Q1(a)Proposed dividend accounting treatment
5 marks medium
The Board of Directors of New Graphics Ltd. recommended a dividend of Rs. 2 per equity share (on 2 crore fully paid up equity shares of Rs. 10 each) for the year ended 31st March, 2017. Discuss on the accounting treatment and presentation of the said proposed dividend in the annual accounts of the company for the year ended 31st March, 2017 as per the applicable Accounting Standard and other Statutory Requirements.
Q1(b)Onerous contract accounting for obsolete assets
5 marks medium
ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom-made machine amounting to Rs. 4,00,000. As on 31st March, 2018 before delivery of the machine, ABC Ltd. had to change its method of production. The new method will not require the machine ordered and so it shall be scrapped after delivery. The expected scrap value is 'NIL'. Explain the treatment of machine in the books of ABC Ltd.
Q1(c)Investment impairment and reclassification under AS-13
5 marks medium
How you will deal with the following in the financial statements of Paridhi Electronics Ltd. as on 31.3.18 with reference to AS-13?
Q1(d)Debenture interest capitalization under AS-16
5 marks medium
Suhana Ltd. issued 12% secured debentures of Rs. 100 Lakhs on 01.05.2016, to be utilized for construction of factory building (Rs. 40 lakhs), purchase of machinery (Rs. 35 lakhs), and working capital (Rs. 25 lakhs). In March 2017, construction of factory building was completed and machinery was installed and ready for its intended use. Total interest on debentures for the financial year ended 31.03.2017 was Rs. 11,00,000. During the year 2016-17, the company had invested idle funds out of money raised from debentures in banks' fixed deposit and earned interest of Rs. 2,00,000. Explain the treatment of interest under Accounting Standard 16 and also explain nature of assets.
Q2(a)Investment accounting with bonus and rights issues
12 marks very hard
Smart Investments made the following investments in the year 2017-18: 12% State Government Bonds (face value Rs. 100): opening balance 1200 bonds at book value Rs. 1,26,000 on 01.04.2017; purchased 2,000 bonds @ Rs. 100 cum interest on 02.05.2017; sold 1,500 bonds at Rs. 105 ex interest on 30.09.2017; interest received on 30th June and 31st December each year. Equity Shares of X Ltd.: purchased 5,000 shares @ Rs. 200 on cum right basis with 1% brokerage (Face Value Rs. 10) on 15.04.2017; bonus issue of 2 shares for every 5 shares held on 03.06.2017; rights issue of 1 share for every 7 shares held at Rs. 250 per share on 16.08.2017 (all money payable by 31.08.2017); sold 20% of rights @ Rs. 60 on 22.8.2017 and subscribed remaining rights; received dividend @ 15% on 16.09.2017; sold 3,000 shares @ Rs. 300 with 1% brokerage extra on 15.12.2017; received interim dividend @ 10% on 15.01.2018; shares quoted @ Rs. 220 on 31.03.2018. Prepare Investment Accounts in the books of Smart Investments assuming average cost method.
Q2(b)Stock insurance claim calculation
8 marks hard
On 2.6.2018 the stock of Mr. Black was destroyed by fire. The following particulars were furnished from saved records: Stock at cost on 1.4.2017 Rs. 1,35,000; Stock at 90% of cost on 31.3.2018 Rs. 1,62,000; Purchases for the year ended 31.3.2018 Rs. 6,45,000; Sales for the year ended 31.3.2018 Rs. 9,00,000; Purchases from 1.4.2018 to 2.6.2018 Rs. 2,25,000; Sales from 1.4.2018 to 2.6.2018 Rs. 4,80,000. Sales upto 2.6.2018 includes Rs. 75,000 being goods not dispatched (sales invoice price Rs. 75,000). Purchases upto 2.6.2018 includes machinery acquired for Rs. 15,000. Purchases upto 2.6.2018 does not include goods worth Rs. 30,000 received from suppliers (invoice not received; goods remained in godown at time of fire). The insurance policy is for Rs. 1,20,000 and subject to average clause. Ascertain the amount of claim for loss of stock.
Q3(a)Foreign branch accounting and currency translation
12 marks very hard
M/s Heera & Co. has head office at U.S.A. and branch in Patna (India). Patna branch is an integral foreign operation. Patna branch trial balance as on 31st March, 2018: Stock Rs. 300,000; Purchases Rs. 800,000; Sales Rs. 1,200,000; Debtors Rs. 400,000; Creditors Rs. 300,000; Bills of Exchange (Dr.) Rs. 120,000; Bills of Exchange (Cr.) Rs. 240,000; Wages Rs. 560,000; Rent, Rates & Taxes Rs. 360,000; Sundry Charges Rs. 160,000; Plant Rs. 240,000; Bank Balance Rs. 420,000; New York Office A/c Rs. 1,620,000. Plant acquired from US $ 6,000 remittance from USA head office, paid to suppliers; depreciate at 60%. Unsold stock worth Rs. 4,20,000 on 31.03.2018. Exchange rates: 01.04.2017 @ Rs. 55 per US $; 31.03.2018 @ Rs. 60 per US $; Average rate @ Rs. 58 per US $. Patna branch account showed debit balance of US $ 29,845.35 on 31.3.2018 in USA books; no items pending reconciliation. Prepare in US dollars the revenue statement for the year ended 31st March, 2018 and balance sheet as on that date of Patna branch as would appear in USA head office books.
Q3(b)Departmental accounting with inter-departmental transfers
8 marks hard
The following balances were extracted from the books of M/s Division. Deptt. A: Opening Stock Rs. 50,000; Purchases Rs. 6,50,000; Sales Rs. 10,00,000. Deptt. B: Opening Stock Rs. 40,000; Purchases Rs. 9,10,000; Sales Rs. 15,00,000. General expenses for both departments Rs. 1,25,000. Closing stock of Department A Rs. 1,00,000 including goods from Department B for Rs. 20,000 at cost of Department A. Closing stock of Department B Rs. 2,00,000 including goods from Department A for Rs. 30,000 at cost to Department B. Opening stock of Department A includes goods valued Rs. 10,000 from Department B; opening stock of Department B includes goods valued Rs. 15,000 from Department A (all at cost to transferee departments). The rate of gross profit is uniform from year to year. You are required to prepare Departmental Trading Account and Profit and Loss account for the year ended 31st December, 2017 after adjusting the unrealized department profits if any.
Q4(a)Partnership amalgamation and goodwill adjustment
15 marks very hard
A and B are partners of AB & Co. sharing profits and losses in the ratio of 2:1 and C and D are partners of CD & Co. sharing profits and losses in the ratio of 3:2. On 1st April 2017, they decided to amalgamate and form a new firm M/s. AD & Co. wherein all the partners would be partners sharing profits and losses in the ratio of 2:1:3:2 respectively to A, B, C and D. AB & Co. balance sheet: Capitals A Rs. 1,50,000; B Rs. 1,00,000; Reserve Rs. 66,000; Creditors Rs. 52,000; Assets include Building Rs. 75,000; Machinery Rs. 1,20,000; Furniture Rs. 15,000; Inventory Rs. 24,000; Debtors Rs. 65,000; Due from CD & Co. Rs. 47,000; Cash at Bank Rs. 18,000; Cash in hand Rs. 4,000. CD & Co. balance sheet: Capitals C Rs. 1,20,000; D Rs. 80,000; Reserve Rs. 54,000; Creditors Rs. 35,000; Due to AB & Co. Rs. 47,000; Assets include Building Rs. 90,000; Machinery Rs. 1,00,000; Furniture Rs. 12,000; Inventory Rs. 36,000; Debtors Rs. 78,000; Cash at Bank Rs. 15,000; Cash in hand Rs. 5,000. Terms: Building taken over at Rs. 1,00,000 (AB & Co.) and Rs. 1,25,000 (CD & Co.); Machinery at Rs. 1,25,000 (AB & Co.) and Rs. 1,10,000 (CD & Co.); Goodwill of AB & Co. Rs. 75,000 and CD & Co. Rs. 50,000 (not to be opened in books; adjustments through capital accounts); Provision for doubtful debts Rs. 5,000 (AB & Co.) and Rs. 8,000 (CD & Co.) to be carried forward.
Q4(b)LLP partner liability
5 marks medium
Under what circumstances, a partner may be called upon to pay the liabilities of LLP. Explain in brief.
Q5(a)Balance sheet preparation under Schedule III, Companies Act
16 marks very hard
From the following particulars furnished by Megha Ltd., prepare the Balance Sheet as on 31st March 20X1 as required by Part I, Schedule III of the Companies Act, 2013. Equity Share Capital (Face value Rs. 100 each) Rs. 50,00,000; Call in Arrears Rs. 5,000; Land & Building Rs. 27,50,000; Plant & Machinery Rs. 26,25,000; Furniture Rs. 2,50,000; General Reserve Rs. 10,50,000; Loan from State Financial Corporation Rs. 7,50,000; Inventory (Raw Materials Rs. 2,50,000; Finished Goods Rs. 10,00,000) Rs. 12,50,000; Provision for Taxation Rs. 6,40,000; Trade receivables Rs. 10,00,000; Short term Advances Rs. 2,13,500; Profit & Loss Account Rs. 4,33,500; Cash in Hand Rs. 1,50,000; Cash at Bank Rs. 12,35,000; Unsecured Loan Rs. 6,05,000; Trade payables Rs. 8,00,000; Loans & advances from related parties Rs. 2,00,000. Additional info: 10,000 equity shares issued for non-cash consideration; Trade receivables Rs. 2,60,000 due for more than 6 months; Asset costs: Building Rs. 30,00,000; Plant & Machinery Rs. 35,00,000; Furniture Rs. 3,12,500; State Finance Corporation loan includes Rs. 37,500 interest accrued but not due (secured by hypothecation of Plant & Machinery); Bank balance includes Rs. 10,000 with non-scheduled bank; Transfer of Rs. 20,000 to general reserve proposed.
Q5(b)Rights issue valuation
4 marks medium
Omega company offers new shares of Rs. 100 each at 25% premium to existing shareholders on the basis one for five shares. The cum-right market price of a share is Rs. 200. You are required to calculate:
Q6(a)Managerial remuneration limits under Companies Act
5 marks medium
The following is the Draft Profit & Loss A/c of Mudra Ltd., for the year ended 31st March, 20X1: To Administrative, Selling and distribution expenses Rs. 8,22,542; To Directors fees Rs. 1,34,780; To Interest on debentures Rs. 31,240; To Managerial remuneration Rs. 2,85,350; To Depreciation on fixed assets Rs. 5,22,543; To Provision for Taxation Rs. 12,42,500; To General Reserve Rs. 4,00,000; To Investment Revaluation Reserve Rs. 12,500; To Balance c/d Rs. 14,20,185; By Balance b/d Rs. 5,72,350; By Balance from Trading A/c Rs. 40,25,365; By Subsidies received from Govt. Rs. 2,73,925. Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was Rs. 5,75,345. You are required to calculate the maximum limits of the managerial remuneration as per Companies Act, 2013.
Q6(b)Final call and bonus shares journal entries
5 marks medium
Following is the extract of the Balance Sheet of Manoj Ltd. as at 31st March, 20X1. Authorised capital: 30,000 12% Preference shares of Rs. 10 each Rs. 3,00,000; 3,00,000 Equity shares of Rs. 10 each Rs. 30,00,000. Issued and Subscribed capital: 24,000 12% Preference shares of Rs. 10 each fully paid Rs. 2,40,000; 2,70,000 Equity shares of Rs. 10 each, Rs. 8 paid up Rs. 21,60,000. Reserves and surplus: General Reserve Rs. 3,60,000; Capital Redemption Reserve Rs. 1,20,000; Securities premium Rs. 75,000; Profit and Loss Account Rs. 6,00,000. On 1st April, 20X1, the Company made final call @ Rs. 2 each on 2,70,000 equity shares. The call money was received by 20th April, 20X1. Thereafter, the company decided to capitalise its reserves by way of bonus at the rate of one share for every four shares held. Prepare necessary journal entries in the books of the company.
Q6(c)Accounting policy change disclosure in notes
5 marks medium
Kumar Ltd. had made a rights issue of shares in 2017. In the offer document to its members, it had projected a surplus of Rs. 40 crores during the accounting year to end on 31st March, 2017. The draft results for the year, prepared on the hitherto followed accounting policies showed a deficit of Rs. 10 crores. The board in consultation with the managing director, decided not to provide for 'after sales expenses' during the warranty period. Till the last year, provision at 2% of sales used to be made under the concept of 'matching of costs against revenue' and actual expenses used to be charged against the provision. The board now decided to account for expenses as and when actually incurred. Sales during the year total to Rs. 600 crores. As chief accountant of the company, you are asked by the managing director to draft the notes on accounts for inclusion in the annual report for 2016-2017.
Q6(d)Closing stock valuation under AS-2
5 marks medium
A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required. The company provides the following information for the year ended 31st March, 2017. Raw Material X: Cost price Rs. 380 per unit; Unloading Charges Rs. 20 per unit; Freight Inward Rs. 40 per unit; Replacement cost Rs. 300 per unit. Chemical Y: Material consumed Rs. 440 per unit; Direct Labour Rs. 120 per unit; Variable Overheads Rs. 80 per unit. Total fixed overhead for the year was Rs. 4,00,000 on normal capacity of 20,000 units. Closing balance of Raw Material X was 1,000 units and Chemical Y was 2,400 units. You are required to calculate the total value of closing stock of Raw Material X and Chemical Y according to AS 2, when Net realizable value of Chemical Y is Rs. 800 per unit.
Q6(d) - AlternativeCapital asset capitalization under AS-10
5 marks medium
ABC Ltd. is installing a new plant at its production facility. It has incurred these costs: Cost of the plant (cost per supplier's invoice plus taxes) Rs. 25,00,000; Initial delivery and handling costs Rs. 2,00,000; Cost of site preparation Rs. 6,00,000; Consultants used for advice on the acquisition of the plant Rs. 7,00,000; Interest charges paid to supplier of plant for deferred credit Rs. 2,00,000; Estimated dismantling costs to be incurred after 7 years Rs. 3,00,000; Operating losses before commercial production Rs. 4,00,000. Please advise ABC Ltd. on the costs that can be capitalised in accordance with AS 10 (Revised).
Q6(e)Preference share redemption journal entries
5 marks medium
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 20X1. Share capital: 40,000 Equity shares of Rs. 10 each fully paid Rs. 4,00,000; 1,000 10% Redeemable preference shares of Rs. 100 each fully paid Rs. 1,00,000. Reserve & Surplus: Capital reserve Rs. 50,000; Securities premium Rs. 50,000; General reserve Rs. 75,000; Profit and Loss Account Rs. 35,000. On 1st January 20X2, the Board of Directors decided to redeem the preference shares at par by utilisation of reserve. You are required to pass necessary Journal Entries including cash transactions in the books of the company.