
	Trending ▼ ICSE CBSE 10th ISC CBSE 12th CTET GATE UGC NET Vestibulares ResFinder

CA IPCC : Question Paper (with Answers) - ADVANCED ACCOUNTING May 2013

27 pages, 21 questions, 0 questions with responses, 0 total responses,

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

+Fave Message

Profile Timeline Uploads Q & A

Home > ca_ipcc > F Also featured on: rohityadav27

Instantly get Model Answers to questions on this ResPaper. Try now!
NEW ResPaper Exclusive!

Formatting page ...

DISCLAIMER The Suggested Answers hosted in the website do not constitute the basis for evaluation of the students answers in the examination. The answers are prepared by the Faculty of the Board of Studies with a view to assist the students in their education. While due care is taken in preparation of the answers, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not in anyway responsible for the correctness or otherwise of the answers published herein. The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING Question No. 1 is compulsory Answer any five questions from the remaining six questions. Wherever necessary, suitable assumption(s) may be made by the candidates. Working Notes should form part of the answer. Question 1 Answer the following questions: (a) Net profit for the year 2012 : ` 24,00,000 Weighted average number of equity shares outstanding during the year 2012: 10,00,000 Average Fair value of one equity share during the year 2012 : ` 25.00 Weighted average number of shares under option during the year 2012: 2,00,000 Exercise price for shares under option during the year 2012 : ` 20.00 Compute Basic and diluted earnings per share. (b) Closing Stock for the year ending on 31st March, 2013 is ` 1,50,000 which includes stock damaged in a fire in 2011-12. On 31st March, 2012, the estimated net realizable value of the damaged stock was ` 12,000. The revised estimate of net realizable value of damaged stock included in closing stock at 2012-13 is ` 4,000. Find the value of closing stock to be shown in Profit and Loss Account for the year 2012-13, using provisions of Accounting Standard 5. (c) An engineering goods company provides after sales warranty for 2 years to its customers. Based on past experience, the company has been following policy for making provision for warranties on the invoice amount, on the remaining balance warranty period: Less than 1 year : 2% provision More than 1 year : 3% provision The company has raised invoices as under: Invoice Date Amount ` 19th January, 2011 January, 2012 40,000 25,000 15th October, 2012 90,000 29th Calculate the provision to be made for warranty under Accounting Standard 29 as at 31st March, 2012 and 31st March, 2013. Also compute amount to be debited to Profit and Loss Account for the year ended 31st March, 2013. The Institute of Chartered Accountants of India 2 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 (d) An enterprise acquired patent right for ` 400 lakhs. The product life cycle has been estimated to be 5 years and the amortization was decided in the ratio of estimated future cash flows which are as under: Year Estimated Future Cash Flows (` in lakhs) 1 200 2 200 3 200 4 100 5 100 After 3rd year, it was ascertained that the patent would have an estimated balance future life of 3 years and the estimated cash flow after 5th year is expected to be ` 50 lakhs. Determine the amortization under Accounting Standard 26. (4 x 5 = 20 Marks) Answer (a) Computation of earnings per share Earnings (`) Net profit for the year 2012 Shares 24,00,000 Weighted average number of shares outstanding during the year 2012 10,00,000 ` 2.40 Basic earnings per share Number of shares under option Number of shares that would have been issued at fair value: (2,00,000 x 20.00)/25.00 Diluted earnings per share Earnings per share 2,00,000 -* (1,60,000) 24,00,000 10,40,000 ` 2.31 *The earnings have not been increased as the total number of shares has been increased only by the number of shares (40,000) deemed for the purpose of computation to have been issued for no consideration. (b) The fall in estimated net realisable value of damaged stock ` 8,000 is the effect of change in accounting estimate. As per para 25 of AS 5 Net Profit or Loss the Period, Prior Period Items and Changes in Accounting Policies , the effect of a 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. It is presumed that the loss by fire in the year ended 31.3.2012, i.e. difference of cost and NRV was shown in the profit and loss account as an extra-ordinary item. Therefore, in the year 2012-13, revision in The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING 3 accounting estimate should also be classified as extra-ordinary item in the profit and loss account and closing stock should be shown excluding the value of damaged stock. Value of closing stock for the year 2012-13 will be as follows: ` Closing Stock (including damaged goods) 1,50,000 Less: Revised value of damaged goods (4,000) Closing stock (excluding damaged goods) 1,46,000 (c) Provision to be made for warranty under AS 29 Provisions, Contingent Liabilities and Contingent Assets As at 31st March, 2012 = ` 40,000 x .02 + ` 25,000 x .03 = ` 800 + ` 750 = ` 1,550 As at 31st March, 2013 = ` 25,000 x .02 + ` 90,000 x .03 = ` 500 + ` 2,700 = ` 3,200 Amount debited to Profit and Loss Account for year ended 31st March, 2013 ` Balance of provision required as on 31.03.2013 Less: Opening Balance as on 1.4.2012 3,200 (1,550) Amount debited to profit and loss account 1,650 Note: No provision will be made on 31st March, 2013 in respect of sales amounting ` 40,000 made on 19th January, 2011 as the warranty period of 2 years has already expired. (d) Amortization of cost of patent as per AS 26 Year Estimated future cash flow (` in lakhs) Amortization Ratio Amortized Amount (` in lakhs) 1 2 200 200 .25 .25 100 100 3 4 200 100 .25 .40 (Revised) 100 40 5 6 100 50 .40 (Revised) .20 (Revised) 40 20 400 The Institute of Chartered Accountants of India 4 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 In the first three years, the patent cost will be amortised in the ratio of estimated future cash flows i.e. (200: 200: 200: 100: 100). The unamortized amount of the patent after third year will be ` 100 (400-300) which will be amortised in the ratio of revised estimated future cash flows (100:100:50) in the fourth, fifth and sixth year. Question 2 The following is the Balance Sheet of M/s. P and Q as on 31 st March, 2012: Liabilities ` Assets Capital Accounts: ` Machinery 54,000 50,000 Furniture 30,000 Investment 5,000 50,000 Reserves Loan Account of Q 20,000 Stock 15,000 Debtors 20,000 21,000 Creditors 40,000 Cash P Q 1,55,000 5,000 1,55,000 It was agreed that Mr. R is to be admitted for a fourth share in the future profits from 1st April, 2012. He is required to contribute cash towards goodwill and ` 15,000 towards capital. The following further information is furnished: (a) P & Q share the profits in the ratio 3 : 2. (b) P was receiving salary of ` 750 p.m. from the very inception of the firm in 2005 in addition to share of profit. (c) The future profit ratio between P, Q & R will be 2:1:1. P will not get any salary after the admission of R. (d) It was agreed that the value of goodwill of the firm shall appear in the books of the firm. The goodwill of the firm shall be determined on the basis of 3 years purchase of the average profits from business of the last 5 years. The particulars of the profits are as under: Year ended Profit/(Loss) ` 31st March, 2008 25,000 31st March, 2009 12,500 31st March, 2010 (2,500) 31st March, 2011 35,000 31st 30,000 March, 2012 The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING 5 The above Profits and Losses are after charging the Salary of P. The Profit of the year ended 31st March, 2008 included an extraneous profit of ` 40,000 and the loss for the year ended 31st March, 2010 was on account of loss by strike to the extent of ` 20,000. (e) The cash trading profit for the year ended 31st March, 2013 was ` 50,000 before depreciation. (f) The partners had drawn each ` 1,000 p.m. as drawings. (g) The value of other assets and liabilities as on 31st March, 2013 were as under: ` Machinery (before depreciation) 60,000 Furniture (before depreciation) 10,000 Investment 50,000 Stock 15,000 Debtors 30,000 Creditors 20,000 (h) Provide depreciation @ 10% on Machinery and @ 5% on Furniture on the Closing Balance and interest is accumulated @ 6% on Q s loan. The loan alongwith interest would be repaid within next 12 months. (i) Investments are held from inception of the firm and interest is received @ 10% p.a. (j) The partners applied for conversion of the firm into a Private Limited Company. Certificate was received on 1st April, 2013. They decided to convert Capital A/cs of the partners into share capital in the ratio of 2:1:1 on the basis of a total Capital as on 31st March, 2013. If necessary, partners have to subscribe to fresh capital or withdraw. Prepare the Profit and Loss Account of the firm for the year ended 31 st March, 2013 and the (16 Marks) Balance Sheet of the Company on 1st April, 2013. Answer M/s P, Q and R Profit and Loss Account for the year ending on 31st March, 2013 ` To Depreciation on Machinery To Depreciation on furniture To Interest on Q s loan To Net Profit to : P s Capital A/c 6,000 By Trading Profit 500 By Interest on Investment 900 23,800 The Institute of Chartered Accountants of India ` 50,000 5,000 6 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Q s Capital A/c 11,900 R s Capital A/c 11,900 47,600 55,000 55,000 Balance Sheet of the PQR Pvt. Ltd. as on 1st April, 2013 I II Notes No. Equity and Liabilities Shareholders funds Share capital Current liabilities Short term borrowings Trade payables ` 1,41,600 1 15,900 20,000 1,77,500 2 63,500 50,000 Total Assets Non-current assets Fixed assets Tangible assets Non-current investments Current assets Inventories Trade receivables Cash and cash equivalents 15,000 30,000 19,000 1,77,500 Total Notes to Accounts ` 1. 2. Short term borrowings Loan from Q Tangible assets Machinery Furniture 15,900 54,000 9,500 63,500 Working Notes: 1. Calculation of goodwill 2007-08 2009-10 2010-11 2011-12 ` Profits/(Loss) 2008-09 ` ` ` ` 25,000 12,500 (2,500) 35,000 30,000 The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING 7 Adjustment for extraneous profit of 2007-08 and abnormal loss of 2009-10 (40,000) - 20,000 (15,000) 12,500 17,500 35,000 30,000 9,000 9,000 9,000 9,000 9,000 (6,000) 21,500 26,500 44,000 39,000 (5,000) (5,000) (5,000) (5,000) (5,000) (11,000) 16,500 21,500 39,000 34,000 Add: Salary of P (750 x12) Less: Interest on investment* non-trading Total Profit from 2008-09 to 2011-12 1,11,000 Less : Loss for 2007-08 (11,000) 1,00,000 Average Profit 20,000 Goodwill equal to 3 years purchase 60,000 Contribution from R for share 15,000 * Investments are assumed to be non-trading investments. 2. Calculation of sacrificing ratio of Partners P and Q on admission of R P Old share 3/5 New share 1/2 Q 2/5 1/4 R 3. 1/4 Sacrificing share 3 1 6 5 1 = = 5 2 10 10 2 1 8 5 3 = = 5 4 20 20 Gaining share 1/4 Goodwill adjustment entry through Partners capital accounts (in their sacrificing ratio of 2:3) ` R s capital A/c To P s capital A/c Dr. ` 15,000 6,000 *As per AS 26 Intangible Assets , only purchased goodwill should appear in the books. Therefore, goodwill though required to be shown in the books as per the requirement of the question, has been adjusted through capital accounts of the partners in line with the provisions of AS 26. The Institute of Chartered Accountants of India 8 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 To Q s capital A/c 9,000 (R s share in goodwill adjusted through P and Q) 4. Partners Capital Accounts P To Q To Balance c/d R P Q R ` To Drawings (1,000 x 12) To P Q ` ` ` ` ` 12,000 12,000 50,000 30,000 12,000 8,000 6,000 9,000 30,000 23,800 11,900 11,900 91,800 58,900 41,900 79,800 91,800 5. 46,900 58,900 Balance 12,000 By b/d 6,000 By General Reserve 9,000 By R Bank 14,900 By (15,000 + 15,000) By Profit & Loss A/c 41,900 Balance Sheet of the firm as on 31st March, 2013 Liabilities ` Assets ` ` ` P s Capital 79,800 Machinery Q s Capital 46,900 Less : Depreciation (6,000) 54,000 R s Capital 14,900 1,41,600 Furniture Less : Depreciation 10,000 (500) 9,500 Q s Loan 15,000 Add : Interest due 900 60,000 Investments 50,000 15,000 20,000 Debtors Creditors 15,900 Stock-in-trade 30,000 Cash (W.N.6) 19,000 1,77,500 6. 1,77,500 Cash balance as on 31.3.2013 ` Cash trading profit ` 50,000 Add: Investment Interest 5,000 Add: Decrease in Stock Balance 5,000 60,000 The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING Less: Increase in Debtors 9 9,000 Less: Decrease in Creditors 20,000 (29,000) 31,000 Add: Opening cash balance Add: Cash brought in by R 5,000 30,000 35,000 66,000 Less: Drawings (12,000 +12,000 +12,000) 36,000 Less: Additions to Machine (60,000 - 54,000) Furniture (10,000 - 5,000) 6,000 5,000 Closing cash balance (47,000) 19,000 7. Distribution of shares Conversion into Company ` Capital : Share Capital Distribution of shares : P Q R P (1/2) Q (1/4) R (1/4) 79,800 46,900 14,900 1,41,600 70,800 35,400 35,400 P and Q should withdraw capital of ` 9,000 (` 79,800 ` 70,800) and `11,500 (` 46,900 ` 35,400) respectively and R should subscribe shares of ` 20,500 (`35,400 ` 14,900). Question 3 (a) A company issued 1,50,000 shares of ` 10 each at a premium of ` 10. The entire issue was underwritten as follows: X 90000 shares (Firm underwriting 12000 shares) Y 37500 shares (Firm underwriting 4500 shares) Z 22500 shares (Firm underwriting 15000 shares) Total subscriptions received by the company (excluding firm underwriting and marked applications) were 22500 shares. The marked applications (excluding firm underwriting) were as follows: X 15000 shares Y 30000 shares Z 7500 shares The Institute of Chartered Accountants of India 10 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Commission payable to underwriters is at 5% of the issue price. The underwriting contract provides that credit for unmarked applications be given to the underwriters in proportion to the shares underwritten and benefit of firm underwriting is to be given to individual underwriters. (i) Determine the liability of each underwriter (number of shares); (ii) Compute the amounts payable or due from underwriters; and (iii) Pass Journal Entries in the books of the company relating to underwriting. (12 Marks) (b) Arihant Limited has its share capital divided into equity shares of ` 10 each. On 1-10-2012, it granted 20,000 employees stock option at ` 50 per share, when the market price was ` 120 per share. The options were to be exercised between 10 th December, 2012 and 31st March, 2013. The employees exercised their options for 16,000 shares only and the remaining options lapsed. The company closes its books on 31 st March every year. Show Journal Entries (with narration) as would appear in the books of the company upto 31st March, 2013. (4 Marks) Answer (a) (i) Computation of total liability of underwriters in shares X 90,000 (In shares) Y Z 37,500 22,500 Total 1,50,000 (7,500) 15,000 (52,500) 97,500 (3,375) 11,625 (15,000) (3,375) (22,500) 75,000 (31,500) 43,500 Gross liability Less: Marked applications (excluding firm underwriting) (15,000) (30,000) 75,000 7,500 Less: Unmarked applications in the ratio of gross liabilities of 12:5:3 (excluding firm underwriting) (13,500) (5,625) 61,500 1,875 Less : Firm underwriting (12,000) (4,500) 49,500 (2,625) Less: Surplus of Y and Z adjusted in X s balance (2,625+3,375) Net liability (6,000) 43,500 2,625 - 3,375 - 43,500 Add: Firm underwriting 12,000 4,500 15,000 31,500 Total liability 55,500 4,500 15,000 75,000 The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING (ii) 11 Calculation of amount payable to or due from underwriters X Total Liability in shares Y Z Total 55,500 4,500 15,000 75,000 Amount receivable @ ` 20 from underwriter (in `) 11,10,000 90,000 3,00,000 15,00,000 Less: Underwriting Commission payable @ 5% of ` 20 (in `) (90,000) (37,500) (22,500) (1,50,000) 10,20,000 52,500 2,77,500 13,50,000 Net amount receivable (in `) (iii) Journal Entries in the books of the company (relating to underwriting) ` 1. X Dr. 11,10,000 Y Z Dr. Dr. ` 90,000 3,00,000 To Share Capital A/c To Securities Premium A/c 7,50,000 7,50,000 (Being allotment of shares to underwriters) 2. Underwriting commission A/c To X Dr. 1,50,000 90,000 To Y To Z 37,500 22,500 (Being amount of underwriting commission payable) 3. Bank A/c Dr. 13,50,000 To X To Y 10,20,000 52,500 To Z (Being net amount received by underwriters for shares allotted less underwriting commission) (b) 2,77,500 Journal Entries in the books of Arihant Ltd. ` 10.12.12 Bank A/c (16,000 x 50) to Employee compensation expense A/c (16,000 x 70) 31.3.13 To Equity share capital A/c (16,000 x 10) The Institute of Chartered Accountants of India Dr. 8,00,000 Dr. 11,20,000 ` 1,60,000 12 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 To Securities premium A/c (16,000 x 110) 17,60,000 (Being shares issued to the employees against the options vested to them in pursuance of Employee Stock Option Plan) 31.3.13 Profit and Loss A/c Dr. 11,20,000 To Employee compensation expense A/c 11,20,000 (Being transfer of employee compensation expenses to Profit and Loss Account) Question 4 The summarized Balance Sheet of Bad Luck Ltd. as on 31st March, 2013 was as follows: Note B. Equity and Liabilities 1. Shareholders Fund (a) Share Capital (b) Reserves and Surplus 2. Non-current Liabilities (a) Long Term borrowings 3. Current Liabilities (a) Short Term Borrowings (b) Trade Payables Total Assets 1. Non-current assets (a) Fixed Assets (i) Tangible assets (ii) Intangible assets 2. Current Assets (a) Inventories (b) Trade Receivables (c) Deferred revenue expenditure Total The Institute of Chartered Accountants of India 1 2 Amount ` A. Amount ` 7,50,000 (10,00,000) (2,50,000) 3 4 5 6 5,00,000 5,00,000 2,50,000 5,50,000 1,50,000 1,50,000 1,25,000 25,000 7,50,000 10,00,000 7,00,000 3,00,000 10,00,000 PAPER 5 : ADVANCED ACCOUNTING 13 Notes to Accounts Amount ` 1. 2. 3. 4. 5. 6. Share Capital Authorised, issued & fully paid 5,000 equity shares of ` 100 each 2,500 8% preference shares of ` 100 each Reserves and Surplus Profit and Loss Account Long Term borrowings 8% Debentures Short Term Borrowings Loan from Directors Bank overdraft Tangible Assets Freehold property Plant Intangible Assets Goodwill Trademark Amount ` 5,00,000 2,50,000 7,50,000 (10,00,000) 5,00,000 3,00,000 2,00,000 5,00,000 4,00,000 1,50,000 5,50,000 1,00,000 50,000 1,50,000 The following scheme of internal reconstruction was framed, approved by the Court, all the concerned parties and implemented: (i) The preference shares to be written down to ` 25 each and the equity shares to ` 20 each. Each class of shares then to be converted into shares of ` 100 each. (ii) The debenture holders to take over freehold property (book value ` 2,00,000) at a valuation of ` 2,50,000 in part repayment of their holdings. Remaining freehold property to be revalued at ` 6,00,000. (iii) Loan from directors to be waived off in full. (iv) Stock of ` 50,000 to be written off, ` 12,500 to be provided for bad debts. (v) Profit and Loss account balance, Trademark, goodwill and deferred revenue expenditure to be written off. Pass Journal Entries for all the above mentioned transactions. Also Prepare Capital Reduction account and company s Balance Sheet immediately after reconstruction. (16 Marks) The Institute of Chartered Accountants of India 14 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Answer Journal entries in the books of Bad Luck Ltd. Particulars i Debit(`) 8% Preference Share Capital A/c (` 100 each) To 8% Preference Share Capital A/c (` 25 each) To Capital Reduction A/c (Being the preference shares of ` 100 each reduced to ` 25 each as per the approved scheme) Dr. Equity Share Capital A/c (` 100 each) To Equity Share Capital A/c (` 20 each) To Capital Reduction A/c (Being the equity shares of ` 100 each reduced to ` 20 each) Dr. iii Preference Share Capital A/c (` 25) To Preference Share Capital A/c (` 100) (Being conversion of 2500 shares of ` 25 each to 625 shares of ` 100 each) Dr. 62,500 iv Equity Share Capital A/c (` 20) To Equity Share Capital A/c (`100) (Being conversion of 5,000 shares of ` 20 each to 1000 shares of ` 100 each) Dr. 1,00,000 v Freehold Property Dr. Credit(`) 50,000 ii vi vii viii ix To Capital Reduction A/c (Being value of freehold property appreciated) 8% Debentures A/c To Freehold Property (Being claim of Debenture holders settled in part by transfer of freehold property) Freehold Property To Capital Reduction A/c (Being appreciation in the value of freehold property) 62,500 1,87,500 5,00,000 1,00,000 4,00,000 62,500 1,00,000 50,000 Dr. 2,50,000 2,50,000 Dr. 4,00,000 4,00,000 Director s Loan A/c To Capital Reduction A/c (Being director s loan waived in full) Dr. Capital Reduction A/c To Deferred Revenue Expenditure To Profit and Loss A/c To Provision of Doubtful Debts A/c Dr. The Institute of Chartered Accountants of India 2,50,000 3,00,000 3,00,000 13,37,500 25,000 10,00,000 12,500 PAPER 5 : ADVANCED ACCOUNTING To Inventories To Goodwill A/c To Trademark To Capital Reserve A/c (Being certain value of various assets (tangible & intangible), profit and loss account debit balance written off and balance transferred to capital reserve account as per the scheme) (b) 15 50,000 1,00,000 50,000 1,00,000 Capital Reduction Account (`) To Provision for Doubtful Debts 12,500 To To To Inventories Profit & Loss A/c Trademark To To Goodwill Deferred Revenue Expenditure 1,00,000 25,000 To Capital Reserve (`) 1,00,000 50,000 10,00,000 50,000 By Preference Share Capital 1,87,500 By Equity Share Capital By Freehold Property (50,000 + 4,00,000) 4,00,000 4,50,000 By Director s Loan 3,00,000 13,37,500 13,37,500 Balance Sheet of Bad Luck Ltd. (And Reduced) As on 31st March 2013 Particulars I. Equity and Liabilities (1) Shareholder's Funds (a) Share Capital (b) Reserves and Surplus (2) Non-Current Liabilities (a) Long-term borrowings (3) Current Liabilities (a) Short Term borrowings (b) Trade payable Note No. ` 1 2 1,62,500 1,00,000 3 2,50,000 4 2,00,000 2,50,000 9,62,500 II. Assets (1) Non-current assets (a) Fixed assets The Institute of Chartered Accountants of India 16 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Tangible assets (2) Current assets (a) Inventories (b) Trade receivables 5 6 Total 7,50,000 1,00,000 1,12,500 9,62,500 Notes to Accounts ` 1. Share Capital Authorised, issued and fully paid up 1,000 Equity shares of `100 each fully paid-up 625, 8% Preference Share of ` 100 each 2. Reserve and Surplus Capital Reserve 3. Long Term Borrowings 8% Debentures ` (5,00,000-2,50,000) 4. Short-Terms Borrowings Bank Overdraft 5. Tangible assets Freehold Property Plant 6. Trade Receivables Trade Receivables Less: Provision for doubtful debts 1,00,000 62,500 1,62,500 1,00,000 2,50,000 2,00,000 6,00,000 1,50,000 7,50,000 1,25,000 (12,500) 1,12,500 Question 5 (a) From the following information as on 31st March, 2013 of Bachao Insurance Co. Ltd. engaged in fire insurance business, prepare the Revenue Account, reserving 40% of the net premiums for unexpired risks and an additional reserve of ` 3,50,000: Particulars Reserve for unexpired risk on 31st March, 2012 Additional reserve on 31st March, 2012 Claims paid The Institute of Chartered Accountants of India Amount ` 7,50,000 1,50,000 9,60,000 PAPER 5 : ADVANCED ACCOUNTING 17 Estimated liability in respect of outstanding claims on 31st March, 2012 Estimated liability in respect of outstanding claims on 31st March, 2013 Expenses of management (including ` 45,000 in connection with claims) Re-insurance premium paid Re-insurance recoveries Premiums Interest and dividend Profit on sale of investments Commission 97,500 1,35,000 4,20,000 1,12,500 30,000 16,80,000 75,000 15,000 1,75,000 (8 Marks) (b) The following information is available in the books of X Bank Limited as on 31st March, 2013: ` Bills discounted 1,37,05,000 Rebate on bills discounted (as on 1-4-2012) Discount received 2,21,600 10,56,650 Details of bills discounted are as follows: Value of Bills (`) 18,25,000 50,00,000 28,20,000 40,60,000 Due Date 05-06-2013 12-06-2013 25-06-2013 06-07-2013 Rate of Discount 12% 12% 14% 16% Calculate the rebate on bills discounted as on 31-3-2013 and give necessary Journal (8 Marks) Entries in the books of X Bank Ltd. as on 31st March, 2013. Answer (a) FORM B RA Name of the Insurer: Bachao Insurance Company Limited Registration No. and Date of registration with IRDA: .. Revenue Account for the year ended 31st March, 2013 Particulars Premium earned (net) Profit on sale of investment Others Interest and dividend (gross) Total (A) The Institute of Chartered Accountants of India Schedule 1 Amount (`) 14,90,500 15,000 75,000 15,80,500 18 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Claims incurred (Net) Commission Operating expenses related to insurance Total (B) Operating profit from insurance business (A) (B) 2 3 4 10,12,500 1,75,000 3,75,000 15,62,500 18,000 Schedule 1 Premium earned (net) Premium received Less: Premium on reinsurance ceded Net Premium Less:Adjustment for change in Reserve for Unexpired risk (as per W.N.) Total premium earned ` 16,80,000 (1,12,500) 15,67,500 (77,000) 14,90,500 Schedule -2 Claims incurred (net) ` Claims paid Add: Expenses regarding claims 9,60,000 45,000 10,05,000 (30,000) 9,75,000 1,35,000 11,10,000 (97,500) 10,12,500 Less: Re-insurance recoveries Add: Claims outstanding as on 31st March, 2013 Less: Claims outstanding as on 31st March, 2012 Schedule -3 Commission ` Commission paid 1,75,000 Schedule-4 Operating expenses related to Insurance Business ` 3,75,000 Expenses of management (`4,20,000 `45,000) Working Note: Calculation for change in Reserve for Unexpired risk: ` Reserve for Unexpired Risk as on 31st March, 2013 6,27,000 Additional Reserve as on 31st March, 2013 3,50,000 The Institute of Chartered Accountants of India 9,77,000 PAPER 5 : ADVANCED ACCOUNTING 19 Less: Reserve for Unexpired Risk as on 31st March, 2012 Additional Reserve as on 31st 7,50,000 March, 2012 1,50,000 (9,00,000) 77,000 Note: Interest and dividends are shown at gross value in Revenue account. It is assumed that amount of interest and dividend given in the question is before TDS. (b) Calculation of Rebate on bills discounted S.No. Amount (`) (i) (ii) (iii) (iv) 18,25,000 50,00,000 28,20,000 40,60,000 1,37,05,000 Due date Unexpired portion from (year 2013) 31st March, 2013 June 5 66 days June 12 73 days June 25 86 days July 6 97 days Rate of discount 12% 12% 14% 16% Rebate on bills discounted (`) 39,600 1,20,000 93,021 1,72,633 4,25,254 Journal Entries in the books of X Bank Ltd. (1) (2) (3) Particulars Rebate on bills discounted A/c To Discount on bills A/c (Being the transfer of opening balance of rebate on bills discounted account to discount on bills account) Discount on bills A/c To Rebate on bills discounted A/c (Being the unexpired portion of discount in respect of the discounted bills of exchange carried forward to next year) Discount on bills A/c To Profit and Loss A/c (Being the amount of income for the year transferred from Discount on bills A/c to Profit and Loss A/c) Dr. Dr. (`) 2,21,600 Dr. 4,25,254 Dr. 8,52,996 Cr. (`) 2,21,600 4,25,254 8,52,996 Working Note: Amount of discount to be credited to the Profit and Loss Account 31st Transfer from Rebate on bills discounted A/c as on March, 2012 Add: Discount received during the year ended 31st March, 2013 Less: Rebate on bills discounted as on 31st March, 2013 Discount credited to Profit and Loss Account The Institute of Chartered Accountants of India ` 2,21,600 10,56,650 12,78,250 (4,25,254) 8,52,996 20 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 Question 6 (a) ABCD Ltd., Delhi has a branch in New York, USA, which is an integral foreign operation of the company. At the end of 31st March, 2013, the following ledger balances have been extracted from the books of the Delhi office and the New York Branch: Particulars Share Capital Reserves and Surplus Land Building (cost) Buildings Depreciation Reserve Plant & Machinery (cost) Plant & Machinery Depreciation Reserve Trade receivables/payables Stock (01-04-2012) Branch Stock Reserve Cash & Bank Balances Purchases/Sales Goods sent to Branch Managing Director s salary Wages & Salaries Rent Office Expenses Commission receipts Branch/H.O. Current A/c Total Delhi (` thousands) Debit Credit 1,250 940 475 1,000 200 2,000 500 500 270 250 65 125 275 600 1,500 50 100 25 800 5,600 275 5,600 New York ($ thousands) Debit Credit 100 60 25 4 25 30 18 6 12 280 20 20 125 100 15 280 The following information is also available: (1) Stock as at 31-03-2013 Delhi - ` 2,00,000 New York - $ 10 (all stock received from Delhi) (2) Head Office always sent goods to the Branch at cost plus 25%. (3) Provision is to be made for doubtful debts at 5%. (4) Depreciation is to be provided on Buildings at 10% and on Plant and Machinery at 20% on written down values. The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING 21 You are required: (a) To convert the branch Trial Balance into rupees, using the following rates of exchange: Exchange: Opening rate 1 $ = ` 50 Closing rate 1 $ = ` 55 Average rate 1 $ = ` 52 For fixed assets 1 $ = ` 45 (b) To prepare the Trading and Profit & Loss Account for the year ended 31st March, 2013, showing to the extent possible, Head Office results and Branch results separately. (16 Marks) Answer (a) ABCD Ltd. New York Branch Trial Balance As on 31st March 2013 Dr. Plant & Machinery (cost) Plant & Machinery Dep. Reserve Trade receivable/payable Stock (1.4.2012) Cash & Bank Balances Purchase / Sales Goods received from H.O. Wages & Salaries Rent Office expenses Commission Receipts H.O. Current A/c Exchange loss (bal. fig.) Closing stock The Institute of Chartered Accountants of India 100 60 25 4 25 30 18 6 12 280 .010 ($ 000) Cr. 20 20 125 100 15 Conversion rate per $ Dr. ` 45 ` 45 ` 55 ` 50 ` 55 ` 52 4,500 Actual ` 52 ` 52 ` 52 ` 52 Actual 280 ` 55 3,300 1,250 220 1,300 1,500 936 312 624 13,942 558 14,500 0.55 (` 000) Cr. 900 1,100 6,500 5,200 800 14,500 14,500 22 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 (b) Trading and Profit & Loss Account for the year ended 31st March, 2013 (` 000) H.O. To To To Opening Stock Purchases Goods received To To from Head Office Wages & Salaries Gross profit c/d To To To Rent Office expenses Provision for To To doubtful debts @ 5% Depreciation (W. N. 1) Balance c/d To To Exchange loss Managing Director s Salary To Balance c/d The Institute of Chartered Accountants of India Branch Total 250 275 1,250.00 1,300.00 1,500.00 1,575.00 By By Sales Goods Branch 100 1,675 1,500.00 936.00 1,514.55 1,500.00 1,036.00 3,189.55 By Closing Stock 2,300 25 6,500.55 312.00 624.00 8,800.55 312.00 649.00 By By Gross profit b/d Commission receipts 25 380 1,520 1,950 165.00 720.00 4,893.55 6,714.55 190.00 1,100.00 6,413.55 8,664.55 558.00 50.00 By By Balance b/d Branch Stock Reserve (W. N. 2) 5,870.44 6,478.44 H.O. to Total 600 1,500 6,500.00 7,100.00 1,500.00 200 0.55 200.55 2,300 1,675 275 6,500.55 1,514.55 5,200.00 8,800.55 3,189.55 5,475.00 1,950 sent Branch 6,714.55 8,664.55 6,413.55 64.89 6,478.44 PAPER 5 : ADVANCED ACCOUNTING 23 Working Notes: (1) Calculation of Depreciation H.O ` 000 Branch ` 000 Building Cost 1,000 Less : Dep. Reserve (200) 800 Depreciation @ 10% (A) Plant & Machinery Cost 80 2,000 4,500 Less : Dep. Reserve (500) (900) 1,500 3,600 Depreciation @ 20% (B) 300 720 Total Depreciation (A+B) 380 720 (2) Calculation of Additional Branch Stock Reserve (` 000) Closing stock of Branch Reserve on closing stock (0.55 1/5) Less : Branch Stock Reserve (as on 1.4.2012) Reversal of Stock Reserve 0.55 0.11 (65) (64.89) Question 7 Answer any four out of the following: (a) Neel Limited has its corporate office in Mumbai and sells its products to stockists all over India. On 31st March, 2013, the company wants to recognize receipt of cheques bearing date 31st March, 2013 or before, as "Cheques in Hand" by reducing "Trade Receivables". The "Cheques in Hand" is shown in the Balance Sheet as an item of cash and cash equivalents. All cheques are presented to the bank in the month of April 2013 and are also realized in the same month in normal course after deposit in the bank. State with reasons, whether each of the following is an adjusting event and how this fact is to be disclosed by the company, with reference to the relevant accounting standard. (i) Cheques collected by the marketing personnel of the company from the stockists on or before 31st March, 2013. (ii) Cheques sent by the stockists through courier on or before 31st March, 2013. The Institute of Chartered Accountants of India 24 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 (b) Explain monetary item as per Accounting Standard 11. How are foreign currency monetary items to be recognized at each Balance Sheet date? Classify the following as monetary or non-monetary item: (i) Share Capital (ii) Trade Receivables (iii) Investments (iv) Fixed Assets. (c) Department A sells goods to Department B at a profit of 50% on cost and to Department C at 20% on cost. Department B sells goods to A and C at a profit of 25% and 15% respectively on sales. Department C charges 30% and 40% profit on cost to Department A and B respectively. Stock lying at different departments at the end of the year are as under: Department A Department B Department C ` Transfer from Department A ` ` - 45,000 42,000 Transfer from Department B 40,000 Transfer from Department C 39,000 42,000 72,000 - Calculate the unrealized profit of each department and also total unrealized profit. (d) Explain Garner V/S Murrary rule applicable in the case of partnership firms. State, when is this rule not applicable. (e) What are the qualitative characteristics of the financial statements which improve the usefulness of the information furnished therein? (4 4 = 16 Marks) Answer (a) (i) Cheques collected by the marketing personnel of the company is an adjusting event as the marketing personnels are employees of the company and therefore, are representatives of the company. Handing over of cheques by the stockist to the marketing employees discharges the liability of the stockist. Therefore, cheques collected by the marketing personnel of the company on or before 31st March, 2013 require adjustment from the stockists accounts i.e. from Trade Receivables A/c even though these cheques (dated on or before 31 st March, 2013) are presented in the bank in the month of April, 2013 in the normal course. Hence, collection of cheques by the marketing personnel is an adjusting event as per AS 4 Contingencies and Events Occurring after the Balance Sheet Date . Such cheques in hand will be shown in the Balance Sheet as Cash and Cash equivalents with a disclosure in the Notes to accounts about the accounting policy followed by the company for such cheques. The Institute of Chartered Accountants of India PAPER 5 : ADVANCED ACCOUNTING (ii) 25 Even if the cheques bear the date 31st March or before and are sent by the stockists through courier on or before 31st March, 2013, it is presumed that the cheques will be received after 31st March. Collection of cheques after 31st March, 2013 does not represent any condition existing on the balance sheet date i.e. 31st March. Thus, the collection of cheques after balance sheet date is not an adjusting event. Cheques that are received after the balance sheet date should be accounted for in the period in which they are received even though the same may be dated 31st March or before as per AS 4. Moreover, the collection of cheques after balance sheet date does not represent any material change affecting financial position of the enterprise, so no disclosure in the Director s Report is necessary. (b) As per AS 11 The Effects of Changes in Foreign Exchange Rates , Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money. Foreign currency monetary items should be reported using the closing rate at each balance sheet date. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amount in reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date. In such circumstances, the relevant monetary item should be reported in the reporting currency at the amount which is likely to be realised from or required to disburse, such item at the balance sheet date. Share capital Non-monetary Trade receivables Monetary Investments Non-monetary Fixed assets Non-monetary (c) Calculation of unrealized profit of each department and total unrealized profit Dept. A Dept. B Dept. C Total ` ` ` ` 45,000 x 50/150 = 15,000 42,000 x 20/120 = 7,000 22,000 72,000 x .15= 10,800 20,800 Unrealized Profit of: Department A Department B Department C 40,000 x .25 = 10,000 39,000 x 30/130 42,000 x 40/140 = 9,000 = 12,000 21,000 63,800 The Institute of Chartered Accountants of India 26 INTERMEDIATE (IPC) EXAMINATION: MAY, 2013 (d) Garner vs. Murray rule When a partner is unable to pay his debt due to the firm, he is said to be insolvent and the share of loss is to be borne by other solvent partners in accordance with the decision held in the English case of Garner vs. Murray. According to this decision, normal loss on realisation of assets is to be brought in cash by all partners (including insolvent partner) in the profit sharing ratio but a loss due to insolvency of a partner has to be borne by the solvent partners in their capital ratio. In order to calculate the capital ratio, no adjustment will be made in case of fixed capitals. However, in case of fluctuating capitals, ratio should be calculated on the basis of adjusted capital before considering profit or loss on realization at the time of dissolution. Non-Applicability of Garner vs Murray rule: 1. When the solvent partner has a debit balance in the capital account. Only solvent partners will bear the loss of capital deficiency of insolvent partner in their capital ratio. If incidentally a solvent partner has a debit balance in his capital account, he will escape the liability to bear the loss due to insolvency of another partner. 2. When the firm has only two partners. 3. When there is an agreement between the partners to share the deficiency in capital account of insolvent partner. 4. When all the partners of the firm are insolvent. (e) The qualitative characteristics of financial statements which improve the usefulness of information provided in financial statements are as follows: 1. Understandability: The financial statements should present information in a manner as to be readily understandable by the users with reasonable knowledge of business and economic activities. 2. Relevance: The financial statements should contain relevant information only which influences the economic decisions of the users. 3. Reliability: To be useful, the information must be reliable; that is to say, they must be free from material error and bias. 4. Comparability: The financial statements should permit both inter-firm and intra-firm comparison. One essential requirement of comparability is disclosure of financial effect of change in accounting policies. 5. True and Fair view: Financial statements are required to show a true and fair view of the performance, financial position and cash flows of an enterprise. The Institute of Chartered Accountants of India

Formatting page ...

Tags : CA IPCC, sample / model / mock / past / previous / old / online test papers, Group I, Group II, accounting technician course, atc, accounts, accounting, business laws, ethics, communiation, cost accounts, cost accounting, financial management, fm, tax, taxation, advanced accounting, audit, auditing, assurance, itsm, it & sm, information technology, strategic management, Integrated Professional Competence Course, may, november, 2015, 2014, 2013, 2012, 2011, 2010, 2009.

ca_ipcc chat

Horizontal lines at:
Guest Horizontal lines at:
AutoRM Data:
Box geometries: