Z Ltd. issued 10,000 shares of Rs.10 each. The called up value per share was Rs.8. The company forfeited 200 shares of Mr. A for non-payment of 1st call money of Rs.2 per share. He paid Rs.6 for application and allotment money. On forfeiture, the share capital account will be _________.
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Solution
When shares issued at par are forfeited the accounting treatment will be as follows:
(i) Debit Share Capital Account with amount called up (whether received or not) per share up to the time of forfeiture.
(ii) Credit Share Forfeited A/c. with the amount received up to the time of forfeiture.
(iii) Credit ‘Unpaid Calls A/c’ with the amount due on forfeited shares. This cancels the effect of debit to such calls which take place when the amount is made due.
So the amount to be debited to share capital account will be = total number of shares forfeited × called up value of each share = 200 × 8 = Rs. 1,600
E Ltd. had allotted 10,000 shares to the applicants of 14,000 shares on pro-rata basis. The amount payable on application is Rs.2. F applied for 420 shares. The number of shares allotted and the amount carried forward for adjustment against allotment money due from F will be
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Solution
When issue is over-subscribed, the company will have to allot to each applicant according to the number of share applied by him. The excess application money is adjusted towards the sum due on allotment. Pro rata actually means ‘in proportion’.
So the proportion in which the shares will be allted = total shares allotted/total shares applications received = 10,000/14,000 = 5/7
F applied for 420 shares so the total shares allotted to him will be = 420 × 5/7 = 300 shares
So excess application money received from F = (420 – 300) × 2 = Rs. 240
A company cannot issue redeemable preference shares (not issued for infrastructure projects) for a period exceeding
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Solution
A Company can’t issue redeemable Pref. Shares for a period exceeding 20 years (if not issued for infrastructure projects)
On May 01, 2009, Y Ltd. issued 7% 40,000 convertible debentures of Rs.100 each at a premium of 20%. Interest is payable on September 30 and March 31, every year. Assuming that the interest runs from the date of issue, the amount of interest expenditure debited to Profit and Loss Account for the year ended March 31, 2010 will be
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Solution
When the company has the debentures in Financial statements with entitlement to interest. Interest will accrue on a timely basis e.g. Month to month or period to period.
However it will become accrued and due on the said due dates. If the company has to prepare the financial statements, it has to provide for the interest expense up to that period and show it under interest accrued but not due.
Interest from 1-5-2009 to 30-9-2009 i.e. for 5 months from the date of issue of debentures = 7% of 40,00,000 × 1/2 × 5/6 = 1,16,667
Interest from 1-10-2009 to 31-3-2010 = 7% of 40,00,000 × 1/2 = 1,40,000
Total interest to be debited to profit and loss for the year ended 31-3-2010 will be = 1,16,667 + 1,40,000 = Rs. 2,56,667
The balance of machine on 31st March 2010 is Rs.72,900 (after charging depreciation of the year). The machine was purchased on 1st April 2007 charging depreciation @10% p.a. by diminishing balance method. The cost price of the machine as on 1st April 2007 would be
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Solution
A firm purchases a 5 years’ lease for Rs. 40,000 on 1st January. It decides to write off depreciation on the Annuity method, presuming the rate of interest to be 5% per annum.
The annuity for it is 0.230975. The amount of annual depreciation will be
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Solution
According to annuity method, the purchase of the asset concerned is considered an investment of capital,earning interest at certain rate. The cost of the asset and also interest thereon are written down annually by equal installments until the book value of the asset is reduced to nil or its bread up value at the end of its effective life. The annual charge to be made by way of depreciation is found out from annuity tables.
The annual charge for depreciation will be credited to asset account and debited to depreciation account, while the interest will be debited to asset account and credited to interest account.
Thus depreciation to be charged = asset value × the annuity = 40,000 × .230975 = Rs. 9,239
Trade receivables on 31st March 2010 are Rs.55,200. Further bad debts are Rs.200. Provision for doubtful debts are to be made on Trade receivables @ 5% and also provision of discount is to be made on Trade receivables @ 2%. The amount of provision of doubtful debts will be
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Solution
The provision created to cover the next year’s bad debt expense out of the current year’s debtors is known as provision for bad debts. The provision for bad debt is calculated on the debtors’ balance obtained after deducting the bad debt written off.
The provision created to cover the expense of discount that may be allowed to the debtors during the coming year when they pay their debt on time. The provision for discount on debtors is calculated on the debtors balance after deducting the bad debt and the provision for bad debt amount.
Thus provision for doubtful debt = 5% of (55,200 – 200) = Rs.2,750
Mr. A started a business on 1st January 2009 with Rs. 5,00,000. During the year he bought goods worth Rs. 1,00,000 on credit and sold 80% of the same goods at profit of 20% on cost.At the end of the year 2009, the amount of opening inventory to be shown in the trial balance of Mr. A will be
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Solution
Mr. A started his business on 1st Jan 2009 with cash thus there was no opening inventory and hence the opening inventory to be shown in trial balance of Mr. A for the year will be nil.
RPG Ltd. purchased equipment from PQR Ltd. for Rs.50,000 on 1st April, 2009. The freight and cartage of Rs.2,000 is spent to bring the asset to the factory and Rs.3,000 is incurred on installing the equipment to make it possible for the intended use. The market price of machinery on 30th April, 2010 is Rs.60,000 and the accountant of the company wants to disclose the machinery at Rs.60,000 in financial statements. However, the auditor emphasizes
that the machinery should be valued at Rs.55,000 (50,000+2,000+3,000) according to:
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Solution
In the given case, the treatment by auditor is justified due to Historical cost concept.
Accounting has certain norms to be observed by the accountants in recording of transactions and preparation of financial statements. These norms reduce the vagueness and chances of misunderstanding by harmonizing the varied accounting practices. These norms are
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Solution
The referred norms are called Accounting Standards.