112-0104

Question Paper Financial Accounting (112) : January 2004 Section A : Basic Concepts (40 Marks) • • • • • • 1.

Answer all questions. Each question carries one mark.

Which of the following statements is true with regard to issue of shares by a joint stock company? a. b. c. d. e.

2.

This section consists of questions with serial number 1 - 40.

Shares cannot be issued for consideration other than cash In the event of over-subscription, the company can allot more number of shares than those specified in the prospectus As per the SEBI guidelines, the minimum subscription clause is applicable only to the first issue of shares by the company The share application money is converted into share capital only after the board of directors approving the allotment of shares The first issue of shares can be made at a discount.

Nilgiri Ltd. purchased its own 10% debentures from the open market and later on cancelled them. The gain on redemption of its own debentures by cancellation is to be credited to a. Capital reserve d. Securities premiums account

3.

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b. Capital redemption reserve e. Profit and loss account.

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c. General reserve

Which of the following methods of valuation of goodwill uses the present value factor?

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a. Capitalization of average profits methods b. Capitalization of super profits method c. Annuity method of super profits d. Number of years’ purchase of average profits method e. Super profits method. 4.

Who among the following is not disqualified for appointment as auditor of a company?

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a. A body corporate b. Managing Director of the company c. Wife of the Managing Director of the company d. A shareholder of the company e. An individual who is indebted to the company for a sum exceeding Rs.1,000. 5.

Which of the following will not form part of ‘Miscellaneous Expenditure’ of the Balance Sheet of a company?

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a. Preliminary expenses b. Underwriting expenses c. Loss on sale of fixed assets d. Discount on issue of shares e. Interest paid out of capital during construction. 6.

Which of the following cannot be utilized for the redemption of Preference Shares of a company? a. Proceeds of fresh issue of shares c. General reserve e. Dividend equalization reserve.

7.

b. Securities premium on fresh issue of shares d. Profit and loss account

According to AS 23, which of the following accounting methods is adopted in accounting of an Associate in the Consolidated Financial Statements? a. Cost method b. Equity method d. Super profit method e. Moving average method.

8.

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Nominal value of share capital of subsidiary company. Reserves of the holding company. Reserves and profits of the subsidiary company at the time of acquisition by the holding company. Income of the holding company after its acquisition. Income of the subsidiary company after its acquisition by the holding company.

a. Only (I) above d. (I), (III) and (IV) above 9.

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c. Amortised cost method

In the Consolidated Balance Sheet of a Holding Company, the value of minority interest consists of the proportionate share of minority shareholders in the I. II. III. IV. V.

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b. Both (I) and (II) above c. Both (I) and (IV) above e. (I), (III) and (V) above.

When the amount of investment in subsidiary is more than the nominal value of the share capital acquired by the holding company, the difference represents a. Goodwill d. Capital profit

b. Capital reserve e. Both (a) and (d) above.

c. Securities premium

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10. Under which of the following circumstances, is a special resolution not required to appoint an auditor of a company? a. b. c. d. e.

Where 27% of equity share capital is held by a State Government Where 30% of preference share capital is held by a public financial institution Where 49% of equity share capital is held by the Central Government Where 78% of debentures is held by a nationalized bank Both (b) and (d) above.

11. The accounting entry involved for issue of shares to promoters for the services rendered by them is a. b. c. d. e.

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It represents a non-physical value over and above the physical assets It is the present value of firm’s expected super earnings It is a non-monetary fixed asset It can either be purchased goodwill or inherent goodwill It is non-monetary identifiable intangible asset. < Answer >

13. Dividends paid by a subsidiary company out of pre-acquisition profits are a. b. c. d. e.

Adjusted against investment in subsidiary at the time of consolidation of accounts Adjusted against general reserve at the time of consolidation of accounts Credited to Profit and Loss account as revenue receipts at the time of consolidation of accounts Ignored for consolidation purposes The claims of the shareholders of the holding company. < Answer >

14. Underwriting commission will not be paid on the amount of shares taken by a. Promoters d. Directors’ friends

b. Directors e. All of the above.

c. Employees < Answer >

15. The costs in chartering a company should be debited to a. Share capital c. Preliminary expenses

b. General administrative expenses d. Profit and loss appropriation account

e. Legal expenses.

16. Which of the following receipts is included in calculation of net profits for the purpose of calculating remuneration payable to managerial personnel? a. Subsidy received from any Government c. Profit from the sale of part of undertaking e. Profit on issue of shares at a premium.

a. Debit to Capital Suspense account c. Debit to Share forfeiture account e. (a), (b) and (c) above.

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b. Profit on sale of forfeited shares d. Profit from the sale of immovable property

17. The money received on reissue of forfeited shares is inadvertently credited to ‘Capital Suspense’ account. The adjustment entry involved in reversing the capital suspense account is

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b. Credit to Share Capital account d. Both (a) and (b) above

18. According to Accounting Standard-18, an individual is considered to have a substantial interest in an enterprise, if that individual, directly or indirectly, has a. b. c. d. e.

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Debit goodwill account and credit share capital account Debit cash account and credit share capital account Debit promoters’ account and credit share capital account Debit share capital account and credit cash account Debit goodwill account and credit calls in arrear account.

12. Which of the following is not a feature of goodwill? a. b. c. d. e.

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20% interest in the preference share capital of the enterprise 10% or more interest in the equity share capital of the enterprise 15% or more interest in the voting power of the enterprise 20% or more interest in the voting power of the enterprise 5% or more interest in the voting power of the enterprise.

19. According to Accounting Standard-23, which of the following evidences the existence of significant influence by an investor?

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a. Representation on the board of directors of the investee b. Participation in policy making processes c. Provision of essential technical information d. Both (a) and (b) above e. (a), (b) and (c) above. 20. At the time of consolidation of accounts of the holding company, which of the following is/are to be considered while calculating the cost of control?

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I. Value of shares acquired. III. Profits/losses on revaluation of assets. V. Post-acquisition profits/losses. a. Only (I) above d. (I), (II), (III) and (IV) above

II. IV.

Pre-acquisition profits/losses. Profits/losses on revaluation of liabilities.

b. Both (I) and (II) above c. (I), (II) and (III) above e. All (I), (II), (III), (IV) and (V) above.

21. The assets of the subsidiary company are revalued as on the date of acquisition by the holding company. In the consolidated Balance Sheet, the reduction in the value of assets (if any) of the subsidiary company is to be debited to a. c. d. e.

Goodwill b. Capital reserve of the holding company Profit and loss account of the holding company Profit and loss account of the subsidiary company General reserve of the holding company. < Answer >

22. Value added is measured as a difference between the a. b. d. e.

Sales revenue and the cost of material bought Sales revenue and the cost of services bought Sales revenue and the cost of labor, depreciation and interest Sales revenue and the cost of material and services bought.

c. Pre tax profit and the depreciation

23. While computing the profits of a business, which of the following measures considers the cost of debt as well as the cost of equity? a. Gross value added b. Net value added d. Market value added e. Brand value added.

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c. Economic value added < Answer >

24. Capital employed is equal to a. c. d. e.

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Gross fixed assets + Current assets b. Gross fixed assets – Depreciation + Current assets Gross fixed assets + Current assets – Current liabilities Gross fixed assets – Depreciation + Current assets – Current liabilities Current assets – Current liabilities.

25. As per schedule VI of the Companies Act, 1956, which of the following is not shown in the Balance Sheet of a company under the head ‘Fixed Assets’? a. Lease hold property d. Designs

b. Development of property e. Unadjusted development expenditure.

c. Railway sidings

26. According to Schedule VI of the Companies Act, 1956, which of the following assets is/are shown under the head ‘investments’ in the balance sheet of a company? I. Investments in the capital of partnership firms. III. Investment in shares. a. Only (I) above d. (II), (III) and (IV) above

II. IV.

b. Only (II) above e. All (I), (II), (III) & (IV) above.

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Investment in trust securities. Investment in debentures. c. Both (III) and (IV) above

27. Which of the following statements is/are false with regard to maintenance of books of accounts by a company?

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a. The books of account can be either on cash system or accrual system of accounting b. Companies have to compulsorily follow double entry system of accounting c. A set of cost accounts must be maintained in addition to the financial accounts by the companies that are engaged in manufacturing, processing or mining activities d. The books of accounts should be preserved for a period of eight years preceding the current year e. The books of accounts shall be open to inspection by any director during business hours. 28. The auditor of a company gives a report that the financial statements of the company reflect a true and fair view subject to certain reservations. Such a report is known as a. Clean report b. Qualified opinion d. Provisional report subject to issue of final report

c. Unqualified opinion e. Both (a) and (c) above.

29. Which of the following conditions is/are essential for the reappointment of the retiring auditor? I. II. III. IV.

Passing of resolution at the Annual General Meeting. Approval from the Central Government. The retiring auditor should be qualified for reappointment. The retiring auditor has not notified in writing his unwillingness to be reappointed.

a. Only (I) above d. (I), (II) and (III) above

b. Only (II) above e. (I), (III) and (IV) above.

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c. Both (I) and (II) above

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30. In addition to the Managing Director or Manager of the company, who among the following is/are responsible for keeping proper books of accounts of a company?

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I. Every legal advisor of the company. II. Every banker of the company. III. Every officer and other employee and agent in default. IV. Every auditor of the company. V. Every member of the company. a. Only (III) above c. Both (III) and (IV) above e. All (I), (II), (III), (IV) and (V) above.

b. Both (I) and (IV) above d. Both (IV) and (V) above < Answer >

31. Special Auditor is appointed to conduct special audit of a company by the a. Board of directors of the company b. Members of the company c. Central Government d. Statutory auditors

e. Income Tax authorities. < Answer >

32. Dividends are usually paid as a percentage of a. Authorized share capital d. Called-up capital

b. Net profit c. Paid-up capital e. Called-up share capital plus calls-in-advance less un-paid calls.

33. At the time of forfeiture of shares which were originally issued at a discount, the accounting entry involves I. II. III. IV. V.

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A debit to Share capital account with the called-up value of shares forfeited. A credit to Share forfeiture account with the amount received on forfeited shares. A credit to Discount on issue of shares with the amount of discount allowed on forfeited shares. A credit to Calls-in-arrears with the amount due but not paid on forfeited shares. A debit to Share capital account with the paid-up value of shares.

a. Both (I) and (IV) above d. (I), (II) and (III) above

b. Both (IV) and (V) above e. (I), (II), (III) and (IV) above.

c. Both (I) and (II) above

34. As per Schedule VI of the Companies Act, 1956, under which of the following heads is ‘Premium on issue of debentures’ shown in the balance sheet of a company? a. Miscellaneous expenditure d. Current liabilities and provisions

b. Debentures e. Current Assets.

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c. Reserves and surplus < Answer >

35. The profit or loss on cancellation of own debentures is calculated at the time of a. Issue of debentures b. Creation of sinking fund for redemption c. Purchase of own debentures d. Cancellation of own debentures e. Payment of interest in subsequent interval.

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36. At the time of forfeiture of defaulted shares, the share forfeiture account is a. b. c. d. e.

Debited with called-up amount of the forfeited shares Debited with paid-up amount of the forfeited shares Credited with called-up amount of the forfeited shares Credited with calls-in-arrear amount of the forfeited shares Credited with paid-up amount of the forfeited shares. < Answer >

37. Which of the following is/are limitation(s) of a Balance Sheet? I. It does not contain certain assets and liabilities despite its claim to be the statement of all assets and liabilities. II. The factors, which have a vital bearing on the earnings of the organization, are not disclosed. III. Personal judgment plays a great part in determining the figures of the balance sheet. a. Only (I) above d. (II) and (III) above

b. Only (II) above e. All (I), (II) and (III) above.

c. Only (III) above

38. According to the SEBI guidelines, before the redemption of debentures having a maturity of more than 18 months, the debenture redemption reserve created, should be at least equivalent to a. 10% of the debenture issue c. 30% of the debenture issue debenture issue.

b. 25% of the debenture issue d. 50% of the debenture issue

39. Declared dividend should be classified in the Balance Sheet as a a. Provision d. Current asset

b. Current liability c. Reserve e. Miscellaneous expenditure.

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e. 75% of the < Answer >

40. According to the Companies Act, 1956, which of the following items is/are not shown under the head ‘Provisions’ in the balance sheet? a. Proposed dividends b. Provision for taxation c. Unclaimed dividends d. Provisions for insurance, pension and similar staff benefit schemes e. Both (b) and (c) above. END OF SECTION A

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Section B : Problems (60 Marks) • • • • • •

This section consists of questions with serial number 41 - 73. Answer all questions. Marks are indicated against each question.

41. ESS Ltd. issued 1,000, 10% debentures at the rate of Rs.100 each during the year 1999-2000. Interest on debentures is payable half yearly on September 30 and March 31 every year. The company has power to purchase its own 10% debentures in the open market for cancellation. The following purchases were made during the year 2002-2003: On July 01, 2002 – On December 01, 2002

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400 of its own 10% debentures at the rate of Rs.96 ex-interest. – 300 of its own 10% debentures at the rate of Rs.102 cum- interest.

The total amount debited to own debenture investment account was a. Rs. 70,000

b. Rs. 68,500

c. Rs. 69,000

d. Rs. 70,600

e. Rs. 71,600. (2 marks)

42. Sangria Ltd. proposed to issue 10,000 equity shares of Rs.100 each at a premium of 200%. The minimum amount of application money to be collected per share is a. Rs. 5.00 d. Rs.10.00

b. Rs.30.00 e. Cannot be issued at a premium of 200%.

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c. Rs.15.00 (1 mark)

43. On April 01, 2002 the balance of 12% Debentures of Rs.100 each of Libra Ltd. was Rs.5,00,000. The company reserves the right to redeem the debentures in any year by purchase in the open market. Interest on debentures is payable on September 30, and March 31, every year. On July 01, 2002, the company purchased 1,000 of its own 12% debentures as investment at Rs.99 cum-interest. The company cancelled its own 1,000 debentures on March 31, 2003. The amount of profit/loss on cancellation of own debentures on March 31, 2003 was a. Rs.1,000 (loss) b. Rs.4,000 (loss) c. Rs.4,000 (profit) d. Rs.3,000 (loss) e. Rs.1,000 (profit). (2 marks) 44. The following is the balance sheet of VIBGYR Ltd. as on March 31, 2003: Liabilities Rs. Assets Rs. Equity shares of Rs.10 each fully paid up 10,00,000 Sundry assets 19,50,000 12% Redeemable preference shares of Rs.100 Investments 4,50,000 each fully paid up 8,00,000 General Reserve 4,00,000 Cash at bank 2,00,000 Profit & Loss account 2,50,000 Share premium 25,000 Sundry creditors 1,25,000 26,00,000 26,00,000 The Board of Directors of the company decided to redeem the preference shares at a premium of 10%. In order to facilitate the redemption, the Board has taken the following decisions:

• • •

•

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To sell the investments for Rs.4,00,000.

•

To issue sufficient equity shares at a premium of Rs.2 per share to raise the balance need of funds.

• To maintain minimum bank balance of Rs.50,000. The Board of Directors initiated the above course of action during the month of April, 2003 and redeemed all the preference shares. The amount to be transferred to Capital Redemption Reserve is a. Rs.70,000

b. Rs.5,25,000

c. Rs.1,25,000

d. Rs.8,00,000

e. Rs.5,50,000. (2 marks)

45. Silver Coats Ltd. invited applications for 1,00,000 equity shares of Rs.10/- each at a premium of Rs.2 per share. The entire issue was underwritten by three underwriters in the following percentages: Anil Vimal Sunil received are:

30% 40% 30%

The details of marked and unmarked applications

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Marked applications of Anil Vimal Sunil Unmarked applications number of shares is a. Nil

b. 9,600

22,000 shares 24,000 shares 28,000 shares 16,000 shares c. 3,200

The final liability of Vimal in terms of d. 16,000

e. 8,000. (2 marks)

46. H. Ltd. acquired 80% shares of S. Ltd. on April 01, 2002. The Balance Sheets of H. Ltd. and S. Ltd. as on March 31, 2003 are as follows:

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Balance sheets of H. Ltd. and S. Ltd. as on March 31, 2003 H. Ltd. S. Ltd. S. Ltd. Liabilities Assets H. Ltd. (Rs.) (Rs.) (Rs.) (Rs.) Share capital (Rs.10 each) 9,00,000 3,00,000 Land & building 4,20,000 2,40,000 General reserve 3,90,000 1,50,000 Plant & machinery 3,90,000 1,30,000 Profit & loss a/c 1,90,000 1,30,000 Furniture & fixtures 1,90,000 90,000 Sundry creditors 1,00,000 60,000 Investments 3,20,000 20,000 Bills payable 60,000 50,000 Stock 90,000 50,000 Sundry debtors 1,20,000 1,00,000 Bills receivable 70,000 40,000 Cash & bank 40,000 20,000 16,40,000 6,90,000 16,40,000 6,90,000 Other information: i. As on the date of acquisition, the following balances were revealed in the books of S. Ltd.: General reserve –– Rs.1,00,000 Profit & loss account –– Rs. 60,000 (cr.) ii. H. Ltd. received a dividend of Rs.24,000 from S. Ltd. from pre-acquisition profits and credited the amount to investment account. iii. Sundry debtors of H. Ltd. include Rs.10,000 due from S. Ltd. iv. Total bills payable of S Ltd. consisted of bills drawn by H. Ltd. and the same were discounted with the bank by H. Ltd. The total of Consolidated Balance Sheet of H. Ltd. and S. Ltd. as on March 31, 2003 was a. Rs.23,30,000 b. Rs.20,10,000 c. Rs.20,24,000 d. Rs.20,00,000 e. Rs.19,60,000. (3 marks) < Answer >

47. The following is the balance sheet of Rainbow Ltd. as on March 31, 2003. Liabilities

Rs.

Rs.

Assets

Rs.

80,000 Equity shares of Rs.10 each

8,00,000

Goodwill

General reserve

1,00,000

Plant & Machinery

4,70,000

Land & Building

4,20,000

Profit & loss A/c.: Balance as on April 01, 2002 Profit before tax for the year

40,000 1,60,000

2,00,000

40,000

Investments (10%)

50,000

Stock

40,000

Sundry creditors

70,000

Sundry debtors

1,00,000

Bills payable

30,000

Bills receivable

40,000

Provision for taxation

50,000

Cash & Bank

50,000

Discount on issue of shares 12,50,000 Additional information: i.. The assets were revalued as under • • Plant & Machinery Rs.5,00,000

• •

ii. iii.

• Land & Building

Rs.4,00,000

• Investments Rs. 70,000 Profit includes Rs.5,000 income from non-trading investments. Normal return on capital employed in the similar business is 10%.

40,000 12,50,000

iv. v.

Adjustment of depreciation is not required for valuation of goodwill. Income-tax rate is 30%.

The value of goodwill on the basis of 4 years’ purchase of super profits of the company is a. Nil

b. Rs.19,600

c. Rs.15,925

d. Rs.63,700 e. Rs.78,400. (3 marks)

48. Fairex Ltd. issued 2,000 10% Preference shares of Rs.100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 Equity Shares of Rs.100 each at a premium of 20 % per share. At the time of redemption of Preference Shares, the amount to be transferred by the company to the Capital Redemption Reserve Account is a. Rs. 50,000

b. Rs. 40,000

c. Rs.2,00,000

d. Rs.2,20,000

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e. Rs. 70,000. (1 mark)

49. The value of equity share of Buzy bee Ltd. as per yield method is Rs.195.80 and as per fair value method is Rs.205.20. The value of the equity share according to intrinsic value method is a. Rs.205.50

b. Rs.214.60

c. Rs.195.80

d. Rs.225.50

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e. Rs.265.00. (1 mark) < Answer >

50. The Balance Sheet of Marvel Ltd. as on March 31, 2003 is as under: Liabilities Equity share capital Reserves and surplus 12% Debentures Sundry creditors Bank overdraft Provision for taxation

Rs. 6,00,000 2,10,000 1,50,000 72,500 32,500 45,000 11,10,000

Assets Land and building Plant and machinery Furniture and fixtures Sundry debtors Inventories Cash

Rs. 4,70,000 2,50,000 2,00,000 90,000 65,000 35,000 11,10,000 The following assets

are revalued as under: Land and building Rs.5,00,000 Plant and machinery Rs.2,00,000 Sundry debtors Rs. 85,000 The profit of the company for the year ended March 31, 2003 was Rs.1,15,500. The company charges depreciation on all its fixed assets at the rate of 10% per annum. The depreciation adjustment on the revalued assets should be made for one year. The return on capital employed to equity shareholders is a. 14.33%

b. 12.89 %

c. 13.12 %

d. 10.85 % e. 14.15 %. (2 marks) < Answer >

51. Consider the following balances pertaining to Vardhan Ltd. as on March 31, 2003: 20% Debentures a/c Debenture redemption fund a/c in the following securities and shares:

Rs.1,00,000 Rs.1,13,000 The above fund was invested

Particulars Rs. Rs.32,000, 9.5%Government loan 34,000 Rs.36,000, 12% Government loan 34,400 Rs.12,000, 18% Debentures 11,200 334 Preference shares of Rs.100 each 33,400 The above investments were sold on the same day as under: 9.5% Government loan at par 12% Government loan at 96% 18% Debentures at Rs.90 each Preference shares at Rs.105 each. On April 01, 2003, the company redeemed the debentures at a premium of 10%. The amount transferred to general reserve out of debenture redemption fund account is a. Rs.1,14,830

b. Rs.1,04,830

c. Rs.1,10,600

d. Rs.1,12,430

e. Rs.1,02,430. (3 marks)

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52. The following is the Balance Sheet of Pioneer Ltd. as on March 31, 2003. Balance Sheet as on March 31, 2003

Liabilities 75,000 equity shares of Rs.10 each fully paid General reserve Profit & loss a/c. Bank loan (20%) Sundry creditors Provision for taxation

i. ii.

Rs. Assets Goodwill 7,50,000 Plant and Machinery 1,00,000 Land and Building 2,30,000 Stock-in-trade 1,50,000 Sundry debtors 2,80,000 Cash at bank 1,40,000 Discount on issue of shares Preliminary expenses 16,50,000

Rs. 60,000 6,00,000 2,50,000 1,10,000 4,00,000 90,000 50,000 90,000 16,50,000

Additional information: Sundry debtors include a debt of Rs.90,000 of which only Rs.60,000 is likely to be recovered. A provision has to be made for the balance. The profits earned by the company after payment of tax at the rate of 40% in the last four years were as under:

1999-2000 2000-2001 2001-2002 2002-2003

Rs.1,00,000 Rs.1,10,000 Rs.1,30,000 Rs.1,40,000

iii.

The dividends paid by the company for the last four

years were as follows:

1999-2000 2000-2001 2001-2002 2002-2003

11% 12% 14.5% 14.5% The value of goodwill (rounded off) of the company by using the

capitalization method is a. Rs. 60,000 d. Rs.1,10,000

b. Rs. 73,000 e. No goodwill.

c. Rs. 90,000 (3 marks)

53. The Authorized Share Capital of SIRI Ltd. is Rs.15,00,000, which is divided into 1,00,000 Equity Shares of Rs.10 each and 5,000 10% Preference Shares of Rs.100 each. Out of 1,00,000 equity shares, 80,000 shares have been subscribed and called up and paid up to the extent of Rs.8 per share.

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The company has the following balances as on March 31, 2003: Profit & Loss a/c.(Credit)

Rs.2,00,000

General reserve

Rs.2,20,000

The company has decided in a general meeting to capitalize part of the above reserves for the following purposes:

• •

•

To make partly paid equity shares into fully paid shares.

•

To issue one bonus share for every eight shares held.

The amount to be transferred to Bonus to Shareholders account to effect the above transactions is a. Rs.1,00,000

b. Rs.1,60,000

c. Rs.2,60,000

d. Rs.3,10,000

e. Rs.4,20,000. (2 marks)

54. On December 31, 2003, Audi Monocarp Ltd. buys 1,000 of its own 12% Debentures of the nominal value of Rs.100 each at Rs.97 ex-interest from the open market. The company pays debenture interest half-yearly on September 30 and March 31.

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The amount paid by the company in respect of the above purchase is a. Rs. 93,000

b. Rs. 97,000

c. Rs.1,00,000

d. Rs.1,01,000

e. Rs.1,04,000. (1 mark)

55. The following information is extracted from the books of Mercury Limited: i. ii.

The paid-up share capital of the company consists of 1,000, 15% preference shares of Rs.100 each and 20,000 equity shares of Rs.10 each. The average annual profits of the company after providing for depreciation and taxation amounted to Rs.75,000. It is considered necessary to transfer Rs.10,000 to general reserve before declaring any

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iii.

dividend. The normal return expected by investors on equity shares in similar business is 10%.

The value of an equity share of Mercury Ltd. is a. Rs.33.3

b. Rs.37.5

c. Rs.10.0

d. Rs.25.0

e. Rs.27.5. (2 marks)

56. Sonic Ltd. issued 10,000 equity shares of Rs.10 each at a premium of 20%. The share amount was payable as: On application

Rs.2

On allotment (including premium)

Rs.5

On first call

Rs.3

On second and final call

Rs.2

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Applications were received for 14,000 shares and the shares were allotted to applicants on pro-rata. Vikas, who was allotted 300 shares, failed to pay the first call. On his subsequent failure to pay the second and final call, all his shares were forfeited. Out of the forfeited shares, 200 shares were re-issued @ Rs.9 per share. The amount transferred to capital reserve is a. Rs. 200

b. Rs.1,000

c. Rs. 800

d. Rs.1,300

e. Rs.1,200. (2 marks) < Answer >

57. The profits of Kavya Ltd. for the past 5 years are as under: Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003

Rs. 75,000 3,00,000 3,75,000 4,50,000 7,42,500

The company noticed the following errors, while computing the weighted average profits for the purpose of valuation of goodwill:

••

On October 01, 2000, repair expenses of Rs.30,000 of machinery were capitalized. Kavya Ltd. provides depreciation at the rate of 10% on straight-line method. •• The profit for the year 2002-2003 includes profit of Rs.22,500 on sale of plant. The weighted average profit of the company to be considered for valuation of goodwill is a. Rs.4,76,100

b. Rs.3,79,500

c. Rs.2,84,100

d. Rs.5,00,100

e. Rs.3,78,500. (2 marks)

58. Amax Ltd., a listed company, proposed to issue 10,000 equity shares of Rs.100 each at par by way of private placement. The maximum amount of brokerage that can be paid by the company is a. Rs. 5,000

b. Rs 10,000

c. Rs.50,000

d. Rs.25,000

< Answer >

e. No brokerage can be paid. (1 mark)

59. The profit and loss account of Urmila Ltd. for the year ending March 31, 2003 showed a debit balance of Rs.75,000. Subsequently, it was noticed that the following transactions were omitted:

< Answer >

 

Goods worth Rs.3,000 were returned to the supplier and was not recorded in the books. The rent of the godown is Rs.24,000 per annum, out of which only Rs.20,000 was paid. The rent accrued but not paid was not considered in the books of account.  One cheque given by a customer for Rs.7,000 was dishonored and the fact of dishonor was not recorded in the books. The profit/loss made by the company after considering the above transactions is a. Rs.76,000(Profit) d. Rs.69,000(Profit)

b. Rs.74,000(Profit) e. Rs.76,000(Loss).

c. Rs.83,000(Loss) (2 marks)

60. The issued capital of Marshal Ltd. is Rs.100,00,000 divided into 10,00,000 shares which were issued at a premium of 100%. The company offers two shares for every three shares held to its existing shareholders. If the rights issue price is Rs.410 per share and the market value at the time of rights issue is Rs.560 per share, the value of right is

< Answer >

a. Rs. 60

b. Rs. 20

c. Rs.150

d. Rs.410

e. Rs.560. (1 mark) < Answer >

61. Consider the following data pertaining to Zenith Ltd. as on March 31, 2003: Particulars

Rs.

Share capital: Authorized share capital (50,000 equity shares of Rs.10 each)

5,00,000

Called-up and Paid-up capital (37,500 shares of Rs.8 each)

3,00,000

Capital employed

4,50,000

Profit for the year 2002-2003

63,000

If the normal return is

10%, the value of equity share of Zenith Ltd. is a. Rs.11.67

b. Rs. 8.50

c. Rs.11.20

d. Rs. 9.30

e. Rs 14.00. (2 marks) < Answer >

62. Consider the following data pertaining to Ravera Ltd. Authorized share capital Rs. 20,00,000 Issued, called-up and paid -up capital Rs. 12,00,000 Calls in advance Rs. 80,000 Securities Premium Rs. 1,20,000 Profit for the current year Rs. 2,55,600 The directors of the company proposed a dividend of 12%. The amount debited to Profit and Loss Appropriation account on account of proposed dividend is a. Rs. 30,672

b. Rs.2,40,000

c. Rs.1,53,600

d. Rs.1,44,000

e. Rs.1,58,400. (1 mark)

63. Planet Ltd. issued 1,000 14% debentures of Rs.100 each at a premium of 10%, redeemable at a premium of 5%. The journal entry to record the issue of debentures is Rs. Bank a/c

Dr.

1,10,000

Discount on issue of Debentures a/c

Dr.

5,000

To 14% Debentures a/c Dr. Dr.

1,10,000 5,000

To 14% Debentures a/c

1,00,000

To Premium on redemption of Debentures a/c

5,000

To Debenture premium a/c

10,000

Bank a/c

Dr.

1,10,000

To 14% Debentures a/c

1,00,000

To Debenture premium a/c

10,000

Bank a/c

Dr.

1,10,000

Loss on issue of Debentures a/c

Dr.

5,000

To 14% Debentures a/c

1,10,000

To Premium on redemption of Debentures a/c 14% Debentures a/c Loss on issue of Debentures a/c To Bank a/c

Rs.

1,15,000

Bank a/c Loss on redemption of Debentures a/c

< Answer >

Dr. Dr.

5,000 1,00,000 5,000 1,05,000. (2 marks)

64. Mars Ltd. issued 10,000 18% debentures of Rs.100 each at a premium of 20%. Mr. Solomon entered into an underwriting agreement for 80% of the issue with a firm liability of 1,000 debentures under a clause of

< Answer >

maximum commission. Marked applications were for 6,000 debentures. The underwriting commission payable to Mr. Solomon is a. Rs.30,000

b. Rs.24,000

c. Rs.48,000

d. Rs.20,000

e. Rs.18,000. (2 marks) < Answer >

65. Consider the following data pertaining to Wise Ltd. as on March 31, 2003: Particulars

Rs.

1,000 Equity shares of Rs.100 each

1,00,000

1,000 10% Preference shares of Rs.100 each

1,00,000

500 14% Debentures of Rs.100 each

50,000

Sundry creditors

65,000

Fixed assets

2,50,000

Current assets

65,000

a. Nil b. 1 time

c. 2 times

The asset backing of equity shares is

d. 3 times

e. 4 times. (1 mark)

66. Viran Ltd. purchased Machinery from Indraja Company for a book value of Rs.4,00,000. The consideration was paid by issue of 10% debentures of Rs.100 each at a discount of 20%. The debenture account is credited with a. Rs.4,00,000 b. Rs.5,00,000 c. Rs.3,20,000 e. Debentures cannot be issued otherwise than for cash.

< Answer >

d. Rs.4,80,000 (1 mark)

67. Prosperous Ltd. is a newly established company which issued 20,000 shares of Rs.100 each at a premium of Rs.20 per share payable as follows: On application

Rs.20

On allotment

Rs.50 (including premium)

On first call

Rs.30

On second and final call

Rs.20

< Answer >

Applications were received for 30,000 shares and pro rata allotment was made to applicants of 24,000 shares. Money excess received on application was employed on account of sum due on allotment. Rahul, to whom 400 shares were allotted failed to pay the allotment money and on his subsequent failure to pay the first call, his shares were forfeited. Mahesh, the holder of 600 shares failed to pay the two calls and his shares were forfeited after the second call. Of the forfeited shares, 800 shares were reissued to Kishore at a discount of 10%, the whole of Rahul’s forfeited shares being reissued. The total of liabilities side of the Balance Sheet of the company after effecting the above transactions will be a. Rs.24,00,000

b. Rs.24,03,600

c. Rs.28,00,000

d. Rs.27,80,000

e. Rs.23,78,000. (3 marks) < Answer >

68. Kanishk Ltd. issued 1,50,000 equity shares of Rs.10 each at a premium of Rs.2 payable as under: On application On allotment (including premium) On first call On final call

Rs.2 Rs.5 Rs.3 Rs.2

Sudha, who applied for 1,000 shares, was allotted 600 shares. She failed to pay the amount due on first call and final call. The shares allotted to her were forfeited. Out of the forfeited shares, 300 shares were re-issued to Mr.Tarun at Rs.9 per share. The balance in the share forfeiture account is a. Rs.1,500

b. Rs.1,200

c. Nil

d. Rs.3,000

e. Rs.4,200. (1 mark)

69. Zidney Ltd. issued 20,000 equity shares of Rs.100 each at par, out of which, only Rs.85 is called up. Mr. Arun did not pay the call money of Rs.25 and hence all the 1,000 shares allotted to him were forfeited. If all these shares are to be re-issued as fully paid-up, the minimum amount to be collected is

< Answer >

a. Rs. 40,000

b. Rs.1,00,000

c. Rs. 15,000

d. Rs. 60,000

e. Rs. 25,000. (2 marks)

70. Little Stars Ltd. issued 20,000 shares of Rs.10 each at a premium of 20% on May 01, 2003, payable as follows: On application On allotment On first and final call

< Answer >

Rs.4.50 (inclusive of premium) Rs.2.50 Rs.5.00

Mrs. Nandita, to whom 1,000 shares were allotted, has paid Rs.5,000 on June 01, 2003. At the time of remitting allotment money, she indicated that the excess money should be adjusted towards call money. The directors of the company made the first and final call on October 31, 2003. The company has policy of paying interest in calls in advance. The amount of interest paid to Mrs. Nandita on calls-in-advance is a. Rs. 62.50

b. Rs. 52.08

c. Rs.125.00

d. Rs.150.00

e. Rs. 75.00. (2 marks) < Answer >

71. Consider the following data pertaining to Mayuri Ltd. as on March 31, 2003: Per share

Particulars

Face value Rs.

Paid-up value Rs.

Share Capital: 20,000 equity shares 100 100 10,000 equity shares 100 80 10,000 equity shares 100 70 If the value of net assets of the company is Rs.51,00,000, the value per share of Rs.80 paid-up share is a. Rs.120.00 b. Rs.140.00 c. Rs.107.50 d. Rs.156.70 e. Rs.127.50. (1 mark) 72. The Managing Director of Charanya Ltd. is entitled to a commission of 5% on net profits before charging such commission. The net profit of the company for the year ended March 31, 2003 was reported to be Rs.25,50,000. Subsequently, it was noticed that the following transactions were omitted: Particulars Payment of Director’s remuneration Sale of a plant (cost price Rs.1,00,000; written down value Rs.80,000) Payment of bonus to Production Executive Payment of income tax and super tax Issue of 20,000 equity shares of Rs.10 each at a premium of Rs.2 The commission payable by the company to the managing director for the year 2002-2003 is a. Rs.1,23,500

b. Rs.1,26,000

c. Rs.1,28,500

d. Rs.1,17,620

< Answer >

Rs. 50,000 1,10,000 50,000 5,000 2,40,000 e. Rs.1,60,000. (2 marks)

73. Sunshine Ltd. issued 2,00,000 equity shares of Rs.10 each at a premium of 20%, payable: On application

Rs.2

On allotment

Rs.5 (including premium)

On first call

Rs.3

On final call

Rs.2

Mr. Suresh, to whom 500 shares were allotted, failed to pay the first call money and his shares were forfeited before the final call is made. The journal entry to record the forfeiture by the company is

< Answer >

Rs. a.

Share capital a/c.

Dr.

Share premium a/c.

b.

d.

e.

4,000

Dr.

1,000

To Share first call a/c.

1,500

To Share forfeiture a/c.

3,500

Share capital a/c.

Dr.

Share premium a/c.

c.

Rs.

5,000

Dr.

1,000

To Share first call a/c.

1,500

To Share final call a/c.

1,000

To Share forfeiture a/c. Share capital a/c. Dr. To Share first call a/c. To Share forfeiture a/c. Share capital a/c.

3,500 4,000 1,500 2,500 Dr.

5,000

To Share first call a/c.

1,500

To Share forfeiture a/c.

3,500

Share capital a/c

Dr.

5,000

To Share premium a/c.

1,000

To Share first call a/c.

1,500

To Share forfeiture a/c.

2,500

END OF SECTION B

(2 marks)

Suggested Answers Financial Accounting (112) : January 2004 1.

Answer : (d) Reason : The application money received from the public on issue of shares, unless allotment is approved by the board of directors of the company it cannot be converted into share capital and till such time, the application money received will remain as liability. Thus, the statemnt in alternative (d) is true. The other statements are not the correct answers because, the Shares can be issued for consideration other than cash and the alternative (a) is incorrect. In the event of over-subscription, the company cannot allot more number of shares than those specified in the prospectus and the caompany has to allot the shares either on pro rata or return the excess number of applications and refund the excess money. Thus, the alternative (b) is incorrect answer. As per the SEBI guidelines, the minimum subscription clause is applicable to the issue of shares either the first issue or subsequent issues of shares by the company and thus, the statement in alternative (c) is incrrect. As per the provisions of section 79 of the Companies Act, the shares cannot be issued at a discount unless at least an year should have been elapsed from commencement of the business by the company and the shares which are to be issued at a discount should be of a class which has already been issued. Thus, the alternative (e) is not the correct answer. Thus, the correct answer is alternative (d).

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2.

Answer : (a) Reason : The gain on redemption of own debentures by cancellation is to be credited to Capital reserve (a) since it is capital profit. And the loss on cancellaion is to be tranaferred either to share premium account or profit and loss account. Thus, the alternative (a) is the correct answer. The amount to be accumulated for redemption of debentures or preference shares is to be credited to Capital redemption reserve (b) account and the gain on redemption of own debentures isnot credited and is not the correct answer. Since the gain is not out of business activity, it cannot be credited to general reserve (c) and is not the correct answer. The loss on redemption of own debentures is debited to securities premium (d) account and it is not the correct answer. The gain on redemption is credited to capital reserve account and it is not credited to profit and loss account and any loss on redemption is debited to profit and loss account or securites premium account. Thus, alternative (e) is not the correct answser. Hence, alternative (a) is the correct answer.

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3.

Answer : (c) Reason : Annuity Method of super profits © of valuation of goodwill uses the present value factor since there is heavy loss of interest. Capitalisation of average profits method (a) is not the correct answer since there is not such method through which goodwill can be assigned a value. Capitalisation of super profits method (b) tries to find out the amount of capital needed for earning the super profit and it does not consider the present value factor and hence is not the correct answer. No. of years’ purchase of average profits method (d) is also known as simple profit method where in the goodwill is calculated with the help of the average annual profit expected to accrue in future based on past profits and the number of years of purchase as agreed by the parties and is not the correct answer. Number of years of purchase of super profits method (e) where in super profits are computed taking into account the average profits and the normal rate of return in the similar type of industry based on the capital employed in the business the difference between the average profit and the normal return is the super profit an is multiplied with the number of years’ purchase as agreed by the parties. And it is not the correct answer. Thus, alternative (c) is the correct answer. .

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4.

Answer : (c) Reason : Section 226 of the Companies Act specifies the persons qualified as an auditor of the company and the wife of the Managing director of the company (c) if otherwise qualified can be appointed as an auditor of a company. A body corporate (a) is disqualified to be appointed as auditor of a company. An officer or employee of the company is disqualified and by virtue of this, Managing Director of the company (b) is disqualified to appointed as auditor of a company. A shareholder of the company (d) with voting rights cannot be appointed as auditor of a company. An individual who is indebted to the company for a sum exceeding Rs.1,000.(e) or who has given any guaranteed or provided any security in connection with the indebtedness of any third person is disqualified to be an auditor of a company. Thus, alternative (c) is the correct answer,

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5.

Answer : (c)

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Reason : The loss on sale of fixed assets © is debited to profit and loss account and is not carried over under Miscellaneous expenditure in the balance sheet of a company and alternative © is the correct answer. the following will form part of ‘Miscellaneous Expenditure’ of the Balance Sheet of a company till they are adjusted/written off completely Preliminary expenses (a), Underwriting expenses (b), Discount on issue of shares (d) and Interest paid out of capital.(e) are not the correct answers. 6.

Answer : (b) Reason : Securities Premium on fresh issue of shares (b) cannot be utilized for the redemption of Preference Shares of a company. As per the Companies Act, the redemption may be done from the proceeds of fresh issue of shares or undistributed profits which would otherwise be available for dividend. Thus, proceeds of fresh issue of shares (a), General reserve (c), Profit and loss account credit balance and Dividend equalization reserve are not the correct answers since they can be utilized for redemption of preference shares.

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7.

Answer : (b) Reason : Equity method is adopted in accounting for investments of the investor, when the investor has significant influence over the investee. Cost method (a) is the method where in the acquisition of any asset is reported in the books at its historical cost. And it is not the appropriate method to account for the investments where the investor has significant influence. Amortised cost method (c) is a method where in the cost of the asset is amortised over its useful life and is not the appropriate method. Super profit method (d) is one of the methods of valuation of goodwill. Moving average method (e) is a method of valuation of inventories and is not the method of accounting for investments of the investor when the investor has significant influence over the investee. Thus, (b) is the correct answer.

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8.

Answer : (e) Reason : In the Consolidated Balance Sheet of a Holding Company, the value of minority interest consists of the proportionate share of minority shareholders in the (I) Nominal value of share capital of subsidiary company (III) Reserves and profits of the subsidiary company at the time of acquisition by the holding company and (V). Income of the subsidiary company after the acquisition by the holding company Hence, the alternative (e) the combination of the these statements is the correct answer. (II) Reserves of the holding company and (IV) Income of the holding company after its acquisition are entirely the share of the share holders of the holding company and do not belong to the minority share holders of the subsidiary company and the alternatives (b), (c) and (d) with these statements are incorrect. The alternative (a) is incorrect because it does not represent the entire share of the minority share holders. Thus, alternative (e) is the correct answer.

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9.

Answer : (a) Reason : When the value of investment in subsidiary company is more that the nominal value of the share capital acquired by the holding company, the difference represents Goodwill on consolidation (a) is the correct answer. On the other hand Capital reserve on consolidation (b) is the excess of the share in equity or net assets of the subsidiary over and above the price paid for the investment and is not the correct answer .Securities premium on consolidation (c) there is no such account on consolidation as regards the price paid for the control over the subsidiary company. Securities premium is the amount representing the value of the share over and above its face value and is not the correct answer. Capital profit (d) is the profit and reserves of the subsidiary company, of which the holding company will have proportionate share. The capital profits are the postacquisition profits of the subsidiary company and is not the correct answer. The alternative (e) the combination of (a) and (d) one correct answer with one incorrect answer is incorrect and thus, (a) is the correct answer.

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10.

Answer : (d) Reason : Where 78% of debentures is held by a nationalized bank (d) a company need not pass a special resolution of appoint an auditor of the company. In case of the situations stated in other alternatives where 27% of equity share capital is held by a State Government (a) where 30% of preference share capital is held by a public financial institution & where 49% of equity is held by the Central Government. (c) a special resolution is required to appoint an auditor. (d) is the correct answer.

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11.

Answer : (a) Reason : The accounting entry involved for issue of shares to promoters for the services rendered by them is debit goodwill account and credit share capital account (a). Since in recognition of the vale of services rendered by the promoters certain number of shares are allotted to them for which no consideration is coming forth and is debited to goodwill and credited to share capital account. Since no cash is coming forth and no obligation form the promoters to pay in future the entries in alternatives (b) and (c) are incorrect. It is issue of shares in lieu of the services rendered and hence

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share capital account is not debited and no payment of cash is involved and cash account cannot be credited and alternative (d) is incorrect. Since no payment from the directors is expected the question of calls in arrears does not arise and the alternative (e) is incorrect. 12.

Answer : (e) Reason : Goodwill is un-identifiable intangible and hence the statement in alternative (e) is incorrect and is the correct answer which states that it is non-monetary identifiable intangible asset. It is nonmonetary in character is true but it is not identifiable. The other features stated in alternatives. It represents a non-physical value over and above the physical assets (a), It is the present value of firm’s expected super earnings (b) it is the price paid for future earnings ,. It is a nonmonetary fixed asset (c) it is shown under fixed assets which of non-monetary in character the goodwill can be either purchased or self generated (d) are the true features of goodwill and are not the correct answers.

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13.

Answer : (a) Reason : Dividends paid by a subsidiary company out of pre-acquisition profits are adjusted against Investment A/c for the purpose of arriving at cost of control at the time of consolidation of accounts (a) since they form part of capital profits they are adjusted against the cost of control and alternative (a) is the correct answer. Since, they are capital profits, they cannot be adjusted against general reserve at the time of consolidation (b) is the incorrect answer. They are not revenue receipts to be transferred to Profit and Loss account at the time of consolidation of accounts and alternative (c) is the incorrect answer. Since they are part of capital profits, they cannot be ignore for consolidation purposes. And alternative (d) is incorrect. The dividends declared out of postacquisition profits are the claims of the shareholders of the holding company. and do not form part of cost of control. The alternative (e) is not the correct answer. Thus, alternative (a) is the correct answer.

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14.

Answer : (e) Reason : According to Section.76 of the Companies Act, a company is authorized to pay underwriting commission only if the shares or debentures are offered to the general public. No underwriting commission can be paid, if the issue is privately placed. The shares taken by Promoters, Directors, employees and directors’ friends cannot be considered as shares offered to the general public. As such no underwriting commission is payable on these shares.

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15.

Answer : (c) Reason : The costs in chartering a company are considered as preliminary expenses and hence should be debited to preliminary expenses account. Subsequently, they will be written off over a period of time.

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16.

Answer : (a) Reason : Subsidy received from any Government is included while calculating remuneration payable to managerial personnel and alternative (a) is the correct answer. The receipts stated in other alternatives -Profit on sale of forfeited shares (b), Profit from the sale of part of undertaking (c), Profit from the sale of immovable property (d) and Profit on issue of shares at a premium.(e) are not included in the profit while calculating the remuneration payable to the managing personnel. Thus, alternative (a) is the correct answer.

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17.

Answer : (e) Reason : The adjustment entry involved in reversing ‘Capital Suspense’ account which is created, while placing the amounts received on reissue of forfeited shares at a discount is (a) Debit to Capital Suspense account (b) Credit to Share Capital account (c)Debit to Share forfeiture account and thus, the combination of alternatives (a), (b) and (c) the alternative (e) is the correct answer..

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18.

Answer : (d) Reason : An individual is considered to have a substantial interest in an enterprise, if that individual owns, directly or indirectly 20% interest in the voting power of the enterprise (d). The other alternatives are incorrect answers because they do not comply with the condition specified. Thus, (d) is the correct answer.

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19.

Answer : (e) Reason : According to Accounting Standard-23, Representation on the board of directors of the investee (a); Participation in policy making processes (b) and (c) Provision of essential technical information. All the three evidences the existence of significant influence by an investor.

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20.

Answer : (d) Reason : While calculating the cost of control at the time of consolidation of accounts of the holding company, the proportionate of share of the holding company in the values stated in the statements (I) Value of shares acquired (II) Pre-acquisition profits/losses (III) Profits/losses on revaluation of assets (IV) Profits/losses on revaluation of liabilities is considered . The

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combination of these statements i.e. alternative (d) is the correct answer. Post acquisition profits /losses are not considered while computing cost of control. The alternatives (a), (b), (c) and (e) which do not constitute the correct combination are not the correct answers. 21.

Answer : (a) Reason : As on the date of acquisition by the holding company, the reduction in the value of fixed assets in the event of revaluation of the assets (if any) of the subsidiary company, at the time of consolidation is to be debited to (a) Goodwill. The capital reserve of the holding company (b) Profit and loss account of the holding company (c) General reserve of the holding company (e) are not effected by the reduction in the value of fixed assets of the subsidiary company and are not the correct answers. Profit and loss account of the subsidiary company (d) is not effected by the revaluation the proportionate loss of holding company is adjusted against the goodwill and proportionate share of minority share holders is reduced from minority interest Thus, alternative (d) is not the correct answer. Alternative (a) is the correct answer.

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22.

Answer : (e) Reason : Under Subtractive approach of computation of Value added is measured as a difference between the Sales revenue and the cost of material and services bought (e).In calculating profit, bought in materials and services, labor, depreciation interest etc. are deducted from sales revenue and while calculating value added only the coast of bought in materials and services are deducted. Thus, alternative (e) is the correct answer and the components in other alternatives do not suit the computation and are not the correct answers.

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23.

Answer : (c) Reason : Economic value added © measure considers the cost of debt as well as the cost of equity while computing profit of a business. Gross Value added (a) is arrived at by deducting from sales revenue and any other direct income and investment income, the cost of all materials and services and other extraordinary expenses and thus it includes other expenses in addition to the cost of debt and equity. And is not the correct answer. Net value added (b) is derived by deducting depreciation from the gross value added. Market value added (d) is the difference between the market value of the invested capital and boo value of invested capital. It is a measure of shareholders’ value. And is not the correct answer. Brand Value Added (e) is a tool that quantifies the economic value of a brand. And is not the correct answer. Thus, (c) is the correct answer.

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24.

Answer : (d) Reason : Capital employed = Net fixed assets + net current assets = Gross fixed assets – depreciation + current assets – current liability.

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25.

Answer : (e) Reason : As per schedule VI of the Companies Act, 1956, Unadjusted development expenditure (e) is shown under Miscellaneous expenditure and is the correct answer. It is not shown under the head fixed assets. The other assets stated in alternatives Lease hold property (a), Development of property (b), Railway sidings (c) and Designs (d) are the fixed assets and not the correct answers. Thus, alternative (e) is the correct answer.

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26.

Answer : (e)

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Reason : According to the Schedule VI of the Companies Act, 1956, the following assets is/are shown under the head ‘investments’ in the balance sheet of a company I Investments in the capital of partnership firms II

Investment in Trust securities

III

Investment in shares

IV

Investment in debentures.

Hence the alternative (e) the combination of all the investments mentioned above is the correct answer. 27.

Answer : (a) Reason : As per the Companies Act, 1956, with regard to maintenance of books of accounts by a company it is mandatory that the books of account are to be maintained under accrual system of accounting it cannot be any other system of accounting. Thus, the statement in alternative (a)The books of account can be either on cash system or accrual system of accounting is false and is the correct answer. The statements in other alternatives are true with regard to maintenance of books of accounts and are not the correct answers(b)Companies have to compulsorily follow double entry system of accounting (c) A set of cost accounts must be maintained in addition to the financial accounts by the companies that are engaged in manufacturing, processing or mining activities (d) the books of accounts should be preserved for a period of eight years preceding the current year (e) The books of account shall be open to inspection by any director during business hours.

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Thus, (a) is the correct answer. 28.

Answer : (b) Reason : The auditor of a company gives a report that the financial statements of the company reflect a true and fair view subject to certain reservations. Such a report is known as qualified opinion (b). The alternative (b) is the correct answer. Clean report (a) specifies that the that financial statements of the company reflect a true and fair view and there are nothing which needs to be qualified. Unqualified opinion (c) states that there is nothing which needs to be qualified it is a clean report and is not the correct answer. Provisional report subject to issue of final report (d) is not a report to be given by the auditor and is not the correct answer. Alternative (e) the combination of two incorrect answers is also incorrect. Thus, alternative (b) is the correct answer.

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29.

Answer : (e)

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Reason : As per section 224(2) of the Companies Act, 1956, explains the situation where an auditor may be reappointed at the annual general meeting and accordingly the statements in (I), (III) and (IV) sre essential for reappointment of the retiring auditor

IV

30.

I Passing of resolution at the annual general meeting III The retiring auditor should be qualified for reappointment The retiring auditor has not notified in writing his unwillingness to be reappointed.Thus, the combination of these statements i.e. alternative (e) is the correct answer. The alternative (b) which states the statement in (II) Approval from the Central Government is incorrect because if is not required for reappointment of the retiring auditor.and other alternative (a), (c) and (d) are not correct because of the wrong combination of onenone correct statements. Thus, alternative (e) is the correct answer.

Answer : (a) Reason : (III) Every officer and other employee and agent in default is/are held responsible for keeping proper books of accounts of a company in addition to the Managing Director or Manager of the company Thus, alternative (a) is the correct answer. The other persons mentioned in other statements and alternatives (b), (c), (d) and (e) are incorrect because they are not the persons held liable for proper keeping books of accounts I II IV V

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Every legal advisor of the company Every banker of the company Every auditor of the company Every member of the company. Thus, the correct answer is (a).

31.

Answer : (c) Reason : Special Auditor is appointed to conduct special audit of a company by the Central Government ©.Board of directors of the company (a); The Members of the company (b); Statutory auditors (d) and .Income Tax authorities.(e) do not appoint an special auditor to conduct special audit of a company. Thus, alternative (c) is the correct answer.

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32.

Answer : (c) Reason : Dividends are usually paid as a percentage of called-up capital less calls-in-arrear ©.It is not paid on authorized capital (a) unless it is fully called-up and paid-up. Net profit (b) is the basis for declaring dividends but the computation is as a percentage of paid-up capital. And is not the correct answer. No dividend is payable on calls-in-advance hence the alternative (d) which states paid-up share capital plus calls-in-advance is incorrect. The alternative (e) is also incorrect because, it also includes calls-in-advance. Thus, alternative (c) is the correct answer.

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33.

Answer : (e)

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Reason : At the time of forfeiture of shares which were originally issued at a discount, the accounting entry involves I Share capital account Dr. (with the called-up value of shares forfeited) II To Share forfeiture account (with the amount received on forfeited shares) III To Discount on issue of shares (with the amount of discount allowed on forfeited shares) IV To Calls-in-arrears (with the amount due but not paid on forfeited shares) Thus, the combination of the above entries , the alternative (e) is the correct answer. Share capital is not debited with the paid up value of shares and the alternatives with the combination V are incorrect. Alternative (e) is the correct answer. 34.

Answer : (c)

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Reason : As per the Schedule VI of the Companies Act, 1956, ‘Premium on issue of debentures’ is shown under head Reserves and Surplus in the balance sheet of a company. It is unlike share premium which is to be utilized as per section 79 of the Companies Act. The premium on issue of debentures is treated as profit and placed under Reserves and Surplus in the balance sheet of a company. Thus, (c) is the correct answer.

>

35.

Answer : (d) Reason : The profit or loss on cancellation of own debentures is calculated at the time of Cancellation of own debentures (d) is the correct answer. The profit loss on cancellation cannot be unless they are paid. Hence (d) is the correct answer.

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36.

Answer : (e) Reason : When the shares are forfeited, the share capital account is debited with the called-up amount and the share forfeiture account is credited with paid-up amount on the forfeited shares. Hence the answer is (e). The calls-in arrear account is credited with the defaulted amount. Thus (a), (b), (c) and (d) are false.

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37.

Answer : (e) Reason : Though the balance sheet is claimed to be the statement of all assets and liabilities, still it does not contain certain assets and liabilities. For example, the efficient management force is a human asset available to the organization. Though efforts are being made to quantify and present the human resources, most of the balance sheets do not present the same. Also dissatisfied labor force is a liability to the organization. The factors, which have a vital bearing on the earnings of the organization such as changes in the managerial personnel, cessation of agreements, loss of markets, are not disclosed. Personal judgment plays a great part in determining the figures for the balance sheet. Example: provision for depreciation, stock valuation, provision for bad debts are more based on the personal judgment and is therefore not free from bias. Hence the answer is (e).

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38.

Answer : (d) Reason : According to SEBI guidelines, a debenture issue having a maturity of more than 18 months necessitates the creation of a special reserve known as debenture redemption reserve. Such debenture redemption reserve should be equivalent to at least 50% of the amount of debenture issue prior to the commencement of the redemption. Thus, (d) is the correct answer.

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39.

Answer : (b) Reason : The proposed dividend is classified as a provision and shown on the liability side of the balance sheet. The dividend finally decided by the shareholders in the annual general meeting as payable is termed as Declared Dividend. Any dividend declared must be paid with thirty days from the date of declaration. Hence, a declared dividend must be classified as a current liability in the balance sheet of the company. Thus the answer is (b).

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40.

Answer : (c) Reason : Dividend is the share of profits payable to each shareholder. It is decided by the shareholders in the annual general meeting. It must be paid within 42 days from the date of declaration of dividend. It is paid by posting the dividend warrants to the shareholders. If the declared dividend is unpaid simply due to the fact that such dividend has not been claimed by some shareholders, it is kept by the company in separate account, known as unclaimed dividend account. It is the current liability of the company. It cannot be classified as provisions in the balance sheet, but proposed dividend can be defined as provision in the balance sheet. But, (a), (b), (d) and (e) are the items of provisions in the balance sheet. Therefore (c) is true.

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41 .

Answer : (b) Reason : 01.07.2002 400 × Rs.96 ex. interest 01.12.2002 300 × Rs.102 cum. Interest = Rs.30,600 – Rs.500 (Interest for 2 months 30,000 ×

2 10 × 12 100

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Rs.38,400 Rs.30,100

= Rs.500) Rs.68,500 Amount

debited

to

own

debenture investment account is Rs.68,500. 42

Answer : (a)

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.

Reason : The application money should not be less than 5% of the nominal value of the shares. Hence, the minimum amount of application money is Rs.5 per share. The percentage of share premium has no relevance as regard the minimum amount of application money to be collected. There are no restrictions on the percentage of premium that a company can issue its shares. Thus, the alternative (a) is the correct answer

43 .

Answer : (c) Reason : Libra Ltd. The amount of profit transferred on cancellation of debentures is Rs.4,000. Journal Entries

44 .

Date

Particulars

July 01, 2002

Own Debenture A/c. Dr. Interest on Debenture A/c. Dr. To Bank A/c. (Being the purchase of 1000 own debentures at the rate of Rs.99 cum interest. Interest for 3 months from April 1,2002 to June 30, 2002 is Rs.3,000) March 31, 2003 12% Debentures A/c. Dr. To Own debenture A/c. To Capital reserve A/c. (Being the profit on redemption of debentures transferred to capital reserve A/c.)

Answer : (b) Reason : Workings: Note 1

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Dr. (Rs.) 96,000 3,000

Cr. (Rs.)

99,000

1,00,000 96,000 4,000

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VIBGYR Ltd. Bank Account Rs. 2,00,000 4,00,000

To Balance To Investments Account To Equity shares 27,500 shares × Rs.10 Rs.2,75,000 Premium of Rs.2 per share 55,000

Rs. By Preference share holders (Rs.8,00,000 × Rs.1.10) By Balance account.

Face value of preference shares –

50,000

Rs. 3,30,000

9,30,000 Amount transferred to capital redemption reserve account.

Less: Face value of shares

8,80,000

27,500 × 10 (funds available by way of fresh equity issue)

9,30,000 Rs.8,00,00 0 Rs.2,75,00 0 Rs.5,25,00 0

Where redemption of preference shares in effected without corresponding issue of shares if implies it is mode out of distributce profits, the gap created to the extent is transferred the cap. Real reson. 45 .

Answer : (e) Reason : (No. of shares)

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Particulars Liability Less:Unmarked applications in the ratio of 3:4:3 Less: Marked (Stamped) applications Less: Division of Sunil’s surplus (in the ratio of 3:4) Final liability of each underwriter 46 .

Anil 30,000 4,800 25,200 22,000 3,200

Vimal 40,000 6,400 33,600 24,000 9,600

Sunil 30,000 4,800 25,200 28,000 (2,800)

Total 1,00,000 16,000 84,000 74,000 10,000

1,200 2,000

1,600 8,000

2,800 Nil

– 10,000 < TOP >

Answer : (d) Reason : Consolidated balance sheet of H Ltd and S Ltd as on March 31, 2003 Liabilities

Rs.

Share capital (Rs.10 each) General reserve Capital reserve Profit & loss account H Ltd. Shares in S Ltd. (Revenue profit) Sundry creditors: H Ltd. S Ltd. Less: Mutual indebtedness Bills payable: H Ltd. S Ltd. Minority interest

Assets

9,00,000 Land & building 3,90,000 H Ltd. S Ltd. 24,000 Rs. 1,90,000 1,20,000

3,10,000

1,00,000 60,000 1,60,000

Plant & machinery H Ltd. S Ltd. Furniture & fixtures H Ltd. S Ltd. Investments Stock – H Ltd.

10,000

1,50,000

60,000 50,000

S Ltd. Sundry debtors 1,10,000 H Ltd. 1,16,000 S Ltd.

Rs. Rs. 4,20,000 2,40,000

6,60,000

3,90,000 1,30,000

1,90,000 90,000

5,20,000

2,80,000 20,000

90,000 50,000

1,40,000

1,20,000 1,00,000 2,20,000

Less: Mutual indebtedness Bills receivable H Ltd. S Ltd. Cash & bank H Ltd. S Ltd.

10,000

2,10,000

70,000 40,000

1,10,000

40,000 20,000

60,000

20,00,00 0 Note: Bills accepted by S Ltd. in favour of H Ltd. have been discounted by H Ltd. These bills are no more inter-company debts. Working Notes: i. Shares of H Ltd. = 80% S Ltd. = 20% ii. Dividend received from S Ltd. out of pre-acquisition profit has been credited to investment account. 20,00,000

Capital profit

Particulars Balance as on date of acquisition General reserve Profit & loss account Less:

Dividend – Rs.24,000 ×

Rs. 1,00,000 Rs.60,000 100 80

Rs.30,000

30,000 1,30,000

iii.

H Ltd – 80% – S Ltd. – 20% – Revenue profit:

Rs.1,04,000 Rs. 26,000

Particulars General reserve (Rs.1,50,000 – Rs.1,00,000) Profit & loss account (Rs.1,30,000 – Rs.30,000)

iv.

v.

47 .

Rs. 50,000 1,00,000 1,50,000

H Ltd – 80% – Rs.1,20,000 S Ltd. – 20% – Rs. 30,000 Cost of control/Goodwill Particulars Cost of investment Less: Nominal value of shares (80% of Rs.3,00,000) Capital profit Capital reserve Minority interest Particulars Nominal value of shares (20% of Rs.3,00,000) Capital profit Revenue profit

Answer : (d) Reason :

Rs. 3,20,000 Rs.2,40,000 Rs.1,04,000

Rs. 60,000 26,000 30,000 1,16,000 < TOP >

Rain bow Ltd. Average Capital Employed

Present value of Assets: Plant & Machinery Land & Building Stock Debtors Bills receivable Cash & Bank Less: Current Liabilities Sundry creditors Bills payable Provision for taxation Closing capital employed Less: ½ of current year’s profit Profit before tax Less: Non-trading income Less: Income tax 30% ½ of profit (i.e., ½ × Rs.1,08,500) Average Capital Employed

3,44,000 24,000

(Rs.)

70,000 30,000 50,000

1,60,000 5,000 1,55,000 46,500 1,08,500

(Rs.) 5,00,000 4,00,000 40,000 1,00,000 40,000 50,000 11,30,000

1,50,000 9,80,000

54,250 9,25,750 (Rs.)

Profit before tax for the year

1,60,0000

Less: Non-trading income

5,000 1,55,000

Less: Income tax 30%

46,500 1,08,500

Less: Normal profit 10% on average capital employed

92,575

Super Profit

15,925

Value of goodwill =

Rs.15,925 × 4 = Rs.63,700. 48 .

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Answer : (a) Reason : Particulars (Rs.) Face value of shares to be redeemed (2,000 × Rs.100) 2,00,000 Less: Proceeds from fresh issue (1,500 × Rs.100) 1,50,000 Balance to be utilized from profit & loss a/c. Hence, amount to be transferred to capital redemption reserve 50,000 The premium received on fresh issue of shares should not be used for redemption of preference shares. However, the same can be used for the premium payable on redemption of preference shares.

49 .

Answer : (b) Reason : Value as per fair value method is (value as per intrinsic value method + value as per yield method)/2 ∴

50 .

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Value as per intrinsic value method is (2 × Rs.205.20) – Rs.195.80 = Rs.214.60 < TOP >

Answer : (a) Reason : Particulars Land and building Plant and machinery Furniture and fixtures Sundry debtors Inventories Cash Less: 12% Debentures Sundry creditors Bank overdraft Provision for taxation Capital employed Particulars Profit for the year 2002-2003 Less: Depreciation on land and building Add: Depreciation on plant and machinery Less: Bad debts Profit

Rs. 5,00,000 2,00,000 2,00,000 85,000 65,000 35,000 10,85,000 1,50,000 72,500 32,500 45,000 7,85,000 Rs. 1,15,500 3,000 5,000 5,000 1,12,500 Return on capital employed = Rs.1,12,500 /

Rs.7,85,000 x100= 14.33% 51 .

Answer : (e) Reason : The amount transferred to general reserve account is Rs.1,02,430. Vardhan Ltd. Debenture Redemption Fund Investment account. Dr. Cr.

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Particulars 31.3.2003 To Balance b/f 32,000, 9.5% Govt.loan 36,000, 12% Govt.loan 12,000, 18% Debentures Preference shares

Rs. 34,000 34,400 11,200 33,400

Particulars 31.3.2003 By Bank (sale) 9.5% Govt loan (at par) 12% Govt loan (Rs.36,,000 96%)

Rs. 32,000 34,560

×

18% Debentures (120

10,800

×

Rs.90) To Debenture redemption fund a/c (gain) 12% Govt loan 160 Preference shares 1,670

Preference shares (334 Rs.105) By Debenture redemption fund a/c (loss)

35,070

×

1,830

9.5% Govt loan 18% Debentures

2,000 400

1,14,830

2,400 1,14,830

Debenture Redemption Fund a/c Dr. Cr. Particulars

Rs. Particulars

1.4.2003 To Debenture Redemption fund investment account (loss on sale) To Debenture holders account (Premium on debentures) To General reserve a/c

Rs.

31.3.2003 By Balance b/f

10,000 1.4.2003 By Debenture Redemption fund investment account (Profit on sale)

1,830

1,02,430 1,14,830

52 .

1,13,000

2,400

1,14,830

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Answer : (b) Reason : Pioneer Ltd. Computation of net tangible assets Particulars

Rs.

Plant & machinery

6,00,000

Land & buildings

2,50,000

Stock in trade

1,10,000

Sundry debtors

4,00,000

Cash at bank

90,000 14,50,000

Less: Liabilities: Bank loan (20%)

Rs.1,50,000

Sundry creditors

Rs.2,80,000

Provision for taxation

Rs.1,40,000

Provision for bad debt

Rs. 30,000

Net tangible assets

6,00,000 8,50,000

Computation of average maintainable profit: Average profit after tax

Rs.1,00,000 + Rs.1,10,000 + Rs.1,30,000 + Rs.1,40,000 4

=

Rs.4,80,000 4

= Average dividend paid

= Rs.1,20,000

11% +12% +14.5% +14.5% 4

=

= Normal rate of dividend

=

Average ma int ainable profit Normal rate of return

Total value of the business =

52% 4

= 13%

x 100

Rs.1, 20, 000 13%

Goodwill = = = 53 .

= = Rs.9,23,077 ≈ 9,23,000 Total value of the business – Net tangible assets Rs.9,23,000 – 8,50,000 Rs.73,000 < TOP >

Answer : (c) Reason : The amount to be transferred to Bonus Dividend account is Rs.2,60,000. Workings: Amount of bonus to be declared To make the partly paid shares into fully paid 80,000 x Rs.2

Rs. 1,60,000

80,000 8

1,00,000

To cover bonus shares of

= 10,000 shares x Rs.10 Total bonus

2,60,000

54 .

Answer : (c) Reason : Ex Interest The nominal value of debentures Rs.1,00,000 of each Rs.100 at the rate of Rs.97 ex interest will be of value Rs.97,000 and the amount of interest at the rate of 12% from 1.10.2003 to 31.12.2003 for 3 months will be Rs.3,000 and the total price paid is Rs.1,00,000.

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55 .

Answer : (d) Reason : Average annual profit Less: Preference dividend : 15% on Rs.100 x 1000

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Rs.75,000 Rs.15,000 Rs.60,000 Rs.10,000 Rs.50,000

Less: Transfer to general reserve Profit for equity shareholders Equity share capital =

20,000

Return on equity = = 25% Normal rate of return = 10%

Pr ofit for equity shareholders Outs tan ding balance of equity share capital

Value of equity share = Rs.10 56 .

Rs.10 = Rs.2,00,000

×

×

25% 10%

=

Rs.50,000 Rs.2,00,000

×

100

= Rs.25. < TOP >

Answer : (c) Reason : Amount transferred to capital reserve is Rs.800. Working Note: Particulars Amount received on 200 shares on forfeiture(200 x Rs.5) Less: Amount of discount allowed on 200 shares which were reissued (200 x Re-1.) Amount to be transferred to Capital Reserve

57

Answer : (a)

Rs. 1,000 200 800 < TOP

.

>

Reason : 19981999 Rs. 75000

19992000 Rs. 300000

20002001 Rs. 375000 - 30000

20012002 Rs. 450000

Profit Less: repair expenses Add: 1500 3000 Depreciation Less: profit on sale of plant Adjusted profits 75000 300000 346500 453000 Weights 1 2 3 4 Profits × weights 75000 600000 1039500 1812000 Weighted average profits = Rs.71,41,500 / 15 = Rs.4,76,100 58 .

20022003 Rs. 742500

Total Rs.

3000 22,500 723000 5 3615000

7141500

Answer : (a) Reason : The listed companies are allowed to pay brokerage on private placement of capital at a maximum rate of 0.5 %. Hence the maximum amount of brokerage that can be paid by Amax Ltd. is

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10,000 shares × Rs. 100 × 0.5% = Rs.5,000. 59 .

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Answer : (e) Reason : Particulars Loss as reported by the accountant Less: Goods returned to supplier Add: Rent not considered Loss after considering all aspects

Rs. 75,000 (3,000) 4,000 76,000

The non-recording of

return of cheque does not affect the profit/loss.

60 .

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Answer : (a) Reason : Value of right = Where r = N = M = S = ∴

61 .

 r   N + r  (M − S)  

No of rights issued No of old shares Market price Issue price of rights

Value of rights =

 2   3 + 2  (Rs.560 − Rs.410)  

= Rs.60

Answer : (c) Reason : Return on capital employed = Value of equity share

= =

Rs.63, 000 ×100 Rs.4, 50, 000

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= 14%

Return on capital employed ×Paid up value of share Normal return 14% × Rs.80 10%

= Rs.11.20

62 .

Answer : (d) Reason : No dividends an paid on call in advance nor on calls in arrar Dividend = 12% on Rs. 12,00,000 = Rs. 1,44,000

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63 .

Answer : (b) Reason : In case of issue of debentures at premium and redeemable at a premium, loss on issue of debentures a/c should be debited with the amount of premium payable on redemption and Bank account should be debited with actual amount received. Corresponding credit should be given to debentures a/c with face value of debentures and premium on redemption of debentures a/c with the amount of premium payable on redemption payable on redemption and premium on issue of debentures with premium received.

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The Journal entry will be

64 .

Rs. Rs. Bank a/c Dr. 1,10,000 Loss on redemption of debentures a/c Dr. 5,000 To 14% Debentures a/c 1,00,000 To Debentures premium a/c 10,000 To Premium on redemption of debentures a/c 5,000 Answer : (b) Reason : Underwriting commission on shares is 2.5% of the issue price of the debenture or any rate prescribed in the articles whichever is less. Since, the maximum rate 2.5% is considered to be rate of commission Debentures underwritten = 80% of the issue = 80% of 10000 = 8000 Debentures Marked applications = 6,000 Issue price per debenture = Rs.100 + 100(20%) = Rs.120 Value of 8,000 applications = 8,000 × Rs.120 = Rs.9,60,000 Underwriting commission @ 2.5% on issue price =

65 .

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9, 60, 000 ×2.5 =Rs.24, 000. 100

Answer : (b)

< TOP > Net assets available for equity shareholders Equity share capital

Reason : Asset backing per equity share = = Rs.2,50,000 + Rs.65,000– (Rs.65,000+ Rs.50,000+ Rs.1,00,000) = Rs.3,15,000 – Rs.2,15,000= Rs.1,00,000 Rs.1, 00, 000

=

66 .

Rs.1, 00, 000

= 1 time Answer : (b) Reason : Sometimes the companies may go for issue of debentures towards consideration for purchase of fixed asset. In such cases, the debentures may be issued at par / at discount / at premium. In the present case, the journal entry will be: For purchase of Land and Building: i. Machinery a/c. Dr. Rs.4,00,000 To Indraja & Company a/c. Rs.4,00,000 For issue of debentures at discount of 20% ii. Indraja & Company a/c. Dr. Rs.4,00,000 Discount on issue of debentures Dr. Rs. 1,00,000 To 10% Debentures a/c. Rs.5,00,000 (Issue of 5,000 debentures of face value Rs.100 each at a discount of 20%) Thus 10% debentures are figured at Rs.5,00,000.

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67 .

Answer : (b) Reason :

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Prosperous Ltd. Balance Sheet (extract) Liabilities Share Capital: 19,800 shares of Rs.100 each fully paid Shares premium Shares forfeiture Capital reserve Thus, the total of liabilities side of Balance sheet is Rs.24,03,600. Working:

Rs. 19,80,000 3,92,000 10,000 21,600 24,03,600

1.

2.

Share application money received 30,000 × Rs.20 Shares allotted on prorata – 20,000 against 24,000 applications 20,000 × Rs.20 Shares rejected and money refunded 6,000 × Rs.20 Surplus money available for allotment Share allotment money 20,000 × Rs.30 Rs.20 Less: available on account of share application excess money Less: default on a/c of Rahul 400 × Rs.30 (Rs.20,000 – Rs.1,600) Rs.20

6,00,000 4,00,000 1,20,000 80,000 10,00,000 80,000

18,400 9,01,600

20,000 24,000

3.

*Share applied by Rahul 400 × = 480 Amount paid by him on application = 480 × Rs.20 Adjusted for application money = 400 × Rs.20 Balance available for allotment Amount due on allotment Application money available for adjustment Amount defaulted by Rahul Share first call money 20,000 × Rs.30 Less: Default by Rahul 400 × Rs.30 Mahesh 600 × Rs.30

4.

Share second call money 19,600 × Rs.20 Less: Default by Mahe 600 × Rs.20

5.

Shares for feiture: Money received on shares held by Rahul Shares held by Mahesh 600 × Rs.50 (Rs.20 + Rs.30)

6.

7. 8. 68 .

Less: 800 shares issued at 10% discount 800 × Rs.10 Less: Balance transferred to capital reserve on reissued shares (400) 480 × Rs.20 = Rs.9,600 – Rs.8,000 = 1,600 400 400 × Rs.50 = 20,000 Balance in shares forfeiture a/c Share capital a/c Total shares – forfeited + re-issued 20,000 – (400 + 600) + 800 = 19,800 × Rs.100 Share premium 20,000 – 400 = 19,600 × Rs.20 Capital reserve

Answer : (a) Reason : Amount paid by Sudha (excluding premium) = 600 x 5 ∴

Balance in forfeited shares account

Rs.9,600 Rs.8,000 1,600 Rs.20,000 Rs.1,600 Rs.18,400 6,00,000 12,000 18,000 5,70,000 3,92,000 12,000 3,80,000 Rs. 9,600 30,000 39,600 8,000

21,600 10,000

19,80,000 3,92,000 21,600

= Rs.3,000

< TOP >

= Rs.3,000

Amount pertaining to re-issued 300 shares = Rs. 1500 Less: Discount allowed on reissue (600 x 1) = Rs. 300 Amount to be transferred to capital reserve = Rs.1,200 Share premium of Rs.1,200/- on forfeited shares should not be reversed as the amount is already received and balance remaining in share forfeiture account is Rs.1,500. 69 .

Answer : (a) Reason : The discount on reissue of forfeited shares should not exceed the amount forfeited, since the discount is written off as a charge against the share forfeiture account. Mr. Arun has paid Rs.60 (Rs.85 – Rs.25) per share = Rs.60 × 1,000 = Rs.60,000 The maximum discount on reissue should not exceed Rs.60,000 Hence, the minimum amount to be collected = Rs.1,00,000 – Rs.60,000 = Rs.40,000.

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70 .

Answer : (a) Reason : Interest on calls in advance is to be paid @ 6% per annum. Calls in advance paid by Mr. S. Nandita = Rs.5,000 – (1,000 x 25) = Rs.2,500. Interest period = from June 01, 2003 to Oct 31, 2003 = 5 months. ∴ Interest =

71 .

5 2500 ×6% × = Rs.62 / 50 12

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. < TOP >

Answer : (a) Reason : Rs. 51,00,000

Net assets Add: Notional calls on uncalled up shares 1,00,000 × Rs.2 1,00,000 × Rs.3 Net assets available to equity share holders

2,00,000 3,00,000 56,00,000

Net assets Rs.56, 00, 000 = = Rs.14 No.of shares 40, 000

Value of each fully paid share = 0 Value of Rs.80 paid up share = Rs.140 – Rs.20 = Rs.120. 72 .

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Answer : (a) Reason : Particulars Net Profit as calculated Add: Revenue Profit on sale of plant

Rs.

Rs. 25,50,000 20,000 25,70,000

Less:Director’s remuneration 50,000 Bonus paid to production executive 50,000 1,00,000 Net Profit 24,70,000 Where the amount for which the fixed asset is sold exceed the written-down value, credit shall be given for so much of the excess as is not higher than the difference between the original cost of the fixed asset and its written down value. Hence only Rs.20,000 (Rs.1,00,000 – Rs.8,00,000) should be added The director’s remuneration and the bonus paid to any member of company’s staff should be deducted whereas Income tax and super tax should not be deducted. Credit should not be given to profits by way of premium on shares Managing Director’s Commission = 24,70,000 × 5% = Rs.1,23,500. 73 .

Answer : (c) Reason : When shares are forfeited, the share capital account should be debited with called up amount (excluding premium) and corresponding credit should be given to share call account with amount not received and share forfeiture account with amount received. If the premium is already received, the same should not be reversed. Hence the entry is Share capital a/c

Dr.

Rs. 4,000

To Share first call a/c

Rs.1,500

To Share forfeiture a/c

Rs.2,500

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