CA PCC/PCE Group I : Advanced Accounting - November 2008

CA PCC/PCE - Group I • Advanced Accounting • November 2008

This Paper has 24 answerable questions with 0 answered.

Roll No……………
Total No. of Questions — 6]	[Total No. of Printed Pages — 4
Time Allowed : 3 Hours	Maximum Marks : 100

Answer all Questions

Wherever applicable, appropriate suitable assumptions should be made by the candidate.

Working notes should form part of the answer.

Marks

The Balance Sheet of R Ltd., at March, 2008 was as follows:

	Rs.		Rs.
Share capital authorised Issued: 64,000, 8% cumulative preference shares of Rs. 10 each, fully paid 64,000 Equity shares of Rs. 10 each, Rs. 7.5 paid Loans from directors Sundry creditors Bank overdraft	14,00,000 6,40,000 4,80,000 60,000 4,40,000 2,08,000	Intangibles Freehold premises at cost Plant and equipment at cost less depreciation Investments in shares in Q Ltd. at cost Stocks Debtors Deferred revenue expenditure Profit and loss account	68,000 1,40,000 2,40,000 3,24,000 2,48,000 3,20,000 48,000 4,40,000
	18,28,000		18,28,000

Note: The arrears of preference dividends amount to Rs. 51,200.
A scheme of reconstruction was duly approved with effect from 1st April, 2008 under the conditions stated below:

(a)

The unpaid amount on the equity shares would be called up.

(b)

The preference shareholders would forego their arrear dividends. In addition, they would accept a reduction of Rs. 2.5 per share. The dividend rate would be enhanced to 10%.

(c)

The equity shareholders would accept a reduction of Rs. 7.5 per share.

(d)

R Ltd. holds 21,600 shares in Q Ltd. This represents 15% of the share capital of that company. Q Ltd. is not a quoted company. The average net profit (after tax) of the company is Rs. 2,50,000. The shares would be valued based on 12% capitalization rate.

(e)

A bad debt provision at 2% would be created.

(f)

The other assets would be valued as under:

	Rs.
Intangibles Plant Freehold premises Stocks	48,000 1,40,000 3,80,000 2,50,000

(g)

The profit and loss account debit balance and the balance standing to the debit of the deferred revenue expenditure account would be eliminated.

(h)

The directors would have to take equity shares at the new face value of Rs. 2.5 per share in settlement of their loan.

(i)

The equity shareholders, including the directors, who would receive equity shares in settlement of their loans, would take up two new equity shares for every one held.

(j)

The preference shareholders would take up one new preference share for every four held.

(k)

The authorised share capital would be restated to Rs. 14,00,000.

(l)

The new face values of the shares–preference and equity will be maintained at their reduced levels.

You are required to prepare:

(i)
(ii)

Necessary ledger accounts to effect the above; and
The Balance Sheet of the company after reconstruction.

(0)

(a)

The books of Mr. Z showed the following information:

	1.1.2007 (Rs.)	31.12.2007 (Rs.)
Bank balance Debtors Creditors Stock Fixed assets	— — — 50,000 7,500	50,000 87,500 46,000 62,500 9,000

The following are the details of the bank transactions:

	Rs.
Receipt from customers Payments to creditors Capital brought in Sale of fixed assets Expenses paid Drawings Purchase of fixed assets	3,40,000 2,80,000 5,000 1,750 49,250 25,000 5,000

Other informations:

(i)
(ii)
(iii)

Cost of goods sold
Gross profit 25% on cost of goods sold
Book value of assets sold

Rs.2,60,000

Rs.2,500

Prepare Trading, Profit and Loss account for the year ended 31.12.2007 and Balance Sheet as at 31.12.2007.

(0)

(b)

Prepare Revenue Account in proper form for the year ended 31st March, 2008, from the following particulars related to Krishna General Insurance Co. for the year ended 2007 – 2008:

	Related to Direct business (Rs.)	Related to Reinsurance (Rs.)
Premiums: Amount received Receivable at the beginning Receivable at the end Amount paid Payable at the beginning Payable at the end	30,00,000 1,80,000 2,40,000 — — —	2,40,000 24,000 36,000 3,60,000 30,000 42,000
Claims: Amount paid Payable at the beginning Payable at the end Amount recovered Receivable at the beginning Receivable at the end Commission: Amount paid Amount received	18,00,000 60,000 1,20,000 — — — 72,000 —	1,80,000 12,000 18,000 1,20,000 18,000 12,000 10,800 14,400

Additional information:

(i)	Interest, dividend and rent received Income–tax in respect of above	30,000 6,000
(ii)	Management expenses including Rs. 12,000 related to legal expenses regarding claims	1,32,000
(iii)	Provision for income tax existing at the beginning of the year was Rs. 1,95,000, the income–tax actually paid during the year Rs. 1,68,000 and the provision necessary at the year end Rs. 2,07,000.
(iv)	The net premium income of the company during the year 2006 – 2007 was Rs. 24,00,000 on which reserve for unexpired risk @ 50% and additional reserve @ 7 ½% was created. This year, the balance to be carried forward is 50% of net premium on reserve for unexpired risk and 5% on additional reserve.

(0)

(a)

The Articles of Association of S Ltd. provide the following:

(i)

That 20% of the net profit of each year shall be transferred to reserve fund.

(ii)

That an amount equal to 10% of equity dividend shall be set aside for staff bonus.

(iii)

That the balance available for distribution shall be applied:

(a)	in paying 14% on cumulative preference shares.
(b)	in paying 20% dividend on equity shares.
(c)	one–third of the balance available as additional dividend on preference shares and 2/3 as additional equity dividend.

A further condition was imposed by the articles viz. that the balance carried forward shall be equal to 12% on preference shares after making provisions (i), (ii) and (iii) mentioned above. The company has issued 13,000, 14% cumulative participating preference shares of Rs. 100 each fully paid and 70,000 equity shares of Rs. 10 each fully paid up.

The profit for the year ended 31st March, 2008 was Rs.10,00,000 and balance brought from previous year Rs. 80,000. Provide Rs. 31,200 for depreciation and Rs. 80,000 for taxation before making other appropriations. Prepare Profit and Loss Account.

(0)

(b)

Wye sells goods on Hire–purchase at cost plus 50%. Prepare Hire Purchase Trading Account from the information given below:

	Rs.
Stock with customers on hire–purchase price (opening) Stock in hand at shop (opening) Instalments overdue (opening) Purchases during the year Goods repossessed (installments not due Rs. 36,000) Stock at shop excluding repossessed goods (closing) Cash received during the year Installments overdue (closing)	1,62,000 3,24,000 1,35,000 10,80,000 9,000 3,60,000 10,35,000 1,62,000

The vendor spent Rs.2,000 on goods repossessed and then sold it for Rs. 15,000.

(0)

(a)

‘S’ and ‘T’ were carrying on business as equal partners. Their Balance Sheet as on 31st March, 2008 stood as follows:

Liabilities		Rs.	Assets	Rs.
Capital accounts: S T Creditors Bank overdraft Bills payable	6,40,000 6,60,000	13,00,000 3,27,500 1,50,000 62,500	Stock Debtors Furniture Joint life policy Plant Building	2,70,000 3,65,000 75,000 47,500 1,72,500 9,10,000
		18,40,000		18,40,000

The operations of the business were carried on till 30th September, 2008. S and T both withdrew in equal amounts, half the amount of profits made during the current period of 6 months after 10% per annum had been written off on building and plant and 5% per annum written off on furniture. During the current period of 6 months, creditors were reduced by Rs. 50,000, Bills payable by Rs. 11,500 and Bank overdraft by Rs. 75,000. The Joint Life policy was surrendered for Rs. 47,500 on 30th September, 2008. Stock was valued at Rs. 3,17,000 and debtors at Rs. 3,25,000 on 30th September, 2008. The other items remained the same as on 31st March, 2008.

On 30th September, 2008 the firm sold its business to ST Ltd. The value of goodwill was estimated at Rs.5,40,000 and the remaining assets were valued on the basis of the Balance Sheet as on 30th September, 2008. The ST Ltd. paid the purchase consideration in equity shares of Rs.10 each. You are required to prepare a Realization Account and Capital accounts of the partners.

(0)

(b)

From the following details, calculate consequential loss claim:

1.	Date of fire: 1st September;
2.	Indemnity period: 6 months;
3.	Period of disruption : 1st September to 1st February;
4.	Sum insured: Rs. 1,08,900;
5.	Sales were Rs. 6,00,000 for preceding financial year ended on 31st March;
6.	Net profit for preceding financial year Rs. 36,000 plus insured standing charges Rs. 72,000;
7.	Rate of Gross profit 18%;
8.	Uninsured standing charges Rs. 6,000;
9.	Turnover during the disruption period Rs. 67,500;
10.	Annual turnover for 12 months immediately preceding the date of fire Rs. 6,60,000;
11.	Standard turnover i.e. for corresponding months (1st September to 1st February) in the year preceding the date of fire Rs. 2,25,000;
12.	Increase in the cost of working capital Rs. 12,000 with a saving of insured standing charges Rs. 4,500 during the disruption period;
13.	Reduced turnover avoided through increase in working capital Rs. 30,000;
14.	Special clause stipulated: (a) Increase in rate of G.P. 2%. (b) Increase in turnover (standard and annual) 10%.

(0)

Answer the following:

12x2=24

(i)

The company finds that the stock sheets of 31.3.2007 did not include two pages containing details of inventory worth Rs. 20 lakhs. State, how will you deal with this matter in the accounts of A Ltd. for the year ended 31st March, 2008 with reference to AS 5.

(0)

(ii)

Mention four assets, in respect of which AS 6 (revised) is not applicable.

(0)

(iii)

Y Ltd. used certain resources of X Ltd. In return X Ltd. receives Rs. 10 lakhs and Rs. 15 lakhs as interest and royalties respectively, from Y Ltd. during the year 2007–2008. State on what basis X Ltd. should recognize their revenue, as per AS 9.

(0)

(iv)

Mention two categories of investments defined by AS 13 and also state their valuation principles.

(0)

(v)

X Ltd. sold goods to its associate company for the 1st quarter ending 30.6.2007. After that, the related party relationship ceased to exist. However, goods were supplied as was supplied to any other ordinary customer. Decide whether transactions of the entire year has to be disclosed as related party transaction.

(0)

(vi)

Consider the following data pertaining to three underwriters, Ajay, Samay and Vijay:

Particulars
Shares underwritten
Marked application

Ajay
8,000
6,000

Samay
16,000
8,000

Vijay
24,000
11,000

If total applications received are for 44,800 shares, compute the final liability of Vijay.

(0)

(vii)

P, Q and R share profit and losses in the ratio of 4:3:2 respectively. Q retires and P and R decide to share future profits and losses in the ratio of 5:3. Then immediately H is admitted for 3/10 share of profits half of which was gifted by P and the remaining share was taken by H equally from P and R. Calculate the new profit sharing ratio after H’s admission and gaining ratio of P and R after Q’s retirement.

(0)

(viii)

What is "Fund Based Accounting" under not–for–profit organisations?

(0)

(ix)

In X Bank Ltd., the doubtful asset (more than 3 years) as on 31.3.2008 is Rs.1,000 lakhs. The value of security (including DICGC 100% cover of Rs.100 lakhs) is ascertained at Rs.500 lakhs. How much provision must be made in the books of the Bank towards doubtful assets?

(0)

(x)

Give the four qualitative characteristics which the financial statements should observe.

(0)

(xi)

On 1st April, ‘X’ purchased 12% debentures in ‘M’ Ltd. for Rs.6,50,000. The face value of these debentures were Rs.6,00,000. Interest on debentures falls due on 30th June and 31st December. Compute the cost of acquisition of debentures.

(0)

(xii)

Goods worth Rs.50,000 sent by head office but the branch has received till the closing date goods worth Rs.40,000 only. Give journal entry in the books of H.O. and branch for goods in transit.

(0)

Answer any three of the following:

3x4=12

(a)

From the following information of Great Bank Limited, compute the provisions to be made in the Profit and Loss account:

	Rs.
Assets
Standard Substandard Doubtful	20,000 16,000
For one year (secured) For two years and three years (secured) For more than three years (secured by mortgage of plant and machinery Rs.600 lakhs) Non–recoverable Assets	6,000 4,000 2,000 1,500

(0)

(b)

R had the following bills receivable and bills payable against S. Calculate average due date when the payment can be made or received without any loss or gain of interest to either party.

Bills Receivable			Bills Payable
Date of the Bill	Amount (Rs.)	Tenure in months	Date of bill	Amount (Rs.)	Tenure in months
1.6.08 5.6.08 9.6.08 12.6.08 20.6.08	9,000 7,500 10,000 8,000 12,000	3 3 1 2 3	29.5.08 3.6.08 10.6.08 13.6.08 27.6.08	6,000 9,000 10,000 7,000 11,000	2 3 2 2 1

Holiday intervening in the period 15th August, 2008, 16th August, 2008, and 6th September, 2008.

(0)

(c)

	Exchange Rate per $
Goods purchased on 1.1.2007 of US $ 10,000 Exchange rate on 31.3.2007 Date of actual payment 7.7.2007	Rs.45 Rs.44 Rs.43

Ascertain the loss/gain for financial years 2006–07 and 2007–08, also give their treatment as per AS 11.

(0)

(d)

What are the advantages of customised accounting packages?

(0)

(e)

What is B list contributory?

(0)

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