CA Final :: Advanced Accounting : November 2005

Roll No…………………
Total No. of Questions— 6]	[Total No. of Printed Pages—7
Time Allowed : 3 Hours	Maximum Marks : 100
PD
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 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

On 31st March, 2004 Bee Ltd. became the holding company of Cee Ltd. and Dee Ltd. by acquiring 450 lakhs fully paid shares in Cee Ltd. for Rs. 6,750 lakhs and Rs. 240 lakhs fully paid shares in Dee Ltd. for Rs. 2,160 lakhs. On that date, Cee Ltd. showed a balance of Rs. 2,550 lakhs in General Reserve and a credit balance of Rs. 900 lakhs in Profit and Loss Account. On the same date, Dee Ltd. showed a debit balance of Rs. 360 lakhs in Profit and Loss Account while the Preliminary Expenses Account showed a balance of Rs. 30 lakhs.

After one year, on 31st March, 2005 the Balance Sheets of three companies stood as follows :

(All amounts in lakhs of Rupees)

Liabilities
Fully paid equity shares of Rs. 10 each
General Reserve
Profit and Loss Account
15 lakh fully paid 9.5%
Debentures of Rs. 100 each
Loan from Cee Ltd.
Bills Payable
Sundry Creditors

Bee Ltd. 27,000 33,000 9,000 — — — 14,100	Cee Ltd. 7,500 3,150 1,200 — — — 2,700	Dee Ltd. 3,000 — 750 1,500 75 150 930
83,100	14,550	6,405

P.T.O.

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(All amounts in lakhs of Rupees)

Assets
Machinery
Furniture and Pictures
Investments :
  450 lakhs shares in Cee Ltd.
  240 lakhs shares in Dee Ltd.
  3 lakhs debentures in Dee Ltd.
stocks
Sundry Debtors
Cash and Bank balances
Loan to Dee Ltd.
Bills Receivable
Preliminary Expanses

39,000 6,000 6,750 2,160 294 16,500 9,000 3,201 — 195 —	7,500 1,500 — — — 3,000 1,350 1,050 90 60 —	2,100 600 — — — 1,500 1,290 900 — — 15
83,100	14,550	6,405

The following points relating to the above mentioned Balance Sheets are to be noted :

(i)	All the bills payable appearing in Dee Ltd.' s Balance Sheet were accepted in favour of Cee Ltd. out of which bills amounting to Rs. 75 lakh were endorsed by Cee Ltd. in favour of Bee Ltd. and bills amounting to Rs. 45 lakh had been discount by Cee Ltd. With its bank.
(ii)	On 29th March, 2005 Dee Ltd. remitted Rs. 15 lakh by means of a cheque to Cee Ltd. to return part of the loan; Cee Ltd. received the cheque only after 31st March, 2005.
(iii)	Stocks with Cee Ltd. includes goods purchased from the Ltd. for Rs.200 lakhs. Bee Ltd. invoiced the goods at cost plus 25%.
(iv)	In August, 2004 Cee Ltd. declared and distributed dividend @ 10% for the year ended 31st March, 2004. Bee Ltd. credited the dividend received to its Profit and Loss Account.

You are required to prepare a consolidated Balance Sheet of Bee Ltd. and its subsidiaries Cee. Ltd. and Dee Ltd. as at 31st March, 2005.

(a)

on the basis of the following Profit and Loss Account of Zed Limited and the supplementary information provided thereafter, prepare Gross Value Added statement of the company for the year ended 31st March, 2005. Also prepare another statement showing reconcidation of Gross Value Added with Profit before Taxation.

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Profit and Loss Account of Zed Limited for the year ended 31st March, 2005

	Amount (Rs. in lakhs)	Amount (Rs. in lakhs)
Income Sales Other Income		5,010 130 5,140
Expenditure Production and operational expenses Administrative Expenses Interest Depreciation profit before Taxation Provision for Taxation Credit Balance as per last Balance Sheet	3,550 185 235 370	4,340 800 280 520 40
		560
Appropriations Transfer to General Reserve Preference Dividend (Interim)paid Proposed Preference Dividend (Final) proposed Equity Dividend Balance carried to Balance Sheet		100 50 50 300 60
		560
supplementary Information Production and Operational Expenses consist of : Raw Materials and Stores consumed Wages, Salaries and Bonus Local Taxes including Cess Other Manufacturing Expenses		1,900 610 220 820
		3,550

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	Amount
Administrative Expenses consist of :	(Rs. in lakhs)
Salaries and commission to Directors Audit Fee Provision for Bad and Doubtful in Debts Other Administrative Expenses	60 24 20 81
	185
Interest is on : Loan from Bank for Working Capital Debentures	35 200
	235

(b)

The Institute for Global Management Research maintains a combined Development Fund respect of which the following information is available for the year ended 31st March, 2005.

	Rs.
Govt. Grants received for acquisition of land Private Grants received for construction of buildings	60,00,000 30,00,000
Foreign private Grant for purchase of computing equipment :	USD 5,00,000
Transfer from unrestricted fund for purchase of furniture cost of Assets so far acquired : Land Buildings in progress (payments to Contractors) Furniture	10,00,000 59,00,000 15,00,000 3,00,000

The USD grant has been received into a bank account in USA on 29.3.05 and is expected to be utilised there from for purchases to be made abroad. The rate of exchange on 31.3.05 is 1 USD = Rs. 44. You are required to prepare

— A Statement showing changes in the Development Fund for the year, and

— Balance Sheet of the Development Fund as at 31.3.2005.

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The following abridged Balance Sheet as at 31st March, 2005 pertains to Glorious Ltd.

Liabilities Share Capital : 180 lakh Equity shares of Rs. 10 each, fully paid up 90 lakh Equity shares of Rs. 10 each, Rs. 8 paid up 150 lakh Equity shares of Rs. 5 each, fully paid-up Reserves and Surplus Secured Loans current Liabilities Provisions	Rs. in lakhs 1,800 720 750 5,628 4,500 1,242 960		Assets Goodwill, at cost Other Fixed Assets current Assets Loans and Advances Miscellaneous Expenditure	Rs. in lakhs 420 11,166 2,910 933 171
	15,600			15,600

You are required to calculate the following for each one of three categories of equity shares appearing in the above mentioned Balance Sheet :

(i)
intrinsie value on the basis of book values of Assets and Liabilities including good will:

(ii)
Value per share on the basis of dividend yield.
Normal rate of dividend in the concerned industry is 15%, whereas Glorious Ltd. has been paying 20% dividend for the least four years and is expected to maintain if in the nest few years; and

(iii)
Value per share on the basis of EPS.
For the year ended 31st March, 2005 the company has earned Rs. 1,371 lakh as profit after tax, which can be considered to be normal for the company.
Average EPS for a fully paid share of Rs. 10 of a Company in the same industry in Rs. 2.

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4.	(a)	venus Ltd. has an asset, which is carried in the Balance sheet on 31-3-2005 at Rs. 500 lakhs. As at that date the value in use is Rs. 400 lakhs and the Net Selling price Rs. 375 lakhs.	6
		From the above data :
		(i) Calculate Impairment Loss.
		(ii) Prepare Journal Entries for adjustment of impairment loss.
		(iii) show, how impairment loss will be shown in the Balance Sheet.
	(b)	Himalya Ltd. in the past three years spent Rs. 75,00,000 to develop a Drug to treat Cancer, which was charged to Profit and Loss Account since they did not meet AS-8 criteria for capitalisation. In the current year approval of the concerned Govt. Authority has been received. The Company wishes to capitalise Rs. 75,00,000 and disclose it as a prior period item. Is it correct? Give reason for you views.	5
	(c)	Bottom Ltd. entered into a sale deed for its immovable property before the end of the year. But registration was done with registrar subsequent to Balance Sheet date. But before funalisation, is it possible to recovnise the sale and the gain at the Balance Sheet date? Give your view with reasons.	5
5.	(a)	In view of the provisions of Accounting Standard 25 on interior. Financial Reporting. On what basis will you calculate, for an interim period, the prevision in respect of defined benefit schemes like pension, gratuity etc. for the employees?	5
	(b)	Briefly describe the significance of Environmental accounting.	5
	(c)	A Company has its share capital divided into shares of Rs. 10 each. On 1st April, 2004 it granted 10,000 employees stock options at Rs. 40, when the market price was Rs. 130. The options were to be exercised between 16th December, 2004 and 15th March, 2005. The employees excerised their options for 9,500 shares only; the remaining options lapsed. The company closes its books on 31st March every year.	6
		Show Journal entries.

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(a)

while closing its books of account on 31st March, 2005 a NOn-banking Finance Company has its advances classified as follows :

	Rs. in lakhs
Standard assets Sub standard assets Secured positions of doubtful debts: — upto one year — one year to three years — more than three years Unsecured portions of doubtful debts Loss assets	16,900 1,340 320 90 30 97 48

Calculate the amount of provisions, which must be made against the Advances.

(b)

In May 2004 Speed Ltd. took a bank loan to be used specifically for the construction of a new factory building. The construction was completed in January, 2005 and the building was put to its use immediately thereafter. Interest on the actual amount used for construction of the building till its completion was Rs. 18 lakh, whereas the total interest payable to the bank on the loan for the period till 31st March, 2005 amounted to 25 lakh.

Can Rs. 25 lakh be treated as part of the cost of factory building and thus be capitalised on the plea that the loan was specifically taken for the construction of factory building?

(c)

Distinguish between "Timing differences" and "Permanent differences" referred to in AS-22 on accounting for Taxes, giving 2 examples of each.