BBA234

Corporate Accounting

MSE Answer Key

1. (a) IPO process (1mark to each step explained*5 = 5Marks)

i. Hire Underwriters
ii. Prepare draft prospectus
iii. Submit to SEBI
iv. Get Approval
v. Launch IPO

1 (b) (2+2+1=5Marks) or Calculation with GP (full 5 Marks)

Particulars Amount Amount

Gross Profit (Sales - COGS) 3340000
Add: Income to be taken into account
Bounties & subsidies received from Govt 80000
Capital Profit on the sale of fixed assets
(Sale Proceeds - Original Cost)
340000 420000
3760000
(2marks)
Less: Expenses Allowable:
Salaries & Wages 130000
Repairs 60000
Depn (110000-15000) 190000
General Expenses 50000
Donation to charity 70000
Interest on Debentures 70000
Debenture trustee remuneration 30000
(624000)
Directors' fee 24000 (2marks)
Net Profit for calculation of Remuneration 3136000

313600
Managerial Remuneration (3136000*10%) or (3340000*10%)
(1mark)

3. (4 Marks for Income Statement + 3 Marks for Balance sheet + 3 Marks for WN) If
followed other format like T format or solved without working notes – Max 4 Marks

Working Note No. 1 - COGS

Amoun
Particulars t Amount
Opening stock 32000
Add: Purchases (120000-6000returns) 114000
Wages 34000
Freight 8000 156000
188000
Less: Closing stock -48000
COGS 140000

Working Note No. 2 - Operating Expn & Incomes

Amoun
Particulars t Amount
Salaries 24000
Sundry Expn 24000
Disc Allowed 10000
Bad debts 4800
62800
Less: Operating Incomes & Gains
Disc Rreceived -6000

Net Operating Expenses 56800

Working Note No. 3 - Int on Borrowings

Amoun
Particulars t Amount
Nil

Working Note No. 4 - Dividends &

 Appropriation
Amoun
Particulars t Amount
Provision for dividend 28000
Transfer to reserve fund 4000
Total 32000

Working Note No. 5 - Share Capital

Amoun
Particulars t Amount
Authorised share capital NA
Called up share capital NA
Less: Calls-in-arrears NA
Paid up share capital 240000

Working Note No. 6 - Reserves & Surplus

Amoun
Particulars t Amount
Reserves 15200
Transfer to reserve fund 4000
Surplus/deficit from Income statement 44000
Total 63200

Working Note No. 7 - Secured Loans

Amoun
Particulars t Amount
Debentures 40000

Working Note No. 9 - Current Assets, Loans & Adv

Amoun
Particulars t Amount
Debtors 56000
Less: Bad debts -4800 51200
Cash in hand 18400
Cash at bank 24000
Bills receivables 4000
Loose tools 40000
Closing stock 48000
Total 185600

Working Note No. 10 - Current Liab & Prov

Particulars Amoun Amount
 t
Creditors 22800
Proposed dividend 28000
Total 50800

Working Note No. 11 - Misc Expenses

Amoun
Particulars t Amount
Preliminary Expenses 29600
Less: w off -13600
Total 16000

Working Note
Particulars No. Amount
Revenues (Sales) (280000-8000 returns) 272000
Less: Cost of Goods Sold 1 140000
Gross Profit 132000
Less: Cash Operating Expense (Net) 2 56800
Earnings Before Interest, Tax,
Depreciation & Amortisation (EBITDA) 75200
Less: Depreciation & Amortisation
(1600+13600 w off preliminary expn) 8 15200
Earnings Before Interest & Tax (EBIT) 60000
Less: Interest on Borrowings 3 0

Add: Non-Operating Income (Net) 0

Earnings Before Tax (EBT) 60000
Less: Tax 0
Earnings After Tax (EAT) 60000
Less: Dividend & Appropriations 4 32000
Retained Earnings 28000
Add: Opening Balance of P&L A/c 16000
Surplus transfer to Balance Sheet 44000

Working Note Amoun Amoun

Sources of Funds (Liabilities) No. t t
Share Holders Fund:
Share Capital 5 240000
Reserves & Surplus 6 63200
303200
Non-Current Liabilities:
Secured Loans 7 40000
Unsecured Loans: Loan from director 40000
Current Liabilities 10 50800
Total 434000

Application of Funds (Assets)

Fixed Assets 8 196400
Investments 36000
Current Assets, Loans & Advances 9 185600
Miscellaneous Expenses 11 16000
Total 434000

3. Case Study

(i) Calculation of Purchase Consideration (3+2 Marks)

X Ltd.
900 – 11% preference Shares of Rs.100 each 90,000 90,000
30,000 Equity Shares of Rs.10 each 3,00,000 300,000 390,000

Y Ltd.
Assets taken Over:
Goodwill 30,000
Land 1,50,000
Building 45,000
Plant 1,20,000
Other Fixed Assets 15,000
Current Assets 1,50,000
5,10,000
Less: Current Liabilities 150,000
Net Assets Taken over 360,000

Payments
7,500 Equity Shares of Rs.10 each issued at Rs.12 to Debenture holders 90,000
27,000 Equity Shares at par (balancing figure) 2,70,000 360,000

Closing Journal Entries in the books of X Ltd (3 Marks)

Closing Journal Entries in the books of Y Ltd (4 Marks)
Opening Journal Entries in the books of Z Ltd (3 Marks)

Journal Entries in the books of X Ltd. (3 Marks)

Sl Particulars Amount Amount

No.
1 Realisation A/c Dr 590000
To GW 15000
To P&M 290000
To fixtures 5000
To Vehicles 10000
To Stock 120000
To Debtors 80000
To Advances 50000
To Cash & Bank 20000
[Being the transfer of all
assets taken by Z Ltd.]

2 Creditors A/c Dr 120000

8% Debentures 60000
To Realisation A/c 180000
[Being transfer of liabilities to
Z Ltd.]

3 Z Ltd. A/c Dr 390000

To Realisation A/c 390000
[Being purchase
consideration due]

4 Equity Share Capital 300000

15% Pref Share Cap 90000
To Z Ltd. 390000
[Being the receipt of
purchase consideration]

5 Realisation A/c Dr 20000

To Equity Shareholders A/c 20000
[Being transfer of profit on
realsation by ESH]

6 Realisation A/c Dr 120000

To Cash A/c 120000
[Being creditors paid]

7 Equity Share Capital 300000

General Reserves 49500
Capital Redemption Reserve
A/c 60000
 Securities Premium A/c 10500
To Equity Shareholders A/c 420000
[Being transfer of equity
share capital & accumulated
profit to ESH a/c]

8 ESH A/c 440000

To Equity Share in Z Ltd 300000
To Bank 140000
[Being the final payment to
ESH]

255000
Total 0 2550000

Journal Entries in the books of Y Ltd. (4 Marks)

Sl
No. Particulars Amount Amount
1 Realisation A/c Dr 360000
To GW 30000
To P&M 120000
To Land 150000
To Building 45000
To Other Fixed Assets 15000

[Being the transfer of all assets taken by Z Ltd.]

2 Creditors A/c Dr 90000

8% Debentures 135000
To Realisation A/c 225000
[Being transfer of liabilities to Z Ltd.]

3 Z Ltd. A/c Dr 360000

To Realisation A/c 360000
[Being purchase consideration due]

4 Equity Share Capital 360000

To Z Ltd. 360000
[Being the receipt of purchase consideration]

5 Equity Shareholders A/c 75000

To Realisation A/c 75000
[Being transfer of loss on realsation by ESH]
 6 Equity Share Capital 150000
General Reserves 75000
To Equity Shareholders A/c 225000
[Being transfer of equity share capital &
accumulated profit to ESH a/c]

8 ESH A/c 150000

To Equity Share in Z Ltd 150000
[Being the final payment to ESH]

175500 175500
Total 0 0

Balance Sheet of Z Ltd (5 Marks)

Equity and Liabilities
(1) Shareholders Funds
(a) Share Capital
64,500 Equity Shares of Rs.10 each fully paid up 645000
900 – 12% Preference Shares of Rs.100 each fully
paid up 90000
(b) Reserves and Surplus:
Capital Reserve 5000
Securities Premium 15000

(2) Secured Loans

Debentures 60000

(3) Current Liabilities

Creditors 270000
108500
Total Liabilities 0

Assets
(1) Non-Current Assets
Land 150000
Building 45000
Plant (290,000+120,000) 410000
Fixtures 5000
Vehicles 10000
Other fixed assets 15000
Goodwill 30000
(2) Current Assets
Current Assets of X ltd 270,000
Agreed value of Current Assets of Y ltd 150,000 420000
108500
Total Assets 0