CWA ICWA Inter Stage II : Advanced Financial Accounting - June 2006

CWA ICWA Inter - Stage II • Advanced Financial Accounting • June 2006

This Paper has 21 answerable questions with 0 answered.

I—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 are to be answered.
Marks

(a)

How should rentals payable under operating leases be accounted for in accordance with AS 19?

2x10

(0)

(b)

What according to ICAI conceptual framework, are the qualitative characteristics that financial statements should observe and maintain in order to improve the usefulness of financial information?

(0)

(c)

What is negative net worth?

(0)

(d)

What is meant by 'general purpose financial statement'?

(0)

(e)

Brief state the three major characteristics which should be considered for the purpose of selection and application of accounting policies.

(0)

(f)

Transactions and events are guided by generally accepted accounting principles subject to laws of land Comment.

(0)

(g)

Can dividend be declared out of profit on re–issue of forfeited shares?

(0)

(h)

State four items which are not to be included in determining the cost of inventories in accordance with paragraph 6 of AS 2 (Revised).

(0)

(i)

State the concept of materiality.

(0)

(j)

State three occasions when goodwill needs to be quantified.

(0)

On 2nd June, 2006, the stock of Shri Daga was destroyed by fire but sufficient records were saved from which the following particulars were ascertained:

	Rs.
Stock at cost — 1st April, 2005 Stock at cost — 31^st March, 2006 (at 10% lower than cost) Purchases — year ended 31^st March, 2006 Sales — year ended 31^st March, 2006 Purchases — 1.04.06 to 2.06.06 Sales — 1.04.06 to 2.06.06	90,000 1,08,000 4,30,000 6,00,000 1,50,000 3,20,000

Sales up to 2nd June, 2006 included Rs. 50,000 for which goods had not been despatched.

Purchases up to 2nd June, 2006 included machinery purchased Rs. 10,000 and did not included Rs. 20,000 for which purchase invoices had not been received from suppliers through goods have been received at the godown.
The value of stock salvaged from the accident were worth Rs. 15,000 and these were handed over to the insured. Ascertain the amount of claim for loss of stock.

(0)

Kamala Agencies started business on 1st April, 2005. During the year ended 31^st March, 2006 they sold undermentioned durables under two schemes—Cash Price Scheme (C.P.S.) and Hire Purchase Scheme (H.P.S.).

Under the C.P.S. they priced the goods at cost plus 25% and collected it only delivery.
Under the H.P.S. the buyers were required to sign a Hire–Purchase Agreement undertaking to pay for the value of goods including finance charges in 30 installments, the value being calculated a cash price 50%.
The following are the details available at the end of 31^st March, 2006 with reqard to the products:

Product	Nos. purchased	Nos. sold under C.P.S.	Nos. sold under H.P.S.	Cost per unit Rs.	No. of instalements due during the year	No. of instalments received during the year
T.V.sets	90	20	60	16,000	1080	1000
Washing Machines	70	20	40	12,000	840	800

The following were the expenses during the year:

	Rs.
Rent	1,08,000
Salaries	1,50,000
Commission to Salesmen	12,000
Office Expenses	1,26,000

From the above information, you are required to prepare:

(a)	Hire Purchase Trading Accounts, and

(b)	Trading and Profit & Loss Account.

8+8

(0)

A malesh and Kamalesh are two partners sharing Profits and Losses in the ratio of 3 : 2. On 30th September, 2005, they admit Bimalesh as a partner and the new profit sharing ratio as 2 : 2 : 1. Bimalesh brought in fixture Rs. 3,000 and cash Rs. 12,000, the goodwill being (i) Amalesh and Kamalesh Rs. 20,000 and (ii) Bimalesh Rs. 10,000 but neither figure is to be brought into the books.

On 31^st March, 2006, the partnership is dissolved, Amalesh retiring and the other two partners forming a company called Bomex Ltd. with equal capitals, taking over all remaining assets and liabilities, goodwill being agreed at Rs. 40,000 and brought into books of the company. Amalesh agrees to take over the business car at Rs. 3,700, plant was sold for Rs. 3,000 being in excess of requirements. The profits of the two preceding years were Rs. 16,200 and Rs. 20,000 respectively and it was agreed that for the half year ended 30th September, 2005, the net profit was to be taken as equal to the average of the two preceding years and the current year.
No entries had been made when Bimalesh entered, except cash. No new book being by Bomex Ltd., Amalesh agreed to have Rs. 45,000 as loan to the company, secured by 12% Debentures.
The following is the Trial Balance as on 31.03.2006:

Capital Accounts	Dr. Rs.	Cr. Rs.
Amalesh Kamalesh Bimalesh	. . . . . .	40,000 25,000 12,000
Drawing Account
Anakesg Kamalesh Bimalesh Sundry Debtors Sundry Creditors	11,000 10,000 4,800 35,000 . .	16,000
Plant (Book Value of Plant sold Rs. 4,000) Fixtures Stock on 31.03.2006 Motor Car Cash at Bank Profit and Loss Account for the year	23,000 7,000 12,000 2,700 17,300 ..	29,800
	1,22,800	1,22,800

Prepare:

(i)	Goodwill Adjustment Account,

(ii)	Capital Account of Partners,

(iii)

Profit and Loss Appropriation Account,

(iv)	Balance Sheet of Bomex Ltd. as on 31^st March, 2006.

4+6+2+4

(0)

(a)

Rangakarmi, an amateur theatre organisation, charges its members an annual subscription of Rs. 200 per member. It accrues for subscription owing at the end of each year and also adjusts for subscriptions received in advance. The organisation closes its accounts every year at 31^st December. The following particulars are available:

(1)

On 1st January, 2005, 20 members owed Rs. 4,000 for the year 2004.

(2)

In December 2004, 5 members paid Rs. 1,000 for the year 2005.

(3)

During the year 2005, the organisation received cash subscriptions of Rs. 85,000. The details are:

For 2004 For 2005 For 2006	Rs. Rs. Rs.	4,000 79,000 2,000
Total	Rs.	85,000

(4)

At close of 31^st December 2005, 15 members had not paid their 2005 subscriptions. Prepare the subscriptions account.

6+10

(0)

(b)

From the following particulars, prepare the cattle account in the books of Ratnagiri Farm:

	No. `	Amount Rs
Cattle (opening value) Cattle food (opening stock) Purchases during the year: Cattle Cattle food	200 — 400 —	7,20,000 72,000 14,04,000 3,24,000
Sales during the year:
Cattle Slaughtered cattle Carcasses Cattle (closing value) Cattle food (closing stock)	300 80 10 230 —	15,80,000 4,32,000 1,800 9,66,000 90,000

Out of the calves born during the year 8 died. The carcasses of these calves did not produce any revenue.
Crop worth Rs. 50,000 grown in the firm was used for feeding.
Wages and other rearing costs amounted to Rs. 80,000.
Slaughter house expenses amounted to Rs. 45,000.
Electricity and insurance expenses paid during the year Rs. 25,000.
Farm machinery costing Rs. 2,50,000 was acquired during the year. Depreciation of farm machinery to be charged during the year is Rs. 40,000. The opening balance of farm machinery was Rs. 3,25,000.

(0)

The summarized Balance Sheet of A Ltd. and B Ltd. as at 31^st March, 2005 were as under:

	A Ltd. Rs.	B Ltd. Rs.
Fully paid up equity shares of Rs. 10 each Share Premium account General Reserve Profit and Loss Account 10% Debentures Secured Loan Sundry Creditors	20,00,000 4,00,000 6,00,000 3,60,000 10,00,000 — 5,20,000	12,00,000 — 5,00,000 3,20,000 — 6,00,000 3,40,000
	48,80,000	29,60,000
Land and Buildings Plant and Machinery Investments (10,000 shares in B Ltd.) Stock Debtors Bank	18,00,000 10,00,000 1,60,000 10,40,000 8,20,000 60,000	9,00,000 7,60,000 — 7,00,000 5,20,000 80,000
	48,80,000	29,60,000

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

(a)	A new company AB Ltd. is to be formed.
(b)	AB 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: A Ltd. — Rs. 18 per share B Ltd. — Rs. 20 per share
(d)	A contingent liability of A Ltd. of Rs. 1,20,000 is to be treated as real liability.
(e)	The shareholders of A Ltd. and B Ltd. are to be paid by issuing sufficient number of shares of AB Ltd. at par
(f)	The shares of AB Ltd. are to be of Rs. 10 each.

Required:

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

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

(iii)

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

3+8+5

(0)

What is meant by global convergence of accounting standards? Discuss the benefits of convergence. What are the impediments to convergence?

4+8+4

(0)

Write short notes on the following:

4x4

(a)

Introduction of accrual basis accounting in Government of India.

(0)

(b)

Functions of Treasuries,

(0)

(c)

Demand for grant,

(0)

(d)

Votable and non–votable items.

(0)

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