Test Series: April, 2021

MOCK TEST PAPER – 2

INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) You are required to give the necessary journal entry at the inception of lease to record the asset
taken on finance lease in books of lessee from the following information:
Lease period = 5 years;
Annual lease rents = Rs. 50,000 at the end of each year.
Guaranteed residual value = Rs. 25,000
Fair Value at the inception (beginning) of lease = Rs. 2,00,000
Interest rate implicit on lease is = 12.6% (Discounted rates for year 1 to 5 are .890, .790, .700, .622
and .552 respectively).
(b) Plymouth Ltd. is engaged in research on a new process design for its product. It had incurred
Rs. 10 lakh on research during first 5 months of the financial year 2020-21. The development of
the process began on 1st September, 2020 and upto 31st March, 2021, a sum of Rs. 8 lakh was
incurred as Development Phase Expenditure, which meets assets recognition criteria. From 1st
April, 2021, the Company has implemented the new process design and it is likely that this will
result in after tax saving of Rs. 2 lakh per annum for next five years. The cost of capital is 10%.
The present value of annuity factor of Rs. 1 for 5 years @ 10% is 3.7908.
Decide the treatment of Research and Development Cost of the project as per AS 26.
(c) S.T.B. Ltd. makes provision for expenses amounting Rs. 7,00,000 as on March 31, 2020, but the
actual expenses during the year ending March 31, 2021 comes to Rs. 9,00,000 against provision
made during the last year. State with reasons whether difference of Rs. 2,00,000 is to be treated
as prior period item as per AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes
in Accounting Policies’.
(d) (i) XYZ Ltd. is in a dispute with a competitor company. The dispute is regarding alleged
infringement of Copyrights. The competitor has filed a suit in the court of law seeking damages
of Rs. 200 lacs.
The Directors are of the view that the claim can be successfully resisted by the Company.
How would the matter be dealt in the annual accounts of the Company in the light of AS 29 ?
Explain in brief giving reasons for your answer.
(ii) What is meant by “Restructuring Provision” as per AS 29? What costs are excluded while
computing such provision as per the standard? (4 parts x 5 Marks = 20 Marks)

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2. (a) Meghna Limited gives the following information as on 31-03-2021:
Particulars Amount
(Rs. in lakh)
Share capital
Issued, subscribed and paid up:
100 lakh Equity Shares of Rs. 10 each, full paid up 1,000
4 lakh 8% Preference Shares of Rs. 100 each, fully paid up 400
Debit balance of Profit & Loss A/c 522
6% Debentures (secured by Freehold Property) 400
Directors’ Loan 300
Trade Payables 102
Interest accrued and outstanding on 6% Debentures 24
Freehold Property 550
Plant & Machinery 200
Current Investments (Investment in Equity Instruments) 200
Inventories (Finished goods) 300
Trade Receivables 450
Bank balance 4
The Board of Directors of the company decided upon the following scheme of reconstruction with
the consent of respective shareholders:
(1) Preference Shares are to be written down to Rs. 80 each and Equity Shares to Rs. 2 each.
(2) Preference Shares Dividend in arrears for 3 years to be waived by 2/3 rd and for balance 1/3rd,
Equity Shares of Rs. 2 each to be allotted.
(3) Debenture holders agreed to take one Freehold Property at its book value of Rs. 300 lakh in
part payment of their holding. Balance Debentures to remain as liability of the company.
(4) Interest accrued and due on Debentures to be paid in cash.
(5) Remaining Freehold Property to be valued at Rs. 400 lakh.
(6) All investments sold out for Rs. 250 lakh.
(7) 70% of Directors' loan to be waived and for the balance, Equity Shares of Rs. 2 each to be
allowed.
(8) 40% of Trade receivables and 80% of Inventories to be written off.
(9) Company's contractual commitments amounting to Rs. 600 lakh have been settled by paying
5% penalty of contract value.
You are required to:
(a) Pass Journal Entries for all the transactions related to internal reconstruction;
(b) Prepare Capital Reduction Account.
(b) List the conditions to be fulfilled as per AS 14 (Revised) for an amalgamation to be in the nature of
merger, in the case of companies. (16+4 =20 Marks)

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3. (a) A partnership firm was dissolved on 30 th June, 2020. Its Balance Sheet on the date of dissolution
was as follows:
Liabilities Rs. Rs. Assets Rs.
Capitals: Cash 10,800
A 76,000 Sundry Assets 1,89,200
B 48,000
C 36,000 1,60,000
Loan A/c – B 10,000
Sundry Creditors 30,000
2,00,000 2,00,000
The assets were realized in instalments and the payments were made on the proportionate capital
basis. Creditors were paid Rs. 29,000 in full settlement of their account. Expenses of realization
were estimated to be Rs. 5,400 but actual amount spent was Rs. 4,000. This amount was paid on
15th September. Draw up a statement showing distribution of cash, which was realized as follows:
Rs.
On July, 2020
5th 25,200
On 30th August, 2020 60,000
On 15th September, 2020 80,000
The partners shared profits and losses in the ratio of 2 : 2 : 1. Prepare a statement showing
distribution of cash amongst the partners by ‘Highest Relative Capital’ method.
(b) Explain Garner v/s Murray rule applicable in the case of partnership firms. State the conditions
when this rule is not applicable.
(c) A NBFC provides the following information:
Rs. in crores
Investment in shares of subsidiaries and group companies 100
Investment in debentures of subsidiaries and group Companies 100
Cash and bank balances 200
Paid-up equity capital 150
Securities premium 50
Free reserves 200
Loans 400
Deposits 400
You are required to compute 'Net owned Fund' from the above information as per Non-Banking
Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016. (12 + 4 +4= 20 Marks)
4. (a) H Ltd. and its subsidiary S Ltd. Give the following information as on 31st March, 2021:
H Ltd. (Rs.) S Ltd. (Rs.)
Share Capital
Equity Share Capital (fully paid up shares of Rs. 10 each) 12,00,000 2,00,000
Reserves and Surplus
General Reserve 4,35,000 1,55,000
Cr. Balance in Profit and Loss Account 2,80,000 65,000

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 Current Liabilities
Trade Payables 3,22,000 1,23,000
Non-Current Assets
Property, Plant and Equipment
Machinery 6,40,000 1,80,000
Furniture 3,75,000 34,000
Non-Current Investments
Shares in S Ltd. - 16,000 shares @ Rs. 20 each 3,20,000 -
Current Assets
Inventories 2,68,000 62,000
Trade Receivables 4,70,000 2,35,000
Cash and Bank 1,64,000 32,000
H Ltd. acquired the 80% shares of S Ltd. on 1 st April, 2020. On the date of acquisition, General
Reserve and Profit Loss Account of S Ltd. stood at Rs. 50,000 and Rs. 30,000 respectively.
Machinery (book value Rs. 2,00,000) and Furniture (book value Rs. 40,000) of S Ltd. were revalued
at Rs. 3,00,000 and Rs. 30,000 respectively on 1 st April,2020 for the purpose of fixing the price of
its shares (rates of depreciation on W.D.V basis: Machinery 10% and Furniture 15%). Trade
Payables of H Ltd. include Rs. 35,000 due to S Ltd. for goods supplied since the acquisition of the
shares. These goods are charged at 10% above cost. The inventories of H Ltd. includes goods
costing Rs. 55,000 (cost to H Ltd.) purchased from S Ltd.
You are required to prepare the Consolidated Balance Sheet of H Ltd. With its subsidiary as at 31 st
March, 2021.
(b) Explain the nature of Limited Liability Partnership. Who can be a designated partner in a Limited
Liability Partnership? (16 + 4 =20 Marks)
5. (a) The following information relates to Shah Ltd. Co. which is in the hands of the liquidator:
Liabilities Rs.
Share Capital:
1,000, 6% Preference Shares of Rs. 100 each, fully paid 1,00,000
2,000 Equity shares of Rs. 100 each, fully paid 2,00,000
2,000 Equity shares of Rs. 100 each Rs. 75 paid up 1,50,000
Loan from bank (on security of stock) 1,00,000
Trade Payables 3,50,000
Property, Plant and Equipment 2,00,000
Inventory 1,20,000
Book Debts 2,40,000
Cash in hand 40,000
Profit and loss A/c (Dr. Balance) 3,00,000
The assets realized the following amounts (after all costs of realization and liquidator’s commission
amounting to Rs. 5,000 paid out of cash in hand):
Rs.
Property, Plant and Equipment 1,68,000
Inventory 1,10,000
Trade Receivables 2,30,000

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 Calls on partly paid shares were made but the amounts due on 200 shares were found to be
irrecoverable.
You are required to prepare Liquidator’s Final Statement of Receipts and Payments . (10 Marks)
(b) (i) The following is an extract of Trial Balance of a bank as on 31 st March, 2021:
Dr. (Rs.) Cr. (Rs.)
Bill Discounted 15,16,800
Discount Received 1,26,859
Rebate on Bills discounted not due on 31 st March, 2020 26,592
An analysis of bill discounted is as follows:
Amount in Rs. Due Date Rate of Discount
1,46,200 4th May, 2021 15
2,30,400 12th May, 2021 15
4,35,900 28th May, 2021 15
4,36,200 18th June, 2021 16
2,68,100 4th July, 2021 16
You are required to calculate Rebate on Bills Discounted as on 31 st March, 2021 and show
necessary Journal Entries.
(ii) The following information relates to a bank:
Assets Rs. in Lakhs
Standard 75,00
Sub-Standard 60,00
Doubtful: for 1 Year (fully secured) 12,00
for 1 to 3 Year (fully secured) 9,00
for more than 3 Years 9,00
Loss Assets 15,00
Additional Information:
(1) Standard Assets includes Rs. 15,00 Lakhs Advances to Commercial Real Estate (CRE).
(2) Out of Rs. 60,00 Lakhs of Sub-Standard Asset Rs. 20,00 Lakhs are unsecured.
Unsecured amount includes Rs. 5,00 Lakhs in respect of Infrastructure Loan Accounts
with ESCROW safeguard.
(3) Doubtful Asset for more than 3 Years includes Rs. 4,00 Lakhs, which is covered by 50%
ECGC, value of security of which is Rs. 150 Lakhs.
You are required to find out the amount of provision to be shown in the Profit & Loss Account
of Bank. (6+4=10 Marks)
6. (a) SP hotels Limited enters into an agreement with Mr. A for running its hotel for a fixed return payable
to the later every year. The contract involves the day-to-day management of the hotel, while all
financial and operating policy decisions are taken by the Board of Directors of the compa ny. Mr. A
does not own any voting power in SP Hotels Limited. Would he be considered as a related party of
SP Hotels Limited? Also explain the required related party disclosure requirements under AS 18?
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(b) Explain the concept of ‘weighted average number of equity shares outstanding during the period’.
Also compute, based on AS 20, the weighted average number of equity shares in the following
case:
No. of shares
1st April, 2020 Balance of equity shares 7,20,000
31st August, 2020 Equity shares issued for cash 2,40,000
1st February, 2021 Equity shares bought back 1,20,000
31st March, 2021 Balance of equity shares 8,40,000
(c) In a company, equity share capital is held by X, Y and Z in the proportion of 40:40:20. Moreover,
A, B and C hold preference share capital in the proportion of 50:30:20. If the paid-up equity share
capital of the company is Rs. 1 Crore and Preference share capital is Rs. 50 Lakh, then compute
the relative weights in the voting rights of all these equity shareholders and preference
shareholders for the purpose of winding up of company.
(d) On 1st April, 2021, Bimal Ltd. take over the business of Vimal Ltd. and discharged purchase
consideration as follows:
(i) Issued 50,000 fully paid Equity shares of Rs. 10 each at a premium of Rs. 5 per share to the
equity shareholders of Vimal Ltd.
(ii) Cash payment of Rs. 50,000 was made to equity shareholders of Vimal Ltd.
(iii) Issued 2,000 fully paid 12% Preference shares of Rs. 100 each at par to discharge the
preference shareholders of Vimal Ltd.
(iv) Debentures of Vimal Ltd. (Rs.1,20,000) will be converted into equal number and amount of
10% debentures of Bimal Ltd.
Calculate the amount of Purchase consideration as per AS 14 and pass Journal Entry relating to
discharge of purchase consideration in the books of Bimal Ltd.
OR
Om Ltd. has its share capital divided into Equity Shares of Rs. 10 each. On 1st April, 2020, the
company offered 250 shares to each of its 520 employees at Rs. 60 per share, when the market
price was Rs. 150 per share. The options were to be exercised between 01-03-2021 to
31-03-2021.
410 employees accepted the offer and paid Rs. 60 per share on purchased shares and the
remaining options lapsed. You are required to show Journal Entries (with narrations) as would
appear in the books of Om Ltd. for the year ended 31st March, 2021 with regard to employee stock
options. (4 Parts x 5 Marks = 20 Marks)

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 Test Series: April, 2021
MOCK TEST PAPER – 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
ANSWERS
1. (a) Present value of minimum lease payment is computed below:
Year MLP PV
DF (12.6%)
Rs. Rs.
1 50,000 0.890 44,500
2 50,000 0.790 39,500
3 50,000 0.700 35,000
4 50,000 0.622 31,100
5 50,000 0.552 27,600
5 25,000 0.552 13,800
1,91,500
Present value of minimum lease payment = Rs. 1,91,500
Fair value of leased asset = Rs. 2,00,000
As per AS 19, on the date of inception of Lease, Lessee should show it as an asset and
corresponding liability at lower of Fair value of leased asset at the inception of the lease and
present value of minimum lease payments from the standpoint of the lessee. The accounting entry
at the inception of lease to record the asset taken on finance lease in books of lessee is suggested
below:
Rs. Rs.
Asset A/c Dr. 1,91,500
To Lessor (Lease Liability) A/c 1,91,500
(Being recognition of finance lease as asset and liability)

(b) Research Expenditure – According to AS 26 ‘Intangible Assets’, the expenditure on research of

new process design for its product Rs. 10 lakhs should be charged to Profit and Loss Account in
the year in which it is incurred. It is presumed that the entire expenditure is incurred in the financial
year 2020-21. Hence, it should be written off as an expense in that year itself.
Cost of internally generated intangible asset – it is given that development phase expenditure
amounting Rs. 8 lakhs incurred upto 31 st March, 2021 meets asset recognition criteria. As per AS
26, for measurement of such internally generated intangible asset, fair value should be estimated
by discounting estimated future net cash flows.
Savings (after tax) from implementation of new design for next 5 years Rs. 2 lakhs p.a.
Company’s cost of capital 10 %
Annuity factor @ 10% for 5 years 3.7908
Present value of net cash flows (Rs. 2 lakhs x 3.7908) Rs. 7.582 lakhs
The cost of an internally generated intangible asset would be lower of cost value Rs. 8 lakhs or
present value of future net cash flows Rs. 7.582 lakhs.

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 Hence, cost of an internally generated intangible asset will be Rs. 7.582 lakhs.
The difference of Rs. 0.418 lakhs (i.e. Rs. 8 lakhs – Rs. 7.582 lakhs) will be amortized by Plymouth
for the financial year 2020-21.
Amortisation - The company can amortise Rs. 7.582 lakhs over a period of five years by charging
Rs. 1.516 lakhs per annum from the financial year 2021-2022 onwards.
(c) As per AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies’, as a result of the uncertainties inherent in business activities, many financial statement
items cannot be measured with precision but can only be estimated. The estimation process
involves judgments based on the latest information available. The use of reasonable estimates is
an essential part of the preparation of financial statements and does not undermine their reliability.
Estimates may have to be revised, if changes occur regarding the circumstances o n which the
estimate was based, or as a result of new information, more experience or subsequent
developments.
As per the standard, the effect of a change in an accounting estimate should be classified using
the same classification in the statement of profit and loss as was used previously for the estimate.
Prior period items are income or expenses which arise in the current period as a result of errors or
omissions in the preparation of the financial statements of one or more prior periods. Thus, revisio n
of an estimate by its nature i.e. the difference of Rs. 2 lakhs, is not a prior period item. Therefore,
in the given case expenses amounting Rs. 2,00,000 (i.e. Rs. 9,00,000 – Rs. 7,00,000) recorded in
the current year, should not be regarded as prior period item.
(d) (i) As per AS 29, 'Provisions, Contingent Liabilities and Contingent Assets’, a provision should
be recognized when
 an enterprise has a present obligation as a result of a past event;
 it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation; and
 a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision should be recognized.
In the given situation, since, the directors of the company are of the opinion that the claim can
be successfully resisted by the company, therefore there will be no outflow of the resources.
Hence, no provision is required. The company will disclose the same as contingent liability by
way of the following note:
“Litigation is in process against the company relating to a dispute with a competitor who
alleges that the company has infringed copyrights and is seeking damages of Rs. 200 lakhs.
However, the directors are of the opinion that the claim can be successfully resisted by the
company.”
(ii) As per AS 29, a restructuring provision should include only the direct expenditures arising
from the restructuring, which are those that are both: (a) necessarily entailed by the
restructuring; and (b) Not associated with the ongoing activities of the enterprise. A
restructuring provision does not include such costs as: (a) Retraining or relocating
continuing staff; (b) Marketing; or (c) Investment in new systems and distribution
networks.
2. (a) Journal Entries in the books of Meghna Ltd.
Particulars Debit Credit
(Rs. in lakhs) (Rs. in lakhs)
(i) 8% Preference share capital A/c (Rs. 100 each) Dr. 400
To 8% Preference share capital A/c (Rs. 80 each) 320
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 To Capital Reduction A/c 80
(Being the preference shares of Rs. 100 each
reduced toRs. 80 each as per the approved scheme)
(ii) Equity share capital A/c (Rs. 10 each) Dr. 1,000
To Equity share capital A/c (Rs. 2 each) 200
To Capital Reduction A/c 800
(Being the equity shares of Rs. 10 each reduced to
Rs. 2 each)
(iii) Capital Reduction A/c Dr. 32
To Equity share capital A/c (Rs. 2 each) 32
(Being 1/3rd arrears of preference share dividend of 3
years to be satisfied by issue of 8 lakhs equity shares of
Rs. 2 each)
(iv) 6% Debentures A/c Dr. 300
To Freehold property A/c 300
(Being claim of Debenture holders settled in part by
transfer of freehold property)
(v) Accrued debenture interest A/c Dr. 24
To Bank A/c 24
(Being accrued debenture interest paid)
(vi) Freehold property A/c Dr. 150
To Capital Reduction A/c 150
(Being appreciation in the value of freehold property)
(vii) Bank A/c Dr. 250
To Investments A/c 200
To Capital Reduction A/c 50
(Being investment sold at profit)
(viii) Director’s loan A/c Dr. 300
To Equity share capital A/c (Rs. 2 each) 90
To Capital Reduction A/c 210
(Being director’s loan waived by 70% and balance
being discharged by issue of 45 lakhs equity shares
of Rs. 2 each)
(ix) Capital Reduction A/c Dr. 972
To Profit and loss A/c 522
To Trade receivables A/c (450x 40%) 180
To Inventories-in-trade A/c (300x 80%) 240
To Bank A/c (600 x 5%) 30
(Being certain value of various assets, penalty on
cancellation of contract, profit and loss account debit
balance written off through Capital Reduction
Account)
(x) Capital Reduction A/c 286
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 To Capital reserve A/c 286
(Being balance transferred to capital reserve
account as per the scheme)
Capital Reduction Account
(Rs. in lakhs) (Rs. in lakhs)
To Equity Share Capital 32 By Preference Share Capital 80
To Trade receivables 180 By Equity Share Capital 800
To Finished Goods 240 By Freehold Property 150
To Profit & Loss A/c 522 By Bank 50
To Bank A/c 30 By Director’s Loan 210
To Capital Reserve 286
1,290 1,290
(b) Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions.
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets
and liabilities of the transferee company and the business of the transfer or company is
intended to be carried on, after the amalgamation, by the transferee company
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor
company (other than the equity shares already held therein, imme diately before the
amalgamation, by the transferee company or its subsidiaries or their nominees) become
equity shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) No adjustment is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies.
3. (a) Statement showing distribution of cash amongst the partners
Creditors B’s Loan A B C
2020 Rs. Rs. Rs. Rs. Rs.
June 30
Balance b/d 30,000 10,000 76,000 48,000 36,000
Cash balance less Provision for
expenses (Rs. 10,800 – Rs. 5,400) 5,400 - - - -
Balances unpaid 24,600 10,000 76,000 48,000 36,000
July 5
1st Instalment of Rs. 25,200 23,600 1,600 - - -
Discount received on full settlement 1,000 8,400 76,000 48,000 36,000
Less: Transferred to Realization A/c 1,000
Nil
August 30

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 2nd instalment of Rs. 60,000 (W.N. 2) 8,400 32,640 4,640 14,320
Balance unpaid Nil 43,360 43,360 21,680
September 15
Amount realised Rs. 80,000
Add: Balance out
of the Provision for
Expenses A/c 1,400
81,400 32,560 32,560 16,280
Amount unpaid being loss on Realization 10,800 10,800 5,400
in the ratio of 2 : 2 : 1
Working Notes:
1. Highest relative capital basis
A B C
Rs. Rs. Rs.
1. Present Capitals 76,000 48,000 36,000
2. Profit-sharing ratio 2 2 1
3 Capital per unit of Profit share (1 ÷ 2) 38,000 24,000 36,000
4. Proportionate capitals taking B, whose capital is the 48,000 48,000 24,000
least, as the basis
5. Excess capital (1-4) 28,000 Nil 12,000
6. Profit-sharing ratio 2 - 1
7. Excess capital per unit of Profit share (5 ÷ 6) 14,000 12,000
8. Proportionate capitals as between A and C taking C 24,000 - 12,000
capital as the basis
9. Excess of A’s Capital over C’s Excess capital (5-8) 4,000 - -
10. Balance of Excess capital (5-9) 24,000 12,000
11. Distribution sequence:
First Rs. 4,000 (2 : 0 : 0) 4,000 - -
Next Rs. 36,000 (2 : 0 : 1) 24,000 - 12,000
Over Rs. 40,000 (2 : 2 : 1)
2. Distribution of Second instalment
Creditors A B C
First Rs. 8,400 8,400 - - -
Next Rs. 4,000 (2 : 0 : 0) 4,000 - -
Next Rs. 36,000 (2 : 0 : 1) 24,000 - 12,000
Balance Rs. 11,600 (2 : 2 : 1) 4,640 4,640 2,320
60,000 8,400 32,640 4,640 14,320
(b) Garner vs. Murray rule: When a partner is unable to pay his debt due to the firm, he is said to be
insolvent and the share of loss is to be borne by other solvent partners in accordance with the
decision held in the English case of Garner vs. Murray. According to this decision, normal loss on
realisation of assets is to be brought in cash by all partners (including insolvent partner) in the profit
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 sharing ratio but a loss due to insolvency of a partner has to be borne by the solvent partners in
their capital ratio. In order to calculate the capital ratio, no adjustment will be made in case of fixed
capitals. However, in case of fluctuating capitals, ratio should be calculated on the basis of
adjusted capital before considering profit or loss on realization at the time of dissolution.
Non-Applicability of Garner vs Murray rule:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in their capital
ratio. If incidentally a solvent partner has a debit balance in his capital account, he will escape
the liability to bear the loss due to insolvency of another partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital account
of insolvent partner.
4. When all the partners of the firm are insolvent.
(c) Statement showing computation of 'Net Owned Fund'
Rs. in crores
Paid up Equity Capital 150
Securities Premium 50
Free Reserves 200
A 400
Investments
In shares of subsidiaries and group companies 100
In debentures of subsidiaries and group companies 100
B 200
10% of A 40
Excess of Investment over 10% of A (200-40) C 160
Net Owned Fund [(A) - (C)] (400-160) 240
4. (a) Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2021
Particulars Note No. (Rs.)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 12,00,000
(1,20,000 equity shares of Rs. 10 each)
(b) Reserves and Surplus 1 8,16,200
(2) Minority Interest (W.N.4) 99,300
(3) Current Liabilities
(a) Trade Payables 2 4,10,000
Total 25,25,500
II. Assets
(1) Non-current assets
(i) Property, plant and equipment 3 13,10,500
(ii) Intangible assets 4 24,000

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 (2) Current assets
(i) Inventories 5 3,25,000
(ii) Trade Receivables 6 6,70,000
(iii) Cash at Bank 7 1,96,000
Total 25,25,500
Notes to Accounts
Rs.
1. Reserves and Surplus
General Reserves 4,35,000
Add: 80% share of S Ltd.’s post-acquisition
reserves (W.N.3) 84,000 5,19,000
Profit and Loss Account 2,80,000
Add: 80% share of S Ltd.’s post-acquisition 21,200
profits (W.N.3)
Less: Unrealised gain (4,000) 17,200 2,97,200
8,16,200
2. Trade Payables
H Ltd. 3,22,000
S Ltd. 1,23,000
Less: Mutual transaction (35,000) 4,10,000
3. Property, plant and equipment
Machinery
H Ltd. 6,40,000
S Ltd. 2,00,000
Add: Appreciation 1,00,000
3,00,000
Less: Depreciation (30,000) 2,70,000 9,10,000
Furniture
H. Ltd. 3,75,000
S Ltd. 40,000
Less: Decrease in value (10,000)
30,000
Less: Depreciation (4,500) 25,500 4,00,500
13,10,500
4. Intangible assets
Goodwill [WN 5] 24,000
5. Inventories
H Ltd. 2,68,000
S Ltd. 62,000 3,30,000
Less: Inventory reserve (5,000)
3,25,000
6. Trade Receivables
H Ltd. 4,70,000
S Ltd. 2,35,000
7,05,000
Less: Mutual transaction (35,000)
7
 6,70,000
7. Cash and Bank
H Ltd. 1,64,000
S Ltd. 32,000 1,96,000

Working Notes:
1. Profit or loss on revaluation of assets in the books of S Ltd. and their book values as
on 1.4.2020
Rs.
Machinery
Revaluation as on 1.4.2020 3,00,000
Less: Book value as on 1.4.2020 (2,00,000)
Profit on revaluation 1,00,000
Furniture
Revaluation as on 1.4.2020 30,000
Less: Book value as on 1.4.2020 (40,000)
Loss on revaluation (10,000)
2. Calculation of short/excess depreciation
Machinery Furniture
Upward/ (Downward) Revaluation 1,00,000 (10,000)
Rate of depreciation 10% p.a. 15% p.a.
Difference [(short)/excess] (10,000) 1,500
3. Analysis of reserves and profits of S Ltd. as on 31.03.2021
Pre-acquisition Post-acquisition profits
profit upto (1.4.2020 – 31.3.2021)
1.4.2020
(Capital General Profit and
profits) Reserve loss account
General reserve as on 31.3.2021 50,000 1,05,000
Profit and loss account as on 31.3.2021 30,000 35,000
Upward Revaluation of machinery as on 1,00,000
1.4.2020
Downward Revaluation of Furniture as on (10,000)
1.4.2020
Short depreciation on machinery (10,000)

Excess depreciation on furniture 1,500

Total 1,70,000 1,05,000 26,500

4. Minority Interest
Rs.
Paid-up value of (2,00,000 x 20%) 40,000
Add: 20% share of pre-acquisition profits and reserves
[(20% of (50,000 + 30,000)] 16,000
20% share of profit on revaluation 18,000
8
 20% share of post-acquisition reserves 21,000
20% share of post-acquisition profit 5,300
1,00,300
Less: Unrealised Profit on Inventory
(55,000 x 10/110) x 20% (1,000)
99,300
5. Cost of Control or Goodwill
Cost of Investment 3,20,000
Less: Paid-up value of 80% shares 1,60,000
80% share of pre-acquisition profits and reserves
(Rs. 64,000 + Rs.72,000) 1,36,000 (2,96,000)
Cost of control or Goodwill 24,000
(b) Nature of Limited Liability Partnership: A limited liability partnership is a body corporate formed
and incorporated under the LLP Act, 2008 and is a legal entity separate from that of its partners.
A limited liability partnership shall have perpetual succession and any change in the partners of a
limited liability partnership shall not affect the existence, rights or liabilities of the limited liability
partnership.
Designated partners: Every limited liability partnership shall have at least two designated partners
who are individuals and at least one of them shall be a resident in India. In case of a limited liability
partnership in which all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such limited liability
partnership or nominees of such bodies corporate shall act as designated partners .
5. (a) Liquidator’s Final Statement of Receipts and Payments A/c
Rs. Rs. Rs.
To Cash in hand 40,000 By Liquidator’s remuneration 5,000
To Assets realised: and expenses
PPE 1,68,000 By Trade Payables 3,50,000
Inventory By Preference shareholders 1,00,000
(1,10,000 – 1,00,000) 10,000 By Equity shareholders @
Book debts 2,30,000 4,08,000 Rs. 10 on 2,000 shares 20,000
To Cash - proceeds of
call on 1,800 equity
shares @ Rs. 15* 27,000
4,75,000 4,75,000
Working Note:
Return per equity share
Rs.
Cash available before paying preference shareholders
(Rs. 4,48,000 – Rs. 3,55,000) 93,000
Add: Notional calls 1,800 shares (2,000-200) × Rs. 25 45,000
1,38,000
Less: Preference share capital (1,00,000)
Available for equity shareholders 38,000
7
 ` 38,000
Return per share=  ` 10
3,800 (4,000  200)
and Loss per Equity Share Rs. (100-10) = Rs. 90
*Calls to be made @ Rs. 15 per share (Rs. 90-75) on 1,800 shares.
(b) (i) Statement showing rebate on bills discounted
Value Due Date Days after 31.3.2021 Rate of discount Discount Amount

1,46,200 4.5.21 (30+ 4) = 34 15% 2,043

2,30,400 12.5.21 (30+12) = 42 15% 3,977
4,35,900 28.5.21 (30+28) = 58 15% 10,390
4,36,200 18.6.21 (30+ 31+ 18) = 79 16% 15,106
2,68,100 4.7.21 (30+ 31+30+4) = 95 16% 11,165
15,16,800 Rebate on bills discounted on 31.3.2021 42,681
Note: 365 days have been considered in a year.
In the books of SM Bank Ltd. - Journal Entries
(i) Rebate on bills discounted Account Dr. 26,592
To Discount on bills Account 26,592
[Being opening balance of rebate on bills discounted
account transferred to discount on bills account]
(ii) Bills purchased & discounted Account Dr. 15,16,800
To Discount on bills Account 1,26,859
To Clients Account 13,89,941
(Being bills purchased and discounted during the year)
(iii) Discount on bills Account Dr. 42,681
To Rebate on bills discounted Account 42,681
[Being provision made on 31st March, 2021]
(iv) Discount on bills Account Dr. 1,10,770
To Profit and loss Account* 1,10,770
[Being transfer of discount on bills, of the year, to profit
and loss account]
*Credit to Profit and Loss A/c will be as follows:
Rs. (1,26,859 + 26,592 – 42,681) = Rs. 1,10,770
(ii) Statement showing the amount of provisions on Assets
(Rs. in lakhs)
Assets Amount % of provision Provision
Standard:
Advances to CRE 15,00 1 15
Others 60,00 .4 24
Sub-standard:
Secured 40,00 15 6,00

8
 Unsecured- Others 15,00 25 3,75
Unsecured infrastructure 5,00 20 1,00
Doubtful Secured:
up to one year 12,00 25 3,00
For more than 1 year up to 3 years 9,00 40 3,60
More than 3 years 4,00 W.N.1 2,75
Doubtful unsecured (more than 3 years) 5,00 100 5,00
Loss 15,00 100 15,00
Total Provision Required 40,49
Working Note:
Provision required where assets are ECGC covered
Rs. In Lakhs
Outstanding balance (ECGC Covered) 4,00
Less: Value of security 1,50
Unrealised balance 2,50
Less: ECGC Cover @ 50% 1,25
Net Unsecured Balance 1,25
Provision for unsecured portion @100% 1,25
Provision for secured portion @100% 1,50
Total Provision to be made 2,75
6. (a) Mr. A will not be considered as a related party of SP Hotels Limited in view of AS 18 which states,
“individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise
that gives them control or significant influence over the enterprise, and relatives of any such
individual”. In the given case, in the absence of share ownership, Mr. A would not be considered
to exercise significant influence on SP Hotels Limited, even though there is an agreement giving
him the power to manage the company. Further, the fact that Mr. A does not have the ability to
direct or instruct the board of directors does not qualify him as a ke y management personnel.
Related Party Disclosures: Name of the related party and nature of the related party relationship
where control exists should be disclosed irrespective of whether or not there have been
transactions between the related parties.
This is to enable users of financial statements to form a view about the effects of related party
relationships on the enterprise.
If there have been transactions between related parties, during the existence of a related party
relationship, the reporting enterprise should disclose the following:
(i) The name of the transacting related party;
(ii) A description of the relationship between the parties;
(iii) A description of the nature of transactions;
(iv) Volume of the transactions either as an amount or as an appropriate proportion;
(v) Any other elements of the related party transactions necessary for an understanding of the
financial statements;
(vi) The amounts or appropriate proportions of outstanding items pertaining to related parties at
the balance sheet date and provisions for doubtful debts due from such parties at that date;

7
 (vii) Amounts written off or written back in the period in respect of debts due from or to related
parties.
(b) As per AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding
during the period reflects the fact that the amount of shareholders’ capital may have varied during
the period as a result of a larger or less number of shares outstanding at any time. For the purpose
of calculating basic earnings per share, the number of equity shares should be the weighted
average number of equity shares outstanding during the period.
Weighted average number of equity shares:
7,20,000 X 5/12 = 3,00,000 shares
9,60,000 X 5/12 = 4,00,000 shares
8,40,000 X 2/12 = 1,40,000 shares
= 8,40,000 shares
(c) The respective voting right of various shareholders will be
X = 2/3X40/100 = 4/15
Y = 2/3X40/100 = 4/15
Z = 2/3X20/100 = 2/15
A = 1/3X50/100 = 1/6
B = 1/3X30/100 = 1/10
C = 1/3X20/100 = 2/30
Hence their relative weights are 4/15 : 4/15 : 2/15 : 1/6 : 1/10 : 2/30 or 8:8:4:5:3:2.
Their voting power is X (26.67%), Y (26.67%), Z (13.33%), A (16.67%), B (10%) and C (6.67%)
(d)
Particulars Rs.
Equity Shares (50,000 x 15) 7,50,000
Cash payment 50,000
12% Preference Share Capital 2,00,000
Purchase Consideration 10,00,000
As per AS 14, consideration for the amalgamation means the aggregate of the shares and other
securities issued and the payment made in the form of cash or other assets by the transferee
company to the shareholders of the transferor company. Thus, payment to debenture holders are
not covered by the term ‘consideration’.
Journal entry relating to discharge of consideration
in the books of Bimal Ltd.
Liquidation of Vimal Ltd.A/c 10,00,000
To Equity share capital A/c 5,00,000
To 12% Preference share capital A/c 2,00,000
To Securities premium A/c 2,50,000
To Bank/Cash A/c 50,000
(Discharge of purchase consideration)
OR

8
 Journal Entries in the books of Om Ltd.
Rs. Rs.
1.3.21 Bank A/c (1,02,500 x Rs. 60) Dr. 61,50,000
to 31.3.21 Employee compensation expense A/c Dr. 92,25,000
(1,02,500 x Rs.90)
To Equity share capital A/c (1,02,500x Rs.10) 10,25,000
To Securities premium A/c 1,43,50,000
(1,02,500 x Rs.140)
(Being shares issued to the employees against the
options vested to them in pursuance of Employee Stock
Option Plan)
31.3.21 Profit and Loss A/c Dr. 92,25,000
To Employee compensation expense A/c 92,25,000
(Being transfer of employee compensation expenses to
Profit and Loss Account)