CA IPCC/IPCE - Group II : Advanced Accounting - November 2010

CA IPCC/IPCE - Group II • 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 — 8
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.

Working notes should form part of the answer.

Wherever necessary suitable assumptions may be made by the candidates.

Marks

Answer the following questions:

4x5=20

(i)

Rama Limited issued 8% Debentures of Rs.3,00,000 in earlier year on which interest is payable half yearly on 31^st March and 30^th September. The company has power to purchase its own debentures in the open market for cancellation thereof. The following purchases were made during the financial year 2009–10 and cancellation made on 31^st March 2010:

(a)	On 1^st April Rs.50,000 nominal value purchased for Rs.49,450, ex–interest.
(b)	On 1^st September Rs.30,000 nominal value purchased for Rs.30,250 cum interest. Show the Journal Entries (without narrations) for the transactions held in the year 2009–10.

(0)

(ii)

From the following information of details of advances of Zenith Bank Ltd., calculated the amount of provisions to be made in Profit and Loss Account for the year ended on 31–3–2010:

Assets Classification	Rs. (in Lakh)
Standard Sub–Standard Doubtful: for one year for two years for three years for more than three years Loss Assets	10,000 6,400 3,200 1,800 900 1,100 3,000

(0)

(iii)

While preparing its final accounts for the year ended 31st March 2010, a company made a provision for bad–debts @ 4% of its total debtors (as per trend follows from the previous years). In the first week of March 2010 a debtor for Rs.3,00,000 had suffered heavy loss due to an earthquake; the loss was not covered by any insurance policy. In April 2010 the debtor become a bankrupt. Can the company provide for the full loss arising out of insolvency of the debtor in the final accounts for the year ended 31st March 2010.

(0)

(iv)

“Recognizing the need to harmonize the diverse accounting policies and practices, accounting standards are framed.” Give examples of areas in which different accounting policies may be adopted by enterprise.

(0)

A, B, C and D are sharing profits and losses in the ratio 5:5:4:2. Frauds committed by C during the year were found out and it was decided to dissolve the partnership on 31^st March 2010 when their Balance Sheet was as under:

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Capital A B C D General reserve Trade creditors Bills payable	90,000 90,000 – 35,000 24,000 47,000 20,000	Building Stock Investments Debtors Cash C	1,20,000 85,500 29,000 42,000 14,500 15,000
	3,06,000		3,06,000

Following information is given to you:

(i)

A cheque for Rs.4,300 received from debtor was not recorded in the books and was misappropriated by C.

(ii)

Investments costing Rs.5,400 were sold by C at Rs.7,900 and the funds transferred to his personal account. This sale was omitted from the firm’s books.

(iii)

A creditor agreed to take over investments of the book value of Rs.5,400 at Rs.8,400. The rest of the creditors were paid off at a discount of 2%.

(iv)

The other assets realised as follows:

Building
Stock
Investments
Debtors

105% of book value
Rs.78,000
The rest of investments were sold at a profit of Rs.4,800
The rest of the debtors were realised at a discount of 12%.

(v)

The bills payable were settled at a discount of Rs.400.

(vi)

The expenses of dissolution amounted to Rs.4,900.

(vii)

It was found out that realisation from C’s private assets would only be Rs.4,000.

Prepare the necessary Ledger Accounts.

(0)

Extra Ltd. furnishes you with the following Balance Sheet as on 31^st March, 2010:

Liabilities	Amount	Assets	Amount
Share Capital Equity Shares of Rs.10 each fully paid 9% Redeemable Preference Shares of Rs.100 each fully paid Capital Reserves Revenue Reserves Share Premium 10% Debentures Current Liabilities	100 22 8 50 60 4 70	Fixed assets less depreciation Investments at cost Current assets	50 120 142
	312		312

(i)	The company redeemed the preference shares at a premium of 10% on 1^st April 2010.
(ii)	It also bought back 3 lakhs equity shares of Rs.10 each at Rs.30 per share. The payment for the above were made out of huge bank balances, which appeared as a part of the current assets.
(iii)	Included in it’s investment were “investments in own debentures” costing Rs.2 lakhs (face value Rs.2.20 lakhs). These debentures were cancelled on 1^st April 2010.
(iv)	The company had 1,00,000 equity stock options outstanding on the above mentioned date, to the employees at Rs.20 when the market price was RS.30. (This was included under Current liabilities). On 1.04.2010 employees exercised their options for 50,000 shares.
(v)	Pass the Journal Entries to record the above.
(vi)	Prepare Balance Sheet as at 01.04.2010.

(0)

(a)

Department R sells goods to Department S at a profit of 25% on cost and Department T at 10% profit on cost. Department S sells goods to R and T at a profit of 15% and 20% on sales respectively. Department T charges 20% and 25% profit on cost to Department R and S respectively.

Department Managers are entitled to 10% commission on net profit subject to unrealised profit on departmental sales being eliminated. Departmental profits after charging Manager’s commission, but before adjustment of unrealised profit are as under:

		Rs.
Department Department Department	R S T	54,000 40,500 27,000

Stock lying at different departments at the end of the year are as under:

	Deptt.R Rs.	Deptt.S Rs.	Deptt.T Rs.
Transfer the Department R Transfer the Department S Transfer the Department T	– 21,000 9,000	22,500 – 7,500	16,500 18,000 –

Find out the correct departmental profits after charging Manager’s commission.

(0)

(b)

From the following information of Reliable Marine Insurance Ltd. for the year ending 31^st March 2010 find out the

(i)

Net premiums earned

(ii)

Net claims incurred

	(Rs.) Direct Business	(Rs.) Re– insurance
Premium: Received Receivable–01.04.2009 Receivable–31.30.2010 Paid Payable–01.04.2009 Payable–31.03.2010 Claims: Paid Payable–01.04.2009 Payable–31.03.2010 Received Receivable–01.04.2009 Receivable–31.03.2010	88,00,000 4,39,000 3,77,000 6,09,000 69,00,000 89,000 95,000	7,52,000 36,000 32,000 27,000 18,000 5,54,000 15,000 12,000 2,01,000 40,000 38,000

(0)

Following is the Balance Sheet of Y Ltd., as at 31^st March 2010:

Liabilities	Rs.	Assets	Rs.
Share Capital		Fixed Assets
Issued & paid up: 2,50,000 equity share of Rs.10 each Rs.8 per share paid up	20,00,000	Goodwill Building Plant and machinery	8,00,000 7,00,000 13,00,000
1,00,000 (10%) pref. shares of Rs.10 each fully paid up	10,00,000	Current Assets Stock	7,00,000
Reserves & Surplus		Sundry debtors	9,00,000
General reserve Profit & Loss A/c	6,00,000 8,00,000	Bank Balance	6,60,000
Current Liabilities		Misc. Exp.
Creditors Workmen’s profit sharing fund	4,00,000 3,00,000	Preliminary Expense	40,000
	51,00,000		51,00,000

X Ltd. decided to absorb the business of Y Ltd. at the respective book value of assets and trade liabilities except Building which was valued at Rs.12,00,000 and Plant & Machinery at Rs.10,00,000.

The purchase consideration was payable as follows:

(i)	Payment of liquidation expenses Rs.5,000 and workmen’s profit sharing fund at 10% premium;
(ii)	Issue of equity share of Rs.10 each fully paid at Rs.11 per share for every pref. share and every equity share of Y Ltd., and a payment of Rs.4 per equity share in cash.

Calculate the purchase consideration, show the necessary ledger accounts in the books of Y Ltd., and opening Journal Entries in the books of X Ltd.

(0)

(a)

A Commercial Bank has the following capital funds and assets. Segregate the capital funds into Tier I and Tier II capitals. Find out the risk adjusted asset and risk weighted assets ratio.

Rs.
(in crores)

Equity Share Capital
Statutory Reserve
Capital Reserve (of which Rs.16 crores were due to revaluation
of assets and the balance due to sale of capital asset)
Assets:
Cash balance with RBI
Balance with other banks
Other investments
Loans and advances:
(i) Guaranteed by the Government
(ii) Others
Premises, furniture and fixtures
Off–Balance Sheet items:
(i) Guarantee and other obligations
(ii) Acceptances, endorsements and letter of credit

500.00
270.00

78.00

10.00
18.00
36.00

16.50
5,675.00
78.00

800.00
4,800.00

(0)

(b)

The Super Electricity Company maintains accounts under the Double Accounts System. It decides to replace one of its old plant with a technologically advanced plant with a larger capacity. The plant when installed in 2000 cost the company Rs.90,00,000, the components of materials, labour and overheads being in the ratio 5:3:2.

It is ascertained that the costs of materials has gone up by 200% and the cost of labour has gone up by 300%. The proportion of material, labour and overheads has changed to 10:9:6.

The cost of the new plant is Rs.2,80,00,000 and in addition, goods worth Rs.12,60,000 have been used in the construction of the new plant. The old plant was scrapped and sold for Rs.19,00,000.

Find out the amount to be capitalised and also the amount to be charged to revenue. Draw the necessary Ledger Accounts.

(0)

Answer any four of the followings:

4x4=16

(a)

Following is the information of the Jammu branch of Best Ltd., New Delhi for the year ending 31^st March 2010 from the following:

(1)

Goods are invoiced to the branch at cost plus 20%.

(2)

The sale price is cost plus 50%.

(3)

Other informations;	Rs.
Stock as on 01–04–2009 Goods sent during the year Sales during the year Expenses incurred at the branch	2,20,000 11,00,000 12,00,000 45,000

Ascertain (i) the profit earned by the branch during the year (ii) branch stock reserve in respect of unrealized profit.

(0)

(b)

Ram Ltd. had 12,00,000 equity shares on April 1, 2009. The company earned a profit of Rs.30,00,000 during the year 2009–10. The average fair value per share during 2009–10 was Rs.25. The company has given share option to its employees of 2,00,000 equity shares at option price of Rs.15. Calculate basic E.P.S. and diluted E.P.S.

(0)

(c)

On 1^st April 2009 Amazing Construction Ltd. obtained a loan of Rs.32 crores to be utilized as under:

(i)	Construction of sealink across two cities: (work was held up totally for a month during the year due to high water levels)	:	Rs.25 crores
(ii)	Purchase of equipments and machineries	:	Rs.3 crores
(iii)	Working capital	:	Rs.2 crores
(iv)	Purchase of vehicles	:	Rs.50,00,000
(v)	Advance for tools/cranes etc.	:	Rs.50,00,000
(vi)	Purchase of technical know–how	:	Rs.1 crores
(vii)	Total interest charged by the bank for the year ending 31^st March 2010	:	Rs.80,00,000

Show the treatment of interest by Amazing Construction Ltd.

(0)

(d)

A company went into liquidation whose creditors are Rs.36,000 includes Rs.6,000 on account of wages of 15 men at Rs.100 per month for 4 months immediately before the date of winding up; Rs.9,000 being the salaries of 5 employees at Rs.300 per month for the previous 6 months, Rent for godown for the last six months amounting to Rs.3,000; Income–tax deducted out of salaries of employees Rs.1,000 and Directors fees Rs.500; in addition it is estimated that the company would have to pay Rs.5,000 as compensation to an employee for injuries suffered by him, which was contingent liability not accepted by the company and not included in above said creditors figure.

Find the amount of Preferential Creditors.

(0)

(e)

M Ltd. launched a project for producing product A in Nov. 2008. The company incurred Rs.30 lakhs towards Research and Development expenses upto 31st March 2010. Due to unfavourable market conditions the management feels that it is not possible to manufacture and sold the product in the market for next so many years.

The management hence wants to defer the expenditure write off to future years.

Advise the company as per the applicable Accounting Standard.

(0)

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