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CA IPCC : Question Paper (with Answers) - ADVANCED ACCOUNTING Nov 2009

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CA IPCC
Tilak Vidyalaya Higher Secondary School (TVHSS), Kallidaikurichi

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PAPER 5 : ADVANCED ACCOUNTING All questions are compulsory Working notes should form part of the answer. Wherever necessary, suitable assumption(s) may be made and disclosed by the candidates. Question 1 Answer the following questions: (i) Goods worth Rs. 5,00,000 were destroyed due to flood in September, 2006. A claim was lodged with insurance company. But no entry was passed in the books for insurance claim in the financial year 2006-07. In March, 2008, the claim was passed and the company received a payment of Rs.3,50,000 against the claim. Explain the treatment of such receipt in final accounts for the year ended 31st March, 2008. (ii) Briefly indicate the items which are included in the expressions Borrowing Cost as per AS 16. (iii) Sterling Ltd. purchased a plant for US $ 20,000 on 31 st December, 07 payable after 4 months. The company entered into a forward contract for 4 months @ Rs. 48.85 per dollar. On 31st December, 07, the exchange rate was Rs. 47.50 per dollar. How will you recognize the profit or loss on forward contract in the books of Sterling Limited for the year ended 31 st March, 2008. (iv) A company created a provision of Rs. 75,000 for staff welfare while preparing the financial statements for the year 2007-08. On 31st March, in a meeting with staff welfare association, it was decided to increase the amount of provision for staff welfare to Rs. 1,00,000. The accounts were approved by Board of Directors on 15 th April, 2008. Explain the treatment of such revision in financial statements for the year ended 31st March, 2008. (v) Explain Employee s stock option plan . (vi) A company entered into an agreement to sell its immovable property to another company for 35 lakhs. The property was shown in the Balance Sheet at Rs.7 lakhs. The agreement to sell was concluded on 15 th February, 2008 and sale deed was registered on 30 th April, 2008. The financial statements for the year 2007-08 were approved by the board on 12th May,2008. You are required to state, how this transaction would be dealt with in the financial statements for the year ended 31 st March, 2008. INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 (vii) A Ltd. entered into a binding contract with C Ltd. to buy a machine for Rs. 1,00,000. The machine is to be delivered on 15 th February, 2009. On 1 st January, 2009, A Ltd. changed its process of production. The new process will not require the machine ordered and it shall have to be scrapped after delivery. The expected scrap value of the machine is nil. Explain how A Ltd. should recognise the entire transaction in the books of account for the year ended 31st March, 2009. (viii) Goods are transferred from Department P to Department Q at a price 50% above cost. If closing stock of Department Q is Rs. 27,000, compute the amount of stock reserve. (ix) X Ltd. received a revenue grant of Rs.10 crores during 2006-07 from Government for welfare activities to be carried on by the company for its employees. The grant prescribed the conditions for utilization. However during the year 2008-09, it was found that the prescribed conditions were not fulfilled and the grant should be refunded to the Government. State how this matter will have to be dealt with in the financial statements of X Ltd. for the year ended 2008-09. (x) Conversion of debt into equity is a non-cash transaction. Comment. (10 2 = 20 Marks) Answer (i) As per the provisions, of AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies , prior period items are income or expenses, which arise in the current period as a result of error or omissions in the preparation of financial statements of one or more prior periods. Further, the nature and amount of prior period items should be separately disclosed in the statement of profit and loss. In the given situation, it is clearly a case of error in preparation of financial statements for the financial year 2006-07. Hence claim received in the financial year 2007-08 is a prior period item and should be separately disclosed in the statement of profit and loss for the year ended 31st March, 2008. (ii) Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. Borrowing cost may include: (a) Interest and commitment charges on bank borrowings and other short term and long term borrowings. (b) Amortisation of discounts or premiums relating to borrowings. (c) Amortisation of ancillary costs incurred in connection with the arrangement of borrowings. (d) Finance charges in respect of assets required under finance leases or under other similar arrangements; and (e) Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. 2 PAPER 5 : ADVANCED ACCOUNTING (iii) Calculation of profit or loss to be recognised in the books of Sterling Limited Forward contract rate Less: Rs.48.85 Spot rate Rs.47.50 Loss Rs.1.35 Forward Contract Amount $20,000 Total loss on entering into forward contract = ($20,000 Rs.1.35) Contract period Loss for the period Rs.27,000 4 months 1 st January, 2008 to 31st March, 2008 i.e. 3 3 months falling in the year 2007-2008 will be Rs.27,000 = 4 Rs.20,250 Balance loss of Rs.6,750 (i.e. Rs. 27,000 Rs. 20,250) for the month of April, 2008 will be recognised in the financial year 2008-2009. (iv) As per AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies , the change in amount of staff welfare provision amounting Rs. 25,000 is neither a prior period item nor an extraordinary item. It is a change in estimate, which has been occurred in the year 2007-2008. As per the provisions of the standard, normally, all items of income and expense which are recognised in a period are included in the determination of the net profit or loss for the period. This includes extraordinary items and the effects of changes in accounting estimates. However, the effect of such change in accounting estimate should be classified using the same classification in the statement of profit and loss, as was used previously, for the estimate. (v) Employee Stock Option Plan is a plan in which option is given for a specified period, to employees of a company, which gives such directors, officers or employees the right, but not the obligation, to purchase or subscribe, the shares of the enterprise at a fixed or determinable price. (vi) According to para 13 of AS 4 Contingencies and Events Occurring after the Balance Sheet Date , assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date. In the given case, sale of immovable property was carried out before the closure of the books of accounts. This is clearly an event occurring after the balance sheet date but agreement to sell was effected on 15th February 2009 i.e. before the balance sheet date. Registration of the sale deed on 30th April, 2009, simply provides additional information relating to the conditions existing at the balance sheet date. Therefore, adjustment to assets for sale of immovable property is necessary in the financial statements for the year ended 31st March, 2009. 3 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 (vii) A Ltd. entered into a binding contract with C Ltd. and therefore, it should recognise a liability of Rs.1,00,000. The entire amount of purchase price of the machine should be recognised in the year ended 31st March, 2009 as loss because future economic benefit from the machine to the enterprise is improbable. The accounting entry should be as follows: Rs. Profit and Loss A/c Dr. Rs. 1,00,000 To C Ltd. 1,00,000 (Being value of machinery fully depreciated because of change in the process of production i.e. obsolescence) (viii) Calculation of Stock Reserve Rs. Closing stock of Department Q 27,000 Goods sent by Department P to Department Q at a price 50% above cost Rs.27,000 50 Hence, profit of Department P included in the stock will be 150 9,000 Amount of stock reserve will be Rs.9,000 (ix) As per para 11 of AS 12 Government Grants , a grant that became refundable should be treated as an extra-ordinary item as per Accounting Standard 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies . The amount refundable in respect of a government grant related to revenue, is applied first against any unamortised deferred credit remaining in respect of the grant. To the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exists, the amount is charged immediately to profit and loss statement. Therefore, refund of grant of Rs. 10 crores should be shown in the profit and loss account of the company as an extra-ordinary item during the financial year 2008-09. (x) Sometimes debenture holders are offered an option to convert their debts into equity by issuing equity share capital. In such transactions, debentures are redeemed by issuing fresh share capital. Journal Entry will be as follows: Debentures A/c Dr. To Equity share capital A/c In the above entry, no cash account is opened. Therefore, one can conclude that the conversion of debt to equity is a non-cash transaction. 4 PAPER 5 : ADVANCED ACCOUNTING Question 2 Sun Ltd. and Moon Ltd. were amalgamated on and from 1 st April, 2009. A new company Star Ltd. was formed to take over the business of the existing companies. The Balance Sheets of Sun Ltd. and Moon Ltd. as at 31st March, 2009 are given below: (Rs. in lakhs) Sun Ltd. Liabilities Moon Ltd. Share capital: Assets Sun Ltd. Moon Ltd. Fixed Assets: Equity shares of Rs.100 each 12% Preference shares of Rs.100 each 400 375 Land & Building 275 200 150 100 Plant & Machinery Investments 175 75 125 25 Reserves and surplus: Current Assets, Loans and Advances: Revaluation reserve General reserve 75 85 50 Stock 75 Sundry Debtors 175 125 125 150 Investment reserve 25 25 Bills Receivables Cash and Bank balances 25 150 25 100 25 15 30 15 135 60 75 35 1,000 750 1,000 750 allowance Profit and Loss Account Secured loan: 10% Debentures (Rs.100 each) Current liabilities provisions: Sundry creditors Acceptance and Additional information: (a) Star Ltd. will issue 5 equity shares for each equity share of Sun Ltd. and 4 equity shares for each equity share of Moon Ltd. The shares are to be issued @ Rs. 30 each, having a face value of Rs. 10 per share. (b) Preference shareholders of the two companies are issued equivalent number of 15% preference shares of Star Ltd. at a price of Rs. 150 per share (face value Rs. 100). (c) 10% Debentureholders of Sun Ltd. and Moon Ltd. are discharged by Star Ltd., issuing such number of its 15% Debentures of Rs.100 each so as to maintain the same amount of interest. 5 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 (d) Investment allowance reserve is to be maintained for 4 more years. (e) Liquidation expenses are: Sun Ltd. Rs.2,00,000 Moon Ltd. Rs.1,00,000 It was decided that these expenses would be borne by Star Ltd. (f) All the assets and liabilities of Sun Ltd. and Moon Ltd. are taken over at book value. (g) Authorised equity share capital of Star Ltd. is Rs. 5,00,00,000, divided into equity shares of Rs. 10 each. After issuing required number of shares to the Liquidators of Sun Ltd. and Moon Ltd., Star Ltd. issued balance shares to Public. The issue was fully subscribed. Required : Prepare the Balance Sheet of Star Ltd. as at 1 st April, 2009 after amalgamation has been carried out on the basis of Amalgamation in the nature of purchase. (16 Marks) Answer Balance Sheet of Star Ltd. as at 1 st April, 2009 (Rs. in Lakhs) Liabilities Amount Assets Amount Share capital: Fixed assets: Authorised share capital Goodwill (10+2+1) 50,00,000 Equity shares of Rs.10 each 500 building 475 machinery 300 Land and (275+200) Plant and (175+125) Issued and subscribed 13 50,00,000 Equity shares of Rs.10 each 500 Investment (75+25) 2,50,000 Preference shares of Rs.100 each 250 100 Current assets, loans and advances: (Of the above shares 35,00,000 equity shares and all preference shares are allotted as fully paid up for consideration other than cash) Stock (175+125) 300 Reserves and surplus: Sundry debtors (125+150) 275 Cash and bank (250+150-3) 397 Securities premium (75 + 50 + 400 + 300) 825 Investment allowance reserve (25+25) 50 Secured Loans: Bills receivables (25+25) Miscellaneous expenditure: 6 50 PAPER 5 : ADVANCED ACCOUNTING 15% Debentures (20+10) 30 Unsecured loans: Nil Amalgamation account adjustment 50 Current liabilities and provisions: Acceptances (75+35) 110 Sundry creditors (135+60) 195 1,960 1,960 Working Notes: 1. Computation of Purchase Consideration Rs. in lakhs Sun Ltd. Moon Ltd. (a) Preference shareholders: 1,50,00,000/100 = 1,50,000 shares Share capital = 1,50,000 shares Rs.100 each 150 Securities premium = 1,50,000 shares Rs.50 each 75 225 1,00,00,000/100 = 1,00,000 shares Share capital = 1,00,000 shares Rs.100 each Securities premium= 1,00,000 shares Rs.50 each 100 50 150 (b) Equity shareholders: 4,00,00,000/100 5 = 20,00,000 shares Share capital = 20,00,000 shares Rs.10 each 200 Securities premium=20,00,000 shares Rs.20 each 400 600 3,75,00,000/100 4 = 15,00,000 shares Share capital = 15,00,000 shares Rs.10 each 150 Securities premium = 15,00,000 shares Rs.20 each 300 Amount of purchase consideration 2. 450 825 Calculation of number of debentures issued 600 Rs. in lakhs Sun Ltd. 30 10% Debentures of Rs.100 each 15% Debentures to be issued to maintain same amount of interest: Interest = Rs.30,00,000 x 10% = Rs.3,00,000 7 Moon Ltd. 15 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 Number of 15% Debentures = Rs.3,00,000 100 15 20 Interest = Rs.15,00,000 x 10% Number of 15% Debentures = 3. Rs.1,50,000 100 15 10 Net assets taken over Rs. in lakhs Sun Ltd. Moon Ltd. Land and building 275 200 Plant and machinery 175 125 75 25 Stock 175 125 Sundry debtors 125 150 Bills receivable 25 25 Cash and bank 150 100 1,000 750 Assets taken over Investments Less: Liabilities taken over Debentures 20 10 Sundry Creditors 135 60 Bills payable 75 35 230 105 Net assets taken over 770 645 Purchase consideration 825 600 (Goodwill)/ Capital Reserve (55) 45 Net goodwill 4. (10) Liquidation expenses of Sun Ltd. and Moon Ltd., Rs.2 lakhs and Rs.1 lakhs respectively will be debited to Goodwill account in the books of Star Ltd. 8 PAPER 5 : ADVANCED ACCOUNTING Question 3 The Balance Sheet of Dee Limited on 31 st March, 2009 was as follows: Balance Sheet as at 31 st March, 2009 Liabilities Amount Rs. Assets Share capital: Authorised capital 50,000, Equity Rs.10 each Fixed assets (at cost less depreciation) shares of Debenture redemption fund investment 5,00,000 Issued and subscribed capital 25,000 Equity shares of Rs.10 each fully paid up 2,50,000 Reserves and surplus: General reserve 2,00,000 1,00,000 2,50,000 Secured loans: 12% Convertible debentures (5,000 Debentures of Rs.100 each) 8,00,000 2,75,000 Profit and loss A/c Debenture redemption reserve 5,00,000 Other secured loans Current liabilities provisions Proposed dividend and Cash balance Other current assets Amount Rs. 2,50,000 10,00,000 2,50,000 6,00,000 25,000 22,50,000 At the General Meeting it was resolved to: 22,50,000 1. Pay proposed dividend of 10% in cash. 2. Give existing shareholders the option to purchase one share of Rs.10 each at Rs.15 for every five shares held. This option was taken up by all the shareholders. 3. Redeem the debentures at a premium of 5% and also confer option to the debentureholders to convert 50% of their holding into equity shares at a predetermined price of Rs. 15 per share and balance payment to be made in cash. Holders of 3,000 debentures opted to get their debentures redeemed in cash only while the rest opted for getting the same converted into equity shares as per the terms of issue. Debenture redemption fund investment realized Rs. 1,80,000 on sales. 9 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 You are required to redraft the Balance Sheet after giving effects to the right issue and redemption of debentures. Also show the calculations in respect of number of equity shares issued and cash payment. (16 Marks) Answer (a) Balance Sheet of Dee Ltd. as at 31st March, 2009 Liabilities Authorised Capital 50,000 Equity shares of Rs.10 each Issued and subscribed capital 37,000 Equity shares of Rs.10 each fully paid up Amount Assets (Rs.) Fixed Assets (at cost 5,00,000 less depreciation) Other current assets Securities premium (W.N.3) Profit and loss A/c 8,00,000 10,00,000 3,70,000 Reserves & surplus General reserve (W.N.2) Amount (Rs.) Cash balance (W.N.4) 60,000 4,80,000 60,000 1,00,000 Secured loan Other secured loan 2,50,000 Current liabilities and provisions 6,00,000 18,60,000 18,60,000 (b) Calculation of number of equity shares issued: I. Number of equity shares issued as right issue (25,000 shares 5) 5,000 shares II. Debentureholders who opted for the scheme of conversion into equity shares 2,000 debentureholders opted for the scheme Total value (2,000 debentures Rs.100) Premium on redemption @ 5% Rs.2,00,000 Rs.10,000 Rs.2,10,000 50% of their holding converted into equity shares 10 Rs.1,05,000 PAPER 5 : ADVANCED ACCOUNTING Number of equity shares to be issued to debentureholders Rs.1,05,000 = Rs.15 Total number of equity shares issued (5,000 + 7,000) shares 7,000 shares 12,000 shares (c) Cash payment to debentureholders: Rs. I. 3,000 Debentureholders preferred cash Total cash paid to them 3,00,000 Premium on redemption @ 5% II. 15,000 3,15,000 2,000 Debentureholders opted for the scheme Total value 2,00,000 Add: Premium on redemption @ 5% 10,000 2,10,000 50% of their value converted into equity shares 1,05,000 Balance paid to debentureholders in cash 1,05,000 Total cash paid to debentureholders Working Notes: 1. 4,20,000 Debenture Redemption Reserve Account Particulars Rs. To Premium on redemption of debentures (15,000 + 10,000) 25,000 To Loss on sale of Debenture Redemption Reserve Investment Particulars 20,000 To General Reserve By Balance b/d Rs. 2,05,000 2,50,000 2. 2,50,000 2,50,000 General Reserve Account Particulars Rs. Particulars Rs. To Balance c/d 4,80,000 By Balance b/d By Debenture (W.N.1) 4,80,000 2,75,000 redemption reserve 2,05,000 4,80,000 11 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 3. Calculation of Securities Premium Number of equity shares of Rs.10 issued at Rs.15 per share 12,000 shares Security premium per share Rs.5 Total securities premium (12,000 shares x Rs.5) 4. Rs.60,000 Cash Account Particulars Amount (Rs.) To Balance b/d Particulars Amount (Rs.) 2,50,000 By Proposed dividend To Equity shareholders (5,000 15) 25,000 75,000 By Debentureholders (Rs.1,05,000+Rs.3,15,000) To Sale of Debenture By Balance c/d Redemption Reserve Investment 1,80,000 4,20,000 60,000 5,05,000 5,05,000 Question 4 DM Ltd., Delhi has a branch in London. London branch is an integral foreign operation of DM Ltd. At the end of the year 31 st March, 2009, the branch furnishes the following trial balance in U.K. Pound: Particulars Dr. Fixed assets (Acquired on 1st April, 2005) Cr. 24,000 1st Stock as on April, 2008 Goods from head office 11,200 64,000 Expenses Debtors 4,800 4,800 Creditors Cash at bank 3,200 1,200 Head office account 22,800 Purchases Sales 12,000 96,000 1,22,000 12 1,22,000 PAPER 5 : ADVANCED ACCOUNTING In head office books, the branch account stood as shown below: London Branch A/c Particulars Amount Particulars Amount Rs. Rs. To Balance b/d 20,10,000 By Bank A/c 52,16,000 To Goods sent to branch 49,26,000 By Balance c/d 17,20,000 69,36,000 69,36,000 The following further information are given: (a) Fixed assets are to be depreciated @ 10% p.a on straight line basis. (b) On 31st March, 2009 : Expenses outstanding Prepaid expenses Closing stock (c) Rate of Exchange: - 400 200 8,000 1st April, 2005 - Rs. 70 to 1 1st April, 2008 - Rs. 76 to 1 31st March, 2009 - Rs. 77 to 1 Average You are required to prepare: - Rs. 75 to 1 (i) Trial balance, incorporating adjustments of outstanding and prepaid expenses, converting U.K. pound into Indian rupees. (ii) Trading and profit and loss account for the year ended 31st March, 2009 and the Balance Sheet as on that date of London branch as would appear in the books of Delhi head office of DM Ltd. (16 Marks) Answer (i) Trial Balance of London Branch as on 31 st March, 2009 Particulars U.K. Pound Rate per U.K. Pound Dr. (Rs.) Fixed assets 24,000 70 16,80,000 Stock (as on 1 st April, 2008) 11,200 76 8,51,200 Goods from head office 64,000 - 49,26,000 13 Cr. (Rs.) INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 Sales 96,000 75 Purchases 12,000 75 9,00,000 Expenses (4,800 + 400 200) 5,000 75 3,75,000 Debtors 4,800 77 3,69,600 Creditors 3,200 77 2,46,400 Outstanding expenses 400 77 30,800 Prepaid expenses 200 77 15,400 1,200 77 92,400 Cash at bank Head office account 72,00,000 - 17,20,000 Difference in foreign exchange translation 12,400 92,09,600 92,09,600 Closing stock will be ( 8,000 Rs. 77) = Rs.6,16,000 (ii) Trading and Profit & Loss Account for the year ended 31st March, 2009 Particulars Amount (Rs.) To Opening stock 8,51,200 To To Purchases Goods from head office 9,00,000 49,26,000 To Gross profit Particulars Amount (Rs.) By Sales 72,00,000 11,38,800 By Closing stock 6,16,000 78,16,000 78,16,000 To Expenses 3,75,000 By Gross profit 11,38,800 To Depreciation 1,68,000 By Profit due to foreign exchange difference To Net profit 6,08,200 11,51,200 (iii) Liabilities Head office Balance Add: Net profit 12,400 11,51,200 Balance Sheet as on 31 st March, 2008 Rs. Rs. Assets Fixed Assets Less: Depreciation 17,20,000 6,08,200 23,28,200 Debtors 14 Rs. Rs. 16,80,000 1,68,000 15,12,000 3,69,600 PAPER 5 : ADVANCED ACCOUNTING Outstanding expenses 30,800 Creditors Prepaid expenses 2,46,400 15,400 Closing stock Cash at bank 6,16,000 92,400 26,05,400 26,05,400 Question 5 (a) From the following information, you are required to prepare Profit and Loss Account of Zee Bank Ltd., for the year ending 31 st March, 2009: Rs. Interest and Discount Other Income Income on investments 44,00,000 1,25,000 5,000 Rs. Interest expended 13,60,000 Operating expenses 13,31,000 Interest on balance with RBI 25,000 Additional information: (a) Rebate on bills discounted to be provided for Rs. 15,000 (b) Classification of advances: Rs. Standard assets 25,00,000 Sub-standard assets 5,60,000 Doubtful assets not covered by security 2,55,000 Doubtful assets covered by security For 1 year 25,000 For 2 years 50,000 For 3 years 1,00,000 For 4 years 75,000 Loss assets (c) Make tax provision @ 35% 1,00,000 (d) Profit and Loss A/c (Cr.) Rs. 40,000. (b) Dee Limited furnishes the following Balance Sheet as at 31 st March, 2008: Rs. 000 Rs. 000 Liabilities Share capital: Authorised capital 30,00 15 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 Issued and subscribed capital: 2,50,000 Equity shares of Rs.10 each fully paid up 25,00 2,000, 10% Preference shares of Rs.100 each (Issued two months back for the purpose of buy back) 2,00 27,00 Reserves and surplus: Capital reserve 10,00 Revenue reserve 30,00 Securities premium 22,00 Profit and loss account 35,00 97,00 Current liabilities and provisions: 14,00 1,38,00 Assets Fixed assets 93,00 Investments 30,00 Current assets, loans and advances (including cash and bank balance) 15,00 1,38,00 The company passed a resolution to buy back 20% of its equity capital @ Rs.50 per share. For this purpose, it sold all of its investment for Rs.22,00,000. You are required to pass necessary journal entries and prepare the Balance Sheet. (8 + 8 = 16 Marks) Answer (a) Form B Zee Bank Ltd. Profit & Loss Account for the year ended 31 st March, 2009 Schedule No. Year ended 31st March, 2009 Interest Earned 13 44,30,000 Other Income 14 1,25,000 Particulars I. Income: Total 45,55,000 16 PAPER 5 : ADVANCED ACCOUNTING II. Expenditure Interest Expended Operating Expense 15 16 13,60,000 13,31,000 Provisions and Contingencies (W.N.3) Total III. 10,17,050 37,08,050 Profit/Loss Net profit for the year Profit brought forward Total IV. 8,46,950 40,000 8,86,950 Appropriations: Transfer to Statutory Reserve (@ 25% on Rs.8,46,950) 2,11,737.50 Balance carried forward to Balance Sheet 6,75,212.50 Total 8,86,950 Schedule 13: Interest Earned Particulars Rs. Interest and discount 44,00,000 Income on Investment 5,000 Interest on balance with RBI 25,000 Total 44,30,000 Working Notes: 1. Calculation of provisions on non-performing assets Amount Rs. Particulars Standard assets % of Provisions Provision Rs. 25,00,000 0.40 10,000 5,60,000 10 56,000 2,55,000 100 2,55,000 For 1 year 25,000 20 5,000 For 2 years 50,000 30 15,000 For 3 years 1,00,000 30 30,000 Sub-standard assets Doubtful assets not covered by security Doubtful assets covered by security It is assumed that the all sub-standard assets are fully secured. 17 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 For 4 years 75,000 75,000 1,00,000 Loss assets 100 100 1,00,000 5,46,000 2. Calculation of provision for tax Tax = 35% of [Total income Total expenditure (excluding tax)]. Tax = 35% of [Rs.44,30,000+Rs.1,25,000 (Rs.13,60,000+Rs.13,31,000+Rs.5,46,000+Rs.15,000)] Tax = Rs.4,56,050 3. Total amount of provisions and contingencies = Provision for non-performing assets + Provision for tax + Rebate on bills discounted = Rs.5,46,000 + Rs.4,56,050 + Rs.15,000 = Rs.10,17,050 (b) In the books of Dee Limited Journal Entries Particulars Dr. Cr. (Rs. in 000) (i) Bank Account Dr. 22,00 Profit and Loss Account Dr. 8,00 To Investment Account 30,00 (Being the investments sold at loss for the purpose of buy back) (ii) Equity Share Capital Account Dr. 5,00 Premium payable on buy back Account Dr. 20,00 To Equity shares buy back Account 25,00 (Being the amount due on buy back) (iii) Securities Premium Account Dr. 20,00 To Premium payable on buy back Account (Being the premium payable on buy back adjusted against securities premium account) 18 20,00 PAPER 5 : ADVANCED ACCOUNTING (iv) Dr. Revenue Reserve Account 3,00 To Capital Redemption Reserve Account 3,00 (Being the amount equal to nominal value of equity shares bought back out of free reserves transferred to capital redemption reserve account) (v) Equity shares buy-back Account Dr. 25,00 To Bank Account 25,00 (Being the payment made on buy back) Balance Sheet of Dee Limited as on 1 st April, 2008 (After buy back of shares) Liabilities Rs. 000 Rs. 000 Share capital Authorised capital: 30,00 Issued and subscribed capital: 2,00,000 Equity shares of Rs.10 each fully paid up 2,000 10% Preference shares of Rs.100 each fully paid up 20,00 2,00 22,00 Reserves and surplus: Capital reserve 10,00 Capital redemption reserve 3,00 Revenue reserve 29,00 Profit and loss A/c (35,00 8,00) 27,00 Current liabilities and provisions 69,00 14,00 10,500 Fixed Assets 93,00 Current assets loans and advances (including cash and bank balance) (15,00+22,00- 25,00) 12,00 10,500 Alternatively, Securities Premium account may also be used for transfer to Capital Redemption Reserve Account. 19 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 Question 6 (a) P, Q and R are partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as on 31st March, 2009 is as follows: Liabilities Rs. Capital Accounts: Assets Plant & Machinery P 1,20,000 Q 48,000 R 24,000 Rs. 1,08,000 Fixtures Stock 1,92,000 Reserve fund 60,000 Creditors 24,000 60,000 Sundry debtors 48,000 Cash 60,000 48,000 3,00,000 3,00,000 They decided to dissolve the firm. The following are the amounts realized from the assets: Rs. Plant and Machinery 1,02,000 Fixtures 18,000 Stock 84,000 Sundry debtors 44,400 Creditors allowed a discount of 5% and realization expenses amounted to Rs.1,500. A bill for Rs.4,200 due for sales tax was received during the course of realization and this was also paid. You are required to prepare: (a) Realization account (b) Partners capital accounts (c) Cash account. (6 Marks) (b) Answer the following: (i) Axe Limited began construction of a new plant on 1 st April, 2008 and obtained a special loan of Rs.4,00,000 to finance the construction of the plant. The rate of interest on loan was 10%. 20 PAPER 5 : ADVANCED ACCOUNTING The expenditure that were made on the project of plant were as follows: Rs. 1st April, 2008 1st 5,00,000 August, 2008 12,00,000 1st January, 2009 2,00,000 The company s other outstanding non-specific loan was Rs.23,00,000 at an interest rate of 12%. The construction of the plant completed on 31 st March, 2009. You are required to: (a) Calculate the amount of interest to be capitalized as per the provisions of AS 16 Borrowing Cost . (b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the plant. (5 Marks) (ii) Compute Basic Earnings per share from the following information: Date Particulars 1st April, 2008 Balance at the beginning of the year 1st August, 2008 Issue of shares for cash 600 31st March, 2009 Buy back of shares 500 Net profit for the year ended 31 st No. of shares 1,500 March, 2009 was Rs.2,75,000. (5 Marks) Answer (a) Realisation Account Particulars Amount Amount To Debtors A/c 48,000 By Creditors A/c To Stock A/c 60,000 By Cash A/c (assets realised): To Fixtures A/c 24,000 To Plant and machinery A/c 1,08,000 To Cash A/c (Creditors) 45,600 To Cash A/c(Sales Tax) 4,200 To Cash A/c (realisation expenses) Plant & Machinery 1,500 48,000 1,02,000 Fixtures Stock 84,000 Debtors 21 18,000 44,400 2,48,400 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 To Profit on realisation P 2,040 Q 2,040 R 1,020 5,100 2,96,400 2,96,400 Partners Capital Accounts Particulars P Q 1,46,040 74,040 R Particulars P Q R (Bal. fig.) 37,020 By Balance b/d 1,20,000 48,000 24,000 By Reserve fund To Cash A/c 24,000 24,000 12,000 By Realisation A/c (Profit) 1,46,040 74,040 37,020 2,040 2,040 1,020 1,46,040 74,040 37,020 Cash Account Particulars To Balance b/d To Realisation A/c (assets realised) Amount (Rs.) Particulars Amount (Rs.) 60,000 By Realisation A/c (Creditors) 45,600 2,48,400 By Realisation A/c (Expenses) 1,500 By Realisation A/c (Sales tax) 4,200 By Partners Capital Accounts P Q 22 74,040 R 3,08,400 1,46,040 37,020 3,08,400 PAPER 5 : ADVANCED ACCOUNTING (b) Total expenses to be capitalised for borrowings as per AS 16 Borrowing Costs : Rs. Cost of Plant (5,00,000 + 12,00,000 + 2,00,000) Add: 19,00,000 Amount of interest to be capitalised (W.N.2) 1,54,000 20,54,000 Journal Entry Rs. 31st March, 2009 Plant A/c Dr. Rs. 20,54,000 To Bank A/c 20,54,000 [Being amount of cost of plant and borrowing cost thereon capitalised] Working Notes: 1. Computation of average accumulated expenses Rs. 1st April, 2008 1st August, 2008 1st January, 2009 Rs.5,00,000 12 12 Rs.12,00,000 Rs.2,00,000 8 12 3 12 5,00,000 8,00,000 50,000 13,50,000 2. Amount of interest capitalised Rs. On specific borrowing (Rs. 4,00,000 10%) 40,000 On non-specific borrowings (Rs. 13,50,000 Rs. 4,00,000) 12% 1,14,000 Amount of interest to be capitalised 1,54,000 23 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009 (b) (ii) Computation of weighted average number of shares outstanding during the period Date No. of equity shares Period outstanding Weights (months) Weighted average number of shares (1) (2) (3) (4) (5) = (2) x (4) 1st April, 2008 1,500 (Opening) 12 months 12/12 1,500 1st August, 2008 600 (Additional issue) 8 months 8/12 400 31st March, 2009 500 (Buy back) 0 months 0/12 - Total Basic Earnings Per Share = 1,900 = Net Profit or Loss for the period attributable to Equity Shareholders Weighted Average Number of Equity Shares outstanding during the period Rs. 2,75,000 = Rs.144.74 1,900 shares 24

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