CA PE - II :: Accounting : November 2005


Roll No…………………
Total No. of Questions— 6] [Total No. of Printed Pages—7

Time Allowed : 3 Hours Maximum Marks : 100
DM
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.

Answer all Questions
Wherever appropriate suitable assumptions should be made by the candidate.
Working notes should form part of the answer.
Marks
1. Following is the Balance Sheet as at March 31, 2005 :20
LiabilitiesMax Ltd.Mini Ltd.AssetsMax Ltd.Mini Ltd.
Share Capital :Goodwill20—
Equity shares of Rs. 100 each1,5001,000Other Fixed Assets1,500760
9% Pref. shares of Rs.100 each500400Debtors651440
General Reserve180170Stock393680
Profit & Loss Account—15Cash at Bank26130
12% Debentures of Rs. 100 each600200Own Debenture192
Sundry Creditors415225(Nominal value 200)
Discount on issue of debentures2
Profit & Loss Account411
3,1952,0103,1952,010
DM P.T.O.


( 2 )

DM Marks
On 1-4-2005, 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 ere valued at Rs. 3,50,000 Rs. 5,90,000 and Rs. 3,60,000 respectively. The goodwill discount an 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 2-4-2005 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.
2.

Ram, Rahim and Robert are partners, sharing Profits and Losses in the ratio of 5:3:2

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It was decided that Robert would retire on 31-3-2005 and in his place Richard would be admitted as a partner with new profit sharing ratio between Ram, Rahim and Richard at 3:2:1

DM Contind...

( 3 )

DM Marks
Balance Sheet of Ram, Rahim and Robert as at 31-3-2005 :
Liabilities
Capital Accounts :
Ram
Rahim
Robert
Gen. Reserve
Sundry Creditors
Loan from Richard		 Rs.

1,00,000
1,50,000
2,00,000
20,00,000
8,00,000
2,00,000		 Assets
Cash in hand
Cash at Bank
Sundry Debtors
Stock in Trade
Plant & Machinery
Land & Building		 Rs.
20,000
1,00,000
5,00,000
2,00,000
3,00,000
5,30,000
16,50,00016,50,000
Retirement of Robert and admission of Richard is on the following terms :
(a)Plant & Machinery to be depreciated by Rs. 30,000
(b)Land & Building to be valued at Rs. 6,00,000
(c)Stock to be valued at 95% of book value.
(d)Provision for doubtful debts @ 10% to be provided on debtors.
(e)General Reserve to be apportioned amongst Ram, Rahim and Robert.
(f)

The firm's goodwill to be valued at 2 years purchase of the average profits of the last 3 years. The relevant figures are :
Year ended 31.3.2002—Profit Rs. 50,000
Year ended 31.3.2003—Profit Rs. 60,000
Year ended 31.3.2004—Profit Rs. 55,000

(g)

Out of the amount due to Robert Rs. 2,00,000 would be retained as loan by the firm and the balance will be settled immediately.

(h)

Richard's capital should be equal to 50% of the combined capital of Ram and Rahim.
Prepare :
(i)Capital accounts of the partners; and
(ii)Balance Sheet of the reconstituted firm.
DM P.T.O.

( 4 )

DM Marks
3.

M/s. Shah & Co. commenced business on 1.4.2004 with Head Office at Mumbai and a Branch at Chennai. Purchases were made exclusively by the Head Office, where the goods were processed before sale. There was no loss or wastage in processing.

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Only the processed goods received from Head Office were handled by the Branch. The goods were sent to branch at processed cost plus 10%.

All sales, whether by Head Office or by the Branch, were at uniform gross profit of 25% on their respective cost.

Following is the Trial Balance as on 31.3.2005.
Head OfficeBranch
Dr.
Rs.		Cr.
Rs.		Dr.
Rs.		Cr.
Rs.
Capital
Drawings
Purchases
Cost of processing
Sales
Goods sent to Branch
Administrative expenses
Selling expenses
Debtors
Branch Current A/c
Creditors
Bank Balance
Head Office Current account
Goods received from H.O.
55,000
19,69,500
50,500


1,39,000
50,000
3,09,600
3,89,800

1,52,000		 3,10,000



12,80,000
9,24,000




6,01,400





15,000
6,200
1,13,600


77,500

8,80,000



8,20,000





10,800

2,61,500
31,15,40031,15,40010,92,30010,92,300
Following further information is provided :
(i)

Goods sent by Head Office to the Branch in March, 2005 of Rs. 44,000 were not received by the Branch till 2.4.2005.
(ii)

A remittance of Rs. 84,300 sent by the Branch to Head Office was also similarly not received upto 31.3.2005.
DM Contind...


( 5 )

DM Marks
(iii)Stock taking at the Branch disclosed a shortage of Rs. 20,000 (at selling price to the branch).
(iv)

Cost of unprocessed goods at Head Office on 31.3.2005 was Rs. 1,00,000. Prepare Trading and Profit and Loss account in columnar form and Balance Sheet of the Business as a whole as at 31.3.2005.
4.

From the following furnished by Shri Ramji, prepare Trading and Profit and Loss account for the year ended 31.3.2005. Also draft his Balance Sheet as at 31.3.2005:

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Creditors
Expenses outstanding
Fixed assets (includes Machinery)
Stock in hand
Cash in hand
Cash at Bank
Sundry Debtors		 1.4.2004
Rs.
3,15,400
12,000
2,32,200
1,60,800
59,200
80,000
3,30,600		 31.3.2005
Rs.
2,48,000
6,600
2,40,800
2,22,400
24,000
1,37,600
?
Details of the year's transactions are as follows :
Cash and discount credited to debtors
Returns from Debtors
Bad Debts
Sale (Both Cash and Credit)
Discount allowed by creditors
Returns to creditors
Capital introduced by Cheque
Collection from debtors (Deposited into Bank after receiving cash)
Cash purchases
Expenses paid by cash
Drawings by Cheque
Machinery acquired by Cheque
Cash deposited into Bank
Cash withdrawn from Bank
Cash Sales
Payment to creditors by Cheque

Note : Ramji has not sold any Fixed Asset during the year.
12,80,000
29,000
8,400
14,36,200
14,000
8,000
1,70,000
12,50,000
20,600
1,91,400
8,600
63,600
1,00,000
1,84,800
92,000
12,05,400
DM P.T.O.

( 6 )

DM Marks
5.

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.

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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.
B & Co.
C & Co.		 5,25,000
8,40,000
13,10,000		 shares
shares
shares
Total   28,75,000shares

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 : and
(c) Pass necessary Journal entries in the books of Scorpio Ltd. relating to underwriting.
6.Answer any four of the following :4x4=16
(a)Under what circumstances can an enterprise change its amounting policy?
(b)

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 finalised for the year ended 31.3.2005 by making a provision @ 20% of the amount due from the said debtor.

The debtor became bankrupt in April, 2005 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, 2005?
(c)

X Co. Ltd. signed an agreement with its employees union for revision of wages in June, 2004. The wage revision is with retrospective effect from 1.4.2000. The arrear wages upto 31.3.2004 amounts to Rs. 80 lakhs. Arrear wages for the period from 1.4.2004 to 30.6.2004 (being the date of agreement) amounts to Rs. 7 lakhs.
Decide whether a separate disclosure of arrear wages is required.
DM Contind...

( 7 )

DM Marks
(d)

An intangible asset appears in Balance Sheet of A Co. Ltd. at Rs. 16 lakhs as on 31.3.2004. The asset was acquired for Rs. 40 lakhs in April, 1991. The Company has been amortising the asset value on straight line basis. The policy is to amortise for 20 years.

Do you advise the Company to amortise the entire asset value in the books of the company as on 31.3.2004?
(e)

Ram Co. (P) Ltd. furnishes you the following information for the year ended 31.3.2005 :
Depreciation for the year ended 31.3.2005
(under straight line method)
Depreciation for the year ended 31.3.2005
(under written down value method)
Depreciation for earlier years combined in written down value method and its excess to straight line method
Rs. 100 lakhs

Rs. 200 lakhs

Rs. 500 lakhs
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 31.3.2005.
(f)How refund of revenue grant received from the Government is disclosed in the Financial Statements?
DM

 

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