Q2Conversion of partnership firm into a company
0 marks easy
M/s Happy Makers is a partnership firm consisting of Mr. Happy, Mr. Yuvi and Mr. Mohan who share profits and losses in the ratio of 2:2:1 and Global Ltd. is a company doing similar business.
Following is the summarized Balance Sheet of the firm and that of the company as at 31.3.2022:
Equity & Liabilities | M/s Happy Makers (`) | Global Ltd. (`)
Equity shares of ` 10 each: — | 30,00,000
Partners' capitals — Mr. Happy: 3,00,000 | Mr. Yuvi: 4,50,000 | Mr. Mohan: 1,50,000
General reserve: 1,50,000 | 10,50,000
Trade payables: 4,50,000 | 19,50,000
Total: 15,00,000 | 60,00,000
Assets | M/s Happy Makers (`) | Global Ltd. (`)
Plant & Machinery: 7,50,000 | 24,00,000
Furniture & Fixtures: 75,000 | 3,37,500
Inventories: 3,00,000 | 12,75,000
Trade receivables: 3,00,000 | 12,37,500
Cash at bank: 15,000 | 6,00,000
Cash in hand: 60,000 | 1,50,000
Total: 15,00,000 | 60,00,000
On the Balance Sheet date it was decided that the firm M/s Happy Makers be dissolved and all the assets (except cash in hand and cash at bank) and all the liabilities of the firm be taken over by Global Ltd. by issuing 75,000 shares of ` 10 each at a premium of ` 2 per share. Partners agreed to divide the shares issued by Global Ltd. in the profit sharing ratio and bring necessary cash for settlement of their capital. The trade payables of M/s Happy Makers includes ` 1,50,000 payable to Global Ltd. An unrecorded liability of ` 37,500 of M/s Happy Makers must also be taken over by Global Ltd. Assumed that cash at bank has been withdrawn to pay to Partner Mr. Yuvi.
Q3Accounting for Employee Stock Option Plans (ESOPs)
0 marks easy
A Limited grants 5,000 options to its employees on 1.04.2018 at ` 90/-, when the market price was ` 150/-. The vesting period is 3 years. The maximum exercise period is one year. 4,500 options were exercised on 31.03.2022, the remaining options lapsed. Journalize the transactions, if the face value of equity shares is ` 10/- per share.
Q4Buy back of securities and redemption of preference shares
0 marks easy
Pay Limited provides you with the following information as at 31st March, 2022:
(` in Lakhs)
Share Capital — Authorised: 300; Issued: 11% Redeemable preference shares of ` 100 each fully paid: 125; Equity shares of ` 10 each fully paid: 175; Total: 300
Reserves and surplus — Capital reserve: 35; Securities premium: 105; Revenue reserves: 460; Profit and loss account: 50; Total: 650
Current liabilities and provisions: 50
Fixed assets cost: 100; Less Accumulated depreciation: (90); Net: 10
Non-current investments at cost (Market value ` 400 Lakhs): 200
Current assets: 790
(i) The company redeemed preference shares at a premium of 4% on 1st April, 2022.
(ii) It also bought back 2.5 lakhs equity shares of ` 10 each at ` 40 per share. The payments for the above were made out of the bank balances, which appeared as a part of current assets.
Q5Equity shares with differential rights — meaning and conditi
0 marks easy
Explain the meaning of equity shares with differential rights. Also explain the conditions under Rule 4 under Companies (Share Capital and Debentures) Rules, 2014, to deal with equity shares with differential rights.
Q6Amalgamation of companies — purchase method
0 marks easy
The following information is being provided by VT Ltd. and MG Ltd. as on 31st March, 2022:
Particulars | VT Ltd. (`) | MG Ltd. (`)
Equity Shares of ` 10 each: 12,00,000 | 6,00,000
10% Pref. Shares of ` 100 each: 4,00,000 | 2,00,000
Reserve and Surplus: 6,00,000 | 4,00,000
12% Debentures: 4,00,000 | 3,00,000
Trade Payables: 5,00,000 | 3,00,000
Fixed Assets: 14,00,000 | 5,00,000
Investment: 1,60,000 | 1,60,000
Inventory: 4,80,000 | 6,40,000
Trade Receivables: 8,40,000 | 4,20,000
Cash at Bank: 2,20,000 | 80,000
Details of Trade Receivables: VT Ltd. — Debtors: 7,20,000, Bills Receivable: 1,20,000; MG Ltd. — Debtors: 3,80,000, Bills Receivable: 40,000.
Details of Trade Payables: VT Ltd. — Sundry Creditors: 4,40,000, Bills Payable: 60,000; MG Ltd. — Sundry Creditors: 2,50,000, Bills Payable: 50,000.
Fixed Assets of both the companies are to be revalued at 15% above book value. Inventory in Trade and Debtors are taken over at 5% lesser than their book value. Both the companies are to pay 10% equity dividend; Preference dividend having been already paid.
After the above transactions are given effect to, VT Ltd. will absorb MG Ltd. on the following terms:
(i) VT Ltd. will issue 16 Equity Shares of ` 10 each at par against 12 Shares of MG Ltd.
(ii) 10% Preference Shareholders of MG Ltd. will be paid at 10% discount by issue of 10% Preference Shares of ` 100 each, at par, in VT Ltd.
(iii) 12% Debenture holders of MG Ltd. are to be paid at 8% premium, by 12% Debentures in VT Ltd., issued at a discount of 10%.
(iv) ` 60,000 is to be paid by VT Ltd. to MG Ltd. for Liquidation expenses.
(v) Sundry Debtors of MG Ltd. includes ` 20,000 due from VT Ltd.
Q7Internal reconstruction of a company
0 marks easy
The following information is being provided by Fortunate Ltd. as on 31st March, 2022:
Particulars | Amount (`)
15,000 8% Preference shares of ` 50 each: 7,50,000
18,750 Equity shares of ` 50 each: 9,37,500
Profit and Loss Account (Dr. balance): 5,63,750
Loan: 7,16,250
Trade Payables: 2,58,750
Other Liabilities: 43,750
Building at cost less depreciation: 5,00,000
Plant at cost less depreciation: 3,35,000
Trademarks and goodwill at cost: 3,97,500
Inventory: 5,00,000
Trade Receivables: 4,10,000
(Note: Preference shares dividend is in arrear for last five years.)
The Company is running with shortage of working capital and not earning profits. A scheme of reconstruction has been approved by both the classes of shareholders:
(i) The equity shareholders have agreed that their ` 50 shares should be reduced to ` 5 by cancellation of ` 45.00 per share. They have also agreed to subscribe for three new equity shares of ` 5.00 each for each equity share held.
(ii) The preference shareholders have agreed to forego the arrears of dividends and to accept for each ` 50 preference share, 4 new 6% preference shares of ` 10 each, plus 3 new equity shares of ` 5.00 each, all credited as fully paid.
(iii) Lenders to the company for ` 1,87,500 have agreed to convert their loan into shares and for this purpose they will be allotted 15,000 new preference shares of ` 10 each and 7,500 new equity shares of ` 5.00 each.
(iv) The directors have agreed to subscribe in cash for 25,000 new equity shares of ` 5.00 each in addition to any shares to be subscribed by them under (i) above.
(v) Of the cash received by the issue of new shares, ` 2,50,000 is to be used to reduce the loan due by the company.
(vi) The equity share capital cancelled is to be applied: (a) To write off the debit balance in the Profit and Loss A/c, and (b) To write off ` 43,750 from the value of plant. Any balance remaining is to be used to write down the value of trademarks and goodwill.
The nominal capital, as reduced, is to be increased to ` 8,12,500 for preference share capital and ` 9,37,500 for equity share capital.
You are required to pass journal entries to show the effect of above scheme and prepare the Balance Sheet of the Company after reconstruction.
Q8Liquidation of company — Liquidator's Final Statement of Acc
0 marks easy
BT Ltd. went into Voluntary Liquidation on 31st March, 2022. It provides the following information on that date:
Liabilities:
10,000 12% cumulative preference shares of ` 100 each, fully paid: 10,00,000
10,000 Equity Shares of ` 100 each, ` 75 per share paid up: 7,50,000
20,000 Equity Shares of ` 100 each, ` 60 per share paid up: 12,00,000
Profit & Loss Account (Dr. balance): 5,25,000
12% Debentures (Secured by a floating charge): 10,00,000
Interest outstanding on Debentures: 1,20,000
Creditors: 8,50,000
Assets:
Land & Building: 17,60,000 | Plant & Machinery: 12,50,000 | Furniture: 4,75,000 | Patents: 1,45,000 | Stock: 1,80,000 | Trade Receivables: 5,09,300 | Cash at Bank: 75,700
Preference dividends were in arrear for 1 year. Creditors include preferential creditors of ` 75,000. Balance creditors are discharged subject to 5% discount.
Assets are realised as under:
Land & Building: 24,50,000 | Plant & Machinery: 9,00,000 | Furniture: 2,85,000 | Patents: 90,000 | Stock: 2,80,000 | Trade Receivables: 3,15,000
Expenses of liquidation amounted to ` 45,000. The liquidator is entitled to a remuneration of 3% on all assets realised (except cash at bank). All payments were made on 30th June, 2022.
You are required to prepare the Liquidator's Final Statement of Account as on 30th June, 2022. Working Notes should form part of the answer.
Q9Income recognition criteria for NBFCs
0 marks easy
Explain the criterion of income recognition in the case of Non Banking Financial Companies.
Q11Consolidated financial statements — minority interest and co
0 marks easy
H Ltd. acquired 70% of equity share of S Ltd. as on 1st January, 2016 at a cost of ` 5,00,000 when S Ltd. had an equity share capital of ` 5,00,000 and reserves and surplus of ` 40,000.
Both the companies follow calendar year as the accounting year.
In the four consecutive years, S Ltd. performed badly and suffered losses of ` 1,25,000, ` 2,00,000, ` 2,50,000 and ` 60,000 respectively.
Thereafter in 2020, S Ltd. experienced turnaround and registered an annual profit of ` 25,000. In the next two years i.e. 2021 and 2022, S Ltd. recorded annual profits of ` 50,000 and ` 75,000 respectively.
Show the Minority Interests and Cost of Control at the end of each year for the purpose of consolidation.
Q12AS 5 — classification of accounting changes and extraordinar
0 marks easy
State whether the following items are examples of change in Accounting Policy / Change in Accounting Estimates / Extraordinary items / Prior period items / Ordinary Activity:
(i) Actual bad debts turning out to be more than provisions.
(ii) Change from Cost model to Revaluation model for measurement of carrying amount of PPE.
(iii) Government grant receivable as compensation for expenses incurred in previous accounting period.
(iv) Treating operating lease as finance lease.
(v) Capitalisation of borrowing cost on working capital.
(vi) Legislative changes having long term retrospective application.
(vii) Change in the method of depreciation from straight line to WDV.
(viii) Government grant becoming refundable.
(ix) Applying 10% depreciation instead of 15% on furniture.
(x) Change in useful life of fixed assets.
Q13AS 7 — construction contracts, percentage of completion and
0 marks easy
On 1st December, 2021, GR Construction Co. Ltd. undertook a contract to construct a building for ` 45 lakhs. On 31st March, 2022, the company found that it had already spent ` 32.50 lakhs on the construction. Additional cost of completion is estimated at ` 15.10 lakhs. What amount should be charged to revenue in the final accounts for the year ended 31st March, 2022 as per provisions of AS-7?
Q14AS 9 — revenue recognition of interest on overdue amounts
0 marks easy
PQR Ltd., sells agriculture products to dealers. One of the conditions of sale is that interest is at the rate of 2% p.m., for delayed payments. Percentage of interest recovery is only 10% on such overdue outstanding due to various reasons. During the year 2021-22 the company wants to recognize the entire interest receivable. Do you agree?
Q15AS 17 — reportable segment identification thresholds
0 marks easy
The Senior Accountant of AMF Ltd. gives the following data regarding its five segments:
(` in lakhs)
Particulars | P | Q | R | S | T | Total
Segment Assets | 80 | 30 | 20 | 20 | 10 | 160
Segment Results | (190) | 10 | 10 | (10) | 30 | (150)
Segment Revenue | 620 | 80 | 60 | 80 | 60 | 900
The Senior Accountant is of the opinion that segment 'P' alone should be reported. Is he justified in his view? Examine his opinion in the light of provision of AS-17 'Segment Reporting'.
Q16AS 18 — related party disclosures, managerial remuneration
0 marks easy
Is remuneration paid to Board of Directors a related party transaction? Explain.
Q17AS 19 — finance lease, annual lease payment and unearned fin
0 marks easy
WIN Ltd. has entered into a three year lease arrangement with Tanya sports club in respect of Fitness Equipments costing ` 16,99,999.50. The annual lease payments to be made at the end of each year are structured in such a way that the sum of the Present Values of the lease payments and that of the residual value together equal the cost of the equipments leased out. The unguaranteed residual value of the equipment at the expiry of the lease is estimated to be ` 1,33,500. The assets would revert to the lessor at the end of the lease. Given that the implicit rate of interest is 10%.
You are required to calculate the amount of the annual lease payment and the unearned finance income. Discounting Factor at 10% for years 1, 2 and 3 are 0.909, 0.826 and 0.751 respectively.
Q18AS 20 — basic EPS adjusted for rights issue
0 marks easy
Following information is supplied by K Ltd.:
Number of shares outstanding prior to right issue: 2,50,000 shares.
Right issue: two new shares for each 5 outstanding shares (i.e. 1,00,000 new shares).
Right issue price: ` 98.
Last date of exercising rights: 30-06-2021.
Fair value of one equity share immediately prior to exercise of right on 30-06-2021: ` 102.
Net Profit to equity shareholders:
2020-2021: ` 50,00,000
2021-2022: ` 75,00,000
You are required to calculate the basic earnings per share as per AS-20 Earnings per Share.
Q19AS 24 — discontinuing operations
0 marks easy
A consumer goods producer has changed the product line as follows:
Period | Dish washing Bar (Per month) | Clothes washing Bar (Per month)
January 2021 – September 2021 | 2,00,000 | 2,00,000
October 2021 – December 2021 | 1,00,000 | 3,00,000
January 2022 – March 2022 | Nil | 4,00,000
The company has enforced a gradual change in product line on the basis of an overall plan. The Board of Directors has passed a resolution in March 2021 to this effect. The company follows calendar year as its accounting year.
You are required to advise the company whether it should be treated as a discontinuing operation or not as per AS 24.