CA INTER NEW COURSE

ADVANCED ACCOUNTING

Test -2 Chapters- 3,4,7

Total Marks 50

Q-1

A. Choice Ltd. grants 100 stock options to each of its 1,000 employees on 1.4.20X1 for Rs. 20,
depending upon the employees at the time of vesting of options. Options would be exercisable
within a year when it is vested. The market price of the share is Rs. 50 each. These options will
vest at the end of year 1 if the earning of Choice Ltd. is 16%, or it will vest at the end of the year
2 if the average earning of two years is 13%, or lastly it will vest at the end of the third year if
the average earning of 3 years will be 10%. 5,000 unvested options lapsed on 31.3.20X2. 4,000
unvested options lapsed on 31.3.20X3 and finally 3,500 unvested options lapsed on 31.3.20X4.
Consider fair value per option is Rs. 30.

Following were the earnings of Choice Ltd in the last 3 years:

Year ended on Earning (in %)

31.3.20X2 14%
31.3.20X3 10%
31.3.20X4 7%

850 employees exercised their vested options within a year and remaining options were
unexercised at the end of the contractual life. Pass Journal entries for the above.

(5 marks)

B. Define the following terms:

GMTESTSERIES.COM®
 (i) Vesting
(ii) Grant date
(iii) Exercise Price

(3 marks)

Q-2 Perrotte Ltd. (a non-listed company) has the following Capital Structure as on
31.03.20X1:

Particulars Rs. in crores

(1) Equity Share Capital (Shares of Rs. 10 each fully paid) - 330
(2) Reserves and Surplus
General Reserve 240 -
Securities Premium Account 90 -
Profit & Loss Account 90
Infrastructure Development Reserve 180 600
(3) Loan Funds 1,800

The Shareholders of Perrotte Ltd., on the recommendation of their Board of Directors, have
approved on 12.09.20X1 a proposal to buy-back the maximum permissible number of Equity
shares considering the large surplus funds available at the disposal of the company.

The prevailing market value of the company’s shares is Rs. 25 per share and in order to induce
the existing shareholders to offer their shares for buy-back, it was decided to offer a price of
20% over market.

You are also informed that the Infrastructure Development Reserve is created to satisfy
Income-tax Act requirements.

GMTESTSERIES.COM®
You are required to compute the maximum number of shares that can be bought back in the
light of the above information and also under a situation where the loan funds of the company
were either Rs. 1,200 crores or Rs. 1,500 crores.

Assuming that the entire buy-back is completed by 09.12.20X1, show the accounting entries in
the company’s books in each situation.

(6 marks)

Q-3 Complicated Ltd. (an unlisted company) gives the following information as on
31.3.2021:

Particulars Amount (Rs.)

Equity shares of Rs. 10 each, fully paid up 13,50,000
Share option outstanding Account 4,00,000
Revenue Reserve 15,00,000
Securities Premium 2,50,000
Profit & Loss Account 1,25,000
Capital Reserve 2,00,000
Unpaid dividends 1,00,000
12% Debentures (secured) 18,75,000
Advance from related parties (Long term – Unsecured) 10,00,000
Current maturities of long term borrowings 16,50,000
Application money received for allotment due for refund 2,00,000
Property, plant and equipment 46,50,000
Current assets 40,00,000

GMTESTSERIES.COM®
The Company wants to buy back 25,000 equity shares of Rs. 10 each, on 1st April, 2021 at Rs.
15 per share. Buy back of shares is duly authorized by its Articles and necessary resolution has
been passed by the Company for this. The buy-back of shares by the Company is also within the
provisions of the Companies Act, 2013. The payment for buy back of shares was made by the
Company out of sufficient bank balance available shown as part of Current Assets.

You are required to prepare the necessary journal entries towards buy back of shares and
prepare the Balance Sheet of the company after buy back of shares.

(8 marks)

Q-4 From the following particulars, prepare a Statement of Affairs and the Deficiency of the
Equipment Ltd., which went into liquidation on December 31, 20X5:

Rs. Rs.
3,000 equity shares of 100 each, Rs. 80 paid-up 2,40,000
6% 1,000 preference shares of Rs. 100 each fully paid-up 1,00,000
Less: Calls in arrear (5,000) 95,000
5% Debentures having a floating charge on the assets 1,00,000
(interest paid upto June 30, 20X5)
Mortgage on Land & Buildings 80,000
Trade Creditors 2,65,500
Owing for wages 20,000
Secretary’s salary (@ Rs. 500 p.m.) owing 3,000
Managing Director’s Salary @ Rs. 1,500 p.m. owing 6,000

Assets Estimated to produce Book value

GMTESTSERIES.COM®
 Rs. Rs.
Land & Building 1,30,000 1,20,000
Plant 1,30,000 2,00,000
Tools 4,000 20,000
Patents 30,000 50,000
Stock 74,000 87,000
Investments in the hands of a Bank for an 1,70,000 1,80,000
overdraft of Rs. 1,90,000
Book Debts 60,000 90,000

On 31st December, 20X0, the balance sheet of the company showed a general reserve of Rs.
40,000 accompanied by a debit balance of Rs. 25,000 in the Profit & Loss Account.

In 20X1 the company made a profit of Rs. 40,000 and declared a dividend of 10% on equity
shares. The company suffered a total loss of Rs. 1,09,000 besides loss of stock due to fire of Rs.
40,000 during 20X2, 20X3 and 20X4. For 20X5 accounts were not made.

The cost of winding up is expected to be Rs. 15,000.

(10 marks)

Q-5 From the following Trial Balance of All Rounder Ltd., on 1st January, 2021, prepare
liquidator’s final statement of account:

Particulars Debit (Rs.) Credit (Rs.)

9% Preference Share Capital (2,500 Preference Shares at Rs. 100 2,50,000
each, fully paid)
Equity Share Capital: 4,000 Equity Shares at Rs. 100 each, fully 4,00,000

GMTESTSERIES.COM®
paid.
4,000 Equity Shares at Rs. 100 each, Rs. 50 paid up 2,00,000
Plant 6,00,000
Stock-in-Trade 7,20,000
Sundry Debtors 1,70,000
Sundry Creditors 4,42,000
Bank Balance 2,40,000
Preliminary Expenses 12,000
6% Mortgage Loan 4,60,000
Outstanding Liabilities for Expenses - 50,000
Profit and Loss A/c (Trading Loss for the previous accounting 60,000 -
year)
Total 18,02,000 18,02,000

Following points should be kept in mind:

1. On 21st January, 2021, the Liquidator sold plant for Rs. 5,90,000 and stock-in-trade at 10%
less than the Book Value. He realized 80% of Sundry Debtors, and incurred cost of collection
of Rs. 3,700 (remaining Debtors are to be treated as bad).
2. The Loan Mortgage was discharged as on 31st January, 2021, along with interest for 6
months. Creditors were discharged subject to 5% discount. Outstanding Expenses paid at
20% less.
3. Preference Share Dividend is due for one year and paid with final payment.
4. Liquidation Expenses incurred are Rs. 3,600, and Liquidator’s Remuneration is settled at 4%
on disbursement to shareholders (preference and equity) excluding preference dividend,
subject to minimum of Rs. 20,000. Liquidator’s Remuneration to be rounded off to the
multiple of Rs. 10.

(8 marks)

GMTESTSERIES.COM®
Q-6 Confidence Builders Ltd. gives the following ledger balances as on 30th September, 20X3:

Rs.
Land and Building 1,20,000
Sundry Current Assets 3,95,000
Profit and Loss Account (Dr. balance) 38,500
Debenture Issue expenses not written off 2,000
Share Capital
Issued: 11% Pref. Shares of Rs. 10 Each 1,00,000
10,000 equity shares of Rs. 10 each, fully paid up 1,00,000
5,000 equity shares of Rs. 10 each, Rs. 7.50 per share paid up 37,500
13% Debentures 1,50,000
Mortgage Loan 80,000
Bank Overdraft 30,000
Creditors for Trade 32,000
Income-tax arrears:
(assessment concluded in July 20X3)
Assessment Year 20X1 – 20X2 21,000
Assessment Year 20X2-20X3 5,000

Mortgage loan was secured against land and buildings. Debentures were secured by a floating
charge on all the other assets. The company was unable to meet the payments and therefore
the debenture holders appointed a Receiver for the Debenture holders, he brought the land
and buildings to auction and realized Rs. 1,50,000. He also took charge of Sundry assets of value
of Rs. 2,40,000 and realized Rs. 2,00,000. The Bank Overdraft was secured by a personal
guarantee of two of the Directors of the Company and on the Bank raising a demand, the
Directors paid off the due from their personal resources. Costs incurred by the Receiver were
Rs. 2,000 and by the Liquidator Rs. 2,800. The Receiver was not entitled to any remuneration
but the liquidator was to receive 3% fee on the value of assets realized by him. Preference

GMTESTSERIES.COM®
shareholders had not been paid dividend for period after 30th September 20X1 and interest for
the last half year was due to the debenture holders. Rest of the assets were realized at Rs.
1,00,000.

Prepare the accounts to be submitted by the Receiver and Liquidator.

(10 marks)

GMTESTSERIES.COM®