CA PE - II ::Accounting : November 2003

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—8
Time Allowed : 3 Hours	Maximum Marks : 100
CP
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)

The following information relates to the business of Mr. Shiv Kumar, who requests you to prepare a Trading and Profit & Loss Account for the year ended 31st March, 2003 and a Balance Sheet as on that date :

	Balance as on 31st March, 2002 Rs.	Balance as on 31st March, 2003 Rs.
Building Furniture Motorcar Stocks Bills payable Cash and Bank balances Sundry Debtors Bills receivable Sundry Creditors	3,20,000 60,000 80,000 — 28,000 1,80,000 1,60,000 32,000 1,20,000	3,60,000 68,000 80,000 40,000 16,000 1,04,000 — 28,000 —

P.T.O.

( 2 )

Marks

(b)

Cash transactions during the year included the following besides certain other items :

	Rs.		Rs.
Sale of old papers and miscellaneous income Miscellaneous Trade expenses (including salaries etc.) Collection from debtors	20,000 80,000 2,00,000	Cash purchases Payment to creditors Cash Sales	48,000 1,84,000 80,000

(c)

Other information : >

(i)	Bills receivable drawn during the year amount to Rs. 20,000 and Bills payable accepted Rs. 16,000.
(ii)	Some items of old furniture, whose written down value on 31st March, 2002 was Rs. 20,000 was sold on 30th September, 2002 for Rs. 8,000. Depreciation is to be provided on Building and Furniture @ 10% p.a. and on Motorcar @ 20% p.a. Depreciation on sale of furniture to be provided for 6 months and for additions to Building for whole year.
(iii)	Of the Debtors, a sum of Rs. 8,000 should be written off as a Bad Debt and a reserve for doubtful debts is to be provided @ 2%
(iv)	Mr. Shivkumar has been maintaining a steady gross profit rate of 30% on turnover.
(v)	Outstanding salary on 31st March, 2002 was Rs. 8,000 and on 31st March, 2003 was Rs. 10,000 on 31st March, 2002. Profit & Loss Account had a credit balance of Rs. 40,000.
(vi)	20% of total Sales and total purchases are to be treated as for cash.
(vii)	Additions in Furniture Account took place in the beginning of the year and there was no opening provision for doubtful debts.

CP	Contind...

( 3 )

Marks

Neptune, Jupiter, Venus and Pluto had been carrying on business in partnership sharing profits and losses in the ratio of 3 : 2 : 1 : 1. They decide to dissolve the partnership on the basis of the following Balance Sheet as on 30th April, 2003 :

Liabilities	Amount Rs.	Amount Rs.	Assets	Amount Rs.	Amount Rs.
Capital Account : Neptune Jupiter General Reserve Capital Reserve Sundry Creditors Mortgage Loan	1,00,000 60,000	1,60,000 56,000 14,000 20,000 80,000	Premises Furniture Stock Cash Capital Overdrawn : Venus Pluto	10,000 12,000	1,20,000 40,000 1,00,000 40,000 8,000 22,000
		3,30,000			3,30,000

(i)

The assets were realised as under :

	Rs.
Debtors Stock Furniture Premises	24,000 60,000 16,000 90,000

(ii)

Expenses of dissolution amounted to Rs. 4,000.

(iii)

Further Creditors of Rs. 12,000 had to be met.

(iv)

General Reserve unlike Capital Reserve was built up by appropriation of profits.

P.T.O.

( 4 )

Marks

You are required to draw up the Realisation Account, Partner's Capital Accounts and the cash Account assuming that Venus became insolvent and nothing was realised from his private estate. Apply the principles laid down in Garner vs Murray.

(a)

The following particulars are extracted from the (Trial Balance) Books of the M/s Commercial Bank Ltd. for the year ending 31st March, 2003 :

Rs.

(i) Interest and Discounts 1,96,62,000

(ii) Rebate on Bills Discounted (balance on 1.4.2002) 65,040

(iii) Bills Discounted and purchased 67,45,400

It is ascertained that proportionate discount not yet earned on the Bills Discounted which will mature during 2003-04 amounted to Rs. 92,760.

Pass the necessary Journal entries with narration adjusting the above and show:

(a) Rebate on Bill Discounted Account; and

(b) Interest and Discount Account in the ledger of the Bank

(b)

On 1.4.2002, Mr. Krishna Murty purchased 1,000 equity shares of Rs. 100 each in TELCO Ltd. @ Rs. 120 each from a Broker, who charged 2% brokerage. He incurred 50 paise per Rs. 100 as cost of shares transfer stamps. On 31.1.2003 Bonus was declared in the ratio of 1 : 2. Before and after the record date of bonus shares, the shares were quoted at Rs. 175 per share and Rs. 90 per share respectively. On 31.3.2003 Mr. Krishna Murty sold bonus shares to a Broker, who charged 2% brokerage.

Show the Investment Account in the books of Mr. Krishna Murty, who held the shares as Current assets and closing value of investments shall be made at Cost or Market value whichever is lower

CP	Contind...

( 5 )

Marks

The Balance Sheet of Y Limited as on 31 March, 2003 was as follows :

Liabilities	Amount Rs.	Assets	Amount Rs.
5,00,000 Equity Shares of Rs. 10 each fully paid 9% 2,00,000 Preference shares of Rs.100 each fully paid 10% First debentures 10% Second debentures Debentures interest outstanding Trade Creditors Director's loan Bank O/D Outstanding liabilities Provision for Tax	50,00,000 20,00,000 6,00,000 10,00,000 1,60,000 5,00,000 1,00,000 1,00,000 40,000 1,00,000	Goodwill Patent Land & Building Plant & Machinery Furniture & Fixtures Computers Trade Investment Debtors Stock Discount on issue of debentures Profit & Loss Account (Loss)	10,00,000 5,00,000 30,00,000 10,00,000 2,00,000 3,00,000 5,00,000 5,00,000 10,00,000 1,00,000 15,00,000
	96,00,000		96,00,000

Note : Preference dividend is in arrears for last three years.

A holds 10% first debentures for Rs. 4,00,000 and 10% second debentures for Rs. 6,00,000. He is also creditors for Rs. 1,00,000. B holds 10% first debentures for Rs. 2,00,000 and 10% second debentures for Rs. 4,00,000 and is also creditors for Rs. 50,000.

The following scheme of reconstruction has been agreed upon and duly approved by the court.

(i)	All the equity shares be converted into fully paid equity shares of Rs. 5 each
(ii)	The preference shares be reduced to Rs. 50 each and the preference shareholders agree to forego their arrears of preferernce dividends in consideration of which 9% preference shares are to be converted into 10% preference shares.

P.T.O.

( 6 )

Marks

(iii)	Mr.'A' is to cancel Rs. 6,00,000 of his total debt including interest on debentures and to pay Rs. 1 lakh to the company and to receive new 12% debentures for the Balance amount.
(iv)	Mr.'B' is to cancel Rs. 3,00,000 of his total debt including interest on debentures and to accept new 12% debentures for the balance amount.
(v)	Trade creditors (other than A and B) agreed to forego 50% of their claim.
(vi)	Directors to accept settlement of their loans as to 60% thereof by allotment of equity shares and balance being waived.
(vii)	There were capital commitments totaling Rs. 3,00,000. These contracts are to be cancelled on payment of 5% of the contract price as a penalty.
(viii)	The directors refund Rs. 1,10,000 of the fees previously received by them.
(ix)	Reconstruction expenses paid Rs. 10,000.
(x)	The taxation liability of the company is settled at Rs. 80,000 and the same is paid immediately.
(xi)	The assets are revalued as under :

		Rs.
Land and Building Plant and Machinery stock Debtors Computers Furniture and Fixtures Trade Investment		28,00,000 4,00,000 7,00,000 3,00,000 1,80,000 1,00,000 4,00,000

Pass Journal entries for all the above mentioned transactions including amounts to be written off of Goodwill, Patents, Loss in Profit & Loss Account and Discount on issue of debentures. Prepare Bank Account and working of allocation of Interest on Debentures between A and B.

CP	contind...

( 7 )

Marks

The Balance Sheet of New Light Ltd. for the years ended 31st March, 2001 and 2002 are as follows :

Liabilities	31 March 2003 Rs.	31 March 2004 Rs.	Assets	31 March 2003 Rs.	31 March 2004 Rs.
Equity share capital 10% Preference share capital Capital Reserve General Reserve Profit & Loss A/c 9% Debentures Current liabilities Proposed dividend Provision for Tax Unpaid dividend	12,00,000 4,00,000 — 6,80,000 2,40,000 4,00,000 4,80,000 1,20,000 3,60,000 —	16,00,000 2,80,000 40,000 8,00,000 3,00,000 2,80,000 5,20,000 1,44,000 3,40,000 16,000	Fixed assets Less:Depreciation Investment Cash Other current assets Preliminary expenses	32,00,000 9,20,000 22,80,000 4,00,000 10,000 11,10,000 80,000	38,00,000 11,60,000 26,40,000 3,20,000 10,000 13,10,000 40,000
	38,80,000	43,20,000		38,80,000	43,20,000

Additional Information :

(i)

The company sold one fixed asset for Rs. 1,00,000, the cost of which was Rs. 2,00,000 and the depreciation provided on it was Rs. 80,000.

(ii)

The company also decided to write off another fixed asset costing Rs. 56,000 on which depreciation amounting to Rs. 40,000 has been provided.

(iii)

Depreciation on fixed assets provided Rs. 3,60,000.

(iv)

Company sold some investment at a profit of Rs. 40,000, which was credited to capital reserve.

(v)

Debentures and preference share capital redeemed at 5% premium.

(vi)

Company decided to value stock at cost, whereas previously the practice was to value stock at cost less 10%. The stock according to books on 31.3.2001 was Rs. 2,16,000. The stock on 31.3.2002 was correctly valued at Rs. 3,00,000.

Prepare Cash Flow Statement as per revised Accounting Standard-3 by indirect method.

P.T.O.

( 8 )

Marks

6.	Answer any four of the following :		4x4=16
	(a)	How is software acquired for internal use accounted for under AS-26 ?
	(b)	What are the principles for recognition of deferred taxes under AS-22 ?
	(c)	Define related party transaction under AS-18.
	(d)	A Limited Company charged depreciation on its assets on the basis of W.D.V method from the date of assets coming to use till date amounts to Rs. 32.23 lakhs. Now the company decides to switch over to Straight Line method of providing for depreciation. The amount of depreciation computed on the basis of S.L.M. from the date of assets coming to use till the date of change of method amounts to Rs. 20 lakhs.
		Discuss as per AS-6, when such changes in method of can be adopted by the company and what would be the accounting treatment and disclosure requirement.
	(e)	X Limited has recognized Rs.10 lakhs on accrual basis income from dividend on units of mutual funds of the face value of Rs. 50 lakhs held by it as at the end of the financial year 31st March, 2003. The dividends on mutual funds were declared at the rate of 20% on 15th June, 2003. The dividend was proposed on 10th April, 2003 by the declaring company. Whether the treatment is as per the relevant Accounting Standard ? You are asked to answer with reference to provisions of Accounting standard.
	(f)	Briefly explain "Treasury system" and the funcitons entrusted to Treasury in Government Accounting.

CA PE - II :: Accounting : November 2003