CA Final Question Papers Group I
Advanced Accounting May 2004
This Paper has 12 answerable questions with 0 answered.
Total No. of Questions— 6]
Time Allowed : 3 Hours
Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Answer all Questions
Working notes should form part of the answer.
Wherever applicable, suitable assumptions should be made by the candidate.
1. On the basis of the following information, calculate the value of goodwill of Gee Ltd. at three years purchase of super profits, if any, earned by the company in the previous four completed accounting years.
Balance Sheets of Gee Ltd. as at 31st March, 2004
Liabilities Rs. in lakhs Assets Rs. in lakhs
Land and Buildings 310
Issued and Subscribed
5 crore equity shares
of Rs. 10 each, fully paid up
Surplus i.e. credit balance
of Profit & Loss
Provision for Taxation (net)
Proposed Dividend for 2002–2003
Furniture and Fixtures
Patents and Trade Marks
9% Non–trading Investment
Cash in hand and at Bank
Preliminary Expenses 3,760
The profits before tax of the four years have been as follows :
Year ended 31st March
2003 Profit before tax in lakhs of Rupees
The rate of income tax for the accounting year 1999–2000 was 40%. Thereafter it has been 38% for all the years so far. But for the accounting year 2003–2004 it will be 35%.
In the accounting year 1999–2000, the company earned an extraordinary income of Rs. 1 crore due to a special foreign contract. In August, 2000 there was an earthquake due to which the company lost property worth Rs.50 lakhs and the insurance policy did not cover the loss due to earthquake or riots.
9% Non–trading investments appearing in the above mentioned Balance Sheet were purchased at par by the company on 1st April, 2001.
The normal rate of return for the industry in which the company is engaged is 20%. Also note that the companys shareholders, in their general meeting have passed a resolution sanctioning the directors an additional remuneration of Rs. 50 lakh every year beginning from the accounting year 2003–2004.
2. On 31st March, 2004 the Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows :
Issued and Subscribed:
Equity shares of Rs. 10 each, fully paid up
Profit and Loss Account
Provision for Taxation
Proposed Dividend H Ltd.
Rs. in lakhs
1,200 S. Ltd.
Rs. in lakhs
Land and Buildings
Plant and Machinery
Furniture and Fittings
Investments in shares in S Ltd.
Cash and Bank balances
Sundry Advances H Ltd.
Rs. in lakhs
520 S. Ltd.
Rs. in lakhs
The following information is also provided to you :
(a) H Ltd. purchased 180 lakh shares in S Ltd. on 1st April, 2003 when the balances to General Reserve and Profit and Loss Account of S. Ltd. stood at Rs. 3,000 lakh and 1,200 lakh respectively.
(b) On 4th July, 2003 S Ltd. declared a dividend @ 20% for the year ended 31st March, 2003. H Ltd. credited the dividend received by it to its Profit and Loss Accounts.
(c) On 1st January, 2004 S Ltd. issued 3 fully paid-up shares for every 5 shares held as bonus shares out of balances to its general reserve as on 31st March. 2003.
(d) On 31st March, 2004 all the bills payable in S Ltd’s balance sheet were acceptances in favour of H Ltd. But on that date, H. Ltd. held only Rs. 45 lakh of these acceptances in hand, the rest having been endorsed in favour of its creditors.
(e) On 31st March, 2004 S Ltd’s stock included goods which it had purchased for Rs. 100 lakh from H Ltd. which made a profit @ 25% on cost.
Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March, 2004 bearing in mind the requirements of AS21.
3. The Balance Sheet of Z Ltd. as at 31st March, 2003 is given below. In it, the respective shares of the company’s two divisions namely S Division and W Division in the various assets and liabilities have also been shown.
(All amounts in crores of Rupees )
Fixed Assets :
Less : Depreciation S Division
360 W Division
Written-down value 515 168 683
Net Current Assets :
Less : Current Liabilities
175 492 667
Financed by :
Own funds :
Equity share capital : shares of Rs. 10 each
Reserves and surplus
Loan funds included, inter alia, Bank Loans of Rs. 15 crore specifically taken for W Division and Debentures of the paid up value of Rs. 125 crore redeemable at any time between 1st October, 2002 and 30th September, 2003.
On 1st April, 2003 the company sold all of its investments for Rs. 102 crore and redeemed all the debentures at par, the cash transactions being recorded in the Bank Account pertaining to S Division.
Then a new company named Y Ltd. was incorporated with an authorised capital of Rs. 900 crore divided into shares of Rs. 10 each. All the assets and liabilities pertaining to W Division were transferred to the newly formed company; Y Ltd. allotting to Z Ltd.’s shareholders its two fully paid equity shares of Rs. 10 each at par for every fully paid equity share of Rs. 10 each held in Z Ltd. as discharge of consideration for the division taken over.
Y Ltd. recorded in its books the fixed assets at Rs. 218 crore and all other assets and liabilities at the same value at which they appeared in the books of Z Ltd.
You are required to :
(i) Show the journal entries in the books of Z Ltd.
(ii) Prepare Z Ltd.’s Balance Sheet immediately after the demerger and the initial BalanceSheet of Y Ltd. (Schedules in both cases need not be prepared).
(iii) Calculate the intrinsic value of one share of Z Ltd. immediately before the demerger and immediately after the demerger; and
(iv) Calculate the gain, if any, per share to the shareholders of Z Ltd. arising out of the demerger.
4. (a) ABC Ltd. was incorporated on 1/5/2003 to take over the business of DEF and Co. from 1/1/2003. The Profit and Loss Account as given by ABC Ltd. for the year ending 31/12/2003 is as under :
Profit and Loss Account
To Rent and Taxes
To Salaries including Manager’s
salary of Rs. 85,000
To Carriage Outwards
To Printing and Stationery
To Interest on Debentures
To Sales Commission
To Bad Debts (related to sales)
To Underwriting Commission
To Preliminary Expenses
To Audit Fees
To Loss on Sale of Investments
To Net Profit 90,000
3,90,000 By Gross Profit
By Interest on Investments 10,64,000
Prepare a Statement showing allocation of pre–incorporation and post incorporation profits after considering the following informations:
(i) G.P. ratio was constant throughout the year.
(ii) Sales for January and October were 1½ times the average monthly sales while sales for December were twice the average monthly sales.
(iii) Bad Debts are shown after adjusting a recovery of Rs. 7,000 of Bad Debt for a sale made in July, 2000.
(iv) Manager’s salary was increased by Rs. 2,000 pm from 1/5/2003.
(v) All investments were sold in April, 2003.
(b) A company gas given counter guarantees of Rs. 2.25 crores to various banks in respect of the guarantees given by the said banks in favour of Government authorities. Outstanding counter guarantees as at the end of financial year 2003–2004 were Rs. 1.95 crores. How should this information be shown in the Financial Statements of the Company. 4 (0)
5. (a) At the end of the financial year ending on 31st December, 2003, a company finds that there are twenty law suits outstanding which have not been settled till the date of approval of accounts by the Board of Directors. The possible outcome as estimated by the Board is as follows :
In respect of five cases (Win)
Next ten cases (Win)
Lose (Low damagees)
Lose (High damagees)
Remaining five cases (Win)
Lose (Low damagee)
Lose (High damagee) Probability
20% Loss (Rs.)
Outcome of each case is to be taken as a separate entity. Ascertain the amount of contingent loss and the accounting treatment in respect thereof.
(b) Z Ltd. presents the following information for the year ending 31/3/2002 and 31/3/2003 from which you are required to calculate the Deferred Tax Asset/Liability and state how the same should be dealt with as per relevant accounting standard.
Unabsorbed carry forward business loss
and depreciation allowance
Disallowance under Section 43/B of
Income Tax Act, 1961
Deferred Revenue Expenses
Provision for Doubtful Debts 31/3/2002
Z Ltd. had incurred a loss of Rs. 504 lakhs for the year ending 31/3/2003 before providing for Current Tax of Rs. 26,000 lakhs.
(c) From the following information taken from the books of F Ltd. relating to staff and community benefits, prepare a statement classifying the various items under the appropriate heads.
Generation of Job Opportunities
Increase in cost of living in the vicinity due to a thermal power station
Concessional transport, water supply
Extra work put in by staff and officers for drought relief
Leave encashment and leave Travel benefits
Educational facilities for children of staff members
Subsidised canteen facilities
Generation of business 20,10,000
6. (a) Briefly describe the progress made by India so far in the field of human resource accounting. 4×4=16 (0)
(b) What do you mean by restricted funds and unrestricted funds as found in the books of account of non–for–profit organisations? (0)
(c) Distinguish between mandatory transfers and non–mandatory transfers made by a college in its books of account. (0)
(d) Explain currency options related to foreign exchange. (0)