CA PCC/PCE - Group I : Advanced Accounting - November 2010

CA PCC/PCE - Group I • Advanced Accounting • November 2010

This Paper has 17 answerable questions with 0 answered.

Roll No………
Total No. of Questions — 7]	[Total No. of Printed Pages — 8
Time Allowed : 3 Hours	Maximum Marks : 100

Q.No. 1 is compulsory.

Answer any five questions from the remaining six questions.

Working notes should form part of the answer.

Wherever necessary suitable assumptions should be made by the candidates.

Marks

(a)

NDA Corporation is engaged in research on a new process design for its product. It had incurred an expenditure of Rs. 530 lakhs on research upto 31^st March, 09.
The development of the process began on 1^st April, 09 and Development phase expenditure was Rs. 360 lakhs upto 31^st March, 10 which meets assets recognition criteria.
From 1^st April, 10, the company will implement the new process design which will result in after tax saving of Rs. 80 lakhs per annum for the next five years.
The cost of capital of company is 10%.
Explain:

(1)	Accounting treatment for research expenses.
(2)	The cost of internally generated intangible asset as per AS 26.
(3)	The amount of amortization of the assets. (The present value of annuity factor of Rs. 1 for 5 years @ 10% = 3.7908)

4x5=20

(0)

(b)

As on 31^st March 2009, Strong Bank Ltd. has a balance of Rs. 27 crores in "rebate on bills discounted" account. The bank provides you the following further information:

(1)	During the financial year ending 31^st March 2010, Strong Bank Ltd. discounted bills of exchange of Rs. 4,000 crores charging interest @ 15% p.a. and the average period of discount being 146 days.
(2)	Bills of exchange of Rs. 600 crores were due for realization from the acceptors/customers after 31^st March 2010, the average period outstanding after 31^st March 2010, being 73 days.

You are required to pass necessary journal entries in the books of Strong Bank Ltd. for the above transactions.

(0)

(c)

On 20^th October, 2009, the godown and business premises of Aman Ltd. were affected by fire. From the salvaged accounting records, the following information is available.

	Rs.
Stock of goods @ 10% lower than cost as on 31^st March,09 Purchases less returns (1.4.09 to 20.10.09) Sales less returns (1.4.09 to 20.10.09)	2,16,000 2,80,000 6,20,000

Additional information:

(1)	Sales upto 20^th October, 09 includes Rs. 80,000 for which goods had not been dispatched.
(2)	Purchases upto 20^th October, 09 did not include Rs. 40,000 for which purchase invoices had not been received from suppliers, though goods have been received in Godown.
(3)	Past records show the gross profit rate of 25%.
(4)	The value of goods salvaged from fire Rs. 31,000.
(5)	Aman Ltd. has insured their stock for Rs. 1,00,000.

Compute the amount of claim to be lodged to the insurance company.

(0)

(d)

On 25^th September, 2009, Planet Advertising Limited obtained advertisement rights for World Cup Hockey Tournament to be held in Nov./Dec., 2009 for Rs. 520 lakhs.
They furnish the following information:

(1)	The company obtained the advertisements for 70% of available time for Rs. 700 lakhs by 30^th September, 09.
(2)	For the balance time they got bookings in October, 09 for Rs. 240 lakhs.
(3)	All the advertisers paid the full amount at the time of booking the advertisements.
(4)	40% of the advertisements appeared before the public in Nov. 09 and balance 60% appeared in the month of December, 09.

You are required to calculate the amount of profit/loss to be recognized for the month November and December, 2009 as per Accounting Standard–9.

(0)

P, Q, R are three doctors who are running a Polyclinic. Their capital on 31st March, 2009 was Rs. 1,00,000 each. They agreed to admit X, Y and Z as partners w.e.f. 1^st April 2009. The terms for sharing profits & losses were as follows:

(a)	70% of the visiting fee is to go to the specialist concerned.
(b)	50% of the chamber fee will be payable to the individual specialist.
(3)	40% of operation fee and fee for pathological reports, X–rays and ECG will accrue in favour of the doctor concerned.
(d)	Balance of profit or loss is shared equally.
(e)	All the partners are entitled for 6% interest on capital employed.

They further agreed that:

(i)

X, Y and Z brought in Rs. 20,000 each as goodwill. Goodwill is shared by the existing partners equally.

(ii)

X, Y and Z brought in Rs. 50,000 each as capital. Each of the original partners also contributed Rs. 50,000 by way of capital.
The receipts for the year after admission of new partners were:

Name of doctors	Particulars	Visiting Fees (Rs.)	Chambers Fees (Rs.)	Fees for reports, operation etc. (Rs.)
P	General Physician	1,50,000	1,50,000
Q	Gynecologist	25,000	1,75,000	1,00,000
R	Cardiologist	–	1,00,000	75,000
X	Child Specialist	1,00,000	1,50,000	–
Y	Pathologist	–	–	1,00,000
Z	Radiologist	–	40,000	2,00,000
	Total	2,75,000	6,65,000	4,75,000

Expenses for the year were as follows:

Particulars	Rs.
Medicines, injections and other consumables	1,00,000
Printing and stationery	5,000
Telephone expenses	5,000
Rent	42,000
Power and light	10,000
Nurses salary	20,000
Attendants wages	20,000
Total	2,02,000
Depreciation:
X–Ray machines	15,000
ECG equipments	5,000
Furniture	5,000
Surgical equipments	5,000
Total Depreciation	30,000

You are requested to:

(i)	Pass necessary journal entries on admission of partners.
(ii)	Prepare the Profit and Loss Account of the polyclinic for the year ended 31^st March, 2010.
(iii)	Prepare capital accounts of all the partners at the end of the financial year 2009–10. Also show the distribution of profit among partners.

(0)

Balance Sheets as on 31st March, 2010
Liabilities	Gee Ltd. Rs.	Pee Ltd Rs.	Assets	Gee Ltd. Rs.	Pee Ltd Rs.
Equity share capital (Rs. 10 per share) 14% Preference share capital (Rs. 100 each) General reserve Export profit reserve Investment allowance reserve Profit and loss account 15% Debentures (Rs. 100 each) Trade creditors Bills payables Other current liabilities	25,00,000 11,00,000 – 2,50,000 1,50,000 – 3,75,000 2,50,000 1,50,000 75,000 1,00,000	15,00,000 8,50,000 – 2,50,000 1,00,000 50,000 1,25,000 1,75,000 75,000 1,00,000 75,000	Buildings Plant and machinery Furniture and fixtures Investments Stock Debtors Bills receivables Cash at bank	12,50,000 16,25,000 2,87,500 3,50,000 6,25,000 4,00,000 50,000 3,62,500	7,75,000 8,50,000 1,75,000 2,50,000 4,75,000 4,60,000 55,000 2,60,000
	49,50,000	33,00,000		49,50,000	33,00,000

All the bills receivables of Pee Ltd. were having Gee Ltd.’s acceptances.
Gee Ltd. takes over Pee Ltd. on 1^st April, 2010. The purchase consideration is discharged as follows:

(i)	Issued 1,65,000 equity shares of ` 10 each at par to the equity shareholders of Pee Ltd.
(ii)	Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of Pee Ltd. at 10% premium.
(iii)	The debentures of Pee Ltd. will be converted into equivalent number of debentures of Gee Ltd.
(iv)	The statutory reserves of Pee Ltd. are to be maintained for two more years.
(v)	Expenses of amalgamation amounting to Rs. 10,000 will be borne by Gee Ltd.

Show the opening Journal entries and the opening balance sheet of Gee Ltd. as at 1^st April, 2010 after amalgamation, on the assumption that the amalgamation is in the nature of the merger.

(0)

(a)

Sunlife General Insurance Company submits the following information for the year ended 31^st March 2010:

Particulars		Direct Business Rs.	Reinsurance Rs.
Premium received Premium paid Claims paid during the year Claims payable Claims received Claims receivable Expenses of management Commission On insurance accepted On insurance ceded	1^st April, 2009 31^st March, 2010 1^st April, 2009 31^st March, 2010	65,75,000 …… 42,50,000 6,25,000 7,18,000 …… 2,30,000 1,50,000	9,50,000 4,75,000 5,00,000 87,000 60,000 3,25,000 65,000 1,10,000 11,000 14,000

The following additional information is also available:

(1)	Expenses of management include Rs. 35,000 surveyor’s fee and Rs. 45,000 legal expenses for settlement of claims.
(2)	Reserve for unexpired risk is to be maintained @ 40%. The balance of reserve for unexpired risk as on 1.4.09 was Rs. 24,50,000.

You are required to prepare the Revenue Account for the year ended 31^st March, 2010.

(0)

(b)

KG Limited furnishes the following Balance Sheet as at 31^st March, 2010.

Liabilities	(Rs. in lakhs)	Assets	(Rs. in lakhs)
Equity share capital (fully paid up shares of Rs. 10 each) Securities premium General reserve Capital redemption reserve Profit & loss A/c 12% Debentures Sundry creditors Other current liabilities	1,200 175 265 200 – 170 750 745 196	Machinery Furniture Investment Stock – Debtors Cash at bank	1,800 226 74 600 – 260 740
	3,700		3,700

On 1st April, 2010, the company announced the buy back of 25% of its equity shares @ Rs. 15 per share. For this purpose, it sold all of its investments for Rs. 75 lakhs.

On 5th April, 2010, the company achieved the target of buy back. On 30th April, 2010 the company issued one fully paid up equity share of Rs. 10 by way of bonus for every four equity shares held by the equity shareholders
You are required to:

(1)	Pass necessary journal entries for the above transactions.
(2)	Prepare Balance Sheet of KG Limited after bonus issue of the shares.

(0)

(a)

On 1st April, 2009 XY Ltd. has 15,000 equity shares of ABC Ltd. at a book value of Rs. 15 per share (face value Rs. 10 per share). On 1st June, 2009, XY Ltd. acquired 5,000 equity shares of ABC Ltd. for Rs. 1,00,000 on cum right basis. ABC Ltd. announced a bonus and right issue.

(1)	Bonus was declared, at the rate of one equity share for every five shares held, on 1st July 2009.
(2)	Right shares are to be issued to the existing shareholders on 1st September 2009. The company will issue one right share for every 6 shares at 20% premium. No dividend was payable on these shares
(3)	Dividend for the year ended 31.3.2009 were declared by ABC Ltd. @ 20%, which was received by XY Ltd. on 31st October 2009.

XY Ltd.

(i)	Took up half the right issue.
(ii)	Sold the remaining rights for Rs. 8 per share.
(iii)	Sold half of its share holdings on 1st January 2010 at Rs. 16.50 per share. Brokerage being 1%.

You are required to prepare Investment account of XY Ltd. for the year ended 31st March 2010 assuming the shares are being valued at average cost.

(0)

(b)

Income and Expenditure Account for the year ended 31st March, 2010 of South Asia Club is given below:

Expenditure	Rs.	Income	Rs.
To Salaries & wages	47,500	By Subscription	75,000
To Miscellaneous expenses	5,000	By Entrance fee	2,500
To Audit fee	2,500	By Contribution for annual	7,500
To Executive’s honorarium	10,000	day (After deducting
To Sports day expenses	5,000	expenses Rs. 7,500)
To Printing & stationary	4,500
To Interest on bank loan	1,500
To Depreciation on sports equipment	3,000
To Excess of income over expenditure	6,000
	85,000		85,000

Following additional information are also available:

		31.3.2009 Rs.	31.3.2010 Rs.
(1) (2) (3) (4) (5)	Subscription received in advance Subscription outstanding Salaries outstanding Sports equipment (After deducting depreciation) Cash in hand on 31-3-10 was ` 16,000.	4,500 6,000 4,000 26,000	2,700 7,500 4,500 27,000
(6)	The club took a 5% loan of Rs. 30,000 from a bank during 2008-09 for which interest was not paid in the financial year 2009–10.

Prepare Receipts and Payments account of South Asia Club for the year ending 31st March 2010.

(0)

(a)

From the following information of M/s Chennai Traders, you are required to prepare Hire Purchase Trading Account to ascertain the profit made during the financial year 2009–10.
Chennai Traders sell goods on hire purchase basis at cost plus 25% . The following details are available:

		Rs.
(1)	Instalment not due on 31st March, 2009	4,50,000
(2)	Instalment due and collected during the financial year 2009–10	12,00,000
(3)	Instalment due but not collected during the financial year 2009-10 which includes ` 15,000 for which goods were repossessed	75,000
(4)	Instalment not due on 31st March, 2010 including Rs. 30,000 for which goods were repossessed	5,55,000
(5)	Instalment collected on repossessed stock	22,500
(6)	M/s Chennai Traders valued repossessed stock at 60% of original cost.

(0)

(b)

A company had 16,000, 12% debentures of Rs. 100 each outstanding as on 1st April, 2009, redeemable on 31st March, 2010. On that day, sinking fund was Rs. 14,98,000 represented by 2,000 own debentures purchased at the average price of Rs. 99 and 9% stocks face value of Rs. 13,20,000. The annual instalment was Rs. 56,800.
On 31st March, 2010 the investments were realized at Rs. 98 and the debentures were redeemed. You are required to write up the following accounts for the year ending 31st March 2010:

(1)	12% Debentures account
(2)	Debenture redemption sinking fund account.

(0)

Answer any four questions:

4x4=16

(a)

"While calculating diluted earning per share, effect is given to all dilutive potential equity shares that were outstanding during that period." Explain. Also calculate the diluted earnings per share from the following information:

Net profit for the current year
No. of equity shares outstanding
No. of 8% convertible debentures of Rs. 100 each
Each debenture is convertible into 10 equity shares
Interest expenses for the current year
Tax relating to interest expenses

Rs.

Rs.

85,50,000
20,00,000
1,00,000

6,00,000
30%

(0)

(b)

Gupta Traders keep their ledgers on the self balancing system. They provide you the following information for the year ended 31st March, 2010:

	Rs.
Debtors balance on 1st April, 2009 Credit sales Returns inward Returns outward Cash received from customers Discount received Acceptances received Bills receivable dishonoured Bad debts written off	1,37,250 68,100 1,200 1,800 76,800 2,010 25,500 3,600 7,500

You are required to prepare General Ledger Adjustment A/c in Sales Ledger of Gupta Traders.

(0)

(c)

What is employee stock option plan? Explain the importance of such plans in the modern time.

(0)

(d)

A Ltd. purchased a machinery for Rs. 40 lakhs. (Useful life 4 years and residual value Rs. 8 lakhs) Government grant received is Rs. 16 lakhs.
Show the Journal Entry to be passed at the time of refund of grant and the value of the fixed assets, if:

(1)	the grant is credited to fixed assets.
(2)	the grant is credited to Deferred Grant A/c.

(0)

(e)

"Recently a growing trend has developed for outsourcing the accounting function". Explain the advantages and disadvantages of outsourcing the accounting functions.

(0)

Disclaimer ♣ Privacy Policy ♣ Who We Are ♣ Terms of Service