CA Final - Group I : Advanced Accounting - November 2010

CA Final - Group I • Advanced Accounting • November 2010

This Paper has 16 answerable questions with 0 answered.

Roll No………
Total No. of Questions — 7]	[Total No. of Printed Pages — 12
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, his answers in Hindi will not be valued.

Q.No. 1 is compulsory.

Attempt any five questions from the remaining six questions.

Marks

(a)

Albert Finance Ltd. has made the following investments.

(i)

Purchased the following equity shares from stock exchange on 1^st June, 2009.

	Cost Rs.
Scrip X Scrip Y Scrip Z	1,80,000 50,000 1,70,000 4,00,000

(ii)

Purchased gold of Rs.3,00,000 on 1^st April, 2006.

(iii)

Invested in mutual funds at a cost of Rs.6,00,000 on 31^st March, 2009.

(iv)

Purchased government securities at a cost of Rs.5,00,000 on 1^st April, 2009.

How will you treat these investments as per applicable AS in the books of the company for the year ended on 31^st March, 2010, if the values of these investments are as follows :

Shares	Rs.	Rs.
Scrip X Scrip Y Scrip Z Gold Mutual funds Government securities	1,90,000 40,000 70,000	3,00,000 5,00,000 4,50,000 7,00,000

Also explain is it possible to off–set depreciation in investment in mutual funds against appreciation of the value of investment in government securities.?

(0)

(b)

A Ltd. purchased fixed assets costing Rs.2,544 lakhs on 1^st April, 2009 and the same was fully financed by foreign currency loan in U.S. Dollars, repayable in four equal annual instalments. Exchange rate at the time of purchase was 1 US Dollar = Rs.42.40. The first instalment was paid on 31^st March, 2009 when 1 US Dollar fetched Rs.45.40. The entire loss on exchange was included in cost of goods sold of normal business operations. A. Ltd. provides depreciation on their fixed assets at 20% on WDV basis.

Show the correct accounting treatment with reference to relevant accounting standards.

(0)

(c)

State the treatment of the following items with reference to Indian Accounting Standards (AS) and International Financial Reporting Standards (FFRS) :

(i)	Impairment of assets
(ii)	Business combinations

(0)

(d)

The Chief Accountant of ANZ ltd , gives the following data regarding its six segments:

Rs. in Lakhs
Particulars	M	N	O	P	Q	R	Total
Segment Assets Segment Results Segment Revenue	40 50 300	80 190 620	30 10 80	20 10 60	20 –10 80	10 30 60	200 –100 1200

The Chief Accountant is of the opinion that segments ‘M’ and ‘N’ alone should be reported. Is he justified in his view ? Discuss

(0)

The summarized B/S. of the following three companies are given below

Rs. in Lakhs
	A. Ltd.	B. Ltd.	C. Ltd.
Liabilities	as on 31^st March, 2009
Equity shares (Rs.10 each fully paid up) 7 1/2% Cum. Pref. Shares (Rs.100 each fully paid) Capital reserve on revaluation of land, buildings and machinery General Reserve 8% 2,500 Mortgage Debenture Bonds of Rs.1,000 each Secured loans and advances from banks Unsecured loans : (i) From B Ltd. (ii) From C Ltd. (iii) Deposits from public Current liabilities and provisions (i) Inter–company balances (ii) Other liabilities and provisions	60 15 120 25 25 153 – 15 18 9 314	48 12 – 15 – 71 – – 12 – 125	40 10 – 10 – 52 12 – 3 – 72
Total	754	283	199
Assets:
Fixed Assets (Net) Investments (at cost) 2,50,000 Equity Shares of B Ltd. 80,000 Equity Shares of C Ltd. 1,60,000 Equity Shares of C Ltd. 10,000 Cumulative Pref. Shares of A Ltd. 1,500 Mortgage Debentures of A Ltd. Current assets Profit and Loss Account	272 25 8 – – – 353 96	104 – – 20 – – 123 36	42 – – – 10 14 112 21
Total	754	283	199

(i)

A Ltd. subscribed for the shares of B Ltd. & C Ltd. at par at the time of first issue of shares by the latter companies.

(ii)

B Ltd. subscribed for 80,000 shares of C Ltd. at par at the time of first issue and latter acquired by purchase in the market 80,000 shares of C Ltd. at Rs.15 each when reserves and surplus of C Ltd. stood at Rs.5 lakhs.

(iii)

Current Assets of B Ltd. & C Ltd. included Rs.4 lakhs and Rs.6 lakhs respectively being the current accounts balance against A Ltd. These accounts remained unreconciled.

(iv)

Preference dividends were in arrears for

(a)	8 years in the case of A Ltd. and
(b)	4 years in the case of other two companies.

Prepare the Consolidated Balance Sheet for the year as on 31^st March, 2009.

(0)

Libra Ltd. has two divisions A and B and their respective shares of various Assets and Liabilities in the company’s Balance Sheet as on 31^st March, 2009 are given below :

Rs. in Lakhs
Fixed Assets	A division	B division	Total
Cost Less: Depreciation Written down value Investments Current Assets Less: Current Liabilities Net Current Assets Financed by: Loan Funds Own funds: Equity share capital–shares of Rs.10 each Reserve and Surplus	650 225 425 350 185 165	340 160 180 430 210 220	605 115 385 1,105 400 300 405 1,105

Division B has been invariably suffering losses. The company sold this division B along with its assets and liabilities to a newly formed company. Zee Ltd, which was incorporated with an authorized capital of Rs.800 lakhs divided into shares of Rs.10 each. Zee Ltd. allotted to Libra Ltd’s shareholders its two fully paid equity shares of Rs.10 each at par for every fully paid equity shares of Rs.10 each held in Libra Ltd. as discharge of consideration for the division taken over.

Zee Ltd. recorded in its books the fixed assets at Rs.280 lakhs, current assets at Rs.320 lakhs and liabilities at the same value at which they appeared in the books of Libra Ltd.

On 1^st April, 2009 Libra Ltd. sold all its investments for Rs.135 lakhs and redeemed debentures liability of Rs.150 lakhs at par, which was included in loan funds. The cash transaction being recorded in the Bank Account pertaining to A division.

You are required to:

(i)	Show Journal Entries in the Books of Libra Ltd.
(ii)	Prepare Libra Ltd’s Balance Sheet immediately after the Demerger and
(iii)	Initial Balance Sheet of Zee Ltd.

(0)

The Balance Sheet of Bird Ltd. as on 31^st March, 2009 is given below:

Liabilities	Rs.	Rs.	Assets	Rs.
Share Capital: Equity shares of Rs.10 each Less: Calls in arrear (Rs.2 for final call) 7% Preference Shares of Rs.10 each fully paid Reserve and surplus: General Reserve Profit and Loss Account Current Liabilities Sundry creditors Bank Loan	6,00,000 20,000	5,80,000 3,00,000 3,50,000 1,50,000 3,00,000 2,00,000	Fixed Assets: Goodwill Machinery Freehold properties Vehicles Furniture Investments Current Assets: Stock–in–Trade Sundry Debtors Cash at Bank Preliminary expenses	40,000 3,00,000 4,50,000 1,00,000 50,000 2,00,000 2,50,000 4,00,000 60,000 30,000
		18,80,000		18,80,000

Additional Information:

(i)

On 1–4–2006 a new furniture costing Rs.20.000 was purchased and wrongly charged to revenue. No rectification has yet been made tor above. Depreciation charged on furniture is @ 10% on reducing system.

(ii)

Fixed Assets are worth 15% above their actual Book Value.

(iii)

Stock is overvalued by Rs.50,000 and 10% Debtors are doubtful.

(iv)

Of the investments, 10% is in Trade and the balance Non–Trade. Trade investments are to be valued at 10% below cost. A uniform rate of dividend of 10% is earned on all investments.

(v)

For the purpose of valuation of shares, goodwill is to be considered on the basis of 2 years’ purchase of super profits based on average profit of last 3 years. Profits are as follows :

	Rs.
2006–07 2007–08 2008–09	2,50,000 2,80,000 3,30,000

(vi)

In a similar business normal return on capital employed is 20%.
You are required to value each fully paid and partly–paid equity share, assuming tax rate of 50%.

(0)

(a)

S Ltd. is considering buying the business of R Ltd., the final accounts of which for the last 3 years were as follows :

Profit and Loss Accounts for the 3 years ended Dec.31^st
(Figures in Rs.)
	2007	2008	2009
Sales Material consumed Business expenses Depreciation	2,00,000 1,00,000 80,000 12,000	1,90,000 95,000 80,000 13,000	2,24,000 1,12,000 82,000 14,000
Net profit	8,000	2,000	16,000

Balance Sheets as at 31^st Dec.
(Figures in Rs.)
	2006	2007	2008	2009
Fixed Assets (at cost) less Depreciation	1,00,000 70,000	1,20,000 82,000	1,40,000 95,000	1,80,000 1,09,000
	30,000	38,000	45,000	71,000
Stock in trade Sundry Debtors Cash in hand and at bank Prepaid expenses	16,000 21,000 32,000 1,000	17,000 24,000 11,000 500	18,500 26,000 28,000 2,000	21,000 28,000 13,200 1,000
	1,00,000	90,500	1,19,500	1,34,200
Equity capital Share premium General Reserve Debentures Sundry Creditors Accrued Expenses	50,000 – 16,000 20,000 11,000 3,000	50,000 – 24,000 – 13,000 3,500	70,000 5,000 26,000 – 14,000 4,500	70,000 5,000 42,000 – 14,000 32,000
	1,00,000	90,500	1,19,500	1,34,200

S Ltd. wishes the offer to be based upon trading cash flows rather than book profits. By trading cash flow is meant cash received from debtors less cash paid to creditors and for business expenses (excluding depreciation), together with an allowance for average annual expenditure on fixed assets of Rs.15,000 per year.

The actual expenditure on fixed assets is to be ignored, as is any cash received or paid out on the issue or redemption of shares or debentures.

S Ltd. wishes the trading cash flow to be calculated for each of the years 2007, 2008 and 2009 and for these to be combined using weighting of 20% for 2007, 30% for 2008 and 50% for 2009 to give an average annual trading cash flow.

S Ltd. considers that the average annual trading cash flow should show a return of 10% on its investment.

You are required to calculate :

(a)	the trading cash flow for each of the years 2007, 2008 & 2009,
(b)	the weighted average annual trading cash flow
(c)	the price which S Ltd. should offer for the business.

(0)

(b)

From the following information of Steel India Ltd. tor the year ended 31^st March, 2010, prepare their Social Balance Sheet as on that date.

A specialist has valued their human assets at Rs.828 lakhs.

Then investments were classified as :

(Rs.in Lakhs)
	Residential	Hospital	School	Welfare
Buildings Equipments	17.00 2.80	1.00 1.00	1.40 1.00	0.80 –

– Water, Electricity and gas supply systems totalled Rs.1 lakh.

– Their net owned funds were Rs.26 lakhs.

(0)

(a)

The following is the Profit and Loss Account of Murali Ltd., ior the year ended 31^st March, 2010. Prepare a gross value added statement or Murali Ltd.

Profit and Loss Account for the year ended 31^st March, 2010.
Rs. in Lakhs
Income Sale Other Income Expenditure Production and operational expenses (a) Administrative expenses (factory) (b) Interest(c) Depreciation Profit before tax Provision for taxation Profit after tax Balance as per last Balance Sheet Transferred to General Reserve Dividend Paid Surplus carried to Balance Sheet	641 33 29 17	890 55 945 720 225 30 195 10 205 45 95 140 65 205

Notes:

		Rs. in Lakhs
(a)	Production and Operational Expenses Consumption of Raw materials Consumption of stores Salaries, wages, gratuities etc., (Admn) Cess and local taxes Other manufacturing expenses	293 59 82 98 109 641
(b)	Administration expenses include salaries, commission to Directors Rs.9.00 lakhs. Provision for doubtful debts Rs.6.30 lakhs
(c)	Interest on loan from Bank for working capital Interest on loan from Bank for fixed loan Interest on loan from financial institution for fixed loan Interest on Debentures	9 10 8 2 29
(d)	The charges for taxation include a transfer of Rs.3.00 lakhs to the credit of Deferred tax account.
(e)	Cess and local taxes include Excise Duty, which is equal to 10% of cost of bought–in materials.

(0)

(b)

From the following in respect of loan funds of M/s Come together Foundation for 2009–10, prepare a statement showing changes in fund balance during the year.

	Rs.
Private and Government grants Loan fund matching grant from revenue funds Other transfer from unrestricted funds Investment income Interest on loans Refunded to grantors Loan cancellation and written off Administrative and collection costs Fund balance at the beginning of the year	5,00,000 10,000 1,00,000 15,000 25,000 20,000 10,000 15,000 20,15,000

(0)

Attempt any four

4x4=16

(a)

An airline is required by law to overhaul its aircraft once in every three years. A company which operates aircraft’s does not provide any provision as required by law in its final account. Discuss with reference to relevant Accounting Standard.

(0)

(b)

A company purchased on April 1, 2010 a special purpose machinery for Rs.1 crore, and received Central Government subsidy for 25% of the price. Effective life of the machinery is 8 years. Explain the accounting treatment and quote the relevant AS.

(0)

(c)

An intangible item is appearing in the Balance Sheet of A Ltd. at Rs.15 lakhs on 1–4–2010. The item was acquired for Rs.25 lakhs on 1–4–2008. The enterprise has been following a policy of amortizing the intangible item over a period of 5 years on straight line basis. Applying paragraph 63 of AS–26 the enterprise determines the amortization period to be 8 years, being the best estimate of its useful life, from the date when the item was available for use i.e., April, 1, 2008. Comment.

(0)

(d)

Certain Ltd., has signed at 31^st Dec, 2009, the Balance Sheet date, a contract where the total revenue is estimated at Rs.15 crores and total cost is estimated at Rs.20 crores. No work began on the contract. Is contractor required to give any accounting effect for the year ended December, 31^st 2009 in his accounts ?

(0)

(e)

Can PT Ltd. a wire netting company, while valuing its finished stock at the year end include interest on Bank Overdraft as an element of cost, for the reason that overdraft has been taken specifically for the purpose of financing current assets like inventory and for meeting day to day working expenses ?

(0)

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