NCERT Solutions for Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3

Financial Statements of a Company Class 12

Chapter 3 Financial Statements of a Company Exercise Solutions

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Short answerslong answers : Solutions of Questions on Page Number : 181

Q1 :  

What is public company?


Answer :

A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the general public through stock market. There must be atleast seven members to form a public company. As per the section 3 (1) (iv) of Companies Act 1956, public company means a company which:

a) is not a private company,

b) has a minimum paid up capital of Rs 5,00,000 or such higher paid up capital, as may be prescribed,

c) is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on maximum number of persons. A public company can be segmented into two types:

1. Listed Company- A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.

2. Unlisted Company- A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.

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Q2 :  

Explain the nature of the financial statements.


Answer :

The financial statements are the end-products of the accounting process. The financial statements not only reveal the true financial position of the company but also help various accounting users in decision making and policy designing process. The nature of the financial statements depends upon the following aspects like recorded facts, conventions, concepts, and personal judgment

1. Recorded facts- The items recorded in the financial statements reflect their original cost i.e. the cost at which they were acquired. Consequently, financial statements do not reveal the current market price of the items. Further, financial statements fail to capture the inflation effects.

2. Conventions- The preparation of financial statements is based on some accounting conventions like, Prudence Convention, Materiality Convention, Matching Concept, etc. The adherence to such accounting conventions makes financial statements easy to understand, comparable and reflects the true and fair financial position of the company.

3. Accounting Assumptions - These basic accounting assumptions like Going Concern Concept, Money Measurement Concept, Realisation Concept, etc are called as postulates. While preparing financial statements, certain postulates are adhered to. The nature of these postulates is reflected in the nature of the financial statements.

4. Personal Judgments- Personal value judgments play an important role in deciding the nature of the financial statements. Different judgments are attached to different practices of recording transactions in the financial statements. For example, recording stock either at market value or at the cost requires value judgment. Similarly, provision on various assets, method of charging depreciation, period related to writing off intangible assets depends on personal judgment. Thus, personal judgments determine the nature of the financial statements to a great extent.

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Q3 :  

What is private limited company?


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Q4 :  

Explain in detail about the significance of the financial statements.


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Q5 :  

Define Government Company?


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Q6 :  

Explain the limitations of financial statements.


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Q7 :  

What do you mean by a listed company?


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Q8 :  

Prepare the format of income statement and explain its elements.


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Q9 :  

What are the uses of securities premium?


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Q10 :  

Prepare the format of balance sheet and explain the various elements of balance sheet.


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Q11 :  

What is buy-back of shares?


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Q12 :  

Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?


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Q13 :  

Write a brief note on 'Minimum Subscription'.


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Q14 :  

`Financial statements reflect a combination of recorded facts, accounting conventions and personal judgments' discuss.


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Q15 :  

Explain the process of preparing income statement and balance sheet.


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<< Previous Chapter 2 : Issue and Redemption of Debentures Next Chapter 4 : Analysis of Financial Statements >>

Numerical questions : Solutions of Questions on Page Number : 182

Q1 :  

The following is the trial balance on June 30, 2006 of the Modern Manufacturing Company Ltd.

 

Details

Amount

Rs

Details

Amount

Rs

Stock, 30th June, 2005

7,500

Dividend paid in, August, 2005

500

Sales

35,000

Interim Dividend paid in Feb., 2006

400

Purchases

24,500

Capital- 10,000 Rs 1 shares full Paid

10,000

Productive wages

5,000

Debtors

3,750

Discounts (Dr.)

700

Creditors

1,750

Discounts (Cr.)

500

Plant and machinery

2,900

Salaries

750

Cash in Bank

1,620

Rent

495

Reserve

1,550

General expenses

1,705

Loan to Managing Director

325

Profit and loss account,

1,503

Bad Debts

158

30th June 2005 (Cr.)

 

 

 

 

 

 

 

 

Stock, on June 30, 2006 Rs 8,200. You are required to make out the trading account, and profit and loss account for the year ended June 30, 2006 and the balance sheet as on the date. You are also to make provision in respect of the following: (i) Depreciate machinery @ 10% per annum; (ii) Reserve 5% for discount on debtors; (iii) One month rent Rs 45 was due on 30th June; and (iv) Six month's insurance, included in general expenses, was unexpired at Rs 75.

 


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Q2 :  

The following is the trial balance of Alfa Ltd., for the year ended June 30, 2005

 

Details

Amount

Rs

Details

Amount

Rs

Land and Buildings

3,00,000

Sundry Creditors

40,000

Plant and Machinery

4,50,000

Bills Payable

20,000

Furniture and Fittings

40,000

General Reserve

2,00,000

Goodwill

60,000

Profit and Loss Account Balance (on 1.7.04)

90,000

Sundry Debtors

60,000

Sales

6,25,000

Bills Receivable

26,000

Purchase Returns

15,000

Investments (5% Govt. Securities)

30,000

Equity Share Capital

5,00,000

Cash in Hand

2,000

8% Preference Share Capital

2,00,000

Cash at Bank

55,000

 

 

Preliminary Expenses

29,000

 

 

Purchases

4,00,000

 

 

Sales Return

10,000

 

 

Stock on 1-7-04

85,000

 

 

Wages

47,000

 

 

Salaries

55,000

 

 

Rent, rates and taxes

9,000

 

 

Carriage Inwards

6,500

 

 

Law Charges

2,500

 

 

Trade Expenses

23,000

 

 

 

16,90,000

 

16,90,000

 

Prepare the Profit and Loss Account and Balance Sheet of the company after taking the following particulars into consideration:

 

a) The original cost of land and building plant and machinery and furniture and fittings was Rs 2,50,000, Rs 6,00,000 and Rs 60,000 respectively. Additions during the year were: Building Rs 50,000 and Plant Rs 20,000.

b) Depreciation is to be charged on plant and machinery and furniture and fitting at 10 per cent on original cost.

c) Of the sundry debtors, Rs 10,000 is outstanding for a period exceeding 6 months, Rs 5,000 are considered doubtful, while the others are considered good.

d) The directors are entitled to a commission at 1 percent of the net profits before charging such commission.

e) Stock on 30th June, 2005 is Rs 1,30,000.

f) Provide Rs 34,800 for income tax

 

 


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Q3 :  

The following balances appeared in the books of Parasuram Flour Mills Ltd., as on December 31, 2005 :

 

Details

Rs

Details

Rs

Stock of wheat

9,500

Furniture

5,100

Stock of flour

16,000

Vehicles

5,100

Wheat Purchases

4,05,000

Stores and spare parts

18,300

Manufacturing Expenses

90,000

Advances

24,500

Flour Sales

5,55,000

Book Debts

51,700

Salaries and Wages

13,000

Investments

4,000

Establishment

4,700

Share Capital

72,000

Interest (Cr.)

500

Pension Fund

23,000

Rent Received

800

Dividend Equalisation fund

10,000

Profit and Loss Account (Cr.)

15,000

Taxation Provision

8,500

Director's Fees

1,200

Unclaimed Dividends

900

Dividend for 2004

9,000

Deposits (Cr.)

1,600

Land

12,000

Trade Creditors

1,24,000

Buildings

50,500

Cash in Hand

1,200

Plants and Machinery

50,500

Cash at Bank

40,000

 

 

 

 

 

Prepare the company's trading and profit and loss account for the year and balance sheet as on December 31, 2005 after taking the following adjustments into account:

(a) Stock on December 31, 2005 were: Wheat at cost, Rs 14,900: Flour at market price, Rs 21,700; (b) Outstanding expenses: Manufacturing expenses, Rs 23,500; and salaries and wages, Rs 1,200; (c) Provide depreciation : Building at 2% ; Plant and machinery at 10%: Furniture at 10% ; and Vehicle 20%. (d) Interest accrued on Government Securities, Rs100: (e) A tax provision of Rs 8,000 is considered necessary. (f) The directors propose a dividend of 20%. (g) The authorised capital consists of 12,000 equity shares of Rs 10 each of which 7,200 shares were issued and fully paid up.

 


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Q4 :  

An unexperienced accountant prepared the following trial balance of Bang Vikas Ltd., for the year ending 31.12.2005. The cash in hand on 31.12.2005 was Rs 750.

 

Details

Rs

Details

Rs

Depreciation on machinery

33,000

Authorised Capital: 60,000 shares of Rs 10 each

6,00,000

Calls in Arrear

7,500

Subscribed Capital

4,00,000

Land and Buildings

3,00,000

6% Debentures

3,00,000

Machinery

2,97,000

Profit and Loss Account (Cr.)

13,625

Interim dividend paid

37,500

Sundry Debtors

87,000

Stock on 1-1-2005

75,000

Sales

4,15,000

Sundry Creditors

40,000

Sinking Fund

75,000

Bills Payable

38,000

Preliminary Expenses

5,000

Furniture

7,200

 

 

Bank Balance

39,900

 

 

Purchases

1,85,000

 

 

Provision for Bad Debts

4,375

 

 

Investments

75,000

 

 

Salary and Wages

99,300

 

 

Repairs

4,300

 

 

Fuel

2,500

 

 

Rates and Taxes

1,800

 

 

Travelling Expenses

2,000

 

 

Discounts

6,400

 

 

Director's Fees

5,700

 

 

Bad Debts

2,100

 

 

Debenture interest

9,000

 

 

Carriage

1,800

 

 

Freight

8,900

 

 

Sundry Expenses

2,350

 

 

Public Deposits

10,000

 

 

 

12,95,625

 

12,95,625

 

After locating the mistakes and making the following adjustments prepare trading and profit and loss account and balance sheet in the prescribed form.

Adjustments: (i) Stock on 31.12.2005 Rs 95,000 and (ii) Write-off preliminary expenses.

 


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Q5 :  

The Silver Ore Co. Ltd. was formed on April 1, 2005 with an authorised capital of Rs6,00,000 in shares of Rs 10 each. Of these 52,000 shares had been issued and subscribed but there were calls in arrear on 100 shares @ Rs 2.50. From the following trial balance as on March 31, 2006 prepare the trading and profit and loss account and the balance sheet:

 

 

Rs

 

Rs

Cash at Bank

1,05,500

Advertising

5,000

Share Capital

5,19,750

Cartage on Plant

1,800

Plant

40,000

Furniture and Buildings

20,900

Sale of Silver

1,79,500

Administrative Expenses

28,000

Mines

2,20,000

Repairs of Plant

900

Promotion Expenses

6,000

Coal and Oil

6,500

Interest of F.D. up to Dec.31,2005

3,900

Cash

530

Dividend on Investment

3,200

Investments-share of tin mines

80,000

Royalties Paid

10,000

Brokerage on above

1,000

Railway track and wagons

17,000

6% F.D. in Syndicate Bank

89,000

Wages of Mines

74,220

 

 

 

(i) Depreciate plant and railways by 10%; furniture and building by 5%; (ii) Write off a third of the promotion expenses; (iii) Value of silver ore on March 31, 1969 Rs 15,000, The directors forfeited on December 20, 1968, 100 shares on which only Rs 7.50 had been paid.

 


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<< Previous Chapter 2 : Issue and Redemption of Debentures Next Chapter 4 : Analysis of Financial Statements >>

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