1992 accounting paper xii

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1992

Compiled and Solved by:

S.Hussain

XII – ACCOUNTING

REGULAR /

PRIVATE

http://www.a4accounting.net/

Compiled & Solved by: S.Hussain [email protected]

X I I – A c c o u n t i n g – 1 9 9 2 ( R e g u l a r / P r i v a t e )

ACCOUNTING – 1992

REGULAR / PRIVATE Q.No.1 SINGLE ENTRY GIVEN Mr. Azmat started business with cash investment of Rs.100,000 on January 1, 1991. He keeps his accounting records on Single Entry basis. On December 31, 1991, the following information was obtained from his accounting records:- Cash at bank Rs. 25,500 Accounts receivable 55,000 Merchandise inventory 40,000 Office equipment 60,000 Furniture 30,000 Unexpired insurance 2,500 Accounts payable 39,000 Additional information on December 31, 1991:-

(i) Mr. Azmat had withdrawn Rs.2,500 per month during the year for his personal use. (ii) He invested additional capital of Rs.25,000 during the year. (iii) The bank statement showed a debit of Rs.750 for Zakat deduction and credit of Rs.1,200 for

profit. (iv) Insurance of Rs.1,500 had expired. (v) Depreciation on furniture was estimated at 20% and on office equipment at 10%. (vi) Bad debts expenses were estimated at 5% of accounts receivable.

REQUIRED (a) Prepare statement showing the calculation of capital on December 31, 1991. (b) Prepare a Statement of Profit and Loss for the year ending December 31, 1991. (c) Prepare a Statement of Affairs (Balance Sheet) as of December 31, 1991 in classified account

form. SOLUTION 1 (a) Computation of Capital at End: Cash at bank 25,500 Accounts receivable 55,000 Merchandise inventory 40,000 Office equipment 60,000 Furniture 30,000 Unexpired insurance 2,500

Total assets 213,000 Less: Total Liabilities: Accounts payable (39,000)

Capital at end 174,000



SOLUTION 1 (b) MR. AZMAT

STATEMENT OF PROFIT AND LOSS FOR THE PERIOD ENDED 31 DECEMBER 1991

Capital at end 174,000 Add: Drawings (2,500 x 12) 30,000

204,000 Less: Capital at start (100,000)

104,000 Less: Additional investment (25,000)

Unadjusted profit 79,000 Less: Operating Expenses: Zakat deduction 750 Insurance expense 1,500 Depreciation expense – Furniture (30,000 x 20%) 6,000 Depreciation expense – office equipment (60,000 x 10%) 6,000 Bad debts expense (55,000 x 5%) 2,750

Total operating expenses (17,000)

Profit from operation 62,000 Add: Other Income: Profit given by bank 1,200

Adjusted net profit 63,200

SOLUTION 1 (c)

MR. AZMAT STATEMENT OF AFFAIRS

AS ON 31 DECEMBER 1991

ASSETS EQUITIES

Current Assets: Liabilities: Cash at bank 25,950 Accounts payable 39,000

Accounts receivable 55,000 Total liabilities 39,000 Less: All. For Bad debts (2,750) 52,250

Merchandise inventory 40,000 Owner’s Equity: Unexpired insurance 1,000 Capital 100,000

Total current assets 119,200 Add: Net profit 63,200 Add: Additional investment 25,000

Fixed Assets: 188,200 Office equipment 60,000 Less: Drawings (30,000)

Less: All for depreciation (6,000) 54,000 Total owner’s equity 158,200

Furniture 30,000 Less: All for depreciation (6,000) 24,000

Total fixed assets 78,000

Total assets 197,200 Total equities 197,200



Additional Working: MR. AZMAT

ADJUSTING ENTRIES FOR THE PERIOD ENDED 31 DECEMBER 1991

Date Particulars P/R Debit Credit

1 Zakat deduction 750 Bank 750 (To record the zakat deducted by bank)

2 Bank 1,200 Profit 1,200 (To record the profit credited by bank)

3 Insurance expense 1,500 Unexpired insurance 1,500 (To adjust the unexpired insurance)

4 Depreciation expense 12,000 Allowance for depreciation – Furniture 6,000 Allowance for depreciation – Office equipment 6,000 (To adjust the depreciation expense for the year)

5 Bad debts expense 2,750 Allowance for bad debts 2,750 (To adjust the bad debts expense)

Q.No.2 DIVISION OF NET INCOME OR LOSS GIVEN Abid, Saleem and Khalid are partners in a business. On January 1, 1991 their capital balances were Rs.60,000; Rs.50,000 and Rs.40,000 respectively. The partnership deed has the following provisions regarding distribution of net income:-

(i) Each partner is to receive profit @10% on capital balances as it stands on the first day of each accounting year.

(ii) Each partner will be allowed a monthly salary of Rs.1,000. (iii) The remaining net income or net loss, if any, will be divided equally.

On December 31, 1991, the business operation showed net income of Rs.48,000. REQUIRED

(a) Prepare an Income Distribution Summary showing the distribution of net income. (b) Make entries in the General Journal for distribution of net income to each partner. (c) Prepare capital account of each partner post, rule and balance each account.



SOLUTION 2 (a) ________ PARTNERSHIP

INCOME DISTRIBUTION SUMMARY FOR THE PERIOD ENDED 31 DECEMBER 1991

Abid Saleem Khalid Total

Capital balances 60,000 50,000 40,000 150,000

Net profit 48,000

Interest @10% on capital balances 6,000 5,000 4,000 15,000 Salary (1,000 x 12) 12,000 12,000 12,000 36,000 Distribution of remaining loss equally (1,000) (1,000) (1,000) (3,000)

Total 17,000 16,000 15,000 4,000

SOLUTION 2 (b)

________ PARTNERSHIP GENERAL JOURNAL

FOR THE PERIOD ENDED 31 DECEMBER 1991


1 Expense and revenue summary 48,000 Abid’s current account 17,000 Saleem’s current account 1,000 Khalid’s current account 3,000 (To record the distribution of net income)

SOLUTION 2 (c)

GENERAL LEDGER

Abid Capital

Balance 60,000 c/d balance 60,000

60,000 60,000

b/d balance 60,000

Saleem Capital


50,000 50,000

b/d balance 50,000

Khalid Capital


40,000 40,000

b/d balance 40,000



Q.No.3 PARTNERSHIP – ADMISSION GIVEN Akhtar and Hafeez are partners in a firm sharing profit s and losses in the ratio of 3:2. The balance sheet of the firm on December 31, 1991 was as under: Total assets 255,000 A/c payable 55,000 Akhtar Capital 120,000 Hafeez Capital 80,000

255,000 255,000

On January 1, 1992 Kashif is admitted as a partner. REQUIRED

Give entries in the General Journal for admission of Kashif under each case separately. Show computation along with each entry: Case (i): Kashif is to purchase 1/4 interest from Akhtar and 1/4 from Hafeez and pay to them

privately Rs.60,000 and Rs.30,000 respectively. Case (ii): Kashif invests Rs,80,000 and gets 1/4 interest in the capital and profit. Case (iii): Kashif invests Rs.80,000 and gets 1/4 interest in the capital and profit. The new capital is

agreed at Rs.280,000. SOLUTION 3 Case (i): Computation: Akhtar = 120,000 x 1/4 = 30,000 Hafeez = 80,000 x 1/4 = 20,000 ________________ Kashif Capital = 50,000 ________________

________ PARTNERSHIP

GENERAL JOURNAL


1 Akhtar Capital 30,000 Hafeez Capital 20,000 Kashif Capital 50,000 (To record the admission of Kashif)

Case (ii): Check: Kashif’s investment 80,000 Opposite ratio of Kashif 4/1

Total capital of firm 320,000 Less: Old partners’ capital (120,000 + 80,000) (200,000) Less: Kashif’s investment (80,000)

Positive value shows goodwill to old partners 40,000

Computation: For 1/4 interest, Kashif’s investment 80,000

Therefore total capital of firm (80,000 x 1/4) 320,000

For 3/4 interest old partners’ capital (320,000 x 3/4) 240,000 Less: Old partners’ capital before admission of Kashif (120,000 + 80,000) (200,000)

Goodwill to old partners 40,000



________ PARTNERSHIP GENERAL JOURNAL


1 Cash 80,000 Kashif Capital 80,000 (To record the admission of Kashif)

2 Goodwill 40,000 Akhtar Capital (40,000 x 3/5) 24,000 Hafeez Capital (40,000 x 2/5) 16,000

Case (iii): Computation: For 1/4 interest, Kashif capital (280,000 x ¼) 70,000 Less: Kashif’s investment (80,000)

10,000 For 3/4 interest, old partners’ capital (280,000 x 3/4) 210,000 Less: Old partners’ capital before admission of Kashif (120,000 + 80,000) (200,000)

(10,000)

Bonus to old partners 10,000

________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 80,000 Akhtar Capital (10,000 x 3/5) 6,000 Hafeez Capital (10,000 x 2/5) 4,000 Kashif Capital 70,000 (To record the admission of Kashif)

Q.No.4 CONVERSION (Not included in the new course) Q.No.5 CORPORATION – ISSUE OF SHARES GIVEN The following transactions were completed by Al-Murtuza Company Limited:-

(i) Issued 50,000 ordinary shares of Rs.10 each at Rs.12.50 per share to the public payable in full on application. The company received applications for 80,000 shares. The company allotted the shares offered and refunded the amount received in excess.

(ii) The company issued to the public 50,000 ordinary shares of Rs.10 each payable in full on application. The entire issue was guaranteed by the underwriters. The company received applications for 40,000 shares. As per agreement the underwriters subscribed the balance of the issuance.

(iii) The company purchased machinery at a price of Rs.450,000 and consideration issued to the vendors its own 43,000 ordinary shares of Rs.10 each.

(iv) The company issued 10,000 debenture bonds of Rs.100 each redeemable at Rs.105 per debenture after five years. All the debentures were subscribed.

(v) The company issued 10,000 debenture bonds of Rs.10 each at Rs.95 per debenture. The debentures are redeemable at par after five years. All the debentures were subscribed.



REQUIRED Give entries in the General Journal of the company to record the above transactions. SOLUTION 5

AL-MURTUZA COMPANY LIMITED GENERAL JOURNAL


1 Bank (80,000 x 12.50) 1,000,000 Ordinary shares application 1,000,000 (To record the shares application received at par)

2 Ordinary shares application 625,000 Ordinary share capital (50,000 x 10.00) 500,000 Share premium (50,000 x 2.50) 125,000 (To record the ordinary shares issued at premium)

3 Ordinary shares application 375,000 Bank (30,000 x 12.50) 375,000 (To record the refund of excess money to the public)

4 Bank (40,000 x 10) 400,000 Ordinary shares application 400,000 (To record the shares application received at par)

5 Ordinary shares application 400,000 Ordinary shares capital (40,000 x 10) 400,000 (To record the shares issued to public at par)

6 Bank (10,000 x 10) 100,000 Ordinary shares capital (10,0000 x 10) 100,000 (To record the shares issued to underwriter at par)

7 Machinery 450,000 Ordinary shares capital (43,000 x 10) 430,000 Shares premium 20,000 (To record the purchase of machinery by issuing shares at

premium)

8 Bank (10,000 x 100) 1,000,000 Loss on redemption (10,000 x 5) 50,000 Debentures payable (10,000 x 100) 1,000,000 Premium on redemption (10,000 x 5) 50,000 (To record the issue of debentures at par and payback at

premium)

9 Bank (10,000 x 95) 950,000 Discount on debentures (10,000 x 5) 50,000 Debentures payables (10,000 x 10) 1,000,000 (To record the issue of debentures at discount and

payback at par)



Q.No.6 DISPOSAL OF NET INCOME GIVEN The data were extracted from the balance sheet of Al-Mehran Company Limited on December 31, 1990:- Authorized Capital: 200,000 ordinary shares of Rs.10 each Rs.2,000,000 Issued and Paid-up Capital: 100,000 ordinary shares of Rs.10 each Rs.1,000,000 Retained earnings Rs.150,000 On December 31, 1991, the income summary of the company sowed net income of Rs.300,000. At this date the company decided as under:-

(i) To declare cash dividend of 15%. (ii) To appropriate Rs.100,000 for plant expansion. (iii) To appropriate Rs.50,000 for contingencies. (iv) To appropriate Rs.50,000 for debenture redemption.

REQUIRED (a) Give the entry in the General Journal of the company to transfer the net income to retained

earnings account. (b) Give entries in the General Journal to give effect to the above decision of the company. (c) Prepare partial balance sheet of the company as of December 31, 1991.

SOLUTION 6 (a & b)

AL-MURTUZA COMPANY LIMITED GENERAL JOURNAL

FOR THE PERIOD ENDED 31 DECEMBER 1991


1 Expense and revenue summary 300,000 Retained earnings 300,000 (To record the net income transferred to retained

earnings account)

2 Retained earnings 150,000 Cash dividend payable (1,000,000 x 15%) 150,000 (To record the cash dividend declared)

3 Retained earnings 100,000 Reserve for plant expansion 100,000 (To record the reserve for plant expansion)

4 Retained earnings 50,000 Reserve for contingencies 50,000 (To record the reserve for contingencies)

5 Retained earnings 50,000 Reserve for debenture redemption 50,000 (To record the reserve for debenture redemption)



SOLUTION 6 (c) AL-MURTUZA COMPANY LIMITED

BALANCE SHEET AS ON 31 DECEMBER 1991

EQUITIES ASSETS

Authorized Capital: 200,000 ordinary shares @ Rs.10 each 2,000,000

Shareholders’ Equity: 100,000 ordinry shares @ Rs.10 each 1,000,000 Retained earnings 100,000 Reserve for plant expansion 100,000 Reserve for contingencies 50,000 Reserve for debenture redemption 50,000

Total shareholders’ equity 1,300,000 Current Liabilities Cash dividend payable 150,000

Total liabilities 150,000

Total equities 1,450,000

Additional Working: Statement of Retained Earnings: Retained earnings (opening balance) 150,000 Add: Net income for the period 300,000

Total retained earning 450,000 Less: Reserves: Reserve for plant expansion 150,000 Reserve for contingencies 50,000 Reserve for debenture redemption 50,000

Total reserves (200,000)

250,000 Less: Cash dividend (150,000)

Retained earnings (ending balance) 100,000

Q.No.7 DEPRECIATION GIVEN On July 1, 1991, Huma Corporation purchased a machine for cash Rs.120,000. It was estimated that the machine will have scrap value of Rs.20,000 at the end of its estimated service life of 10 years. The manufacturers of the machine also estimated that the service life of the machine will be 25,000 hours and it will produce approximately 50,000 units. The machine was used in the year 1991 for 1,000 hours and produced 2,000 units. The accounting year ends on December 31.



REQUIRED (a) Determine the depreciation rate under each of the following methods separately:-

(i) Straight Line Method. (ii) Service Hours Method. (iii) Units Production Method.

(b) Give adjusting and closing entries in the General journal of Huma Corporation on December 31, 1991 under each of the above three methods separately.

SOLUTION 7 (a) Computation of Depreciation Expense by Straight Line Method: Annual depreciation = Cost – Scrap value Estimated life in years Annual depreciation = 120,000 – 20,000 10 Annual depreciation = 10,000 Depreciation expense for the period 31 December 1991 = 10,000 x 6/12 = 5,000 Computation of Depreciation Expense by Service Hours Method: Rate per hour = Cost – Scrap value Estimated life in hours Rate per hour = 120,000 – 20,000 25,000 Rate per hour = Rs.4 Depreciation expense for the period 31 December 1991 = 1,000 x 4 = 4,000 Computation of Depreciation Expense by Units Production Method: Rate per unit = Cost – Scrap value Estimated life in units Rate per unit = 120,000 – 20,000 50,000 Rate per unit = Rs.2 Depreciation expense for the period 31 December 1991 = 2,000 x 2 = 4,000 SOLUTION 7 (b)

HUMA CORPORATION GENERAL JOURNAL

FOR THE PERIOD ENDED 31 DECEMBER 1991 (UNDER STRAIGHT LINE METHOD)


31.Dec Depreciation expense 5,000 1991 Allowance for depreciation 5,000 (To record the depreciation expense)

31 Dec Expense and revenue summary 5,000 1991 Depreciation expense 5,000 (To close the depreciation expense account)



HUMA CORPORATION GENERAL JOURNAL

FOR THE PERIOD ENDED 31 DECEMBER 1991 (UNDER SERVICE HOURS METHOD)




HUMA CORPORATION

GENERAL JOURNAL FOR THE PERIOD ENDED 31 DECEMBER 1991 (UNDER UNITS OF PRODUCTION METHOD)




Q.No.8 RESERVE AND FUND

(a) From the point of view of accounting distinguish between a Reserve and a Fund. (b) Give necessary journal entries to record the creation and disposal of different types of reserves. (c) Give the necessary journal entries to record the creation and disposal of fund.

SOLUTION 8 (a)

RESERVE FUND

1. It is created out of retained earnings. 1. It is created out of cash.

2. Reserve is a voluntary provision made out of net income.

2. A provision is a change expense and revenue.

3. Reserve is part of owner’s equity. 3. Fund is an asset.

4. It is shown on the credit side of the balance sheet under owner’s equity.

4. It is shown on the debit side of the balance sheet among assets.

5. It represents a portion of profits or liability.

5. It represents on assets.

6. Reserve has normally credit balance. 6. Fund has normally debit balance.

7. It is part of retained earnings. 7. It is not part of retained earnings.



SOLUTION 8 (b) (i) Allowance for depreciation on machine is a Valuation Reserve. (ii) Reserve for income tax is a Liability Reserve. (iii) Reserve for contingencies is a Surplus Reserve.

CREATION OF RESERVES GENERAL JOURNAL


1 Depreciation expense DR. Allowance for depreciation CR. (To record the depreciation expense)

2 Income tax expense DR. Reserve for income tax CR. (To record the reserve for income tax)

3 Retained earnings DR. Reserve for contingencies CR. (To record the reserve for contingencies)

DISPOSAL OF RESERVES

GENERAL JOURNAL


1 Allowance for depreciation DR. Machine CR. (To record the disposal of machine)

2 Reserve for income tax DR. Cash/Bank CR. (To record the income tax paid)

3 Reserve for contingencies DR. Retained earnings CR. (To record the disposal of reserve for contingencies)

SOLUTION 8 (c)

CREATION OF FUND GENERAL JOURNAL


1 Sinking fund DR. Cash CR. (To record the creation of sinking fund)

DISPOSAL OF FUND GENERAL JOURNAL


1 Bonds payable DR. Sinking fund CR. (To record the disposal of sinking fund)

1992 accounting paper xii

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