Revision Kit GroupII

Revision
Kit

For C.A. IPCC Group-II

November-2013 Examinations

By
CA. PARVEEN SHARMA
Certified Valuer
B.Com (H), F.C.A., A.C.M.A., C.S.
Post Graduation in Accounting Standards, US GAAP

May, 2013

CA. Parveen Sharma
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reserved with the Author
No Part of this book may be reproduced in any manner whatsoever or translated
in any other language without permission in writing from author.

PRICE ` 1695/-

Copyright No. L-28152/2007

Stockist: Pooja Law House Ph.: 23379103; 09350042870

Dedicated
To My Parents
Sh. SATPAL SHARMA
Smt. JANKI DEVI

Contents
Revision Control Sheet ..................................................................vii
Exams in November 2013......................................................vii
Exams in May 2014 .............................................................. viii
Exams in November 2014.......................................................ix
Topic Sheet of Financial Reporting ................................................. x
List of Important Questions ........................................................... xxi
Mock Test Paper-A with Answers .............................................. 1-19
Mock Test Paper-B with Answers ............................................ 20-42
Mock Test Paper-C with Answers ............................................ 43-63
Mock Test Paper-D with Answers ............................................ 64-83

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Revision Control Sheet vii
RevisionControlSheet
IPCCGROUPII:AdvancedAccountancy
ExamsinNovember2013
Name
Ph.No.
In 1st revision question should be solved. If question has any technical
concepts.
Red Mark it so that it is again practiced in 2nd revision.
IMPORTANT
Date Remarks
Sep-13 Solve RTP of ICAI
1st Oct 2013 Check ICAI website for any announcements
related to examination.
25th Oct 2013 Do Mock Test from Nov-12 / May-13 Suggested
Answers to ICAI examination
1stRevision Sep13
2ndRevision 1stOct13
3rdRevision 15thOct13
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viii Revision Control Sheet

ExamsinMay2014
Name
Ph.No.
concepts.
IMPORTANT
Date Remarks
Sep-13 Solve RTP of ICAI Nov - 13
Dec-13 Solve Nov 13 exam of ICAI
Mar-14 Solve RTP of ICAI May - 14
1st April 2014 Check ICAI website for any announcements
25th April 2014 Do Mock Test from May-13/Nov-13 Suggested
Answers to ICAI examination
1stRevision Sep13
2ndRevision Nov13
3rdRevision Feb14
4thRevision 1stApril14
5thRevision 15thApril14

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Revision Control Sheet ix
ExamsinNovember2014
Name
Ph.No.
concepts.
IMPORTANT
Date Remarks
Dec-13 Solve Nov 13 exam of ICAI
Mar-14 Solve RTP of ICAI May - 14
Jun-14 Solve May 14 exam of ICAI
1st Oct 2014 Check ICAI website for any announcements
25th Oct 2014 Do Mock Test from Nov-13 /May-14
Suggested Answers to ICAI examination
1stRevision
Sep13
2ndRevision
Dec13
3rdRevision
Mar14
4thRevision
Aug14
5thRevision
Oct14

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x Topic Sheet of Advanced Accountancy
TOPICSHEETOFADVANCEDACCOUNTANCY
1stRevision 2ndRevision 3rdRevision 4thRevision 5thRevision Remarks Q.No.
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Chapter3PartnershipAccounts
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Chapter4ElectricityCompanies
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Chapter5AccountingforBankingCompanies
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Chapter6AccountsofInsuranceCompanies
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Chapter7Debentures
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Chapter8LiquidationofCompanies
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Chapter9MiscellaneousCompanyAccounts
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Chapter10InternalReconstruction
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AS14:AccountingforAmalgamations
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CAIPCCGROUPIIADVANCEDACCOUNTANCY
For 44th Batch
LISTOFIMPORTANTQUESTIONS
CHAPTERS IMPORTANTQUESTION
DEPARTMENTAL
ACCOUNTS
1, 2, 3, 5, 6, 8, 10, 11, 13, 14, 15, 16.

BRANCHACCOUNTS 1, 2, 4, 5, 7, 8, 10, 11, 12, 15, 16, 17, 21,
22, 24, 25, 28, 29, 32, 35, 36, 37.
PARTNERSHIPACCOUNTS 1, 2, 5, 6, 7, 8, 10, 12, 15, 16, 18, 19, 20,
23, 24, 25, 27.
ELECTRICITYCOMPANIES 1, 2, 3, 4, 5, 6, 8, 9, 11.
BANKINGCOMPANIES 1, 2, 4, 5, 7, 8, 9, 11, 12, 14, 15, 18, 19,
20, 21, 22, 24, 27, 28, 31, 32, 34, 35, 37,
38, 41, 43, 44, 45, 49, 52.
INSURANCECOMPANIES 1, 2, 3, 5, 6, 8, 9, 10, 14, 15, 16, 17, 20,
22, 23, 25.
DEBENTURES 2, 3, 5, 6, 7, 8, 11, 13, 15, 17, 18, 19, 22,
24, 25, 26.
LIQUIDATIONOF
COMPANIES
1, 3, 4, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16,
18, 19, 22, 23, 25.
MISC.COMPANY
ACCOUNTS
1, 3, 6, 8, 11, 12, 13, 14, 16, 17, 19, 22,
24, 26, 28.
AMALGAMATION 2, 7, 9, 10, 11, 13, 15, 16, 17, 18, 19, 21,
23, 24, 25, 29, 30, 31, 32, 34, 35, 36, 38,
39, 41, 42, 44, 45.
INTERNAL
RECONSTRUCTION
1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12.

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MOCK TEST PAPER-A
IPCC: GROUP-II
PAPER - 5: ADVANCED ACCOUNTING
Question 1:
(a) How would you treat the Government grant received relating to a
depreciable asset under the following cases as per AS-12?
Case I: Gross value of asset ` 2 crores and Grant received ` 20 lakhs only.
Case ii: Gross value of asset ` 2 crores and Grant received ` 2 crores.
Net Profit for the current year ` 2,00,00,000
Number of equity shares outstanding 40,00,000
Basic earnings per share ` 5.00
Number of 11% convertible debentures of ` 100 each 50,000
Each debenture is convertible into 8 equity shares.
Interest expense for the current year ` 5,50,000
Tax saving relating to interest expense (30%) ` 1,65,000
(b) From the following information relating to Omega Ltd., calculate diluted
earnings per share as per AS 20:
(c) Manisha Ltd. makes provision for expenses worth ` 7,00,000 for the year
ending March 31, 2010, but the actual expenses during the year ending
March 31, 2011 comes to ` 9,00,000 against provision made during the last
year. State with reasons whether difference of ` 2,00,000 is to be treated as
prior period item as per AS 5.
(d)
Exchange Rate per
$
Goods purchased on 1.1.2010 of US $ 10,000 ` 45
Exchange rate on 31.3.2010 ` 44
Date of actual payment 7.7.2010 ` 43
Ascertain the loss/gain for financial years 2009-10 and 2010-11, also give
their treatment as per AS 11. (5 Marks each)
Question 2: L and T have been carrying on same business independently. Due
to competition in the market, they decided to amalgamate and form a new
company called LT Ltd.
Following is the Balance Sheet of L and T as at 31.3.2011:
Liabilities L T Assets L T
` ` ` `
Capital 7,75,000 8,55,000 Plant &
machinery
4,85,000 6,14,000
2 Mock Test Paper-A: Questions
Liabilities L T Assets L T
` ` ` `
Current
liabilities
6,23,500 5,57,600 Building 7,50,000 6,40,000
Current assets 1.63,500 1.58.600
13,98,500 14,12,600 13,98,500 14,12,600

Following are the additional information:
(i) The authorised capital of the new company will be ` 25,00,000 divided into
1,00,000 equity shares of ` 25 each.
(ii) Liabilities of L includes ` 50,000 due to T for the purchases made. T made a
profit of 20% on sale to L.
(iii) L has goods purchased from T, cost to him ` 10,000. This is included in the
current asset of L as at 31st March, 2011.
(iv) The assets of L and T are to be revalued as under:
L T
` `
Plant and machinery 5,25,000 6,75,000
Building 7,75,000 6,48,000

(v) The purchase consideration is to be discharged as under:
(a) Issue 24,000 equity shares of ` 25 each fully paid up in the proportion
of their profitability in the preceding 2 years.
(b) Profits for the preceding 2 years are given below:
L T
` `
1st year 2,62,800 2,75,125
IInd year 2,12,200 2,49,875
Total 4,75,000 5,25,000

(c) Issue 12% preference shares of ` 10 each fully paid up at par to provide
income equivalent to 8% return on capital employed in the business as on
31.3.2011 after revaluation of assets of L and T respectively.
You are required to:
(i) Compute the amount of equity and preference shares issued to L and
T.
(ii) Prepare the Balance Sheet of L & T Ltd. immediately after
amalgamation.
(16 Marks)
Question 3: Rohan Ltd. has three departments I, J, K. The following information
is provided for the year ended 31.3.2011:
Mock Test Paper-A: Questions 3
I J K
` ` `
Opening stock 5,000 8,000 19,000
Opening reserve for unrealised profit 2,000 3,000
Materials consumed 16,000 20,000
Direct labour 9,000 10,000
Closing stock 5,000 20,000 5,000
Sales 80,000
Area occupied (sq. mtr.) 2,500 1,500 1,000
No. of employees 30 20 10
Stock of each department is valued at cost to the department concerned.
Stock of I is transferred to J at cost plus 20% and stock of J is transferred to
K at a gross profit of 20% on sales. Other common expenses are salaries
and staff welfare ` 18,000 and rent ` 6,000.
Prepare Departmental Trading, Profit and Loss Account for the year ending
31.3.2011.
(16 Marks)
Question 4: A, B, C and D were partners sharing profits and losses in the ratio of
3:3:2:2. Following was the balance sheet as on 31st March, 2011:
Liabilities ` ` Assets ` `
Sundry creditors 15,500 Sundry debtors 16,000
A's loan 10,000 Less: Provision for bad
debts
500 15,500
Capital
accounts:
Stock in trade 10,000
A 20,000 Cash at bank 2,000
B 15,000 35,000 Furniture and fixture 4,000
Trade mark 7,000
Capital accounts:
C 16,000
D 6,000 22,000
60,500 60,500
On 31st March, 2011, the partnership firm was dissolved and B was
appointed to realise the assets and pay off the liabilities. He was entitled to
receive 5% commission on the amount finally paid to other partners as
capital. He was to bear the expenses of realization.
The assets realised were as follows: sundry debtors ` 11,000; stock ` 8,000;
furniture and fixture ` 1,000; trade mark ` 4,000; creditors were paid off in
full; in addition a contingent liability for bills receivable discounted,
materialized to the extent of ` 2,500. Also there was a joint life insurance
policy for ` 30,000 This was surrendered for ` 3,000. Expenses of
realisation amounted to ` 500. 'C' was insolvent, but ` 3,700 were recovered
from his estate.
You are required to show the following accounts in the book of partnership
firm:
1. Realisation account
2. Cash account
3. Partners' capital accounts. (16 Marks)
Question 5:
(a) On 31st March, 2010, Uncertain Bank Ltd. had a balance of ` 9 crores in
"rebate on bills discounted" account. During the year ended 31st March,
2011, Uncertain Bank Ltd. discounted bills of exchange of ` 4,000 crores
charging interest at 18% per annum the average period of discount being for
73 days. Of these, bills of exchange of ` 600 crores were due for realisation
from the acceptors/customers after 31st March, 2011, the average period
outstanding after 31st March, 2011 being 365 days.
Uncertain Bank Ltd. asks you to pass journal entries and show the ledger
accounts pertaining to:
(i) discounting of bills of exchange and
(ii) rebate on bills discounted. (8 Marks)
(b) Agni Fire Insurance Co. Ltd. commenced its business on 1.4.2010. It
submits you the following information for the year ended 31.3.2011:
`
Premium received 15,00,000
Re-insurance premium paid 1,00,000
Claims paid 7,00,000
Expenses of Management 3,00,000
Commission paid 50,000
Claims outstanding on 31.3.2011 1,00,000
Create reserve for unexpired risk @40%
Prepare Revenue account for the year ended 31.3.20116.
(8 Marks)
Question 6:
(a) Electric Supply Ltd. rebuilt and re-equipped one of their Mains at a Cash
Cost of ` 40,00,000. The old Mains thus superseded cost ` 15,00,000. The
capacity of the new Main is double that of the old Main. ` 70,000 was
Mock Test Paper-A: Questions 5
realised from sale of old materials. Four old motors valued at ` 2,00,000
salvaged from the old Main were used in the reconstruction. The cost of
Labour and Materials is respectively 30% and 25% higher now than when
the old Main was built. The proportion of Labour to Materials in the Main
then and now is 2 : 3.
Show the Journal entries for recording the above transactions. (8 Marks)
(b) From the data relating to a company which went into voluntary liquidation,
you are required to prepare the liquidator's Final Statement of Account.
(i) Cash with liquidators (after all assets are realised and secured
creditors and debentureholders are paid) is ` 7,50,000.
(ii) Preferential creditors to be paid ` 35,000.
(iii) Other unsecured creditors ` 2,30,000.
(iv) 5,000, 10% preference shares of ` 100 each fully paid.
(v) 3,000 equity shares of ` 100 each, ` 75 per share paid up.
(vi) 7,000 equity shares of ` 100 each, ` 60 per share paid up.
(vii) Liquidator's remuneration is 2% on payments to preferential and other
unsecured creditors. (8 Marks)
Question 7: Answer any four out of five:
(a) A retail store has a policy of refunding purchases by dissatisfied customers,
even though it is under no legal obligation to do so. Its policy of making
refunds is generally known. Is it a liability?
(b) In Nidhi Co. Ltd., theft of cash of ` 2 lakhs by the cashier in January, 2011
was detected in May, 2011. The accounts of the company were not yet
approved by the Board of Directors of the company.
Whether the theft of cash has to be adjusted in the accounts of the company
for the year ended 31.3.2011. Decide.
(c) Rohan Limited wishes to obtain a machine costing ` 30 lakhs by way of
lease. The effective life of the machine is 14 years, but the company
requires it only for the first 5 years. It enters into an agreement with Ashok
Ltd., for a lease rental for ` 3 lakhs p.a. payable in arrears and the implicit
rate of interest is 15%. The chief accountant of Rohan Limited is not sure
about the treatment of these lease rentals and seeks your advise.
(d) N Co. Ltd. has its share capital divided into equity shares of ` 10 each. On
1.10.2010 it granted 20,000 employees' stock option at ` 50 per share,
when the market price was ` 120 per share. The options were to be
exercised between 10th December, 2010 and 31st March, 2011. The
employees exercised their options for 16,000 shares only and the remaining
options lapsed. The company closes its books on 31st March every year.
Show Journal entries (with narration) as would appear in the books of the
company upto 31st March, 2011.
(e) Himani Ltd. in the past three years spent ` 75,00,000 to develop a Drug to
treat Cancer, which was charged to Profit and Loss Account since they did
not meet AS 26 criteria for capitalization. In the current year approval of the
concerned Government Authority has been received. The Company wishes
to capitalize ` 75,00,000 and disclose it as a prior period item. Is it correct?
Give reason for your views. (4 Marks each)
MOCK TEST PAPER-A
PAPER - 5: ADVANCED ACCOUNTING SUGGESTED
ANSWERS/HINTS
Ans 1:
(a) Case I
As per AS 12, Grant received of ` 20 lakhs to be deducted from ` 2 crores.
The balance of ` 1.80 crores to be shown as value of depreciable asset in
the Balance Sheet and depreciation should also be charged on ` 1.80
crores.
Case II
As the entire grant amount is received it shall be recorded at a normal value
of ` 100 in the Balance sheet so that the existence of the asset reflected. No
depreciation is to be charged in this case.
Note: Alternatively, government grants may be treated as deferred income
which should be recognized in the profit and loss statement on a systematic
and rational basis over the useful life of the asset.
(b) Adjusted Net profit for the current year
= 2,00,00,000+5,50,000 - 1,65,000 = ` 2,03,85,000
Number of equity shares resulting from conversion of debentures
= 50,000 8 = 4,00,000 equity shares
Total number of equity shares resulting from conversion of debentures
= 40,00,000 + 4,00,000 = 44,00,000 shares
Diluted Earnings per share = `
2,03,85,000
44,00,000
= ` 4.63 (Approximately)
(c) As per AS 5 'Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies', as a result of the uncertainties inherent in
business activities, many financial statement items cannot be measured with
precision but can only be estimated. The estimation process involves
judgments based on the latest information available. The use of reasonable
estimates is an essential part of the preparation of financial statements and
does not undermine their reliability.
Estimates may have to be revised, if changes occur regarding the
circumstances on which the estimate was based, or as a result of new
information, more experience or subsequent developments.
As per the standard, the effect of a change in an accounting estimate should
be classified using the same classification in the statement of profit and loss
as was used previously for the estimate. Prior period items are income or
expenses which arise in the current period as a result of errors or omissions
in the preparation of the financial statements of one or more prior periods.
Thus, revision of an estimate by its nature, i.e. the difference of ` 2 lakhs is
not a prior period item.
Therefore, in the given case expenses amounting ` 2,00,000 (i.e. ` 9,00,000
-` 7,00,000) relating to the previous year recorded in the current year,
8 Mock Test Paper-A: Answers
should not be regarded as prior period item.
(d) As per AS 11, The Effects of Changes in Foreign Exchange Rates', all
foreign currency transactions should be recorded by applying the exchange
rate on the date of transactions. Thus, goods purchased on 1.1.2010 and
corresponding creditor would be recorded at ` 4,50,000 (i.e. $10,000
` 45).
According to the standard, at the balance sheet date all monetary
transactions should be reported using the closing rate. Thus, creditor of US
$10,000 on 31.3.2010 will be reported at ` 4,40,000 (i.e. $10,000 ` 44)
and exchange profit of ` 10,000 (i.e. 4,50,000 - 4,40,000) should be credited
to Profit and Loss account in the year 2009-10.
On 7.7.2010, creditor of $10,000 is paid at the rate of ` 43. As per AS 11,
exchange difference on settlement of the account should also be transferred
to Profit and Loss account. Therefore, ` 10,000 (i.e. 4,40,000 - 4,30,000) will
be credited to Profit and Loss account in the year 2010-11.
Ans 2:
(i) Calculation of amount of equity shares issued to L and T
Profits of L T
` `
1st Year 2,62,800 2,75,125
IInd Year 2,12,200 2,49,875
Total 4,75,000 5,25,000
No. of shares to be issued
= 24,000 equity shares in the
proportion of the preceding 2
years' profitability
24000 475/1000 11,400 equity shares
24000 525/1000 12,600 equity shares
Calculation of amount of 12% Preference shares issued to L and T
L T
` `
Capital employed (Refer working note 1) 8,40,000 9,24,000
8% return on capital employed 67,200 73,920
12% Preference shares to be issued
` 5,60,000
100
67, 200
12

` 6,16,000
100
73, 920
12

Mock Test Paper-A: Answers 9
Total Purchase Consideration
L T
` `
Equity shares 2,85,000 3,15,000
12% Preference shares 5,60,000 6,16,000
Total 8,45,000 9,31,000
(ii) Balance Sheet of LT Ltd. (after amalgamation)
Liabilities ` Assets `
Authorised share capital: Fixed assets:
1,00,000 Equity Shares of Goodwill (W.N.1) 14,000
` 25 each 25,00,000 Plant and Machinery 12,00,000
Issued and subscribed share
capital:
Building 14,23,000
Current Assets (W.N.2) 2,70,100
24,000 Equity Shares of ` 25
each
6,00,000
1,17,600 12% Preference 11,76,000
shares of ` 10 each
(All of the equity and
preference shares have been
issued for consideration other
than cash)
Current Liabilities (W.N. 3) 11,31,100
29,07,100 29,07,100
Working Notes:
1. Goodwill
L T
` `
Plant and machinery 5,25,000 6,75,000
Building 7,75,000 6,48,000
Current assets 1,63,500 1,58,600
14,63,500 14,81,600
Less: Current liabilities (6,23,500) (5,57,600)
Net assets taken (capital employed) 8,40,000 9,24,000
Less: Purchase consideration (8,45,000) (9,31,000)
Goodwill 5,000 7,000
L T
` `
Total purchased goodwill 12,000
Add: Unrealised profit of ` 10,000 @ 20% =
` 2,000 adjusted from current assets and from
goodwill (since P & L A/c is not given) 2,000
Total Goodwill 14,000
2. Current Assets
L T
` `
Balances before amalgamation 1,63,500 1,58,600
Less: Liabilities of L due to T - (50,000)
Less: Unrealised Profit on stock i.e. ` 10,000x20% (2,000)
Total 1,61,500 1,08,600
Grand Total 2,70,100
3. Current Liabilities
L T
` `
Balances before amalgamation 6,23,500 5,57,600
Less: Liabilities of L due to T (50,000) -
Total 5,73,500 5,57,600
Grand Total 11,31,100

Ans 3:
ROHAN LTD.
Departmental Trading and Profit and Loss Account
for the year ended 31st March, 2011
I J K Total I J K Total
` ` ` ` ` ` ` `
To Opening stock 5,000 8,000 19,000 32,000 By Sales 80,000 80,000
To Material consumed 16,000 20,000 36,000 By Inter-departmental
To Direct labour 9,000 10,000 19,000 transfer 30,000 60,000 90,000
To Inter-departmental By Closing stock 5,000 20,000 5,000 30,000
transfer 30,000 60,000 90,000
To Gross profit 5,000 12,000 6,000 23,000
35,000 80,000 85,000 2,00,000 35,000 80,000 85,000 2,00,000
I J K Total I J K Total
` ` ` ` ` ` ` `
To Salaries and staff By Gross profit b/d 5,000 12,000 6,000 23,000
welfare 9,000 6,000 3,000 18,000 By Net loss 7,000 7,000
To Rent 3,000 1,800 1,200 6,000
To Net profit 4,200 1,800 6,000
12,000 12,000 6,000 30,000 12,000 12,000 6,000 30,000
To Net loss (I) 7,000 By Net profit (J + K) 6,000
To Stock reserve (J + K) By Stock reserve b/d
(J + K)
5,000
(Refer W.N.) 3,000
To Balance transferred
to Profit and loss
account 1,000
11,000 11,000
Working Note:
Calculation of unrealized profit on closing stock
`
Stock reserve of J department
Cost 30,000
Transfer from I department 30,000
60,000
Stock of J department 20,000
Proportion of stock of I department = ` 20,000 `
30,000
60,000
= ` 10,000
Stock reserve =` 10,000 x
20
120
= ` 1667 (approx.)
Stock reserve of K department
`
Stock transferred from J department 5,000
Less: Profit (stock reserve) (5,000 20%) (1,000)
Cost to J department 4,000
Proportion of stock of I department = ` 4,000 `
30,000
60,000
= ` 2,000
Stock reserve = ` 2,000
20
120
= ` 333(approx.)
Total stock reserve = ` 1,000 + ` 333 = ` 1,333.
Ans 4: Realization Account as on 31.3.2011
2011 ` ` 2011 ` `
March To Sundry assets: March 31 By Provision for bad
31 Furniture and and doubtful debts 500
fixture 4,000 By Sundry creditors 15,500
Trade mark 7,000 By Cash:
Debtors 16,000 Furniture and fixtures 1,000
Stock in trade 10,000 37,000 Trade mark 4,000
To Cash (payment to 15,500 Debtors 11,000
creditors) Stock in trade 8,000
To Cash (liability for 2,500 Surrender value of
bills discounted) joint life policy 3,000 27,000
By Partners' capital
accounts: (loss on
realisation)

A 3,600
B 3,600
C 2,400
D 2,400 12,000
55,000 55,000

Cash Account
2011 ` 2011 `
March 31 To Balance b/d 2,000 March 31 By Realisation A/c 15,500
To Realisation A/c 27,000 By Realisation A/c 2,500
To C's capital A/c 3,700 By As loan A/c 10,000
To D's capital 8,400 By As capital A/c 7,619
By B's capital A/c 5,481
41,100 41,100
Partners' Capital Accounts
A B C D A B C D
2011 ` ` ` ` 2011 ` ` ` `
March
31
To Balance b/d - - 16,000 6,000 March
31
By Balance A/c 20,000 15,000
To Realisation By Cash A/c - - 3,700 8,400
A/c (loss) 3,600 3,600 2,400 2,400 By As Capital A/c - - 8,400 -
To C's Capital
A/c
By B's Capital A/c - - 6,300 -
(Loss of capital
written off)
8,400 6,300 - - By A's Capital
A/c (commission)
- 381 - -
To B's capital
A/c
(commission)
381 - - -
To Cash A/c 7,619 5,481
20,000 15,381 18,400 8,400 20,000 15,381 18,400 8,400

Working Notes:
(1) There was a debit balance of ` 8,400 in D's capital account and D is a
solvent partner, therefore he must bring cash for balance capital.
(2) 'C is insolvent therefore he is not able to bring cash. The deficiency in his
account is borne by 'A' and 'B' in the ratio of 4:3 (capital ratio).
Deficiency in 'C's account = ` 16,000 + ` 2,400 ` 3,700 = ` 14,700
Borne by A = 4/7 ` 14,700 = ` 8,400
Borne by B = 3/7 ` 14,700 = ` 6,300
(3) 'B' is entitled to get 5% commission on the amount finally paid to partner 'A'
only. The calculation is as follows: (` 20,000 ` 3,600 ` 8,400) 5/105 =
` 381.
(4) Mr. As loan is paid off in cash.
Ans 5:
(a) Uncertain Bank Ltd.
Journal Entries
(Rupees in crores)
Dr. ` Cr. `
Rebate on bills discounted A/c Dr. 9.00
To Discount on bills A/c 9.00
(Being the transfer of opening balance in rebate on bills
discounted account to discount on bills account)

Bills purchased and discounted A/c Dr. 4000.00
To Discount on bills A/c

18 73
Rs. 4, 000 crores
100 365

144.00
To Clients A/c 3,856.00
(Being the discounting of bills of exchange during the
year)

Discount on bills A/c Dr. 10.80
To Rebate on bills discounted A/c 10.80
(Being the unexpired portion of discount in respect of the
discounted bills of exchange carried forward)

Discount on bills A/c Dr. 142.20
To Profit and loss A/c 142.20
(Being the amount of income for the year from discounting
of bills of exchange transferred to Profit and Loss A/c)

Ledger Accounts
(i) Discount on bills A/c
2011 ` 2010 `
March To Rebate on bills 10.80 April 1 By Rebate on bills 9.00
31 discounted A/c discounted A/c
To Profit and loss
A/c
142.20 2010-11 By Bills purchased
and discounted A/c
144.00
153.00 153.00

(ii) Rebate on bills discounted A/c
2010 ` 2010 `
April 1 To Discount on bills A/c 9.00 April 1 By Balance b/d 9.00
2011 2011
March
31
To Balance c/d 10.80 March 31 By Discount on bills
A/c
10.80
19.80 19.80

(b) Form B - RA (Prescribed by IRDA)
Name of the Insurer: Agni Fire Insurance Co. Ltd.
Registration No. and Date of registration with the IRDA:
Revenue Account for the year ended 31st March, 2011
Particulars Schedule Current year
ended on 31st
March, 2011
`
1. Premiums earned (Net) 1 8,40,000
Total (A) 8,40,000
1. Claims incurred (Net) 2 8,00,000
2. Commission 50,000
3. Operating Expenses 3 3,00,000
Total (B) 11,50,000
Operating Profit/(Loss) from Fire
Insurance

Business [C = (A-B)] (3,10,000)

Schedule 1
Premiums earned (Net)
`
Less: Premium on re-insurance paid 1,00,000
14,00,000
Less: Change in provision for unexpired risk (NIL5,60,000) (5,60,000)
Net Premium 8.40,000

Schedule 2
Claims
`
Add: Claims outstanding on 31.3.2011 1,00,000
8,00,000
Schedule 3
Operating expenses
`
Expenses of Management 3,00,000

Ans 6:
(a) Electric Supply Ltd.
Journal Entries
Dr. Cr.
` `
New Main Account Dr. 20,95,000
Replacement Account Dr. 19,05,000
To Bank Account 40,00,000
(Being current cost of replacement charged to
replacement account and the balance

amount capitalised)
New Main Account Dr. 2,00,000
To Replacement Account 2,00,000
(Being the value of motors salvaged from old
main used in the reconstruction of main)

Bank Account Dr. 70,000
To Replacement Account 70,000
(Being the amount realised from sale of old
materials credited to replacement account)

Dr. Cr.
` `
Revenue Account Dr. 16,35,000
To Replacement Account 16,35,000
(Being the net current cost of replacement
transferred to revenue account)

Working Notes:
1. Current cost of replacement:
Cost of
existing
main
Increase in cost Current
Rate Amount cost
` ` `
Materials (3/5 ` 15 lacs) 9,00,000 25% 2,25,000 11,25,000
Labour (2/5 `15 lacs) 6,00,000 30% 1,80,000 7,80,000
Estimated current cost for
replacement of present main (amount
to be charged to replacement
account)
19,05,000

2. Additional cost of reconstruction of main (to be capitalised)
`
Cash cost of re-building new main 40,00,000
Less: Estimated current cost for replacement of existing old main (19,05,000)
Additional cost in new main to be capitalised (excluding old
motors used)
20,95,000

3. Replacement Account
` `
To Bank A/c 19,05,000 By New Main A/c 2,00,000
By Bank A/c 70,000
By Replacement A/c (Bal. fig.) 16,35,000
19,05,000 19,05,000

(b) Liquidator's Final Statement of Account
` `
To Cash in hand 7,50,000 By Liquidator's 5,300
To Cash/bank remuneration (2% on
(Amount received on call 2,65,000
)
for 7,000 equity shares @ ` 45,710 By Preferential creditors 35,000
6.53 per share) By Unsecured creditors 2,30,000
By Preference shareholders 5,00,000
By Equity shareholders
(Amount paid to holders
of 3,000 equity shares
@ ` 8.47 per equity
share) 25,410
7,95,710 7,95,710
Working Note:
Calculation of amount receivable from equity shareholders or payable to
equity shareholders
` `
Cash in hand (Assets realized) 7,50,000
Less: Payments made:
Liquidator's remuneration 5,300
Preference creditors 35,000
Unsecured creditors 2,30,000
Preference shareholders 5,00,000 7,70,300
20,300
Add: Amount payable to equity shareholders (paid up):
3,000 equity shares of ` 100 each ` 75 paid up 2,25,000
7,000 equity shares of ` 100 each ` 60 paid up 4,20,000 6,45,000
Total loss to be borne by equity shareholders 6,65,300
No. of equity shares 10,000 shares
Loss per equity share =
6,65,300
10,000
= ` 66.53

35,000 +2,30,000 =2,65,000
` `
Amount receivable from 7,000 equity shareholders
= 7,000 6.53 (i.e. 66.53 60) = ` 45,710
Amount payable to 3,000 equity shareholders
= 3,000 8.47 (i.e. 75 - 66.53) = ` 25,410

Ans 7:
(a) It is a present obligation as a result of past obligating event. The obligating
event is the sale of the product which gives rise to an obligation because
obligations also arise from normal business practices. An outflow of
resources, embodying economic benefits in settlement is probable because
a proportion of goods are returned for refund. For the best estimate of the
cost of refunds, a provision should be recognized as per AS 29.
(b) As per para 13 of AS 4 (revised), 'Contingencies and Events Occurring After
the Balance Sheet Date', assets and liabilities should be adjusted for events
occurring after the balance sheet date that provide additional evidence to
assist the estimation of amounts relating to conditions existing at the
balance sheet date.
Though the theft, by the cashier ` 2,00,000, was detected after the balance
sheet date (before approval of financial statements) yet it is an additional
information materially affecting the determination of the cash amount
relating to conditions existing at the balance sheet date. Therefore, it is
necessary to recognize the loss amounting ` 2,00,000 and adjust the
accounts of the company for the year ended 31st March, 2011.
(c) As per AS 19 leases', a lease will be classified as finance lease if at the
inception of the lease, the present value of minimum lease payment

amounts to at least substantially all of the fair value of leased asset. In a
finance lease, lease term should be for the major part of the economic life of
the asset even if title is not transferred. In the given case, the implicit rate of
interest is given at 15%. The present value of minimum lease payments at
15% using PV- Annuity Factor can be computed as:
Annuity Factor ` 3.36 lakhs (approx.)
(Year 1 to Year 5 Flows ` 3 lakhs each year)
Present Value of minimum lease payments ` 10.08 lakhs (approx.)
Thus present value of minimum lease payments is ` 10.08 lakhs and the fair
value of the machine is ` 30 lakhs. In a finance lease, lease term should be
for the major part of the economic life of the asset even if title is not
transferred. However, in the given case, the effective useful life of the
machine is 14 years while the lease is only for five years.
Therefore lease agreement is an operating lease. Lease payments under an
operating lease should be recognized as an expense in the statement of
profit and loss on a straight line basis over the lease term unless another
systematic basis is more representative of the time pattern of the user's
benefit.

In calculating the present value of the of minimum lease payments, the discount rate is the
interest rate implicit in the lease
(d) In the books of N Co. Ltd.
Journal Entries
` `
1.10.2010 Employee compensation expense A/c Dr. 14,00,000
To Employee stock option outstanding A/c 14,00,000
(Being the grant of 20,000 stock options to employees
at ` 50 when market price is ` 120)

10.12.10 Bank A/c Dr. 8,00,000
to Employee stock option outstanding A/c Dr. 11,20,000
31.3.11 To Equity share capital A/c 1,60,000
To Securities premium A/c 17,60,000
(Being shares issued to the employees against the
options vested to them in pursuance of Employee
Stock Option Plan)

31.3.11 Employee stock option outstanding A/c Dr. 2,80,000
To Employee compensation expense A/c 2,80,000
(Being reverse entry passed for lapse of 4,000 stock
options)

31.3.11 Profit and Loss A/c Dr. 11,20,000
To Employee compensation expense A/c 11,20,000
(Being transfer of employee compensation transferred
to Profit and Loss Account)

(e) As per AS 26 'Intangible Assets', the condition for recognition of a research
and development asset has to be fulfilled when the expenditure was
incurred. If the recognition conditions are not fulfilled the amount has to be
charged to the profit and loss account. Once the amount is charged to the
Profit and Loss account, such amount cannot be restated later as a
Research and Development Asset when the condition for recognition get
fulfilled. The Company therefore cannot capitalize ` 75,00,000 even as a
prior period item.
MOCK TEST PAPER-B
IPCC: GROUP-II
Question 1:
(a) At the end of the financial year ending on 31st December, 2011, a company
finds that there are twenty law suits outstanding which have not been settled
till the date of approval of accounts by the Board of Directors. The possible
outcome as estimated by the Board is as follows:
Probability Loss (`)
In respect of five cases (Win) 100%
Next ten cases (Win) 60%
Lose (Low damages) 30% 1,20,000
Lose (High damages) 10% 2,00,000
Remaining five cases Win 50%
Lose (Low damages) 30% 1,00,000
Lose (High damages) 20% 2,10,000
Outcome of each case is to be taken as a separate entity. Ascertain the
amount of contingent loss and the accounting treatment in respect thereof.
(b) Paras Ltd. had the following borrowings during a year in respect of capital
expansion.
Plant Cost of Asset Remarks
`
Plant P 100 lakhs No specific borrowings
Plant Q 125 lakhs Bank loan of ` 65 lakhs at 10%
Plant R 175 lakhs 9% Debentures of ` 125 lakhs were issued.
In addition to the specific borrowings stated above, the Company had
obtained term loans from two banks (1) ` 100 lakhs at 10% from
Corporation Bank and (2) ` 110 lakhs at 11.50% from State Bank of India, to
meet its capital expansion requirements. Determine the amount of
borrowing costs to be capitalized in each of the above Plants, as per AS-16.
(c) Bharat Ltd. grants 1,000 employees stock options on 1.4.2008 at ` 40, when
the market price is ` 160. The vesting period is 2 years and the maximum
exercise period is one year. 300 unvested options lapse on 1.5.2010. 600
options are exercised on 30.6.2011. 100 vested options lapse at the end of
the exercise period.
Pass Journal Entries giving suitable narrations.
(d) A limited company created a provision for bad and doubtful debts at 2.5%
on debtors in preparing the financial statements for the year 2011-12.
Subsequently on a review of the credit period allowed and financial capacity
of the customers, the company decided to increase the provision to 8% on
Mock Test Paper-B: Questions 21
debtors as on 31.3.2012. The accounts were not approved by the Board of
Directors till the date of decision. While applying the relevant accounting
standard can this revision be considered as an extraordinary item or prior
period item (5 Marks each)
Question 2: 'S' and T were carrying on business as equal partners. Their
Balance Sheet as on 31st March, 2011 stood as follows:
Capital accounts: Stock 2,70,000
S 6,40,000 Debtors 3,65,000
T 6,60,000 13,00,000 Furniture 75,000
Creditors 3,27,500 Joint life policy 47,500
Bank overdraft 1,50,000 Plant 1,72,500
Bills payable 62,500 Building 9,10,000
18,40,000 18,40,000
The operations of the business were carried on till 30th September, 2011. S
and T both withdrew in equal amounts, half the amount of profits made
during the current period of 6 months after 10% per annum had been written
off on building and plant and 5% per annum written off on furniture. During
the current period of 6 months, creditors were reduced by ` 50,000, Bills
payable by ` 11,500 and Bank overdraft by ` 75,000. The Joint Life policy
was surrendered for ` 47,500 on 30th September, 2011. Stock was valued
at ` 3,17,000 and debtors at ` 3,25,000 on 30th September, 2011. The other
items remained the same as on 31st March, 2011.
On 30th September, 2011 the firm sold its business to ST Ltd. The value of
goodwill was estimated at ` 5,40,000 and the remaining assets were valued
on the basis of the Balance Sheet as on 30th September, 2011. The ST Ltd.
paid the purchase consideration in equity shares of ` 10 each. You are
required to prepare a Realization Account and Capital accounts of the
partners. (16 Marks)
Question 3: Success Ltd. issued ` 10,00,000, 6% Debenture Stock at par on
21.1.2002. Interest was payable on 30th June and 31st December, in each year.
Under the terms of the Debentures Trust the owned stock is redeemable at par.
The trust deed obliges the Company to pay to the trustees on 31st December,
2009 and annually thereafter the sum of ` 1,00,000 to be utilized for the
redemption and cancellation of an equivalent amount of stock, which is to be
selected by drawing lots.
Alternatively, the Company is empowered as from 1st January, 2009 to purchase
its own debentures from the open market. These Debentures must be
surrendered to the Trustees for cancellation and any adjustments for accrued
interest recorded in the books of account. If in any year the nominal amount of
the stock surrendered under this alternative does not amount to ` 1,00,000 then
the shortfall is to be paid by the Company to the Trustees in cash on 31st
December.
22 Mock Test Paper-B: Questions
The following purchases of stock were made by the Company:
Nominal value of stock
purchased
Purchase price per
` 100 of stock
` `
(1) 30th September, 2009 1,20,000 98
(2) 31st May, 2010 75,000 95 (Ex-interest)
(3) 31st July, 2011 1,15,000 92

The Company fulfilled all its obligations under the trust deed.
Prepare the Ledger Accounts:
(a) Debenture Stock A/c
(b) Debenture Redemption A/c
(c) Debenture Interest A/c.
Note: Ignore costs and taxation (16 Marts)
Question 4: Prepare Revenue Account in proper form for the year ended 31st
March, 2012, from the following particulars related to Saviour General Insurance
Co. for the year ended 2011-12:
Related to Direct
business
Related to
Reinsurance
(`) (`)
Premiums:
Amount received 30,00,000 2,40,000
Receivable at the beginning 1,80,000 24,000
Receivable at the end 2,40,000 36,000
Amount paid -- 3,60,000
Payable at the beginning -- 30,000
Payable at the end -- 42,000
Claims:
Amount paid 18,00,000 1,80,000
Payable at the beginning 60,000 12,000
Payable at the end 1,20,000 18,000
Amount recovered -- 1,20,000
Receivable at the beginning -- 18,000
Receivable at the end -- 12,000
Commission:
Amount paid 72,000 10,800
Amount received 14,400

Additional information:
(i) Interest, dividend and rent received 30,000
Income-tax in respect of above 6,000
(ii) Management expenses including ` 12,000 related to legal expenses
regarding claims 1,32,000.
(iii) Provision for income tax existing at the beginning of the year was
` 1,95,000, the income-tax actually paid during the year ` 1,68,000 and the
provision necessary at the year end ` 2,07,000.
(iv) The net premium income of the company during the year 2010-2011 was
` 24,00,000 on which reserve for unexpired risk @ 50% and additional
reserve @ 7 % was created. This year, the balance to be carried forward
is 50% of net premium on reserve for unexpired risk and 5% on additional
reserve. (16 Marks)
Question 5:
(a) Here and There and Co. of Mumbai started a branch at Bangalore on
1.4.2011 to which goods were sent at 20% above cost. The branch makes
both cash sales and credit sales. Branch expenses are met from branch
cash and balance money remitted to H.O. The branch does not maintain
double entry books of account and necessary accounts relating to branch
are maintained in H.O. Following further details are given for the year
ending on 31.3.2012:
`
Cost of goods sent to branch 1,00,000
Goods received by branch till 31.3.2012 at Invoice price 1,08,000
Credit sales for the year 1,16,000
Closing debtors on 31.3.2012 41,600
Bad debts written off during the year 400
Cash remitted to H.O. 86,000
Closing cash on hand at branch on 31.3.2012 4,000
Cash remitted by H.O. to branch during the year 6,000
Closing stock in hand at branch at invoice price 12,000
Expenses incurred at branch 24,000
Draw up the necessary Ledger Accounts like Branch Debtors Account,
Branch Stock Account, Goods sent to Branch Account, Branch Cash
Account, Branch Expenses Account and Branch Adjustment Account for
ascertaining gross profit and Branch Profit and Loss Account for
ascertaining Branch profit. (8 Marks)
(b) A joint stock company resolved to issue 10 lakh equity shares of ` 10 each
at a premium of ` 1 per share. One lakh of these shares were taken up by
the directors of the company, their relatives, associates and friends, the
entire amount being received forthwith. The remaining shares were offered
to the public, the entire amount being asked for with applications. The issue
was underwritten by X, Y and Z for a commission @ 2% of the issue price.
65% of the issue was underwritten by X, while Y's and Z's shares were 25%
and 10% respectively.
The underwriters were to submit unmarked applications for shares
underwritten firm with full application money along with members of the
general public.
Marked applications were as follows: X - 1,19,500 shares; Y - 57,500 shares
and Z- 10,500 shares.
Unmarked applications totalled 7,00,000 shares.
Accounts with the underwriters were promptly settled.
(i) Prepare a statement calculating underwriter's liability for shares.
(ii) Pass journal entries for all transactions including cash transactions.
(8 Marks)
Question 6:
(a) Bright Electricity Company earned a profit of ` 1,20,00,000 (after tax) for the
year ended 31st March, 2011 on which date it had a capital base of
` 8,74,00,000 and the bank rate was 8%. The following additional
information about the company is also provided to you:
`
Reserve Fund Investment, invested in 8% Government
securities at par
1,20,00,000
Contingencies Reserve Fund investments @ 7% per annum 50,00,000
Loan from State Electricity Board 1,00,00,000
11% Debentures 8,00,000
Development Reserve 32,00,000
Show how the surplus of the company will be disposed of under the
provisions of the Electricity Act. (8 Marks)
(b) The following balances were extracted from the books of M/s Part & Parcel.
You are required to prepare Departmental Trading Account and Profit and
Loss account for the year ended 31st December, 2011 after adjusting the
unrealized department profits if any.
Deptt. A Deptt. B
` `
Opening Stock 50,000 40,000
Purchases 6,50,000 9,10,000
Sales 10,00,000 15,00,000
General expenses incurred for both the departments were ` 1,25,000 and
you are also supplied with the following information: (a) Closing stock of
Department A ` 1,00,000 including goods from Department B for ` 20,000 at
cost of Department A. (b) Closing stock of Department B ` 2,00,000
including goods from Department A for ` 30,000 at cost to Department B. (c)
Opening stock of Department A and Department B include goods of the
value of ` 10,000 and ` 15,000 taken form Department B and Department A
respectively at cost to transferee departments. (d) The gross profit is
uniform from year to year. (8 Marks)
Question 7: Answer any four out of five:
(a) From the following information of Honour Bank Limited, compute the
provisions to be made in the Profit and Loss account:
` in lakhs
Assets
Standard 20,000
Substandard 16,000
Doubtful
For one year (secured) 6,000
For two years and three years (secured) 4,000
For more than three years (secured by mortgage of 2,000
plant and machinery ` 600 lakhs)
Non-recoverable Assets 1,500
(b) A Limited Company closed its accounting year on 30.6.11 and the accounts
for hat period were considered and approved by the board of directors on
20th August, 2011. The company was engaged in laying pipe line for an oil
company deep beneath the earth. While doing the boring work on 1.9.2011
it had met a rocky surface for which it was estimated that there would be an
extra cost to the tune of ` 80 lakhs. You are required to state with reasons,
how the event would be dealt with in the financial statements for the year
ended 30.6.11.
(c) S Ltd. purchased fixed assets costing ` 3,000 lakhs on 1.1.2011 and the
same was fully financed by foreign currency loan (U.S. Dollars) payable in
three annual equal instalments. Exchange rates were 1 Dollar = ` 40.00 and
` 42.50 as on 1.1.2011 and 31.12.2011 respectively. First instalment was
paid on 31.12.2011. The entire difference in foreign exchange has been
capitalized.
You are required to state, how these transactions would be accounted for.
(d) Should appropriation to mandatory reserves be excluded from net profit
attributable to equity shareholders?
Kraft Ltd. is engaged in manufacturing industrial packaging equipment. As
per the terms of an agreement entered into with its debentureholders, the
company is required to appropriate adequate portion of its profits to a
specific reserve over the period of maturity of the debentures such that, at
the redemption date, the Reserve constitutes at least half the value of such
debentures. As such, appropriations are not available for distribution to the
equity shareholders. Kraft Ltd. has excluded this from the numerator in the
computation of basis EPS. Is this treatment correct?
(e) Rishi Limited has set up its business in a designated backward area which
entitles the company to receive from the Government of India a subsidy of
20% of the cost of investment. Having fulfilled all the conditions under the
scheme, the company on its investment of ` 50 crore in capital assets,
received ` 10 crore from the Government in January, 2012 (accounting
period being 2011-2012). The company wants to treat this receipt as an item
of revenue and thereby reduce the losses on profit and loss account for the
year ended 31st March, 2012.
Keeping in view the relevant Accounting Standard, discuss whether this
action is justified or not. (5 Marks each)

MOCK TEST PAPER-B
ANSWERS/HINTS
Ans 1:
(a) According to AS 29 'Provisions, Contingent Liabilities and Contingent
Assets', contingent liability should be disclosed in the financial statements if
following conditions are satisfied:
(i) There is a present obligation arising out of past events but not
recognized as provision.
(ii) It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation.
(iii) The possibility of an outflow of resources embodying economic benefits
is also remote.
(iv) The amount of the obligation cannot be measured with sufficient
reliability to be recognized as provision.
In this case, the probability of winning of first five cases is 100% and hence,
question of providing for contingent loss does not arise. The probability of
winning of next ten cases is 60% and for remaining five cases is 50%. As
per AS 29, we make a provision if the loss is probable. As the loss does not
appear to be probable and the possibility of an outflow of resources
embodying economic benefits is not remote rather there is reasonable
possibility of loss, therefore disclosure by way of note should be made. For
the purpose of the disclosure of contingent liability by way of note, amount
may be calculated as under:
Expected loss in next ten cases = 30% of ` 1,20,000 + 10% of
` 2,00,000
= ` 36,000 + ` 20,000
= ` 56,000
Expected loss in remaining five cases = 30% of ` 1,00,000 + 20% of
` 2,10,000
= ` 30,000 + ` 42,000
= ` 72,000
To disclose contingent liability on the basis of maximum loss will be highly
unrealistic. Therefore, the better approach will be to disclose the overall
expected loss of ` 9,20,000 (` 56,000 10 + ` 72,000 5) as contingent
liability.
(b) 1. Computation of Actual Borrowing Costs incurred during the year
Source Loan
Amount
Interest
Rate
Interest
Amount
` in lakhs ` in lakhs
Bank Loan 65.00 10% 6.50
9% Debentures 125.00 9% 11.25
28 Mock Test Paper-B: Answers
Loan Interest Interest Source
Amount Rate Amount
Term Loan from Corporation Bank 100.00 10% 10.00
Term Loan from State Bank of India 110.00 11.5% 12.65
Total 400.00 40.40
Specific Borrowings included above 190.00 17.75

2. Weighted Average Capitalisation Rate for General Borrowings
=
Total Interest Interest on Specific Borrowings
Total Borrowings Specific Borrowings
-
-

=
(
( )
)
40.40 17.75
400 190
-
-
100 = 10.79%
3. Capitalisation of Borrowing Costs under AS -16 will be as under:
Plant Borrowing Loan
Amount
Interest
Rate
Interest
Amount
Cost of Asset
` in lakhs ` in lakhs ` In lakhs ` In lakhs
P General 100 10.79% 10.79 110.79
Q Specific 65 10.00% 6.50 71.50
General 60 10.79% 6.47 66.47 137.97
R Specific 125 9.00% 11.25 136.25
General 50 10.79% 5.39 55.39 191.64
Total 400 40.40 440.40
Note: The amount of borrowing costs capitalized should not exceed the actual
interest cost.
(c) Journal Entries in the Books of Bharat Ltd.
Date Particulars Dr.(`) Cr.(`)
31.3.2009 Employees compensation expenses account Dr. 48,000
To Employees stock option outstanding account 48,000
(Being compensation expenses recognized in respect
of the employees stock option i.e. 1,000 options granted
to employees at a discount of ` 120 each, amortised on
straight line basis over
1
2
2
years)

Profit and loss account Dr. 48,000
To Employees compensation expenses account 48,000
(Being expenses transferred to profit and loss account
at the end of the year)

Mock Test Paper-B: Answers 29
Date Particulars Dr.(`) Cr.(`)
31.3.2010 Employees compensation expenses account Dr. 48,000
To Employees stock option outstanding account 48,000
(Being compensation expenses recognized in respect
of the employee stock option i.e. 1,000 options granted
to employees at a discount of ` 120 each, amortised on
straight line basis over
1
2
2
years)

Profit and loss account Dr. 48,000
To Employees compensation expenses account 48,000
(Being expenses transferred to profit and loss account
at the end of the year)

31.3.2011 Employees stock option outstanding account (W.N.1) Dr. 12,000
To General Reserve account (W.N.1) 12,000
(Being excess of employees compensation expenses
transferred to general reserve account)

30.6.2011
Bank A/c (600 ` 40) Dr.
24,000
Employee stock option outstanding account

(600 ` 120) Dr.
72,000

To Equity share capital account(600 ` 10)
6,000

To Securities premium account(600 ` 150)
90,000
(Being 600 employees stock option exercised at an
exercise price of ` 40 each)

1.10.2011 Employee stock option outstanding account Dr. 12,000
To General reserve account 12,000
(Being Employees stock option outstanding A/c
transferred to General Reserve A/c, on lapse of 100
options at the end of exercise of option period)

Working Note:
On 31.3.2011, Bharat Ltd. will examine its actual forfeitures and make
necessary adjustments, if any to reflect expenses for the number of options,
that have actually vested. 700 employees stock options have completed 2.5
years vesting period, the expense to be recognized during the year is in
negative i.e.
No. of options actually vested (700 ` 120) ` 84,000
Less: Expenses recognized ` (48,000 + 48,000) (96,000)
Excess expenses transferred to general reserve 12,000

(d) The preparation of financial statements involve making estimates which are
based on the circumstances existing at the time when the financial
statements are prepared. It may be necessary to revise an estimate in a
subsequent period if there is a change in the circumstances on which the
estimate was based. Revision of an estimate, by its nature, does not bring
the adjustment within the definitions of a prior period item or an
extraordinary item [para 21 of AS 5 (Revised) on Net Profit or Loss for the
Period, Prior Period Items and Changes in Accounting Policies].
In the given case, a limited company created 2.5% provision for doubtful
debts for the year 2011-12. Subsequently in 2012 they revised the estimates
based on the changed circumstances and wants to create 8% provision. As
per AS-5 (Revised), this change in estimate is neither a prior period item nor
an extraordinary item.
However, as per para 27 of AS 5 (Revised), a change in accounting
estimate which has material effect in the current period, should be disclosed
and quantified. Any change in the accounting estimate which is expected to
have a material effect in later periods should also be disclosed.
Ans 2: Realisation Account
Particular ` Particulars `
To Sundry assets: By Creditors 2,77,500
Stock 3,17,000 By Bills payables 51,000
Debtors 3,25,000 By Bank overdraft 75,000
Plant 1,63,875 By Shares in ST Ltd.
(W.N. 3)
18,80,000
Building 8,64,500
Furniture 73,125
To Profit:
S 2,70,000
T 2,70,000 5,40,000
22,83,500 22,83,500

Date Particulars S T Date Particulars S T
2011 ` ` 2011 ` `
April To Cash- 20,000 20,000 April 1 By Balance b/d 6,40,000 6,60,000
1 Drawings
(W.N. 2)

Working Notes:
1. Ascertainment of capital as on 30th September, 2011
Balance Sheet as at 30th September, 2011
Sept. 30 To Shares in ST Ltd. 9,30,000 9,50,000 Sept. 30 By Profit (W.N.2) 40,000 40,000
By Realisation
A/c (Profit) 2.70.000 2.70.000
9.50.000 970.000 9.50.000 970.000

Sundry creditors 2,77,500 Building 9,10,000
Bills payable 51,000 Less: Depreciation (45,500) 8,64,500
Bank overdraft 75,000 Plant 1,72,500
Total capital (bal. fig.) 13,40,000 Less: Depreciation (8,625) 1,63,875
Furniture 75,000
Less: Depreciation (1,875) 73,125
Stock 3,17,000
Debtors 3,25,000
17,43,500 17,43,500

2. Profit earned during six months ended 30th September, 2011
`
Total capital (of S and T) on 30th September, 2011
(W.N.1)
13,40,000
Capital on 1st April, 2011
S 6,40,000
T 6,60,000 (13,00,000)
Net increase (after drawings) 40,000
Since drawings are half of profits therefore, actual profit earned is ` 40,000
2 = ` 80,000 (shared equally by partners S and T).
Half of the profits, has been withdrawn by both the partners equally i.e.
drawings ` 40,000 (` 80,000 ) withdrawn by S and T in 1:1 (i.e. ` 20,000
each).
3. Purchase consideration
`
Total assets (W.N. 1) 17,43,500
Add: Goodwill 5.40,000
22,83,500
Less: Liabilities (2,77,500+51,000 + 75,000) (4,03,500)
Purchase consideration 18,80,000
Note: The above solution is given on the basis that reduction in bank overdraft is
after surrender of Joint life policy.
Ans 3: In the Books of Success Ltd.
Debenture Stock Account
2009 ` 2009 `
Sept. 30 To Debenture Jan. 1 By Balance b/d 10,00,000
Redemption A/c 1,20,000
2009 ` 2009 `
Dec. 31 To Balance c/d 8,80,000
10,00,000 10,00,000
2010 ` 2010 `
May 31 To Debenture Jan. 1 By Balance b/d 8,80,000
Redemption A/c 75,000
Dec.31 To Debenture
Redemption A/c 25,000
To Balance c/d 7.80,000
8,80,000 8,80,000
2011 ` 2011 `
July 31 To Debenture Jan. 1 By Balance b/d 7,80,000
Redemption A/c 1,15,000
Dec.31 To Balance c/d 6,65,000
7,80,000 7,80,000
Debenture Redemption Account
2009
`
2009
`
Sept 30 To Bank A/c 1,15,800 Sept. 30 By Debenture Stock A/c 1,20,000
(` 1,20,000x0.98 -` 1,800)
To Capital Reserve A/c 4,200
1,20,000 1.20.000
2010 ` 2010 `
May 30 To Bank A/c 71,250 May 31 By Debenture Stock A/c 75,000

(` 75,000 0.95)
Dec. 31 By Debenture Stock A/c 25,000
(Profit on cancellation)
Dec.31 To Bank A/c 25,000
(Shortfall = ` 1,00,000 - `
75,000)

1,00,000 1,00,000
2011 ` 2011 `
July 31 To Bank A/c 1,05,225 July 31 By Debenture Stock A/c 1,15,000
(` 1,15,000 .92- ` 575)
(Profit on cancellation)
1,15,000 1,15,000

Debenture Interest Account
2009 ` 2009 `
June 30 To Bank A/c 30,000 Dec. 31 By Profit and Loss A/c 58,200
Sept. 30 To Bank A/c 1,800
Dec. 31 To Bank A/c 26,400
58,200 58,200
2010 ` 2010 `
May 31 To Bank A/c 1,875 Dec. 31 By Profit and Loss A/c 50,175
June 31 To Bank A/c 24,150
50,175 50,175
2011 ` 2011 `
June 30 To Bank A/c 23,400 Dec. 31 By Profit and Loss A/c 43,925
July 31 To Bank A/c 575
43,925 43,925
Working Notes:
Interest paid on Debentures @ 6% per annum:
Date Amount of
Debentures
Period Interest
` `
2009
June 30 10,00,000 6 months 30,000
Sept. 30 1,20,000 3 months 1,800
Dec. 31 8,80,000 6 months 26,400
2010
May 31 75,000 5 months 1,875
June 30 8,05,000 6 months 24,150
Dec. 31 8,05,000 6 months 24,150
2011
June 30 7,80,000 6 months 23,400
July 31 1,15,000 1 month 575
Dec. 31 6,65,000 6 months 19,950
Notes:
(1) It has been assumed that debentures are purchased for immediate
cancellation.
(2) The purchases of 30th September, 2009 and 31st July, 2011 have been
taken on cum-interest basis
Ans 4: FORM B - RA
Name of the Insurer: Saviour General Insurance Company
Registration no. and date of registration with IRDA :
Revenue Account for the year ended 31.3.2012
Particulars Schedule Amount (`)
1. Premium earned (Net) 1 27,03,000
2. Profit/Loss on sales/Redemption of
investment
- -
3. Other - -
4. Interest, dividend & rent (Gross) - 30,000
Total (A) 27,33,000
1. Claims incurred (Net) 2 19,44,000
2. Commission 3 68,400
3. Operating expenses related to insurance
business
4 1,20,000
Total (B) 21,32,400
Operating profit/Loss from insurance business
(C) = (A-B) 6,00,600
Appropriation:
Transfer to Shareholders account -
Transfer to Catastrophe Reserve -
Transfer to other reserves -
Total (D) -

Schedule -1 Premium Earned (Net)
Particulars `
Premium received from direct business (W.N.1) 30,60,000
Add: Premium on reinsurance accepted (2,40,000 + 36,000 -
24,000)
2,52,000
33,12,000
Less. Premium on reinsurance ceded (3,60,000 + 42,000 - 30,000) (3,72,000)
Net Premium 29,40,000
Adjustment for change in reserve for unexpired risk (W.N.2) (2,37,000)
Total premium earned (Net) 27,03,000

Schedule - 2 Claims Incurred (Net)
Particulars `
Claims paid (Direct) 18,00,000
Add: Legal expenses regarding claims 12.000
18,12,000
Particulars `
Add: Reinsurance Accepted 1,80,000
19,92,000
Less: Reinsurance ceded (1,20,000 + 12,000 -18,000) (1,14,000)
18,78,000
Add: Claims outstanding at the end (1,20,000 +18,000) 1,38,000
20,16,000
Less: Claims outstanding at the beginning (60,000 + 12,000) (72,000)
Total claim incurred 19,44,000
Schedule -3 Commission
Particulars `
Commission paid Direct 72,000
Add: Re-insurance accepted 10,800
82,800
Less. Re-insurance ceded (14,400)
Net commission 68,400

Schedule - 4 Operating Expenses related to Insurance Business
Particulars `
Expenses of management (1,32,000 -12,000) 1,20,000
1,20,000
Working Notes:
1. Calculation of premium received from direct business
`
Premium on direct business 30,00,000
Add: Premium outstanding at the end 2,40,000
32,40,000
Less. 'Premium outstanding at the beginning (1,80,000)
30,60,000
2. Computation of change in reserve for unexpired risk
`
Reserve for unexpired risk for the year 2011-12 (29,40,000 50%) 14,70,000
Add: Additional reserve for unexpired risk for the year 2011-12
(29,40,000 5%)
1,47,000
16,17,000
`
Less: Reserve for unexpired risk for the year 2010-11
(24,00,000 50%) (12,00,000)
Additional reserve for unexpired risk for the year
(24,00,000 7.5%) (1,80,000)
2,37,000

Ans 5: (a) Branch Debtors A/c
` `
To Branch Stock A/c 1,16,000 To Branch Cash A/c 74,000
To Bad Debts written off 400
To Balance c/d 41,600
1,16,000 1,16,000
Goods Sent to Branch A/c
To Branch Adjustment A/c 20,000 By Branch Stock A/c 1,20,000
20
1, 00, 000
100

To Purchases/ Trading A/c 1,00,000
1,20,000 1,20,000
Branch Cash A/c
To Branch Debtors A/c 74,000 By Branch Expenses A/c 24,000
To Branch remittance from 6,000 By Cash to H.O. 86,000
H.O.
To Branch Stock A/c By Balance c/d 4,000
- Cash Sales
(balancing figure) 34,000
1,14,000 1,14,000
Branch Stock A/c
To Goods sent to Branch
A/c
1,20,000 By Branch Debtors A/c
(balancing figure)
1,16,000
To Branch Adjustment A/c 54,000
By Cash Sales 34,000

(Excess profit over normal
loading)
By Goods in Transit
(1,20,000-1,08,000)
12,000
By Balance c/d 12,000
1,74,000 1,74,000

` [1,16,000 +34,000 -(1,20,000-12,000-12,000)]
Branch Expenses A/c
To Branch Cash A/c 24,000 By Branch P&L A/c 24,000

Branch Adjustment A/c
To Stock Reserve 2,000 By Goods sent to Branch A/c 20,000
To Goods in Transit Reserve 2,000 By Branch Stock A/c 54,000
To Branch P&L A/c 70,000
74,000 74,000
Branch P&L A/c
To Branch Expenses A/c 24,000 By Branch Adjustment A/c 70,000
To Bad Debts 400
To Prom 45,600
70,000 70,000

(b)
Total number of shares issued 10,00,000 shares
Less: Shares taken by the directors and others (1,00,000 shares)
Shares offered to general public 9,00,000 shares
Statement Showing the Liability of Underwriters
(Number of shares)
X Y Z
Gross liability (65%: 25%: 10%) 5,85,000 2,25,000 90,000
Less: Marked applications (1,19,500) (57,500) (10,500)
4,65,500 1,67,500 79,500
Less: Unmarked applications in the ratio of
gross liability
(4,55,000) (1,75,000) (70,000)
Resultant Liability (or Surplus) 10,500 (7,500) 9,500
Less: Surplus of Y allocated to and Z in the
ratio of 65:10
(6,500) (7,500) (1,000)
Net Liability as per agreement 4,000 Nil 8,500

In the books of a Joint Stock Company
Journal Entries
Date Particulars Dr. (`) Cr. (`)
Bank A/c Dr. 11,00,000
To Equity Share Capital A/c 10,00,000
To Securities Premium A/c 1,00,000
(Being the issue of 1,00,000 equity shares of `
10 each at a premium of ` 1 per share to the
directors, their relatives and friends as per
Board's Resolution No dated )

Date Particulars Dr. (`) Cr. (`)
Bank A/c Dr. 97,62,500
To Share Application A/c 97,62,500
(Being application money received on 8,87,500
shares @ ` 11 each)

X (4,000 shares ` 11) Dr. 44,000
Z (8,500 shares ` 11) Dr. 93,500
Share Application A/c Dr. 97,62,500
To Equity Share Capital A/c 90,00,000
To Securities Premium A/c 9,00,000
(Being allotment of shares to - 4,000 and Z-
8,500, application money credited to Equity
Share Capital Account and Securities Premium
Account as per Board's Resolution
No....dated....)

Underwriting Commission A/c Dr. 1,98,000
To X (Note 1) 1,28,700
To Y (Note 1) 49,500
To Z (Note 2) 19,800
(Being the amount payable to X, Y and Z as
underwriting commission @ 2% of the issue
price)

X Dr. 84,700
Y Dr. 49,500
To Bank A/c 1,34,200
(Being the amount paid to X and Y in respect of
underwriting commission after adjusting
amount payable on shares allotted)

Bank A/c Dr. 73,700
To Z 73,700
(Being the balance money received from Z on
shares allotted after adjusting underwriting
commission)

Working Note:
Statement showing the Amount Due from (Due to) Underwriters

Underwriters X Y Z
Number of shares to be subscribed as
per agreement
4,000 Nil 8,500
Underwriters X Y Z
Amount payable @ ` 11 per share (`) 44,000 - 93,500
Less: Underwriting commission @ 2%
X - on ` 64,35,000 (1,28,700) - -
Y-on ` 24,75,000 - (49,500) -
Z - on ` 9,90,000 _ _ _ (19,800)
Amount paid/ (received) (84,700) (49,500) 73,700

Ans 6:
(a) Calculation of Reasonable Return
`
10% (Bank rate 8% +2%) of capital base 87,40,000
8% on Reserve fund investments 9,60,000
% on Loan from State Electricity Board 50,000
% on 11 % Debentures 4,000
on Development reserve 16,000
97,70,000
Surplus:
Clear Profit-Reasonable return (` 1,20,00,000-97,70,000) ` 22,30,000
20% of Reasonable Return ` 19,54,000
whichever is less is for disposal as surplus i.e. ` 19,54,000
Statement showing Disposal of surplus
`
(i) 1/3rd of surplus limited to 5% of reasonable return is at the
disposal of the company 4,88,500
1/3rd of surplus =` 6,51,333
Or, 5% of reasonable return = ` 4,88,500
(ii) Credit to Tariffs and Dividend Control Reserve (1/2 of
remaining balance of 20% of reasonable return)
` 19,54,000-4,88,500 = ` 14,65,500 1/2 7,32,750
(iii) Remaining balance credited to customers account 7,32,750
19,54,000

(b) Departmental Trading and Loss Account of M/s Part and Parcel
For the year ended 31st December, 2011
Deptt. A Deptt. B Deptt. A Deptt. B
` ` ` `
To Opening stock 50,000 40,000 By Sales 10,00,000 15,00,000
To Purchases 6,50,000 9,10,000 By Closing
stock
1,00,000 2,00,000
To Gross profit 4,00,000 7,50,000
11,00,000 17,00,000 11,00,000 17,00,000
To General By Gross profit 4,00,000 7,50,000
Expenses
(in ratio of
sales) 50,000 75,000
To Profit to
general
3,50,000 6,75,000
profit and loss
account
4,00,000 7,50,000 4,00,000 7,50,000

General Profit and Loss Account
` `
To Stock reserve required (additional): By Profit from:
Stock in Deptt. A Deptt. A 3,50,000
50% of (` 20,000 -` 10,000) (W.N.1) 5,000 Deptt. B 6,75,000
Stock in Deptt. B
40% of (` 30,000 - ` 15,000) (W.N.2) 6,000
To Net Profit 10,14,000
10,25,000 10,25,000
Working Notes:
1. Stock of department A will be adjusted according to the rate applicable to
department B = [(7,50,000 + 15,00,000) 100] = 50%
2. Stock of department B will be adjusted according to the rate applicable to
department A = [(4,00,000 + 10,00,000) 100] = 40%
Ans 7:
(a) Calculation of amount of provision to be made in the Profit and Loss
Account

Classification of Assets Amount of
advances
% age of
provision
Amount of
provision
(` in lakhs) (` in lakhs)
Standard assets 20,000 0.40 80
Sub-standard assets 16,000 15
2,400
Doubtful assets:
For one year (secured) 6,000 25 1,500
For two to three years (secured) 4,000 40 1,600
For more than three years
(unsecured) 1,400 100 1,400
(secured) 600 100 600
Non-recoverable assets (Loss assets) 1,500 100 1,500
Total provision required 9.080

(b) Para 3.2 of AS 4 (Revised) on Contingencies and Events Occurring after the
Balance Sheet Date defines events occurring after the balance sheet date
as significant events, both favourable and unfavourable, that occur between
the balance sheet date and the date on which financial statements are
approved by the Board of Directors in the case of a company. The given
case is discussed in the light of the above mentioned definition and
requirements given in paras 13-15 of the said AS 4 (Revised).
In this case the incidence, which was expected to push up cost by ` 80
lakhs became evident after the date of approval of the accounts. So that
was not an 'event occurring after the balance sheet date'. However, this may
be mentioned in the Directors' Report
(c) As per para 13 of AS 11 (Revised 2003) 'The Effects of Changes in Foreign
Exchange Rates', exchange differences arising on the settlement of
monetary items or on reporting an enterprise's monetary items at rates
different from those at which they were initially recorded during the period,
or reported in previous financial statements, should be recognized as
income or expenses in the period in which they arise. Thus exchange
differences arising on repayment of liabilities incurred for the purpose of
acquiring fixed assets are recognized as income or expense.
Calculation of Exchange Difference:
Foreign currency loan = `
3, 000 lakhs
40
= 75 lakhs US Dollars
Exchange difference = 75 lakhs US Dollars (42.50 - 40.00)
= ` 187.50 lakhs
(including exchange loss on payment of first instalment)
Therefore, entire loss due to exchange differences amounting ` 187.50
lakhs should be charged to profit and loss account for the year.

Sub-standards assets have been assumed as fully secured.
(d) Para 11 of AS 20 states that "for the purpose of calculating basic earnings
per share, the net profit or loss for the period attributable to Equity
shareholders should be the net profit or loss for the period after deducting
preference dividends and any attributable tax thereto for the period".
With an emphasis on the phrase "attributable to equity shareholders", it may
be construed that amount appropriated to Mandatory Reserves as described
in this case, though not available for distribution as dividend, are still
attributable to equity shareholders.
Therefore, the appropriation made to mandatory reserve created for the
redemption of debentures would be included in the net profit attributable to
equity shareholders for the computation of Basic EPS. The treatment made
by the company is not correct.
(e) As per para 10 of AS 12 'Accounting for Government Grants', where the
government grants are of 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 (for example, central investment
subsidy scheme) 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 is neither in relation to specific fixed
asset nor in relation to revenue. Thus it is inappropriate to recognise
government grants in the profit and loss statement, since they are not
earned but represent an incentive provided by government without related
costs. The correct treatment is to credit the subsidy to capital reserve.
Therefore, the accounting treatment followed by the company is not proper.
MOCK TEST PAPER-C
IPCC: GROUP-II
Question 1:
(a) Hello Ltd. took a factory premises on lease on 1.4.2011 for ` 4,00,000 per
month. The lease is operating lease. During March, 2012, Hello Ltd.
relocates its operation to a new factory building. The lease on the old factory
premises continues to be live upto 31.12.2014. The lease cannot be
cancelled and cannot be sub-let to another user. The auditor insists that
lease rent of balance 33 months upto 31.12.2014 should be provided in the
accounts for the year ending 31.3.2012. Hello Ltd. seeks your advice.
(b) An industry borrowed ` 20,00,000 for purchase of machinery on 1.6.2011.
Interest on loan is 9% per annum. The machinery was put to use from
1.1.2012. Pass journal entry for the year ended 31.3.2012 to record the
borrowing cost of loan as per AS 16.
(c) A company with a turnover of ` 50 crores and an annual advertising budget
of ` 0.4 crore had taken up the marketing of a new product. It was estimated
that the company would have a turnover of ` 5 crores from the new product.
The company had debited to its Profit and Loss account the total
expenditure of ` 0.4 crore incurred on extensive special initial advertisement
campaign for the new product.
Is the procedure adopted by the company correct `
(d) From the following information relating to Y Ltd. Calculate Earnings Per
Share (EPS):
` in crores
Profit before V.R.S. payments but after depreciation 75.00
Depreciation 10.00
VRS payments 32.10
Provision for taxation 15.00
Paid up share capital (shares of ` 10 each fully paid) 93.00
(5 Marks each)
Question 2: Following are the summarised Balance Sheets of T Ltd. and P Ltd.
as at 31.3.2012:
Particulars T Ltd. P Ltd.
` `
Share capital: Equity shares of ` 10 each (fully paid up) 2,00,000 1,20,000
Securities premium 40,000 -
General reserve 60,000 50,000
Profit and loss account 36,000 32,000
10% Debentures 1,00,000 -
Secured loan - 60,000
44 Mock Test Paper-C: Questions
Particulars T Ltd. P Ltd.
` `
Sundry creditors 52,000 34,000
4,88,000 2,96,000
Land and building 1,80,000 90,000
Plant and machinery 1,00,000 76,000
Investment 16,000 -
Stock 1,04,000 70,000
Debtors 82,000 52,000
Cash at bank 6,000 8,000
4,88,000 2,96,000
The companies agree on a scheme of amalgamation on the following terms:
(i) A new company is to be formed by name TP Ltd.
(ii) TP Ltd. to take over all the assets and liabilities of the existing
companies. Amalgamation is to be considered in the nature of
purchase.
(iii) For the purpose of amalgamation, the shares of the existing companies
are to be valued as under
T Ltd. = ` 18 per share
P Ltd. =` 20 per share
(iv) A contingent liability of T Ltd. of ` 12,000 is to be treated as actual
existing liability.
(v) The shareholders of T Ltd. and P Ltd. are to be paid by issuing
sufficient number of shares of TP Ltd. at a premium of ` 6 per share.
(vi) The face value of shares of TP Ltd. are to be of ` 10 each.
(i) Calculate the purchase consideration (i.e., number of shares to be
issued to T Ltd. and P Ltd.).
(ii) Pass journal entries in the books of T Ltd. for the transfer of assets and
liabilities.
(iii) Pass journal entries in the books of TP Ltd. for acquisition of T Ltd. and
P Ltd.
(iv) Prepare the Balance Sheet of TP Ltd. (16 Marks)
Question 3: E, F and G were partners in business, sharing profits & losses in the
ratio 2:1:1. Their Balance Sheet as at 31.3.2012 is as follows:
Balance Sheet as at 31.3.2012
(Figures in ` 000)
Fixed Capital: Fixed Assets 9,00,000
E 6,00,000 Investments 1,50,000
F 3,00,000 Current
Mock Test Paper-C: Questions 45
G 3,00,000 12,00,000 Assets:
Current Accounts: Stock 3,00,000
E 1,20,000 Debtors 1,80,000
F 60,000 1,80,000 Cash & Bank 4,50,000 9,30,000
Unsecured Loans 6,00,000
19,80,000 19,80,000
On 1.4.2012, it is agreed among the partners that FG (P) Ltd. a newly
formed company with F and G having each taken up 100 shares of ` 10
each will take over the firm as a going concern including goodwill but
excluding cash & bank balances. The following points are also agreed upon:
(a) Goodwill will be valued at 3 years purchase of super profits.
(b) The actual profit for the purpose of goodwill valuation will be `
3,00,000.
(c) Normal rate of return will be 15% on fixed capital.
(d) All other assets and liabilities will be taken over at book values.
(e) The purchase consideration will be payable partly in shares of ` 10
each and partly in cash. Payment in cash being to meet the
requirement to discharge E, who has agreed to retire.
(f) F and G are to acquire equal interest in the new company by adjusting
the difference through their capital accounts.
(g) Expenses of liquidation ` 1,20,000.
You are required to prepare the necessary Ledger Accounts. (16 Marks)
Question 4: The London branch of Amit, Kolkata sent the following trial balance
as on 31st December, 2012:
$ $
Head office A/c 11,400
Sales 42,000
Debtors and creditors 2,400 1,700
Machinery 12,000 _
Cash at bank 600
Stock, 1 January, 2012 5,600 _
Goods from H.O. 32,000
Expenses 2,500
55,100 55,100
In the books of head office, the Branch A/c stood as follows:
London Branch A/c
` `
To Balance b/d 4,05,000 By Cash 14,38,000
To Goods sent to branch 14,63,000 By Balance c/d 4,30,000
18,68,000 18,68,000
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, 2007, when $
1.00 = ` 40.
Rates of exchange were:
1st January, 2012 $1.00 ` 46
31st December, 2012 $1.00 ` 48
Average $1.00 ` 47
Machinery is depreciated @ 10% and the branch manager is entitled to a
commission of 5% on the profits of the branch before charging such
commission.
(i) Prepare the Branch Trading & Profit & Loss A/c in dollars.
(ii) Convert the Trial Balance of branch into Indian currency and prepare
Branch Trading & Profit and Loss A/c and the Branch A/c in the books
of head office.
(16 Marks)
Question 5:
(a) On 1st January, 2007 Gopal Limited issued fifteen years 10,000 debentures
of ` 100 each bearing interest at 10% p.a. One of the conditions of issue
was that the company could redeem the debentures by giving six months'
notice at any time after 5 years, at a premium of 4% either by payment in
cash or by allotment of preference shares and/or other debentures at the
option of the debenture holders.
On 1st April, 2012 the Company gave notice to the debenture holders of its
intention to redeem the debentures on 1st October, 2012 either by payment
in cash or by allotment of 11% preference shares of ` 100 each at ` 130 per
share or 11% Second Debentures of ` 100 at ` 96 per debenture.
Holders of 4,000 debentures accepted the offer of the preference shares,
holders of 4,800 debentures accepted the offer of the 11% second
debentures and the rest demanded cash on 1st October, 2012.
Give the journal entries to give effect to the above as of 1st October, 2012.
(8 Marks)
(b) Prepare the Fire Insurance Revenue A/c as per IRDA Regulations for the
year ended
31st March, 2012 from the following details:
`
Legal expenses regarding claims 5,000
Premiums received 6,50,000
Re-insurance premium paid 50,000
Commission 1,50,000
Expenses of management 1,00,000
Provision against unexpired risk on 1st April, 2011 2,75,000
Claims unpaid on 1st April, 2011 25,000
Claims unpaid on 31st March, 2012 40,000
(8 Marks)
Mock Test Paper-C: Questions 47
Question 6:
(a) The following is an extract from the Trial Balance of Sanjay Bank Ltd. as at
31st March, 2012:
Rebate on bills discounted as on 1-4-2011 17,065 (Cr.)
Discount received 42,539 (Cr.)
Analysis of the bills discounted reveals as follows:
Amount (`) Due date
70,000 June 1,2012
2,18,000 June 8, 2012
1,41,000 June 21, 2012
2,03,000 July 1,2012
1,50,000 July 5, 2012
You are required to find out the amount of discount to be credited to Profit
and Loss account for the year ending 31st March, 2012 and pass Journal
Entries. The rate of discount may be taken at 10% per annum. (8 Marks)
6 (b) In a winding up of a company, certain creditors remained unpaid. The
following persons had transferred their holding sometime before winding up:
Name Date of Transfer
(2011)
No. of Shares
transferred
Amount due to
creditors on the date of
transfer
X January 1 1,000 7,500
Y February 15 400 12,500
Z March 15 700 18,000
A March 31 900 21,000
B April 5 1,000 30,000
The shares were of ` 100 each, ` 80 being called up and paid up on the
date of transfers.
A member 'P' who held 200 shares died on 28th February, 2011 when the
amount due to creditors was ` 15,000. His shares were transmitted to his
son L.
Q was the transferee of shares held by A. Q paid ` 20 per share as calls in
advance immediately on becoming a member.
The liquidation of the company commenced on 1st February, 2012 when the
liquidator made a call on the present and the past contributories to pay the
amount.
You are asked to quantify the maximum liability of the transferors of shares
mentioned in the above table, when the transferees:
(i) pay the amount due as "present" member contributories;
(ii) do not pay the amount due as "present" member contributories.
Also quantify the liability of L to whom shares were transmitted on the
demise of his father 'P'. (8 Marks)
Question 7: Answer any four out of five
(a) A Company entered into an agreement to sell its immovable property to
another company for 70 lakhs. The property was shown in the Balance
Sheet at ` 14 lakhs. The agreement to sell was concluded on 15th
February, 2012 and sale deed was registered on 30th April, 2012.
You are required to state, with reasons, how this event would be dealt
with in the financial statements for the year ended 31st March, 2012.
(b) A company had imported raw materials worth US Dollars 6,00,000 on
5th January, 2012, when the exchange rate was ` 43 per US Dollar.
The company had recorded the transaction in the books at the above
mentioned rate. The payment for the import transaction was made on
5th April, 2012 when the exchange rate was ` 47 per US Dollar.
However, on 31st March, 2012, the rate of exchange was ` 48 per US
Dollar. The company passed an entry on 31st March, 2012 adjusting
the cost of raw materials consumed for the difference between ` 47
and ` 43 per US Dollar.
In the background of the relevant accounting standard, is the
company's accounting treatment correct ` Discuss.
(c) Give computation of "claim expense" in the case of an insurance
company.
(d) On what basis common expenditures are allocated among different
departments?
(e) A Limited Company finds that the stock sheets as on 31.3.2011 had
included twice an item, the cost of which was ` 60,000.
You are asked to suggest, how the error would be dealt with in the accounts
of the year ended 31.3.2012. (4 Marks each)

MOCK TEST PAPER-C
ANSWERS/HINTS
Ans 1:
(a) In accordance with AS 29 'Provisions, Contingent Liabilities and Contingent
Assets' and ASI 30 (now merged as an explanation to para 1(b) of AS 29)
'Applicability of AS 29 to Onerous Contracts', if an enterprise has a contract
that is onerous, the present obligation under the contract should be
recognized and measured as a provision. In the given case, the operating
lease contract has become onerous
as the economic benefit of lease

contract for next 33 months up to 31.12.2014 will be nil. However, the
lessee, Hello Ltd., has to pay total lease rent of ` 1,32,00,000 (i.e. 4,00,000
p.m.) for next 33 months.
Therefore, provision on account of ` 1,32,00,000 is to be provided in the
accounts for the year ending 31.03.2012. Hence, the auditor is right.
(b)
`
Interest upto 31.3.2012 (20,00,000 9%
10
12
months)
= 1,50,000
Less. Interest relating to pre-operative period 1,50,000
7
10

= (1,05,000)
Amount to be charged to Profit & Loss A/c = 45,000
Pre-operative interest to be capitalized = 1,05,000

Journal Entries
Machinery A/c Dr. 1,05,000
To Loan A/c 1,05,000
(Being interest on loan for pre-operative period capitalized
as per AS 16)

Interest on loan A/c Dr. 45,000
To Loan A/c 45,000
(Being the interest on loan for the post-operative period)
Profit and Loss A/c Dr. 45,000
To Interest on loan A/c 45,000
(Being interest on loan transferred to P&L A/c)

For a contract to qualify as an onerous contract, the unavoidable costs of meeting the
obligation under the contract should exceed the economic benefits expected to be received
under it.
50 Mock Test Paper-C: Answers
(c) According to paras 55 and 56 of AS 26 'Intangible Assets', "expenditure on
an intangible item should be recognised as an expense when it is incurred
unless it forms part of the cost of an intangible asset".
In the given case, advertisement expenditure of ` 0.4 crores had been taken
up for the marketing of a new product which may provide future economic
benefits to an enterprise by having a turnover of `5 crores. Here, no
intangible asset or other asset is acquired or created that can be
recognised. Therefore, the accounting treatment by the company of debiting
the entire advertising expenditure of `0.4 crores to the Profit and Loss
account of the year is correct.
(d)
` in crores
Profit after depreciation but before VRS Payment 75.00
Less: Depreciation - No adjustment required -
VRS payments 32.10
Provision for taxation 15.00 47.10
Net Profit 27.90

No. of shares
93.00
10
= 9.30 crores
Eps =
Net profit
No. of shares

=
27.90
9.30

= ` 3 per share.
Ans 2: (i) Statement showing calculation of purchase consideration
(Number of shares)
T Ltd. P. Ltd.
Existing shares 20,000 12,000
Value per share ` 18 ` 20
Total value ` 3,60,000 ` 2,40,000
No. of shares to be issued at a premium of ` 6
per share i.e. ` 16 (10+6) 22,500 shares 15,000 shares

` `
Share capital 2,25,000 1,50,000
Add: Securities premium 1,35,000 90,000
Total purchase consideration 3,60,000 2,40,000

Mock Test Paper-C: Answers 51
(ii) Journal Entries in the books of T Ltd.
` `
Realisation A/c Dr. 4,88,000
To Land & building A/c 1,80,000
To Plant & machinery A/c 1,00,000
To Stock A/c 1,04,000
To Sundry debtors A/c 82,000
To Investments A/c 16,000
To Bank A/c 6,000
(Being assets transferred to Realisation A/c)
Profit and loss A/c Dr. 12,000
To Creditors A/c (52,000+12,000) 12,000
(Being contingent liability treated as real liability)
10% Debentures A/c Dr. 1,00,000
Creditors A/c (52,000+12,000) Dr. 64,000
To Realisation A/c 1,64,000
(Being transfer of liabilities to Realisation A/c)
TP Ltd. Dr. 3,60,000
To Realisation A/c 3,60,000
(Being the purchase consideration accounted for)
Share in TP Ltd. A/c Dr. 3,60,000
To TP Ltd. 3,60,000
(Being purchase consideration received)
Share Capital A/c Dr. 2,00,000
Securities premium A/c Dr. 40,000
General Reserve A/c Dr. 60,000
Profit and Loss A/c (36,000-12,000) Dr. 24,000
Realisation A/c Dr. 36,000
To Equity Shareholders A/c 3,60,000
(Being transfer of balances to shareholders' account)
Equity Shareholders A/c Dr. 3,60,000
To Shares in TP Ltd. 3,60,000
(Being closure of shareholders a/c)

(iii) Journal Entries in the Books of TP Ltd.
` `
Land & building A/c Dr 1,80,000
Plant & machinery A/c Dr. 1,00,000
Stock A/c Dr. 1,04,000
Debtors A/c Dr. 82,000
Bank A/c Dr. 6,000
Investment A/c Dr. 16,000
Goodwill A/c Dr. 36,000
To 10% Debentures A/c 1,00,000
To Sundry creditors A/c 64,000
To Liquidator of T Ltd. A/c 3,60,000
(Being the purchase consideration of T Ltd.
accounted for)

Land& building A/c Dr. 90,000
Plant & machinery A/c Dr. 76,000
Stock A/c Dr. 70,000
Debtors A/c Dr. 52,000
Bank A/c Dr. 8,000
Goodwill A/c Dr. 38,000
To Secured loan A/c 60,000
To Sundry creditors A/c 34,000
To Liquidator of P Ltd. A/c 2,40,000
(Being purchase consideration of P Ltd. accounted for)
Liquidator of T Ltd. A/c Dr. 3,60,000
To Equity share capital A/c 2,25,000
To Securities premium A/c 1,35,000
(Being shares issued to Liquidator of T Ltd.)
Liquidator of P Ltd. A/c Dr. 2,40,000
To Equity share capital A/c 1,50,000
To Securities premium A/c 90,000
(Being shares issued to Liquidator of P Ltd.)

(iv) Balance Sheet of TP Ltd.
(After amalgamation of T Ltd. & P Ltd.)
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
(a) Equity Share capital 1 3,75,000
(b) Reserves and Surplus 2 2,25,000
2 Non-current liabilities
(a) Long-term borrowings 3 1,60,000
3 Current liabilities
(a) Trade Payables 98,000
Total 8,58,000
Assets
1 Non-current assets
(a) Fixed assets
(i) Tangible assets 4 4,46,000
(ii) Intangible assets 5 74,000
(b) Investment 16,000
2 Current assets
(a) Inventories 1,74,000
(b) Trade receivables 1,34,000
Cash and cash equivalents 14,000
Total 8,58,000
Notes to accounts
`
1. Share Capital
Share capital:
37,500 Equity shares of `10 each fully paid up 3,75,000
(above shares have been issued for consideration other than cash)
2. Reserves and Surplus
Securities premium (1,35,000+90,000) 2,25,000
3. Long-term borrowings
Secured
10% Debentures 1,00,000
Loan 60.000
1,60,000
`
4. Tangible assets
a) Land and building 2,70,000
b) Plant and machinery 1,76,000
Total 4,46,000
5. Intangible assets
Goodwill (36,000+ 38,000) 74,000

Ans 3: Computation of Goodwill
`
Capital employed on 31.3.2012 (Fixed capital) 12,00,000
Calculation of Goodwill:
Weighted average of actual profits 3,00,000
Less: Normal profits at 15% of ` 12,00,000 (1,80,000)
Super profits 1,20,000
Goodwill at 3 years' purchase, (i.e. 1,20,000 3) 3,60,000
Calculation of Purchase Consideration:
Total assets as per Balance Sheet 19,80,000
Less: Cash & Bank balances (4,50,000)
15,30,000
Add: Goodwill 3,60,000
18,90,000
Less: Unsecured loans (6,00,000)
Purchase Consideration 12,90,000
Realisation Account
` `
To Sundry Assets 15,30,000 By Unsecured loans 6,00,000
To Goodwill 3,60,000 By FG (P) Ltd. 12,90,000
To Bank (expenses) 1,20,000 By Capital A/c:
E 60,000
F 30,000
G 30,000 1,20,000
20,10,000 20,10,000

E F G E F G
` ` ` ` ` `
To Realisation 60,000 30,000 30,000 By Bal. c/d 6,00,000 3,00,000 3,00,000
To Cash 8,40,000 - - By Cur. A/c 1,20,000 60,000 -
To G(Cap. adj) - 30,000 - By Goodwill 1,80,000 90,000 90,000
To Shares in FG(P) Ltd.) - 3,90,000 3,90,000 By F (Cap. adj) - - 30,000
9,00,000 4,50,000 4,20,000 9,00,000 4,50,000 4,20,000

Cash & Bank A/c
` `
To Balance b/d 4,50,000 By Realisation A/c -
expenses
1,20,000
To FG (P) Ltd. (Balancing
Figure)
5.10,000 By E's Capital A/c 8,40,000
9,60,000 9,60,000
FG (P) Ltd.
To Realisation 12,90,000 By Cash 5,10,000
By Equity Shares (Balancing
Figure)
7,80,000
(78,000 shares of ` 10 each)
12,90,000 12,90,000
Proportion of equity capital F:G= 1:1
No. of shares =
78,000
2
= 39,000 shares each.
Ans 4: (i) In the Books of Head Office
Branch Trading and Profit & Loss A/c (in Dollars)
for the year ended 31st December, 2012
Particulars $ Particulars $
To Opening stock 5,600 By Sales 42,000
To Goods from H.O. 32,000 By Closing stock (W.N.2) 4,000
To Gross profit c/d 8,400
46,000 46,000
To Expenses 2,500 By Gross profit b/d 8,400
To Depreciation 1,200
Particulars $ Particulars $
To Manager's commission
(W.N.1)
235
To Net profit c/d 4,465
8,400 8,400

(ii) (a) Converted Branch Trial Balance (into Indian Currency)
Particulars $ Rate
per$
Dr.(`) Cr.(`)
Machinery 12,000 40 4,80,000 -
Stock January 1, 2012 5,600 46 2,57,600 -
Goods from head office 32,000 Actual 14,63,000 -
Sales 42,000 47 19,74,000
Expenses 2,500 47 1,17,500 -
Debtors 2,400 48 1,15,200
Creditors 1700 48 81,600
Cash at bank 600 48 28,800 -
Head office A/c Actual 4,30,000
Difference in exchange rate 23,500
24,85,600 24,85,600
Closing stock $4,000 (W.N. 48 ` 1,92,000
2)

(b) Branch Trading and Profit & Loss A/c
for the year ended 31st December, 2012
` `
To Opening stock 2,57,600 By Sales 19,74,000
To Goods from head office 14,63,000 By Closing stock(W.N. 2) 1,92,000
To Gross profit c/d 4,45,400
21,66,000 21.66,000
To Expenses 1,17,500 By Gross profit b/d 4,45,400
To Depreciation @10% on`
4,80,000
48,000
To Exchange difference 23,500
To Manager's
commission(W.N.1)
11,280
To Net Profit c/d 2,45,120
4,45,400 4,45,400

(c) Branch Account
` `
To Balance b/d 4,30,000 By Machinery 4,80,000
To Net profit 2,45,120 Less: Depreciation (48,000) 4,32,000
To Creditors 81,600 By Closing stock 1,92,000
To Outstanding By Debtors 1,15,200
commission 11,280 By Cash at bank 28,800
7,68,000 7,68,000

Working Notes:
1. Calculation of manager's commission @ 5% on profit before charging such
commission i.e. 5% of $[8,400-(2,500+ 1,200)]
Or 5% $4,700 = $235
Manager's commission in Rupees = $ 235 ` 48 = ` 11,280
2. Calculation of closing stock $
Opening stock 5,600
Add: Goods from head office 32,000
37,600
Less: Cost of goods sold (at invoice price)
i.e.
100
125
42,000
33,600
Closing stock 4,000
Closing stock in Rupees = $4,000 `48 = ` 1,92,000.

Ans 5: (a) Journal Entries
Date Particulars Dr. Cr.
` `
1.10.2012 10% Debentures A/c Dr. 10,00,000
Premium on Redemption of Debentures A/c Dr. 40,000
To Debenture holders A/c 10,40,000
(Being transfer of amount due on redemption
of 10% debentures - nominal value `
10,00,000 plus premium `40,000)

Debenture-holders A/c Dr. 4,16,000
To 11% Preference Share Capital A/c 3,20,000
To Securities Premium A/c 96,000
(Being issue of 3,200 preference shares of `
100 each at a premium of ` 30 each in
exchange of 4,000 debentures)

Date Particulars Dr. Cr.
` `
1.10.2012 Debentureholders A/c Dr. 4,99,200
Discount on issue of 11% Second Dr. 20,800
Debentures A/c
To 11% Second Debentures A/c 5,20,000
(Issue of 5,200 11% Second Debentures of `
100 each at a discount of ` 4 in exchange of
4,800 Debentures)

Debentureholders A/c Dr. 1,24,800
To Bank A/c 1,24,800
(Being the redemption of 1,200 debentures by
cash)

Working Notes:
(1) Redemption of debentures by issuing preference shares:
`
Claim of the holders of 4000 debentures @ `104 4,16,000
Number of preference shares to be issued
4,16, 000
130

3,200
Face value of preference shares @ `100 each 3,20,000
Premium of preference shares @ `30 each 96,000

(2) Redemption of debentures by issuing 11% Second Debentures:
`
Claim of the holders of 4,800 debentures @ `104 4,99,200
Number of 11% Second Debentures to be issued
4,99, 200
96

5,200
Face value of 11% Second Debentures @ `100 each 5,20,000
Discount on issue of debentures @ `4 each 20,800
(3) Claim of the holders `
Claim of the holders of 1,200 debentures @`104 1,24,800
(10,000-4,000-4,800 = 1,200)
(b)
FORM B - RA
Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
Fire Insurance Revenue Account
Particulars Schedule Amount
(`)
(1) Premium earned 1 5,75,000
(2) Other income -
(3) Interest, dividend and rent -
Total (A) 5,75,000
(4) Claims incurred 2 2,65,000
(5) Commission 3 1,50,000
(6) Operating expenses related to Insurance 4
business 1,00,000
Total (B) 5,15,000
Operating Profit (A)- (B) 60,000

Schedule 1 : Premium earned (net) `
Less: Re-insurance premium (50,000)
Net premium 6,00,000
Adjustment for change in reserve for unexpired risks (Refer W.N.) (25,000)
5,75,000
Schedule 2 : Claims Incurred `
Claims paid including legal expenses (2,45,000 + 5,000) 2,50,000
Add: Claims outstanding at the end of the year 40,000
Less: Claims outstanding at the beginning of the year (25,000)
Total claims incurred 2,65,000
Schedule 3 : Commission `
Commission paid 1.50.000
1,50,000
Schedule 4: Operating expenses `
1,00,000

Working Note:
Change in the provision for unexpired risk `
Unexpired risk reserve on 31st March, 2012 =50% of net premium
i.e. 50% of `6,00,000 (See Schedule 1) 3,00,000
Less: Unexpired risk reserve as on 1st April 2011 (2,75,000)
Change in the provision for unexpired risk 25,000
Ans 6:
(a) The amount of rebate on bills discounted as on 31st March, 2012 the period
which has not been expired upto that day will be calculated as follows:
Discount on ` 70,000 for 62 days @ 10% 1,189
Discount on ` 2,18,000 for 69 days @ 10% 4,121
Total 17.540
The amount of discount to be credited to the profit and loss account will
be:
`
Transfer from rebate on bills discounted as on 31.03.2011 17,065
Add: Discount received during the year 42,539
59,604
Less: Rebate on bills discounted as on 31.03.2012 (as above) (17,540)
42,064
Journal Entries
` `
Rebate on bills discounted A/c Dr. 17,065
To Discount on bills A/c 17,065
(Transfer of unexpired discount on 1.04.2011)
Discount on bills A/c Dr. 17,540
To Rebate on bills discounted 17,540
(Unexpired discount on 31.03.2012 taken into account)
Discount on Bills A/c Dr. 42,064
To P & L A/c 42,064
(Discount earned in the year, transferred to P&L A/c)

(b) Statement of liability as contributories of former members
Creditors
outstanding
on the date of
transfer
(ceasing to be
member)
Y P/L Z B Amount
to be
paid to
creditors
No. of Shares 400 200 700 1,000
2011 ` ` ` ` ` `
Feb. 15 12,500 2,174 1,087 3,804 5,435 12,500
Feb. 28 15,000
(12,500) 2,500 - 263 921 1,316 2,500
March 15 18,000
(15,000) 3,000 - 316 1,105 1,579 3,000
April 5 30,000
(18,000) 12,000 2,000 10,000 12,000
Total (a) 30,000 2,174 3,666 5,830 18,330 30,000
Maximum 8,000 4,000 14,000 20,000
Liability @` 20
per share on
shares held (b)
Lower of (a) 2,174 3,666 5,830 18,330
and(b)

Working Note:
The transferors are X, Y, Z, A and B. L to whom shares were transmitted on
demise of his father P would be liable as an existing member contributory.
He steps into the shoes of his deceased father under section 430. His
maximum liability would be at ` 20 per share on 200 shares received on
transmission i.e. for ` 4,000.
X will not be liable to pay any amount as the winding up proceedings
commenced after one year from the date of the transfer. A also will not be
liable as the transferee Q has paid the balance `20 per share as call in
advance. Y, P/L, Z and B will be liable, as former members, to the maximum
extent as indicated, provided the transferees do not pay the calls.
Ans 7:
(a) Sale of immovable properly was concluded before approval by the Board.
This is clearly an event occurring after the balance sheet date but
agreement to sale was entered into before the balance sheet date
registration of the sale deed simply provides additional information relating
to the conditions existing at the balance sheet date. So adjustments to asset
for sale of property are necessary as per para 13 of AS-4 (Revised)
"Contingencies and Events Occurring after the Balance Sheet Date".
(b) As per AS 11 (revised 2003), 'The Effects of Changes in Foreign Exchange
Rates', monetary items denominated in a foreign currency should be
reported using the closing rate at each balance sheet date. The effect of
exchange difference should be taken into profit and loss account. Sundry
creditors is a monetary item, hence should be valued at the closing rate i.e.,
`48 at 31st March, 2012 irrespective of the payment for the same
subsequently at lower rate in the next financial year. The difference of `5
(48-43) per US dollar should be shown as an exchange loss in the profit and
loss account for the year ended 31st March, 2012 and is not to be adjusted
against the cost of raw- materials. In the subsequent financial year 2012-13,
the company would record an exchange gain of Re.1 per US dollar, i.e., the
difference between `48 and `47 per Us dollar. Hence, the accounting
treatment adopted by the company is incorrect.
(c) Claims expenses: A claim occurs when a policy falls due for payment. In the
case of a life insurance business, it will arise either on death or maturity of
policy that is, on the expiry of the specified term of years. In the case of
general insurance business, a claim arises only when the loss occurs or the
liability arises.
The amount of claim to be charged to revenue account may be worked out
as under.
CLAIMS INCURRED [NET]
Particulars Current Year Previous Year
(000) (000)
Claims paid - -
Direct - -
Add: Re-insurance accepted - -
Less :Re-insurance Ceded - -
Net Claims paid - -
Add: Claims Outstanding at the end of the
year
- -
Less: Claims Outstanding at the beginning - -
Total Claims Incurred = =

Notes:
(i) Incurred But Not Reported (IBNR), Incurred but not enough reported
[IBNER] claims should be included in the amount for outstanding
claims.
(ii) Claims includes specific claims settlement cost but not expenses of
management
(iii) The surveyor fees, legal and other expenses shall also form part of
claims cost.
(iv) Claims cost should be adjusted for estimated salvage value if there is a
sufficient certainty of its realisation.
(d) While preparing department accounts, common expenses should be
allocated among the different departments on the basis of the following
principles:
1. Common expenses, the benefit of which is shared by all the
departments and which are capable of precise allocation (e.g., rent,
lighting expenses etc.) are distributed among the departments
concerned on some equitable basis considered suitable in the
circumstances of the case. Rent is charged to different departments
according to the floor area occupied by each department having regard
to any favourable location specially allocated to a department.
Lighting and heating expenses are distributed on the basis of
consumption of energy by each department and so on.
2. Common expenses which are not capable of accurate measurement
are dealt with as follows:
(i) Selling expenses, e.g. discount, bad debts, selling commission,
etc. are charged on the basis of sales.
(ii) Administrative and other expenses, e.g. salaries of managers,
directors, common advertisement expense, depreciation on
assets, etc. are allocated equally among all the departments that
have benefited thereby. Alternatively, no allocation may be made
and such expenses may be charged to the combined profit and
loss account.
(e) The error in recording of closing stock of the year ended 31st March, 2011
must have also resulted in overstatement of profits of previous year, brought
forward to the current year ended 31st March, 2012. Vide para 4 of AS 5
(Revised) on "Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies", the rectifications as required in the current
year are 'Prior Period Items'. Accordingly, ` 60,000 should be deducted from
opening stock in the profit and loss account and should be charged as prior
period adjustment in the profit and loss account for the year ended 31st
March 2012 in accordance with para 15 of AS 5 (Revised), which requires
that the nature and amount of prior period items should be separately
disclosed in the statement of profit and loss in a manner that their impact on
the current profit or loss can be perceived.

MOCK TEST PAPER-D
IPCC: GROUP-II
Question 1:
(a) KK Ltd. has to pay delayed cotton clearing charges over and above the
negotiated price for taking delayed delivery of cotton from the Suppliers'
godown. Up to 2010-11, the company has regularly included such charges
in the valuation of closing stock. This being in the nature of interest the
company has decided to exclude it from closing stock valuation for the year
2011-2012. This would result into decrease in profit by ` 7.60 lakhs. How
would you deal with the following in the annual accounts of a company for
the year ended 31st March, 2012?
(b) In May, 2011, Dream Ltd. took a bank loan to be used specifically for the
construction of a new factory building. The construction was completed in
January, 2012 and the building was put to its use immediately thereafter.
Interest on the actual amount used for construction of the building till its
completion was ` 18 lakhs, whereas the total interest payable to the bank on
the loan for the period till 31st March, 2012 amounted to ` 25 lakhs. Can `
25 lakhs be treated as part of the cost of factory building and thus be
capitalized on the plea that the loan was specifically taken for the
construction of factory building?
(c) A company deals in petroleum products. The sale price of petrol is fixed by
the government. After the Balance Sheet date, but before the finalisation of
the company's accounts, the government unexpectedly increased the price
retrospectively. Can the company account for additional revenue at the
close of the year? Discuss.
(d) The following is an extract from the Trial Balance of a Bank as at 31st
March, 2012:
` `
Bills discounted 51,50,000
Rebate on bills discounted not yet due, April 1, 2011 30,501
Discount received 1,45,500
An analysis of the bills discounted as shown above shows the following:
Date of Bills Amount (`) Term Months Discount percentage p.a.
January 13, 2012 7,50,000 4 12
February 17, 2012 6,00,000 3 10
March 6, 2012 4,00,000 4 11
March 16, 2012 2,00,000 2 10
Find out the amount of discount received to be credited to Profit and Loss
Account and how the relevant items will appear in the Bank's Balance
Sheet?
(5 Marks each)
Mock Test Paper-D: Questions 65
Question 2: PK, DK and LK are in partnership. The following is their Balance
Sheet as at March 31, 2012 on which date they dissolved their partnership. They
shared profit in the ratio of 5:3:2.
Creditors 1,60,000 Plant and machinery 1,20,000
Loan A/c - PK 40,000 Premises 1,60,000
Capital A/cs - PK 2,00,000 Stock 1,20,000
DK 60,000 Debtors 2,40,000
LK 1,80,000
6,40,000 6,40,000
It was agreed to repay the amounts due to the partners as and when the
assets were realised, viz.
April 15, 2012 ` 1,20,000
May 1,2012 ` 2,92,000
May 31, 2012 ` 1,88,000
Prepare a statement showing how the distribution should be made under
maximum loss method and write up the cash account and partner's capital
accounts. (16 Marks)
Question 3:
(a) Sun Limited came up with an issue of 25,00,000 Equity shares of ` 10 each
at par. 4,00,000 shares were issued to the promoters and balance offered to
the public. Issue was underwritten by three underwriters X & Co., Y & Co.,
and Z & Co., equally, with firm underwriting of 1,00,000 shares each.
Subscription totalled 17,26,000 shares, including the marked forms which
were as under:
X &Co. 5,18,000 Shares
Y & Co. 5,50,000 Shares
Z & Co. 4,72,000 Shares
The underwriters had applied for the number of shares covered by firm
underwriting. The amount payable on application and allotment were ` 3 & `
2 respectively. The agreed commission is 3%.
You are required to calculate:
(i) The liability of each underwriter.
(ii) The amount payable and/or receivable by the underwriter. (8 Marks)
(b) The following particulars are presented to you by Jeevan General Insurance
Company regarding its fire insurance business for the year ended 31st
March, 2012:
` `
Reserve for unexpired risk on 31st March, 2011
(i) 50% of net premium income for 2010-2011 7,50,000
(ii) Additional reserve on 31st March, 2011 1,50,000 9,00,000
66 Mock Test Paper-D: Questions
` `
Commission paid 1,20,000
Bad debts 15,000
Premiums received less reinsurances 18,15,000
Claims outstanding on 31st March, 2011 1,50,000
Commission earned on reinsurance ceded 88,500
Estimated liability on 31st March, 2012 in respect of
claims due or intimated 3,00,000
Prepare the Fire Revenue Account for the year ended 31st March, 2012 in
the proper form and with necessary schedules. On 31st March, 2012 the
company decides to keep total additional reserve for unexpired risk equal to
15% of the net premium income for the year. (8 Marks)
Question 4: Well Ltd. furnishes you with the following draft balance sheet as at
31st March, 2012:
(` in crores)
Sources of Funds
Share Capital:
Authorised 200
Issued:
12% Redeemable preference shares of each fully paid up ` 100 150
Equity shares of ` 10 each fully paid up 50 200
Reserves and surplus:
Capital reserve 30
Securities Premium 50
Revenue reserves 520 600
800
Application of Funds
Fixed assets: cost 200
Less: Provision for depreciation (200) nil
Investments at cost (Market value ` 800 Cr.) 200
Current assets (cash at bank) 680
Less: Current liabilities 80 600
800
The company redeemed preference shares on 1st April, 2012. It also bought
back 100 lakh equity shares of ` 10 each at ` 50 per share. The payments
for the above were made out of the huge bank balances, which appeared as
a part of current assets.
You are asked to:
(i) Pass journal entries to record the above.
(ii) Prepare balance sheet as at 1.4.2012.
(iii) Calculate the value of an equity share on net assets basis. (16 Marks)
Question 5: Ram Ltd. has two departments One and Two. From the following
particulars prepare departmental trading accounts and general profits and loss
account for the year ending 31st March, 2012:
Department
One
Department
Two
` `
Opening stock (at cost) 80,000 48,000
Purchases 3,68,000 2,72,000
Carriage inward 8,000 8,000
Wages 48,000 32,000
Sales 5,60,000 4,48,000
Purchased goods transferred
By department Two to One 40,000 -
By department One to Two - 32,000
Finished goods transferred
By department Two to One 1,40,000 -
By department One to Two - 1,60,000
Return of finished goods
By department Two to One 40,000 -
By department One to Two - 28,000
Closing stock
Purchased goods 18,000 24,000
Finished goods 96,000 56,000
Purchased goods have been transferred mutually at their respective
departmental purchase cost and finished goods at departmental market
price and that 25% of the closing finished stock with each department
represents finished goods received from the other department. (16 Marks)
Question 6:
(a) G Limited has retail branch at Agra. Goods are sold to customers at cost
plus 100%. The wholesale price is cost plus 80%. Goods are invoiced to
Agra at wholesale price. From the following particulars, find out the profit
made by the Head Office and Agra Branch for the year ended 31st March,
2012 using invoice method.
68 Mock Test Paper-D: Questions

Head Office Agra
` `
Stock on April 1, 2011 1,00,000
Purchases 6,00,000
Goods sent to branch (at invoice value) 2,16,000
Sales 6,12,000 2,00,000
Expenses 1,80,000 8,000
Sales at Head Office are made only on wholesale basis and sales at branch
are made only to customers. Stock at branch is valued at invoice price. (8
Marks)
(b) The following figures have been taken from the books of 'X' Bank Limited as
on 31st March, 2012:
`
Paid up share capital 20,00,000
Interest and discount received 74,11,000
Interest paid on deposits 40,74,000
Salaries and allowances 4,00,000
Rent and taxes paid 1,80,000
Directors' fees and allowances 60,000
Statutory reserve fund 16,00,000
Postages and telegrams 1,20,000
Rent received 1,30,000
Commission, exchange and brokerage 3,80,000
Profit on sale of investments 4,00,000
Depreciation on bank's property 60,000
Law charges 80,000
Auditors' fee 10,000
The following additional information is given to you:
(i) One customer to whom a sum of ` 20 lakhs was advanced has become
insolvent and it is expected that only 50% of the amount will be
recovered from his estate.
(ii) Auditors find that a provision of ` 3 lakhs is necessary against other
debts.
(iii) Rebate on bills discounted on 31st March, 2011 was ` 24,000 and on
31st March, 2012 was ` 32,000.
(iv) Provide ` 13,00,000 for income tax.
(v) The Board of Directors decides to declare dividend @ 10% after
transfer of 25% of the year's profit to Statutory Reserve.
You are required to prepare Profit and Loss Account of the bank with all the
necessary schedules for the year ended 31st March, 2012. Ignore figures
for the previous year and corporate dividend tax. (8 Marks)
Question 7:
(a) An intangible item is appearing in the Balance Sheet of A Ltd. at ` 15 lakhs
on 1-4-2012. The item was acquired for ` 25 lakhs on 1-4-2010. The
enterprise has been following a policy of amortizing the intangible item over
a period of 5 years on straight line basis. Applying paragraph 63 of AS 26
the enterprise determines the amortization period to be 8 years, being the
best estimate of its useful life, from the date when the item was available for
use i.e., April, 1, 2010. Comment.
(b) How would you treat the Government grant received relating to a
depreciable asset under the following cases as per AS-12?
Case i: Gross value of asset ` 2 crores and Grant received ` 20 lakhs only.
Case ii: Gross value of assets ` 2 crores and Grant received ` 2 crores.
(c) In April, 2011, A Limited issued 9,00,000 Equity shares of ` 10 each, ` 5 per
share was called up on that date which was paid by all the shareholders.
The remaining ` 5 was called up on 1-9-2011. All the Shareholders (except
one having 1,80,000 shares) paid the sum in September 2011. The net
profit for the year ended 31-3-2012 is ` 16.5 lakhs after dividend on
preference shares and dividend distribution tax of ` 3.30 lakhs.
Compute the basic EPS for the year ended 31st March, 2012 as per AS 20.
(d) 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 ` 15,00,000. Amount available for distribution to unsecured
creditors before paying liquidator's remuneration is ` 6,18,000. Calculate
liquidator's remuneration if the surplus is insufficient to pay off unsecured
creditors.
(e) Mukta Ltd. purchased fixed assets costing ` 6,000 lakhs on 1.1.2012. This
was financed by foreign currency loan (U.S. Dollars) payable in three annual
equal instalments. Exchange rates were 1 Dollar = ` 40 and ` 45 as on
1.1.2012 and 31.12.2012 respectively. First instalment was paid on
31.12.2012.
You are required to state, how these transactions would be accounted for?
(4 Marks each)
MOCK TEST PAPER-D
ANSWERS/HINTS
Ans 1:
(a) Para 29 of AS 5 (Revised) 'Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies" states that a change in an
accounting policy should be made only if
(a) It is required by the statute, or
(b) for compliance with an accounting standard, or
(c) if it is considered that the change would result in a more appropriate
presentation of the financial statements of an enterprise.
Therefore, the change in the method of stock valuation is justified in view of
the fact that the change is in line with the recommendations of AS 2
(Revised) 'Valuation of Inventories' and would result in more appropriate
preparation of the financial statements.
Disclosure: As per AS 2, this accounting policy adopted for valuation of
inventories including the cost formulae used should be disclosed in the
financial statements in Notes to Accounts.
Also, appropriate disclosure of the change and the amount by which any
item in the financial statements is affected by such change is necessary as
per AS 1, AS 2 and AS 5. Therefore, the under mentioned note should be
given in the annual accounts.
"In compliance with the Accounting Standards issued by the ICAI, delayed
cotton clearing charges which are in the nature of interest have been
excluded from the valuation of closing stock unlike preceding years. Had the
company continued the accounting practice followed earlier, the value of
closing stock as well as profit before tax for the year would have been
higher by ` 7.60 lakhs."
(b) Para 19 of AS 16 clearly states that capitalization of borrowing costs should
cease when substantially all the activities necessary to prepare the
qualifying asset for its intended use are completed. Therefore, interest on
the amount that has been used for the construction of the building upto the
date of completion (January, 2012) i.e. ` 18 lakhs alone can be capitalized.
It cannot be extended to ` 25 lakhs.
(c) According to para 8 of AS 4 (Revised 1995), the unexpected increase in
sale price of petrol by the government after the balance sheet date cannot
be regarded as an event occurring after the Balance Sheet date, which
requires an adjustment at the Balance Sheet date, since it does not
represent a condition present at the balance sheet date. The revenue
should be recognized only in the subsequent year with proper disclosures.
The retrospective increase in the petrol price should not be considered as a
prior period item, as per AS 5, because there was no error in the preparation
of previous period's financial statements.
Mock Test Paper-D: Answers 71
(d) Calculation of unexpired discounts or rebate on bills discounted
Date of
Bills
Date of
Maturity
including
three days
of grace
No. of
days
after
March
31
Amount
`
Rate of
discount
% p.a.
Total
Annual
Discount
Proportionate
Discount for days
after 31st March
2012 2012
Jan. 13 May 16 46 7,50,000 12 90,000 11,342

46
90, 000
365

Feb. 17 May 20 50 6,00,000 10 60,000 8,219

50
60, 000
365

March 6 July 9 100 4,00,000 11 44,000 12,055

100
44, 000
365

March 16 May 19 49 2,00,000 10 20,000 2,685

49
20, 000
365

19,50,000 34,301
So, unexpired discounts on 31st March, 2012, ` 34,301.
The amount to be credited to Profit and Loss Account is ascertained from
the Discount Account as follows:
Discount Account
2012 ` 2012 `
Mar. 31 To Profit and Loss Mar. By Sundries 1,45,500
A/c (Bal. fig.) 1,41,700 31
Mar. 31 To Rebate on Bills By Rebate on Bills
Discounted (on Discounted (on
31.3.12) 34,301 1.4.11) 30,501
1,76,001 1,76,001
Balance Sheet (An extract)
As at 31.3.2012
Other Liabilities Advances
Rebate on Bills Discounted 34,301 Bills Discounted 19,50,000

72 Mock Test Paper-D: Answers
Ans 2: Statement of Distribution of Cash by '
Maximum Loss Method'
Creditors
`
PK's
Loan
`
PK
`
DK
`
LK
`
Balance due 1,60,000 40,000 2,00,000 60,000 1,80,000
15th April 2012 realised `
1,20,000

Paid to creditors (` 1,20,000) (1,20,000) - - - -
Balance due NIL 40,000 40,000 2,00,000 60,000 1,80,000
1st May, 2012 realised 2,92,000
Paid to creditors (` 40,000) (40,000) - - - -
Paid to PK's loan (` 40,000) - (40,000) - - -
Balance due (1) Nil Nil 2,00,000 60,000 1,80,000
Balance ` 2,12,000
Maximum Loss
(2,00,000+60,000+180,000-
2,12,000)=` 2,28,000 shared in
Profits Loss ratio 5:3:2 1,14,000 68400 45,600
86,000 (8,400) 1,34,400
DK's deficiency shared by PK &
LK in capital ratio 100:90 (in
nearest multiple of ` 10) (4,420) 8,400 (3,980)
Cash paid [2] 81,580 - 1,30,420
Balance due (3) [1-2] 1,18,420 60,000 49,580
31st May 2012 realised `
1,88,000
Maximum Loss
[1,18,420+60,000+49,580- 20,000 12,000 8,000
1,88,000]=` 40,000 shared in
5:3:2
Cash paid (4) 98,420 48,000 41,580
Balance/Loss* on realisation (3-4) 20.000 12,000 8.000
Cash Account
` `
To Realization Account 1,20,000 By Creditors Account 1,20,000
To Realization Account 2,92,000 By Creditors Account 40,000
To Realization Account 1,88,000 By PK's Loan Account 40,000
` `
By PK's Capital Account 81,580
By LK's Capital Account 1,30,420
By PK's Capital Account 98,420
By DK's Capital Account 48,000
By LK's Capital Account 41,580
6,00,000 6,00,000
PK DK LK PK DK LK
` ` ` ` ` `
To Cash 81,580 - 1,30,420 By Balance
b/d
2,00,000 60,000 1,80,000
To Cash 98,420 48,000 41,580
To Balance
c/d

Realization
loss
20.000 12,000 8,000

2,00,000 60,000 1,80,000 2,00,000 60,000 1,80,000
Ans 3: (a) (i) Calculation of liability of underwriters
X & Co. Y & Co. Z & Co. In shares
Total
Gross Liability 7,00,000 7,00,000 7,00,000 21,00,000
Less: Firm Underwriting (1,00,000) (1,00,000) (1,00,000) (3,00,000)
6,00,000 6,00,000 6,00,000 18,00,000
Less: Marked applications (5,18,000) (5,50,000) (4,72,000) (15,40,000)
82,000 50,000 1,28,000 2,60,000
Less: Unmarked
applications

1/3 of (17,26,000-15,40,000) (62,000) (62,000) (62,000) (1,86,000)
20,000 (12,000) 66,000 74,000
Adjustment of Y& Co.'s
surplus in 1:1 (6,000) 12,000 (6,000) -
Liability excluding the firm
underwriting
14,000 - 60,000 74,000

If no further realization takes place, then PK, DK and LK will bear loss on realization
` 20,000, ` 12,000 and ` 8,000 respectively.
X & Co. Y & Co. Z & Co. In shares
Total
Add: Firm Underwriting 1,00,000 1,00,000 1,00,000 3,00,000
Total liability 1,14,000 1,00,000 1,60,000 3,74,000
(ii) Calculation of amount payable/receivable by the underwriters
Total liability (No. of shares) 1,14,000 1,00,000 1,60,000
` ` `
Amount payable @ ` 5 (i.e. 3+2) per
share
5,70,000 5,00,000 8,00,000
Less: Amount paid on firm application
@`3 per share
(3,00,000) (3,00,000) (3,00,000)
Balance payable 2,70,000 2,00,000 5,00,000
Underwriting commission receivable
(7,00,000 10 3%) (2,10,000) (2,10,000) (2,10,000)
Amount payable/(receivable) 60,000 (10,000) 2,90,000
(b) Jeevan General Insurance Company
Fire Revenue Account for the year ended 31st March, 2012
Schedule Current year
`
Premium earned (Net) 1 15,35,250
Total (A) 15,35,250
Claims incurred (net) 2 5,70,000
Commission 3 31,500
Operating expenses relating to insurance business 4 4,35,000
Total (B) 10,36,500
Operating Profit from General Insurance Business
C=(A)-(B) 4,98,750
Appropriations:
Transfer to shareholders account 4,98,750
Schedule 1: Premium Earned (Net)
`
Premium received less reinsurance 18,15,000
Adjustment for change in reserve for
unexpired risk:

Total opening provisions 9,00,000
`
Closing provision:
50% of net premium 9,07,500
Additional provision @ 15% 2,72,250 (11,79,750) (2,79,750)
Premium Earned (Net) 1,5,35,250
Schedule 2: Claims Incurred (Net)
`
Add: Claims outstanding at the end of the year 3,00,000
7,20,000
Less: Claims outstanding at the beginning of the year (1,50,000)
5,70,000
Schedule 3: Commission
`
Commission paid 1,20,000
Less: Commission earned in reinsurance ceded (88,500)
31,500
Schedule 4: - Operating expenses relating to insurance business
Expenses of management ` 4,35,000
Note: Bad debts is not shown in the 'Revenue A/c'.
Ans 4: (i) Journal Entries in the books of Well Ltd.
Tin crores
Particulars Debit
`
Credit
`
1st 12% Preference share capital A/c Dr. 150
April, To Preference shareholders A/c 150
2012 (Being preference share capital account transferred to
shareholders account)

Preference shareholders A/c Dr. 150
To Bank A/c 150
( Being payment made to shareholders)
Shares buy back A/c Dr. 50
To Bank A/c 50
(Being 100 lakhs equity shares bought back @ `
50 per share)

Particulars Debit
`
Credit
`
Equity share capital A/c (100 Lakhs ` 10) Dr. 10
Securities premium A/c (100 Lakhs ` 40) Dr. 40
To Shares buy back A/c 50
(Being cancellation of shares bought back)
Revenue reserve A/c (150 +10) Dr. 160
To Capital Redemption Reserve A/c 160
(Being creation of capital redemption reserve to
the extent of the face value of preference shares
redeemed and equity shares bought Back)

(ii) Balance Sheet of Well Ltd. as at 1.4.2012
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
(a) Share capital 1 40
(b) Reserves and Surplus 2 560
2 Current liabilities 80
Total 680
Assets
1 Non-current assets
(a) Fixed assets
Tangible assets 3 -
(b) Investments (Market value ` 800 crores) 200
2 Current assets
Cash and cash equivalents 4 480
Total 680
Notes to accounts
`
1. Share Capital
Equity share capital
Authorised share capital 200
Issued, subscribed and paid up: 400 lakhs equity shares
of ` 10 each
40
`
2. Reserves and Surplus
Capital reserve 30
Capital redemption reserve 160
Securities premium (50-40) 10
Revenue reserve (520-160) 360
Total 560
3. Tangible assets
Fixed assets: cost 200
Less: Provision for depreciation (200)
Total Nil
4. Cash and cash equivalents
Cash at Bank 680
Less: Bank payment for redemption of preference shares and buy
back of equity shares (150 + 50) (200)
Total 480

(iii) Net asset value of equity shares
(` in crores)
Particulars Amount Amount
Assets:
Fixed Assets Nil
Investments (at market value) 800
Current assets (cash at bank) 480 1,280
Less: Liabilities:
Current liabilities (80)
Net assets available for equity share holders 1,200
Number of equity shares outstanding as on 4 crores
1.4.2012
Value per equity share of ` 10 each (1,200 4) ` 300

Ans 5: Departmental Trading Account
for the year ended 31st March 2012
Particulars Department
One
`
Department
Two
`
Particulars Department
One
`
Department
Two
`
To Opening
Stock
80,000 48,000 By Sales 5,60,000 4,48,000
To Purchases 3,68,000 2,72,000 By
Transfers

Particulars Department Department Particulars Department Department
One
`
Two
`
One Two
` `
To Carnage
inward
8,000 8,000 Purchased
goods
32,000 40,000
To Wages 48,000 32,000 Finished
goods
1,20,000
1,12,000

To Transfers: By Closing
stock:

Purchased
goods
40,000 32,000 Purchased
goods
18,000 24,000
Finished goods 1,12,000 1,20,000 Finished
goods
96,000 56,000
To Gross profit
c/d
1,70,000 1,68,000
8,26,000 6,80,000 8,26,000 6,80,000
Profit and Loss A/c
Particulars ` Particulars `
To Provision for unrealized
profit
By Gross Profit b/d
included in closing stock
Department One 7,200 Department One 1,70,000
Department Two 3,500 Department Two 1,68,000
To Net Profit 3,27,300
3,38,000 3,38,000
Working Notes:
1. Calculation of rates of Gross Profit
Department One Department Two
Sales 5,60,000 4,48,000
Add: Transfer of finished goods 1,60,000 1,40,000
7,20,000 5,88,000
Less: Return of finished goods 40,000 28,000
6,80,000 5,60,000
Gross Profit 1,70,000 1,68,000
Rate of gross profit =
1,70,000
6,80,000
100 =
25%
1,68,000
5,60,000
100 =
30%

Net transfers of finished goods by
Department Two to One=` 1,40,000-` 28,000=` 1,12,000
Department One to Two =` 1,60,000 - ` 40,000 =` 1,20,000
2. Finished goods from other department included in closing stock
Department One Department Two
Stock of finished goods 96,000 56,000
Stock related to other department
(25% of finished goods) 24,000 14,000
3. Amount of unrealized profit included in the stock
Department One = 30% of ` 24,000 = ` 7,200
Department Two = 25% of ` 14,000 = ` 3,500
Ans 6: (a) Trading Account for the year ended 31st March, 2012
Particulars Head
Office
Agra
Branch
Particulars Head
Office
Agra
Branch
` ` ` `
To Opening Stock 1,00,000 - By Sales 6,12,000 2,00,000
To Purchases 6,00,000 - By Goods sent to 2,16,000 -
Branch
To Goods
received from
- 2,16,000 By Closing Stock (refer
W.N.)
2,40,000 36,000
Head Office
To Gross Profit 3,68,000 20,000
10,68,000 2,36,000 10,68,000 2,36,000
Profit and Loss A/c for
the year ended 31st March, 2012
` ` ` `
To Expenses 1,80,000 8,000 By Gross 3,68,000 20,000
Profit
To Stock Reserve
against Branch
80
36, 000
180

16,000 -
To Net Profit 1,72,000 12,000
3,68,000 20,000 3,68,000 20,000

Working Note:
Calculation of Closing Stock
Particulars Head Office
`
Agra Branch
`
Opening Stock 1,00,000 -
Goods purchased or Received from Head
Office
6,00,000 2,16,000
Particulars Head Office Agra Branch
` `
7,00,000 2,16,000
Less: Cost of Goods sold or sent to Branch:
Head Office (6,12,000+2,16,000) 100/180 (4,60,000)
Branch 2,00,000
180
200

(1,80,000)
Value of Closing Stock 2,40,000 36,000

(b) 'X' Bank Limited
Profit and Loss account for the year ended 31st March, 2012
Schedule
No
Year ended
31.3.2012
`
I. Income
Interest earned 13 74,03,000
Other income 14 9,10,000
83,13,000
II. Expenditure
Interest expended 15 40,74,000
Operating expenses 16 9,10,000
Provisions and contingencies (W.N.2) 26,00,000
75,84,000
III. Profit
Net profit for the year 7,29,000
Profit brought forward -
7,29,000
IV. Appropriations
Transfer to Statutory Reserve 1,82,250
Proposed dividend 2,00,000
Balance carried over to balance sheet 3,46,750
7,29,000

Schedule 13 - Interest earned
`
Interest and discount earned (W.N.1) 74,03,000
74,03,000
Schedule 14 - Other Income
`
Commission, exchange and brokerage 3,80,000
Profit on sale of investment 4,00,000
Rent 1,30,000
9,10,000
Schedule 15-Interest Expended
`
Interest paid on deposits 40,74,000
40,74,000
Schedule 16-Operating Expenses
`
Payment and provisions for employees 4,00,000
Rent and taxes paid 1,80,000
Depreciation on bank's property 60,000
Directors' fees and allowances 60,000
Auditors' fees 10,000
Law charges 80,000
Postage and Telegrams 1,20,000
9,10,000
Working Notes:
`
1. Calculation of interest earned
Interest and discount received 74,11,000
Add: Rebate on bills discounted as on 31st March, 2011 24,000
74,35,000
Less: Rebate on bills discounted as on 31st March, 2012 (32,000)
74,03,000


2. Provisions and Contingencies
Provision for doubtful debts:
Doubtful debts due to insolvency of a customer 10,00,000
(50% of `20 lakhs)
Provision for other debts 3,00,000 13,00,000
Provision for income tax 13,00,000
26,00,000

Ans 7:
(a) Since AS 26 'Intangible Assets' was mandatory for the period when the
intangible asset was acquired i.e. 1st April 2010, the revision of amortization
period from 5 years to 8 years is a change in Accounting estimate and
accordingly, para 78 of AS 26 would apply in this case. According to this
para, if the expected useful life of the asset is significantly different from
previous estimates, the amortisation period should be changed accordingly.
AS 5 provides that in case of change in estimate, the effect should be given
prospectively over the remaining useful life of the intangible asset i.e. 6
years.
Note: It is assumed that since the date of purchase of intangible item, the
enterprise has been following a policy of amortizing the intangible asset over
a period of 5 years on straight line basis by applying paragraph 63 of AS 26
i.e. being the best estimate of its useful life. On 1.4.2012, the company
again reviewed the useful life of the intangible asset.
(b) Case I
As per AS 12, Grant received of ` 20 lakh to be deducted from ` 2 crores
i.e. the value of asset. The balance of ` 1.80 crores to be shown in the
Balance Sheet and depreciation should also be charged on ` 1.80 crores.
Case II
As the amount of grant is equal to the value of the asset, the grant amount
received shall be used to be reduced the cost of the asset and asset will be
recorded at a nominal value of ` 100 in the Balance sheet so that the
existence of the asset is reflected in the Balance sheet. However, no
depreciation will be charged in such case.
Note: Alternatively, government grants may be treated as deferred income
which should be recognized in the profit and loss statement on a systematic
and rational basis over the useful life of the asset.
(c) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year

= 16,50,000/6,60,000 shares ( as per working note)
= ` 2.5 per share.
Working Note:
Calculation of weighted average number of equity shares
As per para 19 of AS 20 'Earnings Per Share', partly paid equity shares
are treated as a fraction of equity share to the extent that they were
entitled to participate in dividend relative to a fully paid equity share
during the reporting period. Assuming that the partly paid shares are
entitled to participate in the dividend to the extent of amount paid,
weighted average number of shares will be calculated as follows:
Date No. of equity
shares
Amount paid
per share
Weighted average no. of equity
shares
` ` `
1.4.2011 9,00,000 5 9,00,000 5/10 5/12 = 1,87,500
1.9.2011 7,20,000 10 7,20,000 7/12 = 4,20,000
1.9.2011 1,80,000 5 1,80,000 5/10 7/12 = 52,500
Total
shares
6,60,000

(d) Calculation of liquidator's remuneration:
`
Liquidator's remuneration on assets realised (` 15,00,000 2 /100) 30,000
Liquidator's remuneration on payment to unsecured creditors
(` 6,18,000 3/103) 18,000
Total liquidator's remuneration 48,000

(e) As per para 13 of AS 11 (Revised) 'The Effects of Changes in Foreign
Exchange Rates', exchange differences arising on the settlement of
monetary items or on reporting an enterprise's monetary items at rates
different from those at which they were initially recorded during the period,
or reported in previous financial statements, should be recognised as
income or as an expense in the period in which they arise. Thus, exchange
differences arising as repayment of liabilities incurred for the purpose of
acquiring fixed assets are recognised as income or expenses.
Calculation of exchange difference:
Foreign Exchange Loan = `
6,000
40
= 150 lakhs U.S. $
Exchange Difference = 150 lakhs US $ (45 - 40) = ` 750 lakhs.
This ` 750 lakhs includes exchange loss on payment of first installment.
Therefore, entire loss due to exchange difference amounting to ` 750 lakhs
should be charged to profit and loss account for the year.

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By Cash Sales 34,000

as the economic benefit of lease

20.000 12,000 8,000

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