NEW SCHEME – MAY 2023

CA INTER - GROUP 1
PAPER 1 - ACCOUNTING
SYLLABUS 30%
SUGGESTED ANSWERS

(1) Question 1(a) 5

PREPCA Eduserv Private Limited had 5,000 10% Redeemable Preference Shares of ₹ 100 each,
fully paid up. The company had to redeem these shares at a premium of 10%.

It was decided by the company to issue the following:

(i) 35,000 Equity Shares of ₹ 10 each at par
(ii) 2,000 13% Debentures of ₹ 150 each.

The issue was fully subscribed and all accounts were received in full. The payment was duly
made. The company had sufficient profits. Show journal entries in the books of the company.

Answer 1(a)
In the books of PREPCA Eduserv Private Limited
Journal Entries

Date Particulars Amount Amount

(Dr) (Cr)
Bank A/c…………….Dr. 3,50,000
To, Equity Share Capital A/c 3,50,000
(Being the issue of 35,000 equity shares of Rs 10 each
at par as per Board’s resolution no ……. Dated……)

Bank A/c ………………….Dr. 3,00,000

To, 13% Debentures A/c 3,00,000
(Being the issue of 2,000 Debentures of Rs 150 each as
per Board’s Resolution No…..dated……)

10% Redeemable Preference Share Capital 5,00,000

A/c………….Dr. 50,000
Premium on Redemption of Preference Shares 5,50,000
A/c………Dr.
To, Preference Shareholders A/c
(Being the amount payable on redemption transferred
to Preference Shareholders Account)

Preference Shareholders A/c………….Dr. 5,50,000

To, Bank A/c 5,50,000
(Being the amount paid on redemption of preference

ACC 30%
 shares)

Profit & Loss A/c……………Dr. 50,000

To, Premium on Redemption of Preference 50,000
Shares A/c
(Being the adjustment of premium on redemption
against Profits & Loss Account)

Profit & Loss A/c…………..Dr. 1,50,000

To, Capital Redemption Reserve A/c (Working 1,50,000
Note)
(Being the amount transferred to Capital Redemption
Reserve Account as per the requirement of the Act)

Working Note:
Amount to be transferred to Capital Redemption Reserve Account

Face value of shares to be redeemed ₹ 5,00,000

Less: Proceeds from new issue (₹ 3,50,000)
Balance ₹ 1,50,000

Question 1(b) 5
Following are the balances that appear in the trial balance of Raj Ltd. as at 2022:

Issued and Subscribed Capital-

1,00,000 Equity Shares of ₹ 10 each ₹ 8 paid up – 8,00,000
10,000; 10% Preference Shares of ₹ 10 each fully paid – 1,00,000

Reserves and Surplus:

General Reserve – 2,40,000
Securities Premium (collected in cash) – 25,000
Profit and Loss Account – 1,20,000

On 1st April, 2022 the company has made final call @ ₹ 2 each on 1,00,000 Equity Shares. The
call money was received by 15th April, 2022. Thereafter the company decided to issue bonus
shares to equity shareholders at the rate of 1 share for every 5 shares held and for this purpose, it
decided that there should be minimum reduction in free reserves. Pass Journal entries.

Answer 1(b)
In the books of Raj Limited
Journal Entries

Date Particulars Amount Amount

(Dr) (Cr)
01/04/202 Equity Share Final Call A/c………….Dr. 2,00,000
2 To, Equity Share Capital A/c 2,00,000
(Final call of ₹ 2 per share on 1,00,000 equity shares
due as per Board’s Resolution dated....)

ACC 30%
 15/04/202 Bank A/c…………….Dr. 2,00,000
2 To, Equity Share Final Call A/c 2,00,000
(Final Call money on 1,00,000 equity shares
received)

15/04/202 Securities Premium A/c…………..Dr. 25,000

2 General Reserve A/c……………...Dr. 1,75,000
To, Bonus to Shareholders A/c 2,00,000
(Bonus issue @ one share for every 5 shares held by
utilizing various reserves as per Board’s Resolution
dated...)

15/04/202 Bonus to Shareholders A/c…………..Dr. 2,00,000

2 To, Equity Share Capital A/c 2,00,000
(Capitalization of profit)
Note: Profit and Loss Account balance may also be utilized along with General Reserve for the
purpose of issue of Bonus shares.

Question 1(c)
Explain the conditions when a company should issue new equity shares for redemption of the 5
preference shares. Also discuss the advantages and disadvantages of redemption of preference
shares by issue of equity shares.

Answer 1(c)
A company may prefer issue of new equity shares in the following situations:
(a) When the company realizes that the capital is needed permanently and it makes more sense to
issue Equity Shares in place of Redeemable Preference Shares which carry a fixed rate of
dividend.
(b) When the balance of profit, which would otherwise be available for dividend, is insufficient.
(c) When the liquidity position of the company is not good enough.

Advantages of redemption of preference shares by issue of fresh equity shares

(1) No cash outflow of money is required – now or later.
(2) New equity shares may be valued at premium.
(3) Shareholders retain their equity interest.

Disadvantages of redemption of preference shares by issue of fresh equity shares

(1) There will be dilution of future earnings.
(2) Share-holding in the company is changed.

Question 1(d)
Aarohi Ltd. was incorporated on 1st July, 2021 to acquire a running business of Adarsh Sons with 5
effect from 1st April, 2021. During the year 2021-22, the total sales were ₹24,00,000 of which
₹4,80,000 were for the first six months. The Gross profit of the company ₹3,90,800. The expenses
debited to the Profit & Loss Account included:
(i) Director's fees ₹30,000
(ii) Bad debts ₹7,200
(iii) Advertising ₹24,000 (under a contract amounting to ₹2,000 per month)
ACC 30%
(iv) Salaries and General Expenses ₹1,28,000
(v) Preliminary Expenses written off ₹10,000
(vi) Donation to a political party given by the company ₹10,000.

Prepare a statement showing pre and post-incorporation profit for the year ended 31st March,
2022.

Answer 1(d)
Statement showing the calculation of Profits for the pre and post-incorporation periods
For the year ended 31st March, 2022

Particulars Amount Basis Pre Post

Gross Profit 3,90,800 Sales 39,080 3,51,720
Less – Director’s Fees 30,000 Post - 30,000
Bad Debts 7,200 Sales 720 6,480
Advertising 24,000 Time 6,000 18,000
Salaries and General Expenses 1,28,000 Time 32,000 96,000
Preliminary Expenses 10,000 Post - 10,000
Donation to Political Party 10,000 Post - 10,000
Net Profit 1,81,600 1,81,240
Pre-incorporation profit transfer to 360
Capital Reserve

Working Notes:

1. Sales ratio
Sales for period up to 30.06.2021 (4,80,000 x 3/6) – 2,40,000
Sales for period from 01.07.2021 to 31.03.2022 (24,00,000 – 2,40,000) – 21,60,000
Thus Sales Ratio = 1:9

2. Time ratio
1st April, 2021 to 30 June, 2021: 1st July, 2021 to 31st March, 2022 = 3 months: 9 months = 1: 3
Thus, Time Ratio is 1: 3

Question 2(a) 8
M/s. Damini is a Departmental Store having three departments X, Y and Z. The information
regarding three departments for the year ended 31st March, 2022 are given below:

Particulars X Y Z
Opening Stock 18,000 12,000 10,000
Purchases 66,000 44,000 22,000
Debtors at end 7,500 5,000 5,000
Sales 90,000 67,500 45,000
Closing Stock 22,500 8,750 10,500
Value of furniture in each Department 10,000 10,000 5,000
Floor space occupied by each Dept. (in sq. ft.) 1,500 1,250 1,000
Number of employees in each Department 25 20 15
Electricity consumed by each Department (in units) 300 200 100

ACC 30%
Additional Information:

Particulars Amount (Rs.)

Carriage inwards 1,500
Carriage outwards 2,700
Salaries 24,000
Advertisement 2,700
Discount allowed 2,250
Discount received 1,800
Rent, Rates and Taxes 7,500
Depreciation on furniture 1,000
Electricity Expenses 3,000
Labour welfare expenses 2,400

Prepare Departmental Trading and Profit & Loss Account for the year ended 31 st March, 2022
after providing provision for Bad Debts at 5%.

Answer 2(a)
In the Books of M/s Damini Departmental
Trading and Profit and Loss Account for the year ended 31st March, 2022

Particulars X Y Z Tota Particulars X Y ZTota

l l
To, Opening 18K 12K 10K 40K By Sales 90K 67.5 45K 202.
Stock K 5K
To, Purchases 66K 44K 22K 132 By Closing Stock 22.5 8.75 10.5 41.7
K K K K 5K
To, Carriage 750 500 250 1500
Inward
To, Gross Profit 27,75 19,7 23,2 70,7
0 50 50 50

1,12, 76,2 55,5 244, 1,12 76,2 55,5 2,44,

500 50 00 250 ,500 50 00 250

To, Carriage 1,200 900 600 2,70 By Gross Profit 27,7 19,7 23,2 70,7
Outwards 0 50 50 50 50
To, Electricity 1500 100 500 3000 By Discount 900 600 300 1,80
0 Received 0
To, Salaries 1000 800 600 2400
0 0 0 0
To 1200 900 600 2700
Advertisement
To Discount 1000 750 500 2250
Allowed
To Rent Rates 3000 250 200 7500
and Taxes 0 0
To Depreciation 400 400 200 1000
To Provision for 375 250 250 875
Bad Debts

ACC 30%
 To Labour 1000 800 600 2400
Welfare
To Net Profit 8975 485 123 2612
0 00 5

28,65 20,3 23,5 72,5 28,6 20,3 23,5 72,5

0 50 50 50 50 50 50 50

Working Note:

Basis of allocation of expenses

Carriage inwards Purchases (3:2:1)

Carriage outwards Turnover (4:3:2)
Salaries No. of Employees (5:4:3)
Advertisement Turnover (4:3:2)
Discount allowed Turnover (4:3:2)
Discount received Purchases (3:2:1)
Rent, Rates and Taxes Floor Space occupied (6:5:4)
Depreciation on furniture Value of furniture (2:2:1)
Labour welfare expenses No. of Employees (5:4:3
Electricity expense Units consumed (3:2:1)
Provision for bad debts Debtors balances (3:2:2)

Question 2(b) 12
The Books of Vanraj Ltd. shows the following Balances as on 31st December, 2019:

Particulars Amount
6,00,000 Equity shares of Rs. 10 each fully paid up 60,00,000
30,000, 10% Preference shares of Rs. 100 each, Rs. 80 paid up 24,00,000
Securities Premium 6,00,000
Capital Redemption Reserve 18,00,000
General Reserve 35,00,000

Under the terms of issue, the Preference Shares are redeemable on 31st March, 2020 at a premium
of 10%. In order to finance the redemption, the Board of Directors decided to make a fresh issue
of 1,50,000 Equity shares of Rs.10 each at a premium of 20%, Rs. 2 being payable on application,
Rs. 7 (including premium) on allotment and the balance on 1st January, 2021. The issue was fully
subscribed and allotment made on 1st March, 2020. The money due on allotment was received by
20th March, 2020. The preference shares were redeemed after fulfilling the necessary conditions
of Section 55 of the Companies Act, 2013.

You are required to pass the necessary Journal Entries and also show how the relevant items will
appear in the Balance Sheet of the company after the redemption carried out on 31st March, 2020.

ACC 30%
Answer 2(b)
In the books of Vanraj Limited
Journal Entries

Rs. Rs.
1 10% Preference Share Final Call A/c Dr 6,00,000
To 10% Preference Share Capital A/c . 6,00,000
(For final call made on preference shares @
Rs. 20 each to make them fully paid up)

2 Bank A/c 6,00,000

To 10% Preference Share Final Call A/c Dr 6,00,000
(For receipt of final call money on preference .
shares)

3,00,000 3,00,000
3 Bank A/c
To Equity Share Application A/c Dr
(For receipt of application money on 1,50,000 .
3,00,000
4 equity shares @ Rs. 2 per share) 3,00,000

Equity Share Application A/c

5 To Equity Share Capital A/c 10,50,00
(For capitalization of application money Dr 0
received) . 7,50,000
3,00,000

Equity Share Allotment A/c

To Equity Share Capital
6 Dr 10,50,00
A/c To Securities
. 0
Premium A/c
10,50,00
(For allotment money due on 1,50,000 equity 0
shares @ Rs. 7 per share including a premium of
Rs. 2 per share)

Bank A/c
To Equity Share Allotment A/c Dr
(For receipt of allotment money on equity shares) .

7 10% Preference Share Capital A/c Dr. 30,00,000

Premium on Redemption of Preference Shares A/c Dr. 3,00,000
To Preference Shareholders A/c 33,00,000
(For amount payable to preference shareholders on
redemption at 10 % premium)

8 General Reserve A/c Dr. 3,00,000

ACC 30%
 To Premium on Redemption A/c 3,00,000
(Writing off premium on redemption of preference
shares)

9 General Reserve A/c Dr. 19,50,000

To Capital Redemption Reserve A/c 19,50,000
(For transfer of CRR the amount not covered by the
proceeds of fresh issue of equity shares i.e.,
30,00,000 - 3,00,000 - 7,50,000)

10 Preference Shareholders A/c Dr. 33,00,000

To Bank A/c 33,00,000
(For amount paid to preference shareholders)

Balance Sheet (extract)

Particulars Notes As at As at
No. 31.3.202 31.12.201
0 9
Rs. Rs.
EQUITY AND LIABILITIES
1. Shareholders’ funds
a) Share capital 1 70,50,000 84,00,000
b) Reserves and Surplus 2 59,00,000 59,00,000

Notes to Accounts –

As at As at
31.3.2020 31.12.2019
1. Share Capital
Issued, Subscribed and Paid up:
6,00,000 Equity shares of Rs. 10 each fully 60,00,000 60,00,000
paid up 1,50,000 Equity shares of Rs.10 each 10,50,000 -
Rs. 7 paid up 30,000, 10% Preference shares - 24,00,000
of Rs. 100 each, 70,50,000 84,00,000
Rs. 80 paid up
37,50,000 18,00,000
2. Reserves and Surplus 9,00,000 6,00,000
Capital Redemption Reserve 12,50,000 35,00,000
59,00,000 59,00,000
Securities Premium
General Reserve

ACC 30%
Question 3(a) 15
Anuj Ltd. (an unlisted company other than AIFI, Banking company, NBFC and HFC) had 8,000,
9% debentures of Rs. 100 each outstanding as on 1st April, 2019, redeemable on 31st March, 2020.

On 1st April, 2019, the following balances appeared in the books of accounts:
• Investment in 1,000, 7% secured Govt. bonds of Rs. 100 each, Rs. 1,00,000.
• Debenture Redemption Reserve is Rs. 50,000.

Interest on investments is received yearly at the end of financial year.

1,000 own debentures were purchased on 30th March, 2020 at an average price of Rs.96.50 and
cancelled on the same date.

On 31st March, 2020, the investments were realized at par and the debentures were redeemed.

You are required to write up the following accounts for the year ended 31st March, 2020.
(1) 9% Debentures Account.
(2) Debenture Redemption Reserve Account.
(3) DRR Investment Account.
(4) Own Debentures Account.

Answer 3(a)
(i) 9% Debentures Account

Date Particulars Rs. Date Particulars Rs.

30th March, To Own 96,500 1st By Balance b/d 8,00,000
April,
2020 Debentures A/c 2019

30thMarch, To Profit on
2020 cancellation 3,500

31st March, To Bank A/c 7,00,000

2020
8,00,000 8,00,000

(ii) Debenture Redemption Reserve Account

Date Particulars Rs. Date Particulars Rs.

1st April, By Balance b/d 50,000
31st To General Reserve 80,000 2019
March, A/c By Profit and loss A/c
2020 1st April, [Refer Working Note 30,000
2019 3]
80,000 80,000

(iii) DRR Investment Account

ACC 30%
 Date Particulars Amount Date Particulars Amount
1st April To Balance b/d 1,00,000 31st By Bank A/c 15,000
2019 March, (1,000 x 100 x 15%)
2020 (Refer Working Note
To Bank A/c (Refer 20,000 2) 1,05,000
1st April Working Note 1) 31st By Bank A/c
2019 March, (Refer Working Note
1,20,000 2020 2) 1,20,000

(iv) Own Debentures Account

Date Particulars Amount Date Particulars Amount

30th March, To Bank A/c* 96,500 30th By 9% Debentures 96,500
2020 March,
96,500 2020 96,500

*Interest not considered.

Working Notes:

1. Debenture Redemption Reserve Investment A/c

The company would be required to invest an amount equivalent to 15% of the value of the
debentures in specified investments which would be equivalent to:
= Total No of debentures X Face value per debenture X 15%
= 8,000 x 100 x 15% = Rs.1,20,000/-

The company has already invested in specified investments i.e. 7% Govt bonds for an amount of
Rs.1,00,000 as per the information given in the question. The balance amount of ‘20,000 (i.e. Rs.
1,20,000 less Rs. 1,00,000) would be invested by the company on 1 April 2019.

2. Redemption of Debenture Redemption Reserve Investments on 31.3.2020

Since the company purchased 1,000 own debentures on 31 March 2020, the company would also
realize the investments of 15% corresponding to these debentures for which computation is as
follows:
= No of own debentures to be bought X Face value per debenture X 15%
= 1,000 x 100 x 15% = Rs. 15,000/-

The remaining debentures i.e. total debentures less own debentures would be redeemed on 31
March 2020 and hence the company would also realize the balance investments of 15%
corresponding to these debentures for which computation is as follows:
= (Total no of debentures - No of own debentures) X Face value per debenture X 15% = (8,000 -
1,000) X
100 x 15% = Rs. 1,05,000/-

3. Debenture Redemption Reserve

The company would be required to transfer an amount equivalent to 10% of the value of the
debentures in Debentures Redemption Reserve Account. The value of debentures is 8,00,000
thus 10% of it i.e. 80,000 should be there in DRR a/c. The available balance in DRR a/c is only
50,000 therefore 30,000 (80,000 – 50,000) additional amount will be transferred from General
Reserve or Profit and loss A/c to DRR A/c.

ACC 30%
Question 3(b) 5
Omega company offers new shares of Rs. 100 each at 25% premium to existing shareholders on
the basis
one for five shares. The cum-right market price of a share is Rs. 200.

You are required to calculate the

(i) Ex-right value of a share;
(ii) Value of a right share?

Answer 3(b)
Ex-right value of the shares
= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of shares
+ No. of right shares)
= (Rs. 200 x 5 Shares + Rs. 125 x 1 Share) / (5 + 1) Shares
=Rs. 1,125 / 6 shares
= Rs. 187.50 per share.

Value of right
= Cum-right value of the share – Ex-right value of the share
= Rs. 200 – Rs. 187.50
= Rs. 12.50 per share.

Question 4(a) 10
P Ltd. has two Departments X and Y. From the following particulars you are required to prepare
Departmental Trading Account and Combined Trading and P & L Account for the year ending
31st March, 2022.

Particulars Department X Department

Rs. Y
Rs.
Opening stock (at Cost) 70,000 54,000
Purchase 2,14,000 1,66,000
Carriage inwards 6,000 6,000
Wages 21,000 24,450
Sales 3,10,000 2,54,000
Purchased goods transferred by Dept. Y to Dept. X 30,000 -
Purchased goods transferred by Dept. X to Dept. Y - 24,000
Finished goods transferred by Dept. Y to Dept. X 80,000 -
Finished goods transferred by Dept. X to Dept. Y - 1,00,000
Return of Finished Goods by Dept. Y to Dept. X 25,000 -
Return of Finished Goods by Dept. X to Dept. Y - 17,000
Closing Stock of Purchased Goods 12,000 15,000
Closing Stock of Finished Goods 60,000 35,000

Purchased goods have been transferred mutually at their respective departmental purchase cost
and finished goods at departmental market price and that 20% of the finished stock (closing) at
each department represented finished goods received from the other department.

ACC 30%
Answer 4(a)
P Ltd.
Departmental Trading A/c for the year ending 31st March, 2022

Dept. X. Dept. Y Dept. X Dept. Y

Rs. Rs. Rs. Rs.
To Stock 70,000 54,000 By Sales 3,10,000 2,54,000
To Purchases 2,14,000 1,66,000 By Purchased Goods 24,000 30,000
Transferred

To Wages 21,000 24,450 By Finished goods 1,00,000 80,000

Transferred

To Carriage Inward 6,000 6,000 By Return of Finished 17,000 25,000

Goods

To Purchased Goods 30,000 24,000 By Closing Stock:

Transferred Purchased Goods – 12,000 15,000
Finished Goods 60,000 35,000

To Finished Goods 80,000 1,00,000

Transferred

To Return of Finished 25,000 17,000

Goods

To Gross profit c/d 77,000 47,550

5,23,000 4,39,000 5,23,000 4,39,000

Combined Trading and P & L Account for the year ending 31st March, 2022

Rs. Rs.
To Opening Stock 1,24,000 By Sales 5,64,000
(Rs. 70,000 + Rs. 54,000) (Rs. 3,10,000 + Rs. 2,54,000)
To Purchases 3,80,000
(Rs. 2,14,000 + Rs. By Closing Stock:
1,66,000)
45,450 Purchased Goods
To Wages (Rs. 12,000 + Rs. 15,000) 27,000
(Rs. 21,000 + Rs. 24,450) Finished Goods
To Carriage 12,000 (Rs. 60,000 + Rs. 35,000) 95,000
(Rs. 6,000 + Rs. 6,000)
To Gross Profit c/d 1,24,550

6,86,000 6,86,000
To Stock Reserve 3,200 By Gross Profit b/d 1,24,550
ACC 30%
 To Net Profit 1,21,350

1,24,550 1,24,550

Working note:
Calculation of Rate of Gross Profit Deptt. X Deptt. Y

Closing Stock out of transfer (20%) 12,000 7,000

Sale 3,10,000 2,54,000
Add: Transfer 1,00,000 80,000
4,10,000 3,34,000
Less: Returns (25,000) (17,000)
Net Sales plus Transfer 3,85,000 3,17,000

77, 000 47, 550

x 100 x 100
3, 85, 000 3,17, 000
Rate of Gross profit
= 20% = 15%

Unrealized Profit
Dept. X Rs. 12,000 × 15% = Rs. 1,800
Dept. Y Rs. 7,000 × 20% = Rs. 1,400

Question 4(b) 10
The partners of Suhani converted their partnership firm into a Private Limited Company named
Smriti (P) Ltd. w.e.f 1st January, 2020 which was incorporated on 1st June, 2020. The purchase
consideration amounting to Rs. 11,40,000 was payable later on an interest of 12% per annum. To
make the payment of purchase consideration and meet working capital requirements a loan worth
Rs. 17,10,000 @ 10% per annum was availed on 1st June, 2020 & payment for purchase
consideration was made. The company obtained a building on lease at a monthly rent of Rs. 19,000
on 1st July, 2020. Following is the information of the company as on 31st March, 2021 (for the
period of 15 months):

Sales between June 2020 and December, 2020 were 2 ½ times of the average sales, which further
increased
to 3½ times in January to March quarter, 2021. The salaries from July, 2020 doubled. Prepare a
statement
showing the calculation of profits or losses for the pre-incorporation and post-incorporation
periods.

ACC 30%
 Rs. Rs.
Sales 37,62,000
Less:
Cost of goods sold 22,57,200
Discount 87,780
Director’s remuneration 1,14,000
Salaries 1,71,000
Rent 2,56,500
Interest 1,99,500
Depreciation 57,000
Office Expenses 1,99,500
Sale Promotion Expenses 62,700
Preliminary Expenses 28,500 (34,33,680)

Profit 3,28,320

Answer 4(b)
Statement showing the calculation of Profits/losses for the pre-incorporation and post-
incorporation
Periods

Particulars Total Basis of Pre. Inc. Pos. Inc.

Amount Allocation
Sales 37,62,000 Sale Ratio 5,70,000 31,92,000
Less: Cost of goods sold 22,57,200 Sales Ratio 3,42,000 19,15,200
Discount 87,780 Sales Ratio 13,300 74,480
Director’s Remuneration 1,14,000 Post —— 1,14,000
Salaries 1,71,000 (W.N. 3) 35,625 1,35,375
Rent 2,56,500 (W.N. 4) 28,500 2,28,000
Interest 1,99,500 (W.N. 5) 57,000 1,42,500
Depreciation 57,000 Time Ratio 19,000 38,000
Office Expenses 1,99,500 Time Ratio 66,500 1,33,000
Preliminary Expenses 28,500 Post —— 28,500
Sales Promotion expenses 62,700 Sales Ratio 9,500 53,200

Net Profit/loss (1,425) 3,29,745

Working Notes:

1. Calculation of Time ratio

Date of Purchase: 01/01/2020
Date of Incorporation: 01/06/2020
Date of Closing of Books of Accounts: 31/03/2021
Time Ratio = 5:10 i.e 1:2

2. Computation of sales ratio:

Let average Sale per month= 1
Then average Sale for June to Dec. 20 = 2.5 per month
Average Sale from January to March 21 = 3.5 per month

ACC 30%
 Month Sale Average Month Sale Average
Sale Sale
January 1 September 2.5
February 1 October 2.5
March 1 November 2.5
April 1 December 2.5
May 1 January 3.5
June 2.5 February 3.5
July 2.5 March 3.5
August 2.5

Total Sale during Pre-Incorporation Period = 5

& Post Incorporation Period = 28
Hence Sales Ratio = 5:28

3. Computation of ratio for salaries:

Let Salary from January 20 to June 20 = 1 per month
Then Salary from July 20 to March 21 = 2 per month

Month Sale Average Month Average

Salary Salary Salary
January 1 September 2
February 1 October 2
March 1 November 2
April 1 December 2
May 1 January 2
June 1 February 2
July 2 March 2
August 2

Total Salary during Pre-Incorporation Period = 5

& Post Incorporation Period = 19
Hence Salary Ratio = 5:19

4. Computation of Rent:

Total rent 2,56,500

Less: Building rent for 9 months @ 19,000 p.m. 1,71,000
Rent of old premises apportioned in time ratio 85,500
Apportionment Pre Inc. Post Inc.
Old premises rent 28,500 57,000
Building Rent 1,71,000
28,500 2,28,000

5. Computation of interest:

Pre-incorporation period from Jan, 2020 to May, 2020

(11,40,000 x 12 x 5) / (100 x 12) = 57,000

Post incorporation period from June, 2020 to March, 2021

(17,10,000 x 10 x 10) / (100 x 12) = 1,42,500

ACC 30%
Total = 1,99,500

Question 5 20
The following is the summarized Balance Sheet of Rukmani Limited as at 31st March, 2022:

Liabilities Rs.
Authorized Capital
1,50,000 Equity shares of Rs. 10 each 15,00,000
30,000 10% Redeemable Preference shares of Rs. 100 each 30,00,000
45,00,000
Issued, Subscribed and Paid up
90,000 Equity shares of Rs. 10 each 9,00,000
15,000 10% Redeemable Preference shares of Rs. 100 each 15,00,000
Reserves & Surplus
Securities Premium 18,00,000
General Reserve 16,50,000
Profit & Loss A/c 1,20,000
7500, 9% Debentures of Rs. 100 each 7,50,000
Trade Payables 2,12,500
69,32,500
Assets
Non-Current Assets
Property Plant & Equipment 31,60,000
Investments (Market Value, Rs. 17,40,000) 14,70,000
Trade Receivables 17,60,000
Cash & Bank Balance 5,42,500
69,32,500

In Annual General Meeting held on 15th May, 2022 the company passed the following
resolutions:

(i) To redeem 10% preference shares at a premium of 5%.

(ii) To redeem 9% Debentures by making offer to debenture holders to convert their holding into
equity shares at Rs. 40 per share or accept cash on redemption.

(iii) To issue fully paid bonus shares in the ratio of one equity share for every three shares held on
31st March, 2022.

(iv) Redemption of preference shares and debentures will be paid through company’s cash & bank
balance
subject to leaving a minimum cash & bank balance of Rs. 2,00,000.

(v) To issue sufficient number of equity shares @ Rs. 40 per share if required to finance redemption
of Preference Shareholders and debenture holders.

On 5th June, 2022 investments were sold for Rs. 16,80,000 and preference shares were redeemed.

ACC 30%
30% of Debenture holders exercised their option to accept cash and their claims were settled on
1st August, 2022. The bonus issue was concluded by 10th August, 2022.

You are requested to journalize the above transactions including cash transactions and prepare
Balance
Sheet as at 30th September, 2022. All working notes should form part of your answer.

Answer 5
Journal Entries in the Books of Rukmani Limited

Rs. Rs.
June 5 Cash and Bank A/c D 16,80,0
To Investment A/c r. 00
To Profit and Loss A/c 14,70,0
00
(Being investments sold and
2,10,00
corresponding profit recorded in P&L 0
A/c)

10% Redeemable Pref. Share Capital A/c D

June 5 Premium on Redemption of Pref. Share A/c r.
D 15,00,0
To Pref. Shareholder A/c
r. 00
(Being amount payable to preference
75,000
shareholders on account of redemption) 15,75,0
00
Preference Shareholder A/c
To Cash and Bank A/c
(Being amount paid to preference D
June 5 shareholders) r. 15,75,0
00 15,75,00
0
General Reserve A/c
June 5 To Capital Redemption Reserve A/c
(Being amount equal to nominal value of Dr. 15,00,0
preference shares transferred to Capital 00 15,00,00
Redemption Reserve A/c on its redemption 0
as per the law)

Aug 1 9% Debentures A/c 7,50,00

D
Interest on Debentures A/c r. 0
(7,50,000 x 9% x 4/12) D 22,500
To Debenture r.
holders A/c
7,72,50

ACC 30%
 (Being amount payable to debenture holders 0
along with interest payable)

Debenture holders A/c

Aug 1 To Cash and Bank A/c (2,25,000 + 7,72,50
22,500) D 0
To Equity Share Capital A/c (13,125 x 10) r. 2,47,50
To Securities Premium A/c (13,125 x 30) 0
(Being claims of debenture holders satisfied) 1,31,25
0
3,93,75
0

Aug Capital Redemption Reserve A/c 3,00,000

10 Dr.
To Bonus to Shareholders A/c
(Being balance in capital redemption reserve
capitalized to issue bonus shares) 3,00,00
0

3,00,000
Aug Bonus to Shareholders A/c
10 Dr.
To Equity Share Capital A/c
(Being 30,000 fully paid equity shares of Rs. 10
each 3,00,00
0
issued as bonus in ratio of 1 share for every 3 75,000
shares held)
Sep
30
General Reserve A/c
Dr.
To Premium on Redemption of Pref. Shares 75,000
A/c 22,500
(Being premium on preference shares adjusted
Sep from general reserve)
30

Profit and Loss A/c 22,500

Dr.
To Interest on Debentures A/c
(Being interest on debentures transferred to
Profit and Loss Account)

ACC 30%
 Balance Sheet as at 30th September, 2022

Particulars Notes Rs.

Equity and Liabilities
1 Shareholders' funds
a Share capital 1 13,31,250
b Reserves and Surplus 2 37,76,250

2 Current liabilities 2,12,500

a Trade Payables 53,20,000
Total
Assets
Non-current assets
31,60,000
1 a Property, Plant and Equipment
17,60,000
2 Current assets
a Trade receivables 4,00,000
b Cash and bank balances (W.N.2) 53,20,000

Total

Notes to accounts:

Rs. Rs.
1 Share Capital
Authorized share capital
1,50,000 Equity shares of Rs. 10 each 15,00,00
30,000 Redeemable Preference shares of 0
30,00,00
Rs. 100 each Issued, subscribed and paid
0
up
1,33,125 Equity shares of Rs. 10 each 13,31,2
[90,000+13,125+30,000] (Out of which 50
2 1,33,125 shares were issued for the
consideration other than cash)
18,00,00
Reserves and Surplus 0
Securities Premium
Balance as per balance sheet 3,93,750
Add: Premium on equity shares issued
on conversion of debentures (13,125 x 30)
21,93,7
Balance 50
12,00,0
Capital Redemption Reserve (15,00,000 - 3,00,000) 00
General Reserve
Opening
Balance
75,000
16,50,000 1,20,000

ACC 30%
 Less Transfer to Capital Redemption Reserve 2,10,000
(22,500) 3,07,50
(15,00,000) 0
1,50,000 37,76,2
50
Less: Premium on redemption of preference shares

(75,000)
Profit & Loss A/c
Add: Profit on sale
of investment Less:
Interest on
debentures

T
o
t
a
l

Working Notes:

Rs.
1. Redemption of Debentures
7,500 Debentures of Rs. 100 each 7,50,000
Less: Cash option exercised by 30% holders (2,25,000)
Conversion option exercised by remaining 70% 5,25,000
Equity shares issued on conversion = 5,25,000/40 = 13,125 shares
2. Cash and Bank Balance
Balance as per balance sheet 5,42,500
Add: Realization on sale of investment 16,80,000

22,22,500

Less: Paid to preference share holders (15,75,00

0)
Paid to Debenture holders (2,25,000 + 22,500) (2,47,500
)
Balance 4,00,000

Note :

1. There is no need to issue fresh equity shares as the company is having sufficient cash balance.

2. Securities premium has not been utilized for the purpose of premium payable on redemption of
preference shares assuming that the company referred in the question is governed by Section 133
of the Companies Act, 2013 and comply with the Accounting Standards prescribed for them.
Alternative considering otherwise also possible by utilizing securities premium.

ACC 30%
ACC 30%