CA INTERMEDIATE

SUBJECT- ADVANCE ACCOUNTS

Test Code – INP 2205
(Date :)
(Marks - 100)
Topic: Full Course

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed
by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours

Question: 1(a)
A Limited Company closed its accounting year on 30.6.20X1 and the accounts for that
period were considered and approved by the board of directors on 20th August, 20X1. The
company was engaged in laying pipeline for an oil company deep beneath the earth. While
doing the boring work on 1.9.20X1 it had met a rocky surface for which it was
estimated that there would be an extra cost to the tune of Rs. 80 lakhs. You are
required to state with reasons, how the event would be dealt with in the financial
statements for the year ended 30.6.20X1.

(5 Marks)
Question: 1(b)
The following information of Meghna Ltd. is provided:
(i) Goods of Rs. 60,000 were sold on 20-3-20X2 but at the request of the buyer these
were delivered on 10-4-20X2.
(ii) On 15-1-20X2 goods of Rs. 1,50,000 were sent on consignment basis of which 20% of
the goods unsold are lying with the consignee as on 31-3-20X2.
(iii) Rs. 1,20,000 worth of goods were sold on approval basis on 1-12-20X1. The period
of approval was 3 months after which they were considered sold. Buyer sent approval
for 75% goods up to 31-1-20X2 and no approval or disapproval received for the
remaining goods till 31-3-20X2.
(iv) Apart from the above, the company has made cash sales of Rs. 7,80,000 (gross). Trade
discount of 5% was allowed on the cash sales.
You are required to advise the accountant of Meghna Ltd., with valid reasons, the
amount to be recognized as revenue in above cases in the context of AS 9.

(5 Marks)

Question: 1(c)
A company with a turnover of Rs. 250 crores and an annual advertising budget of Rs. 2 crores
had taken up the marketing of a new product. It was estimated that the company would
have a turnover of Rs. 25 crores from the new product. The company had debited to its
Profit and Loss account the total expenditure of Rs. 2 crore incurred on extensive special
initial advertisement campaign for the new product.

Is the procedure adopted by the company correct? (5 Marks)

Question: 1(d)

A Ltd. take over B Ltd. on April 01, 20X1 and discharges consideration for the business as
follows:
(i) Issued 42,000 fully paid equity shares of Rs. 10 each at par to the equity
shareholders of B Ltd.
(ii) Issued fully paid up 15% preference shares of Rs. 100 each to discharge the
preference shareholders (Rs. 1,70,000) of B Ltd. at a premium of 10%.
(iii) It is agreed that the debentures of B Ltd. (Rs. 50,000) will be converted into equal
number and amount of 13% debentures of A Ltd.
Determine the amount of purchase consideration as per AS 14.
(5 Marks)
Question: 2(a)
Under what circumstances an LLP can be wound up by the Tribunal?
(5 Marks)
Question: 2(b)
Super Express Ltd. and Fast Express Ltd. were in competing business. They decided to form
a new company named Super Fast Express Ltd. The balance sheets of both the companies
were as under:

Particulars Notes Super Fast

Express Ltd. Express Ltd.
Rs. Rs.
Equity and Liabilities
1 Shareholders’ funds
A Share capital 1 20,00,000 10,00,000
B Reserves and Surplus 2 1,00,000 2,60,000
2 Non-current liabilities
A Long term provisions 3 1,00,000 --
2 Current liabilities
A Trade Payables 60,000 40,000
Total 22,60,000 13,00,000
Assets
1 Non-current assets
A Property, Plant and 4 14,00,000 11,00,000
Equipment
B Intangible assets 5 -- 1,00,000
2 Current assets
A Inventories 3,00,000 40,000
B 2,40,000 40,000
 C Trade receivables 6 3,20,000 20,000
Cash and Cash equivalents 22,60,000 13,00,000
Total

Notes to accounts

Super Express Fast Express

Ltd. Rs. Ltd. Rs.
1 Share Capital
Equity shares of Rs. 100 each 20,00,000 10,00,000
2 Reserves and Surplus
Insurance reserve 1,00,000 --
Employee profit sharing reserve -- 60,000
Reserve account -- 1,00,000
Surplus -- 1,00,000
1,00,000 2,60,000
3 Long term provisions
Provident fund 1,00,000 --
Total 1,00,000 --
4 Property, Plant and Equipment
Land and Building 10,00,000 6,00,000
Plant and machinery 4,00,000 5,00,000
14,00,000 11,00,000
5 Intangible assets
Goodwill -- 1,00,000
-- 1,00,000
6. Cash and Cash Equivalents
Cash at Bank 2,20,000 10,000
Cash in hand 1,00,000 10,000
3,20,000 20,000
The assets and liabilities of both the companies were taken over by the new company at
their book values. The companies were allotted equity shares of Rs. 100 each in lieu of
purchase consideration amounting to 30,000 (20,000 for Super- Fast Express Ltd and 10,000
for Fast Express Ltd.).
Prepare opening balance sheet of Super Fast Express Ltd. considering pooling method.
(15 Marks)
Question: 3(a)
On 31st March, 20X1, the Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as
follows:
Balance Sheet of H Ltd.
and its subsidiary S Ltd. as at 31st March, 20X1
Particulars Note H Ltd. S Ltd.
No. (Rs. in Lacs) (Rs. in Lacs)
I. Equity and Liabilities
(1) Shareholder's Funds
 (a) Share Capital 1 12,000 4,800
(b) Reserves and Surplus 2 5,499 3,000
(2) Current Liabilities
(a) Trade payables 3 1,833 1,014
(b) Short term provisions 4 855 394
(c) Other current liabilities 1,200 -
(Dividend payable)
Total 21,387 9,208
II. Assets
(1) Non-current assets
Property, Plant and Equipment 5 9,468 5,486
Non-current Investments 3,000
(Shares in S Ltd.)
(2) Current assets
(a) Inventories 3,949 1,956
(b) Trade receivables 6 2,960 1,562
(c) Cash and cash equivalents 1,490 204
(d) Short term loans and advances 7 520
Total 21,387 9,208

Notes to Accounts
H Ltd. S Ltd.
(Rs. in lacs) (Rs. in lacs)
1. Share Capital
Authorized share capital 15,000 6,000
Equity shares of Rs. 10 each, fully paid up
Issued and Subscribed:
Equity shares of Rs. 10 each, fully paid up 12,000 4,800
2. Reserves and surplus
General Reserve 2,784 1,380
Profit and Loss Account: 2,715 1,620
Total 5,499 3,000
3. Trade Payables
Creditors 1,461 854
Bills Payable 372 160
1,833 1,014
4. Short term provisions
Provision for Taxation 855 394
5. Property, plant and equipment
Land and Buildings 2,718 -
Plant and Machinery 4,905 4,900
Furniture and Fittings 1,845 586
Total 9,468 5,486
 6. Trade receivables
Debtors 2,600 1,363
Bills Receivable 360 199
Total 2,960 1,562
7. Short term loans and advances
Sundry Advances 520 ---

The following information is also provided to you:

(a) H Ltd. purchased 180 lakh shares in S Ltd. on 31st March, 20X0 when the balances of
General Reserve and Profit and Loss Account of S Ltd. stood at Rs. 3,000 lakh and
Rs.1,200 lakh respectively.
(b) On 1st April, 20X0, S Ltd. declared a dividend @ 20% for the year ended 31 st
March, 20X0. H Ltd. credited the dividend received by it to its Profit and Loss Account.
(c) On 1st January, 20X1, S Ltd. issued 3 fully paid-up bonus shares for every 5 shares held
out of balances of its general reserve as on 31st March, 20X0.
(d) On 31st March, 20X1, all the bills payable in S Ltd.’s balance sheet were acceptances in
favour of H Ltd. But on that date, H Ltd. held only Rs. 45 lakh of these acceptances in
hand, the rest having been endorsed in favour of itstrade payables.
(e) On 31st March, 20X1, S Ltd.’s inventory included goods which it had purchased for Rs.
100 lakh from H Ltd. which made a profit @ 25% on cost.
Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st
March, 20X1.
(15 Marks)
Question: 3(b)
Calculate Rebate on Bills discounted as on 31 December,20X1 from the following data and
show journal entries:

Date of Bill Rs. Period Rate of

Discount
(i) 15.10.X1 25,000 5 months 8%
(ii) 10.11.X1 15,000 4 months 7%
(iii) 25.11.X1 20,000 4 months 7%
(iv) 20.12.X1 30,000 3 months 9%
(5 Marks)
Question: 4(a)
Sagar & Sons is a partnership firm consisting of Mr. X, Mr. Y, and Mr. Z who share profits and
losses in the ratio of 2:2:1, and UTS Ltd. is a company doing similar business.

The firm (Sagar & Sons) and the company (UTS Ltd.) provide you the following Ledger
Balances as on 31.3.20X1:
Sagar & Sons UTS Ltd.
(Rs.) (Rs.)
Debit balances:
Plant & Machinery 5,00,000 16,00,000
Furniture & Fixtures 50,000 2,25,000
 Inventories 2,00,000 8,50,000
Trade receivables 2,00,000 8,25,000
Cash at bank 10,000 4,00,000
Cash hand in 40,000 1,00,000
Credit balances:
Equity share capital: Equity shares of Rs. 10 each 20,00,000
Partners’ capitals:
X 2,00,000
Y 3,00,000
Z 1,00,000
General reserve 1,00,000 7,00,000
Trade payables 3,00,000 13,00,000

On the Balance Sheet date, it was decided that the firm M/s Sagar & Sons be dissolved and
all the assets (except cash in hand and cash at bank) and all the liabilities of the firm be
taken over by UTS Ltd. by issuing 50,000 shares of Rs. 10 each at a premium of Rs. 2 per
share.
Partners of Sagar & Sons agreed to divide the shares issued by UTS Ltd. in the profit-sharing
ratio and bring necessary cash for settlement of their capital.
The trade payables of Sagar & Sons includes Rs. 1,00,000 payable to UTS Ltd. An unrecorded
liability of Rs. 25,000 of Sagar & Sons must also be taken over by UTS Ltd.

Prepare:

(1) Realisation account, Partners' capital accounts, and Cash in hand/Bank account in
the books of Sagar & Sons.
(2) Pass journal entries in the books of UTS Ltd. for acquisition of Sagar & Sons and draw
the Balance Sheet of UTS Ltd. after the takeover.
(15 Marks)
Question: 4(b)
Mr. Raj a relative of key management personnel received remuneration of Rs.
2,50,000 for his services in the company for the period from 1.4.20X1 to 30.6.20X1. On
1.7.20X1, he left the service.
Should the relative be identified as at the closing date i.e. on 31.3.20X2 for the purposes of
AS 18?
(5 Marks)
Question: 5(a)
Anu Ltd. (a non-listed company) furnishes you with the following balance sheet as at 31st
March, 20X1:

(in crores Rs.)

Particulars Notes Rs.
Equity and Liabilities
1 Shareholders’ funds
 A Share capital 1 100
B Reserves and Surplus 2 300
2 Current liabilities
A Trade Payable 40
Total 440

Assets
1 Non-current assets

A Property, plant and equipment 3 -

B Non-Current Investments 4 100

2 Current assets

A Trade receivables 140

B Cash and Cash equivalents 200

Total 440

Notes to accounts

No. Particulars Rs.

1 Share Capital
Authorized, issued and subscribed share capital:
12% Redeemable preference shares of Rs. 100 each, fully paid 75
up
Equity shares of Rs. 10 each, fully paid up 25
Total 100
2 Reserves and Surplus
Capital reserve 15
Securities premium 25
Revenue reserves 260
Total 300
3 Property, Plant and Equipment
PPE Cost 100
Less: Provision for depreciation (100)
Net carrying value NIL
4 Non-Current Investments
Non-current investments at cost (Market value Rs. 400 Cr.) 100
The company redeemed preference shares on 1st April, 20X1. It also bought back 50 lakhs
equity shares of Rs. 10 each at Rs. 50 per share. The payments for the above were made out
of the huge bank balances, which appeared as a part of current assets.
You are asked to:
(i) Pass journal entries to record the above.
(ii) Prepare balance sheet as at 1.4.20X1.
(10 Marks)
Question: 5(b)
The following figures are extracted from the books of KLM Bank Ltd. as on 31-03-20X2:

Rs.

Interest and discount received 38,00,160

Interest paid on deposits 22,95,360

Issued and subscribed capital 10,00,000

Salaries and allowances 2,50,000

Directors Fees and allowances 35,000

Rent and taxes paid 1,00,000

Postage and telegrams 65,340

Statutory reserve fund 8,00,000

Commission, exchange and brokerage 1,90,000

Rent received 72,000

Profit on sale of investment 2,25,800

Depreciation on assets 40,000

Statutory expenses 38,000

Preliminary expenses 30,000

Auditor's fee 12,000

The following further information is given:

(1) A customer to whom a sum of Rs. 10 lakhs was advanced has become insolvent and it is
expected only 55% can be recovered from his estate.

(2) There was also other debts for which a provisions of Rs. 2,00,000 was found
necessary.
(3) Rebate on bill discounted on 31-03-20X1 was Rs. 15,000 and on 31-03-20X2 was Rs.
20,000.
(4) Income tax of Rs. 2,00,000 is to be provided.
The directors desire to declare 5% dividend and transfer 25% of its profit to the reserve
fund.

Prepare the Profit and Loss account of KLM Bank Ltd. for the year ended 31-03-20X2 and
also show, how the Profit and Loss account will appear in the Balance Sheet if the Profit
and Loss account opening balance was NIL as on 31-03-20X1. Assume that the preliminary
expenses had been fully written off during the year.
(10 Marks)
Question : 6 (Write any four)
Question 6(a)
Sky Ltd. went into Liquidation on 1st April, 20X1. Following are the details regarding share
capital of the company:-

I. 20,000 Equity shares of Rs. 100 each, Rs. 75 paid up.

II. 30,000 Equity shares of Rs. 100 each, Rs. 40 paid up.
III. 80,000 Equity shares of Rs. 100 each, Rs. 65 paid up.
Surplus available with the Liquidator, after discharging all the liabilities is Rs. 20,00,000.
Distribute this surplus money among different categories of shareholders.
(5 Marks)
Question: 6(b)
What are the methods of internal reconstruction generally followed by companies?
(5 Marks)
Question: 6(C)
S. Square Private Limited has taken machinery on finance lease from S.K. Ltd. The
information is as under:
Lease term = 4 years

Fair value at inception of lease = Rs. 20,00,000

Lease rent = Rs. 6,25,000 p.a. at the end of year

Guaranteed residual value = Rs. 1,25,000

Expected residual value = Rs. 3,75,000

Implicit interest rate = 15%
Discounted rates for 1st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575 and
0.5718 respectively.
Calculate the value of the lease liability as per AS-19 and disclose impact of this on
Balance sheet and Profit & loss account at the end of year 1
(5 Marks)
Question: 6(d)

X Ltd. supplied the following information. You are required to compute the basic earnings
per share:
 (Accounting year 1.1.20X1– 31.12.20X1)
Net Profit : Year 20X1: Rs. 20,00,000
: Year 20X2: Rs. 30,00,000
No. of shares outstanding prior to RightIssue : 10,00,000 shares
Right Issue : One new share for each four
outstanding i.e., 2,50,000
shares.
Right Issue price – Rs. 20
Last date of exercise rights–
31.3.20X2.
Fair rate of one Equity share immediately : Rs. 25
prior to exercise of rights on 31.3.20X2
(5 Marks)
Question: 6(e)
On 1st April, 20X1, a company offered 100 shares to each of its 500 employees at Rs. 50
per share. The employees are given an year to accept the offer. The shares issued under the
plan shall be subject to lock-in on transfer for three years from the grant date. The
market price of shares of the company on the grant date is Rs. 60 per share. Due to
post-vesting restrictions on transfer, the fair value of shares issued under the plan is
estimated at Rs. 56 per share and fair value per option worked out to be Rs. 6.

On 31st March, 20X2, 400 employees accepted the offer and paid Rs. 50 per share
purchased. Nominal value of each share is Rs. 10.

Record the issue of share in the books of the company under the aforesaid plan.

(5 Marks)