CA Final Group I : Advanced Accounting - November 2007

CA Final - Group I • Advanced Accounting • November 2007

This Paper has 12 answerable questions with 0 answered.

Roll No……………
Total No. of Questions — 6]	[Total No. of Printed Pages — 5
Time Allowed : 3 Hours	Maximum Marks : 100

Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.

Answer all Questions.

Working notes should form part of the answer.

Marks

The draft Balance Sheets of 3 Companies as at 31^st March, 2007 are as below:

(In Rs.000's)
Liabilities	Morning Ltd.	Evening Ltd.	Night Ltd.
Share Capital – shares of Rs.100 each Reserves P/L A/c (1.4.06) Profit for 2006–07 Loan from Morning Ltd. Creditors	40,000 1,800 1,500 7,000 — 2,500 52,800	20,000 1,000 2,000 3,800 5,000 1,000 32,800	10,000 900 800 1,800 — 1,400 14,900
Assets: Investments:
1,60,000 shares in Evening 75,000 shares in Night Loan to Evening Ltd. Sundry assets	18,000 8,000 5,000 21,800 52,800	— — — 32,800 32,800	— — — 14,900 14,800

Following additional information is also available:

(a)	Dividend is proposed by each company at 10%.
(b)	Stock transferred by Night Ltd. to Evening Ltd. fully paid for was Rs.8 lacs on which the former made a Profit of Rs.3 lacs. On 31^st March, 2007, this was in the inventory of the latter.
(c)	Loan referred to is against 8% interest. Neither Morning Ltd. nor Evening Ltd. has considered the interest.
(d)	Reserves as on 1.4.2006 of Evening Ltd. and Night Ltd. were Rs.8,00,000 and Rs.7,50,000 respectively.
(e)	Cash–in–transit from Evening Ltd. to Morning Ltd. was Rs.1,00,000 as on 31.3.2007.
(f)	The shares of the subsidiaries were all acquired by Morning Ltd. on 1^st April, 2006.

Prepare consolidated Balance Sheet as on 31^st March, 2007. Workings should be part of the answer.

(0)

The Balance Sheets of Strong Ltd. and Weak Ltd. as on 31.03.2007 is as below:

Balance Sheet as on 31.03.2007
Liabilities	Strong Ltd. Rs.	Weak Ltd. Rs.	Assets	Strong Ltd. Rs.	Weak Ltd. Rs.
Equity Share Capital (Rs.100 each) Reserve P/L A/c Creditors	50,00,000 4,00,000 6,00,000 5,00,000 65,00,000	30,00,000 2,00,000 4,00,000 3,00,000 39,00,000	Fixed Assets other than Goodwill Stock Debtors Cash & Bank Preliminary Expenses	30,00,000 8,00,000 14,00,000 12,00,000 1,00,000 65,00,000	20,00,000 6,00,000 9,00,000 3,50,000 50,000 39,00,000

Strong Ltd. takes over Weak Ltd. on 01.07.07. No Balance Sheet of Weak Ltd. is available as on that date. It is however estimated that Weak Ltd. earns estimated profit of Rs.2,00,000 after charging proportionate depreciation @ 10% p.a. on fixed assets, during April–June, 2007.

Estimated profit of Strong Ltd. during these 3 months is Rs.4,00,000 after charging proportionate depreciation @ 10% p.a. on fixed assets.

Both the companies have declared and paid 10% dividend within this 3 months' period. Goodwill of Weak Ltd. is valued at Rs.2,00,000 and Fixed Assets are valued at Rs.1,00,000 above the estimated book value. Purchase consideration is to be satisfied by Strong Ltd. by shares at par. Ignore Income–tax.
You are required to calculate the following:

(i)	No. of shares to be issued by Strong Ltd. to Weak Ltd. against purchase consideration;
(ii)	Net Current Assets of Strong Ltd. and Weak Ltd. as on 01.07.2007;
(iii)	P/L A/c balance of the Strong Ltd. as on 01.07.2007;
(iv)	Fixed Assets as on 01.07.2007;
(v)	Balance Sheet of Strong Ltd. as on 01.07.2007 after take over of Weak Ltd.

(0)

(a)

Shivaji Ltd. purchased Fixed assets worth Rs.90,00,000 on 1^st April, 2002. The life of the assets is 10 years and they are to be depreciated on straight line basis. The assets were revalued on 1^st April, 2004 when 50% of the assets was assessed at 10% less than the book value, and the remaining assets were revalued at 15% higher than book value. The assets were ultimately sold on 1.4.2006 for Rs.54,80,000. Excess depreciation on revaluation, if any, should be charged to Revaluation Reserve.
Show Fixed Assets A/c, Depreciation A/c and Revaluation Reserve A/c, supported by Workings wherever necessary.

(0)

(b)

The Balance Sheet of Domestic Ltd. as on 31^st March, 2007 is as under:

(All figures are in lacs)
Liabilities		Rs.	Assets	Rs.
Equity Shares Rs.10 each Reserves (including provision for taxation of Rs.300 lacs) 5% Debentures Secured Loans Sundry Creditors Profit & Loss A/c Balance from previous B/S Profit for the year (After taxation)	Rs.32 Rs.1,100	3,000 1,000 2,000 200 300 1,132	Goodwill Premises and Land at cost Plant and Machinery Motor Vehicles (purchased on 1.10.06) Raw materials at cost Work–in–progress at cost Finished Goods at cost Book Debts	744 400 3,000 40 920 130 180 400
			Investment (meant for replacement of Plant and Machinery) Cash at Bank and Cash in hand Discount on Debentures Underwriting Commission	1,600 192 10 16
		7,632		7,632

The resale value of Premises and Land is Rs.1,200 lacs and that of Plant and Machinery is Rs.2,400 lacs. Depreciation @ 20% is applicable to Motor Vehicles. Applicable depreciation on Premises and Land is 2%, and that on Plant and Machinery is 10%. Market value of the Investments is Rs.1,500 lacs. 10% of book debts is bad. In a similar company the market value of equity shares of the same denomination is Rs.25 per share and in such company dividend is consistently paid during last 5 years @ 20%. Contrary to this, Domestic Ltd. is having a marked upward or downward trend in the case of dividend payment.
Past 5 years' profits of the company were as under:

2001–02
2002–03
2003–04
2004–05
2005–06

Rs.67 lacs
(–) Rs.1,305 lacs (loss)
Rs.469 lacs
Rs.546 lacs
Rs.405 lacs

The unusual negative profitability of the company during 2002–03 was due to the lock out in the major manufacturing unit of the company which happened in the beginning of the second quarter of the year 2001–02 and continued till the last quarter of 2002–03.

Value the Goodwill of the Company on the basis of 4 years' purchase of the Super Profit. (Necessary assumption for adjustment of the Company's inconsistency in regard to the dividend payment, may be made by the examinee).

(0)

(a)

Indian Engineering and Technological Institute, an autonomous body furnishes the following information:

On 1.4.2006, unutilised restricted government grant (capital) balance is Rs.40,00,000; unutilised unrestricted government grant (revenue) balance is Rs.9,00,000; Institute's own corpus fund is Rs.25,00,000. Besides, a private endowment fund of Rs.18,50,000 is there on that date. The entire endowment fund is in fixed deposit with a bank fetching interest of 9.5% p.a. half–yearly transferred on 30^th September and 31^st March to a current account meant for scholarship and awards. The said current account has a debit balance of Rs.1,37,500. Apart from this, total cash and bank balance as on 1.4.06 is Rs.85,00,000.
Following transactions took place during the year 2006–07:

(1)

Salary paid out of own fund is Rs.65,00,000.

(2)

Salary to the research associates of a Government sponsored research scheme is Rs.4,00,000 paid out of unrestricted government grant.

(3)

Cost of renovation of the administrative building borne out of the Institute's own fund is Rs.4,75,000. The renovation work was completed on 21^st November, 2006 which was also the date of payment. Book value of the building was Rs.38,00,000 on 1.4.06. The rate of depreciation is 5% p.a. calculated at full year's rate if the asset exists for a period exceeding 6 months, and at half–year's rate in other cases. The same principle is followed by the Institute in all cases of depreciation.

(4)

Tuition fees were received Rs.85,00,000.

(5)

Scholarships and awards of Rs.1,43,000 were given on 9^th December, 2006.

(6)

A laboratory building was under construction for the last two years. Balance of capital work–in–progress on 1.4.06 was Rs.28,00,000. The work has been completed on 25^th May, 2006. Final payment was made earlier on 29.4.2006. Total expenditure comes to Rs.37,00,000. Rate of depreciation on the laboratory building is 5%. The entire expenditure will be spent from the restricted government (capital) Grant on certain conditions attached by the government. The Institute follows the principles of AS 12 in the case of use of revenue and capital grant. Since certain conditionality will apply over a period of time, it is decided that deferred income method will be followed.

Show the following Ledger accounts:

(i)	Restricted Government Grant (capital) A/c.
(ii)	Unrestricted Government Grant (revenue) A/c.
(iii)	Current A/c of Endowment and Scholarship.
(iv)	Cash and Bank A/c.

(0)

(b)

Value Added Ltd. furnishes the following Profit and Loss A/c:

Profit and Loss A/c for the year ended 31^st March, 2007
Income Turnover Other Income	Notes 1	Rs.('000) 29,872 1,042 30,914
Expenditure Operating expenses Interest on 8% Debenture	2	26,741 987
Interest on Cash Credit Excise duty Profit before depreciation Less: Depreciation Profit before tax	3	151 1,952 29,831 1,083 342 741
Provision for tax Profit after tax Less: Transfer to Fixed Assets Replacement Reserve Less:Dividend paid Retained Profit	4	376 365 65 300 125 175

Notes:

(1)	Turnover is based on invoice value and net of sales tax.
(2)	Salaries, wages and other employee benefits amounting to Rs.14,761 ('000) are included in operating expenses.
(3)	Cash Credit represents a temporary source of finance. It has not been considered as a part of capital.
(4)	Transfer of Rs.54 ('000) to the credit of deferred tax account is included in provision for tax.

Prepare value added statement for the year ended 31^st March, 2007 and reconcile total value added with profit before taxation.

(0)

(a)

Arrange and redraft the following Cash Flow Statement in proper order keeping in mind the requirements of AS 3:

Rs.(in lacs)

Net Profit

Add:	Sale of Investments Depreciation on Assets Issue of Preference Shares Loan raised Decrease in Stock

60,000
70,000
11,000
9,000
4,500
12,000
1,66,500

Less:

Purchase of Fixed Assets
Decrease in Creditors
Increase in Debtors
Exchange gain
Profit on sale of investments
Redemption of Debenture
Dividend paid
Interest paid

65,000
6,000
8,000
8,000
12,000
5,700
1,400
945

1,07,045

Add: Opening cash and cash equivalent
Closing cash and cash equivalent

59,455
12,341
71,796

(0)

(b)

P Ltd. has 60% voting right in Q Ltd. Q Ltd. has 20% voting right in R Ltd. Also, P Ltd. directly enjoys voting right of 14% in R Ltd. R Ltd. is a listed company and regularly supplies goods to P Ltd. The management of R Ltd. has not disclosed its relationship with P Ltd.

How would you assess the situation from the viewpoint of AS 18 on Related Party Disclosures?

(0)

(c)

Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being Rs.7,00,000. The economic life of the machine as well as the lease term is 3 years. At the end of each year Lessee Ltd. pays Rs.3,00,000. Guaranteed Residual Value (GRV) is Rs.22,000 on expiry of the lease. Implicit Rate of Return (IRR) is 15% p.a. and present value factors at 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years respectively.
Calculate the value of machine to be considered by Lessee Ltd. and the interest (Finance charges) in each year.

(0)

Write short notes on the following:

6+5+5=16

(a)

The concept of Materiality.

(0)

(b)

Maintenance of Books of Account by Stock Brokers.

(0)

(c)

Human Resources Accounting.

(0)

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