CWA ICWA Inter Stage II : Advanced Financial Accounting - June 2004

CWA ICWA Inter - Stage II • Advanced Financial Accounting • June 2004

This Paper has 20 answerable questions with 0 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)

What is the primary consideration in the selection of accounting policies by an enterprise?

2x10

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(b)

When is an asset judged to have suffered an impairment loss?

(0)

(c)

How should basic earnings per share be calculated under As–20?

(0)

(d)

When is a banking company allowed to form subsidiary companies?

(0)

(e)

State the function of "interest suspense account" under the Instalment purchase system.

(0)

(f)

What entries would you make in holding company's accounts to record dividends received from a subsidiary's pre–acquisition profits?

(0)

(g)

Which of the following is not a satisfactory balance sheet equation?

(i)	Assets – liabilities = owners' equity;
(ii)	Assets = liabilities + owners' equity;
(iii)	Assets = liabilities &minus owners' equity;
(iv)	Assets – owners' equity = liabilities.

(0)

(h)

State any two ways to create a Secret Reserve.

(0)

(i)

State three occasions when goodwill needs to be quantified.

(0)

(j)

What do you mean by "clear profit"?

(0)

The summarised balance sheets of X Ltd. and Y Ltd. as on 31^st March 2004 were as follows:

	X Ltd. Rs.	Y Ltd. Rs.
Fully paid up equity shares of Rs. 10 each Share premium account General Reserve Profit & Loss A/c 10% Debentures Secured Loan Sundry Creditors	10,00,000 2,00,000 3,00,000 1,80,000 5,00,000 – 2,60,000	6,00,000 – 2,50,000 1,60,000 – 3,00,000 1,70,000
	24,40,000	14,80,000
Land & Buildings Plant & Machinery Investments (5000 shares in Y Ltd.) Stock Debtors Bank	9,00,000 5,00,000 80,000 5,20,000 4,10,000 30,000	4,50,000 3,80,000 — 3,50,000 2,60,000 40,000
	24,40,000	14,80,000

The companies agree on a scheme of amalgamation on the following terms:

(a)	A new Co. XY Ltd. is to be formed.
(b)	XY Ltd. to take over all assets and liabilities of the existing companies.
(c)	For the purpose of amalgamation, the shares of the existing companies are to be valued as under: X Ltd –Rs. 18 per share. Y Ltd – Rs. 20 per share.
(d)	A contingent liability os X Ltd. of Rs. 60,000 is to be treated as real liability.
(e)	The share holders of X Ltd. and Y Ltd. are to be paid by issuing sufficient number of shares in XY Ltd. at par.
(f)	The shares in XY Ltd. are to be of Rs. 10 each.

Required:

(i)	Show the computation of the number of shares XY Ltd. will issue to the shareholders of the existing companies.

(ii)	Pass the journal entries to close the books of X Ltd. and

(iii)

Prepare the opening balance sheet of X Y Ltd.
[Ignore liquidation and formation expenses.]

3+8+5

(0)

M/s Star & Co. has two departments which maintain separate records. Prepare Trading and Profit & Loss A/c for each department and Balance Sheet for the company for the year ended 31.3.2003. Provide depreciation on Plant and Machinery @ 33 1/3%. Building by 5%, Furniture @ 10%, other un–allocated expenses to be allocated on the basis of net sales of each department:

	Dept. I Rs.	Dept. II Rs.
Opening Stock (1.4.02) Purchases Purchase Returns Sales Sale Return Wages & Salaries Misc. expenses Closing stock (31.3.03)	1,00,000 9,20,000 8,000 25,32,000 12,000 7,20,000 1,40,000 1,04,000	80,000 7,60,000 4,000 19,68,000 8,000 6,40,000 1,28,000 96,000
General balance for the year:
	Rs.
Debtors Creditors Plant & Machinery Land Building Furniture Sales Overheads Cash on 31.3.03 Bank balance on 31.3.03 Capital	7,60,000 6,92,000 9,60,000 3,20,000 4,80,000 1,92,000 5,12,000 32,000 4,40,000 20,00,000

4+6+6

(0)

The following particulars have been furnished in respect of Mr. Bright's business. From these you are required to prepare Trading A/c, Profit & Loss A/c and Balance Sheet as on 31.3.2003:

	1.4.2002 Rs.		31.3.2003 Rs.
Cash Bank balance Debtors Creditors Stock	3,750 7,50,000 25,00,000 22,50,000 3,75,000		– 5,25,000 31,25,000 25,00,000 6,25,000

Analysis of the bank pass book the following have been revealed:

(a)

Withdrawal for petty cash expenses @ Rs. 37,500 per month.

(b)

Collection from debtors Rs. 33,75,000.

(c)

Sales price being cost + 33

(d)

Any difference in Cash A/c and Bank A/c to be treated as personal drawings to Mr. Bright.

(e)

Petty cash expenses during the year Rs. 4,46,250.

(f)

All purchases were made on credit and paid by cheques.

(g)

All sales were made on credit and dues collected by cheques.

4+4+8

(0)

Mr. Glostar commenced business on 1st April 2003. He sells washing machines of a standard type and size on hire purchase terms. The total amount, including interest payable for each washing machine is Rs. 4,500. Customers are required to pay an initial deposit of Rs. 900, followed by eight quarterly installments of Rs. 450 each. The following trial balance is extracted from Mr. Glostar‘s books as on 31.3.2004;

Trial Balance
Particulars	Debit Rs.	Credit Rs.
Capital Furniture Purchase Cash collected from customers Salaries and wages Office expenses Creditors Bank overdraft Bank interest Drawings	– 1,50,000 27,00,000 – 1,92,000 82,500 – – 6,000 60,000	15,00,000 – – 11,47,500 – – 2,49,000 2,94,000 – –
	31,90,000	31,90,000

850 machines were sold during the year on hire purchase terms. Mr. Glostar has decided to take credit of profits and interest in proportion to cash collections. He purchases at a cost of Rs. 3,000 each.
You are required to prepare the

hire purchase Trading A/c, Profit & Loss A/c and Balance Sheet as on that date. All workings are to be shown.

5+5+6

(0)

The Balance Sheet of New City College as at 31^st March 2003 was as follows:

	Rs.		Rs.
Capital Fund Building Construction Fund General Fund Outstanding Salary (teachers)	21,00,000 8,00,000 6,40,000 1,60,000	Land & Buildings Furniture Labourators Equipment Library Books Investments Accrued Tuition Fee Cash & Bank	20,00,000 3,00,000 2,50,000 3,60,000 6,50,000 10,000 1,30,000
	37,00,000		37,00,000

The Receipts and Payments account for the year ended 31^st March 2004 was drawn as under:

	Rs.		Rs.
To Opening bal. (1.4.2003) to Govt. Grants (revenue) To Donation for Building Construction To Tuition Fees & Session Charges To Investment Income To Rental Income (college Hall)	1,30,000 50,00,000 2,00,000 18,20,000 70,000 40,000	By Salaries & Allowances Teaching Staff By Non-Teaching Staff By Printing & Stationery By Laboratory Exp. By Laboratory Equipment By Library Books By Office Exp; By Electricity & Telephone By Audit fees By Municipal Taxes By Building Repairs By Purchase of Furniture By Games & Sports- By Welfare Exp. By New Investments By Closing Balance (31.3.2004)	42,00,000 20,00,000 80,000 60,000 1,20,000 2,50,000 60,000 75,000 2,000 1,000 40,000 80,000 20,000 30,000 1,50,000 92,000
	72,60,000		72,60,000

Other Informations:

(i)

Tuition fee outstanding as on 31.3.2004 — Rs. 40,000.

(ii)

Salary of teaching staff outstanding for March 2004 — Rs. 2,50,000

(iii)

Books received as donations from various parties — Rs. 30,000 (valued).

(iv)

Outstanding building repair expenses as on 31.3.2004 — Rs. 15,000.

(v)

Applicable depreciation rates:

Land & Buildings
Furniture
Laboratory Equipment
Library Books

2&
8%
10%
20%

You are required to prepare the Income and Expenditure account for the year ended 31^st March 2004 and a Balance Sheet as on that date.

(0)

The following information is obtained from the books of Paragon Insurance Co. in respect of fire insurance as on 31.12.2003. Prepare the Fire Insurance Revenue account for the year ended 31.12.2003.
Increase the additional reserve by 10% of the net premium.

	Rs.
Reserved for unexpired risk on 1.1.03 Additional reserve on 1.1.03 Claim paid Estimated liability in respect of outstanding claims— On 1.1.03 On 31.12.03 Managerial Exp. (including Rs. 52,500 Legal Expenses in connection with claims) Re–insurance premium Claims covered by re–Insurance Premiums Interests & dividends (less Income Tax) Profit on sale of Investments Commission	8,75,000 1,75,000 5,95,000 1,13,750 1,57,500 4,90,000 1,31,250 35,000 19,68,750 1,01,500 19,250 2,66,000

(0)

Write short notes on the following:

4x4=16

(a)

Conceptual Framework of Accounting;

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(b)

Major sources of U.S. GAAP;

(0)

(c)

Public Accounts Committee;

(0)

(d)

Discontinuing operations.

(0)

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