Institute of Chartered Financial Analysts of India (ICFAI) University 2007 Certification Finance Financial Accounting – II (112): - Question Paper

12%Deebentures Account Dr . Rs.40,000.00
To Own Debentures Account Rs.38,400.00
To Capital Reserve Account Rs.1600.00
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ans : (d)
cause : The profit or loss on cancellation of own debentures is computed at the time of Cancellation of own debentures (d) is the accurate ans. The profit loss on cancellation cannot be computed unless they are paid. Hence (d) is the accurate ans
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ans : (e)
cause : 10% Debentures mean that the debentures carry coupon of 10%.
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ans : (e)
cause : Debentures can be issued in lieu of existing debentures. Debentures can be issued for consideration otherwise than cash and can also be issued as collateral security for borrowings from financial institutions. However, it cannot be issued in lieu of dividends, in lieu of equity shares in lieu of capitalization of profits, in lieu of preference shares.
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ans : (b)
cause : Para 20 of the AS-17 deals with identifying reportable segments. It states that if an enterprises risks and returns are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates, then the enterprise should use business segments as its primary segment reporting format and geographical segments as its secondary reporting format.
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ans : (d)
cause : To arrive at the profits for calculating managerial remuneration, the director’s remuneration, damages paid by virtue of legal liability shall be deducted and subsidy received from Government shall be added. However the income tax payable shall not be deducted. Hence the profit for the purpose of calculating managerial remuneration is Rs.15,75,000 + Rs.94,500 = Rs.16,69,500 Commission = 5Rs.16,69,500105×= Rs.79,500
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ans : (b)
cause : Schedule VI of the Companies Act, 1956 clearly specifies that the interest accrued on secured loans but not paid should be shown under the head ‘Secured Loans’.
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ans : (b)
cause : Dividend is payable on paid up capital;
Rate of dividend = 15%
Called-up capital Rs.3,00,000
Less: Calls in arrears Rs. 20,000
Paid up capital Rs.2,80,000
Dividend payable = 15.2,80,000.42,000100×=RsRs
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ans : (c)
cause : The entry to record the declaration of a dividend includes a credit to declared dividend.
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ans : (b)
cause : The payment of tax deducted at source with the Government involves (II) A debit to Tax deducted at source account with the amount of tax (III) A credit to Bank account with the amount of tax and thus, the combination Both (II) and (III) the option (b) is the accurate ans.
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ans : (a)
cause : If the articles of a company permits the directors can declare an interim dividend ranging from 2 annual general meetings.
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ans : (c)
cause : Dividend is the share of profits payable to every shareholder. It is decided by the shareholders in the annual general meeting. It must be paid within 30 days from the date of declaration of dividend. It is paid by posting the dividend warrants to the shareholders. If the declared dividend is unpaid simply due to the fact that such dividend has not been claimed by a few shareholders, it is kept by the company in separate account, known as unclaimed dividend account. It is the current liability of the company. It cannot be classified as provisions in the balance sheet, but proposed dividend can be described as provision in the balance sheet. But, (a), (b), (d) and (e) are the items of provisions in the balance sheet. Therefore (c) is actual.
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ans : (d)
cause : Of the Rs.1,20,000 paid, Rs 40,000 was paid toward dividends in arrears and Rs 80,000 was paid toward dividends for 2005-06. Of the Rs 80,000, Rs 45,000 was paid to preferred stockholders (5,000 shares x Rs 100 per share x .09), leaving Rs 35,000 to be paid to common stockholders (Rs 80,000 - Rs 45,000).
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ans : (b)
cause : Called up capital is the amount on the shares which is truly demanded by the company to be paid. However, there may be a few shareholders who may make default in the payment. The money due from them is called calls-in-arrears. This amount should be deducted from the called up capital to arrive at the paid-up capital. Thus, (b) is the accurate ans.
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ans : (d)
cause : Statement of accounting policies need not be said in the Director’s Report. It is to be said in Auditors’ Report
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ans : (a)
cause :
Profit and loss account as on April 01, 2005
35,000
Less: Dividends declared
15,000
Adjusted opening balance
20,000
Profits earned during the year (80,000 – 20,000)
60,000
Profits for the period April 01, 2005 to July 01, 2005
15,000
Capital profits (Rs.20,000 + Rs.15,000)
35,000
80% of Rs.35,000 = Rs.28,000
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ans : (e)
cause : Profit made during the year 2005-2006 = Rs.1,50,000 + Rs.90,000 = Rs.2,40,000
Profit made for the period April 01, 2005 to November 01, 2005
= Rs.2,40,000 x 7/12 = Rs.1,40,000
The credit balance in profit and loss account as on November 01, 2005 is
= Rs.1,40,000 – Rs.90,000 = Rs.50,000
Hence capital profit = Rs.50,000
Share of M/s. Duplex Ltd. in the capital profit = Rs.50,000 x 60% = Rs.30,000
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ans : (d)
cause : Degree of control = 3,000 / 5,000 = 3/5 = 60%
Particulars
Rs.
Rs.
Cost of investments (Rs.5,20,000 + Rs.2,00,000)
7,20,000
Less: Face value of shares held:
Equity
3,00,000
10% Preference
1,80,000
Capital profit (Rs.3,50,000 x 3/5)
2,10,000
6,90,000
Goodwill
30,000
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ans : (b)
cause : The equity method of accounting for associates is not applicable when (b) There is a severe long-term restrictions on funds transfer by the associate to the investor. (b) is the accurate ans.
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ans : (a)
cause : The effect of bonus problem out of post-acquisition profits by a subsidiary company in the Consolidated Balance Sheet, will decrease the value of goodwill or Increase the value of capital reserve.
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ans : (a)
cause : If holding company receives dividend out of pre-acquisition profits of the subsidiary company, it should be credited to investment account. It should not be debited to investment account. It should not be debited or credited to profit and loss account. Hence, (a) is actual.
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ans : (b)
cause : The residual interest in the assets of an enterprise after deducting all its liabilities is the equity.
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ans : (d)
cause : The amount to be shown in consolidated financial statement as dividend payable is Rs.2,00,000
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ans : (e)
cause : The assets of a subsidiary company are revalued at the time of acquisition by a holding company. The profit or loss on revaluation of assets of subsidiary company is to be treated in the Consolidated Balance Sheet as (e) Capital profit and the share of holding company is adjusted against cost of control..
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ans : (e)
cause : Under Subtractive approach of calculation of Value added is measured as a difference ranging from the Sales revenue and the cost of material and services bought (e).In calculating profit, bought in materials and services, labor, depreciation interest etc. are deducted from sales revenue and while calculating value added only the cost of bought in materials and services are deducted. Thus, option (e) is the accurate ans and the components in other options do not suit the calculation and are not the accurate answers.
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ans : (e)
cause : The subsequent transactions construe inter company transactions with regard to Holding company and its subsidiary company (a) The holding company or the subsidiary company may have granted short-term loans to every other (b) They may have sold/purchased goods on credit from every other (c) They might have drawn bills of exchange on every other. Thus, (e) the combination of all these is the accurate ans. .
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ans : (c)
cause : Out put to value-added ratio, not input to value added ratio helps the management in making rational decisions. other than this all the other ratios mentioned above helps the management in making rational decisions
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ans : (c)
cause : All the items mentioned come under the subtractive approach of calculation for value added other than employee benefit. This item comes under additive approach. Hence (c) is the ans.
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ans : (b)
cause : Pioneer Ltd. calculation of net tangible assets
Particulars
Rs.
Rs.
Plant & machinery
6,00,000
Land & building
2,50,000
Stock in trade
1,10,000
Sundry debtors
4,00,000
Cash at bank
90,000
14,50,000
Less: Liabilities:
Bank loan (20%)
1,50,000
Sundry creditors
2,80,000
Provision for taxation
1,40,000
Provision for bad debts
30,000
6,00,000
Net tangible assets
8,50,000
calculation of avg. maintainable profit: avg. profit after tax
= 4000,40,1.Rs000,30,1.Rs000,10,1.Rs000,00,1.Rs+++
= 4000,80,4.Rs= Rs.1,20,000 avg. dividend paid
= 11%12%14.5%14.5%4+++= 4%52= 13%
= Normal rate of dividend Total value of the business
= AveragemaintainableprofitNormalrateofreturnx 100
= Rs.1,20,00013%= Rs.9,23,077 ˜ 9,23,080
Goodwill = Total value of the business – Net tangible assets
= Rs.9,23,080 – 8,50,000 = Rs.73,080
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ans : (c)
cause : (c) is the accurate ans when an problem is made at discount and redeemable at premium the loss at the time of problem and also redemption has to be accounted for when the problem is made. Hence all other entries are incorrect. (sw120)
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ans : (a)
cause : The net profit is Rs.99,756.
Profit and loss account of Buzy Bee Ltd.
Particulars
Rs.
Rs.
Particulars
Rs.
Rs.
To salaries
1,22,000
By Gross profit
2,64,140
To rent and taxes
11,240
By commission
11,280
To Interest and discount
11,740
Add : Accrued
1,200
12,480
Add : Interest outstanding
1,000
12,740
To Travelling expenses
3,760
To Repairs and renewals
6,740
To insurance
500
To Bad debts
7,240
To advertisement
1,850
To Depreciation on plant and machinery
9,000
To Depreciation furniture and fixtures @ 10%
1,794
To Profit-transferred to profit & loss a/c.
99,756
2,76,620
2,76,620
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ans : (a)
cause : Half of the stock remained unsold = Rs.20,000/2 = Rs.10,000
Profit percentage = Rs.5,0001RS.20,0004=
Unrealised profit share = Rs.10,000 14×× 80% = Rs.2,500
Unrealised profit to be eliminated in full.
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ans : (b)
cause : The cost price of semi finished goods is Rs.7,000
The selling price of finished goods is Rs.11,000
The value addition would be Rs.11,000 – Rs.7,000 =Rs.4,000
The value addition as a percentage of Gross output is = 4,000/11,000 = 36.36%
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ans : (c)
cause : Value added = Sales = Operating expenses – Excise duty
Rs.1,00,000 – Rs.60,000 – Rs.5,000 = Rs.35,000.
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ans : (d)
cause : Shares of H Ltd. = 80%
Minority = 20%
Share Capital of Minority Interest = 20% of Rs.3,00,000 = Rs.60,000
Minority in capital profits = 20% of Rs.1,30,000 = Rs.26,000
Minority in revenue profits = 20% of Rs.1,50,000 = Rs.30,000
Total minority interest = Rs.1,16,000

Earning:   Approval pending.