CA PCC Question Papers Group I Advanced Accounting November 2010

CA PCC Question Papers Group I

Advanced Accounting-Nov 2010

 

This Paper has 17 answerable questions with 0 answered.


Total No. of Questions — 7]
Time Allowed : 3 Hours

Maximum Marks : 100
Q.No. 1 is compulsory.
Answer any five questions from the remaining six questions.
Working notes should form part of the answer.
Wherever necessary suitable assumptions should be made by the candidates.
Marks
1. (a) NDA Corporation is engaged in research on a new process design for its product. It had incurred an expenditure of Rs. 530 lakhs on research upto 31st March, 09.
The development of the process began on 1st April, 09 and Development phase expenditure was Rs. 360 lakhs upto 31st March, 10 which meets assets recognition criteria.
From 1st April, 10, the company will implement the new process design which will result inafter tax saving of Rs. 80 lakhs per annum for the next five years.
The cost of capital of company is 10%.
Explain:
(1) Accounting treatment for research expenses.
(2) The cost of internally generated intangible asset as per AS 26.
(3) The amount of amortization of the assets. (The present value of annuity factor of Rs. 1 for 5 years @ 10% = 3.7908)
4×5=20 (0)
(b) As on 31st March 2009, Strong Bank Ltd. has a balance of Rs. 27 crores in “rebate on bills discounted” account. The bank provides you the following further information:
(1) During the financial year ending 31st March 2010, Strong Bank Ltd. discounted bills of exchange of Rs. 4,000 crores charging interest @ 15% p.a. and the average period of discount being 146 days.
(2) Bills of exchange of Rs. 600 crores were due for realization from the acceptors/customers after 31st March 2010, the average period outstanding after 31st March 2010, being 73 days.
You are required to pass necessary journal entries in the books of Strong Bank Ltd. for the above transactions. (0)
(c) On 20th October, 2009, the godown and business premises of Aman Ltd. were affected by fire. From the salvaged accounting records, the following information is available.
Rs.
Stock of goods @ 10% lower than cost as on 31st March,09
Purchases less returns (1.4.09 to 20.10.09)
Sales less returns (1.4.09 to 20.10.09) 2,16,000
2,80,000
6,20,000
Additional information:
(1) Sales upto 20th October, 09 includes Rs. 80,000 for which goods had not been dispatched.
(2) Purchases upto 20th October, 09 did not include Rs. 40,000 for which purchase invoices had not been received from suppliers, though goods have been received in Godown.
(3) Past records show the gross profit rate of 25%.
(4) The value of goods salvaged from fire Rs. 31,000.
(5) Aman Ltd. has insured their stock for Rs. 1,00,000.
Compute the amount of claim to be lodged to the insurance company. (0)
(d) On 25th September, 2009, Planet Advertising Limited obtained advertisement rights for World Cup Hockey Tournament to be held in Nov./Dec., 2009 for Rs. 520 lakhs.
They furnish the following information:
(1) The company obtained the advertisements for 70% of available time for Rs. 700 lakhs by 30th September, 09.
(2) For the balance time they got bookings in October, 09 for Rs. 240 lakhs.
(3) All the advertisers paid the full amount at the time of booking the advertisements.
(4) 40% of the advertisements appeared before the public in Nov. 09 and balance 60% appeared in the month of December, 09.
You are required to calculate the amount of profit/loss to be recognized for the month November and December, 2009 as per Accounting Standard–9. (0)
2. P, Q, R are three doctors who are running a Polyclinic. Their capital on 31st March, 2009 was Rs. 1,00,000 each. They agreed to admit X, Y and Z as partners w.e.f. 1st April 2009. The terms for sharing profits & losses were as follows:
(a) 70% of the visiting fee is to go to the specialist concerned.
(b) 50% of the chamber fee will be payable to the individual specialist.
(3) 40% of operation fee and fee for pathological reports, X–rays and ECG will accrue in favour of the doctor concerned.
(d) Balance of profit or loss is shared equally.
(e) All the partners are entitled for 6% interest on capital employed.
They further agreed that:
(i) X, Y and Z brought in Rs. 20,000 each as goodwill. Goodwill is shared by the existingpartners equally.
(ii) X, Y and Z brought in Rs. 50,000 each as capital. Each of the original partners also contributed Rs. 50,000 by way of capital.
The receipts for the year after admission of new partners were:
Name of
doctors Particulars Visiting Fees
(Rs.) Chambers Fees
(Rs.) Fees for reports,
operation etc.
(Rs.)
P General Physician 1,50,000 1,50,000
Q Gynecologist 25,000 1,75,000 1,00,000
R Cardiologist – 1,00,000 75,000
X Child Specialist 1,00,000 1,50,000 –
Y Pathologist – – 1,00,000
Z Radiologist – 40,000 2,00,000
Total 2,75,000 6,65,000 4,75,000
Expenses for the year were as follows:
Particulars Rs.
Medicines, injections and other consumables 1,00,000
Printing and stationery 5,000
Telephone expenses 5,000
Rent 42,000
Power and light 10,000
Nurses salary 20,000
Attendants wages 20,000
Total 2,02,000
Depreciation:
X–Ray machines 15,000
ECG equipments 5,000
Furniture 5,000
Surgical equipments 5,000
Total Depreciation 30,000
You are requested to:
(i) Pass necessary journal entries on admission of partners.
(ii) Prepare the Profit and Loss Account of the polyclinic for the year ended 31st March, 2010.
(iii) Prepare capital accounts of all the partners at the end of the financial year 2009–10. Also show the distribution of profit among partners.
16 (0)
3.
Balance Sheets as on 31st March, 2010
Liabilities Gee Ltd.
Rs. Pee Ltd
Rs. Assets Gee Ltd.
Rs. Pee Ltd
Rs.
Equity share capital
(Rs. 10 per share)
14% Preference
share capital
(Rs. 100 each)
General reserve
Export profit reserve
Investment
allowance reserve
Profit and loss
account
15% Debentures
(Rs. 100 each)
Trade creditors
Bills payables
Other current
liabilities 25,00,000

11,00,000


2,50,000
1,50,000

3,75,000

2,50,000

1,50,000
75,000

1,00,000 15,00,000

8,50,000


2,50,000
1,00,000
50,000

1,25,000

1,75,000

75,000
1,00,000

75,000 Buildings
Plant and machinery
Furniture and fixtures

Investments
Stock
Debtors
Bills receivables

Cash at bank 12,50,000
16,25,000
2,87,500

3,50,000
6,25,000
4,00,000
50,000

3,62,500 7,75,000
8,50,000
1,75,000

2,50,000
4,75,000
4,60,000
55,000

2,60,000
49,50,000 33,00,000 49,50,000 33,00,000
All the bills receivables of Pee Ltd. were having Gee Ltd.’s acceptances.
Gee Ltd. takes over Pee Ltd. on 1st April, 2010. The purchase consideration is discharged as follows:
(i) Issued 1,65,000 equity shares of ` 10 each at par to the equity shareholders of Pee Ltd.
(ii) Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of Pee Ltd. at 10% premium.
(iii) The debentures of Pee Ltd. will be converted into equivalent number of debentures of Gee Ltd.
(iv) The statutory reserves of Pee Ltd. are to be maintained for two more years.
(v) Expenses of amalgamation amounting to Rs. 10,000 will be borne by Gee Ltd.
Show the opening Journal entries and the opening balance sheet of Gee Ltd. as at 1st April, 2010 after amalgamation, on the assumption that the amalgamation is in the nature of the merger. 16 (0)
4. (a) Sunlife General Insurance Company submits the following information for the year ended 31st March 2010:
Particulars Direct Business
Rs. Reinsurance
Rs.
Premium received
Premium paid
Claims paid during the year
Claims payable

Claims received
Claims receivable

Expenses of management
Commission
On insurance accepted
On insurance ceded

1st April, 2009
31st March, 2010

1st April, 2009
31st March, 2010 65,75,000
……
42,50,000
6,25,000
7,18,000
……

2,30,000

1,50,000 9,50,000
4,75,000
5,00,000
87,000
60,000
3,25,000
65,000
1,10,000

11,000
14,000
The following additional information is also available:
(1) Expenses of management include Rs. 35,000 surveyor’s fee and Rs. 45,000 legal expenses for settlement of claims.
(2) Reserve for unexpired risk is to be maintained @ 40%. The balance of reserve for unexpired risk as on 1.4.09 was Rs. 24,50,000.
You are required to prepare the Revenue Account for the year ended 31st March, 2010. 8 (0)
(b) KG Limited furnishes the following Balance Sheet as at 31st March, 2010.
Liabilities (Rs. in lakhs) Assets (Rs. in lakhs)
Equity share capital
(fully paid up shares of
Rs. 10 each)
Securities premium
General reserve
Capital redemption
reserve
Profit & loss A/c
12% Debentures
Sundry creditors
Other current liabilities 1,200

175
265
200

170
750
745
196 Machinery

Furniture
Investment
Stock

Debtors
Cash at bank 1,800

 

226
74
600

260
740
3,700 3,700
On 1st April, 2010, the company announced the buy back of 25% of its equity shares @ Rs. 15 per share. For this purpose, it sold all of its investments for Rs. 75 lakhs.
On 5th April, 2010, the company achieved the target of buy back. On 30th April, 2010 the company issued one fully paid up equity share of Rs. 10 by way of bonus for every four equity shares held by the equity shareholders
You are required to:

(1) Pass necessary journal entries for the above transactions.
(2) Prepare Balance Sheet of KG Limited after bonus issue of the shares.
8 (0)
5. (a) On 1st April, 2009 XY Ltd. has 15,000 equity shares of ABC Ltd. at a book value of Rs. 15 per share (face value Rs. 10 per share). On 1st June, 2009, XY Ltd. acquired 5,000 equity shares of ABC Ltd. for Rs. 1,00,000 on cum right basis. ABC Ltd. announced a bonus and right issue.
(1) Bonus was declared, at the rate of one equity share for every five shares held, on 1st July 2009.
(2) Right shares are to be issued to the existing shareholders on 1st September 2009. The company will issue one right share for every 6 shares at 20% premium. No dividend was payable on these shares
(3) Dividend for the year ended 31.3.2009 were declared by ABC Ltd. @ 20%, which was received by XY Ltd. on 31st October 2009.
XY Ltd.
(i) Took up half the right issue.
(ii) Sold the remaining rights for Rs. 8 per share.
(iii) Sold half of its share holdings on 1st January 2010 at Rs. 16.50 per share. Brokerage being 1%.
You are required to prepare Investment account of XY Ltd. for the year ended 31st March 2010 assuming the shares are being valued at average cost. 8 (0)
(b) Income and Expenditure Account for the year ended 31st March, 2010 of South Asia Club is given below:
Expenditure Rs. Income Rs.
To Salaries & wages 47,500 By Subscription 75,000
To Miscellaneous expenses 5,000 By Entrance fee 2,500
To Audit fee 2,500 By Contribution for annual 7,500
To Executive’s honorarium 10,000 day (After deducting
To Sports day expenses 5,000 expenses Rs. 7,500)
To Printing & stationary 4,500
To Interest on bank loan 1,500
To Depreciation on sports
equipment 3,000
To Excess of income over
expenditure 6,000
85,000 85,000
Following additional information are also available:
31.3.2009
Rs. 31.3.2010
Rs.
(1)
(2)
(3)
(4)
(5) Subscription received in advance
Subscription outstanding
Salaries outstanding
Sports equipment (After deducting depreciation)
Cash in hand on 31-3-10 was ` 16,000. 4,500
6,000
4,000
26,000 2,700
7,500
4,500
27,000
(6) The club took a 5% loan of Rs. 30,000 from a bank during 2008-09 for which interest was not paid in the financial year 2009–10.
Prepare Receipts and Payments account of South Asia Club for the year ending 31st March 2010. 8 (0)
6. (a) From the following information of M/s Chennai Traders, you are required to prepare Hire Purchase Trading Account to ascertain the profit made during the financial year 2009–10.
Chennai Traders sell goods on hire purchase basis at cost plus 25% . The following details are available:
Rs.
(1) Instalment not due on 31st March, 2009 4,50,000
(2) Instalment due and collected during the financial year 2009–10 12,00,000
(3) Instalment due but not collected during the financial
year 2009-10 which includes ` 15,000 for which goods were repossessed 75,000
(4) Instalment not due on 31st March, 2010 including Rs. 30,000 for which
goods were repossessed 5,55,000
(5) Instalment collected on repossessed stock 22,500
(6) M/s Chennai Traders valued repossessed stock at 60% of original cost.
8 (0)
(b) A company had 16,000, 12% debentures of Rs. 100 each outstanding as on 1st April, 2009, redeemable on 31st March, 2010. On that day, sinking fund was Rs. 14,98,000 represented by 2,000 own debentures purchased at the average price of Rs. 99 and 9% stocks face value of Rs. 13,20,000. The annual instalment was Rs. 56,800.
On 31st March, 2010 the investments were realized at Rs. 98 and the debentures were redeemed. You are required to write up the following accounts for the year ending 31st March 2010:
(1) 12% Debentures account
(2) Debenture redemption sinking fund account.
8 (0)
7. Answer any four questions: 4×4=16
(a) “While calculating diluted earning per share, effect is given to all dilutive potential equity shares that were outstanding during that period.” Explain. Also calculate the diluted earnings per share from the following information:
Net profit for the current year
No. of equity shares outstanding
No. of 8% convertible debentures of Rs. 100 each
Each debenture is convertible into 10 equity shares
Interest expenses for the current year
Tax relating to interest expenses Rs.

Rs. 85,50,000
20,00,000
1,00,000

6,00,000
30%
(0)
(b) Gupta Traders keep their ledgers on the self balancing system. They provide you the following information for the year ended 31st March, 2010:
Rs.
Debtors balance on 1st April, 2009
Credit sales
Returns inward
Returns outward
Cash received from customers
Discount received
Acceptances received
Bills receivable dishonoured
Bad debts written off 1,37,250
68,100
1,200
1,800
76,800
2,010
25,500
3,600
7,500
You are required to prepare General Ledger Adjustment A/c in Sales Ledger of Gupta Traders.

(0)
(c) What is employee stock option plan? Explain the importance of such plans in the modern time. (0)
(d) A Ltd. purchased a machinery for Rs. 40 lakhs. (Useful life 4 years and residual value Rs. 8 lakhs) Government grant received is Rs. 16 lakhs.
Show the Journal Entry to be passed at the time of refund of grant and the value of the fixed assets, if:
(1) the grant is credited to fixed assets.
(2) the grant is credited to Deferred Grant A/c.
(0)
(e) “Recently a growing trend has developed for outsourcing the accounting function”. Explain the advantages and disadvantages of outsourcing the accounting functions. (0)

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