CWA ICWA Inter Stage II : Advanced Financial Accounting - December 2002

CWA ICWA Inter - Stage II • Advanced Financial Accounting • December 2002

This Paper has 19 answerable questions with 8 answered.

I—10(AFA) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

Attempt Question No. 1 which is compulsory and any five from the rest.
Marks

(a)

A going concern is one, which has not contemplated going into liquidation even in the remotest future all the time of preparing its latest financial statements. True or False.

2x10

(1)

(b)

Link–up the items with appropriate Accounting system.

Item		Accounting System
(i)	Money at Call and Short notice	Insurance Accounts
(ii)	Balance at Marine Fund	Bank Accounts
(iii)	General Balance Sheet	Company Accounts
(iv)	Calls–in–Arrear A/c	Double Accounting System.

(1)

(c)

State two reasons for which a Trial Balance does not agree.

(1)

(d)

State how Profits prior to Incorporation is treated in Accounts.

(1)

(e)

Two types of errors do not affect the agreement of a Trial Balance. — Mention names clearly.

(1)

(f)

Name four concepts on which Financial Accounting is founded.

(0)

(g)

How are the following Items treated while preparing the Income & Expenditure a/c and Balance Sheet?

(i)	Legacies
(ii)	Donation for specific purposes.

(0)

(h)

How Loss due to Short Sales is calculated in connection with Loss of Profits policy?

(1)

(i)

In respect of a Dependent Branch, a Head Office may follow any of the four methods of Accounting. Name these clearly.

(1)

(j)

Mention any two purposes for which Share Premium Account can be utilised.

(1)

The following are the summarised Balance Sheets of H. Ltd and S. Ltd as at 31^st December, 2001.

Liabilities	H Ltd	S Ltd	Assets	H Ltd	S Ltd
Share Capital Reserves Balance of P & L a/c as on 1.1.01 Profit & Loss a/c for the year Creditors	200,000 30,000 60,000 40,000 100,000	50,000 10,000 30,000 10,000 30,000	Sundry Assets Share in S. Ltd Cash at Bank	180,000 230,000 20,000	120,000 — 10,000
	430,000	130,000		430,000	130,000

H Ltd. acquired 80% of the Shares in S. Ltd. On 1st July 2001 included in the Assets of H. Ltd., there is Rs. 30,000 Loan to S Ltd. Shown as creditors in S. Ltd. Sundry Assets of S Ltd. include furniture & fittings of Rs. 40,000 to be revalued at Rs. 50,000 being over depreciated as at 31^st July, 2001. Prepare Consolidated Balance Sheet of H Ltd. as at 31^st December, 2001.

(0)

PBX Co. Ltd. have three ledgers — Debtor’s Ledger, Creditor’s Ledger and General Ledger which are kept under Seft–balancing system.
From the following particulars, prepare the relevant Adjustment Accounts that would appear in each of the Ledger:

Rs.

Debtor’s balance (1.4.2001)
(Dr.)
(Cr.)
Creditor’s balance (1.4.2001) (Dr.)
(Cr.)
Purchase (Including Cash Rs. 4,500)
Sales (Including cash Rs. 5,000)
Cash paid to Creditors
Collection from Debtors
Discount Allowed
Discount Received
Returns Inward
Returns Outwards
Bills Payable Accepted
Bills Receivable Drawn
Bills Dishonoured
Bills Discounted
Bills Endorsed
Bills as Endorsed Dishonored
Bad Debts
Provision for Bad Debts
Transfer from Debtor’s Ledger
Transfer to Creditor’s ledger
Debtor’s Balances as on 31.03.2002 (Cr.)
Creditor’s Balance as on 31.03.2002 (Dr.)

20,000
6,000
4,500
16,800
38,000
77,000
21,000
62,000
260
320
2,400
1,500
4,000
7,500
2,000
1,500
4,000
1,000
800
2,500
500
500
300
200

(0)

From the following information, prepare:

(a)

Reconciliation of Head Office Account in Branch Books and of the Branch Account in the Head Office, Books; and

(b)

The Trading and Profit & Loss Account of the Head Office – for the year ended 31^st December, 2001.

	Head Office Rs.	Branch Rs.
Opening Stock Purchases Sales Other Expenses Closing Stock	10,000 115,000 205,000 15,200 5,200	4,500 — 155,000 6,200 3,100

The Branch books show the Head Office Account at Rs. 9,000 (Cr.) and the Head Office books show the Branch Account at Rs. 24,000 (Dr.). The Branch receives all its supplies from the Head Office, which are Invoiced at 25% over cost; During the year, the Head Office sent Invoices to the Branch to the tune of Rs. 1,04,500. The Head Office credits Its Sales Account with the Invoice price of the goods sent to the Branch.

The Head Office billed the Branch for Rs. 12,000 on 31^st December 2001 representing the Branch's share of the expenses Incurred by the Head Office. The said expenses had not been recorded in the books of the Branch.

The expenses of the Branch are met by the Head Office from time to time for which amounts are sent in advance to the Branch. A sum of Rs. 3,000 sent to the Branch by the Head Office on 29th December, 2001 in this connection, was received by the Branch on 3rd January, 2002.

(0)

The business of Rundown Ltd. was being carried on continuously at losses. The following are the extracts from the Balance Sheet of the company as on 31^st March 2002:

Liabilities	Rs.	Assets	Rs.
Authorised, issued and subscribed capital: 30,000 equity shares of Rs. 10 each fully paid 2,000 8% Cum, Pref. Shares of Rs. 100 each fully paid Share premium Unsecured Loan (from Director) Sundry Creditors Outstanding Expenses (including Directors remuineration - Rs. 20,000)	3,00,000 200,000 90,000 50,000 300,000 70,000	Goodwill Plant Loss Tools Debtors Stock Cash Bank Preliminary Expenses P & L Account	50,000 300,000 10,000 250,000 150,000 10,000 35,000 5,000 200,000
	1,010,000		1,010,000

Note: Dividends on Cum. Pref. Shares are in arrears for three years.
The following scheme of reconstruction has been agreed upon and duly approved by the court:

(1)

Equity shares to be converted into 1,50,000 shares of Rs. 2 each.

(2)

Equity shareholders to surrender to the company 90% of their holding.

(3)

Pref. shareholders agree to forego their rights to arrear dividends in consideration of which 8%. Pref. Shares are to be converted into 9% Pref. Shares.

(4)

Sundry creditors agree to reduce their claim by one-fifth in consideration of their getting shares of Rs. 35,000 out of the surrendered Equity Shares.

(5)

Directors agree to forego the amounts due on account of Unsecured Loan and Directors remuneration.

(6)

Surrendered Shares not otherwise utilised to be cancelled.

(7)

Assets to be reduced as under:

Goodwill
Plant
Tools
Sundry Debtors
Stock

by
by
by
by
by

Rs.
Rs.
Rs.
Rs.
Rs.

50,000
40,000
8,000
15,000
20,000

(8)

Any surplus after meeting the losses should be utilised in writing down the value of the plant further.

(9)

Expenses of reconstruction amounted to Rs. 10,000.

(10)

Further 50,000 Equity Shares were issued to the existing members for increasing the working capital. The issue was fully subscribed and paid up.

(11)

Authorised, capital was suitably increased.

A member, holding 100 Equity Shares opposed the Scheme and his shares were taken over by a Director on payment of Rs. 1,000 as faced by the court.

You are required to pass the Journal Entries for giving effect to the above arrangement and also to draw up the resultant Balance Sheet of the Company.

(0)

On 1st January 200, RAMAN Ltd. wants to implement its programme of expansion but finds that there is a short of funds. On 1st January, 2001, it had a balance in Bank – Rs. 1,80,000.

From the following information, prepare a statement for Board of Directors to show how the overdraft of Rs. 68,750 as at 31^st December, 2001, has arisen.
Figures as per balance Sheet as at 31^st December each year are as follows:

	Year 2000 Rs.	Year 2001 Rs.
Fixed assets Stock & Stores Sundry Debtors Bank Balance Trade Creditors Share Capital (in shares of Rs. 10 each) Bills receivable	750,000 220,000 350,000 180,000 270,000 250,000 87,500	1,120,000 330,000 335,000 68,750 350,000 300,000 95,000	(OD)

The profit for the year ended 31^st December 2001 before charging depreciation and taxation amounted to Rs. 2,40,000.
5,000 shares were issued on 1st January 2001 at a Premium of Rs. 5 per share.

Rs. 1,37,500 were paid in March 2001 by way of Income Tax.

Dividends were paid as follows:

For 2000 (Final) on the capital on 31.12.2000 at 10% less tax at 25%.
For 2001 (intering) 5%, Free of Tax.

(0)

The Trading Account of M/s Abraham & Co. for the year ending 31^st March, 2001 is given below.

	Rs.	Rs.
To Opening Stock To Purchases less Returns To Gross Profit c/d	68,480 156,940 29,400	By Sales Less Returns By Closing Stock	196,000 58,820
	254,820		254,820

A fire occurred in their godown which was situated behind their office premises, on 31^st December, 2001. A considerable part of the stock of ready-made garments was destroyed by fire. The salvaged stock realised for Rs. 2,255. The stocks and the premises were fully insured against fire risks.

Considering the following further particulars, prepare a statement showing the amount of claim to be lodged by M/s Abraham & Co. with the Great India Insurance Company Ltd. for the loss of stock only.

Sales for the period ending 31^st December, 2001 were Rs. 1,09,200. The amount paid for the purchases was Rs. 88,016 including a cheque for Rs. 562 which was not presented to the bankers up to 31.12.2001.

As shown by the books of account. Trade creditors on 31.3.2001 amounted to Rs. 24,608 and on 31^st December, 2001 were Rs. 22,112. Goods worth Rs. 6,390 were returned to creditors during the period ending 31^st December, 2001. Working shall be treated as part of your answer.

(0)

(a)

Write Short notes on:-

4x2=8

(i)

Public Account;

(0)

(ii)

Contingency Fund.

(0)

(b)

(i)	Describe with reference to Accounting Standard 7 on Accounting for construction contracts, the methods which may be used for recognising revenue on construction contracts.

(ii)	Briefly explain the objective and scope of Accounting for the effects of changes in Foreign Exchange rates – AS. 11.

4x2=8

(0)

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