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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
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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.
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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
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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 ----------------- --------------
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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
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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.
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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.
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(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
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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
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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.