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PARTNERSHIP ACCOUNTS
Question 1

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Q2.

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Q3.

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Q4

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Q5.

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IMPORTANT NOTES:

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DEPARTMENTAL ACCOUNTS
Q6:

You are given the following particulars ofa business having three departments:
Department Purchases Opening Stock Closing Stock
A 1,500 units 200 units 100 units
B 1,000 units 300 units 160 units
C 2,000 units 150 units 200 units

Additional Information:
(i) Purchases were made at a total cost of Rs. 92,000.
(ii) The percentage of gross profit on turnover is the same in each case.
(iii) Purchases and Sales prices are constant for the last 2 years
(iv) Selling price per unit:
Department Rs.
A 20
B 25
C 30
You are required to prepare Department Trading Account.
(Answer: Purchases A-24,000 B- 20,000 C-48,000)

Solution:

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Q7:

FGH Ltd. has three departments I, J and K. Following information is provided for the year
ended 31.03.2011:
Particulars I J K
Opening Stock 5,000 8,000 19,000
Opening reserve for - 2,000 3,000
unrealized profit
Materials consumed 16,000 20,000 -
Direct Labour 9,000 10,000 -
Closing Stock 5,000 20,000 5,000
Sales - - 80,000
Area Occupied (Sq. Mtr.) 2,500 1,500 1,000
No. of Employees 30 20 10
Stocks of each department are valued at department concerned. Stocks of I are
transferred to J at cost plus 20% and stocks of J are transferred to K at a gross profit
of 20% on sales. Other common expenses are salaries and staff welfare Rs. 18,000 and Rs.
6,000. Prepare Departmental Trading and Profit & Loss A/c for the year ending
31.03.2011.

Answer:

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Q8:
The following balances were extracted from the books of „Shaitaan‟ Ltd. You are required
to prepare Departmental Trading and Profit and Loss Account for the year ended 31
March, 2010 after adjusting unrealized profits if any.

Department X Department Y

Opening Stock 50,000 40,000


Purchases 6,50,000 9,10,000
Sales 10,00,000 15,00,000

The following information is provided:


(i) General expenses incurred for both the departments were Rs. 1,25,000 ;
(ii) Closing Stock of department X Rs. 1,00,000 including goods from department Y for Rs.
20,000 at cost to department X;
(iii) Closing stock at department Y Rs. 2,00,000including.goods from department X for Rs.
30,000 at cost to department Y;
(iv) Opening stock of department X and Y include goods of the value of Rs. 10,000 and Rs.
15,000 respectively taken from department Y and department X respectively at cost to
transferee departments ;
(v) The gross profit is uniform from year to year.

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(Answer: Stock Reserves- Dep X- 5,000 &Dep Y- 6,000 and Total Net Profit- Rs.
10,14,000)

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ACCOUNTING FOR BRANCHES INCLUDING


FOREIGN BRANCHES
Q9.

Solution:

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Q10

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Q11.

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Solution:

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Redemption of Debentures
Q12.

Solution:

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Q13.

The Balance Sheet of Z Ltd. disclosed the following information on 01-01-2010:


13% Debentures A/c 7,00,000/-
Debenture Redemption Fund A/c 5,00,000/-
13% DRF Investment A/c 5,00,000/-
The annual contribution to the debenture redemption fund was 70,000/- for the
year 2010 and 2011. The debentures are redeemable on 31st December, 2011. On
31st Dec 2011 the investments are sold for 7,00,000/- and the debentures are
redeemed.
Prepare Debenture A/c, DRF A/c and DRF Investment A/c for 2010 and 2011.
(Hint Answer: Profit on sale of DRF Investment is 65,000/- and Amt.
transferred to GR is 7,00,000/- Tranf to Capital reserve (excess) -
1,52,550/-)
Solution:

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Q14.

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IMPORTANT NOTES:

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ACCOUNTING STANDARD – 4 (Revised)

Contingencies & Events Occuring after the


Balance Sheet Date

Q15.

While preparing its Final accounts for the year ended 31st March, 2011, a company made a
provision for bad debts @ 5% of its total debtors. In the last week of feb, 2011 a debtor
for Rs. 2 lakhs has suffered heavy losses due to earthquake; the loss was not covered by
any insurance policy. In April 2011 the debtor became insolvent. Can the company provide
for full loss arising out of insolvency of the debtor in the final accounts for the year
ended 31st March, 2011?
Answer: According to AS 4 “Adjustment to assets and liabilities are required for events
occurring after the balance sheet date that provide additional information materially
affecting the determination of the amounts relating to conditions existing at the balance
sheet date.
In the above case, circumstances were existing on the balance sheet date and event of
April (declaration of insolvency) only confirm the circumstances existing on the date of
balance sheet i.e. 31.03.2011. In this case company should make full amount of provision for
bad debts arising out of insolvency of the debtor for the year ended 31st March, 2011.

Q16.

Neel Limited has its corporate office in Mumbai and sells its products to its stockists all
over India. On 31st March, 2013, the company wants to recognize receipts of cheques
bearing date 31st March, 2013 or before, as “Cheques in Hand” by reducing “Trade
Receivables”. The Cheques in Hand is shown in the Balance sheet as an item of Cash and
Cash Equivalents. All the cheques are presented to the bank in the month of April 2013and
are also realized in the same month in normal course. State with reasons, whether each of
the following is an adjusting event and how this fact is to be disclosed by the company,
with reference to the relevant accounting standard:
(a) Cheques collected by marketing personnel of the company from stockists on or
before 31st March, 2013.

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(b) Cheques sent by the stockists through courier on or before 31st March, 2013.
Answer:
(a) If cheque is collected before 31st march, 2013, then receivables (debtors shall
be adjusted)
(b) If cheque is sent by stockist through courier before 31st march but received
after 31st march then no adjustment in receivables is required.

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IMPORTANT NOTES:

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ACCOUNTING STANDARD - 5
“NET PROFIT OR LOSS FOR THE PERIOD, PRIOR
PERIOD ITEMS AND CHANGE IN ACCOUNTING
POLICIES”
Q17.

The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether
the following transactions will be treated as change in Accounting Policy or not for the
year ended 31st March, 2017. You are required to advise him in the following situations in
accordance with the provisions of AS 5
(i) Provision for doubtful debts was created @ 2% till 31st March, 2016. From the
Financial year 2016-2017, the rate of provision has been changed to 3%.
(ii) During the year ended 31st March, 2017, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
(iii) Till the previous year the furniture was depreciated on straight line basis over a
period of 5 years. From current year, the useful life of furniture has been changed
to 3 years.
(iv) Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organization. Such employees will get pension
of ` 20,000 per month. Earlier there was no such scheme of pension in the
organization.
During the year ended 31st March, 2017, there was change in cost formula in measuring
the cost of inventories.
Suggested Answer by ICAI
(i) In the given case, Mobile limited created 2% provision for doubtful debts till 31st
March, 2016. Subsequently in 2016-17, the company revised the estimates based on
the changed circumstances and wants to create 3% provision. Thus change in rate
of provision of doubtful debt is change in estimate and is not change in accounting
policy. This change will affect only current year.
(ii) As per AS 5, the adoption of an accounting policy for events or transactions that
differ in substance from previously occurring events or transactions, will not be
considered as a change in accounting policy. Introduction of a formal retirement
gratuity scheme by an employer in place of ad hoc ex-gratia payments to employees
on retirement is a transaction which is substantially different from the previous
policy, will not be treated as change in an accounting policy.

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(i) Change in useful life of furniture from 5 years to 3 years is a change in estimate
and is not a change in accounting policy.
(ii) Adoption of a new accounting policy for events or transactions which did not occur
previously should not be treated as a change in an accounting policy. Hence the
introduction of new pension scheme is not a change in accounting policy.
Change in cost formula used in measurement of cost of inventories is a change in
accounting policy.

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IMPORTANT NOTES:

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ACCOUNTING STANDARD – 11
“EFFECTS OF CHANGES IN FOREIGN EXCHANGE
RATES”

Q18. (May18 – RTP)


Power Tram Ltd. purchased a plant for US$ 50,000 on 31st October, 2016 payable after
6 months The company entered into a forward contact for 6 months. @Rs 64.25 per
Dollar. On 31stOctober, 2016, the exchange rate was Rs 61.50 per Dollar.
You we required to calculate the amount of the profit or loss on forward contract to be
recognized m the books company for the yew ended 31 March, 2017.
Solution:
Calculation of profit or loss to be recognized in the books of Power Track Limited
Rs
Forward contract rate 64.25
Less: Spot rate (61.50)
Loss on forward contract 2.75
Forward Contract Amount $ 50,000
Total loss on entering into forward contract = ($ 50,000 × Rs 2.75) Rs1,37,500
Contract period 6 months
Loss for the period 1st November, 2016 to 31st March, 2017 i.e. 5 months 5 months
falling in the year 2016-2017
Hence, Loss for 5 months will be Rs 1,37,500 × 6/5 = Rs 1,14,583
Thus, the loss amounting to Rs 1,14,583 for the period is to be recognized in the year
ended 31st March, 2017.

Q19. (Nov.18 – 5 Marks)


(i) ABC Ltd a Indian Company obtained long term‟ loan from WWW private
Lid., a U.S. company amounting to Rs 30,OO,00O. It was recorded at US
$1=Rs 60.00, taking exchange rate prevailing at the date of transaction.
The change raw on lance sheet date (31.03.2018) was US $1=62.00.
(ii) Trade receivable includes amount receivable from Preksha Ltd., Rs 10,00,000
recorded at the prevailing exchange rate on the date of sales, transaction
recorded at US $1 = 59.00. The exchange rate on balance sheet date
(31.03.2018) was US $1 = 62.00.
You are required to calculate the amount of exchange difference and also explain the
accounting treatment needed in the above two cases as per AS 11 in the books of ABC Ltd.
Solution:

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(i) Rs. 100000 Exchange difference shall either be transfer to P&L a/c in the
same year or entity may opt for Para 46 and transfer the difference to
FCMIT Difference a/c and amortise it over the life of loan.
(ii) Rs. 50847 (approx.) shall be the exchange gain and transfer to P&L a/c in
the same year.

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IMPORTANT NOTES:

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ACCOUNTING STANDARD - 12
ACCOUNTING FOR GOVERNMENT GRANTS
Q20. (RTP – Nov.18)
A specific government grant of Rs 15 lakhs was received by USB Ltd. for acquiring the Hi-
Tech Diary plant of Rs 95 lakhs during the year 2014-15. Plant has useful life of 10 years.
The grant received was credited to deferred income in the balance sheet. During 2017-18,
due to non-compliance of conditions laid down for the grant, the company had to refund
the whole grant to the Government. Balance in the deferred income on that date was Rs
10.50 lakhs and written down value of plant was RS 66.50 lakhs.
(i) What should be the treatment of the refund of the grant and the effect on cost of
plant and the amount of depreciation to be charged during the year 2017-18 in
profit and loss account?
(ii) What should be the treatment of the refund, if grant was deducted from the cost
of the plant during 2014-15 assuming plant account showed the balance of Rs 56
lakhs as on 1.4.2017?
You are required to explain in the line with provisions of AS 12.
Solution: (Suggested by ICAI)
As per para 21 of AS 12, „Accounting for Government Grants‟, “the amount refundable in
respect of a grant related to specific fixed asset should be recorded by reducing the
deferred income balance. To the extent the amount refundable exceeds any such deferred
credit, the amount should be charged to profit and loss statement.
(i) In this case the grant refunded is Rs 15 lakhs and balance in deferred income is Rs
10.50 lakhs, Rs 4.50 lakhs shall be charged to the profit and loss account for the year
2017-18. There will be no effect on the cost of the fixed asset and depreciation charged
will be on the same basis as charged in the earlier years.
(ii) If the grant was deducted from the cost of the plant in the year 2014-15 then, para
21 of AS 12 states that the amount refundable in respect of grant which relates to
specific fixed assets should be recorded by increasing the book value of the assets, by
the amount refundable. Where the book value of the asset is increased, depreciation on
the revised book value should be provided prospectively over the residual useful life of the
asset. Therefore, in this case, the book value of the plant shall be increased by Rs 15
lakhs. The increased cost of Rs 15 lakhs of the plant should be amortized over 7 years
(residual life). Depreciation charged during the year 2017-18 shall be (56+15)/7 years = Rs
10.14 lakhs presuming the depreciation is charged on SLM.

Q21. (RTP – May18)


D Ltd acquired a machine on 01-04-2012 for Rs 20,00,000. The useful life 5 years.
The company had applied on 01-04-2012, Sot a subsidy to the tune of 80% of the cost.

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The sanction letter for subsidy was received in November 2015. The Company‟s Fixed
Assets Account for the financial year 2015-16 shows a credit balance as under:
Particulars Rs
Machine (Original Cost) 20,00,000
Less: Accumulated Depreciation (from 2012-13- to 12,00,000
2014-15 on Straight Line Method)
8,00,000
Less: Grant received (16,00,000)
Balance (8,00,000)
You are required to explain how should the company deal with this asset in its accounts
for 2015-16?

Solution: (Suggested by ICAI)


From the above account, it is inferred that the Company follows Reduction Method for
accounting of Government Grants. Accordingly, out of the Rs 16,00,000 that has been
received, Rs 8,00,000 (being the balance in Machinery A/c) should be credited to the
machinery A/c.
The balance Rs 8,00,000 may be credited to P&L A/c, since already the cost of the asset
to the tune of Rs 12,00,000 had been debited to P&L A/c in the earlier years by way of
depreciation charge, and Rs 8,00,000 transferred to P&L A/c now would be partial
recovery of that cost.
There is no need to provide depreciation for 2015-16 or 2016-17 as the depreciable
amount is now Nil.

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IMPORTANT NOTES:

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ACCOUNTING STANDARD - 16
BORROWING COSTS
Q22.

KLM had the following loans in place at the beginning and end of 20X1:
Description 1 January 20X1 31 December 20X1
Bank loan, 6% p.a. 0 200 000
Bank loan, 8% p.a. 130 000 130 000
Debenture stock, 5.5% p.a. 50 000 50 000
The bank loan at 6% p.a. was taken in July 20X1 to finance the construction of a new
production hall (construction began on 1 March 20X1).
The bank loan at 8% p.a. and debenture stock were taken for no specific purpose and
KLM used them to finance general spending and the construction of a new machinery.
KLM used Rs. 60,000 for the construction of the machinery on 1 February 20X1 and
Rs. 25,000 on 1 September 20X1.
What borrowing cost should be capitalized for the new machinery?
Answer:
You ignore bank loan at 6% p.a., because it is a specific borrowing for another asset.
Only general borrowings relate to the financing of the new machinery and therefore, we
need to calculate the capitalization rate:
 Weighted average rate = (8% x 130 000 /(130 000+50 000)) + (5.5% x 50
000/(130 000+50 000)) = 5.78%+ 1.53% = 7.31%
 Borrowing costs for the new machinery in 20X1 = Rs. 60,000 x 7.31% x 11/12 +
Rs. 25,000 x 7.31% x 4/12 = Rs. 4,021 + Rs. 609 = Rs. 4,630.

Q23.

X Ltd. began Construction of a new building on 1st January, 2007. It obtained Rs. 1
lakhs special loan to finance the construction of the building on 1st January, 2007 at an
interest rate of 10%. The company’s outstanding two non specific loans were:
Amount Rate
5,00,000 11%
9,00,000 13%

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The expenditure that were made on the building project were as follows:

Janaury 2007 Rs. 2,00,000


April, 2007 Rs. 2,50,000
July, 2007 Rs. 4,50,000
December, 2007 Rs. 1,20,000
Building was completed by 31st December, 2007. Following the principles prescribed in
AS – 16 Borrowing Cost. Calculate the amount of interest to be capitalized and pass
one Journal Entry for capitalization of Cost and borrowing cost in respect of the
building.

Solution:

Calculation of Capitalisation Rate:

(500000 x 11% + 900000 x 13%) / 1400000 = 12.29%

This rate is to be applied to each expenditure by considering time factor like:

January 2007 – 200000 x 12.29% x 12/12

April 2007 – 250000 x 12.29% = 9/12 and so on

WIP A/c Dr. 1020000


To Bank A/c 10.20

Bulding A/c Dr. 1020000


To WP a/c 10.20

Interest a/c Dr 182000


To Loans a/c 182000

Building A/c Dr. 74216


To Interest a/c 74216

Profit and loss a/c dr. (182000-74216) = 107784

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To Interest a/c 107784
Q24.

XYZ Ltd. has taken a loan of USD 10,000 on 1.04.2003 for a specific project at an
interest rate of 5% p.a., payable annually. On 1 April, 2003, the exchange rate
between the currencies was Rs. 45 per $. The exchange rate, as at March, 31st, 2004
is Rs. 48 per $. The Corresponding amount could have been borrowed by XYZ Ltd. in
local currency at an interest rate of 11% p.a. as on 1 April, 2003.
Solution:
Step – 1 = Calculation of Actual Interest:

$10000 x 5% = $500 x Rs. 48 = Rs.24000

Step – 2 = Calculation of Interest if borrowing in Local Currency:

$10000 x 45 x 11% = Rs. 49500

Step – 3 = Calculation of Exchange Loss on FC Borrowings

$10000 x Rs3 = Rs. 30000

Note: Loss to the extent of saving in interest shall be treated as borrowing cost.

i.e. Actual Saving of Interest or Actual Exchange Loss whichever is lower

(49500 – 24000) or 30000 whichever is lower = 25500/- is Borrowing cost

Remaining exchange loss is to be transferred to P&L as other expense as per AS 11

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IMPORTANT NOTES:

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ACCOUNTING STANDARD - 17

SEGMENT REPORTING
Q25. An enterprise operates through segments, namely, A. B, C, D, E, F. G and H. The
relevant information about these segments is given in the following table:

(Amount in Rs. ‘000)

A B C D E F G H Total Total
(Seg.) (Entp.)
Seg. Revn
(a) Ext 255 15 10 15 50 20 35 400
(b) Inter- 100 60 30 5 - - 5 - 200
Seg
(c) Total 100 315 45 15 15 50 25 35 600 400
Seg. Result 5 -90 15 -5 8 -5 5 7
Seg. Assets 15 47 5 11 3 5 5 9 100
Identify Reportable Segments

Solution:

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Q26.

Prepare a segmental report for publication in Diversifiers Ltd. from the following details
of the company's three divisions and the head office:

Rs.(000)
Forging Shop Division
Sales to Bright Bar Division 4,575
Other Domestic Sales 90
Export Sales 6,135
10,800
Bright Bar Division
Sales to Fitting Division 45
Export Sales to Rwanda 300
345
Fitting Division
Export Sales to Maldives 270

Head Divisions
Office
Forging Bright Bar Fitting
Operating Profit or Loss - 240 30 -12
before tax
Reallocated cost from Head 72 36 36
Office
Interest Costs 6 8 2
Fixed Assets 75 300 60 180
Net Current Assets 72 180 60 135
Long term Liabilities 57 30 15 180
[Advanced Accounting, May 2005, 8 marks]

Ans.:

Diversifiers Ltd.

Segment Report

Divisions Intersegment Total


eliminations

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Particulars Forging Bright Fitting
Shop Bar
Segment
Revenue
Domestic 90 - - - 90
Export 6135 300 270 - 6705
Total Ext. Sales 6225 300 270 - 6795
Inter Seg. Sales 4575 45 - 4620 -
Total Sales 10800 345 270 4620 6795
Segment 240 30 (12) - 258
Result
Head Office (144)
Expenses
Operating 114
Profit
Interest (16)
PBT 98
Assets &
Liabilities

Fixed 300 60 180 - 540


Assets
Net Current 180 60 135 - 375
Assets
Total Assets 480 120 315 915
Unallocated 147
Corporate (75+72)
Assets
Total assets 1062
Segment 30 15 180 - 225
liabilities
Unallocated
corporate 57
liabilities
Total 282
liabilities

Geographical Marketwise Segment Revenue (Rs.000)

Domestic Export Export to Export to Total

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(forging) Rwanda Maldives
External 90 6135 300 270 6795
Sales

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ACCOUNTING STANDARD – 22

ACCOUNTING FOR TAXES ON INCOME


Q27. From the following information given below you are required to computed Deferred
Tax Assets and Deferred Tax Liability for Ramanujam Ltd. as on 31st March, 2014. The tax
applicable is 35%.

(1) The company has charged Rs. 7,42,900 in the books of accounts while as per
Income Tax Computation, the depreciation available for the company is Rs.
8,65,400.

(2) The Company has made provision for doubtful debts for Rs. 54,300 during the year.

(3) The company has debited share issue expenses of Rs. 6,23,500 which will be
available for deduction under the income tax Act from the next year.

(4) The expenses of Rs. 7,84,500 has been charged to profit and loss account which
are disallowed under the income tax act.

(5) The company has made donation of Rs. 2,00,000 which has been debited to Profit
and loss account and only 50% thereof will be allowed as deduction as per Income
Tax law.

Solution:

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Q28. Ultra Ltd. has provided the following information:
Depreciation as per accounting records Rs. 2,00,000
Depreciation as per tax records Rs. 5,00,000
Unamortised preliminary expenses as per tax records Rs. 30,000
There is adequate evidence of future profit sufficiency. How much deferred Tax
asset/liability should be recognized as transition adjustment? Tax rate is 50%.
Ans.: Calculation of difference between taxable income and accounting income
Particulars Amount (Rs.)
Excess depreciation as per tax (5,00,000 - 2,00,000) 3,00,000
Less: Expenses provided in taxable income 30,000
Timing difference 2,70,000
Tax expense is more than the current tax due to timing difference. Therefore deferred
tax liability = 50%*2,70,000 = Rs. 1,35,000

Q29. Y Ltd. is a full tax free enterprise for the first ten years of its existence and is in
the second year of its operation. Depreciation timing difference resulting in a tax liability
in year 1 and 2 is Rs.200 lakhs and Rs. 400 lakhs respectively. From the third year it is
expected that the timing difference would reverse each year by Rs.10 lakhs. Assuming tax
rate of 40%, find out the deferred tax liability at the end of the second year and any
charge to the Profit and Loss account.
Solution:

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Profit or Loss Prior to Incorporation


Q30.

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Solution:

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Redemption of Preference Shares


Q31.

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INVESTMENT ACCOUNTS
Q32.

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Solution

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Q33.

Solution:

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INSURANCE CLAIMS
Q34.

Calculate the amount of claim.

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Solution:

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Q36.

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HIRE PURCHASES
Q37.

Solution:

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ACCOUNTING FROM INCOMPLETE RECORDS


Q38.

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Solution

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