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Dibrugarh University Solved Question Papers: Corporate Accounting (2011 - Old Course)


Corporate Accounting 2011 (Old Course)
1. (A) What do you mean by buyback of shares? State the conditions to be fulfilled for buyback of shares. Briefly give guidelines in regulations made by SEBI relating to buyback of shares.
Ans: Out of Syllabus
OR
(b) A company issued 5000 debentures of Rs 100 each at par on 1st January, 2003 redeemable at par on 31st December, 2007. A sinking fund was established for the purpose. It was expected that investments would earn 5% net. Sinking fund tables’ show that Re 0.180975 invested at the end of each year will amount to Re 1 at the end of 5 years @ 5%. On 31st December, 2007 the investment realized Rs 3, 90,000. On that Date Company’s Bank balance stood at Rs 1, 45,600. The debentures were duly redeemed. Give Journal Entries, Ledger Accounts and assume that the investments were made to the nearest Rs 10.
Journal Entries
In the books of _______________
Date
Particulars
L/F
Amount (Dr.)
Amount (Cr.)
1-1-03
Bank A/c                                                                    Dr.
To Debentures A/c
(Being the 5,000 Debentures of Rs. 100 each issued at par)

5,00,000

5,00,000
31-12-03
Surplus A/c                                                                Dr.
To Sinking Fund A/c
(Being the surplus transferred to Sinking Fund)

90,488

90,488
31-12-03
Sinking Fund Investment A/c                                 Dr.
To Bank A/c
(Being the Sinking Fund invested @ 5% p.a.)

90,490

90,490
31-12-04
Bank A/c (90,490 x 5%)                                        Dr.
To Interest on Sinking Fund Investment A/c
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

4,525

4,525
31-12-04
Surplus A/c                                                                 Dr.
Interest on Sinking Fund Investment A/c            Dr.
To Sinking Fund A/c
(Being the surplus and Interest on Sinking fund transferred to Sinking Fund A/c)

90,488
4,525


95,013
31-12-04
Sinking Fund Investment A/c                                  Dr.
To Bank A/c
(Being the Sinking Fund Invested @ 5% p.a.)

95,010

95,010
31-12-05
Bank A/c                                                                      Dr.
To Interest on Sinking Fund Investment A/c
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

9,275

9,275
31-12-05
Surplus A/c                                                                 Dr.
Interest on Sinking Fund Investment A/c            Dr.
To Sinking Fund A/c
(Being the surplus and Interest on Sinking fund transferred to Sinking Fund A/c)

90,488
9,275


99,763
31-12-05
Sinking Fund Investment A/c                                  Dr.
To Bank A/c
(Being the Sinking Fund Invested @ 5% p.a.)

99,760

99,760
31-12-06
Bank A/c                                                                      Dr.
To Interest on Sinking Fund Investment A/c
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

14,263

14,263
31-12-06
Surplus A/c                                                                 Dr.
Interest on Sinking Fund Investment A/c            Dr.
To Sinking Fund A/c
(Being the surplus and Interest on Sinking fund transferred to Sinking Fund A/c)

90,488
14,263


1,04,751
31-12-06
Sinking Fund Investment A/c                                  Dr.
To Bank A/c
(Being the Sinking Fund Invested @ 5% p.a.)

1,04,750

1,04,750
31-12-07
Bank A/c                                                                      Dr.
To Interest on Sinking Fund Investment A/c
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

19,501

19,501
31-12-07
Surplus A/c                                                                 Dr.
Interest on Sinking Fund Investment A/c            Dr.
To Sinking Fund A/c
(Being the surplus and Interest on Sinking fund transferred to Sinking Fund A/c)

90,488
19,501


1,09,989
31-12-07
Bank A/c                                                                      Dr.
Sinking Fund A/c                                                        Dr.
To Sinking Fund Investment A/c
(Being the Sinking Fund Investment @ 5% p.a. redeemed)

3,90,000
10


3,90,010
31-12-07
Debentures A/c                                                        Dr.
To Bank A/c
(Being the 5,000 Debentures of Rs. 100 each redeemed at par)

5,00,000

5,00,000
31-12-07
Sinking Fund A/c                                                      Dr.
To General Reserve A/c
(Being the balance in sinking fund transferred to general reserve)

4,99,994

4,99,994
Sinking Fund A/c
Date
Particulars
Amount
Date
Particulars
Amount
31-12-03
To Balance c/d
90,488
31-12-03
By Surplus A/c
90,488


90,488


90,488
31-12-04
To Balance c/d
1,85,501
01-01-04
31-12-04
By balance b/d
By Surplus A/c
By Interest on Sinking Fund Investment A/c

90,488
90,488
4,525


1,85,501


1,85,501
31-12-05
To Balance c/d
2,85,264
1-1-05
By Balance b/d
By Surplus A/c
By Interest on Sinking Fund Investment A/c
1,85,501
90,488

9,275


2,85,264


2,85,264
31-12-06
To Balance c/d
3,90,015
01-01-06
31-12-06
By balance b/d
By Surplus A/c
By Interest on Sinking Fund Investment A/c

2,85,264
90,488

14,263


3,90,015


3,90,015
31-12-07
To Sinking Fund investment A/c
To General Reserve A/c
10
4,99,994
01-01-07
31-12-07
By balance b/d
By Surplus A/c
By Interest on Sinking Fund Investment A/c

3,90,015
90,488

19,501


5,00,004


5,00,004
Sinking Fund Investment A/c
Date
Particulars
Amount
Date
Particulars
Amount
31-12-03
To Bank A/c
90,490
31-12-03
By Balance c/d
90,490


90,490


90,490
1-1-04
31-12-04
To Balance b/d
To Bank A/c
90,490
95,010
31-12-04
By balance c/d
1,85,500


1,85,500


1,85,500
1-1-05
31-12-05
To Balance b/d
To Bank A/c
1,85,500
99,760
31-12-05
By balance c/d
2,85,260


2,85,260


2,85,260
1-1-06
31-12-06
To Balance b/d
To Bank A/c
2,85,260
1,04,750
31-12-06
By balance c/d
3,90,010


3,90,010


3,90,010
1-1-07

To Balance b/d
3,90,010

31-12-07
31-12-07
By Bank A/c
By Sinking Fund A/c
3,90,000
10


3,90,010


3,90,010
Debentures A/c
Date
Particulars
Amount
Date
Particulars
Amount
31-12-03
To Balance c/d
10,00,000
1-1-03
By Bank A/c
10,00,000


10,00,000


10,00,000
31-12-04
To Balance c/d

10,00,000
1-1-04
By Balance b/d
10,00,000


10,00,000


10,00,000
31-12-05
To Balance c/d

10,00,000
1-1-05
By Balance b/d
10,00,000


10,00,000


10,00,000
31-12-06
To Balance c/d

10,00,000
1-1-06
By Balance b/d
10,00,000


10,00,000


10,00,000
31-12-07
To Bank A/c
10,00,000
1-1-07
By Balance b/d

10,00,000


10,00,000


10,00,000
Bank A/c
Date
Particulars
Amount
Date
Particulars
Amount
31-12-07
31-12-07
31-12-07

To Balance B/d
To Sinking fund investment A/c
To Interest on sinking fund
 investment A/c
1,45,600
3,90,000

19,501
31-12-07
By Debentures A/c
5,00,000



10,00,000


55,101

2. The following is the Trial Balance of Bee Ltd. as on 31st March, 2007:
Dr. Balances
Rs
Cr. Balances
Rs
Stock as on 1.4.2006
Purchases
Wages 
Carriage
Furniture
Salaries
Rent
Sundry Trade Expenses
Dividend Paid
Debtors
Plant & Machinery
Cash at Bank
Patents
Bills Receivable
75,000
2,45,000
30,000
950
17,000
7,500
4,000
7,050
9,000
27,500
29,000
46,200
4,800
5,000
Purchase Returns
Sales     
Discount             
Profit & Loss A/c
Share Capital
Creditors
General Reserve
Bills Payable
10,000
3,40,000
3,000
15,000
1,00,000
17,500
15,500
7,000

5,08,000

5,08,000
Prepare the profit & Loss A/c for the year ended 31st March, 2007 and a Balance Sheet as on that date after considering the following adjustments:
(a)    Stock as on 31st March, 2007 Rs 88,000
(b)   Provide for income tax at 50%
(c)    Depreciate Plant and Machinery at 15%; Furniture at 10% and Patents at 5%
(d)   On 31st March, 2007 outstanding rent amounted to Rs 800 and salaries Rs 900
(e)   The Board recommends payment of a dividend @ 15% per annum. Transfer the minimum required amount to General Reserve.
(f)     Provide Rs 510 for doubtful debts
(g)    Ignore corporate dividend tax.
STATEMENT OF PROFIT AND LOSS
In the books of Bee Ltd.
For the year ending 31st March, 2007
Particulars
Note
No.
Amount
I.            Incomes:
Revenue from Operations (net Sales)
Other Income


3,40,000
3,000
Total Income

3,43,000
II.            Expenses:
Purchases Stock in trade                                        2,45,000
Less: Return                                                                 10,000

Changes in Inventories:
Operating Stock                                                         75,000
Less: Closing Stock                                                     88,000
Employee Benefits Expenses (Salaries + Wages + 900)
Finance Cost
Depreciation and Amortization Expenses
Other Expenses 









A
B


2,35,000



(13,000)
38,400
NIL
6,290
13,310
Total Expenses

2,80,000
III.            Net Surplus before Tax (I – II)
Less: Income tax @ 50%

63,000
31,500
Net Surplus after tax

31,500
A. Depreciation and Amortization

Amount
Plant & Machinery (29,000 x 15%)
Furniture (17,000 x 10%)
Patents (4,800 x 5%)
4,350
1,700
240

6,290
B. Other Expenses

Amount
Rent                                                                   4,000
Add: Outstanding                                               800
Sundry Trade Expenses
Carriage
Provision for bad debt

4,800
7,050
950
510

13,310
BALANCE SHEET

Particulars
Note
No.
Amount
        I.             Equity and Liabilities:
1)       Shareholders’ fund
a)       Share Capital
b)      Reserves and Surplus



A


1,00,000
38,000


1,38,000
2)       Non-Current Liabilities
3)       Current Liabilities:
a)       Trade Payable (Creditors + Bills Payable)
b)      Other Current liabilities
c)       Short term provision



B
C
NIL

24,500
1,700
46,500
                               Total

72,700
Total of Equity and Liabilities (1+2+3)

2,10,700
      II.            Assets:
Non-Current Assets
1)      Fixed Assets
a)      Tangible Fixed Assets
b)      Intangible Fixed Assets








39,950
4,560
                              Total Fixed Assets

44,510
Current Assets
a)      Trade Receivables (5,000 + 27,500 – 510)
b)      Inventories
c)       Cash & Cash Equivalents (Cash at Bank)



32,000
88,000
46,200


1,66,200
                            Total of All Assets

2,10,700
. Reserve & Surplus

Amount
General Reserve                                                                           15,500
Add: Transfer to Reserve                                                              1,575

Surplus                                                                                            15,000
Add: Net Surplus after Tax                                                          31,500
                                                                                                         46,500
Less: (1) Dividend (1,00,000 x 15%)                                           15,000
                                                                                                 31,500
Less: Dividend Paid                                                                         9,000
(2) C.D.T                                                                                       NIL
                                                                                                 22,500
(3) Transfer to Reserve (31,500 x 5%)                                 1,575

17,075









20,925

38,000
B. Other Current Liabilities

Amount
Outstanding Rent
Outstanding Salaries
800
900

1,700
C. Short Term Provisions

Amount
Dividend Paid
Provision for tax
15,000
31,500

46,500

CORPORATE ACCOUNTING SOLVED QUESTION PAPERS (2010 TO 2018)


3. (a) Explain the various provisions of alteration and capital reduction of Share Capital as given in the Companies Act, 1956 with examples.
Ans: Forms of Internal reconstruction of a company (Scope of Internal reconstruction)
Internal reconstruction of a company can be carried out in the following different ways. These are as under:
(A) Alteration of Share Capital; and
(B) Reduction in Share Capital
Alteration of Share Capital: Memorandum of Association contains capital clause of a company. Under Section 61 of the Companies Act 2013, a company, limited by shares, can alter this capital clause, if is permitted by (i) the Articles of Association of the company; and (ii) if a resolution to this effect is passed by the company in the general meeting. A company can alter share capital in any of the following ways:
(a) The company may increase its capital by issuing new shares.
(b) It may consolidate the whole or any part of its share capital into shares of larger amount.
(c) It may convert shares into stock or vice versa.
(d) It may sub-divide the whole or any part of its share capital into shares of smaller amount.
(e) It may cancel those shares which have not been taken up and reduce its capital accordingly.
To alter capital by any of the above modes require a resolution at a general meeting, but does not require confirmation by the National Company Law Tribunal. The company is required to give a notice to the Registrar within thirty days of alteration.
The accounting treatment of the above five types of capital alteration is discussed below.
(a) If the company has issued all of its authorised capital, then, for the purpose of raising fund by the issue of fresh shares, it will have to increase its authorised capital first. For increasing the authorised capital, the Capital clause of Memorandum of Association of the company is required to be altered and permission of S.E.B.I. is also required to be obtained.  No accounting entry is necessary for increasing authorised share capital. The company will have to observe the formalities prescribed under the Companies Act, 2013.
(b) The company may decide to change the shares of smaller denomination into larger denomination. This process is called consolidation of shares. On account of consolidation, the total amount of capital of the company will not change but the number of shares will decrease.
(c) A company, in order to alter its share capital, may convert all or any of its fully paid up shares into Stock or Stock into fully paid up shares. In case, shares are converted into Stock, the members get a part of Stock Capital in place of shares. By converting Shares into Stock, any amount of Stock Capital can be transferred to any other person.
(d) When the shares of a company are sub-divided in shares of small value, it is known as sub-division of shares. In sub-division of shares, the face value of a share is converted into smaller denomination from larger denomination. The total capital of the company remains unaffected by sub-division but the total number of shares increase.
(e) Cancellation of capital may take the following form:
(i) Cancellation of unissued capital; and
(ii) Cancellation of uncalled capital.
(i) Cancellation of unissued capital: Cancellation of unissued capital means cancellation of unissued shares by a company. It means that the part of the authorised capital which has not yet been issued to the public may be cancelled by the company.
(ii) Cancellation of uncalled capital: Cancellation of uncalled capital means cancellation of that part of the face value of the share which has not yet been called by the company.
Reduction of Capital: Reduction of share capital is regarded as one of the process of decreasing company’s share capital. The Reduction of Share Capital means reduction of issued, subscribed and paid up share capital of the company. In simple words it can be regarded as ‘Cancellation of Uncalled Capital’ i.e. part of subscribed share capital.
The need of reducing share capital may arise in various situations, few are listed below:
1)      Returning of surplus to shareholders;
2)      Eliminating losses, which may be preventing the payment of dividends;
3)      May be as part of scheme of compromise or arrangements;
4)      To simply capital structure;
This power is, given by Section 66 of the Companies Act, 2013, subject to the compliance of conditions. According to this, a company may,
(1) Extinguish or reduce the liability on any of its shares in respect of share capital not paid up
(2) cancel any paid-up share capital which is lost or is unrepresented by any available assets;
(3) pay off any paid-up share capital which is in excess of what is required by the company.
Conditions for effecting reduction of capital
Following conditions are required to be fulfilled by a company to reduce its share capital –
1. A company constituted with limited liability by shares or guarantee and having share capital is alone entitled to reduce its liability of members.
2. It should have the power under its Articles of Association to do so. If the articles do not contain any provision for reduction of capital, the articles must first be altered so as to give such power.
3. Reduction is regarded as internal restructuring of company, therefore decision of majority will prevail by way of special resolution.
4. The reduction effected by such resolution must be confirmed by the National Company Law Tribunal (‘Tribunal’)
5. No capital reduction can be undertaken if the company is in arrears in the repayment of any deposits (including interest payable thereon) accepted by it.
6. Reduction takes effect on registration of the documents with the Registrar of Companies.
7. Reduction is different from Diminution of shares which is regarded as cancellation of unsubscribed share capital.
8. Nothing in this section shall apply to buy back of its own securities u/s 68 of the Companies Act, 2013
9. Offenses under this section are compoundable under section 441 of the Companies Act, 2013.
10. After capital reduction, the word “And Reduced” in Balance sheet of the company.
(b) The following was the Balance Sheet of XYZ Co. Ltd. before reconstruction:
Liabilities
Rs
Assets
Rs
Issued and Paid-up Capital :
12,000, 7% Preference Share of Rs 50 each
15000 Equity Shares of Rs 50 each
Loan
Sundry Creditors
Other Liabilities

6,00,000
7,50,000
5,73,000
2,07,000
35,000
Building
Plant
Trademarks and Goodwill
Stock
Debtors
Preliminary Expenses
Profit & Loss A/c
4,00,000
2,68,000
3,18,000
4,00,000
3,28,000
11,000
4,40,000

21,65,000

21,65,000
The company is now earning profit but is short of working capital and a scheme of reconstruction had been approved by both classes of shareholders and sanctioned by the court. The scheme is:
(a)    The equity shareholders have agreed that their Rs 50 shares to be reduced to Rs 2.50 per share.
(b)   They have also agreed to subscribe in cash for three new equity share of Rs 2.50 each for each share held by them.
(c)    The preference shareholders have agreed to cancel the arrear of dividend and to accept four new 5% preferences shares of Rs 10 each for every preference share they held and each shareholders to buy six new equity shares of Rs 2.50 each fully paid for each preference share.
(d)   Loan creditors of Rs 1, 50,000 have agreed to convert their loan into preference share of Rs 10 each and 12000 new equity shares of Rs 2.50 each.
(e)   The directors have agreed to subscribe in cash for additional 40000 new equity shares of Rs 2.50 fully paid.
(f)     Of the cash received by issue of new shares Rs 2, 00,000 is to be used to reduce the loan due by the company.
(g)    The amount available is to be applied to write off preliminary expenses, Profit & Loss A/c debit balance and to write off plant and machinery by Rs 35,000. The balance is to be used to write off the value of trademarks and goodwill. Show the Journal Entries to put through the scheme and prepare the Balance sheet after reconstruction.
Journal Entries
In the books of XYZ Ltd
Particulars
L/F
Amount
Amount
Equity Share Capital A/c (50)                                                                       Dr.
To Equity Share Capital A/c (2.5)
To Capital Reduction A/c (47.5)
(Being the equity share capital reduced by 47.5 per share)

7,50,000

37,500
7,12,500
Bank A/c (15,000x3x2.5)                                                                              Dr.
To Equity Share Capital A/c
(Being the 45,000 equity shares issued @ Rs. 2.5 per share)

1,12,500

1,12,500
7% Preference Share Capital A/c (50)                                                       Dr.
To 5% Preference Share A/c (12,000x4x10)
To Capital Reduction A/c
(Being the 7% preference shares converted into 4 5% preference shares of Rs. 10 each)

6,00,000

4,80,000
1,20,000
Bank A/c                                                                                                          Dr.
To Equity Share Capital A/c (12,000x6x2.5)
(Being the 6 new equity shares of Rs. 2.5 each acquired by the preference shareholders for every preference)

1,80,000

1,80,000
Loan A/c                                                                                                           Dr.
To Preference Share Capital A/c (12,000x10)
To Equity Share Capital A/c (12,000x2.5)
(Being the loan creditors converted in 12,000 preference shares of Rs. 10 each and 12,000 equity shares of Rs. 2.5 each)

1,50,000

1,20,000
30,000
Bank A/c                                                                                                          Dr.
To Equity Share Capital A/c
(Being the 40,000 equity share of Rs. 2.50 acquired by the directors)

1,00,000

1,00,000
Loan A/c                                                                                                           Dr.
To Bank A/c
(Being the loan creditors paid off)

2,00,000

2,00,000
Capital Reduction A/c                                                                                    Dr.
To Profit & Loss A/c
To Preliminary Expenses A/c
To Plant & Machinery A/c
To Goodwill & trade marks A/c
To Capital Reserve A/c
(Being the sundry assets written off)

8,32,500

4,40,000
11,000
35,000
3,18,000
28,500

Balance Sheet of XYZ Co. Ltd
As on ___________
Particulars
Amount
  I.                 Equity & Liabilities:
1)      Shareholders fund:
a)      Share Capital
Equity Share Capital
5% Preference Share Capital
b)      Reserve & Surplus:
Capital Reserve



4,60,000
6,00,000

28,500
2)      Non Current Liabilities:
Long Term Borrowings: Bank Loan A/c
3)      Current Liabilities
a)      Trade Payable
b)      Other Liabilities

2,23,000

2,07,000
35,000
Total (1 + 2 + 3)
15,53,500
II.                   Assets:
1)      Non Current Assets:
a)      Fixed Assets
Tangible Fixed Assets: (4,00,000 + 2,33,000)
2)      Current Assets
a)      Inventories
b)      Trade receivable
c)       Cash & cash equivalent



6,33,000

4,00,000
3,28,000
1,92,500
Total (1 + 2)
15,53,500
5. (a) H Ltd. acquired 80000 shares of Rs 10 each in S Ltd. on 1st October, 2006. The summarized Balance sheets of H Ltd. and S Ltd. on 31st March, 2007 were as follows:
Balance Sheet
Liabilities
H Ltd. Rs
S Ltd. Rs
Assets
H Ltd. Rs
S Ltd. Rs
Share Capital of Rs 10 each
20,00,000
10,00,000
Goodwill
1,00,000

Reserves
1,00,000
1,50,000
Machinery
5,00,000
4,50,000
Profit & Loss A/c
50,000
45,000
Furniture
20,000
40,000
9% Debentures

2,00,000
Shares in S Ltd.
8,80,000

Creditors
4,00,000
2,00,000
9% Debentures in S Ltd.
80,000

Bills Payable
20,000
10,000
Stock
5,20,000
6,50,000



Debtors
1,80,000
2,70,000



Bills Receivable
10,000
15,000



Cash
2,80,000
1,80,000

25,70,000
16,05,000

25,70,000
16,05,000
Bills Receivable of S Ltd. includes bills for Rs 8,000 accepted by H Ltd. and creditors of S Ltd. include Rs 20,000 due to H Ltd. An amount of Rs 30,000 was transferred by S Ltd. from the current year’s profits to reserve. You are required to prepare the Consolidated Balance Sheet as on 31st March, 2007 showing therein how your figures are made up.



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