CWA ICWA Inter Stage II : Advanced Financial Accounting - December 2003

CWA ICWA Inter - Stage II • Advanced Financial Accounting • December 2003

This Paper has 23 answerable questions with 0 answered.

I—10(AFA) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

Attempt Question No. 1 which is compulsory and any five from the rest.
Marks

(a)

An entity means an organisation, whether a company or not, big or small or profit oriented or not, having a separate existence (entity) from the owner: True or False?

2x10

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(b)

Certain fundamental accounting assumptions undertake the preparation and presentation of financial statements. State briefly which are these assumptions.

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(c)

Name four areas in which a choice with regard to accounting policy is made by an enterprise.

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(d)

State what is meant by the concept of "materiality" as used by accountants.

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(e)

How dows the proprietary theory of accounting view a business firm?

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(f)

When might an account in the debtors' ledger show a credit balance?

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(g)

Mention the several ways in which the percentage of completion of a long-term construction contract any be arrived at.

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(h)

Information requirements of external users are served through financial statements. State clearly the names of such statements.

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(i)

State the main function of Accounting Standard Board.

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(j)

How are Government expenses classified? State clearly.

(0)

The following are the summarised Balance Sheets of P. Ltd and S. Ltd as at 31^st March, 2003.

Liabilities	P Ltd Rs.	S Ltd Rs.	Assets	P Ltd Rs.	S Ltd Rs.
12% Pref. Shares of Rs. 10 each Equity Shares of Rs. 10 each Share Premium General Reserve Profit and Loss A/c 10% Debentures Proposed Dividends Equity Preference Accrued Debenture Interest Sundry Creditors	– 80,00,000 10,00,000 36,00,000 24,00,000 20,00,000 12,00,000 – – 18,00,000	20,00,000 40,00,000 – 20,00,000 14,00,000 5,00,000 6,00,000 2,40,000 50,000 15,10,000	Land and Building Other Fixed Assets Investments at cost in S Ltd. 300000 Equity shares 100000 12% Pref. 10% Debentures (face value) Investments in Govt. Securities Stock Debtors and Bank	50,00,000 40,00,000 45,00,000 12,00,000 2,50,000 10,50,000 15,00,000 25,00,000	40,00,000 30,00,000 – – – 20,00,000 12,00,000 21,00,000
	430,000	130,000		430,000	130,000

Additional Information:

(a)

P Ltd. acquired its interests in S Ltd. on 1st April, 2002, when the latter company had Rs. 18,00,000 in its general reserve account.

(b)

S Ltd. arrives at its profit and loss account balance as follows:

	Rs.	Rs.
Balance – 1st April, 2002 Profit in the current year		4,00,000 20,40,000
24,40,000
Transfer to Reserves Proposed Dividend	2,00,000 8,40,000		10,40,000
Balance on 31^st March, 2003		14,00,000

(c)

The profit and loss account balance of S. Ltd. as on 1st April, 2002 was arrived at after providing for preference and 10% equity dividends for the year ended 31^st March 2002. These dividends were paid in August, 2002.
P Ltd. credited dividends it received from S Ltd. to its profit and loss account.

(d)

P Ltd. has made no provisions in respect of debenture interest and dividends receivable from S Ltd. for the year ended 31^st March, 2003.

(e)

In January, 2003 S Ltd. Issued fully paid bonus shares in the ratio of one share for every four held by utilising general reserve. The transaction is yet to be recorded in the books of both P Ltd. and S Ltd.

Draft a consolidated balance sheet as at 31^st March, 2003. Show details of computation of cost of control, minority interest and consolidated profits.

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Nalli Silk Sarees of Chennai has a branch in Kolkata. Goods are invoiced to the branch at selling price (cost plus 25%). The branch keeps its own sales ledger and deposits all cash received daily to the credit of the Chennai account through the automated teller machine. All expenses are paid by cheque from Chennai. From the following details prepare a Branch A/c in the books of the Head Office and make the necessary adjustments therein to arrive at the actual branch profit or loss earned during the year ended, 31^st March, 2003:

	Rs.
Stock as on 1.4.2002 Stock as on 31.3.2003 Debtors as on 1.4.2002 Debtors as on 31.3.2003 Goods invoiced from Chennai Rent of Kolkata showroom Sundray expenses Cash sales for the year Credit sales Wages paid for sales staff Wages outstanding	2,40,000 2,88,000 1,34,400 1,72,800 17,47,200 76,800 15,360 10,36,800 6,72,000 65,280 6,400

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M/s. AXL Ltd. has suffered from continuing losses. The accumulated deficit of the company now stands at Rs. 25,00,000, which far exceeds the paid up of the company’s equity capital. A reconstruction plan has been undertaken to return the operations of the company to a profitable level. The most recent balance sheet of the company, in summarised form, is as follows:

Liabilities	Rs.	Assets	Rs.
Share Capital — Authorised & Issued Equity Shares (Rs. 100) 12% Preference Shares (Rs. 100) 100 Secured Debenture Arrear Debenture Interest Bank Overdraft Creditors (Trade)	20,00,000 10,00,000 12,50,000 2,50,000 30,10,000 14,90,000	Fixed Assets: Land & Building Plant & Machinery Current Assets: Stock & Work–in–progress Debtors Cash & Bank Profit & Loan A/c	25,00,000 10,50,000 9,50,000 19,75,000 25,000 25,00,000
	90,00,000		90,00,000

The following further information is available:–

(i)	The debentures are secured on the Land and Buildings, the current market value of which is Rs. 9,00,000. The other Land & Buildings have a current market value of Rs. 18,00,000.
(ii)	The current value of the Plant and Machinery is estimated to be Rs. 6,00,000.
(iii)	Debtors and Stocks have recoverable values of Rs. 19,25,000 and Rs. 7,50,000 respectively.
(iv)	The Preference dividend is in arrear for four years.
(v)	The debenture interest is two years in arrear.
The reconstruction plan, duly approved by the court, the shareholders and the creditors involves the following actions:
(a)	The preference shareholders are to forego their arrears of dividends and to accept equity shares in lieu of preference shares.
(b)	The equity shares are to be reduced to Re. 1 each.
(c)	The preference shares are to be cancelled in exchange for 10,000 equity shares of Re. 1 each.
(d)	The debenture holders are to waive of Rs. 1,25,000 of interest in arrear in exchange for Rs. 10,000 equity shares of Rs. 1 each.
(e)	40,000 equity shares are to be consolidated into 4,000 equity shares of Rs. 10 each.
(f)	A right issue of 25 equity shares of Rs. 10 each for each Rs. 10 equity shares held is to be made.
(g)	The interest rate on debentures is to be raised from 10% to 12%.
(h)	The trade creditors do not agree to any reduction in their claim but are willing to supply the reconstructed company and to continue giving credit on normal terms.
(i)	The bank loan (overdraft) is to continue, but the loan is to be secured by a floating charge over the assets of the company.
(j)	The debentures are to be given a fixed security on the total land and buildings.
(k)	The costs of reconstruction scheme are expected to be Rs. 50,000.
You are required to prepare the following.
(1)	A statement showing the amount of capital reduction required.
(2)	A statement showing how the total reduction is to be achieved as required.
(3)	Journal entries for the plan of reconstruction.
(4)	A balance sheet after reconstruction scheme is duly implemented.

(0)

The growth of shoppers shop caught fire on 15th September, 2002. Records saved from the fire shows the following:

	Rs.
Stock at cost on 1.4.2001 Stock at cost on 31.3.2002 Purchases (net) for the year Sales (net) for the year Purchases (net) from 1.4.2002 to 15.9.2002 Sales (net) from 1.4.2002 to 15.9.2002	99,000 1,45,200 9,37,200 11,88,000 2,97,000 4,05,900

Gross profit had maintained at uniform rate. The stock salvaged were worth Rs. 11,880 and the same were retained by the organisation. The godown was insured.

Prepare the Memorandum Trading A/c for the period 1.4.2002 to 15.9.2002 and find out the amount of claim that can be made.

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(a)

The following information is extracted from the accounting records of ECT Electricity Supply Ltd. for the financial year ended 31^st March, 2003:

	Rs. (in crores)
Share Capital Fixed Assets (tangible) at cost Accumulated Depreciation— Intangible Assets Investments: Depreciation Reserve Fund Contingencies reserve Loan from State Electricity oard 12% Debentures Tariff and Dividend Control Reserve Net Profit after Tax Customers Security Deposits Monthly average of Current Asset	60.00 116.00 40.00 6.00 40.00 4.00 10.00 20.00 6.00 12.20 6.00 7.00

The monthly average of current assets includes Rs. 1,00,00,000 (one crore) due from customers. Investments yield 10% return p.a. The applicable bank rate is 9% p.a.
You are required to determine

(i)	The Capital base;
(ii)	The reasonable return;
(iii)	The disposal of profit.

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(b)

Write short notes on Contingency Reserve in respect of Electricity Company Accounts:

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(a)

How do you determine the following in case of Hotel Accounting?

(i)	Flxation of room rate;
(ii)	System of charging room rates;
(iii)	Room occupancy rate.

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(b)

List out the items included under Revenue & Expenditure Head in case if Hotel Accounting.

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Write Short notes on:-

4x4=16

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(a)

Consolidated Fund of India;

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(b)

Finance Accounts of Central Government;

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(c)

Votable and non–votable items;

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(d)

Objectives of the International Accounting Standards Committee (IASC)

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