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CA IPCC : Revision Test Paper (with Answers) - ACCOUNTING Nov 2013

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PAPER 1: ACCOUNTING PART I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY FOR NOVEMBER, 2013 EXAMINATION A. Applicable for November, 2013 examination (i) Revision in the Criteria for classifying Level II Non-Corporate Entities Due to recent changes in the enhancement of tax audit limit, the Council of the ICAI has recently decided to change the 1st criteria of Level II Non-Corporate Entities i.e. determination of SME on turnover basis from ` 40 lakhs to ` 1 Crore vide announcement Revision in the Criteria for classifying Level II Non-Corporate Entities issued by the ICAI on 7th March, 2013. This revision is applicable with effect from the accounting year commencing on or after April 1, 2012. (ii) Revised Schedule VI The Ministry of Corporate Affairs (MCA) has revised Schedule VI to the Companies Act, 1956 on 28th February, 2011 pertaining to the preparation of Balance Sheet and Statement of Profit and Loss under the Companies Act, 1956. This revised Schedule VI has been framed as per the existing non-converged Accounting Standards notified under the Companies (Accounting Standards), Rules, 2006. The Revised Schedule VI has come into force for the Balance Sheet and Statement of Profit and Loss prepared for the financial year commencing on or after 1.4.2011. B. Not applicable for November, 2013 examination Ind ASs issued by the Ministry of Corporate Affairs The MCA has placed on its website 35 converged Indian Accounting Standards (Ind AS) without announcing the applicability date. These are the standards which are being converged by eliminating the differences of the Indian Accounting Standards vis- -vis IFRS. These standards shall be applied for all companies falling under Phase I to Phase III as prescribed under the roadmap issued by the core group. These Ind ASs are not applicable for the students appearing in November, 2013 Examination. PART II : QUESTIONS AND ANSWERS QUESTIONS Financial Statements of Companies Schedule VI 1. (a) Futura Ltd. had the following items under the head Reserves and Surplus in the Balance Sheet as on 31st March, 2013: Securities Premium Account Capital Reserve The Institute of Chartered Accountants of India Amount ` in lakhs 80 60 2 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 General Reserve 90 The company had an accumulated loss of ` 250 lakhs on the same date, which it has disclosed under the head Statement of Profit and Loss as asset in its Balance Sheet. Comment on accuracy of this treatment in line with Revised Schedule VI to the Companies Act, 1956. (b) Sumedha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2013 of ` 1,00,000. Determine how the loan will be classified in preparation of Financial Statements of Sumedha Ltd. for the year ended 31st March, 2013 according to Revised Schedule VI. Managerial Remuneration 2. Kumar Ltd., a non investment company has been incurring losses for the past few years. The company provides the following information for the current year: (` in lakhs) Paid up equity share capital Paid up Preference share capital 120 20 Reserves (including Revaluation reserve ` 10 lakhs) Securities premium Long term loans 150 Deposits repayable after one year 20 Application money pending allotment Accumulated losses not written off 720 20 Investments 180 40 40 Kumar Ltd. has only one whole-time director, Mr. X. You are required to calculate the amount of maximum remuneration that can be paid to him as per provisions of Part II of Schedule XIII, if no special resolution is passed at the general meeting of the company in respect of payment of remuneration for a period not exceeding three years. Cash Flow Statements 3. Bell Co. Ltd. submits the following information pertaining to year 2012-2013. Using the given data, you are required to prepare Cash Flow Statement for the year ended 31st March, 2013 by indirect method. (` in millions) Opening balance of cash and cash equivalents 1.55 Additional shares issued 6.50 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 3 Capital expenditure 9.90 Proceeds from assets sold 1.60 Dividend paid 0.50 Loss from disposal of assets Net profit for the year 1.20 3.30 Increase in Accounts Receivable 1.50 Redemption of 4.5% debentures 2.50 Depreciation and Amortization 0.75 Accounting for Bonus Issue 4. Following items appear in the Trial Balance of X Ltd. as at 31st March 2013: ` Authorised share capital: 3,00,000 equity shares of ` 10 each 30,00,000 Issued and Subscribed share capital: 80,000 Equity Shares of ` 10 each, ` 7.50 paid up 1,20,000 Equity Shares of ` 10 each Capital Redemption Reserve Plant Revaluation Reserve 6,00,000 12,00,000 2,60,000 20,000 Securities Premium Account 1,20,000 General Reserve 2,00,000 Profit & Loss Account 1,00,000 Capital Reserve (including ` 50,000 being profit on sale of machinery) Remaining balance of capital reserve is on account of non-cash items. 1,50,000 The company decided to convert the partly paid equity shares into fully paid shares by way of bonus and to issue fully paid-up bonus shares to the holders of fully paid up shares in the same ratio. You are required to pass the necessary journal entries assuming that there should be minimum reduction in free reserves. Profit or Loss Pre and Post Incorporation 5. A Ltd. was incorporated on 1st May, 2012 to take over the running business of M/s Om from 1st January, 2012. The accounts of A Ltd. were made up to 31st December, 2012 The Institute of Chartered Accountants of India 4 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 and Draft Trading and Profit and Loss Account were as follows: Particulars To Opening Stock To Purchases To Gross Profit c/d To Rent, Rates and Insurance To Interest To Director s Fees To Salaries To Office Expenses To Travelers Commission To Discounts To Advertisement To Bad Debts To Depreciation To Debenture Interest To Net Profit ` Particulars 1,40,000 By Sales 9,10,000 By Closing Stock 3,00,000 13,50,000 18,000 By Gross Profit b/d 6,000 20,000 51,000 42,000 12,000 5,000 10,000 3,000 15,000 4,500 1,13,500 3,00,000 ` 12,00,000 1,50,000 13,50,000 3,00,000 3,00,000 It is ascertained that the sales of November and December are one and half times the average of those for the year while sales for February and April are only half the average. You are required to show the apportionment of year s profit between the pre and postincorporation periods. Internal Reconstruction of a Company 6. Following is the summarized Balance Sheet of Max Ltd. as at March 31, 2013. Liabilities ` Assets Share capital: Equity shares of ` 100 each Goodwill ` 20,000 15,00,000 Other fixed assets 15,00,000 9% Preference shares of ` 100 each 5,00,000 Trade receivables 6,51,000 General reserve 1,80,000 Inventory 3,93,000 Profit and loss account - Cash at bank 12% Debentures of ` 100 each 6,00,000 Own debentures Trade payables 4,15,000 26,000 (Nominal value ` 2,00,000) Profit and loss account 31,95,000 The Institute of Chartered Accountants of India 1,92,000 4,13,000 31,95,000 PAPER 1 : ACCOUNTING 5 On 1.4.2013, Max Ltd. adopted the following scheme of reconstruction: (i) Each equity share shall be sub-divided into 10 equity shares of ` 10 each fully paid up. 50% of the equity share capital would be surrendered to the Company. (ii) Preference dividends are in arrear for 3 years. Preference shareholders agreed to waive 90% of the dividend claim and accept payment for the balance. (iii) Own debentures of ` 80,000 were sold at ` 98 cum-interest and remaining own debentures were cancelled. (iv) Debentureholders of ` 2,80,000 agreed to accept one machinery of book value of ` 3,00,000 in full settlement. (v) Trade payables, trade receivables and inventory were valued at ` 3,50,000, ` 5,90,000 and ` 3,60,000 respectively. The goodwill, discount on issue of debentures and Profit and Loss (Dr.) are to be written off. (vi) The Company paid ` 15,000 as penalty to avoid capital commitments of ` 3,00,000. You are required to give Journal entries for reconstruction in the books of Max Ltd. Amalgamation of Companies 7. Hari Ltd. and Narayan Ltd. are to be amalgamated into Hari Narayan Ltd. The new company is to take over all the assets and liabilities of the amalgamating companies. Assets and Liabilities of Hari Ltd. are to be taken over at book values in exchange of shares in Hari Narayan Ltd. Three shares in the new company are to be issued at a premium of 20% for every two shares of Hari Ltd. The approved scheme for Narayan Ltd. is as follows: 1. 10% Preference shareholders are to be allowed two 15% Preference shares of ` 100 each in Hari Narayan Ltd. for three Preference shares held in Narayan Ltd. 2. The Debentures of Narayan Ltd. are to be paid off at 5% discount by the issue of debentures of Hari Narayan Ltd. at par. 3. The Equity shareholders of Narayan Ltd. are to be allowed as many shares at par in Hari Narayan Ltd. as will cover the balance on their account and for this purpose, plant and machinery is to be valued less by 15% and obsolete stock forming 10% of the overall stock value is to be treated as worthless. The summarised Balance Sheets of the two companies prior to amalgamation are as follows: Liabilities Hari Ltd. Narayan Ltd. ` Equity shares of ` 10 each Assets ` 6,40,000 12,50,000 Plant and Machinery The Institute of Chartered Accountants of India Hari Ltd. Narayan Ltd. ` ` 12,80,000 20,00,000 6 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 10% Preference shares of ` 100 each - General Reserves 7,50,000 Trade receivables 1,52,000 1,25,000 - Inventory 1,00,000 1,50,000 1,08,000 1,00,000 - 3,50,000 8,80,000 Secured Debentures 1,20,000 Trade payables 5,00,000 Cash and Bank Balance 2,25,000 Profit and Loss Account 16,40,000 27,25,000 16,40,000 27,25,000 You are required to show the Journal Entries and the Balance Sheet of the amalgamated company immediately after amalgamation. Average Due Date 8. (a) Ketan had accepted bills payable to Mitesh, falling due on different dates. The details of bills are as follows: Date of bill Amount Usance of bill 10th April 2012 ` 4,000 for 4 months 18th April 2012 ` 5,000 for 3 months 25th May 2012 ` 3,000 for 6 months 5th June 2012 ` 6,000 for 3 months On 1st July, it was agreed that these bills should be withdrawn and that Ketan should accept on that day two bills, one for ` 10,000 due in 4 months and the other for the balance with interest, due in 6 months. Calculate the amount of the second bill taking interest @ 10% p.a. Take 365 days in year 2012-2013 for calculation purposes. Account Current (b) On 1st January, 2013, X s account in Y s ledger showed a debit balance of ` 5,000. The following transactions took place between Y and X during the quarter ended 31st March, 2013: 2013 ` Jan. 11 Y sold goods to X 6,000 Jan. 24 Y received a promissory note from X due after 3 months 5,000 Feb. 01 X sold goods to Y 10,000 Feb. 04 Y sold goods to X 8,200 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Feb. 07 7 X returned goods to Y 1,000 March 01 X sold goods to Y 5,600 March 18 Y sold goods to X 9,200 March 23 X sold goods to Y 4,000 Accounts were settled on 31st March, 2013 by means of a cheque. Prepare an Account Current to be submitted by Y to X as on 31st March, 2013, taking interest into account @ 10% per annum. Calculate interest to the nearest multiple of a rupee. Self Balancing Ledgers 9. The following information is extracted from a set of books of Mr. Vasu for the year ended 31st December, 2012: ` Sales 11,26,000 Purchases 6,44,000 Returns outward 15,200 Cash received from debtors 3,68,400 Bills payable accepted 2,40,000 Returns inward 33,600 Cash paid to creditors 3,60,000 Bills receivable received 3,20,000 Discounts received 8,400 Bad debts written off 24,000 Discount allowed 21,600 st The total of the sales ledger balances on 1 Jan, 2012 was ` 6,41,600 and that of the purchases ledger balances on the same date was ` 3,72,800. Prepare Sales Ledger and Purchases Ledger Adjustment Accounts in the General Ledger from the above information. Financial Statements of Not-For-Profit Organizations 10. The following informations were obtained from the books of Mumbai Club as on 31.3.2013: (i) Donations received for building and library room (ii) Other revenue income and actual receipts: The Institute of Chartered Accountants of India ` 1,00,000 8 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Revenue income Actual receipts ` ` 8,500 10,000 8,500 9,500 Locker rents 300 300 Sundry income 800 530 - 8,000 Entrance fees Subscription Refreshment account (iii) Other revenue expenditure and actual payments: Revenue expenditure Actual payments ` ` Land - 5,000 Furniture - 65,000 Salaries 2,500 2,400 Maintenance of playgrounds 1,000 500 Rent 4,000 4,000 - 4,000 Refreshment account Donations amounting ` 10,000 were utilized for the purchase of library books. Full amount of entrance fees is to be taken as income for the year. Depreciation at 10% p.a. was to be provided for the whole year on furniture and library books. You are required to prepare Receipts and Payments Account, Income and Expenditure Account for the year ended 31.3.2013 and a Balance Sheet as at 31.3.2013 on mercantile basis assuming that Mumbai Club is not registered under Companies Act, 1956. Accounts from Incomplete Records 11. From the following information in respect of Mr. X, prepare Trading and Profit and Loss Account for the year ended 31st March, 2013 and a Balance Sheet as at that date: 31-03-2012 31-03-2013 ` Stock in trade 1,60,000 1,40,000 Debtors for sales (1) ` 3,20,000 ? - ? 2,20,000 3,00,000 Liabilities and Assets: Bills receivable Creditors for purchases The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 9 Furniture at written down value 1,27,000 Expenses outstanding 40,000 36,000 Prepaid expenses 12,000 14,000 Cash on hand 4,000 3,000 Bank Balance (2) 1,20,000 20,000 9,500 Receipts and Payments during 2012-2013: Collections from Debtors (after allowing 2-1/2% discount) 11,70,000 Payments to Creditors (after receiving 2% discount) Proceeds of Bills receivable discounted at 2% 7,84,000 1,22,500 Proprietor s drawings Purchase of furniture on 30.09.2012 1,40,000 20,000 4% Government securities purchased at 96% on 1-10-2012 1,92,000 Expenses 3,50,000 Miscellaneous Income 10,000 (3) Sales are effected so as to realize a gross profit of one third on the sale proceeds. (4) Goods costing ` 18,000, were issued as samples to distributors. (5) (6) Purchases and Sales are made only on credit. (7) Capital introduced during the year by the proprietor by cheques was omitted to be recorded in the Cash Book, though the bank balance of 9,500 on 31 st March, 2013 (as shown above), is after taking the same into account. During the year, Bills Receivable of ` 2,00,000 were drawn on debtors. Of these, Bills amounting to ` 40,000 were endorsed in favour of creditors. Out of this latter amount, a Bill for ` 8,000 was dishonoured by the debtor. Hire -Purchase 12. (a) A Ltd. purchases a plant on hire purchase basis for ` 1,00,000 (cash price ` 86,000) and makes the payment in the following order: Down payment ` 20,000, 1st instalment after one year ` 40,000; 2nd ` 20,000; instalment after two years Last instalment after three years. The Institute of Chartered Accountants of India 10 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 You are required to calculate: (i) total interest and (ii) interest included in each instalment. (b) Shyam purchased from Rang Ltd. a colour T.V set on 1st October, 2011 on the hire purchase system. The cash price of the T.V set was ` 15,000. Term of payment were ` 1,150 down payment and half yearly instalments of ` 4,000 each, over two years. The first instalment was to be paid on 31st March, 2012. Rate of interest was 12% p.a. Shyam could not pay the second instalment due on 30 th September, 2012 and as a consequence, Rang Ltd. repossessed the T.V set after fulfiiling legal formalities. Prepare Shyam s Account and Goods Repossessed Account in Rang Ltd.'s books. Assume that the estimated value of the T.V set at the time of repossession was ` 12,000 and after an expenditure of ` 850 on repairs and repacking, the company resold it on 6th December, 2012 for cash to one of its employees at a special discount of 10 percent on cash price i.e. for ` 13,500. Rang Ltd. closes its books of accounts every year on 31st March. Investment Accounts 13. On 1st May 2012, Sumedha purchased 5,000, 13.5% Convertible Debentures in X Ltd. of face value of ` 100 each @ 105 ex-interest. Interest on Debentures is payable each year on 31st March and 30th September. The accounting year is the calendar year. The following other transactions were entered into during 2012: August 1 Oct. 1 Purchased ` 2,50,000 Debentures @ 107 cum interest. Sale of ` 2,00,000 Debentures @ 103. Dec. 31 Receipt of 10,000 Equity shares in X Ltd. of ` 10 each on conversion of 20% of the Debentures held. Further, it also received interest on Debentures converted in cash at the time of conversion. The market price of a Debenture and an Equity share in X Ltd. as on 31st Dec., 2012 was ` 106 and ` 15. Sumedha held the Debentures as current assets. You are required to prepare Debenture Investment account in the books of Sumedha on Average cost basis. Insurance Claim for Loss of Stock 14. The premises of X Ltd. caught fire on 22nd January, 2013 and the stock was damaged. The value of goods salvaged was negligible. The firm made up accounts to 31 st March each year. On 31st March, 2012 the stock at cost was `13,27,200 as against ` 9,62,200 on 31st March 2011. Purchases from 1st April, 2012 to the date of fire were ` 34,82,700 as against `45,25,000 for the full year 2011-2012 and the corresponding sales figures were ` 49,17,000 and ` 52,00,000 respectively. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 11 You are given the following further information: (i) In July, 2012, goods costing ` 1,00,000 were given away for advertising purposes, no entries being made in the books. (ii) The rate of gross profit is constant. X Ltd. had taken an insurance policy of ` 5,50,000 which was subject to the average clause. From the above information, you are required to make an estimate of the stock in hand on the date of fire and compute the amount of the claim to be lodged to the insurance company. Partnership: Admission and Retirement of a partner 15. X, Y and Z are in partnership sharing Profits and Losses in the ratio 2 : 2: 1. Partnership deed provides that all the partners are entitled to interest @ 9% per annum on fixed capital of ` 2,00,000 contributed in profit sharing ratio. Z is entitled for 10% commission of net profit after such commission, for special performance. On 1.9.2012, it was decided to retire X on health grounds and admit A, son of X, as a partner with 1/5th share in Profit and Loss. Other decisions taken on this date were as follows: (a) Firm s fixed capital to be raised to ` 3,00,000 and partners to maintain fixed capital in profit sharing ratio. Hence forth, interest on capital shall be paid @ 10% per annum. (b) No commission to be paid to Z from 1.9.2012. (c) Goodwill is assessed at ` 60,000 not to be shown in the books. (d) X was paid ` 50,000 in cash on retirement. (e) Balance claim payable to X was to be credited to A s fixed capital account and current account. (f) Profit for the accounting year 2012-13 before interest on capital, Z s commission and depreciation was ` 1,80,000. Depreciation for the year amounted to ` 18,500 (inclusive of depreciation of ` 6,000 upto 1.9.2012). You are required to prepare: (i) Profit and Loss Appropriation account of the firm for the year ended 31st March, 2013. (ii) Partners Current accounts. Accounting in Computerized Environment 16. Spread sheet is a very valuable accounting tool. Explain the significance of spread sheets keeping in view the current business requirements. The Institute of Chartered Accountants of India 12 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Applicability of AS 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) X Limited has sold its building for ` 50 lakhs to the purchaser who has paid the full price. Company has given possession to the purchaser. The book value of the building is ` 35 lakhs. As at 31st March, 2013, documentation and legal formalities are pending. The company has not recorded the sale. It has shown the amount received as advance. Do you agree with this accounting treatment done by X Ltd.? If not, then suggest the correct accounting treatment in this regard. AS 2 Valuation of Inventories (b) U.S.A Ltd. purchased raw material @ ` 400 per kg. Company does not sell raw material but uses it in production of finished goods. The finished goods in which raw material is used are expected to be sold at below cost. At the end of the accounting year, company is having 10,000 kg of raw material in stock. As the company never sells the raw material, it does not know the selling price of raw material and hence cannot calculate the realizable value of the raw material for valuation of inventories at the end of the year. However replacement cost of raw material is ` 300 per kg. How will you value the inventory of raw material? AS 3 Cash Flow 19. (a) Classify the following activities as (i) Operating Activities, (ii) Investing Activities, (iii) Financing Activities. a Rent received on property held as investment. b Selling and distribution expense paid. c Income tax paid. d Dividend paid on Preference shares. e Underwriting Commission paid. f Rent paid. g Brokerage paid on purchase of investments. h Long term Bank loan. i Refund of Income Tax. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 13 AS 6 Depreciation Accounting and AS 10 Accounting for Fixed Assets (b) Value Ltd. acquired a plant on 1.4.2004 for ` 100 lakhs. The company charges straight line depreciation on the basis of estimated useful life of the asset as 10 years and scrap value at the end as 2.5% of the cost. At the beginning of the 5 th year, the asset was revalued upward by 40% of the written down value and the revaluation profit was transferred to Revaluation Reserve. While charging depreciation after revaluation, estimated remaining useful life was assumed to be 6 years and scrap realisation was expected to be 2.5% of the revalued figure. No additional depreciation was adjusted through Revaluation Reserve account. At the beginning of the 8th year the company found the asset useless and accordingly, decided to retire it. On the date of retirement the estimated realisable value of the asset is ` 3,80,000. Ascertain the loss on retirement of the asset to be charged to statement of profit and loss. AS 7 Construction Contracts 20. (a) Lucky Ltd., has signed at 31st Dec., 2012, the Balance Sheet date, a contract where the total revenue is estimated at ` 15 crores and total cost is estimated at ` 20 crores. No work began on the contract. Is contractor required to give any accounting effect for the year ended 31st December, 2012 in his accounts? AS-9 Revenue Recognition (b) Jay Ltd. purchased goods on credit from Parkash Ltd. for ` 250 crores for export. The export order was cancelled. Jay Ltd. decided to sell the same goods in the local market with a price discount. Parkash Ltd. was requested to offer a price discount of 15%. The Chief Accountant of Parkash Ltd. wants to adjust the sales figure to the extent of the discount requested by Jay Ltd. Discuss whether this treatment is justified. SUGGESTED ANSWERS / HINTS 1. (a) Note 6 (B) given under Part I of Schedule VI provides that debit balance of Statement of Profit and Loss (after all allocations and appropriations) shall be shown as a negative figure under the head Surplus . Similarly, the balance of Reserves and Surplus , after adjusting negative balance of surplus, shall be shown under the head Reserves and Surplus even if the resulting figure is in the negative. In this case, the debit balance of profit and loss i.e. ` 250 lakhs exceeds the total of all the reserves i.e. ` 230 lakhs. Therefore, balance of Reserves and Surplus after adjusting debit balance of profit and loss is negative by ` 20 lakhs, which should be disclosed on the face of the balance sheet. (b) As per Revised Schedule VI, a liability shall be classified as current when it satisfies any of the following criteria: The Institute of Chartered Accountants of India 14 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (i) it is expected to be settled in the company s normal operating cycle; (ii) it is held primarily for the purpose of being traded; (iii) it is due to be settled within twelve months after the reporting date; or (iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. In the given case, instalments due on 30.09.2013 and 31.03.2014 will be shown under the head other current liabilities as per criteria (c). Therefore, in the balance sheet as on 31.3.2013, ` 8,00,000 (` 1,00,000 x 8 instalments) will be shown under the heading Long term Borrowings and ` 2,00,000 (` 1,00,000 x 2 instalments) will be shown under the heading Other Current Liabilities as current maturities of loan from bank. 2. Calculation of effective capital and maximum amount of monthly remuneration (` in lakhs) Paid up equity share capital 120 Paid up Preference share capital Reserve excluding Revaluation reserve (150- 10) 20 140 Securities premium Long term loans 40 40 Deposits repayable after one year 20 380 Less: Accumulated losses not written off (20) Investments Effective capital for the purpose of managerial remuneration (180) 180 Since Kumar Ltd. is incurring losses and no special resolution has been passed by the company for payment of remuneration, managerial remuneration will be calculated on the basis of scale in which maximum ceiling limit is of ` 2,00,000 per month. Effective capital of the company is less than ` 5 crores but more than ` 1 crore, therefore maximum remuneration payable to the Managing Director should be @ ` 1,00,000 per month. So, maximum remuneration payable to the Managing Director for the year (` 1,00,000 x 12) = ` 12,00,000 Note: Revaluation reserve, and application money pending allotment are not included while computing effective capital of Kumar Ltd. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 3. 15 Bell Co. Ltd. Cash Flow Statement for the year ended 31st March, 2013 ` in millions ` in millions Cash flows from operating activities Net profit 3.30 Add: Depreciation and amortization 0.75 Loss from disposal of assets 1.20 Operating profit before working capital changes Less: Increase in accounts receivables 5.25 (1.50) Net cash generated from operating activities 3.75 Cash flows from investing activities Capital expenditure Proceeds from sale of fixed assets (9.90) 1.60 Net cash used in investing activities Cash flows from financing activities (8.30) Proceeds from issue of additional shares Dividend paid 6.50 (0.50) Redemption of 4.5% debentures Net cash generated from financing activities (2.50) 3.50 Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period (1.05) 1.55 Cash and cash equivalents at end of the period (Balancing figure) 0.50 4. In the books of X Ltd. Journal Entries ` (i) Equity Share Final Call A/c Dr. 2,00,000 To Equity Share Capital A/c 2,00,000 (Being the final call of ` 2.50 each on 80,000 equity shares due to make them fully paid up as per Board s resolution dated .) (ii) Capital Reserve A/c Dr. 50,000 General Reserve A/c Dr. 1,50,000 The Institute of Chartered Accountants of India ` 16 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 To Bonus to Shareholders A/c 2,00,000 (Being the transfer of ` 50,000 from Capital Reserve and ` 1,50,000 from General Reserve to make the partly paid up shares fully paid up) (iii) Bonus to Shareholders A/c Dr. 2,00,000 To Equity Share Final Call A/c 2,00,000 (Being the amount due on final call adjusted from Bonus to Shareholders A/c) (iv) Capital Redemption Reserve A/c Dr. 2,60,000 Securities Premium A/c Dr. 1,20,000 General Reserve A/c Dr. 20,000 To Bonus to Shareholders A/c 4,00,000 (Being the bonus declared by issuing 1 bonus share for every 3 shares held as per general body's resolution dated ... ) (v) Bonus to Shareholders A/c Dr. 4,00,000 To Equity Share Capital A/c 4,00,000 (Being the issue of 40,000 shares of ` 10 each by way of bonus) Notes: 1. 2. Plant Revaluation Reserve cannot be utilized to issue bonus shares. 3. Capital Reserve realised in cash amounting ` 50,000 can only be used for issue of bonus shares. 4. 5. Capital Redemption Reserve and Securities Premium can be utilized to issue fully paid-up Bonus Shares but not for converting partly paid shares into fully paid shares. Ratio of Bonus declared is ` 2.50 for every ` 7.50 paid-up share i.e. 1/3rd or 1 share for every 3 shares. Hence, the amount of Bonus issue in the same ratio will be = (1,20,000 x 1/3) x ` 10 = ` 4,00,000. Statement showing Apportionment of Profit between Pre and Post-incorporation Periods Particulars Basis Total Pre-incorporation Post-incorporation 1.1.2012 to 30.4.2012 (4 months) Gross Profit (A) Sales 3,00,000 (1:3) The Institute of Chartered Accountants of India 1.5.2012 to 31.12.2012 (8 months) 75,000 2,25,000 PAPER 1 : ACCOUNTING 17 Less: Expenses (B) Rent, Rates and Insurance Time 18,000 6,000 12,000 Interest Time 6,000 2,000 4,000 20,000 - 20,000 Time 51,000 17,000 34,000 Office Expenses Time 42,000 14,000 28,000 Travellers Commission Sales 12,000 3,000 9,000 Discount Sales 5,000 1,250 3,750 Advertisement Sales 10,000 2,500 7,500 Bad Debts Sales 3,000 750 2,250 Depreciation Time 15,000 5,000 10,000 (W.N.2) 4,500 - 4,500 1,86,500 51,500 1,35,000 1,13,500 23,500 90,000 Capital Profit Net Profit Director s Fees Salaries Debenture Interest (W.N.2) Net Profit (A-B) Working Notes: (1) Ratio of Sales Gross profit is apportioned in the ratio of sales which is calculated as follows: Pre-incorporation period Weight Post-incorporation Weight January 1 May 1 February June 1 March 1 July 1 April August 1 September 1 October 1 November 1 December 1 3 9 Therefore, sales ratio = 3:9 or 1:3 (2) Directors fees and Debenture interest are paid in case of company only. Therefore, they are charged to the post-incorporation period only. The Institute of Chartered Accountants of India 18 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 6. Journal Entries In the Books of Max Ltd. Particulars Dr. Amount Equity share capital (` 100) A/c Dr. Amount ` 01.04.2013 Cr. ` 15,00,000 15,00,000 To Equity share capital (` 10) A/c (Being sub-division of one share of ` 100 each into 10 shares of ` 10 each by resolution in the general meeting dated ..) Equity share capital A/c To Capital reduction A/c Dr. 7,50,000 7,50,000 (Being reduction of capital by 50% as per the scheme of reconstruction) Capital reduction A/c To Bank A/c Dr. 13,500 13,500 (Being payment in cash of 10% of arrear of preference dividend) Bank A/c (800 debentures x ` 98) To Own debentures A/c To Capital reduction A/c Dr. 78,400 76,800 1,600 (Being profit on sale of own debentures transferred to capital reduction A/c) 12% Debentures A/c Dr. 1,20,000 To Own debentures A/c 1,15,200 To Capital reduction A/c (Being profit on cancellation of own debentures transferred to capital reduction A/c) 4,800 12% Debentures A/c Dr. 2,80,000 Capital reduction A/c Dr. 20,000 To Machinery A/c 3,00,000 (Being machinery taken up by debentureholders for ` 2,80,000) Trade payables A/c The Institute of Chartered Accountants of India Dr. 65,000 PAPER 1 : ACCOUNTING Capital reduction A/c 19 Dr. 29,000 To Trade receivables A/c 61,000 To Inventory A/c 33,000 (Being assets and liabilities revalued) Capital reduction A/c Dr. 4,33,000 To Goodwill A/c 20,000 To Profit and Loss A/c 4,13,000 (Being Goodwill and Profit & loss (Dr.) balance written off) Capital reduction A/c Dr. 15,000 To Bank A/c 15,000 (Being penalty paid for avoidance of capital commitments) Capital reduction A/c To Capital reserve A/c Dr. 2,45,900 2,45,900 (Being the balance of capital reduction account transferred to capital reserve account) 7. In the books of Hari Narayan Ltd. (Amalgamated Company) Journal Entries Particulars Debit ` 1. 2. Business Purchase A/c To Liquidators of Hari Ltd. To Liquidators of Narayan Ltd. (Being purchase of business of Hari Ltd. and Narayan Ltd.- Refer Working Note) Plant and Machinery A/c Trade receivables A/c Inventory A/c Cash and Bank A/c To Trade payables A/c To General Reserve A/c (8,80,000 5,12,000) To Business Purchase A/c (Being assets and liabilities of Hari Ltd. taken over) The Institute of Chartered Accountants of India Credit ` Dr. 25,12,000 11,52,000 13,60,000 Dr. 12,80,000 Dr. 1,52,000 Dr. 1,00,000 Dr. 1,08,000 1,20,000 3,68,000 11,52,000 20 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 3. 4. 5. 6. Plant and Machinery A/c Trade receivables A/c Inventory A/c Cash and Bank A/c To Debentures of Narayan Ltd. A/c (95% of ` 5,00,000) To Trade payables A/c To Business Purchase A/c (Being assets and liabilities of Narayan Ltd. taken over) Liquidator of Hari Ltd. A/c To Equity Share Capital A/c To Securities Premium A/c (Being equity shares issued at 20% premium to shareholders of Hari Ltd.) Liquidators of Narayan Ltd. A/c To Equity Share Capital A/c To 15% Preference Share Capital A/c (Being issue of shares to discharge purchase consideration) Debentures of Narayan Ltd. A/c To Debentures A/c (Being own debentures issued against debentures of Narayan Ltd.) Dr. 17,00,000 Dr. 1,25,000 Dr. 1,35,000 Dr. 1,00,000 4,75,000 2,25,000 13,60,000 Dr. 11,52,000 9,60,000 1,92,000 Dr. 13,60,000 8,60,000 5,00,000 Dr. 4,75,000 4,75,000 Balance Sheet of Hari Narayan Ltd. after amalgamation Particulars I. Note No. ` Equity and Liabilities (1) Shareholder's Funds (a) Share Capital 1 2 Long-term borrowings 5,60,000 3 (b) Reserves and Surplus (2) Non-current Liabilities 23,20,000 4,75,000 (3) Current Liabilities Trade payables 3,45,000 Total The Institute of Chartered Accountants of India 37,00,000 PAPER 1 : ACCOUNTING II. 21 Assets (1) Non-current assets Fixed assets Tangible assets (2) Current assets 4 29,80,000 (a) Inventories 2,35,000 (b) Trade receivables 2,77,000 (c) Cash and cash equivalents 2,08,000 Total 1. 37,00,000 Notes to Accounts ` 1. Share Capital Equity shares of ` 10 each Preference shares of ` 10 each 18,20,000 5,00,000 23,20,000 2. Reserves and surplus General Reserve Securities Premium 3,68,000 1,92,000 5,60,000 3. Long-term Borrowings 4,75,000 4. Secured Debentures Tangible Assets Plant and Machinery 29,80,000 Working Note: Computation of Purchase Consideration A. For Hari Ltd., the Payment Method is applied for determining the Purchase Consideration. Hence, the amalgamation is accounted under Pooling of Interests method. Number of shares to be issued by Hari Narayan Ltd. to Hari Ltd. s shareholders = 64,000 x 3/2 = 96,000 shares. Since, the issue price is ` 12 per share, the Purchase Consideration is 96,000 x 12 = ` 11,52,000. The Institute of Chartered Accountants of India 22 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 B. For Narayan Ltd., the Net Assets Method is applied for determining the Purchase Consideration. Since, the assets are not taken over at book value, the amalgamation is accounted under Purchase method. ` Assets taken over: Plant and Machinery (20,00,000 less 15%) (1,50,000 less 10%) Trade receivables Inventory 17,00,000 1,25,000 1,35,000 Cash and Bank balance 1,00,000 Total Assets 20,60,000 Less: Liabilities Trade payables (2,25,000) Secured Debentures Net Purchase Consideration (4,75,000) 13,60,000 Discharge by issue of Preference Shares to preference shareholders (7,50,000 x 2/3) (13,60,000-5,00,000) Equity Shares to equity shareholders (bal. fig.) 5,00,000 8,60,000 13,60,000 8. (a) Calculation of Average Due Date Taking Base Date as 21.07.2012 Date of bill Usance of bill Due Date Amount Number of Days from Base Date ` Product ` 10.4.2012 4 months 13.08.2012 4,000 23 92,000 18.4.2012 3 months 21.07.2012 5,000 0 0 25.5.2012 6 months 28.11.2012 3,000 130 3,90,000 5.6.2012 3 months 8.09.2012 6,000 49 2,94,000 18,000 Average Due Date = 21st July + 7,76,000 The Institute of Chartered Accountants of India 18,000 7,76,000 PAPER 1 : ACCOUNTING 23 = 21.7.2012 + 43 days = 2.09.2012. Since two new bills will be drawn, their due dates will be as follows : First Bill- 1.7.2012 + 4 months = 4.11.2012; and Second Bill- 1.7.2012+ 6 months = 4.1.2013. Interest to be charged in respect of the above bills: 1st bill Interest will be charged on ` 10,000 @ 10% p.a. for 63 days (2.09.2012 to 4.11.2012) = ` 10,000 x 10% x 63/365 = ` 172.60 = Interest will be charged on ` 8,000 (` 18,000 - 10,000) @ 10% p.a. for 124 days (2.09.2012 to 4.1.2013) = 2nd bill = ` 8,000 x 10% x 124/365 = ` 271.78. Therefore, the value of the two bills: First bill = ` 10,000 Second bill = ` (8,000+ 172.60+ 271.78) = ` 8,444.38 (b) In the books of Y X in Account Current with Y (Interest to 31st March, 2013 @ 10% p.a) Date Particulars 2011 Amount Days Product Date Particulars ` 2011 ` Amount Days Product ` ` (27) (1,35,000) Jan.1 To Balance b/d 5,000 90 4,50,000 Jan.24 By Promissiory Note (due date 27th April) 5,000 Jan. 11 To Sales 6,000 79 4,74,000 Feb. 1 By Purchases 10,000 58 5,80,000 Feb. 4 To Sales 8,200 55 4,51,000 Feb. 7 By Sales Return 1,000 52 52,000 Mar. 18 To Sales 9,200 13 1,19,600 Mar. 1 By Purchases 5,600 30 1,68,000 Mar. 31 To Interest Mar. 23 By Purchases 4,000 8 32,000 Mar. 31 By Balance of Products Mar. 31 By Bank 219 28,619 14,94,600 The Institute of Chartered Accountants of India 7,97,600 3,019 28,619 14,94,600 24 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Working Note: Calculation of interest: Interest = 7,97,600 10 = ` 219 (approx.) 365 100 9. Sales Ledger Adjustment Account 2012 ` 2012 Jan. 1 To Balance b/d Dec. General ledger 31 To 6,41,600 Dec. 31 11,26,000 ` By General ledger adjustment A/cCash 3,68,400 adjustment A/c- Returns inward 33,600 Sales Bills receivable 3,20,000 Bad debts Discounts allowed Dec. 31 24,000 21,600 By Balance c/d 17,67,600 10,00,000 17,67,600 Purchases Ledger Adjustment Account 2012 ` 2012 Dec. 31 To General ledger adjustment A/c: Cash Returns outward Bills payable Jan. 1 ` By Balance b/d 3,72,800 3,60,000 Dec. 31 By General ledger adjustment A/c: 15,200 Purchases 6,44,000 2,40,000 Discounts received 8,400 Dec. 31 To Balance c/d 3,93,200 10,16,800 10. 10,16,800 Mumbai Club Receipts and Payments Account for the year ended 31st March, 2013 Receipts To Donations for building and library room ` 1,00,000 By The Institute of Chartered Accountants of India Payments Land ` 5,000 PAPER 1 : ACCOUNTING 25 To Entrance fees 8,500 By Furniture 65,000 To Subscription 9,500 By Salaries 2,400 To Locker rents 300 By To To Sundry income Refreshment account Maintenance of playgrounds 500 530 By 8,000 By Rent Refreshment 4,000 4,000 By By Library books Balance c/d 10,000 35,930 1,26,830 1,26,830 Income and Expenditure Account for the year ended 31st March, 2013 Expenditure To ` Salaries 2,400 Add: Outstanding To Maintenance playgrounds 2,500 By Subscription Add: Outstanding 500 8,500 9,500 500 1,000 By Locker rents 4,000 By Sundry Income Add: Outstanding 270 Furniture 6,500 Library books 1,000 10,000 530 Depreciation on To ` Entrance fees 500 of Rent To By 100 Add: Outstanding To Income ` By 7,500 300 Refreshment 800 4,000 account (8,000-4,000) Surplus-excess of income over 8,600 expenditure _____ _____ 23,600 23,600 Balance Sheet of Mumbai Club as on 31st March, 2013 Liabilities ` Capital fund (surplus) Building & library room fund Creditors for expenses: Salaries outstanding 8,600 1,00,000 100 The Institute of Chartered Accountants of India Assets Land Furniture ` 5,000 65,000 Less: Depreciation (6,500) Library book 10,000 58,500 26 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Maintenance of playgrounds 500 600 Less: Depreciation (1,000) Bank balance 35,930 Subscription receivable Sundry receivable income 1,09,200 11. 9,000 500 270 1,09,200 Trading and Profit and Loss Account of Mr. X for the year ended 31st March, 2013 Particulars To Opening stock To Purchases (W.N.5) 9,12,000 Less: Advertisement (18,000) To Gross profit c/d To Expenses (W.N.7) To Discount allowed (W.N.9) To Advertisement To Depreciation (W.N.1) To Net profit on furniture Particulars 1,60,000 By Sales (W.N. 11) By Closing stock 8,94,000 4,57,000 15,11,000 3,44,000 By Gross profit b/d 32,500 By Discount received (W.N.10) 18,000 By Interest on Govt. Securities (W.N.8) 13,000 By Miscellaneous income ` 79,500 4,87,000 ` 13,71,000 1,40,000 _______ 15,11,000 4,57,000 16,000 4,000 10,000 ______ 4,87,000 Balance Sheet of Mr. X as on 31st March, 2013 Liabilities Capital (W.N.6) Add: Additional capital (W.N.2) Add: Profit during the year Less: Drawings Creditors Outstanding expenses 3,76,000 1,72,000 ` Assets Furniture 4% Government Securities Accrued interest on Govt. 79,500 securities (W.N.8) 6,27,500 Debtors (W.N.3) (1,40,000) 4,87,500 Bills Receivable (W.N.4) 3,00,000 Stock 36,000 Prepaid expenses Cash on hand Bank balance 8,23,500 The Institute of Chartered Accountants of India ` 1,27,000 1,92,000 4,000 2,99,000 35,000 1,40,000 14,000 3,000 9,500 8,23,500 PAPER 1 : ACCOUNTING 27 Working Notes: 1. Furniture account ` To Balance b/d To ` 1,20,000 By Depreciation (bal.fig.) Bank 20,000 By Balance c/d 1,40,000 2. 13,000 1,27,000 1,40,000 Cash and Bank account ` To Balance b/d ` By To Debtors 7,84,000 4,000 By 20,000 By Cash Bank Creditors Drawings Furniture 1,40,000 20,000 4% Govt. securities 1,92,000 Expenses Balance c/d 3,50,000 11,70,000 By To To Bill Receivable Miscellaneous income 1,22,500 By 10,000 By To Additional Capital (bal.fig.) 1,72,000 _______ Cash Bank 14,98,500 3. 3,000 9,500 14,98,500 Debtors account ` To Balance b/d 3,20,000 By Cash and Bank To Creditors (Bills receivable dishonoured) To Sales (W.N.11) 8,000 By Discount 13,71,000 By Bills Receivable By Balance c/d (bal.fig.) 16,99,000 4. ` 11,70,000 30,000 2,00,000 2,99,000 16,99,000 Bills Receivable account ` To Debtors ` 2,00,000 By Bank 1,22,500 By Discount By Creditors The Institute of Chartered Accountants of India 2,500 40,000 28 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 By Balance c/d (bal. fig.) 2,00,000 5. 35,000 2,00,000 Creditors account ` To Bank ` 7,84,000 By Balance b/d To Discount 16,000 By Debtors (Bills dishonoured) To Bills receivable To Balance c/d 2,20,000 receivable 40,000 By Purchases (bal.fig.) 3,00,000 11,40,000 6. 8,000 9,12,000 11,40,000 Balance Sheet as on 1st April, 2012 Liabilities ` Assets ` Creditors Outstanding expenses 2,20,000 Furniture 40,000 Debtors 1,20,000 3,20,000 Capital (balancing figure) 3,76,000 Stock Prepaid expenses 1,60,000 12,000 Cash 4,000 _______ Bank balance 6,36,000 7. 20,000 6,36,000 Expenses incurred during the year ` Expenses paid during the year Add: Outstanding expenses as on 31.3.2013 Prepaid expenses as on 31.3.2012 3,50,000 36,000 12,000 48,000 3,98,000 Less: Outstanding expenses as on 31.3.2012 Prepaid expenses as on 31.3.2013 Expenses incurred during the year 8. 40,000 14,000 Interest on Government securities 6 1,92,000 96% 4% 12 = ` 4,000 The Institute of Chartered Accountants of India (54,000) 3,44,000 PAPER 1 : ACCOUNTING 29 Interest on Government securities receivables for 6 months = ` 4,000. 9. Discount allowed ` Discount to Debtors 11,70,000 2.5% 97.5% Discount on Bills Receivable 1,22,500 98% 2% 30,000 2,500 32,500 10. Discount received ` Discount to Creditors 7,84,000 98% 2% 16,000 11. Credit sales Cost of Goods sold = Opening stock + Net purchases Closing stock = ` 1,60,000 + ` (9,12,000 18,000) ` 1,40,000 = ` 9,14,000 Sales price = ` 9,14,000 x 12. (a) (i) 3 = ` 13,71,000 2 Total interest = Hire Purchase price Cash price = ` 1,00,000 ` 86,000 = ` 14,000 (ii) Hire purchase price outstanding at the beginning of each year (a) (b) (c) Hire purchase price Less: Down payment Hire Purchase Price outstanding at the beginning of the 1st year Less: 1st instalment Hire Purchase price outstanding at the beginning of the 2nd year Less: 2nd instalment Hire Purchase Price outstanding at the beginning of the 3rd year Less: 3rd instalment Ratio of (a) : (b) : (c) = 80:40:20 or 4:2:1 The Institute of Chartered Accountants of India ` 1,00,000 (20,000) 80,000 (40,000) 40,000 (20,000) 20,000 (20,000) Nil 30 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Amount of interest included in instalments: 1st instalment 4/7 x ` 14,000 nd 2 instalment 2/7 x ` 14,000 rd 3 instalment 1/7 x ` 14,000 (b) ` 8,000 ` 4,000 ` 2,000 Shyam s Account in the books of Rang Ltd. ` 2011 Oct. 1 2012 Mar.31 2012 Apr. 1 Sept.30 Sept.30 To Sales Account Cash price To Interest A/c - on ` 13,850 @ 12% p.a. for six months ` 2011 Oct. 1 15,000 2012 Mar.31 831 15,831 To Balance b/d To Interest A/c on ` 10,681 @ 12% p.a. for six months To Profit & Loss A/c Profit on repossession of T.V. set 2012 Sept.30 10,681 641 678 By Bank down payment By Bank First instalment By Balance c/d By Goods Repossessed A/c: estimated value of T.V. set on repossession 12,000 1,150 4,000 10,681 15,831 12,000 12,000 Goods Repossessed Account ` 2012 Sept.30 To Shyam Restaurant Estimated value of T.V. set on repossession To Bank expenses on repairs, repacking etc. Dec.6 ` 2012 Dec. 6 12,000 By Cash Sale proceeds 13,500 850 To Profit & Loss Account - Profit on resale 650 13,500 The Institute of Chartered Accountants of India 13,500 PAPER 1 : ACCOUNTING 13. 31 In the books of Sumedha Debenture Investment Account for the year ending on 31-12-2012 (Scrip: 13.5% Convertible Debentures in X Limited) (Interest payable on 31st March and 30th September) Date Particulars 2012 1.05.2012 1.08.2012 To Bank A/c To Bank A/c 31.12.2012 To P&L A/c (Interest) Total The Institute of Chartered Accountants of India Nominal Interes Value t Cost Date Particulars 2012 ` ` ` 5,00,000 5,625 5,25,000 30.09.2012 By Bank A/c (` 2,50,000 11,250 2,56,250 7,50,000 x 13.5% x 6/12) - 52,313 - 1.10.2012 By Bank A/c 1.10.2012 By P & L A/c (loss on sale of debentures) 31.12.2012 By Equity shares in X Ltd. 31.12.2012 By Bank A/c (Interest on convertible debentures) 31.12.2012 By Balance c/d 7,50,000 69,188 7,81,250 Total Nominal Interest Value ` - ` 50,625 Cost ` - 2,00,000 - 2,06,000 1,10,000 2,333 - 1,14,583 - 4,40,000 7,50,000 3,713 - 14,850 4,58,334 69,188 7,81,250 32 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Working Notes 1. Cost of Debentures purchased on 1st August, 2012 = 107% of ` 2,50,000 - ` 11,250 (Interest) = ` 2,56,250 2. Cost of Debentures sold on 1st October, 2012 = (` 5,25,000 + ` 2,56,250) x 2,00,000 / 7,50,000 = ` 2,08,333 3. Loss on sale of Debentures = ` 2,08,333 ` 2,06,000 = ` 2,333 4. Cost of Debentures converted = (` 5,25,000 + ` 2,56,250) x 1,10,000 / 7,50,000 = ` 1,14,583 5. Cost of Debentures in hand on 31st December, 2012 = (` 5,25,000 + ` 2,56,250) x 4,40,000 / 7,50,000 = ` 4,58,334 (approx.) 6. 7. 14. Interest on Debentures converted = ` 1,10,000 x 13.5% x 3/12 = ` 3,713 Closing balance of Debentures has been valued at cost (` 4,58,334) being lower than the market value ` 4,66,400 (` 4,400 x 106) Memorandum Trading Account from 1st April, 2012 to 22nd January, 2013 ` To Opening Stock To Purchases ` 13,27,200 By Sales 34,82,700 49,17,000 By Stock on 22nd January, Less : Cost of goods used (1,00,000) 33,82,700 for advertising 2013- Balancing figure 7,76,300 To Gross Profit 20% of sales (Working Note) 9,83,400 56,93,300 56,93,300 Stock in hand on date of fire = ` 7,76,300. Computation of claim for loss of stock ` Stock on the date of fire i.e. on 22nd January, 2013 7,76,300 As the value of goods salvaged was negligible, therefore Loss of stock 7,76,300 Since policy amount is less than claim amount, claim will be restricted to policy amount only. Therefore, claim of ` 5,50,000 should be lodged by X Ltd. to the insurance company The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 33 Working Note: Trading Account for the year ended on 31st March, 2012 ` ` To Opening Stock 9,62, 200 By Sales 52,00,000 To Purchases 45,25,000 By Closing Stock 13,27,200 To Gross Profit 10,40,000 65,27,200 65,27,200 Rate of gross profit to sales = 10,40,000 /52,00,000 x 100 == 20%. 15. Profit & Loss Appropriation Account for the year ended 31st March, 2013 For the period For the period 1.4.12 to 1.9.12 to 31.8.12 31.3.13 1.4.12 to 1.9.12 to 31.8.12 31.3.13 ` To Interest (W.N.3) on capital ` ` 7,500 17,500 By Net Profit To Depreciation 6,000 12,500 To Z s Commission (W.N.4) 5,591 - X Y 22,364 22,363 40,000 Z 11,182 20,000 A - ` 75,000 1, 05,000 15,000 To Transfer to current A/c 75,000 1,05,000 75,000 1,05,000 Partners Current Accounts (From 1.4.12 to 31.8.12) X To Cash Z X Y Z ` To X Y ` ` ` ` ` - 16,000 8,000 By X s capital A/c (Transfer) 80,000 - - 50,000 - - By Interest Capital 3,000 3,000 1,500 The Institute of Chartered Accountants of India on 34 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 To A s Capital A/c 60,000 - - By Commission To A s Current A/c 19,364 9,363 To Balance c/d - - 5,591 - By Y 16,000 - - 10,273 By Z 8,000 By P/L Appropriation Account 1,29,364 25,363 18,273 22,364 22,363 11,182 1,29,364 25,363 18,273 Partners Current Accounts (From 1.9.12 to 31.3.13) Y Z A Y Z A ` ` ` ` ` ` To Y - - 8,000 By Balance b/d To Z - - 4,000 By X s Current A/c To Balance c/d 66,696 38,940 25,864 By Interest Capital 9,363 10,273 on By A By P/L Appropriation A/c 66,696 38,940 37,864 - - 19,364 9,333 4,667 3,500 8,000 4,000 - 40,000 20,000 15,000 66,696 38,940 37,864 Working Notes: 1. New Profit sharing ratio and proportionate partners capital as per new ratio: Fixed capital of the firm ` 3,00,000 New profit sharing ratio: A is given 1/5 share Balance share 1 - 1 4 = 5 5 4 2 8 = 5 3 15 4 1 4 = Z ' s share = 5 3 15 Y ' s share = The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 35 New ratio Y 8 15 : Z 4 15 : A 3 or 8:4:3 15 Fixed capital of partners in profit sharing ratio will be 3,00,000 x 8 = 1,60,000 15 3,00,000 x 4 Z = = 80,000 15 3,00,000 x 3 A = = 60,000 15 Y = 2. Goodwill adjustment at the time of retirement of X X ` 24,000 24,000 Goodwill as per old ratio 2:2:1 Less : Goodwill in new ratio 2:1 Y ` 24,000 (40,000) (16,000) Z ` 12,000 (20,000) (8,000) Goodwill adjustment at the time of admission of A Y ` 20,000 (32,000) (16,000) (12,000) 8,000 3. ` 40,000 Less : Goodwill in 8:4:3 A ` Goodwill in 2:1 (before admission) Z 4,000 (12,000) Interest on partners capital For the period from 1.4.2012 to 31.8.2012 (5 months) 5 = 12 5 Y's capital ` 80,000 x 9% x = 12 5 Z's capital ` 40,000 x 9% x = 12 Total = X's capital ` 80,000 x 9% x The Institute of Chartered Accountants of India ` 3,000 ` 3,000 ` 1,500 ` 7,500 36 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 For the period from 1.9.2012 to 31.3.2013 (7 months) 7 = ` 9,333 12 7 Z's capital ` 80,000 x 10% x = ` 4,667 12 7 A's capital ` 60,000 x 10% x = ` 3,500 12 Total = ` 17,500 Y's capital ` 1,60,000 x 10% x 4. Commission payable to Z Profit for the period 01.04.2012 to 31.8.2012 = 1,80,000 x Less: Depreciation for the period 5 = ` 75,000 12 ` 6,000 Interest on capital for the period ` 7,500 (` 13,500) ` 61,500 Commission to Z @ 10% Net profit before commission = ` 61,500 Profit after 10% commission = 61,500 x 100 110 = ` 55,909 = ` 5,591 Commission @ 10% 16. Spread sheets are used in various areas of current business requirements. Some of its important advantages as an accounting tool are as follows: 1. Simple: It is simple to use and easy to understand. 2. Convenience: Most of the common functions like doing calculations, setting formulas, macros, replication of cell contents, etc. can be easily done in a spread sheet. 3. Grouping of heads: Grouping and regrouping of accounts can be done. 4. Presentations: Presentation can be made in various forms including graphical presentations like bar diagram, histogram, pie-chart, etc. 5. Security of data: Basic protection like restricted access and password protection of cell can be used to give security to the spread sheet data. From the above discussion, it may be concluded spread sheet is a very valuable accounting tool. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 37 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). If an entity whose turnover (excluding other income) exceeds rupees fifty crore in the immediately preceding accounting year, it does not fall 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. (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 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) Although legal title has not been transferred, the economic reality and substance is that the rights and beneficial interest in the immovable property have been transferred. Therefore, recording of disposal by the transferor would in substance represent the transaction entered into. In view of this, X Ltd. should record the sales and recognize the profit of ` 15 lakhs in its Statement of Profit and Loss. It should remove building account from its balance sheet. Further, in its Notes to Accounts , X Ltd. should disclose the following: Building has been sold and full consideration has been received and possession of the same has been handed over to the buyer. However, documentation and legal formalities are pending as on 31.3.2013. (b) As per Para 24 of AS 2 (Revised) Valuation of Inventories , materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net The Institute of Chartered Accountants of India 38 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 realizable value, the materials are written down to net realizable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realizable value. Therefore, in this case, USA Ltd. will value the stock of raw material at ` 30,00,000 (10,000 kg. @ ` 300 per kg.). 19. (a) (i) Operating Activities: b, c, f & i. (ii) Investing Activities: a, g . (iii) Financing Activities: d, e, h. (b) Table showing computation of net loss on retirement of a revalued asset of Value Ltd. Particulars Original cost Less: SLM depreciation up to 4th year 100,00,000 2,50,000 4 years 10 years ` 1,00,00,000 39,00,000 Net book value at the end of 4th year or at the beginning of 5th year Add: Revaluation profit (credited to Revaluation Reserve) 61,00,000 Revised carrying amount 85,40,000 24,40,000 Revised residual value (2.5% of 85,40,000) = 2,13,500 Less: Depreciation for 5th, 6th and 7th years 85,40,000 2,13,500 3 years 6 years (41,63,250) Net book value at the end of 7th year or at the beginning of 8th year 43,76,750 Net realizable value on date of retirement Loss on retirement of plant 3,80,000 39,96,750 Less: Revaluation reserve Net loss charged to Statement of Profit and Loss (24,40,000) 15,56,750 20. (a) As per para 35 of AS 7 Construction Contracts , when it is probable that total contract cost will exceed total contract revenue, the expected loss should be recognised as an expense immediately. The amount of such loss is determined irrespective of whether or not work has commenced on the contract. Thus, Lucky Ltd. should recognize loss amounting ` 5 crores for the year ended 31st December, The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 39 2012. The contract should be reviewed at the end of the each accounting period till completion for additional losses to be incurred, if any. (b) Parkash Ltd. had sold goods to Jay Ltd. on credit worth for ` 250 crores and the sale was completed in all respects. Jay Ltd s decision to sell the same in the domestic market at a discount does not affect the amount recorded as sales by Parkash Ltd. The price discount of 15% offered by Parkash Ltd. after request of Jay Ltd. was not in the nature of a discount given during the ordinary course of trade because otherwise the same would have been given at the time of sale itself. Now, as far as Parkash Ltd is concerned, there appears to be an uncertainty relating to the collectability of the debt, which has arisen subsequent to the time of sale therefore, it would be appropriate to make a separate provision to reflect the uncertainty relating to collectability rather than to adjust the amount of revenue originally recorded. Therefore, such discount should be written off to the profit and loss account and not shown as deduction from the sales figure. The Institute of Chartered Accountants of India

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