B.Com Advanced Accounting

Instruction: Attempt any FIVE questions.

Q.1. Branch Accounting

Nextdoor Grocers, Karachi (Head Office) deals in wholesalers grocery. The company has two branches, one at Islamabad and the other at Faisalabad. The branches keep a complete set of books.
On July 01, 2005 the head office books showed the following balances in the branches accounts.

Islamabad Branch …………………… Rs. 50,000
Faisalabad Branch ………………….. Rs. 45,000

Some of the transactions between the head office and the two branches for the year are listed below:
Under the head instructions, Islamabad branch colected Rs. 15,000 from Customers of Faisalabad branch and remitted Rs .10,000 to Faisalabad branch and Rs. 5,000 to head office.
Faisalabad branch transferred merchandise valued Rs. 10,000 to Islamabad branch and paid Rs. 1,000 cash for transporting the goods.
Head office paid Faisalabad branch suppliers Rs. 12,000 cash.
Islamabad branch paid head office suppliers Rs. 8,000 cash. Islamabad Branch showed a net profit of Rs. 20,000 and Faisalabad branch showed a net loss of Rs. 2,000.

Required
i. Journal entries in the head office and the branches books. (12)
ii. The two branches accounts in the head office books. (08)

Q.2. Installment Sales

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

…………………………………………. 2003 ……….. 2004 ……….. 2005
Installment Sales …………………. 1,50,000 ….. 2,00,000 ….. 2,50,000
Cost of Installment Sales ……….. 1,00,000 ….. 1,50,000 …… 2,00,000
Selling and Administrative Exp. …… 50,000 …… 60,000 …….. 80,000

Collection from Customer
Installment Sales 2003 …………… 80,000 …….. 40,000 ……. 20,000
Installment Sales 2004 …………… ——- …….1,00,000 …… 80,000
Installment Sales 2005 …………… ——- …….. —— ……. 1,50,000

The firm uses installment method of recognizing revenue.

Required
i. Compute the following for each year. (12)
a. Deferred Gross Profit
b. Rate of Deferred Gross Profit
c. Realize Gross Profit
d. Net Profit or Losss

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

Q.3. Consignment Account
NOTE: Note Included in the New Course

Q.4. (a) Accounting for Value Added Tax and Incomplete Records
NOTE: Not Included in the New Course

Q.4. (b) Danial owns a small grocery shop. On November 30, 2005 the business owned merchandise worth Rs. 5,000. Although Danial does not maintain proper accounts, he provided the following information about his business for the year.

Sales (credit) …………. 1,00,000 | Sales (cash) ………….. 50,000
Purchase (credit) ………. 90,000 | Purchase (cash) ………. 10,000
Salary and Wages ……… 20,000 | Bad debt written off ….. 1,000
Other Expenses ………….. 2,000

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

Required: Prepare a statement of Profit and Loss for DANIAL’S business for the year ended Nov. 30, 2006. (10)

Q.5. Cash Flow Analysis

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

Assets …………………………………. 31-12-2004 ………… 31-12-2005
Cash and Bank Balance ………………… 50,000 ………………… 45,000
Marketable Securities ………………….. 40,000 ………………… 25,000
Accounts Receivable …………………. 3,20,000 ……………….. 3,30,000
Merchandise Inventory ………………. 2,40,000 ……………….. 2,35,000
Plant and Equipment (net) ………….. 6,00,000 ……………….. 6,40,000
…………………………………………. 12,50,000 ……………… 12,75,000

Liabilities and Shareholder’s Equity
Accounts Payable ……………………. 1,50,000 ………………. 1,60,000
Accrued Expenses …………………….. 60,000 ………………… 45,000
Mortgage Loan (long term) ……………. —– …………………. 70,000
Debenture Payable (due 2010) ……… 5,00,000 ………………. 3,50,000
Ordinary Share Capital ……………….. 1,60,000 ………………. 1,60,000
Retained Earning ………………………. 3,80,000 ………………. 4,90,000
………………………………………….. 12,50,000 …………….. 12,75,000

Additional Information
Net income for the year amounted to Rs. 2,50,000.
Cash dividends of Rs. 1,40,000 were declared and paid.
Depreciation of plant and equipment for the year was Rs. 60,000 Marketable securities costing Rs. 15,000 were sold Rs. 35,000 cash.

Required: Prepare a cash flow statement using indirect method for the year ended October 31, 2006 showing the following clearly:
i. Cash flow from operating activities
ii. Cash flow from investing activities
iii. Cash flow from financing activities.

Q.6. (a) Analysis of Financial Statements

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

Required
i. Compute the following ratios for the year 2004 and 2005. (15)
a. Current ratio
b. Quick ratio
c. Working capital
d. Stock turnover
e. Accounts receivable turnover
f. Return on capital employed

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

Q.6. (b) Comment on the company’s performance based on the accounting ratios for the year 2005. (05)

Q.7. Amalgamation

Balance sheets of BLUE LIMITED and BRIGHT LIMITED as on January 01, 2006 are give below:

Assets …………………………….. Blue Limited …………. Bright Limited
Cash and Bank Balance ……………. 10,000 …………………. 50,000
Accounts Receivable ……………… 1,00,000 ……………….. 1,05,000
Merchandise Inventory …………….. 80,000 …………………. 95,000
Land and Building ………………….. 8,00,000 ……………….. 3,00,000
Goodwill …………………………….. 1,10,000 ………………… ——-
……………………………………… 11,00,000 ……………….. 5,50,000

Liabilities and Equities
Accounts Payable …………………… 40,000 ………………….. 50,000
Ordinary Share Capital (Rs. 10
Ordinary shares fully paid) ………. 10,00,000 …………………. 4,00,000
General Reserve …………………… ——— …………………… 60,000
Retained Earning ………………….. 60,000 ……………………… 40,000
…………………………………….. 11,00,000 …………………… 5,50,000

On January 01, 2006 both companies agreed to amalgamate and from INDIGO LIMITED with an authorized capital of Rs. 1,00,00,000 divided into ordinary shares of Rs. 10 each.
INDIGO LIMITED issued shares equal to the value of their net assets in payment of purchase consideration to BLUE LIMITED and BRIGHT LIMITED. The new company also paid Rs. 25,000 to each liquidating company for their liquidation expenses.

Required
i. Amount of purchase consideration for each liquidation company and the number of shares to be issued. (06)
ii. Entries in General Journal of INDIGO LIMITED. (06)
iii. Initial Balance sheet of INDIGO LIMITED as on January 01, 2006. (08)

Q.8. Absorption

The balance sheet of MULTAN MILK PRODUCTION as on December 01, 2006 was as under:

Assets
Cash …………………………………………………….. 40,000
Merchandise Inventory ……………………………….. 30,000
Accounts Receivable ………………………………….. 80,000
Land and Building ……………………………………… 3,00,000
Machinery and Equipment ……………………………. 5,00,000
Allowance for depreciation …………………………… 1,00,000
…………………………………………………………… (8,50,000)

Liabilities and Equities
Accounts Payable …………………………………….. 40,000
6% Debentures Payable ……………………………… 50,000
Share Capital (70,000 Ordinary Shares of Rs. 10 …. 7,00,000
Retained Earning ……………………………………… 60,000
…………………………………………………………… (8,50,000)

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

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

Required
i. Compute the purchase consideration. (05)
ii. Give necessary general journal entries to record the absorption in the books of both companies. (15)