CA Inter Adv Accounting — Question Paper — January 2021

Journal Entry 1: Final Call on Equity Shares (April 2019)

Bank Account Dr. ₹1,60,000
To Equity Share Capital ₹1,60,000
(Final call received on 80,000 shares @ ₹2 per share)

This entry records receipt of the final call. Equity Share Capital increases from ₹6,40,000 to ₹8,00,000 as all shares become fully paid-up at ₹10 per share.

Journal Entry 2: Capitalization of Reserves for Bonus Shares (June 2019)

Securities Premium Dr. ₹60,000
Capital Redemption Reserve Dr. ₹75,000
Revaluation Reserve Dr. ₹80,000
Capital Reserve Dr. ₹1,10,000
General Reserve Dr. ₹2,08,330
To Equity Share Capital ₹5,33,330
(Capitalization of reserves and issuance of 53,333 bonus shares @ ₹10 per share in ratio 2:3)

Accounting Treatment: The bonus issue is effected through capitalization of reserves. To achieve minimum reduction in free reserves, the company first exhausts restricted reserves (Securities Premium, Capital Redemption Reserve, Revaluation Reserve, and Capital Reserve) totalling ₹3,25,000, then uses ₹2,08,330 from General Reserve. This minimizes the depletion of free reserves (General Reserve + P&L Account), leaving ₹1,670 in General Reserve and the entire P&L Account balance of ₹1,00,000 intact. The bonus shares are credited directly to Equity Share Capital at face value. Post-capitalization, Equity Share Capital becomes ₹13,33,330 (for 133,333 shares) while maintaining the ₹10 par value per share.

AS 11: Effects of Changes in Foreign Exchange Rates requires all monetary items to be restated at the closing exchange rate on the reporting date, with resulting exchange gains or losses recognized in the Profit & Loss Account.

Part (i) - Debtor in Foreign Currency (Current Monetary Item)

The debtor of ₹9,00,000 originally represents US$12,500 (₹9,00,000 ÷ ₹72.00). On 31st March 2020, this amount must be restated at the closing exchange rate of ₹73.50 per USD, resulting in a restated amount of ₹9,18,750. The exchange gain of ₹18,750 arising from the revaluation must be recognized in the Profit & Loss Account for the financial year 2019-20. In the Balance Sheet, the debtor should be shown at the restated amount of ₹9,18,750.

Part (ii) - Long-term Loan from Foreign Company (Long-term Monetary Item)

The loan requires treatment in two components:

Exchange Gain on Mid-Year Repayment (31st December 2019): The company repaid ₹5,00,000 on 31st December 2019, which at the transaction rate of ₹70.50 equals US$7,092.20. The original principal obligation recorded on 1st April 2019 (at ₹72.50) for this USD amount would have been US$7,092.20 × ₹72.50 = ₹5,14,184.50. The actual cash payment of ₹5,00,000 is ₹14,184.50 less than the recorded amount, resulting in an exchange gain of ₹14,184.50 to be recognized in the P&L.

Exchange Loss on Outstanding Balance (31st March 2020): The original loan of ₹75,00,000 (equivalent to US$1,03,448.28 at ₹72.50) less the repayment of US$7,092.20 leaves outstanding principal of US$96,356.08. At the balance sheet date, this must be restated at the closing rate of ₹73.50, resulting in ₹70,82,172. Since the recorded amount in the books was ₹70,00,000 (₹75,00,000 − ₹5,00,000), an exchange loss of ₹82,172 arises and must be recognized in the P&L. The loan liability should appear in the Balance Sheet at ₹70,82,172.

Under AS 11, both short-term and long-term monetary items are restated at closing rates with all exchange differences flowing through the Profit & Loss Account. This treatment reflects the economic reality that foreign currency obligations expose the company to exchange rate risk.

Applicable Standard: Software acquired for internal use is an intangible asset governed by AS 26 – Intangible Assets (ICAI). The cost capitalisation principles mirror those of AS 10 – Property, Plant and Equipment: include purchase price (net of trade discounts), non-refundable import duties/taxes, and directly attributable expenditure to bring the asset to its intended use.

Treatment of each component:

Purchase Price: The invoice price of £1,20,000 is converted at the ruling exchange rate of ₹100 per £ = ₹1,20,00,000. The trade discount of 2.5% is deducted as it reduces the purchase price — net cost = ₹1,17,00,000.

Import Duty @ 10%: This is a non-refundable duty directly incurred to acquire the asset — included in cost.

Additional Import Duty @ 5%: Also a non-refundable levy — included in cost.

Entry Tax @ 2%: Since this is recoverable from the tax department, it is NOT a cost to the enterprise. It is excluded from capitalisation (it is essentially a refundable deposit).

Installation Expenses ₹1,50,000: Directly attributable cost to bring the software to its working condition — included.

Professional Fees for Customs Clearance ₹50,000: Directly attributable cost incurred to acquire the asset — included.

Cost of Software to be Capitalised = ₹1,36,55,000

The following classification is made under AS 5 – Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (issued by ICAI):

(i) Actual bad debts turning out to be more than provisions — Change in Accounting Estimate. Provision for bad debts is an estimate. When actual bad debts exceed the provision, it is a revision of a prior estimate, not an error or change in policy.

(ii) Change from Cost Model to Revaluation Model for PPE — Change in Accounting Policy. The basis of measurement of Property, Plant & Equipment (cost vs. revaluation) is an accounting policy choice. Switching between the two constitutes a change in accounting policy.

(iii) Government grant receivable as compensation for expenses incurred in previous accounting period — Prior Period Item. The grant is linked to costs of a prior period. It represents income that properly belongs to an earlier period, making it a prior period item under AS 5.

(iv) Treating operating lease as finance lease — Change in Accounting Policy. The classification of a lease as operating or finance reflects the accounting treatment adopted. A reclassification constitutes a change in accounting policy.

(v) Capitalisation of borrowing cost on working capital — Change in Accounting Policy. The decision to capitalise or expense borrowing costs is an accounting policy matter. Changing such treatment amounts to a change in accounting policy.

(vi) Legislative changes having long-term retrospective application — Prior Period Item. Where legislative amendments require retrospective adjustments to financial statements, the resulting adjustments pertain to prior periods and are treated as prior period items under AS 5.

(vii) Change in method of depreciation from SLM to WDV — Change in Accounting Estimate. Under AS 6 (Depreciation Accounting) and revised AS 10 (PPE), a change in the depreciation method reflects a revised assessment of the pattern of consumption of economic benefits. It is treated as a change in accounting estimate, not a change in policy.

(viii) Government grant becoming refundable — Extraordinary Item. Refund of a government grant is a transaction clearly distinct from ordinary business activities and not expected to recur frequently. It qualifies as an extraordinary item under AS 5.

(ix) Applying 10% depreciation instead of 15% on furniture — Change in Accounting Estimate. The depreciation rate applied to an asset reflects the estimated useful life or pattern of consumption. Changing the rate (from 15% to 10%) is a revision of an estimate, hence a change in accounting estimate.

(x) Change in useful life of fixed assets — Change in Accounting Estimate. The useful life of a fixed asset is an estimate made at the time of acquisition. A subsequent revision based on new information is a change in accounting estimate under AS 5.

Identification of Reportable Segments under AS 17 — Segment Reporting

As per AS 17 (Accounting Standard 17), a segment is identified as a reportable segment if it meets any ONE of the following three quantitative thresholds (the 10% tests):

Test 1 — Revenue Test: Segment revenue ≥ 10% of total combined revenue of all segments.
Threshold = 10% × ₹900 = ₹90
Segments qualifying: P (₹620) ✓ | Q (₹80) ✗ | R (₹60) ✗ | S (₹80) ✗ | T (₹60) ✗

Test 2 — Result Test: Absolute segment result ≥ 10% of the greater of (a) combined profit of all profit-making segments, or (b) combined loss of all loss-making segments (in absolute terms).
Profit segments: Q (₹10) + R (₹10) + T (₹30) = ₹50
Loss segments: P (₹190) + S (₹10) = ₹200
Greater of ₹50 and ₹200 = ₹200; Threshold = 10% × ₹200 = ₹20
Segments qualifying: P (₹190) ✓ | Q (₹10) ✗ | R (₹10) ✗ | S (₹10) ✗ | T (₹30) ✓

Test 3 — Asset Test: Segment assets ≥ 10% of total segment assets.
Threshold = 10% × ₹160 = ₹16
Segments qualifying: P (₹80) ✓ | Q (₹30) ✓ | R (₹20) ✓ | S (₹20) ✓ | T (₹10) ✗

Summary — Reportable Segments:
| Segment | Revenue Test | Result Test | Asset Test | Reportable? |
|---------|-------------|------------|------------|-------------|
| P | ✓ | ✓ | ✓ | Yes |
| Q | ✗ | ✗ | ✓ | Yes |
| R | ✗ | ✗ | ✓ | Yes |
| S | ✗ | ✗ | ✓ | Yes |
| T | ✗ | ✓ | ✗ | Yes |

All five segments — P, Q, R, S, and T — are reportable segments.

75% Revenue Check: AS 17 requires that the revenue of reportable segments must be at least 75% of total enterprise revenue. Combined revenue of all reportable segments = ₹900 = 100% of total revenue, which exceeds the 75% threshold. Hence, no additional segments need to be included.

Note: The question references Balance Sheet figures for Galaxy Ltd. and Glory Ltd. as at 31st March, 2020, but the actual numerical data (share capital amounts, reserves, asset values, liabilities) has not been provided in the question. The solution below presents the complete framework and methodology under AS 14 that would be applied once figures are available.

Applicable Standard: AS 14 – Accounting for Amalgamations (issued by ICAI)

Nature of Amalgamation:
The facts indicate that a new company (Galaxy Ltd.) is formed to take over the assets and liabilities of two existing companies (Galaxy Ltd. and Glory Ltd.), with certain exceptions. This is a classic case of Amalgamation in the Nature of Purchase (unless all five conditions of AS 14 paragraph 3(e) are met, in which case it would be Amalgamation in the Nature of Merger).

Conditions for Amalgamation in the Nature of Merger (all five must be satisfied):
1. All assets and liabilities of the transferor companies become assets and liabilities of the transferee company.
2. Shareholders holding not less than 90% of the face value of equity shares of the transferor become equity shareholders of the transferee.
3. Consideration is discharged entirely by issue of equity shares in the transferee (except for fractional shares settled in cash).
4. The business of the transferor is intended to be carried on by the transferee.
5. No adjustment is made to the book values of the assets and liabilities of the transferor except for uniform accounting policies.

Since the question states assets and liabilities are transferred with certain exceptions, Condition 1 is not satisfied, and therefore this is an Amalgamation in the Nature of Purchase.

Accounting Treatment – Purchase Method:

Under the Purchase Method, the following steps are applied:

Step 1 – Compute Purchase Consideration:
Purchase consideration = Fair value of shares issued + Any cash/debentures paid to shareholders of transferor companies. Only payments to equity and preference shareholders of the transferor are included.

Step 2 – Identify Net Assets Taken Over:
Net Assets = Agreed/Fair value of Assets taken over (excluding exceptions) LESS Liabilities taken over (excluding exceptions).

Step 3 – Compute Goodwill or Capital Reserve:
- If Purchase Consideration > Net Assets taken over → Goodwill (to be amortised per AS 26 / shown as intangible asset)
- If Purchase Consideration < Net Assets taken over → Capital Reserve (shown under Reserves & Surplus)

Step 4 – Journal Entries in the Books of Galaxy Ltd. (Transferee):
- Dr. Individual Assets A/c / Cr. Individual Liabilities A/c (at agreed values)
- Dr. Goodwill A/c (if any) / Cr. Liquidation/Vendor A/c (for purchase consideration)
- Dr. Liquidation/Vendor A/c / Cr. Share Capital A/c + Securities Premium A/c (for shares issued)
- Capital Reserve credited if consideration is less than net assets

Step 5 – Preparation of Opening Balance Sheet of Transferee:
The Balance Sheet of Galaxy Ltd. (new/transferee) is prepared by incorporating:
- Assets and liabilities taken over from both transferor companies (at agreed values, excluding exceptions)
- Share capital issued as consideration
- Goodwill or Capital Reserve as computed
- Any existing assets/liabilities of the transferee (if it was a shell company, these may be nil)

Treatment of Exceptions (Assets/Liabilities NOT transferred):
Assets and liabilities specifically excluded from the scheme are retained by the respective transferor companies for the purpose of liquidation. They do not appear in Galaxy Ltd.'s Balance Sheet.

Statutory Reserve of Transferors:
If either transferor maintains a statutory reserve (e.g., Investment Fluctuation Reserve under Banking Regulation Act), it must be maintained in the books of the transferee for the required statutory period. Entry: Dr. Amalgamation Adjustment Account / Cr. Statutory Reserve Account.

Disclosure Requirements under AS 14:
- Names and general nature of business of amalgamating companies
- Effective date of amalgamation
- Method of accounting used
- Particulars of the scheme sanctioned under the law
- Description and number of shares issued
- Amount of goodwill or capital reserve arising

To complete the numerical solution, the following data from the Balance Sheets is required:
(i) Book values and agreed values of all assets and liabilities of Galaxy Ltd. (old) and Glory Ltd.
(ii) Details of exceptions (which assets/liabilities are excluded)
(iii) Purchase consideration details – number and face value of shares issued
(iv) Existing share capital structure of both transferor companies

Once the Balance Sheet data is provided, the solution would produce: (a) Calculation of Purchase Consideration for each company, (b) Goodwill/Capital Reserve computation, (c) Opening Balance Sheet of the new Galaxy Ltd.

Re-computation of Departmental Profit/Loss — XYZ Garage (Year ended 31 March 2019)

Step 1 — Reverse Commission to Recover Profit Before Commission

Since commission was charged at the time of closing, we first add it back to recover the base profit figure on which commission was computed.

For Spares: The department had a loss even before commission. The commission cannot be 5% of a negative figure, so the minimum of ₹5,000 was charged. Hence, Profit before commission = −₹38,000 + ₹5,000 = Loss ₹33,000.

For Service: Let profit before commission = P. Then P − 10%P = ₹50,400 → 0.9P = ₹50,400 → P = ₹56,000. Commission = 10% × ₹56,000 = ₹5,600 (> minimum ₹5,000, so applicable).

For Repairs: Similarly, 0.9P = ₹72,000 → P = ₹80,000. Commission = 10% × ₹80,000 = ₹8,000.

Step 2 — Identify and Quantify Unrealized (Loading) Profits in Closing Stocks

The closing stocks of receiving departments were valued at 'loaded' (transfer) prices instead of cost. The unrealized loading must be charged to the sending (transferring) department, as the profit arose there and is not yet realised externally.

Stock at loaded price in Repairs department (from Spares, at 10% above cost): ₹22,000
Loading = ₹22,000 × 10/110 = ₹2,000 → charged to Spares.

Stock at loaded price in Service department:
- From Spares (at 5% above cost): ₹21,000 → Loading = ₹21,000 × 5/105 = ₹1,000 → charged to Spares.
- From Repairs (at 10% above cost): ₹44,000 → Loading = ₹44,000 × 10/110 = ₹4,000 → charged to Repairs.

Total loading charged: Spares = ₹3,000; Repairs = ₹4,000; Service = Nil (receiving dept only).

Step 3 — Adjusted Profit Before Commission

- Spares: −₹33,000 − ₹3,000 = Loss ₹36,000
- Service: ₹56,000 − Nil = Profit ₹56,000
- Repairs: ₹80,000 − ₹4,000 = Profit ₹76,000

Step 4 — Revised Commission on Adjusted Profits

- Spares: Still a loss → minimum commission = ₹5,000
- Service: 10% × ₹56,000 = ₹5,600 (unchanged)
- Repairs: 10% × ₹76,000 = ₹7,600

Step 5 — Re-computed Net Profit/(Loss) after Commission

| Department | Adjusted Profit before Commission (₹) | Less: Commission (₹) | Re-computed Net Profit/(Loss) (₹) |
|---|---|---|---|
| Spares | (36,000) | 5,000 | (41,000) — Loss |
| Service | 56,000 | 5,600 | 50,400 — Profit |
| Repairs | 76,000 | 7,600 | 68,400 — Profit |

Note: The principle applied is that unrealized profit embedded in inter-departmental closing stocks must be eliminated from the transferring department's profit, in accordance with AS 2 (Valuation of Inventories), which requires stock to be valued at the lower of cost and net realisable value. The 'loaded' price is not the cost to the firm; cost to the firm is the original purchase price of the transferring department. The adjustment reduces the combined firm profit by ₹6,600 (₹7,000 unrealized profits less ₹400 saving in Repairs manager's commission).

*Note: The stock of ₹22,000 in the Repairs department transferred from Spares at 10% above cost has been assumed based on standard data for this problem, as the original table was partially transcribed. If the actual figure differs, recalculate loading accordingly using the formula: Loading = Loaded Price × Loading% / (100 + Loading%).*

The Senior Accountant's opinion is only partially justified and requires examination against AS-17 criteria.

AS-17 'Segment Reporting' provides specific rules for identifying reportable segments. A segment should be reported if it meets one or more of the following quantitative thresholds: (i) its revenue (including intersegment revenue) is 10% or more of the total enterprise revenue; (ii) its profit or loss is 10% or more of the total enterprise profit or loss; or (iii) its assets are 10% or more of the total enterprise assets.

Justification for reporting only Segment P would be valid if: (i) Segment P alone meets the 10% quantitative criteria on revenue, profit, or assets, AND (ii) all other segments identified fail to meet any of the three thresholds, AND (iii) reported segments together represent 75% or more of the total enterprise revenue (as per AS-17's materiality guideline).

However, the opinion may NOT be justified if: (i) Other segments meet or approach the 10% threshold but are excluded; (ii) Multiple segments collectively represent a material portion but are individually excluded; (iii) The reported segments (only P) fail to represent at least 75% of total enterprise revenue, which would require reporting additional segments regardless of individual thresholds; or (iv) The enterprise has a primary and secondary segment classification, and only one has been considered.

AS-17 requires that even if only one segment qualifies under the 10% rule, it must be reported. However, if all other segments together fail the 10% test but are substantial, they must be combined and reported as 'Others.' Additionally, if reported segments represent less than 75% of revenue, the enterprise must continue identifying segments until this threshold is reached.

Conclusion: The opinion is justified only if proper analysis shows Segment P meets the thresholds and other segments do not, or together represent less than the materiality threshold. Without examining the specific financial data, revenue composition, profitability, and asset distribution of all segments, a blanket statement cannot be validated. The Senior Accountant must demonstrate compliance with all three quantitative criteria and the 75% revenue test before concluding only Segment P should be reported.

Dissolution of Ananya Enterprises — Piecemeal Distribution (Maximum Loss Method)

Preliminary Adjustments

'Loan A' (₹25,00,000) and 'Loan B' (₹30,00,000) appear on the Assets side of the Balance Sheet, meaning these are loans advanced by the firm to partners A and B respectively. During dissolution, these are recovered from the respective partners (or set off against their capital accounts). For piecemeal distribution purposes, the loan balances are netted against each partner's capital to arrive at the true net capital at risk.

Net Capital Positions (after netting partner loans):
- Partner A: ₹95,00,000 − ₹25,00,000 = ₹70,00,000
- Partner B: ₹75,00,000 − ₹30,00,000 = ₹45,00,000
- Partner C: ₹30,00,000 − Nil = ₹30,00,000
- Total Net Capital: ₹1,45,00,000

Verification of Net Assets:
Total Assets ₹2,11,00,000 − Sundry Creditors ₹11,00,000 = ₹2,00,00,000 payable to partners. Since partner loan recoveries of ₹55,00,000 are already included in assets and offset against capitals, net cash distributable to partners on their capital accounts = ₹2,00,00,000, which agrees with gross capitals (₹95L + ₹75L + ₹30L = ₹2,00,00,000). Net of loans, ₹1,45,00,000 is the base for distribution sequencing.

Priority of Payment During Dissolution:
1. External creditors must be paid first (Sundry Creditors ₹11,00,000). Initial cash of ₹7,00,000 is applied; balance of ₹4,00,000 is paid from first realisations.
2. There are no loans FROM partners (i.e., no partner loan liabilities).
3. Partners' capital is paid last, using the Maximum Loss Method to sequence payments.

Maximum Loss Method — Determination of Sequence:

Step 1 — Capital per unit of profit-sharing ratio:
- A: ₹70,00,000 ÷ 5 = ₹14,00,000 per unit
- B: ₹45,00,000 ÷ 3 = ₹15,00,000 per unit
- C: ₹30,00,000 ÷ 2 = ₹15,00,000 per unit

B and C have a higher relative capital (₹15 per unit) compared to A (₹14 per unit). This means B and C have contributed disproportionately more capital relative to their loss-sharing share and must be paid the surplus first before distributions revert to the P&L ratio.

Step 2 — First Payment (to equalise all partners at ₹14 per unit):
- B's surplus: (₹15 − ₹14) × 3 = ₹3,00,000 payable to B
- C's surplus: (₹15 − ₹14) × 2 = ₹2,00,000 payable to C
- A receives: Nil
- Total first payment: ₹5,00,000

After this payment, all partners stand at ₹14 per unit: A ₹70L, B ₹42L, C ₹28L (Total ₹1,40,00,000), now exactly in ratio 5:3:2.

Step 3 — All subsequent realisations (after paying creditors and the above ₹5,00,000) are distributed in the profit-sharing ratio 5:3:2 until full capital repayment.

Statement of Piecemeal Distribution (Summary):

Available Cash → First, pay Sundry Creditors ₹11,00,000 in full.
Next, pay B ₹3,00,000 and C ₹2,00,000 (total ₹5,00,000) from subsequent realisations.
Thereafter, all realisations distributed to A:B:C in ratio 5:3:2 until total payments reach ₹70,00,000 / ₹45,00,000 / ₹30,00,000 respectively.

Final Amount Each Partner Receives (at book-value realisation):
- Partner A: ₹70,00,000 (in addition to loan of ₹25,00,000 set off = gross capital ₹95,00,000)
- Partner B: ₹45,00,000 (in addition to loan of ₹30,00,000 set off = gross capital ₹75,00,000)
- Partner C: ₹30,00,000

The Maximum Loss Method ensures that at every stage, no partner is overpaid relative to the worst-case assumption that all remaining assets realise zero.

Investment Account of P Ltd. for the year ended 31st March, 2020 (Equity Shares of K Ltd.)

The investment is classified as a current investment; hence it is valued at the lower of cost and fair value as per AS 13 – Accounting for Investments (ICAI).

Investment Account (Equity Shares of K Ltd.)

| Dr. | | | | Cr. | | | |
|---|---|---|---|---|---|---|---|
| Date | Particulars | Shares | ₹ | Date | Particulars | Shares | ₹ |
| 1-Apr-19 | Balance b/d | 8,000 | 1,20,000 | 1-Dec-19 | Bank – Rights sold (2,000 × ₹8) | — | 16,000 |
| 1-Sep-19 | Bank – Purchase (2,000 × ₹12) | 2,000 | 24,000 | 20-Jan-20 | Bank – Pre-acquisition dividend (10,000 × ₹2) | — | 20,000 |
| 30-Sep-19 | Bonus Shares (10,000 × 2/5) | 4,000 | — | 1-Feb-20 | Bank – Sale of shares (8,000 × ₹14) | 8,000 | 1,12,000 |
| 1-Dec-19 | Bank – Right shares (2,000 × ₹12.50) | 2,000 | 25,000 | 31-Mar-20 | Balance c/d (at cost) | 8,000 | 66,500 |
| 1-Feb-20 | Profit & Loss – Profit on sale | — | 45,500 | | | | |
| | Total | 16,000 | 2,14,500 | | Total | 16,000 | 2,14,500 |

Value of shares held on 31st March, 2020:
- Cost of 8,000 shares = ₹66,500
- Market value = 8,000 × ₹13 = ₹1,04,000
- Lower of cost (₹66,500) and fair value (₹1,04,000) = ₹66,500

The closing balance is carried at ₹66,500, being the cost, since cost is lower than fair value.

Key accounting treatments applied:
(a) Bonus shares – No cost assigned; total existing cost is spread over increased shares.
(b) Rights sold – Proceeds credited to Investment Account, reducing cost basis (rights arise from the original investment).
(c) Pre-acquisition dividend – Dividend for K Ltd.'s year ended 31st March, 2019 received during current year is treated as pre-acquisition; credited to Investment Account (not P&L), reducing cost. As per AS 13, dividend from pre-acquisition profits reduces the carrying cost of investment.
(d) Profit on sale – Calculated on average cost basis as instructed; credited to Profit & Loss Account.

Step 1: Adjust Purchases and Calculate Goods Available for Sale

Purchases as per books: ₹4,20,000
Less: Tools (to be capitalized, not part of purchases): ₹5,000
Adjusted Purchases: ₹4,15,000

Direct Wages: ₹90,000 less Machinery Installation Wages ₹6,000 = ₹84,000
(Machinery installation wages capitalized)

Goods Available for Sale:
Opening Stock: ₹1,20,000
Add: Adjusted Purchases: ₹4,15,000
Add: Direct Wages: ₹84,000
Total: ₹6,19,000

Step 2: Calculate Cost of Goods Sold and Closing Stock

Net Sales = Sales ₹6,10,000 less Sales Return ₹10,000 = ₹6,00,000

Assuming standard Gross Profit Rate of 25%:
Cost of Goods Sold = 75% × ₹6,00,000 = ₹4,50,000

Closing Stock:
Goods Available ₹6,19,000
Less: COGS ₹4,50,000
Less: Goods withdrawn for self use ₹10,000
Less: Goods distributed as charity ₹4,000
Closing Stock = ₹1,55,000

(This includes consignment goods ₹25,000 unsold with consignee on 31 Dec 2019)

Step 3: Calculate Stock Lost in Fire

Closing Stock: ₹1,55,000
Less: Consignment goods (not destroyed): ₹25,000
In-house Stock destroyed in fire: ₹1,30,000

Step 4: Calculate Loss

Stock destroyed: ₹1,30,000
Less: Salvaged value: ₹31,000
Gross Loss: ₹99,000

Step 5: Apply Average Clause

Average Stock = (Opening Stock + Closing In-house Stock) / 2
= (₹1,20,000 + ₹1,30,000) / 2
= ₹1,25,000

Average Clause: The claim is subject to adjustment if the closing stock is less than or more than the average stock maintained. Since closing stock (₹1,30,000) exceeds average stock (₹1,25,000), the full loss is recoverable.

Amount of Insurance Claim = ₹99,000

AS-22 (Accounting for Taxes on Income) distinguishes between timing differences (which give rise to deferred tax) and permanent differences (which do not). Each transaction must be classified accordingly.

Item 1 — Depreciation Difference (Timing Difference — Reversal):
Book depreciation (₹160 lakhs) exceeds tax depreciation (₹140 lakhs) by ₹20 lakhs. Since there were no additions to fixed assets, this excess arises because, in prior years, tax depreciation was higher than book depreciation, creating the opening DTL. Now the timing difference is reversing — the entity is recognising more expense in books than is allowed for tax, meaning taxable income > book income. This reversal reduces the existing DTL. Impact: ₹20 × 30% = ₹6 lakhs reduction in DTL.

Item 2 — Items Disallowed in 2018-19 but Allowed in 2019-20 (Timing Difference — Reversal):
In 2018-19, these items (₹20 lakhs) were disallowed for tax, meaning the entity paid higher tax in that year and recognised a Deferred Tax Asset (DTA). In 2019-20, allowance of these items reverses the timing difference — the DTA previously recognised is now utilised. Impact: ₹20 × 30% = ₹6 lakhs reduction in DTA.

Item 3 — Donation to Private Trust (Permanent Difference):
Donation to a private trust is permanently disallowed under the Income Tax Act 1961 and will never be allowed in any future year. Under AS-22, deferred tax is not recognised on permanent differences. Impact: NIL — no adjustment to DTA or DTL.

Closing Balances as on 31-3-2020:
- Deferred Tax Liability: ₹60 lakhs − ₹6 lakhs = ₹54 lakhs (Cr.)
- Deferred Tax Asset: ₹30 lakhs − ₹6 lakhs = ₹24 lakhs (Dr.)
- Net Deferred Tax Liability (31-3-2020): ₹30 lakhs

Note: The actual balance sheet figures for H Ltd. and S Ltd. are not fully captured in the question. The solution below works through all derivable calculations using the information provided, with S Ltd.'s share capital assumed as ₹2,40,000 (24,000 shares of ₹10 each), which is consistent with the revaluation context. The methodology and all key workings are complete.

Step 1 — Determination of H Ltd.'s Holding in S Ltd.

H Ltd. purchased 19,200 shares out of 24,000 total equity shares of S Ltd. H's holding = 19,200/24,000 = 80%. Minority Interest (MI) = 20% (4,800 shares).

(a) Pre-Acquisition Analysis and Cost of Control

Date of acquisition = 31st March 2019. Net assets of S Ltd. at that date:

| Particulars | ₹ |
|---|---|
| Share Capital (24,000 × ₹10) | 2,40,000 |
| Reserves & Surplus | 60,000 |
| P&L Account | 36,000 |
| Total Net Assets | 3,36,000 |

H's share (80%) = ₹2,68,800. Cost of Investment is per H's Balance Sheet. Goodwill (Cost of Control) = Cost of Investment − H's share of net assets at acquisition. If investment cost exceeds ₹2,68,800 → Goodwill; if less → Capital Reserve.

(b) Revaluation of Assets and Depreciation Adjustment

S Ltd. revalued assets on 1st April 2019 for issue of new shares. The revaluation surplus is treated as pre-acquisition since it arose at the time of share issue coinciding with H's acquisition date.

| Asset | Book Value (₹) | Revalued Amount (₹) | Surplus/(Deficit) (₹) |
|---|---|---|---|
| Machinery | 2,40,000 | 3,60,000 | +1,20,000 |
| Furniture | 48,000 | 36,000 | (12,000) |
| Net Revaluation Surplus | | | 1,08,000 |

This revaluation surplus is added to S Ltd.'s net assets at acquisition for Cost of Control purposes:
- H's share of revaluation surplus = 80% × ₹1,08,000 = ₹86,400 (pre-acquisition → adjusts Cost of Control)
- MI's share = 20% × ₹1,08,000 = ₹21,600 (included in Minority Interest)

Extra Depreciation on Revalued Amounts (post-acquisition, FY 2019-20):
- On Machinery surplus: 10% × ₹1,20,000 = ₹12,000 (additional charge to P&L)
- On Furniture deficit: 15% × ₹12,000 = ₹1,800 (reduction in depreciation charge → credit to P&L)
- Net extra depreciation = ₹12,000 − ₹1,800 = ₹10,200 (reduces post-acquisition profits of S Ltd.)

In the Consolidated Balance Sheet: Machinery is shown at ₹3,60,000 less accumulated depreciation at original rates plus extra depreciation on surplus. Furniture is shown at ₹36,000 less accumulated depreciation on revalued amount.

(c) Inter-Company Elimination — Bills Payable/Receivable

Bills Payable of ₹12,000 in S Ltd.'s books were accepted in favour of H Ltd. This means:
- S Ltd.'s books: Bills Payable ₹12,000 (liability)
- H Ltd.'s books: Bills Receivable ₹12,000 (current asset)

On consolidation, both are eliminated — Bills Payable (Current Liabilities) reduced by ₹12,000 and Bills Receivable (Current Assets) reduced by ₹12,000. No net impact on consolidated net assets.

Minority Interest Calculation:

MI = 20% × Net Assets of S Ltd. at 31.3.2020 (at revalued figures after extra depreciation adjustment)
= 20% × [Share Capital + Reserves & Surplus (current) + P&L (current) + Revaluation Surplus − Accumulated extra depreciation]

Post-Acquisition Profits of S Ltd. (H's Share):
= 80% × [(Current Reserves − ₹60,000) + (Current P&L − ₹36,000) + ₹1,08,000 − ₹10,200]

Consolidated Balance Sheet — Format and Heads:

Equity and Liabilities:
- Share Capital: H Ltd. only
- Reserves & Surplus: H Ltd.'s + H's share of post-acquisition reserves of S Ltd.
- P&L: H Ltd.'s + H's share of post-acquisition P&L of S Ltd. (net of extra depreciation)
- Capital Reserve or Goodwill on Consolidation
- Minority Interest
- Secured Loans: H + S (combined)
- Current Liabilities: H + S − ₹12,000 (Bills Payable elimination)

Assets:
- Non-Current Assets (Fixed Assets): H + S (at revalued amounts, net of depreciation)
- Goodwill on Consolidation (if any) under Non-Current Assets
- Current Assets: H + S − ₹12,000 (Bills Receivable elimination)

Final note: The Goodwill or Capital Reserve on consolidation is the balancing figure after incorporating revaluation surplus in pre-acquisition net assets of S Ltd. Post-acquisition profits of S Ltd. (net of ₹10,200 extra depreciation) are split 80:20 between H and MI.

Journal Entries in the books of A Limited for the year ended 31st March, 2020

Preliminary Computations:
Total debentures issued = 1,00,000; Public subscribed = 80,000; Shortfall devolved on underwriter (X Ltd.) = 20,000 debentures.
Conversion date = 6 months from 1st May, 2019 = 1st November, 2019.
Convertible portion per debenture = 60% × ₹100 = ₹60; Non-convertible portion = ₹40.
Equity shares issued on conversion = ₹60,00,000 ÷ ₹60 = 1,00,000 shares (face value ₹10, premium ₹50).
Underwriting commission = 2% × 1,00,000 × ₹100 = ₹2,00,000.

---

Entry 1 — Application money received from public (before 1st May, 2019)
Bank A/c Dr. ₹80,00,000
To 15% PCD Application A/c ₹80,00,000
*(80,000 debentures × ₹100)*

Entry 2 — Allotment to public (1st June, 2019)
15% PCD Application A/c Dr. ₹80,00,000
To 15% Partly Convertible Debentures A/c ₹80,00,000

Entry 3 — Allotment to underwriter X Ltd. (shortfall of 20,000 debentures)
X Ltd. A/c Dr. ₹20,00,000
To 15% Partly Convertible Debentures A/c ₹20,00,000

Entry 4 — Underwriting commission payable
Underwriting Commission A/c Dr. ₹2,00,000
To X Ltd. A/c ₹2,00,000
*(2% × ₹1,00,00,000)*

Entry 5 — Net receipt from underwriter (₹20,00,000 – ₹2,00,000)
Bank A/c Dr. ₹18,00,000
To X Ltd. A/c ₹18,00,000

Entry 6 — Write off underwriting commission
Statement of Profit & Loss A/c Dr. ₹2,00,000
To Underwriting Commission A/c ₹2,00,000

Entry 7 — Debenture interest paid on 30th September, 2019
Debenture Interest A/c Dr. ₹5,00,000
To Bank A/c ₹5,00,000
*(₹1,00,00,000 × 15% × 4/12; period: 1 June to 30 September = 4 months)*

Entry 8 — Transfer interest to P&L
Statement of Profit & Loss A/c Dr. ₹5,00,000
To Debenture Interest A/c ₹5,00,000

Entry 9 — Conversion of 60% portion into equity shares (1st November, 2019)
15% Partly Convertible Debentures A/c Dr. ₹60,00,000
To Equity Share Capital A/c ₹10,00,000
To Securities Premium A/c ₹50,00,000
*(1,00,000 equity shares issued; face value ₹10 × 1,00,000 = ₹10,00,000; premium ₹50 × 1,00,000 = ₹50,00,000)*

Entry 10 — Debenture interest paid on 31st March, 2020
Debenture Interest A/c Dr. ₹3,75,000
To Bank A/c ₹3,75,000
*(₹1,25,000 for October on full ₹1,00,00,000 + ₹2,50,000 for Nov–March on ₹40,00,000)*

Entry 11 — Transfer interest to P&L
Statement of Profit & Loss A/c Dr. ₹3,75,000
To Debenture Interest A/c ₹3,75,000

---

Post-conversion, the balance in 15% PCD A/c = 1,00,000 × ₹40 = ₹40,00,000 (non-convertible portion, continues as debenture liability).

Total interest charged to P&L for the year = ₹5,00,000 + ₹3,75,000 = ₹8,75,000.

Note: The balance sheets of Glory Ltd. and Galaxy Ltd. are not provided in the question as stated. The solution below presents the complete methodology and framework with all the specific adjustments that can be computed from the given data. In the actual exam, the balance sheets would supply the missing figures.

Nature of Amalgamation: This appears to be an amalgamation in the nature of Purchase (since assets are being revalued and goodwill is separately valued), governed by AS 14 – Accounting for Amalgamations.

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PART (1): Computation of Number of Shares to be Issued

The number of shares issued by Glorious Ltd. is determined by the Purchase Consideration agreed for each transferor company, divided by the agreed value per share of Glorious Ltd. (₹10 nominal, but shares may be issued at a premium if agreed).

Step 1 – Compute Net Assets Taken Over (Agreed Values) for each company:

For Galaxy Ltd.:
- All assets at book value EXCEPT Plant & Machinery revalued to ₹2,52,000, and Goodwill recognised at ₹4,48,000.
- Net Assets = Revalued Assets − Liabilities taken over.

For Glory Ltd.:
- All assets at book value EXCEPT Goodwill recognised at ₹1,68,000.
- Debentures of Glory are NOT taken over at book value; they are discharged by issue of 8% Debentures of Glorious at 10% premium — so this is a specific discharge, not a cash payment and not equity shares.
- The Liquidator of Glory collects from debtors and pays creditors before transfer; the net balance cash only is transferred.

Step 2 – Liquidator of Glory Ltd. Cash Computation:
- Cash collected from Trade Debtors: ₹1,10,000
- Cash paid to Trade Creditors: ₹1,80,000
- Liquidator's Commission (5% on payments) = 5% × ₹1,80,000 = ₹9,000
- Net cash outflow from these activities = ₹1,10,000 − ₹1,80,000 − ₹9,000 = −₹79,000
- Balance cash transferred to Glorious = Opening Cash balance of Glory + ₹1,10,000 − ₹1,80,000 − ₹9,000

Step 3 – Debenture Discharge for Glory Ltd.:
- Let face value of Glory's debentures = ₹D
- Glorious issues 8% Debentures at 10% premium: Issue price = ₹110 per ₹100 face value
- Face value of Glorious debentures issued = D × 100/110
- This creates Securities Premium = D × 10/110 in Glorious Ltd.'s books

Step 4 – Purchase Consideration:
- For Galaxy Ltd.: Purchase Consideration = Net assets at agreed values (since all assets/liabilities except P&M and Goodwill are at book value)
- For Glory Ltd.: Purchase Consideration = Net assets at agreed values (EXCLUDING debenture discharge which is handled separately; EXCLUDING trade debtors/creditors handled by liquidator; only net cash balance included)

Step 5 – Number of Shares:
- No. of shares issued to Galaxy Ltd. shareholders = Purchase Consideration for Galaxy ÷ Issue price per share of Glorious
- No. of shares issued to Glory Ltd. shareholders = Purchase Consideration for Glory ÷ Issue price per share of Glorious
- Nominal value of each share = ₹10; issue price depends on whether issued at par or premium (to be read from balance sheet data or problem statement).

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PART (2): Balance Sheet of Glorious Ltd. as on 1st April 2020 (Schedule III, Companies Act 2013)

Step 1 – Capital Structure:
- Share Capital = Total shares issued × ₹10 (nominal)
- Securities Premium = (Shares issued above ₹10 × premium per share) + Premium on debentures issued for Glory's debentures

Step 2 – Non-Current Assets:
- Goodwill = ₹4,48,000 (Galaxy) + ₹1,68,000 (Glory) = ₹6,16,000
- Plant & Machinery = ₹2,52,000 (Galaxy's revalued) + Glory's P&M at book value
- Other fixed assets from both companies at book value

Step 3 – Non-Current Liabilities:
- 8% Debentures of Glorious = Face value issued to discharge Glory's debentures (= D × 100/110)

Step 4 – Current Assets:
- Trade Debtors = Galaxy's debtors + Glory's debtors actually transferred (those not collected by liquidator)
- Cash = Net cash from Glory's liquidator + Galaxy's cash

Step 5 – Goodwill Treatment:
- Under AS 14, goodwill arising on amalgamation (purchase method) is amortised over its useful life not exceeding 5 years unless a longer period is justified. However, in this case goodwill is given as an agreed valuation and is to be recognised as an intangible asset at the agreed amount.

Balance Sheet Format (Schedule III):

EQUITY AND LIABILITIES
- Shareholders' Funds: Share Capital + Reserves & Surplus (Securities Premium)
- Non-Current Liabilities: 8% Debentures (issued to discharge Glory's debentures)
- Current Liabilities: Trade Payables (any remaining), Other current liabilities

ASSETS
- Non-Current Assets: Goodwill ₹6,16,000; Tangible Assets (P&M etc.)
- Current Assets: Trade Receivables; Cash & Bank Balances; Other current assets

The final Balance Sheet totals and share numbers can be precisely computed once the original balance sheets of Glory Ltd. and Galaxy Ltd. are available.

Segregation of Capital Funds into Tier I and Tier II

Under the Basel Capital Adequacy Framework as adopted by RBI, bank capital is classified into Tier I (Core Capital) and Tier II (Supplementary Capital). The following classification applies:

Tier I Capital comprises paid-up equity, perpetual non-cumulative preference shares, statutory reserves, securities premium, and capital reserves arising from actual sale of assets (not revaluation).

Tier II Capital comprises perpetual cumulative preference shares and revaluation reserves. As per RBI guidelines, revaluation reserves are reckoned at a discount of 55% (i.e., only 45% is eligible for Tier II).

Tier I Capital:
- Equity Share Capital: ₹29.00 lakhs
- Perpetual Non-cumulative Preference Shares (PNCPS): ₹8.00 lakhs
- Statutory Reserve: ₹13.50 lakhs
- Securities Premium: ₹7.00 lakhs
- Capital Reserve (sale of assets only): ₹45.00 – ₹13.50 = ₹31.50 lakhs

Total Tier I Capital = ₹89.00 lakhs

Tier II Capital:
- Perpetual Cumulative Preference Shares (PCPS): ₹5.50 lakhs
- Revaluation Reserve eligible (45% of ₹13.50): ₹6.075 lakhs

Total Tier II Capital = ₹11.575 lakhs

Constraint Check: Tier II capital must not exceed Tier I capital. Since ₹11.575 lakhs < ₹89.00 lakhs, the entire Tier II capital is eligible.

Total Capital Funds (Tier I + Tier II) = ₹89.00 + ₹11.575 = ₹100.575 lakhs

Note on Risk-Weighted Assets Ratio: The question states "capital funds and assets" but the asset details (with respective risk weights: 0%, 20%, 50%, 100% etc.) have not been provided in the data given. The Capital to Risk-Weighted Assets Ratio (CRAR) = (Total Eligible Capital ÷ Total Risk-Weighted Assets) × 100. Once asset data is available, CRAR should be computed and compared against the RBI minimum CRAR of 9% (with Tier I minimum of 7%). With total eligible capital of ₹100.575 lakhs, CRAR calculation can be completed upon substitution of risk-weighted assets figure.

Preference Share Redemption — BK Ltd. (31.03.2020)

Preliminary Computations:

Before passing journal entries, the following calculations are essential:

1. Amount Payable on Redemption:
Face value of 2,000 × ₹100 = ₹2,00,000; Premium @ 10% = ₹20,000; Total Redemption Outflow = ₹2,20,000.

2. Loss on Sale of Investments in G Ltd.:
Sale proceeds: 4,500 × ₹9 = ₹40,500; Cost = ₹45,000; Loss = ₹4,500 (charged to P&L A/c).

3. Cash Available:
Opening Bank = ₹1,95,000; Add: Sale proceeds = ₹40,500; Add: Fresh issue proceeds = ₹84,500 (computed below); Total = ₹3,20,000; Less: Redemption = ₹2,20,000; Closing Bank = ₹1,00,000.

4. Determination of Fresh Equity Shares to be Issued (Section 55(2) of the Companies Act 2013):
As per Section 55(2), when preference shares are redeemed out of profits (not out of fresh issue alone), an amount equal to the nominal value of shares redeemed must be transferred to a Capital Redemption Reserve (CRR). The formula is: CRR + Fresh Issue Proceeds (nominal) = Nominal value of shares redeemed.

Directors must utilise all available distributable reserves before issuing fresh shares. Available reserves:
— P&L A/c after charging loss on sale (₹4,500) and premium on redemption (₹20,000): ₹60,000 − ₹4,500 − ₹20,000 = ₹35,500
— General Reserve, net of ₹40,000 mandatory retention: ₹1,20,000 − ₹40,000 = ₹80,000
— Investment Allowance Reserve: Not distributable (not available for CRR)
— Total distributable reserves = ₹1,15,500 → Transfer to CRR

Fresh Issue required = ₹2,00,000 − ₹1,15,500 = ₹84,500 → 8,450 Equity Shares of ₹10 each at par.

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Journal Entries in the books of BK Ltd.

(1) On sale of 4,500 shares in G Ltd. at ₹9 per share:
Bank A/c Dr. ₹40,500
Profit & Loss A/c Dr. ₹4,500
&nbsp;&nbsp;&nbsp;&nbsp;To Investment in G Ltd. A/c ₹45,000
*(Being 4,500 equity shares of G Ltd. sold at ₹9 each; loss of ₹4,500 charged to P&L)*

(2) On issue of 8,450 equity shares of ₹10 each at par:
Bank A/c Dr. ₹84,500
&nbsp;&nbsp;&nbsp;&nbsp;To Equity Share Capital A/c ₹84,500
*(Being 8,450 equity shares of ₹10 each issued at par to part-finance redemption)*

(3) On providing for premium on redemption:
Profit & Loss A/c Dr. ₹20,000
&nbsp;&nbsp;&nbsp;&nbsp;To Premium on Redemption of Preference Shares A/c ₹20,000
*(Being 10% premium on ₹2,00,000 preference share capital provided for out of P&L, as no Securities Premium exists)*

(4) On making preference shares due for redemption:
9% Redeemable Preference Share Capital A/c Dr. ₹2,00,000
Premium on Redemption of Preference Shares A/c Dr. ₹20,000
&nbsp;&nbsp;&nbsp;&nbsp;To Preference Shareholders A/c ₹2,20,000
*(Being 2,000 preference shares of ₹100 each made due for redemption at 10% premium)*

(5) On payment to preference shareholders:
Preference Shareholders A/c Dr. ₹2,20,000
&nbsp;&nbsp;&nbsp;&nbsp;To Bank A/c ₹2,20,000
*(Being payment made to preference shareholders on redemption)*

(6) On transfer to Capital Redemption Reserve [Section 55(2), Companies Act 2013]:
General Reserve A/c Dr. ₹80,000
Profit & Loss A/c Dr. ₹35,500
&nbsp;&nbsp;&nbsp;&nbsp;To Capital Redemption Reserve A/c ₹1,15,500
*(Being CRR created = ₹2,00,000 nominal value − ₹84,500 fresh issue; funded from General Reserve ₹80,000 and balance P&L ₹35,500)*

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Balance Sheet of BK Ltd. as on 31.03.2020 (Relevant Extract — Post Redemption)

EQUITY & LIABILITIES:

*Share Capital:*
38,450 Equity Shares of ₹10 each, fully paid-up: ₹3,84,500
9% Redeemable Preference Shares: Nil (redeemed)

*Reserves & Surplus:*
Capital Redemption Reserve: ₹1,15,500
General Reserve: ₹40,000 (retained as directed)
Investment Allowance Reserve: ₹15,000
Profit & Loss Account: Nil (fully utilised)

ASSETS (Debit Items):

*Cash and Cash Equivalents:*
Cash at Bank: ₹1,00,000

*Investments:*
Investment in G Ltd.: Nil (fully sold)

*Other Assets (not given):* ₹4,55,000 (implied to balance the sheet)

Total Assets = ₹5,55,000 | Total Equity & Liabilities = ₹5,55,000 ✓

Hire Purchase Accounting — Jai Ltd. (Purchaser) from KM Ltd. (Vendor)

Step 1: Total Interest Calculation

Total amount payable = Down payment + (5 instalments × ₹23,100)
= ₹32,433 + ₹1,15,500 = ₹1,47,933

Cash price = ₹1,20,000

Total Interest = ₹1,47,933 − ₹1,20,000 = ₹27,933

Step 2: Interest Included in Each Instalment (Diminishing Balance Method)

Balance due after down payment = ₹1,20,000 − ₹32,433 = ₹87,567

Interest is calculated @10% p.a. on the opening balance for each year:

| Year | Opening Balance (₹) | Interest @10% (₹) | Principal (₹) | Closing Balance (₹) |
|------|---------------------|-------------------|---------------|---------------------|
| 2016 | 87,567 | 8,757 | 14,343 | 73,224 |
| 2017 | 73,224 | 7,322 | 15,778 | 57,446 |
| 2018 | 57,446 | 5,745 | 17,355 | 40,091 |
| 2019 | 40,091 | 4,009 | 19,091 | 21,000 |
| 2020 | 21,000 | 2,100 | 21,000 | Nil |
| Total | | 27,933 | 87,567 | |

Step 3: KM Ltd. Account in the Books of Jai Ltd.

KM Ltd. Account *(Creditor — Hire Vendor)*

| Dr side | | | | Cr side | | |
|-------------|---|----|---|-------------|---|---|
| Date | Particulars | ₹ | | Date | Particulars | ₹ |
| 1-1-2016 | Bank A/c (Down payment) | 32,433 | | 1-1-2016 | Machine A/c (Cash price) | 1,20,000 |
| 31-12-2016 | Bank A/c (1st Instalment) | 23,100 | | 31-12-2016 | Interest A/c | 8,757 |
| 31-12-2017 | Bank A/c (2nd Instalment) | 23,100 | | 31-12-2017 | Interest A/c | 7,322 |
| 31-12-2018 | Bank A/c (3rd Instalment) | 23,100 | | 31-12-2018 | Interest A/c | 5,745 |
| 31-12-2019 | Bank A/c (4th Instalment) | 23,100 | | 31-12-2019 | Interest A/c | 4,009 |
| 31-12-2020 | Bank A/c (5th Instalment) | 23,100 | | 31-12-2020 | Interest A/c | 2,100 |
| | Total | 1,47,933 | | | Total | 1,47,933 |

Total interest paid over 5 years = ₹27,933

Trading and Profit & Loss Account for the year ended 31st March 2020

Trading Account

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Opening Stock | 38,600 | By Sales (Total) | 8,54,000 |
| To Purchases (Total) | 6,13,750 | By Closing Stock | 55,700 |
| To Gross Profit c/d | 2,57,350 | | |
| | 9,09,700 | | 9,09,700 |

Profit & Loss Account

| Dr. | ₹ | Cr. | ₹ |
|---|---|---|---|
| To Salaries | 57,000 | By Gross Profit b/d | 2,57,350 |
| To General Expenses | 22,500 | By Interest on Investment (12% × ₹85,000) | 10,200 |
| To Rent and Taxes | 11,800 | | |
| To Bad Debts | 7,200 | | |
| To Reserve for Doubtful Debts (2% on ₹3,50,000) | 7,000 | | |
| To Depreciation – Machinery | 8,500 | | |
| To Depreciation – Furniture | 2,450 | | |
| To Net Profit (transferred to Capital) | 1,51,100 | | |
| | 2,67,550 | | 2,67,550 |

Balance Sheet as on 31st March 2020

| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital Account | | Machinery (85,000 – 8,500) | 76,500 |
| Opening Balance | 3,32,150 | Furniture (24,500 – 2,450) | 22,050 |
| Add: Capital introduced | 50,000 | 12% Investments | 85,000 |
| Add: Net Profit | 1,51,100 | Stock | 55,700 |
| Less: Drawings | (96,000) | Trade Debtors | 3,50,000 |
| | 4,37,250 | Less: Reserve for Doubtful Debts | (7,000) |
| Trade Creditors | 1,88,200 | Net Trade Debtors | 3,43,000 |
| Outstanding Salaries | 14,000 | Accrued Interest on Investment | 450 |
| | | Bank Balance | 36,600 |
| | | Cash in Hand | 20,150 |
| Total | 6,39,450 | Total | 6,39,450 |

Opening Capital was computed as: Total Opening Assets (₹4,04,350) less Total Opening Liabilities (₹72,200) = ₹3,32,150. The Balance Sheet balances at ₹6,39,450.

Financial Capital Maintenance at Historical Cost is a concept under which capital is measured in nominal money terms (historical cost). Under this concept, a profit is earned only if the closing net assets in nominal money terms exceed the opening net assets in nominal money terms, after excluding distributions to and contributions from owners. In other words, the business must recover its original money invested (opening capital) before any amount can be treated as profit and distributed.

The key feature is that no adjustment is made for changes in price levels; capital is simply the amount originally invested in money terms. Only the surplus over and above the original historical cost investment is considered profit available for distribution.

Calculation of Maximum Withdrawal:

Step 1 — Determine number of units purchased:
Kishore invested ₹15,00,000 at a cost of ₹20 per unit.
Number of units = ₹15,00,000 ÷ ₹20 = 75,000 units

Step 2 — Determine total sales proceeds:
All 75,000 units were sold at ₹30 each.
Total Sales = 75,000 × ₹30 = ₹22,50,000

Step 3 — Determine capital to be maintained:
Under Financial Capital Maintenance at Historical Cost, the capital to be kept intact = Opening Capital = ₹15,00,000 (in nominal money terms).

Step 4 — Determine maximum withdrawal (Profit):
Maximum Amount Withdrawable = Total Sales − Capital to be Maintained
= ₹22,50,000 − ₹15,00,000 = ₹7,50,000

Therefore, Kishore can withdraw a maximum of ₹7,50,000 during the year 2019-20 while keeping his financial capital intact at historical cost.

Journal Entries in the Books of Branch (Rectification Entries)

Principle: Branch adjustments reconcile differences between branch and H.O. records. Entries flow through Due to H.O (branch owes H.O) or Due from H.O (H.O owes branch) accounts.

(i) Salary paid to H.O Supervisor
Dr. Due to H.O Account ₹5,000
To Salary Account ₹5,000
(Being correction of salary paid to H.O supervisor, previously wrongly debited to branch salary)

Salary for H.O staff is not an expense of the branch; it is remitted to H.O, hence must be shown as due to H.O.

(ii) Asset Purchased by Branch but Recorded in H.O Books
Dr. Fixed Asset Account ₹25,000
To Due to H.O Account ₹25,000
(Being asset purchased for and retained in branch, now brought into branch books)

Assets physically held by the branch must appear in branch books. The purchase increases branch's liability to H.O.

(iii) Remittance of ₹8,000 Sent by Branch, Not Received by H.O
Dr. Cash-in-Transit Account ₹8,000
To Due to H.O Account ₹8,000
(Being remittance in transit—sent by branch but not yet received by H.O)

Until H.O confirms receipt, the amount represents cash-in-transit and remains a liability of the branch to H.O. This adjusts the prematurely cleared remittance.

(iv) H.O Collected ₹25,000 from Branch's Customer Without Intimation
Dr. Due from H.O Account ₹25,000
To Sundry Debtors Account ₹25,000
(Being amount collected by H.O from branch customer, now due from H.O to branch)

The customer's outstanding receivable is now cleared by H.O's collection. H.O owes this amount to the branch; hence it becomes Due from H.O.

(v) Remittance of ₹5,000 from H.O Received but Not Entered in Branch Books
Dr. Bank Account ₹5,000
To Due to H.O Account ₹5,000
(Being remittance from H.O received and recorded in bank)

H.O's remittance reduces the branch's outstanding liability to H.O. The receipt must be recorded as a reduction in Due to H.O.

Summary: These entries align branch books with actual transactions, ensuring the Due to H.O / Due from H.O accounts accurately reflect inter-company transactions.

A non-corporate entity is classified as a Level 1 Entity if it satisfies any one or more of the following criteria in the financial year or immediately preceding financial year:

1. Turnover Criterion: The entity has a turnover exceeding ₹50 crore in the financial year or immediately preceding financial year.

2. Borrowings Criterion: The entity has borrowings exceeding ₹50 crore at any point during the financial year or immediately preceding financial year.

3. Deposits Criterion: Where an entity accepts deposits, such entity has deposits exceeding ₹50 crore at any point during the financial year or immediately preceding financial year.

Additional Categories Automatically Classified as Level 1:

(a) Entities listed on any stock exchange or seeking to be listed

(b) Banks, financial institutions, insurance companies, and entities regulated by RBI, SEBI, or IRDA

(c) Entities required to prepare consolidated financial statements

(d) Large business entities as defined under any statute

Applicability: Level 1 entities are required to prepare their financial statements in accordance with the full Accounting Standards (AS) as prescribed by ICAI, or Indian Accounting Standards (Ind AS) where applicable as per regulatory requirements. These standards provide more detailed and comprehensive accounting treatments compared to standards applicable to smaller entities (Level 2 and Level 3 entities).

This question involves a sale and leaseback transaction where the leaseback is an operating lease. The relevant standard is AS 19 – Leases (issued by ICAI). The key principles under AS 19 (para 52) for an operating leaseback are:

1. If sale price equals fair value → profit or loss is recognised immediately.
2. If sale price is below fair value → profit or loss is recognised immediately, UNLESS the loss is compensated by future lease payments below market price, in which case the loss is deferred and amortised over the lease term.
3. If sale price is above fair value → the excess of sale price over fair value is deferred and amortised over the lease term; any profit or loss up to fair value is recognised immediately.

WDV of machinery = ₹300 lakhs (in all sub-parts)

(i) Sale Price = ₹400 lakhs = Fair Value = ₹400 lakhs

Since the transaction is at fair value, the profit of ₹100 lakhs (₹400 – ₹300) is recognised immediately in the Statement of Profit and Loss of X Ltd. There is no deferral required.

(ii) Sale Price = ₹400 lakhs; Fair Value = ₹450 lakhs

Here sale price (₹400) is below fair value (₹450). There is still an accounting profit of ₹100 lakhs over WDV. Since the sale is below FV (not above), there is no excess to defer. The profit of ₹100 lakhs is recognised immediately. The shortfall of ₹50 lakhs (FV – SP) indicates X Ltd. may be receiving below-market lease rentals in return, but AS 19 does not require deferral of a profit in this scenario — only a loss compensated by future below-market payments is deferred.

(iii) Sale Price = ₹250 lakhs; Fair Value = ₹359 lakhs

Sale price (₹250) is below fair value (₹359) and also below WDV (₹300), resulting in a book loss of ₹50 lakhs. Since the shortfall of FV over SP is ₹109 lakhs (₹359 – ₹250), it is evident that the loss on sale is being compensated by future lease payments below market price. Therefore, AS 19 requires the loss of ₹50 lakhs to be deferred and amortised over the lease period in proportion to the lease payments, rather than being recognised immediately.

(iv) Sale Price = ₹400 lakhs; Fair Value = ₹300 lakhs

Sale price (₹400) is above fair value (₹300). Applying AS 19:
- Profit at FV level: ₹300 – ₹300 = ₹0 → recognised immediately (nil profit at FV).
- Excess of SP over FV: ₹400 – ₹300 = ₹100 lakhs → deferred and amortised over the lease term.

Thus, X Ltd. will not recognise any immediate profit but will spread the ₹100 lakhs benefit over the lease period (reducing lease expense/recognised as income proportionately).

(v) Sale Price = ₹290 lakhs; Fair Value = ₹250 lakhs

Sale price (₹290) is above fair value (₹250), but both are below WDV (₹300). Applying AS 19:
- Loss at FV level: ₹250 – ₹300 = ₹(50) lakhs → recognised immediately.
- Excess of SP over FV: ₹290 – ₹250 = ₹40 lakhs → deferred and amortised over the lease term.

Net accounting impact: Total loss = ₹290 – ₹300 = ₹(10) lakhs, split as: ₹50 lakhs immediate loss offset partially by ₹40 lakhs deferred income amortised over the lease term.

AS-14: Conditions for Amalgamation in the Nature of Merger

As per AS-14 (Accounting for Amalgamations) issued by the Institute of Chartered Accountants of India, an amalgamation is classified as an amalgamation in the nature of merger (accounted under the Pooling of Interests Method) only if ALL of the following five conditions are satisfied simultaneously:

Condition 1 — Transfer of All Assets and Liabilities: All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.

Condition 2 — Shareholders Holding Not Less Than 90% of Face Value of Shares Become Shareholders of Transferee Company: Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

Condition 3 — Consideration Paid Only in Equity Shares: The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged wholly in equity shares of the transferee company, except that cash may be paid in respect of any fractional shares.

Condition 4 — Same Business to be Continued: The business of the transferor company is intended to be carried on after the amalgamation by the transferee company.

Condition 5 — No Adjustment to Book Values: No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company, except to ensure uniformity of accounting policies.

Key Note: If ANY one of the above five conditions is not satisfied, the amalgamation is treated as an amalgamation in the nature of purchase, and the Purchase Method is applied instead of the Pooling of Interests Method. Under the Pooling of Interests Method, assets, liabilities, and reserves of the transferor company are recorded at their existing carrying amounts, and no goodwill or capital reserve arises from the amalgamation.

Employee Stock Options (ESOPs) — Journal Entries for Year Ended 31-03-2020

As per the ICAI Guidance Note on Accounting for Employee Share-based Payments, the fair value (intrinsic value method) of the option is the difference between the market price and the exercise price on the grant date.

Fair value per option = ₹140 − ₹50 = ₹90

Since the entire grant, vesting, and exercise fall within FY 2019-20, all entries are passed in this single year.

Journal Entries in the Books of Raja Ltd.

(1) On 01-08-2019 — Recognition of Employee Compensation Expense (vesting of 2,500 options):

Employee Compensation Expense A/c &emsp; Dr. &emsp; ₹2,25,000
&emsp; To Employee Stock Options Outstanding A/c &emsp; ₹2,25,000
*(Being employee compensation expense recognised for 2,500 options at fair value of ₹90 per option on grant date)*

(2) On exercise of 2,400 options (between 01-10-2019 to 31-03-2020):

Bank A/c &emsp; Dr. &emsp; ₹1,20,000
Employee Stock Options Outstanding A/c &emsp; Dr. &emsp; ₹2,16,000
&emsp; To Share Capital A/c &emsp; ₹24,000
&emsp; To Securities Premium A/c &emsp; ₹3,12,000
*(Being 2,400 equity shares of ₹10 each issued at exercise price of ₹50; securities premium credited with excess of exercise price plus fair value component over face value)*

(3) On lapse of remaining 100 options (31-03-2020):

Employee Stock Options Outstanding A/c &emsp; Dr. &emsp; ₹9,000
&emsp; To General Reserve A/c &emsp; ₹9,000
*(Being Employee Stock Options Outstanding for 100 lapsed options transferred to General Reserve, as the benefit no longer exists)*

Conclusion: Total compensation expense of ₹2,25,000 is recognised. ₹2,16,000 of ESOP outstanding is converted into share capital and securities premium on exercise, and ₹9,000 relating to lapsed options is transferred to General Reserve.

Relevant Provision: As per Section 47(2) of the Companies Act, 2013, preference shareholders have the right to vote on any resolution for winding up of the company. Therefore, for a resolution of winding up, both equity shareholders and preference shareholders exercise voting rights in proportion to their paid-up capital.

Step 1: Calculate individual paid-up capital

*Equity Shareholders (Total Equity Capital = ₹60 lakhs, ratio 30:40:30):*
- Anu: 30/100 × ₹60 lakhs = ₹18 lakhs
- Adi: 40/100 × ₹60 lakhs = ₹24 lakhs
- Arun: 30/100 × ₹60 lakhs = ₹18 lakhs

*Preference Shareholders (Total Preference Capital = ₹30 lakhs, ratio 40:10:50):*
- Sonu: 40/100 × ₹30 lakhs = ₹12 lakhs
- Shri: 10/100 × ₹30 lakhs = ₹3 lakhs
- Sanaya: 50/100 × ₹30 lakhs = ₹15 lakhs

Total Paid-up Capital = ₹60 + ₹30 = ₹90 lakhs

Step 2: Voting Rights Proportion

Dividing each holding by 3 to simplify: 18:24:18:12:3:15 → 6:8:6:4:1:5 (Total = 30 parts)

Step 3: Voting Rights Percentage

| Shareholder | Capital (₹ lakhs) | Proportion | Percentage |
|---|---|---|---|
| Anu | 18 | 6 | 20.00% |
| Adi | 24 | 8 | 26.67% |
| Arun | 18 | 6 | 20.00% |
| Sonu | 12 | 4 | 13.33% |
| Shri | 3 | 1 | 3.33% |
| Sanaya | 15 | 5 | 16.67% |
| Total | 90 | 30 | 100% |

Conclusion: In the resolution for winding up, all six members (equity and preference shareholders) vote. The voting proportion is 6:8:6:4:1:5 and the respective percentages are as stated above.

Journal Entries in the books of Umang Ltd.

Preliminary Calculations:
Total buyback consideration = 5,00,000 × ₹15 = ₹75,00,000
Nominal value of shares bought back = 5,00,000 × ₹10 = ₹50,00,000
Premium on buyback = 5,00,000 × ₹5 = ₹25,00,000
Proceeds from fresh issue of preference shares = 20,000 × ₹100 = ₹20,00,000

Capital Redemption Reserve (CRR) Calculation [Section 68(7) of the Companies Act, 2013]:
CRR = Nominal value of shares bought back − Proceeds from fresh issue of shares
CRR = ₹50,00,000 − ₹20,00,000 = ₹30,00,000

Journal Entries:

(1) On sale of investments:
Bank A/c Dr. ₹25,00,000
To Investments A/c ₹10,00,000
To Profit on Sale of Investments A/c ₹15,00,000
*(Being investments sold at a profit)*

(2) Transfer of profit to General Reserve:
Profit on Sale of Investments A/c Dr. ₹15,00,000
To General Reserve A/c ₹15,00,000
*(Being profit on sale of investments transferred to General Reserve)*

(3) On issue of 12% Preference Shares:
Bank A/c Dr. ₹20,00,000
To 12% Preference Share Capital A/c ₹20,00,000
*(Being 20,000, 12% preference shares of ₹100 each issued at par)*

(4) On buyback of equity shares:
Equity Share Capital A/c Dr. ₹50,00,000
Premium on Buyback A/c Dr. ₹25,00,000
To Equity Shareholders A/c ₹75,00,000
*(Being 5,00,000 equity shares of ₹10 each bought back at ₹15 per share)*

(5) Premium on buyback charged to free reserves:
General Reserve A/c Dr. ₹25,00,000
To Premium on Buyback A/c ₹25,00,000
*(Being premium on buyback debited to General Reserve as per Section 68(3))*

(6) Payment to equity shareholders:
Equity Shareholders A/c Dr. ₹75,00,000
To Bank A/c ₹75,00,000
*(Being payment made to shareholders on buyback)*

(7) Transfer to Capital Redemption Reserve:
General Reserve A/c Dr. ₹30,00,000
To Capital Redemption Reserve A/c ₹30,00,000
*(Being CRR created as required under Section 68(7) of the Companies Act, 2013)*

Net reduction in General Reserve = ₹25,00,000 (premium) + ₹30,00,000 (CRR) − ₹15,00,000 (profit on sale) = ₹40,00,000

Answer: Schedule of Cash Payments - Highest Relative Capital Method (31 January 2020)

The question requires preparation of a cash distribution schedule using the Highest Relative Capital Method, which distributes final cash based on the proportion of each partner's final capital balance after allocation of realization gains/losses.

Critical Issue: The opening balance sheet showing initial capital balances of partners A, B, and C, and their profit-sharing ratio, has not been provided in this question. Without these figures, the numerical schedule cannot be completed. The question appears incomplete.

However, the methodology is as follows:

Step 1: Calculate Total Cash Available for Distribution

November 2019:
- Collections from debtors: ₹ 3,00,000
- Sale of furniture: ₹ 11,00,000
- Liquidation expenses paid: ₹ (2,00,000)
- Opening balance: Nil
- Cash retained in business: ₹ 6,60,000
- Cash distributed: ₹ 5,40,000

December 2019:
- Opening cash: ₹ 6,60,000
- Liquidation expenses: ₹ (2,20,000)
- Cash retained: ₹ 3,00,000
- Cash distributed: ₹ 1,40,000
- Machinery transfer to C: ₹ 9,00,000 (non-cash, capital credit)

January 2020:
- Sale of plant & machinery: ₹ 28,00,000
- Sale of stock: ₹ 9,00,000
- Sale of land & buildings: ₹ 63,00,000
- Total receipts: ₹ 1,00,00,000
- Liquidation expenses: ₹ (1,50,000)
- Cash distributed: ₹ 99,51,000

Total Cash for Distribution: ₹ 1,06,31,000 (5,40,000 + 1,40,000 + 99,51,000)

Step 2: Calculate Realization Gains/Losses

From the information given:
- Machinery: Book value ₹ 6,00,000, transferred at ₹ 9,00,000 = Gain of ₹ 3,00,000
- Other assets: Book values not provided, cannot calculate gains/losses

Step 3: Allocate Realization Gains/Losses

Assuming equal profit-sharing ratio (1:1:1) pending confirmation:
- Gain of ₹ 3,00,000 allocated: A ₹ 1,00,000; B ₹ 1,00,000; C ₹ 1,00,000

Step 4: Calculate Final Capital Balances

Final Capital = Initial Capital + Share of Gains/Losses - Cash Already Received
Note: C received machinery of ₹ 9,00,000 as part payment

Assuming initial capitals (REQUIRED TO COMPLETE):
- A: ₹ X + 1,00,000 - Cash A received = Final Capital A
- B: ₹ Y + 1,00,000 - Cash B received = Final Capital B
- C: ₹ Z + 1,00,000 - 9,00,000 - Cash C received = Final Capital C

Step 5: Distribute Final Cash Based on Capital Ratio

Ratio of final capitals = A : B : C

Remaining cash to distribute: ₹ 99,51,000

Distribution:
- A receives: (Capital A / Total) × 99,51,000
- B receives: (Capital B / Total) × 99,51,000
- C receives: (Capital C / Total) × 99,51,000

The Highest Relative Capital Method distributes assets/cash in the final settlement strictly in proportion to each partner's final capital balance, ensuring that partners with larger capital contributions receive proportionally larger distributions.

Cash Flow Statement for the year ended 31st March, 2020 (as per AS 3 Revised — Indirect Method)

Note on Available Data: The question provides only Current Assets and Current Liabilities data. A complete Cash Flow Statement under the Indirect Method also requires Net Profit Before Tax, non-cash adjustments (depreciation, amortisation, provisions, etc.), investing activity details (purchase/sale of fixed assets, investments), and financing activity details (loans, dividends, share capital). Since only working capital items are provided, the Changes in Working Capital section and the Net Change in Cash & Cash Equivalents can be conclusively computed.

CASH FLOW STATEMENT for the year ended 31st March, 2020

A. Cash Flow from Operating Activities

Net Profit Before Tax and Extraordinary Items — *[Not provided]*

Adjustments for non-cash/non-operating items:
Depreciation, Amortisation, Provisions — *[Not provided]*

Operating Profit Before Working Capital Changes — *[Not provided]*

Adjustments for Changes in Working Capital:
- Decrease in Trade Receivables (₹3,27,000 → ₹3,13,200): +₹13,800
- Increase in Inventory (₹13,50,000 → ₹14,60,000): (₹1,10,000)
- Increase in Trade Payables (₹2,84,700 → ₹2,87,300): +₹2,600
- Increase in Outstanding Expenses (₹97,000 → ₹1,07,400): +₹10,400

Net Working Capital Adjustment: (₹83,200)

Cash Generated from Operations — *[Depends on profit figure not provided]*
Less: Income Tax Paid — *[Not provided]*

Net Cash from Operating Activities (A) — *[Cannot be finalised without profit data]*

B. Cash Flow from Investing Activities — *[Data not provided]*

C. Cash Flow from Financing Activities — *[Data not provided]*

Net Increase in Cash and Cash Equivalents (A + B + C): ₹1,29,800

Cash and Cash Equivalents — Opening Balance (1st April 2019): ₹2,40,700
Cash and Cash Equivalents — Closing Balance (31st March 2020): ₹3,70,500

Conclusion: The net increase in Cash & Cash Equivalents during the year is ₹1,29,800. The working capital adjustments within operating activities net to (₹83,200). A fully formatted Cash Flow Statement requires profit before tax and non-current items which are not furnished in this question.

Applicable Law: Under Section 285 of the Companies Act, 2013, both present members (List A contributories) and past members (List B contributories) are liable to contribute in winding up. A past member is liable only if: (i) the present member (transferee) is unable to satisfy contribution, (ii) the debt existed at the date of transfer of shares, and (iii) the transfer took place within one year before the commencement of winding up.

Winding up commenced on 1st April, 2020. Therefore, the relevant one-year window is 1st April, 2019 to 1st April, 2020.

Step 1 – Eligibility of Past Members (List B):
- P transferred on 2nd February, 2019 — this is more than one year before winding up. P is NOT liable as a contributory.
- O (4th April, 2019), Q (8th September, 2019), R (11th November, 2019), S (2nd February, 2020), and T (1st March, 2020) — all transferred within one year. All are eligible as List B contributories.

Step 2 – Maximum Liability per Contributory:
Each share is ₹100, with ₹70 called up. Therefore, uncalled amount = ₹30 per share. The maximum liability of a past member is the lower of: (a) uncalled amount on shares transferred, or (b) amount of creditors' debt at the date of transfer.

Step 3 – Special Case of S and X:
'X' is the transferee of S's 800 shares (present member, List A). X paid ₹30 per share as calls in advance immediately on becoming a member, thereby fully paying up those shares. Since the present member (X) has satisfied the entire uncalled amount on those shares, S as a past member has no additional liability — a past member is called only when the present member cannot pay.

Statement of Contributions to be Realised from List B Contributories:

| Past Member | Transfer Date | Shares | Uncalled (₹30/share) | Creditors' Debt at Transfer | Contribution |
|---|---|---|---|---|---|
| O | 4.04.2019 | 1,000 | ₹30,000 | ₹42,000 | ₹30,000 |
| P | 2.02.2019 | 300 | — | — | Nil (not eligible) |
| Q | 8.09.2019 | 200 | ₹6,000 | ₹57,000 | ₹6,000 |
| R | 11.11.2019 | 1,400 | ₹42,000 | ₹85,000 | ₹42,000 |
| S | 2.02.2020 | 800 | ₹24,000 | ₹66,000 | Nil (X paid in advance) |
| T | 1.03.2020 | 1,400 | ₹42,000 | ₹95,000 | ₹42,000 |
| Total | | | | | ₹1,20,000 |

Additionally, X's calls in advance of ₹24,000 (800 shares × ₹30) are already received by the company and form part of List A contribution.

Total amount realisable from contributions = ₹1,20,000 (from List B past members), with ₹24,000 already received from X (List A present member) making the aggregate contribution from all the above persons ₹1,44,000.

Journal Entries in the Books of Umang Ltd. — Buy-back of Shares

The buy-back of shares is governed by Section 68 of the Companies Act 2013 and requires creation of a Capital Redemption Reserve (CRR) equal to the nominal value of shares bought back, as mandated by Section 69 of the Companies Act 2013. The CRR may be funded from free reserves (e.g., General Reserve) or the Securities Premium Account.

The following entries are passed:

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Entry 1 — Buy-back of Equity Shares (Cancellation)

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Equity Share Capital A/c Dr. | [Nominal Value] | |
| Premium on Buy-back A/c Dr. | [Premium Amount] | |
| &nbsp;&nbsp;To Bank A/c | | [Total Buy-back Price] |

*(Being buy-back of ______ equity shares at ₹____ per share, at a premium, paid out of own funds as per Section 68 of the Companies Act 2013)*

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Entry 2 — Writing off Premium on Buy-back Against Securities Premium Account

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Securities Premium A/c Dr. | [Premium on Buy-back] | |
| &nbsp;&nbsp;To Premium on Buy-back A/c | | [Premium on Buy-back] |

*(Being premium paid on buy-back of shares written off against Securities Premium Account as permitted under Section 52(2)(c) of the Companies Act 2013)*

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Entry 3 — Creation of Capital Redemption Reserve (Legal Requirement u/s 69)

This entry gives effect to point (iii): ₹15,00,000 of Securities Premium is used along with the balance from General Reserve to create CRR equal to the nominal value of shares bought back.

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| General Reserve A/c Dr. | [Nominal Value − ₹15,00,000] | |
| Securities Premium A/c Dr. | 15,00,000 | |
| &nbsp;&nbsp;To Capital Redemption Reserve A/c | | [Nominal Value of Shares Bought Back] |

*(Being Capital Redemption Reserve created to the extent of nominal value of shares bought back, using ₹15,00,000 from Securities Premium Account and the balance from General Reserve, as required under Section 69(1) of the Companies Act 2013)*

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Note on Entry 1 / Point (iv) — Cash Payment to Shareholders

Since the company has necessary cash balance (point iv), the payment to shareholders is made directly from Bank. No separate intermediary entry is needed — Bank A/c is credited in Entry 1 above at the total buy-back consideration.

If the company first records a liability and then pays:

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Equity Share Capital A/c Dr. | [Nominal Value] | |
| Premium on Buy-back A/c Dr. | [Premium] | |
| &nbsp;&nbsp;To Equity Shareholders A/c | | [Total Consideration] |

And then:

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Equity Shareholders A/c Dr. | [Total Consideration] | |
| &nbsp;&nbsp;To Bank A/c | | [Total Consideration] |

*(Being payment made to shareholders for buy-back of shares out of the company's own cash resources)*

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Key Legal Points:
- Section 69(1) mandates CRR = Nominal value of shares bought back.
- Securities Premium can be used for CRR creation per Section 52(2) read with Section 69.
- The bought-back shares are cancelled immediately on buy-back and cannot be reissued.