RTP June 19 Ans
RTP June 19 Ans
RTP June 19 Ans
Solution 1:
Working Notes:
1. Calculation of net asset value of shares
DD Ltd. SS Ltd.
Rs. Rs.
Goodwill 500,000 100,000
Fixed Assets 600,000 850,000
Investments 100,000 330,000*
Current Assets 400,000 300,000
1,600,000 1,580,000
Less: Sundry Creditors 500,000 200,000
Net assets 1,100,000 1,380,000
Number of shares 8,000 6,000
Value per equity share 137.50 230
Rs.
*Investments of SS Ltd. are calculated as follows:
137,500
Shares in DD Ltd. (1,000 137.50)
192,500
Market value of remaining investments (given)
330,000
Rs.
Net assets of SS Ltd. 380,000
Value of Shares of DD Ltd. 137.50
Number of shares to be issued in DD Ltd. to SS Ltd. (13,80,000 137.50) 10,036.36
Less: Shares already held by SS Ltd. 1,000
Additional shares to be issued 9,036.36
Solution 2:
Computation of Purchase Consideration
Rs.
Value of 15,000 equity shares @ Rs.80 per share = Rs.12,00,000
Shares to be issued by Y Co. Ltd. (Rs. 12,00,000/120 per share = 10,000 12,00,000
shares @ Rs.120 each)
11% Preference shareholders to be issued equivalent 11% Redeemable 5,00,000
Debentures by Y Co. Ltd.
Total Purchase Consideration 17,00,000
Internal Reconstruction
Solution 3:
Journal Entries in the Books of Hilltop Ltd.
Dr. Cr.
Rs. Rs.
(i) Equity Share Capital (Rs. 10 each) A/c Dr. 50,00,000
To Equity Share Capital (Rs. 5 each) A/c 25,00,000
To Reconstruction A/c 25,00,000
(Being conversion of 5,00,000 equity shares of Rs. 10 each
fully paid into same number of fully paid equity shares of Rs.
5 each as per scheme of reconstruction.)
(ii) 9% Preference Share Capital (Rs.100 each) A/c Dr. 20,00,000
To 10% Preference Share Capital (Rs.50 each) A/c 10,00,000
Working Notes:
1. Profit on sale of Plant = WDV at disposal – sale value
= (54,000-40,500) – 21,000
= 7,500
3. Cash flow towards assets purchase = Increase in Plant & machinery at cost + cost of plant sold
= 180,000 + 54,000 = 234,000
Insurance Claim
Solution 5:
Loss of Stock
Insurance Claim Amount of Policy
Value of Stock on the date of fire
Rs. 124,000
Rs. 100,000 Rs. 80,000
Rs. 155,000
Working note:
Stock on 1st Shrawan, 2075 was valued at 10% lower than cost.
Hence, original cost of the stock as on 1st Shrawan, 2075 would be:
Rs. 216,000
100 Rs. 240,000
90
Solution 6:
Contract Accounting:
Solution 7:
State of completion
Percentage of completion till date to total estimated cost of construction
= (4/10) X 100 = 40%
Profit for the year ended 32.3.2075 = Rs. 5.04 crore less Rs. 4 crore = 1.04 crore.
Amount Amount
Rs. Rs.
To Hire Purchase Stock 50,000 By Hire Purchase Sales 25,95,000
(20 Rs. 2,500) (W.N. 2)
To Goods sold on Hire 36,00,000 By Stock Reserve 10,000
Purchase (120Rs.30,000) (Rs. 50,000 20%)
To Bad Debts (W.N. 4) 8,000 By Goods sold on Hire Purchase 7,20,000
To Loss on Repossession 12,000 (Rs. 36,00,000 20%)
Less: Instalments not yet By Hire Purchase Stock 10,50,000
due 4,000 8,000 [(650+420+ 140) Rs.
2,500]
To Stock Reserve 2,10,000
(Rs.10,50,000 20%)
To Profit and Loss Account 4,99,000
(Transfer of Profit) ________
43,75,000 43,75,000
Working Note:
1. No. of Shares applied by Mr. Subash = (240,000/200,000) x 4,000 = 4,800
2. Amount paid my Mr. Subash at the time of application = 4,800 x 20 = 96,000
3. Forfeiture amount available for use = full of Mr. Dhiraj (300,000) + half of Mr. Subash (96,000/2) =
348,000
4. Amount Transferred to capital reserve = 348,000 – 80,000 = 266,000
Incomplete Records
Solution 11:
Trading and Profit and Loss Account
for the year ended 32nd Ashadh, 2075
Rs. Rs.
To Opening Stock 6,10,000 By Sales
To Purchases (W.N. 3) 84,10,000 Cash 73,80,000
To Gross profit c/d 9,30,000 Credit (W.N. 2) 19,20,000 93,00,000
(10% of 93,00,000) By Closing stock 6,50,000
99,50,000 99,50,000
To Sundry expenses (W.N. 6) 5,80,700 By Gross profit b/d 9,30,000
To Discount allowed 36,000 By Discount received 28,000
To Depreciation 15,000
(15% Rs. 1,00,000)
To Net Profit 3,26,300
9,58,000 9,58,000
Ratio Analysis
Solution 12:
A. Application of Ratios for computing missing figures
1. Sales Since GP Ratio and NP Ratio are 40% and 10% of Sales respectively, Other
Expenses debited to P&L Account= 40% - 10% = 30% of Sales.
Since Other Expenses + Depreciation debited in P&L A/c = Rs. 25 Lakhs + Rs. 5
Lakhs = Rs. 30 Lakhs, Sales = 30÷ 30% = Rs. 100 Lakhs
2. Gross Profit = 40% of Sales = Rs. 40Lakhs
3. Net Profit = 10% of Sales = Rs. 10 Lakhs
4. Credit Sales Cash Sales to Credit Sales = 16:9.
Hence, Credit Sales = Total Sales × 9/25= 100x9/25 Rs. 36 Lakhs
1. Trading and Profit and Loss Account for the year ended 32nd Ashadh
Particulars Rs. Lakhs Particulars Rs. Lakhs
To Opening Stock 8 By Sales 100
To Purchases 64 By Closing Stock 12
To Gross Profit c/d 40
Total 112 Total 112
Total 40 Total 40
Statement showing calculation of profits for pre and post incorporation periods
For the year ended 31.3.2072 (15 months)
Particulars Total Ratio Pre Post
Gross Profit 14,040,000 1:8 1,560,000 12,480,000
Less: Salaries 2,340,000 1:12 180,000 2,160,000
Depreciation 360,000 1:4 72,000 288,000
Advertisement 1,404,000 1:8 156,000 1,248,000
Discount 2,340,000 1:8 260,000 2,080,000
Managing Director’s Salary 180,000 Post - 180,000
Office/showroom rent 1,440,000 Actual 180,000 1,260,000
Miscellaneous office expenses 240,000 1:4 48,000 192,000
Interest paid 1,902,000 Actual 702,000 1,200,000
Goodwill (loss) 38,000 -
Net Profit - 3,872,000
Working note:
Particulars Pre Post
1. calculation of time ratio = 1:4 1st Baisakh to 31.3.2071 1.4.2071 to 31.3.2072
3 months 12 months
2. Calculation of sales ratio = 1:8 3x1 = 3 12 x 2 = 24
3. Calculation of staff salary ratio = 3x1 = 3 12 x 3 = 36
1:12
4. calculation of interest 234,00,000 x 12% for 3 100,00,000 x 12% for 1 year
months Rs. 1200,000
Rs. 702,000
5. Calculation of Rent
(i) additional rent 60,000x9 = 540,000
(ii) regular rent = (1440,000-540000) 900,0000X3/15 = 180,000 900,0000X12/15 = 720,000
= 900,000
Calculation of gross profit = sales – cost of goods sold = 468,00,000-327,60,000 = 140,40,000
SR Ltd.
Balance Sheet as on 1st Shrawan, 2074
Liabilities Rs. Assets Rs. Rs.
Share capital: Fixed assets:
Authorised: Goodwill 146,000
10,000 12% pref. shares of Rs. 20 each 200,000 Premises 40,000
25,000 ordinary shares of Rs. 20 each 500,000 Machinery 140,000
700,000
Issued and paid up: Motor cars 40,000
8,000 12% pref. shares of Rs. 20 each 160,000 Furniture 25,000 391,000
22,000 ordinary shares of Rs. 20 each 440,000 Current assets:
Stock 150,000
Bank balance 48,000 198,000
Preliminary expenses 11,000
600,000 600,000
Working notes:
(i) Purchase consideration:
Rs.
Cash 80,000
Ordinary shares (Rs. 520,000 – Rs. 80,000) 440,000
Furniture 5,000
By, Deficit -excess of
Books 46,000 66,000 16,700
expenditure over Income
244,200 244,200
Working Notes
1 Depreciation & Amortization 2 Interest on securities
Electrical fittings @10% 15,000 Interest @5% p.a. on 150,000 full year 7,500
Furniture @10% 5,000 Interest @5% p.a. on 40,000 half year 1,000
Digital Books @10% 46,000 Total 8,500
Total 66,000 Less: Received (8,000)
Receivable 500
Profit
(or Increase in Dept.
Loss) 25,270 5,430
40,560 46,640 11,430 40,560 46,640 11,430
Notes:
10% has been added to cost of A dept. services to find out transfer price for B and C. 20% has been added to
costs of supplies of B dept. to find out transfer price for A and C dept.
Working Note:
Statement showing transfer price
From Dept. To Dept. Cost/ Value (Rs.) Transfer Price (Rs.)
A B 8,400 9,260
A C 4,500 4,950
B A 29,800 35,760
B C 5,400 6,480
C A 400 400
C B 5,600 5,600
(a) As per NAS-2 Inventories, inventory should be valued at the lower of cost and net realizable
value. Inventories should be written down to net realizable value on an item-by-item basis in
the given case:
Items Historical Cost Net Realizable Value Valuation of Closing Stock
(Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs)
A 40.00 28.00 28.00
B 32.00 32.00 32.00
C 16.00 24.00 16.00
88.00 84.00 76.00
Hence, closing stock will be valued at Rs. 76 lakhs
(b). An asset is recognized in the balance sheet when it is probable that the future economic benefits
will flow to the enterprise and the asset has a cost or value that can be measured reliably.
An asset is not recognized in the balance sheet when expenditure has been incurred for which it is
considered improbable that economic benefits will flow to the enterprise beyond the current
accounting period. Instead such a transaction results in the recognition of an expense in the
income statement. This treatment does not imply either that the intention of management in
incurring expenditure was other than to generate future economic benefits for the enterprise or
that management was misguided. The only implication is that the degree of certainty that
economic benefits will flow to the enterprise beyond the current accounting period is insufficient
to warrant the recognition of an asset.
c). As per NAS-12, Revenue from Sale of goods shall be recognized when all the following conditions
have been satisfied:
i. The entity has transferred to the buyer the significant risks and rewards of ownership of
goods;
ii. The entity retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
iii. The amount of revenue can be measured reliably;
iv. It is probable that the economic benefits associated with the transaction will flow to the
entity; and
v. The cost incurred or to be incurred in respect of the transaction can be measured reliably.
d). As per NAS-16 ‘ Property, Plant & Equipment’, the depreciation method applied to an asset shall
be reviewed at least at each financial year end and, if there has been a significant change in the
expected pattern of consumption of the future economic benefits embodied in the asset, the
method shall be changed to reflect the changed pattern. Such a change shall be accounted for as
a change in an accounting estimate in accordance with NAS 08.
As per NAS ‘Accounting Policies, Changes in Accounting Estimates & Errors’, changes in
accounting estimates shall be adjusted prospectively that means the effect of a change in an
accounting estimate shall be included in the determination of net profit or loss in:
(a) The period of the change, if the change affects the period only; or
(b) The period of the change and future periods, if the change affects both.
In the given case, the company can change the method of depreciation from year 2074-75 if the
conditions set aside in above paragraph have been fulfilled.
Depreciation for year 2074-75 and net book value of Machine as on 32.3.75 after Rs.
effect of the change
Book value of Machinery as on 01.04.2074 2,05,000
Current year depreciation as per new method (WDV) (205,000 X 20%) 41,000
Net Book value as on 32.03.2075 (205,000–41,000) 1,64,000
Working Note:
Book Value of Machinery and Depreciation under SLM as on 01-04-2074
Rs.
Cost of Machine purchased on 01.04.2072 3,25,000
Less: Residual Value 25,000
Depreciable amount 3,00,000
Useful life of Machine 5Years
Depreciation for 2 Years (Rs.3,00,000x2/5) 1,20,000
Book value as on01.04.2074 2,05,000
4. gains and losses from investments in equity instruments measured at fair value through other
comprehensive income in accordance NFRS related with financial instruments
5. the effective portion of gains and losses on hedging instruments in a cash flow hedge
6. for particular liabilities designed as at fair value through profit or loss, the amount of the
change in the fair value that is attributable to changes in the liability’s credit risk.
Solution 20:
(a). Leases
A lease is a contract calling for the lessee (user) to pay the lessor (owner) for use of the property.
A rental agreement is a lease in which the asset is tangible property. Leases for intangible
property can include use of a computer program (similar to a license, but with different
provisions), or use of a radio frequency (such as a contract with a cell-phone provider). It is a
written agreement under which a property owner allows a tenant to use the property for a
specified period of time and rent. The lease will either provide specific provisions regarding the
responsibilities and rights of the lessee and lessor, or there will be automatic provisions as a result
of local law. In general, by paying the negotiated fee to the lessor, the lessee (also called a tenant)
has possession and use (the rental) of the leased property to the exclusion of the lessor and all
others except with the invitation of the tenant.
(b). Re-insurance
In general insurance there are risks which, because of their magnitude or nature, one insurance
company cannot afford to cover, e.g., aviation insurance. Generally, in such cases, an insurance
company insures the whole risk itself and lays off the amount it has accepted to other insurance of
reinsurance companies, retaining only that much risk which it can absorb.
A reinsurance transaction may thus be defined as an agreement between a 'ceding company' and
a 're-insurer' whereby the former agrees to 'cede' and the later agrees to accept a certain specified
share of risk or liability upon terms as set out in the agreement.
Nepal Rastra Bank (NRB) has formulated a new category of loan for provisioning purposes. As per
the NRB’s Rule, all loans are required to be classified into 5 different categories including Watch
List whereby 5% of the total loan is required to be kept as provisioning though the provision can
be reversed when the loan becomes performing later. Provision made for watch list loans is a
general loan loss provision. As per the circular issued by NRB, the loans having the following
characteristics are to be classified as Watch List loans:
1. If interest and principal repayments are overdue for more than a month.
2. Short term/Working Capital Loans that are not renewed on time and are renewed on
temporary basis.
3. Loan and advances to customers/ group of customers who have been categorized as non
performing by other banks and financial institutions.
4. Firms/Companies/Organizations having negative net worth or net loss though interest and
principal are served on regular basis.
5. Loan and advances having multiple banking exposure more than Rs. 1 billion and have not
entered into consortium agreement.
6. Specifically specified by NRB after due inspection.
Agricultural activities are carried on mostly in an unorganized manner. Generally, the farmer does
not have office and also does not find time for day to day record keeping. The transactions and
events of such agricultural activities are also not supported by vouchers or other documents in
most of the cases. Therefore, it is essential to maintain a Diary to record happenings of the day.
This Diary becomes the source document for record keeping. The following registers are required
for compilation of the accounting information of agricultural activities:
i. Cash Book: to record cash transactions.
ii. Fixed Assets Register: to record details of fixed assets such as description of assets, cost
of purchases/construction/generation, disposal, depreciation and balance.
iii. Loan Register: to record borrowings from bank, cooperatives and other agencies trade
creditors along with interest paid or payable.
iv. Stock Register: to record details of input, output and by-product – receipts, utilization,
wastage and balance.
v. Debtors and Creditors Register: to record credit transactions classified by parties involved.
vi. Register for National Transactions: to record transactions between farm and farm
household.
vii. Cost Analysis Register: to record crop-wise input and output inclusive of apportionment of
common costs and finding out crop profit.
REVISION QUESTION
Question No 1:
Explain the process of filing complaints against member and members holding certificate of
practice.
Question No 2:
As an auditor, comment on the following situations/statements:
You are a partner in Ashok Kumar & Associates, Chartered Accountants. You are approached by Mr
Yogendra, the managing director of Nepal Brewery Ltd, who asks your firm to become auditors of his
company. In return for giving you this appointment Mr Yogeendra says that he will expect your firm
to waive 50 per cent of your normal fee for the first year's audit. The existing auditors, Mukul
Pandey & Associates, have not resigned but Mr Yogendra informs you that they will not be re-
appointed in the future.
What action should Ashok Kumar & Associates take in response to the request from Mr
Yogedra to reduce their first year's fee by 50 per cent?
Is Mukul Pandey & Associates within their rights in not resigning when they know Mr
Yogendra wishes to replace them? Give reasons for your answer.
Question No 3
BKS & Associates, a chartered accountant firm is yet to receive their professional fee from Ms Nepal
Liquor Ltd. In spite of the overdue of the fees for past 3 years, it has yet again appointed the same
firm to conduct the annual audit of the organization. In the light of the code of conduct or the
pronouncement from the ICAN, is it appropriate for the firm to continue the engagement. Explain.
Question No 4:
Mr. Nabin, the partner of the firm Prabin & Associates, says that since he has formally e-mailed the
audit opinion along with the financial statements to the company as accepted therefore he does not
require signing the audit report. Comment.
Question No 5:
Pink Pvt. Ltd., manufacturing noodles, has valued at the year end its closing stock of packed finished
goods for which firm sales contracts have been received, at realizable value inclusive of profit and
cash incentive. As at the year end, the ownership of the goods has not been transferred to the
buyers.
Question No 6:
Distinguish between Audit Reports and Certificates:
Question No 7:
The internal auditor of the company has been asked by the managing director of the company to
ensure that no qualifications are made by the statutory auditor in his report. What are the points
that need to be examined and reported to the managing director by the chief of internal audit in
respect of the following items:
I. Fixed assets:
II. Inventory; and
III. Loans granted or taken