SIDDHARTH EDUCATION SERVICES LTD.

®
For CS, CA, ICWA [Foundation, Inter, Final]
Prestige Chambers, Opp. Thane Railway Stn. P.F.2, Thane (W):2533 4903.
VaibhavSoc., 1st Floor, Opp. Municipal Garden, Dombivli (E) Tel:2443455.
Ist floor, Popatlal Bldg, Ranade Road, Dadar (W) – 65540023.
Also at vashi
___________________________________________________________________________

CS PAPER 1

SECTION A

Question 1 is compulsory. Attempt any 2 from the rest

Q1(A) Match the column: (1 mark each)

Column A Column B
Redemption of Preference shares AS 17
Redemption of Debentures AS 9
Earnings per share AS 20
Revenue recognition AS 19
Segment reporting AS 7
Contract costing Section 80
Section 121
Section 77

Q1(B) State with reasons in brief whether the following statements are true or false: (2 marks each)

a. Accounting standard 15 is accounting for investments.

b. Premium on issue of debentures shall be credited to debentures account along with nominal
value of debentures.
c. As per accounting standard 26, intangible asset arising from research should not be
recognised as an asset.
d. No buy back of partially paid shares is allowed.
e. An underwriter while entering into a contract for issue of shares should be a registered
company.

Q1(C) fill in the blanks: (1 mark each)

a. The international financial reporting standard 8 deals with ________________.

b. __________ advises the central government on the formulation and implementation of
accounting standards in india.
c. The debentures issued as collateral security has to be mentioned by way of a note in the
balance sheet under _______________.
d. The voluntary return of shares by a shareholder to the company for cancellation is called __.

Q2(A). Following is balance sheet of SLTD as on 31.3.07

Liabilities Amount Assets Amount

Authorised capital Fixed assets

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20,000 10% preference shares of 10 each 2,00,000 Cost 6,00,000
1,80,000 equity shares of 10 each 18,00,000 Provision for depreciation 2,00,000
20,00,000 4,00,000
Issued capital Investments 2,00,000
20,000 10% preference shares of 10 each 2,00,000 Current assets
20,000 equity shares of 10 each 2,00,000 Stock 50,000
Reserves and surplus Debtors 50,000
General reserve 2,40,000 Cash and bank balance 1,00,000
Securities premium 1,40,000 Miscellaneous expenditure 40,000
Profit n loss account 37,000
Current liabilities and provisions 23,000
Total 8,40,000 Total 8,40,000

For the year ended 31.3.08, the company made net profit of 30,000 after providing for 40,000
depreciation and writing of miscellaneous expenditure of 20,000. The preference dividend for the
year ended 31.3.08 was paid before 31.3.08. Except cash and bank balance other current assets and
current liabilities on 31.3.08 were same as on 31.3.07. The company redeemed preference shares at
a premium of 10%. The company issued bonus shares in ratio 1 share for every 2 equity shares held
as on 31.3.08. To meet cash requirements of redemption the company sold a portion of the
investments, so as to leave a minimum balance of 60,000 after such redemption. Investments were
sold at 90% of cost as on 31.3.08.

Prepare (i) Necessary journal entries (ii) Cash and bank account and (iii) Balance sheet as on 31.3.08.
(10 marks)

Q2(B) R ltd invited applications from public for 100000 equity shares of 10 each at a premium of 5
per share. The entire issue is underwritten by the underwriters A, B, C and D to the extent of 30%,
30%, 20% and 20% respectively with the provision of firm underwriting of 3000, 2000, 1000 and
1000 shares respectively. Underwriters are entitled to maximum commission by law. The company
has received applications for 70000 shares from public out of which applications for 19000, 10000,
21000 and 8000 shares were marked in favour of A, B, C and D respectively. Calculate the liability of
each underwriter. Also give journal entries for the same. (5 marks)

Q3(A). You are required to prepare the consolidated balance sheet of H ltd with its subsidiary S ltd as
on 31st March 2008. (10 marks)

Balance sheet as on 31st March 2008

Particulars H LTD S LTD

LIABILITIES
6% preference shares of 10 each - 160000
Equity shares of 10 each 600000 200000
General reserve 100000 80000
Profit and loss account 200000 90000
6% debentures - 40000
Proposed dividend
On equity shares 60000 20000
On preference shares - 9600
Debentures interest accrued - 2400

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Sundry creditors 294000 125000
Total liabilities 1254000 727000
ASSETS
Fixed assets 500000 440000
15000 equity shares in S ltd 330000 -
12000 preference shares in S ltd 120000 -
1000 6% debentures in S ltd 10000 -
Current assets 294000 287000
Total assets 1254000 727000

Other information is as under:

1. The general reserve of S ltd as on 1.4.07 was 80000.

2. H ltd acquired the shares as on 1.4.07
3. The balance of profit and loss account of S ltd is made up as follows:
Balance as on 1.4.07 56000
Net profit for the year ended 31.3.08 63600
119600
Less provision for proposed dividend 29600
90000
4. The balance of profit and loss account of S ltd as on 1.4.07 is after providing for preference
dividend of 9600 and proposed dividend of 10000 both of which were subsequently paid and
credited to profit and loss of H ltd.
5. No entries have been made in the books of H ltd for debenture interest due from or
proposed dividend of S ltd for the year ended 31.3.08
6. S ltd has issued fully paid bonus shares of 40000 on 31.3.08 among the existing shareholders
by drawing upon the general reserve. The transaction has not been given effect to in the
books of S ltd.

Q3(B) Balance sheet of D ltd as on 30th June 2009 is given below:

Liabilities Amount Assets Amount

Share capital of 10 each 400000 Land and buildings 220000
General reserve 80000 Plant and machinery 260000
Profit and loss account 64000 Patents and trade marks 40000
Sundry creditors 256000 Preliminary expenses 24000
Income tax reserve 120000 Stock 96000
Debtors 176000
Bank balance 104000
Total 920000 Total 920000

The expert valuer valued the land and buildings at 480000, goodwill at 320000 and plant and
machinery at 240000. Out of total debtors, it is found that debtors of 16000 are bad. The profits of
the company are 06-07 184000, 07-08 176000 and 08-09 192000. The company follows the practice
of transferring 25% of profits to general reserve. Similar type of companies earn at 10% of the value
of their shares. Plant and machinery and land and buildings have been depreciated at 15% and 10%
respectively. Ascertain value of shares of the company by using a) intrinsic value method b) yield
value method and c) fair value method. (5 marks)

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Q4. The following balances have been extracted from P LTD as on 30 th September 2007.

Particulars Dr Amt in 000’s Cr Amt in 000’s

Share capital (authorised and issued) 150000
8% redeemable preference (40000 shares) 4000
Securities premium 2500
Preference share redemption 4800
General reserve 10000
Land (cost) 30000
Building (WDV) 70000
Furniture (WDV) 2000
Motor vehicles (WDV) 3500
Gross profits 90000
Establishment charges 25000
Rent taxes and insurance 1200
Commission 600
Discount received 500
Interest on investments 800
Depreciation 6000
Sundry office expenses 6000
Payment to auditors 400
Debtors and Creditors 10660 2560
Profit and loss account as on 30.9.06 1000
Unpaid dividend 200
Cash in hand 1200
Cash at bank 19500
Security deposit 1000
Outstanding expenses 600
Investment in G.P notes 20000
Stock 35300
Provision for tax (i/e 30.9.06) 7000
Income tax paid under dispute (i/e 30.9.06) 10000
Advance payment of income tax 22000
Total 269160 269160

The following further details are available:

1. The preference shares were redeemed on 1 st October, 2006 at a premium of 20% but no
entries were passed for giving effect thereto, except payment standing to the debit of
Preference Share Redemption Account.
2. Depreciation as provided upto 30th September, 2006 is as follows:
Rs.
(a) Buildings 21000 thousand
(b) Furniture 2,000 thousand
(c) Motor Vehicles 6,000 thousand

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 3. Establishment charges include Rs. 1,800 thousand paid to Managing Director as
Remuneration in terms of the agreement which provides for a remuneration of 5% of annual
net profits.
4. Payment of Auditors includes Rs. 100 thousand for taxation work in addition to audit fees.
5. Market value investments on 30th September, 2007 Rs. 18,000 thousand.
6. Sundry debtors include Rs. 4,000 thousand due for a period exceeding six months.
7. All receivables and deposits are considered good for realisation.
8. Income tax demand for the year ended 30.9.2006 Rs. 10000 thousand has not been provided
for against which an appeal is pending.
9. Income tax to be provided @ 40%
10. Directors recommended payment of dividend on equity shares at the rate of 12%.
11. Ignore previous year’s figures

You are required to prepare the Profit & Loss Account for the year ended 30 th September, 2007
and a Balance Sheet as at that date in vertical format. (15 marks)

SECTION B

Question 5 is compulsory. Answer any 2 from the rest

Q5. Answer the following

1. Write short note on economic order quantity (3 marks)

2. Write short note on margin of safety (3 marks)
3. Distinguish between halsey plan and rowan plan (3 marks)
4. Classification of budgets (4 marks)
5. Classification of costs (4 marks)
6. Match the column: (3 marks)

Column A Column B
a. Contract costing a. Current ratio
b. Zero based budgeting b. Capital gearing ratio
c. Liquidity ratio c. Responsibility centre manager has no previous
expenditure
d. Budget showing expenditure and income at various
levels
e. Manufacturing of soaps
f. Manufacturing of fly over bridge

Q6(A). The balance sheet of M LTD as on 31.3.09 is as under

Liabilities Amount Assets Amount

2000 Equity shares of 100 each 200000 Fixed Assets
8% Preference shares 100000 At cost 500000
General Reserve 60000 Less Depreciation 160000
12% debentures 60000 340000
Sundry creditors 80000 Stock 60000
Debtors 80000
Bank 20000
500000 500000

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The company wishes to forecast balance sheet as on 31.3.10. The following additional particulars are
available:

1. Fixed assets costing 100000 have been installed on 1.4.09 but payment made on 31.3.10.
2. The fixed assets turnover ratio on the basis of gross value of fixed assets would be 1.5
3. The stock turnover ratio would be 14.4 (calculated on the basis of average stock).
4. The break up of cost and profit would be as follows:

Material 40%
Labour 25%
Manufacturing expenses 10%
Office and selling expenses 10%
Depreciation 5%
Profit 10%
Total 100%

5. The profit is subject to interest and tax at 50%.

6. Debtors would be 1/9th of sales.
7. Creditors would be 1/5th of material consumed.
8. In march 2010 a dividend @10% on equity capital would be paid.
9. 12% debentures for 25000 have been issued on 1 st april 09.

Prepare the forecast balance sheet as on 31.3.10 (10 marks)

Q6(B) the finance manager of J ltd is preparing flexible budget accounting year 2011. The company
produces component K of a product. Direct materials costs 7 per unit. Direct labour averages 2.5 per
hour and requires 1.6 hour to produce 1 unit. Salesman are paid commission of 1 per unit sold. Fixed
selling and administration expenses amounted to 85000 per year. Manufacturing overheads has been
estimated in the following amounts underspecified conditions of volume:

Units 120000 150000

Expenses Amount Amount
Indirect material 264000 330000
Indirect labour 150000 187500
Inspection 90000 112500
Maintenance 84000 102000
Supervision 198000 234000
Depreciation on machinery 90000 90000
Engineering services 94000 94000
Total manufacturing overheads 970000 1150000

Prepare budget at 140000 units of output. (5 marks)

Q7(A) The company has 3 production departments A, B and C and two service departments X and Y.
The following data are extracted from the records of the company for a particular given period

Rent and rates – 25000 Indirect wages – 7500 Depreciation – 50000

General lighting – 3000 Power – 7500 Sundries – 50000

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Additional information given:

Particulars Total Dep A Dep B Dep C Dep X Dep Y

1. Direct wages 50000 15000 10000 15000 7500 2500
2. Horse power of machines used 150 60 30 50 10 0
3. Cost of machinery 1250000 300000 400000 500000 2500 25000
4. Production hours worked 14320 6226 4028 4066 0 0
5. Floor space 10000 2000 2500 3000 0 500
6. Light points 60 10 15 20 2000 5
10

Service department cost allocation details

A B C X Y
X 20% 30% 40% - 10%
40% 20% 30% 10% -
Y

You are required to:

a. Compute the overhead rate of production department using repeated distribution method.
b. Hence determine the total cost of a product whose direct material cost and direct labour
cost are 250 and 150 respectively. Also they would consume 4 hours 5 hours and 3 hours in
department A, B and C respectively. (10 marks)

Q7(B) On 1st July 2007 D ltd undertook a contract for 500000. On 30 th June 2008 when the accounts
were closed the following details about the contract were gathered:

Material purchased 100000 Wages accrued (30.6.08) 5000

Wages paid 45000 Work certified 200000
General expenses 10000 Cash received 150000
Plant purchased 50000 Work uncertified 15000
Material on hand (30.6.08) 25000 Depreciation of plant 5000

The above contract contains escalation clause which reads as follows:

“In the event of prices of materials and rates of wages increase by more than 5%, the contract price
will be increased accordingly by 25% of the rise in the cost of materials and wages beyond 5% in each
case.”It was found that since the date of signing the agreement, the prices of materials and wage
rates increased by 25%. The value of the work certified does not take into account the effect of
above clause. Prepare contract account (5 marks)

Q8(A) From the following information prepare cash flow statement as per AS 3(Revised) (10 marks)

Net profit 25000

Dividend paid 8535
Book value of assets sold 185
Amortisation of capital grant 6
Carrying amount if investments sold 27765
Interest expenses 10000
Increase in working capital 56075
Expenditure on construction work in progress 34740

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Receipt of grant for capital projects 12
Proceeds from short term borrowings 20575
Closing cash balance 6988
Provision for taxation 5000
Income tax paid 4248
Loss on sale of assets 40
Depreciation charged 20000
Profit on sale of investments 100
Interest on investments 2506
Interest paid during the year 10520
Purchase of fixed assets 14560
Investment in joint venture 3850
Proceeds from calls in arrears 2
Proceeds from long term borrowings 25980
Opening cash and bank balances 5003

Q8(B) from the following information calculate 1) Maximum level 2) Minimum level 3) Reordering
level. (5 marks)

Minimum usage 500 units per week Ordering quantities 1600 units
Maximum usage 1500 units per week Delivery period 4-6 weeks
Normal usage 1000 units per week