CA IPCC/IPCE - Group II : Advanced Accounting - November 2009

CA IPCC/IPCE - Group II • Advanced Accounting • November 2009

This Paper has 18 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

Working notes should form part of the answer.

Wherever necessary, suitable assumption(s) may be made and disclosed by the candidates.

Marks

Answer the following questions:

10x2=20

(i)

Goods worth Rs. 5,00,000 were destroyed due to flood in September, 2006. A claim was lodged with insurance company. But no entry was passed in the books for insurance claim in the financial year 2006–07.

In March, 2008, the claim was passed and the company received a payment of Rs.3,50,000 against the claim. Explain the treatment of such receipt in final accounts for the year ended 31^st March, 2008.

(0)

(ii)

Briefly indicate the items which are included in the expressions "Borrowing Cost" as per AS 16.

(0)

(iii)

Sterling Ltd. purchased a plant for US $ 20,000 on 31^st December, 07 payable after 4 months. The company entered into a forward contract for 4 months @ Rs. 48.85 per dollar. On 31^st December, 07, the exchange rate was Rs. 47.50 per dollar.

How will you recognize the profit or loss on forward contract in the books of Sterling Limited for the year ended 31^st March, 2008.

(0)

(iv)

A company created a provision of Rs. 75,000 for staff welfare while preparing the financial statements for the year 2007–08. On 31^st March, in a meeting with staff welfare association, it was decided to increase the amount of provision for staff welfare to Rs. 1,00,000. The accounts were approved by Board of Directors on 15^th April, 2008.

Explain the treatment of such revision in financial statements for the year ended 31^st March, 2008.

(0)

(v)

Explain "Employee’s stock option plan".

(0)

(vi)

A company entered into an agreement to sell its immovable property to another company for 35 lakhs. The property was shown in the Balance Sheet at Rs.7 lakhs. The agreement to sell was concluded on 15th February, 2008 and sale deed was registered on 30th April, 2008. The financial statements for the year 2007–08 were approved by the board on 12^th May,2008.

You are required to state, how this transaction would be dealt with in the financial statements for the year ended 31^st March, 2008.

(0)

(vii)

A Ltd. entered into a binding contract with C Ltd. to buy a machine for Rs. 1,00,000. The machine is to be delivered on 15^th February, 2009. On 1^st January, 2009, A Ltd. changed its process of production. The new process will not require the machine ordered and it shall have to be scrapped after delivery. The expected scrap value of the machine is nil.

Explain how A Ltd. should recognise the entire transaction in the books of account for the year ended 31^st March, 2009.

(0)

(viii)

Goods are transferred from Department P to Department Q at a price 50% above cost.
If closing stock of Department Q is Rs. 27,000, compute the amount of stock reserve.

(0)

(ix)

X Ltd. received a revenue grant of Rs.10 crores during 2006–07 from Government for welfare activities to be carried on by the company for its employees. The grant prescribed the conditions for utilization.

However during the year 2008–09, it was found that the prescribed conditions were not fulfilled and the grant should be refunded to the Government.

State how this matter will have to be dealt with in the financial statements of X Ltd. for the year ended 2008–09.

(0)

(x)

"Conversion of debt into equity is a non–cash transaction." Comment.

(0)

Sun Ltd. and Moon Ltd. were amalgamated on and from 1^st April, 2009. A new company Star Ltd. was formed to take over the business of the existing companies. The Balance Sheets of Sun Ltd. and Moon Ltd. as at 31^st March, 2009 are given below:

(Rs. in lakhs)
Liabilities	Sun Ltd.	Moon Ltd.	Assets	Sun Ltd.	Moon Ltd.
Share capital: Equity shares of Rs.100 each 12% Preference shares of Rs.100 each Reserves and surplus: Revaluation reserve General reserve Investment allowance reserve Profit and Loss Account Secured loan: 10% Debentures (Rs.100 each) Current liabilities and Provisions: Sundry creditors Acceptance	400 150 75 85 25 25 30 135 75	375 100 50 75 25 15 15 60 35	Fixed Assets: Land & Building Plant & Machinery Investments Current Assets, Loans and Advances: Stock Sundry Debtors Bills Receivables Cash and Bank balances	275 175 75 175 125 25 150	275 175 75 175 125 25 150
	1,000	750		1,000	750

Additional information:

(a)	Star Ltd. will issue 5 equity shares for each equity share of Sun Ltd. and 4 equity shares for each equity share of Moon Ltd. The shares are to be issued @ Rs. 30 each, having a face value of Rs. 10 per share.
(b)	Preference shareholders of the two companies are issued equivalent number of 15% preference shares of Star Ltd. at a price of Rs. 150 per share (face value Rs. 100).
(c)	10% Debentureholders of Sun Ltd. and Moon Ltd. are discharged by Star Ltd., issuing such number of its 15% Debentures of Rs.100 each so as to maintain the same amount of interest.
(d)	Investment allowance reserve is to be maintained for 4 more years.
(e)	Liquidation expenses are: Sun Ltd. Rs.2,00,000 Moon Ltd. Rs.1,00,000 It was decided that these expenses would be borne by Star Ltd.
(f)	All the assets and liabilities of Sun Ltd. and Moon Ltd. are taken over at book value.
(g)	Authorised equity share capital of Star Ltd. is Rs. 5,00,00,000, divided into equity shares of Rs. 10 each. After issuing required number of shares to the Liquidators of Sun Ltd. and Moon Ltd., Star Ltd. issued balance shares to Public. The issue was fully subscribed. Required : Prepare the Balance Sheet of Star Ltd. as at 1^st April, 2009 after amalgamation has been carried out on the basis of Amalgamation in the nature of purchase.

(0)

The Balance Sheet of Dee Limited on 31^st March, 2009 was as follows:

Balance Sheet as at 31^st March, 2009
Liabilities	Amount Rs.	Assets	Amount Rs.
Share capital: Authorised capital 50,000, Equity shares of Rs.10 each Issued and subscribed capital 25,000 Equity shares of Rs.10 each fully paid up Reserves and surplus: General reserve Profit and loss A/c Debenture redemption reserve Secured loans: 12% Convertible debentures (5,000 Debentures of Rs.100 each) Other secured loans Current liabilities and provisions Proposed dividend	5,00,000 2,50,000 2,75,000 1,00,000 2,50,000 5,00,000 2,50,000 6,00,000 25,000	Fixed assets (at cost less depreciation) Debenture redemption fund investment Cash balance Other current assets	8,00,000 2,00,000 2,50,000 10,00,000
	22,50,000		22,50,000

At the General Meeting it was resolved to:

1.	Pay proposed dividend of 10% in cash.
2.	Give existing shareholders the option to purchase one share of Rs.10 each at Rs.15 for every five shares held. This option was taken up by all the shareholders.
3.	Redeem the debentures at a premium of 5% and also confer option to the debentureholders to convert 50% of their holding into equity shares at a predetermined price of Rs. 15 per share and balance payment to be made in cash.

Holders of 3,000 debentures opted to get their debentures redeemed in cash only while the rest opted for getting the same converted into equity shares as per the terms of issue. Debenture redemption fund investment realized Rs. 1,80,000 on sales.

You are required to redraft the Balance Sheet after giving effects to the right issue and redemption of debentures. Also show the calculations in respect of number of equity shares issued and cash payment.

(0)

DM Ltd., Delhi has a branch in London. London branch is an integral foreign operation of DM Ltd. At the end of the year 31^st March, 2009, the branch furnishes the following trial balance in U.K. Pound:

Particulars	£	£
	Dr.	Cr.
Fixed assets (Acquired on 1^st April, 2005) Stock as on 1^st April, 2008 Goods from head office Expenses Debtors Creditors Cash at bank Head office account Purchases Sales	24,000 11,200 64,000 4,800 4,800 1,200 12,000	3,200 22,800 96,000
	1,22,000	1,22,000

In head office books, the branch account stood as shown below:

Particulars	Amount	Particulars	Amount
To Balance b/d To Goods sent to branch	Rs. 20,10,000 49,26,000	By Bank A/c By Balance c/d	Rs. 52,16,000 17,20,000
	69,36,000		69,36,000

The following further information are given:

(a)

Fixed assets are to be depreciated @ 10% p.a on straight line basis.

(b)

On 31^st March, 2009:

Expenses outstanding
Prepaid expenses
Closing stock

–
–
–

£ 400
£ 200
£ 8,000

(c)

Rate of Exchange:

1^st April, 2005
1^st April, 2008
31^st March, 2009
Average

–
–
–
–

Rs. 70 to £ 1
Rs. 76 to £ 1
Rs. 77 to £ 1
Rs. 75 to £ 1

You are required to prepare:

(i)	Trial balance, incorporating adjustments of outstanding and prepaid expenses, converting U.K. pound into Indian rupees.
(ii)	Trading and profit and loss account for the year ended 31st March, 2009 and the Balance Sheet as on that date of London branch as would appear in the books of Delhi head office of DM Ltd.

(0)

(a)

From the following information, you are required to prepare Profit and Loss Account of Zee Bank Ltd., for the year ending 31^st March, 2009:

	Rs.		Rs.
Interest and Discount Other Income Income on investments	44,00,000 1,25,000 5,000	Interest expended Operating expenses Interest on balance with RBI	13,60,000 13,31,000 25,000

Additional information:

(a)

Rebate on bills discounted to be provided for Rs. 15,000

(b)

Classification of advances:

	Rs.
Standard assets Sub–standard assets Doubtful assets not covered by security Doubtful assets covered by security For 1 year For 2 years For 3 years For 4 years Loss assets	25,00,000 5,60,000 2,55,000 25,000 50,000 1,00,000 75,000 1,00,000

(c)

Make tax provision @ 35%

(d)

Profit and Loss A/c (Cr.) Rs. 40,000.

(0)

(b)

Dee Limited furnishes the following Balance Sheet as at 31^st March, 2008:

Rs.‘000		Rs.‘000
Liabilities Share capital: Authorised capital Issued and subscribed capital: 2,50,000 Equity shares of Rs.10 each fully paid up 2,000, 10% Preference shares of Rs.100 each (Issued two months back for the purpose of buy back) Reserves and surplus: Capital reserve Revenue reserve Securities premium Profit and loss account Current liabilities and provisions:	25,00 2,00 10,00 30,00 22,00 35,00	30,00 27,00 97,00 14,00
Assets: Fixed assets Investments Current assets, loans and advances (including cash and bank balance)		1,38,00 93,00 30,00 15,00
		1,38,00

The company passed a resolution to buy back 20% of its equity capital @ Rs.50 per share. For this purpose, it sold all of its investment for Rs.22,00,000.

You are required to pass necessary journal entries and prepare the Balance Sheet.

(0)

(a)

P, Q and R are partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as on 31^st March, 2009 is as follows:

Liabilities

Rs.

Assets

Rs.

Capital Accounts:

P
Q
R

1,20,000
48,000
24,000

Reserve fund
Creditors

1,92,000
60,000
48,000

Plant & Machinery
Fixtures
Stock
Sundry debtors
Cash

1,08,000
24,000
60,000
48,000
60,000

3,00,000

They decided to dissolve the firm. The following are the amounts realized from the assets:

	Rs.
Plant and Machinery Fixtures Stock Sundry debtors	1,02,000 18,000 84,000 44,400

Creditors allowed a discount of 5% and realization expenses amounted to Rs.1,500. A bill for Rs.4,200 due for sales tax was received during the course of realization and this was also paid.

You are required to prepare:

(a)	Realization account
(b)	Partners’ capital accounts
(c)	Cash account.

(0)

(b)

Answer the following:

(i)

Axe Limited began construction of a new plant on 1st April, 2008 and obtained a special loan of Rs.4,00,000 to finance the construction of the plant. The rate of interest on loan was 10%.
The expenditure that were made on the project of plant were as follows:

	Rs.
1st April, 2008 1st August, 2008 1st January, 2009	5,00,000 12,00,000 2,00,000

The company’s other outstanding non–specific loan was Rs.23,00,000 at an interest rate of 12%.

The construction of the plant completed on 31st March, 2009. You are required to:

(a)	Calculate the amount of interest to be capitalized as per the provisions of AS 16 "Borrowing Cost".
(b)	Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the plant.

(0)

(ii)

Compute Basic Earnings per share from the following information:

Date	Particulars	No. of shares
1st April, 2008 1st August, 2008 31st March, 2009	Balance at the beginning of the year Issue of shares for cash Buy back of shares	1,500 600 500

Net profit for the year ended 31st March, 2009 was Rs.2,75,000.

(0)

Disclaimer ♣ Privacy Policy ♣ Who We Are ♣ Terms of Service