CA Final Exam Papers Group I Financial Reporting June 2009

CA Final Exam Papers Group I

Financial Reporting

June 2009

This Paper has 17 answerable questions with 0 answered

Total No. of Questions — 7] 

Time Allowed : 3 Hours

Maximum Marks : 100
Question No. 1 is compulsory. Answer any five out of the remaining questions
Working notes should form part of the answer.
Wherever necessary, suitable assumptions may be made by the candidates.
Marks
1. Answer any four out of the following: 4×5=20
(a) From the following details of an asset
(i) Find out impairment loss
(ii) Treatment of impairment loss
(iii) Current year depreciation
Particulars of asset:
Cost of asset
Useful life period
Salvage value
Current carrying value
Useful life remaining
Recoverable amount
Upward revaluation done in last year Rs.56 lakhs
10 years
Nil
Rs. 27.30 lakhs
3 years
Rs.12 lakhs
Rs.14 lakhs
(0)
(b) Rainbow Limited borrowed an amount of Rs.150 crores on 1.4.2008 for construction of boiler plant @ 11% p.a. The plant is expected to be completed in 4 years. Since the weighted average cost of capital is 13% p.a., the accountant of Rainbow Ltd. capitalized Rs.19.50 crores for the accounting period ending on 31.3.2009. Due to surplus fund, out of Rs.150 crores, an income of Rs.3.50 crores was earned and credited to profit and loss account. Comment on the above treatment of accountant with reference to relevant accounting standard. (0)
(c) Suraj Limited wishes to obtain a machine costing Rs.30 lakhs by way of lease. The effective life of the machine is 14 years, but the company requires it only for the first 5 years. It enters into an agreement with Ashok Ltd., for a lease rental for Rs.3 lakhs p.a. payable in arrears and the implicit rate of interest is 15%. The chief accountant of Suraj Limited is not sure about the treatment of these lease rentals and seeks your advise. (0)
(d) Omega Limited is working on different projects which are likely to be completed within 3 years period. It recognizes revenue from these contracts on percentage of completion method for financial statements during 2006, 2007 and 2008 for Rs.11,00,000, Rs.16,00,000 and Rs.21,00,000 respectively. However, for income–tax purpose, it has adopted the completed contract method under which it has recognized revenue of Rs.7,00,000, Rs.18,00,000 and Rs.23,00,000 for the years 2006, 2007 and 2008 respectively. Income–tax rate is 35%. Compute the amount of deferred tax asset/liability for the years 2006, 2007 and 2008. (0)
(e) While preparing its final accounts for the year ended 31st March, 2009, a company made a provision for bad debts @ 5% of its total debtors. In the last week of February 2009, a debtor for 2 lakhs had suffered heavy loss due to earthquake. The loss was not covered by any insurance policy. In April, 2009, the debtor became bankrupt. Can the company provide for full loss arising out of insolvency of debtor in the final accounts for year ended 31st March, 2009? (0)
2. The Balance Sheet of Munna Ltd as on 31st March, 2009 is as follows:
Liabilities Rs. Assets Rs.
Authorised and issued Share capital
20,000 Equity shares of Rs.100 each, fully paid
10,000, 7% Preference shares of Rs.100 each
Sundry creditors
Bank overdraft
20,00,000
10,00,000
7,00,000
3,00,000 Goodwill
Plant & Machinery
Stock
Debtors
Cash
Preliminary expenses
Profit and Loss A/c 2,00,000
18,00,000
3,00,000
7,50,000
1,50,000
1,00,000
7,00,000
40,00,000 40,00,000
Additional Information:

Two years’ preference share dividend is in arrears. The company had bad time during the last two years and hopes for better business in future, earning profit and paying dividend, provided the capital base is reduced.

An internal reconstruction scheme, agreed to by all concerned, is as follows:

(i) Creditors agreed to forego 50% of their claim.
(ii) Preference shareholders withdrew arrear dividend claim. They also agreed to lower down their capital claim by 20% by reducing nominal value in consideration of 9% dividend effective after reconstruction, in case equity shareholder’s loss exceeded 50% on the application of the scheme.
(iii) Bank has agreed to convert overdraft into term loan to the extent required for making current ratio to 2:1.
(iv) Revalued amount for plant and machinery was accepted as Rs.15,00,000.
(v) Debtors to the extent of Rs.4,00,000 were considered as good.
(vi) Equity shares shall be exchanged for the same number of equity shares at a revised denomination as required after the reconstruction.
You are required to show the following:

(a) Total loss to be borne by the equity and preference shareholders for the reconstruction.
(b) Share of loss to the individual class of shareholders.
(c) New structure of share capital after reconstruction.
(d) Working capital of the reconstructed company, and
(e) A Performa Balance Sheet after reconstruction.
16 (0)
3. From the following details, prepare a consolidated Balance Sheet of Sun Limited and its subsidiaries as on 31st March, 2009:
(Rs. in Lakhs)
Assets
Fixed assets (net)
Investment (at cost) Sun Ltd.
816 Moon Ltd.
312 Star Ltd.
126
∗∗ Current ratio shall be 2 : 1, i.e. total current liabilities shall be 50% of Rs. 8,50,000 (i.e. Rs. 3,00,000 + 4,00,000 + 1,50,000) = Rs. 4,25,000. Therefore, Bank overdraft = Rs. 75,000 (Rs. 4,25,000 less creditors Rs. 3,50,000).
7,50,000, equity shares of Moon Ltd
2,40,000 equity shares of Star Ltd.
4,80,000, equity shares of Star Ltd.
30,000 cumulative preference shares of Sun Ltd.
4,500 mortgage debentures of Sun Ltd.
Current assets
Profit and loss account 75
24



1,059
288 –

60


369
108 –


30
42
336
63
2,262 849 597
Liabilities
Equity share capital (Rs.10 each fully paid up)
7.5% Cumulative preference share capital
(Rs.100 each fully paid)
Capital reserve (revaluation of fixed assets)
General reserve
7,500, 8% mortgage debenture bonds of Rs.1,000
each 180

45
360
75
75 144

36

45
– 120

30

30

Secured loans and advances:
From banks
Unsecured loans:
From Moon Ltd.
From Star Ltd.
Current liabilities and provisions:
Inter–company balances
Other liabilities 513


45

27
942 249



375 165

36


216
2,262 849 597
Other information are as follows:

(a) Moon Ltd. subscribed for 2,40,000 shares of Star Ltd. at par at the time of first issue and further acquired 2,40,000 shares from the market at Rs.15 each, when the Reserve and Surplus account of Star Ltd. stood at Rs.15 lakhs.
(b) Sun Ltd. subscribed for shares of Moon Ltd. and Star Ltd. at par at the time of first issue of shares by both the companies.
(c) Current assets of Moon Ltd. and Star Ltd. includes Rs.12 lakhs and Rs.18 lakhs respectively being current account balance against Sun Ltd.
16 (0)
4. (a) On 1.4.2008, a mutual fund scheme had 18 lakh units of face value of Rs.10 each was outstanding. The scheme earned Rs.162 lakhs in 2008–09, out of which Rs.90 lakhs was earned in the first half of the year. On 30.9.2008, 2 lakh units were sold at a “NAV” of Rs.70.
Pass Journal entries for sale of units and distribution of dividend at the end of 2008–09. 6 (0)
(b) Following is the Balance Sheet of Rampal Limited as on 31st March, 2009:
Liabilities Rs. Assets Rs.
1,00,000 equity shares of Rs.10 each
10,000, 12% preference shares of
Rs.100 each
General reserve
Profit and Loss account
15% debentures
Creditors 10,00,000

10,00,000
6,00,000
4,00,000
10,00,000
8,00,000 Goodwill
Buildings

Plant
Investment in 10% stock
Stock–in–trade
Debtors
Cash
Preliminary Expenses 5,00,000
15,00,000

10,00,000
4,80,000
6,00,000
4,00,000
1,00,000
2,20,000
48,00,000 48,00,000
Additional information are given below:

(a) Nominal value of investment is Rs.5,00,000 and its market value is Rs.5,20,000.
(b) Following assets are revalued:
(i) Building Rs.32,00,000
(ii) Plant Rs.18,00,000
(iii) Stock–in–trade Rs.4,50,000
(iv) Debtors Rs.3,60,000
(c) Average profit before tax of the company is Rs.12,00,000 and 12.50% of the profit is transferred to general reserve, rate of taxation being 50%.
(d) Normal dividend expected on equity shares is 8% while fair return on closing capital employed is 10%.
(e) Goodwill may be valued at three year’s purchase of super profits.
Ascertain the value of each equity share under fair value method.

10 (0)
5. The Balance Sheet of R Ltd. for the year ended on 31st March, 2006, 2007 and 2008 are as follows:
(Rs. in thousands)
Liabilities 31.3.2006 31.3.2007 31.3.2008
3,20,000 equity shares of Rs.10 each, fully paid
General reserve
Profit and Loss account
Creditors 3,200
2,400
280
1,200
7,080 3,200
2,800
320
1,600
7,920 3,200
3,200
480
2,000
8,880
Assets:
Goodwill
Building and Machinery less, depreciation
Stock
Debtors
Bank balance 2,000
2,800
2,000
40
240
7,080 1,600
3,200
2,400
320
400
7,920 1,200
3,200
2,800
880
800
8,880
Additional information:

(a) Actual valuations were as under
Building and machinery less, depreciation
Stock
Net profit (including opening balance after
writing off depreciation, goodwill, tax provision
and transferred to general reserve) 3,600
2,400

840 4,000
2,800

1,240 4,400
3,200

1,640
(b) Capital employed in the business at market value at the beginning of 2005–06 was Rs.73,20,000 which included the cost of goodwill. The normal annual return on average capital employed in the line of business engaged by R Ltd. is 12½%.
(c) The balance in the general reserve on 1st April, 2005 was Rs.20 lakhs.
(d) The goodwill shown on 31.3.2006 was purchased on 1.4.2005 for Rs.20 lakhs on which date the balance in the Profit and Loss account was Rs.2,40,000. Find out the average capital employed in each year.
(e) Goodwill is to be valued at 5 year’s purchase of Super profit (Simple average method). Find out the total value of the business as on 31.3.2008.
16 (0)
6. (a) Rajkumar Ltd. is adopting historical cost system. From the following details furnished, prepare current cost Profit and Loss account for the year ended on 31.3.2009:
Statement of Profit and Loss: (Rs.)
Sales 24,00,000
Cost of sales:
Opening stock
Purchases
Less: Closing stock
Gross Profit
Operating expenses
Depreciation
Interest on loan
Provision for tax
Net profit
Dividend (proposed)
Retained profit 1,80,000
15,60,000
2,40,000

15,00,000
9,00,000
3,60,000
1,20,000
1,80,000
90,000
1,50,000
30,000
1,20,000
The chief finance officer of Rajkumar Ltd. furnished the additional information as below:

(a)
(b)

  1. (c)
  2. (d) Gearing adjustment for the year
  3. Cost of sales adjustment for the year
  4. Depreciation adjustment for the year
  5. Monetary working capital adjustment for the year Rs.20,232
  6. Rs.37,998

Rs.18,000
Rs.13,500
8 (0)
(b) From the following information of Vinod Ltd., compute the economic value added:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix) Share capital
Reserve and surplus
Long–term debt
Tax rate
Risk free rate
Market rate of return
Interest
Beta factor
Profit before interest and tax Rs.2,000 lakhs
Rs.4,000 lakhs
Rs.400 lakhs
30%
9%
16%
Rs.40 lakhs
1.05
Rs.2,000 lakhs
8 (0)
7. Write short notes on any four from the following: 4×4=16
(a) What are the objectives of financial reporting? (0)
(b) What do you mean by “Net asset value” (NAV) in case of mutual fund units? (0)
(c) State the treatment of the following items with reference to Indian Accounting Standards and IFRS:
(i) Discontinued operations – definition and measurement
(ii) Acquired intangible assets.
(0)
(d) Non–performing asset in the context of NBFC. (0)
(e) Forward contract. (0)

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