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Financial Accounting

Time: 3 Hours

March 2003

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 is the Trial Balance of Raul Ltd. as on 31-3-2002. (Figures in 000)

Particulars Dr. (Rs.) Particulars Cr. (Rs.)

Land at cost

110

Equity Capital

150

Plant & Machinery at cost

385

(Shares of Rs 10 each)

 

Debtors

46

10% Debentures opening balance

100

   

(Secured against Plant & machinery)

 

Stock at cost (31-3-2002)

45

General Reserve

66

Bank

15

Profit & Loss A/c

35

Material consumed

150

Securities Premium

20

Factory Expenses

40

Sales

350

Administration Expenses

15

Creditors

25

Selling Expenses

20

Provision for Depreciation

 

Debenture Interest

5

(on Machinery)

86

Interim dividend paid

9

Suspense Account

2

   

TDS Payable

6

 

840

 

840

Additional Information:

(a)

The Authorised share capital of the company is 30,000 shares of Rs. 10 each.

(b)

On 31-3-2002 the company issued one bonus share for every three shares held by utilising Securities Premium fully & balance from General Reserve A/c. No entry relating to this has yet been made.

(c)

The company on the advice of an independent valuer, wishes to revalue the land at Rs. 1,80,000.

(d)

Proposed final dividend @ 10% (including on bonus issue). The provision for tax is to be made for Rs. 30,000. Transfer to reserve Rs. 15,000 (including statutory reserve).

(e)

Suspense account of Rs. 2,000 represents cash received for the Sale of some of the machinery on 1-4-2001. The cost of the machinery was Rs. 5,000 and the accumulated depreciation thereon being Rs. 4,000.

(f)

Depreciation is to be provided on plant and machinery at 10% on cost.

(g)

Debtors include Rs. 6,000 outstanding for more than 6 months.

Prepare: Profit and loss account for the year ended 31-3-2002 and the Balance Sheet in vertical form of Raul Limited as on that date as per the provision of the schedule VI of the Companies Act 1956 taking into consideration the above mentioned adjustments. Ignore previous year's figures.

20

       
       

Q.2.

 

M/s. Everfresh Ltd. was formed to take over a running business with effect from 1st April, 2001. The company was incorporated on 1st October, 2001. The following Profit & Loss Account has been prepared for the year ended 31st March, 2002.

Particulars

Rs.

Particulars

Rs.

To Salaries

2,40,000

By Gross Profit b/d

16,00,000

To Printing & Stationery

24,000

   

To Travelling expenses

84,000

   

To Advertisement

80,000

   

To Miscellaneous Trade expenses

1,89,000

   

To Rent (office building)

1,32,000

   

To Electricity charges

21,000

   

To Preliminary expenses

56,000

   

To Bad debts

16,000

   

To Commission to selling agents

80,000

   

To Audit fees

30,000

   

To Debenture interest

15,000

   

To Interest paid to vendors

21,000

   

To Selling expenses

1,26,000

   

To Depreciation

48,000

   

To Net Profit c/d

4,38,000

   
 

16,00,000

 

16,00,000

Relevant Information: -

(a)

Total sales during the year, which amounted to Rs. 96,00,000 arose evenly upto the date of the Certificate of Incorporation, whereafter they spurted to record increase of two-thirds during the rest of the year.

(b)

Rent of the office building was paid @ Rs. 1,20,000 per annum upto September, 2001 and thereafter it was increased by Rs. 24,000 per annum.

(c)

Travelling expenses include Rs. 24,000 towards sales promotion.

(d)

Depreciation includes Rs. 3,000 for assets acquired in the post incorporation period.

(e)

Purchase consideration was discharged by the company on 31st October, 2001 by issuing Equity shares of Rs. 10 each.

(f)

Salaries include Rs. 40,000 paid to the Director. There were 3 employees upto 30-9-2001 after which the number was increased by six employees. The rate of salary was the same in all cases.

Prepare the Profit & Loss Account in columnar form, showing distinctly the allocation of profits between pre incorporation & post incorporation periods, indicating the basis of allocation.

16

       

Q.3.

 

The Balance Sheet of CARELESS Ltd. as at 31-10-01 appeared as follows:

Liabilities Rs. Rs. Assets Rs. Rs.

Share Capital

   

Fixed Assets:

   

30,000 Equity Shares

   

Fixed Assets at cost

4,00,000

 

of Rs. 10 each fully paid

 

3,00,000

Less-Depreciation provision

3,00,000

1,00,000

1,000 11 % Preference

         

Shares of Rs. 100 each fully paid

 

1,00,000

Current Assets:

   

Secured Loans:

   

Stock & stores

 

1,20,000

11 % Debentures

1,00,000

 

Receivables

 

2,90,000

Interest accrued & due

   

Other current assets

 

40,000

on debentures

22,000

       

Bank Overdraft

1,26,000

2,48,000

Misc. Expenditure:

   

Unsecured loans

1,00,000

 

P & L Account

 

3,28,000

Interest accrued & due

30,000

1,30,000

     

Current Liabilities & Provisions:

         

Current Liabilities

 

1,00,000

     
   

8,78,000

   

8,78,000

A scheme of reconstruction has been agreed amongst the shareholders and the creditors with the following salient features.

(a)

Interest due on unsecured loans is waived.

(b)

50% of the interest due on debentures is waived.

(c)

The 11 % Preference shareholders' rights are reduced to 50 % and, the remaining were converted into 15% Debentures of Rs. 100 each.

(d)

Current Liabilities would be reduced by Rs. 10,000 on account of the provision no longer required.

(e)

The equity shareholders agree to convert the existing equity shares into new ten rupee shares of total value Rs. 1,00,000.

(f)

The debit balance in the Profit & Loss account is to be written off totally, Rs. 52,000 should be provided for doubtful debts and the value of fixed assets should be increased by Rs. 80,000.

Prepare the Capital Reduction Account and Redraft the Balance Sheet of the company based on the above scheme of reconstruction.

16

       

Q.4.

 

Pass necessary Journal entries for the following :

(a)

Sun Ltd. redeemed 1,00,000 Preference shares of Rs. 100 each by converting them into Equity Shares issued at par at Rs. 10 each.

(b)

Moon Ltd. redeemed 55,000 Preference shares of Rs. 100 each by converting them into Equity Shares of Rs. 10 each issued at 10 % premium.

(c)

Mars Ltd. redeemed 1,80,000 Preference shares of Rs. 10 each by converting them into Equity Shares of Rs. 10 each issued at 10 % discount.

(d)

Earth Ltd. redeemed 2,00,000 Preference shares of Rs. 10 each at a premium of Rs. 3.50 per share by converting them into Equity Shares of Rs. 10 each issued at 10 % discount.

(e)

Saturn Limited redeemed 1,00,000 Preference shares of Rs. 10 each at a premium of Rs. 2.50 converted into 12 % Debentures at par.

16

       

Q.5.

 

The following is the summarised Balance Sheet of Hrishi Ltd. as on 31st December, 2002.

Liabilities

Rs.

Assets

Rs.

50,000 Equity of Rs. 10 each

5,00,000

Plant & Machinery

2,40,000

Securities Premium

1,00,000

Furniture

1,00,000

General Reserve

2,39,400

Stock

6,20,000

Profit & Loss Account

1,57,600

Debtors

2,06,000

Sundry Creditors

4,09,400

Cash in hand

3,400

Provision for Tax

1,97,000

Cash at Bank

4,34,000

 

16,03,400

 

16,03,400

The company transfers 20% of its profits (after tax) to General Reserve. The Net Profits before tax for the last 3 years have been as follows:

Year ended

Rs.

31-12-2000

2,75,000

31-12-2001

3,94,000

31-12-2002

3,66,000

Machinery is valued at Rs. 3,20,000. Average Yield in this type of business is 20%. The rate of tax is 50%. Calculate the value of one equity share on the basis of :

(a)

Intrinsic value.

(b)

Yield basis.

(c)

Fair value.

16

       

Q.6.

 

The following were the Balance Sheets of Amar Ltd. & Akbar Ltd. as at 31st March, 2002.

Liabilities

Amar Ltd. (Rs.)

Akbar Ltd. (Rs.)

Equity Share Capital (fully paid shares of Rs. 10 each)

15,00,000

6,00,000

Securities Premium

3,00,000

----------

Foreign Projects Reserve

----------

31,000

General Reserve

9,50,000

3,20,000

Profit & Loss A/c

2,87,000

82,500

12% Debentures

----------

1,00,000

Bills Payable

12,000

----------

Sundry Creditors

1,30,000

45,000

Sundry Provisions

1,61,000

71,500

 

33,40,000

12,50,000

     

Assets

Amar Ltd. (Rs.)

Akbar Ltd. (Rs.)

Land & Building

8,00,000

----------

Plant & Machinery

12,00,000

5,00,000

Furniture, Fixtures & Fittings

2,50,000

1,60,000

Stock in Trade

7,70,000

4,10,000

Sundry Debtors

2,20,000

1,10,000

Cash at Bank

1,00,000

62,000

Bills Receivable

----------

8,000

 

33,40,000

12,50,000

All the bills receivable held by Akbar Ltd. were Amar Ltd's acceptances. On 1st April, 2002, Amar Ltd. took over Akbar Ltd. in an amalgamation in the nature of merger.

It was agreed that in discharge of consideration for the business, Amar Ltd. would allot three fully paid-equity shares of Rs. 10 each at par for every two shares held in Akbar Ltd.

It was also agreed that 12% Debentures in Akbar Ltd. Would be converted into 13% Debentures in Amar Ltd. of the same amount and denomination. Expenses of amalgamation amounting to Rs. 1,000 were borne by Amar Ltd.

You are required to :

1) Pass journal entries in the books of Amar Ltd. and

2) Prepare Balance Sheet of Amar Ltd. immediately after the merger.

16

       

Q.7. 

 

Sugandha Ltd. issued 10,000, 12% Debentures of Rs. 100 each on 1st April, 2000. Intrest is payable on 30th September, and 31st March, every year. On 1st July, 2001 the company purchased 1000 of its own Debentures at Rs.96 ex-intrest as investments. On 1st January, 2002 the company purchased another 2000 of its own debentures at Rs. 96 cum-intrest as investment. On 31st March, 2002 the company cancelled all its own debentures. The company follows financial year (that is 1st April to 31st March) as an accounting year. Journalise the above transactions in the books of Sugandha Ltd. for the year 2000-2OO1 and 2001-2002.

16

Q.8.

a)

Pass Journal Entries for the following Foreign Exchange transactions in the books of Sonu Ltd. Sonu Ltd. of Pune exported goods worth $1,00,000 On 12-1-02 to Universal Traders of USA. The payment for the same was received as follows:

15th February,

2002 $50,000

2nd March,

2002

$40,000

12th April,

2002

$10,000

The company follows financial year as accounting year.

The Exchange Rate for $1 was as follows:

12th January,

2002

Rs. 46

15th February,

2002

Rs. 48

2nd March,

2002

Rs. 45

31st March,

2002

Rs. 49

12th April,

2002

Rs. 50

16

 

b)

Pass necessary Journal Entries in the books of N Ltd. of Nasik.

A machine was imported on 20th January, 2003 from Jackie Chan of China for US $ 2,00,000. The payment for the same was made as follows :-

US $ 1,50,000 on 27th February 2003.

US $ 50,000 on 15th March 2003.

The Exchange Rate for $1 was as follows:

On 20th January,

2003

Rs.47.00

On 27th February,

2003

Rs.46.50

On 15th March,

2003

Rs.48.00

The company follows financial year as the accounting year.

 
       

Q.9. 

 

Write Short notes on any three:-

16

  1)

 Buy Back of shares

 
  2)

Fair value of shares

 
  3)

A.S. 11 Accounting for Effects of change in Foreign Exchange Rates.

 
  4)

Amalgamation - Nature of purchase

 
  5)

Internal Reconstruction Vs. External Reconstruction.

 
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