Advanced Accounting Ca Ipcc Old

PAPER – 5 : ADVANCED ACCOUNTING
Question No.1 is compulsory.

Candidates are also required to answer any five questions from the remaining six questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) Legal Ltd. is engaged in the manufacturing of rubber. For its plant, it required machineries
of latest technology. It usually resorts to Long Term Foreign Currency Borrowings for its
fund requirements. On 1st April, 2017, it borrowed US $1 million from International Funding
Agency, USA when exchange rate was 1 $ = ` 63. The funds were used for acquiring
machineries, on the same date, to be used in three different plants. The useful life of the
machineries is 10 years and their residual value is ` 30,00,000.
Earlier also the company used to purchase machineries out of foreign borrowings. The
exchange differences arising on such borrowings were charged to profit and loss account
and were not capitalized even though the company had an option to capitalize it as per
notified AS 11.
Now for this new purchase of machinery, Legal Ltd, is interested to avail the option of
capitalizing the same to the cost of asset. Exchange rate on 31 st March, 2018 is 1 US $ =
` 62. Assume that on 31st March, 2018, Legal Ltd. is not having any old long term foreign
currency borrowings except for the amount borrowed for machinery purchased on 1st April,
2017.
Comment whether Legal Ltd. can capitalize the exchange difference to the cost of asset
on 31st March, 2018. If yes, then calculate the depreciation amount on machineries as on
31st March, 2018.
(b) Sun Limited leased a machine to Moon Limited on the following terms:
(Amount in ` )
Fair value at inception of lease 50,00,000
Lease Term 4 Years
Lease Rental per annum 16,00,000
Guaranteed residual value 3,00,000
Expected residual value 4,50,000
Implicit Interest rate 15%
© The Institute of Chartered Accountants of India

2 INTERMEDIATE (IPC) EXAMINATION: MAY, 2019
Discounted rates for 1st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575
and 0.5718 respectively.
Calculate the value of Lease Liability and ascertain Unearned Finance Income as per AS-
19.
(c) Net Profit for FY 2016-17 30,00,000
Net Profit for FY 2017-18 50,00,000
No. of shares outstanding prior to rights issue 20,00,000 shares
Rights Issue Price ` 20
Last day to exercise rights 1st June, 2017
Right issue is one new share for each five equity share outstanding (i.e. 4,00,000 new
shares)
Fair value of one equity share immediately prior to exercise of rights on 1st June, 2017 was
` 26.00.
Compute Basic Earnings Per Share for FY 2016-17, FY 2017-18 and restated EPS for FY
2016-17.
(d) How would you treat the following in the accounts in accordance with AS-12 'Government
Grants'?
(i) ` 35 Lakhs received from the Local Authority for providing Medical facilities to the
employees.
(ii) ` 100 Lakhs received as Subsidy from the Central Government for setting up a unit
in a notified backward area.
(iii) ` 10 Lakhs Grant received from the Central Government on installation of anti-
pollution equipment. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) As per paragraph 46A of AS 11, ‘The Effects of Changes in Foreign Exchange Rates’, in
respect of accounting periods commencing on or after 1 st April, 2011, for an enterprise
which had earlier exercised the option under paragraph 46 or not (such option to be
irrevocable and to be applied to all such foreign currency monetary items), the exchange
differences arising on reporting of long term foreign currency monetary items at rates
different from those at which they were initially recorded during the period, or reported in
previous financial statements, in so far as they relate to the acquisition of a depreciable
capital asset, can be added to or deducted from the cost of the asset and shall be
depreciated over the balance life of the asset.

PAPER – 5 : ADVANCED ACCOUNTING 3
Accordingly, though Legal Ltd. had not earlier exercised the option, yet it can avail the
option to capitalize the exchange difference to the cost of machinery by virtue of para 46A
of AS 11. Further, since Legal Ltd. has no earlier long term foreign currency borrowings,
it is not required to apply capitalization option to earlier borrowing also.
Exchange difference to be capitalized and depreciation amount `
Cost of the asset in $ 1 million
Exchange rate on 1st April, 2017 ` 63 = 1$
Cost of the asset in ` (1 million x ` 63) 63 million
Less: Exchange differences as on (Gain)
31st March, 2018 (63-62) x $ 1 million (1 million)
62 million
Less: Depreciation for 2017-18 (62 million - 3 million) /10
years (5.90 million)
56.10 million
(b) According to para 11 of AS 19 “Leases”, the lessee should recognise the lease as an asset
and a liability at an amount equal to the fair value of the leased asset at the inception of
the finance lease. However, if the fair value of the leased asset exceeds the present value
of the minimum lease payments from the standpoint of the lessee, the amount recorded as
an asset and a liability should be the present value of the minimum lease payments from
the standpoint of the lessee. In calculating the present value of the minimum lease
payments the discount rate is the interest rate implicit in the lease. Present value of
minimum lease payments will be calculated as follows:
Year Minimum Lease Payment Internal rate of return Present value
` (Discount rate @15%) `
1 16,00,000 0.8696 13,91,360
2 16,00,000 0.7561 12,09,760
3 16,00,000 0.6575 10,52,000

4 19,00,000 0.5718 10,86,420
Total 67,00,000 47,39,540
Present value of minimum lease payments i.e. ` 47,39,540 is less than fair value at the
inception of lease i.e. ` 50,00,000, therefore, the value of lease is ` 47,39,540 and lease
liability should be recognized in the books at ` 47,39,540 as per AS 19.

Minimum Lease Payment of 4th year includes guaranteed residual value amounting i.e 16,00,000 + 3,00,000 =19,00,000.

Calculation of Unearned Finance Income

As per AS 19 on Leases, unearned finance income is the difference between (a) the gross
investment in the lease and (b) the present value of minimum lease payments under a
finance lease from the standpoint of the lessor; and any unguaranteed residual value
accruing to the lessor, at the interest rate implicit in the lease.
Where:
(a) Gross investment in the lease is the aggregate of (i) minimum lease payments from
the stand point of the lessor and (ii) any unguaranteed residual value accruing to the
lessor.
Gross investment = Minimum lease payments + Unguaranteed residual value
= [Total lease rent + Guaranteed residual value(GRV)] + Unguaranteed residual
value (URV)
= [(` 16,00,000 4 years) + ` 3,00,000] + ` 1,50,000 = ` 68,50,000
(b) Present value of minimum lease payment from Lessor’s view point lease liability
` 47,39,540 + present value of (URV) unguaranteed residual value (` 1,50,000 x
0.5718) = ` 48,25,310
Unearned Finance Income = (a) – (b) = ` 68,50,000 – ` 48,25,310= ` 20,24,690
(c) Computation of Basic Earnings Per Share (as per AS 20 Earnings Per Share)
Year Year
2016-17 2017-18
` `
EPS for the year 2016-17 as originally reported
Net Profitof the year attributable to equity shareholders
=
Weighted average number of equity shares outstanding during the year
= (` 30,00,000 / 20,00,000 shares) 1.5

EPS for the year 2016-17 restated for rights issue
= [` 30,00,000 / (20,00,000 shares  1.04 )] 1.44
(approx.)
EPS for the year 2017-18 including effects of rights issue
` 50,00,000
(20,00,000 shares  1.04  2 / 12)  (24,00,000 shares  10 / 12)
` 50,00,000/ 23,46,667 shares 2.13

(approx.)

Refer working note 2.

Working Notes:
1. Computation of theoretical ex-rights fair value per share
Fair value of all outstanding shares immediately prior to exercise of rights + Total amount received from exercise
Number of shares outstanding prior to exercise + Number of shares issued in the exercise
(` 26 x 20,00,000 shares) + (` 20 x 4,00,000 shares)

=
20,00,000 shares + 4,00,000 shares
` 6,00,00,000
  ` 25
24,00,000 shares
2. Computation of adjustment factor
Fair v alue per share prior to ex ercise of rights ` 26
 = = 1.04 (approx.)
Theoretical ex - rights v alue per share ` 25 (Refer Working Note 1)
(d) (a) ` 35 lakhs received from the local authority for providing medical facilities to the
employees is a grant received in the nature of revenue grant. Such grants are
generally presented as a credit in the profit and loss statement, either separately or
under a general heading such as ‘Other Income’. Alternatively, ` 35 lakhs may be
deducted in reporting the related expense i.e. employee benefit expenses.
(b) As per AS 12 ‘Accounting for Government Grants’, where the government grants are
in the nature of promoters’ contribution, i.e. they are given with reference to the total
investment in an undertaking or by way of contribution towards its total capital outlay
and no repayment is ordinarily expected in respect thereof, the grants are treated as
capital reserve which can be neither distributed as dividend nor considered as
deferred income.
In the given case, the subsidy received from the Central Government for setting up a
unit in notified backward area is neither in relation to specific fixed asset nor in relation
to revenue. Thus, amount of ` 100 lakhs should be credited to capital reserve.
(c) ` 10 lakhs grant received for installation anti-pollution equipment is a grant related to
specific fixed asset. Two methods of presentation in financial statements of grants
related to specific fixed assets are regarded as acceptable alternatives. Under first
method, the grant is shown as a deduction from the gross value of the asset
concerned in arriving at its book value. The grant is thus recognised in the profit and
loss statement over the useful life of a depreciable asset by way of a reduced
depreciation charge. Under the second method, grants related to depreciable assets
are treated as deferred income which is recognised in the profit and loss statement
on a systematic and rational basis over the useful life of the asset.

Thus, ` 10 lakhs may either be deducted from the cost of equipment or treated as
deferred income to be recognized on a systematic basis in profit & Loss A/c over the
useful life of equipment.
Question 2
A & B are partners in AB & Co. sharing Profit/Loss in the ratio of 3:2 and B & C are partners in
BC & Co. sharing Profit/Loss in the ratio of 2: 1 carrying on same type of business. On 1st April,
2019, A, B & C decide to form a new Partnership Firm ABC & Co. by amalgamating AB & Co.
and BC & Co. A, B & C will share Profit/Loss in the ratio of 3:2:1 in ABC & Co.
Their Balance Sheets on 1st April, 2019 were as under:
Liabilities AB & Co. BC & Co. Assets AB & Co. BC & Co.
(` ) (` ) (` ) (` )
Capital Building 20,000 10,000
A 66,000 - Plant & Machinery 21,000 29,000
B 67,000 50,000 Vehicles 15,000 5,000
C - 48,000 Furniture 4,000 7,500
Reserves 10,000 5,000 Stock 50,500 19,500
Sundry Creditors Sundry Debtors
- Others 41,000 38,000 - Others 43,500 37,000
- BC &Co. 15,000 - - AB & Co. - 15,000
- XYZ & Co. - 9,000 - XYZ & Co. 25,000 -
Cash at Bank 15,000 18,000
Cash in Hand 5,000 9,000
1,99,000 1,50,000 1,99,000 1,50,000
Following are the terms for the amalgamation:
(a) Goodwill will be valued at ` 25,000 for AB & Co. and ` 18,000 for BC & Co. But same will
not appear in the books of the new firm.
(b) Building was taken over as follows:
• Building of AB & Co. was valued with upward revision of ` 10,000
• Building of BC & Co. valued at ` 16,000.
(c) Plant & Machinery to be taken over with downward valuation by ` 2,000 of AB & Co. and
with new value of ` 32,000 of BC & Co.
(d) Value of vehicles to be taken over was reduced by ` 5,000 of AB & Co. and reduced to
` 2,000 of BC & Co.

(e) Excess/Deficit Capitals for partners taking A's Capital as base with reference to share in
profits are to be transferred to Current Accounts.
You are required to prepare Balance Sheet of the new firm and Capital Accounts of the partners
in the books of old firm. (16 Marks)
Answer
Balance Sheet of ABC & Co. as at 1st April, 2019
Liabilities ` Assets `
Partners’ Capital Accounts: Building (30,000 + 16,000) 46,000
A 67,300 Plant & machinery
B 44,867 (19,000+32,000) 51,000
C 22,433 Furniture (4,000+ 7,500) 11,500
1,34,600 Vehicles (10,000+ 2,000) 12,000
Partners’ Current Accounts: Stock-in-trade
B 92,333 (50,500+19,500) 70,000
C 28,067 1,20,400
Sundry creditors (41,000+38,000) 79,000 Sundry debtors:
Others 80,500
XYZ Co. 16,000 96,500
Bank balance
(15,000+18,000) 33,000
Cash in hand 14,000
3,34,000 3,34,000
Partners’ Capital Accounts in the books of AB & Co.

Particulars A B Particulars A B
` ` ` `
To Capital A/cs- 88,800 82,200 By Balance b/d 66,000 67,000
ABC & Co. By Reserve (3:2) 6,000 4,000
By Profit on Realization
A/c (W.N.3) 16,800 11,200
88,800 82,200 88,800 82,200

Partners’ Capital Accounts in the books of BC & Co.

Particulars B C Particulars B C
` ` ` `
To Capital A/cs - By Balance b/d 50,000 48,000
ABC & Co. 69,333 57,667 By Reserve (2:1) 3,333 1,667
By Profit on
Realization 16,000 8,000
(W.N.4)
69,333 57,667 69,333 57,667
Working Notes:
1. Computation of purchase consideration
AB & Co. BC & Co.
` `
Assets:
Goodwill 25,000 18,000
Building 30,000 16,000
Plant & machinery 19,000 32,000
Vehicles 10,000 2,000
Stock-in-trade 50,500 19,500
Furniture 4,000 7,500
Sundry debtors 43,500 37,000
Bank balance 15,000 18,000
Cash in hand 5,000 9,000
Due from AB & Co. - 15,000
Due from XYZ & Co. 25,000 -
(A) 2,27,000 1,74,000
Liabilities:
Creditors 41,000 38,000
Due to BC & Co. 15,000 -
Due to XYZ & Co. - 9,000
(B) 56,000 47,000
Purchase consideration (A-B) 1,71,000 1,27,000

2. Computation of proportionate capitals and capital adjustments

A B C Total
` ` ` `
Balance transferred from AB & Co. 88,800 82,200 1,71,000
Balance transferred from BC & Co. 69,333 57,667 1,27,000
88,800 1,51,533 57,667 2,98,000
Less: Goodwill written off in the ratio
of 3:2:1 (21,500) (14,333) (7,167) (43,000)
Existing capital 67,300 1,37,200 50,500 2,55,000
Total Capital in the ratio of 3:2:1 67,300 44,867 22,433
taking A’s Capital as base
Amount to be transfer to current - 92,333 28,067
accounts
3. In the books of AB& Co.

Realization Account
` `
To Building 20,000 By Creditors 41,000
To Plant & machinery 21,000 By Dues to BC & Co. 15,000
To Furniture 4,000 By ABC & Co. (purchase 1,71,000
To Vehicles 15,000 consideration) (W.N.1)
To Stock-in-trade 50,500
To Sundry debtors 43,500
To Bank balance 15,000
To Cash in hand 5,000
To Due from XYZ & Co. 25,000
To Partners’ capital A/cs:
A 16,800
B 11,200 28,000
2,27,000 2,27,000
4. In the books of BC & Co.
Realization Account
` `
To Building 10,000 By Creditors 38,000

To Plant & machinery 29,000 By Due to XYZ & Co. 9,000

To Vehicles 5,000 By ABC & Co. 1,27,000
To Stock-in-trade 19,500 (purchase consideration)
To Furniture 7,500 (W.N.1)
To Sundry debtors 37,000
To Bank balance 18,000
To Cash in hand 9,000
To Due from AB & Co. 15,000
To Partners’ capital
A/cs:
B 16,000
C 8,000 24,000
1,74,000 1,74,000
Question 3
(a) Following is the summarized Balance Sheet of Competent Limited as on 31 st March, 2013:
Equity Shares of ` 10 each fully paid up 15,00,000 Fixed Assets 61,80,000
Revenue reserve 18,00,000 Current Assets 30,00,000
Securities Premium 3,00,000
Profit & Loss Account 1,50,000
Secured Loans:
12% Debentures 22,50,000
Unsecured Loans 12,00,000
Current maturities of long term 19,80,000
borrowings
Total 91,80,000 Total 91,80,000
The company wants to buy back 30,000 equity shares of ` 10 each, on 1st April, 2013 at
` 20 per share. Buy back of shares is duly authorized by its articles and necessary
resolution has been passed by the company towards this. The payment for buy back of
shares will be made by the company out of sufficient bank balance available shown as part
of Current Assets.
Comment with your calculations, whether buy back of shares by company is within the
provisions of the Companies Act, 2013. If yes, pass necessary journal entries towards buy
back of shares.

(b) Diamond Ltd. came out with an issue of 50,00,000 Equity Shares of ` 10 each, ` 2.5 to be
paid at application and ` 3.5 to be paid at allotment. The Promoters took 20% of the issue
and balance was offered to Public. The issue was underwritten by Gold, Silver, Copper &
Iron equally. Underwriters were entitled to the maximum commission permitted by the law
on the amounts underwritten.
Gold, Copper, Silver & Iron also agreed on 'Firm' Underwriting of 1,00,000, 50,000, 75,000
& 25,000 shares respectively.
Subscriptions for 35,00,000 (including firm underwriting applications by under writers)
Equity Shares were received with Marked forms for the Underwriters as under:
Gold -15,00,000, Copper-5,00,000, Iron -2,50,000, Silver-10,00,000. You are required to
(Assuming Benefit of Underwriting is not given to Underwriters):
1. Compute the Underwriters' Liability in number of shares.
2. Compute the amount payable to Underwriters.
3. Pass the Journal entries (related to transactions with underwriters only) in the books
of Diamond Ltd.· (8 + 8 = 16 Marks)
Answer
(a) Determination of Buy back of maximum no. of shares as per the Companies Act, 2013
1. Shares Outstanding Test
Particulars Shares
Number of shares outstanding 1,50,000
25% of the shares outstanding 37,500
Actual Number of shares proposed for buy back 30,000
2. Resources Test: Maximum permitted limit 25% of Equity paid up capital + Free
Reserves
Particulars
Paid up capital (`) 15,00,000
Free reserves (`) (18,00,000 + 3,00,000 + 1,50,000) 22,50,000
Shareholders’ funds (`) 37,50,000
25% of Shareholders fund (`) 9,37,500
Buy back price per share ` 20
Number of shares that can be bought back 46,875
Actual number of shares proposed for buy back 30,000

3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds
post Buy Back
Particulars `
(a) Loan funds (`) (22,50,000+12,00,000+19,80,000) 54,30,000
(b) Minimum equity to be maintained after buy back in the
ratio of 2:1 (`) (a/2) 27,15,000
(c) Present equity/shareholders fund (`) 37,50,000
(d) Future equity/shareholders fund (`) (see W.N.) 34,05,000
(37,50,000 – 3,45,000)
(e) Maximum permitted buy back of Equity (`) [(d) – (b)] 6,90,000
(f) Maximum number of shares that can be bought back @ 34,500 shares
` 20 per share
(g) Actual Buy Back Proposed 30,000 Shares
Summary statement determining the maximum number of shares to be bought
back
Particulars Number of shares
Shares Outstanding Test 37,500
Resources Test 46,875
Debt Equity Ratio Test 34,500
Maximum number of shares that can be bought back 34,500
[least of the above]
Company qualifies all tests for buy-back of shares and came to the conclusion that it can
buy maximum 34,500 shares on 1 st April, 2013.
However, company wants to buy-back only 30,000 equity shares @ ` 20. Therefore, buy-
back of 30,000 shares, as desired by the company is within the provisions of the
Companies Act, 2013.

As per Section 68 (2) (d) of the Companies Act 2013, the ratio of debt owed by the company should not be more than twice
the capital and its free reserves after such buy-back. Further under Section 69 (1), on buy-back of shares out of free reserves a
sum equal to the nominal value of the share bought back shall be transferred to Capital Redemption Reserve (CRR). As per
section 69 (2) utilization of CRR is restricted to fully paying up unissued shares of the Company which are to be issued as fully
paid-up bonus shares only. It means CRR is not available for distribution as dividend. Hence, CRR is not a free reserve.
Therefore, for calculation of future equity i.e. share capital and free reserves, amount transferred to CRR on buy -back has to be
excluded from the present equity.

Journal Entries for buy-back of shares

Debit (` ) Credit (` )
(a) Equity shares buy-back account Dr. 6,00,000
To Bank account 6,00,000
(Being buy back of 30,000 equity shares of ` 10 each
@ ` 20 per share)
(b) Equity share capital account Dr. 3,00,000
Securities premium account Dr. 3,00,000
To Equity shares buy-back account 6,00,000
(Being cancellation of shares bought back)
(c) Revenue reserve account Dr. 3,00,000
To Capital redemption reserve account 3,00,000
(Being transfer of free reserves to capital redemption
reserve to the extent of nominal value of capital bought
back through free reserves)
Working Note:
Amount transferred to CRR and maximum equity to be bought back will be calculated by
simultaneous equation method.
Suppose amount transferred to CRR account is ‘x’ and maximum permitted buy-back of
equity is ‘y’.
Then
Equation 1: (Present equity – Nominal value of buy-back transfer to CRR) – Minimum
equity to be maintained = Maximum permissible buy-back of equity
(37,50,000 – x) – 27,15,000 = y
10,35,000 – x = y (1)
 Maximum buy - back 
Equation 2:  x Nominal Value 
 Offer price for buy - back 
= Nominal value of the shares bought –back to be transferred to CRR
y 
 10  = x Or 2x = y (2)
 20 
2x = 10,35,000 – x
by solving the above equations, we get

x = ` 3,45,000
y = ` 6,90,000
(b) (i) Calculation of liability of each underwriter (in shares) if the benefit of firm
underwriting is not given to individual underwriters
(Number of shares)
Gold Copper Silver Iron Total

Gross Liability (Total
Issue – Issued to
Promoters, Director s
i.e. 50,00,000 x 0.8) 10,00,000 10,00,000 10,00,000 10,00,000 40,00,000
Less: Marked
applications (excluding
firm underwriting) (15,00,000) (5,00,000) (10,00,000) (2,50,000) (32,50,000)
Balance (5,00,000) 5,00,000 - 7,50,000 7,50,000
Less: Surplus of Gold
allocated to Copper
and Iron in the equal
ratio 5,00,000 (2,50,000) - (2,50,000)
Balance - 2,50,000 - 5,00,000 7,50,000
Less: Firm underwriting
is treated as Unmarked
applications in the ratio
of gross liability (Refer
W.N.) (62,500) (62,500) (62,500) (62,500) (2,50,000)
(62,500) 1,87,500 (62,500) 4,37,500 5,00,000
Less: Surplus of Gold
and silver allocated to
Copper and Iron
in the equal ratio 62,500 (62,500) 62,500 (62,500)
Net Liability - 1,25,000 - 3,75,000 5,00,000
Add: Firm underwriting 1,00,000 50,000 75,000 25,000 2,50,000
Total Liability 1,00,000 1,75,000 75,000 4,00,000 7,50,000

Working Note:
Number of unmarked applications:
Total subscription (excluding firm underwriting) 32,50,000 shares
Less: Marked applications (excluding firm underwriting)
(15,00,000 + 5,00,000 + 2,50,000+10,00,000) 32,50,000 shares
Unmarked applications by public Nil shares
Add: Applications under firm underwriting 2,50,000 shares
2,50,000 shares
(ii) Computation of amounts payable by underwriters

Gold Copper Silver Iron
Liability towards shares to be 1,00,000 1,75,000 75,000 4,00,000
subscribed
Amount due up to allotment at ` 6 6,00,000 10,50,000 4,50,000 24,00,000
per share
Less: Application money paid for
firm underwriting* at ` 2.50 per (2,50,000) (1,25,000) (1,87,500) (62,500)
share
Balance due from underwriters 3,50,000 9,25,000 2,62,500 23,37,500
Less: Commission (on Gross
Liability)
(5% on FV ` 10 each on 10 lakhs (5,00,000) (5,00,000) (5,00,000) (5,00,000)
shares)
Net amount to be Refunded to /
Paid by underwriters (1,50,000) 4,25,000 (2,37,500) 18,37,500
* Assuming that Application money has been paid by the underwriters
(iii) Journal Entries in the Books of Diamond Ltd.

Particulars Dr. Cr.
` `
Bank A/c Dr. 6,25,000
To Equity share application A/c 6,25,000
(Being application money received on firm
undertaking of 2,50,000 shares at ` 2.50 per
share)
Gold A/c Dr. 3,50,000
Copper A/c Dr. 9,25,000

Silver A/c Dr. 2,62,500

Iron A/c Dr. 23,37,500
Equity share application A/c Dr. 6,25,000
To Equity share capital A/c 45,00,000
(Being shares including firm underwritten shares
allotted to underwriters)
Underwriting Commission A/c Dr. 20,00,000
To Gold A/c 5,00,000
To Copper A/c 5,00,000
To Silver A/c 5,00,000
To Iron A/c 5,00,000
(Being underwriting commission on the shares
underwritten)
Bank A/c Dr. 22,62,500
To Copper A/c 4,25,000
To Iron A/c 18,37,500
(Being the amount received towards shares
allotted to underwriters less underwriting
commission due to them)
Gold A/c Dr. 1,50,000
Silver A/c Dr. 2,37,500
To Bank A/c 3,87,500
(Being the amount paid to underwriters after
settlement of underwriting commission due to them)
Note: It has been considered that Marked applications exclude firm underwriting shares.
Question 4
The following were summarized Balance sheet of Namo Ltd. and Raga Ltd. as at 31.03.2011:
Namo Ltd. Raga Ltd.
(` in lakhs) (` in lakhs)
Liabilities
Equity Share Capital (Fully paid shares of ` 10 each) 22,500 9,000
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,250 4,800

Profit and Loss Account 4,305 1,237.5

12% Debentures - 1,500
Trade payables 1,800 694.5
Provisions 2,745 1,053
50,100 18,750
Assets
Land and Buildings 9,000
Plant and Machinery 21,000 7,500
Furniture, Fixtures and Fittings 3,456 2,550
Inventory 11,793 6,061.5
Trade receivables 3,180 1,650
Cash at Bank 1,671 913.5
Cost of Issue of Debentures - 75
. 50,100 18,750
All the bills receivable held by Raga Ltd. were Namo Ltd.'s acceptances.
On 1st April 2011, Namo Ltd. took over Raga Ltd. in an amalgamation in the nature of merger.
It was agreed that in discharge of consideration for the business, Namo Ltd. would allot three
fully paid equity shares of ` 10 each at par for every two shares held in Raga Ltd. It was also
agreed that 12% debentures in Raga Ltd. would be converted into 13% debentures in Namo
Ltd. of the same amount and denomination.
Details of trade receivables and trade payables are as under:
Particulars Namo Ltd. Raga Ltd.
(` in lakhs)
Trade Payables
Creditors 1,620 694.5
Bills Payable 180 -
1,800 694.5
Trade receivables
Debtors 3,180 1,530
Bills Receivables - 120
3,180 1,650
Expenses of amalgamation amounting to ` 1.5 lakhs were borne by Namo Ltd.
You are required to:
(a) Pass journal entries in the books of Namo Ltd. and

(b) Prepare Namo Ltd.'s Balance Sheet immediately after the merger considering that the cost
of issue of debentures shown in the balance sheet of Raga Ltd. is not transferred to Namo
Ltd. (16 Marks)
Answer
Books of Namo Ltd.
Journal Entries
(` in Lacs) (` in Lacs)
Business Purchase A/c Dr. 13,500
To Liquidator of Raga Ltd. 13,500
(Being business of Raga Ltd. taken over for
consideration settled as per agreement)
Plant and Machinery Dr. 7,500
Furniture & Fittings Dr. 2,550
Inventory Dr. 6,061.5
Debtors Dr. 1,530
Cash at Bank Dr. 913.5
Bills Receivable Dr. 120
To Foreign Project Reserve 465
To General Reserve (4,800 - 4,500) 300
To Profit and Loss A/c (1,237.5 – 75 ) 1,162.5
To Liability for 12% Debentures 1,500
To Creditors 694.5
To Provisions 1,053
To Business Purchase A/c 13,500
(Being assets & liabilities taken over from Raga Ltd.)
Liquidator of Raga Ltd. A/c Dr. 13,500
To Equity Share Capital A/c 13,500
(Purchase consideration discharged in the form of
equity shares)
Profit & Loss A/c Dr. 1.5
To Bank A/c 1.5
 Cost of issue of debentures adjusted against P & L A/c of Raga Ltd.

(Liquidation expenses paid by Namo Ltd.)

Liability for 12% Debentures A/c Dr. 1,500
To 13% Debentures A/c 1500
(12% debentures discharged by issue of 13%
debentures)
Bills Payable A/c Dr. 120
To Bills Receivable A/c 120
(Cancellation of mutual owing on account of bills)
Balance Sheet of Namo Ltd. as at 1 st April, 2011 (after merger)

Particulars Notes ` (in lakhs)
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 36,000
B Reserves and Surplus 2 24,981
2 Non-current liabilities
A Long-term borrowings 3 1,500
3 Current liabilities
A Trade Payables (1,800+694.5-120) 2,374.5
B Short-term provisions (2,745+1,053) 3,798
Total 68,653.5
Assets
1 Non-current assets
A Property, Plant & Equipment
Tangible assets 4 43,506
2 Current assets
A Inventories (11,793+6,061.5) 17,854.5
B Trade receivables (3,180+1,650-120) 4,710
C Cash and cash equivalents (1,671+913.5-1.5) 2,583
Total 68,653.5
Notes to Accounts
`
1. Share Capital

Equity share capital

Authorised, issued, subscribed and paid-up 36 crores equity shares of
` 10 each (of the above shares, 13.5 crores shares have been issued
for consideration other than cash) 36,000
2. Reserves and Surplus
General Reserve 14,550
Securities Premium 4,500
Foreign Project Reserve 465
Profit and Loss Account ` (4,305 +1,162.5-1.5) 5,466
Total 24,981
3. Long-term borrowings
Secured
13% Debentures 1,500
4. Tangible assets
Land & Buildings 9,000
Plant & Machinery 28,500
Furniture & Fittings 6,006
Total 43,506
Working Note:
Computation of purchase consideration
Purchase consideration was discharged in the form of three equity shares of Namo Ltd. for every
two equity shares held in Raga Ltd.
Purchase consideration = ` 9,000 lacs × 3 = ` 13,500 lacs

2
Note: The balance sheet has been prepared on the basis of Schedule III to the Companies Act,
2013 irrespective of the financial year given in the question.
Question 5
(a) From the following balances extracted from the books of ABC General Insurance Company
Ltd. as on 31st March, 2017, you are required to prepare Revenue Accounts in respect of
Fire and Marine Insurance Business for the year ended 31 st March, 2017.
Particulars Fire Marine
(` ) (` )
Outstanding Claim as on 1 st April, 2016 56,000 14,000
Claims Paid 2,00,000 1,60,000

Reserve for unexpired risk as on 1st April, 2016 4,00,000 2,80,000

Premium Received 9,00,000 6,60,000
Agent's Commission 80,000 40,000
Expenses of management (Inclusive of legal expenses 1,20,000 90,000
regarding settlement of claims ` 10,000 and ` 8,000
respectively for Fire and Marine business)
Re-Insurance Premium - Dr. 50,000 30,000
The following additional points are also to be taken into consideration:

(1) Claims outstanding as on 31 st March, 2017 were as follows:
(a) Fire Insurance ` 20,000
(b) Marine Insurance ` 30,000
(2) Premium outstanding as on 31 st March, 2017 were as follows:
(a) Fire Insurance ` 60,000
(b) Marine Insurance ` 40,000
(3) Reserve for unexpired risk to be maintained at 50% and 100% of net premiums in
respect of Fire & Marine Insurance respectively.
(4) Expenses of management due on 31 st March, 2017 were ` 20,000 for Fire Insurance
and ` 10,000 in respect of Marine Insurance.
(b) The following balances appear in books of "Saregama Bank Limited":
Bills Discounted (During FY 2018-19) ` 4,80,00,000.00
Discount Received (During FY 2018-19) ` 15,20,000.00
Rebate on bills discounted (as on 1.4.2018) ` 2,25,000.00
Details of bills discounted are as follows:
Value of Bill Due Date Rate of Discount
25,00,000.00 16.06.2019 10%
50,00,000.00 25.05.2019 11%
40,00,000.00 01.07.2019 12%
You are required:
(1) To calculate the rebate on bills discounted as on 31.03.2019.
(2) To pass necessary journal entries. (Narration not required).

(3) Ledger account of Rebate on bills discounted.

(4) Ledger account of Discount on Bills. (8 + 8 = 16 Marks)
Answer
(a) Form B – RA (Prescribed by IRDA)
ABC General Insurance Co. Ltd
Revenue Account for the year ended 31st March, 2017
Fire and Marine Insurance Businesses
Schedule Fire Marine
Current Year Current Year
` `
Premiums earned (net) 1 8,55,000 2,80,000
Profit / (Loss) on sale / redemption of — —
investments
Others (to be specified) - -
Interest, Dividends and Rent – Gross — —
Total (A) 8,55,000 2,80,000
Claims incurred (net) 2 1,74,000 1,84,000
Commission 3 80,000 40,000
Operating expenses related to Insurance 4 1,30,000 92,000
business
Total (B) 3,84,000 3,16,000
Profit OR Loss from Fire / Marine
Insurance business (A-B) 4,71,000 (36,000)
Schedules forming part of Revenue Account
Premiums earned (net) Fire Marine
Current Year Current Year
` `
Schedule –1
Premiums from direct business less reinsurance
written (W.N.3) 9,10,000 6,70,000
Less: Adjustment for Change in provision for
unexpired risk (55,000) (3,90,000)
8,55,000 2,80,000

Schedule – 2
Claims incurred (net) 1,74,000 1,84,000
Schedule – 3
Commission Paid 80,000 40,000
Schedule – 4
Operating expenses related to insurance business
Expenses of Management 1,30,000 92,000
Working Notes:
Fire Marine
` `
1. Claims under policies less reinsurance
Claims paid during the year 2,00,000 1,60,000
Add: Outstanding on 31st March, 2017 20,000 30,000
2,20,000 1,90,000
Less: Outstanding on 1st April, 2016 (56,000) (14,000)
1,64,000 1,76,000
Add: Legal expenses 10,000 8,000
1,74,000 1,84,000
2. Expenses of management
Expenses paid during the year 1,20,000 90,000
1,40,000 1,00,000
Less: Legal Expense for claim (10,000) (8,000)
1,30,000 92,000
3. Premiums less reinsurance
Premiums received during the year 9,00,000 6,60,000
9,60,000 7,00,000
Less: Reinsurance premiums (50,000) (30,000)
9,10,000 6,70,000

4. Changes in unexpired Risk Reserve

`
Reserve for unexpired Risk (Fire Insurance @ 50%)
Opening Reserve (A) 4,00,000
Closing Reserve (` 9,10,000 x 50/100) (B) 4,55,000
Additional Transfer to Reserve (B) – (A) 55,000
Reserve for unexpired Risk (Marine Insurance @ 100%)
Opening Reserve (A) 2,80,000
Closing Reserve (` 6,70,000 x 100/100) (B) 6,70,000
Additional Transfer to Reserve (B) – (A) 3,90,000
(b) (i) Calculation of Rebate on bills discounted
Due date Unexpired portion Rate of Rebate on bills
S.No. Amount (`)
(year 2019) from 31st March, 2019 discount discounted (`)
(i) 25,00,000 June 16 77 days 10% 52,740
(ii) 50,00,000 May 25 55 days 11% 82,877
(iii) 40,00,000 July 1 92 days 12% 1,20,986
115,00,000 2,56,603
(ii) In the books of Saregama Bank Ltd.
Journal Entries
Particulars Dr. (` ) Cr. (` )
(1) Rebate on bills discounted A/c Dr. 2,25,000
To Discount on bills A/c 2,25,000
(2) Bills Purchased & Discounted Dr. 480,00,000
To Discount on bills A/c 15,20,000
To Clients A/c 464,80,000
(3) Discount on bills A/c Dr. 2,56,603
To Rebate on bills discounted A/c 2,56,603
(4) Discount on bills A/c Dr. 14,88,397
To Profit and Loss A/c (W.N) 14,88,397

(iii) Rebate on bills discounted Account

` `
2018 2018
April 1 To Discount on 2,25,000 April 1 By Balance b/d 2,25,000
bills A/c
2019 2019
March 31 To Balance c/d 2,56,603 March 31 By Discount on bills A/c 2,56,603
4,81,603 4,81,603
(iv) Discount on bills Account

` `
2019 2019
March 31 To Rebate on bills April 1 By Rebate on bills
discounted A/c 2,56,603 discounted A/c 2,25,000
To Profit and loss 14,88,397 March By Bills purchased 15,20,000
A/c 31 and discounted A/c
17,45,000 17,45,000
Working Note
Amount of discount to be credited to the Profit and Loss Account
`
Transfer from Rebate on bills discounted A/c as on 1.4.18 2,25,000
Add: Discount received during the year ended 31 st March, 2019 15,20,000
17,45,000
Less: Rebate on bills discounted as on 31 March, 2019
st (2,56,603)
Discount credited to Profit and Loss Account 14,88,397
Question 6
(a) M/s. Bombay Cotton has 2 Departments Y and Z. The following information is provided for
the year ended 31st March, 2019:
Particulars Department Y (` ) Department Z (` )
Opening Stock 60,000 40,000
Purchases 1,20,000 3,05,400
Wages 70,000 32,000
Sales 3,10,300 3,72,700
Closing Stock 23,700 40,700

Other Expenses are:

Particulars Amount in (` )
Salaries 30,000
Rent 9,000
Advertisement 24,000
General Expenses 3,000
Depreciation 18,000
Expenses are to be allocated between the Departments in the ratio of their Gross Profit.
Department Y sells goods to Department Z at a profit of 25% on sales. Department Z sells
goods to Department Y at a profit of 28% on cost.
Each Department Manager is entitled to 10% Commission on Net Profit subject to
unrealized profit on departmental sales being eliminated.
Stock Transfer during the year from Department Y to Department Z was ` 40,000 and from
Department Z to Department Y was ` 50,000.
Closing Stock includes transfer from Department Y to Department Z ` 12,000 and from
Department Z to Department Y ` 21,200. Opening stocks do not include any inter
department transfer.
Prepare Departmental Trading and Profit & Loss Account for the year ended 31 st March,
2019.
(b) The Washington branch of ABC India sent the following trial balance as on
31st December, 2017.
Particular $ $
Head office A/c - 13,680
Sales - 50,400
Debtors and creditors 2,880 2,040
Machinery 14,400 -
Cash at bank 720 -
Stock, 1 January, 2017 6,720 -
Goods from H.O. 38,400 -
Expenses 3,000 -
66,120 66,120

In the books of head office, the Branch A/c stood as follows:

Washington Branch A/c
Particulars Particulars
To Balance b/d 4,86,000 By Cash 23,25,600
To Goods sent to branch 23,55,600 By Balance c/d 5,16,000
28,41,600 28,41,600
Goods are sent to the branch at cost plus 10% and the branch sells goods at invoice price
plus 25%. Machinery was acquired on 31st January, 2012, when $ 1.00 = ` 46.
Exchange rate per US$ were:
1st January, 2017 ` 64
31 December, 2017
st ` 66
Average Rate ` 65
Machinery is depreciated @ 10% on written down value basis.
The branch manager is entitled to a commission of 5% on the profits of the branch.
You are required to prepare in the books of Head Office:
(i) Branch Trading & Profit & Loss A/c in dollars.
(ii) Convert the Trial Balance of branch into Indian currency
(iii) Branch Trading & Profit and Loss Account in Rupees
(iv) Branch Account. (8 + 8 = 16 Marks)
Answer
(a) Departmental Trading Account in the books of
M/s. Bombay Cotton for the year ended 31 st March, 2019
Particulars Department Department Particulars Department Departmen
Y Z Y tZ
(`) (`) (`) (`)
To Opening Stock 60,000 40,000 By Sales 3,10,300 3,72,700
To Purchase 1,20,000 3,05,400 By Transfers 40,000 50,000
To Wages 70,000 32,000 By Closing Stock: 23,700 40,700
To Transfers 50,000 40,000
To Gross Profit c/d 74,000 46,000
3,74,000 4,63,400 3,74,000 4,63,400
To Salaries 18,500 11,500 By Gross Profit 74,000 46,000

To Rent 5,550 3,450 b/d

To Advertisement 14,800 9,200
To General 1,850 1,150
Expenses
To Depreciation 11,100 6,900
(all expenses
divided in ratio
of 37: 23)
To Net profit c/d 22,200 13,800
74,000 46,000 74,000 46,000
To Unrealized profit 3,000 4,638 By Net Profit b/d 22,200 13,800
To Manager ’s 1,920 916

commission
To Net profit 17,280 8,246
22,200 13,800 22,200 13,800
Working notes:
1. Unrealized profit included in the closing stock
28
Department Y = 21, 200   4, 637.50 (rounded off as ` 4,638)
128
Department Z = 12,000 x 25%= 3,000
2. Calculation of Manager’s Commission
Particulars Department Y Department Z
(` ) (` )
Net Profit 22,200 13,800
Less: Stock Reserve 3,000 4,638
19,200 9,162
Manager’s Commission @ 10% 1,920 916
(b) (i) In the Books of Head Office

Branch Trading and Profit & Loss A/c (in Dollars)
for the year ended 31 st December, 2017
Particulars $ Particulars $
To Opening stock 6,720 By Sales 50,400
To Goods from H.O. 38,400 By Closing stock (W.N.2) 4,800

To Gross profit c/d 10,080

55,200 55,200
To Expenses 3,000 By Gross profit b/d 10,080
To Depreciation 1,440
To Manager’s commission 282
(W.N.1)
To Net profit c/d 5,358
10,080 10,080
(ii) Converted Branch Trial Balance (into Indian Currency)
Particulars Rate per $ Dr. (`) Cr. (`)
Machinery 14,400 46 6,62,400 _
Stock January 1, 2017 6,720 64 4,30,080 -
Goods from head office Actual 23,55,600 _
Sales 50,400 65 _ 32,76,000
Expenses 3,000 65 1,95,000 _
Debtors & creditors 2,880/2,040 66 1,90,080 1,34,640
Cash at bank 720 66 47,520 _
Head office A/c Actual _ 5,16,000
Exchange Difference
(Balancing Figure) 45,960 _
39,26,640 39,26,640
Closing stock $ 4,800 66 ` 3,16,800
(W.N. 2)
(iii) Branch Trading and Profit & Loss A/c
for the year ended 31 st December, 2017

` `
To Opening stock 4,30,080 By Sales 32,76,000
To Goods from head 23,55,600 By Closing stock 3,16,800
office (W.N.2)
To Gross profit c/d 8,07,120
35,92,800 35,92,800

To Expenses 1,95,000 By Gross profit b/d 8,07,120

To Depreciation @ 10%
on ` 6,62,400 66,240
To Exchange difference 45,960
To Manager’s
commission (W.N.1) 18,612
To Net Profit c/d 4,81,308
8,07,120 8,07,120
(iv) Branch Account
` `
To Balance b/d 5,16,000 By Machinery 6,62,400
To Net profit 4,81,308 Less: Depreciation (66,240) 5,96,160
To Creditors 1,34,640 By Closing stock 3,16,800
To Outstanding By Debtors 1,90,080
commission 18,612 By Cash at bank 47,520
11,50,560 11,50,560
Working Notes:
1. Calculation of manager’s commission @ 5% on profit
i.e. 5% of $[10,080 – (3,000 + 1,440)]
Or 5% × $5,640 = $ 282
Manager’s commission in Rupees = $ 282  ` 66 = ` 18,612
2. Calculation of closing stock $
Opening stock 6,720
Add: Goods from head office 38,400
45,120
Less: Cost of goods sold (at invoice price)
100 (40,320)
i.e.  50, 400
125
Closing stock 4,800
Closing stock in Rupees = $4,800 x ` 66 = ` 3,16,800.
Question 7
Answer any four of the followings :
(a) (i) The liquidator of a company is entitled to a remuneration of 2% on assets realized

and 3% on the amount distributed to unsecured creditors. The assets realized

` 40,00,000. Amount available for distribution to unsecured creditors before paying
liquidator's remuneration is ` 16,48,000.
Calculate liquidator's remuneration, if the surplus is insufficient to pay off unsecured
creditors, in total.
(ii) 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 ` 37,50,000 against which
payment was made as follows:
Liquidation Expenses ` 37,500
Secured Creditors ` 15,00,000
Preferential Creditors ` 1,12,500
The amount due to Unsecured Creditors was ` 22,50,000. You are asked to calculate the
total Remuneration payable to Liquidator.
Calculation shall be made to the nearest multiple of a rupee.
(b) During 2016-17, an enterprise incurred costs to develop and produce a routine low risk
computer software product, as follows:
Particular `
Completion of detailed program and design (Phase 1) 50,000
Coding and Testing (Phase 2) 40,000
Other coding costs (Phase 3 & 4) 63,000
Testing costs (Phase 3 & 4) 18,000
Product masters for training materials (Phase 5) 19,500
Packing the products (1,500 units) (Phase 6) 16,500
After completion of phase 2, it was established that the product is technically feasible for
the market.
You are required to state how the above referred cost to be recognized in the books of
accounts.
(c) Compute the amount of Provisions to be made in Profit and Loss Account of SG Bank for
the year ending 31st March, 2019.
Assets ` in lakhs
Standard 10,000
(includes ` 1,000 lakhs to Commercial Real Estate-Residential
Housing Sector CRE-RH)

Sub-standard Secured 5,000

Sub-Standard Unsecured 2,000
(includes ` 500 lakhs for infrastructure loan accounts where ESCROW
accounts are available)
Doubtful Advance Secured
- Upto 1 Year 1,000
- 1 Year and upto 3 Years 500
- Above 3 Years 200
- Unsecured 300
Loss Assets 500
(d) Balance Sheet of Ram & Co. on 31st March, 2017 is given below:
Capital 50,000 Fixed Assets 69,000
Profit and Loss A/c 29,000 Stock in Trade 43,000
10% Loan 43,000 Trade Receivables 10,000
Trade Payables 18,000 Deferred Expenditure 15,000
Bank 3,000
1,40,000 1,40,000
Additional Information :
i. Remaining life of fixed assets is 5 years with even use. The net realizable value of
fixed assets as on 31st March, 2018 was ` 54,000.
ii. Firm's sales and purchases for the year 2017-18 amounted to ` 3.55 lacs and ` 2.50
lacs respectively.
iii. The cost and net realizable value of the stock were ` 34,000 and ` 38,000
respectively.
iv. General Expenses for the year 2017-18 were ` 16,500.
v. Deferred Expenditure is normally amortised equally over 4 years starting from F.Y.
2016-17 i.e. ` 5,000 per year.
vi. Out of debtors worth ` 10,000, collection of ` 4,000 depends on successful redesign
of certain product already supplied to the customer.
vii. Closing trade payable is ` 10,000, which is likely to be settled at 95%.
viii. There is pre-payment penalty of ` 2,000 for Bank loan outstanding,

Prepare Profit & Loss Account for the year ended 31 st March, 2018 by assuming it is not a
Going Concern.
(e) The Paid-up capital of S Limited amounted to ` 5,00,000 Equity Shares of ` 10 each. Due
to continuous loss incurred by the company, the following scheme of Reconstruction has
been approved for S Limited on 1st April, 2019.
(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 ` 40,000.
(ii) An issue of 8% Debentures First Debentures of ` 1,00,000 was made and fully
subscribed for cash,
(iii) The Assets were reduced as follows:-
(a) Building from ` 2,00,000 to ` 1,50,000
(b) Plant & Machinery from ` 1,50,000 to ` 1,30,000
(c) Goodwill from ` 30,000 to Nil.
Show the Journal Entries in the books of S Limited to give effect of the scheme of
Reconstruction. (4 Parts x 4 Marks = 16 Marks)
Answer
(a) (i) Calculation of liquidator’s remuneration:
`
Liquidator’s remuneration on assets realised (` 40,00,000 x 2 /100) 80,000
Liquidator’s remuneration on payment to unsecured creditors
(` 16,48,000 x 3/103) 48,000
Total liquidator’s remuneration 1,28,000
(ii) Calculation of Total Remuneration payable to Liquidator
Amount in
`
2% on Assets realised 37,50,000 x 2% 75,000
3% on payment made to Preferential creditors 1,12,500 x 3% 3,375
3% on payment made to Unsecured creditors
(Refer W.N) 58,882
Total Remuneration payable to Liquidator 1,37,257

Working Note:
Liquidator’s remuneration on payment to unsecured creditors
Cash available for unsecured creditors after all payments including liquidation expenses,
payment to secured creditors, preferential creditors & liquidator’s remuneration
= ` 37,50,000 – ` 37,500 – ` 15,00,000 – ` 1,12,500 – ` 75,000 – ` 3,375
= ` 20,21,625.
Liquidator’s remuneration
= 3/103 x ` 20,21,625= ` 58,882
(b) As per AS 26, costs incurred in creating a computer software product should be charged
to research and development expense when incurred until technological feasibility/asset
recognition criteria has been established for the product. Technological feasibility/asset
recognition criteria have been established upon completion of detailed program design or
working model.
In this case, ` 90,000 would be recorded as an expense (` 50,000 for completion of
detailed program design and ` 40,000 for coding and testing to establish technological
feasibility/asset recognition criteria).
Cost incurred from the point of technological feasibility/asset recognition criteria until the
time when products costs are incurred are capitalized as software cost (63,000+ 18,000+
19,500) = ` 1,00,500. Packing cost ` 16,500 should be recognized as expenses and
charged to P & L A/c.
(c) Statement showing the amount of provisions on Assets
(` in lakhs)
Assets Amount % of Provision
provision
Standard:
Advances to Commercial Real Estate 1,000 .75 7.5
Residential Housing Sector
Others 9,000 .40 36
Sub-standard:
Secured 5,000 15 750
Other unsecured 1,500 25 375
Unsecured infrastructure 500 20 100
Doubtful:
up to one year 1,000 25 250

More than one year but up to 3 years 500 40 200

For more than three years 200 100 200
Doubtful unsecured 300 100 300
Loss 500 100 500
Required provision 2,718.5
(d) Profit and Loss Account of Ram & Co. for the year ended 31 st March, 2018
(Assuming business is not a going concern)
` `
To Opening Stock 43,000 By Sales 3,55,000
To Purchases 2,50,000 By Closing Stock 38,000
To Gross profit c/d 1,00,000
3,93,000 3,93,000
To Expenses 16,500 By Gross profit b/d 1,00,000
To Depreciation (69,000–54,000) 15,000 By Discount on 500
Trade payables
To Provision for doubtful debts 4,000
To Deferred expenditure 15,000
To Loan penalty 2,000
To Net Profit 48,000
1,00,500 1,00,500
(e) Journal Entries in the books of S Ltd.
Dr. Cr.
2019 ` `
April 1 Equity Share Capital A/c (` 10) Dr. 5,00,000
To Equity Share Capital A/c 3,00,000
To 8% Preference Equity Share Capital A/c 60,000
To 10% Second Debentures A/c 40,000
To Capital Reduction /Reconstruction A/c 1,00,000
(Being reduction of equity shares to 3/5 shares,
issue of preference shares and debentures as
per Reconstruction Scheme dated...)

Capital Reduction / Reconstruction A/c Dr. 1,00,000

To Building A/c 50,000
To Plant and Machinery A/c 20,000
To Goodwill A/c 30,000
(Being value of building and plant and machinery
reduced and goodwill written off completely.)
Bank A/c Dr. 1,00,000
To 8% First Debentures A/c 1,00,000
(Being ` 1,00,000 debentures issued)

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PAPER – 5 : ADVANCED ACCOUNTING

Question No.1 is compulsory.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Calculation of Unearned Finance Income

= (` 30,00,000 / 20,00,000 shares) 1.5

` 50,00,000/ 23,46,667 shares 2.13

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(` 26 x 20,00,000 shares) + (` 20 x 4,00,000 shares)

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© The Institute of Chartered Accountants of India

Partners’ Capital Accounts in the books of AB & Co.

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Partners’ Capital Accounts in the books of BC & Co.

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2. Computation of proportionate capitals and capital adjustments

3. In the books of AB& Co.

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To Plant & machinery 29,000 By Due to XYZ & Co. 9,000

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Journal Entries for buy-back of shares

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Gold Copper Silver Iron Total

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(ii) Computation of amounts payable by underwriters

(iii) Journal Entries in the Books of Diamond Ltd.

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Silver A/c Dr. 2,62,500

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Profit and Loss Account 4,305 1,237.5

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 Cost of issue of debentures adjusted against P & L A/c of Raga Ltd.

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(Liquidation expenses paid by Namo Ltd.)

Balance Sheet of Namo Ltd. as at 1 st April, 2011 (after merger)

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Equity share capital

Purchase consideration = ` 9,000 lacs × 3 = ` 13,500 lacs

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Reserve for unexpired risk as on 1st April, 2016 4,00,000 2,80,000

The following additional points are also to be taken into consideration:

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(3) Ledger account of Rebate on bills discounted.

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© The Institute of Chartered Accountants of India

4. Changes in unexpired Risk Reserve

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(iii) Rebate on bills discounted Account

(iv) Discount on bills Account

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Other Expenses are:

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In the books of head office, the Branch A/c stood as follows:

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To Rent 5,550 3,450 b/d