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Financial Accounting

October 2007

Time: 3 Hours
Marks: 100
NB:
  1. Question No. 1 is Compulsory.
  2. Attempt any five questions from Question Nos. 2 to 9.
  3. All working notes should form part of the -answer.
  4. Figures to the right indicate full marks assigned to each question.
  • Q.1 Following are the Balance Sheets of X Ltd. and Y Ltd. (20)
  • Balance Sheets As on 31st March, 2006

    Liabilities X Ltd.
    Rs.
    Y Ltd.
    Rs.
    Assets X Ltd.
    Rs.
    Y Ltd.
    Rs.
    Equity Share Capital of Rs. 10 each 75,00,000 45,00,000 Building 25,00,000 15,50,000
    Export Profit Reserves 3,00,000 3,00,000 Machinery 32,50,000 17,00,000
    Profit and Loss Account 7,00,000 6,00,000 Stock 25,50,000 18,00,000
    General Reserve 2,00,000 4,50,000 Debtors 9,00,000 10,00,000
    12% Debenture of Rs. 100 each 5,00,000 3,00,000 Bank 7,00,000 5,50,000
    Sundry Creditors 7,00,000 5,50,000 Preliminary Expenses
    -
    1,00,000
    99,00,000 67,00,000 99,00,000 67,00,000

    Z Ltd was formed to acquire all assets and liabilities of X Ltd. and Y Ltd. on the following terms:

    1. Z Ltd. to have an authorised share capital of Rs. 5 crores dividend into 5,00,000 equity shares of Rs. 100 each.
    2. The business of both companies were taken over for a total price of Rs. 1.2 crores to be discharged by Z Ltd. by issue of equity shares of Rs. 100 each at a premium of 20%.
    3. The shareholders of X Ltd. and Y Ltd. to get shares in Z Ltd. in the ratio of net assets values of their respective shares.
    4. The Debentures of both the companies to be converted into equivalent number of 14% Debentures of Rs. 100 each in Z Ltd. at a discount of 10%.
    5. All the tangible assets of both the companies are taken over by Z Ltd. at book values except the following:
    6. Assets X Ltd.
      Rs.
      Y Ltd.
      Rs.
      Building
      28,00,000
      18,20,000
      Machinery
      31,50,000
      16,00,000
    7. Sundry creditors of X Ltd. and Y Ltd. are taken over at Rs. 6,50,000 and Rs. 5,00,000 respectively.
    8. Statutory Reserves are to be maintained for 3 years more.You are required to:

    (i) Compute Purchase consideration of X Ltd. and Y Ltd.

    (ii) Pass Journal Entries in the Books of Z Ltd.

    (iii) Prepare Balance Sheet after amalgamation. Apply Purchase Method.

  • Q.2 A Company was incorporated on 31st August, 2006 to take over the business as going concern from 1st March, 2006. Trial Balance drawn on 31st December, 2006. (16)
  • Trial Balance as on 31st December, 2006
    Debit Balances Rs. Credit Balances Rs.
    Land and Building 1,50,000 Vendor's Capital 2,40,000
    Plant and Machinery 50,000 Debentures 10,000
    Computer 20,000 Sundry Creditors 2,400
    Sundry Debtors 30,000 Bills Payable 2,000
    Bank 30,000 Interest Received 5,000
    Stock 25,000 Gross Profit 96,000
    Management Expenses 12,000
    Rent 4,200
    Office Expenses 5,500
    Directors' Fees 17,000
    Postage and Telegrams 500
    Bad Debts 2000
    Free Samples 800
    Formation Expenses 2,000
    Debenture Interest 1,000
    Commission on Sales 800
    Depreciation 3,000
    Careiage Outwards 1,600
    3,55,400 3,55,400

    Additional Information:

    1. The Purchase consideration was settled at Rs. 2,50,000 by issuing 2,500 equity shares of Rs. 100 each.
    2. Total sales for the period from 1st March, 2006 to 31st December, 2006 was Rs. 2,56,000 and out of which Rs. 1,12,000 was for the period from 1st September, 2006 to 31st December, 2006.
    3. In lieu of interest on purchase consideration, the vendors would get 50% of the net profit prior to incorporation.
    4. Bad Debts of Rs. 800 are related to sales made in pre-incorporation period.
    5. Rent is paid on the basis of floor space occupied which was doubled in post incorporation period.
    6. 40% of Goodwill and 20% of formation expenses are to be written off.

    Prepare Profit and Loss Account for the period ended 31st December, 2006 showing Pre and Post incorporation Profit and Balance Sheet as on that date.

  • Q.3 Following is the Balance Sheet of Delta Ltd. as on 31st March, 2006. 16
  • Trial Balance as on 31-03-2006
    Liabilities Rs. Assets Rs.
    15,000 11.5% Preference Shares of Goodwill 80,000
    Rs. 10 each fully paid up
    1,50,000 Patents 54,000
    13,000 10% Preference Shares of Land and Buildings 1,75,000
    Rs 10 each, Rs. 5 per share paid up
    65,000 Plant and Machinery 3,25,000
    20,000 Equity Shares of Rs. 10 each full paid up 2,00,000 Furniture 15,000
    12% Debenture of Rs. 100 each 1,50,000 Investments 75,000
    11% Debentures of Rs. 100 each. 3,00,000 Sundry Debtors 3,15,000
    Interest due on debentures 19,500 Bills Receivable 1,00,000
    Sundry Creditors 4,50,000 Bank 20,000
    Profit and Loss A/c 1,75,500
    13,34,500 13,34,500
  • The following scheme of reconstruction was submitted and approved by the court:
    1. 11.5% Preference Shares of Rs. 10 each fully paid were reduced to 14% Preference Shares of Rs. 10 each, Rs. 6 per share paid up.
    2. 10% Preference Shares of Rs. 10 catch, Rs. 5 per share paid up, were reduced to 13% Preference Shares of Rs. 10 each, Rs. 3 per share paid up.
    3. Equity Shares of Rs. 10 each fully paid were reduced to the denomination of Rs. 5 each fully paid.
    4. 11% Debenture holders agreed to accept 50,000 equity shares of Rs. 5 each in full settlement of their claims.
    5. Debenture holders agreed to forego the interest due on debentures.
    6. Sundry Creditors agreed to forego 10% of their claims.
    7. The Company recovered as damages a sum of Rs. 50,000 which was not recorded in the books.
    8. Cost of Reconstruction was paid Rs. 2,250.
    9. Assets are to be revalued as under:
    10. Rs.
      Land and Buildings 2,50,000
      Plant and Machinery 2,75,000
      Furniture 10,000
      Investments 90,000
      Sundry Debtors 3,00,000

      All intangible assets and accumulated losses are to be written off.You are required to:

  • (i) Pass Journal Entries in the Books of Delta Ltd.
  • (ii)Prepare Capital Reduction A/c and Balance Sheet after reconstruction.
  • Q.4 Following is the Balance Sheet of Ajantha Ltd. as on 31st March, 2006 (16)
  • Liabilities Rs. Assets Rs.
    8% Preference Shares of Rs. 10 each 4,00,000 Goodwill 80,000
    Less :Calls in arrears (Rs. 2 each) 4,000 3,96,000 Property 4,80,000
    Equity Shares of Rs. 10 each 8,00,000 Plant 4,40,000
    Less: Calls in arrears (Rs. 2 each) 20,000 7,80,000 Equipments 2,40,000
    General Reserve 3,20,000 Vehicles 3,20,000
    Profit and Loss Account 64,000 Investments 3,20,000
    Bank Loan 2,40,000 Stock 2,20,000
    Sundry Creditors 6,20,000 Debtors 3,60,000
    Bills Payable 1,20,000 Bank 40,000
    Preliminary Expenses 40,000
    25,40,000 25,40,000

    A Company decided to value its Equity Shares on the basis of its business assets and Liabilities. To enable the valuation of shares following information is furnished.

    1. All, fixed assets (except goodwill) are worth 30% above book value.
    2. Stock is overvalued by Rs. 20,000 on 31st March, 2006.
    3. Rs. 4,000 due from customers are bad and are to be written off.
    4. All investments earn income @ 10%, however only 10% of investment are trade investments.
    5. On verification it was noticed that Rs. 40,000 paid on 1-4-2003 for purchasing a plant was debited to repairs as on that date. The depreciation @ 10% p.a. on cost is provided by the company.
    6. Goodwill is to be valued at 2 years purchase of past four years average profit.
    7. The Profit and Loss Account revealed the following profits before the above adjustments.
  • Year Profits (Rs.)
    2002-2003 3,20,000
    2003-2004 3,60,000
    2004-2005 4,20,000
    2005-2006 4,00,000
  • As certain the value of fully paid partly paid equity shares.
  • Q.5 The Balance Sheet of Monica Ltd. as on 31st March,2006 was as follows: (16)
  • Liabilities Rs. Assets Rs.
    4,000 12% Redeemable Preference shares of Goodwill 7,000
    Rs. 10 each fully paid up 40,000 Sundry Assets 1,21,500
    6,000 Equity Shares of Rs. 10 each fully paid up 60,000 Bank 65,000
    Security Premium 20,000 Preliminary Expenses 2,000
    Profit-and Loss Account 23,400
    Sundry Creditors 52,100
    1,95,500 1,95,500

    The Company decided to redeem the preference shares at a premium of 5% together with One month's dividend thereon.

    Other information is as under:

    1. The company issued for cash Rs. 12,000 14% Debentures at a discount of 2 1/2%.
    2. Before redemption, the company decided to write off Goodwill from Profit and Loss Account and Preliminary Expenses and discount on issue of debentures out of security Premium Account.
    3. The Company issued at par for cash a minimum number of new 15% Preference Shares of Rs. 10 each necessary to provide for redemption of 12% preference shares after utilising available divisible profits.
    4. The Company made a bonus issue to equity shareholders of one fully paid share of Rs. 10 each of every five shares held.

    Pass necessary journal entries and draft a Balance Sheet after redemption and bonus issue.

  • Q.6 Following is the Trail Balance of Premier Ltd. as on 31st March, 2006 (16)
  • Debit Balances Rs. Credit Balances Rs.
    Freehold Land 2,50,000 6% Cummulative Preference
    Building 1,00,000 Share Capital 80,000
    Furniture 30,000 Equity Share Capital 3,67,500
    Debtors 50,000 Security Premium 20,000
    Bills Receivables 20,000 Profit and Loss Account (1 -4-2005) 6,500
    Stock (31-3-2006) 20,000 Bank Overdraft 1,00,000
    Cash at Bank 15,000 (Against Mortgage of Land and Building)
    Cash in hand 1,000 Suspense Account 2,500
    Cost of goods sold 3,00,000 Sales 4,00,000
    Salaries 15,000 Income from Investments 12,000
    Sundry Expenses 8,000 Reserve for Doubtful Debts (1 -4-2005) 2,000
    Investment in shares (Market Value Rs. 1, 85,000) 2,00,000 Creditors 20,000
    Interest 3,000 Bills Payable 10,000
    Bad Debts 1,000 Depreciation written off upto 31-3-2005:
    Repairs and Maintenance 1,500 Building 5,000  
    Advance Income Tax 16,000 Furniture 5,000 10,000
    10,30,500 10,30,500

    Additional Information:-

    1. The land was revalued on 1st January, 2006 at Rs. 3,50,000 by an expert valuer, but no effect was given although the directors have decided to adjust the revalued amount.
    2. Provision for bad debts is to be made at 5% on Debtors.
    3. Equity share capital consists of 36,900 equity shares of Rs. 10 each, out of which 36,400 shares are fully paid up and 500 shares on which final call of Rs. 3 per share remains unpaid.
    4. Suspense Account represents money received from new allottees for reissue of 500 shares forfeited during the year for non payment of final call but no entry thereof has been passed.
    5. Provision for tax to be made at 33 1/3%.
    6. The company is managed by directors who are entitled to remuneration calculated at 3% of annual profits before provision for doubtful debts.
    7. Depreciation is to be charged on Building @ 2% and on furniture @ 10% under W.D.V. Method.
    8. Dividend on cumulative preference shares was in arrears for 5 years unto 31st March, 2005. The directors recommended payment of preference dividend for 4 Years. Ignore dividend tax.

    Prepare Profit and Loss Account for the year ended 31st March, 2006 and Balance Sheet as on that date in a vertical form. Ignore Previous Year's figures.

  • Q.7 Following is the-Balance Sheet of Suyog Ltd. as on 31st March 2006: (16)
  • Liabilities Rs. Assets Rs.
    Share Capital: Fixed Assets:
    Authorised: Land and Building 30,00,000
    10,00,000 Equity shares of Rs. 10 each 1,00,00,000 Plant and Machinery 30,00,000
    Issued: Furniture 22,00,000
    8,00,000 Equity shares of Rs. 10 each, Investment: 15,00,000
    Rs 8 paid up 64,00,000 Current Assets
    Reserve: Debtors 47,00,000
    General Reserve 10,00,000 Bills Receivables 10,00,000
    Profit and Loss Account 50,00,000 Bank Balance 40,00,000
    Securities Premium 20,00,000 Stock 20,00,000
    Secured Loans:
    11% Debentures 20,00,000
    Unsecured Loans: 20,00,000
    Current Liabilities:
    Creditors 15,00,000
    Bills payable 15,00,000
    2,14,00,000 2,14,00,000

    The company decides to buy back the maximum number of equity shares as may be permitted at a price of Rs. 20 per share. Find out maximum number of shares to be bought back and pass Journal Entries and Prepare Balance Sheet after buy back.

  • Q.8 Mr. Mandar holds as on 1st, April 2005 Rs. 75,000 (Cost price Rs. 78,000) 6% Government Securities as investment on which interest is payable half yearly on 30th June and 31st December every year. The following transactions took place during the accounting year ended 31st March, 2006 (16)
  • Purchases:

    1. On 1-5-2005 Face Value Rs. 30,000 @ 98 Cum-Interest.
    2. On 1-11-2005 Face Value Rs. 45,000 @ 101 Ex-Interest.

    Sales:

    1. On 1-8-2005 Face Value Rs. 36,000 @ 97 Cum-Interest.
    2. On 1-2-2006 Face Value Rs. 24,000 @ 102 Ex-Interest.

    Market price of investment at 1% discount on 31st March, 2006.

    Write up Investment Account closing it on 31st March, 2006 in the books of Mr. Mandar Investments are to be valued at cost or at Market Value whichever is less. (Apply AS 13)

  • Q.9 a) A company had 12% Debentures of Rs. 100 each as on 1-1-2006. It purchased its own debentures as below: (4)
    1. (i) On 1-2-2006, 1,000 debentures @ Rs. 97 Cum-Interest.

      (ii) On 1-3-2006 1,500 debentures @ Rs. 96 Ex-Interest.

    Interest was payable on 30th June and December every year.

    Pass journal enteries for purchases of own debentures and immediate cancellation thereof.

  • b) Prepare a schedule of "Current Assets, Loans and Advances" giving all the details required under schedule VI to the Companies Act 1956.(4)
  • c) Swapnil Ltd dealer in cosmetics exports goods on 1st January, 2006 worth $ 50,000 to WK Ltd. in New York. The payment was received on 31st March, 2006. On the date of invoice the exchange rate was $ 1 = Rs. 47 and when the payment was received it was $ 1 = Rs. 48
    Journalise the above transactions in the books of Swapnil Ltd.(2)
  • d) X Ltd. an Indian Company advanced $ 16,000 for import of goods from US Company of USA on 1st February, 2006. The goods were received alongwith purchase bill for $ 25,000 on 1st March, 2006. The balance amount was paid on 15th March, 2006.(6)

    The rate of exchange on the various dates was as follows.

  • 1-2-2006 $ 1 = Rs. 47.50
    1-3-2006 $ 1 = Rs. 48.00
    15-3-2006 $ 1 = Rs. 49.00
  • Pass journal entries for the above transactions in the books of X Ltd.
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