Q1(a)Finance lease classification and unearned finance income com
5 marks medium
A machine having expected useful life of 6 years, is leased for 4 years. Both the cost and the fair value of the machinery are ₹7,00,000. The amount will be paid in 4 equal instalments and at the termination of lease, lessor will get back the machinery. The unguaranteed residual value at the end of the 4th year is ₹70,000. The IRR of the investment is 10%. The present value of annuity factor of ₹1 due at the end of 4th year at 10% IRR is 3.169. The present value of ₹1 due at the end of 4th year at 10% rate of interest is 0.683.
State with reasons whether the lease constitutes finance lease and also compute the unearned finance income.
Q1(b)Intangible asset amortization under AS 26
5 marks medium
A company is showing an intangible asset at ₹88 lakhs as on 01.04.2013. This asset was acquired for ₹120 lakhs on 01.04.2009 and the same was available for use from that date. The company has been following the policy of amortization of the intangible assets over a period of 15 years on straight line basis. Comment on the accounting treatment of the above with reference to the relevant Accounting Standard.
Q1(c)Forward contract profit/loss recognition on foreign currency
5 marks medium
Stem Ltd. purchased a Plant for US$ 30,000 on 30th November, 2013 payable after 6 months. The company entered into a forward contract for 6 months @ ₹62.15 per dollar. On 30th November, 2013, the exchange rate was ₹60.75 per dollar.
How will you recognise the profit or loss on forward contract in the books of Stem Ltd. for the year ended 31st March, 2014?
Q1(d)Contingent liability — patent infringement dispute under AS
5 marks medium
WZW Ltd. is in dispute involving allegation of infringement of patents by a competitor company who is seeking damages of a huge sum of ₹1000 Lakhs. The directors are of the opinion that the claim can be successfully resisted by the company. How would you deal the same in the Annual Accounts of the company?
Q2Partnership dissolution — sale of business to company
16 marks very hard
P and Q were carrying on business sharing profits and losses equally. The firm's Balance Sheet as at 31.12.2013 was:
Liabilities: Capital Accounts — P ₹1,50,000; Q ₹1,30,000 (Total ₹2,80,000); Sundry Creditors ₹80,000; Bank Overdraft ₹45,000; Profit & Loss A/c ₹30,000; Drawings Account — P ₹9,000; Q ₹7,000 (Total ₹16,000). Total ₹4,05,000.
Assets: Plant ₹1,60,000; Building ₹48,000; Debtors ₹75,000; Stock ₹70,000; Joint Life Policy ₹6,000. Total ₹4,05,000.
The operations of the business were carried on till 30.06.2014. P & Q both withdrew in equal amount half the amount of profit made during the current period of six months after charging depreciation at 10% per annum on plant and after writing off 5% on building.
During the current period of six months, creditors were reduced by ₹20,000 and bank overdraft by ₹5,000. The joint life policy was surrendered for ₹6,000 before 30th June 2014. Stock was valued at ₹84,000 and debtors at ₹68,000 on 30th June 2014. The other items remained the same as at 31.12.2013.
On 30.06.2014, the firm sold its business to PQ Ltd. The value of goodwill was estimated at ₹1,30,000 and the remaining assets were valued on the basis of the balance sheet as on 30.06.2014. PQ Ltd. paid the purchase consideration in equity shares of ₹10 each.
You are required to prepare:
Q3(a)Employee stock options — journal entries under ESOP
0 marks easy
X Ltd. granted 500 stock options to its employees on 1.4.2011 at ₹50 per share. The vesting period is 2½ years and the maximum exercise period is one year. Market price on that date is ₹140 per share. All the options were exercised on 30.06.2014. Pass journal entries giving suitable narrations, if the face value of equity share is ₹10 per share.
Q3(b)Partly convertible debentures — journal entries
0 marks easy
Venus Limited recently made a public issue in respect of which the following information is available:
(i) No. of partly convertible debentures issued 4,00,000; face value and issue price of ₹100 per debenture.
(ii) Convertible portion per debenture — 80%, date of conversion — on expiry of 7 months from the date of closing of issue.
(iii) Date of closure of subscription list — 01.06.2013, date of allotment — 01.07.2013. Rate of interest on debentures 10% p.a. payable from the date of allotment. Value of equity share for the purpose of conversion — ₹40 (Face value ₹10).
(iv) Underwriting commission — 3%.
(v) No. of debentures applied for 3,00,000.
(vi) Interest payable on debentures — half yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended on 31st March, 2014 (including cash and bank entries).
Q4Capital reduction and reorganisation — journal entries
16 marks very hard
The Balance Sheet of X Ltd. as at 31st March, 2014 was as follows:
Equity and Liabilities:
Shareholder's Fund — Share Capital: (a) 40,000 equity shares of ₹100 each fully paid ₹40,00,000; (b) 20,000, 10% preference shares ₹100 each fully paid ₹20,00,000. Reserve & Surplus: (a) Securities Premium Account ₹1,50,000; (b) Profit & Loss Account (₹23,00,000). Non-Current Liabilities — 7% Debentures of ₹100 each ₹4,00,000. Current Liabilities — Creditors ₹10,00,000; Loan from Director ₹2,00,000. Total ₹54,50,000.
Assets:
Non-Current Assets — Fixed Assets: Land & Building ₹20,00,000; Plant & Machinery ₹12,00,000 (Total ₹32,00,000). Intangible Assets — Goodwill ₹4,00,000. Current Assets — Debtors ₹12,00,000; Stock ₹5,00,000; Cash at Bank ₹18,50,000. Total Assets ₹54,50,000.
No Dividend on Preference Shares has been paid for last 5 years.
The following scheme of reorganisation was duly approved by the Court:
(i) Each equity share to be reduced to ₹25.
(ii) Each existing Preference Share to be reduced to ₹75 and then exchanged for one new 13% Preference Share of ₹50 each and one Equity Share of ₹25 each.
(iii) Preference Shareholders have forgone their right for dividend for four years. One year's dividend at the old rate is however, payable to them in fully paid equity shares of ₹25.
(iv) The Debenture Holders be given the option to either accept 90% of their claims in cash or to convert their claims in full into new 13% Preference Shares of ₹50 each issued at par. One-fourth (in value) of the Debenture Holders accepted Preference Shares for their claims. The rest were paid in cash.
(v) Contingent Liability of ₹2,00,000 is payable which has been created by wrong action of one Director. He has agreed to compensate this loss out of the loan given by the Director to the Company.
(vi) Goodwill does not have any value in the present. Decrease the value of Plant & Machinery, Stock and Debtors by ₹3,00,000; ₹1,00,000 and ₹2,00,000 respectively. Increase the value of Land & Building to ₹25,00,000.
(vii) 50,000 new Equity Shares of ₹25 each are to be issued at par payable in full on application. The issue was underwritten for a commission of 4%. Shares were fully taken up.
(viii) Total expenses incurred by the Company in connection with the Scheme excluding Underwriting Commission amounted to ₹20,000.
Pass necessary Journal Entries to record the above transactions.
Q5(a)Insurance company revenue account preparation
8 marks hard
Metro General Insurance earned the following data for the year ended 31st March, 2014:
Direct Business Reinsurance
Premium received ₹75,25,000 ₹8,25,000
Premium paid — ₹4,90,000
Claims paid during year ₹49,70,000 ₹5,10,000
Claims payable:
1st April 2013 ₹6,85,000 ₹95,000
31st March 2014 ₹7,38,000 ₹70,000
Claims received — ₹3,95,000
Claims receivable:
1st April 2013 ₹75,000
31st March 2014 ₹1,25,000
Expenses of Management ₹2,90,000
Commission:
On insurance accepted ₹1,60,000 ₹15,000
On insurance ceded ₹18,000
Additional information:
(1) Expenses of Management include ₹45,000 Surveyor's fees and ₹55,000 Legal expenses for settlement of claims.
(2) Reserve for unexpired risk is to be maintained @ 40%. The balance of Reserve for unexpired risk as on 01.04.2013 was ₹28,40,000.
You are required to make the Revenue Account for the year ended 31st March, 2014.
Q5(b)Bank capital adequacy — Tier I, Tier II, risk weighted asset
8 marks hard
A commercial bank has the following capital funds and assets. Segregate the capital funds into Tier I and Tier II capitals. Find out the risk adjusted asset and risk weighted asset ratio. State your observation on the risk weighted asset ratio.
Particulars (₹ in crores):
Equity Share Capital: 400.00
Statutory Reserve: 250.00
Capital Reserve (of which ₹18 crores were due to revaluation of assets and the balance due to sale of capital assets): 86.00
Assets:
Cash Balance with RBI: 12.00
Balance with other Banks: 20.00
Other Investments: 40.00
Loans & Advances:
(i) Guaranteed by Government: 14.50
(ii) Others: 5,465.00
Premises Furniture & Fixtures: 74.00
Off Balance Sheet Items:
(i) Guarantees and other obligations: 700.00
(ii) Acceptances, endorsements and letter of credit: 4,900.00
Q6(a)Branch accounting — goods invoiced at invoice price, debtors
8 marks hard
LMN is having a branch at Mumbai. Goods are invoiced to the branch at 25% profit on sale. Branch has been instructed to send all cash daily to head office. All expenses are paid by head office except petty expenses, which are met by the Branch. From the following particulars, prepare branch account in the books of head office:
Particulars / Amount:
Stock as on 1st April, 2013 (Invoice Price): ₹40,000
Sundry Debtors as on 1st April, 2013: ₹25,000
Cash in hand as on 1st April, 2013: ₹1,000
Office furniture as on 1st April, 2013: ₹4,000
Goods invoiced from head office (invoice price): ₹1,80,000
Goods return to head office: ₹6,000
Goods return by debtors (at invoice price): ₹1,250
Cash received from Debtors: ₹65,000
Cash sales: ₹1,20,000
Credit sales: ₹70,000
Discount allowed to debtors: ₹300
Expenses paid by head office: Salary, Staff Welfare, Telephone Expenses (amounts given in original)
Other Misc. Expenses paid by branch: ₹700
Stock as on 31st March, 2014: ₹35,000
Depreciation to be provided on branch furniture: 10% p.a.
Q6(b)Departmental accounts with inter-departmental transfers at c
8 marks hard
Mega Ltd. has two departments, A and B. From the following particulars, prepare departmental Trading A/c and General Profit & Loss Account for the year ended 31st March, 2014:
Particulars Dept A Dept B
Opening stock as on 01.04.2013 (at cost) ₹70,000 ₹54,000
Purchases ₹3,92,000 ₹2,98,000
Carriage Inward ₹6,000 ₹9,000
Wages ₹54,000 ₹36,000
Sales ₹5,72,000 ₹4,60,000
Purchased Goods Transferred:
By Department B to A ₹50,000 —
By Department A to B —
Finished Goods Transferred:
By Department B to A ₹1,50,000
By Department A to B ₹1,75,000
Closing Stock — Purchased Goods: ₹24,000; Finished Goods: ₹1,02,000
Purchased goods have been transferred mutually at their respective departmental purchase cost and finished goods at departmental market price, and 30% of the closing finished stock with each department represents finished goods received from the other department.
Q7(b)Non-Integral Foreign Operation indicators under AS 11
4 marks medium
What are the indicators of Non-Integral Foreign Operation (NIFO)?
Q7(c)Weighted average number of shares — date of inclusion; Poten
4 marks medium
In the following list of shares issued for the purpose of calculation of weighted average number of shares, from which date is the weight to be considered:
(i) Equity Shares issued in exchange of cash,
(ii) Equity Shares issued as a result of conversion of a debt instrument,
(iii) Equity Shares issued in exchange for the settlement of a liability of the enterprise,
(iv) Equity Shares issued for rendering of services to the enterprise,
(v) Equity Shares issued in lieu of interest and/or principal of another financial instrument,
(vi) Equity Shares issued as consideration for the acquisition of an asset other than in cash.
Also define Potential Equity Share.
Q7(d)Bank income recognition on performing assets and NPAs
4 marks medium
Find out the income to be recognised by ABC Bank Ltd. for the year ended 31st March, 2014 in respect of interest on advances (₹ in lakhs) as detailed below:
Performing Asset NPA
Interest Interest Interest Interest
earned received earned received
Term loan 280 180 170 20
Cash credits and overdrafts 1700 1630 310 48
Bills purchased/discounted 400 400 180 70
Q7(e)Electricity company — accounting for consumer contributions
4 marks medium
State any four alternative accounting treatments of the fund received by an Electricity Company from consumer towards capital expenditure/service line contributions.