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PAPER – 5: ADVANCED ACCOUNTING

Question No.1 is compulsory.
Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
Answer the following Questions
(a) Rajendra undertook a contract ` 20,00,000 on an arrangement that 80% of the value of
work done, as certified by the architect of the contractee should be paid immediately and
that the remaining 20% be retained until the Contract was completed.
In Year 1, the amounts expended were ` 8,60,000, the work was certified for ` 8,00,000
and 80% of this was paid as agreed. It was estimated that future expenditure to complete
the Contract would be ` 10,00,000.
In Year 2, the amounts expended were ` 4,75,000. Three-fourth of the work under contract
was certified as done by December 31st and 80% of this was received accordingly. It was
estimated that future expenditure to complete the Contract would be ` 4,00,000.
In Year 3, the amounts expended were ` 3,10,000 and on June 30th, the whole Contract
was completed.
Show how Contract revenue would be recognized in the P & L A/c of Mr. Rajendra each
year.
(b) Swift Limited acquired patent rights to manufacture Solar Roof Top Panels at a cost of
` 600 lacs. The product life cycle has been estimated to be 5 years and the amortization
was decided in the ratio of future cash flows which are estimated as under:
Year 1 2 3 4 5
Cash Flows (` in lacs) 300 300 300 150 150

After 3rd year, it was estimated that the patents would have an estimated balance future
life of 3 years and Swift Ltd. expected the estimated cash flow after 5th year to be ` 75
Lacs. Determine the amortization cost of the patent for each of the above years as per
Accounting Standard 26.

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2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(c) The accountant of Parag Limited has furnished you with the following data related to its
Business Divisions:
(` in Lacs)
Division A B C D Total
Segment Revenue 100 300 200 400 1,000
Segment Result 45 -70 80 -10 45
Segment Assets 39 51 48 12 150
You are requested to identify the reportable segments in accordance with the criteria laid
down in AS 17.
(d) From the following details of Aditya Limited for accounting year ended on 31st March,
2020:
Particulars `
Accounting profit 15,00,000
Book profit as per MAT 7,50,000
Profit as per Income tax Act 2,50,000
Tax Rate 20%
MAT Rate 7.5%
Calculate the deferred tax asset/liability as per AS 22 and amount of tax to be debited to
the profit and loss account for the year. (4 Parts X 5 Marks = 20 Marks)
Answer
(a) Year 1 `
Actual expenditure 8,60,000
Future estimated expenditure 10,00,000
Total Expenditure 18,60,000
8,60,000
% of work completed = x 100 = 46.24% (rounded off)
18,60,000

Revenue to be recognized = 20,00,000 x 46.24%

= ` 9,24,800
Year 2
Actual expenditure 4,75,000

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PAPER – 5 : ADVANCED ACCOUNTING 3

Future Expenditure 4,00,000

Expenditure incurred in Year 1 8,60,000
17,35,000
4,75,000 + 8,60,000
% of work completed = = 76.95% (rounded off)
17,35,000

Revenue to be recognized (cumulative) = 20,00,000 x 76.95%

= 15,39,000
Less: revenue recognized in Year 1 = ( 9,24,800)
Revenue to be recognized in Year 2 ` 6,14,200
Year 3
Whole contract got completed therefore total contract value less revenue recognized up to
year 2 will be amount of revenue to be recognized in year 3 i.e. 20,00,000 – 15,39,000
(9,24,800 + 6,14,200) = ` 4,61,000.
Note: Calendar year has been considered as accounting year.
(b) Amortization of cost of patent as per AS 26
Year Estimated future cash Amortization Ratio Amortized Amount
flow (` in lakhs) (` in lakhs)
1 300 .25 150
2 300 .25 150
3 300 .25 150
4 150 .10 60
5 150 .10 60
6 75 .05 30
1.00 600
In the first three years, the patent cost will be amortized in the ratio of estimated future
cash flows i.e. (300: 300: 300: 150: 150).The unamortized amount of the patent after third
year will be ` 150 lakh (600-450) which will be amortized in the ratio of revised estimated
future cash flows (150:150:75 or 2:2:1) in the fourth, fifth and sixth year.
(c) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments; or

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4 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Its segment result whether profit or loss is 10% or more of:

 The combined result of all segments in profit; or
 The combined result of all segments in loss,
whichever is greater in absolute amount; or
Its segment assets are 10% or more of the total assets of all segments.
On the basis of revenue criteria, segments A, B, C and D - all are reportable segments.
On the basis of the result criteria, segments A, B and C are reportable segments (since
their results in absolute amount is 10% or more of 125 Lakhs).
On the basis of asset criteria, all segments except D are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have
to be reported upon in accordance with Accounting Standard (AS) 17.
(d) Tax as per accounting profit 15,00,00020%= ` 3,00,000
Tax as per Income-tax Profit 2,50,00020% =` 50,000
Tax as per MAT 7,50,0007.50%= ` 56,250
Tax expense= Current Tax +Deferred Tax
` 3,00,000 = ` 50,000+ Deferred tax
Therefore, Deferred Tax liability as on 31-03-2020
= ` 3,00,000 – ` 50,000 = ` 2,50,000
Amount of tax to be debited in Profit and Loss account for the year 31-03-2020
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ` 50,000 + ` 2,50,000 + ` 6,250 (56,250 – 50,000) = ` 3,06,250
Question 2
(a) H Limited acquired 64000 Equity Shares of ` 10 each in S Ltd. as on 1 st October, 2019.
The Balance Sheets of the two companies as on 31st March, 2020 were as under:
Particulars H Ltd. (` ) S Ltd. (` )
Equities and Liabilities:
Equity Share Capital: Shares of ` 10 each 20,00,000 8,00,000
General Reserve (1st April, 2019) 9,60,000 4,20,000
Profit & Loss Account 2,28,800 3,28,000
Preliminary Expenses (1 st April, 2019) - (20,000)
Bank Overdraft 3,00,000 -

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Bills Payable - 52,000

Trade Payables 1,66,400 80,000
Total 36,55,200 16,60,000
Assets:
Land and Building 7,20,000 7,60,000
Plant & Machinery 9,60,000 5,40,000
Investment in Equity Shares of S Ltd. 12,27,200 -
Inventories 4,56,000 1,68,000
Trade Receivables 1,76,000 1,60,000
Bills Receivable 59,200 -
Cash in Hand 56,800 32,000
Total 36,55,200 16,60,000
Additional Information:
(1) The Profit & Loss Account of S Ltd. showed credit balance of ` 1,20,000 on 1st April,
2019. S Ltd. paid a dividend of 10% out of the same on 1st November, 2019 for the
year 2018-19. The dividend was correctly accounted for by H Ltd.
(2) The Plant & Machinery of S Ltd. which stood at ` 6,00,000 on 1st April, 2019 was
considered worth ` 5,20,000 on the date of acquisition by H Ltd. S Ltd. charges
depreciation @ 10% per annum on Plant & Machinery.
Prepare consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as on 31st March,
2020 as per Schedule III of the Companies Act, 2013.
(b) PGL Finance Ltd. is a non-banking financial company. The following information is
provided by the company regarding its outstanding amounts: ` 600 Lakhs, of which
instalments are overdue on 300 accounts for last two months (amount overdue ` 150
Lakhs), on 48 accounts for three months (amount overdue ` 64 Lakhs), on 20 accounts
for more than 30 months (amount overdue ` 120 Lakhs) and in 4 accounts for more than
three years (amount overdue ` 60 Lakhs - already identified as sub-standard asset) and
one account of ` 40 Lakhs which has been identified as non-recoverable by the
management. Out of 20 accounts overdue for more than 30 months, 16 accounts are
already identified as sub-standard (amount ` 28 Lakhs) for more than fourteen months and
others are identified as sub-standard asset for a period of less than fourteen months.
Classify the assets of the company in line with Non-Banking Financial Company-
Systematically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016. (15+5 = 20 Marks)

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6 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Answer
(a) Consolidated Balance Sheet of H Ltd. and its subsidiary, S Ltd.
as at 31st March, 2020
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 20,00,000
(b) Reserves and Surplus 2 13,07,200
(2) Minority Interest (W.N 4) 2,96,400
(3) Current Liabilities
(a) Trade Payables 3 2,98,400
(b) Short term borrowings 3,00,000
Total 42,02,000
II. Assets
(1) Non-current assets
(i) Property, Plant and Equipment 4 29,34,000
(ii) Intangible assets (W.N.5) 1,60,000
(2) Current assets
(a) Inventories 5 6,24,000
(b) Trade receivables 6 3,95,200
(c) Cash & Cash equivalents (Cash) 7 88,800
Total 42,02,000
Notes to Accounts
` `
1. Share Capital
2,00,000 equity shares of ` 10 each 20,00,000
2. Reserves and Surplus
Reserves 9,60,000
Profit & loss
H Ltd. 2,28,800
S Ltd. (As per W.N. 3) 1,18,400 3,47,200 13,07,200

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PAPER – 5 : ADVANCED ACCOUNTING 7

3. Trade Payables
H Ltd. 1,66,400
S Ltd. (80,000+52,000) 1,32,000 2,98,400
4. Property, Plant and Equipment
Land and building
H Ltd. 7,20,000
S Ltd. 7,60,000 14,80,000
Plant & Machinery
H Ltd. 9,60,000
S Ltd. (As per W.N. 7) 4,94,000 14,54,000 29,34,000
5. Inventories
H Ltd. 4,56,000
S Ltd. 1,68,000 6,24,000
6. Trade Receivables
H Ltd. 1,76,000
S Ltd. 1,60,000 3,36,000
Bills receivable: H Ltd. 59,200 3,95,200
7. Cash & Cash equivalents
Cash
H Ltd. 56,800
S Ltd. 32,000 88,800
Working Notes:
1. Share holding pattern
Total Shares of S Ltd 80,000 shares
Shares held by H Ltd 64,000 shares i.e. 80 %;
Minority Shareholding 16,000 shares i.e. 20 %
2. Capital profits of S Ltd.
` `
Reserve on 1st October, 2019 (Assumed there is no 4,20,000
movement in reserves during the year and hence balance
as on 1st October, 2019 is same as of 31 st March 2020)
Profit & Loss Account Balance on 1st April, 2019 1,20,000
Less: Dividend paid (80,000) 40,000
Profit for year:

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Total ` 3,28,000
Less: ` 40,000 (opening balance)
` 2,88,000
Proportionate up to 1st October, 2019 on time basis 1,44,000
(` 2,88,000/2)
Reduction in value of Plant & Machinery (WN 6) (50,000)
5,54,000
Less: Preliminary expenses written off (20,000)
Total Capital Profit 5,34,000
Holding company’s share (5,34,000 X 80%) 4,27,200
Minority Interest (5,34,000 X 20%) 1,06,800
Note: Preliminary expenses as on 1 st April, 2019 amounting ` 20,000 have been
written off.
3. Revenue profits of S Ltd.
Profit after 1st October, 2019 (3,28,000 - 40,000)/2 1,44,000
Less 10% depreciation on `5,20,000 for 6 months (26,000)
Add: Depreciation already charged for 2 nd half year on 30,000
6,00,000 4,000
1,48,000
Holding company’s share (1,48,000 X 80%) 1,18,400
Minority Interest (1,48,000 X 20%) 29,600

4. Minority interest
Par value of 16,000 shares (8,00,000 X 20%) 1,60,000
Add: 1/5 Capital Profits [WN 2] 1,06,800
1/5 Revenue Profits [WN 3] 29,600
2,96,400
5. Cost of Control
Amount paid for 64,000 shares 12,27,200
Less:
Par value of shares (8,00,000 X 80%) 6,40,000
Capital Profits – share of H Ltd. [WN 2] 4,27,200 (10,67,200)
Cost of Control or Goodwill 1,60,000

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PAPER – 5 : ADVANCED ACCOUNTING 9

6. Calculation of revaluation loss on Plant and Machinery of S Ltd. on

1st October, 2019
`
Value of plant and machinery as on 1 April,2019
st 6,00,000
Less: Depreciation for the six months (30,000)
Value of plant and machinery as on 1 st October, 2019 5,70,000
Less: Plant and machinery valued by H Ltd. on 1 st October,2019 (5,20,000)
Revaluation Loss 50,000
7. Value of plant & Machinery of S Ltd. On 31 st March,2020
Value of machinery on 1 st October, 2019 5,20,000
Less: depreciation for next six month (26,000)
4,94,000
(b) Statement showing classification as per Non-Banking Financial Company -
Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016
(` in lakhs)
Standard Assets
Accounts (Balancing figure) 166.00
300 accounts overdue for a period for 2 months 150.00
48 accounts overdue for a period by 3 months 64.00 380.00
Sub-Standard Assets
4 accounts identified as sub-standard asset for a period less than 14 92.00
months
Doubtful Debts
16 accounts identified as sub-standard for a period more than 14 months 28.00
4 accounts identified as sub-standard for a period more than 3 years 60.00
Loss Assets
One account identified by management as loss asset 40.00
Total overdue 600.00
Question 3
(a) High Ltd. and Low Ltd. were amalgamated on and from, 1st April, 2020. A new company
Little Ltd. was formed to take over the business of the existing Companies. The
summarized Balance sheets of High Ltd. and Low Ltd. as on 31st March, 2020 are as
under:

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10 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(` in Lakhs)
Liabilities High Low Assets High Low
Ltd. Ltd. Ltd. Ltd.
Share Capital: Property, Plant and
Equipment:
Equity Shares of ` 100 1000 850 Land & Building 670 385
each
14% Pref Shares of 320 175 Plant & Machinery 475 355
` 100 each
Reserves & Surplus: Investments 95 80
Revaluation Reserve 225 110 Current Assets:
General Reserve 360 240 Stock 415 389
Investment Allowance 80 40 Sundry Debtors 322 213
Reserve
P & L Account 85 82 Bills Receivables 35 -
Non-Current Liabilities: Cash & Bank 303 166
Secured Loans:
13% Debentures (` 100 100 56
each)
Unsecured Loans (Public 50 -
Deposits)
Current Liabilities & -
Provisions:
Sundry Creditors 65 35
Bills Payable 30 -
TOTAL 2315 1588 TOTAL 2315 1588
Other Information :
(1) 13% Debenture holders of High Ltd. & Low Ltd. are discharged by Little Ltd. by issuing
such number of its 15% Debentures of ` 100 each so as to maintain the same amount
of interest.
(2) Preference Shareholders of the two companies are issued equivalent number of 15%
Preference shares of Little Ltd. at a price of ` 125 per share (Face Value ` 100)
(3) Little Ltd. will issue 4 Equity Shares for each Equity Share of High Ltd. & 3 equity
shares for each Equity Share of Low Ltd. The shares are to be issued at ` 35 each
having a face value of ` 10 per share.

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PAPER – 5 : ADVANCED ACCOUNTING 11

(4) Investment Allowance Reserve is to be maintained for two more years.

Prepare the Balance sheet of Little Ltd. as on 1st April, 2020 after the amalgamation has
been carried out in basis of in the nature of Purchase.
(b) In a winding up of a company creditor remain unpaid. The following persons had
transferred their holdings before winding up.
Name Date of Transfer No of shares transferred Amt. due to creditors
on the transfer (` )
D 1st January, 2019 1000 8,500
E 15th February, 2019 400 13,500
H 15th March, 2019 700 19,000
J 31st March, 2019 900 22,000
K 5th April, 2019 1000 31,000
The shares were of ` 100 each, ` 80 being called up and paid up on the date of transfers.
(1) A member G, who holds 200 shares died on 28th Feb., 2019 when the amount due
to creditors was ` 16000. His shares were transmitted to his Son X.
(2) R was the transferee of shares held by J. R paid ` 20 per share as calls in advance
immediately on becoming a member.
(3) The liquidation of the Company commenced on 1st February, 2020. Then the
liquidator made a call on the present and past contributories to pay the amount.
You are required to quantify the maximum liability of the transferors of shares mentioned
in the above table. (15 + 5 = 20 Marks)
Answer
(a) Balance Sheet of Little Ltd. as at 1st April, 2020
Particulars Note No. (` in lakhs)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 1,150.0
(b) Reserves and Surplus 2 2,437.8
(2) Non-Current Liabilities
Long-term borrowings 3 135.2
Other Borrowings- Unsecured Loans 50
(3) Current Liabilities
Trade payables 4 130.0

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12 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Total 3,903
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 5 1,885
(b) Non-current investment (95 + 80) 175
(2) Current assets
(a) Inventory (415+389) 804
(b) Trade receivables 6 570
(c) Cash and bank balances (303 + 166) 469
Total 3,903
Notes to Accounts
(` in lakhs) (` in lakhs)
1. Share Capital
Equity share capital (W.N.1)
65,50,0001 Equity shares of 10 each 655
4,95,0002 Preference shares of ` 100 each 495
(all the above shares are allotted as fully
paid-up pursuant to contracts without payment
being received in cash)
1,150
2. Reserves and surplus
Securities Premium Account (W.N.3)
(1080+ 681.25) 1,761.25
Capital Reserve (W.N. 2)(283.33 + 393.22) 676.55
Investment Allowance Reserve (80 + 40) 120
Amalgamation Adjustment Reserve (80 + 40) (120) 2,437.8
3. Long-term borrowings
15% Debentures 135.2
4. Trade payables
Sundry Creditors: High Ltd. 65

1 40,00,000 + 25,50,000
2 3,20,000 + 1,75,000

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PAPER – 5 : ADVANCED ACCOUNTING 13

Low Ltd. 35
Bills Payable: High Ltd. 30 130
5. Property, Plant and Equipment
Land and Building : High Ltd 670
Low Ltd 385 1055
Plant and Machinery: High Ltd. 475
Low Ltd. 355 830 1,885
6. Trade receivables
Sundry Debtors: High Ltd. 322
Low Ltd. 213
Bills Receivables: High Ltd. 35 570
Working Notes:
(` in lakhs)
High Ltd. Low Ltd.
(1) Computation of Purchase consideration
(a) Preference shareholders:
3,20,00,000
( i.e. 3,20,000 shares)
100 400
× ` 125 each
1,75,00,000
( i.e. 1,75,000 shares) 218.75
100
× ` 125 each
(b) Equity shareholders:
10,00,00,000 × 4
( i.e. 40,00,000 shares)
100 1,400
× ` 35 each
8,50,00,000 × 3
( i.e. 25,50,000 shares ) _____ 892.50
100
× ` 35 each
Amount of Purchase Consideration 1,800 1,111.25
(2) Computation of Capital Reserve
Assets taken over:
Land and Building 670 385
Plant and Machinery 475 355
Investments 95 80
Inventory 415 389
Trade receivables 322 213
Bills Receivables 35

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14 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Cash and bank 303 166

2,315 1,588
Less: Liabilities taken over:
Debentures 86.67 48.53
Unsecured Loan 50
Creditors 65 35
Bills Payable 30
231.67 83.53
Net assets taken over 2083.33 1,504.47
Purchase consideration 1,800 1,111.25
Capital reserve 283.33 393.22
(3) Computation of securities
premium
On preference share capital
High Ltd.- 3,20,000 x 25 80
Low Ltd.- 1,75,000 x 25 43.75
On equity share capital
High Ltd.- 40,00,000 x 25 1000
Low Ltd.- 25,50,000 x 25 637.5
Total 1080 681.25
(4) Issue of Debentures (` In Lakhs)
High Ltd.- 15% fresh issue of debenture for 13% old debentures =
100 X 13% /15% = 86.67(rounded off)
Low Ltd.- 15% fresh issue of debenture for 13% old debentures =
56 X 13% /15% = 48.53 (rounded off)
Total number of debentures issued = 86.67 + 48.53 = 135.20 Lakhs
(b) Statement of Liability as Contributories of Former Members
Date Creditors Amount No. of E G/X H K Amount
outstanding paid to shares 400 200 700 1,000 to be paid
Creditors shares shares shares shares to
(Increase Creditors
in
Creditors)
2019 ` ` Ratio ` ` ` ` `
Feb 15 13,500 13,500 4:2:7:10 2,348 1,174 4,108 5,870 13,500
Feb 28 16,000 2,500 2:7:10 — 263 921 1,316 2,500
March 15 19,000 3,000 2:7:10 — 316 1,105 1,579 3,000
April 5 31,000 12,000 2:10 — 2,000 — 10,000 12,000

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PAPER – 5 : ADVANCED ACCOUNTING 15

(a) Maximum amount payable to 2,348 3,753 6,134 18,765 31,000

creditors
(b) Maximum liability at ` 20 per share
held 8,000 4,000 14,000 20,000
Lower of (a) and (b) 2,348 3,753 6,134 18,765

Working Note:
(1) The transferors are D, E, H, J and K. When the transferees pay the amount due as
“present” member contributories, there will not be any liability on the transferors. It is
only when the transferees do not pay as “present” member contributories then the
liability would arise in the case of “past” members as contributories.
(2) D will not be liable to pay any amount as the winding up proceedings commenced
after one year from the date of the transfer.
(3) J also will not be liable as the transferee R has paid the balance ` 20 per share as
call in advance.
(4) E, G/X, H and K will be liable, as former members, to the maximum extent as
indicated, provided the transferees do not pay the calls.
(5) X to whom shares were transmitted on demise of his father G would be liable as an
existing member contributory. He steps into the shoes of his deceased father under
section 430. His maximum liability would be at ` 20 per share on 200 shares received
on transmission i.e. for ` 4,000.
Question 4
(a) Mohan and Sohan were carrying business in partnership, sharing profit and losses equally.
The Balance Sheet of the firm as on 31st March, 2019 stood as under:
Liabilities ` Assets `
Partners’ Capital Leasehold Premises 40,800
Accounts:
- Mohan 1,68,000 Plant & Machinery 1,80,000
-Sohan 1,56,000 3,24,000 Inventories 72,000
Bank Overdraft 42,000 Trade Receivables 84,000
Trade Payables 72,000 Joint Life Policy 10,800
Profit & Loss Account 31,200
Partners' Current Accounts:
-Mohan 12,000
-Sohan 7,200 19,200
4,38,000 4,38,000

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16 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

The business was carried on till 30th September, 2019. The partners withdrew the
amounts equal to half the amount of profit made during the period of six months ended
on 30th September, 2019 equally. The profit was calculated after charging depreciation
@5% per annum on Leasehold premises and 10% per annum on Plant & Machinery.
In the half year, the amounts of Bank Overdraft and Trade Payables stood reduced by
` 18,000 and ` 12,000 respectively. On 30 th September, 2019, the inventories were
valued at ` 90,000 and Trade Receivables at ` 72,000. The Joint Life Policy had been
surrendered for ` 10,800 before 30th September, 2019 and all other items remained the
same as at 31st March, 2019.
On 30th September, 2019, the firm sold off its business to PKR Limited. The value of
Goodwill was fixed at ` 1,20,000 and the rest of the assets and liabilities were valued on
the basis of their book values as at 30th September, 2019. PKR Ltd. paid the purchase
consideration in equity shares of ` 10 each.
You are requested to prepare the following:
(1) Balance Sheet of the Firm as at 30th September, 2019;
(2) Realization Account;
(3) Partners' Capital Account showing the final settlement between them.
(b) Vikas Finance Ltd. is a Non Banking Finance Company. The extracts of its Balance Sheet
are as under :
Liabilities (` in '000) Assets (` in '000)
Paid up Equity Capital 250 Leased out Assets 2,000
Free Reserves 1,250 Investments:
Loans 1,000 - In shares of subsidiaries and 275
Group Companies
Deposits 1,000 - In debentures of subsidiaries 225
and Group Companies
Cash & Bank Balances 500
Deferred Expenditure 500
TOTAL 3,500 TOTAL 3,500
You are requested to compute the "Net Owned Funds" of Vikas Finance Ltd. as per Non
Banking Finance Company - Systematically Important Non-Deposit taking company and
Deposit taking company (Reserve Bank) Directions, 2016. (15 + 5 = 20 Marks)

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PAPER – 5 : ADVANCED ACCOUNTING 17

Answer
(a) (i) Balance Sheet of the Firm as at 30.9.2019
Liabilities ` ` Assets ` `
Capital Accounts: Machinery 1,80,000
Mohan balance as Less: Depreciation
on 30.9.2019 1,40,400
Add: Profit for 6 15,180 @10% p.a. for 6 (9,000) 1,71,000
months 1,55,580 months

Less: Drawings for (7,590) 1,47,990 Leasehold 40,800

6 months premises Less:
Written-off @ 5%
Sohan balance as for 6 months (1,020) 39,780
on 30.9.2019 1,33,200
Add: Profit for 6 15,180 Inventory 90,000
months
1,48,380 Trade receivables 72,000
Less: Drawings for (7,590) 1,40,790
6 months
Trade payables 60,000
(72,000 – 12,000)
Bank overdraft
(42,000 – 18,000) 24,000
3,72,780 3,72,780
(ii) Realization Account
Particulars ` Particulars `
To Machinery A/c 1,71,000 By Trade payables A/c 60,000
To Leasehold Premises A/c 39,780 By Bank Overdraft A/c 24,000
To Inventory A/c 90,000 By PKR Ltd. A/c 4,08,780
To Trade receivables A/c 72,000 (W.N.1)
To Mohan Capital A/c 60,000
To Sohan Capital A/c 60,000
4,92,780 4,92,780

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18 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(iii) Partners’ Capital Accounts

Date Particulars Mohan Sohan Date Particulars Mohan Sohan
` ` ` `
1.4.19 To Profit & 15,600 15,600 1.4.19 By Balance b/d 1,68,000 1,56,000
Loss A/c
To Current A/c 12,000 7,200
30.9.19 Balance 1,40,400 1,33,200
c/d
1,68,000 1,56,000 1,68,000 1,56,000
30.9.19 To Drawings 7,590 7,590 30.9.19 By Balance b/d 1,40,400 1,33,200
A/c
To Shares in 2,07,990 2,00,790 30.9.19 By Profit & Loss 15,180 15,180
PKR Ltd Appropriation
A/c A/c
By Realization
A/c 60,000 60,000
2,15,580 2,08,380 2,15,580 2,08,380
Working Notes:
(1) Ascertainment of purchase consideration
` `
Assets:
Inventory 90,000
Trade receivables 72,000
Machinery less depreciation 1,71,000
Leasehold premises less written off 39,780
3,72,780
Less: Liabilities:
Trade payables 60,000
Bank overdraft 24,000 (84,000)
Closing Net Assets 2,88,780
Add: Goodwill 1,20,000
Purchase Consideration 4,08,780

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(2) Ascertainment of profit for the 6 month ended 30 th September,2019

` `
Closing Net Assets 2,88,780
Less: Opening Combined Capital
Mohan – (1,68,000- 15,600-12,000) 1,40,400
Sohan – (1,56,000-15,600-7,200) 1,33,200
Profit after adjustment of Drawings
(2,73,600)
Add: Combined drawings during the 6 month (equal 15,180
to profit)
15,180
Profit for 6 months 30,360

(b) Statement showing computation of 'Net Owned Fund'

` in 000
Paid up Equity Capital 250
Free Reserves 1,250
1,500
Less: Deferred expenditure (500)
A 1,000
Investments
In shares of subsidiaries and group companies 275
In debentures of subsidiaries and group companies 225
B 500
10% of A 100
Excess of Investment over 10% of A (500-100) C 400
Net Owned Fund [(A) - (C)] (1,000-400) 600
Question 5
(a) Sun Ltd. grants 100 stock options to each of its 1200 employees on 01.04.2016 for ` 30,
depending upon the employees at the time of vesting of options. Options would be
exercisable within a year it is vested. The market price of the share is ` 60 each. These
options will vest at the end of the year 1 if the earning of Sun Ltd. is 16% or i t will vest at
the end of 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 is 10%. 6000 unvested options lapsed
on 31.3.2017, 5000 unvested options lapsed on 31.03.2018 and finally 4000 unvested
options lapsed on 31.03.2019.

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20 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

The earnings of Sun Ltd. for the three financial years ended on 31st March, 2017, 2018
and 2019 are 15%, 10% and 6%, respectively.
1000 employees exercised their vested options within a year and remaining options were
unexercised at the end of the contractual life.
You are requested to give the necessary journal entries for the above and prepare the
statement showing compensation expenses to be recognized at the end of each year.
(b) Vasu Commercial Bank has the following capital funds and assets.
Segregate the capital funds into Tier I and Tier II capitals. Find out the risk adjusted assets
and risk weighted assets ratio.
Particulars ` in crores
Equity Share Capital 600.00
Statutory Reserve 250.00
Capital Reserve (of which ` 26 crores were due to revaluation of 87.00
assets and the balance due to sale of capital assets)
Assets:
Cash Balance with RBI 20.00
Balance with other banks 28.00
Other investments 38.00
Loans and advances :
(i) Guaranteed by the Govt. 18.50
(ii) Others 6,625.00
Premises, Furniture and fixtures 108.00
Off-Balance Sheet Items
(i) Guarantee and other obligations 600.00
(ii) Acceptances, endorsements and letter of credit 4,200.00
(10 + 10 = 20 Marks)
Answer
(a)
Date Particulars ` `
31.3.2017 Employees compensation expense A/c Dr. 17,10,000
To ESOS outstanding A/c 17,10,000
(Being compensation expense
recognized in respect of the ESOP i.e.
100 options each granted to 1,200
employees at a discount of ` 30 each,

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PAPER – 5 : ADVANCED ACCOUNTING 21

amortized on straight line basis over

vesting years (Refer W.N.)
Profit and Loss A/c Dr. 17,10,000
To Employees compensation 17,10,000
expenses A/c
(Being expenses transferred to profit and
Loss A/c)
31.3.2018 Employees compensation expenses A/c Dr. 4,70,000
To ESOS outstanding A/c 4,70,000
(Being compensation expense
recognized in respect of the ESOP-
Refer W.N.)
Profit and Loss A/c Dr. 4,70,000
To Employees compensation 4,70,000
expenses A/c
(Being expenses transferred to profit and
Loss A/c)
31.3.2019 Employees compensation Expenses A/c Dr. 9,70,000
To ESOS outstanding A/c 9,70,000
(Being compensation expense
recognized in respect of the ESOP-
Refer W.N.)
Profit and Loss A/c 9,70,000
To Employees compensation 9,70,000
expenses A/c
(Being expenses transferred to profit and
Loss A/c)
2019-20 Bank A/c (1,00,000 x ` 30) Dr. 30,00,000
ESOS outstanding A/c Dr. 30,00,000
[(31,50,000/1,05,000) x 1,00,000]
To Equity share capital (1,00,000 x 10,00,000
` 10)
To Securities premium A/c 50,00,000
(1,00,000 x ` 50)
(Being 1,00,000 options exercised at an
exercise price of ` 30 each)

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22 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

31.3.2020 ESOS outstanding A/c Dr. 1,50,000

To General Reserve A/c 1,50,000
(Being ESOS outstanding A/c on lapse of
5,000 options at the end of exercise of
option period transferred to General
Reserve A/c)

Working Note:
Statement showing compensation expense to be recognized at the end of:
Particulars Year 1 Year 2 Year 3
(31.3.2017) (31.3.2018) (31.3.2019)
Number of options expected to 1,14,000 options 1,09,000 options 1,05,000 options
vest
Total compensation expense ` 34,20,000 ` 32,70,000 ` 31,50,000
accrued (60-30)
Compensation expense of the 34,20,000 x 1/2 = 32,70,000 x 2/3
year ` 17,10,000 = ` 21,80,000 ` 31,50,000
Compensation expense
recognized previously Nil ` 17,10,000 ` 21,80,000
Compensation expenses to be
recognized for the year ` 17,10,000 ` 4,70,000 ` 9,70,000
(b) (` in Crores)
(i) Capital Funds - Tier I : ` `
Equity Share Capital 600
Statutory Reserve 250
Capital Reserve (arising out of sale of assets) (87 – 26) 61
Capital Fund Tier I 911.0
Capital Funds - Tier II :
Capital Reserve (arising out of revaluation of assets) 26.0
Less: Discount to the extent of 55% (14.3)
Capital fund Tier II 11.7
Total Capital Fund 922.7

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PAPER – 5 : ADVANCED ACCOUNTING 23

(ii) Calculation of Risk Adjusted Assets

Funded Risk Assets Amount
` weight in % `
Cash Balance with RBI 20 0 0
Balances with other Banks 28 20 5.6
Other Investments 38 100 38
Loans and Advances:
(i) guaranteed by government 18.5 0 0
(ii) Others 6625 100 6625
Premises, furniture and fixtures 108 100 108
6776.60
Off-Balance Sheet Item ` in Credit
Crores Conversion
Factor
Guarantees & Other Obligations 600 100 600
Acceptances, Endorsements
and Letters of credit 4,200 100 4,200
11576.60
Risk Weighted Assets Ratio: Capital Funds (Tier I & Tier II)
×100
Risk Adjusted Assets + off Balance sheet items

911 + 11.7
=
6776.60 + 4,800
Capital Adequacy Ratio = 922.7/ 11576.6 = 7.97%
Question 6
Answer any four of the following:
(a) Under what circumstances an LLP can be wound up by the tribunal?
(b) Beekey Limited is being wound up by the tribunal. All the assets of the company have been
charged in favour of the company's bankers to whom the company owes ` 2.50 crores.
The company owes following amounts to others:
Dues to workers - ` 62,50,000
Taxes payable to Government - ` 15,00,000

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24 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Unsecured creditors - ` 30,00,000

You are required to compute with reference to the provisions of the Companies Act, 2013,
the amount each kind of creditors is likely to get if the amount realized by the official
liquidator from the secured assets and available for distribution among creditors is only
` 2,00,00,000.
(c) M/s. Pasa Ltd. is developing a new production process. During the financial year ended
31st March, 2019, the total expenditure incurred on the process was ` 80 lakhs. The
production process met the criteria for recognition as an intangible asset on 1st November,
2018. Expenditure incurred till this date was ` 42 lakhs.
Further expenditure incurred on the process for the financial year ending 31st March, 2020
was ` 90 lakhs. As on 31.03.2020, the recoverable amount of know how embodied in the
process is estimated to be ` 82 lakhs. This includes estimates of future cash outflows and
inflows.
You are required to work out :
(1) What is the expenditure to be charged to Profit and Loss Account for the year ended
31st March, 2019 ?
(2) What is the carrying amount of the intangible asset as on 31st March, 2019?
(3) What amount of expenditure to be charged to Profit and Loss Account for the year
ended 31st March, 2020 ?
What is the carrying amount of the intangible asset as on 31st March, 2020?
(d) A, B, C and D hold Equity Share Capital in the proportion of 40:30:20:10 and P, Q, R and
S hold Preference Share Capital in the proportion of 30:40:20:10 in Alpha Ltd. If the paid
up Equity Share Capital of Alpha Ltd. is ` 75 lacs and the Preference Share Capital is
` 25 lacs, find their voting rights in the case of resolution of winding up of the company.
(e) With reference to AS 29, how would you deal with the following in the Annual Accounts of
the company at the Balance Sheet date:
(i) The company operates an offshore oilfield where its licensing agreement requires it
to remove the oil rig at the end of production and restore the seabed. Eighty five
percent of the eventual costs relate to the removal of the oil rig and restoration of
damage caused by building it, and fifteen percent arise through the extraction of oil.
At the balance sheet date, rig has been constructed but no oil has been extracted.
(ii) The Government introduces a number of changes to the taxation laws. As a result of
these changes, the company will need to train a large proportion of its accounting and
legal workforce in order to ensure continued compliances with tax law regulations. At
the balance sheet date, no retraining of staff has taken place.
(4 Parts x 5 Marks= 20 Marks)

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PAPER – 5 : ADVANCED ACCOUNTING 25

Answer
(a) An LLP may be wound up by the Tribunal in the following circumstances:
• If the LLP decides that it should be wound up by the Tribunal;
• If for a period of more than six months, the number of partners of the LLP is reduced
below two;
• If the LLP is unable to pay its debts;
• If the LLP has acted against the interests of the integrity and sovereignty of India, the
security of the state or public order;
• If the LLP has defaulted in the filing of the Statement of Account and Solvency with
the Registrar for five consecutive financial years;
• If the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
(b) Section 326 of the Companies Act, 2013 is talks about the overriding preferential payments
to be made from the amount realized from the assets to be distributed to various kind of
creditors. According to the proviso given in the section 326 the security of every secured
creditor should be deemed to be subject to a pari passu change in favour of the workman
to the extent of their portion.
Amount Realized X Workman's Dues
Workman's Share to Secured Asset=
Workman's Dues +Secured Loan
2,00,00,000 X 62,50,000
Workman's Share to Secured Asset=
62,50,000 +2,50,00,000

= 2,00,00,000 X 1/5
Workmen’s share to Secured Assets = ` 40,00,000
Amount available to secured creditor is ` 200 Lakhs – 40 Lakhs = 160 Lakhs
Hence, no amount is available for payment of government dues and unsecured creditors.
(c) As per AS 26 ‘Intangible Assets’
(i) Expenditure to be charged to Profit and Loss account for the year ending
31.03.2019
` 42 lakhs is recognized as an expense because the recognition criteria were not met
until 1st November, 2018. This expenditure will not form part of the cost of the
production process recognized as an intangible asset in the balance sheet.

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26 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(ii) Carrying value of intangible asset as on 31.03.2019

At the end of financial year, on 31 st March 2019, the production process will be
recognized (i.e. carrying amount) as an intangible asset at a cost of ` 38 (80-42)
lakhs (expenditure incurred since the date the recognition criteria were met, i.e., from
1st November 2018)
(iii) Expenditure to be charged to Profit and Loss account for the year ended
31.03.2020
(` in lacs)
Carrying Amount as on 31.03.2019 38
Expenditure during 2019 – 2020 90
Book Value 128
Recoverable Amount (82)
Impairment loss to be charged to Profit and loss account 46
` 46 lakhs to be charged to Profit and loss account for the year ending 31.03.2020.
(iv) Carrying value of intangible asset as on 31.03.2020
(` in lacs)
Book Value 128
Less: Impairment loss (46)
Carrying amount as on 31.03.2020 82
(d) A, B, C and D hold Equity capital is held by in the proportion of 40:30:20:10 and P, Q, R
and S hold preference share capital in the proportion of 30:40:20:10. As the paid-up equity
share capital of the company is ` 75 Lakhs and Preference share capital is ` 25 Lakh (3:1),
then relative weights in the voting right of equity shareholders and preference shareholders
will be 3/4 and 1/4.
The respective voting right of various shareholders will be:
A = 3/4X40/100 = .3 (30%)
B = 3/4X30/100 = .225 (22.5%)
C = 3/4X20/100 = .15 (15%)
D = 3/4X10/100 = .075 (7.5%)
P = 1/4X30/100 = .075 (7.5%)
Q = 1/4X40/100 = 0.1 (10%)
R = 1/4X20/100 = .05 (5%)
S = 1/4X10/100 = .025 (2.5%)

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PAPER – 5 : ADVANCED ACCOUNTING 27

(e) (i) The construction of the oil rig creates an obligation under the terms of the license to
remove the rig and restore the seabed and is thus an obligating event. At the balance
sheet date, however, there is no obligation to rectify the damage that will be caused
by extraction of the oil. An outflow of resources embodying economic benefits in
settlement is probable. Thus, a provision is recognized for the best estimate of 85%
of the eventual costs that relate to the removal of the oil rig and restoration of damage
caused by building it. These costs are included as part of the cost of the oil rig.
However, there is no obligation to rectify the damage that will be caused by extraction
of oil, as no oil has been extracted at the balance sheet date. So, no provision is
required for the cost of extraction of oil at balance sheet date. 15% of costs that arise
through the extraction of oil are recognized as a liability when the oil is extracted.
(ii) As per AS 29, a provision for restructuring costs is recognized only when the
recognition criteria for provisions are met. A restructuring provision does not include
costs as of retraining or relocating continuing staff.
The expenditures of training the staff related to the future conduct of the business
and are not liabilities for restructuring at the balance sheet date. Such expenditures
are recognized on the same basis as if they arose independently of a restructuring.
At the balance sheet date, no such expenditure has been incurred hence no provision
is required.

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