Advanced Financial Accounting Solved Question Paper 2023
Dibrugarh University BCOM 5th SEM CBCS Pattern
5 SEM TDC DSE COM (CBCS)
502 (GR-I)
2023 (November)
COMMERCE (Discipline
Specific Elective)
(For Honours and
Non-Honours)
Paper: DSE-502 (Group-I)
(Advanced Financial
Accounting)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks: 1x4=4
(1) A banking company cannot grant loan to any of its _______.
Ans: Directors
(2) _______ is prepared to know surplus or deficiency of life
insurance.
Ans: Valuation Balance sheet
(3) General insurance includes all types of insurance, except
_______ insurance.
Ans: Life insurance
(4) Investments are freely bought and sold in the _______ through
banks and brokers.
Ans: Stock exchanges
(b) Write True or False: 1x4=4
(1) Rebate on bills discounted for a banking company is an income.
Ans: False
(2) In case of marine insurance, the provision against unexpired
risk is 100% on net premium.
Ans: True
(3) Life insurance has an element both of protection and investment.
Ans: True
(4) Ex-interest price is less than the cum-interest price.
Ans: True
2.
Write short notes on (any four): 4x4=16
(a)
Rebate on Bills Discounted.
Ans: Rebate on Bills Discounted
and its Accounting Treatment
Discounting of bills means making the
payment of the bill before the maturity date of the bill. While making payment
of the bill, the bank deducts discount for the unexpired period for the amount
of the bill discounted. Such discount is called rebate on bills discounted. It
is treated as interest received in advance. In profit and loss account, closing
balance of rebate on bills discounted is deducted and opening balance of rebate
on bills discounted is added with the interest and discount for the year.
Closing balance of rebate on bills discounted is shown as liability in balance
sheet under the heading ‘other liabilities’. At the commencement of next year,
a reverse entry is passed for the unexpired discount of the previous year
expiring this year and treated as income.
Rebate on bills discounted is calculated with the help
of following formula = (Total annual discount x no. of days after the close of
the year)/365.
Accounting
treatment of Rebate on Bill Discounted
a) At the end of current accounting period:
Discount on Bills A/c Dr.
To Rebate on Bills discounted A/c
b) At the beginning of next accounting period:
Rebate on Bills discounted A/c Dr.
To Discount on Bills A/c
c) Transferring balance of interest and discount
to Profit and loss Account:
Discount on Bills A/c Dr.
To
Profit and Loss, A/c
(b) Bonus in Reduction of
Premium.
Ans: Bonus
in Reduction of Premium: Instead of paying bonus in cash, the insurer may
deduct the bonus from the premium due from the insured. This is known as bonus
in reduction of premium. If it is given in trial balance, then it is shown as
expense in revenue account. But if it is given as adjustment, then it is shown
both as expense and income in revenue account. The following journal entry is
passed:
Bonus
in reduction of Premium
A/c Dr.
To
Premium Account
(c) Fire Insurance.
Ans: Fire Insurance: Fire
insurance is a type of general insurance. A contract
of fire insurance is a contract where in the insurer, in consideration of the
premium paid, undertakes to compensate the insured for any loss or damage
caused by fire. It is a contract of indemnity. Fire insurance is short term in
nature and it is done for one year and thereafter renewed yearly.
(d) General Insurance.
Ans: Insurance contracts that do not come under
the ambit of life insurance are called general insurance. The different forms
of general insurance are fire, marine, motor, accident and other miscellaneous
non-life insurance. The tangible assets are susceptible to damages and a need
to protect the economic value of the assets is needed. For this purpose,
general insurance products are bought as they provide protection against
unforeseeable contingencies like damage and loss of the asset. Like life
insurance, general insurance products come at a price in the form of
premium.
Features of
General Insurance Companies:
a)
General Insurance policy is a
contract of indemnity in which the insurer agrees to reimburse only the actual
loss suffered subject to the average clause.
b)
General Insurance contract is
for a short period usually a year.
c)
The subject matter is any physical property, assets, ship or cargo
etc.
d)
General insurance has only the element of protection and not the
element of investment.
e) Insurable interest on the
subject matter must be present both at the time of effecting policy as well as
when the claim falls due.
(e) Balancing of
Investment Account.
Ans: Concerns holding a large number of investments may find it more
convenient to use a separate ledger called an Investment Ledger, for keeping
the accounts of all their investments. Such a ledger is kept on the columnar
system and is ruled differently from an ordinary ledger. As the issuing
authority of a security pays interest to the holder at a certain rate
calculated on its face value, it is desirable that the face value (also known
as the nominal value) as well as the interest or dividend received should appear
side by side with the capital invested in it. Therefore, the investment Ledger
is provided with three columns on either side headed ‘Nominal Value’,’ Interest
or Dividend’ and ‘Capital or Principal’.
Balancing the Investment
Account
When the whole of an investment has been sold, the difference
between the two sides of an Investment Account will be profit or loss on the
sale. Where only part of an investment has been sold during the year, the cost
of the remaining investment will be brought down as a balance in the Investment
Account and the difference between its two sides will be profit or loss on the
investments sold. When the investment is a fixed asset, any profit or loss made
on the sale thereof will be of a capital nature and should be treated accordingly.
Also Read: Advanced Financial Accounting Past Exam Question Papers
NON-CBCS PATTERN: 2012 2013 2014 2015 2016 2017 2018 2019
Also Read: Advanced Financial Accounting Past Exam Solved Question Papers
3.
(a) Explain the following items relating to a banking company: 3½ x 4 = 14
(1)
Statutory Reserve.
Ans: Statutory reserve is an amount of money which is set aside by
the banks or insurance companies out of profit every year to meet its unpaid
and contingent liabilities. As per Sec. 17, every banking company is require to
transfer at least 25% of its current year’s profit to statutory reserve.
Statutory reserve is shown in Schedule 2 (Reserve and Surplus) of Banking
Company’s Balance sheet. Statutory reserve is added with the opening balance of
previous year.
(2)
Non-banking Assets.
Ans: A banking company is not
allowed to deal directly/indirectly in the purchase/sale/barter of goods except
in connection with its legitimate banking business. But banks can always lead
against the security of the assets. The banks may have to take possession of
the asset given as security if the loanee fails to repay the loan. In that
case, the asset acquired in satisfaction of the claim of the bank will be shown
as an asset in the Balance Sheet under the heading ‘Other Fixed Assets’. Such
assets acquired should be disposed of within seven years as a banking company
is not allowed to hold such assets for any period exceeding seven years from
the date of their acquisition. P/L on sale of such assets is required to be
shown separately in the P/L A/c of the banks.
(3)
Statutory Liquidity Ratio.
Ans: Statutory liquidity ratio refers
to the amount that the commercial banks require to maintain in the form of gold
or government approved securities before providing credit to the customers.
Statutory Liquidity Ratio is determined and maintained by the Reserve
Bank of India in order to control the expansion of bank credit. It is
determined as % of total demand and time liabilities. Time Liabilities refer to
the liabilities, which the commercial banks are liable to pay to the customers
after a certain period mutually agreed upon and demand liabilities are such
deposits of the customers which are payable on demand. The maximum limit of SLR
is 40% and minimum limit of SLR is 15% In India. Present SLR is 18%.
If any Indian
bank fails to maintain the required level of Statutory Liquidity Ratio, then it
becomes liable to pay penalty to Reserve Bank of India. The defaulter bank pays
penal interest at the rate of 3% per annum above the Bank Rate, on the
shortfall amount for that particular day. But, according to the circular,
released by the Department of Banking Operations and Development, Reserve Bank
of India; if the defaulter bank continues to default on the next working day,
then the rate of penal interest can be increased to 5% per annum above the Bank
Rate.
(4)
Current Assets.
Ans:
Current Assets are those which are temporary in nature and it is used or
changed within one year. According to the new format of companies’ Balance
sheet current assets are divided into 6 parts:
(a)
Current investments
(b)
Inventories
(c) Trade
receivables
(d) Cash
and cash equivalents
(e) Short
term loans and advances
(f) Other current assets
Or
(b) From the following particulars, prepare Profit & Loss A/c of
Moon Light Bank Ltd. for the year ending on 31st March, 2023:
|
|
Rs. (‘000) |
|
Interest on Loans Interest on Cash Credits Discount on Bills Discounted (Net) Interest on Overdrafts Interest on Savings Bank Deposits Interest on Fixed Deposits Commission, Exchange and Brokerage Rent and Taxes Auditor’s Fees Postage and Internet Expenses Sundry Expenses Interest Charged against Current A/c Advertisement Cost Director’s Fees Printing and Stationery Law Charges Payment to Employees Locker’s Rent Transfer Fees Depreciation on Bank’s Property |
518 446 390 108 220 559 16 36 3 2 2 45 2 6 2 2 108 1 2 10 |
Additional Information:
|
|
Rs. (‘000) |
|
(i) Rebate on Bills Discounted (ii) Provision for Bad Debts (iii) Provision for Taxation |
90 50 10 |
Solution: Same Question Asked in 2016 and 2021
Solution: Same Question Asked in 2016. You can see solutions here
4. (a) Explain in brief
the following items relating to insurance business: 3½ x 4 = 14
(1) Outstanding premium.
Ans: Premium: The premium received during the accounting period plus
outstanding at the end of the period, plus bonus in reduction of premium minus
outstanding premium at the beginning of the period minus reinsurance premium is
to be shown under the heading “Premium earned (Net)” (Schedule1)
Outstanding premiums are those which are due for
payment but not yet collected by the insurance companies at the end of
accounting year. Outstanding premiums at the end is added with the net premium
and outstanding premiums in the beginning is deducted with the net premium.
(2)
Outstanding claim.
Ans: Claims: Any amount payable by the insurance
company is called a claim. In life insurance business, claims may arise due to
two reasons i.e. by death or maturity. While calculating the figure for claims,
all claims intimated & accepted or not accepted at the end of the year,
expenses relating to claims are to be added & out of the total, claims
outstanding at the beginning of the year and reinsurance recoveries are to be
deducted.
Outstanding claims are those which are arises but not
yet settled by the insurance companies at the end of accounting year. Outstanding
claims at the end is added with the net claims and outstanding claims in the
beginning is deducted with the net claims.
(3) Reversionary bonus.
Ans: Reversionary bonus: This type of bonus is calculated on the sum
assured only. This bonus is declared annually and is accrued to be paid out at
the time of a claim or maturity. A reversionary bonus is not paid
out immediately but is retained in the fund to enhance its maturity value while
a cash bonus or cash dividend is paid in cash, with no compounding of
interest. Insurer can reinvest cash bonus as per his will which is not
possible in case of reversionary bonus.
(4) Endowment Policy.
Ans: Endowment
policy: It runs only for a limited period or up to a particular age. Under
this policy the sum assured becomes payable if the assured reaches a particular
age or after the expiry of a fixed period called the endowment period or at the
death of the assured whichever is earlier. The premium under this policy is to
be paid up to the maturity of the policy, i.e., the time when the policy
becomes payable. Premium is naturally a little higher in the case of this
policy than the whole life policy. This is a very popular policy these days as
it serves the dual purpose of family and ole age pension.
Or
(b) (1) Distinguish
between ‘claim’s by death’ and ‘claims by maturity’ in the life insurance
business. 4
Ans:
A death claim in life insurance is a request for payment by the beneficiaries
when the policyholder passes away. On the other hand, a maturity claim is a
request by the policyholder for payment upon the policy's term completion.
(2) The Life Assurance Fund of an Insurance Company on 31st
March, 2023, showed a balance of Rs. 87,76,500. It was later found that the
following were not taken into account:
(a) Dividend from investment Rs. 4,80,000.
(b) Income tax on above Rs. 48,000
(c) Bonus in reduction of premium Rs. 8,77,500 (not taken as expense)
(d) Claims covered under reinsurance Rs. 4,23,000.
(e) Claims intimated but not accepted by the company Rs. 7,62,000.
Ascertain correct balance of fund. 10
3. Calculation of correct balance of Life Assurance Fund
|
Life Assurance Fund (+) Dividend from Investment (-) Income-Tax (-) Bonus in reduction of premium (+) Claim covered under Re-insurance (-) Claims intimated but not accepted by the Company
|
87,76,500 4,80,000 48,000 8,77,500 4,23,000 7,62,000 |
|
|
79,92,000 |
5. (a) Prepare a Revenue A/c in respect of fire insurance business
from the following details for the year ended on 31st March, 2023: 14
|
|
(Rs.) |
|
Reserve for unexpired risk on 01-04-2022 @ 50% Additional reserve on 01-04-2022 Estimated liability for claims intimated on: 01-04-2022 31-03-2023 Claims paid Legal expenses Medical Expenses Reinsurance recoveries Bad debts Premium received Premium on reinsurance accepted Premium on reinsurance ceded Commission on direct business Commission on reinsurance accepted Commission on reinsurance ceded Expenses of management Interest, dividend and rent Profit on sale of investments |
1,80,000 36,000 31,000 42,000 3,65,000 6,000 4,000 32,000 800 4,86,000 32,000 43,000 48,600 1,600 2,150 90,000 24,000 3,000 |
Create Reserve on 31st March, 2023 to the
same extent as on 1st April, 2022.
Or
(b) Explain the following items in the Annual Accounts of a General
Insurance Company: 3½ x 4 =
14
(1) Reinsurance recoveries.
(2) Profit on sale of investments.
(3) Interest and dividend outstanding.
(4) Agents’ balance.
6.
(a) (1) What is Investment Account? Discuss the special features of an
Investment Account. 2+6=8
Ans: Investment
Accounts: The accounts of investments are kept in the same way as the
accounts of any other asset. A separate investment account should be opened for
each kind of security and on the head of the account particulars regarding the
nature of the security, dates when interest or dividend is due, the date of
redemption etc. should be stated. When the number of investments carried is
large, a separate investment Ledger is employed for recording all investment
accounts.
Features of
Investment accounts:
1. It is a real account.
2. Investment account is divided into three columns.
The first column is of Nominal Value and in it on the
credit side is entered the nominal value of investments on hand and the totals
on both sides will then agree.
The second column is of Interest or Dividend and it
will always show a credit balance representing interest or dividend on
investments for the period and it will be carried to Profit and Loss Account.
The third column is for Capital or Principal. In this
column against the closing balance will be entered the value of securities is
hand and the difference of the two sides will show profit or loss on the sale
of investments during the period. Value of securities in hand is the lower of
cost and fair values as per Para 14 of AS – 13.
(2)
Distinguish between Cum-interest and Ex-interest. 6
Ans: Cum-interest and Ex-interest price
The term ‘Cum’ and ‘Ex’ are Latin words. ‘Cum’ means
with and ‘Ex’ means without. The term ‘Cum-interest’ and ‘Ex-interest’ relate
to debentures and bonds. Cum-interest can be expanded as inclusive of interest
and Ex-interest can be expanded as exclusive of interest. Cum
interest is the amount of interest accrued in the duration between the last
interest date and the settlement date or transaction date. The cum-interest
price includes not only the cost but also includes the interest accrued upto
the date of purchase, and when interest becomes due it would be the right of
the buyer to claim interest. Conversely, the quotation, Ex-interest, covers
only the cost of the debentures and the buyer is liable to pay additional
amount as interest accrued upto the date of purchase of debentures.
Difference between
Cum-interest and Ex-interest
|
Basis |
Cum-interest |
Ex-interest |
|
Meaning |
It means the
price of debentures with interest |
It means
price of debentures without interest. |
|
Right to
interest |
The buyer
gets the right to received interest paid after the sale. |
The seller
retains the right to receive interest accrued during his holding. |
|
Price |
The price is
higher than what would have to be paid otherwise. |
The price is
lower than what would have to be paid otherwise. |
|
Accrued
interest |
In case of
cum-interest nothing is payable for interest accrued. |
In case of
ex-interest, accrued interest is payable. |
Or
(b)
AK Investments held 600, 6% debentures of Rs. 100 each in JK Ltd. on 01-04-2022
at a cost of Rs. 72,000. Interest is payable on 30th June and 31st
December every year. On 1st June, 2022, 250 debentures were
purchased cum-interest at Rs. 37,750. On 1st November, 2022, 400
debentures were sold ex-interest at Rs. 46,250.
On
30th November, 2022, 250 debentures are purchased ex-interest for
Rs. 23,250. On 31st December, 2022, 350 debentures are sold
cum-interest at Rs. 42,000.
Prepare
Investment A/c for the year ended 31st March, 2023 valuing closing
stock at cost (using FIFO method) or market price whichever is less. Debentures
are quoted at Rs. 140 on 31st March, 2023. 14
Ans:
***
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