Institute of Chartered Financial Analysts of India (ICFAI) University 2008 C.A Chartered Accountant Solved PCC ACCOUNTS II - Question Paper
SOLVED PCC ACCOUNTS ques. PAPER NOV 2008
PAPER - I : ADVANCED ACCOUNTING
Answer all questions.
Wherever applicable, appropriate suitable assumptions should be made by the candidate. Working notes should form part of the answer.
Question 1
The Balance Sheet of R Ltd., at March, 2008 was as follows:
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Note: The arrears of preference dividends amount to Rs. 51,200. |
A scheme of reconstruction was duly approved with effect from 1st April, 2008 under the
conditions stated below:
(a) The unpaid amount on the equity shares would be called up.
(b) The preference shareholders would forego their arrear dividends. In addition, they would accept a reduction of Rs. 2.5 per share. The dividend rate would be enhanced to 10%.
(c) The equity shareholders would accept a reduction of Rs. 7.5 per share.
(d) R Ltd. holds 21,600 shares in Q Ltd. This represents 15% of the share capital of that company. Q Ltd. is not a quoted company. The average net profit (after tax) of the company is Rs. 2,50,000. The shares would be valued based on 12% capitalization rate.
(e) A bad debt provision at 2% would be created.
(f) The other assets would be valued as under:
Rs.
Intangibles 48,000
Plant 1,40,000
Freehold premises 3,80,000
Stocks 2,50,000
(g) The profit and loss account debit balance and the balance standing to the debit of the deferred revenue expenditure account would be eliminated.
(h) The directors would have to take equity shares at the new face value of Rs. 2.5 per share in settlement of their loan.
(i) The equity shareholders, including the directors, who would receive equity shares in settlement of their loans, would take up two new equity shares for every one held.
(j) The preference shareholders would take up one new preference share for every four held.
(k) The authorised share capital would be restated to Rs. 14,00,000.
(l) The new face values of the shares-preference and equity will be maintained at their reduced levels.
You are required to prepare:
(i) Necessary ledger accounts to effect the above; and
(ii) The Balance Sheet of the company after reconstruction. (16 Marks)
Answer
In the books of R Ltd. Ledger Accounts Capital Reduction Account | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
To Capital reduction account To Balance c/d |
Equity Share Capital Account Rs. 1.60.000 60,000 4.40.000 11,40,000 4.80.000 By Balance b/d 6.60.000 By Bank account - final call (64,000 x Rs.2.5) By Loan from Directors account By Bank account [(64,000+24,000) x2 x _ Rs.2.5] 11.40.000 By Balance b/d |
8% Cumulative Preference Share Capital Account
Rs.
Rs.
6,40,000
6.40.000
Rs.
2.08.000
5,12,000
7,20,000
Rs.
4.80.000
1.20.000 6,00,000 6,00,000
To |
10% Cumulative preference share capital account |
4,80,000 |
By |
Balance b/d |
To |
Capital reduction account |
1,60,000 6,40,000 | ||
Bank Account | ||||
Rs. | ||||
To |
Equity share capitall account |
1,60,000 |
By |
Balance b/d (overdraft) |
To |
Equity share capital account |
4,40,000 |
By |
Balance c/d |
To |
10% Cumulative preference share capital account |
1,20,000 7,20,000 | ||
To |
Balance b/d |
5,12,000 |
10% Cumulative Preferences Share Capital Account
Rs.
To Balance c/d 6,00,000 By 8% Cumulative preference
share capital account
_ By Bank (16,000 x Rs. 7.5)
By Balance b/d
Balance Sheet of R. Ltd. (and Reduced) as at 1 April, 2008
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Working Notes: Rs.2,50,000 15 |
1. Valuation of investments in shares of Q Ltd. =
=Rs.3,12,500
100
.12
2. Reduction in the value of investment in shares of Q Ltd.
Rs.3,24,000 - Rs.3,12,500 = Rs.11,500.
Question 2
(a) The books of Mr. Z showed the following information:
1.1.2007 (Rs.)
31.12.2007 (Rs.)
50.000
87.500
46.000
62.500 9,000
Rs.
3.40.000
2.80.000 5,000 1,750
49,250
Bank balance --
Debtors --
Creditors --
Stock 50,000
Fixed assets 7,500
The following are the details of the bank transactions:
Receipt from customers Payments to creditors Capital brought in Sale of fixed assets Expenses paid
Drawings
Purchase of fixed assets Other informations:
(i) Cost of goods sold
(ii) Gross profit 25% on cost of goods sold
(iii) Book value of assets sold Rs.2,500 Prepare Trading, Profit and Loss account for the year ended 31.12.2007 and Balance Sheet as at 31.12.2007. (8 Marks)
Prepare Revenue Account in proper form for the year ended 31st March, 2008, from the following particulars related to Krishna General Insurance Co. for the year ended 2007 -2008:
Rs.2,60,000
(b)
Premiums: Amount received Receivable at the beginning Receivable at the end Amount paid Payable at the beginning Payable at the end Claims: Amount paid Payable at the beginning Payable at the end Amount recovered Receivable at the beginning Receivable at the end Commission: Amount paid Amount received Additional information: (i) Interest, dividend and rent received Income-tax in respect of above |
Related to Reinsurance (Rs.) 2.40.000 24.000 36.000 3.60.000 30.000 42.000 1.80.000 12.000 18,000 1,20,000 18,000 12,000 10,800 14,400 (Rs.) 30,00,000 2,40,000 18,00,000 1,20,000 72,000 |
Management expenses including Rs. 12,000 related to legal
expenses regarding claims 1,32,000
Provision for income tax existing at the beginning of the year was Rs. 1,95,000, the income-tax actually paid during the year Rs. 1,68,000 and the provision necessary at the year end Rs. 2,07,000.
(iii)
(iv)
The net premium income of the company during the year 2006 - 2007 was Rs.
24,00,000 on which reserve for unexpired risk @ 50% and additional reserve @ 7 %% was created. This year, the balance to be carried forward is 50% of net
premium on reserve for unexpired risk and 5% on additional reserve.
(8 Marks)
Answer
(a)
Trading and Profit & Loss Account for the year ended 31.12.2007
Dr.
To
To
To
To
To
To
To
Cr.
Rs.
3,25,000
62,500
3,87,500
65,000
By
By
By Gross profit
65.000
Rs.
9,000
87.500
62.500
50.000
Balance Sheet as at 31.12.2007
Opening stock Purchases (W.N.7)
Gross profit (W.N.6)
Expenses
Loss on sale of fixed asset Depreciation on fixed assets Net Profit
Liabilities
Capital as on 1.1.2007 Add: Net profit
Additional capital
Less: Drawings Creditors
Rs.
50.000
2.72.500
65.000
3.87.500 49,250
750
1,000
14.000
65.000
Rs.
1.69.000
14.000 5,000
1.88.000
25.000
1.63.000 46,000
2.09.000
Rs..
Assets Fixed Assets Debtors Stock Bank
Sales (W.N.8) Closing stock
Working Notes:
1. Balance Sheet as at 1.1.2007
Liabilities Rs. Assets Rs.
Capital (Bal. Fig.) |
1,69,000 Fixed Assets |
7,500 |
Creditors |
53,500 Debtors |
1,02,500 |
Stock |
50,000 | |
Bank Balance |
62,500 | |
2,22,500 Bank account |
2,22,500 | |
Dr. |
Cr. | |
Rs. |
Rs. | |
To Balance b/d (Bal. Fig.) |
62,500 By Creditors |
2,80,000 |
To Debtors |
3,40,000 By Expenses |
49,250 |
To Capital |
5,000 By Drawings |
25,000 |
To Fixed Assets |
1,750 By Fixed Assets (purchased) |
5,000 |
By Balance c/d |
50,000 | |
4,09,250 Debtors account |
4,09,250 | |
Dr. |
Cr. | |
Rs. |
Rs. | |
To Balance b/d (Bal. Fig.) |
1,02,500 By Bank |
3,40,000 |
To Sales (W.N.8) |
3,25,000 By Balance c/d |
87,500 |
4,27,500 Creditors account |
4,27,500 | |
Dr. |
Cr. | |
Rs. |
Rs. | |
To Bank |
2,80,000 By Balance b/d (Bal. Fig.) |
53,500 |
To Balance c/d |
46,000 By Purchases (W.N.7) |
2,72,500 |
3,26,000 |
3,26,000 |
Dr.
To
To
Cr.
Rs.
1,750
750
1,000
9,000
12,500
Balance b/d Bank
Fixed Assets account | |||||||||||||||
| |||||||||||||||
12,500 |
6. Gross Profit
Rs.2,60,000 x 25% = Rs. 65,000.
7. Cost of goods sold
Cost of goods sold = Opening stock + Purchases - Closing stock Rs.2,60,000 = Rs.50,000 + Purchases - Rs.62,500 Purchases = Rs. 2,72,500.
8. Sales
Sales = Cost of goods sold + gross profit = Rs.2,60,000 + Rs.65,000 = Rs.3,25,000.
(b) FORM B - RA
Name of the Insurer : Krishna General Insurance Company
Registration no. and date of registration with IRDA :..............
Revenue Account for the year ended 31.3.2008
Particulars Schedule
Amount (Rs.) 27,03,000
30,000
27.33.000
19.44.000 68,400
1. Premium earned (Net) 1
2. Profit/Loss on sales/Redemption of investment -
3. Other -
4. Interest, dividend & rent (Gross) -
Total (A)
1. Claims incurred (Net) 2
2. Commission 3
3. Operating expenses related to insurance business 4
Total (B)
Operating profit/Loss from insurance business
(C) = (A-B) 6,00,600
Appropriation:
T ransfer to Shareholders account -
Transfer to Catastrophe Reserve -
T ransfer to other reserves _-
Total (D) _-
Schedule - 1 Premium Earned (Net)
Particulars Rs.
Premium received from direct business (W.N.1) 30,60,000
Add: Premium on reinsurance accepted (2,40,000 + 36,000 - 24,000) 2,52,000
33.12.000
Less: Premium on reinsurance ceded (3,60,000 + 42,000 - 30,000) 3,72,000
Net Premium 29,40,000
Adjustment for change in reserve for unexpired risk (W.N.2) 2,37,000
Total premium earned (Net) 27,03,000
Schedule - 2 Claims Incurred (Net)
Particulars Rs.
Claims paid (Direct) 18,00,000
Add: Legal expenses regarding claims 12,000
18.12.000
Add: Reinsurance Accepted 1,80,000
19.92.000
Less: Reinsurance ceded (1,20,000 + 12,000-18,000) 1,14,000
18.78.000
Add: Claims outstanding at the end (1,20,000 + 18,000) 1,38,000
20.16.000
Less: Claims outstanding at the beginning (60,000 + 12,000) 72,000
Total claim incurred 19,44,000
Schedule -3 Commission
Particulars Rs.
Commission paid Direct 72,000
Add: Re-insurance accepted 10,800
Less: Re-insurance ceded 14,400
Net commission 68,400
Schedule - 4 Operating Expenses related to Insurance Business
Particulars
Rs.
1.20.000
Expenses of management (1,32,000 - 12,000)
1,20,000
Working Notes:
1. Calculation of premium received from direct business
Rs.
30,00,000
2.40.000
32.40.000
1.80.000
30.60.000
Premium on direct business Add: Premium outstanding at the end
Less: Premium outstanding at the beginning
2. Computation of change in reserve for unexpired risk
Rs.
14.70.000
1.47.000
16.17.000
12,00,000
1.80.000 2,37,000
Reserve for unexpired risk for the year 2007-08 (29,40,000 x 50%)
Add: Additional reserve for unexpired risk for the year 2007-08 (29,40,000 x 5%)
Less: Reserve for unexpired risk for the year 2006-07 (24,00,000 x 50%)
Additional reserve for unexpired risk for the year (24,00,000 x 7.5%)
Question 3
(a) The Articles of Association of S Ltd. provide the following:
(i) That 20% of the net profit of each year shall be transferred to reserve fund.
(ii) That an amount equal to 10% of equity dividend shall be set aside for staff bonus.
(iii) That the balance available for distribution shall be applied:
(a) in paying 14% on cumulative preference shares.
(b) in paying 20% dividend on equity shares.
(c) one-third of the balance available as additional dividend on preference shares and 2/3 as additional equity dividend.
A further condition was imposed by the articles viz. that the balance carried forward shall be equal to 12% on preference shares after making provisions (i), (ii) and (iii)
mentioned above. The company has issued 13,000, 14% cumulative participating preference shares of Rs. 100 each fully paid and 70,000 equity shares of Rs. 10 each fully paid up.
The profit for the year ended 31st March, 2008 was Rs.10,00,000 and balance brought from previous year Rs. 80,000. Provide Rs. 31,200 for depreciation and Rs. 80,000 for taxation before making other appropriations. Prepare Profit and Loss Account.
(8 Marks)
(b) Wye sells goods on Hire-purchase at cost plus 50%. Prepare Hire Purchase Trading Account from the information given below:
Rs. | |
Stock with customers on hire-purchase price (opening) |
1,62,000 |
Stock in hand at shop (opening) |
3,24,000 |
Instalments overdue (opening) |
1,35,000 |
Purchases during the year |
10,80,000 |
Goods repossessed (instalments not due Rs. 36,000) |
9,000 |
Stock at shop excluding repossessed goods (closing) |
3,60,000 |
Cash received during the year |
10,35,000 |
Installments overdue (closing) |
1,62,000 |
The vendor spent Rs. 2,000 on goods repossessed and then sold it for Rs. 15,000. | |
(8 Marks) |
Answer
(a) Profit and Loss Account
for the year ended 31st March, 2008
Rs. |
Rs. | ||||
To |
Depreciation |
31,200 |
By |
Profit |
10,00,000 |
To |
Provision for income tax |
80,000 | |||
To |
Net profit c/d |
8,88,800 | |||
10,00,000 |
10,00,000 | ||||
To |
Reserve fund |
1,77,760 |
By |
Balance b/d |
80,000 |
To |
Proposed preference dividend (1,82,000 + 93,450) |
2,75,450 |
By |
Net profit b/d |
8,88,800 |
To |
Proposed equity dividend (1,40,000 + 1,86,900) |
3,26,900 | |||
To |
Bonus to employees (14,000 + 18,690) |
32,690 | |||
To |
Balance c/d |
1,56,000 |
Working Note:
Balance of amount available for Preference and Equity shareholders and Bonus for Employees
Credit side total
9,68,800
6,69,760
2,99,040
Less: Dr. side [1,77,760 + 1,82,000+1,40,000+14,000 + 1,56,000]
Suppose remaining balance after staff bonus is x
1 1
Preference shareholders will get share from remaining balance = x x 3=3 x
2 2
Equity shareholders will get share from remaining balance = x x-= x
3 3
Bonus to Employees = x x 4=x 3 100 30
2 1 2
- x+- x+ x=2,99,040 3 3 30
32 x = 89,71,200
x = 89,71,200/32 = Rs.2,80,350
1
Share of preference shareholders = Rs. 2,80,350 x 3 = Rs.93,450
2
Share of equity shareholders = Rs.2,80,350 x 3 = Rs.1,86,900
Bonus to employees = Rs.2,80,350 x = Rs.18,690
30
Hire Purchase Trading Account
(b)
Rs. |
Rs. | ||||
To |
Opening balance |
By |
Cash received (on Instalments) |
10,35,000 | |
Hire Purchase Debtors |
1,35,000 |
By |
Stock reserve (Opening) (W.N.2) |
54,000 | |
Hire Purchase Stock |
1,62,000 |
By |
Goods sold on hire |
5,22,000 | |
(Instalments overdue) |
purchase (loading) (W.N.1) | ||||
To |
Goods sold on hire purchase (W.N.1) |
15,66,000 |
By |
Cash received (on sale of re-possessed goods) |
15,000 |
To |
Cash (Expenses) |
2,000 |
By |
Closing balance | |
To |
Stock reserve (closing) (W.N.5) |
2,10,000 |
Hire Purchase Stock (Inst. Overdue) (W.N.4) |
6,30,000 | |
To |
Profit and loss account |
3,43,000 24,18,000 |
Hire Purchase Debtors |
1,62,000 24,18,000 |
Working Notes:
1. Memorandum Stock at Shop Account
Particulars Rs. Particulars
Rs.
10,44,000
3,60,000
To Balance b/d 3,24,000 By Goods sold on hire
purchase account (at cost)
To Purchases (at cost) 10,80,000 By Balance c/d
14,04,000
Goods sold on hire purchase account at invoice price (10,44,000 x 150%) Loading Rs.15,66,000 - Rs.10,44,000
2. Opening Stock reserve
1,62,000
-x 50 = Rs.54,000
150
Hire Purchase Debtors Account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
4 |
|
5. Closing stock reserve
3.
Question 4
(a) S and T were carrying on business as equal partners. Their Balance Sheet as on 31st March, 2008 stood as follows:
Liabilities |
Rs. |
Assets |
Rs. | |
Capital accounts: |
Stock |
2,70,000 | ||
S |
6,40,000 |
Debtors |
3,65,000 | |
T |
6.60.000 |
13,00,000 |
Furniture |
75,000 |
Creditors |
3,27,500 |
Joint life policy |
47,500 | |
Bank overdraft |
1,50,000 |
Plant |
1,72,500 | |
Bills payable |
62,500 |
Building |
9,10,000 | |
18,40,000 |
18,40,000 |
The operations of the business were carried on till 30th September, 2008. S and T both withdrew in equal amounts, half the amount of profits made during the current period of 6 months after 10% per annum had been written off on building and plant and 5% per annum written off on furniture. During the current period of 6 months, creditors were reduced by Rs. 50,000, Bills payable by Rs. 11,500 and Bank overdraft by Rs. 75,000. The Joint Life policy was surrendered for Rs. 47,500 on 30th September, 2008. Stock was valued at Rs. 3,17,000 and debtors at Rs. 3,25,000 on 30th September, 2008. The other items remained the same as on 31st March, 2008.
On 30th September, 2008 the firm sold its business to ST Ltd. The value of goodwill was estimated at Rs.5,40,000 and the remaining assets were valued on the basis of the Balance Sheet as on 30th September, 2008. The ST Ltd. paid the purchase consideration in equity shares of Rs.10 each. You are required to prepare a Realization Account and Capital accounts of the partners. (8 Marks)
(b) From the following details, calculate consequential loss claim:
1. Date of fire: 1st September;;
2. Indemnity period: 6 months;
3. Period of disruption : 1st September to 1st February;
4. Sum insured: Rs. 1,08,900;
5. Sales were Rs. 6,00,000 for preceding financial year ended on 31st March;
6. Net profit for preceding financial year Rs. 36,000 plus insured standing charges Rs. 72,000;
7. Rate of Gross profit 18%;
8. Uninsured standing charges Rs. 6,000;
9. Turnover during the disruption period Rs. 67,500;
10. Annual turnover for 12 months immediately preceding the date of fire Rs. 6,60,000;
11. Standard turnover i.e. for corresponding months (1st September to 1st February) in the year preceding the date of fire Rs. 2,25,000;
12. Increase in the cost of working capital Rs. 12,000 with a saving of insured standing charges Rs. 4,500 during the disruption period;
13. Reduced turnover avoided through increase in working capital Rs. 30,000;
14. Special clause stipulated:
(a) Increase in rate of G.P. 2%.
(b) Increase in turnover (standard and annual) 10%. (8 Marks)
Answer
Realisation Account
Rs. Particulars
(a)
Particulars
Rs.
2,77,500
51.000
75.000 18,80,000
To Sundry assets: By
Creditors
Bills payables
Bank overdraft
Shares in ST Ltd. (W.N. 3)
Stock 3,17,000 By
Debtors 3,25,000 By
Plant 1,63,875 By
Building
Furniture
Profit:
S
T
8,64,500
73,125
To
2.70.000
2.70.000
5.40.000
22,83,500
22,83,500
Partners Capital Accounts | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
By Realisation A/c (Profit) 2,70,000 |
6,60,000
40,000
2,70,000
Working Notes:
1. Ascertainment of capital as on 30th September, 2008
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2. Profit earned during six months ended 30 September, 2008 Rs. |
Total capital (of S and T) on 30th September, 2008 (W.N.1) 13,40,000
Capital on 1st April, 2008
S 6,40,000
T 6,60,000 13,00,000
Net increase (after drawings) 40,000
Since drawings are half of profits therefore, actual profit earned is Rs.40,000 x 2 = Rs.80,000 (shared equally by partners S and T).
Half of the profits, has been withdrawn by both the partners equally i.e. drawings Rs. 40,000 (Rs.80,000 x %) withdrawn by S and T in 1:1 (i.e. Rs.20,000 each).
3. Purchase consideration Rs.
Total assets (W.N.1) 17,43,500
Add: Goodwill 5,40,000
22,83,500
Less: Liabilities (2,77,500 + 51,000 + 75,000) 4,03,500
Purchase consideration 18,80,000
Note: The above solution is given on the basis that reduction in bank overdraft is after surrender of Joint life policy. Alternatively, the reduction in bank overdraft may be taken as before surrender of joint life policy. Accordingly, the solution will change.
(b) Computation of the amount of claim for consequential loss
(i) Calculation of short sales Rs.
Standard turnover for the period 1st September to 1st October 2,25,000 (preceding year)
Add: Increase of 10% due to upward trend 22,500
Adjusted turnover 2,47,500
Less: Actual turnover during disruption period i.e. 1st September to
1st October (following year) 67,500
1,80,000
(ii) Increased rate of G.P. = 18% + 2% = 20% on sales.
(iii) Loss of profit on short sales = 20% of Rs.1,80,000 = Rs.36,000.
(iv) Calculation of claim for increased cost of working capital
Increased cost of working will be lower of Rs.
(i) Actual expenses 12,000
G.P.on Annual turnover
(ii) Additional expenses x 12,000 x
G.P.on Annual turnover + Uninsured standing charges
1,45,200 11,523
1,45,200 + 6,000
(iii) G.P. on additional sales = 30,000 x 20% 6,000 Rs. 6,000 is lower of above three, so additional expenses would be Rs. 6,000.
Net claim for increased cost of working capital = Rs.6,000 minus savings in insured standing charges
= Rs.6,000- Rs.4,500 = Rs.1,500
(v) Calculation of adjusted annual sales Rs.
Sales for 12 months preceding the date of fire 6,60,000
Add: 10% of increase in trend 66,000
Adjusted Annual Sales 7,26,000
(vi) Insurable Amount i.e gross profit on adjusted annual sales Rs.
Adjusted annual sales 7,26,000
Rate of Gross Profit 20%
Insurable amount (Rs.7,26,000 x 20%) 1,45,200
(vii) Amount of Insurance Claim
Insured Amount
x TotalLoss(Loss of profit + Claim for increased cost)
Insurable Amount 1,08,900
x (36,000 +1,500)
1,45,200
= Rs.28,125.
Question 5
Answer the following:
(i) The company finds that the stock sheets of 31.3.2007 did not include two pages containing details of inventory worth Rs. 20 lakhs. State, how will you deal with this matter in the accounts of A Ltd. for the year ended 31st March, 2008 with reference to AS 5.
(ii) Mention four assets, in respect of which AS 6 (revised) is not applicable.
(iii) Y Ltd. used certain resources of X Ltd. In return X Ltd. receives Rs. 10 lakhs and Rs. 15 lakhs as interest and royalties respectively, from Y Ltd. during the year
2007 -2008. State on what basis X Ltd. should recognize their revenue, as per AS 9.
(iv) Mention two categories of investments defined by AS 13 and also state their valuation principles.
(v) X Ltd. sold goods to its associate company for the 1st quarter ending 30.6.2007. After that, the related party relationship ceased to exist. However, goods were supplied as was supplied to any other ordinary customer. Decide whether transactions of the entire year has to be disclosed as related party transaction.
(vi) Consider the following data pertaining to three underwriters, Ajay, Samay and Vijay:
| ||||||||||||
If total applications received are for 44,800 shares, compute the final liability of Vijay. |
(vii) P, Q and R share profit and losses in the ratio of 4:3:2 respectively. Q retires and P and R decide to share future profits and losses in the ratio of 5:3. Then immediately H is admitted for 3/10 share of profits half of which was gifted by P and the remaining share was taken by H equally from P and R. Calculate the new profit sharing ratio after Hs admission and gaining ratio of P and R after Qs retirement.
(viii) What is Fund Based Accounting under not-for-profit organisations?
(ix) In X Bank Ltd., the doubtful asset (more than 3 years) as on 31.3.2008 is Rs. 1,000 lakhs. The value of security (including DICGC 100% cover of Rs.100 lakhs) is ascertained at Rs.500 lakhs. How much provision must be made in the books of the Bank towards doubtful assets?
(x) Give the four qualitative characteristics which the financial statements should observe.
(xi) On 1st April, X purchased 12% debentures in M Ltd. for Rs.6,50,000. The face value of these debentures were Rs.6,00,000. Interest on debentures falls due on 30th June and 31st December. Compute the cost of acquisition of debentures.
(xii) Goods worth Rs.50,000 sent by head office but the branch has received till the closing date goods worth Rs.40,000 only. Give journal entry in the books of H.O. and branch for goods in transit. (12 x 2 = 24 Marks)
Answer
(i) As per para 16 of AS 5 on 'Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies', omission of two pages containing details of inventory worth Rs.20 lakhs in 31.3.2007 is a prior period item.
As per para 19 of the standard, prior period items are normally included in the determination of net profit or loss for the current period. Accordingly, Rs.20 lakhs must be added to opening stock of 1.4.2007. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss.
(ii) AS 6 on 'Depreciation Accounting', is not applicable in respect of following assets:
(a) Forest, plantations and similar regenerative natural resources.
(b) Goodwill.
(c) Livestock.
(d) Wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources.
(iii) As per AS 9 on 'Revenue Recognition', interest of Rs.10 lakhs received in the year 2007
2008 should be recognized on the time proportion basis taking into account the amount outstanding and the rate applicable; whereas royalty of Rs.15 lakhs received in the same year should be recognized on accrual basis as per the terms of relevant agreement.
(iv) As per para 7 and 8 of AS 13 'Accounting for Investments', there are two categories of investments, viz., Current Investments and Long Term Investments.
According to para 14 of the standard, the carrying amount for current investments is the lower of cost and fair value whereas para 17 states that Long Term Investments are valued at cost less permanent diminutions in value of investment. For current investments, para 16 of the standard states that, any reduction to fair value and any reversals of such reductions are included in the profit and loss statement.
(v) As per para 23 of AS 18 'Related Party Disclosures', transactions of X Ltd., with its associate company for the first quarter ending 30.6.2007 only are required to be disclosed as related party transactions. The transactions for the period in which related
party relationship did not exist need not to (vi) Particulars Shares underwritten applications (in the ratio 1:2:3) Less: Marked applications Less: Surplus of Ajay's share (in the ratio 2:3) Final liability |
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(vii) (a) Calculation of new profit sharing ratio after Hs admission
3 1
x 10 2
31
x 10 4
5 __3__J3_ 8 20 40
25 _ 6 _ 3 16
40
40
31
x 10 4
3 3 15 _ 3 12
8 40 40 40
3 3 4 12 H = or x = 10 10 4 40
Hence,
New Ratio of P : R : H 16:12:12 Or 4:3 : 3
(b) Calculation of gaining ratio of P and R after Qs retirement
5 4 45 - 32 13
P = ---=
8 9 72
72
3 2 27 -16 11
R = ---=
8 9 72
72
Hence, gaining ratio is 13:11.
(viii) Fund based accounting essentially involves preparation of financial statements fund-wise. Not-for-profit organisations, particularly educational institutions, sometimes maintain separate account or fund for specific activities of the organisation such as sports prizes, refreshments, and presentation of information in financial statements is made fund wise. In such cases, contribution and donations for income from and expenses on those activities are not recorded in income and expenditure account but are directly adjusted in specific fund account.
Doubtful Assets (more than 3 years)
(ix)
(Rs. in lakhs) 1,000 400 600 100 500
500 lakhs 400 lakhs 900 lakhs
Less: Value of security (excluding DICGC cover)
Less: 100% DICGC cover of Rs.100 lakhs Unsecured portion Provision thereon:
for unsecured portion @ 100% for secured portion @ 100% w.e.f 31.3.2007 Total provision to be made
(x) The financial statements should observe the following qualitative characteristics:
(a) Understandability
(b) Relevance
(c) Reliability
(d) Comparability.
(xi) Computation of cost of acquisition of debentures
Rs.
Cum- interest purchase price of debentures 6,50,000
Less: Interest from the last date of payment of interest to the date of
3 12
purchase i.e. for 3 months 6,00,000x x
12 100
18,000
Cost of debentures at the time of acquisition 6,32,000
(xii) Journal entry in the books of Head Office
No entry
Journal entry in the books of Branch
Rs. Rs.
Goods-in-transit account Dr. 10,000
To Head Office account 10,000
(Being goods sent by head office is still in transit)
Question 6.
Answer any three of the following:
(a) From the following information of Great Bank Limited, compute the provisions to be made in the Profit and Loss account:
Rs. in lakhs
Assets
Standard 20,000
Substandard 16,000
Doubtful
For one year (secured) 6,000
For two years and three years (secured) 4,000
For more than three years (secured by mortgage of
plant and machinery Rs.600 lakhs) 2,000
Non-recoverable Assets 1,500
(b) R had the following bills receivable and bills payable against S. Calculate average due date when the payment can be made or received without any loss or gain of interest to either party.
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September, 2008. |
(c) Exchange Rate per $
Goods purchased on 1.1.2007 of US $ 10,000 Rs.45
Exchange rate on 31.3.2007 Rs.44
Date of actual payment 7.7.2007 Rs.43
Ascertain the loss/gain for financial years 2006-07 and 2007-08, also give their treatment as per AS 11.
(d) What are the advantages of customised accounting packages?
(e) What is B list contributory? (3 x 4 = 12 Marks)
Answer
Calculation of amount of provision to be made in the Profit and Loss Account
(a)
Classification of Assets Standard assets Sub-standard assets Doubtful assets: For one year (secured) For two to three years (secured) For more than three years (unsecured) (secured) Non-recoverable assets (Loss assets) Total provision required |
Amount of advances (Rs. in lakhs) 20,000 16,000 6,000 4,000 1,400 600 1,500 |
Amount of provision (Rs. in lakhs) 80 1,600 1,200 1,200 1,400 600 1,500 7,580 |
(b) Calculation of Average Due Date (taking base date as 12th July, 2008) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Rs. 46,500 - Rs. 43,000 = Rs. 3,500
Difference of Amount Average Due Date
n p. , DifferenceofProducts Base Date +
Differenceof Amount
6,97,000
July 12
3,500
July 12 + 199.14 or 199 days 27th January, 2009
Note:
(i) B/R of 12.6.08
Due date changed due to holidays Due date changed due to holidays Due date changed due to holidays
(ii) B/P of 3.6.08
(iii) B/P of 13.6.08
(c) As per AS 11 'The Effects of Changes in Foreign Exchange Rates', all foreign currency transactions should be recorded by applying the exchange rate on the date of transactions. Thus, goods purchased on 1.1.2007 and corresponding creditor would be recorded at Rs.4,50,000 (i.e. $10,000 x Rs. 45)
According to the standard, at the balance sheet date all monetary transactions should be reported using the closing rate. Thus, creditor of US $10,000 on 31.3.2007 will be reported at Rs.4,40,000 (i.e. $10,000 x Rs.44) and exchange profit of Rs.10,000 (i.e.
4,50,000 - 4,40,000) should be credited to Profit and Loss account in the year 2006-07.
On 7.7.2007, creditor of $10,000 is paid at the rate of Rs.43. As per AS 11, exchange difference on settlement of the account should also be transferred to Profit and Loss account. Therefore, Rs.10,000 (i.e. 4,40,000 - 4,30,000) will be credited to Profit and Loss account in the year 2007-08.
(d) Following are the advantages of the customised accounting packages:
1. The functional areas that would otherwise have not been covered get computerised.
2. The input screens can be tailor made to match the input documents for ease of data entry.
3. The reports can be as per the specification of the organisation. Many additional MIS reports can be included in the list of reports.
4. Bar-code scanners can be used as input devices suitable for the specific needs of an individual organisation.
5. The system can suitably match with the organisational structure of the company.
(e) B list contributories are the shareholders who transferred partly paid shares (otherwise than by operation of law or by death) within one year, prior to the date of winding up. They may be called upon to pay an amount (not exceeding the amount not called up when the shares were transferred) to pay off such creditors, as existed on the date of transfer of shares and cannot be paid out of the funds otherwise available with the liquidator, provided also that the existing shareholders have failed to pay the amount due on the shares.
Total Unmarked applications = Total applications received - Total marked applications
i.e. 44,800 - 25,000 = 19,800 unmarked applications.
Sub-standards assets have been assumed as fully secured.
Attachment: |
Earning: Approval pending. |