CWA ICWA Inter Stage II : Advanced Financial Accounting - June 2008

CWA ICWA Inter - Stage II • Advanced Financial Accounting • June 2008

This Paper has 23 answerable questions with 0 answered.

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

The figures in the margin on the right side indicate full marks
Answer Question No. 1 which is compulsory and any five from the rest
Total six questions are to be answered.
Marks

What is meant by

2x10

(a)

Statutory Liquidity Ratio (SLR) of Banking Companies?

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(b)

State, why the following two propositions are not correct?

(i)	Tariff and Dividend Control Reserves of an Electricity undertaking can never be utilised.
(ii)	Under the "Pooling of Interest Method" in the case of Amalgamation of companies, goodwill or capital reserve is recognised.

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(c)

Under what headings will you show the following items in the Balance Sheet of a Company?

(i)	Sinking Fund;
(ii)	Patents and Copyright;
(iii)	Interest accrued and due on unsecured loan;
(iv)	Preliminary Expenses.

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(d)

Under which Accounting standard cash flow statement is prepared? How do you treat Profit & Loss on sale of Fixed Assets for calculating cash flows from operating activities?

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(e)

State the disclosure requirement in case of accounting for the effects of change in foreign exchange rates.

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(f)

State with reasons whether the following is True or False

Hema Pvt. Ltd. adopts the practice of disclosing the significant policies pertaining to each relevant item in the appropriate schedule (wherein the said item forms a part) to the Income Statement or Balance Sheet. This is a perfectly valid disclosure.

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(g)

State whether the following statements/facts are True or False

(i)	Super profit basis of goodwill valuation does not account for normal and Extra–Profit.
(ii)	Intrinsic value is EPS XPE Ratio.

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(h)

Choose the closest answer from the following:

(i)	Amalgamation results into (a) No winding up; (b) Formation of a new company; (c) None of (a) or (b).
(ii)	Internal reconstruction includes; (a) Alteration of share capital; (b) Reduction of share capital; (c) A combination of both the above.

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(i)

What is meant by Notes to Accounts?

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(j)

How are Government grants in the form of non–monetary grants accounted for?

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The following is the summarized Balance Sheet of Moonlite Ltd. as on 31st March, 2008:

Liabilities	Rs.	Assets	Rs.
Share Capital General reserve P & L A/c Plant replacement reserve Provision for unexpired warranties Sundry creditors	20,00,000 1,40,000 85,000 1,00,000 20,000 55,000 24,00,000	Patents & trademarks Factory land and building Vehicles Inventories Sundry debtors Cash in hand Cash at bank	1,90,000 10,00,000 2,10,000 4,20,000 4,80,000 30,000 70,000 24,00,000

Notes:

(1)

Share capital consists of 20,000 equity shares of Rs. 100 each, fully paid up.

(2)

A customer has lodged a claim for Rs. 5,000 towards defective parts purchased from the company, which Moonlite Ltd. has decided to meet from the provision for warranties.
Moonlite Ltd. is taken over by Sunshine Ltd. as at the closure of business hours on 31.03.2008. All assets and liabilities (excepting cash) are taken over. Land and building are valued at Rs. 12,00,000 prior to the acquisition.
Expenses of absorption amount to Rs. 60,000 which are borne by Moonlite Ltd. and Sunshine Ltd. in the ratio of 4 : 6.
Show the journal entries in the books of Moonlite Ltd., assuming that entire sale consideration of Rs. 30 lacs was met by Sunshine Ltd. in the form of equity shares of Rs. 10 each in their company.

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There are three self–Balancing Ledgers in use of Howrah Cables Ltd. viz., a Purchase Ledger, a Sales Ledger and a General Ledger. From the following particulars write up the necessary Adjustments accounts as they would appear in the General Ledger:

	Rs.
Debtors’ balance in General Ledger Adjustment Account Creditors’ balance in General Ledger Adjustment Account Credit Sales Cash Sales Cash Purchases Credit Purchases Creditors paid off Received from debtors Discount allowed to the business Discount allowed by the business Return Inwards Return Outwards Bills Payable accepted Bills Receivable received Bills Receivable Dishonoured Interest charged for dishonoured bill Allowances Bad Debt Transfer from one ledger to another	58,390 30,500 42,300 12,800 16,390 25,400 30,000 40,200 1,375 1,450 2,225 2,875 6,200 4,000 300 25 1,975 1,375 500	(Cr.) (Dr.)

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P.K. Daga furnishes you with following data and request you to draw up his Trading and Profit & Loss Account for the year ended 31.03.08 and Balance Sheet as on that date:

	31.03.07 Rs.	31.03.08 Rs.
Building Machinery Furniture Stock Debtors Bills Receivable Cash and Bank Creditors Bills Payable	40,000 30,000 8,000 6,000 4,500 1,500 4,000 ? 3,000	40,000 31,000 7,000 7,500 ? Nil 5,000 3,500 2,000

Additional Information:

(1)

Closing Cash in hand amounted to Rs. 700.00

(2)

Proceeds of B/R received

In cash
from Bank on discounting @ 5%

Rs. 12,000
Rs. 1,900
Rs. 13,900

(3)

Collection from Debtors in cash Rs. 15,000 and by cheque Rs. 45,000.

(4)

B/R endorsed to Creditors Rs. 1,000.

(5)

Bad Debt Rs. 400.

(6)

Total Sale Rs. 1,00,000 (including Rs. 23,200 in cash).

(7)

Cash Purchase Rs. 20,500;

(8)

Paid against B/P by cheque Rs. 10,000.

(9)

Payment to Creditors Rs. 15,000 in cash and Rs. 41,000 by cheque.

(10)

On 01.04.07, a machine having book value Rs. 6,000 was sold at a profit or Rs. 500. On the same day, Furniture having a book value Rs. 3,000 was sold at a loss of Rs. 200. Both the proceeds were received by cheque.

(11)

Assets bought during the year were paid for by cheque.

(12)

Daga draws Rs. 500 every month in cash.

(13)

General Expenses amounted to Rs. 5,000 during the year. All such expenses were paid in cash.

(14)

An amount was borrowed during the year in cash.

(15)

Amount deposited and withdrawn from Bank were Rs. 24,500 and Rs. 20,000 respectively.

(16)

Daga maintains a constant margin of 20% on sale.

4+4+8

(0)

(a)

Gallap Ltd. has Profit before interest and taxes at Rs. 6,00,000.
PBIT of Gain Ltd. is Rs. 6,00,000.
Gain Ltd. has 6% 1,000 debentures of Rs. 1,000 each fully paid.
Taxation at 50% of net profits.
After tax capitalisation rate applicable to these class of companies is 6%.
Going concern value of debentures will be at 5% capitalisation rate.
Present value of Re. 1 for five years is 0.952, 0.907, 0.864, 0.823 and 0.784 respectively. The debentures are redeemable at the end of the fifth year. However they are ready to be paid off at present values.
Gallop Ltd. has no interest commitments.
Each Company has 1,00,000 fully paid equity shares.
Gallop Ltd. wants to purchase Gain Ltd. and pay off the debenture–holders of Gain Ltd. immediately.
For this purpose you are asked to ascertain the value of equity shares of both companies, the amount payable to debenture–holders and the shareholders of Gain Ltd.

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(b)

Calculate the amount of provision to be made by a nationalised bank in respect of doubtful debts on the following information:

	Rs. in crores
Small advances not exceeding Rs. 25,000 in each case Advances over due for more than 30 months (of which 50% is fully secured) Advances over due for 15 months Fully secured advances repayments being regular Non–recoverable unsecured advances Total of loans and advances	10 50 60 40 20 180

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Shewag & Co., with headquarters at Chennai, maintains a branch at Kochi. Goods are invoiced to the Kochi–branch at cost plus25%. In respect of the Kochi branch, the following information pertaining to the year ended 31.03.2008 are made available to you:

	Rs.
Goods sent to branch at invoice price Cash sales effected by branch Goods returned by customers to branch Bad debts Discounts allowed to customers Amounts received from branch debtors Cheques of customers which got dishonoured Branch expenses met in cash	6,25,000 1,76,000 10,000 5,000 2,000 3,40,000 8,000 72,900

	As on 31.03.2007 Rs.	As on 31.03.2008 Rs.
Stock at branch (at invoice price)	1,25,000	1,75,000
Branch debtors	40,000	95,000

Adopting the Stock and Debtors system, you are required to prepare the following Ledger Accounts, as appearing in the books of the Head Office:

(a)	Kochi Branch Debtors Accounts;

(b)	Kochi Branch Stock Account; and

(c)	Kochi Branch Adjustments Account.

8+4+4

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X Ltd. and its subsidiary Y Ltd. depend upon Z Ltd. for supply of raw materials for smooth flow of production schedule on equitable basis, the following arrangements were agreed upon between X Ltd. and Z Ltd:

(a)

Both the companies will acquire 25% of authorised capital of each other by means of exchange of shares.

(b)

For purpose of exchange of shares:

(i)	The intrinsic value of shares each of these two companies on the basis of their respective Balance Sheets, subject to increase in the value of land and building of Z Ltd. by Rs. 2 lakhs.
(ii)	The net assets of Y Ltd., the subsidiary of X Ltd. is valued at Rs. 10 lakhs to be considered;
(iii)	The value of shares of Z Ltd. will also be found out, estimating the average annual profits at Rs. 1.60 lakhs, 25% of which will be retained for development. Similar companies yield 12.5%.
(iv)	The exchange value as between X Ltd. and Z. Ltd. will be as under: For X Ltd., higher of market quotation of Rs. 150 per share or its intrinsic value per share; For Z Ltd., higher of yield value per share or its intrinsic value.
(v)	No passing of cash is contemplated and the balance, if any, will be treated as loan between X Ltd. and Z Ltd.

The abridge Balance Sheets of X Ltd. and Z Ltd. as at 31st March, 2008 are as follows:

	Rs. in lakhs
Source of Funds	X Ltd.	Z Ltd.
Authorised equity share capital of Rs. 100 each Issued, subscribed and paid up in equity shares of Rs. 100 each Reserves and surplus	16 12 2 14	10 8 6 14

	Rs. in lakhs
Employment of Funds	X Ltd.	Z Ltd.
Land and Buildings Plant and Machinery Investments of 60,000 equity shares out of 1,00,000 equity of Rs. 10 each in Y Ltd. at cost Working capital	2 5 5 2 14	4 8 – 2 14

You are required to compute:

(a)	Intrinsic value of shares of X Ltd. and Z. Ltd.

(b)	The value of shares of Z Ltd. on yield basis.

(c)	Statement of settlement between the companies in terms of exchange by shares, showing the balance if any as loan.

5+5+6

(0)

Write short notes (any four) of the following:

4x4=16

(a)

Restriction on dividents in case of banking company;

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(b)

Contingencis and events occurring after balance sheet date (AS 4 revised);

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(c)

Structure of Government Accounts;

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(d)

Distinguish between Government Accounts and Commercial Accounts;

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(e)

Public Accounts Committee;

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(f)

Appropriation Act.

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