CA PE - II ::Accounting : May 2005

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—8
Time Allowed : 3 Hours	Maximum Marks : 100
BF
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Answer all Questions
Wherever appropriate suitable assumptions should be made by the candidate.
Working notes should form part of the answer.
Marks

The following figures have been extracted from the Books of X Limited for the year ended on 31.3.2004. You are required to prepare a cash flow statement.

(i)

Net profit before taking into account Income Tax and Income from law suits but after taking into Account the following items was Rs. 20 lakhs :

(a) Depreciation on Fixed Assets Rs. 5 lakhs.

(b) Discount on issue of Debentures written off Rs. 30,000.

(c) Interest on Debentures paid Rs. 3,50,000.

(d) Books value of investments Rs. 3 lakhs (Sale of Investments for Rs. 3,20,000).

(e) Interest received on investments Rs. 60,000.

(f) Compensation received Rs. 90,000 by the company in a suit field.

(ii)

Income tax paid during the year Rs. 10,50,000.

(iii)

15,000, 10% preference shares of Rs. 100 each were redeemed on 31.3.2004 at a premium of 5%. Further the company issued 50,000 equity shares of Rs. 10 each at a premium of 20% on 2.4.2003. Dividend on preference shares were paid at the time of redemption.

P.T.O.

( 2 )

Marks

(iv)

Dividends paid for the year 2002-2003 Rs. 5 lakhs and Interim dividend paid Rs. 3 lakhs for the year 2003-04.

(v)

Land was purchased on 2.4.2003 for Rs. 2,40,000 for which the company issued 20,000 equity shares of Rs. 10 each at a premium of 20% to the land owner as consideration.

(vi)

Current assets and Current liabilities in the beginning and at the end of the years were as detailed below :

	As on 31.3.2003 Rs.		As on 31.3.2004 Rs.
Stock Sundry Debtors Cash in hand Bills receivable Bills payable Sundry Creditors Outstanding expenses	12,00,000 2,08,000 1,96,300 50,000 45,000 1,66,000 75,000		13,18,000 2,13,100 35,300 40,000 40,000 1,71,300 81,800

From the following information calculate the amount of Provisions and Contingencies and prepare Profit and Loss Account of Zed Bank Ltd. for the year ended 31.3.2004 :

	(Rs. in '000)
Investment and Discount (Includes interest accrued on investments) Other Income Interest expended Operating expenses Interest accrued on Investments	8,860 220 2,720 2,830 10

BF	Contind...

( 3 )

Marks

Additional Information :			(Rs. in '000)
(a)	Rebate on bills discounted to be provided for		30
(b)	Classification of Advances :
	(i)	Standard assets	4,000
	(ii)	Sub-standard assets	2,240
	(iii)	Doubtful assets - (fully unsecured)	390
	(iv)	Doubtful assets-covered fully by security
	Less than 1 year		100
	More than 1 year, but less than 3 years		600
	(v)	Loss assets	376
(c)	Provide 35% of the profit towards provision for Taxation
(d)	Transfer 20% of the profit to Statutory Reserve.

ABC Ltd. sells goods on Hire-purchase by adding 50% above cost from the following particulars, prepare Hire-purchase Trading account to reveal the profit for the year ended 31.3.2005 :

		Rs.
1.4.2004	Instalments due but not collected	10,000
1.4.2004	Stock at shop (at cost)	36,000
1.4.2004	Instalment not yet due	18,000
31.3.2005	Stock at shop	40,000
31.3.2005	Instalment due but not collected	18,000
Others details :
Total instalments became due		1,32,000
Goods purchased		1,20,000
Cash received from customers		1,21,000

P.T.O.

( 4 )

Marks

Goods on which due instalments could not be collected were repossessed and valued at 30% below original cost. The vendor spent Rs. 500 on getting goods overhauled and then sold for Rs. 2,800.

Following is the Balance Sheet of Mr. Brown as at 31st March, 2005. He has filed a petition in the court for being declared as insolvent :

Liabilities		Assets
	Rs.		Rs.
Capital	18,000	Goodwill	5,000
Bank Loan (secured by first		Machinery	20,000
charge on Building)	80,000	Building	1,15,000
Loan from Finance Co.,	30,000	Investment in shares	5,000
(Secured by second charge		Furniture	7,000
on Building)		Stock	9,000
Sundry Creditors	59,000	Debtors :
sales tax payable	8,000	Good 14,000
Loan from wife	5,000	Doubtful 8,000
		Bad 2,000	24,000
		Cash and Bank	15,000
	2,00,000		2,00,000

Mr. Brown estimated that except the following, all tangible assets are realisable :

(i)	A machinery Rs. 5,000 included in the Balance Sheet has no value.
(ii)	Debtors (unrealisable) Rs. 7,600
(iii)	Non-moving stock Rs. 3,000
(iv)	Useless furniture Rs. 4,000
(v)	Investment has no value.
Further Information :
(i)	Building expected to realise Rs. 1,20,000

BF	Contind...

( 5 )

Marks

(ii)	Loan was given by his wife from her personal sources.
(iii)	A bill discounted for Rs. 10,000 is likely to be dishonoured.
(iv)	One creditor forgoes his claim for Rs. 4,000
(v)	Mr. Brown started his business on 1.4.2001. His household expenses upto 31.3.2005 is Rs. 48,000. His private Life Insurance Policy matured for Rs. 30,000 on 31.3.2005. He made profit of Rs. 40,000 upto 31.3.2003. He incurred loss of Rs. 50,000 from 1.4.2003 to 31.3.2005. Also, he suffered speculation loss of Rs.10,000 in the year ended 31.3.2005.

Based on the above information, prepare Statement of Affairs of Mr. Brown as on 31.3.2005 and Deficiency Account.

Exe Limited was wound up on 31.3.2004 and its Balance Sheet as on that date was given below :

Balance Sheet of Exe Limited as on 31.3.2004

Liabilities	Rs	Assets		Rs.
Share Capital		Fixed assets		9,64,000
1,20,000 Equity		Current assets
Shares of Rs.10 each	12,00,000	Stock	7,75,000
Reserves and Surplus		Sundry Drs. 1,60,000
Profit prior to Incorporation	42,000	Less P.D.D. 8,000	1,52,000
Contingency Reserve	2,70,000	Bills Receivable	30,000
Profit and Loss A/c	2,52,000	Cash at bank	3,29,000	12,86,000
Current Liabilities
Bills payable	40,000
sundry creditors	2,26,000
Provisions :
Provision for Income tax	2,20,000
	22,50,000			22,50,000

P.T.O.

( 6 )

Marks

Mr. Brown estimated that except the following, all tangible assets are realisable :

Fixed assets Rs. 12,80,000, Stock Rs. 7,70,000 and Bills Receivable Rs. 30,000.

Purchase consideration was settled by Wye Limited as under :

Rs. 5,10,000 of the consideration was satisfied by the allotment of fully paid 10% Preference shares of Rs. 100 each. The balance was settled by issuing equity shares of Rs.10 each at Rs.8 per share paid up.

Sundry debtors realised Rs. 1,50,000. Bills payable was settled for Rs. 38,000.Income tax authorities fixed the taxation liability at Rs. 2,22,000.

Creditors were finally settled with the cash remaining after meeting liquidation expenses amounting to Rs. 8,000.

You are required to :

(i)	Calculate the number of equity shares and preference shares to be allotted by Wye Limited indischarge of purchase consideration.
(ii)	Prepare the Realisation account, Cash/Bank account, Equity Shareholders account and Wye Limited account in the books of Exe Limited.
(iii)	Pass journal entries in the books of Wye Limited.

Answer any four of the following :

4x4=16

(a)

A major fire has damaged assets in a factory of X Co. Ltd. on 8.4.2004, 8 days after the year end closure of account. The loss is estimated to be Rs. 16 crores (after estimating the recoverable amount of Rs. 24 crores from the Insurance Company)

If the company had no insurance cover, the loss due to fire would be Rs. 40 crores.

(b)

A Company had deferred research and development cost of Rs. 150 lakhs. Sales expected in the subsequent years are as under :

BF	Contind...

( 7 )

Marks

Years	Sales (Rs. in lakhs)
I II III IV	400 300 200 100

You are asked to suggest how should Research and Development cost is to be charged to Profit and Loss account.

If at the end of the III year, it is felt that no further benefit will accrue in the IV year, how the unamoritsed expenditure would be dealt with in the accounts of the Company?

(c)

In April, 2004 a Limited Company issued 1,20,000 equity shares of Rs. 100 each. Rs.50 per share was called up on that date which was paid by all shareholders. The remaining Rs. 50 was called up on 1.9.2004. All shareholders paid the sum in September, 2004, except on shareholder having 24,000 shares. The net profit for the year ended 31.3.2005 is Rs. 2,64,000 after dividend on preference shares and dividend distribution tax of Rs. 64,000.

Compute basic EPS for the year ended 31.3.2005 as per Accounting Standard 20.

(d)

(i)	Mr.Raj a relative of key Management personnel received remuneration of Rs. 2,50,000 for his services in the company for the period from 1.4.2004 to 30.6.2004.On 1.7.2004 he left the service.
	Should the relative be identified as at the closing date i.e. on 31.3.2005 for the purposes of AS-18 ?
(ii)	X Ltd. sold goods to its associate Company for the 1st quarter ending 30.6.3004.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.

P.T.O.

( 8 )

Marks

	(e)	What are the main principle of allocation between Capital and Revenue accounts on a Capital scheme?
	(f)	On 1.4.2001 ABC Ltd. received Government grant of Rs. 300 lakhs for acquisition of a machinery costing Rs. 1,500 lakhs. The grant was credited to the cost of the asset. The life of the machinery is 5 years. The machinery is depreciated at 20% on WDV basis. The Company had to refund the grant in May 2004 due to non-fulfilment of certain conditions.
		How you would deal with the refund of grant in the books of ABC Ltd. ?

CA PE - II :: Accounting : May 2005