Corporate Accounting

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CORPORATE ACCOUNTING
IMPORTANT
SUMS & ANSWER
WATCH THIS IMPORTANT CLASS ON YOUTUBE
BY
RAHUL SINGH
[M. Com, B. Ed, CMA (Inter), CA(inter), B.com(Hons)
Rank Holder]
8+Years of Experience
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PAPER PATTERN
SECTION A (50 MARKS)

Q1. ISSUE OF SHARES (10 MARKS) – NO OPTION
Q2. UNDERWRITING OF SHARES/ESOP (10 MARKS) - NO OPTION
Q3. BUY BACK OF SHARES (10 MARKS) WITH OPTION
OR
REDEMPTION OF SHARES
Q4. REDEMPTION OF DEBENTURES (10 MARKS) - NO OPTION
Q5. VALUATION OF SHARES (10 MARKS) - WITH OPTION
OR
VALUATION OF GOODWILL
SECTION B (30 MARKS)

Q6. AMALGAMATION (15 MARKS) - WITH OPTION
OR
INTERNAL RECONSTRUCTION
Q7. FINAL ACCOUNT (15 MARKS) - NO OPTION
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Internal Reconstruction
1. Passing through bad times and incurring heavy losses during the past few years
Info industries ltd. decided to undertake certain measures to revitalize the
company. Their assets and liabilities as on 31st December, 1997 are given below :
50000, equity shares of Rs. 100 each 5000000
10000, 18% debentures of Rs. 100 each 1000000
Outstanding Interest on debentures 360000
Trade creditors 500000
L&B 1500000
Plant 1050000
Furniture 910000
Stock 800000
Debtors 600000
Cash at bank 180000
The following scheme of reorganization was proposed by the directors of the company
and has been added by all interested parties -
i. The equity shares are to be subdivided into shares of Rs. 5 each and 60% of the
shares are to be surrendered.
ii. The total claims of the debenture holders to be reduced by Rs. 860000 and balance
will be paid by allotment of 100000 equity shares of Rs. 5 each (out of the
surrendered shares)
iii. The claims of the creditor will be reduced by Rs. 250000 and 1/5th of the balance
was to be satisfied by issue of equity shares out of surrendered shares.
iv. The value of land and building, plant and furniture are to be reduced to 80% of
their value and value of stock to be reduced by 40%.
v. It is expected to realize 60% of the amount due from debtors and so directors of
the company proposed to write off the balance amount.
vi. Share surrendered but not reissued are to be cancelled.
You are asked to show necessary journal entries in the books of the company and the balance
sheet as it would appear immediately after completion of the scheme assuming that necessary
approval of the court was received
Answer:
In the books of Info Industries Ltd.
Journal entries
Date Particulars L.F. Amount Amount
(Dr.) (Cr.)
1 Equity share capital (Rs. 100) a/c Dr. 5000000
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To Equity share capital (Rs. 5) a/c 500000
(Being 50000 equity shares of Rs. 100 each
subdivided into 1000000 equity shares of Rs. 5
each)
2 Equity share capital a/c Dr. 3000000
To Share surrendered a/c 3000000
surrendered by shareholders as per scheme of
reconstruction)
3 Share surrendered a/c Dr. 500000
To Equity share capital a/c 500000
(Being 100000 equity shares issued to debent-ures
out of share surrendered)
4 18% debentures a/c (500000 + 500000) Dr. 1000000
Out. Interest on debentures a/c Dr. 360000
To capital reduction a/c 1360000
(Being claim of debentureholders reduced and
transferred to capital reduction account)
(Being 10000 equity shares of Rs. 5 each issued to
creditors out of share surrendered against their 1/5th
claim)
6 Trade creditors a/c (250000 + 50000) Dr. 300000
(Being claim of creditors reduced and transferred to
capital reduction account)
7 Capital reduction a/c Dr. 12520000
To L&B a/c 300000
To Plant a/c 210000
To Furniture a/c 182000
To Stock a/c 320000
To Debtors a/c 240000
(Being sundry assets reduced and adjusted against
capital reduction)
(Being share surrendered but not reissued cancelled
and transferred to capital reduction account)
To P&L a/c (WN – A) 1820000
To Capital Reserve a/c 1038000
(Being losses written off and balance transferred to
capital reserve)
Info Industries Ltd.

Balance Sheet
as at 31/12/97 (and reduced)
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Sl. No. Particulars Note. Amount
No.
I Equity & Liabilities:
1. Shareholder’s Fund:
(a) Share capital 1 2550000
(b) R&S (capital reserve) 1038000
2. Non – current liabilities -
3. Current Liabilities:
Trade payables 2 200000
Total 3788000
II Assets:
1. Non – current assets:
Fixed assets (Tangible) 3 2768000
2. Current assets:
(a) Inventories 4 480000
(b) Trade receivables 5 360000
(c) Cash & Cash eq. 180000
Total 3788000
Notes to accounts:
Note No. Particulars Amount Amount
1 Share capital:
(a) Authorised capital
(b) Issued, subscribed & paid up capital
1000000 equity shares of Rs. 5 each 5000000
Less: Shares surrendered (3000000)
Add: Surrendered shares reissued 550000
Total 2550000
2 Trade Payable:
Creditors 500000
Less: Reduced (300000)
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Total 200000
3 Fixed assets (tangible):
(a) L&B 1500000
Less: Decrease (20% of 1500000) (300000)
(b) Plant 1050000
Less: Decrease (20% 0f 1050000) (210000) 840000
(c) Furniture 910000
Less: Decrease (20% 0f 910000) (182000) 728000
Total 2768000
4 Inventories:
Stock at cost 800000
Less: Decrease (40% of 800000) (320000)
Total 480000
5 Trade Receivables:
Debtors 600000
Less: Provision for bad debts @ 40% (240000)
Total 360000
Working notes:
(A) Loss of company before reconstruction:
Total Liabilities:
Share capital 5000000
Debentures 1000000
Out. Interest on debentures 360000
Creditors 500000
6860000
Less: Assets as per books:
L&B 1500000
Plant 1050000
Furniture 910000
Stock 800000
Debtors 600000
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Cash & bank 180000 (5040000)
Past losses of company 1820000
2. The balance sheet of Bad luck ltd. as on 31.03.2011 was as follows:

Balance Sheet
No.
(b) R&S 2 360000
2. Non – current liabilities -
(a) Short – term borrowings 3 200000
(b) Trade payables 4 1200000
(c) Other current liabilities 5 280000
Total 4040000
II Assets:
(a) Fixed assets (Tangible) 6 1240000
(b) Fixed assets (Intangible) 7 200000
(c) Other non – current assets 8 20000
2. Current assets:
(a) Inventories (stock) 600000
(c) Cash & Cash eq. 10 180000
(d) Other current assets 11 800000
Total 4040000
Notes to accounts:
1 Share capital:
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i. 120000 equity shares of Rs. 10 each 1200000
ii. 8000, 11% pref. shares capital of Rs. 100 each 800000
Total 2000000
2 Reserves & surplus:
(a) Securities premium 180000
(b) Capital reserve 180000
Total 360000
3 Short – term borrowings:
Unsecured loan from managing director 200000
4 Trade Payable:
Creditors 1200000
5 Other current liabilities:
Managing Directors Commission 80,000
Other Outstanding expenses 200,000 280000
(a) L&B 400000
(b) Plant & Machinery 800000
(c) Furniture 40000
Total 1240000
7 Fixed assets (Intangible):
Goodwill 200000
8 Other non – current assets:
Preliminary expenses 20000
(a) Debtors 800000
(b) BR 200000
Total 10,00,000
10 Cash and Cash equivalent
Cash at Bank 180,000 180,000
11 Other Current Assets
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Profit and Loss Account 800,000
The following scheme of reconstruction has been agreed upon and duly approved by the
court:
I. Equity shares are to be converted in 600000 shares of Rs. 2 each and 90% were
surrendered.
II. Dividend on cumulative preference share are in arrear for 3 years and preference
shareholders agree to forego their arrear dividend claims for consideration of
being conversion of 10% preference share into 11% preference shares.
III. Creditors agree to reduce their claim by 20% on consideration of getting Rs.
140000 out of the surrendered.
IV. Managing director forgoes his claim
V. Assets are to be written off: Goodwill by 200000, plant by 200000, furniture by
32000, debtors by 140000.
VI. Land and building will be increased to 440000.
VII. Reconstruction expenses paid 40000
VIII. 2000, 13% debentures of 100 each are issued for increasing working capital.
IX. Balance of shares surrender will be cancelled.
Show journal entries and balance sheet after reconstruction.
Answer:
In the books of Bad Luck Ltd.
Journal entries
(Dr.) (Cr.)
subdivided into 600000 equity shares of Rs. 2
each)
2 Equity share capital a/c 1080000
Dr. 1080000
To Share surrendered a/c
surrendered by shareholders as per scheme of
reconstruction)
3 10% Pref. share capital a/c 800000
Dr. 800000
To 11% Pref. share capital a/c
(Being 8000 Pref. share of Rs. 100 each converted
into 8000, 11% Pref. share of Rs. 100 each )
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4 Share surrendered a/c 140000
Dr. 140000
To Equity share capital a/c
(Being 70000 equity shares issued to creditors out
of share surrendered)
5 Creditors a/c 240000
Dr. 240000
To capital reduction a/c
(Being 20% claim of creditors reduced and
6 Unsecured loan from M.D. a/c Dr. 200000
Out. M.D. commission a/c Dr. 80000
To Capital reduction a/c 280000
(Being Managing directors claim reduced and
7 Capital reduction a/c 572000
Dr. 200000
To Goodwill a/c 200000
To Plant a/c 32000
To Furniture a/c 140000
To Debtors a/c
(Being sundry assets written off)
8 L&B a/c 40000
Dr. 40000
To Capital reduction a/c
(Being value of land and building increased)
Dr. 200000
To bank a/c
(Being reconstruction expensed paid)
10 Bank a/c 200000
Dr. 200000
To 13% Debentures a/c
(Being 2000, 13% debentures of Rs. 100 each
issued at par)
11 Share surrendered a/c 940000
Dr. 940000
(Being share surrendered but not reissued cancelled
and transferred to capital reduction account)
Dr. 20000
To Preliminary expenses a/c 800000
To P&L a/c (WN – A) 68000
To Capital Reserve a/c
(Being preliminary expenses and losses written off
and balance transferred to capital reserve)
Bad Luck Ltd.
Balance Sheet
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No.
(b) R&S 2 428000
2. Non – current liabilities
Long – Term Borrowings (13% debentures) 200000
(a) Trade payables 3 960000
(b) Other current liabilities 4 200000
Total 2848000
II Assets:
(b) Fixed assets (Intangible) -
2. Current assets:
(c) Cash & Cash eq. 7 340000
Total 2848000
Notes to accounts:
1 Share capital:
i. 600000 equity shares of Rs. 2 each 1200000
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Add: Shares surrendered reissued 140000 260000
ii. 8000, 11% pref. shares capital of Rs. 100 800000
each
Total 1060000
2 Reserves & surplus:
(a) Securities premium 180000
(b) Capital reserve 180000
Add: Balance of Capital reduction fund 68000 248000
transfer
Total 428000
3 Trade Payable:
Creditors 1200000
Less: claim reduced (240000)
Total 960000
4 Other current liabilities:
Outstanding expenses including MD commission 280000
Less: MD commission sacrificed (80000)
Total 200000
(a) L&B 400000
Add: Appreciation 40000 440000
(b) Plant & Machinery 800000
Less: Depreciation (200000) 600000
(c) Furniture 40000
Less: Decrease (32000) 8000
Total 1048000
(a) Debtors 800000
Add: Written off (140000) 660000
(b) BR 200000
Total 860000
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7 Cash & Cash eq.
Cash at bank 180000
Add: Proceeds from issue of debentures 200000
Less: Reconstruction expenses (40000)
Total 340000
3.The following is the balance sheet of Y ltd. as at 31st March, 2014:

Sl. No. Particulars Amount Amount
1. 1. Shareholder’s Fund:
(a) Share capital
4000, 8% Pref. shares of Rs. 100 each fully paid 400000
(b) R&S
P&L a/c – balance (440000)
Less: Profit for the year 80000 (360000)
2. 2. Non – current liabilities
3. 3. Current Liabilities:
(a) Trade payables (creditors) 40000
(b) Short – term borrowings (Bank overdraft) 100000
(c) Other CL (interest due on debentures) 60000
Total 1240000
II Assets:
1. 1. Non – current assets:
(a) Fixed assets (Tangible)
I. L&B 600000
II. P&M 200000
(b) Non – current investments (investments) 100000
2. 2. Current assets:
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(b) Trade receivables (debtors) 80000
(c) Cash & Cash eq. (cash) 20000
Total 1240000
The preference dividend is in arrear for 3 years. Considering the improvement made in the
working of the company, the directors decide upon a scheme of reconstruction with a
deduction of capital; and it is approved on the following items:
(a) The Preference shareholders agree that their shares be reduced to a fully paid share of
Rs. 90 each. They will accept equity shares of Rs. 4 each fully paid for half of their
arrear dividend and rest half will be forgone.
(b) The equity shareholders agree that their shares be reduced to a fully paid share of Rs.
4 each, and further subscribe 40000 equity shares of Rs. 4 each fully paid for working
capital purposes.
(c) The debenture holders have agreed to accept fully paid for equity shares for the
interest due to them.
(d) Investments are to be sold for Rs. 90000 and money thus available along with new
issue is utilized to pay off bank overdraft.
Show the necessary journal entries to record the scheme of capital reduction and draw up a
new balance sheet after the scheme after taking into accounts: (i) P & M is depreciated by
10% (ii) Obsolete stock of Rs. 30000 be written off.
Answer:
In the books of Y Ltd.
Journal entries
(Dr.) (Cr.)
1 8% Pref. share capital a/c (Rs. 100) Dr. 400000
To 8% pref. share capital (Rs. 90) a/c 360000
(Being 4000 preference shares of Rs. 100 each
reduced to Rs. 90)
To Equity Share Capital a/c 48000
pref. shareholders for half of their arrear dividend
claim as per scheme of reconstruction)
3 Equity Share Capital (Rs. 10) a/c Dr. 800000
To Equity Share Capital (Rs. 4) a/c 320000
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(Being 80000 equity shares of Rs. 10 each reduced to
Rs. 4)
4 Bank a/c Dr. 160000
(Being 40000 equity shares of Rs. 4 each issued as per
board’s Resolution No. …. Dated ….)
5 Out. Interest on debentures a/c Dr. 60000
debentureholders for their outstanding interest)
6 Bank a/c Dr. 90000
Capital reduction a/c Dr. 10000
To investment a/c 100000
(Being investments sold and loss debited to capital
reduction account)
To P & M a/c 20000
To Stock a/c 30000
(Being machinery and stock reduced)
To P & L a/c 360000
(Being loss written off and balance of capital
reduction transferred to capital reserve)
Y Ltd.
Balance Sheet
(b) R&S (capital reserve) 52000
Trade payables (creditors) 40000
Total 1240000
II Assets:
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(c) Non – current investments -
(c) Cash & Cash eq. 4 170000
Total 1240000
Notes to accounts:
1 Share capital:
4000, 8% pref. shares @ Rs. 90 each 360000
Total 948000
(a) L&B 600000
(b) Plant 200000
Less: written off (20000) 180000
Total 780000
3 Inventories:
Inventories 240000
Less: written off (30000)
Total 210000
4 Cash & Cash eq.
(a) Cash in hand 20000
(b) Cash at bank 160000
Add: Proceeds from issue of shares 90000
Less: Bank overdraft (100000)
Total 170000
4.The ledger balances of Sick Ltd. as on 31.03.2013 Include:
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Amount
Fixed assets 800000
Investments 10000
Inventories (Market price – Rs. 340000) 390000
Debtors 460000
Preliminary Expenses 20000
Bank OD. 50000
10% 1st debentures 200000
12% 2nd debentures 500000
Creditors (Including Y for Rs. 550000) 1150000
Out. Debenture interest (1st debenture – 20000, 2nd debenture – 80000
60000)
Equity share (F.V. Rs. 100, 60% paid up) 600000
Due to heavy accumulated losses and overvaluation of fixed assets, following scheme of
reconstruction is agreed upon:
I. to make call against the existing equity shares to make them fully paid up and then
to subdivide them to shares of rupees 20 each
II. After subdivision the equity shareholders to surrender 80% of the holding for
redistribution or otherwise for cancellation
III. To settle the claim including interest of the holder of the 1st debentures by issuing
1000, 13.5% debentures of rupees 100 each. They are also to be issued 3000
equity shares out of surrendered shares.
IV. To issue 15000 equity shares out of surrendered shares to the holder of the 2nd
debenture in full settlement of their claim including interest.
V. To issue 10,000 equity shares out of surrendered shares to Y in full settlement of
his account.
Pass necessary journal entries without narration to give effect to the above transaction and
prepare the balance sheet of the company immediately after the reconstruction.
Answer:
In the books of Sick Ltd.
Journal entries
(Dr.) (Cr.)
1 Equity share final call a/c (10000 X 40) Dr. 400000
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To ESC a/c 400000
2 Bank a/c 400000
Dr. 400000
To Equity share final call a/c
4 Equity share capital a/c (40000 X 20) Dr. 800000
To Share surrendered a/c 800000
To ESC a/c 800000
(issued to 1st debenture holder)
6 10% 1st debenture a/c (2000 X 100) Dr. 200000
Out. Interest on debenture a/c 20000
To 13.5% debentures a/c (1000 X 100) 100000
(issued to 2nd debenture holder)
8 10% 2nd debenture a/c (5000 X 100) Dr. 500000
Out. Interest on debenture a/c 60000
(issued to creditors)
10 Creditors (Mr. Y) a/c 550000
Dr. 550000
To Inventories a/c 50000
12 Share surrendered a/c (12000 X 20) Dr. 240000
To Preliminary expenses a/c 20000
To P&L a/c (WN – A) 900000
Sick Ltd.
Balance Sheet
No.
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(b) R&S -
2. Non – current liabilities
Trade payables 2 600000
Total 1460000
II Assets:
(c) Non – current investments 10000
(c) Cash & Cash eq. 5 350000
Total 1460000
Notes to accounts:
1 Share capital:
Add: Shares surrendered reissued (28000 X 20) 560000
Total 760000
2 Trade Payable:
Creditors 1150000
Less: claim reduced (550000)
Total 600000
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Fixed assets 800000
Less: written off (500000)
Total 300000
4 Inventories:
Inventories 390000
Less: Written off (50000)
Total 340000
5 Cash & Cash eq.
Call money received 400000
Less: Bank OD. (50000)
Total 350000
Working notes:
(A) Loss of company before reconstruction:
Total Liabilities at book value:
Share capital 600000
1st Debentures 200000
2nd debentures 500000
Out. Interest on debentures (20000 + 60000) 80000
Creditors 1150000
Bank overdraft 50000
Total liability 258000
Less: Assets:
Fixed assets 800000
Investments 10000
Stock (book value) 390000
Debtors 460000
Preliminary expenses 20000 (1680000)
Loss of company 9000000
5. Green ltd. has decided to reconstruct the balance sheet since it had accumulated huge
losses. The Following is the balance sheet of the company on 31.03.2015 before
reconstruction:
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(a) Share capital
60000 equity shares of Rs. 10 each fully paid 600000
4000, 12% Pref. shares of Rs. 100 each fully paid 400000
(b) R&S
P&L a/c – balance (165000)
11% debentures 250000
(a) Trade payables (creditors) 45500
(b) Bank overdraft 136750
Total 1267250
II Assets:
I. Fixed assets
(a) Tangible:
i. L&B 600000
ii. P&M 200000
iii. Furniture
(b) Intangible : goodwill 150000
II.Non – current investments Nil
(i) 2. Current assets:
(a) Inventories 263000
(c) Cash & Cash eq. (cash) 750
Total 1267250
Note: The preference dividend is in arrear for 5 years.
A capital reduction scheme is submitted as follows:
(i) Equity shares to be reduced to Rs. 5 each.
(ii) All arrears of pref. dividend to be cancelled.
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(iii) Each pref. shares to be reduced to Rs. 75 and then exchanged for one new 12%
preference share of Rs. 50 each and five equity shares of Rs. 5 each.
(iv) The debit balance of profit and loss to be written off. P & M to e written down as
much as possible. Goodwill is to be written off in full.
(v) The debentures are to be redeemed at 5% premium. Holders being given the
option to subscribe at par for new 12% debentures.
Approval of the court is obtained. 200000 new equity shares are issued at par and payable in
full on application. Holders of old debentures to the extent of Rs 100000 exercised their
option and subscribed for new debentures. Expenses in connection with the scheme amounted
to Rs. 6750. Show the journal entries (without narration) and set out the new balance sheet of
the company.
Answer:
In the books of Green Ltd.
Journal entries
(Dr.) (Cr.)
1 Equity Share Capital (Rs. 10) a/c Dr. 600000
To Equity Share Capital (Rs. 5) a/c 300000
2 12% Pref. share capital a/c (Rs. 100) Dr. 400000
To 12% pref. share capital (Rs. 50) a/c 200000
To ESC a/c (4000 X 5 X Rs. 5) 100000
3 11% debentures a/c Dr. 250000
Capital reduction a/c Dr. 12500
To 12% debentures a/c (100000 + 5%) 105000
To bank a/c 157500
To bank a/c 6750
5 Bank a/c (200000 X 5) Dr. 1000000
To Goodwill a/c 150000
To P & L a/c 165000
To P & M a/c 65750
Note: No entry is required for arrear preference dividend cancelled.
Green Ltd.
Balance Sheet
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(b) R&S -
Trade payables (creditors) 45500
Total 1750500
II Assets:
Non – current assets:
Fixed assets (Tangible) 2 741750
(c) Cash & Cash eq. 3 699750
Total 1750500
Notes to accounts:
1 Share capital:
(a) Authorised capital -
60000 equity shares of Rs. 5 each fully paid 300000
20000 equity shares issued to pref. shareholders 100000
@ Rs. 5 each
200000 equity shares issued to public at Rs. 5 1000000 14000000
each
4000, 12% pref. shares @ Rs. 50 each 200000
Total 16000000
(a) L&B 500000
(b) Plant 275000
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Less: written off (65750) 209250
(c) Furniture 32500
Total 741750
3 Cash & Cash eq.
Cash as per balance sheet 750
Add: Proceeds from issue of shares 1000000
Less: redemption of debentures (157500)
Less: expense on reconstruction (6750)
Less: bank overdraft of company set off (136750)
Total 699750
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ISSUE OF SHARES
FORFEITURE AND RE-ISSUE OF SHARES

1. X Ltd. invited application for 10,000 shares of Rs 100 each payable as follows.
On application. Rs 25
On allotment. Rs 40
st
On 1 and final call Rs 35
The applications received for 9,000 shares and all of these were accepted. All
money due were received except the first and final call on 100 shares which were
forfeited after doing all legal formalities, 50 shares were re-issued @ 90 as fully
paid up. Pass entries in the cash book and journal of X Ltd.
[1991]
[Ans. Amount of capital reserve Rs 2,750; Balance of share forfeiture a/c Rs
2,950; Discount on issue of share balance Rs 53,400.]
2. X Ltd. Made an issue of 10,000 equity shares of Rs 15 each payable as follows:
a. Rs 4 per share on application;
b. Rs 7 per share (including Rs 2 per share as premium) on Allotment;
c. Rs 6 per share on first and final call.
Arrear of instalments were as under:
Mr. Das holding 50 shares failed to pay the Allotment and Call money.
Mr. Pal holding 80 shares failed to pay the Call money.
All these shares were forfeited and subsequently re issued to Mr. Roy as
fully paid-up at a discount of Rs 12 per share.
Pass journal entries (including cash transactions) to record the above issue,
forfeiture and re-issue of shares in books of the company.
[1997]
[Ans. Amount received on Allotment Rs 69,650; (on 9,950 shares) on call
Rs 59,220 (on 9,870 shares); Capital Reserve to be created Rs 530.]
Solution:
In the books of X limited
Journal
Date Particulars Dr₹ Cr₹
Bank A/c Dr 40,000
To Equity share application A/c 40,000
(Being the application money received on 10,000

share @₹ 4 per share.)
Equity Share Application A/c Dr 40,000
To Equity Share Capital A/c 40,000
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(Being application money on 10,000 shares @₹4
per share transferred to Equity Share Capital
Account as per Board’s Resolution
No…dated….)
Equity Share Allotment A/c Dr 70,000
To Securities Premium A/c 20,000
(Being allotment money due on 10,000 shares

@₹ 7 each including premium as per Boards
Resolution No …..dated….)
Bank A/c Dr 69650
To Equity Share Allotment A/c 69650
(Being receipt of allotment money on 9,950

shares @₹ 7 each )
Equity share first and final call A/c 60,000
To equity share capital A/c 60,000
Bank A/c Dr 59,220
To Equity Share First and Final call A/c 59,220
Equity share capital A/c Dr 1,950
Securities premium A/c 100
To equity share allotment A/c 350
To equity share first and final call A/c 780
To forfeited shares A/c 920
Bank A/c Dr 1560
Forfeited shares A/c Dr 390
To Equity Share Capital A/c 1950
Forfeited shares A/c Dr 530
To capital reserve A/c 530
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3. Rainbow industries Ltd. Issued 50,000 equity shares of Rs 10 each at a premium of Rs 2

per share, payable as Rs 3 on application, Rs 5 (including premium) on allotment and
balance by one call. Applications received for 90,000 shares out of which letters of regret
were issued to the applicants of 25,000 shares. Full allotment was made to the applicants
of 20,000 shares. Pro-rata allotment was made to the rest of the applicants. One
shareholder to whom full allotment was made failed to pay allotment money on 50 shares.
Another shareholder to whom pro-rata allotment was made also failed to pay allotment
money on 100 shares. When the first and final call was made there was for the default on
200 shares by another shareholder. All the shares were forfeited after first and final call.
The first 150 forfeited shares were issued @ Rs 9 per share.
Show necessary journal entries and prepare a balance sheet on the basis of the
above.
[2014]
[Ans. Amount transferred to Capital Reserve Rs 450; Balance of share forfeiture
account Rs 1,200. Per share adjustment Rs 150.]
Solution:
In the books of Rainbow Industries Ltd
Journal
Date Particulars Dr₹ C₹
Bank A/c 270000

270000
To Equity share application A/c
Equity share application A/c 75000

75000
To Bank A/c
To Equity share Capital 150000

A/c 45000
To Equity share Allotment A/c
Equity share Allotment A/c 250000
150000
To equity share capital A/c 100000
To securities premium a/c
Bank A/c 204400
600
Calls-in-Arrear A/c
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To Equity share allotment A/c 205000
Equity shared final call A/c 200000

200000
To Equity share capital A/c
Bank a/c 198600
1400
Calls-in-Arrear A/c
To Equity share final call A/c 200000
Equity share capital A/c 3500

300
Securities premium A/c
To Calls-in-Arrear A/c 2000
To forfeited shares A/c 1800
Bank A/c 1350

150
Forfeited shares A/c
To Equity share capital A/c 1500
Forfeited shares A/c 450

450
To capital Reserve A/c
Balance Sheet of Rainbow Industries Ltd . as at…..

Particulars Note Amount ₹
No
I EQUITY AND LIABLITIES 2 3
1 Shareholders’Funds:
a. Share Capital (1) 499200
b. Reserves and Surplus (2) 100150
c. Money Received against Share Warrants ____
(2) Share Application Money Pending Allotment ____
(3) Non-Current Liabilities ____
(4)Current Liabilities ____
TOTAL 599350
II ASSETS
(1) Non- Current Assets
(2) Current Assets
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(A) Cash and Cash Equivalent 599350
TOTAL 599350
4. X Ltd. Offered 10,000 equity shares of Rs 10 each for subscription at a premium of Rs 2

per share payable as follows:
On application. Rs 2
On allotment. Rs 5 (including premium)
On first call. Rs 2
On final call. Rs 3
The company received applications for 15,000 shares and allotment was made
pro-rata to the applicants of 12,000 shares, the remaining applications being
refused. The excess application money was adjusted on account of sums due on
allotment.
Kapil to whom 500 shares were allotted failed to pay the allotment money and on
his subsequent failure to pay the first call money his shares were forfeited. Srinath
who originally applied for 250 shares fail to pay the two calls and his shares were
forfeited after the final call.
Subsequently out of these forfeited shares 600 shares (including all shares of
Kapil) were re-issued to Sharma as fully paid up at Rs 9 per share.
Show the cash book, the journal entries and the balance sheet of the company to
give effect to the above. [2002]
Solution
In the books of X Ltd
Dr. Cash Book (Bank Column only)
Cr.
Date Particulars ₹ Date Particulars ₹
To Equity Share 30,000 By Equity Share 6,000

Application A/c Application A/c
(Being the application (Being excess money

money received for refunded on 3,000
15,000 shares @ 2 each) shares @
2 each as per Board's

Resolution No. ...
dated ..)
To Equity Share 43,700 By Balance c/d 1,19,350
Allotment A/c (Note 1)
(Being allotment money

received on 9,500 shares
@5 each including
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premium after
adjustment)
To Equity Share First 18,500

Call A/c (Note 5)
(Being first call money

@2 each)
To Equity Share Final 27,750

Call A/c
(Being final call money

@3 each))
To Equity Share Capital 5,400

A/c (600 x 9)
(Being money received

on re-issue of shares @ 9
each)
1,25,350 1,25,350
In the books of X Ltd

Journal
Date Particulars Dr ₹ Cr ₹
Equity Share application A/c Dr 20,000

To Equity share capital A/c 20,000
(Being the application money on 10,000 equity shares
@₹ 2 each transferred to equity shares capital account
as per board’s resolution No….dtd….)
Equity Share application A/c Dr 4,000
To Equity Share allotment A/c 4,000
(Being the adjustment of surplus application money on
2,000 shares @ ₹ 2 each)
Equity Share Allotment A/c Dr 50,000
To equity share capital A/c 30,000
To securities Premium A/c 20,000
(Being the allotment money due on 10,000 shares @₹
5 each including premium of ₹2 as per board
resolution No….dtd)
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Equity Share 1st Call A/c 20,000
(Being 1st call money due on 10,000 shares @ 2 per

share as per Board's Resolution No. dtd..)
Equity Share Capital A/c (500 x 7) Dr 3,500
Securities Premium A/c (500 x 2) Dr. 1,000
To Equity Share Allotment A/c
To Equity Share 1st Call A/c 2,300
To Forfeited Share A/c 1,000
(Being the forfeiture of 500 equity shares for non- 1,200

payment of allotment money and 1st call money as per
Board's Resolution No. . .. dtd. ..)
Equity Share Final Call A/c Dr. 28,500
(Being final call money due on 9,500 shares @ 3 each

as per Board's Resolution No. ... dtd ...)
Equity Share Capital A/c (250 × 10) Dr. 2,500
To Equity Share 1st Call A/c 500
To Equity Share Final Call A/c 750
To Forfeited Shares A/c 1,250
(Being the forfeiture of 2,500 equity shares for non0-

payment of 1st call and final call as per Board's
Resolution No. ... dtd..
Forfeited Shares A/c (600 x 1) Dr. 600
(Being loss on re-issue of 600 shares)
Forfeited Shares A/c (Note 6) Dr. 1,100
To Capital Reserve A/c 1,100
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(Being the profit on re-issue transferred to Capital
Reserve)
Balance sheet of X Ltd as at..

Particulars Note Amount
No
I. Equity & Liabilities
(1) Shareholder’s Fund

(a) Share capital (1) 99,250
(b) Reserve and Surplus (2) 20,100
(c) Money Received against Share warrants
(2) Share application money pending allotment --
(3) Non- current Liabilities ---
(4) Current Liabilities --
TOTAL 1,19,350
II. Assets
(1) Non – current Assets
(2) Current Assets

(a) Current Investment -
(b) Inventories -
(c) Trade receivables -
(d) Cash and Cash equivalents 1,19,350
(e) Short term loans and advances -
(f) Other current Assets -
1,19,350
Notes to Account:
(1) Share Capital
Particulars ₹
Authorised Capital:
? Equity shares of ? each ?
Issued Capital
10,000 Equity Shares of 10 each fully paid up 1,00,000
Subscribed Capital
10,000 Equity Shares of 10 each fully paid up 1,00,000
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Paid up capital
9,850 Equity shares of 10 each fully paid up 98,500
Add: Forfeited Shares 750
99,250
(2) Reserve and Surplus

Particulars ₹
Securities Premium 19,000
Capital Reserve 1,100
20,100
5.Bengal Ltd. was registered with an authorised capital of ₹5,00,000 divided into 30,000
equity shares of ₹10 each and 4,000, 10% preference shares of ₹50 each. The company made
an issue of 15,000 equity shares at a premium of 5 per share payable as follows:
On application ₹5 per share (including ₹2 as premium)
On allotment ₹6 per share (including ₹3 as premium)
On first call ₹2 per share
On final call Balance
Applications were received for 24,000 shares. No allotment was made to the applicants of
4,000 shares and the amount received thereon was refunded. The rest of the applicants were
issued shares on pro-rata basis. Mr. A who had applied for 120 shares failed to pay allotment
and call money. Mr. B who had applied for 80 shares failed to pay two calls and Mr. C to
whom 45 shares were allotted failed to pay the final call money. Shares of Mr. A, Mr. B and
Mr. C were forfeited after the final call was made. 160 of the forfeited shares (including
whole of A and B and balance of C) were reissued to Mr. D at ₹12 per share.
Show the Journal entries in the books of the Company.
Solution:
In the books of Bengal Ltd.
Journal
Bank Alc 120000
To Equity share application Alc 120000
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To bank A/c 20000
To securities premium A/c 30000
To Equity Share AllotmentA/c 25000
Equity share allotment A/c 90000
To Equity Share capital A/c 45000
Bank A/c 64610
Calls-in arrear A/c 390
To equity share allotment A/c 65000
Equity share first call A/c 30000
Bank A/c 29700
Calls-in arrear A/c 300
To Equity Share First Call A/c 30000
Equity Share Final Call A/c 30000
To Equity Share capital A/c 30000
Bank A/c 29610
Calls-in-arrear A/c 390
To equity share final call A/c 30000
To calls-in-arrear 1080
To forefited shares A/c 1140
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Bank A/c 1920
To Equity share capital A/c 1600
A Forefited shares A/c 860
To capital Reserve A/c 860
Working Notes :
1. Calculation of Adjustment of Excess Application Money: ₹

Application money received (24000*₹ 5) 120000
Retained (20000*5) 100000
Due on application (15000*₹5) 75000

Adjusted against Allotment 25000
2. Calculation of Calls-in-Arrear on Allotment
20000 applicants received 15000 shares
⸫ Ratio for pro-rata = 250000 : 15000 = 4:3
Mr . A applied for 120 shares , received 120 * 3/4= 90 shares ₹
Paid on application (120*₹5) 600
Due on application (90*₹5) 450
Excess to be adjusted against Allotment 150
Due on Allotment (90*₹6) 540
Less: Adjusted 150
Calls – in – Arrear 390
(3).Calculation of calls-in-arrear on first call
Mr. B applied for 80 shares
Received 80 × 3/4 = 60 shares
Total number of shares failed to pay first call =
Mr. A's 90 shares + Mr. B's 60 shares 150 shares
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Calls in arrear (150 * 2) 300
(4) calculation of calls in arrear on final call
Mr. A (90*2) 180
Mr. B(60*2) 120
Mr. C(45*2) 90
390
5.Calculation of total call in arrear
On allotment (note 2 ) 390
On first call(note 3 ) 300
On final call (note 4 ) 390
_____________
1080
6 calculation of amount forfeited
Mr A amount paid (120 *5) 600
Less premium on application (90* 2) 180
_____________
420
Mr B application and allotment money (60*6) 360
Mr C Application, allotment and first call (45*8) 360
_______________
1140
7 calculation of profit on forfeiture of 160 shares
Gain on Mr A s 90 shares 420
Gain on Mr B s 60 shares 360
Gain on Mr C s 10 shares (360 *10 /45 ) 80
_____________
860
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6. K Ltd. made an issue of 20,000 equity shares of ₹10 each at 20% premium, payable as
under: ₹4 on application, ₹5 on allotment (including premium), ₹2 on first call and ₹1 on
final call. Applications were received for 25,000 shares and allotment was made as follows:
(a) to applicants for 10,000 shares - in full
(b) to applicants for 9,000 shares - 6,000 shares
(c) to applicants for 6,000 shares - 4,000 shares
Applicants for 200 shares in category (a) and applicants for 150 shares in category (b) failed
to pay the allotment money and these shares were forfeited on their failure to pay the first call
money. Holders of 200 shares under category (c) failed to pay the first and final call money
and these shares were forfeited after final call was made.
300 shares [200 of category (a) and 100 of category (b)] were reissued at ₹7 per share as fully
paid.
Show Journal entries in the books of K Ltd.
[Ans: Capital Reserve :- ₹500]
Solution:
In the books of K Ltd.
Journal
Bank A/c 100000
To Equity Share Application A/c 100000
Equity share Allotment A/c 100000
Bank A/c 78700
Calls-in-Arrear A/c 1300
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Equity share First Call A/c 40000
Bank A/c 39000
To Equity Share First Call A/c 40000
To Forfeited shares A/c 1400
Equity share Final Call A/c 19700
Bank A/c 19500
To Equity Share Final Call A/c 19700
To Forfeited shares A/c 1400
Bank A/c 2100
To capital Reserve A/c 500
EMPLOYEE STOCK OPTION PLAN

WHEN ALL THE EMPLOYEES EXERCISE THEIR OPTIONS
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1. On 1-4-2014 X Ltd. Granted 2000 shares to the employees under stock option scheme at
Rs 75 (Face value Rs 10; market value Rs 165). The company allowed 3 years for vesting the
option and one year maximum exercise period. Employees exercised all the options on 30-9-
2015. Show necessary journal entries.
[Ans. Value of option Rs 1,80,000; Amount of annual amortisation Rs 60,000;
Amount received Rs 1,50,000 and stock option outstanding to be debited Rs
1,80,000.]. [2010]
Solution
(i) Value of options = 2,000 * (165-75) = 1,80,000
(ii) Amount to be amortised = 1,80,000/3 = 60,000 each year
In the books of X ltd.
Journal
Date Particulars Dr ₹ Cr ₹
2016 Employee Compensation Expense A/c 60,000
March 31 To Employee Stock Option Outstanding A/c 60,000
(Being compensation expense recognised in

respect of 2,000 options granted to employees
at a discount of & 90 each, amortised on
straight line basis)
“ Statement of Profit and Loss 60,000
To Employee Compensation Expense A/c 60,000
(Being the amount transferred to Statement of

Profit and Loss)

respect of 2,000 options granted to
employees)
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Profit and Loss)

respect of 2,000 options granted to
employees)

Profit and Loss)
Oct 30 Bank A/c (2,000 x 75) 1,50,000
Employee Stock Option Outstanding A/c 1,80,000
To Securities Premium A/c 3,10,000
(Being the issue of 2,000 equity shares of 10

each at a premium of 155 each as a result of
exercising the options)
2. BETA Ltd. Branded 15,000 options at Rs 40 to the employees under employees stock
option scheme(ESOS). The face value of each option was Rs 10 and its marked price at that
time was Rs 120. Two years were the vesting period. All the employees exercise their options
fully. Show journal entries.
[2006]
[Ans. Value of option = Rs 12,00,000; Amount of annual amortisation Rs
6,00,000.]
3.HCL granted 1,500 options on 1st April, 2012 at Rs 80 when the market price was Rs 160.
The vesting period was 3 years. The maximum exercise period was 1 year. All the 1,500
options were exercised by the employees on 30th October, 2015. Pass the necessary journal
entries recording the above transactions.
[2014]
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[Ans. Value of option Rs 1,20,000; Amount of annual amortisation Rs 40,000.]
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REDEMPTION OF PREFERENCE SHARE
1. The books of the XYZ Ltd. showed the following balance on 31st December 2014:
15000 equity shares of rupees 10 each fully paid. 1,50,000

2500 10% Redeemable Preference Shares of Rs 100 each only paid. 2,50,000
500 8% Redeemable Preference Share of Rs 100 each Rs 70 paid up. 35,000
General reserve. 75,000
Balance in statement of profit and loss account. 1,60,000
Securities premium reserve. 15,000
Investment. 1,20,000
Cash at Bank. 39,600
st
On 1 January, 2015 the board of directors decided to redeem the preference shares at
a premium of 8%. in order to pay off preference shareholders the company also
decided to sell the Investments, use company’s fund and to raise the balance by the
issue of sufficient number of equity shares of Rs 10 each at a premium of Rs 1 per
share subject to leaving a minimum bank balance of Rs 9,600 after such redemption.
Investments was sold at Rs 1,08,000.
Show the necessary journals to record the transactions.
[2002]
[Ans: capital redemption reserve to be created Rs 1,30,000; No. of equity shares to be
issued 12,000]
Solution:
In the books of XYZ Ltd.
Journal
2015 10% Redeemble preference share 250000

Jan 1st capital A/c
Premium on redemption of 20000

preference share A/c
To preference shareholders A/c 270000
Bank A/c 108000

12000
Loss on Sale of Investment A/c
To Investment A/c 120000
Profit and loss A/c 12000

12000
To loss on sale of Investment A/c
Bank A/c (Note 1) 132000
132000
To Equity Share application A/c
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Equity Share Application A/c 132000
120000
To securities premium A/c
Preference shareholders A/c 270000
To bank A/c 270000
To premium on redemption of 20000

General Reserve A/c 75000

To capital redemption Reserve A/c 130000
Working Notes:
(1) Calculation of Number of Shares to be Issued
Cash balance at present Add: Sale of investments

39600
Less: Cash balance to be maintained

108000
Cash available for redemption of preference shares

_________
147600
Cash required for redemption

9600
Less: Cash available

_____________
138000
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Cash from New Issue of Shares 270000
No. of equity shares to be issued 1,32,000/11-12,000 shares. 138000
132000
(2) Premium on Redemption of Preference Shares to be adjusted against 20000
Profit and Loss Account balance
Note: Premium from new issue cannot be used as per the provisions of the Act.
(3) Amount to be transferred to Capital Redemption Reserve
Face value of shares redeemed

250000
Less: Proceeds from issue of equity shares (excluding premium)

120000
-
_______
130000
2. The following is the extract of Balance Sheet of Tik-Tok Ltd. as on 31.12.2014:

10% Redeemable Preference share capital. Rs
1,500 shares @ rupees 100 each fully called up 1,50,000
Less: Calls paid @ rupees 10 each. 1,000. 1,49,000
General Reserve. 40,000
Statement of profit and loss. 15,000
Securities Premium Reserve account. 20,000
Investment Allowance Reserve. 30,000
(Rs 20,000 is free for distribution).
Investments(Face value Rs 40,000). 31,000
Investment was sold at 90% of their face value. The preference shares were redeemed
at a premium of 10%. Sufficient number of equity shares of Rs 10 each were issued at
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par as was necessary for the purpose after utilising the available funds to the
maximum extent.
Give journal entries to record the above transactions.
[2014]
[Ans. Amount transferred to Capital Redemption Reserve Ra 80,000; Premium on
Redemption 14,000, Amount paid to Preference shareholders on Redemption Rs
1,54,000.]
3. S Ltd had the following balances on 31st December, 2004:
₹
9% preference shares of 10 each, fully paid 2,00,000
Equity shares of 10 each, fully paid 3,00,000
Capital reserve 50,000
Securities premium account 30,000
General reserve 60,000
Profit and loss account 30,000
Investments 20,000
The directors decide to redeem the preference shares on 1st January. 2005. at a premium of
10%. In order to provide funds for the purpose, the company sells the investments at a loss of
₹3,000 and makes the following issues:
(i) 10,000 13% preference shares of 10 each at a premium of 10%.
(ii) 5,000 equity shares of 10 each at a discount of 10%.
(iii) ₹50,000 8% debentures at par.
Show the journal entries to record the above transactions in the books of S Ltd., assuming
that the company fails to trace the hereabouts of the holders of 100 preference shares which
are redeemed and a minimum reduction is desired to be made in general reserve.
[Ans: Transfer to Capital Redemption Reserve A/c ₹55,000]
4. The following balances were extracted from the books of a company:

₹
20,000, 8% Preference Shares of ₹10 each fully paid 2,00,000
6,000, 7% Preference Shares of ₹10 each, ₹8paid-up 48,000
40,000 Equity Shares of ₹10 each fully paid 4,00,000
General Reserve 4,00,000
Profit & Loss account 2,00,000
The Preference Shares were redeemed at 10% premium to the extent possible. For this
purpose the Company issued 10,000 Equity Shares of 10 each at 10% premium. Holders of
200, 8% Preference Shares could not be traced. Minimum use of General Reserve was made.
Show Journal entries.
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[Ans: 20,000, 8% Pref. Shares of 10 each can be redeemed; Capital Redemption Reserve to
be created ₹1,00,000]
5. Following is the Balance Sheet of XYZ Ltd. as an 31.12.2010:

Liabilities ₹ Assets ₹
20,000 Eq. Share @ 10 each fully paid 2,00,000 Fixed Assets 1,50,000
1,000 5% redeemable Pref. Shares @ 100 1,00,000 Investments 1,00,000
each fully paid up
Securities Premium 2,000 Stock 75,000
General Reserve 48,000 Debtors 45,000
P&L A/c 30,000 Bank 30,000
Creditors 20,000
In January 2011, Preference Shares are to be redeemed at 5% premium. For this purpose
investments were sold at a Profit of 10% and 5,000 equity Shares of ₹10 each were issued at
₹10.50 per Shares. The Preference Shares were duly redeemed. Show Journal entries.
Solution:
In the books XYZ Ltd.
Journal
5% Redeemble preference share 100000

capital A/c
Premium on Redemption of preference

share A/c 5000
To preference shareholders A/c 105000
Bank A/c 110000
To Investment A/c 100000
To profit and loss A/c 10000
Bank A/c 52500
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To Bank A/c 105000
To premium on Redemption of 5000

To capital Redemption Reserve A/c 50000
Balance Sheet of XYZ Ltd as at …..
Particulars Note No Amount ₹
1. EQUITY AND LIABILITIES
(1) Shareholders' Funds:
(a) Share Capital 1 250000
(b) Reserves and Surplus 2 87500
(2) Current Liabilities:
(a) Trade Payables (Creditors) 20000
TOTAL 357500
1. ASSETS
(1) Non-current Assets:
(a) Property, Plant and Equipment
(1) Tangible Assets 150000
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(2) Current Assets:
(b) Trade Receivables (Debtors) 45000
(c) Cash and Cash Equivalents (W. Note 2) 87500
TOTAL 357500
Working Notes
(1) Amount to be Transferred to Capital Redemption Reserve Account ₹

Face value of shares to be redeemed 100000
Less: Proceeds from fresh issue (5,000 x 10) 50000
__________
50000
(2) Calculation of Balance in Bank ___________
Opening Balance 30000
Add: Amount received from sale of investments 110000
Add: Amount received from issue of shares 52500
Less: Paid to the Preference Shareholders 105000
___________
87500
6. The following balances were extracted from the books of Bombay Ltd. as on 30 June
2008
4,000,8% Redeemable preference shares of 100 each fully called up ₹
4,00,000
Less: Calls in arrear at 20 per share on 600 shares ₹ 12,000
₹ 3,88,000
Profit and Loss Balance ₹1,00,000
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Capital Reserve ₹ 20,000
The Preference shares were redeemed on 1st July, 2008 at a premium of 5 per share The
Company issued such further equity shares of 10 each as were necessary for the purpose of
redeeming the preference shares which were fully subscribed and duly allotted. You are
required to show the journal entries and the relevant extracts in the liabilities side of the
Balance Sheet, after such redemption.
[Ans:- Transferred to CRR ₹83,000; Premium on Redemption ₹17,000, Equity Shares issued
25,700]
Solution:
In the books of Bombay Ltd.
Journal
8 %Redeemable Preference shares Capital A/c 340000
Premium on Redemption of Preference Shares

A/c
17000
To Preference shareholders A/c
357000
To premium on Redemption of preference 17000

share A/c
Profit and Loss A/c 83000
To Capital Redemption of preference share A/c 83000
Bank A/c 257000
Equity shares Application A/c 257000
To Bank A/c 357000
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Balance Sheet of Bombay Ltd as at …..
1.EQUITY AND LIABILITIES
(a) Share Capital
(b) Reserves and Surplus

305000
(c) Money Received against Share Warrants 103000
(2) Share Application Money Pending Allotment: __
(3) Non-current Liabilities:
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
a) Short-term Borrowings
(b) Trade Payables
(c) Other Current Liabilities
(d) Short-term Provisions
Working Notes:
(1) Total number of Redeemable Preference Shares are 4,000, out of which 600 shares
are partly paid-up. Therefore, number of preference shares eligible for redemption
4,000-600=3,400 shares.
(2) It has been assumed that the entire balance (after adjusting premium on redemption
of preference shares) of profit and losse has been utilised for the purpose of redemption
of preference shares. So, the balance of 83,000 has been transferred to Capital
Redemption Reserve Account. It is to be noted that the Capital Reserve cannot be used
for the purpose of creation of CRR.
(3) Calculation of Amount to be Arranged by Issue of Equity Shares ₹
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Face value of preference shares redeemed 3,40,000
Less: Amount transferred to CRR from Profit and
Loss Balance (1,00,000-17,000) 83,000
Amount from Fresh Issue of Equity Shares 2.57,000
7. The following is the Balance Sheet of Basak Ltd. as at 31.03.2006 :

10,000; 10% Pref. Sh. of 10 1,00,000 Fixed Assets 2,00,000
each
10,000; Equity Sh. of 10 each 1,00,000 Investments 1,00,000
General Reserve 1,20,000 Current Assets:
Securities Premium 70,000 Inventory 25,000
Profit & Loss Account 20,000 Debtors 68,000
Current Liabilities 10,000 Cash & Bank 27,000 1,20,000
4,20,000 4,20,000
The Company decided to redeem the 10% Pref. Shares on the following terms:
(a) Preference Shares are to be redeemed at a premium of 10%
(b) To meet the cash requirements of redemption, the company sold a portion of the
investments, so as to leave a minimum Cash Balance of ₹30,000.
(c) Investments were sold at 90% of cost,
(d) After the redemption, the company issued bonus shares in the ratio of one share for every
equity share held.
Give necessary Journal Entries in the Books of the Company.
[Ans: Amount transfer to capital Redemption Reserve 1,00,000; No. of bonus share issued
10,000]
8. The Balance Sheet of ABC Ltd. as on 31.3.2011 was as follows:
10,000 Equity Shares of 10 each 1,00,000 Fixed Assets 1,30,000
900, 10% Preference Shares of 100 each, fully 90,000 Investments 53,000
paid 8,000 Stock 67,000
100, 12% Preference Shares of 100 each, Debtors 30,000
80 called and paid 7,000 Cash at Bank 32,000
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Capital Redemption Reserve 31,000
Reserve Fund 10,000
Profit and Loss A/c 24,000
Creditors 3,12,000 3,12,000
On 1.4.2011, to redeem the eligible preference shares at 10% premium, following decisions
are taken: Investments costing ₹20,000 to he sold for ₹18,000.
Minimum number of equity shares are to be issued at 10% discount.
₹10,000 to be kept in Reserve Fund.
Calculate the number of equity shares to be issued by the company for the purpose of
redemption of preference shares, show the necessary journal entries (without narration) and
show the Balance Sheet after redemption.
[Ans: Balance Sheet Total : 2,74,000; ]
Solution:
In the books of ABC Ltd.
Journal
1.4.2014 10%preference share capital A/c 90000
Premium on Redemption A/c 9000 99000
To 10%Preference Shareholders A/c
Bank A/c 18000
Profit and Loss A/c 2000 20000
To Investment A/c
Bank A/c 63000
Discount on Issue of Share A/c 7000
To Equity shares capital A/c (w. Note 1) 70000
To Discount on Issue of Share A/c 7000
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To Premium on Redemption A/c 9000
10% Preference shareholders A/c 99000
To Bank A/c 99000
Profit and Loss A/c 8000
To capital Redemption Reserve A/c 20000
Balance Sheet of ABC Ltd. as at 1st April , 2011
Particulars Note Amount₹

No
(1) (2) (2)
(a) Share Capital (1) 178000
(b) Reserves and Surplus (2) 72000
(a) Trade Payables (Creditors) 24000
TOTAL 274000
II. ASSETS
(a) Property, Plant and Equipment 130000

(i) Tangible Assets
(2) Current Assets :
(a) Current Investments 33000

(b) Inventories 67000
(c) Trade Receivables (Debtors) 30000
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(d) Cash and Cash Equivalents 14000
TOTAL
274000
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UNDERWRITING OF SHARES
1. X Ltd. has an authorised capital of 50,00,000 divided into 5 lacs shares of 10 each. the
company issued 1,00,000 shares for subscription to the public at a premium of 5 each.
the entire issue was underwritten as follows:
A-60,000 shares (firm underwriting 10,000 shares)
B-30,000 shares (firm underwriting 4,000 shares)
C-10,000 shares (firm underwriting 2,000 shares)
Of the total issue, only 90,000 shares including firm underwriting were subscribed
for. Marked application for excluding firm underwriting were:
A-32,000 shares; B-20,000 shares; C-8,000 shares.
Calculate the liability of each underwriter giving the benefit of firm underwriting to
all.
[Ans: Total Liability – A-19,333,B-4,667,C-2,000]
Solution:
Statement showing the liability of underwriters
Underwriters A B C
Gross liability 60,000 30,000 10,000
Less: Marked Application (excluding firm 32,000 20,000 2,000

underwriting)
28,000 10,000 2,000
Less: unmarked application in the ratio of 18,000 9,000 3,000

gross liability (note 1)
Resultant Liability (or surplus) 10,000 1,000 (1,000)
Less: Surplus of C allocated to A & B in the (667) (333) 1,000

ratio of 2:1
Net liability as per agreement 9,333 667 NIL
Add: Firm Underwriting 10,000 4,000 2,000
Total Liability 19,333 4,667 2,000
Working Notes:
1) Calculation of unmarked application:
Total Subscriptions (excluding firm underwriting)
[90,000-10,000-4,000-2,000] 74,000
Less: Marked applications (excl: firm underwriting) 60,000
Unmarked application by public 14,000
Add: Firm underwriting 16,000
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Total unmarked application 30,000
2) Total allocation of shares

Marked application by public 60,000
Total Issue 1,00,000
Unmarked Application are allotted in the ratio of gross liability i.e. 6:3:1 A- 18,000; B-
9,000; C – 3,000
2. ABC Ltd. came up with public issue of 3,00,000 equity shares of 10 each at 15 per
share. P, Q and R took underwriting of the issue in ratio of 3:2:1 with the provisions
of firm underwriting of 20,000, 14,000 and 10,000 shares respectively. Applications
were received for 2,40,000 shares excluding firm underwriting. The marked
applications from public were received as under:
P-60,000; Q-50,000; R-60,000.
Compute the liability of each underwriter as regards the number of shares to be taken
up assuming that the benefit of firm underwriting is not given to individual
underwriters.
Solution:
Underwriters P Q R
Gross liability (3:2:1) 1,50,000 1,00,000 50,000
Less: Marked Application (excluding firm 60,000 50,000 60,000

underwriting)
90,000 50,000 (10,000)
Less: unmarked application in the ratio of 57,000 38,000 19,000

gross liability (note 1)
Resultant Liability (or surplus) 33,000 12,000 (29,000)
Less: Surplus of R allocated to P & Q in the 17,400 11,600 29,000

ratio of 3:2
Net liability as per agreement 15,600 400 NIL
Total Liability 35,600 14,400 10,000
Working Notes:
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Total Subscriptions (excluding firm underwriting) 2,40,000
Less: Marked applications (excl: firm underwriting) 1,70,000
Add: Application under Firm underwriting 44,000
Total unmarked application 1,14,000

Marked application by public 1,70,000
2,40,000
Total Liability (35,600+ 14,400+ 10,000) 60,000
3,00,000
Unmarked Application are allotted in the ratio of gross liability i.e. 3:2:1
[Ans: Total Liability – P-35,600,Q-14,400,R-10,000]

3. Sam Ltd invited applications from public for 1,00,000 equity shares of 10 each at a
premium of 5 per share. The entire issue was 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 3,000, 2000, 1,000 and 1,000 shares respectively. The
underwriters were entitled to the maximum commission permitted by law.
The company received applications for 70,000 shares from public out of which
applications for 19,000, 10,000, 21,000 and 8,000 shares were marked in favour of A,
B, C and D respectively.
Calculate the liability of each of the underwriters. Also ascertain the underwriting
commission payable to the different underwriters.
[Ans: Total Liability – A-6,500,B-14,500,C-1,000, D- 8000]
Solution:
Underwriters P Q R D
Gross liability (3:3:2:2) 30,000 30,000 20,000 20,000
Less: Marked Application 19,000 10,000 21,000 8,000
11,000 20,000 (1,000) 12,000
Less: unmarked application in the ratio of gross 5,700 5,700 3,800 3,800
liability (note 1)
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Resultant Liability (or surplus) 5,300 14,300 (4,800) 8,200
Less: Surplus of C allocated to A,B & D in the 1,800 1,800 4,800 1,200
ratio of 3:3:2
Net liability as per agreement 3,500 12,500 NIL 7,000
Add: Firm Underwriting 3,000 2,000 1,000 1,000
Total Liability 6,500 14,500 1,000 8,000
Working Notes:
Application Received 70,000
Less: Marked applications 58,000
12,000
Add: Application under Firm underwriting 7,000

Marked application by public 58,000
Total Liability (35,600+ 14,400+ 10,000) 30,000
1,00,000
Unmarked Application are allotted in the ratio of gross liability i.e. 3:2:1
4. Libra Ltd. came up with an issue of 20,00,000 equity shares of 10 each at par
5,00,000 shares were issued to the promoters and the balance offered to the public
was underwritten by three underwriters - Anand, Vijay and Ashok- equally, with firm
underwriting of 50,000 shares each. Subscriptions totalled 12,97,000 shares
(excluding firm underwriting) but including the marked form which were.
Anand 4,25,000 shares, Vijay-4,50,000 shares, Ashok-3,50,000 shares.
The underwriters had applied for number of shares covered by firm underwriting. The
amounts payable on applications and allotment were 2.50 and 2 respectively. The
agreed commission was 2,5%.
Pass summary journal entries for:
(a) The allotment of shares to the underwriters,
(b) the commission due to each of them, and
(c) the net cash paid and/or received.
Note: Unmarked applications are to be credited to the underwriters equally.
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Solution:
In the books of Libra Ltd.
Journal
Date Particulars Dr. ₹ Cr. ₹
Bank A/c Dr. 3,75,000
To Share Application A/c 3,75,000
(Being application money received on firm

application for 50,000 shares each @2.50
from Anand, Vijay and Ashok)
Anand A/c Dr. 1,00,000
Vijay A/c Dr. 1,00,000
Ashok A/c Dr. 3,38,500
Share Application A/c Dr. 3,75,000
To Equity Share Capital A/c. 9,13,500
(Being allotment of shares to Anand - 50,000;

Vijay - 50,000; and Ashok - 1,03,000;
application and allotment money credited to
Share Capital Account, as per Board's
Resolution No. ... dated ...)
Underwriting Commission A/c Dr. 3,75,000
To Anand A/c 1,25,000
To Vijay A/c 1,25,000
To Ashok A/c 1,25,000
(Being amount payable to Anand; Vijay and

Ashok @, 2.5% on 7 50,00,000 each for
shares underwritten)
Anand A/c (Note 4) Dr. 25,000
Vijay A/c Dr. 25,000
To Bank A/c 50,000
(Being the amount paid to Anand and Vijay in

respect of underwriting commission after
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adjusting the amount payable on shares
allotted)
Bank A/c (Note 4) Dr. 2,13,500
To Ashok Alc 2,13,500
(Being the balance amount received from

Ashok on shares allotted after adjusting
underwriting commission)
If the benefit of firm underwriting is not given to individual interview.

Working Notes:
(1) Statement showing the liability of underwriters
Underwriters Anand Vijay Ashok
Gross liability 5,00,000 5,00,000 5,00,000
Less: Marked Application(excluding firm 4,25,000 4,50,000 3,50,000

assessment)
75,000 50,000 1,50,000
Less: unmarked application in the ratio of gross 74,000 74,000 74,000

liability (note below)
Resultant Liability (or surplus) 1,000 (24,000) 76,000
Less: Surplus of Vijay allocated to Anand and (12,000) 24,000 (12,000)

Ashok equally
(11,000) NIL 64,000
Less: Surplus of Anand allocated to Ashok 11,000 --- (11,000)

totally
Net liability as per agreement NIL NIL 53,000
Total Liability 50,000 50,000 1,03,000
Total subscriptions (excluding firm underwriting) 12,97,000
Less: Marked applications (excl. firm underwriting) 12,25,000
Unmarked applications by public 72,000
Add: Applications under firm underwriting 1,50,000
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Total unmarked applications 2,22,000

Marked application by public 12,25,000
Total Liability (50,000+ 50,000+ 1,03,000) 2,03,000
15,00,000
4) Statement showing the Amount Due from (due to) underwriters

Underwriters Anand Vijay Ashok
Number of shares to be subscribed 50,000 50,000 1,03,000
Amount payable @4.50 per share 2,25,000 2,25,000 4,63,500
Less: amount paid to the firm application for 1,25,000 1,25,000 1,25,000
50,000 shares @2.50 each
Balance Payable 1,00,000 1,00,000 3,38,500
Underwriting commission @2.5% on 1,25,000 1,25,000 1,25,000

50,00,00 each
Amount Paid/received (25,000) (25,000) 2,13,500
5. The following-underwriting took place for a company X-6,000 shares, Y-2,500

shares; and Z-1,500 shares. In addition, there were firm underwriting as follows: X-
800 shares; Y-300 shares, and Z-1,000 shares. The company offered to the public to
issue 10,000 shares. Total subscription including firm underwriting were for 7,100
shares and the forms included the following marked forms X-1,000 shares, Y-2,000
shares, and Z-500 shares.
Show the application of the liability of the underwriters treating firm underwriting as
marked applications
[Ans: Total Liability – X-3,700,Y-300,Z-1,000]
Solution:
Underwriters X Y Z
Gross liability 6,000 2,500 1500
Less: Marked Application (W.Note 1) 1,000 2,000 500
5,000 500 1000
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Less: unmarked application in the ratio of 900 375 225
gross liability (12:5:3)(W.Note 2)
4,100 125 775
Less: Firm Underwriting 800 300 1,000
Resultant Liability (or Surplus) 3,300 (175) (225)
Less: Surplus of Y and Z allocated to X 400 175 225
Net Liability as per agreement 2,900 -- ---
Add: firm Underwriting 800 300 1,000
Total Liability(W.Note 3) 3,700 300 1,000
Working Notes:
1) It is assumed that firm underwriting is not included in these marked application
Total Subscriptions 7,100
Less: Marked applications (1,000+2,000+500) 3,500
3,600
Less: Firm Underwriting (800+300+1,000) 2,100
2) Calculation of Total Liability

Total Shares underwritten (6,000+2,500+1,500) 10,000
Add: Firm underwriting (800+300+1,000) 2,100
12,100
Less: Subscripted Shares 7,100
Total Liability 5,000
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VALUATION OF GOODWILL
1: Calculate Goodwill as per (a) Annuity method (b) Five year’s purchase of Super Profit
method and (c) Capitalisation of Average Profits methods from the following information:
i. Capital employed ₹ 6,30,000

ii. Normal Rate of profit ₹10%
iii. Present value of annuity of 1 for 5 years at 10% 3.77545
iv. Net Profits before taxation (tax rate 50%)
v. 1st year --- 1,05,000; 2nd year --- 1,45,000; 3rd year - 1,75,000; 4th year - 2,00,000;
5th year - 1,50,000
vi. Non-trading income 5,000 and Debenture Interest 10,000 on an average included in
the Profit & Loss A/c.
vii. Fixed Assets revalued by 20,000 more than existing book value of the assets.
Solution:
105000+145000+175000+200000+150000
Average profit before tax = = 775000\5
5
Less: Non trading income = 155000

(5000)
Less: Tax (50% of 150000) 150000
Average profit after tax (75000)
Add: interest on debenture (leverage concept) 75000
Average trading profit 10000
Less: Normal profit = (630000 + 20000)*10% 85000
Super profit (65000)
*if traditional concept is applied for interest on debentures
Average trading profit = 75000 + 10000(1-0.5) 80000
Less: normal profit = 650000 *10% (65000)
Super profit 15000
Value of goodwill :
(a) Under annuity method : goodwill = super profit * present value factors of annuity
Under leverage concept, goodwill = 20000*3.77545 = ₹75509
Under traditional concept, goodwill = 15000*3.77545 = ₹56632
(b) Super profit method : goodwill = super profit * no. of years purchase.
Under leverage concept, goodwill = 20000*5 =₹100000

Under traditional concept,goodwill = 15000*5 = ₹75000
(c) Capitalisation of average profit method :
(i) Under leverage concept :
Capitalisation value of profit [85000/10 * 100] = 850000
Less: capital employed (650000)
Goodwill 200000
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(ii) Traditional concept : capitalised value of profit (8000/10*100) = 800000
Less : capital employed (650000)
Goodwill 150000
2.From the following information, calculate the value of Goodwill as on 31.03.2013.
• Equity share capital (₹ 10) ₹ 5,00,000

• 10% Pref. Shares Capital ₹2,00,000
• Reserve & Surplus ₹70,000
• 9% Debenture ₹1,00,000
• Depreciation fund ₹ 60,000
• Creditors ₹50,000
• Assets side of Balance Sheet includes preliminary expenses ₹20,000
• Market Value of Assets is ₹70,000 more than the book value
• Profit for the last three years after 40% tax where ₹75,000, ₹84,000 and ₹1,14,000
respectively.
• Fair return on capital employed in this type of business is estimated at 10%
You are required to calculate –
The value of goodwill by capitalization of Super Profit (Tax Weighted Average
Profit)
Solution :
(a) average profit (based on weighted average ) =
75000*1+84000*2+114000*3/1+2+3
add : interest on debenture after tax 100000*9% (1-0.40) = ₹97500

5400
average trading profit 102900
(b) capital employed :

share capital : equity share capital 500000
pref. share capital 200000 700000
reserve and surplus 70000
debenture 100000
870000
Less : premiliary expenses (20000)
850000
Add: revaluation profit on assets 70000
Closing capital employed 920000
Less : ½ * average trading profit ( ½* 102900) (51000)
Average capital employed 868550
Average trading profit 102900
Less : normal profit ( 868550*10%) (86855)
Super profit 16045
Goodwill (as per capitalisation of super profit method)
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= super profit / rate of normal return * 100 = 16045/10* 100 = ₹160450
3.From the following particulars of a company, ascertain the vale of goodwill under the
following methods:
(i) 3 years' purchase of super profit method and,
(ii) Capitalization method
(iii) Annuity of super profit method when Present value of an annuity of 1.00 for 3
years at 10% interest is 2.49.
Particulars:
(a) Average Capital Employed in the business is 14,00,000.
(b) Net Trading Profit of the firm for past 3 years: 2,15,200; 1,81,400 and 2,25,000.
(c) Market rate of interest on investment - 8%.
(d) Rate of risk return on capital invested in business is 2%.
(e) The profit included non-recurring profit on average basis of 2,000 out of which it
was considered that even non-recurring profits had a tendency to be recurring at an
average rate of 1,200 per year.
(f) Sundry assets of the company 15,00,000 and current liabilities - 60,000. Ignore taxation
Solution:
Calculation of average maintainable profit
Simple average profit
215200+181400+225000/3 = 621600/3 = 207200
Less : non trading profit included(2000-1200) (800)
Average maintainable profit 206400
Normal return = market rate of interest on investement + risk return on capital
= 8+2=10%
Normal profit = average capital employed * rate of normal return/100
= 1400000*10/100= 140000
Super profit = average maintainable profit – normal profit
= 206400-140000
= 66400
(i) under 3 years purchases of super profit
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goodwill = 66400*3 = ₹199200
(ii) under capitalisation method
goodwill = super profit /normal rate of return *100
= 66400/10*100 = 664000
4: From the information given below calculate the value of Goodwill by Capitalisation of
Average Operating Profit:
Capital and liabilities of the company (as per its Balance Sheet as on 31-03-2016) includes
the following:
Shareholders' Fund -- 12,50,000

7% Debentures -- 4,50,000
Profit after charging 40% income tax for the last three years were:
2013-14: 1,56,000 2014-15: 1,84,000 and 2015-16: 1,76,000
It was found that, in 2013-14 the company purchased a machine at 50,000 and charged the
same against its profit. The company charges depreciation @ 20% on WDV of such
machinery. Debentures were issued prior to 2013-14.
Similar companies earn after tax operating profit @ 8%. [Consider simple average profit]
Solution :
Capital employed of company on 31/3/2016
Share holder’s fund 1250000
Add: machinery wrongly charged to p/loss account after tax 25000 1275000
Add : 7% debentures 450000
Closing capital employed 1725600
Note : value of machinery on 31/3/2016
Cost of machinery on (13-14) 50000
Less : depreciation for (13-14) @ 20% (assumed for whole year ) (10000)
Wdv on 1/4/14 40000
Less: depreciation for ( 14-15) 20% of 40000 (8000)
Wdv on 1/4/15 32000
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Less: depreciation for (15-16)@ 20%of 32000 (6400)
Wdv on 31/3/16 25600
Average maintainable profit
2013-14 2014-15 2015-16
Profit after tax (as per books) 156000 184000 176000
Add : tax provision (40/60*profit) 104000 122667 117333
Profit before tax 260000 306667 293333
Add : machinery purchased in 13-14 wrongly charged to P/L A/C 50000
Less : depreciation under charged on machinery (10000) (8000) (6400)
Add: interest on debentures (7% of 450000) 31500 31500 31500
Maintainable profit before tax 331500 330167 318433
Less : tax 40% of profit before tax (132600) (132067) (127373)
Maintainable profit before tax 198900 198100 191060
Simple average profit = 198900+198100+191060/3
= 588060/3 = 196020
Value of goodwill ( under capitalisation of average profit method )
Capitalised value of profit 2450250
(196020/8*100)
Less: actual capital employed (1725600)
Goodwill 724650
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VALUATION OF SHARES
1.The following particulars are available in relation to Hari Pvt. Ltd. Co.
(i) Capital: 6,000, 6% Preference Shares of 100 each fully paid and - 5,000 Equity Shares of
100 each fully paid.
(ii) External Liabilities - 75,000;
(iii) Reserve & Surplus - 50,000;
(iv) The average expected profit (after tax) - 90,000.
(v) The normal profit earned on the market value of Equity Shares of the same type of
Company - 10%.
(vi) Transfer to Reserve - 10% of the Net Profit.
Calculate the intrinsic value per Equity Share and the value per Equity Share according to
Dividend Yield Basis. Assume that total assets include 30,000 fictitious assets.
Solution
Calculation of Expected Rate of Dividend
Particulars ₹
Average expected Profit after tax 90,000
Less: Transferred to General Reserve (10%) 9.000
81,000
Less: Preference dividend @6% on 6,00,000 36,000
Profits available to Equity Shareholders 45,000
Dividend Yield Method of Valuation

𝑬𝒙𝒑𝒆𝒄𝒕𝒆𝒅 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅
Value Per share = * Paid – up Value
𝑵𝒐𝒓𝒎𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝒓𝒆𝒕𝒖𝒆𝒏
9%
= 10 *100 = ₹90
2. The capital structure of H Ltd. is as follows:
14% preference shares of 10 each 20,00,000

Equity shares of 10 each 32,00,000
Reserve and Surplus 16,00,000
10% Debenture 24,00,000
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11% loan from bank/ Financial 28,00,000
institutions
1,20,00,000
The average annual profit before payment of tax and interest is 24,00,000. The income-tax
rate is assumed to be @ 50%. Compute the value of equity shares of the company, if the
applicable price-earning ratio is 9.
3: Following particulars available in relation to A Ltd.
• Equity Share capital 4,000 Equity Shares of 100 each, fully paid.
• 1,000, 8% Pref. Shares of 100 each.
• Reserve & Surplus 1,25,000.
• 10% Debentures 4,00,000
• Profit on revaluation of assets 92,000.
• EBDIT 2,74,000
• Depreciation 50,000
• Income Tax rate is 30%
• E/P ratio in the industry is 1/8 and dividend yield is 16%
During the last three years the company paid dividend at 20%, 19% and 27% respectively.
Calculate the market price of each equity share under Earnings method and under Dividend
method.
Solution
Calculation of Earnings of Equity Shareholders
Particulars ₹
Earnings before depreciation, interest and Tax (EBDIT) 2,74,000
Less: Depreciation 50,000
Earning Before interest and Tax (EBIT) 2,24,000
Less: Interest on debenture (10% of 4,00,000) 40,000
1,84,000
Less: Profit on Revaluation of Assets (Note 1) 92,000
Trading Profit/ Operating Profit before tax 92,000
Less: Income tax @30% 27,600
Profit After TAX (PAT) 64,400
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Less: Preference Dividend (8% of 1,00,000) 8,000
Profit available to Equity Shareholders 56,400
𝑷𝒓𝒐𝒇𝒊𝒕 𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒕𝒐 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓

Expected Rate of Earning = * 100
𝑷𝒂𝒊𝒅 𝒖𝒑 𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒔
= 56,400/4,00,000 *100 = 14.1%
Normal Rate of return = E/P *100 =1/8*100 =12.5%
(i) Calculation of Value per share under earning method

𝑬𝒙𝒑𝒆𝒄𝒕𝒆𝒅 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑬𝒂𝒓𝒏𝒊𝒏𝒈
Value per share = * Face Value Per Share
𝑵𝒐𝒓𝒎𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝒓𝒆𝒕𝒖𝒆𝒏
=14.1%/12.5% *100 = 112.80
(II) Calculation of value per share under Dividend Method
Expected rate of dividend = 20%+19%+27%/3 = 22%

𝑬𝒙𝒑𝒆𝒄𝒕𝒆𝒅 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅
Value Per share = * Paid up value of a share = 22%/16%*100 =₹
𝑵𝒐𝒓𝒎𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑫𝒊𝒗𝒊𝒅𝒆𝒅
137.50
4.Following information relate to a company as on 31/3/15
• Equity Share Capital: 40,000 shares of * 10 each, fully paid and 25,000 shares of 10
each, 4 paid.
• 9% Pref. Shares Capital 3,00,000
• Reserve & Surplus 90,000.
• 12% Debentures * 2,50,000
• Assets include a non-trade investment, the market value of which is 1,20,000 (Book
Value being 1,40,000).
• Before tax profits for last three years were 95,000, 1,25,000 and 1,40,000 respectively
(including income from non-trade investment of 10,000 on an average).
• Rate of income tax is 30%
• Fair return on capital employed in this type of business is estimated at 9%
You are required to calculate (a) The value of goodwill using 3 years' purchase of super profit
method, and
(b) The value of each fully paid share taking the value of goodwill as computed in ‘a’ (Take
simple average profit)
5.The following particulars relate to Titco Ltd.
(i) Equity Share Capital -
10,000 equity shares of 10 each, fully paid up.
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5,000 equity shares of 10 each, 7 paid up.
(ii) Preference Share Capital -
1,000, 10% preference shares of 100 each, fully paid up.
(iii) Reserves 45,000.
(iv) Creditors 20,000, Bills Payable 3,000.
Besides the above extracts from the Balance Sheet of Titco Ltd. as on 31.12.99, the following
further information are given to you -
(a) Value of fixed assets to be raised by 25,000 whereas stock value to be reduced by 7,000.
(b) Liability for expenses 6,000 is yet to be recorded in the books of account.
Calculate value per equity and preference share of Titco Ltd. when –
(A) Preference shares are non-participating.
(B) Preference shares are participating and ratio of participation in surplus assets between
equity and preference is 3:2.
SOLUTION:
(A) when pref. share holder are non-participating

Net assets available for equity shareholder of company
Particulars AMOUNT AMOUNT
SHARE CAPITAL :
10,000 Equity Share Capital of 10 each fully paid 100000
5,000 Equity Share Capital of 10 each, 17 paid up 35000
1,000, 10% Preference Share Capital of 100 each 100000 235000
Reserve & Surplus Revaluation Profit:
Increase in the value of fixed assets 25000

Decrease in the value of stock (7000)
Liability for expenses not recorded (6000) 12000
Net Assets of Company 292000
Less: Preference Shareholder's claim (100000)
Net Assets available for equity shareholders 192000
Add: Notional Call from partly paid shares (5,000 x 15000
3)
Net assets available for fully paid shareholders 207000
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Value of fully paid Equity Share= 207000/15000
= 13.80
Value of party paid share = Value of Fully paid share - Notional call per share
= 13.80-3= 10.80
Value of Preference Share = Face value per share=100
(B) When Preference Shareholders are participating
Surplus assets of company
Net assets of company 292000
Less: Paid up Share Capital of company (equity and preference) (235000)
Surplus Assets of company 57000

The participating ratio of equity and preference shareholders in surplus assets = 3:2
Therefore, Surplus assets of equity shareholders = 57,000 *3/5 = 34000
Surplus asset of preference shareholders = 57,000 x 2/5 = 22800
Value of Equity Share:
Equity Share Capital 135000
Add: Surplus assets for Equity Share holders 34200
Add: Notional call from party paid shares (5000 × 3) 15000
Net Assets available for fully paid equity shareholders 184200
Value of fully paid share = 184200/15000 = 12.28
Value of party paid share = Value of Fully paid share - Notional call per share=
12.28-3 = 9.28
Value of Preference Share:
Value of Preference Share = Face value per Share + Surplus assets per share
= 100 + 22800/1000 = 100+ 22.80 = 122.80
6: The following particulars are available in relation to a company:
(a) Capital: 3,500, 7% preference shares of 100 each, fully paid; 83,000 equity shares of 10
each, fully paid.
(b) External Liabilities: 4,75,000
(c) Reserves and Surplus: 3,35,000
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(d) The average normal profit (after taxation) earned every year by the company: 1,54,250
(e) The normal profit earned on the market value of equity shares, fully paid, of the same type
of companies is 9.5%.
Calculate the value of each equity share by; (i) Asset-Backing method assuming that out of
the total assets, those worth 27,000 are fictitious; (ii) The Earning-Capacity method.
SOLUTION :
(i) Asset backup method

Net Asset available for equity share holders
Share capital :
3500, 7% pref. share capital ₹100 each 350000

83000 equity share capital ₹ 10 each
830000
1180000
Add: reserve & surplus 335000
1515000
Less: fictitious assets (27000)
Net assets of company 1488000
Less : pref. share holders claim (350000)
Net asset available for equity share holders 1138000
Value of equity share = Net assets available for equity shareholder
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REDEMPTION OF DEBENTURES
1. Following are the details of information as on 1.4.2013 collected from Ratanlal's books:
(a) Sinking Fund Account 1,00,000 represented by invest ents at cost of an equal amount
(nominal value ₹95,000)
(b) The 10% Debenture stood at ₹1,50,000. Ratanlal sold ₹10,000 investment at 90 for the
purpose of redemption of 60,000 debentures at a premium of 1%.
Prepare 10% Debenture Account, Sinking Fund Account and Sinking Fund Investment
Account. (Ignore interest, brokerage, etc.)
Solution
In the books of Ratanlal
10% Debentures Account
Dr Cr
1.4.2013 To debentureholder A/c 1,50,000 1.4.2013 By Balance b/d 1,50,000
To Balance c/d
1,50,000 1,50,000
Dr Cr
Sinking Fund Account
1.4.2013 To premium on 600 1.4.2013 By Balance b/d 1,00,000

redemption A/c
(60,000*1%)
To sinking fund A/c 3,500

(W. note 1)
To General Reserve 60,000

A/c
To Balance c/d 35,900
1,00,000 1,00,000
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Dr Cr
Sinking Fund Investment Account
1.4.2013 To Balance b/d (Nominal 1,00,000 1.4.2013 By Bank A/c 63,000

Value – 95,000)
By Sinking Fund 3,500

A/c
By Balance c/d 33,500
1,00,000 1,00,000
Working Notes
(1) Calculation of Loss on Sale of Investment
Sale Proceeds (70,000 *90%) 63,000
Cost of Investment (70,000*0.95) 66,500
Loss on Sale 3,500
2. The following balances appeared in the books of Kolkata Tubes Ltd. on 1.4.2013:
(i) 8% Debentures 1,20,000
(ii) Sinking Fund Account (for Redemption of Debentures) 1,00,000
(iii) Sinking Fund Investment in 6% Govt. Bond (Nominal value 1,10,000)

1,00,000
On 31.3.2014, annual contribution credited to the Sinking Fund was 13,400. Interest for the
year on sinking fund investment was also received. After receipt of interest, all the
investments were sold at 90% of nominal value and the debentures were redeemed at par.
Show 8% Debentures Account, Sinking Fund Account and Sinking Fund Investment Account
in the books of the company.
Solution
Dr. Cr
In the books Kolkata Tubes Ltd.
8% Debentures Account
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31.3.2014 To Debentureholders 1,20,000 31.3.2014 By Balance b/d 1,20,00

A/c
Dr Cr
Sinking Fund Account
31.3.2013 To sinking fund 1,000 1.4.2013 By Balance b/d 1,00,000

Investment A/c
To General Reserve 1,19,000 31.3.2014 By Bank A/c 6,600

A/c (transferred) (Interest received)
31.3.2014 By Profit and Loss 13,400

Appropriation A/c
1,20,000 1,20,000
Dr Cr
Sinking Fund Investment Account
1.4.2013 To Balance b/d 1,00,000 31.3.2014 By Bank A/c (90% 99,000

(Nominal Value – of 1,10,000)
1,10,000)
By Sinking Fund 1,000

A/c (W.note 1)
1,00,000 1,00,000
Working Notes
(1) Calculation of Loss on Sale of Investment
Cost of Investment 1,00,000
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Less: Sale Proceeds of Investment (90% 0f 1,10,000) 99,000
Loss on Sale of investment 1,000
3. Silicon Ltd. has 1,50,000, 6% Debentures on 1.1.2013. There is no sinking fund for
redemption of debentures. Interest is payable on 31st December each year.
On 1.4.2013 10,000 own debentures were purchased at 94 cum- interest by Silicon Ltd. and
immediately cancelled. On 1.6.2013 25,000 own debentures were purchased at 95 cum-
interest and held as investment. On 1.10.2013 30,000 own debentures were purchased at ₹96
ex-interest and held as investment. On 31.12.2013 own debentures kept as investments were
cancelled.
Show journal entries in the books of the company. Date of closing of books of account is 31st
December.
Solution
In the books of Silicon Ltd.
Journal
Date Particulars Dr. ₹ Cr ₹
2013 Debenture Redemption A/c (W. Note 1) 9,250
April 1 Debenture Interest A/c 150
To Bank A/c 9,400
(Being Purchase of 100 debenture @ 94 cum-

interest for immediate cancellation)
6% debenture A/c 10,000
To debenture Redemption A/c 9,250
To Profit and Loss on cancellation of 750

debenture A/c
(Being the cancellation of 100 debenture)
June 1 Investment in own debenture A/c (Note 2) 23,125
Debenture Interest A/c 625
To Bank A/c 23,750
(Being the purchase of 250 debenture @95

cum-interest for holding as investment)
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Oct 1 Investment in Own Debentures A/c (Note 3) 28,800
Debenture Interest A/c 1,350
To Bank A/c 30,150
(Being the purchase of 300 debentures @ 96

ex- interest for holding as investment)
Dec 31 Debenture Interest A/c 5,100
To Bank A/c 5,100
(Being interest paid for outstanding 850

debentures)
Debenture Interest A/c (Note 4) 1,325
To Interest on Own Debentures A/c 1,325
(Being the adjustment for interest on own

debentures)
6% Debenture A/c (‹ 25,000 + 30,000) 55,000
To Investment in Own Debentures A/c 51,925
To Profit and Loss on Cancellation of 3,075

Debentures A/c
(Being the cancellation of 550 debentures

held as investment)
Profit and Loss on Cancellation of Debentures 3,825

A/c (750 + 3,075)
3,825
To Capital Reserve A/c
(Being the profit on cancellation of

debentures transferred to Capital Reserve)
Statement of Profit and Loss A/c 8,550
To Debenture Interest A/c 8,550
(Being the interest on debenture transferred to

Statement of Profit and Loss)
Interest on Own Debentures A/c 1,325
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To Statement of Profit and Loss 1,325
(Being interest on own debentures credited to

Statement of Profit and Loss)
Statement of Profit and Loss A/c 55,000
To General Reserve A/c 55,000
(Being the amount rranfserred to General

Reserve)
4. The following balances appeared in the books of a Limited Company on 01.04.2012:

(i) 8% Debentures Account ₹1,20,000
(ii) Sinking Fund Account

₹1,00,000
(iii) Sinking Fund Investment Account (Investment in 6% Govt. Loan, Nominal value being
1,10,000) ₹1,00,000
On 31.03.2013 annual contribution added to the Sinking Fund was 13,400. Interest for the
year was received. All the investments were realized at 90% of nominal value and debentures
were paid off at par. Balance at bank on that date was ₹42,500.
Show the necessary ledger accounts in the books of the company for the year ended
31.03.2013.
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FINAL ACCOUNT
1. The following is the Trial Balance of Sigma Ltd. as at 31st March, 2017:
Particulars Dr. (₹) Cr. (₹)

Stock as on 1st April, 2016 80,000
Purchase and Sales 2,50,000 4,00,000
Purchase Return 5,000
Carriage Inward 1,050
Wages 25,000
Salaries 10,000
Discount Received 4,000
Furniture and Fittings 20,000
Rent 5,000
Sundry Expenses 8,250
Balance of Profit and Loss (1.4.2016) 25,000
Share Capital (Subscribed and Paid-up) 10 each 1,00,000
Interim Dividend 8,000
Debtors and Creditors 26,200 15,500
Plant and Machinery 1,23,000
General Reserve 10,000
Patent 4,000
Bills Receivable and Bills Payable 3,000 4,000
5,63,500 5,63,500
Prepare a Statement of Profit and Loss for the year ended 31st March, 2017 and a Balance
Sheet as on that date as per Schedule III of the Companies Act, 2013, taking into
consideration the following adjustments:
(a) Stock on 31st March, 2017 was valued at 98,000.
(b) Depreciation: Plant and Machinery @ 15%; Furniture and Fittings @ 10%.
(c) On 31st March, 2017 outstanding rent amounted to 800 while outstanding salaries totalled
1,200. (d) Make a provision for doubtful debts @ 5%.
(e) Provision for tax is to be made @30% and rate of dividend distribution tax is 20.35765%.
(f) The directors proposed a dividend @ 10% for the year ended 31st March, 2017 excluding
interim dividend and decided to transfer 10,000 to General Reserve.
(g) Patents have a life of 4 years.
You are also required to prepare notes to accounts in relation to Reserve and Surplus.
[Ans: Balance Sheet : 2,51,000]
Solution:
Sigma Ltd
Statement of Profit and Loss for the year ended 31st March,2017
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Particulars Note No Figures for the
current
reporting
period ₹
1. Revenue from Operations 400000
IL Other Income 4000
III. Total Revenue (1+1) 404000
IV. Expenses:
Purchase of Stock-in-trade (1) 246050
Changes in Inventories of Finished Goods, W.I.P. and (2) (18000)

Stock-in-trade
(3)
Employee Benefit Expense
36200
Finance Costs
(4) -
Depreciation and Amortization Expenses
(5) 21450
Other Expenses
15360
Total Expenses 301060
V. Profit Before Exceptional and Extraordinary Items 102940

and Tax (III-IV)
_
VI. Exceptional Items VII. Profit before Extraordinary
Items and Tax (V-VI) 102940
VIII. Extraordinary Items _
IX. Profit before Tax (VII-VIII) 102940
X. Tax Expense 30882
(1) Current Tax (30% of 1,02,940) _
XI. Profit (Loss) for the period (IX-X) 72058
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XII. Eamings per Equity Share 7.20
Balance Sheet of Sigma Ltd.as at 31st March , 2017
1) Shareholders' Funds:
(a) Share Capital (6) 1,00,000
(b) Reserve and Surplus (7) 85,394
(2) Share Application Money Pending Allotment: ---
(a) Short-term Borrowings
(b) Trade Payables (8) 19,500
(c) Other Current Liabilities (9) 2,000
(d) Short-term Provisions (10) 44,546
TOTAL 2,51,440
II. ASSETS
(a) Property, Plant and Equipment (11)
(i) Tangible Assets 1,22,550
(ii) Intangible Assets 3,000
(a) Inventories 98,000
(b) Trade Receivables (12) 27,890
(c) Cash and Cash Equivalents --
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TOTAL 2,51,440
Notes to Account
(1) Purchase of Stock in trade
Purchase 2,50,000
Add: Carriage inward 1,050
2,51,050
Less: Purchase return 5,000
2,46,050
(2) Changes in Inventory
Opening Stock 80,000
Less: Closing Stock 98,000
(18,000)
(3) Employee Benefit Expenses
Wages 25,000
Salaries 10,000
Add: Outstanding Salaries 1,200 11,200
36,200
(4) Depreciation
Depreciation on:
Plant and Machinery (1,23,000 * 15%) 18,450
Furniture and Fitting (20,000 * 10%) 2,000
Patent (4,000/4) 1,000
21,450
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(5) Other Expenses
Rent 5,500
Add: Outstanding 800 5,800
Sundry Expenses 8,250
Provision for doubtful debts (26,200 * 5%) 1,310
15,360
(6) Share Capital
Authorised Share Capital
Equity Share of 10 each ****
Issued, subscribed and fully paid up capital
10,000 Equity shares of 10 each 1,00,000
(i) General Reserve 10,000
Add: transferred from p/l A/c 10,000 20,000
(ii) Profit and loss Account:
As per Last Balance sheet 25,000
Add: Profit for the year 72,058
97,058
Less: Appropriation
(a) interim dividend 8,000
(b) Proposed Dividend 10,000
(c) Corporate Dividend Tax 3,664 (21,664)
(d) Transferred to General Reserve (10,000) 65,394
85,394
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(8) Trade Payables
Creditors 15,500
Bills Payable 4,000
19,500
(9) Other Current Liabilities
Outstanding Salaries 1,200
Outstanding rent 800
2,000
(10) Short Term Provision
Provision for:
Proposed Dividend 10,000
Dividend Distribution Tax 3,664
Income Tax 30,882
44,546
(11) Property, Plant and Equipment
(i) Tangible Assets
Less: Depreciation 18,450 1,04,550
Furniture 20,000
Less: Depreciation 2,000 18,000
(ii) Intangible Assets
Patent 4,000
Less : Depreciation 1,000 3,000
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(12) Trade Receivables
Debtors 26,200
Less: Provision for Doubtful debts 1,310 24,890
(ii) Bills Receivable 3,000
27,890
2. From the following Trial Balance and other particulars of Emm Ltd., prepare Profit and
Loss Account for the year ended 31.03.2011 and a Balance Sheet as on that date.
Particulars Debit (₹) Credit (₹)

Equity Share Capital of 10 each 8,00,000
9% Debentures 2,00,000
Reserve 2,52,000
Profit and Loss A/c (1.4.2010) 31,500
Advance tax for financial year 2009-10 72,000
Advance tax for financial year 2010-11 65,000
Provision for tax for financial year 2009-10 70,000
Commission paid 8,800
Bank 18,000
Stock as on 31.3.2011 1,22,000
Fixed assets at cost:
Land 2,71,000
Building 6,12,000
Machinery 6,26,000
Vehicle 1,67,700
Accumulated Depreciation:
Building 52,000
Machinery 3,86,000
Vehicle 86,000
Debenture Interest paid 18,000
Interim Dividend paid 40,000
Corporate Divided Tax paid @ 15% 6,000
Remuneration paid to Managing Director 52,000
Gross Profit 5,63,200
Establisment Expenses 94,400
Debtors/Creditors 4,35,000 1,68,000
26,08,700 26,08,700
Additional Information:
(a) Provide ₹13,000 for auditor's fees.

(b) Tax for the financial year 2009-10 is assessed at ₹75,000.
(c) Provision for Income tax is to be made @ 35% for the financial year 2010-11.
(d) Depreciation is to be charged on W.D.V. basis at 5% on Building, 15% on Machinery and
10% on Vehicles.
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(e) Maximum remuneration payable to the Managing Director is ₹48,000.
(f) Further dividend @ 12% is proposed for the year 2010-11 (in addition to the interim
dividend paid).
(g) Assume Corporate Dividend Tax @ 15%.
[Ans: Balance Sheet: ₹17,24,700]
Solution
EMM LTD.
Statement of Profit and Loss for the year ended 31st March, 2011
Particulars Note No. Figures for the

current
reporting
period
I. Revenue from Operations (Gross Profit) 5,63,200
II. Other Income --
III. Total Expenses (I+II) 5,63,200
IV. Expenses:
Finance Cost (Debenture Interest) (9% of 2,00,000) 18,000
Depreciation and Amortization Expenses 1 72,200
Other Expenses 2 1,64,200
Total Expenses 2,54,400
V. Profit before Exceptional and Extraordinary items 3,08,800

and Tax (III-IV)
VI. Exceptional items --
VII. Profit before Extraordinary Items and Tax (V-VI) 3,08,800
VIII. Extraordinary Items ---
IX. Profit before tax (VII-VIII) 3,08,800
X. Tax Expenses
(1) Current Tax (35% of 3,08,000) 1,08,080
XI. Profit (Loss) for the period (XI-X) 2,00,720
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Balance Sheet of EMM Ltd. as at 31st March, 2011
1) Shareholders' Funds:
(a) Share Capital (3) 8,00,000
(b) Reserve and Surplus (4) 3,22,820
(2) Share Application Money Pending Allotment: ---
(a) Long term borrowings (9% Debenture) 2,00,000
(a) Short-term Borrowings
(b) Trade Payables (5) 1,68,000
(c) Other Current Liabilities (6) 13,000
(d) Short-term Provisions 2,20,880
TOTAL 17,24,700
II. ASSETS
(a) Property, Plant and Equipment
(i) Tangible Assets (7) 10,80,700
(a) Inventories 1,22,000
(b) Trade Receivables 4,35,000
(c) Cash and Cash Equivalents 18,000
(d) Short Term loan and Advances (8) 65,000
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(e) Other current assets (9) 4,000
TOTAL 17,24,700
Notes to Account
(1) Depreciation and Amortisation Expenses
(a) Building (at Cost) 6,12,000
Less: Accumulated Depreciation 52,000
W.D.V 5,60,000
Current Year’s Depreciation (5% of 5,60,000) 28,000
(b) Machinery (at cost) 6,26,200
Less: Accumulated Depreciation 3,86,000
W.D.V 2,40,000
Current Year’s Depreciation (15% of 2,40,000) 36,030
(c) Vehicles (at cost) 1,67,700
Less: Accumulated Depreciation 86,000
W.D.V 81,700
Current year’s depreciation (15% of 2,40,200) 8,170
72,200
(2) Other Expenses
Establishment Expenses 94,400
Auditor’s Fees 13,000
Remuneration of Manging Director 48,000
Commission Paid 8,800
1,64,200
(3) Share Capital

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Authorised Share Capital
Equity Share of 10 each ****
Issued, subscribed and fully paid up capital
80,000 Equity shares of 10 each 8,00,000
(a) Reserve 2,52,000
(b) Surplus
Balance of Profit & Loss A/c 31,500
Add: Current Profit of the Year 2,00,720
Balance available for appropriation 2,32,220
Less: Appropriations
(a) Interim Dividend (40,000)
(b) Proposed Dividend (12% of 8,00,000) (96,000)
(c) Corporate Dividend Tax
[15% ₹(96,000+40,000) (20,400)
(d) Provision for IT (2009-10)
(75,000-70,000) (5,500)
1,61,400
Surplus (2,32,250-1,61,400) 70,820
3,22,820
(5) Other Current Liabilities
Provision for Auditor’s fees 13,000
(6) Short Term Provision
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Provision for proposed dividend 96,000
Provision for corporate dividend tax 14,400
Provision for Income Tax (2010-11) 1,08,080
Provision for Income tax (2009-10) (75,000 – 72,000) 2,400
2,20,880
(7) Tangible Assets
(a) Land 2,71,000
(b) Building (W.D.V) 5,60,000
Less: Current Year Depreciation 28,000 5,32,000
(c) Machinery (W.D.V) 2,40,200
Less: Current Year Depreciation 36,030 2,04,170
(d) Vehicles (W.D.V) 81,700
Less: Current Year Depreciation 8,170 73,500
10,80,700
(8) Short Term loans and Advance
Advance Income Tax Paid 65,000
(9) Other Current Assets
Extra Remuneration paid to M.D. 4,000
3. From the following Trial Balance of Alpha Ltd as on 31st March, 2015 prepare Statement
of Profit and Loss for the year ended 31st March, 2015 and a Balance Sheet as on that date as
per Schedule III of the Companies Act, 2013:

Share Capital: Subscribed and Paid-up (10 each) 15,00,000 20,00,000
Land (at cost) 10,00,000
Building (at cost) 15,00,000
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Plant and Machinery (at cost) 1,00,000
Furniture and Fixtures (at cost) 2,50,000
Opening Stock 26,00,000
Purchases 25,000
Purchases Return 37,61,000
Sales 12,000
Sales Return 50,000
Managing Directors' Remuneration 1,50,000
Salaries and Wages 1,00,000
Investments (at cost) 5,400
Investment Income Received 10,00,000
12% Debentures (Fully Secured) Debenture Interest Paid 1,10,000
Sundry Debtors 8,50,000
Sundry Creditors 4,70,000
Interim Dividend Paid 1,00,000
Dividend Tax Paid 19,994
Profit and Loss Account Balance on 1.4.2014 2,13,000
General Reserve on 1.4.2014 10,00,000
Unclaimed Dividend 12,000
Provision for Depreciation on 1.4.2014:
On Buildings 2,00,000
On Plant and Machinery 5,00,000
On Furniture and Fixture 20,000
Audit Fees 30,000
Administrative and Other Expenses 3,02,800
Cash and Bank Balance 5,31,606
92,06,400 92,06,400
Other information:
(a) Closing Stock as on 31st March, 2015 valued at cost 7,50,000.

(b) Provide Depreciation on Fixed Assets as follows:
(i) Building@5% on WDV.
(ii) Plant and Machinery @ 20% on WDV.
(iii) Furniture and fixtures @ 10% on WDV.
(c) Tax deducted at source on Investment income was 600.
(d) Provision for tax is to be made @30%.
(e) The directors has recommended the following appropriations:
(i) Final dividend @ 2 per share including interim dividend altered declared and
paid.
(ii) Transfer 50,000 to General Reserve.
(iii) Provide for Dividend Distribution Tax @ 19.994%.
4. Gloria Ltd. was registered with an authorised capital of 10,00,000 divided into equity
shares of 10 each, of which 40,000 shares had been issued and fully paid.
The following is the Trial Balance extracted on 31st March, 2016:
92
Call us @ +91-8777203495
Stock on 1st April, 2013 1,86,420
Purchases and Sales 7,18,210 11,69,000
Returns 12,680 9,850
Manufacturing Wages 1,09,740
Sundry Manufacturing Expenses 19,240
Carriage Inwards 4,910
18% Bank Loan (Secured) 50,000
Interest on Bank Loan 4,500
Office Salaries and Expenses 17,870
Auditor's Fees 8,600
Director's Remuneration 32,250
Freehold Premises 1,64,210
Furniture 5,000
Patents 20,000
Debtors and Creditors 1,05,400 62,220
Cash in Hand 19,530
Cash at Bank 89,360
Advance Tax 84,290
P&L A/c on 1st April, 2013 38,640
Share Capital 4,00,000
17,30,610 17,30,610
You are required to prepare the Statement of Profit and Loss for the year ended 31.03.2014
and a Balance Sheet as on that date as per revised Schedule VI after taking into consideration
the following adjustments:
(i) On 31st March, 2014 outstanding manufacturing wages and outstanding office
salaries stood at ₹1,890 and ₹1,200 respectively. On the same date stock was valued
at ₹1,24,840.
(ii) Provide for interest on bank loan for 6 months.
(iii) Depreciation is to be provided on plant and machinery @ 15% p.a. and on office
furniture @ 10% p.a.
(iv) Make a provision for taxation @33%.
(v) The directors recommended a dividend @ 15% for the current year after transfer of
5% of net profit to General Reserve
(vi) Dividend Distribution tax may be provided @ 16.995%.
93

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SECTION A (50 MARKS)

SECTION B (30 MARKS)

Info Industries Ltd.

2. The balance sheet of Bad luck ltd. as on 31.03.2011 was as follows:

3.The following is the balance sheet of Y ltd. as at 31st March, 2014:

4.The ledger balances of Sick Ltd. as on 31.03.2013 Include:

FORFEITURE AND RE-ISSUE OF SHARES

In the books of X limited

Date Particulars Dr₹ Cr₹

Bank A/c Dr 40,000

To Equity share application A/c 40,000

(Being the application money received on 10,000

To Equity Share Capital A/c 40,000

To Equity Share Capital A/c 50,000

To Securities Premium A/c 20,000

(Being allotment money due on 10,000 shares

To Equity Share Allotment A/c 69650

(Being receipt of allotment money on 9,950

To equity share capital A/c 60,000

Bank A/c Dr 59,220

To Equity Share First and Final call A/c 59,220

Equity share capital A/c Dr 1,950

Securities premium A/c 100

To equity share allotment A/c 350

To equity share first and final call A/c 780

To forfeited shares A/c 920

Bank A/c Dr 1560

Forfeited shares A/c Dr 390

To Equity Share Capital A/c 1950

Forfeited shares A/c Dr 530

To capital reserve A/c 530

3. Rainbow industries Ltd. Issued 50,000 equity shares of Rs 10 each at a premium of Rs 2

In the books of Rainbow Industries Ltd

Date Particulars Dr₹ C₹

Bank A/c 270000

Equity share application A/c 75000

Equity share application A/c 195000

To Equity share Capital 150000

Equity shared final call A/c 200000

To Equity share final call A/c 200000

Equity share capital A/c 3500

To Calls-in-Arrear A/c 2000

To forfeited shares A/c 1800

Bank A/c 1350

To Equity share capital A/c 1500

Forfeited shares A/c 450

Balance Sheet of Rainbow Industries Ltd . as at…..

I EQUITY AND LIABLITIES 2 3

(1) Non- Current Assets

(2) Current Assets

4. X Ltd. Offered 10,000 equity shares of Rs 10 each for subscription at a premium of Rs 2

To Equity Share 30,000 By Equity Share 6,000

(Being the application (Being excess money

2 each as per Board's

(Being allotment money

To Equity Share First 18,500

(Being first call money

To Equity Share Final 27,750

(Being final call money

To Equity Share Capital 5,400

(Being money received

In the books of X Ltd