Shree Guru Kripa s Institute of Management

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1 Reg. No.. ADVANCED ACCOUNTING GROUP II Total Number of Questions: 6 Date: 01/04/2016 Time 3 H Maximum Marks: (a) Given below is the Capital Structure of Kiran Ltd as on 31 st March (5 Marks) Equity Share Capital (Shares of ` 10 each) ` 4,00,00,000 Securities Premium ` 3,00,00,000 General Reserve ` 4,00,00,000 Revaluation Reserve ` 4,00,00,000 10% Fully Convertible Debentures ` 4,00,00,000 10% Convertible Debentures are of ` 100 each, and as per agreement, each Debenture will be converted into 5 Equity Shares. The Company earned Profit After Tax of ` 2,00,00,000 during the year. Calculate (a) Basic EPS, (b) Diluted EPS, (c) Profit Earning Capacity Value, and (d) Fully Diluted Fair Value per Equity Share. Assume Corporate Tax Rate of 40% and Capitalisation Rate of 12%. 1. (b) A Company has deferred R&D Cost of ` 150 Lakhs. Sales expected in the subsequent years are as under Year I II III IV Sales (` in Lakhs) Suggest how R&D Cost should be charged to Profit & Loss Account. Also, if at the end of the III year, it is felt that no further benefit will accrue in the IV year, how the unamortized expenditure would be dealt with in the accounts of the Company? (5 Marks) 1. (c) Parasuram Ltd had the following borrowings during a year in respect of capital expansion. Plant Cost of Asset Remarks Plant P ` 100 Lakhs No Specific Borrowings. Plant Q ` 125 Lakhs Bank Loan of ` 65 Lakhs at 10%. Plant R ` 175 Lakhs 9% Debentures of ` 125 Lakhs were issued. In addition to the above specific borrowings, the Company had obtained Term Loans from two Banks (1) ` 100 Lakhs at 10% from Corporation Bank and (2) ` 110 Lakhs at 11.50% from Canara Bank, to meet its capital expansion requirements. What is the amount of Borrowing Costs to be capitalised in each of the above Plants? (5 Marks) 1. (d) Shoolapani Ltd imported a machine on for Euros 12,000, on deferred payment basis, payment in six equal annual instalments at every financial year end, commencing from onwards. Use AS 11 provisions and determine the exchange differences and carrying amounts of the liability at the end of each financial year, if the following exchange rates are given. Take One Euro equals Indian Rupees on (5 Marks) ` ` ` ` ` ` `

2 Get More Updates From (a) Department A sells goods to Department B at a Profit of 20% on cost and Department C at 15% Profit on Cost. Department B sells goods to A and C at a Profit of 10% and 20% on Sales respectively. Department C sells goods to A and B at 15% and 10% Profit on Cost respectively. Department Managers are entitled to 10% Commission on Net Profit subject to Unrealized Profit on Department Sales being eliminated. Departmental Profits are charging Manager s Commission, but before adjustment of unrealized profit are as under: Department A `36,000 Department B ` 27,000 Department C ` 18,000 Stocks lying at different Departments at the end of the year are as below: (in `) Particulars Department A Department B Department C Transfer from Department A 7,200 5,750 Transfer from Department B 19,000 15,000 Transfer from Department C 4,600 3,300 Find out the correct Departmental Profits after charging Manager s Commission. (8 Marks) 2. (b) From the following information, calculate the amount of Provision and Contingencies and prepare Profit and Loss Account of Hamara Bank Limited for the year ending 31 st March, Particulars ` in Lakhs Particulars ` in Lakhs Interest and Discount 4,430 Interest Expended 1,360 Other Income 125 Operating Expenses 1,331 Interest Accrued on Investments 10 Additional Information: 1. Rebate on Bills Discounted to be provided for ` 15 Lakhs. 2. Classification of Advances: Standard Assets ` 2,500 Lakhs Sub Standard Assets ` 560 Lakhs Doubtful Assets not covered by security ` 255 Lakhs Doubtful Assets covered by security For 1 year ` 25 Lakhs For 2 years ` 50 Lakhs For 3 years ` 75 Lakhs Loss Assets ` 100 Lakhs 3. Make Tax Provision at 35% of the Profit. 4. Profit and Loss Account (Cr.) brought forward from previous year ` 40 Lakhs. (8 Marks) 3. (a) The Revenue Account of a Life Insurance Company showed the Life Fund at ` 73,17,000 on 31 st March before taking into consideration the following items. Pass the Journal Entries for the following and compute the Corrected Balance of Life Fund. (6 Marks) Particulars ` Claims Intimated but not Admitted 98,250 Bonus Utilized in Reduction of Premium 13,500 Interest Accrued on Investments 29,750 Outstanding Premiums 27,000 Claims covered under Re Insurance 40,500 Provision for Taxation 31,500

3 3. (b) Pandu Company issued 1,50,000 Shares of ` 10 each at a premium of ` 10. The entire issue was underwritten as follows X 90,000 Shares (Firm Underwritten 12,000 Shares) Y 37,500 Shares (Firm Underwritten 4,500 Shares) Z 22,500 Shares (Firm Underwritten 15,000 Shares) Total Subscriptions received by the Company (excluding Firm Underwriting and Marked Applications) were 22,500 Shares. The marked applications (excluding Firm Underwriting) were as follows: X 15,000 Shares, Y 30,000 Shares, Z 7,500 Shares Commission Payable to Underwriters is at 5% of the Issue Price. The Underwriting Contract provides that credit for Unmarked Applications be given to the Underwriters in proportion to the Shares underwritten, and benefit of Firm Underwriting is to be given to Individual Underwriters. Required: Determine the Liability of each Underwriter (Number of Shares) Compute the amounts payable or due from Underwriters, and Pass Journal Entries in the books of the Company relating to underwriting. (6 Marks) 3. (c) The Balance Sheet of No Action Ltd as on 31 st December was as follows: (4 Marks) Equity & Liabilities ` Assets ` Share Capital: Land and Building 25,000 8,000 Preference Shares 80,000 Other Fixed Assets 2,00,000 of ` 10 each 1,200 Equity Shares of ` 1,20,000 2,00,000 Stock 5,25, each Bank Loan 4,00,000 Debtors 1,00,000 8% Debentures 1,00,000 Profit and Loss Account 58,000 Interest Outstanding on Debentures 8,000 Sundry Creditors 2,00,000 Total 9,08,000 Total 9,08,000 The Company went into liquidation on that date. Prepare Liquidator s Statement of Account after taking into account the following: Liquidation Expenses and Liquidator s Remuneration amounted to ` 3,000 and ` 10,000 respectively. Bank Loan was secured by pledge of Stock. Debentures and Interest thereon are secured by a Floating Charge on all Assets. Fixed Assets were realised at Book Value, and Current Assets at 80% of Book Values. 4. The Balance Sheets as on 31 st March of Param Ltd and Karam Ltd are as under: (16 Marks) Liabilities Param Karam Assets Param Karam Share Capital: Fixed Assets: Authorised and Goodwill 4,00,000 Subscribed Equity Shares of ` ,00,000 20,00,000 Buildings 20,00,000 each -3-

4 Liabilities Param Karam Assets Param Karam Reserves and Surplus: Machineries 26,00,000 16,80,000 Capital Reserve 2,00,000 Furniture 40,000 20,000 General Reserve 8,00,000 1,00,000 Current Assets: Profit and Loss 4,80,000 1,40,000 Stock 16,00,000 7,20,000 Account Unsecured Loan: 12% 12,00,000 Debtors 9,20,000 7,20,000 Debentures Current Liabilities and Cash in hand 2,80,000 20,000 Provisions: Creditors 9,60,000 3,80,000 Cash at Bank 8,00,000 1,60,000 Expenditure on New 3,00,000 Project Total 82,40,000 40,20,000 Total 82,40,000 40,20,000 Karam Ltd was absorbed by Param Ltd on 1 st April on the following terms: (a) Fixed Assets other than Goodwill to be valued at ` 20,00,000, including ` 24,000 for Furniture. (b) Stock to be reduced by ` 80,000 and Debtors by 5%. (c) Param Ltd to assume liabilities and to discharge the 12% Debentures by issue of 11% Debentures of the same value and in addition a premium of 6% was paid in cash. (d) The New Project to be valued at ` 3,80,000. (e) The Shareholders of Karam Ltd to receive cash payment of ` 30 per Share, plus four Equity Shares in Param Ltd for every five Shares held in Karam Ltd. (f) Both the Companies to declare and pay dividend of 6% prior to absorption. (g) Expenses of Liquidation of Karam Ltd are to be reimbursed by Param Ltd to the extent of ` 20,000. The actual expenses amounted to ` 24,000. Required: Draft Journal Entries recording the scheme in the books of Karam Ltd and prepare the Balance Sheet of Param Ltd after absorption assuming that Param Ltd s Authorised Capital has been increased to ` 80,00, (a) Mahavir Ltd, Calcutta, started a Branch in Hosur on 1 st April, to which goods were sent at 20% above Cost. The Branch makes both Credit and Cash Sales. Branch expenses are met from Branch Cash and balance money remitted to HO. The Branch does not maintain double entry books of account and necessary accounts relating to Branch are maintained in H.O. Following further details are given for the year ended on 31 st March (12 Marks) Particulars ` Cost of Goods Sent to Branch 50,000 Goods received by Branch till 31 st March at Invoice Price 54,000 Credit Sales for the year 58,000 Debtors as on 31 st March 20,800 Bad Debts and Discount written off 200 Cash remitted to HO 43,000 Cash in Hand at Branch on 31 st March 2,000 Cash remitted by HO to Branch during the year 3,000 Closing Stock at Branch at Invoice Price 6,000 Expenses incurred at Branch 12,000 Show the necessary Ledger Accounts according to Stock and Debtors System, in the books of the Head Office and determine the Profit or Loss of the Branch for the year ended on 31 st March. -4-

5 5. (b) A Company grants 1,000 Options to its Employees on at ` 60. The Vesting Period is two and a half years. The maximum Exercise Period is one year. Market Price on that date is ` 90. Assume all the options were exercised on Journalize, if the Face Value of Equity Share is ` 10 per Share. (4 Marks) 6. Pradeep, Prasad and Patrick are Partners, sharing Profits and Losses equally. The Balance Sheet of the Firm as on was as under: (16 Marks) Capital and Liabilities ` Properties and Assets ` Capital Accounts Freehold Land and Buildings 30,000 Pradeep 1,00,000 Plant 26,400 Prasad 50,000 Investments: 1,000 Equity Shares in 9,000 Prabhu Ltd Patrick 200 Stock 36,900 Loan from Pradeep (Interest paid to date) 10,000 Debtors 68,500 Trade Creditors 21,700 Less: Provision for Bad (9,500) 59,000 debts Bank Balance 20,000 Cash in Hand 600 Total 1,81,900 Total 1,81,900 Note: There were Contingent Liabilities for ` 3,700 in respect of Bills Discounted: Dayal ` 700 and Komal ` 3,000. On , Prabhu Ltd acquired the Goodwill, Freeholds, Plant and Stock of the Firm at the following valuation Goodwill ` 10,000, Freeholds ` 25,000, Plant ` 20,000 and Stock ` 30,000. The Purchase Consideration was satisfied on as to ` 10,000 in Cash, subject to a deduction of ` 2,250 in respect of a Private Loan of ` 2,250 from Prabhu Ltd to Patrick, which had been guaranteed by the Firm, and as to the balance by the issue of 5,000 Equity Shares in Prabhu Ltd. It was agreed by all Parties that this arrangement a fair valuation of the Equity Shares. Patrick was insolvent without any Private Assets. On , ` 59,000 was received from the Firm s Debtors. On the same date, the Trade Creditors and Pradeep s Loan were repaid, the Shares in Prabhu Ltd were distributed to Pradeep and Prasad in equal proportions, and the maximum amount of cash that could safely be distributed was paid to the Partners, as an interim distribution. Dayal s bill was dishonoured on and nothing was realised from him. Komal s bill was met by him on By , further ` 9,150 had been collected from the Firm s Debtors and you are to assume that nothing more will be recoverable. The final distribution of cash was made on and the Firm s Books were closed. You are requested to prepare: 1. Realisation Account, Cash Book and the Capital Account of Partners, and 2. Statement showing Interim Distribution of cash on

6 7. Answer any four of the following (4 4=16) (a) On 1 st April 2013, Vasu Ltd had outstanding in its books 1,00,000 Debentures of ` 100 each, Interest at 12% per annum. The Interest on Debentures was paid half yearly on 30 th September and 31 st March of every year. On 31 st May 2013, the Company purchased 30,000 Debentures of its own at ` 98 (ex interest) per Debenture. The Company cancelled the Debentures so purchased on 31 st March Pass the necessary Journal Entries to record the above transactions for the year ended 31 st March (b) Write short notes on Permanent Investments of a Bank. (c) Explain the following terms in case of Insurances Companies (i) Bonus (ii) Interim Bonus (iii) Paid up Policy (iv) Considerations for Annuities Granted (d) Chandika Silk Mills leased its looms to Kali Looms Ltd for a period of five years from 1 st April 2013, for a lumpsum lease of ` 10,50,000 payable in full in advance. The Lessor agreed to incur the expenditure for Repairs and Maintenance of the looms which were as under: Financial Year ` 4,700, Financial Year ` 5,200. WDV of the Looms on was ` 4,60,000 and depreciation at 33 1/3 % was to be charged. Pass Journal Entries in the books of the Lessor. Show relevant entries in the P & L A/c and the Balance Sheet for the year , if the Lessor closes its account on 31 st March every year. (e) A. A furnace has a lining that needs to be replaced every five years for technical reasons. At the Balance Sheet date, the lining has been in use for three years. B. An airline is required by law to overhaul its aircraft once every three years. -6-