ISC Class 12 Accountancy Board Exam Question Paper 2012 with Solutions

ISC Class 12 Accounts Board Exam Question Paper with Solutions

PART I

Question 1 [10 × 2]
Answer each of the following questions briefly:

(i) Distinguish between authorized, issued, subscribed, called up and paid up capital by the means of a hypothetical example in the form of a problem. [2 Marks]

Answer:
Let us take an example of a company with an Authorized Capital of Rs. 10,00,000 divided into 1,00,000 Equity Shares of Rs. 10 each.
1. Authorized Capital: The maximum amount of share capital which a company is authorized to raise by its memorandum of association (1,00,000 shares = Rs. 10,00,000).
2. Issued Capital: That part of authorized capital which is offered to the public for subscription (say, 80,000 shares offered = Rs. 8,00,000).
3. Subscribed Capital: That part of issued capital which is actually applied for and subscribed by the public (say, 75,000 shares subscribed = Rs. 7,50,000).
4. Called-up Capital: That part of subscribed capital which has been called up by the company for payment (say, Rs. 8 per share called up on 75,000 shares = Rs. 6,00,000).
5. Paid-up Capital: The actual amount of money received from the shareholders against the called-up amount (say, if a shareholder holding 5,000 shares failed to pay the final call of Rs. 2, amount received is Rs. 5,80,000).

Teacher's Note:
a) Ensure the definitions follow a hierarchical relationship where Authorized is the maximum limit and Paid-up is the actual realization.
b) Students often confuse issued capital with subscribed capital; remember that public subscription determines the subscribed capital.

(ii) What is the complete accounting treatment of interest on loan to the partner during the preparation of a profit and loss appropriation account of a partnership firm assuming that such interest has been paid in cash to the partner by the firm? [2 Marks]

Answer:
Interest on a loan to a partner (i.e., loan given by the firm to the partner) represents an income for the firm. Such interest is credited to the Profit and Loss Account (not the Profit and Loss Appropriation Account, because loan interest is a charge against profits, not an appropriation). If the partner has paid the interest in cash, it has no direct entry in the appropriation account. However, if any such item appears or if it is treated as part of divisible profits, it is credited to the Profit and Loss Account.

Teacher's Note:
a) Interest on partner's loan given by the firm is income and goes to the credit of the Profit and Loss Account.
b) Students must remember that expenses or incomes relating to partner's loans are charges, hence they never appear in the Profit and Loss Appropriation Account.

(iii) Why are abnormal losses ignored when calculating the profit of the joint venture? [2 Marks]

Answer:
Abnormal losses (such as loss by fire or theft) are excluded from the normal operating results of a joint venture because they are fortuitous and non-recurring in nature. They are separately dealt with by insurance claims or written off to the venturers' capital accounts in their profit-sharing ratio so that the normal trading profit of the joint venture is not distorted.

Teacher's Note:
a) Abnormal losses pertain to capital or exceptional loss categories rather than trading activities.
b) Mentioning that abnormal losses distort operating efficiency helps secure full credit.

(iv) Give two examples of selling overhead and two examples of distribution overhead in the context of a cost sheet. [2 Marks]

Answer:
1. Selling Overheads: (i) Salesmen's salaries and commission, (ii) Advertisement and publicity expenses.
2. Distribution Overheads: (i) Warehouse rent and insurance, (ii) Delivery van expenses and freight outwards.

Teacher's Note:
a) Selling expenses are incurred to create and stimulate demand.
b) Distribution expenses are incurred to make the packed goods available to the customer.

(v) What are imputed costs? How will you deal with it during the preparation of a cost sheet? [2 Marks]

Answer:
Imputed costs are hypothetical or notional costs that do not involve any cash outflow but are relevant for decision-making and cost ascertainment (e.g., rent of own building, interest on own capital). Imputed costs are generally ignored in financial accounting and standard cost sheets unless specifically required for economic cost analysis.

Teacher's Note:
a) Imputed costs are non-cash notional expenses.
b) State clearly that they are normally excluded from financial cost sheets to adhere to historical cost concepts.

(vi) What is the basis of accounting that is followed when preparing a cash flow statement? [2 Marks]

Answer:
A Cash Flow Statement is prepared on the cash basis of accounting, tracking actual inflows and outflows of cash and cash equivalents, regardless of when the revenue is earned or the expense is incurred (accrual basis).

Teacher's Note:
a) Cash basis focuses exclusively on cash movements.
b) Distinguish it carefully from the mercantile or accrual system used in preparing the Profit and Loss Account.

(vii) State two differences between Debtors’ turnover ratio and Creditors’ turnover ratio. [2 Marks]

Answer:
1. Nature: Debtors' turnover ratio measures the speed with which trade debtors are converted into cash, whereas Creditors' turnover ratio measures the speed with which trade creditors are paid off.
2. Formula: Debtors' Turnover Ratio = Net Credit Sales / Average Debtors; Creditors' Turnover Ratio = Net Credit Purchases / Average Creditors.

Teacher's Note:
a) Debtors' ratio indicates collection efficiency.
b) Creditors' ratio indicates payment policy and credit utilization period.

(viii) What is the self-balancing entry for credit sales and credit purchases? [2 Marks]

Answer:
In self-balancing ledger systems:
1. For credit sales: General Ledger Adjustment Account Dr. To Debtors Ledger Adjustment Account.
2. For credit purchases: Creditors Ledger Adjustment Account Dr. To General Ledger Adjustment Account.

Teacher's Note:
a) Self-balancing ledgers use control accounts to check arithmetical accuracy.
b) Ensure proper debit and credit designations are written.

(ix) When should goodwill be recorded in the books of a firm as per AS - 10? Are there any exceptions? If so, under what circumstances? [2 Marks]

Answer:
According to AS - 10 (Accounting for Fixed Assets), internally generated goodwill should not be recorded in the books because its value cannot be measured reliably in monetary terms without a transaction. Goodwill is recorded in the books only when consideration in money or money's worth has been paid for it (e.g., on purchase of a business).

Teacher's Note:
a) Purchased goodwill is recognized; self-generated goodwill is not recognized.
b) Emphasize that AS - 10 prohibits capitalizing internally generated intangible assets.

(x) Under what heading will 'Premium on Redemption of Debentures' be recorded in a Horizontal balance sheet? [2 Marks]

Answer:
Premium on Redemption of Debentures is a liability and is shown on the Liabilities side under the heading Current Liabilities and Provisions (or Provisions / Other Current Liabilities) as it represents a payable amount upon redemption.

Teacher's Note:
a) It is treated as a provision for a future liability.
b) Be precise with the balance sheet heading under the traditional horizontal format.

Question 2 [10]
Calculate net cash flows from operating activities:

An item of plant costing Rs. 20,000 having book value of Rs. 14,000 was sold for Rs. 18,000 during 2009 - 2010.

Answer:

Calculation of Net Cash Flow from Operating Activities

Working Notes:
1. Plant Account: Opening Provision for Depreciation = Rs. 30,000, Closing Provision = Rs. 35,000. Accumulated depreciation on plant sold (Cost Rs. 20,000 - Book Value Rs. 14,000) = Rs. 6,000 transferred to Plant Account. Total depreciation charged for the year = 35,000 + 6,000 - 30,000 = Rs. 11,000. Plant sold at book value of Rs. 14,000 for Rs. 18,000 yields a profit of Rs. 4,000.

Teacher's Note:
a) Ensure all adjustments for non-cash items such as depreciation and goodwill amortization are correctly added back.
b) Profit on sale of fixed assets is a non-operating income and must be deducted from net profits.

PART II

Question 3 [14]

(a) Current liabilities of a company are Rs. 3,00,000. Its current ratio is 3 : 1 and quick ratio is 1 : 1. Calculate the value of stock in trade. [2¾ Marks]

Answer:
1. Current Assets = Current Liabilities × Current Ratio = Rs. 3,00,000 × 3 = Rs. 9,00,000.
2. Quick Assets = Current Liabilities × Quick Ratio = Rs. 3,00,000 × 1 = Rs. 3,00,000.
3. Stock in Trade = Current Assets - Quick Assets = Rs. 9,00,000 - Rs. 3,00,000 = Rs. 6,00,000.

Teacher's Note:
a) Quick Assets equal Current Assets minus Inventory.
b) Direct subtraction gives the required inventory value instantly.

(b) Calculate stock turnover ratio from the following information:
Opening stock Rs. 58,000; purchases Rs. 4,84,000; Gross profit rate 25% on sales.
Sales - Rs. 6,40,000 [2¾ Marks]

Answer:
1. Gross Profit = 25% of Sales = 25% of Rs. 6,40,000 = Rs. 1,60,000.
2. Cost of Goods Sold (COGS) = Sales - Gross Profit = Rs. 6,40,000 - Rs. 1,60,000 = Rs. 4,80,000.
3. Closing Stock = Opening Stock + Purchases + Direct Expenses - COGS = 58,000 + 4,84,000 - 4,80,000 = Rs. 62,000.
4. Average Stock = (Opening Stock + Closing Stock) / 2 = (58,000 + 62,000) / 2 = Rs. 60,000.
5. Stock Turnover Ratio = COGS / Average Stock = 4,80,000 / 60,000 = 8 times.

Teacher's Note:
a) Compute closing stock using the Trading Account equation once COGS is derived.
b) Express the final turnover ratio in times.

(c) From the following information, calculate operating Ratio:
Net sales Rs. 5,00,000; cost of goods sold Rs. 3,00,000 and operating expenses Rs. 1,00,000. [2¾ Marks]

Answer:
1. Operating Cost = Cost of Goods Sold + Operating Expenses = Rs. 3,00,000 + Rs. 1,00,000 = Rs. 4,00,000.
2. Operating Ratio = (Operating Cost / Net Sales) × 100 = (4,00,000 / 5,00,000) × 100 = 80%.

Teacher's Note:
a) Operating cost includes cost of goods sold plus all operating expenses.
b) Express the operating ratio as a percentage.

(d) X Ltd. has a current ratio of 4 : 1 and its liquid ratio is 3 : 1. If its inventory is Rs. 36,000, find out the value of total current assets, total quick assets and total current liabilities. [2¾ Marks]

Answer:
1. Difference between Current Ratio and Liquid Ratio = 4 - 3 = 1 (representing Inventory).
2. Since 1 ratio point equals Inventory of Rs. 36,000:
    - Current Liabilities = Rs. 36,000 / 1 = Rs. 36,000.
    - Total Current Assets = 4 × Rs. 36,000 = Rs. 1,44,000.
    - Total Quick Assets = 3 × Rs. 36,000 = Rs. 1,08,000.

Teacher's Note:
a) The difference between current ratio and liquid ratio is due to inventory.
b) Use proportion directly to find current liabilities.

(e) From the following Balance Sheet of Spencer Ltd. as on 31.3.2010, calculate debt - equity ratio.
Liabilities Rs. Assets Rs.
Equity share capital 10,00,000 Building 5,00,000
10% Preference share capital 4,00,000 Plant 8,00,000
Securities premium 1,20,000 Machinery 4,00,000
General Reserve 1,00,000 Furniture 2,00,000
12% Debentures 4,00,000 Stock 1,00,000
Creditors 1,00,000 Debtors 50,000
Bills Payable 1,00,000 Bills Receivable 30,000
Outstanding expenses 50,000 Bank 1,00,000
Provision for tax 30,000 Cash 1,00,000
                                Discount on issue of shares 20,000
                                -----------------------------------
                                23,00,000 23,00,000 [3 Marks]

Answer:
1. Debt = 12% Debentures = Rs. 4,00,000.
2. Equity (Shareholders' Funds) = Equity Share Capital + Preference Share Capital + Securities Premium + General Reserve - Fictitious Assets (Discount on issue of shares)
    = 10,00,000 + 4,00,000 + 1,20,000 + 1,00,000 - 20,000 = Rs. 16,00,000.
3. Debt - Equity Ratio = Debt / Equity = 4,00,000 / 16,00,000 = 0.25 : 1.

Teacher's Note:
a) Debt includes long-term borrowings only; equity includes share capital, reserves, and surplus less fictitious assets.
b) Discount on issue of shares must be deducted from shareholders' funds.

Question 4 [14]
A, B and C are partners sharing profits and losses in the ratio of 3 : 2 : 1. On 31.3.10, B decides to retire and their capital accounts on that date are A - Rs. 60,000; B - Rs. 45,000 and C - Rs. 50,000. Their current accounts on that date are A - Rs. 5,000 (CR); B - Rs. 2,300 (DR) and C - Rs. 3,000 (CR).
The partnership deed provided that, in case of retirement, the retiring partner should be entitled to a share of the goodwill of the firm to be calculated on the average of the profits of last three years' ending on 31.3.2010 which comes to Rs. 12,000 and that the payment of the total interest of the retiring partner will be made by annual instalments of Rs. 10,000 each. The retiring partner will be entitled to interest also at 6% on the unpaid balance.
The first instalment was paid on 31.3.2010. Show B's loan account until the whole payment due to him is made.

Answer:

B's Capital Account (for calculation of amount due)

B's Loan Account

Working Notes:
1. B's share of goodwill = Total Goodwill Rs. 12,000 × 2/6 = Rs. 4,000, contributed by remaining partners A and C in their gaining ratio (3:1).

Teacher's Note:
a) Calculate B's total amount transferred to loan account by summing capital, current account balance, and share of goodwill.
b) Compute interest accurately at 6% per annum on the reducing balance at the end of each year.

Question 5 [14]
Jacob and Company Ltd. issues one thousand, 14% debentures of Rs. 100 each at par on 1.1.01.
Under the terms of issue:
(a) Debenture interest is annually payable on 31^st December every year and
(b) 1/5 of the debentures are annually redeemable by drawings; the first redemption occurring on 31.12.03.
Pass necessary journal entries for the year 2001 and 2002.

Answer:

Journal Entries

Teacher's Note:
a) Redemptions start from 31.12.03, so no redemption entries are passed for the years 2001 and 2002.
b) Interest is calculated on the full face value of Rs. 1,00,000 for both years.

Question 6 [14]
Arther and Barry entered into a joint venture on 1.10.2009 for sale of goods paying Rs. 60,000 and Rs. 40,000 respectively in a joint bank account and sharing profits and losses in the ratio of 3 : 5. It was agreed that the joint bank account is to be used for purchases and sales and each venturer is to meet his joint venture expenses out of private funds. Each venturer is to charge a commission @ 5% on sales made by him. The transactions for the period ended 31.3.2010 were as follows:
Arther purchased goods costing Rs. 40,000 and incurred carriage amounting to Rs. 6,000. He sold 90% of these goods at 30% over this cost price and selling expenses amounted to Rs. 2,500. Barry purchased goods costing Rs. 50,000 and incurred carriage amounting to Rs. 6,500. He sold 80% of these goods at 25% over the cost price and selling expenses amounted to Rs. 3,000.
1/5 of the remaining goods purchased by Arther was destroyed by fire on 28.2.2010 and the insurance company paid a claim of Rs. 2,000.
Write up Joint Venture account, Joint Bank account and Ventures' account.

Answer:

Joint Venture Account

Joint Bank Account

Venturers' Capital / Personal Accounts

Working Notes:
1. Arther's total cost = Rs. 40,000 + Rs. 6,000 = Rs. 46,000. Sales = 90% of 46,000 × 1.30 = Rs. 53,820. Commission = 5% of 53,820 = Rs. 2,691.
2. Barry's total cost = Rs. 50,000 + Rs. 6,500 = Rs. 56,500. Sales = 80% of 56,500 × 1.25 = Rs. 56,500. Commission = 5% of 56,500 = Rs. 2,825.
3. Unsold stock valuation and abnormal loss calculations are based on proportionate costs.

Teacher's Note:
a) Ensure expenses met out of private funds are credited to the respective venturer's account.
b) Verify that total joint venture profit is correctly distributed in the 3:5 ratio.

Question 7 [14]
From the following information prepare a Cost Sheet of Jackson and Company Ltd. showing the total cost for the month of January 2010:

Answer:

Cost Sheet for the month of January 2010

Working Notes:
1. Abnormal loss of materials (Rs. 10,000) is excluded from the cost sheet as it is a non-operating loss transferred to Costing P&L Account.

Teacher's Note:
a) Ensure abnormal losses are strictly excluded from production costs.
b) Work-in-progress adjustments must be made immediately after factory overheads.

Question 8 [14]
The following information has been extracted from the books of Mathew and Company Ltd. for the three months ended 31.12.2008:
1.10.08 Stock 1500 units @ Rs. 2 per unit
12.10.08 Goods received note 2000 units @ Rs. 2.25 per unit
18.10.08 Requisition 1100 units
10.11.08 Requisition 800 units
16.11.08 Requisition 1000 units
18.11.08 Goods received note 2400 units @ Rs. 2.50 per unit
20.12.08 Requisition 900 units
At the physical stock taking on 31.12.08, 2000 units were in stock.
You are required to prepare a stores ledger based on LIFO method of pricing. Also prepare a Trading account using this method on the basis of the following sales figures:
18.10.08 1100 units @ Rs. 3.50 per unit
10.11.08 800 units @ Rs. 4 per unit
16.11.08 1000 units @ Rs. 2.75 per unit
20.12.08 900 units @ Rs. 4.50 per unit

Answer:

Stores Ledger Account (LIFO Method)

Trading Account (Extract)

Teacher's Note:
a) Under LIFO, materials issued are priced from the most recent batches.
b) Ensure closing stock valuation matches the remaining balances in the stores ledger.

Question 9 [14]
Prepare the General Ledger Adjustment Accounts as will appear in the Debtors and Creditors ledgers from the information given below:
Balance on 1.4.2009 (DR) Rs. (CR) Rs.
Debtors Ledger 47,200 240
Creditors Ledger 280 26,300
Transactions for the year ended 31.3.2010:
[Total Sales Rs. 1,20,100; Cash sales Rs. 8,100; Bills accepted by customers Rs. 20,100; Bills receivable dishonoured Rs. 1,500; Total purchase Rs. 89,500; Credit purchases Rs. 67,000; Creditors paid in full settlement of Rs. 40,000 Rs. 39,500; Received from debtors in full settlement of Rs. 59,000 Rs. 58,200; Returns inwards Rs. 2,600; Returns outwards Rs. 1,800; Bills accepted for creditors Rs. 5,500; Bills payable matured Rs. 8,000; Bills receivable discounted Rs. 5,000; Bills receivable endorsed to creditors Rs. 4,000; Endorsed Bills dishonoured Rs. 1,000; Bad debts written off (after deducting bad debts recovered Rs. 300) Rs. 2,200; Provision for doubtful debts Rs. 550; Set offs Rs. 1,100; Mutual indebtedness Rs. 1,900]
Balance on 31.3.2010: Debtors Ledger (CR) Rs. 380; Creditors Ledger (DR) Rs. 420.

Answer:

General Ledger Adjustment Account in Debtors Ledger

General Ledger Adjustment Account in Creditors Ledger

Teacher's Note:
a) Ensure all contra items (set offs and mutual indebtedness) are posted correctly in both control accounts.
b) Verify opening and closing debit/credit balances carefully.

Question 10 [14]
From the list of following assets and liabilities, prepare the Balance Sheet of Burn and Company Limited in vertical form as per Schedule VI, Part I of the Companies Act, 1956:
[Assets: Cash at Bank Rs. 79,800; Cash in hand Rs. 1,500; Investment Rs. 95,000; Preliminary expenses Rs. 9,000; Loans and advances Rs. 95,000; Goodwill Rs. 50,000; Building Rs. 6,00,000; Plant and machinery Rs. 6,60,000 less depreciation Rs. 66,000 = Rs. 5,94,000; Stock Rs. 10,000; Debtors Rs. 1,74,000 less provision Rs. 8,700 = Rs. 1,65,300; Furniture Rs. 14,400]
[Liabilities: Creditors Rs. 1,00,000; General Reserve Rs. 50,000; Interest on debentures accrued and due Rs. 28,000; Authorised share capital 1,20,000 shares of Rs. 10 each = Rs. 12,00,000; Called up and paid up capital: 80,000 shares of Rs. 10 each = Rs. 8,00,000 less calls in arrear Rs. 15,000 = Rs. 7,85,000; Profit and loss account Rs. 75,000; 6% debentures Rs. 6,00,000; Bills payable Rs. 76,000]

Answer:

Burn and Company Limited
Balance Sheet (Vertical Form) as per Schedule VI, Part I

Teacher's Note:
a) Follow the vertical Schedule VI presentation format strictly, separating sources and applications of funds.
b) Miscellaneous expenditure like preliminary expenses must be shown under application of funds.