable
In patient billings receivable
Laboratory charges receivable
Stock of medicine
Stock of laboratory supplies and X-ray films
Equipment
Furniture
Cash at bank and in hand
Liabilities
Salaries due
Electricity bill due
Telephone bill due
Clearing and general due
Consultant fee payable
Creditors
- Medicine
- X-ray films
- Lab supplies
Cr.
1,200
8,617
9,817
Rs.
1,600
27,270
1,900
6,230
4,170
560,000
100,000
27,342
728,512
26,780
24,200
2,100
2,400
12,000
4,000
4,000
1,200
(76,680)
651,832
Answer-14
(a)
Leisure club
Receipt and payment account
Cash Receipts
Rs.
Cash Payments
Opening Bal.
300,000 Salaries
Bank withdrawal
6,120,000 Bank
Subscription(33,000,000 – 19,800,000)
13,200,000 Sundry Expenses
Tuck shop sales(w-5)
22,856,250 Cash Misappropriation(bal.)
Closing Bal.
(b)
Leisure Club
Income and Expenditure account
for the year ended December 31, 2016
Incomes
Subscription
(W-1)
Tuck Shop
(W-6)
Other income(Bad debt recovered)
230
Rs.
2,300,000
37,848,500
640,000
1,662,750
25,000
Rs.
31,817,500
4,571,250
1,860,000
38,248,750
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Expenditures
Salaries
Insurance
Rent
Utilities
Repair & Maintenance
Sundry Expenses
Depreciation
Abnormal Loss
Cash Misappropriation
Loss on disposal of asset
(W-10)
(W-8)
Part a
(W-9)
Surplus
2,300,000
175,000
4,193,000
4,365,000
700,000
640,000
5,847,500
500,000
1,662,750
10,000
(20,393,250)
17,855,500
Leisure Club
Balance Sheet
As on December 31, 2016
Fund and liabilities
Fund :
Opening Fund
Surplus
Rs.
21,326,000
17,855,500
39,181,500
Current liabilities:
Creditor
Advance Subscription(W-1)
Total
Assets
Non-Current Assets:
Fixed Assets- WDV
3,330,000
11,825,000
15,155,000
54,336,500
(W-7)
Current Assets:
Bank
Cash
Prepaid Rent
Inventory
5,894,000
25,000
175,000
2,500,000
8,594,000
54,336,500
Total
WORKINGS
(W-1)
Dr.
I and E
(bal.)
cl. advance(w-3)
Subscription account
Op. advance(w-3)
31,817,500 Cash (3,300x10,000)
11,825,000
(W-2)Advance Closing Balance subscription
Quarter-1
Quarter-2
(8,250,000 x 3/12)
Quarter-3
(5,500,000 x 6/12)
Quarter-4
(9,350,000 x 9/12)
231
45,742,500
Cr.
1,0642,500
33,000,000
Rs.
2,062,500
2,750,000
7012,500
11,825,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Advance Opening Balance subscription: 11,825,000 x 9/10 = 10,642,500
(W-3)
Dr.
Bank
cl.
(W-4)
Dr.
Op.
Creditor(w-3)
Creditor Account
Op.
18,155,000 Purchases (bal)
3,330,000
Cr.
2,500,000
18,985,000
Inventory Account(Tuck shop)
2,300,000 Cost of Sale (bal.)
18,985,000 Abnormal Loss
cl.
Cr.
18,285,000
500,000
2,500,000
(W-5) Calculation of Sales
Tuck Shop Sale
= 18,285,000/80x100
= 22,856,250
(W-6) Income from Tuck Shop
Sale
22,856,250
Less: Cost of Sales
(18,285,000)
Income
4,571,250
(W-7)
(W-8)
Dr.
b/d
Addition
Addition
Fixed Assets(WDV)
28,000,000 Disposal (800,000-40,000)
7,350,000 Depreciation
17,000,000
c/d (bal.)
Depreciation expense
Depreciation – on opening assets excluding
disposals
Opening assets WDV
Disposals WDV
Depreciation – on additions
Depreciation – on disposals
(W-9)
Dr.
Fixed Assest
(W-10)
232
Dr.
op.
Bank
28,000,000
(800,000)
27,200,000
7,350,000
800,000
x20%
x20%x3/12
x20%x3/12
Disposal Account
800,000 Bank
Acc.Depreciation
Loss on disposal(bal.)
Rent account
168,000
4,200,000 I and E (bal.)
cl.
Cr.
760,000
5,847,500
45,742,500
5,440,000
40,000
367,500
5,847,500
Cr.
750,000
40,000
10,000
Cr.
4,193,000
175,000
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-15
(a)
Violin Family Club
Income and expenditure account for the year ended 31 December 2018
Rs. in '000
Income
Subscription
Gain on disposal of table
Profit from canteen
Life membership
Expenditures
Rent
Salaries
Electricity
Depreciation – snooker tables
Depreciation – furniture & equipment
Subscription written off
(W-1)
(212–
960
5
995
20
57
228
1,300
)
(W-2)
(W-3)
146
285
275
128
188
45
(1,067)
233
(W-4)
(W-6)
(720+220)×20%
Excess of income over expenditure
Canteen trading account for the year ended 31 December 2018
Rs. in '000
Sales
Cost of goods sold
Opening stock
Purchases
Closing stock
Gross profit
Expenses
Wages
Profit from canteen
(b)
504
80
× 110
(W-8)
11×12
Violin Family Club
Statement of financial position as on 31 December 2018
Assets
Non-current assets
Snooker table
Furniture & equipment
Current assets:
Canteen stock
Prepaid rent
Subscriptions in arrears
Bank
(W-5)
(W-7)
(W-9)
General funds
Opening balance
Excess of income over expenditure
(2,024–378)–1,344(W-2)
Life membership fund
(W-2)
233
215
536
(247)
Rs. in '000
693
504
189
(132)
57
Rs. in '000
640
752
1,392
247
25
30
1,094
1,396
2,788
302
233
535
1,836
CHAPTER-4
Liabilities
Canteen creditors
Accrued electricity
Subscription in advance
Creditors for equipment
Canteen wages payable
INCOME AND EXPENDITURE ACCOUNT
142
35
75
154
11
417
2,788
(W-1)
(W-7)
WORKINGS
(W-1)
Opening arrears:
2016
2017
Income balance
Closing advance
Subscription
Rs. in '000
Opening advance 2018
15 Receipts (60+920+75)
90 Write off (15+30)
995 Closing arrears
75
1,175
Rs. in '000
45
1,055
45
30
1,175
(W-2)
Income [(5+8+6)×120÷10]
Closing balance
(W-3)
Date
1-1-18
1-3-18
1-6-18
1-9-18
1-12-18
b/d (Rent of Jan & Feb)
Cash
24
( = 12 per month × 3 months)
2
24
Cash ( × 3)
2
Cash 12.5  3
Cash 12.5  3
Life membership
Rs. in '000
228 Opening balance
(5×120×8÷10)+(8×120×9÷10)
1,836 Receipt (6×120)
2,064
Prepaid Rent
Rs. in '000
Date
24
36
36
37.5
37.5 31-12-18
171
234
b/d
1,344
720
2,064
Rs. in '000
P & L (Balancing)
c/d (12.5  2)
Rent after September 1, 2018
(12 per month ×12 = 144 + 6 = 150 per annum) (150/12 = 12.5 per month)
(W-4)
Accrued Electricity
Rs. in '000
Date
Date
Cash
263 1-1-18
b/d
31-12-18 c/d
35
P&L
298
(W-5)
Date
1-1-18
Rs. in '000
Snooker Table (WDV)
Rs. in '000
Date
960
Depreciation (W-6)
Disposal (960/5)
31-12-18 c/d
960
146
25
171
Rs. in '000
23
275
298
Rs. in '000
128
192
640
960
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-6) Depreciation for the year
Cost of snooker table
960
Cost = 1 − 0.125  2 = 1,280
1280
Cost on 1 table = 5 = 256
Cost of remaining 4 tables = 256  4 = 1,024
Depreciation of snooker table = 1,024  12.5% = 128
Depreciation on equipment and furniture
(720+66+154)×20%=188
(W-7)
Date
1-1-18
b/d
Cash
Account
66
(30% 70%)
(W-8)
Date
31-12-18
Cash
c/d
Furniture and Equipment (WDV)
Rs. in '000
Date
720
Depreciation (W-6)
66
payable
31-12-18
c/d
154
940
Canteen Creditor
Rs. in '000
Date
512 1-1-18
142
654
b/d
Purchases
Rs. in '000
188
752
940
Rs. in '000
118
536
654
(W-9) Bank/cash
Subscriptions
Life membership (W-2)
Sale proceeds from table
Canteen receipts
Rs. in '000
1,055
720
212
693
2,680
235
Opening balance
Rent
Salaries
Electricity
Canteen creditors
Canteen salaries
Equipment
Closing balance
Rs. in '000
181
147
285
263
512
132
66
1,094
2,680
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP QUESTION BANK QUESTION
QUESTION-1
The treasurer of the Giltan Golf Club has prepared
year ended 31 March 2016.
Receipts
Rs.(000)
682
Balance at 1 April 2015
Subscriptions
2,930
Functions
367
Sale of land
1,600
Bank interest
60
Bequest (legacy)
255
Sundry income
46
the following receipts and payments account for the
Rs.(000)
305
146
67
600
135
115
2,066
104
2,402
5,940
5,940
(a)
Subscriptions received included Rs.65,000 which had been in arrears at 31 March 2015 and
Rs.35,000 which had been paid for the year commencing 1 April 2016.
(b)
Land sold had been valued in the club's books at cost Rs.500,000.
(c)
Accrued expenses
31 March 2015
31 March 2016
Rs.(000)
Rs.(000)
Heat and light
32
40
Wages
12
14
Telephone
14
10
58
64
(d)
Depreciation is to be charged on the original cost of assets appearing in the books at
31 March 2016 as follows:
Buildings
5%
Fixtures and fittings
10%
Furniture
20%
(e)
The following balances are from the club's books at 31 March 2015:
Rs.(000)
Land at cost
4,000
Buildings at cost
3,200
Buildings allowance for depreciation
860
Fixtures and fittings at cost
470
Fixtures allowance for depreciation
82
Furniture at cost
380
Furniture allowance for depreciation
164
Subscriptions in arrears (including Rs.15,000 irrecoverable - member had emigrated)
80
Subscriptions in advance
30
Required:
Prepare an income and expenditure account for the year ended 31 March 2016 and a Statement of
financial position as at that date.
(ICAP Question bank 4.1)
236
Payment
Functions
Repairs
Telephone
Extension of club house
Furniture
Heat and light
Salary and wages
Sundry expenses
Balance at 31 March 2016
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-2
The Langton Hockey club does not have any formal accounting records but the following information is
available.
(1)
The payments that have been made by the club for the year ending 30 June 2016 are as follows:
Rs.(000)
Purchase of second hand table tennis table
250
Rent
600
Tea stall purchases
900
Annual fair expenses
1,450
Outings expenses
370
Prizes for whist evenings
90
Repairs to snooker table
35
Refreshments at social evenings
240
(2)
The club’s income, apart from annual subscriptions, is as follows:
Rs.(000)
Contributions to outings
300
Takings at the annual fair
2,150
The club also run a tea stall in the village car park every Sunday in the summer months. This sells
tea and coffee, cakes, biscuits and ice creams etc. The profit margin on the tea stall is normally
20% of selling price.
(3)
All the club’s transactions are in cash but if there are any surplus funds they are banked in a local
bank account. The balance on the bank account was Rs.30,000 at 1 July 2015.
(4)
The club has an annual subscription rate of Rs.20,000 per annum per person or Rs.50,000 per
annum for a family membership. Members are asked to pay their subscription in the July at the
beginning of the club’s accounting year.
There are 10 family members of the club. Of these two paid their 2016 subscription in June 2015
and all the rest were received before 30 June 2016.
No individual members had paid their 2016 subscriptions in advance but at 30 June 2016 four
members still owed their subscriptions. They had been contacted and all four had promised to pay
at the next evening social event. There are in total 80 individual members.
(5)
The club has the following other assets and liabilities:
30 June 2015 30 June 2016
Rs. (000)
Rs. (000)
Sports equipment
2,560
Note 6
Inventory for the tea stall
120
60
Payables for the tea purchases
110
190
Prepayment of rent
40
50
(6)
The sports equipment is all depreciated at 20% per annum on net book value on the basis of the
equipment held at 30 June each year.
(7)
The old table tennis table was sold during the year for Rs.40,000. Its value as recorded by the
club at 30 June 2015 was Rs.30,000.
Required:
You are required to prepare an income and expenditure account for the year ended 30 June 2016 and a
statement of financial position at that date.
(20)
(ICAP Question bank 4.2)
237
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-3
You have agreed to take over the role of bookkeeper for the AB sports and social club.
The summarised statement of financial position on 31 December 2014 as prepared by the previous
bookkeeper contained the following items.
Assets
Rs.
Heating oil for clubhouse
1,000
Shop and cafe inventories
7,000
New sportswear, for sale, at cost
3,000
Used sportswear, for hire, at valuation
750
Equipment for groundsman
Cost
5,000
Depreciation
(3,500)
1,500
Subscriptions due
200
Bank
Current account
1,000
Deposit account
10,000
Fund and liabilities
Accumulated fund
23,150
Payables
Shop and cafe inventories
1,000
Sportswear
300
The bank account summary for the year to 31 December 2015 contained the following items.
Receipts
Rs.
Subscriptions
11,000
Bankings
Shop and café
20,000
Sale of sportswear
5,000
Hire of sportswear
3,000
Interest on deposit account
800
39,800
Payments
Rent and repairs of clubhouse
Heating oil
Sportswear
Grounds person
Shop and cafe purchases
Transfer to deposit account
You discover that the subscriptions due figure as at 31 December 2014 was arrived at as follows.
Subscriptions unpaid for 2013
Subscriptions unpaid for 2014
Subscriptions paid for 2015
Corresponding figures at 31 December 2015 are:
Subscriptions unpaid for 2013
Subscriptions unpaid for 2014
Subscriptions unpaid for 2015
Subscriptions paid for 2016
238
Rs.
6,000
4,000
4,500
10,000
9,000
6,000
39,500
10
230
40
10
20
90
200
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Subscriptions due for more than 12 months should be written off with effect from 1 January 2015.
Asset balances at 31 December 2015 include:
Rs.
Heating oil for club house
700
Shop and cafe inventories
5,000
New sportswear, for sale, at cost
4,000
Used sportswear, for hire, at valuation
1,000
Closing payables at 31 December 2015 are for:
Shop and cafe inventories
800
Sportswear
450
Heating oil for clubhouse
200
Two thirds of the sportswear purchases made in 2015 had been added to inventory of new sportswear in
the figures given in the list of assets above, and one third had been added directly to the inventory of used
sportswear for hire.
Half of the resulting new sportswear for sale at cost' at 31 December 2015 is actually over two years old.
You decide, with effect from 31 December 2015, to transfer these older items into the inventory of used
sportswear, at a valuation of 25% of their original cost.
No cash balances are held at 31 December 2014 or 31 December 2015. The equipment for the grounds
person is to be depreciated at 10% per annum, on cost.
Required:
Prepare the income and expenditure account and statement of financial position for the AB sports club for
2015.
(23)
(ICAP Question bank 4.5)
QUESTION-4
The GD Sports Club do not keep any accounting records other than notes concerning the subscriptions of
members and the amounts paid for expenses. During discussions with the club committee you discover
the following:
(1)
The club does not have a bank account and conducts all its transactions in cash, any surplus being
paid into a building society account. The interest credited to this account for the year to 31 March
2015 was Rs.350.
(2)
A summary of the payments for the year is:
Rs.
Deposit to building society account
250
Purchase of dartboards
100
Heat/light
262
Repairs to snooker tables
176
Cafe payables
7,455
Rental of premises
1,000
Club match referees’ fees and expenses
675
Trophies, etc (treated as an expense)
424
Refreshments for visiting teams
235
(3)
The club has 100 members who each pay Rs.5 per annum subscription. However, on 31 March
2014 ten members had already paid their subscriptions for 2015.
On 31 March 2015 two members who had not been seen in the club since August 2014 had not
paid their subscriptions for 2015 and it has been decided that the amount due be written off and
that their names be removed from the list of members.
(4)
The club has only two sources of income from club members - subscriptions and cafe sales. A
profit margin of 30% of selling price, is normally applied to determine cafe selling prices but
during the year Rs.397 of goods were sold at cost.
239
CHAPTER-4
(5)
INCOME AND EXPENDITURE ACCOUNT
The club has the following other assets/liabilities:
1 April 2014
31 March 2015
Rs.
Rs.
Equipment
4,000
?
Building society account
4,600
5,200
Cafe inventories
840
920
Cafe payables
630
470
Cash in hand
nil
nil
Creditor for heat/light
34
41
(6)
Equipment is depreciated at 10% of the value of equipment held on 31 March each year.
Required:
(a)
Prepare a cafe trading account for the year ended 31 March 2015;
(8)
(b)
Prepare an income and expenditure account for the year ended 31 March 2015.
(7)
(c)
Prepare a statement of financial position at 31 March 2015.
(5)
(20)
(ICAP Question bank 4.6)
QUESTION-5
The HB Tennis Club was formed on 1 April 2015 and has the following receipts and payments account
for the six months ended 30 September 2015:
Receipts
Rs.
Payments
Rs.
Subscriptions
12,600 Purchase of equipment
4,080
Tournament fees
465 Groundsman’s wages
4,520
Bank interest
43 Rent and business rates
636
Sale of club ties
373 Heating and lighting
674
Life membership fees
4,200 Postage and stationery
41
Court maintenance
1,000
Tournament prizes
132
Purchase of club ties
450
Balance c/d
6,148
17,681
17,681
Notes:
1)
The annual subscription fee is Rs.300. On 30 September there were five members who had not
paid their subscriptions, but this money was received on 4 October 2015.
2)
The equipment is expected to be used by the club for five years, after which time it will need to
be replaced. Its estimated scrap value at that time is Rs.50.
3)
During the six months, the club purchased 100 ties printed with its own design. Forty of these ties
remained unsold at 30 September 2015.
4)
The club has paid business rates in advance on 30 September 2015 of Rs.68.
5)
The club treasurer estimates that the following amounts should be accrued for expenses:
Rs.
Groundsman’s wages
40
Postage and stationery
12
Heating and lighting
53
6)
The life membership fees received relate to payments made by four families. The scheme allows families to
pay Rs. 1,050 which entitles them to membership for life without further payment. It has been agreed that
such receipts would be credited to income and expenditure in equal instalments over 10 years.
Required:
(a)
Prepare the club’s income and expenditure account for the six months ended
30 September 2015.
(8)
(b)
Prepare the club’s statement of financial position at 30 September 2015.
(7)
(ICAP Question bank 4.7)
240
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-6
The Monarch Sports Club has the following summary of its cash book for the year ended
30 June 2015:
Rs.
Rs.
Opening bank balance
12,500
Receipts:
Subscriptions
18,000
Life membership fees
3,000
Competition receipts
7,500
Entrance fees
2,500
Equipment sold
1,000
32,000
44,500
Payments:
Transport to matches
3,700
Competition prizes
4,300
Coaching fees
2,100
Repairs to equipment
800
Purchase of new equipment
4,000
Purchase of sports pavilion
35,000
(49,900)
Closing balance (overdrawn)
(5,400)
The following information is available regarding the position at the beginning and end of the accounting
year:
1 July 2014 30 June 2015
Rs.
Rs.
Subscriptions in advance
1,100
900
Subscriptions in arrears
200
300
Coaching fees outstanding
150
450
Of the subscriptions outstanding at the beginning of the year, only half were eventually received.
The equipment sold during the year had a net book value of Rs.1,200 at 1 July 2014.
Equipment is to be depreciated at 20% per annum straight line. Life membership fees are taken to cover
10 years.
The treasurer insists that no depreciation needs to be charged on the sports pavilion, as buildings do not
decrease in value. He says that the last club of which he was treasurer did charge depreciation on its
buildings but that when the club came to replace them, there was still insufficient money in the bank to
pay for the new building.
Required:
Prepare an income and expenditure account for the Monarch Sports Club for the year ended 30 June 2015.
(10)
(ICAP Question bank 4.8)
241
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
QUESTION-7
The LH Sports Club opened on 1 May 2014 having purchased premises for Rs.80,000 and furniture for
Rs. 18,000, both financed by an interest-free loan from a member. The club secretary has produced the
following income and expenditure account for the year to 30 April 2015.
Income
Rs.
Rs.
Joining fees (89 members x Rs.200 each)
17,800
Annual subscriptions
12,000
Cafe profits
8,450
Dinner Dance surplus
830
Equipment hire receipts
1,750
40,830
Expenditure
Premises costs
10,990
Equipment costs
5,590
Secretary’s expenses
470
Bank charges
125
(17,175)
Surplus for the year
23,655
The income and expenditure account has been prepared after taking into account the following items at
30 April 2015:
cafe inventories
Rs. 1,400
payables for cafe supplies
Rs.1,320
rates and insurances prepaid
Rs.2,280
The following items have not been taken into account:

the equipment costs figure includes Rs.4,000 for the purchase of equipment

depreciation is to be provided as follows:
o
at 2% on premises
o
at 10% on furniture
o
at 20% on equipment

joining fees are to be spread over a five-year period

the annual subscriptions figure includes Rs.960 paid in advance

subscriptions outstanding at the end of the year, and expected to be collected, amount to Rs.300.
The bank balance at 30 April 2015 was Rs.21,295.
Required:
(a)
Calculate the correct surplus for the year.
(6)
(b)
Prepare the statement of financial position at 30 April 2015.
(8)
(ICAP Question bank 4.9)
242
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP QUESTION BANK SOLUTIONS
Answer-1
Gilton Golf Club
Income and Expenditure account
for the year ended 31, March 2016
Incomes
Profit from functions
Profit from sale of land
Bank interest
Bequest
Sundry income
Subscription
Expenses
Bad debts
Repairs
Telephone
Heat & Light
Salaries & Wages
Sundry expenses
Depreciation - Building
Depreciation - Furniture
Depreciation - Fixtures & fittings
(367 - 305)
(W-11)
(W-1)
(W-2)
(W-10)
(W-9)
(W-4)
(W-8)
(W-6)
Net profit
Rs. (000)
62
1,100
60
255
46
2,860
4,383
15
146
63
123
2,068
104
190
103
47
(2,859)
1,524
Gilton Golf Club
Balance Sheet
as on 31, March 2016
Rs. (000)
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Current liabilities
Heat & Light
Wages
Telephone
Subscription in advance
Total
243
(W-12)
7,618
1,524
9,142
40
14
10
35
99
9,241
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Assets
Non-Current Assets
Land
Buildings
Less: Accumulated depreciation
(4,000 – 500)
(W-3)
(W-4)
Fixtures Fittings
Less: Accumulated depreciation
Furnitures
Less: Accumulated depreciation
Current Assets
Bank
Total
(Workings)
(W-1)
Dr.
Op. receivable
I and E (bal.)
Cl. Advance
(W-2)
Dr.
Cash and bank
Cl. Payable
(W-3)
Dr.
B/d
Additions
(W-4)
Dr.
c/d. (bal.)
(W-5)
Dr.
B/d
(W-6)
Dr.
c/d. (bal.)
(W-7)
Dr.
B/d
Additions
244
3,500
3,800
(1,050)
2,750
(W-5)
(W-6)
470
(129)
341
(W-7)
(W-8)
515
(267)
248
6,839
2,402
9,241
Subscription account
80 Op. advance
2,860 Cash and bank
35 Bad debts (80 – 65)
Telephone
Op. payable
37 I and E (bal.)
10
Building account
3,200
600
c/d. (bal.)
Cr.
30
2,930
15
Cr.
14
63
15
Cr.
3,800
Accumulated depreciation-building
B/d
Dep. Exp (3,800 x 5%)
1,050
Cr.
860
190
Fixtures and fittings account
470
c/d. (bal.)
Cr.
Accumulated depreciation-fixtures
B/d
Dep. Exp (470 x 10%)
129
Furniture account
380
135
c/d. (bal.)
470
Cr.
82
47
Cr.
515
CHAPTER-4
(W-8)
Dr.
c/d. (bal.)
INCOME AND EXPENDITURE ACCOUNT
Accumulated depreciation-furniture
B/d
Dep. Exp (515 x 20%)
267
Cr.
164
103
Salaries & Wages
Op. payable
2,066 I and E (bal.)
14
Cr.
32
2,068
Heat & Light
Op. payable
115 I and E (bal.)
40
Cr.
32
123
(W-9)
Dr.
Cash and bank
Cl. Payable
(W-10)
Dr.
Cash and bank
Cl. Payable
(W-11) Profit from sale of land
Bank
Land
I & E (bal.)
(W-12) Opening fund
Assets
Land
Buildings
Subscription in arrears
Fixtures & fittings
Bank balance
Furniture
1,600,000
500,000
1,100,000
(3,200 - 860)
(470 - 82)
(380 - 164)
Liabilities
Subscription in advance
Heat & Light
Telephone
Wages
Rs.
4,000
2,340
80
388
682
216
7,706
30
32
14
12
88
7,618
Answer-2
Langton Hockey Club
Income and Expenditure account
for the year ended June 30, 2016
Incomes
Profit from tea stall
Profit from annual fair
Subscription
Profit on sale of table tennis table
(W-1)
(2,150-1,450)
(W-3)
(40-30)
Expenses
Rent
Loss on Outgoing
(W-4)
(300-370)
245
Rs.(000)
260
700
2,100
10
3,070
590
70
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Prizes for whist evenings
Repairs to snooker table
Refreshments
Depreciation
(W-7)
Net Profit
90
35
240
556
(1,581)
1,489
Langton Hockey Club
Balance Sheet
as on June 30, 2016
Fund and liabilities
Fund
Opening fund
Surplus/(Deficit)
(W-8)
Current Liabilities
Trade payables
190
190
4,219
Total
Assets
Non-Current Assets
Sports equipments
Current Assets:
Bank
Prepaid rent
Stocks for tea stall
subscriptions due
(W-l.1) Cost of sales
Op. stock
Purchases
Less: Cl. Stock
(W-6)
(W-4)
1,805
50
60
80
1,995
4,219
(1040 x 100/80)
(W-1.1)
Payables for tea purchases
900 b/d
190 Purchases (bal)
Dr.
246
2,224
2,224
(W-2)
(W-2) Dr.
Cash
c/d
I and E
(W-7)
(W-3)
Total
Workings
(W-l) Profit from Tea stall
Revenue
Less: COS
(W-3)
Rs.
2,540
1,489
4,029
(bal.)
Subscription account
op. advance-Family (2 x 50)
2,100 Cash- Family (8 x 50)
Cash- Individuals (76 x 20)
cl. Receivable (4 x 20)
Rs.
1,300
(1,040)
260
Rs.
120
980
(60)
1,040
Cr.
110
980
Cr.
100
400
1,520
80
CHAPTER-4
(W-4)
INCOME AND EXPENDITURE ACCOUNT
Dr.
b/d
Cash
Rent Account
40
600 I and E (bal.)
cl.
(W-5) Dr.
op.
Contribution to outings
Annual fair takings
Tea stall sales
Subscriptions
Sale of table
Cash account
0 Table tennis table
300 Rent
2,150 Tea stall purchases
1,300 Annual fair
1,920 Outings
40 Prizes
Repairs
Refreshments
Bank(bal.)
(W-6) Dr.
op.
Cash
Bank account
30
1,775
cl.
(W-7) Dr.
op.
Cash
Sports equipment account
2,560 Disposal
250 Dep (2,560 - 30 + 250) x 20%
cl.
(W-8) Opening fund
Assets
Sports equipment
Stocks for tea stall
Prepaid rent
Bank
Cr.
590
50
Cr.
250
600
900
1,450
370
90
35
240
1,775
Cr.
1,805
Cr.
30
556
2,224
Rs.
2,560
120
40
30
2,750
Liabilities
Subscription in advance
Trade payables
100
1 10
210
2,540
Answer-3
AB Sports And Social Club
Income and Expenditure account
for the year ended December 31, 2015
Incomes
Profit from shop & café
Profit from sale of sports wear
Net proceeds from hire of old sports wear
Interest on deposit of account
Subscription
247
(W-2)
(W-4)
(3,000 - (W-6) 1,300)
(W-1)
Rs.(000)
9,200
2,900
1,700
800
10,720
25,320
CHAPTER-4
Expenses
Rent of club house
Heating oil
Grounds person
Loss on transfer of sports wear
Depreciation
Bad debts
INCOME AND EXPENDITURE ACCOUNT
6,000
4,500
10,000
1,500
500
30
(22,530)
2,790
(W-8)
(W-4.1)
(5,000 x 10%)
(W-1)
Surplus
AB Sports And Social Club
Balance Sheet
as on December 31, 2015
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Current Liabilities
Shop & Café
Sportswear
Heating oil
Subscription in advance
Total
Assets
Non-Current Assets
Equipments for ground person
Less: Accumulated depreciation
Current Assets:
Bank-Current account
Bank-Deposit account
Heating oil
Shop & Cafe inventory
New sportswear
Hire sportswear
Subscriptions due
Rs.
23,150
2,790
25,940
248
800
450
200
200
1,650
27,590
(W-7)
(3,500+500)
(W-8)
(10,000+6,000)
(W-4)
(W-6)
Total
Workings
(W-l)
Dr.
op. receivable (230+10)
I and E (bal.)
cl. advance
Rs.
Subscription account
240 op. advance
10,720 Bank
200 Bad debts (10+20)
c/d
5,000
(4,000)
1,000
1,300
16,000
700
5,000
2,000
1,500
90
26,590
27,590
Cr.
40
11,000
30
90
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-2) Profit from Shop & Cafe
Sales
Less: Cost of sales
Op. Inventory
Purchases (W-2.1)
Cl. Inventory
Rs.
20,000
7,000
8,800
(5,000)
(10,800)
9,200
Gross profit
(W-3)
Dr.
Bank
cl.
Creditors - shop and café
9,000 op.
800 Purchases (bal.)
Cr.
1,000
8,800
(W-4) Profit from Sales of new sportswear
Sales
Less: Cost of sales
Op. Inventory
Purchases
(W-5)
Less: Shifted to old sports wear
Less: Cl. Inventory
(4,000 - 2,000)
Rs.
5,000
3,000
3,100
(2,000)
(2,000)
(2,100)
2,900
Profit
(W-4.1) Entry for shifting of new sports wear to old one
Old sportswear
(2,000 x 25%)
I and E (bal.)
New sports wear
(W-5)
Dr.
cl.
Payable sports-wear
op.
4,500 Purchases new SW
(4,500+450-300) x 2/3
Purchases old SW
450 (4,500+450-300) x 1/3
Dr.
b/d
Payable SW (W-5)
New SW shifted (W-4.1)
Old sportswear stock a/c
750
1,550 I and E (.bal)
500 c/d (1,000+ 500)
Bank
(W-6)
(W-7)
Dr.
b/d
Bank
Cl. Payable
249
Heating oil
1,000
4,000 I and E (.bal)
200 c/d
500
1,500
2,000
Cr.
300
3,100
1,550
Cr.
1,300
1,500
Cr.
4,500
700
CHAPTER-4
(W-8)
INCOME AND EXPENDITURE ACCOUNT
Dr.
Bank-Current account
Rs
1,000 Rent & Repairs
11,000 Healing oil
20,000 Payable for Sportswear
5,000 Creditor shop, cafe
800 Ground person
3,000 Deposit account
c/d (bal.)
b/d
Subscriptions
Shop & Café
Sale of sportswear
Interest
Hire of sportswear
Cr.
Rs.
6,000
4,000
4,500
9,000
10,000
6,000
1,300
Answer-4(a)
Sales
Less: Cost of sales
Op. Inventory
Purchases
Cl. Inventory
GD Sports Club
Cafe Trading Account
for the year ended March 31, 2015
(W-8)
(W-3)
Gross profit
Rs.
10,137
840
7,295
(920)
(7,215)
2,922
Answer-4(b)
GD Sports Club
Income and Expenditure account
for the year ended March 31, 2015
Incomes
Profit from café
Interest Income from building society
Subscription
Expenses
Rentals
Heat & light
Repairs to snooker table
Referees fees & expenses
Trophies
Refreshments for visitors
Depreciation
Net Profit
250
(Part-a)
(W-l)
(W-6)
(W-3)
Rs.
2,922
350
490
3,762
1,000
269
176
675
424
235
410
(3,189)
573
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-4(c)
GD Sports Club
Balance Sheet
as on march 31, 2015
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Rs.
(W-5)
8,726
573
9,299
Current Liabilities
Payable for café
Heal & light
(W-3)
(W-6)
Total
Assets
Non-Current Assets
Equipments
470
41
511
9,810
(W-2)
3,690
3,690
Current Assets
Cafe inventory
Building society deposit
Workings
(W-1) Dr.
I and E
(bal.)
920
5,200
6,120
9,810
Subscription account
op. advance
490 Cash
(10 x 5)
(88 x 5)
(W-1.1) Members who paid subscription this year
Total members
Members who paid subscription in advance last year
Members who have left the club
Members who paid subscription this year
Cr.
50
440
100
(10)
(2)
88
(W-2) Dr.
b/d
Cash(Dartboards)
Equipments-account
4,000 Depreciation 1,000+100) x 10%
100 c/d (bal.)
Cr.
410
3,690
(W-3) Dr.
Cafe payable account
b/d
7,455 Purchases (bal.)
470
Cr.
630
7,295
Cash
c/d
251
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
(W-4) Dr.
b/d
Subscriptions (W-1)
Sales (W-8)
Cash account
- Deposit to society a/c
440 Equipment (Dartboards)
10,137 Heat & light
Repairs
Cafe purchases account
Rentals
Fees & expenses
Trophies
Refreshments
c/d
Cr
250
100
262
176
7,455
1,000
675
424
235
-
(W-5) Opening accumulated fund
Assets
Equipments
Cafe inventory
Building Society account
Rs.
4,000
840
4,600
9,440
Liabilities
Payables-cafe
Payables-Heat & Light
Subscription in advance
(W-6) Dr.
Cash
c/d
630
34
50
(714)
8,726
Heat & Light
262 b/d
41 P and L (bal.)
(W-7) Dr.
b/d
Cash
Interest Income
Cr.
34
269
Building Society Deposit account
4,600
250
350 c/d
Cr.
5,200
(W-8) Sales
Cost of Sales = 7,215
C+P=S
70+30=100
Cost
Sales
252
6,818(bal.)
9,740(6,818/70x100)
C+P=S
70+0=70
397
397
Total
7,215
10,137
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
Answer-5
HB tennis Club
Income and Expenditure account
for Six months ended on September 30, 2015
Incomes
Tournament fees
Bank interest
Life membership
Profit from sale of club tics
Subscription
Expenses
Groundsmans wages
Rent and rates
Heating and lighting
Postage and stationery
court maintenance
Depreciation of equipment
Tournament prizes
Rs. (000)
465
43
210
103
7,050
7,871
(W-3.1)
(W-l)
(W-2)
(W-5)
(636-68)
(W-4)
(W-6)
4,560
568
727
53
1,000
403
132
(7,443)
428
((4,080-50)/5 x 6/12)
Net Profit
HB tennis Club
Balance Sheet
as on September 30, 2015
Rs.(000)
Fund and liabilities
Fund
Opening Fund
Surplus/(Deficit)
Life membership fund
Current Liabilities
Grounds men wages
Postage and stationery
Subscription in advance
Heating and lighting
Total
Assets
Non-Current Assets
Equipments
Less: Accumulated depreciation
Current Assets:
Bank
Rates paid in advance
Stock of ties
Subscription in arrears
Total
253
428
428
3,990
(W-3)
(W-5)
(W-6)
(W-2)
(W-4)
((4,080-50)/5 x 6/12)
(W-2)
40
12
6,300
53
6,405
10,823
4,080
(403)
3,677
6,148
68
180
750
7,146
10,823
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
WORKINGS
(W-1) Profit from sale of ties
Revenue
Less: COS
Op. stock
Purchases
Less: Cl. Stock
Rs in ‘000’
373
0
450
(180)
(270)
103
(40x450/100)
Profit
(W-2)
Dr.
op. receivable
I and E (bal.)
cl. advance (W-2.2)
Subscription receivable at the end of 6 months
Subscription advance for the next 6 months
(W-2.1)
(W-2.2)
(W-3)
Subscription account
- op. advance
7,050 Cash and bank
6,300 cl. receivable (W-2.1)
Dr.
I and E
c/d
(W-3.1)
(W-4)
(W-5)
(W-6)
(W-3.1)
(bal.)
Life membership account
b/d
210 Cash and bank
3,990
Amount taken to I & E in these 6 months
Dr.
(5 x 300 x 6/12)
(12,600x6/12)
Cr.
12,600
750
750
6,300
Cr.
4,200
(4,200/10 x 6/12)
210
Cash and bank
cl.
Heating and Lighting
b/d
674 I and E
53
Cr.
727
Dr.
op.
Cash and bank
c/d
Grounds men wages
- b/d
4,520 1 and E
40 cl.
Cr.
4,560
Dr.
Postage and stationery
b/d
41 I and E
12 cl.
Cash and bank
c/d
(bal.)
Cr.
(bal.)
53
Answer-6
Monarch Sports Club
Income and Expenditure account
for the year ended June 30, 2015
Incomes
Life membership
Net income from competition
Entrance fee
Subscription
254
(W-2)
(7,500-4,300)
(W-l)
Rs.(000)
300
3,200
2,500
18,400
24,400
CHAPTER-4
Expenses
Transport
Coaching fees
Repairs
Bad debts
Loss on disposal of equipments
Depreciation
INCOME AND EXPENDITURE ACCOUNT
3,700
2,400
800
100
200
800
(8,000)
16,400
(W-4)
(W-l)
(W-3)
(4,000 x 20%)
Net Profit
Workings
(W-l) Dr.
op. receivable
1 and E (bal.)
cl. advance
(W-2)
Dr.
1 and K (3,000/10)
c/d (bal.)
(W-3)
Dr.
Equipment-NBV
(W-4)
Dr.
Bank
c/d
Subscription account
200 op. advance
18,400 Bank
Bad debt (200x1/2)
900 cl. receivable
Cr.
1,100
18,000
100
300
Life membership account
b/d
300 Bank
2,700
Cr.
3,000
Disposal account
1,200 Bank
I and E (bal.)
Cr.
1,000
200
Coaching fees
b/d
2,100 1 and E (bal.)
450
Cr.
150
2,400
Answer-7
LH Sports Club
Income and Expenditure account
for the year ended April 30, 2015
Surplus as per draft income & expenditure account
Add:
Capital expenditure wrongly included in equipment costs
Subscription receivable for current year not included in income
Less:
Depreciation not deducted
Premises
(80,000 x 2%)
Furniture
(18,000 x 10%)
Equipment
(4,000 x 20%)
Joining fee of next 4 years wrongly included
Advance subscription for the next year wrongly included
Correct surplus for the year
255
Rs.
23,655
4,000
300
4,300
(W-l)
1,600
1,800
800
14,240
960
(19,400)
8,555
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
LH Sports Club
Balance Sheet
As on April 30, 2015
Fund and liabilities
Fund
Surplus/(Deficit)
Non-Current Liabilities
Loan from member
Joining fee
Rs.
8,555
98,000
14,240
112,240
Current Liabilities
Payables for cafe supplies
Subscription in advance
Total
Assets
Non-Current Assets
Premises
Less: Accumulated depreciation
Furnitures
Less: Accumulated depreciation
Equipments
Less: Accumulated depreciation
1,320
960
2,280
123,075
(80,000 x 2%)
(18,000 x 10%)
(4,000 x 20%)
Current Assets:
Cafe Inventory
Subscriptions in arrears
Prepaid rates and insurance
Bank
Total
Workings
(W-l)
Joining fees
Total joining fees received (89 x 200)
Joining fees for the current year (17,800/5)
Excess joining fees included in I&E for current year
256
80,000
(1,600)
18,000
(1,800)
4,000
(800)
78,400
16,200
3,200
97,800
1,400
300
2,280
21,295
25,275
123,075
Rs.
17,800
(3,560)
14,240
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1
Which of the following is generally considered as a non-profit oriented organization?
Q.2
(a)
Charitable organization
(b)
Corporation
(c)
Audit firms
(d)
Insurance companies
Expenditures greater than incomes of a non-profit organization give rise to a:
Q.3
(a)
Loss
(b)
Profit
(c)
Surplus
(d)
Deficit
An advance receipt of subscription from a member of the non-profit organization is considered as
a/an:
Q.4
Q.5
(a)
Expense
(b)
Liability
(c)
Equity
(d)
Asset
Income and expenditure account is based on;
(a)
Cash accounting
(b)
Accrual accounting
(c)
(d)
Management accounting
Government accounting
Life membership fees of not for profit concerns is?
(a)
(c)
Q.6
Capital Receipts
Both (a) & (b)
(b)
(d)
Revenue Receipts
None (a) & (b)
When cash is received for life membership, which one of the following double entries is passed?
Q.7
(a)
Cash Debit and capital Credit
(b)
Life membership Debit and cash Credit
(c)
Investment Debit and cash Credit
(d)
Cash Debit and life membership fund Credit
XYZ club has a bar that maintains a separate trading account for its trading activities. Which of
the following is the treatment of profit or loss on bar trading activities?
(a)
Profit or loss is directly shown in the statement of financial
position
(b)
Profit or loss is to be presented in income and expenditure account
(c)
Profit or loss is credited in income statement
(d)
Profit or loss is added to accumulated fund
Which of the following is the accounting equation for a non-profit organization?
Q.8
Q.9
Q.10
(a)
Asset = Capital + Liabilities
(b)
Capital + Liabilities = Assets
(c)
Accumulated fund + Liabilities = Assets
(d)
Liabilities = Asset + Accumulated fund
Subscription earned but not yet received is considered as a/an:
(a)
Asset
(b)
Liability
(c)
Income
(d)
Expenditure
A non-profit organization received Rs. 100,000 as the entrance fee of a new member. If 20% of
the fee has to be capitalized, what is the amount of fee needs to be shown in the income and
expenditure account?
(a)
(c)
257
Rs.20,000
Rs.90,000
(b)
(d)
Rs.80,000
Rs.10,000
CHAPTER-4
Q.11
INCOME AND EXPENDITURE ACCOUNT
Rs.1,000,000 received as the annual membership subscription. Out of this, Rs. 200,000 is
pertaining to the previous accounting period whereas Rs.100,000 is receivable at the end of the
current accounting period.
Q.12
Calculate the amount of subscription that will be shown in the income and expenditure account.
(a)
Rs.100,000
(b)
Rs.900,000
(c)
Rs.1,200,000
(d)
Rs.800,000
Income and expenditure accounts show:
Q.13
(a)
Cash available to an organization
(b)
Closing capital of an organization
(c)
Cash available in the bank account
(d)
Surplus or deficit for the current accounting period
On what basis the ‘receipts and payments account’ is prepared?
Q.14
Q.15
Q.16
Q.17
Q.18
(a)
Cash basis
(b)
Accrual basis
(c)
Both accrual and cash basis
(d)
None of the two
Payment of Honorarium to secretary is treated as?
(a)
Capital Expenditure
(b)
Revenue Expenditure
(c)
Cash Expenses
(d)
None of these
Income and Expenditure Account records:
(a)
Capital items
(b)
Revenue items
(c)
A and B both
(d)
None of these
A club has 500 members. Annual membership fees are Rs.1,000. Therefore, membership fees for
the year should be Rs.500,000.
The club’s subscription records for the year ended 31 December 2013 show the following:
At 31 December 2012
At 31 December 2013
Subscriptions in advance
10,000
6,000
Subscriptions in arrears
18,000
22,000
Calculate the amount of cash received during the year.
Rs. ___________
At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs.48,000
and had received Rs.12,000 subscriptions in advance.
During the year to 31 March 2013 the club received Rs.624,000 including 26 memberships for
the year to 31 March 2014 at Rs.1,200 per annum in advance.
At 31 March 2013 16 members owed subscriptions of Rs.1,200 each.
Calculate the amount of subscription income during the year.
Rs. ___________
At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs.48,000
and had received Rs. 12,000 subscriptions in advance.
During the year to 31 March 2013 the club received Rs. 624,000 including 26 memberships for
the year to 31 March 2014 at Rs.1,200 per annum.
At 31 March 2013 16 members owed subscriptions of Rs.1,200 each.
Half of the members who were in arrears at the end of the previous period still had not paid by 31
March 2013. It was decided to write these amounts off.
Required:
Calculate the amount of subscription income during the year.
Rs. ___________
258
CHAPTER-4
Q.19
INCOME AND EXPENDITURE ACCOUNT
Seaview Club started its operations on 1 February 2015. Total subscription received for the
period ended 31 December 2015 was Rs. 29,952,000
Annual subscription is Rs. 24,000. All new members pay three years’ subscription in advance.
The memberships were awarded as follows:
Month
No. of member
March
112
June
98
September
101
December
105
What amount of subscription income should be included in income and expenditure account for
the period ended 31 December 2015?
Rs. _________
Q.20
Seaview Club started its operations on 1 February 2015. Total subscription received for the
period ended 31 December 2015 was Rs.29,952,000
Annual subscription is Rs.24,000. All new members pay three years’ subscription in advance.
The memberships were awarded as follows:
Month
March
June
September
December
112
98
101
105
No. of member
What amount of advance subscription should be included in non-current liabilities as at 31
December 2015?
Q.21
Rs. __________
The main objective of a non-profit organization is;
Q.22
(a)
To earn profits
(b)
To create monopoly
(c)
Welfare of the society
(d)
To provide for owner’s dividends
Non-profit organizations prepare all of the following accounts except the;
Q.23
(a)
Receipt and payment account
(c)
Statement of financial position
Examples of non-profit organisation is:
Q.24
(a)
Commercial banks
(b)
Civil hospital
(c)
Private educational institutions
(d)
Association of person
The main source of income for non-profit organisation is:
Q.25
(a)
Subscription
(c)
Dividends
Income and expenditure accounts show;
Q.26
Q.27
(b)
(d)
(b)
(d)
(a)
(b)
Cash available to an organization
Closing capital of an organization
(c)
Cash available to the bank account
(d)
Surplus or deficit for an accounting period
Income and expenditure account
Profit or loss account
Sales
Other income
The statement of financial position of a non-profit organization does not contain the;
(a)
Owner’s equity
(b)
Liability
(c)
Asset
(d)
Income
Rent expense of a non-profit organization paid in advance. Which of the following is the correct
classification of rent?
(a)
Expense
(b)
Liability
(c)
Asset
(d)
Equity
259
CHAPTER-4
Q.28
An advance receipt of subscription from a member of the non-profit organization is considered as
(a)
(c)
Q.29
Q.31
Q.33
Q.34
(b)
(d)
Liability
Equity
Equity
(b)
Accumulated funds
(c)
Retained earning
(d)
Cash fund
When cash is received for life membership, which one of the following double entries is passed?
(a)
Cash (debit) and capital (credit)
(b)
Life membership (debit) and cash (credit)
(c)
(d)
Cash (debit) and investment (credit)
Cash (debit) and Life membership (credit)
If debit side of receipt and payment account exceeds credit, it represents:
(a)
Q.32
Expense
Asset
The capital of a non-profit organization is generally known as
(a)
Q.30
INCOME AND EXPENDITURE ACCOUNT
Cash at bank
(b)
Bank overdraft
(c)
Surplus
Receipt and payment account include:
(d)
Deficit
(a)
Revenue items
(b)
Capital items
(c)
Both capital and revenue items
(d)
None of above
Sale of an old newspaper is classified as:
(a)
Expense
(b)
Liability
(c)
(d)
Income
Asset
Gift presented to Chief Guest at annual function by a non-profit organization is:
(a)
(c)
260
Gift
Honorarium
(b)
(d)
Reward
Grant
CHAPTER-4
INCOME AND EXPENDITURE ACCOUNT
ICAP MULTIPLE CHOICE QUESTIONS (MCQ) SOLUTIONS
A.1
(a)
A.2
(d)
A.3
(b)
A.4
(b)
A.5
(a)
A.6
(d)
A.7
(b)
A.8
(c)
A.9
(a)
A.10
(b)
A.11
(b)
b/d
I&E
A.12
(d)
A.13
(a)
A.14
A.15
(b)
(b)
A.16
Rs. 492,000
Balance b/d
I&E
Balance c/d
A.17
Rs.
1,000,000
100,000
1,100,000
Subscriptions
Rs.
18,000 Balance b/d
500,000 Cash
6,000 Balance c/d
524,000
Rs.
10,000
492,000
22,000
524,000
Subscriptions
Rs.
48,000 Balance b/d
576,000 Cash
31,200 Balance c/d [16  Rs. 1,200]
655,200
Rs.
12,000
624,000
19,200
655,200
Subscriptions
Rs.
48,000 Balance b/d
600,000 Cash
Bad debts [48,000 x ½]
31,200 Balance c/d [16 x Rs. 1,200]
679,200
Rs.
12,000
624,000
24,000
19,200
679,200
Rs. 576,000
Balance b/d
I&E
Balance c/d [26  Rs. 1,200]
A.18
Subscription a/c
Rs.
200,000 Cash received
900,000 c/d
1,100,000
Rs.600,000
Balance b/d
I&E
Balance c/d [26 x Rs. 1,200]
261
CHAPTER-4
A.19
INCOME AND EXPENDITURE ACCOUNT
Rs.4,630,000
Subscription for 3 years is Rs.72,000 so subscription for 1 year is Rs.24,000 or Rs. 2,000
per month
Receipt /
Number of members
Members
Mar / Dec
112
Jun / Dec
98
Sep / Dec
101
Dec
105
Total subscription income for 3 years
A.20

Subscriptions for the period




24,000  10/12
24,000  7/12
24,000  4/12
24,000  1/12
Total
2,240,000
1,372,000
808,000
210,000
4,630,000
Rs.15,338,000
Subscription for 3 years is Rs.72,000 so subscription for 1 year is Rs.24,000 or Rs.2,000
per month
Number Members
Mar / 112
Jun / 98
Sep / 101
Dec / 105
I&E
Months
10
7
4
1
Current
Months
12
12
12
12
Non Current Position
Number of members 
Subscriptions for the period
112
24,000  14/12

98
24,000  17/12

101
24,000  20/12

105
24,000  23/12

Total subscription received to 3 years
A.21
(c)
A.22
(d)
A.23
(b)
A.24
(a)
A.25
(d)
A.26
(a)
A.27
(c)
A.28
(b)
A.29
(b)
A.30
(d)
A.31
(a)
A.32
(c)
A.33
(d)
A.34
(c)
262
Non-current
Months
14 (36 – 10 – 12)
17 (36 – 7 – 12)
20 (36 – 4 – 12)
23 (36 – 1 – 12)
Total
3,136,000
3,332,000
4,040,000
4,830,000
15,338,000
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
CH.
TOPIC
1
Accounting and Reporting Concepts
2
IAS 1: Preparation of Financial
Statements
3
IAS 7: Statement of Cash Flows
4
Income and Expenditure Account
5
Preparation of Accounts From
Incomplete Records
6
Introduction to Cost of Production
7
IAS 16: Property, Plant and Equipment
NOTES
263
IAS 20: Govt. Grants
8
IAS 23: Borrowing Cost
IAS 40: Non-Current Assets: Sundry
Standards
9
IAS 36: Impairment of Assets
10
IFRS 15: Revenue from Contracts with
Customers
11
Interpretation of Financial Statements
12
Revision of some concepts
ii
PRACTICE
ICAP PAST
PAPER
ICAP QB
MCQs
Q
A
Q
A
Q
A
Q
A
267
284
324
352
421
430
448
454
Preparation of Accounts from
Incomplete Records
LO 1
LO 2
LO 3
LO 4
5
CALCULATION OF PROFIT/SALES/COST FIGURES THROUGH EQUATIONS
CONVERSION OF SINGLE ENTRY TO DOUBLE ENTRY SYSTEM
CALCULATION OF PROFIT THROUGH BALANCE SHEET APPROACH
CATEGORIES OF QUESTIONS
Many small business have neither the time nor the experience necessary to maintain a fully set of
accounting records using the double entry system; and cannot afford the expense of outside staff to keep
such records. However, every business is interested to know its profit from time to time. Some businesses
only records receipts from debtor, payment to creditors, payments for expenses and opening closing list of
liabilities. In such organizations these documents along with bank statement are used to ascertain the
profit. Single entry system may be defined as a system in which accounting records are not kept strictly
according to the double entry principles of bookkeeping. Since all the transactions are not recorded
strictly on the double entry principle, it is not possible to prepare a Trial Balance and check the
arithmetical accuracy of the books of account.
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
LO1: CALCULATION OF PROFIT/SALES/COST FIGURES THROUGH EQUATIONS
There are two ways in which the equation can be given in paper:
1.
Gross profit is 20% of cost.

Goods are sold at 20% mark-up.

Goods were sold at a markup of 20% on cost/cost of sales.

Sales are made at cost plus 20%

Goods are sold at 20% above cost

Goods are sold to show a profit of 20% on cost.
Equation for all of above
Cost of Sales + Gross Profit = Sales
100 + 20
= 120
2.
Gross profit is 20% of selling price.

Goods are sold at 20% margin

Sales were made at a profit of 20% on sales

Gross profit is made at 20% on sales value

There was a fixed margin of gross profit of 20% on sales

Sales were effected at a uniform rate of gross profit at 20% on sales
Equation for all of above
Cost of Sales + Gross Profit = Sales
80
+ 20
= 100
PRACTICE QUESTIONS
Question # 1: Profit percentage on cost is 17% while cost is 650,000. Find profit and sales?
Question # 2: Profit percentage on sales is 21% and sales is Rs. 510,000. Profit and cost are to be found?
Question # 3: Profit is 15% of cost while sales made is Rs. 215,000. Find profit and cost?
Question # 4: Profit is 23% of sales while cost incurred is Rs. 395,000. Find profit and sales?
Question # 5: Profit is 18% of sales, which amounts of Rs. 215,000. Find cost and sales?
Question # 6: Profit amounts to Rs. 150,000. This amount forms 10% of cost. Find cost and sales?
Question # 7: Sales made are Rs. 313,000. Profit earned is 23% of sales. Find profit and cost?
Answers
Answer # 1:
100 + 17 = 117
Profit = 650,000 x 17 = 110,500
100
Sale =
650,000 x 117 = 760,500
100
Answer # 2:
79 +21 = 100
Profit = 510,000 x 21 = 107,100
100
Cost = 510,000 x 79 = 402,900
100
Answer # 3:
100 + 15 = 115
Profit = 215,000 x 15 = 28,043
115
Cost = 215,000 x 100 = 186,957
115
263
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer # 4:
77 + 23 = 100
Profit = 395,000 x 23 = 117,987
77
Sale =
395,000 x 100 = 512,987
77
Answer # 5:
82 + 18 = 100
Profit = 215,000 x 82 = 979,444
18
Sale =
215,000 x 100 = 1,194,444
18
Answer # 6:
100 + 10 = 110
Cost = 150,000 x 100 = 1,500,000
10
Sale = 150,000 x 110 = 1,650,000
10
Answer # 7:
77 + 23 = 100
Profit =
313,000 x 23 = 71,990
100
Cost = 313,000 x 77 = 241,010
100
Prepare equation
 Asif sells the goods at a profit margin of one-third of their selling price i.e. at a profit margin of 50% of
cost of sales.
 Mark-up is 1/3rd of cost
LO2: CONVERSION OF SINGLE ENTRY TO DOUBLE ENTRY SYSTEM
We have seen that under the single entry system adequate accounting information is not available.
Following are the steps to be performed for preparing financial statements:
Step 1 Open up the:
 debtor a/c,
 creditor a/c,
 cash a/c,
 bank a/c and
 inventory a/c
 only those expense accounts whose opening or closing prepaid or payables are given.
Put the opening and closing balances in all the accounts mentioned above.
Step 2 Pass the double entry for each figure appearing in the question starting from the top of question.
Step 3 Read out the descriptive information provided in the question to calculate the missing information.
Step 4 Fill out the missing information by passing the double entry for each amount. Missing information
is calculated as balancing figure.
Step 5 Complete the profit and loss and balance sheet.
264
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Following are the important issues which are to be considered:
Issues
1. Calculating sales
2. First account to
be completed
3. Calculation of
abnormal loss or
closing stock
4. If there is a
missing figure on
debit side of cash
a/c
5. Cash
misappropriation
Treatment
There are normally two ways of calculating sales:
 As balancing figure in debtor account
 Through cost of sales using standard GP ratios
Always complete the creditor account first to calculate credit purchases.
Prepare inventory account.
Note: In such questions sales will normally be calculated as balancing in debtor
account.
It could be either:
 Cash sales
 Cash received from debtors
 Bank withdrawls
Prepare cash account. Misappropriation will be balancing figure on credit side.
LO3: CALCULATION OF PROFIT THROUGH BALANCE SHEET APPROACH
For a very small scale business it may not be possible to prepare complete profit and loss a/c. Here profit can
be calculated through following statement:
Closing capital
Add: Drawings
Less: Opening capital
Less: New capital
Profit for the year
(Closing assets – Closing liabilities)
(Opening assets – Opening liabilities)
This statement can be easily understood through the help of following a/c:
Dr.
Capital account
b/d
Drawings
New capital
Profit for the year (bal.)
c/d
Rs.
xxx
xxx
xxx
xxx
xxx
Cr.
-
Example-1
Let us take a simple example in which Mr. X keeps no adequate records. The business was set up on 1st
January 2002 with a capital in cash Rs. 50,000. At the end of the year, the following assets and liabilities
were revealed:
Assets: Building at cost – Rs. 30,000; Stock – Rs. 10,000; Trade debtors – Rs. 20,000; Cash – Rs. 15,000
Liabilities: Trade creditors – Rs. 5,000. Calculate profit for the year:
Answer-1
Statement of Profit and Loss
Rs.
Closing Capital (Closing Assets – Closing Liabilities)
70,000
Less: New Capital
50,000
Profit for the year
20,000
265
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Example-2
The balance sheets of Mr. Ali as at December 31, 2009 and 2008 are as follows:
2009
3,500
4,750
9,750
Creditors
Debtors
Fixed assets
2008
2,450
2,850
9,600
During the year ended December 31, 2009 following transactions took place:
1)
2)
New capital inserted
Drawings
400
250
Required: Calculate profit for the year?
Answer-2
One way
For calculating the profit for each year we will prepare the capital account in statement form.
Closing capital
Add: Drawings
Less: New capital
Less: Opening capital
Profit for the year
Rs.
11,000
250
(400)
(10,000)
850
(4,750 + 9,750 – 3,500)
(2,850 + 9,600 – 2,450)
Alternate way
For calculating the profit for each year we will prepare the capital account in statement form.
Increase/ (decrease) in capital
Add: Drawings
Less: New capital
Profit for the year
Rs.
1,000
250
(400)
850
(W-1)
(W-1) Increase/ (Decrease) in capital
Increase in creditor
Increase in debtor
Increase in fixed asset
Rs.
(1,050)
1,900
150
1,000
LO4: CATEGORIES OF QUESTIONS
Description
Typical questions
Questions dealing with cash misappropriation
Questions in which abnormal loss or closing stock is missing
Questions in which profit is determined through balance sheet approach
Mixed Question
266
Practice
Set
1-18
17-19
20-24
25-29
Past
papers
1-18
19-22
23-31
32-33
-
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
PRACTICE QUESTIONS
Question-1
The following is a summary of Aashir’s bank account for the year ended 31 December 20X2:
Rs
Rs
Balance 1.1.20X2
4,100 Payments to creditors for goods
67,360
Receipts from debtors
91,190 Rent
3,950
Balance 31.12.20X2
6,300 Insurance
1,470
Sundry expenses
610
Drawings
28,200
101,590
101,590
Cash sales are Rs. 17,400. Out of this, Aashir has paid wages of Rs. 11,260, drawings of Rs 1,200 and
purchase of goods Rs 4,940.
The following additional information is available:
31.12.20X1
31.12.20X2
Stock
10,800
12,200
Creditors for goods
12,700
14,100
Debtors for goods
21,200
19,800
Insurance prepaid
420
440
Rent owing
390
Fixtures at valuation
1,800
1,600
Required:
You are to draw up a set of financial statements for the year ended 31 December 20X2. Show all of your
workings.
(8)
Question-2
Bell has kept records of his business transactions in a single entry form, but he did not realise that he had
to record cash drawings. His bank account for the year 20X8 is as follow:
Rs
Rs
Balance 1.1.20X8
920 Cash withdrawn from bank
12,600
Receipts from debtors
94,200 Trade creditors
63,400
Loan from F Tung
2,500 Rent
3,200
Insurance
1,900
Drawings
11,400
Sundry expenses
820
Balance 31.12.20X8
4,300
97,620
97,620
Records of cash paid were: Sundry expenses Rs 180; Trade creditors Rs 1,310.
Cash sales amounted to Rs. 1,540.
The following information is also available:
31.12.20X7 31.12.20X8
Rs.
Rs.
Cash in hand
194
272
Trade creditors
7,300
8,100
Debtors
9,200
11,400
Rent owing
360
Insurance paid in advance
340
400
Van (at valuation)
5,500
4,600
Stock
24,200
27,100
267
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Required:
You are to draw up a trading and profit and loss account for the year ended 31 December 20X8, and a
balance sheet as at that date. Show all of you workings.
(10)
Question-3
From the following information, calculate Drawings in cash by the proprietor:
Opening cash in hand
10,000 Cash purchases
15,000
Opening cash at bank
5,000 Purchase of furniture (for office use) in cash
600
Cash sales
20,000 Expenses — Cash
1,000
Cash collected from Debtors
50,000 Expenses — Cheque
1,500
Drawings by cheque
5,000 Cash deposited
60,000
Cheque issued to creditors
30,000 Closing cash in hand
12,500
Closing cash at bank
8,500
(7)
Question -4
S, a trader, does not keep a complete set of books. On May 1, 2002 his debtors were Rs. 24,500 and
creditors Rs. 7,500.
A summary of his cash book for the year to 30th April, 2003 showed the following totals.
Cash(Rs.) Bank(Rs.)
Credits - Payments to creditors for purchases
1,350
11,250
Debits - Receipts from debtors for sales
21,250
Sales of machinery
13,000
Rent of warehouse sublet
390
Cash sales
5,000
3,750
Cash capital introduced on Nov 1, 2002
2,500
At April 30, 2003 the debtors and creditors respectively amounted to Rs.44,000 and Rs.9,750. Cash
discount allowed to debtors was Rs. 230 and those received from creditors were Rs. 810.
Required:
Ascertain the Total Sales and Total Purchases for the year.
(5)
Question -5
Mr. Ali Abbas is running a general store and has provided you with following information:
June 30,
June 30,
Particulars
2009
2008
Rupees
Cash in hand
700
14,300
Cash at bank
103,400
349,100
Sundry debtors
80,900
48,700
Stock
27,500
15,700
Sundry creditors
130,800
116,100
Rent payable
4,500
3,500
Electricity and telephone bills prepaid
8,800
1.
Debtors only make payment in cheques which amounted to Rs. 250,000 during the year.
2.
Cash received from cash sales is deposited in the bank after making drawings and meeting certain
expenses the details for which during the year are as follows:
Rupees
Electricity
3,000
Repairs
2,400
The drawings during the year range from 200,000 to 300,000.
268
CHAPTER-5
3.
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Bank payments during the year ended June 30, 2009 have been summarized as follows:
Rupees
800,000
50,400
13,900
4,000
66,200
Creditors
Rent
Electricity
Delivery costs (to customers)
Stationery
4.
The goods are sold at 20% above cost.
Required:
You are required to prepare trading and profit and loss account and balance sheet as on June 30, 2009.
(12)
Question-6
Mr. Usman Safdar is running a general store and has provided you with following information:
June 30,
June 30,
Particulars
2009
2008
Rupees
Cash in hand
700
14,300
Cash at bank
103,400
349,100
Sundry debtors
80,900
48,700
Stock
27,500
15,700
Sundry creditors
25,800
30,100
1.
Debtors only make payment in cash which amounted to Rs. 250,000.
2.
Cash received from cash sale and debtors is deposited in bank after making drawings and meeting
following expenses.
Rupees
Electricity
3,000
Repairs
2,400
3.
Bank payments during the year ended June 30, 2009 have been summarized as follows:
Rupees
Creditors
800,000
Rent
50,400
4.
The goods are sold at 20% above cost.
5.
All purchases are made on credit.
Required:
You are required to prepare trading and profit and loss account and balance sheet as on June 30, 2009.
(12)
Question-7
Mr. Syed Aamir Ali is running a general store and has provided you with the following information:
June 30,
June 30,
Particulars
2009
2008
Rupees
Cash in hand
700
14,300
Cash at bank
103,400
349,100
Sundry debtors
80,900
48,700
Stock
27,500
15,700
Sundry creditors
25,800
30,100
269
CHAPTER-5
1.
2.
3.
4.
5.
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Purchases are made in cash as well as on credit.
Payment to creditors is always through cheque.
All sales are made on credit.
All debtors make payment through cheque which amounted to Rs. 600,000.
In addition to cash drawings following cash expenses were also incurred:
Rupees
Electricity
6,000
Repairs
5,400
6.
Bank payments during the year ended June 30, 2009 have been summarized as follows:
Rupees
Creditors
350,000
Rent
50,400
Cash withdrawn
?
7.
The goods are sold at 20% above cost.
Required:
You are required to prepare trading and profit and loss account and balance sheet as on June 30, 2009.
(15)
Question-8
Mr. Syed Yasir Ali is running a general store and has provided you with following information:
June 30,
June 30,
Particulars
2009
2008
Rupees
Cash at bank
?
349,100
Sundry debtors
80,900
48,700
Stock
27,500
15,700
Sundry creditors
25,800
30,100
1.
He makes payment to creditors through cheques which amounted to Rs. 910,000. However, for
other items, payments are made out of cash receipts. Available cash is deposited in a bank
account weekly. Nothing is being withdrawn from bank for business purpose.
2.
Purchases are only made on credit.
3.
All debtors make payment through cheque. Credit sale amounted to Rs. 600,000.
4.
Following amounts are paid during the year:
Staff salaries for the year
360,000
Personal expenses of Mr. Syed Yasir Ali
60,000
Cash retained for sundry business expenses (per month)
20,000
Of the cash taken for sundry business expenses, Rs 10 thousand was in hand on June 30, 2009.
5.
Profit is 30% of selling price.
6.
Opening cash is Rs. 14,300.
Required:
You are required to prepare trading and profit and loss account and balance sheet as on June 30, 2009.
(14)
270
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Question-9
The following is a summary of the Bank Account of Mr. Khanna, a trader, for the year 2002.
Bank Summary
Particulars
Rs
Particulars
Balance on January 1,2002
5,140 Payment to trade creditors
Cash receipts on account of credit sales
243,720 General expenses
Balance on December 31.2002
1,180 Rent & rates
Drawings
250,040
Rs
187,860
16,970
7,710
37,500
250,040
All business takings had been paid into the bank except Rs 21,180 out of which he paid wages amounting
to Rs 12,800. He retained Rs 8,380 for private purposes. The following information is obtained from the
books:
Particulars
31.12.2001 31.12.2002 Particulars
31.12.2001 31.12.2002
Stock in trade
24,300
31,500 Rates paid in advance
420
450
Creditors for goods
19,450
17,090 Creditors for general expenses
810
1,340
Debtors for goods
21,800
26,900
Furniture and fittings
10,000
10,000
Discounts received from trade creditors during 2002 amounted to Rs 1,500. No discounts were allowed to
customers. The amount due to the customer who overpaid his account was set off against sales to him in
2002.
Required:
Prepare a Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date .
(12)
Question -10
Mr. Sandy Brown started business on 1.1.2002 with his own capital of Rs 20,000 and an interest free loan
of Rs 20,000 from a friend.
His business makes toys, which are selling at Rs 40 each. Anand, who has little knowledge of
accountancy, produced the following information at the end of the first year's trading: Cash received: Sale
proceeds of 2,000 toys Rs 80,000.
Cash paid: Wages Rs 28,000; Raw materials Rs 13,600; Rent Rs 8,000; General expenses Rs 4,800; Loan
repaid Rs 6,000.
You ascertain the following additional information:
(1)
A further 300 toys were sold in 2002, but not paid for at the year end.
(2)
Rs 3,600 of raw materials received in the year, but not paid for.
(3)
The only stock at 31.12.2002 was Rs 1,600 raw materials.
(4)
The rent covered the period from 1.1.2002 to 31.3.2003.
(5)
Expenses included Rs 800 withdrawn by Sandy Brown for his own use.
(6)
The initial capital and loan of Rs 40,000 was used to buy furniture with 4-year life and an
anticipated residual value of Rs 8,000.
(7)
The wages figure included Rs 10,000 for installing the fixture.
Required:
Prepare a Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date.
(15)
271
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Question -11
Mr. Green is in business but does not keep full accounting records. For the year ended 31.12.2002, he is
able to provide you with the following information (all figures in rupees):
Date
Stock
Debtors
Creditors
Furniture
1.1.2002
29,500
3,250
7,360
12,000
31.12.2002
32,710
5,010
10,140
10,500
You are able to prepare the following summary of his cash and bank transactions for 2002:
Cash
Rs
Rs
Bank
Rs
Rs
Opening balance
490 Opening balance
9,200
Receipts Receipts Cash Sales
53,600
Cheques from Customers
17,330
Cheque Cashed
2,600
56,200 Paid into Bank
39,950
57280
56,690
66,480
Payments Payments Purchases
3,400
Creditors
29,500
Wages
1,020
Wages
3,710
Other Expenses
2,260
Other Expenses
7,700
Drawings
8,200
Rent
12,500
Paid into Bank
39,950
54,830 Cash Withdrawn
2,600
56,010
Closing Balance
1,860 Closing Balance
10,470
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date.
(12)
Question -12
P maintains accounts under single entry system and furnishes the following information for the year
ending 31.12.2001 (all figures in rupees):
Furniture
Date
Bank
Stock
Debtors
Building Creditors
(after depreciation)
1.1.2001
28,000
30,000
45,000
15,000
150,000
32,000
31.12 2001
40,000
33,000
18,000
36,000
?
?
Cost of goods sold during the year was Rs 360,000. The rate of gross profit is 25% on sales.
All purchases and sales are on credit and amounts received from customers and payments to suppliers are
by cheques. P realised Rs 10,000 in cash on the sale of scrap from which he paid Rs 6,000 as freight on
purchases and the balance was retained for his personal use.
Details of his other transactions with the bank are as under:
Receipts
Capital invested Rs 150,000; Rental income 800.
Payments
10% Govt. bonds Rs. 150,000 (purchased on 1.7.2001); Salaries Rs 60,000; Taxes (11 months ending
30.11.2001) Rs 11,000; Printing and stationery Rs 7,800; Miscellaneous expenses Rs 12,000; Drawings
Rs 26,000.
Bad Debts written-off during the year were Rs 7,000. Furniture has been depreciated by 10% and
Building is to be depreciated by 2%.
The shop assistant is entitled to a commission of 10% of net profit after charging his commission.
Required:
Prepare Trading and Profit and Loss Account for the year ensuing 31.12.2001 and Balance Sheet as on
that date.
(16)
272
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Question -13
On 1.1.1993, Mr S. Sen commenced business. He did not maintain proper books of account. At the end of
the year, the following information is obtained after going through the records:
(i)
All cash received from cash sales was banked after keeping Rs 1,000 p.m. for petty expenses and
after withholding monthly drawings of Rs 500.
(ii)
Counter foils of pay-in-slip revealed the following deposits:
capital contributed Rs 100,000; balance of cash sales Rs 78,000; collections from debtors
Rs.100,000.
(iii)
Counter foils of cheques revealed the following payments:
payment to creditors Rs 150,000; salary Rs 35,000; purchase of furniture Rs 10,000.
(iv)
Sales were effected at a uniform rate of gross profit at 25% on sales.
(v)
Discount allowed Rs 2,000, discount received Rs 3,000 and bad debts Rs 1,000.
(vi)
Petty cash expenses were; postage Rs 200; stationery Rs 1,000; conveyance Rs 2,000 and rent
Rs.2,200.
(vii)
On 31.12.1993 amount due from debtors Rs 10,000 and amount owing to creditors were
Rs.20,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.1993 and a Balance Sheet as on
that date.
(15)
Question -14
X is a tobacco merchant. He follows the practice of paying creditors for goods purchased through his
bank account and making payments in cash on all nominal accounts.
X had not kept his books on the double entry principles nor had he balanced his Cash Book. However, the
following information has been extracted from X's accounting records (all figures in Rupees).
Date
Cash
Bank
Debtors
Creditors
Investments
Stock
1.1.1994
30
1,000
1,750
3,410
6,250
2,500
31.12.1994
50
1,500
2,500
3,750
6,250
1,870
Transactions during the year 1994 were the following (all figures in Rupees):
Salaries paid (in cash)
1,500 Payments to creditors through bank
and of trade expenses in cash
20,000
General expenses paid(in cash)
3,500 Payments into bank – business
18,750
Payment for stationery(in cash)
870 Payments into bank - additional capital
250
Payment of rent and rates(in cash)
700 Payments from bank account – personal
3,250
Lighting charges paid(in cash)
250 Cash payments – personal
910
Cash receipts from debtors
31,250
Stock taken for personal use
140
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.1994 and Balance Sheet on that
date.
(15)
Question -15
The following balances are available from the books of Mr. Aamir as on 31.12.1994 and 31.12.1995 (all
figures in rupees):
Date
Building Equipments Furniture Debtors Creditors Stock Bank Loan Cash
31.12.1994
60,000
120,000
10,000
?
32,000
?
20,000
32,000
3112.1995
60,000
134,000
10,000
48,000
?
34,000
16,000
22,000
The transactions of Mr. Aamir during the year ended 31.12.1995 were the following:
273
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Collection from Debtors Rs 186,000; Payment to Creditors Rs 122,000; Cash Purchases Rs 32,000;
Expenses Rs 20,000; Sale of one Equipment on 1.1.95 for Rs. 6,000 (book value Rs 10,000); Drawings
Rs 20,000.
Cash sales amounted to 10% of total sales. Credit sales amounted to Rs 180,000. Credit purchases were
80% of total purchases. Mr. Aamir sells goods at cost plus 33 1/3%. His suppliers allowed him discount
Rs 2,000.
Equipment and furniture are to be depreciated by 10% p.a. and building by 2% p.a.
Required:
Prepare the Trading and Profit and Loss Account for the year ended 31.12.1995, and a Balance Sheet as
on that date.
(12)
Question -16
X is a sole trader selling goods from a rented shop. He has not kept proper accounting records for the year
ended 31.12.2002. His assets and liabilities at 31.12.2001 and 3I.12.2002 were as follows:
Liabilities
31 12 2001 31.12.2002 Assets
31 12.2001 31.12.2002
Rs
Rs
Rs
Rs
Loan from D (Note 4)
24,000
12,000 Shop Equipments at cost
14,800
?
Creditors
12,100
14,200 Less: Accumulated
Depreciation (Note 2)
(6,900)
?
Outstanding Expenses
2,300
7,900
?
?
(Note 5)
Bank Overdraft
2,600 See below Stock
146,400
128,700
Debtors
14,400
15,700
Rent in Advance (Note
1,000
1,500
3)
Bank
4,850
Cash
800
900
The following summary shows receipts and payments by X:
Cash Book Summary
Receipts
Rs
Payments
Rs
Sales revenue banked
131,600 Opening balance
2,600
Proceeds of sate of shop equipment
300 Payments to Creditors
81,400
(Note 2)
Rent (Note 3)
8,250
Purchase of shop equipment (Note 2)
1,800
Expenses (Note 5)
18,600
Interest on Loan (Note 4)
2,400
Repayment of Loan (Note 4)
12,000
Closing balance
4,850
131,900
131,900
Before banking the shop takings, X took various amounts as drawings.
Notes:
(1)
X fixes his selling prices by doubling the cost of all items purchased.
(2)
During the year X sold for Rs 300 equipment that had cost Rs 800, and had a W.D.V.at 1.1.2001
of Rs. 200.He purchased further equipment on 1.7.2001 for Rs 1,800.
Depreciation is charged @ 10% p.a. on the straight line basis.
(3)
Rent is payable quarterly in advance on 1st March, 1st June, 1st September and 1st December
each year. On 1.6.2002 the annual rent was increased from Rs 6,000 to Rs 9,000.
(4)
The loan from D carries interest @ 10% p.a. payable annually on 30th November. On 30.11.2002
X repaid Rs 12,000 of the loan. The balance is repayable on 30.11.2006.
274
CHAPTER-5
(5)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
The outstanding expenses at 1.1.2002 consist of the Rs 200 interest accrued on D's Loan (see
Note 4) and expenses of Rs 2,100. At 31.12.2002, outstanding expenses amounted to Rs 3,300.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance sheet as on
that date.
(20)
Question-17
Mr. Umer is in business but does not keep full accounting records. For the year ended 31.12.2002, he is
able to provide you with the following information (all figures in rupees):
Date
1.1.2002
31.12.2002
Debtors
3,250
5,010
Creditors
7,360
10,140
You are able to prepare the following extracts from his cash and bank transactions for 2002:
Cash
Receipts Cash Sales
Regards:Awais Ali
Payments Purchases
Bank
Receipts Cheques from Customers
Payments Creditors
Opening stock is 29,500.
Gross profit is 20% of cost.
Required:
a) Value of closing stock.
b) Prepare trading a/c.
Rs.
53,600
3,400
Rs.
17,330
29,500
(10)
Question-18
Following is the detail of assets and liabilities on January 1, 2007 provided by Mr. Asim:
Debtors
Creditors
Stock
Transactions during the year ended December 31, 2007:
Cash received from debtors
Goods withdrawn by owner
Payment to creditors
Decrease in debtors
Increase in creditors
Decrease in stock
Normal selling price is 25% above cost however 20% of sales are made at 10% below cost.
Required:
Calculate stock shortage and prepare trading a/c.
275
Rs.
200,000
80,000
80,000
Rs.
800,000
20,000
500,000
180,000
300,000
75,000
(10)
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Question-19
Shafiq Ahmad is in the business of sun-flower oil. He expanded his business considerably during the year
ended June 30, 2009 but did not maintain proper books of account. He has now extracted the following
details from a register maintained at the business premises:
Summary of receipts and payments
Rupees
Receipts:
Additional capital injected
From debtors
From insurance company for damaged stock
Cost of transportation recovered from customers
Payments:
Landlord
Salaries
Fuel and maintenance of delivery trucks
Miscellaneous office expenses
Personal income-tax
Transfer to 12% fixed deposit (on Feb. 1,2009)
Suppliers
Cost of transportation paid to suppliers
Purchase of truck and initial repair thereof
1,000,000
4,713,750
30,000
200,000
192,000
248,000
224,000
112,000
50,000
200,000
3,200,000
250,000
360,000
From the income tax file for the year ended June 30,2008, he determined the following:
Capital
497,300
Creditors for oil purchases
1,200,000
Creditors for expenses:
- Rent for June 2008
16,000
- Salaries
4,000
Cash and bank
75,000
Debtors
160,000
Provision for bad debts
48,000
Stock of oil (1,250 units)
1,250,000
Furniture
30,000
Accumulated depreciation on furniture
5,700
Delivery trucks
400,000
Accumulated depreciation on trucks
144,000
On scrutiny of the other records, he was able to gather the following information:
(i)
2,800 tins of oil were sold during the year at Rs. 2,000 each.
(ii)
3,000 tins were purchased during the year at Rs. 1,200 each. 50 tins costing Rs. 60,000 were
damaged in transit against which insurance claim of Rs. 30,000 was received. The damaged tins
were sold for Rs. 15,000 and the amount is included in receipt from debtors. Two tins costing Rs.
2,400 were withdrawn for personal use and ten tins costing Rs. 12,000 were gifted to a charity.
(iii)
The units lying in stock cost Rs. 1,200 each. 50 tins lying in closing stock were declared unfit for
health, by the quality inspection department and could either be sold at Rs. 1,000 each or
reprocessed by a third party, at a further cost of Rs. 900 each. A decision in this regard has not
been made so far.
(iv)
A second-hand delivery truck costing Rs. 300,000 was purchased on April 1, 2009 by paying
cash. Rs. 60,000 were spent to bring it in proper operating condition.
276
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(v)
Rs. 10,000 were paid for registration of the truck and a fee of Rs. 18,000 was paid for obtaining
fitness certificate which is valid for 3 years. These amounts are included in fuel and maintenance
expenses shown above.
(vi)
Debtors amounting to Rs. 60,000 were written off during the year. Bad debts are estimated at 2%
of sales.
(vii)
Depreciation is charged from the date of purchase. The rate of depreciation is 10% and 20% of
WDV on furniture and delivery trucks respectively.
Required:
(a)
Trading & profit and loss account for the year ended June 30, 2009.
(b)
Balance sheet as at June 30, 2009.
(25)
{Autumn 2009, Q # 3} (amended)
Question-20
Mr. Zaryab who keeps his books on single entry system, tells you that his capital on 31.12.2002 is Rs
18,700 and on 1st January, 2002 was Rs 19,200. He further informs you that he gave loan of Rs 3,500 to
his brother on private account and withdrew Rs 300 p.m. for personal purposes. He also used a flat for his
personal purposes, the rent of which @ Rs 100 per month and electric charges Rs 10 per month were paid
from the business account. He sold his 7% Government Bond of Rs 2,000 at 3% premium and brought
that money into business. Besides this, there is no other information.
Required:
Prepare his Statement of Profit for the year ended 31.12.2002.
(10)
Question-21
On January 1, 2002 Aamir started a business with a capital of Rs 100,000 with which he opened a bank
account. On the same day, he bought furniture and fittings for shop costing Rs 4,800 and goods for trade
costing Rs 25,000.
On December 31, his stock-in-hand was valued at Rs 29,000 and furniture and fittings stood at Rs 6,300.
On that date, his book debts amounted to Rs 78,000 of which Rs 1,200 was considered to be bad.
Creditors amounted to Rs 15,000. His balance as per Cash Book was Rs 5,500 a cheque for Rs 400 sent
for deposit on December 30, was not realized till after December 31, and cheque for Rs 700 issued on
December 29, was not presented to Bank till after December 31. Bank charges for the year amounted to
Rs 50 but this was not known to the trader on December 31. His drawings during the year amounted to Rs
9,300. He had also taken for personal use goods from the shop valued at Rs 1,500.
Required:
Prepare a Statement showing Aamir’s profit or loss during 2002.
(10)
Question-22
The Statement of Affairs of Waqas as on 1st April, 2002 is given below:
Liabilities
Rs
Assets
Sundry Creditors
16,500 Cash
Accrued expenses
3,500 Sundry Debtors
Capital
50,000 Stock
Furniture
70,000
Rs
7,450
25,350
30,300
6,900
70,000
During the year ended 31st March, 2003 his drawings amounted to Rs 15,000. He also withdrew goods
worth Rs 600 for his personal use. On 1st July, 2002, Waqas transferred some of his household furniture
to the business at a value of Rs 2,100. His assets and liabilities as on 31st March, 2003 were:
277
Regards:Awais Ali
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Liabilities
Sundry Creditors
Accrued expenses
Rs
Assets
18,600 Cash
4,300 Sundry Debtors
Stock
Furniture
Prepaid Rent
Furniture is to be depreciated @ 10% p.a. and a provision is to be created on debtors @ 5%.
Required:
Ascertain the profit or loss for the year ended 31st March, 2003.
Rs
6,580
36,900
40,320
9,000
400
(8)
Question-23
On 1.1.2001, the assets and liabilities of Sougata Roy, a retailer, were as follows:
Building Rs 500,000; Motor van Rs 100,000; Furniture Rs 80,000; Stock Rs 60,000; Debtors Rs
40,000; Provision for Doubtful Debts Rs 4,000; Cash Rs 2,500; Creditors Rs 42,000; Loan Rs 100,000;
Bank Overdraft Rs 15,000.
The following information was available at 31.12.2001:
(1)
Stock Rs 60,000; Debtors Rs 50,000; Cash Rs 4,500; Creditors Rs 37,000; Loan Rs 80,000; Bank
Overdraft Rs 10,000.
(2)
No fixed assets had been bought or sold during the year.
(3)
Fixed assets are to be depreciated as follow:
(i) Motor van by 20% p.a. (ii) Furniture by 25% p.a.
(4)
A provision for doubtful debts is to be maintained at 10% of year-end debtors.
(5)
Sougata withdrew Rs 6,000 p.m. for his own use.
(6)
On 1.3.2001. Sougata brought further Rs 30,000 as capital into the business.
Required:
Prepare a Statement of Profit and Loss for the year ended 31.12.2001 and a Statement of Affairs as on
that date.
(8)
Question-24
ABC ltd. Has extracted following information from the trial balance for two years ended 31, December:
2010
2009
Rs. In ‘000’
Rs. In ‘000’
Prepaid expenses
0
12
Investment
700
Property
2,700
2,700
Cash balance
570
308
Delivery van
500
500
Loan from bank
500
500
Accounts payable
84
110
Accrued expenses
15
Inventories
200
94
Bank balance
(50)
300
Accounts receivables
279
170
Further information:
(i)
An allowance for doubtful debts should be established on 31 December 2010 in the amount of Rs.
9,000.
(ii)
Depreciation to be provided on carrying amounts as follows:
Property
10%
Delivery van
15%
278
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(iii)
Additional capital of Rs. 500,000 was introduced in the business during the year.
(iv)
The owner withdrew a total sum of Rs. 50,000 during the year.
Required:
(a)
Calculate the capital at the start of the year by preparing a statement of net assets at that date.
(b)
Prepare a statement of net assets at the end of the year.
(c)
Calculate profit for the year in statement form.
(10)
Question-25
Debtors
Creditors
Stock
Cash
1.1.2001
200,000
250,000
30,000
510,000
31.12.2001
400,000
300,000
40,000
15,000
-
During the year owner made cash drawings which are not known.
Payments made to creditors amounted to Rs. 400,000 and expenses of Rs. 90,000 has been paid in
cash.
GP ratio is 10% of cost.
Required:
Calculate gross profit and cash drawings.
(6)
Question -26
Debtors
Creditors
Cash
Stock
-
1.1.2001
30,000
70,000
6,000
10,000
31.12.2001
50,000
90,000
30,000
25,000
Payment to creditors amounted to Rs. 300,000.
Goods drawn by owner amounted to Rs. 4,000.
Closing debtor includes bad debt of Rs. 2,000.
Expenses paid in cash Rs. 50,000 – Discount Received 3,000
Required:
Calculate gross profit.
Question -27
Debtor
Creditor
Cash
-
(6)
1.1.2001
10,000
20,000
10,000
31.12.2001
40,000
25,000
50,000
Payments made to creditors amounted to Rs. 390,000.
Opening stock is 120,000.
Goods are sold at a profit of 5% on cost price except goods costing Rs. 5,000 are sold at 20% of
sale price.
Required: Calculate gross profit and closing stock.
(8)
279
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Question -28
Debtors
Creditors
Stock
Cash
1.1.2011
10,000
3,000
16,000
10,000
31.12.2011
40,000
19,000
11,000
25,000
-
A flood arose in the year due to which some stock was lost abnormally.
Payments to creditors amounted to Rs. 400,000 and for expenses Rs. 104,000.
Sale return amounted to Rs. 15,000.
Closing debtor include goods sent on approval basis amounting to Rs. 6,000 and goods are not
approved.
Carriage-in amounted to Rs. 15,000.
Goods withdrawn by owner Rs. 3,000.
Required:
Calculate gross profit assuming GP ratio is 25% of selling price. Also calculate abnormal loss.
(12)
Question-29
Debtors
Creditors
Cash
Stock
Bank
-
-
Opening
10,000
6,000
20,000
3,000
1,000
Closing
20,000
9,000
40,000
4,000
5,000
Cash is deposited in bank after making payments for purchases and expense and drawings.
- Purchases (Inventory)
- Expenses
- Drawings
Bank receipts comprise of cheques from debtors and cash deposited.
Debtors gave us cheque of Rs. 40,000. Sale Return Rs. 3,000.
Cashier has misappropriated with some cash.
Fixed assets bought through paying cheque Rs. 370,000.
New capital in cash inserted is Rs. 500,000 in addition to cash receipt from debtors.
GP ratio is 30% of cost.
Required:
Calculate Gross Profit and cash misappropriation in statement form.
Rupees
360,000
40,000
20,000
(12)
Question-30
Mr. Abbasi appointed you as his accountant. Soon thereafter he left for a foreign tour. Before leaving, he
left a note describing his financial dealings during the year ended December 31, 2008. These are
summarized as under:
(i)
He commenced his business on January 1, 2008 with a capital of Rs. 600,000. He opened a
business bank account with an initial deposit of Rs. 550,000.
(ii)
Business premises were acquired on rent. He took possession of the premises on January 2, 2008
and paid advance rent of Rs. 150,000 covering the period up to March 31, 2009. The payment
was made by cheque. The premises were furnished at a cost of Rs. 60,000 which was paid
through bearer cheque
280
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Equipment was acquired on payment of advance of Rs. 40,000 on 1st January 2008. After
payment of 75% of the balance amount, Rs. 4,000 were still outstanding on December 31, 2008.
(iv)
A second hand van was purchased on February 1, 2008 for Rs. 200,000. Rs. 52,000 were spent on
its repair to bring it to working condition. The life of the van at the time of purchase, was
estimated at 6 years.
(v)
Depreciation on furniture and equipment should be charged at the rate of 20% on declining
balance method whereas the van should be depreciated on straight line basis.
(vi)
8,000 pairs of jeans were bought for Rs. 1,200,000. Cheques totaling Rs. 800,000 have been paid
to the supplier whereas the balance is payable on April 30, 2009. 7,000 pairs had been sold by
December 31, 2008. Mr. Abbasi had received Rs. 1,400,000, before the end of the year whereas
Rs. 50,000 are still receivable from the customers. The physical inventory taken at the end of the
year showed a balance of 950 pairs of jeans.
(vii)
1,600 T-shirts were bought for Rs. 120,000 and paid through cheque. 1,400 T-shirts were sold in
cash for Rs. 150,000. 20 T-shirts were gifted by Mr. Abbasi to his family members whereas 30 Tshirts were given away to the customers. The remaining T-shirts have been damaged and are
expected to sell for Rs. 5,000.
(viii) 1,000 pocket calculators were bought on credit for Rs. 400,000. Later it was noticed that they
were slightly defective. After intense negotiation the supplier agreed to give a 50% discount. It is
expected that these calculators will be repaired for Rs. 100 each and would be sold for Rs.
250,000.
(ix)
The cash received from the sale of T-shirts was partly used to pay the following business
expenses:
Petrol
40,000
Utilities
19,000
Others
6,000
(x)
Mr. Abbasi took a trip of upcountry with his family which costed him Rs. 80,000 which was all
drawn from the bank. He also withdrew Rs. 12,000 per month for his personal use.
Required: From the above information, prepare:
(a)
a trading and profit and loss account for the year ended December 31, 2008; and
(b)
a balance sheet as at December 31, 2008.
(22)
(iii)
Regards:Awais Ali
281
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
PRACTICE SOLUTIONS
Answer-1
Mr. Aashir
Trading and Profit and loss account
For the year ended December 31, 2002
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Rent
Insurance
Sundry expenses
Wages expense
Depreciation
(17,400 + (W-1) 89,790)
(W-8)
(W-6)
(W-5)
Rs.
107,190
(72,300)
34,890
3,560
1,450
610
11,260
200
(17,080)
17,810
(W-7)
Net Profit
Mr. Aashir
Balance Sheet
as on December 31, 2002
Capital and liabilities
Capital
Opening capital
Add: net profit
Less: Drawings
Rs.
(10,800-12,700+21,200+420+1,800-390+4,100)
(28,200 + 1,200)
Current Liabilities
Trade Creditors
Bank overdraft
Rent payable
14,100
6,300
20,400
34,040
Assets
Non-Current Assets
Fixture
1,600
Current Assets
Stocks
Debtors
Prepaid insurance
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
282
25,230
17,810
(29,400)
13,640
12,200
19,800
440
32,440
34,040
Debtors account
21,200
89,790 Bank
cl.
Cr.
91,190
19,800
CHAPTER-5
(W-2)
Dr.
Bank
Cl.
(W-3)
Dr.
Op.
Debtors
c/d
(W-4)
Dr.
b/d
Sale
(W-5)
Dr.
Op.
Bank
(W-6)
Dr.
Bank
cl.
(W-7)
Dr.
b/d
(W-8)
Dr.
Op.
Creditors (W-2)
Cash
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Creditors account
67,360 Op.
14,100 Inventory (bal.)
Cr.
12,700
68,760
Bank account
4,100 Creditors
91,190 Rent
Insurance
Sundry expenses
6,300 Drawings
Cr.
67,360
3,950
1,470
610
28,200
Cash account
- Wages expense
17,400 Drawings
Inventory (Purchases)
c/d (bal.)
Cr.
11,260
1,200
4,940
-
Insurance
420 P and L (bal.)
1,470 cl.
Cr.
1,450
440
Rent
3,950 Op.
0 P and L (bal.)
Cr.
390
3,560
Fixture
1,800 Depreciation (bal.)
c/d
Cr.
200
1,600
Inventory account
10,800 Cost of Sales (Bal.)
68,760
4,940 cl.
Cr.
72,300
12,200
Answer-2
Mr. Bell
Trading and Profit and Loss Account
for the year ended December 31, 2008
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Rent
Insurance
Sundry expenses
Depreciation
Net Profit
283
(1,540 + (W-1) 96,400)
(W-8)
(W-6)
(W-5)
(820+180)
(W-7)
Rs.
97,940
(62,610)
35,330
3,560
1,840
1,000
900
(7,300)
28,030
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Bell
Balance Sheet
as on December 31, 2008
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
(calculate yourself)
(11,400 + (W-4)12,572)
Loan Payable
Current Liabilities
Trade Creditors
Rent owing
Regards:Awais Ali
Assets
Non-Current Assets
Van
Current Assets:
Stocks
Debtors
Prepayment
Bank
Cash
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
(W-2)
Dr.
Bank
Cash
cl.
(W-3)
Dr.
b/d
Bank
Sales
284
8,100
360
8,460
48,072
4,600
27,100
11,400
400
4,300
272
43,472
48,072
Debtors account
9,200
96,400 Bank
cl.
Creditors account
Op.
63,400 Inventory (bal.)
1,310
8,100
Cash account
194 Creditors
12,600 Drawings (bal.)
1,540 Sundry expenses
c/d
(W-4)
Dr.
Op.
Bank
33,054
28,030
(23,972)
37,112
2,500
Insurance
340
1,900 P and L (bal.)
cl.
Cr.
94,200
11,400
Cr.
7,300
65,510
Cr.
1,310
12,572
180
272
Cr.
1,840
400
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-5)
Dr.
Bank
cl.
(W-6)
Dr.
b/d
(W-7)
Dr.
Op.
Creditors (W-2)
Answer-3
Drawings in cash are Rs. (W-2) 10,900.
(W-1)
Dr.
Op.
Cash
(W-2)
Dr.
Op.
Sales
Debtor
Bank (W-1)
Answer-4
Sales
Cash
Credit
Purchases
Cash
Credit
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
Rent
Op.
3,200 P and L (bal.)
360
3,560
Van
5,500 Depreciation (bal.)
c/d
Cr.
900
4,600
Inventory account
24,200 Cost of Sales (Bal.)
65,510
Cl.
Cr.
62,610
Bank account
5,000 Creditors
Drawings
60,000 Expenses
Cash (bal.)
c/d
Cr.
30,000
5,000
1,500
20,000
8,500
Cash account
10,000 Inventory (Purchases)
20,000 Furniture
50,000 Expenses
20,000 Bank
Drawings (bal.)
c/d
Cr.
15,000
600
1,000
60,000
10,900
12,500
27,100
(5,000 + 3,750)
(W-1)
Rs.
8,750
40,980
49,730
(W-2)
15,660
15,660
Debtors account
24,500 Bank
40,980 Discount allowed
cl.
285
Cr.
Cr.
21,250
230
44,000
CHAPTER-5
(W-2)
Dr.
Bank
Cash
Discount received
cl.
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Creditors account
11,250 Op.
1,350 Inventory (bal.)
810
9,750
Cr.
7,500
15,660
Answer-5
Mr. Ali Abbas
Trading and Profit and Loss Account
for the year ended June 30, 2009
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Rent
Electricity
Delivery costs
Stationery
Repairs
(W-7)
(W-8)
(W-6)
(W-5)
Net Profit
Rs.
963,480
(802,900)
160,580
51,400
8,100
4,000
66,200
2,400
(132,100)
28,480
Mr. Ali Abbas
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Rent payable
Total
Assets
Non-Current Assets
Current Assets
Stocks
Debtors
Bank
Cash
Prepaid electricity
286
Rs.
(W-9)
(W-4)
308,200
28,480
(250,680)
86,000
130,800
4,500
135,300
221,300
27,500
80,900
103,400
700
8,800
221,300
221,300
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
op.
Debtors
Cash (Bal.)
(W-4)
Dr.
op.
Sales (W-7)
(W-5)
(W-6)
Cr.
250,000
80,900
Creditors account
op.
800,000 Inventory (bal.)
130,800
Cr.
116,100
814,700
Bank account
349,100
Creditors
250,000 Rent
438,800 Electricity
Delivery costs
Stationery
cl.
Cash account
14,300
Electricity
681,280 Repairs
Bank
Drawings
c/d
Dr.
op.
Cash
Bank
Electricity
3,000 P and L (bal.)
13,900 cl.
Dr.
Rent
op.
50,400 P and L (bal.)
4,500
Bank
cl.
(W-7)
Debtors account
48,700
282,200 Bank
cl.
Cr.
800,000
50,400
13,900
4,000
66,200
103,400
(W-3)
(bal.)
Cr.
3,000
2,400
438,800
250,680
700
Cr.
8,100
8,800
Cr.
3,500
51,400
Calculation of sales
Total Sale
Y
= Cost of sales (W-8) +20 % of cost of sale
= X + 20% of X
= 802,900 + 20% of 802,900
= 963,480
Cash Sale = 963,480 - (W-1)282,200 = 681,280
(W-8) Calculation of Cost of sales
Dr.
Inventory account
Op.
15,700 Cost of Sales (Bal.)
Creditors (W-2)
814,700
cl.
(W-9) Opening Capital = 14,300 + 349,100 + 48,700 + 15,700-116,100-3,500 = 308,200
287
Cr.
802,900
27,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-6
Mr. Usman Safdar
Trading and Profit and Loss Account
for the year ended June 30, 2009
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Electricity
Repair
Rent
((W-1)282,200 + (W-5) 658,480)
(W-6)
Rs.
940,680
(783,900)
156,780
3,000
2,400
50,400
(55,800)
100,980
Net Profit
Mr. Usman Safdar
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
(14,300 + 349,100 + 48,700 + 15,700 - 30,100)
(W-4)
Current Liabilities
Trade Creditors
Total
Assets
Current Assets:
Stocks
Debtors
Bank
Cash
Total
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
Op.
Cash (bal.)
288
397,700
100,980
(311,980)
186,700
25,800
212,500
27,500
80,900
103,400
700
212,500
Debtors account
48,700 Cash
282,200
cl.
Cr.
250,000
Creditors account
Op.
800,000 Inventory (bal.)
25,800
Cr.
30,100
795,700
Bank account
349,100 Creditors
604,700 Rent
c/d
Cr.
800,000
50,400
103,400
80,900
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
Op.
Sales (W-5)
Debtors
Cash account
14,300 Drawings (bal.)
658,480 Electricity
250,000 Repairs
Bank (W-3)
c/d
(W-5) Calculation of sales
Total Sale = Cost of sale (W-6) + 20% of cost of sale
Y = (783,900/100 x 120) =
Cash sale = 940,680 – 282,200
(W-6) Calculation of cost of sales
Dr.
Op.
Creditors (W-2)
Inventory account
15,700 Cost of Sales (Bal.)
795,700 Cl.
Cr.
311,980
3,000
2,400
604,700
700
940,680
658,480
Cr.
783,900
27,500
Answer-7
Mr. Syed Aamir Ali
Trading and Profit and Loss Account
for the year ended June 30, 2009
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Electricity
Repair
Rent
Rs.
632,200
(526,833)
105,367
(W-1)
(W-5)
6,000
5,400
50,400
(61,800)
43,567
Net Profit
Mr. Syed Aamir Ali
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Assets
Current Assets:
Stocks
Debtors
Bank
Cash
289
Rs.
(14,300+349,100+48,700+15,700-30,100)
(W-4)
397,700
43,567
(254,567)
186,700
25,800
212,500
27,500
80,900
103,400
700
212,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
Op.
Debtors
(W-4)
Dr.
Op.
Bank (W-3)
Debtors account
48,700 Bank
632,200
cl.
Cr.
600,000
Creditors account
Op.
350,000 Inventory (bal.)
25,800
Cr.
30,100
345,700
Bank account
349,100 Creditors
600,000 Rent
Cash (bal.)
c/d
Cr.
350,000
50,400
445,300
103,400
Cash account
14,300 Drawings (bal.)
445,300 Inventory (Purchases) (W-6)
Electricity
Repairs
c/d
Cr.
254,567
192,933
6,000
5,400
700
(W-5) Calculation of cost of sales
Total Sales = Cost of sales + 20% of cost of sales
X = (632,200(W-1)/120 x 100) =
(W-6) Calculation of Cash purchases
Dr.
b/d
Creditors (W-2)
Cash (purchases) (Bal.)
Inventory account
15,700 Cost of Sales (W-5)
345,700
192,933 c/d
80,900
526,833
Cr.
526,833
27,500
Answer-8
Mr. Syed Yasir Ali
Trading and Profit and Loss Account
for the year ended June 30, 2009
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Salaries
Sundry business expenses
Net Profit
290
(600,000 + (W-4) 677,000)
(W-6)
((20,000 x 12) – 10,000)
Rs.
1,277,000
(893,900)
383,100
360,000
230,000
(590,000)
(206,900)
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Syed Yasir Ali
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
(349,100+48,700+15,700+14,300-30,100)
Current Liabilities
Trade Creditors
25,800
156,600
Assets
Current Assets:
Stocks
Debtors
Bank
Cash
WORKINGS
(W-1)
Dr.
Op.
Sales
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
Op.
Cash (W-4)
Debtors (W-1)
(W-4)
Dr.
Op.
Sales (W-5)
397,700
(206,900)
(60,000)
130,800
27,500
80,900
38,200
10,000
156,600
Debtors account
48,700 Bank (bal.)
600,000
cl.
Cr.
567,800
Creditors account
Op.
910,000 Inventory (bal.)
25,800
Cr.
30,100
905,700
Bank account
349,100 Creditors
31,300
567,800 c/d
Cr.
910,000
80,900
38,200
Cash account
Cr.
14,300 Salaries
360,000
677,000 Drawings
60,000
Sundry expenses (20,000x12)-10,000
230,000
Bank (bal.)
31,300
c/d
10,000
(W-5) Calculation of total sales and cash sales
Total Sale = Cost of sales + 30% of sale
Y = X + 30% of Y
X = (893,900/70 x 100)
=
1,277,000
Cash sale
= Total sales – credit sales
= 1,277,000 – 600,000
=
677,000
291
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-6) Calculation of Cost of sales
Dr.
Op.
Creditors (W-2)
Inventory account
15,700 Cost of Sales (Bal.)
905,700
Cl.
Cr.
893,900
27,500
Answer-9
Mr. Khanna
Trading and Profit and Loss Account
for the year ended December 31, 2002
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Wages
General expenses
Rent and rates
(W-1)
(W-7)
Rs.
270,000
(179,800)
90,200
(W-5)
(W-4)
12,800
17,500
7,680
(37,980)
Add: Other income:
Discount received
Net Profit
1,500
53,720
Mr. Khanna
Balance Sheet
as on December31, 2002
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Bank overdraft
Creditors for general expenses
Total
Assets
Non-Current Assets:
Furniture
Current Assets:
Stocks
Debtors
Prepaid rent
Total
292
Rs.
(W-6)
(37,500+8,380)
41,400
53,720
(45,880)
49,240
17,090
1,180
1,340
19,610
68,850
10,000
31,500
26,900
450
58,850
68,850
CHAPTER-5
WORKINGS
(W-1)
Dr.
b/d
Sales (Bal.)
(W-2)
Dr.
Bank
Discount received
Cl.
(W-3)
Dr.
b/d
Debtors (Bal.)
(W-4)
Dr.
b/d.
Bank
(W-5)
Dr.
Bank
cl.
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Debtors account
21,800
270,000 Cash
c/d
Cr.
264,900
26,900
Creditors account
b/d
187,860 Inventory (bal.)
1,500
17,090
Cr.
19,450
187,000
Cash account
264,900 Bank
Wages
Drawings (21,180 – 12,800)
c/d
Rent and rates
420
7,710 P and L (bal.)
c/d
7,680
450
Cr.
810
17,500
Rs.
A
10,000
B
24,300
21,800
420
5,140
51,660
Current Liabilities
Trade Creditors
Creditors for goods
Opening capital
(W-7)
Dr.
Op.
Creditors (W-2)
293
243,720
12,800
8,380
Cr.
Creditors – general expenses
b/d
16,970 P and L (bal.)
1,340
(W-6) Opening capital
Assets
Non-Current Assets
Furniture and fittings
Current Assets
Stocks
Debtors
Prepaid rent
Bank
Cr.
C
D=A+B-C
Inventory account
24,300 Cost of Sales (Bal.)
187,000 cl.
19,450
810
(20,260)
41,400
Cr.
179,800
31,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-10
Mr. Sandy Brown
Trading and Profit and Loss Account
For the year ended December 31, 2002
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Wages
Rent
General expense
Depreciation
(80,000+300x40)
(W-2)
(28,000 – 10,000)
(W-3)
(4,800 – 800)
(50,000 – 8,000)/4 years
Net Profit
Rs.
92,000
(15,600)
76,400
18,000
6,400
4,000
10,500
(38,900)
37,500
Mr. Sandy Brown
Balance Sheet
as on December 31, 2002
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
Loan
Current Liabilities
Trade Creditors
Payable for expenses
Assets
Non-Current Assets
Furniture and fixture
Less Accumulated depreciation
Current Assets
Stocks
Debtors
Prepaid rent
Cash
Total
294
Rs.
(20,000 – 6,000)
20,000
37,500
(800)
56,700
14,000
3,600
3,600
74,300
(40,000 + 10,000)
(300 x 40)
(W-3)
(W-1)
50,000
(10,500)
39,500
1,600
12,000
1,600
19,600
34,800
74,300
CHAPTER-5
WORKINGS
(W-1)
Dr.
b/d
Capital
Loan
Sales
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Cash account
20,000 Wages
20,000 Furniture and fixture
80,000 Inventory (Purchases)
Rent
General expenses
Drawings
Loan
Furniture
c/d (bal.)
(W-2)
Dr.
Op.
Creditors
Cash
(W-3)
Dr.
b/d.
Cash
Inventory account
- Cost of Sales (Bal.)
3,600
13,600 Cl.
Rent expense
- P and L (bal.)
8,000 c/d
(8,000/15 x 3)
Cr.
18,000
10,000
13,600
8,000
4,000
800
6,000
40,000
19,600
Cr.
15,600
1,600
Cr.
6,400
1,600
Answer-11
Mr. Green
Trading and Profit and Loss Account
for the year ended December 31, 2002
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Wages
Rent
Depreciation
Other expenses
(53,600+(W-1)19,090)
(W-4)
(1,020 +3,710)
(12,000 -10,500)
(2,260 + 7,700)
Net Profit
Rs.
72,690
(32,470)
40,220
4,730
12,500
1,500
9,960
(28,690)
11,530
Mr. Green
Balance Sheet
as on December 31, 2002
Capital and liabilities
Capital
Opening Capital
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
295
Rs.
(W-3)
47,080
11,530
(8,200)
50,410
10,140
60,550
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Assets
Non-Current Assets
Furniture
Current Assets:
Stocks
Debtors
Bank
Cash
10,500
32,710
5,010
10,470
1,860
50,050
60,550
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
Debtors account
3,250
19,090 Bank
cl.
(W-2)
Dr.
Creditors account
b/d
29,500 Inventory (bal.)
10,140
Bank
c/d
(W-3)
Opening capital
Assets
Stock
Furniture
Debtors
Cash
Bank
Cr.
17,330
5,010
Cr.
7,360
32,280
29,500
12,000
3,250
490
9,200
54,440
Liabilities
Creditors
(7,360)
47,080
(W-4)
Dr.
b/d
Creditors (W-2)
Cash (purchases)
Inventory account
29,500 Cost of Sales (Bal.)
32,280
3,400 c/d
Cr.
32,470
32,710
Answer-12
Mr. P
Trading and Profit and Loss Account
for the year ended December 31, 2001
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Salaries
Tax
296
(W-6)
(11,000 + (11,000/11x1)
Rs.
480,000
(360,000)
120,000
60,000
12,000
CHAPTER-5
Printing and stationery
Miscellaneous exp.
Bad debt expense
Depreciation:
Building
Furniture
Add:
Other income:
Interest income
Rental income
Sale of scrap
Net Profit before commission
Commission
Net Profit
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
7,800
12,000
7,000
(150,000 x 2%)
(W-5)
(150,000 x 10% x 6/12)
(34,500/110 x 10)
3,000
2,000
(103,800)
7,500
800
10,000
18,300
34,500
(3,136)
31,364
Mr. P
Balance Sheet
as on December 31, 2001
Capital and liabilities
Capital
Opening Capital
Capital introduced
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Commission payable
Taxes payable
Assets
Non-Current Assets
Building
Furniture
Investments
Current Assets
Stocks
Debtors
Bank
Interest receivable
WORKINGS
(W-1)
Dr.
Op.
Sales (W-6)
297
Rs.
(W-7)
(26,000+(10,000-6,000))
(11,000/11x1)
(150,000 – 3,000)
(W-3)
(150,000 x 10% x 6/12)
Debtors account
45,000 Bank (Bal.)
480,000 Bad debt
cl.
236,000
150,000
31,364
(30,000)
387,364
36,000
3,136
1,000
40,136
427,500
147,000
18,000
165,000
150,000
40,000
33,000
32,000
7,500
112,500
427,500
Cr.
485,000
7,000
33,000
CHAPTER-5
(W-2)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Bank (bal.)
c/d
Creditors account
b/d
Inventory (W-6.1)
360,000
36,000
Bank account
28,000 Investments
150,000 Salaries
800 Tax
485,000 Printing and stationery
Miscellaneous exp.
Creditors (W-2)
Furniture (W-5)
Drawings
cl. (Bal.)
Cr.
32,000
364,000
(W-3)
Dr.
Op.
Capital
Rental income
Debtors (W-1)
(W-4)
Dr.
Sale of scrap income
Cash account
10,000 Freight expense
Drawings (Bal.)
c/d
Cr.
6,000
4,000
-
(W-5)
Dr.
Op.
Additions (bal.)
Furniture
15,000
5,000 Depreciation
(18,000/90x10)
cl.
Cr.
Calculation of sales
Total Sale = Cost of sale +25 % of sale
Y = X + 25% of Y
Y = 360,000/100 x 125
Y = 480,000
(W-6.1) Calculation of credit purchases
Dr.
Inventory account
Op.
30,000 Cost of Sales
Creditors (Bal.)
364,000
Freight
6,000 cl.
Cr.
150,000
60,000
11,000
7,800
12,000
360,000
5,000
26,000
32,000
2,000
18,000
(W-6)
(W-7)
Opening capital
Assets
Stock
Furniture
Building
Debtors
Bank
Liabilities
Creditors
298
Cr.
360,000
40,000
Rs.
30,000
15,000
150,000
45,000
28,000
268,000
(32,000)
236,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-13
Mr. S. Sen
Trading and Profit and Loss Account
for the year ended December 31, 1993
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Salaries
Postage
Stationery
Conveyance
Rent
Discount allowed
Bad debt
((W-1) 113,000 + (W-4) 96,000)
(W-6)
Rs.
209,000
(156,750)
52,250
35,000
200
1,000
2,000
2,200
2,000
1,000
(43,400)
3,000
11,850
Add: Discount received
Net Profit
Mr. S. Sen
Balance Sheet
as on December 31, 1993
Capital and liabilities
Capital
Opening Capital
Capital introduced
Add: Net Profit
Less: Drawings
Rs.
100,000
11,850
(6,000)
105,850
Current Liabilities
Trade Creditors
20,000
125,850
Assets
Non-Current Assets
Furniture
Current Assets
Stocks
Debtors
Bank
Petty cash
WORKINGS
(W-1)
Dr.
Sales (bal.)
299
10,000
(W-7)
16,250
10,000
83,000
6,600
115,850
125,850
(W-3)
(W-5)
Debtors account
Bank
113,000 Discount allowed
Bad debt
cl.
Cr.
100,000
2,000
1,000
10,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
Dr.
Bank
Discount received
cl.
(W-3)
Dr.
Capital
Cash
Debtors
(W-4)
Dr.
Sales (bal.)
Creditors account
150,000 Inventory (bal.)
3,000
20,000
Cr.
173,000
Bank account
100,000 Creditors
78,000 Salaries
100,000 Furniture
c/d (bal.)
Cr.
150,000
35,000
10,000
83,000
Cash account
96,000 Petty cash (1,000 x 12)
Drawings (500 x 12)
Bank
c/d
(W-5)
Dr.
Cash
Petty cash account
12,000 Postage
Stationery
Conveyance
Rent
c/d (bal.)
(W-6) Calculation of cost of sales
Total Sales = Cost of sales + 25% of sales
X = (209,000/100 x 75)
=
(W-7) Calculation of closing stock
Dr.
Inventory account
Op.
- Cost of Sales (W-6)
Creditors (W-2)
173,000
Cl. (Bal.)
Answer-14
Sales
Less: Cost of sales:
Gross Profit
Less: Admin Expenses:
Salaries
General expenses
Stationery
Rent and rates
Lighting charges
Trade expenses
Net Profit
300
Cr.
12,000
6,000
78,000
Cr.
200
1,000
2,000
2,200
6,600
156,750
Cr.
156,750
16,250
Mr. X
Trading and Profit and Loss Account
for the year ended December 31, 1994
(W-1)
(W-6)
(W-4)
Rs.
32,000
(16,080)
15,920
1,500
3,500
870
700
250
4,750
(11,570)
4,350
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. X
Balance Sheet
as on December 31, 1994
Capital and liabilities
Capital
Opening Capital
Capital introduced
Add: Net Profit
Less: Drawings
Rs.
(W-5)
(140 + 3,250 + 910)
Current Liabilities
Trade Creditors
3,750
12,170
Assets
Non-Current Assets
Investments
Current Assets
Stocks
Debtors
Bank
Cash
WORKINGS
(W-1)
Dr.
b/d
Sales (bal.)
(W-2)
Dr.
Bank (W-3)
c/d
(W-3)
Dr.
b/d
Cash
Capital
6,250
1,870
2,500
1,500
50
5,920
12,170
Debtors account
1,750 Cash
32,000
cl.
Cr.
31,250
Creditors account
b/d
15,250 Inventory (bal.)
3,750
Cr.
3,410
15,590
Bank account
1,000 Drawings
18,750 Creditors (see below)
250
cl.
Payments to creditors
Payments to creditors through bank and of trade expenses in cash
Less: Trade expenses in cash
(W-4)
301
8,120
250
4,350
(4,300)
8,420
2,500
Cr.
3,250
15,250
1,500
20,000
(4,750)
15,250
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
b/d
Debtors
Cash account
30 Drawings
31,250 Bank
Salaries
General expenses
Stationery
Rent and rates
Lighting charges
Expenses (bal.)
c/d
(W-5)
Opening capital
Assets
Investments
Stock
Cash
Bank
Debtor
Cr.
910
18,750
1,500
3,500
870
700
250
4,750
50
Rs.
6,250
2,500
30
1,000
1,750
11,530
Liabilities
Creditors
3,410
8,120
(W-6) Calculation of cost of sales
Dr.
Op.
Creditors (W-2)
Inventory account
2,500 Cost of Sales (Bal.)
15,590 Drawings
Cl.
Cr.
16,080
140
1,870
Answer-15
Mr. Aamir
Trading and Profit and Loss Account
for the year ended December 31, 1995
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Expenses
Loss on sale of equipment
Depreciation
Furniture
Equipment
Building
Add: Discount received
Net Profit
302
(180,000+(W-2)20,000)
(W-6)
(10,000 – 6,000)
(10,000 x 10%)
(W-5)
(60,000 x 2%)
Rs.
200,000
(150,000)
50,000
20,000
4,000
1,000
13,400
1,200
(39,600)
2,000
12,400
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Aamir
Balance Sheet
as on December 31, 1995
Capital and liabilities
Capital
Opening Capital
Add: Net Profit
Less: Drawings
Rs.
(W-8)
248,000
12,400
(20,000)
240,400
16,000
Bank loan
Current Liabilities
Trade Creditors
Assets
Non-Current Assets
Furniture
Equipment
Building
36,000
292,400
(10,000 – 1,000)
(134,000 – 13,400)
(60,000 – 1,200)
Current Assets
Stocks
Debtors
Cash
WORKINGS
(W-1)
Dr.
b/d (bal.)
Sales
34,000
48,000
22,000
104,000
292,400
Debtor account
54,000 Cash
180,000
c/d
(W-2) Cash sales
(180,000/90 x 10)
If cash sale is 10% of total sale, it means that credit sale given in question is 90% of total sales.
(W-3)
Dr.
Cash
Discount received
c/d (bal.)
Total Inventory (Purchases)
Credit purchases
Add: Cash purchases
Total
303
9,000
120,600
58,800
188,400
Creditors account
b/d
122,000 Inventory (Purchases)
2,000 (32,000/20x80)
36,000
Cr.
186,000
48,000
20,000
Cr.
32,000
128,000
128,000
32,000
160,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
b/d
Debtors
Sale (W-2)
Disposal
(W-5)
Dr.
Op
Cash and bank (bal.)
Cash account
32,000 Creditors
186,000 Inventory (Purchases)
20,000 Expenses
6,000 Drawings
Equipment (W-5)
Bank loan (20,000 – 16,000)
c/d
Equipment account – at BV
120,000 Disposals
24,000
cl.
Depreciation expense equipment
On Opening excluding disposals ((120,000 – 10,000) x 10%)
On additions
(24,000 x 10%)
Cr.
122,000
32,000
20,000
20,000
24,000
4,000
22,000
Cr.
10,000
134,000
11,000
2,400
13,400
(W-6) Calculation of cost sales
Total Sale = Cost of sale + 33.3333% of cost of sale
Y = X + 33.3333% of X
Cost of sales = (200,000/133 x 100)
= 150,000
(W-7) Calculation of opening stock
Dr.
Op. (Bal.)
Creditors (W-3)
Cash
(W-8) Opening capital
Assets
Building
Equipment
Furniture
Stock
Debtor
Cash
Liabilities
Bank loan
Creditors
304
Inventory account
24,000 Cost of Sales (W-6)
128,000
32,000 Cl.
(W-7)
(W-1)
Cr.
150,000
34,000
Rs.
60,000
120,000
10,000
24,000
54,000
32,000
300,000
20,000
32,000
52,000
248,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-16
Mr.X
Trading and Profit and Loss Account
for the year ended December 31, 2002
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Expenses
Rent expense
Interest on loan
Depreciation
Gain on disposal
(W-4.1)
(W-4.2)
(W-6)
(W-5)
(W-8)
(W-7)
(200 -300)
Net Profit
Rs.
202,400
(101,200)
101,200
19,800
7,750
2,300
1,490
(100)
(31,240)
69,960
Mr. X
Balance Sheet
as on December 31, 2002
Capital and liabilities
Capital
Capital introduced (calculate itself)
Add: Net Profit
Less: Drawings
Rs.
(W-4)
Loan D
Current Liabilities
Trade Creditors
Interest on loan payable
Outstanding expenses excluding int. on loan
Assets
Non-Current Assets
Shop equipment
Accumulated depreciation
Current Assets:
Stocks
Debtors
Bank
Cash
Prepaid
WORKINGS
(W-1)
Dr.
Op.
Sales
(W-4.1)
305
(24,000 – 12,000)
(W-8)
(14,800 – 800 + 1,800)
(Op. +Dep.(W-7) - disposals) (6,900 + 1,490 - 600)
(W-5)
Debtors account
14,400
202,400 Cash (Bal.)
cl.
129,500
69,960
(69,400)
130,060
12,000
14,200
100
3,300
17,600
159,660
15,800
(7,790)
8,010
128,700
15,700
4,850
900
1,500
151,650
159,660
Cr.
201,100
15,700
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
All of the amount received by debtors is in cash because in cash book summary receipt from debtors in
not appearing, so cash received will be balancing figure in this account because we can calculate sales
figure by multiplying COS with 2.
(W-2)
Dr.
Creditors account
Cr.
Op.
12,100
Bank
81,400 Inventory (Bal.)
83,500
cl.
14,200
(W-3) No need to preparing bank account as it is given in question
(W-4)
Dr.
Cash account
Cr.
Op.
800
Debtor (W-1)
201,100 Bank
131,600
Drawings
(Bal.)
69,400
Cl.
900
As the two figures are missing in cash account i.e. receipt from debtors and drawings so there is no
question that there can be any cash sale. Further there is no other information through which we can
bifurcate between cash and credit sale.
(W-4.1) Calculation of total sales
We will firstly calculate COS and then multiply it with 2 to calculate sales figure.
Sales = COS x 2 = 101,200 (W-4.2) x 2 = 202,400
(W-4.2)
Dr.
Inventory account
Cr.
Op.
146,400 Cost of Sales (Bal.)
101,200
Creditors (W-2)
83,500
Cl.
128,700
(W-5)
Dr.
Rent account
Cr.
Op. prepaid
1,000
Bank
8,250 P and L (bal.)
7,750
cl.
(750 x 2)
1,500
Monthly bill = 9,000/12 = 750
The total of last payment made on December 1 is 2,250 (750 x 3) out of which 1,500 (750 x 2) is prepaid.
(W-6)
Dr.
Outstanding expenses
Cr.
Op.
(2,300-200)
2,100
Bank
18,600 P and L (bal.)
19,800
cl.
3,300
(W-7) Depreciation calculation
Calculation
Dep.
Opening cost
14,800
Less: Deletion
(800)
Remaining asset on which full year dep. will be charged
14,000 x 10%
1,400
On additions
On deletions
Total
306
(1,800 x 10% x 6/12)
90
1,490
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-8)
Dr.
Interest expense
b/d
2,400 P and L (below)
100
Bank
c/d (bal.)
Interest on loan
From Jan 1 to 30 Nov
From 1 Dec to 31 Dec
Period
11M
1M
Outstanding balance
24,000
12,000
Calculation
(24,000 x 10% x 11/12)
(12,000 x 10% x 1/12)
Cr.
200
2,300
Interest
2,200
100
2,300
Missing information (Ideally following should have been your thought process at this stage)
Both purchase and sale figures were not given. Firstly in debtor account two figures were missing cash
received and credit sale so there was a need to calculate any one figure firstly. So firstly we went to see
the cash account to search for the cash received from debtors but in this account again two figures were
missing that is cash from debtors and drawings. Therefore we decided to calculate the sales figure first.
As per the question the sales are two times of COS. For COS we need purchase figure, we searched for
the purchase figure in creditor account it was not there, however we calculated it as a balancing figure.
After this we calculated the COS figure and multiplied it with 2 to get the total sales figure. Then this
figure of sale was put in debtors account to calculate the cash received from them as a balancing figure.(
You might ask a question here that why we have put the total sales figure in debtor account in the debtor's
account rather than credit sale. The answer is in the whole question there is no information given through
which we can bifurcate between cash sale and credit sale, therefore whole of the sale is credit sale.) Then
cash received is put in the cash account to calculate the drawings as a balancing figure.
Answer-17
a)
Value of closing stock is Rs. 4,605 (W-5).
b)
Mr. Umer
Trading Account
for the year ended December 31, 2002
Sales
(W-3)
Less: Cost of sales:
(W-4)
Gross Profit
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2)
Dr.
Bank
cl.
(W-3)
307
Calculation of total sales
Debtor account
3,250
19,090 Bank
cl.
Creditors account
op.
29,500 Inventory (bal.)
10,140
(19,090 (W-1) + 53,600)
Rs.
72,690
(60,575)
12,115
Cr.
17,330
5,010
Cr.
7,360
32,280
72,690
CHAPTER-5
(W-4)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Calculation of cost of sales
Total Sales = Cost of sale + 20 % of cost of sale
Y = X + 20% of X
X = 72,690/120 x 100
X = 60,575
(W-5) Calculation of closing stock
Dr.
Op.
Creditors (W-2)
Cash
Inventory account
29,500 Cost of Sales (W-4)
32,280
3,400 Cl. (Bal.)
Cr.
60,575
4,605
Answer-18
Stock shortage is Rs. 320,422(W-4).
Mr. Asim
Trading Account
for the year ended December 31, 2007
Sales
Less: Cost of sales
Gross Profit
Rs.
620,000
(534,578)
85,422
(W-1)
(W-3)
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2)
Dr.
Cash
c/d
(W-3)
Cr.
800,000
Creditors account
b/d
500,000 Inventory (Bal.)
380,000
Cr.
80,000
800,000
20,000
Calculation of sales and cost of sales
Total sales
(W-1)
620,000
Allocation of sales
Sale made at normal selling price
Sale made below cost
(620,000 x 80%)
(620,000 x 20%)
496,000
124,000
Calculation of cost of sales
Sale made at normal selling price
Sale made below cost
(496,000/125 x100)
(124,000/90 x 100)
396,800
137,778
534,578
(W-4) Calculation of Abnormal Loss
Dr.
Op.
Creditors (W-2)
308
Debtor account
200,000 Cash
620,000
cl.
Inventory account
80,000 Cost of Sales (W-3)
800,000 Drawings
Abnormal Loss (Bal.)
cl.
Cr.
534,578
20,000
320,422
5,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-19
Shafiq Ahmad
Trading and Profit and Loss Account
for the year ended June 30, 2009
(2,800 x 2,000)
(W-11)
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent
Salaries
Fuel and maintenance expense
Fitness certificate expense
Miscellaneous office expenses
Abnormal loss of units damaged
Advertisement expense
Provision for doubtful debts
Depreciation on furniture
Depreciation on Trucks
(W-5)
(W-6)
(224,000-10,000 - 18,000)
(W-7)
(W-8)
(W-2)
(W-10)
(W-10)
Other Income
Cost of transportation recovered
Interest Income
Net Profit
Rs.
5,600,000
(3,365,000)
2,235,000
176,000
244,000
196,000
1,500
112,000
15,000
12,000
124,000
2,430
69,700
(952,630)
Add:
(200,000 x 12% x 5/12)
200,000
10,000
1,492,370
Shafiq Ahmad
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Capital introduced
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Total
Assets
Non-Current Assets
Furniture
Less: Accumulated depreciation
Delivery trucks
Less: Accumulated depreciation
Current Assets:
Stocks
Debtors
Less: Provision for bad debt
Fixed Deposit
Interest receivable on fixed deposit
309
Rs.
(2,400 + 50,000)
(W-3)
(5,700 + (W-10) 2,430)
(400,000 + 300,000 + 60,000 + 10,000)
(144,000+(W-11) 69,700)
(W-1)
(W-2)
(200,000 x 12% x 5/12)
497,300
1,000,000
1,492,370
(52,400)
2,937,270
1,600,000
4,537,270
30,000
(8,130)
770,000
(213,700)
578,170
1,660,600
1,001,250
(112,000)
200,000
10,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Cash and Bank
Prepaid fitness certificate
(W-4)
(18,000/36M x 33M)
Total
1,182,750
16,500
3,959,100
4,537,270
WORKINGS
(W-1) Dr.
op.
Sales (2,800 x 2,000)
Debtors account
Cr.
160,000 Cash and bank (4,713,750-15,000)
4,698,750
5,600,000 Bad debts
60,000
cl.
(bal.)
1,001,250
5,760,000
5,760,000
Rs 15,000 included in receipts from debtors will be netted off against abnormal loss rather than
treating it to be sales.
(W-2) Dr.
Provision for bad debt account
Cr.
Bad debt
60,000 op.
48,000
cl. (5,600,000 x 2%)
112,000 P and L (bal.)
124,000
172,000
172,000
(W-3)
Dr.
Cash and bank
cl. (bal.)
B
Dr.
Op.
Capital
Debtors
Insurance
Debtors
(W-5)
Dr.
Cash and bank
Rent
192,000 op.
P and L (bal.)
192,000
Cr.
16,000
176,000
192,000
(W-6)
Dr.
Cash and bank
Salaries
248,000 op.
P and L (bal.)
248,000
Cr.
4,000
244,000
248,000
(W-7)
Dr.
Cash and bank
310
Creditors for oil purchases
3,200,000 op.
1,600,000 Inventory (3,000 x 1,200)
4,800,000
Cash and bank account
75,000 Rent
1,000,000 Salaries
4,713,750 Fuel (224,000-10,000 - 18,000)
30,000 Fitness certificate expense
200,000 Misc. exp
Drawings (Personal tax)
Fixed deposit
Suppliers
Transportation cost
Truck (360,000 + 10,000)
cl. (bal.)
6,018,750
Fitness certificate expense
18,000 P and L (bal.)
Closing prepaid (18,000/36x33)
18,000
Cr.
1,200,000
3,600,000
4,800,000
Cr.
192,000
248,000
196,000
18,000
112,000
50,000
200,000
3,200,000
250,000
370,000
1,182,750
6,018,750
Cr.
1,500
16,500
18,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-8) Calculation of abnormal loss
Dr.
Cash and bank (from sale)
Dr.
Cash and bank (from insurance claim)
Dr.
P and L (bal.)
Cr.
Inventory
(50 x 1,200)
(W-9) Valuation of closing stock
Reconciliation of units
Opening units
Purchases (Inventory)
Sold
Damaged in transit
Drawings
Gifted to charity
Closing stock
Total closing stock
Stock on which NRV test to be applied
Remaining stock (which is to be shown at cost)
Value of unfit stock
Cost
Cost of un fit stock
(50 x 1,200)
NRV
NRV- if sold without processing
Estimated selling price X No of units
(50 x 1,000)
50,000
NRV - if sold with further processing
(Estimated selling price (N-l) - estimated cost of completion) x No. of units
(2,000- 900) x 50
55,000
NRV (higher of 50,000 and 55,000 as calculated above) N -2
Value of total closing stock
Value of unfit stock (Lower of Cost or Net realizable value)
(as above)
15,000
30,000
15,000
60,000
Units
1,250
3,000
(2,800)
(50)
(2)
(10)
1,388
1,388
(50)
1,338
60,000
55,000
55,000
Add: Cost of remaining stock
(1,338 x 1,200)
1,605,600
Closing stock
1,660,600
N-l
It is assumed that stock after processing will be sold at normal selling price.
N-2
It is better to get it further processed because it can be sold then for Rs 55,000 instead
of 50,000.
(W-10) Depreciation calculation Furniture
Opening cost
Less: Opening accumulated depreciation
Opening book value
Depreciation
(24,300 x 10%)
Delivery truck
Opening cost
Less: Opening accumulated depreciation
Opening book value
Depreciation on opening assets (256,000 x 20%)
Depreciation on additions
(300,000+60,000+10,000) x 20% x 3/12
Total depreciation
Note: Rs. 18,000 will be treated as prepaid expense.
311
30,000
(5,700)
24,300
2,430
400,000
(144,000)
256,000
51,200
18,500
69,700
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-11) Calculation of Cost of sales
Dr.
Op.
Creditors (3,000 x 1,200)
Cash (Transportation)
Inventory account
1,250,000 Cost of Sales (Bal.)
3,600,000 Abnormal Loss (W-8)
250,000 Drawings
Advertisement (gifts for charity)
Cl.
(W-9)
Cr.
3,365,000
60,000
2,400
12,000
1,660,600
Answer-20
For calculating the profit for each year we will prepare the capital account in statement form.
Closing capital
Add: Drawings
Loan to brother
Personal use
Rent of personal flat
Electricity charge of personal flat
Less:
New capital
Principal realized
Profit on sale realized
Rs.
18,700
(300 x 12)
(100 x 12)
(10 x 12)
(2,000 x 3%)
Less: Opening capital
Profit for the year
3,500
3,600
1,200
120
8,420
2,000
60
(2,060)
(19,200)
5,860
Answer-21
For calculating the profit for each year we will prepare the capital account in statement form.
Closing capital
Add: Drawings
Cash
Goods
Less: New capital
Profit for the year
(W-1) Closing capital
Assets
Stock
Furniture and fixture
Debtors
Bank
Liabilities
Creditors
(W-1)
Rs.
102,550
9,300
1,500
10,800
(100,000)
13,350
(78,000 – 1,200)
(5,500 – 50)
Rs.
29,000
6,300
76,800
5,450
117,550
(15,000)
102,500
There will be no impact of presented, uncollected cheques because these items do not affect the bank
account balance.
312
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-22
For calculating the profit for each year we will prepare the capital account in statement form.
Closing capital
Add: Drawings
Cash
Goods
Less: New capital
Less: Opening capital
Profit for the year
(W-1) Closing capital
Assets
Non-Current Assets
Furniture
Less: Accumulated depreciation
Current Assets
Stocks
Debtors
Less: Prov. For doubtful debts
Cash
Prepaid rent
Rs.
67,608
(W-1)
15,000
600
15,600
(2,100)
(50,000)
31,108
(6,900 x 10% + 2,100 x 10% x 9/12)
A
40,320
36,900
(1,845)
6,580
400
82,355
(36,900 x 5%)
B
Current Liabilities
Trade Creditors
Accrued expenses
Closing capital
9,000
(848)
8,153
18,600
4,300
(22,900)
67,608
C
D=A+B+C
Answer-23
For calculating the profit for each year we will prepare the capital account in statement form.
Closing capital
Add: Drawings
Cash
Goods
Less: New capital
Less: Opening capital
Profit for the year
Rs.
622,500
(W-2)
(12,000 x 6)
72,000
72,000
(30,000)
(621,500)
43,000
(W-1)
WORKINGS
(W-1) Opening capital
Assets
Non-Current Assets
Building
Motor van
Furniture
Rs.
A
313
500,000
100,000
80,000
680,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Current Assets
Stocks
Debtors
Less: Prov. For doubtful debts
Cash
(40,000 x 10%)
B
Current Liabilities
Trade Creditors
Bank O/D
Loan
C
D=A+B+C
Opening capital
(W-2) Closing capital
Assets
Non-Current Assets
Building
Motor van
Furniture
Current Assets
Stocks
Debtors
Less: Prov. For doubtful debts
Cash
A
B
60,000
50,000
(5,000)
4,500
109,500
(50,000 x 10%)
Current Liabilities
Trade Creditors
Bank O/D
Loan
Answer-24
(a) Net assets (capital) at the start of the year
Assets:
Property
Delivery van
Inventories
Account receivable
Pre-paid expenses
Bank balance
Cash balance
314
42,000
15,000
100,000
(157,000)
621,500
500,000
80,000
60,000
640,000
[100,000-(100,000 x 20%)]
(80,000-80,000 x 25%)
Closing capital
60,000
40,000
(4,000)
2,500
98,500
C
D=A+B+C
37,000
10,000
80,000
(127,000)
622,500
Rs.000
2,700
500
94
170
12
300
308
4,084
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Liabilities:
Bank loan
Payables
500
110
(610)
3,474
Net assets (capital)
(b) Net assets (capital) at the end of the year
Assets:
Property
(2,700 – 10% of 2,700)
Delivery van
(500 – 15% of 500)
Investment
Inventories
Account receivable
(279 – 9)
Cash balance
Liabilities:
Bank loan
Bank overdraft
Accounts payable
Accrued expenses
Rs.000
2,430
425
700
200
270
570
4,595
500
50
84
15
(649)
3,946
Net assets (capital)
(c) Profit for the year
Rs.000
3,946
(3,474)
472
50
(500)
22
Net assets (capital) at the year-end
Net assets (capital) at the start of the year
Increase in net assets
Add back drawings
Deduct capital introduced
Profit for the year
Answer-25
Sales
Less: Cost of sales
Gross Profit
Rs.
484,000
(440,000)
44,000
(W-4)
(W-5)
(W-1)
Cash
c/d
Creditors
400,000 b/d
300,000 Inventory (bal.)
250,000
450,000
Cash
510,000 Creditors
Expenses
284,000 Drawings (Bal.)
c/d
400,000
90,000
289,000
15,000
(W-2)
b/d
Debtors (W-3)
315
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-3)
Debtors
200,000 Cash (bal.)
484,000
c/d
b/d
Sales (W-4)
(W-4)
COS + GP
100 + 10
Sale
284,000
400,000
= Sale
= 110
= 440,000/100 x 110
= 484,000
(W-5)
Inventory
30,000
450,000 Cost of sales (bal.)
Cl.
Op.
Creditor s(Purchases) (W-1)
440,000
40,000
Answer-26
Sales
Less: Cost of sales
Gross Profit
WORKINGS
(W-1)
Rs.
394,000
(304,000)
90,000
(W-3)
(W-4)
Creditors
3,000 b/d
300,000 Inventory (bal.)
90,000
Discount Received
Cash
c/d
(W-2)
b/d
Debtor s (bal.)
70,000
323,000
Cash
6,000 Creditors
374,000 Expenses
c/d
300,000
50,000
30,000
Debtors
30,000 Cash (W-2)
394,000 Bad debt
c/d
(50,000 – 2,000)
374,000
2,000
48,000
Inventory
10,000 Drawings
323,000 Cost of sales (bal.)
Cl.
4,000
304,000
25,000
(W-3)
b/d
Sales (bal.)
(W-4)
Op.
Creditor (Purchases) (W-1)
Answer-27
Sales
Less: Cost of sales
Gross Profit
(W-2)
(W-4)
Closing Stock is Rs. 77,857 (W-5)
316
Rs.
460,000
(437,143)
22,857
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
WORKINGS
(W-1)
Cash
c/d
Creditors
390,000 b/d
25,000 Inventory (bal.)
20,000
395,000
Debtors
10,000 Cash
460,000 c/d
430,000
40,000
(W-2)
b/d
Sales (bal.)
(W-3)
(W-3)
Cash
10,000 Creditors
430,000
c/d
b/d
Debtors (bal.)
390,000
50,000
(W-4)
Cost of sales
C+P =S
80 + 20 = 100
(5,000/80x100) 6,250
5,000
Sale
Cost
(Balancing)
(453,750/105x100)
C+P =S
100+5 = 105
453, 750
432,143
460,000
437,143
(W-5)
Inventory
120,000
395,000 Cost of sales (W-4)
Cl. (Bal.)
Op.
Creditors (Purchases) (W-1)
437,143
77,857
Answer-28
Sales
Less: Sale return
(579,000 – 6,000)
Less: Cost of sales
Gross profit
(W-4)
Rs.
573,000
(15,000)
558,000
(418,500)
139,500
Abnormal Loss is Rs. 10,000 (W-5).
WORKINGS
(W-1)
Creditors
400,000 b/d
Inventory (bal.)
19,000
Cash
c/d
317
3,000
416,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
b/d
Debtors (bal.)
Cash
10,000 Creditors
534,000 Expenses
Carriage in
c/d
Debtors
10,000 Sales Return
579,000 Sales
Cash
c/d
(W-3)
b/d
Sales (bal.)
(W-4)
Calculation of Cost of Sales
C+P
= Sale
75 + 25
= 100
Cost
= 558,000/100 x 75
= Rs. 418,500
(W-5)
Op.
Creditor (Purchases) (W-1)
Carriage in
400,000
104,000
15,000
25,000
(W-2)
(40,000 – 6,000)
Inventory
16,000 COS (W-4)
416,000 Abnormal Loss (Bal.)
15,000 Drawings
Cl. (11,000 + (6,000/100 x 75))
15,000
6,000
534,000
34,000
418,500
10,000
3,000
15,500
Answer-29
Sales
Less: Cost of sales
Gross Profit
(473,600(W-5) – 3,000)
(W-6)
Statement showing misappropriation of Cash
Opening cash
Debtors
(W-2)
Capital
Less: Creditors
Expenses
Drawings
Bank
(W-4)
Closing
Cash misappropriation
WORKINGS
(W-1)
b/d
Sales
(W-5)
Debtors
10,000 Bank
473,600 Cash (bal.)
Sale Return
c/d
Rs.
470,600
(362,000)
108,600
Rs.
20,000
420,600
500,000
(360,000)
(40,000)
(20,000)
(334,000)
(40,000)
146,600
40,000
420,600
3,000
20,000
(W-2)
Creditors
360,000 b/d
Inventory (bal.)
9,000
Cash
c/d
318
6,000
363,000
CHAPTER-5
(W-3)
b/d
Debtors
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-1)
Capital
Cash
20,000 Creditors
420,600 Expenses
Drawings
Bank
(W-4)
Misappropriation (bal.)
500,000 c/d
(W-4)
Bank
b/d
1,000 Fixed assets
Cash (bal.)
334,000
Debtors
40,000 c/d
(W-5)
Calculation of sales
COS + Profit = Sales
100+30 = 130
Net sales
= 362,000/100 x 130
Net sales
= 470,600
Gross Sales
= 470,600 + 3,000 = 473,600
(W-6)
Opening
Creditors (Purchases) (W-2)
Inventory
3,000 COS (bal.)
363,000 Cl.
360,000
40,000
20,000
334,000
146,600
40,000
370,000
5,000
362,000
4,000
Answer-30
Mr. Abbasi
Trading and Profit and Loss Account
for the year ended December 31,2008
Sales
Less:
(W-6)
Cost of sales
Opening Stock
Purchases
Closing Stock
Gross Profit
Less: Admin Expenses
Rent
Petrol expense
Utilities expense
Other expenses
Advertisement expense
Depreciation
- Premises furnishing
- Equipment
-Van
Net Profit
319
(W-7)
(W-9)
(W-4)
(120,000/1,600) x 30
(60,000 x 20%)
(56,000 x 20%)
(252,000/6Years) x 11/12
Rs.
1,600,000
1,516,250
(297,500)
(1,218,750)
381,250
120,000
40,000
19,000
6,000
2,250
12,000
11,200
38,500
(248,950)
132,300
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Abbasi
Balance sheet
as on June 30, 2009
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
Current Liabilities
Payable for equipment
Creditors - jeans
Creditors - pocket calculator
Rs.
(W-3)
(W-8)
(W-10)
(W-11)
Assets
Non-Current Assets
Premises furnishing
Less: Accumulated depreciation
Equipment
Less: Accumulated depreciation
(W-5.1)
Van
Less: Accumulated depreciation
(200,000+52,000)
Current Assets
Debtors Jeans
Prepaid rent
Stock
Bank
Cash
WORKINGS
(W-1) Dr.
b/d
Capital (600,000 – 550,000)
Sales T-shirts
320
(W-4)
(W-9)
(W-2)
(W-1)
Cash
- Petrol expense
50,000 Utilities expense
150,000 Other expenses
c/d (W-1)
200,000
600,000
132,300
(225,500)
506,800
4,000
400,000
200,000
604,000
1,110,800
60,000
(12,000)
48,000
56,000
(11,200)
44,800
252,000
(38,500)
213,500
306,300
50,000
30,000
297,500
292,000
135,000
804,500
1,110,800
Cr.
40,000
19,000
6,000
135,000
200,000
CHAPTER-5
(W-2)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
b/d
Capital
Sales Jeans
(W-3) Dr.
c/d
(W-4) Dr.
Bank
Bank
- Rent
550,000 Premises furnishing
1,400,000 Equipment
Payable for equipment
Van (200,000+52,000)
Drawing (foreign trip)
Drawing (12,000 x 12)
Creditors Jeans
Purchases T-shits
c/d (bal.)
1,950,000
Cr.
150,000
60,000
40,000
12,000
252,000
80,000
144,000
800,000
120,000
292,000
1,950,000
Capital
Bank
600,000 Cash
600,000
Cr.
550,000
50,000
600,000
Rent
150,000 P and L (bal.)
cl. Prepaid (150,000/15 x 3)
150,000
Cr.
120,000
30,000
150,000
(W-5) Entries for purchase of equipment
Following entry will be passed on the date of acquiring the furniture
Dr.
56,000
Equipment (W-5.1)
Payable for equipment
Bank
(Equipment purchased by making an advance payment)
Following entry will be passed on the date of payment of 75% of balancing amount.
Dr.
Payable for equipment (16,000 x 75%)
12,000
Bank
(Payment of 75% of balancing amount)
Cr.
16,000
40,000
Cr.
12,000
(W-5.1)
Cost of equipment
Advance payment
Payable (4,000/25% x 100%)
321
Rs.
40,000
16,000
56,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Rs 4,000 represents the 25% of balance amount payable, therefore, Rs. 4,000 is grossed up to
arrive at the full balance amount.
(W-6) Sales calculation
Rs.
Jeans
(1,400,000+50,000)
1,450,000
T-shirt
150,000
Pocket calculators
_
1,600,000
(W-7)
Purchases calculation
Jeans
T-shirt
Pocket calculators
(W-7.1) Dr.
Bank
B
Dr.
Creditors Pocket calculators
(W-8)
Dr.
Bank
Bank
Purchases T-shirts
(W-7.1)
(W-7.2)
Purchase T-shirts
120,000 Drawing ((120,000/1,600)x20)
Advertisement expense
((120,000/1,600) x 30)
Trading account (bal.)
120,000
Purchase Pocket calculators
400,000 Creditors Pocket calculators
(400,000 x 50%)
Trading account (bal.)
400,000
Drawing
80,000
144,000
1,500 Capital account (bal.)
225,000
Rs.
1,200,000
116,250
200,000
1,516,250
Cr.
1,500
2,250
116,250
120,000
Cr.
200,000
200,000
400,000
Cr.
225,000
225,000
(W-9) Valuation of closing stock
Cost of NRV of
Value
Closing
Purchase Quantity Per unit
closing
closing =Lower of
stock
Particulars
Price purchased Cost
(Qty.)
stock
stock cost or NRV
A
B
C=A/B
D
E=D x C (W-9.1)
Jeans
1,200,000
8,000
150
950 142,500
N/A
142,500
T-shirt
120,000
1,600
75
150
11,250
5,000
5,000
Pocket calculators
200,000
1,000
200
1,000 200,000 150,000
150,000
297,500
No adjustment is passed for shortage of 50 units (8,000-7,000-950) of T- shirt as it is treated as normal
loss.
(W-9.1) NRV Calculation
Rs.
Pocket calculators
Estimated selling price
250,000
Less: Cost of repairs
(100 x 1,000)
(100,000)
150,000
322
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-10) Dr.
Bank
c/d
(W-11) Dr.
Purchases (400,000 x 50%)
c/d
323
Creditors – Jeans
800,000 Purchases
400,000
1,200,000
Creditors-Pocket Calculators
200,000 Purchases
200,000
400,000
Cr.
1,200,000
1,200,000
Cr.
400,000
400,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP PAST PAPER QUESTIONS
QUESTION-1
Mr. Saud Jawad has been running a small business for several years, but he never kept adequate
accounting records. However, a need to obtain a bank loan for business expansion has necessitated the
preparation of Final accounts for the year ended June 30, 2002. As a result, the following information has
been obtained after careful research:
(a)
Mr. Saud Jawad's business assets and liabilities are as follows:
July 01,2001
June 30, 2002
Rupees
Rupees
Stocks
86,000
168,000
Trade debtors
39,000
43,000
Trade creditors
74,000
89,000
Prepaid rent
3,000
4,200
Accrued electricity charges
2,100
1,600
Bank
23,000
16,500
Cash in hand
3,600
3,300
(b)
All takings have been banked after deducting the following payments.
Rupees
Cash drawing Mr. Saud Jawad has not kept a record of cash drawings but
suggests these will be in the region of
80,000
Casual labour
12,000
Purchase of goods for resale
18,000
Note: Takings have been the source of all amounts banked.
(c)
Bank payments during the year ended June 30, 2002 have been summarized as follows:
Rupees
Purchases
1,015,000
Rent
50,400
Electricity
13,900
Delivery costs (to customers)
30,000
Casual labour
66,200
(d)
It has been established that a gross profit of 33% on cost has been obtained on all goods sold.
(e)
Mr. Saud Jawad is able to confirm that he has taken out of the business goods for his own use
costing Rs. 6,000 during the year.
Required:
(a)
Prepare a Trading and Profit and Loss Account for the year ended June 30, 2002; and
(b)
Balance Sheet as at June 30, 2002.
(25)
{Autumn 2002, Q # 7}
QUESTION-2
On December 13, 2001 the accounting records of Mr. Ikram Rizwan were partly destroyed by fire. His
accountant has provided the following list of assets, liabilities and capital at December 31, 2000:
Rupees
Plant and Machinery
1,280,000
Office Equipment
450,000
Inventory
305,000
Debtors and prepayments
350,000
Creditors and accruals
176,000
Bank overdraft
88,500
Loan (interest @10% per annum)
950,000
Capital
1,170,500
324
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
A summary of his receipts & payments during the year 2001 can be extracted from the bank statements,
as follows:
Receipts:
Rupees
Capital paid in
220,000
Receipt from Debtors
4,275,000
Payments:
Cash withdrawn
224,500
Loan repayments
220,000
Paid to creditors
1,756,000
Rent paid
220,000
Wages
900,000
General expenses paid
125,000
The following additional information is obtained:
i)
At December 31, 2000, the debtors figure included Rs.25,000 for rent paid in advance and the
creditors figure included Rs.43,000 for wages accrued for the last week of December 2000;
ii)
Of the cash withdrawn from the bank during the year 2001, was for:
Rupees
Wages
67,500
Cash payment to suppliers
42,000
Printing of advertising leaflets (half of which are still to be distributed)
26,000
Remainder is taken by Mr. Ikram for personal use.
iii)
The plant and machinery had been purchased for Rs. 2,000,000 on January 1, 1999 and was being
depreciated at 20% per annum on the reducing balance basis. The Office equipment was bought
on January 1, 2000 and was being depreciated over 10 years on the straight line basis.
iv)
During the year 2001, Mr. Ikram transferred a private motor vehicle worth Rs. 50,000 to his
business. It is to be depreciated over 4 years on the straight-line basis.
v)
The bank balance at December 31, 2001, according to the bank statement, after adjusting for unpresented cheques, was Rs. 1,067,000. Any difference is assumed to be cash sales banked, after
deducting Rs.300 per week wages paid to Mr. Ikram's son, who assists in the office.
vi)
The loan repayments from the bank account include interest of Rs. 95,000.
vii)
Other balances at December 31, 2001 are:
Rupees
Inventory
287,500
Rent paid in advance
27,000
Wages owing
52,500
Creditors for supplies
122,000
Debtors
223,000
viii)
It is discovered subsequently that debtor owing Rs. 160,000 has gone into liquidation, and a
recovery of only 20% is expected.
Required:
a)
Prepare the trading and profit and loss account for Mr. Ikram Rizwan for the year ended
December 31, 2001.
(12)
b)
Prepare a Balance Sheet at December 31, 2001.
(08)
{Spring 2002, Q # 3}
QUESTION-3
Mr. Gul Nawaz is a market trader who does not keep a full set of accounting records. His transactions are
mainly for cash and although he keeps detail of all his expenses, he has no proper record of his receipts
from sales.
325
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
You ascertain the following information which may be taken as correct:a)
Balances at
1st Oct. 1993
30th Sept. 1994
Rs.
Rs.
Motor Van
2,000
See note(e) below
Stocks
4,500
6,100
Debtors
790
1,050
Creditors for supplies
2,530
3,070
Creditors for expenses
900
820
Expenses paid in advance
160
215
Cash in hand
330
465
b)
During the year he received a cheque for Rs 14,000 in respect of a legacy due to him. A friend
cashed the cheque for him.
c)
Payments in cash were as follows:Rs.
For Supplies
52,180
For business expenses
7,215
For private purposes
6,250
For New Motor Van [See note (e) below]
For Casual wage
5,330
Loan to brother
3,500
d)
Mr. Gul Nawaz estimates that his ratio of gross profit to sales was a uniform 25%.
e)
On October 1,1993he purchased a new Motor Van, paying Rs 5,800 in cash, which was after
deducting allowance of Rs 1,200 on the old van. The new van is to be depreciated by 10% on
cost.
f)
He agrees that any discrepancy on the cash account should be regarded as additional personal
drawings.
Required:
1.
An account of Mr. Gul Nawaz cash transactions for the year ended 30th September, 1994. (10)
2.
Trading and Profit and Loss account for the year ended 30th September 1994 and a Balance Sheet
at that date.
(15)
QUESTION-4
The Accountant discerns the following details of transactions for Panorama retail store for the year ended
31st December, 1991.
(a)
The sales are mostly on a credit basis. No record of sales have been made but Rs. 10,000 has been
received, Rs. 9,500 by cheque and Rs. 500 by cash, from persons to whom goods have been sold.
(b)
Amount paid by cheque to suppliers during the year Rs. 7,200.
(c)
Expenses paid during the year: by cheque, Rent Rs. 200, General Expenses Rs. 180, by cash Rent
Rs. 50.
(d)
The owner took Rs. 10 cash per week (for two weeks) as drawings.
(e)
Other information available is:
As at
As at
31.12.90
31.12.91
Rupees
Rupees
Debtors
1,100
1,320
Creditors for goods
400
650
Rent Owing
50
Bank Balance
1,130
3,050
Cash Balance
80
10
Stock
1,590
1,700
326
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(f)
The only fixed assets consist of fixtures which were valued at 31 December, 1990, at Rs.800.
These are to be depreciated at 10 percent per annum.
You are required to prepare Trading and Profit & Loss Account and Balance Sheet along with other
related accounts on 31st December, 1991.
(10)
{October 1992, CA. Inter -1}
QUESTION-5
Rashid commenced business as a cloth merchant on January 1, 2000 with a capital of Rs. 50,000. On the
same day he purchased furniture and fittings for cash Rs. 15,000. Following are the particulars obtained
from his books kept under single entry system:
Rupees
Sales (inclusive of cash sales Rs. 35,000)
85,000
Purchases (Inclusive of cash purchases Rs. 20,000)
75,000
Rashid's drawings
6,000
Salaries to staff
10,000
Bad debts written off
2,500
Business expenses
3,500
Rashid took cloth worth Rs. 2,500 from the shop for private use and paid Rs. 1,000 to his son, but omitted
to record these transactions in his books. On December 31, 2000 his debtors were Rs. 26,000 and
creditors Rs. 18,000. Stock in hand on December 31, 2000 was Rs. 39,000.
Depreciation is to be charged @ 10%.
Required:
Trading and profit and loss for the year ended December 31, 2000 and the Balance Sheet as at December
31, 2000.
(11)
{Autumn 2001, Module - B}
QUESTION-6
A small trader Mr. Zubair maintains no books: All his collections are lodged in the Bank after meeting his
business expenses and personal drawings. The following information is available:
(i)
The bank statement shows a deposit of Rs. 60,100 and withdrawals of Rs. 59,250.
(ii)
He had placed Rs. 5,000 in Fixed Deposit on Sept 30, 1999 and withdrew the same with mark-up
@ 20% on March 31, 2000.
(iii)
The assets and liabilities on June 30, 2000 were:
Rupees
Stocks
5,500
Debtors
5,750
Bank Balance
1,600
Furniture
10,000
Creditors
2,000
(iv)
In the absence of reliable information, estimates are supplied on the following matters:
(a)
The stock & debtors have increased by Rs. 500 during 'the year.
(b)
The creditors were Rs. 1,000 on July 01, 1999.
(c)
During the year the personal expenses amounted to Rs. 4,000 & business expenses Rs. 3,500.
Required: Prepare the following for the year ended June 30, 2000
(a)
Trading & Profit & Loss Account
(b)
Balance Sheet.
(18)
{Spring 2001}
QUESTION-7
Mr. Rameez after converting the ground floor of his house in a retail shop, started to trade there on 1
October 1996. The cost of the conversion was Rs. 250,000 and of fixtures and fittings Rs. 30,000. To
finance the above outlay, Rameez opened a separate business account at his bank to which he transferred
Rs. 50,000 from his private account and arranged overdraft facilities upto Rs. 300,000 under a guarantee
from a friend, Mr. Qadeer who deposited securities with the bank as collateral. In consideration, Mr.
Rameez agreed to pay Mr. Qadeer 5% of the net profit of the first year's trading.
327
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Apart from the bank statements, the only records Mr. Rameez kept were files of statements from supplies,
paid cheques and unpaid invoices for goods purchased, together with a note book in which he recorded a
few sales to special customers who had credit accounts and paid by cheques. Cash from cash sales was
paid into the till out of which he paid certain expenses, banking the balance on daily basis apart from
keeping a small balance as a float. He paid all suppliers of goods by cheque.
Mr. Rameez paid all the expenses of the house out of his private account and used part of the dwelling
portion as an office.
It was agreed with Mr. Qadeer that for this he should be credited with the following in respect of the year:
Rs.
Rent and rates
10,000
Electricity
5,000
Stationery and postage
2,600
An analysis of the bank statements for the year ended 30 September 1997 was as follows:
Receipts
Rs. Payments
Rs.
Paid to open account
50,000 Cash for till
2,000
Supplies discount
1,000 Conversion of premises
250,000
Special customers
38,200 Fixtures & fittings
30,000
Banking
376,900 Supplies for purchases
372,800
Balance, 30 Sept. 1997
203,700 Insurance of stocks
4,000
Bank charges & Interest
11,000
669,800
669,800
Mr. Rameez estimates that during the year following were paid out of the till before making the banking
Wages Rs. 40,000, Sundry shop expenses Rs. 5,000, and drawings Rs. 60,000 Mr. Qadeer agrees with
these figures. Depreciation is to be charged at 2 % on the conversion cost and 5% on fixtures & fittings.
You ascertain that on 30 September 1997:
(i)
Cheques totaling Rs. 3,000 from special customers, paid into the bank on 30 September 1997, had
not been credited by the bank.
(ii)
The amounts paid for insurance included the premium of Rs. 2,000 for the year ending 30
Septembers 1998.
(iii)
Closing stock, taking at cost was Rs. 36,000
(iv)
The balance in the till was Rs. 1,500.
(v)
Suppliers unpaid invoices amounted to Rs. 40,300 and amount payable Rs. 1,000 for wages and
Rs. 600 for shop expenses.
(vi)
Special customers owed Rs. 17, 200
Required: Prepare Mr. Rameez Balance sheet at 30 September 1997, and his trading and profit and loss
account for the year ended on that date allowing for Mr. Qadeer's guarantee commission.
(20)
(October 1997)
QUESTION-8
Mishap a trader prepared his accounts for the year ended June 30, 1994 using a computer. Unfortunately
immediately after the preparation of the accounts, the computer was attacked by a virus. Consequently all
the data pertaining to the accounts was destroyed. Mr. Mishap however found in his papers a balance
sheet and a cash and bank account as follows:-
328
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
MR. MISHAP
BALANCE SHEET AS AT
Fixed Assets
Current Assets:
Stocks in trade
Trade debtors
Prepayments: Rents
Insurance
Cash in hand
Cash at bank
Total Assets
Current Liabilities:
Trade creditors for goods supplied
Bills payable: Telephone
Advertising
Fixed assets
Accruals:
Salaries & Wages.
Interest payable
Telephone
Total Assets less Current Liabilities
Represented By:
Capital Account:
Balance brought forward.
Profit for the year.
Less: drawings
Balance carried forward
Loan from Bank
30,1994
Rupees
430,000
June 30,1993
Rupees
365,000
265,000
243,600
8,500
16,500
2,900
4,500
541,000
971,000
227,000
167,750
8,500
12,250
5,500
18,000
439,000
804,000
192,300
8,760
14,580
45,000
20,960
5,450
7,950
295,000
676,000
194,650
4,540
7,770
37,360
11,540
12,750
2,390
271,000
533,000
366,000
355,000
721,000
145,000
576,000
100,000
676,000
323,760
127,450
451,210
85,210
366,000
167,000
533,000
MR. MISHAP
CASH & BANK FOR THE YEAR ENDED JUNE 30,1994
Rupees
Balance b/f: Cash
5,500 Payments against credit
Bank
18,000 purchases
Cash purchases
Cash received against credit sales
20,150,340 Salaries & Wages.
Cash sales
972,470 Rent rates and taxes
Proceeds from sale of fixed assets
42,500 Telephone & Postage
Interest paid
Fixed Assets
Insurance
Advertising.
Bank loan repaid
Miscellaneous expenses
Drawings
Balance c/f:
Cash
Bank
21,188,810
329
Rupees
18,696,670
240,680
940,970
102,000
230,570
44,050
225,360
149,500
241,350
67,000
98,260
145,000
2,900
4,500
21,188,810
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Mishap was able to retrieve the following further information:
Discount allowed on amount received from trade debtors.
Discount received on amounts paid to trade creditors.
Returns against sales on credit
Returns against purchases on credit
Provision for bad debts 1-7-93 balance brought forward
Provision for bad debts 30-6-94 balance carried forward
Trade debts written off against which no provision for bad debts was made
Loss on sale of fixed assets
You are required:
Prepare a profit & loss account for the year ended June 30, 1994.
QUESTION-9
Mansoor deals in small electrical equipments and
June 2011 was as follows.
Capital and Liabilities
Rupees
Capital
1,185,000
Creditors:
Goods
220,000
Electricity charges
5,500
Accounting charges
11,500
237,000
25,450
32,540
13,780
23,780
35,000
80,000
30,340
33,200
(25)
{October 1994}
appliances. His Balance Sheet for the year ended 30
Rupees
235,000
552,000
281,000
11,500
35,000
307,500
1,422,000
1,422,000
On 30 June 2012, there was a fire in his shop which destroyed all his fixtures and stocks. The following
information has been gathered from the records available with him.
(a) The Insurance company agreed to pay Rs. 225,000 for fixtures and Rs. 630,000 for stock without
production of accounts; the stock on hand was however Rs. 670,000.
(b) The payments made during the year were as follows :
Rupees
Rupees
Personal expenses
188,000 Property tax
32,000
Sundry expenses
15,000 Rent
240,500
Accounting charges
20,500 Purchase of goods
5,061,000
Electricity
50,500 Fixtures
45,000
(c) The following payments were made during the year, out of cash receipts:
(i)
Assistant's salary Rs. 132,000.
(ii)
Cash purchases averaging Rs. 24,000 per month.
(iii)
Drawings which varied between Rs. 10,000 and Rs. 15,000 per month.
All other receipts were deposited into the bank. Total deposits amounted to Rs. 5,780,800 and included
scrap sale of Rs. 35,000.
(d) The following balances as on 30 June 2012 were determined from the available records:
Assets and Liabilities
Rupees
Debtors
494,000
Creditors for goods
212,000
Creditors for electricity charges
1,900
Accounting charges payable
1,800
Rent outstanding
15,000
Property tax paid in advance
15,000
Cash in hand
40,500
330
Assets
Fixtures
Stocks
Debtors
Property tax paid in advance
Cash in hand
Cash at bank
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(e) Included in the debtors is an amount of Rs. 14,000 which is considered uncollectible.
(f) The rate of gross profit as a percentage of sale was 20%.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2012 and a Balance Sheet as on
that date.
(24)
{Autumn 2012, Q#1}
QUESTION-10
Adnan runs a wholesale business. On December 31, 2009 he realised that his cash and bank balances have
reduced considerably. He has requested you to investigate the situation and has provided you the
following information:
Balances
2009
2008
Rupees
Cash in hand
700 14,300
Cash at bank
103,400 349,100
Sundry debtors
80,900 48,700
Stock
27,500 15,700
Sundry creditors
130,800 116,100
Rent payable (one month)
4,500
3,500
Electricity and telephone bills payable
8,800
(i)
20% of the goods were sold on cash basis at a markup of 22% on cost. Credit sales were
made at a profit of 20% on sales. All collections from debtors were made in cash.
(ii)
Adnan paid wages, rent, electricity and telephone charges in cash out of sale proceeds.
The remaining amount of sale proceeds was deposited into bank.
(iii)
The bank pass book reveals the following withdrawals:
Rupees
Creditors
1,423,800
Fixed assets (acquired on July 1, 2009)
75,000
Drawings
122,600
(iv)
All purchases were made on credit.
(v)
Wages amounted to Rs. 8,900 per month.
(vi)
Payment on account of electricity and telephone charges amounted to Rs. 33,000.
(vii)
Rent has been increased from October 2009.
(viii) The opening balance in the fixed assets account net of depreciation was Rs. 285,000.
Depreciation is recorded @ 10% p.a. on declining balance method and is based on
number of months for which the assets have been in use.
Required:
(a)
Prepare Adnan's profit and loss account for the year ended December 31, 2009 and his
balance sheet as on that date.
(b)
Compute the amount of cash shortage, if any.
(18)
{Spring 2010, Q# 8}
QUESTION-11
Yousuf, a sole trader started business on July 01, 2006 with Rs. 2.40 million cash and a shop that had cost
Rs. 1.80 million. One-third of the cost of shop represented the value of land.
Yousuf keeps very little records. He pays for purchases of materials through cheques. However, for other
items, payments are made out of cash receipts. Available cash is deposited in a bank account weekly. He
does not keep any record of bank account or sales. Debtors are recorded only by keeping a copy of the
sales invoice and the same is given to the customer on receipt of the outstanding amount.
331
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
An analysis of the bank statements has shown that total deposits amounted to Rs. 15,960,000 inclusive of
the original cash investment and bank loan credit. The bank statement shows a balance of Rs. 896,000 as
on June 30, 2007. Outstanding cheques which were presented for payment after the year end amounted to
Rs. 258,000. Cash in hand on 30 June was Rs. 40,080.
Annual stock taking was carried out on June 30, 2007, which showed inventory in hand costing Rs.
2,005,200. Outstanding invoices to debtors totaled Rs. 152,400 but an amount of Rs. 14,760 appeared to
be bad. Unpaid suppliers' invoices for materials amounted to Rs. 453,600.
During the year, Yousuf borrowed Rs. 1.20 million from his bank for business purposes. Loan
repayments of Rs. 652,000 were made through cheques, which included interest for the year amounting to
Rs. 52,000.
Yousuf had withdrawn Rs. 576,000 from the cash collections. Expenses paid in cash were as follows:
Rupees
Utilities
66,480
Advertising
6,000
Salesman (part time)
70,800
Supplies, stationery, etc.
12,000
Insurance
28,080
Property tax
42,000
Store fixtures with a list price of Rs. 840,000 were purchased early in July 2006. According to the terms
of payments, a down payment of Rs. 672,000 had been made through cheque. The remaining amount was
paid in July 2007. Depreciation rate for all depreciable assets is 5%.
Required: Prepare necessary Profit and Loss Account of Mr. Yousuf for the year ended June 30, 2007,
and Balance Sheet as at June 30, 2007 supported by all necessary computations.
(25)
{Autumn 2007, Q# 4}
QUESTION-12
Hamid is the proprietor of a general store. He has not previously engaged an accountant. From the
examination of the records and from interviews with Mr. Hamid, you ascertain the following information
for the year ended March 31, 2005:
1.
The takings are kept in a drawer. At the end of each day the cash is counted and recorded on a
slip of paper. Mrs. Hamid transcribes the figure into a notebook at irregular intervals. Few slips of
paper were inadvertently destroyed before the figures had been written into the notebook. There
is a single bank account in the joint names of Mr. and Mrs. Hamid which is used for business as
well as personal transactions.
2.
All payments to suppliers of goods are made by cheques. On totaling the cheque counterfoils, it
was found that total payments to suppliers amounted to Rs. 8,545,500.
3.
The following balances can be accepted:
March 31
2004
2005
Rs.
Rs.
Cash and bank
180,900
275,400
Debtors
412,200
441,900
Creditors for purchases of stock
251,100
218,700
Stock in trade at cost
1,755,000 1,710,000
4.
5.
Debts totaling Rs. 320,400 were abandoned during the year as bad; the takings include Rs. 22,500
recovered in respect of an old debt abandoned in a previous year.
The shop is situated in the house where Hamid lives. The rent of the house is Rs. 11,700 per
month. The living accommodation may be regarded as one third of the whole.
332
CHAPTER-5
6.
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
The following expenses were incurred:
(i)
Rs. 31,500 running expenses of Hamid's personal car.
(ii)
Rs. 54,000 for repainting of the whole premises, the landlord having refused to have this
done.
(iii)
Rs. 144,000 for repairing the storage accommodation.
(iv)
Miscellaneous shop expenses amounting to Rs. 77,200.
7.
Hamid takes Rs. 35,000 per month from the business and hands it over to his wife, who pays all
the household expenses.
8.
Hamid pays his own personal expenses with cash taken from the drawer. These are estimated at
Rs. 4,000 per month.
9.
Hamid won a small prize bond for Rs. 50,000 and bought a small gift for his wife for Rs. 8,000.
10.
During the year Hamid bought a secondhand car (not used for business) from a friend; the price
agreed was Rs. 315,000, but as the friend owed Hamid Rs. 60,300 for goods supplied from the
business the matter was settled by a cheque for the difference.
11.
An assurance policy on Hamid's life matured and realized Rs. 576,900.
12.
Hamid paid Rs. 90,000 to a friend in an emergency and received a cheque there against. The
cheque was dishonoured and the friend is repaying by installments. He had paid Rs. 36,000 by
March 31, 2005.
13.
Other private payments by cheque totaled Rs. 86,400.
14.
You are to provide Rs. 30,000 for accountancy fees.
Required:
(a)
Cash and bank summary for the year ended March 31, 2005.
(08)
(b)
Capital Account showing drawings during the year ended March 31, 2005.
(06)
(c)
Profit and loss account for the year ended March 31, 2005.
(04)
(d)
Balance sheet of the business as at March 31, 2005.
(04)
{Autumn 2005, Q # 8}
QUESTION-13
Due to the death of his book-keeper, Asif failed to keep proper records for the year ended June 30, 2010.
He has forwarded to you the following statements:
BALANCE SHEET
as on June 30, 2009
Rs.
Rs.
Asif-capital account
613,300 Land and building at cost
130,000
6% Loan
500,000 Furniture: Cost
825,000
Trade creditors
500,100
Depreciation
(485,000)
340,000
Accrued expenses
21,700 Stock
482,500
Bank overdraft
24,200 Trade debtors
670,000
Less: Provision
(27,000)
643,000
Prepayments
53,800
Cash in hand
10,000
1,659,300
1,659,300
333
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Summary of the transactions in the bank book
for the year ended June 30, 2010
Receipts
Rs.
Payments
Deposits against cash sales
624,750 Creditors
Receipts from debtors
3,071,000 Sundry expenses
Furniture sold on 1-Jul-09
Salaries
(purchased for Rs. 280,000 on 1-Jul-06)
122,400 Furniture purchased on 01-Jan-10
Interest on loan up to 31-Mar-10
Total
3,818,150 Total
Rs.
2,509,600
212,500
440,400
64,000
22,500
3,249,000
You have carried out the necessary scrutiny and ascertained the following:
(i)
Asif sells the goods at a profit margin of one-third of their selling price i.e. at a profit margin of
50% of cost of sales.
(ii)
On June 30, 2010 trade debtors aggregated Rs. 600,500. These included Rs. 18,000 pertaining to
goods which were sent on sale or return basis and were unsold on June 30.
(iii)
Closing stock was valued at Rs. 580,000.
(iv)
Receipts from debtors include an advance of Rs. 2,500 for goods delivered in July 2010.
(v)
Rs. 3,700 were recovered from a debtor which had been fully provided for on June 30, 2009. A
new customer who was introduced in 2010 and owed Rs. 4,200 was declared as bankrupt.
(vi)
Sundry expenses payable on June 30, 2010 amounted to Rs. 19,000 (excluding interest on loan)
whereas prepayments amounted to Rs. 9,700.
(vii)
Asif estimates that he withdrew Rs. 60,000 for his personal use and paid sundry expenses
aggregating Rs. 25,000 before depositing the proceeds from cash sales.
(viii) Depreciation on furniture is provided at the rate of 10% per annum on cost.
(ix)
Bonus is payable to the manager at 5% of the net profit after charging such bonus.
(x)
The following account balances were obtained from the memorandum records:
Rs. 2,570,000
 Purchases
Rs. 30,000
 Discounts received
Rs. 15,000
 Sales returns
Required:
(a)A Trading and Profit & Loss account of Mr. Asif for the year ended June 30, 2010; and
(b) A balance sheet as on June 30, 2010
(25)
{Autumn 2010, Q# 3}
QUESTION-14
As per the balance sheet of a sole proprietor, Akbar & Sons the profit for the year ended December 31,
2001 was Rs. 45,000, whereas the profit figure in the balance sheet as on December 31, 2002 is Rs.
85,000.
The following facts are ascertained relating to the year ended December 31, 2002:
(a)
10% depreciation on diminishing value method has been charged to plant and machinery. The net
book value of plant and machinery as on December 31, 2002 was Rs. 100,000 whereas its cost
was 150,000.
(b)
Provision for doubtful debts is 2% of debtors as on December 31, 2002. Gross debtors are Rs.
250,000 and a provision of Rs. 3,000 was already available from the last year.
(c)
Rs. 5,000 loss on sale of fixed assets has been debited.
(d)
Advertising of Rs. 8,000 has been made during the year.
(e)
Indirect manufacturing expenses have been incurred amount to Rs. 50,000.
(f)
Insurance of Rs. 15,000 from July 2002 to June 2003 is paid.
(g)
Drawings of Rs. 20,000 have been made by Mr. Saad.
(h)
Gross profit percentage is 25 percent.
334
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Required: Find out:
(i)
gross profit;
(ii)
sales;
(iii)
cost of sales; and
(iv)
direct manufacturing expenses for the year ended December 31, 2002.
(13)
{Spring 2003, Q # 3}
QUESTION-15
Mr. Azam does not maintain Double Entry Records. Balance Sheet data, details of cash receipts and
payments and other information (available in his records) for preparation of his annual accounts at the end
of the year 1990 are given below:As on 1st
As on 31st
Jan. 1990
Dec, 1990
Rupees
Rupees
(a)
Assets:
Cash
140,000
297,500
Bills Receivables
35,000
57,750
Sundry Debtors
175.000
122,500
Accrued Interest Income
2,100
2,800
Finished Goods (Inventory)
490,000
525,000
Stationery & Stores, and Supplies in hand
14,000
6,300
Furniture-at cost Less depreciation
126,000
197,750
(b)
Liabilities:Bills payable
140,000
Sundry Creditors
175,000
227,500
Accrued Salaries
3,500
1,750
Rent Received in advance
3,500
5,250
(c)
Details of Cash Receipts and Payments for the year 1990:Rupees
Rupees
Balance in hand 1st January, 1990
140,000
ReceiptsCash Sales
322,000
Credit Sales (on account)
1,680,000
Rent Income
54,250
Interest Income
1,750
Sales of Furniture
12,250
Bills Receivables cleared from bank
344,750
2,415,000
2,555,000
Payments:Sundry Creditor for purchases (on account)
1,400,000
Salaries
147,000
Rent Expenses
154,000
Office Stationery
7,000
Purchase of Furniture
122,500
General Expenses paid
42,000
Bank for Bills Payable
210,000
Mr. Azam's drawings
175,000
2,257,500
Balance of Cash in hand as on 31st December, 1990
297,500
(d)
Other relevant information, not yet accounted for are given below:-
335
CHAPTER-5
1)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Purchases discounts received during the year amounted to Rs. 21,000.Discounts
amounted to Rs. 16,800.
2)
Proceeds from Sale of Furniture for the years were Rs 12,250 as included in the Cash
Receipts. The furniture that was sold had as original cost of Rs. 56,000 and was 50%
depreciated during the previous years.
You are required to prepare Mr. Azam's Balance Sheet as at December 31, 1990 and Profit and Loss
Account for the year ended December 31, 1990 with necessary Notes to the accounts.
(20)
{October 1991, C.A. Inter -1}
QUESTION-16
Following is the balance sheet of Ashfaq as at 30 June 2013:
Owner's equity / Liabilities
Rupees
Assets
Rupees
Ashfaq’s capital
4,396,600 Motor car
2,000,000
Creditors
1,102,000 Furniture
1,000,000
Accrued rent
20,000 Stock-in-trade
1,805,000
Loan taken from a friend
27,900 Debtors
350,000
Prepaid insurance
15,000
Balance at bank
360,600
_________ Cash in hand
15,900
5,546,500
5,546,500
Ashfaq needs to submit his Trading and Profit and Loss Account for the year ended 30 June 2014 and
Balance Sheet as of that date to his bankers in order to obtain an overdraft facility.
He has not maintained proper books of account of the business but has provided you the following
information:
(i)
He purchased goods from a single supplier who allows a discount of 3% on goods purchased in
excess of Rs. 3,000,000 in a year. The discount for the year ended 30 June 2014 amounts to Rs.
265,800 and would be received in August 2014.
(ii) All goods are sold at cost plus 60%.
(iii) All cash received against sale of goods has been banked with the exception of the following weekly
average cash expenses/drawings:
Rupees
Drawings
30,000
Carriage outward
5,000
Petrol
3,000
Misc. expenses
2,500
(iv) Cash in hand on 30 June 2014 amounted to Rs. 26,700.
(v) An analysis of Ashfaq’s bank statement revealed the following information:
Receipts
Rupees
Payments
Rupees
Collection from debtors
464,400 Purchase of goods
9,850,700
Cash deposited into bank
13,717,800 Car expenses (for business)
73,000
Rent
42,000
Repayment of loan to friend
27,900
Salaries
1,600,000
Purchase of freehold land
2,500,000
Travelling expenses
40,000
Printing & stationery
46,000
Advertisement
125,000
Insurance
50,000
Truck hire charges
657,000
_________ Misc. expenses
362,300
14,182,200
15,373,900
336
CHAPTER-5
(vi)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Depreciation on motor car and furniture is to be provided @ 30% and 15% respectively under the
reducing balance method.
(vii) Stock-in-trade on 30 June 2014 amounted to Rs. 702,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2014 and Balance Sheet as on 30
June 2014.
(20)
{Autumn 2014, Q #7, CAF-05}
QUESTION-17
Following is the Balance Sheet of Arshad, a wholesaler-cum-retailer, as at 31 December 2012:
Capital / Liabilities
Rs.
Assets
Rs.
Capital
480,000 Building
300,000
Loan
152,500 Furniture
60,000
Creditors
310,000 Car
90,000
Stock
200,000
Debtors
170,000
Cash in hand
37,500
Cash at bank
85,000
942,500
942,500
Arshad needs to submit his income statement and balance sheet to his bank in order to secure a running
finance facility. He has not maintained proper books of account but has provided you the following
information:
(i)
Arshad sells goods at a gross profit of 25% on cost. Last year, he had earned a gross profit of Rs.
300,000.
(ii) The sales for the current year were 20% higher than last year. 30% of the total sales were made for
cash.
(iii) On 1 January 2013, he increased his stock level by 25% and maintained that level throughout the
year.
(iv) Collections from debtors amounted to Rs. 1,300,000 out of which Rs. 300,000 were received in
cash. Creditors were paid by cheques only.
(v) Business expenses amounted to Rs. 210,000 out of which Rs. 50,000 were outstanding at 31
December 2013 and Rs. 100,000 were paid by cash.
(vi) Following details have been collected from counterfoils of his cheque book :
Rupees
Payment to Creditors
1,375,000
Personal Drawings
75,000
Cash deposited with Bank
668,500
Cash withdrawn from bank for office use
120,000
(vii) Depreciation is charged at 5% on building and furniture and 20% on motor car.
Required:
Prepare Trading and Profit and Loss Account and Balance Sheet as at 31 December 2013.
(19)
{Spring 2014, Q #5}
QUESTION-18
Babar had purchased a running business from Razi on 1 January 2014 at a total agreed price of
Rs.960,000. Babar died on 16 June 2014 and his son Sami took over the business. Sami wants to assess
the profitability of the business and for that purpose he has collected the following information from the
records maintained by him and his father:
(i)
Correspondence between Babar and Razi has revealed that they had agreed to value the inventory
and other assets of the business at Rs.600,000 and Rs.120,000 respectively. However, in view of
Razi’s standing in the market, the deal had been finalized at a lump sum price of Rs.960,000
payable in two equal instalments. The first instalment was paid by Babar from his personal
account.
337
CHAPTER-5
(ii)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Babar had opened a bank account in the name of the business. An analysis of the bank statement
revealed the following details:
(iii)
Receipts
Amount deposited by Babar on 1 January 2014 from his personal account
Day to day collections banked at day end
(iv)
(v)
(vi)
(vii)
Rupees
2,000,000
3,800,000
Payments
Second instalment to Mr. Razi on 31 January 2014
480,000
Purchases
3,150,000
Lease rent
120,000
Electricity
22,000
Furniture purchased on 1 July 2014
25,000
Babar and Sami kept a notebook which shows that the following payments were made out of
daily sale proceeds before depositing them in the bank:
Rupees
Salaries and EOBI payments
184,300
Purchases
49,500
Sundry shop expenses
35,600
Drawings
192,500
On 31 August 2014, there was a burglary at the warehouse and inventory costing Rs. 50,000 was
stolen. Due to defect in the insurance policy, the insurance company acknowledged the claim of
Rs. 20,000 only, which was received on 5 November 2014.
On 31 December 2014, stock on hand costed Rs. 450,000. Cash in hand, trade creditors and
accrued expenses (electricity) amounted to Rs. 34,500, Rs. 82,500 and Rs. 5,200 respectively.
Depreciation on fixtures and fittings is to be provided at the rate of 10% per annum.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31 December 2014 and Balance Sheet as
on 31 December 2014.
(20)
(Spring-15, Q.1 CAF-05)
QUESTION-19
Following was the Balance Sheet of Karim & Sons as on 30th June 1989.
Liabilities
Rupees Assets
Rupees
Capital Account
960,000 Buildings
600,000
General Reserve
305,000 Furniture
120,000
Sundry Creditors
620,000 Motor Car
180,000
Stocks
400,000
Sundry Debtors
340,000
Cash in hand
75,000
Cash in bank
170,000
1,885,000
1,885,000
A fire occurred on the evening of 30th June 1990 in the premises destroying all books and records. The
Cashier absconded. A sum of Rs. 48,000 was found in the Cash Safe.
You receive the following information from the memoranda record of the Manager:i)
Sales for the year were 20% higher than the previous year.
ii)
The goods were sold at cost plus 25%.
iii)
20% of the total sales were made for cash.
iv)
There were no cash purchases.
338
CHAPTER-5
v)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
The stock level was raised to Rs. 500,000 from 1st July, 1989 and was maintained at that level all
through the year.
vi)
Collections from the Debtors amounted to Rs. 2,600,000 of which Rs. 600,000 were received in
cash.
vii)
Business expenses amounted to Rs. 420,000 of which Rs. 120,000 were paid through cheque and
Rs. 100,000 were outstanding on 30th June, 1990.
viii)
All the payments to the creditors were made through Bank only.
ix)
Analysis of the Bank Pass Book revealed the following:
Rupees
Payments to Creditors
2,750,000
Personal Drawings
150,000
Cash deposited in the Bank
1,337,000
Cash withdrawn from the Bank
240,000
x)
Gross profit as per last year's audited accounts was Rs. 600,000.
xi)
Provide Depreciation on Building & Furniture @ 5% and Motor Car @ 20%.
You are required to:
(i)
Compute:
(a)
Total Debtors Account
(b)
Total Creditors Account
(c)
Total Sales
(ii)
Ascertain the amount if any taken away by the Cashier.
(iii)
Prepare the Trading and Profit & Loss Account for the year ended 30th June, 1990 and Balance
Sheet as on that date.
(20)
{November 1990}
Question-20
Altaf Ali, who carried on a retail business, engaged an assistant at Rs. 4,000 per month who started work
on 1 January 1993. On 1 April 1993, the assistant did not report for work and it was found that he had
left, taking with him the balance in the till. It had been Altaf Ali's practice to bank each Saturday morning
the balance in the till resulting from the previous week's transactions. No float was maintained.
The only records kept, apart from the bank statements, were a notebook with details of sales on credit and
all file of unpaid invoices for goods supplied to him.
Having been instructed to establish the amount of the assistant's defalcation, you ascertain the following:
1. A Balance Sheet had been prepared on December 31, 1992 as follows:Rupees
Rupees
Capital
72,400 Fixtures and Fittings,
50,000
Sundry Creditors.
49,400 Stock in trade.
34,400
Accrued expenses
5,000 Sundry debtors.
17,200
Balance at bank
25,200
126,800
126,800
2.
An analysis of the Bank Statements up to 31st March 1993 was:
Rupees
Rupees
Balance on 31 Dec. 92
25,200 Creditors for goods
187,400
Payment in:
Rent and expenses
11,600
Debtor's cheques
9,000 Balance on 31 Mar. 93
29,600
Cash
194,400
228,600
228,600
3.
Before paying in the balance in the till, Altaf Ali paid the assistant and took Rs. 8,000 for himself
every month.
4.
Petty expenses, paid out of the till, could be assumed to average Rs. 1,600 per month.
5.
Stock taken at the commencement of business on 1 April, 1993 was Rs. 18,000.
339
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
6.
The debtor's note book showed that sales on credit had amounted to Rs. 19,800 and that on
31 March 93 there was Rs. 20,400 owing.
7.
Creditors for goods (Sundry Creditors) had always been paid by cheque. Unpaid invoices on
31 March 93 totaled Rs. 56,000 Creditors for expenses amounted to Rs. 4,000 on 31 March 93.
8.
Debtors and Creditors having been circularized, it was found that debtors in fact totaled
Rs. 16,800 and that although creditors were agreed at Rs. 56,000, goods had been returned against
a cash receipt of Rs.2,400 which had not been recorded.
9.
There was a fixed margin of gross profit of 20% on sales.
10.
An insurance company had agreed to admit a claim for the amount of the defalcation as
established by you.
You are required:
a)
To prepare a statement, with adequate supporting schedules, showing your calculation of the
amount of defalcation; and
b)
To prepare a Balance Sheet as on March 31, 1993.
(20)
{April 1994}
QUESTION-21
Mr. Rehan was carrying on a business as a retailer. He sold his goods at a fixed margin of 20 % above
cost. He had a manager to whom he paid Rs. 30,000 p.m. On 1st January 2004 his balance sheet was as
follows:
Rs.'000'
Rs.'000'
Creditors
3,000 Cash
100
Capital
12,000 Bank
2,300
Debtors
600
Stock
10,400
Furniture
1,600
15,000
15,000
Mr. Rehan used to make the following disbursements at the last day of each month:
 Salary of Manager Rs. 30,000.
 Drawings for personal use Rs. 50,000.
 Shop expenses (rent, etc) Rs. 50,000.
On January 1, 2004 Mr. Rehan went on a foreign trip and could come back only on March 1, 2004 when
he found that the manager had decamped with all the available cash.
The following information is available:
(Rs. '000')
Debtors on March 1, 2004 (according to books)
1,100
Creditors on March 1, 2004 (according to books)
2,800
Amount paid to creditors by cheque
6,000
Cheques received from debtors
1,600
Stock on March 1, 2004 (By actual count)
8,000
Cash deposited in bank as per deposit slip
5,000
It was found that a bearer cheque for Rs. 300,000 (which was not entered into books at all) received from
a debtor was encashed by the manager. Uncrossed cheque for Rs. 200,000 issued to creditor was also
encashed by the Manager. This cheque had been entered in the books. Stock records show that goods of
the cost of Rs. 200,000 were missing. It was assumed that the goods were sold by the manager and sale
proceeds misappropriated.
Required:
a)
Ascertain the amount defalcated from the above information.
b)
Draft a Balance Sheet of Mr. Rehan as at March 1, 2004.
(20)
{Autumn 2004, Q # 4}
340
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-22
Rahil runs a retail business. He appointed a cashier at a monthly salary of Rs. 13,000 on 1 April 2016.
The cashier did not report for work on 1 July 2016 and it was found that he had left, taking with him the
balance in the till.
It had been Rahil's practice to deposit on each weekend the available balance in the till after retaining a
float of Rs. 5,000. He maintains record of sales on credit and a file of unpaid invoices in respect of goods
purchased by him.
The following information has been ascertained from the available records:
(i)
Balance Sheet as on 31 March 2016 was as follows:
Rupees
Rahil’s capital
233,000 Fixtures and fittings - WDV
Creditors for goods
159,000 Inventory
Creditors for expenses
16,000 Debtors
Cash at bank
Cash in hand
408,000
(ii)
(iii)
Following is a summary of the bank statement from 1 April to 30 June 2016:
Rupees
Balance on 1 April 2016
76,000 Payment to suppliers for goods
Cheques received from customers
29,000 Rent & other expenses
Cash deposited
627,000 Balance on 30 June 2016
732,000
The following amounts were paid from the till:
Rupees
161,000
111,000
55,000
76,000
5,000
408,000
Rupees
604,000
37,000
91,000
732,000
Rs. per
month
13,000
26,000
5,000
Salary to cashier
Rahil’s drawings
Petty expenses
(iv)
Fixtures and fittings are depreciated at 10% per annum using reducing balance method.
(v)
Inventory on 1 July 2016 was Rs. 58,000.
(vi)
Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000 whereas the debtors
balances as on 30 June 2016 amounted to Rs. 66,000. However, direct confirmations from debtors
showed that receivables in fact totalled Rs. 54,000.
(vii)
Creditors for goods and expenses had always been paid by cheque. Unpaid invoices for goods on
30 June 2016 totalled Rs. 181,000 and creditors for expenses amounted to Rs. 13,000. Detailed
scrutiny of records revealed that a cash receipt of Rs. 8,000 which had been received against
goods returned to a supplier had not been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.
Required:
(a)
Prepare a statement showing calculation of the amount of defalcation.
(11)
(b)
Prepare a balance sheet as on 30 June 2016.
(09)
{Autumn 2016, Q # 1}
341
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-23
Basheer operates a retail store. He maintains incomplete accounting records. He had experienced a theft
of stock on the part of his staff last year and has asked you to determine whether there is any indication of
shortage in the current year also. In the course of your investigation, you obtain the following
information:
(a)
The physical inventory taken at December 31, 2005, under your observation amounted to Rs.
83,420. The inventory at December 31, 2004, was Rs. 120,260.
(b)
Average gross profit in recent periods has been 35% of net sales. Basheer expects the same
results for 2005.
(c)
The December 31, 2004 balance sheet shows trade debtors of Rs. 41,140 and trade creditors of
Rs. 112,440.
(d)
During 2005 an amount of Rs. 4,320 was written off and Rs. 2,960 written off in 2004 were
collected and recorded as a regular collection on account.
(e)
A list of unpaid sales invoices shows that customers owed Rs. 64,920 on December 31, 2005.
(f)
Unpaid purchase invoices indicate that Basheer owed Rs. 100,540 to the trade creditors at the end
of 2005.
(g)
An analysis of the receipts and payments shows the following:
Receipts
Rs.
From customers
997,020
Payments
To trade creditors
779,400
To customers for returned goods
1,440
Required: Compute the amount by which the physical inventory is short, if any.
(16)
{Spring 2006, Q #6}
QUESTION-24
During the night of 15th December 2004, flood water entered in the warehouse of Fine Distributors and
destroyed the entire inventory. Certain information relating to the period from 1st July to 14th December,
2004 is however, available at the Sales Office of the company.
Rs.
Gross sales
9,625,000
Opening stocks
1,250,000
Gross purchases
8,250,000
Un-recorded sales
625,000
Sales return
1,250,000
Purchase return
375,000
Freight on purchase
1,250,000
Mark up on cost
20%
Required: Calculate the Cost of Stocks, for which the company should lodge an insurance claim.
(06)
(Spring 2005, Module C, Q # 3)
QUESTION-25
Mr. Ahmad Sarwar runs a jewellery shop in Saddar Karachi. On January 1, 2002, his trade inventory, at
cost, amounted to Rs. 470,000 and his trade payables were 395,000.
During the six months to June 30, 2002, sales were Rs. 420,000. Ahmad makes a gross profit of 33.5% on
sales value of everything he sells.
On June 30, there was a burglary at the shop, and all the inventory was stolen.
In trying to establish how much inventory had been taken, Ahmad was only able to say that:
(i)
He knew from his bank statements that he had paid Rs. 284,000 to trade account payables in the
6-month period to June 30, 2002.
(ii)
He currently had payables due Rs. 555,000
342
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Required:
(a)
Calculate the amount of inventory stolen.
(b)
Prepare a trading account for the six months to June 30, 2002.
(06)
(06)
{Spring 2003, Q # 7}
QUESTION-26
Danish, a sole trader in a retail business makes all sales on cash basis. His draft balance sheet on 30th
June was under:Rupees
Rupees
Capital account
5,000 Fixtures and fitting
1,400
Stock (at cost)
3,600
Trade creditors
680 Bank balance
980
Creditors for expenses
340 Cash in hand
40
6,020
6,020
Exactly eight weeks later, on the night of 25th August 1994, a fire occurred which destroyed all his stock,
fixtures and fittings, financial books, records and papers, with the exception of the file of unpaid invoices
and cash box containing the unbanked cash that he had taken home with him. His fire insurance policy
included cover of his stock (at cost), not exceeding Rs. 5,000 and fixtures and. fittings at an agreed value
of Rs. 1,350. He had not insured against loss of profit. The cash in hand on 30th June 1994 and all
takings-up to the close of Business on 25th August 1994 had been banked with the exception of:
(a)
Rs. 15 per week that he had withdrawn for personal use.
(b)
Rs. 12 per week paid as wages, and
(c)
Rs. 60 in the cash box taken home with him.
All payments for goods and expenses, other than wages, were made by cheque. The selling price of his
goods was obtained by adding 30% to the cost price. An analysis of his bank statement for the eight
weeks ended 25th August 1994 showed the following receipts and payments:
Rupees
Receipt: Cash banked
2,884
Payments: Creditors for goods supplied
1,400
Expenses
460
Total of unpaid invoices on 25th August 1994 amounted:
For goods
560
For expenses
140
Required:
(i)
Statement showing his claim for loss of stock by fire.
(5)
(ii)
A profit and loss account for the eight weeks ended 25th August 1994 and a balance sheet at that
date assuming the claims for loss of stock and furniture and fixtures are admitted.
(20)
{April 1995, Q#1}
QUESTION-27
Munira is engaged in trading of garments. She has not maintained proper accounting records. She
suspects that some of her employees are involved in some sort of misappropriation. The list of creditors,
debtors and stocks prepared by her, show the following balances:
Balances at December 31
2007
2006
Rs. 000
Rs. 000
Trade Creditors
9,500
8,000
Trade Debtors
3,600
2,000
Stocks at cost
8,500
12,500
343
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
The following transactions were recorded during the year ended December 31, 2007:
(Rs. 000s)
Sales to staff on cash basis
315
Discounts allowed on early payments
360
Cash received from debtors
18,360
Paid to suppliers in cash
12,700
Trade Discounts Received
400
Bad Debts written off
200
Other related information is as under:
(i)
Normal sales are made at cost plus 20% but sales to staff are made at cost plus 5%.
(ii)
About 4% of the purchases during the year were defective and had to be sold at 30% below
normal selling price.
(iii)
The list of closing stock at December 31, 2007 includes four items having a total cost of Rs. 470
thousand. There was a casting error on the invoice raised by the supplier and the total has been
erroneously recorded as Rs 740 thousand. The invoice is still unpaid.
Required: You are required to calculate the loss incurred by Munira during the year 2007 on account of
misappropriations (if any).
(19)
{Spring 2008, Q # 6}
QUESTION-28
Danish does not keep proper books of account due to his lack of knowledge of double entry system of
accounting. He has supplied you the following information with respect to the year ended 31 December
2011 from the records kept in his diary:
(i) Receipts and payments made during the year:
Rupees
Cash received from debtors
80,000
Discount allowed to debtors
1,400
Bad debts written off
1,800
Cash paid to creditors
63,000
Discount allowed by creditors
1,000
Sales returns
3,000
Purchases returns
2,000
Expenses paid
6,000
Drawings
5,000
Rent paid
2,500
(ii) Opening balances as on 1 January 2011:
Assets and liabilities
Rupees
Debtors
45,000
Creditors
24,000
Cash
4,500
Furniture and fixtures
15,000
Stock
25,000
Motor van
16,000
(iii) Debtors and creditors as on 31 December 2011 amounted to Rs. 48,600 and Rs. 27,000
respectively.
(iv) Outstanding expenses as on 31 December 2011 amounted to Rs. 1,200.
(v) Depreciation is charged on furniture and fixtures at the rate of 10% and on motor van at 20%.
(vi) Danish sells goods at cost plus 40% and follows a policy of maintaining a provision of 5% of the
outstanding debtors.
Required:
(a) Trading and profit and loss account for the year ended 31 December 2011.
(b) Balance sheet as at 31 December 2011.
(21)
{Spring 2012, Q# 5}
344
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-29
Mr. Tahir took a store on rent from January 1, 2010 and started a grocery business. Analysis of his
bank account for the year ended December 31, 2010 is given below:
Rs. in '000
3,960
Balance on January 1, 2010
Receipts deposited in bank
41,850
45,810
Payments on January 1, 2010
Fixture and fittings
Motor van
Payments on July 1, 2010
Truck
Deep freezers
Payments during the year
Purchases
Drawings
Rent, rates and taxes
Lighting and heating
Repairs
Sundry business expenses
Balance on December 31, 2010
Following further information is available.
(i) The total receipts included:
600
240
1,200
800
37,496
1,960
1,750
100
460
272
Encashment of personal savings certificates
Proceeds from sale of motor van on May 1, 2010
Rent of Mr. Tahir's bungalow
(ii) All cash received against sale of goods has been banked with the exception of:
(44,878)
932
Rs.in'000
960
200
480
Rs. in '000
Staff salaries for the year
2,600
Personal expenses of Mr. Tahir (per month)
100
Cash retained for sundry business expenses (per month)
20
Of the cash taken for sundry business expenses, Rs 10 thousand was in hand on December 31, 2010.
(iii) Repairs include Rs. 36 thousand paid in respect of Mr. Tahir's bungalow.
(iv) On December 31, 2010 advance rent of the store amounted to Rs. 400 thousand; creditors for
purchases totalled Rs. 1,900 thousand whereas debtors amounted to Rs. 150 thousand,
(v) Depreciation is provided at 25% on motor vehicles and at 15% on fixture and fittings and deep
freezers,
(vi) Sales are made at 20% above cost.
Required:
(a) The trading and profit and loss account of Mr. Tahir for the year ended December 31, 2010.
(b) Balance sheet as on December 31, 2010.
(19)
{Spring 2011, Q# 3}
345
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-30
Shafiq Ahmad is in the business of sun-flower oil. He expanded his business considerably during the year
ended June 30, 2009 but did not maintain proper books of account. He has now extracted the following
details from a register maintained at the business premises:
Summary of receipts and payments
Rupees
Receipts:
Additional capital injected
1,000,000
From debtors
4,713,750
From insurance company for damaged stock
30,000
Cost of transportation recovered from customers
200,000
Payments:
Landlord
192,000
Salaries
248,000
Fuel and maintenance of delivery trucks
224,000
Miscellaneous office expenses
112,000
Personal income-tax
50,000
Transfer to 12% fixed deposit (on Feb. 1,2009)
200,000
Suppliers
3,200,000
Cost of transportation paid to suppliers
250,000
Purchase of truck and initial repair thereof
360,000
From the income tax file for the year ended June 30,2008, he determined the following:
Capital
497,300
Creditors for oil purchases
1,200,000
Creditors for expenses:
- Rent for June 2008
16,000
- Salaries
4,000
Cash and bank
75,000
Debtors
160,000
Provision for bad debts
48,000
Stock of oil (1,250 tins)
1,250,000
Furniture
30,000
Accumulated depreciation on furniture
5,700
Delivery trucks
400,000
Accum0ulated depreciation on trucks
144,000
On scrutiny of the other records, he was able to gather the following information:
(i)
2,800 tins of oil were sold during the year at Rs. 2,000 each.
(ii)
3,000 tins were purchased during the year at Rs. 1,200 each. 50 tins were damaged in transit
against which insurance claim of Rs. 30,000 was received. The damaged tins were sold for Rs.
15,000 and the amount is included in receipt from debtors. Two tins were withdrawn for personal
use and ten tins were gifted to a charity.
(iii)
50 tins were declared unfit for health, by the quality inspection department and could either be
sold at Rs. 1,000 each or reprocessed by a third party, at a further cost of Rs. 900 each. A decision
in this regard has not been made so far.
(iv)
A second-hand delivery truck costing Rs. 300,000 was purchased on April 1, 2009 by paying
cash. Rs. 60,000 were spent to bring it in proper operating condition.
(v)
Rs. 10,000 were paid for registration of the truck and a fee of Rs. 18,000 was paid for obtaining
fitness certificate which is valid for three years. These amounts are included in fuel and
maintenance expenses shown above.
346
CHAPTER-5
(vi)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Debtors amounting to Rs. 60,000 were written off during the year. Bad debts are estimated at 2%
of sales.
(vii)
Depreciation is charged from the date of purchase. The rate of depreciation is 10% and 20% of
WDV on furniture and delivery trucks respectively.
(viii) Stock is valued on weighted average basis.
Required:
(a)
Trading & profit and loss account for the year ended June 30, 2009.
(b)
Balance sheet as at June 30, 2009.
(25)
{Autumn 2009, Q # 3}
QUESTION-31
Zafar is a wholesaler and usually sells goods on credit. However, he also makes some cash sales. Zafar
does not keep proper books of accounts and has provided you the following information related to the
year ended 30 June 2013:
(i)
Assets and liabilities at 1 July 2012 were as follows:
Rupees
Fixed assets at book value
3,560,000
Inventory
774,000
Cash
59,000
Bank
553,000
Trade receivables
237,000
Prepayment (insurance)
39,000
Trade payables
553,000
Bank loan (repayable over 5 years)
592,000
Rent payable
59,000
(ii) Balances on 30 June 2013 were as follows:
Cash on hand
75,000
Trade receivables
200,000
(iii) Purchases for the year amounted to Rs. 1,270,000.
(iv) Cheques deposited into bank, during the year, amounted to Rs. 1,559,000.
(v) Zafar withdrew Rs. 118,000 out of cash sales for personal use.
(vi) On the night of 30 November 2012, there was a burglary at the shop and some inventory was
stolen. In order to establish how much inventory was stolen, Zafar informed you that:

He had paid Rs. 510,200 against trade payables in the five month period to 30 November
2012.

Trade payables due on 30 November 2012 amounted to Rs. 466,600.

An inventory count was carried out on the following day after the burglary and the cost of
inventory was determined as Rs. 476,600.

Due to a defect in the insurance policy, no insurance claim was received.
(vii) On 30 April 2013, inventory costing Rs. 60,000 was damaged and scrapped. The insurance
company agreed to pay Rs. 42,000 only.
(viii) Zafar makes a gross profit of 25% of the sales value and his sales occur evenly throughout the year.
Required:
Calculate the amount of inventory stolen, the cost of the closing inventory and the gross profit for the year
ended 30 June 2013.
(21)
{Autumn 2013, Q#5}
347
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-32
An analysis of the records of Mr. Jameel disclosed changes in account balances for 2002 and
supplementary data as listed below.
Rs.
Cash at bank
6,500 increase
Accounts Receivable
1,500 decrease
Stock
14,000 increase
Notes payable
5,000 increase
Accounts payable
2,500 increase
During the year, he had borrowed Rs. 12,000 from the bank and paid off notes of Rs. 15,000 and interest
of Rs. 750. Interest of Rs. 250 is still outstanding as at 31 December 2002.
During the year Mr. Jameel transferred certain marketable securities that he owned, to the business and
these were sold for Rs. 4,200 to finance purchase of stock. He made weekly drawings of Rs. 250 in 2002.
Required :Calculate his net income or loss for 2002 from the above data.
(07)
{Autumn 2003, Q # 6}
QUESTION-33
An analysis of the records of Kashif Ahmed disclosed changes in account balances for 1992 and
supplementary data as listed below. Form this data calculate the net income or loss for 1992.
Rs.
Cash
195,000
Increase
Trade debts.
45,000
Decrease
Finished goods stock
420,000
Increase
Bills payable
150,000
Increase
Trade creditors.
75,000
Increase
During the year Kashif Ahmed borrowed Rs. 360,000 from the bank and paid off bills of Rs. 450,000 and
mark up of Rs. 22,500. Mark up of Rs. 7,500 is accrued as of December 31 1992.
In 1992, Kashif Ahmed also transferred certain investments that he owed to the business and these were
sold for Rs. 126,000 to finance the purchase of merchandise.
Kashif Ahmed made weekly drawings of Rs. 4,500 in 1992.
(10)
{October 1993 CA. Inter-I}
QUESTION-34
Saleem is the owner of S-Mart, a grocery store. His accountant resigned and left on 1 January 2017.
Saleem suspects that the previous accountant was involved in some sort of misappropriation. The
information available with him is as follows:
(i)
Summary of bank statement:
Receipts
Balance as at 1 Jan 2016
Cheques from debtors
Cash sales
Sale of old vehicle on 1 Jan 2016
348
Rupees Payments
250,000 Suppliers
824,000 Salaries
1,450,000 Rent
15,000 Utilities
Other expenses
New vehicle on 1 Mar 2016
Balance as at 31 Dec 2016
2,539,000
Rupees
1,807,500
48,000
72,000
36,000
24,750
230,000
320,750
2,539,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(ii)
Other balances extracted from the records maintained by the previous accountant:
31-Dec31-DecParticulars
2016
2015
Rupees
Furniture and fixtures - WDV
555,000
550,000
Equipment - WDV
64,000
80,000
Vehicle - WDV
210,000
18,500
Inventory
215,000
250,000
Debtors
340,000
260,000
Advance rent
3,000
Cash in hand
31,510
45,000
Creditors
354,500
100,000
Salaries payable
22,000
18,000
(iii)
Before depositing the receipts from cash sales in the bank, Saleem took Rs. 12,000 per month for
personal use. All other payments were made through bank and the debtors settled their accounts
through cheques.
(iv)
The creditors have confirmed the balances due from them. However review of the statement
provided by one of the creditors indicates that goods returned for cash amounting to Rs. 24,000
were not recorded in the books.
(v)
Unpaid invoice for furniture purchased during the year for Rs. 45,000 is included in creditors.
(vi)
The margin on cash sales and credit sales is 20% and 25% respectively. From 1 July 2016, prices
to cash customers were further reduced by 6% due to which quantity sold against cash in the 2nd
half of the year increased by 25% as compared to the first half of the year.
(vii)
All the debtors confirmed their balances except an amount of Rs. 50,000. On investigation it was
found that the related goods had been issued against fake invoices. Required:
Required
(a)
Determine the amount of suspected fraud.
(04)
(b)
Prepare statement of profit or loss for the year ended 31 December 2016.
(11)
QUESTION-35
Following information pertains to Alpha Traders (AT) for the year ended 31 December 2017:
(i) 60% goods are sold for cash to walk-in customers at list price. Remaining goods are sold to corporate
customers on credit at a trade discount of 2% on list price. They only pay through cheques.
(ii) Balances extracted from AT’s records:
31-Dec-2017
31-Dec-2016
--------- Rs. in ‘000 --------Furniture and fittings – net
?
10,175
Stock-in-trade
14,500
12,300
Trade debtors – gross
5,900
4,400
Prepaid rent
180
145
Cash in hand
430
750
Trade creditors
9,700
8,500
Accrued salaries
310
460
(iii) All furniture and fittings were purchased on 1 July 2015 and are depreciated using straight-line
method at 5% per annum.
(iv) Provision for doubtful debts is maintained at 4%. During the year, balances totaling Rs. 260,000 were
written-off.
349
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(v) Summarised bank statement:
Deposits
Opening balance
Corporate customers
Cash
Insurance claim
Return outward
Delivery charges recovered
Rs. in ‘000
9,800
34,240
56,380
5,500
2,170
330
108,420
Withdrawals
Rs. in ‘000
Utilities
1,400
Rent, rates and taxes
2,100
Repairs & maintenance
2,800
Cash
6,320
Creditors
87,200
Delivery truck (second hand)
2,300
Miscellaneous expenses
1,300
Closing balance
5,000
108,420
(vi) Cash payments for the year:
Rs. in ‘000
Salaries
6,500
Repairs & maintenance
500
Drawings
?
(vii) Insurance claim represents cost of goods lost in transit during the year.
(viii) A cheque of Rs. 300,000 issued on 15 December 2017 against rent, has not yet been presented
whereas cheque from a debtor, deposited on 31 December 2017 amounting to Rs. 3,200,000 is not
appearing in the bank statement.
(ix) Creditors are paid through cheques only. Payments made to creditors include:
 Rs. 48,000,000 after availing discount of 4%.
 A cheque of Rs. 1,900,000 issued to a supplier in December 2016. No discount was allowed by
the supplier on this payment.
(x) The delivery truck was purchased on 1 March 2017. Prior to use, the truck was repaired at a cost of
Rs. 260,000. The repair work was completed on 31 March 2017. The amount is included in payment for
repairs and maintenance above. Depreciation on delivery truck is charged on a straight-line basis at 12.5%
per annum.
Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 2017.
(12)
(b) Statement of financial position as on 31 December 2017.
(08)
(Spring 2018, Q8)
QUESTION-36
On 1 July 2017, Nezam took over a running business namely FC Traders (FCT). Proper books of
account are not maintained for FCT. Following information has been gathered for preparation of
statement of profit or loss for the year ended 30 June 2018:
(i)
Balances of certain assets and liabilities:
30-Jun-2018
1-Jul-2017
Assets and liabilities
------ Rs. in '000 -----Equipment
4,000
4,000
Furniture and fixtures
2,500
2,500
Trade debtors
1,600
Inventory
2,400
2,800
Unused miscellaneous supplies
400
300
Unpaid suppliers’ bills
2,800
1,850
Shop rent payable
400
200
350
CHAPTER-5
(ii)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Summary of bank payments for the year ended 30 June 2018:
Rs. in '000
Suppliers
13,600
Repair and maintenance
950
Shop rent
2,000
Miscellaneous supplies
800
Utilities
1,200
(iii)
Payments made out of cash sales before being deposited into the bank:
Rs. in '000
Salaries and wages
1,800
Purchase of inventory
3,000
Part payment of sales commission to riders
90
(iv)
Unpaid suppliers’ bills as at 30 June 2018 include a bill of Rs. 320,000 which was
mistakenly taken at Rs. 230,000.
(v)
During the year, goods costing Rs. 540,000 were withdrawn by Nezam for
personal use.
(vi)
Inventory as at 30 June 2018 includes goods costing Rs. 250,000 which were
badly damaged in an accident and have no sales value.
(vii) Mark-up on goods sold are as follows:
Mark-up on cost
50% of goods – sold on cash counter
35%
20% of goods – sold for cash through riders
40%
30% of goods – sold for credit
45%
(viii) The riders are entitled to 3% commission.
(ix)
Fixed asset at 30 June 2018 are to be depreciated at 10% per annum.
(x)
Salaries and wages for June 2018 amounting to Rs. 165,000 were paid on 5 July
2018.
Required:
Prepare a statement of profit or loss for the year ended 30 June 2018.
(13)
(Autumn 2018)
351
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP PAST PAPER SOLUTIONS
ANSWER-1
Mr. Saud Jawad
Trading and Profit and Loss Account
for the year ended June 30, 2002
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent
Electricity
Delivery costs
Casual Labour
(W-8)
(W-7)
(W-5)
(W-6)
(12,000+66,200)
Net Profit
Rupees
1,276,800
(960,000)
316,800
49,200
13,400
30,000
78,200
(170,800)
146,000
Mr. Saud Jawad
Balance Sheet
as on June 30, 2002
Capital and liabilities
Capital
Opening capital (calculate yourself)
Add: Net Profit
Less: Drawings
((W-4)74,100+6,000)
Current Liabilities
Trade Creditors
Electricity Payable
Total
Assets
Current Assets:
Stocks
Debtors
Prepaid rent
Bank
Cash
Total
WORKINGS
(W-1)
Dr.
Op.
Sales (W-8)
Rupees
78,500
146,000
(80,100)
144,400
89,000
1,600
90,600
235,000
(W-3)
168,000
43,000
4,200
16,500
3,300
235,000
235,000
Debtors account
Cr.
39,000 Cash (bal)
1,272,800
1,276,800
cl.
43,000
1,315,800
1,315,800
Takings have been the source of all amounts banked means that debtors do not give the cheques and we
receive money in cash only from them. Further in bank account only cash is deposited therefore it will
appear as balancing figure in bank account.
352
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
Dr.
Bank
cl.
Creditor account
op.
1,015,000 Inventory (bal.)
89,000
1,104,000
Cr.
74,000
1,030,000
1,104,000
(W-3)
Dr.
op.
Cash (Bal.)
Bank account
23,000
1,169,000 Creditors
Rent
Electricity
Delivery costs
Casual Labour
cl.
1,192,000
Dr.
op.
Debtors (W-1)
Cash account
3,600
1,272,800 Casual labour expense
Purchases
Bank (W-3)
Drawing (bal.)
c/d
1,276,400
Cr.
1,015,000
50,400
13,900
30,000
66,200
16,500
1,192,000
(W-4)
Cr.
12,000
18,000
1,169,000
74,100
3,300
1,276,400
(W-5)
Dr.
op.
Bank
Rent expense account
3,000
P and L (bal.)
50,400
cl.
53,400
Cr.
49,200
4,200
53,400
(W-6)
Dr.
Bank
cl.
(W-7) Calculation of Cost of Sales
Dr.
Op.
Creditors (W-2)
Cash (Purchases)
Electricity
Op.
13,900 P and L (bal.)
1,600
15,500
Inventory account
86,000 Cost of Sales (Bal.)
1,030,000 Drawing
18,000 c/d
(W-8) Calculation of sales
Total Sales
= (Cost of sale (W-7) / 100 x 133)
= (960,000 / 100 x 133)
= 1,276,800
353
Cr.
2,100
13,400
15,500
Cr.
960,000
6,000
168,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-2
Mr. Ikram Rizwan
Trading and Profit and Loss Account
for the year ended December 31,2001
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Interest Expense
General expenses
Rent
Wages
Advertisement
Prov. for doubtful debt
Depreciation
Plant and machinery
Office equipment
Motorcar
{(W-l) 4,173,000 + (W-4.1) 121,600}
(W-9)
(W-5)
((W-6)977,000+(300 x 52))
(W-7)
(160,000 x 80%)
(1,280,000 x 20%)
((W-8)500,000/10)
(50,000/4)
Net Profit
Rupees
4,294,600
(1,804,500)
2,490,100
95,000
125,000
218,000
992,600
13,000
128,000
256,000
50,000
12,500
(1,890,100)
600,000
Mr. Ikram Rizwan
Balance Sheet
as on December 31,2001
Capital and liabilities
Capital
Opening capital
Capital introduced
Add: Net Profit
Less: Drawings (W-4)
Current Liabilities
Trade Creditors
Wages
Loan
Total
Assets
Non-Current Assets
Plant and machinery
Office equipment
Motorcar
354
Rupees
(220,000+50,000)
(950,000-(W-3.1)125,000)
(1,280,000-256,000)
(450,000-50,000)
(50,000-12,500)
1,170,500
270,000
600,000
(89,000)
1,951,500
122,000
52,500
825,000
999,500
2,951,000
1,024,000
400,000
37,500
1,461,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Current Assets:
Stocks
Debtors
Less: Provision for doubtful debts
Prepaid advertisement
Prepaid rent
Bank
Total
WORKINGS
(W-1) Dr.
op. (350,000-25,000)
Sales (bal.)
(W-7)
287,500
223,000
(128,000)
13,000
27,000
1,067,000
1,489,500
2,951,000
Debtors account
325,000 Bank
4,173,000
cl.
4,498,000
Cr.
4,275,000
Creditors account
op.(176,000-43,000)
1,756,000 Inventory (bal.)
42,000
122,000
1,920,000
Cr.
133,000
1,787,000
223,000
4,498,000
(W-2)
Dr.
Bank
Cash
cl.
1,920,000
(W-3)
Dr.
Bank account
Cr.
op. (O/D)
88,500
Capital
220,000 Cash
224,500
Debtors
4,275,000 Loan(Principal) (220,000-95,000)
125,000
Cash (bal.)
106,000 Interest expense
95,000
Creditors
1,756,000
Rent expense
220,000
Wages exp.
900,000
General expenses
125,000
cl.
1,067,000
4,601,000
4,601,000
As the closing balance is after adjustment of un-presented cheques therefore it is not required to prepare
BRS here.
(W-3.1) Entry for loan and interest
Debit
Credit
Dr.
Interest expense
95,000
Dr.
Loan payable
125,000
Cr.
Bank
220,000
(W-4)
Dr.
Cash account
Cr.
Bank
224,500 Wages
67,500
Sales (W-4.1)
121,600 Creditors
42,000
Advertisement
26,000
Wages(son) (300 x 52)
15,600
Bank (W-3)
106,000
Drawing (bal.)
89,000
c/d
346,100
346,100
355
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
As per question all the cash received from cash sales is deposited in bank after paying wages to son, so if
we add-up the wages paid to son and amount deposited in bank we can calculate the cash sales.
(W-4.1)
Amount deposited in bank
106,000
Add: Wages to son
15,600
Cash sales
121,600
As all amount withdrawn from bank is used to meet the expenses and drawing and all cash sales are used
to pay wages with remaining amount deposited in bank so the closing balance of cash account will be
zero.
(W-5)
Dr.
Rent
Cr.
op.
25,000
Bank
220,000 P and L (bal)
218,000
cl.
27,000
245,000
245,000
(W-6)
Dr.
Bank
Cash
cl.
(W-7)
Wages
Op.
900,000 P and L (bal)
67,500
52,500
1,020,000
Dr.
op.
Cash
Advertisement
- P and L (bal)
26,000
CL. (26,000/2)
26,000
As half are still to be distributed so this is not an expense of current year rather it is a pre-paid.
Cr.
43,000
977,000
1,020,000
Cr.
13,000
13,000
26,000
(W-8) Cost of equipment is Rs. 500,000 (450,000/90x100)
(W-9) Calculation of Cost of Sales
Dr.
Op.
Creditors (W-2)
ANSWER-3
1)
Dr.
op.
Capital
Debtors
356
Inventory account
305,000 Cost of Sales (Bal.)
1,787,00
0
cl.
Cash account
330
14,000 Creditors
67,900 Business Expenses
Drawings
New motor van
Wages
Drawing (loan brother)
Drawings (bal.)
c/d
82,230
Cr.
1,804,500
287,500
Cr.
52,180
7,215
6,250
5,800
5,330
3,500
1,490
465
82,230
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
2)
Mr. Gul Nawaz
Trading and Profit and Loss Account
for the year ended September 30,1994
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Business expenses
Casual wages
Loss on exchange
Depreciation
(W-5)
(W-5.1)
(W-3)
(W-6)
((W-6)7,000 x 10%)
Net Profit
Rs.
68,160
(51,120)
17,040
7,080
5,330
800
700
(13,910)
3,130
Mr. Gul Nawaz
Balance Sheet
as on September 30,1994
Capital and liabilities
Capital
Opening capital
Capital introduced
Add: Net Profit
Less: Drawings
(W-7)
(W-4)
Current Liabilities
Trade Creditors
Business expenses
3,070
820
3,890
14,130
Total
Assets
Non-Current Assets
Motor Van
Less Accumulated depreciation
(W-6)
Current Assets
Stocks
Debtors
Prepaid business expenses
Cash
357
7,000
(700)
6,300
6,100
1,050
215
465
7,830
14,130
Total
WORKINGS
(W-1) Dr.
op.
Sales (W-5)
Rs.
4,350
14,000
3,130
(11,240)
10,240
Debtors account
790
68,160 Cash (bal.)
cl.
68,950
Cr.
67,900
1,050
68,950
CHAPTER-5
(W-2)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Cash
cl.
(W-3)
Dr.
op.
Cash
cl.
(W-4)
Dr.
Cash
Cash (loan brother)
Cash (part-a)
Creditors account
op.
52,180 Inventory (bal.)
3,070
55,250
Cr.
2,530
52,720
Business Expenses
160 op.
7,215 P and L (bal.)
820 cl.
8,195
Cr.
900
7,080
215
8,195
Drawings
6,250
3,500
1,490 Capital (bal.)
11,240
Cr.
55,250
11,240
11,240
(W-5) Calculation of sales
Total Sale
= (Cost of sale (W-5.1) / 75 x 100)
= 51,120 / 75 x 100
= 68,160
(W-5.1) Calculation of Cost of Sales
Dr.
Inventory account
Op.
4,500 Cost of Sales (Bal.)
Creditors
(W-2)
52,720
Cl.
(W-6)
Motor Van (new)
P and L (bal.)
Motor Van (old)
Cash
Cost of new asset
TIA
Add: Cash paid
(W-7) Opening capital
Assets
Motor Van
Stocks
Debtors
Prepaid expenses
Cash
Liabilities
Creditors for supplies
Creditors for expenses
358
Cr.
51,120
6,100
Dr.
7,000
800
Cr.
2,000
5,800
1,200
5,800
7,000
Rs.
2,000
4,500
790
160
330
7,780
2,530
900
(3,430)
4,350
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-4
Panorama Retail Store
Trading and Profit and Loss Account
for the year ended December 31,1991
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent expense
General expenses
Depreciation
Rs.
10,220
(7,840)
2,380
(W-1)
(W-7)
(W-5)
300
180
80
(560)
1,820
(800x10%)
Net Profit
Panorama Retail Store
Balance Sheet
as on December 31,1991
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
4,300
1,820
(20)
6,100
(W-6)
(10x2)
Current Liabilities
Trade Creditors
Rent owing
650
50
700
6,800
Total
Assets
Non-Current Assets
Furniture
Current Assets
Stocks
Debtors
Bank
Cash
(800-80)
1,700
1,320
3,050
10
6,080
6,800
Total
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2) Dr.
Bank
Cash
cl.
359
720
Debtors account
1,100 Cash
10,220 Bank (W-3)
cl.
11,320
(W-4)
Creditors account
7,200 op.
500 Inventory (bal.)
650
8,350
Cr.
500
9,500
1,320
11,320
Cr.
400
7,950
8,350
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-3)
Dr.
op.
Debtors (bal.)
Bank account
1,130 Creditors
9,500 Rent
General expenses
cl.
10,630
Cr.
7,200
200
180
3,050
10,630
(W-4)
Dr.
op.
Debtors
Cash account
80 Rent expense
500 Drawing (10 x 2)
Creditors (bal.)
cl.
580
Cr.
50
20
500
10
580
(W-5)
Dr.
Cash
Bank
cl.
Rent account
50 op.
200 P and L (bal.)
50
300
(W-6) Opening capital
Assets
Fixtures
Debtors
Bank balance
Cash balance
Stock
Cr.
300
300
800
1,100
1,130
80
1,590
4,700
Liabilities
Creditors for goods
(400)
4,300
(W-7) Calculation of Cost of Sales
Dr.
Op.
Creditors
(W-2)
Inventory account
1,590 Cost of Sales (Bal.)
7,950 Cl.
Cr.
7,840
1,700
ANSWER-5
Mr. Rashid
Trading and Profit and Loss Account
for the year ended December 31,2000
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Salaries
Bad debts
Business expenses
Depreciation Furniture
Net Profit
360
(W-4)
(15,000 x 10%)
Rs.
85,000
(33,500)
51,500
10,000
2,500
3,500
1,500
(17,500)
34,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Rashid
Balance Sheet
as on December 31, 2000
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
(6,000+2,500+1,000)
Current Liabilities
Trade Creditors
Total
Assets
Non-Current Assets
Furniture
Less: Accumulated depreciation
Current Assets:
Stocks
Debtors
Cash
18,000
92,500
15,000
(1,500)
13,500
39,000
26,000
14,000
79,000
92,500
(W-3)
Total
WORKINGS
(W-1)
Dr.
op.
Sales (85,000-35,000)
Rs.
50,000
34,000
(9,500)
74,500
Debtors account
- Cash (Bal.)
50,000 Bad debts
cl.
50,000
Cr.
21,500
2,500
26,000
50,000
Creditor account
37,000 Inventory (Purchases)
18,000 (75,000-20,000)
55,000
Cr.
55,000
(W-2)
Dr.
Cash (Bal.)
cl.
55,000
(W-3)
Dr.
Capital
Sales
Debtors
(W-1)
(W-4) Calculation of Cost of Sales
Dr.
Op.
Creditors (W-2)
Cash (Purchases)
361
Cash account
50,000 Furniture
35,000 Purchases
21,500 Creditors (W-2)
Drawings
Drawings (son)
Salaries
Business expenses
c/d (Bal.)
106,500
Inventory account
- Cost of Sales (Bal.)
55,000 Drawings
20,000 c/d
Cr.
15,000
20,000
37,000
6,000
1,000
10,000
3,500
14,000
106,500
Cr.
33,500
2,500
39,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-6
Mr. Zubair
Trading and Profit and Loss Account
For the year ended June 30, 2000
Sales
Less: Cost of sales
Gross Profit
Less: Business Expenses
Add: Interest on deposit
Net Profit
(W-1)
(W-6)
(5,000 x 20% x 6/12)
Rupees
67,600
(59,750)
7,850
(3,500)
500
4,850
Mr. Zubair
Balance Sheet
as on June 30, 2000
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
20,000
4,850
(4,000)
20,850
(W-5)
Current Liabilities
Trade Creditors
Total
Assets
Non-Current Assets
Furniture
Current Assets:
Stocks
Debtors
Bank
2,000
22,850
10,000
5,500
5,750
1,600
12,850
22,850
Total
WORKINGS
(W-1) Dr.
Op. (5,750 - 500)
Sales (bal.)
Debtors account
5,250 Cash (W-4)
67,600 cl.
72,850
Cr.
67,100
5,750
72,850
(W-2)
Dr.
Bank
cl.
(W-3) Dr.
b/d (bal.)
Cash
362
Creditors account
59,250 op.
2,000 Inventory (bal.)
61,250
Bank account
750 Creditors (withdrawal)
60,100 c/d
60,850
Cr.
1,000
60,250
61,250
Cr.
59,250
1,600
60,850
CHAPTER-5
Note:
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
As all collections are lodged in banks after making drawing and paying certain expenses,
therefore creditors are being paid in cheque.
(W-4)
Dr.
Cash account
Cr.
Bank
60,100
Debtor (bal.)
67,100 Fixed deposit
5,000
Fixed deposit
5,000 Business expenses
3,500
Interest on deposit
500 Drawings
4,000
(5,000 x 20% x 6/12)
c/d
64,750
64,750
(W-5) Opening capital
Assets
Rs.
Furniture
10,000
Stock
(5,500-500)
5,000
Debtors
(5,750-500)
5,250
Bank
(W-3)
750
21,000
Liabilities
Creditors
(1,000)
20,000
(W-6) Calculation of Cost of Sales
Dr.
Inventory account
Cr.
Op.
(5,500-500)
5,000 Cost of Sales (Bal.)
59,750
Creditors
(W-2)
60,250
Cl.
5,500
ANSWER-7
Mr. Rameez
Trading and Profit and Loss Account
for the year ended September 30,1997
Rs.
Sales
((W-1) 58,400 + (W-4) 481,400)
539,800
Less: Cost of sales
(W-7)
(377,100)
Gross Profit
162,700
Less: Admin Expenses
Rent and rates
10,000
Electricity
5,000
Stationery and postage
2,600
Wages
(40,000 + 1,000)
41,000
Insurance expense
(W-6)
2,000
Bank charges and interest
11,000
Sundry shop expense
(5,000 + 600)
5,600
Depreciation:
- Conversion cost
(250,000 x 2%)
5,000
- Fixtures and fittings
(30,000 x 5%)
1,500
(83,700)
Add: Supplies discount
1,000
Profit before commission
80,000
Less: Commission to Qadeer
(80,000 x 5%)
(4,000)
Net Profit
76,000
363
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Rameez
Balance Sheet
as on September 30,1997
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
Rs.
67,600
76,000
(60,000)
83,600
(W-5)
Current Liabilities
Trade Creditors
Wages payable
Shop expenses
Commission payable to Qadeer
Bank over draft
(W-2)
40,300
1,000
600
4,000
200,700
246,600
330,200
Total
Assets
Non-Current Assets
Conversion cost
Less: Accumulated depreciation
Fixtures and fittings
Less Accumulated depreciation
250,000
(5,000)
30,000
(1,500)
273,500
Current Assets:
Stocks
Special customers
Prepaid insurance
Cash
36,000
17,200
2,000
1,500
56,700
330,200
Total
WORKINGS
(W-1) Dr.
op.
Sales (bal.)
(W-2)
(W-3)
Bank reconciliation statement
Balance as per adjusted cash book
Less: Uncredited cheques
Balance as per bank statement
Dr.
Bank
cl.
364
Special customer account
- Bank (38,200+3,000)
58,400 cl.
58,400
(bal.)
(given)
Creditors account
op.
372,800 Inventory (bal.)
40,300
413,100
Cr.
41,200
17,200
58,400
(200,700)
(3,000)
(203,700)
Cr.
413,100
413,100
CHAPTER-5
(W-4)
(W-5)
Dr.
op.
Bank
Sales
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Cash account
2,000 Bank
481,400 Wages
Sundry shop expense
Drawing
c/d
483,400
(bal.)
Dr.
Capital account
op.
Bank
Rent and rates
Electricity
Stationery and postage
67,600
67,600
cl. (bal.)
(W-6)
Dr.
op.
Bank
Insurance expense
4,000 P and L (bal.)
cl.
4,000
(W-7) Calculation of Cost of Sales
Dr.
Op.
Creditors
(W-3)
Inventory account
- Cost of Sales (Bal.)
413,100
Cl.
Cr.
376,900
40,000
5,000
60,000
1,500
483,400
Cr.
50,000
10,000
5,000
2,600
67,600
Cr.
2,000
2,000
4,000
Cr.
377,100
36,000
ANSWER-8
Mr. Mishap
Trading and Profit and Loss Account
for the year ended June 30,1994
Sales
Less: Sale return
(972,470 + (W-l) 20,340,760)
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Rent
Insurance
Telephone
Advertising
Salaries
Interest
Miscellaneous expense
Discount allowed
(W-13)
365
(W-4)
(W-5)
(W-6)
(W-7)
(W-9)
(W-10)
Rupees
21,313,230
(13,780)
21,299,450
(18,929,540)
2,369,910
102,000
145,250
240,350
248,160
950,390
36,750
98,260
25,450
CHAPTER-5
Provision for bad debt
Loss on sale of fixed assets
Depreciation
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
(W-11)
Add: Other Income (Discount received)
Net Profit
WORKINGS
(W-1)
Dr.
Op. (167,750+35,000)
75,340
33,200
92,300
(2,047,450)
32,540
355,000
Debtors account
Cr.
202,750 Cash and bank
20,150,340
Discount Allowed
25,450
Sales
(bal.)
20,340,760 Sales return
13,780
Bad debt
30,340
cl.(243,600+80,000)
323,600
20,543,510
20,543,510
The debtors figure given in the balance sheet is net of provision so to arrive at the gross figure of debtors
the balance of provision given in the other information needs to be added. The reason how one comes to
know that the debtor is net of provision is that in balance sheet only debtors are appearing and in the
descriptive information provision for doubtful debts detail is given.
(W-2)
Dr.
Provision for bad debt account
Cr.
Bad debt
30,340 op.
35,000
cl.
80,000 P and L (bal.)
75,340
110,340
110,340
(W-3) Dr.
Creditors account
Cr.
op.
194,650
Cash and bank
18,696,670 Inventory (bal.)
18,750,640
Dis. Received
32,540
Inventory (Purchases return)
23,780
cl.
192,300
18,945,290
18,945,290
(W-4)
Dr.
Prepaid Rent
Cr.
op.
8,500
Cash and bank
102,000 P and L (bal)
102,000
cl.
8,500
110,500
110,500
(W-5)
Dr.
Prepaid insurance
Cr.
Op.
12,250
Cash and bank
149,500 P and L (bal)
145,250
cl.
16,500
161,750
161,750
(W-6)
Dr.
Telephone payable
Cr.
Cash and bank
230,570 op.
6,930
cl. (7,950+8,760)
16,710 (4,540+2,390)
P and L (bal)
240,350
247,280
247,280
366
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-7)
Dr.
Cash and bank
cl.
Advertising expense payable
241,350 op.
14,580 P and L (bal)
255,930
Cr.
7,770
248,160
255,930
(W-8)
Dr.
Cash and bank
cl.
Payable for fixed assets
op.
225,360 Fixed asset
45,000 (bal.)
270,360
Cr.
37,360
233,000
Payable salaries &Wages
940,970 op.
20,960 P and L (bal)
961,930
Cr.
11,540
950,390
961,930
270,360
(W-9)
Dr.
Cash and bank
cl.
(W-10)
Dr.
Cash and bank
cl.
Interest
44,050 op.
5,450 P and L (bal)
49,500
Cr.
12,750
36,750
49,500
(W-11)
Dr.
op.
Fixed asset payable (W-8)
Fixed asset account
365,000 Disposal
233,000 Depreciation (bal.)
cl.
598,000
Cr.
75,700
92,300
430,000
598,000
(W-12)
Dr.
Fixed Asset (BV) (bal.)
(Cost-accumulated dep.)
(W-13) Calculation of Cost of Sales
Dr.
Op.
Cash (Purchases)
Creditor
(W-3)
Disposal account
75,700 P and L
Cash and bank
75,700
Inventory account
227,000 Cost of Sales (Bal.)
240,680 Creditors
18,750,640 Cl.
Cr.
33,200
42,500
75,700
Cr.
18,929,540
23,780
265,000
ANSWER-9
Mr. Mansoor
Trading and Profit and Loss Account
for the year ended June 30, 2012
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Sundry expenses
Accounting charges
Electricity
Property tax
367
(5,223,000/80x100)
(W-10)
(W-7)
(W-6)
(W-5)
Rs.
6,528,750
(5,223,000)
1,305,750
15,000
10,800
46,900
28,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Rent
Assistant salary
Abnormal loss
Loss on sale of fixtures
Bad debt
(W-8)
(670,000 - 630,000)
(W-9.1)
Add: Other Income
Sale of scrap
255,500
132,000
40,000
55,000
14,000
(597,700)
35,000
Net Profit
743,050
Mr. Mansoor
Balance Sheet
as on June 30, 2012
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rs.
(188,000 + (W-4) 144,450)
Current Liabilities
Creditors for goods
Creditors for electricity charges
Accountancy charges payable
Rent outstanding
Total
Assets
Non-Current Assets
Fixtures
Current Assets:
Stocks
Insurance claim receivable - stock
Insurance claim receivable - fixtures
Debtors
Cash
Bank
Property tax in advance
212,000
1,900
1,800
15,000
230,700
1,826,300
(W-9)
-
(494,000 - 14,000)
(W-3)
Total
WORKINGS
(W-1)
Dr.
op.
Sales
(W-2)
Dr.
Bank
cl.
368
1,185,000
743,050
(332,450)
1,595,600
630,000
225,000
480,000
40,500
435,800
15,000
1,826,300
1,826,300
Debtors account
281,000 Cash (bal.)
6,528,750 Bad debt
cl. (494,000 - 14,000)
Cr.
6,315,750
14,000
480,000
Creditors account
op.
5,061,000 Inventory (bal.)
212,000
Cr.
220,000
5,053,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-3)
Dr.
op.
Cash
Bank account
307,500 Drawings
5,780,800 Sundry expenses
Accounting charges
Electricity
Property tax
Rent
Creditors
Fixture
cl. (bal.)
Cr.
188,000
15,000
20,500
50,500
32,000
240,500
5,061,000
45,000
435,800
(W-4)
Dr.
op.
Debtors (W-1)
Sale of scrap income
Cash account
35,000
Salary
6,315,750 Inventory(Purchases)(24,000x12)
35,000 Drawings (bal.)
Bank
c/d
Cr.
132,000
288,000
144,450
5,780,800
40,500
(W-5)
Dr.
op.
Bank
Property tax
11,500
32,000 P and L (bal.)
cl.
Dr.
Electricity
op.
50,500 P and L (bal.)
1,900
(W-6)
Bank
cl.
(W-7)
Dr.
Bank
cl.
Cr.
28,500
15,000
Cr.
5,500
46,900
Accounting charges expense
op.
20,500 P and L (bal.)
1,800
Cr.
11,500
10,800
(W-8)
Dr.
Bank
cl.
Rent
240,500 op.
15,000 P and L (bal.)
Cr.
255,500
(W-9)
Dr.
b/d
Bank
Fixtures
235,000 Disposals
45,000 c/d (bal.)
Cr.
280,000
-
(W-9.1)
Entry for loss of fixture
Insurance claim receivable
P/L (bal.)
Fixtures (W-9)
(W-10)
369
Dr.
Op.
Creditors
(W-2)
Cash (Pur.) (24,000 x 12)
225,000
55,000
280,000
Inventory account
552,000 Cost of Sales (Bal.)
5,053,000 Abnormal Loss
288,000
Cl.
Cr.
5,223,000
670,000
-
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-10
Mr. Adnan
Trading and Profit and Loss Account
for the year ended December 31, 2009
(W-8)
(W-9)
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Wages
Rent
Electricity and telephone bills
Depreciation
Misappropriation expense
(8,900 x 12)
(W-4.1)
(W-5)
(W-6)
(part-b)
Net Loss
Rupees
1,774,815
(1,426,700)
348,115
106,800
45,000
41,800
32,250
196,715
(422,565)
(74,450)
Mr. Adnan
Balance Sheet
as on December 31, 2009
Capital and liabilities
Capital
Opening capital
Add: Net Profit/(loss)
Less: Drawings
(W-7)
Current Liabilities
Trade Creditors
Rent payable
Electricity and telephone bill payable
Total
Assets
Non-Current Assets
Fixed assets - book value
Current Assets:
Stocks
Sundry debtors
Cash
Bank
Total
(b)
Statement of Defalcation
Opening balance and Receipts
Opening balance
Debtors
Sales
370
Rupees
593,200
(74,450)
(122,600)
396,150
130,800
4,500
8,800
144,100
540,250
(W-6)
327,750
27,500
80,900
700
103,400
212,500
540,250
(W-8)
14,300
1,394,500
348,115
1,756,915
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Payments and closing balance
Wages
Rent
Electricity and telephone
Bank
Closing balance
(8,900 x 12)
(W-4)
(W-3)
Amount of defalcation
WORKING
(W-1) Dr.
Op.
Sales
(W-2)
Dr.
Bank
Cl.
(W-3)
Dr.
(W-4)
Cr.
1,394,500
80,900
1,475,400
Creditors account
1,423,800 Op.
130,800 Inventory (bal.)
1,554,600
Cr.
116,100
1,438,500
1,554,600
Bank account
349,100 Creditors
1,375,700 Fixed assets
Drawing
Cl.
1,724,800
Dr.
Cash (bal.)
Cl.
(W-4.1) Rent expense
From January to September
From October to December
(W-5)
Dr.
Cash
c/d
(W-6)
Dr.
Op.
Bank
371
Debtors account
48,700 Cash (Bal.)
1,426,700 Cl.
1,475,400
(W-9)
Op.
Cash (Bal.)
106,800
44,000
33,000
1,375,700
700
1,560,200
196,715
Rent expense
44,000 Op.
4,500 P and L (W-4.1)
48,500
(3,500 x 9)
(4,500 x 3)
Cr.
1,423,800
75,000
122,600
103,400
1,724,800
Cr.
3,500
45,000
48,500
31,500
13,500
45,000
Electricity and telephone bills
33,000 b/d
8,800 P and L (bal.)
41,800
Cr.
41,800
41,800
Fixed asset – BV
Cr.
285,000
75,000 Depreciation
32,250
(285,000 x 10% + 75,000 x 10% x 6/12)
c/d (bal.)
327,750
360,000
360,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-7) Calculation of opening capital
Cash in hand
Cash at bank
Sundry debtors
Stock
Fixed assets
Sundry creditors
Rent payable
14,300
349,100
48,700
15,700
285,000
(116,100)
(3,500)
593,200
(W-8) Calculation of sales
Cash sales
Cost of goods which are sold on cash
((W-9) 1,426,700 x 20%) = 285,340
Sale price of goods which are sold on cash (285,340 / 100 x 122)
Credit sales
Cost of goods which are sold on credit
((W-9) 1,426,700 x 80%) = 1,141,360
Sale price of goods which are sold on credit (1,141,360 / 80 x 100)
Total Sale Price
(W-9) Calculation of cost of sales
Dr.
Inventory account
Op.
15,700 Cost of Sales (Bal.)
Creditors (W-2)
1,438,500
cl.
(W-10)
Dr.
b/d
Debtors
Cash (sales)
(W-8)
Cash account
14,300 Wages
(8,900 x 12)
1,394,500 Rent
(W-4)
348,115 Electricity and telephone
Bank
(W-3)
Misappropriation expense (bal.)
c/d
1,756,915
348,115
1,426,700
1,774,815
Cr.
1,426,700
27,500
Cr.
106,800
44,000
33,000
1,375,700
196,715
700
1,756,915
ANSWER-11
Mr. Yousaf
Trading and Profit and Loss Account
for the year ended June 30, 2007
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Utilities
Advertising
Sales man salary
Supplies, stationery
Insurance
Property tax
Bad debt expense
Depreciation
372
(W-l)
(W-8)
Rupees
13,353,840
(12,446,400)
907,440
66,480
6,000
70,800
12,000
28,080
42,000
14,760
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
-Shop
-Store fixtures
Interest on loan
(1,200,000 x 5%)
(840,000 x 5%)
Net Profit
60,000
42,000
52,000
(394,120)
513,320
Mr. Yousaf
Balance Sheet
as on June 30,2007
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
Bank loan
Current Liabilities
Trade Creditors
Payable for store fixtures
Rupees
(W-5)
(1,200,000- 600,000(W-6))
453,600
168,000
621,600
5,358,920
(W-7)
Total
Assets
Non-Current Assets
Land
Less: Accumulated depreciation
600,000
600,000
1,200,000
(60,000)
1,140,000
840,000
(42,000)
798,000
Shop
Less: Accumulated depreciation
Store fixtures
Less: Accumulated depreciation
Current Assets
Stocks
Debtors
Bank
Cash
Total
WORKINGS
(W-1)
Dr.
op.
Sales
(W-1.1) Total closing debtors
Less: Bad debts
Final closing balance
373
2,005,200
137,640
638,000
40,080
2,820,920
5,358,920
(W-1.1)
(W-3.1)
(Bal.)
4,200,000
513,320
(576,000)
4,137,320
600,000
Debtors account
- Bad debt
13,353,840 Cash (W-4)
cl.
(W-1.1)
13,353,840
Cr.
14,760
13,201,440
137,640
13,353,840
152,400
(14,760)
137,640
CHAPTER-5
(W-2)
Dr.
Bank
cl.
(W-3)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-3)
Creditors account
Op.
13,998,000 Inventory (Bal.)
453,600
14,451,600
Dr.
op.
Cash
Bank account
15,960,000 Loan
Interest expense
Payable-Store fixtures
Creditors (Bal.)
cl.
(W-3.1)
15,960,000
(W-3.1) Calculation of closing adjusted balance of cash book
Adjusted cash book balance
Add: Unpresented cheques
Balance as per bank statement
(W-4)
(W-5)
Dr.
op.
Capital
Loan
Debtors (Bal.)
Dr.
cl.
(Bal.)
(W-6) Amount paid to bank
Less: Interest paid
Principal paid
(W-7)
Dr.
Bank
cl.
374
(Bal.)
(bal.)
(given)
Cash account
2,400,000 Bank
1,200,000 Drawings
13,201,440 Utilities
Advertising
Sales man salary
Supplies, stationery
Insurance
Property tax
cl.
16,801,440
Capital account
op.
Cash
Land
(1.8M x 1/3)
4,200,000 Shop (excluding land) (1.8M x 2/3)
4,200,000
Cr.
14,451,600
14,451,600
Cr.
600,000
52,000
672,000
13,998,000
638,000
15,960,000
Rupees
638,000
258,000
896,000
Cr.
15,960,000
576,000
66,480
6,000
70,800
12,000
28,080
42,000
40,080
16,801,440
Cr.
2,400,000
600,000
1,200,000
4,200,000
Rupees
652,000
(52,000)
600,000
Payable - Store fixture
op.
672,000 Store fixtures
168,000
840,000
Cr.
840,000
840,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-8) Calculation of cost of sales
Dr.
Op.
Creditors (W-2)
ANSWER-12
(a)
Cash and bank summary
Dr.
op.
Bad debt recovery
Capital (prize bond)
Capital (assurance policy)
Capital (cheque from friend)
Capital (cheque received)
Debtors (bal.)
(b)
Dr.
Cash and Bank (cheque dishonour)
Drawing (W-1)
cl.
(W-1)
Dr.
Cash and Bank (11,700 x 12) x1/3
(Rent of home)
Cash and Bank (personal exp)
Cash and Bank (54,000 x1/3)
(repainting home)
Cash and Bank (35,000 x 12)
Cash and Bank (4,000 x 12)
Cash and Bank (Wife gift)
Cash and Bank (car)
(315,000-60,300)
Debtor (car)
Cash and Bank (loan to friend)
Cash and Bank
375
Inventory account
- Cost of Sales (Bal.)
14,451,600
cl.
Cash and bank account
180,900 Creditors
22,500 Rent (11,700 x 12) x 2/3
50,000 Drawing (home rent) (11,700 x 12) x l/3
576,900 Drawing
90,000 Repaint exp (54,000 x2/3)
36,000 Drawing (home repaint) (54,000 x l/3)
Repair expense
9,308,800 Shop expenses
Drawings (35,000 x 12)
Drawings (4,000 x 12)
Drawing
Drawing (car) (315,000-60,300)
Drawing (loan to friend)
Capital (cheque dishonour)
Drawing
cl.
10,256,100
Capital account
op. (W-2)
90,000 Cash and Bank (prize bond)
Cash and Bank (assurance policy)
Cash and Bank (cheque from friend)
1,063,700 Cash and Bank (cheque received)
Profit
2,178,600
3,332,300
Drawing
46,800
Cr.
12,446,400
2,005,200
Cr.
8,545,500
93,600
46,800
31,500
36,000
18,000
144,000
77,200
420,000
48,000
8,000
254,700
90,000
90,000
86,400
275,400
10,256,100
Cr.
2,097,000
50,000
576,900
90,000
36,000
482,400
3,332,300
Cr.
31,500
18,000
420,000
48,000
8,000
254,700
60,300
90,000
86,400 Capital (bal.)
1,063,700
1,063,700
1,063,700
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2) Opening capital
Assets
Cash and bank
Debtors
Stock
Rupees
180,900
412,200
1,755,000
2,348,100
Liabilities
Trade creditors
(c)
(251,100)
2,097,000
Mr. Hamid
Trading and Profit and Loss Account
for the year ended March 31, 2005
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Bad debts
Rent expense
Repairing expense
Repair storage accommodation
Shop expenses
Accountancy fees
Add: Other Income
Bad debt recovery
Net Profit
(d)
Capital and liabilities
Capital
Current Liabilities
Trade Creditors
Accountancy expense payable
Total
Assets
Current Assets:
Stocks
Debtors
Cash and bank
Total
WORKINGS
(W-1) Dr.
op.
Sales (bal.)
376
(W-1)
(W-3)
(11,700 x 12) x 2/3
(54,000 x 2/3)
Rs.
9,719,200
(8,558,100)
1,161,100
320,400
93,600
36,000
144,000
77,200
30,000
(701,200)
22,500
482,400
Mr. Hamid
Balance Sheet
as on March 31, 2005
(part-b)
Rs.
2,178,600
218,700
30,000
248,700
2,427,300
1,710,000
441,900
275,400
2,427,300
Debtors account
412,200 Cash and bank (part-a)
9,719,200 Bad debts
Drawing (car)
cl.
10,131,400
Cr.
9,308,800
320,400
60,300
441,900
10,131,400
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
Dr.
Bank
cl.
Creditors account
op.
8,545,500 Inventory (bal.)
218,700
8,764,200
Cr.
251,100
8,513,100
8,764,200
(W-3) Calculation of cost of sales
Dr.
Op.
Creditors (W-2)
Inventory account
1,755,000 Cost of Sales (Bal.)
8,513,100
Cl.
Journal entries for understanding purposes (Not a part of I CAP question)
(10)
Drawing
Cash and Bank
Debtor
(Payment of second hand car)
(12)
Drawing
Cash and Bank
(Entry on loan given to friend)
Cash and Bank
Capital
(Cheque received from friend)
Capital
Cash and Bank
(Cheque received from friend dishonoured)
Cash and Bank
Capital
(Cheques received till year end)
ANSWER-13
Mr. Asif
Trading and Profit and Loss Account
for the year ended June 30, 2010
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Salaries
Sundry expenses
Interest on loan
Loss on disposal of furniture
Provision
Depreciation Furniture
Add: Other Income
Discount received
Profit before bonus
Less: Bonus
Profit after bonus
377
(W-11)
(W-12)
(W-5)
(500,000 x 6%)
(W-9)
(W-1.1)
(W-8)
(379,450/105 x 5)
Cr.
8,558,100
1,710,000
Debit
315,000
Credit
254,700
60,300
90,000
90,000
90,000
90,000
90,000
90,000
36,000
36,000
Rupees
3,690,750
(2,460,500)
1,230,250
440,400
278,900
30,000
73,600
500
57,700
(881,100)
30,300
379,450
(18,069)
361,381
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Asif
Balance Sheet
as on June 30, 2010
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rupees
613,300
361,381
(60,000)
914,681
500,000
Loan
Current Liabilities
Trade Creditors
Interest payable on loan
Advance from customer
Payable to manager
Accrued expenses
(W-2)
(W-13)
Total
Assets
Non-Current Assets
Land and Building at cost
Furniture
Less: Accumulated depreciation of furniture
Current Assets
Stock
Debtors
Less: Provision for doubtful debt
Prepayment
Bank
Cash
(W-7)
(W-10)
(W-1)
(W-1.1)
(W-3)
(W-4)
Total
530,200
7,500
2,500
18,069
19,000
577,269
1,991,950
130,000
609,000
(458,700)
280,300
592,000
582,500
(23,300)
9,700
544,950
5,800
1,711,650
1,991,950
WORKINGS
(W-1) Dr.
op.
Note:
Debtors account
Cr.
670,000 Cash
3,700
Bank (3,071,000-2,500)
3,068,500
Sales (bal.)
3,021,900 Sale return
15,000
Sale
18,000
Bad debt (Note)
4,200
cl. (600,500-18,000)
582,500
3,691,900
3,691,900
It is assumed that court has confirmed the bankruptcy; therefore Rs. 4,200 is treated as bad debt.
(W-1.1)
378
Dr.
Bad debt
c/d (27,000 – 3,700)
Provision for bad debt acc.
4,200 b/d
23,300 P/L (bal.)
27,500
Cr.
27,000
500
27,500
CHAPTER-5
(W-2)
(W-3)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Discount received
Bank
c/d (bal.)
Creditors account
30,300 op.
2,509,600 Inventory (Purchases)
530,200
3,070,100
Dr.
Bank account
b/d
3,818,150 Payments
c/d (bal.)
3,818,150
Receipts
(W-4)
(W-5)
(W-6)
(W-7)
(W-7.1)
(W-8)
379
Dr.
b/d
Sales (W-11)
Debtor
Cash account
10,000
701,850 Bank
3,700 Sundry expenses
Drawings
c/d (bal.)
715,550
Dr.
b/d
Bank
Cash
c/d
Sundry Expenses
53,800 b/d
212,500
25,000 P and L (bal.)
19,000 c/d
310,300
Dr
b/d
Additions
Dr.
Disposal (W-7.1)
c/d (bal.)
Furniture account
825,000 Disposal
64,000
c/d (bal.)
889,000
Accumulated depreciation
84,000 b/d
458,700 Depreciation exp. (W-8)
542,700
Accumulated depreciation of disposal (280,000 x 10% x 3 years)
(Years in use before disposal =3 years)
Depreciation expense
On opening excluding disposals
On additions
(825,000 - 280,000) x 10%
(64,000 x 10% x 6/12)
Cr.
500,100
2,570,000
3,070,100
Cr.
24,200
3,249,000
544,950
3,818,150
Cr.
624,750
25,000
60,000
5,800
715,550
Cr.
21,700
278,900
9,700
310,300
Cr.
280,000
609,000
889,000
Cr.
485,000
57,700
542,700
84,000
54,500
3,200
57,700
CHAPTER-5
(W-9)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Cost
(W-10) Closing stock
As per physical count
Lying with other parties at cost
Furniture disposal
280,000 Accumulated dep. (W-7.1)
Bank
P and L (bal.)
280,000
Cr.
84,000
122,400
73,600
280,000
(18,000/100x66.67)
580,000
12,000
592,000
(W-11) Calculation of total sales
Net Total Sale = ((W-12) Cost of sale/100 x 150)
= 2,460,500/100 x 150
= 3,690,750
Calculation of cash sales
Net Cash sale = Net Total Sale - Net Credit Sale = 3,690,750 - 2,988,900 = 701,850
Net credit sale = 3,021,900 -15,000 -18,000 = 2,988,900
(W-12) Calculation of cost of sales
Dr.
Op.
Creditors
(W-13)
Dr.
Interest expense
Bank
c/d (bal.)
22,500 P and L (500,000 x 6% )
7,500
30,000
ANSWER-14
i)
Gross profit
(W-l)
Cr.
2,460,500
592,000
Cr.
30,000
30,000
= Net profit + Admin expenses
= 85,000 + (W-l) 22,500
= 107,500
Admin Expenses
Provision for doubtful debts
Loss on sale of fixed assets
Advertising expense
Insurance expense
ii)
iii)
iv)
Inventory account
482,500 Cost of Sales (Bal.)
2,570,000
c/d (W-10)
Sales
Cost of sales = Sales - GP
Direct manufacturing expense
(250,000x2%)-3,000
(15,000x6/12)
Rupees
2,000
5,000
8,000
7,500
22,500
430,000
322,500
(107,500/25x100)
(430,000 -107,500)
= Cost of sales - Indirect manufacturing expense
= 322,500 - 50,000
= 272,500
As the question is silent, so it is assumed that depreciation is included in indirect manufacturing expenses.
380
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-15
Mr. Azam
Trading and Profit and Loss Account
for the year ended December 31,1990
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Salaries
Rent expense
Office stationery
General expenses
Discount allowed
Depreciation
Loss on sale of furniture
Add: Other income
Discount received
Interest income
Rental income
((W-2)2,011,800+322,000)
(W-12)
(W-8)
(W-7)
(W-5)
(W-10)
(W-6)
(W-9)
Net Profit
Rupees
2,333,800
(1,788,500)
545,300
145,250
154,000
14,700
42,000
16,800
22,750
15,750
(411,250)
21,000
2,450
52,500
75,950
210,000
Mr. Azam
Balance Sheet
as on December 31,1990
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
(W-11)
Current Liabilities
Bills payable
Sundry Creditors
Accrued Salaries
Rent Received in advance
Total
Assets
Non-Current Assets
Furniture
Current Assets
Cash
Bills Receivables
Sundry Debtors
Accrued Interest Income
Finished Goods (Inventory)
Stationery & Stores, and Supplies (in hand)
Total
381
Rupees
800,100
210,000
(175,000)
835,100
140,000
227,500
1,750
5,250
374,500
1,209,600
197,750
297,500
57,750
122,500
2,800
525,000
6,300
1,011,850
1,209,600
CHAPTER-5
WORKINGS
(W-1) Dr.
op.
Debtor (bal.)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Bill receivable account
35,000
367,500 Cash
cl.
402,500
Cr.
344,750
57,750
402,500
(W-2)
Dr.
op.
Sales (bal.)
Debtors account
175,000 Cash
2,011,800 Discount allowed
Bill receivable (W-1)
cl.
2,186,800
(W-3)
Dr.
Bill payable account
op.
210,000 Creditor (bal.)
140,000
350,000
Cr.
350,000
Creditors account
op.
350,000
1,400,000 Inventory (bal.)
21,000
227,500
1,998,500
Cr.
175,000
Cash
cl.
(W-4)
Dr.
Bill payable (W-3)
Cash
Discount received
cl.
(W-5)
(W-6)
(W-7)
382
Dr.
op.
Cash (additions)
Dr.
op.
P and L (bal.)
Dr.
op.
Cash
Furniture- at Book value
126,000
122,500 Disposals (56,000 x 50%)
Depreciation (bal.)
c/d
248,500
Interest income
2,100
2,450 Cash
cl.
4,550
Stationery etc.
14,000
7,000 P and L (bal.)
cl.
21,000
Cr.
1,680,000
16,800
367,500
122,500
2,186,800
350,000
1,823,500
1,998,500
Cr.
28,000
22,750
197,750
248,500
Cr.
1,750
2,800
4,550
Cr.
14,700
6,300
21,000
CHAPTER-5
(W-8)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Salaries expense
op.
147,000 P and L (bal.)
1,750
148,750
Cash
cl.
(W-9)
Dr.
Rental income
op.
52,500 Cash
5,250
57,750
P and L (bal.)
cl.
(W-10)
Dr.
Furniture – BV (56,000 x 50%)
Furniture disposal
28,000 Cash
P and L (bal.)
28,000
(W-11)Opening capital
Assets
Cash
Bills Receivables
Sundry Debtors
Accrued Interest Income
Finished Goods (Inventory)
Stationery & Stores, and Supplies (in hand)
Furniture-at cost Less depreciation
Liabilities
Sundry Creditors
Accrued Salaries
Rent Received in advance
(W-12) Calculation of Cost of Sales
Dr.
Op.
Creditors
(W-4)
Cr.
3,500
145,250
148,750
Cr.
3,500
54,250
57,750
Cr
12,250
15,750
28,000
Rupees
140,000
35,000
175,000
2,100
490,000
14,000
126,000
982,100
175,000
3,500
3,500
(182,000)
800,100
Inventory account
490,000 Cost of Sales (Bal.)
1,823,500
Cl.
Cr.
1,788,500
525,000
Answer 16
Mr. Ashfaq
Trading and Profit and Loss Account
for the year ended June 30, 2014
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Carriage out
383
(W-8)
(W-7)
Rs.
20,315,520
(12,697,200)
7,618,320
260,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Petrol
Misc. expenses
Car expenses
Salaries
Travelling expense
Printing and stationery
Advertisement
Truck rent
Rent expense
Insurance
Depreciation
Motor car
Furniture
156,000
492,300
73,000
1,600,000
40,000
46,000
125,000
657,000
22,000
65,000
(130,000 + 362,300)
(W-6)
(W-5)
(2,000,000 x 30%)
(1,000,000 x 15%)
600,000
150,000
(4,286,300)
3,332,020
Net Profit
Mr. Ashfaq
Balance Sheet
as on June 30, 2014
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Loan
Current Liabilities
Trade Creditors
Bank overdraft
Total
Assets
Non-Current Assets
Motor car
Furniture
Land
Current Assets
Stocks
Debtors
Cash
Discount receivable
Rs.
4,396,600
3,332,020
(1,560,000)
6,168,620
-
(30,000 x 52)
(27,900 - 27,900)
(W-2)
(W-3)
3,111,300
831,100
3,942,400
10,111,020
(2,000,000 - 600,000)
(1,000,000 - 150,000)
1,400,000
850,000
2,500,000
4,750,000
702,000
4,366,520
26,700
265,800
5,361,020
10,111,020
(W-1)
Total
WORKINGS
(W-1)
Dr.
op.
Sales (W-8)
384
Debtors account
350,000 Cash (W-4)
20,315,520 Bank
cl. (bal.)
Cr.
15,834,600
464,400
4,366,520
CHAPTER-5
(W-2)
Dr.
Bank
cl. (bal.)
(W-2.1)
(W-3)
Dr.
op.
Debtors
Cash
(W-4)
Dr.
op.
Debtors (bal.)
(W-5)
Dr.
op.
Bank
Dr.
Bank
cl.
(W-7)
385
Creditor account
op.
9,850,700 Purchases (W-2.1)
3,111,300
Purchases
As given in question
Remaining on which discount will be allowed
Gross purchases (At list price)
cl. (bal.)
(W-6)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
op.
Creditor (Pur.)
(W-2.1)
Cr.
1,102,000
11,860,000
(265,800/3 x 100)
Bank account
360,600 Creditors
464,400 Car expenses
13,717,800 Rent
Loan
Salaries
Land
Travelling exp.
Print & Stat.
Advertisement
Insurance
Truck rent
831,100 Misc. expense
Cash account
15,900 Drawing(30,000 x 52)
15,834,600 Carriage (5,000 x 52)
Petrol (3,000 x 52)
Misc Exp.(2,500 x 52)
Bank
c/d
Insurance
15,000
50,000 P and L (bal.)
cl.
Rent expense
op.
42,000 P and L (bal.)
Inventory
1,805,000
11,860,000 COS (bal.)
Discount receivable
cl.
Cr.
9,850,700
73,000
42,000
27,900
1,600,000
2,500,000
40,000
46,000
125,000
50,000
657,000
362,300
Cr.
1,560,000
260,000
156,000
130,000
13,717,800
26,700
Cr.
65,000
Cr.
20,000
22,000
Cr.
12,697,200
265,800
702,000
3,000,000
8,860,000
11,860,000
CHAPTER-5
(W-8)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Calculation of sales
Total Sale = Cost of sale + 60 % of cost of sale
= Cost of sales (W-7) /100 x 160
= 12,697,200/100 x 160
= 20,315,520
ANSWER-17
Mr. Arshad
Trading and Profit & Loss Account
For the year ended 31-12-2013
Sales
Less: Cost of sales
Gross profit
Less: Administration Expenses
Business Expenses
Depreciation - Building
- Car
- Furniture
(W-5)
(W-7)
(300,000 x 5%)
(60,000 x 5%)
(90,000 x 20%)
Net Profit
Rupees
1,800,000
(1,440,000)
360,000
210,000
15,000
3,000
18,000
(246,000)
114,000
Mr. Arshad
Balance Sheet
As on 31-12-2013
Capital and Liabilities
Capital
Opening Capital
Add: Profit for the Year
Less: Drawing
Liabilities:
Creditor
Business Expenses Payable
Loan
Rupees
480,000
114,000
(75,000)
519,000
(W-2)
Assets:
Non current assets:
Building
Furniture
Car
(300,000 -15,000)
(60,000 -3,000)
(90,000 -18,000)
Current Assets:
Debtor
Stock
Bank
Cash
(W-1)
(200,000 x 25% + 200,000)
(W-4)
(W-3)
386
425,000
50,000
152,500
627,500
1,146,500
285,000
57,000
72,000
414,000
130,000
250,000
123,500
229,000
732,500
1,146,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
WORKINGS:
(W-1)
Dr.
b/d.
Sales (W-6)
Debtors account
170,000 Cash
1,260,000 Bank (1,300,000 – 300,000)
c/d
(Bal.)
Cr.
300,000
1,000,000
130,000
Creditor account
1,375,000 b/d
Inventory (W-7)
425,000
Cr.
310,000
1,490,000
(W-2)
Dr.
Bank
c/d (bal.)
(W-3)
Dr.
b/d
Sales (W-6)
Debtor
Bank
Cash account
37,500 Business Expenses
540,000 Bank
300,000
120,000 c/d
(Bal.)
Cr.
100,000
668,500
229,000
(W-4)
Dr.
b/d
Debtor
Cash
Bank account
85,000 Business Expenses (W-8)
1,000,000 Creditor
668,500 Drawings
Cash
c/d
(W-5)
Last Year Sale
Current Year Sales
(Bal.)
= 300,000/25 x 125
= 1,500,000 x 1.20
= Rs. 1,500,000
= Rs. 1,800,000
(W-6)
Cash and Credit sale:
Cash Sales
= 1,800,000 x 30%
Credit Sales
= 1,800,000 x 70%
= Rs. 540,000
= Rs. 1,260,000
Cr.
60,000
1,375,000
75,000
120,000
123,500
(W-7)
Dr.
b/d
Creditor (Bal.)
Inventory Account
200,000 COS (1,800,000/125 x 100)
1,490,000 c/d (200,000 x 25% + 200,000)
Cr.
1,440,000
250,000
(W-8)
Dr.
Bank (Bal.)
Cash
c/d (Payable)
387
Business Expense Account
60,000
100,000 P/L
50,000
Cr.
210,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-18
Mr. Babar
Trading and Profit and Loss Account
for the year ended 31 December, 2014
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Salary and EOBI
Lease rent
Electricity
Abnormal loss
Sundry shop expense
Depreciation exp.
( W-4 )
(W-l)
( W-5 )
(W-l.l)
(25,000 x 10% x 6/12)
Net Profit
Rupees
4,276,400
(3,382,000)
894,400
184,300
120,000
27,200
30,000
35,600
1,250
(398,350)
496,050
Mr. Babar
Balance Sheet
as on 31 December, 2014
Capital and liabilities
Capital
Capital introduced
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Payable to Razi
Payable for expenses
Rupees
((W-6) 480,000 + 2,000,000)
((W-6) 480,000 - 480,000)
Total
Assets
Non-Current Assets
Furniture and fixtures
Less: Accumulated depreciation
Goodwill
Other assets
Current Assets
Inventory
Bank
Cash
Total
388
(W-6)
(W-3)
2,480,000
496,050
(192,500)
2,783,550
82,500
5,200
87,700
2,871,250
25,000
(1,250)
23,750
240,000
120,000
360,000
450,000
2,003,000
34,500
2,487,500
2,871,250
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
WORKINGS
(W-l)
Dr.
Payable to Razi
Cash
Creditors (W-2)
Inventory account
600,000
Abnormal loss
49,500
3232,500
COS (bal.)
cl.
Cr.
50,000
3,382,000
450,000
(W-1.1)
Particulars
Cash
P/L(Bal.)
Inventory
(W-2)
Dr.
Bank
cl.
Dr.
20,000
30,000
Cr.
50,000
Creditor account
op.
3,150,000 Inventory (bal.)
82,500
Cr.
3,232,500
(W-3)
Dr.
op.
Capital
Cash
Bank account
Creditors
2,000,000 Payable to Razi
3,800,000 Lease rent
Electricity
Furniture
Closing(bal)
Cr.
3,150,000
480,000
120,000
22,000
25,000
2,003,000
(W-4)
Dr.
Cash account
Sundry shop expense
20,000 Bank
4,276,400 Salary and EOBI
Inventory
Drawings
c/d
Cr.
35,600
3,800,000
184,300
49,500
192,500
34,500
Ins. claim received
Sales (bal.)
(W-5)
Dr.
Bank
cl.
Electricity Payable Account
PL(Bal)
22,000
5,200
(W-6) Entries at the start of the Business
Particulars
Inventory
Other Assets
G/Will(Bal).
Payable to Razi
Capital
(Acquisition of business from Mr. Razi)
389
Cr.
27,200
Dr.
600,000
120,000
240,000
Cr.
480,000
480,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-19
(a)
Dr.
op.
Sales (part-c)
Debtors account
340,000 Cash
2,880,000 Bank (2,600,000 - 600,000)
cl. (bal.)
3,220,000
Cr.
600,000
2,000,000
620,000
3,220,000
Creditors account
op.
2,750,000 Inventory (Purchases)
850,000 (part (iii) W-2)
3,600,000
Cr.
620,000
2,980,000
(b)
Dr.
Bank
cl. (bal.)
(c)
Calculation of sales
Sale of current year
Cash sale
Credit Sale
= Sale of last year (W-l) + 20% of Sale of last year
= 3,000,000 + 20% of 3,000,000
= 3,600,000
= 20 % of total sale
= 720,000
= (3,600,000-720,000)
=2,880,000
(W-1) Sale of last year
Sales = (Gross profit/ 25 x 125)
= (600,000 / 25 x 125)
= 3,000,000
(ii)
Cashier has taken Rs. 50,000 with him.
Dr.
Cash account
op.
75,000
Bank
240,000 Bank
Debtors
600,000 Expenses (W-1)
Sale
720,000 Misappropriation (bal.)
(part (c) of(i))
c/d
1,635,000
(W-1)
3,600,000
Cr.
1,337,000
200,000
50,000
48,000
1,635,000
Rupees
420,000
(100,000)
(120,000)
200,000
Total business expenses
Less: Payable
Less: Paid through bank
Paid through cash
(iii)
Karim and Sons
Trading and Profit and Loss Account
for the year ended June 30,1990
Sales
Less: Cost of sales
Gross Profit
390
(part (c)of(i))
(W-2.1)
Rupees
3,600,000
(2,880,000)
720,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Less: Admin Expenses
Expenses
Misappropriation expense
Depreciation
Building
Furniture
Motor car
(part ii)
(600,000x5%)
(120,000x5%)
(180,000x20%)
Net Profit
420,000
50,000
30,000
6,000
36,000
(542,000)
178,000
Karim and Sons
Balance Sheet
as on June 30,1990
Capital and liabilities
Capital
Opening capital
General reserve
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Payable for expenses
Total
Assets
Non-Current Assets
Building
Furniture
Motor car
Current Assets
Stocks
Debtors
Bank
Cash
Rupees
960,000
305,000
178,000
(150,000)
1,293,000
(part (b) of (i))
(600,000-30,000)
(120,000-6,000)
(180,000-36,000)
391
570,000
114,000
144,000
828,000
500,000
620,000
247,000
48,000
1,415,000
2,243,000
(part (i))
(W-1)
Total
WORKINGS
(W-1)
Dr.
op.
Cash
Debtors
850,000
100,000
950,000
2,243,000
Bank account
170,000 Creditors
1,337,000 Drawings
2,000,000 Cash
Expenses
cl. (bal.)
3,507,000
Cr.
2,750,000
150,000
240,000
120,000
247,000
3,507,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2) Calculation of Inventory (Purchases)
Dr.
Inventory account
Op.
400,000 Cost of Sales (W-2.1)
Creditors
(Bal.)
2,980,000 Cl.
(W-2.1) Calculation of Cost of Sales
Cost of sales = (Sales (part (i)(c)) / 125 x 100)
= 3,600,000 / 125 x 100
= 2,880,000
Answer-20
Statement of Defalcation
Receipts
Purchase return
Sales
(W-6) of part b
Debtors
(W-l) of part b
Payments
Salaries
Drawings
Petty expenses
Bank
(4,000x3)
(8,000x3)
(1,600x3)
Amount of defalcation
(b)
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent and expense
Petty expense
Salaries
Cr.
2,880,000
500,000
Rupees
2,400
240,200
11,200
253,800
12,000
24,000
4,800
194,400
235,200
18,600
Altaf Ali
Trading and Profit and Loss Account
for the year ended March 31,1993
Rupees
260,000
(208,000)
52,000
(W-6)
(W-6.1)
(W-5)
Net Profit
10,600
4,800
12,000
(27,400)
24,600
Altaf Ali
Balance Sheet
As on March 31,1993
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less. Drawings
(8,000x3)
Current Liabilities
Trade Creditors
Accrued expenses
Total
392
Rupees
72,400
24,600
(24,000)
73,000
56,000
4,000
60,000
133,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Assets
Non-Current Assets
Fixture and fitting
Current Assets
Stocks
Debtors
Bank
Receivable from Insurance company (part-1)
Total
WORKINGS
(W-1)
B
op.
Sales
b
50,000
18,000
16,800
29,600
18,600
83,000
133,000
17,200 Bank
19,800 Cash
cl.
37,000
Dr.
(W-3)
(W-4)
(W-5)
(W-6)
(bal.)
Creditors account
op.
Bank
187,400 Inventory (bal.)
cl.
56,000
243,400
From point 7, it is clear that no payment is made to creditors in cash.
Dr.
Bank account
op.
25,200
Cash
194,400 Creditors
Debtors
9,000 Rent and expense
cl.
228,600
Dr.
Cash account
op.
- Salaries
(4,000x3)
Inventory (Purchase return)
2,400 Drawings
(8,000x3)
Sales
(W-6)
240,200 Petty expense
(1,600x3)
Debtors
(W-1)
11,200 Bank
Defalcation expense (bal.)
253,800
Dr.
Rent and expense
op.
Bank
11,600 P and L (bal.)
cl.
4,000
15,600
Calculation of sales
Total Sale
= (Cost of sale (W-6.1) / 80 x 100)
= (208,000/ 80 x 100)
Total Sale
= 260,000
Cash sale
393
= Total sale - credit sale
= 260,000- 19,800
= 240,200
Cr.
9,000
11,200
16,800
37,000
Cr.
49,400
194,000
243,400
Cr.
187,400
11,600
29,600
228,600
Cr.
12,000
24,000
4,800
194,400
18,600
253,800
Cr.
5,000
10,600
15,600
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-6.1) Calculation of Cost of Sales
Dr.
Op.
Creditors
(W-2)
Inventory account
34,400 Cost of Sales (Bal.)
194,000 Cash (Purchase return)
Cl.
Cr.
208,000
2,400
18,000
Answer-21
Calculation of Amount defalcated
Cheques from debtors
Cheques issued to creditors
Cash in hand misappropriated (including cash received from sale of missing stock) (W-4)
b)
Rs in "000"
300
200
2,580
3,080
Mr. Rehan
Trading and Profit and Loss Account
for the period ended March 1, 2004
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Salaries
Shop expenses
Misappropriation expense
(W-5)
(W-5.1)
(30 x 2)
(50 x 2)
(part-a)
Net Profit/(loss)
Rs in "000"
9,840
(8,200)
1,640
60
100
3,080
(3,240)
(1,600)
Mr. Rehan
Balance Sheet
as on March 1, 2004
Rs in "000"
Capital and liabilities
Capital
Opening capital
Add: Net Profit(Loss)
Less: Drawings
Current Liabilities
Trade Creditors
Total
Assets
Non-Current Assets
Furniture
Current Assets:
Stocks
Debtors
Bank
Total
Workings (All in Rs. “000”)
394
(50 x 2)
(W-2)
12,000
(1,600)
(100)
10,300
3,000
13,300
1,600
(W-1)
(W-3)
8,000
800
2,900
11,700
13,300
CHAPTER-5
(W-1)
(W-2)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
op.
Sales (bal.)
Dr.
Bank
cl. (2,800+200)
Debtors account
600
2,100 Bank
Misappropriation expense
cl. (1,100-300)
27,00
Creditors account
op.
6,000 Inventory (bal.)
3,000 Misappropriation expense
9,000
Cr.
1,600
300
800
27,00
Cr.
3,000
5,800
200
9,000
(W-3)
Dr.
op.
Debtor
Cash
Bank account
2,300 Creditors
1,600
5,000
cl. (bal.)
8,900
Cr.
6,000
2,900
8,900
(W-4)
Dr.
op.
Sales (W-5)
Cash account
100 Salary (30 x 2m)
7,740 Drawings (50 x 2m)
Expenses (50 x 2m)
Bank
Misappropriation expense (bal.)
c/d
7,840
The sale proceeds of missing stock is included in the figure of Rs. 2,580 being already included
figure of Rs. 7,740 therefore no separate adjustment is passed.
(W-5)
(W-5.1)
395
Cr.
60
100
100
5,000
2,580
7,840
in sales
Calculation of sales
Total Sale
= (Cost of sale (W-5.1) / 100 x 120)
= (8,200 / 100 x 120)
= 9,840
Cash sale = Total sale - credit sale
= 9,840 - (W-1) 2,100
= 7,740
Calculation of cost of sales
Dr.
Inventory account
Op.
10,400 Cost of Sales (Bal.)
Creditors (W-2)
5,800
c/d
Cr.
8,200
8,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-22
(a)
Statement of amount of defalcation
Opening balance (Cash on 31/3/2016)
Add:
Cash sales
Cash receipts from debtors
Cash receipt against purchase return
Less:
Bank deposits
Assistant’s salary
Petty expenses
Drawings
Closing balance
Total defalcation amount
(b)
Rupees
5,000
(W-7)
(W-2)
(13,000 x 3)
(5,000 x 3)
(26,000 x 3)
774,750
36,000
8,000
(627,000)
(39,000)
(15,000)
(78,000)
(0)
64,750
Mr. Rahil
Balance Sheet
as on June 30, 2016
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
(W-8)
Current Liabilities
Trade Creditors
Expenses payable
Total
Assets
Non-current Assets:
Fixtures and Fittings
Current Assets:
Stocks
Debtors
Bank
Rupees
233,000
10,975
(78,000)
165,975
181,000
13,000
194,000
359,975
(W-5)
156,975
58,000
54,000
91,000
203,000
359,975
Total
WORKINGS
(W-1)
Bank
c/d
396
Creditors account
604,000 b/d
Purchases (Bal.)
181,000
159,000
626,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
Debtors account
b/d
55,000 Bank
Sales
64,000 Cash (Bal.)
c/d
As the debtors have confirmed the balance of Rs. 54,000 so Rs. 66,000 is ignored.
(W-3)
Inventory account
b/d
111,000 Cost of sales (Bal.)
Creditor (Purchases) (W-1)
626,000 Cash (purchase return)
c/d
29,000
36,000
54,000
671,000
8,000
58,000
(W-4)
Opening balance
Debtors (W-2)
Cash sales (W-7)
Inventory (purchase return)
Cash account
5,000 Petty expenses (5,000 x 3)
36,000 Bank
774,750 Salary
(13,000 x 3)
8,000 Drawings
(26,000 x 3)
Misappropriation expense (Bal.)
Closing balance
15,000
627,000
39,000
78,000
64,750
0
Fixtures and fittings – at BV
161,000 Depreciation (161,000 x 10% x 3/12)
c/d (Bal.)
4,025
156,975
(W-5)
b/d
(W-6)
Bank
cl
(W-7) Calculation of sales
C+P=S
80 + 20 = 100
Expenses
37,000 b/d
13,000 P/L (Bal.)
16,000
34,000
Total Sale = 671,000 x 100
80
= 838,750
Cash sale = 838,750 – 64,000
= 774,750
(W-8) Profit and loss statement
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent and other expenses
Salary
Petty expenses
Depreciation
Cash misappropriation (Defalcation)
Net Profit
397
(W-7)
(W-3)
(W-6)
(13,000 x 3)
(5,000 x 3)
(W-5)
(W-4)
Rupees
838,750
(671,000)
167,750
34,000
39,000
15,000
4,025
64,750
(156,775)
10,975
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-23
Stock shortage is Rs. 140,872.
Calculation
Dr.
Cr.
Op.
Creditors (W-2)
(Workings)
(W-1)
Dr.
Opening balance
Sales (Bal.)
(W-2)
Dr.
Cash
Closing balance
Inventory account
120,260 Cost of Sales (W-3)
767,500 Abnormal Loss (Bal.)
Cl.
Debtors Account
41,140
1,022,160 Bad debt
Cash (997,020-2,960)
Closing balance
1,063,300
Creditors Account
Opening balance
779,400 Inventory (Bal.)
100,540
879,940
(W-3) Calculation of cost of sales
Sale
Less: Sale return
Net sales
Cost of sales (1,020,720/100 x 65)
Entry for sale return in this question is Dr. Sale return and Cr. Cash.
ANSWER-24
Company should lodge insurance claim of Rs. 2,875,000.
Calculation
Dr.
Inventory account
Op.
1,250,000 Cost of Sales (W-1)
Creditor
8,250,000 Abnormal Loss (Bal.)
Cash (Freight)
1,250,000 Creditor (Purchase ret.)
Cl.
(W-1) Calculation of cost of sales
Sale
(9,625,000+625,000)
Less: Sale return
Net sales
Cost of sales
(9,000,000/120 x 100)
398
663,468
140,872
83,420
Cr.
4,320
994,060
64,920
1,063,300
Cr.
112,440
767,500
879,940
Rupees
1,022,160
(1,440)
1,020,720
663,468
Cr.
7,500,000
2,875,000
375,000
-
10,250,000
(1,250,000)
9,000,000
7,500,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-25
(a)
Stock shortage is Rs. 634,700.
Calculation
Dr.
Op.
Creditors (W-2)
(W-1) Cost of sales
(W-2)
Dr.
Inventory account
470,000 Cost of Sales (W-1)
444,000 Abnormal Loss (Bal.)
c/d
(420,000/100 x 66.5)
Creditors Account
b/d
284,000 Inventory (bal.)
555,000
839,000
Bank
c/d
Cr.
279,300
634,700
279,300
Cr.
395,000
444,000
839,000
b)
Mr. Ahmad Sarwar
Trading Account
for the period ended March 1, 2004
Sales
Less: Cost of sales
Gross Profit
(W-1)
ANSWER-26
i)
Stock shortage is Rs. 2,480
Calculation
Dr.
b/d
Creditor (Purchases) (W-1)
ii)
Inventory account
3,600 Cost of Sales ((W-4)3,120/130 x 100)
1,280 Abnormal Loss (Bal.)
c/d
Rs in "000"
420,000
(279,300)
140,700
Cr.
2,400
2,480
-
Mr. Danish
Trading and Profit and Loss Account
for the period ended August 25,1994
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Wages
Expenses
Loss on furniture and fixture
Net Profit
399
(W-4)
((W-4)3,120/130 x 100)
(12 x 8weeks)
(W-2)
(W-6)
Rs.
3,120
(2,400)
720
96
260
50
(406)
314
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Danish
Balance Sheet
as on August 25,1994
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
(15 x 8weeks)
Current Liabilities
Trade Creditors
Creditors for expenses
Total
Assets
Non-Current Assets
Furniture
Current Assets
Insurance claim receivable
Bank
Cash
Total
WORKINGS
(W-1) Dr.
Bank
cl.
(W-2)
Dr.
Bank
cl.
(W-3)
Dr.
op.
Cash
(W-4)
Dr.
op.
Sales (bal.)
400
Rs.
5,000
314
(120)
5,194
560
140
700
5,894
(W-5)
((W-7)2,480 + 1,350)
(W-3)
Creditor account
op.
1,400 Inventory (bal.)
560
1,960
Creditors expenses
op.
460 P and L (bal.)
140
600
Bank account
980 Creditors
2,884 Creditors - expenses
cl. (bal.)
3,864
Cash account
40
3,120 Bank
Drawings (15x8)
Wages (12x8)
c/d
3,160
3,830
2,004
60
5,894
5,894
Cr.
680
1,280
1,960
Cr.
340
260
600
Cr.
1,400
460
2,004
3,864
Cr.
2,884
120
96
60
3,160
CHAPTER-5
(W-5)
Dr.
op.
(W-6)
Dr.
Furniture
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Furniture account
1,400 Disposal
c/d (bal.)
1,400
Cr.
1,400
1,400
Furniture disposal account
1,400 Insurance claim receivable
P and L (bal.)
1,400
Cr.
1,350
50
1,400
ANSWER-27
Munira
Calculation of stock shortage
Stock shortage is Rs. 632,840.
Calculation
Dr.
b/d
Creditors (W-4)
Inventory account
12,500,000 Cost of Sales (W-2)
13,930,000 Abnormal Loss (Bal.)
c/d
(W-1)
(W-l) Closing stock
(8,500,000-270,000)
(W-2) Cost of sales using standard ratios
Staff
Defective purchases
Normal sales
(W-7)
(W-5)
(W-6)
Cr.
17,567,160
632,840
8,230,000
8,230,000
Rupees
300,000
557,200
16,709,960
17,567,160
(W-3)
Dr.
op.
Sales
(bal.)
Debtors account
2,000,000 Cash
Discount Allowed
20,520,000 Bad debts
cl.
22,520,000
Cr.
18,360,000
360,000
200,000
3,600,000
22,520,000
(W-4)
Dr.
Cash
cl. (W-4.1)
Creditors account
op.
12,700,000 Inventory (bal)
9,230,000
21,930,000
Cr.
8,000,000
13,930,000
21,930,000
(W-4.1)Calculation of closing creditors
As per list
Difference in invoice (470-740)
401
Rupees
9,500,000
(270,000)
9,230,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-5) COS and sale price of defective purchases
Purchases sold at 30% below normal selling price
(13,930,000(w-4) x4%)
557,200
Sale price in monetary term (Cost/cost% x Sale price %)
(557,200/100 x (W-5.1)84)
468,048
(W-5.1)Sale price in percentage terms of defective purchase
Total Sale = Cost of sale +20 % of cost of sale
Y
= X + 20% of X
120
= 100 + 20
(Assume cost to be 100)
If normal selling price is 120, then we can calculate the selling price of defective purchases
Normal selling price
120
Less: 30% of normal selling price (120 x 30%)
(36)
Selling price of defective purchases
84
(W-6) Calculation of cost of sales of normal goods
Cost of sales = (Sales (W-6.1) /120 x 100)
= 20,051,952/120 x 100
= 16,709,960
(W-6.1)Sales excluding staff and defective purchases
Rupees
As per debtor account
(W-3)
20,520,000
To staff
315,000
Total sale
20,835,000
Less: sale to staff
(sold at cost+5%)
(315,000)
Less: Sale price of defective purchases (W-5)
(sold at 30% below selling price)
(468,048)
Sales at normal selling price
(sold at cost+20%)
20,051,952
(W-7) Calculation of cost of sales of goods sold to staff
Cost of sales = (Sales /105 x 100)
= 315,000 /105 x 100
= 300,000
ANSWER-28
Mr. Danish
Trading and Profit and Loss Account
for the year ended December 31, 2011
Sales
Less: Sale return
Net sale
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Discount allowed
Expenses
Rent expense
Provision for doubtful debts
Depreciation
Furniture and fixture
Motor van
Add: Discount received income
Net Profit
402
(W-1)
(W-6)
(W-4)
(W-5)
(15,000 x 10%)
(16,000 x 20%)
Rupees
89,800
(3,000)
86,800
(62,000)
24,800
1,400
7,200
2,500
4,230
1,500
3,200
(20,030)
1,000
5,770
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Danish
Balance Sheet
as on December 31, 2011
Capital and liabilities
Capital
Opening capital
Add: Net Profit
Less: Drawings
Rupees
(W-8)
81,500
5,770
(5,000)
82,270
Current Liabilities
Trade Creditors
Outstanding expenses
Total
Assets
Non-Current Assets
Furniture and fixture
Motor van
27,000
1,200
28,200
110,470
(15,000 – 1,500)
(16,000 – 3,200)
13,500
12,800
26,300
Current Assets
Inventory
(W-7)
Debtors
Less: Provision for doubtful debts
Cash and bank
30,000
48,600
(2,430)
Total
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2)
Dr.
Cash
Inventory (Return)
Discount received
cl.
(W-3)
Dr.
op.
Debtors
(W-4)
403
Dr.
Cash
cl.
46,170
8,000
84,170
110,470
Debtors account
45,000 Cash
Discount allowed
89,800 Bad debts
Sale return
cl.
Cr.
80,000
1,400
1,800
3,000
48,600
Creditors account
63,000 op.
2,000 Inventory (Purchases) (bal.)
1,000
27,000
Cr.
24,000
69,000
Cash account
4,500
80,000 Creditors
Expenses
Drawings
Rent expense
c/d (bal.)
Expense
6,000 op.
1,200 P and L (bal.)
Cr.
63,000
6,000
5,000
2,500
8,000
Cr.
7,200
CHAPTER-5
(W-5)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
Provision for doubtful debt
b/d
1,800 P and L (bal.)
2,430
Bad debt
c/d
(48,600 x 5%)
(W-6)
Calculation of cost of sales
Net Sale
= Cost of sale + 40 % of cost of sale
Cost of sale = (89,800 - 3,000)/140 x 100
Cost of sales = 62,000
(W-7) Calculation of closing stock
Dr.
Op.
Creditors (W-2)
(W-8)
Cr.
4,230
Inventory account
25,000 Cost of Sales (W-6)
69,000 Creditors (returns)
Cl. (Bal.)
Opening capital
Assets
Debtors
Cash
Furniture and fixture
Stock
Motor Van
Cr.
62,000
2,000
30,000
45,000
4,500
15,000
25,000
16,000
105,500
Liabilities
Creditors
(24,000)
81,500
ANSWER-29
Mr. Tahir
Trading and Profit and Loss Account
For the year ended December 31, 2010
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Rent, rates and taxes
Lighting and heating
Repair
Sundry business expenses
Salaries
Loss on sale of motor van
Depreciation:
Motor van
Truck
Furniture
Deep freezer
404
(W-1)
(W-8.1)
(W-4)
(W-5)
(W-6)
(240,000-20,000) – 200,000
(240,000 x 25% x 4/12)
(1,200,000 x 25% x 6/12)
(600,000 x 15%)
(800,000 x 15% x 6/12)
Rupees
44,400,000
(37,000,000)
7,400,000
1,350,000
100,000
424,000
502,000
2,600,000
20,000
20,000
150,000
90,000
60,000
(5,316,000)
2,084,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Tahir
Balance Sheet
As on December 31,2010
Capital and liabilities
Capital
Opening capital
Capital introduced
Add: Net Profit
Less: Drawings
Rupees
5,400,000
2,084,000
(3,196,000)
4,288,000
(3,960,000+960,000+480,000)
(W-7)
Current Liabilities
Trade Creditors
1,900,000
Total
6,188,000
Assets
Non-Current Assets
Furniture
Less Accumulated depreciation
Truck
Less Accumulated depreciation
Deep freezer
Less Accumulated depreciation
Current Assets
Stocks
Debtors
Prepaid rent
Bank
Cash
600,000
(90,000)
1,200,000
(150,000)
800,000
(60,000)
2,300,000
(W-8)
2,396,000
150,000
400,000
932,000
10,000
3,888,000
6,188,000
(W-3)
Total
WORKINGS
(W-1)
Dr.
Op.
Sales (bal.)
Debtors account
- Cash (W-3)
44,400,000
cl.
Cr.
44,250,000
150,000
(W-2)
Dr.
Bank
cl.
Creditors account
37,496,000 op.
1,900,000 Inventory (bal.)
Cr.
39,396,000
(W-3)
Dr.
op.
Debtors (bal.)
Capital
Disposal – car
Capital
Cash account
- Bank
44,250,000 Salaries
960,000 Expenses
200,000 (20,000 x 12 – 10,000)
480,000 Drawings
(100,000 x 12 months)
c/d
Cr.
41,850,000
2,600,000
230,000
405
1,200,000
10,000
CHAPTER-5
(W-`4)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
op.
Bank
Rent, rates and taxes
1,750,000 P and L (bal.)
cl.
1,350,000
400,000
(W-5)
Dr.
Bank
Repair expenses
460,000 P and L (bal.)
Drawings
Cr.
424,000
36,000
(W-6)
Dr.
Bank
Cash (W-3)
Sundry expenses
272,000 P and L (bal.)
230,000
Cr.
502,000
(W-7)
Dr.
Bank
Cash (100,000x12)
Repair
(W-8) Calculation of closing stock
Dr.
Op.
Creditors (W-2)
Cr.
Drawings account
1,960,000
1,200,000
36,000 c/d
Cr.
3,196,000
Inventory account
- Cost of Sales (W-8.1)
39,396,000
Cl. (Bal.)
(W-8.1) Calculation of cost of sales
COS
= (W-1) 44,400,000/120 x 100
=
Cr.
37,000,000
2,396,000
37,000,000
ANSWER-30
Shafiq Ahmad
Trading and Profit and Loss Account
for the year ended June 30, 2009
(2,800 x 2,000)
(W-7)
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent
Salaries
Fuel and maintenance expense
Fitness certificate expense
Miscellaneous office expenses
Abnormal loss of units damaged
Advertisement expense
Provision for doubtful debts
Depreciation on furniture
Depreciation on Trucks
Other Income
Cost of transportation recovered
Interest Income
Net Profit
(W-5)
(W-6)
(224,000-10,000 - 18,000)
(W-6.1)
(W-8)
(1,200 x 10)
(W-2)
(W-10)
(W-10)
Rupees
5,600,000
(3,365,000)
2,235,000
176,000
244,000
196,000
1,500
112,000
15,000
12,000
124,000
2,430
69,700
(952,630)
Add:
406
(200,000 x 12% x 5/12)
200,000
10,000
1,492,370
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Shafiq Ahmad
Balance Sheet
as on June 30, 2009
Capital and liabilities
Capital
Opening capital
Capital introduced
Add: Net Profit
Less: Drawings
Current Liabilities
Trade Creditors
Total
Assets
Non-Current Assets
Furniture
Less: Accumulated depreciation
Delivery trucks
Less: Accumulated depreciation
Current Assets:
Stocks
Debtors
Less: Provision for bad debt
Fixed Deposit
Interest receivable on fixed deposit
Cash and Bank
Prepaid fitness certificate
Rupees
(2 x 1,200+ 50,000)
(W-3)
(5,700 + (W-10) 2,430)
(400,000 + 300,000 + 60,000 + 10,000)
(144,000+(W-11)69,700)
(W-1)
(W-2)
(200,000 x 12% x 5/12)
(W-4)
(18,000/36M x 33M)
Total
WORKINGS
(W-1) Dr.
op.
Sales (2,800 x 2,000)
Debtors account
160,000 Cash and bank (4,713,750-15,000)
5,600,000 Bad debts
cl.
(bal.)
5,760,000
497,300
1,000,000
1,492,370
(52,400)
2,937,270
1,600,000
4,537,270
30,000
(8,130)
770,000
(213,700)
578,170
1,660,600
1,001,250
(112,000)
200,000
10,000
1,182,750
16,500
3,959,100
4,537,270
Cr.
4,698,750
60,000
1,001,250
5,760,000
Rs 15,000 included in receipts from debtors will be netted off against abnormal loss rather than
treating it to be sales.
(W-2)
Dr.
Bad debt
cl. (5,600,000 x 2%)
(W-3)
Dr.
Cash and bank
cl. (bal.)
407
Provision for bad debt account
60,000 op.
112,000 P and L (bal.)
172,000
Creditors for oil purchases
3,200,000 op.
Inventory (Purchases)(3,000 x 1,200)
1,600,000
4,800,000
Cr.
48,000
124,000
172,000
Cr.
1,200,000
3,600,000
4,800,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
Op.
Capital
Debtors
Insurance
Debtors
(W-5)
Dr.
Cash and bank
Rent
192,000 op.
P and L (bal.)
192,000
Cr.
16,000
176,000
192,000
(W-6)
Dr.
Cash and bank
Salaries
248,000 op.
P and L (bal.)
248,000
Cr.
4,000
244,000
248,000
(W-6.1) Dr.
Cash and bank
(W-7) Calculation of cost of sales
Dr.
Op.
Creditors
Cash (Carriage-inward)
Cash and bank account
75,000 Rent
1,000,000 Salaries
4,713,750 Fuel (224,000-10,000 - 18,000)
30,000 Fitness certificate expense
200,000 Misc. exp
Drawings (Personal tax)
Fixed deposit
Suppliers
Transportation cost
Truck (360,000 + 10,000)
cl. (bal.)
6,018,750
Cr.
192,000
248,000
196,000
18,000
112,000
50,000
200,000
3,200,000
250,000
370,000
1,182,750
6,018,750
Fitness certificate expense
18,000 P and L (bal.)
Closing prepaid (18,000/36x33)
18,000
Cr.
1,500
16,500
18,000
Inventory account
1,250,000 Cost of Sales (Bal.)
3,600,000 Drawing expense (2 x 1,200(W-9.1))
250,000 Advertisement (10 x 1,200(W-9.1))
Abnormal Loss
(W-8)
Cl.
(W-9)
(W-8) Calculation of abnormal loss
Dr.
Cash and bank (from sale)
Dr.
Cash and bank (from insurance claim)
Dr.
P and L (bal.)
Cr.
Purchases
(50 x 1,200(W-9.1))
Cr.
3,365,000
2,400
12,000
60,000
1,660,600
15,000
30,000
15,000
60,000
(W-9) Valuation of closing stock
Reconciliation of units
Opening units
Purchases
408
Units
1,250
3,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Sold
Damaged in transit
Drawings
Gifted to charity
Closing stock
Total closing stock
Stock on which NRV test to be applied
Remaining stock (which is to be shown at cost)
(2,800)
(50)
(2)
(10)
1,388
1,388
(50)
1,338
Value of unfit stock
Cost
Cost of unfit stock
(50 x 1,200 (W-9.1))
NRV
NRV- if sold without processing
Estimated selling price X No of units
(50 x 1,000)
NRV - if sold with further processing
(Estimated selling price (N-l) - estimated cost of completion) x No. of units
(2,000- 900) x 50
55,000
60,000
50,000
NRV (higher of 50,000 and 55,000 as calculated above) N -2
55,000
Value of total stock
Lower of Cost or Net realizable value
(as above)
55,000
Add: Cost of remaining stock
(1,338 x 1,200(W-9.1))
1,605,600
Closing stock
1,660,600
N-l
It is assumed that stock after processing will be sold at normal selling price.
N-2
It is better to get it further processed because it can be sold then for Rs 55,000 instead
of 50,000.
(W-9.1) Calculation of weighted average cost
Total Cost
Units
Opening
1,250,000
1,250
Purchases
(3,600,000+250,000)
3,850,000
3,000
5,100,000
4,250
Weighted average cost
=
5,100,000
4,250
= 1,200
(W-10) Depreciation calculation Furniture
Opening cost
Less: Opening accumulated depreciation
Opening book value
Depreciation
(24,300 x 10%)
Rupees
30,000
(5,700)
24,300
2,430
Delivery truck
Opening cost
Less: Opening accumulated depreciation
Opening book value
Depreciation on opening assets (256,000 x 20%)
Depreciation on additions
(300,000+60,000+10,000) x 20% x 3/12
Total depreciation
Note: Rs. 18,000 will be treated as prepaid expense.
409
Rupees
400,000
(144,000)
256,000
51,200
18,500
69,700
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-31
Cost of stock stolen on 30 November 2012
Cost of stock as on 30 June 2013
203,700
538,300
Mr. Zafar
Trading Account
for the year ended June 30, 2013
Rupees
1,656,000
Sales
Less: Cost of sales
Op. stock
Purchases
Abnormal loss
Cl. Stock
774,000
1,270,000
(263,700)
(538,300)
(1,242,000)
414,000
Gross Profit
WORKINGS
(W-1)
Dr.
op.
Sales (bal.)
(W-2)
Dr.
Bank
cl.
(W-3)
(W-4)
(W-5)
(W-6)
410
Debtors account
237,000
1,522,000 Bank
cl.
Creditor account (July 12 - June 13)
op.
Xxx Purchases
Xxx
Dr.
Cr.
1,559,000
200,000
Cr.
553,000
1,270,000
Creditor account (July 12 - Nov. 12)
op.
Bank
510,200 Purchases
cl.
466,600
Dr.
Bank account
op.
553,000
Debtors
1,559,000
cl.
No need to complete this account
Cr.
553,000
423,800
Dr.
op.
Sales (bal.)
Cr.
118,000
Dr.
b/d
Creditor
Cash account
59,000 Drawings
134,000
c/d
Inventory (July 12 - June 13)
774,000 Abnormal loss (W-7)
1,270,000 Abnormal loss
Cost of sales (W-9)
c/d (bal.)
Cr.
Xxx
75,000
Cr.
203,700
60,000
1,242,000
538,300
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-7)
Dr.
b/d
Creditor
(W-8)
Calculation of total sales
Credit sales
Cash sales
(W-9)
Inventory (July 12 - Nov. 12)
774,000 Abnormal loss (bal.)
423,800 COS (W-9)
c/d
Cr.
203,700
517,500
476,600
1,522,000
134,000
1,656,000
Cost of sales
Cost of sales whole year
Cost of sales (July 12 - Nov. 12)
(1,656,000/100 x 75)
(1,242,000/12 x 5)
1,242,000
517,500
ANSWER-32
For calculating the profit for each year we will prepare the capital account in statement form.
Increase/(decrease) in capital
Add: Drawings
Less: New capital
Profit for the year
(W-1) Increase/(decrease) in capital
Increase in cash at bank
Decrease in accounts receivable
Increase in stock
Increase in notes payable
Increase in accounts payable
Increase in bank loan
Increase in interest payable
(W-l)
(250 x 52)
ANSWER-33
For calculating the profit for each year we will prepare the capital account in statement form.
Calculation of profit for the year
Increase/(decrease) in capital
(W-l)
Add: Drawings
(4,500 x 52)
Less: New capital
Profit for the year
(W-1)Increase/(decrease) in capital
Increase in cash
Decrease in trade debts
Increase in stock
Increase in bills payable
Increase in creditors
Increase in bank loan
Increase in mark-up payable
411
Rupees
(750)
13,000
(4,200)
8,050
6,500
(1,500)
14,000
(5,000)
(2,500)
(12,000)
(250)
(750)
Rs.
(22,500)
234,000
(126,000)
85,500
195,000
(45,000)
420,000
(150,000)
(75,000)
(360,000)
(7,500)
(22,500)
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ANSWER-34
Rs.
(a)
Loss due to fraud:
Cash embezzled through purchase return
Stock embezzled through fake debtors (50,000 x 0.75)
Cash due to fraud (W-1)
WORKINGS
(W-1)
Dr.
b/d
Sales (W-6)
24,000
37,500
50,740
112,240
Cash account
45,000 Drawing (12,000 x 12)
1,631,250 Bank
To fraud (bal.)
c/d
Cr.
144,000
1,450,000
50,740
31,510
Statement of profit & loss
For the year ended 31/12/16
Sales cash
Less: Discount
Credit sale
Net sales
Less: Cost of goods sold
Open inventory
Purchases
Less: Return out ward
Less: Stock misappropriation
Less: Closing stock
Gross profit
Operating expenses
Rent expenses
Utilities
Other expense
Loss on sales of vehicle
Salaries exp
Loss due to fraud
Depreciation:
Furniture
Equip
Vehicle
Rs. in 000’
1,687,500
(56,250)
854,000
2,485,250
(W-6)
(W-6)
(W-5)
(W-2)
250,000
2,017,000
(24,000)
(37,500)
(215,000)
(1,990,500)
494,750
Less:
(W-8)
(W-9)
(W-11)
(W-12)
(a)
(W-14)
(W-13)
(W-10)
Net profit
(W-2)
Dr.
Bank
c/d (354,500-45,000)
(W-3)
412
Creditor a/c
1,807,500 b/d
Purchase (bal.)
309,500
75,000
36,000
24,750
3,500
52,000
112,240
40,000
16,000
20,000
(379,490)
115,260
Cr.
100,000
2,017,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Dr.
b/d
Credit sale (bal.)
Debtor a/c
260,000 Bank
854,000
c/d (340-50)
(W-4)
Dr.
b/d
Purchases
Cr.
824,000
290,000
Inventory a/c
250,000 COS (bal.)
2,017,000 Stock misappropriation
Return outward
c/d
Cr.
1,990,500
37,500
24,000
215,000
(W-5) Calculation of cost of goods sold
Total cost of goods sold
Less: Cost of credit sales (845,000x75%)
Cost of cash sales
(W-6) Total cash sales
Period
First six month
Second six months
Ratio
1,990,500
(640,500)
1,350,000
Cost
600,000
750,000
Gross sales
750,000
937,500
2.25 (W-5)
1,350,000
Or
1,350,000 ÷ 2.25 = 600,000 – 1,350,000 = 750,000
1,687,500
1
1.25
Discount (6%)
(W-7)
(W-7)
56,250
56,250
(W-7) Gross sales
Margin = 80%+20% = 100%
600,000
x 100 = 750,000
80
750,000
80
(W-8)
Dr.
b/d
Bank
(W-9)
Dr.
Bank
c/d
(W-10)
Dr.
b/d
Purchase
(W-11)
Dr.
Vehicle
413
x 100 = 937,500
Rent a/c
3,000 P/L (bal.)
70,000 c/d
Cr.
73,000
-
Utility a/c
b/d
36,000 P/L
-
Cr.
36,000
Vehicle a/c
18,500 Disposal
230,000 Dep. exp. (bal.)
c/d
Disposal a/c (vehicle)
18,500 Cash
Loss
Cr.
18,500
20,000
210,000
Cr.
15,000
3,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-12)
Dr.
Bank
c/d
(W-13)
Dr.
b/d
(W-14)
Dr.
b/d
Purchased
Salaries pay
48,000 b/d
P/L (bal.)
22,000
Cr.
18,000
52,000
Equipment pay
80,000
Dep. Exp.
c/d
Cr.
16,000
64,000
Furniture a/c
550,000
45,000 Dep. Exp.
c/d
Cr.
40,000
555,000
Answer-35
Alpha Traders
Trading and profit and loss account
For the year ended 31.12.2017
Sales (39,200+60,000)
Less: Cost of sales
Opening Stock
Add: Purchases
Less: Purchase Return
Less: Abnormal Loss
Less: Closing Stock
Gross Profit
Less: Operating Expenses
Provision for bad debts
Dep – furniture
Dep – delivery truck
Rent expense
Salaries
Repair and maintenance
Utilities
Misc. expenses
Abnormal loss
Rs. in“000”
99,200
(W-11)
12,300
88,500
(2,170)
(5,500)
(14,500)
(W-5)
(W-6)
(W-9)
(W-7)
(W-8)
(2,800+500-260)
(78,630)
20,570
(320)
(550)
(240)
(2,365)
(6,350)
(3,040)
(1,400)
(1,300)
(5,500)
(21,065)
Add: Other income
Ins. Claim
Delivery charges
Discount received
Net Profit
414
(W-2)
5,500
330
2,000
7,830
7,335
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Alpha Traders
Statement of Financial Position
As on 31.12.2017
Rs. in“000”
Equity and liabilities
Equity
Add: Profit
Less: Drawings
W-1
W-4
26,534
7,335
(3,260)
Current Liabilities
Creditors
Salaries Payable
W-2
W-8
9,700
310
40,619
Non-current assets
Furniture and fitting
Delivery Truck
W-6
W-9
9,625
2,320
Current assets
Stock
Debtors
Less: Provision
Rent Prepaid
Bank
Cash
W-3
5,900
W-5
(236)
W-7
W-10.1
W-4
Assets
W-1
14,500
5,664
180
7,900
430
40,619
Opening capital
= 10,175 + 12,300 + 4,400 + 145 + 750 +7,900 – 8,500 – 176 – 460
= 26,534
W-2
Bank (87,200-1,900)
Dis. Rec. (48,000/96 x 4)
c/d
Creditor Account
Rs
85,300 b/d
2,000 Purchases (bal.)
9,700
Rs.
8,500
88,500
W-3
b/d
Sales (bal.)
Debtor Account
Rs
4,400 Bad debt
39,200 Bank ( 34,240 + 3200)
c/d
Rs.
260
37,440
5,900
Cash Account
Rs
750 Bank
6,320 Salaries
60,000 Repair and maintenance
Drawings (bal.)
c/d
Rs
56,380
6,500
500
3,260
430
W-4
b/d
Bank
Cash
415
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
W-5
Bad debt
c/d (5,900 x 4% )
Provision for bad debt
Rs
260 b/d (4,400 x 4% )
236 P/L (bal.)
Rs
176
320
Furniture and fittings
Rs
10,175 Dep.
(W-6.1)
c/d
Rs
550
9,625
W-6
b/d
W-6.1 Dep.
Dep exp
=
𝑊𝐷𝑉
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑢𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
10,175
= (20−1.5)
=
Dep exp
10,175
18.5
= 550
W-7
b/d
Bank (2100 + 300)
Rent Account
Rs
145 P/L (bal.)
2,400 c/d
Rs
2,365
180
Salaries Account
Rs
6,500 b/d
310
P/L (bal.)
Rs
460
6,350
W-8
Cash
c/d
W-9
b/d
31/03/17
Bank/Cash (2,300+260)
Truck Account
Rs
Dep exp (2,560 x 12.5% x
2,560
c/d
9
)
12
Rs
240
2,320
W-10
Balance as per bank book (bal.)
Add: Un-Presented Cheques
Less: Un-Credited Cheques
Balance as per Bank Statement
416
2017
7,900
300
(3,200)
5,000
2016
7,900
1,900
9,800
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
W-10.1
Bank Account
Rs
7,900 Utilities
37,440 Rent and rates (2,100+ 300)
56,380 Repair and maintenance
5,500 Cash
2,170 Creditors
330 Delivery Truck
Misc. exp
______ c/d
109,720
b/d
Debtors (34,240 + 3200 )
Cash
Ins. Claim
Purchase Return
Delivery Charges
Rs
1,400
2,400
2,800
6,320
85,300
2,300
1,300
7,900
109,720
W-11
Cost of sales
78,630
60%
COS- Cash Sales
47,178
40%
COS- Credit Sales
31,452
Credit
Actual Sales
=
Credit Sales without discount
= 40,000
S.P of cash sales
=
Cash Sales
= 60,000
39,200
98
x 100
40,000
31,452
x 47,178
ANSWER-36
FC Traders
Statement of Comprehensive Income
For the Year Ended 30-June-18
Sales
Less: Cost of sales
Gross profit
Less: Operating Expenses
Rent
Misc. Supplies
Repair
Utilities
Selling commission rider
417
(W-3)
(W-2)
(W-5)
(W-6)
(W-7)
Rs. In ‘000
24,325
(17,500)
6,825
(2,200)
(700)
(950)
(1,200)
(147)
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Salaries
Depreciation equipment
Depreciation furniture
Abnormal loss
(W-4)
(1,965)
(400)
(250)
(250)
(Loss)
(1,237)
FC Traders
Balance Sheet
As on 30-June-18
Capital and liabilities
Capital
Add profit (loss)
Less Drawings
Non-Current Liabilities
Current liability
Creditor
Rent payable
Commission payable
Salaries payable
Bank overdraft
Assets Non-Current Assets
Equipment 4,000 – 400
Furniture 2,500 – 250
Current Assets
Debtor
Stock
Un-used Miscellaneous
Rs. In ‘000
(W-8)
(W-1)
(W-5)
(W-7)
(W-4)
(W-9)
7,550
(1,237)
(540)
2,890
400
57
165
715
5,773
-
4,227
10,000
3,600
2,250
(W-11)
(W-2)
(W-6)
1,600
2,150
400
10,000
W-1
Bank
Balance c/d (2,800 + 90)
Creditor Account
Rs.
13,600 Balance b/d
Stock (balance)
2,890
Rs.
1,850
14,640
W- 2
Balance b/d
Creditor
Cash
W- 3
418
Stock Account
Rs.
2,800 Abnormal loss
14,640 Drawing
3,000 Cost of sale (Balance)
Balance c/d (2,400 – 250)
Rs.
250
540
17,500
2,150
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Sales Calculations
Rs.
11,813
4,900
7,612
24,325
17,500  50%  1.35
17,500  20%  1.40
17,500  30%  1.45
W- 4
Balance b/d
Cash
Balance c/d
W- 5
Bank
Balance c/d
W- 6
Balance b/d
Bank
Salaries and Wages
Rs.
- Balance b/d
1,800 Profit & loss
165
Rent Account
Rs.
2,000 Balance b/d
Profit & Loss (Balance)
400
Miscellaneous Supplies
Rs.
300 Profit & Loss (Balance)
800
Balance c/d
Rs.
1,965
Rs.
200
2,200
Rs.
700
400
W- 7
Cash
Balance c/d
W- 8
Commission Account
Rs.
90 Balance b/d
Profit & Loss (4,900  3%)
57
Rs.
147
Opening Capital
Equipment
Furniture
Inventory
Un-used miscellaneous suppliers
Less: Creditor
Rent payable
419
Rs.
4,000
2,500
2,800
300
(1,850)
(200)
7550
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
W-9
Cash (W-10)
Debtor (W-11)
Balance c/d
Bank Account
Rs.
Creditor
11,823 Rent
6,012 Miscellaneous supplies
Repair
715 Utility
18,550
Rs.
13,600
2,000
800
950
1,200
18,550
Cash Account
Rs.
11,813 Bank (Balance)
4,900 Stock
Salaries
Commission
Balance c/d
16,713
Rs.
11,823
3,000
1,800
90
16,713
W- 10
Sales
Sales
W- 11
Balance b/d
Sales
420
Debtor Account
Rs.
- Bank
7,612
Balance c/d
Rs.
6,012
1,600
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP QUESTION BANK QUESTION
QUESTION-1
a)
A business makes all of its sales at a mark-up of 25%. During the year sales totalled Rs.98,000
and purchases were Rs.71,000. The inventory at the start of the year was valued at Rs. 10,200.
What was the value of the closing inventory at the end of the year?
(3)
b)
A business has the following assets and liabilities at the start and end of March.
1 March
31 March
Rs.
Rs.
Trade receivables
6,100
7,400
Trade payables
3,900
3,500
The summarised bank statements for the year showed the following figures:
o Bankings for the year were Rs.78,500
o Payments to suppliers for the year were Rs.49,700
o The owner banks her takings from the till each month but before doing so in March she took
Rs. 5,000 for her own use.
What are the sales for the year?
(4)
c)
An accountant has prepared the following list of the assets and liabilities of a business, but has
forgotten to enter the cash balance.
Rs.
Trade payables
4,900
Inventory
9,300
Non-current assets
98,900
Capital
97,200
Bank loan
15,700
Receivables
16,800
Bank
?
What is the missing figure for 'Bank'?
(4)
(ICAP Question bank 5.1)
QUESTION-2
Irum is a sole trader. She does not keep a full set of accounting records but does keep some records of
transactions and documents. She has asked you to prepare her accounts for the year ended 31 December
2015.
You have been given a list of the assets and liabilities of the business at the start and end of the year.
Assets and liabilities
At 1 Jan 2015
At 31 Dec 2015
Rs.000
Rs.000
Trade receivables
5,500
6,100
Trade payables
2,800
3,500
Inventory
10,400
?
Irum has no idea what her inventory value was at 31 December as that she did not count or value her
inventory at the year end.
She has also been given you a summary of her bank statements for the year.
Summary of bank statement
Receipts
Payments
Rs.000
Rs.000
1 Jan
Balance b/d
1,620
To suppliers
42,800
Bankings
65,400
For expenses
9,300
Living expenses
10,400
31 Dec Balance c/d
4,520
You have also been able to gather the following information from Irum:
421
CHAPTER-5
i)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Irum banks her takings from the till each week but before doing so pays Rs.50,000 to her
employees and takes Rs.30,000 herself. The business operates for 50 weeks each year.
ii)
The till always has a cash float of Rs. 100,000.
iii)
The sales of the business are both cash and credit sales and are all made at a mark-up of 40%.
Required:
(a)
Calculate sales for the year.
(4)
(b)
Calculate the value of the closing inventory at 31 December 2015.
(4)
(ICAP Question bank 5.2)
QUESTION-3
(a)
A greengrocer made sales during the month of Rs.49,200. Opening inventory amounted to
Rs.3,784 and month-end inventory was Rs.5,516. During the month he purchased for cash goods
which cost Rs.38,632.
Required:
Determine the gross profit and calculate the gross profit percentage as a percentage of sales value.
(3)
(b)
A rival has made sales of Rs.50,100 at a fixed mark-up of 25%. Closing inventory was valued at
Rs.5,438 and he purchased goods during the month amounting to Rs.38,326.
Required:
Determine the value of the opening inventory.
(3)
(c)
A local store makes sales at a fixed gross profit of 10% on sales value. Sales during the month
amounted to Rs. 186,460; closing inventory was Rs. 16,800 and represents an increase of 25%
over the value of the opening inventory.
Required:
Determine the cost of purchases during the month.
(3)
(ICAP Question bank 5.3)
QUESTION-4
Tahir retired from his employment abroad and returned to this country, where he purchased a small kiosk.
He took over the business on 1 July 2014, acquiring the existing inventory at a valuation of Rs.1,142,000.
The rest of the purchase price was apportioned as to Rs.1,500,000 for fixtures and fittings and the balance
for goodwill.
The following day he acquired a second-hand computer and accounts package at a price of Rs.80,000.
Unfortunately, Tahir made an error when printing his year-end accounts causing him to lose all data
except for printed a summary listing of payments from the till.. Other than this, the only records available
were his bank statements and a number of vouchers. Surplus cash was banked during the year.
A summary of his bank account for the year ended 30 June 2015 shows the following.
Rs.000
Rs.000
Cash introduced
5,000 Purchase of business
3,192
Bankings from shop
16,427 Purchase of accounts computer
80
Loan from mother (long-term) (interest at 1,000 Rent (15 months to 30 September 2015)
500
5% pa)
Rates (9 months to 31 March 2015)
84
Electricity
92
Purchases for resale
14,700
Private cheques
1,122
Balance 30 June 2015
2,657
22,427
22,427
422
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
The computer print-out was as follows.
Rs.000
Cash purchases for resale
1,606
Staff wages
742
Sundry shop expenses
156
Cash drawings
520
On 30 June 2015 inventory, measured at cost, amounted to Rs.1,542,000, amounts due from customers
Rs.74,000, and cash in hand amounted to Rs.54,000.
Depreciation is to be recognised on fixtures and fittings at a rate of 10%.
Accounts outstanding on 30 June 2015 were purchases of Rs.470,000 and rates of Rs.120,000 for the year
ended 31 March 2016.
Required:
Prepare Tahir’s statement of comprehensive income for the year ended 30 June 2015 and a statement of
financial position at that date.
(20)
(ICAP Question bank 5.4)
QUESTION-5
Ijaz is in business but does not keep proper books of account. In order to prepare his statement of
comprehensive income and statement of financial position for the year ended 31 December 2015 you are
given the following information.
1 Jan 2015
31 Dec 2015
Rs.000
Rs.000
Inventory on hand
1,310
1,623
Receivables
268
412
Payables for goods
712
914
Payables for expenses
116
103
In addition you are able to prepare the following summary of his cash and bank transactions for the year.
Cash account
Rs.000
Rs.000
Balance 1 January
62 Payments into bank
3,050
Shop takings
4,317 Purchases
316
Cheques cashed
200 Expenses
584
Drawings
600
Balance 31 December
29
4,579
4,579
Bank account
Rs.000
Rs.000
Balance 1 January
840 Cash withdrawn
200
Cheques from customers
1,416 Purchases
2,715
Cash paid in
3,050 Expenses
519
Drawings
400
Delivery van (purchased 1 September)
900
Balance 31 December
572
5,306
5,306
In addition Ijaz says that he had taken goods for personal consumption and estimates that those goods cost
Rs.100,000.
In considering accounts receivable Ijaz suggests that a provision is to be made of 5% of amounts due after
writing off a specific bad debt of Rs.30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.
Required:
Prepare the statement of comprehensive income and a statement of financial position at
31 December 2015.
(20)
(ICAP Question bank 5.5)
423
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-6
Rashid is coming to the end of his first year’s trading. He has not kept proper books and records.
The following information relates to the year ended 30 September 2015.
(1)
He set up in business when he won Rs. 200,000,000 on football pools. He invested the money in
the bank and set up in business as a retailer of clothing.
(2)
He banks his takings periodically after payment of the following amounts.
Wages
Rs.75,000 per week
Cleaning
Rs. 10,000 per week
Sundries
Rs. 15,000 per week
Personal expenses
Rs.25,000 per week
(3)
(4)
Cash in hand at the end of the year was Rs.250,000.
A summary of his bank statements reveals the following.
Rs.000
Capital introduced
200,000 Purchase of leasehold premises
Bankings
125,750 Purchase of vans
Telephone
Rent and rates
Payments to suppliers
Wages
Repairs
Personal expenses
Balance c/d
325,750
Rs.000
150,000
6,000
896
1,682
86,232
15,282
3,637
323
61,698
325,750
An unpresented cheque of Rs.385,000 for repairs was still outstanding.
Other assets and liabilities at 30 September 2015 were as follows.
Rs.000
Inventory
8,400
Trade receivables
10,350
Trade payables
29,957
Accrued expense - telephone
125
Prepaid expense- rent and rates
258
(5)
Depreciation is to be recognised on the van at 25% of its cost. The lease on the premises is for
50 years.
(6)
Rashid estimates that his gross profit percentage is 25% on sale price, and also informs you that
he does not keep a record of the goods he took for his own use.
Required:
Prepare a statement of comprehensive income for the year ended 30 September 2015 and a statement of
financial position at that date.
(20)
(ICAP Question bank 5.6)
424
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-7
Mudassar had retired from the army some years ago to run a grocery business in the country. On
1 October 2015 his assistant failed to report for work and it was later discovered that he had disappeared
taking the contents of the cash till with him.
An analysis of Mudassar’s bank statements for the year ended 31 December 2015 revealed the following.
Rs.000
Rs.000
Balance b/f
280 Suppliers
13,600
1,000 Rent
Tax refund
800
16,720 Rates
Bankings
400
Insurance
200
Drawings
2,500
Bank charges
100
Balance c/f
400
18,000
18,000
A statement of affairs produced by Mudassar comprised the following.
31 December
2015
2014
Rs.000
Rs.000
Motor car (NBV)
3,200
3,600
Fixtures (NBV)
3,400
4,000
Inventory
1,200
900
Trade receivables
150
90
Rent prepaid
30
20
Cash
Nil
380
Trade payable
120
110
A rough cash book kept by Mudassar showed the following.
Rs.000
Assistant’s wages
1,800
Sundry expenses
250
Cash purchases
300
Drawings
2,400
Cash received from customers
21,550
A footnote recorded that discounts received and discounts allowed were Rs.200,000 and Rs.300,000
respectively.
The insurance company agreed to admit the claim for loss of cash upon production of a full set of
accounts.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015 and a statement of
financial position at that date.
(20)
(ICAP Question bank 5.7)
425
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-8
Aslam, who has been in business as a contractor since 1 January 2015, received a request from the tax
authorities for his first year’s accounts.
He had not kept proper records of his business transactions, but was able to supply the following
information.
(1)
From bundles of receipts and a wages notebook some of the cash expenses for the year appeared
to have been as follows.
Rs.000
Wages and Social Security
3,346
Materials
1,400
Electricity
56
General expenses
14
(2)
Drawings were estimated at Rs. 18,000 per week, out of which Aslam had paid the rent of his
builder's yard of Rs.2,000 per week. His own Social Security contributions had been included in
Wages and Social Security and totalled Rs.65,000 for the year.
(3)
On 1 April he purchased a van for Rs.856,000. His mother lent him Rs.400,000 for the deposit,
and the balance was payable by twelve monthly instalments of Rs.38,000 each commencing on
1 June. The loan from his mother had not been repaid at the end of the year.
(4)
A summary of his bank account showed the following.
Rs.000
Rs.000
Balance 1 January 2015
150 Materials
4,790
Bankings
9,204 Van expenses
342
General expenses
110
Cheques drawn for cash
3,100
Cement mixer
200
Van instalments
266
Private cheques
342
Balance 31 December 2015
204
9,354
9,354
(5)
On 31 December 2015 inventory (materials) amounted to Rs.560,000, cash in hand Rs.10,000,
trade receivables Rs.1,200,000, trade payables for materials Rs.149,000, and outstanding van
expenses Rs.36,000. There was no work in progress on 31 December 2015.
(6)
Depreciation of Rs.108,000 is to be recognised on the van and Rs.50,000 on the cement mixer.
Required:
Prepare Aslam’s statement of comprehensive income for the year ended 31 December 2015 and a
statement of financial position at that date.
(20)
(ICAP Question bank 5.8)
426
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-9
Umar is a grocer who had not kept a full set of books. The following was a summary of his bank
statements for the year ended 31 December 2015.
Rs.000
Rs.000
35,170 Balance 1 January 2015
Amounts credited by bank
892
Payments for trade payables
30,500
Rent and rates
475
Fixtures
100
Lighting and heating
210
General expenses
800
Loan interest
120
Drawings
900
Customers’ cheques dishonoured
180
Balance 31 December 2015
993
35,170
35,170
Additional information
1) During the year Umar had paid out of his cash takings, wages amounting to Rs.2,950,000 and sundry
expenditure of Rs. 140,000. He retained Rs.3,000 a week and maintained a balance of Rs.20,000 in
the till for change. The balance of his takings, together with cheques amounting to Rs.250,000, which
he had cashed out of his takings for the convenience of certain friends, was paid into the bank.
2) Cheques drawn payable to trade payables, but not presented at 1 January 2015, amounted to
Rs.280,000 and at 31 December 2015 to Rs.320,000.
3) All dishonoured cheques were re-presented and honoured during the year.
4) The loan interest was paid to Brough who had lent Umar Rs.4,000,000 some years ago at a rate of
interest of 3% per annum. The interest was duly paid half- yearly on 31 March and 30 September, and
the loan was still outstanding at the end of the year.
5) Discounts allowed by suppliers amounted to Rs.480,000 and those allowed to customers were
Rs.520,000.
6)
1 Jan 2015 31 Dec 2015
Rs.000
Rs.000
Inventories
4,500
5,800
2,800
3,200
Debtors (including in debtors a bad debt of Rs. 200,000 to be written off)
Accrued general expenses
240
190
Rates paid in advance
40
50
Fixtures (including those purchased during year) valued at
2,800
2,550
Trade payables
1,800
2,200
Amounts due for lighting and heating
80
70
Required:
Prepare
(a)
a statement of Umar’s capital at 1 January 2015.
(b)
a statement of comprehensive income for the year ended 31 December 2015.
(c)
a statement of financial position at 31 December 2015.
(4)
(9)
(7)
(20)
(ICAP Question bank 5.9)
427
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
QUESTION-10
Yasin received a legacy of Rs. 20,000,000 on 1 January 2015 and on that date purchased a small retail
business. The completion statement from the solicitor revealed the following.
Rs.000
Freehold shop property
10,000
Goodwill
2,000
Inventories
1,600
Trade receivables
400
Shop fixtures
2,600
Rates in advance to 31 March 2015
100
16,700
The legacy was used to discharge the amount due on completion and the balance was paid into a newly
opened business bank account.
Yasin had not kept proper records of his business transactions but was able to supply the following
information.
(1)
A summary of the cash till rolls showed his shop takings for the year to be Rs.25,505,000; this
includes all cash received from customers including those at 1 January 2015.
(2)
The takings had been paid periodically into the bank after payment of the following cash
expenses.
Rs.000
Wrapping materials
525
Staff wages
3,423
Purchases for resale
165
Petrol and oil
236
(3)
Personal cash drawings were estimated at Rs.20,000 per week and goods taken for own use at
Rs.2,000 per week.
(4)
A summary of the bank statements showed the following.
Rs.000
Rs.000
Legacy - residual balance
3,300 Purchases for resale
14,863
Sale of fixtures purchased at 1 January
Motor expenses
728
2015 but not required (cost Rs.200,000;
depreciation Nil)
130
Delivery van (cost - 1 April2015)
1,200
Loan from Robin at 10% pa
2,000 General expenses
625
Cash banked
19,900 Loan interest
100
(six months to 30 September)
Private cheques
1,329
Electricity
228
Rates (year to 31 March 2016)
500
Balance per statement at
31 December 2015
5,757
25,330
25,330
A cheque drawn on 28 December 2015 of Rs. 125,000 for goods purchased was presented to the
bank on 4 January 2016.
(5)
During the year bad debts of Rs.223,000 arose and were irrecoverable. The trade receivables at
31 December 2015 amounted to Rs.637,000, of which Rs. 100,000 is doubtful and for which an
allowance should be recognised should be made.
428
CHAPTER-5
(6)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
At 31 December 2015 there were
Rs.000
Inventories
2,360
Store of wrapping materials
53
Trade payables - purchases
358
Electricity accrued
50
Accountancy fees accrued
100
Cash float in till
180
(7)
The difference arising on the cash account was discussed with Yasin but remained unexplained
and was dealt with in an appropriate manner.
(8)
Depreciation is to be recognised at the rate of 10% per annum on the fixtures and at the rate of
20% on the van.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015 and a statement of
financial position at that date.
(20)
(ICAP Question bank 5.10)
429
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP QUESTION BANK SOLUTIONS
Answer-1 (a)
Closing value of stock (W-1)
(W-1)
Dr.
b/d
Creditors
28,000
Inventory Account
10,200 Cost of sale (98,000 / 125 x 100)
71,000 c/d (Bal.)
Cr.
78,400
2,800
Answer-1 (b)
Sales
(W-1)
Dr.
b/d
Sales (Bal.)
(W-2)
Dr.
b/d
Trade receivables (Bal.)
(W-1)
Trade receivables Account
6,100 Cash (W-2)
84,800 c/d
Cash Account
-- Bank
83,500 Drawings
84,800
Cr.
83,500
7,400
Cr.
78,500
5,000
Answer-1 (c)
Assets = Capital + Liabilities
Inventory + Non-current assets + Receivables + Bank = Capital + Liabilities
9,300 + 98,900 + 16,800 + Bank =97,200 +4,900 + 15,700
Bank = -7,200
Answer-2
(a) Sales
(b) Closing Value of Stock
(W-1)
(W-2)
70,000,000
3,900,000
(W-1)
Dr.
b/d
Sales (Bal.)
Trade receivables Account
5,500,000 Cash (W-4)
70,000,000 c/d
Cr.
69,400,000
6,100,000
(W-2)
Dr.
b/d
Creditor (W-3)
Inventory Account
10,400,000 Cost of sale (70,000,000 / 140 x 100)
43,500,000 c/d (Bal.)
Cr.
13,810,000
3,900,000
(W-3)
Dr.
Bank
c/d
Trade payables Account
42,800,000 b/d
3,500,000 Inventory (Bal.)
Cr.
2,800,000
43,500,000
430
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
b/d
Trade receivables (Bal.)
Cash Account
100,000 Bank
69,400,000 Wages (50 x 50,000)
Drawings (50 x 30,000)
c/d
Answer: 3 (a)
Sales
Less: Cost of sales
Gross Profit
(W-1)
Dr.
b/d
Cash
(W-1)
Dr.
b/d (Bal.)
Creditors
(W-1)
Dr.
b/d (16,800 / 125) x 100
Purchases (Bal.)
431
{(12,300 / 49,200) x 100}
Inventory Account
3,784 Cost of sales (Bal.)
38,632 c/d
Answer-3 (b)
Opening Value of Stock
Answer-3 (c)
Purchases
49,200
(36,900)
12,300
(W-1)
Gross profit percentage:
(Gross profit / sale) x 100
Cr.
65,400,000
2,500,000
1,500,000
100,000
(W-1)
Inventory Account
7,192 Cost of sales (50,100 / 125) x 100
38,326 c/d
(W-1)
25%
Cr.
36,900
5,516
7,192
Cr.
40,080
5,438
171,174
Inventory Account
13,400 Cost of sales (186,460 / 100 x 90)
171,174 c/d
Cr.
167,814
16,800
CHAPTER-5
Answer-4
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(All Amount in Rs.’000’ in this question)
Mr. Tahir
Trading and Profit and loss account
For the year ended June 30, 2015
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Interest Expense
Rent Expenses
Rates Expenses
Depreciation -Fixture and fitting
-Computer
Electricity Expense
Staff Wages
Sundry Expense
Rs.
19,579
(16,376)
3,203
(W-3)
(W-2)
(1,000 x 5%)
(W-5)
(W-6)
(1,500 x 10%)
(80x 10%)
Net Profit
50
400
114
150
8
92
742
156
1,712
1,491
Mr. Tahir
Balance Sheet
as on June 30, 2015
Capital and liabilities
Capital
Opening capital
Add: Net profit for the year
Less: Drawings
Rs.
(1,122 + 520)
Liabilities
Non-current liabilities
Loan
Current Liabilities
Trade Creditors
Rates payable
Interest Expense payable
Assets
Non-Current Assets
Good will
Fixture and fitting
Less: Accumulated Depreciation
Computer
Less: Accumulated Depreciation
432
5,000
1,491
(1,642)
4,849
1,000
(W-6)
(1,000 x 5%)
(W-7)
470
30
50
550
6,399
550
1,500
(1,50)
80
(8)
1,972
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Current Assets
Debtor
Inventory
Cash
Bank
Prepaid Rent
WORKINGS
(W-1)
Dr.
b/d
Debtor (Bal.)
74
1,542
54
2,657
100
4,427
6,399
(W-5)
Cash Account
- Bank
19,505 Inventory
Wages
Sundry Expense
Drawings
c/d
Cr.
16,427
1,606
742
156
520
54
(W-2)
Dr.
Bank
Creditors (W-4)
Cash
Inventory
1,142 Cost of sale (Bal.)
15,170
1,606 c/d
Cr.
16,376
(W-3)
Dr.
b/d
Sale (Bal.)
Debtor A/c
- Cash (W-1)
19,579 c/d
Cr.
19,505
74
(W-4)
Dr.
Bank
c/d
Creditor A/c
14,700
470 Inventory (Bal.)
(W-5)
Dr.
b/d
Bank (given)
(W-6)
Dr.
Bank (given)
c/d (120 / 12 x 3)
(W-7)
Less:
Less:
433
Goodwill
Purchase of Business
Fixtures and Fitting
Inventory
Rent Expense
- P and L (Bal.)
500 c/d (500,000 / 15 x 3)
Rates
84 P and L (Bal.)
30
1,542
Cr.
15,170
Cr.
400
100
Cr.
114
3,192
(1,500)
(1,142)
550
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-5
Mr. Ijaz
Trading and Profit and loss account
For the year ended December 31, 2015
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses:
Expenses
Depreciation on Van
Provision for doubtful debt
(4,317,000 + (W-2) 1,560,000)
(W-1)
(W-4)
(900,000 x 20% x 4/12)
(W-5)
Net Profit
Rs.
5,877,000
(2,820,000)
3,057,000
1,090,000
60,000
49,100
1,199,100
1,857,900
Mr. Ijaz
Balance Sheet
as on December 31, 2015
Capital and liabilities
Capital
Opening capital
Add: net profit for the year
Less: Drawings
Rs.
(W-6)
(100,000 + 600,000 + 400,000)
Current Liabilities
Trade Creditors
Expense payable
914,000
103,000
1,017,000
3,426,900
Assets
Non-Current Assets
Delivery Van
Less: Accumulated depreciation
Current Assets
Inventory
Cash
Bank
Receivables
Less: Provision for doubtful debt
WORKINGS
(W-1)
Dr.
b/d
Creditors (W-3)
Cash
434
1,652,000
1,857,900
(1,100,000)
2,409,900
900,000
(60,000)
840,000
1,623,000
29,000
572,000
382,000
(19,100)
2,586,900
3,426,900
(W-2)
(W-5)
Inventory
1,310,000
2,917,000
316,000
account
Drawings
Cost of sale (Bal.)
c/d
Cr.
100,000
2,820,000
1,623,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-2)
Dr.
b/d
Sale (Balance)
Receivable account
268,000 Bank
1,560,000 Bad debt
c/d (412,000 – 30,000)
Cr.
1,416,000
30,000
382,000
(W-3)
Dr.
Bank
c/d
Creditors account
2,715,000 b/d
914,000 Inventory (Bal.)
Cr.
712,000
2,917,000
(W-4)
Dr.
Bank
Cash
c/d
Expense account
519,000 b/d
584,000 P and L (Bal.)
103,000
Cr.
116,000
1,090,000
Provision for doubtful debt
30,000 b/d
19,100 P and L (bal.)
Cr.
49,100
(W-5)
Dr.
Bad Debt
c/d (382,000 x 5%)
(W-6)
Add:
Less:
Opening Capital
Cash
Bank
Inventory
Debtors
Creditors
Expense Payable
62,000
840,000
1,310,00
268,000
(712,000)
(116,000)
1,652,000
Answer-6
Mr. Rashid
Trading and Profit and loss account
For the year ended September 30, 2015
Sales
Less: Cost of sale
Gross Profit
Less: Admin Expenses
Wages
Cleaning
Sundries
Telephone
Rent and Rates
Repair
Depreciation -Van
-Lease hold premises
Net Profit
435
(W-2)
(W-5)
(10,000 x 52)
(15,000 x 52)
(W-9)
(W-7)
(W-8)
(W-8)
Rs.
142,850,000
(107,137,500)
35,712,500
19,182,000
520,000
780,000
1,021,000
1,424,000
4,022,000
1,500,000
3,000,000
(31,449,000)
4,263,500
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Rashid
Balance Sheet
as on September 30, 2015
Capital and liabilities
Capital
Capital
Add: Profit for the year
Drawings
((25,000 x 52) + 323,000 + 651,500)
Liabilities
Creditors
Payable Telephone
(W-9)
Assets
Non-Current Assets
Leased hold premises
Less: Accumulated Depreciation
Van
Less: Accumulated Depreciation
Current Assets
Cash
Bank
Debtors
Prepaid Rent and Rates
Inventory
WORKINGS
(W-1)
Dr.
b/d
Creditors (W-3)
(W-2)
Dr.
b/d
Sale (Bal.)
(W-3)
Dr.
Bank
c/d
(W-4)
Dr.
Bank
436
Rs.
200,000,000
4,263,500
(2,274,500)
201,989,000
29,957,000
125,000
30,082,000
232,071,000
150,000,000
(3,000,000)
6,000,000
(1,500,000)
151,500,000
(W-8)
(W-8)
(W-10)
250,000
61,313,000
10,350,000
258,000
8,400,000
80,571,000
232,071,000
Inventory Account
- Cost of sale (142,850,000/100 x 75)
116,189,000 Drawings (Bal.)
c/d
Cr.
107,137,500
651,500
8,400,000
Debtors Account
- Cash (W-6)
142,850,000 c/d
Cr.
132,500,000
10,350,000
Creditors
86,232,000 b/d
29,957,000 Inventory (Bal.)
Rent and Rates expense
1,682,000 P and L (Bal.)
c/d
Cr.
116,189,000
Cr.
1,424,000
258,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-5)
Dr.
Cash (52 x 75,000)
Bank
(W-6)
Dr.
b/d
Debtor (Bal.)
Wages
3,900,000 P and L (Bal.)
15,282,000
Cash Account
- Bank
132,500,000 Wages (52 x 75,000)
Cleaning (52 x 10,000)
Sundries (52 x 15,000)
Drawings (52 x 25,000)
c/d
(W-7)
Dr.
Bank (3,637,000 + 385,000)
Repair Account
3,637,000
P and L (Bal.)
(W-8) Depreciation Expenses:
Van
(6,000,000 x 25%)
Lease hold premises
(150,000,000/50)
(W-9)
Dr.
Telephone Account
Bank
896,000 P and L (Bal.)
c/d
125,000
(W-10)
Balance as per Cash Book
Add: Un-presented Cheques
Balance as per Bank Statement
Answer-7
437
Cr.
125,750,000
3,900,000
520,000
780,000
1,300,000
250,000
Cr.
4,022,000
1,500,000
3,000,000
Cr.
1,021,000
61,313,000
385,000
61,698,000
(All Amount in Rs.’000’ in this question)
Mr. Mudassar
Trading and Profit and loss account
For the year ended December 31, 2015
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Rent
Rates
Insurance
Bank Charges
Depreciation -Motor Car
-Fixtures
Staff Wages
Sundry expense
Discount allowed
Add: Other income
Discount received
Net Profit
Cr.
19,182,000
(W-2)
(W-7)
(W-5)
(W-6)
Rs.
21,910
(13,810)
8,100
790
400
200
100
400
600
1,800
250
300
(4,840)
200
3,460
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Mudassar
Balance Sheet
as on December 31, 2015
Capital and liabilities
Capital
Opening capital
Additional capital
Add: net profit for the year
Less: Drawings
Rs.
(W-8)
9,160
1,000
3,460
(4,900)
8,720,000
(2,500 + 2,400)
Liabilities
current liabilities
Creditors
120
8,840
Assets
Non-Current Assets
Motor Cars
Fixture
3,200
3,400
6,600
Current Assets
Cash
Bank
Inventory
Debtors
Prepaid Rent
Insurance Receivable
400
1,200
150
30
460
2,240
8,840
(Tax refund is personal receipt and it is transferred in business bank a/c therefore considered as
capital)
WORKINGS
(W-1)
Dr.
b/d
Debtors
Cash Account
380 Bank
21,550 Wages
Sundry expenses
Inventory
Drawings
Misappropriation (Bal.)
c/d
Misappropriation Expense
Cash
Insurance claim receivable
Misappropriation Expense
438
Cr.
16,720
1,800
250
300
2,400
460
Dr.
460
Cr.
460
460
460
CHAPTER-5
(W-2)
Dr.
b/d
Sale (Bal.)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Debtors Account
90 Cash
21,910 Discount allowed
c/d
Cr.
21,550
300
150
(W-3)
Dr.
Bank
Dis account received
c/d
Creditor Account
13,600 b/d
200 Inventory (Bal.)
120
Cr.
110
13,810
(W-4)
Dr.
b/d
Cash
Creditor (W-3)
Inventory Account
900 Cost of sale (Bal.)
300
13,810 c/d
Cr.
13,810
(W-5)
Dr.
b/d
(W-6)
Dr.
b/d
(W-7)
Dr.
b/d
Bank
Motor Car Account (N.B.V)
3,600 Depreciation (Bal.)
c/d
Fixtures Account (N.B.V)
4,000 Depreciation (Bal.)
c/d
Rent
20 P and L (Bal.)
800 c/d
1,200
Cr.
400
3,200
Cr.
600
3,400
Cr.
790
30
(W-8) Opening Capital:
Add: Bank
Cash
Debtor
Inventory
Motor Car
Fixtures
Prepaid Rent
Less Trade payable
439
Rs.
280
380
90
900
3,600
4,000
20
(110)
9,160
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-8
Mr. Aslam
Trading and Profit and loss account
For the year ended December 31, 2015
Rs. ’000’
13,066
Revenue
Less: Direct Expenses
Materials used (W-1)
Wages (3,346 - 65)
5,779
3,281
(9,060)
Less: Admin. Expense:
Van Expenses
(342 + 36)
Depreciation on van
Electricity Expenses
Depreciation of Cement mixer
Rent (2 x 52)
General expenses (14 + 110)
Net Profit for the year
378
108
56
50
104
124
(820)
3,186
Mr. Aslam
Balance Sheet
as on December 31, 2015
Capital and liabilities
Capital
New Capital
Add: Net profit
Less: Drawings
Rs. ’000’
(W-4)
Liabilities
Non-Current Liabilities
Loan from Mother
Current Liabilities
Trade Payables
Van Expense payable
Van installment payable
Assets
Non-Current Assets
Van
Less: Accumulated Depreciation
Cement Mixer
Less Accumulated Depreciation
440
150
3,186
(1,239)
2,097
400
((W-7) 456 – 266)
149
36
190
375
2,872
856
(108)
200
(50)
898
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Current Assets:
Inventory (Material)
Trade receivable
Bank
Cash in hand
WORKINGS
(W-1)
Dr.
b/d
Cash
Bank (W-6)
(W-3)
Dr.
b/d
Bank
Trade Receivable (Bal.)
Loan from Mother
(W-4)
Dr.
Cash (Social Security)
Cash (18- 2) x 52
Bank
(W-5)
Dr.
Revenue (Sale) (Bal.)
(W-6)
Dr.
Bank
c/d
(W-7)
Entries for Van
560
1,200
204
10
1,974
2,872
Inventory account
- Material used (Bal.)
1,400
4,939 c/d
Cr.
5,779
560
Cash account
- Wages (3,346 – 65)
3,100 Inventory
11,866 Electricity
400 General Expense
Drawings (18 – 2) x 52
Bank
Drawing (Social Security)
Rent (2 x 52)
Van
c/d
Cr.
3,281
1,400
56
14
832
9,204
65
104
400
10
Drawings account
65
832
342 c/d (Bal.)
Cr.
1,239
Trade Receivable account
13,066 Cash (W-3)
c/d
Cr.
11,866
1,200
Trade payable Account
4,790 b/d
149 Inventory (Bal.)
Cr.
-4,939
Dr.
Cash
Cr.
400
Loan from Mother
Van
400
856
Cash
Payable
Payable (7 x 38)
Bank
441
400
456
266
266
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-9
(a)
Capital at 1 January 2015
Assets
Add:
Cash (Remain fixed at any time)
Inventory
Trade receivable
Fixtures
Rates in Advance
Less:
Liabilities
Loan
Interest payable (4,000 x 3% x 3/12)
General expense payable
Trade receivable
Payable for light and heat
Bank overdraft (W-11)
Opening Capital at 1-1-2013
Rs. ’000’
20
4,500
2,800
2,800
40
10,160
4,000
30
240
1,800
80
1,172
(7,322)
2,838
(b)
Mr. Umar
Trading and Profit and loss account
For the year ended December 31, 2015
Sales
Less: Cost of sales
Gross Profit
Less: Admin Expenses
Wages
Rent and Rates
Lighting and heating
Depreciation of fixtures
General Sundry expense
Loan interest
Bad Debt
Discount allowed
Add: Other income
Discount received
Net Profit
442
(W-2)
(W-1)
(W-4)
(W-7)
(W-5)
(W-3)
(W-8)
Rs. ’000’
39,156
(30,120)
9,036
2,950
465
200
350
890
120
200
520
(5,695)
480
3,821
CHAPTER-5
(c)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Mr. Umar
Balance Sheet
as on December 31, 2015
Capital and liabilities
Capital
Capital
Add: Profit for the year
Less: Drawings
(As per requirement (a))
(As per requirement (b))
(900+ 156)
Liabilities
Non-Current Liabilities
Loan from Brough
Current Liabilities
Loan interest payable
Trade payable
Lighting and heating
General expense
4,000
(W-8)
30
2,200
70
190
2,490
12,093
Assets
Non-Current Assets
Fixtures
Current Assets
Inventory
Trade receivable
Prepaid Rates
Bank
Cash
WORKINGS
(W-1)
Dr.
b/d
Creditor (W-6)
(W-2)
Dr.
b/d
Bank Dishonored Cheque
Sale (Bal.)
(W-3)
Dr.
Bank
Cash
c/d
443
Rs. ’000’
2,838
3,821
(1,056)
5,603
2,550
5,800
3,000
50
673
20
9,543
12,093
(W-10)
Inventory account
4,500 Cost of sale (Bal.)
31,420 c/d
Cr.
30,120
5,800
Debtors
2,800 Bad Debt
180 Discount allowed
39,156 Cash (W-9)
c/d (3,200 -200)
Cr.
200
520
38,416
3,000
General Expense
800 b/d
140 P and L (Bal.)
190
Cr.
240
890
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(W-4)
Dr.
b/d
Bank
Rates expense
40 P and L (Bal.)
475 c/d
(W-5)
Dr.
b/d
Bank
Fixtures Account (N.B.V)
2,800 Depreciation (Bal.)
100 c/d
(W-6)
Dr.
Bank
Discount Received
c/d
Trade Payable
30,540 b/d
480 Inventory (Bal.)
2,200
(W-7)
Dr.
Bank
c/d
(W-8)
Dr.
Bank
c/d (4,000 x 3% x 12/12)
(W-9)
Dr.
b/d
Debtor (Bal.)
(W-10)
Dr.
Cash
Cr.
465
50
Cr.
350
2,550
Cr.
1,800
31,420
Lighting and Heating
210 b/d
70 P and L (Bal.)
Cr.
80
200
Interest expense
120 b/d (4,000 x 3% x 3/12)
30 P and L (Bal.)
Cr.
30
120
Cash Account
20 Bank (Includes 250)
38,416 Wages
Sundry expense
Drawing (3 x 52)
c/d
Bank Account
35,170 b/d (W-11)
Trade Payable
(30,500 + 320 – 280)
Rent and Rates
Fixtures
Lighting and Heating
General Expense
Loan interest
Drawing
Debtors (Dishonored)
c/d (W-11)
Cr.
35,170
2,950
140
156
20
Cr.
1,172
30,540
475
100
210
800
120
900
180
673
(W-11)
Balance as per Cash Book (Bal.)
Add: Unpresented
Balance as per Bank Statement
444
1.1.2013 31.12.2013
(1,172)
673
280
320
(892)
993
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Answer-10
Mr. Yasin
Trading and Profit and loss account
For the year ended Dec. 31, 2015
Sales
Less: Cost of sale
Gross Profit
Less: Admin Expenses
Wrapping Material
Staff Wages
Petrol and Oil
Motor Expenses
Loss on disposal of fixture
Interest expense
General Expenses
Electricity
Provision for Doubtful debt
Accountancy fee
Rates
Depreciation -Van
-Fixtures
Rs. ’000’
25,965
(14,647)
11,318
(W-5)
(W-1)
(W-11)
(W-12)
(W-8)
(W-4)
(W-9)
(W-7)
(W-3)
(1,200 x 20% x 9/12)
((2,600 – 200) x 10%)
Net Profit
472
3,423
236
728
70
150
625
278
323
100
475
180
240
(7,300)
4,018
Mr. Yasin
Balance Sheet
as on Dec. 31, 2015
Capital and liabilities
Capital
Capital
Add: Profit for the year
Drawings
(1,040 + 104 + 1,329 + 36)
Liabilities
Current Liabilities
Trade Payable
Electricity payable
Accountancy fee payable
Interest payable
(W-4)
(W-7)
(W-8)
Non- Current Liabilities
Loan from Robin
Rs. ’000’
20,000
4,018
(2,509)
21,509
358
50
100
50
558
2,000
24,067
Assets:
Non-Current Assets
Delivery Van
Less: Accumulated Depreciation
Free hold property
445
(1,200 x 20% x 9/12)
1,200
(180)
10,000
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Fixtures
Less: Accumulated Depreciation
Good will
Current Assets
Bank
Cash
Inventory
Debtors
Less: Provision for Doubtful debt
Repair Rates
Material Wrapped
WORKINGS
(W-1)
Dr.
Capital
Cash
Creditors
(W-2)
Dr.
Capital
(W-3)
Dr.
Capital
Bank
(W-4)
Dr.
Bank
c/d
(W-5)
Dr.
Capital
Sales (Bal.)
(W-6)
Dr.
Bank (14,863+ 125)
c/d
(W-7)
Dr.
c/d
(W-8)
Dr.
Bank
c/d (2,000x 10% x 3/12)
446
(W-2)
(2,400 x 10%)
2,400
(240)
2,000
15,180
(5,757 – 125)
5,632
180
2,360
637
(100)
125
53
8,887
24,067
(W-9)
Inventory Account
1,600 Cost of sale (Bal.)
165 Drawings (2 x 52)
15,346 c/d
Shop Fixtures
2,600 Disposal
c/d (Bal.)
Cr.
14,647
104
2,360
Cr.
200
2,400
Rates Expense
100 P/L (Bal.)
500 c/d (500 x 3 /12)
Cr.
475
125
Electricity
228 P and L (Bal.)
50
Cr.
278
Trade Receivable
400 Cash
25,965 Bad debt
c/d
Cr.
25,505
223
637
Creditors
14,988 Inventory (Bal.)
358
Cr.
15,346
Accountancy fee
P and L (Bal.)
100
Interest Expense
100 P and L (Bal.)
50
Cr.
100
Cr.
150
CHAPTER-5
(W-9)
Dr.
Bad Debt
c/d
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Provision for Doubtful debt
223 b/d
100 P and L (Bal.)
(W-10)
Dr.
Trade Receivable
(W-11)
Dr.
Cash
Cash
25,505 Wrapping Material
Staff Wages
Inventory
Petrol and Oil
Drawings
(20x 52)
Bank
Drawings (Bal.)
c/d
Wrapping Material
525 P and L
c/d
(W-12)
Dr.
Fixture
Disposal
200 Bank
P and L
Cr.
323
Cr.
525
3,423
165
236
1040
19,900
36
180
Cr.
472
53
Cr.
130
70
(W-13)
Balance as per Cash Book (Bal.)
Add: Un-presented
Balance as per Bank Statement
447
5,632
125
5,757
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1
Usuf does not keep a full set of business records, but the following information is available for
the month of June 2019.
Rs. 000
Accounts receivable, 1 June 2019
800
Accounts receivable, 30 June 2019
550
Credit sales
6,800
Cash received from customer (credit)
6,730
Irrecoverable debt written off
40
General allowance for doubtful debts at 30 June 2019
100
Assuming no other transactions, how much discount was allowed to customers during the month?
Q.2
Q.3
Q.4
Q.5
(a)
Rs.240,000
(b)
Rs.280,000
(c)
Rs.340,000
(d)
Rs.380,000
Many of the records of Ghalib have been destroyed by fire. The following information is
available for the period under review.
(i)
Sales totaled Rs.480,000
(ii)
Inventory at cost was opening Rs.36,420, closing Rs.40,680
(iii)
Trade payables were opening Rs.29,590, closing Rs.33,875 Gross profit for the period
should represent a margin of 50%
What was the total for the period of cash paid to suppliers?
(a)
Rs.239,975
(b)
Rs.315,715
(c)
Rs.319,975
(d)
Rs.328,545
In the year to 31st April 2016, Abdullah’s sales were Rs.182,000. All of his sales were made at a
mark-up of 30%. His opening inventory value was Rs.11,800 and his closing inventory value was
Rs.9,700.
What was the value of Abdullah’s purchases in the year to 31 April 2016?
(a)
Rs.125,300
(b)
Rs.137,900
(c)
Rs.140,000
(d)
Rs.142,100
The following information is relevant to the calculation of the sales figure for Arif, a sole trader
who does not keep proper accounting records:
Rs.
Opening accounts receivable
29,100
Cash received from credit customers and paid into the bank
381,600
Expenses paid out of cash received from credit customers before banking
6,800
Irrecoverable debts written off
7,200
Refunds to credit customers
2,100
Discounts allowed to credit customers
9,400
Cash sales
112,900
Closing accounts receivable
38,600
The figure which should appear in Arif’s statement of comprehensive income for sales is:
(a)
Rs.525,300
(b)
Rs.511,700
(c)
Rs.529,500
(d)
Rs.510,900
A sole trader who does not keep full accounting records wishes to calculate her sales revenue for
the year.
The information available is:
448
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
1
Opening inventory
2
Closing inventory
3
Purchases
4
Standard gross profit percentage on sales revenue
Which of the following is the sales figure for the year calculated from these figures?
(a)
Rs.117,600
(b)
Rs.108,000
(c)
Q.6
Rs.210,000
(d)
Rs.
17,000
24,000
91,000
40%
Rs.140,000
Salman is a sole proprietor whose accounting records are incomplete. All the sales are cash sales
and during the year Rs.50,000 was banked, including Rs.5,000 from the sale of a business car. He
paid Rs.12,000 wages in cash from the till and withdrew Rs.2,000 as drawings. The cash in the
till at the beginning and end of the year was Rs.300 and Rs.400 respectively. There were no other
payments in the month.
What were the sales for the year?
Q.7
(a)
Rs.58,900
(b)
Rs.59,100
(c)
Rs.63,900
(d)
Rs.64,100
There is Rs. 100,000 in the cash till at the year end at F Ltd, but the accountant has discovered
that some cash has been stolen. At the beginning of the year there was Rs.50,000 in the cash till
and receivables were Rs.2,000,000. Total sales in the year were Rs. 230,000,000. Accounts
receivable at the end of the year were Rs.3,000,000. Cheques banked from credit sales were
Rs.160,000,000 and cash sales of Rs.50,000,000 have been banked.
How much cash was stolen during the year?
(a)
(c)
Q.8
Rs.21,050,000
Rs.19,050,000
(b)
(d)
Rs.18,950,000
Rs.50,000
A business operates on a gross margin of 33 ¼ %. Gross profit on a sale was Rs. 800,000 and
expenses were Rs.680,000.
The net profit percentage is
(a)
3.75%
(b)
5%
(c)
11.25%
(d)
22.67%
A toyshop makes purchases of Rs.20,248,000 and sales of Rs.26,520,000. The proprietor’s
children take goods costing Rs.486,000 without paying for them. Closing stock was valued at its
cost of Rs.2,240,000 and the gross margin achieved was a constant 30% on sales.
Q.9
What was the cost of the opening stock?
Q.10
(a)
Rs.556,000
(b)
Rs.1,042,000
(c)
Rs.2,392,000
(d)
Rs.2,878,000
Which of the following calculations could produce an acceptable figure for a trader's net profit for
a period if no accounting records had been kept?
(a)
Closing net assets plus drawings minus capital introduced minus opening net assets
(b)
Closing net assets minus drawings plus capital introduced minus opening net assets
(c)
Closing net assets minus drawings minus capital introduced minus opening net assets
(d)
Closing net assets minus drawings plus capital introduced plus opening net assets
449
CHAPTER-5
Q.11
Q.12
Q.13
Q.14
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
On 30 September 2018 part of the inventory of a company was completely destroyed by fire. The
following information is available:
Inventory at 1 September 2018 at cost
Rs.49,800,000
Purchases for September 2018
Rs.88,600,000
Sales for September 2018
Rs.130,000,000
Inventory at 30 September 2018 undamaged items
Rs.32,000,000
Standard gross profit percentage on sales
30%
Based on this information, what is the cost of the inventory destroyed?
(a)
Rs.17,800,000
(b)
Rs.47,400,000
(c)
Rs.15,400,000
(d)
Rs.6,400,000
Sarim does not keep full accounting records. His last accounts show that his capital balance was
Rs.42,890,000. At the year end, he calculated that his assets and liabilities were:
Rs. 000
Non-current assets
41,700
Inventory
9,860
Receivables
7,695
Payables
4,194
Bank overdraft
5,537
On reviewing his calculations, you note that he did not include Rs. 258,000 of unpaid invoices for
expenses.
What is the value of Sarim’s closing capital?
(a)
Rs.49,266,000
(b)
Rs.49,544,000
(c)
Rs.60,360,000
(d)
Rs.60,876,000
During the year to 30th November 2015 Amna bought goods f 1or resale at a cost of
Rs.75,550,000. Her inventory at 1st December 2014 was valued at Rs.15,740,000. She did not
count her inventory at 30th November 2015, but she knows that her sales for the year to 30th
November 2015 were Rs.91,800,000. All sales were made at a mark-up of 20%.
Based on the information above, what was the value of Amna’s inventory at 31 November 2015?
(a)
Rs.13,630,000
(b)
Rs.14,790,000
(c)
Rs.16,690,000
(d)
Rs.17,850,000
On 1 September 2018, Waris had inventory of Rs.380,000. During the month, sales totalled
Rs.650,000 and purchases Rs.480,000. On 30 September 2018 a fire destroyed some of the
inventory. The undamaged goods were valued at Rs 220,000. The business operates with a
standard gross profit margin of 30%.
Based on this information, what is the cost of the inventory destroyed in the fire?
Q.15
(a)
Rs.185,000
(b)
Rs.140,000
(c)
Rs.405,000
(d)
Rs.360,000
You are given the following incomplete and incorrect extract from the Statement of
comprehensive income of a company that trades at a markup of 25% on cost:
Rs.
Sales
Less: Cost of goods sold
Opening inventory
Purchases
Closing inventory
Gross profit
1
c
450
Rs.
174,258
12,274
136,527
X
(X)
X
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Having discovered that the sales figure should have been Rs.174,825 and the purchase returns of
Rs.1,084 and sales returns of Rs.1,146 have been omitted, the closing inventory should be:
Q.16
Q.17
(a)
Rs.8,662
(b)
Rs.8,774
(c)
Rs.17,349
(d)
Rs.17,458
Profit is Rs.1,051,000. Capital introduced is Rs.100,000. There is an increase in net assets of
Rs.733,000.
What are drawings?
Rs. ____________
The bookkeeper of Lego has disappeared. There is no cash in the till and theft is suspected. It is
known that the cash balance at the beginning the year was Rs.240,000. Since then, total sales
have amounted to Rs.41,250,000. Credit customers owed Rs.2,100,000 at the beginning of the
year and owe Rs.875,000 now. Cheques banked from credit customers have totalled Rs.2,429,0.
Expenses paid from the till receipts amount to Rs.180,500 and cash receipts of Rs.9,300,000 have
been lodged in the bank.
What is the amount that bookkeeper stole during the period?
Rs. ___________
Q.18
Taiwan Tyres does not keep full accounting records, but the following information is
available in respect of accounting year ended 31st December 2018.
Cash purchases in year
Cash paid for goods supplied on credit
Payables at 1st January 2018
Payable at 31st December 2018
In the statement of comprehensive income for 2018, figure for purchases will be?
Rs.
3,900,000
27,850,000
970,000
720,000
Rs. ___________
Q.19
Deen has been trading for some time, but he neglected to maintain full accounting. He is able to
provide the following information.
He is owed Rs.7,900 by his customers.
He has lodged Rs.120,700 to his bank account since starting his business. This includes his initial
capital of Rs.22,000.
All his sales are made at cost plus 30%
The value of Deen’s sale since he began trading is?
Rs. ___________
Q.20
The diesel fuel included in the inventory at 1 November 2017 was Rs.12,500,000 and there were
invoices awaited for Rs.1,700,000. During the year to 31 October 2018, diesel fuel bills of
Rs.85,400,000 were paid, and a delivery worth Rs.1,300,000 had yet to be invoiced.
At 31 October 2018, the inventory of diesel fuel was valued at Rs.9,800,000.
The diesel fuel to be charged to the Statement of comprehensive income for the year to 31
October 2018 is:
Rs. ___________
Q.21
In which of the following systems of recording the financial statements reflect true and fair view
of an entity and accounting records are considered to be more accurate?
(a)
Cash book system
(b)
Single entry system
(c)
Double entry system
(d)
None of the above
451
CHAPTER-5
Q.22
Q.23
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Statement of financial position produced from incomplete accounting record is commonly known
as
(a)
Statement of financial position
(b)
Statement of affairs
(c)
Statement of net assets
(d)
Statement of financial operations
Which of the following businesses usually maintain incomplete accounting record of the business
activities?
Companies
Small businesses
Q.24
(a)
Large businesses
(b)
(c)
Partnership firms
(d)
In single entry system, it is not possible to prepare,
Profit or loss account
Receipt and payment account
Q.25
(a)
Statement of financial position
(b)
(c)
Trial balance from ledgers
(d)
The opening capital is ascertained by preparing:
Q.26
Q.27
Q.28
(a)
Cash book
(b)
Creditors A/c
(c)
Debtors A/c
(d)
Opening statement of affairs
Identify the correct formula used to ascertain the closing balance of capital?
(a)
Closing capital = Opening capital + Net profit - Expenses
(b)
Closing capital = Opening capital + Net profit + Drawings
(c)
Closing capital = Opening capital + Net profit - Drawings
(d)
Closing capital = Opening capital + Revenue - Expenses
Net profit is calculated by:
(a)
Closing capital + Drawings + Fresh capital injected - Opening capital
(b)
Closing capital - Drawings + Fresh capital injected - Opening capital
(c)
Closing capital + Drawings + Fresh capital injected + Opening capital
(d)
None of the above
If opening capital = Rs.10 million and closing capital = Rs.20 million. Assuming no drawings
during the accounting period, calculated the net profit or loss for the period?
(a)
Q.29
Q.30
Q.31
Net profit = Rs.20 million
(b)
Net loss = Rs.20 million
(c)
Net profit = Rs.10 million
(d)
Net loss = Rs.10 million
Which one of the following accounts is supposed to be used to get the figure of credit purchases
made during the current accounting period?
(a)
Debtor account
(b)
Creditor account
(c)
Revenue account
(d)
Expenses account
To obtain the amount of credit sales made during an accounting period, which account is
generally used in single entry and incomplete records?
(a)
Debtor account
(b)
Creditor account
(c)
Revenue account
(d)
Expenses account
If Plant (closing balance) = Rs.8 million, Land (opening balance) = Rs.5 million and Creditors
(opening balance) = Rs.1 million then opening capital balance is?
(a)
Rs.3 million
(b)
Rs.4 million
(c)
Rs.5 million
(d)
Rs.8 million
452
CHAPTER-5
Q.32
Q.33
Q.34
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Opening and closing debtors were Rs.412,800 and Rs.524,400 respectively. During the year
Rs.2,684,500 was received from sales after allowing a cash discount of Rs.17,420. Debts of
Rs.34,840 were written off as bad during the year. Find out the credit sales during the year?
(a)
Rs.2,778,680
(b)
Rs.2,813,520
(c)
Rs.2,848,360
(d)
Rs.2,753,670
Opening and closing creditors were Rs.450,000 and Rs.700,000 respectively. During the year,
Rs.3,400,000 were paid to suppliers. Find out the credit purchases during the year?
(a)
Rs.3,150,000
(b)
Rs.3,400,000
(c)
Rs.3,650,000
(d)
None of the above
Staff salary payable for the month end was Rs.74,540 and Rs.96,720 as its opening balance.
Salary paid during the period was Rs.856,420. Find out the accrued salary during the period?
(a)
Rs.834,240
(b)
Rs.856,420
(c)
Rs.861,540
(d)
Rs.878,600
453
CHAPTER-5
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
ICAP MULTIPLE CHOICE QUESTIONS (MCQs) SOLUTIONS
A.1
(b)
Particulars
Bal. b/d
Sales
A.2
Particulars
Bal. b/d
Purchases β
A.5
Accounts payable
Rs.000 Particulars
239,975 b/d
33,875 Purchases
237,850
Inventory
Rs.000 Particulars
36,420 COS 480,000x0.5
244,260 c/d
280,680
Rs.000
29,590
244,260
237,850
Rs.000
240,000
40,680
280,680
(b)
Particulars
Bal. b/d
Purchases β
A.4
Rs.000
40
6,730
280
550
7,600
(a)
Particulars
Cash β
c/d
A.3
Accounts receivables
Rs.000 Particulars
1,700 Bad debts
6,800 Cash
Discount β
c/d
7,600
Inventory
Rs.000 Particulars
11,800 COS 182,000/130x100
137,900 c/d
149,700
(a)
Total sales = Rs. 112,900 + Rs. 412,400 = 525,300
(d)
Accounts receivables
Particulars
Rs.000 Particulars
Bal. b/d
29,100 Bad debts
Sales β
412,400 Cash 381,600+6,800
Refunds
2,100
Discount allowed
c/d
443,600
Cost of sales = 17,000 + 91,000 – 24,000 = 84,000
Rs.000
140,000
9,700
149,700
Rs.000
7,200
388,400
9,400
38,600
443,600
Sales = 84,000/60 x 100 = Rs. 140,000
A.6
(b)
Sales = 64,100 – 5,000 = 59,100
Particulars
Bal. b/d
Cash from sales
454
Cash a/c
Rs.000 Particulars
300 Bank
64,100 Wages
Drawings
c/d
64,400
Rs.000
50,000
12,000
2,000
400
64,400
CHAPTER-5
A.7
A.8
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(b)
(b)
Accounts receivables
Particulars
Rs.000 Particulars
Bal. b/d
2,000,000 Cash
Sales
+230,000,000- 180,000,000 c/d
50,000,000
182,000,000
Cash a/c
Particulars
Rs.000 Particulars
Bal. b/d
50,000 Bank
160,000,000+50,000,000
Cash sales
50,000,000 Cash stolen
Receivables
179,000,000 c/d
229,050,000
Sales = 800,000 /33.25 x 100 = 2,406,015
Rs.000
179,000,000
3,000,000
182,000,000
Rs.000
210,000,000
18,950,000
100,000
229,050,000
Net profit = 800,000 – 680,000 = 120,000
Net profit % = 120,000/2,406,015 x 100 = 5%
A.9
(b)
Particulars
Bal. b/d β
Purchases
A.10
(a)
A.11
(c)
Inventory
Rs.000 Particulars
49,800 COS 130,000x70%
88,600 Destroyed β
c/d
138,400
Rs.000
91,000
15,400
32,000
138,400
(a)
Rs.000
41,700
9,860
7,695
(4,194)
(5,537)
(258)
49,266
Non-current assets
Inventory
Receivables
Payables
Bank overdraft
Expense payable
A.13
Rs.000
18,564,000
486,000
2,240,000
21,290,000
Profit = Closing net assets + drawings – capital introduced - opening net assets
Particulars
Bal. b/d
Purchases
A.12
Inventory
Rs.000 Particulars
1,042,000 COS 26,520,000x0.7
20,248,000 Drawings
c/d
21,290,000
(b)
Particulars
Bal. b/d
Purchases
455
Inventory
Rs.000 Particulars
15,740 COS 91,800/120x100
75,550 c/d β
91,290
Rs.000
76,500
14,790
91,290
CHAPTER-5
A.14
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
(a)
Particulars
Bal. b/d
Purchases
A.15
A.16
A.17
A.18
A.19
A.20
Inventory
Rs.000 Particulars
380,000 COS 650,000x70%
480,000 Lost by fire β
c/d
Rs.000
455,000
185,000
220,000
(b)
Rs.
Sales 174,825 – 1,146
Less: Cost of goods sold
Opening inventory
12,274
Purchases 136,527 - 1,084
135,443
Closing inventory β
(8,774)
Cost of sales β
Gross profit 173,679 /125 x 25
Rs. 418,000
Drawings = Opening capital + Profit + capital introduced – Closing capital
=1,051,000+100,000- 733,000 = Rs. 418,000
Rs.6,515,500
Cash a/c
Particulars
Rs.000 Particulars
Bal. b/d
240,000 Bank 9,300,000 + 2,429,000
Cash sales
9,300,000 Expenses
Receivables
8,885,000 Cash stolen β
18,425,000
Accounts receivables
Particulars
Rs.000 Particulars
Bal. b/d
2,100,000 Cash β
Bank
Sales 41,250,000-9,300,000
31,950,000 c/d
34,050,000
Rs.
173,679
38,943
34,736
Rs.000
11,729,000
180,500
6,515,500
18,425,000
Rs.000
8,885,000
24,290,000
875,000
34,050,000
Rs. 31.5 million
Purchases = 27,600,000+3,900,000 = Rs. 31,500,000
Accounts payable
Particulars
Rs.000 Particulars
Cash
27,850,000 b/d
c/d
720,000 Purchases
28,570,000
Rs.000
970,000
27,600,000
28,570,000
Rs.106,600
Sales = Rs.7,900+ (120,700 - 22,000) = 106,600
Rs.87.7 million
Diesel Fuel
Particulars
Rs.000 Particulars
b/d
12,500,000 b/d
Cash
85,400,000 PL
c/d
1,300,000 c/d
99,200,000
Rs.000
1,700,000
87,700,000
9,800,000
99,200,000
456
CHAPTER-5
A.21
(c)
A.22
A.23
(b)
(d)
A.24
(c)
A.25
(d)
A.26
A.27
(c)
(a)
A.28
(c)
A.29
(b)
A.30
A.31
(a)
(b)
A.32
(c)
PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
Particulars
b/d
Sales
A.33
Receivables
Rs.000 Particulars
412,800 Cash
2,848,360 Discount allowed
Bad debts
c/d
3,261,160
Rs.000
2,684,500
17,420
34,840
524,400
3,261,160
(c)
Creditors
Particulars
Cash
c/d
A.34.
Rs.000 Particulars
3,400,000 b/d
700,000 Purchases
4,100,000
Rs.000
450,000
3,650,000
4,100,000
(a)
Salaries
Particulars
Cash
c/d
457
Rs.000 Particulars
856,420 b/d
74,540 PL
930,960
Rs.000
96,720
834,240
930,960
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
CH.
TOPIC
1
Accounting and Reporting Concepts
2
IAS 1: Preparation of Financial
Statements
3
IAS 7: Statement of Cash Flows
4
Income and Expenditure Account
5
Preparation of Accounts From
Incomplete Records
6
Introduction to Cost of Production
7
IAS 16: Property, Plant and Equipment
NOTES
515
IAS 20: Govt. Grants
8
IAS 23: Borrowing Cost
IAS 40: Non-Current Assets: Sundry
Standards
9
IAS 36: Impairment of Assets
10
IFRS 15: Revenue from Contracts with
Customers
11
Interpretation of Financial Statements
12
Revision of some concepts
ii
PRACTICE
ICAP PAST
PAPER
ICAP QB
MCQs
Q
A
Q
A
Q
A
Q
A
541
565
628
640
665
672
690
697
IAS 16: Property, Plant &
Equipment
LO 1
LO 2
LO 3
LO 4
LO 5
LO 6
LO 7
LO 8
LO 9
LO 10
LO 11
LO 12
LO 13
DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE
DETERMINING COST OF ASSET
DEPRECIATION AND ITS METHODS
RECORDING DEPRECIATION IN BOOKS OF ACCOUNTS
CHANGE IN ACCOUNTING ESTIMATE DURING THE PERIOD OF USE
DISPOSAL BY SALE/ DISPOSAL BECAUSE OF DESTROY
DISPOSAL THROUGH EXCHANGE
PREPARING FIXED ASSET ACCOUNT AT BOOK VALUE
FIXED ASSET SCHEDULE/ DISCLOSURE NOTE
REVALUATION OF PROPERTY PLANT AND EQUIPMENT
DISCLOSURES / NOTE
ALTERNATE NAMES FOR DIFFERENT TERMINOLOGIES
TYPES OF QUESTIONS
7
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
LO1: DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE
Capital expenditure
It is cost of buying fixed assets. It includes all expense incurred in bringing it in workable condition and
location.
Revenue expenditure
Expenditure which is incurred in running the business on a day-to-day basis and its benefit is not spread
over more than one year.
The difference between revenue expenditure and capital expenditure can be seen clearly with the total
cost of using a van for a business. To buy a van is capital expenditure. The van will be in use for several
years and is, therefore, a fixed asset. Paying for petrol to use in the van is revenue expenditure. To get the
van repaired is revenue expenditure.
Example
Expenditure
Type of Expenditure
1.
Buying van
Capital
2.
Petrol costs for van
Revenue
3.
Repairs of van
Revenue
4.
Buying machinery
Capital
5.
Electricity bill paid of using machinery
Revenue
6.
Painting outside of new building
Capital
You already know that revenue expenditure is chargeable to the Profit and Loss Account by increasing
expense, while capital expenditure will result in increased figures for fixed assets in the Balance Sheet. It
is, therefore, important that this classification is correctly done.
Question-1
Some of the following items should be treated as capital and some as revenue. For each of them state
which classification applies:
(a)
The purchase of machinery for use in the business.
(b)
Carriage paid to bring the machinery in (i) above to the work.
(c)
Complete redecoration of the premises at a cost of Rs. 1,500.
(d)
A quarterly payment for heating.
(e)
The purchase of a soft drinks vending machine for the canteen.
Question-2
Indicate which of the following would be revenue items and which would be capital items in a wholesale
bakery:
(a)
Purchase of a new van.
(b)
Cost of painting business's name on new van.
(c)
Repair and maintenance of existing van.
Question-3
State the type of expenditure, capital or revenue, incurred in the following transactions
(a)
Van purchased.
(b)
Repairs to a fruiterer's van.
(c)
The cost of installing a new machine.
(d)
Cost of hiring refrigeration plant in a butcher's shop.
(e)
Twelve dozen sets of cutlery, purchased by a catering firm for a new dining-room.
(f)
A motor vehicle bought for re-sale by a motor dealer.
Question-4
State which of the following you would classify as capital expenditure.
(a)
Cost of building extension to factory.
(b)
Purchase of extra filing cabinets for sales office.
(c)
Cost of repairs to accounting machine.
(d)
Legal fees paid in connection with factory extension.
515
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-5
For the business of J Charles, wholesale chemist, classify the following between 'capital' and 'revenue'
expenditure:
(a)
Purchase of an extra van.
(b)
Carriage costs on bricks for new warehouse extension.
(c)
Carriage costs on purchases.
(d)
Carriage costs on sales.
(e)
Legal costs of collecting debts.
(f)
Legal charges on acquiring new premises for office.
(g)
Fire insurance premium.
(h)
Costs of erecting new machine.
(i)
Clearing agent charges
(j)
Insurance in transit
Question-6
Classify the following items as either revenue or capital expenditure:
(a)
An extension to an office building costing Rs. 24,000.
(b)
Repairs to the warehouse roof.
(c)
Annual service costs for a courier firm's fleet of vans.
(d)
A new bicycle purchased by a news agent for use by the newspaper delivery boy.
(e)
Wages paid to employees who worked on the construction of their company's new office
building.
Answer-1
Answer-2
Answer-3
Answer-4
Answer-5
Answer-6
Capital (a), (b), (e)
Capital (a), (b)
Capital (a), (c), (e)
Capital (a), (b), (d)
Capital (a), (b), (f), (h), (i), (j)
Capital (a), (d), (e)
Revenue (c), (d)
Revenue (c)
Revenue (b), (d), (f)
Revenue (c)
Revenue (c), (d), (e), (g)
Revenue (b), (c),
LO2: DETERMINING COST OF ASSET
Fair value is the amount for which an asset could be exchanged between:

knowledgeable

willing parties

in an arm’s length transaction.
Property, plant and equipment are tangible items that:
(a)
are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b)
are expected to be used during more than one period.
Recognition
The cost of an item of property, plant and equipment shall be recognized as an asset if and only if:
(a)
It is probable that future economic benefits associated with the item will flow to the entity; and
(b)
The cost of the item can be measured reliably.
516
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
INITIAL MEASUREMENT OR MEASUREMENT AT RECOGNITION
An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at
its cost.
Cost
Cost is the amount of:

cash or cash equivalents paid or

the fair value of the other consideration given to acquire an asset
at the time of its acquisition or construction.
Elements of Cost:
The cost of an item of property, plant and equipment comprises:
(a)
Its purchase price, including import duties and non-refundable purchase taxes after deducting
trade discounts and rebates or subsidy.
(b)
Any costs necessary to bring the asset into current location and condition which is intended by
management.
(c)
The initial estimate of the costs of dismantling and removing the item and restoring the site.
Examples of directly attributable costs are:
(a)
Costs of employee benefits arising directly from the construction or acquisition of an item of
property, plant and equipment.
(b)
Costs of site preparation
(c)
Initial delivery and handling charges.
(d)
Installation and assembly cost.
(e)
Cost of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced (such as samples produced when testing equipment); and
(f)
Professional fees.
Examples of costs that are not costs of an item of property, plant and equipment are:
(a)
Costs of opening a new facility.
(b)
Cost of introducing a new product or service (including costs of advertising and promotional
activities);
(c)
Costs of conducting business in a new location or with a new class of customer (including costs
of staff training); and
(d)
Administration and other general overhead costs. e.g., staff training cost
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is ready for use (i.e. it is capable of operating in manner intended by management). Following
costs are not included in the carrying amount e.g.,
(a)
Costs paid while an item is yet to be brought into use or is operated at less than full capacity.
(b)
Initial operating losses while demand for the product’s output builds-up; and
(c)
Costs of relocating/re-organizing part or all of entity’s operations.
Example
A new machine is purchased by Arman Enterprise. Relevant details are as follows:
List price
Trade discount
Import duties
Cost of site preparation
Architect fee
Non-refundable taxes
Income tax adjustable (refundable)
517
800,000
10%
2,000
1,000
1,000
6,300
5,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Insurance in-transit
Fees paid to clearing agent
Octroi charges
Land preparation cost
Installation cost
Estimate of initial cost of dismantling which company is liable to pay
Cost of furniture broke down during handling the machine
Insurance for the year
License fee for the year
Initial operating losses
Trial production cost net of sale proceeds of prototype/sample (4,000 – 2,100)
Admin costs
Calculate the cost at which machine should be debited?
7,000
9,000
4,600
8,300
7,800
5,000
7,000
9,000
11,000
12,000
1,900
10,000
Answer
Cost of machine is calculated as below:
List price
Less: Trade discount
Import duties
Cost of site preparation
Architect fee
Non-refundable taxes
Insurance in-transit
Fees paid to clearing agent
Octroi charges
Land preparation cost
Installation cost
Estimate of initial cost of dismantling
Trial production cost net of sale proceeds of prototype/sample (4,000 – 2,100)
Total
Rs.
800,000
(80,000)
2,000
1,000
1,000
6,300
7,000
9,000
4,600
8,300
7,800
5,000
1,900
773,900
Cost of self constructed asset
The cost of a self-constructed asset is determined by adding up raw material, labour and overhead costs
incurred on that asset.
Example (Self-constructed Asset)
Roads International Limited constructed its own specially designed ‘road bulldozer’. Details of related
costs incurred are as follows:
Description of cost:
Rs.
Cost of raw materials purchased
500,000
Cost of raw materials used in construction of road bulldozer
100,000
Over head costs incurred on building road bulldozer
40,000
Tests to ensure road bulldozer safe before brought into use
20,000
Factory labour costs
300,000
518
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Additional information:

80% of the total labour costs for the year were incurred on building roads and 20% thereof were
incurred in construction of the road bulldozer.

The road bulldozer was first brought into use on a contract that started on 1 November 20X2,
although it was available for use from 1 October 20X2.

The company uses the straight-line method to depreciate its road bulldozer. This vehicle is
expected to be sold for Rs. 7,000 at the end of its expected useful life of 5 years.
Required:
Journalise transactions related to tarring vehicle for the year ended 31 December 20X2.
Answer
(a)
Roads International Limited
Accounting entries
For the year ended 31 December, 20X2
Particulars
Dr.
Cr.
Raw materials
500,000
Bank
500,000
(Payment of raw material purchased)
Road bulldozer
100,000
Raw materials
100,000
(Raw material used in construction of Road bulldozer )
Road bulldozer
40,000
Bank/payable
40,000
(Overhead costs incurred on building road bulldozer)
Road bulldozer
20,000
Bank
20,000
(Safety test performed cost)
Labour cost
300,000
Bank/payable
300,000
(Labour cost paid over the year)
Road bulldozer ( 300,000 x 20%)
60,000
Labour cost
60,000
(Labour cost incurred on construction of Road bulldozer)
Depreciation expense
10,650
10,650
Accumulated dep. - Road bulldozer (220,000- 7,000)/5  3/12)
(Recording of depreciation on Road bulldozer)
Note: The Road bulldozer was available for use from 1 October 20X2, therefore depreciation shall
commence from that period.
Workings
Cost of bulldozer 100,000 + 40,000 + 20,000 + 60,000
220,000
SUBSEQUENT EXPENDITURE
Subsequent expenditure on non-current assets, after their initial acquisition, should be capitalized if it
meets the criteria for recognition of an asset.
Any subsequent expenditure is capitalized if it
o
improves the asset (for example, by enhancing useful life, output or performance)
o
is for a replacement part (provided that old part is disposed off)
Repairs and maintenance expenditure is revenue expenditure. It is recognized as an expense as it is
incurred.
519
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
LO 3: DEPRECIATION AND ITS METHODS
Depreciation of tangible fixed assets
Tangible fixed assets such as machinery, motor vehicles, fixtures and even buildings do not last forever.
If the value at which asset is expected to be sold at the end of its useful life is less than the cost of the
asset, the asset is said to have ‘depreciated in value’. For example, if a van was bought for Rs. 10,000 and
sold five years later for Rs. 2,000 then its value has depreciated over the period of its use by Rs. 8,000.
Depreciation is an expense
Depreciation is that part of the original cost of a fixed asset that is consumed during its period of use by
the business. It needs to be charged to profit and loss every year.
For example, if a PC cost Rs. 1,200 and was expected to be used for 3 years, it might be estimated at the
end of the first year that one-third of its overall usefulness had been consumed. Depreciation would then
be charged at an amount equal to one-third of the cost of the PC, i.e. Rs. 400. Profit would be reduced by
Rs. 400 and the value of the PC in the balance sheet would be reduced from Rs. 1,200 to Rs. 800.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Residual value of an asset is the estimated amount that an entity would currently obtain from disposal of
the asset, after deducting the estimated costs of disposal.
Note: If residual value is equal to or greater than cost than no depreciation is charged.
Carrying amount is the amount at which an asset is recognized after deducting any accumulated
depreciation and accumulated impairment losses. (Commonly known as book value).
Useful life is the period over which:
(a)
an asset is expected to be available for use by an entity; or
(b)
the number of production or similar units expected to be obtained from the asset by an entity.
DEPRECIATION
(a)
Each part of an item of property, plant and equipment with a cost that is significant in relation to
the total cost shall be depreciated separately.
(b)
The Depreciation charge for each period shall be recognized in profit or loss unless it is included
in the carrying amount of another asset.(e.g. the depreciation of manufacturing plant and
equipment is included in the costs of conversion of inventories)
(c)
The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
(d)
The residual value and the useful life of an asset shall be reviewed at least at each financial yearend and, if expectations differ from previous estimates, the change(s) shall be accounted for as a
change in an accounting estimate.
(e)
Commencement and cessation of deprecation
Depreciation of an asset begins when it is available for use, i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
Depreciation of an asset ceases the date when the asset is disposed off. Therefore, depreciation
does not cease when the asset becomes idle or is retired from active use unless the asset is fully
depreciated. However, under usages methods of depreciation the depreciation charge can be zero
while there is no production.
(f)
The following factors are considered in determining the useful life of an asset
(a)
Expected usage of the asset. Usage is assessed by reference to asset’s expected capacity
or physical output
(b)
Expected physical wear and tear,
(c)
Technical or commercial obsolescence
(d)
Legal or similar limits on the use of the asset,
520
CHAPTER-7
(g)
(h)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Land and Buildings are separable assets and are accounted for separately, even when they are
acquired together.
Land is not normally depreciated because it has indefinite life.
The depreciation method used shall reflect the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.
The depreciation method applied to an asset shall be reviewed at least at each financial year-end
and, if there has been a significant change in the expected pattern of consumption of the future
economic benefits embodied in the asset, the method shall be changed to reflect the changed
pattern. Such a change shall be accounted for as a change in an accounting estimate.
Depreciation methods
Following are the depreciation methods to be used during the period an asset is used by an entity:
(a)
Straight line method
It requires allocation of an equal amount to each period. Since this method assumes that the cost
of the asset expires at a steady (straight line) function of time, the cost less residual value is
divided by the estimated useful life. The rate of depreciation is the reciprocal of the estimated
useful life. If the useful life of an asset is 10 years, the depreciation rate will be 1/10 or 10%.
Depreciation = Cost – Residual value
or (Cost - Residual value) x Rate of depreciation
useful life
(Whenever depreciation is charged "on cost" each year, it means the entity is following straight
line method assuming that residual value is nil).
This method is appropriate for those assets which give same benefit in each year e.g. building,
furniture etc.
[Refer Q.1-5 of practice set]
(b)
Diminishing balance method
Under this method, instead of a fixed amount, a fixed rate on the reduced balance of the asset is
charged as depreciation every year. Since a constant percentage rate is being applied to the
written down value, the amount of depreciation charged every year decreases over the life of the
asset.
This method is appropriate for those assets which give benefit on a reducing pattern each year e.g.
machines.
[Refer Q. 19-24 of practice set]
Points of differences among straight line method and WDV method
Description
Calculation of
depreciation for 1st
Year
Calculation of
depreciation for
Subsequent Years
Conversion of life
to rate
Calculation of
depreciation for
each year
521
Straight line method
WDV method
Cost − Residual value
OR
useful life
(Cost − Residual value) (Dep Rate)
Cost  Rate of depreciation
Cost − Residual value
OR
useful life
(Cost − Residual value) (Dep Rate)
WDV  Rate of depreciation
Rate in % = 1
1
0
Useful Life
- On Cost of opening assets less
cost of disposals and fully
depreciated assets
- On cost of additions
- On cost of disposals
- On cost of fully depreciated
(In case assets have residual value it
will be deducted from the cost to
calculate depreciation)
N/A
-
-
On WDV of opening assets at the start
of year less WDV of disposals at the
start of year
On cost of additions
On WDV of disposals at the start of
year
CHAPTER-7
If no rate is given
in WDV method
IAS 16: PROPERTY, PLANT AND EQUIPMENT
n
s
Depreciation rate % = 1 − √
c
S = scrap value C = Cost
If scrap value is not
given rather WDV
or accumulated
depreciation is
given
Calculation of
accumulated
depreciation at the
time of disposal
Concept of fully
depreciated assets *
WDV
√
Cost
cumulative period
r=1−
Cost − Acc. Dep.
√
Cost
cumulative period
r=1−
It can be calculated through a shortcut
working:
Accumulated depreciation at the time
of disposal =
(Cost – RV)  Rate  No. of years
used
Number of years used will be counted
from date of purchase till date of
disposal. [Refer Q. 34-35 of practice]
Applicable
It will be calculated through manual
working from the date of purchase till the
date of disposal. [Refer Q. 45-47 of
practice]
Not applicable
*Example of fully depreciated
Mr. Asif purchased an asset on 01.01.08 for Rs. 900. Its life is 3 years and it sold on 30.06.12 for Rs. 30.
Method is straight line.
Required:
Prepare relevant accounts from the date of purchase till the date of disposal.
Answer
Dr.
Asset a/c
Cr.
01.01.08 Cash
c/d
900 31.12.08
900
01.01.09 b/d
c/d
900 31.12.09
900
01.01.10 b/d
c/d
900 31.12.10
900
01.01.11 b/d
c/d
900 31.12.11
900
01.01.12 b/d
Disposal
900 30.06.12
900
Dr.
Accumulated Depreciation
Cr.
31.12.09 c/d
Dep. (900/3)
300 31.12.08
300
01.01.09
b/d
300
31.12.09 c/d
Dep. (900/3)
600 31.12.09
300
01.01.10
b/d
600
31.12.10 c/d
Dep. (900/3)
900 31.12.10
300
31.12.11 c/d
b/d
900 01.01.11
900
30.06.12 Disposal
b/d
900 01.01.12
900
Dr.
Asset
P/L (Bal.)
522
Disposal A/c
900 Accumulated Depreciation
30 Cash
Cr.
900
300
CHAPTER-7
(c)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Output method
This is a method of providing depreciation on annual machine’s output in use compared with total
anticipated machine’s output over the life of the machine. [Refer Q. 30 of practice set]
Depreciation =
Cost – Residual value
 Units produced during the year
Total output expected over useful life
Example
Mr. Asif has acquired a machine on 1.Mar.2011. Its total capacity is to produce 50 units over 4
years. Year end is December 31.
Expected units to be produced are:
Year end
Units
December 31, 2011
12
December 31, 2012
24
December 31, 2013
4
December 31, 2014
10
Cost of machine is Rs.70,000 with a residual value of Rs. 5,000.
Required:
Calculate depreciation for first 4 years using output method.
Answer
Depreciation
(d)
-
2011
-
2012
-
2013
-
2014
70,000−5,000
)
50
70,000−5,000
(
)
50
70,000−5,000
(
)
50
70,000−5,000
(
)
50
(
12
= 15,600
24
= 31,200
4
= 5,200
10
= 13,000
Sum of year digit method
This method assumes that the depreciation charge should be more in the early years of the life of
the asset. Under this method, the depreciation expense is calculated by multiplying the
depreciable amount by a fraction based on the sum of the number of periods of the useful
economic life. [Refer Q. 31 of practice set]
Depreciation =
Cost − Residual value
 respective digit
sum of all year′s digits
𝐧(𝐧 + 𝟏)
𝐬𝐮𝐦 𝐨𝐟 𝐚𝐥𝐥 𝐝𝐢𝐠𝐢𝐭𝐬 = (
)
𝟐
Example
Mr. Akif purchased a machine for Rs. 100,000 on 1.1.2004. Its residual value is Rs. 5,000. Its useful life
is 4 years.
Calculate depreciation expense for first 4 years using sum of year digit method. Year end is December 31.
Answer
Depreciation
523
-
2004
-
2005
-
2006
-
2007
100,000−5,000
)
10
100,000−5,000
(
)
10
100,000−5,000
(
)
10
100,000−5,000
(
)
10
(
4
= 38,000
3
= 28,500
2
= 19,000
1
= 9,500
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Note:
(i)
Diminishing balance method and year digit method are often termed as "accelerated depreciation
methods" because both of the methods give more depreciation in the earlier years than the later
one.
(ii)
At the end of life of asset the written down value of asset will be equal to its residual value.
(iii)
No depreciation will be charged on assets after they have completed their life whether in terms of
years, units, hours etc.
(iv)
In the year of acquisition and disposal depreciation will be charged only for the months asset is
used.
Important issue regarding calculation of depreciation
It is not fair to assume that a fixed asset is always purchased on the very first day of a month. Assets are
generally purchased in the course of the accounting period whenever required. When an asset is
purchased in mid of a month, it is not necessary to compute the amount of depreciation to be charged to
the nearest day or week. As we know, the charge for depreciation is a mere estimate, therefore,
depreciation is calculated in whole months.
In this case you can give a note that:
“Full month’s depreciation is charged in the month of purchase while no depreciation is charged in
the month of disposal.”
Example
Assume year end is December 31st and following are the dates of additions and disposals.
Additions
Date of purchase
Number of months for which depreciation should be charged
Car-7
March 13, 2013
10
Car-8
July 3, 2013
6
Car-9
December 27, 2013
1
Disposals
Car-2
Car-4
Car-1
Date of Disposal
April 9, 2013
September 3, 2013
October 26, 2013
Number of months for which depreciation should be charged
3
8
9
COMPONENTS OF COST
Each part of an asset that has a cost that is significant in relation to the total cost must be depreciated
separately. This means that the cost of an asset might be split into several different assets and each
depreciated separately.
Example-1
A company has purchased a new aero plane for Rs.10 million.
The company has identified the following cost components and useful lives in respect of this jet.
Rs. million Useful life
Engines
3,000
5 years
Seats
1,000
3 years
Fittings
2,000
15 years
Other parts
4,000
20 years
10,000
524
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Example-2 (Components of cost)
Ancient Waters Limited is a company involved in bottling spring water. The company purchased a
bottling plant on 2 January 20X2. The plant is made up of three significant components, the cost of which
is as follows:
Description of component
Cost price
Residual value Expected useful life
Rs.
Rs.
Engine
1,500,000
500,000
5 years
Conveyor belt and fittings
2,000,000
0
8 years
Other structure
800,000
50,000
3 years
“Other costs” incurred in relation to the bottling plant are as follows:
Description of cost
Rs.
Transaction date
Delivery and installation
783,000
5 January 20X2
Staff training
60,000
16 January 20X2
Other information:

The plant was available for use in production on 1 February 20X2, although production only
began on 1 March 20X2.

The plant was temporarily idle during October 20X2 when the factory closed down for its annual
holiday period.

The company uses the straight-line method when depreciating its bottling plant.

All ‘other costs’ are considered to be incurred evenly between the three significant components of
the bottling plant (i.e. where appropriate, a third of the cost is allocated to each component).
Required:
Show all related journal entries relating to the bottling plant for the year ended 31 December 20X2 and 31
December 20X3.
Answer-2
Journal entries
Date
Particulars
2/1/20X2
5/1/20X2
16/1/20X2
31/12/20X2
525
Engine
Conveyor belt and fittings
Outer structure
Bank
(Purchase of bottling plant)
Engine
(783  1/3)
Conveyor belt and fittings
(783  1/3)
Outer structure
(783  1/3)
Bank
(Delivery and installation charges)
Staff training expense
Bank
(Recording of staff training cost in P/L)
Depreciation expense
(W-2)
Accumulated depreciation – Engines
Accumulated dep.- Conveyor belt and fittings
Accumulated depreciation - Outer structure
(Recording of depreciation)
Dr.
Cr.
Rs in ‘000’
1,500
2,000
800
4,300
261
261
261
783
60
60
799.2
231.2
259.1
308.9
CHAPTER-7
31/12/20X3
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation expense
(W-3)
Accumulated depreciation – Engines
Accumulated dep.- Conveyor belt and fittings
Accumulated depreciation - Outer structure
(Recording of depreciation)
871.8
252.2
282.6
337.0
(W-1) Calculation of cost and depreciable amount
Engines
Cost price
Delivery and installation charges
Less: Residual value
Depreciable Amount
Conveyor
Belt and
Fittings
1,500
261
1,761
(500)
1,261
Outer
Structure
2,000
261
2,261
2,261
Total
800
261
1,061
(50)
1,011
4,300
783
5,083
(550)
4,533
(W-2) Depreciation for the year ended 31 December, 20X2:
Engines
((W-1) 1,261/5  11/12 )
Conveyor belt and fittings
((W-1) 2,261/8  11/12 )
Outer structure
((W-1) 1,011/3  11/12 )
231.2
259.1
308.9
799.2
(W-3) Depreciation for the year ended 31 December, 20X3:
Engines
((W-1) 1,261/5)
Conveyor belt and fittings
((W-1) 2,261/8)
Outer structure
((W-1) 1,011/3)
252.2
282.6
337
871.8
LO4: RECORDING DEPRECIATION IN BOOKS OF ACCOUNTS
The depreciation for the period is debited to Depreciation expense Account and credited to ‘Accumulated
Depreciation Account’. Instead of crediting asset account another account styled Accumulated
Depreciation Account is credited so that at any time during the life of an asset we can easily determine
what is the total deprecation of asset on a specific reporting date. In the Balance Sheet, asset appears at its
original cost and the accumulated depreciation is shown as a deduction from the Asset Account.
Entry
Depreciation expense a/c
Accumulated Depreciation a/c
[Refer Q. 6-9 and 25-27 of practice set for presentation in ledger account]
1. Recording depreciation expense
Dr.
xxx
Cr.
xxx
LO5: CHANGE IN ACCOUNTING ESTIMATE DURING THE PERIOD OF USE
At the end of an accounting year an entity may estimate a change in following as compared to what was
expected at the time of purchase and may need to revise the following:

Useful life

Depreciation method

Residual Value

Depreciation rate
526
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT

Scenarios
i)
If new method is
straight line
ii)
If new method is
WDV
Formula to be used in the year of change
WDV at time at the time the estimate is revised - New Residual value
Remaining Useful Life
WDV at the time the estimate is revised x New rate
Question-1
ABC Ltd. purchased an asset costing Rs. 20,000 on 1.1.2007. Its useful life is 10 years and its residual
value is Rs. 5,000. On 1.1.2009 it is decided that remaining life is 4 years with a new residual value of Rs.
6,000.
Calculate depreciation for 2007, 2008, 2009 and 2010.
Year end is December 31.
Answer-1
Depreciation – 2007
= Cost – RV
Life
Depreciation – 2008
WDV at the time of change in estimate
Depreciation – 2009
= WDV – new residual value
Remaining life
Depreciation – 2010
= 20,000 – 5,000
10
= 20,000 – 5,000
10
= 20,000 – 1,500 – 1,500
= 1,500
= 17,000 – 6,000
4
= 17,000 – 6,000
4
= 2,750
= 1,500
= 17,000
= 2,750
Question-2
A company uses straight line method with a rate of 12.5% on an asset costing Rs. 50,000 which is
purchased on 1.1.2005. Its residual value is Rs. 10,000. On 1.1.2007, the company decided to change the
method to WDV using rate of 15%.
Required:
Calculate depreciation expense for 2005, 2006, 2007and 2008. Year end is December 31.
Answer-2
Depreciation – 2005
= (50,000 – 10,000)  12.5%
Depreciation – 2006
= (50,000 – 10,000)  12.5%
WDV of asset at the time the method is changed.
WDV
= 50,000 – 5,000 – 5,000
WDV(1.1.2007)
Less: Depreciation (2007)
(40,000  15%)
WDV (1.1.2008)
Less: Depreciation (2008)
(34,000  15%)
= 5,000
= 5,000
= 40,000
40,000
(6,000)
34,000
(5,100)
28,900
Question-3
An entity owns an asset costing Rs. 50,000 which is purchased on 1.1.2010. Rate of depreciation is 28%
under written down value method. On 1.1.2012 entity decided new rate of 40% without changing method
of depreciation.
Calculate depreciation for 2010, 2011, 2012 and 2013. Year end is December 31.
527
CHAPTER-7
Answer-3
Cost
Depreciation
WDV
Depreciation
WDV
Depreciation
WDV
Depreciation
WDV
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(1.1.2010)
(2010)
(1.1.2011)
(2011)
(1.1.2012)
(2012)
(1.1.2013)
(2013)
(31.12.2013)
(50,000  28%)
(36,000  28%)
(25,920  40%)
(15,552  40%)
50,000
(14,000)
36,000
(10,080)
25,920
(10,368)
15,552
(6,221)
9,331
LO6: DISPOSAL BY SALE/ DISPOSAL BECAUSE OF DESTROY
DERECOGNITION
The item of property, plant and equipment shall be derecognized
(a)
On disposal; or
(b)
When no future economic benefits are expected from its use or disposal.
The gain/(loss) arising from the derecognition of an item of properly, plant and equipment shall be
included in profit or loss when the item is derecognized. Gains shall not be classified as revenue.
The gain or loss arising from the derecognition of an item of property, plant and equipment shall be
determined as the difference between the disposal proceeds and the carrying amount of the item.
Disposal by sale/destroy
If a fixed asset is sold or it is destroyed because of accident, fire or flood, we have to remove it from our
ledger accounts. This means that the cost of that asset needs to be taken out of the asset account. In
addition, the accumulated depreciation on the asset which has been sold will have to be taken out of the
accumulated depreciation a/c. Finally, the profit and loss on sale, if any, will have to be calculated and
posted to the profit and loss account.
Entry
Dr.
Cr.
2. Entry for disposal of asset
Accumulated Depreciation a/c
xxx
Cash/Insurance claim receivable
xxx
P/L a/c (balancing)
xxx
Asset a/c – at cost
xxx
(In case there is loss on disposal)
Disposal a/c appears as follows:
Dr.
Asset a/c (cost)
Disposal account
xxx Accumulated depreciation
Cash/Insurance claim receivable
P&L (Bal. fig.)
Cr.
xxx
xxx
xxx
Note: Insurance claim receivable will appear when an asset is destroyed and insurance company has
acknowledged the claim and money is still receivable.
Note: Insurance claim receivable will not be considered as “other income” rather a reduction in loss on
disposal.
Example-1
Mr. Zia has informed you that an asset costing Rs. 600,000 on 1.03.2004 is destroyed by fire on
30.09.2007. The insurance company acknowledged the claim at Rs. 35,000. Rate of depreciation is 20%
straight line. Year end is December 31.
Required:
Pass the journal entry for disposal and prepare disposal a/c.
528
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Solution
Journal entry
Insurance claim receivable
Accumulated Depreciation (W-1)
P/L (Bal.)
Asset a/c
(W-1) Accumulated Depreciation
Years used
Accumulated Depreciation
(600,000  20%  3.5833)
Dr.
Asset – cost
Dr.
35,000
429,996
135,004
Cr.
600,000
3 years and 7 months
429,996
Disposal – A/c
600,000 Accumulated Depreciation
Insurance claim receivable
P/L (Bal.)
Cr.
429,996
35,000
135,004
Example-2
Mr. Latif has an asset costing Rs. 400,000 which was purchased on 1.04.2005. It was destroyed by fire on
30.06.2008 and he received Rs. 45,000 from insurance company in this respect. Year end is December 31.
Required:
Assuming depreciation rate to be 15% on straight line basis, prepare disposal entry. Also prepare disposal
a/c?
Solution
Journal entry
Dr.
45,000
195,000
160,000
Cash A/c
Accumulated Depreciation (W-1)
P/L (Bal.)
Asset a/c (Disposal of asset by fire)
400,000
(W-1) Accumulated Depreciation
Years used
Accumulated Depreciation
(400,000  15%  3.25)
Dr.
Asset
Cr.
Disposal – A/c
400,000 Accumulated Depreciation
Cash
P/L (Bal.)
3 years and 3 months
195,000
Cr.
195,000
45,000
160,000
Calculation of cost of disposals if book value of disposals is given [Reserve Back Working]
Sometimes in exam you might be given with the book value of assets sold and you may be required to
calculate the cost of disposals to be credited in asset account.
Example-1
On September 30, 2006 various items of plant and machinery having a book value of Rs. 300,000 were
sold for Rs. 70,000. These were purchased on 1.4.2004. Rate of depreciation is 10% on declining balance
method. Year end is December 31. Calculate cost of disposals?
529
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer
Cost of items
Let the cost on 1.4.2004 be
Depreciation-2004 (100x10%  9/12)
Book value 1.1.2005
Depreciation-2005 (92.5  10%)
Book value on 1.1.2006
Depreciation-2006 (83.25  10%  9/12)
Book value on disposal
If book value is 77.0062 then it can be grossed up as follows to arrive at cost.
Rs.
100
(7.50)
92.50
(9.25)
83.25
(6.2438)
77.0062
(300,000 / 77.0062  100)
Cost
Cost
Accumulated depreciation
Book value
%
100
(22.9938)
77.0062
389,579
Amount
389,579
(89,579)
300,000
Example-2
On September 30, 2006 various items of plant and machinery having a book value of Rs. 300,000 were
sold for Rs. 70,000. These were purchased on 1.4.2004. Rate of depreciation is 10% on straight line
method. Year end is December 31. Calculate cost of disposals?
Answer
Cost of items
Number of years the asset is used (1.4.2004-30.9.2006)
2.5Y
Assume Cost (in percentage)
100%
Accumulated depreciation at the time of disposal (in percentage) (100  10% per year  2.5Y)
25%
Cost
(300,000/75  100)
400,000
Cost
Accumulated depreciation
Book value
%
100
(25)
75
Amount
400,000
(100,000)
300,000
LO7: DISPOSAL THROUGH EXCHANGE
Sometimes instead of selling we exchange the old asset with the new one. In this case normally we will
receive new asset and will hand over the old asset to the person from whom new asset is bought.
Obviously some cash will also be paid to settle the transaction. In this case following steps will be
performed while passing the journal entry.
Step 1 The old asset will be removed from books by crediting old asset and by debiting accumulated
depreciation a/c.
Step 2 The cash paid to settle the transaction will be credited.
Step 3 The cost of new asset will be debited in books.
Step 4 The balancing figure will be gain or loss.
Entry
Dr.
Cr.
3. Entry on exchange of asset
Asset a/c (new)
xxx
Accumulated Depreciation a/c
xxx
P/L a/c (balancing)
xxx
Asset a/c (old)
xxx
Cash
xxx
(In case there is loss on disposal)
530
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
T-accounts
Dr.
b/d
Disposal (cost new asset)
Dr.
Asset a/c (cost old asset)
Cash
Asset account
xxx Disposal (cost old asset)
xxx
c/d
Answer-1
Following entry will be passed:
Cost- New asset
Acc.dep. - old asset
P and L (bal.)
Cost - old asset
Cash
Dr.
Asset a/c (old)
Cash
xxx
xxx
Disposal account
xxx Accumulated depreciation (old asset)
xxx Asset a/c (cost new asset)
P&L (Bal. fig.)
Example-1
Following details are provided as on December 31, 2009.
Cost of machine
Accumulated depreciation
Book value
The above asset is exchanged with a new one on the same date:
Fair value of new asset
Cash paid to settle the transaction
Required: Pass the journal entry to record the transaction.
Dr.
b/d
Disposal a/c
Cr.
Cr.
xxx
xxx
xxx
32,000
(8,000)
24,000
40,000
22,000
(Source: ICAP )
Dr.
40,000
8,000
6,000
Cr.
32,000
22,000
Asset account
32,000
40,000 Disposal
c/d (bal.)
Disposal account
32,000 Acc. Dep. – old asset
22,000 Asset a/c (new)
P&L (Bal. fig.)
Cr.
32,000
40,000
Cr.
8,000
40,000
6,000
Example-2
Mr. Umer exchanged an old asset with a new one. Cost of old asset is Rs. 10,000 and accumulated
depreciation is Rs. 3,000. Cost of new asset is Rs. 50,000. Cash paid to settle the transaction is Rs.
22,000. Pass Journal entry?
Answer-2
Asset – new
50,000
Accumulated Depreciation
3,000
P/L (Bal.)
21,000
Asset – old
10,000
Cash
22,000
531
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Example-3
Mr. Arif exchanged an old asset with a new one. Cost at old asset is Rs. 10,000 and accumulated
depreciation is Rs. 2,500. Cost of new asset is Rs. 30,000. Trade-in-allowance is Rs. 3,000. Pass journal
entry?
Answer -3
Asset – new
30,000
Accumulated Depreciation
2,500
P/L (Bal.)
4,500
Asset – old
10,000
Cash
27,000
Cash paid
= New asset cost – Trade-in-allowance
= 30,000 – 3,000
= 27,000
Example-4
Mr. Usman Elahi exchanged an old asset with new one. Cost of old asset is Rs. 30,000 and its written
down value is Rs. 12,000. List price of new asset is Rs. 40,000. Cash paid to settle the transaction is
Rs. 23,000. Pass journal entry?
Answer -4
Asset – new
Accumulated Depreciation
P/L (Bal.)
Asset – old
Cash
40,000
18,000
(30,000 – 12,000)
5,000
30,000
23,000
Example-5
Mr. Nauman exchanged an old asset with new one. Cost of new asset is Rs. 100,000. Cost of old asset is
Rs. 70,000 and its accumulated depreciation is Rs. 30,000 on date of exchange. Trade-in-allowance (value
assigned to our old asset) is Rs. 10,000.
Answer -5
Asset – new
100,000
Accumulated Depreciation
30,000
P/L (Bal.)
30,000
Asset – old
70,000
Cash (100,000 – 10,000)
90,000
Example-6
Mr. Anjum has provided following data:
Accumulated
Depreciation
1.1.2011
400,000
150,000
Cost
Vehicle
(1)
A vehicle costing Rs. 90,000 on 1.4.2009 is exchanged with a new vehicle costing Rs. 200,000.
Cash paid in the transaction amounted to Rs. 70,000. Date of exchange is 1.8.2011.
(2)
A vehicle costing Rs. 60,000 is purchased on 1.3.2011.
Required:
Prepare Asset a/c, accumulated depreciation a/c and disposal a/c for the year ended 31.12.2011? Method
of depreciation is 5% S.L.
532
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-6
Dr.
1.1.11
b/d
1.8.11
Disposal
1.3.11
Cash
Dr.
1.8.11
Disposal (W-2)
31.12.11 c/d
Vehicle a/c
400,000 1.8.11
Disposal
200,000
60,000
31.12.11 c/d
(W-2)
570,000
Accumulated Depreciation a/c
10,500 1.1.11
b/d
31.12.11 Depreciation Exp. (W-1)
164,292
Cr.
150,000
24,792
Disposal a/c
90,000 Accumulated Depreciation
70,000 Vehicle
50,500
Cr.
10,500
200,000
Dr.
Vehicle
Cash a/c
P/L (Bal.)
Disposal entry
Vehicle – new
Accumulated Dep.
Vehicle – old
Cash
P/L (Bal.)
(W-1)
Cr.
90,000
Dr.
200,000
10,500
Cr.
90,000
70,000
50,500
Depreciation Expense
- On opening assets excluding disposals
(400,000 – 90,000)  5%
- On additions
(200,000  5%  5/12) + (60,000  5%  10/12)
- On disposals
(90,000  5%  7/12)
15,500
6,667
2,625
24,792
Accumulated Depreciation of Disposals
Years used (1.4.09 – 1.8.11)
2 years and 4 months
Accumulated Depreciation
(90,000  5%  2.3333)
2.3333 years
10,500
Example-7
Mr. Ghafoor has provided following data:
Building A/c
(1)
Cost
1.1.2012
800,000
Accumulated
Depreciation
1.1.2012
250,000
A building costing Rs. 135,000 on 1.4.2009 is exchanged with a new building costing Rs.
400,000 and Rs. 320,000 is paid to settle the transaction. Transaction took place on 30.4.2012.
(2)
A building costing Rs. 35,000 is purchased on 1.Dec.2012.
Required:
Prepare Asset a/c, accumulated depreciation a/c and disposal a/c for the year ended December 31, 2012?
Depreciation rate is 10% W.D.V
533
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-7
Dr.
1.1.12
b/d
30.4.12 Disposal
1.12.12 Cash
Dr.
Disposals (W-2)
c/d
Building a/c
800,000 30.4.12 Disposal
400,000
35,000
31.12.12 c/d
Cr.
250,000
75,216
Disposal a/c
135,000 Building
320,000 Accumulated Depreciation (W-2)
Profit & Loss (Bal.)
Depreciation Expense
- On opening assets excluding disposals
WDV of opening assets as on 01.01.12 (800,000 – 250,000)
Less: WDV of disposal on 01.01.01
(W-2)
-
-
(W-2)
1,100,000
Accumulated Depreciation a/c
37,224 b/d
Depreciation Exp. (W-1)
287,992
Dr.
Building
Cash
(W-1)
Cr.
135,000
Additions
(400,000  10%  8/12)
(35,000  10%  1/12)
Disposals
Total
550,000
(101,148)
448,852 x10%
26,667
292
(W-2)
Accumulated Depreciation of Disposals
Cost
(1.4.09)
Dep. Exp.
(31.12.09)
(135,000  10%  9/12)
WDV at
(31.12.09)
Dep. Exp.
(31.12.10)
124,875  10%)
WDV at
(31.12.10)
Dep. Exp.
(31.12.11)
(112,387  10%)
WDV at
(31.12.11)
Dep. Exp.
(31.12.12)
(101,148  10%  4/12)
WDV
(30.04.12)
Accumulated Depreciation on Disposals
Cr.
400,000
37,224
17,776
44,885
26,959
3,372
75,216
135,000
(10,125)
124,875
(12,488)
112,387
(11,239)
101,148
(3,372)
97,776
(135,000 – 97,776)
37,224
Journal entry
Building (New)
Accumulated Depreciation (W-2)
Profit & Loss (Bal.)
Building (old)
Cash
534
Dr.
400,000
37,224
17,776
Cr.
135,000
320,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Note:
1.
Sometimes cash paid to settle the transaction will not be given in the question rather you will be
provided with trade-in-allowance. Trade-in-allowance is the value assigned by the shopkeeper to
our old asset. In such case cash paid can be calculated through following equation:
Cash paid = Cost of new asset - Trade in allowance
2.
Gain/ (loss) on exchange of asset can be calculated through shortcut way as follows:
Gain/ (loss) = Trade in allowance - Book value of asset disposed off
Cost of exchanged asset in certain circumstances
Sometimes the fair market value of new asset is not known in the exchange transaction, in this case cost
of new asset will be calculated in the following way.
Scenario
Cost of new asset to be debited in exchange
entry
Only fair value of new asset is given
Fair value of new asset
Fair value of new asset is not given but fair value of Fair value of old asset + cash paid
old asset is given
Fair value of old asset  cash received
Fair value of old assets and fair value of new assets Fair value of old asset + cash paid
both known
Fair value of old asset  cash received
Fair value of both new asset and old asset is not Book value of old asset + cash paid
given/ Transaction lack commercial substance
Book value of old asset  cash received
Transaction lack commercial substance means that future cash flows from new asset change minimally.
Example
Mr. Umair has exchanged an asset with a new one. The cost of old asset and its accumulated depreciation
on date of disposal is Rs.40,000 and Rs.13,000 respectively. Cash paid to settle the transactions was
Rs.18,000.
Required:
Pass journal entries under 3 independent scenarios.
(1)
Fair market value of new asset is Rs. 50,000.
(2)
Fair market value of new asset is not known and fair market value of old asset is Rs. 25,000.
(3)
Fair market value of old and new asset is not known.
Solution
(1)
Asset (new)
Accumulated Depreciation
P/L (Bal.)
Asset (old)
Cash
(2)
Asset (new)
(25,000 + 18,000)
Accumulated Depreciation
P/L (Bal.)
Asset (old)
Cash
(3)
Asset (new)
(27,000 + 18,000)
Accumulated Depreciation
Asset (old)
Cash
535
Dr.
50,000
13,000
Cr.
5,000
40,000
18,000
Dr.
43,000
13,000
2,000
Dr.
45,000
13,000
Cr.
40,000
18,000
Cr.
40,000
18,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
LO8: PREPARING FIXED ASSET ACCOUNT AT BOOK VALUE
Under this method, depreciation is directly charged to an Asset Account by debiting Depreciation
Account and crediting the Asset Account. At the end of the accounting period, depreciation Account is
closed by transferring it to the Profit and Loss Account. In the Balance Sheet, the asset appears at its
written down value (cost less depreciation provided to-date). Here, actual cost of an asset and the total
amount of depreciation that has been provided (to-date) cannot be ascertained from the Balance Sheet.
4.
5.
6.
Entry
Recording depreciation expense
Depreciation expense a/c
when asset a/c is prepared at book value
Asset a/c – at book value
Entry for disposal of asset when asset
a/c is prepared at book value
Entry on exchange of asset when asset
a/c is prepared at book value
Dr.
xxx
Cr.
xxx
Entry
Cash
P/L a/c (balancing)
Asset a/c – at book value
(In case there is loss on disposal)
Dr.
xxx
xxx
Entry
Asset a/c – at book value (cost of new
asset)
P/L a/c (balancing)
Asset a/c – at WDV (WDV
of old asset)
Cash
(In case there is loss on disposal)
Dr.
xxx
Cr.
xxx
Cr.
xxx
xxx
xxx
[Refer Q. 63-69 of practice set]
Example-1
Mr. Umer has provided the following data.
1.1.2008
700,000
Furniture – book value
(1)
During the year on 1. April, 2008 a additions of Rs. 80,000 took place.
(2)
On 30.06.08 an asset costing Rs. 120,000 on 1.7.06 is disposed off for Rs. 25,000 only.
(3)
Method of depreciation is diminishing balance method and rate is 10%.
Required:
Calculate depreciation expense and prepare asset a/c and disposal a/c for year ended 31.12.08.
Answer
Dr.
1.1.08
b/d
1.4.08
Cash
Dr.
Furniture – BV
536
Furniture a/c – at book value
700,000 30.06.08 Disposal
80,000 31.12.08 Depreciation
31.12.08 c/d
Disposal A/c
97,470 Cash
P/L (Bal.)
Cr.
97,470
70,870
611,600
Cr.
25,000
72,470
CHAPTER-7
(W-1)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation Expense
- On opening assets excluding disposals (700,000 – 102,600)  10%
- On additions
(80,000  10%  9/12)
- On disposals
(W-2)
(W-2)
Book value of Disposals
Cost
(1.7.06)
Depreciation (31.12.06)
WDV
(31.12.06)
Depreciation (31.12.07)
WDV
(31.12.07)
Depreciation (30.06.08)
WDV
(30.06.08)
59,740
6,000
5,130
70,870
120,000
(6,000)
114,000
(11,400)
102,600
(5,130)
97,470
(120,000  10%  6/12)
(114,000  10%)
(102,600  10%  6/12)
Disposal entry
Cash
P/L (Bal.)
Furniture – BV
25,000
72,470
97,470
Example-2
Mr. Atif has provided the following data.
1.1.2013
500,000
Building – book value
(1)
(2)
(3)
On 1 October, 2013 a new building was purchased costing Rs. 60,000.
On 31.3.13 an old building costing Rs. 90,000 on 1.1.11 is disposed off for Rs. 60,000.
ON 30.06.13 another building having book value of Rs. 50,000 on 1.1.13 is disposed off for Rs.
4,200 only.
Rate of depreciation is 15% WDV method.
(4)
Required:
Relevant a/c for year ended 31.12.13.
Answer
Dr.
1.1.13
b/d
1.1.13
Cash
Dr.
Building – BV
Building – BV
(W-1)
537
Building a/c – at book value
500,000 31.3.13 Disposal
60,000 30.06.13 Disposal
31.12.13 Depreciation
31.12.13 c/d (Bal.)
Disposal A/c
62,587 Cash
46,250 Cash
P/L (Bal.)
Depreciation Expense
On opening assets excluding disposals
(500,000 – 65,025 – 50,000)  15%
On additions
(60,000  15%  3/12)
On disposals
(2,438 + 3,750)
Cr.
62,587
46,250
66,184
384,979
Cr.
60,000
4,200
44,637
57,746
2,250
6,188
66,184
CHAPTER-7
(W-2)
(W-3)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Book value of Disposal in point 2
Cost
(1.1.11)
Depreciation (31.12.11)
(90,000  15%)
WDV
(31.12.12)
Depreciation (31.12.12)
(76,500  15%)
WDV
(31.12.12)
Depreciation (31.03.13)
(65,025  15% 3/12)
WDV
(31.03.13)
90,000
(13,500)
76,500
(11,475)
65,025
(2,438)
62,587
Book value of Disposals in point 3
Book value
(1.113)
Depreciation (30.06.13)
(50,000  15% 6/12)
WDV
(30.06.13)
50,000
(3,750)
46,250
LO9: FIXED ASSET SCHEDULE/ DISCLOSURE NOTE (SAMPLE)
Particular
Building
Plant &
Machinery
Vehicle
Furniture
Cost
As on Jan.1.01
Addition during the year
Revaluation
Disposal
As on Dec. 31. 01
Depreciation
As on Jan.1.01
Depreciation for the year
Disposal
Revaluation
As on Dec. 31. 01
WDV on Dec. 31, 01
Rate %
Depreciation method
LO10: REVALUATION OF PROPERTY PLANT AND EQUIPMENT
Measurement after initial recognition
Two measurement models after acquisition of non-current asset are as follows:
(1)
Cost model
After recognition as an asset, an item of property, plant and equipment shall be carried at its cost
less any accumulated depreciation and any accumulated impairment losses.
(2)
Revaluation model
After recognition of an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount which is its fair value at the date of the
revaluation less any subsequent accumulated depreciation and accumulated impairment losses.
The fair value of land and buildings is usually determined from market-based evidence by
appraisal that is normally undertaken by professionally qualified valuers.
If an item is revalued, the entire class of assets to which that asset belongs should be revalued.
Revalued assets are depreciated in the same way as under the cost model.
538
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Frequency of revaluation
Under the revaluation model, revaluations should be carried out regularly, so that the carrying
amount of an asset does not differ materially from its fair value at the balance sheet date.
Accounting treatment of revaluation increase/decrease
Change in Carrying
Amount
Increase
Decrease
Initial
Subsequent
Included
in
Other
comprehensive
income
(heading
“Revalution
surplus”)
Debited to Profit or loss
Included in OCI and increases
revaluation surplus unless it reverses a
revaluation decrease of the same asset
previously recognized in profit or loss.
Debited to profit or loss unless any credit
balance exists in the revaluation surplus
Accounting treatment of accumulated depreciation a/c at the time of revaluation
It is eliminated against the gross carrying amount of the asset and the net amount is restated to the
asset’s revalued amount.
Treatment of Revaluation surplus
Transfer revaluation surplus on yearly basis to retained earnings (it will be the difference between
depreciation based on the revalued carrying amount and depreciation based on original cost).
Treatment of Revaluation surplus on disposal of asset
Transfer full amount appearing in balance sheet to retained earnings
LO11: DISCLOSURES / NOTE
The financial statements shall disclose, for each class of property, plant and equipment:
(a)
The measurement bases used (i.e. cost model or revaluation model); (Narrate)
(b)
The depreciation methods used; (Narrate)
(c)
The useful lives or the depreciation rates used; (Narrate)
(d)
The gross carrying amount and the accumulated depreciation at the beginning and end of the
period; and (Table)
(e)
A reconciliation of the carrying amount at the beginning and end of the period showing:
(i)
Additions;
(ii)
Acquisitions through business combinations; (Detail in CA Final)
(iii)
Increases or decreases resulting from revaluations
(iv)
Impairment losses
(v)
Disposals;
(vi)
Depreciation;
The financial statements must also disclose:

the existence and amounts of restrictions on title, and property, plant and equipment pledged as
security for liabilities; (Narrate)

the amount of expenditures recognised in the carrying amount in the course of its construction;

the amount of contractual commitments for the acquisition of property, plant and equipment;

if it is not disclosed separately in the statement of comprehensive income, the amount of
compensation from third parties for items of property, plant and equipment that were impaired,
lost or given up that is included in profit or loss. and
Disclosures for assets stated at revalued amounts
When items of property, plant and equipment are stated at revalued amounts following must be disclosed:

the effective date of the revaluation;

whether an independent valuer was involved;
539
CHAPTER-7



IAS 16: PROPERTY, PLANT AND EQUIPMENT
the extent to which the items’ fair values were determined directly by reference to observable
prices in an active market or recent market transactions on arm’s length terms or were estimated
using other valuation techniques
for each revalued class of property, plant and equipment, the carrying amount that would have
been recognised had the assets been carried under the cost model; and
the revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
Additional disclosures encouraged by IAS 16
IAS 16 encourages disclosure of the following information as users of financial statements might find it to
be useful.

the carrying amount of temporarily idle property, plant and equipment;

the gross carrying amount of any fully depreciated property, plant and equipment that is still in
use;

the carrying amount of property, plant and equipment retired from active use and held for
disposal; and

when the cost model is used, the fair value of property, plant and equipment when this is
materially different from the carrying amount.
LO12: ALTERNATE NAMES FOR DIFFERENT TERMINOLOGIES
Main Name
Residual value
Diminishing
balance method
Output method
Trade-in-allowance
Alternate names
Scrap value, Salvage value
Written down value method/ Book value method/ Carrying amount method/ Net
book value Method/ Declining balance method/ Reducing balance method.
Number of Units produced method/Units of production method/ Machine Hours
method/ Service hours method/ Usage method/ Mileage method
Exchange allowance
LO13: TYPES OF QUESTIONS
No.
1.
2.
3.
4.
5.
6.
7.
Scenario
Calculation of cost of asset
Questions in which opening balance of asset account is given and closing balance
is required (or only calculations are required)
2.1
Cost and accumulated dep. a/c are prepared:
Straight line
(including fully depreciated)
WDV normal questions
Other methods of depreciation
Question of exchange of assets (Straight line or WDV)
2.2
Asset a/c is prepared at WDV
Change in accounting estimate
Typical questions in which closing balance of asset and accumulated depreciation
a/c is given in which adjusted a/c is required or only rectifying entries are required
Correction of past year error
Disclosures
Revaluation of non-current assets
540
Questions in
Practice Set
-
Questions in
Past papers
1-3, 14
17, 19, 26
6-17, 32-41,49
42,43
25-29,44-48, 50
30,31
58-61
4, 9, 16
62-68
51-57
70
7
5, 6
12, 13, 14
(b), 15, 26)
18
10, 11, 20
-
71-80
21-25, 27.
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
PRACTICE QUESTIONS
Question-1
Mr. Atif has purchased a vehicle. Its cost on January 1, 2008 was Rs. 50,000. Its life is 4 years.
Calculate depreciation for 4 years using straight line method. Year end is December 31.
(2)
Question-2
Mr. Latif has purchased a plant. Its cost on 1.4.2008 was Rs. 50,000. Its life is 4 years. Calculate
depreciation expense for year ended December 31, 2008, 2009 and 2010.
(2)
Question-3
Mr. Arif has purchased a vehicle. Its cost on 1.5.2008 was Rs. 70,000. Its life is 5 years. Calculate
depreciation expense for 2008, 2009, 2010, 2011. Year end is December 31.
(2)
Question-4
Mr. Atif has purchased an asset on 1.4.2004 for Rs. 50,000. Its residual value is 10,000 and rate of
depreciation is 25% straight line. Year end is 31 December.
(3)
Required:
Calculate depreciation from 2004-2007.
Question-5
Mr. Zeeshan has purchased an asset on 1.7.2004 for Rs. 70,000. Its residual value is Rs. 20,000 and useful
life is 4 years. Method used is straight line.
Required:
Calculate depreciation from 2004-2006 assuming year end is December 31.
(3)
Question-6
Mr. Anjum has started the business on January 1, 2009 of trading in shoes. He has disclosed the following
data for first three years of his business operations which relates to additions in fixed assets:
Date of Purchase
Cost
Year end December 31, 2009
- Asset-1
- Asset-2
1.1.2009
1.7.2009
30,000
10,000
Year end December 31, 2010
- Asset-3
1.4.2010
50,000
Year end December 31, 2011
- Asset-4
1.7.2011
60,000
Useful life of all assets is 4 years.
Required:
Prepare an asset a/c, accumulated depreciation a/c and balance sheet extracts using above mentioned
information for first three years of operations.
(5)
Question-7
Mr. Sultan has started the business on January 1, 2010 of trading in computers. He has disclosed the
following data for first two years of his business operations which relates to additions in fixed assets:
541
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Date of Purchase
Cost
Year end December 31, 2010
Asset – 1
1.1.2010
30,000
Asset – 2
1.4.2010
40,000
Asset – 3
1.6.2010
50,000
Year end December 31, 2011
Asset – 4
1.3.2011
70,000
Rate of depreciation is 25% per annum using straight line method.
Required:
Prepare asset A/C, Accumulated Depreciation A/C for year ended December 31, 2010, 2011, 2012.
(5)
Question-8
Mr. Waqar has started the business on January 1, 2013 of trading in chairs. He has disclosed the following
data for first two years of his business operations which relates to additions in fixed assets:
Date of Purchase
Cost
Year end December 31, 2013
Building – 1
1.1.2013
10,000
Building – 2
1.5.2013
15,000
Year end December 31, 2014
Building – 3
1.8.2014
13,000
Building – 4
1.9.2014
12,000
Useful life of all assets is 6 years and method used for depreciation is straight line.
Required:
Prepare asset a/c and accumulated depreciation a/c for year ended December 31, 2013 and 2014.
(6)
Question-9
Mr. Asif has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Accumulated
Cost
Depreciation
Vehicles
300,000
113,000
Following is the detail of additions during the year ended December 31, 2009:
Vehicle – ACT
Vehicle – MGY
Rate of depreciation is 20% per annum using straight line method.
Required:
Prepare relevant accounts for year ended December 31, 2009.
Date of
Purchase
1.3.2009
1.5.2009
Cost
10,000
15,000
(7)
Question-10
A company started a business on 1 January 20X5. You are to write up the van account and the provision
for depreciation account for the year ended 31 December 20X5 from the information given below.
Depreciation is at the rate of 25 per cent per annum, using the straight line basis of depreciation.
20X5
Bought two vans for Rs. 6,900 each on 1 January
Bought one van for Rs. 7,200 on 1 August
542
(4)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-11
A company starts in business on 1 January 20X3, the financial year end being 31 December. You are to
show:
(a)
The machinery account.
(b)
The provision for depreciation account.
(c)
The balance sheet extracts for each of the years 20X3, 20X4, 20X5, 20X6.
The machinery bought as follows:
20X3 1 January
1 machine costing Rs. 1,400
20X4 1 July
2 machines costing Rs. 600 each
1 October
1 machine costing Rs. 1,000
20X6 1 April
1 machine costing Rs. 400
Depreciation is over 10 years, using the straight line method, machines being depreciated for the
proportion of the year that they are owned.
(8)
Question-12
Mr. Abubakar has provided you the following information.
Machine -1 purchased on
1.1.2007
80,000
Machine -2 purchased on
1.4.2007
60,000
Machine -3 purchased on
1.5.2008
140,000
Required:
Prepare machine account and accumulated depreciation A/C using straight line basis at 20% for year
ended December 2007 and December 2008
(6)
Question-13
Mr. Asim has started business on 12 February 2008. His year ends on each September 30th. He has
provided the following data.
Vans Purchased
Year ended Sep 30, 2008
Date of purchase
Cost
Van 1
1 April 2008
10,000
Van-2
1 June 2008
20,000
Year ended Sep 30, 2009
Van-3
1 December 2008
40,000
Required:
Using straight line basis prepare Van A/C and accumulated depreciation account assuming useful life to
be 10 years.
(6)
Question-14
Mr. Amjad has provided you the following data:
Year ended 2009 (31 December)
Date of
Purchase
1.1.09
1.7.09
1.9.09
Cost
Life
Machine 1
20,000
5 years
Machine 2
80,000
5 years
Van
40,000
10 years
Residual value for machines and van is 10% of cost.
Required:
Prepare Asset Accounts and Accumulated Depreciation A/C for year ended December 31, 2009 and
December 31, 2010 using straight line method.
(5)
543
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-15
Mr. Baber provided you with following information:
Cost as on
1.1.2009
600,000
700,000
Machinery
Vehicle
Following are the additions made during the year:
Accumulated
Depreciation
as on 1.1.2009
250,000
90,000
Rate
S.L
10%
20%
Date of Purchase
Cost
Machinery
1.3.2009
90,000
Vehicle
1.5.2009
80,000
Vehicle
1.6.2009
100,000
Required:
Prepare machinery A/C and vehicle A/C (cost and accumulated depreciation) for December 31, 2009 and
December 31, 2010.
(6)
Question-16
Mr. Black has provided you with following information:
Cost as on
Plant and Machinery
Furniture
Vehicle
1.1.2001
600,000
700,000
800,000
Accumulated
Depreciation
as on 1.1.2001
200,000
130,000
170,000
Rate
S.L
20%
10%
25%
Following are the additions made in year ended December 31, 2001.
Plant and Machinery
Furniture
Vehicle
Date
1.1.2001
1.6.2001
1.9.2001
Cost
60,000
80,000
70,000
Required:
Prepare Assets Accounts and Accumulated Depreciation A/C for year ended December 31, 2001 only. (6)
Question-17
A company, which makes up its financial statements annually to 31 December, provides for depreciation
of its machinery at the rate of 15 per cent per annum using the straight line method. On 31 December
20X8, the machinery consisted of three items purchased as shown:
Rs.
On 1 January 20X6 Machine A
Cost 2,000
On 1 September 20X7 Machine B
Cost 4,000
On 1 May 20X8 Machine C
Cost 3,000
Required:
Your calculations showing the depreciation provision for the year 20X8.
(6)
Question-18
Mr. Moin has purchased a machine costing Rs. 600,000 on 1.1.2008. Calculate depreciation for first 4
years using WDV method. Rate is 10%. The year end is December 31.
(5)
544
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-19
Mr. Shaban has purchased a machine costing Rs. 60,000 on 1.4.2008. Calculate depreciation for first 3
years using WDV method. Rate is 10% and year end is 31 December.
(3)
Question-20
Mr. Umair purchased a computer on 1 March 2007.
Calculate depreciation for first 3 years on WDV method @ 15%. Cost is Rs. 200,000. Year end is
December 31.
(2)
Question-21
Mr. Aamir has purchased building on 1.7.2008. Calculate depreciation on WDV method for first three
years @ 20%. Cost is Rs. 300,000. Year end is September 30.
(2)
Question-22
A Gill, purchased a notebook PC on 1.1.2005 for Rs. 2,600.lt has an estimated life of four years and a
scrap value of Rs. 200.
She is not certain whether she should use the straight line or the reducing balance basis for the purpose of
calculating depreciation on the computer.
Required:
Calculate the depreciation (to the nearest Rs.) using both methods for four years under each method.
(Assume that 45 per cent per annum is to be used for the reducing balance method). Year end is
December 31.
(4)
Question-23
A machine costs Rs. 8,000 on 1.1.2005. It will be kept for five years, and then sold for an estimated figure
of Rs. 2,400. Show the calculations of the figures for depreciation (to nearest Rs.) for each of the five
years using (a) the straight line method, (b) the reducing balance method, for this method using a
depreciation rate of 20 per cent. Year end is December 31.
(4)
Question-24
A photocopier costs Rs. 23,000 on 1.1.2005. It will be kept for four years, and then traded-in for Rs.
4,000. Show the calculations of the figures for depreciation for each year using (a) the straight line
method, (b) the reducing balance method, for this method using a depreciation rate of 35 per cent. Year
end is December 31.
(6)
Question-25
Mr. Taimoor has started the business on January 1, 2009 of manufacturing cars. He has disclosed the
following data for first three years of his business operations which relates to additions in fixed assets:
Date of Purchase
Cost
Year end December 31, 2009
Asset-1
1.1.2009
30,000
Asset-2
1.7.2009
10,000
Year end December 31, 2010
Asset-3
1.4.2010
50,000
Year end December 31, 2011
Asset-4
1.7.2011
60,000
Method is WDV for depreciation and rate is 10%.
Required:
Prepare relevant accounts for years ended December 31, 2009, 2010 and 2011.
545
(6)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-26
Mr. Wasif has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Accumulated
Cost
Depreciation
Building
400,000
150,000
Following is the detail of additions during the year ended December 31, 2013:
Date of
Purchase
Building – Defence
1.3.2013
Building – Green Town
1.8.2013
Method for depreciation is WDV and rate is 20%.
Required:
Prepare relevant accounts for year ended December 31, 2013.
Cost
300,000
100,000
(6)
Question-27
Mr. Ali has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Cost
Machinery a/c
600,000
Following is the detail of additions during the year ended December 31, 2013:
Date of
Purchase
Cutter machine
1.3.2013
Molding machine
1.8.2013
Method for depreciation is WDV and rate is 20%.
Accumulated
Depreciation
300,000
Cost
500,000
250,000
Required:
Prepare relevant accounts for year ended December 31, 2013.
(6)
Question-28
Mr. Faiq has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Cost
Machinery a/c
600,000
Following is the detail of additions during the year ended December 31, 2009:
Date of
Purchase
Machinery B
1.3.2009
Machinery C
1.5.2009
Method for depreciation is WDV and rate is 30%.
Required:
Prepare relevant accounts for year ended December 31, 2009.
546
Accumulated
Depreciation
200,000
Cost
10,000
70,000
(6)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-29
A motor vehicle which cost Rs. 12,000 was bought on credit from Trucks Ltd on 1 January 20X6.
Financial statements are prepared annually to 31 December and depreciation of vehicles is provided at 20
per cent per annum under the reducing balance method.
Required:
Prepare the journal entries, the motor vehicle account and the accumulated provision for depreciation on
motor vehicles account for the first two years of the motor vehicle's working life.
(6)
Question-30
Mr. A has purchased a machine costing Rs. 100,000 on 1.1.2004. Residual value is Rs. 2,000.
Total life in units
10,000
Units produced in 2004
Units produced in 2005
Units produced in 2006
Calculate depreciation for each year ending at 31 December under the output method.
2,000
3,000
5,000
(3)
Question-31
Mr. B provided the following data:
Cost of machine
Date of purchase
Useful life
Residual value
Calculate depreciation for each year ending at 31 December under year digit method.
300,000
1.1.2003
4 years
50,000
(3)
Question-32
Mr. Faiq has provided you with following information:
Cost as on
Accumulated
Depreciation
as on 1.1.09
170,000
300,000
1.1.2009
Plant and Machinery
500,000
Vehicle
900,000
(i)
Both are being depreciated at 10% on S.L basis.
(ii)
Following additions were made during the year ended 31.12.09:
1 May 09
Plant and machinery
90,000
1 Sep 09
Plant and machinery
120,000
(iii)
Following were the disposals during year ended 31.12.09:
1 March 09
Plant and Machinery having cost of Rs. 190,000 purchased on 1 Aug 07 was sold
for Rs. 50,000.
1 June 09
Vehicle having cost of Rs. 40,000 purchased on 1 Sep 06 was sold for Rs. 7,500.
Required:
Write up the necessary ledger accounts to record these transactions for the year ended December 31,
2009.
(8)
547
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-33
The following detail is provided by Mr. Aamir on 1.1.2007
Cost as on
01.01.07
Vehicle
1,400,000
Accumulated
Depreciation as on
01.01.07
650,000
Rate of depreciation is 15% on straight line basis
Following is the further detail for year ended December 31, 2007
Additions
Date of Purchase
1.Mar.07
1.May.07
1.June.07
Cost
200,000
250,000
23,000
Disposals
Description
Vehicle – 1
Vehicle – 2
Vehicle – 3
Date of Purchase
1.July.05
1.March.04
1.Aug.06
Date of Disposal
31.Mar.07
30.June.07
30.Nov.07
Cost
40,000
70,000
90,000
Sale proceeds
2,300
4,700
6,600
Required:
Prepare relevant accounts for year ended December 31, 2007.
(8)
Question-34
A company depreciates its plant at the rate of 25 % per annum using straight line method, for each month
of ownership. From the following details draw up the plant account and the provision for depreciation
account for each of the year 20X4, 20X5, 20X6 and 20X7.
20X4
20X6
20X7
Bought plant costing Rs. 2,600 on 1 January.
Bought plant costing Rs. 2,100 on 1 October.
Bought plant costing Rs. 2,800 on 1 September.
Sold plant which had been bought for Rs. 2,600 on 1 January 20X4 for the sum of Rs. 810 on 31
August 20X7.
You are also required to draw up the plant disposal account and the extracts from the balance sheet as at
the end of each year.
(8)
Question-35
A company maintains its fixed assets at cost. Depreciation provision accounts for each asset are kept.
At 31 December 20X8 the position was as follows:
Total cost to date
Machinery
94,500
Office furniture
3,200
Total depreciation to date
28,350
1,280
The following additions were made during the financial year ended 31 December 20X9.

Machinery Rs. 16,000, office furniture Rs. 460. Both of the additions were made on 1 October
20X9.
548
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT

A machine bought on 1 July 20X5 for Rs. 1,600 was sold for Rs. 360 during the year on
31October 20X9.

The rates of depreciation are:
Machinery 20 percent, office furniture 10 percent, using the straight line basis
You are required to show the asset and accumulated depreciation accounts for the year ended 31
December 20X9.
(8)
Question-36
Mr. Ijaz has provided following data for year ended 31 December, 2013:
Cost
Accumulated
Depreciation
1.1.2013
200,000
1.1.2013
Machinery
600,000
An asset costing Rs. 70,000 is purchased on 1.4.2013.
An asset costing Rs. 90,000 on 1 November, 2010 is sold for Rs. 36,000 on 30.6.2013.
Required:
Prepare relevant accounts for year ended December 31, 2013 assuming the method is straight line and rate
of depreciation is 10%.
(8)
Question-37
A company maintains its fixed assets at cost. Accumulated provision for depreciation accounts are kept
for each asset.
At 31 December 20X8 the position was as follows:
Total Cost To Date
Total Depreciation To Date
Rs.
Rs.
Machinery
52,950
28,350
Office furniture
2,860
1,490
The following transactions were made in the year ended 31 December 20X9:
(a)
Purchased - machinery Rs. 2,480 and office furniture Rs. 320 both on 1 March 20X9
(b)
Sold machinery for Rs. 800 on 31 January 20X9 which had cost Rs. 2,800 when purchased on 1
December 20X5.
Depreciation is charged, on a straight line basis, at 10% on machinery and at 5% on office furniture.
Required:
Show the asset and accumulated provision for depreciation accounts for the year 31 December 20X9. (8)
Question-38
Contractors Ltd was formed on 1 January 20X6 and the following purchases and sales of machinery were
made during the first 3 years of operations.
Date
Asset
Transaction
Price
1 January 20X6
Machines 1 and 2
purchase
Rs. 40,000 each
1 October 20X6
Machines 3 and 4
purchase
Rs. 15,200 each
30 June 20X8
Machine 3
sale
Rs. 12,640
1 July 20X8
Machine 5
purchase
Rs. 20,000
Each machine was estimated to last 10 years and to have a residual value of 5% of its cost price.
Depreciation was charged by straight line method.
Required:
Calculate
(i)
The total depreciation on Machinery for each of the years 20X6, 20X7, and 20X8;
(ii)
The profit or loss on the sale of Machine 3 in 20X8.
(9)
549
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-39
A business with its financial year end being 31 December buys two motor vans, No. 1 for Rs. 800 and
No. 2 for Rs. 500, both on 1 January 1991. It also buys another motor van, No. 3, on 1 July 1993 for Rs.
900 and another, No. 4, on 1 October 1993 for Rs. 720. The first two motor vans are sold, No 1 for Rs.
229 on 30 September 1994, and the other, No. 2, was sold for scrap Rs. 5 on 30 June 1995.
Depreciation is on the straight-line basis, 20 percent per annum, ignoring scrap value in this particular
case when calculating depreciation per annum.
Required:
Show the extracts from the assets account, provision for depreciation account, disposal account for the
years ended 31 December 1991, 1992, 1993, 1994, and 1995.
(8)
Question-40
Mr. Umer has provided the following data for the year ended Dec. 31, 2008.
Cost
1.1.08
1,400,000
Accumulated
Depreciation
840,000
During the year an asset costing Rs. 370,000 on 1.1.06 is destroyed by fire on 31.5.2008.
Method of depreciation is 10% straight line.
Required:
Prepare relevant accounts and pass the entry for disposal
(4)
Assets
Question-41 {Fully Depreciated}
Mr. Ali has informed you that following balances are appearing on 1.1.2008 in his books of accounts:
Accumulated
Cost
Depreciation
Vehicles
600,000
200,000
Following is the detail of addition during the year ended December 31, 2008:
Date of
Purchase
Vehicle 9
1.3.2008
Cost
50,000
Cost balance of Rs. 600,000 appearing on 1.1.2008 includes following two assets:
Date of
Cost
Purchase
Vehicle 1
1.4.2003
20,000
Vehicle 2
1.3.2004
30,000
Vehicle 5 which was purchased on 1.1.2006 is sold on 31.5.2008. Its cost was Rs. 40,000.
Required:
Using straight line method, calculate depreciation expense for year ended December 31, 2008. Rate of
depreciation is 20% per annum. Also prepare asset a/c and accumulated depreciation a/c for year ended
December 31, 2008.
(8)
550
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question -42 {Fully Depreciated}
Asif has provided you with following data:
Cost as on
1.1.07
600,000
Vehicle
Accumulated
Depreciation
1.1.07
345,000
Following is the breakup of above Assets:
Purchased on
1.7.02
Purchased on
1.1.04
Purchased on
1.7.05
150,000
250,000
200,000
600,000
Life of all assets is 5 years.
Additions made during year ended amounted to Rs. 90,000 as on 1.Mar.07.
An asset having cost of Rs. 70,000 on 1.7.05 is disposed of on 31.3.07 for Rs. 30,000.
Required:
(i)
Prepare relevant accounts for year ended Dec. 31, 2007.
(ii)
Calculate depreciation Expense for the year ended Dec. 31, 2007.
(8)
Question-43
Arslan has provided you the following data:
Cost as on
1.1.09
Vehicle
700,000
Rate of Depreciation is 20% p.a. on S.L basis.
Above assets include assets purchased on 1.4.04 costing Rs. 200,000.
Remaining were purchased in 2008.
Additions
Date
1.4.09
1.7.09
1.7.10
Accumulated
Depreciation
1.1.09
350,000
Cost
200,000
300,000
250,000
Disposals
Cost
30,000
Date of purchase
01.03.08
Date of Sale
30.6.09
Required:
Calculate depreciation for year ended Dec. 31, 2009 and Dec. 31, 2010
(8)
Question-44
Mr. Ijaz has provided following data for year ended 31 December, 2013:
Cost
Accumulated
Depreciation
1.1.2013
200,000
1.1.2013
Machinery
600,000
An asset costing Rs. 70,000 is purchased on 1.4.2013.
An asset costing Rs. 90,000 on 1 November, 2010 is sold for Rs. 36,000 on 30.6.2013.
Required:
Prepare relevant accounts for year ended December 31, 2013 assuming the method is written down value
and rate of depreciation is 10%.
(8)
551
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-45
Mr. Zaki has provided the following details as on 1.1.2008:
Cost as on
Motor Vehicles
1.1.08
830,000
Accumulated
Depreciation
as on 1.1.08
250,000
(i)
Detail of addition for year ended Dec. 31, 2008.
On March 01, 2008
150,000
On August 01, 2008
200,000
(ii)
During the year on 30.6.08 an asset purchased on September 01, 2006 is sold for Rs. 30,000. Its
cost at the time of purchase was Rs. 150,000.
(iii)
Rate of depreciation is 10% on WDV.
Required:
Prepare relevant accounts for the year ended December 31, 2008?
(8)
Question-46
Mr. Sannan has provided you with following information:
Cost
Building
(i)
Detail of addition for year ended Dec. 31, 2007
On February 01, 2007
On April 01, 2007
Details of Disposal for year ended Dec. 31, 2007
Date of sale
Date of Purchase
31.08.07
1.1.04
31.05.07
1.9.05
Depreciation rate is 10% on diminishing balance method.
(ii)
(iii)
1.1.07
2,300,000
Accumulated
Depreciation
1.1.07
800,000
400,000
650,000
Cost
550,000
700,000
Sale proceeds
450,000
300,000
Required:
Prepare relevant accounts for the year ended December 31, 2007?
(8)
Question-47
Mr. Arslan has provided the following information.
Cost as
on
1.1.2003
400,000
Vehicle
(i)
(ii)
Addition during the year ended December 31, 2003
1 Mar 2003
1 Dec 2003
Disposals during the year ended December 31,2003
Date of Purchase
Date of Sale
1.2.2000
31.3.2003
(iii)
Depreciation rate is 15% on WDV
Required:
Prepare relevant accounts for the year ended December 31, 2003?
552
Accumulated
Depreciation
as on 1.1.03
150,000
90,000
200,000
Cost
60,000
Sale proceeds
34,000
(8)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-48
A business buys a fixed asset for Rs. 10,000 on January 1, in the year 1. The business estimates that the
asset will be used for 5 years. After exactly 2.5 years, however, the asset is suddenly sold for Rs. 3,000.
Required:
Write up relevant accounts (including disposal account but not profit and loss account) for each of Years
1, 2 and 3:
(i)
Using the straight line depreciation method (assume 20% p.a.);
(ii)
Using the reducing balance depreciation method (assume 40% p.a.).
(5)
Question-48 (a)
Following balances are appearing in the financial statements of Ahmed & Co. on 1 January 2011:
Particulars
Cost
Accumulated Depreciation
Vehicle
Rs. 500,000
Rs. 220,000
Following additions took place:
Particulars
Vehicle-1
Vehicle-2
Vehicle-3
Date
March 1, 2011
April 1, 2011
September 1, 2011
Cost (Rs.)
50,000
70,000
80,000
A vehicle costing Rs. 80,000 which was purchased on April, 1 2009 was sold for Rs. 60,000. Co. uses
reducing balance method for charging depreciation. The rate is 10%.
Required:
Prepare vehicle and accumulated depreciation account for the year ended December 31, 2011. Also
prepare disposal account for the disposals of vehicle.
(7)
Question-48 (b)
Following balances are appearing in the financial statements of Hamid & Co. on 1 January 2015:
Particulars
Cost
Accumulated Depreciation
Building
Rs. 80,000
Rs. 30,000
Following addition took place:
Particulars
Building
Date
April 1, 2015
Following disposal took place:
Date of purchase
Date of disposals
May 1, 2012
June 30, 2015
Cost (Rs.)
12,000
Cost
Rs. 20,000
Sale proceeds
Rs. 8,000
Required:
Prepare building and accumulated depreciation account for the year ended December 31, 2015. Also
prepare disposals account for disposals of building using straight line method at 10% p.a.
(6)
Question-49 {Reverse Back}
Mr. Saad has provided you with following information:
Accumulated
Cost as on
Rate
Depreciation
1.1.2012
as on 1.1.2012
S.L
Plant and Machinery
600,000
200,000
20%
553
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Following is the addition made for year ended December 31, 2012.
Date
Cost
Plant and Machinery
1.2.2012
70,000
During the year a plant purchased on 1.7.2009 having book value of Rs. 15,000 is sold on 31.3.2012 for
Rs. 15,800.
Required:
Prepare relevant accounts for year ended December 31, 2012 only.
(6)
Question-50 {Reverse Back}
Mr. Umer has provided you with following information:
Plant and Machinery
Cost as on
1.1.2012
500,000
Accumulated
Depreciation
as on 1.1.2012
150,000
Rate
W.D.V
20%
Following is the addition made for year ended December 31, 2012.
Plant and Machinery
Date
1.2.2012
Cost
77,000
During the year a plant purchased on 1.8.2009 having book value of Rs. 12,000 is sold on 31.3.2012 for
Rs. 16,300.
Required:
Prepare relevant accounts for year ended December 31, 2012 only.
(6)
Question-51 {Change in Estimate}
Mr. Aamir purchased an asset on 1.1.2012 with a life of 10 years. Its cost is Rs. 50,000 and residual value
is Rs. 5,000. On 1.1.2014 he decided to change the life to a total of 4 years and a new residual value of
Rs. 2,000. Year end is December 31 and method is straight line.
Required:
Calculate depreciation expense for 2012, 2013, 2014 and 2015.
(4)
Question-52 {Change in Estimate}
Mr. Inzamam-ul-haq has purchased an asset on 1.1.2008 for Rs. 70,000 whose residual value is Rs.
10,000 at the end of useful life of six years. On 1.1.2010 he decided to change the method to WDV using
rate of 33.12%.
Required:
Calculate depreciation expense for the first 6 years of asset’s life?
(4)
Question -53 {Change in Estimate}
Mr. Inam has purchased an asset on 1.1.2007 for Rs. 80,000 whose residual value is Rs. 10,000 and rate
of depreciation is 10% WDV. On 1.1.2009 it is decided to change the method to straight line with a
remaining life of 5 years and new residual value of Rs. 5,000.
Required:
Calculate depreciation expense for first 4 years.
(3)
Question-54{Change in Estimate}
Mr. Omer purchased a plant costing Rs. 50,000 on 1.Jan.2009. Its expected useful life is 10 years with a
residual value of Rs. 6,000. At start of year 2011 company decided to change the life to 7 years in total
and having a residual value of Rs. 2,000 at the end of life.
Method used is S.L.
Required:
Calculate depreciation expense for year 2009, 2010, 2011 and 2012. Year end is December 31.
(4)
554
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-55 {Change in Estimate}
Mr. Musa purchased a furniture costing Rs. 200,000 on 1.1.2011. Rate of Depreciation decided by
company is 20% using WDV method. The residual value estimated on 1.1.2011 is Rs. 10,000.
The company decided on 1.1.2013 that depreciation method should be S.L with a residual value of Rs.
6,000 at the end of its remaining useful life of 4 years.
Required:
Calculate depreciation expense for 2011, 2012, 2013 and 2014. Year end is 31 December.
(4)
Question-56 {Change in Estimate}
Mr. Urva purchased a vehicle costing Rs. 700,000 on 1.1.2012. Initially its life was expected to be 7 years
with a residual value of nil using straight line method. On 1.1.2015 it is decided that total life of asset will
end on 31.12.2016 with a residual value of Rs.15,000
Required:
(a)
Calculate depreciation expense for 2012, 2013, 2014, 2015, 2016. Year end is December 31.
(b)
Also calculate WDV on 31.12.2016.
(4)
Question-57 {Change in Estimate}
A vehicle bought on 1 January 20X0 at a cost of Rs. 16,000. Its useful economic life is estimated at 4
years and its trade-in value at that point is estimated as being Rs. 4,000.
During 20X2 a review of the vehicle's probable useful economic life suggested that it should be retained
until 1 January 20X5 and its residual value should be Rs. 2,500.
Required:
What is the amount of straight line depreciation charged in the profit and loss account in the year to 31
December 20X2 and the amount included in the balance sheet for accumulated depreciation at that date? (4)
Question-58 {Exchange of Assets}
A company has exchanged a car on 30.Sep.2010 with a new car. The cost of old car is Rs. 60,000 and its
accumulated depreciation on date of exchange is Rs. 37,000. The TIA is Rs. 40,000. Cash amounting to
Rs. 60,400 is paid to acquire the new one.
Required:
Prepare journal entry for exchange.
(2)
Question-59
Mr. Asad has provided you following data:
Plant and Machinery
Cost on Accumulated
1.1.2012 Depreciation
on 1.1.2012
600,000
200,000
Following transaction took place during the year ended 31.12.2012
A plant costing Rs. 80,000 purchased on 1.4.2009 is exchanged with a new plant on 30.6.2012.
The cost of new plant is Rs. 130,000 and TIA of Rs. 17,000 is agreed and remaining amount is
paid in cash.
Further additions amounting to Rs. 67,000 are made on 1.Sep.2012
Method used is S.L @ 10%.
Required:
a.
Pass the journal entry for exchange.
b.
Prepare relevant accounts for year ended December 31, 2012.
(8)
555
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-60
Diamond Ltd. is a trading company making up its account regularly to December 31, each year. At
January 1, 1995 the following balance existed in the records of the company.
(i)
Building– Cost
Aggregate depreciation up to 31-12-94
(ii)
Office equipment – Cost
Aggregate depreciation up to 31-12-94
The company’s depreciation policies are as follows:
Buildings – depreciation provided at 2% p.a. on cost on straight-line basis.
Office Equipment – depreciation provided at 12.5% per annum on the straight-line basis.
Rs.
500,000
210,000
40,000
24,000
During the two years to December 31, 1996 the following transactions took place:
1.
Year ended December 31, 1995
(a)
July 1 – Office equipment purchased for Rs. 16,000. This equipment was to replace some
old items, which were given in part exchange. Their agreed part exchange value was Rs.
4,000. They had originally cost Rs. 8,000 and their book value was Rs. 1,000 at the time
of disposal. The company paid the balance of Rs. 12,000 in cash.
(b)
October 8, An extension was made to the building at a cost of Rs. 50,000.
2.
Year ended December 31, 1996
March 1, office equipment which had cost Rs. 6,000 and with a written down value of Rs. 2,000
at the time of disposal was sold for Rs. 3,000.
Required:
Write up the necessary ledger accounts to record these transactions for the two years ended on December
31, 1996. Separate cost and aggregate depreciation account are required.
(10)
Question-61
Distance Limited owned three lorries at 1 April 20X6:
A Purchased on 21 May 20X2 at a Cost of Rs. 31,200
B Purchased on 20 June 20X4 at a Cost of Rs. 19,600
C Purchased on 1 January 20X6 at a Cost of Rs. 48,800
Depreciation is charged annually at 20% on cost.
During the year ended 31 March 20X7, the following transactions occurred:
(i)
1 June 20X6 lorry B was involved in an accident and considered to be a write off by the insurance
company which paid Rs. 10,500 in settlement.
(ii)
7 June 20X6 lorry D was purchased for Rs. 32,800
(iii)
21 August 20X6 lorry A was sold for Rs. 7,000
(iv)
3 October 20X6 lorry E was purchased for Rs. 39,000
(v)
6 March 20X7 lorry E was considered not to be suitable for carrying the type of goods required
and was exchanged for lorry F. The value of lorry F was deemed to be Rs. 37,600.
Required:
Prepare the ledger T-accounts recording these transactions for the year ending 31 March 20X7 and bring
down the balances at 1 April.
(12)
Question-62
Mr. Nasir has disclosed the following data:
1.1.2009
Furniture – book value
25,000
Following transactions took place during the year ended December 31, 2009.
Additions
Cost
60,000
90,000
556
Date of purchase
1.3.2009
1.6.2009
CHAPTER-7
Disposals
Sale proceeds
12,000
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Cost
30,000
Date of Purchase
1.4.2007
Date of Disposal
30.9.2009
Required:
Prepare asset A/C and disposal A/C. Rate of depreciation is 20% W.D.V
(5)
Question-63
Books of Mr. Amjad show a balance of Rs. 200,000 on 1.1.2011 which represents book value of assets on
that date. During the year following transactions took place
Rs.
Additions
1.3.2011
30,000
1.5.2011
70,000
Disposal
Cost
90,000
Date of sale
30.4.2011
Sale proceeds
60,000
Date of purchase
1.1.2008
Method is W.D.V @ 10%
Required:
Prepare asset account at BV and disposal A/C for the year ended December 31, 2011.
(4)
Question-64
Mr. Sannan has provided you with following information:
Book value
1.1.07
1,500,000
Building
(i)
Detail of addition for year ended Dec. 31, 2007
On February 01, 2007
On April 01, 2007
(ii)
Details of Disposal for year ended Dec. 31, 2007
Date of sale
Date of Purchase
31.08.07
1.1.04
31.05.07
1.9.05
(iii)
Depreciation rate is 10% on diminishing balance method.
Prepare relevant accounts for the year ended December 31, 2007.
400,000
650,000
Cost
550,000
700,000
Sale proceeds
450,000
300,000
(4)
Question-65
ABC Ltd. has a building A/c having book value of Rs. 700,000 on 1.1.2011. The depreciation is directly
credited to asset a/c and no separate accumulated depreciation account is maintained.
During the year ended 31.12.2011, following transactions took place:
Additions of Rs. 80,000 took place on 1.3.2011.
Disposals
Date of disposals
Book value on 1.1.2011
First disposal
31.3.11
95,000
Second disposal
30.11.11
33,000
Required:
Prepare relevant accounts assuming that rate is 30% WDV.
557
Sale proceeds
77,000
35,000
(8)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question -66
Mr. Waqar Younis has provided following data:
1.1.2010
35,000
Furniture – Book value
Following transactions took place during the year.
(1)
(2)
Additions of Rs. 12,000 took place on 1.3.2010.
During the year an old asset having book value of Rs. 7,000 on 1.1.2010 is exchanged with a new
asset costing Rs. 20,000. The exchange transaction took place on 31.3.2010. Cash paid was Rs.
7,500.
(3)
Rate of depreciation is 15% W.D.V.
Required:
Prepare relevant accounts at book value
(6)
Question-67
Mr. Arif has disclosed following information:
1.1.2008
50,000
Furniture – WDV
(1)
Furniture costing Rs. 15,000 on 1.07.06 is exchanged with a new furniture costing Rs. 18,000 on
01.04.08. Net cash paid is Rs. 4,000.
(2)
Another furniture having book value of Rs. 3,000 on 1.01.08 is sold on 01.06.08 for Rs. 1,200.
Required:
Prepare relevant account assuming 15% WDV. Year end is 31 December.
(5)
Question-68
Mr. Umer has provided the following data
Building a/c at book value
Rs.400,000
Following transactions took place during the year.
(1)
Additions made Rs. 30,000 on 1.6.2008
(2)
An asset having cost of Rs. 50,000 on 1.4.2006 is sold on 30.6.2008 for Rs. 12,000.
(3)
An asset having book value of Rs. 70,000 on 1.1.2008 is exchanged with a new asset by paying
Rs. 80,000. The trade-in-allowance agreed was Rs. 12,000. The transactions date was
30.Nov.2008.
(4)
Rate of depreciation is 20% W.D.V.
Required:
(1)
Asset a/c for year ended December 31, 2008 and disposal a/c.
(2)
Also prepare asset a/c for year ended December 31, 2009 assuming no additions and deletions
took palace.
(8)
Question -69 {Reverse Back}
Following is the detail of fixed assets as on 1.1.2007 for MJE.
Description
Furniture
Computer
Vehicle
558
Method
S.L 10% with R.V of 5 % of cost.
WDV 5%
WDV 10%
Cost
100,000
200,000
300,000
Accumulated
Depreciation
?
?
80,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(i)
70% of furniture was bought on 1.3.2003 and 30% on 1.4.93. Furniture having book value of Rs.
5,000 purchased on 1.3.03 was sold on 30.9.2007 at a gain of Rs. 6,000.
(ii)
All computers were purchased on 1.4.04. w.e.f 1.1.2007 it is decided to change the method of
depreciation for computer to S.L with remaining life of 3 years and residual value of Rs. 3,000.
(iii)
A vehicle costing Rs. 20,000 purchased on 1.7.2005 was traded in with a new vehicle on 1.4.2007
by paying Rs. 9,000 and loss on transaction was Rs. 4,000.
(iv)
A vehicle having book value of Rs. 5,000 purchased on 1.3.03 was sold on 30.11.2007 for Rs.
2,000.
(v)
On October 1, 2007 MJE transferred to its factory a vehicle which had been included in its
trading stock and which bore a price label of Rs. 18,000 in the showroom. MJE makes a gross
profit of 40% of cost, on sale of such assets.
Required:
1.
Prepare asset accounts on December 31, 2007.
2.
Prepare accumulated depreciation accounts on December 31, 2007.
3.
Calculate gain/(loss) on December 31, 2007.
(25)
Question-70
Following account balances are appearing in the books of Amjad as on
Accumulated
Cost
Depreciation
31.12.2010
31.12.2010
Furniture
800,000
302,000
Plant and Machinery
300,000
70,000
Following errors were identified by the auditors for the year ended December 31, 2010.
(i)
Advance paid for purchase of furniture to be delivered on 31.3.2011 is debited to furniture
account on 1.7.2010. Amount is Rs. 30,000.
(ii)
Asset (furniture) costing Rs. 70,000 purchased on 1.4.2008 is exchanged with new furniture
costing Rs. 100,000 on 31.3.2010. Cash of Rs. 12,000 is paid to settle the transaction. The
accountant has ignored the exchange transaction and has debited Rs. 12,000 to asset account
against cash paid.
(iii)
Plant and machinery costing Rs. 80,000 purchased on 1.4.2009 was sold on 30.9.2010 for Rs.
33,000 and sale proceeds were credited to plant and machinery A/C.
Rate of Depreciation for both assets is 10% S.L.
Required:
(a)
Prepare the journal entries to correct the above errors.
(b)
Prepare adjusted Plant and Machinery A/C
Note: Ignore depreciation adjustments for the year while passing journal entries.
(10)
Question-71 {Revaluation}
A company acquired a land for Rs. 600,000 on January 1, 2009. For land the revaluation model is used.
The value of land on respective dates is as follows:
Rs.
December 31, 2009
750,000
December 31, 2010
580,000
December 31, 2011
650,000
December 31, 2012
800,000
Prepare the journal entries and land account from year ended December 31, 2009 to December 31, 2012.(4)
(Prepare relevant ledger)
559
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-72 {Revaluation}
ABC Company acquired land for Rs. 700,000 on Jan. 1, 2005. The company uses revaluation model for
valuation of its assets. The value of land on respective dates is as follows:
Revalued
amount
800,000
680,000
750,000
825,000
Revaluation date
Dec. 31, 2005
Dec. 31, 2006
Dec. 31, 2007
Dec. 31, 2008
Required:
Prepare journal entries and also prepare Land account from year ended December 31, 2005 to December
31, 2008.
(4)
(Prepare relevant ledger)
Question-73 {Revaluation}
Cost of plant at 1/1/20X1:
Depreciation:
1/1/20X2
1/1/20X3
1/1/20X4
1/1/20X5
100,000
10% per annum to a nil residual value
180,000
60,000
77,000
120,000
The company’s policy is to transfer the realised portion of the revaluation surplus to retained earnings as
the asset is used.
Required:
Show the journal entries and ledger accounts for each of the years ended 31 December 20X1 to 20X5 (14)
(Prepare relevant ledger)
Question-74 {Revaluation}
A company acquired a building for Rs. 500,000 on January 1, 2010. The building is depreciated over its
useful life of 20 years. For building the revaluation model is used. The value of building on respective
dates is as follows:
Revaluation date
January 1, 2011
January 1, 2012
January 1, 2013
January 1, 2014
Fair value in Rs.
550,000
380,000
750,000
800,000
Show the journal entries and ledger accounts for each of the years ended 31 December 2010 to 2014.1(14)
(Prepare relevant ledger)
Question-75{Revaluation}
XYZ Limited acquired a building for Rs. 100,000 on July 1, 2006. The following information relating to
the building is available:
(i)
It is being depreciated on the straight line basis, over 10 years.
560
CHAPTER-7
(ii)
(iii)
(iv)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
FPL uses the revaluation model for subsequent measurement of its property, plant and equipment
and accounts for revaluations on the net replacement value method. The details of revaluation
carried out by the independent values during the past years are as follows:
Revaluation date
Fair value (Rs. In ‘000’)
June 30, 2007
150
June 30, 2008
70
June 30, 2009
120
FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on
an annual basis.
There is no change in the useful life of the building.
Required:
Prepare the journal entries to record the above transactions form the date of acquisition of the building to
the year ended June 30, 2009.
(4)
(Prepare relevant ledger)
Question-76 {Revaluation}
ABC Limited purchased a plant for Rs. 350,000 on 1 July 2010. The plant has an estimated useful life of
20 years and no residual value.
ABC uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date
30 June 2011
30 June 2012
30 June 2013
Fair value
Rs. 475,000
Rs. 390,000
Rs. 380,000
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June 2014.
(3)
(Prepare relevant ledger)
Question-77 {Revaluation}
Cost of plant at 1/1/2001:
Depreciation:
200,000
10 years to a nil residual value
Details of revaluation performed by an independent valuer are as follows:
Date
Fair Value
31/12/2002
280,000
31/12/2003
80,000
31/12/2004
60,000
31/12/2005
120,000
The company’s policy is to transfer the realised portion of the revaluation surplus to retained earnings as
the asset is used.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December 2005. (Prepare relevant ledger)
(10)
561
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-78 {Revaluation}
Mian Limited acquired a plant for Rs. 100 million on July 1, 2015. The following information relating to
the plant is available:
(i)
It is being depreciated on the straight line basis, over 10 years.
(ii)
ML uses the revaluation model for subsequent measurement of its property, plant and equipment
and accounts for revaluations on the net replacement value method. The details of revaluation
carried out by the independent values during the past years are as follows:
Revaluation date
Fair value (Rs. In ‘million’)
June 30, 2016
80
June 30, 2017
95
June 30, 2018
110
(iii) ML transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
(iv) There is no change in the useful life of the building.
Required:
Prepare the journal entries to record the above transactions form the date of acquisition of the Plant to the
year ended June 30, 2018. (Prepare relevant ledger)
(10)
Question-79 {Revaluation}
Alvi Limited purchased a plant for Rs. 500,000 on 1 July 2010. The plant has an estimated useful life of
20 years and no residual value.
AL uses revaluation model for subsequent measurement of its property, plant and equipment and accounts
for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date
1 July 2011
1 July 2012
1 July 2013
Fair value
Rs. 480,000
Rs. 390,000
Rs. 450,000
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June 2014. (Prepare relevant ledger)
(10)
Question-80 {Revaluation}
Cost of plant at 1/1/2011:
Depreciation:
600,000
15 years to a nil residual value
Details of revaluation performed by an independent valuer are as follows:
Date
Fair Value
31/12/2012
550,000
31/12/2015
100,000
The company’s policy is to transfer the realised portion of the revaluation surplus to retained earnings as
the asset is used.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December 2015. (Prepare relevant ledger)
(10)
562
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-81 {Revaluation} {Disposal}
Moin purchased a plant for Rs.300 million on 1 January 2010. The plant has an estimated useful life of 10
years and no residual value.
Revaluation date
Fair value
1 January 2011
Rs.500 million
The plant is sold for Rs.750 million on March 31, 2011.
Required:
Prepare journal entries to record the above transactions.
Question-82 {Revaluation} {Disposal}
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information pertains to AL’s buildings:
(i)
Four similar buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs.300
million. The useful life of the buildings on the date of acquisition was 20 years.
(ii)
AL depreciates buildings on the straight line basis over their useful life.
(iii)
The result of revaluations earned out during the last three years by Premier Valuation Service, an
independent firm of valuers, are as follows:
Revaluation date
Fair value
Rs. In million
1 January 2013
323
1 January 2014
252
1 January 2015
272
(iv)
On 30 June 2015, one of the buildings was sold for Rs.80 million.
Required:
(a)
Prepare
Building account and accumulated depreciation account for the year ended December 31, 2012,
2013, 2014 and 2015.
(b)
Journal Entries.
Question-83 {Revaluation with Disclosure}
The following information pertains to Akhtar Limited (AL).
(1)
AL purchased a plant for Rs. 400 million on January 01, 2016 and installed at the cost of
Rs.34 million. The plant was acquired by obtaining a specific loan from Habib Bank Limited
(HBL) for the plant of 400 million at a markup of 12% . The remaining amount was paid
through running finance facility which carries markup at 12.5% . The specific loan is payable
by December 31, 2019. AL had mortgaged the plant to obtain the specific loan.
The plant has an estimated useful life of 7 years with no residual value.
AL uses revaluation model for subsequent measurement of its plant and machinery and
accounts for revaluations on net replacement value method. The details of revaluations
performed by an independent firm of valuers “Ghaznavi & Co” are as follows:
Revaluation date
30 December 2016
30 December 2017
30 December 2018
563
Fair value
Rs. 360 million
Rs. 320 million
Rs. 220 million
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
On account of mishandling the plant during December 2018 the plant needs some repairs.
The plant could be sold at its fair value as determined by valuer on 30 December 2018 after
incurring some repair and selling cost of Rs. 15 million. If plant is not sold the following net
cash inflows are expected from its use:
Year ended
Cash flows
December 31, 2019
90 million
December 31, 2020
70 million
December 31, 2021
65 million
December 31, 2022
30 million
(2)
(3)
(4)
The proper discount rate to be used for these cash flows is 10%. (Assume that the cash flows
occur at the end of the year).
To open a new factory premises near Multan, an expenditure of Rs. 30 million was spent of
the construction of the factory on 1 June 2018, financed by a loan obtained from the bank at
the rate of 12% per annum. The construction had not been completed at the end of the year.
Moreover, the directors also made a contract with M/s Shaheen Limited to purchase plant
and machinery worth Rs. 100 million once the construction of factory building is completed.
AL purchased buildings, costing Rs. 160 million on 1 July 2014. It is to be depreciated using
the straight-line method, with Rs. 10 million residual value. On 31 December 2016 it has
accumulated depreciation of Rs. 25 million . About 80% buildings are occupied by factory
and remaining for admin purpose
On 1 January 2018, AL decided to change the depreciation method from straight line to
reducing balance method. There is no change in life, however the estimate of residual value
is Rs. 15
AL purchased Cars for its administrative and selling departments, costing Rs. 30 million on
Jan 11, 2015. On January 21, 2018 AL purchased Cars for Rs. 10 million. These are
depreciated over 10 years using the straight-line method, with no residual value.
Required:
Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in the
notes to the published accounts for the year ended 31 December, 2018
(Comparatives are Required)
Note: you may round off your workings to the nearest millions.
564
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
PRACTICE SOLUTIONS
Answer-1
Calculation of Depreciation
Depreciation for 2008
Depreciation for 2009
Depreciation for 2010
Depreciation for 2011
=
=
=
=
50,000/4
50,000/4
50,000/4
50,000/4
=
=
=
=
Rs.
12,500
12,500
12,500
12,500
=
=
=
(50,000/4)  9/12
50,000/4
50,000/4
=
=
=
Rs.
9,375
12,500
12,500
=
=
=
=
(70,000/5)  8/12
70,000/5
70,000/5
70,000/5
=
=
=
=
Rs.
9,334
14,000
14,000
14,000
Answer-2
Calculation of Depreciation
Depreciation for 2008
Depreciation for 2009
Depreciation for 2010
Answer-3
Calculation of Depreciation
Depreciation for 2008
Depreciation for 2009
Depreciation for 2010
Depreciation for 2011
Answer-4
Calculation of Depreciation
=
=
=
=
=
(Cost – residual value)  Rate per annum
(50,000-10,000) 25%  9/12
=
(50,000-10,000)  25%
=
(50,000-10,000)  25%
=
(50,000-10,000)  25%
=
Depreciation
=
Depreciation for 2004
=
Depreciation for 2005
=
Depreciation for 2006
=
(Cost – residual value)
Useful life
(70,000 – 20,000)  6/12
4
(70,000 – 20,000)
4
(70,000 – 20,000)
4
Depreciation
Depreciation for 2004
Depreciation for 2005
Depreciation for 2006
Depreciation for 2007
Rs.
7,500
10,000
10,000
10,000
Answer-5
Calculation of Depreciation
Rs.
Answer-6
Dr.
1.1.09
1.1.09
1.7.09
1.1.10
1.4.10
1.1.11
1.7.11
565
b/d
Cash
Cash
b/d
Cash
b/d
Cash
Asset A/c
30,000
10,000 31.12.09
40,000
50,000 31.12.10
90,000
60,000 31.12.11
=
6,250
=
12,500
=
12,500
Cr.
c/d
40,000
c/d
90,000
c/d
150,000
CHAPTER-7
Dr.
31.12.09
c/d
31.12.10
c/d
31.12.11
c/d
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated Depreciation a/c
1.1.09
b/d
8,750
Depreciation expense
1.1.10
b/d
28,125
Depreciation expense
1.1.11
b/d
58,125
Depreciation expense
Cr.
8,750
8,750
19,375
28,125
30,000
Mr. Anjum
Balance Sheet (extracts)
As on 31st December
Asset a/c
Less: Accumulated Depreciation
2009
40,000
(8,750)
31,250
Workings
(W-1) Calculation of depreciation
For 2009
On additions
For 2010
On opening assets
On additions
(30,000/4) + (10,000/4  6/12)
For 2011
On opening assets
On additions
Answer-7
Dr.
1.1.10
1.1.10
1.4.10
1.6.10
1.1.11
1.3.11
1.1.12
b/d
Cash
Cash
Cash
b/d
Cash
b/d
Dr.
31.12.10
c/d
31.12.11
c/d
31.12.12
c/d
566
2010
90,000
(28,125)
61,875
2011
150,000
(58,125)
91,875
8,750
(40,000/4)
(50,000/4  9/12)
10,000
9,375
19,375
(90,000/4)
(60,000/4  6/12)
22,500
7,500
30,000
Asset A/c
30,000
40,000
50,000 31.12.10
120,000
70,000 31.12.11
190,000
31.12.12
Accumulated Depreciation a/c
1.1.10
22,292
1.1.11
66,876
1.1.12
114,376
Cr.
c/d
120,000
c/d
190,000
c/d
190,000
b/d
Depreciation expense
b/d
Depreciation expense
b/d
Depreciation expense
Cr.
22,292
22,292
44,584
66,876
47,500
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Calculation of Depreciation
Depreciation for 2010
On additions (30,000  25%) + (40,000  25%  9/12) + (50,000  25%  7/12)
Depreciation for 2011
On opening assets
(120,000  25%)
On additions
(70,000  25%  10/12)
Depreciation for 2012
On opening assets
Answer-8
Dr.
1.1.13
1.1.13
1.5.13
1.1.14
1.8.14
1.9.14
b/d
Cash
Cash
b/d
Cash
Cash
Dr.
31.12.13
c/d
31.02.14
c/d
(190,000  25%)
Building a/c
10,000
15,000 31.12.13
25,000
13,000
12,000 31.12.14
22,292
30,000
14,584
44,584
47,500
Cr.
c/d
25,000
c/d
50,000
Accumulated Depreciation
1.1.13
b/d
3,333
Depreciation expense
1.1.14
b/d
9,068
Depreciation expense
Cr.
3,333
3,333
5,735
Calculation of Depreciation
Depreciation for 2013
On additions during the year
(10,000/6) + (15,000/6  8/12)
3,333
Depreciation for 2014
On opening assets
On additions during the year
(25,000/6)
(13,000/6  5/12) + (12,000/6  4/12)
4,166
1,569
5,735
Answer-9
Dr.
1.1.09
b/d
1.3.09
Cash
1.5.09
Cash
Dr.
31.12.09 c/d
Calculation of Depreciation
Depreciation for 2009
On opening assets
On additions
Answer-10
Dr.
1.1.20X5 b/d
1.1.20X5 Cash (6,900  2)
1.8.20X5 Cash
567
Vehicle a/c
300,000
10,000
15,000 31.12.09
Cr.
c/d
Accumulated Depreciation a/c
1.1.09
b/d
176,667
Depreciation expense
(300,000  20%)
(10,000  20%  10/12) + (15,000  20%  8/12)
Van account - At cost
13,800
7,200 31.12.X5 c/d
325,000
Cr.
113,000
63,667
60,000
3,667
63,667
Cr.
21,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Van account – Accumulated depreciation a/c
1.1.X5
b/d
4,200
Depreciation
Dr.
31.12.X5
c/d
Cr.
0
4,200
Depreciation
(13,800  25%)
(7,200  25%  5/12)
Vans bought on 1 January
Vans bought on 1 August
Answer-11
a)
Dr.
1.1.20X3 Cash
1.1.20X4
1.7.20X4
1.10.20X4
1.1.20X5
b/d
Cash (600  2)
Cash
b/d
1.1.20X6
1.4.20X6
b/d
Cash
b)
Dr.
31.12.X3
c/d
31.12.X4
c/d
31.12.X5
c/d
31.12.X6
c/d
3,450
750
4,200
Machinery account - At cost
1,400
31.12.X3 c/d
1,400
1,200
1,000 31.12.X4 c/d
3,600
31.12.X5 c/d
3,600
400 31.12.X6 c/d
Cr.
1,400
3,600
3,600
4,000
Machinery account-Accumulated depreciation a/c
1.1.X3
b/d
140
Depreciation
1.1.X4
b/d
365
Depreciation
1.1.X5
b/d
725
Depreciation
1.1.X6
b/d
1,115
Depreciation
Cr.
0
140
140
225
365
360
725
390
c)
Balance Sheet Extracts
Machinery account - at cost
Machinery - accumulated depreciation
Net book value
Depreciation
For 20X3
Machinery bought on 1 January
For 20X4
On opening assets
On additions
Machinery bought on July 1
Machinery bought on October 1
568
20X3
1,400
(140)
1,260
20X4
3,600
(365)
3,235
20X5
3,600
(725)
2,875
20X6
4,000
(1,115)
2,885
(1,400  10%)
140
(1,400  10%)
140
(1,200  10%  6/12)
(1,000  10%  3/12)
60
25
225
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
For 20X5
On opening assets
For 20X6
On opening assets
On additions
- Machinery bought on April 1
Answer-12
Dr.
1.1.07
1.4.07
1.1.08
1.5.08
Cash
Cash
b/d
Cash
Dr.
31.12.07
c/d
31.12.08
c/d
(W-1) Depreciation -2007
(W-2) Depreciation -2008
On opening assets
On addition
Answer-13
Dr.
1.4.08
1.6.08
1.10.08
1.12.08
Cash
Cash
b/d
Cash
Dr.
30.9.08
c/d
30.9.09
c/d
(3,600  10%)
360
(3,600  10%)
360
(400  10%  9/12)
30
390
Machinery Account
80,000
60,000 31.12.07
140,000
140,000 31.12.08
Cr.
c/d
140,000
c/d
280,000
Accumulated Dep. a/c
25,000 31.12.07 Depreciation Exp (W-1)
1.1.08
b/d
71,667 31.12.08 Depreciation Exp (W-2)
(80,000  20%) + (60,000  20%  9/12)
(140,000  20%)
(140,000  20%  8/12)
Van a/c
10,000
20,000 30.9.08
30,000
40,000 30.9.09
Accumulated Dep. a/c
1,167 30.9.08
1.10.08
7,500 30.9.09
569
Cash
Cash
b/d
Machine a/c
20,000
80,000 31.12.09
100,000
31.12.10
25,000
28,000
18,667
46,667
Cr.
c/d
30,000
c/d
70,000
Depreciation Expense
b/d
Depreciation Expense
Depreciation Expense for year ended September 30,2008
(10,000  10%  6/12) + (20,000  10%  4/12)
Depreciation Expense for year ended September 30,2009
On opening assets
30,000  10%
On addition
40,000  10%  10/12
Answer-14
Dr.
1.1.09
1.7.09
1.1.10
Cr.
25,000
25,000
46,667
Cr.
1,167
1,167
6,333
1,167
3,000
3,333
6,333
Cr.
c/d
100,000
c/d
100,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr.
31.12.09
31.12.10
c/d
c/d
Depreciation – 2009
Depreciation – 2010
Dr.
01.09.09
1.1.10
Accumulated Dep. Machine a/c
31.12.09
Depreciation Exp
10,800
1.1.10
b/d
31.12.10
Depreciation Exp
28,800
= (20,000 – 2,000) + (80,000 – 8,000)  6/12
5
5
= (20,000 – 2,000) + (80,000 – 8,000)
5
5
Van Account
40,000
31.12.09
40,000
31.12.10
Cash
b/d
Dr.
31.12.09
31.12.10
c/d
Answer-15
Dr.
1.1.09
1.3.09
1.1.10
b/d
Cash
b/d
Dr.
31.12.09
c/d
31.12.10
c/d
10,800
18,000
=10,800
=18,000
Cr.
c/d
40,000
c/d
40,000
Accumulated Dep. a/c (Van)
31.12.09 Depreciation Expense
1,200
(40,000 – 4,000) 
4/12
10
1.1.10
b/d
31.12.10
Depreciation Expense
(40,000 – 4,000)
4,800
10
c/d
Cr.
10,800
Machinery a/c
600,000
c/d
90,000 31.12.09
690,000
31.12.10
c/d
Accumulated Dep. a/c (Machinery)
1.1.09
b/d
31.12.09
Depreciation Exp
317,500
1.1.10
b/d
Depreciation Exp
386,500 31.12.10
Cr.
1,200
1,200
3,600
Cr.
690,000
690,000
Cr.
250,000
67,500
317,500
69,000
Depreciation Machinery – 2009
On opening assets
On addition
(600,000  10%)
(90,000  10% x 10/12)
60,000
7,500
67,500
Depreciation Machinery – 2010
On opening assets
(690,000  10%)
69,000
Dr.
1.1.09
1.5.09
1.6.09
1.1.10
570
b/d
Cash
Cash
b/d
Vehicle a/c
700,000
80,000
100,000 31.12.09
880,000 31.12.10
Cr.
c/d
c/d
880,000
880,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr.
31.12.09
c/d
31.12.10
c/d
Accumulated Dep. a/c
1.1.09
252,334 31.12.09
1.1.10
428,334 31.12.10
b/d
Depreciation Exp
b/d
Depreciation Exp
Depreciation - 2009
On opening
On addition
(700,000  20%)
(80,000  20%  8/12) + (100,000  20%  7/12)
Depreciation - 2010
On opening
(880,000  20%)
Answer-16
Dr.
1.1.01
1.1.01
b/d
Cash
Dr.
31.12.01
Plant and Machinery - At Cost
600,000
60,000
31.12.01
c/d
c/d
Accumulated Depreciation - Plant and Machinery
1.1.01
b/d
31.12.01
Dep. Exp
332,000
Depreciation: On opening assets
On addition
Dr.
1.1.01
1.6.01
31.12.01
Furniture – A/C
700,000
80,000
31.12.01
b/d
Cash
Dr.
c/d
b/d
Cash
Dr.
31.12.01
Depreciation :
571
c/d
Cr.
660,000
Cr.
200,000
132,000
Cr.
c/d
(700,000  10%)
(80,000  10%  7/12)
Vehicle a/c
800,000
70,000
31.12.01
140,000
22,334
162,334
176,000
120,000
12,000
132,000
Accumulated Depreciation – Furniture
1.1.01
b/d
31.12.01
Dep. Exp
204,667
Depreciation: On opening assets
On addition
Dr.
1.1.01
1.9.01
(600,000  20%)
(60,000  20%)
Cr.
90,000
162,334
252,334
176,000
780,000
Cr.
130,000
74,667
70,000
4,667
74,667
Cr.
c/d
870,000
Accumulated Depreciation – Vehicle a/c
1.1.01
b/d
31.12.01
Dep. Exp
375,833
Cr.
170,000
205,833
(800,000  25%)
(70,000  25%  4/12)
200,000
5,833
205,833
On opening
On addition
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-17
Depreciation
Depreciation - on opening assets
Depreciation - on additions
6,000  15%
(3,000  15%  8/12)
900
300
1,200
Note: The word depreciation provision means depreciation expense and the word provision
for depreciation account means accumulated depreciation account.
Working
Dr.
1.1.06
1.1.07
1.9.07
1.1.08
1.5.08
Asset A/c
2,000
31.12.06
2,000
4,000 31.12.07
6,000
3,000 31.12.08
Cash
b/d
Cash
b/d
Cash
Cr.
c/d
2,000
c/d
6,000
c/d
9,000
Answer-18
Calculation of Depreciation
Cost
Depreciation
WDV
Depreciation
WDV
Depreciation
WDV
Depreciation
WDV
(31.12.2008)
(31.12.2008)
(31.12.2009)
(31.12.2009)
(31.12.2010)
(31.12.2010)
(31.12.2011)
(31.12.2011)
(600,000  10%)
(540,000  10%)
(486,000  10%)
(437,400  10%)
Rs.
600,000
(60,000)
540,000
(54,000)
486,000
(48,600)
437,400
(43,740)
393,660
Answer-19
Calculation of Depreciation
Cost
Depreciation
WDV
Depreciation
WDV
Depreciation
WDV
(31.12.2008)
(31.12.2008)
(31.12.2009)
(31.12.2009)
(31.12.2010)
(31.12.2010)
(60,000  10%  9/12)
(55,500  10%)
(49,950  10%)
Answer-20
Cost
Dep. (2007) (200,000  15%  10/12)
WDV
Dep. (2008) (175,000  15%)
WDV
Dep. (2009) (148,750  15%)
572
Rs.
60,000
(4,500)
55,500
(5,550)
49,950
(4,995)
44,955
200,000
(25,000)
175,000
(26,250)
148,750
(22,313)
126,437
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-21
Rs.
300,000
(15,000)
285,000
(57,000)
228,000
(45,600)
182,400
Cost
Dep. (2008) (300,000  20%  3/12)
WDV
Dep. (2009) (285,000  20%)
WDV
Dep. (2010) (228,000  20%)
Answer-22
Calculation of Depreciation (Using straight line method)
Rs.
Depreciation for 2005
Depreciation for 2006
Depreciation for 2007
Depreciation for 2008
=
=
=
=
(2,600 – 200)/4
(2,600 – 200)/4
(2,600 – 200)/4
(2,600 – 200)/4
=
=
=
=
600
600
600
600
Calculation of depreciation (Using write down value method)
Cost
Depreciation (2005)
(2,600  45%)
WDV
Depreciation (2006)
(1,430  45%)
WDV
Depreciation (2007)
(786  45%)
WDV
Depreciation (2008)
(432  45%)
WDV (31.12.2008)
2,600
(1,170)
1,430
(644)
786
(354)
432
(194)
238
Answer-23
Calculation of depreciation (Using straight line method)
Depreciation for 2005
Depreciation for 2006
Depreciation for 2007
Depreciation for 2008
Depreciation for 2009
=
=
=
=
=
(8,000 – 2,400)/5
(8,000 – 2,400)/5
(8,000 – 2,400)/5
(8,000 – 2,400)/5
(8,000 – 2,400)/5
Calculation of depreciation (Using write down value method)
Cost
Depreciation (2005)
(8,000  20%)
WDV
Depreciation (2006)
(6,400  20%)
WDV
Depreciation (2007)
(5,120  20%)
WDV
Depreciation (2008)
(4,096  20%)
WDV
Depreciation (2009)
(3,277 x 20%)
WDV (31.12.2009)
573
=
=
=
=
=
Rs.
1,120
1,120
1,120
1,120
1,120
8,000
(1,600)
6,400
(1,280)
5,120
(1,024)
4,096
(819)
3,277
(655)
2,622
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-24
Calculation of depreciation (Using straight line method)
Depreciation for 2005
Depreciation for 2006
Depreciation for 2007
Depreciation for 2008
Depreciation for 2009
=
=
=
=
=
(23,000 – 4,000) / 4
(23,000 – 4,000) / 4
(23,000 – 4,000) / 4
(23,000 – 4,000) / 4
(23,000 – 4,000) / 4
=
=
=
=
=
Calculation of depreciation (Using write down value method)
Cost
Depreciation (2005)
(23,000  35%)
WDV
Depreciation (2006)
(14,950  35%)
WDV
Depreciation (2007)
(9,717  35%)
WDV
Depreciation (2008)
(6,316  35%)
WDV (31.12.2008)
Answer-25
Dr.
1.1.09
b/d
1.1.09
Cash
1.7.09
Cash
1.1.10
b/d
1.4.10
Cash
1.1.11
b/d
1.7.11
Cash
Dr.
31.12.09
c/d
31.12.10
c/d
31.12.12
c/d
Asset A/c
30,000
10,000 31.12.09
40,000
50,000 31.12.10
90,000
60,000 31.12.11
Rs.
4,750
4,750
4,750
4,750
4,750
Rs.
23,000
(8,050)
14,950
(5,233)
9,717
(3,401)
6,316
(2,211)
4,105
Cr.
c/d
40,000
c/d
90,000
c/d
150,000
Accumulated Depreciation
1.1.09
b/d
3,500
Depreciation expense
1.1.10
b/d
10,900
Depreciation expense
1.1.11
b/d
21,810
Depreciation expense
Calculation for Depreciation
Depreciation for 2009
On additions
(30,000  10%) + (10,000  10%  6/12)
Cr.
3,500
3,500
7,400
10,900
10,910
3,500
Depreciation for 2010
On opening assets
On additions
(40,000 – 3,500)  10%
(50,000  10%  9/12)
3,650
3,750
7,400
Depreciation for 2011
On opening assets
On additions
(90,000 – 10,900)  10%
(60,000  10%  6/12)
7,910
3,000
10,910
574
CHAPTER-7
Answer-26
Dr.
1.1.13
b/d
1.3.13
Cash
1.8.13
Cash
Dr.
31.12.13
c/d
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Building a/c
400,000
300,000
100,000 31.12.13
Cr.
c/d
800,000
Accumulated Depreciation
1.1.13
b/d
258,333
Depreciation expense
Calculation for Depreciation
On opening assets
(400,000 – 150,000)  20%
On additions during the year
(300,000  20%  10/12) + (100,000  20%  5/12)
Answer-27
Dr.
1.1.13
b/d
1.3.13
Cash
1.8.13
Cash
Dr.
31.12.13
c/d
Asset a/c
600,000
500,000
250,000 31.12.13
c/d
1,350,000
Accumulated Depreciation
1.1.13
b/d
464,167
Depreciation expense
Machinery a/c
600,000
10,000
70,000 31.12.09
c/d
575
60,000
104,167
164,167
680,000
Accumulated Depreciation
1.1.09
b/d
31.12.09 c/d
336,500
Depreciation expense
Calculation for Depreciation expense
On opening assets
(600,000 – 200,000)  30%
On additions
(10,000  30%  10/12) + (70,000  30%  8/12)
Dr.
Depreciation expense a/c
Cr.
Accumulated Depreciation a/c
(Depreciation charged on motor vehicles for 2007)
Cr.
300,000
164,167
Cr.
Dr.
Answer-29
Dr.
Depreciation expense a/c
Cr.
Accumulated Depreciation a/c
(Depreciation charged on motor vehicles for 2006)
50,000
58,333
108,333
Cr.
Calculation for Depreciation
On opening assets
(600,000 – 300,000)  20%
On additions
(500,000  20%  10/12) + (250,000  20%  5/1/2)
Answer-28
Dr.
1.1.09
b/d
1.3.09
Cash
1.5.09
Cash
Cr.
150,000
108,333
Cr.
200,000
136,500
120,000
16,500
136,500
2,400
2,400
1,920
1,920
CHAPTER-7
Dr.
1.1.06
1.1.07
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Motor Vehicle account - At cost
12,000
31.12.06 c/d
12,000
31.12.07 c/d
Payable to Trucks
b/d
Dr.
31.12.06
c/d
31.12.07
c/d
Answer-30
Calculation for Depreciation
Depreciation
=
Depreciation for 2004
=
Depreciation for 2005
=
Depreciation for 2006
=
Answer-31
Sum of digits
Depreciation for 2003
=
=
Depreciation for 2004
=
Depreciation for 2003
=
Depreciation for 2003
=
Dr.
31.12.09
576
12,000
12,000
Motor Vehicle account - At cost
1.1.06
b/d
2,400
Depreciation (W-1)
1.1.07
b/d
4,320
Depreciation(W-1)
Workings
(W-1) Calculation of depreciation
Cost
Depreciation (2006)
WDV
Depreciation (2007)
WDV (31.12.2007)
Answer-32
Dr.
1.1.09
1.5.09
1.9.09
Cr.
b/d
Cash
Cash
Cr.
2,400
2,400
1,920
12,000
(2,400)
9,600
(1,920)
7,680
(12,000  20%)
(9,600  20%)
(Cost – residual value)  No. of units produced in current year
Total units
19,600
(100,0000 – 2,000)  2,000
=
10,000
29,400
(100,0000 – 2,000)  3,000
=
10,000
49,000
(100,0000 – 2,000)  5,000
=
10,000
4 + 3 + 2 + 1 = 10
(300,0000 – 50,000)
10
(300,0000 – 50,000)
10
(300,0000 – 50,000)
10
(300,0000 – 50,000)
10
4
=
100,000
3
=
75,000
2
=
50,000
1
=
25,000
Plant and Machinery A/C
500,000 1.3.09
90,000
120,000 31.12.09
Disposal
Cr.
190,000
c/d
520,000
Accumulated Depreciation – P and M A/C
Disposal (W-2)
30,083 1.1.09
b/d
Depreciation Exp (W-1)
c/d
184,084
Cr.
170,000
44,167
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-1) Depreciation Expense – P and M
On opening assets excluding disposals (500,000 – 190,000)  10%
On additions (90,000  10%  8/12 + 120,000  10%  4/12)
On disposals (190,000  10%  2/12)
(W-2) Accumulated Depreciation of Disposals
Period the asset is used 1 year and 7 months
Accumulated Depreciation
(190,000  10%  1.5833)
Dr.
Vehicle A/C
1.1.09
b/d
900,000 1.6.09
Disposal
31.12.09
Dr.
1.6.09 Disposal
31.12.09
c/d
c/d
Accumulated Dep. A/C - Vehicle
11,000 1.1.09
b/d
Depreciation Exp
376,667
(W-1) Depreciation Expense – Vehicle
On opening assets excluding disposals (900,000 – 40,000)  10%
On disposals (40,000  10%  5/12)
(W-2) Accumulated Depreciation of Disposals
Period asset was used
Accumulated Depreciation
2 years and 9 months
(40,000  10%  2.75)
31,000
10,000
3,167
44,167
30,083
Cr.
40,000
860,000
Cr.
300,000
87,667
86,000
1,667
87,667
11,000
Dr.
P and M
Disposal – P and M A/C
190,000 Accumulated Depreciation
Cash
P/L
Cr.
30,083
50,000
109,917
Dr.
Vehicle
Disposal – Vehicle A/C
40,000 Accumulated Depreciation
Cash
P/L
Cr.
11,000
7,500
21,500
Answer-33
Dr.
1.1.07
1.3.07
1.5.07
1.6.07
b/d
Cash
Cash
Cash
Dr.
31.3.07
Disposal (W-2)
30.6.07
Disposal(W-2)
30.11.07
Disposal(W-2)
31.12.07
c/d
(W-1)Depreciation Expense
On opening excluding disposals
Vehicle A/C
1,400,000
200,000 31.3.07
Disposal
250,000 30.6.07
Disposal
23,000 30.11.07
Disposal
31.12.07
c/d
Accumulated Dep. A/c
10,500 1.1.07 b/d
35,000
18,000
Depreciation Exp (W-1)
837,638
(1,400,000 – 40,000 – 70,000 – 90,000)  15%
On additions
(200,000  15%  10/12)+
577
Cr.
40,000
70,000
90,000
1,673,000
Cr.
650,000
251,138
180,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(250,000  15%  8/12) +
(23,000  15%  7/12)
On disposals
52,013
(40,000  15%  3/12) +
(70,000  15%  6/12) +
(90,000  15%  11/12)
(W-2) Accumulated Dep. Of Disposals
Disposal on 31.3.07
(1 year and 9 months)
Disposal on 30.6.07
(3 year and 4 months)
Disposal on 30.11.07 (1 year and 4 months)
Dr.
Vehicle
Vehicle
Vehicle
19,125
251,138
(40,000  15%  1.75)
(70,000  15 %  3.3333)
(90,000  15%  1.3333)
Disposal A/C
40,000 Accumulated Dep.
70,000 Accumulated Dep.
90,000 Accumulated Dep.
Cash
Cash
Cash
P/L (Bal.)
Answer-34
Dr.
1.1.20X4 Cash
1.10.20X4 Cash
1.1.20X5 b/d
Plant account – At cost
2,600
2,100 31.12.X4
4,700
31.12.X5
4,700
2,800 31.12.X6
7,500 31.08.X7
31.12.X7
Cr.
c/d
4,700
c/d
4,700
c/d
Disposal account
c/d
7,500
2,600
4,900
1.1.20X6
1.9.20X6
1.1.20X7
b/d
Cash
b/d
Dr.
Plant account – Accumulated depreciation a/c
1.1.X4
b/d
781
c/d
Depreciation (W-1)
1.1.X5
b/d
1,956
c/d
Depreciation (W-1)
1.1.X6
b/d
3,364
c/d
Depreciation (W-1)
Disposals (W-2)
2,383 1.1.X7
b/d
2,639
c/d
Depreciation (W-1)
31.12.X4
31.12.X5
31.12.X6
31.08.X7
31.12.X7
Dr.
31.08.X7
(W-1)
578
Plant account
P/L
Depreciation
For 20X4
Plant bought on 1 January
Plant bought on 1 October
10,500
35,000
18,000
63,500
Cr.
10,500
35,000
18,000
2,300
4,700
6,600
122,900
Plant disposal account
2,600 31.08.X7 Accumulated dep. (W-2)
593 31.08.X7 Cash
(2,600  25%)
(2,100  25%  3/12)
Cr.
0
781
781
1,175
1,956
1,408
3,364
1,658
Cr.
2,383
810
650
131
781
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
For 20X5
On opening assets
For 20X6
On opening assets
On additions
- Plant bought on September 1
For 20X7
On opening assets excluding disposals
On disposals
- Plant sold on August 31st
(W-2)
(4,700  25%)
1,175
(4,700  25%)
1,175
(2,800  25%  4/12)
233
1,408
(7,500 – 2,600)  25%
1,225
(2,600  25%  8/12)
433
1,658
Accumulated depreciation of disposals
Number of period in use
(1.1.20X4 – 31.8.20X7)
Accumulated depreciation
(2,600  25%  3.6666 Y)
3 years and 8 months
2,383
Balance Sheet Extracts
20X4
4,700
(781)
3,919
Plant account - at cost
Plant - accumulated depreciation
Net book value
Answer-35
Dr.
1.1.20X9 b/d
1.10.20X9 Cash
Dr.
31.12.X9
Dr.
(W-1)
(W-2)
579
Machinery account – At cost
94,500
Disposal
16,000 31.12.X9 c/d
c/d
20X6
7,500
(3,364)
4,136
20X7
4,900
(2,639)
2,261
Cr.
1,600
108,900
Machinery account – Accumulated depreciation a/c
Disposals (W-2)
1,387 1.1.X9
b/d
46,610
c/d
Depreciation (W-1)
Dr.
1.1.20X9 b/d
1.10.20X9 Cash
31.12.X9
20X5
4,700
(1,956)
2,744
Cr.
28,350
19,647
Office furniture account – At cost
3,200
460 31.12.X9 c/d
3,660
Office furniture account – Accumulated depreciation a/c
1.1.X9
b/d
1,612
Depreciation (W-3)
Cr.
1,280
332
Depreciation – machinery
On opening assets excluding disposals
On additions
On disposals
- Machinery sold on October 31st
Cr.
(94,500 – 1,600)  20%
(16,000  20%  3/12)
18,580
800
(1,600  20%  10/12)
267
19,647
Accumulated depreciation of disposals of machinery
Number of period in use
(1.7.20X5 – 31.10.20X9)
Accumulated depreciation
(1,600  20%  4.3333 Y)
4 Years and 4 months
1,387
CHAPTER-7
(W-3)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation - office furniture
On opening assets excluding disposals
On additions
Answer-36
Dr.
1.1.13
b/d
1.4.13
Cash
(3,200  10%)
(460  10%  3/12)
Machinery – cost
600,000 30.6.13
70,000
31.12.13
Dr.
Disposal (W-2)
Disposal
c/d
Accumulated Depreciation
24,000 1.1.13
b/d
Depreciation (W-1)
236,750
31.12.13 c/d
(W-1) Depreciation expense
- On opening assets excluding disposals
- On additions
- On disposals
(600,000 – 90,000)  10%
(70,000  10%  9/12)
(90,000  10%  6/12)
(W-2) Accumulated Depreciation of Disposals
Years used (2y and 8 months)
Accumulated Depreciation
(90,000  10%  2.6667 years)
Dr.
Machinery
Disposal A/c
90,000 Accumulated Depreciation
Cash
P/L
(Bal.)
Answer-37
Dr.
1.1.20X9
b/d
1.3.20X9
Cash
Machinery account – At cost
52,950
Disposal
2,480 31.12.X9
c/d
31.12.X9
Machinery account – Accumulated depreciation a/c
Disposals (W-2)
887 1.1.X9
b/d
32,708
c/d
Depreciation (W-1)
Dr.
1.1.20X9
1.3.20X9
b/d
Cash
Dr.
Dr.
31.12.X9
(W-1)
580
c/d
Office furniture account – At cost
2,860
320 31.12.X9
c/d
Office furniture account – Accumulated depreciation a/c
1.1.X9
b/d
1,646
Depreciation (W-3)
Depreciation – machinery
On opening assets excluding disposals
On additions
On disposals
- Machinery sold on January 31st
320
12
332
Cr.
90,000
580,000
Cr.
200,000
60,750
51,000
5,250
4,500
60,750
2.6667 year
24,000
Cr.
24,000
36,000
30,000
Cr.
2,800
52,630
Cr.
28,350
5,245
Cr.
3,180
Cr.
1,490
156
(52,950 – 2,800)  10%
(2,480  10%  10/12)
5,015
207
(2,800  10%  1/12)
23
5,245
CHAPTER-7
(W-2)
(W-3)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation of disposals of machinery
Number of period in use (1.12.20X5 – 31.1.20X9)
Accumulated depreciation
(2,800  10%  3.1667 Y)
Depreciation - office furniture
On opening assets excluding disposals
On additions
Answer-38
(i)
Depreciation - 20X6
On additions
Machine 1 and 2
Machine 3 and 4
Depreciation - 20X7
On opening assets
3 Years and 2 month
887
(2,860  5%)
(320  5%  10/12)
143
13
156
(80,000 – 5% of 80,000) / 10 years
(30,400 – 5% of 30,400) / 10 years  3/12
(110,400 – 5% of 110,400) / 10 years
Depreciation - 20X8
On opening assets excluding disposal
Opening assets
Less: disposals
Less: Residual value (95,200  5%)
Depreciable amount
10,488
Rate
110,400
(15,200)
95,200
(4,760)
90,440
10%
On additions
(20,000 – 5% of 20,000) / 10 years  6/12
On disposals
- Machinery sold on June 30th (15,200 – 5% of 15,200) / 10 years  6/12
(ii)
7,600
722
8,322
9,044
950
722
10,716
Profit/ (loss) on disposal
Consideration received
Less: Written down value at the time of disposal
Loss on sale of machine
WDV at the time of disposal
Cost
Less: Accumulated deprecation
Number of period in use (1.10.20X6 – 30.06.20X8)
1 Years and 9 month
Accumulated depreciation
(15,200 – 5% of 15,200)  10%  1.75 Y))
12,640
(12,673)
(33)
15,200
(2,527)
12,673
T- account is not a part of question, it is only prepared for ease in calculating depreciation
581
CHAPTER-7
Dr.
1.1.20X6
1.10.20X6
1.1.20X7
1.1.20X8
1.7.20X8
Answer-39
Dr.
1.1.91
1.1.91
1.1.91
1.1.92
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Machinery a/c
80,000
30,400 31.12.X6
110,400
31.12.X7
110,400 30.06.X8
20,000 31.12.X8
Cash
Cash
b/d
b/d
Cash
b/d
Cash (Van-1)
Cash (Van-2)
b/d
Cr.
c/d
110,400
c/d
Disposal
c/d
110,400
15,200
115,200
Motor Vehicle account – At cost
800
500 31.12.91 c/d
1,300
31.12.92 c/d
1,300
900
720 31.12.93 c/d
2,920 30.09.94 Disposal (Van -1)
31.12.94 c/d
2,120 30.06.95 Disposal (Van -2)
31.12.95 c/d
1.1.93
1.7.93
1.10.93
1.1.94
b/d
Cash (Van-3)
Cash (Van-4)
b/d
1.1.95
b/d
Dr.
Motor Vehicle – Accumulated depreciation a/c
1.1.91
b/d
260
c/d
Depreciation(W-1)
1.1.92
b/d
520
c/d
Depreciation(W-1)
1.1.93
b/d
906
c/d
Depreciation(W-1)
Disposals (W-2)
600 1.1.94
b/d
850
c/d
Depreciation(W-1)
Disposals (W-2)
450 1.1.95
b/d
774
c/d
Depreciation(W-1)
31.12.91
31.12.92
31.12.93
31.12.94
31.12.95
Dr.
30.09.94
30.06.95
Motor vehicle a/c
P/L (Bal.)
Motor vehicle a/c
Motor Vehicle – Disposal a/c
800
Accumulated dep. a/c
29
Cash
500
Accumulated dep. a/c
Cash
P/L (Bal.)
WORKINGS
(W-1) Calculation of depreciation:
Year ended 1991
Van – 1
Van – 2
Year ended 1992
On opening assets
582
Cr.
1,300
1,300
2,920
800
2,120
500
1,620
Cr.
0
260
260
260
520
386
906
544
850
374
Cr.
600
229
450
5
45
(800  20%)
(500  20%)
160
100
260
(1,300  20%)
260
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Year ended 1993
Depreciation - on opening assets
Depreciation - on additions
- Van – 3
- Van – 4
(W-2)
(1,300  20%)
260
(900  20%  6/12)
(720  20%  3/12)
90
36
126
386
Year ended 1994
Depreciation – on opening
assets excluding disposal
Depreciation - on disposal
(2,920 – 800)  20%
(800  20%  9/12)
424
120
544
Year ended 1995
Depreciation - on opening
assets excluding disposal
Depreciation – on disposal
(2,120 – 500)  20%
(500  20%  6/12)
324
50
374
Accumulated depreciation of assets disposed off
Van-1
Accumulated depreciation
Period used
(800 x 20% x 3.75 Years)
(3 Years and 9 months)
600
3.75Y
Van-2
Accumulated depreciation
Period used
(500 x 20% x 4.5 Years)
(4 Years and 6 months)
450
4.5Y
Answer-40
Dr.
1.1.08
b/d
Dr.
Disposal (370,000 x 10% x 2.4167)
c/d
Dr.
Cost
Asset a/c
1,400,000 31.5.08
31.12.08
Cr.
370,000
1,030,000
Disposal
c/d
Accumulated Depreciation A/C
89,418 1.1.08
b/d
868,999
Depreciation (W-1)
Disposal A/c
370,000 Acc. Depreciation
P/L (bal.)
Cr.
840,000
118,417
Cr.
89,418
280,582
Disposal Entry
Cash
Accumulated Depreciation
P/L (bal.)
Asset a/c (cost)
(Asset destroyed by fire)
Calculation for Depreciation
- On opening assets excluding disposals
- On disposals
583
Dr.
0
89,418
280,582
Cr.
370,000
(1,400,000 – 370,000) x 10%
(370,000 x 10% x 5/12)
103,000
15,417
118,417
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-41
Dr.
1.1.08
b/d
1.3.08
Cash
Vehicle a/c
600,000
50,000 31.5.08
31.12.08
Cr.
Disposal
c/d
Dr.
Accumulated Depreciation
1.1.03
b/d
31.5.08
Disposal
19,334
Depreciation expense
(40,000 x 20% x 2.4167)
31.12.08 c/d
301,332
Calculation of Depreciation:
On opening assets excluding disposals and fully depreciated
(600,000 – 20,000 – 40,000) x 20%
On additions
(50,000 x 20% x 10/12)
On fully depreciated assets
(20,000 x 20% x 3/12)
On disposals
(40,000 x 5/12 x 20%)
Answer-42
Dr.
1.1.07
1.3.07
b/d
Cash
Dr.
31.3.07
Disposals (W-2)
31.12.10
c/d
Vehicle A/C
600,000 31.3.07
90,000 31.12.07
Disposal
c/d
Accumulated Depreciation A/c
24,500 1.1.07 b/d
Depreciation Exp. (W-1)
430,000
(W-1) Depreciation Expense
On opening assets excluding disposals and fully depreciated
(600,000 – 70,000 – 150,000) x 20%
On addition
(90,000 x 20% x 10/12)
On disposals
(70,000 x 20% 3/12)
On fully Depreciated
(150,000 x 20% x 6/12)
40,000
610,000
Cr.
200,000
120,666
108,000
8,333
1,000
3,333
120,666
Cr.
70,000
620,000
Cr.
345,000
109,500
76,000
15,000
3,500
15,000
109,500
(W-2)
Period in use
Accumulated Depreciation
(1 year and 9 months)
(70,000 x 20% x 1.75)
Answer-43
Depreciation – 2009
On opening assets excluding disposals excluding fully depreciated
(700,000 – 30,000 – 200,000) x 20%
On additions
(200,000 x 20% x9/12 + 300,000 x 20% x 6/12)
On disposals
(30,000 x 20% x 6/12)
On fully depreciated
(200,000 x 20% 3/12)
Depreciation – 2010
On opening assets excluding disposals excluding fully depreciated.
(W-1) (1,170,000 – 200,000) x 20%
On additions
(250,000 x 20% 6/12)
Total
584
24,500
Rs.
94,000
60,000
3,000
10,000
167,000
194,000
25,000
219,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-1)
Dr.
b/d
Cash
Cash
Asset a/c -2009
700,000
200,000
300,000
Cr.
Disposals
c/d
30,000
1,170,000
Answer-44
Dr.
1.1.13
1.4.13
b/d
Cash
Dr.
Disposal (W-2)
31.12.13
c/d
Machinery – cost
600,000 30.6.13
70,000
31.12.13
Disposal
c/d
580,000
Accumulated Depreciation
21,899 1.1.13
b/d
Depreciation (W-1)
219,767
(W-1) Depreciation expense
- On opening WDV excluding WDV of disposals
{(600,000 – 20,000) – 71,685} x 10%
- On additions
(70,000 x 10% x 9/12)
- On disposals
(W-2)
(W-2) Accumulated depreciation of Disposals
Cost
(01.11.10)
Less: Depreciation
(31.12.10)
(90,000 x 10% x 2/12)
WDV
(31.12.10)
Less: Depreciation
(31.12.11)
(88,500 x 10%)
WDV
(31.12.11)
Less: Depreciation
(31.12.12)
(79,650 x 10%)
WDV
(31.12.12)
Less: Depreciation
(30.06.13)
(71,685 x 10% x 6/12)
WDV
(30.06.13)
Accumulated Depreciation
(90,000 – 68,101)
Dr.
Machinery
Cr.
90,000
Disposal A/c
90,000 Accumulated Depreciation
Cash
P/L
(Bal.)
Cr.
200,000
41,666
32,832
5,250
3,584
41,666
90,000
(1,500)
88,500
(8,850)
79,650
(7,965)
71,685
(3,584)
68,101
21,899
Cr.
21,899
36,000
32,101
Answer-45
Dr.
1.1.08
1.3.08
1.8.08
Dr.
Disposal (W-2)
c/d
585
b/d
Cash
Cash
Motor Vehicle
830,000 30.6.08
150,000
200,000 31.12.08
Disposal
c/d
Accumulated Dep. a/c
26,025 b/d
Depreciation Exp. (W-1)
296,283
Cr.
150,000
1,030,000
Cr.
250,000
72,308
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr.
Motor Vehicle
Disposal a/c
150,000 Accumulated Depreciation
Cash
P/L
(W-1) Depreciation Expense
On opening assets excluding Disposal
WDV of opening assets as on 1.1.08
Less: WDV of disposal on 1.1.08
Rate
(830,000 – 250,000)
(W-2)
580,000
(130,500)
449,500
On addition
 (150,000 x 10 % x 10/12)
 (200,000 x 10 % x 5/12)
On disposal
(W-2)
Total
(W-2) Accumulated Depreciation of Disposal
Cost
(1.09.2006)
Depreciation (2006)
(150,000 x 10 % x 4/12)
WDV (1.1.2007)
Depreciation (2007)
(145,000 x 10 %)
WDV (1.1.2008)
Depreciation (2008)
(130,500 x 10% x 6/12)
WDV on (30.6.2008)
Accumulated depreciation on disposal
(150,000 – 123,975)
Answer-46
Dr.
1.1.07
1.2.07
1.4.07
b/d
Cash
Cash
Dr.
Disposal (w-2)
Disposal (w-2)
c/d
Dr.
Building A/C
Building A/C
Building A/C
2,300,000 31.5.07
400,000 31.8.07
650,000 31.12.07
586
10%
44,950
12,500
8,333
20,833
6,525
72,308
150,000
(5,000)
145,000
(14,500)
130,500
(6,525)
123,975
26,025
Disposal
Disposal
c/d
Cr.
700,000
550,000
2,100,000
Accumulated Dep. a/c
175,780 b/d
116,375 Depreciation Exp. (w-1)
694,372
Cr.
800,000
186,527
Disposal a/c
550,000 Accumulated Dep.
700,000 Accumulated Dep.
Cash
Cash
P/L (Bal.)
(W-1) Depreciation Expense
On opening assets excluding disposal
Opening WDV
(2,300,000 – 800,000)
Less: WDV of Disposal as on 1.1.07 (W-2) (400,950 + 609,000)
On addition
 (400,000 x 10% x 11/12)
 (650,000 x 10% x 9/12)
On Disposal
Total
Cr.
26,025
30,000
93,975
Cr.
175,780
116,375
450,000
300,000
207,845
Rate
1,500,000
(1,009,950)
490,050 10%
36,667
48,750
(W-2) (26,730 + 25,375)
49,005
85,417
52,105
186,527
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-2)Accumulated Depreciation of Disposal
Disposal on 31 Aug 07
Cost
Dep. (04)
(550,000 x 10%)
WDV (1.1.05)
Dep. (05)
(495,000 x 10%)
WDV (1.1.06)
Dep. (06)
(445,500 x 10%)
WDV (1.1.07)
Dep. (07)
(400,950 x 10% x 8/12)
WDV (as on 31.08.07)
Accumulated Depreciation
(550,000-374,220)
Disposal on 31 May 07
Cost
Dep. (05)
(700,000 x 10% x 4/12)
WDV. (1.1.06)
Dep. (06)
(676,667 x 10%)
WDV (1.1.07)
Dep. (07)
(609,000 x 10% x 5/12)
WDV (as on 31.May.07)
Accumulated Depreciation
(700,000 – 583,625)
Answer-47
Dr.
1.1.03
1.3.03
1.12.03
b/d
Cash
Cash
Dr.
Disposal A/C
Vehicle A/C
(W-1) Depreciation Expense
On opening assets excluding Disposal
Opening WDV
Less: WDV of disposal on 1.1.03
On addition
(90,000 x 15% x 10/12)
(200,000 x 15% x 1/12)
On disposal
Total
587
700,000
(23,333)
676,667
(67,667)
609,000
(25,375)
583,625
116,375
Cr.
60,000
Disposal
c/d
630,000
Accumulated Dep. a/c
24,013 b/d
Depreciation Exp. (w-1)
1730,31
c/d
Dr.
31.3.2003
Vehicle a/c
400,000 31.3.03
90,000
200,000
31.12.08
550,000
(55,000)
495,000
(49,500)
445,500
(44,550)
400,950
(26,730)
374,220
175,780
Disposal a/c
60,000 31.3.2003
31.3.2003
31.3.2003
Cr.
150,000
47,044
Cr.
24,013
34,000
1,987
Acc.dep
Cash
P/L A/C
Rate
(400,000 - 150,000)
(W-2)
250,000
(37,389)
212,611
11,250
2500
(W-2)
15%
31,892
13,750
1,402
47,044
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-2) Accumulated Depreciation on Disposals
Cost
Dep. (2000) (60,000 x 15% x 11/12)
WDV
Dep. (2001) (51,750 x 15%)
WDV
Dep. (2002) (43,987 x 15%)
WDV
Dep. (2003) (37,389 x 15% x 3/12)
WDV
Accumulated Depreciation
(60,000 – 35,987)
Answer-48
60,000
(8,250)
51,750
(7,763)
43,987
(6,598)
37,389
(1,402)
35,987
24,013
Straight Line Method
Dr.
Yr 1
Cash
Yr 2
b/d
Yr 3
b/d
Dr.
c/d
c/d
Disposal a/c
c/d
Dr.
Fixed asset a/c
(W-1)
588
Fixed asset account – At cost
10,000
c/d
10,000
c/d
10,000
Disposal a/c
c/d
Accumulated depreciation a/c
Yr 1
2,000
Yr 2
4,000
5,000 Yr 3
Disposal Account
10,000
Cr.
10,000
10,000
10,000
-
b/d
Depreciation (W-1)
b/d
Depreciation(W-1)
b/d
Depreciation(W-1)
Cr.
0
2,000
2,000
2,000
4,000
1,000
Accumulated dep.
Cash
P/L (bal.)
Cr.
5,000
3,000
2,000
Calculation of depreciation (Using straight line method)
Cost
Depreciation (Yr 1)
10,000 / 5
WDV
Depreciation (Yr 2)
10,000 / 5
WDV
Depreciation (Yr 3)
(10,000 / 5) x 6/12
WDV
Accumulated depreciation
(10,000 - 5,000)
10,000
(2,000)
8,000
(2,000)
6,000
(1,000)
5,000
5,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Written down value
Dr.
Yr 1
Cash
Yr 2
b/d
Yr 3
b/d
Dr.
c/d
c/d
Disposal a/c
c/d
Dr.
Fixed asset a/c
P/L
(W-1)
Fixed asset account – At cost
10,000
c/d
10,000
c/d
10,000
Disposal a/c
c/d
10,000
10,000
10,000
-
Accumulated depreciation a/c
Yr 1
b/d
4,000
Depreciation (W-1)
Yr 2
b/d
6,400
Depreciation(W-1)
7,120 Yr 3
b/d
Depreciation(W-1)
Disposal Account
10,000
120
Accumulated dep.
Cash
Calculation of depreciation (Using WDV method)
Cost
Depreciation (Yr 1)
(10,000 x 40%)
WDV
Depreciation (Yr 2)
(6,000 x 40%)
WDV
Depreciation (Yr 3)
(3,600 x 40%) x 6/12
WDV
Accumulated depreciation
(10,000 - 2,880)
Answer-49
Dr.
b/d
Cash
Dr.
Disposal (W-1)
c/d
Dr.
Plant account
P/L
Cr.
7,120
3,000
Cr.
33,333
636,667
Accumulated depreciation a/c
18,333 b/d
309,500 Depreciation (W-2)
Cr.
200,000
127,833
Disposal Account
33,333 Accumulated depreciation
800 Cash
Cost on 1.7.2009 (in rupees)
Accumulated depreciation on 30.03.2012 (in rupees)
Cr.
0
4,000
4,000
2,400
6,400
720
10,000
(4,000)
6,000
(2,400)
3,600
(720)
2,880
7,120
Plant and machinery - At cost
600,000 Disposal (W-1)
70,000 c/d
Workings
(W-1) Accumulated depreciation of disposals of machinery
Number of years the asset is used (1.7.2009 - 31.3.2012)
Cost (in percentage)
Accumulated depreciation (in percentage) (20% per year x 2.75Y)
Book value at time of disposal (in percentage) (100% - 55%)
589
Cr.
Cr.
18,333
15,800
2 years and 9 months
100%
55%
45%
(15,000/45 x 100)
(33,333 - 15,000)
33,333
18,333
CHAPTER-7
(W-2)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation
Depreciation - on opening assets excluding disposals
Opening assets
600,000
Disposals
(33,333)
566,667 x 20%
Depreciation - on additions
Depreciation - on disposals
Answer –50
Dr.
b/d
Cash
Dr.
Disposal (W-1)
c/d
Dr.
Plant account
P/L
(70,000 x 20% x 11/12)
(33,333 x 20% x 3/12)
Plant and machinery - At cost
500,000 Disposal (W-1)
77,000 c/d
Accumulated depreciation a/c
9,531 b/d
272,692 Depreciation (W-2)
Disposal Account
21,531 Accumulated depreciation
4,300 Cash
Workings
(W-1) Accumulated depreciation of disposals
Assume cost to be 100
Cost
(1.08.2009)
Depreciation (2009)
(100 x 20% x 5/12)
WDV
Depreciation (2010)
(91.6667 x 20%)
WDV
Depreciation (2011)
(73.3334 x 20%)
WDV
Depreciation (2012)
(58.6667 x 20% x 3/12)
WDV (31.03.2012)
(W-2)
590
113,333
12,833
1,667
127,833
Cr.
21,531
555,469
Cr.
150,000
82,223
Cr.
9,531
16,300
100
(8.3333)
91.6667
(18.3333)
73.3334
(14.6667)
58.6667
(2.9333)
55.7334
Cost of disposals
(12,000 / 55.7334 x 100)
Accumulated depreciation of disposals (21,531 – 12,000)
Depreciation
Depreciation - on opening assets excluding disposals
Opening assets WDV (500,000 - 150,000)
350,000
Disposals WDV (21,531 / 100 x 58.6667)
(12,632)
337,368x 20%
21,531
9,531
Depreciation - on additions
Depreciation - on disposals
14,117
632
82,223
(77,000 x 20% x 11/12)
(12,000 / 55.7334 x 2.9333)
67,474
CHAPTER-7
Answer-51
Depreciation
IAS 16: PROPERTY, PLANT AND EQUIPMENT
= Cost – Residual value
Life
2013 = Cost – Residual value
Life
Depreciation 2014 = WDV – new residual value
Remaining life
2015 = WDV – new residual value
Remaining life
WDV at the time of change in estimate
Answer-52
Depreciation
2012
Cost – Residual value
Life
2009 =
Cost – Residual value
Life
WDV of asset at the time of change in estimate
2008
Calculation of WDV
WDV
Less: Depreciation
WDV
Less: Depreciation
WDV
Less: Depreciation
WDV
Less: Depreciation
WDV
Answer-53
Cost
Less: Depreciation
WDV
Less: Depreciation
WDV
Depreciation 2009
Depreciation
2010
Answer-54
Depreciation – 2009
Depreciation – 2010
Depreciation – 2011
Depreciation – 2012
=
(1.1.2010)
(31.12.10)
(1.1.2011)
(31.12.11)
(1.1.2012)
(31.12.12)
(1.1.2013)
(31.12.13)
(31.12.13)
(1.1.07)
(31.12.07)
(31.12.07)
(31.12.08)
(31.12.08)
=
=
=
=
=
=
=
=
=
(50,000 x 33.12 %)
(33,440 x 33.12%)
(22,365 x 33.12%)
(14,958 x 33.12%)
50,000 – 5,000
10
50,000 – 5,000
10
41,000 – 2,000
2
41,000 – 2,000
2
50,000 – 4,500 – 4,500
41,000
(72,000 x 10%)
=
=
64,800 – 5,000
5
64,800 – 5,000
5
= Cost – RV
Life
= Cost – RV
Life
= Book value – new residual value
Remaining life
= Book value – new residual value
Remaining life
= 4,500
= 4,500
= 19,500
= 19,500
70,000 – 10,000
= 10,000
6
70,000 – 10,000
= 10,000
6
70,000 – 10,000 – 10,000
50,000
Rs.
50,000
(16,560)
33,440
(11,075)
22,365
(7,407)
14,958
(4,954)
10,004
(80,000 x 10%)
(W-1) Book value at the time estimate is changed
591
=
=
80,000
(8,000)
72,000
(7,200)
64,800
11,960
= 11,960
= 50,000 – 6,000
= 4,400
10
= 50,000 – 6,000
= 4,400
10
= 41,200 (W-1) – 2,000 = 7,840
5
= 41,200 – 2,000
= 7,840
5
= 50,000 – 4,400 – 4,400
= 41,200
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-55
Cost
Depreciation (31.12.2011) (200,000 x 20%)
WDV
(31.12.2011)
Depreciation (31.12.2012) (160,000 x 20%)
WDV
(31.12.2012)
Depreciation – 2013
= Book value – new RV = 128,000- 6,000
Remaining life
4
Depreciation – 2014
= Book value – new RV = 128,000 – 6,000
Remaining life
4
Answer-56
(a)
Depreciation expense
Depreciation – 2012
= Cost – RV
Life
Depreciation – 2013
= Cost – RV
Life
Depreciation – 2014
= Cost – RV
Life
Depreciation – 2015
= Book value – new residual value
Remaining life
Depreciation – 2016
= Book value – new residual value
Remaining life
(W-1) WDV at time of change in estimate
200,000
(40,000)
160,000
(32,000)
128,000
= 30,500
= 30,500
= 700,000 – 0
= 100,000
7
= 700,000 – 0
= 100,000
7
= 700,000 – 0
= 100,000
7
= 400,000 (W-1) – 15,000 = 192,500
2
= 400,000 – 15,000
= 192,500
2
= Cost – accumulated depreciation
= 700,000 – 100,000 – 100,000 – 100,000
= 400,000
(b)
WDV as on 31.12.2016
WDV = Cost – Accumulated Depreciation
= 700,000 – 100,000 – 100,000 – 100,000 – 192,500 – 192,500 = 15,000
Remember that WDV at the end of life will always be equal to RV.
Answer-57
Depreciation for the year ended December 31, 20X2
(W-2)
2,500
Accumulated depreciation as on December 31, 20X2
Depreciation charged till December 31, 20X1
Depreciation, b/d
(W-1)
(W-2)
6,000
2,500
8,500
(W-1)
WDV of vehicle at the time of change in estimate i.e. 1.1.20X2
Cost
Less: Accumulated depreciation
Number of period in use (1.1.20X0 - 31.12.20X1)
Accumulated depreciation
WDV as on 1.2.20X2
592
16,000
(6,000)
10,000
CHAPTER-7
(W-2)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Calculation of depreciation for the year ended December 31, 20X2
Depreciation = (WDV at time of change - residual value) / remaining life
= ((W-1) 10,000 - 2,500)/ 3years
2,500
The remaining life from 1.1.20X2 to 1.1.20X5 is three years
Answer-58
Journal entry
Dr.
100,400
37,000
Car (new)(W-1)
Accumulated Depreciation (old)
P/L (Bal.)
Car A/c (old)
Cash A/C
(W-1)
17,000
60,000
60,400
Cost of new car
Cost of new asset – TIA = Cash paid
Cost of new asset
= cash paid + TIA
= 60,400 + 40,000
= 100,400
Answer-59
(a)
Journal entry
Plant and Machinery
(New)
Accumulated depreciation
(Old) (W-1)
P/L (Bal.)
Plant and Machinery
(Old)
Cash A/C
(W-2)
(W-1)
(W-2)
(b)
130,000
26,000
37,000
80,000
113,000
Accumulated Depreciation of Disposals
Period asset is used
(1.4.2009-30.6.2012)
Accumulated Depreciation
(80,000 x 10% x 3.25)
3 years and 3 months
26,000
Cash paid
New asset cost – TIA
= 113,000
Dr.
b/d
Disposals
Cash
(New)
Dr.
Disposal (part-a)
c/d
Dr.
Plant and Machinery (old)
Cash
593
Cr.
= 130,000 – 17,000
Plant and Machinery A/c
600,000 Disposal (old)
130,000
67,000
c/d
Accumulated Depreciation A/C
26,000 b/d
Depreciation Expense
238,733
Cr.
80,000
717,000
(W-1)
Disposal A/c
80,000 Accumulated Depreciation
Plant and Mach. (new)
113,000
P/L (Bal.)
Cr.
200,000
64,733
Cr.
26,000
130,000
37,000
CHAPTER-7
(W-1)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation Expense
- On opening assets excluding disposals
(600,000-80,000) x 10%
- On additions
(130,000 x 10% x 6/12 + 67,000 x 10% x 4/12)
- On disposals
(80,000 x 10% x 6/12)
Answer-60
Dr.
1.1.95
b/d
8.10.95
Cash (extension)
1.1.96
b/d
Dr.
31.12.95
c/d
31.12.96
c/d
(W-1)
Building account – At cost
500,000
50,000 31.12.95
c/d
550,000
31.12.96
c/d
Building – Accumulated depreciation a/c
1.1.95
b/d
220,250
Depreciation (W-1)
1.1.96
b/d
231,250
Depreciation (W-2)
52,000
8,733
4,000
64,733
Cr.
550,000
550,000
Cr.
210,000
10,250
220,250
11,000
Depreciation - Year ended 1995
Depreciation - on opening assets
Depreciation - on additions
(500,000 x 2%)
(50,000 x 2% x 3/12)
10,000
250
10,250
Depreciation - Year ended 1996
Depreciation - on opening assets
(550,000 x 2%)
11,000
Office equipment account – At cost
40,000 Disposal
16,000 c/d
48,000 Disposal
c/d
Cr.
8,000
48,000
6,000
42,000
Office equipment- Accumulated depreciation a/c
7,000 b/d
22,500 Depreciation (W-3)
4,000 b/d
23,875 Depreciation (W-4)
Cr.
24,000
5,500
22,500
5,375
Dr.
Office equipment (old)
Cash
P/L (bal.)
Office Equipment disposal account-95
8,000 Office equipment (new)
12,000 Accumulated depreciation
3,000
Cr.
16,000
7,000
Dr.
Office equipment (old)
P/L (bal.)
Office Equipment disposal account- 96
6,000 Accumulated depreciation
1,000 Cash
Cr.
4,000
3,000
Dr.
b/d
Disposal
b/d
Dr.
Disposals (W-5)
c/d
Disposals (W-6)
c/d
(W-3)
594
Depreciation - Year ended 1995
Depreciation - on opening assets excluding disposals
Opening assets
40,000
Disposals
(8,000)
32,000 x 12.5%
4,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation - on additions
Depreciation - on disposals
(W-4)
(W-5)
(W-6)
(16,000 x 12.5% x 6/12)
(8,000 x 12.5% x 6/12)
1,000
500
5,500
Depreciation - Year ended 1996
Depreciation - on opening assets excluding disposals
Opening assets
48,000
Disposals
(6,000)
42,000 x 12.5%
Depreciation - on disposals
(6,000 x 12.5% x 2/12)
5,250
125
5,375
Accumulated depreciation of disposals made in 1995
Accumulated depreciation of disposals = Cost - WDV = 8,000 - 1,000
7,000
Accumulated depreciation of disposals made in 1996
Accumulated depreciation of disposals = Cost - WDV = 6,000 - 2,000
4,000
Answer-61
Dr.
1.4.20X6
7.6.20X6
3.10.20X6
6.3.20X7
b/d (W-1)
Cash (D)
Cash (E)
Disposal (F)
Lorries account - At cost
99,600 1.06.20X6
32,800 21.08.20X6
39,000 6.03.20X7
37,600 31.03.X7
Dr.
1.6.X6
21.8.X6
6.3.X7
31.3.X7
Disposals (W-4) B
Disposals (W-4) A
Disposals (W-4) E
c/d
Accumulated depreciation a/c
7,840 1.4.X6
b/d (W-2)
26,520
3,250
18,294
Depreciation (W-3)
Cr.
19,600
31,200
39,000
119,200
Disposal (B)
Disposal (A)
Disposal (E)
c/d
Cr.
34,067
21,837
(W-1) Cost of assets as on 1.4.20X6
A
B
C
31,200
19,600
48,800
99,600
(W-2) Accumulated depreciation as on 1.4.20X6
A
Number of period in use
3 Years and 11 months
Accumulated depreciation
(31,200 x 20% x 3.9167 years)
24,440
B
Number of period in use
Accumulated depreciation
Number of period in use
Accumulated depreciation
C
(W-3) Depreciation expense for the year
On opening assets excluding disposal
Opening assets
Less: disposals (19,600+31,200)
595
1 Year and 10 months
(19,600 x 20% x 1.8333 years)
3 months
(48,800 x 20% x 0.25 years)
99,600
(50,800)
48,800
20%
7,187
2,440
34,067
9,760
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
On additions
D
E
F
(32,800 x 20% x 10/12)
(39,000 x 20% x 5/12) (disposed in March)
(37,600 x 20% x 1/12)
On disposals
B
A
(19,600 x 20% x 2/12)
(31,200 x 20% x 4/12)
5,467
3,250
627
9,344
653
2,080
21,837
(W-4) Accumulated depreciation of disposals
B
Accumulated depreciation till 1.04.20X6
Depreciation expense in the year of disposal
(W-2)
(W-3)
7,187
653
7,840
A
Accumulated depreciation till 1.04.20X6
Depreciation expense in the year of disposal
(W-2)
(W-3)
24,440
2,080
26,520
(W-3)
3,250
E
Dr.
Lorries account (B)
Lorries account (A)
Lorries account (E)
P/L (bal.)
Answer-62
Dr.
1.1.09 b/d
1.3.09 Cash
1.6.09 Cash
Dr.
Furniture – BV
(W-1)
(W-2)
596
Lorries disposal account
19,600 Accumulated dep. (B) (W-4)
31,200 Accumulated dep. (A) (W-4)
39,000 Accumulated dep. (E) (W-4)
Cr.
7,840
26,520
3,250
Cash (B)
Cash (A)
Lorries a/c (F)
10,500
7,000
37,600
2,910
Furniture – Book value
25,000 30.9.09 Disposals
60,000
Depreciation
90,000
c/d
Disposal A/c
17,340 Cash
P/L
(W-2)
(W-1)
(bal.)
Depreciation expense
- Opening excluding disposal (25,000 – 20,400) x 20%
- On addition
(60,000 x 20% x 10/12) + (90,000 x 20% x 7/12)
- On disposals
WDV of Disposals
Cost
(1.04.2007)
Depreciation (2007)
WDV
Depreciation (2008)
WDV
Depreciation (2009)
WDV
(30,000 x 20% x 9/12)
(25,500 x 20%)
(20,400 x 20% x 9/12)
Cr.
17,340
24,480
133,180
Cr.
12,000
5,340
920
20,500
3,060
24,480
30,000
(4,500)
25,500
(5,100)
20,400
(3,060)
17,340
CHAPTER-7
Answer-63
Dr.
b/d
Cash
Cash
Dr.
Asset
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Asset – BV
200,000 Disposals (BV)(W-2)
30,000 Depreciation Exp.(W-1)
70,000 c/d (Bal.)
300,000
Disposal A/c
63,423 Cash
P/L (Bal.)
(W-1) Depreciation
On opening excluding disposals(200,000 – (W-2) 65,610) x 10%
On disposals
On addition (30,000 x 10% x 10/12) + (70,000 x 10% x 8/12)
(W-2) WDV of Disposals
Cost
Depreciation (90,000 x 10%) – 2008
WDV
Depreciation (81,000 x 10%) – 2009
WDV
Depreciation (72,900 x 10%) – 2010
WDV
(31.12.2010)
Depreciation (65,610 x 10% x 4/12) – 2011
WDV
(30.4.2011)
Answer-64
Dr.
b/d
Cash
Cash
Dr.
Asset
Asset
Building – BV
1,500,000 Disposals (BV) (W-2)
400,000 Disposals (BV) (W-2)
650,000 Depreciation Expense(W-1)
c/d
Disposal a/c
374,220 Cash
583,625 Cash
P/L (Bal.)
Workings
(W-1) Depreciation Expense
- On opening assets excluding disposals
(1,500,000 – 400,950(W-2) – 609,000 (W-2)) x 10%
- On addition (400,000 x 10% x 11/12) + (650,000 x 10% x 9/12)
- On disposal (W-2) (26,730 + 25,375)
(W-2) WDV of disposals
Disposal on 31.08.09
Cost
Depreciation (2004)
WDV
Depreciation (2005)
WDV
597
Cr.
63,423
22,793
213,784
300,000
Cr.
60,000
3,423
13,439
2,187
7,167
22,793
90,000
(9,000)
81,000
(8,100)
72,900
(7,290)
65,610
(2,187)
63,423
Cr.
374,220
583,625
186,527
1,405,628
Cr.
450,000
300,000
207,845
49,005
85,417
52,105
186,527
Rs.
(550,000 x 10%)
(495,000 x 10%)
550,000
(55,000)
495,000
(49,500)
445,500
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation
WDV
Depreciation
WDV
(2006)
(445,000 x 10%)
(2007)
(31.08.07)
(400,950 x 10% x 8/12)
Disposed on 31.May.07
Cost
Depreciation (2005)
WDV
Depreciation (2006)
WDV
Depreciation (2007)
WDV
(31.May.07)
Answer-65
Dr.
1.1.11 b/d
1.3.11 Cash
Dr.
Building A/c
Building A/c
P/L
(W-1)
(W-2)
(W-1)
(609,000 x 10% x 5/12)
Building A/c – at BV
700,000
Disposals
80,000
Disposals
Depreciation
c/d
(old)
(bal.)
Cr.
87,875
23,925
207,800
460,400
Cr.
77,000
35,000
(700,000 – 95,000 – 33,000) x 30%
(80,000 x 30% x 10/12)
(7,125 + 9,075)
171,600
20,000
16,200
207,800
95,000 Book value
(1.1.11)
(7,125) Dep. (33,000 x 30% x 11/12)
87,875 Book value
(31.11.11)
33,000
(9,075)
23,925
Building A/c – at BV
35,000 31.3.2010 Disposals (W-2)
20,000
Depreciation (W-1)
12,000 31.3.2010 c/d
Disposal A/c
6,737 Furniture
7,500
5,763
Depreciation expense
- On opening excluding disposals
- On additions
On disposals (W-2)
(W-2)
(W-2)
(W-1)
(bal.)
Disposal A/c
87,875 Cash
23,925 Cash
200
WDV of Disposals
Book value
(1.1.11)
Dep. (95,000 x 30% x 3/12)
Book value
(31.3.11)
-
598
(676,667 x 10%)
Depreciation expense
- Opening excluding disposal
- On addition
- On disposals
-
Dr.
Furniture
Cash a/c
P/L
700,000
(23,333)
676,667
(67,667)
609,000
(25,375)
583,625
(700,000 x 10% x 4/12)
(Bal.)
Answer-66
Dr.
1.1.2010 b/d
31.3.2010 Disposals (new)
1.3.2010 Cash
(44,550)
400,950
(26,730)
374,220
(35,000 – 7,000) x 15%
(20,000 x 15% x 9/12)
(12,000 x 15% x 10/12)
Cr.
6,737
8,213
52,050
Cr.
20,000
4,200
2,250
1,500
263
8,213
CHAPTER-7
(W-2)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
WDV of disposals
WDV on 01.01.2010
Depreciation (7,000 x 15% x 3/12)
Answer-67
Dr.
b/d – BV
Disposal – cost
7,000
(263)
6,737
Furniture – WDV
50,000 Disposals – BV (W-1)
18,000 Disposals – BV (W-2)
Depreciation Expense (W-3)
c/d – BV
Cr.
11,352
2,812
7,936
45,900
Dr.
Furniture – BV
Cash
P and L (Bal.)
Disposal – A/c
11,352 Additions
4,000
2,648
Cr.
18,000
Dr.
Furniture – BV
Disposal – A/c
2,812 Cash
P/L (Bal.)
Cr.
1,200
1,612
Journal Entry:
Dr.
18,000
Furniture
P/L
Furniture
Cash
Cash
P and L (bal.)
Furniture
(W-1) WDV of Disposals -1
Cost
Depreciation (31.12.06)
WDV
Depreciation (31.12.07)
WDV
Depreciation (31.03.08)
(W-2) WDV of Disposals-2
Opening book value
Depreciation (31.05.08)
2,648
11,352
4,000
1,200
1,612
2,182
(15,000 x 15% x 6/12)
(13,875 x 15%)
(11,794 x 15% x 3/12)
(3,000 x 15% x 5/12)
(W-3) Depreciation Expense
- On opening excluding disposals (50,000 – 11,794 – 3,000) x 15%
- On additions
(18,000 x 15% x 9/12)
- On disposals
(442 + 188)
Answer-68
Dr.
Building a/c-at Book value – 2008
01.01.08 Opening BV
400,000 30.06.08 Disposals –BV (W-2)
01.06.08 Additions-cost
30,000 30.11.08 Disposals-BV (W.2.2)
30.11.08 Disposal
92,000
Depreciation Expense (W-1)
31.12.08 Closing B.V
599
Cr.
15,000
(1,125)
13,875
(2,081)
11,794
(442)
11,352
3,000
(188)
2,812
5,281
2,025
630
7,936
Cr.
30,600
57,167
80,466
353,767
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr.
Building (adj. # 2)
Building (adj. # 3)
Cash
Dr.
01.01.09
Opening BV
Disposal a/c
30,600 Cash
57,167 Building (New) – cost
80,000 P/L (Bal.)
Building a/c-at Book value – 2009
353,767
Depreciation
(353,767 x 20%)
Cr.
70,753
31.12.09
283,014
Closing B.V
Adj. # 3
Asset a/c
(New)
P/L
(bal.)
Asset old – at BV
Cash
(W-1)
92,000
45,167
57,167
80,000
Depreciation Expense
- On opening excluding disposals (400,000 – 34,000 – 70,000) x 20%
59,200
- On addition
(30,000 x 20% x 7/12) + (92,000 x 20% x 1/12) 5,033
- On disposal
(3,400 + 12,833)
16,233
80,466
(W-2)
(01.04.06)
(31.12.06)
(31.12.06)
(31.12.07)
(31.12.07)
WDV of Disposals (adj. # 2)
Cost
Less: Depreciation (50,000 x 20% 9/12)
WDV
Less: Depreciation (42,500 x 20%)
WDV
Less: Depreciation (34,000 x 20% x 6/12)
(30.06.08) WDV
(W-2.2)
50,000
(7,500)
42,500
(8,500)
34,000
(3,400)
30,600
WDV of Disposals (adj. # 3)
WDV of disposals
(01.01.08)
Less: Depreciation (70,000 x 20% x 11/12)
WDV
(30.11.08)
Answer-69
Dr.
b/d
Furniture
100,000 Disposal
70,000
(12,833)
57,167
(W-2)
c/d
Dr.
Disposal
Cr.
8,856
91,144
Accumulated Depreciation a/c
b/d
(W-1)
(W-2)
3,856
Depreciation (W-3)
c/d (Bal.)
(W-1)
Cr.
12,000
92,000
63,767
Cr.
53,992
6,440
56,576
Opening accumulated depreciation:
70,000−(70,000 𝑥 0.05)
70% furniture
=
x 3.8333
25,492
30 % furniture
x 10 years
28,500
=
10
30,000−(30,000 𝑥 0.05)
10
53,992
600
CHAPTER-7
(W-2)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Cost of Disposal and their Accumulated Depreciation:
Let Cost
100−5
Accumulated Depreciation
= [ 10 x 4.5833]
100
(43.5417)
WDV
56.4583
5,000
Cost in rupees
Accumulated Depreciation
Dr.
Furniture (W-2)
P and L
(W-3)
8,856
3,856
= 56.4583 x 100
(8,856 – 5,000)
Disposal account
8,856 Acc. Depreciation (W-2)
6,000 Cash (Bal.)
Cr.
3,856
11,000
Depreciation Expense:
- On opening cost less cost of Disposal less cost of fully depreciated assets:
Cost
Less: Residual value
- On disposals
(100,000 – 8,856 – 30,000)
(61,144 x 5%)
8,856−5% of 8,856
10
61,144
(3,057)
58,087
x 10%
5,809
631
x 9/12
6,440
Dr.
b/d
Computer account
200,000
c/d
Dr.
Acc. Depreciation a/c
b/d
Depreciation
83,179
c/d
(W-1)
Accumulated Depreciation:
Cost
(1.04.04)
Depreciation
(31.12.04)
WDV
Depreciation
(31.12.05)
WDV
Depreciation
(31.12.06)
W.D.V on 01.01.07
200,000
(W-1)
(W-2)
(200,000 x 5% x 9/12)
(192,500 x 5%)
(182,875 x 5%)
Accumulated Depreciation
(200,000 – 173,731)
Depreciation expense for the year using straight line
WDV−New Residual Value
173,731−3,000
=
=
remaining life
3 years
(W-2)
Dr.
b/d
601
Cr.
Vehicle a/c
300,000 Disposal (old) (iii)
Disposal (new) (W-1)
21,672 Disposal (iv) (W-3)
Purchases (18,000/140x100)
12,857 c/d (Bal.)
Cr.
26,269
56,910
Rs.
200,000
(7,500)
192,500
(9,625)
182,875
(9,144)
173,731
26,269
56,910
Cr.
20,000
8,237
306,292
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr.
Disposal (iii) (W-2)
Disposal (iv) (W-3)
c/d
Accumulated Depreciation
b/d
3,328
3,237
Dep. Expense (W-4)
96,054
Dr.
Vehicle (old)
Cr.
80,000
22,619
Disposal account
20,000 Vehicle (new)
Acc. Depreciation (W-2)
9,000 P and L
Cr.
21,673
3,328
4,000
Disposal account
8,237 Acc. Depreciation (W-3)
Cash
P and L (Bal.)
Alternatively a combined disposal account can be prepared.
(W-1) Disposal Entry
Cr.
3,237
2,000
3,000
Cash
Dr.
Cost (W-3)
Dr.
21,673
3,327
4,000
Vehicle (new) (Bal.)
Acc. Depreciation (old)
Profit and Loss
Vehicle (old)
Cash a/c
20,000
9,000
(W-2)Accumulated Depreciation of Disposals (iii)
Cost
Depreciation (2005)
(20,000 x 10% x 6/12)
WDV
Depreciation (2006)
(19,000 x 10%)
WDV
Depreciation (2007)
(17,100 x 10% x 3/12)
WDV
Accumulated Depreciation
(20,000 – 16,672)
(W-3) Cost and Accumulated Depreciation of Disposals (iv)
Let
Cost
Dep. (2003)
(100 x 10% x 10/12)
WDV
Dep. (2004)
(91.6667 x 10%)
WDV
Dep. (2005)
(82.5001 x 10%)
WDV
Dep. (2006)
(74.2501 x 10%)
WDV
Dep. (2007)
(66.825 x 10% x 11/12)
WDV
602
Cr.
5,000
20,000
(1,000)
19,000
(1,900)
17,100
(428)
16,672
3,328
100
(8.3333)
91.6667
(9.1667)
82.5
(8.25)
74.25
(7.425)
66.825
(6.1256)
60.6994
Cost
= 60.6994 x 100%
8,237
Acc. Dep.
= 8,237 – 5,000
3,237
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-4)Depreciation Expense:
- On opening WDV excluding disposals:
Op. WDV
(300,000 – 80,000)
Less: WDV of disposals:
- Adj. (iii)
8,237
- Adj. (iv) ( 100 x 66.825)
220,000
(17,100)
(5,504)
197,396 x 10%
-
On disposals
-
-
19,740
428
Adj. (iii)
Adj. (iv)
8,237
100
x 6.1256
505
1,946
22,619
On additions (21,672 x 10% x 9/12 + 12,857 x 10% x 3/12)
Answer-70
i)
Rectifying
Original
Advance –
30,000
Advance –Furniture
Furniture
Furniture
30,000
Cash
30,000
30,000
Wrong
Furniture A/C
30,000
Cash
30,000
ii) Furniture
Acc. Dep.
P/L (Bal.)
18,000
Furniture
14,000
Acc. Dep.(W-1)
32,000
P/L (Bal.)
Furniture
Cash
100,000 Furniture A/C
14,000
Cash
32,000
70,000
12,000
12,000
12,000
iii) Acc. Dep.
P/L
12,000
35,000
12,000
33,000
33,000
33,000
Plant and
Mach.
Acc. Dep. (W-2)
Cash
47,000 P/L (Bal.)
35,000
Plant and Mach.
80,000
(W-1) Accumulated Dep. for adj. (ii)
Period used
Accumulated Depreciation (70,000 x 10% x 2 years)
(W-2) Accumulated Dep. of adj. (iii)
Period used
Accumulated Dep. (80,000 x 10% x 1.5 years)
b)
Dr.
Un adj. Cl.
Adj. (ii)
Dr.
Un adj. cl.
603
Cash
Plant and
Mach.
2 years
14,000
1 year and 6 months
12,000
Furniture a/c
800,000 Adj. (i)
18,000
c/d
Cr.
30,000
788,000
Plant and Machinery a/c
300,000 Adj. (iii)
c/d
Cr.
47,000
253,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-71
Date
Jan. 1, 2009
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Description
Land
Cash
Land
Revaluation surplus
Revaluation surplus
P/L (SOCI)
Land
Land
Revaluation surplus
P/L (SOCI)
Land
Revaluation surplus
Dr.
600,000
Cr.
600,000
150,000
150,000
150,000
20,000
170,000
70,000
50,000
20,000
150,000
150,000
(W-1) Calculation of revaluation surplus on land
Date
1/1/09
31/12/09
31/12/09
31/12/10
31/12/10
31/12/11
31/12/11
31/12/12
31/12/12
Description
Cost
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Land
600,000
150,000
750,000
(170,000)
580,000
70,000
650,000
150,000
800,000
R. Surplus
SOCI(P/L)
150,000
(150,000)
50,000
50,000
150,000
200,000
(20,000)
(20,000)
20,000
-
(W-2)
Dr.
1.1.09
31.12.09
1.1.10
Cash
Revaluation surplus
b/d
1.1.11
31.12.11
31.12.11
1.1.12
31.12.12
b/d
Revaluation Surplus
P/L
b/d
Revaluation Surplus
Dr
31-12-09
31-12-10
31-12-11
Bal c/d
Land
Bal c/d
31-12-12
Bal c/d
604
Land A/c
600,000
150,000 31.12.09
750,000 31.12.10
31.12.10
31.12.10
580,000
50,000
20,000 31.12.11
650,000
150,000 31.12.12
Revaluation surplus
Rs
150,000 31-12-09
150,000 1-01-10
50,000 31-12-11
01-01-12
200,000 31-12-12
200,000
Cr.
c/d
Revaluation surplus
P/L (SOCI)
c/d
750,000
150,000
20,000
580,000
c/d
650,000
c/d
800,000
Land
Bal b/d
Land
Bal b/d
Land
Cr.
Rs
150,000
150,000
50,000
50,000
150,000
200,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-72
Date
Jan, 1, 2005
Description
Land
Bank
Land
Revaluation Surplus
Revaluation Surplus
P/L
Land
Land
P/L
Revaluation Surplus
Land
Revaluation Surplus
Dec, 31, 2005
Dec, 31, 2006
Dec, 31, 2007
Dec, 31, 2008
Dr.
700,000
Cr.
700,000
100,000
100,000
100,000
20,000
120,000
70,000
20,000
50,000
75,000
75,000
(W-l) Calculation of revaluation surplus on land
Date
1/1/05
31/12/05
31/12/05
31/12/06
31/12/06
31/12/07
31/12/07
31/12/08
31/12/08
Description
Cost
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Revaluation surplus (bal.)
Revalued amount
Land
700,000
100,000
800,000
(120,000)
680,000
70,000
750,000
75,000
825,000
R. Surplus
SOCI(P/L)
100,000
(100,000)
50,000
50,000
75,000
125,000
(20,000)
(20,000)
20,000
-
(W-2)
Dr.
1-1-2005
31-12-2005
1-1-2006
Bank
Revaluation Surplus
b/d
1-1-2007
31-12-2007
31-12-2007
1-1-2008
31-12-2008
b/d
Revaluation Surplus
P/L
b/d
Revaluation Surplus
Dr.
Land a/c
700,000
100,000 31-12-2005
800,000 31-12-2006
31-12-2006
31-12-2006
680,000
50,000
20,000 31-12-2007
750,000
75,000 31-12-2007
Revaluation surplus
Rs.
100,000 31-12-05
Cr.
c/d
Revaluation Surplus
P/L
c/d
800,000
100,000
20,000
680,000
c/d
750,000
c/d
825,000
Land
Cr.
Rs.
100,000
31-12-05
Bal c/d
31-12-06
Land
100,000 01-01-06
Bal b/d
100,000
31-12-07
Bal c/d
31-12-08
Bal c/d
50,000 31-12-07
01-01-08
125,000 31-12-08
125,000
Land
Bal b/d
Land
50,000
50,000
75,000
125,000
605
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-73
Journal entries
Date
Particular
1/1/2001
Plant
Cash
31/12/2001
Depreciation
Accumulated depreciation
1/1/2002
Accumulated depreciation
Plant
1/1/2002
Plant
Revaluation surplus
31/12/2002
Depreciation
Accumulated depreciation
31/12/2002
Revaluation surplus (90,000/9)
Retained earnings
1/1/2003
Accumulated depreciation
Plant
1/1/2003
Revaluation surplus
P/L
Plant
31/12/2003
Depreciation
Accumulated depreciation
1/1/2004
Accumulated depreciation
Plant
1/1/2004
Plant
Revaluation surplus
P/L
31/12/2004
Depreciation
Accumulated depreciation
31/12/2004
Revaluation surplus (7,000/7)
Retained earnings
1/1/2005
Accumulated depreciation
Plant
1/1/2005
Plant
Revaluation surplus
31/12/2005
Depreciation
Accumulated depreciation
31/12/2005
Revaluation surplus
Retained earnings
Dr.
100,000
Cr.
100,000
10,000
10,000
10,000
10,000
90,000
90,000
20,000
20,000
10,000
10,000
20,000
20,000
80,000
20,000
100,000
7,500
7,500
7,500
7,500
24,500
7,000
17,500
11,000
11,000
1,000
1,000
11,000
11,000
54,000
54,000
20,000
20,000
10,000
10,000
(W-1) Calculation of revaluation surplus and depreciation on plant
Date
01/1/01
31/12/01
31/12/01
1/1/02
606
Description
Cost
Depreciation (100,000/10)
WDV
Revaluation surplus (bal.)
Plant
100,000
(10,000)
90,000
90,000
R. Surplus
90,000
SOCI(P/L)
CHAPTER-7
1/1/02
31/12/02
31/12/02
1/1/03
1/1/03
31/12/03
31/12/03
1/1/04
1/1/04
31/12/04
31/12/04
1/1/05
1/1/05
31/12/05
31/12/05
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Revalued amount
Depreciation (180,000/9) : (90,000/9)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (60,000/8) : (20,000/8)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (77,000/7):(7,000/7)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (120,000/6):(60,000/6)
WDV
180,000
(20,000)
160,000
(100,000)
60,000
(7,500)
52,500
24,500
77,000
(11,000)
66,000
54,000
120,000
(20,000)
100,000
90,000
(10,000)
80,000
(80,000)
-
7,000
7,000
(1,000)
6,000
54,000
60,000
(10,000)
50,000
(20,000)
(20,000)
2,500
(17,500)
17,500
-
(W-2)
Dr.
.
1-1-2001
Cash
1-1-2002
1-1-2002
1-1-2003
b/d
Rev. Surplus
b/d
1-1-2004
1-1-2004
1-1-2004
1-1-2005
1-1-2005
b/d
Rev. Surplus
P/L
b/d
Revaluation Surplus
Plant account
100,000
31-12-2001
100,000 1-1-2002
90,000 31-12-2002
180,000 1-1-2003
1-1-2003
1-1-2003
31-12-2003
60,000 1-1-2004
7,000
17,500 31-12-2004
77,000 1-1-2005
54,000 31-12-2005
Dr.
31-12-2001
1-1-2002
31-12-2002
1-1-2003
31-12-2003
1-1-2004
31-12-2004
1-1-2005
31-12-2005
c/d
Plant
c/d
Plant
c/d
Plant
c/d
Plant
c/d
Dr.
31-12-2002
31-12-2002
1-1-2003
31-12-2003
31-12-2004
31-12-2004
31-12-2005
31-12-2005
Revaluation Surplus account
Retained Earnings
10,000 1-1-2002
c/d
80,000
Plant
80,000 1-1-2003
c/d
-Retained Earning
1,000 1-1-2004
c/d
6,000
Retained Earning
10,000 1-1-2005
c/d
50,000 1-1-2005
607
Cr
c/d
Acc. Depreciation
c/d
Acc. Depreciation
Rev. Surplus
P/L
c/d
Acc. Depreciation
100,000
10,000
180,000
20,000
80,000
20,000
60,000
7,500
c/d
Acc. Depreciation
c/d
77,000
11,000
120,000
Accumulated Depreciation a/c
10,000 31-12-2001 Depreciation
10,000 1-1-2002
b/d
20,000 31-12-2002 Dep. Expense
20,000 1-1-2003
b/d
7,500 31-12-2003 Depreciation
7,500 1-1-2004
b/d
11,000 31-12-2004 Depreciation
11,000 1-1-2005
b/d
20,000 31-12-2005 Depreciation
Cr.
10,000
10,000
20,000
20,000
7,500
7,500
11,000
11,000
20,000
Plant.
Cr.
90,000
b/d
80,000
Plant
7,000
b/d
Plant
6,000
54,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr
31-12-02
31-12-03
Bal c/d
Bal c/d
31-12-04
Bal c/d
31-12-05
Bal c/d
Retained earnings
Rs
10,000 31-12-02
10,000 01-01-03
01-01-04
11,000 31-12-04
11,000
01-01-05
21,000 31.12.05
21,000
Cr
Rs
10,000
10,000
10,000
1,000
11,000
11,000
10,000
21,000
Rev. surplus
Bal b/d
Bal b/d
Rev. surplus
Bal b/d
Rev. surplus
Answer-74
Entries:
Date
1-1-2010
31-12-2010
1-1-2011
1-1-2011
31-12-2011
31-12-2011
1-1-2012
1-1-2012
31-12-2012
1-1-2013
1-1-2013
31-12-2013
31-12-2013
1-1-2014
1-1-2014
31-12-2014
31-12-2014
608
Particulars
Building
Cash
Depreciation expenses
Accumulated Depreciation
Accumulated Depreciation
Building
Building
Revaluation Surplus
Depreciation Expense
Accumulated Depreciation
Revaluation Surplus (75,000/19)
Retained Earnings
Accumulated Depreciation
Building
Revaluation Surplus
P/L
Building
Depreciation Expense
Accumulated Expenses
Accumulated Depreciation
Building
Building
Revaluation surplus
P/L
Depreciation Expense
Accumulated Depreciation
Revaluation Surplus (325,000/17)
Retain Earnings
Accumulated Depreciation
Building
Building
Revaluation Surplus
Depreciation Expense
Accumulated Depreciation
Revaluation Surplus
Retained Earnings
Dr.
500,000
Cr.
500,000
25,000
25,000
25,000
25,000
75,000
75,000
28,947
28,947
3,947
3,947
28,947
28,947
71,053
70,000
141,053
21,111
21,111
21,111
21,111
391,111
325,000
66,111
44,118
44,118
19,118
19,118
44,118
44,118
94,118
94,118
50,000
50,000
25,000
25,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-l) Calculation of revaluation surplus and depreciation on building
Date
1/1/10
31/12/10
31/12/10
1/1/11
1/1/11
31/12/11
31/12/11
1/1/12
1/1/12
31/12/12
31/12/12
1/1/13
1/1/13
31/12/13
31/12/13
1/1/14
1/1/14
31/12/14
31/12/14
Description
Cost
Depreciation (500,000/20)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (550,000/19):(75,000/19)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (380,000/18):(70,000/l8)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (750,000/17):(325,000/17)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (800,000/16):(400,000/16)
WDV
Building
500,000
(25,000)
475,000
75,000
550,000
(28,947)
521,053
(141,053)
380,000
(21,111)
358,889
391,111
750,000
(44,118)
705,882
94,118
800,000
(50,000)
750,000
R. Surplus
75,000
75,000
(3,947)
71,053
(71,053)
-
325,000
325,000
(19,118)
305,882
94,118
400,000
(25,000)
375,000
SOCI(P/L)
(70,000)
(70,000)
3,889
(66,111)
66,111
(W-2)
Dr.
1-1-2010
Cash
b/d
Revaluation surplus
P/L
Building Account
500,000
31-12-2010
500,000 1-1-2011
75,000 31-12-2011
550,000 1-1-2012
1-1-2012
1-1-2012
31-12-2012
380,000 1-1-2013
325,000
66,111 31-12-2013
1-1-2011
1-1-2011
1-1-2012
b/d
Revaluation Surplus
b/d
1-1-2013
1-1-2013
1-1-2013
1-1-2014
1-1-2014
c/d
Acc. Depreciation
c/d
Acc. Depreciation
Rev. surplus
P/L
c/d
Acc. Depreciation
500,000
25,000
550,000
28,947
71,053
70,000
380,000
21,111
c/d
750,000
b/d
Revaluation surplus
750,000 1-1-2014
94,118 31-12-2014
Acc. Depreciation
c/d
(W-3)
Dr.
31-12-2010
1-1-2011
31-12-2011
1-1-2012
31-12-2012
1-1-2013
31-12-2013
1-1-2014
31-12-2014
609
c/d
Building
c/d
Building
c/d
Building
c/d
Building
c/d
Cr.
Accumulated Depreciation Account
31-12-2010 Dep. Expense
25,000
25,000 1-1-2011
b/d
28,947 31-12-2011 Dep. Expense
28,947 1-1-2012
b/d
21,111 31-12-2012 Dep. Expense
21,111 1-1-2013
b/d
44,118 31-12-2013 Dep. Expense
44,118 1-1-2014
b/d
50,000 31-12-2014 Dep. Expense
44,118
80,000
Cr.
25,000
25,000
28,947
28,947
21,111
21,111
44,118
44,118
50,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-4)
Dr.
31-12-2011
31-12-2011
1-1-2012
31-12-2013
31-12-2013
31-12-2014
31-12-2014
Retained Earnings
c/d
Building
C/d
Retained Earnings
c/d
Retained Earnings
c/d
Dr
31-12-11
31-12-12
Bal c/d
Bal c/d
31-12-13
Bal c/d
31-12-14
Bal c/d
Revaluation Surplus Account
3,947 1-1-2011
Building
71,053
71,053 1-1-2012
b/d
19,118 1-1-2013
305,882
25,000 1-1-2014
375,000 1-1-2014
Retained earnings
Rs
3,947 31-12-11
3,947 01-01-12
01-01-13
23,065
23,065
01-01-14
48,065 31-12-14
48,065
Answer-75
Journal entries
Date
Particulars
1/7/06
Building
Bank
(Purchase of building)
30/6/07 Depreciation expense
Accumulated depreciation
(Recording of depreciation on building)
30/6/07 Accumulated depreciation
Building
(Transfer of accumulated depreciation to building)
30/6/07 Building
Revaluation surplus
(Recording of revaluation surplus)
30/6/08 Depreciation expense
Accumulated depreciation
(Recording of depreciation on building)
30/6/08 Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
30/6/08 Accumulated depreciation
Building
(Transfer of accumulated depreciation to building)
30/6/08 Revaluation surplus
P/L
Building
(Recording of revaluation loss)
610
Cr.
75,000
71,053
Building
325,000
b/d
Building
305,882
94,118
Cr
Revaluation surplus
Bal b/d
Bal b/d
Revaluation surplus
Bal b/d
Revaluation surplus
Dr.
100,000
Rs
3,947
3,947
3,947
19,118
23,065
23,068
25,000
48,065
Cr.
100,000
10,000
10,000
10,000
10,000
60,000
60,000
16,667
16,667
6,667
6,667
16,667
16,667
53,333
10,000
63,333
CHAPTER-7
30/6/09
30/6/09
30/6/09
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation expense
Accumulated depreciation
(Recording of depreciation on building)
Accumulated depreciation
Building
(Transfer of accumulated depreciation to building)
Building
Revaluation surplus
P/L
(Recording of revaluation surplus)
8,750
8,750
8,750
8,750
58,750
50,000
8,750
(W-1) Calculation of revaluation surplus and depreciation
Date
1/7/06
30/6/07
30/6/07
30/6/07
30/6/07
30/6/08
30/6/08
30/6/08
30/6/08
30/6/09
30/6/09
30/6/09
30/6/09
Description
Cost
Depreciation (100,000/10)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (150,000/9):(60,000/9)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (70,000/8):(10,000/8)
WDV
Revaluation surplus (bal.)
Revalued amount
Dr
01-07-06
30-07-07
Bank
Rev. surplus
01-07-07
Bal b/d
01-07-08
30-06-09
30-06-09
Bal b/d
Rev. surplus
P/L
Dr
30-06-07
30-06-08
30-06-08
30-06-09
30-06-09
611
Building
Building
Building
Bal c/d
Building
Bal c/d
100,000
(10,000)
90,000
60,000
150,000
(16,667)
133,333
(63,333)
70,000
(8,750)
61,250
58,750
120,000
Building account
Rs
100,000 30-06-07
60,000 30-06-07
160,000
150,000 30-06-08
30-06-08
30-06-08
30-06-08
150,000
70,000
50,000
8,750 30.6.09
128,750
Rev.
Surplus
60,000
60,000
(6,667)
53,333
(53,333)
-
50,000
58,750
Acc. dep
Bal c/d
Acc. dep
Rev. surplus
P/L
Bal c/d
c/d
Accumulated depreciation account
Rs
10,000 30-06-07
Depreciation
16,667 30-06-8
Depreciation
16,667
8,750 01-07-08
Bal b/d
- 30-06-09
depreciation
8,750
SOCI(P/L)
(10,000)
(10,000)
1,250
(8,750)
8,750
Cr
Rs
10,000
150,000
160,000
16,667
53,333
10,000
70,000
150,000
128,750
128,750
Cr
Rs
10,000
16,667
16,667
8,750
8,750
CHAPTER-7
Dr
30-06-07
30-06-08
30-06-08
30-06-08
30-06-09
Bal c/d
Retained earning
Building
Bal c/d
Bal c/d
Dr
30-06-08
30-06-09
Bal c/d
Bal c/d
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Revaluation surplus
Rs
60,000 30-06-07
6,667 01-07-07
53,333
60,000
01-07-08
50,000 30-06-09
50,000
Retained earnings
Rs
6,667 30-06-08
6,667 01-07-08
Answer-76
Journal entries
Date
Particulars
1/7/10
Plant
Bank
(Purchase of plant)
30/6/11 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/11 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
30/6/11 Plant
Revaluation surplus
(Recording of revaluation surplus)
30/6/12 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/12
30/6/12
30/6/12
30/6/13
30/6/13
30/6/13
612
Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
Revaluation surplus
Plant
(Recording of revaluation loss)
Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
Cr
Rs
60,000
60,000
Building
Bal b/d
60,000
50,000
50,000
Bal b/d
Building
Revaluation surplus
Bal b/d
Dr.
350,000
Cr
Rs
6,667
6,667
Cr.
350,000
17,500
17,500
17,500
17,500
142,500
142,500
25,000
25,000
7,500
7,500
25,000
25,000
60,000
60,000
21,667
21,667
4,167
4,167
21,667
21,667
CHAPTER-7
30/6/13
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Plant
11,667
Revaluation surplus
(Recording of revaluation surplus)
11,667
(W-1) Calculation of revaluation surplus and depreciation
R.
Surplus
Date
Description
Building
1/7/10
30/6/11
30/6/11
30/6/11
30/6/11
30/6/12
Cost
Depreciation (350,000/20)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation
(475,000/19):(142,500/19)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (390,000/18):(75,000/18)
WDV
Revaluation surplus (bal.)
Revalued amount
350,000
(17,500)
332,500
142,500
475,000
(25,000)
142,500
142,500
(7,500)
450,000
(60,000)
390,000
(21,667)
368,333
11,667
380,000
135,000
(60,000)
75,000
(4,167)
70,833
11,667
82,500
30/6/12
30/6/12
30/6/12
30/6/13
30/6/13
30/6/13
30/6/13
Dr
01-01-11
30-6-11
Bank
Rev. surplus
01-07-11
Bal b/d
01-07-12
30-06-13
Bal b/d
Rev. surplus
Dr
30-06-11
30-06-12
30-06-12
Plant
Plant
Bal c/d
30-06-13
30-06-13
Plant
Bal c/d
Dr
30-06-12
Bal c/d
30-06-13
Bal c/d
613
Plant account
Rs
350,000 30-06-11
142,500 30-06-11
492,500
475,000 30-06-12
30-06-12
30-06-12
475,000
407,500 30-06-13
11,667 30-06-13
419,167
Acc. dep
Bal c/d
Acc. Dep
Rev. surplus
Bal c/d
Acc. dep
Bal c/d
Accumulated depreciation account
Rs
17,500 30-06-11
Depreciation
25,000 01-07-11
Bal b/d
- 30-06-12
Depreciation
25,000
21,667 01-07-12
Bal b/d
- 30-06-13
Depreciation
21,667
Retained earnings
Rs
7,500 30-06-12
01-07-12
11,667 30-06-13
11,667
Revaluation surplus
Bal b/d
Revaluation surplus
SOCI(P/L)
Cr
Rs
17,500
475,000
492,500
7,500
60,000
407,500
475,000
21,667
397,500
419,167
Cr
Rs
17,500
25,000
25,000
21,667
21,667
Cr
Rs
7,500
7,500
4,167
11,667
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr
30-06-11
30-06-12
30-06-12
30-06-12
Bal c/d
Retained earnings
Plant
Bal c/d
30-06-13
30-06-13
Retained earnings
Bal c/d
Revaluation surplus
Rs
142,500 30-06-11
7,500 01-07-11
60,000
75,000
142,500
4,167 01-07-12
70,833
75,000
Answer-77
Journal entries
Date
Particulars
1/1/01 Plant
Bank
(Purchase of plant)
31/12/01 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/02 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/02 Accumulated depreciation (20,000 + 20,000)
Plant
(Transfer of accumulated depreciation to plant)
31/12/02 Plant
Revaluation surplus
(Recording of revaluation surplus)
31/12/03 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/03 Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
31/12/03 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
31/12/03 Revaluation surplus
P/L
Plant
(Recording of revaluation loss)
31/12/04 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/04 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
31/12/04 P/L
Plant
(Recording of revaluation loss)
31/12/05 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
614
Plant
Bal b/d
Cr
Rs
142,500
142,500
Bal b/d
142,500
75,000
75,000
Dr.
200,000
Cr.
200,000
20,000
20,000
20,000
20,000
40,000
40,000
120,000
120,000
35,000
35,000
15,000
15,000
35,000
35,000
105,000
60,000
165,000
11,429
11,429
11,429
11,429
8,571
8,571
10,000
10,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
31/12/05 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
31/12/05 Plant
Revaluation surplus
Revaluation loss
(Recording of revaluation surplus)
10,000
10,000
70,000
20,000
50,000
(W-1) Calculation of revaluation surplus and depreciation
Date
Description
Building
1/1/01
Cost
200,000
31/12/01
Depreciation (200,000/10)
(20,000)
31/12/01
WDV
180,000
31/12/02
Depreciation (200,000/10)
(20,000)
31/12/02
WDV
160,000
31/12/02
Revaluation surplus (bal.)
120,000
31/12/02
Revalued amount
280,000
31/12/03
Depreciation (280,000/8):(120,000/8)
(35,000)
31/12/03
WDV
245,000
31/12/03
Revaluation surplus (bal.)
(165,000)
31/12/03
Revalued amount
80,000
31/12/04
Depreciation (80,000/7):(60,000/7)
(11,429)
31/12/04
WDV
68,571
31/12/04
Revaluation surplus (bal.)
(8,571)
31/12/04
Revalued amount
60,000
31/12/05
Depreciation (60,000/6):(60,000/6)
(10,000)
31/12/05
WDV
50,000
31/12/05
Revaluation surplus (bal.)
70,000
31/12/05
Revalued amount
120,000
Dr
01-01-01
01-01-02
31-12-02
Bank
Bal b/d
Revaluation surplus
01-01-03
Bal b/d
01-01-04
Bal b/d
01-01-05
31-12-05
31-12-05
Bal b/d
P/L
Rev. surplus
Dr
31-12-03
31-12-04
31-12-05
615
Bal c/d
Bal c/d
Bal c/d
Plant account
Rs
200,000 31-12-01
200,000 31-12-02
120,000 31-12-02
320,000
280,000 31-12-03
31-12-03
31-12-03
31-12-03
280,000
80,000 31-12-04
31-12-04
31-12-04
80,000
60,000 31-12-05
50,000
20,000 31-12-05
130,000
R. Surplus
120,000
120,000
(15,000)
105,000
(105,000)
-
Bal c/d
Acc. dep
Bal c/d
Acc. dep
Rev. surplus
P/L
Bal c/d
Acc. dep
P/L
Bal c/d
Acc. dep
Bal c/d
Retained earnings
Rs
15,000 31-12-03 Rev. surplus
15,000 01-01-04 Bal b/d
15,000 01-01-05 Bal b/d
-
20,000
20,000
SOCI(P/L)
(60,000)
(60,000)
8,571
(51,429)
(8,571)
(60,000)
10,000
(50,000)
50,000
Cr
Rs
200,000
40,000
280,000
320,000
35,000
105,000
60,000
80,000
280,000
11,429
8,751
60,000
80,000
10,000
120,000
130,000
Cr
Rs
15,000
15,000
15,000
CHAPTER-7
Dr
31-12-01
31-12-02
31-12-02
Bal c/d
Plant
Bal c/d
31-12-03
31-12-03
Plant
Bal c/d
31-12-04
31-12-04
Plant
Bal c/d
31-12-05
31-12-05
Plant
Bal c/d
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation account
Rs
20,000 31-12-01
Depreciation
40,000 01-01-02
Bal b/d
- 31-12-02
depreciation
40,000
35,000 01-01-03
Bal b/d
- 31-12-03
depreciation
35,000
11,429 01-01-04
Bal b/d
- 31-12-04
depreciation
11,429
10,000 01-01-05
Bal b/d
- 31-12-05
depreciation
10,000
Answer-78
Journal entries
Date
Particulars
1/7/15
Plant
Bank
(Purchase of plant)
30/6/16 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/16 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
30/6/16 P/L (Revaluation loss)
Plant
(Recording of revaluation deficit)
30/6/17 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/17 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
30/6/17 Plant
Revaluation surplus
P/L
(Recording of revaluation surplus)
30/6/18 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/18 Revaluation Surplus
Retained earnings
(transfer of remaining revaluation surplus to retained earnings)
30/6/18 Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
616
Cr
Rs
20,000
20,000
20,000
40,000
35,000
35,000
11,429
11,429
10,000
10,000
Rs. million
Dr.
Cr.
100
100
10
10
10
10
10
10
8.89
8.89
8.89
8.89
23.89
15
8.89
11.875
11.875
1.875
1.875
11.875
11.875
CHAPTER-7
30/6/18
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Plant
26.875
Revaluation surplus
(Recording of revaluation surplus)
(W-1) Calculation of revaluation surplus and depreciation
Plant Rs.
Date
Description
Million
1/7/15
Cost
100
30/6/16
Depreciation (100/10)
(10)
30/6/16
WDV
90
30/6/16
Revaluation surplus/ (loss) (bal.)
(10)
30/6/16
Revalued amount
80
30/6/17
Depreciation (80/9):(10/9)
(8.89)
30/6/17
WDV
71.11
30/6/17
Revaluation surplus (bal.)
23.89
30/6/17
Revalued amount
95
30/6/18
Depreciation (95/8):(15/8)
(11.875)
30/6/18
WDV
83.125
30/6/18
Revaluation surplus (bal.)
26.875
30/6/18
Revalued amount
110
Dr
01-07-15
Bank
01-07-16
30-06-17
30-06-17
Bal b/d
P/L
Rev. surplus
01-07-17
30-06-18
Bal b/d
Rev. surplus
Dr
30-06-16
Bal c/d
30-06-17
Bal c/d
30-06-18
30-06-18
Retained earnings
Bal c/d
Dr
30-06-16
30-06-16
Plant
Bal c/d
30-06-17
Plant
617
Plant account
Rs
100,000 30-06-16
30-06-16
30-06-16
100,000
80,000 30-06-17
8,889
15,000 30-06-17
103,889
95,000 30-06-18
26,875 30-06-18
121,875
Revaluation surplus
Rs
- 01-07-15
01-07-16
15,000 30-06-17
15,000
1,875 01-07-17
40,000 30-06-18
41,875
26.875
R. Surplus
Rs. Million
15
15
(1.875)
13.125
26.875
40
Acc. dep
P/L
Bal c/d
Acc. dep
Bal c/d
Acc. Dep
Bal c/d
SOCI(P/L)
Rs. Million
(10)
(10)
1.11
(8.89)
8.89
0
Cr
Rs
10,000
10,000
80,000
100,000
8,889
95,000
103,889
11,875
11,000
121,875
Cr
Rs
Bal b/d
Bal b/d
Plant
Bal b/d
Plant
Accumulated depreciation account
Rs
10,000 01-07-15
Bal b/d
- 30-06-16
Depreciation
10,000
8,889 01-07-16
Bal b/d
15,000
15,000
15,000
26,875
41,875
Cr
Rs
10,000
10,000
-
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
30-06-17
Bal c/d
30-06-18
30-06-18
Plant
Bal c/d
Dr
30-06-18
Bal c/d
- 30-06-17
8,889
11,875 01-07-17
- 30-06-18
11,875
Retained earnings
Rs
1,875 30-06-18
1,875
Answer-79
Journal entries
Date
Particulars
1/7/10
Plant
Bank
(Purchase of plant)
30/6/11 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
1/7/11
Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
1/7/11
Plant
Revaluation surplus
(Recording of revaluation surplus)
30/6/12 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
30/6/12 Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
1/7/12
Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
1/7/12
Revaluation surplus
P/L (bal.)
Plant
(Recording of revaluation loss)
30/6/13 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
1/7/13
Accumulated depreciation
Plant
(Transfer of accumulated depreciation to plant)
1/7/13
Plant
P/L
Revaluation surplus
(Recording of revaluation surplus)
618
Depreciation
8,889
8,889
11,875
11,875
Bal b/d
Depreciation
Revaluation surplus
Dr.
500,000
Cr
Rs
1,875
1,875
Rs.
Cr.
500,000
25,000
25,000
25,000
25,000
5,000
5,000
25,263
25,263
263
263
25,263
25,263
4,737
60,000
64,737
21,667
21,667
21,667
21,667
81,667
56,667
25,000
CHAPTER-7
30/6/14
30/6/14
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
Revaluation surplus
Retained earnings
(Transfer of revaluation surplus to retained earnings)
26,471
26,471
1,471
1,471
(W-1) Calculation of revaluation surplus and depreciation
Date
Description
Plant
1/7/10
Cost
500,000
30/6/11
Depreciation (500,000/20)
(25,000)
30/6/11
WDV
475,000
1/7/11
Revaluation surplus (bal.)
5,000
1/7/11
Revalued amount
480,000
30/6/12
Depreciation (480,000/19):(5,000/19)
(25,263)
30/6/12
WDV
454,737
1/7/12
Revaluation surplus (bal.)
(64,737)
1/7/12
Revalued amount
390,000
30/6/13
Depreciation(390,000/18):(60,000/18)
(21,667)
30/6/13
WDV
368,333
1/7/13
Revaluation surplus (bal.)
81,667
1/7/13
Revalued amount
450,000
30/6/14
Depreciation (450,000/17):(25,000/17)
(26,471)
30/6/14
WDV
423,529
Dr
01-07-10
01-07-11
01-07-11
Bank
Bal b/d
Rev. surplus
01-07-12
Bal b/d
01-07-13
01-07-13
Bal b/d
Rev. surplus
619
Plant account
Rs
500,000 30-06-11
500,000 01-07-11
5,000 30-06-12
505,000
480,000 01-07-12
01-07-12
01-07-12
30-06-13
480,000
390,000 01-07-13
81,667 30-06-14
471,667
R. Surplus
Bal c/d
Acc. dep
Bal c/d
Acc. dep
Rev. surplus
P/L
Bal c/d
Acc. dep
Bal c/d
5,000
5,000
(263)
4,737
(4,737)
25,000
25,000
(1,471)
23,529
Rs.
SOCI(P/L)
(60,000)
(60,000)
3,333
(56,667)
56,667
-
Cr
Rs
500,000
25,000
480,000
505,000
25,263
4,737
60,000
390,000
480,000
21,667
450,000
471,667
CHAPTER-7
Dr
30-06-11
Bal c/d
01-07-11
30-06-12
Plant
Bal c/d
01-07-12
30-06-13
Plant
Bal c/d
01-07-13
30-06014
Plant
Bal c/d
Dr
30-06-12
30-06-12
01-07-12
30-06-14
30-06-14
Retained earnings
Bal c/d
Plant
Retained earning
Bal c/d
Dr
30-06-12
30-06-13
Bal c/d
Bal c/d
30-06-14
Bal c/d
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation account
Rs
01-07-10 Bal b/d
25,000 30-06-11 Depreciation
25,000
25,000 01-07-11 Bal b/d
25,263 30-06-12 Depreciation
50,263
25,263 01-07-12 Bal b/d
21,667 30-06-13 Depreciation
46,930
21,667 01-07-13 Bal b/d
26,471 30-06-14 Depreciation
48,138
Revaluation surplus
Rs
263 01-07-11
4,737
5,000
4,737 01-07-12
1,471 01-07-13
23,529 0107-13
25,000
Retained earnings
Rs
263 30-06-12
263 01-07-12
01-07-13
1,734 30-06-14
1,734
Answer-80
Journal entries
Date
Particulars
1/1/11 Plant
Bank
(Purchase of plant)
31/12/11 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/12 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/12 Accumulated depreciation (40,000 + 40,000)
Plant
(Transfer of accumulated depreciation to plant)
31/12/12 Plant
Revaluation surplus
(Recording of revaluation surplus)
620
Cr
Rs
25000
25,000
25,000
25,263
50,263
25,263
21,667
46,930
21,667
26,471
48,138
Cr
Rs
5,000
Plant
5,000
4,737
25,000
25,000
Bal b/d
Bal b/d
plant
Cr
Rs
263
263
263
1,471
1,734
Revaluation surplus
Bal b/d
Bal b/d
Revaluation surplus
Rs.
Dr.
600,000
Cr.
600,000
40,000
40,000
40,000
40,000
80,000
80,000
30,000
30,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
31/12/13 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/13 Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
31/12/14 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/14 Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
31/12/15 Depreciation expense
Accumulated depreciation
(Recording of depreciation on plant)
31/12/15 Revaluation surplus
Retained earnings
(Transfer of revaluation surplus to retained earnings)
31/12/15 Accumulated depreciation (42,308 x 3)
Plant
(Transfer of accumulated depreciation to plant)
31/12/15 P/L (bal.)
Revaluation surplus
Plant
(Recording of revaluation loss)
W-1) Calculation of revaluation surplus and depreciation
Date
Description
Plant
1/1/11
31/12/11
31/12/11
31/12/12
31/12/12
31/12/12
31/12/12
31/12/13
31/12/13
31/12/14
31/12/14
31/12/15
31/12/15
31/12/15
31/12/15
621
Cost
Depreciation (600,000/15)
WDV
Depreciation (600,000/15)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (550,000/13):(30,000/13)
WDV
Depreciation (550,000/13):(30,000/13)
WDV
Depreciation (550,000/13):(30,000/13)
WDV
Revaluation surplus/loss (bal.)
Revalued amount
600,000
(40,000)
560,000
(40,000)
520,000
30,000
550,000
(42,308)
507,692
(42,308)
465,384
(42,308)
423,076
(323,076)
100,000
42,308
42,308
2,308
2,308
42,308
42,308
2,308
2,308
42,308
42,308
2,308
2,308
126,924
126,924
300,000
23,076
323,076
R.
Surplus
30,000
30,000
(2,308)
27,692
(2,308)
25,384
(2,308)
23,076
(23,076)
-
Rs.
SOCI(P/L)
(300,000)
(300,000)
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-81
Journal Entries
Date
1.1.10
31-12-10
1.1.11
1.1.11
31.3.11
31.3.11
31.3.11
31.3.11
Rs. In million
Dr.
Cr.
300
300
30
30
30
30
230
230
13.89
13.89
6.39
6.39
750
13.89
500
263.89
323.61
323.61
Particulars
Plant
Bank
Depreciation
Accumulated depreciation
Accumulated depreciation
Plant
Plant
Revaluation surplus
Depreciation
Accumulated depreciation
Revaluation surplus
Retained earnings
Bank
Accumulated depreciation
Plant
Gain on disposal
Revaluation surplus
Retained earnings
WORKING
(W-1)
Date
1.1.10
31.12.10
31.12.10
1.1.11
1.1.11
31.3.11
31.3.11
31.3.11
Particulars
Plant
Cost
Depreciation (300/10)
W.D.V
Revaluation surplus
Revalued amount
Depreciation [
500
9
×
3
12
]∶ [
230
9
×
3
]
12
W.DV
Disposal
Revaluati
on surplus
Profit /
Loss
(SOCI)
300
(30)
270
230
500
230
230
-
(13.89)
(6.39)
-
486.11
(486.11)
223.61
(223.61)
Answer-82
Journal Entries
Date
1.1.12
31.12.12
1.1.13
1.1.13
31.12.13
622
Particulars
Building
Bank
Depreciation
Accumulated depreciation
Accumulated depreciation
Building
Building
Revaluation surplus
Depreciation
Accumulated depreciation
Rs. In million
Dr.
Cr.
300
300
15
15
15
15
38
38
17
17
CHAPTER-7
31.12.13
1.1.14
1.1.14
31.12.14
1.1.13
1.1.13
30.6.13
30.6.13
30.6.13
30.6.13
31.12.15
31.12.15
Revaluation surplus
Retained earnings
Accumulated depreciation
Building
Revaluation surplus
Profit & loss
Building
Depreciation
Accumulated depreciation
Accumulated depreciation
Building
Building
Revaluation surplus
Profit and loss
Depreciation
Accumulated depreciation
Revaluation surplus
Retained earnings
Bank
Accumulated depreciation
Building
Gain
Revaluation surplus
Retained earning
Depreciation
Accumulated depreciation
Revaluation surplus
Retained earning
1.1.10
1.1.12
b/d
bank
1.1.13
1.1.13
b/d
Revaluation surplus
1.1.14
b/d
1.1.13
1.1.15
1.1.15
b/d
Revaluation surplus
profit & loss
623
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Building Account
Rs.
300 31.12.12
300
300 1/1/13
38
31.12.13
338
323 1/1/14
1.1.14
1.1.14
31.12.14
323
252 1.1.13
17 30.6.15
17
31.12.15
286
2
2
17
17
36
18
54
14
14
14
14
34
17
17
2
2
0.125
0.125
80
2
68
14
4.125
4.125
12
12
0.75
0.75
Rs.
c/d
Accumulated depreciation
c/d
Accumulated depreciation
Revaluation surplus
Profit & loss
c/d
Accumulated depreciation
disposal
c/d
300
300
15
323
338
17
36
18
252
323
14
68
204
286
CHAPTER-7
31.12.12 c/d
1.1.13
Building
c/d
1.1.14
Building
c/d
1.1.13
30.6.18
Build
Disposal
c/d
31.12.13 Retained earning
c/d
1.1.14
Building
c/d
30.6.15 Retained earning
30.6.15 Retained earning
31.12.15 Retained earning
c/d
31.12.13 c/d
31.12.14 c/d
31.12.13 c/d
Building
Gain
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated Depreciation
Rs.
1.1.12
b/d
15 31.12.12 Depreciation
15
15 1.1.13
b/d
17 31.12.13 Depreciation
32
17 1.1.14
b/d
14 31.12.14 Depreciation
31
14 1.1.13
b/d
2 30.6.13 Depreciation
12 31.12.15 Depreciation
28
Revaluation Surplus
Rs.
1.1.13
2
36
38
36 1.1.14
36
0.125 1.1.15
4.125 1.1.15
0.75
12
17
Retained Earnings
Rs.
31.12.13
2
2
1.1.14
2
2
1.1.15
30.6.15
30.6.15
31.12.15
7
7
15
15
15
17
32
17
14
31
14
2
12
28
Rs.
38
b/d
38
36
b/d
Building
36
17
17
Revaluation surplus
b/d
b/d
Revaluation surplus
Revaluation depreciation
Revaluation surplus
Disposal Account
Rs.
68 Bank
14 Accoumulated depreciation
82
624
Building
Rs.
Rs.
2
2
2
2
2
0.125
4.125
0.75
7
Rs.
80
2
82
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
WORKING
(W-1)
Date
Particulars
1.1.12
31.12.12
31.12.12
1.1.13
1.1.13
31.12.13
31.12.13
1.1.14
1.1.14
31.12.14
31.12.14
1.1.13
1.1.15
30.6.15
cost
Depreciation 300/20
W.D.V
Revaluation surplus
Revaluated amount
Depreciation [323/19] : [38/19]
W.D.V
Revaluation surplus
Revalued amount
Depreciation [252/18] : [18/18]
W.D.V
Revaluation surplus
Revaluated amount
30.6.15
31.12.15
31.12.15
31.11.15
W.D.V of depreciation
W.D.V of retained
Depreciation 204/17 : 12.75/17
W.D.V
Depreciation [
Revaluati
on surplus
Plant
68
17
×
6
]
12
=
17
4
4.25
[ 17 ×
6
]
12
300
(15)
285
38
323
(17)
306
(54)
252
(14)
238
34
272
(2)
17
17
(0.125)
(66)
204
(12)
192
(4.125)
12.75
(0.75)
12
Profit /
Loss
(SOCI)
38
38
(2)
36
(36)
-
-
(18)
(18)
(17)
17
-
Answer-83
Akhtar Limited
Notes to the Financial Statement
For the year ended June 30, 2018
10. Property Plant & Equipment
2018
2017
-------------------------------------------Rs. in millions------------------------------------Plant
Building Vehicles
Total
Plant
Building Vehicles
Total
Gross Carrying Amount
Balance 01.Jan
320
160
+Addition
-Transfer
(64)
+Revaluation Surplus/(Rev. Loss)
(36)
Balance 31.Dec
220
160
Accumulated Depreciation & Impairment Losses
Balance 01.Jan
35
+Depreciation for the year *
64
21
-Transfer
(64)
+Impairment Loss
11
Balance 31.Dec
(11)
(56)
WDV 31.Dec
10.1 Measurement Basis
Depreciation Method
Useful Life/Depreciation
Rate
625
30
10
510
10
(64)
(36)
420
360
160
30
(60)
20
320
160
30
60
(60)
-
25
10
6
3
(13)
44
89
(64)
11
(80)
(35)
(9)
31
73
(60)
(44)
27
340
320
125
21
466
Cost
Cost
Straight
Line
15 years
W-3
Straight
Line
10 years
40
9
4
209
104
Revaluation
Straight
Line
Cost
Reducing
Balance
Method
Straight
Line
Revalu
ation
Straigh
t Line
7 years
16.84%
10 years
7 years
Cost
550
(60)
20
510
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
+Depreciation for the year*
*1
Plant Dep 2017 = 360/6 = 60
*2
Plant Dep 2018 = 320/5 = 64
*3
Building Dep 2017 = (160-10)/15 = 10
*4
Building Dep 2018 = 125x16.8373% = 21.05 = 21
*5
Cars Dep 2017 = 30/10 = 3
*6
Cars Dep 2018 = (30/10)+(10/10) = 3+1 = 4
10.2
The last revaluation of plant was perfomed by an independent valuer "Ghaznavi & Co" on
31.12.2018
10.3
Had there been no revaluation the carrying amount of plant would have been
2018
2017
Cost
434
434
Accumulated Depreciation (434/7 = 62 × 3, 62 × 2)
(186)
(124)
Carrying Amount
248
310
10.4
The entire plant was mortgage with the Habib Bank Limited for obtaining loan of 400 million
for the plant acquisition. The loan is repayable by 31-Dec-2019
10.5
During the year plant was impaired by Rs.11 million and charged as expense.
10.6
Reversal of revaluation loss of Rs. Nil (2017: Rs.10 million) was reversed during the year.
10.7
An amount of expenditure of Rs.30 million was incurred on the construction of a factory. This
amount was captialised as capital workin-progress.
A further borrowing costs of Rs.2.1 million (30×12%×7/12) were capitalised in respect of
interest on loan obtained from the bank to finance this project.
Note: Alternatively you may make movement of Capital work in progress (WIP)
10.8
A contract was made to purchase plant and machinery worth Rs.100 million with M/s
Shaheen Limited once the construction of factory building is completed.
10.9
During the year 2018 company has changed the depreciation method of buildings from
straight line to reducing balance method. Had the method not changed, profit for the year
would have been higher by Rs. 11 million.
10.10 Depreciation is charged as Follows
2018
2017
Cost of Sales
(64+21×80%)
(60+10×80%)
80.8
68.0
Admin & Selling Expenses
(4+21×20%)
(3+10×20%)
8.2
5.0
Total Depreciation
89
73
WORKINGS
(W-1)
Calculation of revaluation surplus & depreciation on plant.
Date
1-Jan-16
31-Dec-16
31-Dec-16
31-Dec-17
31-Dec-17
31-Dec-18
31-Dec-18
31-Dec-18
626
Description
Cost
Depreciation (434÷7)
WDV
Revaluation loss (bal)
Revalued amount
Depreciation (360÷6) (12÷6)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (320/5) (10/5)
WDV
Revaluation loss (reversal)
Revalued amount
Impairment Loss
Impaired Value
Plant
434
(62)
372
(12)
360
(60)
300
20
320
(64)
256
(36)
220
(11)
209
R. Surplus
SOCI (P/L)
10
10
(2)
8
(8)
-
(12)
(12)
2
(10)
10
(28)
(28)
11
(17)
CHAPTER-7
W-2
W-3
W-4
627
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Calculation of Impairment Loss
Carrying Value on 31-12-2018
Recoverable Amount (Higher of)
'-Fair Value less cost to sell
'-Value in use
90(1+0.1)-1+70(1+0.1)-2+65(1+0.1)-3+30(1+0.1)-4
Impairment Loss
Life of Building
Acc Dep= Cost - RV/Life x Cumulative Period
25=(160-10)/LIFE x 2.5 years
LIFE = 15 YEARS
Building Dep Rate-WDV method 1 −
11.5
√
15
125
220
(220-15)
205
209
= 0.168373
209
11
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP PAST PAPER QUESTIONS
QUESTION-1 {Calculation Cost of Assets}
(a)
Nippon Ltd. took delivery of a LAN server on the first day of July 2001. The list price of the
equipment was Rs. 150,000 but Nippon Ltd. was able to negotiate a price of Rs. 100,000 with the
supplier. However,, the supplier charged an additional Rs.3,400 to install and test the equipment.
The supplier offered a 5% discount if Nippon Ltd. paid for the equipment and additional
installation cost within seven days. Nippon Ltd. was able to take advantage of this additional
discount.
The installation of special electrical wiring for the server cost Rs. 1,100. After initial testing
certain modifications costing Rs.1,900 proved necessary.
MIS staff was sent on special training courses to operate the server which costed Rs. 9,900 to
Nippon Ltd. The equipment was insured against fire and theft at a premium of 4% per annum of
cost.
A maintenance agreement was entered into with a company, which promised to provide 24 hours
breakdown cover for one year at the cost of Rs. 3,500.
Required: Calculate acquisition cost of server to Nippon Ltd.
(05)
(b)
The following transactions were also executed by Nippon Ltd, during the financial year ended
June 30, 2002:
(i)
Interest on loan to purchase LAN server.
(ii)
Cost of software for use with the server.
(iii)
Cost of customizing the software for use in Nippon Ltd.'s business.
(iv)
Cost of paper used by the computer printer.
(v)
Wages of server operators.
(vi)
Cost of cartridge used by the computer printer.
(vii)
Cost of adding extra Ram to the server.
(viii) Cost of CDs used during the year.
(ix)
Cost of adding a manufacturer's upgrade to the LAN Server.
(x)
Cost of adding air conditioning to the computer room.
Required: Classify each of the above as Capital or Revenue Expenditure.
(05)
{Autumn 2002, Q # 2}
QUESTION-2 {Calculation Cost of Assets}
Chase Company purchased a new computer from Analog Computers. The following costs were incurred:
List price of the computer.
Rs. 100,000
Trade discount allowed to Chase
10%
Cash discount allowed for payment within 30 days
3%
Insurance on the computer. The policy covers damage from vandalism, fire, flood and
Rs. 360
certain other natural disasters (3-years premium)
Cost of 1-year maintenance contract. The computer will be serviced weekly by Analog
Rs. 2,080
technicians.
Cost of *rewiring needed to provide proper electric power.
Rs. 420
Required: Prepare schedule that shows the calculation of the cost of the computer to Chase Company.
(08)
{November 1994, BAC - Part-I, Q # 4(c)}
* If we assume normal rewiring, ignore it
If we assume especial rewiring, add it
628
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-3 {Calculation Cost of Assets} {Straight Line}
Ammar is a manufacturer of personal products and has factories in two different cities. On 1 November
2011, he bought a new state-of-the-art plant from Krones Inc. USA. The invoice value of the plant was
Rs. 250 million. Other relevant details are as follows:
(i)
Costs of import:
Rs. in million
1.00
25.00
40.00
5.00
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
LC opening charges
Import duty
Sales tax paid, recoverable against production output
Clearing & transportation
Costs incurred on SITE preparation:
Amount paid to consultants
2.00
Civil and electrical works
3.00
The above includes cost of equipment damaged due to mishandling
0.80
The plant was received at the SITE on 1 February 2012. The installation and test run were
successfully completed in three months time at a cost of Rs. 6 million. The net sale proceeds of
test production were Rs. 1.2 million.
Commercial production commenced on 1 May 2012. During the period in which the plant was
installed, administration and general overheads increased by Rs. 1 million as compared to the
previous period.
Salary of factory manager is Rs. 250,000 per month. He contributed 30% of his time in
supervising the installation.
Staff training cost amounted to Rs. 0.25 million.
The plant is expected to last fifteen years with no residual value.
Required:
In accordance with IAS-16 calculate:

Cost at which the plant would be capitalised.

Depreciation for the year ended 31 December 2012 under the straight line method.
(08)
{Spring 2013, Q.1 (b)}
QUESTION-4 {Straight Line}
On July 1, 1997, A Co. Ltd. purchased second hand machinery for Rs. 60,000 and spent Rs. 9,000 on
reconditioning and installing it. On January 1, 1998 the firm purchased new machinery worth Rs. 36,000.
On June 30, 1999 the machinery purchased on January 1, 1998 was sold for Rs. 24,000. On July 1, 1999
fresh plant was installed at a cost of Rs. 45,000. The company provides depreciation at 10% of the
original cost. The accounts are closed on 31 March.
Required: You are required to prepare machinery account for three years ended March 31, 2000.
(06)
{Autumn 2001, Module - B)
QUESTION-5 {Different methods}
The cost of a machine purchased by S. Yaseer Trading Company (Private) Limited on 1st April, 1992 is
Rs. 750,000. It is estimated that the machine will have a Rs. 30,000 trade-in value at the end of its service
life. Its life is estimated at 6 years. Its working hours are estimated at 25,000, its production is estimated
at 400,000 units. During 1992, the machine was operated for 4200 hours and produced 80,000 units.
Compute the depreciation on the machine for 1992 by:
(a)
Service hours method;
(b)
The productive-output method; and
(c)
The sum of the year's digits method
(10)
{October 1993, CA Inter - II}
629
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-6 {Different Methods}
A business purchased a machine costing Rs. 1,120,000 on April 01, 2002. The machine can be used for a
total of 20,000 hours over an estimated life of 48 months. At the end of that time the machine is expected
to have a trade in value of Rs. 112,000.
The financial year of the business ends on December 31st each year. It is expected that the machine will
be used for:
4,000 hours during the financial year ending December 31, 2002.
5,000 hours during the financial year ending December 31, 2003.
5,000 hours during the financial year ending December 31, 2004.
5,000 hours during the financial year ending December 31, 2005.
1,000 hours during the financial year ending December 31, 2006.
Required:
(a)
Calculate the annual depreciation charges on the machine on each of the following bases for each
of the financial years ending on December 31, 2002, 2003, 2004, 2005 and 2006:
(i)
the straight line method applied on monthly basis and
(ii)
the usage method.
(04)
(b)
Suppose that during the financial year ending December 31, 2003 the machine was used for only
1,500 hours before being sold for Rs. 800,000 on June 30, 2003.
Assuring that the business has chosen to apply the straight line method on a month for month
basis, show the following accounts for 2003 only;
(i)
the machine account
(ii)
the provision for depreciation machine account; and
(iii)
the assets disposals account
(05)
{Autumn 2002, Q # 8}
QUESTION-7 {WDV Method}
The machinery account (at cost) of a firm for the three years ended December 31, 1988 appeared as
follows:1986
Rupees 1986
Rupees
Jan.01 Cash (No. 1)
50,000 Dec.31 Balance c/d
50,000
1987
Jan.01 Balance b/d
July.01 Cash (No. 2)
1988
Jan.01 Balance b/d
Jul.01 Cash (No. 3)
1987
50,000
20,000 Dec.31 Balance c/d
70,000
70,000
70,000
1988
70,000
15,000 Dec.31 Balance c/d
85,000
85,000
85,000
Depreciation @ 20% on the diminishing value basis was accumulated in Provision for Depreciation
Account.
On October 1, 1989 machine no. 2 was damaged and had to be replaced by a new machine costing Rs.
25,000. The machine was insured and an insurance claim of Rs. 12,400 was admitted by the insurers.
Show the 1989 Machinery Account, Provision for Depreciation Account and Machinery Disposal
Account. All workings have to be submitted. Depreciation during a year is provided for the period for
which each machine is in use.
(15)
{November 1990, CA Inter - II}
630
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-8
Following is the extract from the Balance Sheet of Tayab Limited:
Fixed Assets (at cost)
Less: Accumulated depreciation
Net Book Value
Rupees
2004
684,500
(249,750)
434,750
Rupees
2003
518,000
(277,500)
240,500
During the year 2004:
Rupees
(i)
Expenditure on new fixed assets was
481,000
(ii)
Loss on sale of old fixed assets was
92,500
(iii)
Depreciation provided for the year was
138,750
Required: Determine the amount of sale proceeds received on the disposal of fixed assets during the year
2004.
(06)
{Spring 2005, Q # 6(a)}
QUESTION-9 {Fully Depreciated}
Upon merger on January 1, 1999, Highest Ltd., took over assets and liabilities of Smallest Ltd. The taken
over assets include certain fixed assets which are acquired at the book value. Details of certain fixed
assets in Smallest Ltd. are as under:
Item
Month of purchase
Useful life
Purchase price
Years
Rupees
Motor Car
March 1995
5
350,000
Jeep
September 1996
5
650,000
Furniture
December 1997
10
150,000
Computers
August 1995
3
500,000
Depreciation is charged on straight-line basis at monthly rate from the month of purchase by both
companies.
Required:
(a)
Written down value as at December 31, 1998 in the books of Smallest Ltd., and
(b)
Depreciation charge for the month of January 1999 of Highest Ltd.
(08)
{Spring 1999, FE-I, Q#3}
QUESTION-10 {Change in Estimate}
ABC Limited imported technical equipment costing Rs. 3 millions on July 1, 2003. It further incurred the
following expenses on the equipment:

Import duty Rs. 1,000,000

Income tax Rs. 276,000 adjustable against company's income tax liability

Other non-refundable taxes Rs. 60,000

Transportation cost Rs. 10,000 to bring the equipment to factory premises

Insurance in transit Rs. 4,000

Fire insurance Rs. 10,000
Initially the useful life was estimated to be 5 years and depreciation was provided on straight-line basis.
The estimated salvage value was Rs. 350,000.
During the year 2004-05 the company estimated the remaining life of the equipment to be five years
instead of four years. The salvage value was re-estimated at Rs. 400,000.
The machine was sold on July 1, 2006 for Rs. 2,800,000.
Required:
(a)
Calculate depreciation expense for the years ended June 30, 2004, 2005 and 2006.
(b)
Pass journal entry to record the sale of machine.
(c)
Calculate cost of equipment at which it should be initially recognised
(08)
{Autumn 2006, Q # 3}
631
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-11 {Change in Estimate}
Unique Chemicals depreciated its assets by using the straight-line method. The useful life of each asset
was reviewed in 1998 and it was decided to revise the useful life of following assets effective from
January 1, 1998.
Existing
Remaining
Year of
Cost
Category
useful life
useful life
Purchase
(Rs.'000')
Building
50
40
1996
10,000
Plant & Machinery
10
15
1996
20,000
IT equipment
5
3
1997
3,000
Vehicles
4
5
1996
2,800
Furniture
10
7
1996
1,200
Office equipment
10
5
1996
1,500
It was also decided to depreciate the carrying values as at January 1, 1998 over the remaining useful life
of each asset. You are required to calculate:
(a)
Carrying values as at January 1, 1998.
(b)
Depreciation for the year 1998.
(08)
{Autumn 1999, FE-I, Q#5)
QUESTION-12 {Exchange of Assets}
Faraz Brothers Transport Company exchanged a number of used trucks and cash for a vacant plot of
industrial land. The trucks have a combined book value of Rs 126,000 (Cost 192,000 and Accumulated
Depreciation Rs 66,000). Faiz Ahmad, a purchasing agent for Faraz Brothers, who has had previous
dealings in the second hand market indicates that the trucks have a fair Market value of Rs. 147,000. In
addition to trucks Faraz Brothers is also required to pay Rs. 51,000 cash for the plot of land.
Required: Taking into account the requirements of IAS, 16 calculate the following:
(i)
Cost of land.
(01)
(ii)
Gain on disposal of used trucks.
(02)
(iii)
Prepare journal entry to record the aforesaid exchange transaction.
(02)
{Autumn 2003, Q# 2(a)}
QUESTION-13 {Exchange of Assets}
Jubilee processing (Pvt.) Limited, traded off its used plant and Machinery for a new model. The machine
given up has a book value of Rs. 16,000 (original cost Rs. 24,000 and accumulated depreciation Rs.
8,000) and a fair value of Rs. 12,000. It is traded for a new model that has a list price of Rs. 32,000. In
negotiations with the seller, a trade-in allowance of Rs. 18,000 is finally agreed on for the used machine.
Required: In the light of IAS-16:
(i)
Calculate the cost of new Machine.
(03)
(ii)
Compute Gain/(loss) occurred in exchange transaction.
(02)
(iii)
Record the transaction in the books of Jubilee Processing (Pvt.) Ltd.
(02)
{Spring 2003, Q # 4(a)}
QUESTION-14 {Calculation Cost of Assets}
(a) Following is the data relating to import of machinery:
Rupees

Letter of Credit opening charges
50,500

Payment made to bank towards release of documents
2,560,000

Import duty
690,000

Income tax (Adjustable)
195,000

Octroi charges
24,500

Demurrage charges (Penalty charges)
70,800

Sundry expenses (Necessary to bring in workable condition)
5,600

Clearing Agent fees
20,000

Machinery transport charges to factory
31,500
Required: Calculate the amount of addition to Fixed Assets.
(05)
632
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(b)
A company replaced its old machinery with new machinery. List price of new machinery is
Rs. 1,800,000. Trade in allowance for used machinery is Rs. 900,000. Cost of old machinery is
Rs. 1,400,000 and accumulated depreciation was Rs. 750,000. Fair value of old machinery is Rs.
500,000.
Required: Calculate cost of new machinery to be recorded in Company's account, cash payment
and profit / loss on trade in of old machinery and pass entry for exchange of asset.
(05)
{Spring 2001, SM -1, Q# 4}
QUESTION-15
In the accounts of King Kong Limited the schedule of fixed assets for the year ended May 31, 1996
appeared as follows:
Rs in ‘000’
Accumulated
Particular
Cost
Depreciation
Equipment
830
292
Vehicles
570
220
During the year to May 31, 1997 the following changes in fixed assets occurred:
1.
New equipment was purchased for Rs. 175,000 and Rs. 200,000 on October 1, 1996 and
December 1, 1996 respectively. A machine purchased for Rs. 60,000 on April 1, 1993 was sold
on September 30, 1996 for Rs. 32,000. A machine purchased on October 1, 1990 for Rs. 25,000
was sold for scrap on May 1,1997realising Rs. 2,000.
2.
On January 1, 1997 four new vehicles were purchased costing Rs. 20,000 each. A part exchange
allowance of Rs. 5,000 per vehicle was received for two vehicles which cost Rs. 15,000 each on
January 1, 1994. Following an accident on 1 May 1997 a vehicle which cost Rs. 10,000 on April
1, 1993 was declared a 'total loss' by the insurers. A claim for compensation of Rs. 3,000 has been
agreed by the insurance Company but the amount have not yet been received by King Kong
Limited.
3.
The Company's Policy is to depreciate assets on straight line basis. The rate of depreciation for
vehicles is 20% and for equipment is 10%.
Required: Prepare:
(a)
Prepare asset a/c, accumulated depreciation a/c and disposal of equipment and vehicles.
(15)
(b)
A schedule of fixed asset for the year ended May 31, 1997.
(05)
(April 1997, FE-I}
QUESTION-16 {Transfer of Stock to Fixed Assets} {Straight Line}
The following information is available in respect of fixed assets of MJ Enterprises (MJE):
(i)
The opening balances of cost and accumulated depreciation of fixed assets as on January 1, 2009
were Rs. 100,000 and Rs. 33,000 respectively.
(ii)
Assets costing Rs. 20,000 were acquired on July 1, 2008. The remaining fixed assets were
acquired when MJE commenced business on January 1, 2005. There were no disposals of fixed
assets up to January 1, 2009.
(iii)
MJE provides for depreciation on the cost of assets at the rate of 10% per annum using the
straight line basis. Depreciation is calculated on a monthly basis.
(iv)
Assets acquired on January 1, 2005 whose net book value on June 30, 2009 was Rs. 2,750 were
sold for Rs. 1,500.
(v)
On July 1, 2009, an asset which was acquired at a cost of Rs. 2,000 when MJE commenced
business, was exchanged for a new asset. The balance of the purchase price was settled with a
cheque for Rs. 800. The list price of the new asset was Rs. 1,200.
(vi)
On October 1, 2009 MJE transferred to its factory an asset which had been included in its trading
stock and which bore a price label of Rs. 15,400 in the showroom. MJE makes a gross profit of
40% of cost, on sale of such assets.
633
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Required:
Prepare the following ledger accounts for the year ended December 31, 2009:
(a)
Fixed assets
(b)
Accumulated depreciation
(c)
Profit/loss on sale of fixed assets
(09)
{Spring 2010, Q# 2}
QUESTION-17 {Subsequent Expenditure}
Following information has been extracted from the financial statements of Full Speed Enterprises (FSE)
for the year ended 30 June 2013:
Rupees
Vehicles – cost
65,201,300
Less: Accumulated depreciation
(24,450,500)
WDV of vehicles
40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values. Depreciation on
addition/deletion is provided in proportion to the period of use.
Other related information is as follows:
(i)
On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on 1 July 2011 was
exchanged for a new vehicle. The balance was settled with a cheque for Rs. 350,000. The list
price of the new vehicle was Rs. 900,000.
(ii)
Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
(iii)
On 1 February 2014, a vehicle having written down value of Rs. 550,000 was repaired at a cost of
Rs. 250,000. It is expected that the repairs would improve the efficiency of the vehicle
significantly.
(iv)
On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was sold for
Rs.1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a)
Vehicles account
(b)
Accumulated depreciation on vehicles
(c)
Loss/gain on sale of vehicles
(10)
{Autumn 2014, Q# 6, CAF-05}
QUESTION-18 {Assets Account Prepaid on Book Value}
A trading organisation charges depreciation on its plant and machinery on a reducing balance method @
15% per annum. On 1 July 2011, the net book value in the ledger stood at Rs. 5,660,000. Movements in
the plant and machinery account during the two years ended 30 June 2013 were as follows:
Date
Particulars
1 October 2011
A new machine costing Rs. 80,000 was purchased. A sum of Rs. 30,000 was paid
on the same date and the balance was paid on 31 March 2012.
1 December 2011
A machine that was purchased for Rs.200,000 and installed at a cost of Rs.10,000
on 1 August 2009 was fully destroyed in an accident.
1 February 2012
Some old machinery (book value on 1 July 2011 Rs. 20,000) was sold for
Rs.8,000.
30 November 2012
A machine imported on 1 July 2010 was disposed of for Rs. 63,000. The value of
machine was Rs. 70,000 whereas import levies amounted to Rs. 5,000.
Required:
Prepare the plant and machinery account for the years ended 30 June 2012 and 2013.
(19)
{Autumn 2013, Q# 6}
634
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-19
Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on written-down value.
Depreciation is charged from the month the asset is available for use in operations up to the month prior
to its disposal. Cost of its plant & machines and the accumulated depreciation as on 1 July 2015 were
Rs. 75 million and Rs. 17 million respectively.
The following information is available in respect of its plant & machines, for the year ended 30 June
2016:
(i)
On 1 October 2015, a second-hand machine was acquired from a Chinese company for
Rs. 15 million. The machine was renovated and overhauled at a cost of Rs. 3 million. 25% of this
expenditure was in respect of purchase of consumables.
(ii)
On 1 November 2015, KE transferred a machine having a list price of Rs. 10 million from its
stock-in-trade to its Engineering Department. KE sells such machines at cost plus 25%.
(iii)
On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of Rs. 4 million. The
replaced parts neither enhanced the useful life of the plant nor its operating efficiency. The old
parts were sold for Rs. 0.75 million. The plant was purchased for Rs. 25 million on 1 January
2015.
On 1 May 2016, the plant was damaged and remained in-operative for one month. KE spent an
amount of Rs. 3 million on repairs to restore the plant in working condition.
(iv)
On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million was
completely damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year ended
30 June 2016.
(17)
{Autumn 2016, Q# 7}
QUESTION-20 {Calculation Cost of Assets & Change in Estimate}
(a)
What conditions must be satisfied if an item has to be recognized as property, plant and
equipment? Also state at what amount such item shall be carried after the initial recognition if the
entity is following the revaluation model.
(b)
On 1 January 2013 Delta acquired a specialized machine for its production department. The
available information is as follows:
List price of machine
Freight charges
Electrical installation cost
Staff training for use of machine
Pre-production testing
Purchase of a three year maintenance contract
Estimated residual value
Rupees
9,200,000
263,000
245,000
351,000
193,000
528,000
175,000
Trade discount on list price
5%
Early settlement discount taken
3%
Estimated life (in machine hours)
12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015 were 2,000, 3,200
and 1,400 respectively.
On 1 January 2015 Delta decided to upgrade the machine by adding new components at a cost of
Rs.1,753,000. This upgrade led to a reduction in the production time per unit or goods being
manufactured by the machine. The upgrade also increased the estimated remaining life of the
machine at 1 January 2015 to 8,000 machine hours and its estimated residual value to Rs.350,000.
635
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant amounts to be
included (under each head) in the income statement and statement of financial position.
Notes to the financial statements are not required.
(10)
(Spring-16 Q.4 CAF-05)
QUESTION-21 {Revaluation}
Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010. The plant
has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date
Fair value
1 July 2011
Rs. 575 million
1 July 2012
Rs. 390 million
1 July 2013
Rs. 380 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June 2014. (Ignore tax implications)
(15)
{Autumn 2014, Q# 4, CAF-05}
QUESTION-22 {Revaluation}
Faraday Pharmaceutical Limited (FPL) acquired a building for Rs. 200 million on July 1, 2005. The
following information relating to the building is available:
(i)
It is being depreciated on the straight line basis, over 20 years.
(ii) FPL uses the revaluation model for subsequent measurement of its property, plant and equipment
and accounts for revaluations on the net replacement value method. The details of revaluation
carried out by the independent values during the past years are as follows:
Revaluation date
Fair value (Rs. In million)
July 1, 2006
230
July 1, 2007
170
July 1, 2008
180
(iii) FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on
an annual basis.
(iv) There is no change in the useful life of the building.
Required:
Prepare the journal entries to record the above transactions from the date of acquisition of the building to
the year ended June 30, 2009.
()
{Autumn 2009, Q # 3, Module C}
QUESTION-23 {Revaluation}
PQR Enterprises was incorporated on 1 July 2012. The company depreciates its property, plant and
equipment on straight line basis over their useful life. It uses revaluation model for subsequent
measurement of the property, plant and equipment and has a policy of revaluing these after every two
years.
636
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Following information pertains to its property, plant and equipment:
Useful life in years
Remaining
Value as determined by
Cost as on WDV as on
Original at
as
Assets
professional valuer
01-07-2013 01-07-2013
acquisition determined
on 30-06-2014
by valuer
-------Rs. in million------Office building
6,000
5,500
5,750
12
8
Factory building
4,400
3,960
3,320
10
9
Warehouse
4,500
4,050
3,350
10
8
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015.
(12)
(Autumn-15, CAF-05 Q-3)
QUESTION-24 {Revaluation}
The following information pertains to Sherdil Limited (SL):
(i)
Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and Rs. 50 million
respectively.
(ii)
The relevant information relating to both assets is summarised below:
Depreciation
Subsequent
Assets
Life /rate
method
measurement
Buildings
Straight line
20 years
Annual revaluation
Equipment
Reducing balance
10%
Cost
SL transfers the maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
(iii)
The revalued amount of buildings as determined by Accurate Valuers (Private) Limited, an
independent valuation company, on 1 January 2015 and 2016 was Rs. 456 million and Rs. 378
million respectively.
(iv)
Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the equipment
purchased on 1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property plant &
equipment’ (including comparative figures) for inclusion in SL’s financial statements for the year ended
31 December 2016.
(18)
{Autumn 2017, Q # 2}
QUESTION-25 {Revaluation}
(a)
Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for
Rs. 360 million:
(i)
The building is being depreciated on straight-line basis over 10 years.
(ii)
SKL uses revaluation model for subsequent measurement of buildings. It accounts for
revaluation on net replacement value method. The details of revaluations as carried out
by independent value are as follows:
Revaluation date
31 December 2013
31 December 2015
31 December 2017
637
Fair value
(Rs. in million)
323
208
167
CHAPTER-7
(iii)
(iv)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
There is no change in useful life of the building.
SKL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
SKL’s financial year ends on 31 December.
(v)
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation date. (Entries to record
depreciation expense, incremental depreciation and elimination of accumulated depreciation are not
required)
(11)
(b)
Following information pertains to three exchange transactions relating to fixed assets:
(i)
(ii)
(iii)
--------- Rs. in million --------Cash received/(paid)
1.1
(2.1)
Assets given-up:
Original cost
10.3
12.4
14.5
Book value
6.4
7.3
3.4
Estimated fair value
8.5
6.6
4.6
Assets received:
Estimated fair value
7.1
9.0
4.1
Additional information:

In case of transaction (i), fair values of both assets are reliably measurable.

In case of transaction (ii), fair value of the asset received is clearly more evident.

In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions.
(06)
{Spring 2018, Q # 6}
QUESTION-26
The following information is available in respect of machines of Akmal Brothers:
(i)
The balances of cost and accumulated depreciation of machines as on 1 January
2017 were Rs.800,000 and Rs.333,000 respectively.
(ii)
A machine acquired on 1 January 2014 having net book value of Rs.31,935 on
1 January 2017 was sold for Rs.34,000 on 30 April 2017. Cost of disposal
incurred was Rs.5,000.
(iii)
On 1 July 2017, a machine having fair value of Rs.40,000 on that date was
exchanged for a new machine. The balance of the purchase price was paid
through a cheque of Rs.80,000. The list price of the new machine was
Rs.130,000. The old machine had been acquired at a cost of Rs. 65,000 on
1 October 2015.
(iv)
Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended
31 December 2017:
(a)
Cost
(03)
(b)
Accumulated depreciation
(05)
(c)
Gain/loss on disposal
(04)
{Autumn 2018, Q # 5}
638
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
QUESTION-27
The following information pertains to Piano Limited (PL):
Plant
Acquisition

Date of acquisition

Cost

Estimated useful life

Residual value

Depreciation method
Equipment
1 January 2015
Rs. 500 million
10 years
Rs. 60 million
Straight line method
1 July 2015
Rs. 360 million
12 years
Nil
Straight line method
Revaluation on 31 December 2016

Fair value

Residual value
Rs. 526 million
Rs. 78 million
Rs. 280 million
Nil
Revaluation on 31 December 2018

Fair value

Residual value
Rs. 310 million
Rs. 64 million
Rs. 275 million
Nil
Additional information:
(i)
PL uses revaluation model for subsequent measurement and accounts for revaluation on
net replacement value method.
(ii)
There is no change in useful life of plant. The remaining useful life of equipment was
estimated as 15 years and 10 years in 2016 and 2018 respectively.
(iii)
PL transfers maximum possible amount from the revaluation surplus to retained earnings
on an annual basis.
(iv)
PL’s financial year ends on 31 December.
Required:
(a)
Calculate depreciation on each asset for 2015 to 2018.
(08)
(b)
Prepare entries to record revaluation in 2018. (Entries to record depreciation expense,
incremental depreciation and elimination of accumulated depreciation are not
required. Further, entries prior to 2018 are also not required.)
(08)
{Spring 2019, Q # 5}
639
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP PAST PAPER SOLUTIONS
Answer 1
(a) Cost of asset
Rupees
List price net of trade discount
100,000
Installation and testing cost
3,400
Special electrical wiring
1,100
Modifications
1,900
Total
106,400
Notes:1.
As modifications are necessary here to bring the asset into its present condition and location so
they are being capitalized.
2.
Insurance against fire and theft covers the risk of a single period so it is a revenue expenditure.
3.
Staff training cost is not a part of cost of asset because we have no control over the employees
after being they are trained.
(b)
(i)
Revenue
(ii)
Capital
(iii)
Capital
(iv)
Revenue
(v)
Revenue
(vi)
Revenue
(vii)
Capital
(viii) Revenue
(ix)
Capital
(x)
Capital
Answer-2
Cost of asset
Rupees
90,000
90,000
List price of the computer net of trade discount
(100,000 -10% of 100,000)
Total
Notes:
1.
Cash discount is recorded as an income not a reduction in cost.
2.
Insurance and maintenance expense is a revenue expenditure.
3.
Cost of re-wiring is not a capital expenditure.
Answer-3
Plant will be capitalized at cost of Rs. 290.9 Million.
Invoice value
LC opening charges
Import duty
Clearing & transportation
Site preparation (2 + 3 – 0.8)
Test run cost (6 – 1.2)
Factory manger salary (250,000 x 3 x 30%)
Rs in million
250
1
25
5
4.2
4.8
0.225
290.225
(i)
Sales tax recoverable is not a part of cost of asset.
(ii)
It is not necessary to damage equipment for plant installation so it is excluded from cost.
(iii)
Admin and general overheads are not a part of cost of asset.
(iv)
Staff training cost is not a part of cost of asset because we do not have control over it.
Depreciation Expense = (290.225 /15 years) x 8/12
= 12.89 Million.
640
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-4
Dr.
1/7/97 Cash (60,000 + 9,000)
1/1/98 Cash
31/3/98 b/d
31/3/98 b/d
1/7/98 Cash
Machinery account
69,000
36,000 31/3/98
105,000 31/3/99
105,000 30/6/99
45,000 31/3/00
Answer-5
(a)
Service hour method
Depreciation expense
=
Depreciation-1992
(b)
(c)
Cr.
Closing balance (c/d)
Closing balance (c/d)
Disposal
Closing balance (c/d)
Cost - Residual Value x
105,000
105,000
36,000
114,000
Hours in current year
Total hours expected
120,960
= (750,000 - 30,000) x 4,200
25,000
Productive output method
Depreciation expense
=
Cost - Residual Value x
Depreciation-1992
=
(750,000-30,000)
x
Sum of year's digit method
Depreciation expense
=
Cost - Residual Value
x
Depreciation-1992
=
(750,000-30,000)
Units in current year
Total units expected
80,000 =
144,000
400,000
6
(6+5+4+3+2+1)
x6
=
205,714
21
Answer-6
(a)(i) Calculation of depreciation expense using straight line method
Depreciation expense
(ii)
Cost - Residual Value
Useful life
Depreciation - 2002
=
(1,120,000-112,000)
(April - December)
4
Depreciation - 2003
=
(1,120,000-112,000)
4
Depreciation - 2004
=
(1,120,000-112,000)
4
Depreciation - 2005
=
(1,120,000-112,000)
4
Depreciation - 2006
=
(1,120,000-112,000)
(January - March)
4
Calculation of depreciation expense using usage method
Depreciation expense =
Cost - Residual Value x
Total expected hours
Depreciation - 2002
Depreciation - 2003
Depreciation - 2004
Depreciation - 2005
Depriciation-2006
641
=
X
X
X
X
X
X
9
12
12
12
12
12
12
12
3
12
No. of months in use
12
=
189,000
=
252,000
=
252,000
=
252,000
=
63,000
Hours in current year
Total hours expected
= 4,000 + 5,000 + 5,000 + 5,000 + 1,000
=
= (1,120,000-112,000) x
4,000
=
20,000
= (1,120,000-112,000) x
5,000
=
20,000
= (1,120,000-112,000) x
5,000
=
20,000
= (1,120,000-112,000) x
5,000
=
20,000
= (1,120,000-112,000) x
1,000
=
20,000
20,000
201,600
252,000
252,000
252,000
50,400
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(b)
Dr.
b/d
Machine a/c
1,120,000 Disposals (bal.)
Closing balance (c/d)
1,120,000
Cr.
1,120,000
1,120,000
Dr.
Provision for depreciation-machine account
Disposals
315,000 b/d (part – (i) solution)
(1,120,000 – 112,000) x 1.25
4 years
Closing
- Depreciation (as below)
315,000
Depreciation – 2003
Dr.
Machine – cost
Answer-7
Dr.
b/d
Cash
Dr.
Disposals
((W-4)5,600+(W-1) 2,160)
closing (bal.)
Dr.
Fixed asset – cost
P and L (Bal.)
=
(1,120,000 - 112,000) x
4
6
12
Cr.
189,000
126,000
315,000
=
Machinery Disposal account
1,120,000 Accumulated depreciation
Cash
P and L (bal.)
1,120,000
Machinery account
85,000 Disposals
25,000
Closing balance (c/d) (bal.)
110,000
Accumulated depreciation
7,760 Opening
Depreciation (W-1)
34,970
42,730
Machinery Disposal account
20,000 Accumulated depreciation
160 Insurance claim receivable
20,160
126,000
Cr.
315,000
800,000
5,000
1,120,000
Cr.
20,000
90,000
110,000
Cr.
31,500
11,230
42,730
Cr.
7,760
12,400
20,160
Workings
(W-1) Depreciation expense for the year
On opening assets excluding disposals
On additions
On disposals
(25,600 + 13,500) x 20%
(25,000 x 20% x 3/12)
(14,400 x 20% x 9/12)
7,820
1,250
2,160
11,230
(W-2) Accumulated depreciation on 1-1-1989
Purchased on 1986
Purchased on 1987
Purchased on 1988
(W-3)
(W-4)
(W-5)
24,400
5,600
1,500
31,500
642
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-3) Calculation of accumulated depreciation of asset purchased in 1986
Cost (01-01-86)
Depreciation expense (31-12-86)
(50,000 x 20%)
WDV (01-01-87)
Depreciation expense (31-12-87)
(40,000 x 20%)
WDV (01-01-88)
Depreciation expense (31-12-88)
(32,000 x 20%)
WDV (01-01-89)
Accumulated depreciation (Cost - WDV)
(50,000-25,600)
50,000
(10,000)
40,000
(8,000)
32,000
(6,400)
25,600
24,400
(W-4) Calculation of accumulated depreciation of asset purchased in 1987
Cost (01-07-87)
Depreciation expense (31-12-87)
(20,000 x20%x6/12)
WDV (01-01-88)
Depreciation expense (31-12-88)
(18,000x20%)
WDV (01-01-89)
Accumulated depreciation (Cost - WDV)
(20,000-14,400)
20,000
(2,000)
18,000
(3,600)
14,400
5,600
(W-5) Calculation of accumulated depreciation of asset purchased in 1988
Cost (01-07-88)
Depreciation expense (31-12-88)
(15,000 x 20%x6/12)
WDV (01-01-89)
Accumulated depreciation (Cost - WDV)
(15,000-13,500)
15,000
(1,500)
13,500
1,500
Answer-8
Sale proceeds received on the disposal are Rs.55,500.
(Workings)
Dr.
Fixed asset - at cost
b/d
518,000 Disposals (bal.)
Cash (Additions)
481,000
Closing balance (c/d)
999,000
Dr.
Disposals (bal.)
Closing
Dr.
Fixed asset – cost
643
Accumulated depreciation
166,500 b/d
Depreciation
249,750
416,250
Disposal account
314,500 Accumulated depreciation
Cash
(bal.)
P and L
314,500
Cr.
314,500
684,500
999,000
Cr.
277,500
138,750
416,250
Cr.
166,500
55,500
92,500
314,500
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-9
(a)
Particulars
Cost
Motor Car
Jeep
Furniture
Computers
(A)
350,000
650,000
150,000
500,000
Number of months asset is
Used
(B)
(3x12+10 months) 46
(2x12+4 month) 28
(1x12+ I month) 13
(3x12+ 5month) 41
Total life in
Accumulated
WDV
Months
Depreciation
(C)
(D=A/CxB)
(E=A-D)
(5x12) 60
268,333
81,667
(5x12) 60
303,333 346,667
(10x12) 120
16,250 133,750
(3x12) 36
*500,000
562,084
* Computers are fully depreciated.
(b)
Particular
Cost
(A)
Motor Car
Jeep
Furniture
350,000
650,000
150,000
Total life in
months
(B)
(5x12)
60
(5x12)
60
(10x12)
120
Month
used
(C)
1
1
1
Depreciation for
January
(D=A/BxC)
5,833
10,833
1,250
17,916
Try to solve this question by assuming that residual value is 10% for each of the asset.
Also try to solve this question by assuming that WDV method is used. For this ignore the life given in the
question.
Answer-10
(a)
Calculation of depreciation expense
Depreciation – 2004
= Cost (W-1) - Residual Value
Useful life
Depreciation - 2005
= Book value (W-2) - New Residual Value
Remaining useful life
Depreciation - 2006
= Book value (W-2) - New Residual Value
Remaining useful life
= (4,074,000 - 350,000)
5
=
744,800
= (3,329,200 - 400,000)
5
=
585,840
= (3,329,200 – 400,000)
5
=
585,840
(W-l) Cost of asset
Purchase price
Import duty
Non-refundable taxes
Transportation cost
Insurance in transit
Cost of asset
Rupees
3,000,000
1,000,000
60,000
10,000
4,000
4,074,000
Book value at the time the life is revised = (4,074,000 - 744,800)
3,329,200
(W-2)
644
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(b)
Cash
Accumulated depreciation (744,800+585,840+585,840)
P and L (Bal.)
Equipment - cost
(Asset disposed off)
Dr.
2,800,000
1,916,480
Cr.
642,480
4,074,000
Answer-11
(a)
Description
Building
Plant & Machinery
IT equipment
Vehicles
Furniture
Office equipment
(b)
Building
Plant & Machinery
IT equipment
Vehicles
Furniture
Office equipment
Year of
Purchase
1996
1996
1997
1996
1996
1996
Cost
(A)
10,000
20,000
3,000
2,800
1,200
1,500
Life asset
is used
(B)
2
2
1
2
2
2
Useful
life
(C)
50
10
5
4
10
10
Book value
(A)
9,600
16,000
2,400
1,400
960
1,200
Accumulated
Depreciation
(D=A/CxB)
400
4,000
600
1,400
240
300
WDV as on
1-1-1998
(E=A-D)
9,600
16,000
2,400
1,400
960
1,200
31,560
Remaining life
(B)
40
15
3
5
7
5
Depreciation
(C=A/B)
240
1,067
800
280
137
240
2,764
Following formula is used for calculating depreciation for 1998
Depreciation - 2005
= Book value(l-l-98) - New Residual Value
Remaining useful life
New residual value in all cases is zero.
Try to solve this question by assuming that new residual value is 10% of original cost of the asset.
Answer-12
(i)
Cost of land
Rupees
Fair market value of trucks
147,000
Add: Cash paid
51,000
198,000
(ii)
Gain on disposal of used trucks
Trade in allowance
147,000
Less: Book value of trucks
(126,000)
Gain
21,000
Note: In the given question the fair market value of trucks is equal to trade in allowance as this is
the value assigned to our assets by the purchaser Faiz Ahmed.
645
CHAPTER-7
(iii)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Journal entry
Land
Accumulated depreciation – trucks
Trucks – cost
Cash
P and L (as in part (ii))
(A piece of land exchanged against trucks by paying some additional cash)
Dr.
198,000
66,000
Cr.
192,000
51,000
21,000
Answer-13
(i)
(ii)
Cost of new machine
Gain on disposal of used trucks
Trade in allowance
Less: Book value of trucks
Rupees
32,000
18,000
(16,000)
2,000
(iii)
Journal entry
Dr.
Cr.
Plant and machinery (New)
32,000
Accumulated depreciation – trucks
8,000
Plant and machinery (Old)
24,000
P and L (as in part (ii))
2,000
Cash (bal.)
14,000
(Old machinery exchanged against new machinery by paying some additional cash)
Answer-14
(a) Cost of asset
Rupees
Letter of Credit opening charges
50,500
Payment made to bank towards release of documents
2,560,000
Import duty
690,000
Octroi charges
24,500
Sundry expenses
5,600
Clearing Agent fees
20,000
Machinery transport charges to factory
31,500
Total
3,382,100
Notes:
1.
It is assumed that sundry expenses are necessary to bring the asset into its present condition and
location.
2.
Income tax is assumed to be adjustable.
3.
Demurrage charges is a penalty charged for picking the items late from port, so these are not
added to asset's cost because of not being necessary cost.
(i)
Cost of machinery
Rupees
List price
1,800,000
(ii)
Cash payment
List price
1,800,000
Less: Trade in allowance
(900,000)
900,000
(iii)
Gain/ (loss) on disposal
Trade in allowance
900,000
Less: Book value of trucks
(650,000)
Gain
250,000
646
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Journal entry for exchange of asset
Dr.
1,800,000
750,000
Machinery
Accumulated depreciation – trucks
Machinery
Cash
P and L (as in part (iii))
Answer-15
Vehicle
Dr.
01.06.96 b/d
01.01.97 Disposal (20,000 x 4)
Dr.
Disposal (W-2)
Disposal (W-3)
c/d (bal.)
Dr.
Vehicle
Cash (Note)
Cr.
1,400,000
900,000
250,000
Vehicle a/c
570,000 01.01.97
80,000 01.05.97
31.05.97
Disposal (15,000 x 2)
Disposal
c/d
Accumulated Depreciation
18,000 1.5.96
b/d
8,167
Depreciation (W-1)
311,833
Disposal A/c (Exchange)
30,000 Accumulated Depreciation
70,000 Vehicle – new
P/L
(Bal.)
Note: Cash paid = Cost of new asset – Trade in allowance
Dr.
Vehicle
P/L (bal.)
(old)
(80,000 – 5,000 x 2)
(bal.)
Disposal A/c (Destroy)
10,000 Accumulated Depreciation
1,167 Insurance claim receivable
(W-1) Depreciation Expense
- On Opening excluding disposal
(570,000 – 30,000 – 10,000) x 20%
- On additions
(80,000 x 20% x 5/12)
- On disposals
(30,000 x 20% x 7/12) + (10,000 x 20% x 11/12)
(W-2) Accumulated Depreciation of assets exchanged (30,000 x 20% x 3Y)
(W-3) Accumulated Depreciation of assets destroyed
(10,000 x 20% x 4.0833Y)
Journal entries for understanding only
Entry of Exchange
Entry of Destroy
Vehicle – new
80,000
Accumulated Depreciation
8,167
Accumulated Depreciation
18,000
Insurance claim receivable
3,000
P/L (Bal.)
2,000
P/L (Bal.)
Vehicle – old
30,000
Vehicle
Cash
70,000
647
Cr.
30,000
10,000
610,000
Cr.
220,000
118,000
Cr.
18,000
80,000
2,000
Cr.
8,167
3,000
106,000
6,667
5,333
118,000
18,000
8,167
1,167
10,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Equipment
Dr.
01.05.96
01.10.96
01.12.96
b/d
Cash
Cash
Dr.
Disposal (W-2)
Disposal (W-3)
c/d (bal.)
Equipment a/c
830,000 30.09.96
175,000 01.05.97
200,000 31.05.97
Cr.
60,000
25,000
1,120,000
Disposal
Disposal
c/d (bal.)
Accumulated Depreciation a/c
21,000 01.05.96
b/d
16,458
Depreciation (W-1)
355,001
Cr.
292,000
100,459
Dr.
Equipment
Disposal A/c
60,000 Accumulated Depreciation
Cash
P/L
(Bal.)
Cr.
21,000
32,000
7,000
Dr.
Equipment
Disposal A/c
25,000 Accumulated Depreciation
Cash
P/L
(Bal.)
Cr.
16,458
2,000
6,542
(W-1) Depreciation Expense
- On Opening excluding disposal(830,000 – 60,000 – 25,000) x 10%
- On additions
(175,000 x 10% x 8/12) + (200,000 x 10% x6/12)
- On disposals
(60,000 x 10% x 4/12) + (25,000 x 10% x 11/12)
74,500
21,667
4,292
100,459
(W-2) Accumulated Depreciation of Disposals made on 30.09.96
(60,000 x10% x 3.5)
21,000
(W-3) Accumulated Depreciation of Disposals made on 01.05.97
(25,000 x 10% x 6.5833)
16,458
(b)
Cost
Opening
Addition
Disposal
Closing
Depreciation
Opening
Addition
Disposal
Closing
WDV
Rate
648
Equipment
Vehicle
Total
-----------------------Rs. 000----------------------830
570
1,400
375
80
455
(85)
(40)
(125)
1,120
610
1,730
292
101
(37)
(356)
220
119
(26)
(313)
512
239
(63)
(688)
764
10%
297
20%
1,042
-
CHAPTER-7
Answer-16
(a)
Dr.
b/d
Disposal account
Stock (15,400/140x100)
(b)
Dr.
Disposal account (W-1)
Disposal account (W-2.1)
c/d
(c)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Fixed assets
100,000 Disposal (W-1)
1,200 Disposals
11,000
c/d
112,200
Accumulated Depreciation
2,250 b/d
900
Depreciation for the year (W-3)
39,835
42,985
Cr.
5,000
2,000
105,200
112,200
Cr.
33,000
9,985
42,985
Dr.
Fixed Asset
Profit/loss on sale of fixed asset
5,000 Accumulated depreciation (W-1)
Cash
P and L (Bal.)
5,000
Cr.
2,250
1,500
1,250
5,000
Dr.
Fixed Asset (old)
Bank
Profit/loss on sale of fixed asset
2,000 Fixed Asset (new)
800 Accumulated depreciation (W-2.1)
P and L (Bal.)
2,800
Cr.
1,200
900
700
2,800
(W-1) Cost and accumulated depreciation of asset disposed on June 30, 2009
Number of years the asset is used
(1.1.2005-30.6.2009)
Cost (in percentage)
Accumulated depreciation (in percentage)
(10% per year x 4.5Y)
Book value at time of disposal (in percentage)
(100% - 45%)
Cost on 1.1.2005 (in rupees)
(2,750/55 x 100)
Accumulated depreciation on 30.06.2009 (in rupees)
(5,000-2,750)
4.5Y
100%
45%
55%
5,000
2,250
(W-2) Journal entry for asset exchanged
Fixed Asset (New)
Accumulated depreciation
P and L (bal.)
Fixed Asset (Old)
Bank
(Assets exchanged)
(W-2.1)
(W-2.1) Accumulated depreciation of asset disposed on July 1, 2009
Number of years the asset is used
(1.1.2005 - 30.6.2009)
Accumulated depreciation on 1.07.2009 (in rupees)
(2,000 x 10% x 4.5Y)
649
Dr.
1,200
900
700
Cr.
2,000
800
4.5Y
900
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-3) Depreciation calculation for the year
Depreciation on opening assets excluding disposals
Opening assets
Less: Disposals
(5,000+2,000)
Remaining assets on which full year depreciation is to be charged
Depreciation there on
(93,000x10%)
Depreciation on additions
(v) Asset acquired through exchange
(1,200x10%x6/12)
(vi) Asset transferred from stock
(11,000x10%x3/12)
Depreciation on disposals
(iv) Asset disposed off
(5,000x10%x6/12)
(v) Asset exchanged
(2,000x10%x6/12)
Answer-17
(a) Dr.
1-Jul-13
1-Aug-13
1-Dec-13
1-Feb-14
b/d
Disposal account
Cash (1,250,000 x 3)
Cash
100,000
(7,000)
93,000
Vehicle
65,201,300 1-Aug-13 Disposals (W-1)
900,000 30-Jun-14 Disposals
3,750,000
250,000
30-Jun-14 c/d
9,300
60
275
250
100
9,985
Cr.
850,000
1,500,000
67,751,300
(b)
Dr.
Accumulated depreciation
Cr.
1-Aug-13 Disposal account (W-2)
243,552
1-Jul-13 b/d
24,450,500
30-Jun-14 Disposal account (W-3)
497,531
6,495,678
Depreciation Exp. (W-1)
30-Jun-14 c/d
30,205,095
(c)
Dr.
Vehicle (old)
Bank
Dr.
Vehicle
P and L (bal.)
(W-1)
Profit/loss on exchange of vehicle
850,000
Vehicle (new)
350,000
Accumulated dep. (W-2)
P and L (Bal.)
Cr.
900,000
243,552
56,448
Profit/loss on sale of vehicle
1,500,000
Accumulated dep. (W-3)
347,531
Cash
Cr.
497,531
1,350,000
Depreciation calculation
Depreciation on opening assets excluding disposals
Opening WDV
(65,201,300 - 24,450,500)
((W-2) 614,125 + (W-3)
Less: WDV of Disposals
1,179,375)
Depreciation there on
(38,957,300 x 15%)
Depreciation on additions
(i) Asset acquired through exchange
(900,000 x 15% x 11/12)
(ii) Asset acquired on 1-Dec.
(3,750,00 x 15% x 7/12)
(iii) Asset acquired on 1-Feb.
(250,000 x 15% x 5/12)
Depreciation on disposals
(i) Asset exchanged
(W-2)
(iv) Asset disposed off
(W-3)
650
40,750,800
(1,793,500)
38,957,300
5,843,595
123,750
328,125
15,625
7,677
176,906
6,495,678
CHAPTER-7
(W-2)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation of asset exchanged
Cost (1.7.11)
Depreciation (30.06.12)
WDV (30.06.12)
Depreciation (30.06.13)
WDV (30.06.13)
Depreciation (1.08.2013)
WDV (1.08.13)
Accumulated depreciation of disposal
(850,000 x 15%)
(722,500 x 15%)
(614,125 x 15% x 1/12)
(850,000 - 606,448)
Accumulated depreciation of asset disposed off
Cost (1.1.12)
Depreciation (30.06.12)
(1,500,000 x 15% x 6/12)
WDV (30.06.12)
Depreciation (30.06.13)
(1,387,500 x 15%)
WDV (30.06.13)
Depreciation (30.06.14)
(1,179,375 x 15%)
WDV (30.06.14)
Accumulated depreciation of disposal
(1,500,000 - 1,002,469)
Answer-18
Dr.
Plant and Machinery a/c – WDV
1.7.11
b/d
5,660,000
Disposals (W-1)
1.10.11
Additions
80,000
Disposals (W-2)
Depreciation expense (W-3)
30.06.12 c/d (bal.)
1.7.12
b/d
4,734,137
Disposals (W-4)
Depreciation expense (W-5)
30.06.13 c/d (bal.)
850,000
(127,500)
722,500
(108,375)
614,125
(7,677)
606,448
243,552
(W-3)
(W-1)
(W-2)
(W-3)
WDV of disposals made on 1.Dec.2011
Cost (1.08.09)
Depreciation (30.06.10)
WDV
Depreciation (30.06.11)
WDV
Depreciation (01.12.11)
WDV (1.12.11)
WDV of disposals made on 1.Feb.2012
WDV
Depreciation (1.02.12)
WDV (30.06.12)
(181,125 x 15%)
(153,956 x 15% x 5/12)
(20,000 x 15% x 7/12)
Depreciation expense for year ended 30.06.2012
Depreciation on opening assets excluding disposals
Opening WDV of all assets
(W-3)
Less: Opening WDV of disposals (153,956 + 20,000)
Depreciation on additions
Depreciation on disposals during the year
651
(200,000 + 10,000)
(210,000 x 15%x 11/12)
(80,000 x 15% x 9/12)
(9,622 + 1,750)
1,500,000
(112,500)
1,387,500
(208,125)
1,179,375
(176,906)
1,002,469
497,531
Cr.
144,334
18,250
843,279
4,734,137
50,801
705,379
3,977,957
210,000
(28,875)
181,125
(27,169)
153,956
(9,622)
144,334
20,000
(1,750)
18,250
5,660,000
(173,956)
5,486,044 15% 822,907
9,000
11,372
843,279
CHAPTER-7
(W-4)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
WDV of disposals made on 30.Nov.2012
Cost (1.07.10)
Depreciation (30.06.11)
WDV
Depreciation (30.06.12)
WDV
Depreciation (30.11.12)
WDV (30.11.12)
(W-5)
(70,000 + 5,000)
(75,000 x 15%)
(63,750 x 15%)
(54,188 x 15% x 5/12)
Depreciation expense for year ended 30.06.2013
Depreciation on opening assets excluding disposals
Opening WDV of all assets
(W-5)
Less: Opening WDV of disposals
(W-1)
Depreciation on disposals during the year
75,000
(11,250)
63,750
(9,563)
54,188
(3,387)
50,801
4,734,137
(54,188)
4,679,949
15%
(W-4)
701,992
3,387
705,379
Answer-19
Journal Entries
Date
Particular
1/10/2015
Machine B
(15,000+ (3,000 x 75%))
P/L (consumable expense)
Bank
1/11/2015
Machine
(10,000/125 x 100)
Inventory
1/1/2016
Plant and machine
Bank
1/1/2016
Bank
Other income
1/5/2016
Repair expense
Bank
1/4/2016
Bank
Accumulated depreciation
(W-2)
Loss on disposal (Bal.)
Machine
30/6/2016
Depreciation expense (W-1)
Accumulated depreciation
(W-1) Depreciation for the year
On opening excluding disposals
[(75,000 – 17,000) – 8,748 (W-2)] x 10%
On additions
-
(17,250 x 10% x 9/12)
(8,000 x 10% x 8/12)
(4,000 x 10% x 6/12)
On disposals (W-2)
652
Debit
17,250
750
Credit
18,000
8,000
8,000
4,000
4,000
750
3,000
750
3,000
1,200
3,908
6,892
12,000
7,408
7,408
4,925
1,294
533
200
2,027
656
7,608
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-2) Accumulated Depreciation of disposals
Cost
Depreciation (30.6.13)
(12,000 x 10%)
Depreciation (30.6.14)
(10,800 x 10%)
Depreciation (30.6.15)
(9,720 x 10%)
Depreciation (1.4.16)
(8,748 x 10% x 9/12)
Accumulated Depreciation of disposal (12,000 – 8,092)
12,000
(1,200)
10,800
(1,080)
9,720
(972)
8,748
(656)
8,092
3,908
Answer-20
(a)
The cost of an item of property, plant and equipment shall be recognized as an asset if and only if:
(a)
It is probable that future economic benefits associated with the item will flow to the entity; and
(b)
The cost of the item can be measured reliably.
An item which is revalued shall be carried at a revalued amount which is its fair value at the date of the
revaluation less any subsequent accumulated depreciation and accumulated impairment losses.
(b)
Statement of Financial position (Extracts)
Rs.
2015
2014
2013
Machinery
*11,194,000
9,441,000
9,441,000
Less: Accumulated Depreciation
(5,210,294)
(4,015,266)
(1,544,333)
5,983,706
5,425,734
7,896,667
* 9,441,000 + 1,753,000 = 11,194,000
Income Statement (Extracts)
2015
2014
2013
Expenses
Depreciation
1,195,028
2,470,933
1,544,333
Staff training expense
351,000
Maintenance contract expense (528/3)
176,000
176,000
176,000
Other income
Discount received
((W-2) 8,740,000 × 3%)
262,200
Workings
(W-1) Depreciation expense
2013
((9,441,000 - 175,000) x 2,000/12,000)
1,544,333
2014
((9,441,000 - 175,000) x 3,200/12,000)
2,470,933
2015
[(5,425,734 + 1,753,000) - 350,000] x 1,400 /8,000
1,195,028
Written down value at the time estimate is changed (9,441,000 - 1,544,333 - 2,470,933)
(W-2) Cost of asset
List price
Less: Trade discount
(9,200,000 x 5%)
Freight charges
Electrical installation
Pre-production testing
653
5,425,734
9,200,000
(460,000)
8,740,000
263,000
245,000
193,000
9,441,000
CHAPTER-7
Answer-21
Entries
Date
July 1, 2010
Jun. 30, 2011
July 1, 2011
July 1, 2011
Jun. 30, 2012
Jun. 30, 2012
July 1, 2012
July 1, 2012
Jun. 30, 2013
July 1, 2013
July 1, 2013
Jun. 30, 2014
Jun. 30, 2014
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Description
Plant
Cash
Depreciation (500/10)
Accumulated depreciation
Accumulated depreciation
Plant
Plant
Revaluation surplus
Depreciation (575/9)
Accumulated depreciation
Revaluation surplus (125/9)
Retained earnings
Accumulated depreciation
Plant
Revaluation surplus (125 - 13.89 )
P/L
Plant
Depreciation (390/8)
Accumulated depreciation
Accumulated depreciation
Plant
Plant
Revaluation surplus
P/L (SOCI)
Depreciation (380/7)
Accumulated depreciation
Revaluation surplus (30/7)
Retained earnings
Dr.
500
Cr.
500
50
50
50
50
125
125
63.89
63.89
13.89
13.89
63.89
63.89
111.11
10
121.11
48.75
48.75
48.75
48.75
38.75
30
8.75
54.29
54.29
4.29
4.29
(W-1) Calculation of revaluation surplus and depreciation on plant
Date
Description
Plant
R. Surplus
SOCI(P/L)
-----------Rs. in ‘million----------1/7/10 Cost
500.00
30/06/11 Depreciation (500/10)
(50.00)
30/06/11 WDV
450.00
1/7/11 Revaluation surplus (bal.)
125.00
125.00
1/7/11 Revalued amount
575.00
125.00
30/06/12 Depreciation (575/9):( 125/9)
(63.89)
(13.89)
30/06/12 WDV
511.11
111.11
1/7/12 Revaluation surplus (bal.)
(121.11)
(111.11)
(10.00)
1/7/12 Revalued amount
390.00
(10.00)
30/06/13 Depreciation (390/8):( 10/8)
(48.75)
1.25
30/06/13 WDV
341.25
(8.75)
1/7/13 Revaluation surplus (bal.)
38.75
30.00
8.75
1/7/13 Revalued amount
380.00
30.00
30/06/14 Depreciation (380/7):(30/7)
(54.29)
(4.29)
30/06/14 WDV
325.71
25.71
654
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-22
Entries
Date
1/7/2005
30/6/2006
1/7/2006
1/7/2006
30/6/2007
30/6/2007
1/7/2007
1/7/2007
30/6/2008
1/7/2008
1/7/2008
30/6/2009
30/6/2009
655
Particulars
Plant
Cash
Depreciation
Accumulated depreciation
Accumulated depreciation
Plant
Plant
Revaluation surplus (OCI)
Depreciation
Accumulated depreciation
Revaluation surplus (40.00/19)
Retained earnings
Accumulated depreciation
Plant
Revaluation surplus
P/L
Plant
Depreciation
Accumulated depreciation
Accumulated depreciation
Plant
Plant
Revaluation surplus
P/L
Depreciation
Accumulated depreciation
Revaluation surplus
Retained earnings
Dr.
200.00
Cr.
200.00
10.00
10.00
10.00
10.00
40.00
40.00
12.11
12.11
2.11
2.11
12.11
12.11
37.89
10.00
47.89
9.44
9.44
9.44
9.44
19.44
10.00
9.44
10.59
10.59
0.59
0.59
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-l) Calculation of revaluation surplus and depreciation on building
Date
1/7/05
30/06/06
30/06/06
1/7/06
1/7/06
30/06/07
30/06/07
1/7/07
1/7/07
30/06/08
30/06/08
1/7/08
1/7/08
30/06/09
30/06/09
Description
Cost
Depreciation (200/20)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (230/19):(40/19)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (170/18):(10/18)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (180/17):( 10/17)
WDV
Plant
Rev. Surplus
SOCI(P/L)
-----------Rs. in ‘million----------200.00
(10.00)
190.00
40.00
40.00
230.00
40.00
(12.11)
(2.11)
217.89
37.89
(47.89)
(37.89)
(10.00)
170.00
(10.00)
(9.44)
0.56
160.56
(9.44)
19.44
10.00
9.44
180.00
10.00
(10.59)
(0.59)
169.41
9.41
(W-2)
T- account are not a part of requirement, these are only prepared for understanding purpose of students.
Dr.
Plant Account
Cr.
1-7-2005 Cash
200.00
30-6-2006 c/d
200.00
1-7-2006 b/d
200.00 1-7-2006
Acc. depreciation
10.00
1-7-2006 Rev. surplus
40.00 30-6-2007 c/d
230.00
1-7-2007 b/d
230.00 1-7-2007
Acc. depreciation
12.11
1-7-2007
Rev. surplus
37.89
1-7-2007
P/L
10.00
30-6-2008 c/d
170.00
1-7-2008 b/d
170.00 1-7-2008
Acc. depreciation
9.44
1-7-2008 Rev. surplus
10.00
1-7-2008 P/L
9.44 30-6-2009 c/d
180.00
(W-3)
Dr.
30-6-2006
1-7-2006
30-6-2007
1-7-2007
30-6-2008
1-7-2008
30-6-2009
(W-4)
Dr.
30-6-2007
30-6-2007
1-7-2007
30-6-2008
30-6-2009
30-6-2009
656
c/d
Plant
c/d
Plant
c/d
Plant
c/d
Retained Earnings
c/d
Plant
c/d
Retained Earnings
c/d (Bal. Fig.)
Accumulated Depreciation account
30-6-2006
Dep. Expense
10.00
10.00 1-7-2006
b/d
12.11 30-6-2007
Dep. Expense
12.11 1-7-2007
b/d
9.44 30-6-2008
Dep. Expense
9.44 1-7-2008
b/d
10.59 30-6-2009
Dep. Expense
Cr.
10.00
Revaluation Surplus account
2.11 1-7-2006
Plant
37.89
37.89 1-7-2007
b/d
-0.59 1-7-2008
Plant
9.41
Cr.
40.00
10
12.11
12.11
9.44
9.44
10.59
37.89
10.00
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-23
Office building
Date
1/7/13
30/6/14
30/6/14
30/6/14
30/6/14
30/6/15
30/6/15
Description
Opening book value
Depreciation (6,000/12)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (5,750/8) : (750/8)
WDV
Building
5,500
(500)
5,000
750
5,750
(719)
5,031
Rs. in ‘000’
Rev.
SOCI(P/L)
Surplus
750
750
(94)
656
Factory building
Date
1/7/13
30/6/14
30/6/14
30/6/14
30/6/14
30/6/15
30/6/15
Description
Opening book value
Depreciation (4,400/10)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (3,320/9) : (200/9)
WDV
Building
Rev.
Surplus
SOCI(P/L)
3,960
(440)
3,520
(200)
3,320
(369)
2,951
(200)
(200)
22
(178)
Warehouse
Date
1/7/13
30/6/14
30/6/14
30/6/14
30/6/14
30/6/15
30/6/15
Description
Opening book value
Depreciation (4,500/10)
WDV
Revaluation surplus (bal.)
Revalued amount
Depreciation (3,350/8) : (250/8)
WDV
Building
SOCI(P/L)
4,050
(450)
3,600
(250)
3,350
(419)
2,931
PQR Enterprise
Journal entries for the year ended June 30, 2014 & 2015
Office Building
Date
Particulars
30/6/14 Depreciation expense
Accumulated depreciation
(Recording of depreciation on office building)
30/6/14 Accumulated depreciation (500+500)
Office Building
(Transfer of accumulated depreciation to office building)
30/6/14 Office Building
Revaluation surplus
(Recording of revaluation surplus)
30/6/15 Depreciation expense
Accumulated depreciation
(Recording of depreciation on office building)
30/6/15 Revaluation Surplus
Retained earnings
(Transfer of remaining revaluation surplus to retained earnings)
657
Rev.
Surplus
(250)
(250)
31
(219)
Rs. in ‘000’
Dr.
Cr.
500
500
1,000
1,000
750
750
719
719
94
94
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Factory Building
Date
Particulars
30/6/14 Depreciation expense
Accumulated depreciation
(Recording of depreciation on factory building)
30/6/14 Accumulated depreciation (440 + 440)
Factory Building
(Transfer of accumulated depreciation to factory building)
30/6/14 P/L account
Factory Building
(Recording of revaluation deficit )
30/6/15 Depreciation expense
Accumulated depreciation
(Recording of depreciation on factory building)
Warehouse
Date
Particulars
30/6/14 Depreciation expense
Accumulated depreciation
(Recording of depreciation on warehouse)
30/6/14 Accumulated depreciation (450 + 450)
Warehouse
(Transfer of accumulated depreciation to warehouse)
30/6/14 P/L account
Warehouse
(Recording of revaluation deficit )
30/6/15 Depreciation expense
Accumulated depreciation
(Recording of depreciation on warehouse)
Dr.
440
Cr.
440
880
880
200
200
369
369
Dr.
450
Cr.
450
900
900
250
250
419
419
Answer-24
Property Plant & Equipment
Note:
2016
2015
Building
EQ
Building
EQP
Cost
Opening balance
Add: Addition/revered
Add: Rev/(Rev)
Less: Disposal
Closing balance
456
(24)
(54)
378
85
(25)
60
450
(22.5)
28.5
456
50
35
85
Depreciation
Opening balance
Dep expense for year
Disposal
Rev Surplus
Closing balance
24
21
(24)
21
10.96
6.3915
(5.7625)
11.589
22.5
24
(22.5)
24
5
5.96
10.96
WDV
357
48.411
432
74.04
658
CHAPTER-7
Dep rate
IAS 16: PROPERTY, PLANT AND EQUIPMENT
5%
(20 year)
10%
(10 year)
5%
(20 year)
10%
(10 year)
Rev model
S.L Method
Cost model
WDV Method
Rev model
S.L Method
Cost model
WDV Method
(W-1)
Date
01/01/14
31/12/14
31/12/14
01/01/15
01/01/15
31/12/15
31/12/15
01/01/16
01/01/16
31/12/16
31/12/16
Description
Cost
Dep 450/20
WDV
Rev Surplus
Rev Amount
Dep
WDV
Rev Surplus
Rev Amount
Dep
WDV
Building
Rev Sur
450
(22.5)
427.5
28.5
456
(24)
432
(54)
378
(21)
357
28.5
28.5
(1.5)
27
(27)
Building A/C
Rs.
01/01/14 Cash
01/01/15 bal b/d
01/01/15 Rev Sur
01/01/16 bal b/d
31/12/14 c/d
01/01/15 Building
31/12/15 bal c/d
01/01/16 Building
31/12/16 bal c/d
659
450 31/12/14 bal c/d
450 01/01/15 ACC dep
28.5 31/12/15 c/d
478.5
456 01/01/16 Revaluation Surplus
01/01/16 P/L
01/01/16 Acc Dep
31/12/16 Bal c/d
456
Acc dep A/C
Rs.
01/01/14 b/d
22.5 31/12/14 Depreciation
22.5
22.5 01/01/15 bal b/d
24 31/12/15 Depreciation
46.5
24 01/01/16 bal b/d
21 31/12/16 Depreciation
45
P/L
(27)
(27)
1.5
(25.5)
Rs.
450
22.5
456
478.5
27
27
24
378
456
Rs.
22.5
22.5
22.5
24
46.5
24
21
45
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
31.12.15 Retained earning
31/12/15 bal c/d
01.01.16 Building
31/12/16 bal c/d
Revaluation Surplus A/C
Rs.
1.5 01.1.15 Building
27
28.5
27 01.01.16 bal b/d
27
Retained earnings A/C
Rs.
1.5 31/12/15 Rev Sur
1.5 01/01/16 bal b/d
1.5
31/12/15 bal c/d
31/12/16 bal c/d
Rs.
28.5
28.5
27
27
Rs.
1.5
1.5
1.5
(W-2)
01/01/14
01/01/15
01/08/15
cash
b/d
cash
01/01/16
b/d
Equipment A/C
Rs.
50 31/12/14
50
35 31/12/15
85
85 30/06/16
31/12/16
85
c/d
c/d
Disposal
c/d
Rs.
50
85
85
25
60
85
(W-3)
Accumulated dep A/C
Rs.
01/01/14
31/12/14
bal c/d
5 31/12/14
5
01/01/15
31/12/15
bal c/d
10.96 31/12/15
10.96
30/06/16
Disposal (w-4)
5.7625 01/01/16
31/12/15
c/d
11.589 31/12/16
17.3515
(W-4) Accumulated Depreciation of disposal asset
Date
01/01/14
31/12/14
31/12/15
Dep exp
25
(2.5)
22.5
(2.25)
20.25
30/06/16
31/12/16
(2.025)
18.225
Acc dep= Cost-WDV =25-19.2375 =5.7625
660
Rs.
b/d
c/d
b/d
dep
b/d
dep
Dep exp
25
(2.5)
22.5
(2.25)
20.25
(1.10125)
19.2375
5
5
5
5.96
10.96
10.96
6.3915
17.3515
CHAPTER-7
(W-5) Addition of Equipment
01/08/15
31/12/15
31/12/15
31/12/16
31/12/16
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Cost
Dep x 10% x 5/12
WDV
Dep x 10%
WDV
35
(1.46)
33.54
(3.354)
30.186
Answer-25
(a)
Date
Particulars
31-12-13 Building
Revaluation surplus
(Recording of revaluation surplus)
31-12-15 Revaluation surplus
P/L
Building
(Recording of revaluation loss)
31-12-17 Building
Revaluation surplus
P/L
(Recording of revaluation surplus )
(W-1)
Date
1-7-12
31-12-12
31-12-12
31-12-13
31-12-13
31-12-13
31-12-13
31-12-14
31-12-14
31-12-15
31-12-15
31-12-15
31-12-15
31-12-16
31-12-16
31-12-17
31-12-17
31-12-17
31-12-17
(1)
Description
Cost
Dep (360/10×6/12)
WDV
Dep (342/9.5)
WDV
Rev surplus
Rev amount
Dep(323/8.5)/(17/8.5)
WDV
Dep (285/7.5)/(15/7.5)
WDV
Rev surplus
Rev amount
Dep (208/6.5)/(26/6.5)
WDV
Dep (176/5.5)/(22/5.5)
WDV
Rev surplus
Rev amount
Particulars
Asset (new)(8.5 - 1.1)
Cash
Acc. Dep.
Asset(old)
661
Dr.
Cr.
17
17
13
26
39
23
5
18
Building
360
(18)
342
(36)
306
17
323
(38)
285
(38)
247
(39)
208
(32)
176
(32)
144
23
167
Rev surplus
17
17
(2)
15
(2)
13
(13)
5
5
Dr.
7.4
1.1
3.9
P/L
(26)
(26)
4
(22)
4
(18)
18
-
Cr.
10.3
CHAPTER-7
(2)
(3)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Gain(bal)
Asset(new)
Acc.dep(12.4 - 7.3)
P/L bal
Asset(old)
Cash
Asset(new)
Acc dep
Asset (old)
2.1
9
5.1
0.4
12.4
2.1
3.4
11.1
14.5
Answer-26
Machine Account - Cost
Rs.
1-1-17 Balance b/d
800,000 30-4-17 Disposal (W-1.1)
1-1-17 Bank (W-2)
80,000 30-6-17 Disposal
1-1-17 Disposal. (TIA) (W-2)
40,000 31-12-17 Balance c/d
920,000
Accumulated Depreciation Account
Rs.
30-4-17 Disposal (W-1.2)
21,662 1-1-17
Balance b/d
30-6-17 Disposal (W-3)
15,810 31-12-17 Depreciation(W-4)
31-12-17 Balance c/d
367,396
404,868
Machine
Bank
Machine
Disposal Account
Rs.
52,000 Acc. depreciation
5,000 Bank
65,000 Acc. depreciation
Machine
Loss on disposal
122,000
WORKINGs
(W-1)
1-1-14
Cost
31-12-14 Dep 100  15%
31-12-14 WDV
31-12-15 Dep 85  15%
31-12-15 WDV
31-12-16 Dep 72.25  15%
31-12-16 WDV
30-4-17 Dep 61.4125  15%  4/12
30-4-17 WDV
662
100
(15)
85
(12.75)
72.25
(10.84)
61.4125
(3.07)
58.34
WDV (Given)
Dep 31935 x 15%  4/12
WDV
Rs.
52,000
65,000
803,000
920,000
Rs.
333,000
71,868
404,868
Rs.
21,662
34,000
15,810
40,000
10,528
122,000
31,935
(1,597)
30,338
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W – 1.1)
1-1-17
Cost
Less Accumulated Depreciation
WDV
61.4125 – 31,935
1−
31,935
61.4125
Rs.
52,000
(20,065)
31,935
%
100
(38.5875)
61.4125
× 100 = 52,000
(W – 1.2)
Accumulative depreciation = Cost
WDV
= 52,000 – 30,338 = 21,662
(W-2)
Cost of New Asset = Cash paid + Trade In Allowance (TIA)
= 80,000 + 40,000 = 120,000
(W-3)
1-10-15
31-12-15
31-12-15
31-12-16
31-12-16
31-12-17
31-6-17
Cost
Depreciation 65,000  15%  3/12
WDV
Depreciation 62,562  15%
WDV
Depreciation 53,178  15%  6/12
WDV
65,000
(2,438)
62,562
(9,384)
53,178
(3,988)
49,190
(W – 3.1)
Accumulative depreciation = Cost
WDV
= 65,000 – 49,190 = 15,810
(W-4)
Depreciation Expenses
Depreciation on opening asset excluding disposal
= (800,00 – 333,000) – 53,178 – 31,935 = 381,887  15%
Depreciation on addition
= 120,000  15%  6/12
Depreciation on disposal W-1
W-3
663
57,283
9,000
1,597
3,988
71,868
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer-27
(a)
Depreciation of plant
Date
Description
Plant
Rev. surplus
P/L
------------Rs. in million-----------500
1-1-15
31-12-15
Cost
Dep (
(44)
31-12-15
31-12-16
WDV
456
500 – 60
)
10
456 – 78
( 9 )
31-12-16
31-12-16
31-12-16
Dep
WDV
Rev surplus
Rev amount
31-12-17
Dep (
31-12-17
31-12-18
WDV
31-12-18
31-12-18
31-12-18
526 –780
)
8
(42)
112
)
8
(
470 – 64
(
)
7
Dep
WDV
Rev surplus
Rev amount
414
112
526
112
112
(56)
(14)
470
98
(58)
(14)
412
(102)
310
84
(84)
0
(18)
(18)
Depreciation of equipment
Date
1-7-15
31-12-15
31-12-15
31-12-16
Cost
360 – 0
12
Dep (
WDV
Dep
WDV
Rev surplus
Rev amount
31-12-17
Dep (
WDV
31-12-18
31-12-18
31-12-18
31-12-18
280 –0
)
14
31-12-18
664
6
)
12
Equipment Rev. surplus
P/L
------------Rs. in million-----------360
(15)
345
(23)
42
( 14 )
260 – 0
( 10 )
Dep
WDV
Rev surplus
Rev amount
Journal Entry
Date
31-12-18
×
345 – 0
( 15 )
31-12-16
31-12-16
31-12-16
31-12-17
(b)
Description
322
(42)
280
(42)
(42)
(20)
3
260
(39)
(26)
3.9
234
41
275
Description
Revaluation loss (P & L account)
Revaluation surplus
Plant
Equipment
Revaluation gain (P & L account)
Revaluation surplus
5.9
5.9
Dr.
Rs. million
18.00
84.00
(35.1)
35.1
Cr.
Rs. million
102.00
41.00
35.10
5.90
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP QUESTION BANK QUESTION
Question-1
1
2
A business purchased some land and buildings on 1 January 2011 for Rs.800million (land
Rs.250 million and buildings Rs.550 million). The buildings are to be depreciated over a
period of 50 years.
On 1 January 2015 the land and buildings were revalued to Rs.1,500 million (land Rs.400
million and buildings Rs.1,100 million). At this date the buildings were believed to have
a remaining useful life of 40 years.
What is the original depreciation charge for the buildings and the revised charge from 1
January 2015?
A business purchased land for Rs.250 million and buildings for Rs.400 million on 1
January 2011. The buildings were to be depreciated over a period of 50 years. On 1
January 2015 the land was revalued to Rs.520 million and the buildings were revalued at
Rs.750 million. What amount is to be taken to the revaluation reserve on 1 January 2015?
(ICAP Question bank 7.1)
Question-2
Rooney has recently finished building a new item of plant for its own use. The item is a press for
use in the manufacture of industrial diamonds. Rooney commenced construction of the asset on
1st April 2013 and completed it on 1st April 2015. At a total cost of Rs.30.8 million.
The press comprises two significant parts, the hydraulic system and the ‘frame’. The hydraulic
system has a three-year life and the ‘frame’ has an eight-year life. Rooney depreciates plant on a
straight line basis. The cost of the hydraulic system is 30% of the total cost of manufacture.
Rooney uses the IAS 16 revaluation model in accounting for diamond presses and revalues these
assets on an annual basis.
Revaluation surpluses or deficits are apportioned between the hydraulic system and the ‘frame’
on the basis of their year-end book values before the revaluation.
Required
(a)
Explain the IAS 16 rules on accounting for significant parts of property, plant and
equipment and
(b)
Show the accounting treatment of the diamond press in the financial statements for the
financial years ending:
(i)
31st March 2016 (assume that the press has a fair value of Rs.21 million)
(ii)
31st March 2017 (assume that the press has a fair value of Rs.19.6 million).
(ICAP Question bank 7.2)
Question-3
The following information relates to the financial statements of Ehtisham for the year to 31
March 2015.
The head office of Ehtisham was acquired on 1 April 2012 for Rs.1 million. Ehtisham intend to
occupy the building for 25 years. On 31 March 2014 it was revalued to Rs.1.15 million. On 31
March 2015, a surplus of vacant commercial property in the area had led to a fall in property
prices and the fair value was now only Rs.0.8 million.
Required
Explain the correct accounting treatment for the above (with calculations).
(ICAP Question bank 7.3)
665
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-4
The following is an extract from the financial statements of Carly on 31 December 2014.
Property, plant and equipment
Cost
On 31 December 2014
Accumulated depreciation
On 31 December 2014
Carrying amount
On 31 December 2014
Land and
buildings
Rs.
Plant and
equipment
Rs.
Computers
Total
Rs.
Rs.
1,500,000
340,500
617,800
2,458,300
600,000
125,900
505,800
1,231,700
900,000
214,600
112,000
1,226,600
Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings
Over 50 years on straight line basis on buildings only
On plant and equipment
25% reducing balance
On computers
33.33% per annum straight line
During 2015 the following transactions took place.
(1)
On 31 December the land and buildings were revalued to Rs. 1,750,000. Of this amount,
Rs.650,000 related to the land (which had originally cost Rs. 500,000). The remaining
useful life of the buildings was assessed as 40 years.
(2)
A machine which had cost Rs. 80,000 and had accumulated depreciation of Rs. 57,000 at
the start of the year was sold for Rs. 25,000 in the first week of the year.
(3)
A new machine was purchased on 31 March 2015. The following costs were incurred:
Purchase price, before discount, inclusive of reclaimable sales tax of Rs.3,000
Trade Discount
Delivery costs
Installation costs
(4)
Rs.
20,000
1,000
500
750
Interest on loan taken out to finance the purchase 300
On 1 January it was decided to change the method of providing depreciation on computer
equipment from the existing method to 40% reducing balance.
Required:
Produce the analysis of property, plant and equipment as it would appear in the financial
statements of Carly for the year ended 31 December 2015.
(ICAP Question bank 7.4)
Question-5
Adjustments Limited has carried out a review of its non-current assets.
(a)
A grinder was purchased on 1 January 2012 for Rs.100,000. The plant had an estimated
useful life of ten years and a residual value of nil. Depreciation is charged on the straight
line basis. On 1 January 2015, when the asset’s net book value is Rs.70,000, the directors
decide that it would be more appropriate to depreciate this asset using the sum of digits
approach. The remaining useful life is unchanged.
666
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(b)
The company purchased a fifty year lease some years ago for Rs.1,000,000. This was
being depreciated over its life on a straight line basis. On 1 January 2015, when the net
book value is Rs.480,000 and twenty-four years of the lease are remaining, the asset is
revalued to Rs.1,500,000. This revised value is being incorporated into the accounts.
Required:
Explain the effects of these changes on the depreciation for the year to 31 December 2015.
(ICAP Question bank 7.5)
Question-6
FAM had the following tangible fixed assets at 31 December 2014.
Cost
Depreciation
Rs. 000
Rs. 000
Land
500
Buildings
400
80
Plant and machinery
1,613
458
Fixtures and fittings
390
140
Assets under construction
91
2,994
678
NBV
Rs. 000
500
320
1,155
250
91
2,316
In the year ended 31 December 2015 the following transactions occur.
(1)
Further costs of Rs.53,000 are incurred on buildings being constructed by the company.
A building costing Rs.100,000 is completed during the year.
(2)
A deposit of Rs.20,000 is paid for a new computer system which is undelivered at the
year end.
(3)
Additions to plant are Rs.154,000.
(4)
Additions to fixtures, excluding the deposit on the new computer system, are Rs.40,000.
(5)
The following assets are sold.
Depreciation
Proceeds
brought forward
Rs. 000
Rs. 000
Rs. 000
Plant
277
195
86
Fixtures
41
31
2
(6)
Land and buildings were revalued at 1 January 2015 to Rs. 1,500,000, of which land is
worth Rs. 900,000. The revaluation was performed by Messrs Jackson & Co, Chartered
Surveyors, on the basis of existing use value on the open market.
(7)
The useful economic life of the buildings is unchanged. The buildings were purchased ten
years before the revaluation.
(8)
Depreciation is provided on all assets in use at the year end at the following rates.
Buildings
2% per annum straight line
Plant
20% per annum straight line
Fixtures
25% per annum reducing balance
Required:
Show the disclosure under IAS 16 in relation to fixed assets in the notes to the published
accounts for the year ended 31 December 2015.
(ICAP Question bank 7.6)
Cost
667
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question-7
The following information pertains to property, plant and equipment of Orchid Limited (OL), a
listed company:
Description
Buildings
Plant
Date of
purchase
Cost Rs. in
million
Original
useful life
1-Jan-15
1-Jan-15
600
475
30 years
25 years
Depreciation
method
Straight line
Straight line
Subsequent
measurement
model
Revaluation
Cost
Buildings
The revalued amount of buildings as determined by Shabbir Associates, an independent valuer,
on 31 December 2015 and 2017 was Rs.700 million and Rs.463 million respectively.
On 30 June 2017 a building having original cost of Rs.66 million was sold to Baqir Limited for
Rs.85 million. It was last revalued at Rs.87 million. OL incurred a cost of Rs.2 million on
disposal.
OL transfers the maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
Plant
On 31 December 2016 the recoverable amount of the plant was assessed at Rs.360 million with
no change in useful life.
During 2017, OL has decided to change the depreciation method for plant from straight line to
reducing balance. The new depreciation rate would be 10%.
Required:
Prepare following notes (along with comparative figures) to be presented in the financial
statements of OL for the year ended 31 December 2017 in accordance with the requirements of
relevant IFRSs and Companies Act, 2017:
(a)
Property, plant and equipment
(b)
Change in depreciation method
(ICAP Question bank 7.7)
Question-8
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant
and equipment and has a policy of revaluing its assets on an annual basis using the net
replacement value method.
The following information pertains to AL’s buildings:
i.
Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs.300
million.
The useful life of the buildings on the date of acquisition was 20 years.
ii.
AL depreciates buildings on the straight line basis over their useful life.
iii.
The results of revaluations carried out during the last three years by Premier Valuation
Service, an independent firm of valuers, are as follows:
Revaluation date
Fair value Rs. in million
1 January 2013
323
1 January 2014
252
1 January 2015
272
iv.
On 30 June 2015, one of the buildings was sold for Rs. 80 million.
668
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Required:
Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion
in AL’s financial statements for the year ended 31 December 2015 in accordance with
International Financial Reporting Standards. (Ignore taxation)
(ICAP Question bank 7.8)
Question-9
Shahwez Limited (SL) revalued its property on 1 April 20X1 to Rs.20 million (Rs.8 million for
the land). The property originally cost Rs.10 million (Rs.2 million for the land) 10 years ago. The
original useful life of 40 years is unchanged. SL’s policy is to make a transfer to realised profits
in respect of excess depreciation.
Required:
How will the property be accounted for in the year ended 31 March 20X2?
(ICAP Question bank 7.9)
Question-10
Hamza Limited (HL) acquired a building on 1 April 20X1 for Rs.100,000 at which point it was
considered to have a useful life of 40 years. At the year end 31 March 20X6, HL decided to
revalue the building to its current value of Rs.98,000.
Required:
How will the building be accounted for in the year ended 31 March 20X6?
(ICAP Question bank 7.10)
Question-11
1.
2.
When the asset should be derecognised from the balance sheet? What is the accounting
treatment for gain or loss on disposal for revaluation model?
What is the disclosure requirement of asset carried at revalued amount?
Question 12
Abbas Limited (AL) is engaged in the business of manufacturing near the Karachi-Hyderabad
Motorway. Its Property, Plant and Equipment comprises of land and buildings, plant and
machinery, and equipment and fittings.
Details for the period up to 30 June 2018 are as follows:
1.
The balances of the Property, Plant and Equipment as at 30 June 2018 are given below:
Assets
Land
Buildings
Plant and Machinery
Equipment
2.
Gross Carrying Amount
(Rs. Million)
12
125
500
100
Accumulated
Depreciation (Rs. Million)
N/A
38
300
36
The relevant information pertaining these assets is given below:
Assets
Land
Buildings
Plant and Machinery
Equipment
669
Depreciation Method
N/A
Straight-line
Units of Production
Written down value
Subsequent Measurement
Model
Fair Value
Cost
Cost
Cost
CHAPTER-7
3.
4.
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Abbas Limited uses proportionate policy to depreciate its Property, Plant and Equipment.
All of the plant and machinery pertains to factory use whereas all the equipment pertains
to office use. However floor areas occupied by factory and office are in the ratio 60:40
respectively.
5.
The equipment was purchased on 1 July 2016. No disposals and acquisitions took place
in the period up to 30 June 2018.
6.
Until 30 June 2018, 12,000 units had been produced by Abbas Limited in its factory. The
plant and machinery does not have any residual value. No additions or disposals of plant
and machinery took place till this date.
7.
The buildings were acquired on 1 July 2014 with a residual value of Rs. 11 million. No
additions and disposals took place till 30 June 2018.
8.
The land had actually cost Rs. 15 million on the date of its acquisition.
9.
It is assumed that value of land and buildings is spread evenly across the area occupied.
The following information pertains to the year ended 30 June 2019:
1.
On 1 July 2018, land was revalued to Rs. 20 million on 1 July 2018. The value was
determined by an independent firm M/s Ashfaq & Co. Chartered Accountants.
2.
This year, 5,000 units were produced in the factory of AL.
3.
On January 1, 2019, AL disposed 25% of its area comprising of land and buildings at a
price of Rs. 90 million. The portion of land was sold at its fair value as determined on 1
July 2018. The legal costs of drafting transfer agreements were Rs. 0.1 million. It is
assumed that this disposal will not affect the proportion of areas occupied by factory and
office.
4.
Further equipment costing Rs. 60 million was acquired on 1 November 2018.
5.
In the meeting of its board of directors, it was decided to open a new factory premises
near Lahore-Islamabad motorway. An expenditure of Rs. 20 million was spent on the
construction of the factory on 1 December 2018, financed by a loan obtained from the
bank at the rate of 12% per annum. The construction had not been completed at the end
of the year.
6.
Moreover, the directors also made a contract with M/s UniPower& Co. to purchase plant
and machinery worth Rs. 35 million once the construction of factory building is
completed.
Required:
(a)
Prepare journal entries to record the revaluation of land and disposal of land and
buildings.
(b)
Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in the
notes to the published accounts for the year ended 30 June 2019.
670
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Question 13
Games Limited (GL) commenced a business of preparing and burning video game CDs on 1 July
2015.
The following information pertains to the year ended 31 March 2016:
(1)
GL purchased 30 computers on the date of commencement of business at a cost of
Rs.20,000 each, purely for the task of burning CDs. The management of GL estimates
that since the computers are subject to obsolescence, more of its benefit can derived in its
early life. The total useful life at the date of acquisition was estimated to be 4 years and
residual value was estimated to be Rs. 4,802 for each computer.GL decided to adopt
historical cost model for subsequently measurement of computers.
(2)
GL purchased an office building at the date of start of business worth Rs.3 million. GL
decided to adopt fair value model due to fluctuations in property prices. 80% of the
building is occupied by computer labs, whereas 20% is used by administrative and selling
departments. The useful life is estimated to be 10 years at the date of acquisition with no
residual value, and the economic benefits are expected to be derived evenly over its
useful life. At the end of the year, the fair value of office buildings was assessed to be
Rs.3,237,500.
(3)
GL also purchased fittings for its administrative and selling departments, costing
Rs.120,000 on 1 July 2015. It is to be depreciated over 10 years using the straight-line
method, with no residual value.
(4)
GL made a contractual commitment with Al-Karim Computers to purchase 6 computers
of Rs. 20,000 each to be delivered at GL’s premises on 1 May 2016.
The following information pertains to the year ended 31 March 2017:
(1)
The computers were delivered at the GL’s premises by Al-Karim Computers at the said
date. It was decided to use the same method and same rate to depreciate these computers.
However, no further space was utilised by the computer labs.
(2)
At the end of the year, the fair value of office building was assessed to be Rs. 2 million.
At the year-end GL mortgaged entire building with JS Bank to obtain a loan worth
Rs.1.75 million for prospective investments in other divisions.
(3)
Fittings with a cost of Rs. 30,000 were disposed of for Rs. 22,000 on 1 January 2017.
The Suzuki Driver was paid Rs. 1,000 to transfer the fittings to customer’s premises.
The fair values of the office building were determined byan independent firm M/s Hafeez
Yasir Chartered Accountants& Co. Moreover, GL uses proportionate policy to depreciate
its assets.
Required:
(a)
Prepare the disposal account to record the sale of fittings on 1 January 2017.
(b)
Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment
in the notes to the published accounts for the year ended 31 March 2017
(comparatives are required).
671
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP QUESTION BANK SOLUTIONS
Answer-1
(1)
(2)
Original depreciation =
Rs.550 million
50 years
Revised depreciation =
Rs.1,100 million
40 years
= Rs. 11 million
= Rs. 27 million
The total amount taken to the revaluation reserve is Rs.652 million
(W-1)
Date
Particulars
1.1.11
31.12.14
31.12.14
1.1.15
1.1.15
Cost
Accumulated depreciation (400/50  4)
W.D.V
Revaluation surplus
Revaluated amount
Profit &
Loss /
(SOCI)
--------------Rs. Million-------------250
400
(32)
250
368
270
382
652
520
750
652
-
Land
Building
Revaluation
surplus
Answer 2
(a)
IAS 16 requires that each part of an item (that has a cost that is significant in relation to the total
cost) is depreciated separately. Therefore, the cost recognised at initial recognition must be
allocated to each part accordingly
(b)
Date
1.4.15
31.3.16
31.3.16
31.3.16
31.3.16
Hydrauli
c system
Particulars
Cost (30,800  30%) (30,800  70%)
Dep. (
9240
3
),(
21560
8
)
W.D.V
Revaluation loss
Revaluated amount
21,000
21,000
(
× 6,160) , (
× 18,865)
25025
25025
9,240
Frames
Total
Rev.
Surplus
--------------Rs. 000’s-------------21,560
Profit &
Loss /
(SOCI)
-
(3080)
6,160
(991)
(2695)
18,865
(3,034)
25,025
(4,025)
(4025)
5,169
15,831
21,000
(4025)
The carrying value of the assets should be written down by a factor of 21,000/25025. This gives a
carrying value for the hydraulic system (in Rs.000) of 5,169 and for the ‘frame’ 15,831.
The hydraulic plant should be depreciated over remaining life of two more years and the ‘frame’
over 7 more years.
672
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Date
Particulars
1.4.15
31.3.16
Cost (30,800  30%) (30,800  70%)
31.3.16
31.3.16
31.3.16
W.D.V
Revaluation loss
Revaluated amount
21,000
21,000
(
× 6,160) , (
× 18,865)
25025
25025
Dep. (
9240
21560
3
8
),(
P & L/
(SOCI)
HSc
------------------------------Rs. 000’s-----------------------------21,560
(2695)
18,865
25,025
(3,034)
(4,025)
(991)
(3,034)
5,169
15,831
21,000
(991)
(3,034)
(2,585)
2,584
551
(2,262)
13,569
2,896
16,153
3,447
56
295
496
(495)
495
433
(2,601)
2,601
3,135
16,465
19,600
56
295
HS
9,240
)
5169
991
15831
2
2
7
Depreciation (
31.3.17
31.3.16
31.3.16
W.D.V
Revaluation surplus
Revaluated amount
19,600
19,600
(
× 2,584) , (
× 13,569)
16153
16153
)(
)(
Total
R/S
HS
R/S
Frame
P & L/
(SOCI)
Frames
3,034
31.3.17
),(
(3080)
6,160
(991)
Frames
7
)
Hydraulic system = HS
Revalued surplus
The total revaluation gain is 3,447. Of this total amount, 3096 (495 + 2,601) reverses the loss in
the previous year net of the benefit obtained through reduced depreciation and is therefore
reported in profit and loss for the year. The remaining 351 (56 + 295) is reported as other
comprehensive income.
Answer 3
IAS 16 permits assets to be carried at cost or revaluation. Where the latter is chosen, the asset must be
stated at its fair value.
The original depreciation was Rs.40,000 (Rs.1,000,000/25 years) per annum.
On 31st March 2014 the asset is two years old. Its carrying value before revaluation was Rs.920,000.
In order to effect the revaluation, the cost is uplifted to fair value of Rs.1.15m, the accumulated
depreciation is eliminated, and the uplift to the net book value is credited to a revaluation surplus account.
Following are the journal entries
31.3.14
Accumulated depreciation
80,000
Building
80,000
(The accumulated depreciation is eliminated)
31.3.14
Building
230,000
Revaluation surplus
230,000
(The uplift to the net book value is credited to a revaluation surplus account.)
The asset is depreciated over its remaining useful economic life of 23 years giving a charge of Rs.50,000
(Rs.1,150,000/23 years) per annum in the year to 31st March 2015.
31.3.15
Depreciation
50,000
Accumulated depreciation
50,000
(Depreciation charge)
Transfer from revaluation surplus to retained earnings
As a result of the revaluation, the annual depreciation has increased from Rs.40,000 to Rs.50,000. This
extra depreciation of Rs.10,000 is transferred from the revaluation reserve to accumulated profits each
year.
31.3.15
Revalue surplus
10,000
Retained earning
10,000
(Transfer of incremental depreciation)
673
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
By the 31st March 2015, the balance remaining on the revaluation reserve will be Rs.220,000.
The fall in property values at the year-end. The asset must be revalued downwards to Rs.0.8million, a
write-down of Rs.300,000.
Rs.220,000 of this is charged against the revaluation reserve relating to this asset, and the remaining
Rs.80,000 must be charged against profits.
The reduction of the carrying amount of the asset is achieved by removing the accumulated depreciation
and adjusting the asset account as follows.
31.3.15
Accumulated depreciation
50,000
Building
50,000
(The accumulated depreciation is eliminated)
31.3.15
Revaluation surplus
220,000
Profit and loss
80,000
Building
300,000
(Revaluation adjustment)
From 31.3.15 the Rs.800,000 will be depreciated over the remaining useful life of the asset (22 years).
(W-1)
Date
Rev.
Profit & Loss /
(SOCI)
Surplus
----------Rs. 000---------1,000
(80)
920
230
230
1,150
230
-
Head office
building
Particulars
1.4.12
Cost
31.3.14
Acc. Dep. (
31.3.14
31.3.14
31.3.14
W.D.V
Revaluation surplus
Revaluated amount
31.3.15
Dep. (
31.3.15
31.3.15
31.3.15
W.D.V
Revaluation loss
Revaluated amount
1000
25
× 2)
1,150
230
23
23
) ,(
)
(50)
1,100
(300)
800
(10)
220
(220)
0
(80)
(80)
Answer 4
Gross Carrying Amount
Balance 01.January 2015
+Addition
-Transfer
+Revaluation Surplus/(Rev. Loss)
- Disposal
Balance 31.December 2015
Land &
building
Plant &
machinery
Computer
equipment’s
Total
1,500,000
340,500
17,250
(80,000)
277,750
617,800
617,800
2,458,300
(620,000)
870,000
17,150
(80,000)
2,645,550
125,900
50,775
505,800
44,800
(620,000)
870,000
1,750,000
Accumulated depreciation
Balance 01.January 2015
+Depreciation for the year *
-Transfer
- Disposal
Balance 31.December 2015
600,000
20,000
(620,000)
-
(57,000)
119,675
550,600
1,231,700
115,575
(620,000)
(57,000)
670,275
WDV 31.December 2015
1,750,000
158,075
67,200
1,975,275
WDV 31.December 2014
900,000
214,600
112,000
1,226,600
674
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
WORKINGS
(W-1) Depreciation charges for the year 2015
20,000
Rs.
Buildings =
(1,500,000 – 500,000)
50 𝑦𝑒𝑎𝑟𝑠
=
20,000
Plant and machinery:
On opening plant (((340,500 – 80,000) – (125,900 – 57,000))  25%)
8
Addition (17,250  25%  12)
(2)
Computer equipment = 112,000  40% =
Cost of new machine
Purchase price (20,000 – 3,000 – 1,000)
Delivery costs
Installation costs
47,900
2875
50775
Rs.44,800
Rs.
16,000
500
750
17,250
Answer 5
(a)
Grinder
The grinder was purchased in 2012 and was originally being depreciated on a straight line basis.
It has now been decided to depreciate this on the sum of digits basis.
IAS 16 requires that depreciation methods be reviewed periodically and if there is a significant
change in the expected pattern of economic benefits, the method should be changed. Depreciation
adjustments should be made in current and future periods. This change might be appropriate if,
for instance, usage of the machine is greater in the early years of an asset’s life when it is still
new and consequently it is appropriate to have a higher depreciation charge.
If the change is implemented, the unamortised cost (the net book value) of the asset should be
depreciation over the remaining useful life commencing with the period in which the change is
made. The depreciation charge for the remaining life of the asset will therefore be as follows.
Sr. #
Year
Digits
Depreciation
Rs.
7
1
2015
7
17,500
Rs. 70,000 
28
6
2
2016
6
15,000
Rs. 70,000 
28
3
2017
5
12,500
4
2018
4
10,000
5
2019
3
7,500
6
2020
2
5,000
7
2021
1
2,500
7 (7 + 1)
2
= 28
Disclosure will need to be made in the accounts of:
(i)
The details of the change, including
(ii)
The effect on the charge in the year.
675
Rs.70,000
CHAPTER-7
(b)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
The reassessment of the depreciation method is NOT a change in accounting policy and neither
rectification of a fundamental error so the effects of the change will not affect the previously
reported financial statements (opening retained earnings)
Leasehold land
IAS 16 requires that the subsequent charge for depreciation should be based on the revalued
Rs.1,500,000
amount. The annual depreciation will therefore be Rs.62,500, i.e. 24 years (Remaing life)
There will then be a difference between the revalued depreciation charge and the historical
depreciation charge.
The resulting excess depreciation may be dealt with by a movement in reserves, i.e. by
transferring from the revaluation reserve to retained earnings a figure equal to the depreciation
charged on the revaluation surplus each year. For this amount following journal entry will be
made
Revalue surplus
Retained earning
Answer 6
FAM
Notes to financial statement
For the year ended 31 December 2015
Note No. 2: Accounting policies
(a)
Property, plant and equipment is stated at historical cost less accumulated depreciation
depreciation, except land and building which is stated at revalued amount less accumulated
depreciation.
(b)
Depreciation is provided on all assets, except land, and is calculated to write down the cost or
valuation over the estimated useful life of the asset.
Note No. 12: Property Plant and Equipment
Fixtures,
Plant and
Fixed asset movements
Land
Buildings
fittings,
Total
machinery
etc.,
Cost/valuation
Rs.000
Rs.000
Rs.000
Rs.000
Rs.000
Cost at 1 January 2015
500
400
1,613
390
2,903
Additions
100
154
40
294
Transfers
(80)
Revaluation adjustment
400
280
600
Disposals
(277)
(41)
(318)
Value at 31 December 2015
900
700
1,490
389
1,979
Accumulated depreciation
At 1 January 2015
Transfers
Depreciation for year (W2)
Disposals
At 31 December 2015
Net book value
At 31 December 2015
-
80
(80)
17
(17)
458
298
(195)
(561)
140
70
(31)
(179)
678
(80)
385
(226)
(757)
900
683
929
210
2,722
At 31 December 2014
500
320
1,155
250
2,225
676
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
12.1
Measurement basis
Depreciation method
Depreciation rate
Revaluation
Revaluation
S.L
2%
Cost
S.L
20%
Cost
RBM
25%
12.2
Land and buildings have been revalued during the year 2015 by Messrs Jackson & Co on the
basis of a existing use value on the open market.
12.3
Had there been no revaluation the land and building would be shown at following values (The
corresponding historical cost information is as follows).
Land &
buildings
Cost
Rs.000
Opening
900
Reclassification (Transfer from capital WIP)
100
Closing
1,000
Accumulation Depreciation
Opening
80
Depreciation for the year
10
Closing
90
Net book value
910
12.4
Movement of capital work in progress
Cost at 1 January 2015
Additions (W1)
Reclassifications (Transfer to building account)
As at 31 December 2015
At 31 December 2014
WORKINGS
(W-1) Additions to assets under construction
Deposit on computer
600
100
(W-2) Depreciation on buildings 40 + ( 50 )
2% straight line depreciation is equivalent to a 50 year life.
The buildings are ten years old at valuation and therefore have 40
years remaining.
(W-3) Depreciation on plant (1490  20%)
(W-4) Depreciation on fixtures {(390 -140 ) – (41 – 31)}  25%
(W-5)
Capital work in progress (CWIP)
Rs.
B/d
91 Building account
Cash (Building)
53
Cash (For computer)
20 C/d
677
91
73
(100)
64
91
Rs. 000
53
20
73
17
298
70
Rs.
100
64
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer 7
Orchid Limited
Notes to Financial statements
For the year ended 31 December 2017
10. Property, plant and equipment
2017
Building
Plant
Rs.
Rs.
Cost
Opening
700
475
Additions
Revaluation (W-2)
(108)
Disposal
(87)
Transfer of Acc. depreciation
(42)
Closing
463
475
Acc. Depreciation & Impairment
Opening
Dep. For the year (W-2) : (W-1)
Disposal
Impairment (W-1)
Transfer to asset account
Closing
24
22.5
(4.5)
115
36
2016
Building
Rs.
Plant
Rs.
700
700
475
475
24
19
19
77
(42)
-
(151)
(24)
(115)
Carrying amount as on 31/12/2016
463
324
676
360
10.1 Measurement Basis
Depreciation Method
Dep. Rate/Useful life
Building
Revaluation model
Straight line
30 years
Plant
Cost model
Reducing balance
10%
10.2 The last revaluation on 31 December 2017 by Shabbir Associates, an independent firm of valuers.
10.3 Had there been no revaluation, the buildings would have appeared as follows
Cost
Less: Accumulated depreciation
(600-66)
600−66
600
( 30 𝑥3):( 30 𝑥2)
WDV as on 31.12.15
2017
534
(53.4)
2016
600
(40)
480.6
560
10.4 Details of property, plant and equipment disposed of during the year
Cost/Revalued Accumulated Carrying
Sale
*Gain Mode of
amount
depreciation
amount
proceeds
disposal
Building
87
4.5
82.5
85
0.5
Tender
87
( 𝑥1.5)
29
*Gain/(loss)= (Sale price- cost to sell) – W.D.V =
678
(85-2) – 82.5 = 0.5
Particulars
of buyers
Baqir
Limited
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
10.5 Change in Estimate:
During the year 2017, depreciation method of plant was changed from straight line to reducing balance.
The new depreciation rate would be 10%. Due to above change, Depreciation for the year has increased
𝟑𝟔𝟎
whereas, Profit for the year has decreased by Rs. 20 million. {𝟑𝟔(𝟑𝟔𝟎 × 𝟏𝟎%) − 𝟏𝟔 ( 𝟐𝟑 )}
(W-1) Plant W.D.V
1/1/2015
Cost
31/12/2015
Dep. (475/25)
31/12/2016
Dep. (475/25)
31/12/2016
W.D.V
Impairment Loss
31/12/2016
Recoverable amount
31/12/2017
Dep (360*10%)
WDV
475
(19)
(19)
437
(77)
360
(36)
324
(W-2) Revaluation schedule
Date
Description
1/1/15
31/12/2015
Cost
Dep. (600/30)
31/12/2015
31/12/2015
31/12/2015
31/12/2016
31/12/2016
30/06/2017
30/06/2017
31/12/2017
31/12/2017
31/12/2017
31/12/2017
W.D.V
Rev. surplus
Revalued amount
Dep (700/29)
WDV
Dep. Of 1 building for 6 months (W-5)
WDV of 1 building (W-6)
Depreciation of remaining buildings
WDV
Revaluation loss
Revalued Amount
Building
Rev.
surplus
SOCI (P/l)
120
120
(4)
116
(0.4)
(22)
(3.3)
90.3
(90.3)
-
(17.7)
(17.7)
600
(20)
580
120
700
(24)
676
(1.5)
(82.5)
(21)
571
(108)
463
(2.1) Total Depreciation on buildings for the year 2017
Dep. Of 1 building for 6 months (W-3)
Depreciation of remaining buildings (W-5)
1.5
21
22.5
(W-3) Depreciation of 1 building for 6 months
Cost = 87/29 × 6/12 = 1.5
: Surplus = (23.2)/29 × 6/12 = 0.4
(W-4) WDV of 1 building
Balance
Acc. Depreciation (87/29 × 1.5) : (23.2/29 × 1.5)
679
Rs. ‘millions’
Building Cost
87
(4.5)
82.5
Rs. ‘ millions’
Surplus
23.2
(1.2)
22
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-5) Depreciation of remaining buildings for the year
Opening
Disposal
Balance
÷ Remaining Life
Rs. ‘millions’
Building cost
700
(87)
613
÷29
21
Rs. ‘millions’
Surplus
120
(23.2)
96.8
÷29
3.3
Answer 8
Abid Limited
Notes to the Financial Statements
For year ended December 31, 2015
N-1 Property, plant and equipment
Rs. in million
2015
2014
Cost
Opening
252
323
Transfer from accumulated depreciation
(14)
(17)
Revaluation Surplus/(loss)
34
(54)
Disposals
(68)
Closing
204
252.00
Accumulated depreciation
Opening
14
17
Transfer to asset a/c
(14)
(17)
Depreciation expense
14
14
Disposals
(2)
Closing
(12)
(14)
Book value
192
238.00
The last revaluation was performed on 1 January 2015 by M/s Premier Valuation Services, an
independent firm of valuers. Revaluation are performed annually.
Had there been no revaluation, the 3 buildings would have appeared at Rs.180 million (as
calculated below) on 31.12.15.
Rs. in million
2015
2014
Cost of 3 buildings
(300/4 buildings x 3 buildings)
225
300
Less: Accumulated depreciation on 31.12.15
(225/20 years x 4 years)
(45)
*(45)
180
255
* 300/20x3 = 45
Details of property, plant and equipment disposed of during the year
Building
680
Cost/Revalued Accumulated Carrying
Sale
amount
depreciation
amount
proceeds
--------------Rs. in million-------------68
2
66
80
Mode of
disposal
Particulars
of buyers
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
WORKING
Rs in million
SOCI(P/L)
Date
1/1/12
31/12/12
1/1/13
1/1/13
1/1/13
31/12/13
1/1/14
1/1/14
1/1/14
31/12/14
1/1/15
1/1/15
1/1/15
30/6/15
Description
Building
R. Surplus
Cost
300
Depreciation (300/20)
(15)
WDV
285
Revaluation surplus (bal.)
38
38
Revalued amount
323
38
Depreciation (323/19) : (38/19)
(17)
(2)
WDV
306
36
Revaluation loss (bal.)
(54)
(36)
(18)
Revalued amount
252
(18)
Depreciation (252/18) : (18/18)
(14)
1
WDV
238
(17)
Revaluation surplus (bal.)
34
17
17
Revalued amount
272
17.00
Deprecation on Disposal
(2)
(0.125)
(*68/17 x 6/12) : (*4.25/17 x 6/12)
30/6/15
WDV of disposal (68 - 2)
(66.00)
(4.125)
31/12/15
Depreciation
(12.00)
(0.75)
(272-68)/17:(17-4.25)/17
31/12/15
WDV
192.00
12.00
* 272/4 buildings = 68 and 17/4 buildings = 4.25
Following T-accounts are prepared for better understanding of students. These are not a part of solution.
Dr.
Building account
Cr.
2012
Cash
300 c/d
300
2013
b/d
300 Accumulated Depreciation
15
Revaluation surplus
38 c/d
323
2014
b/d
323 Accumulated Depreciation
17
Revaluation loss
54
c/d
252
2015
b/d
252 Accumulated Depreciation
14
Revaluation surplus
34 Disposal
68.00
c/d
204.00
Dr.
2012
2013
c/d
Asset
c/d
Asset
c/d
Asset
Disposal
c/d
2014
2015
681
Accumulated depreciation account
15 Depreciation
15 b/d
17 Depreciation
17 b/d
14 Depreciation
14 b/d
2 Depreciation (1 building)
12.00 Depreciation (3 buildings)
Cr.
15
15
17
17
14
14
2.0
12.00
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Answer 9
Statement of comprehensive income extract for the year ended 31 March 20X2
Rs. 000
400
Depreciation expenses
Other comprehensive income:
Revaluation surplus (6,000 + 6,000) (W-1)
12,000
Statement of financial position extract as at 31 March 20X2
Rs. 000
Non-current assets
Property {8,000 + (12,000 – 400)}
Equity
Revaluation surplus {6,000 + (6,000 - 200)} (W-1)
19,600
11,800
Statement of changes in equity extracts
Retained
earning
Rs. 000
Total comprehensive income
Transfer
Closing
200
Revaluation
surplus
Rs. 000
12,000
(200)
11,800
(W-1)
Date
1/4/X1
1/4/X1
1/4/X1
31/3/X2
31/3/X2
Description
Cost
Acc. Dep. (8,000/40  10)
WDV
Revaluation surplus (bal.)
Revalued amount
Dep. (12,000/30)
WDV
Land
2,000
2,000
6,000
8,000
8,000
Building R/S land
8,000
(2,000)
6,000
6,000
12,000
(400)
11,600
6,000
6,000
6,000
R/S
Building
SOCI
(P/L)
6,000
6,000
(200)
5,800
Answer 10
Statement of comprehensive income extract for the year ended 31 March 20X6
Depreciation expenses (100,000/40)
Other comprehensive income:
Revaluation surplus (W-1)
Rs. 000
2,500
10,500
Statement of financial position extract as at 31 March 20X6
Rs. 000
Non-current assets
Property
Equity
Revaluation surplus
682
98,000
10,500
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Statement of changes in equity extracts
Retained
earning
Rs. 000
Total comprehensive income
Transfer
Closing
-
Revaluation
surplus
Rs. 000
10,500
10,500
(W-1)
Date
1/4/X1
31/3/X6
31/3/X6
31/3/X6
31/3/X6
Description
Cost
Acc. Dep. (100,000/40  5)
WDV
Revaluation surplus (bal.)
Revalued amount
Building
100,000
(12,500)
87,500
10,500
98,000
R/S Building
10,500
10,500
SOCI (P/L)
-
Answer 11
1.
2.
Property, Plant and Equipment should be derecognised (removed from PPE) either;
(i)
on disposal (sold or exchanged etc. by cash for asset given up) or
(ii)
when it is withdrawn from use and no future economic benefits are expected from the
asset (in other words, it is effectively scrapped).
A gain or loss on disposal is recognised as the difference between the disposal proceeds (gross
proceeds received minus cost of making sale) and the carrying value of the asset (using the cost
or revaluation model) at the date of disposal. This net gain is included in the income
statement. The sales proceeds should not be recognised as revenue.
Where assets are measured using the revaluation model, any remaining balance in the
revaluation reserve relating to the asset disposed of is transferred directly to retained earnings. No
recycling of this balance into the income statement is permitted.
General disclosures
The financial statements shall disclose, for each class of property, plant and equipment:
(a)
the measurement bases used for determining the gross carrying amount;
(b)
the depreciation methods used;
(c)
the useful lives or the depreciation rates used;
(d)
the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period; and
(e)
a reconciliation of the carrying amount at the beginning and end of the period showing
increases or decreases resulting from revaluations from comparing its revalued amount to
the book value and recognize in other comprehensive income and accumulated in equity
under the heading of revaluation surplus. However, the revaluation increase shall be
recognised in profit or loss to the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit or loss.
Specific disclosures
If items of property, plant and equipment are stated at revalued amounts, the following shall be
disclosed:
(i)
The effective date of the revaluation;
(ii)
Whether an independent valuer was involved;
683
CHAPTER-7
(iii)
(iv)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
For each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model; and
The revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
Answer 12
(a)
Date
1.7.18
Land
Revaluation surplus
Profit and loss (Other income)
(Revaluation of land)
Cash (90,000 – 100)
Accumulated depreciation (W-4)
Building (125,000  25%)
Land (20,000  25%)
Gain on disposal (Other income)
(Disposal of 25% of land & building)
Revaluation surplus (5,000  25%)
Retained earning
(Transfer of R/S to R/E on account of Disposal of 25%
of land)
1.1.19
1.1.19
(b)
Debit
(Rs.,000)
8,000
Description
Credit
(Rs.,000)
5,000
3,000
89,900
10,687.5
31,250
5,000
64,337.5
1,250
1,250
Abbas Limited
Notes to the financial statement
For the year ended 30 June 2019
10.1
Property plant & equipment
Fixed asset movements
Cost/valuation
/
Gross
carrying amount
Cost at 1 July 2018
Additions
Revaluation adjustment
Disposals
Value at 30 June 2019
Plant and
Fixtures,
machinery
fittings, etc.,
--------------------Rs. ‘000--------------------
Land
Buildings
12,000
125,000
500,000
100,000
60,000
8,000
(5,000)
15,000
(31,250)
93,750
500,000
160,000
38,000
8,312.5
(W-3)
(10,687.5)
(W-4)
35,625
300,000
125,000
(W-6)
36,000
20,800 (W8)
425,000
56,800
517,425
251,325
Accumulated depreciation
At 1 July 2018
Depreciation for year
-
Disposals
737,000
60,000
8,000
(36,250)
768,750
374,000
154,112.5
(10,687.5)
At 30 June 2019
Net book value
At 30 June 2019
15,000
58,125
75,000
103,200
At 30 June 2018
12,000
87,000
200,000
64,000
684
Total
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
10.1
Revaluation
Measurement basis
Cost less Acc.
Dep.
Starlight line
Depreciation method
12 years with
redual value of
8.8% of cost
(W-2)
Depreciation rate / useful life
10.2
10.3
Cost less
Acc. Dep.
Units of
production
Cost less Acc.
Dep.
Written down
value
20 million
units (W-5)
20%
(W-7)
The land was previously revalued on 1 July 2018 by M/s Ashfaq & Co. Chartered
Accountants, and independent valuer.
Had the land been not revalued the carrying amount of land would have been as follows:
Rs. 000
11,250
Cost {Cost 15,000 – Disposal 15,000  25%}
10.4
Details of property, plant and equipment disposed of during the year
Land & Building
10.5
Cost/Revalued
amount
36,200
Accumulated
depreciation
10,687.5
Carrying
amount
25,562.5
Sale
proceeds
89,900
Gain /
(Loss)
64,337.5
Mode of
disposal
N/A
Depreciation is charged as follows:
Rs. 000
129,987.5
24125
154,112.5
Cost of sales (Part of inventory) (125,000 + 8,312.5  60%)
Admin and selling expenses (20,800 + 10687.5  40%)
Total
10.6
Particulars
of buyers
ABC
Movement of revaluation surplus
Rs. 000
0
5,000
(1,250)
3,750
Opening Balance
Revaluation surplus
Transfer to retained earning (Disposal)
Closing balance
Reversal of revaluation loss of Rs. 3 million was reversed during the year.
10.7
An amount of expenditure of Rs.20 million was incurred on the construction of a factory
near Lahore-Islamabad Motorway on 1 December 2018. This amount was capitalised as
capital work-in-progress.
7
10.8
A further borrowing costs of Rs.1.4 million (20 million12% × ) were capitalised in
12
respect of interest on loan obtained from the bank to finance this project.
A contract was made with M/s UniPower & Co. to purchase plant and machinery worth
Rs.35 million once the construction of factory building is completed.
(W-1)
Date
1/7/18
1/7/18
1/7/18
685
Description
Cost
Revaluation loss
WDV
Revaluation surplus (bal.)
Revalued amount
Land
15,000
(3,000)
12,000
8,000
20,000
R/S land
5,000
5,000
SOCI (P/L)
(3,000)
(3,000)
3,000
-
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-2) Useful life of building
Accumulated Depreciation =
Cost − R. V
 (Cumulative Period)
Useful life
125,000 − 11,000
4
Useful life
125,000 − 11,000
Useful life =
 4 = 12 years
38,000
(W-3)
38,000 =
Depreciation on Building
Rs. 000
125,000 – 11,000
On opening assets excluding disposal (
)  75%
12
125,000 – 11,000
6
)  12 
12
On disposal (
25% =
Total
7,125
1187.5
8,312.5
(W-4)
Accumulated depreciation on disposal of building
Rs. 000
125,000 – 11,000
(
)  4.5  25% =
12
10,687.5
(W-5) production units of plant
Cost − R. V
Accumulated Depreciation =
 (Cumulative units produced)
total units
500,000 − 0
300,000 =
 12,000
Total units
Useful life =
500,000−0

300,000
12,000 = 20,000 units (in thousands)(i.e.,20 million units)
(W-6) Depreciation on Plant
Rs. 000
500,000 – 0
On opening assets excluding disposal (
)  5,000 units
20,000 units
(W-7)
Depreciation rate
WDV
√
Cost
cumulative period
rate = 1 −
2 100,000 − 36,000
rate = 1 − √
= 20%
100,000
686
125,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(W-8)
Depreciation on equipment
Rs. 000
12,800
On opening assets excluding disposal (100,000 – 36,000 ) × 20%
On addition 60,000  20% 
8
12
8,000
Total
20,800
Answer 13
GamesLimited
Notes to the Financial Statement
For the year ended March 31, 2017
10. Property Plant & Equipment
Gross Carrying Amount
Balance 01 April
+Addition
-Transfer
+Revaluation Surplus/(Rev. Loss)
- Disposal
Balance 31. March
2017
2016
-------------------------------------------Rs. ------------------------------------Building
Computers
Fittings
Building
Computers
Fittings
3,237,500
(350,000)
(887,500)
2,000,000
600,000
120,000
720,000
120,000
(30,000)
90,000
3,000,000
(225,000)
462,500
3,237,500
600,000
600,000
120,000
120,000
Accumulated Depreciation & Impairment Losses
Balance 01 April
+Depreciation for the year (W-3)
-Transfer
- Disposal
+Impairment Loss
Balance 31. March
350,000
(350,000)
-
135,000
172,500
(307,500)
9,000
11,250
(4,500)
(15,750)
225,000
(225,000)
-
135,000
(135,000)
9,000
(9,000)
WDV 31.March
2,000,000
412,500
74,250
3,237,500
465,000
111,000
10.1
Measurement Basis
Depreciation Method
Useful Life/Depreciation
Rate
10.2
Revaluation
Straight Line
Cost less Acc. Dep.
Reducing Balance Method
Cost less Acc. Dep.
Straight Line
10%
30% (W-2)
10%
Depreciation is charged as Follows
Cost of Sales (181,000 + 350,000 × 80%) (135,000 + 225,000 × 80%)
Admin & Selling Expenses (11,250 + 350,000 × 20%) (9,000 + 225,000 ×
20%)
Total Depreciation
2017
461,000
(81,250)
2016
315,000
(54,000)
10.3
Revaluation disclosure
10.3.1 The last revaluation of building was performed by an independent valuer "M/S Hafeez Yasir
Chartered Accountants & Co." on 31.March.2017. It was previously revalued on 31 March 2016.
10.3.2 Had there been no revaluation the carrying amount of building would have been
2017
2016
Cost
3,000,000
3,000,000
Accumulated Depreciation
525,000
225,000
9+12
9
(3,000,000  10% 
) (3,000,000  10%  )
12
12
Carrying Amount
2,475,000
2,775,000
687
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
10.3.3 Movement of revaluation surplus
2017
462,500
(412,500)
(50,000)
-
Opening Balance
Revaluation surplus / (loss)
Transfer to retained earnings (incremental depreciation)
Closing balance
2016
462,500
462,500
Further more a revaluation loss of Rs. 475,000 was charged in profit and loss at 31 March 2017
10.4
The entire office building was mortgage with the JS Bank on 31 March 2017, for obtaining loan
of 1.75 million for the prospective investment in other division
10.5
No contractual commitments were made during the year ended 31 March 2017 to purchase
Property, Plant and Equipment.
A contract was made with Al-Karim Computers during the year ended 31 March 2016 to
purchase 6 computers of Rs. 20,000 each to be delivered on 1 May 2017.
10.6
Details of property, plant and equipment disposed of during the year
Cost/Revalued
amount
30,000
Fittings
Accumulated
depreciation
4,500
Carrying
amount
26,500
Net Sale
proceeds
*21,000
Mode of
disposal
N/A
Gain /
(Loss)
(5,500)
Particulars
of buyers
ABC
*
(22,000 – 1,000)
WORKINGS
(W-1)
Calculation of revaluation surplus & depreciation on building.
Date
1-July-15
31-Mar-16
31-Mar-16
31-Mar-16
31-Mar-16
31-Mar-17
31-Mar-17
31-Mar-17
31-Mar-17
Description
Building
3,000,000
(225,000)
Cost
Depreciation (
3,000,000
10
9
 12)
WDV
Revaluation surplus (bal)
Revalued amount
3,237,500
Depreciation (
) (
9.25
WDV
Revaluation surplus (bal.)
Revalued amount
462,500
9.25
)
R. Surplus
2,775,000
462,500
3,237,500
(350,000)
462,500
462,500
(50,000)
2,887,500
(887,500)
2,000,000
412,500
(412,500)
-
(475,000)
(475,000)
(W-2) Depreciation Rate of Computers
life
rate = 1 −
√
Resdual value
Cost
4 4802
rate = 1 − √
= 30%
20,000
(W-3) Depreciation for the year for 2016 and 2017
Rs.
1
2
Building Depreciation 2016 = refer (W-1)
Building Depreciation 2017 = = refer (W-1)
3
4
Computers Depreciation 2016 = 630,00030% 12
Computers Depreciation 2017
688
9
Rs.
225,000
350,000
135,000
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Depreciation on opening (600,000 – 135,000)  30%
11
Depreciation on addition 120,000  30% 12
5
6
689
120,000
139,500
33,000
9
Fittings Depreciation 2016 =( 10  12)
Fittings Depreciation 2017
Depreciation on opening excluding disposal (120,000 – 30,000) 
10%
30,000
9
Depreciation on disposal ( 10  12)
172,500
9,000
9,000
2,250
11,250
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1
An entity purchased a property 15 years ago at a cost of Rs.100,000 and have been depreciating it
at a rate of 2% per annum, on the straight-line basis. The entity has had the property
professionally revalued at Rs.500,000.
What is the revaluation surplus that will be recorded in the financial statements in respect of this
property?
Q.2
(a)
Rs.400,000
(b)
Rs.500,000
(c)
Rs.530,000
(d)
Rs.430,000
An entity owns two buildings, A and B, which are currently recorded in the books at carrying
amounts of Rs.170,000 and Rs.330,000 respectively. Both buildings have recently been valued as
follows:
Building A
Rs.400,000
Building B
Rs.250,000
The entity currently has a balance on the revaluation surplus of Rs. 50,000 which arose when
building A was revalued several years ago. Building B has not previously been revalued.
Q.3
What double entry will need to be made to record the revaluations of buildings A and B?
(a)
Dr Non-current assets Rs.150,000
Dr Statement of profit or loss Rs.80,000
Cr Other comprehensive income (revaluation surplus) Rs.230,000
(b)
Dr Non-current assets Rs.150,000
Dr Statement of profit or loss Rs.30,000
Cr Other comprehensive income (revaluation surplus) Rs.180,000
(c)
Dr Non-current assets Rs.150,000
Cr Other comprehensive income (revaluation surplus) Rs.150,000
(d)
Dr Non-current assets Rs.150,000
Dr Statement of profit or loss Rs.50,000
Cr Other comprehensive income (revaluation surplus) Rs.200,000
An entity purchased property for Rs.6 million on 1 July 2013. The land element of the purchase
was Rs.1 million. The expected life of the building was 50 years and its residual value nil. On 30
June 2015 the property was revalued to Rs.7 million, of which the land element was Rs.1.24
million and the buildings Rs.5.76 million. On 30 June 2017, the property was sold for Rs.6.8
million.
What is the gain on disposal of the property that would be reported in the statement of profit or
loss for the year to 30 June 2017?
Q.4
(a)
Gain Rs.40,000
(b)
Loss Rs.200,000
(c)
Gain Rs.1,000,000
(d)
Gain Rs.1,240,000
Which of the following statements are correct?
1.
If the revaluation model is used for property, plant and equipment, revaluations must
subsequently be made with sufficient regularity to ensure that the carrying amount does
not differ materially from the fair value at each reporting date.
2.
When an item of property, plant and equipment is revalued, there is no requirement that
the entire class of assets to which the item belongs must be revalued.
690
CHAPTER-7
(a)
Q.5
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Only statement 1 is correct
(b)
Only statement 2 is correct
(c)
Both statements are correct
(d)
None of the statement is correct
The following trial balance extract relates to a property which is owned by Maira Limited as at 1
April 2014.
Dr
Rs. 000
12,000
Cr
Rs. 000
Property at cost (20 year original life)
Accumulated depreciation as at 1 April 2014
3,600
On 1 October 2014, following a sustained increase in property prices, Maira Limited revalued its
property to Rs.10.8 million.
What will be the depreciation charge in Maira Limited’s statement of comprehensive income for
the year ended 31 March 2015?
Q.6
(a)
Rs.540,000
(b)
Rs.570,000
(c)
Rs.700,000
(d)
Rs.800,000
A company purchased a building on 1 April 2007 for Rs.10,000,000. The asset had a useful
economic life at that date of 40 years. On 1 April 2009 the company revalued the building to its
current fair value of Rs.12,000,000.
What is the double entry to record the revaluation?
(a)
Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000
Cr. Other comprehensive income 2,000,000
(b)
Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000 Cr. Profit or loss 2,500,000
(c)
Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000 Cr. Other comprehensive income 2,500,000
(d)
Q.7
Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000 Cr. Profit or loss 2,000,000
The carrying value of property at the end of the year amounted to Rs.108 million. On this date the
property was revalued and was deemed to have a fair value of Rs.95 million. The balance on the
revaluation reserve relating to the original gain of the property was Rs.10 million.
What is the double entry to record the revaluation?
(a)
Dr. Profit or loss 3 million
Dr. Other comprehensive income 10 million
Cr. Property 13 million
(b)
Dr. Profit or loss 10 million
(c)
Dr. Other comprehensive income 3 million
Cr. Property 13 million
Dr. Profit or loss 13 million
(d)
691
Dr. Other comprehensive income 3 million
Cr. Property 16 million
Dr. Profit or loss 13 million
Cr. Property 13 million
CHAPTER-7
Q.8
IAS 16: PROPERTY, PLANT AND EQUIPMENT
A company revalued its property on 1 April 2009 to Rs.20m (Rs.8m for the land). The property
originally cost Rs.10m (Rs.2m for the land) 10 years ago. The original useful economic life of 40
years is unchanged. The company’s policy is to make a transfer to realized profits in respect of
excess depreciation.
At which amount the property be presented at as at 31 March 2010?
(a)
(c)
Q.9
Rs.20 million
Rs.12 million
(b)
(d)
Rs.19.6 million
Rs.11.6 million
A company revalued its property on 1 April 2009 to Rs.20m (Rs.8m for the land). The property
originally cost Rs.10m (Rs.2m for the land) 10 years ago. The original useful economic life of 40
years is unchanged. The company’s policy is to make a transfer to realized profits in respect of
excess depreciation.
What is amount of balance in revaluation surplus account as at 31 March 2010?
(a)
Q.10
Q.11
Rs.12 million
(b)
Rs.10 million
(c)
Rs.9.8 million
(d)
Rs.11.8 million
Which of the following is an optional disclosure requirement of IAS 16?
(a)
Measurement bases for determining gross carrying amount
(b)
Depreciation method
(c)
(d)
Useful lives or depreciation rates
The carrying amount of temporarily idle PPE
Following information is available for equipment account of a business on 1st January 2018:
Opening balance of equipment a/c (Revalued amount) Rs.7,500,000
Surplus on revaluation of equipment a/c
At start of year company sold equipment for
Rs.2,000,000
Rs.90,000,000.
Company has a policy of charging 20% depreciation on straight line basis.
What will be treatment of revaluation surplus at disposal of asset?
(a)
Dr Surplus on revaluation Rs.2,000,000
Cr Retained earnings Rs.2,000,000
(b)
Dr Retained earnings Rs.2,000,000,
Cr Surplus on revaluation Rs.2,000,000
(c)
Dr Surplus on revaluation Rs.3,500,000
Cr Retained earnings Rs.3,500,000
(d)
Q.12
Dr Surplus on revaluation Rs.2,0000,000
Cr Equipment account Rs.2,000,000
A non-current asset costing Rs.216,000 and carrying value Rs.145,000 is revalued to Rs.291,000.
How should revaluation be recorded?
(a)
Dr Asset a/c Rs.75,000,
Cr Surplus on revaluation Rs.75,000
(b)
Dr Asset a/c Rs.75,000,
Dr Accumulated Depreciation Rs.71,000,
Cr Surplus on revaluation Rs.146,000
692
CHAPTER-7
(c)
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Dr Surplus on revaluation Rs.146,000,
Cr Asset a/c Rs.75,000,
Cr Accumulated Depreciation Rs.71,000
(d)
Dr Accumulated depreciation Rs.146,000,
Cr Surplus on revaluation Rs.146,000
Q.13
Q.14
When items of property, plant and equipment are stated at revalued amounts the following must
be disclosed:
(i)
The effective date of the revaluation
(ii)
Whether an independent valuer was involved
(iii)
The methods and significant assumptions applied in estimating the items’ fair values
(iv)
The extent to which the items’ fair values were determined directly by reference to
observable prices in an active market or recent market transactions on arm’s length terms
or were estimated using other valuation techniques
(v)
For each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model;
(vi)
The revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
(a)
(i), (ii) and (vi) only
(iii)
Q.16
(i), (ii), (v) and (vi) only
(c)
(i), (ii), (iii) and (iv) only
(d)
(i) to (vi) all
IAS 16 encourages disclosure of the following information as users of financial statements might
find it to be useful.
(i)
(ii)
Q.15
(b)
The carrying amount of temporarily idle property, plant and equipment
The gross carrying amount of any fully depreciated property, plant and equipment that is
still in use
The carrying amount of property, plant and equipment retired from active use and held
for disposal
(iv)
When the cost model is used, the fair value of property, plant and equipment when this is
materially different from the carrying amount
(a)
(c)
(i), (ii) and (iii) only
(i), (iii) and (iv) only
(b)
(d)
(i), (ii) and (iv) only
(i) to (iv) all
Which of the following statements is correct?
(a)
An entity may present PPE at gross carrying amount or net carrying amount under IAS
16
(b)
Either useful lives or depreciation rates are to be disclosed, both are not required.
(c)
Under revaluation model, PPE are revalued at end of each year
(d)
If an entity chooses revaluation model, it must apply revaluation model to all of its PPE.
Waqas Limited purchased a machine for Rs.30,000 on 1 January 2015 and assigned it a useful life
of 12 years. On 31 March 2017 it was revalued to Rs.32,000 with no change in useful life.
What will be depreciation charge in relation to this machine in the financial statements for the
year ending 31 December 2017?
Rs. ___________
693
CHAPTER-7
Q.17
IAS 16: PROPERTY, PLANT AND EQUIPMENT
A business purchased building costing Rs.7,500,000 on 1 January 2018.
The policy of business is to charge straight line depreciation over its useful life of 20 years.
On 31 December 2020, building was revalued to Rs.7,650,000.
What is the amount of incremental depreciation to be transferred to retained earnings at year
ending 31 December 2021?
Rs. _________
Q.18
A business purchased an asset on 1 January 2016 costing Rs.5,000,000 having a useful life of 10
years with nil residual value. On 1 January 2018 balance of accumulated depreciation was
Rs.1,000,000. Asset is revalued to Rs.4,500,000 on 1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the depreciation charge for the year ended 31 December 2018?
Rs. ______________
Q.19
A business purchased an asset on 1 January 2016 costing Rs.5,000,000 having a useful life of 10
years with nil residual value. On 1 January 2018 balance of accumulated depreciation was
Rs.1,000,000. Asset is revalued to Rs.4,500,000 on 1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the amount of revaluation surplus at the date of revaluation?
Rs. _______________
Q.20
A business purchased an asset on 1 January 2016 costing Rs.5,000,000 having a useful life of 10
years with nil residual value. On 1 January 2018 balance of accumulated depreciation was
Rs.1,000,000. Asset is revalued to Rs.4,500,000 on 1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the amount of incremental depreciation for the year ended 31 December 2018?
Q.21
Q.22
Rs. ____________
A revaluation gain is credited into?
(a)
Revaluation reserve
(b)
Capital reserve
(c)
Profit and loss
(d)
Any of the above
After initial recognition, an entity has a choice to choose cost and?
(a)
Realizable model
(b)
Replacement model
(c)
Q.23
Q.24
Revaluation model
(d)
Carrying value model
When an item of property, plant and equipment is revalued, what should be revalued?
(a)
(b)
A selection of assets decided by management
The whole class of assets to which it belongs
(c)
The individual asset
(d)
A selection of assets picked at random
If an asset increases in value, the increase is noted as?
(a)
An increase in net profit in the SOCI
(b)
An increase in retained earnings in SOFP
(c)
An increase in revaluation surplus in the SOFP and other comprehensive income in the
SOCI
(d)
An increase in “other profit” in SOCI
694
CHAPTER-7
Q.25
Q.26
Q.27
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Which of the following is not a valid reason for reporting non-current assets at revaluation
amount rather than cost?
(a)
To prevent long life assets from being reported at out of date historical costs
(b)
To keep owners of the business better informed of their equity in the business.
(c)
To report performance correctly by matching earnings with the proper costs of assets
used.
(d)
To avoid having to pay higher taxes
An entity has a policy of revaluing its PPE. An asset cost Rs.5m on 1 January 2020 and has a
useful life of five years and is depreciated on a straight-line basis to a zero residual value. The
value of the asset at 31 December 2020 was Rs.3.8m. The fall in value will be accounted for as
follows?
(a)
Depreciation Rs.1m
and fall in value of Rs.200,000 both to the reserves
(b)
(c)
Depreciation Rs.1m to the income statement and fall in value of Rs.200,000 ignored until
there is a revaluation surplus
Depreciation Rs.1m to income statement and fall in value of Rs.200,000 to the reserves
(d)
Depreciation Rs.1m and fall in value of Rs.200,000 both to the income statement
During the financial year, Akmal Ltd had the following increases in reserves:
i.
ii.
Rs.5 million from a revaluation of freehold premises
Rs.10 million in share premium
iii.
Rs.25 million from trading profit retained
Which of these are increases in capital reserves?
(a)
(c)
Q.28
I only
I. and ii. Only
(b)
(d)
II only
III. only
The following gains may legally be withdrawn from the company by shareholders:
i.
gains that arise from the upward revaluation of non-current assets
ii.
gains that arise from the sale of non-current assets
What is the validity of each statement?
(a)
Q.29
Both i. and ii are true
(b)
i. is true and ii. is false
(c)
Both i. and ii are false
(d)
ii. is true and i. is false
The financial statements of Saadi Limited for the most recent year indicated the following:
i.
a bonus issue of shares
ii.
a transfer of profit retained to retained earnings
iii.
an increase in the revaluation reserve due non-current assets
iv.
a rights issue of shares
Which of the above involved a movement of cash?
(a)
i. and ii
(b)
ii. and iii.
(c)
iii only
(d)
iv only
695
CHAPTER-7
Q.30
IAS 16: PROPERTY, PLANT AND EQUIPMENT
An apartment is revalued upwards by Rs. 1 million. It was acquired 5 years ago for Rs. 5 million.
Its useful life remains same as 10 years.
What is the revised depreciation charge for the year after revaluation?
Q.31
Q.32
(a)
Rs.500,000
(b)
Rs.600,000
(c)
Rs.700,000
(d)
Rs.800,000
A building is revalued upwards by Rs.2 million. It was acquired five years ago for Rs.10 million.
Its useful life remains same as 20 years. What is the incremental depreciation charge for the year?
(a)
Rs.100,000
(b)
Rs.133,333
(c)
Rs.166,667
(d)
Rs.200,000
An IT equipment being carried at revaluation model has revaluation reserve balance of Rs.50,000.
During the year, it reduces its value due to technological obsolescence. It has Rs.70,000 decrease
in value. What would be the impact of this revaluation decrease?
(a)
The decrease of Rs.50,000 is debited to revaluation reserve and Rs.20,000 to profit or
loss for the year
(b)
The decrease of Rs.50,000 is debited to profit and loss account and Rs.20,000 to
revaluation reserve for the year
(c)
The whole decrease is debited to revaluation reserve
(d)
The whole decrease is debited to profit or loss for the year
696
CHAPTER-7
IAS 16: PROPERTY, PLANT AND EQUIPMENT
ICAP MULTIPLE CHOICE QUESTIONS (MCQs) SOLUTIONS
A.1
A.2
(d)
Rs.
500,000
Current value
Carrying amount
(100,000 – (100,000 × 2% × 15 yrs))
Revaluation gain
(a)
Current value
Carrying amount
Revaluation gain/(loss)
(70,000)
430,000
Building A
400,000
(170,000)
230,000
Building B
250,000
(330,000)
(80,000)
The gain on Building A will be credited to other comprehensive income and the revaluation
surplus.
The loss on Building B will be debited to the statement of profit or loss expenses because we do
not have a balance on the revaluation surplus in respect of building B to offset the loss.
We make an overall debit to non-current assets of Rs.230,000 – Rs.80,000 = Rs.150,000
A.3
(a)
Cost 1 July 2013
Building depreciation
Rs. 5 million/50 years x 2 years
Carrying amount 30 June 2015
Revaluation gain
Revalued amount
Building depreciation
Rs. 5.76m/48 years x 2 years
Carrying amount 30 June 2017
Disposal proceeds
Gain on disposal
Land
Rs.
1.00
Buildings
Rs.m
5.00
Total
Rs.m
6.00
1.00
0.24
1.24
(0.2)
4.80
1.96
5.76
(0.2)
5.80
1.20
7.00
1.24
(0.24)
5.52
(0.24)
6.76
6.80
0.04
The gain on disposal is Rs. 40,000. The Rs. 1.2 million balance on the revaluation reserve is
transferred from the revaluation reserve to another reserve account (probably retained earnings)
but is not reported through the statement of profit or loss for the year.
A.4
(a)
IAS 16 (para 31) states that when the revaluation model is used, revaluations should be
made with sufficient regularity to ensure that the carrying value of the assets remains
close to fair value. IAS 16 also states (para 36) that, if one item in a class of assets is
revalued, all the assets in that class must be revalued.
A.5
(c)
Six months’ depreciation to the date of the revaluation will be Rs.300,000 (12,000/20
years × 6/12). Six months’ depreciation from the date of revaluation to 31 March 2015
would be Rs.400,000 (10,800/13.5 years remaining life × 6/12). Total depreciation is
Rs.700,000.
697
CHAPTER-7
A.6
IAS 16: PROPERTY, PLANT AND EQUIPMENT
(c)
Building a/c
Particulars
b/d
Surplus
Rs.
Particulars
10,000,000 Acc. Dep
2,500,000 c/d
12,500,000
Rs.
500,000
12,000,000
12,500,000
Building net debited by Rs.2,000,000 (2,500,000 – 500,000)
A.7
(a)
Total loss Rs.13 million, Rs.10 will be charged to revaluation surplus and remaining to
profit or loss.
A.8
(b)
Depreciation (20 – 8) / 30 years = Rs.0.4 million
Carrying amount Rs.20 million less 0.4 million = Rs.19.6 million
A.9
(c)
Depreciation Now
(20 – 8) / 30 years = Rs.0.4 million
Depreciation Cost
(10 – 2) / 40 years = Rs.0.2 million
Revaluation surplus
= Land Rs.6 million + Building Rs.4 million - incremental depreciation 0.2 million =
Rs.9.8 million
A.10
A.11
(d)
(a)
A.12
(b)
On disposal of a revalued asset, the full balance of surplus on revaluation is transferred to
retained earnings.
Particulars
b/d
Surplus (bal)
Asset
Rs.
Particulars
216,000 Acc. Dep (216,000-145,000)
146,000 c/d
362,000
Rs.
71,000
291,000
362,000
Net amount debited to asset = Rs.146,000 - Rs.71,000 = Rs.75,000
A.13
A.14
(d)
(d)
A.15
(b)
A.16
Rs.3,087 (625+2,462)
Date
1.1.15
31.2.15&16
31.12.16
31.3.17
31.3.17
31.3.17
31.3.17
31.12.17
31.12.17
698
Cost
Depreciation (30,000/122)
Carrying amount
Depreciation (25,000/103/12)
Carrying amount
Revaluation surplus
Revalued Amount
Depreciation (32,000/9.75)9/12
Carrying amount
Land
Rs.
30,000
(5,000)
25,000
(625)
24,375
7625
32,000
(2,462)
29,538
Rev. surplus
Rs.
7,625
7,625
P/l
Rs.
CHAPTER-7
A.17
IAS 16: PROPERTY, PLANT AND EQUIPMENT
Rs.75,000
Incremental depreciation = depreciation on revalued amount – depreciation at cost
Dep. before revaluation = Rs.7,500,000 / 20 years = Rs.375,000
Dep. after revaluation = Rs.7,650,000 / 17 years = Rs.450,000
Incremental depreciation = Rs.75,000
A.18
Rs.562,500
Depreciation = Rs.4,500,000/8 = Rs.562,500
A.19
Rs.500,000
A.20
Revaluation surplus = Rs.4,000,000 – 4,500,000= Rs.500,000
Rs.62,500
Incremental depreciation = Dep on revalued amount – Dep on cost
= (4,500,000/8)– (5,000,000/10)
= Rs. 562,500 – 500,000 = 62,500
Alternatively, Rs.500,000 surplus / 8 years = Rs.62,500
A.21.
(a)
A.22.
(c)
A.23.
A.24.
(b)
(c)
A.25.
(d)
A.26.
(d)
A.27.
A.28.
(c)
(d)
A.29.
(d)
A.30.
(c)
A.31.
A.32.
(b)
(a)
699
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
CH.
TOPIC
1
Accounting and Reporting Concepts
2
IAS 1: Preparation of Financial
Statements
3
IAS 7: Statement of Cash Flows
4
Income and Expenditure Account
5
Preparation of Accounts From
Incomplete Records
6
Introduction to Cost of Production
7
IAS 16: Property, Plant and Equipment
NOTES
PRACTICE
ICAP PAST
PAPER
ICAP QB
MCQs
Q
A
Q
A
Q
A
Q
A
735
743
755
761
768
771
774
777
IAS 20: Govt. Grants
8
IAS 23: Borrowing Cost
722
IAS 40: Non-Current Assets: Sundry
Standards
9
IAS 36: Impairment of Assets
10
IFRS 15: Revenue from Contracts with
Customers
11
Interpretation of Financial Statements
12
Revision of some concepts
ii
IAS 20, IAS 23 and IAS 40 NonCurrent Assets: Sundry Standards
8
IAS 20
LO 1
LO 2
LO 3
LO 4
LO 5
IAS 23
LO 1
LO 2
LO 3
LO 4
LO 5
LO 6
LO 7
LO 8
LO 9
IAS 40
LO 1
LO 2
LO 3
LO 4
LO 5
BORROWING COST
QUALIFYING ASSETS
SPECIFIC BORROWINGS
GENERAL BORROWINGS
COMMENCEMENT, SUSPENSION AND CESSATION OF CAPITALIZATION
DISCLOSURES
BASIC PRACTICE
SOME TERMINOLOGIES
SUMMARY
CHAPTER-8
IAS 23 BORROWING COST
BORROWING COSTS IAS - 23
LO1: BORROWING COST
Borrowing costs are interest and other costs that an entity incurs against borrowing of funds.
Other costs include arrangement fee, bank charges, loan processing charges, commitment fees etc.
Exam note:
Borrowing
In exam following different names for borrowings are normally tested on which we pay interest:
 Loan
 Redeemable preference shares
 Debentures
 Bond
 Loan notes
 Term finance certificate
 Bank Overdraft
 Running finance facility used
Not a Borrowing
1. Issue of share capital (We pay dividend on it which is not a borrowing cost)
2. Issue of right shares (We pay dividend on it which is not a borrowing cost)
3. Down payment received from customer for whom, say a building is constructed
LO2:QUALIFYING ASSETS
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale. They are usually self-constructed non-current assets.
Assets that are ready for their intended use when acquired are not qualifying assets.
Any of the following may be a qualifying asset:
(a)
items of property, plant and equipment
(b)
intangible assets
(c)
inventory
Example 1: expensing borrowing costs
Yay Limited incurred Rs. 100,000 interest (during the year ended 31 December 20X5) on a loan that was
used to finance the construction of a factory plant.
The factory plant was not considered to be a qualifying asset.
Required:
Provided the necessary journal entries for expensing the interest in Yay Limited’s books for the year
ended 31 December 20X5.
Answer-1
Date
31/12/20X5
Particulars
Financed charges
Finance charges payable
(Interest incurred on loan )
Interest is not capitalized as the asset is not a qualifying asset.
722
Dr.
100,000
Cr.
100,000
CHAPTER-8
IAS 23 BORROWING COST
Example 2: capitalization of borrowing costs - all criteria met at same time
Yippee Limited incurred Rs. 100,000 interest on a loan used to finance the construction of a building
during the year ended 31 December 20X5:
 The building was considered to be a qualifying asset.
 Construction of the building began on 1 January 20X5, when the loan was raised.
 It is probable that the building would result in future economic benefits and the borrowing costs are
reliably measurable.
 The construction of the building began as soon as the loan was raised.
Required:
Provide the necessary journal entries to capitalise the borrowing costs in Yippee Limited’s books for the
year ended 31 December 20X5.
Answer-2
Date
31/12/20X5
Particulars
Capital work in progress
Finance charges payable
(Capitalization of interest on loan)
As it is a qualifying asset so borrowing cost will be capitalized.
Dr.
100,000
Cr.
100,000
The borrowing costs capitalized are those that would have been avoided if the expenditure on the
qualifying asset had not been made.
LO3: SPECIFIC BORROWINGS
If an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall
determine borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that
borrowing during the period less any investment income on the temporary investment of those
borrowings.
Specific Borrowing cost to be capitalized
Interest incurred on specific borrowing (Loan outstanding x rate x months outstanding*/12)
Less: Investment income
(Investment made x rate x months outstanding*/12)
Xxx
(xxx)
Xxx
* Months outstanding shall exclude suspension period and will stop when project will cease.
Journal Entry
Particulars
Capital work in process
Cash
Dr.
xx
Cr.
Xx
Example-3
Baba Limited borrowed Rs. 700,000 from the bank on 1 March 20X9 to begin the construction of a
building (a qualifying asset). Construction began on 1 March 20X9. The interest rate payable on the loan
was 9%. The company paid construction costs of Rs. 500,000 on 1June 20X9. Surplus funds were
invested in a fixed deposit and earned interest at 5% per annum. No capital portion of the loan was repaid
during the year ended 31 December 20X9.
Required:
Pass the entry for capitalization.
723
CHAPTER-8
IAS 23 BORROWING COST
Answer-3
Cost of capital work in process
Interest incurred on specific borrowing (700,000 x 9% x 7/12)
Less: Investment income during construction
(200,000 x 5% x 7/12)
Date
1-Jun-09
1-Jun-09
36,750
(5,833)
30,917
Description
Loan already raised
Construction payment
Specific
700,000
(500,000)
200,000
Particulars
Capital work in process (500,000 + 30,917)
Cash
Dr.
530,917
Balance
200,000
Cr.
530,917
LO4: GENERAL BORROWINGS
If an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the
entity shall determine the amount of borrowing costs eligible for capitalisation by applying a
capitalisation rate to the expenditures on that asset.
The capitalisation rate shall be the weighted average of the borrowing costs applicable to the borrowings
of the entity that are outstanding during the period.
General Borrowing cost to be capitalized
Interest incurred on general borrowing
(Construction payment x capitalisation rate x months outstanding*/12)
Xxx
* Months outstanding shall exclude suspension period and will stop when project will cease.
LO 4.1:Calculation of Capitalisation rate
Loan
Loan
Loan 1
Loan 2
Loan 3
XXX
XXX
XXX
Period
outstanding
xx/12
xx/12
xx/12
Loan
outstanding /
Weighted
loan
XXX
XXX
XXX
XXX
Rate
Interest
18.0%
20.0%
22.0%
XXX
XXX
XXX
XXX
Capitalisation rate = Total Interest / Total Loan outstanding x 100
Example-4
Calculate capitalization rate in the following cases:
Borrowings made
Date of borrowing
From HBL
01.07.00
From NBP
01.10.00
From PICIC
01.11.00
Year-end is 31 December 2000.
724
Amount
Rs. 10 million
Rs. 15 million
Rs. 20 million
Rate of interest
13%
12%
15%
CHAPTER-8
IAS 23 BORROWING COST
Answer-4
Capitalisation Rate of general borrowing
HBL
NBP
PICIC
Loan
10
15
20
Rate for general borrowing
Period
outstanding
x 6/12
x 3/12
x 2/12
Loan
outstanding
5.00
3.75
3.33
12.08
Rate
13%
12%
15%
(1.60/12.08)
Interest
0.65
0.45
0.50
1.60
13.25%
Example-5
Wisegroup Ltd borrowed the following amounts from various financial institution/banks for their
business:
Date of borrowing
Rate
Loan (Rs.)
Borrowing cost (Rs.)
PLCIC
01.07.00
10%
15 million
1.5 million
HBL
01.10.00
12%
10 million
0.9 million
MCB
01.11.00
16%
8 million
0.85 million
During the year they spent Rs. 13 million (paid to contractor at the start) on construction of office
building. The construction was commenced on 1st August 2000.
Some cash out of amount borrowed was temporarily invested in short term deposits and an income of Rs.
0.2 million was earned from there:
They prepare their financial statements on 30 June.
Required: Calculate the borrowing cost to be capitalized for the year ended 30 June, 2001.
Answer-5
Interest accrued on general borrowings
1-Aug
(13 x 11.68% x 11/12)
1.40
Capitalisation Rate of general borrowing
PICIC
HBL
MCB
Rate for general borrowing
Loan
15
10
8
Period
outstanding
x 12/12
x 9/12
x 8/12
(3.25/27.83)
Investment income is ignored as the borrowings are general.
725
Loan
outstanding
15.00
7.50
5.33
27.83
Rate
10%
12%
16%
Interest
1.50
0.90
0.85
3.25
11.68%
CHAPTER-8
IAS 23 BORROWING COST
LO5:COMMENCEMENT, SUSPENSION AND CESSATION OF CAPITALIZATION
Commencement
of capitalization
Suspension of
capitalization
Cessation of
capitalization
An entity shall begin capitalising borrowing costs on the commencement date. The
commencement date is the date when the entity first meets all of the following
conditions:
(a) it incurs expenditures for the asset;
(b) it incurs borrowing costs; and
(c) it undertakes activities necessary to prepare the asset for its intended use.
An entity shall suspend capitalisation during periods in which it suspends active
development of a qualifying asset. However if suspension is a necessary part of the
process of getting the asset ready then borrowing cost will be capitalized.
An entity shall cease capitalisation when all the activities necessary to prepare the
qualifying asset for its intended use are complete.
Example-6: commencement of capitalisation - criteria met at different times
Dawdle Limited borrowed Rs.100,000 on the 30 June 20X5 to build a factory to store its goods. The
necessary building materials were only available on 31 August 20X5 and it was then that Dawdle
Limited began construction. The building is considered to be a qualifying asset.
Required:
Discuss when Dawdle Limited may begin capitalising the interest incurred.
Answer-6
Dawdle Limited shall began capitalisation of interest when all the three conditions are met. Dawdle
Limited borrowed the loan on 30 June, 20X5 but began construction when raw materials are available
i.e.
31 August, 20X5
Therefore, Dawdle Limited shall began capitalisation of interest from 31 August, 20X5
Example-7: commencement of capitalisation - criteria met at different times
Hoorah Limited incurred Rs.100,000 interest for the year ended 31 December 20X5 on a loan of
Rs.1,000,000, raised on 1 January 20X5. The loan was raised to finance the construction of a building
during the year ended 31 December 20X5. The building is a qualifying asset. Construction began on
1 February 20X5.
Required:
Provide the necessary journal entries for finance charges incurred in Hoorah Limited’s books for the
year ended 31 December 20X5.
Answer-7
Date
31/12/20X5
Particulars
Capital work in process ( 100,000 x 11/12)
Finance charges(interest expense)(100,000 x 1/12)
Finance charges payable
(Interest cost charged to expenses as well as capitalized)
726
Dr.
91,667
8,333
Cr.
100,000
CHAPTER-8
IAS 23 BORROWING COST
Example-8: Suspension of capitalization
Haha Limited borrowed Rs. 500,000 from the bank on 1 January 20X5 to begin the construction of a
building (a qualifying asset). Construction began on 1 January 20X5. The interest rate payable on the
loan was 10%. The company paid construction costs of Rs. 400,000 on 1 March 20X5. Surplus funds
were invested in a fixed deposit and earned interest at 6% per annum. No capital portion of the loan was
repaid during the year ended 31 December 20X5. There was an un-routine stoppage in the work in the
month of June.
Required
Pass the entry for capitalization.
Answer-8
Cost of capital work in process
Interest incurred during construction on specific borrowing
[ 500,000 x 10% x (10 – 1)/12]
37,500
Less: Investment income during construction
[100,000 x 6% x (10 -1)/12]
(4,500)
33,000
Date
1-Mar-05
1-Mar-05
Description
Loan already raised
Construction payment
Particulars
Capital work in process (400,000 + 33,000)
Cash
Specific
500,000
(400,000)
100,000
Dr.
433,000
Balance
100,000
Cr.
433,000
Example 9: delays in construction
A hotel is under construction in 20X5. Borrowing costs of Rs.300,000 are incurred on a loan during
20X5. The loan was specifically raised on 1 January 20X5 for the sole purpose of the construction of the
hotel.
Required:
Discuss how much of the interest may be capitalised assuming two independent scenarios:
A.
The builders go on strike for a period of two months, during which no progress is made.
B.
The builders of the hotel had to wait for five days for the cement in the foundations to dry.
Answer-9
(a) During these two months, the interest incurred will not be capitalised as it is unnecessary
interruption to the construction process. The interest to be capitalised is (300,000 x 10/12) = 250,000
(b) The borrowing cost will be capitalised with interest incurred during 5 days, as it is necessary part of
completion process. The interest is capitalised with 300,000
LO6: DISCLOSURES
An entity shall disclose:
(a)
the amount of borrowing costs capitalised during the period; and
(b)
the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
727
CHAPTER-8
IAS 23 BORROWING COST
LO7: BASIC PRACTICE
Question-1
Mr. X borrowed a loan of Rs. 600,000 on 1 Jan 2016 at the rate of 12% p.a for construction of a building.
Interest is payable at the end of each year.
On 1 Jan 2016 he started the construction work. Following payments were made to the contractor;
Date
Amount
st
1 January 2016
100,000
30 June 2016
200,000
30 September 2016
300,000
The construction was completed on 30 September 2016. The estimated life of building is 5 years.
The entire loan is repayable on 31 December 2020.
The building is a qualifying asset for the purposes of IAS 23.
Required:
Assuming year end is 31 December, you are required to prepare the extracts from the statement of
comprehensive income and statement of financial position for the year ended December 31, 2016.
Question-2
Mr. A obtained loan of Rs. 1,000,000 on 1 Jan 2012 at the rate of 15% p.a. for construction of a building.
On 1 March 2012 he started construction work on which date he also made first payment for construction.
Construction work was completed on 31 Oct 2012.
Required:
For the year ended 31 December 2012, Calculate:
1
Total borrowing cost
2
Borrowing cost to be capitalized
3
Borrowing cost to be expensed out
Question-3
Mr. B started construction of a building on 1 Feb 2012. To finance the outlay he obtained a loan of Rs.
300,000 on 1 April 2012 at the rate of 12% p.a. Construction work was completed on 31 July 2012.
Required:
For the year ended 31 December 2012. Calculate;
1
Total borrowing cost
2
Borrowing cost to be capitalized
3
Borrowing cost to be expensed out
Question -4
Mr. J has obtained a loan of Rs. 10 million on 1 Jan 2010 at the rate of 12% p.a. for construction of a
qualifying asset. Construction work started on the same date. The payments made to the contractor were
as follows:
Date
Rs. m
st
1 January 2010
4
31st July 2010
2
st
31 August 2010
4
The project was complete on 30 Sep 2010.
The surplus funds were invested @ 6% p.a.
Required:
Calculate the borrowing cost to be capitalized and cost of building for the year ended December 31, 2010.
728
CHAPTER-8
IAS 23 BORROWING COST
Question-5
On July 1, 2016 a medium term loan of Rs. 2 million was obtained specifically for the construction of the
building. The construction work started on 01-07-2016. The loan carried mark up of 10% per annum. The
payments made to the contractor were as follows:
Date
Rs. m
1 Jul 2016
0.8
1 Nov 2016
0.6
1 Jan 2017
0.2
1 Mar 2017
0.4
Project completed on 31 March 2017. Surplus funds are invested @ 4% p.a.
Required:
Calculate the total borrowing cost to be capitalized and cost of the project for year ended June 30, 2017.
Question-6
The following is the information regarding general loans available to Power limited:
Type of Loan
Amount
Interest rate
A
200,000
20%
B
500,000
25%
C
100,000
18%
D
70,000
12%
Required:
Calculate capitalization rate for year ended 31December 2016?
Loan taken on
1-March-2013
1-March-2015
1-March-2016
1-Feb-2016
Load repaid on
30-June-2016
30-June-2018
30-September-2016
28-February-2019
Question-7
Continuing from question 6 following construction data is provided for year ended 31 December 2016:
Commencement of project
1 April 2016
Cessation of project
30 November 2016
The payments made to the contractor were as follows:
1 April 2016
1 June 2016
1 November 2016
Surplus funds are invested @ 5% per annum.
300,000
100,000
30,000
Required:
Calculate borrowing cost to be capitalized for year ended December 31, 2016?
Question-8
Continuing from question 6 we constructed another new building in 2017.
Commencement of project
Cessation of project
The payments made to the contractor were as follows:
1 March 2017
1 April 2017
30 September 2017
Required:
729
1 Feb 2017
30 Sep 2017
20,000
30,000
10,000
CHAPTER-8
IAS 23 BORROWING COST
Calculate borrowing cost to be capitalized for year ended December 31, 2017?
Question-9
Commencement of project
Cessation of project
General Borrowing’s capitalization rate is 13.48%
1 Feb 2012
30 Sep 2015
Construction payments for year ended 30 September 2012:
1 February 2012
200,000
1 April 2012
300,000
1 July 2012
100,000
The project remained stopped for the month of July and August due to delay in receipt of raw material.
Required:
Calculate borrowing cost to be capitalized?
Answer-1
Mr. X
Statement of financial position (Extracts)
As at 31st December, 2016
Rs.
Non-Current Assets
Building((W-1) 654,000 – 32,700)
621,300
Non-current liabilities
Bank loan
600,000
Mr. X
Statement of comprehensive income (Extracts)
For the year ended 31st December, 2016
Rs.
18,000
32,700
Interest expense (600,000 x 12% x 3/12)
Depreciation (654,000/5 x 3 / 12 )
(W-1) Cost of building
Construction cost
Interest /Borrowing Cost
(100,000 + 200,000 + 300,000)
(W-2)
(W-2)
Borrowing cost to be capitalized
Interest incurred on specific loan
Rs.
600,000
54,000
654,000
(600,000 x 12% x 9/12)
54,000
730
CHAPTER-8
IAS 23 BORROWING COST
Answer-2
1. Total borrowing Cost ( 1,000,000 x 15% )
150,000
2. Borrowing cost to be capitalized
Interest on specific borrowing from 1-Mar to31-Oct
(1,000,000 x 15% x 8/12)
100,000
3. Borrowing cost to be expensed out
Interest (Jan , Feb , Nov , and Dec )
(1,000,000 x 15% x 4 / 12 )
50,000
Answer-3
1. Total borrowing Cost
April – December
Rs.
27,000
(300,000 x 12% x 9 / 12)
2. Borrowing cost to be capitalized
Interest on specific borrowing from April to July
3. Borrowing cost to be expensed out
August to December
(300,000 x 12% x 4/12)
12,000
(300,000 x 12% x 5 / 12)
Answer-4
Borrowing cost to be capitalized
Interest incurred on specific borrowing from 1-Jan to31-Sep
(10x 12% x 9/12)
Less: Investment income
- ( 6 x 6% x 7 / 12)
- ( 4 x 6% x 1 / 12 )
15,000
0.9
0.21
0.02
(0.23)
0.67
(W-1)Receipts and payments schedule
Date
Description
1-Jan-10
Loan raised
1-Jan-10
Construction payment
31-Jul-10
31-Aug-10
Construction payment
Construction payment
Answer-5
Borrowing cost to be capitalized
Interest on specific borrowing from 1-jul to30-Sep
(2x 10% x 9/12)
Less: Investment income
- ( 1.2 x 4% x 4 /12)
- ( 0.6 x 4% x 2 / 12)
- ( 0.4 x 4% x 2 / 12 )
731
Specific
10
(4)
6
(2)
(4)
Balance
6
4
-
0.15
(0.016)
(0.004)
(0.003)
(0.023)
0.127
CHAPTER-8
IAS 23 BORROWING COST
(W-1)Receipt and payment schedule
Date
Description
1-Jul-16
Loan raised
1-Jul-16
Construction payment
1-Nov-16
1-Jan-17
1-Mar-17
Specific
Balance
2
(0.8)
1.2
(0.6)
(0.2)
(0.4)
Construction payment
Construction payment
Construction payment
1.2
0.6
0.4
-
Answer-6
Capitalization Rate
(W-1)
Capitalization rate (Average rate) =
163,200
722,500
x 100
= 22.6 %
Loan
A
B
C
D
Amount
200,000
500,000
100,000
70,000
Months
outstanding
x 6/12
x12/12
x 7/12
x 11/12
Loan
outstanding
100,000
500,000
58,333
64,167
722,500
Rate
20 %
25 %
18 %
12 %
Interest
20,000
125,000
10,500
7,700
163,200
Answer-7
Answer-8
Answer-9
LO8: SOME TERMINOLOGIES
1) Progress billings
Billings made by the contractor in response to the work performed by him.
2) Retention money
The amount deducted by the customer from progress billings, this is deducted for the satisfaction of
the customer.
3) Mobilization Advance
Advance given by the customer to start the contract. It is normally adjusted with each progress bill.
4) Right issues
A rights issue is an invitation to existing shareholders to purchase additional new shares in the
company.
732
CHAPTER-8
IAS 23 BORROWING COST
Question
Mr. Imam commenced the construction of project on 1 January 2016 and will end on 31December 2016.
The cost of the project is estimated amounting to Rs. 200 million. The following terms of the contract are
agreed with contractor:
10% of the cost of project will be paid at the time of agreement (i.e. 1 January 2016) as down payment.
This amount will be adjusted against the quarterly progress bills.
5% of the cost of project will be retained and shall be paid 6 months after the completion of project
The details of bills submitted by the contractor, during the year are as follows:
Particulars
Date of payment
Rs .m
st
On completion of 1 phase
31 March 2016
50
On completion of 2nd phase
30 June 2016
50
On completion of 3rd phase
30 September 2016
50
th
On completion of 4 phase
31 December 2016
50
The bill will immediately be paid on receipt.
Required:
Assuming year end is 31 December you are required to pass journal entries and extracts from statement of
financial position for the year 2016.
Answer
1 Jan 2016
Advance
20
Bank
20
(Payment of advance)
31 Mar 2016 CWIP
50
Advance
5
Retention money payable
2.5
Bank
42.5
(Payment of first progress bill)
30 June 2016 CWIP
50
Advance
5
Retention money payable
2.5
Bank
42.5
(Payment of second progress bill)
30 Sep 2016
CWIP
50
Advance
5
Retention money payable
2.5
Bank
42.5
(Payment of second progress bill)
31Dec 2016
CWIP
50
Advance
5
Retention money payable
2.5
Bank
42.5
(Payment of second progress bill)
31Dec 2016
Building
200
CWIP
200
(Payment of advance)
733
CHAPTER-8
IAS 23 BORROWING COST
LO9: SUMMARY
Asset is qualifying asset
No
Expense out interest
Yes
Capitalize borrowing cost
Specific borrowings
General borrowings
Calculate interest based
on loan outstanding less
investment income
Step1 : Calculate capitalization rate
Step2 : Apply this rate on expenditure
Investment income will be ignored in General borrowings
734
CHAPTER-8
IAS 23 BORROWING COST
PRACTICE QUESTIONS
Question-1 [Identification of qualifying asset]
Umer obtained following loans for reasons specified below:
Rs. in million
Amount
Interest
Allied Bank
10
3
MPL Bank
6
0.5
Debentures
2.5
0.6
From Private Placing
7
1.25
Expenses incurred on issue of debentures
Expenses incurred for arranging loan from Private Placing
Purposes
Building in process
Purchase of ready to use air conditioners
Construction of office building
Plant installation
0.75 million
0.35 million
Required:
Borrowing cost eligible for capitalization
Question-2 [Identification of qualifying asset]
Umair & Co. obtained the following loans for the purposes specified against each along with interest
thereon:
Rs. in million
Amount
Interest
Purposes
From Faysal Bank
12
2
For purchase of stock
From ILI Bank
15
3
For construction of building
Loan from Directors
4.5
0.25
For purchase of land
Required:
Borrowing cost eligible for capitalization
Question-3 [Specific borrowing with investment income]
Haha Limited borrowed Rs. 500,000 from the bank on 1 January 20X5 to begin the construction of a
building (a qualifying asset). Construction began on 1 January 20X5 (i.e. all criteria for capitalisation of
borrowing costs were met). The interest rate payable on the loan was 10%. The company paid
construction costs of Rs. 400,000 on 1 January 20X5. Surplus funds were invested in a fixed deposit and
earned interest at 6% per annum. No capital portion of the loan was repaid during the year ended
31 December 20X5.
Required:
Pass the entry for capitalization.
Question-4[Specific borrowing with investment income]
Money Limited began the construction of a new building on the 1 February 20X5. Construction costs
incurred in 20X5 were paid for as follows:
Rs.
On 1 February
500,000
On 1 July
600,000
On 1 November
800,000
735
CHAPTER-8
IAS 23 BORROWING COST
The construction of the building ended on the 1 December 20X5 when the building was complete and
ready for its intended use. This building is to be depreciated over 10 years to a nil residual value using the
straight-line method.
The construction was financed by a loan of Rs. 1,900,000 from Cash Limited. The loan was raised on
1 January 20X5 specifically to facilitate the construction of the building. The interest rate is 25% per
annum. There were no loan repayments during the year. Surplus funds were invested at 20% per annum.
The interest is compounded annually.
The building is a qualifying asset for the purposes of IAS 23.
Required:
a)
Calculate the amount of borrowing costs that are eligible for capitalization during the year ended
31 December 20X5.
b)
Calculate the depreciation for the year ended 31 December 20X5.
c)
Calculate the carrying amount of the buildings as at 31 December 20X5.
Question-5[Specific borrowing with investment income]
Hockey Limited borrowed Rs. 2,000,000 (at an interest rate of 14%) from the Bank of Ball on 1 January
20X5. These funds have been borrowed in order to build a hockey stadium.
Progress payments made in 20X5 are as follows:
Rs.
On 1 January
600,000
On 1 July
1,200,000
On 1 September
200,000
The surplus funds were invested in a fixed deposit earning interest at 10% per annum.
Construction began on 1 January 20X5 and was still incomplete on 31 December 20X5. Between 1 June
and 20 June, construction ceased while concrete cured (a necessary part of the construction process).
The stadium is a qualifying asset as defined by IAS 23.
Required:
a)
Calculate the amount of borrowing costs that may be capitalized to the hockey stadium cost
account in the year ended 31 December 20X5.
b)
Calculate the amount of borrowing costs that may be capitalized to the hockey stadium cost
account in the year ended 31 December 20X5 assuming that construction could not begin due to
the building plans not meeting municipal standards. The plans have been resubmitted and it is
expected that the municipality will give the go-ahead to begin construction in early 20X6.
Question-6[Specific borrowing with investment income]
Loans raised specifically to fund the construction of a building (a qualifying asset):

Loan A (10%) raised 1 January 20X5: Rs. 500,000

Loan B (15%) raised 1 June 20X5: Rs. 400,000
Rs. 100,000 of the loan B capital was repaid on 31 July 20X5. No other loan was repaid. Interest was
payable (compounded) annually on 31 December.
The only interest income earned during the year was interest income earned on the investment of surplus
funds from the specific loans in a 6% interest account.
Construction costs paid for as follows:

31 March 20X5: Rs. 300,000

30 April 20X5: Rs. 100,000

31 July 20X5: Rs. 220,000
Commencement date of capitalization of borrowing cost: 1 March 20X5
Cessation date of capitalization: 31 August 20X5
Required:
Calculate the amount of borrowing costs that must be capitalized in terms of IAS 23.
736
CHAPTER-8
IAS 23 BORROWING COST
Question-7
For the purpose of construction of qualifying asset during the year ending December 2014, Ahmed
limited decided to utilize various funds available to them. The details of funds available to Ahmed ltd. are
as follows:
Type of loan
Amount Interest rate Loan taken on
Loan repaid on
General purpose loan A
900,000
12%
01-01-2013
31-12-2014
General purpose loan B
560,000
15%
01-01-2014
30-09-2014
General purpose loan C
780,000
10%
01-01-2014
30-11-2014
General purpose loan D
690,000
17%
01-01-2012
30-07-2014
Shareholders’ equity
1,000,000
20%
01-07-2005
Not repaid up to 31-12-2014
Required:
You are required to calculate the capitalization rate to be used for calculating the amount of borrowing
cost to be capitalized.
Question-8
Calculate capitalization rate in the following case:
Borrowings made
Date of borrowing
Amount
Rate of interest
From HBL
01.05.00
9 million
15%
From NBP
01.09.00
17 million
13%
From ICI
01.07.00
25 million
17%
From Allied Bank
01.11.00
32 million
20%
Year-end is 31 December 2000.
Question-9
Wisegroup Ltd borrowed the following amounts from various financial institution/banks for their
business:
Date of borrowing
Rate
Loan (Rs.)
Borrowing cost (Rs.)
PLCIC
01.07.00
10%
15 million
1.5 million
HBL
01.10.00
12%
10 million
0.9 million
MCB
01.11.00
16%
8 million
0.85 million
During the year they spent Rs. 13 million (paid to contractor at the start) on construction of office
building. The construction was commenced on 1st August 2000 and continued upto 31 January 2001.
From 1st February 2001 the construction remained suspended due to non-availability of required quality
of marble. The marble could be procured only at the end of March 2001.
Some cash out of amount borrowed was temporarily invested in short term deposits and an income of Rs.
0.2 million was earned from there:
They prepare their financial statements on 30 June.
Required: Calculate the borrowing cost to be capitalized for the year ended 30 June, 2001.
Question-10
Ammar Corporation has following loans in place at the beginning of 2014.
1 January 2014
12 % MCB loan repayable
50,000
8.5 % Debentures repayable
70,000
10.5 % Silk Bank loan repayable
60,000
On 1 January 2014, the construction of a qualifying asset started using existing borrowings. Expenditure
incurred on the construction was incurred on:Rs.
1 Jan 2014
30,000
1 June 2014
40,000
1 November 2014
20,000
90,000
737
CHAPTER-8
IAS 23 BORROWING COST
The construction will complete on March 31, 2015.
Required:
Calculate the borrowing cost to be capitalized for year ended December 31, 2014.
Question-11
Nasir Corporation has following loans in place at the beginning of 2015.
12 % MCB loan
8.5 % Debentures
1 January 2015
50,000
80,000
It further borrowed following loans not specifically for the project:
13 % Silk Bank loan obtained on 1-4-2015
15 % HBL loan obtained on 1-9-2015
6,000
90,000
On 1 January 2015, the construction of a qualifying asset started. Expenditure incurred on the
construction was incurred on:Rs.
1 Jan 2015
30,000
1 June 2015
50,000
1 December 2015
70,000
150,000
The construction will complete on March 31, 2016.
Required:
Calculate the borrowing cost to be capitalized for year ended December 31, 2015.
Question-12
Soccer Limited began the construction of a new stadium on 1 January 20X5. Details of the progress
payments made during 20X5 are as follows:
Rs.
On 1 January
300,000
On 1 April
200,000
On 1 July
250,000
On 1 September
150,000
On 1 October
200,000
The stadium was still under construction at 31 December 20X5.
The construction was financed by general borrowings within the company. General loans outstanding at
any one time during 20X5 averaged Rs. 20,000,000. The interest expense incurred on these loans during
20X5 was Rs. 2,600,000.
The stadium is a qualifying asset as defined by IAS 23. Interest is payable (compounded) annually.
Required:
a)
Calculate the amount of borrowing costs that may be capitalized to the stadium during the year
ended 31 December 20X5.
b)
Calculate the depreciation for the year ended 31 December 20X5.
c)
Calculate the carrying amount of the stadium as at 31 December 20X5.
Question-13
A socially responsible multinational corporation (MNC) decided to construct a tunnel that will link two
sides of the village that were separated by a natural disaster years ago. Realizing its role as a good
corporate citizen, the MNC has been in this village for a couple of years exploring oil and gas in the
nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the
construction is Rs. 20 million. General loans were arranged in this way:
738
CHAPTER-8
•
•
•
IAS 23 BORROWING COST
Bank term loans: Rs. 5 million at 7% per annum
Institutional borrowings: Rs. 7 million at 8% per annum
Corporate bonds: Rs. 10 million at 9% per annum
Required
When MNC capitalizes borrowing costs under IAS 23, how would it treat the borrowing costs? How
would it capitalize the borrowing costs?
Question-14
Rise Co had the following loans
1 January
10 % Bank loan repayable – Repayable 2016(General)
100,000,000
8 % Bank loan repayable – Repayable 2018(General)
40,000,000
7 % Specific loan obtained on 1.1.2014
20,000,000
Construction of Plant began on 1 Jan 2014.
Expenditure incurred on the construction was given below. Surplus funds were invested at 4 %.
Incurred on
1 Jan 2014
1 Oct 2014
Rs.”000”
50,000
30,000
80,000
Required:
Calculate the borrowing cost to be capitalized for the factory plant for the year ended
31 December, 2014.
Question-15
On 1 July 2006, entity A entered into a Rs. 2.2 million contract for the construction of a building . The
building was completed at the end of June 2007. During the period, the following payments were made to
the contractor:
Payment date
Rs. In ’000’
1 July 2006
200
30 September 2006
600
31 March 2007
1,200
30 June 2007
200
Total
2,200
Entity A’s borrowings as at its year end of 30 June 2007 were as follows:
i)
10% four-year loan obtained on 1 July, 2006 with simple interest payable annually, which relates
specifically to the project; debt outstanding at 30 June 2007 amounted to Rs. 700,000. Interest of
Rs. 70,000 was incurred on these borrowings during the year, and interest income of Rs. 20,000
was earned on these funds while they were held in anticipation of payments.
ii)
12.5% 10-year general loan with simple interest payable annually; debt outstanding at 1 July
2006 amounted to Rs. 1,000,000 and remained unchanged during the year.
iii)
10% 10-year general loan with simple interest payable annually; debt outstanding at 1 July 2006
amounted to Rs. 1,500,000 and remained unchanged during the year.
Required:
Calculate the borrowing cost to be capitalized for year ended June 30,2007.
739
CHAPTER-8
IAS 23 BORROWING COST
Question-16 [Specific + General + mix]
Milo enterprise was working on a project to construct a building. Project started on January 01, 2014.
Costs incurred on the project are as follows:
1 January, 2014
7,500,000
1 Sep, 2014
9,500,000
The following amounts were utilized for payment:
1.
10% debentures issued on January 1, 2014 specifically for construction Rs. 5,500,000.
2.
15% bank loan outstanding since 2013 Rs. 6,500,000
3.
12% bank loan was obtained solely for the project July 1, 2014 Rs. 3,250,000
4.
10% bank loan outstanding since December 1, 2014 Rs. 1,000,000
All the above loans and debentures are outstanding till 31st December 2014. Construction of building was
still in progress at 31st December 2014.
Required:
Determine the total amount of capital work in process.
Question-17
In the board meeting held on 15th December 2006, management of Power limited decided to construct a
qualifying asset amounting to Rs. 1,000,000. The management of Power limited approached to a bank to
finance the project but the bank agreed to finance only the 50% of the estimated cost i.e. Rs. 500,000 @
15% p.a. The loan was sanctioned on 28th December 2006 and was immediately put into the bank account
of company. Management of the company decided to utilize other general purpose loans to finance the
remaining balance of Rs. 500,000.
The construction of qualifying asset started on 1st January 2007. Following is the schedule of payments
made by Power limited in connection with the construction of qualifying asset.
Date of installment Amount of installment (Rs.)
January 1, 2007
200,000
April 1, 2007
200,000
July 1,2007
200,000
October 1,2007
200,000
Management decided to invest the unutilized portion of specific loan in the government securities
fetching an income @ 8% p.a. There was an un-routine stoppage in the work from 1st June 2007 to 31st
July 2007.
The following is the information regarding all the loans available to Power limited:
Description
Amount Rate
Loan taken On
Specific loan
500,000
15%
28-12-2006
General purpose loan 1
600,000
12%
01-02-2007
General purpose loan 2
400,000
14%
01-03-2007
General purpose loan 3
300,000
14%
01-01-2007
The general purpose loan 2 was repaid in full on 30-11-2007 and general purpose loan 3 was repaid in full
on 31-10-2007. Remaining loans were outstanding till 31st December 2007.
The construction of qualifying asset was not completed up to 31st December 2007. The accounting year
ends on 31st December 2007.
Required:
Calculate portion of borrowing cost eligible for capitalization for the year ended December 2007.
740
CHAPTER-8
IAS 23 BORROWING COST
Question-18
A company started construction of a qualifying asset. It received loan specifically for qualifying asset on
1 August, 2007 of Rs. 400,000 @ 12%. Project started on 15 August, 2007 following is the detail of
construction payments.
Construction payments
Date
Rs.
15.8.07
150,000
1.11.07
200,000
1.03.08
300,000
1.09.08
150,000
The rate of capitalization for general borrowing is 18%. Surplus funds are invested at rate of 3%. Project
was stopped for month of December due to flood. The project was completed on May 31, 2008
Required:
Calculate borrowing cost to be capitalized for year ended June 30, 2008.
Question-19
A company started project of construction of a qualifying asset on 1 February 2012. It is financed through
following sources:
1.
Right issue of shares Rs.3,000,000 on 1 February 2012. Dividend rate is 10%.
2.
Specific loan was obtained on 1 April 2012 of Rs.5,000,000 @ 12%.
3.
The surplus funds are invested @ 3%.
4.
General borrowing capitalisation rate is 14%.
Construction payment
Date
Rs.
1.2.12
2,000,000
1.3.12
500,000
1.4.12
3,000,000
1.8.12
6,000,000
Project was still in process on 31.12.12.
Required:
Calculate borrowing cost to be capitalized for year ended December 31, 2012.
Question-20
On 1st Jan 2014, Ghani Co borrowed Rs. 2.5 million to finance the construction of two buildings both of
which were expected to take a year to build. Construction started during 2014. The loan facility was
drawn down on 1 Jan 2014 and was utilized as follows, with the remaining funds invested temporarily.
1 Jan 2014
1 Jul 2014
Asset A
500,000
500,000
1,000,000
Asset B
750,000
750,000
1,500,000
The loan rate was 7 % and Sparkle Co can invest surplus funds at 4 %.
Required:
Calculate the borrowing costs which may be capitalized for each of the asset and consequently the cost of
each asset as at 31 Dec 2014.
741
CHAPTER-8
IAS 23 BORROWING COST
Question-21
Loan worth of Rs. 400,000 taken on 1st January 2014 for the construction of A and B plants. Interest Rate
is 10% per annum and surplus funds are invested @ 7% per annum.
Details of expenditures is:
Year 2014
A
B
1st January
200,000
60,000
30th June
0
70,000
200,000
130,000
Plant A was completed on June 30, 2014.
Required:
Calculate borrowing cost to be capitalized on A and B Plants as on December 31, 2014, if IAS-23 is
adopted.
Question-22
Mr. Tipu obtained loan amounting to Rs. 90 million from HBL on January 1, 2015. It carries markup @
12% per annum. The loan is repayable in semi-annual installments of Rs. 10 million each starting from
June 30, 2015 along with interest.
Required:
i)
Calculate interest expense for the year ended December 31, 2015 and
ii)
Prepare relevant extracts from statement of financial position for year ended December 31,2015.
Question-23
Mr. Atif obtained loan amounting to Rs. 70 million from UBL on July 1, 2014. It carries markup @ 15%
per annum. The loan is repayable in semi-annual installments of Rs. 5 million each starting from January
1, 2015 along with interest.
Required:
i)
Calculate interest expense for the year ended December 31, 2015 and
ii)
Prepare relevant extracts from statement of financial position for year ended December 31,2015.
Question-24
Mr. Taimoor obtained loan amounting to Rs. 150 million from Faysal bank on April 1, 2015. It carries
markup @ 13% per annum. The loan is repayable in quarterly installments of Rs. 15 million each starting
from June 30, 2015 along with interest.
Required:
i)
Calculate interest expense for the year ended December 31, 2015 and
ii)
Prepare relevant extracts from statement of financial position for year ended December 31, 2015.
Question-25
Mr. Mouse obtained loan amounting to Rs. 80 million from HBL on October 1, 2015. It carries interest @
0.25 per thousand per day. The loan is repayable in monthly installments of Rs. 10 million each starting
from November 1, 2015 along with interest.
Required:
i)
Calculate interest expense for the year ended December 31, 2015 and
ii)
Prepare relevant extracts from statement of financial position for year ended December 31, 2015.
742
CHAPTER-8
IAS 23 BORROWING COST
PRACTICE SOLUTIONS
Answer-1
Rs in ‘million’
Borrowing cost eligible for capitalisation [3 + (0.6 + 0.75) + (1.25 + 0.35)]
5.95
Note: As purchase of ready to use air conditioners is not a qualifying asset transaction therefore
borrowing cost associated with it will be expensed out.
Answer-2
Rs in ‘million’
Borrowing cost eligible for capitalisation
3
Note: As purchase of stock and land is not a qualifying asset transaction therefore borrowing
cost associated with them will be expensed out.
Answer-3
Particulars
Capital work in process(400,000 + 44,000)
Cash
(W-1)
Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (500,000 x 10%)
Less: Investment income during construction
(100,000 x 6% x 12/12)
(W-2)
Date
1-Jan-05
1-Jan-05
Description
Loan raised
Construction payment
Dr.
444,000
Cr.
444,000
50,000
(6,000)
44,000
Specific
500,000
(400,000)
100,000
Balance
100,000
Answer-4
All figure in Rs. in '000'
a) Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing from 1-Feb to 1-Dec
(1,900 x 25% x 10/12)
Less: Investment income during construction
(W-2)
(W-1)
Date
1-Feb-05
1-Feb-05
1-July-05
1-Nov-05
743
Description
Balance in loan a/c on commencement of project
Construction payment
Construction payment
Construction payment
396
(170)
226
Specific
1,900
(500)
(600)
(800)
Balance
1,900
1,400
800
-
CHAPTER-8
IAS 23 BORROWING COST
(W-2) Investment Income
1-Feb-05
1-Jul-05
b)
Depreciation
(W-1) Cost of asset
Construction (500 + 600 + 800)
Add: Borrowing cost to be capitalized
c)
(1,400 x 20% x 5/12)
(800 x 20% x 4/12)
117
53
170
(2,126)/10 x 1/12)
18
1,900
226
2,126
Net book value
Cost
Less: Accumulated depreciation
2,126
(18)
2,108
Answer-5
All figure in Rs. in '000'
a) Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (2,000 x 14%)
Less: Investment income during construction (W-2)
(W-1)
Date
Description
1-Jan-05
Loan
1-Jan-05
Construction payment
1-July-05
Construction payment
1-Sep-05
Construction payment
(W-2) Investment Income
1-Jan-05
1-Jul-05
b)
280
(73)
207
Specific
2,000
(600)
(1,200)
(200)
Balance
2,000
1,400
200
-
(1,400 x 10% x 6/12)
(200 x 10% x 2/12)
70
3
73
No borrowing cost will be capitalised because amongst the 3 criteria of capitalisation, one is that
we have started the project which is not the case here.
Answer-6
a) Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (W-3)
Less: Investment income during construction (W-2)
(W-1)
Date
1-Mar-05
31-Mar-05
30-Apr-05
1-Jun-05
31-Jul-05
31-Jul-05
744
Description
Balance in loan A a/c on commencement of project
Construction payment
Construction payment
Loan B raised
Construction payment
Loan repayment
38,750
(9,900)
28,850
Specific
500,000
(300,000)
(100,000)
400,000
(220,000)
(100,000)
(320,000)
Balance
500,000
200,000
100,000
500,000
180,000
CHAPTER-8
IAS 23 BORROWING COST
(W-2) Investment Income
1-Mar-05
(500,000 x 6% x 1/12)
31-Mar-05
(200,000 x 6% x 1/12)
30-Apr-05
(100,000 x 6% x 1/12)
1-Jun-05
(500,000 x 6% x 2/12)
31-Jul-05
(180,000 x 6% x 1/12)
2,500
1,000
500
5,000
900
9,900
(W-3) Interest accrued on specific borrowing
Loan A
(500,000 x 10% x 6/12)
Loan B
1-Jun-05
31-Jul-05
Loan received
Less: Principal repaid
25,000
400,000 x 15% x 2/12
(100,000)
300,000 x 15% x 1/12
10,000
3,750
38,750
Answer-7
Capitalisation Rate of general borrowing
Loan
900,000
560,000
780,000
690,000
Loan A
Loan B
Loan C
Loan D
Rate for general borrowing
Period
outstanding
x 12/12
x 9/12
x 11/12
x 7/12
Loan
Outstanding
900,000
420,000
715,000
402,500
2,437,500
Rate
12%
15%
10%
17%
(310,925/2,437,500)
Answer-8
Capitalisation Rate of general borrowing
Period
Loan
outstanding
HBL
9
x 8/12
NBP
17
x 4/12
ICI
25
x 6/12
Allied Bank
32
x 2/12
Rate for general borrowing
Interest
108,000
63,000
71,500
68,425
310,925
12.76%
Rs. in million
Loan
outstanding
6
5.67
12.5
5.33
29.5
(4.829/29.5)
Rate
15%
13%
17%
20%
Interest
0.9
0.737
2.125
1.067
4.829
16.37%
Answer-9
Rs in ‘million’
Interest accrued on general borrowings
1-Aug-14
(13 x 11.68% x (11-2)/12)
Capitlisation will be suspended for the month of February and March.
745
1.14
CHAPTER-8
IAS 23 BORROWING COST
Capitalisation Rate of general borrowing
Loan
15
10
8
PICIC
HBL
MCB
Period
outstanding
x 12/12
x 9/12
x 8/12
Loan
outstanding
15.00
7.50
5.33
27.83
Rate
10%
12%
16%
Rate for general borrowing
(3.25/27.83)
Investment income is ignored as the borrowings are general.
11.68%
Answer-10
Interest accrued on general borrowings
1-Jan-14
(30,000 x 10.14% x 12/12)
1-Jun-14
(40,000 x 10.14% x 7/12)
1-Nov-14
( 20,000 x 10.14% x 2/12)
(W-1) Capitalisation Rate of general borrowing
Period
Loan
outstanding
MCB
50,000
x 12/12
Debenture
70,000
x 12/12
Silk
60,000
x 12/12
Rate for general borrowing
3,042
2,366
338
5,746
Loan
outstanding
50,000
70,000
60,000
180,000
Rate
12%
8.5%
10.5%
(18,250/180,000)
Rate for general borrowing
746
(17,885/164,500)
Interest
6,000
5,950
6,300
18,250
10.14%
Answer-11
Interest accrued on general borrowings
1-Jan-15
(30,000 x 10.87% x 12/12)
1-Jun-15
(50,000 x 10.87% x 7/12)
1-Dec-15
(70,000 x 10.87% x 1/12)
(W-1) Capitalisation Rate of general borrowing
Period
Loan
outstanding
MCB
50,000
x 12/12
Debenture
80,000
x 12/12
Silk
6,000
x 9/12
HBL
90,000
x 4/12
Interest
1.50
0.90
0.85
3.25
3,261
3,170
634
7,065
Loan
outstanding
50,000
80,000
4,500
30,000
164,500
Rate
12%
8.5%
13.0%
15.0%
Interest
6,000
6,800
585
4,500
17,885
10.87%
CHAPTER-8
IAS 23 BORROWING COST
Answer-12
Capitalisation rate on general borrowing
(2,600,000/20,000,000)
Interest accrued on general borrowings
General borrowings
1-Jan-20X5
1-Apr-20X5
1-Jul-20X5
1-Sep-20X5
1-Oct-20X5
b)
(300,000 x 13% x 12/12)
(200,000 x 13% x 9/12)
(250,000 x 13% x 6/12)
(150,000 x 13% x 4/12)
(200,000 x 13% x 3/12)
13%
39,000
19,500
16,250
6,500
6,500
87,750
Depreciation is not charged as asset is yet not complete.
Cost of asset
Construction cost paid (300,000 + 200,000 + 250,000 + 150,000 +200,000)
Add: Borrowing cost to be capitalized
c)
Net book value
Cost
Less: Accumulated depreciation
1,187,750
1,187,750
Answer-13
Borrowing cost to be capitalized
Interest incurred during construction on general borrowing
( 20,000,000 x 8.23% x 12/12 )
Bank loan
Institutional loan
Corporate bonds
Loan
5,000,000
7,000,000
10,000,000
Rate for general borrowing
Period
outstanding
x 12/12
x 12/12
x 12/12
747
1,646,000
Loan
outstanding
5,000,000
7,000,000
10,000,000
22,000,000
Rate
7%
8%
9%
(1,810,000/22,000,000)
Answer-14
a) Borrowing costs to be capitalized
Interest incurred during construction on specific borrowing
(20,000 x 7%)
Interest incurred during construction on general borrowing
(W-1)
Date
1/1/2014
1/1/2014
1/10/2014
1,100,000
87,750
1,187,750
Description
Loan raised
Construction cost of Rs. 50,000
Construction cost of Rs. 30,000
Interest
350,000
560,000
900,000
1,810,000
8.23%
Rs. In ‘000’
1,400
(W-2)
Specific
20,000
(20,000)
3,536
4,936
General
(30,000)
(30,000)
Balance
-
CHAPTER-8
IAS 23 BORROWING COST
As there are no surplus funds, so investment income is not calculated.
Loan
Loan
Loan amount
Period outstanding
outstanding
Loan 1
100,000
x 12/12
100,000
Loan 2
40,000
x 12/12
40,000
140,000
Rate for general borrowing
Rate
10%
8%
(13,200/140,000)
Interest
10,000
3,200
13,200
9.43%
(W-2) Interest incurred during construction on general borrowing
( 30,000 (W-1) x 9.43% x 12/12 )
( 30,000 (W-1) x 9.43% x 3/12 )
2,829
707
3,536
Answer-15
Borrowing cost to be capitalized
Interest on specific loan net of investment income
Interest on general loan
(W-3)
50,000
41,250
91,250
(W-1)
Date
1/7/06
1/7/06
30/9/06
31/3/07
30/6/07
(W-2)
12.5% loan
10% loan
Description
Loan obtained
Construction cost
Construction cost of 600,000
Construction cost
Construction cost
Loan
1,000,000
1,500,000
Period
outstanding
x 12/12
x 12/12
Specific
700,000
(200,000)
(500,000)
Loan
outstanding
1,000,000
1,500,000
2,500,000
Rate for general borrowing
(275,000/2,500,000)
(W-3)
Specific borrowing interest
Interest incurred during construction on specific borrowing
Less: Investment income
(W-4)
Interest incurred during construction on general borrowing
( 100,000 x 11% x 9/12 )
( 1,200,000 x 11% x 3/12 )
( 200,000 x 11% x 0/12 )
748
General
(100,000)
(1,200,000)
(200,000)
Rate
12.5%
10.0%
Balance
500,000
-
Interest
125,000
150,000
275,000
11.00%
70,000
(20,000)
50,000
8,250
33,000
41,250
CHAPTER-8
IAS 23 BORROWING COST
Answer-16
Expenditure incurred (7,500,000 + 9,500,000)
Specific Borrowing
Interest incurred during construction on general borrowing
(W-1)
(W-3)
Date
1/1/2014
1/1/2014
Description
Loan raised
Construction cost of 7,500,000
1/7/2014
Loan raised
1/9/2014
Construction cost of 9,500,000
(W-1)
Interest incurred during construction on specific loan
(5,500,000 x 10%)
(3,250,000 x 12% x 6/12)
(W-2)
Loan
6,500,000
1,000,000
15% Bank loan
10% Bank loan
17,000,000
745,000
610,050
18,355,050
Specific
5,500,000
(5,500,000)
General
(2,000,000)
3,250,000
(3,250,000)
(6,250,000)
550,000
195,000
745,000
Period
outstanding
x 12/12
x 1/12
Loan
Outstanding
6,500,000
83,333
Rate
15%
10%
Interest
975,000
8,333
6,583,333
Rate for general borrowing
983,333
14.94%
(983,333/6,583,333)
(W-3) Interest incurred during construction on general borrowing
(2,000,000 x 14.94% x 12/12)
(6,250,000 x 14.94% x 4/12)
298,800
311,250
610,050
Rs. In ‘000’
Answer-17
Borrowing cost to be capitalized
Interest incurred during construction on specific borr. (500 x 15% x (12-2)/12
Less: Investment income during construction (W-2)
Interest incurred during construction on general borrowing (W-3)
(W-1)
Date
1-Jan-07
1-Jan-07
1-Apr-07
1-Jul-07
1-Oct-07
(W-2)
749
Description
Opening balance of loan
Construction payment of 200
Construction payment of 200
Construction payment of 200
Construction payment of 200
Investment income
1-Jan-07
1-Apr-07
Specific
500
(200)
(200)
(100)
62.50
(7.33)
General
(300 x 8% x 3/12)
(100 x 8% x (3-1)/12)
55.17
11.92
67.09
Balance
300
100
(100)
(200)
6.00
1.33
7.33
CHAPTER-8
(W-3)
IAS 23 BORROWING COST
Interest accrued on general borrowings
1-Jul-07
1-Oct-07
(100 x 13% x (6-1)/12)
(200 x 13% x 3/12)
(W-4) Capitalisation Rate of general borrowing
Loan
Period
Loan
amount
outstanding
Loan 1
600
x 11/12
Loan 2
400
x 9/12
Loan 3
300
x 10/12
Rate for general borrowing
Loan
outstanding
550.00
300.00
250.00
1,100.00
5.42
6.50
11.92
Rate
Interest
12%
14%
14%
66.00
42.00
35.00
143.00
(143/1,100)
13.00%
Answer-18
Borrowing costs to be capitalized
Interest on specific loan net of investment income
Interest incurred during construction on general borrowing
(W-2)
(W-4)
(W-1)
Date
15/8/07
15/8/07
1/11/07
1/3/08
Specific
400,000
(150,000)
(200,000)
(50,000)
Description
Opening balance
Construction cost of Rs. 150,000
Construction cost of Rs. 200,000
Construction cost of Rs. 300,000
32,062
11,250
43,312
General
250,000
50,000
(250,000)
(W-2)Specific borrowing interest
Interest incurred during construction on specific borrowing [(400,000 x 12%) x( 9.5-1/12)]
Less: Investment income
(W-3)
(W-3) Investment Income
15/8/07
(250,000 x 3% x 2.5/12)
1/11/07
[(50,000 x 3%) x (4-1/12)]
11,250
Answer-19
Borrowing costs to be capitalized
Interest on specific loan net of investment income
Interest incurred during construction on general borrowing
1/3/12
750
Description
Right issues
Construction cost of Rs.
2,000,000
Construction cost of Rs.
500,000
34,000
(1,938)
32,062
1,563
375
1,938
(W-4) Interest on general borrowing
(250,000 (W-1) x 18% x 3/12)
(W-1)
Date
1/2/12
1/2/12
Balance
Equity
3,000,000
(2,000,000)
(500,000)
(W-2)
(W-4)
Specific
425,000
204,167
629,167
General
Balance
CHAPTER-8
1/4/12
1/4/12
1/8/12
IAS 23 BORROWING COST
Specific loan raised
Construction cost of Rs.
3,000,000
Construction cost of Rs.
6,000,000
5,000,000
(500,000) (2,500,000)
(2,500,000)
2,500,000
(3,500,000)
(W-2)Specific borrowing interest
Interest incurred during construction on specific borrowing (5,000,000 x 12% x 9/12)
Less: Investment income
(W-3)
(W-3) Investment Income
1/4/12 (2,500,000 x 3% x 4/12)
450,000
(25,000)
425,000
25,000
(W-4) Interest on general borrowing
(3,500,000 (W-1) x 14% x 5/12)
204,167
Answer-20
Borrowing cost to be capitalized
Asset A
Interest incurred during construction on specific loan
(1,000,000 x 7%)
(1,500,000 x 7%)
Less: Investment income
(500,000 x 4% x 6/12)
(750,000 x 4% x 6/12)
Asset B
70,000
105,000
(10,000)
60,000
(W-1) Asset A
Date
1/1/2014
1/1/2014
1/7/2014
Description
Loan raised
Construction cost
Construction cost
Specific
1,000,000
(500,000)
(500,000)
General
(W-2) Asset B
Date
1/1/2014
1/1/2014
1/7/2014
Description
Loan raised
Construction cost
Construction cost
Specific
1,500,000
(750,000)
(750,000)
General
(15,000)
90,000
Balance
500,000
-
Balance
750,000
-
Answer-21
Borrowing cost to be capitalized
Plant A
Interest incurred during construction on specific loan
(200,000 x 10% x 6/12)
(200,000 x 10%)
Less: Investment income
(W-3)
10,000
10,000
We will stop capitalization on plant A on 30/06/14 as the construction has ceased.
751
Plant B
20,000
(7,350)
12,650
CHAPTER-8
IAS 23 BORROWING COST
(W-1) Plant A
Date
1/1/2014
1/1/2014
Description
Loan raised ( Note )
Construction cost
Specific
200,000
(200,000)
General
(W-2) Plant B
Date
1/1/2014
1/1/2014
30/6/14
Description
Loan raised ( Note )
Construction cost
Construction cost
Specific
200,000
(60,000)
(70,000)
General
Balance
-
Balance
140,000
70,000
(W-3) Investment income on plant B
(140,000 x 7% x 6/12 )
( 70,000 x 7% x 6/12 )
4,900
2,450
7,350
Note: Plant A got completed for Rs. 200,000, therefore the remaining loan of Rs. 200,000 (400,000 200,000 ) will be used for plant B.
Answer-22
Interest expense for the year
1-Jan-15
Loan received
30-Jun-15
Less: Principal repaid
31-Dec-15
31-Dec-15
Less: Principal repaid
Balance
90
(10)
80
(10)
70
x 12% x 6/12
Rs. in 'm'
5.40
x 12% x 6/12
4.80
10.20
Mr. Tipu
Statement of Financial Position (Extracts)
as on December 31, 2015
Rs. in 'm.'
Equity and liabilities
Non-Current Liabilities
Loan payable
(70 - 10 - 10)
50
Current Liabilities
Current portion of long term loan
(10 + 10)
20
Note: Current portion is payable on June 30, 2016 and December 31, 2016.
752
CHAPTER-8
IAS 23 BORROWING COST
Answer-23
Interest expense for the year
1-Jan-15
Opening balance
1-Jan-15
Less: Principal repaid
1-Jul-15
31-Dec-15
Less: Principal repaid
Balance
Rs. in 'm.'
70
(5)
65
(5)
60
x 15% x 6/12
4.88
x 15% x 6/12
4.50
9.38
Mr. Atif
Statement of Financial Position (Extracts)
as on December 31, 2015
Rs in 'm.'
Equity and liabilities
Non-Current Liabilities
Loan payable
Current Liabilities
Current portion of long term loan
Interest payable
(60 - 5 - 5)
50
(5 + 5)
10
4.5
Note: Current portion is payable on January 1, 2016 and July 1, 2016.
Answer-24
Interest expense for the year
1-Apr-15
Loan received
30-Jun-15
Less: Principal repaid
30-Sep-15
Less: Principal repaid
31-Dec-15
31-Dec-15
Less: Principal repaid
Balance
150
(15)
135
(15)
120
(15)
105
x 13% x 3/12
Rs. in 'm.'
4.88
x 13% x 3/12
4.39
x 13% x 3/12
3.90
13.17
753
CHAPTER-8
IAS 23 BORROWING COST
Mr. Taimoor
Statement of Financial Position (Extracts)
as on December 31, 2015
Rs in 'm.'
Equity and liabilities
Non-Current Liabilities
Loan payable
(105 - 15 - 15 - 15 -15)
45
Current Liabilities
Current portion of long term loan
(15 + 15 + 15 +15)
60
Note: Current portion is payable on March 31, 2016, June 30, 2016, September 30, 2016 and December
31, 2016.
Answer-25
Interest expense for the year
1-Oct-15
Loan received
1-Nov-15
Less: Principal repaid
1-Dec-15
31-Dec-15
80
(10)
70
(10)
60
Less: Principal repaid
Closing balance of loan
Annual rate of interest
x 9.125% x 1/12
Rs. in 'm.'
0.61
x 9.125% x 1/12
0.53
x 9.125% x 1/12
0.46
1.60
(0.25/Rs. 1,000) x 365 days
9.125%
Mr. Mouse
Statement of Financial Position (Extracts)
as on December 31, 2015
Rs. in 'm.'
Equity and liabilities
Non-Current Liabilities
Loan payable
Current Liabilities
Current portion of long term loan
Interest payable
(80-10-10)
Note: Current portion is payable in remaining 6 installments starting from January 1, 2016.
754
60
0.46
CHAPTER-8
IAS 23 BORROWING COST
ICAP PAST PAPER QUESTIONS
Question-1
Gemex Communication Ltd, are sole distributors of GSM mobile telephones in Rawalpindi. Mobile cases
are imported by the company and after assembling and packing, mobiles are sold out from their show
room, located in Sadder. The company decided to introduce a latest brand of mobile set in the local
market. However, local assembling of such sets would cost Rs. 20 million. The Directors decided to
finance this project by obtaining loan equivalent to 70% of the project cost @ 20% per annum for a
period of six months. Inventory meets the definition of qualifying asset.
The loan was sanctioned on 01 July, 2000. Due to certain internal delays, the company started project
from 01 August, 2000. The entire loan was paid off on 31 December 2000.
Required: Compute the amount of borrowing cost eligible for capitalization in accordance with IAS 23.
(03)
{Autumn 2001, Q # 2}
Question-2
On January 1, 2007, Imran Limited started the construction of its new factory. The construction period is
approximately 15 months and the cost is estimated at Rs. 80 million. The work has been divided into 5
phases and payment to contractor shall be made on completion of each phase. In the year 2007, the
project has been financed through the following sources:
(i)
Right shares amounting to Rs. 15 million were issued on January 1, 2007. The company usually
pays a dividend of 10% each year.
(ii)
Bank loan of Rs. 32 million carrying a mark up of 13% was raised on March 1, 2007.
(iii)
On August 1, 2007, Rs. 10 million were borrowed from the bank. Interest thereon, is payable at
the rate of 11%.
The details of bills submitted by the contractor, during the year are as follows:
Particulars
Date of payment
Rupees
On completion of 1st phase
March 1, 2007
20,000,000
On completion of 2nd phase
April 1, 2007
18,000,000
rd
On completion of 3 phase
October 1,2007
16,000,000
On completion of 4th phase
Payment not yet made
17,000,000
The unutilized portion of the loan was invested in the money market. The interest received on such
investment amounted to Rs. 0.5 million.
On June 1, 2007, Building Control Authority issued instructions for stoppage of work on account of
certain discrepancies in the completion plan. The company filed a petition in the Court and the matter was
decided in the company’s favour on July 31, 2007. During this interim period, construction work
remained suspended.
Required:
Calculate the amount of borrowing costs that may be capitalised as on December 31, 2007 in accordance
with the requirements of IAS-23 “Borrowing Costs”.
(17)
{Spring 2008, Q # 3}
755
CHAPTER-8
IAS 23 BORROWING COST
Question-3
White Limited is engaged in the construction of small townships. It announced a new township with a
name and style of ‘Ashiyana’.
The estimated cost of the project is as under:
Land
Rs. 180 million
Construction
Rs. 100 million
The company planned to finance the project through shareholders’ equity, bank loan and down payments
to be received from buyers. The land required for the project was in the possession of the company and
had been acquired in 2003. The construction started on January 01, 2006 and completed on November 30,
2006.
Details of costs incurred are as follows:
Date of Bills
Feb 16. 06
Mar 16. 06
May 16. 06
Dec 16. 06
Particulars
Documentation
Land preparation
Structure
Finishing
Rs. in million
2.50
13.50
50.00
38.50
All the above bills were paid on the same dates except for Rs. 15 million included in finishing cost, which
was paid in January, 2007.
Funds were arranged as under:
Date
Source
Rs. in million
Finance cost
Mar 01. 06
Shareholders equity
10.00
Yield required is 30%
Mar 01. 06
Bank Loan-A
30.00
Carry markup @ 12% p.a.
Mar 01. 06
Bank Loan-B
40.00
Carry markup @ 18% p.a.
Dec 16. 06
Down payments
24.50
No financial cost
Required:
Determine the amount of borrowing cost that can be capitalized as on December 31, 2006 by the company
under IAS 23 (Borrowing Costs).
(15)
{Spring 2007, Q # 5}
Question-4
ABC Company contracted with XYZ Company to build additional factory building of Rs.50,000,000 on
existing land of the company. The work was completed on June 30, 2004. ABC Company made first
payment of Rs.5,000,000 on January 1, 2004. During the period of construction, ABC Company had
availed general bank loan. The rate of interest was Re.0.23 per day per rupees thousand. The amount
outstanding was Rs.138,000,000 as on June 30, 2004. Following is the further information regarding
contract payments:
Date of payment
Rupees
25.01.2004
10,000,000
05.02.2004
5,000,000
03.03.2004
20,000,000
06.06.2004
10,000,000
Required:
Calculate the borrowing cost to be capitalized in the accounts of ABC Company for the year ended June
30, 2004 in accordance with IAS-23.
(09)
{Spring 2005, Q # 8}
756
CHAPTER-8
IAS 23 BORROWING COST
Question-5
The balance sheet (extracts) of a company at year end December 2001 reflects following status:
Rs. in 000
Plant under installation
2,000
Other assets
8,000
10,000
General Loans
Bank loan 18%
2,000
Bank loan 20%
2,500
Bank loan 22%
1,500
6,000
Other liabilities
4,000
10,000
Bank loan of 20% was taken on April 30, 2001 other loans were brought forward from the year 2000.
All of the borrowings are general.
Expenditure incurred on plant under installation
May l, 2001
1,000
July 1, 2001
700
Nov 1, 2001
300
2,000
Required:
(a) Capitalization rate of the company
(b) Total borrowing cost to be capitalized during the year 2001.
(10)
{Autumn 2002, Q # 5}
Question-6
Absolute Projects Limited is a public limited company listed on stock exchange. Company has a capital
project in process. It has obtained a loan specifically for this project. In addition to this the company has
various financings obtained from various banks. The details of the financing obtained by the company as
at 30 June 2003 are as follows.
Amount in
Mark-up rate
Rupees ‘000’
Specific Loan for the Project
10,000
9%
General purpose loan 1
50,000
9.5%
General purpose loan 2
25,000
7.5%
General purpose loan 3
15,000
8%
All the loans have remained outstanding throughout the year. Cost incurred on the project on July 01,
2002 is Rs 12.5 million.
Kindly calculate the amount of interest to be capitalized on the Project for the year ended 30 June, 2003.
(05)
{Spring 2004, Q # 6}
757
CHAPTER-8
IAS 23 BORROWING COST
Question-7
On November 01, 2001 Jamal Nasir & Company contracted Wardah Construction Company to have a
building constructed for Rs 2.8 millions. Jamal Nasir & Company made the following payments to the
construction company during 2002:
January 1
Rs 420,000
March 1
Rs 600,000
May 1
Rs 1,080,000
December 31
Rs 900,000
Total
Rs 3,000,000
Construction was completed and the building was ready for occupancy on December 31, 2002. Jamal
Nasir & Company had the following debt outstanding at December 31, 2002:
Specific Construction Debt
i.
15%, 3-year loan obtained to finance purchase of land and construction of the building, dated
December 31, 2001, with interest payable annually on December 31 - Rs. 1.5 million
Other Debts
ii.
10%, 5-year loan payable, dated December 31, 1998, with interest payable annually on December
31 - Rs.1.1 million
iii.
12%, 10-year bonds issued on December 31, 1997, with interest payable annually on December
31 - Rs. 1.2 million
Required
Keeping in view the requirement of IAS 23, calculate the following:
a)
Total actual interest cost for the year
b)
Capitalization rate of borrowing cost
c)
Interest cost to be capitalized
(03)
(05)
(07)
{Spring 2003, Q # 5}
Question-8
On 1 July 2014, Alpha Trading Limited (ATL) signed an agreement with Quality Builders Limited for
construction of an office building at a cost of Rs. 500 million. Construction commenced on 1 July 2014
and is planned to complete on 30 June 2016. The payments made to the builders were as follows:
Invoice date
Payment date
Description
Net payment
(Rs. In million)
20-Jun-2014
10-Sep-2014
30-Dec-2014
1-Jul-2014
31-Oct-2014
31-Jan-2015
Advance
1st progress bill
2nd progress bill
50.00
79.90
100.30
The progress bills were paid after deduction of advance and retention money at 10% and 5% of the gross
amount of the bills respectively. Retention money is to be refunded on completion of warranty period of
one year from the date of completion of the building.
On 1 September 2014, the construction work was stopped for one month to resolve geological
complications pertaining to foundation of the building.
The construction cost has been financed from the following sources:
(i)
Bank loan of Rs. 100 million was obtained on 1 July 2014. The loan carries a mark-up of 11%
payable semi-annually on 31 December and 30 June each year. The principal is repayable in four
equal annual instalments, commencing from 1 April 2015.
758
CHAPTER-8
IAS 23 BORROWING COST
(ii)
Existing finance facility was used for balance payments. Average running finance
balance for the year ended 31 December 2014 was Rs. 190 million. Mark-up charges for the year
ended 31 December 2014 amounted to Rs. 24.70 million.
(iii)
Surplus funds available were invested in a saving account @ 7% per annum.
ATL computes finance cost on a monthly basis.
Required:
From the above information, compute the related amounts and disclose them under appropriate heads in
ATL’s Statement of Financial Position as at 31 December 2014 in accordance with the International
Financial Reporting Standards
(12)
{Spring 2015, Q # 7}
Question-9
On September 1, 2008, Spin Industries Limited (SIL) started construction of its new office building and
completed it on May 31, 2009. The payments made to the contractor were as follows:
Date of Payment
Rupees
September 1, 2008
10,000,000
December 1, 2008
15,000,000
February 1, 2009
12,000,000
June 1, 2009
9,000,000
In addition to the above payments, SIL paid a fee of Rs. 8 million on September 1, 2008 for obtaining a
permit fee allowing the construction of the building.
The project was financed through the following sources:
(i)
On August 1, 2008 a medium term loan of Rs. 25 million was obtained specifically for the
construction of the building. The loan carried mark up of 12% per annum payable semi-annually.
A commitment fee @ 0.5% of the amount of loan was charged by the bank.
Surplus funds were invested in savings account @ 8% per annum. On February 1, 2009 SIL paid
the six monthly interest plus Rs. 5 million towards the principal.
(ii)
Existing running finance facilities of SIL

Running finance facility of Rs. 28 million from Bank A carrying mark up of 13% payable
annually. The average outstanding balance during the period of construction was Rs. 25
million.

Running finance facility of Rs. 25 million from Bank B. The mark up accrued during the
period of construction was Rs. 3 million and the average running finance balance during
that period was Rs. 20 million.
Required:
Calculate the amount of borrowing costs to be capitalized on June 30, 2009 in accordance with the
requirements of International Accounting Standards. (Borrowing cost calculations should be based on
number of months).
(18)
{Autumn 2009, Q # 4}
Question-10
On 01 January 2012, Marvellous Engineering Limited (MEL) started construction of its new factory. The
construction work was completed on 30 November 2012. The payments made to the contractor were as
follows:
Date of payment
Rs. in million
01-Jan-12
100
01-Apr-12
310
15-Dec-12
90
759
CHAPTER-8
IAS 23 BORROWING COST
The construction work was financed through the following sources:
Date
01-Jan-12
01-Apr-12
01-Jul-12
Description
12% Redeemable preference shares
14% TFCs for four years
Issue of right shares (estimated return is 22%)
Rs. in million
150
300
50
The following additional information is also available:
(i)
The preference shares would be redeemed on 31 December 2016.
(ii)
Surplus funds were invested in a savings scheme @ 9% per annum.
(iii)
Due to delay in supply of construction material, the construction work was suspended from 01
June 2012 to 30 June 2012.
Required:
Calculate the amount of borrowing costs that may be capitalized during the year ended 31 December 2012
in accordance with the requirements of International Financial Reporting Standards. (Assume that
calculations of borrowing costs are based on number of months)
(10)
{Spring 2013, Q # 6}
Question-11
On 1 March 2010, Granite Corporation (GC) started the construction of a new plant to meet the growing
demand for its products. The new plant was completed at a cost of Rs. 100 million on 31 May 2011.
GC financed the cost of the project from the following sources:
(i)
On 1 March 2010, a 7-year loan of Rs. 70 million was obtained specifically for the construction
of the plant. The loan earned mark- up @ 13% per annum payable semiannually. An arrangement
fee @ 1% of the loan amount was paid to the bank.
Two installments, each comprising of repayment of principal of Rs. 5 million with interest, were
paid on 31 August 2010 and 28 February 2011.
(ii)
GC also has a running finance facility of Rs. 100 million carrying mark-up @ 14% per annum.
Any additional amount required for the project was provided through this facility.
(iii)
Surplus funds were invested in savings account @ 8% per annum.
Payments made to the contractor were as follows:
Payment date
01 March 2010
31 January 2011
30 September 2011
Rs. in million
25
65
10
The construction work was suspended from 1 February 2011 to 28 February 2011. The suspension was
caused due to delay in shipment of essential components for the installation of the plant.
Required:
Calculate the amount of borrowing costs that may be capitalized during the years ended 30 June 2010 and
2011 in accordance with the requirements of International Financial Reporting Standards.
(20)
{Autumn 2011, Q # 2}
760
CHAPTER-8
IAS 23 BORROWING COST
ICAP PAST PAPER SOLUTIONS
Answer-1
Borrowing costs to be capitalized
Interest incurred during construction on specific borrowing
(From 1-Aug to 31-Dec)
Specific loan obtained
(14 x 20% x 5/12)
(20 x 70%)
1.17
14
Answer-2
All figure in Rs. in ‘000’
Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (W-1)
Less: Investment income excluding suspension period (500/10 x 8)
3,231
(400)
2,831
(W-1) Interest accrued on specific loan
1-Mar-07
First loan
32,000 x 13% x (10-2)/12
1-Aug-07
Second loan
10,000 x 11% x 5/12
2,773
458
3,231
Answer-3
All figure in Rs. in ‘000’
Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (W-1)
(W-1) Interest accrued on specific loan
1-Mar-06
Loan A
30,000 x 12% x 9/12
1-Mar-06
Loan B
40,000 x 18% x 9/12
8,100
2,700
5,400
8,100
We will start capitalisation from March 1 because it is the date on which we started incurring borrowing
cost.
Answer-4
Interest accrued on general borrowings
25-Jan-04
(10,000 x 8.42% x 158/366)
5-Feb04
(5,000 x 8.42% x 147/366)
3-Mar-04
(20,000 x 8.42% x 120/366)
6-Jun-04
(10,000 x 8.42% x 25/366)
Calculation of days
Period
25-Jan-04
to
5-Feb-04
to
3-Mar-04
to
6-Jun-04
to
Annual rate of interest
761
30-Jun-04
30-Jun-04
30-Jun-04
30-Jun-04
Counting of days
7+29+31+30+31+30
25+31+30+31+30
29+30+31+30
25
(0.23/Rs. 1,000) x 366 days
Rs. in ‘000’
363
169
552
58
1,142
Days
158
147
120
25
8.42%
CHAPTER-8
IAS 23 BORROWING COST
All figure in Rs. ‘000’
Answer-5
a)
Capitalisation Rate of general borrowing
Period
Loan
outstanding
Loan @ 18%
2,000
x 12/12
Loan @ 20%
2,500
x 8/12
Loan @ 22%
1,500
x 12/12
Rate
b)
Loan
outstanding
2,000
1,667
1,500
5,167
Rate
18.0%
20.0%
22.0%
( 1,023/5,167 )
Borrowing costs to be capitalized
Interest incurred during construction on general borrowing
(W-1)
Interest
360
333
330
1,023
19.80%
211
(W-1)
Interest accrued on general borrowings
1/5/2001
(1,000 x 19.80% x 8/12)
1/7/2001
(700 x 19.80% x 6/12)
1/11/2001
(300 x 19.80% x 2/12)
132
69
10
211
Answer-6
All figure in Rs. ‘000’
Borrowings costs to be capitalized
Interest incurred during construction on specific borrowing
Interest incurred during construction on general borrowing
(10,000 x 9%)
(2,500 x 8.69%)
900
217
1,117
Specific
10,000
(10,000)
General
Rate
9.5%
7.5%
8.0%
Interest
4,750
1,875
1,200
7,825
8.69%
(W-1)
Date
1-Jul-02
1-Jul-02
Description
Opening balance of specific
Construction payment of Rs. 12,500
(W-2) Capitalisation Rate of general borrowing
Period
Loan
outstanding
General purpose-1
50,000
x 12/12
General purpose-2
25,000
x 12/12
General purpose-3
15,000
x 12/12
Rate for general borrowing
Loan
outstanding
50,000
25,000
15,000
90,000
(7,825/90,000)
(2,500)
Answer-7
All figure in Rs. ‘000’
a)
Actual interest cost
Interest incurred on specific borrowing
Interest incurred on general borrowing
762
(1,500 x 15%)
(1,100 x 10%) + (1,200 x 12%)
225
254
479
CHAPTER-8
b)
IAS 23 BORROWING COST
Capitalisation Rate of general borrowing
Period
Loan
outstanding
Loan payable
1,100
x 12/12
Bonds issued
1,200
x 12/12
Loan
outstanding
1,100
1,200
2,300
(254/2,300)
Rate for general borrowing
c)
Borrowing costs to be capitalized
Interest incurred during construction on specific borrowing
Interest incurred during construction on general borrowing
(W-1)
Interest accrued on general borrowings
1-May-02
Rate
10.0%
12.0%
(1,500 x 15%)
(W-1)
(600 x 11.04% x 8/12)
Interest
110
144
254
11.04%
225
44
269
44
(W-2)
Date
1/1/2002
1/1/2002
1/3/2002
1/5/2002
31/12/2002
Description
Opening balance of specific
Construction payment of Rs. 420
Construction payment of Rs. 600
Construction payment of Rs. 1,080
Construction payment of Rs. 900
Specific
1,500
(420)
(600)
(480)
General
(600)
(900)
Answer-8
Alpha Trading Limited
Statement of Financial Position (Extracts)
as on 31 December 2014
Assets
Non-current assets
Capital work in progress
Non-current liability
Bank loan
Retention money payable
Current liability
Current portion of bank loan
Payable for construction
Rs in
‘million’
(W-1)
(100 x 3/4)
(W-6) (4.7 + 5.9)
(100 x 1/4)
(W-6)
216.358
75
10.6
25
100.3
Note: “Advance” is not shown in SOFP because no bifurcation can be made between its current and noncurrent portion as future progress bill details is not available.
(W-1) Cost of capital work in process
Interest on Specific borrowing
Interest on general borrowing
Gross payments
763
(W-3)
(W-4)
(W-5)
3.708
0.65
212.00
216.358
CHAPTER-8
IAS 23 BORROWING COST
(W-2) Receipt and payment schedule
Year ended 31 December 2014
Specific
General loan
Date
Description
loan
1-July-14
Receipt
100
1-July-14
Advance payment
(50)
31-Oct-14
1st progress bill of 79.90
(50)
(29.9)
*As interest payment is on 31 December so it will not effect any of the calculation.
(W-3) Specific Borrowing
Interest incurred on specific loan
1-Jul-14
Loan received
(100 x 11% x (6 - 1) /12)
Less: Investment Income
1-July-14
(W-2) (50 x 7% x (4 – 1) /12)
(W-4) General Borrowing
Interest incurred on general loan
General
(W-2) (29.9 x 13% x 2/12)
Rate on general
(24.7 / 190)
Balance
50
4.583
(0.875)
3.708
0.65
0.65
13%
(W-5) Payments detail
Gross Amount
(Net
payment/85x100)
1-Jul-14
31-Oct-14
31-Jan-15
bill
Advance
1stProgress bill
2nd Progress
94.0
118.0
Retention
money
(Gross x
5%)
4.7
5.9
Advance
adj.
(Gross x
10%)
Net payment
9.4
11.8
212
(W-6) Entries for construction related payments only (for understanding of students only)
1-Jul-14
Advance
50
Bank
(Payment of advance)
10-Sep-14 CWIP
94
Advance
Retention money payable
Payable for construction
(Recording of first progress bill)
31-Oct-14 Payable for construction
79.9
Bank
(Payment of first progress bill)
30-Dec-14 CWIP
118
Advance
Retention money payable
Payable for construction
(Recording of second progress bill)
764
50.0
79.9
100.3
50
9.4
4.7
79.9
79.9
11.8
5.9
100.3
CHAPTER-8
IAS 23 BORROWING COST
Answer-9
All figure in Rs in ‘000’
Borrowing costs to be capitalized
Commitment fee
(25,000 x 0.5%)
Interest incurred during construction on specific borrowing (W-2)
Less: Investment income during construction (W-4)
Interest incurred during construction on general borrowing (W-3)
(W-1) Receipt and payment schedule
Date
Description
1-Sep-08
Opening balance of specific loan
1-Sep-08
Commitment fee ( 25,000 x 0.5% )
1-Sep-08
Construction payment
1-Sep-08
Permit fee
125
2,050
(138)
Specific
25,000
(125)
(10,000)
(8,000)
(18,125)
(6,875)
General
1,912
1,421
3,458
Balance
6,875
(8,125)
(5,000)
(1,500)
(12,000)
(18,500)
Although these 2 amounts relate to 1 -Aug but the project is started on 1-Sep therefore this date is written.
1-Dec-08
1-Feb-09
Construction payment of Rs. 15,000
Principal payment of loan
Interest on loan (25,000 x 12% x 6/12)
Construction payment of Rs. 12,000
(W-2) Interest accrued on specific borrowing
1-Sep-08
Opening balance of loan
1-Feb-09
Less: Principal repaid
25,000
(5,000)
20,000
x 12% x 5/12
1,250
x 12% x 4/12
800
2,050
(W-3) Interest accrued on general borrowing
General
(8,125 x (W-5) 13.89 x 6/12)
General
(18,500 x (W-5) 13.89 x 4/12)
564
857
1,421
On 31-5-09 building is complete, so we will stop capitalisation.
(W-4) Investment Income
1-Sep-08 Onwards
(6,875 x 8% x 3/12)
(W-5) Rate of general borrowing
Bank A
Bank B
Rate of general loan (6,250/45,000)
765
138
Weighted
loan
25,000
20,000
45,000
Rate
Interest
13%
3,250
3,000
6,250
13.89%
CHAPTER-8
IAS 23 BORROWING COST
Answer-10
All figures in Rs in ‘000’
Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing (W-2)
Less: Investment income during construction (W-3)
(W-1)
Date
1-Jan-12
1-Jan-12
1-Apr-12
1-Apr-12
1-Jul-12
Description
Preference shares
Construction payment
TFC loan
Construction payment
Right shares
Equity
39,500
(3,225)
36,275
Specific
150,000
(100,000)
300,000
(310,000)
General
Balance
50,000
40,000
50,000
(W-2) Interest accrued on specific loan
1-Jan-12
Preference shares
1-Apr-12
TFC
150,000 x 12% x (11-1)/12
300,000 x 14% x (8-1)/12
15,000
24,500
39,500
(W-3) Investment Income
1-Jan-12
(50,000 x 9% x 3/12)
1-Apr-12
(40,000 x 9% x (8-1)/12)
1,125
2,100
3,225
Answer-11
All figure in Rs in '000'
Year ended 30 June 2010
Borrowing costs to be capitalized
Commitment fee
Interest incurred during construction on specific loan
Less: Investment income during construction
(W-1)
Date
1-Mar-10
1-Mar-10
1-Mar-10
Description
Loan receipt
Commitment fee ( 70,000 x 1% )
Construction payment
(7,000 x 1%)
(W-2)
(W-3)
Specific
70,000
(700)
(25,000)
(25,700)
700
3,033
(1,181)
General
1,852
2,552
Balance
44,300
(W-2) Interest accrued on specific borrowing
1-Mar-10
(70,000 x 13% x 4/12 )
3,033
(W-3) Investment Income
1-Mar-10
Onwards
1,181
766
(44,300 x 8% x 4/12)
CHAPTER-8
IAS 23 BORROWING COST
Year ended 30 June 2011
Borrowing costs to be capitalised
Interest incurred during construction on specific borrowing
Less: Investment income during construction
Interest incurred during construction on general borrowing
Date
1-Jul-10
31-Aug-10
31-Aug-10
31-Jan-11
28-Feb-11
28-Feb-11
Description
Opening balance available for investment
Principal payment
Interest (70,000 x 13% x 6/12)
Construction payment of 65,000
Principal payment
Interest (65,000 x 13% x 6/12)
(W-5) Interest accrued on specific borrowing
1-Jul-10
Opening payable
31-Aug-10
Less: Principal repaid
28-Feb-11
Less: Principal repaid
(W-5)
(W-7)
(W-6)
Specific
(5,000)
(4,550)
(9,550)
(34,750)
70,000
(5,000)
65,000
(5,000)
60,000
6,988
(1,749)
General
5,239
1,382
6,621
Balance
44,300
34,750
(30,250)
(5,000)
(4,225)
(9,225)
x 13% x 2/12
1,517
x 13% x (6-1)/12
3,521
x 13% x 3/12
1,950
6,988
- Instead of 6 months, 5 months are used in calculation as work was suspended for 1 month.
- On 31-5-11 plant is complete, so will stop capitalisation.
(W-6) Interest accrued on general borrowing
General
(30,250 x 14% x (4-1) /12)
General
(9,225 x 14% x 3/12)
- Instead of 4 months, 3 months are used in calculation as work was suspended for 1 month.
(W-7) Investment Income
1-Jul-10
Brought forward
(44,300 x 8% x 2/12)
31-Aug-10
Onwards
(34,750 x 8% x 5/12)
767
1,059
323
1,382
591
1,158
1,749
CHAPTER-8
IAS 23 BORROWING COST
ICAP QUESTION BANK QUESTION
Question 1
Shayan Limited (SL) started the construction of its new factory on 1 January 2018 with a loan of
5,000,000 borrowed at an interest rate of 8% per annum.
The loan was used on the factory as follows:
Date of Payment
Jan 1, 2018
May 1, 2018
Oct 1, 2018
Rs. in million
15
20
10
The construction of the asset was completed on 31 December 2018. However, during the accounting
period SL invested the surplus funds at an interest rate of 3%.
Required
How much the amount of borrowing cost eligible for capitalization at 31.12.2018
(ICAP Question bank 8.1)
Question 2
On January 1, 2018 Sara Limited (SL) started the construction of an asset. To meet the financing
requirements, borrowing was made from three different banks at the start of the year as follows:
Banks
A
B
C
Amount
70,000
60,000
50,000
Interest Rate p.a
10%
8%
12%
The funds were used on the assets as follows:
Date of Payment
Rs.in million
Jan 1, 2018
30,000
May 1, 2018
20,000
Oct 1, 2018
15,000
The construction of asset was completed on 31 December 2018.
Required
Calculate the general weighted average borrowing rate and eligible borrowing cost
(ICAP Question bank 8.2)
Question-3
Rooney has recently finished building a new item of plant for its own use. The item is a press for use in
the manufacture of industrial diamonds. Rooney commenced construction of the asset on 1st April 2013
and completed it on 1st April 2015.
1st January 2013, Rooney took out a loan to finance the construction of the asset. Interest is charged on
the loan at the rate of 5% per annum. The annual interest must be paid in four equal instalments at the end
of each quarter. Rooney capitalises interest on manufactured assets in accordance with the rules in IAS 23
Borrowing costs.
The costs (excluding finance costs) of manufacturing the asset were Rs. 28 million.
Required
State the IAS 23 rules on the capitalisation of borrowing costs, calculate the cost of the asset on initial
recognition and explain the amount of borrowing cost capitalised.
(6)
(ICAP-Question Bank, 8.3 (a))
768
CHAPTER-8
IAS 23 BORROWING COST
Question 4
On 1 January 20X6 Googly Industries Limited (GIL) borrowed Rs.15 million to finance the production of
two assets, both of which were expected to take a year to build. Work started during 20X6. The loan
facility was drawn down and incurred on 1 January 20X6, and was utilised as follows, with the
remaining funds invested temporarily.
Asset A
Asset B
----------- Rs. in million --------1 January 20X6
2.5
5
1 July 20X6
2.5
5
The loan rate was 9% and GIL can invest surplus funds at 7%.
Required
Ignoring compound interest, calculate the borrowing costs which may be capitalised for each of the
assets and consequently the cost of each asset as at 31 December 20X6.
(ICAP Question bank 8.4)
Question 5
Khan Limited (KL) has the following loan arrangements as at 1 January 2020:
7% Debentures
55
8% Loan notes
110
12% Line of credit
85
10% Running finance arrangement
150
On the 1 January 2020, KL commenced the construction of a new factory. The construction of the factory
will cost Rs.100 million and the company funded the construction with the existing borrowings.
The factory was completed on 31 August 2020 but was not available for use until 31 January 2021 as a
result of minor modification. During the construction period, active work was interrupted and the building
construction was stopped for two months as a result of adverse weather conditions.
Required
Calculate the borrowing cost to be capitalised and the cost of the building to be recognised upon initial
recognition.
(ICAP Question bank 8.5)
Question 6
On September 1, 2015, Spin Industries Limited (SIL) started construction of its new office building and
completed it on May 31, 2016. The payments made to the contractor were as follows:
Date of Payment
Rs. in million
September 1, 2015
10
December 1, 2015
15
February 1, 2016
12
June 1, 2016
9
In addition to the above payments, SIL paid a fee of Rs. 8 million on September 1, 2015 for obtaining a
permit allowing the construction of the building.
The project was financed through the following sources:
(i)
On August 1, 2015 a medium term loan of Rs. 25 million was obtained specifically for the
construction of the building. The loan carried mark up of 12% per annum payable semi-annually.
A commitment fee @ 0.5% of the amount of loan was charged by the bank.
769
CHAPTER-8
IAS 23 BORROWING COST
Surplus funds were invested in savings account @ 8% per annum. On February 1, 2016 SIL paid
the six monthly interest plus Rs. 5 million towards the principal.
(ii)
Existing running finance facilities of SIL

Running finance facility of Rs. 28 million from Bank A carrying mark up of 13% payable
annually. The average outstanding balance during the period of construction was Rs.25
million.

Running finance facility of Rs. 25 million from Bank B. The mark up accrued during the
period of construction was Rs. 3 million and the average running finance balance during
that period was Rs. 20 million.
Required
Calculate the amount of borrowing costs to be capitalised on June 30, 2016 in accordance with the
requirements of International Accounting Standards. (Borrowing cost calculations should be based on
number of months).
(ICAP Question bank 8.6)
770
CHAPTER-8
IAS 23 BORROWING COST
ICAP QUESTION BANK SOLUTIONS
Answer-1
Eligible Borrowing Cost = Actual Borrowing Cost – Income from temporary investment of funds =
(50,000,000  8%) less 375,000
Eligible Borrowing Cost = 3,625,000
Income from investment of Surplus funds:
(25,000,000  3%)  4/12 + (1,000,000  3%)  5/12 = 375,000
Answer 2
Calculation of Eligible Borrowing Cost:
Loan
A
B
C
Amount
70,000
60,000
50,000
Period
outstanding
12/12
12/12
12/12
Loan
outstanding
70,000
60,000
50,000
180,000
Rate %
10%
8%
12%
Interest
amount
7,000
4,800
6,000
17,800
17,800
Capitalization rate = 180,000 × 100 = 9.89%
Eligible borrowing cost = Rs.4,657
(W-1) Expenditure  Rate  Period outstanding
12
30,000  9.89% 
=
12
8
20,000  9.89% 
=
12
3
15,000  9.89% 
=
12
Rs. in million
2,967
1,319
371
4,657
Answer 3
IAS-23 should be applied in accounting for borrowing costs.
Borrowing costs are recognized as an expense in the period in which they are incurred unless they are
capitalized in accordance with IAS-23 which says that borrowing costs are directly attributable to the
acquisition, construction or production of a qualifying asset can be capitalized as a part of the cost of that
asset.
1)
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale.
2)
Borrowing costs that are directly attributable to acquisition, construction or production are taken
to mean those borrowing costs that would have been avoided if the expenditure on the qualifying
asset had not been made.
771
CHAPTER-8
IAS 23 BORROWING COST
When an enterprise borrows specifically for the purpose of funding an asset, the identification of the
borrowing costs presents no problem as the amount capitalized is the actual borrowing costs net of any
income earned on the temporary investment of those borrowings.
If funds are borrowed, generally, the amount of borrowing costs eligible for capitalisation is determined
by applying a capitalisation rate to the expenditure on that asset calculated as weighted average of the
borrowing costs applicable to general borrowings.
Cost of capital work in process
Construction cost
Add: Interest incurred during construction on specific borrowing (20,000 x 5% x 2 years)
Rs in ‘000’
28,000
2,000
30,000
Answer-4
Rs. in m
5
2.5
Borrowing cost (31 Dec)
Investment income (30 June)
Total Borrowing Cost
Expenditure incurred
Cost of Assets
Asset A
Rate
Months
9%
12
7%
6
Rs. in m
0.45
(0.0875)
0.3625
5
5.3625
Rs. in m
10
5
Asset B
Rate
Months
9%
12
7%
6
Rs. in m
0.9
(0.175)
0.725
10
10.725
Answer 5
Rs. 000
Borrowing cost
Cost of factory
Total cost to be capitalized
100
General
Capitalization
Rate
9.4625% (W1)
Months
6
Rs. in
million
4.731
100
104.731
(W-1)
Loan
Amount
55
110
85
150
400
Loan
Debentures
Loan notes
Line of credit
Running finance
Capitalization rate =
37.85
400
7%
8%
12%
105
Interest
amount
2.85
8.80
10.20
15.00
37.85
× 100 = 9.4625%
Borrowing cost to be capitalized
8−2
100  9.4625% 
=
12
772
Rate %
Rs. in million
4.73125
CHAPTER-8
IAS 23 BORROWING COST
Answer 6
Commitment fee (25,000  0.5%)
Add: Actual borrowing costs of specific loan
Less: Investment income
General borrowing costs
Interest costs to be capitalized
W-1:
Rs. in ‘000’
125
(W-4)
(W-5)
(W-3)
Expenditure
Specific
General
………………..Rs. In ‘000’………………
25,000
125
10,000
8,000
(18,125)
6875
1.9.15
1.12.15
15,000
1.2.16
(6875)
12,000
5,000
1,500
(25,000  12%  6/12)
2,050
(138)
1,912
1,421
3,458
-
8,125
18,500
26,625
W-2: Capitalization rate of general borrowings
Loan
Loan Amount Loan outstanding Interest rate %
A
28,000,000
25,000,000
13%
B
25,000,000
20,000,000
45,000,000
Interest amount
3,250,000
3,000,000
6,250,000
6,250,000
Rate = 45,000,000 × 100 = 13.89%.
W-3:
Interst on general borrowing
8,125 × 13.89% × 6/12
18,500 × 13.89% × 4/12
Rs. in ‘000’
564.28
857.00
1,421.00
W-4:
Interst expense on specific borrowing
25,000 × 12% × 5/12
20,000 × 12% × 4/12
Rs. in ‘000’
1,250
800
2,050
W5: Investment income
6,875 (w-1) × 8% × 3/12
773
Rs. in ‘000’
138
CHAPTER-8
IAS 23 BORROWING COST
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1
Q.2
Which TWO of the statements below regarding IAS 23 Borrowing Costs are correct?
(a)
Borrowing costs must be capitalised if they are directly attributable to qualifying assets
(b)
Borrowing costs should cease to be capitalised once the related asset is substantially
complete
(c)
Borrowing costs must be capitalised if they are directly attributable to non-current assets
(d)
Borrowing costs may be capitalised if they are directly attributable to qualifying assets
Fine Limited (FL) received a Rs.10 million loan at 7.5% on 1 April 2017. The loan was
specifically issued to finance the building of a new store.
Construction of the store commenced on 1 May 2017 and it was completed and ready for use on
28 February 2018 but did not open for trading until 1 April 2018.
How much should be recorded as finance costs in the statement of profit or loss for the year
ended 31 March 2018?
Q.3
(a)
Rs.250,000
(b)
Rs.750,000
(c)
Rs.125,000
(d)
Rs.625,000
Fine Limited (FL) received a Rs.10 million loan at 7.5% on 1 April 2017. The loan was
specifically issued to finance the building of a new store.
Construction of the store commenced on 1 May 2017 and it was completed and ready for use on
28 February 2018 but did not open for trading until 1 April 2018.
How much interest should be capitalised as part of property, plant and equipment as at 31 March
Q.4
An entity decided that not all of the funds raised were needed immediately and temporarily
invested some of the funds for one month before the construction started, earning Rs.40,000
interest.
How should the Rs.40,000 be accounted for in the financial statements?
Q.5
(a)
Net off the amount capitalised in property, plant and equipment
(b)
(c)
Taken to the statement of profit or loss as investment income
Taken as other comprehensive income
(d)
Deducted from the outstanding loan amount in the statement of financial position
Shine Limited (SL) had the following bank loans outstanding during the whole of 2018:
Rs. m
9% loan repayable 2019
15
11 % loan repayable 2022
24
SL began construction of a qualifying asset on 1 April 2018 and withdrew funds of Rs. 6 million
on that date to fund construction. On 1 August 2018 an additional Rs. 2 million was withdrawn
for the same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year
ended 31 December 2018.
(a)
Rs.545,600
(b)
Rs.472,350
(c)
Rs.750,600
(d)
Rs.350,350
774
CHAPTER-8
Q.6
IAS 23 BORROWING COST
Jazz Limited (JL) has borrowed Rs.24 million to finance the building of a factory. Construction is
expected to take two years.
The loan was drawn down and incurred on 1 January 2019 and work began on 1 March 2019.
Rs.10 million of the loan was not utilized until 1 July 2019 so JL was able to invest it until
needed. JL is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 2019 in respect of
(a)
Rs.1,400,000
(b)
Rs.1,920,000
(c)
Q.7
Rs.1,300,000
(d)
Rs.1,620,000
A company has the following loans in place throughout the year ended 31 December 2018.
Rs. m
10% bank loan
140
8% bank loan
200
On 1 July 2018 Rs.50 million was drawn down for construction of a qualifying asset which was
completed during 2019.
What amount should be capitalised as borrowing costs at 31 December 2018 in respect of this
Q.8
(a)
Rs. 5.6 million
(b)
Rs. 2.8 million
(c)
Rs. 4.4 million
(d)
Rs. 2.2 million
An entity uses funds from its general borrowings to build a new production facility. Details of the
entity's borrowings are shown below:
Rs.10 million 6% loan
Rs.6 million 8% loan
The entity used Rs.12 million of these funds to construct the facility, which was under
construction for the entire year.
How much interest should be capitalised as part of the cost of the asset?
Rs. ____________
Which of the following is not considered a “borrowing cost” under IAS 23?
(a)
Interest expense calculated by the effective interest method
Q.9
Q.10
(b)
Finance charges in respect of loan
(c)
Exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs
(d)
Principal repayments on a loan for property, plant and equipment
When activities to prepare an asset for its sale or use are suspended, borrowing costs must be?
(a)
Capitalized
(b)
Expensed
(c)
Q.11
Ignored
(d)
Charged to equity
Which of the following is not a condition to commence capitalisation of borrowing costs?
(a)
Expenditures are being incurred
(b)
Borrowing costs are being incurred
(c)
Repayment of borrowings has commenced
(d)
Activities to produce the asset for its intended use or sale have commenced
775
CHAPTER-8
Q.12
Q.13
IAS 23 BORROWING COST
Ghazi Limited (GL) is constructing an office building and is capitalising borrowing costs in
accordance with IAS 23. The office is almost complete; the only remaining work is to install
furniture. Is GL allowed to continue capitalising the borrowing costs?
(a)
Yes
(b)
No
(c)
Don’t know
(d)
None of the above
Which of the following is not a “qualifying asset” under IAS 23?
(a)
Mass produced inventory
(b)
Manufacturing plants
(c)
Made to order inventory
(d)
Investment property
776
CHAPTER-8
IAS 23 BORROWING COST
ICAP MULTIPLE CHOICE QUESTIONS (MCQs) SOLUTIONS
A.1
(a, b)
A.2
A.3
A.4
(c)
(d)
(b)
A.5
(a)
Borrowing costs must be capitalised if they are directly attributable to qualifying assets,
which are assets that take a substantial time to complete. Capitalisation should cease once
substantially all the activities to prepare the asset are complete.
Rs.10 million x 7.5% x 2/12 = Rs.125,000
Rs.10 million x 7.5% x 10/12 = Rs.625,000
Temporary investment income earned during the construction period should be netted off
the amount capitalised.
However, the interest was earned prior to the period of construction. Therefore the
investment income earned should be taken to the statement of profit or loss as investment
income.
Capitalisation rate =
3.99m
×
39
100 = 10.23%
Loan
Rate
Interest
15
9%
1.35
24
11%
2.64
39
3.99
Borrowing cost to be capitalized
Rs.6m × 10.23% × 9/12 = Rs.460,350
Rs.2m × 10.23% × 5/12 = Rs.85,250
Total Rs.545,600
Loan A
Loan B
A.6
(a)
Rs.
1,600,000
(200,000)
1,400,000
Temporary investment income before commencement would be recognised as finance
income in profit or loss.
March – December (Rs.24m × 8% × 10/ 12)
Less investment income (Rs.10m × 6% × 4/12)
A.7
(d)
30
Capitalisation rate = 340 × 100 = 8.8%
Loan
Loan A
Loan B
A.8
A.9
A.10
A.11
A.12
A.13
140
200
340
Rate
10%
8%
Interest
14
16
30
Rs.50 million × 8.8% × 6/12 = Rs.2.2 million
Rs.810,000
Rs.12m × 6.75% = Rs. 810,000
Capitalisation rate
= ((Rs.10m × 6%) + (Rs.6m × 8%))/Rs.16m = 6.75%.
(d)
(b)
(c)
(b)
(a)
777
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
CH.
TOPIC
1
Accounting and Reporting Concepts
2
IAS 1: Preparation of Financial
Statements
3
IAS 7: Statement of Cash Flows
4
Income and Expenditure Account
5
Preparation of Accounts From
Incomplete Records
6
Introduction to Cost of Production
7
IAS 16: Property, Plant and Equipment
NOTES
PRACTICE
ICAP PAST
PAPER
ICAP QB
MCQs
Q
A
Q
A
Q
A
Q
A
800
803
810
812
815
816
819
825
IAS 20: Govt. Grants
8
IAS 23: Borrowing Cost
IAS 40: Non-Current Assets: Sundry
Standards
9
IAS 36: Impairment of Assets
10
IFRS 15: Revenue from Contracts with
Customers
11
Interpretation of Financial Statements
12
Revision of some concepts
794
ii
IAS 36: Impairment of Assets
LO 1
LO 2
LO 3
INTRODUCTION
MEASURING RECOVERABLE AMOUNT
ACCOUNTING FOR IMPAIRMENT
9
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
IMPAIRMENT OF ASSETS IAS - 36
LO 1: INTRODUCTION
An asset is said to be impaired when its recoverable amount is less than its carrying amount in the statement
of financial position.
Impairment means that the asset has suffered a permanent loss in value.
Definitions
The recoverable amount of an asset is defined as the higher of:

its fair value minus costs of disposal, and

its value in use.
Fair value is the price that would be received to sell an asset at the measurement date.
Value in use is the present value of future cash flows from using an asset, including its eventual disposal.
Identifying impairment or possible impairment
An entity must carry out an impairment review when there is evidence or an indication that impairment may
have occurred. If such an indication exists, the entity must estimate the recoverable amount.
Indicators of impairment
External sources
Internal sources
An unexpected decline in the asset’s market
value.
Significant changes in technology, markets,
economic factors or laws and regulations that
have an adverse effect on the company.
Evidence that the asset is damaged or no longer of use to
the entity.
There are plans to discontinue or restructure the operation
for which the asset is currently used.
An increase in interest rates, affecting the value There is a reduction in the asset’s expected remaining
in use of the asset.
useful life.
There is evidence that the entity’s actual performance is
worse than expected.
LO 2: MEASURING RECOVERABLE AMOUNT
Remember recoverable amount of an asset is defined as the higher of:

its fair value minus costs of disposal, and

its value in use.
Fair value less
costs of disposal
Value in use
794
Fair value is normally market value. If no active market exists, it may be possible to
estimate the amount that the entity could obtain from the disposal.
Direct selling costs normally include:
 legal costs,
 Cost of removing asset
 taxes paid and
 costs necessary to bring the asset into a condition to be sold.
However, redundancy and similar costs (for example, where a business is reorganised
following the disposal of an asset) are not direct selling costs.
It is the present value of the expected future cash flows from use of the asset,
discounted at a suitable discount rate.
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Example-1 (Measurement of recoverable amount)
A company has a machine in its statement of financial position at a carrying amount of Rs.300,000.
The machine is used to manufacture the company’s best-selling product range, but the entry of a new
competitor to the market has severely affected sales.
As a result, the company believes that the future sales of the product over the next three years will be only
Rs.150,000, Rs.100,000 and Rs.50,000.
The asset will then be sold for Rs.25,000.
An offer has been received to buy the machine immediately for Rs.240,000, but the company would have to
pay shipping costs of Rs.5,000.The risk-free market rate of interest is 10%.
Required:
Calculate the impairment loss.
Solution-1
Calculation of impairment loss
Carrying Amount
Recoverable Amount (higher of:
- Fair value less cost to sell(W-2)
- Value in use (W-1)
Impairment loss
300,000
235,000
275,357
(W-1) Calculation of Value in Use
[150,000 x (1.1)-1 + 100,000 x (1.1)-2 + (50,000 + 25,000) x (1.1)-3]
(W-2) Fair value less cost to sell
Fair value less cost to sell
(240,000-5,000)
Example-2: (recoverable amount – fair value less costs to sell)
A company has an asset with the following details at 31 December 20X3:
Expected selling price
Costs of delivery to potential customer
Legal costs involved in sale agreement
Required:
Calculate the fair value less costs to sell of the asset at 31 December 20X3
(275,357)
24,643
275,357
235,000
200,000
20,000
10,000
Solution -2
Fair value less costs to sell
Expected selling price
Less the costs of disposal (20 000 + 10 000)
795
Rs.
200,000
(30,000)
170,000
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Future cash flow in value in use
Include
1.Cash inflows from the continuing use of the
asset;
2.Cash outflows that will be necessarily incurred
to generate inflows from use of
asset; and
3.Net disposal proceeds at the end of the asset’s
useful life.
Does not include
1.Cash inflows or outflows from financing activities;
 Lease payment their interest
 Loan receipts/repayments and their interest
2.Income tax receipts or payments.
3.Cash flow from a future restructuring to which an
entity is not yet committed; or
4.Cash flow improving or enhancing the asset’s
performance.
5.Cash outflows that have already been recognized as
liabilities (for example, a payment of an accounts
payable)
Example-3: (recoverable amount - value in use – cash flows)
A machine has the following future cash flows, based on management’s most recently approved budgets:
20X4
20X5
20X6
‘000’
‘000’
‘000’
Outflows:
Maintenance costs
100
120
80
Operational costs (electricity, water, labour etc.)
200
220
240
Interest on lease
60
50
40
Tax payments on profits
16
20
28
Cost of increasing the machine’s capacity
0
220
0
Depreciation
80
80
80
Expenses to be paid in respect of 20X3 accruals
30
0
0
Inflows:
Basic inflows: see note 1
1,000
1,200
1,400
Extra profits resulting from the upgrade
0
20
50
Note 1:
Cash inflows stem from
Machine
40%
Plant
60%
The useful life of the machine is expected to last for 5 years. The growth rate in the business in 20X3 was an
unusual 15% whereas the average growth rate over the last 7 years is:
In the industry
10%
In the business
8%
Required:
Calculate the future net cash flows to be used in the calculation of the value in use of the machine at 31
December 20X3 assuming that a 5-year projection is considered to be appropriate.
796
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Solution -3
Future cash flows – Machine
Outflows:
Maintenance costs (direct cost)
Operational costs (allocated indirect costs)
Interest on lease (financing always excluded)
Tax payments (tax always excluded)
Cost of upgrading machine (upgrades always
excluded)
Depreciation (not a cash flow – a ‘sunk’ cost)
Expenses to be paid in 20X3 accruals (not a future
expense - already recognized in 20X3 financial
statements)
Inflows:
Basic inflows: (only 40% relates to machine)
Extra profits from the upgrade (always exclude)
Net cash inflows (20X7:240 x 1.08) (20X8: 259 x
1.08)
20X4
Rs. 000
(100)
(200)
-
20X5
Rs. 000
(120)
(220)
-
20X6
Rs .000
(80)
(240)
-
-
-
-
400
100
480
140
560
240
20X7
Rs. 000
20X8
Rs. 000
259*
280*
* Rounded

The net cash inflows per year would still need to be present valued and the total of the present
values per year would then be totaled to give the ‘net present value’ or ‘value in use’.

It was assumed in this question that the machine would not be able to be sold at the end of its
Useful life and the disposal thereof would not result in any disposal costs.

The current year growth rate of 15% seems unusual given the company’s average growth rate was
only 8%. The industry average of 10% is also greater than the business average of 8%. Prudence
dictates that we should therefore use 8%.
LO 3: ACCOUNTING FOR IMPAIRMENT
Valuation model
used
Asset carried at cost
model
Asset carried at
revaluation model
Treatment
The impairment loss is normally recognised immediately in profit or loss.
Impairment loss is recognised in revaluation surplus to the extent that it is
covered by that surplus.
Impairment not covered by a previously recognised surplus on the same asset is
recognised in profit or loss.
Impairment of an asset should be identified and accounted for as follows:
Step Description
1
At the end of each reporting period, the entity should assess whether there are any indications that
an asset may be impaired.
2
If there are such indications, the entity should estimate the asset’s recoverable amount.
797
CHAPTER-9
3
4
5
IAS 36: IMPAIRMENT OF ASSET
When the recoverable amount is less than the carrying value of the asset, the entity should reduce
the asset’s carrying value to its recoverable amount. The amount by which the value of the asset
is written down is an impairment loss.
Accounting for impairment is done as discussed above
Depreciation charges for the impaired asset in future periods should be adjusted to allocate the
asset’s revised carrying amount, minus any new residual value, over its remaining useful life.
Example-4
On 1 January Year 1 Entity Q purchased for Rs.240,000 a machine with an estimated useful life of 20 years
and an estimated zero residual value.
Depreciation is on a straight-line basis.
On 1 January Year 4 an impairment review showed the machine’s recoverable amount to be Rs.100,000 and
its remaining useful life to be 10 years.
Calculate:
(a)
The carrying amount of the machine on 31 December Year 3 (immediately before the impairment).
(b)
The impairment loss recognised in the year to 31 December Year 4.
(c)
The depreciation charge in the year to 31 December Year 4.
Solution-4
(a) Carrying Amount(Year 3)
Carrying Amount
=
Acc. Dep.
=
240,000 – 36,000
240,000 x 3
20
=
204,000
=
36,000
(b) Impairment Loss( Year 4)
1/1/Y4
Book value
1/1/Y4
Recoverable amount
1/1/Y4
Impairment loss
(c) Depreciation Expense(Year 4)
Date
Particulars
31.12.Y4
Dep. Exp
Acc. Dep.
(Recording of depreciation)
(100,000/10)
204,000
(100,000)
104,000
Dr.
10,000
Cr.
10,000
Example-5
On 1 January Year 1 Entity Q purchased for Rs.240,000 a machine with an estimated useful life of 20 years
and an estimated zero residual value.
Depreciation is on a straight-line basis.
The asset had been re-valued on 1 January Year 3 to Rs.250,000, but with no change in useful life at that
date.
On 1 January Year 4 an impairment review showed the machine’s recoverable amount to be Rs.100,000 and
its remaining useful life to be 10 years.
798
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Calculate:
(a)
The carrying amount of the machine on 31 December Year 2 and hence the revaluation surplus
arising on 1 January Year 3.
(b)
The carrying amount of the machine on 31 December Year 3 (immediately before the impairment).
(c)
Journal entry for the impairment loss recognised in the year to 31 December Year 4.
(d)
Journal entry for the depreciation charge in the year to 31 December Year 4.
Solution-5
(a)
Carrying Amount (31/12/02)
(W-1)
216,000
Revaluation Surplus (1/1/03)
(W-1)
34,000
(b)
Carrying Amount (31/12/03)
(W-1)
236,111
(c) Impairment loss (1/1/Y4):
Date
Particulars
1/1/04
Revaluation Surplus
Impairment Loss(bal.)
Accumulated Impairment
(Recording of Impairment loss)
(W-1)
(W-2)
(d) Depreciation Expense(Year 4)
Date
Particulars
31.12.04
Depreciation Expense
Accumulated Depreciation
(Recording of depreciation)
(W-1) Calculation of revaluation surplus and depreciation
Date
Description
Machine
1/1/01
Cost
240,000
01 + 02
Depreciation (240,000/20) x 2
(24,000)
31/12/02
WDV
216,000
1/1/03
Revaluation surplus (bal.)
34,000
1/1/03
Revalued amount
250,000
31/12/03
Depreciation (250,000/18):(34,000/18)
(13,889)
31/12/03
WDV
236,111
1/1/04
Impairment Loss (bal.)
(136,111)
1/1/04
Recoverable amount
100,000
31/12/04
Depreciation (100,000/10)
(10,000)
31/12/04
WDV
90,000
799
Dr.
32,111
104,000
Cr.
136,111
Dr.
10,000
Cr.
10,000
R. Surplus
34,000
34,000
(1,889)
32,111
(32,111)
-
SOCI(P/L)
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
PRACTICE QUESTIONS
Question-1
Figs Limited (FL) purchased a machine for Rs. 2,500,000 on 01 January, 2014. The machine has an
estimated useful life of 10 years. On 31 December, 2014, the machine is now become obsolete and
therefore the value in use and fair value less cost to sell are Rs. 1,500,000 and Rs. 1,700,000 respectively.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December 2014.
Question-2
Awesome Limited (AL) purchased a machine for Rs. 300,000 on 01 January, 2015. The machine has an
estimated useful life of 8 years. On 31 December, 2017, the machine is now become obsolete and
therefore the value in use and fair value less cost to sell are Rs. 50,000 and Rs. 70,000 respectively.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December 2017.
Question-3
Walnut Limited (WL) purchased an vehicle for Rs. 5,000 on July 01, 2015. The asset has an estimated
useful life of 4 years with no residual value. On June 30, 2016 the vehicle has a fair value less cost to sell
and value in use is Rs. 2,800 and Rs. 2,250 respectively. There was no indication of impairment on
30June, 2017.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June, 2017.
Question-4
Giggly Jelly (GJ) purchased a machine for Rs. 500,000 on July 01, 2005. The vehicle has an estimated
useful life of 5 years with no residual value. On June 30, 2007 the vehicle has a fair value less cost to sell
and value in use is Rs. 150,000 and Rs. 100,000 respectively.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June, 2008.
Question-5
Friends & Co. purchased a machine for Rs. 800,000 on January 01, 2012. The machine has an estimated
useful life of 5 years with no residual value. On December 31, 2012 the machine has a fair value less cost
to sell of Rs. 548,000. If machine is not sold the following net cash inflows are expected from its use:
Year ended
Cash flows
December 31, 2013
200,000
December 31, 2014
200,000
December 31, 2015
100,000
December 31, 2016
100,000
The proper discount rate to be used for these flows is 10%. (Assume that the cash flows occur at the end
of the year).
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the machine to the
year ended 31 December, 2012.
Question-6
Fabian Limited (FL) purchased an asset on Rs. 45,000 on January 01, 2003. The asset has an estimated
useful life 10 years. On January 01, 2005 the asset has a fair value less cost to sell and value in use are Rs.
50,000 and 40,000 respectively.
800
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December, 2005.
Question-7
Shahzad Textiles Limited (STL) purchased a plant for Rs. 1,000,000 on January 01, 2007. The plant has
an estimated useful life of 20 years with no salvage value.
STL uses revaluation model for subsequent measurement of its P,P&E. The detail of revaluation
performed by an independent valuer is:
Revaluation Date
Fair Value
31 December, 2007
1,500,000
On 31 December, 2010 the plant is now obsolete and therefore the value in use and fair value less cost to
sell are Rs. 700,000 and Rs. 600,000 respectively.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 31 December 2010.
Question-8
Salamat industries purchased a machine for Rs. 1,570,000 on January 01, 2010. The machine has a useful
life of 16 years with no salvage value.
Salamat industries performed revaluation. Details are as follows:
Revaluation Date
Fair value
January 1, 2011
1,700,000
January 1, 2012
1,750,000
On 31 December, 2012 fire broke out due to which value of machine fell down. Fair value of machine
reduced to Rs. 800,000. The value in use is Rs. 1,000,000.
Required:
Prepare journal entries to record the above transaction from the date of acquisition of plant to the year
ended December 31, 2012.
Question-9
As part of annual routine, PQR & Company is testing the value of its assets to ascertain the impairment
(if any) Following information is available in respect of the assets:
----------Rs. in thousand---------Asset
WDV
Value in use Fair value
A
3,200
3,100
2,500
B
1,500
1,200
1,400
C
1,700
1,500
2,000
Every asset is sold through public tender, which costs around Rs. 50,000. Assets A and C are required to
be dismantled at the time of sales and the cost of dismantling is Rs. 100 thousand and Rs. 200 thousand
respectively and these costs are already included in the cost of asset. Sale agreements of the assets are
prepared by the company's legal advisor whose annual fee is Rs. 365 thousand. It takes about 4 days to
draft a sale agreement.
Required:
Compute impairment (if any) on each asset.
(02)
801
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Question-10
We purchase an asset costing Rs. 100 on 01-01-2010. Life is 10 years. Entity uses revaluation model.
Following details are available on 31-12-2012:
-Fair value
-Cost to sell
-Value in use
Required:
Pass journal entries for the year ended 31-12-2010, 2011,2012.
802
90
15
82
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
PRACTICE SOLUTIONS
Answer-1
Entries in the books of FL
Date
Particulars
1/1/14
Machine
Bank
(Purchase of machine)
31/12/14
Depreciation Expense (2,500,000/10years)
Accumulated Depreciation
(Recording of depreciation)
31/12/14
Impairment loss
Accumulated impairment loss
(Recording of impairment loss)
Dr.
2,500,000
Cr.
2,500,000
250,000
250,000
550,000
550,000
(W-1) Calculation of impairment loss:
Book value on 31/12/14 (2,500,000 – 250,000)
Recoverable Amount (higher of:)
- Fair value
- Value in use
Impairment loss
Answer-2
Entries in the books of AL
Date
Particulars
1/1/15
Machine
Bank
(Purchase of machine)
31/12/15
Depreciation Expense (300,000/8years)
Accumulated Depreciation
(Recording of depreciation)
31/12/16
Depreciation expense (300,000/8years)
Accumulated Depreciation
(Recording of depreciation)
31/12/17
Depreciation expense (300,000/8years)
Accumulated Depreciation
(Recording of depreciation)
31/12/17
Impairment loss
Accumulated impairment loss
(Recording of impairment loss)
2,250,000
1,700,000
1,500,000
(1,700,000)
550,000
Dr.
300,000
Cr.
300,000
37,500
37,500
37,500
37,500
37,500
37,500
117,500
117,500
(W-1) Calculation of impairment loss:
Book value on 31/12/17 (300,000 – (37,500 x 3))
Recoverable Amount (higher of:)
- Fair value
- Value in use
Impairment loss
803
187,500
70,000
50,000
(70,000)
117,500
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Answer-3
Entries in the books of Walnut Limited
Date
Particulars
1/7/15
Vehicle
Bank
(Purchase of plant)
30/6/16
Depreciation Expense (5,000/4years)
Accumulated Depreciation
(Recording of depreciation)
30/6/16
Impairment loss (W-1)
Accumulated impairment
(Recording of impairment loss)
30/6/17
Depreciation expense ((5,000 – 1,250 – 950)/3years)
Accumulated Depreciation
(Recording of depreciation)
Dr.
5,000
Cr.
5,000
1,250
1,250
950
950
933
933
(W-1) Calculation of impairment loss:
Book value on 30/6/16 (5,000 – 1,250)
Recoverable Amount (higher of:)
- Fair value
- Value in use
Impairment loss
3,750
2,800
2,250
Answer-4
Entries in the books of Giggly Jelly
Date
Particulars
1/7/05
Vehicle
Bank
(Purchase of vehicle)
30/6/06
Depreciation Expense (500,000/5years)
Accumulated Depreciation
(Recording of depreciation)
30/6/07
Depreciation expense (500,000/5years)
Accumulated Depreciation
(Recording of depreciation)
30/6/07
Impairment loss
Accumulated impairment loss
(Recording of impairment loss)
(W-1) Calculation of impairment loss:
30/6/08
Depreciation expense ((500,000 – 200,000 – 150,000)/3years)
Accumulated Depreciation
(Recording of depreciation)
Book value on 30/6/07 (500,000 – 100,000 – 100,000)
Recoverable Amount (higher of:)
- Fair value
- Value in use
Impairment loss
804
(2,800)
950
Dr.
500,000
Cr.
500,000
100,000
100,000
100,000
100,000
150,000
150,000
50,000
50,000
300,000
150,000
100,000
(150,000)
150,000
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Answer-5
Entries in the books of Friends & Co.
Date
Particulars
1/1/12
Machine
Bank
(Purchase of machine)
31/12/12
Depreciation Expense (800,000/5years)
Accumulated Depreciation
(Recording of depreciation of machine)
31/12/12
Impairment loss
Accumulated impairment loss
(Recording of impairment loss)
Dr.
800,000
Cr.
800,000
160,000
160,000
92,000
92,000
(W-1) Calculation of impairment loss
Book value on 31/12/12 (800,000 – 160,000)
Recoverable Amount (higher of:)
- Fair value
- Value in use (W-2)
Impairment loss
(W-2) Calculation of Value in Use
Year
Cash flows
1
200,000
2
200,000
3
100,000
4
100,000
Answer-6
Entries in the books of Fabian Limited
Date
Particulars
1/1/03
Asset
Bank
(Purchase of asset)
31/12/03
Depreciation Expense (45,000/10years)
Accumulated Depreciation
(Recording of depreciation)
31/12/04
Depreciation expense (45,000/10years)
Accumulated Depreciation
(Recording of depreciation)
640,000
548,000
490,530
Discount factor @ 10%
0.9091
0.8264
0.7513
0.6830
(548,000)
92,000
Present value
181,820
165,280
75,130
68,300
490,530
Dr.
45,000
45,000
4,500
4,500
4,500
Note: No impairment loss is recognized as carrying amount is less than recoverable amount.
31/12/05
Depreciation expense (45,000/10years)
4,500
Accumulated Depreciation
(Recording of depreciation)
805
Cr.
4,500
4,500
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
(W-1) Calculation of impairment loss:
Book value on 1/1/05 (45,000 – 4,500 – 4,500)
Recoverable Amount (higher of:)
- Fair value
- Value in use
Impairment loss
36,000
50,000
40,000
(50,000)
-
Answer-7
Entries in the books of STL
Date
1/1/07
31/12/07
31/12/07
31/12/07
31/12/08
31/12/08
31/12/09
31/12/09
31/12/10
31/12/10
31/12/10
806
Particulars
Plant
Bank
(Purchase of plant)
Depreciation Expense
Accumulated Depreciation
(Recording of depreciation)
Accumulated Depreciation
Plant
(Transfer of accumulated depreciation to plant)
Plant
Revaluation surplus
(Recording of revaluation surplus)
Depreciation expense
Accumulated Depreciation
(Recording of depreciation)
Revaluation Surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Depreciation expense
Accumulated Depreciation
(Recording of depreciation)
Revaluation Surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Depreciation expense
Accumulated Depreciation
(Recording of depreciation)
Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Impairment loss (bal.)
Revaluation surplus
Accumulated Impairments loss
(Recording of impairment loss)
Rs. in ‘000’
Dr.
Cr.
1,000
1,000
50
50
50
50
550
550
78.95
78.95
28.95
28.95
78.95
78.95
28.95
28.95
78.95
78.95
28.95
28.95
100
463.15
563.15
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
(W-1)
Rs in ‘000’
Rev.
Surplus
Date
Description
Plant
1/1/07
31/12/07
31/12/07
31/12/07
31/12/07
31/12/08
31/12/08
31/12/09
31/12/09
31/12/10
31/12/10
Cost
Depreciation (1,000/20)
WDV
Revaluation surplus (Bal.)
Revalued amount
Depreciation (1,500/19) : (550/19)
WDV
Depreciation (1,500/19):(550/19)
WDV
Depreciation (1,500/19):(550/19)
WDV
1,000
(50)
950
550
1,500
(78.95)
1,421.05
(78.95)
1,342.1
(78.95)
1,263.15
(W-2) Calculation of impairment loss:
31/12/10
Book value
31/12/10
Recoverable amount
(Higher of:)
- Fair value less cost to sell
- Value in use
31/12/10
Impairment loss
Answer-8
Entries in the books of Salamat industries
Date
1/1/10
31/12/10
1/1/11
1/1/11
31/12/11
31/12/11
1/1/12
1/1/12
807
Particulars
Machine
Bank
(Purchase of machine)
Depreciation Expense
Accumulated Depreciation
(Recording of depreciation)
Accumulated Depreciation
Machine
(Transfer of accumulated depreciation to machine)
Machine
Revaluation surplus
(Recording of revaluation surplus)
Depreciation expense
Accumulated Depreciation
(Recording of depreciation)
Revaluation surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Accumulated depreciation
Machine
(Transfer of accumulated depreciation to machine)
Machine
Revaluation surplus
(Recording of revaluation surplus)
SOCI
(P/L)
550
550
(28.95)
521.05
(28.95)
492.1
(28.95)
463.15
1,263.15
600
700
(700)
563.15
Rs. in ‘000’
Dr.
Cr.
1,570
1,570
98.13
98.13
98.13
98.13
228.13
228.13
113.3
113.3
15.21
15.21
113.3
113.3
163.3
163.3
CHAPTER-9
31/12/12
31/12/12
31/12/12
IAS 36: IMPAIRMENT OF ASSET
Revaluation Surplus
Retained earning
(Transfer of revaluation surplus to retained earnings)
Depreciation expense
Accumulated Depreciation
(Recording of depreciation)
Impairment loss (bal.)
Revaluation surplus
Accumulated Impairments loss
(Recording of impairment loss)
26.87
26.87
125
125
275.65
349.35
625
(W-1)
Date
Description
1/1/10
31/12/10
31/12/10
1/1/11
1/1/11
31/12/11
31/12/11
1/1/12
1/1/12
31/12/12
31/12/12
Cost
Depreciation (1,570/16)
WDV
Revaluation surplus (Bal.)
Revalued amount
Depreciation (1,700/15) : (228.13/15)
WDV
Revaluation Surplus (bal.)
Revalued Amount
Depreciation (1,750/14) : (376.22/14)
WDV
Rs in ‘000’
Rev.
Surplus
Machine
1,570
(98.13)
1,471.87
228.13
1,700
(113.3)
1,586.7
163.3
1,750
(125)
1,625
(W-2) Calculation of impairment loss:
31/12/12
Book value
31/12/12
Recoverable amount
(Higher of:)
- Fair value less cost to sell
- Value in use
31/12/12
Impairment loss
SOCI
(P/L)
228.13
228.13
(15.21)
212.92
163.3
376.22
(26.87)
349.35
1,625
800
1,000
(1,000)
625
Answer-9
A
Impairment loss
Carrying amount
Recoverable amount (Higher of)
- value in use
- fair value less cost to sell (W-1)
Impairment
A
3,100
2,450
B
1,200
1,350
C
1,500
1,950
WORKINGS
(W-1) Fair value less cost to sell
A
(2,500 – 50)
B
(1,400 – 50)
C
(2,000 – 50)
Company's legal advisor cost is not an incremental cost, so ignored.
808
B
C
3,200
1,500
1,700
(3,100)
100
(1,350)
150
(1,950)
-
2,450
1,350
1,950
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
Answer-10
Journal entries
For the year ended 31st December, 2010
Date
Particulars
01-01-10 Asset
Cash
31-12-10 Depreciation
Accumulated depreciation
For the year ended 31st December, 2011
Date
Particulars
31-12-11 Depreciation
Accumulated depreciation
For the year ended 31st December, 2012
Date
Particulars
31-12-12 Depreciation
Accumulated depreciation
31-12-12 Accumulated depreciation (10 + 10 + 10 )
Asset
31-12-12 Asset
Revaluation surplus
31-12-12 Impairment loss expense
Revaluation surplus
Accumulated impairment loss
(W-l) Calculation of revaluation surplus and depreciation on building
Date
Description
Asset
1/1/10
Cost
100
31/12/10 Depreciation (100/10)
(10)
31/12/10 WDV
90
31/12/11 Depreciation
(10)
31/12/11 WDV
80
31/12/12 Depreciation
(10)
31/12/12 WDV
70
31/12/12 Revaluation surplus (bal.)
20
31/12/12 Revalued amount
90
31/12/12 Impairment loss (bal.)
(8)
31/12/12 Recoverable amount
82
809
Dr.
Cr.
100
100
10
10
Dr.
Cr.
10
10
Dr.
Cr.
10
10
30
30
20
20
0
8
8
R. Surplus
SOCI(P/L)
20
20
(8)
12
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP PAST PAPERS QUESTION
Question-1
Dominant Fertilizers has two plants. Following Information is available for the purpose of impairment
testing:
(i)
The remaining useful life of both plants is expected to be 3 years.
(ii)
The fair values and written down values of the plants as on 31 December 2012 were as follows:
Cost Accumulated WDV
Incremental
Fair value
Depreciation
Plants
selling cost
--------------Rs. in million-------------P-1
300
80
220
210
7
P-2
200
40
160
150
4
(iii)
Expected cash flows from each plant in next 3 years are as follows:
Annual inflows
Annual outflows
Sale proceeds at end of year 3
Disposal costs at end of year 3
(iv)
P-1
P-2
------Rs. in million-----105
55
11
5
8
3
2
1
Present value factor, based on a pre tax discount factor of 10%, for year 1, year 2 and year 3 are
0.909, 0.826 and 0.751 respectively.
Required:
Compute impairment (if any) on each plant as on 31 December 2012.
(11)
{Spring 2013, Q#5)
Question-2
On October 01, 2004 ARC Limited, in the course of improvement and enhancement of its production
facility bought a plant having invoice value of Rs. 25 million for the production of its popular brand of
electrical goods. Mr. Aslam, one of the directors, was assigned the duty of supervising the installation of
the plant. Other information is given below:
(a)
A special trade discount of 25% was allowed by the supplier due to efforts of the agent involved
in the deal, who had close association with Mr. Aslam. Normally the supplier allows only 10%
trade discount to his customers.
(b)
The following costs were incurred on site preparation:
Rs. in '000'
i.
Salary of civil engineers and labour
1,200
ii.
Civil and electrical work (refer (c) below)
2,800
iii.
Electrical item received from the company's own production
department at cost plus 10% profit (similar items are sold to customers
330
at cost plus 30% profit)
iv.
Remuneration of employees during site preparation
600
(c)
Civil and electrical work includes cost of certain instruments amounting to Rs. 150,000, which
were poorly handled by the workers and were totally damaged. Now they carry no value.
(d)
On January 01, 2005 test run was started and successfully completed on January 31, 2005 at a
cost of Rs. 550,000. The sale proceeds of test production were Rs. 320,000.
810
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
(e)
The company is presently obliged to dismantle plant at end of life and present value of
dismantling cost is Rs. 250.
(f)
The plant went into normal production from February 01, 2005 and attained 45% capacity during
the period ended on June 30, 2005. The company, at this stage, discovered that the actual capacity
of the plant is about 85% of the capacity declared by the supplier. The matter was discussed with
the supplier and his agent. The agent finally agreed to pay a compensation of 3% on invoice value
and issued his credit note to this effect on June 30, 2005.
(g)
The company accounts for its assets under cost model and on June 30, 2005 it estimated
Rs. 21 million as the fair value of the plant. It is further estimated that in case of disposal the
following expenditure will have to be incurred:
Rs. ‘000’
- Cost of transportation
100
- Terminal benefits of labour to be laid off
300
- Legal costs
100
- Stamp duty
50
(g)
Depreciation is to be charged at 10% on straight-line basis from the commencement of normal
production.
Required:
Calculate the following, also submit your explanation if necessary:
(a)
Initial recognition of the cost of plant.
(05)
(b)
Impairment loss, if any, as at June 30, 2005 and accounting treatment thereof.
(06)
(Autumn 2005, Q# 2)
QUESTION-3
Scientific Pharma Limited (SPL) is a manufacturer of pharmaceutical products. In January 2015, one of
its plants suffered a major break down. It was repaired at a cost of Rs. 1.5 million but the production
capacity was reduced significantly. The plant was ready for production on June 30, 2015. At that time the
company’s engineers advised that the plant could be used at a reduced level for 3 years only. The plant
was estimated to have a recoverable amount of Rs. 19,277,000 at June 30, 2015.
Other related information is as under:
(i)
The plant was imported at FOB price of US$ 800,000. The payment was made at the time of
shipment on July 1, 2005 at Rs. 52 per US$. Other charges including installation cost
amounted to Rs. 7 million. Installation of the plant was completed on December 31, 2005
and commercial production commenced from April 1, 2006.
(ii)
The company uses straight line method of deprecation. Depreciation is charged from the month
the asset is available for use upto the month prior to disposal. At the time of purchase, the
estimated useful life of the plant was estimated at 15 years whereas the salvage value was
estimated at Rs. 2.0 million.
(iii)
Based on the report of a professional independent valuer, the plant was revalued on July 1, 2010
at Rs. 45 million. There was however, no change in estimated useful life of the plant.
(iv)
The factory remained closed from April 1, to June 30, 2012 due to law and order situation.
(v)
The salvage value has not changed since it was first estimated at the time of purchase.
Required:
Prepare accounting entries for the year ended June 30, 2015. Give all the necessary calculations. (20)
(Autumn-10, Q.2)
811
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP PAST PAPERS SOLUTIONS
Answer-1
P-1
Impairment loss
Carrying amount
Recoverable amount (Higher of)
- value in use (W-1)
- fair value less cost to sell
Impairment
(W-2)
P-1
238.19
203
P-2
126.71
146
220
160
(238.19)
-
(146)
14
WORKINGS
(W-1) Value in Use
P-1
=
(105 – 11) x 0.909 + (105 – 11) x 0.826 + (105 – 11 + 8 – 2) x 0.751
OR
-3
P-1
=
(105 – 11) x [1- (1.1) ] + (8-2) x (1.1)-3
0.1
P-2
=
P-2
=
P-2
(55 – 5) x 0.909 + (55 – 5) x 0.826 + (55 – 5 + 3 – 1) x0.751
OR
(55 – 5) x [1- (1.1)-3] + (3-1) x (1.1)-3
0.1
=
238.19
=
238.19
=
126.71
=
126.71
(W-2)
P-1
P-2
Rs in million
203.00
146.00
Fair value less cost to sell (210 – 7) : (150 – 4)
Answer-2
(a)
Cost of plant is calculated as below:
Invoice value
Less: Trade discount @ 25%
Salary of civil engineer
Civil & electrical work
(2,800 -150)
Cost of electrical items
(330/110 x 100)
Remuneration
Trial production cost net of sale proceeds of prototype/sample (550 – 320)
Cost of dismantling
Less: Compensation
(2,500 x 3%)
Total
(b)
Calculation of impairment loss
Total carrying amount
Recoverable amount (Higher of)
- Value in use
- Fair value less cost to sell
Impairment loss
812
[23,330 - (23,330 x 10%) x 5/12]
Not available
20,750
Rs. ‘000’
25,000
(6,250)
1,200
2,650
300
600
230
350
(750)
23,330
22,358
20,750
1,608
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
WORKINGS
(W-1) Calculation of fair value less cost to sell
Rs. ‘000’
Rs. ‘000’
Fair market value
21,000
Less: legal costs
100
Stamp duty
50
Transportation cost
100
(250)
Net selling price
20,750
Note: Termination benefits are ignored as it is not a part of cost to sell. As dismantling cost is already
included as a part of cost of asset so it is ignored in “fair value less cost to sell” calculation.
Answer-3
Scientific Pharma
Entries
Rs in ‘000’
Dr.
Cr.
1,500
1,500
Particulars
Repair expense
Bank
(Repair incurred)
Depreciation expense (45,000-2,000)/10.5 (W-3)
Accumulated depreciation
(Calculation of depreciation for the year)
Revaluation surplus
((W-3) 10,380/10.5)
Retained earnings
(Transfer of revaluation surplus for the year)
Revaluation surplus
(W-4)
Accumulated impairment loss
(Recording of impairment loss)
(W-1) Cost of asset
FOB price
Installation cost
4,095
4,095
989
989
5,297
5,297
(800 x 52)
41,600
7,000
48,600
(W-2) WDV of asset on date of revaluation on 30.06.10
Number of years used till revaluation date
(1-1-2006 to 30-6-10)
Cost
Accumulated depreciation on 30.6.10
4.5 Years
48,600
(13,980)
34,620
((W-1) 48,600 - 2,000)/15 x 4.5)
(W-3) Calculation of WDV on 30.6.2015
1/7/10
1/7/10
1/7/10
1/7/10-30/6/15
30/6/15
WDV on the date of revaluation (W-2)
Revaluation surplus (bal.)
Revalued amount
Less: Accumulated Dep (45,000-2,000)/10.5x5):(10,380/10.5x5)
WDV
Remaining life on date of revaluation
813
(15 – 4.5)
Plant
34,620
10,380
45,000
(20,476)
24,524
Rev.
Sur.
10,380
10,380
(4,943)
5,437
10.5
CHAPTER-9
(W-4) Calculation of impairment loss
Recoverable amount
WDV on 30.6.2015
IAS 36: IMPAIRMENT OF ASSET
19,227
(24,524)
(5,297)
The impairment loss is less than revaluation surplus, therefore whole of loss will be debited to revaluation
surplus account instead of SOCI.
The following table is not a part of solution. It is only prepared for understanding that how revaluation
surplus will be shifted on yearly basis to retained earnings. The difference between this table and (W-3) is
that this table shows each year depreciation charge separately. The results of this table and (W-3) are
same with a difference of 2 due to decimals.
Rev.
Plant
Sur.
1/7/10
WDV
34,620
1/7/10
Revaluation surplus (bal.)
10,380
10,380
1/7/10
Revalued amount
45,000
10,380
30/6/11 Depreciation (45,000-2,000/10.5) : (10,380/10.5)
(4,095)
(989)
30/6/11 WDV
40,905
9,391
30/6/12 Depreciation (45,000-2,000/10.5) : (10,380/10.5)
(4,095)
(989)
30/6/12 WDV
36,810
8,402
30/6/13 Depreciation (45,000-2,000/10.5) : (10,380/10.5)
(4,095)
(989)
30/6/13 WDV
32,715
7,413
30/6/14 Depreciation (45,000-2,000/10.5) : (10,380/10.5)
(4,095)
(989)
30/6/14 WDV
28,620
6,424
30/6/15 Depreciation (45,000-2,000/10.5) : (10,380/10.5)
(4,095)
(989)
30/6/15 WDV
24,525
5,435
814
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP QUESTION BANK QUESTION
Question-1
Aba Limited conducts its activities from two properties, a head office in the city centre and a property in
the countryside where staff training is conducted. Both properties were acquired on 1 April 2013 and had
estimated lives of 25 years with no residual value. The company has a policy of carrying its land and
buildings at current values. However, until recently property prices had not changed for some years. On 1
October 2015 the properties were revalued by a firm of surveyors. Details of this and the original costs
are:
Land
Buildings
Rs.
Rs.
Head office
– cost 1 April 2013
500,000
1,200,000
– revalued 1 October 2015
700,000
1,350,000
Training premises
– cost 1 April 2013
300,000
900,000
– revalued 1 October 2015
350,000
600,000
The fall in the value of the training premises is due mainly to damage done by the use of heavy equipment
during training. The surveyors have also reported that the expected life of the training property in its
current use will only be a further 10 years from the date of valuation. The estimated life of the head office
remained unaltered.
Note: Aba Limited treats its land and its buildings as separate assets. Depreciation is based on the
straight-line method from the date of purchase or subsequent revaluation.
Required
Prepare extracts of the financial statements of Aba Limited in respect of the above properties for the year
to 31 March 2016.
(ICAP Question bank 9.1)
Question-2
The assistant financial controller of the Hussain Associates Ltd group has identified the matters below
which she believes may indicate impairment of one or more assets:
Hussain Associates Ltd owns and operates an item of plant that cost Rs.640,000 and had accumulated
depreciation of Rs.400,000 at 1 October 2015. It is being depreciated at 12½% on cost.
On 1 April 2016 (exactly half way through the year) the plant was damaged when a factory vehicle
collided into it. Due to the unavailability of replacement parts, it is not possible to repair the plant, but it
still operates, albeit at a reduced capacity. It is also expected that as a result of the damage the remaining
life of the plant from the date of the damage will be only two years.
Based on its reduced capacity, the estimated present value of the plant in use is Rs.150,000. The plant has
a current disposal value of Rs.20,000 (which will be nil in two years’ time), but Hussain Associates Ltd
has been offered a trade-in value of Rs.180,000 against a replacement machine which has a cost of Rs.1
million (there would be no disposal costs for the replaced plant). Hussain Associates Ltd is reluctant to
replace the plant as it is worried about the long-term demand for the product produced by the plant. The
trade-in value is only available if the plant is replaced.
Required
Prepare extracts from the statement of financial position and statement of profit or loss of Hussain
Associates Ltd in respect of the plant for the year ended 30 September 2016. Your answer should explain
how you arrived at your figures.
(ICAP Question bank 9.2)
815
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP QUESTION BANK SOLUTIONS
Answer-1
ABA Limited
Statement of Financial Position (Extracts)
as on March 31, 2016
Capital and liabilities
Equity
Revaluation Surplus
 Head office
 Training premises
Rs.
(200,000(W-1) + 264,000(W-2))
(W-3)
Assets
Non-Current Assets
Property, Plant and Equipment
 Head office
 Training premises
(700,000(W-1) + 1,320,000(W-2))
(350,000(W-3) + 570,000(W-4))
464,000
50,000
514,000
2,020,000
920,000
2,940,000
ABA Limited
Statement of Comprehensive Income (Extracts)
for the year ended March 31, 2016
Expenses:
Depreciation

Head office

Training premises
(W-2) (24,000 + 30,000)
(W-4) (18,000 + 30,000)
54,000
48,000
102,000
Revaluation Loss

Training premises
(W-4)
210,000
(W-1) Head Office - Land
Date
Description
30/9/15
1/10/15
1/10/15
WDV
Revaluation surplus(bal.)
Revalued Amount
(W-2): Head Office Building
Date
Description
1/4/13
Cost
31/3/15
Depreciation (1,200,000/25) x 2
31/3/15
WDV
30/9/15
Depreciation (1,200,000/25) x 6/12
30/9/15
WDV
1/10/15
Revaluation surplus (bal.)
1/10/15
Revalued amount
31/3/16
Depreciation ((1,350,000/22.5) x 6/12)
((270,000/22.5) x 6/12)
31/3/16
WDV
816
Land
Asset
R. Surplus
500,000
200,000
200,000
7000,000
200,000
Building
R. Surplus SOCI(P/L)
1,200,000
(96,000)
1,104,000
(24,000)
1,080,000
270,000
270,000
1,350,000
270,000
(30,000)
(6,000)
1,320,000
264,000
-
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
(W-3) Training premises: Land
Date
Description
30/9/15
1/10/15
1/10/15
Land
Asset
R. Surplus
300,000
50,000
50,000
350,000
50,000
WDV
Revaluation surplus(bal.)
Revalued Amount
(W-4) Training premises - Building
Date
Description
1/4/13
Cost
31/3/15
Depreciation (900,000/25) x 2
31/3/15
WDV
30/9/15
Depreciation (900,000/25) x 6/12
30/9/15
WDV
30/9/15
Revaluation Loss (bal.)
30/9/15
Revalued Amount
31/3/16
Depreciation (600,000/10) x 6/12
31/3/16
WDV
Building
900,000
(72,000)
828,000
(18,000)
810,000
(210,000)
600,000
(30,000)
570,000
R. Surplus SOCI(P/L)
(210,000)
(210,000)
-
-
Answer-2
The accident that may have caused impairment occurred on 1 April 2016 and an impairment test would be
done at this date. An impairment test requires the plant’s carrying amount to be compared with its
recoverable amount.
The recoverable amount of the plant is the higher of its value in use of Rs.150,000 or its fair value less
costs to sell. If Hussain Associates Ltd trades in the plant it would receive Rs.180,000 by way of a part
exchange, but this is conditional on buying new plant which Hussain Associates Ltd is reluctant to
do. A more realistic amount of the fair value of the plant is its current disposal value of only Rs.20,000.
Thus the recoverable amount would be its value in use of Rs.150,000.
Extracts are as follows:
Hussain Associate
Statement of Comprehensive Income
for the year ended 30.09.2016
Expenses :
Depreciation
Impairment loss
(W-1) (40,000 + 37,500)
(W-2)
77,500
50,000
Hussain Associate
Statement of Financial Position
as on 30.09.2016
Assets
Non-Current Assets
Property, Plant and Equipment
817
(W-1)
112,500
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
(W-1)
Date
Description
1/10/15
WDV (640,000 – 400,000)
31/3/16
Depreciation (640,000 x 12.5%) x 6/12
1/4/16
WDV
1/4/16
Impairment loss (W-2)
1/4/16
Recoverable amount (W-2)
30/9/16
Depreciation (150,000/2) x 6/12
30/9/16
WDV
(W-2) Impairment loss
1/4/16
Book value
1/4/16
Recoverable amount (Higher of:)
- Fair value less cost to sell
- Value in use
1/4/16
818
Impairment loss
Plant
240,000
40,000
200,000
(50,000)
150,000
(37,500)
112,500
R. Surplus
SOCI(P/L)
-
200,000
20,000
150,000
(150,000)
50,000
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1
Q.2
Q.3
If the fair value less costs to sell cannot be determined
(a)
The asset is not impaired.
(b)
The recoverable amount is the value-in-use.
(c)
The net realizable value is used.
(d)
The carrying value of the asset remains the same.
Which TWO of the following could be an indication that an asset may be impaired according to
IAS 36 Impairment of Assets?
(a)
Decrease in market interest rates
(b)
Increase in market values for the asset
(c)
Damage caused to the asset
(d)
Management intention to reorganise the business
IAS 36 Impairment of Assets contains a number of examples of internal and external events
which may indicate the impairment of an asset.
In accordance with IAS 36, which of the following would definitely NOT be an indicator of the
potential impairment of an asset (or group of assets)?
(a)
An unexpected fall in the market value of one or more assets
(b)
Adverse changes in the economic performance of one or more assets
(c)
Q.4
A significant change in the technological environment in which an asset is employed
making its software effectively obsolete
(d)
The carrying amount of an entity’s net assets being below the entity’s market
capitalisation
A fire at the factory on 1 October 2016 damaged the machine, leaving it with a lower operating
capacity. The accountant considers that entity will need to recognise an impairment loss in
relation to this damage. The accountant has ascertained the following information at 1 October
2016:

The carrying amount of the machine is Rs.60,750.

An equivalent new machine would cost Rs.90,000.

The machine could be sold in its current condition for a gross amount of Rs.45,000.
Dismantling costs would amount to Rs.2,000.

In its current condition, the machine could operate for three more years which gives it a
value in use figure of Rs.38,685.
What is the total impairment loss associated with the above machine at 1 October 2016?
(a)
Rs.nil
(b)
Rs.17,750
(c)
Rs.22,065
(d)
Rs.15,750
819
CHAPTER-9
Q.5
IAS 36: IMPAIRMENT OF ASSET
Which of the following is NOT an indicator of impairment?
Q.6
(a)
Advances in the technological environment in which an asset is employed have an
adverse impact on its future use.
(b)
An increase in interest rates which increases the discount rate an entity uses.
(c)
The carrying amount of an entity’s net assets is higher than the entity’s number of shares
in issue multiplied by its share price.
(d)
The estimated net realisable value of inventory has been reduced due to fire damage
although this value is greater than its carrying amount.
Cost of disposal are
Q.7
(a)
Incremental costs, directly attributable to the disposal of an asset, excluding finance costs
and income tax expense
(b)
Incremental costs, directly attributable to the disposal of an asset, plus finance costs, but
excluding income tax expense
(c)
Incremental costs, directly attributable to the disposal of an asset, plus finance costs and
income tax expense
(d)
Incremental costs, directly attributable to the disposal of an asset, plus tax expense, but
excluding finance costs
An asset is impaired if:
Q.8
(a)
Its carrying amount equals the amount to be recovered through use (or sale) of the asset
(b)
(c)
Its carrying amount exceeds the amount to be recovered through use (or sale) of the asset
The amount to be recovered through use (or sale) of the asset exceeds its carrying amount
(d)
If it has been damaged
Value in use is:
Q.9
(a)
(b)
The market value
The discounted present value of future cash flows arising from use of the asset and from
its disposal.
(c)
The higher of an asset’s fair value less cost to sell and its market value.
(d)
The amount at which an asset is recognized in the statement of financial position.
IAS 36 applied to which of the following assets:
Q.10
(a)
Inventories.
(b)
Financial assets including property plant and equipment and intangible assets
(c)
Assets held for sale.
(d)
Property, plant, and equipment and intangible assets
In accordance with IAS 36 Impairment of Assets which of the following statements are true?
1.
An impairment review must be carried out annually on all intangible assets.
2.
If the fair value less costs to sell of an asset exceed the carrying amount there is no need
to calculate a value in use.
Impairment is charged to the statement of profit or loss unless it reverses a gain that has
been recognised in equity in which case it is offset against the revaluation surplus.
3.
(a)
(c)
820
All three
1 and 3 only
(b)
(d)
1 and 2 only
2 & 3 only
CHAPTER-9
Q.11
Q.12
IAS 36: IMPAIRMENT OF ASSET
What is the recoverable amount of an asset?
(a)
(b)
Its current market value less costs of disposal
The lower of carrying amount and value in use
(c)
The higher of fair value less costs of disposal and value in use
(d)
The higher of carrying amount and market value
A machine has a carrying amount of Rs. 850,000 at the year end of 31 March 2019. Its market
value is Rs. 780,000 and costs of disposal are estimated at Rs. 25,000. A new machine would cost
Rs. 1,500,000. The company which owns the machine expects it to produce net cash flows of Rs.
300,000 per annum for the next three years. The company has a cost of capital of 8%.
What is the impairment loss on the machine to be recognised in the financial statements at 31
March
(a)
Q.13
Rs.76,870
(b)
Rs.95,000
(c)
Rs.1,66,700
(d)
Rs.220,000
IAS 36 Impairment of Assets suggests how indications of impairment might be recognised.
Which TWO of the following would be external indicators that one or more of an entity's assets
may be impaired?
Q.14
(a)
An unusually significant fall in the market value of one or more assets
(b)
Evidence of obsolescence of one or more assets
(c)
(d)
A decline in the economic performance of one or more assets
An increase in market interest rates used to calculate value in use of the assets
The following information relates to an item of plant.

Its carrying amount in the statement of the financial position is Rs. 3 million.

The company has received an offer of Rs. 2.7 million from a company in Karachi
interested in buying the plant.

The present value of the estimated cash flows from continued use of the plant is Rs. 2.6
million.

The estimated cost of transport the plant to Karachi is Rs. 50,000.
What is the amount of the impairment loss that should be recognised on the plant?
(a)
Q.15
Rs.300,000
(b)
Rs.400,000
(c)
Rs.350,000
(d)
Rs.250,000
When calculating the estimates of the future cash flows, which of the following cash flows should
not be included?
(a)
Cash flows from disposal.
(b)
Income tax payments.
(c)
Cash flows from the sale of assets produced by the asset.
(d)
Cash outflows on the maintenance of the asset.
RegardRegards:Awais Alis:Awais Ali
821
CHAPTER-9
Q.16
IAS 36: IMPAIRMENT OF ASSET
The following information relates to three assets held by a company:
Asset A
Rs.m
200
160
180
Carrying amount
Value in use
Fair value less cost to sell
Asset B
Rs.m
100
120
130
Asset C
Rs.m
80
70
60
What is the total impairment loss?
Rs. __________
Q.17
The following information relates to four assets held by the company:
Carrying amount
Value in use
Fair value less costs to sell
A
Rs.m
240
160
180
B
Rs.m
60
140
80
C
Rs.m
80
160
140
D
140
40
60
What is the total impairment loss?
Q.18
Rs. ___________
A vehicle was involved in an accident exactly halfway through the year. The vehicle cost Rs.10
million and had a remaining life of 10 years at the start of the year. Following the accident, the
expected present value of cash flows associated with the vehicle was Rs.3.4 million and the fair
value less costs to sell was Rs.6.5 million.
What is the recoverable amount of the vehicle following the accident?
Rs. ___________
Q.19
Radium Limited (RL) acquired a non-current asset on 1 October 2019 at a cost of Rs.100 million
which had a useful life of ten years and a nil residual value. The asset had been correctly
depreciated up to 30 September 2024.
At that date the asset was damaged and an impairment review was performed. On 30 September
2024, the fair value of the asset less costs to sell was Rs.30 million and the expected future cash
flows were Rs.8.5 million per annum for the next five years.
The current cost of capital is 10% and a five year annuity of Rs.1 per annum at 10% would have a
present value of Rs.3.79.
What amount would be charged to profit or loss for the impairment of this asset for the year
ended 30 September 2024?
Rs. ___________
Q.20
Metal Limited (ML) owns an item of plant which has a carrying amount of Rs. 248 million as at 1
April 2013. It is being depreciated at 12.5% per annum on a reducing balance basis.
The plant is used to manufacture a specific product which has been suffering a slow decline in
sales. ML has estimated that the plant will be retired from use on 31 March 2017.
The estimated net cash flows from the use of the plant and their present values are:
Net cash flows
Present values
Rs.000
Rs.000
Year to 31 March 2015
120,000
109,200
Year to 31 March 2016
80,000
66,400
Year to 31 March 2017
52,000
39,000
252,000
214,600
822
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
On 1 April 2014, Metric had an offer from a rival to purchase the plant for Rs. 200 million
At what value should the plant appear in Metric’s statement of financial position as at 31 March
2014?
Rs. ___________
Q.21
Which of the following is covered by IAS 36 - Impairment?
Q.22
(a)
Non-current assets held for sale
(b)
Investment property carried at cost
(c)
Investment property carried at fair value
(d)
Inventories
Which of the following is not covered by IAS 36 - Impairment?
Q.23
Q.24
(a)
Goodwill
(b)
(c)
Investment property carried at fair value
(d)
Intangible assets
When should an impairment loss be recognised?
(a)
Immediately
(b)
(c)
At management’s discretion
(d)
When requested by the entity’s auditors
Value in use is?
Investment property carried at cost
Over a number of accounting periods
(a)
Q.25
Q.26
Q.27
The undiscounted present value of future cash flows expected to arise from continuing
use of asset, and from its disposal at the end of its useful life.
(b)
The undiscounted future value of present cash flows expected to arise from continuing
use of asset, and from its disposal at the end of its useful life.
(c)
The discounted present value of future cash flows expected to arise from continuing use
of asset, and from its disposal at the end of its useful life.
(d)
The discounted present value of historical cash flows expected to arise from continuing
use of asset, and from its disposal at the end of its useful life.
Which of the following element is not considered while computing value in use?
(a)
expectations about possible variations in the amount or timing of those future cash flows
(b)
(c)
the time value of money, represented by the current market risk-free rate of interest
the price for bearing the uncertainty inherent in the asset
(d)
estimated future restructuring cost
In measuring value in use, the discount rate used for discounting the cash flows should be the?
(a)
Pre-tax rate that reflects the market assessment of time value of money and risks specific
to the asset
(b)
Pre-tax rate that reflects the market assessment of time value of money and risks specific
to the entity’s competitors
(c)
Post-tax rate that reflects the entity’s assessment of time value of money and risks
specific to the asset
(d)
Pre-tax rate that reflects the entity’s assessment of time value of money and risks specific
to the asset
When the recoverable amount of an asset is less than its carrying value in the Statement of
Financial Position, the asset is?
(a)
in a revaluation deficit
(b)
Flawed
(c)
823
In negative equity
(d)
Impaired
CHAPTER-9
Q.28
Q.29
Q.30
Q.31
Q.32
Which of the following is an internal indication of impairment?
(a)
(b)
Decline in market value
Worse economic performance than expected
(c)
Increase in market interest rates
Q.34
(d)
Technological obsolescence
Which of the following is an external indication of impairment?
(a)
(b)
Physical damage
Worse economic performance than expected
(c)
Increase in market interest rates
(d)
Asset is part of a restructuring program
Under IAS 36, what is the recoverable amount of an asset?
(a)
The lower of its cost and net realisable value
(b)
The higher of fair value less costs of disposal and value in use
(c)
The lower of net present value and cost
(d)
The higher of net present value and cost
Which of the following is not permitted as a cost to sell under IAS 36?
(a)
Cost to dismantle machine
(b)
Auctioneers fees
(c)
Standard wages for employees
(d)
Transport costs for machine
If the fair value less costs to sell for an asset cannot be determined, then recoverable amount is
its?
(a)
(c)
Q.33
IAS 36: IMPAIRMENT OF ASSET
Market value
Value in use
(b)
(d)
Fair value
Replacement value
Which of the following is the best evidence of an asset's fair value less costs to sell?
(a)
The carrying value of the asset
(b)
(c)
The price in a binding sale agreement
The disposal value of the asset in an arm's length transaction
(d)
An asset that is traded in an active market
When calculating the estimates of future cash flows which of the following cash flows should not
be included?
(a)
Cash out flows on the maintenance of the asset
(b)
Cash flows from disposal
(c)
Cash flows from the sale of inventory produced by the asset
(d)
Benefits from future restructuring
824
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
ICAP MULTIPLE CHOICE QUESTIONS (MCQs) SOLUTIONS
A.1
(b)
The recoverable amount is higher of value in use and fair value less cost to sell and in
case fair value cannot be measured reliably, the recoverable amount is value in use.
A.2
(c)&(d) A decrease in interest rates would reduce the discount applied to future cash flows in
calculating the value in use, therefore increasing the value in use. An increase in market
values will lead to the asset value increasing rather than being impaired.
A.3
(d)
A.4
(b)
The entity’s market capitalisation would not be reflected within the values on the
statement of financial position.
Calculation of Impairment Loss
Rs.
Rs.
Carrying Value (1.10.16
60750
Recoverable Amount (Higher of)
Fair Value less cost to sell
(45,000  2,000)
43,000
Value in use
38,685
43,000
Impairment Loss
17,750
Although the estimated net realisable value is lower than it was (due to fire damage), the
entity will still make a profit on the inventory and thus it is not an indicator of
impairment.
A.5
(d)
A.6
A.7
(a)
(b)
Tax and finance costs are not cost of disposal.
Asset may not be impaired even after damage. Impairment loss is excess of carrying
amount over recoverable amount.
A.8
A.9
(b)
(d)
This is definition of value in use
(a), (b) and (c) are excluded from scope of IAS 36 as the prudence mechanism is already
incorporated in the relevant standards of these items.
A.10
(d)
Item 1 is untrue. An annual impairment review is only required for intangible assets with
an indefinite life.
A.11
A.12
(c)
(a)
The higher of fair value less costs of disposal and value in use.
Calculation of Impairment Loss
Carrying Value (31.3.19)
Recoverable Amount (Higher of)
Fair Value less cost to sell
(780,000  25,000)
Value in use
300,000 (1.08)-1+300,000 (1.08)-2+300,000 (1.08)-3
Impairment Loss
A.13
(a&d) The other options are internal indicators of impairment.
A.14
(c)
Calculation of Impairment Loss
Carrying Value
Recoverable Amount (Higher of)
Fair Value less cost to sell
Value in use
Impairment Loss
825
Rs.
755,000
773,130
Rs.
850,000
773,130
76,870
Rs.
Rs.
3,000,000
(2,700,000 
50,000) 2,650,000
2,600,000 2,650,000
350,000
CHAPTER-9
IAS 36: IMPAIRMENT OF ASSET
A.15
(b)
Cash flows related to taxations are ignored while calculating value in use.
A.16
Rs.30 million
Calculation of Impairment Loss
Carrying Value
Recoverable Amount (Higher of)
Impairment Loss
Recoverable Amount (Higher of)
Fair Value less cost to sell
Value in use
A.17
A
B
C
Total
200
(180)
20
100
(130)
-
80
(70)
10
180
160
130
120
60
70
30
Rs.140 million
60 + Nil + Nil +80 = Rs.140 million
A.18
Rs. 6.5 million
The recoverable amount of an asset is the higher of its value in use (being the present
value of future cash flows) and fair value less costs to sell. Therefore the recoverable
amount is Rs.6.5 million.
A.19
Rs.17.785 million
Rs.m
Cost 1 October 2019
100
Depreciation (100 /10 x 5 years)
(50)
Carrying amount
50
The recoverable amount is the higher of fair value less costs to sell (Rs.30 million) and
the value in use (Rs.8.,5 x 3.79 = Rs.32.215). Recoverable amount is therefore Rs.32.215.
Rs. m
Carrying amount
50
Recoverable amount
(32.215)
Impairment to statement of profit or loss
17.785
A.20
Rs.214,600,000
Is the lower of its carrying amount (Rs.217 million) and recoverable amount (Rs.214.6
million) at 31 March 2015.
Recoverable amount is the higher of value in use (Rs.214.6 million) and fair value less
costs to (Rs.200 million).
Carrying amount = Rs.217 million (248 million – (248 million × 12.5%)) Value in use is
based on present values = Rs.214.6 million
826
CHAPTER-9
A.21
(b)
A.22
A.23
(c)
(a)
A.24
(c)
A.25
(d)
A.26
A.27
(a)
(d)
A.28
(b)
A.29
(c)
A.30
A.31
(b)
(c)
A.32
(c)
A.33
(b)
A.34
(d)
827
IAS 36: IMPAIRMENT OF ASSET