The Institute of Chartered Financial Analysts of India University 2009 C.A Chartered Accountant Professional Competence (PCC) Revision Test s- 1- Advanced Accounting - Question Paper
May 2009: The Institute of Chartered Accountants of India - Revision Test ques. papers (RTPs) Professional Competence Course (PCC) Examination: May 2009 Paper 1- Advanced Accounting: May 2009 University ques. paper
Branch Accounting
PAPER - 1 : ADVANCED ACCOUNTING
QUESTIONS
1. Concept & Co., with its Head Office at Mumbai has a branch at Nagpur. Goods are invoiced to the Branch at cost plus 33 1/3%. The following information is given in respect of the branch for the year ended 31st March, 2008:
Branch Accounting
PAPER - 1 : ADVANCED ACCOUNTING
QUESTIONS
Rs.
Goods sent to Branch (Invoice price) 4,80,000
Stock at Branch on 1.4.2007 (Invoice price) 24,000
Cash sales 1,80,000
Return of goods by customers to the Branch 6,000
Branch expenses (paid in cash) 53,500
Branch debtors balance on 1.4.2007 30,000
Discount allowed 1,000
Bad debts 1,500
Collection from Debtors 2,70,000
Branch debtors cheques returned dishonoured 5,000
Stock at Branch on 31.3.2008 (Invoice price) 48,000
Branch debtors balance on 31.3.2008 36,500
Prepare, under the Stock and Debtors system, the following Ledger Accounts in the books of the Head Office:
(i) Nagpur Branch Stock Account
(ii) Nagpur Branch Debtors Account
(iii) Nagpur Branch Adjustment Account.
Also compute shortage of Stock at Branch, if any.
Departmental Accounts
2. FGH Ltd. has three departments I.J.K. The following information is provided for the year ended 31.3.2008:
I |
J |
K | |
Rs. |
Rs. |
Rs. | |
Opening stock |
5,000 |
8,000 |
19,000 |
Opening reserve for unrealised profit |
- |
2,000 |
3,000 |
Materials consumed |
16,000 |
20,000 |
- |
Direct labour |
9,000 |
10,000 |
- |
Closing stock |
5,000 |
20,000 |
5,000 |
Sales |
- |
- |
80,000 |
Area occupied (sq. mtr.) |
2,500 |
1,500 |
1,000 |
No. of employees |
30 |
20 |
10 |
Stocks of each department are valued at costs to the department concerned. Stocks of I are transferred to J at cost plus 20% and stocks of J are transferred to K at a gross profit of 20% on sales. Other common expenses are salaries and staff welfare Rs. 18,000, rent Rs. 6,000.
Prepare Departmental T rading, Profit and Loss Account for the year ending 31.3.2008. Partnership Accounts
3. Firm X & Co. consists of partners A and B sharing Profits and Losses in the ratio of 3 : 2. The firm Y & Co. consists of partners B and C sharing Profits and Losses in the ratio of
5 : 3.
On 31st March, 2008 it was decided to amalgamate both the firms and form a new firm XY & Co., wherein A, B and C would be partners sharing Profits and Losses in the ratio of 4:5:1.
Balance Sheet as at 31.3.2008
Liabilities |
X & Co., |
Y & Co. |
Assets |
X & Co. |
Y & Co. |
Rs. |
Rs. |
Rs. |
Rs. | ||
Capital: |
Cash in hand/bank |
40,000 |
30,000 | ||
A |
1,50,000 |
--- |
Debtors |
60,000 |
80,000 |
B |
1,00,000 |
75,000 |
Stock |
50,000 |
20,000 |
C |
--- |
50,000 |
Vehicles |
--- |
90,000 |
Reserve |
50,000 |
40,000 |
Machinery |
1,20,000 |
--- |
Creditors |
1,20,000 |
55,000 |
Building |
1,50,000 | |
4,20,000 |
2,20,000 |
4,20,000 |
2,20,000 |
The following were the terms of amalgamation:
(i) Goodwill of X & Co., was valued at Rs.75,000. Goodwill of Y & Co. was valued at Rs.40,000. Goodwill account not to be opened in the books of the new firm but adjusted through the Capital accounts of the partners.
(ii) Building, Machinery and Vehicles are to be taken over at Rs.2,00,000, Rs.1,00,000 and Rs.74,000 respectively.
(iii) Provision for doubtful debts at Rs.5,000 in respect of X & Co. and Rs.4,000 in respect of Y & Co. are to be provided.
You are required to:
(i) Show, how the Goodwill value is adjusted amongst the partners.
(ii) Prepare the Balance Sheet of XY & Co. as at 31.3.2008 by keeping partners capital in their profit sharing ratio by taking capital of 'B' as the basis. The excess or deficiency to be kept in the respective Partners' Current account.
Self-Balancing Ledgers
4. From the following information prepare Sales Ledger Adjustment Account and Bought
Ledger Adjustment Account in the General Ledger:
On 1.4.2007 balance in bought ledger (Dr.) Rs. 10,000, (Cr.) Rs. 96,000, balance in sales
ledger (Dr.) Rs. 1,41,880 (Cr.) Rs. 2,240:
| ||||||||||||||||||||||||||||||||||||||||
ledger |
Hire Purchase Accounting
5. ABC Ltd. sells goods on Hire-purchase by adding 50% above cost. From the following particulars, prepare Hire-purchase Trading account to reveal the profit for the year ended 31.3.2008:
Rs.
1.4.2007 Instalments due but not collected 10,000
1.4.2007 Stock at shop (at cost) 36,000
1.4.2007 Instalment not yet due 18,000
31.3.2008 Stock at shop 40,000
31.3.2008 Instalments due but not collected 18,000 Other details:
Total instalments became due 1,32,000
Goods purchased 1,20,000
Cash received from customers 1,21,000
Goods on which due instalments could not be collected were repossessed and valued at 30% below original cost. The vendor spent Rs. 500 on getting goods overhauled and then sold for Rs. 2,800.
Account Current
6. Mr. A owed Rs. 4,000 on 1st January, 2008 to Mr. X. The following transactions took place between them. It is agreed between the parties that interest @ 10% p.a. is to be calculated on all transactions.
Rs.
15 January, 2008 Mr. X sold goods to Mr. A 2,230
29 January, 2008 Mr. X bought goods from Mr. A 1,200
10 February, 2008 Mr. A paid cash to Mr. X 1,000
13 March, 2008 Mr. A accepted a bill drawn by Mr. X for one 2,000
month
They agree to settle their complete accounts by one single payment on 15th March, 2008. Prepare Mr. A in Account Current with Mr. X and ascertain the amount to be paid. Ignore days of grace.
Underwriting of Shares
7. Scorpio Ltd. came out with an issue of 45,00,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share. The promoters took 20% of the issue and the balance was offered to the public. The issue was equally underwritten by A & Co; B & Co. and C & Co.
Each underwriter took firm underwriting of 1,00,000 shares each. Subscriptions for
31,00,000 equity shares were received with marked forms for the underwriters as given
below:
A & Co. 7,25,000 shares
B & Co. 8,40,000 shares
C & Co. 13,10,000 shares
Total 28,75,000 shares
The underwriters are eligible for a commission of 5% on face value of shares. The entire amount towards shares subscription has to be paid alongwith application. You are required to:
(a) Compute the underwriters liability (number of shares)
(b) Compute the amounts payable or due to underwriters.
Bonus Issue
8. The Balance Sheet of A Ltd. as at 31.3.2008 is as follows:
Balance Sheet as at 31.3.2008 Liabilities Rs. Assets Rs.
Authorised Share Capital Sundry Assets 17,00,000
1.50.000 Equity Shares of Rs. 10 each 15,00,000 Issued, Subscribed and Paid-up
80.000 Equity Shares of
Rs. 7.50 each called-up and paid-up 6,00,000
Reserves and surplus
Capital Redemption Reserve 1,50,000
Plant Revaluation Reserve 20,000
Securities Premium Account 1,50,000
Development Rebate Reserve 2,30,000
Investment Allowance Reserve 2,50,000
General Reserve 3,00,000
17,00,000 17,00,000
The company wanted to issue bonus shares to its share holders at the rate of one share for every two shares held. Necessary resolutions were passed; requisite legal requirements were complied with:
(a) You are required to give effect to the proposal by passing journal entries in the books of A Ltd.
(b) Show the amended Balance Sheet.
Redemption of Debenture
9 Alpha Limited recently made a public issue in respect of which the following information is available:
(a) No. of partly convertible debentures issued 2,00,000; face value and issue price Rs.100 per debenture.
Convertible portion per debenture 60%, date of conversion on expiry of 6 months from the date of closing of issue.
Date of closure of subscription lists 1.5.2008, date of allotment 1.6.2008, rate of interest on debenture 15% payable from the date of allotment, value of equity share for the purpose of conversion Rs. 60 (Face Value Rs. 10).
(b)
(c)
(d)
(e)
(f)
Underwriting Commission 2%.
No. of debentures applied for 1,50,000.
Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended 31st March, 2009 (including cash and bank entries).
Buy-back of Shares
| |||||||||||||||||||||||||||
4,120 |
10.
(Rs. In 000)
Amount 2,700 300 600 360 160
4,120
Gunshot Ltd. buy back 16,000 shares of Rs. 20 per share. For this purpose, the Company sold its all non-trade investments for Rs. 3, 20,000. Give Journal Entries with full narrations effecting the buy back.
Amalgamation of Companies
11. The financial position of two companies Hari Ltd. and Vayu Ltd. as on 31st March, 2008 was as under:
Assets
Goodwill
Building
Machinery
Stock
Hari Ltd. (Rs.) 50,000
3.00.000
5.00.000 2,50,000
Vayu Ltd. (Rs.) 25,000 1,00,000
1.50.000
1.75.000
Debtors Cash at Bank Preliminary Expenses
Liabilities Share Capital:
2,00,000
50.000
30.000 13,80,000
Hari Ltd. (Rs.) 10,00,000 1,00,000
20,000
10,000
5.80.000
Vayu Ltd. (Rs.)
3.00.000
1.00.000 80,000 20,000 80,000
5.80.000
Equity Shares of Rs. 10 each 9% Preference Shares of Rs. 100 each 10% Preference Shares of Rs. 100 each General Reserve Retirement Gratuity fund Sundry Creditors
Hari Ltd. absorbs Vayu Ltd. on the following terms:
10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference Shares of Hari Ltd.
(a)
(b)
(c)
(d)
Goodwill of Vayu Ltd. is valued at Rs. 50,000, Buildings are valued at Rs. 1,50,000 and the Machinery at Rs. 1,60,000.
Stock to be taken over at 10% less value and Reserve for Bad and Doubtful Debts to be created @ 7.5%.
Equity Shareholders of Vayu Ltd. will be issued Equity Shares @ 5% premium.
Prepare necessary Ledger Accounts to close the books of Vayu Ltd. and show the acquisition entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st March, 2008.
Internal Reconstruction of Company
12. Following is the Balance Sheet as at March 31, 2008:
(Rs. '000) | ||||||||||||||||||||||||||||||||||||||||||
|
Profit and loss account 12% Debentures of Rs. 100 each |
Sundry creditors - 15 Own debenture (Nominal value Rs. 600 200 2,00,000) 415 225 Discount on issue of |
debentures
Profit and loss account
2
411
3,195 2,010
3,195 2,010
On 1.4.2008, Max Ltd. adopted the following scheme of reconstruction:
(i) Each equity share shall be sub-divided into 10 equity shares of Rs. 10 each fully paid up. 50% of the equity share capital would be surrendered to the Company.
(ii) Preference dividends are in arrear for 3 years. Preference shareholders agreed to waive 90% of the dividend claim and accept payment for the balance.
(iii) Own debentures of Rs. 80,000 were sold at Rs. 98 cum-interest and remaining own debentures were cancelled.
(iv) Debentureholders of Rs. 2,80,000 agreed to accept one machinery of book value of Rs. 3,00,000 in full settlement.
(v) Creditors, debtors and stocks were valued at Rs. 3,50,000, Rs. 5,90,000 and Rs.
3,60,000 respectively. The goodwill, discount on issue of debentures and Profit and Loss (Dr.) are to be written off.
(vi) The Company paid Rs. 15,000 as penalty to avoid capital commitments of Rs.
3,00,000.
On 2.4.2008 a scheme of absorption was adopted. Max Ltd. would take over Mini Ltd.
The purchase consideration was fixed as below:
(a) Equity shareholders of Mini Ltd. will be given 50 equity shares of Rs. 10 each fully paid up, in exchange for every 5 shares held in Mini Ltd.
(b) Issue of 9% preference shares of Rs. 100 each in the ratio of 4 preference shares of Max Ltd. for every 5 preference shares held in Mini Ltd.
(c) Issue of one 12% debenture of Rs. 100 each of Max Ltd. for every 12% debentures in Mini Ltd.
You are required to give Journal entries in the books of Max Ltd. and draw the resultant
Balance Sheet as at 2nd April, 2008.
Liquidation of Companies
13. The position of Valueless Ltd. on its liquidation is as under:
Issued and paid up Capital:
3,000 11% preference shares of Rs. 100 each fully paid.
3.000 Equity shares of Rs. 100 each fully paid.
1.000 Equity shares of Rs. 50 each Rs. 30 per share paid.
Calls in Arrears are Rs. 10,000 and Calls received in Advance Rs. 5,000. Preference Dividends are in arrears for one year. Amount left with the liquidator after discharging all liabilities is Rs. 4,13,000. Articles of Association of the company provide for payment of preference dividend arrears in priority to return of equity capital. You are required to prepare the Liquidators final statement of account.
Electricity Companies
14. The following balances relate to NTPC. Ltd. and pertains to the accounts for the year ended on 31st December, 2008:
(Rs.in lakhs)
Share Capital 200
Fixed Assets 400
Monthly Average of Current Assets 40
Reserve Fund (invested in 6% Govt. Securities Face Value Rs. 120 lakhs) 120
Contingencies Reserve (invested in 6% State Govt. Loans) 40
Loan from Electricity Board 60
Developments Reserve 20
10% Debentures 16
Depreciation Reserve on Fixed Assets 160
Security Deposits of Customers 150
Customers' Contribution to main lines 4
Preliminary Expenses 10
Tariffs and Dividend Control Reserve 12
The company earned a post tax profit of Rs. 20.4 lakhs. Indicate the disposal of profit, bearing in mind the provisions of the Electricity (Supply) Act, 1948, assuming the Reserve Bank of India rate on the relevant date was 8%.
Insurance Companies
15. Indian Insurance Co. Ltd. furnishes you with the following information :
(i) On 31.12.2006 it had reserve for unexpired risk to the tune of Rs. 40 crores. It comprised of Rs. 15 crores in respect of marine insurance business : Rs. 20 crores in respect of fire insurance business and Rs. 5 crores in respect of miscellaneous insurance business.
(ii) It is the practice of Indian Insurance Co. Ltd. to create reserves at 100% of net premium income in respect of marine insurance policies and at 50% of net premium income in respect of fire and miscellaneous income policies.
During 2007, the following business was conducted
Marine
Fire (Rs. in crores) Rs.
Miscellaneous
Rs.
Rs.
(a)
(b)
18
43
12
7
5
6.7
4.3
Premia collected from :
Insureds in respect of policies issued Other insurance companies in respect of risks undertaken Premia paid/payable to other insurance companies on business ceded Indian Insurance Co. Ltd. asks you to :
(a) Pass journal entries relating to Unexpired risks reserve.
(b) Show in columnar form Unexpired risks reserve a/c for 2007.
Banking Companies
16. From the following information of Great Bank Limited, compute the provisions to be made in the Profit and Loss account:
Assets
Rs. in lakhs
20,000
16,000
6,000
2.000
1,500
Rs
Standard
Substandard
Doubtful
For one year (secured)
For two years and three years (secured)
For more than three years (secured by mortgage of plant and machinery Rs.600 lakhs)
Non-recoverable Assets
Financial Statements of Not-for-Profit Organisations
17. Smith Library Society showed the following position on 31st March, 2007: Balance Sheet as on 31st March, 2007
Liabilities Rs. Assets
Capital fund 7,93,000 Electrical fittings
Expenses payable 7,000 Furniture
Books
Investment in securities 1,50,000
Cash at bank 25,000
___Cash in hand 25,000
8,00,000 8,00,000 The receipts and payment account for the year ended on 31st March, 2008 is given below:
Rs. |
Rs. | ||
To Balance b/d |
By Electric charges |
7,200 | |
Cash at bank 25,000 |
By Postage and stationary |
5,000 | |
Cash in hand 25,000 |
50,000 |
By Telephone charges |
5,000 |
To Entrance fees |
30,000 |
By Books purchased |
60,000 |
To Membership subscription |
2,00,000 |
Bu Outstanding expenses paid |
7,000 |
To Sale proceeds of old papers |
1,500 |
By Rent |
88,000 |
To Hire of lecture hall |
20,000 |
By Investment in securities |
40,000 |
To Interest on securities. |
8,000 |
By Salaries |
66,000 |
By Balance c/d | |||
Cash at bank |
20,000 | ||
Cash in hand |
11,300 | ||
3,09,500 |
3,09,500 |
You are required to prepare income and expenditure account for the year ended 31st March, 2008 and a balance sheet as at 31st, March, 2008 after making the following adjustments:
Membership subscription included Rs. 10,000 received in advance.
Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be depreciated at the same rate.
75% of the entrance fees is to be capitalized.
Interest on securities is to be calculated @ Rs. 5% p.a. including purchases made on
1.10.2007 for Rs. 40,000.
Insurance Claims
18. Mr. A prepares accounts on 30th September each year, but on 31st December, 2008 fire destroyed the greater part of his stock. Following information was collected from his book:
Stock as on 1.10.2008 Purchases from 1.10.2008 to 31.12.2008 Wages from 1.10.2008 to 31.12.2008 Sales from 1.10.2008 to 31.12.2008
The rate of gross profit is 33.33% on cost. Stock to the value of Rs. 3,000 was salvaged.
29,700
75.000
33.000 1,40,000
Insurance policy was for Rs. 25,000 and claim was subject to average clause.
Additional information:
(i) Stock in the beginning was calculated at 10% less than cost.
(ii) A plant was installed by firm's own worker. He was paid Rs. 500, which was included in wages.
(iii) Purchases include the purchase of the plant for Rs. 5,000
You are required to calculate the claim for the loss of stock.
19. Answer the following questions (Give adequate working notes in support of your answer):
(i) The economic life of an enterprise is artificially split into periodic intervals in accordance with the going concern assumptions. Is the statement true or false?
(ii) If payment is made on the average due date, it results in loss of interest to creditors. Is the statement true or false?
(iii) During the year 2007-2008, a medium size manufacturing company wrote down its inventories to net realisable value by Rs. 5,00,000. Is a separate disclosure necessary in final accounts?
(iv) A, B and C are partners with profit sharing ratio 5:3:2. A wants to retire, B and C agreed to continue at 2:1. Find the profit gaining ratio between B and C.
(v) If there appears a sports fund, the expenses incurred on sports activities will be taken to income and expenditure account. State whether the statement is true or false.
(vi) All significant accounting policies adopted in preparation and presentation of financial statements must be disclosed. State whether the statement is true or false.
(vii) A, B and C share profits and losses in the proportion of 6/14, 5/14 and 3/14 respectively: They agree to take D into partnership and give him 1/8th share. Compute new profit sharing ratio between A B, C and D.
(viii) As per the decision in Garner vs. Murray the loss on account of insolvency of a partner should be borne by the solvent partners in their profit sharing ratio. State the validity of the statement.
(ix) A Ltd. take over B Ltd. on April 01, 2007 and discharges consideration for the business as follows:
(a) Issued 42,000 fully paid equity shares of Rs. 10 each at par to the equity shareholders of B Ltd.
(b) Issued fully paid up 15% preference shares of Rs. 100 each to discharge the preference shareholders (Rs. 1,70,000) of B Ltd. at a premium of 10%.
(c) It is agreed that the debentures of B Ltd. (Rs. 50,000) will be converted into equal number and amount of 13% debentures of A Ltd.
Calculate the amount of purchase consideration.
Theory question
20. (i) Fixed capital and fluctuating capital of partners.
(ii) Conditions to be fulfilled by a joint stock company for issue of sweat equity shares.
(iii) Contents of a 'liquidator's final statement of account'.
(iv) Classification of advances in case of banking company.
(v) Computation of 'premium income'; 'claim expenses' and 'commission expenses' in case of an insurance company.
(vi) Characteristics of 'Double accounts system of presentation of financial information'.
(vii) How will you choose a pre-packaged accounting software? Explain in brief.
(viii) Describe the method of calculation of profit or loss on disposal of investments.
(ix) Explain the purpose and status of the conceptual framework for preparation and presentation of financial statements in brief.
(x) Write short note on red ink interest in the context of account current.
Theory Question Based on Accounting Standards
21. (i) What information are required to be disclosed in the financial statements as per AS
7?
(ii) When can a company change its accounting policy?
(iii) Explain the treatment of borrowing costs in brief.
(iv) How will you calculate diluted earnings for a particular period?
(v) What are the conditions that are to be satisfied for 'Amalgamation in the nature of merger'?
(vi) Explain the 'Accounting for Revaluation of fixed assets' with reference to AS 10.
(vii) What do you mean by 'events occurring after the balance sheet date'? Describe disclosure requirements required for such events.
(viii) Write short note on Sale and Lease Back Transactions as per Accounting Standard
19.
(ix) Define the following terms for the purpose of AS 5:
(i) Ordinary activities.
(ii) Extraordinary Activities.
(x) What are the two approaches for accounting of government grants? Explain in brief. Practical Problems based on Accounting Standards
22. (a) How would you deal with the following in the annual accounts of a company for the year ended 31st March, 2008 ?
The company has obtained Institutional Term Loan of Rs. 580 lakhs for modernisation and renovation of its Plant & Machinery. Plant & Machinery acquired under the modernisation scheme and installation completed on 31st March, 2008 amounted to Rs. 406 lakhs, Rs. 58 lakhs has been advanced to suppliers for additional assets and the balance loan of Rs. 116 lakhs has been utilised for working capital purpose. The Accountant is on a dilemma as to how to account for the total interest of Rs. 52.20 lakhs incurred during 2007-2008 on the entire Institutional Term Loan of Rs. 580 lakhs.
(b) X Co. Ltd. supplied the following information. You are required to compute the basic earning per share:
(Accounting year 1.1.2007 - 31.12.2007)
Net Profit
Year 2007 : Rs. 20,00,000 Year 2008 : Rs. 30,00,000
10,00,000 shares
No. of shares outstanding prior to Right Issue
Right Issue : One new share for each four
Outstanding i.e., 2,50,000 shares. Right Issue price - Rs. 20 Last date of exercise rights -31.3.2007.
Fair rate of one Equity share
immediately prior to exercise of rights : Rs. 25
on 31.3.2008
(c) At the end of the financial year ending on 31st December, 2008, a company finds that there are twenty law suits outstanding which have not been settled till the date of approval of accounts by the Board of Directors. The possible outcome as estimated by the Board is as follows:
Lose (Low damages)
30% 1,20,000
10% 2,00,000
Probability Loss (Rs.) 100% -60% -
In respect of five cases (Win) Next ten cases (Win)
Lose (High damages) Remaining five cases
Win
50%
30%
20%
Lose (Low damages) Lose (High damages)
1,00,000
2,10,000
Outcome of each case is to be taken as a separate entity. Ascertain the amount of contingent loss and the accounting treatment in respect thereof.
(d) An equipment is leased for 3 years and its useful life is 5 years. Both the cost and the fair value of the equipment are Rs. 3,00,000. The amount will be paid in 3 instalments and at the termination of lease lessor will get back the equipment. The unguaranteed residual value at the end of 3 years is Rs. 40,000. The (internal rate of return) IRR of the investment is 10%. The present value of annuity factor of Re. 1 due at the end of 3rd year at 10% IRR is 2.4868. The present value of Re. 1 due at the end of 3rd year at 10% rate of interest is 0.7513.
(i) State with reason whether the lease constitutes finance lease.
(ii) Calculate unearned finance income.
23. (i) A firm of contractors obtained a contract for construction of bridges across river Revathi. The following details are available in the records kept for the year ended 31st March, 2009.
(Rs. in lakhs)
Total Contract Price Work Certified Work not Certified
1,000
500
105
495
400
140
Estimated further Cost to Completion Progress Payment Received To be Received
The firm seeks your advice and assistance in the presentation of accounts keeping in view the requirements of AS 7 (Revised) issued by your institute.
(ii) The Board of Directors decided on 31.3.2008 to increase the sale price of certain items retrospectively from 1st January, 2008. In view of this price revision with effect from 1st January 2008, the company has to receive Rs. 15 lakhs from its customers in respect of sales made from 1st January, 2008 to 31st March, 2008 and the Accountant cannot make up his mind whether to include Rs. 15 lakhs in the sales for 2007-2008.
(iii) ABC Ltd. is constructing a fixed asset. Following are the expenses incurred on the construction:
Materials Direct Expenses Total Direct Labour
Rs. 10,00,000
Rs. 2,50,000
Rs. 5,00,000
Rs. 8,00,000
Rs. 10,000
(1/10th of the total labour time was chargeable to the construction)
Total office & administrative expenses (5% is chargeable to the construction)
Depreciation on the assets used for the construction of this assets Calculate the cost of fixed assets.
(iv) Top & Top Limited has set up its business in a designated backward area which entitles the company to receive from the Government of India a subsidy of 20% of the cost of investment. Having fulfilled all the conditions under the scheme, the company on its investment of Rs. 50 crore in capital assets, received Rs. 10 crore from the Government in January, 2008 (accounting period being 2007-2008). The company wants to treat this receipt as an item of revenue and thereby reduce the losses on profit and loss account for the year ended 31st March, 2008.
Keeping in view the relevant Accounting Standard, discuss whether this action is justified or not.
24. (i) X Co. Limited purchased goods at the cost of Rs.40 lakhs in October, 2007. Till March, 2008, 75% of the stocks were sold. The company wants to disclose closing stock at Rs.10 lakhs. The expected sale value is Rs.11 lakhs and a commission at 10% on sale is payable to the agent. Advise, what is the correct closing stock to be disclosed as at 31.3.2008.
(ii) Arjun Ltd. sold farm equipments through its dealers. One of the conditions at the time of sale is, payment of consideration in 14 days and in the event of delay interest is chargeable @ 15% per annum. The Company has not realized interest from the dealers in the past. However, for the year ended 31.3.2008, it wants to recognise interest due on the balances due from dealers. The amount is ascertained at Rs.9 lakhs. Decide whether the income by way of interest from dealers is eligible for recognition as per AS 9.
(iii) AB Ltd. launched a project for producing product X in October, 2006. The Company incurred Rs.20 lakhs towards Research and Development expenses upto 31st March, 2008. Due to prevailing market conditions, the Management came to conclusion that the product cannot be manufactured and sold in the market for the next 10 years. The Management hence wants to defer the expenditure write off to future years.
Advise the Company as per the applicable Accounting Standard.
(iv) J Ltd. purchased machinery from K Ltd. on 30.09.2007. The price was Rs. 370.44 lakhs after charging 8% Sales-tax and giving a trade discount of 2% on the quoted price. Transport charges were 0.25% on the quoted price and installation charges come to 1% on the quoted price.
A loan of Rs. 300 lakhs was taken from the bank on which interest at 15% per annum was to be paid.
Expenditure incurred on the trial run was Materials Rs. 35,000, Wages Rs. 25,000 and Overheads Rs. 15,000.
Machinery was ready for use on 1.12.2007. However, it was actually put to use only on 1.5.2008. Find out the cost of the machine and suggest the accounting treatment for the expenses incurred in the interval between the dates 1.12.2007 to 1.5.2008. The entire loan amount remained unpaid on 1.5.2008.
25. (i) ABC Ltd. could not recover Rs. 10 lakhs from a debtor. The company is aware that the debtor is in great financial difficulty. The accounts of the company were finalized for the year ended 31.3.2008 by making a provision @ 20% of the amount due from the said debtor.
The debtor became bankrupt in April, 2008 and nothing is recoverable from him.
Do you advise the company to provide for the entire loss of Rs. 10 lakhs in the books of account for the year ended 31st March, 2008?
(ii) X Co. Ltd. signed an agreement with its employees union for revision of wages in June, 2008. The wage revision is with retrospective effect from 1.4.2004. The arrear wages upto 31.3.2008 amounts to Rs. 80 lakhs. Arrear wages for the period from 1.4.2008 to 30.06.2008 (being the date of agreement) amounts to Rs. 7 lakhs.
Decide whether a separate disclosure of arrear wages is required.
(iii) Ram Co. (P) Ltd. furnishes you the following information for the year ended 31.3.2008:
Rs. 100 lakhs
Rs. 200 lakhs
Rs. 500 lakhs
Depreciation for the year ended 31.3.2008 (under straight line method)
Depreciation for the year ended 31.3.2008 (under written down value method)
Excess of depreciation for the earlier years calculated under written down value method over straight line method
The Company wants to change its method of claiming depreciation from straight line method to written down value method.
Decide, how the depreciation should be disclosed in the Financial Statement for the year ended 31.3.2008.
SUGGESTED ANSWERS/HINTS
1. In the books of head office
Nagpur Branch Stock Account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,15,000 3,15,000 |
Nagpur Branch Adjustment Account
500* By Stock Reserve A/c
6,000
To Branch Stock A/c (loading of loss) To Stock Reserve To Gross Profit c/d
To Branch Stock A/c
12,000 By Goods sent to Branch A/c 1,20,000
1,13,500
1,26,000
1,26,000
1,13,500
By Gross Profit b/d
(Cost of loss) 1,500
To Branch Expenses 56,000
To Net Profit
(Transferred to General P & L A/c) 56,000 _
1,13,500 1,13,500
*Balancing figure.
Working Notes:
1. Credit Sales have not been given in the problem. So, the balancing figure of Branch Debtors Account is taken as credit sales
2. Loading is 3313 % of Cost; i.e. 25% of invoice value Loading on opening stock = 24,000 x 25% = 6,000
3. Loading on goods sent = 4,80,000 x 25% = Rs.1,20,000
4. Loading on Closing Stock = Rs.48,000 x 25% = Rs.12,000
5. Total Branch Expenses = Cash expenses + Bad debt + Discount allowed
= Rs.53,500 + Rs.1,500 + Rs.1,000 = Rs.56,000
6. Gross Profit
Total sales (at invoice price)- Goods returned by customers (at invoice price) x 33.33 100 + 33.33
33.33
{(Rs. 1,80,000+ Rs. 2,80,000)- Rs. 6,000} x J333L = Rs. 1,13,500(Approx)
133.33
|
Total 90.000 30.000 2,00,000 23,000 7,000 30,000 5,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,000 |
6,000
11,000
Working Note:
Calculation of unrealized profit on closing stock
Stock reserve of J department Cost
30.000
30.000
60.000 20,000
Transfer from I department
Stock of J department
Proportion of stock of I department = Rs. 20,000 x Rs3000 = Rs.10,000
Rs.60,000
20
Stock reserve =Rs.10,000 x = Rs.1667 (approx.)
120
Stock reserve of K department Stock transferred from J department Less: Profit (stock reserve) 5,000 x 20%
Rs.
5.000
1.000 4,000
Cost to J department
Proportion of stock of I department =Rs. 4,000 x Rs3000 = Rs.2,000
Rs.60,000
20
Stock reserve = Rs.2,000 x = Rs.333 (approx.)
120
Total stock reserve = Rs.1,000 + Rs.333 = Rs.1,333
3.
(i) Adjustment for raising and writing off of goodwill
Raised in old profit sharing ratio |
Total |
Written off in new ratio | ||
X & Co. 3:2 Rs. |
Y & Co. 5:3 Rs. |
Rs. |
Rs. | |
A. |
45,000 |
--- |
45,000 Cr. |
46,000 Dr. |
B. |
30,000 |
25,000 |
55,000 Cr. |
57,500 Dr. |
C |
--- |
15,000 |
15,000 Cr. |
11,500 Dr. |
75,000 |
40,000 |
1,15,000 |
1,15,000 |
Difference
Rs. 1,000 Dr.
2.500 Dr.
3.500 Cr. _Nil
Balance Sheet of X Y & Co.(New firm) as on 31.3.2008 | ||
Liabilities Rs. |
Assets |
Rs. |
Capital Accounts: |
Vehicle |
74,000 |
A 1,72,000 |
Machinery |
1,00,000 |
B 2,15,000 |
Building |
2,00,000 |
C 43,000 |
Stock |
70,000 |
Current Accounts: |
Debtors |
1,31,000 |
A 22,000 |
Cash & Bank |
70,000 |
C 18,000 | ||
Creditors 1,75,000 | ||
6,45,000 |
6,45,000 | |
Working Notes: | ||
1. Balance of Capital Accounts at the time of amalgamation of firms | ||
X & Co. Profit and loss sharing ratio 3:2 As Capital |
Bs Capital | |
Rs.. |
Rs. | |
Balance as per Balance Sheet |
1,50,000 |
1,00,000 |
Add: Reserves |
30,000 |
20,000 |
Revaluation profit (Building) |
30,000 |
20,000 |
Less: Revaluation loss (Machinery) | ||
Provision for doubtful debt. |
(12,000) |
(8,000) |
(3,000) |
(2,000) | |
1,95,000 |
1,30,000 | |
Y & Co. Profit and loss sharing ratio 5:3 |
B's Capital |
C's Capital |
Rs. |
Rs. | |
Balance as per Balance sheet |
75,000 |
50,000 |
Add: Reserves |
25,000 |
15,000 |
Less: Revaluation (vehicle) |
(10,000) |
(6,000) |
Provision for doubtful debts |
(2,500) |
(1,500) |
87,500 |
57,500 | |
2. Balance of Capital Accounts in the balance sheet of the new firm as on | ||
31.3.2008 | ||
AB |
C | |
Rs. Rs. |
Rs. | |
Balance b/d: X & Co. |
1,95,000 1,30,000 |
-- |
Y & Co. |
-- 87,500 |
57,500 |
In the General Ledger Sales Ledger Adjustment Account
8,91,440 Dr. 1.4.2007 31.3.2008 |
By Balance b/d 2,240 10,000 6,24,000 11,200 20,800 By General Ledger adjustment A/c: Sales return Cash from customers Discount allowed Transfer to bought ledger Bill receivable received By Balance c/d |
Bought Ledger Adjustment Account
Cr.
Rs.
96,000
Rs.
10,000
20,000
1.4.07 To Balance b/d 31.3.08 To General ledger
adjustment A/c: Purchases returns
Dr.
1.4.07 By Balance b/d
31.3.08 By General ledger
adjustment A/c: Purchases
Cash paid |
4,80,000 |
Transfer from sales |
20,800 |
ledger | |
Discount received |
7,200 |
Bills payable |
22,400 |
accepted | |
Balance c/d |
86,000 |
6,46,400 |
In the Books of ABC Ltd.
Hire Purchase Trading Account for the year ended 31st March, 2008
Rs.
18,000 1.1.2007 By Stock reserve
(1/3 of Rs. 18,000)
1,74,000 1.1.2007 By Hire purchase
31.3.2008 To Loss on
repossession of goods (W.N. 5)
31.3.2008 To Stock reserve To Profit and loss
account (Transfer of profit)
Purchase
6,46,400
5
Dr.
1.1.2007 To Hire purchase
stock
1.1.2007 To Goods sold on
hire
Cr.
Rs.
6,000
1,32,000
58,000
900
to
By sales
Goods sold on hire purchase (1/3 of Rs. 1,74,000)
By Profit on sale of repossessed goods (W.N. 4)
to
31.3.2008
1,600
20,000
43,300 31.3.2008 By Hire purchase __stock (W.N. 3)
60000
2,56,900
2.56.900
Alternatively, Hire Purchase Trading Account can be prepared in the following manner:
Hire Purchase Trading Account
for the year ended 31st March, 2008
Dr. Cr.
1.1.2007 To Hire purchase 18,000 1.1.2007 By Stock reserve (1/3 6,000
stock
1.1.2007 To Hire purchase 10,000 debtors
To Goods sold on 1,74,000 1.1.2007 By Cash (1,21,000 +
to
58,000
20,000
60,000
18,000
hire To purchase Cash
(Overhauling charges) 31.3.2008 To Stock reserve
To Profit and loss account
to
31.3.2008
(1/3 of Rs. 1,74,000) 31.3.2008 By Hire purchase By stock
Hire purchase debtors
500 31.3.2008 By Goods sold on hire purchase
2,800)
(Transfer of profit)
43,300
2,65,800
2,65,800
Working Notes:
1. Memorandum Instalment due but not collected (hire purchase debtors) account
Dr. Cr. | ||||||||||||||||||||
| ||||||||||||||||||||
1,42,000 1,42,000 |
Memorandum shop stock account
2.
Dr.
Cr.
Rs.
1,16,000
40,000
1,56,000
Balance b/d Purchases
To
To
Rs.
36,000 By Goods sold on hire purchase
(Balancing figure) By Balance c/d
1,20,000
3. Memorandum Instalment not yet due (hire purchase stock) account
Dr
Rs. Rs.
18,000 By Hire purchase Sales 1,32,000
To Balance b/d
To Goods sold on hire By Balance c/d (Balancing
purchase [1,16,000 figure) 60,000 + (1,16,000 x 50%)] 1.74.000 ___
1,92,000 1,92,000
Goods Repossessed account
4.
To Balance b/d Dr. Rs. To Hire purchase debtors 3,000 By Hire purchase trading account (W.N. 5) ___By Balance c/d (W.N. 5) To Cash account (expenses) To Profit on sale |
3,000 Cr. Rs. 1,600 1,400 3,000 2,800 1,400 By Cash account 500 900 |
2,800
Original cost of goods repossessed Rs. 3,000 x 150
Instalments due but not received
Valuation of repossessed goods (70% of Rs. 2,000)
Loss on repossession
2,800
5.
Rs.
2,000
3,000
1,400
Mr. A in Account Current with Mr. X (Interest upto 15th March, 2008 @ 10% p.a.)
Dr.
Date 2008 Jan. 01 Jan. 15 Mar. 13
Cr.
Product
55,200
34,000
4,02,600
4,91,800
Amount Days
To
To
To
By
By
By
1,200
1,000
2,000
2,140
6,340
46
34
Mar. 15 To
6,340
Particulars
Balance b/d Sales account Red Ink product (Rs. 2,000 x 29)
Interest account
Rs. 4,02,600x10x1 100X366
Amount Days Product Date
2008
4,000 75 3,00,000 Jan. 29 2,230 60 1,33,800 Feb. 10
Mar. 13
Mar. 15 By By
4,91,800
110
Particulars
Purchase account
Cash account
Bills Receivable account
Balance of product Balance c/d (amount to be paid)
C & Co. 12,00,000 1,00,000 11,00,000 13,10,000 (2,10,000)
_Nil
(2,10,000)
2,10,000
Nil
1,00,000
1,00,000
(b)
8.
(i)
(ii)
17.10.000
6,00,000
11.10.000
Rs.
2,00,000
2,00,000
12,00,000
6,00,000
6,00,000
Rs.
2,00,000
2,00,000
| |||||||||||||||||||||||||||||||||||||||||||||
Computation of amounts payable by underwriters: |
Liability towards shares to be subscribed @ 12 per share 30,90,000
Less: Commission
(5% on 12 lakhs shares @ 10 each) 6,00,000 Net amount to be paid by underwriters 24,90,000
In the Books of A Ltd. Journal Entries
Share Final Call A/c Dr.
To Share Capital A/c (Being the final call of Rs. 2.50 each on 80,000
equity shares made)_
Bank A/c Dr.
To Share Final Call A/c (Being the amount due on final call received)
General Reserves Dr.
Securities Premium A.c
To Bonus to Share holders A/c (Being the appropriation made as above to facilitate issue of fully paid up bonus shares at the rate of one share for every two shares held)_
(iv) Bonus to Shareholders A/c
To Equity Share Capital A/c (Being the issuance of 40,000 fully paid up shares of Rs. 10 each by way of bonus)_
Dr. 4,00,000
4,00,000
Balance Sheet (after bonus issue)
Amount
Amount
2,00,000
17,00,000
15.00.000
12,00,000
1.50.000
50.000
2.30.000
2.50.000
20.000 19,00,000
19,00,000
Liabilities
Authorised Share Capital
1.50.000 equity shares of Rs. 10 each Issued and Subscribed
1.20.000 Equity Shares of Rs. 10 each fully paid
Of the above, 40,000 equity shares are allotted as fully paid up by way of bonus shares
Reserves and Surplus Capital Redemption Reserve Securities Premium Development Rebate Reserve Investment Allowance Reserve Plant Revaluation Reserve
Assets
Bank
Sundry Assets
In the books of Alpha Ltd.
9.
Journal Entries Amount Dr. Amount Cr.
Date
Particulars
Rs.
1,50,00,000
Rs.
1.5.08
Dr.
1,50,00,000
1.6.08
Dr. 1,50,00,000 Dr. 50,00,000
Bank A/c
To Debenture Application A/c (Application money received on 1,50,000 debentures @ Rs. 100 each)_
Debenture Application A/c Underwriters A/c
To 15% Debentures A/c (Allotment of 1,50,000 debentures to applicants and 50,000 debentures to underwriters)
Underwriting Commission To Underwriters A/c (Commission payable to underwriters @ 2% on Rs. 2,00,00,000)
4,00,000
Bank A/c
Dr. 46,00,000
To Underwriters A/c (Amount received from underwriters in settlement of account)_
46,00,000
30.9.08 Debenture Interest A/c To Bank A/c (Interest paid on debentures for 4 months @ 15% on Rs. 2,00,00,000)
Dr. 10,00,000
10,00,000
30.10.08 15% Debentures A/c
Dr. 1,20,00,000
To Equity Share Capital A/c To Securities Premium A/c (Conversion of 60% of debentures into shares of Rs. 60 each with a face value of Rs. 10)
20,00,000
1,00,00,0000
Dr.
7,50,000
7,50,000
31.3.09 Debenture Interest A/c To Bank A/c (Interest paid on debentures for the half year)
Working Note :
Calculation of Debenture Interest for the half year ended 31st March, 2009 On Rs. 80,00,000 for 6 months @ 15% = Rs. 6,00,000
On Rs. 1,20,00,000 for 1 months @ 15% = Rs. 1,50,000
Rs. 7,50,000
10. Journal Entries for Buy-back of shares of Gun Shot Ltd.
(i) Bank A/c Dr. 3,20,000
To Non-trade Investments To Profit & Loss A/c
Dr. 3,20,000
3.20.000
3.20.000
1.60.000 1,60,000
Rs.
20,000
80,000
1,60,000
1,60,000
(iv)
1,00,000
60,000
(v)
11.
Rs.
5,70,000 By By
To
Gratuity Fund
Sundry Creditors Hari Ltd.
To
Equity Share Capital A/c (16,000 x Rs.10) Dr.
Buy-back Premium (16,000 x Rs.10) Dr.
To Shares Buy-back A/c (Being cancellation of shares bought back)
Securities Premium A/c Dr.
General Reserve Dr.
To Buy-back Premium (Being adjustment of buy-back premium)
General Reserve Dr. 1,60,000
To Capital Redemption Reserve
(Being the entry for transfer of General Reserve to Capital Redemption Reserve to the extent of face value of equity shares bought back)
In the Books of Vayu Ltd.
Realisation Account
(Being the entry for sale of Non-trade Investments) (ii) Shares Buy back A/c (16,000 x Rs. 20)
To Bank A/c
(Being purchase of 16,000 shares @ Rs.20 per share)
Sundry Assets (5,80,000 -10,000)
Preference Shareholders (Premium on Redemption)
| ||||||||||||||||||||||||||||||||
(Profit on Realisation) |
4,30,000
5.30.000
6.30.000
Rs.
80,000
50,000
4.30.000
Rs.
1,00,000
10.000
Preference Shareholders Account
Rs.
1,10,000 By
Preference Share Capital
To 9% Preference Shares of Hari Ltd.
By Realisation Account
(Premium on Redemption of Preference Shares)
1,10,000
Rs.
5.30.000
Cr.
Rs.
Hari Ltd. Account
Rs.
5.30.000 By 9% Preference Shares _ By Equity Shares
To Realisation Account
5.30.000
In the Books of Hari Ltd.
Journal Entries
Dr. Rs.
50,000
Dr.
Goodwill Account
Building Account |
Dr. |
1,50,000 |
Machinery Account |
Dr. |
1,60,000 |
Stock Account |
Dr. |
1,57,500 |
Debtors Account |
Dr. |
1,00,000 |
Bank Account |
Dr. |
20,000 |
20,000
80,000
7,500
5,30,000
Dr.
5,30,000
1,10,000
4,00,000
20,000
To Gratuity Fund Account To Sundry Creditors Account To Provision for Doubtful Debts Account To Liquidators of Vayu Ltd. Account (Being Assets and Liabilities takenover as per agreed valuation).
Liquidators of Vayu Ltd. A/c
To 9% Preference Share Capital A/c To Equity Share Capital A/c To Securities Premium A/c
(Being Purchase Consideration satisfied as above).
Balance Sheet of Hari Ltd. (after absorption) as at 31st March, 2008
Liabilities Rs. Share Capital : 2,100 9% Preference Shares of 2,10,000 Rs.100 each 1.40.000 Equity Shares of Rs. 10 each fully paid 14,00,000 (1,100 Preference Shares and 40.000 Equity Shares were issued in consideration other than for cash) Reserve and Surplus: Securities Premium 20,000 General Reserve 1,00,000 Current Liabilities: Gratuity Fund 70,000 |
Assets Rs. 1,00,000 4.50.000 6.60.000 4.07.500 2.92.500 70,000 Fixed Assets: Goodwill Building Machinery Current Assets: Stock 3,00,000 7,500 Debtors Less: Provision for bad debts Cash and Bank Miscellaneous Expenses to the |
extent not written off
Sundry Creditors 2,10,000 Preliminary
_ expenses
20,10,000
20,10,000
Working Notes:
Purchase Consideration:
Goodwill 50,000
Building 1,50,000
Machinery 1,60,000
Stock 1,57,500
Debtors 92,500
Cash at Bank 20,000
6,30,000
Less: Liabilities
Gratuity 20,000
Sundry Creditors 80,000
Net Assets 5,30,000 To be satisfied as under:
10% Preference Shareholders of Vayu Ltd. 1,00,000
Add: 10% Premium 10,000
1,100 9% Preference Shares of Hari Ltd. 1,10,000
Equity Shareholders of Vayu Ltd. to be satisfied by issue of 40,000
Equity Shares of Hari Ltd. at 5% Premium 4,20,000
Total 5,30,000
12. In the Books of Max Ltd.
Particulars Dr.
Cr.
Amount
Rs.
01.04.2008 Amount
Rs.
Equity share capital A/c Dr. 15,00,000
To Equity share capital A/c (Being sub-division of one share of Rs. 100
each into 10 shares of Rs. 10 each)
Equity share capital A/c Dr.
7.50.000 13,500
78,400
1.20.000
To Capital reduction A/c (Being reduction of capital by 50%)
Capital reduction A/c Dr.
To Bank A/c (Being payment in cash of 10% of arrear of preference dividend)
13,500
76,800
1,600
1,15,200
4,800
Bank A/c Dr.
To Own debentures A/c To Capital reduction A/c (Being profit on sale of own debentures transferred to capital reduction A/c)
12% Debentures A/c Dr.
To Own debentures A/c To Capital reduction A/c (Being profit on cancellation of own debentures transferred to capital reduction A/c)
12% Debentures A/c Dr.
2,80,000
20,000
Capital reduction A/c Dr.
To Machinery A/c (Being machinery taken up by debentureholders for Rs. 2,80,000)
3,00,000
Creditors A/c Dr.
65.000
29.000
Capital reduction A/c Dr.
To Debtors A/c To Stock A/c (Being assets and liabilities revalued)
61,000
33,000
Capital reduction A/c Dr.
4,33,000
To Goodwill A/c To Discount on debentures A/c To Profit and Loss A/c
(Being the balance of capital reduction transferred to capital reserve account)
Capital reduction A/c Dr.
15,000
To Bank A/c (Being penalty paid for avoidance of capital
Capital reduction A/c
To Capital reserve A/c (Being penalty paid for avoidance of capital commitments)
02.04.2008 Business Purchase A/c
Dr. 13,20,000
To Liquidators of Mini Ltd.
13,20,000
(Being the purchase consideration payable to
Mini Ltd.)_
Fixed Assets A/c Dr.
7.60.000
6.80.000
4.40.000
1.30.000
Stock A/c Dr.
Debtors A/c Dr.
Cash at Bank A/c Dr.
To Sundry Creditors A/c
2.25.000 2,00,000
15,000
2.50.000 13,20,000
To 12% Debentures A/c of Mini Ltd.
To Profit and Loss A/c
To General reserve A/c Rs. (1,70,000 + 80,0002) To Business purchase A/c (Being the take over of all assets and liabilities of Mini Ltd. by Max Ltd.)
Liquidators of Mini Ltd. A/c Dr.
13,20,000
To Equity Share Capital To 9% Preference share capital (Being the purchase consideration discharged)
10,00,000
3,20,000
12% Debentures of Mini Ltd. A/c To 12% Debentures A/c (Being Max Ltd. issued their 12% Debentures in against of every Debentures of Mini Ltd.)
Dr. 2,00,000
2,00,000
Balance Sheet of Max Ltd. as at 2.4.2008
Liabilities Rs. Assets
Rs.
19.60.000
10.40.000
10.30.000
Share Capital: Fixed Assets
Equity Share Capital 17,50,000 Stock
9% Preference share capital 8,20,000 Debtors
Profit and Loss A/c 15,000 Cash in hand/Bank
General Reserve 4,30,000
Capital Reserve 2,45,900
12% Debentures 4,00,000
Sundry Creditors 5,75,000
42,35,900
42,35,900
Working Notes:
1. Purchase Consideration
50
Equity share capital 10,000 x x Rs.10 = 10,00,000
4
9% Preference share capital 4,000x 5 x Rs.100 = 3,20,000
Rs. 13,20,000
2. General Reserve
Share Capital of Mini Ltd. (Equity + Preference) Less: Share Capital issued by Max Ltd.
Rs.
14,00,000
13,20,000
80,000
1.70.000
1.80.000 4,30,000
Rs.
33,000
3,00,000
5,000
30) 90,000
4.28.000
Rs.
4.13.000
General reserve (resulted due to absorption) Add: General reserve of Mini Ltd.
General reserve of Max Ltd.
Liquidators Final Statement of Account
13.
Rs. Payments
Receipts
Cash
Realisation from:
Calls in arrears Final call of Rs. 5 per
equity share of Rs. 50 each (Rs. 5 x 1,000)
4.13.000 Return to contributors: Preference dividend
10,000 Preference shareholders Calls in advance Equity shareholders of
5,000 Rs. 100 each (3,000 x Rs
4.28.000
Working Note:
Cash account balance
Less: Payment for dividend
Preference shareholders Calls in advance
3,38,000
75.000
10.000 85,000
Add: Calls in arrears
Add: Amount to be received from equity shareholders of Rs. 50 each (1,000 x 20)
20,000
1,05,000
Amount disposable
Number of equivalent equity shares:
3.000 shares of Rs. 100 each = 6,000 shares of Rs. 50 each
1.000 shares of Rs. 50 each = 1,000 shares of Rs. 50 each
= 7,000 shares of Rs. 50 each
Amount left for distribution
Final payment to equity shareholders =
Total number of equivalent equity shares
= Rs. 1,05,000 / 7,000 shares = Rs. 15 per share to equity shareholders of Rs. 50 each. Therefore for equity shareholders of Rs. 100 each Rs.15 x 100 = Rs. 30 per share to equity shareholders of Rs. 100 each.
Calls in advance must be paid first, so as to pay the shareholders on prorata basis. Equity shareholders of Rs. 50 each have to pay Rs. 20 and receive Rs. 15 each. As a result, they are required to pay net Rs. 5 per share.
14. (a) Computation of Capital Base
Rs. Rs.
Fixed Assets 4,00,00,000
Less:Customers' Contribution 4,00,000 3,96,00,000
Add: Cost of Intangible Assets
(Preliminary Expenses) 10,00,000
Investments against Contingencies Reserve 40,00,000
Monthly average of Current Assets 40,00,000
Less:
Amount written off on account of Depreciation
1,60,00,000
60,00,000
16,00,000
1.50.00.000 12,00,000 20.00.000
4.18.00.000 68,00,000
6,80,000
7.20.000
30.000
10.000 8.000
14.48.000
20.40.000
14.48.000
5.92.000
2.89.600
3,02,400
Loans advanced by Electricity Board
10% Debentures
Security Deposits by Customers
Balance of Tariffs and Dividend Control Reserve
Balance of Development Reserve
(B)
Capital Base (A) - (B)
(b) Computation of Reasonable Return Yield 10% (i.e. 8% + 2%) on Capital Base
Income from Reserve Fund Investments - 6% on Rs. 1,20,00,000 (Investments other than of Contingencies reserve)
1/2% of Loans from Electricity Board 1/2% of Development Reserve 1/2% of Debentures Reasonable Return
(c) Computation of Surplus Post tax Profit
Less: Reasonable Return Surplus
(d) Disposal of Surplus
20% of Reasonable return = Rs. 14,48,000 x 20/100 =
(1) Excess of 20% of Reasonable Return to be Credited to Customers Benefit Account:
Rs.5,92,000 - Rs. 2,89,600 (Amount refundable to consumers)
(2) Balance of Rs. 2,89,600 has to be disposed of as follows:
(a) 1/3 of the surplus not exceeding 5% of Reasonable
Return at the disposal of the company - 5% of 14,48,000
or 1/3 of 2,89,600, whichever is less
(b) 1/2 of the balance to be credited to Tariff and Dividend Control Reserve
1
,08,600
,08,600
(c) The balance to be credited to Customers Rebate Account (in addition to Rs. 3,02,400 shown above)
1_
5.92.000
4.11.000
Total Surplus Amount to be refunded to customers (Rs. 3,02,400 + Rs. 1,08,600)
Amount to be transferred to Tariff and Dividend Control Reserve Amount at disposal of the company (Rs. 14,48,000 + Rs. 72,400)
1,08,600
15,20,400
20,40,000
Net Profit
Journal of Indian Insurance Co. Ltd.
15. (a)
2007 Dec. 31
(Rupees in Dr.
crores)
Cr.
Rs.
3.30
Rs
3.30
Marine Revenue A/c Dr.
To Unexpired Risks Reserve A/c (Being the difference between closing provision of Rs. 18.30 crores (18 + 7 - 6.7) and opening provision of Rs. 15 crores charged to marine revenue account)
Fire Revenue A/c Dr.
1.85
To Unexpired Risks Reserve A/c (Being the difference between closing provision of Rs. 21.85 crores [(43 + 5 - 4.3)/2] and opening provision of Rs. 20 crores charged to fire revenue
1.85
account)_
Unexpired Risks Reserve A/c Dr.
0.50
To Miscellaneous Revenue A/c (Being the excess of opening balance of Rs. 5 crores over the required closing balance of Rs. 4.5 crores [(12 + 4 - 7)/2] credited to miscellaneous revenue account).
0.50
Marine |
Fire Miscellaneous |
Marine |
Fire |
Miscel laneous | |||||
2007 |
Rs. |
Rs. |
Rs. |
2007 |
Rs. |
Rs. |
Rs. | ||
Dec. 31 |
To Revenue A/c |
- |
- |
0.50 |
Jan 1 |
By Balance b/d |
15.00 |
20.00 |
5.00 |
To Balance c/d |
18.30 |
21.85 |
4.50 |
Dec.31 |
By Revenue A/c |
3.30 |
1.85 |
- | |
18.30 |
21.85 |
5.00 |
18.30 |
21.85 |
5.00 |
Note : Alternatively, the opening balances of unexpired risk reserves may be reversed in the beginning of year by transfer to Revenue account and fresh reserve of full required amount may be created at the end of the year which will be carried forward as closing balances.
16. Calculation of amount of provision to be made in the Profit and Loss Account
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 |
Smith Library Society Income and Expenditure Account for the year ended 31st March, 2008
17.
Dr. Expenditure To Electric charges To Postage and stationary |
Rs. Rs. Income 5 000 of Rs. 30,000) |
To Telephone |
5,000 |
By Membership |
2,00,000 | ||
charges |
88,000 |
subscription |
10,000 |
1,90,000 | |
To Rent |
Less: Received in | ||||
advance | |||||
Add: Outstanding |
4,000 |
92,000 |
By Sale proceeds of old |
1,500 | |
To Salaries |
66,000 |
papers |
20,000 | ||
By Hire of lecture hall | |||||
Add: Outstanding |
3,000 |
69,000 |
By Interest on securities |
8,000 | |
To Depreciation (W.N.1) |
(W.N.2) | ||||
Electrical |
15,000 |
Add: Receivable |
500 |
8,500 | |
fittings |
5,000 |
By Deficit- excess of |
16,700 | ||
Furniture |
46,000 |
66,000 |
expenditure over | ||
Books |
income | ||||
2,44,200 |
2,44,200 | ||||
Balance Sheet of Smith Library Society | |||||
as on 31st March, 2008 | |||||
Liabilities |
Rs. |
Rs. |
Asset |
Rs. |
Rs. |
Capital fund |
7,93,000 |
Electrical fittings |
1,50,000 | ||
Add: Entrance fees |
22,500 |
Less: Depreciation |
15,000 |
1,35,000 | |
8,15,500 |
Furniture |
50,000 | |||
Less: Excess of |
16,700 |
7,98,800 |
Less:Depreciation |
5,000 |
45,000 |
expenditure |
Books |
4,60,000 | |||
over income | |||||
Outstanding |
Less Depreciation |
46,000 |
4,14,000 | ||
expenses: |
4,000 |
Investment: | |||
Rent | |||||
Salaries |
3,000 |
7,000 |
Securities |
1,90,000 | |
Membership subscription in |
10,000 |
Accrued interest |
500 |
1,90,500 | |
advance | |||||
Cash at bank |
20,000 | ||||
Cash in hand |
11,300 | ||||
8,15,800 |
8,15,800 |
Working Notes:
1. Depreciation
Rs.
15.000 5,000
46.000
Electrical fittings 10% of Rs. 1,50,000 Furniture 10% of Rs. 50,000 Books 10% of Rs. 4,60,000
2. Interest on Securities
Interest @ 5% p.a. on Rs. 1,50,000 for full year Interest @ 5% p.a. on Rs. 40,000 for half year Less: Received Receivable
7,500
1,000
8,500
8,000
500
18. Computation of claim for loss of stock:
Rs.
30.500 3,000
27.500
Stock on the date of fire i.e. 31.12.2008 (Refer working note)
Less: Salvaged stock
Loss of stock
Amount of claim
Insured value . ...
- x loss of stock
Total cost of stock on the date of fire Rs.25,000
x Rs.27,500 = 22,541 Rs.30,500
Working Note:
Memorandum trading account can be prepared for the period from 1.10.2008 to
31.12.2008 to compute the value of stock on 31.12.2008.
Memorandum Trading Account for period from 1.10.2008 to 31.12.2008
Rs.
Rs.
33,000
Rs.
1,40,000
30,500
75.000 5,000
33.000 500
70.000
32,500
35.000
To Opening stock
(Rs. 29,700x100/90)
To Purchases
Less: Cost of plant To Wages
Less: Wages paid for plant To Gross profit
(33.33% on cost or 25% on sales)
By Sales By Closing stock (balancing figure)
1,70,500
1,70,500
19. (i) True- The economic life of an enterprise is artificially split into periodic intervals in accordance with the accounting period assumption or the periodicity concept. The going concern assumption assumes that an enterprise will continue in operation for indefinite period of time.
(ii) False- Average due date is 'no loss no gain' date to either party. i.e. neither the debtor nor the creditor stands to lose or gain anything by way of interest.
(iii) Although the case under consideration does not relate to extraordinary item, but the nature and amount of such item may be relevant to users of financial statements in understanding the financial position and performance of an enterprise and in making projections about financial position and performance. Para 12 of AS 5 (Revised in 1997) on Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies states that :
When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.
Circumstances which may give to separate disclosure of items of income and expense in accordance with para 12 of AS 5 include the write-down of inventories to net realisable value as well as the reversal of such write-downs.
(iv) B : 2/3 less 3/10 = 11/30 C: 1/3 less 2/10 = 4/30 Gaining ratio = B : C
11 : 4
(v) False- If there exists a specific sports fund, the expenditure incurred in carrying out the purpose of the fund i.e. incurred on sports activities will be deducted from that fund only.
(vi) True - Disclosure of significant accounting policies must form part of the financial statements and these policies must be disclosed separately, at one place in annual report e.g., policies relating to valuation of inventory, depreciation accounting, etc.
(vii) Calculation of new profit sharing ratio D is to get 1/8th share in profit
The remaining profit of the firm = 1 - 1/8 = 7/8
Remaining profit will be shared by A, B and C in their old profit sharing ratio. Thus,
the new profit sharing ratio of A, B and C will be calculated as follows:
A |
7/8 |
x |
6/14 = |
3/8 |
B |
7/8 |
x |
5/14 = |
5/16 |
C |
7/8 |
x |
3/14 = |
3/16 |
Therefore, the new profit sharing ratio is 3/8 : 5/16 : 3/16 : 1/8 or 6: 5: 3: 2
(viii) False: According to the rule of Garner vs. Murray, the loss on account of insolvency of a partner should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet, just before the dissolution of the partnership firm.