CWA ICWA Final - Group IV : Advanced Financial Accounting and Reporting - June2012

CWA ICWA Final - Group IV • Advanced Financial Accounting and Reporting • June 2012

This Paper has 24 answerable questions with 0 answered.

F—P16(AFA) Syllabus 2008
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.

PART A questions are compulsory. Attempt all of them.

PART B has seven questions. Attempt any five of them.

Please:

(1) Write answers to all Parts of a question together.
(2) Open a new page for answer to a new question.
(3) Attempt the required number of questions only.
(4) Indicate in the front page of the answer book the required question attempted.

PART A : (25 Marks)

(a)

In each of the cases given below, one out of four alternatives is correct. Indicate the correct answer ( = 1 mark) and give your workings/reasons briefly (= 1 mark):

2x10=20

(i)

RAJASTHALI Ltd. purchased Fixed Assets costing Rs. 6,000 lakhs on 1.4.2011 and the same was fully financed by Foreign Currency Loan (U.S. Dollars) payable in three annual equal instalments. Exchange rates were 1 Dollar = Rs. 40 and Rs. 42.50 as on 1.04.2011 and 31.03.2012 respectively. First instalment was paid on 31.03.2012. As per AS 11, Exchange Difference to be charged to P & L A/c for the year 2011–12 will be:

Rs. 375 lakhs

Rs. 250 lakhs

Nil

None of these

(0)

(ii)

PRARTHANA & PIYUSH Ltd. bought a forward contract for three months of US $ 2,00,000 on 1st March at 1 US $ = Rs. 50.10 when spot exhange rate was US $ 1 = Rs. 50.11. On 31 st March when the books were closed forward exchange rate for two months was US $ 1 = Rs. 50.15. On 30th April, the contract was sold at Rs. 50.18 per dollar. As per AS 30, the profits from sale of contract to be recognized in the P & L A/c will be:

Rs.2,000

Rs.10,000

Rs.6,000

None of these

(0)

(iii)

BHARAT & TUSHAR Ltd. obtained a Loan from a bank for Rs. 240 lakhs on 30.04.2011. It was utilized for: Construction of a shed Rs. 100 lakhs, Purchase of a machinery Rs. 80 lakhs, Working Capital Rs. 40 lakhs, Advance for purchase of truck Rs. 20 lakhs, Construction of shed was completed in March 2012. The machinery was installed on the same date. Delivery truck was not received. Total interest charged by the bank for the year ending 31.03.2012 was Rs. 36 lakhs. As per AS 16, Interest to be debited to Profit & Loss account will be:

Rs. 36 lakhs

Rs. 21 lakhs

Rs. 9 lakhs

None of these

(0)

(iv)

Mis XYZ Ltd. has three segments namely X, Y, Z. The total assets of the Company are: Segment X Rs. 2.00 crores, Segment Y Rs. 6.00 crores and Segment Z Rs. 12.00 crores. Deferred tax assets included in the assets of each Segments are X–Rs. 1 crore, Y–Rs. 0.80 crores and Z–Rs. 0.60 crores. The accountant contends that all the three Segments are reportable segments. As per AS 17:

X, Y, and Z are
reportable segments

Only X and Yare
reportable segments

Only X and Z are
reportable segments

Only Y and Z are
reportable segments

(0)

(v)

X Ltd. holds 51% of Y Ltd., Y Ltd. holds 51% of W Ltd., Z Ltd. holds 49% of W. Ltd. As per AS 18, . Related Parties are:

X Ltd., Y Ltd. & W Ltd

X Ltd. & Z Ltd.

Y Ltd. & Z Ltd.

X Ltd. & y Ltd. only

(0)

(vi)

As per records of NAVEEN ND Ltd. Accounting Profit Rs. 12,00,000, Book Profit as per MAT Rs. 7,00,000, Profit as per Income Tax Act Rs. 1,20,000, Tax Rate 20%, MAT Rate 7.50%. As per AS 22, Deferred Tax Asset/Liability will be:

Rs. 2,40,000

Rs.2,16,000

Rs. 48,000

Rs. 2,68,500

(0)

(vii)

As per records of PELF FIN STOCK Ltd. Net Profit for the current year Rs. 199.20 lakhs, No. of Equity Shares outstanding 100 lakhs, No. of 12% Convertible Debentures of Rs. 100 each 2lakhs, Each Debenture is convertible into 10 equity shares, Tax Rate 30%, As per AS 20, Diluted Earnings Per Share is:

Rs. 1.66

Rs. 1.86

Rs. 1.80

None of these

(0)

(viii)

Accountants of M. K. SHARDA Ltd. show a Net Profit of Rs. 14,40,000 for the third quarter of 2011 after incorporating the following:

(i)	Bad debts of Rs. 80,000 incurred during the quarter. 50% of the bad debts have been deferred to the next quarter.
(ii)	Extra ordinary loss of Rs. 70,000 incurred during the quarter has been fully recognized in this quarter.
(iii)	Additional depreciation of Rs. 90,000 resulting from the change in the method of change of depreciation.

As per AS 25, the Correct Quarterly Income is:

Rs. 14,00,000

Rs. 13,70,000

Rs. 13,33,000

None of these

(0)

(ix)

SRIJAN Ltd. wishes to obtain a machine costing Rs. 60 lakhs by way of lease. The effective life of the machine is 15 years, but the company requires it only for the first 5 years. It enters into an agreement with Ashok Ltd., for a lease rental for Rs. 6 1akhs p.a. payable in arrears and the implicit rate of interest is 15%. As per AS 19, what should be recognized as an expense in the Statement of Profit and Loss in the books of Lessee:

Total Lease
Payments

Only Finance Charges
included in Lease
payments

Depreciation of
Rs. 4,00,000 p.a.

None of these

(0)

(x)

S CHAND Ltd. issued Certain callable convertible debentures at Rs. 60. The value of similar debentures without call or equity conversion option is Rs. 57. The value of call as determined using Black and Scholes model for option pricing is Rs. 2. The values of liability and equity component will be:

Rs. 57,Rs. 3

Rs. 58, Rs. 2

Rs. 59, Re. 1

Rs. 55, Rs. 5

(0)

(b)

(i)

In case of Demerger:

A.	Demerged Company issues Shares to the Resulting Company.
B.	Resulting Company issues Shares to the Demerged Company.
C.	Resulting Company issues Shares to the Shareholders of Demerged Company.
D.	Demerged Company issues Shares to the Shareholders of Resulting Company.

(0)

(ii)

Economic Activity of Investment Associate Ltd. is controlled by Holding Ltd. and Subsidiary Ltd. State the

A.	19% Shares in Investment Associate Ltd.
B.	20% Shares in Investment Associate Ltd.
C.	50% Shares in Investment Associate Ltd.
D.	51 % Shares in Investment Associate Ltd.

1x4

(0)

PART B : (75 Marks)

PART B : (75 Marks)

(a)

As on 1^stApril, 2011 the Fair Value of Plan Assets was Rs. 1,00,000 in respect of a pension plan of X Ltd. On 30^th September, 2011 the plan paid out benefits of Rs. 20,000 and received inward contributions of Rs. 50,000. On 31^st March, 2012 the fair value of plan assets was Rs. 1,50,000 and present value of the defined benefit obligation was Rs. 1,48,000. Actuarial losses on the obligations for the year 2011–12 were Rs. 1,000. On 1^st April, 2011 the company made the following estimates, based on its market studies, understanding and prevailing prices:

Interest & Dividend Income, after tax payable by the fund	9.50%
Realized and unrealized gains on Plan Assets (after tax)	2.00%
Fund Administrative Costs	( l.25% )
Expected Rate of Return	10.25%

Required: Find the Expected & Actual Returns on Plan Assets for the year 2011–12

(0)

(b)

Y Ltd. gives the following estimates of cash flows relating to fixed asset on 31.12.2010. The discount is 15%

Year	2011	2012	2013	2014	2015
Cash Flow (Rs. in lakhs	4000	6000	6000	8000	4000

Residual value at the end of 2015: Rs. 1000 lakhs, Fixed Asset purchased on 1.1.2008:
Rs. 40,000 lakhs, Useful Life: 8 years, Net Selling Price on 31.12.2010: Rs. 20,000 lakhs

Year	1	2	3	4	5
PVF@15%	0.870	0.756	0.658	0.572	0.497

Required: Calculate on 31–12–2010: (a) Value in use on 31–12–2010, (b) Carrying amount at the end of 2010, (c) Impairment Loss to be recognized for the year ended 31–12–2010, (d) Revised Carrying Amount, (e) Depreciation charge for 2011.

(0)

(c)

At the beginning of year 1, Z Ltd. issued 20,000 Convertible Debentures with face value Rs. 100 per debenture, at par. The debentures have six–year term. The interest at annual rate of 9% is paid half–yearly. The bondholders have an option to convert half of the face value of debentures into 2 Equity Shares at the end of year 3. The bondholders not exercising the conversion option will be repaid at par to the extent of Rs. 50 per debenture at the end of year 3. The non–convertible portion will be repaid at 10% premium at the end of year 6. At the time of issue, the prevailing market interest rate for similar debt without conversion option was 10%. Compute Value of Embedded Derivative assuming that all the bondholders will exercise an option to convert debentures into Equity Shares. (Use Present Value Factors upto 3 digits after decimal point).

(0)

The Balance Sheet of RAJASTHALI Ltd. as at 31^st March, 2012 is given below:

Liabilities	Rs.	Assets	Rs.
Equity shares of Rs. 10 each fully paid up Equity Shares of Rs. 10 each Rs.8 paid up Equity Shares of Rs.5 each fully paid up Less: Calls–in–arrears @ Rs.2 Equity Shares of Re.l each fully paid up 15% Preference Shares of Rs. 100 each fully paid Less: Calls–in–arrears @ Rs.20 General Reserve Profit & Loss A/c. Non–Current Liabilities Current Liabilities Proposed Dividend (Equity & Pref.) Dividend Distribution Tax	1,00,000 1,60,000 1,50,000 (20,000) 50,000 1,00,000 (4,000) 50,000 2,00,000 1,00,000 88,960 1,46,400 14,640	Goodwill Patents & Trade Marks Tangible Fixed Assets 10% Investments: [Face Value Rs.80,000] Current Assets: Underwriting Commission	90,000 2,00,000 2,10,000 1,00,000 3,36,000 2,00,000
	11,36,000		11,36,000

Additional Information:

(a)	Goodwill is found undervalued by Rs. 1,26,300. On 01.04.2011, a new machinery costing Rs. 1,00,000 was purchased but wrongly charged to revenue. Machinery is subject to Depreciation @ 10% (No rectification has yet been made).
(b)	50% of Total Tangible Fixed Assets are found undervalued by 50% of market value and 50% of the remaining are found overvalued by 50% of market value.
(c)	Of the investments 10% is trade and the balance non-trade. All trade investments are to be valued at 10% below cost.
(d)	Disputed Bonus claim of Rs. 29,000 not yet provided in the accounts for 2011–12 is to be settled at Rs. 19,000.

Required: Calculate the Ex-Dividend and Cum-Dividend Intrinsic Value of Equity Shares.
(Assume Income Tax Rate of 30%)

(0)

The following are the Balance Sheets of P Ltd. and V Ltd. as at 31^stMarch, 2012:

Liabilities	P Ltd. Rs.	V Ltd. Rs.	Assets	P Ltd. Rs.	V Ltd. Rs.
Equity Share of Rs. 10 each General Reserve Profit & Loss A/C Investment Allowance Reserve Export Profit Reserve 10% Debentures Loan from Bank Trade Creditors	6,00,000 1,50,000 1,91,500 – – – – 37,500	2,00,000 20,000 11,500 2,000 3,000 50,000 23,000 1,40,000	Goodwill Tangible Fixed Assets Investments Stock Debtors Cash at Bank Preliminary Expenses	– 4,75,000 1,09,000 95,000 1,40,000 1,50,000 10,000	1,25,000 1,50,000 – 55,000 65,000 37,000 17,500
	9,79,000	4,49,500		9,79,000	4,49,500

The business of V Ltd. is taken over by P Ltd. as on that date on the following terms:

(a)	Prior to absorption, V Ltd. and P Ltd. decide to declare and pay dividend @ 5%. (Assume Dividend Distribution Tax @ 15%).
(b)	50% of Tangible Fixed Assets are taken over at 100% more than the book value and 50% of the remaining Tangible Fixed Assets are taken over at 33⅓% less than the book value.
(c)	Goodwill is to be valued at 4 years’ purchase of the excess of average of five years’ profits over 8% of the combined amount of Share Capital and General Reserve.
(d)	Stock and Debtors are taken over at book value less 10%.
(e)	The issue of such an amount of fully paid 14% Debentures in P Ltd. at 96 per cent is sufficient to discharge 10% Debentures in V Ltd. at a premium of 20 per cent.
(f)	Trade Creditors are to be taken over subject to a discount of 5% and other liabilities (including Unrecorded Loan Liability of Rs. 15,500) to be discharged by P Ltd. at book value.
(g)	The purchase consideration is to be discharged to the extent of 20% in cash and the balance in the form of equity shares of Rs. 10 each, Rs. 8 paid up at a premium of Rs. 7 per share. The market value of an equity share of P Ltd. at present is Rs. 100.
(h)	Expenses of liquidation of V Ltd. are to be reimbursed by P Ltd. to the extent of Rs. 10,000. Actual Expenses amounted to Rs. 12,000.
(i)	The investment Allowance Reserves and Export Profit Reserve are to be maintained for 2 more years.

The average of the five years’ profit is Rs. 30,100. Prior to 31st March 2012 V Ltd. sold goods costing Rs. 30,000 to P Ltd. for Rs. 40,000. Rs. 25,000 worth of goods were still in stock of P LTd. Debtors include Rs. 20,000 still due from P Ltd. On the date of absorption, V Ltd. owed P Ltd. Rs. 60,000 for the purchases of stock from P Ltd. which made a profit of 20% on cost. Four–fifth of such stock were sold till 31.3.2012. Investments of P. Ltd. include Rs. 9,000 representing the cost of 20% Debentures of V Ltd.

Required: Pass Journal Entries in the books of P Ltd.

(0)

The following is the Balance Sheet of Road Block Ltd. as at 31^st March, 2012:

Rs.in lakhs
Liabilities	Rs.	Assets	Rs.
Equity Shares of Rs.10 each 6% cum–Pref. Shares of Rs.100 each Capital Reserve Workmen’s Compensation Fund: Pune2 Bombay1 10% First Debentures 10% Second Debentures Debentures Interest outstanding Trade Creditors Provision for Tax	500 100 6 3 60 100 16 165 10	Goodwill Patents & Copy Rights Plant & Machinery 10% Government Loan Earmarked Against Workmen’s Compensation fund Investments in Shares in Q Ltd. Stock Debtors Cash at Bank Discount on issue of Debentures Profit and Loss Account	10 5 719.6 3 32.4 60 10 104 1 15
	960		960

Note: Dividend on Preference Shares are in arrears for three years.

The following scheme of internal reconstruction was approved by the Court and implemented

(a)	All the equity shares be converted into the same number of equity shares of Rs. 5 each, Rs. 2.50 paid up.
(b)	The preference shares are converted from 6% to 15% but revalued in a manner in which the total return on them remains unaffected. Four equity shares of Rs. 5 each, Rs. 2.50 paid up to be issued for each Rs. 100 of arrears of preference dividend.
(c)	Mr. A holds 10% first debentures for Rs. 40 lacs and 10% second debentures for Rs. 60 lacs. He is also a creditor for Rs. 10 lacs. Mr. 'A' is to cancel Rs. 60 lacs of his total debt and to pay Rs. 10 lacs to the company and to receive new 12% Debentures for the balance amount.
(d)	Mr. B holds 10% first debentures for Rs. 20 lacs and 10% second debentures for Rs. 40 lacs and is also a creditor for Rs. 5 lacs. Mr. ‘B’ is to cancel Rs. 30 lacs of his total debt and to accept new 12% Debentures for the balance amount.
(e)	Trade Creditors (other than A and B) are given the option of either to accept equity shares of Rs. 5, Rs. 2.50 paid up each, for the amount due to them or to accept 80% of the amount due in cash. 40% Creditors accepted equity shares whereas the balance accepted cash in full settlement.
(f)	There were capital commitments totaling Rs. 300 lacs. These contracts are to be cancelled on payment of 5% of the contract price as a penalty.
(g)	The Directors refund Rs. 11 lacs of the fees previously received by them.
(h)	Workmen’s Compensation Fund (Bombay) disclosed the fact that actually there was a liability of Rs. 20,000 only. As a result the relevant fund amount balance was to be brought down to the required amount. Investments were realised at 10% above the book value.
(i)	The taxation liability of the company is settled at Rs. 8.88 lacs and the same is paid immediately.
(j)	Road Block 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. 25 lacs. The shares would be valued based on 12% capitalization rate.
(k)	A dissentient shareholder transferred his 100 shares to a director.
(l)	Stock is to be valued at 114% of book value. 80% of Debtors are considered as Bad and 20% of the balance Debtors are considered as Doubtful. Any surplus after writing off the various losses should be utilized in writing down the value of plant & machinery.
(m)	All equity share holders paid the balance to make the shares fully paid up and then all equity shares were consolidated into the shares of Rs. 10 each.

Required: Prepare the Reconstruction Account.

(0)

The following are the Balance Sheets of H Ltd. and S Ltd. as at 31^st March, 2012:

Liabilities	H Ltd. Rs.	S Ltd. Rs.	Assets	H Ltd. Rs.	S Ltd. Rs.
Equity Shares of Rs. 10 each 12% Preference Shares of Rs. 10 each General Reserve Profit & Loss Alc 12% Debentures Sundry Creditors Bills Payable	10,00,000 1,00,000 2,00,000 3,60,000 2,00,000 3,00,000 1,40,000	7,00,000 50,000 4,48,000 1,77,000 2,00,000 5,35,000 1,40,000	Land and Building Plant and Machinery Shares in S Ltd. 900, 12% Debentures in S Ltd. Stock Debtors Cash at Bank Bills Receivable Preliminary Expenses	6,00,000 2,00,000 7,10,000 80,000 1,00,000 4,00,000 60,000 1,00,000 50,000	2,70,000 2,70,000 – 3,00,000 10,10,000 2,75,000 1,00,000 25,000
	23,00,000	22,50,000		23,00,000	22,50,000

Note: Contingent liability in respect of Bills discounted by H Ltd. Rs. 50,000.
Contingent liability in respect of Bills discounted by S Ltd. Rs. 25,000 of which Bills of Rs. 5,000 were accepted by H Ltd.

Additional Information:

(a)	H Ltd. acquired 40,000 Equity Shares of S Ltd. and 2,000. 12% Pref. Shares in S Ltd. on 1.7.2011 at a cost of Rs. 6,80,000 and Rs. 30,000 respectively. The credit balance of Profit and Loss Account of S Ltd. as on 1.4.2011 was Rs. 2,25,000 and that of General Reserve on that date was Rs. 6,00,000.
(b)	On 30.9.2011, S Ltd. declared dividend @ 20% on equity shares for the year 2010-2011. H Ltd. credited the receipt of dividend to its Profit and Loss Account.
(c)	On 1.1.2012, S Ltd. issued 2 shares for every 5 shares held, as bonus shares. No entry has been made in the books of H Ltd. for the receipt of these bonus shares.
(d)	H Ltd. purchased goods for Rs. 3 lakhs from S Ltd. which made at a profit of 20% on cost. 80% of these goods were sold by H Ltd. at a profit of 20% on cost till 31.03.2012.
(e)	On 1.1.2012, H Ltd. sold to S Ltd. a Machine costing Rs. 2,40,000 at a profit on 25% on selling price. Depreciation at 10% p.a. was provided by S Ltd. on this Machine.
(f)	H Ltd. owed S Ltd. Rs. 2,90,000 but S Ltd. is owed Rs. 3,00,000 by H Ltd.
(g)	The Land and Building of S Ltd. which stood at Rs. 3,00,000 on 1.4.2011, was considered as worth of Rs. 6,92,500 on 1.7.2011, for which necessary adjustments are yet to be made.
(h)	All the Bills Payables of S Ltd. were drawn upon by H Ltd.
(i)	The management of H Ltd. and S Ltd. wish to recommend a dividend of 15% p.a. and 10% p.a. respectively on equity shares for the year 2011–2012.

Required: Calculate Minority Interest, Cost of Control and the Balance of Consolidated Profit and Loss Account to be shown in the Consolidated Balance Sheet of H Ltd. and its subsidiary, as at 31^st March, 2012.

(0)

Following are the Balance Sheets of BHARAT TUSHAR Ltd.:

Liabilities	31.3.12 Rs.	31.3.11 Rs.	Assets	31.3.12 Rs.	31.3.11 Rs.
Equity Share capital 18% Preference Share capital General Reserve Profit & Loss Alc Securities Premium Capital Redemption Reserve Debentures Redemption Reserve Capital Reserve Capital Grant 10% Debentures 12% Debentures Unpaid Interest on Debentures Unpaid Dividend Bank Overdraft Creditors Provision for Doubtful Debts Proposed Dividend Dividend Distribution Tax Provision for Tax	7,41,000 2,00,000 2,21,000 12,57,500 – 1,30,000 – 70,000 8,00,000 – 2,07,000 12,000 24,000 50,000 1,50,000 30,000 1,50,000 22,500 85,000	6,00,000 4,00,000 58,000 82,000 1,000 4,800 5,000 – 2,00,000 2,00,000 2,000 4,000 55,200 1,40,000 20,000 1,20,000 18,000 90,000	Goodwill Land Plant and Machinery 10% Investments (at par) Investment in Shares Accrued interest on Investment Marketable Securities Stock Debtors Cash & Bank Advance Tax Underwriting Commission Discount on issue of Debentures	15,000 50,000 12,65,000 2,00,000 35,000 2,000 20,000 4,10,000 1,85,000 18,82,000 80,000 5,720 280	– 5,000 10,15,000 1,00,000 10,000 3,000 30,000 3,60,000 1,80,000 2,62,000 30,000 5,000 –
	41,50,000	20,00,000		41,50,000	20,00,000

Additional Information:

(a)	The provision for depreciation on Machinery stood at Rs. 3,00,000 on 31.03.2011, and at Rs. 3,65,000 on 31.03.2012. A machine costing Rs. 1,40,000 (book value Rs. 80,000) was disposed off at a loss of 37.5%. One fully depreciated machine costing Rs. 15,000 was also discarded and written off.
(b)	On 30.09.2011 An Interim Dividend @ 30% p.a. was paid on equity shares for the half year ended on 30.09.2011. Dividend Distribution Tax @ 15% was also paid. On 01.10.2011, some Investments were purchased.
(c)	On 1.1 0.20 11, Preference Shares were redeemed at a premium of 15%. Dividend on Redeemed Preference Shares was duly. paid. Dividend Distribution Tax @ 15% was also paid.
(d)	On 01.01.2012, 10% Debentures were redeemed at a premium of 5% and some 12% Debentures were issued.
(e)	An Income Tax liability upto 31st March, 2011 has been settled and paid for Rs. 75,000.
(f)	On 01.01.20 12, the Business of Y Ltd. was purchased for Rs. 60,000 payable in fully paid equity shares of Rs. 10 each at 20% premium. The assets included Stock Rs. 15,000. Debtors Rs. 10,000 and Machine Rs.30,000. Creditors of Rs. 15,000 were also taken over.
(g)	It was decided to value stock at cost whereas previously the practice was to value stock at cost less 10%. However, the Stock on 31.03.2012 was correctly valued at cost.
(h)	Dividend received amounted to Rs. 2,100 which included pre–acquisition dividend of Rs. 600.
(i)	Insurance proceeds from earthquake disaster settlement (Rs. 1,00,000) were credited to Profit & Loss A/c
(j)	Grant of Rs. 10,00,000 amortised in P & L A/c.
(k)	Marketable Securities costing Rs. 10,000 were disposed off at a profit of 20%. Debtors of Rs. 10,000 were written off against the provision for doubtful debts account during the year.