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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.

 
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