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Financial Accounting
Time : 3 Hrs.
October 1997
Total Marks : 100
 
Q1 BAD KISMAT LTD has a shop and godown. Goods are transferred from the godown to the shop every day in the morning. The inventory in the godown is insured for Rs. 25,00,000 while that of shop is insured for Rs. 5,00,000.
On 31st December, 1996, the inventory in the godown @ cost was Rs. 24,00,000 while the inventory in the shop at cost was worth Rs. 6,00,000.
The following transactions took place during the period mentioned:
 
 
Jan. 1997

Rs.
Feb 1997

Rs.
Mar 1997

Rs.
Apr 1st to
Apr 16th, 1997
Rs.
Purchases
15,00,000 
18,00,000 
14,00,000 
5,00,000 
Returns to Suppliers
--- 
--- 
2,00,000 
--- 
Transfer to Shop
17,00,000 
20,00,000 
25,00,000 
7,00,000 
Return from Shop
75,000 
1,00,000 
25,000 
50,000 
Sale in Shop @ Gross Profit:
 
 
 
 
of 12%
 8,00,000 
9,00,000 
 10,00,000 
 4,00,000 
of 8%
10,00,000     
12,00,000 
14,00,000 
4,00,000 


Fire occured in the shop at midnight of 16th April - 17th April 1997 and the entire stock was engulfed. Goods costing Rs. 10,000/- could be salvaged intact and the balance goods in spoilt cindition. Expenses o Fire fighting operations /salvage amounted to Rs. 5,000. The goods retrievedin spoilt condition could be sold @ 30% of cost.
Compute the claim to be lodged with Insurance Company.
 

 
Q2 M/s. SOLVENT LTD. intends to redeem its Secured Debts on 1st April,1997 when its financial position indicated:
 

the debenture holders were given option to get :
 

 
SOURCES
 
Rs. in Lakhs.
I Own Fund :
(i)  Equity Share Capital
(ii) Preference Share Capital

(iii) Reserves & Surplus :
  
        Sinking Fund
        Profit & Loss Account

7.00
1.00



3.85
0.90
 

8.00




4.75
 










12.75
II
Owed Fund :
(i) 10% Debunture Stock
     Redeemable @ Premium of 10% (Secured against      Fixed Assets)
(ii) Public Deposits.


                                                 Total Fund :

4.00


0.25
 





4.25

17.00

I
II





III
APPLICATIONS :
Fixed Assets :
Sinking Fund Investments :

 Rs. 80,000, 5% Infrastructure Bonds.
 Rs. 90,000, 6% National Defence Bonds.
 Rs. 70,000, 7% State Finance Corp. Bonds.
 Rs. 1,90,000, 7% IDBI Securities

Working Capital :


 



0.76
1.00
0.70
 

1.85


 

 

10.00





4.31
2.69
 
Total Assets :
   
17.00

 
  (i)Cash on redumption OR  
  (ii)Equity Shares of Rs. 10/- each @ Premium of Rs. 5/- per share. OR  
  (iii)15% Debenture of Rs. 100/- each @ Premium of Rs. 10/- per debenture.
Accordingly :
 
  (a)50% Debentures holders opted for 1st option.  
  (b)30% Debentures holders opted for 2nd option.  
  (c)20% Debentures holders opted for 3rd option.  
  (d)All investments were sold @ 15% below cost.

Pass necessary journal entries and prepare revised Balanced Sheet after Redumption.
 
Q.3. Prepare Ltd. agreed to aquire the business of Modern Auto Ltd. as on 31st March 1997.
The Balance Sheet of Modern Auto Ltd . as on that date was as under.
 
Liabilities
Rs.
Assets
Rs.
Share Capital :   Goodwill
10,000    
6000 Equity Sharess o f Rs. 10 each fully paid.
60,000    
Building
30,000    
General Reserve
17,000    
Machinery
34,000    
Profit & Loss Account
11,000    
Stock
16,800    
6% Debentures
10,000    
Book Debts
3,600    
Sundry Creditors
2,000    
U.T.I. Bank Account.
5,600    
 
1,00,000     
 
1,00,000    


 

 
  The Consideration payable to Premier Ltd. Was agreed at as follows :  
  (a) Cash payment equal to Rs.2.50 per share in Modern Auto Ltd.  
  (b) Issue of 9,000 Equity Shares of Rs. 10 each of Premier Ltd. Having an agreed value of Rs. 15 per share.  
  (c) Issue of such an amount of fully paid 8% Debentures of Premier Ltd. at Rs.96 each as is sufficient to discharge 6% Debentures, of Modern Auto Ltd. at 20% premium.

While computing purchase consideration, Premier Ltd. valued building and machinery at Rs. 60,000 each, stock at Rs. 14,200 and Book Debts subject to 5% provision for discount. The cost of liquidation of Modern Auto Ltd. was Rs. 500.

    Prepare :
     (i)  Necessary Ledger Accounts in the book of Modern Auto Ltd.
     (ii) Journalise the transactions in the books of Premier Ltd.

 
Q.4. Attu, Battu and Gattu were partners in a firm sharing profits and losses in the ratio of 3/6:2/6:1/6 respectively. The Balance Sheet of the firm as on 31st March, 1997, 1997 was as under:  
 
Liabilities
Rs.
Assests
Rs.
Capital :
Attu
Battu
Gattu

Current accounts :
Attu
Battu
Gattu
Gattu'sa Loans
Capital Reserve
Creditors

Total
 


 


1,50,000  
90,000  
50,000  


35,000  
16,000  
12,000  
51,000  
1,20,000  
44 ,000  

------------
5,68,000 
=========
Patents
Machenery
Investments
Stocks
Debtors
HDFC Bank Balance








Total
25,000    
1,30,000    
40,000    
2,50,000    
70,000    
53,000    







----------------
5,68,000    
============


 

 
  On 1st April, 1997 they decided to covert their business into a limited company called ABG Ltd. on the following terms :  
  (i) The creditors would accept patents at a discount of 20% in part satisfacation of their claims.  
  (ii) 1/4th of the Investments were taken over by Gattu at 10% premium in part settlement of his loan. This remaining Investments were taken over by Battu at 3/4th of face value.  
  (iii) Shares of listed companies worth Rs. 15,000 purchased by the firm had been written off as worthless. These shares are taken over by Attu for Rs. 5,000.  
  (iv) Expenses of realisation amounted to Rs. 6,500
ABG Ltd. took over the remaining assets except HDFC Bank Balance at an agreed price of Rs. 4,75,000 payable as under :

(a) 30,000 Equity Shares of Rs. 10 each at 10% premium.
(b) Balance in cash.
 
  (v) Gattu’s loan was settled by giving to him 10% of shares received as a part of purchase consideration and the remaining amount was transferred to his current account.  
  (vi) The remaining shares were divided among the partners in profit sharing ratio.  
  Prepare :  
  (i) The necessary ledger account to close the books of the firm and  
  (ii) Opening Balance Sheet of ABG Ltd.  
Q.5 The following is the Balance Sheet of Ever Hopeful Ltd. as on 31st December, 1996.  
 
Liabilities
Rs.
Assets
Rs.
5,000 6% Preference Shares of Rs.100 each fully paid40,000 Equity Shares of Rs.10 each fully paid
Capital Reserve
5% Debentures
Accrued interest on Debentures Sundry Creditors
5,00,000  

4,00,000  

25,000  
2,00,000  
30,000  
1,55,000  




----------  
13,10,000  
========  
Goodwill
Patents
Building
Plant
Furniture
Stock on Hand
Sundry Debtors
Bank Balance
Cash Balance
Profit/Loss Account
Discount on Issue of             Debentures

55,000   
45,000   
2,15,000   
2,55,000   
60,000   
90,000   
75,000   
12,500   
2,500   
4,80,000   
20,000   

---------  
13,10,000   
=========  


 

 
  Note : The Preference divided was in areas for the last three years.
It was decided to reconstruct the company, as per the following scheme which was prepared and duly approved by the court:
 
  (a) The Preference Shares be converted into 7% Preference Shares of Rs.50 each fully paid.  
  (b) The Equity Shares shall be reduced to Rs. 3 each fully paid.  
  (c) The Debenture holders agreed to waive 50% of the accrued interest.  
  (d) Arrears of Preference Dividend to be cancelled.  
  (e) The Creditors agreed to waive 30% of their claims and converted part of their remaining dues by accepting Equity Shares of Rs. 30,000.  
  (f) The Assets were revalued as under :

 
 
Building
Plant
Furniture
Stock
Debtors
Rs.
Rs.
Rs.
Rs.
Rs.
2,50,000
2,25,000
55,000
80,000
70,000



 



 

 
  (g) After writing off other fictitious assets, patents to be written off as far as possible.  
  (h) Capital Reserve to be continued in Balance Sheet.

Draft Journal Entries to give effect to the above scheme and prepare the Balance Sheet after reconstruction.

 
Q.6 Inter City Traders have Head Office at Mumbai and Branch at Kalyan. The goods are despatched from Mumbai to Kalyan at cost plus 25% thereon.
The information pertaining to year 1st April, 1995 to 31st March , 1996 is as under :
 
  (i) The stocks increased from Rs. 60,000 /- to Rs. 90,500/- during the year.  
  (ii) The Debtors increased from Rs.20,000/- to Rs. 32,000/-  
  (iii) The goods received from Mumbai were invoiced at Rs.6,50,000. Of these, goods worth Rs. 30,000/- were sent to Shahpur Branch. Goods worth Rs. 20,000/- were returned Mumbai, since these were received in damaged condition.  
  (iv) Goods worth Rs. 10,000/- were lost of Branch. Insurance claim of Rs.6,000/- was received at Mumbai.  
  (v) Total Sales were Rs. 5,60,000/-. Of these 40% were for cash and remaining on credit. One customer to whom goods worth Rs. 2,500/- were sold, returned 20% of goods. He is not likely to pay 500 which is balance due from him.  
  (vi) Branch paid in case following expenses :

Salary Rs. 36,000/-; Rent Rs. 6,000/-; Printing & Stationery Rs. 6,000/-; Freight & Delivery Charges Rs. 9,000/-; General Expenses Rs. 17,640; The Cash Balance increased from Rs. 100/- to Rs.460/-
 
  (vii) Mumbai Office paid insurance premium on behalf of Branch – Rs 1,000/- It also charged Rs. 5,000 as depreciation on assets at Branch.

You are required to prepare necessary accounts in books of Mumbai Office under Stock and Debtor System.

 
Q.7 (a) The Final Accounts of Quest Ltd.as on 31st March 1996 revealed following significant information:  
 
(i)Share Capital (Fully paid up)

    Equity – 1,00, 000 Shares of Rs.10/- each.
    12% Preference – 20,000 shares of Rs.50/- each

 
 
 
 

(ii) Reserve & Surplus – Rs. 1,50,000/-

 
 
 

(iii) Preliminary Expenses – Rs. 30,000/-

 
 
 

(iv) The valuation of assets revealed that assets as per accounts are undervalued by Rs. 2,50,000/-

 
 
 

(v) The average pre-tax profit of past three years was Rs. 5,00,000/- Tax applicable to company is @ 50%.

 
 
 

(vi) It is anticipated that due to favourable market condition, pre-tax profit will increase by 20%.

 
 
(vii) Equity Shareholders expect a return at 15%

Find the FAIR VALUE of Shares :

 
  (b) Gem. Limited submits following information as on 31st March, 1996 :  
 
 

(i)

Fixed Assets (Trangible) Rs
15,00,000
 

(ii)

Current Assets Rs
6,00,000
 

(iii)

Patent Right Rs
2,50,000
 

(iv)

Investments Rs
1,00,000
 

(v)

Capital Issues Expenses Rs
50,000
 

(vi)

Liabilities Rs
4,00,000
(vii)
Rs Capital comprise of 12,500 shares of Rs.100/- each fully paid.
 
 
 

 
Q.8. Amar Enterprises Limited is incorporated with Authorised Capital of Rs.1,00,00,000/- divided in Equity Shares of Rs. 100/-each. 50% of these Shares are issued and subscribed. On 1st April, 1995, rs. 75/- were called up on each shares.

During the year these shares were made fully paid up by capitalising General Reserve to the required extent. However, accounting entries for same is not passed.

The following balances are extracted as on 31st March, 1996 from books of accounts.

 
 
Particulars
Rs.
Share Capital
37,50,000   
Furniture
1,57,500   
Plant
53,73,000   
Building
9,26,250   
Miscellaneous Expenses
7,62,500   
General Reserve
50,00,000   
Land
3,75,000   
Sales
5,38,75,000   
Share Premium
12,50,000   
Staff Advances
 61,250   
Advance from Customers
6,25,000   
Salaries, Wages & Bonus
1,45,00,000  
Loan from Bank (secured)
   1,56,250   
Travelling & Conveyance
51,250   
Auditors Payments
18,750   
Advance Tax Payment :  
For Last Year
8,75,000   
For Current Year
28,75,000  
Cash on Hand
   77,500   
Repairs & Maintenance
1,07,500   
Closing Stock of Raw Materials
33,37,500   
Creditors
42,50,000   
Directors’ Fees
5,000   
Stock of Finished Goods
38,75,000   
Bank Balance
1,00,000   
Provision of Tax (For Last Year)
16,25,000   
Debtors
16,27,000   
Raw Material Consumed
3,57,50,000   
Power
1,10,000   
Prepaid Expenses
57,500   
Rent Paid
66,250   
Miscellaneous Receipt
6,75,000  
Commission
   7,500   
Investment
1,25,000   
 
  Further Data :  
  (i) Income- tax for earlier year was assessed at Rs. 15,50,000/- The company has neither disputed nor paid differential amount.  
  (ii) Provision for Income-tax for current year is to be made @ 45%  
  (iii) On 31st March, 1996 Stock of Finished Goods is valued Rs. 7,00,000/- at cost.  
  (iv) Miscellaneous Expenses included Depreciation provided for the year as under :

Plant – Rs.. 5,97,000, Furniture – Rs. 17,500, Building – Rs.23,750.

 
  (v) The Directors recommend divided @ Rs.15/- per share.  
  (vi) Balance in Profit & Loss Account is to be transferred to General Reserve.  
  (viii) Investments are 16% Debentures of Gem Limited of face value of Rs.1,50,000/- (Present Market Value is Rs. 1,12, 500/-) Interest received for the year is included in Miscellaneous receipts.

You are required to prepare final accounts as per Companies Act.

 
Q.9 Explain any four of the following : 16
  (a) What is the process of Capitalisation of Future Maintainable Profit and Why it is so required ?  
  (b) What is the treatment of Sinking Fund for redemption of debentures in the year of their redemption ?  
  (c) The types of Debentures.  
  (d) Provision of Companies Act, 1956 regarding redemption of Preference Shares.  
  (e) Evolution of Accounting Standard.  
  (f) Methods of Depreciation/Depletion envisaged by Accounting Standards.

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