CWA ICWA Inter Stage II : Advanced Financial Accounting - December 2008

CWA ICWA Inter - Stage II • Advanced Financial Accounting • December 2008

This Paper has 25 answerable questions with 0 answered.

1—10(AFA) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory and any five from the rest. Total six questions to be answered.
Marks

The figures in the margin on the right side indicate full marks.

Answer Question No. 1 which is compulsory and any five from the rest.
Total six questions to be answered.

Marks

(a)

What are the three major considerations governing the selection and application of Accounting Policies?

2x10

(0)

(b)

Fill up the blanks:

(i)

Capital Reserve arises in purchase of business when the purchase consideration is _______ than the net assets acquired.

(0)

(ii)

Secret Reserve is created by _______ of liabilities.

(0)

(c)

(i)

A partly owned subsidiary is one in which the ________ does not hold all shares.

(0)

(ii)

The wholly owned subsidiary is one where ________ are owned by the holding company.

(0)

(d)

Define a cash and cash equivalents as suggested in accounting standard 3 to be used for preparing a cash flow statement.

(0)

(e)

What is meant by sweat equity shares?

(0)

(f)

What is the objective of Accounting Standard?

(0)

(g)

For what purposes Contingency Reserve may be utilised by an electricity undertaking?

(0)

(h)

State the cases where the creation of Debenture Redemption Reserve is not mandatory as per SEBI guidelines.

(0)

(i)

State whether each of the following statement is true or false:

(i)

Going concern means that business has entered into a process of liquidation.

(0)

(ii)

The principle of consistency requires that all business enterprises should follow the same method of accounting.

(0)

(j)

When parties are considered ‘Related’ as per A.S. 18?

(0)

A furniture firm maintained books of account on cash basis. Fire occurred on 30th June, 2006 in the premises of the firm destroying portion of stock and records. However the following data are available.

	Rupees in lakhs
Year	2004	2005
Sales Purchases Stock at start at cost Stock at close at cost Bills payable not recorded at year end Bills receivables not recorded at year end	20 16 — 4 2 5	40 24 4 5 3 4

Transactions of the firm for the period from 1.1.2006 to 30.6.2006 were as follows:
Sales 25 lakhs. Purchases Rs. 14 lakhs. Bills payables not recorded as at 30th June 2006 — Rs. 3 lakhs. Bills receivables not recorded as at 30th June 2006—Rs. 5 lakhs.
You are informed that the firm used to include collection charges of repairs and cost of repairs (rate of markup is cost plus 50%) in the sales and purchases respectively. Collection of repair charges were as follows:

Year, 2004
Year, 2005
For the period from 1.1.2006 to 30.6.2006

Rs. 3 lakhs
Rs. 6 lakhs
Rs. 6 lakhs

It is agreed with the insurer that the results of the operations for the period from 1.1.2006 to 30.6.2006 should be based on the average of the gross profit ratio of the calendar year 2004 and 2005. Firm’s stock was insured for Rs. 2 lakhs and the policy contains 60% co–insurance clause. Stock salvaged is agreed at Rs. 48,000.
From the data given, calculate:

(a)	Correct amount of sales for the year 2004 and 2005 respectively.
(b)	Correct amount of purchases for the year 2004 and 2005 respectively.
(c)	Gross profit for the above two years respectively.
(d)	Average of the gross profit ratios.
(e)	Correct amount of sales and purchases for the period from 1.1.2006 to 30.6.2006.
(f)	Workings to show the value of stock lost in fire.
(g)	The amount of claim for loss of stock.

(0)

Sun Ltd. and Moon Ltd. agreed to amalgamate and form a new company Star Ltd. with an authorised capital of Rs. 5 lakhs divided into 50,000 Equity Shares of Rs. 10 each on 31st March, 2008. The condensed Balance Sheet of respective companies were as follows:

	Sun Ltd.	Moon Ltd.
	(Rupees in lakhs)
Fixed Assets Current Assets Less: Current Liabilities Representing Capital	4 3 7 3 4	3 2 5 1 4

Revaluation was agreed upon as follows:

	Sun Ltd.	Moon Ltd.
	(Rupees in lakhs)
Fixed Assets Current Liabilities	5 2	3 2

Debtors and Creditors include Rs. 50,000 owed by Sun Ltd. to Moon Ltd.
The consideration for amalgamation is to be satisfied by the issue of shares and debentures as under:

(i)

33,000 Equity Shares of Star Ltd., and Moon Ltd. in the ratio of profitability of their respective business computed on the average net profit during the last four years which were as follows:

Sun Ltd.	Moon Ltd.
(Rupees in lakhs)
2 (–)1 4 5	3 2 3 4

(ii)

15% debentures of Star Ltd. at par to provide an income equivalent to 10% return on capital employed in their respective business as at 31st March, 2008 after revaluation.

You are required to:

(a) Compute the amount of shares and debentures to be issued to Sun Ltd. and Moon Ltd.

(b)	Balance Sheet of Star Ltd. showing the position immediately after amalgamation.

(c)	Computation of capital reserve/goodwill.

5+5+4+2

(0)

The following is the Balance Sheet of the retail business of Sri Lahiri as at 31st December, 2007:

Liabilities	Rs.	Assets	Rs.
Sri Lahiri‘s Capital Liabilities for Goods Rent	2,00,000 41,000 2,000	Furniture Stock Debtors Cash at Bank Cash at hand	20,000 1,40,000 50,000 29,000 4,000
	2,43,000		2,43,000

You are furnished with the following information:

(1)	Sri Lahiri sells his goods at a profit of 20% on sales.
(2)	Goods are sold for cash and credit. Credit customers pay by cheques only.
(3)	Payments for purchases are always made by cheques.
(4)	It is practice of Sri Lahiri to send to the Bank every weekend the collections of the week after paying every week salary of Rs. 900 to the clerk, Sundry expenses of Rs. 150 and personal expenses Rs. 300.

Analysis of the Bank Pass Book for the 13 weeks period ending 31st March, 2008 disclosed the following:

	Rs.
Payments to creditors Payments of rent up to 31.3.2008 by cheque Amounts deposited into the bank (including Rs. 60,000 received from debtors by cheques)	1,50,000 8,000 2,50,000

The following are the balances on 31st March, 2008:

Stock
Debtors
Creditors for goods

80,000
60,000
73,000

On the evening of 31st March, 2008 the Cashier absconded with the available cash in the cash book. There was no cash deposit in the weekend on that date.

You are required to prepare

a statement showing the amount of cash defalcated by the Cashier and also working notes on
(1) Purchases
(2) Total Sales
(3) Credit Sales
(4) Cash Sales
for the 13 weeks up to 31.3.2008 and Bank Balance as on that date.

4+3+2+
2+2+3

(0)

Y Ltd. Undertook a contract No. 80 for Rs. 7,50,000. The contract account showed the following particulars:

2005:
Materials Rs. 30,000; Wages Rs. 25,000; Overheads Rs. 10,000; Plant Rs. 1,00,000 and Materials at site at close Rs. 3,000.

2006:
Materials Rs. 1,00,000; Wages Rs. 60,000; Overheads Rs. 15,000; Materials returned Rs. 8,000. The Plant at its depreciated value was transferred to contract No. 88. Uncertified work Rs. 15,000.

2007:
Materials Rs. 1,60,000; Wages Rs. 1,00,000; Overheads Rs. 28,000 and Materials sold Rs. 4,000.
The amount of work certified at the end of the first year was Rs. 1,00,000. The work certified up to the end of the second year was Rs. 4,00,000 and the work certified in the third year was Rs. 3,50,000. 80 per cent of the certified work was received in cash.
Profit to be taken credit for are one – third and one–half on cash basis in each of the two years respectively.
Depreciate plant by 10 per cent on balance at the beginning of each year.
Prepare accounts in respect of the contract at the end of each year.

5+5+6

(0)

Black, Red and White were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. The Trial Balance of the firm as on 31st March, 2008 was the following:

	Rs.	Rs.
Machinery at Cost Depreciation on Machinery Capital A/c: Black Red White Drawings A/c: Black Red White Stock in Trade Sundry Debtors Sundry Creditors Bills Payable Profit for the year ended 31st March, 2008 Cash at Bank	1,20,000 25,000 23,000 17,000 65,400 65,300 89,300	60,000 68,000 45,000 23,000 60,500 24,200 1,24,300
	4,05,000	4,05,000

Interest on capital accounts at 10% p.a. on the amount standing to the credit of partners‘ capital account at the beginning of the year, was not provided before preparing the above Trial Balance. On 1st April, 2008 they formed a Private Limited Company with an authorised share capital of Rs. 2,00,000 in shares of Rs. 10 each to be divided in different classes to take over the business of partnership.
You are informed as under:

(i)	Machinery is to be transferred at Rs. 70,000.
(ii)	Shares in the company are to be issued to the partners, at par, in such numbers, and in such classes as will give the partners, by reason of their share holding alone, the same rights as regards interest on capital and the sharing of profit and losses as they had in the partnership.
(iii)	Before transferring the business, the partners wish to draw from the partnership profits to such an extent that the bank balance is reduced to Rs. 50,000. For this purpose sufficient profit of the year are to be retained in profit sharing ratio.
(iv)	All assets and liabilities except machinery and the bank are to be transferred at their book value as on 31st March, 2008.

You are required to Prepare:

(a)	Capital Accounts showing all adjustments required to dissolve the partnership.

(b)	Statement showing the workings of the number of shares of each class to be issued by the company to each of the partners and a statement of additional drawings in cash.

(c)	The Balance Sheet of the company immediately after acquiring the business of the partnership and issuing of shares.

4+8+4

(0)

A machinery is sold on hire purchase. The terms of payment is four annual installments of Rs. 6,000 at the end of each year commencing from the date of agreement. Interest is charged @ 20% and is included in the annual payment of Rs. 6,000.
Show machinery account and hire vendor account in the books of the purchaser who defaulted in the payment of the third yearly payment whereupon the vendor repossessed the machinery. The purchaser provides depreciation on the machinery @ 10% per annum on written down value basis.
All workings should form part of your answer.

(0)

Write short notes (any four) of the following:

4x4

(a)

Disclosure requirements as per Companies Act, 1956 in case of non–compliance of accounting standards;

(0)

(b)

Statutory reserve in case of accounting of banking companies;

(0)

(c)

Dessenting shareholders in case of amalgamation, absorption or reconstruction;

(0)

(d)

Demand for grant in Government finance;

(0)

(e)

Finance accounts of Central Government;

(0)

(f)

Methods of Government accounting.

(0)

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