PAPER – 6 : FINANCIAL ACCOUNTING

SUGGESTED ANSWERS
SECTION - A
1.
(i) (A)
(ii) (D)
(iii) (D)
(iv) (A)
(v) (A)
(vi) (A)
(vii) (A)
(viii) (D)
(ix) (B)
(x) (D)
(xi) (B)
(xii) (C)
(xiii) (D)
(xiv) (D)
(xv) (A)

SECTION - B
2. (a)
(i) As per AS-10, the amount of depreciation to be charged to statement of profit and loss account will depends
upon the following factors:
I) cost of the asset
II) Estimated useful life of the asset
III) Estimated Residual (scrap) value of the asset.
IV) Depreciation Method.

i. The cost of the fixed asset is determined after adding all expenses incurred for bringing the asset to usable
condition.
ii. Estimated useful life of the asset is estimated in terms of years it can be effectively utilized for business
operations.
iii. Estimated sales value of the asset at the end of the useful life is treated as estimated residual value of the
asset.
iv. The method chosen (Straight Line Method, Written Down Value Method, etc.) affects the annual
depreciation charge. It should reflect the pattern in which the asset’s future economic benefits are
expected to be consumed.

(ii)
Depreciation as per competent Accounting
Depreciation for component body D 4,00,000 (20,00,000 /5)
Depreciation for component seating arrangement D 5,00,000 (30,00,000/6)
Depreciation for Component Engine D 2,00,000 (20,00,000/10)
__________
Depreciation on Motor vehicle for the year D 11,00,000

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 2. (b)
(i) Difference between Purchase Day Book and Purchase Account
• Purchase Day Book simply records only credit Purchases of goods, whereas both cash and credit
Purchases of goods are posted in Purchase Account.
• Purchase Day Book is a part of Journal, whereas Purchase Account is a part of General Ledger.
• Purchase Day Book is not divided into debit and credit sides, whereas Purchase Account is divided into
two sides (debit and credit side)

(ii) JOURNAL ENTRIES

Dr. Cr.
Particulars D D

a Sales Account Dr 200

To Barun Account 200
(credit sales recorded as D 7200 instead of D 7,000)
b Raman Account Dr 900
To Purchase Account 900
(credit purchase recorded as D 9,900 instead of D 9,000)
c Purchase Return Account Dr 40
To Chaya Account
(Purchase Return recorded as D 4,040 instead of D 4,000) 40
d Paresh Account Dr 400
To Sales Return Account 400
(Sales Return recorded as D 1400 instead of D 1,000)

3. (a)
Computation of Claim for loss of Stock
D
Stock in the Premises on the day of fire 30th March,2025 125,200
Less: value of Salvage Stock 24,600
Loss of Stock 1,00,600
Amount of Claim = Insured Value × loss of Stock
Total Cost on the date of fire
120,000 × 100,600 = 96,422 (approx.) 96,422
125,200

Working Notes:
1. Calculation of goods with customers. Since no approval for sale has been received for the goods of
D 99,000) hence, these (2/3rd 0f D 99,000 = D 66,000) should be valued at cost i.e. D 52,800.

2. Calculation of Actual Sales

Total Sales – Sale of Goods on approval (⅔rd. of goods sold on approval i.e. 2/3 x 99,000)
= D 5,50,000 – D 66,000 = D 4,84,000.

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 3. Calculation of closing stock as on 30.03.2025

Memorandum Trading Account for

(from 1st January 2025 to 30th March 2025)
Particulars D Particulars D

To Opening Stock 1,91,200 By Sales 4,84,000

To Purchases 2,80,000 By Goods with customers for approval 52,800
To wages 94,000 By Closing Stock 125,200
To Gross Profit 96,800

6,62,000 6,62,000

Alternative Presentation:

Computation of Claim for loss of Stock

Value of stock in the premises as on 30th March 1,25,200

Less: Value of salvage stock 24,600
Loss of Stock 1,00,600
Amount of Claim = Insured Value × loss of Stock
Total Cost on the date of fire
120,000 × 100,600 = 96,422 (approx.) 96,422
125,200

Working Notes:
I. Calculation of goods with customers. Since no approval for sale has been received for the goods of
99,000) hence, these should be valued at cost i.e. D 52,800. [66000 - 20% of 66,000] (2/3rd of 99,000 =
D 66000)

II. Calculation of Actual Sales

Total Sales - Sale of Goods on approval (⅔rd. of goods sold on approval i.e. 2/3 x 99,000)
= D 5,50,000 - D 66,000 = D 4,84,000.

III. Calculation of closing stock as on 31.03.2025

Memorandum Trading Account for
(from 1st January 2025 to 30th March 2025)
Particulars D Particulars D

To Opening Stock 1,91,200 By Sales 4,84,000

To Purchases 2,80,000 By Closing Stock 1,78,000
To wages 94,000
To Gross Profit (20% on Sales) 96,800

6,62,000 6,62,000
Value of stock from the above Trading account D 1,78,000 - Goods Sold and approval yet to be received D 52,800
= Value of stock in the premises as on 30th March D 1,25,200.

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3. (b)
In the Books of the Head office
Branch Stock Account
Dr Cr
Particulars D Particulars D

To Balance b/d 3,60,000 By Bank Account (cash sales) 21,60,000

To Goods Sent to Branch 24,00,000 By Branch Debtors Account (credit 1,20,000
To Branch Adjustment Account 36,000 sales) 1,20,000
(balancing figure, Surplus) By Goods Sent to Branch Account 6,000
(Return to Head Office)
By Branch Adjustment Account 18,000
(24,000 ×25/100)
By Branch Profit and Loss Account 36,000
(cost of goods pilfered)
By Branch Adjustment Account 2,88,000
(invoice price of Normal loss)
By Balance c/d 48,000
In hand
In transit

27,96,000 27,96,000

* Alternatively, combined Posting for D 24,000 may be passed through goods pilfered Account.
** Alternatively, it may first be transferred to a Normal loss account which may Ultimately be closed by
transfer to Branch Adjustment Account. The final amount of net profit will however remain the same
*** It has been considered that the Surplus may be due to sale of goods by branch at a price higher than the
invoice price.
Branch Stock Adjustment Account
Dr. Cr.
Particulars D Particulars D

To Branch Stock Account 6,000 By Stock Reserve Account 90,000

To Branch Stock Account 36,000 By Goods Sent to Branch Account 5,70,000
To Stock Reserve Account 84,000 By Branch Stock Account 36,000
To Gross Profit 5,70,000

6,96,000 6,96,000

Branch Profit and Loss Account

Dr. Cr.
Particulars D Particulars D

To Branch Stock Account 18,000 By Branch Adjustment Account 5,70,000

To Net Profit 5,52,000

5,70,000 5,70,000

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4.
Trading and Profit and Loss Account of ABC enterprise for the year ended 31st March 2025
Dr. Cr.
Particulars D D Particulars D D

To Opening Inventory 80,000 By Sales 6,08,750

To Purchases 4,56,000 By Closing Stock 70,000
Less: Advertising 9,000 4,47,000
To Freight Inward 30,000
To Gross Profit c/d 1,21,750 ________
678,750 6,78,750

To Sundry Expenses 92,000 By Gross Profit 1,21,750

To Advertisement 9,000 By Interest on Investment 600
To Discount Allowed (20,000× 6/100 × ½)
Debtors 15,000 By Discount Received 8,000
Bills Receivable 1,250 16,250 By Miscellaneous Income 5,000
To Depreciation on Furniture 6,500
To provision for doubtful 1,455
debt
To Net Profit 10,145
________ ________
1,35, 350 1,35,350

Balance Sheet as on 31.03.2025

Liabilities Amount Amount Assets Amount Amount

D D D D

Capital 1,88,000 Furniture 60,000

Less: Drawings 91,000 Addition during the year 10,000
97,000 70,000
Add: Net Profit 10,145 1,07,145 Less: Depreciation 6,500 63,500
(balancing figure)
Sundry Creditors 1,50,000
Outstanding Expenses 18,000 Investment 19,000
Accrued Interest 600
Inventory 70,000
Sundry Debtors 72,750
Less: Provision 1,455 71,295
Bills Receivable 17,500
Cash in hand and Bank 26,250
________ Prepaid expenses 7,000
2,75,145 2,75,145

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Working Notes:
I)
Capital as on 01.04.2024
Balance Sheet as on 31.03.2024
Liabilities D Assets D

Capital (Balancing Figure) 1,88,000 Furniture 60,000

Creditors 1,10,000 Closing Inventory 80,000
Outstanding Expenses 20,000 Sundry Debtors 1,60,000
Cash in hand at Bank 12,000
_______ Prepaid expenses 6,000
3,18,000 3,18,000

II)
Purchases made during the year:
Dr. Sundry Creditors Account Cr.
Particulars D Particulars D

To cash and Bank 3,92,000 By Balance b/d 1,10,000

To Discount Received 8,000 By Sundry Debtors 4,000
To Bills Receivables 20,000 By Purchases Account 4,56,000
To Balance c/d 1,50,000 _______
5,70,000 5,70,000

III)
Sales made during the year:
Particulars D D

Opening Inventory 80,000

Purchases 4,56,000
Less: for advertising 9,000 4,47,000
30,000
Freight Inward 5,57,000
Less: closing Inventory 70,000
4,87,000
Cost of goods sold
Add: gross profit (25% on cost) 121,750
Sales. 6,08,750

IV)
Debtors on 31st March 2025
Dr. Sundry Debtors Account Cr.
Particulars D Particulars D

To Balance b/d 160,000 By Cash and Bank Account 5,85,000

To Sales Account 608,750 By Discount Allowed Account 15,000
To Sundry Creditors Account 4,000 By Bills Receivable Account 1,00,000
(Bills Dishonoured) By Balance c/d (Balancing Figure) 72,750
________ ________
7,72,750 7,72,750

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V)
Additional drawings by Proprietor
Dr. Cash and Bank Account Cr.
Particulars D Particulars D

To Balance b/d 12,000 By Freight Inward 30,000

To Sundry Debtors Account 5,85,000 By Furniture Account 10,000
To Bills Receivables Account 61,250 By Investment Account 19,000
To Miscellaneous Income Account 5,000 By Expenses Account 95,000
By Creditors Account 392,000
By Drawings 70,000
Add: Cash Short 21,000 91,000
________ By Balance c/d 26,250
6,63,250 6,63,250

VI)
Amount of Expenses debited to Profit and Loss Account
Dr. Sundry Expenses Account Cr.
Particulars D Particulars D

To prepaid Expenses Account 6,000 By Outstanding Expenses Account 20,000

To Bank Account 95,000 By Profit and Loss Account 92,000
To outstanding Expenses Account 18,000 By Prepaid Expenses Account 7,000
________ ________
119,000 1,19,000

VII)
Bills Receivable as on 31.03.2025
Dr. Bills Receivable Account Cr.
Particulars D Particulars D

To Debtors 1,00,000 By Creditors Account 20,000

By Bank Account 61,250
By Discount on Bills Receivable 1,250
Account
_______ By Balance c/d (Balancing Figure) 17,500
1,00,000 1,00,000

Note: All Sales and Purchases are assumed to be on credit.

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5.
Books of A, B and C
Dr. Revaluation Account Cr.
01.4.2024 D 01.04. 2024 D

To Sundry Debtors Account 4,000 By Stock in Trade Account 6,500

To provision for doubtful debt Account 2,200
To Furniture and Fixtures Account 200
To Profit on Revaluation Account
A- 60
B- 40 100

6,500 6,500

Capital Account
Dr. Cr.
A B C A B C

01.4.2024 ₹ ₹ ₹ 01.4.2024 ₹ ₹ ₹

To Profit and Loss 4800 3200 By Balance b/f 24,000 60,000

Account By Revaluation A/C 60 40
To cash Account 800 800 By Cash A/C (premium 1600 1600
To Balance c/d. 20,060 57,640 15,540 for goodwill)
By Cash (note–2) - - 15,540

25,660 61,640 15,540 25,660 61,640 15540

Balance Sheet as on 01.04.2025

Liabilities D D Assets D D

Capital Account Fixtures and fittings 300

A 20,060 Stock in Trade 28,000
B 57,640 Sundry Debtors 42,000
C 15,540 93,240 Less: Provision 4,200 37,800
Sundry Creditors 20,000 Cash (Note3) 47,140
1,13,240 113,240

Workings:
1. Premium for goodwill paid by C: ⅕ × 16,000 = D 3,200
Old ratio of A and B 3:2
New ratio between A, B and C 5:3:2; Therefore, A and B sacrifice in the ratio of 1:1
2. Combined adjusted capitals of A and B is = 20,060 + 57,640 = D 77,700.
Cs capital contribution will be = (77,700 ×1/5) = D 15,540
3. Balance of Cash in hand may be ascertained by preparing cash Account

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 Cash Account
Dr. Cr.
Particulars D Particulars D

To Balance b/f 30,000 By A’ s Capital Account 800

A's Capital 1600 By B's Capital Account 800
B’ Capital 1600 By Balance 47,140
C's Capital 15,540 ______
48,740 48,740

6. (a)
In the Books of Ram
Consignment to Delhi Account
Dr. Cr.
Particulars D Particulars D

To Goods Sent on Consignment Account 28,400 By Goods Sent on Consignment Account 7,500
To Shyam Account- commission 2,394 - Loading D (28,400 - 20,900)
To Stock Reserve Account 1,700 By Shyam Account - sales Proceeds 26,760
(D 6,920- D 5,220) By Stock on Consignment Account 6,920
To Profit and Loss Account 8,686
(Profit on Consignment transferred)

41,180 41,180

Shyam Account
Dr. Cr.
Particulars D Particulars D

To Consignment to Delhi Account 26,760 By Bills Receivable Account 22,720

(80% of invoice price)
To Balance c/d 5,536 By Consignment to Delhi Account 2,394
- Commission
By Draft Account 6,280
By Draft in Transit Account 902

32,296 32,296

Goods Sent on Consignment Account

Dr. Cr.
Particulars D Particulars D

To Consignment to Delhi Account 7,500 By Consignment to Delhi Account 28,400

To Trading Account (Balancing Figure) 20,900

28,400 28,400

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Workings:
₹
Calculation of commission
Invoice value of goods 28,400
Less: unsold stock 6,920
21,480

Invoice value of goods sold

Total Sales Proceeds 26,760
Less: Invoice value of goods sold 21,480
Surplus Price 5,280

Commission @5% on D 21,480 1,074

Add: @ 25% on D 5,280 1,320
Total commission 2,394

L L
Sales made by Shyam (given in Q) 26,760
Security Money on Closing Stock 5,536 32,296
(80% of Rs 6,920)
Less
Bills drawn on Goods sent 22,720
(80% of Invoice Price)
Commission Account (worked out) 2,394
Draft Received 6,280 31,394
Balance 902

6. (b)
Table showing calculation of Interest (fig. in D)
Payment date Total cash price Interest Paid Cash price paid Instalment paid
(1) (2) (3) (4) (5=3+4)

140,000
Down Payment - 40,000 40,000 40,000
1,00,000
1st instalments - 25,000 1,00,000 × 20% = 20,000 25,000 45,000
75,000
2nd instalment -25,000 75,000 × 20% = 15,000 25,000 40,000
50,000
3rd instalment -25,000 50,000 × 20% = 10,000 25,000 35,000
- 25,000
4th Instalment -25,000 25,000 × 20% = 5,000 25,000 30,000

Nil 50,000 140,000 190,000

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7. (a)
Major difference between Accounting standards and IND AS are: -
Accounting standards were based on international accounting standard, whereas IND AS are based on IFRS.
Accounting standards are rule based whereas IND AS are principle based.
Accounting standards are drafted in technical language whereas IND AS are drafted in simple language.
Accounting standards follow historical cost whereas IND AS follow on the fair value of fixed assets.
Accounting standards are not reliable to international investors where IND AS are reliable by international
investors.
Accounting standards do not ensure uniformity in financial reporting whereas IND AS ensure uniformity in
financial reporting.
Accounting standards require multiple reporting for Companies located in different countries whereas such
reporting does not require under IND AS.

7. (b)
Comparative provision under IND AS 23 and AS 16 are the following: -
Qualifying asset will never include biological Assets under IND AS 23 but maybe included under AS 16.
Specific explanation on the understanding of a substantial period is not required under IND AS 23 but the same is
provided under AS 16.

Inventories which are produced in large quantities can be considered as qualifying assets under IND AS 23
whereas if the condition of substantial period is satisfied then in that case the Inventories may be considered as
qualifying assets under AS 16.

Interest Cost which is capitalised or not capitalised during the period should be disclosed separately under IND AS
23 but if such cost is capitalised during the period and in that case disclosure requirement under AS 16 is
necessary.

Borrowing cost in hyperinflation is addressed under IND AS 23 but the inflation in interest rate is not addressed
under AS 16.

Weighted average capitalisation rate on borrowing would be disclosed in Notes to accounts under IND AS 23 but
no specific guidance is not provided under AS 16.

In the consolidated financial statement weighted average capitalisation rate on total borrowing of holding and
subsidiary is to be considered under IND AS 23 but no such specified guidance is provided under AS 16.

8. (a) (i)
● All significant accounting policies adopted in the preparation and presentation of financial statements
should be disclosed in one place.
● In the case of a change in accounting policy which has a material effect in the current period or later period
the amount by which any item in the financial statement is affected by such change should be disclosed to
the extent ascertainable Where the such amount is not ascertainable wholly or in part the fact should be
indicated.
● If fundamental accounting assumption is not followed the fact should be disclosed and If the fundamental
Accounting Assumption are followed in financial statements, specific disclosure is not required.

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8. (a) (ii)
Table showing calculation of deferred tax asset/Liability.
Particulars Amount Time Deferred Tax Amount
Difference @50%

D D

Excess Depreciation as per tax records 300,000 Timing Deferred Tax Liability 150,000
(D 5,50,000 - D 2,50,000)
Unamortised Preliminary 40,000 Timing Deferred Tax Assets (20000)
Expenses as per tax records
Net Deferred Tax Liability 130,000

Net Deferred Tax Liability amounting to D 1,30,000 should be recognised as transition adjustment.

8. (b)
(i) The statement is false. All profit and loss accounts are a period statement because it depicts the result of
operation of the whole period. Balance sheet is a point statement because it reflects the financial position of
an enterprise at a specified point of time. D
(ii) Substitution received during the year 2024-25 4,000
Add: Subscription outstanding on 31.03.2025 180
4,180
Less: Subscription outstanding on 01.04.2024 400
3,780
Add: Subscription received in advance on 31.03.2024 100
3,880
Less: Subscription Received in Advance on 31.03.2025 80
3,800
Subscription income for 2024-25 transfer to income and expenditure for D 3,800.

8. (c)
In the Books of the Firm
Journal Entries Dr. Cr.
a. Realisation A/c. (D 180,000 - D 150,000 less 4% thereof) …….…...Dr. 36,000
To Bank A/c. 36,000
(Amount paid to creditors by cheque)

b. No entry required (See Note)

c. Bank A/c (D 500,000 – D 300,000)………………………………….Dr. 200,000
To Realisation A/c. 200,000
(Amount received from Creditor for land and Building taken
over after adjusting amount due to him)
d. A’s Capital A/c……………………………………………………....Dr. 15,000
B’s Capital A/c………………………………………………………Dr. 9,000
To Realisation A/c. 24,000
(Loss on Realisation transferred )
Note: No entry is required for Debtors taken over.
___________________________

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