Financial
Accounting
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Time: 3 Hours
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March 2005
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Marks: 100
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N. B. :
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(1) Question No. one is compulsory.
(2) Solve any five questions out of Q. Nos. 2 to 9.
(3) All working Notes should from part of answer.
(4) Figures to the right indicate full marks assigned to question.
(5) Specify assumptions, if any, while solving the question.
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Q.1.
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Following balances are extracted from the books of SURE
SUCCESS CO. LTD. as on 31-12-2004.
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20
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Rs.
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Rs.
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Rs.
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Freehold Factory Premises
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6,00,000
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2,00,000 Equity Shares of Rs. 10 each
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20,00,000
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Leasehold Office Premises
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5,00,000
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5,000 6% Debentures of Rs. 100 each
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5,00,000
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Bank Balance
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60,500
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General Reserves
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75,000
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Vehicles
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3,15,000
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Sinking Fund for Leasehold Premises
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15,000
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Plant & machinery
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8,30,000
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Profit & loss Account
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Sundry Debtors
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2,40,000
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Balance
B/d
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47,450
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Computer
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30,000
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+ Net Profit after tax
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2,90,000
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Goodwill
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2,00,000
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3,37,450
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Stock
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1,30,000
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- Debenture Interest
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30,000
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3,07,450
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Cash in Hand
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1,950
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Provision for tax [Accounting Year 2003]
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1,50,000
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Advance Income Tax :
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Provision for tax [Accounting Year 2004]
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1,80,000
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- [Accounting Year 2003]
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1,45,000
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- [Accounting Year 2004]
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1,75,000
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32,27,450
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32,27,450
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ADJUSTMENTS
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(1) During
the current year Income Tax assessment for the accounting year 2003 is
completed with a gross demand of Rs. 1,35,000 but no effect of the same is
given in the accounts of the current year.
(2) The
Board of Directors decided to provide :-
(i) 20%
Bonus on the years salary of Rs. 1,00,000
(ii) 10%
Sinking fund on leasehold premises
(iii) Rs.
5,000 as Directors fees
(iv) 5%
Dividend for the year to the shareholders
(v) Transfer
Rs. 50,000 to General Reserves.
Considering
the above Trial Balance and the adjustments and assuming that there will be
no change in the provision for tax of the accounting year 2004 on account
of changes if any, prepare Profit and Loss Account for the year ended
31-12-2004 and the Balance Sheet as on that date in a vertical form keeping
in mind the prescribed formats and applicable accounting standards. Ignore
previous years figures.
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Q. 2.
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The following Trial Balance was extracted from the books of
M/s. Santosh Pvt. Ltd. which had taken over business of Miss Sandhya on 1st April 2003. The company was incorporated on 1st July 2003. However, no effect of conversion was given in the books which continued thereafter :-
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16
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Rs.
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Rs.
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Fixed Assets
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1,10,000
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Sales
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12,37,500
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Current Assets [Except closing stock]
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4,43,200
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Capital of Miss Sandhya
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5,50,000
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Stock [1-4-2003]
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1,10,000
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Current Liabilities
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2,23,750
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Purchases
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7,70,000
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Carriage outwards
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82,500
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Office Salaries
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2,20,000
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Rent
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36,300
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Directors remuneration
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33,000
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Advertisement expenses
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1,65,000
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Travelling expenses
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41,250
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20,11,250
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20,11,250
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Additional
Information :
(1)
Stock on 31-03-2004 was valued at Rs. 4,67,500.
(2)
Purchase consideration of Rs. 6,87,500 to be paid by issue of 55,000 Equity
Shares of Rs. 10 each and 13,750 5% Preference shares of Rs. 10 each.
(3)
Gross profit percentage is fixed.
(4)
Turnover is doubled in April, November and December as compared to other
months.
(5)
Advertisement expenses to be apportioned in Pre & Post incorporation
period in the ratio of 3:2.
(6)
Provide depreciation @ 10% p.a. on fixed assets.
(7) Rent
on building was Rs. 2,750 p.m. upto September 2003 and thereafter it was
increased by Rs. 550 pm.
(8)
Allocate expenses in an appropriate manner.
Prepare
Trading and Profit & Loss Account for the year ended 31-03-2004 appropriating expenses and incomes between Pre and Post Incorporation period
and balance sheet as on that date.
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Q. 3.
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Enron
Ltd. gave notice of its intention to redeem its outstanding Rs. 6,00,000 -
8% debentures at Rs. 103 and offered the holders the following options :-
(a) 10%
Preference Shares of Rs. 20 each at Rs. 25
(b) 9%
Debentures at Rs. 96
(c) To
have holdings redeemed for cash.
(i) The
holders of Rs. 1,80,000 debentures accepted proposal (a)
(ii) The
holders of Rs. 2,40,000 debentures accepted proposal (b)
(iii) The
remaining debenture holders accepted proposal (c)
Pass
necessary journal entries in the books of Enron Ltd.
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16
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OR
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Q. 4.
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Following is the Balance sheet of M/s. Siddhant Ltd. as on 31-03-2004.
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16
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Liabilities
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Rs.
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Assets
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Rs.
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Equity Shares of Rs. 10 each
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10,00,000
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Fixed Assets
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21,00,000
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12% Cumulative Preference Shares of Rs. 100 each
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7,00,000
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Stock
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20,00,000
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10% Debentures
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3,00,000
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Sundry Debtors
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15,00,000
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Sundry Creditors
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36,00,000
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Bank
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1,10,000
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Provision for Tax
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5,00,000
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Preliminary Expenses
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40,000
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Profit & Loss Account
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3,50,000
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61,00,000
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61,00,000
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Note
: Preference
dividend for 3 years was in arrears.
Following
scheme of reconstruction was approved :-
1. Write
off Fixed Assets by 20%, Sundry Debtors by 15% and reduce the value of
stock to 55% of its book-value.
2. Preference
shareholders to Forego arrears of preference dividend.
3. Directors
to give temporary loan of Rs. 5,00,000 to Company.
4. The
Company settled tax liability to the extent of Rs. 5,40,000 and to meet the
expenses of reconstruction amounted to Rs. 10,000.
5. Sundry
Creditors to give a remission of 20% of their claims and a company to allot
11% Preference shares of Rs.100 each fully paid up in settlement of
the balance amount.
6. 10%
debentures to be converted into 13% Debentures of Rs. 1,60,000 in full
settlement of their claim.
7. Equity
shares to be reduced to Rs. 2 each fully paid up and 12% cumulative
Preference shares to be reduced to Rs. 1,00,000 cumulative Preference
shares of Rs. 2 each fully paid up.
8. Write
off debit balance in Profit & Loss Account and Preliminary expenses.
Draft
journal entries & prepare Capital Reduction Account & Balance Sheet
after reconstruction.
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Q. 5.
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The following are the Balance Sheets as on 31-12-2004 of Nisha Ltd & Usha Ltd.
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16
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Liabilities
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Nisha Ltd
Rs.
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Usha Ltd
Rs.
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Assets
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Nisha Ltd
Rs.
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Usha Ltd
Rs.
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Equity Share Capital [Rs. 100 per share]
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2,00,000
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1,20,000
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Land & Building
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70,000
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--
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15% Debentures
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40,000
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--
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Plant & Machinery
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2,20,000
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1,00,000
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Reserve Fund
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76,000
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5, 000
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Stock
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35,000
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18,000
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Employees Provident fund
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6,000
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--
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Debtors
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25,000
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16,000
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Sundry Creditors
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30,000
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16,000
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Bank
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6,000
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2,000
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Profit & Loss A/c
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4,000
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--
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MISC. Exp. not W/o
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Advertisement Exp.
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--
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5,000
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Total
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3,56,000
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1,41,000
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Total
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3,56,000
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1,41,000
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The two
companies agree to amalgamate and form a new company M/s. Ujala Ltd. which
takes over the assets and liabilities of both the companies.
The
authorized capital of Ujala Ltd. is Rs. 20,00,000 consisting of 2,00,000
Equity Shares of Rs. 10 each.
The
assets of Nisha Ltd. are taken over at 90% of the book value with the
exception of land and building which are accepted at book value.
Both the
companies are to receive 10% of the net valuation of their respective
business as Goodwill.
The
purchase consideration is to be satisfied by Ujala Ltd. in its fully paid
shares at 10% premium. In return of Debentures of Nisha Ltd., Debentures of
the same amount and denomination are to be issued by Ujala Ltd.
Close
the books of Nishs Ltd. and Ujala Ltd. and Show the Opening Balance Sheet
of Ujala Ltd. under Purchase Method.
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Q. 6.
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On 1st
January 2004, 1000 12% Debentures of Rs. 100 each of Shiva Ltd. were held
as investment by Mr. Dharmesh at a cost of Rs.91,000. Interest is payable
on 31st December.
On 1st April 2004, Rs. 20,000 of such debentures were purchased by Dharmesh @ Rs. 98
cum-interest.
On 1st September 2004, Rs. 30,000 of such debentures were sold at Rs. 96 ex interest.
On 1st December 2004, Rs. 50,000 of such debentures were sold at Rs. 99 cum-interest.
Interest
is received on due date.
Prepare
Investment account for 12% debentures of Shiva Ltd. In the books of Mr.
Dharmesh valuing closing stock as on 31st December 2004 applying AS 13. The debentures were quoted at Rs. 93 on 31st December 2004.
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16
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Q. 7.
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The Balance sheet of Gayatri Ltd. as on 31st December, 2004
was as follows :-
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16
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Liabilities
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Rs.
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Assets
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Rs.
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SHARE CAPITAL 90,000 Equity Shares
of Rs. 10 each fully paid 4,000-10% Preference shares of Rs. 100 each
fully paid
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9,00,000 4,00,000
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Fixed Assets Goodwill Land & Building Plant & machinery
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30,000 3,00,000 6,50,000
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RESERVES & SURPLUS
Capital Reserves General Reserves
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1,50,000 60,000
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INVESTMENTS 6% Govt. Securities at
Cost [Face value Rs. 80,000]
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90,000
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SECURED LOAN 8% Debentures
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2,40,000
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CURRENT ASSETS Stock Debtors Cash
& Bank
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5,00,000 4,00,000 60,000
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CURRENT LIABILITES & PROVISIONS
Trade Creditors Provision for Tax
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2,50,000 30,000
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20,30,000
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20,30,000
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The
assets are revalued as follows :
Land and
Building Rs. 2,00,000
Plant
& Machinery Rs. 7,50,000
The
normal rate of return on capital employed for the valuation of goodwill is
10%.
Goodwill
should be valued on the basis of 3 years purchase of super-profits of the
company. The average annual profit of the company is Rs. 1,80,000.
40% of
the money invested in Building is treated as non-trading assets because
Rent of Rs. 15,000 is collected annually from the building.
You are
asked to compute the intrinsic value of an Equity share of the company.
Ignore Taxation.
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Q. 8.
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M/s.
Chetan International, an Indian exporter, sells goods to Rex and Co. of New York invoicing $ 1,45,000 on 31st December, 2003. The exchange rate of the time of
invoice was Rs. 47 for one $. M/s. Chetan International received remittance
of $ 1,00,000 on 1st March 2004. The rate of exchange on 1st March 2004 was Rs. 48. The local bank deducted their charges of Rs. 1,000 while
crediting the amount in the account of M/s. Chetan International. The
balance amount was paid by Rex & Co. on 10th April 2004 on which date
the rate of exchange was Rs. 46 for one $. The local bank charges debited
by bank Rs. 200.
M/s.
Chetan International follows financial year as accounting year. The
exchange rate on 31st March 2004 was 1$ = Rs. 46.50.
Pass
journal entries to record above transactions in the books of M/s. Chetan
International and also prepare Rex & Co. Account.
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Q. 9.
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Write
Short notes on any four of the following :-
1) Buy
Back of shares
2) Contingent liabilities
3) Internal Reconstruction Vs. External Reconstruction.
4) Super Profit method of Goodwill valuation
5) Importance of accounting standards
6) Basis of allocation of expenses in pro and post incorporation period.
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16
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