CWA ICWA Final - Group IV : Advanced Financial Accounting and Reporting - December 2010

CWA ICWA Final - Group IV • Advanced Financial Accounting and Reporting • December 2010

This Paper has 36 answerable questions with 5 answered.

F—P16(AFA) Syllabus 2008
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.

PART A questions are compulsory. Attempt all of them.

PART B has seven questions. Attempt any five of them

Please:

(1) Write answers to all Parts of a question together
(2) Open a new page for answer to a new question
(3) Attempt the required number of questions only.
(4) Indicate in the front page of the answer book the required question attempted.

PART A (25 Marks)

Marks

(a)

In each of the cases given below, one out of four alternatives is correct. Indicate the correct answer ( = 1 mark) and give your workings/reasons briefly (= 1 mark):

2x6=12

(i)

GANGOTRI LTD. has provided depreciation as per Accounting records Rs.4 lakhs and as per Tax records Rs.7 lakh. Unamortised preliminary expenses, as per tax record is Rs.5600. There is adequate evidence of future profit efficiency. If the tax rate applicable to the company is 40%, what would be deferred Tax liability as per AS–22.

A.	Rs.1,20,000;
B.	Rs.1,17,760;
C.	Rs.1,12,240;
D.	None of (A), (B) and (C).

(0)

(ii)

ANURAG LTD. purchased a Plant on 1.4.2008 for Rs.10,00,000. It provides depreciation @ 20% on W.D.V. during the year ended on 31.3.2010. What would be the carrying amount of Plant on 31.3.2010, if the company provided impairment loss on Plant for Rs.1,00,000?

A.	Rs.5,40,000;
B.	Rs.6,40,000;
C.	Rs.7,40,000
D.	Insufficient Information.

(0)

(iii)

VARTUAL LTD. acquired 1000 shares in ANKIT LTD. at a Cum–right price of Rs.250 per share. Ankit Ltd. offered right shares of one for every two held at Rs.125 per share. After the right issue the share price fell from Rs.250 to Rs.200 per share. If the rights were sold by vartual Ltd. at Rs.70 per share, what would be the carrying cost of investment in Ankit Ltd. after the sale of rights?

A.	Rs.2,50,000;
B.	Rs.2,15,000;
C.	Rs.2,85,000;
D.	None of (A), (B) and (C).

(0)

(iv)

The fair market values of Pension Plan assets of ASILEENA LTD. at the begining of year 2009–10 was Rs.7,00,000. The employer contribution to the plan and Benefit payments made to retirer during the year were Rs.1,00,000 and Rs.40,000 respectively. If the actual return on pension Plan assets is Rs.50,000, what would be the Fair market value of pension plan at end of year 2009–10 (As per–AS–15)?

A.	Rs.8,00,000;
B.	Rs.8,10,000;
C.	Rs.8,30,000;
D.	Insufficient Information.

(0)

(v)

On July 01,2009 GRENISON LTD. acquired 7000 Equity shares of NARMADA LTD. for consideration of Rs.8,00,000. The Share Capital of NARMADA LTD. consists of 10,000 Equity shares of Rs.100 each.

The balances of General Reserve and Profit and Loss Account of NARMADA LTD. are as under:

	As on July 01, 2009 Rs.	As on March 31, 2010 Rs.
General Reserve Profit and Loss A/c	1,70,000 1,50,000	2,00,000 1,75,000

What will be the amount of Minority Interest to be shown in Consolidated Balance Sheet as on March 31,2010:

A.	Rs.3,07,500;
B.	Rs.3,60,000;
C.	Rs.4,12,500;
D.	Insufficient information

(0)

(vi)

The following data is extracted from the books of HYDER LTD. as on March 31,2010.

Paid up value of an Equity Share
Nominal value of an Equity Share
The Yield rate of return of the company

:
:
:

Rs.10
Rs.20
15.75%

If the normal rate of return is 9%, what would be value of an Equity Share of HYDER LTD.

A.	Rs.20.00;
B.	Rs.17.50;
C.	Rs.15.75;
D.	None of the above.

(0)

(b)

Choose the most appropriate one from the stated options and write it down (only indicate A, B, C, D as you think correct):

1x5=5

(i)

According to AS–29, Restructuring Cost does not include:

A.	Cost of Sale or termination of line of business;
B.	Cost of retraining or relocating continuing staff;
C.	Market Cost;
D.	Both B and C above.

(1)

(ii)

As per AS–26 when an intangible asset is required by issue of shares and other securities, the cost of intangible asset should be recorded at:

A.	Fair value of the intangible asset acquired;
B.	Fair value of the shares and other securities issued;
C.	A or B which is more evident;
D.	None of (A), (B), (C).

(1)

(iii)

ARKUTI LTD. has different distinguishable segments–One of them is engaged in providing an individual product and it is subject to risk and returns. Such segment is known as:

A.	Business Segment;
B.	Reportable Segment;
C.	Geographical Segment;
D.	Primary Segment.

(1)

(iv)

Under the purchase method of accounting the transferee company incorporates into its books (As per AS–14):

A.	The Assets and liabilities of the transferor company;
B.	The Assets, liabilities and statutory reserves of the transferor company;
C.	The Assets, liabilities and non-statutory reserves of the transferor company;
D.	The Assets, liabilities and reserves of the transferor company.

(1)

(v)

The chairman of the Public accounts Committee is appointed from amongst the members of Lok Sabha elected to the Committee by–

A.	President of India;
B.	The speaker of Lok Sabha;
C.	Prime Minister;
D.	None of the above

(1)

(c)

(i)

Define ‘Firm Commitment’ relating to Hedge Accounting.

2x4=8

(0)

(ii)

Explain the meaning and significance of going concern concept of accounting.

(0)

(iii)

Securitisation is different from factoring. Comment.

(0)

(iv)

State briefly the disclosure requirements in Balance Sheet in respect of State level Value Added Tax (VAT).

(0)

PART B (75 Marks)
Marks

PART B (75 Marks)

Marks

(a)

Mr. RAJA enters into certain equity derivative instruments contracts on March 27, 2010. The initial margin on these contracts, calculated as per span, is Rs. 35,000. The margin for the subsequent days, calculated as per span is a follows:

On 29^th March, 2010 Rs.40,000

On 30^th March, 2010 Rs.30,000

On 31^st March, 2010 Rs.32,000

Show the journal entries for the Payment/Receipt of the initial margin and disclosure requirement in the Balance Sheet.

(0)

(b)

X Ltd. had issued debentures which had been guaranteed by the Government of India both as to the repayment of the principal and interest. The company disclosed the same as ‘secured loans’ in their balance sheet, Comment.

(0)

(c)

The following are the Balance Sheets of Bat Ltd. and Ball Ltd. as on 31^st March, 2010.

	Bat Ltd. Rs.		Ball Ltd. Rs.
	(in crores)
Sources of funds: Share Capital: Authorised Issued and Subscribed: Equity shares of Rs.10 each fully paid Reserves and surplus Shareholders funds Unsecured loan from Bat Ltd. Funds employed: Fixed assets: Cost Less: Depreciation : Written down value Investments at cost: 30 lakhs equity shares of Rs.10 each of Ball Ltd. Long–term loan to Ball Current assets Less: Current liabilities	100 33	25 12 88 100 – 100 70 50 20 3 10 67 100	34 15	5 5 10 15 10 25 30 24 6 – – 19 25

On that day Bat Ltd. absorbed Ball Ltd. The members of Ball Ltd. are to get one equity share of Bat Ltd. issued at a premium of Rs. 2 per share for every five equity share held by them in Ball Ltd. The necessary approvals are obtained.

You are asked to pass journal entries in the book of Bat Ltd. to give effect to the above.

(0)

(a)

A company purchased a plant for Rs.25 lakhs during the financial year 2009–10 and installed it immediately. The price charged by the vendor included excise duty (cenvat credit available) of Rs.2.50 lakhs. During this year, the company also produced excisable goods on which excise duty chargeable is Rs.2.25 lakhs. Show the journal entries describing cenvat credit treatment and at what amount should the plant be capitalised?

(0)

(b)

An enterprise, which has neither more than one business segment nor more than one geographical segment, is required to disclose segment information as per AS 17. Comment.

(0)

(c)

Following details are given for PHIMPEX LTD’s for the year ended March 31, 2010.

	(Amount in Rs. lakh)
Sales: Food Products Plastic and Packaging Health and Scientific Others Expenses: Food Products Plastic and Packaging Health and Scientific Others Other items: General Corporate Expenses Income from investments Interest expenses Identifiable Assets: Food Products Plastic and Packaging Health and Scientific Others General Corporate Assets Other information; (i) Inter-Segment sales are as below: Food Products Plastic and Packaging Health and Scientific Others (ii) Operational Profit includes Rs. 33 lakhs on inter-segment sales. (iii) Information about inter-segment expenses are not made available.	5650 625 345 162 3335 425 222 200 7320 1320 1050 665	6782 4182 562 132 65 10355 722 55 72 21 7

Required:

Prepare a statement showing financial information about PHIMPEX LTD's operations in different industry segment-keeping in view AS–17.

(0)

(a)

SONEX LTD was incorporated on 1^st April, 2010 to take over the running business of Mr. Daga.

The purchase consideration was satisfied by allotment of:

(i)	15,000 equity shares of Rs.10 each issued at a premium of Rs.2 per share,
(ii)	12,000 10% redeemable preference shares of Rs.10 each at par, redeemable on 31.03.15.
(iii)	Rs.70,000 paid in Cash.

The company issued a prospectus for issuing 50000 equity shares of Rs.10 each at a premium of Rs.2 per share and 20000 10% redeemable preference shares of Rs.10 each at par. The entire amount in respect of the issue was received by 30^th June, 2010 except final call of Rs.3 per share on 2500 shares issued to Mr. P, a Director. Underwriting commission @ 2.5% on nominal value of equity shares and @ 3% on preference shares were paid to a Merchant Banker.

The preliminary expenses were estimated at Rs.75,000 in the prospectus but the actual expenses incurred was as under:

	Rs.
Solicitor’s fee Printing of memorandum Stamping and Registration Advertisement expenses	10,000 20,000 30,000 28,000	(Rs.10000 remaining unpaid)

The company purchased a plot of land for Rs.1,20,000. Further, it advanced Rs.2,30,000 for construction of office building and Rs.3,50,000 to a supplier, being 35% of contract price for supply of machinery. A part of the investments taken over from Mr. Daga was sold for Rs.80,000 (Rs.5,000 in excess of their book value).

Prepare a receipts and payments account and other relevant financial information to be included in the statutory report pursuant to sec. 165 of the Companies Act, 1956 in respect of SONEX LTD. made upto 30^th June, 2010.

(0)

(b)

The following is the Balance Sheet of DELTA LTD as on 31–03–2010

(Amount in Rs. lakh)
Liabilities	Rs.	Assets	Rs.
Share Capital Equity shares of Rs.10 each Security Premium Revenue Reserve Profit and Loss A/c 12% Debentures Sundry Creditors	8.00 1.50 7.80 1.50 20.00 5.20	Fixed Assets Non–Trade investments Stock in Trade Sundry Debtors Cash at Bank	22.50 4.50 5.80 4.20 7.00
	44.00		44.00

The company bought back 20,000 shares at Rs.30 each. The transaction in respect of buy back was financed by sale of 4/5th of non trade investments for Rs.6.20 lakhs.

Show important accounting entries in the books of the company to record buy back and also show the balance sheet after buy back.

(0)

(c)

How should deferred tax assets and deferred tax liabilities be disclosed in the balance sheet of a company?

(0)

(a)

The following information has been extracted from the Annual Report 2009–10 of SITERAZE LTD.

BALANCE SHEET AS ON MARCH 31
	(Rs. in Million)
	2009	2010
Sources of Fund: Shareholders’ Funds: Share Capital Reserve and Surplus Secured Loans Application of Fund: Fixed Assets (Gross Block) Less: Depreciation Net Block Capital Work–in–Progress Investments Deferred tax assets Current Assets, Loans and Advances: Sundry Debtors Cash and Bank Loans & Advances Less: Current liabilities & Provisions Liabilities Provisions Net Current Assets Total	350 13250 – 13600 4500 1800 2700 1200 3900 880 105 3050 6500 2700 12250 1135 2400 3535 8715 13600	350 17450 – 17800 5750 2050 3700 520 4220 950 120 3400 9000 3100 15500 1240 1750 2990 12510 17800

Profit and Loss Account for the year ended on March 31
	2009	2010
	(Rs.in Million)
Income: Sales and Operational Income Other Income Total Expenditure: Product Development expenses Gross Profit General and Administrative expenses Selling and Marketing expenses Profit before Depreciation, Interest and taxes Depreciation Profit before Interest and taxes Interest Profit after Interest and depreciation Provision for taxes Profit after taxes	15600 680 16280 8800 7480 1080 730 5670 540 5130 – 5130 650 4480	20250 510 20760 11100 9660 1280 920 7460 450 7010 – 7010 910 6100

Other Information is available from the Annual Report for 2009–10.

–
–
–

Beta variant
Return on Risk free Investment
Equity Risk Premium

1.20
8%
7.5%

Required

Calculate the Economic Value Added of SITERAZE LTD for the year 2009–10.

(0)

(b)

On 1^st October, 2009, GREEN GARDEN LTD (Construction Company) undertook a contract to construct a building for Rs.170 lakh: On 31^st March, 2010 the company found that it had already spent Rs.129.98 lakh on the construction. Prudent estimate of additional cost for completion was Rs.64.02 lakh.

Required:

What is the additional Provisions for foreseeable loss, which must be made in the final accounts for the year ended 31^st March, 2010 as per provisions of AS–7?

(0)

(c)

Discuss the provision of the constitution of India to safeguard the Independence of the comptroller and Auditor General of India.

(0)

(a)

AIR LTD, SEA LTD and RAIL LTD are members of a group. AIR LTD bought 70% of the shares of SEA LTD on October, 1,2008 and 30% of the shares of RAIL LTD on 1^st January, 2010. SEA LTD bought 60% of the shares of RAIL LTD on October 1, 2009.

Profit and Loss Account
	Balance as on 1.4.2009 Rs.		Profit/(Loss) for 2009–10 Rs.		Balance as on 31.3.2010 Rs.		Company Formed
AIR LTD SEA LTD RAIL LTD	55,000 20,000 –	(Dr.)	25,000 47,500 24,000	(Loss)	80,000 27,500 24,000	(Dr.)	April 1, 2007 April 1, 2008 April 1, 2009

State how the Profit/(loss) will be reflected in the consolidated Balance Sheet.

(0)

(b)

State briefly the reporting requirements as to environmental statement in the Directors’ Report of companies.

(0)

(c)

The surplus arising from sale of investments was set off against a non-recurring loss and was not disclosed separately. Comment.

(0)

Answer the following questions:

5x3=15

(a)

XY Ltd. was making provisions for non-moving stocks based on issues for the last 12 months upto 31.3.2009. Based on technical evaluation, the company wants to make provisions during the year 2009–10.

Total value of stock–Rs. 150 lakhs.

Provisions required based on 12 months issue Rs.4.0 lakhs

Provisions required based on technical evaluation Rs.3.20 lakhs.

Does this amount to change in accounting Policy? Can the company change the method of provision?

(0)

(b)

PQ Ltd. has been including interests in the valuation of closing stock. In the accounting year 2009–10 the management of the company decided to follow AS–2 and accordingly interests have been excluded from the valuation of closing stock. This has resulted in decrease in profits by Rs.250,000.

Is a disclosure necessary? If so, draft the same.

(0)

(c)

AB Ltd. has set up its business in a designated backward area which entitles the company to receive from the Govt. of India a subsidy of 25% of the cost of investment. Having fulfilled all the conditions under the scheme, the company in its investment of Rs.80 crores in capital assets, received Rs.20 crores from the Govt. in February, 2010 in the accounting period 2009–10. The company wants to treat this receipt as an item of revenue and thereby reduce the losses in P. & L. A/c for the year ended 31.3.2010.

Do you think the treatment is justified? Answer with reference to relevant A.S.

(0)

(a)

Discuss some key differences between IFRS, US GAAP and IGAAP related to

(i)	Extra ordinary events;

(ii)	Dividends on ordinary equity shares.

(0)

(b)

The following is an extract from the cash flow statement of VENTEX LTD prepared for the year ended March 31, 2010.

Particulars	(Rs. in lakh)
Net Profit Add: Sale of Investment Depreciation of Assets Issue of Preference shares Loan raised Decrease in stock Less: Purchase of Fixed Assets Decrease in Creditors Decrease in Debtors Exchange Gain Profit on Sale of Investments Redemption of Debentures Dividend Paid Interest Paid Add: Opening Cash & Cash equivalent Closing Cash & Cash equivalent	650 60 80 80 120.0 57.0 14.0 9.45	600 700 110 90 45 120 1665.0 1070.45 594.55 123.41 717.96

Required:

Redraft and reconstruct the cash flow statement of VENTEX LTD in proper order for the year ended March 31, 2010 in accordance with AS-3 (Revised) using indirect method.

(0)

(c)

MS KRITIKA furnishes the following information about all option at the Balance Sheet date (31.3.2010):

Securities	PN	MO	TS
Details of Option bought: Premium paid Premium prevailing on Balance sheet date Details of Option Sold: Premium received Premium prevailing on Balance sheet date	15000 22500 7500 18750	7500 3750 22500 15000	7500 6000 7500 11250

Required:

Determine the amount of provision to be made in the books of Account of Ms Kritika.

(0)

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