Financial Accounting
March 2008
Time: 3 Hours
Marks: 100
NB:
- Question No.1 is compulsory.
- Attempt any five questions from question Nos. 2 to 9.
- All working notes should form part of answer.
- Figures to the right indicate full marks assigned to each question.
- Q.1 'A' Ltd. absorbed 'B' Ltd. w.e.f. 1st April, 2007 when their Balance sheets were as under:- 20
- 'A' Ltd. will issue Eight Equity shares for every Five Equity shares in 'B' Ltd. of Rs. 10 each at Rs. 11 per share.
- 11 % Preference shareholders of 'B' Ltd. will be issued equal number of preference shares in A Ltd. of Rs. 100/- each at Rs. 105 per share.
- 'A' Ltd. agreed to take over the debentures of 'B' Ltd. at book value. Subsequently after absorption, 10% debenture holders of 'B' Ltd. are discharged by 'A' Ltd. issung such number of its 15% debentures of Rs. 100/- each so as to maintain the same of amount of interest.
- All the assets and liabilities of 'B' Ltd. were taken over at book values except the following which were revalued as follows
- Cost of absorption amounting to Rs. 10,000/- was paid by 'A' Ltd.
- Creditors of 'B' Ltd. include Rs. 10,000/- payable to 'A' Ltd.
- It was decided by the directors of 'A' Ltd. to set off Goodwill and Capital Reserves mutually.
- Compute Pruchase Consideration of 'B' Ltd.
- Pass Journal entries in the books of 'A' Ltd.
- Prepare Balance sheet after absorption of 'A' Ltd.
- Q.2 Eeshan Ltd. was incorporated on 1st August ,2006 to acquire a bussiness as on 1st April,2006 The first accounts were closed on 31 st March, 2007 16
- Additional Information:
- Rent is paid on the basis of floor space occupied. Floor space occupied was doubled in the post incorporation period.
- Sales for each month of December 2006 to March, 2007 were double the monthly sales of April to Nomeber, 2006.
- Bad debts Rs. 500/- were in respect of sales effected two years ago.
- Mr. Amit was working partner in the firm entitled to a remuneration @ Rs. 12,000/- p.m. From 1st August, 2006 he was Managing Director of a Company entitled to salary @ Rs. 15,000/- p.m. The remaining salary is to two Clerks employed during the period 1st July to 30th November, 2006.
You are required to prepare profit and loss account for the year ended 31st March, 2007 and show 'Pre' and 'Post' incorporation period profit or loss.
- Q.3 The summarised Balance Sheet of Nishith Power Ltd. as on 31st March, 2007 was as under 16
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Balance Sheet as on 31-03-2007 Liabilities Rs. Assets Rs. Equity shares of Rs. 10/- each, Land and Building 2,00,000 Rs. 8/- per share called up 1,60,000 Plant 2,60,000 Less: Calls unpaid 600 Investments 75,000 (Rs. 2 on 300 Shares) 1,59,400 Sundry Debtors 1,15,000 8% Redeemable Preference Shares Stock 1,20,000 of Rs. 100/- each fully paid 1,50,000 Bank 80,000 Reserve Fund 2,50,000 Securities Premium 40,000 Profit and Loss A/c 2,00,000 Sundry Creditors 50,600 8,50,000 8,50,000 - The Directors of a Company resolved to:-
- Realise the Investments at Rs. 1,00,000/-.
- Forfeit the shares on which calls remain unpaid.
- Reissue the forfeited shares at Rs. 7 each credited as Rs. 8 per share paid up.
- Issue 1000 -8% Debentures of Rs. 100/- each at a premium of 10%.
- Utilise the profits to make partly paid equity shares into fully paid by declaring bonus.
- Redeem Preference shares at a premium of 10%..
- All the above resolution were implemented on 1st April, 2007.
- You ar required to :
- (a) Show journal enteries to record the above transactions in the book of a company.
- (b) Prepare balance Sheet after the completion of above transactions. :
- Q.4 Following is the Balance Sheet of M/s. Careless Ltd. as on 31st March, 2007 16
- Preference dividend was in arrears for four years.
- There was a contingent liability of Rs. 20,000/- for workmen compensation.
- The Preference shares were reduced to Rs. 7.50 per share fully paid and Equity shares to Rs. 2/- per share fully paid.
- After reduction, both classes of shares were consolidated into Rs. 10/- shares.
- One new Equity share of Rs. 10/- each was issued for every Rs. 40/- of gross preference dividend in arrears.
- The balance of securities premium was utilised.
- Plant and Machinery was written down to Rs. 2, 80,000/-.
- Furniture was sold for Rs. 64,000/-.
- Goodwill, preliminary expenses, debt balance in Profit and Loss account, debts of Rs. 17,200 and obsolete stock of Rs. 20,000/- were to be written off.
- Contingent liability for which no provision had been made was settled at Rs. 14,000/-however the amount of Rs. 12,600/- was recovered from Insurance Company.
- Debenture holders agreed to forego principal amount by Rs. 30,000/- and accrued debenture interest in full.
- Pass journal entries, prepare capital reduction account and Balance sheet after reconstruction.
- Q.5 The Balance sheet of Waridhi Ltd. as on 31st March, 2007 was as under 16
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- The Company earned profits (after tax) for the past five years as follows
- *As on 31-03-2007 Fixed Assets were worth 10% above book value.
- *Income tax rate for the future may be taken at 30%.
- *Normal rate of return in this type of industry is 16%.
- * Closing capital employed should be assumed as average capital employed.
- You are required to calculate value of Goodwill on the basis of 3 years purchase of super profits calculated on the basis of simple average of past 5 years.
- Q.6 M/S Vipro Ltd. had entered into the following transactions in foreign currency during the year ended 31st March,2007.:- 16
- (a) On 7th April, 2006, goods worth US $ 8000 exported to M/s. Warne Ltd. of USA, payment received on 15th April, 2006.
- (b) On 10th May, 2006, export of goods worth US $ 13000 to M/s. Marshal Ltd. of Canada, payments received, in advance on 5th May, 2006.
- (c) On 15th June, 2006, Raw materials were imported worth US $ 9000 from M/s. Thomsen Ltd. of Italy, payment was made on 30th Jaune 2006.
- (d) On 20th July, 2006, goods worth US $ 5000 exported to M/s. Sarfaraz Ltd. of Pakistan, payment was not received till 31st March, 2007.
- (e) On 1st September, 2006, a machine worth US $ 18000 was imported from M/s. Stephon Ltd. of West Germany. The payment for the same was made as under
- (f) On 15th January, 2007, Raw materials worth US $ 6500 were imported from M/s. Bishop Ltd. of U.K. the payment for the same was outstanding on 31st March, 2007.
- (g) On 10th February, 2007, Spare parts worth US $ 800 were imported from M/s. Garner Ltd. of France against immediate payment.
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- Exchange rates of 1 US $ during the year 2006-07 were
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- You are requested to pass journal entries in the books of M/s. Vipro Ltd. for the above transactions applying AS 11
for the year ended 31st March, 2007. - Q.7 On 1st April, 2006 Mr. Mayur had 30,000/- Equity shares in Jai Ltd. at a book-value of Rs. 4,50,000/- (Face value Rs. 10/- per share). On 22nd June 2006 he purchased another 5000 shares of the company for Rs. 80,000. :- 16
- The Directors of Jai Ltd. announced a bonus issue of equity shares in the ratio of one share for seven shares held on 16th August 2006.
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- On 31st August, 2006 the Company made a right Issue in the ratio of three shares for Eight shares held on payment of Rs. 15/- per share. Due date for the payment was 30th September, 2006.
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- Mr. Mayur subscribed to 2/3rd of the right shares and sold remaining of his entitlement to Vinayak for a consideration of Rs. 2 per share.
- On 31st October, 2006 received dividends from Jai Ltd. @ 20%. for the year ended 31st March, 2006. Dividend for shares acquired by him on 22nd June, 2006 are to be adjusted against the cost of purchase.
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- On 15th November, 2006 Mayur sold 30,000 Equity shares at a premium of Rs. 5/- per share. You are required to prepare Investments account in the book Mr. Mayur. Assume that the books of accounts are closed on 31st March, 2007 and shares valued at weighted average cost.
- Q.8 Following is the trial balance of KKK Ltd. as on 31st March, 2007 :- 16
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- (a) Transfer to debenture redemption reserves Rs. 50,000/- and Genera, Reserves Rs. 25,000/-.
- (b) The Company declared dividend on Equity share capital at 15% after declaring preference dividend.
- (c) Entire authorised share capital has been issued and subscribed.
- (d) 8% Debentures are secured against all fixed assets. The figure in trial balance includes interest accrued and due Rs. 25,000/-.
- (e) Loan from Director and subsidiary Co. are unsecured.
- (f) Creditors include Creditors for goods Rs. 40,000/- while for expenses Rs. 18,500/-.
- (g) Stock comprises of Raw-materials Rs. 2,50,000/-, work in progress Rs. 50,000/- and Finished goods Rs. 75,000/-.
- (h) Of the debtors, debts due for more than 6 months is Rs. 22.500/-. All debit are unsecured and considered to be good.
- (i) Profit and Loss Account figure in Trial Balance is arrived at as under
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- (j) Ignore Previous Year's figures.
- Share Captial
- Reserves and Surplus
- Secured Loans
- Unsecured Loans
- Current Assets, Loans and Advances.
- Current Liabilities and Provisions.
- Q.9 Attempt any four of the following :- 16
- a. A company buysback 50,000 shares of Rs. 10/- each at Rs. 25/- per share. The reserves of the Company are as follows :
- Pass journal entries in the books of a Company without narration for buyback of shares.
- b. The authorised share capital of a Company is Rs. 10,00,000/- divided into 8% – 5000 preference shares of Rs. 100/- each and 50,000 equity shares of Rs. 10/- each. 50% of each class of shares were issued to the public fully called up Rs. 20/- per share on 100 – 8% preference shares and Rs. 2/- per share on 2000 equity shares was not received. Show the schedule of share capital forming a part of Balance Sheet.
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- c. During- the year ended 31st March, 2006, A company had acquired shares of Telecom Ltd. as follows :
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Date of Acquisition No. of Shares Purchase Cost Per Share Rs. 04-05-2005 500 55.00 25-08-2005 500 60.00 15-12-2005 1000 70.00 18-02-2006 750 75.00 - On 15-03-2006 a Company sold 1000 shares at Rs. 80/- per share. Calculate profit or loss on sale of shares.
- d. Hindustan Ltd. had issued 5000 – 12% debentures of Rs. 100/- each redeemable 31-12-2007 at par.
- The Company offered three options to the debenture-holders as under:
- i.14% Preference shares of Rs.10-/each at Rs.12/-
- ii.15% Debentures of Rs. 100/- each at par
- iii.Redemption in cash
- The options were accepted as under:
- Option (i)by holders of Rs.1500 debentures
- Option (ii)by holders of Rs.1500 debentures
- Option (iii)by holders of Rs.2000 debentures
- The redemption was carried out by the Co.
- Pass journal entries in the books of Hintustan Ltd. without narration
- e. Shyamsundar Ltd. imported goods worth US $ 4,00,000 from M/s. Hogg and Co. of U.S.A. on 10th August, 2007 when the exchange rate was Rs. 41.00. Shyamsundar Ltd. agreed to pay the amounts in four equal instalments as under
- Prepare Foreign Exchange Fluctuation Account in the books of Shyamsundar Ltd.
- f. A Company's share capital is Rs. 11,00,000/- divided into shares of Rs. 10/- each, of these 40,000 shares are 8% preference shares and remaining are equity shares.
- The average pofit (after tax @ 50%) earned during the past three years was Rs. 1,50,000/-In future, expenses will increase by Rs. 12,000/- p.a.
- The normal rate of return is 10%.
- Find out the value of Equity share.
| Balance Sheet as on 31st March 2007 | |||||
|---|---|---|---|---|---|
| Liabilities | 'A' Ltd. Rs. | 'B' Ltd. Rs. | Assets | 'A'Ltd. Rs. | 'B'Ltd. Rs. |
| Equity Shares of | Land and Building | 4,40,000 | 2,80,000 | ||
| Rs. 10/- each fully paid | 10,00,000 | 4,00,000 | Plant and Machinery | 8,40,000 | 5,20,000 |
| 11% Preference shares of | Stock | 5,80,000 | 3,20,000 | ||
| Rs. 100/- each fully paid | 4,00,000 | 4,00,000 | Sundry Debtors | 2,40,000 | 2,80,000 |
| Revaluation Reserves | 40,000 | - | Bills receivables | 2,60,000 | 1,80,000 |
| General Reserve | 3,00,000 | 1,00,000 | Bank | 40,000 | 20,000 |
| Export Profits Reserves | 80,000 | 40,000 | |||
| Other Statutory Reserves | 1,00,000 | 20,000 | |||
| 15% Debentures | 1,60,000 | - | |||
| 10% Debentures | - | 2,40,000 | |||
| Sundry Creditors | 3,20,000 | 4,00,000 | |||
| 24,00,000 | 16,00,000 | 24,00,000 | 16,00,000 | ||
Terms of Absorption
| Land and Building | 3,00,000 |
| Plant and Machinery | 5,00,000 |
| Stock | 3,00,000 |
| Sundry Debtors | 2,60,000 |
| Bills receivables | 1,60,000 |
| Sundry Creditors | 3,80,000 |
You are required to :
Apply Purchase Method.
The following items appeared in the Profit and Loss Account.
| Profit and Loss Account for the year ended 31st March, 2007 | |||||
|---|---|---|---|---|---|
| Particular | Debit Rs. | Particulars | Credit Rs. | ||
| Director's Fees | 49,000 | By Gross Profit | 9,60,000 | ||
| Rent | 85,500 | ||||
| Bad debts | 12,000 | ||||
| Salaries | 1,83,000 | ||||
| Interest on Debentrue | 24,000 | ||||
| Depreciation | 66,000 | ||||
| Preliminary Expenses | 42,000 | ||||
| General Expenses | 49,200 | ||||
| Commission on Sales | 36,000 | ||||
| Printing and Stationery | 93,000 | ||||
| Advertising | 1,20,500 | ||||
| Auditor's Fees | 58,600 | ||||
| Electricity Charges | 44,400 | ||||
| Insurance Premium | 24,000 | ||||
| Land and Buildings | 9,60,000 | 9,60,000 | |||
| Balance Sheet as on 31-03-2007 | |||||
|---|---|---|---|---|---|
| Liabilities | Rs. | Assets | Rs. | ||
| 40,000 8% Cummulative preference | Goodwill | 1,10,000 | |||
| shares of Rs. 10/- each | 4,00,000 | Freehold Property | 1,20,000 | ||
| 30,000 Equity shares of Rs. 10/- each | 3,00,000 | Leasehold Property | 2,44,000 | ||
| Securities Premium | 10,000 | Plant and Machinery | 3,20,000 | ||
| 9% Debentures | 1,20,000 | Furniture | 80,000 | ||
| Accrued debenture interest | 5,400 | Stock | 60,000 | ||
| Sundry Creditors | 1,70,000 | Debtors | 1,20,000 | ||
| Bank Overdraft | 1,92,000 | Preliminary Expenses | 5,000 | ||
| Profit and Loss Accounts | 1,38,400 | ||||
| 11,97,400 | 11,97,400 | ||||
Note:
Following scheme of reconstruction was approved and implemented
| Balance Sheet as on 31-03-2007 | |||||
|---|---|---|---|---|---|
| Liabilities | Rs. | Assets | Rs. | ||
| 10,000 — 8% Preference shares of | Freehold Premises | 3,00,000 | |||
| Rs. 10/- each fully paid | 1,00,000 | Plant | 3,00,000 | ||
| 25,000 Equity shares of | Furniture | 2,00,000 | |||
| Rs. 10/- each fully paid | 2,50,000 | Motor Car | 50,000 | ||
| Securities Premium | 3,00,000 | Stock | 2,50,000 | ||
| General Reserves | 4,00,000 | Debtors | 3,50,000 | ||
| 10% Debentures | 2,00,000 | ||||
| Cash | 50,000 | ||||
| Accounts Payable | 2,50,000 | ||||
| 15,00,000 | 15,00,000 | ||||
| Year ended | Profit after tax (Rs.) | Income tax rate |
|---|---|---|
| 31-03-2003 | 1,80,000 | 40% |
| 31-03-2004 | 3,38,000 | 35% |
| 31-03-2005 | 3,64,000 | 35% |
| 31-03-2006 | 2,60,000 | 35% |
| 31-03-2007 | 4,20,000 | 30% |
The Profit of 31-03-2003 included loss due to fire Rs. 30,000/- and profit of 31-03-2006 included abnormal profit of Rs. 40,000/-.
| Date | Amount Paid in US $ |
|---|---|
| Date | Date | ||
|---|---|---|---|
| Debit Balance | Credit Balances | ||
|---|---|---|---|
| Fixed Assets (Net Block) | Equity share capital | ||
| Investments | (Rs. 10/- each fully paid) | ||
| Closing Stock | 9% Preference ShareCapital | ||
| Sundry Debtors | (Rs. 100/- each fully paid) | ||
| Preliminary Expenses | Profit and Loss Account | ||
| Staff Advance | Securities Premium | ||
| Advance Tax | Debenture Redemption Reserves | ||
| Bills Receivables | General Reserves | ||
| Advance to Suppliers | 8% Debentures | ||
| Cash in Hand | Loan from Director Mr. D | ||
| Bank Balance | Loan from Subsidiary Co. | ||
| Sundry Creditors | |||
| > | Bills Payable | ||
| Provision for Taxation | |||
Additional Information
| Rs. | |
| Previous Year's Balance b/d | 1,48,500 |
| Net Profit for the Year | 1,31,500 |
| 2,80,000 |
After considering the above adjustments, prepare Pofit and Loss Appropriation Account for the year ended 31st March, 2007 and Balance Sheet of the company as at that date in the vertical form as per schedule VI requirements with following schedules.
| Rs. | |
| Securities Premium | 15,00,000 |
| General Reserves | 23,00,000 |
