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2014
B.COM – II – ADVANCED
ACCOUNTING
REGULAR
Sameer Hussain
Compiled & Solved by: Sameer Hussain
www.a4accounting.weebly.com
a4accounting@hotmail.com
b) The Smith Co. recorded installment sales of Rs.600,000 in 2013. Cost of installment sales was
Rs.420,000. The total collections on installment sales were Rs.360,000. The estimated value of the
merchandise repossessed was Rs.110,000 and installment accounts receivable cancelled Rs.240,000.
REQUIRED
Calculate loss or gain and record repossession.
c) The following data are available from the Western Corporation’s installment sales record:
Year Percentage Installment Receivable on Cash Collection Installment Receivable on
Gross Profit January 1, 2012 During 2012 December 31, 2012
2010 40% Rs.30,000 Rs.30,000 ---
2011 45% Rs.50,000 Rs.34,000 Rs.16,000
2012 50% Rs.200,000 Rs.60,000 Rs.140,000
REQUIRED
Prepare all the journal entries for 2012 including adjusting entries.
SOLUTION 1 (a)
Unrealized Gross Profit:
Unrealized gross profit is referred to the total gross profit from the sale of merchandise on installment
basis which has not been collected. It is also known as “Deferred Gross Profit”.
SOLUTION 1 (b)
Computation of Unrealized Gross Profit:
Unrealized gross profit = Installment sales – Cost of installment sales
Unrealized gross profit = 600,000 – 420,000
Unrealized gross profit = Rs.180,000
SMITH CO.
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Merchandise repossessed 110,000
Unrealized gross profit 72,000
Loss on repossession 58,000
Installment accounts receivable 240,000
(To record the merchandise repossessed on loss)
SOLUTION 1 (c)
Computation of Realized Gross Profit:
Realized gross profit = Cash collection X DGP%
Realized gross profit (2010) = 30,000 x 40% 12,000
Realized gross profit (2011) = 34,000 x 45% 15,300
Realized gross profit (2012) = 60,000 x 50% 30,000
Total realized gross profit = Rs.57,300
WESTERN CORPORATION
ADJUSTING ENTRIES
Date Particulars P/R Debit Credit
1 Installment sales 200,000
Cost of installment sales 100,000
Unrealized gross profit (2012) 100,000
(To adjust the unrealized gross profit)
2 Unrealized gross profit (2010) 12,000
Unrealized gross profit (2011) 15,300
Unrealized gross profit (2012) 30,000
Realized gross profit 57,300
(To adjust the realized gross profit)
b) In year 2010, George Corporation made cash sales Rs.650,000; credit sales Rs.550,000; accounts
receivable decreased by Rs.120,000.
REQUIRED
Compute:
(1) Total sales. (2) Cash received from customers on account. (3) Total cash received.
c) The following income statement and balance sheet for the past two years are available for
Caravan Corporation:
CARAVAN CORPORATION
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2013
2012 2013
Sales Rs.500,000 Rs.350,000
Less: Cost of goods sold Rs.200,000 Rs.140,000
Gross profit Rs.300,000 Rs.210,000
Less: Operating expenses (including depreciation) Rs.260,000 Rs.243,000
Loss on sale of marketable securities --- Rs.1,000
Net income (loss) Rs.40,000 Rs.(34,000)
SOLUTION 2 (a)
This transaction will not be disclosed in cash flow statement. Because cash flow statement is a
statement showing the inflows and outflows of cash and cash equivalents for a business over a financial
period. This transaction does not flow the cash and cash equivalents, neither inflow nor outflow of cash.
SOLUTION 2 (b)
Computation of Total Sales:
Cash sales 650,000
Add: Credit sales 550,000
Total sales Rs.1,200,000
SOLUTION 3 (a)
1. Computation of Total Current Assets:
Cash 225,000
Marketable securities 120,000
Notes receivable 180,000
Accounts receivable (Net) 285,000
Total quick assets 810,000
Merchandise inventory 240,000
Prepaid expenses 30,000
Total current assets 1,080,000
Less: Total Current Liabilities:
Notes payable 90,000
Accounts payable 247,500
Accrued liabilities 22,500
Total current liabilities (360,000)
Working capital Rs.720,000
SOLUTION 3 (b)
No. Transaction Current Ratio Acid Test Ratio
1. Sold inventory costing Rs.36,000 for Rs.30,000. Decrease Decrease
2. Declared a cash dividend Rs.120,000. Decrease Decrease
3. Paid accounts payable Rs.60,000. Increase Increase
4. Purchased goods on account Rs.45,000. Decrease Decrease
5. Issued additional shares of Rs.450,000. Increase Increase
6. Wrote off uncollectible accounts Rs.9,000. No change No change
7. Acquired plant and equipment for cash Rs.240,000. Decrease Decrease
b) The balance sheet of M/S. Black Corporation Ltd. as on December 31, 2013 is as under:
ASSETS EQUITIES
Preliminary expenses Rs.20,000 Share capital (Rs.10 par) Rs.300,000
Building Rs.225,000 General reserve Rs.60,000
Merchandise inventory Rs.75,000 Retained earnings Rs.30,000
Accounts receivable Rs.75,000 Long term loans Rs.75,000
Cash Rs.107,500 Allowance for depreciation Rs.15,000
Allowance for bad debts Rs.7,500
Accounts payable Rs.15,000
Total Rs.502,500 Total Rs.502,500
Black Corporation was absorbed by White Corporation Ltd. on the following terms:
1. White Corporation takes over all the assets and liabilities of Black Corporation at book value.
(Except cash and long term loans).
2. 5 new shares were issued against every 4 shares of Black Corporation @ Rs.10 each.
3. Liquidation expenses paid by White Corporation Rs.15,000.
REQUIRED
(1) Calculate purchase consideration.
(2) Record entries in the books of: (i) Black Corporation. (ii) White Corporation.
SOLUTION 4 (a)
Amalgamation:
The combination of two or more companies in which the old companies merge to form a new
company is called amalgamation. For example Company “A” and Company “B” amalgamate to
form a Company “C”. All the assets and liabilities of both old companies (A and B) are
transferred to new company (C). In that sense the company “C” is acquiring the company “A”
and company “B”.
Absorption:
The combination of two or more companies in which one company acquires the other company
and the other company absorbs in the acquiring company is called absorption. For example
Company “A” acquires the Company “B”. So that after the acquiring the name of Company “B”
will not exist but the name of Company “A” will exist. All the assets and liabilities of old
company (B) are transferred to purchasing company (A).
SOLUTION 4 (b)
Computation of Purchase Consideration:
30,000 x 5/4 = 37,500 Ordinary shares @ Rs.10 each 375,000
Liquidation expense (cash) 15,000
Purchase consideration Rs.390,000
Realization
1 Assets 375,000 2 Liabilities 37,500
6 Liquidation expense 15,000 3 Receivable from White Corporation 390,000
8 Payable to shareholders 37,500
427,500 427,500
SOLUTION 5 (i)
FORD CORPORATION
GENERAL JOURNAL
Date Particulars P/R Debit Credit
Jan. 10 Notes payable 2,500
Head office 2,500
(To record the notes paid by head office)
Jan. 15 Furniture 10,000
Head office 10,000
(To record the payment for furniture by head office)
Jan. 19 Head office 3,000
Cash 3,000
(To record the cash remitted to head office)
Jan. 20 Merchandise supplied 25,000
Head office 25,000
(To record the goods received from head office)
SOLUTION 5 (ii)
FORD CORPORATION
GENERAL LEDGER
HEAD OFFICE
Jan. 19 Cash 3,000 Jan. 1 Balance 67,500
Jan. 25 Merchandise supplied return 2,500 Jan. 10 Notes payable 2,500
Jan. 29 Accounts receivable 1,500 Jan. 15 Furniture 10,000
Jan. 31 Expense and revenue summary 890 Jan. 20 Merchandise supplies 25,000
Jan. 31 Balance c/d 98,610 Jan. 30 Expenses 1,500
106,500 106,500
Feb. 1 Balance b/d 98,610
b) Beta Corporation sent merchandise costing Rs.30,000 at billed price Rs.40,000 to Lahore branch.
Freight charges were Rs.2,500. Head office instructed the Lahore branch to send same merchandise to
Multan branch. Lahore branch sent merchandise to Multan branch with payment of additional freight
charges of Rs.1,000. If head office had directly sent merchandise to Multan branch freight charges would
have been Rs.2,500.
REQUIRED
Record entries in General Journal of: (i) Head office. (ii) Lahore branch. (iii) Multan branch.
MARSH CORPORATION
HEAD OFFICE BOOK
GENERAL JOURNAL
FOR THE PERIOD ENDED DECEMBER 31, 2013
Date Particulars P/R Debit Credit
Dec. 31 Allowance for overvaluation 4,550
2013 Profit and loss account 4,550
(To adjust the allowance for overvaluation)
SOLUTION 6 (b)
BETA CORPORATION
HEAD OFFICE
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Lahore Branch 42,500
Merchandise supplied 30,000
Allowance for overvaluation 10,000
Cash 2,500
(To record the merchandise sent to Lahore Branch and
paid transportation)
2 Multan Branch 42,500
Inter branch freight expenses 1,000
Lahore Branch 43,500
(To record the inter branch freight charges)
BETA CORPORATION
LAHORE BRANCH
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Merchandise supplied 40,000
Freight charges 2,500
Head office 42,500
(To record the merchandise received from head office
and transportation paid by head office)
BETA CORPORATION
MULTAN BRANCH
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Merchandise supplied 40,000
Freight charges 2,500
Head office 42,500
(To record the merchandise received from Lahore Branch
and transportation paid)
SOLUTION 7
HAROON TEXTILE MILLS LTD.
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Bank (90,000 x 10) 900,000
Ordinary shares application 900,000
(To record the shares application received at par)
2 Ordinary shares application 900,000
Ordinary shares capital (90,000 x 10) 900,000
(To record the shares issued to public at par)
3 Bank (5,000 x 10) 50,000
Ordinary shares capital (5,000 x 10) 50,000
(To record the shares issued to underwriters at par)
4 Commission expense (50,000 x 1%) 500
Bank 500
(To record the commission paid to underwriters)
SOLUTION 8 (i)
MOON LTD.
INCOME STATEMENT
FOR THE PERIOD ENDED DECEMBER 31, 2013
Sales 500,000
Less: Cost of Goods Sold:
Merchandise inventory beginning 140,000
Add: Net Purchases:
Purchases 300,000
Add: Carriage – in 2,000
Net purchases 302,000
Merchandise available for sale 442,000
Less: Merchandise inventory ending (70,000)
Cost of goods sold (372,000)
Gross profit 128,000
Less: Operating Expenses:
Salaries expense 18,000
Director’s fees 10,000
Rent expense (8,000 – 2,000) 6,000
Insurance expense 1,000
Depreciation expense –Machinery (400,000 x 10%) 40,000
Depreciation expense –Building (700,000 x 15%) 105,000
Interest expense (100,000 x 10% x 3/12) 2,500
Total operating expenses (182,500)
Loss from operation (54,500)
Add: Other Income:
Commission income 3,500
Net loss (51,000)
SOLUTION 8 (b)
MOON LTD.
BALANCE SHEET
AS ON 30 JUNE 2013
Equities Assets
Shareholder’s Equity: Fixed Assets:
Authorized Capital: Machinery 400,000
400,000 ordinary shares @Rs.100 each 4,000,000 Less: All for dep. (40,000) 360,000
Building 700,000
Issued & Paid-up Capital: Less: All for dep. (105,000) 595,000
80,000 ordinary shares @ Rs.100 each 800,000 Total fixed assets 955,000
Retained earnings 94,300
Reserve for building extension 40,000 Current Assets:
Total shareholder’s equity 934,300 prepaid rent 2,000
Prepaid insurance 2,000
Liabilities: Office supplies 2,000
Long Term Liabilities: Merchandise inventory 70,000
10% Bonds payable 100,000 A/c. receivable 30,000
Less: All for b/d (1,200) 28,800
Current Liabilities: Cash 17,000
Accounts payable 25,000 Total current assets 121,800
Interest payable 2,500
Cash dividend payable 15,000
Total liabilities 142,500
Total equities 1,076,800 Total assets 1,076,800
Additional Working:
MOON LTD.
ADJUSTING ENTRIES
FOR THE PERIOD ENDED DECEMBER 31, 2013
Date Particulars P/R Debit Credit
1 Depreciation expense 145,000
Allowance for depreciation – Machinery 40,000
Allowance for depreciation – Building 105,000
(To adjust the depreciation expenses for the period)