CA Final :: Advanced Accounting : May 2003

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—8
Time Allowed : 3 Hours	Maximum Marks : 100
VT
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, answers in Hindi, his answers in Hindi will not be valued.
Answer all Questions
Working notes should form part of the answer. Wherever applicable, suitable assumptions should be made by the candidate.
Marks

(a)

From the Books of Bharati Ltd., following informations are available as on 1.4.2001 and 1.4.2002.

(1)	Equity shares of Rs. 10 each outstanding	1,00,000
(2)	Partly paid Equity shares of Rs. 10 each Rs. 5 paid	1,00,000
(3)	Options outstanding at an exercise price of Rs. 60 for one equity share Rs. 10 each. Average Fair value of equity share during both years Rs. 75	10,000
(4)	10% convertible preference shares of Rs. 100 each. conversion ratio 2 equity shares for each preference share	80,000
(5)	12% convertible debentures of Rs. 100 conversion ratio 4 equity shares for each debenture	10,000
(6)	10% dividend tax is payable the years ending 31.3.2003 and years ending 31.3.2002.
(7)	On 1.10.2002 the partly paid shares were fully paid up.
(8)	On 1.1.2003 the company issued 1 bonus shares for 8 shares held on that date.

Net profit attributable to the equity shareholders for the years ending 31.3.2003 and 31.3.2002 were Rs. 10,00,000

Calculate:

(i) Earnings per share years ending 31.3.2002.

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(ii)	Diluted earnings per share ending 31.3.2003 and 31.3.2002.
(iii)	Adjusted earnings per share and diluted EPS for the year ending 31.3.2002, assuming the same information for previous year, also assume that partly paid shares are eligible for proportionate dividend only.

(b)

Write a note on Accounting issues involved in Environmental Accounting.

(a)

On 31st March, 1996, P Ltd. acquired 1,05,000 shares of Q Ltd. for Rs. 12,00,000. The Balance Sheet of Q Ltd. on that date was as under

Liabilities	Rs.	Assets	Rs.
1,50,000 equity shares of		Fixed Assets	10,50,000
Rs. 10 each fully paid	15,00,000	Current Assets	6,45,000
Pre-incorporation profits	30,000
Profit and Loss Account	60,000
Creditors	1,05,000
	16,95,000		16,95,000

On 31st March, 2002 the Balance Sheets of two companies were as follows:

Liabilities	P Ltd. (Rs.)	Q Ltd. (Rs.)	Assets	P Ltd. (Rs.)	Q Ltd. (Rs.)
Equity Shares of Rs. 10 each fully paid Securities premium Pre-incorporation profits General Reserve P & L a/c Creditors	45,00,000 9,00,000 — 60,00,000 15,75,000 5,55,000	15,00,000 — 30,000 19,05,000 4,20,000 2,10,000	Fixed Assets 1,05,000 equity shares in Q Ltd at cost Current Assets	79,20,000 12,00,000 44,10,000	23,10,000 — 17,55,000
	1,35,30,000	40,65,000		1,35,30,000	40,65,000

Directors of Q Ltd. made a bonus issue in the ratio of one euity share of Rs. 10 each fully paid for every two equity shares held on 31.3.2002.

Calculate as on 31st March, 2002 (i) Cost of Control/Capital Reserve, (ii) Minority Interest; (iii) Consolidated Profit and Loss Account in each of the following cases:

(i) Before issue of bonus shares.

(ii) Immediately after issue of bonus shares.

It may be assumed that bonus shares were issued out of post-acquisition profits by using General Reserve

Prepare a Consolidated Balance Sheet after the bonus issue.

VT	Contind...

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(b)

A Ltd. acquired 25% of shares in E Ltd. as on 31.3.2002 for Rs. 3 lakhs. The Balance Sheet of B Ltd. as on 31.3.2002 is given below:

	(Rs.)
Share Capital Reserves and Surplus Total Fixed Assets Investments Current Assets	5,00,000 5,00,000 10,00,000 5,00,000 2,00,000 3,00,000 10,00,000

During the year ended 31.3.2003 the following are the additional information available:

(i)	A Ltd., received dividend from B Ltd., for this year ended 31.3.2002 at 10% from the Reserves.
(ii)	B Ltd., made a profit loss of 7 lakhs for the year ended 31.3.2003.
(iii)	B Ltd., declared a dividend @ 50% for the year ended 31.3.2003 on 30.4.2003.

During the year ended 31.3.2003 the following are the additional information available :

(i)	Goodwill if any on acquisition of B Ltd. shares.
(ii)	How A Ltd., will reflect the investment value of B Ltd., in the Consolidated Financial Statements?
(iii)	How the dividend received from B Ltd. can be shown in the Consolidated Financial Statements?

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The following is the Balance Sheet of Rs Ltd. and XY Ltd. as on 31.3.2002 :

Rs. in '000s

Liabilities	RS Ltd. Rs.	XY Ltd. Rs.	Assets	RS Ltd. Rs.	XY Ltd. Rs.
Share Capital Equity shares of Rs. 100 each fully paid up Reserves and Surplus 10% Debentures Loan from Financial institutions Bank Overdraft Sundry Creditors Proposed Dividend	2,000 800 500 250 — 300 200	1,000 — — 400 100 300 —	Fixed Assets net of Depreciation Investments Sundry Debtors Cash & Bank Profit and Loss Account	2,700 700 400 250 —	850 — 150 — 800
Total	4,050	1,800	Total	4,050	1,800

It was decided that XY Ltd. will acquire the business of RS Ltd. for enjoying the benefit of carry forward of business loss. After acquisition, the XY Ltd. will be renamed as XYZ Ltd. The following scheme has been approved for the merger :

(i)	XY Ltd. will reduce its shares to Rs. 10 and then consolidate 10 such shares into one share of Rs. 100 each (New share).
(ii)	Financial institutions agreed to waive 15% of the loan of XY Ltd.
(iii)	Shareholders of RS Ltd. will be given one new share of XY Ltd. in exchange of every share held in RS Ltd.
(iv)	RS Ltd. will cancel 20% holding of XY Ltd. Investments were held at Rs. 250 thousands.
(v)	After merger the proposed dividend of RS Ltd. will be paid to the shareholders of RS Ltd.
(vi)	Authorised Capital of XY Ltd. will be raised accordingly to carry out the scheme.
(vii)	Sundry creditors of XY Ltd. includes payable to RS Ltd. Rs. 1,00,000.

Pass the necessary entries to implement the scheme in the books of RS Ltd. and XY Ltd. and prepare a Balance Sheet of XYZ Ltd.

VT	Contind...

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The following is the Balance Sheet of N Ltd. as on 31st March, 2002 :

Balance Sheet

Liabilities 4,00,000 Equity shares of Rs. 10 each fully paid 13.5% Redeemable preference shares of Rs. 100 each fully paid General Reserve Profit and Loss Account Bank Loan (Secured against fixed assets) Bills Payable Creditors	Rs. 40,00,000 20,00,000 16,00,000 3,20,000 12,00,000 6,00,000 31,00,000		Assets Goodwill Building Machinary Furniture Vehicles Investments Stock Debtors Bank Balance Preliminary Expenses	Rs. 4,00,000 24,00,000 22,00,000 10,00,000 18,00,000 16,00,000 11,00,000 18,00,000 3,20,000 2,00,000
	1,28,20,000			1,28,20,000

Further information :

(i)	Return on capital employed is 20% in similar business.
(ii)	Fixed assets are worth 30% more than book value. Stock is overvalued by Rs. 1,00,000, Debtors are to be reduced by Rs. 20,000. Trade investments, which constitute 10% the total investments are to be valued at 10% below cost.
(iii)	Trade investments were purchased on 1.4.2001. 50% of non-Trade Investments were purchased on 1.4.2000 and the rest on 1.4.1999. Non-Trade Investments yielded 15% return on cost.
(iv)	In 1999-2000 new machinery costing Rs. 2,00,000 was purchased, but wrongly charged to revenue. This account should be adjusted taking depreciation at 10% on reducing value method.
(v)	In 2000-2001 furniture with a book value of Rs. 1,00,000 was sold for Rs. 60,000.
(vi)	For calculating goodwill two years purchase of super profits based on simple average profits of last four years are to be considered. Profits of last four years are as under : 1998-99 Rs. 16,00,000, 1999-2000 Rs. 18,00,000, 2000-2001 Rs. 21,00,000, 2001-2002 Rs. 22,00,000.

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(vii)

Additional depreciation provision at the rate of 10% on the additional value of Plant and Machinery alone may be considered for arriving at normal profit.

Find our the intrinsic value of the equity share. Income-tax and Dividend tax are not to be considered.

(a)

XYZ Ltd., has undertaken a project for expansion of capacity as per the following details :

April, 2002
May, 2002
June, 2002
July, 2002
August, 2002
September, 2002

Plan
Rs.
2,00,000
2,00,000
10,00,000
1,00,000
2,00,000
5,00,000

Actual
Rs.
2,00,000
3,00,000
—
—
1,00,000
7,00,000

The company pays to its branches at the rate of 12% p.a., interest being debited on a monthly basis. During the half year company had Rs. 10 lakhs overdraft upto 31st July, surplus cash in August and again overdraft of over Rs. 10 lakhs from 1.9.2002. The company had a strike during June and hence could not continue the work during June. Work was again commenced on 1st July and all the works were completed on 30th September. Assume that expenditure were incurred on 1st day of each month.
(a) Calculate :
(i) Interest to be capitalised.
(ii) Give reasons wherever necessary.
Assume :

(a)	Overdraft will be less, if there is no capital expenditure.
(b)	The Board of Directors based on facts and circumstances of the case has decided that any capital expenditure taking more than 3 months as substantial period of time.

(b)

Write short notes on any two of the following :

2x4=8

(i)	Books of account required to be maintained by a Stock Broker
(ii)	Corporate Social Reporting
(iii)	Jaggi and Lan model on valuation on group basis of Human Resources.

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Briefly explain any four as per relevant Accounting Standard/guidance notes :

4x4=16

(a)

TVSM company has taken a Transit Insurance Policy. Suddenly in the year 2002-2003 the percentage of accident has gone upto 7% and wants to recognise insurance claim as revenue in 2002-2003 in accordance with relevant Accounting Standards. Do you agree?

(b)

SCL Ltd., sells agriculture products to dealers. One of the condition of sale is that interest is payable at the rate of 2% p.m., for delayed payments. Percentage of intent recovery is only 10% on such overdue outstandings due to various reasons. During the year 2002-2003 the company wants to recongnise the entire interest receivable. Do you agree?

(c)

HSL Ltd. is manufacturing goods for local sale and exports. As on 31st March, 2003, it has the following finished stocks in the factory warehouse :
(i) Goods meant for local sale Rs. 100 lakhs (cost Rs. 75 lakhs).
(ii) Goods meant for export Rs. 50 lakhs (cost Rs. 20 lakhs).

Excise duty is payable at the rate of 16%. The company's Managing Director says that excise duty is payable only on clearance of goods and hence is not a cost. Please advise HSL using guidance note, if any issued on this, including valuation of stock.

(d)

SFL Ltd. is a mutual fund. The fund values the investment on "mark to market basis". The Accountant argues since investment are valued on the above basis there is no necessity to disclose depreciation separately in the financial statements. Do you agree?

(e)

ABC Ltd. was making provision for non-moving stocks based on no issues for the last 12 months upto 31.3.2002. The company wants to provide during the year ending 31.3.2003 based on technical evaluation :

Total value of stock
Provision required based on 12 months issue
Provision required based on technical evaluation

Rs. 100 lakhs
Rs. 3.5 lakhs
Rs. 2.5 lakhs

Does this amount to change in Accounting policy? Can the company change the method of provision?

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(f)

XYZ is an export oriented unit and was enjoying tax holiday upto 31.3.2002. No provision for deffered tax liability was made in accounts for the year ended 31.3.2002. While finalising the accounts for the year ended 31.3.2003, the Accountant says that the entire deffered tax liability upto 31.3.2002 and current years deffered Tax liability should be routed through Profit and Loss Account as the relevant Accounting Standard has already become mandatory from 1.4.2001. Do you agree?