Q1(a)Revenue recognition and matching concept — AS 9
5 marks medium
M/s. Shishir Ltd., a Public Sector Company, provides engineering services to its clients. In the year 2014-15, the Government set up a commission to decide about the pay revision. The pay will be revised with retrospect from 1-1-2012 based on the recommendations of the commission. The company makes the provision of ₹1250 lakhs for pay revision in the financial year 2014-15 on the estimated basis as the report of the commission is yet to come. As per the contracts with clients on cost plus job, the billing is done on the actual payment made to the employees and allocated to jobs based on hours booked by these employees on each job.
The company discloses through notes to accounts: "Salaries and benefits include the provision of ₹1250 lakhs in respect of pay revision. The amount chargeable from reimbursable jobs will be billed as per the contract when the actual payment is made."
The Accountant feels that the company should also book/recognize the income by ₹1250 lakhs in Profit & Loss Account as per the terms of the contract. Otherwise, it will be the violation of matching concept & understatement of profit.
Comment on the opinion of the Accountant with reference to relevant Accounting Standards.
Q1(b)Intangible assets — AS 26 recognition and carrying amount
5 marks medium
M/s. Mahesh Ltd. is developing a new production process. During the Financial Year ended 31st March, 2013, the total expenditure incurred on the process was ₹60 lacs. The production process met the criteria for recognition as an intangible asset on 1st December, 2012. Expenditure incurred till this date was ₹32 lacs.
Further expenditure incurred on the process for the Financial Year ending 31st March, 2014 was ₹90 lacs. As on 31.03.2014, the recoverable amount of know-how embodied in the process is estimated to be ₹82 lacs. This includes estimates of future cash outflows and inflows.
You are required to work out:
Q1(c)Borrowing costs capitalisation — AS 16
5 marks medium
M/s. Ayush Ltd. began construction of a new building on 1st January, 2014. It obtained ₹3 lakh special loan to finance the construction of the building on 1st January, 2014 at an interest rate of 12% p.a. The company's other outstanding two non-specific loans were:
Amount: ₹6,00,000 @ 11% p.a.
Amount: ₹11,00,000 @ 13% p.a.
The expenditure made on the building project were as follows:
January 2014: ₹3,00,000
April 2014: ₹3,50,000
July 2014: ₹5,50,000
December 2014: ₹1,50,000
Building was completed on 31st December, 2014. Following the principles prescribed in AS 16 'Borrowing Cost', calculate the amount of interest to be capitalized and pass one Journal Entry for capitalizing the cost and borrowing in respect of the building.
Q1(d)Earnings per share — Basic EPS and Diluted EPS with employee
5 marks medium
M/s. A Ltd. had 8,00,000 Equity Shares outstanding on 1st April, 2013. The Company earned a profit of ₹20,00,000 during the year 2013-14. The average fair value per share during 2013-14 was ₹40. The Company has given Share Option to its employees of 1,00,000 Equity Shares at option price of ₹20.
Calculate Basic EPS and Diluted EPS.
Q2Partnership — death of partner, executor's account, dissolut
16 marks very hard
X, Y and Z were in partnership sharing profits and losses in ratio 3:2:1. There was no provision in the agreement for interest on capital or drawings.
X died on 31.3.2013 and on that date, the partners' balances were as under:
Capital Account: X – ₹60,000; Y – ₹40,000; Z – ₹20,000
Current Account: X – ₹40,000 (Cr.); Y – ₹30,000 (Cr.); Z – ₹10,000 (Dr.)
By the partnership agreement, the sum due to X's estate was required to be paid within a period of 3 years, and minimum instalments of ₹30,000 each were to be paid, the first such instalment falling due immediately after death and the subsequent instalments at half-yearly intervals. Interest @6% p.a. was to be credited half yearly.
In ascertaining his share, goodwill (not recorded in the books) was to be valued at ₹90,000 and the assets, excluding the Joint Endowment Policy (mentioned below), were valued at ₹60,000 in excess of the book values. No Goodwill Account was raised and no alteration was made to the book values of fixed assets. The Joint Assurance Policy shown in the books at ₹40,000 matured on 1.4.2014, realizing ₹52,000; payments of ₹30,000 each were made to X's Executors on 1.4.2013, 30.9.2013 and 31.3.2014. Y and Z continued trading on the same terms as previously and the net profit for the year ending 31.3.2014 (before charging the interest due to X's estate) amounted to ₹52,000. During that period, the partners' drawings were Y – ₹15,000; and Z – ₹8,000.
On 1.4.2014, the partnership was dissolved and an offer to purchase the business as a going concern for ₹1,80,000 was accepted on that day. A cheque for that sum was received on 30.6.2014.
The balance due to X's estate, including interest, was paid on 30.6.2014 and on that day, Y and Z received the sums due to them.
You are required to write-up the Partners' Capital and Current Accounts from 1.4.2013 to 30.6.2014. Show also the account of the executors of X.
Q3(a)Debenture Redemption Reserve — adequacy requirements under C
4 marks medium
Comment on adequacy of Debenture Redemption Reserve (DRR) with reference to the following:
Q3(b)Debenture redemption — own debentures purchased in open mark
12 marks very hard
M/s. Piyush Ltd. had the following among their ledger opening balances on January 1, 2014:
11% Debenture A/c (2002 issue): ₹80,00,000
Debenture Redemption Reserve A/c: ₹70,00,000
13½% Debenture in Sneha Ltd. A/c (Face Value ₹30,00,000): ₹29,00,000
Own Debentures A/c (Face Value ₹30,00,000): ₹27,00,000
As 31st December, 2014 was the date of redemption of the 2002 debentures, the company started buying own debentures and made the following purchases in the open market:
1-2-2014 – 5000 debentures at ₹98 cum-interest
1-6-2014 – 5000 debentures at ₹99 ex-interest
Half yearly interest is due on the debentures on 30th June and 31st December in the case of both companies.
On 31st December 2014, the debentures in Sneha Ltd. were sold for ₹95 each ex-interest. On that date, the outstanding debentures of M/s. Piyush Ltd. were redeemed by payment and by cancellation.
Show the entries in the following ledger accounts of M/s. Piyush Ltd. during 2014:
(i) Debenture Redemption Reserve Account
(ii) Own Debenture Account
The face value of debenture was ₹100.
Q4Amalgamation — purchase consideration, share exchange ratio,
16 marks very hard
The summarised Balance Sheet of M/s. A Ltd. and M/s. B Ltd. as on 31.03.2014 were as under:
Liabilities — A Ltd. / B Ltd.:
Share Capital: 40,000 Equity Shares of ₹10 each, Fully Paid – ₹4,00,000 (A Ltd.)
30,000 Equity Shares of ₹10 each, Fully Paid – ₹3,00,000 (B Ltd.)
General Reserve: ₹2,40,000 (A Ltd.)
Profit & Loss Account: ₹50,000 (A Ltd.) / ₹50,000 (B Ltd.)
Other Liabilities (Trade Creditors etc.): ₹2,10,000 (A Ltd.) / ₹1,30,000 (B Ltd.)
Debentures: ₹1,20,000 (B Ltd.)
Total: ₹9,00,000 (A Ltd.) / ₹6,00,000 (B Ltd.)
Assets — A Ltd. / B Ltd.:
Freehold: ₹3,00,000 / ₹2,40,000
Machinery: ₹60,000 / ₹40,000
Motor Vehicle: ₹30,000 / ₹20,000
Trade Receivables: ₹2,00,000 / ₹50,000
Inventory: ₹2,30,000 / ₹1,80,000
Cash at Bank: ₹80,000 / ₹40,000
Total: ₹9,00,000 / ₹6,00,000
M/s. A Ltd. and M/s. B Ltd. carry on business of similar nature and they agreed to amalgamate. A new Company, M/s. AB Ltd. is formed to take over the Assets and Liabilities of M/s. A Ltd. and M/s. B Ltd. on the following basis:
Assets and Liabilities are to be taken at Book Value, with the following exceptions:
(a) Goodwill of M/s. A Ltd. and M/s. B Ltd. is to be valued at ₹1,40,000 and ₹40,000 respectively.
(b) Plant & Machinery of M/s. A Ltd. are to be valued at ₹1,00,000.
(c) The Debentures of M/s. B Ltd. are to be discharged by the issue of 6% Debentures of M/s. AB Ltd. at a premium of 5%.
You are required to:
Q5(a)Bank accounting — bills for collection, acceptances, NPA cla
12 marks very hard
Following facts have been taken out from the records of M/s. Sneha Bank Ltd. in respect of the year ending March 31, 2015:
Q5(b)Bank accounting — provisioning norms for doubtful assets
4 marks medium
From the following information of M/s. XY Bank Ltd. for the year ended 31st March, 2014, compute the provisions to be made in the Bank's Books for Doubtful Assets:
(₹ in Lakhs)
Doubtful Assets (More than 3 Years): 2,000
DICGC / ECGC Cover: 200
Value of Security including DICGC Cover: 1,000
Q6(a)Branch accounts — inter-branch goods transfer at loaded pric
8 marks hard
M/s. Sandeep, having Head Office at Delhi has a Branch at Kolkata. The Head Office does wholesale trade only at cost plus 50%. The Goods are sent to Branch at the wholesale price viz. cost plus 80%. The Branch at Kolkata is wholly engaged in retail trade and the goods are sold at cost to Head Office plus 100%.
Following details are furnished for the year ended 31st March, 2014:
Head Office (₹) Kolkata Branch (₹)
Opening Stock (01.04.2013) – 1,25,000
Purchases 21,50,000 –
Goods sent to Branch (cost+80%) 7,38,000 –
Sales 23,79,600 7,30,000
Office Expenses 50,000 4,500
Selling Expenses 32,000 3,300
Staff Salary 45,000 8,000
You are required to prepare Trading and Profit & Loss Account of the Head Office and Branch for the Year ended 31st March, 2014.
Q6(b)Departmental accounts — inter-departmental transfer pricing,
8 marks hard
M/s. Suman Enterprises has two Departments, Finished Leather and Shoes. Shoes are made by the Firm itself out of leather supplied by Leather Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit & Loss Account for the year ended 31st March, 2014:
Finished Leather Dept (₹) Shoes Dept (₹)
Opening Stock (01.04.2013) 30,20,000 4,30,000
Purchases 1,50,00,000 2,60,000
Sales 1,80,00,000 45,20,000
Transfer to Shoes Department 30,00,000 –
Manufacturing Expenses – 5,00,000
Selling Expenses 1,50,000 60,000
Rent and Warehousing 5,00,000 3,00,000
Stock on 31.03.2014 12,20,000 5,00,000
The following further information are available for necessary consideration:
(i) The stock in Shoes Department may be considered as consisting of 75% of Leather and 25% of other expenses.
(ii) The Finished Leather Department earned a Gross Profit @ 15% in 2012-13.
(iii) General expenses of the business as a whole amount to ₹8,50,000.
Q7(a)Insurance accounting — life vs. non-life insurance distincti
4 marks medium
What are the differences between Life insurance and other forms of insurance?
Q7(b)Government grants — capital subsidy accounting treatment — A
4 marks medium
M/s. A Ltd. has set up its business in a designated backward area with an investment of ₹200 Lakhs. The Company is eligible for 25% subsidy and has received ₹50 Lakhs from the Government. Explain the treatment of the capital subsidy received from the Government in the Books of the Company.
Q7(c)Company liquidation — liquidator's remuneration calculation
4 marks medium
A liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount distributed to Preferential Creditors and 3% on the payment made to unsecured creditors. The assets were realized for ₹45,00,000 against which payment was made as follows:
Liquidation expenses: ₹50,000
Secured Creditors: ₹15,00,000
Preferential Creditors: ₹1,25,000
The amount due to unsecured creditors was ₹15,00,000. You are asked to calculate the total remuneration payable to liquidator. Calculation shall be made to the nearest multiple of a rupee.
Q7(d)Lease accounting — Finance Lease classification criteria — A
4 marks medium
State any four situations when a lease would be classified as Finance Lease.
Q7(e)LLP Act — winding up by Tribunal — grounds and circumstances
4 marks medium
Under what circumstances can an LLP be wound up by the Tribunal?