CWA/ICWA Inter :: Advanced Financial Accounting : December 2003

I—10(AFA)
Revised Syllabus

Time Allowed : 3 Hours Full Marks : 100
Attempt Question No. 1 which is compulsory and any five from the rest.
Marks
1.
(a)

An entity means an organisation, whether a company or not, big or small or profit oriented or not, having a separate existence (entity) from the owner: True or False?

(b)

Certain fundamental accounting assumptions undertake the preparation and presentation of financial statements. State briefly which are these assumptions.

(c)

Name four areas in which a choice with regard to accounting policy is made by an enterprise.

(d)State what is meant by the concept of "materiality" as used by accountants.
(e)How dows the proprietary theory of accounting view a business firm?
(f)When might an account in the debtors' ledger show a credit balance?
(g)

Mention the several ways in which the percentage of completion of a long-term construction contract any be arrived at.

(h)

Information requirements of external users are served through financial statements. State clearly the names of such statements.

(i)State the main function of Accounting Standard Board.
(j)How are Government expenses classified? State clearly.
 2x10
2. The following are the summarised Balance Sheets of P. Ltd and S. Ltd as at 31st March, 2003. 16
Liabilities  P Ltd
Rs.		S Ltd
Rs.		Assets  P Ltd
Rs.		S Ltd
Rs.
12% Pref. Shares of Rs. 10 each
Equity Shares of Rs. 10 each
Share Premium
General Reserve
Profit and Loss A/c
10% Debentures
Proposed Dividends
Equity
Preference
Accrued Debenture
Interest Sundry Creditors		 —

80,00,000
10,00,000
36,00,000
24,00,000
20,00,000

12,00,000
—
—
18,00,000		 20,00,000

40,00,000
—
20,00,000
14,00,000
5,00,000

6,00,000
2,40,000
50,000
15,10,000		 Land and Building
Other Fixed Assets
Investments at cost in S Ltd.
300000 Equity shares
100000 12% Pref.
10% Debentures (face value)
Investments in Govt. Securities
Stock
Debtors and Bank		 50,00,000
40,00,000

45,00,000
12,00,000
2,50,000

10,50,000
15,00,000
25,00,000		 40,00,000
30,00,000

—
—
—

20,00,000
12,00,000
21,00,000
 430,000130,000 430,000130,000
Additional Information:
(a) P Ltd. acquired its interests in S Ltd. on 1st April, 2002, when the latter company had Rs. 18,00,000 in its general reserve account.
(b)S Ltd. arrives at its profit and loss account balance as follows:
Rs.Rs.
Balance — 1st April, 2002
Profit in the current year		 4,00,000
20,40,000
24,40,000
Transfer to Reserves
Proposed Dividend		 2,00,000
8,40,000
10,40,000
Balance on 31st March, 200314,00,000
(c)The profit and loss account balance of S. Ltd. as on 1st April, 2002 was arrived at after providing for preference and 10% equity dividends for the year ended 31st March 2002. These dividends were paid in August, 2002.
P Ltd. credited dividends it received from S Ltd. to its profit and loss account.
(d)P Ltd. has made no provisions in respect of debenture interest and dividends receivable from S Ltd. for the year ended 31st March, 2003.
(e)In January, 2003 S Ltd. Issued fully paid bonus shares in the ratio of one share for every four held by utilising general reserve. The transaction is yet to be recorded in the books of both P Ltd. and S Ltd.
Draft a consolidated balance sheet as at 31st March, 2003. Show details of computation of cost of control, minority interest and consolidated profits.
3. Nalli Silk Sarees of Chennai has a branch in Kolkata. Goods are invoiced to the branch at selling price (cost plus 25%). The branch keeps its own sales ledger and deposits all cash received daily to the credit of the Chennai account through the automated teller machine. All expenses are paid by cheque from Chennai. From the following details prepare a Branch A/c in the books of the Head Office and make the necessary adjustments therein to arrive at the actual branch profit or loss earned during the year ended, 31st March, 2003: 16
Rs.
Stock as on 1.4.2002
Stock as on 31.3.2003
Debtors as on 1.4.2002
Debtors as on 31.3.2003
Goods invoiced from Chennai
Rent of Kolkata showroom
Sundray expenses
Cash sales for the year
Credit sales
Wages paid for sales staff
Wages outstanding		 2,40,000
2,88,000
1,34,400
1,72,800
17,47,200
76,800
15,360
10,36,800
6,72,000
65,280
6,400
Please turn over
 
( 2 )
I—10(AFA)
Revised syllabus
Marks
4. M/s. AXL Ltd. has suffered from continuing losses. The accumulated deficit of the company now stands at Rs. 25,00,000, which far exceeds the paid up of the company's equity capital. A reconstruction plan has been undertaken to return the operations of the company to a profitable level. The most recent balance sheet of the company, in summarised form, is as follows: 16
LiabilitiesRs.Assets     Rs.
Share Capital
— Authorised & Issued
Equity Shares (Rs. 100)
12% Preference Shares (Rs. 100)
100 Secured Debenture
Arrear Debenture Interest
Bank Overdraft
Creditors (Trade)

20,00,000
10,00,000
12,50,000
2,50,000
30,10,000
14,90,000		 Fixeds Assets:
Land & Building
Plant & Machinery
Current Assets:
Stock & Work-in-progress
Debtors Cash & Bank
Profit & Loan A/c
25,00,000
10,50,000

9,50,000
19,75,000
25,000
25,00,000
90,00,00090,00,000
The following further information is available:-
(i)The debentures are secured on the Land and Buildings, the current market value of which is Rs. 9,00,000. The other Land & Buildings have a current market value of Rs. 18,00,000.
(ii)The current value of the Plant and Machinery is estimated to be Rs. 6,00,000.
(iii)Debtors and Stocks have recoverable values of Rs. 19,25,000 and Rs. 7,50,000 respectively.
(iv)The Preference dividend is in arrear for four years.
(v)The debenture interest is two years in arrear.
The reconstruction plan, duly approved by the court, the shareholders and the creditors involves the following actions:
(a)The preference shareholders are to forego their arrears of dividends and to accept equity shares in lieu of preference shares.
(b)The equity shares are to be reduced to Re. 1 each.
(c)The preference shares are to be cancelled in exchange for 10,000 equity shares of Re. 1 each.
(d)The debenture holders are to waive of Rs. 1,25,000 of interest in arrear in exchange for Rs. 10,000 equity shares of Rs. 1 each.
(e)40,000 equity shares are to be consolidated into 4,000 equity shares of Rs. 10 each.
(f)A right issue of 25 equity shares of Rs. 10 each for each Rs. 10 equity shares held is to be made.
(g)The interest rate on debentures is to be raised from 10% to 12%.
(h)The trade creditors do not agree to any reduction in their claim but are willing to supply the reconstructed company and to continue giving credit on normal terms.
(i)The bank loan (overdraft) is to continue, but the loan is to be secured by a floating charge over the assets of the company.
(j)The debentures are to be given a fixed security on the total land and buildings.
(k)The costs of reconstruction scheme are expected to be Rs. 50,000.
You are required to prepare the following.
(1)A statement showing the amount of capital reduction required.
(2)A statement showing how the total reduction is to be achieved as required.
(3)Journal entries for the plan of reconstruction.
(4)A balance sheet after reconstruction scheme is duly implemented.
5. The growth of shoppers shop caught fire on 15th September, 2002. Records saved from the fire shows the following: 16
Rs.
Stock at cost on 1.4.2001
Stock at cost on 31.3.2002
Purchases (net) for the year
Sales (net) for the year
Purchases (net) from 1.4.2002 to 15.9.2002
Sales (net) from 1.4.2002 to 15.9.2002		 99,000
1,45,200
9,37,200
11,88,000
2,97,000
4,05,900
Gross profit had maintained at uniform rate. The stock salvaged were worth Rs. 11,880 and the same were retained by the organisation. The godown was insured.
Prepare the Memorandum Trading A/c for the period 1.4.2002 to 15.9.2002 and find out the amount of claim that can be made.
 
( 3 )
I—10(AFA)
Revised syllabus
Marks
6. (a) The following information is extracted from the accounting records of ECT Electricity Supply Ltd. for the financial year ended 31st March, 2003: 12
Rs. (in crores)
Share Capital
Fixed Assets (tangible) at cost
Accumulated Depreciation—
Intangible Assets
Investments:
Depreciation Reserve Fund
Contingencies reserve
Loan from State Electricity oard
12% Debentures
Tariff and Dividend Control Reserve
Net Profit after Tax
Customers Security Deposits
Monthly average of Current Asset		 60.00
116.00
40.00
6.00

40.00
4.00
10.00
20.00
6.00
12.20
6.00
7.00
The monthly average of current assets includes Rs. 1,00,00,000 (one crore) due from customers. Investments yield 10% return p.a. The applicable bank rate is 9% p.a.
You are required to determine
(i)The Capital base;
(ii)The reasonable return;
(iii)The disposal of profit.
(b) Write short notes on Contingency Reserve in respect of Electricity Company Accounts:
7. (a) How do you determine the following in case of Hotel Accounting?
(i)Flxation of room rate;
(ii)System of charging room rates;
(iii)Room occupancy rate.
 12
(b) List out the items included under Revenue & Expenditure Head in case if Hotel Accounting. 4
8. Write Short notes on:-
(a)Consolidated Fund of India;
(b)Finance Accounts of Central Government;
(c)Votable and non-votable items;
(d)Objectives of the International Accounting Standards Committee (IASC)
4x4=16

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