Subject: Accounts

There will be one paper of 3 hours duration of 100 marks divided into two parts.

Part I (30 marks) will be compulsory and will consist of two questions based on the entire syllabus.

Question 1 (20 marks) will include compulsory short answer questions, testing knowledge, application and skills relating to elementary/ fundamental aspects of the syllabus.

Question 2 (10 marks) will be a compulsory numerical question.

Part II (70 marks): Candidates will be required to answer five questions out of eight questions from this section. Each question shall carry 14 marks.

1. Joint Venture

Joint Venture: objectives; necessity and methods of accounting (recording of transactions in the books of one Joint Venturer, recording of transactions in the books of all Joint Venturers, recording of transactions in separate set of books).

Joint Venture: meaning, features, objectives and application of Joint Venture problems under three different methods of accounting.

• Recording of transactions in the books of one Joint Venturer.

• Recording of transactions in the books of all Joint Venturers.

• Recording of transactions in separate set of books.

NOTE: Valuation of closing stock in Joint Venture including abnormal and normal losses and Joint Ventures for underwriting shares are included.
Interim settlement of accounts, interest calculation and incomplete ventures on the date of final settlement of accounts are excluded from the syllabus along with conversion of consignment into joint venture.

(i) Meaning of Self Balancing System and application of the system in solving practical problems. Meaning, classification of ledgers, transfer between subsidiary ledgers, advantages, and application of problems relating to adjustment accounts.

(ii) Meaning of Sectional Balancing System and application of the system in solving practical problems. Meaning, classification of ledgers and application of problems relating to control accounts.

NOTE: Rectification of errors relating to Self-Balancing and Sectional Balancing are not required.

3. Partnership Accounts

(i) The Indian Partnership Act, 1932: definition, features – meaning and importance of partnership deed.

(ii) Practical problems on preparation of Profit and Loss Appropriation Account and Capital Accounts.

• Profit and Loss Appropriation Account.

• Partners’ capital accounts: types - fixed and fluctuating.

Interest on capital, interest on drawings, salary, commission to partners, transfer to reserves and division of profit among partners.

NOTE:

• Interest on partner’s loan to be taken as a charge against profits.

• Interest on loan should be credited to a separate loan account.

• Rent paid to a partner is a charge against profit and not an appropriation of profit and so it is to be debited to profit and loss account and not to profit and loss appropriation account and credited to partners’ current account in case of fixed capital system or to partners’ capital account when capitals are fluctuating.

NOTE: Guarantee of Profits and Past Adjustments (interest on capital, interest on Drawings, salary and Profit and Loss ratio) are to be covered.

(iii) Admission: Goodwill - concept and mode of valuation.

a) Meaning of Goodwill.

b) Mode of Valuation.

• Average profit method.

• Super profit method.

• Capitalization method.

− Capitalization of average profit method and

− Capitalization of super profit method.

(iv) Accounting treatment of goodwill on admission of a partner.

Based on Accounting Standard –26 issued by the Institute of Chartered Accountants of India in the context of Intangible Assets.

• Premium for goodwill paid privately.

• Premium for goodwill paid (in cash or kind) and retained in the business.

• Premium for goodwill paid and withdrawn by the old partners.

• When the incoming partner cannot bring premium for goodwill.

• When a loan account is raised in the name of the incoming partner.

• Hidden goodwill.

• When the incoming partner brings personal goodwill into the business.

• When goodwill appears in the old Balance Sheet and the incoming partner pays premium for goodwill or pays partly the premium for goodwill.

(v) Preparation of Revaluation Account or Memorandum Revaluation Account.

• Preparation of a Revaluation Account where changes in the values of assets and liabilities are reflected in the new Balance Sheet after reconstitution of a partnership firm.

• Preparation of a Memorandum Revaluation Account where changes in the values of assets and liabilities are not reflected in the new Balance Sheet after reconstitution of a partnership firm.

(vi) Accounting treatment of accumulated profits and losses.

(vii) Adjustment of Capitals. Problems pertaining to capital adjustments.

(viii) Retirement, death and change in the profit sharing ratio of a partner.

• Adjustment with regard to goodwill.

• Adjustment with regard to undistributed profits and losses.

• Change in the Profit sharing ratio.

• Adjustment with regard to share of profits from the date of the last Balance Sheet to the date of retirement or death (on the basis of time or turnover).

(ix) Preparation of Revaluation Account or Memorandum Revaluation Account on retirement or death of a partner and construction of loan account and adjustment of capital as per new ratio.
Preparation of Revaluation Account or Memorandum Revaluation Account on retirement and death of a partner and construction of loan account and executor's account and adjustment of capital as per new profit and loss sharing ratio with or without the use of current account .

(x) Dissolution.

• Meaning of dissolution, modes of dissolution, modes of settlement of accounts.

• Preparation of Realization Account.

• Treatment of undistributed profits and losses.

• Preparation of Cash / Bank Account.

NOTE:

• When an asset or a liability is taken to the realization account any corresponding related fund or reserve is also transferred to realization account and not to capital account.

• When accounts are prepared on a fixed basis partners current account balances are to be transferred to capital account. No adjustments are required to be passed through current account.

• Admission cum retirement, amalgamation of firms and conversion/sale to a company together with piecemeal distribution not required.

• Bank overdraft is not to be transferred to realization account but bank loan must be transferred to realization account.

4. Joint Stock Company Accounts

A. Issue of Shares.

Application of problems on issue of shares.

(a) Issue of shares at par, premium under Companies Act, 1956.

(b) Issue of shares for considerations other than cash:

• To promoters.

• To underwriters.

• To vendors.

(c) Calls in arrears, calls in advance and interest thereon including the preparation of ledger accounts.

(d) Over and under subscription (including prorate allotment).

NOTE: In prorate allotment when shares are issued at a premium, excess money received on application will first be adjusted towards the share capital. Any excess thereon will be utilized towards the securities premium.

(e) Forfeiture and reissue of shares.

NOTE: Issue of bonus and rights shares, private placement of shares, sweat equity shares, employees stock option scheme, reservations for small individual participants and minimum tradable lots are not required.

B. Issue of Debentures

Application of problems on issue of debentures – at par and at premium.

Application of problems on issue of debentures to include:

(a) Issue of debentures at par and at premium under Companies Act.

(b) Interest on debentures.

(c) Accounting entries at the time of issue when debentures are redeemable at premium.

(d) Issue of debentures as collateral security for a loan.

• To promoters.

• To underwriters.

• To vendors

(e) Issue of debentures for considerations other than cash.

NOTE:
Premium on the redemption of debentures to be recorded under the sub-head ‘Provisions’.
Redemption of debentures with or without sinking funds are excluded.

C. Final Accounts of Companies

Application of Schedule VI of Companies Act including Profit and Loss Appropriation Account of companies.
Application of problems.

Schedule VI Part I under Companies Act - Preparation of a company Balance Sheet. (Horizontal Form) – Major Heads only.

Schedule VI Part II under Companies Act - preparation of a company Profit & Loss Account and Profit & Loss Appropriation Account.

Preparation of Final Accounts of a company from a trial balance with or without adjustments.

NOTE:

Managerial remuneration and taxation are not required.
Debit balance of profit and loss account are to be shown in the asset side of balance sheet.
Calls in advance is to be taken as a current liability.

5. Cash Flow Statement and Ratio Analysis

(i) Meaning, importance and preparation of a Cash Flow Statement.

NOTE: Based on Accounting Standard – 3 (revised) issued by the Institute of Chartered Accountants of India.

(ii) Calculation of net cash flows from operating activities based on Indirect Method only.

Preparation of a Cash Flow Statement from two consecutive years’ Balance Sheet with or without adjustments.

NOTE: Any adjustment or an item in the Balance Sheet relating to issue of bonus shares, Foreign Currency Cash Flows; Extraordinary items; Investment in Subsidiaries, Associates and Joint Ventures; Acquisitions and Disposals of Subsidiaries and other Business Units; and Non Cash Transactions are not required. Redemption of preference shares and debentures with or without sinking funds are excluded.

(iii) Preparation of Cash Flow Statement on basis of operating, investing and financing activities. The following items are to be taken when calculating net cash flows from financing activities:

• Issue of shares and debentures at a premium.

• Interest paid on debentures and public deposits.

• Cash proceeds from public deposits.

• Repayment of bank loan.

• Share issue expenses paid off.

The following items are to be taken when calculating net cash flows from investing activities:

• Cash purchase of fixed assets.

• Cash sale of fixed assets.

• Purchase of shares or debentures or marketable securities or long term investments of other companies.

• Sale of shares or debentures or marketable securities or long term investments of other companies.

• Cash advances and loans made to third parties of other enterprises.

• Cash receipts from the repayment of advances and loans made to third parties of other enterprises.

(iv) Ratio Analysis. Meaning, advantages and limitations of ratio analysis.

(v) Application of ratio analysis including calculations of various ratios (excluding interpretation, analysis, comparisons, conclusions and the preparation of Trading, Profit & Loss Account and Balance Sheet).

Courtesy: cisce.org

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