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Financial Accounting

Time: 3 Hours

March – 2002 Marks: 100
 

N.B.:

(1)

Question No. one is compulsory.

 
 

(2)

Solve any five questions out of Q.Nos. 2 to 9.    
 

(3)

All working Notes should from part of answer.

   
 

(4)

Figures to the right indicate full marks assigned to question.

   
 

(5)

Specify assumptions, if any, while solving the question.

 
 

(6)

This paper contains NINE questions.

 
       

Q.1.

  The following balances have been extracted from the books of Yash Ltd. as on 31-12-2001.
Particulars Dr. (Rs.) Particulars Cr. (Rs.)
Land at cost 37,250 Share Capital 200000
Building (Cost less Dep) 1,50,000 General Reserve 80000
Plant (Cost less Dep) 80000 Share Premium 20000
Furniture (Cost less Dep) 15000 Gross Profit 102250
Selling Expenses 12000 Provision for taxation for 2000 15000
Directors fees 2400 Bad debts realized 1500
Administrator’s Expenses 33000 6% Debentures (Unsecured) 200000
Sinking Fund Investments 40800 Profit & Loss Account (opening Balance) 5000
Deposit 8000 Sinking fund for Debenture Redemption 40800
Bad Debts 2000 Sundry Creditors 22000
Sundry Debtors 145000 Interest on Sinking Fund Investment 2500

Audit Fees

1000

Miscellaneous Receipts

3000

Advance Payment of

     Income tax for 2000

     Income tax for 2001

120008000

Liabilities for expenses

4000

Closing stock

65000    

Cash in Hand

5600    

Cash at bank

68000    

Debenture Interest

12000    
  697,050   697,050

The Following particulars are available:

(a)

The basis of valuation of closing stock has been changed from this yr resulting into an additional profit of Rs.3000 as compared to valuation on old basis.

(b)

Administrative Expenses include Rs.1000 paid to the managing Director as an advance against his remuneration.

(c)

Sinking fund is to be created with Rs. 20,000 which together with the interest received would be invested on 1st Jan, 2002.

(d)

Income tax assessment for the year 2000 has been completed on 20th dec, 2001 on a gross demand of Rs. 14000 but no effect has been given in the books.

(e)

At a meeting held on 25th Nov, 2001 the Board of Directors decided to allot 1 full paid bonus shares against 2 shares held by members. This was sanctioned by the members on 18th Dec, 2001, but no effect has been given to it.

(f)

The managing Director is entitled to a Remuneration of Rs. 2000.

(g)

Provision for taxation is to be made Rs.8000.

(h)

Out of Sundry debtors, Rs.40000 are due for more than 6 months. There is no doubtfull amount.

(i)

Depreciation written off upto last year at rates mentioned against each as follows:

(by Reducing Balance Method) Building Rs. 5000 @ 2.5% pa, Plant Rs.45000 @ 15% pa, Furniture Rs.5000 @ 10% pa.

(j)

Market value of sinking fund investment on 31st Dec, 2001 is Rs.42000.

You are required to prepare the Profit & Loss account for the year ended 31st Dec, 2001 & balance Sheet as on that date.

20
       
       

Q.2.

  MCC Ltd. Opened branch at Malvan. Goods are invoiced to the branch at cost + 20%. The following transactions took place during the year 2000 & 2001:
  Year 2000Rs. Year 2001Rs.

Goods sent to Branch (at invoice price)

96000 72000

Cash sales

10200 4000

Credit sales

72000 80000

Cash received from debtors

60000 72000

Discount allowed to debtors

1000 3000

Expenses at branch out of branch cash

3000 4000

Amount remitted to Head Office

65000 72200

Closing stock at branch at invoice price

15600 -

You are required to prepare the following accounts in books of Head office using stock & Debtors Method:
  1. Branch Stock A/c.
  2. Goods sent to branch a/c
  3. Branch stock adjustment a/c
  4. Branch Cash A/c
  5. Branch Debtors A/c
  6. Branch Profit &
  7. Loss A/c.
16
       

Q.3.

 

A company gave notice of its intention to redeem its outstanding 50,000- 10% Debentures of Rs. 100 each at a premium of 5% and offered the holders the following options :

a) To accept 12% Cumulative Preference Shares of Rs. 20 each at Rs. 25 per share.

b) To accept 10% Debentures stock at 96%.

c) To have their holdings redeemed for cash.

Accordingly:

(i) 25,000 Debenture holders accepted the proposal (a)

(ii) 20,000 Debenture holders accepted the proposal (b)

(iii) Remaining Debenture holders accepted the proposal (c)

Pass the journal entries in books of company to record only the above transactions.

16
       

Q.4.

 

Following are the Balance Sheets of Big Ltd. And Small Ltd. As at 31st March, 2001.

16
   

Liabilities

Big Ltd.

Small Ltd.

Assets

Big Ltd.

Small Ltd.

Equity Share capital

10,00,000

3,00,000

Plant

8,00,000

-

Reserves

3,00,000

70,000

Computer

1,00,000

30,000

Bills Payable

50,000

10,000

Stocks

3,00,000

2,70,000

Sundry Creditors

1,50,000

80,000

Debtors

1,80,000

55,000

     

Cash at Bank

1,00,000

75,000

     

Bills Receivable

20,000

30,000

 

15,00,000

4,60,000

 

15,00,000

4,60,000

Big Ltd. Taken over business of Small Ltd. For Rs. 3,00,000 in the form of Equity shares of Rs. 10 each allotted at par. Included in this payable of Big Ltd. Are bills amounting to Rs. 30,000 accepted in favour of Small Ltd. For goods purchased. Of the above mentioned bills of Rs. 30,000 bills for Rs. 5,000 only still remain on the date of absorption in the hands of Small Ltd. The rest having been endorsed in favour of creditors or got discounted with the bank.

On the date of absorption the stock of Big Ltd. include goods purchased from Small Ltd. At the invoice price of Rs. 15,000. Small Ltd. charging profit at 25% on cost.

Expenses of liquidation of Small Ltd. Rs. 7,000 were met by Big Ltd.

Prepare realisation A/c. and Equity Shares A/c. in the books of Small Ltd. Also pass necessary journal entries in the books of Big Ltd. and prepare its balance sheet after absorption of Small Ltd.

 

Q.5.

 

The LUCKY LTD. Was incorporated on 1st September, 2001 to acquire the business of UNLUCKY & CO. with effect from 1st January, 2001. The accounts were maintained as usual upto 31st December, 2001 on which date the following balances were extracted from the books:

  Rs.   Rs.
Purchase 72000 Purchase Returns 2000

Sales

164000

Sales Returns

4000

Carriage Inwards

2000

Carriage Outwards

1000

Stock on 1.1.2001

54000

Rent

13200

Formation Expenses

6000

General Expenses

18000

Furniture

40000

Debtors

44000

Creditors

30000

Bills Receivable

16000

Bills Payable

14000

Interest On Purchase Consideration

8000

Cash & Bank Balance

29000

Capital A/c of UNLUCKY & CO.

100000

Additional Information:

(i)Stock on 31st December, 2001 Rs. 50000

(ii) Provide depreciation on Furniture @ 15% pa

(iii) Rent upto 30th June 2001 was Rs. 12000 pa thereafter it was increased by 20%.

(iv) The net turnover in the post incorporation period was Rs. 80000.

(v) Manager’s Salary Rs. 9600 pa is payable (The Manager became a director on formation of the company. His remuneration as director is included in Director’s fees).

(vi) The purchase consideration was agreed at Rs. 120000 satisfied on 31st October, 2001 by the issue of 8000 Equity Shares of Rs. 10 each fully paid and 400 – 12% Debentures of Rs. 100 each.

(vii) All formation expenses are to be written off.

You are required to prepare the profit & loss A/c for the period ended 31st December, 2001 showing the profit in pre & post incorporation periods & Balance Sheet of the Company.

16
       

Q.6.

 

A Company’s Position on 31st December, 2001 was as follows:

(i) 20000 Equity Shares of Rs. 100 each - Rs. 2000000

(ii) 10000 – 6% Debentures of Rs. 100 each - Rs. 1000000

(iii) Interest payable on above debentures - Rs. 120000

(iv) There are no other Liabilities & Reserves.

An independent valuation of the assets on the above date was considered to be worth Rs. 960000 only. Hence the following steps were taken with the approval of all concerned.

(a)  The  face value of the share was to be reduce to Rs. 40 each; Rs. 20 per share paid up.

(b)  The total claim of debenture holders was reduced to Rs. 500000.

(c)  The Debentures Holders agreed to accept shares of Rs. 250000 (Rs. 20 per share paid up) in part satisfaction of their claims as referred to above & for the balance, they were allotted 8% Debentures.

(d)  Assets were brought down to their revised/current value.

(e)  All shareholders (including under (c) above) agreed to pay Rs. 20 per share to make the share fully paid.

You are required to:

(i) Pass the journal entries in books of the company to record the above transactions.

(ii) Prepare the Balance Sheet of the company after the above reconstruction.

16
       

Q.7. 

 

On 31st December, 2001 a Limited company was incorporated with an authorized capital of Rs. 100000 of Re. 1 each to take over the business of a partnership firm in which MOGRA, ROSE and LOTUS were partners; when their position was as under:

Liabilities Rs. Rs. Assets Rs. Rs.

Capital A/cs:

Mogra

Rose

Lotus

  240001800015000

Land & Buildings

  26000

Current A/cs :

   

Plant & Machinery :

   

Mogra : b/d

11940  

         Cost :

42000  

       + Int. on Cap.

+ 720  

         Depreciate :

-22000 20000

       + N/P for 2001

+ 6126  

Motor Vehicles :

   

       - Drawings

-  8926 9860

         Cost :

19700  

+ Rose : b/d

8480  

          Depreciate :

-4700 15000

       + Int. on Cap.

+ 540  

Stock

  22400

       + N/P 2001

+ 6126  

Debtors

  12200

       - Drawings

-  8726 6420

Bank

  19750

+ Lotus : b/d

6000        

       + Int. on Cap.

+450        

       + N/P for 2001

+4084        

       - Drawings

- 4064 6470      

Creditors

  35600      
    1,15,350     1,15,350

The terms were :

(i) Land & Building are to be transferred to the limited company at a valuation of Rs. 30000 and Plant & Machinery at Rs. 15000. Stock, Debtors & Creditors are to be transferred to the company at book values.

(ii) The Motor Vehicles are to be withdrawn by the partners as Mogra Rs. 4900; Rose Rs. 3500; Lotus Rs. 3600.

(iii) It is estimated that the company will require on opening Bank balance of Rs. 15000.

(iv) Sufficient 9% unsecured debentures are to be issued by the company to the partners in such a way that they will receive the same interest as they received on capitals in partnership for the year 2001.

(v) Equity shares are to be issued at par to partners in their Profit Sharing Ratio for the balance purchase consideration.

(vi) Any surplus or deficiency on partners after the above adjustments; be withdrawn or paid in cash, as the case may be.

You are required to prepare the following accounts to close the books of the firm :

(i) Realisation A/c.

(ii) Partners Capital A/cs.

(iii) Cash/Bank A/c

(iv) New Company A/c

(v) Equity Shares in New Co. A/c

(vi) 9% Debentures in New Company A/c.

16

Q.8.

 

On 1st April, 2001 at fire occurred in Empire Co. limited. As a result, stock in the godown was entirely destroyed, except the salvaged stock of Rs. 4000.

Following information was available from the record of M/s. Empire Limited.

  Rs.
Stock on 1.1.2000 40,000
Stock on 31.12.2000 4,000
Sales during the year 2000 4,20,000
Purchases during the year 2000 1,39,000
Wages during the year 2000 1,20,000
Manufacturing expenses during the year 2000 50,000
Carriage outward during the year 2000 20,000

Subsequently it was discovered that :

(a)  Purchases include purchase for Plant and Machinery Rs. 5,000 on 31.12.2000. The plant & Machinery were expected to bring about net saving in costs equal to 5% of sales.

(b)  The valuing of stock on 31st December, 2000, Rs. 4000 had been written off, some goods which had originally cost Rs. 8000 & which were sold in February 2001 for Rs. 5000.

The company had taken out an Insurance policy of Rs. 18,000 for loss of stock with an average clause. Other information available is i.e. from 1st January, 2001.

  Rs.
Purchases upto 1st April, 2001 73,000
Sales upto 1st April, 2001 1,45,000
Wages upto 1st April, 2001 40,000
Manufacturing expenses upto 1st April, 2001 16,000

Calculate claim to be lodged with Insurance Company.

16
       

Q.9. 

  Write Short notes on any three of the following:- 16
  1)

Yield Method of Valuation Of Shares.

 
  2)

Future Maintainable Profit

 
  3)

Capital Redemption Reserve

 
  4)

Capitalisation Method of Goodwill

 
  5)

Prior Periods & extraordinary items & changes in Accounting Policy.

 
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