Question 1

The following extract of Balance Sheet of Prabhat Ltd. (Non investment Company) was obtained: [Balance sheet showing preference shares Rs 30,00,000; equity shares Rs 1,92,00,000; share suspense account Rs 40,00,000; securities premium Rs 1,00,000; capital reserves Rs 3,90,000; debentures Rs 1,30,00,000; public deposits Rs 7,40,000; trade payables Rs 6,90,000; cash credit Rs 9,30,000; investments Rs 1,50,00,000; P&L account Dr. balance Rs 30,50,000]. Share suspense account represents application money received on shares, allotment of which is not yet made. You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if Prabhat Ltd. is an investment company?

Accepted Answer

**Effective Capital as per Schedule V of the Companies Act, 2013**

**Relevant Provision:** Part II, Section II of Schedule V to the Companies Act, 2013 defines **Effective Capital** as the aggregate of:
- Paid-up share capital (**excluding share application money** or advances against shares)
- Share Premium Account
- Reserves and Surplus (excluding revaluation reserve)
- Long-term loans and deposits repayable after one year (excluding working capital loans, overdrafts, bank guarantees, and other short-term arrangements)

**Less:** Aggregate of investments (except for investment companies), accumulated losses not written off, and preliminary expenses not written off.

**Computation of Effective Capital — Prabhat Ltd. (Non-Investment Company)**

| Particulars | ₹ | ₹ |
|---|---|---|
| **Paid-up Share Capital** | | |
| Preference Share Capital | 30,00,000 | |
| Equity Share Capital | 1,92,00,000 | |
| Share Suspense Account | **Nil** | |
| **Sub-total** | | **2,22,00,000** |
| Securities Premium Account | | 1,00,000 |
| Capital Reserves | | 3,90,000 |
| **Long-term Borrowings** | | |
| Debentures | 1,30,00,000 | |
| Public Deposits | 7,40,000 | |
| **Sub-total** | | **1,37,40,000** |
| **Gross Total (A)** | | **3,64,30,000** |
| **Less:** | | |
| Investments | 1,50,00,000 | |
| Accumulated Losses (P&L Dr. balance) | 30,50,000 | |
| **Total Deductions (B)** | | **(1,80,50,000)** |
| **Effective Capital (A – B)** | | **₹1,83,80,000** |

**Notes on items excluded:**
1. **Share Su…

Question 2

Following is the extract of Balance Sheet of Prem Ltd. as at 31-3-2018: [Balance sheet showing authorized and issued capital for equity and preference shares, general reserve Rs 3,60,000, capital redemption reserve Rs 1,20,000, securities premium Rs 75,000, P&L account Rs 6,00,000]. On 1st April, 2018, the company decided to capitalize its reserves by way of bonus at the rate of two shares for every five shares held. Show necessary journal entries in the books of the company and prepare the extract of the balance sheet after bonus issue.

Accepted Answer

**Bonus Issue by Prem Ltd. — Journal Entries and Revised Balance Sheet**

A **bonus issue** (capitalisation of reserves) involves converting accumulated reserves into paid-up share capital by issuing fully paid-up shares to existing shareholders without any cash consideration. Under **Section 63 of the Companies Act, 2013**, bonus shares may be issued out of free reserves, **Securities Premium Account**, and **Capital Redemption Reserve (CRR)**.

**Assumption (from balance sheet extract):** Equity Share Capital = 60,000 shares of ₹10 each = ₹6,00,000; 8% Preference Share Capital = ₹3,00,000 (these are the standard figures from ICAI Study Material for this question).

**Number of Bonus Shares:** Bonus is issued to equity shareholders at 2 shares for every 5 held.
Bonus shares = 60,000 × 2/5 = **24,000 shares × ₹10 = ₹2,40,000**

**Source of Capitalisation** (Securities Premium and CRR are used first as they are capital reserves with restricted uses, then free reserves):
- Securities Premium Account: ₹75,000
- Capital Redemption Reserve: ₹1,20,000
- General Reserve (balance): ₹45,000
- **Total: ₹2,40,000**

**Journal Entries in the Books of Prem Ltd.**

*Entry 1 — On declaration of bonus issue (1st April, 2018):*
Securities Premium A/c — Dr. ₹75,000
Capital Redemption Reserve A/c — Dr. ₹1,20,000
General Reserve A/c — Dr. ₹45,000
   To Bonus to Shareholders A/c — Cr. ₹2,40,000
*(Being capitalisation of reserves for bonus issue)*

*Entry 2 — On allotment of bonus shares:*
Bonus t…

Question 3

Mac Ltd. gives the following data regarding to its six segments: [Segment data provided: Segment A - assets Rs 80 lakhs, results Rs 100 lakhs, revenue Rs 600 lakhs; Segment B - assets Rs 160 lakhs, results Rs (380) lakhs, revenue Rs 1,240 lakhs; Segment C - assets Rs 60 lakhs, results Rs 20 lakhs, revenue Rs 160 lakhs; Segment D - assets Rs 40 lakhs, results Rs 20 lakhs, revenue Rs 120 lakhs; Segment E - assets Rs 40 lakhs, results Rs (20) lakhs, revenue Rs 160 lakhs; Segment F - assets Rs 20 lakhs, results Rs 60 lakhs, revenue Rs 120 lakhs; Total - assets Rs 400 lakhs, results Rs (200) lakhs, revenue Rs 2,400 lakhs]. The accountant contends that segments 'A' and 'B' alone are reportable segments. Is he justified in his view? Discuss in the context of AS-17 'Segment Reporting'.

Accepted Answer

**No, the accountant is not justified.** Under **AS-17 'Segment Reporting'**, a segment qualifies as a **reportable segment** if it satisfies ANY ONE of three quantitative thresholds (10% tests):

**(1) Revenue Test:** Segment revenue ≥ 10% of total combined revenue of all segments.

**(2) Result Test:** Absolute segment result ≥ 10% of the greater of — (a) combined profit of all profit-making segments, or (b) combined absolute loss of all loss-making segments.

**(3) Asset Test:** Segment assets ≥ 10% of total assets of all segments.

**Computation of Thresholds:**

- 10% of Total Revenue (₹2,400 lakhs) = **₹240 lakhs**
- Profit of profitable segments: A (100) + C (20) + D (20) + F (60) = ₹200 lakhs
- Loss of loss-making segments: B (380) + E (20) = ₹400 lakhs (absolute)
- Greater of ₹200 lakhs and ₹400 lakhs = **₹400 lakhs**; 10% thereof = **₹40 lakhs**
- 10% of Total Assets (₹400 lakhs) = **₹40 lakhs**

**Segment-wise Analysis:**

**Segment A:** Revenue ₹600 ≥ ₹240 ✓ | Result |₹100| ≥ ₹40 ✓ | Assets ₹80 ≥ ₹40 ✓ → **Reportable**

**Segment B:** Revenue ₹1,240 ≥ ₹240 ✓ | Result |₹380| ≥ ₹40 ✓ | Assets ₹160 ≥ ₹40 ✓ → **Reportable**

**Segment C:** Revenue ₹160 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹60 ≥ ₹40 ✓ → **Reportable** (Asset test satisfied)

**Segment D:** Revenue ₹120 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹40 = ₹40 ✓ → **Reportable** (Asset test satisfied — exactly 10%)

**Segment E:** Revenue ₹160 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹40 = ₹40 ✓ → **Report…

Question 4

Give an analytical statement of distinction between an ordinary partnership firm and a limited liability partnership.

Accepted Answer

**Distinction between an Ordinary Partnership Firm and a Limited Liability Partnership (LLP)**

An **ordinary partnership firm** is governed by the **Indian Partnership Act, 1932**, whereas a **Limited Liability Partnership (LLP)** is governed by the **Limited Liability Partnership Act, 2008**. The following are the key points of distinction:

**1. Legal Status / Separate Legal Entity:** An ordinary partnership firm does NOT have a separate legal existence distinct from its partners — the firm and partners are considered the same in law. An LLP, on the other hand, is a **body corporate** with a **separate legal entity** distinct from its partners. It can sue and be sued in its own name.

**2. Liability of Partners:** In an ordinary partnership, every partner has **unlimited personal liability** for the debts and obligations of the firm. Partners are jointly and severally liable. In an LLP, each partner's liability is **limited to his agreed contribution**, and no partner is personally liable for the wrongful acts or omissions of another partner. This is the most significant distinction.

**3. Perpetual Succession:** An ordinary partnership firm does not enjoy **perpetual succession** — death, retirement, or insolvency of a partner may dissolve the firm. An LLP has **perpetual succession** — its existence is unaffected by changes in partners.

**4. Mutual Agency:** In an ordinary partnership, every partner is an **agent of the firm and of other partners**, and any act of one p…

Question 5

A company had issued 40,000, 12% debentures of Rs 100 each on 1st April, 2015. The debentures are due for redemption on 1st March, 2019. The terms of issue provided that they were redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of their holding into equity shares (nominal value Rs 10) at a predetermined price of Rs 15 per share and the payment in cash. 50 debenture holders holding totally 5,000 debentures did not exercise the option. Calculate the number of equity shares to be allotted to the debenture holders and the amount to be paid in cash on redemption.

Accepted Answer

**Calculation of Equity Shares to be Allotted and Cash to be Paid on Redemption**

**Given Information:**
Total debentures issued = 40,000 debentures of Rs 100 each. Redemption is at a **premium of 5%**, so redemption value per debenture = Rs 105. The option allows conversion of **20% of holding** into equity shares at Rs 15 per share (nominal value Rs 10). Debenture holders with 5,000 debentures did **not** exercise the option.

**Step 1 — Segregation of Debentures:**
Debentures where option is exercised = 40,000 − 5,000 = **35,000 debentures**
Debentures where option is not exercised = **5,000 debentures**

**Step 2 — Equity Shares to be Allotted:**
20% of 35,000 debentures are to be converted = 7,000 debentures
Redemption value of these 7,000 debentures = 7,000 × Rs 105 = Rs 7,35,000
Number of equity shares allotted = Rs 7,35,000 ÷ Rs 15 = **49,000 equity shares**

**Step 3 — Cash to be Paid on Redemption:**
*(a) For option-exercising holders (remaining 80%):*
80% of 35,000 debentures = 28,000 debentures redeemed in cash
Cash = 28,000 × Rs 105 = Rs 29,40,000
*(b) For non-option holders:*
Cash = 5,000 × Rs 105 = Rs 5,25,000
**Total Cash Paid = Rs 29,40,000 + Rs 5,25,000 = Rs 34,65,000**

**Summary of Answers:**
- Number of equity shares to be allotted = **49,000 shares**
- Total cash to be paid on redemption = **Rs 34,65,000**

CA Inter Adv Accounting

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Particulars	₹	₹
Paid-up Share Capital
Preference Share Capital	30,00,000
Equity Share Capital	1,92,00,000
Share Suspense Account	Nil
Sub-total		2,22,00,000
Securities Premium Account		1,00,000
Capital Reserves		3,90,000
Long-term Borrowings
Debentures	1,30,00,000
Public Deposits	7,40,000
Sub-total		1,37,40,000
Gross Total (A)		3,64,30,000
Less:
Investments	1,50,00,000
Accumulated Losses (P&L Dr. balance)	30,50,000
Total Deductions (B)		(1,80,50,000)
Effective Capital (A – B)		₹1,83,80,000