NATIONAL MANAGEMENT COLLEGE – PERUNDURAI
ADVANCED ACCOUNTING
Question No 1 is compulsory
Answer any 5 question from the remaining 6 questions.
DATE: 01.09.2023 TOTAL MARK : 100
TIME : 3Hrs
Question No 1
- A)Give two examples on each of the following items
(i) Change in Accounting Estimate (ii) Extra Ordinary Items
(iii) Prior Period Items
B)PNA Corp Limited has outstanding equity shares of 60,00,000 on 31-03-2020. It also has 13% 1,00,000 convertible debentures outstanding of Rs.100 each, to be converted into 10 equity shares each. Tax rate is 40%. Net profit after tax for the year ended 31 March, 2020 is Rs.1,70,00,000
You are required to calculate,
(1) Basic EPS
(2)Prior Period Items
C) Annual lease rent = Rs, 40,000 at the end of the year.
Lease period = 5 years
Guaranteed residual value = Rs. 14,000
Fair value at the inception (beginning) of lease = Rs. 1,50,000
Interest rate implicit on lease is 12.6%. The present value factors at 12.6% are 0.89, 0.79, 0.7,0.622,0.552 at the end of first, second, third, fourth and fifth year respectively.
Show the Journal entry to record the asset taken on finance lease in the books of the lessee.
D)i) In X Co. Ltd, theft of cash of Rs.5 lakhs by the cashier in January, 2007 was detected only in May, 2007. The accounts of the company were not yet approved by the Board of Directors of the company. Whether the theft of cash has to be adjusted in the accounts of the company for the year ended 31.03.2007, Decide
- ii) An earthquake destroyed a major warehouse of ACO Lid on 20.5.2009. The accounting year of the company ended on 31.3.2009. The accounts were approved on 30.6.2009. The loss from earthquake is estimated at Rs. 30 lakhs. State with reason, whether the loss due to earthquake is an adjusting or non adjusting event and how the fact of loss is to be disclosed by the company?
QUESTION NO 2
P.Q and R are sharing profits and losses in the ratio 5:3:2 Due to finding of frauds committed by R during the year, it was decided to dissolve the partnership on 31st March,2020 As on 31st March, 2020 As on 31st March, 2020 their Balance Sheet was as under:
| Liabilites | Amount (₹) | Assets | Amount (₹) |
| Partner’s
P Q R General reserve Trade creditors Bills payable Mrs. Q’s loan
Total |
4,50,000 4,50,000 – 1,20,000 2,35,000 1,00,000 1,75,000
15,30,000 |
Plant & Machinery
Stock Investments Debtors Cash R’s Capital
Total |
6,00,000
4,27,500 1,45,000 2,10,000 72,500 75,000
15,30,000 |
Additional information are given as under:
(i) During the year R sold Investment costing of Rs.45,000 at Rs. 56,000 and the said funds were transferred to his personal account. This transaction was not recorded in the firm’s books.
(ii)A cheque for Rs. 30,000 was received from debtor, not recorded in the books and was misappropriated by R.
(iii) A Trade creditor agreed to takeover stock of the book value of Rs.25,000 at Rs. 26,500. The rest of the Trade creditors were paid off at a discount of 2%
(iv) The bills payable were settled at a discount of 2%
(v) The expenses of dissolution amounted to Rs. 15,900
(vi) The other assets realized were as follows
Plant & Machinery: 5% above the book value
Stock: Rest of the stock realized at a loss of Rs.15,000
Investments Rest of investments were sold at a profit of Rs. 5,600
Debtors: Rest of the debtors were realized at a discount of 12%
vii) Q agreed to takeover loan of Mrs Q of Rs. 1,75,000
viii) The realizable value of R’s private assets would only be Rs. 20,000.
Applying the principles laid down in Gamer vis. Murray, prepare Realization Account, cash
Account and Partner’s Capital Accounts.
10Marks
Question No 3 (a)
PAY Limited furnishes you with the following summarized Balance Sheet as at 31st March,2020:
| (₹ in Lakhs) | ||
| Liabilities
Share Capital Authorised Issued: 11% Redeemable preference shares of ₹ 100 each fully paid Equity shares of ₹ 10 each fully paid Reserves and surplus: Capital reserve Securities premium 1 To be read as’105 lakhs. Revenue reserves Profit and loss account Current liabilities and provisions
Assets Fixed assets: cost Less: Accumulated depreciation Non-current investments at cost (Market value ₹ 400 lakhs Current assets
|
125 175
35 155
460 50
100 (90)
|
300
300
650 50 1000
10 200 790 1000
|
(i) The company redeemed preference shares at a premium of 4% on 1st April,2020. (ii) It also bought back 2.5 lakhs equity shares of Rs. 10 each at Rs.40 per share. The payments for the above were made out of the blank balances, which appeared as a part of current assets.
You are asked to:
(1) Pass journal entries to record the above.
(2) Prepare balance sheet as at 01.04.2020
Question No 3 (b) (10 Mark)
B and S are partners of S & Co. sharing profits and losses in the ratio of 3:1 S and T are partners of T & Co. sharing profits and losses in the ratio of 2:1
On 31st October, 20X1, they decided to amalgamate and form a new firm M/s. BST & Co. wherein B,S, and T would be partners sharing profits and losses in the ratio of 3:2:1.
Their balance sheets on that data were as under:
| Liabilities | S& Co.₹ | T & Co. ₹ | Assets | S&Co.₹ | T& Co.₹ |
| Due to X & Co.
Due to S & Co Other Creditors Reserves Capitals B S T
|
40,000
– 60,000 25,000
1,20,000 80,000 –
3,25,000 |
–
50,000 58,000 50,000
– 1,00,000 50,000
3,08,000 |
Cash in hand
Cash at hand Due from T & Co. Due from X & Co Others Debtors Stock Furniture Vehicles Machinery Building
|
10,000
15,000 50,000 – 80,000 60,000 10,000
75,000 25,000
3,25,000
|
5,000
20,000 – 30,000 1,00,000 70,000 3,000 80,000 –
3,08,000 |
The amalgamated firm took over the business on the following terms:
(a) Goodwill of S & Co. was worth ’60,000 and that of T & Co. Rs 50,000. Goodwill account was not to be opened in the books of the new firm; the adjustments being recorded through capital accounts of the partners.
(b) Building, machinery, and vehicles were taken over at Rs.50,000, Rs, 90,000 and Rs. 1,00,000 respectively.
(c) Provision for doubtful debts has to be carried forward at Rs. 4,000 in respect of debtors of S & Co. and Rs. 5,000 in respect of debtors of T & Co.
You are required to:
(i) Compute the adjustments necessary for goodwill.
(ii) Pass the journal entries in the book of BST & Co. assuming that excess/deficit capital (taking T’s capital as base ) with reference to share in profits are to be transferred to current accounts.
QUESTION NO 4 (b)
An extract from the statement profit and loss of a company for 2012-13 is given below:
| ₹ 000 | ₹ 000 | |
| Sales
Opening stock Production cost
Less: closing stock Gross Profit Expenses
Profit before tax Tax Profit after tax |
500 2,800
3,300 (600)
|
3,000
(2,700) 300 (250)
50 20 30 |
The closing stock includes stock damaged in a fire in 2011-12. On 31/03/12, the estimated net realizable value of this stock was Rs. 15,000. The revised estimate of net realizable value of the damaged stock included in closing stock of 2012-13 is Rs. 5,000.
Rewrite the statement of profit and loss if necessary to comply with requirements of AS 5.
QUESTION NO 5(a)
Black Limited and white Limited have been carrying their business independently from
01/04/2018. Because of synergy in business, they amalgamated on and from 1st April, 2020 and formed a new company Grey Limited to take over the business of Black Limited and White Limited. The summarized Balance Sheets of Black Limited and White Limited as on 31st March, 2020 are as follows:
| Liabilities | Black Ltd. (₹) | White Ltd. (₹) |
| Share Capital
Equity share of ₹10 each 10% Preference shares of ₹ 100 each Revaluation Reserve General Reserve Profit & Loss Account Opening balance Profit for the year 15% Debentures of ₹ 100 each (Secured) Trade payables |
15,00,000 2,00,000 1,00,000 1,65,000
1,50,000 2,00,000 4,00,000 3,10,000 |
14,50,000 1,40,000 2,00,000 85,000
1,20,000 1,30,000 5,00,000 1,20,000 |
| Land and Buildings
Plant and Machinery Investments Trade Receivables Cash at Bank |
3,20,000
18,00,000 1,00,000 4,25,000 1,60,000 |
7,40,000
14,00,000 60,000 2,65,000 1,30,000 |
| 30,25,000 | 27,45,000 |
Additional Information:
(i) The authorized capital of the new company will be Rs. 50,00,000 divided into 2,00,000 equity shares of Rs. 25 each.
(ii) Trade payables of Black Limited includes Rs. 15,000 due to white Limited and trade receivables of white Limited shows Rs. 15,000 receivable from Black Limited.
| Black Ltd. (₹) | White Ltd. (₹) | |
| Land and Buildings | 5,20,000 | 10,40,000 |
| Inventory | 1,80,000 | 1,25,000 |
(iii) Land & Buildings and inventory of Black Limited and White Limited and white Limited are to be revalued as under :
(iv) The purchase consideration is to be discharged as under:
(a) Issue 1,80,000 equity shares of Rs. 25 each fully paid up in proportion of their profitability in the preceding two financial years.
(b) Preference shareholders of two companies are issued equivalent number of 12% preference shares of Grey Limited at a price of Rs. 120 per share (face value ‘100).
(c) 15% Debenture holders of Black Limited and white Limited are discharged by Grey Limited issuing such number of its 18% Debentures of ‘100 each so as to maintain the same amount of interest.
You are required to prepare the Balance Sheet of Grey Limited after amalgamation. The amalgamation took place in the nature of purchase.
QUESTION NO 5 (B)
Arihant Limited has its share capital divided into equity shares of Rs.10 each, On 1-10-20X1, it granted 20,000 employees’ stock option at Rs.50 per share, when the market price was Rs.120 per share. The options were to be exercised between 10th December, 20X1 and 31 st March, 20X2.The employees exercised their options for 16,000 shares only and the remaining options lapsed. The company closes its books on 31 st March every year. Show Journal Entries (with narration) as would appear in the books of the company upto 31 st March, 20X2.
QUESTION NO 6
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.
Following were the earnings of Choice Ltd in the last 3 years:
| Year ended on | Earning (in %) |
| 31.3.20X2
31.3.20X3 31.3.20X4 |
14%
10% 7 |
850 employees exercised their vested options within a year and remaining options within a year and remaining options were unexercised at the end of the contractual life. Pass Journal entries for the above.
QUESTIONS NO 6 (b) 10 Marks
M Ltd. Furnishes the following Balance Sheet as at 31 st March, 20X1:
| Particulars | Notes | ₹ (in 000) | |||
|
1
2
3
2 |
A B
A
A
A B C |
Equity and Liabilities
Shareholders ‘ funds Share capital Reserves and Surplus Non-current liabilities Long term borrowings Current liabilities Trade payables Total
Property, plant and Equipment Non-Current Investments (at cost) Current assets Inventories Trade receivables Cash and Cash equivalents |
1 2
3
4
|
5,000 6,310
400
40 11,750
2,750 5,000
1,000 2,000 1,000 11,750
|
|
Notes to accounts
| No. | Particulars | ₹ in (‘000) | |
| 1
2
3
4 |
Share Capital
Authorized, Issued and Subscribed Capital 3,00,000 Equity shares of ₹ 10 each fully paid up 20,000 9% Preference Shares of 100 each Total Reserves and Surplus Capital reserve Revenue reserve Securities premium Profit and Loss account Total Long term borrowings 10% Debentures Property, plant and equipment (PPE) PPE: Cost Less: Provisions for depreciation Net carrying value
|
|
3,000 2,000 5,000
10 4,000 500 1,800 6,310
3,000 (250) 2,750
|
The company passed a resolution to buy-back 20% of its equity capital @ Rs.15 per share. For this purpose, it sold its investments of Rs.30 lakhs for Rs. 25 lakhs.
You are required to pass necessary Journal entries.
