Time: 3Hours Marks: 100
N.B.:
(1)Question No. one is compulsory.
(2)Solve any five questions out of Q. Nos. 2 to 9.
(3)All working Notes should from part of answer.
(4)Figures to the right indicate full marks assigned to question.
(5)Specify assumptions, if any, while solving the question.
(6)This paper contains NINE questions.
Q.1.
Alpha Ltd. requests you to prepare the Final Accounts in vertical form from the following Trial Balance for the year ended 31st March, 2003.
| Particulars | Debit (Rs.) | Credit (Rs.) |
| Equity Share Capital (of Rs. 10 each) | -- | 12,00,000 |
| 9% Preference Share Capital (of Rs. 100 each) | -- | 3,00,000 |
| Reserves | -- | 3,50,000 |
| Profit & Loss Account | -- | 37,000 |
| Bank A/c | 1,14,900 | -- |
| Redemption A/c | 3,30,000 | -- |
| Debtors / Creditors | 4,85,000 | 2,62,000 |
| Income Tax Advance/ Provision for Tax (Previous year) | 1,33,600 | 1,54,000 |
| Advance Income Tax (Current Year) | 65,000 | -- |
| Commission | 18,000 | -- |
| Discount | -- | 6,500 |
| Stock (31-3-2003) | 1,82,000 | -- |
Interim Dividend paid on Equity Shares | 60,000 | -- |
| Gross Profit | -- | 5,50,000 |
| Establishment Expenses | 1,36,500 | -- |
| Fixed Assets at Cost/Accumulated Depreciation: | 2,00,000 | -- |
| Land | 7,50,000 | 75,000 |
| Building | 9,40,000 | 5,50,000 |
| Machinery | 2,50,000 | 65,000 |
| Vehicles | -- | 80,000 |
| Sale of Vehicle | ||
| 36,30,000 | 36,30,000 |
Give effect to the following information and adjustments:
(i) The authorized share capital of the company is Rs. 20,00,000 divided into equity capital and preference capital in the ratio of 80% and 20% respectively.
(ii) Redemption A/c. balance represents amounts paid for redemption of preference shares at 10% premium made on 1-4-2002.
(iii) Vehicle sold during the year had a cost of Rs. 1,00,000 on which depreciation provided was Rs. 25,000.
(iv) Depreciation to be provided on WDV basis on building @5%, Machinery @15% and on Vehicles @ 10% except on sold vehicle.
(v) Debtors include – (a) Rs. 1,80,000 paid on 1-2-2003 for purchase of shares of Gama Ltd. @ Rs. 5 per share paid up, whose face value was Rs. 10 per share. (b) Rs. 1,20,000 paid to Omega & Co. s deposit carrying interest @ 12% placed on 1-11-2002.
Interest thereon is still to be received.
(vi) Establishment expenses include: Audit fees Rs. 20,000; Consultation Fees paid to Auditor Rs. 5,000 and to Legal Advisor Rs. 24,000; Remuneration to Managing Director Rs. 36,000 and the balance Administrative expenses.
(vii) Provide dividend on equity share capital @ 4%.
(viii) Income tax for the previous year was finally assessed with a gross demand of Rs. 1,45,000.
(ix) Provide for current year income tax Rs. 1,09,200.
(x) Ignore corporate dividend tax, transfer to statutory reserve and previous years figures. (20)
Q.2.
Bharat Shining Ltd. was incorporated on 1st August, 2002 to acquire the mail order business of Pramod with effect from 1st April, 2002. The purchase consideration was agreed at Rs. 3,50,000 to be satisfied by the issue of 20,000 Equity shares of Rs. 10each fully paid & Rs. 1,50,000 Debentures on 1st October, 2002.The entries relating to transfer were not made in the books which were carried on without a break until 31st March, 2003.
On 31st March, 2003, the balances extracted from the books showed the following:
Particulars | Rs. | Particulars | Rs. |
Sales | 5,21,850 | Director’s Salary | 10,000 |
Purchases | 3,88,290 | Debenture Interest | 5,25 |
Wrapping Expenses | 8,400 | Fixed Assets | 2,50,000 |
| Postage | 4,410 | Current Assets (other than Stock) | 97,450 |
| Warehouse Rent & Rates | 9,210 | Current Liabilities | 41,620 |
| Packing Expenses | 18,900 | Preliminary Expenses s | 2,180 |
| Office Expense | 6,270 | CapitalA/c Pramod on 31-3-2002 | 2,94,500 |
| Stock on 1-4-2002 | 52,610 | Drawings – Pramod | 5,000 |
Additional information:
1. Stock on 31st March 2003 amounted to Rs. 49,460.
2 The average monthly sales for April, May & June were one-half of those for the remaining months of the year. The gross profit margin was uniform throughout the year.
3. Wrapping, postage & packing expenses varied in direct proportion to sales while the office expenses were constant each month.
4. Preliminary expenses are to be written off.
You are required to prepare the Trading & Profit & Loss Account for the year ended 31st March, 2003 apportioned between the periods before & after incorporation & the Balance Sheet as on that date. (16)
Q.3.
The Ledger Balances of Feel Bad Ltd. include:
Building Rs. 6,10,000;
Furniture Rs. 2,00,000;
Computer Rs. 3,00,000;
Debtors Rs. 3,00,000;
Preliminary Expenses Rs. 20,000;
Cash at Bank Rs. 80,000;
Bills Receivable Rs. 2,50,000;
Stock Rs. 40,000;
8% Preference Share Capital – 2,000 Shares of Rs. 100 each;
Equity Share Capital – 80,000 shares of Rs. 10 each, ‘A’ 10% Debentures Rs. 4,00,000, ‘B’ 12% Debentures Rs. 5,00,000;
Outstanding Interest for one year on Debentures Rs. 1,00,000;
Creditors Rs. 4,00,000;
Bills Payable Rs. 50,000;
Outstanding Audit fees Rs. 50,000;
Profit & Loss A/c?
1. The company has incurred heavy losses. The following scheme of reconstruction is agreed upon.
2. 8% Preference shares are to be reduced by Rs. 20 per share, Equity shares be reduced by Rs. 5 per share.
3. To settle the claim of holders of ‘A’ 10% Debentures by issue of new 11% Debentures of Rs. 2,00,000, ‘A’ Debenture holders agree to forgo their interest.
4. To settle the claim of holders of ‘B’ 12% debentures by issue of new 13% Debentures of Rs. 5,00,000. Outstanding debenture interest on ‘B’ 12% Debenture holders be paid.
5. To write off fictitious assets & debit balance of Profit & Loss A/c.
6. Directors refund Rs. 60,000 fees previously received by them.
7. Computer was to be written down by Rs. 20,000.
You are required to show:
(a) Journal entries to record the above transactions in books of Feel Bad Ltd.
(b) Balance Sheet before reconstruction.
(c) Balance Sheet after reconstruction.
Assume that all the formalities are duly complied. (16)
Q.4.
The following is the Balance Sheet of Rainbow Ltd. as on 31st March 2004:
| Liabilities | Rs. | Assets | Rs. |
20,000 8% Redeemable Preference Shares of Rs. 100 each fully paid up | 20,00,000 | Fixed Assets | 80,00,000 |
40,000 Equity Shares of Rs. 100 each fully paid up | 40,00,000 | Investments (M.V.Rs.8,80,000) | 8,00,000 |
| Securities Premium | 3,20,000 | Stock | 14,00,000 |
| General Reserve | 12,00,000 | Debtors | 14,00,000 |
| Profit & loss a/c | 3,20,000 | Bank Balance | 4,00,000 |
| Current Liabilities | 41,60,000 | ||
| 1,20,00,000 | 1,20,00,000 |
The 8% Redeemable Preference shares are to be redeemed at a premium of 10%. Fresh issue of equity shares to be made to the extent required in terms of provisions of the Companies Act, 1956. All the investments are to be sold off at market value. Temporary Bank Overdraft is to made arranged in case of shortage of funds.
The company redeemed the Preference shares on 1st April, 2004 except in case of one shareholder holding 200 Preference shares who could not be traced .
Subsequently the company issued bonus shares in the ratio of one equity share for every four equity shares held including the new issue.
Give necessary Journal Entries to record the above transactions in books of Rainbow Ltd. (16)
Q.5.
Franky & Tony are practicing Chartered Accountants sharing profits & losses in the equal ratio. On 31st March, 2003, they decided to retire by handling over their office to their assistants Sachin & Sehwag.
The Revenue statements for the 3 years ended on 31st March, 2003 were as under:
(Figures in Lakhs)
| 2001Rs. | 2002Rs. | 2003Rs. | |
| Gross Fees | 25 | 36 | 42 |
| Less: Office Overheads | 1 | 2 | 2 |
| Staff Remuneration | 14 | 18 | 22 |
| Net Profits | 10 | 16 | 18 |
On retirement of Franky & Tony, the gross fees are expected to fall by Rs. 10,00,000 in the first year. However the fees are expected to go up by Rs. 4,00,000 p.a. from 2nd year onwards. The office overheads will be Rs. 3,00,000 p.a. & remuneration to staff is expected to be around Rs. 12,00,000 in the first year, & rise by 10% p.a. in the following years. Sachin & Sehwag feel that in normal course of business their profits should be Rs. 4,00,000 per annum, per partner.
You are asked to evaluate Goodwill by purchase of next four years super earnings & ascertain the share of each partner.
Note: Use Simple Average. (16)
Q.6.
The following is the Balance Sheet of Vikrant Ltd. :
| Liabilities | Rs. | Assets | Rs. |
| Issue & Paid-up | Intangible Assets | 50,000 | |
| Equity Share Capital | 5,00,000 | Fixed Assets | 4,20,000 |
| Statutory Reserve (to be maintained for 3 more years) | 10,000 | Current Assets | 1,10,000 |
| Debentures | 1,00,000 | Profit & Loss A/c | 80,000 |
| Creditors | 50,000 | ||
| 6,60,000 | 6,60,000 |
Virat Ltd. agreed to absorb Vikrant Ltd. on the following terms:
(1) Virat Ltd. agreed to take over all the assets & liabilities.
(2) The assets of Vikrant Ltd. are to be considered to be worth Rs. 5,00,000.
(3) The purchase price is to be paid one-quarter in cash & the balance in shares which are issued at the market price.
(4) Liquidation expenses amounted to Rs. 300 agreed to be paid by Vikrant Ltd.
(5) Market value of share of Rs. 10 each of Vikrant Ltd. is Rs. 12 per share.
(6) Debentures of Vikrant Ltd. were paid.
(7) The amalgamation is in the nature of purchase.
You are required to show:
(a) Purchase consideration
(b) Ledger accounts in the books of Vikrant Ltd.
(c) Opening entries in the books of Vikrant Ltd. (16)
Q.7.
Reliable Ltd. had issued 5,000 12% Debentures of Rs. 100 each in 1999. It had Rs. 5,00,000 worth of Debentures outstanding as on 1st April, 2002. Interest on debentures is payable on 30th June & 31st December every Year.
Company purchased the following debentures for immediate cancellation:
On 1-6-2002 400 Debentures @ Rs. 97 cum-interest.
On 1-11-2002 200 Debentures @ Rs. 96 ex-interest.
On 1-12-2002 400 Debentures @ Rs. 99 ex-interest.
Pass necessary journal entries in the books of Reliable Ltd. for the year 2002-2003.
Financial Year is the Accounting Year. (16)
Q.8.
Mr. Arvind entered into following transactions of purchase & sale of Equity Shares of Aspi Ltd. The shares have paid up value of Rs. 10 per share.
| Date | No. of Shares | Terms |
| 01-01-02 | 600 | Buy @ Rs. 20 per share |
| 15-03-02 | 900 | Buy @ Rs. 25 per share |
| 20-05-02 | 1,000 | Buy @ Rs. 23 per share |
| 25-07-02 | 2,500 | Bonus shares received |
| 20-12-02 | 1,500 | Sale @ Rs. 22 per share |
| 01-02-03 | 1,000 | Sale @ Rs. 24 per share |
Additional Information:
(1) On 15th September 2002, dividend @ Rs.3 per share was received for the year ended 31st March, 2002
(2) On 12th November 2002, the company made a rights issue of equity shares in the ratio of one share for five shares held on payment of Rs. 20 per share . he subscribed to 60% of the shares & renounced the remaining shares on receipt of premium of Rs. 3 per share.
(3) Shares are to be valued on weighted average cost basis.
You are required to prepare Investment Account for the years ended 31-3-2002 & 31-3-2003. (16)
Q.9.
Differentiate between: (any two)
1)Pooling of Interest method & Purchase method.
2)Redemption of shares & Buy- back of shares
3)Contingent Liabilities & Current Liabilities
4)Ex-interest & Cum-interest transactions in Investments (16)
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