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Roll No………………… : 1 :

Time allowed : 3 hours Maximum marks : 100

Total number of questions : 6 Total number of printed pages : 8

NOTE : 1. Answer ALL Questions.

2. All working notes should be shown distinctly.

PART – A

1. (a) State the order of payment to be followed by liquidator.

(b) State the drawbacks of adopting shareholder value added (SVA) approach.
(c) Prosperous Bank has a criterion that it will give loans to companies that have an
economic value added (EVA) greater than zero for the past three years on an average.
The bank is considering lending money to a small company that has the economic value
characteristics shown below :
(i) Average operating income after tax equals to `25,00,000 per year for the last
3 years.
(ii) Average total assets over the last 3 years equals `75,00,000.
(iii) Weighted average cost of capital appropriate for the company is 10%, applicable
for all 3 years.
(iv) The company's average current liabilities over the past 3 years are `15,00,000.
Does the company meet the bank's criterion for a positive EVA ? Show your workings.
(d) State the purposes for which balance in the securities premium account may be applied.
(e) Explain the procedure for reduction of share capital.
(5 marks each)

Attempt all parts of either Q.No. 2 or Q.No. 2A

2. (a) Explain the convergence of Indian Accounting Standards (IAS) with International
Financial Reporting Standards (IFRS).
(b) Differentiate between 'net assets method' and 'net payment method' of computation of
purchase consideration for accounting for amalgamation.

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(c) Discuss the circumstances under which valuation of shares is necessary.

(d) What are the key features of statement of profit and loss as per Schedule III of the
Companies Act, 2013 ?
(e) From the following particulars, calculate goodwill on the basis of 3 years purchase of
super profits :
(i) Capital employed : `50,000
(ii) Trading profit (after tax) : 2011 : `12,200
2012 : `15,000
2013 : `2,000 (loss)
2014 : `21,000
(iii) Normal rate of interest on investment: 10 % p.a.
(iv) Remuneration from alternative employment: `3,600 p.a. (included in above
profit).
(3 marks each)

OR (Alternate question to Q.No. 2)

2A. (i) What are the disclosure requirements as per AS-18 for a related party transaction ?
(ii) Under what circumstances, an amalgamation is classified as an 'amalgamation in the nature
of merger' ?
(iii) The following balances appeared in the books of Bright Ltd. as on 1st April, 2013 :
(a) Sinking fund account `50,000
(b) Sinking fund investment account `48,000 (10% government securities, nominal
value `45,000)
(c) 12% Debenture account `1,00,000.
The company sold `30,000 government securities at 110% and redeemed part of the
debentures at a premium of 10% on 1st April, 2013.
Show debenture account, sinking fund account, sinking fund investment account and
debentureholders account.
(5 marks each)

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3. (a) Following is the balance sheet of Tulika Ltd. as on 31st March, 2014 :
As on
31st March,
2014
(` )
I. EQUITY AND LIABILITIES

(1) Shareholders' funds

(a) Share capital

Authorised capital
20,000 equity shares of `10 each 2,00,000
Issued, subscribed and paid-up capital
12,000 equity shares of `10 each 1,20,000
Less: Calls in arrear
(`3 per share on 3,000 shares) 9,000 1,11,000
(b) Reserves and surplus
Surplus as per last balance sheet (loss) (22,000)
Add: profit for the year 1,200 (20,800)
(2) Current liabilities
(a) Trade payables 15,425
(b) Other current liabilities (provision for taxes) 4,000
TOTAL 1,09,625

II. ASSETS
(1) Non-current Assets
(a) Fixed assets
(i) Tangible assets
Land and building 20,500
Machinery 50,850
(ii) Intangible assets
Goodwill 10,000

(2) Current Assets

(a) Inventories 10,275
(b) Trade receivables 15,000
(c) Cash and cash equivalents 1,500
(d) Other current assets (preliminary expenses) 1,500
TOTAL 1,09,625

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The directors have found that the valuation of the machinery was overvalued by `10,000.
It is proposed to write down these assets to its true value and to extinguish the deficiency
in the statement of profit and loss and to write-off goodwill and preliminary expenses
by adoption of the following schemes :
(i) Forfeit the shares on which the calls are outstanding
(ii) Reduce the paid-up capital by `3 per share
(iii) Re-issue of forfeited shares at `5 per share
(iv) Utilise the provision for taxes, if necessary
The shares on which the calls were in arrear were duly forfeited and re-issued as fully
paid-up shares of `7 each on payment of `5 per share.
You are required to pass necessary journal entries.
(5 marks)

(b) Green Ltd. was established on 1st August, 2013 and received its certificate of
commencement of business on 1st November, 2013. The company bought the business
of Purple & Co. with effect from 1st April, 2013. From the following information for
the year ended on 31st March, 2014, find out the profit available for dividends :
(i) Sales for the year `12,00,000 out of which sales upto 1st August, 2013 was
`5,00,000
(ii) Gross profit for the year was `3,60,000
(iii) Expenses shown in the statement of profit and loss were as under :
`
Salaries 24,000
Rent 12,000
Audit fee 12,000
Directors' fee 9,600
Interest on debentures 10,000
Commission 19,200
Depreciation 51,000
General expenses 16,800
Bad debts (`1,000 prior to incorporation) 3,000
(5 marks)

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(c) Time Ltd. went into liquidation on 31st March, 2014 and its position on that date was
as under :
(i) 50,000, 10% Preference shares of `10 each fully paid
(ii) 70,000 Equity shares of `10 each fully paid
(iii) 60,000 Equity shares of `5 each, `3 per share paid
(iv) Calls-in-arrear `20,000
(v) Calls received in advance `17,000
(vi) Preference dividend is in arrear for 1 year.
Amount left with the liquidator after discharging all liabilities is `6,27,000. Preference
dividend in arrear is to be paid in priority to the equity capital.
Prepare liquidator's final statement of accounts.
(5 marks)

4. (a) Prepare the consolidated balance sheet from the following balance sheets of H. Ltd.
and S. Ltd. :
(` in '000)
H. Ltd. S. Ltd.
I. EQUITY AND LIABILITIES
(1) Shareholders' funds
(a) Share capital
Equity shares of `10 10,000 2,000
(b) Reserves and surplus
Reserve fund 1,000 600
Surplus 4,000 1,200
(2) Current liabilities
(a) Trade payables 2,000 1,200
(b) Other current liabilities (bills payable) — 300
TOTAL 17,000 5,300

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(` in '000)
H. Ltd. S. Ltd.
II. ASSETS
(1) Non-current Assets
(a) Sundry assets 8,000 1,200
(b) Investments (1,50,000 equity shares
in S Ltd. at cost) 1,500 —
(2) Current Assets
(a) Inventories 6,100 2,400
(b) Trade receivables 1,300 1,700
(c) Other current assets (bills receivables) 100 —
TOTAL 17,000 5,300
Following additional information is also given :
(i) S. Ltd. has earned all the profits only since the above 1,50,000 shares were
acquired by H. Ltd.
(ii) On the date of acquisition of these 1,50,000 shares by H. Ltd., S. Ltd. had
balance in the reserve fund of `6,00,000.
(iii) The bills payable of S. Ltd. were in favour of H. Ltd. which had discounted
`2,00,000 of them.
(iv) Sundry assets of S. Ltd. were undervalued by `2,00,000. Stock of H. Ltd.
includes goods of `5,00,000 purchased from S. Ltd. on which S. Ltd. made a
profit of 25% on cost.
(8 marks)
(b) Rose Ltd. is taking over entire business of Lily Ltd. on the basis of following balance
sheets as at 31st March, 2014 :
Rose Ltd. Lily Ltd.
(`) (`)
I. EQUITY AND LIABILITIES
(1) Shareholders' funds
(a) Share capital
Equity shares of `10 each, fully paid 10,80,000 8,06,600
(b) Reserves and surplus
General reserve 1,72,000 1,09,980
Surplus 1,32,000 87,000
(2) Current liabilities
Trade payables 88,800 1,16,400
TOTAL 14,72,800 11,19,980

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Rose Ltd. Lily Ltd.

(`) (`)
II. ASSETS
(1) Non-current Assets
(a) Fixed assets
(i) Tangible assets (Plant) 4,20,000 3,20,000
(ii) Intangible assets (Goodwill) 1,00,000 70,000
(2) Current Assets
(a) Inventories 1,83,000 1,65,000
(b) Trade receivables 5,73,800 3,45,800
(c) Cash and cash equivalents 1,96,000 2,19,180
TOTAL 14,72,800 11,19,980
Further Information :
(a) Plant of Rose Ltd. and Lily Ltd. is worth `3,90,000 and `3,50,000 respectively.
(b) Goodwill of Rose Ltd. and Lily Ltd. is to be valued at `1,50,000 and `1,00,000
respectively.
(c) Stock of Lily Ltd. is over-valued by 10% above its cost.
(d) Rose Ltd. is taking over Lily Ltd. by issue of shares at the intrinsic value.
(e) All the assets and liabilities of Lily Ltd. were incorporated in the books of
Rose Ltd. at fair value and assets and liabilities of Rose Ltd. have been carried
at carrying values only.
You are required to prepare post absorption balance sheet of Rose Ltd.
(7 marks)

PART – B

5. (a) Explain the penal provisions applicable to auditors under the Companies Act, 2013.
(b) What are the important matters which an auditor should ensure to ascertain and establish
true and fair view ?
(c) Differentiate between 'secretarial audit' and 'internal audit'.
(5 marks each)

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Attempt all parts of either Q.No. 6 or Q.No. 6A

6. (a) Explain the procedure of fraud reporting by an auditor as per the Companies Act, 2013.
(b) What are the techniques of internal control system ? Discuss with examples.
(c) What is audit in-depth ? Mention the various stages in purchase of goods.
(5 marks each)

OR (Alternate question to Q.No. 6)

6A. (i) What are the points for consideration in audit planning in relation to the audit
engagement ?
(ii) What precautions should be taken while adopting test checking ?
(iii) Distinguish between 'audit' and 'investigation'.
(5 marks each)

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