CA IPCC/IPCE - Group II : Advanced Accounting - May2012

CA IPCC/IPCE - Group II • Advanced Accounting • May 2012

This Paper has 17 answerable questions with 0 answered.

Roll No………
Total No. of Questions — 7	Total No. of Printed Pages — 11
Time Allowed : 3 Hours	Maximum Marks : 100

Answers to questions are to be given only in English except in the case of candidates who
have opted for Hindi Medium. If a candidate has not opted for Hindi medium, his/her answers
in Hindi will not be valued.

Question No. 1 is compulsory.

Answer any five questions from the remaining six questions.

Wherever necessary suitable assumptions should be made by the candidates.

Working notes should form part of the answer.

Marks

Answer the following questions:

4x5=20

(a)

A company had deferred research and development cost of Rs.450 Lakhs. Sales expected in the subsequent years are as under :

Years	Sales(in Lakhs)
1 2 3 4	1200 900 600 300

You are asked to suggest how should research and development cost be charged to Profit and Loss Account assuming entire cost of 450 Lakhs is development cost. If at the end of 3^rd year, it is felt that no further benefit will accrue in the 4^th year, how the unamortized expenditure would be dealt with in the accounts of the Company?

(0)

(b)

ABC Limited purchased a machinery for Rs. 25,00,000 which has estimated useful life of 10 years with the salvage value of Rs.5,00,000. On purchase of the assets Central Government pays a grant for Rs.5,00,000. Pass the journal entries with narrations in the books of the company for the first year, treating grant as deferred income.

(0)

(c)

From the following information, compute the amount of provisions to be made in the Profit and Loss Account of a Commercial Bank for the year ending on 31–03–2012

Assets (Category of Advances)	Rs. In Lakhs
Standard Advances Sub–standard Advances	7,000 3,500
(Includes secured exposures Rs.1,000 Lakhs and balance unsecured exposures Rs. 2,500 Lakhs includes Rs. 1,500 Lakhs in respect of infrastructure loan accounts where escrow accounts are available)
Doubtful advances – unsecured portion Doubtful advances – secured portion for doubtful upto 1 year – for doubtful more than 1 year and upto 3 years – for doubtful more than 3 years Loss Advances	1,500 500 600 300 200

(0)

(d)

(i)

Explain the concept of ‘Weighted average number of equity shares outstanding during the period‘.
State how would you compute, based on AS–20, the weighted average number of equity shares in the following case :

		No. of Shares
1st April, 2011 31st August, 2011 1st February, 2012 31st March, 2012	Balance of Equity Shares Equity shares issued for cash Equity shares bought back Balance of equity shares	4,80,000 3,60,000 1,80,000 6,60,000

(0)

(ii)

Compute adjusted earning per share and basic earning per share based on the following information :

Net Profit 2010–11
Net Profit 2011–12
No. of equity shares outstanding
Until 31^st December, 2011
Bonus issue on 1^st January, 2012
1 equity share for each equity share
outstanding as at 31^st December, 2011

Rs. 11,40,000
Rs. 22,50,000
5,00,000

(0)

Ajay Enterprise, a Partnership firm in which A, B and C are three partners sharing profits and losses in the ratio
of 4 : 3 : 3. The balance sheet of the firm as on 31^st December, 2011 is as below:

Liabilities	Rs.	Assets	Rs.
A's Capital B's Capital C's Capital B's Loan A/c Sundry Creditors	15,000 7,500 15,000 4,500 16,500 58,500.	Factory Building Plant & Machinery Debtors Stock Cash at Bank	24,160 16,275 5,400 12,390 275 58,500.

On balance sheet date all the three partners have decided to dissolve their partnership. Since the realization of assets was protracted, they decided to distribute amounts as and when feasible and for this purpose they appoint C who was to get as his remuneration 1% of the value of the assets realized other than cash at Bank and 10% of the amount distributed to the partners.
Assets were realized piece–meal as under:

First instalment
Second instalment
Third instalment
Last instalment
Dissolution expenses were provided for estimated amount of
The creditors were settled finally for

Rs.18,650
Rs.17,320
Rs.10,000
Rs.7,000
Rs.3,000
Rs.15,900

Prepare a statement showing distribution of cash amongst the partners by ‘Higher Relative capital method’.

(0)

(a)

Following is the Balance Sheet of M/s Competent Limited as on 31^st March 2012:

Liabilities	Rs.	Assets	Rs.
Equity Shares of Rs. 10 each fully paid Revenue Reserve Securities Premium Profit & Loss Account Secured Loans : 12% Debentures Unsecured Loans Current Liabilities	12,50,000 15,00,000 2,50,000 1,25,000 18,75,000 10,00,000 16,50,000	Fixed Assets Current Assets	46,50,000 30,00,000
Total	76,50,000	Total	76,50,000

The company wants to buy back 25,000 equity shares of Rs.10 each, on 1^st April, 2012, at Rs.20 per share. Buy back of shares is duly authorized by its articles and necessary resolution passed by the company towards this. The payment for buy back of shares will be made by the company out of sufficient bank balance available as a part of Current Assets.

Comment with your calculations, whether buy back of shares by company is within the provisions of the Companies Act, 1956. If yes, pass necessary journal entries towards buy back of shares and prepare Balance Sheet after buy back of shares.

(0)

(b)

The following balances appeared in the books of Paradise Ltd. on l–4–2011:

(i)

12% Debentures–Rs.7,50,000

(ii)

Balance of Sinking Fund Rs.6,00,000

(iii)

Sinking Fund Investment Rs.6,00,000 represented by 10% Rs.6,50,000 secured bonds of Government of India.

Annual contribution to the Sinking Fund was Rs.1,20,000 made on 31^st March each year. On 31.3.2012, balance at bank was Rs.3,00,000 before receipt of interest. The company sold the investment at 90%, for redemption of debentures at a premium of 10%, on the above date.
You are required to prepare the following accounts for the year ended 31^st March, 2012 :

(1)	Debentures Account
(2)	Sinking Fund Account
(3)	Sinking Fund Investment Account
(4)	Bank Account
(5)	Debenture Holders Account

(0)

Given below balance sheet of Vasudha Ltd and Vaishali Ltd as at 31^st March, 2012.

(Amount in Rs.)
Liabilities	Vasudha Ltd.	Vaishali Ltd.	Assets	Vasudha Ltd.	Vaishali Ltd.
Issued Share Capital : Equity Shares of Rs.10 each General Reserves Profit & Loss A/c Sundry Creditors	5,40,000 1,01,000 66,000 44,400	4,03,300 65,000 43,500 58,200	Factory Building Debtors Stock Goodwill Cash at Bank Preliminary Expenses	2,10,000 2,86,900 91,500 50,000 98,000 15,000	1,60,000 1,72,900 82,500 35,000 1,09,590 10,010
Total	7,51,400	5,70,000	Total	7,51,400	5,70,000

Goodwill of the Companies Vasudha Ltd. and Vaishali Ltd. is to be valued at Rs. 75,000 and Rs. 50,000 respectively. Factory Building of Vasudha Ltd is worth Rs.1,95,000 and of Vaishali Ltd Rs. 1,75,000. Stock of Vaishali Ltd has been shown at 10% above of its cost.

It is decided that Vasudha Ltd will absorb Vaishali Ltd without liquidating later, by taking over its entire business by issue of shares at the Intrinsic Value.

You are required to draft the balance sheet of the two companies after putting through the scheme

(0)

(a)

A Commercial Bank has the following capital funds and assets. Segregate the capital funds into Tier–I and Tier–II Capitals. Find out the risk–adjusted and risk weighted assets and capital adequacy ratio :

(Rs. in Crore)

Capital Funds :
Paid up Equity Share Capital
Statutory Reserve
Share Premium
Capital Reserve (of which Rs. 40 Crore were due to revaluation
of assets and balance due to sale)
Assets:
Cash Balance with RBI
Claims on Banks
Other Investments
Loan and Advances :
Guaranteed by Government of India/State Government
Granted to Staff of bank, fully covered by SuperAnnuation
Benefits and mortgage of Flat/House
Other Loans and Advances
Premises, Furniture and Fixtures, Other Assets
Intangible Assets
Off–Balance Sheet items:
Acceptance, Endorsements and Letter of Credit, Guarantees
and Other obligations

750
150
150
90

60
170
2,300

400

50
6,170
3,925
15

1,550

(0)

(b)

M/s Mars Electricity Company laid down a Main at a cost of Rs.40,00,000 in 2008. During 2011 company laid down an auxiliary Main for one–fourth of the old Main at a cost of Rs.15,00,000. It also replaced the rest of the length of the old Main at a cost of Rs.45,00,000. The cost of material and labour gone up by 15%. Sale of old materials realized Rs.1,00,000. Old materials valued at Rs.1,50,000 were used in auxiliary Main and those valued at Rs.1,00,000 were used in replacement of the old Main. Show the Journal entries for recording the above transactions along with required workings.

(0)

An Indian Company Moon Star Limited has a branch at Verginia (USA). The Branch is a non–integral foreign operation of the Indian Company. The trial balance of the Branch as at 31^st March, 2012 is as follows :

Particulars	US$
Particulars	Dr.	Cr.
Office equipments Furniture and Fixtures Stock (April 1, 2011) Purchases Sales Goods sent from H.O. Salaries Carriage inward Rent, Rates & Taxes Insurance Trade Expenses Head Office Account Sundry Debtors Sundry Creditors Cash at Bank Cash in Hand	48,000 3,200 22,400 96,000 — 32,000 3,200 400 800 400 400 — 9,600 — 2,000 400	1,66,400 45,600 6,800
	2,18,800	2,18,800

The following further informations are given :

(1)

Salaries outstanding $ 400.

(2)

Depreciate office equipment and Furniture & Fixtures @10% p.a. at written down value.

(3)

The Head Office sent goods to Branch for Rs. 15,80,000.

(4)

The Head Office shown an amount of Rs. 20,50,000 due from Branch.

(5)

Stock on 31^st March, 2012 – $ 21,500

(6)

There were no transit items either at the start or at the end of the year.

(7)

On April 1, 2010 when the fixed assets were purchased the rate of exchange was Rs.43 to one $. On April 1, 2011, the rate was Rs. 47 per $. On March 31, 2012, the rate was Rs. 50 per $. Average Rate during the year was Rs. 45 to one $.
Prepare:

(a)	Trial balance incorporating adjustments given converting dollars into rupees.
(b)	Trading, Profit and Loss Account for the year ended 31^st March, 2012 and Balance Sheet as on date depiciting the profitability and net position of the Branch as would appear in the books of Indian Company for the purpose of incorporating in the main Balance Sheet.

(0)

Answer any four of the following:

4x4=16

(a)

On 1^st April 2012, a company offered 100 shares to each of its 400 employees at Rs.25 per share. The employees are given a month to accept the shares. The shares issued under the plan shall be subject to lock–in to transfer for three years from the grant date i.e. 30^th April, 2012. The market price of shares of the company on the grant date is Rs. 30 per share. Due to post–vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at Rs. 28 per share.

Upto 30^th April, 2012, 50% of employees accepted the offer and paid Rs. 25 per share purchased. Nominal value of each share is Rs. 10. Record the issue of shares in the books of the company under the aforesaid plan.

(0)

(b)

Tiger Motor Car Limited signed an agreement with its employees union for revision of wages on 01.07.2011. The revision of wages is with retrospective effect from 01.04.2008. The arrear wages up to 31.03.2011 amounts to Rs. 40,00,000 and that for the period from 01.04.2011 to 01.07.2011 amount to Rs. 3,50,000. In view of the provisions of AS 5 "Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies", decide whether a separate disclosure of arrear wages is required while preparing financial statements for the year ending 31.03.2012.

(0)

(c)

An airline is required by law to overhaul its aircraft once in every five years. The Pacific Airlines which operates aircrafts does not provide any provision as required by law in its final accounts. Discuss with reference to relevant Accounting Standard 29.

(0)

(d)

X Ltd. sold JCB Machine having WDV of Rs. 50 Lakhs to Y Ltd for Rs. 60 Lakhs and the same JCB was leased back by Y Ltd to X td. The lease is operating lease.
Comment according to relevant Accounting Standard if

(i)	Sale price of Rs. 60 Lakhs is equal to fair value.

(ii)	Fair value is Rs. 50 Lakhs and sale price is Rs. 45 Lakhs.

(iii)

Fair value is Rs. 55 Lakhs and sale price is Rs. 62 Lakhs.

(iv)	Fair value is Rs. 45 Lakhs and sale price is Rs. 48 Lakhs.

(0)

(e)

Cashier of A–One Limited embezzled cash amounting to Rs. 6,00,000 during March, 2012. However same comes to the notice of company management during April, 2012 only. Financial statements of the company is not yet approved by the Board of Directors of the company. With the help of provisions of AS 4 "Contingencies and Events Occurring after the Balance Sheet Date" decide, whether the embezzlement of cash should be adjusted in the books of accounts for the year ending March, 2012 ?

What will be your reply, if embezzlement of cash comes to the notice of company management only after approval of financial statements by the Board of Directors of the company ?

(0)

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