CA Final :: Advanced Accounting : May 2005

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—8
Time Allowed : 3 Hours	Maximum Marks : 100
ML
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 necessary, suitable assumptions may be made by the candidate.

Marks

The Balance Sheet of Munna Ltd. on 31st March, 2005 is as under :

Liabilities Authorised and issued equity share capital 20,000 shares of Rs. 100 each 10,000 preference shares (7%) of Rs. 100 each Sundry creditors Bank overdraft	Rs. 20,00,000 10,00,000 7,00,000 3,00,000		Assets Goodwill Plant & machinery Stock Debtors Preliminary expenses Cash P/L account	Rs. 2,00,000 18,00,000 3,00,000 7,50,000 1,00,000 1,50,000 7,00,000
	40,00,000			40,00,000

Two years' preference dividend are in arrears. The company had bad time during the last two years and hopes for better business in future, earning profit and paying dividend provided the capital base is reduced.

An internal reconstruction scheme as follows was agreed to by all concerned :

(i)	Creditors agreed to forego 50% of the claim.
(ii)	Preference shareholders withdrew arrear dividend claim. They also agreed to lower their capital claim by 20% by reducing nominal value in consideration of 9% dividend effective after reorganisation in case equity shareholders' loss exceeded 50% on the application of the scheme.

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(iii)	Bank agreed to convert overdraft into term loan to the extent required for making current ratio equal to 2 : 1.
(iv)	Revalued figure for plant and machinery was accepted as Rs. 15,00,000.
(v)	Debtors to the extent of Rs. 4,00,000 where considered good.
(vi)	Equity shares shall be exchanged for the same number of equity shares at a revised denomination as required after the reorganisation.

Show

(a)	Total loss to be borne by the equity and preference shareholders for the reorganisation;
(b)	Shares of loss to the individual classes of shareholders;
(c)	New structure of share capital after reorganisation;
(d)	Working capital of the reorganised Co.; and
(e)	A proforma balance sheet after reorganisation.

On 31st March, 2004 the Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows :

Fixed Assets : Cost Depreciation W.D.V. (written down value) Net Current Assets : Current Assets Less : Current liabilities	Inland (Rs. crores) 600 500 100 400 200	International (Rs. crores) 600 200 400 300 200	Total (Rs. crores) 1,200 700 500 700 400
	200	100	300
Total	300	500	800
Financed by : Loan Funds (Secured by a charge on fixed assets) Own Funds : Equity capital (fully paid up Rs. 10 shares) Reserves and surplus	—	100	100 50 650
	?	?	700
Total	300	500	800

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Marks

It is decided to form a new company 'IT Ltd.' for international tourism to take over the assets and liabilities of international division.

Accordingly 'IT Ltd.' was formed to takeover at Balance Sheet figures the assets and liabilities of international division. 'IT Ltd.' is to allot 5 crore equity shares of Rs. 10 each in the company to the members of 'Travels & Tours Ltd.' in full settlement of the consideration. The members of Travels & Tours Ltd, are therefore to become members of 'IT Ltd.' as well without having to make any further investment.

(a)	You are asked to pass journal entries in relation to the above in the books of 'Travels & Tours Ltd.' Also show the Balance Sheet of both the companies as on 1st January, 2005 showing corresponding figures, before the reconstruction also.
(b)	The directors of both the companies ask you to find out the net asset value of equity shares pre and post-demerger.
(c)	Comment on the impact of demerger on "shareholders wealth".

The Balance Sheets of Football Ltd. and its subsidiary Hockey Ltd. as on 31st March, 2005 are as under :

Liabilities Equity shares of Rs.10 each 10% preference shares of Rs. 10 each General reserve P/L A/c Bank overdraft Sundry creditors Bills payable	Football Ltd. Rs. 48,00,000 7,00,000 5,50,000 10,00,000 1,20,000 4,30,000 —	Hockey Ltd. Rs. 20,00,000 3,80,000 4,20,000 6,00,000 70,000 4,80,000 1,60,000	Assets Goodwill Plant & machinery Motor vehicles Furniture & fittings Investments Stock Cash at bank Debtors Bills receivable	Football Ltd Rs. 4,50,000 12,00,000 9,50,000 6,50,000 26,00,000 4,50,000 2,25,000 9,30,000 1,45,000	Hockey Ltd. Rs. 3,00,000 5,00,000 7,50,000 4,00,000 4,50,000 7,20,000 2,10,000 7,80,000 —
	76,00,000	41,10,000		76,00,000	41,10,000

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Details of acquisition of shares by Football Ltd. are as under :

Nature of shares	Nos. acquired	Date of acquisition	Cost of acquisition Rs.
Preference shares Equity shares Equity shares	14,250 80,000 70,000	1.4.2002 1.4.2003 1.4.2004	3,10,000 9,50,000 8,00,000

Other information :

(i)	On 1.4.2004 Profit and Loss Account and general reserve of Hockey Ltd. had credit balance of Rs. 3,00,000 and Rs. 2,00,000 respectively.
(ii)	Dividend @ 10% was paid by Hockey Ltd. for the year 2003-04 out of its P/L A/c balance as on 1.4.2004. Football Ltd. credited its share of dividend to its P/L A/c.
(iii)	Hockey Ltd. allotted bonus shares out of general reserve at the rate of 1 share for every 10 shares held. Accounting thereof has not yet been made.
(iv)	Bills receivable of Football Ltd. were drawn upon Hockey Ltd.
(v)	During the year 2004-05 Football Ltd. purchased goods from Hockey Ltd. for Rs. 1,00,000 at a sale price of Rs. 1,20,000. 40% of these goods remained unsold at close of the year
(vi)	On 1.4.2004 motor vehicles of Hockey Ltd. were overvalued by Rs. 1,00,000. Applicable depreciation rate is 20%
(vii)	Dividends recommended for the year 2004-05 in the holding and the subsidiary companies are 15% and 10% respectively.

Prepare consolidated Balance Sheet as on 31st March, 2005.

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(a)

Preparing a segmental report for publication in Diversifiers Ltd. from the following details of the company's three divisions and the head office :

	Rs. ('000)
Forging Shop Division Sale to Bright Bar Division Other Domestic Sales Export Sales	4,575 90 6,135
	10,800
Bright Bar Division Sales to Fitting Division Export Sales to Rwanda	45 300
	345
Fitting Division
Export Sales to Maldives	270

Particulars	Head Office Rs. ('000)	Forging Shop Division Rs. ('000)	Bright Bar Division Rs. ('000)	Fitting Division Rs. ('000)
Pre-shares Operating result Head office cost reallocated Interest costs Fixed assets Net current assets Long-term liabilities	75 72 57	240 72 6 300 180 30	30 36 8 60 60 15	(12) 36 2 180 135 180

(b)

An equipment is leased for 3 years and its useful life is 5 years. Both the cost and the fair market value of the equipment are Rs. 3,00,000. The amount will be paid in 3 instalments and at the termination of lease lessor will get back the equipment. The unguaranteed residual value at the end of 3 years is Rs. 40,000. The (internal rate of return) IRR of the investment is 10%. The

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Present value of annuity factor of Re. 1 due at the end of 3rd year at 10% IRR is 2.4868. The present value of Re. 1 due at the end of 3rd year at 10% rate of interest is 0.7513.

(i)	State with reason whether the lease constitutes finance lease.
(ii)	Calculate unearned finance income.

(c)

Intelligent Corp. (1-Corp.) is dealing in seasonal products. The quarterly sales pattern of the product is given below :

Qtr.-I
Ending 31st March

II
30th June

III
30th September

IV
31st December

For the First quarter ending 31st March, 2005 I-Corp. gives you the following information :

Sales
Salary and other expenses
Advertisement expenses (routine)
Administrative and selling expenses

Rs. crore
50
30
02
08

While preparing interim financial report for the first quarter 'I-Corp.' wants to differ Rs. 21 crore expenditure to third quarter on the argument that third quarter is having more sales, therefore third quarter should be debited by higher expenditure. Considering the seasonal nature of business, the expenditure are uniform throughout all quarters.

Calculate the result of first quarter as per AS-25 and comment on the company's view.

(d)

Top & Top Limited has set up its business in a designated backward area which entitles the company to receive from the Government of India a subsidy of 20% of the cost of investment. Having fulfilled all the conditions under the scheme, the company on its investment of Rs. 50 crore in capital assets, received Rs. 10 crore from the Government in January, 2005 (accounting period being 2004-05). The company wants to treat this receipt as an item of revenue and thereby reduce the losses on profit and loss account for the year ended 31st March, 2005.

Keeping in view the relevant Accounting Standard, discuss whether this action is justified or not.

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Marks

The following Balance Sheet of X Ltd. is given :

X Ltd.
Balance Sheet as on 31st March, 2005

Liabilities 5,000 shares of Rs. 100 each fully paid Bank overdraft Creditors Provision for taxation P/L Appropriation A/c		Rs. 50,00,000 18,60,000 21,10,000 5,10,000 21,20,000		Assets Goodwill Land & Building at coat Plant & machinery at cost Stock Debitors considered good	Rs. 4,00,000 32,00,000 28,00,000 32,00,000 20,00,000
		1,16,00,000			1,16,00,000

In 1986 when the company commenced operation the paid up capital was same. The Loss/Profit for each of the least 5 years was—Yrs. 2000-01—Loss (Rs. 5,50,000); 2001-02 Rs. 9,82,000; 2002-03 Rs. 11,70,000; 2003-04 Rs. 14,50,000; 2004-05 Rs. 17,00,000

Although Income-tax has so far been paid @ 40% and the above profits have been arrived at on the basis of such tax rate, it has been decided that with effect from the year 2004-05 the Income-tax rate of 45% should be taken into consideration. 10% dividend in 2001-02 and 2002-03 and 15% dividend in 2003-04 and 2004-05 have been paid. Market price of shares of the company on 31st March, 2005 is Rs. 125. With effect from 1st April, 2005 Managing Director's remuneration has been approved by the Government to be Rs. 8,00,000 in place of Rs. 6,00,000. The company has been able to secure a contract for supply of materials at advantageous prices. The advantage has been valued at Rs. 4,00,000 per annum for the next five years.

Ascertain goodwill at 3 year's purchase of super profit (for calculation of future maintainable profit weighted average is to be taken).

Z Ltd. had incurred a loss of Rs. 504 lakhs for the year ending 31/3/2003 before providing for Current Tax of Rs. 26,000 lakhs.

(a)

Give an account of the growing scope of human capital reporting.

4x4=16

(b)

Briefly discuss methods of valuation of intangible assets.

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	(c)	In order to enhance the level of disclosure by the listed companies, SEBI has amended clause 32 of the listing agreement after amendment what disclosures are required?
	(d)	After the HAVOC caused by TSUNAMI, a group of companies undertakes during the period from January, 2005 to March, 2005 various commercial activities, having granted considerable subsidy, along the related coast line. The management intends to highlight the results of such activities while publishing financial statements for the year 2004-5. What is the scope?