P18_Practice Test Paper_Syl12_Jun14_Set 3

Paper 18 – Corporate Financial Reporting

Syllabus 2012
Whenever necessary suitable assumptions may be made and disclosed by way of note.

Working Notes should form part of the answers

Answer all the questions.

1. Answer any two of the following: [2×5]

(a) State the objectives and scope of International Accounting Standard 8. [5]

(b) What are the recognition criteria of share Based Payment under International Financial Reporting
Standard (IFRS) – 2 ? [5]

(c) Cost of Production of product A is given below:

Raw material per unit `160
Wages per unit `50
Overhead per unit `50
`260
As on the balance sheet date the replacement cost of raw material is `110 per unit. There are 100
units of raw material on 31.3.12.
Calculate the value of closing stock of raw materials in the following conditions:
(i) If finished product is sold at ` 275 per unit, what will be the value of closing stock of raw material?
(ii) If finished product is sold at ` 240 per unit, what will be the value of closing stock of raw material?
------- ------------------------------------------- ---------- [5]

2. (a) The summarized Balance Sheets of S Ltd. and H Ltd. as on 31.3.12 were as follows.
(` in Lakhs)
Liabilities S Ltd. H Ltd.
Equity Share capital 100 30
Reserves and surplus 500 90
10% 25,000 Debentures of ` 100 each - 25
Other Liabilities 150 -
Total 750 145
Assets
Fixed assets at cost 250 100
Less: Depreciation 125 125 55 45
Investment in H Ltd.
- 2 Lakhs Equity shares of ` 10 each at cost 32
- 10% 25,000 debentures of ` 100 each at cost 24 56
Current assets 1,000 300
Less: Current liabilities 431 569 200 100

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Total 750 145
In a scheme of absorption duly approved by the Court, the assets of ‘H’ Ltd. were taken over at an
agreed value of ` 140 lakhs. The liabilities were taken over at par. Outside shareholders of ‘H’ Ltd.
were allotted equity shares in S Ltd. at a premium of ` 90 per share in satisfaction of other claims in ‘H’
Ltd. for purposes of recording in the books of ‘S’ Ltd. Fixed assets taken over from ‘H’ Ltd. were
revalued at ` 50 lakhs.

The scheme was put through on 1st April, 2012.

a. Pass journal Entries in the books of ’S’ Ltd.
b. Show the balance of ‘S’ Ltd. after absorption of ‘H’ Ltd. [15]

OR,

(b) The following are the Balance Sheets of A Ltd. and B Ltd. as on 31st December 2012.
Liabiltiies A Ltd. B Ltd. Assets A Ltd. B Ltd.
` ` ` `
Share capital Fixed Assets 14,00,000 5,00,000
Equity shares of ` 10 each 12,00,000 6,00,000 Investment:
10% Preference shares of 6,000 shares of B Ltd. 1,60,000 -
`10 each 4,00,000 2,00,000 5,000 shares of A Ltd. - 1,60,000
Reserves and surplus 6,00,000 4,00,000 Current Assets:
Secured loans: Stock 4,80,000 6,40,000
12% Debentures 4,00,000 3,00,000 Debtors 7,20,000 3,80,000
Current liabilities: Bills receivable 1,20,000 40,000
Sundry creditors 4,40,000 2,50,000 Cash at bank 2,20,000 80,000
Bills payable 60,000 50,000
31,00,000 18,00,000 31,00,000 18,00,000

Fixed assets of both the companies are to be revalued at 20% above book value. Stock in—
-trade and Debtors are taken over at 10% lesser than their book value. Both the companies are
to pay 10% Equity dividend, Preference dividend having been already paid.
After the above transactions are given effect to, A Ltd. will absorb B Ltd. on the following terms.
i. 8 Equity shares of ` 10 each will be issued by A Ltd. at par against 6 shares of B Ltd.
ii. 10% Preference Shareholders of B Ltd. will be paid at 10% discount by issue of 10%
Preference Shares of ` 100 each at par in A Ltd.
iii. 12% Debentureholders of B Ltd. are to be paid at 8% premium by 12% Debentues in A Ltd.
issued at a discount of 10%.
iv. ` 60,000 is to be paid by A Ltd. to B Ltd. for Liquidation expenses. Sundry creditors of B Ltd.
include ` 20,000 due to A Ltd.
Prepare :
(a) Absorption entries in the books of A Ltd.
(b) Statement of consideration payable by A Ltd. [15]

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3. (a) On 31.03.2012 the Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows (in ` Lakhs) -

Liabilities H Ltd. S Ltd. Assets H Ltd. S Ltd.

Share Capital: Authorised 30,000 12,000 Land and Buildings 5,436 –
Plant and Machinery 9,810 9,800
Issued and Subscribed: Furniture and Fittings 3,690 1,172
Equity Shares (`10) Fully Investments in shares in S Ltd. 6,000 –
Paid Stock 7,898 3,912
24,000 9,600
General Reserve Debtors 5,200 2,726
5,568 2,760
Profit and Loss Account Cash and Bank Balances 2,980 408
5,430 3,240
Bills Payable Bills Receivable 720 398
744 320
Sundry Creditors Sundry Advances 1,040 –
2,922 1,708
Provision for Taxation
1,710 788
Proposed Dividend
2,400 –
42,774 18,416 42,774 18,416
The following information is also provided to you:
1. H Ltd. purchased 360 Lakhs shares in S Ltd. on 01.04.2011 when the balances to General Reserve
and Profit and Loss Account of S Ltd. stood at ` 6,000 Lakhs and ` 2,400 Lakhs respectively.
2. On 04.07.2011 S Ltd. declared a dividend @ 20% for the year ended 31.03.2011. H Ltd. credited
the dividend received by it to its Profits and Loss Account.
3. On 01.01.2012 S Ltd. issued 3 fully paid-up shares for every 5 shares held as Bonus Shares out of
balances in its General Reserve as on 31.03.2011.
4. On 31.03.2012 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 ` 45 Lakhs of these acceptances in hand, the rest having been
endorsed in favour of its Creditors.
5. On 31.03.2012 S Ltd.’s stock included goods which it had purchased for ` 200 Lakhs 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 31.03.2012 bearing in
mind the requirements of AS 21. [15]

OR

(b) X Ltd. is a holding Company and Y Ltd. and Z Ltd. are subsidiaries of X Ltd. Their Balance Sheets
as on 31.12.2012 are given below-

Liabilities X Ltd. Y Ltd. Z Ltd. Assets X Ltd. Y Ltd. Z Ltd.

Share Capital 1,50,000 1,50,000 90,000 Fixed Assets 30,000 90,000 64,500
Reserves 42,000 15,000 13,500 Investments in:
Profit & Loss A/c 24,000 18,000 13,500 - Shares of Y Ltd. 1,12,500 — —
Z Ltd. Balance 4,500 — — - Shares of Z Ltd. 19,500 79,500 —
Sundry Creditors 10,500 7,500 — Stock in Trade 18,000 — —
X Ltd. Balance — 10,500 — Y Ltd. Balance 12,000 — —
Sundry Debtors 39,000 31,500 48,000
X Ltd. Balance — — 4,500

Total 2,31,000 2,01,000 1,17,000 Total 2,31,000 2,01,000 1,17,000

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The following particulars are given:
1. The Share Capital of all Companies is divided into shares of ` 10 each.
2. X Ltd. held 12,000 shares in Y Ltd. and 1,500 shares of Z Ltd.
3. Y Ltd. held 6,000 shares of Z Ltd.
4. All these investments were made on 30.6.2011.
5. On 31.12.2011, the position was as shown below: (Amount in `)

Particulars Reserve P&LA/c Creditors Fixed Assets Stock Debtors

Y Ltd. 12,000 6,000 7,500 90,000 6,000 72,000
Z Ltd. 11,250 4,500 1,500 64,500 53,250 49,500
6. 10% Dividend is proposed by each Company.
7. The whole of stock in trade of Y Ltd. as on 30.06.2012 (` 4,000) was later sold to X Ltd. for ` 4,400
and remained unsold by X Ltd. as on 31.12.2012.
8. Cash in transit from Y Ltd. to X Ltd. was ` 1,500 as at the close of business. You are required to
prepare the Consolidated Balance Sheet of the group as at 31.12.2012. [15]

4. (a) Star Ltd. agreed to absorb Moon Ltd. on 31st March, 2012, whose Balance sheet stood as
follows :

Liabilities ` Assets `

Share capital - Fixed assets 76,00,000

80,000 shares of ` 100 each fully paid 60,00,000
Current assets:
Reserves and surplus:
Stock in trade 4,00,000
General Reserve 20,00,000 Sundry Debtors 10,00,000
Current Liabilities and Provisions:
Sundry creditors 10,00,000

90,00,000 90,00,000

The consideration was agreed to be paid as follows:

a. A payment in cash of ` 50 per share in Moon Ltd. and
b. The issue of shares of ` 100 each in Star Ltd., on the basis of 3 Equity Shares (valued at ` 150) and
two 10% cumulative preference share (valued at ` 100) for every five shares held in Moon Ltd.
It was agreed that Star Ltd. will pay in cash for fractional shares equivalent at agreed value of shares
in Moon Ltd. i.e. ` 650 for five shares of ` 500 paid.
The whole of the Share capital consists of shareholdings in exact multiple of five except the following
holding.
Bharati 76
Sonu 56
Hitesh 52
Jagat 8
Other individuals 8 (eight members holding one share each)
200

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Prepare a statement showing the purchase consideration receivable by above shareholders in
shares and cash. [10]

OR,

(b) The following are the Balance sheets (as at 31.3.2011) of A Ltd. and C Ltd.:

Liabilities A Ltd. C Ltd. Assets A Ltd. C Ltd.

` ` ` `

Share Capital: Fixed Assets 75,00,000 45,00,000

Equity Shares of `.10 each 54,00,000 27,00,000 Investments 7,50,000 7,50,000
10% Preference shares of 18,00,000 - Current Assets
`.100 each Stock 27,00,000 18,00,000
12% Preference shares of - 9,00,000 Debtors 22,50,000 18,00,000
`.100 each Bills receivable 75,000 15,000
Reserve and Surplus: Cash at Bank 2,25,000 1,35,000
Statutory Reserve 1,50,000 1,50,000
General Reserve 37,50,000
Secured Loan 25,50,000
15% Debentures 7,50,000 -
12% Debentures -
Current Liabilities 7,50,000
Sundry creditors 16,20,000 19,20,000
Bills payable 30,000 30,000

1,35,00,000 90,00,000 1,35,00,000 90,00,000

Contingent liabilities for bills receivable discounted ` 30,000.

(A) The following additional information is provided to you:

A Ltd. C Ltd.

` `

Profit before Interest and Tax 22,12,500 11,70,000

Rate of Income-tax 40% 40%

Preference dividend 1,80,000 1,08,000

Equity dividend 5,40,000 4,05,000

Balance profit transferred to Reserve account.

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(B) The equity shares of both the companies are quoted on the Mumbai Stock Exchange. Both the
companies are carrying on similar manufacturing operations.

(C) A Ltd proposes to absorb business of C Ltd. as on 31.3.2011. The agreed terms for absorption are:

(i) 12% Preference shareholders of C Ltd. will receive 10% Preference shares of A Ltd. sufficient to
increase their present income by 20%.

(ii) The Equity shareholders of C Ltd. will receive equity shares of A Ltd. on the following terms:

(a) The Equity shares of C Ltd. will be valued by applying to the earnings per share of C Ltd. 60 per
cent of price earnings ratio of A Ltd. based on the results of 2010-11 of both the Companies.

(b) The market price of Equity shares of A Ltd. is ` 40 per share.

(c) The number of shares to be issued to Equity shareholders of C Ltd. will be based on the 80% of
market price.

(d) In addition to Equity shares, 10% Preference shares of A Ltd. will be issued to the equity
shareholders of C Ltd. to make up for the loss in income arising from the above exchange of
shares based on the dividends for the year 2010-11.

(i) 12% Debentureholders of C Ltd. are to be paid at 8% premium by 15% debentures in A Ltd.
issued at a discount of 10%.

(ii) ` 24,000 is to be paid by A Ltd. to C Ltd. for liquidation expenses. Sundry Creditors of C Ltd.
include ` 30,000 due to A Ltd. Bills receivable discounted by A Ltd. were all accepted by C Ltd.

(iii) Fixed assets of both the companies are to be revalued at 20% above book value. Stock in trade
is taken over at 10% less than their book value.

(iv) Statutory reserve has to be maintained for two more years

(v) For the next two years no increase in the rate of equity dividend is anticipated.

(vi) Liquidation expense is to be considered as part of purchase consideration.

You are required to:

(i) Find out the purchase consideration and
(ii) Give journal entries in the books of A Ltd. [10]

5. (a) What are the roles of Audit Committee of the company under clause 49 of listing agreement?

[10]

OR,

(b)(i) State the disclosure requirement of Contingent liabilities and Assets under AS 29 “Provisions,
Contingent liabilities and Contingent Assets”. [5]

(ii) What information can we gather from Value Added Statements? [5]

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6. (a)(i) On the basis of the following information related to trading in Options, you are required to
pass relevant Journal Entries (at the time of inception and at the time of final settlement) in the books
of Tom (Buyer) and Jerry (Seller). Assume that the price on expiry is `950/- and both Tom and Jerry
follow the calendar year as an accounting year.

Date of Purchase Option Type Expiry Date Premium per unit Contract Lot Multiplier

29.03.2013 Equity Index, Call 31.05.2013 `10 1,000 units `850 p.u
[7]

(ii) A Company purchased a plant for `50 Lakhs during the financial year and installed it
immediately. The price charged by the Vendor included Excise Duty (CENVAT Credit Available) of `5
Lakhs. During this year, the Company also produced excisable goods on which Excise Duty
chargeable is `5.00 Lakhs. Show the Journal Entries describing CENVAT Credit treatment. At what
amount should the Plant be capitalized? [8]

OR,

(b)(i) Explain the need and significance of Environmental Accounting. [10]

(ii) On April 1, 2012, a company Sky Blue Ltd. offered 100 shares to each of its 1,500 employees at `60
per share. The employees are given a month to decide whether or not to accept the offer. The
shares issued under the plan shall be subject to lock-in on transfers for three years from grant date.
The market price of shares of the company on the grant date is `70 per share. Due to post-vesting
restrictions on transfer, the fair value of shares issued under the plan is estimated at `68 per share.

On April 30, 2012, 1,200 employees accepted the offer and paid `60 per share purchased. Nominal
value of each share is `10.

Record the issue of shares in book of the Sky Blue Ltd. under the aforesaid plan. [5]

7. (a) From the following information, prepare cash flow statement by using indirect method as per
AS-3.

Balance Sheet

Liabilities 31.3.2013 31.3.2014 Assets 31.3.2013 31.3.2014

Capital 50,00,000 60,00,000 Plant & Machinery 27,30,000 42,70,000
Retained Earnings 26,50,000 36,90,000 Less : Depreciation 6,10,000 7,90,000

Debentures — 9,00,000 21,20,000 34,80,000

Current Liabilities : Current Assets :

Creditors 8,80,000 8,20,000 Debtors 23,90,000 28,30,000

Bank Loan 1,50,000 3,00,000 Less : Provision 1,50,000 1,90,000
Liability for Expenses 3,30,000 2,70,000 22,40,000 26,40,000

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Dividend Payable 1,50,000 3,00,000 Cash 15,20,000 28,20,000

Creditors for plant — 2,00,000 Marketable Securities 11,80,000 15,00,000
and machinery Inventories 20,10,000 19,20,000

purchased Prepaid Expenses 90,000 1,20,000

91,60,000 1,24,80,000 91,60,000 1,24,80,000

Additional Information:
(1) Net Income for the year ended 31.03.2014, after charging depreciation of `1,80,000 is `22,40,000.
(2) Debtors of ` 2,30,000 were determined to be worthless and were written off against the
provisions for doubtful debts account.
(3) The Board of Directors declared dividend of ` 12,00,000.
Note: Marketable securities are treated as cash equivalents. [10]

OR,

(b) X Ltd. acquired 75% of the Equity Shares of Y Ltd. From the following Balance Sheet as at 31st March
2014 of Y Ltd. and additional information furnished, determine Minority Interest in Y Ltd. as on Balance
Sheet date

Liabilities ` Assets `

Share Capital: Fixed Assets:

Equity Capital (` 100) 40,00,000 (Net Block) (Tangible) 80,00,000
Reserves: Current Assets:
Securities Premium 6,00,000 Stock in Trade 40,00,000
General Reserve 14,00,000 Debtors 24,00,000
Profit and Loss Account 24,00,000 Other Current Assets 16,00,000
Current Liabilities:
Creditors 28,00,000
Bank Overdraft 48,00,000

Total 1,60,00,000 Total 1,60,00,000

When X Ltd. acquired shares, balances in Reserves of Y Ltd. were as under - (a) Securities Premium
`6,00,000; (b) General Reserve ` 2,00,000; (c) Profit and Loss Account ` 8,00,000. [10]

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 P18_Practice Test Paper_Syl12_Jun14_Set 3
8.(a)(i) What are the procedures are adopted by the Government Accounting Standard Advisory
Board for formulating the Standards? [10]

(ii) State the principles of Government Accounting. [5]

OR,

(b)(i) Explain the objectives and scope of IGAS 4 “General Purpose Financial Statements of
Government”. [10]

(ii) Give a brief comparison between Government Accounting and Commercial Accounting. [5]

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