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 MaximumMarks:100

1. (a) A Company acquired for its internal use a software on 01.03.2020 from U.K. for £ 1,50,000.

The exchange rate on the date was as ` 100 per £. The seller allowed trade discount @

2.5%. The other expenditures were:

(i) Import Duty 10%

(ii) Additional Import Duty 5%

(iii) Entry Tax 2% (Recoverable later from tax department).

(iv) Installation expenses ` 1,50,000.

(v) Professional fees for clearance from customs ` 50,000.

Compute the cost of software to be Capitalized as per relevant AS.

(b) Indicate in each case whether revenue can be recognized and when it will be recognized

as per AS-9.

(1) Trade discount and volume rebate received.

(2) Where goods are sold to distributors or others for resale.

(3) Where seller concurrently agrees to repurchase the same goods at a later date.

(4) Insurance agency commission for rendering services.

(5) On 11-03-2019 cloths worth ` 50,000 were sold to X mart, but due to refurbishing of

their showroom being underway, on their request, clothes were delivered on 12-04-2019.

(c) Following information is supplied by K Ltd.:

Number of shares outstanding prior to right issue - 2,50,000 shares.

Right issue - two new share for each 5 outstanding shares (i.e. 1,00,000 new shares)

Right issue price - ₹ 98

Last date of exercising rights - 30-06-2018.

Fair value of one equity share immediately prior to exercise of right on 30-06-2018 is ₹102.

Net Profit to equity shareholders:

2017-2018 - ₹50,00,000

2018-2019 -₹75,00,000

You are required to calculate the basic earnings per share as per AS-20 Earnings per Share.

(d) With reference to AS 4 "Contingencies and events occurring after the balance sheet date", state

whether the following events will be treated as contingencies, adjusting events or non-adjusting

events occurring after balance sheet date in case of a company which follows financial year (April

to March).

(i) A major fire has damaged the assets in a factory on 5th April, 5 days after the year end. The

assets are not insured; and the books have not been approved by the Directors.

(ii) A suit against the company's advertisement was filed by a party on 10th April, 10 days after

the year end claiming damages of Rs. 20 lakhs. (4 x 5= 20 Marks)

2. (a) Two companies named Alex Ltd. and Beta Ltd. provide you the following summary of ledger
balances as on 31st March, 2020:

Alex Ltd. (₹) Beta Ltd. (₹)

Goodwill 1,40,000 70,000

Building 8,40,000 2,80,000

Machinery 14,00,000 4,20,000

Inventory 7,00,000 4,90,000

Trade receivables 5,60,000 2,80,000

Cash at Bank 1,40,000 56,000

Equity Shares of ` 10 each 28,00,000 8,40,000

8% Preference Shares of ` 100 each 2,80,000 –

10% Preference Shares of ` 100 each – 2,80,000

General Reserve 1,96,000 1,96,000

Retirement Gratuity fund 1,40,000 56,000

Trade payables 3,64,000 2,24,000

Beta Ltd. is absorbed by Alex Ltd. on the following terms:

(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 8% Preference Shares of
Alex Ltd.

(b) Goodwill of Beta Ltd. is valued at ₹ 1,40,000, Buildings are valued at ₹ 4,20,000 and the Machinery
at ₹4,48,000.

(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created @ 7.5%.

(d) Equity Shareholders of Beta Ltd. will be issued Equity Shares of Alex Ltd. @ 5% premium.

You are required to:

(i) Prepare necessary Ledger Accounts to close the books of Beta Ltd.

(ii) Show the acquisition entries in the books of Alex Ltd.

(iii) Also draft the Balance Sheet after absorption as at 31st March, 2020.

(b) Explain the difference between pooling of interest and purchase method of accounting for
amalgamations. (16+4= 20 Marks)

3. (a) A Company provides following two possible Capital Structures as on 31st March, 2021:

Particulars Situation 1(₹) Situation 2 (₹)

Equity Share Capital (Shares of ₹10 each, paid 30,00,000 30,00,000
up)
Reserves and Surplus:
General Reserve 12,00,000 12,00,000
Securities Premium 6,00,000 6,00,000
Profit and Loss 2,10,000 2,10,000
Statutory Reserve 4,20,000 4,20,000
Loan Funds 25,00,000 1,20,00,000

The company is planning to offer buy back of Equity Shares at a price of ₹30 per Equity Share.

You are required to calculate maximum permissible number of equity shares that can be bought back
in both the situations as per Companies Act, 2013 and are also required to pass necessary Journal
Entries in the situation where buy back is possible.

(b) (i)Explain meaning of Equity Shares with Differential Rights. Can Preference Shares be also issued
with differential rights?
 (ii) In Jugnu Limited A, B, C and D hold equity share capital in the proportion 30:30:30:10 and M,
N, O and P hold preference share capital in the proportion of 40:20:30:10.

You are required to calculate their voting rights in case of resolution of winding up of the company , if
the paid up Equity Share Capital of the Company is ₹100 Lakhs and Preference Share Capital is ₹50
Lakhs (15+5= 20 Marks)

4.(a) A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.2010 at cost of Rs. 10,00,000 when B Ltd.
had an equity share capital of Rs. 10,00,000 and reserves and surplus of Rs. 80,000. In the four
consecutive years, B Ltd. fared badly and suffered losses of Rs. 2,50,000, Rs. 4,00,000, Rs. 5,00,000 and
Rs. 1,20,000 respectively. Thereafter in 2014-15, B Ltd. experienced turnaround and registered an
annual profit of Rs. 50,000. In the next two years i.e. 2015-16 and 2016-17, B Ltd. recorded annual
profits of Rs. 1,00,000 and Rs. 1,50,000 respectively. Show the minority interests and cost of control at
the end of each year for the purpose of consolidation.

(b) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The assets
were realized for Rs. 25,00,000 against which payment was made as follows:

Liquidation expenses Rs. 25,000

Secured Creditors Rs. 10,00,000

Preferential Creditors Rs. 75,000

The amount due to Unsecured Creditors was Rs. 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a rupee.

(12+8= 20 Marks)

5. (a) Astha Bank has the following Capital Funds and Assets as at 31st March, 2018:

₹ in crores
Capital Funds:
Equity Share Capital 600.00
Statutory Reserve 470.00
Profit and Loss Account (Dr. Balance) 30.00
Capital Reserve (out of which ₹25 crores were due to revaluation of assets
and balance due to sale of assets) 130.00
Assets:
Balance with other banks 15.00
Cash balance with RBI 35.50
Claim on Banks 52.50
Other Investments 70.00
Loans and Advances:
(i) Guaranteed by government 22.50
(ii) Guaranteed by DICGC/ECGC 110.00
(iii) Other 9,365.00
 Premises, furniture and fixtures 92.50
Leased assets 40.00
Off- Balance Sheet items:
(i) Acceptances, endorsements and letters of credit 1,100.00
(ii) Guarantees and other obligations 6,200.00

You are required to:

(i) Segregate the capital funds into Tier I and Tier II capitals.

(ii) Find out the risk-adjusted assets and risk weighted assets ratio.

(b) ABC Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring consumer durables.
The following information is extracted from its books for the year ending 31st March, 2017:

(₹ in Lakhs)

Assets Funded Interest Overdue But Net Book value of Assets

Recognised in P&L Outstanding
Paid Overdue Interest Amount
Computers Upto 12 Months 960.00 40,812.00
Televisions For 20 Months 205.00 4,950.00
Washing Machines For 32 Months 104.20 2,530.00
Refrigerator For 45 Months 53.50 1328.00
Air-Conditioners For 52 Months 13.85 305.00

You are required to calculate the amount of provision to be made. (15+5= 20 Marks)

6. (a) Sarita Construction Co. obtained a contract for construction of a dam. The following details are
available in records of company for the year ended 31st March, 2018:

₹ In Lakhs
Total Contract Price 12,000
Work Certified 6,250
Work not certified 1,250
Estimated further cost to completion 8,750
Progress payment received 5,500
Progress payment to be received 1,500

Applying the provisions of Accounting Standard 7 "Accounting for Construction Contracts"

you are required to compute:

(i) Profit/Loss for the year ended 31st March, 2018.

(ii) Contract work in progress as at end of financial year 2017-18.

(iii) Revenue to be recognized out of the total contract value.

(iv) Amount due from/to customers as at the year end.

(b) The Paid-up capital of S Limited amounted to Rs. 5,00,000 Equity Shares of Rs. 10 each. Due to
continuous loss incurred by the company, the following scheme of Reconstruction has been approved
for S Limited on 1st April, 2020.

(i) In lieu of present holding the Equity Shareholders are to receive:

(a) Fully Paid Equity Shares equal to 3/5th of their holding.

(b) 8% Preference Shares fully paid to the extent of 20% of the above new Equity Shares.

(c) 10% Second Debentures of Rs. 40,000.

(ii) An issue of 8% Debentures First Debentures of Rs. 1,00,000 was made and fully subscribed

for cash,

(iii) The Assets were reduced as follows:-

(a) Building from Rs. 2,00,000 to Rs. 1,50,000

(b) Plant & Machinery from Rs. 1,50,000 to Rs. 1,30,000

(c) Goodwill from Rs. 30,000 to Nil.

Show the Journal Entries in the books of S Limited to give effect of the scheme of Reconstruction.

(c) A machine was given on 3 years operating lease by a dealer of the machine for equal annual lease
rentals to yield 30% profit margin on cost Rs. 1,50,000. Economic life of the machine is 5 years and
output from the machine are estimated as 40,000 units, 50,000 units, 60,000 units, 80,000 units and
70,000 units consecutively for 5 years. Straight line depreciation in proportion of output is considered
appropriate.

You are required to compute the following:

(i) Annual Lease Rent

(ii) Lease Rent income to be recognized in each operating year

(OR)

Identify the related parties in the following cases as per AS-18

(i) Maya Ltd. holds 61 % shares of Sheetal Ltd.

Sheetal Ltd. holds 51 % shares of Fair Ltd.

Care Ltd. holds 49% shares of Fair Ltd.

(Give your answer - Reporting Entity wise for Maya Ltd., Sheetal Ltd., Care Ltd. And Fair Ltd.)
(ii) Mr. Subhash Kumar is Managing Director of A Ltd. and also holds 72% capital of B Ltd.

(d) 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’. (4 x 5= 20 Marks)