Institute of Chartered Financial Analysts of India (ICFAI) University 2009 C.A Chartered Accountant Solved IPCC Accounts Group 1 II. - Question Paper
Solved IPCC Accounts Group one ques. Paper Nov 2009.
PAPER-1 : ACCOUNTING
All questions are compulsory.
Wherever necessary, suitable assumption(s) should be made by the candidates. Working notes should form part of the answer.
Question 1
(i) On 1st April, 2008, Chhotu started business with an initial Capital of Rs.70,000. On 1st October, 2008, he introduced additional capital of Rs.40,000. On 7th of every month, he withdraws Rs.5,000 for household expenses. On 31st March, 2009 his Assets and Liabilities were Rs.2,00,000 and Rs. 70,000 respectively.
Ascertain the profit earned by Chhotu during the year ended 31st March, 2009.
(ii) Year to year results of a company were not found comparable on the basis of gross profit margin. List out the probable reasons.
(iii) MY Ltd. had acquired 200 equity shares of YZ Ltd. at Rs.105 per share on 01.01.2009 and paid Rs.200 towards brokerage, stamp duty and STT. On 31st March, 2009, shares of YZ Ltd. were traded at Rs. 110 per share. At what value investment is to be shown in the Balance Sheet of MY Ltd. as at 31st March, 2009.
(iv) On 1st April, 2008, X, Y and Z enter into partnership introducing capital of Rs.80,000, Rs.50,000 and Rs.50,000 respectively. They agree to share Profits and Losses equally. At the end of the accounting year on 31st March, 2009, X claims that he be paid interest on his additional Capital of Rs.30,000 @ 10% per annum, while Z demands salary of Rs.600 per month for the extra hours devoted by him daily at the shop. The partnership deed is silent on these matters.
Decide the matters with reasons.
(v) What are the basic characteristics of a Private Ltd. Company?
(vi) Sumo Ltd. has a profit of Rs.25 lakhs before charging depreciation for financial year 2008-09. Depreciation in the books was Rs. 11 lakhs and depreciation chargeable under Section 205 comes to Rs. 17 lakhs. Compute divisible profit for the year.
(vii) From the following data, find out value of inventory as on 30.04.2009 using (a) LIFO method, and (b) FIFO method:
|
(1) |
01.04.2009 Purchased |
10 units @ Rs. 70 per unit |
|
(2) |
06.04.2009 Sold |
6 units @ Rs.90 per unit |
|
(3) |
09.04.2009 Purchased |
20 units @ Rs. 75 per unit |
|
(4) |
18.04.2009 Sold |
14 units @ Rs.100 per unit |
INTEGRATED PROFESSIONAL COMPTENCE EXAMINATION: NOVEMBER, 2009
(viii) Explain contract costs as per Accounting Standard-7 related to Construction Contracts.
(ix) Omshanti Club has 500 members with annual fee of Rs. 1,000 per member. At the end of the accounting year, accountant noticed that 40 members have not paid annual fee and 70 members had paid fee in advance. Help the accountant to compute cash receipts of annual fee for the year.
(x) The Companies Act, 1956 limits the payment of managerial remuneration. What is the maximum managerial remuneration, which can be paid in case of a company consistently earning profits and has more than one managerial person ? (10x2 = 20 Marks)
Answer (i)
|
Rs. | |
|
Capital as on 31.3.2009 (Rs.2,00,000 - Rs.70,000) |
1,30,000 |
|
Add: Drawings (Rs.5,000 x 12 months) |
60,000 |
|
1,90,000 | |
|
Less: Additional capital introduced as on 1.10.2008 |
(40,000) |
|
1,50,000 | |
|
Less: Capital on 01.04.2008 |
(70,000) |
|
Profit for the year ended as on 31.3.2009 |
80,000 |
(ii) The probable reasons could be the change in the accounting policy viz.
(a) Change in method of recognition of sales revenue from cash basis to accrual basis or vice versa; or
(b) Change in valuation of closing inventory by adopting different methods year to year such as LIFO to FIFO to weighted average or vice versa.
(iii)
|
Rs. | |
|
Purchase price of Equity shares of YZ Ltd.(200 shares x Rs.105 per share) Add: Brokerage, stamp duty and STT |
21,000 200 |
|
Cost of investment |
21,200 |
If the investment is a long term investment than it will be shown at cost. Therefore value of investment will be Rs. 21,200. However, if the investment is a current investment, then it will be shown at lower of cost (i.e. Rs.21,200) or net realizable value (i.e. Rs.200 x 110 = Rs.22,000). Therefore value of investment will be Rs. 21,200.
(iv) When the partnership deed is silent on the matter of interest on capitals and salary to partners, then no partner is entitled to claim interest on capital and salary. Therefore, claim of X and Z is not tenable. However, inclusion of specific provision regarding the said issues in partnership deed can make them entitled for interest on capital and salary.
(v) According to Section 3 (1) (iii), a private company means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles:
(a) Restricts the rights of members to transfer its shares.
(b) Limits the number of its member to 50 excluding: (i) persons who are in employment of the company; and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased. For this purpose joint holders of shares will be counted as single members.
(c) Prohibits any invitation to the public to subscribe to any shares in, or debentures of, the company.
(d) Prohibits any invitation or acceptance of deposits from persons other than its member, directors, and relatives.
|
Computation of divisible profit |
(Rs. in lakhs) |
|
Profit for the year 2008-2009 Less: Depreciation chargeable under Section 205 |
25.00 (17.00) |
|
Divisible profit for the year |
8.00 |
(vii) (a) Statement showing valuation of closing inventory by LIFO method
|
Date |
Receipts |
Issue |
Balance | ||||||
|
Unit |
Cost/unit |
Amount |
Unit |
Cost/unit |
Amount |
Unit |
Cost/unit |
Amount | |
|
1.4.09 |
10 |
70 |
700 |
10 |
70 |
700 | |||
|
6.4.09 |
6 |
70 |
420 |
4 |
70 |
280 | |||
|
9.4.09 |
20 |
75 |
1500 |
4 |
70 |
280 | |||
|
20 |
75 |
1500 | |||||||
|
18.4.09 |
14 |
75 |
1,050 |
4 |
70 |
280 | |||
|
6 |
75 |
450 | |||||||
Value of closing inventory as per LIFO method:
4 units x Rs.70 = Rs.280
6 units x Rs.75 = Rs.450 Rs.730
|
(b) Statement showing valuation of closing inventory by FIFO method | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Value of closing inventory as per FIFO method: 10 Units x Rs.75 = Rs.750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(viii) As per para 15 of AS 7 "Construction Contracts (revised 2002), contract cost should comprise:
(a) costs that relate directly to the specific contract;
(b) costs that are attributable to contract activity in general and can be allocated to the contract; and
(c) such other costs as are specifically chargeable to the customer under the terms of the contract.
|
(ix) |
|
(x) Section 198 of the Companies Act, 1956 prescribes the overall maximum managerial remuneration payable and also managerial remuneration in case of absence or inadequacy of profits. In the given case, the company is earning profits consistently and has more than one managerial person; therefore, the maximum limit is 10% of net profit.
Question 2
|
The following are the Balance Sheets of M Ltd. and N Ltd. as at 31st March, 2009: | |||||||||
| |||||||||
|
10% preference shares of Rs. 10 each, fully paid up |
1,200 |
- |
|
Capital Reserve |
600 |
- |
|
General Reserve |
2,100 |
- |
|
Profit and Loss Account |
780 |
- |
|
8% Redeemable debentures of Rs. 1,000 each |
- |
300 |
|
Trade Creditors |
2,421 |
369 |
|
Provisions |
870 |
93 |
|
11,571 |
1,662 | |
|
Assets | ||
|
Plant and Machinery |
4,215 |
468 |
|
Furniture and Fixtures |
2,400 |
183 |
|
Motor Vehicles |
- |
51 |
|
Stock |
2,370 |
444 |
|
Sundry Debtors |
1,044 |
237 |
|
Cash at Bank |
1,542 |
240 |
|
Preliminary Expenses |
- |
33 |
|
Discount on Issue of Debentures |
- |
6 |
|
11,571 |
1,662 |
A new Company MN Ltd. was incorporated with an authorised capital of Rs.15,000 lakhs divided into shares of Rs.10 each. For the purpose of amalgamation in the nature of merger, M Ltd. and N Ltd. were merged into MN Ltd. on the following terms:
(i) Purchase consideration for M Ltd.s business is to be discharged by issue of 120 lakhs fully paid 11 % preference shares and 720 lakhs fully paid equity shares of MN Ltd. to the preference and equity shareholders of M Ltd. in full satisfaction of their claims.
(ii) To discharge purchase consideration for N Ltd. 's business, MN Ltd. to allot 90 lakhs fully paid up equity shares to shareholders of N Ltd. in full satisfaction of their claims.
(iii) Expenses on the liquidation of M Ltd. and N Ltd. amounting to Rs.6 lakhs are to be borne by MN Ltd.
(iv) 8% redeemable debentures of N Ltd. to be converted into 8.5% redeemable debentures of MN Ltd.
(v) Expenses on incorporation of MN Ltd. were Rs.15 lakhs.
You are requested to:
(a) Pass necessary Journal Entries in the books of MN Ltd. to record above transactions, and
(b) Prepare Balance Sheet of MN Ltd. after merger. (16 Marks)
Answer
In the books of MN Ltd. Journal Entries
|
(Rs. in lakhs) | |||
|
Dr. |
Cr. | ||
|
Business Purchase Account |
Dr. |
9,300 | |
|
To Liquidator of M Ltd. |
8,400 | ||
|
To Liquidator of N Ltd. |
900 | ||
|
(Being consideration payable to liquidators of the two companies taken over) | |||
|
Plant and Machinery Account (4,215+468) |
Dr. |
4,683 | |
|
Furniture and Fixtures Account (2,400+183) |
Dr. |
2,583 | |
|
Motor Vehicles Account |
Dr. |
51 | |
|
Stock Account (2,370+444) |
Dr. |
2,814 | |
|
Sundry Debtors Account (1,044+237) |
Dr. |
1,281 | |
|
Cash at Bank Account (1,542+240) |
Dr. |
1,782 | |
|
Preliminary Expenses Account |
Dr. |
33 | |
|
Discount on issue of Debentures Account |
Dr. |
6 | |
|
Profit and Loss Account (Refer W.N.) |
Dr. |
120 | |
|
To 8% Redeemable Debentures of N Ltd. Account |
300 | ||
|
To Trade Creditors Account (2,421+369) |
2,790 | ||
|
To Provisions Account (870+93) |
963 | ||
|
To Business Purchase Account |
9,300 | ||
|
(Being incorporation of all the assets and liabilities and the excess of consideration over the share capital being adjusted against reserves and surplus) | |||
|
Liquidator of M Ltd. Account |
Dr. |
8,400 | |
|
Liquidator of N Ltd. Account |
Dr. |
900 | |
|
To Equity Share Capital Account (7,200+900) |
8,100 | ||
|
To 11% Preference Share Capital Account |
1,200 | ||
|
(Being allotment of fully paid shares in discharge of purchase consideration) | |||
|
Profit and Loss Account |
Dr. |
6 | |
|
To Bank Account |
6 | ||
|
(Being payment of liquidation expenses of M Ltd. and N Ltd.) | |||
|
Preliminary Expenses Account To Bank Account (Being expenses on incorporation of MN Ltd.) |
Dr. |
15 |
15 |
|
8% Redeemable Debentures of N Ltd. Account To 8.5% Redeemable Debentures Account (Being conversion of 8% Debentures of N Debentures) |
Dr. Ltd. into 8.5% |
300 |
300 |
|
Balance Sheet of MN Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Working Note: | ||||||||||||
| ||||||||||||
|
Amount to be adjusted: | ||
|
Capital Reserve |
600 | |
|
General Reserve |
2,100 | |
|
Profit & Loss A/c |
780 |
3,480 |
|
Debit balance of Profit & Loss Account |
120 |
Question 3
E, F and G were partners sharing Profits and Losses in the ratio of 5:3:2 respectively. On 31st March, 2009 Balance Sheet of the firm stood as follows:
| ||||||||||||
|
On 31st March, 2009, E decided to retire and F and G decided to continue as equal partners. |
Other terms of retirement were as follows:
(i) Building be appreciated by 20%.
(ii) Furniture be depreciated by 10%.
(iii) A provision of 5% be created for bad debts on debtors.
(iv) Goodwill be valued at two years purchase of profit for the latest accounting year. The firms Profit for the year ended 31st March, 2009 was Rs.25,000. No goodwill account is to be raised in the books of accounts.
(v) Fresh capital be introduced by F and G to the extent of Rs.10,000 and Rs.35,000 respectively.
(vi) Out of sum payable to retiring partner E, a sum of Rs.45,000 be paid immediately and the balance be transferred to his loan account bearing interest @ 12% per annum. The loan is to be paid off by 31st March, 2011.
One month after Es retirement, F and G agreed to admit Es son H as a partner with one-forth
share in Profits/Losses. E agreed that the balance in his loan account be converted into Hs
Capital. E also agreed to forgo one months interest on his loan.
It was also agreed that H will bring in, his share of goodwill through book adjustment, valued at the price on the date of E's retirement. No goodwill account is to be raised in the books.
You are requested to pass necessary Journal Entries to give effect to the above transactions and prepare Partners Capital Accounts. (16 Marks)
|
Answer | |||||||||||||||||||||||||||||||||||||||||||||
|
|
7. |
E's Loan Account Dr. To H's Capital Account (Transfer of E's Loan Account to H's Capital Account) |
33,750 |
33,750 |
|
8. |
H's Capital Account Dr. To F's Capital Account To G's Capital Account (Being adjustment entry passed for H's share of goodwill) |
12,500 |
6.250 6.250 |
Partners Capital Accounts
|
E |
F |
G |
H |
E |
F |
G |
H | ||
|
Rs. |
Rs. |
Rs. |
Rs. |
Rs. |
Rs. |
Rs. |
Rs. | ||
|
To E (Goodwill) |
10,000 |
15,000 |
By Balance b/d |
50,000 |
40,000 |
28,000 | |||
|
To Bank |
45,000 |
By Revaluation A/c |
3,750 |
2,250 |
1,500 | ||||
|
To E's Loan A/c |
33,750 |
By F (Goodwill) |
10,000 | ||||||
|
To Balance c/d |
42,250 |
49,500 |
By G (Goodwill) |
15,000 | |||||
|
By Bank (fresh capital) |
10,000 |
35,000 | |||||||
|
78,750 |
52,250 |
64,500 |
78,750 |
52,250 |
64,500 | ||||
|
To F (Goodwill) |
6,250 |
By Balance b/d |
42,250 |
49,500 | |||||
|
To G (Goodwill) |
6,250 |
By E's Loan A/c |
33,750 | ||||||
|
To Balance c/d |
48,500 |
55,750 |
21,250 |
By H (goodwill) |
6,250 |
6,250 | |||
|
48,500 |
55,750 |
33,750 |
48,500 |
55,750 |
33,750 | ||||
Working Notes:
1. Calculation of gaining ratio
|
Partners |
New ratio |
Old ratio |
Gain |
Sacrifice |
|
E |
5 |
5 | ||
|
10 |
10 | |||
|
F |
1 |
3 |
2 1 3 | |
|
2 |
10 |
2 10 10 | ||
|
G |
1 |
2 |
1 2 3 | |
|
2 |
10 |
2 10 10 |
Hence, ratio of gain between F and G = 2:3
2. Value of total goodwill of the firm = Rs.25,000 x 2 = Rs.50,000
5
E's share = Rs.50,000 x=Rs.25,000 10
2
F will bear = Rs.25,000 x-=Rs.10,000 5
3
G will bear = Rs.25,000 x-=Rs.15,000
5
1
3. H's share of goodwill = Rs.50,000 x = Rs.12,500
F and G share equal profits. Therefore, their sacrificing ratio will also be equal Hence, each of them will be credited with Rs.6,250 Question 4
(a) A fire broke out in the godown of a business house on 8th July, 2009. Goods costing Rs.2,03,000 in a small sub-godown remain unaffected by fire. The goods retrieved in a damaged condition from the main godown were valued at Rs. 1,97,000.
The following particulars were available from the books of accounts:
Stock on the last Balance Sheet date at 31st March, 2009 was Rs.15,72,000. Purchases for the period from 1st April, 2009 to 8th July, 2009 were Rs.37,10,000 and sales during the same period amounted to Rs.52,60,000. The average gross profit margin was 30% on sales.
The business house has a fire insurance policy for Rs.10,00,000 in respect of its entire stock. Assist the Accountant of the business house in computing the amount of claim of loss by fire.
(b) A trader allows his customers, credit for one week only beyond which he charges interest @ 12% per annum. Anil, a customer buys goods as follows:
| ||||||||||
|
Anil settles his account on 31st March, 2009. Calculate the amount of interest payable by Anil using average due date method. (8+8=16 Marks) |
Answer
(a)
| |||||||||
|
Applying average clause: |
Amount of claim = Amounl of policy x LosSof stock Stockonthedateoffire
= Rs1TO000 x1200,000 Rs.16,00,000
= Rs. 7,50,000
Working Note:
Memorandum Trading Account for the period from 1st April, 2009 to 8th July, 2009
|
Rs. |
Rs. | ||
|
To Opening Stock To Purchases To Gross Profit (30% of sales) |
15.72.000 37.10.000 15.78.000 |
By Sales By Closing Stock (Bal.Fig.) |
52,60,000 16,00,000 |
|
68,60,000 |
68,60,000 |
|
(b) Let us assume 9th January, 2009 to be the base date: | ||||||||||||||||||||||||||||||
|
Average Due date = Base date + Sumof Product
Sumof amount
= 9th January, 2009 + 747000 23,200
= 9th January 2009 + 32 days
i.e. 32 days from 9th January, 2009 = 10th February, 2009
Thus, average due date = 10th February, 2009
No. of days from 10th February, 2009 to 31st March, 2009 = 49 days.
Interest payable by Anil on Rs.23,200 for 49 days @ 12% per annum
49 12
= Rs.23,200 xx=Rs.373.74 365 100
Question 5
|
(a) The Income and Expenditure Account of City Sports Club for the year ended 31st March, 2009 was as follows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
The above account had been prepared after the following adjustments: | ||||||||||
|
Salaries outstanding at the beginning and at the end of the financial year were Rs.8,000 and Rs.10,000 respectively. Sundry expenses included prepaid insurance expenses of Rs.1,200.
The Club owned a freehold ground valued Rs.2,00,000. The Club has sports equipment on 01.04.2008 valued at Rs.52,000. At the end of the year, after depreciation, the sports equipment amounted to Rs.54,000. The Club raised a loan of Rs.40,000 from a bank on
01.01.2008, which was unpaid till 31.03.2009. On 31.03.2009, cash in hand was Rs.32,000.
Prepare Receipts and Payments account of the Club for the year ended 31st March, 2009 and Balance Sheet as on that date.
(b) Rama Udyog Limited was incorporated on August 1, 2008. It had acquired a running business of Rama & Co. with effect from April 1, 2008. During the year 2008-09, the total sales were Rs.36,00,000. The sales per month in the first half year were half of what they were in the later half year. The net profit of the company, Rs.2,00,000 was worked out after charging the following expenses:
(i) Depreciation Rs.1,08,000, (ii) Audit fees Rs.15,000, (iii) Directors fees Rs.50,000, (iv) Preliminary expenses Rs.12,000, (v) Office expenses Rs.78,000, (vi) Selling expenses Rs. 72,000 and (vii) Interest to vendors upto August 31, 2008 Rs.5,000.
Please ascertain pre-incorporation and post-incorporation profit for the year ended 31st March, 2009. (10+ 6= 16Marks)
Answer
(a) City Sports Club
Receipt and Payments Account for the year ended 31st March, 2009
|
Receipts |
Amount (Rs.) |
Payments |
Amount (Rs.) | ||
|
To |
Balance b/d (Bal. Fig.) |
27,800 |
By |
Salaries: for 2007-2008 |
8,000 |
|
To |
Subscription: |
for 2008-2009 |
1,10,000 | ||
|
for 2007-2008 |
12,000 |
By |
Printing and Stationery |
6,000 | |
|
for 2008-2009 (W.N.3) |
1,36,000 |
By |
Rent |
12,000 | |
|
for 2009-2010 |
5,400 |
By |
Repairs |
10,000 | |
|
To |
Entrance Fees |
10,000 |
By |
Sundry Expenses (8,000 + 1,200) |
9,200 |
| ||||||||||||||||||||||||||||||||
|
Balance Sheet as at 31st March, 2009 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
|
Working Notes: (1) Opening Balance of Capital Fund: |
Balance Sheet as at 31st March, 2008
| ||||||||||||
|
* It is assumed that the profit on annual sports meet has been realized in cash. |
|
INTEGRATED PROFESSIONAL COMPTENCE EXAMINATION: NOVEMBER, 2009 (2) Sports Equipment Account | ||||||||||||
|
|
(3) Subscription received during 2008-09 | |||||||||
|
(b) Statement showing pre and post incorporation profit for the year ended 31st March, 2009
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Working Notes: |
The sales per month in the first half year were half of what they were in the later half year. If in the later half year, sales per month is Re.1 then it should be 50 paise per month in the first half year. So sales for the first four months (i.e. from 1st April, 2008 to 31st July, 2008) will be 4 x .50 = Rs.2 and for the last eight months (i.e.
from 1st August, 2008 to 31st March, 2009) will be (2 x .50 + 6 x 1) = Rs.7. Thus sales ratio is 2:7.
2. Time ratio
1st April, 2008 to 31st July, 2008 : 1st August, 2008 to 31st March, 2009 = 4 months : 8 months = 1:2 Thus, time ratio is 1:2.
3. Gross profit
Gross profit = Net profit + All expenses
= Rs.2,00,000 + Rs.( 1,08,000+15,000+50,000+12,000+78,000+72,000+5,000)
= Rs.2,00,000 +Rs.3,40,000 = Rs.5,40,000.
Question 6
Answer any four of the following:
(i) Market is full of ready-made accounting softwares. What factors will you consider to choose one of them for your enterprise?
(ii) As per Accounting Standard-14, what are the conditions which must be satisfied for an amalgamation in the nature of merger?
(iii) What do you mean by Customised Accounting Software?
(iv) Rose Ltd. had made an investment of Rs.500 lakhs in the equity shares of Nose Ltd. on
10.01.2009. The realisable value of such investment on 31.03.2009 became Rs.200 lakhs as Nose Ltd. lost a case of patent rights. Rose Ltd. follows financial year as accounting year. How will you recognize this reduction in Financial statements for the year 2008-09.
(v) A company provided Rs.10,00,000 for dividend payment. Is the Corporate Dividend Tax payable in this case? If yes, please compute Corporate Dividend Tax assuming rate of 15% plus surcharge of 10% and disclose as it would appear in profit and loss account of the company.
(vi) SAD Enterprises, a partnership firm, had purchased business of SWAD enterprises on 01.04.2008 and paid Rs.50,000 towards goodwill. On 01.04.2009, SAD enterprises decided to admit W as partner and the goodwill was valued at Rs.1,00,000 for the purpose.
Please explain with reasons, at what price goodwill can be shown in the books of account. (4* 4 = 16 Marks)
Answer
(i) While choosing the accounting software, the following points should be considered:
1. Fulfilment of business requirements: Some packages have few functionalities more than the others. The purchaser may try to match his requirement with the available solutions.
2. Completeness of reports: Some packages might provide extra reports or the reports match the requirement more than the others.
3. Ease of use: Some packages could be very detailed and cumbersome compare to the others.
4. Cost: The budgetary constraints could be an important deciding factor. A package having more features cannot be opted because of the prohibitive costs.
5. Reputation of the vendor: Vendor support is essential for any software. A stable vendor with reputation and good track records will always be preferred.
6. Regular updates: Law is changing frequently. A vendor who is prepared to give updates will be preferred to a vendor unwilling to give updates.
(ii) According to AS 14 "Accounting for Amalgamations, Amalgamation in the nature of
merger is an amalgamation which satisfies all the following conditions:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.
(iii) A customised accounting software is one where the software is developed on the basis of requirement specifications provided by the organisation. The choice of customised accounting software could be because of the typical nature of the business or else the functionality desired to be computerised is not available in any of the pre-packaged accounting software. An organisation desiring to have an integrated software package covering most of the functional area may have the financial module as part of the entire customised system.
(iv) Recognition of reduction in value of investment would depend upon the nature of investment and nature of decline as per Accounting Standard 13 "Accounting for Investments. As per provisions of the standard, if the investments were acquired for long term and decline is temporary in nature, reduction in value will not be recognized and investments would be carried at cost. If the decline is of permanent nature, it will be charged to profit and loss account. If the investments are current investments, then the reduction should be recognized and charged to Profit and Loss Account as the current investments are carried at cost or fair value, whichever is less.
(v) Yes, Corporate Dividend Tax (CDT)1 is payable by the company which has provided for the payment of dividend. CDT is payable even if no income tax is payable. This is payable by a domestic company on distribution of profits to its shareholders.
In the given case, Corporate Dividend Tax would be worked out to Rs.1,65,000 [i.e. (Rs.10,00,000 x 15%) x 110%]. CDT should be accounted for in the same financial year in which provision for dividend is recognized and made. CDT shall be disclosed in profit and loss account below the line just after the provision for dividend. Such disclosure would give a proper picture regarding payments involved with reference to dividends. Disclosure of CDT in the profit and Loss Account will be as follows:
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Dividend |
XXXX | |
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Corporate Dividend Tax |
XXXX |
XXXX |
(vi) Para 16 of AS 10,' Accounting for Fixed Assets' states that goodwill can be recorded in the books only when some consideration in money or money's worth has been paid for it. Therefore, only purchased goodwill should be recorded in the books. In the said case, payment of Rs.50,000 was made towards purchase of goodwill, hence to this extent goodwill can be recorded in the books. Additional goodwill of Rs.50,000 is self generated goodwill, which should not be recorded. On admission, death or retirement of a partner, goodwill adjustments can be carried out through capital accounts.
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Corporate Dividend Tax is also known as Dividend Distribution Tax.
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Attachment: |
| Earning: Approval pending. |
