Sunday, April 14, 2019

Corporate Accounting Solved Question Papers - May' 2018


2018 (May)
COMMERCE (General/Speciality)
Course: 203 (Corporate Accounting )
The figures in the margin indicate full marks for the questions
 (NEW COURSE)
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1. (a) Fill in the blanks:                                                                  1x4=4

1)            Assets of the company cannot be mortgaged in favour of Shareholders.
2)            Companies have a statutory obligation to prepare Final Accounts as required by Section 129 of the Companies Act, 2013.
3)            Accounting Standard 14 relates to accounting for amalgamation.
4)            A wholly owned subsidiary company is one in which all the shares with voting rights of subsidiary company are owned by the holding company.
(b) State the following statements whether true or false:                                                 1x4=4
1)            Redeemable preference shares can be redeemed although they are partly paid-up.           False
2)            Under the Income-tax Act, 1961, companies are required to pay advance tax on their expected profits.  True
3)            Any reduction of capital reduces the security of the creditors.        False
4)            Section 2(67) of the Companies Act, 2013 defines a subsidiary company.   False, 2(87)
2. Write short notes on (any four):                                         4x4=16
a)      Reserve Capital.
b)      Debentures Trust Deed.
c)       Interim Dividend.
d)      Internal Reconstruction.
e)      Capital Profits.
Ans: a) Reserve Capital: A company may by special resolution determine that any portion of its share capital which has not been already called up shall not be capable of being called-up, except in the event of winding up of the company. Such type of share capital is known as reserve-capital.
b) Debenture Trust Deed: A company issuing debentures by way of public issue is required to appoint trustees and execute a trust deed. The trustees are expected to protect the interest of the debenture holders through the powers granted by the trust deed. Debenture trust deed is a document created by the company issuing debentures. Trust deed is prepared before the issue of prospectus or letter of offer to the public for subscription of debentures. Who can be trustee? In case of issue of debenture with maturity of more than 18 months, the issuer shall appoint a debenture trustee which may be a scheduled bank or an insurance company or a body corporate or a public financial institution. But, a person who holds shares in the company or who is beneficially entitled to receive money which is to be paid to/by the company to the debenture trusted or has entered into any guarantee cannot appointed as a trustee.
c) Interim Dividend: This dividend is declared between two annual general meetings. Section 123 of the Companies Act, 2013 provides that the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year which interim dividend is sought to be declared. It further provides that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years. The Board may from time to time pay to the shareholders such interim dividends as appear to it to be justified keeping in view the profits of the company.
d) Internal Reconstruction: Internal reconstruction means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. In internal reconstruction neither the existing company is liquidated, nor is a new company incorporated. It is a scheme in which efforts are made to bail out the company from losses and put it in profitable position. Internal reconstruction of a company is done through the reorganization of its share capital. It is a scheme of reorganization in which all interested parties in the capital structure volunteer to sacrifice. They are the company’s shareholders, debenture holders, creditors etc. Under internal reconstruction, the accumulated trading losses and fictitious assets are written off against the sacrifice made by these interest holders in the form of reduction of paid up value of their interest.
e) Capital Profits: Capital profits are not earned during the normal course of the business and arise in the following special circumstances:
a)      Profit on sale of fixed assets.
b)      Profits on purchase of business, such profit arises when the value of assets taken over minus the liabilities taken over is more than the amount paid for the purchase of the business.
c)       Profit prior to incorporation.
d)      Premium received on issue of shares or debentures.
e)      Balance left in Forfeited Shares Account after the reissue of forfeited shares.
f)       Profit made on redemption of debentures.
g)      Profit set aside for redemption of preference shares.
Ordinarily capital profits are not available for the distribution of dividend. Such profits can be utilized for writing off capital losses and fictitious assets like preliminary expenses, goodwill, discount or commission on issue of shares or debentures etc. or for issuing bonus shares.
Capital profits can be distributed as dividend only if (a) The Articles of a company permit; (b) they are realized in cash; (c) surplus remains after a revaluation of all assets; and (d) capital losses have been written off. It may be noted that securities premium account, Capital redemption reserve account, profit prior to incorporation and profit on reissue of forfeited shares cannot be distributed as dividend under the Companies Act.
3. (a) Discuss the provisions of law with regard to redemption of redeemable preference shares as laid down in Section 55 of the companies Act, 2013. Give its accounting treatments.   8+6=14
Ans: Preference shares:  Sec. 43 (b) of the Companies Act, 2013 defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights viz.
(a) Preference in payment of dividend and
(b) Preference in repayment of capital in case of winding up of the company, must attach to preference shares.
 The rate of dividend on these shares is fixed and the dividend on these shares must be paid before any dividend is paid to ordinary shares. Directors, however, may decide not to pay any dividend to any class of shareholders even if there are sufficient profits. But, if any how, they decide to pay the dividend, preference shareholders will get the priority to pay the ordinary shareholders.
Conditions for redemption of Preference Shares: Under section 55 of the Companies Act, 2013, a company should have to follow the conditions:
1.       No authorization is required in the articles to redeem the preference shares of a company.
2.       The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.
3.       The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of fresh issue of shares for the purpose of redemption.
4.       If the shares are redeemed at a premium, it should be should be provided out of securities premium or out of profits of the company.
5.       The proceeds from fresh issue of debentures cannot be utilized for redemption.
6.       The amount of capital reserve cannot be used for redemption of preference shares.
7.       If the shares are redeemed out of undistributed profit, the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve Account. This is also known as capitalization profit. CRR may be utilised only for the purpose of issuing fully paid bonus shares to the members.

Or
(b) X Co. Ltd. Issued 500, 6% Debentures of Rs. 100 each on 1st April, 2014. Repayable at a premium of 5% at the end of 3 years. In order to ensure repayment, a sinking fund was created at 5% per annum compound interest. Investment realized Rs. 33,000 on 31st March, 2017 and the debentures were paid-off on that date. Sinking fund table shows that Rs. 0.317208 amounts to Rs. 1 in 3 years at 5% compound interest. Pass the necessary Journal Entries in the books of the company.                                                                   14
Ans: Calculation of amount of sinking fund = 52,500*0.317208= 16,653
In the books of ABC Co. Ltd
Date
Particulars
L/F
Amount (Dr.)
Amount (Cr.)
1-4-14
Bank A/c                                                                    Dr.
Loss of issue of debentures A/c                             Dr.
To Debentures A/c
To Premium on Redemption of debentures A/c
(Being the 500 6% debentures issue at par but redeemed at a premium of 5%)

50,000
2,500


50,000
2,500
31-3-15
Surplus A/c                                                                Dr.
To Sinking Fund A/c
(Being the surplus transferred to Sinking Fund)

16,653

16,653
31-3-15
Sinking Fund Investment A/c                                 Dr.
To Bank A/c
(Being the Sinking Fund invested @ 5% p.a.)

16,653

16,653
31-3-16
Bank A/c (16,653 x 5%)                                        Dr.
To Interest on Sinking Fund Investment A/c
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

833

833
31-3-16
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)

16,653
833


17,486
31-3-16
Sinking Fund Investment A/c                                  Dr.
To Bank A/c
(Being the Sinking Fund Invested @ 5% p.a.)

17,486

17,486
31-3-17
Bank A/c                                                                      Dr.
To Interest on Sinking Fund Investment A/c (34,139*5%)
(Being the Interest @ 5% p.a. received on Sinking Fund Investment A/c)

1,707

1,707
31-3-17
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)

16,653
1,707


18,360
31-3-17
Bank A/c                                                                      Dr.
Sinking Fund A/c                                                        Dr.
To Sinking Fund Investment A/c 
(Being the Sinking Fund Investment @ 5% p.a. redeemed)

33,000
1,139


34,139
31-3-17
Debentures A/c                                                        Dr.
Premium on Redemption of Debentures A/c    Dr.
To Bank A/c
(Being the debentures redeemed at a premium of 5%)

50,000
2,500


52,500
31-3-17
Sinking Fund A/c                                                      Dr.
To General Reserve A/c
(Being the balance of sinking fund is transferred to general reserve after redemption of debentures)

51,360

51,360

CORPORATE ACCOUNTING SOLVED QUESTION PAPERS (2010 TO 2018)

4. (a) Explain the illustrate how the following items are to be shown in the Balance Sheet of a company to comply with the requirements of the Companies Act, 2013:         3 ½ x4=14
a)      Share Capital
b)      Secured Loans
c)       Current Liabilities
d)      Fixed Capital Expenditure
Or
(b) Following are the Ledger balances of ABC Ltd. As on 31st March, 2018:
Debit balances
Rs.
Credit balances
Rs.
Premises
Plant
Stock (1st April, 2017)
Debtors
Goodwill
Cash at Bank
Calls-in-Arrear
Interim Dividend Paid
Purchases
Wages
General Expenses
Salaries
Bad Debts
Debenture Interest paid
Preliminary Expenses
30,72,000
33,00,000
7,50,000
8,70,000
2,50,000
4,51,600
75,000
3,92,500
18,50,000
9,79,800
53,350
2,02,250
21,000
1,80,000
20,000
Share Capital
12% Debentures
Surplus Account
Bills Payable
Creditors
Sales
General Reserve
Bad Debt Provision (1st April, 2017)
40,00,000
30,00,000
2,62,500
3,70,000
4,00,000
41,50,000
2,50,000
35,000

1,24,67,500

1,24,67,500
Additional Information:
1)      Stock on 31st March, 2018 was Rs. 9,50,000.
2)      Depreciate plant by 15%.
3)      Write-off Rs. 5,000 from preliminary expenses.
4)      Interest on debenture is due for 6 months.
5)      Create 5% provision for doubtful debts.
6)      Provide for income tax # 50%.
Prepare Final Accounts of the company for the above period.                          8+6=14
Statement of P/L  A/c of ABC Ltd
For the year ended 31st March 2018
Particulars
L/F
Amount
  I.         Income:
a)      Revenue from operation



41,50,000
Total Incomes

41,50,000
II.         Expenses:
a)       Purchase of stock-in-trade
b)      Change inventories (O/S – C/S)
c)       Employees benefit expenses
d)      Financial Cost
e)      Depreciation & Amortization
f)        Other expenses:



(1)
(2)
(3)
(4)

18,50,000
(2,00,000)
11,82,050
3,60,000
4,95,000
87,850
Total Expenses

37,94,900
Net Surplus before Income Tax (I – II)
Less: Income Tax @ Rs. 50%

3,55,100
1,77,550
Net Surplus after Income Tax

1,77,550
Note – 1 Employees Benefit Expenses

Amount
Wages
Salaries
9,79,800
2,02,250

11,82,050
Note – 2 Finance Cost

Amount
Interest on Debenture Interest due (30,00,000 x 12% x 6/12)
Interest paid
1,80,000
1,80,000

3,60,000
Note – 3 Depreciation & Amortization 

Amount
Depreciation on Plant (33,00,000 x 15%)
4,95,000

5,00,000
Note – 4 Other Expenses

Amount
General Expenses
Bad debts                                                                    21,000
Add: provision for bad debts                                   43,500
                                                                                      64,500
Less; Old provision                                                    35,000
Preliminary Expenses
53,350



29,500
5,000

87,850

Balance Sheet of M/s Modern Dress Bandar Ltd. as on 31-3-2015
Particulars
L/F
Amount
        I.            Equity & Liabilities:
a)      Shareholders Fund
                                                         i.            Share Capital
                                                       ii.            Reserve & Surplus


(1)
(2)


39,25,000
2,97,550
Total (I + II)

42,22,550
b)      Non-Current Liabilities
                                                         i.            Long-term borrowing
12% Debenture



30,00,000
Total

30,00,000
c)       Current Liabilities
                                                         i.            Trade Payable
                                                       ii.            Other Current Liabilities
                                                      iii.            Short-term provision

(3)
(4)
(5)

7,70,000
1,80,000
2,21,050
Total

11,71,050
Total Liabilities (a + b + c)

83,93,600
      II.            Assets:
a)      Non-Current Assets
                                                          i.            Fixed Assets


(6)


61,22,000
Total

61,22,000
b)      Current Assets
                                                         i.            Inventories (Closing Stock)
                                                       ii.            Trade receivable (Sundry Debtors)
                                                      iii.            Cash & Cash equivalents (Stock)





9,50,000
8,70,000
4,51,600
Total

22,71,600
Total Assets (a + b)

83,93,600
Note – 1 Share Capital   

Amount
Equity Share Capital                                                           40,00,000
Less: Calls-in-arrear                                                                 75,000

39,25,000

39,25,000
Note – 2 Reserve & Surplus 

Amount
General Reserve                                                                  
 Surplus:                        
Opening                                          2,62,500
Add: Surplus
For the year                                   1,77,550
                                                                           4,40,050

    Less: (i) Interim Dividend paid                  3,92,500
2,50,000






47,550

2,97,550
Note – 3 Trade Payable  

Amount
Creditors
Bills Payable
4,00,000
3,70,000

7,70,000
Note – 4 Other Current Liabilities   

Amount
Debenture Interest due  (30,00,000 x 12% x 6/12)
1,80,000

1,80,000
Note – 5 Short-term Provisions  

Amount
Income Tax
Bad debts provision (new)
1,77,550
43,500

2,21,050
Note – 6 Fixed Assets  

Amount
         i.            Tangible Assets:
Premises                                                 30,72,000
Plant (33,00,000 – 4,95,000)              28,05,000

       ii.            Intangible Assets:
Goodwill (2,50,000 – 5,000)


58,77,000


2,45,000

61,22,000
5. (a) Explain the following:                                                                    4+4+6=14
1)      Amalgamation in the nature of merger.
2)      Amalgamation in the nature of purchase.
3)      Treatment of reserves on amalgamation in the nature of merger and in the nature of purchase.
Ans: 1) According to AS – 14, Amalgamation is of two types:
a.       Amalgamation in the nature of merger
b.      Amalgamation in the nature of purchase
Amalgamation in the nature of Merger
According to AS-14 on Accounting for Amalgamation, the following conditions must be satisfied for an amalgamation in the nature of merger:
a. After amalgamation, all the assets and liabilities of the transferor company becomes the assets and liabilities of the transferee company.
b. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become the equity shareholders of the transferee company by virtue of amalgamation.
c. The business of the transferor company is intended to be carried on after the amalgamation by the transferee company.
d. Purchase consideration should be discharged only by issue of equity shares in the transferee company except that cash may be paid in respect of any fractional shares.
e. No adjustments are required to be made in the book values of the assets and liabilities of the transferor company, when they are incorporated in the financial statements of the transferee company. If any one of the condition is not satisfied in a process of amalgamation, it will not be considered as amalgamation in the nature of merger.
2) Amalgamation in the nature of Purchase: An amalgamation will be treated as “Amalgamation in the nature of purchase” if any of the above mentioned conditions is not satisfied.
3) Treatment of Reserve in case of amalgamation
When amalgamation is in the nature of merger, there is no distinction between statutory or other reserves. In this type of amalgamation, the identity of the reserves of the transferor company is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company.
If the amalgamation is an ‘amalgamation in the nature of purchase’, the identity of the reserves, other than the statutory reserves, is not preserved. Only the statutory reserve of Transferor Company is transferred to the transferee company’s balance sheet. The amount of the purchase consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negative, the difference is debited to goodwill arising on amalgamation and if the result of the computation is positive, the difference is credited to capital reserve account.
Or
(b) Following are the Ledger balances of XYZ Co. Ltd. As on 31st March, 2018:
Debit balances
Rs.
Credit balances
Rs.
Share Capital: Fully Paid
10000 Equity shares of Rs. 10 each
500, 9% Preference Shares of Rs. 100 each
Sundry Creditors

1,00,000
50,000
25,000
Land and Building
Plant and Machinery
Stock-in-trade
Sundry Debtors
Cash at Bank
Profit and Loss Account (Dr.)
60,000
25,000
25,000
14,500
500
50,000

1,75,000

1,75,000
Due to heavy losses, the following scheme of reconstruction is agreed by the company:
1)   To reduce the value of each equity share to Rs. 4
2)   To convert existing preference shares into 400, 12% Preference Shares of Rs. 100 each.
3)   To write down the value of stock by Rs. 5,000.
4)   After writing-off the debit balance of Profit and Loss Account, any balance left was to be used in raising a reserve against sundry debtors.
Give necessary Journal Entries in the books of the company to record the above adjustments and prepare the Revised Balance Sheet after reduction.                                         8+6=14
Journal Entries
In the books of XYZ Ltd
Particulars
L/F
Amount
Amount
Equity Share Capital A/c (10)                                     Dr.
To Equity Share Capital A/c (5)
To Capital Reduction A/c (5)
(Being the equity share capital reduced by Rs. 5 each)

1,00,000

50,000
50,000
9% Preference Share Capital A/c                               Dr.
To 12% Preference Share A/c
To Capital Reduction A/c
(Being the 500 9% preference shares of Rs. 100 each converted into 400 12% preference shares of Rs. 100 each)

50,000

40,000
10,000
Capital Reduction A/c                                                           Dr.
To Profit & Loss A/c
To Stock A/c
To Provision for b/d A/c
(Being the sundry assets and debit balance of profit and loss account written off)

60,000

50,000
5,000
5,000
Balance Sheet of XYZ LTd (And Reduced)
Particulars
Note No.
Amount
I. Equity & Liabilities:
1. Shareholders fund:
a) Share Capital
Equity Share Capital
12% Preference Share Capital




50,000
40,000

2. Non Current Liabilities:
3. Current Liabilities
Trade Payable  (Sundry Creditors)

Nil

25,000
Total (1 + 2 + 3)

1,15,000
II. Assets:
1. Non Current Assets:
Fixed As
Tangible Fixed Assets:
Land and Building
Plant and Machinery
2. Current Assets
Inventories (25,000-5000)
Trade receivable  (Debtors less provision for b/d)
Cash & cash equivalent





60,000
25,000

20,000
9,500
500
Total (1 + 2)

1,15,000

6. (a) What do you mean by Consolidated Financial Statements? What are the objectives and scope of these statements? Also point out the advantages and disadvantages of consolidation.        2+2+3+4+3=14
Ans: Meaning of Consolidated financial statements
Consolidated financial statements refer to the financial statements which show the summative accounting figure of the holding company along with its subsidiaries. In other words, consolidated financial statements can be addressed as the combined financial statements of a holding company and its subsidiaries. Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements.
Objective/Purpose of consolidated financial statements/Why Consolidation of Balance Sheet & Profit & Loss Account is necessary?
In India, the law does not compel a holding company to prepare a consolidated Balance Sheet & Profit & Loss Account. It is only for convenience that these statements are prepared. Shareholders of a holding company are interested in knowing the affairs of the subsidiary company as part of their money given to the holding company is invested in subsidiary company. So it becomes safe for directors of the holding company to disclose to the shareholders of the holding company the extent to which they are entitled to the net assets of the subsidiary company. By way of consolidated Balance Sheet, the investments of the holding company in the subsidiary company are replaced by assets.
Consolidation of Balance Sheet & Profit & Loss Account means the combining of the separate Balance Sheet & the separate Profit & Loss Accounts of the Holding company & its subsidiary company or companies into Single Balance Sheet & a Single Profit & Loss Account.
The purpose of a Consolidated Balance Sheet & Profit & Loss Account is to show the financial position & Operating results of a group consisting of a holding company & one or more subsidiaries. The consolidated statements are reports of notional accounting entity which subsist on the view that the holding & subsidiary companies are to be treated as one economic unit. The Financial position & Operating results reported through the consolidated statements are portrayed from the interest of the members of the holding company.
General principles of consolidated financial statements
The general principles involved in consolidated financial statements are:
1. A consolidated financial statement should essentially provide true and fair picture of financial condition and operating result of the business faction.
2. A consolidated financial statement needs to be prepared on the basis of legal-entity based financial statements of the parent company and its subsidiaries which belong to the business faction, and prepared in accordance with the GAAP.
3. A consolidated financial statement needs provide a clear vision about the financial info requisite for interested parties not to mislead their judgments about the business groups’ condition.
4. The procedures and policies used for preparing consolidated financial statements need to be applied ad infinitum and should not be changed without any reason.
Benefits of Consolidated financial statements
a) The ultimate benefit of consolidated financial statements should be ease of understanding and analysis of a company's financial condition for investors, creditors and other users who needs to know whether or not company is able to pay its liabilities and continue as a profitable enterprise.
b) A more sinister benefit of consolidated finances is that they can be manipulated to hide financial problems. It is extremely difficult to ascertain from these statements whether there are hidden problems and exactly where they are in the enterprise.
c) Since, mutual transactions are omitted; it presents a truer view of the companies by showing only financial activity with non-related parties.
Demerits of consolidated financial statements
a)      When income statements are brought together and reported on a consolidated basis, the revenues, expenses and net profit are presented as combined figures. This can hide any profitability issues with one or more of the companies. For example, if a subsidiary lost a substantial amount of money in the year as a result of poor sales, financial statement readers may not see that information if the loss is combined with profits of the parent company.
b)      Ratio analysis done on the basis of consolidated financial statements will give misleading results. Ratios are comparisons between financial statement lines. For example, the current ratio is current assets divided by current liabilities. This ratio tells investors how well the company will be able to pay its near-term obligations. In a consolidated financial statement, each company's assets, liabilities and income are combined. Financial ratios based on combined numbers may not be representative of each company's ratios. If one of the companies has a high level of debt compared to the equity of the owners, that leverage would be hidden in a consolidated statement.
c)       All inter-company transactions are removed in a consolidation. On one hand, this presents a truer view of the companies by showing only financial activity with non-related parties. However, it also hides the level of inter-company transactions.
Or
(b) The following are the Ledger balances of H Ltd. And its subsidiary company S Ltd. As on 31st March, 2018:
Credit Balances
H Ltd.
S Ltd.
Debit Balances
H Ltd.
S Ltd.
Share Capital:  
(Shares of Rs. 10 each)
General Reserve
Profit and Loss A/c
Creditors

6,00,000
1,50,000
70,000
90,000

2,00,000
70,000
70,000
40,000
Machinery
Furniture
Investment:
70% Shares of S Ltd. (cost)
Stock
Debtors
Cash at Bank
Preliminary Expenses
3,00,000
70,000

2,60,000
1,75,000
55,000
50,000
-
1,00,000
45,000

-
1,89,000
30,000
10,000
6,000

9,10,000
3,80,000

9,10,000
3,80,000
H Ltd. Acquired the shares of S Ltd. On 30th June, 2017. On 1st April, 2017 S Ltd. ‘s General Reserve and Profit & Loss Account balance stood at Rs. 60,000 and Rs. 20,000 respectively. No part of preliminary expenses was written-off during the year ended 31st March, 2018. Prepare a Consolidated Balance Sheet of H Ltd. And its subsidiary company S Ltd. As on 31st March, 2018.  14
Ans: Refer Q.N.6 of 2016 exam

1 comment:

Kindly give your valuable feedback to improve this website.

Popular Posts for the Day