AIOU 0444 Solved Assignments Spring 2025

AIOU 0444 Advanced Accounting Solved Assignment 1 Spring 2025

---

AIOU 0444 Assignment 1

---

Q1. X and Y entered into a joint venture business for trading timber. X financed the venture and Y undertook the marketing activities for which he was entitled to a 2% commission on sales. The profit and losses were to be shared in the proportion of 3:1 respectively. The following transactions were carried out.

i) X paid Rs. 500,000 for the cost of timber

ii) X also paid Rs. 3,000 for miscellaneous purchased expenses on it.

iii) X provided funds of Rs. 10,000 to Y for expenses.

iv) Y incurred expenses on the carriage and packing of Rs. 12,900. Warehouse rent of Rs. 7,500; advertisement Rs. 2700; miscellaneous expenses of Rs. 1750; travelling expenses of Rs. 9,240 and salaries of Rs. 12,100.

v) Y sold all goods at Rs. 625,800 and deposited the proceeds into his bank account.

vi) Y provided a cheque of Rs. 450,000 to X.

It is required to show how these transactions would appear in the lodger of X and Y and prepare an account showing the result of the venture under the memorandum method of accounting.

Ledger of X

Joint Venture with Y Account

Date	Particulars	Debit (Rs.)	Credit (Rs.)
June 2025	To Cash (Cost of Timber)	500,000
June 2025	To Cash (Miscellaneous Expenses)	3,000
June 2025	To Cash (Funds to Y)	10,000
June 2025	To Y (Share of Expenses)	44,490
June 2025	To Y (Commission)	12,516
June 2025	To Profit on Joint Venture	48,295.50
June 2025	By Y (Cheque Received)		450,000
June 2025	By Y (Balance Due)		168,299.50
	Total	618,299.50	618,299.50

Ledger of Y

Joint Venture with X Account

Date	Particulars	Debit (Rs.)	Credit (Rs.)
June 2025	To X (Funds Received)		10,000
June 2025	To Cash (Carriage and Packing)	12,900
June 2025	To Cash (Warehouse Rent)	7,500
June 2025	To Cash (Advertisement)	2,700
June 2025	To Cash (Miscellaneous Expenses)	1,750
June 2025	To Cash (Travelling Expenses)	9,240
June 2025	To Cash (Salaries)	12,100
June 2025	To Commission on Sales	12,516
June 2025	To Share of Profit	16,098.50
June 2025	By Bank (Sales Proceeds)		625,800
June 2025	By X (Cheque Paid)	450,000
June 2025	By X (Balance Payable)	168,299.50
	Total	635,004.50	635,800

Memorandum Joint Venture Account

Particulars	Amount (Rs.)
Debit
To Cost of Timber (X)	500,000
To Miscellaneous Expenses (X)	3,000
To Carriage and Packing (Y)	12,900
To Warehouse Rent (Y)	7,500
To Advertisement (Y)	2,700
To Miscellaneous Expenses (Y)	1,750
To Travelling Expenses (Y)	9,240
To Salaries (Y)	12,100
To Commission to Y (2% of 625,800)	12,516
Credit
By Sales (Y)	625,800
Profit on Joint Venture	64,394

Distribution of Profit/Loss:

• X's Share of Profit (3/4): 64,394 = Rs. 48,295.50/-
• Y's Share of Profit (1/4): 64,394 = Rs. 16,098.50/-

Final Settlement:

To fully settle the accounts, Y will need to pay X the final balance due: Rs. 168,299.50.

---

Q2. Shalimar Oil Mills produced and consigned 50 bags of Cooking Oil to Reliance traders at the cost of Rs. 500 each. The Consignor paid cartage expenses of Rs. 1,000 on the consignment The Consignee received the Consignment and paid Rs. 1,500 as transportation cost and Rs. 500 as unloading expenses. The Consignee spent Rs. 3,000 on Warehousing expenses. It was reported by Consignee that 05 bags were leaked out and had no sale value. The consignor treated this loss as a normal loss. The consignee remitted an amount of Rs. 10,000 as advance to the Consignor. The consignee sold 35 bags at the selling price of Rs. 600 as specified by the Consignor. The Consignee was entitled to a 5% Commission. It is required to,
(a) record the above transaction and prepare necessary ledger accounts in the books of the consignor.
(b) compute the value of the closing Stock of Oil Bags.
(c) determine the amount of profit or loss from this consignment activity.

(a) Recording the Transactions and Preparing Ledger Accounts in the Books of the Consignor (Shalimar Oil Mills):

We'll need to create the following ledger accounts:

1. Consignment to Reliance Traders Account (This is the main account to track all consignment-related activities and determine profit or loss.)

2. Reliance Traders Account (This account tracks the amounts due from or paid to the consignee.)

3. Goods Sent on Consignment Account (This account records the cost of goods sent.)

4. Cash/Bank Account (For expenses paid by the consignor and advance received.)

Here are the journal entries (though not explicitly asked for, they help in understanding the ledger postings):

Date	Account Debited	Account Credited	Amount (Rs.)
	Consignment to Reliance Traders A/c	Goods Sent on Consignment A/c	25,000
	(Cost of 50 bags @ Rs. 500 each)
	Consignment to Reliance Traders A/c	Cash/Bank A/c	1,000
	(Cartage expenses)
	Cash/Bank A/c	Reliance Traders A/c	10,000
	(Advance received)

Now, let's prepare the ledger accounts:

1. Consignment to Reliance Traders Account

Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
	To Goods Sent on Consignment A/c	25,000		By Reliance Traders A/c (Sales)	21,000
	To Cash/Bank A/c (Cartage)	1,000		By Normal Loss A/c	2,500
	To Reliance Traders A/c (Transport)	1,500		By Consignment Stock A/c	5,777.80
	To Reliance Traders A/c (Unloading)	500		By Profit and Loss A/c	2,772.20
	To Reliance Traders A/c (Warehousing)	3,000
	To Reliance Traders A/c (Commission)	1,050
		32,050			32,050

2. Reliance Traders Account

Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
	To Consignment to Reliance Traders A/c (Transport)	1,500		By Cash/Bank A/c (Advance)	10,000
	To Consignment to Reliance Traders A/c (Unloading)	500		By Consignment to Reliance Traders A/c (Sales)	21,000
	To Consignment to Reliance Traders A/c (Warehousing)	3,000
	To Consignment to Reliance Traders A/c (Commission)	1,050
	To Balance c/d	15,950
		21,000			31,000
	To Balance b/d	15,950

3. Goods Sent on Consignment Account

Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
	To Trading Account	25,000		By Consignment to Reliance Traders A/c	25,000

4. Cash/Bank Account (Relevant Entries)

Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
	To Reliance Traders A/c (Advance)	10,000		By Consignment to Reliance Traders A/c (Cartage)	1,000

(b) Computing the Value of the Closing Stock of Oil Bags:

• Number of bags consigned: 50

• Normal loss (leaked bags): 05

• Bags sold: 35

• Bags in closing stock: 50 - 5 - 35 = 10 bags

To calculate the value of the closing stock, we need to consider the proportionate consignment expenses incurred by the consignor up to the point of normal loss. Consignee's expenses incurred after receiving the goods are not included in the valuation of closing stock.

• Cost of 50 bags: 50 bags * Rs. 500/bag = Rs. 25,000

• Consignor's cartage expenses: Rs. 1,000

• Total cost of 50 bags before normal loss: Rs. 25,000 + Rs. 1,000 = Rs. 26,000

Now, let's calculate the cost per unit considering the normal loss:

• Cost per unit (after normal loss): Rs. 26,000 / (50 bags - 5 bags) = Rs. 26,000 / 45 bags = Rs. 577.78 (approximately)

• Value of closing stock (10 bags): 10 bags * Rs. 577.78/bag = Rs. 5,777.80 (approximately)

(c) Determining the Amount of Profit or Loss from this Consignment Activity:

From the Consignment to Reliance Traders Account, we can see the profit or loss:

• Credit side total: Rs. 21,000 (Sales) + Rs. 2,500 (Normal Loss - at cost) + Rs. 5,777.80 (Closing Stock) = Rs. 29,277.80

• Debit side total: Rs. 25,000 (Goods Sent) + Rs. 1,000 (Consignor's Cartage) + Rs. 1,500 (Consignee's Transport) + Rs. 500 (Consignee's Unloading) + Rs. 3,000 (Consignee's Warehousing) + Rs. 1,050 (Commission) = Rs. 32,050

• Profit/Loss = Credit side total - Debit side total

• Profit/Loss = Rs. 29,277.80 - Rs. 32,050 = -Rs. 2,772.20

Therefore, Shalimar Oil Mills incurred a loss of Rs. 2,772.20 from this consignment activity.

Summary of Ledger Account Balances:

• Consignment to Reliance Traders Account: Closed (Profit/Loss transferred)

• Reliance Traders Account: Balance c/d Rs. 15,950 (Amount due from Reliance Traders)

• Goods Sent on Consignment Account: Closed (Transferred to Trading Account)

• Cash/Bank Account: Balance will be affected by the transactions recorded.

Final Answer:

(a) Ledger Accounts in the Books of the Consignor (Shalimar Oil Mills):

Please refer to the ledger accounts provided above.

(b) Value of the Closing Stock of Oil Bags:

The value of the closing stock of 10 oil bags is approximately Rs. 5,777.80.

(c) Amount of Profit or Loss from this Consignment Activity:

Shalimar Oil Mills incurred a loss of Rs. 2,772.20 from this consignment activity.

---

Q3 a). Describe the writes of shareholders and narrate the various types of shares.

Rights of Shareholders:

Voting Rights: Shareholders can vote on key company decisions, such as electing the board of directors and approving mergers.

Dividend Rights: If the company distributes profits, shareholders with dividend-paying shares receive a portion.

Right to Information: Shareholders can access financial statements and other important company records.

Right to Sue: Shareholders may sue the company for wrongful acts that harm their interests.

Preemptive Rights: Some shareholders have the right to buy new shares before they are offered to the public.

Right to Transfer Shares: Shareholders can sell or transfer their shares unless restrictions apply.

Residual Claim Rights: In case of company liquidation, shareholders have a right to receive remaining assets after debts are paid.

Types of Shares:

Common Shares: These offer voting rights and potential dividends but come with the highest risk.

Preferred Shares: Shareholders receive fixed dividends and priority in payouts but typically lack voting rights.

Ordinary Shares: A term sometimes used interchangeably with common shares in certain regions.

Bonus Shares: Additional shares issued to existing shareholders without charge, usually from profits.

Rights Shares: Offered to existing shareholders at a discount before being sold to others.

Redeemable Shares: Shares that the company can repurchase at a predetermined price.

Convertible Shares: Preferred shares that can be converted into common shares under specific conditions.

---

Q3 b). The Fortune Corporation was formed with an authorized capital as follows:
30,000, 10% preference shares of Rs. 100 each, 100,000 ordinary shares of Rs. 100 each, 5000 deferred shares of Rs. 10 each.

Required:
Pass the necessary journal entries to record the following transactions:
i. Issued 5000 10% preference shares at par and cash received.
ii. Issued 10,000 ordinary shares of Rs. 100 each at Rs. 120. All amounts received in cash.
iii. Acquired Equipment costing Rs. 210,000 and issued 2000 10% preference shares of Rs. 100 each.
iv. Land valued at Rs. 225,000 was acquired and 2500, 10% preference shares were issued against its consideration.
v. Issued 2000 deferred shares of Rs. 10 each to promoters in recognition of services rendered by them.

i. Issued 5000 10% preference shares at par and cash received.

Date	Account Title and Explanation	Debit (Rs.)	Credit (Rs.)
Today's Date	Cash Account	500,000
	To Preference Share Capital Account (5000 x 100)		500,000
	(Being issue of 5000 preference shares at par)

ii. Issued 10,000 ordinary shares of Rs. 100 each at Rs. 120. All amounts received in cash.

Date	Account Title and Explanation	Debit (Rs.)	Credit (Rs.)
Today's Date	Cash Account (10,000 x 120)	1,200,000
	To Ordinary Share Capital Account (10,000 x 100)		1,000,000
	To Securities Premium Account (10,000 x 20)		200,000
	(Being issue of 10,000 ordinary shares at premium)

iii. Acquired Equipment costing Rs. 210,000 and issued 2000 10% preference shares of Rs. 100 each.

Date	Account Title and Explanation	Debit (Rs.)	Credit (Rs.)
Today's Date	Equipment Account	210,000
	To Preference Share Capital Account (2000 x 100)		200,000
	To Capital Reserve Account		10,000
	(Being acquisition of equipment against issue of preference shares at a discount)

iv. Land valued at Rs. 225,000 was acquired and 2500, 10% preference shares were issued against its consideration.

Date	Account Title and Explanation	Debit (Rs.)	Credit (Rs.)
Today's Date	Land Account	225,000
	To Preference Share Capital Account (2500 x 100)		250,000
	To Capital Reserve Account	25,000
	(Being acquisition of land against issue of preference shares at a premium)

v. Issued 2000 deferred shares of Rs. 10 each to promoters in recognition of services rendered by them.

Date	Account Title and Explanation	Debit (Rs.)	Credit (Rs.)
Today's Date	Goodwill Account	20,000
	To Deferred Share Capital Account (2000 x 10)		20,000
	(Being issue of deferred shares to promoters for services rendered)

---

Q4. A company carries on business through five departments, A, B, C, D, and E. The trial balance as of 31st December, 2022 was as follows:

	A	B	C	D	E
Opening Stock (Rs.)	5,000	3,000	2,500	4,000	4,500
Purchases (Rs.)	50,000	30,000	10,000	26,000	34,000
Sales (Rs.)	48,000	21,000	9,500	23,000	30,000
Closing Stock (Rs.)	6,000	4,000	3,500	5,000	5,500

The opening and closing stocks have been valued at cost. The expenses, which are to be charged to each department in proportion to the cost of goods sold in the respective departments, are as follows:
Salaries and Commission - Rs. 16,000/-
Rent and rates - Rs.11,500/-
Miscellaneous expense - Rs.11,200/-
Insurance - Rs.4800/-

Required: Show the final result and percentage of sales in each department and also the combined result with the percentage of sales.

Here's the breakdown of profitability for each department and the company as a whole:

First, we need to calculate the Cost of Goods Sold (COGS) for each department using the following formula:

COGS = Opening Stock + Purchases - Closing Stock

Let's calculate the COGS for each department:

Department	Calculation	COGS (Rs.)
Department A	COGS_A = 5,000 + 50,000 - 6,000	49,000
Department B	COGS_B = 3,000 + 30,000 - 4,000	29,000
Department C	COGS_C = 2,500 + 10,000 - 3,500	9,000
Department D	COGS_D = 4,000 + 26,000 - 5,000	25,000
Department E	COGS_E = 4,500 + 34,000 - 5,500	33,000

Next, we calculate the Gross Profit for each department:

Gross Profit = Sales - COGS

Department	Calculation	Gross Profit (Rs.)
Department A	Gross Profit_A = 48,000 - 49,000	-1,000 (Loss)
Department B	Gross Profit_B = 21,000 - 29,000	-8,000 (Loss)
Department C	Gross Profit_C = 9,500 - 9,000	500
Department D	Gross Profit_D = 23,000 - 25,000	-2,000 (Loss)
Department E	Gross Profit_E = 30,000 - 33,000	-3,000 (Loss)

Now, we need to allocate the expenses to each department based on the proportion of their COGS to the total COGS.

First, let's find the total COGS:

Total COGS = 49,000 + 29,000 + 9,000 + 25,000 + 33,000 = 145,000 Rs.

Now, we calculate the proportion of COGS for each department:

Department	Calculation	Proportion of COGS
Department A	49,000 / 145,000	0.3379
Department B	29,000 / 145,000	0.2000
Department C	9,000 / 145,000	0.0621
Department D	25,000 / 145,000	0.1724
Department E	33,000 / 145,000	0.2276

Next, we allocate each expense to the departments using these proportions:

Expense	Total (Rs.)	Department A (Rs.)	Department B (Rs.)	Department C (Rs.)	Department D (Rs.)	Department E (Rs.)
Salaries and Commission	16,000	16,000 x 0.3379 = 5,406.40	16,000 x 0.2000 = 3,200.00	16,000 x 0.0621 = 993.60	16,000 x 0.1724 = 2,758.40	16,000 x 0.2276 = 3,641.60
Rent and rates	11,500	11,500 x 0.3379 = 3,885.85	11,500 x 0.2000 = 2,300.00	11,500 x 0.0621 = 714.15	11,500 x 0.1724 = 1,982.60	11,500 x 0.2276 = 2,617.40
Miscellaneous expense	11,200	11,200 x 0.3379 = 3,784.48	11,200 x 0.2000 = 2,240.00	11,200 x 0.0621 = 695.52	11,200 x 0.1724 = 1,930.88	11,200 x 0.2276 = 2,549.12
Insurance	4,800	4,800 x 0.3379 = 1,621.92	4,800 x 0.2000 = 960.00	4,800 x 0.0621 = 298.08	4,800 x 0.1724 = 827.52	4,800 x 0.2276 = 1,092.48
Total Expenses	43,500	14,698.65	8,700.00	2,701.35	7,500.00	9,890.60

Finally, we calculate the Net Profit/Loss for each department:

Net Profit/Loss = Gross Profit - Allocated Expenses

Department	Calculation	Net Profit/Loss (Rs.)
Department A	-1,000 - 14,698.65	-15,698.65 (Loss)
Department B	-8,000 - 8,700.00	-16,700.00 (Loss)
Department C	500 - 2,701.35	-2,201.35 (Loss)
Department D	-2,000 - 7,500.00	-9,500.00 (Loss)
Department E	-3,000 - 9,890.60	-12,890.60 (Loss)

Now, let's calculate the percentage of sales for each department's net profit/loss:

Percentage of Sales = (Net Profit/Loss / Sales) x 100%

Department	Calculation	Percentage of Sales
Department A	(-15,698.65 / 48,000) x 100%	-32.71%
Department B	(-16,700.00 / 21,000) x 100%	-79.52%
Department C	(-2,201.35 / 9,500) x 100%	-23.17%
Department D	(-9,500.00 / 23,000) x 100%	-41.30%
Department E	(-12,890.60 / 30,000) x 100%	-42.97%

Finally, let's calculate the combined result for the company:

Combined Net Profit/Loss = -15,698.65 - 16,700.00 - 2,201.35 - 9,500.00 - 12,890.60 = -56,990.60 Rs. (Loss)

Total Sales for the company:

Total Sales = 48,000 + 21,000 + 9,500 + 23,000 + 30,000 = 131,500 Rs.

Percentage of sales for the combined result:

Combined Percentage of Sales = (-56,990.60 / 131,500) x 100% = -43.34%

Here's a summary of the results:

Department	Net Profit/Loss (Rs.)	Percentage of Sales
A	-15,698.65	-32.71%
B	-16,700.00	-79.52%
C	-2,201.35	-23.17%
D	-9,500.00	-41.30%
E	-12,890.60	-42.97%
Combined	-56,990.60	-43.34%

It appears that all departments are operating at a loss for the period.

---

Q5. From the following details prepare the Branch Account in the books of Head Office (Amounts in Rs.).
a) Goods sent to Branch at cost 50,000
b) Goods returned by Branch at cost of 3,000
c) Branch Credit Sales 51,000
d) Cash Sales at Branch 2,500
e) Cash remitted to H.O. by Branch 45,000
f) Expenses paid by H.O. 10,000
g) Discount allowed to customers by Branch 1,800
h) Closing stock with Branch at cost of 17,000
i) Closing Debtors (Closing Balance) 7,700

Branch Account
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods sent to Branch A/c	50,000	By Cash remitted to H.O. A/c	45,000
To Expenses paid by H.O. A/c	10,000	By Goods returned by Branch A/c	3,000
To Discount allowed to customers A/c	1,800	By Branch Debtors A/c (Closing)	7,700
To Branch Stock A/c (Closing)	17,000	By Branch Sales A/c	53,500
To Profit and Loss A/c (Balancing Figure)	19,400
Total	98,000	Total	98,000

---

AIOU 0444 Advanced Accounting Solved Assignment 2 Spring 2025

---

AIOU 0444 Assignment 2

---

Q1. Khan Brothers sell several small articles of very small value on the hire-purchase system daily and request you to recommend to them a simple but satisfactory system of keeping accounts. What will be your advice to them?

Khan Brothers should adopt a straightforward yet effective accounting system that ensures proper tracking of their daily hire-purchase transactions. Here’s a simple system they can implement:

1. Maintain a Daily Sales Register: Record each transaction, including the article sold, its price, down payment, installment amount, and due dates.

2. Use Individual Customer Ledger Accounts: Keep separate records for each customer, showing amounts paid, outstanding balance, and due dates of installments.

3. Generate Periodic Collection Reports: Maintain a record of received installments to track payments, identify overdue accounts, and send reminders accordingly.

4. Use Accounting Software or Simple Spreadsheets: If possible, using a basic accounting software like QuickBooks or even Excel can automate calculations and improve efficiency.

5. Keep a Stock Register: Track inventory, purchases, and sales to ensure proper control over stock levels.

6. Monitor Bad Debts: Implement a system to assess overdue accounts and take necessary follow-up actions, like reminders or late payment penalties.

7. Cash Book and Bank Transactions: Maintain a simple cash book for daily cash inflows and outflows, along with bank reconciliations for any transactions done through banking channels.

A structured yet simple accounting system will help them maintain financial discipline, reduce errors, and improve business efficiency. If they wish to expand later, they can integrate a more advanced accounting solution.

---

Q2. Mr Azan acquired a car from Shah Corporation on January 02, 2023, and entered into a lease agreement for 5 years. Annual rentals are payable at the end of each year amounting to Rs. 180,000. The useful life of the machine is 10 years and the interest rate implicit in the lease was agreed 15%. The fair value of the machine was Rs. 900,000.

You are required to identify the type of lease and Pass the necessary journal entries in the books of the lessor and lessee both to record the rental payment.

1. Identifying the Type of Lease

To determine the type of lease (finance lease or operating lease) from the lessee's perspective, we need to consider the criteria outlined in accounting standards (like IFRS 16 or relevant local GAAP). While you haven't explicitly stated which standard to follow, the information provided allows us to make a reasonable assessment. Key indicators of a finance lease include:

• Transfer of Ownership: The problem doesn't explicitly state this.
• Bargain Purchase Option: Not mentioned.
• Major Part of Economic Life: The lease term (5 years) is a significant portion of the asset's useful life (10 years) – 50%. This suggests it could be a finance lease.
• Present Value of Minimum Lease Payments: We need to calculate this and compare it to the fair value of the asset.

Let's calculate the present value of the minimum lease payments:

Annual rental payment (PMT) = Rs. 180,000
Lease term (n) = 5 years
Interest rate (r) = 15%

The present value of an ordinary annuity formula is:

PV = PMT x [1 - (1 + r)^-n] / r

PV = 180,000 x [1 - (1 + 0.15)^-5] / 0.15

PV = 180,000 x [1 - (1.15)^-5] / 0.15

PV = 180,000 x [1 - 0.497176] / 0.15

PV = 180,000 x 0.502824 / 0.15

PV = 180,000 x 3.35216

PV = Rs. 603,388.80

Now, let's compare the present value of the minimum lease payments to the fair value of the asset:

Present Value (Rs. 603,388.80) / Fair Value (Rs. 900,000) = 0.6704 or 67.04%

Typically, if the present value of the minimum lease payments is substantially all (e.g., 75% or more, although this is a guideline and professional judgment is needed) of the fair value of the asset, it is classified as a finance lease. In this case, 67.04% is close, and considering the lease term is also a significant portion of the asset's life, it's highly likely this will be classified as a finance lease for the lessee.

From the lessor's perspective, this would likely be classified as a sales-type lease if the present value of the lease payments equals the fair value of the asset (which it doesn't exactly here, but the difference could be due to rounding or other factors not explicitly stated). If it doesn't meet the criteria for a sales-type lease (e.g., no selling profit or loss), it would be classified as a direct financing lease. Given the information, we'll proceed assuming it's a sales-type lease for the lessor for simplicity in demonstrating the journal entries, acknowledging the slight discrepancy.

2. Journal Entries

Let's prepare the journal entries to record the rental payment at the end of the first year (December 31, 2023).

In the Books of the Lessee (Mr. Azan)

As it's a finance lease, the lessee will recognize an asset (Right-of-Use asset) and a lease liability at the commencement of the lease. We'll also need to account for depreciation of the Right-of-Use asset and the interest expense on the lease liability.

At the end of the first year (December 31, 2023):

To record the rental payment:

Account	Debit	Credit
Lease Liability	Rs. 46,508.32
Interest Expense (($603,388.80 x 15%$)	Rs. 90,508.32
Cash		Rs. 180,000
(To record the annual rental payment, including interest)

Explanation: The total payment of Rs. 180,000 includes both the interest expense for the year and the reduction in the lease liability. The interest expense is calculated on the outstanding lease liability at the beginning of the year (which is the initial present value). The remaining portion of the payment reduces the principal of the lease liability.

To record the depreciation of the Right-of-Use asset:

The Right-of-Use asset is depreciated over the shorter of the lease term or the useful life of the asset. In this case, the lease term (5 years) is shorter.

Annual Depreciation = Right-of-Use Asset Value / Lease Term
We'll assume the initial value of the Right-of-Use asset is equal to the present value of the lease payments, Rs. 603,388.80.

Annual Depreciation = Rs. 603,388.80 / 5 years = Rs. 120,677.76

Account	Debit	Credit
Depreciation Expense	Rs. 120,677.76
Accumulated Depreciation - ROU Asset		Rs. 120,677.76
(To record the annual depreciation of the Right-of-Use asset)

In the Books of the Lessor (Shah Corporation)

As it's considered a sales-type lease, the lessor would have derecognized the asset and recognized a lease receivable at the commencement of the lease. They will also recognize interest revenue over the lease term.

At the end of the first year (December 31, 2023):

To record the receipt of the rental payment and recognition of interest revenue:

Account	Debit	Credit
Cash	Rs. 180,000
Lease Receivable		Rs. 46,508.32
Interest Revenue (($603,388.80 x 15%$)		Rs. 90,508.32
(To record the receipt of annual rental and interest revenue)

Explanation: The cash received is debited. A portion of the cash received represents the interest revenue earned on the outstanding lease receivable, and the remaining portion reduces the principal balance of the lease receivable.

---

Q3. Shown below are the selected items appearing in a recent balance sheet of Nizami Corporation. All amoun are Rs.

Cash and short-term investments - 42,600
Accounts Receivables - 160,900
Inventories - 64,800
Prepaid expenses and other current assets - 43,000
Total current liabilities - 116,000
Total liabilities - 223,300
Total stock holders equity - 231,900

Required:
a) Total quick assets,
b) Total current assets
c) Quick ratio
d) Current ratio
e) Working capital
f) Discuss whether the company appears solvent from the viewpoint of a short-term creditor.

a) Total Quick Assets: Quick assets include cash and short-term investments, as well as accounts receivable (excluding inventory and prepaid expenses).
42,600 + 160,900 = 203,500
Total quick assets = 203,500

b) Total Current Assets: Current assets include cash and short-term investments, accounts receivable, inventories, and prepaid expenses and other current assets.
42,600 + 160,900 + 64,800 + 43,000 = 311,300
Total current assets = 311,300

c) Quick Ratio: Quick ratio measures liquidity by comparing quick assets to total current liabilities.
Quick Ratio = Quick Assets / Total Current Liabilities
= 203,500 / 116,000 ≈ 1.75
Quick Ratio = 1.75

d) Current Ratio: Current ratio assesses a company’s ability to cover short-term liabilities with its current assets.
Current Ratio = Total Current Assets / Total Current Liabilities
= 311,300 / 116,000 ≈ 2.68
Current Ratio = 2.68

e) Working Capital: Working capital is calculated as:
Working Capital = Total Current Assets - Total Current Liabilities
= 311,300 - 116,000 = 195,300
Working Capital = 195,300

f) Solvency from a Short-Term Creditor's Viewpoint: A short-term creditor will assess liquidity to determine if the company can meet its immediate obligations.

The quick ratio of 1.75 suggests strong liquidity, meaning the company has sufficient quick assets to cover short-term liabilities without relying on inventory sales.

The current ratio of 2.68 further reinforces the company’s ability to meet short-term obligations. A ratio above 2 typically indicates healthy liquidity.

The working capital of 195,300 shows a positive buffer, implying strong financial stability in the short term.

Conclusion: Based on these figures, Nizami Corporation appears solvent and financially healthy from a short-term creditor's perspective, as it has enough liquid and current assets to cover its liabilities.

---

Q4. What do you know about Amalgamation and Reconstruction? Explain and give two recent examples regarding Pakistan.

Amalgamation: Amalgamation is when two or more companies combine to form a new entity. This is often done to expand business operations, achieve economies of scale, or strengthen financial stability. The original companies cease to exist, and a new company is formed with their combined resources.

Reconstruction: Reconstruction refers to reorganizing a company’s financial or operational structure. It can be:

Internal Reconstruction: When a company restructures its assets, liabilities, or shareholding without changing its identity.

External Reconstruction: When a new company is created to take over the operations of the existing entity.

Recent Examples in Pakistan:

1. Banking Sector Changes: Banks in Pakistan have undergone amalgamation to consolidate financial operations. The merger of Sindh Bank and Summit Bank is an example where two banking entities combined to improve financial efficiency.

2. Pakistan Steel Mills Revamp: The government has been working on the financial restructuring of Pakistan Steel Mills to restore its operational viability, making it an example of corporate reconstruction.

---

Q5. The Yasir Corporation was registered with a nominal Capital of Rs. 12,00,000 divided into equity shares of Rs. 10 each. On 31st March 2021, the following ledger balances were extracted from the company’s book:

Item	Rs.	Item	Rs.
Equity Share Capital Up and Paid Up	920,000	10% Debentures	600,000
Plant and Machinery	720,000	Sales	830,000
Stock (1-4-2020)	150,000	5% Govt. Securities	120,000
Fixtures	14,400	Reserve for Doubtful Debts	7,000
Preliminary Expenses	10,000	Sundry Creditors	100,000
Freight and Duty	26,200	Sundry Debtors	174,000
Goodwill	50,000	Buildings	600,000
Wages	169,600	Bad Debts	4,220
Cash in Hand	19,700	Commission Paid	14,400
Cash at Bank	76,600	Salaries	29,000
Director’s Fees	11,480	Purchases	370,000
Bills Payable	76,000	Interim Dividend Paid	15,000
General Reserve	50,000	Rent	9,600
Profit and Loss A/c (Cr) 1-4-2020	29,000	General Expenses	9,800
Office Equipment	8,000	Debenture Interest	10,000

The following adjustments were to be made:
i. The Stock on 31st March 2021 was estimated at Rs. 200,000
ii. Final Dividend at 10% to be provided.
iii. Depreciation on Plan and Machinery at 10% and on Fixtures at 5%
iv. Preliminary expenses to be written off
v. Rs. 30,000 were to be transferred to General Reserve
vi. The provision for bad debts to be maintained at 10% on sundry debtors

Required: You are required to prepare the:
i. Trading and Profit and Loss Account
ii. Profit and Loss Appropriation Account for the year ended 31st March 2021
iii. Balance sheet as of that date.

---

i. Trading and Profit and Loss Account

The Yasir Corporation Trading and Profit and Loss Accoun
For the year ended 31st March 2021

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Opening Stock	150,000	By Sales	830,000
To Purchases	370,000	By Closing Stock	200,000
To Freight and Duty	26,200
To Wages	169,600
To Gross Profit c/d	314,200
Total	1,030,000	Total	1,030,000
To Salaries	29,000	By Gross Profit b/d	314,200
To Rent	9,600
To Commission Paid	14,400
To Director's Fees	11,480
To General Expenses	9,800
To Debenture Interest (Paid Rs. 10,000 + Accrued Rs. 50,000)	60,000
To Depreciation:
Plant and Machinery	72,000
Fixtures	720
To Bad Debts	4,220
To Provision for Bad Debts	10,400
To Preliminary Expenses W/O	10,000
To Net Profit transferred to P&L Appropriation A/c	82,580
Total	314,200	Total	314,200

---

ii. Profit and Loss Appropriation Account for the year ended 31st March 2021

The Yasir Corporation
Profit and Loss Appropriation Account
For the year ended 31st March 2021

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Interim Dividend Paid	15,000	By Balance b/d (1-4-2020)	29,000
To Proposed Final Dividend	92,000	By Net Profit for the year	82,580
To Transfer to General Reserve	30,000
To Balance c/d (Deficit transferred to Balance Sheet)	(25,420)
Total	111,580	Total	111,580

---

iii. Balance sheet as of that date.

The Yasir Corporation
Balance Sheet
As at 31st March 2021

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Shareholders' Funds		Non-Current Assets
Equity Share Capital (Authorized: 1,20,000 shares of Rs. 10 each) (Issued and Paid up: 92,000 shares of Rs. 10 each)	920,000	Goodwill	50,000
Reserves and Surplus		Buildings	600,000
General Reserve	80,000	Plant and Machinery (Net) (Gross 720,000 - Dep. 72,000)	648,000
Profit & Loss Account (Deficit)	(25,420)	Fixtures (Net) (Gross 14,400 - Dep. 720)	13,680
	54,580	Office Equipment	8,000
Non-Current Liabilities		5% Govt. Securities (Investment)	120,000
10% Debentures	600,000
Current Liabilities		Current Assets
Sundry Creditors	100,000	Stock (Closing)	200,000
Bills Payable	76,000	Sundry Debtors (Net) (Gross 174,000 - Prov. 17,400)	156,600
Accrued Debenture Interest	50,000	Cash in hand	19,700
Proposed Final Dividend	92,000	Cash at bank	76,600
		Preliminary Expenses (Written Off) (Gross 10,000 - W/O 10,000)	0
Total	1,892,580	Total	1,892,580

---