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IVC (Second Year)

Advanced Accounts

(Practical Manual) A & T

State Institute of Vocational Education Directorate of Intermediate Education

Government of Andhra Pradesh – Hyderabad.

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Intermediate Vocational Course

Second Year.

Advanced Accounts (Practical Manual)

For the course of A & T.

State Institute of Vocational Education Directorate of Intermediate Education

Government of Andhra Pradesh – Hyderabad. 2006-2007

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Author

G.Habeeb Basha M.Com, M.Phil

Jr. Lecturer in Commerce, (VOC)

Govt. Junior College for Girls

Hussani Alam – Hyderabad.

Editor

Sr.Dr.K.Anjeneyulu M.Com, M.B.A., M.Ed., M.Phil, Ph.D.

Department of Commerce

Badhruka College of Commerce

Kachiguda, Hyderabad.

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Advanced Accounts Page Nos.

I. Company Accounts - I 5 - 55

II. Company Accounts - II 56 -72

III. Hire Purchase System 73 - 104

IV. Installment System 105 - 114

V. Departmental Accounts 115 - 122

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COMPANY ACCOUNTS Contents :

1. Introduction

2. Formation of Company

3. Issue of Shares

4. Accounting Treatment

5. Issue of Shares at Par

6. Call in Arrears

7. Call in Advance

8. Issue of Shares at Premium

9. Issue of Shares of Discount

10. Forfeiture of Shares

11. Re-Issue of Forfeiture share

12. Model Examination questions.

INTRODUCTION :

Modern Business requires huge capital only the company organization

can provide it. The company capital in contributed by a large number of

shares holders.

Company capital or stock in jointly contributed by its shares holders so

the company is often called joint stock company. Most of the companies are

joint stock public companies.

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DEFINITION :

The Indian companies Act has defined that joint stock company as a

company which is having a permanent paid up or nominal share capital of

fixed amount divided into shares also of fixed amount held and transferable as

stock and formed on the principle of having for its members only the holders

of those shares or stock and no other person.

Chief justice marshall of the U.S.A has defined joint stock company as a

person – artifical invisible intangible and existing only in the eyes of laws.

FORMATION : Company formation can be devided into three stages.

1. Incorporation or registration.

2. Issue of prospectus.

3. Commencement of business.

Company incorporation means registering the company with company

registrar and getting a certificate of incorporation.

The company register issues the certificate of incorporation, when the

necessary company documents are submitted to him. The principle

documents are memorandum and articles of association.

Memorandum of Association in the principle company document, it

contains the conditions under which the company has to work. It is very

difficult to change it. Articles of association contains the internal regulation of

the company. Articles of Association is subordinate to memorandum of

Association.

After incorporation the company issues prospectus. It is the invitation to

the public to subscribe to company capital.

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One the basis of the prospectus people apply for the company shares

and debentures then the company shares and debentures are allotted with

the laid down procedure.

After receiving the minimum subscription the company must get the

certificate from the registrar to commence business. The company can start

its business only when it received the certificate to commerce business. Thus

the company is formed.

The people who start or promote the company are called the company

promoters.

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FORM 1 THE COMPANIES ACT, 1956

Public Company Limited by shares Memorandum of Association.

1. The Name of the company is ......................................... Limited,

2. The Registered office of the company will be situated in Bombay.

3. The Objects for which the company is established are :

a) ............................ ............................ ............................ ................

b) ............................ ............................ ............................ ................

and to do all such other things as may be deemed incidental or

conductive to the attainment of the above objects or any of them.

4. The liability of the members is limited.

5. The authorized share capital of the company is rupees .........................

divided into ........................... Equity shares of ................................

each.

6. We, the several persons, whose names, addresses, and description

are subscribed are desirous of being formed into a company in

pursuance of this Memorandum of Association, and we respectively

agree to take the number of shares in the capital of the company set

opposite our respective names.

Names, Address & Descriptions of Subscribers.

Number of shares taken by each subscriber

Name, Address & Description of Witness.

Dated, the ......................................... day of .................................. 19.

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FORM II PROSPECTUS

A copy of the prospectus has been duly delivered for registration to the

Registrar of Companies Bombay.

The subscription list will open at 10.am on 5th Feb, 2005 and will close

at 2-30p.m on 12th Feb, 2005 or earlier at the discretion of the directors but

not before 9th Feb, 2005.

Consent of the Central Government has been obtained to this issue by

an order of which a complete copy is open to public inspection at the

Registered office of the company it must be distinctly understood that in giving

this consent the Central Government to not take any responsibility for the

financial soundness of any scheme of for the correctness of any of the

statements made or opinions expressed with regard to them.

A Licence has been obtained from the central Government for the

establishment of this New Industrial Undertaking of which a copy is open to

public inspection at the Registered office of the company. It must be distinctly

understood that in granting this licence the government of India do not take

any responsibility for the financial soundness of this undertaking or for the

correctness of any of the statements made or opinions expressed in regard to

it.

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ASIN CABLES CORPORATION LIMITED (Incorporated under the Companies Act, 1956, on 12 Sept., 1959)

AUTHORIZED CAPITAL:

1,00,000 Equity (Ordinary) Shares of Rs. 100/- each

Rs. 1,00,000/-

Issued Capital :

1. 50,000 Equity (Ordinary) Shares of the aggregate value of as

follows Rs. 50,00,000/-

ALREADY SUBSCRIBED: 25,000 Equity

(Ordinary) Shares of Rs. 100/- each Rs. 25,00,000/-

2. NOW OFFERED FOR PUBLIC SUB SCRIPTION: The balance of

25,000 Equity (Ordinary) Shares of the nominal value of Rs. 100/-

each is now offered at par for punlic subscription in terms of this

Prospectus payable as:-

Rs. 25/- with application per share;

Rs. 25/- within one month from the date of allotment; and Balance

or Rs. 50/- in such calls as may be determined by

the Directors Rs. 25,00,000/-

The entire public issue of Rs. 25 lakhs has been UNDERWRITTEN

as hereinafter stated.

APPLICATION FOR SHARES: All applications must be for a minimum of five shares or a multiple

thereof. Applications should be delivered, accompanied with proper payment,

before the close of the subscription list to any of the Company’s Bankers at

their Head Offices or their Branch Offices mentioned on the application forms

will be available from the Underwriters and Brokers to this issue named below

only. Where no allotment is made, the deposit will be returned in full within 3

months, and where the number of shares allotted is less than the number

applied for, the balance deposit will be appropriated towards the amount

remaining payable on the shares allotted and any balance remaining

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thereafter will be returned by Company’s cheque on their Bankers at Bombay.

Failure to pay any amount due on the shares allotted, when due, will render

the shares and previous payments made thereon liable to forfeiture. The

shares when issued will be subject to the Memorandum and Articlels of

Association of the Company.

The Share Certificates will be issued within nine months from the date of

allotment.

THE BOARD OF DIRECTORS: - Name: Description & Address Occupation 1. Shri Girdharlal B. Kotak Businessman 14th Road, Khar, (Chairman) Bombay – 21.

2. Shri Rameshwar Das Birla Industrialist Mount Pleasant, Rd., Bombay – 6

3. His Highness Iqbal The Nawab The Palace, Mohamed Khan Saheb of Palanpur. Palanpur

4. Shri Muraji J. Vaidya Industrilist Cuffe Parade, Bombay – 5

5. Shri Navnitlal Sakarlal Industrilist Ellis Bridge, Shodhann Ahmedabad.

6. Shri Dhirendra Manjibbhai C/o. Seth Nanji- Kalidas Metha Industrialist bhai Kalidas, Porbunder.

7. Shri Popatlal B. Kotak Businessman Navsari Building Dr. D.N. Road, Bombay.

8. Shri Amritlal B. Kotak Businessman -----do-----

9. Shri Natvarlal H. Kotak Businessman -----do-----

10 Shri Shantilal H. Kotak Businessman -----do-----

11.Dr. Champaklal A. Mehta Industrialist Maheshwari Mansions, 34, Nepean Sea Road,

Bombay – 6

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12. Shri Hamirbhai “Fazal Manzil,” Karsondas Vissonji Businessman Pedder Road, Bombay – 26. BANKERS:

1. The State Bank of India, Appolo Street, Bombay – 1.

2. The United Commercial Bank Ltd., Dr. Naoroji Road, Bombay-1

3. The Devkaran Nanjee Banking Co. Ltd., Hornimann Circle,

Bombay – 1.

BROKERS TO THE ISSUE:

Messrs. Devkaran Nanjee & Co. Devkaran nanjee Building, Horniman Circle, Fort, Bombay – 1.

SOLICITORS: Messrs. Motichand & Devidas, 31, Nanabhai Lane, Bombay –1. AUDITORS:

1. Messrs. C.C.Choksi & Co. (Chartered Accountants) Mafatlal House, Backbay Reclamation, Bombay – 1.

2. Messrs. A. H. Dalal & Co, (Chartered Accountants), Bombay-1.

REGISTERED OFFICE: Navsari Building, 240, Dr. Dadabhoy Naoroji Road, Bombay –1. UNDERWRITING AND BROKERAGE: The whole of the present Public issue of Rs. 25,00,000/- consisting of

25,000 Equity (Ordinary) Shares has been underwritten by (1) Thhe United

Commercial Bank Ltd., Dr. Dadabhoy Naoroji Road, Bombay – 1 and (2) The

Devkaran Nanjee Banking Co. Ltdd., Horniman Circle, Bombay – 1 to the e x

tent 50% each. In the opinion of the Directors, the resources of the said

Unde4rwriters are sufficient to discharge the underwriting obligations. The

Underwriting Commission payable by the Company to the said underwriters is

2 ½% of the nominal value of the said payable by them to certified brokers

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and bankers on the nominal value of the said 25,000 Equity (Ordinary) Shares

for application received and allotted bearing their stamps.

OBJECTS OF THE COMPANY: The Company was incorporated on 12th September, 1959 with the

objects mentioned in the Memorandum of Association, and in particular, to

manufacture and sell electrical wires and cables of copper and aluminum of

all kinds including rubber insulated, plastic insulated and paper insulated

cables and wires for low voltage as well as high voltage power cables,

aluminum cables, steel reinforced etc.

COMMENCEMENT OF BUSINESS: The Company has obtained the Certificate of Commencement of

Business dated the 3rd December, 1959 from the Registrar of Companies,

Bombay.

PROSPECTS FOR L.T. ELECTRICAL CABLE INDUSTRY; The manufacture of electrical cables is one of the basic and of a

country as these cables are essential for the transmission of electric power on

the utilization of which depends the industrial and economic development of

the country. India’s rapid economic development under the Second Five Year

Plan and the progressively increasing tempo under the Third Fiver Year Plan,

is organically linked with the rapid expansion of electrification in the country.

The phenomenal expansion in electrification has led to a

corresponding increase in the demand for low tension distribution cables

which the Company proposes to manufacture in the first stage. The

production of these cables in India has increased from about 62,800,000

Yards in 1954 to about 127,000,000 Yards in 1958, i.e. over 100% in five

years, but still the indigenous production is insufficient to meet the demand for

these cables. The wide gap between the demand and the indigenous

production is met to some extent by import of these cables, which are,

however, very much restricted particularly since 1958 due to adverse foreign

exchange situation of India. Consequently, there is a big shortage of these

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cables in India during the last several years with the prices ruling high and

assuring a comfortable profit margin.

Apart from the present shortage in the indigenous production as

indicated by the above figures, the demand for these cables is rapidly

increasing at the rate of about 20% per annum as explained above.

Therefore, it is felt that there will be more than sufficient demand to absorb the

production of our proposed factory, whose annual output in two shifts

production will be approximately about Rs. 125 lakhs.

Loan of foreign exchange and import of machinery:

The Industrial Credit and Investment Corporation of India Limited,

Bombay, have agreed tin principle to lend to the Company an amount in

foreign currencies equivalent to U.S. $ 450,000 (approximately Rs. 21,50,000)

to pay for the cost of imported machinery and capital equipment for the

proposed factory, the loan being repayable in half-yearly installments

extending over a period of 81/2 years. The interest payable in this loan will be

73/4% per annum.

The Company has received the approval of the Government of India

under their letter No. EEI 3(13) 58 dated 16th December, 2005 for the import

of plant and equipment worth Rs. 23,50,000 from U.K. and other countries.

TECHNICAL COLLABORATION AGREEMENT:

The Company has entered into an agreement with Messrs. Enfield

Cables Limited, Brimsdown, Enfield, one of the foremost cable manufacturers

of U.K. They have long experience of cable manufacture for about 47 years

and its technique is recognized as one of the most modern in U.K. They have

participated in setting up several cable manufacturing plants in other parts of

the Commonwealth. Under this agreement,Messrs,Enfield Cables Ltd.,will

work as technical collaborators for a period of five years from the date of

production or from1st January, 1961 whichever is earilier.

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MINIMUM SUBSCRIPTION:

The minimum amount which in the opinion of the Directors must be

raised by the issue of shares in order to provide the sums required to be

provided as per paragraph 5 of the Schedule II to the Companies Act, 1956,

and upon which the Directors will proceed to allot shares, is Rs. 2,50,00,000/-

being the whole amount of the public issue by this Prospectus, which has

been undertaken as hereinbefore stated.

RESOURSCES AND DISBURSEMENTS:

The total funds available with the company will be as follows:-

Share Capital already subscribed by the Directors,

Promoters and their friends Rs. 25,00,000

Share Capital of the issue to the public Rs. 25,00,000

Foreign Exchange loan to be obtained from the

Industrial Credit & Investment Corpn. of India Ltd. Rs. 21,00,000

Total Rs. 71,50,000 This amount of Rs 71,50,000/- will be utilized approximately as under:-

Cost of land Rs. 1,00,000

Cost of building, road and staff quarters etc. Rs. 15,00,000

Cost of imported plant and equipment (F.B.O.) Rs. 23,50,000

Indigenous equipments Rs. 9,00,000

Cost of freight, insurance, import duty, clearing charges,

erection, technical fees, training of technical staff etc.

Payable to M\s. Enfield Cables Ltd. Rs. 11,00,000

Preliminary expenses and expenses incurred for Technical and

Commercial investigations and negotiations, underwriting commission,

inclusive of brokerage, advertising charges etc. Rs. 2,75,000

Working Capital Rs. 9,25,000

Total Rs 71,50,000

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Note: Additional finance required for working capital when the factory goes

into production will be available by way of loans from the Banks or other

sources.

PRELIMINARY EXPENSES:

The total estimated preliminary expenses including expenses of this issue,

(estimated at Rs. 11,000) is Rs. 2,75,000/-

APPOINTMENT OF SOLE DISTRIBUTORS: The company has appointed Messrs. Asian Machinery and Equipment

(Private) Limited, as the Sole Distributors of the Products of the Company

under the agreement for a period of ten years.

MANAGING DIRECRTORS:

Subject to the approval of the Central government, the Company has

entered into agreements with Shri Popatlal B. Kotak and Shri Natverlal H.

Kotak respectively, appointing them as Managing Directors of the Company

for a period of five years each on the terms and conditions contained therein.

The remuneration payable to each of the two Managing Directors will be Rs.

2,ooo/-per month plus a commission of 21/2%of the net profits of the

Company, on the condition that they will not draw any remuneration till the

company’s factory starts production.

EXECUTIVE DIRECTORS:

Subject to the approval of the Central Government, the Company has

entered into an agreement with Dr. Champakalal A. Mehta, appointing him as

the Executive Director of the Company for a period of five years on the terms

and conditions contained therein.

TECHNICAL AND COMMERCIAL MANAGER:

The Company has been fortunate in securing the services of Mr.S. R.

C. Poti, B.Sc, (Eng.) A.I.M.E., A.M.I.W.M. as Technical and Commercial

Manager for a period of 5 years, who was the Words Manager of one of the

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leading cable manufacturing unit in India for a number of years and has a

thorough experience and wide knowledge of cable manufacture.

ELECTRICITY AND WATER:

The company has been assured the supply of required electric power

for the factory and other needs by the Tata Hydro-Electric power Supply Co.

Ltd., Bombay. A tube dwell is being constructed for getting necessary water

for the needs of the factory which may be supplemented from the public water

supply.

START OF PRODUCTION:

All the preliminaries regarding inviting offers for machinery, scrutinizing

these offers, and technical details have been completed in consultation with

Messrs, Enfield Cables Limited and orders for machinery are now being

finalised. It is expected that in the normal course, the plant will be installed

and start operating early in 2005.

PROFITS:

On the basis of the existing prices and dafter allowing costs,

overheads, depreciation and other foreseeable contingencies, in so far as

these items can be at present estimated, the Directors are of the opinion that

in the absence of any unforeseen circumstances, the Company should be in a

position to pay reasonable dividends on the issued equity shares. The other

similar large factories engaged at present in the manufacture of V.I.R. and

P.V.C. insulated cables are making good profit and are giving attractive

dividends. The Company will get the benefit of the development Rebate and

Exemption from Income Tax under Section 15 (c) of the Income Tax Act.

NO PAYMENT TO PROMOTERS:

No payment is to be given to Messrs. Kotak & Co., the promoters of the

Company, except the payments for purchase of land at Pro rata cost and for

the expenses for construction of the tube well and for reimbursement of actual

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preliminary expenses incurred by them, and no profits or benefits have been

given to any persons as promoters of the Company.

RESTRICTIONS OF TRANSFER OF SHARES:

Subject to the provision of section 111 of the Act, the Board of

Directors may, at its own absolute and uncontrolled discretion, and without

assigning any reason, decline to register or acknowledge any transfer of

shares (notwithstanding that the proposed transferee be already a member)

but in such cases it shall, within two months from the date on which the

instrument of transfer was lodged with the Company, send to the transferee

and the transferor notice of the refusal to register such transfer.

CONTRACTS:

All contracts entered into by the Company with the parties mentioned

above can be inspected at the Registered Office of the Company during

business hours, on working days.

NATURE AND EXTENT OF THE INTEREST OF DIRECTORS:

Shri A.B. Kotak and Shri S. H. Kotak, Directors of the Company, are

also Directors, in the Asian Machinery and Equipment Private Ltd., who are

appointed as the Sole Distributors of the products of the Company and are

accordingly interested in the said Sole Distributors’ Agreement.

Shri G. B. Kotak, Shri P. B. Kotak, Shri A. B. Kotak, Shri N. H. Kotak

and Shri S. H. Kotak Directors of the Company, are partners of Messrs. Kotak

and Co., and are, therefore, interested in the Agreement for the purchase of

land form Messrs. Kotak & Co.

AUDITORS’ REPORT:

“In accordance with the provisions of Clause 24 of Part II of Schedule II of

the Companies Act, 1956, we report that the accounts of Asian Cables

Corporation Limited, Bombay, which was incorporated on 12th September,

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2005, have not made up in respect of any period since the incorporation of the

Company.”

Sd/- C. C. CHOKSI & Co., Bombay, Sd/- A. H. DALAL & Co., Dated the 11th January, 2005 Chartered Accountants.

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FORM III

CERTIFICATE OF INCORPORATION I hereby certify that the …………….. Company, Limited, is this day

incorporated under the Companies Act, 1956, and that the Company is

Limited.

Given under my hand at Calcutta, this first day of January, one thousand

nine hundred and fifty seven.

Fees and Deed Stamps……………………………… Rs……………….

Stamp duty on Capital ………………………………. Rs……………….

…………………………… Registrar of Companies.

FORM IV

CERTIFICATE FOR COMMENCEMENT OF BUSINESS

I hereby certify that the ………………. Company, Limited of ……………..

Street, Calclutta, which was incorporated under the Companies Act, 1956,

on the first day of January, 2005, and which has conditions of Section 149

(1) (a) to (d) have been complied with, is entitled to commence business.

Given under my hand at Calcutta this 4th day of March, one thousand nine

hundred and fifty – seven.

…………………………… Registrar of Companies.

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FORM V

SHARE CERTIFICATE FORM

Certificate No. …………….. The X,Y,Z. Company, Limited. Capital Rs. ……………… This is to certify that Mr. ……………………………. of ………………. is

the registered proprietor of …………….fully paid-up shares of Rs…………

each Nos. ………………… to ………………… inclusive in the

………………..Co.. Ltd., subject to the Memorandum and Articles of

Association of the Company.

Given under the common Seal of the Company this day of ………………

……………………… Director

…………………….. ……………………..

Secretary

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FORM VI

NOTICE FOR THE ANNUAL GENERAL MEETING The …………………………………… Company, Limited. Notice is hereby given that the ……………….. Annual General Meeting of the

above-named Company will be held at …………………. On the

………………… day of …………..2005 at …………………. O’clock to receive

and consider the Annual Accounts, Directors’ and Auditors’ reports,

To sanction the declaration of Dividend, appointment of Directors and to

transact other ordinary business of the Company.

Notice is also given that the Transfer Books of the Company will be

closed from the ………………………… to the …………………………. 2005,

both days

By Order of the Board,

………………………

Secretary

Date ……………….

NOTE: A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITILED TO

APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMELF AND

THE PROXY NEED NOT BE A MEMBER OF THE COMPANY.

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FORM VII BEARER DEBENTURE BOND

No……………

The…………………………………………………………company, limited.

Incorporated under the companies Act, 1956 Registered Office……………….

Issue ………………………first Mortgage Debentures to Bearer, carrying

interest at the rate of ……………………per annum.

1. The…………………………………..Company, Limited (hereafter called

“The Company”) will, on the…………………………or on such earlier

day as the principal moneys hereby secured become payable in

accordance with the conditions endorsed hereon, pay to the bearer on

presentation of this Debenture the sum of……………………..

2. The Company will in the meantime, pay interest thereon at the rate

of……………………..per cent per annum, by equal half-yearly

payments on every 1st day of ………………..and 1st day

of……………..in accordance with the coupons annexed hereto.

3. The Company hereby charges with such payments its under taking and

all its properties whatsoever and where so ever both present and

future.

4. This debenture is issued subject to and with the benefit of the

conditions endorsed hereon, which are to be deemed part of it.

Given under the common Seal of the Company

this………………………day of………………………………

…………………

…………………

Directors

…………………

Secretary

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SECRETARIAL WORK

SPECIMEN LETTER OF RENUNCIATION

Bhimavaram

1sst Oct. 1966.

To

The Directors,

Bharat Traders Ltd.,

Bhimavaram.

Gentlemen,

Ref:- Allotment letter………………………for 10 shares.

I hereby renounce my right to the above mentioned allotment of shares

and request you to register such shares in the name of my wife,

Mrs. R. V. Rao.

Yours faithfully:

Sd. R. V. Rao.

Name: R. V. Rao.

Address: 26, Main Road,

Bhimavarm.

Register of Members: After the allotment of shares has been

completed, the Secretary must prepare the Register of Members.

The several columns the Register must contain for feature of shares

are shown in the next page. The Register must show the name,

address, and occupation of each member, the number of shares held

by him and their serial numbers, the date on which he became a

member and the date on which ceased to be a member. The Register

must have an index.

Share Certificates: After the completion of the Register of Members,

share certificates must be issued to members. A share certificate is a

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document issued under the common seal of the company and is prim

facie evidence of the title to the shares of each member mentioned

therein. Share certificates are issued to all those who have paid their

allotment monies.

Calls on shares: The balance due on shares after the payment of

application and allotment monies, is usually collected in installments.

The balance of amount remaining after the payment of application and Allotment money is known as call money. The call money will be

payable in installments, known as calls. The Secretary has to address

cal letter to the shares calls. The following is the specimen form if a call

letter.

BHARAT TRADERS LIMITED

Bhimavaram 15th Nov. 1966

Sri R. Vasudeva Rao,

26, Main Road,

Bhimavaram.

Sir,

I have to inform you that the Directors, by a Resolution of the Board

dated 10the Nov, 2005, have resolved to call up Rs.150/- per share towards

the first call on your shares.

The amount due from you in respect of the 10 equity shares must be

sent before 30th November, 2005.

By order of the Board.

K.H. RAO. Secretary

If the call remains unpaid before the prescribed date, the Secretary

informs the defaulting shareholder that the shares on which the default is

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made are liable to be forfeited. On the exparty of the further period allowed

(which should not be less than 14 days), if so authorized by the articles by a

resolution of the Board, the shares may be forfeited. The forfeited shares

allowed on reissued share shall not be less than the amount already paid by

the defaulter.

Transfer of shares: The shareholder intending to transfer his shares to

another should forward an Instrument of Transfer, duly signed by himself and

the transferee. It should also be duly dated and stamped. A specimen form of

an Instrument of Transfer is given below:

Instrument of Transfer To

Bharat Traders, Ltd.,

Bhimavaram,

Sir,s I ………………………………………………. Of ……………………………

in consideration fo the sum of Rs……………………………………………………

paid to me by Sri. ……………………………………………………………………..

(Hereinafter called transferee) do hereby bargain, sell, assign and transfer to

the said transferee the 25 equity shares number 401-425 (both inclusive)

standing in my name in the books of Bharat Traders Ltd., Bhivaram, to hold

unto the said transferee, executors, administrators and assigns subject to the

several conditions on which I held the same Immediately before the

execution hereof. And I, the said transferee, do hereby agree to accept and

take the said 25 shares, subject to the conditions aforesaid.

As witness our Hands and Seals the ………..day of …………………..

20……………

Witness: Transferor’s

Signature……………….. signature……………

Occupation …………….. Address……………

Address………………… …………….

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………………

Witness…………….. Transferee’s……………

Signature Signature:

Occupation……………….. Address………………...

Address………………….. …………………..

…………………… …………….……

Along with the instrument of Transfer, the share certificates are also

sent to the company, which issues a transfer receipt acknowledging the

receipt of the share certificate and agreeing to effect the transfer of shares,

subject to the approval of the Board of Directors.

Then a notice is served on the transferee informing him about the

lodgment to transfer, and intimating that unless he objects, within a prescribed

time (say, tow weeks), the transfer will be effected.

If the transferee does not object, the transfer will be made in the name

of the transferee and a fresh share certificate is made out in his name.

If the transfer relates only to a part of the shares evidenced in the

share certificate, a balance ticket is issued to the transferor.

Transmission of shares: If a shareholder dies, or becomes bankrupt

or insane, shares get transferred to the legal heirs under he the operation of

the law. This is called transmission of shares A person who is entitled to the

shareholder on production satisfactory proof of his title.

Ganesh Company Ltd. (Incorporated under the Companies Act, 1956)

Letter of Allotment

18-C, Connaught Circus,

New Delhi.

December 20, 2005

No. 115

Shri J.D. Verma,

G-22, Defence Colony,

New Delhi

Dear Sir,

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In respect of your application dated 15th December 1978: for 250 equity

shares, I have to inform you that the Board of Directors have allotted to you

200 equity shares of Rs. 10 each the Ganesh Company Ltd.

The amount payable by you on application Rs.

(Rs.2) and allotment (Rs. 3), viz., 1,000.00

Rs. 5 per share on 200 equity shares is

You have already paid on 250 equity 500.00

shares @ Rs.2 per share

Leaving the amount due from you on allotment 500.00

This amount is now due from you and should be paid on or before the

15th January, 1979 to the company’s bankers, Central Bank of India Janpath,

New Delhi, by a crossed cheque.

Yours faithfully,

By Order of the Board C. Ramaswamy

Secretary.

This should be sent entire to the company’s bankers.

………………… Perforated…………………………..

Banker’s Receipt for Allotment Money

Ganesh Company Ltd.

Received this Fifth day of January, 2005, the sum of Rs. Five Hundred only

due in respect of allotment letter No. 115.

Rs. 500-00. N.B. the Share Certificate will be delivered only against production of this Banker’s receipt.

Signature. …….…………perforated……………….. to be detached and retained by bankers.

Ganesh Company Ltd.

Stamp

29

No. 115 Name J.D.Verma. Amount received Rs. 500. 00 Date Received 5th January, 2005.

Signature. Shares and debentures

Specimen of a share certificate

Counterfoil Share Certificate No. …………………… …………………………..Company, Limited Name: ……………….. Address: STAMP Occupation (Capital Rs…………. Divided Into ……………… shares of Rs. …………… each.

Name of the Shareholder.

This is to certify that ……………….. is the registered holder of ………………. Equity shares numbered …………… to ……………. Inclusive in the Company, limited, …………………… subject to the Memorandum and Articles of Association thereof and that the sum of Rupees………………….. (in words) has been fully paid up on each share.

Given under the common seal of the

company this…………………. day of ………………… 19…………..

…………………Director SEAL …………………Director ………………….Secretary N. B. No transfer of any of the within

named shares can be registered without the production of this certificate.

For …………….. equity shares Nos………………….. …. to ……………………….. inclusive Date of Certificate Date of Delivery Register Folio

30

Share warrant: A public company may, with the previous approval of the

Central Government, issue warrants under its common seal, stating that the

bearer of the warrant is entitled to the shares therein specified. (Section 114).

Such a warrant is called a share warrant. It can only be issued if the articles.

Permit the issue of share warrants and if the shares are fully paid up. A share

warrants is a negotiable instrument and can be transferred form person to

person by mere delivery without any registration, while a share cannot be so

transferred. A Private company cannot issue share warrants.

SPECIMEN OF SHRE WARRANT TO BEARER

…………………..Co., Ltd. ………………….Company, Ltd. …………………….. ………………………. (Incorporated under the Companies. Act of 1956) For……………..shares Capital Rs…………………………...

Numbered…………….. No………………..Share Warrant

to…………inclusive. Rs………………..

No. of certificate……… This is to certify that the bearer of this

warrant is entitled to………….

Dated…………………19……… fully paid-up shares of Rs……………

Folio in register of each numbered………..to………………….

Member………………… inclusive in the…………………..Ltd.,

Subject to the articles of association. of the

company and the conditions. Thereof.

Given under the common seal of the company. This……………..day ……………..19…… ……………….Director ……………….Director ………………Secretary

31

ISSUE OF SHARES Company requires finance before incorporation the promotes provide finance to the company. But after in corporation the company gets its capital by issuing shares and debentures. The company needs two types of capital.

1) Fixed capital to purchase fixed assets.

2) Working capital to purchase current assets and pay the running

expenses.

In company the word capital in used in different senses. They are :

1) Nominal and Authorized capital

2) Issued capital

3) Subscribed Capital

4) Called up Capital

5) Paid up capital.

Major part of company capital is provided by issue of shares. They are two

principal types of shares. They are preference shares and Equity shares.

Share represents unit of capital. Its amount is called in installments.

The shares can be transferred more delivery. The share holder in the owner

of the company. He gets profits or dividends on his shares.

Issue of Shares

Out of the face value of the shares 5% is payable with application some money will be paid on allotment and rest money will be paid as and when calls are made by the company. Generally the prospectus gives the dates of different calls along with the amount of calls by shareholders. In case it is no given in prospectus the directors have the discretion to call it in one or more than one call. For this a resolution of the Board of Directors must be padded and a notice is sent to the shareholders with a request to pay the amount of call.

32

JOURNAL ENTRIES FOR USE OF SHARES :

1) When a share application amount relieved. Bank A/c. Dr.

To share Application a/c.

(being the application amount on ___________ share @ Rs.___

relieved).

2) When share application amount transferred to share capital.

Share application a/c. Dr.

To share capital A/c.

(being share application amount transferred to share capital).

3) When allotment amount due.

Share allotment a/c. Dr.

To share capital A/c,

(Being allotment amount due on _________ shares @ Rs.____

per share).

4) When the allotment amount received.

Bank A/c. Dr.

To Share allotment A/c

(Being the receipt of allotment money)

5) When call the money due to call.

Shares call a/c. Dr.

To share capital A/c.

(Being call money due on __________ shares @ Rs.____ per

share)

6) When call amount received.

Bank A/c. Dr.

(being the call amount received).

33

Note : Similarly, entries are made for the second, third and final calls. Each

time the entries are made first for the amount due then for the amount

received.

Illustration :

On 1st July, Madhuri co. Ltd., issues of 50,000 shares @ 100/- each

payable as follows on application Rs.20/- on allotment Rs.25/- on 1st call

Rs.25/p on second call Rs.30/-

Assuming that all the shares were issued and all the amount received

show the necessary entries ledger accounts and opening balance sheet of the

company.

Solution :

No. of shares issued = 50,000

Application money received = 50000x20 = 10,00,000

Allotment money received = 50000x25 = 12,50,000

First Call money received = 50000x25 = 12,50,000

Second & Final Call money recv. = 50000x30 = 15,00,000

34

JOURNAL ENTRIES Date Particulars LF. Debit

(Amount) Rs.

Credit Amount Rs.

1st

July

Bank A/c. Dr.

To share application a/c.

(Being the share application money

on 50000 equity share @ 20/- each

received)

Share application a/c. Dr.

To share capital A/c.

(being share application money

transferred to share capital a/c.

Share allotment a/c. Dr.

To share capital a/c.

(being share allotment due on 50000

shares @ 25/- each)

Bank A/c. Dr

To share allotment a/c.

(Being allotment amount received)

Share first call a/c. Dr.

To Share capital a/c.

(Being share 1st call amount due on

50000 shares @ 25/- each)

Bank a/c. Dr.

To share first call a/c.

10,00,000

10,00,000

12,50,000

12,50,000

12,50,000

12,50,000

10,00,000

10,00,000

12,50,000

12,50,000

12,50,000

12,50,000

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

35

Being share 1st call amount received Shared second / Final call a/c. Dr To share capital a/c.

(Being share final call amount due

on 50000 shares @ 30/- each)

Bank a/c.

To share second / final call a/c.

(Being share final call amount

received)

1,50,000 1,50,000

1,50,000 1,50,000

Balance sheet of Madhuri Co. Ltd., as on 01-07-2004

Liabilities Amount in Rs.

Assets Amount in Rs.

Issued, Subscribed and paid up

capital 50,000 equity shares of

100/- each fully called up and

paid up.

50,00,000

Cash at Bank 50,00,000

50,00,000 50,00,000

36

Dr. Bank Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Share Application

To Share Allotment

To Share First Call

To Share Final Call

10,00,000

12,50,000

12,50,000

15,00,000

1-7-04 By Balance C/d. 50,00,000

To Balance C/d. 50,00,000 50,00,000

Dr. Share Capital Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Balance C/d. 50,00,000 1-7-04 By Share Application

By Share Allotment

By Share First Call

By Share Final Call By

10,00,000

12,50,000

12,50,000

15,00,000

50,00,000 By Balance C/d. 50,00,000

Dr. Share Application Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Share Capital C/d. 10,00,000 1-7-04 By Bank A/c. 10,00,000

10,00,000 10,00,000

Dr. Share Allotment Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Share Capital. 12,50,000 1-7-04 By Bank A/c. 12,50,000

12,50,000 12,50,000

37

Dr. Share 1st call Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Share Capital 12,50,000 1-7-04 By Bank A/c. 12,50,000

12,50,000 12,50,000

Dr. Share 2st call Account Cr.

Date Particulars Amount Rs.

Date Particulars Amount

1-7-04 To Share Capital 15,00,000 1-7-04 By Bank A/c. 15,00,000

15,00,000 15,00,000

Excess Application Money :

Sometimes the public may apply for move than the number of shares issued for subscription. Then there is said to be over subscription. In this case if excess application amount refunded the following entry is to be passed.

Share application a/c. Dr.

To bank A/c.

(being share application amount ___________ share @ Rs.______).

Excess application money adjusted towards amount due on the allotment of

calls. The following entry is to be passed.

Share application a/c. Dr.

To Share allotment a/c.

To share call a/c.

To Bank a/c.

(being the surplus amount received on share application transferred to share

allotment and share call and balance returned).

38

Illustration :

Auto fix Co. issued 10,000 equity shares @ 100/- each payable as follows : on

application Rs. 30/- per share.

On Allotment Rs.30/- per share.

On 1st & final Call Rs.40/- per share.

Application were received for 15000 shares and the directors rejected

applications for 3000 shares and allotted the shares to the remaining

applicants on pro rate basis. Show the necessary journal entries upto

allotment in the books of the company.

Solution : Working Notes.

No. of Shares issued = 10,000

Application money received = 15,000 x 30 = 4,50,000

Less : Amount due on application = 10,000 x 30 = 3,00,000

Excess Application money received = 1,50,000 Amount refunded on rejection of application = 3000 x 30 = 90,000

Surplus application amount adjusted on allotment. = 60,000

Amount due on allotment = 10000 x 30 = 3,00,000

Excess application amount to be adjusted = 60,000

Amount to be received on allotment = 2,40,000

39

JOURNAL ENTRIES IN THE BOOK SOF REDDY LABS LTD.CO.

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1ST July

Bank A/c. Dr. To Share application a/c. (being the share application money on 15000 share @ 30/- received) Share application a/c. Dr. To Share capital A/c. (Being share application money transferred to share capital A/c. Share application A/c. Dr; To Bank A/c. (being refund of application money on rejected applications) Share allotment a/c. To share capital A/c. (being share allotment due on 10000 shares @ 30/- each. Share application a/c. Dr. To share allotment A/c. (being Excess application money adjusted on allotment) Bank A/c. To Share allotment A/c. (being allotment amount received)

4,50,000

3,00,000

90,000

3,00,000

60,000

2,40,000

4,50,000

3,00,000

90,000

3,00,000

60,000

2,40,000

UNDER SUBSCRIPTION:- Sometimes the number of shares applied for may be less than the number of shares issued. It is called Under subscription.

40

Ex:- A Company issues 15,000 shares. They receive only 10,000 Share

applications. i.e. they can allot 10,000 shares only. No entry required for

under subscription.

Call in Arrears:- If a shareholder has not paid any called amount either allotment or call

money, it is known as call in arrears. On such calls in arrears the company

can change interest @ 5 % for the period for which such amount remained in

arrears from the shareholders as per the provision in Articles of Association.

The journal entry for call in Arrears:- Call in Arrears a/c Dr. xxxxx

To Share call a/c xxxx

(Which ever is due)

Call in Advance:- Sometimes some shareholders may the entire calls amount though the

company has not been called up for the amount. Then such amount will be

called a call in advance and will be credited to a separate account known as

call in advance a/c bypassing the following entry.

Bank a/c Dr xxxx

To Call in Advance a/c xxxx

A call in advance a/c is shown as the liabilities side of the Balance sheet

separately from the paid up capital. Generally interest is paid on such calls

according to the provision of the articles of Association but such rate should

not exceed 6% P.A.

ILLUSTRATION :

Suraj Co. Ltd., established with 20,000 equity shares of Rs.200/- each. They issued 15,000 shares for subscription and called. Rs.40/- on Application Rs.50/- on Allotment Rs.55 each on calls.

41

All the above share amount is received except Ravi’s 100 Shares, which fails to pay allotment and 1st call amount Mr.Raghu paid 2nd call amount in advance while paying 1st amount. The company is not called 2nd call amount. Prepare necessary journal entries in the companies books. Working Notes : Application amount 15,000 x 40 = 6,00,000 Allotment Amount 14,900 x 50 = 7,45,000 Call in arrears 100 x 50 = 5,000 Share 1st Call amount 14, 900 x 25 = 8,19,500

Call in advance 200 x 55 = 11,000

JOURNAL ENTRIES :

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1ST July

Bank A/c. Dr. To Equity share application a/c. (Being the share application money on 15,000 shares @ 40/- each received

Equity share application a/c. Dr.

To Equity share capital a/c.

(Being share application money

transferred to share capital a/c.)

Equity share allotment a/c. Dr.

To Equity share capital a/c. (Being

share allotment amount due on

15,000 share @ 50/- each).

Bank A/c. Dr.

To Equity share allotment a/c.

(Being allotment amount received)

6,00,000

6,00,000

7,50,000

7,45,000

6,00,000

6,00,000

7,50,000

7,45,000

42

Equity Share first call a/c. Dr.

To equity share capital a/c.

(Being share 1st call amount due on

15000 shares @55/- each).

Bank A/c. Dr.

To equity shares first call a/c.

To call in advance a/c.

(Being the amount received on

share

1st call and advance on second call)

8,25,000

8,30,500

8,25,000

8,19,50011,000

Issue of Share at Premium : When a share is issued at a price which is above its par value then it

is said that it has been issued at Premium.

Ex. If a share of Rs.100/- issued Rs.125/- then the difference of Rs.25/- is the

premium of the share.

Under Sec. 78 of the companies Act the amount to the credit of the account

may be used wholly or in part for a) paying up un issued shares of company to be issued to

members of the company as fully paid bonus shares.

b) Writing off the preliminary expenses of the company

c) Writing off the expenses of or the commission paid or discount

allowed on, any of shares or of any debentures of the company,

or

d) Providing for the premium payable on the redemption of any

redeemable preference shares or of any debentures of the

company.

Share premium is often changed by the company at the time of

allotment of shares.

43

The Journal entry for recording the premium is as under : Share allotment a/c. (including premium) Dr.

To Share capital A/c.

To Share premium A/c.

(Being the allotment amount due with premium).

ILLUSTRATION :

Spencer Super Market Ltd., Company issued 50,000 equity Shares

@ 120 including premium Rs.20/- they called the amount as follows :

On allotment Rs.50/- (Including premium)

On 1st call Rs.25/-

On 2nd Call Rs.25/-

Prepare the journal entries in the company’s books.

Working Notes :

Application amount 50,000 x 20 = 10,000.00

Allotment amount 50,000 x 30 = 15,000.00

Premium amount 50,000 x 20 = 10,000.00

1st Call 50,000 x 25 = 12,500.00

2nd Call 50,000 x 25 = 12,500.00

Journal Entries in the Books of Vijaya Super Market Ltd. Company. [

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1ST July

Bank A/c.

To Equity shares application a/c.

(Being the share application money

on 50,000 shares @ 20/- each

received)

Equity shares application a/c. Dr.

To Equity share capital a/c.

(Being share application money

transferred to share capital a/c)

10,00,000

10,00,000

10,00,000

10,00,000

44

Equity share allotment a/c. Dr.

To Equity share capital a/c.

To Share premium a/c.

(Being share allotment amount due

on 50,000 shares @ 50/- each

including premium Rs.20/-)

Bank a/c. Dr.

To Equity Share allotment a/c.

(being allotment amount received

with premium)

Equity share first call a/c. Dr.

To Equity share capital a/c.

(Being share 1st call amount due on

50,000 shares @ 25/- each)

Bank A/c. Dr.

To Equity share first call a/c.

(Being Equity share 1st call amount

received.)

Equity share 2nd Call a/c. Dr.

To Equity share capital a/c.

(Being equity 2nd call amount due on

50,000 shares @ 2/- each)

Bank A/c. Dr.

To Equity 2nd Call A/c.

(being Equity 2nd Call amount

received).

25,00,000

2,50,000

12,50,000

12,50,000

12,50,000

12,50,000

15,00,000

10,00,000

2,50,000

12,50,000

12,50,000

12,50,000

12,50,000

45

Issue of share at Discount : When a share is issued at a price which is less than its per value then

it is said that it has been issued at discount.

Ex. I a share of Rs.100/- is issued for Rs.90, then it is issued at 10% discount.

A company can issue shares at a discount only when the following conditions

are satisfied.

a) The shares must belong to a class already issued.

b) The issue is authorised by an ordinary resolution in the general

meeting and sanctioned by the company law board.

c) The issue is made at a discount, which is specified in the resolution,

but in no case the rate of discount should exceed 10% or such higher

percentage as the control Govt. may permit.

d) At least one year has elapsed since the company became entitled to

commence the business and.

e) Issues are made with in two months after receiving the sanction of the

company law board.

The following journal entry is passed on the issue of the shares at a

discount at the time of allotment.

Share allotment a/c. Dr.

Discount on the issue of share a/c. Dr.

To share capital account

(Being the share allotment due with discount)

ILLUSTRATION :

Delta Co. Ltd. issued 20,000 shares of Rs.100/- each at a discount of

10%. The amount called as follows :

On Application Rs. 20

On Allotment Rs.30 with discount.

On 1st Call Rs.30

On 2nd Call Rs.20

The company called up to allotment prepare journal entries in company’s

books

46

JOURNAL ENTRIES IN THE BOOKS OF DELTA CO. LTD.

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1st July

Bank A/c. Dr.

To Equity Share application a/c

(being the share application money

on 20000 shares @ 20/- each).

Share application a/c. Dr. To Share capital a/c.

(Being share application money

transferred to share capital a/c.)

Share allotment a/c. Dr.

Discount on issue of shares a/c. Dr.

To share capital A/c.

(being share allotment amount due

on 20000 shares @ 30/- each with

Rs.10/- due)

Bank A/c. Dr.

To share allotment a/c.

(Being the share allotment amount

received after discount).

40,000

40,000

40,000

20,000

40,000

40,000

40,000

60,000

40,000

47

Forfeiture of shares – Re – issue of shares forfeited: When a share holder fails to pay calls the company, if empowered by

its articles, may forfeit the shares, if a share holder has not paid any call on

the day fixed for payment there of and fails to pay it even after his attention is

drawn to its by the secretary by registered notice, the board of directors pass

a resolution to the effect that such shares to be forfeited. Share once forfeited

become the property of the company and may be sold on such terms as

directors think fit upon forfeiture the original share holder ceased to be a

member and his name must be removed from the register of members.

The following are the proforma entries to be made when the shares

are forfeited.

1. When shares are issued at par.

Share capital a/c. (called upon amount) Dr.

To forfeiture share a/c. (amount received)

To share call / call in arrears (due amount)

2. When shares are issued at premium.

Share capital a/c. (called up amount) Dr.

Share premium a/c. Dr.

To share forfeiture a/c. (amount received)

To share call / call in arrears a/c. (amount due)

3. When shares are issued at discount.

Share capital a/c. (called up capital) Dr.

To share forfeiture a/c. (amount received)

To share call a/c. call in arrears a/c. (with amount due)

To discount on issue of shares a/c.

48

Forfeiture of shares which were issued at par. ILLUSTRATION 1 : Mr. Rasheed was allocated X co. Shares of 100 @ 10/- each. He paid Rs.2/- application money and Rs.3/- on first call amount, his share were forfeited. Show the journal entry needed for recording the forfeiture of shares. Share capital a/c. Dr. 700

To share forfeiture a/c. 200

To Share allotment A/c 200

To share 1st call a/c. 300

(being forfeiture of 100 shares allotted to Rasheed who did not pay the

allotment and 1st call amount).

ILLUSTRATION 2 : Forfeiture of shares – Issued at Discount. Sri. Rahul bought 200 shares @ 10/- each wil 10% discount from &

co. and paid Rs.3/- on application. He fails to pay Rs. 2/- as allotment and the

company directors forfeited his shares. Pass forfeiture entry in the companies

books.

JOURNAL ENTRY IN Y.CO. BOOKS

Share capital a/c. (200 x 6) Dr. 1200

To Share forfeiture a/c. (200 X 3) 600

To share allotment a/c. (200 x 2) 400

To share discount a/c. (200 x 1) 200

(Being 200 shares forfeiture which is issued to Rahul)

49

Forfeiture of shares – Issues at Premium :

ILLUSTRATION : XY Co. Ltd., issued 50,000 of Rs.10/- each at a premium of Rs. 2/- per share payable as follows : On Application Rs.2/- on allotment Rs.5/- (Including premium) On 1st call Rs.3/- and on 2nd and Final call Rs.2/-

The company made the 1st call basher who was allotted 200 shares

failed to pay the allotment and 1st call money. Jagadish who was allotted 300

shares failed to pay the 1st call. The shares of Basheer and Jagdish were

forfeited. Show the necessary journal entries for forfeiting the said shares.

JOURNAL ENTRY FOR FORFEITURE.

Date PARTICULARS DEBIT

AMOUNT

CREDIT

AMOUNT

Share capital a/c. Dr.

Share Premium a/c. Dr.

To Share forfeiture a/c.

To share allotment a/c.

To share 1st call a/c.

(Being forfeiture of 200 shares allotted

to basher as he failed to pay the 1st

call amount),

Share capital a/c. Dr.

To share forfeited a/c.

To share 1st call a/c.

(Being forfeiture of 300 shares allotted

to Jagdish as he failed to pay the 1st

call money).

1600

400

2400

400

1000

600

1500

900

50

RE- ISSUE OF FORFEITED SHARES : Forfeited shares may be re-issued by the company directors for any

amount but if such shares are issued at discount then the amount of discount

should not exceed the actual amount relieved on forfeiture shares. The

purchasers of forfeited reissued shares is liable for payment of all future calls

duly made by the company.

Journal Entry for re-issue of forfeited shares : 1.Bank a/c. Dr. Shares forfeited a/c.

To share capital a/c.

(Being re-issue of forfeited shares).

2. Share forfeited a/c. Dr.

To capital reserve a/c.

(Being transfer of surplus in forfeiture of capital reserve a/c.

ILLUSTRATION : JK Co. Ltd. issued 1000 shares @ 10/- each to Suneel, who paid

Rs.6/- on application and allotment amount and fails to pay Rs.4/- on 1st Final

call. The shares were forfeited and the directors re-issued shares to Srinivas

@ 5/- each. Show the necessary journal entry in the company books.

51

JOURNAL ENTRY IN J.K. CO. LTD.

Date Particulars Debit (Amount) Rs.

Credit Amount Rs.

Share capital A/c Dr.

To share forfeiture a/c.

To share allotment a/c.

To share 1st & final call a/c.

(Being forfeiture of 1000 shares

forfeiture Bank a/c.

Share forfeiture a/c. Dr.

To share capital A/c.

(being reissue of 800 shares @ 5/-

each as fully paid up)

Share forfeiture a/c. Dr

To capital reserve a/c.

(Being the balance in share

forfeiture a/c. transferred to capital

reserve a/c)

1000

4000

4000

800

6000

4000

8000

800

Working Notes : Value of 800 Shares @ 6/- each 4800

Less Re Issued shares amount 4000

Amount transferred to capital reserve 800

52

MODEL EXAMINATION QUESTIONS :

1. Meena Industries Ltd., has an authorized capital of Rs.10,00,000 divided

into 10,00,000 equity shares of Rs.10/- each the company issued all the

shares which were subscribed in full.

On Application Rs.2/-

On Allotment Rs.3/-

On First call Rs.2/-

On Final call Rs.3/-

All the calls were made and all moneys due were received. Prepare journal

entries is company books.

2. Newton company Ltd. invited applications for 60,000 shares of Rs.100/-

each. The shares were payable.

On application Rs.20/-

On allotment Rs.30/-

On 1st call Rs.25/-

On 2nd Call Rs.25/-

All application are were accepted and all moneys were received. Give

ledger a/c. and balance sheet.

3. Mayur Trading Co. of Hyderabad issued 50,000/- (equity shares of Rs.10/-

each. They called the amount as follows :

On application Rs.2/-

On allotment Rs.3/-

On Ist call Rs.3/-

On Final call Rs.2/-

Company received 70,000 applications out of which 20,000 applications were

rejected prepare journal entries treating that all the call were received.

53

3) Mahesh Co. Ltd., having an authorized capital of Rs.15,00,000 in a

share of Rs.10/- each issued 10,00,000 shares of Rs.10/- each as

under.

On application Rs.2/-

On allotment Rs.3/-

On First call Rs.2/-

On final call Rs.3/-

Application received from the public to 1,50,000/- shares. The directors

decided to allot as follows :

With applications for 70,000/- shares full

With applications for 50,000/- shares 30,000/- shares.

With applications for 30,000/- shares Nil

The director did not make the final with prepare journal entries in company

books.

5) Heritage foods Ltd., issued 10,000/- shares of Rs.100/- each at a premium

of Rs.20/- per share. The amount was payable as follows.

Rs.20/- on application

Rs.40/- on allotment with premium

Rs.30/- on first call.

Rs.30/- on Final call.

All the amount received prepare journal entries in company’s books.

6) G.K. Co. Ltd., Invited applications for 50,000/- shares of Rs.10/- each at a

discount of Rs.2/-. The amount was to be paid as follows :

On application Rs.2/-

On allotment Rs.4/-

On Ist & Final call Rs.4/-

54

All the shares & were allotted and were paid prepare journal entries in

companies books.

7) On 1st Jan 2006 Honda by issued 10% 10,000 preference shares of

Rs.100/- each payable as follows :

On application Rs.30/-

On allotment Rs.30/-

On First & Final call Rs.40/-

All the amount received in full except from Suman who was allotted.

100 shares did not pay the first and final call amount and Raju who were allotted 200 shares paid the first and final call amount in advance at an allotment. Such the necessary ledger accounts in company books.

8) Madina Ltd., issued 50,000/- shares of Rs.10/- each payable as follows :

On application Rs.2/-

On allotment Rs.3/-

On First call Rs.3/-

On final call Rs.2/-

In company made the first call Raheem who was allotted 100 shares failed to

pay the allotment and 1st call money Ramu who was allotted 200 shares failed

to pay the first call. The shares of Raheem and Ramu were forfeited show the

necessary Journal entries for forfeiting the said shares.

9) X Co. Ltd., issued 500 shares of Rs.10/- each to Kavitha who paid Rs.3/-

per share on application but failed to pay Rs.3/- on allotment and Rs.4/- on

final call. These share were forfeited and re issued to Sabitha at Rs.8/- per

share fully paid show the necessary journal entries for the said transaction.

10) Zemith Co. Ltd., issued 500 shares of Rs.20/- each to Sanjay and called

Rs.8/- per share. He paid Rs.5/- per share as application and allotment money

and failed to pay the first call. The shares were forfeited and the directors re-

issued the 500 shares to Shyam at Rs.6/- per share fully paid up.

55

Show the necessary journal entries to record the transaction.

11) Prepare the Proforma of Memorandum of Association.

12) Write the main contents of prospectus.

13) Prepare the performance of certificate of incorporation and certificate of

commencement of Business.

14) Prepare the letter on call on shares.

15) Prepare specimen of share certificate and share warrant.

56

COMPANY ACCOUNTS – II

CONTENTS :

• Introduction.

• Preparation of Profit & Loss Account

• Certain items appearing in profit & loss account.

• Preparation of Balance sheet

• Certain items of Balance Sheet

• Model examination questions.

INTRODUCTION : As per the companies act it is stationary obligation to prepare final

account of companies along with profit and loss account with in a stipulated

time.

Preparation of Profit and loss Account :

The Principle of preparation of Profit & Loss Account is same as it is

firm or company, modified by the special provisions laid down in the

companies act. It consists of trading account to show gross profit. Profit &

Loss account to determined net profit, and profit and loss appropriation

account to give a view about the manner in which profits are disposed.

No form for profit & loss account has been prescribed in the companies

act as it has been prescribed for balance sheet, but requirement as to profit

and loss account are given in part II of schedule VI.

Certain items appearing in Profit & Loss Account : The following are the some of the important items appearing in profit &

loss account and their treatment if it is given in Trail Balance and Adjustment.

a) Dividends & Interest received : it relates to income of the company and

appears credit side of profit & Loss account.

57

b) Provision for Taxation : it should be credited to profit and loss account

if it is given in adjustments it is debited to profit and loss account and

second time on the liabilities side of balance sheet.

c) Income Tax Paid : it is treated as advance tax is paid so it appears on

Asset side of loan and advances head.

d) Preliminary expenses : it appears asset side of balance sheet. If

adjustments is there, the (adjustment appears) written off amount

debited profit and loss account and the same deducted from the item in

balance sheet.

e) Discounts & Expenses on issue of shares / Debentures : it is appears

on the assets side of balance sheet. If adjustments is there on these

items. The written off amount appears on debit side of profit and loss

account and the same deducted from the respective items. In asset

side of balance sheet.

f) Interest on debentures : if it is given in Trail balance it is debited to

profit and loss account if it is given in adjustments it appears both side

of profit and loss account debit and liabilities side of balance sheet.

58

Proforma of Trading and Profit and Loss Account of a company is titled as Profit and loss account _____________co. Ltd., as on _____________

Particulars Amount Particulars Amount

To Opening stock

To Purchases xxxx

(-) Returns xxx

To Carriage inwards

To productive wages

To Freight

To Gross Profit

(transferred to profit & Loss

account)

To Salaries xxxx

(-) Outstanding xx

To Insurance xxxxx

(-) Prepaid xx

To bank expenses

To Director fees

To General expenses

To discount paid

To bad debits

To advertisement

To commission paid

To interest on debentures

(+) outstanding xxx

To Preliminary expenses

written off (adj)

To depreciation (on assets)

To Provision for income tax

To Net profit (transferred to

Profit & loss appropriation a/c.

Xxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx Xxxxx Xxxxx Xxxxx Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

By Sales xxxx

(-) Returns xxx

By closing stock

By Gross Profit transferred from

trading account.

By discount received

By hare transfer fees

By interest on investment

By interest on defence bonds

By net Loss (if arises)

(transferred to profit and loss

appropriation a/c.)

Xxxxx

Xxxxx

Xxxxx Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx

Xxxxx Xxxxx

59

PROFIT AND LOSS APPROPRIATION ACCOUNT. A company has to prepare the profit and loss appropriation account in addition to the profit and loss account. It shows the appropriation of profit and is popularly known as below the line the splitting of the profit and loss account into three section (i.e., profit and loss appropriation a/c.) is not forbidden by the companies Act. It is desirable to split the profit and loss A/c. into three sections to that gross profit. Net profit and surplus carried to the balance sheet may be ascertained. It is prepared as follows.

PROFIT AND LOSS APPROPRIATION ACCOUNT.

Particulars Amount Particulars Amount

To Transfer to reserves

To Income tax for previous

year not provided for

To Interim dividend

To surplus (balancing figure

carried to Balance sheet)

Xxxxx

Xxxx

Xxxx

Xxxx

By Last years’ balance b/d

By Net Profit for the year

By amount with drawn from

General reserve . other reserve.

By provision (income tax

provision not required).

Xxxx

Xxxx

Xxxx

Xxxx

Xxxx Xxxx

Illustration :

The following are the particulars of G.K. Guntur as 31-12-2005.

Particulars : Dr. Cr. Opening stock 75,000 Sales 3,50,000

Purchases 2,50,000

Wages 50,000

Discount 5,000

Salaries 7,500

Rent 5,000

Sundry Expenses 7,000

Profit & Loss appropriation A/c. 1-1-06. 15,000

Dividend Paid 9,000

Plant & Machinery 30,000

60

Adjustments : Closing stock valued Rs.80,000. Depreciation plant &

Machinery @ 10/- you are required to prepare profit and loss account for the

year ended 31-12-2006.

G. K. Co. Ltd., Profit & Loss A/c. for the year ended 31-12-2005.

Particulars Amount Particulars Amount

To Opening Stock 75,000 By Sales 3,50,000

To Purchase 2,50,000 By Closing Stock 80,000

To Wages 50,000

To Gross Profit & C/d. 55,000

4,30,000 4,30,000

To Salaries 7,500 By Gross Profit B/d. 55,000

To Rent 5,000 By Discount 5,000

To Sundry Expenses 7,000

To Depreciation on Plant &

Machinery 3,000

To net Profit c/c. 37,500

Profit and Loss 60,000

appropriation

account. 60,000

To Dividend Paid 9,000 By balance B/d. 15,000

To Balance c/d. (Carried

forward to balance sheet) 43,500

By Net profit current

year

37,500

52,500 52,500

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Illustration : 2 Prem Raj Ltd had a nominal capital of Rs.6,00,000 dividend into shares of Rs.10/- each the Balance as per ledger of the company as at Dec. 31 2005 was as follows :

Particulars Amount Particulars Amount

Calls in arrear 7,500 Bad debts 2,110

Premises 3,00,000 6% debentures 3,00,000

Plant & Machinery 3,60,000 P & L A/c. (Cr) 14,500

Interim Dividend paid 7,500 Sundry Creditors 50,000

Purchases 1,85,000 General Reserves 25,000

Preliminary Expenses 5,000 4% Govt. Securities 60,000

Freight 13,100 Stock (1st Jan. 2005) 75,000

Directors Fees 5,740 Fixtures 7,200

Sundry Debtors 87,000 Salaries 14,500

Good will 25,000 Debentures interest

Cash in hand 750 Share capital (fully called) 4,60,000

Cash at Bank 39,900 Bills Payable 38,000

Wages 84,800 Sales 4,15,000

General Expenses 16,900 Provision for Bad Debts 3,500

Prepare the Profit and Loss account relating to 2005 from the figures given above after taking in to account the following :-

1) Depreciate Plant & Machinery by 10% and Fixtures by 5%; 2) Write off 1/5 of Preliminary Expenses; 3) Rs 10,000 of wages were utilized in adding rooms to the Premises; no

entry has as yet been made for it 4) Leave Bad Debts Provision at 5% of the Sundry Debtors; 5) Provide a final dividend @ 5% 6) Transfer Rs 10,000 to General Reserve; and 7) Make a Provision for Income Tax to the extent of Rs. 25,000 8) The stock on 31st December 2005 of Rs. 1,01,000.

62

9) PROFIT & LOSS A/C. FOR THE PREM RAJ CO. LTD. FOR THE YEAR ENDED 31-12-2005

Figures Relating to 31st Dec. 2005

Expenses

Figures for the current year Rs.

Figures Relating to 31st Dec. 2005

Expenses

Figures for the current year Rs.

To Stock

To Purchases

To Wages

Less Charged to

Premises 10,000

To Freight

To Gross Profit c/d.

75,000

1,85,000

74,000

13,100

1,68,100

By Sales

By Stock

4,15,000

1,01,000

5,16,000 5,16,000

To General Expenses.

To Salaries

To Debenture interest

Paid 9,000

Add Out

Standing 9,000

To Directors Fees

To Prelimanary

Expenses

To Depreciation plant

& Machinery 36,000

Fixtures 360

To provision for bed

debts.

Required 4,350

Add Bad

Debts 2,110

Less Existing

16,900

14,500

18,000

5,740

1,000

36,360

By Gross Profit

b/d.

By interest due

On govt

Securities

(4% on

Rs.60,0000)

1,68,100 2,400

63

Provision 3,500

To Provision for

Income Tax

TO Net Profit C/d.

2,960

25,000

50,040

1,70,500 1,70,500

Balance Sheet:- It must be drawn up in such a form and should have such contents as

we give affairs. For this purpose it should be drawn up as far possible in

conformity with the form set out in Part – I of schedule VI of the companies

Act. Section 210 of the companies Act requires that at every annual general

meeting of the shareholders, the Board of Directors of the Company shall lay

before the company a Balance Sheet at the end of each trading period.

Certain important items in Balance Sheet:-

The following are some of the important items appearing in Balance Sheet.

1. Call in Arrears: This amount is deducted from the called up share

capital.

2. Call in advance: The amount received in advance. So it is shown

separately from the called up capital on the liabilities side.

3. Share premium: It is shown on the liabilities of Balances sheet

under the head Reserve and surplus.

4. Forfeited shares: It is to be added to the paid up capital on the

liability side of Balance Sheet.

5. Fixed deposits: It can accepts from public it is shown under

unsecured Loan on the liability side of Balance Sheet.

64

6. Unclaimed Dividend: Dividend which are not en cashed by the

share holders are called unclaimed dividends. This item is shown

under current liabilities.

7. Secured Loan: In case of each secured loan the nature of security

given by the company should be indicated.

8. Unsecured Loans: Interest occurred and due on unsecured loans

must be shown as an addition to the respective loans.

9. Fixed Assets: Full details of fixed assets their additions, Total

depreciations should be clearly shown.

10. Current Assets: Closing Stock, debtors, Bills Receivable etc.,

comes under this head.

11. Miscellaneous Expenditure: Not written off expenditure comes

under this head. Ex. Preliminary Expenditure.

The form of the Balance sheet as given in Part I of Schedule VI of the

Companies Act is given below.

Schedule VI (Section 211)

PART – I FORM OF BALANCE SHEET. Balance Sheet of _________________________ as on _____________

Figures for the Previous year Rs.

Liabilities Figures for the current years Rs.

Figures for the Previous year Rs.

Assets Figures for the current year Rs.

Figures for the Previous year Rs.

1 2 3 4 5 6 7 Share Capital:

Authorized _______ Shares of ____ each Issued ___Shares of Rs. _____ each. ____Shares of Rs. ____per share called up. Less: calls unpaid 1). By directors 2). By others Add: Forfeited

Fixed Assets: Good will Land Buildings Leaseholds Railway sidings Plant and Machinery Furniture & fittings Development of Property Patents, trade

65

Shares of the above shares ______ shares are allotted as fully paid up pursuant to a contract without payments being received in cash of the above _____ shares are allotted as fully paid up by way of bonus shares. Reserves and surplus. Capital Reserve Capital Redemption Reserve Share Premium Account Other Reserve Less: Debit Balance in Profit and Loss Account, if any. Surplus, i.e., balance in Profit and Loss account after providing for proposed allocations, namely, dividend, bonus, etc. Proposed additions to Reserves, Sinking Funds. Secured Loans Debentures Loan & Advances from banks. Loans & Advances from Subsidiaries Other Loans & Advances Unsecured Loans Fixed Deposits Loans & Advances from subsidiaries

marks and designs Livestock Vehicles, etc. Investments: Showing nature of investments and made of valuation, e.g., cost or market value:

a) Investments in Government or Trust Securities.

b) Investments in shares, debentures or bonds.

Immovable Properties. Current Assets, Loans and Advances A) Current Assets Interest accrued on investments Stores & Spare parts loose tools Stock-in–Trade Work- in- Progress Sundry Debtors

a) Debts out standing for a period exceeding six months

b) Other debts Less: Provision Cash balance in hand Band Balances: a) With

Scheduled Banks

b) With others

66

Short term loans and advances:

a) from banks b) from others.

Current liabilities and provisions a). Current Liabilities Acceptances Sundry Creditors Advance Payments and unexpired discounts unclaimed dividends, other liabilities (if any) interest Accrued but not due on loans b). Provisions Provision of Taxation Proposed Dividends For contingences for provident fund Scheme. For insurance, Pension and similar staff other provisions Contingent Liabilities (A foot note to the balance sheet is added to show separately and these are not included in the total) claims against the company not acknowledged as debts uncalled liability on shares partly paid Arrears of Fixed cumulative dividends Estimated amount contracts remaining to be

B) Loans l& Advances Advances and Loans to Subsidiaries Advances and Loans to partnership firm s in which the company or any of its subsidiaries is a partner Bills of Exchange Advances recoverable kin cash or in kind or for value to be received, e.g., Rates, Taxes, insurance, etc. Balance with Customs, Port Trust etc. (where payable on demand) Miscellaneous Expenditure (To the extent not write off or adjusted Preliminary Expenses including commission or brokerage on underwriting or subscription of shares or debentures interest paid out of capital during

67

executed on capital account and not provided for other moneys for which the company is contingently liable.

construction (also stating the rate of interest) Development expenditure not adjusted other items (specifying nature)

Profit and

Loss Account

(Show here the debit balance of profit and Loss Accountant carried forward, after deduction of th4e uncommitted reserves, if any.)

Model questions:- 1). From the following balances Prepare Profit & Loss A/c as on 31-03-2005.

Particulars Rs. Particulars Rs. Sales returns 5,000 Interest paid on

debentures 9000

Opening stock 40,000 Salaries 2,45,000Freight 6,000 Transfer fees (Cr) 1,000Purchasers 1,04,000 Discount (Cr) 3,000Salaries 30,000 Purchase returns 4,000Wages 20,000 Carriage out ward 1,400 Depreciation on furniture

2,000

Depreciation on plant 6,000 Insurance 1,000

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Additional information :

1. Closing Stock Rs. 50,000/- 2. Out standing wages Rs. 500/- , Salaries Rs. 1500/- 3. Prepaid Insurance Rs. 400/- 4. Interest Payable on debentures Rs. 3000/-

2). Prepare Profit & Loss A/c of Sri Sarath & Co. for the year ending 2005.

Trial Balance

Dr. Cr. Capital Account 25,000 Stock on 1-1-2005 6200 Cash 1700 Sundry debtors 9100 Purchases 61300 Sales 93600 Return out wards 1800 Return in wards 500 Freight in wards 3700 Interest out wards 7200 Salaries 10500 Rent 6000 Sundry Creditors 4000 Mischievous receipts 100 Drawings 6300 Furniture 10800 Depreciation on furniture 1200 ----------- ---------- 124500 124500 ------------ ---------- Adjustments:

1. Closing stock Rs. 8000/- 2. Out standing salaries Rs. 2500/- 3. Reserve on debtors @ 5%

3). From the given trial balance of ‘X’ Co. Ltd., Prepare Profit & Loss A/c and

balance Sheet as on 31-033-2006.

Particulars Dr. Cr. Bad debts reserve 1,0000 Bills payable 3,00,000 Share capital 8,00,000 Salaries 40,000

69

Cash at bank 1,10,000 Cash in hand 20,000 1-4-2005 stock 1,00,000 General Reserve 1,00,000 Debtors & Creditors 2,00,000 1,00,000 Profit & loss A/c 2,00,000 Bad debts 6,000 Directors fees 4,000 Wages 20,000 Preliminary expenses 2,00,000 Purchases and sales 8,00,000 Machinery 8,00,000 Land & Buildings 1,00,000 Call in arrears 10,000 ------------ -------------- 33,10,000 33,10,000 -------------- -------------

Adjustments: 1. Closing Stock Rs. 2,00,000 2. Transfer Rs. 10,000 to General Reserve 3. Change 10% depreciation on machinery 4. Write off 25% Preliminary Expenses.

4). The following was the trial balance of K.K.. Swamy & Co., as onn 31-12-

2005 Trail balance

Particulars Dr. Cr.

10% preference Shares 3,00,000 Equity 5,00,000 Stock on 1-03-2004 1,00,000 Fuel 50,000 Purchasers and Sales 3,00,000 90,000 Profit & loss Account 1,00,000 Plant & Machinery 2,00,000 Share transfer fee 10,000 Returns 50,000 1,00,000 Good will 2,00,000 Wages 1,00,000 Salaries 11,50,000 Rent & Insurance 1,00,000 Director fees 20,000 Call in arrears on Equity shares 10,000 Cash in hand 20,000 Cash in Bank 1,00,000 Land & Building 2,00,000 --------------- -------------- 20,00,000 20,00,000 ----------------- --------------

70

Adjustments:

1. Closing stock Rs. 1,00,000 2. Closing depreciation on plant & Machinery @ 10% 3. Out standing salaries Rs. 20,000/- & Wages Rs. 10,000/- propose

company final Account 4, From the following balances prepare the balance sheet of M/s Leelavathi

& Co., for the year ended Dec 2005

Share capital 7,00,000 Cash 50,000 Bank 1,20,000 Closing stock 90,000 Share premium 40,000 Profit & Loss appropriation A/c 60,000 Buildings 2,40,000 Furniture 90,000 Debentures 1,00,000 Good will 1,50,000 General Reserve 20,000 Bills receivable 80,000 Bills payable 10,000 Debtor’s 1,50,000 Creditors 40,000

5) The following is the trail balance of Bhavani & Co., as on 31-12-2005

Particular Dr Cr Opening stock 1,00,000 Equity share capital 1,20,000 Buildings 1,20,000 Purchases 1,97,000 Wages 60,000 Preference share capital 2,80,000 6% debentures 1,00,000 Salaries 22,000 Insurance & Taxes 15,000 Interest on debentures 3,000 Transfer fees 3,400 Rent 3,000 Sales 3,57,000 Creditors 30,000 Bad debt reserves 1,900 Good will 50,000 Commission 28,900 Bad debts 1,000 General expenses 11,000 Repairs 3,000

71

Cash 4,400 Machinery 1,60,000 Preliminary Expenses 8,000 Debtors 1,21,000 ----------- ------------ 9,04,300 9,04,300 ----------- ------------

Additional information:

1. Closing stock as on 31-12-2005 Rs. 1,50,000 2. Write off 50% Preliminary expenses. 3. Prepaid insurance Rs. 1000/- 4. Provide depreciation on machinery @ 10% 5. Create 5% Reserve on debtors.

6) The following are the balances extracted from the ledger of the company

as on 31-12-2005.

PARTICULARS Rs. PARTICULARS Rs. Stock 50,000 Discount

Received 3,150

Sales 4,25,000 Purchases 3,00,000 Insurance 6,720 Wages 70,000 Salaries 18,500 Discount Allowed

4,200 Advertisement 3,800

Bonus 10,500 Rent 6,000 Debtors 38,700 General Expenses 8,950 Creditors 35,200 Profit & Loss A/c 6,220 Plant & machinery 80,500 Printing & Stationary 2,400 Furniture 17,100 Loan from managing

Director 15,700

Cash – Bank 34,700 Bad debts 3,200 Reserve 25,000 Call in Arrears 5000

You are required to prepare profit & Loss A/c and Balance sheet as on 31-12-2005. Additional information :

1) Closing stock Rs.91,500 2) Depreciation on plant & Machinery @ 10% 3) Out standing wages Rs.10,000 salaries Rs.2,500

72

7. The following Trail Balance was extracted from the books of R.Raju Co.

Ltd., Tirupathi as on 31-12-2000-5 Particulars Debit Rs. Credit Rs. Share Capital, Authorized & Issued 50,000 Equity Shares of 20/- each

10,00,000

Call in Arrears 1,000 Cash at Bank 2,76,000 Motor Car 1,48.000 Sundry Debtors 2,96,000 Sundry Creditors 2,32,000 Printing & Stationery 6,000 Purchases 24,00,000 Sales 31,60,000 Stock 1-1-2005 2,40,000 Bad debts Reserve 5,000 Bad debts 11,400 Land & Building 8,00,000 Repairs 47,600 General Reserve 2,00,000 Director fees 20,000 Salaries 2,29,000 Motor delivery Expenses

99,000

General Expenses 1,31,400 Rates & Taxes 15,600 Profit & Loss A/c 1,24,000 47,21,000 47,21,000

Adjustment:- 1) Stocks as on 31-12-2005 Rs. 4,75,000 2) Depreciate 10% on Motorcar

3) Out standing Rent & Taxes Rs. 200/-

You are required to prepare Final account on the above particulars.

73

III – HIRE PURCHASE SYSTEMS

CONTENTS:

1. Introduction

2. Terminology

3. How the business conducted

4. Preparation of Accounts

5. calculation of Interest when rate is not given.

6. Installment + Interest method

7. Exercises.

INTRODUCTION:

Hire Purchase system is one of the method of trading the goods

under this system trader delivers an asset / Article to consumer on the

payment of a part price of the product. The consumer agrees to pay the

balance in Installments. He becomes owner of the product only when he pays

the lost installment. If he fails to pay even one installment the trade can claim

back the Asset and the amount already paid become hire on using asset.

Terminology:

a. Hire purchase price: It is specified is Hire Purchase agreement. b. Cash Price: Original cost price of the goods. c. Cash Down payment:- It is the payment made at the time of signing

that hire purchase agreement by the buyer. d. Installment amount : It is the amount payable by the buyer as per

agreed intervals. e. Net was price :- It is arrived after paying cash down payment at the

time of agreement. f. Hire purchaser : The buyer who agreed to purchase the goods on

hire. g. Hire Vendor : The person who agreed to sale the goods under their

system.

74

HOW IS THE BUSINESS OF HIRE PURCHASE CONDUCTED ?

The Asset sold on hire purchase basis on account of asset sold, of the dates

on which payments are due and of the actual payments made is carefully

maintained by the seller. On payment of each installment a receipt is sent to

the buyer. After a receipt is sent to the buyer. After all the installment have

paid a final receipt in sent card index system in usually used for this purpose.

Each customer is allotted a card on which all particulars are entered.

In case payment is not received with a few days from the due date this fact is

brought to the notice of the buyer concerned and he is requested to make the

payment. If there is no response to such a request on urgent demand for

immediate payment is made if this also fails the seller take back the

possession of the goods.

Accounting Records : There are two parties in the hire purchase agreement ie., buyer and

seller. The method of recording hire purchase transactions in the account,

Books depends upon the nature of goods ie., whether they are of

considerable value or of comparatively small value.

Goods of Considerable Value : Buyer’s Books : There are three moths of recording hire purchase

transactions in the books of the buyer.

75

1. Treating the goods not becoming the property of the hirer : Under this method, goods purchased under hire purchase system will

not become the property of the buyer until all the installments are paid. The

following entries are made in the books of buyer :

(i) When an asset is purchased on hire purchase no entry. (ii) For cash down payment on delivery of the asset Asset Account To Bank Account. (iii) When the first installment becomes due

Asset Account Dr.(Payment towards cash

price)

Interest Account Dr (For Interest Amount of installment)

(iv) When first installment is paid

Hire vendor account Dr.

To Bank

(v) When depreciation in charged

Depreciation Account Dr.

To Asset. Dr.

(v) When interest and depreciation accounts are closed by transfer to

profit and loss account.

To interest Account.

To Depreciation Account.

Notes : Entries (iii) to (vi) will be repeated in subsequent year. Asset will be

shown in the balance sheet at purchase cost minus the depreciation.

2. Treating the goods as Outright property. Some accounts are of the opinion that goods purchased on hire

purchase systems should be treated as property of the business on the

assumption that asset has been purchased with the intention of paying all the

installments on the due date to acquire the asset for the business. Under this

method, the following entries are to be passed in the books of the buyer.

76

(i) When an asset is purchased on hire purchase no entry.

Asset Account (with cash price) T(ii) For Cash down payment on delivery.

Hire Vendor Account Dr.

To cash / Bank.

(iii) For Interest due at end of the year.

Interest Account Dr.

To Hire vendor Account

(iv) For the payment of the first installment

Hire vendor account Dr.

To Bank

(v) For Depreciation charge

Depreciation Account Dr.

To Asset Account

(vi) For transfer of interest and depreciation to profit and loss account.

Profit & Loss Account.

To Depreciation Account.

Notes : Entries (iii) , (iv) (v) and (vi) will be repeated in subsequent year.

Asset in this case will be shown in the balance sheet after deducting

depreciation and balance due to the vendor from the asset beginning

balance.

3. Interest suspense Method Under this method asset is debited with case price and difference

between hire purchase price and cash price is also debited to interest

suspense account corresponding total credit being given to the vendor.

Interest included in each installment is credited to interest suspense account

by giving debit to interest account. The following entries are passed in the

books of buyer.

77

(i) When an asset is purchased on hire purchase system.

Asset Accept Dr. (with cash price)

Interest suspense A/c. Dr.(difference between H.P.

price and cash price)

To Hire vendor account (with total hire purchase price).

(ii) For cash down payment on delivery.

Hire Vendor account

To Cash / Account.

(iii) For Interest due at end of the year.

Interest Account Dr.

To interest suspense Account.

(iv) For the payment of the first installment

Hire vendor account Dr.

To Bank

(v) For Depreciation charge

Depreciation Account Dr.

To Asset Account

(vii) For transfer of interest and depreciation to profit and loss account.

Profit & Loss Account.

To interest Account.

To Depreciation Account.

Notes : Entries (iii) and (vi) will be repeated in subsequent year.

Under this method asset will be shown in the balance sheet at cash price

less depreciation charged and balance due less suspense account

balance.

Generally the second method is adopted for the purpose of

examination unless it is given in the question to adopt a specific method.

78

VENDOR’S BOOKS

The vendor for the purpose of recording sales may adopt any one of

the following two methods. :

1. First Method : Under this method the following entries are passed in

the books of vendor.

(i) When goods are sold on hire purchase

Hire purchase account Dr.

To sales

Sales account is ultimately closed by transfer to trading account.

(ii) For cash received on delivery.

Cash / Bank account Dr.

To Hire purchaser.

(iii) For interest due on installment at the end of the year.

Hire Purchaser Account Dr.

(v) For receipt of the amount of installment

Cash/Bank Account Dr.

To Hire Purchaser

(vi) For transferring the balance of interest to profit and loss account

Interest Account Dr.

To Profit and Loss Account

Note: Entries (iii) to (v) will be repeated in subsequent years.

2. Second Method. Under this method, the difference between the hire

purchase price and the cash price is credited to the interest suspense

account and sale account is also credited with cash price,

corresponding debit being given to hire purchaser account. The

following entries are passed in the books of vendor:

(i) When gods a, sold on hire purchase

Hire Purchaser Account Dr. (with total H. P.

Price) To Sale Account (with cash price)

To Interest Suspense Account (with difference between H. P. Price

and Cash Price )

79

(ii) For cash received on delivery

Cash/Bank Account Dr.

To Hire Purchaser Account

(iii) For interest due on installment at the end of the year.

Interest Suspense Account Dr.

To Interest Account

(iv) For receipt of the amount of installment

Cash/Bank Account Dr.

To Hire Purchaser

(v) For transfer of interest to Profit and Loss Account

Interest Account Dr.

To Profit and Loss Account

Note: Entries from (iii) to (v) will be repeated in subsequent years

Illustration 1. The following are the particulars relation to hire purchase:

Purchaser-Ram & Co Seller-Shyam & Co.

Date of purchase-Jan. 1, 1978 Goods purchased-Tempo

Cash Price-Rs. 12,894. Delivery Van.

Payments- Rs. 2000 on signing of the agreement and the balance in the

three equal annual installments of Rs. 4,000 due on 31st December each

year.

Rate of instrest-5% per annum.

Depreciation-20% on the written down value each year.

Make Journal Entries and prepare necessary ledger accounts in the books

of both parties under all the methods and show the Tempo Delivery Van in

the Balance Sheet as on 31st December, 1979. Calculations are to be made

to the nearest rupee.

80

Solution

Working Notes:

(1) Calculation of principal and interest included in each installment

Cash price interest Installments

Less paid on 1-1-1978

Less paid on 31-12-1978

Less paid on 31-12-1979

Less paid on 31-12-1980

12,894 2,000 10,894 3,455 7,439 3,628 3,811 3,811

5%

Total

Payment

towards

Cash Price

Rs.

2,000

3,455

3,628

3,81

12,894

Interest Rs

545

372

189

1,106

(2) Calculation of Deprecation

Cash Price on 1-1-78 12,894

Less Depreciation @ for 1978 2,579

Balance on 1-1-79 10,315

Less Depreciation @ 20% for 1979 2,063

Balance on 1-1-80 8,252

Less Depreciation @ 20% for 1980 1,650

Balance on 1-1-81 6,602

81

IN THE BOOKS OF RAM & CO FIRST METHOD

JOURNAL ENTRIES

Dr. Cr. Dr. Cr. Dr. Cr.Jan, 1 Tempo Delivery Van A/c. Rs.2,000 - - - - -

To Cash 2,000(Cash down payment)

31-Dec Temp Delivery Van A/c. Dr 3455 3628 3811Interest A/c. 545 372 189To Cash 4000 4000 4000(Payment of Installment)Depreciation A/c. Dr. 2579 2063 1650To Temp Delivery 2579 2063 1650Van A/c.(Depreciation charged to asset account)Profit & Loss A/c. Dr 3124 2435 1839To Interest A/c. 545 372 189To Depreciation A/c. 2579 2063 1650

1978 1979 1980

TEMPO DELIVERY VAN A/C.

1978 Rs. 1978Jan.1 To Cash A/c 2000 Dec.31 By Dep. A/c. 2579

Dec.31 " Cash A/c. 3455 By Balance C/d. 28765455 5455

1979 1979Jan,1 To balance b/d. 2876 Dec.31 By Depreciation A/c 2063

Dec.31 To Cash A/c. 3628 Balance C/d. 44416504 6504

1980 19801-Jan To balance b/d 4441 Dec.31 By Dep. A/c. 1650

31-Dec To Cash A/c. 3811 Balance C/d. 66028252 8252

1981Jan.1 To Balance b/d. 6602

82

83

84

85

86

87

88

89

ILLUSTRATION : Raghu Industries Ltd., Purchased a machine from Raghava &Co. on Hire

purchase system on 1-1-2002. The conditions are as follows :

Rs.

1. Cash Price 64,470

2. Hire Purchase Price 70,000

3. Installation amount on every 31st Dec. 20,000 (3 Installments)

4. Interest 5%

5. Cash down 10,000 (Ten Thousand)

Jay Ram Industries charges 10% depreciation on straight line method on its Machine. Prepare Journal entries in both of the books and also Ledger Accounts.

90

Sl.No. Date Installment

/ Cash

down

Interest Principal Balance Due Depreciation.

1. 1-1-2002 10,000 - - 51470

(64,470 – 10,000)

-

2 31-12-02 20,000 2723 17,277 37193

(54,470 – 17,277)

6447 (64,470 x

10/100)

4. 31-12-04 20,000 947 19053 20,000 6447

Total 70,000 5,530 64,470

Note :- 1. In Last Installment Balance figure (20,000 – 19,053) 947 takes as interest. Interest rounded to nearest rupee. Solution :

Journal Entries in the books of Raghu Industries Ltd. (Hire Purchaser)

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1-1-2002 Machine A/c. Dr. Interest Suspense A/c. Dr.

To Raghava & Co. A.c,

(Being the machine purchased on

Hire purchase system)

64,470

5,530

70,000

1-1-2002 RAGHU & CO. A/C. DR. To bank A/c.

(being cash down payment made)

10,000

10,000

31-12-2002 Interest AC/. Dr. To Interest suspense A/c.

(Being interest payable to Vendor)

2,723

2,723

31-12-2002 RAGHAVA A/C. DR.To bak A.c.

(Being Ist Installment paid)

20,000

20,000

31-12-2002 DEPRECIATION A/C DR.To Machine A/c.

(being Depreciation charged)

6447

6447

91

31-12-2002 Profit & Loss A/c. Dr. To Interest A/c.

To Depreciation A/c.

(being Interest and depreciation

transferred)

9170

2723

6447

31-12-2003 Interest A/c. Dr. To Interest suspense A/c.

(Being interest payable to vendor)

1860

1860

31-12-2003 RAGHAVA A/C. DR. To Bank A/c.

(Being Ist Installment paid)

20000

20000

31-12-2003 Depreciation A/c. Dr. To Machine A/c

(Being Depreciation charged).

6447

6447

31-12-2003 Profit & Loss A/c. Dr To Interest A/c.

To Depreciation A/c.

(being Interest and depreciation

transferred)

8307

1806

6447

31-12-2004 Interest A/c. Dr. To Interest suspense A/c.

(being interest payable to vendor)

947

947

31-12-2004 Ravhava A/c. Dr. To bank A/c.

(being 1st Installment Paid)

20000

20000

31-12-2004 Depreciation A/c. Dr To Machine A/c.

(being Depreciation Charged)

6447

6447

Profit & Loss A/c. Dr. To Interest A/c.

To Depreciation A/c.

(being interest and depreciation

transferred).

7394 947

9447

92

Ledger Accounts in the Books of Raghu Industries Ltd. Raghava A/c.

Date Particulars Amount Date Particulars Amount

01-01-02

31-12-02

31-12-02

To bank A/c.

To Bank A/c.

To balance C/d.

10,000

20,000

40,000

01-01-02

31-12-02

By Machine A/c.

By Interest

Suspense A/c.

64470

5530

70,000 70,000

01-01-03 To bank A/c.

To Balance C/d.

20,000

20,000

01-01-03 BY Balance B/d. 40,000

40,000 40,000

31-12-04 To Bank A/c. 20,000 01-01-04 By balance B/d. 20,000

TOTAL 20,000 TOTAL 20,000

Machine A/c.

Date Particulars Amount Date Particulars Amount

01-01-02 To Raghu Reddy &

Co.

64,470 31-12-02 By Depreciation

A/c.

By Balance C/d.

6,447

58,023

64,470 64,470

01-01-03 To Balance B/d. 58,023 31-12-03 By Depreciation

To Balance c/d.

6,447

51,576

58,023 58,023

01-01-04 To balance B/d. 51,576 31-12-04 By Deprecation 6,447

By Balance C/d 45,129

51,576 51,576

01-01-2005 To Balance B/d 45,129

93

INTEREST A/C

Date Particulars Amount Date Particulars Amount

31-12-02 To Interest

suspense A/c.

2,723 31-12-03 By Profit & Loss

A/c.

2,723

31-12-03 To Interest

suspense A/c.

1,860 31-12-03 By Profit & Loss

A/c.

1,860

31-12-04 To Interest

Suspense A/c.

947 31-12-02 By Profit & Loss

A/c.

947

Journal Entries in the Books of Raghava & Co. (Seller Books)

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1-1-2002 Raghu Industries A/c Dr. Interest Suspense A/c. Dr. To Raghava & Co. A.c,

(Being the machine purchased on

Hire purchase system)

70,000

5,530

64,470

01-01-02 Bank A/C. Dr. To Raghu Industries

(Being cash down received on

delivery of machine)

10,000

10,000

31-12-02 Interest suspense A/ c Dr To Interest A/c.

(Being Interest suspense A/c.

transferred to interest A/c.

2,723

2,723

31-12-02 Bank A/C. Dr To Raghu Industries

(Being Installment amount received

on asset

20,000

20,000

31-12-02 Interest A/C. Dr To Profit & Loss A/c.

(Being Interest transferred).

2,723

2,723

94

31-12-02 Sales A/C. Dr. To. Trading A/c.

(Being Sales A/c. transferred to

trading A/c.)

54,470

64,470

31-12-03 Interest suspenses A/c. Dr. To Interest A/c.

(Being interest suspense A/c.

transferred to interest A/c.)

1860

1860

31-12-03 Bank A/C. Dr. To Raghu Industries

(being Installment amount received

on asset)

20000

20000

31-12-03 Interest A/c. Dr. To Profit & Loss A/c.

(Being Interest amount transferre)

1860

1860

31-12-04 Interest suspense A/c Dr. To Interest A/c.

(Being interest suspense A/c.

transferred to interest A/c.)

947

947

31-12-04 Bank A/c. Dr . To Raghu Industries

(Being installment amount received

on asset)

20000

20000

31-12-04 Interest A/c. Dr. To Profit & Loss Account

(Being interest transferred)

947

947

95

LEDGER ACCOUNTS IN THE BOOKS OF RAGHAVA RAGHU A/C.

Date Particulars Amount Date Particulars Amount

01-01-02 To Sales A/c.

To Interest

suspense A/c.

64470

5530

01-01-02 By Cash / Bank

By Bank

By balance c/d.

10000

20000

40000

70000 70000

01-01-03 To Balance b/d. 40000 31-12-03 By Bank A/c.

By balance c/d.

20000

20000

40000 40000

01-01-04 To balance B/d. 20000 31-12-04 By bank A/c. 20000

INTEREST SUSPENSE A/C.

Date Particulars Amount Date Particulars Amount

31-12-02 To Interest A/c.

To Balance c/d.

2723

2807

01-01-02 By Raghu

Industries A/c.

5530

5530 5530

31-12-03 To Interest A.c

To Balance c/d.

1860

947

01-01-03 By Balance B/d. 2807

2807 2807

31-12-04 To Interest A/c. 947 01-01-04 By balance B/d. 947

INTEREST A/C.

Date Particulars Amount Date Particulars Amount

31-12-02 To Profit & Loss Ac 2723 31-12-02 By Interest a/c. 2723

31-12-03 To Profit & Loss Ac 1860 31-12-03 By Interest Ac. 1860

31-12-04 To Profit & Loss Ac 947 31-12-04 By Interest Ac. 947

96

CALCULATION OF INTEREST – WHEN RATE IS NOT GIVEN : In this method you will find cash price and Hire Purchase price of the Asset. There is no interest rate. Then total interest will be calculated by deducting cash price from total hire purchase price. Total interest will be dividend in the ratio of amount outstanding for each year.

Illustration 2 : On 1st Jan 2000 Mallesh bought mini truck from Sudhakar Transport

on Hire Purchase system. The cost price of the truck was Rs.1,33,700 and

Hire Purchase price was Rs.1,50,000. He paid Rs.30,000 at the time of

agreement and the balance is 3 equal installments @ 40,000/- each at the

every year ending. The buyer charges 10% of depreciation on diminishing

balance method.

Prepare journal entries in the both of the seller and buyer books.

Solution : Calculation of interest when interest rate is not given :

Hire purchase price of Truck 1,50,000

Cost price of Truck 1,33,700

Total Interest 16,300

Total installments are 3 so the interest will be dividend in the Ratio of 3:2:1

Or

Hire Purchase price of Truck 1,50,000

Cash down Amount 30,000

31-12-2000 1st Year due amount 1,20,000

1st Installment 40,000

31-12-2001 2nd Year Amount 80,000

2nd Installment 40,000

31-12-2002 due amount 40,000

3rd Installment 40,000

The Due Amounts are 1,20,000 : 80,000 : 40,000

3 : 2: 1: 6

97

1st Year Installment = Total Installment X 1st Year Ratio = 16,300 x 3/6 =

8,150.

2nd Year Installment = Total Installment x 2nd year Ratio = 16,300 x 2/6 =

5,433

3rd year Installment = Total Installment x 3rd year Ratio = 16,300 x 1/6 2,717

TABLE :

S.No. Date Installment Interest Principal Balance

1 01-01-2000 30000 - - 1,03,700

(1,33,700 –

30,000)

2 31-12-2000 40000 2,150 31,850 71,850

(103700 –

31850)

3 31-12-2001 40000 2717 37283

Total 150000 16300 103700

Depreciation under diminishing Balance Method @ 10%. Cost of truck 1,33,700

Dep. @ 10% on 31-12-2000 13,370

1,20,330

31-12-2001 Depreciation @ 10% 12,033

1,08,297

31-12-2002 Depreciation @ 10% 10,829

97,466

JOURNAL ENTRIES IN THE BOOKS OF MALLESH (BUYER)

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1-1-2000 Mini Truck A/c. Dr.

Interest suspense A/c. Dr.

To Sudhakar Transport A/c.

(Being purchase of Mini Truck on

drive purchase system)

1,33,700

16,300

1,50,000

98

01-01-2000 Sudhakar Transport A/c.

To bank Ac.

(Being Cash down payment)

30,000

30,000

31-12-2000 Interest A/c.

To Interest Suspense A/c.

(Being Interest payable).

8,150

8,150

31-12-2000 Sudhakar Transport a/c.

To bank A/c.

(Being Ist Installment paid)

40,000

40,000

31-12-2000 Depreciation A/c.

To Mini Truck A/c.

(Being depreciation charged)

13,370

13,370

31-12-2000 Profit & Loss A/c.

To Interest A/c.

To Depreciation A/c.

(Being interest & Depreciation

transferred)

21520

8150

13370

31-12-2001 Interest A/c

To Interest suspense A/c.

(Being interest payable)

40000

40000

31-12-2001 Depreciation A/c.

To Mini Truck Ac.

(being Depreciation Charged)

12033

12033

31-12-2001 Profit & Loss A/c.

To Interest A/c.

To Depreciation A/c.

(Being Interest & Depreciation

transferred)

17466

5433

12033

31-12-2002 Interest A/c

To Interest suspense A/c.

(Being Interest payable

2717

2717

31-12-2000 Sudhakar Transport A/c. To bank A/c. (Being 1st Installment paid)

40,000 40000

99

31-12-2000 Depreciation a/c.

To Mini Truck A/c.

(Being Depreciation charged)

10829

10829

31-12-2000 Profit & Loss A/c.

To Interest A/c.

To Depreciation

(being Interest & Depreciation

Transferred)

13546

2717

10829

JOURNAL ENTRIES IN THE BOOKS OF SUDHAKAR TRANSPORT

Date Particulars LF. Debit (Amount)

Rs.

Credit Amount Rs.

1-1-2000 Mallesh A/c.

To Sales

To Interest suspense A/c.

(Being Mini Truck sold on Hire

Purchase system)

150000 150000

01-01-2000 Bank A/c.

To Mallesh A/c.

(Being cash received on delivery)

30000

30000

31-12-2000 Interest suspense A/c. Dr.

To Interest A/c.

(Being Interest suspense A/c.

transferred).

8,150

8150

31-12-2000 Bank A/c.

To mallesh A/c.

(Being 1st Installment received)

40000

40000

31-12-2000 Interest A/c.

To Profit & Loss A/c.

(Being interest transferred)

8,150

8150

31-12-2000 Sales A/c. To Trading A/c. (Being sales Transferred to trading A/c)

133700 133700

100

31-12-2001 Interest suspense A/c. Dr.

To Interest A/c.

(Being interest suspense A/c.

transferred)

5433

5433

31-12-2001 Bank A/c.

To Mallesh A/c.

(Being 1st Installment received)

40000

4000

31-12-2001 Interest A/c.

To Profit & Loss Acount

(Being Interest transferred)

5433

5433

31-12-2002 Interest suspense a/c.

To Interest a/c.

(Being interest suspense A/c.

transferred

2717

2717

31-12-2000 Bank A/c.

To Mallesh A/c

(Being 1st Installment received)

40,000

40,000

31-12-2000 Interest A/c.

To Profit and loss Account

(Being interest transferred)

2717

2717-*

Instalment+Interest On 1st Jan 2004 Mr. Anil purchased in Second hand car. The cash price of the

car was Rs. 50,00/- He paid Rs. 20,000/- down payment and the balance In 3

equal Installments of Rs 10,000/-with interest @10% starting form 31st

December 2004

Calculate the purchase price and prepare Journal entries in Anil books

s.No. Date Cash down

principal amount

Interest Principal + Interest

Installment

Balance

1. 01-01-2004 20000 20000 30000 2. 31-12-2004 10000 3000 13000 20000 3. 31-12-2005 10000 2000 12000 10000 4. 31-12-2006 10000 1000 11000 TOTAL 50000 6000 56000

101

Dt Particulars L. F. Dr Cr. 01-01-2004 car A/c Dr. 50000 Interest suspense A/c Dr. 6000

To Deccan Car A/c. 56000

(Being the car purchased on Hire Purchase System) 01-01-2004 Deccan cars A/c Dr. 20000

To bank A/c 20000 (Being cash down payment made)

31-12-2004 Interests A/c Dr. 3000 To Interest suspense A/c 3000 (Being Interest payable to Vendor) 31-12-2004 Deccan car A/c. Dr. 13000 To Bank A/c. 130000

(Being 1st installment A/c) 31-12-2004 Profit & loss A/c Dr. 3000 To interest A/c. 3000 (Being Interest transferred) 31-12-2005 Interest A/c Dr. 2000 to interest suspense A/c 2000 (Being Interest payable to Vendor) 31012-200 Deccan Car A/c Dr. 12000 to Bank 12000 (Being Interest payable to Vendor) 31-12-2005 Deccan Car A/c Dr. 12000

To Bank 12000 (Being 2nd Installment paid) 31-12-2005 Profit & Loss A/c Dr. 2000 To interest A/c 2000

(Being Interest Transferred.) 31-12-2006 interest A/c. Dr. 1000 To Interest Suspense A/c 1000 (Being Interest Payable to Vendor) 31-12-2006 Deccan Car A/c. Dr. 11000 To Bank A/c 11000 (Being Final Installment paid) 31-112-2006 Profit & Loss A/c Dr. 1000 To Interest on 1000 (Being interest transferred)

102

Exercises:

1. Suneel & Sons purchased furniture from Sudheer & Co. on Hire

Purchase System. On 1st January 2005 they paid cash down Rs.

12000/- and the balance in four & Qnal Installments of Rs. 12000/-

each at every year ending. The Vendor charge 5% Interest on the

asset.

The cost price of the furniture was Rs. 54600/- change 10%

depreciation on _________ Method Pass the journal entries in both of the books.

2. On 1st January 2003 Seetha Travels bought a Taxicab from Autofin

Ltd., on Hire Purchase System. At the time of agreement they paid Rs.

20,000/- and the balance in 4 Installments at the every year ending.

The seller changes 6% interest. The cash price of the vehicle is Rs.

1,00,000/-

Change 10% depreciation on demising balance method prepare

Ledger Accounts in both of the Books.

3. On 1st January 2002 Modern Co. bought a Machine from Mahesh Co.

on Hire purchase System. The cash price was Rs. 8000/- Act the time

of agreement they have to pay Rs. 2500/- and the balance Rs. 2500/-

each for three years. change depreciation @ 10% on diminishing

balance method.

4. veen bought a colour T.V. on Hire Purchase Systems from R. K.

Electronics, on 1-1-2005. pass the Journal Entries in Parveen Books on

the basis of the following information.

1. The following information. Rs.

Cost price of the T.V. 11,200/-

1-1-05 Initial payment 3,000/-

Balance in 3 Installments of every year

Rate of interest 5%

103

5 On the basis of the following information ascertain the interest included

in each installment and pas journal entries in Vendor Books.

Vendor : Ramesh & Co.

Purchase : Rakesh & Co.

Cash price of machine Rs. 9000/- Initial payment Rs. 3000/- Balance is 3 Installments of Payable at the end of each year Rs. 3000/- 6. From the given particulars prepare Journal Entries in both of the

parties.

Buyer - Rajeev

Seller - Sanjay

Rs.

Cost price of the Type Writer 14,900

01-01-2003 cash down payment 4,000

balance in 3 Equal list at 4,000

Month at the every year ending interest rate 5%

Depreciation 10%

7. Bharat bought an minivan from Rahul Auto on Hire Purchase System

on 01-01-2001. he paid Rs. 24,000/- as cash down and the balance

four installments of Rs. 24,000/- each at every year ending the seller

changes 5% interest on due balances. The cash price of the minivan

____ Rs. 109200/-. The buyer changes 10% depreciation on fixed

balance method.

Prepare Journal entries and ledger A/c in Bharat Books.

8. SANIA bought a computer on Hire Purchase System from SONIA

Electronics under the following conditions

104

Cost price of computer 37,250

01-01-2005 cash down 10,000

balance in 3 Equal

installments at the every year ending 10,000

interest rate 5%

Give journal entries in SANIA Books

105

IV. INSTALLMENT PURCHASE SYSTEM :

1. Meaning 2. Account Procedure 3. Exercises.

Meaning: The buyer purchases the asses from the seller under an

agreement to make payment its price in installments at stated intervals. The

possession and ownership passes from the seller to buyer immediately on

entering the agreement. If the buyer makes any default, the seller can sue in

the court for the balance of Installments only goods sold under installment

system cense to be property of the seller.

Accounting Entries

In buyer books

The same entries as given on page C-128 (under third method of hire

purchase) are to be passed in the books of buyer under installment system.

In Vendor’s Books.

The same entries as given (under second method of hire purchase) are

to be passed in the books of the Vendor with the only difference that instead

of Hire purchaser, the word purchaser will be use.

Illustration 17. On 1st January 2005 Oswal Oil, Company purchased an

oil machine on the installment system. The cash price of the machine was

Rs.11,175 and payment was to be made as follows:

Rs. 3,000 was to be paid on the signing of the agreement and the

balance in three installments of Rs. 3,000/- each at the end of each year 5%

interest is charged by the Machine Manufacturing Company per annum.

Oswal Oil Company has decided to write off 10 per cent annually on the

diminishing balance of the cash price.

Give the Journal entries and Ledge Accounts in the books of

purchaser. Calculations are to be made to the nearest rupee.

106

In the BOOKS OF OSWAL OIL CO.

JOURNAL ENTRIES

2005 2006 2007

Dr. Rs.

Cr. Rs.

Dr. Rs.

Cr. Rs.

Jan.1 Machinery A/c Dr. 11,175 Interest Suspense A/c Dr. 825 To Machine Manufacturing Co.

(Purchase oil machine under the installment system)

Jan.1 Machine Manufacturing Co. Dr. 3,000

To Bank A/c 3,000

(Payment of cash to the vendor on delivery

Dec.31 Interest A/c Dr. 409 279 137 To Interest suspense A/c 409 279 137

(Adjustments of Interest failing due at this date to interest suspense A/c)

Dec.31 Machine Manufacturing Co. Dr. 3,000 3,000 3,000

To Bank A/c 3,000 3,000 3,000 (Amount of installment paid) Dec.31 Depreciation A/c Dr. 1,118 1,006 905 To Machinery 1,118 1,116 905

(Depreciation charged at 10% on Rs. 11,175)

Dec.31 Profit & Loss A/c Dr 1,527 1,285 1,042 to Interest A/c 409 279 137 To Depreciation A/c 1,118 1,006 905

(For balance of interest & depreciation transferred to P&L. A/c

MACHINERY ACCOUNT

1976 Jan.1 To Machine Manufacturing Co. 11,175

1976 Dec.31

By Depreciation A/c 1,118

By Balance 10,057 11,175 11,1751977 Jan.1 To balance b/d 10,057

1977 Dec.3

By Depreciation A/c 1,006

107

1

Dec.31 By Balance 9,051

10,057 10,057

1978 jan.1 To Balance B/d 9,051

1978Dec.31

By Depreciation A/c 905

Dec.31 By Balance 8,146

9,051 9,051 INTEREST SUSPENSE ACCOUNT Rs. Rs.

1976 jan. 1

To Machine Manufacturing Co. 825

1976Dec.31 By Interest A/c 409

By Balance 416 825 825

1977 Jan.1 To balance b/d 416

1977Dec.31 By Interest A/c 279

By Balance 137 416 416

1978 Jan.1 To balance b/d 137

1978Dec.31 By Interest A/c 137

MACHINE MANUFACTURING COMPANY

Rs. . Rs.

1976 Jan. 1 To Bank 3,000

1976Jan.1 By Interest A/c 11,175

Dec.31 To Bank 3,000Jan.1 By Balance b/d 825Dec.31 To Balance b/d 6,000 12,000 12,000

1977 Dec.31 To Bank 3,000

1977jan.1 Balance b/d 6,000

Dec.31 To Balance b/d 3,000 6,000 6,0001978 dec.31 To Bank 3,000

1978 Jan.1 ance b/d 3,000

108

INTEREST A/c Rs. Rs. 31-12-76 To Interest Suspense A/c 40931-12-76 By P.& L.A/c 40931-12-77 To Interest Suspense A/c 27931-12-77 By P.& L.A/c 27931-12-78 To Interest Suspense A/c 13731-12-78 By P.& L.A/c 137

Illustration: On 1st Jan 2002 Ramadevi bought a machine from Sheela & Co., for Rs.

1,56,900/- and paid cash down Rs. 45,000/- Balance in 3 equal installments of

Rs.,45000/- at every year ending. The installment amount includes 10%

interest. The buyer depreciate the machine @ 10% on straight line method.

Prepare Journal entries and ledge accounts in both of the books. Solution:-

ANALYTICAL TABLE.

Date installment / cash down

interest principal balance due

1-1-2000

45,000 1,11,900 (1,56,900-445,000)

31-12-2000 45,000 11,190 33,810 78,090 1,11,900 – 33,810)

31-12-2001 45,000 7,809 37,191 40,899 31-12-2002 45,000 4,101 40,899 TOTAL 1,80,000 23,100 JOURNAL ENTRIES IN THE BOOKS OF RAMADEVI (BUYER)

DATE PARTICULARS

L.F. DEBIT (RS) CREDIT (RS)

1-1-200 Machinery A/c Dr. Interest Suspense Dr. To Sheela & Co. A/c (Being Machine bought under

1,56,900 23,100

1,80,000

109

installment system) 1-1-200 Sheela A/c Dr.

To Bank A/c 45,000

45,00031-12-2000 Interest A/c Dr.

To Interest Suspense A/c (Being interest failing due)

11,190 11,190

31-12-2000 Sheela & Co. A/c Dr. To Bank A/c (Being 1st Installment paid)

45,000 45,000

31-12-2000 Depreciation A/c Dr To Machine A/c (Being depreciation charged on Asset)

15,690 15,690

31-12-2000 Profit & Loss A/c Dr. To interest A/c To Depreciation A/c (Being Interest & Depreciation Transferred to Profit & Loss A/c)

26,880 11,19015,690

31-12-2001 Interest A/c Dr. To interest Suspense A/c (Being interest due inn 2nd installment)

7,089 7,089

31-12-2000 Sheela & Co. A/c Dr. To Bank A/c (Being 2nd Installment paid)

45,000 45,000

31-12-2000 Depreciation A/c Dr. To Machine A/c (Being depreciation charged)

15,690 15,690

31-12-2000 Profit & loss A/c Dr. To Interest A/c To Depreciation A/c (Being interest & Suspense A/c Transferred)

23,499 7,089

15,690

31-12-2002 Interest A/c Dr. To Interest Suspense A/c (Being interest due in 3rd installment)

4,101 4,101

31-12-2002 Sheela & Co. A/c Dr. To Bank A/c (being final installment paid)

45,000 45,000

31-12-2002 Depreciation A/c Dr. To machine A/c (Being depreciation charged on Asset)

15,690 15,690

31-12-2002 Profit & Loss A/c Dr. To Interest A/c To Depreciation A/c (Being Interest & Depreciation Transferred to Profit & Loss A/c)

19,791 4,101

15,690

110

MACHINE A/C DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

1-1-2000

To Sheela & Co. 1,56,900 31-12-2000 31-12-2001

BY Depreciation A/c By Balance C/d

15,6901,41,210

Total 1,56,000 TOTAL 1,56,000

1-1-2001

To Balance B/d 1,41,210 31-12-2001 31-12-2001

BY Depreciation A/c By Balance A/c

15,6901,25,520

Total 1,41,210 Total 1,41,210

1-1-2002

To Balance B/d 1,25,520 31-12-2002 31-12-2002

By Depreciation A/c By Balance C/d

15,6901,09,830

Total 1,25,520 Total 1,25,520

1-1-2003

To Balance B/d 1,09,830

INTEREST SUSPENSE A/C DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

1-1-2001

To Sheela A/C 23,100 31-12-200 31-12-200

By interest A/c By Balance C/d

11,19011,910

Total 23,100 Total 23,100

1-1-2001

To balance B/d 11,910 31-12-2001 By Interest By Balance C/d

7,8094,101

Total 11,910 Total 11,910

1-1-20022

To balance B/d 4,101 31-12-2002 By Interest 4,101

111

RAMA DEVI & CO. A/C. DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

1-1-2000 31-12-2000 31-12-2000

To Bank To Bank To Balance C/d

45,00045,00090,000

1-1-2000 1-1-2000

By Machinery A/c By Interest Suspense A/c

1,56,90023,100

Total 1,80,000 Total 1,80,000

31-12-2001 31-12-2001

To bank To Balance C/d

45,00045,000

1-1-2001 By balance B/d 90,000

Total 90,000 Total 90,000

31-12-2002 To Bank 45,000 1-1-2002 BY Balance B/d 45,000

INTEREST A/C.

DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

31-12-2000 To Interest Suspense A/c

11,190 31-12-2000 By Profit & Loss A/c

11,190

31-12-2001 To Interest Suspense A/c

7,809 31-12-2001 By Profit & Loss A/c

7,809

31-12-2002 To Interest Suspense A/c

4,101 31-12-2002 By Profit & Loss A/c

4,101

JOURNAL ENTRIES IN THE BOOKS OF SHEELA & CO.

DATE PARTICULARS

L.F. DEBIT (RS) CREDIT (RS)

1-1-2000 Rama Devi A/c Dr. To Sales A/c To Interest Suspense A/c (Being sale of machine on installment System and interest calculated)

1,80,000 1,56,9000

23,100

1-1-2000 Bank A/c Dr. To Rama Devi A/c (Being cash received on delivery of the machine)

45,000 45,000

31-12-2000 Interest Suspense A/c Dr. To Interest A/c (Being interest due)

11,190 11,190

112

31-12-2000 Bank A/c Dr. To Rama Devi A/c (Being 1st installment received)

45,000 45,000

31-12-2000 Interest A/c Dr. To Profit & loss A/c (Being interest transferred)

11,190 11,190

31-12-2001 Interest Suspense A/c Dr. To Interest A/c (being interest due)

7,809 7,809

31-12-2001 Bank A/c dr To Rama Devi A/c (being 2nd installment received)

45,000 45,000

31-12-2001 Interest A/c Dr. To profit & loss A/c (being interest transferred)

7,809 7,809

31-12-2002 Interest Suspense A/c Dr. To Interest A/c (being interest due on 3rd installment)

4,101 4101

31-12-2002 Bank A/c Dr. To Rama Devi A/c (Being final installment received)

45,000 45,000

31-12-2002 Interest A/c Dr. To Profit & Loss A/c

4,101 4,101

RAMA DEVI A/C DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

1-1-2000 To Sales To Interest Suspense A/c

1,56,90023,100

1-1-200031-12-200031-12-2000

By Bank By Bank By Balance C/d

45,00045,00090,000

Total 1,80,000 Total 1,80,000

1-1-2001 To Balance B/d 90,000 31-12-200131-12-2001

By Bank By balance C/d

45,00045,000

Total 90,000 Total 90,000

1-1-2002 To balance b/d 45,000 31-12-2002 By bank 45,000

INTEREST SUSPENSE A/C DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

31-12-2000 31-12-2000

To interest A/c To balance C/d

11,19011,190

1-1-2000 By Rama Devi A/c 23,100

Total 23,100 Total 23,100

113

31-12-2001 31-12-2001

To Interest A/c To balance C/d

7,8091-4,101

1-1-2001 By balance B/d 11,190

Total 11,910 Total 11,190

31-12-2002 To interest A/c 4,101 1-1-2002 By Balance B/d 4,101

INTEREST A/c DR. CR.

DATE PARTICULARS AMOUNTRS.

DATE PARTICULARS AMOUNT RS.

31-12-2000

To Profit & Loss A/c

11,190

31-12-200 By Interest Suspense A/c

11,190

31-12-2001 To Profit & Loss A/c

7,809 31-12-2001 By Interest Suspense A/c

7,809

31-12-2002 To Profit & Loss A/c

4,101 31-12-2002 By Interest Suspense A/c

4,101

Exercises

1. Padmavathi Industries Purchases a Machine from S.V. & Co., on

Installment System on 1st Jan 2002 Paying cash Rs. 10,000/- at the

time of agreement and agreeing to pay the balance in 3 Equal

Installment of Rs.10,000/- on the every 31st Dec. The cash price of the

Machine is Rs.37,250/- and the Madhava & Co charges interest 5%

P.A. The Padmavathi Industries write off 10% value of the asset

Depreciation on fixed balance method

Journalize the entries and Ledger accounts in both of the books.

2. On 1st Jan 2006 Maniklal purchased a color T.V. from J.D. Electronic

on Installment system cash price was Rs.14,900/-. Payment was to be

made in four Installments Rs.4000/- each. The first payment to be

made immediately and the other three at the end of 2006,2007 and

2008. interest was taken to be 5% Per annum.

Give Journal entries and ledger Accounts in both of the parties.

3. On 31st Dec 2005 Manisha’s purchased furniture from Godrej Co., On

Installment system. The cash price was Rs.15,000/-. Payment was to

be made in four half yearly Installments of Rs.4000/- each. The first

payment was to be taken at 5%.

Record the transactions in Manisha’s Books.

114

4. Mallika & Co., Purchased a machine on 1st Jan 2005 whose cash price

was Rs.48000/-. Rs.12000 was to be paid immediately and the similar

amount were to be monthly for three years together with interest @ 9%

P.A. The machine is to be depreciated at 10% on straight line method.

Give Journal entries and ledger A/c’s in Mallikas Books.

5. On 31st Dec 2005 Rahul Purchased a Plasma T.V. on Installment

system from Bajaj Electronics. The conditions are has follows

Cash price of Plasma T.V. 22350/-

Installment price of T.V. 24000/-

Cash down on 31st Dec 2005 6000/-

Balance at 3 Equal installments. 6000/-. Each prepare ledger

A/c’s in Rahul’s Books.

115

V- DEPARTMENTAL ACCOUNTS

1. Meaning

2. Objects to prepare Departmental Accounts 3. Basis for allocation 4. Inter departmental transfers 5. Treatment of Expenses which cannot be allocated 6. Illustration 7. Exercises Meaning:- Departmental stores consist of large number of shops attached

to each other under single management. The stock of each department

are handled separately, but accounting, advertising, delivery personnel

and general management are carried on in centralized way for all the

merchandise department.

Objects to prepare departmental accounts :-

a. To know the comparison of results of results of a particulars

department with previous years and also with the other department of

these same concern.

b. To help the concern to expand and maximize the profits.

c. To offer commission to the departmental managers on the basis of the

profits of the respective departments.

Accounting Procedure:

Departmental Trading and Profit & Loss o/c prepared in columnar from

to know the gross profit & net Profit of different departments. There is no

problem in ascertaining the figures of opening stock, closing stock, purchases

sales and direct expenses can be maintained.

116

The problem arises only in direct expenses which are common for the

concern as a whole and may be related to sales distribution, administration

finance, and till these distributed among the departments on t\some suitable

basis, the net profit of different departments, cannot be ascertained. The

following method may be adopted for this purpose.

Sl. No.

Expenditure item Basis for Allocation

1. Commission on sales, Bad debts, Discount Allowed, advertising, sales tax, Carriage on sales etc.

Sales

2. Rent, Rates, Taxes, Depreciation on building, Insurance on Building, Reports lease, etc.,

Space Occupied

3. Depreciation on plant, machinery furniture etc.,

on their value

4. Insurance Premium on their value 5. Lighting & Heating On Light Points 6. Welfare expenses – Break fast, Lunch

and entertainment expenses on the departmental Working Employees

7. Supervision & Packing Expenses Departmental Production

Treatment of Expenses which cannot be allocated:- Internet on capital internet on Debenture, bank charges Income Tax,

office expenses, General manager salary may not be apportioned. It may be

debited to general or combined profit and loss account.

INTER DEPARTMENTAL TRANSFERS: Some times services or goods exchanges among departments should

be separately recorded and shown in the departmental accounts, by debiting

the receiving department and crediting the services provided department.

Illustration:- The following information relating to big Bayaar as on 31-12-2005. you

are require to prepare trading and profit & loss account.

117

Particulars Cloth Dept Readymade Dept

Childress Dept

Opening stock 4000 45000 85000

Closing Stock 3500 40000 75000

Purchases 217000 78000 145000

Sales 404000 155000 363000

Purchase returns 2000 3000 5000

Sales return 4000 5000 13000

Wages 60000 25000 20000

Internal Transfers

Cloth dept to Readymade Dept - 1500

To Childress Dept - 6000

Readymade Dept } to Childress Dept – 5000

Stationary = 1200 Postage = 600 Allocate equally among all General Expenses = 36,000 Insurance = 1800 depts. Equally. Depreciation = 4800 Allocate the following expenses on specific basis. Salaries Rs/ 54,000/- Bad debts 3,6000/- Advertising Expenses Rs. 18,000/-

Rent and Rates Rs. 64,000/- it is allocated on the basis of space occupied by

each dept, cloth dept: 4: Readymade Dept:3; Children Dept:1

118

Trading , Profit & Loss Account of Bayaar as on 31-12-2005

Particulars Cloth

dept Ready made

Children Dept

Total Particulars Cloth dept

Ready made

Children Dept

Total

To Opening Stock To Purchases To Wages To Inter Departments Transfers To Gross Profit

40,000

2,15,00

0 60,000

-

1,27,500

45,000

75,000 25,000

1,500

48,500

85,000

1,40,000

20,000

11,000

1,69,000

1,70,000

4,30,000 1,05,000

12,500

3,45,000

By Sales (after returns By inter Departmental Transfers (1500 – 6000) By Closing Stock

4,00,000

7,500

35,000

1,50,000

5,000

40,000

3,50,000

75,000

9,00,000

12,500

1,50,000

Total 4,42,000

1,95,000

4,25,000

10,62,000

Total 4,42,000

1,95,000

4,25,000

10,62,500

To Stationery To Postage To General Expenses To Insurance To Depreciation To Salaries To Bad Debts To Advertising Expenses T o Rent & Rates To Net Profit

400 200

12,000

600 1,600

24,000 16,000

8000

32,000 32,700

400 200

12,000

600 1,600 9,000 6,000 3,000

24,000

400 200

12,000

600 1,600

21,000 14,000

7,000

8,000 1,04,20

0

1,200 600

36,000

1,800 4,800 4,000

36,000 18,000

4,000

1,28,600

By Gross Profit By Net Loss

1,27,500

48,500

8,300

1,69,000

3,45,000

Total 1,27,500

56,800 1,69,900

3,45,000 Total 1,27,500

56,800 1,69,000

3,45,000

Salaries, Bed debts, Advertisement allocated on the basis of Net Sales. Rs. Total Net Profit: Net Profit of Cloth Dept 104200 Net profit of Readymade 32700 -------- 136900 Net loss of Readymade 8300 --------- 128600 ---------

119

Exercises:

1. They are three departments in Shabbir Pvt. Ltd., Co., from the

following information you are required to prepare trading and profit

& loss A/c of the above Co., as on 31-3-2006.

Particulars A B C Opening store 18000 1200 1000

Purchases 62000 53000 46500

Sales 122000 93000 61500

Sales returns 2000 3000 1500

Purchase returns 2000 3000 1500

Wages 2700 24000 17000

Carriage in

words

1500 1000 1000

Inter departmental Transfers 1. A to B – 400 - &C- 2000 2. B to A – 100 3. C to A – 2500

PARTICULARS AMOUNT (Rs)

Carriage outwards 2700

Salaries 18000

Bed debts 1800

Allocate the above on the space occupied A=4 : B-2: C=3 2. From the following figures prepare accounts to disclose total profit of

the two departments A and B. A B

Rs. Rs. Opening Stock 15200 10800 Purchases 75100 69800 Purchase return 1100 800 Sales 10000 80000 Salaries 9000 8500

120

Rs. Rent & 6000 Advertising 8100 General Expenditure 5400 Discount allowed 1800 Discount received 1430 Additional information:

1. Goods transferred from A to B Rs. 5000/-

2. Rent & Taxes divided in the ratio of 3 : 2

3. Discount received & carriage inwards on the ration of purchases.

4. Remaining Expenses on Ratio of sales.

5. Closing stock A=17800: B=15600

3. An establishment divided in to two departments X & Y. from the given

particulars prepare departmental trading account as on 31-12-2005.

X Y Opening Stock 20,000 12,000 Purchases 92,000 68,000 Freight 2,000 2,000 Wages 12,000 8,000 Sales 1,40,000 1,12,000 Purchases Transfers Y to X 10000 - X to Y - 8000 Closing Stock 4500 6000 4. The following are the particulars related to Sri.Manik lal Books as on

31-12-2005

Radio Watches Opening Stock 45000 21000 Sales 294000 146000 Purchases 225000 115000 Salaries 12600 Publicity Expenses

8400

Rent & Rates 3200 Commission 10500 Mis. Expenses 500 Interest (Or) Closing Stock

600 30000 24000

121

Revenue items to be allocated in the ratio of 2”1 between Radio & Watches.

Prepare departmental trading and profit. & loss account.

5. They are three big departments in Food world shop following

information taken from their books as on 31-12-2004.

Opening Stock

75000 50000 40000

Closing Stock 90000 35000 45000Purchases 280000 160000 90000Sales 360000 270000 180000Salaries 96000 Advertisement 4500 Rent 21600 Discount Allowed

2700

Discount received

1600

Depreciation 1500 Expenses Appointment : Rent2 : 2 : 5 Salaries 1 : 1 : 1 Depreciation 1 : 1 : 1 Discount Received 7 : 5 : 3 All other Expenses on the basis of sales prepare departmental trading & profit & loss A/c. Explain with items / Articles about the department share you visited in your town.

122

BIBLIOGRAPHY : 1. S.P. Jain And K.L. Narang - Advanced Accountancy.

2. R.L.Gupta and M.Radha Swamy Advanced Accountancy.

3. M.C. Shukla and T.S.Grewal Advanced accountancy.

4. Telugu Academy Advanced Accountancy.

5. S.N. Maheshwari Advanced Accountancy.

6. M.A. Arunlaumandam and Advanced Accountancy.

7. T.S. Grewal Introduction to Accountancy.