IGNOU| ACCOUNTANCY - II (ECO - 14)| SOLVED PAPER – (DEC - 2023)| (BDP)| ENGLISH MEDIUM
BACHELOR’S DEGREE PROGRAMME (BDP)
Term-End Examination
December - 2023
ELECTIVE COURSE: COMMERCE
ECO–14
ACCOUNTANCY–II
Time: 2 Hours
Maximum Marks: 50
Weightage: 70%
Note: (i) Attempt four questions in all.
(ii) Question No. 1 is
compulsory.
हिंदी माध्यम: यहां क्लिक करें
1. Write short notes on the following: 5+5+4
(a)
Accounting Procedure of Inter- Department Transfer
Ans:- The
accounting procedure for inter-departmental transfers involves several steps:-
(i)
Determining the transfer price:
(a) The transfer
price is the price at which goods or services are transferred from one
department to another. It may be based on cost, market price, or cost plus a
margin of profit.
(ii)
Recording the inter-departmental transfer:
(a) The transfer
is recorded in the accounts of both the transferring (transferor) and receiving
(transferee) departments. The transferor department records sales, and the
transferee department records purchases.
(iii)
Accounting entries:
(a) The
transferor department debits the transferee department and credits its own
sales account.
(b) The
transferee department debits its purchases account and credits the transferee
department.
(iv)
Allocation of expenses:
(a) Expenses
such as rent, rates, taxes, repairs and maintenance are allocated to each
department on the basis of occupied floor area or time.
(b) Other
expenses such as wages, salaries and insurance are allocated to each department
on the basis of the time devoted or the value of assets used by each
department.
(v)
Elimination of Unrealised Profits:
(a) If the
transfer price includes a profit element, the unrealised profit in the unsold
inventory at the end of the year is eliminated by creating a stock reserve.
This reserve is credited, and the profit and loss account is debited.
(vi)
Departmental Profit and Loss Account:
(a) The sum of
inter-departmental transfers is disclosed in the departmental profit and loss
account to distinguish it from other items of expenditure.
(vii)
Control and Evaluation:
(a)
Inter-departmental transfers help in evaluating the performance of each
department and in establishing profit centres. This facilitates control over
the functioning of each department and the allocation of resources.
(viii)
Budgeting and Planning:
(a) The
information obtained from inter-departmental transfers is used to prepare
departmental budgets and to take decisions about resource allocation and
investment in each department.
(viii)
Budgeting and Planning:
(a) The
information obtained from inter-departmental transfers is used to prepare
departmental budgets and to take decisions about resource allocation and
investment in each department.
By following
these steps, organizations can effectively manage and account for
interdepartmental transfers, ensuring accurate financial reporting and informed
decision making.
(b) Buy-back
of shares
Ans:- Repurchase
of shares, also known as share buyback, is a corporate action in which a
company purchases its own outstanding shares from the market or from existing
shareholders. This process can be done in a variety of ways, including tender
offers, open market purchases and odd-lot buybacks.
Reasons for
buy-back:
Companies may
engage in share buybacks for a number of reasons:-
(i) Improve
earnings per share (EPS): By reducing the number of shares outstanding, EPS
increases, making the remaining shares more valuable.
(ii) Use of
excess cash: Companies with excess cash can use it to repurchase shares,
distributing the surplus to shareholders.
(iii) Boost
share price: Buybacks can increase the value of the remaining shares by
reducing the number of shares outstanding, making them more attractive to
investors.
(iv)
Consolidation: Share buybacks can help companies consolidate their equity
and improve their financial position.
(v) Return of
surplus cash: Companies can return surplus cash to shareholders through
buybacks, thereby improving their financial health.
Methods of
buy-back:
There are
several ways in which companies can buy back their shares:-
(i) Tender
offer: The company makes an offer to buy back shares at a certain price,
allowing shareholders to tender their shares.
(ii) Open
market purchase: The company buys back shares from the open market, often
through the stock exchange.
(iii) Odd-lot
buyback: The company buys back odd-lot shares from shareholders who hold a
small number of shares.
Conditions
and limitations:
The buyback
process is governed by the Companies Act, 2013 and SEBI guidelines. The main
conditions and limitations include:-
(i)
Authority: The company must have the necessary authority from the articles
of association or by passing a special resolution in the general meeting.
(ii)
Limitations: The company cannot buy back more than 25% of its paid-up
equity capital and free reserves in a financial year.
(iii)
Pricing: The buyback price must be higher than the current market price.
(iv)
Expiration: The shares bought back must be mandatorily extinguished and
destroyed within a specified period.
Tax
implications:
The company
buying back shares is responsible for paying all taxes on the buyback. The
transaction is reflected separately in the company's tax P&L, and there is
no additional tax liability.
Impact on
shareholders:
Shareholders
participating in the buyback may receive the buyback amount credited to their
primary bank account or trading account, depending on the method used.
(c)
Revaluation Account
Ans:-
Revaluation account is a nominal account, prepared to distribute and transfer
profits and losses arising due to increase and decrease in the book value of
assets and liabilities during change in profit sharing ratio, admission of
partner, retirement of partner and death of partner. Revaluation account is a
financial statement that shows the change in the value of assets and
liabilities of a company. It is usually used when there is a significant change
in the market value of the company's assets and liabilities. Revaluation
account is created to record any increase or decrease in the value of fixed
assets, such as land, buildings, machinery and investments. This adjustment is
made to reflect the economic reality of the assets, as their original purchase
cost may not accurately represent their current value.
2. What is the meaning of branch account? How many types
of branches are there? What are the rules of making record in them? 3+4+5
Ans:- Branch accounting refers to a system of
bookkeeping in which separate accounts are maintained for each branch or
operational location of an organization. This system allows for greater transparency
into the transactions, cash flows, and overall financial position and
performance of each branch. Branch accounting is particularly useful for
geographically dispersed corporations, multinationals, and chain operators, as
it enables tracking of profitability and efficiency for each location.
There are
two main types of branches in branch accounting:-
(i)
Dependent Branch: A dependent branch does not maintain its own set of
books. All records are maintained by the head office. The head office may use various
methods to keep the branch's accounts, such as the debtors system, the stock
and debtors system, the final accounting system, or the wholesale branch
system.
(ii)
Independent Branch: An independent branch maintains its own set of books.
It has the authority to make important decisions without constant approval from
the head office. Independent branches may be either domestic branches or
foreign branches.
The following
rules should be followed while preparing records in branch accounts:-
(i) All
transactions of the branch office should be recorded in the books of the branch
only. Head office will not record any transaction of the branch except goods
sent to the branch and cash remitted by the branch.
(ii) Goods
sent to the branch are recorded in the books of the head office by debiting the
branch account and crediting the goods sent to the branch account. In the books
of the branch, goods received from the head office are recorded by debiting the
goods account and crediting the head office account.
(iii) Cash
remitted by the branch to the head office is recorded in the books of the head
office by debiting the cash account and crediting the branch account. In the books
of the branch, cash remitted to the head office is recorded by debiting the
head office account and crediting the cash account.
(iv)
Expenditures incurred by the head office on behalf of the branch are recorded
in the books of the head office by debiting the branch account and crediting
the corresponding expense accounts. In the books of the branch, these expenses
are recorded by debiting the respective expense accounts and crediting the head
office account.
(v) Goods
returned by the branch to the head office are recorded in the books of the head
office by debiting the goods account and crediting the branch account. In the
books of the branch, goods returned to the head office are recorded by debiting
the head office account and crediting the goods account.
(vi) Goods
sold by the branch are recorded in the books of the branch by debiting the
debtors account and crediting the sales account. The head office does not
record these transactions.
(vii) Goods
returned by debtors to the branch are recorded in the books of the branch by
debiting the goods account and crediting the debtors account. The head office
does not record these transactions.
3. Under what circumstances a firm is dissolved? Explain the
order of settlement and accounting procedure on dissolution of the firm. 6+6
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