CA PE - II ::Accounting : May 2007

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

A, B and C carried on business in partnership, sharing Profits and Losses in the ratio of 1 : 2 : 3. They decided to form a private limited company, AB (P) Ltd. and C is not interested to take over the shares in AB (P) Ltd. The authorised share capital of the company is Rs. 12,00,000 divided into 12,000 ordinary shares of Rs. 100 each.

The company was incorporated and took over goodwill as valued and certain assets of the partnership firm on 31.3.2006. The Balance Sheet of the partnership firm on that date was a follows:

Liabilities Rs. Assets Rs.

Capital Accounts: Fixed Assets:

A
B
C 1,00,000
2,00,000
3,00,000 Machinery
Land
Motorcycles 1,20,000
1,74,000
30,000

Current Accounts: Furniture & Fittings

A
B 39,420
60,580 Current Assets:
Stock
2,35,000

A's Loan A/c
(+) Interest accrued
Current Liability
Creditors 28,000
2,000
30,000

70,000 Debtors
Cash in hand
C's overdrawn 43,000
87,0000
1,00,000

8,00,000 8,00,000

C, who retired was presented by the other partners (A and B) with one motorcycle valued in the books of the firm Rs. 9,000. The remaining motorcycles were sold in the open market for Rs. 13,000. C also received certain furniture for which he was charged Rs. 2,000. The debtors which were all considered good, were taken over by C for Rs. 40,000. A and B were charged in their profit sharing ratio for the book value of Motorcycle presented by them to C.

It was agreed that C who is not willing to take the shares in AB (P) Ltd. was discharged first by providing necessary cash. A and B should bring cash, if necessary.

AB (P) Ltd. took over the remaining furniture and fittings at a price of Rs. 13,000, the machinery for Rs. 1,25,000, the stock at an agreed value of Rs. 2,00,000 and the land at its book value. The value of the goodwill of the partnership firm was agreed at Rs. 88,000. The creditors of the firm were settled by the firm for Rs. 70,000. A's loan account together with interest accrued was transferred to his capital account.

The purchase consideration was discharged by the company by the issue of equal number of fully paid up equity shares at par to A and B.

Prepare Realisation A/c, Capital A/cs of the partners and Cash A/c. Also draw the Balance Sheet of AB (P) Ltd.

P.T.O.

( 2 )

Marks

The following is the Balance Sheet of Weak Ltd. as on 31.3.2006:

Liabilities	Rs.	Assets	Rs.
Equity shares of Rs. 100 each 12% cumulative preference shares of Rs. 100 each 10% debentures of Rs. 100 each Sundry creditors Provision for taxation	1,00,00,000 50,00,000 40,00,000 50,00,000 1,00,000	Fixed assets Investments (market value Rs. 9,50,000) Current assets P & L Ac Preliminary expenses	1,25,00,000 10,00,000 1,00,00,000 4,00,000 2,00,000
	2,41,00,000		2,41,00,000

The following scheme of reorganisation is sanctioned:

(i)	All the existing equity shares are reduced to Rs. 40 each.
(ii)	All preference shares are reduced to Rs. 60 each.
(iii)	The rate of interest on debentures is increased to 12%. The debentureholders surrender their existing debentures of Rs. 100 each and exchange the same for fresh debentures of Rs. 70 each for every debenture held by them.
(iv)	One of the creditors of the company to whom the company owes Rs. 20,00,000 decides to forego 40% of his claim. He is allotted 30,000 equity shares of Rs. 40 each in full satisfaction of his claim.
(v)	The taxation liability of the company is settled at Rs. 1,50,000.
(vi)	Fixed assets are to be written down by 30%.
(vii)	Current assets are to be revalued at Rs. 45,00,000.
(viii)	Investments to be brought to their market value.
(ix)	It is decided to write off the fictitious assets.

Pass Journal entries and show the Balance Sheet of the company after giving effect to the above.

Red and Co. of Mumbai started a branch at Bangalore on 1.4.2006 to which goods were sent at 20% above cost. The branch makes both cash sales and credit sales. Branch expenses are met from branch cash and balance money remitted to H.O. The branch does not maintain double entry books of account and necessary accounts relating to branch are maintained in H.O. Following further details are given for the year ending on 31.3.2007:

	Rs.
Cost of goods sent to branch Goods received by branch till 31.3.2007 at Invoice price Credit sales for the year Closing debtors on 31.3.2007 Bad debts written of during the year Cash remitted to H.O Closing cash on hand at branch on 31.3.2007 Cash remitted by H.O. to branch during the year Closing stock in hand at branch at invoice price Expenses incurred at branch	1,00,000 1,08,000 1,16,000 41,600 400 86,000 4,000 6,000 12,000 24,000

XL	Contind...

( 3 )

Marks

Draw up the necessary Ledger Accounts like Branch Debtors Account, Branch Stock Account, Goods sent to Branch Account, Branch Cash Account, Branch Expenses Account and Branch Adjustment A/c for ascertaining gross profit and Branch profit and Loss A/c for ascertaining Branch profit.

(a)

From the following information of details of advances of X Bank Limited calculate the amount of provisions to be make in profit and Loss account for the year ended 31.3.2007:

Assets classification	Rs. in lakhs.
Standard Sub–standard	6,000 4,400
Doubtful:
For one year For two years For three yours For more than three years	1,800 1,200 800 600
Loss assets	1,600

(b)

X Electricity Company Limited decides to replace one of its old plants with a modern one in April, 2006. The plant when installed in the year 2000, costed the company Rs. 26 lakhs, the components of materials and labour being in the ratio of 7 : 3. It is ascertained that the cost of labour and materials have rises by 30% and 25% respectively. The cost of new plant is Rs. 66 lakhs and in addition old materials worth Rs. 92,000 are reused. Old materials worth Rs. 1,68,000 are sold. Under double account system compute the following:

(i)	The amount to be written off to Revenue A/c.
(ii)	The amount to be capitalised.
(iii)	Draw up the necessary Journal entries.
(iv)	Draw up the Replacement Account.

(a)

Mr. A is insolvent, He supplies to you the following information as on 31.2.2006:

	Rs.
Cash in hand Creditors for goods Taxes due to Government Bank loan secured by lien on stock Furniture (expected to realise Rs. 50,000) Stock (expected to realise 50%) Books debts (goods) Books debts (doubtful) expected to realise 40% Bills discounted (Rs. 40,000 bad) Loan from Nathan secured by second charge on stock Bills receivable (Rs. 40,000 bad)	10,000 10,00,000 35,000 1,50,000 75,000 6,00,000 4,50,000 5,50,000 1,40,000 2,00,000 1,00,000

Mr. A started business four years ago with a capital of Rs. 4,50,000. He drew Rs. 75,000 each year for private purposes, but did not maintain proper books of accounts. Mrs. A gave up her jewellery valued Rs. 1,00,000 to the receiver.

Prepare Statement of Affairs of Mr. A as on 31.3.2006 and Deficiency Account as on that date.

P.T.O.

( 4 )

Marks

Answer any four of the following:

(a)

What are the disclosure requirements of A.S–7? (Revised)

(b)

How would you treat the Government grant received relating to a depreciable asset under the following cases as per AS–1?

Case i :	Gross value of asset Rs. 2 crores and Grant received Rs. 20 lakhs only.
Case ii :	Gross value of asset Rs. 2 crores and Grant received Rs. 2 crores.

(c)

Explain the concept of actuarial valuation.

(d)

What are the information that are extracted from the well designed accounting system in Agricultural Farm?

(e)

Write a short note on 'B' List contributories under Liquidation of a company.

(f)

What are the information that are to be disclosed in the financial statements as per AS–10?

4x4=16

CA PE - II :: Accounting : May 2007