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Financial Accounting
Time: 3 hours APRIL 1997 Marks: 100
 

Q. 1.

On 31st march, 1997 JEHANGIR LTD. had to redeem 5,00,000 15% Redeemable Preference Shares of Rs. 100 each at a premium of Rs. 10 per share and 40,000 16% non convertible debentures of Rs. 1,000 each at a premium of 5% on 31st March, 1996, the company's reserves and surplus position was as under:-

20

 
 

Rs.

Share Premium

25,00,000         

Capital Reserve

2,00,00,000        

Debenture redemption Reserve

4,00,00,000        

Revenue Reserves

3,00,00,000        

Balance in Profit and loss A/c.

75,00,000        

Total

10,00,00,000          

 
 

During the year ended 31st March, 1997 the company earned Profit after tax of Rs. 90,00,000 of which Rs. 10,00,000 were Capital Profits and rest were revenue Profits. Directors of JEHANGIR LTD. decided to:

 

i) pay Preference dividend out of revenue Profits;

 

ii) redeem the debentures as per the terms;

 

iii) redeem the preference shares as per the terms;

 

iv) use share Premium Money for providing for premium on redemption.

 

v) transfer the necessary amount to capital redemption reserves.

   
 

You are asked to:

 

a) Pass journal entries giving effect to the five decisions of the directors.

 

b) Show details of "reserves and surplus" as they would appear in the Balance Sheet as on 31st March, 1997. (with corresponding figures for Previous Year)

 

c) Give WORKING NOTE.

   

Q.2.

M/s. CCC Scraps Ltd. owns a huge waste paper and cotton waste godown which caught fire on 17th April, 1997. However salvage operations enabled following information for:

16

 
 

Particulars

Year ended 31-3-97

From 1-4-97 to 17-4-97

1. Opening Stock Rs. 10,000
(@ Cost )
Rs. 36,000 (@ 10% below cost)
2. Purchases Rs. 80,000 Rs. 16,500 (Includes Furniture costing
Rs. 1,500)
3. Sales Rs.1,00,000 Rs. 20,000 (Include 1/4th of Stock
@ Rs. 1,000/- costing on 31-3-97
@ Rs. 4,000/- being of poor selling line)
4. Wages Rs. 26,000 Rs. 7,000 (Include Rs. 2,000 for installing weighting scale; whereas Rs. 3,000/- remains outstanding wages)
 
 

5. On 10th April, 1997 goods costing Rs. 6,000/- were given as samples to retailers, however no entries were made in books.

 

6. Goods costing Rs. 500 were being misappropriated everyday from 5th April, 1997 to 10th April, 1997, when the Store Keeper was caught red handed and the value of misappropriated goods was recovered from him and he was dismissed.

 

7. Goods sent on consignment Rs. 12,800/- on 10th April, 1997 remaining unsold with consignee till the date of fire.

 

8. The Gross Margine remain constant having no Goods Salvaged.

 

Prepare the statement of claim to be constant having no Goods Salvaged.

   

Q. 3.

Navin and Sunil were partners sharing profit and losses in the ratio 2:1. Their Balance Sheet as on 31st March, 1997 showed the following financial position.

16

 

Liabilities

Rs.

Assets

Rs.

Capital Accounts

     

Navin

50,000

Freehold Premises

62,000

Sunil

40,000

Plant / Machinery

18,000

Current Accounts

 

Book Debts

41,000

Navin

26,000

U.T.I. bank

45,000

Sunil

18,000

   
Navin's Loan Account

40,000

   

Accounts Payable

24,000

   

Total

1,98,000

Total

1,98,000

 
 

The partners wishing to dissolve the firm, accepted the offer of Chhaya Ltd. to acquire the stock and fixed assets at an inclusive price of Rs. 1,40,000.

The purchased consideration was to be satisfied by (a) a cash payment of Rs. 35,000 (b) by allotment to the partners 6,000 6% Preference Shares of Rs. 10 each, valued at Rs. 8 per share (c) 57,000 Ordinary Shares of Rs. One each.

The Book debts realised Rs. 38,000 and Accounts payable were settled by Rs. 22,000.

The Partners agreed that the following should be the basic of distribution on dissolution of the partnership.

 

a) Navin to be allotted Preference Shares in settlement of his loan, the remaining Preference Shares being allotted equally to them.

 

b) The Ordinary Shares to be allotted in the ratio of profit sharing.

 

c) The Balance to be paid in cash.

   
 

You are required to prepare

 

i) Realisation Account

 

ii) Partners' Capital accounts separately

 

iii) Chhaya Ltd. account

 

iv) Cash account.

   

Q. 4.

The following were the Balance Sheets as on 31st December, 1996 of Shruti Ltd. and Smruti Ltd.

16

 

Liabilities

Shruti Ltd.

Smruti Ltd.

Equity Share capital (Rs. 100 per share)

Rs. 1,00,000

Rs.

60,000

6% Debenture of Rs. 10 each

20,000

-

Reserve Fund

34,000

-

Dividend Equalization Fund

4,000

-

Employee's Provident Fund

3,000

-

Creditors

10,000

8,000

Profit and Loss Account

2,000

-

 

1,73,000

68,000

Assets

 

-

Land and Buildings

30,000

-

Plant and Machinery

1,10,000

50,000

Stock

16,000

8,000

Debtors

14,000

9,000

Cash

3,000

1,000

 

1,73,000

68,000

 
 

The two companies agreed to amalgamate and form a new company called Deepti Ltd. which takes over the assets and liabilities of both the companies.

The authorised capital of Deepti Ltd. is Rs. 10,00,000 consisting of 1,00,000 Equity Shares of Rs. 10 each.

The assets of Shruti Ltd. are taken over at book value less 10% with the exception of land and buildings which are accepted at book values.

Both the companies are to receive 5% of the net valuation of their respective business as goodwill.

The entire purchase consideration is to be paid by Deepti Ltd. in its fully paid shares. In return for debentures in Shruti Ltd. debentures of the same amount and denomination are to be issued by Deepti ltd.

Give Journal entries in the books of Shruti Ltd. and Smruti Ltd.

Also show the opening Balance Sheet of Deepti Ltd.

   

Q. 5.

KIMCO Limited was incorporated on 1st January, 1996 to acquire the business of M/s. EMKAY & CO. effective from 31st March, 1996.

The authorised capital of company is Rs. 8,00,000/- dividend in shares of Rs. 10/- each. Of these, 50% shares are Equity and remaining are 15% Preference.

The balance Sheet of EMKAY & CO. on 31st March, 1996 is -

 

Liabilities

Rs.

Assets

Rs.

Capital:

 

Property

2,50,000

Mohan

2,75,000

Equipments

90,000

Kiran

1,65,000

Inventory

1,60,000

Reserves

1,20,000

Debtors

2,80,000

Creditors

2,40,000

Bank

20,000

Total

8,00,000

Total

8,00,000

 
 

The terms of acquisition are -

 

1. The Company to take over Property, Equipment and Inventory at Book Value.

 

2. Company agreed to allot 36000 Equity and 24000 Preference Shares to EMKAY & Co. as consideration.

 

3. The Company did not take over Debtors and Creditors. But agreed to collect debtors and discharge creditors. It is not responsible for losses, but entitled to commission @ 2-1/2% on collections only -

 

4. The collections were -

 

      April 1996 Rs. 1,50,000/-

 

      May 1996 Rs. 90,000/- and

 

      June 1996 Rs. 20,000/-

 

Creditors were paid from collections. The remaining debtors are irrecoverable.

 

5. The accounts with EMKAY & Co. is settled on 30th June, 1996.

   
 

You are required to show -

 

i) Journal Entries in books of KIMCO Limited.

 

ii) Balance Sheet of KIMCO Limited on 30th June, 1996.

   

Q. 6.

Emgee Enterprises of Pune has two branches at Solapur and Kolhapur. The branches maintain a account with State Bank and are authorised to make purchases locally.

Following information is obtained from Solapur branch by Pune Office:

16

 

Particulars

Balance as on

Solapur

1-4-1995

Rs.

31-3-1996

Rs.

Cash

4,000

5,400

Stocks

10,000

18,000

Debtors

24,000

8,000

Bank

14,000

12,000

Creditors

2,000

1,000

Transactions during the year -

   

Goods received from -

   

Pune

40,000

 

Kolhapur

3,000

 

Locally Bought Goods

6,600

 

Payments to Creditors -

   

By Cash

600

 

By Cheque

7,000

 

Receipt from Debtors -

   

By Cash

12,000

 

By Cheque

18,000

 

Sales on Credit -

20,000

 

For Cash

50,000

 

Goods Returned by Customer's

5,000

 

Goods Returned to Pune

6,000

 

Goods sent to Kolhapur Branch

4,000

 

Expenses paid at Branch

   

By Cheque

9,600

 

Cash Deposit in bank

?

 

Amount transferred to Pune

?

 

Prepare necessary accounts for branches under Stock and Debtors Method in Pune Office Books.

 

Q. 7.

The following is the Balance Sheet of Rohini Industrial Construction Ltd. as on 31st December, 1996.

 

Liabilities

Rs.

Assets

Rs.

20,000 Equity Shares of Rs. 100 each, fully paid

20,00,000

Virar Works

16,00,000

18,000 7% Pref. Shares of Rs. 100 each fully paid

18,00,000

Churchgate Works

12,00,000

"A" 8% Debentures (Secured on Virar Works)

3,00,000

Stock on hand

9,00,000

"B" 8% Debentures (Secured on Churchgate Works)

3,50,000

Sales Ledger Adjustment Account

5,00,000

Creditors

2,50,000

Cash at Bank

1,00,000

Bills Payable

2,00,000

Invention Expenses

2,00,000

   

Profit and Loss Account

4,00,000

 

49,00,000

 

49,00,000

 
 

A Scheme of Reconstruction was duly prepared and sanctioned whereby:-

 

a) Equity Shares were to be reduced to Rs. Ten each fully paid.

 

b) Preference shares were to be reduced to shares of Rs. 80 each fully paid, dividend being raised to 10%.

 

c) Debentureholders forego their interest Rs. 52,000 which included in creditors.

 

d) 'B' Debentureholders agreed to take over Churchgate Works at Rs. 5,00,000 and to Accept an allotment of 3,000 Equity Shares in Rohini Industrial Construction Ltd. of Rs. 10 each at par. They settled their account by paying necessary amount by a crossed cheque to the company.

 

e) Stock on hand was to be written down by Rs. 2,00,000 and a provision for doubtful debts be created to the extent of Rs. 25,000.

 

Any balance arising out of the above points to be applied as to 2/3rd to write off the value of Virar works and 1/3rd to Capital Reserve.

   
 

You are required to prepare:-

 

a) Capital Reduction Account

 

b) Balance Sheet after the above scheme is implemented.

   

Q. 8.

Rana Limited was incorporated on 1st August, 1995 to take over the business of M/s. R. N. Enterprises from 1st April, 1995. M/s. R. N. Enterprises is a partnership firm of which Ramesh and Naresh are partners sharing profits and losses in proportion of 3:2.

The authorised capital of company is Rs. 5,00,000/- divided in 50,000 Equity Shares of Rs. 10/- each.

Ramesh was managing Partner of M/s. R. N. Enterprises. He was appointed Managing Director of Rana Limited from date of incorporation.

On 1st October, 1995, 25% of authorised capital was issued to M/s. R. N. Enterprises as consideration.

These transactions were not recorded in the books and same set of books were continued till 31st march, 1996.

The following Balance are extracted from books on 31st March, 1996:-

16

 

Particulars

Dr. Rs.

Cr. Rs.

Capital - Ramesh

 

72,000

- Naresh

 

48,000

Fixed Assets

81,000

 

Stocks

21,500

 

Purchases

84,500

 

sales

 

2,40,000

Sales Wages

19,200

 

Staff Salaries

21,000

 

Salary - Ramesh

48,000

 

- Rent

16,000

 

General Expenses

6,000

 

Company Formation Expenses

5,000

 

Selling Expenses

30,000

 

Investments -

   

(15% Debentures of N. R. Ltd.)

50,000

 

Debtors

25,100

 

Creditors

 

16,800

Bank Balances

5,500

 

Commission

 

36,000

Total

4,12,800

4,12,800

 
 

Additional Information-

 

1. Stock on 31st March, 1996 valued at Rs. 27,600/-

 

2. Sales upto 31st July, 1995 was Rs. 90,000/-

 

3. From 1st August, 1995 Salary of Ramesh was increased from Rs. 3,000/- to Rs. 4,500/- per month.

 

4. Rent was revised from Rs. 1,000/- per month to Rs. 1,500/- per month from 1st August, 1995.

 

5. Commission is earned at fixed rate every month.

 

6. Investments were bought on 1st October, 1995.

 

7. Goodwill and Company Formation Expenses are to be written off equally in five years from Current Year.

 

8. Provide Depreciation @ 20% on Cost and Income-tax @ 40% for full year's profit.

 

9. Director proposes to distribute 60% of available profit as Dividend.

 

Ascertain Pre-Incorporation Profit and Prepare Final Account.

   

Q. 9.

Explain any four of the following:

18

 

a) Principles of Valuation of Share

 

b) Significance of Accounting Standards

 

c) Features of Accounting Government Grants

 

d) Divisible Profits

 

e) Super Profit

 

f) Contingent Liabilities.

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