ACCOUNTING QUESTION PAPER WITH ANSWERS-DOWNLOAD HERE
PAPER – 1 : ACCOUNTING QUESTIONS
Profit or Loss Prior to Incorporation
1. A firm which was carrying on business from 1st January, 2009 gets itself incorporated as
a company on 1st May, 2009. The first accounts are drawn up to 30th September, 2009.
The gross profit for the period is Rs.56,000. The general expenses are Rs.14,220,
directors’ fee Rs.12,000 p.a.; formation expenses Rs.1,500. Rent up to 30th June is
Rs.1,200 p.a., after which it is increased to Rs.3,000 per annum. Salary of the manager,
who upon incorporation of the company was made a director, is Rs.6,000 p.a. His
remuneration thereafter is included in the above figure of fee to directors.
Give Profit and Loss Account showing pre-and post-incorporation profits. The net sales
are Rs.8,20,000, the monthly average of which, for the first four months of 2009 is half of
that of the remaining period, the company earned a uniform profit. Interest and tax may
be ignored.
Insolvency
2. Ram commenced business on 1.7.2003 with a capital of Rs. 2,00,000. On 31st March,
2009 an adjudication order for insolvency was made against him. Following are the other
details available relating to his business as on 31.3.2009:
Rs.
Sundry Creditors 1,50,000
Mortgage Loan (of building) 1,00,000
Godown Rent (2 months) 5,000
Wages due 8,000
Mrs. Ram loan (given out of her own source) 25,000
Cost of Building (estimated to realise Rs. 1,00,000) 1,60,000
Debtors (includes bad of Rs. 10,000) 90,000
Stock in trade (Realisation value 10,000) 15,000
Cash in Hand/Bank 10,000
He maintained books upto 31.3.2006 and profit upto 31.3.2006 was Rs. 1,40,000. He did
not maintain books from 1.4.2006 onwards. He has been drawing Rs. 4,000 per month
and goods worth Rs. 1,500 per month uniformly from April, 2006 onwards.
Prepare statement of affairs and deficiency account.
Investment Accounts
3. On 1.4.2009, Shridhar has 2,500 equity shares of ‘A’ Ltd., at a book value of Rs.15 per
share (Face value Rs.10). On 20th June, he purchased another 500 shares of the
2
company @ Rs.16 per share. The directors of A Ltd., announced a bonus and rights
issue. No dividend was payable on these issues. The terms of the issue are as follows:
Bonus basis 1 : 6 (Date 16th August).
Rights basis 3 : 7 (Date 31st August) Price Rs.15 per share.
Due date for payment - 30th September.
Shareholders can transfer their rights in full or in part. Accordingly, Shridhar sold 331/3%
of his entitlement to Manohar for a consideration of Rs.2 per share and exercised the
remaining rights.
Dividends for the year ended 31st March at the rate of 20% were declared by A Ltd., and
received by Shridhar on 31st October. Dividends for shares acquired by him on 2nd June
are to be adjusted against the cost of purchase.
On 15th November, Shridhar sold 2,500 equity shares at a premium of Rs.5 per share.
Required: Prepare Investment Account in the books of Shridhar.
For your exercise, assume that the books are closed on 31.12.2009 and shares are
valued at average cost.
Insurance Claim for Loss of Stock
4. The premises of Sad Ltd. caught fire on 22nd January, 2010 and the stock was damaged.
The firm made up accounts to 31 March each year and on 31st March, 2009 the stock at
cost was Rs. 13,27,200 as against Rs. 9,62,200 on 31st March 2008.
Purchases from 1st April, 2009 to the date of fire were Rs. 34,82,700 as against Rs.
45,25,000 for the full year 2008-09 and the corresponding sales figure were Rs.
49,17,000 and Rs. 52,00,000 respectively.
You are given the following further information:
(i) In July, 2009, goods costing Rs. 1,00,000 were given away for advertising
purposes, no entries being made in the books.
(ii) During 2009-2010, a clerk misappropriated unrecorded cash sales. It is estimated
that the defalcation averaged Rs.2000 per week from 1st April, 2009 until the clerk
was dismissed on 18th August, 2009.
(iii) The rate of gross profit is constant.
From the above information, make an estimate of the stock in hand on the date of fire.
Managerial Remuneration
5. Calculate the managerial remuneration from the following particulars of Astha Ltd. due to
the managing director of the company at the rate of 5% of the profits. Also determine the
excess remuneration paid, if any:
Rs.
Net Profit 2,00,000
Net Profit is calculated after considering the following:
Depreciation 40,000
Preliminary expenses 10,000
Tax provision 3,10,000
Director’s fee 8,000
Bonus 15,000
Profit on sale of fixed assets (original cost: Rs.20,000 written down
value:Rs.11,000) 15,500
Provision for doubtful debts 9,000
Scientific research expenditure (for setting up new machinery) 20,000
Managing Director’s remuneration paid 30,000
Other information:
Depreciation allowable under Schedule XIV of the Companies Act 35,000
Bonus liability as per Payment of Bonus Act, 1965 18,000
Accounting for Hire Purchase Instalments
6. From the following information extracted from the books of Perfect Investment Pvt. Ltd.
prepare Hire Purchase Trading account for the year ended 31.3.2009, showing the profit
in respect of the hire-purchase business of the company:
(i) Instalments due but not received on 1.4.2008 – Rs.60,000.
(ii) Instalments due but not received on 31.3.2009 – Rs.1,00,000.
(iii) Cash received during the financial year 2008-2009 by way of a hire-purchase
Instalments Rs.80,00,000.
(iv) Value of Stock ‘out’ on hire-purchase as at 1.4.2008 at hire-purchase price (loading
20% above cost) Rs.2,40,000.
(v) (a) Cost price of truck ‘out’ on hire-purchase as at 31.3.2009 - Rs.40,00,000.
(b) Total amount of instalments receivable in respect of v (a) above Rs.48,00,000.
(c) Total amount of instalments received and due up to 31.3.2009 in respect of v
(b) above Rs.36,00,000.
(vi) Purchase of trucks during the financial year 2008-09 Rs.80,00,000.
(vii) Sale of trucks, otherwise than on H.P. (at a profit of 6.25% of cost thereof),
Rs.8,50,000.
(viii) Body building charges in respect of truck, sold on H.P. Rs.4,00,000.
(ix) Interest paid was Rs.80,000 and unsold trucks on 31.3.2009 at cost price were
Rs.1,60,000 (Hire-purchase price Rs.1,92,000).
Accounting for Redemption of Debentures
7. The authorized capital of a company consists of 4,00,000 equity shares of Rs.10 each.
But of these 1,20,000 shares have been issued as fully paid.
The company has an outstanding 14% Debentures of Rs.12,00,000 redeemable at 102
per cent and interest has been paid up to date on December 31, 2008. On that date, the
balance of the Debenture Redemption Reserve Account is Rs.10,00,000 and of
corresponding Investment Account Rs.10,00,000 (at cost) of which the market value is
Rs.9,00,000.
The directors resolved to redeem the Debentures on January 1, 2009 and the holders are
given an option to receive payment either wholly in cash or wholly in fully paid equity
shares @ 8 shares for every Rs.100 of debentures.
75% of the holders decided to exercise the option for taking shares in repayment and
cash for the rest is procured by realizing an adequate amount of investment at the
prevailing market value.
Draw up journal entries (including Cash Book Entries) to give effect to the above
transactions.
Amalgamation of Companies
8. The Balance Sheets of A Co. Ltd. and B Co. Ltd., as on 31st October, 2009 are as
follows:
Balance Sheet of A Co. Ltd.
Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets:
Authorised Capital: Goodwill 80,000
10,000 shares of Rs.100 each 10,00,000 Others 8,00,000 8,80,000
Issued Capital:
10,000 shares of
Rs.100 each
fully paid 10,00,000
Current assets,
loans and
advances 9,00,000
Reserves and Surplus:
Capital reserve 2,00,000
General reserve 70,000 2,70,000
Unsecured loans 2,00,000
Current liabilities
and provisions:
Sundry Creditors 3,10,000
17,80,000 17,80,000
Balance Sheet of B Co. Ltd.
Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets 16,00,000
Authorised Capital:
2,00,000 shares of
Current assets, loans and
advances:
Rs.10 each 20,00,000 Bank 2,00,000
Issued Capital: Others 6,60,000 8,60,000
80,000 shares of
Rs.10 each fully
paid 8,00,000
Reserves and Surplus:
General reserve 8,00,000
Secured Loans 5,00,000
Current liabilities
and provisions:
Sundry Creditors 3,60,000
24,60,000 24,60,000
It was proposed that A Co. Ltd., should be taken over by B Co. Ltd. The following
arrangement was accepted by both the companies:
(a) Goodwill of A Co. Ltd., is considered valueless.
(b) Arrears of depreciation in A Co. Ltd. amounted to Rs.40,000.
(c) The holder of every 2 shares in A Co. Ltd., was to receive:
(i) as fully paid at par, 10 shares in B Co. Ltd., and
(ii) so much cash as is necessary to adjust the right of shareholders of both the
companies in accordance with the intrinsic value of the shares as per their
balance sheets subject to necessary adjustment with regard to goodwill and
depreciation in A Co. Ltd.’s Balance Sheet.
You are required to:-
(a) Determine the composition of purchase consideration; and
(b) Show the Balance Sheet after absorption.
Partnership –Admission cum Retirement
9. Glad and Happy, who make up their accounts to 30 September in each year, carried on
business in partnership under the firm name of Feelings.
Their partnership agreement provided:
(1) Profits and losses should be shared Glad - two-third and Happy - one-third.
(2) Interest on capital accounts should be allowed at the rate of 6% per annum but no
interest should be allowed or charged on current accounts.
(3) On the retirement or admission of a partner:
(i) If the change takes place during any accounting year, such partner’s share of
profits or losses for the period up to retirement or from admission is to be
arrived at by apportionment on a time basis except where otherwise agreed.
(ii) No account for goodwill is to be maintained in the firm’s books, any adjusting
entries for transactions between the partners being made in their capital
accounts.
(iii) Any balance due to an outgoing partner is to carry interest at 8% per annum
from the date of his retirement to the date of payment.
Glad retired from the firm on 31st March 2009 and, on the same day, Happy took into
partnership Joy, an employee of the firm. It was agreed that the terms of the previous
partnership agreement should apply in all respects except that, as from the date, profits
or losses are to be shared: Happy - three-fifth, Joy - two-fifth.
The trial balance extracted from the books of the firm as on 30th September 2009 was as
follows:
Particulars Rs. Rs.
Capital Accounts – 30 September 2009
Glad - 8,000
Happy - 6,000
Current Accounts – 30 September 2009
Glad - 2,400
Happy - 1,600
Joy – Cash introduced 31st March, 2009 - 3,000
Plant and machinery at cost 14,000 -
Plant and machinery: Provision for depreciation -30th September,
2008
- 2,800
Motor vehicles at cost 6,200 -
Motor vehicles: provision for depreciation – 30th September 2008 - 3,400
Purchases 62,000 -
Stock – 30th September 2008 12,400 -
Wages 14,600 -
Salaries 10,800 -
Debtors 4,600 -
Sales - 96,000
Trade expenses 1,600 -
Creditors - 6,200
Rent and rates 1,400 -
Bad debts 600 -
Balance at bank 1,200 -
1,29,400 1,29,400
You are given the following further information:
(1) The value of the firm’s goodwill as on 31st March 2009 was agreed to be Rs.12,000.
(2) On 31st March, 2009, Joy had paid Glad Rs.5,000 on account of the balance due to
him on retirement. But no entry had been made in the books in respect of this
payment. The balance due to Glad after taking into account this payment remained
unpaid as on 30th September, 2009.
(3) Glad on retirement had taken over one of the firm’s motor vehicles and it was
agreed that he should be charged for it at its written down value on the date of his
retirement. The vehicle had cost Rs.1,400 and up to 30th September, 2009
depreciation of Rs.625 had been provided on it.
(4) The stock as on 30th September 2009 was valued at Rs.14,200.
(5) Partners’ drawings which are included in salaries were as follows:
Glad Rs.1,800; Happy Rs.2,400; Joy Rs.900.
(6) Salaries also included Rs.1,200 paid to Joy prior to his being admitted as a partner
and which is to be charged against the half-year profits of the firm.
(7) Professional charges of Rs.250 included in trade expenses are specifically
attributable to the second half of the year.
(8) The whole of the charge of Rs.600 for bad debts related to the period upto
31st March, 2009.
(9) A bad debts provision specifically, attributable to the second half of the year of 5%
of the total debtors is to be made as on 30th September 2009.
(10) As on 30th September 2009, rent paid in advance amounted to Rs.400 and trade
expenses accrued amounted to Rs.180.
(11) Provision is to be made for depreciation on plant and machinery and on motor
vehicles at the rates of 10% and 25% per annum respectively, calculated on cost.
You are required to prepare:
(a) The Trading and profit and loss account for the year ended 30th September 2009.
(b) Partner’s capital and current accounts for the year ended 30th September 2009, and
(c) The balance sheet as on that date.
Branch Accounts
10. Kashi Cloth Mills opened a branch at Delhi on 1st April, 2008. The goods were invoiced
to the branch at selling price which was 125% of the cost to the head office.
The following are the particulars of the transactions relating to branch during the year
ended 31st March, 2009:
Rs.
Goods sent to branch at cost to head office 28,08,400
Sales: Rs.
Cash 12,50,700
Credit 17,74,300 30,25,000
Cash collected from debtors 15,70,000
Discount allowed to debtors 15,700
Returns from debtors 10,000
Spoiled cloth in bales written off at invoice price 5,000
Cheques sent to branch for: Rs.
Rent 72,000
Salaries 1,80,000
Other Expenses 35,000 2,87,000
Prepare Branch Account ascertaining profit for the year ended 31st March, 2009 after
preparing Memorandum Branch Stock account and Memorandum Branch Debtors
Account.
Accounting for Employees Stock Option Plan
11. At the beginning of year 1, an enterprise grants 300 options to each of its 1,000
employees. The contractual life (comprising the vesting period and the exercise period)
of options granted is 6 years. The other relevant terms of the grant are as below:
Vesting Period 3 years
Exercise Period 3 years
Expected Life 5 years
Exercise Price Rs. 50
Market Price Rs. 50
Expected forfeitures per year 3%
The fair value of options, calculated using an option pricing model, is Rs. 15 per option.
Actual forfeitures, during the year 1, are 5 per cent and at the end of year 1, the
enterprise still expects that actual forfeitures would average 3 per cent per year over the
3-year vesting period. During the year 2, however, the management decides that the rate
of forfeitures is likely to continue to increase, and the expected forfeiture rate for the
entire award is changed to 6 per cent per year. It is also assumed that 840 employees
have actually completed 3 years vesting period.
200 employees exercise their right to obtain shares vested in them in pursuance of the
ESOP at the end of year 5 and 600 employees exercise their right at the end of year 6.
Rights of 40 employees expire unexercised at the end of the contractual life of the option,
i.e., at the end of year 6. Face value of one share of the enterprise is Rs. 10.
Liquidation of Companies
12. The following is the Balance Sheet of Confidence Builders Ltd., as on 30th September,
2009:
Liabilities Rs. Assets Rs.
Share Capital : Land and Buildings 1,20,000
Issued : 11% Preference Sundry Current Assets 3,95,000
Shares of Rs. 10 each 1,00,000 Profit & Loss Account 38,500
10,000 Equity Shares of
Rs. 10 each, fully paid up 1,00,000
Debenture Issue
Expenses not written off 2,000
5,000 Equity shares of
Rs. 10 each, Rs. 7.50 per share
paid-up
37,500
13% Debentures 1,50,000
Mortgage Loan 80,000
Bank overdraft 30,000
Creditors for Trade 32,000
Income tax-arrears :
(Assessment concluded in July,
2009)
Assessment Yr. 2007-08 21,000
Assessment Yr. 2008-09 5,000 26,000
5,55,500 5,55,500
Mortgage loan was secured against Land and Buildings. Debentures were secured by a
floating charge on all the other assets. The company was unable to meet the payments
and therefore the debenture holders appointed a Receiver and this was followed by a
resolution for members voluntary winding up. The Receiver for the debenture holders
brought the land and buildings to auction and realised Rs. 1,50,000. He also took charge
of sundry assets of the value of Rs. 2,40,000 and realised Rs. 2,00,000. The Liquidator
realised Rs. 1,00,000 on the sale of the balance of sundry current assets. The bank
overdraft was secured by a personal guarantee of two of the directors of the company
and on the Bank raising a demand the Directors paid off the dues from their personal
resources. Costs incurred by the Receiver were Rs. 2,000 and by the Liquidator Rs.
2,800. The Receiver was not entitled to any remuneration but the Liquidator was to
receive 3% fee on the value of assets realised by him. Preference shareholders had not
been paid dividend for the period after 30th September, 2007 and interest for the last halfyear
was due to debenture holders.
Prepare the Accounts to be submitted by the Receiver and the Liquidator.
Financial Statements of Banking Companies
13. (a) From the following particulars, you are required to compute the amount of provision
to be shown in the profit and loss account of ABC Bank Limited.
Rs. in lakhs
Standard Assets 5,000
Sub-standard Assets 1,200
Doubtful assets not covered by security 200
Doubtful assets covered by security
upto 1 year 500
upto 3 years 300
upto 4 years 300
Loss Assets 200
(b) The following particulars are extracted from the (Trial Balance) Books of the M/s
Commercial Bank Ltd. for the year ending 31st March, 2009:
Rs.
(i) Interest and Discounts 1,96,62,400
(ii) Rebate on Bills Discounted (balance on 1.4.2008) 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 2009-2010 amounted to Rs. 92,760.
Pass the necessary Journal entries with narration adjusting the above and show:
(a) Rebate on Bills Discounted Account; and
(b) Interest and Discount Account in the ledger of the Bank.
11
Financial Statements of Insurance Companies
14. From the following information as on 31st March, 2009, prepare the Revenue Accounts of
Sagar Bhima Co. Ltd. engaged in Marine Insurance Business:
Particulars Direct Business
(Rs.)
Re-insurance
(Rs.)
I. Premium :
Received 24,00,000 3,60,000
Receivable – 1st April, 2008 1,20,000 21,000
– 31st March, 2009 1,80,000 28,000
Premium paid 2,40,000 –
Payable – 1st April, 2008 – 20,000
– 31st March, 2009 – 42,000
II. Claims :
Paid 16,50,000 1,25,000
Payable – 1st April, 2008 95,000 13,000
– 31st March, 2009 1,75,000 22,000
Received – 1,00,000
Receivable – 1st April, 2008 – 9,000
– 31st March, 2009 – 12,000
III. Commission :
On Insurance accepted 1,50,000 11,000
On Insurance ceded – 14,000
Other expenses and income:
Salaries – Rs. 2,60,000; Rent, Rates and Taxes – Rs. 18,000; Printing and Stationery –
Rs. 23,000; Indian Income Tax paid – Rs. 2,40,000; Interest, Dividend and Rent received
(net) – Rs. 1,15,500; Income Tax deducted at source – Rs. 24,500; Legal Expenses
(Inclusive of Rs. 20,000 in connection with the settlement of claims) – Rs. 60,000; Bad
Debts – Rs. 5,000; Double Income Tax refund – Rs. 12,000; Profit on Sale of Motor car
Rs. 5,000.
Balance of Fund on 1st April, 2008 was Rs. 26,50,000 including Additional Reserve of
Rs. 3,25,000. Additional Reserve has to be maintained at 5% of the net premium of the
year.
Financial Statements of Electricity Companies
15. (a) The Alpha Electricity Company Limited decided to replace one of its old plants with
a modern one with a larger capacity. The plant when installed in 1960 cost the
company Rs. 30 lakhs, the components of materials, labour and overheads being in
12
the ratio of 3 : 2 : 1. It is ascertained that the costs of materials and labour have
gone up by 25% and 50% respectively. The proportion of overheads to total costs is
expected to remain the same as before.
The cost of the new plant as per improved design is Rs. 75 lakhs and in addition,
material recovered from the old plant of a value of Rs. 3,60,000 has been used in
the construction of the new plant. The old plant was scrapped and sold for Rs.
9,00,000.
The Accounts of the company are maintained under Double Account system.
Indicate how much would be capitalised and the amount that would be charged to
revenue. Show the Ledger Accounts.
(b) Alpha Electricity Company provides you the following informations:
Rs. in lakhs
Fixed Assets (Original Cost) 200.00
Depreciation Reserve on Fixed Assets 50.00
Customers’ contribution towards fixed assets 1.00
Intangible Assets 6.00
Intangible Assets written off 1.00
Average of Current Assets 20.00
5% Contingency Reserve Investments 10.00
4½% Reserve Fund Investments 50.00
(a) Loan from Electricity Board 30.00
(b) Loan from Approved Institution 10.00
8% Debentures 20.00
Development Reserve 10.00
Security Deposit 55.00
Tariff and Dividend Control Reserve 4.00
Licencee’s A/c 1.00
Net profit before interest on Debentures for the year ended 31st
March, 2008 7.90
Reserve Bank Rate 5%
You are required:
(a) Calculate Capital Base, Reasonable Return & Total Surplus if available.
(b) Prepare the Statement showing the Disposal of Profits
(c) Give the necessary journal entries, if any required.
Accounts from Incomplete Records
16. 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, 2009 and a
Balance Sheet as on that date:
(a)
Balance as on 31st
March, 2008
Rs.
Balance as on 31st
March, 2009
Rs.
Building 3,20,000 3,60,000
Furniture 60,000 68,000
Motorcar 80,000 80,000
Stocks – 40,000
Bills payable 28,000 16,000
Cash and Bank balances 1,80,000 1,04,000
Sundry Debtors 1,60,000 –
Bills receivable 32,000 28,000
Sundry Creditors 1,20,000 –
(b) Cash transactions during the year included the following besides certain other
items:
Rs. Rs.
Sale of old papers and
miscellaneous income 20,000
Cash purchases
Payment to creditors
48,000
1,84,000
Miscellaneous Trade expenses
(including salaries etc.) 80,000
Cash sales 80,000
Collection from debtors 2,00,000
(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, 2008
was Rs. 20,000 was sold on 30th September, 2008 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 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, 2008 was Rs. 8,000 and on 31st March,
2009 was Rs. 10,000 on 31st March, 2008. Profit and 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.
Cash Flow Statement
17. MNG Fertilizers presents the following Balance Sheets as at 31.3.2009 and 31.3.2008.
You are required to prepare cash flow statement.
31.3.2009 31.3.2008
Equity share capital 8,500 7,000
General Reserve 3,800 4,000
Profit and Loss Account 0 250
Share Premium Account 1,500 750
Shareholders’ Funds 13,800 12,000
Secured Loans 4,800 5,000
Unsecured Loans 5,350 4,000
Loan Funds 10,150 9,000
Sources 23,950 21,000
Fixed Assets
Gross Block 22,400 21,000
Less: Accumulated Depreciation 3,450 3,200
Net Block 18,950 17,800
Capital work-in-progress 1,860 0
Investments 1,650 2,320
Current Assets, Loans and Advances
Inventories 2,510 2,600
Debtors 1,090 1,200
Cash & Bank Balances 120 280
Loans 1,700 200
Advance Tax 0 500
(A) 5,420 4,780
Less: Creditors 1,050 1,200
Outstanding expenses 30 0
Tax Provision 0 500
Proposed Dividend 3,400 2,800
(B) 4,480 4,500
Net Current Assets (A) – (B) 940 280
Miscellaneous Expenditure 550 600
Applications 23,950 21,000
Other information:
(1) Fixed assets costing Rs. 4,00,000, accumulated depreciation Rs. 3,00,000 were
sold for Rs.1,50,000.
(2) Actual tax liability for 2008-2009 was Rs. 5,00,000.
(3) Loans represent long term loans given to other companies.
(4) Interest on loan funds for 2009-2010 was Rs. 14,21,000 and interest and dividend
income were Rs.4,02,000.
(5) Investments costing Rs. 20,00,000 were sold for Rs. 25,00,000.
Departmental Accounts
18. A firm had two departments, cloth and readymade clothes. The readymade clothes were
made by the firm itself out of cloth supplied by the cloth department at its usual selling
price. From the following figures, prepare departmental Trading and Profit and Loss
Accounts for the year ended 31st March, 2009 :
Cloth
Department
Rs.
Readymade
Clothes
Rs.
Opening Stock on 1st April, 2008 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to Readymade Clothes Department 3,00,000 --
Expenses - Manufacturing -- 60,000
Selling 20,000 6,000
Stock on 31st March, 2009 2,00,000 60,000
The stocks in the readymade clothes department may be considered as consisting of
75% cloth and 25% other expenses. The Cloth Department earned gross profit at the rate
of 15% in 2008-09. General Expenses of the business as a whole came to Rs. 1,01,000.
Underwriting of shares
19. ‘X’ Ltd., issued 1,00,000 equity shares of Rs.10 each at par. The entire issue was
underwritten as follows:
A – 60,000 shares (Firm underwriting 8,000 shares)
B- 30,000 shares (Firm underwriting 10,000 shares)
C- 10,000 shares (Firm underwriting 2,000 shares)
The total applications including firm underwriting were for 80,000 shares.
The marked applications were as follows:
A- 20,000 shares; B- 14,000 shares; C-6,000 shares.
The underwriting contract provides that credit for unmarked applications be given to the
underwriters in proportion to the shares underwritten. Determine the liability of each
underwriter.
Short Notes
20. (a) Write short note on Treasury system and the functions entrusted to Treasury in
government accounting.
(b) Describe what records are required for the compilation of accounting information for
agricultural farm.
21. Write short notes on the following:
(a) Preferential Creditors.
(b) Liquidity Norms of Banking Companies under Section 24 of Banking Regulation Act.
(c) Reasonable Return in respect of Electricity Supply Companies.
(d) Foreign Branches.
(e) Debtors Method for accounting of Hire Purchase Transactions.
(f) Profit and Loss Appropriation Account.
(g) Firm underwriting.
22. Theory Questions Based on Accounting Standards
(a) Is any specific disclosure under AS 1 required for a company in liquidation?
(b) Inventories are usually written down to NRV on an item-by-item basis. Comment.
(c) Discuss the accounting treatment when the depreciable assets are revalued. The
Notes on Accounts of Devi Ltd. reveals that “No depreciation has been provided
during the year on fixed asset pursuant to an upward revaluation of fixed assets
carried out in the current year”. State whether the above viewpoint is correct.
(d) What is the basis for recognition of revenue by way of Interest, Royalties and
Dividends?
(e) Distinguish between Integral Foreign Operation (IFO) and Non-Integral Foreign
Operation (NFO).
(f) Presentation of government grants related to specific fixed assets.
(g) When can an enterprise commence to capitalize the borrowing costs? What are the
conditions to be satisfied for commencement of capitalization?
23. (a) Can internally generated brands, publishing titles and other similar items be
recognized as intangible assets?
(b) What are the aspects to be considered for the measurement of a Provision?
(c) How are intra enterprise transactions treated when preparing Segment Reports?
(d) P Ltd. owns 70 per cent of the voting power of Q Ltd. Q Ltd. in turn owns 50 per
cent of the voting interest in R Ltd. Further, P Ltd. also directly owns 15 per cent of
the voting interest in R Ltd. Would P Ltd. be deemed to have control over R Ltd. or
would it only be considered as exercising significant influence?
(e) Classify the following as “Timing Difference” and “Permanent Difference”.
(i) Interest on loans payable to Scheduled Banks not paid during current year but
accounted as an expenditure in the books.
(ii) Difference in Depreciation rates as per Income Tax and as per Books.
(iii) Unabsorbed losses.
(iv) Revaluation Reserve.
(f) Disclosure requirements as regards the investor, where the associate has
contingent liabilities.
(g) Circumstances under which a lease can be reckoned as non-cancellable.
(h) Explain “Theoretical ex-rights fair value per share” in context of AS 20-Earnings Per
Share.
Practical Questions Based on Accounting Standards
24. (a) In order to value the inventory of finished goods, HR Ltd. has adopted the standard
cost or raw material, labour and overheads. Income tax officer wants to know the
method, as per AS-2, for the valuation of raw material.
(b) A limited company created a provision for bad and doubtful debts at 2.5% on
debtors in preparing the financial statements for the year 2008-2009.
Subsequently on a review of the credit period allowed and financial capacity of the
customers, the company decided to increase the provision to 8% on debtors as on
31.3.2009. The accounts were not approved by the Board of Directors till the date of
decision. While applying the relevant accounting standard can this revision be
considered as an extraordinary item or prior period item?
(c) X Co. Ltd. charged depreciation on its asset on SLM basis. For the year ended
31.3.2009 it changed to WDV basis. The impact of the change, when computed
from the date of the asset coming to use, amounts to Rs. 20 lakhs being additional
charge.
Decide how it must be disclosed in Profit and loss account. Also, discuss, when
such changes in method of depreciation can be adopted by an enterprise as per AS
6.
(d) 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, 2009. The dividends on mutual funds were declared at
the rate of 20% on 15th June, 2009. The dividend was proposed on 10th April,
2009 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.
(e) Soft and Hardwares Ltd. are finalizing their annual accounts as on 31st March. A
few elements in their Profit and loss Account are furnished below:
Amount Rs. in lakhs
(a) Cost of goods sold (includes loss on sale of assets) 2,740
(b) Profit on sale of property 200
(c) PBT 300
Some of the assets, revalued in earlier years, have been sold by the company now,
for Rs. 100 lacs (WDV Rs. 250 lacs). Revaluation reserve corresponding to these
assets stood at Rs. 200 lacs, now brought to Profit and Loss Account.
Comment on this treatment, and advise action, if any, with reference to relevant
accounting standard.
(f) X Limited sold to Y Limited goods having a sales value of Rs. 25 lakhs during the
financial year ended 31.03.2004. Mr. A, the Managing Director and Chief
Executive of X Limited owns nearly 100 percent of the capital of Y Limited. The
sales were made to Y Limited at the normal selling price of X Limited. The Chief
Accountant of X Limited does not consider that these sales should be treated
differently from any other sale made by the company despite being made to a
controlled company, because the sales were made at normal and, that too, at arms'
length prices.
Discuss the above issue from the view point of AS 18.
25. (a) Pankaj Ltd. is a company engaged in manufacture of Nuclear Power Stations. The
Company usually resorts to long term Foreign Currency borrowings for its fund
requirements. The Company had on 1st April, 2005 borrowed U.S. $100 million from
Global Fund Consortium based in Washington, USA. The funds were used by
Pankaj Ltd. for purposes OTHER THAN acquiring ‘Depreciable Capital Assets’. The
loan carries an interest rate of 3 per cent on reducing balance and is repayable in
two instalments, the first one due on 1st April, 2010 and the next on 1st April, 2012.
The interest due on the loan has been paid in full on 31st March of each year. The
exchange rate on the date of borrowing was 1 U.S. $ = INR 40.
The accounting treatment followed by the Company for the subsequent three years
with exchange rates prevailing on those dates were as under:
Year ended Exchange Rate Accounting Treatment
31st March, 2006 1 US $ = 41 Forex Loss of Rs.10 crore
charged to Profit and Loss
account;
31st March, 2007 1 US $ = 39 Forex gain of Rs.20 crore
recognised in Profit and Loss
Account;
31st March, 2008 1 US $ = 48 Forex Loss of Rs.90 crore
charged to Profit and Loss
account;
Note: Interest payment was charged to Profit and Loss account of each year at
transaction value on payment dates.
Pankaj Ltd. is in the process of finalising its accounts for the year ended 31st March,
2009 and understands that AS 11 has been amended and opts to follow the
Companies (Accounting Standards) Amendment Rules, 2009.
(a) You are required to show treatment of the Forex Losses/gains in the light of
the above amendment to AS 11 for the years 2005-06; 06-07; 07-08 & 08-09.
The exchange rate to 1 US Dollar on 31st March, 2009 is Rs.50. Assuming
that the rates of Exchange on 31st March, 2010 and 31st March, 2011 will be
Rs.51 and Rs.52 respectively the accounting for the Forex Losses/gains may
also be shown for these years also.
(b) What are the disclosure requirements to be complied with by Pankaj Ltd. as a
result of having opted to follow the amendment in the Companies (Acco8unting
Standard) Rules, 2006.
(c) Would your answer to (a) above be different of Pankaj Ltd. was not a Company
and were a Co-operative Society.
(b) Explain the treatment of the following:
(i) A firm acquired a fixed asset for Rs. 250 lakhs on which the government grant
received was 40%.
(ii) Capital subsidy received from the central government for setting up a plant in
the notified backward region. Cost of the plant Rs. 300 lakhs, subsidy received
Rs. 100 lakhs.
(iii) Rs. 50 lakhs received from the state government for the setting up of watertreatment
plant.
(iv) Rs. 25 lakhs received from the local authority for providing medical facilities to
the employees.
(c) Bharat Ltd. wants to re-classify its investments in accordance with AS 13. Decide
on the amount of transfer, based on the following information:
1. A portion of Current Investments purchased for Rs. 20 lakhs, to be reclassified
as Long Term Investments, as the Company has decided to retain
them. The market value as on the date of Balance Sheet was Rs. 25 lakhs.
2. Another portion of current investments purchased for Rs. 15 lakhs, to be reclassified
as long term investments. The market value of these investments as
on the date of balance sheet was Rs. 6.5 lakhs.
3. Certain long term investments no longer considered for holding purposes, to
be reclassified as current investments. The original cost of these were Rs. 18
lakhs but had been written down to Rs. 12 lakhs to recognise permanent
decline, as per AS 13.
(d) Paras Ltd. had the following borrowings during a year in respect of capital
expansion.
Plant Cost of Asset Remarks
Rs.
Plant P 100 lakhs No specific borrowings
Plant Q 125 lakhs Bank loan of Rs. 65 lakhs at 10%
Plant R 175 lakhs 9% Debentures of Rs. 125 lakhs were issued.
In addition to the specific borrowings stated above, the Company had obtained term
loans from two banks (1) Rs. 100 lakhs at 10% from Corporation Bank and (2) Rs.
110 lakhs at 11.50% from State Bank of India, to meet its capital expansion
requirements. Determine the amount of borrowing costs to be capitalized in each of
the above Plants, as per AS 16.
(e) Should appropriation to mandatory reserves be excluded from net profit attributable
to equity shareholders?
Kashyap Ltd. is engaged in manufacturing industrial packaging equipment. As per
the terms of an agreement entered into with its debentureholders, the company is
required to appropriate adequate portion of its profits to a specific reserve over the
period of maturity of the debentures such that, at the redemption date, the Reserve
constitutes at least half the value of such debentures. As such, appropriations are
not available for distribution to the equity shareholders. Kashyap Ltd. has excluded
this from the numerator in the computation of basis EPS. Is this treatment correct?
(f) Can internally generated brands, publishing titles and other similar items be
recognized as intangible assets?
(g) At the end of the financial year ending on 31st December, 2005, a company finds
that there are twenty law suits outstanding which have not been settled till the date
of approval of accounts by the Board of Directors. The possible outcome as
estimated by the Board is as follows:
Probability Loss (Rs.)
In respect of five cases (Win) 100%
Next ten cases (Win) 60%
Lose (Low damages) 30% 1,20,000
Lose (High damages) 10% 2,00,000
Remaining five cases
Win 50%
Lose (Low damages) 30% 1,00,000
Lose (High damages) 20% 2,10,000
Outcome of each case is to be taken as a separate entity. Ascertain the amount of
contingent loss and the accounting treatment in respect thereof.
Comments (0)
Post a Comment