B.com Part 2 – ADVANCED ACCOUNTING 2006 (Regular)

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ADVANCED ACCOUNTING 2006 (Regular)

 

Time : 3 Hours                Max. Marks:100

 

Instructions: Attempt FIVE questions.

1. BRANCH ACCOUNTG:

NEXTDOOR GROCERS,Karachi(Head Office) deals in wholesales grocery. The company has two branches, one atIslamabadand the other atFaisalabad. The branches keep a complete set of books.

On July 1, 2005 the head office books showed the following balances in the branches accounts.

IslamabadBranch ——- Rs.50,000

FaisalabadBranch ——- Rs.45,000

Some of the transactions between the head office and the two branches for the year are listed below:

 

Under the head instructions,Islamabadbranch collected Rs.15,000 from Customers of Faisalabad branch and remitted Rs.10,000 toFaisalabadbranch & Rs.5,000 to head office.

Faisalabadbranch transferred merchandise valued Rs.10,000 toIslamabadbranch and paid Rs.1,000 cash for transporting the goods.

Head office paidFaisalabadbranch suppliers Rs.12,000 cash.

Islamabadbranch paid head office suppliers Rs.8,000 cash.

Islamabadbranch showed a net profit of Rs.20,000 and

Faisalabadbranch showed a net loss of Rs.2,000

 

REQUIRED:

(a) Journal entries in the head office and the branches books. (12)

(b) The two branches accounts in the head office books. (08)

 

2. INSTALLMENT SALES:

JADID HOMES sells bedroom furniture on installment basis. Following information pertains to the accounting records for three years of operations:

 

2003

2004

2005

Installment sales 150,000 200,000 250,003
Cost of installment sales 100,000 150,000 200,000
Selling & administrative exp. 50,000 60,000 80,000
Collection from Customer:
Installment sales 2003 80,000 40,000 20,000
Installment sales 2004 ———— 100,000 80,000
Installment sales 2005 ———— ———— 150,000

 

The firm uses installment method of recognizing revenue.

 

REQUIRED:

(a) Compute the following for each year: (12)

(i) Deferred Gross Profit.

(ii) Rate of Deferred Gross Profit.

(iii) Realize Gross Profit

(iv) Net Profit or Loss.

 

(b) Record collection of cash and realize gross profit for each year separately in the General Journal of JADID HOMES. (08)

 

3. CONSIGNMENT ACCOUNT:

NOT INCLUDED IN THE NEW COURSE

 

4. ACCOUNTING FOR VALUE ADDED TAX AND INCOMPLETE RECORDS:

NOT INCLUDED IN THE NEW COURSE

 

(b) DAN1AL owns a small grocery shop. On November 30, 2005 the business owned merchandise Worth Rs.5O00. Although Danial does not maintain proper accounts, he provided the following information about his business for the year.

Sales (credit) 100,000 Sales (cash) 50,000
Purchase (credit) 90,000 Purchase (cash) 10,000
Salary & Wages 20,000 Bad debt written off 1,000
Other expenses 2,000

 

 

Danial withdrew merchandise worth Rs.2,000 from the shop for private use. Merchandise costing Rs.1,000 was damaged due to the recent rain inKarachi. At the end of the year the business had merchandise worth Rs.7,000.

 

REQUIRED:

Prepare a statement of Profit & Loss for DANIAL business for the year ended Nov. 30, 2006. (10)

 

5. CASH FLOW ANALYSIS:

Comparative balance sheets at the end of 2004 and 2005 of OASIS LIMITED appear below: (20)

 

OASIS LIMITED

(Comparative Balance Sheets)

ASSETS

31.12. 04

31.12.05

Cash and Bank Balance 50,000 45,000
Marketable Securities 40,000 25,000
Accounts Receivable 3,20,000 3,30,000
Merchandise Inventory 2,40,000 2,35,000
Plant & Equipment (net) 6,00,000 6,40,000
12,50,000 12,75,000
Liabilities & Shareholder’s Equity
Accounts Payable 1,50,000 1,60,000
Accrued Expenses 60,000 45,000
Mortgage Loan (long term) ——— 70,000
Debenture Payable (due 2010) 5,00,000 3,50,000
Ordinary Share Capital 1,60,000 1,60,000
Retained Earning 3,80,000 4,90,000
12,50,000 12,75,000

 

Additional information:

Net income for the year amounted to Rs.250,000 Cash dividends of Rs.140,000 were declared and paid.

 

Depreciation of plant and equipment for the year was Rs.60000 Marketable securities costing Rs.15.000 were sold Rs.35,000 cash.

 

REQUIRED:

Prepare a cash flow statement using indirect method for the year ended October 31, 2006 showing the following clearly:

(a) Cash flows from operating activities.

(b) Cash flow from investing activities.

(c) Cash flow from financing activities.

 

6. ANALYSIS OF FINANCIAL STATEMENTS:

Take into account the OASIS LIMITED balance sheet (Q. No. 5 above).

 

REQUIRED:

(a) Compute the following ratios for the year 2004 and 2005 (15)

(i) Current ratio. (ii) Quick ratio.

(iii) Working capital. (iv) Stock turnover

(v) Accounts receivable turnover

(vi) Return on Capital employed

NOTE: sales were Rs.8,00,000 and Rs.8,50,000 for the year 2004 and 2005 respectively and Profit on Cost of goods sold is 25%.

(b) Comment on the company’s performance based on the accounting ratios for the year 2005.

7. AMALGAMATION:

Balance sheets of BLUE LIMITED and BRIGHT LIMITED as on January 1, 2006 are given below:

 

ASSETS

BLUE LIMITED

BRIGHT LIMITED

Cash and Bank Balance 10,000 50,000
Accounts Receivable 100,000 1,05,000
Merchandise Inventory 80,000 95,000
Land & Building 8,00,000 3,00,000
Good will 1,10,000 ——-
11,00,000 5,50,000
Liabilities & Equity
Accounts Payable 40,000 50,000
Ordinary Share Capital(Rs.10Ordinary shares fully paid) 10,00,000 4,00000
General Reserve ——- 60,000
Retained Earning 60,000 40,000
11,00,000 5,50,000

 

On January 1, 2006 both companies agreed to amalgamate and from INDIGO LIMITED with an authorized capital of Rs.1,00,00,000 divided into ordinary shares of Rs.10 each.

INDOGO LIMETED issued shares equal to the value of their net assets in payment of purchase consideration to BLUE LIMITED and BRIGHT MILITED. The new company also paid Rs.25,000 to each liquidating company for their liquidation expenses.

 

REQUIRED:

(a) Amount of purchase consideration for each liquidation company and the number of shares to be issued.

(b) Entries in General Journal of INDIGO LIMITED. (06+06)

(c) Initial Balance sheet of INDIGO LIMITED as on January 1, 2006. (08)

 

8. ABSORPTION:

The balance sheet of MULTAN MILK PRODUCTS as on December 1, 2006 was as under:

ASSETS
Cash 40,000
Merchandise Inventory 30,000
Accounts Receivable 80,000
Land & Building 3,00,000
Machinery & Equipment 5,00,000
Allowance for depreciation 1,00,000
Total Assets 8,50,000
LIABILITIES AND EQUITY
Accounts Payable 40000
6% Debentures Payable 50,000
Share Capital (70,000 Ord, Shares of Rs.10) 7,00,000
Retained Earning 60,000
Total Liabilities 8,50,000

 

FRESH MILK LIMITED, a giant in dairy products, absorbed the MULTAN MILK PRODUCTS on the following terms:

 

All assets and liabilities were taken at book value.

FRESH MILK LIMITED issued one share of Rs.10 for every two shares held by MULTAN MILK PRODUCTS shareholders. The balance was settled in cash. The debenture holders were issued new 10% debentures at par. MULTAN MILK PRODUCTS paid its realization expenses amounting to Rs.10,000.

REQUIRED:

(a) Compute the purchase consideration. (05)

(b) Give necessary general Journal entries to record the absorption in the books of both companies. (15)

 

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