| Financial Accounting |
| Time: 3 Hours |
October – 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 each question. |
|
|
| |
(5) |
Specify assumptions, if any, while solving the question. |
|
| |
(6) |
This paper contains NINE questions. |
|
| |
|
|
|
| Q.1. |
|
The Trial Balance of Zidane Limited having an authorised capital of Rs. 10,00,000 as at 31st March 2002 was as under:
| Particulars |
Dr. (Rs.) |
Cr. (Rs.) |
| Share Capital (Share of Rs. 10 each fully paid) |
--- |
5,00,000 |
| Securities Premium Account |
--- |
50,000 |
| Land & Building (Cost Rs. 3,00,000) |
2,50,000 |
--- |
| Plant & Machinery (Cost Rs. 4,00,000) |
3,00,000 |
--- |
| Live Stock |
20,000 |
--- |
| Gross Profit earned during the year |
--- |
1,80,000 |
| General Reserve |
--- |
1,80,000 |
| 6% Debentures (Issued on 1st April 2001 secured by mortgage
on land and redeemable on 31-3-2009) |
--- |
1,00,000 |
| Sundry Debtors & Creditors |
60,000 |
20,000 |
| Stock as at 31 -3-2002 (At cost or market value whichever is lower) |
50,000 |
--- |
| Salaries |
20,000 |
--- |
| Directors Fees |
9,000 |
--- |
| General Expenses |
15,000 |
--- |
| Cash at Bank |
30,000 |
--- |
| Cash in Hand |
2,000 |
--- |
| Bills Receivable |
20,000 |
--- |
| Discount on Issue on Debentures |
4,000 |
--- |
| Profit & Loss b/f |
--- |
10,000 |
| Investment (4% Government securities,
face value of Rs. 1,00,000 purchased on 1-4-2001) |
95,000 |
--- |
| Investments in Equity Shares (10,000 shares of Rs. 25/-
each Rs. 20/- paid up) |
1,50,000 |
--- |
| Advance Income Tax |
15,000 |
--- |
| |
10,40,000 |
10,40,000 |
Further Information :
| (a) |
Of the shares allotted 20,000 shares worth Rs. 2,00,000/- were allotted as fully paid to vendor from whom a running business was acquired. |
| (b) |
Of the debtors Rs. 20,000/- were outstanding for more than six months are considered good except doubtful debt of Rs. 5,000/-. |
| (c) |
A provision is to be made for Income Tax for Rs. 10,000/- |
| (d) |
The Market Value of Government Securities on the date of Balance Sheet was Rs. 1,10,000/- and that of equity shares was Rs. 1,70,000/-. |
| (e) |
Auditors fee Rs. 5,000/- should be provided for. |
| (f) |
Included in General expenses is insurance Rs. 2,000/- paid for the year ended on 30th September, 2002. |
| (g) |
Interest on debentures issued and on investment in Government Securities should be taken into account. |
| (h) |
Depreciation is to be provided for 5% on the original cost of Machinery and 3% on the original cost of land and building. |
| (i) |
Provide for dividend of 8% on shares. |
Prepare: Profit and loss account for the year ended 31-3-2002 and the Balance Sheet of Zidane Limited as on that date in vertical form 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. |
|
Mahesh Ltd. was incorporated on 1st March 2002 to acquire a timber merchant's business
as from 1st January 2002. The purchase consideration was agreed at Rs. 6,00,000 to be
satisfied by the issue of 30,000 equity shares of Rs. 10 each and 3,000 - 6% Debentures of Rs. 100 each.The following Trading and Profit & Loss A/c. for the year ended 31st December 2002 is presented to you.Profit and Loss Account for the period 1st December 2001 to 31st March, 2003.
| Particulars |
Rs. |
Particulars |
Rs. |
| To Material Consumed |
774,000 |
By Sales |
15,00,000 |
| To Gross Profit |
726,000 |
|
|
| |
15,00,000 |
|
15,00,000 |
| To Salaries to Staff |
340,000 |
By Gross Profit |
726,000 |
| To Office Expenses |
24,000 |
By Interest on Investment |
6,000 |
| To Rent |
21,000 |
By Share transfer fees |
1,000 |
| To Selling Expenses |
66,000 |
|
|
| To Carriage outwards |
11,000 |
|
|
| To Debenture interest |
13,500 |
|
|
| To Director's Fees |
24,000 |
|
|
| To Preliminary Exp. |
28,700 |
|
|
| To Interest on Purchase Consideration |
9,000 |
|
|
| To Loss on Sale of Furniture |
3,000 |
|
|
| To Audit fees |
30,000 |
|
|
| To Net Profit |
162,000 |
|
|
| |
7,33,000 |
|
7,33,000 |
You obtain the following Information: -
| (a) |
Sales are of one commodity at a fixed price and the average of the monthly sales for the first two months was one-half of the average of the monthly sales for the reminder months of the year. |
| (b) |
The shares and debentures were issued to the vendor on 1st April 2002. |
| (c) |
Interest at 6% per annum was paid on the purchase consideration from 1st January 2002 to the date settlement. |
| (d) |
Furniture was sold on 1st February 2002. |
| (e) |
Interest on investment was in respect on investments made by the company on 1st April 2002. |
| (f) |
The number of staff in the pre-incorporation period was 10 and it was increased to 15 in the post of incorporation period (Assume that rate of payment is same in all cases). |
| (g) |
Rent upto 31st October was Rs. 18,000 per year after which it was increased to Rs. 36,000 per year. |
Prepare Profit & Loss Account in Columnar form showing distinctly the allocation of profits between pre-incorporation and post incorporation periods, indicating the basis of allocation of each item. |
16 |
| |
|
|
|
| Q.3. |
|
The following is the summarised Balance Sheet of Safe moving Ltd. as on 31st March, 2002:
| Liabilities |
Rs. |
Assets |
Rs. |
| Authorised & Issues Capital: |
|
Goodwill |
2,40,000 |
| 60,000-6% Pref. Shares |
|
Land & Buildings |
5,34,000 |
| of Rs. 10 each |
6,00,000 |
Plant |
5,10,000 |
| 12,00,000 Equity Shares |
|
Investment in Subsidiary Ltd. |
|
| of Re. 1 each |
12,00,000 |
(at cost) |
1,50,000 |
| 6% Debenture2,40,000 |
|
Stock |
4,50,000 |
| Add Interest 12,000 |
2,52,000 |
Debtors |
5,40,000 |
| Bank overdraft |
3,30,000 |
Profit & Loss Account |
5,28,000 |
| Director's loan |
1 ,50,000 |
Advertisement Expenses |
1,20,000 |
| Creditors |
5,40,000 |
|
|
| |
|
|
|
| |
30,72,000 |
|
30,72,000 |
Notes:
| (i) |
There is a contingent liability for damages Rs. 60,000. |
| (ii) |
Preference shares are cumulative and dividends are in arrears for three years. |
A capital reduction scheme setting the following terms was duly approved :
| (1) |
The preference shares to be reduced to Rs. 8 per share and the Equity share to 25 paisa each and to be consolidated as shares of Rs. 10 each and Re. 1 each fully paid respectively. The preference shareholders waive two third of the dividend in arrears and receive equity share for the balance. The authorised capital to be restored to 60,000 preference shares of Rs. 10 each and 12,00,000 equity shares of Rs. 1 each. |
| (2) |
The shares in subsidiary Ltd. are sold to an outsider for Rs. 3,00,000. |
| (3) |
All intangible and fictitious assets are to be eliminated and bad debts of Rs. 42,000 and obsolete stock of Rs. 60,000 is to be written-off. |
| (4) |
The debenture holders to take over one of the company's properties (Book value Rs. 1,08,000) at a price of Rs. 1,20,000 in part satisfaction of the debentures and to provide further cash Rs. 90,000 on a floating charge. The arrears of interest are paid. |
| (5) |
Director's refund Rs. 20,000 of the fees previously received by them. |
| (6) |
The contingent liability materialised in the sum stated but the company recovered Rs. 30,000 of these damages in action against one of its directors which was debited to his loan account of Rs. 48,000 and the balance of loan was paid in cash on his resignation. |
| (7) |
The remaining directors agreed to take equity shares in satisfaction of their loans. |
Pass journal entries and Revised Balance Sheet in the books of the Company. |
16 |
| |
|
|
|
| Q.4. |
|
The Balance Sheet of ICC Ltd. as at 31st December 2002 inter alia includes the following:
| |
Rs. |
| 2,50,000 8% Preference shares of Rs. 100 each Rs. 70 paid-up |
1,75,00,000 |
| 5,00,000 Equity shares of Rs. 100 each fully paid-up |
5,00,00,000 |
| Securities Premium |
25,00,000 |
| Capital Redemption Reserve |
1,50,00,000 |
| General Reserve |
3,00,00,000 |
Under the terms of their issue, the Preference shares are redeemable on December 31, 2002 at a premium of 5%. In order to finance the redemption, the company made a right issue of 1,50,000 equity shares of Rs. 100 each at Rs. 110 per share, but received application for 1,20,000 shares only, which all were accepted.The Preference shares were redeemed after fulfilling the necessary conditions of Section 80 of the Companies Act 1956. The company decided to make the minimum utilisation of general reserve.The company issued one bonus share for every two shares held (including new issue).You are asked to pass the necessary journal entries in books of Company giving effect to the above adjustments and show the relevant extracts of the Balance Sheet after giving effect to the above adjustments. |
16 |
| |
|
|
|
| Q.5. |
|
Following is the Balance Sheet of Rahman as at 31st March, 2002:-
| Liabilities |
Rs. |
Assets |
Rs. |
| Rahman’s Capital Account |
8,16,000 |
Fixed Assets |
3,60,000 |
| Creditors |
1,52,160 |
Investments |
1,20,000 |
| |
|
Current Assets |
4,88,160 |
| |
9,68,160 |
|
9,68,160 |
The following net profits were earned which included a fixed income on investment of Rs. 8,000 per year. Year ended 31st March, 1999 - Rs. 1,28,000; 2000 - Rs. 1,44,000; 2001 -Rs. 1,72,000; 2002 - Rs. 1,80,000. Standard rate of return on capital employed in this type of business is 8%.Calculate the value of goodwill of the above business at three years purchase of the average super profits for the four years assuming –
| (a) |
that each years profit is immediately withdrawn in full by the proprietor and |
| (b) |
the weights to be assigned to the profits for the purpose of averaging are :
| Year |
1999 |
2000 |
2001 |
2002 |
| Weight |
1 |
1.5 |
2 |
2.5 |
|
Ignore Income Tax. |
16 |
| |
|
|
|
| Q.6. |
|
On 31st March 2002, B Ltd. was absorbed by A Ltd. the latter taking over all the assets and liabilities of the former at book values. The consideration for the business was fixed at Rs. 80,000 to be discharged by the transferee company in the form of its fully paid equity shares of Rs. 10 each, to be distributed among the shareholders of the transferor company, each shareholder getting two shares for every share held in the transferor company.The Balance sheets of the two companies as at 31st March 2002 were as under:
| Liabilities |
A Ltd. |
B Ltd. |
Assets |
A Ltd. |
B Ltd. |
| Share Capital: |
|
|
Goodwill |
40,000 |
12,000 |
| Authorised |
3,00,000 |
1,00,000 |
Plant and Machinery |
82,400 |
20,000 |
| Issued and Subscribed |
|
|
Furniture |
16,000 |
6,000 |
| Equity Shares of Rs.10 |
|
|
Stock in Trade |
53,100 |
12,000 |
| each fully Paid-up |
1,80,000 |
40,000 |
Sundry Debtors |
44,240 |
9,200 |
| General Reserve |
36,000 |
10,000 |
Prepaid Insurance |
-- |
140 |
| Profit and Loss A/c |
4,100 |
2,580 |
Income Tax Refund Claim |
-- |
1,200 |
| Sundry Creditors |
14,114 |
7,890 |
Cash in hand |
174 |
70 |
| Bills Payable |
2,040 |
800 |
Cash at Bank |
2,800 |
1,660 |
| Provision for Taxation |
2,460 |
1,000 |
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
2,38,714 |
62,270 |
|
2,38,714 |
62,270 |
Amalgamation expenses amounting to Rs. 200 were paid by A Ltd. You are required to :
| (a) |
Show the necessary journal entries in the books of A Ltd. assuming amalgamation in the nature of merger. |
| (b) |
Prepare the Balance Sheet of A Ltd. after the amalgamation. |
|
16 |
| |
|
|
|
| Q.7. |
|
Mr. Mehta furnishes the following regarding his holding in 12% IDBI bonds.
| 1-4-01 |
Op.Balance-Nominal value of 12% bonds Rs. 2,00,000, cost Rs. 1,90,000. Three months interest had accumulated as interest was receivable half yearly on 30th June & 31st December. |
| 31-8-01 |
He purchased a further Rs. 80,000 of the bonds at Rs. 96 cum interest. |
| 31-10-01 |
Sold 700 12% bonds of Rs. 100 each at Rs. 94 ex-interest. |
| 28-2-02 |
Sold 300 12% bonds of Rs. 100 each at Rs. 96 cum interest. |
The face value of each bond was Rs. 100.Prepare 12% IDBI bonds account for the year ended 31-3-02. Use weighted average. |
16 |
| |
|
|
|
| Q.8. |
|
Ashish Ltd. had entered into the following transactions in foreign currency during the year ended 31st March 2002. You are requested to pass necessary Journal Entries for the year ended 31-3-02.
| Date |
Particulars |
| 10-06-01 |
Goods worth $10,000 exported to G of Germany. |
| 20-06-01 |
Payment received from G of Germany $10,000 |
| 16-08-01 |
Raw Material imported worth $ 5,000 from S of South Korea. |
| 31-08-01 |
Payment made to S of South Korea $ 5,000. |
| 10-10-01 |
Payment received from SA of South Africa $ 20,000 as advance. |
| 15-10-01 |
Goods worth $ 20,000 exported to SA of South Africa. |
| 03-11-01 |
A machine worth $ 12,000 imported from UK industries to UK. |
| 15-11-01 |
Payment made $ 6,000 to UK industries of UK. |
| 15-12-01 |
Payment made $ 6,000 to UK industries of UK. |
| 15-01-02 |
Exported goods to BK industries of Bangladesh worth $ 2,000. Payment was outstanding as on 31-3-02 |
| 15-03-02 |
Imported machinery worth $ 10,000 from GK of Germany. Payment is outstanding as on 31-3-02 |
The exchange rate of $ 1 during the year was as follows:
| Date |
Exchange rate Rs. |
|
Date |
Exchange rate Rs. |
| 10-06-01 |
46.75 |
|
03-11-01 |
48.60 |
| 20-06-01 |
46.50 |
|
15-11-01 |
48.70 |
| 16-08-01 |
48.00 |
|
15-12-01 |
48.40 |
| 31-08-01 |
48.50 |
|
15-01-02 |
49.00 |
| 10-10-01 |
48.75 |
|
15-03-02 |
49.50 |
| 15-10-01 |
49.00 |
|
31-03-02 |
50.00 |
|
16 |
| |
|
|
|
| Q.9. |
|
Write Short notes on any three:- |
16 |
| |
1) |
Disclosure requirement of Schedule VI in respect of Share Capital. |
|
| |
2) |
Super Profit method of goodwill valuation. |
|
| |
3) |
Buy back of shares. |
|
| |
4) |
ASI - Disclosure of Accounting Policies. |
|
| |
5) |
Importance of Accounting standards. |
|
|
