Financial Accounting

April 2006
Time: 3 Hours
Marks: 100
NB:

1. Question No. 1 is compulsory.

2. Attempt any five questions from Question Nos. 2 to 9.

3. All working notes should form part of answer.
4. Figures to the right indicate full marks assigned to each question.
5. Specify assumptions, if any, while solving the questions.

 Q.1 Following are the Balance Sheets of ROHAN Ltd. and SOHAN Ltd. as on 31-3-2005. 20


Liabilities ROHAN Ltd. SOHAN Ltd. Assets ROHAN Ltd. SOHAN
Rs. Rs. Rs. Ltd.
Rs.
Share Capital Fixed Assets:
9% Preference
Goodwill 1, 50,000 1, 50,000
Shares
Of Rs. 100 each 6, 00,000 9, 00,000 Land & Building 6, 00,000 7, 50,000
Equity shares Plant & Machinery 4, 50,000 6, 00,000
Of Rs. 100 each 9, 00,000 15, 00,000 Computer 3, 00,000 4, 50,000
Reserves &
Investments: 1, 50,000 1, 50,000
Surplus:
General Reserves 75,000 90,000 Current Assets,
Revaluation Loans &
45,000 60,000
Reserves Advances
Export Profit
30,000 45,000 Stock 3, 00,000 4, 50,000
Reserves
Profit & Loss
15,000 30,000 Sundry Debtors 1,50,000 3,00,000
Account
Secured Loans: Bills receivables 75,000 1,50,000
12% Debentures Bank 1, 95,000 3,75,000
Of Rs. 100 each 3,00,000 4, 50,000
Unsecured Loans
Current Liabilities
1, 50,000 75,000
&
Provisions:
Sundry Creditors 2, 25,000 1, 80,000
Bills payable 30,000 45,000
23,70,000 33,75,000 23,70,000 33,75,000




Mohan Ltd. was formed to take over the business of Rohan Ltd. and Sohan Ltd. with an
authorized share capital of Rs. 30,00,000 consisting of 20,000 13% Preference Shares of Rs.
100 each and 100,000 Equity Shares of Rs. 10 each.
 Terms of Amalgamation :-

1. 9% Preference shareholders of both the companies are issued equal number of 13%
Preference shares of Mohan Ltd. at a price of 125 each.

2. Mohan Ltd. will issue four Equity shares for three Equity shares of Rohan Ltd. and
four Equity shares for five Equity shares of Sohan Ltd. The shares are to be issued
at Rs. 35 each.
3. 12% Debenture holders of both the companies are discharged by Mohan Ltd. by
issuing such number of its 15% Debentures of Rs. 100 each so as to maintain the
same amount of interest.
4. Mohan Ltd. agree to take over all assets and all liabilities at book values except the
following

(i) Tangible fixed assets at 10% more than book-values

(ii) Investments and Sundry Debtors at 90% of their book values.

5. Export Profit Reserves are to be maintained for three more years.

You are required to -

(i) Compute purchase consideration of Rohan Ltd. and Sohan Ltd.

(ii)Pass Journal entries and Prepare Balance Sheet after amalgamation in the
books of Mohan Ltd. applying Purchase Method.

 Q.2 M/s. NIMISH Pvt. Ltd. was incorporated on 1st August, 2004 to take over the business of
Mr. Chinmay with effect from 1st April, 2004 16


 The following profit and loss Account was prepared for the year ended 31st March 2005:-

Rs. Rs.
To Office Salaries 24,000 By Gross Profit 1,00,000
To Chinmay's Salary 2,000 Share transfer fees 2,000
To Advertisement 18,000
To Printing and Stationery 1,500
To Travelling Expenses 4,000
To Office Rent 9,600
To Electricity charges 5,100
To Director's fees 1,200
To Auditor's fees 600
To Bad debts 1,200
To Commission on sales 7,000
To Preliminary expenses 2,000
To Debenture interest 2,300
To Interest on capital 800
To Depreciation 2,100
To Net Profit 20,600
To Commission on sales 1,02,000 1, 02,000


 Q.3 Following is the Balance Sheet of PARADISE Ltd. as on 31-3-2005:- 16



Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets
10% Preference Shares Premises 3,20,000
of Rs. 10 each 2,40,000 Plant and Equipments 5,20,000
Equity Shares of Rs. 10 each 4,00,000 Investments 1,20,000
Secured Loans : Current Assets, Loans & Advances :
15% Debentures of Rs. 100 each 4,80,000 Stock 1,44,000
Current Liabilities & Provisions Debtors 96,000
Sundry Creditors 2,00,000 Deposits and Advances 40,000
Bank Overdrafts 1,20,000 Miscellaneous Exp :
Other Liabilities 1,60,000 Publicity campaign exp. 1,60,000
Profit & Loss Account 2,00,000
16,00,000 16,00,000

 It is observed that the new product launched by the company has not
succeeded even after three years of marketing. The management is of the
opinion that the assets and liabilities are not valued correctly and also finds it
difficult to raise finance.

To overcome the situation a scheme of reconstruction is prepared by the

Directors and approved by all authorities :

 The salient features of the scheme are:

1. Plant and Equipments having book value of Rs. 80,000 is obsolete. This is sold as
scrap for Rs. 16,000.
2. The auditors have pointed out that depreciation on plant is not provided to the
extent of Rs. 40,000.
3. Stock includes items valued at Rs. 48,000 which is sold at a loss of 50%.
4. The present relisable value of investments is Rs. 56,000.
5. Dividend on Preference shares is in arrears for three years. This amount is not
payable.
6. All losses and fictitious assets are to be written off.
7. The expense paid for forming and implementing scheme is Rs. 8,000.
8. The paid up value of Equity share is to be reduced to Rs. 2 per share and
Preference shares to Rs. 5 per share. However, the face value remains unchanged.
 The creditors due are settled as

(i) 20% immediate payment in cash.

(ii) 40% amount is cancelled.

(iii)40% paid by issue of 16% Debentures.

 (10)Other current liabilities include Rs. 40,000 payable to Directors towards remuneration.
This liability is to be cancelled.

 (11)A call of Rs. 3 per share on Equity Share is made and received.
 (12)Bank overdraft is paid off to the extent possible.
 You are required to show :

 (i) Journal Entries for above scheme of reconstruction and

 (ii)Balance Sheet after reconstruction.

 Q.4 The Summarized Balance Sheet of COMFORTABLE Ltd. as on 31-3-2005 was as under:-
16



Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets
7% Redeemable Preference Goodwill 2, 00,000
Shares of Rs. 10 each 3, 00,000 other fixed assets 8, 00,000
Equity shares of Rs. 10 each 5, 00,000 Current Assets. Loans & Advances:
Reserves & Surplus: Stock 4, 50,000
Security Premium 50,000 Sundry Debtors 1, 00,000
General Reserves 1, 00,000 Bank 88,000
Profit & Loss Account 1, 50,000 Miscellaneous Expenditure
Secured Loan: Discount on Issue of Debentures 12,000
8% Debentures of Rs. 100 each 4, 00,000
Unsecured Loan 50,000
Current Liabilities & Provisions:
Sundry Creditors 1, 00,000
16, 50,000 16, 50,000

 The company decided to redeem both the Preference shares and Debentures at a premium
of 10%. For the purpose of redemption, company offered to the Preference Shareholders
and the Debenture holders the option to convert their holdings into Equity shares which are
to be treated as worth Rs. 11 each. Holders of 1/3rd Preference shares and holders of 50%
of Debentures, agreed to this proposal.

The company issued 50,000 Equity shares at Rs. 11 each to the public for
cash and with the funds available paid off the unsecured loan and redeemed
the remaining Preference shares and Debentures. It was also decided to write
off Discount on issue of Debentures against Security Premium Account. Pass
journal entries and recast the Balance Sheet after redemption.

 Q.5 Pass Journal entries for the following transactions in foreign currency and also prepare
Foreign Exchange 16 Fluctuation Account in the books of NSD Ltd. and DBK Industries Ltd.
16



 (a) NSD Ltd. imported raw materials worth US $ 40,000 on 12th December, 2004. The
exchange rate for US $ 1 as on 12-12-2004 was Rs. 46.50.

The payment for the above transaction was made as under :

Date of Payment Payment made Exchange rate for US $ 1

23-02-2005 US $ 18,000 Rs. 47.75
21-03-2005 US $ 12,000 Rs. 48.25
 10-04-2005 US $ 10,000 Rs. 48.50

 The accounting year of the company ends on 31st March. The exchange rate as on 31st
March, 2005 for US $ 1 was Rs. 45.00.

(b) DBK Industries Ltd. invoiced goods to West Germany worth US $ 100,000
on 10th March, 2005 on which date exchange rate for US $ 1 was Rs. 41.00.

The payment for the same was received as under:

Date of Receipt Received Exchange rate for 1 US $

20-03-2005 US $ 40,00 Rs. 42.00
29-03-2005 US $ 35,000 Rs. 41.00
15-04-2005 US $ 25,000 Rs. 44.00

 The company closes its accounting year on 31st March. The exchange rate as on 31-03-
2005 was 1 US $ Rs. 45.00.


 Q.6 M/s. SANJAY Co. Ltd. is a registered company with an authorized share capital Rs.
70,000 divided Into 7,000 equity shares of Rs.10 each. Company’s trial balance as on
31-03-2005 was as under: 16

 .

Debit Balance. Rs. Credit Balance. Rs.
Building (Cost Rs. 50,000) 40,000 Share Capitals:
Furniture (Cost Rs. 5,000) 4,000 5,000 Equity Shares of Rs. 10 each 50,000
Vehicles (Cost Rs. 10,000) 6,500 6% Debentures of Rs. 100 each 10,000
Equity shares of companies Provision for tax
(Market Value Rs. 22,000) 20,000 (Accounting Year 2003-04) 10,000
500 – 8% Preference shares of Sundry Creditors 7,500
paid up 3,000 General Reserves 10,000
Stock in trade at cost 20,000 Profit and Loss Account (1-4-2004) 2,000
Sundry Debtors 14,000 Gross Profit 55, 000
Cash at Bank 8,750 Dividend on Shares (Gross Rs. 1,000) 700
Discount on Debenture 400 Bills Payable 4,000
Salaries 10,000
Directors fees 400
Audit fees 650
Debentures interes
500
Advance payment of Income tax:
Accounting Year — 2003-04 9,000
Accounting Year — 2004-05 9,000
Advance against construction
3,000
of building
 1, 49,200 1, 49,200

 Adjustments :
1. Provide 10% Depreciation p.a. on cost of fixed assets.
2. The company had given a contract for the construction of a building at Rs. 1,00,000
which is still incomplete.
3. Provide Rs. 10,000 in respect of taxation liability for the year 2004-05.
4. Write back Rs. 200 liability included in Sundry creditors.
5. Due to change in the basis of valuation of stock, its value has come down to Rs.
18,000. This has not been considered as yet.
6. Dividend is proposed for the year @ 10%.
7. Sundry Debtors include Debts due for more than 6 months Rs. 4,000.
8. Income tax assessment for the accounting year 2003-04 has been completed with a
gross demand of Rs. 11,000.
9. Ignore previous year's figures and tax on proposed dividend.

Prepare Profit and Loss Account for the year ended 31-03-2005 and Balance
Sheet as on that date in a vertical form as per the provisions of the Schedule
VI of the Companies Act, 1956 taking into consider¬ation the above
mentioned adjustments.

 Q.7 The Balance Sheet of MANISH Ltd. as on 31-03-2005 is as follows: — 16




Liabilities Rs. Assets Rs.
Share Capital : Fixed Assets
Authorised, Issued, Subscribed Net Block 40,00,000
and called-up : Investments 15,00,000
Equity shares of Rs. 10 each 25,00,000 Current Assets. Loans & Advances
Reserves & Surplus Current Assets (including Bank)
Security Premium 5,00,000 Balance of Rs. 15,00,000) 35,00,000
General Reserves 10,00,000 Loans and Advances 5,00,000
Profit and Loss Account 10,00,000
Secured Loans :
10% Debentures 25,00,000
Current Liabilities & Provisions
Sundry Creditors 15,00,000
Bills Payable 5,00,000
95,00,000 95,00,000
 Keeping in view all the legal requirements ascertain:
 (i) Maximum number of Equity shares that Manish Ltd. can buy-back.
 (ii) The maximum price it can offer.

Assume that the buy-back is carried out actually at the legally permissible
terms, record the entries in the journal of Manish Ltd. and prepare its Balance
Sheet thereafter.

 Q.8 Banglore Investments hold 1200-6% Debentures of Rs. 100 each in MINERVA Ltd. as on
1st April 2004 16 at a cost of Rs. 140,000. Interest is payable on 30th June and 31st
December each year. Other details are as under : 16



Date Details
1-6-2004 400 Debentures are purchased cum interest at Rs. 40,800
1-11-2004 400 Debentures are purchased ex-interest at Rs. 38,400
30-11-2004 600 Debentures are sold cum-interest for Rs. 64,500
31-12-2004 800 Debentures are sold ex-interest for Rs. 77,300.
 Prepare Investment Account valuing closing balance on 31-3-2005 at cost or
market price whichever is lower. The debentures are quoted at par on 31-3-
2005.

 Q.9 Answer the following :- 16



(a)(i) A company was incorporated on 1-4-2004 to take over a business from

1-1-2004. Rent was paid @ Rs. 9,000 p.a. till 30-6-2004 and at the rate of Rs.
12,000 p.a. till 31-12-2004. Books of accounts are closed on 31-12-2004. Find
out amount of Rent and its allocation between Pre and Post incorporation
periods. (2)

(ii)List of out the items under the head 'Investments' of a company as per
Schedule VI requirement.(2)

(iii)List out the types of Amalgamation and methods of preparation of

purchase consideration. (2)

(iv)Give any two items each of 'Divisible Profits' and 'Non-divisible Profits' for
the purpose of redemption of preference share.(2)

(b)(i)A company has following position for the year ended 31-03-2005 (4)

Provision for tax (Cr.) Rs. 5, 00,000

Advance payment of tax (Dr.) Rs. 4,75,000
Tax deducted at source (Dr.) Rs. 20,000
 The assessment of a company is completed and tax liability is settled at Rs. 510,000. Pass
journal entries.
 (ii)A company forfeits 1000 Equity Shares of Rs. 10 each, Rs. 6 per share paid up. It reissues
4 all these shares at Rs. 8 per share fully paid up. Pass journal entries for forfeiture and
reissue and determine Capital Reserve which can be utilised for any purpose at the time of
redemption of preference shares. (4)