Solution 1. Model answer/suggested solution B.com 2 semesters Sub: - Financial Accounting Paper code: - AR 7578

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1 Model answer/suggested solution B.com 2 semesters Sub: - Financial Accounting Paper code: - AR 7578 Solution 1. I. The new Profit sharing ratio of R after giving 2/7 share to T 7 _ 2 = = The new profit sharing ratio of S after giving 1/7 share to T 3 _ 1 = = Total share of T = 2/7 + 1/7 = 3/7 New Ratio of R, S &T = 29/70: 11/70: 3/7 29:11:30 70 Sacrificing Ratio=Old ratio- New ratio Sacrificing ratio of R = 7/10-29/70 = 20/70 Sacrificing ratio= 2:1 II. Average profit = Sacrificing ratio of S = 3/10-11/70 = 10/70 Normal profit = capital employed X % 100 Capital employed = assets current liabilities = = Normal profit = X12 = Super profit = average profit normal profit = =

2 Goodwill = super profit X 100 Profit% = X = III. (a) Amount of goodwill brought in cash by new partner Cash/bank a/c Dr To premium (for goodwill) a/c (Being cash brought in by new partner as premium for his share of profit) (b) Distributing amount of goodwill (premium) among old partner in their Sacrificing ratio Premium (for goodwill) a/c s Dr To old partners capital a/c (Being premium credited to old partners capital accounts in their sacrificing ratio) IV. Down payment means a signing amount which is pay by hire purchase to hire vendor at the time of hire purchase agreement. It is depend on condition of agreement. It is not compulsory in each hire purchase agreement down payment made. V. Branch account records the trading transaction of different braches of the same business. Whether such branches are situated in the same town or at other town in India or abroad. Meaning of branch account: account which is opened in the book of head office and branches, related to branches are called branch account. The main 2

3 objective of these accounts is to know the working ability and profit and loss of the branches. They also include the final accounts related to them, by which their financial condition is known. VI. The main characteristics or features of joint venture are as follows: (1) Temporary partnership: The objective of joint venture is pre determined and it is of temporary nature. On the objective being achieved the joint venture is closed. Hence for this reason it is called as temporary partnership. (2) Specific object: The object of carrying on joint venture is certain. For example purchase or sale of any goods, to wok on contract, construction of building, underwriting of shares and debentures etc. he joint venture is considered suitable for these types of business. VII. Under the fluctuating capital method only one account i.e. capital account is maintained for each partner. All the adjustment such as share of profit and loss, interest on capital, drawing, and interest on drawings, salary or commission to partners etc are recorded directly in the capital accounts of the partners. This make recorded directly is the capital account of the partners. This makes the balance in the capital account to fluctuate from year to year. In the absences of instruction the capital account should be prepared by this method. The final balance is transferred to the liabilities side in the balance sheet if it has a credit or assets side, if it has a debit balance. It is a mixed form of capital account and current account prepared under fixed capital method. VIII. Amount of interest = total amount paid in hire purchase system cash Price of machine. 3

4 Total amount paid by hire purchase = X 3 = = 4000 IX. Objective of revaluation account (a) At the time of admission for knowing profit and loss on value of assets. (b) At the time of retirement & death for knowing market value of assets. With the help of revaluation a/c, we calculate the profit on assets & these profits will be distributed among existing partners. X. Basis of difference Joint venture consignment Meaning When two or more than two persons carries on a temporary business on combined risk then such a business is called a joint venture When the principal on his own risk and ownership transfer goods for the purpose of sale is termed as consignment. Ownership Parties The entire co venture is the owners of the goods of joint venture business. The parties involved in joint venture is all the co venture The principal or the consignor is the owner of goods. There are only two parties in it, the consignor and consignee. Scope Solution 2. Joint venture can be conducted for any legal business. In consignment only movable goods are concerned. Basis of difference Hire purchase system Installment system Nature of It is like a contract of hire, It is sale from the very contract though later on it becomes beginning. sale. 4

5 Transfer of ownership Return of goods Better title Responsibilities of normal repair Bailee Risk Here ownership is transferred after the payment of the last installment. On default of payment of installment, seller has a right to take back the goods. If buyers sell gods to third party before payment of the last installment, this third party does not get better title on these goods. Up to the time of payment of the last installment responsibility of the normal repair is on the seller because he continues to be the owner there of. Here buyer is like a bailee. Up to the payment of last installment risk is on the seller. Here ownership is transferred in the beginning at the time of sale. On default of payment of installment seller has no right to take back the goods from buyers. If the buyers sells the goods to the third party before the payment of the last installment this third party gets the better title on these goods Here seller is not at all responsible for the repair. Here buyer is not like a bailee. Risk is not on the seller. Solution 3. At the time of retirement of partner When amount of surrender value is not received from life insurance corporation and joint life policy a/c is open:- Joint life policy a/c Dr 5

6 To all partners capital a/c (Being surrender value of joint life policy credited to all partners capital accounts in their profit sharing ratio) When amount of surrender value is not received from life insurance Corporation and joint life policy a/c is closed:- Joint life policy a/c Dr To all partners capital a/c (Being surrender value of joint life policy credited to all capital accounts in their profit sharing ratio) partners remaining partners capital a/c Dr To joint life policy a/c (Being surrender value of joint life policy written off by remaining partners in their new profit sharing ratio) When surrender value of joint life policy is not to be shown and surrender value is to be entered through capital account of partner gaining partners capital a/c Dr To retiring partners capital a/c (Being retiring partners share in surrender value payable by gaining partners in their gaining ratio) When joint life policy is not to be kept in balance sheet: sometimes remaining partner may decide to close the JLP account after retirement of a partner remaining partners capital a/c Dr To joint life policy a/c (Being existing joint life policy in balance sheet written off by remaining partners in their new profit sharing ratio) At the time of death of partner 6

7 Payment of joint life premium every year Joint life policy a/c Dr To bank a/c (Being life insurance premium paid on joint life) Amount excess of surrender value written off to P&L a/c Profit and loss a/c Dr To joint life policy a/c (Being in excess of surrender value written off to profit and loss a/c) Amount of joint life policy being due Life insurance corporation a/c Dr To joint life policy a/c (Being the amount of joint life policy is due) Amount of joint life policy received Bank a/c Dr To life insurance policy a/c (Being amount of joint life policy received) Balance of joint life policy a/c transferred to partner s capital a/c Joint life policy a/c Dr To all partners capital a/c (Being the balance of joint life policy a/c transferred to all partners `` capital a/c in their profit sharing ratio) solution 4. Methods of valuation of goodwill Average profit method:- Goodwill = adjusted profit x purchase year Adjusted average profit = total adjusted profit No. of year Super profit method:- Goodwill = super profit x purchase year 7

8 Super profit = adjusted average profit -Normal profit Normal profit = Capital employed X profit % 100 Capitalization method:- Goodwill = super profit x 100 Normal profit % Annuity method:- Goodwill = super profit x present value of 1 Rs. (Explain above methods with the help of suitable numerical Solution 5. Joint venture a/c Particulars Amount Particular amount To joint bank a/c : Building mat By new company a/c Wages To dineshs a/c (material) To gopals a/c (architectures fees) To gopals a/c (machine supplied) To shares in new Company a/c ( loss on share 50 paise * shares) To interest on overdraft a/c To dinesh a/c (3/5) To gopal a/c (2/5) By gopals a/c (machine)

9 To shares in new company a/c To joint bank a/c Dinesh a/c particulars Amount particulars Amount By joint bank a/c By joint venture a/c By joint venture a/c To shares in new company a/c To joint venture a/c To joint bank a/c Gopals a/c Particulars Amount Particulars amount By joint bank a/c By joint venture a/c By joint venture a/c By joint venture a/c Shares in new company a/c Particulars Amount Particulars amount To new company a/c By gopals a/c By dineshs a/c By joint venture a/c New companys a/c Particulars Amount Particulars Amount To Joint venture A/c By joint Bank a/c By share in New company a/c

10 Solution 6. Branch a/c in the book of head office Particular Amount Particular Amount To opening stock 840 By cash a/c:- Cash sales 1460 To opening debtor 1345 Received from debtor 2387 To goods received from head office 2276 Closing stock 1280 Wages 415 Rent and tax Loss (balancing figure) Debtor s a/c Particulars Amount Particulars amount To balance b/d 1345 Cash received from debtor 2387 To credit sales (balancing figure) 1137 Sales return Bad debts Note: - credit balance of debtor a/c is treated as credit sales so not transfer in branch a/c Solution 7. 10

11 Analytical table principal installment Cash price Nil Hire vendor A/C Date 30/06 31/12 Particular To bal c/d Amount Date 1/1/02 30/06 31/12 Particular By wagon a/c By interest a/c By interest a/c Amount /06 31/ /1/03 30/06 31/12 By bal b/d By interest a/c By interest a/c Note; - interest rate p a but installment paid half yearly so int 3 % Wagon a/c Date Particular Amount Date Particular Amount 1/1/02 To hire vendor 31/12 By balance c/d a/c

12 Solution 8 Ram s Capital A/c Particulars Amount Particulars Amount To Executor s Loan a/c By Balance b/d By Reserve A/c(3500/3) By Goodwill A/c By Interest A/c By Profit& Loss A/c Executor s Loan A/c Date Particulars Amount Date Particulars 01/04/07 31/03/08 To balance c/d /04/07 31/03/08 By Ram s Capital a/c By Interest a/c /03/09 To balance c /d /04/08 31/03/09 By balance b/d By Interest a/c /03/10 To balance c /d /04/09 31/03/10 By balance b/d By Interest a/c /03/ /04/10 31/03/11 By balance b/d By Interest a/c

13 Note:(i) 6% calculate on balance b/d for each instalment (ii)( ) / 4 = principal amount of each instalment By : Kiran kaur Deptt. of Commerce GGV Bilaspur 13

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