CA Final Question Papers Group I
Advanced Accounting Nov 2010
This Paper has 16 answerable questions with 0 answered.
Total No. of Questions — 7]
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, his answers in Hindi will not be valued.
Q.No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
1. (a) Albert Finance Ltd. has made the following investments.
(i) Purchased the following equity shares from stock exchange on 1st June, 2009.
Scrip Z 1,80,000
(ii) Purchased gold of Rs.3,00,000 on 1st April, 2006.
(iii) Invested in mutual funds at a cost of Rs.6,00,000 on 31st March, 2009.
(iv) Purchased government securities at a cost of Rs.5,00,000 on 1st April, 2009.
How will you treat these investments as per applicable AS in the books of the company for the year ended on 31st March, 2010, if the values of these investments are as follows :
Shares Rs. Rs.
Government securities 1,90,000
Also explain is it possible to off–set depreciation in investment in mutual funds against appreciation of the value of investment in government securities.?
(b) A Ltd. purchased fixed assets costing Rs.2,544 lakhs on 1st April, 2009 and the same was fully financed by foreign currency loan in U.S. Dollars, repayable in four equal annual instalments. Exchange rate at the time of purchase was 1 US Dollar = Rs.42.40. The first instalment was paid on 31st March, 2009 when 1 US Dollar fetched Rs.45.40. The entire loss on exchange was included in cost of goods sold of normal business operations. A. Ltd. provides depreciation on their fixed assets at 20% on WDV basis.
Show the correct accounting treatment with reference to relevant accounting standards.
(c) State the treatment of the following items with reference to Indian Accounting Standards (AS) and International Financial Reporting Standards (FFRS) :
(i) Impairment of assets
(ii) Business combinations
(d) The Chief Accountant of ANZ ltd , gives the following data regarding its six segments:
Rs. in Lakhs
Particulars M N O P Q R Total
Segment Revenue 40
The Chief Accountant is of the opinion that segments ‘M’ and ‘N’ alone should be reported. Is he justified in his view ? Discuss
2. The summarized B/S. of the following three companies are given below
Rs. in Lakhs
A. Ltd. B. Ltd. C. Ltd.
Liabilities as on 31st March, 2009
Equity shares (Rs.10 each fully paid up)
7 1/2% Cum. Pref. Shares (Rs.100 each fully paid)
Capital reserve on revaluation of land, buildings and machinery
8% 2,500 Mortgage Debenture Bonds of Rs.1,000 each
Secured loans and advances from banks
Unsecured loans :
(i) From B Ltd.
(ii) From C Ltd.
(iii) Deposits from public
Current liabilities and provisions
(i) Inter–company balances
(ii) Other liabilities and provisions 60
Total 754 283 199
Fixed Assets (Net)
Investments (at cost)
2,50,000 Equity Shares of B Ltd.
80,000 Equity Shares of C Ltd.
1,60,000 Equity Shares of C Ltd.
10,000 Cumulative Pref. Shares of A Ltd.
1,500 Mortgage Debentures of A Ltd.
Profit and Loss Account 272
Total 754 283 199
(i) A Ltd. subscribed for the shares of B Ltd. & C Ltd. at par at the time of first issue of shares by the latter companies.
(ii) B Ltd. subscribed for 80,000 shares of C Ltd. at par at the time of first issue and latter acquired by purchase in the market 80,000 shares of C Ltd. at Rs.15 each when reserves and surplus of C Ltd. stood at Rs.5 lakhs.
(iii) Current Assets of B Ltd. & C Ltd. included Rs.4 lakhs and Rs.6 lakhs respectively being the current accounts balance against A Ltd. These accounts remained unreconciled.
(iv) Preference dividends were in arrears for
(a) 8 years in the case of A Ltd. and
(b) 4 years in the case of other two companies.
Prepare the Consolidated Balance Sheet for the year as on 31st March, 2009.
3. Libra Ltd. has two divisions A and B and their respective shares of various Assets and Liabilities in the company’s Balance Sheet as on 31st March, 2009 are given below :
Rs. in Lakhs
Fixed Assets A
Written down value
Less: Current Liabilities
Net Current Assets
Equity share capital–shares of Rs.10 each
Reserve and Surplus 650
Division B has been invariably suffering losses. The company sold this division B along with its assets and liabilities to a newly formed company. Zee Ltd, which was incorporated with an authorized capital of Rs.800 lakhs divided into shares of Rs.10 each. Zee Ltd. allotted to Libra Ltd’s shareholders its two fully paid equity shares of Rs.10 each at par for every fully paid equity shares of Rs.10 each held in Libra Ltd. as discharge of consideration for the division taken over.
Zee Ltd. recorded in its books the fixed assets at Rs.280 lakhs, current assets at Rs.320 lakhs and liabilities at the same value at which they appeared in the books of Libra Ltd.
On 1st April, 2009 Libra Ltd. sold all its investments for Rs.135 lakhs and redeemed debentures liability of Rs.150 lakhs at par, which was included in loan funds. The cashtransaction being recorded in the Bank Account pertaining to A division.
You are required to:
(i) Show Journal Entries in the Books of Libra Ltd.
(ii) Prepare Libra Ltd’s Balance Sheet immediately after the Demerger and
(iii) Initial Balance Sheet of Zee Ltd.
4. The Balance Sheet of Bird Ltd. as on 31st March, 2009 is given below:
Liabilities Rs. Rs. Assets Rs.
Equity shares of Rs.10 each
Less: Calls in arrear
(Rs.2 for final call)
7% Preference Shares of
Rs.10 each fully paid
Reserve and surplus:
Profit and Loss Account
2,00,000 Fixed Assets:
Cash at Bank
(i) On 1–4–2006 a new furniture costing Rs.20.000 was purchased and wrongly charged to revenue. No rectification has yet been made tor above. Depreciation charged on furniture is @ 10% on reducing system.
(ii) Fixed Assets are worth 15% above their actual Book Value.
(iii) Stock is overvalued by Rs.50,000 and 10% Debtors are doubtful.
(iv) Of the investments, 10% is in Trade and the balance Non–Trade. Trade investmentsare to be valued at 10% below cost. A uniform rate of dividend of 10% is earned on allinvestments.
(v) For the purpose of valuation of shares, goodwill is to be considered on the basis of 2 years’ purchase of super profits based on average profit of last 3 years. Profits are as follows :
(vi) In a similar business normal return on capital employed is 20%.
You are required to value each fully paid and partly–paid equity share, assuming tax rate of 50%.
5. (a) S Ltd. is considering buying the business of R Ltd., the final accounts of which for the last 3 years were as follows :
Profit and Loss Accounts for the 3 years ended Dec.31st
(Figures in Rs.)
2007 2008 2009
Net profit 8,000 2,000 16,000
Balance Sheets as at 31st Dec.
(Figures in Rs.)
2006 2007 2008 2009
(at cost) less Depreciation 1,00,000
30,000 38,000 45,000 71,000
Stock in trade
Cash in hand and at bank
Prepaid expenses 16,000
1,00,000 90,500 1,19,500 1,34,200
Accrued Expenses 50,000
1,00,000 90,500 1,19,500 1,34,200
S Ltd. wishes the offer to be based upon trading cash flows rather than book profits. By trading cash flow is meant cash received from debtors less cash paid to creditors and for business expenses (excluding depreciation), together with an allowance for average annual expenditure on fixed assets of Rs.15,000 per year.
The actual expenditure on fixed assets is to be ignored, as is any cash received or paid out on the issue or redemption of shares or debentures.
S Ltd. wishes the trading cash flow to be calculated for each of the years 2007, 2008 and 2009 and for these to be combined using weighting of 20% for 2007, 30% for 2008 and 50% for 2009 to give an average annual trading cash flow.
S Ltd. considers that the average annual trading cash flow should show a return of 10% on its investment.
You are required to calculate :
(a) the trading cash flow for each of the years 2007, 2008 & 2009,
(b) the weighted average annual trading cash flow
(c) the price which S Ltd. should offer for the business.
(b) From the following information of Steel India Ltd. tor the year ended 31st March, 2010, prepare their Social Balance Sheet as on that date.
A specialist has valued their human assets at Rs.828 lakhs.
Then investments were classified as :
Residential Hospital School Welfare
– Water, Electricity and gas supply systems totalled Rs.1 lakh.
– Their net owned funds were Rs.26 lakhs.
6. (a) The following is the Profit and Loss Account of Murali Ltd., ior the year ended 31st March, 2010. Prepare a gross value added statement or Murali Ltd.
Profit and Loss Account for the year ended 31st March, 2010.
Rs. in Lakhs
Production and operational expenses (a)
Administrative expenses (factory) (b)
Profit before tax
Provision for taxation
Profit after tax
Balance as per last Balance Sheet
Transferred to General Reserve
Surplus carried to Balance Sheet
Rs. in Lakhs
(a) Production and Operational Expenses
Consumption of Raw materials
Consumption of stores
Salaries, wages, gratuities etc., (Admn)
Cess and local taxes
Other manufacturing expenses
(b) Administration expenses include salaries,
commission to Directors Rs.9.00 lakhs.
Provision for doubtful debts Rs.6.30 lakhs
(c) Interest on loan from Bank for working capital
Interest on loan from Bank for fixed loan
Interest on loan from financial institution for
Interest on Debentures 9
(d) The charges for taxation include a transfer of Rs.3.00 lakhs to the credit of Deferred tax account.
(e) Cess and local taxes include Excise Duty, which is equal to 10% of cost of bought–in materials.
(b) From the following in respect of loan funds of M/s Come together Foundation for 2009–10, prepare a statement showing changes in fund balance during the year.
Private and Government grants
Loan fund matching grant from revenue funds
Other transfer from unrestricted funds
Interest on loans
Refunded to grantors
Loan cancellation and written off
Administrative and collection costs
Fund balance at the beginning of the year 5,00,000
7. Attempt any four 4×4=16
(a) An airline is required by law to overhaul its aircraft once in every three years. A company which operates aircraft’s does not provide any provision as required by law in its final account. Discuss with reference to relevant Accounting Standard. (0)
(b) A company purchased on April 1, 2010 a special purpose machinery for Rs.1 crore, and received Central Government subsidy for 25% of the price. Effective life of the machinery is 8 years. Explain the accounting treatment and quote the relevant AS. (0)
(c) An intangible item is appearing in the Balance Sheet of A Ltd. at Rs.15 lakhs on 1–4–2010. The item was acquired for Rs.25 lakhs on 1–4–2008. The enterprise has been following a policy of amortizing the intangible item over a period of 5 years on straight line basis. Applying paragraph 63 of AS–26 the enterprise determines the amortization period to be 8 years, being the best estimate of its useful life, from the date when the item was available for use i.e., April, 1, 2008. Comment. (0)
(d) Certain Ltd., has signed at 31st Dec, 2009, the Balance Sheet date, a contract where the total revenue is estimated at Rs.15 crores and total cost is estimated at Rs.20 crores. No work began on the contract. Is contractor required to give any accounting effect for the year ended December, 31st 2009 in his accounts ? (0)
(e) Can PT Ltd. a wire netting company, while valuing its finished stock at the year end include interest on Bank Overdraft as an element of cost, for the reason that overdraft has been taken specifically for the purpose of financing current assets like inventory and for meeting day to day working expenses ? (0)