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CA IPCC : Revision Test Paper (with Answers) - ACCOUNTING Nov 2015

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PAPER 1: ACCOUNTING PART I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY FOR NOVEMBER, 2015 EXAMINATION A. Applicable for November, 2015 examination (i) Companies Act, 2013 The relevant Sections of the Companies Act, 2013 notified up to 31st March, 2015 will be applicable for Nov., 2015 Examination. (ii) Dividend Distribution Tax (a) With effect from 1st Oct, 2014 dividend and income distribution tax is leviable on gross dividend / income and not on the net dividend / income distributed to shareholders and unit holders as per Income- tax Act, 1961. (b) The rate of DDT is fifteen per cent (excluding surcharge of 12% plus secondary and higher education cess is (2+1) 3%). B. Ind ASs issued by the Ministry of Corporate Affairs are not applicable for November, 2015 examination PART II : QUESTIONS AND ANSWERS QUESTIONS Preparation of Financial Statements of Companies 1. From the following particulars furnished by Alpha Ltd., prepare the Balance Sheet as on 31st March 2015 as required by Part I, Schedule III of the Companies Act, 2013. Particulars Debit ` 50,00,000 Equity Share Capital (Face value of ` 100 each) Call in Arrears 5,000 Land & Building Plant & Machinery 27,50,000 26,25,000 Furniture 2,50,000 General Reserve 10,50,000 Loan from State Financial Corporation Inventory: Raw Materials Finished Goods Provision for Taxation The Institute of Chartered Accountants of India Credit ` 7,50,000 2,50,000 10,00,000 12,50,000 6,40,000 2 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Trade receivables Short term Advances 10,00,000 2,13,500 Profit & Loss Account Cash in Hand Cash at Bank 4,33,500 1,50,000 12,35,000 Unsecured Loan 6,05,000 Trade payables (for Goods and Expenses) 8,00,000 Loans & advances from related parties 2,00,000 The following additional information is also provided: (i) 10,000 Equity shares were issued for consideration other than cash. (ii) Trade receivables of ` 2,60,000 are due for more than 6 months. (iii) The cost of the Assets were: Building ` 30,00,000, Plant & Machinery ` 35,00,000 and Furniture ` 3,12,500 (iv) The balance of ` 7,50,000 in the Loan Account with State Finance Corporation is inclusive of ` 37,500 for Interest Accrued but not Due. The loan is secured by hypothecation of Plant & Machinery. (v) Balance at Bank includes ` 10,000 with Omega Bank Ltd., which is not a Scheduled Bank. (vi) The following appropriations have been proposed by the Board of directors out of profits for the year: (a) Transfer ` 20,000 to general reserve (b) Declared dividend of 5% on the paid up capital. Cash Flow Statements 2. J Ltd. presents you the following information for the year ended 31 st March, 2015: (` in lacs) (i) Net profit before tax provision 36,000 (ii) Dividend paid 10,202 (iii) Income-tax paid (iv) Book value of assets sold Loss on sale of asset (v) Depreciation debited to P & L account (vi) Capital grant received - amortized to P & L A/c The Institute of Chartered Accountants of India 5,100 222 48 24,000 10 PAPER 1 : ACCOUNTING 3 (vii) Book value of investment sold Profit on sale of investment 33,318 120 (viii) (ix) Interest income from investment credited to P & L A/c Interest expenditure debited to P & L A/c 3,000 12,000 (x) Interest actually paid (Financing activity) 13,042 (xi) Increase in working capital [Excluding cash and bank balance] 67,290 (xii) Purchase of fixed assets 22,092 (xiii) (xiv) Expenditure on construction work Grant received for capital projects 41,688 18 (xv) Long term borrowings from banks 55,866 (xvi) Provision for Income-tax debited to P & L A/c Cash and bank balance on 1.4.2014 6,000 6,000 Cash and bank balance on 31.3.2015 8,000 You are required to prepare a cash flow statement as per AS-3 (Revised). Profit or Loss Pre and Post Incorporation 3. The partnership of Surya Agencies decided to convert the partnership into Private Limited Company named Sohna Company Pvt. Ltd. with effect from 1st January, 2014. The consideration was agreed at ` 2,34,00,000 based on firm s Balance Sheet as on 31st December, 2013. However, due to some procedural difficulties, the company could be incorporated only on 1st April, 2014. Meanwhile, the business was continued on behalf of the company and the consideration was settled on that day with interest at 12% p.a. The same books of accounts were continued by the company, which closed its accounts for the first time on 31st March, 2015 and prepared the following summarized Profit and Loss account: ` To To Cost of goods sold Salaries To Depreciation To Advertisement 14,04,000 To Discount 23,40,000 To Managing Director s remuneration 1,80,000 To Miscellaneous office expenses 2,40,000 To Office cum showroom rent The Institute of Chartered Accountants of India 3,27,60,000 By Sales 23,40,000 3,60,000 14,40,000 ` 4,68,00,000 4 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 To Interest 19,02,000 To Profit 38,34,000 4,68,00,000 4,68,00,000 The company s only borrowing was a loan of ` 1,00,00,000 at 12% p.a. to pay the purchase consideration due to the firm and for working capital requirements. The company was able to double the monthly average sales of the firm from 1st April, 2014, but the salaries trebled from the date. It had to occupy additional space from 1st July, 2014 for which rent was ` 60,000 per month. Prepare a statement showing apportionment of costs and revenue between preincorporation and post-incorporation periods. Accounting for Bonus Issue 4. Following items appear in the Trial Balance of Saral Ltd. as on 31st March, 2015: Particulars Amount 4,500 Equity Shares of `100 each 4,50,000 Capital Reserve (including `40,000 being profit on sale of Plant) 1,00,000 Securities Premium Capital Redemption Reserve General Reserve Profit and Loss Account (Cr. Balance) 40,000 30,000 1,05,000 45,000 The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free reserves. Pass necessary Journal Entries in the books Saral Ltd. Internal Reconstruction of a Company 5. The following is the summarized Balance Sheet of Rocky Ltd. as at March 31, 2015: ` in lacs Liabilities Fully paid equity shares of ` 10 each 500 Capital Reserve 6 12% Debentures 400 Debenture Interest Outstanding Trade payables 48 165 Directors Remuneration Outstanding 10 Other Outstanding Expenses 11 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Provisions 5 33 1,173 Assets Goodwill Land and Building 15 184 Plant and Machinery 286 Furniture and Fixtures Inventory Trade receivables Cash at Bank Discount on Issue of Debentures Profits and Loss Account 41 142 80 27 8 390 1,173 The following scheme of internal reconstruction was framed, approved by the Tribunal, all the concerned parties and implemented: (i) All the equity shares be converted into the same number of fully-paid equity shares of ` 2.50 each. (ii) Directors agree to forego their outstanding remuneration. (iii) The debentureholders also agree to forego outstanding interest in return of their 12% debentures being converted into 13% debentures. (iv) The existing shareholders agree to subscribe for cash, fully paid equity shares of ` 2.50 each for ` 125 lacs. (v) Trade payables are given the option of either to accept fully-paid equity shares of ` 2.50 each for the amount due to them or to accept 80% of the amount due in cash. Trade payables for ` 65 lacs accept equity shares whereas those for ` 100 lacs accept ` 80 lacs in cash in full settlement. (vi) The Assets are revalued as under: ` in lacs Land and building 230 Plant and Machinery 220 Inventory 120 Trade receivables The Institute of Chartered Accountants of India 76 6 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Pass Journal Entries for all the above mentioned transactions and draft the company s Balance Sheet immediately after the reconstruction. Amalgamation of Companies 6. The summarized Balance Sheet of M/s. A Ltd. and M/s B Ltd. as on 31.03.2015 were is as under: Liabilities A Ltd. B Ltd. ` ` Assets Share Capital: Freehold Property 40,000 Equity Share of ` 10 each, Fully paid 30,000 Equity Shares of ` 10 each, Fully paid Plant & Machinery - Motor Vehicle Trade 4,00,000 Receivables - 3,00,000 Inventory General Reserve Profit & Loss Account 2,40,000 50,000 Trade Payables 2,10,000 1,30,000 6% Debentures (`100) - Cash at Bank 50,000 A Ltd. B Ltd. ` ` 3,00,000 2,40,000 60,000 30,000 40,000 20,000 2,00,000 80,000 2,30,000 1,80,000 80,000 40,000 - 1,20,000 9,00,000 6,00,000 9,00,000 6,00,000 M/s. A Ltd. and M/s. B Ltd. carry on business of similar nature and they agreed to amalgamate. A new Company, M/s. AB Ltd. is formed to take over the Assets and Liabilities of M/s. A Ltd. and M/s. B Ltd. on the following basis: Assets and Liabilities are to be taken at Book Value, with the following exceptions: (a) Goodwill of M/s. A Ltd. and M/s. B Ltd. is to be valued at ` 1,40,000 and ` 40,000 respectively. (b) Plant & Machinery of M/s. A Ltd. are to be valued at ` 1,00,000. (c) The Debentures of M/s. B Ltd. are to be discharged at premium of 5% by the issue of 10% Debentures of M/s. AB Ltd. at par (` 100 each). You are required to: (i) Compute the basis on which shares in M/s. AB Ltd. will be issued to Shareholders of the existing Companies assuming nominal value of each share of M/s. AB Ltd. is ` 10. (ii) Draw up a Balance Sheet of M/s. AB Ltd. as on 1st April, 2015, when Amalgamation is completed. The Institute of Chartered Accountants of India 7 PAPER 1 : ACCOUNTING (iii) Pass Journal entries in the Books of M/s. AB Ltd. for acquisition of M/s. A Ltd. and M/s. B Ltd. Average Due Date 7. Harish has the following bills due on different dates. It was agreed to settle the total amount due by a single cheque payment. Find the date of the cheque. (i) ` 5,000 due on 5.3.2015 (ii) ` 7,500 due on 7.4.2015 (iii) ` 6,000 due on 17.7.2015 (iv) ` 8,000 due on 14.9.2015 Account Current 8. From the following particulars prepare a account current, as sent by Mr. Ram to Mr. Laxman as on 31st October 2014 by means of product method charging interest @ 5% p.a. 2014 Particulars 1st July 15th August Balance due from Siva Sold goods to Siva 20th August Goods returned by Siva 200 22nd Sep Siva paid by cheque 800 15th Oct Received cash from Siva 500 ` 750 1,250 Self Balancing Ledgers 9. From the following prepare General Ledger Adjustment account in Sales Ledger: ` Balance as on 1.4.2015 Debit balances in Debtors ledger 2,46,200 Credit balances in Debtors ledger 3,400 Transactions during the month of April, 2015 Credit sales 9,74,900 Sales return Cash received from debtors 21,700 8,62,100 Discount allowed to debtors 39,200 Bills receivable received from debtors 51,200 Bills receivable dishonoured The Institute of Chartered Accountants of India 3,500 8 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Bills payable given to suppliers 27,000 Credit balance in Debtors ledger on 30.4.2015 5,200 Financial Statements of Not-For-Profit Organizations 10. Following is the Receipts and Payments Account of Mayur Club (not registered under Companies Act, 2013) for the year ended 31st March, 2015: Receipts ` Payments Opening balance (1.4.2014) Cash on hand Cash at bank Payments: 39,100 Sports materials 50,000 Salaries Receipts: Subscriptions For the year 2013-14 For the year 2014-15 For the year 2015-16 Interest on bank Fixed deposits @10% ` 3,04,500 3,15,000 Equipment purchased on 1.10.2014 Bank fixed deposits on 31.3.2015 18,000 Rent 9,63,000 Ground maintenance 60,000 1,50,000 1,48,500 22,120 4,500 Insurance Stationery 38,400 3,450 45,000 Sundry expenses 5,880 Closing balance as on 31.3.2015 Cash on hand Cash at bank 31,750 40,000 11,19,600 11,19,600 Following additional information is provided to you: (i) The club has 220 members. The annual subscription is ` 4,500 per member. (ii) Depreciation to be provided on furniture at 10% p.a. and on sports equipment at 15% p.a. (iii) On 31st March, 2015, stock of sports material in hand (after members use during the year) is valued at ` 78,000 and stock of stationery at ` 3,150. Rent for 1 month is outstanding. Unexpired insurance amounts to ` 9,600. (iv) On 31st March, 2014 the club had the following assets: Furniture ` 2,70,000 Sports equipment ` 1,80,000 Bank fixed deposit ` 4,50,000 Stock of stationery ` 1,500 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 9 Stock of sports material ` 73,500 Unexpired insurance ` 8,400 Subscription in arrear ` 22,500 Note: There was no liability on 31.3.2014. You are required to prepare: (i) Income and Expenditure Account; and (ii) Balance Sheet as at 31st March, 2015. Accounts from Incomplete Records 11. Following are the incomplete information of Moonlight Traders: The following balances are available as on 31.03.2013 and 31.03.2014. Balances 31.03.2013 31.03.2014 Land and Building Plant and Machinery 5,00,000 2,20,000 5,00,000 3,30,000 Office equipment Debtors (before charging for Bad debts) 1,05,000 ? 85,000 2,25,000 95,000 20,000 ? 15,000 ? 1,60,000 65,000 100,000 25,000 ? Creditors for purchases Creditors for office expenses Stock Long term loan from SBI @ 12%. Bank Other Information In ` Collection from debtors 9,25,000 Payment to creditors for purchases Payment of office expenses (excluding interest on loan) 5,25,000 42,000 Salary paid Selling expenses Cash sales 32,000 15,000 2,50,000 Credit sales (80% of total sales) Credit purchases Cash purchases (40% of total purchases) GP Margin at cost plus 25% The Institute of Chartered Accountants of India 5,40,000 10 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Discount Allowed 5,500 Discount Received 4,500 Bad debts (2% of closing debtors) Depreciation to be provided as follows: Land and Building 5% Plant and Machinery 10% Office Equipment 15% Other adjustments: (i) On 01.10.13 they sold machine having Book Value ` 40,000 (as on 31.03.2013) at a loss of ` 15,000. New machine was purchased on 01.01.2014. (ii) Office equipment was sold at its book value on 01.04.2013. (iii) Loan was partly repaid on 31.03.14 together with interest for the year. Prepare Trading, P & L A/c and Balance Sheet as on 31.03.2014. Hire -Purchase 12. A firm acquired two tractors under hire purchase agreements, details of which were as follows: Date of Purchase Cash price Tractor A 1st April, 2013 (`) Tractor B 1st Oct., 2013 (`) 14,000 19,000 Both agreements provided for payment to be made in twenty-four monthly instalments (of ` 600 each for Tractor A and ` 800 each for Tractor B), commencing on the last day of the month following purchase, all instalments being paid on due dates. On 30th June, 2014, Tractor B was completely destroyed by fire. In full settlement, on 10th July, 2014 an insurance company paid ` 15,000 under a comprehensive policy. Any balance on the hire purchase company s account in respect of these transactions was to be written off. The firm prepared accounts annually to 31st December and provided depreciation on tractors on a straight-line basis at a rate of 20 per cent per annum rounded off to nearest ten rupees, apportioned as from the date of purchase and up to the date of disposal. You are required to record these transactions in the following accounts, carrying down the balances on 31st December, 2013 and 31st December, 2014: (a) Tractors on hire purchase. (b) Provision for depreciation of tractors. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 11 (c) Disposal of tractors. Investment Accounts 13. Smart Investments made the following investments in the year 2013-14: 12% State Government Bonds having face value ` 100 Date Particulars 01.04.2013 Opening Balance (1200 bonds) book value of ` 126,000 02.05.2013 Purchased 2,000 bonds @ ` 100 cum interest 30.09.2013 Sold 1,500 bonds at ` 105 ex interest Interest on the bonds is received on 30th June and 31st Dec. each year. Equity Shares of X Ltd. 15.04.2013 Purchased 5,000 equity shares @ ` 200 on cum right basis Brokerage of 1% was paid in addition (Face Value of shares ` 10) 03.06.2013 The company announced a bonus issue of 2 shares for every 5 shares held. 16.08.2013 The company made a rights issue of 1 share for every 7 shares held at ` 250 per share. The entire money was payable by 31.08.2013. 22.8.2013 Rights to the extent of 20% was sold @ ` 60. The remaining rights were subscribed. 02.09.2013 Dividend @ 15% for the year ended 31.03.2013 was received on 16.09.2013 15.12.2013 Sold 3,000 shares @ ` 300. Brokerage of 1% was incurred extra. 15.01.2014 31.03.2014 Received interim dividend @ 10% for the year 2013-14 The shares were quoted in the stock exchange @ ` 220 Prepare Investment Accounts in the books of Smart Investments. Assume that the average cost method is followed. Insurance Claim 14. On 2.6.2014 the stock of Mr. Black was destroyed by fire. However, following particulars were furnished from the records saved: The Institute of Chartered Accountants of India 12 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 ` Stock at cost on 1.4.2013 1,35,000 Stock at 90% of cost on 31.3.2014 Purchases for the year ended 31.3.2014 1,62,000 6,45,000 Sales for the year ended 31.3.2007 9,00,000 Purchases from 1.4.2014 to 2.6.2014 2,25,000 Sales from 1.4.2014 to 2.6.2014 4,80,000 Sales upto 2.6.2014 includes ` 75,000 being the goods not dispatched to the customers. The sales invoice price is ` 75,000. Purchases upto 2.6.2014 includes a machinery acquired for ` 15,000. Purchases upto 2.6.2014 does not include goods worth ` 30,000 received from suppliers, as invoice not received upto the date of fire. These goods have remained in the godown at the time of fire. The insurance policy is for ` 1,20,000 and it is subject to average clause. Ascertain the amount of claim for loss of stock. Partnership - Admission of a Partner 15. Anuj, Ayush and Piyush are in partnership sharing profits and losses in the ratio 2 : 2 : 1. Their Balance Sheet as on 31.3 .2014 is as follows: Liabilities ` Assets ` Capital accounts: Anuj 3,75,000 Ayush Piyush 2,80,000 2,25,000 Fixed assets: Plant General Reserve Creditors ` 7,87,000 Current assets: 8,80,000 Stock 1,03,000 1,88,000 Debtors 2,16,000 Bank FD 1,56,000 2,25,000 Bank balance 12,84,000 13,000 12,84,000 Anuj decided to retire with effect from 1.4.2014. The remaining partners agreed to share profits and losses equally in future. The following adjustments were agreed to be made upon retirement of Anuj. (i) Goodwill was to be valued at 1 year purchase of the average profits of the preceding 3 years on the date of retirement. The average profits of the past 3 years were as follows: The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Year ended 13 ` 31.3.2014 3,30,000 31.3.2013 31.3.2012 2,32,000 2,20,900 (as per draft accounts) The partners decided not to raise goodwill account in the books. (ii) The assets were revalued as follows: Plant to be depreciated by 10% Creditors amounting to ` 10,000 were omitted to be recorded; ` 6,000 is to be written off from stock; Provision for doubtful debts to be created @ 5% of the debtors; Interest accrued on FD amounting to ` 9,000 was omitted to be recorded. The above adjustments were to be made from the profit for the year ended 31.3.2014 before calculation of goodwill. (iii) Anuj agreed to take over the bank FD including interest accrued thereon in part payment of his dues and the balance would remain as a loan, carrying interest of 8% p.a. (iv) Ayush and Piyush agreed to bring in sufficient cash to make their capital proportionate and maintain a bank balance of ` 1,50,000. You are required to prepare (I) Capital accounts of partners as on 1.4.2014 giving effect to the above adjustments. (2) Balance Sheet as on 1.4.2014 after Anuj s retirement. Accounting in Computerized Environment 16. What are the advantages of customized accounting packages? Applicability of Accounting Standards 17 M/s Omega & Co. (a partnership firm), had a turnover of ` 1.25 crores (excluding other income) and borrowings of ` 0.95 crores in the previous year. It wants to avail the exemptions available in application of Accounting Standards to non-corporate entities for the year ended 31.3.2013. Advise the management of M/s Omega & Co in respect of the exemptions of provisions of ASs, as per the directive issued by the ICAI. AS 1 Disclosure of Accounting Policies 18. (a) Jagannath Ltd. had made a rights issue of shares in 2014. In the offer document to its members, it had projected a surplus of ` 40 crores during the accounting year to end on 31st March, 2015. The draft results for the year, prepared on the hitherto The Institute of Chartered Accountants of India 14 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 followed accounting policies and presented for perusal of the board of directors showed a deficit of ` 10 crores. The board in consultation with the managing director, decided on the following: (i) Value year-end inventory at works cost (` 50 crores) instead of the hitherto method of valuation of inventory at prime cost (` 30 crores). (ii) Provide depreciation for the year on straight line basis on account of substantial additions in gross block during the year, instead of on the reducing balance method, which was hitherto adopted. As a consequence, the charge for depreciation at ` 27 crores is lower than the amount of ` 45 crores which would have been provided had the old method been followed, by ` 18 cores. (iii) Provide for permanent fall in the value of investments - which fall had taken place over the past five years - the provision being ` 10 crores. As chief accountant of the company, you are asked by the managing director to draft the notes on accounts for inclusion in the annual report for 2014-2015. AS 2 Valuation of Inventories (b) CC Ltd., a Pharmaceutical Company, while valuing its finished stock at the year end wants to include interest on Bank Overdraft as an element of cost, for the reason that overdraft has been taken specifically for the purpose of financing current assets like inventory and for meeting day to day working expenses . State your comments on this treatment. AS 6 Depreciation Accounting 19. (a) ABC Ltd. Purchased machine on 1-4-2011 for ` 2,00,000. The company charged depreciation at 10% on reducing balance method upto 2013-14. From 2014-15, the company decided to change depreciation method on straight line basis with estimated working life of 10 years and scrap value of ` 50,000. Compute the amount of depreciation to the charged to Profit and Loss Account for the year 2014-15. AS 7 Construction Contracts (b) A contractor entered into a contract for building roads for ` 2 crores. After completing 60% of the contract he came to know that the cost of completing the contract would be ` 2.40 crores. The accountant transferred ` 0.24 crores i.e., 60% of total loss of ` 0.40 crores to Profit and Loss account in the current year. You are required to give your opinion in line with AS 7. AS-10 Fixed assets 20. (a) Fire Ltd. purchased equipment for its power plant from Urja Ltd. during the year 2013-14 at a cost of ` 100 lacs. Fire Ltd. they paid only 90% and balance 10% was to be paid after one year on satisfactory performance of the equipment. During the The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 15 Financial year 2014-15, Urja Ltd. waived off the balance 10% amount which was credited to Profit and Loss account by Fire Ltd. as discount received. Is this accounting treatment correct? State in line with Accounting Standards. AS 13 Accounting for Investment (b) M/s. Naren Garments Company Limited invested in the shares of another company on 1st November, 2014 at a cost of ` 3,00,000. It also earlier purchased Gold of ` 3,50,000 and Silver of `1,50,000 on 1st April, 2014. Market value as on 31st March, 2015 of the above investments is as follows: ` Shares 2,50,000 Gold 5,00,000 Silver 2,80,000 How the above investments will be shown in the books of accounts of M/s Naren Garments Company Limited for the year ending 31st March, 2015 as per the provisions of AS-13 Accounting for Investments ? SUGGESTED ANSWERS / HINTS 1. Alpha Ltd. Balance Sheet as on 31st March, 2015 Particulars Notes ` Equity and Liabilities Shareholders' funds 1 a Share capital 1 49,95,000 b Reserves and Surplus 2 11,82,907 Non-current liabilities Long-term borrowings 3 13,17,500 2 3 a Current liabilities Trade Payables b Other current liabilities 4 37,500 c Short-term provisions 5 9,40,593 d Short-term borrowings 8,00,000 2,00,000 Total The Institute of Chartered Accountants of India 94,73,500 16 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Assets 1 Non-current assets Fixed assets 2 a b Tangible assets Current assets 6 56,25,000 Inventories Trade receivables 7 8 12,50,000 10,00,000 9 13,85,000 2,13,500 c Cash and cash equivalents d Short-term loans and advances Total 94,73,500 Notes to accounts ` 1 Share Capital Equity share capital Issued & subscribed & called up 50,000 Equity Shares of ` 100 each (of the above 10,000 shares have been issued for consideration other than cash) Less: Calls in arrears 50,00,000 (5,000) Total 49,95,000 49,95,000 2 Reserves and Surplus General Reserve Add: current year transfer 10,50,000 20,000 10,70,000 Profit & Loss balance Profit for the year 4,33,500 Less: Appropriations: Transfer to General reserve (20,000) Proposed Dividend (Refer W N) (2,49,750) DDT on Proposed dividend (Refer W N) Total 3 Long-term borrowings Secured Term Loan The Institute of Chartered Accountants of India (50,843) 1,12,907 11,82,907 PAPER 1 : ACCOUNTING 17 State Financial Corporation Loan (7,50,000-37,500) (Secured by hypothecation of Plant and Machinery) 7,12,500 Unsecured Loan 6,05,000 Total 13,17,500 4 Other current liabilities Interest accrued but not due on loans (SFC) 37,500 5 Short-term provisions Provision for taxation 6,40,000 Proposed Dividend (Refer W N) DDT on Proposed dividend (Refer W N) 2,49,750 50,843 9,40,593 6 Tangible assets Land and Building 30,00,000 Less: Depreciation Plant & Machinery (2,50,000) 35,00,000 27,50,000 Less: Depreciation (8,75,000) 26,25,000 Furniture & Fittings 3,12,500 Less: Depreciation (62,500) Total 7 Inventories Raw Materials 2,50,000 56,25,000 2,50,000 Finished goods 10,00,000 Total 12,50,000 8 Trade receivables Outstanding for a period exceeding six months Other Amounts 2,60,000 7,40,000 Total 10,00,000 9 Cash and cash equivalents Cash at bank with Scheduled Banks 12,25,000 with others (Omega Bank Ltd.) Cash in hand 10,000 Total The Institute of Chartered Accountants of India 12,35,000 1,50,000 13,85,000 18 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Working Note: Calculation of grossing-up of dividend Particulars ` Dividend distributed by Alpha Ltd. (5% of 49,95,000) Add: Increase for the 15 100 - 15 2,49,750 purpose of grossing 2,49,750 up of dividend Gross dividend 2,93,824 Dividend distribution tax @ 17.304% 2. 44,074 50,843 Cash Flow Statement as per AS 3 Cash flows from operating activities: ` in lacs Net profit before tax provision Add: Non cash expenditures: 36,000 Depreciation Loss on sale of assets 24,000 48 Interest expenditure (non operating activity) 12,000 36,048 72,048 Less: Non cash income Amortisation of capital grant received Profit on sale of investments (non operating income) Interest income from investments (non operating income) (10) (120) (3,000) Operating profit 68,918 Less: Increase in working capital Cash from operations (67,290) 1,628 Less: Income tax paid Net cash generated from operating activities Cash flows from investing activities: Sale of assets (222 48) (5,100) (3,472) 174 Sale of investments (33,318+120) 33,438 Interest income from investments 3,000 Purchase of fixed assets The Institute of Chartered Accountants of India 3,130 (22,092) PAPER 1 : ACCOUNTING 19 Expenditure on construction work (41,688) Net cash used in investing activities (27,168) Cash flows from financing activities: Grants for capital projects Long term borrowings 18 55,866 Interest paid Dividend paid (13,042) (10,202) Net cash from financing activities Net increase in cash 32,640 2,000 Add: Cash and bank balance as on 1.4.2014 Cash and bank balance as on 31.3.2015 3 6,000 8,000 Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.15 (15 Months) Total (`) Gross profit Less: Salaries 1,40,40,000 23,40,000 Ratio Pre (`) Post (`) 1:8 15,60,000 1,24,80,000 1:12 1,80,000 21,60,000 Depreciation Advertisement 3,60,000 14,04,000 1:4 1:8 72,000 1,56,000 2,88,000 12,48,000 Discount Managing director s remuneration 23,40,000 1,80,000 1:8 Post 2,60,000 - 20,80,000 1,80,000 Office cum showroom rent 14,40,000 Actual 1,80,000 12,60,000 Miscellaneous office expenses Interest 2,40,000 1:4 19,02,000 Actual 48,000 7,02,000 1,92,000 12,00,000 38,000 -- -- 38,72,000 Goodwill (bal. fig.) Net profit (B.f.) Note: Since the profits prior to incorporation are in the negative, they would be treated as goodwill. Working Notes: (1) Calculation of Time Ratio Pre-Incorporation Period Post-Incorporation Period 1st January, 2014 to 31st March, 2014 1st April, 2014 to 31st March, 2015 The Institute of Chartered Accountants of India 20 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 (2) (3) (4) (5) (3 Months) (12 Months) 3: 12 1: 4 Calculation of Sales Ratio Pre-Incorporation Period Post-Incorporation Period 3 Months 12 Months 3x1 12 x 2 3: 1: 24 8 Calculation of Staff Salary Ratio Pre-Incorporation Period Post-Incorporation Period 3 Months 3x1 12 Months 12 x 3 3: 1: 36 12 Calculation of Interest Pre-Incorporation Period Post-Incorporation Period 2,34,00,000 x 3/12 x 12/100 1,00,00,000 x 12/100 = ` 7,02,000 = ` 12,00,000 Calculation of Rent Rent on additional space 1 July 2014 to 31st March, = 2015 9 Months Total additional rent 60,000 x 9 = ` 5,40,000 = Remaining rent on earlier = space 14,40,000 5,40,000 = ` 9,00,000 Rent per month = Pre-Incorporation Period rent = 9,00,000 15 60,000 x 3 60,000 x 12 Post-Incorporation Period rent = Additional rent = ` 60,000 per month = 1,80,000 = 7,20,000 = 5,40,000 12,60,000 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING (6) 21 Calculation of Gross Profit Trading Account ` To Cost of goods sold 3,27,60,000 By Sales ` 4,68,00,000 To Gross profit (Bal. fig.) 1,40,40,000 4,68,00,000 4,68,00,000 Note: 4. 1. Pre incorporation period is 3 months upto 31st March 2014 and post incorporation period is of 12 months 2. As advertisement cost and discounts are directly related to sales, it is proper to assume that they would be incurred in the same ratio of time as Sales. Hence, 1:8 3 Since Managing Director is a position which is appointed in a company, it is proper to consider that his pay is incurred during the post incorporation period. 4. Interest on money borrowed to pay the purchase consideration is a post incorporation cost whereas the interest on purchase consideration for 3 months till payment will be pre incorporation cost. Journal Entries in the books of Saral Ltd. Capital Redemption Reserve A/c Dr. 30,000 Securities Premium A/c Capital Reserve (Realized in cash ) Dr. 40,000 Dr 40,000 Dr. 40,000 General Reserve A/c To Bonus to Shareholders 1,50,000 (Being issue of bonus shares by utilization of various Reserves, as per resolution dated .) Bonus to Shareholders A/c Dr. 1,50,000 To Equity Share Capital 1,50,000 (Being capitalization of Profit) Capital reserve amounting ` 40,000 realised in cash can only be used for bonus issue. The Institute of Chartered Accountants of India 22 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 5. Journal Entries ` in lacs Dr. Equity Share Capital (` 10 each) A/c To Equity Share Capital (` 2.50 each) A/c Dr. Cr. 500 125 To Capital Reduction A/c 375 (Conversion of all the equity shares into the same number of fully paid equity shares of ` 2.50 each as per scheme of Reconstruction) Director s Remuneration Outstanding A/c Dr. 10 To Capital Reduction A/c (Outstanding remuneration foregone by the directors as per scheme of Reconstruction) 10 12% Debentures A/c Dr. 400 Debenture Interest Outstanding A/c To 13% Debentures A/c Dr. 48 400 To Capital Reduction A/c (Conversion of 12% debentures into 13% debentures, Debenture holders forgoing outstanding debenture interest) Bank A/c 48 Dr. 125 To Equity Share Application A/c (Application money received for fully paid equity shares of ` 2.5 each from existing shareholders) Equity Share Application A/c To Equity Share Capital (` 2.50 each) A/c 125 Dr. 125 125 (Application money transferred to share capital) Trade payables A/c Dr. 165 To Equity Share Capital (` 2.50 each) A/c 65 To Bank A/c To Capital Reduction A/c 80 20 (Trade payables for ` 65 lakhs accepting shares for full amount and those for ` 100 lakhs accepting cash equal to 80% of claim in full settlement) The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Land and Building A/c 23 Dr. 46 To Capital Reduction A/c 46 (Appreciation made in the value of land and building as per scheme of reconstruction) Capital Reduction A/c Dr. 505 To Goodwill A/c 15 To Plant and Machinery A/c 66 To Inventory A/c To Trade receivables A/c 22 4 To Discount on issue of Debentures A/c To Profit and Loss A/c 8 390 (Writing off losses and reduction in the values of assets as per scheme of reconstruction W.N. 1) Capital Reserve A/c Dr. 6 To Capital Reduction A/c 6 (Being the loss on reconstruction (balance in the Capital Reduction A/c) transferred to Capital Reserve) Note: In a scheme of Capital Reduction, Goodwill, Losses etc should be written off against the Capital Reduction Account whether or not it is mentioned in the question. Balance Sheet of Rocky Ltd. (and Reduced) as on 31st March, 2015 Particulars Note No. Amount ` in lacs I. Equity and Liabilities (1) Shareholder's Funds (a) Share Capital 1 315 (2) Non-Current Liabilities (a) Long-term borrowings - 13% Debentures 400 (3) Current Liabilities (a) Other current liabilities 11 (b) Short-term provisions 33 Total The Institute of Chartered Accountants of India 759 24 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 II. Assets (1) Non-current assets (a) Fixed assets (i) Tangible assets 2 491 (ii) Intangible assets 3 0 (2) Current assets (a) Current investments (b) Inventories 120 (c) Trade receivables 76 (d) Cash and cash equivalents(W.N.2) 72 Total 759 Notes to Accounts ` in lacs 1 Share Capital Equity Share Capital (`2.50 each) 125 Add: Fresh issue Add: Equity shares issued to trade payables 125 65 1,26,000 Fully paid equity shares of ` 2.50 each 315 (26,000 shares have been issued for consideration other than cash) 2 Tangible assets (a) Land and Building Add: Amount of appreciation under scheme of reconstruction (b) Plant and Machinery 184 46 230 286 Less: Amount written off under scheme of reconstruction dated. (66) 220 (c) Furniture and Fixtures 41 491 3 Intangible assets Goodwill 15 Less: Amount written off under scheme of reconstruction 15 The Institute of Chartered Accountants of India - PAPER 1 : ACCOUNTING 25 Working Notes: 1. Capital Reduction Account (` in lacs) ` To Goodwill To Plant Machinery To Inventory To To To ` 15 By Equity Share Capital A/c 66 By Director s Outstanding A/c Remuneration 10 22 By Debenture Interest Outstanding A/c 48 Trade receivables Discount on issue of 4 By By Trade payables Capital Reserve (Balancing Figure) 20 6 Debentures Profit and Loss A/c 8 By 390 Land and Building 46 and 375 505 2. 505 Cash at bank as on 31st March, 2015 (after reconstruction) ` in lacs Cash at bank (before reconstruction) 27 Add: Proceeds from issue of equity shares 125 152 Less: Payment made to trade payables (80% of ` 100 Lakhs) (80) 72 6. (i) Calculation of Purchase consideration (or basis for issue of shares of AB Ltd.) A Ltd. BLtd. ` ` Goodwill 1,40,000 40,000 Freehold property 3,00,000 2,40,000 Plant and Machinery 1,00,000 40,000 30,000 20,000 Inventory 2,30,000 1,80,000 Trade receivables 2,00,000 80,000 80,000 40,000 10,80,000 6,40,000 - (1,26,000) Purchase Consideration: Motor vehicles Cash at Bank Less: Liabilities: 6% Debentures (1,20,000 x 105%) The Institute of Chartered Accountants of India 26 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Trade payables (2,10,000) (1,30,000) 8,70,000 87,000 3,84,000 38,400 Net Assets taken over To be satisfied by issue of shares of AB Ltd. @ `10 each (ii) Balance Sheet AB Ltd. as at 1st April, 2015 Particulars Note No Amount ` EQUITY AND LIABILITIES Shareholders' funds 1 (a) Share capital Non-current liabilities 1 12,54,000 (a) Long-term borrowings Current liabilities 2 1,26,000 (a) Trade payables (2,10,000+1,30,000) 2 3 3,40,000 Total 17,20,000 ASSETS 1 Non-current assets Fixed assets (a) i ii 2 Tangible assets Intangible assets 3 4 7,30,000 1,80,000 (a) Current assets Inventories (2,30,000+1,80,000) 4,10,000 (b) (c) Trade receivables (2,00,000+80,000) Cash and cash equivalents (80,000+40,000) 2,80,000 1,20,000 Total 17,20,000 Notes to accounts ` 1. Share Capital Equity share capital 1,25,400 shares of `10 each The Institute of Chartered Accountants of India 12,54,000 ` PAPER 1 : ACCOUNTING 27 (All the above shares are issued for consideration other than cash) 2. Long-term borrowings Secured 10% Debentures 3. Tangible assets 1,26,000 Freehold property A Ltd. 3,00,000 B Ltd. 2,40,000 5,40,000 Plant and Machinery A Ltd. 1,00,000 B Ltd. 40,000 1,40,000 Motor vehicles A Ltd. A Ltd. B Ltd. 30,000 20,000 50,000 7,30,000 4. Intangible assets Goodwill A Ltd. 1,40,000 B Ltd. 40,000 1,80,000 (iii) Journal Entries In the books of AB Ltd. Particulars Business purchase account Amount (`) Dr. Amount( `) 12,54,000 To Liquidator of A Ltd. account 8,70,000 To Liquidator of B Ltd. account 3,84,000 (Being the amount of purchase consideration payable to liquidator of A Ltd. and B Ltd. for assets taken over) Goodwill Dr. 1,40,000 Freehold property Dr. 3,00,000 Plant and Machinery Dr. 1,00,000 The Institute of Chartered Accountants of India 28 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Motor vehicles Dr. 30,000 Trade receivables Dr. 2,00,000 Inventory Dr. 2,30,000 Cash at Bank To Trade payables Dr. 80,000 2,10,000 To Business purchase account 8,70,000 (Being assets and liabilities of A Ltd. taken over) Goodwill Freehold property Dr. Dr. 40,000 2,40,000 Plant and Machinery Motor vehicles Dr. Dr. 40,000 20,000 Trade receivables Inventory Dr. Dr. 80,000 1,80,000 Cash at Bank To Trade payables Dr. 40,000 1,30,000 To 6% Debentures of B Ltd. To Business purchase account 1,26,000 3,84,000 (Being assets and liabilities of B Ltd. over) taken 6% Debentures of B Ltd. To 10% debentures Dr. 1,26,000 1,26,000 (Being issue of 10% debentures to debenture holders of B Ltd. Liquidator of the A Ltd. account Liquidator of the B Ltd. account Dr. Dr. 8,70,000 3,84,000 To Equity share capital account (Being the allotment of equity shares of ` 10 each, as per the agreement for discharge of purchase consideration) 7. 12,54,000 Calculation of number of days from the base date Due date Amount (`) No. of days from 5.3.15 Product 5.3.2015 5,000 0 0 7.4.2015 7,500 33 2,47,500 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 29 17.7.2015 6,000 134 8,04,000 14.9.2015 8,000 193 15,44,000 26,500 Average due date = Base date + 25,95,500 Sum of Product Sum of Amount 25,95,500 = 98 days (round off) 26,500 = 5.3.2015 + The date of the cheque will be 98 days from the base date i.e.11.6.2015. So on 11th June, 2015, all bills will be settled by a single cheque payment. 8. Laxman in Account Current with Ram as on 31st Oct, 2014 Dr. Cr. ` Days 750 123 92,250 20.08.14 77 01.07.14 To Bal. b/d 15.8.14 To Sales 1,250 31.10.14 To Interest 18.48 Product (` ) ` Days Product (` ) By Sales Returns 200 72 14,400 96,250 22.09.14 By Bank 800 39 31,200 15.10.14 By Cash 500 16 8,000 By Balance of Products _____ 2018.48 Interest ______ 31.10.14 9. By Bal. c/d 1,88,500 = ` 1,34,900 x 1,34,900 518.48 ______ 2018.48 1,88,500 5 1 = ` 18.48 100 365 In Sales Ledger General Ledger Adjustment Account Date 1.4.2015 Particulars To Balance b/d ` Date 3,400 1.4.2015 1.4.2015 to To Sales ledger 30.4.2015 adjustment A/c: Sales return Cash received Discount allowed Particulars By Balance b/d ` 2,46,200 1.4.2015 to By Sales ledger 30.4.2015 adjustment A/c: 21,700 Sales 8,62,100 39,200 The Institute of Chartered Accountants of India B/R dishonoured 30.4.2015 By Balance c/d 9,74,900 3,500 5,200 30 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 B/R received 30.4.2015 51,200 To Balance c/d 2,52,200 (Bal. fig.) 12,29,800 10. 12,29,800 Mayur Club (i) Income and Expenditure Account for the year ended 31.3.2015 Expenditure ` To Sports Material used 73,500 By Interest deposit on fixed 9,90,000 45,000 3,04,500 3,78,000 Less: Closing stock To Salaries To Rent ` By Subscription (W.N.2) Opening stock Add: Purchases Income 78,000 3,00,000 3,15,000 1,48,500 Add: Outstanding (W.N.6) To Ground maintenance 13,500 1,62,000 22,120 To Insurance 38,400 Less: Unexpired on 31.3.15 9,600 Add: Unexpired on 1.4.14 28,800 8,400 37,200 To Stationery used Opening stock 1,500 Add: Purchases 3,450 4,950 Less: Closing Stock To Sundry expenses 3,150 1,800 5,880 To Depreciation on Furniture 27,000 Sports equipment 31,500 To Excess of income over expenditure 58,500 1,32,500 10,35,000 The Institute of Chartered Accountants of India 10,35,000 PAPER 1 : ACCOUNTING 31 Balance Sheet as at 31st March, 2015 Liabilities ` Assets Capital fund: Opening (W.N.1) ` Equipments: Opening 1,80,000 balance balance 10,95,000 Add: Addition 60,000 Add: Excess of income expenditure 2,40,000 over 1,32,500 12,27,500 Rent outstanding (W.N.6) Less: Depreciation (W.N.5) 31,500 2,08,500 13,500 Furniture: Subscription received in advance for 2015-16 4,500 2,70,000 Less: Depreciation 27,000 2,43,000 Sports material 78,000 Stock of stationery 3,150 Fixed deposit in bank (4,50,000 + 1,50,000) Subscription arrears: 6,00,000 in For 2013-14 (W.N.3) 4,500 For 2014-15 (W.N.4) Prepaid insurance (unexpired) 27,000 31,500 9,600 Cash on hand 31,750 Cash at bank 40,000 12,45,500 12,45,500 Working Notes: 1. Balance Sheet as at 31.3.2014 Liabilities Capital fund (Bal. fig.) ` Assets 10,95,000 Sports equipment Furniture Sports materials Stock of stationery Fixed deposits in bank The Institute of Chartered Accountants of India ` 1,80,000 2,70,000 73,500 1,500 4,50,000 32 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Subscription in arrears Prepaid insurance (unexpired) Cash on hand Cash at bank 10,95,000 22,500 8,400 39,100 50,000 10,95,000 ` 2. Income on account of subscription 3. 220 members @ ` 4,500 each Subscription still in arrears of 2013-2014 9,90,000 Opening balance of subscription in arrears (as on 1.4.2014) Less: Arrears subscription of 2013-14 received during the year 2014-15 Subscription of 2013-14 still in arrears as on 31.3.2015 4. 5. 6. 4,500 Subscription in arrear on 31.3.2015 Subscription for the year 2014-15 9,90,000 Less: Subscription received for the year Subscription in arrears for 2014-15 9,63,000 27,000 Depreciation on sports equipment On ` 1,80,000 @ 15% for full year 27,000 On ` 60,000 @ 15% for 6 months Total 4,500 31,500 Outstanding rent of 2014-2015 Outstanding rent = 11. 22,500 18,000 ` 1,48,500 1 month 11 months 13,500 In the Books of Moonlight Traders Trading Account for the year ended 31.03.2014 Particulars ` Particulars ` To Opening Stock A/c (Bal. fig.) 1,65,000 By Sales (W.N.1) 12,50,000 To Purchases (W.N.2) 9,00,000 By Closing Stock 65,000 To Gross profit (12,50,000x25/125) 2,50,000 13,15,000 The Institute of Chartered Accountants of India 13,15,000 PAPER 1 : ACCOUNTING 33 Profit and Loss Account for the year ended 31.03.2014 Particulars ` To Discount To Salaries Expenses 32,000 To Office expenses (W.N.3) 37,000 To Selling expenses 15,000 To Interest on loan (12% on `1,60,000) To Bad debts (2% of `2,25,000) Loss on sale of Machinery To To To Particulars 5,500 By Gross profit By Discount ` 2,50,000 4,500 84,000 19,200 4,500 15,000 Depreciation: Land & Building 25,000 Plant & Machinery(W.N 4b) Office Equipment (W.N. 5) 23,750 12,750 Net profit after tax 61,500 64,800 2,54,500 2,54,500 Balance sheet as on 31.3.2014 Liabilities Capital (W.N. 6) 8,95,500 Add: Net Profit Creditors Purchases (W.N. 8) Outstanding expenses Loan from SBI ` Assets ` 64,800 for Land and Building (5,00,000-25,000) 9,60,300 Plant and Machinery (W.N.4a) (3,30,000-21,750) 1,05,500 Office Equipment (85,000-12,750) ` 4,75,000 3,08,250 72,250 15,000 Debtors less Bad debts 1,00,000 (W.N. 7) Stock 2,20,500 Bank Balance (W.N. 9) 39,800 11,80,800 The Institute of Chartered Accountants of India 65,000 11,80,800 34 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Working Notes: 1. Calculation of Total Sales ` Cash Sales 2,50,000 Credit Sales (80% of total sales) Cash Sales (20% of total sales) 2. Thus total Sales (250000 x 100/20) 12,50,000 Credit Sales (1250000 x 80/100) 10,00,000 Calculation of Total Purchases ` Credit Purchases 5,40,000 Cash Purchases (40% of total purchases) Credit Purchases (60% of total purchases) Thus total Purchases (5,40,000 x 100/60) Cash Purchases 9,00,000 x 40/100) 3. 9,00,000 3,60,000 Office Expenses Account ` To Bank A/c To Balance c/d 4. (a) ` 42,000 By 15,000 By 57,000 Balance b/d Profit & loss A/c 20,000 37,000 57,000 Plant and Machinery Account ` ` To Opening balance 2,20,000 By Sale To Purchases 1,50,000 By Closing Balance 3,70,000 40,000 3,30,000 3,70,000 (b) Depreciation calculations on Plant & Machinery ` Depreciation on 1,80,000 x 10% (for full year) 1,50,000 x 10% x 3/12 (for 3 months) 40,000 x 10% x 6/12 (for 6 months) 18,000 3,750 2,000 23,750 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING (c) Sale of Machinery Account Amount (`) To Plant & Machinery Amount (`) 40,000 By Depreciation 2,000 By Profit and Loss a/c 15,000 By Bank 23,000 40,000 40,000 5. 35 Depreciation calculations on Office Equipments ` Opening Balance 6. 1,05,000 Less: Closing Balance Sale of Office Equipments 85,000 20,000 Balance of Office Equipments after sale Depreciation @15% 85,000 12,750 Opening Balance Sheet as on 31.03.2013 ` ` Creditors 95,000 Land & Building 5,00,000 Creditor for Exp. 20,000 Plant & Machinery 2,20,000 Loan 1,60,000 Office Equipment 1,05,000 Capital (Bal. fig.) 8,95,500 Debtors Stock 1,55,500 1,65,000 Bank 11,70,500 7. 25,000 11,70,500 Sundry Debtors A/c ` To Balance b/d To Sales 1,55,500 10,00,000 ` By Bank By Discount By Bad debts By Bal. c/d 11,55,500 The Institute of Chartered Accountants of India 9,25,000 5,500 4,500 2,20,500 11,55,500 36 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 8. Sundry Creditors A/c ` ` To Bank 5,25,000 By Balance b/d To To Discount Balance c/d 4,500 1,05,500 By Purchases 95,000 5,40,000 6,35,000 9. 6,35,000 Bank Account ` To Balance b/d To Debtors ` 25,000 By Creditors 9,25,000 By Office Expenses 5,25,000 42,000 To Cash Sales 2,50,000 By Salary Expense To Sale of Machinery (W.N. 4c) 23,000 By Selling Expenses To Sale of equipment 32,000 15,000 20,000 By Purchases (cash) 3,60,000 By Purchase of Machinery 1,50,000 By Bank Loan & Interest. By Balance c/d 12,43,000 12. 79,200 39,800 12,43,000 Hire Purchase accounts in the buyer s books (a) Tractors on Hire Purchase Account 2013 ` 2013 April 1 To HP Co. Cash price Oct. 1 HP Co. Cash price Dec. 31 Tractor A 14,000 Tractor B ` By Balance c/d Tractor A 14,000 Tractor B 19,000 19,000 33,000 2014 Jan. 1 33,000 ` 2014 To Balance b/d June 30 Tractor A 14,000 Tractor B 19,000 Dec. 31 33,000 33,000 2015 Jan. 1 33,000 To Balance b/d The Institute of Chartered Accountants of India 14,000 ` By Disposal of Tractor A/c Transfer 19,000 By Balance c/d 14,000 33,000 PAPER 1 : ACCOUNTING (b) 37 Provision for Depreciation of Tractors Account 2013 ` 2013 Dec. 31 To Balance c/d ` 3,050 Dec.31 By P & L A/c: Tractor A 2,100 Tractor B 950 3,050 2014 June30 3,050 ` 2014 To Disposal Tractor Jan. 1 of account transfer Dec. 31 To Balance c/d 2,850 Jun. 30 ` By Balance b/d 3,050 By P & L A/c (Dep.) 4,900 Dec. 31 Tractor B 1,900 Tractor A 2,800 7,750 7,750 2013 Jan. (c) 3,050 ` 1 By Balance b/d 4,900 Disposal of Tractor Account 2014 ` 2014 June30 To Tractors on hire June purchase Tractor B 19,000 30 19,000 The Institute of Chartered Accountants of India ` By Provision for Depn. of Tractors A/c 2,850 July 10 By Cash : Insurance 15,000 Dec. 31 By P & L A/c : Loss 1,150 19,000 The Institute of Chartered Accountants of India Date 15.4.13 3.6.13 31.8.13 31.3.14 Particulars To Bank A/c To Bonus Issue To Bank A/c To P & L A/c To P & L A/c (Profit on Sale) 8,000 27,400 Date By Bank A/c (Interest) (3,200 x 100 x 12% x 6/12) Particulars 7,800 4,800 Nos. Income 5,000 2,000 800 4,800 Nos. - 8,437.50 31.3.14 By Bal. c/d 16,38,500 31.3.14 Amount Date 10,10,000 - 16.9.13 2,00,000 15.12.13 4,28,500 15.1.14 By Bank (Dividend) By Bank (Sale) By Bank (interim dividend) By Bal. c/d Particulars 4,800 7,800 - 1,57,500 - Amount 7,500 8,91,000 Amount 7,40,000 4,800 16,38,500 4,800 Income 39,000 3,26,437.50 5,100 1,68,937.50 4,500 10,200 19,200 Income 3,000 Nos. 3,200 1,700 1,92,000 30.9.13 By Bank A/c 1,500 31.12.13 By Bank A/c (Interest) (1,700 x 100 x 12% x 6/12) 1,26,000 30.6.13 Amount 3,200 39,000 3,26,437.50 2,000 3,600 Nos. Income Investments in Equity shares of X Ltd. for year ended 31.3.2014 To Bank A/c To P & L A/c (Interest) 2.5.13 31.3.14 In the books of Smart Investments 12% Govt. Bonds for the year ended 31st March, 2014 balance 1,200 To Opening b/d Particulars 1.4.13 Date 13. 38 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 PAPER 1: ACCOUNTING 39 Working Notes: 1. Profit on sale of bonds on 30.9.13 = Sales proceeds Average cost Sales proceeds = ` 1,57,500 2. Average cost = ` [(1,26,000+1,92,000) 1,500/3,200] = 1,49,062.50 Profit = Valuation of bonds on 31st March, 2014 Cost 3. 1,57,500 ` 1,49,062.50=` 8,437.50 = ` 3,18,000/3,200 x1,700 = 1,68,937.50 Cost of equity shares purchased on 15/4/2013 = Cost + Brokerage = (5,000 ` 200) + 1% of (5,000 ` 200) = ` 10,10,000 4. Sale proceeds of equity shares on 15/12/2013 = Sale price Brokerage = (3,000 ` 300) 1% of (3,000 ` 300) = ` 8,91,000. 5. Profit on sale of shares on 15/12/2013 = Sales proceeds Average cost Sales proceeds = ` 8,91,000 Average cost = ` [(10,10,000+2,00,000-7,500) 3,000/7,800] = ` [12,02,500 3,000/7,800] = 4,62,500 = ` 8,91,000 ` 4,62,500=` 4,28,500. Profit 6. Valuation of equity shares on 31st March, 2014 Cost =` [12,02,500 4,800/7,800] = ` 7,40,000 Market Value = 4,800 shares ` 220 =` 10,56,000 Closing stock of equity shares has been valued at ` 7,40,000 i.e. cost being lower than the market value. Note: If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the profit and loss statement as per para 13 of AS 13 Accounting for Investments 14. In the books of Mr. Black Trading Account for the year ended 31.3.2014 ` To Opening Stock 1,35,000 By Sales The Institute of Chartered Accountants of India ` 9,00,000 40 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 To Purchases 6,45,000 By Closing Stock at cost To Gross Profit 3,00,000 1,80,000 100 1,62,000 90 10,80,000 10,80,000 Memorandum Trading A/c for the period from 1.4.2014 to 02.06.2014 ` ` To Opening Stock at cost 1,80,000 By Sales 4,80,000 To Purchases 2,25,000 Less: Goods not Add: Goods received but dispatched 75,000 4,05,000 invoice not received 30,000 2,55,000 By Closing figure) stock (Balancing 1,50,000 Less: Machinery 15,000 2,40,000 To Gross Profit (Refer W.N.) 1,35,000 5,55,000 5,55,000 Calculation of Insurance Claim Actual loss of stock Claim subject to average clause = Amount of policy Value of stock on the date of fire 1,50,000 = ` 1,20,000 1,50,000 = 1,20,000 x Working Note: G.P. ratio = 3,00,000 1 100 = 33 % 9,00,000 3 1 Amount of Gross Profit = ` 4,05,000 x 33 % = ` 1,35,000 3 15. Partners Capital Accounts as on 1.4.2014 Anuj To Anuj To Revaluation Loss 37,400 Ayush Piyush 22,950 68,850 By Balance b/d 3,75,000 37,400 18,700 By General Reserves 75,200 By Ayush and Piyush 91,800 To Bank FD 2,34,000 To 8% Loan 2,70,600 To Balance c/d* Anuj 3,03,450 3,03,450 By Cash (Bal. fig.) 5,42,000 3,63,800 3,91,000 The Institute of Chartered Accountants of India Ayush Piyush 2,80,000 2,25,000 75,200 37,600 - 8,600 1,28,400 5,42,000 3,63,800 3,91,000 PAPER 1: ACCOUNTING 41 Balance Sheet as on 1.4.2014 after Anuj s retirement Liabilities Amount (`) Assets Amount (`) Anuj s Loan 2,70,600 Plant(90% of ` 7,87,000) Creditors(2,16,000+10,000) 2,26,000 Stock (` 1,03,000 less ` 6,000) Capital Accounts*: Ayush Piyush 3,03,450 3,03,450 7,08,300 97,000 Debtors(95% of ` 1,56,000) 1,48,200 Bank Balance 1,50,000 11,03,500 11,03,500 *Total of capital balances should be ` 6,06,900 which is proportioned to individual partners in their profit sharing ratio. Working Notes: 1. Profit / Loss on revaluation Revaluation Account Amount ( `) To Plant 78,700 By Interest on FD To Creditors To Inventory 10,000 6,000 By Loss on revaluation To Provision for doubtful debts 2. Amount ( `) 9,000 93,500 7,800 - 1,02,500 1,02,500 Calculation of Goodwill Goodwill Valuation Profit of year ended 31.3.2014 (` 3,30,000 less ` 93,500) 31.3.2013 31.3.2012 Total Profits Average Profit = ` 2,36,500 2,32,000 2,20,000 6,88,500 6,88,500/3 = 2,29,500 Goodwill valued at 1 year purchase amounting ` 2,29,500. 3. Adjustment for goodwill among partners Anuj s share of goodwill (2,29,500 x 2/5) The Institute of Chartered Accountants of India = 91,800 42 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 Gaining ratio of Ayush and Piyush Ayush Piyush 1 2 1 5 2 2 5 4 10 = 1 5 1 5 2 10 10 = 3 10 Gaining Ratio = 1: 3 Entry for adjustment of goodwill ` Ayush s capital A/c Piyush s capital A/c Dr. Dr. ` 22,950 68,850 To Anuj s capital A/c (Being Anuj s share of goodwill debited to remaining partners in their gaining ratio) 91,800 16. Following are the advantages of the customized accounting packages: 1. The input screens can be tailor made to match the input documents for ease of data entry. 2. The reports can be prepared as per the specification of the organization. Many additional MIS reports can be included in the list of reports. 3. Bar-code scanners can be used as input devices suitable for the specific needs of an individual organization. 4. The system can suitably match with the organizational structure of the company. 17. The question deals with the issue of Applicability of Accounting Standards to a noncorporate entity. For availment of the exemptions, first of all, it has to be seen that M/s Omega & Co. falls in which level of the non-corporate entities. Its classification will be done on the basis of the classification of non-corporate entities as prescribed by the ICAI. According to the ICAI, non-corporate entities can be classified under 3 levels viz Level I, Level II (SMEs) and Level III (SMEs). An entity whose turnover (excluding other income) exceeds rupees fifty crore in the immediately preceding accounting year, it falls under the category of Level I entities. Non-corporate entities which are not Level I entities but fall in any one or more of the following categories are classified as Level II entities: (i) All commercial, industrial and business reporting entities, whose turnover (excluding other income) exceeds rupees one crore but does not exceed rupees fifty crore in the immediately preceding accounting year. The Institute of Chartered Accountants of India PAPER 1: ACCOUNTING 43 (ii) All commercial, industrial and business reporting entities having borrowings (including public deposits) in excess of rupees one crore but not in excess of rupees ten crore at any time during the immediately preceding accounting year. (iii) Holding and subsidiary entities of any one of the above. As the turnover of M/s Omega & Co. is more than ` 1 crore, it falls under 1st criteria of Level II non-corporate entities as defined above. Even if its borrowings of ` 0.95 crores is less than ` 1 crores, it will be classified as Level II Non-Corporate Entity. In this case, AS 3, AS 17, AS 21, AS 23, AS 27 will not be applicable to M/s Omega & Co. Relaxations from certain requirements in respect of AS 15, AS 19, AS 20, AS 25, AS 28 and AS 29 are also available to M/s Omega & Co. 18. (a) As per AS 1, any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in later periods should be disclosed. In the case of a change in accounting policies which has a material effect in the current period, the amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated. Accordingly, the notes on accounts should properly disclose the change and its effect. Notes on Accounts: (i) During the year inventory has been valued at factory cost, against the practice of valuing it at prime cost as was the practice till last year. This has been done to take cognizance of the more capital intensive method of production on account of heavy capital expenditure during the year. As a result of this change, the year-end inventory has been valued at ` 50 crores and the profit for the year is increased by ` 20 crores. (ii) In view of the heavy capital intensive method of production introduced during the year, the company has decided to change the method of providing depreciation from reducing balance method to straight line method. As a result of this change, depreciation has been provided at ` 27 crores which is lower than the charge which would have been made had the old method and the old rates been applied, by ` 18 crores. To that extent, the profit for the year is increased. (iii) The company has decided to provide ` 10 crores for the permanent fall in the value of investments which has taken place over the period of past five years. The provision so made has reduced the profit disclosed in the accounts by ` 10 crores. (b) As per Accounting Standard 2 Valuation of Inventories , cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. However, it makes clear that interest and other borrowing costs are usually not included in the cost of inventories because generally such costs are not related in bringing the inventories The Institute of Chartered Accountants of India 44 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2015 to their present location and condition. Therefore, the proposal of CC Ltd. to include interest on bank overdraft as an element of cost is not acceptable because it does not form part of cost of production. 19. (a) Depreciation charged by the company on reducing Balance method (from 2011-12) to 2013-14 Year Cost/WDV at the beginning of the year Depreciation WDV at the end of the year 2011-12 2,00,000 2,00,000 x 10% 20,000 1,80,000 2012-13 1,80,000 1,80,000 x 10% 18,000 1,62,000 2013-14 1,62,000 1,62,000 x 10% 16,200 1,45,800 Depreciation charged on Straight Line Method (from 2011-12 to 2013-14) = = Cost price of the machine - scrap value Useful life of machine ` 2,00,000 - ` 50,000 10 = 15,000 Book Value of machine at the end of 2013-14 by Straight Line Method (SLM) = ` 2,00,000 [15,000 + 15,000 + 15,000] = `1,55,000 Depreciation to be charged in 2014-15 Particulars ` Book value of the machine as per Reducing Balance Method as on 2013-14 1,45,800 Less: Book value of the machine as per Straight Line Method as on 2013-14 (1,55,000) Difference of Depreciation Add: Depreciation for the year 2014-15 as per Straight Line Method (9,200) 15,000 Depreciation charged to Profit and Loss Account in the year 2014-15 5,800 (b) As per AS 7, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately irrespective of the stage of completion. In the given case the revenue that can be recognized for the contract i.e. ` 2 crore and the expected expense on the contract is ` 2.4 cores. 60% of the contract has been completed. Therefore as per AS 7 whole amount of expected loss i.e. ` 0.40 crores should be recognized as an expense immediately irrespective of the stage of completion of the contract. Therefore the action of accountant of transferring only ` 0.24 crores to the profit & loss a/c is wrong. He must transfer whole ` 0.40 crore to profit & loss a/c as an expense. The Institute of Chartered Accountants of India PAPER 1: ACCOUNTING 45 20. (a) According to AS 10 on Accounting for Fixed Assets, the cost of an asset may undergo changes subsequent to its acquisition on account of exchange fluctuation, price adjustment, changes in duty or similar factors. Such changes in price/cost needs to be adjusted with the cost of the asset. In the give case, Fire Ltd., initially accounted for 100% amount i.e., ` 100 lacs as cost of fixed asset although they paid only ` 90 lacs and kept ` 10 lacs as payable to the credit of Urja Ltd. Now since the supplier has waived off the balance amount of ` 10 lacs, this should be treated as change in price and needs to be adjusted with the cost of asset as per AS 10.Therefore, the treatment given by Fire Ltd., in crediting ` 10 lacs as discount to Profit & Loss Account is completely wrong and needs to be corrected. (b) As per AS 13 Accounting for Investments , for Investments in shares If the Investment is purchased with an intention to hold for short term period then it will be shown at the realizable value of ` 2,50,000 as on 31st March, 2015. If equity shares are acquired with an intention to hold for long-term period then it will continue to be shown at cost in the Balance Sheet of the Company. However, provision for diminution shall be made to recognize a decline, if other than temporary, in the value of Investments. As per the Standard, investment acquired for long term period shall be shown at cost. Gold and Silver are generally purchased with an intention to hold it for long term period until and otherwise given. Hence the investment in Gold and silver (purchases on 1st April 2014 shall continue to be shown at cost as on 31st March 2015 i.e. ` 3,50,000 and `1,50,000 respectively, though their realizable values have been increased. If held as short term then it should be valued at lower of cost or fair value (Market price) The Institute of Chartered Accountants of India Applicability of Pronouncements/Legislative Amendments/Circulars etc. for November, 2015 Intermediate (IPC) Examination Paper 1: Accounting Accounting Standards AS 1 : Disclosure of Accounting Policies AS 2 : Valuation of Inventories AS 3 : Cash Flow Statements AS 6 : Depreciation Accounting AS 7 : Construction Contracts (Revised 2002) AS 9 : Revenue Recognition AS 10 : Accounting for Fixed Assets AS 13 : Accounting for Investments AS 14 : Accounting for Amalgamations Note Regarding Applicability for Paper 1 : The relevant notified Sections of the Companies Act, 2013 up to 31st March, 2015 and for other legislative amendments including relevant Notifications / Circulars / Rules / Guidelines issued by Regulating Authority up to 30th April, 2015. Non-Applicability of Ind ASs: The Ministry of Corporate Affairs has notified Roadmap for applicability of Indian Accounting Standards (Ind AS) vide Notification No. G.S.R .(E) dated 16 February, 2015, for compliance by the class of companies specified in the said roadmap. The notification has been uploaded on www.mca.gov.in along with the thirty nine (39) Indian Accounting Standards (Ind AS). Students may note that these Ind ASs are not applicable for November, 2015 Examination. Paper 2: Business Laws, Ethics and Communication The Companies Act, 2013 : The relevant sections of the Companies Act, 2013, notified up to 31st March, 2015 along with significant Rules/ Notifications/ Circulars/ Clarifications/ Orders issued by the Ministry of Corporate Affairs upto 30th April, 2015. The Institute of Chartered Accountants of India

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