Intermediate Course

Study Material
(Modules 1 to 3)

Paper 1

Accounting
Module – 3

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
© The Institute of Chartered Accountants of India
 ii

This study material has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to
enable them to obtain knowledge in the subject. In case students need any
clarifications or have any suggestions to make for further improvement of the
material contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner
useful for the students. However, the study material has not been specifically
discussed by the Council of the Institute or any of its Committees and the views
expressed herein may not be taken to necessarily represent the views of the
Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this
material.

© The Institute of Chartered Accountants of India

All rights reserved. No part of this book may be reproduced, stored in a retrieval
system, or transmitted, in any form, or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without prior permission, in writing, from
the publisher.

Edition : September, 2021

Website : www.icai.org

E-mail : [email protected]

Committee/ : Board of Studies

Department

ISBN No. :

Price (All Modules) : `

Published by : The Publication Department on behalf of The

Institute of Chartered Accountants of India, ICAI
Bhawan, Post Box No. 7100, Indraprastha Marg, New
Delhi 110 002, India.

Printed by :

© The Institute of Chartered Accountants of India

 iii

CONTENTS

MODULE I

CHAPTER 1: Introduction to Accounting Standards

CHAPTER 2: Framework for Preparation and Presentation of Financial

Statements
CHAPTER 3: Overview of Accounting Standards

MODULE II

CHAPTER 4: Financial Statements of Companies

CHAPTER 5: Profit or Loss Pre and Post Incorporation

CHAPTER 6: Accounting for Bonus Issue and Right Issue

CHAPTER 7: Redemption of Preference Shares

CHAPTER 8: Redemption of Debentures

MODULE III

CHAPTER 9: Investment Accounts

CHAPTER 10: Insurance Claims for Loss of Stock and Loss of Profit

CHAPTER 11: Hire Purchase and Instalment Sale Transactions

CHAPTER 12: Departmental Accounts

CHAPTER 13: Accounting for Branches Including Foreign Branches

CHAPTER 14: Accounts from Incomplete Records

© The Institute of Chartered Accountants of India

 iv

DETAILED CONTENTS: MODULE – 3

CHAPTER 9: INVESTMENT ACCOUNTS ............................................... 9.1 – 9.46

Learning Outcomes ................................................................................................................ 9.1
Chapter Overview ................................................................................................................... 9.2
1. Introduction ................................................................................................................ 9.3
2. Classification of Investments ................................................................................. 9.3
3. Cost of Investments ................................................................................................... 9.5
4. Disposal of Investments .......................................................................................... 9.9
5. Reclassification of Investments ........................................................................... 9.32
Summary ................................................................................................................................. 9.33
Test Your Knowledge ........................................................................................................... 9.34

CHAPTER 10: INSURANCE CLAIMS FOR LOSS OF STOCK AND LOSS OF

PROFIT ......................................................................... 10.1 – 10.50
Learning Outcomes .............................................................................................................. 10.1
Chapter overview ................................................................................................................... 10.2
1. Introduction .............................................................................................................. 10.4
2. Meaning of Fire ....................................................................................................... 10.4
3. Claim for Loss of Stock .......................................................................................... 10.5
4. Claim for Loss of Profit ....................................................................................... 10.19
Summary .............................................................................................................................. 10.34
Test Your Knowledge ........................................................................................................ 10.37

CHAPTER 11: HIRE PURCHASE AND INSTALMENT SALE

TRANSACTIONS .......................................................... 11.1-11.49
Learning Outcomes .............................................................................................................. 11.1
Chapter Overview ................................................................................................................. 11.2
1. Introduction .............................................................................................................. 11.3
2. Nature of Hire Purchase Agreement ................................................................... 11.3

© The Institute of Chartered Accountants of India

 v

3. Special Features of Hire Purchase Agreement ................................................. 11.3

4. Terms Used in Hire Purchase Agreements. ....................................................... 11.4
5. Ascertainment of Cash Price ................................................................................ 11.5
6. Ascertainment of Interest ..................................................................................... 11.9
7. Accounting for Hire Purchase Transaction ................................................... 11.14
8. Repossession .......................................................................................................... 11.26
9. Instalment Payment System ............................................................................... 11.37
10. Difference of Hire Purchase Agreement and Instalment
Payment Agreement ........................................................................................... 11.38
Summary ............................................................................................................................... 11.40
Test Your Knowledge ........................................................................................................ 11.41

CHAPTER 12: DEPARTMENTAL ACCOUNTS ..................................... 12.1 – 12.35

Learning Outcomes .............................................................................................................. 12.1
Chapter Overview ................................................................................................................. 12.2
1. Introduction .............................................................................................................. 12.3
2. Advantages of Departmental Accounting ........................................................ 12.3
3. Methods of Departmental Accounting ............................................................. 12.4
4. Basis of Allocation of Common Expenditure among Different
Departments ............................................................................................................. 12.4
5. Types of Departments ........................................................................................... 12.6
6. Inter-Departmental Transfers .............................................................................. 12.6
7. Memorandum Stock and Memorandum Mark Up Account Method .... 12.19
Summary .............................................................................................................................. 12.23
Test Your Knowledge ........................................................................................................ 12.25

CHAPTER 13: ACCOUNTING FOR BRANCHES INCLUDING FOREIGN

BRANCHES ................................................................. 13.1 – 13.100
Learning Outcomes .............................................................................................................. 13.1
Chapter Overview ................................................................................................................. 13.2
1. Introduction .............................................................................................................. 13.2

© The Institute of Chartered Accountants of India

 vi

2. Distinction between Branch Accounts and Departmental Accounts ......... 13.3

3. Dependent Branches .............................................................................................. 13.4
4. Methods of Charging Goods to Branches ........................................................ 13.5
5. Accounting for Dependent Branches ................................................................ 13.5
6. Accounting for Independent Branches .......................................................... 13.40
7. Adjustment and Reconciliation of Branch& Head Office Accounts ........ 13.42
8. Incorporation of Branch Balance in Head Office Books ............................ 13.51
9. Incomplete Information in Branch Books ...................................................... 13.61
10. Foreign Branches .................................................................................................. 13.64
11. Accounting for Foreign Branches .................................................................... 13.64
12. Techniques for Foreign Currency Translation .............................................. 13.66
13. Change in Classification ..................................................................................... 13.68
Summary ............................................................................................................................... 13.75
Test Your Knowledge ........................................................................................................ 13.77

CHAPTER 14: ACCOUNTS FROM INCOMPLETE RECORDS ............. 14.1 – 14.69

Learning Outcomes .............................................................................................................. 14.1
Chapter overview .................................................................................................................. 14.2
1. Introduction .............................................................................................................. 14.3
2. Types ............................................................................................................................ 14.4
3. Ascertainment of Profit by Capital Comparison ............................................. 14.5
4. Techniques of Obtaining Complete Accounting Information ................. 14.16
Summary .............................................................................................................................. 14.49
Test Your Knowledge ........................................................................................................ 14.50

© The Institute of Chartered Accountants of India