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Financial Accounting Notes BBa
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(Affiliated to Bangalore University) A Recipient of Prestigious Rajyotsava State Award 2012 conferred by the Government of Karnataka
Ring Road, Bellandur Post, Near Marathalli, Bangalore - 560 103 Tel : +91-80-6629 7777 Fax : +91-80-2844 0770 E-mail : principalnhc.edu@gmail.com Web : www.newhorizonindia.edu
CHAPTER -1 DEPARTMENTAL ACCOUNTING
INTRODUCTION:
Particulars A B Total Particulars A B Total
To opening stock 17400 14700 32100 By sales 60000 40000 100000
To purchases 35000 30000 65000 By closing stock 16740 12050 28790
To wages 8700 2200 10900 By transfers to B 420 - 420
To transfer from A - 420 420
To carriage inward(2:3)
1560 780 2340
To gross profit c/d 14500 3950 18450
77160 52050 129210 77160 52050 129210
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Particulars A B Total Particulars A B Total To opening stock 20000 12000 32000 By sales 140000 112000 252000 To purchases 92000 68000 160000 By transfer of purchased goods
8000 10000 18000
To carriage 2000 2000 4000 By transfer of finished goods
40000 35000 75000
To wages 12000 8000 20000 By return of finished goods
7000 10000 17000
To transfer of purchase goods
10000 8000 18000 By closing stock of purchased goods
4500 6000 10500
To transfer of finished goods
35000 40000 75000 By closing stock of finished goods
24000 14000 38000
To return of finished goods
10000 7000 17000
To gross profit c/d 42500 42000 84500 223500 187000 410500 223500 187000 410500
Particulars Amt Amt Particulars Amt Amt To stock reserve
By gross profit
Dept A 875 Dept A 42500 Dept B 1800 2675 Dept B 42000 84500
To net profit Dept A 41625 Dept B 40200 81825 84500 84500
CHAPTER 2: INSURANCE CLAIMS
Introduction
The stock kept in every business is subject to risk by loss of fire. To protect itself against
such loss the business takes up a fire insurance policy by paying premium. The chapter aims at computing the loss of stock by fire(based on closing stock on the date of fire), which can
thus be claimed as compensation from the insurance company. The following steps may be
followed to start with:
% of Gross profit on sales- this can be computed from the gross profit and sales figure of the trading account for the year prior to the year of fire GP * 100 Sales
Memorandum trading account- this trading account must be prepared from the beginning of the year of fire up to the date of fire. The GP must be calculated based on the same % as above and the balancing figure of this account will be the closing stock.
Calculation of claim- The final claim to be lodged with the insurance company must be calculated on the basis of the closing stock in the memorandum trading account as
Claim = Closing stock- Salvage+ fire fighting expenses.
Note: Salvage refers to goods saved from fire,
Fire fighting expenses are incurred to save goods from fire.
Example 1: (simple problem)
The premises of a trader caught fire on 01.07.2012 and the stock was damaged. The
following information is available:
Stock on 01.01.2011 Rs. 95000 Purchase return Rs.
Stock on 31.12.2011 Rs.150000 Sales return Rs.
Purchases for 2011 Rs.421000 wages Rs.
Sales for 2011 Rs.
Purchases from 01.01.2012 to 01.07.2012 is Rs.
Sales from 01.01.2012 to 01.07.2012 is Rs.
Additional information:
advertisement and promotion
3)Stock worth Rs.18000 could be salvaged; fire fighting expenses incurred to save the goods
was Rs.1000.
Prepare a statement of claim to be submitted to the insurance co.
Solution: Trading account for the year ended 31.12.
Particulars Rs. Particulars Rs. To, opening stock To, purchases 421000 -Returns 15000 To wages To, Gross profit
By,Sales 550000 -returns 30000
By, closing stock
Workings: % gross profit on sales = 104000 *100 =20% 520000
Memorandum Trading Account from 01.01.2012 to 01.07.
Particulars Rs Particulars Rs To, opening stock To purchases 350000 -Goods given as free sample 10000
To gross profit (495000* 20%)
By sales 491000 +unrecorded cash sale 4000
By, closing stock (bal.fig)
Statement of Claim
Value of closing stock on date of fire Rs. -Salvage Rs. Rs.
Workings: % Gross profit on sales = 464000 x 100 =20% 2320000
Memorandum Trading Account from 1.1.2012 to 14.04.
Particulars Rs Particulars Rs To opening stock To purchases To carriage inward To Gross profit (480000 x 20 %)
By Sales By Closing stock (bal.fig)
Stock destroyed by fire is ---- Closing stock Rs.
- Salvage of goods In good condition Rs. In damaged condition Rs. Rs.
Amount of claim = Policy value x Stock destroyed by fire
Stock on date of fire
= 342000 x 400000 =RS.
456000
Abnormal Line of Goods
Goods which cannot be sold at the normal price or which has a slow rate of turnover (due to
obsolescence or damage) are called as abnormal goods. It is important to note that the rate of
gross profit on sales is calculated only on the basis of normal goods. Hence a separate column is prepared in the trading and memorandum trading account for the abnormal line of goods.
EXAMPLE:3 (problem with abnormal line of goods)
On 30th^ September 2012,the stock of Armstrong Ltd.was lost in fire. Calculate amount of
claim from the following available information.
Stock at cost on 01.04.2011 Rs.
Stock at cost on 31.03.2012 Rs.
Purchases less returns for year ended 31.03.2012 Rs.
Sales less returns for year ended 31.03.2012 Rs.
Purchases less returns upto 30.09.2012 Rs.
Sales less returns upto 30.09.2012 Rs.
In valuing the stock on 31.03.2012 due to obsolescence, 50% of the stock originally costing
Rs.6000 had been written off. In May 2012, 3/4 th of the stock had been sold at 90% of the
original cost and it is expected that the balance of the abnormal goods will also realize the same price. Subject to the above the gross profit remained same throughout. Stock salvaged
was Rs.7200.
Solution:
Trading Account for the year ended 31.03.
Particulars Rs Particulars Rs To opening stock To purchases To gross profit
By Sales By closing stock 52000 +Written off 3000
Workings:
% gross profit on sales = 78750 x 100 = 25% 315000 Memorandum Trading Account from 01.04.2012 to 30.09.
Particulars Normal Abnorma l
Total Particulars Normal Abnormal Total
To opening stock To purchases
By gross profit (180000 x 25%)
By Sales
By gross loss By closing stock (6000 x ¼ x 90%)
(6000x ¾ x90 %)
600
1350
Note: The gross loss on abnormal stock has come as balancing figure.
Calculation of amount of claim: Closing stock on date of fire Rs. Less: Salvage Rs. 7200 Amount of claim Rs. 53150
Hire Purchase System refers to the system wherein, the seller of goods delivers the
goods to the buyer without transferring the ownership of goods till the last
installment is paid. Under this system the ownership will be transferred to the buyer on payment of the last installment. If the buyer makes any default the vendor has the right
to repossess the goods and the installments already paid will be treated as the Hire
Charges. The transaction may result in purchasing of goods by the buyer or in hiring
the goods. Hence the system is called Hire Purchase System.
Features or Characteristics of Hire Purchase System
Instalment System
Instalment Payment system is a system where the buyer gets the ownership as well as
possession of the goods at the time of signing the contract and the buyer can make the
payment in instalments.
Features of Installment System
Difference between Hire Purchase System & Installment System
Important terms
Hire Purchaser ---- the person who obtains the possession of goods for use with an option to either purchase it or return after use.
Hire Vendor ---- Person who owns the goods, and who parts with the possession of these
goods to the buyer with an option of Hire or Purchase.
Hire Purchase Price -----The total sum payable by the Hire Purchaser to the Hire Vendor
as per the agreement. It includes the Principal and interest.
Net Hire Purchase Price ---- Hire Purchase price less delivery charges, registration charges,
insurance if any included in the price.
Cash Price ---- It is the price of the goods at which the hire purchaser can purchase the goods for cash. It does not include interest.
Down Payment ---- Amount which is paid at the time of taking delivery of goods.
Difference between Hire Purchase & Sale
Hire Purchase Sale Governed by the Hire Purchase Act ,1972 Governed by the Sale of Goods Act, 1930 Ownership of goods is transferred to the buyer on payment of all installments
Ownership of goods is transferred to the buyer immediately. Payment is made in Installments Makes payment in Lumpusum Hire purchaser pays for the price of goods and also for interest
Buyer pays only for the price of goods.
On non- payment of any installment, the seller can repossess the goods
On non- payment of any installment , the seller cannot take back the goods. Buyer or Seller can terminate the contract at any point of time.
Neither the seller nor the buyer can terminate the contract.
Rebate: The hirer can claim rebate from the owner or hire vendor in case he decides to remit
the balance of the purchase price in lumpsum without continuing the hire purchase
Basis of Difference Hire Purchase System Installment System Nature of contract Contract of Hiring Contract of Sale Ownership Transferred after payment of all installments.
Transferred immediately on signing the contract. Repossession of goods
Hire vendor has the right to repossess the goods in case of default of payment
Seller cannot repossess the goods in case of default of payment. Return of Goods Buyer can exercise the option of return of goods
Buyer cannot exercise the option of return of goods. Risk of loss or damage to goods
Risk is on the seller Risk is on the buyer
