CWA ICWA Inter - Group I : Financial Accounting - December 2009

CWA ICWA Inter - Group I • Financial Accounting • December 2009

This Paper has 33 answerable questions with 2 answered.

I—P5(FAC)—RE Syllabus 2008
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.
Answer Question No. 1 (carrying 25 marks) from Part A which is compulsory and any five questions (each carrying 15 marks) from Part B .

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

Answer Question No. 1 (carrying 25 marks) from Part A which is compulsory
and any five questions (each carrying 15 marks) from Part B .

Please :	(1) Answer all bits of a question at one place.
	(2) Open a new page for answer to a new question. Working notes should from part of the answer
	PART A(25 marks)

Marks

(a)

In each of the cases given below one out of four alternatives is correct. Indicate the correct answer.

1x5=5

(i)

In the books of lessor short working irrecoverable are to be

A.	Credited to profit and loss account
B.	Debited to profit and loss account
C.	Credited to short working account
D.	None of the above

(0)

(ii)

Stock Reserve in relation to Closing Stock appears

A.	On the debit side of branch account
B.	On the credit side of branch account
C.	On the debit side of profit and loss account
D.	Insufficient information

(1)

(iii)

Which one of the following combinations of accounting assumptions are fundamental as per AS–1?

A.	Going concern, consistency and accrual
B.	Going concern, conservatism and historic cost
C.	Conservatism, consistency and accrual
D.	Historic cost, consistency and conservatism

(0)

(iv)

There is a rebuttable assumption that the useful life of an intangible asset like computer software will not exceed

A.	5 years
B.	10 yeas
C.	15 years
D.	20 years

(0)

(v)

A none–banking asset is

A.	An item of office equipment
B.	Any asset acquired from the debtors in satisfaction of claim
C.	Money at call and short notice
D.	Furniture and fixtures

(0)

(b)

From the following two groups of words, Match one capital letter with one small letter by their underlying relevance:

(A)
(B)
(C)
(D)
(E)
(F)

AS–2
AS–11
AS–13
AS–18
AS–28
Money at call and short notice

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

Banking Company
Segment Reporting
Valuation of Inventories
Accounting for Investments
Accounting for the effects of changes in foreign exchange rates
Related Party disclosure
Impairment of Assets
Intangible Assets

1x6=6

(0)

(c)

State whether the following statements are TRUE (T) or FALSE (F):

1x6=6

(i)

The Convention of conservatism has usually the effect of overstating losses and understating the gains.

(0)

(ii)

Balance sheet based on ‘Cost concept’ is of no use to a potential investor.

(0)

(iii)

The system of accounting for hire–purchase and installment transactions is one and the same.

(0)

(iv)

Under the stock and Debtors system branch stock account is a real account.

(0)

(v)

Interest on sinking fund investment is credited to Profit & Loss Account.

(0)

(vi)

Requirements given in Part II of Schedule VI apply to the Balance Sheet.

(0)

(d)

Fill in the blanks:

1x5=5

(i)

Under the consistency concept, events of the ___________ must be treated by the same accounting method, unless there are compelling reasons to change the method.

(0)

(ii)

Where hire vendor reckons the profit on the basis of installments received the method is known as ___________ .

(0)

(iii)

Under the wholesale branch system branch is treated ____________ with the wholesale branch.

(0)

(iv)

Capital redemption reserve account _______________ be utilized for issuing fully paid Bonus Shares (cannot/can).

(0)

(v)

Assets in the Balance Sheet of a limited company are arranged in the order of ____________ (permanence/liquidity).

(0)

(e)

A and B are equal partners. They wanted to admit C as partner and the new profit sharing ratio is 3:2:1.
If C pays Rs.30000 towards Goodwill. B will get.

(i) Rs.30,000

(ii) Rs.20,000

(iii) Rs.10,000

(iv) Nil.

(1)

PART B (75 marks)

(a)

The following balances appeared in the books of VENTEX LTD., a lessee as on January 1, 2007:

(i)	Land lord’s Account (CR) : Rs.28,000.
(ii)	Short Workings Account (DR) : Rs.6,000. out of which Rs.3,000 arose in 2006, Rs.2,000 in 2005 and the rest in 2004.

Agreement of Royalty provided the following:

(i)	Maximum Rent Rs.56,000 P.A.
(ii)	The power to recoup shortworkings within 3 years immediately following the year in which it arises.
(iii)	Payment to the Landlord to be made as under : 50% of the amount is payable in the year in which it becomes due and the balance of 50% in the next year.

Your are given the following particulars from 2007 to 2009:

Year	Payments to Landlord Rs.	Shortworkings Rs.	Shortworkings recouped Rs.
2007 2008 2009	56,000 58,000 58,000	– – 2000	800 5,000 –

You are required to show the Royalty Account and Shortworkings Account for the year from 2007 to 2009.

3+4+3
=10

(0)

(b)

What are the disclosures required by AS–11 “Accounting for the effects of changes in foreign exchange rates”?

(0)

(a)

A, B and C were partners sharing profits and loss in the ratio of 10:6:4. The Balance Sheet of the firm as at 31 st March, 2009 is as under:

Liabilities	Rs.	Assets	Rs.
Capitals: A80,000 B20,000 C30,000 Reserves (Unappropriated Profit) Long–term Debt Bank Overdraft Trade Creditors	1,30,000 20,000 3,00,000 44,000 1,70,000	Land Buildings Plant and Machinery Furniture Investments Stock Debtors	10,000 2,00,000 1,30,000 43,000 12,000 1,30,000 1,39,000
	6,64,000		6,64,000

It was mutually agreed that B will retire from partnership and in his place D will be admitted as a partner with effect from 1^st April, 2009. For this purpose, the following adjustments are to be made:

(i)	Goodwill is to be valued at Rs.1 lakh but the same will not appear as an asset in the books of the reconstituted firm.
(ii)	Building and Plant and Machinery are to be depreciated by 5% and 20% respectively. Investments are to be taken over by the retiring partner at Rs.15,000. Provisions of 20% is to be made on debtors to cover doubtful debts.
(iii)	In the reconstituted firm, the total capital will be Rs.2 lakhs which will be contributed by A, C and D in their new profit–sharing ratio, which is 2:2:1.
(iv)	The surplus funds, if any, will be used for repaying the Bank Overdraft.
(v)	The amount due to the retiring partner shall be transferred to his loan account.

You are required to prepare:

(a)	Revaluation Account;

(b)	Partners Capital Account;

(c)	Bank Account;

(d)	Balance Sheet after Reconstitution.

2+4+
1+3=10

(0)

(b)

Distinguish between Receipts and Payments Account and Income and Expenditure Account.

(0)

(a)

Write a short note on Conservatism (or Prudence) Concept.

(0)

(b)

The following accounting information and financial ratios of STAR ENTER PRISES LTD. pertain to the year ended March 31, 2009:

Current ratio
Liquidity ratio
Stock turnover ratio
Ratio of gross profit to sales
Turnover (cost of sales) ratio to net fixed assets
Average debt collection period
Fixed assets to net worth
Long–term debt to capital and reserve
Net working capital

2.5
1.5
5
20%
2
2.4 months
0.80
7/25
Rs.6,00,000

You are required to prepare Balance Sheet of Star Enterprises Ltd. as on March 31, 2009, showing the details of workings. Ignore taxation.

5+5=10

(0)

(a)

ANKIT LTD. has the following Balance Sheet as on 31^st March, 2009:

Liabilities	Rs.	Assets	Rs.
Share Capital Issued, Subscribed and Fully Paid up 10,000 Ordinary Shares of Rs.100 each 5,000 Preference Shares of Rs.100 each Capital Reserve Share Premium Account General Reserve Profit and Loss Account Current Liabilities	10,00,000 5,00,000 1,00,000 1,00,000 2,00,000 1,00,000 10,00,000	Fixed Assets Current Assets	22,00,000 8,00,000
	30,00,000		30,00,000

The preference shares are to be redeemed at 10 per cent premium. Fresh issue of equity shares is to be made to the extent it is required under the Companies Act for the purpose of this redemption. The shortfall in funds for the purpose of the redemption after utilising the proceeds of the fresh issue are to be met by taking a bank loan.

Subsequently the company decides to issue bonus shares in the ratio of one equity share for every four equity shares held.

Required:
Show the Journal Entries.

8+2=10

(0)

(b)

Based on the following particulars of production, sales and related costs, ASCERTAIN the value of inventory o 31.3.2009 the closing date of the financial year of M/s. RAVI & CO. (a trader):

Normal capacity of production (Annual)
Fixed production overhead charges on normal capacity
Direct material cost
Direct labour cost
Variable production overhead
Actual production
Unit sold
Selling price

:
:
:
:
:
:
:
:

20,000 units
Rs.60,000
Rs.100 per unit
Rs.50 per unit
Rs.10 per unit
18,000 units
15,000 units
Rs.275 per unit

3+2=5

(0)

(a)

ROLTA LTD. with its Head Office at MUMBAI has a Branch at KOLKATA. The Branch receives all goods from Head Office who also remits cash for all expenses. Sales are made by the Branch on credit as well as for cash.
Total sales by the Branch for the year ended 31^st March, 2009 amounted to Rs.5,60,000 out of which 20% is cash sales. The following further information is relevant:

	1.4.2008 Rs.	31.3.2009 Rs.
Stock in Trade Debtors Petty Cash	25,000 60,000 120	36,000 48,000 180

Expenses actually incurred by the Branch during the year were:

Salaries
Rent
Petty expenses

Rs.36,000
Rs.12,000
Rs.5,600

All sales are made by the Branch at cost plus 25%.
You are required to prepare the KOLKATA BRANCH ACCOUNT in the Books of Head Office for the year ended 31^st March, 2009.

4+5=9

(0)

(b)

RANGAMANCHA, a amateur theatre organization, charges its members an annual subscription of Rs.200 per member. It accrues for subscription owing at the end of each year and also adjust for subscriptions received in advance. The organisation closes its accounts every year at March 31. The following particulars are available:

(i)

On 1^st April, 2008, 20 members owed Rs.4,000 for the year 2007–08.

(ii)

In March 2008, 5 members paid Rs.1,000 for the year 2008–09.

(iii)

During the year 2008–09, the organization received cash subscriptions of Rs.85,000.
The details are:

For 2007–08
For 2008–09
For 2009–10

:
:
:

Rs.4,000
Rs.79,000
Rs.2,000
Rs. 85,000

(iv)

At close of 31^st March, 2009, 15 members had not paid their subscriptions for the year 2008–09.
You are required to prepare the Subscriptions Accounts.

(0)

(a)

Explain Proprietary Ratio.

(0)

(b)

Mention any three areas in which different accounting policies may be adopted by different enterprises.

(0)

(c)

Due to paucity of profits, MUSKAT LTD. an Indian company proposes to declare dividends out of its general reserves.
From the under mentioned data you are asked to ASCERTAIN the amount which can be drawn from General Reserves as per Declaration of Dividend and Reserve Rules, 1975:

	Rs.
10,000 10% preference shares of Rs.100 each fully paid 30,000 equity shares of Rs.100 each fully paid General reserve Securities premium Credit balance of profit and loss account Net profit for the year (after tax) Average dividend during last five years	10,00,000 30,00,000 8,00,000 2,00,000 20,000 1,80,000 15%

3+2+1
+2+1=9

(0)

(a)

Clear profits of MAUNA ELECTRICITY CORPORATION LTD. is Rs.70,000 for the year ended 31^st March, 2009. Other details are as follows:

	Rs.
Development Reserve Loan by Electricity Board Depreciation Provision Tariff and Dividend Control Reserve Cost of Fixed Assets Compulsory Investment against Contingency Reserve Working Capital	2,00,000 4,00,000 60,000 50,000 8,00,000 2,00,000 2,00,000

Rate of interest on investment against contingency reserve is 5% p.a. Reserve Bank rate is 9%.
From the data given above find out:

(i)	The Capital base;

(ii)	Reasonable return;

(iii)

Disposal of surplus;

4+3
+3=10

(0)

(b)

What are the objects of charging depreciation? Explain.

(0)

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