Date: 13/10/2015.
Duration: 2 Hrs.
Marks: 60 Marks.
1.
Following are the Balance Sheet of companies as at 31.12.2013:
Liabilities
D Ltd.
`
V Ltd.
`
Assets
D Ltd.
`
V Ltd.
`
Equity share capital
(` 100 per share)
General Reserve
Investment
Allowance Res.
Goodwill
8,00,000 6,00,000 Fixed Assets
4,00,000 3,00,000 Investments
Current Assets
― 4,00,000
5,00,000 2,00,000
6,00,000 ―
5,00,000 8,00,000
2,00,000 4,00,000
4,00,000 3,00,000
Sundry Creditors
17,00,000 15,00,000 17,00,000 15,00,000
D Ltd. took over V Ltd. on the basis of the respective shares value, adjusting wherever necessary, the book values of assets and liabilities on the basis of the following information: a) Investment Allowance Reserve was in respect of addition made to fixed assets by V Ltd. in the year 2007-2012 on which income tax relief has been obtained. In terms of the
Income Tax Act, 1961, the company has to carry forward till 2006 reserve of ` 2,00,000 for utilization. b) Investments of V Ltd. included 1,000 shares in D Ltd. acquired at cost of ` 150 per share. The other investments of V Ltd. have a market value of ` 1,92,500. c) The market values of investments of D Ltd. are to be taken at ` 1,00,000. d) Goodwill of D Ltd. and V Ltd. are to be taken at ` 5,00,000 and ` 1,00,000 respectively. e) Fixed assets of D Ltd. and V Ltd. are valued at ` 6,00,000 and ` 8,50,000 respectively.

f) Current assets of D Ltd. included ` 80,000 of stock in trade received from V Ltd. at cost plus 25%.
The above scheme has been duly adopted. Pass necessary Journal Entries in the books of
D Ltd. and prepare Balance Sheet of D Ltd. after taking over the business of V Ltd.
Fractional share to be settled in cash, rest in shares of D Ltd. Calculation shall be made to the nearest multiple of a rupee.
(16 Marks)
2.
a) The summarized Balance Sheet of ABC Ltd. as on 31st March, 2015 read as under:
Liabilities
Share Capital: 4,00,000 equity shares of ` 10 each fully paid up
General Reserve
Debenture Redemption Reserve
12% Convertible Debentures : 80,000 Debentures of ` 100 each
Other Loans
Current Liabilities and Provisions
Total
`
40,00,000
50,00,000
35,00,000
80,00,000
45,00,000
90,00,000
3,40,00,000
Cash and Bank Balances
Other Current Assets
Assets
Fixed Assets (at cost less depreciation)
Debenture Redemption Reserve Investments
`
1,50,00,000
30,00,000
40,00,000
1,20,00,000
Total 3,40,00,000
The debentures are due for redemption on 1st April, 2015. The terms of issue of debentures provided that they were redeemable at a premium 5% and also conferred option to the debenture-holders to convert 25% of their holding into equity shares at a predetermined price of ` 11.90 per share and the balance payment in cash. Assuming that: i.
Except for debenture-holders holding 12,000 debentures in aggregate, rest of them exercised the option for maximum conversion, ii.
The investments realized ` 32,00,000 on sale, iii.
All the transactions were taken place on 1st April, 2013 without any lag, and iv.
Premium on redemption of debentures is to be adjusted against General Reserve.
Redraft the Balance Sheet of ABC Ltd. as on 01.04.2015 after giving effect to the redemption. Show your calculations in respect of the number of equity shares to be allotted and the cash payment necessary.
(8 marks)

b) On 1st April, 2012, a company offered 100 shares to each of its 400 employees at ` 25 per share. The employees are given a month to accept the shares. The shares issued under the plan shall be subject to lock-in to transfer for three years from the grant date i.e. 30, April
2012. The market price of shares of the company on the grant date is ` 30 per share. Due to post-vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at ` 28 per share.
Up to 30th April, 2012, 50% of employees accepted the offer and paid ` 25 per share purchased. Normal value of each share is ` 10. Record the issue of shares in the books of the company under the aforesaid plan.
(4 marks)
3.
a) Southern Store Ltd. is a retail store operating two departments. The company maintains a memorandum stock account and memorandum mark-up account for each of the departments. Supplies issued to the departments are debited to the memorandum stock account of the department at cost plus the mark up, and departmental sales are credited to this account. The mark-up on supplies issued to the departments is credited to the mark-up account for the department. When it is necessary to reduce the selling price below the normal selling price, ie. Cost plus mark-up, the reduction (mark-down) is entered in the memorandum stock account and in the mark-up account. Department Y has a mark-up of 33
1/3% on cost and department Z 50% on cost.
The following information has been extracted from the records of southern store Ltd. for the year ended 31 st December, 2014:
Particulars
Stock, 1st January 2014 at cost
Purchases
Dept. Y
24,000
1,62,000
(Amt. In `)
Dept. Z
36,000
1,90,000
Sales 2,10,000 2,85,000 i.
The stock of Department Y at 1 st January, 2014 includes goods on which the selling price has been marked down by ` 510. These goods were sold in January, 2014 at the reduced price. ii.
Certain goods purchased in 2014 for ` 2,700 for department Y, were transferred during the year to department Z, and sold for ` 4,050. Purchase and sale recorded in the purchases of department Y and the sales of department Z respectively, but no entries in respect of the transfer have been made. iii.
Goods purchased in 2014 were marked down as follows:
Particulars Dept. Y Dept. Z
Cost
Mark-down
` 8,000
` 800
` 21,000
` 4,100

At the end of the year there were some items in the stock of department Z, which had been marked down to ` 2,300. With this exception all goods marked down in 2014 were sold during the year at reduced prices. iv.
During stock taking at 31 st December, 2014 goods which had cost ` 240 were found to be missing in department Y it was determined that the loss should be regarded as irrecoverable. v.
The closing stocks in both departments are to be valued at cost for the purpose of annual accounts.
You are requested to prepare for each department for the year ended 31 st December, 2014: a) Trading account, b) Memorandum Stock Account and c) a Memorandum Mark-up
Account.
(12 marks) b) Following is the information of the Jammu branch of Best, New Delhi for the year ending 31 st
March, 2010 from the following (assume that all figures are at invoice price):
1) Goods are invoiced to the branch at cost plus 20%.
2) The sale price is cost plus 50%.
3) Other information:
Stock as on 01.04.2009
Goods sent during the year
Sales during the year
Expenses incurred at the branch
`
2,20,000
11,00,000
12,00,000
45,000
Ascertain i.
the profit earned by the branch during the year ii.
branch stock reserve in respect of unrealized profit.
(4 Marks)
4.
a) Scorpio Ltd. came out with an issue of 45,00,000 equity shares of ` 10 each at a premium of
` 2 per share. The promoters took 20% of the issue and the balance was offered to the public. The issue was equally underwritten by A & Co; B & Co. and C & Co. Each underwriter took firm underwriting of 1,00,000 shares each.
Subscriptions were received for 31,00,000 equity shares, of which marked forms were as follows:

A & Co. - 7,25,000 shares; B & Co. - 8,40,000 shares; C & Co. - 13,10,000 shares.
The underwriters are eligible for a commission of 5% on face value of shares. The entire amount towards shares subscription has to be paid along with application. You are required to:
(a) Compute the underwriter’s liability (number of shares)
(b) Compute the amounts payable to/by underwriters.
(8 marks) b) Following is the Balance Sheet of M/s competent Limited as on 31st march, 2012:
Liabilities `
Equity Shares of ` 10 each, fully 12,50,000 Fixed Assets
Assets paid up
Revenue reserve 15,00,000 Current Assets
Securities premium
Profit and Loss Account
Secured Loans:
12% Debentures
Unsecured Loans
Current Liabilities
2,50,000
1,25,000
18,75,000
10,00,000
16,50,000
`
46,50,000
30,00,000
76,50,000 76,50,000
The company wants to buy back 25,000 equity shares of ` 10 each, on 1st April, 2012 at `
20 per share. Buy back of shares is duly authorized by its articles and necessary resolution passed by the company towards this. The payment for buy back of shares will be made by the company out of sufficient bank balance available as part of Current Assets.
Comment with your calculations, whether buy back of shares by company is within the provisions of the companies Act, 1956. If yes, pass necessary journal entries towards buy back of shares.
(8 marks)
---------Best of Luck---------
 Please return the Question Paper along with the answer sheet.
 Assessed answer papers will be returned by 23 rd October, 2015.
___________________________________________________________________________________________________________________________________________________________________________________
_____________
Questions and Solutions prepared by Jai Shah, CA & CFA (USA)
M: +91-9601258161; website: www.ashishlalaji.net

Date: 13/10/2015.
Duration: 2 Hrs.
Marks: 60 Marks.
1.
Journal Entries in books of D Ltd:
Particulars
Business Purchase Account
To Liquidator of V Ltd.
(For purchase consideration due)
Investments Account
Goodwill Account (Balancing figure)
Fixed Assets Account
Current Assets Account
To Sundry Creditors Account
To Business Purchase Account
(For assets and liabilities taken over at agreed value)
Liquidator of V Ltd.
To Equity Share Capital Account ( ` 100)
To Securities Premium Account ( ` 37.50)
To Cash Account
(For purchase consideration discharged)
Goodwill Account
To Current Assets (Stock) Account
(For elimination of unrealized profit on unsold stock)
Amalgamation Adjustment Account
To Investment Allowance Reserve Account
(For incorporation of statutory reserve)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
`
12,42,500
1,92,500
1,00,000
8,50,000
3,00,000
12,42,500
16,000
2,00,000
Cr.
`
12,42,500
2,00,000
12,42,500
9,03,600
3,38,850
50
16,000
2,00,000

Balance Sheet of D Ltd.
as on 31st December, 2013
Particulars
Equity and Liabilities
1 Shareholders' funds a Share capital b Reserves and Surplus a Trade Payables
Total
Assets
1 Non-current assets a Fixed assets
Tangible assets (5,00,000 + 8,50,000)
Intangible assets b Investments(2,00,000 + 1,92,500) c Amalgamation Adjustment Account
2 Current assets(7,00,000 – 50 – 16,000)
Total
Notes to accounts
1 Share Capital
Equity share capital
17,036 shares of ` 100 each (out of which 9036 shares are issued in favour of vendor for consideration other than cash)
Total
2 Reserves and Surplus
General Reserve
Securities Premium
Investment allowance reserve
3 Trade payables
Creditors
4 Intangible assets
Goodwill (6,00,000 + 1,00,000 + 16,000)
Notes
1
2
3
4
4,00,000
3,38,850
2,00,000
`
17,03,600
17,03,600
9,38,850
7,00,000
7,16,000
`
17,03,600
9,38,850
7,00,000
33,42,450
13,50,000
7,16,000
3,92,500
2,00,000
6,83,950
33,42,450

Working Notes:
1.
Calculation of net asset value of shares
Goodwill
Fixed Assets
Investments
Current Assets
Less: Sundry Creditors
Net assets
Number of shares
Value per equity share
*Investments of V Ltd. are calculated as follows:
Shares in D Ltd. (1,000
×
137.50)
Market value of remaining investments (given)
D Ltd.
`
5,00,000
6,00,000
1,00,000
4,00,000
16,00,000
5,00,000
11,00,000
8,000
137.50
`
1,37,500
1,92,500
3,30,000
2. Calculation of Purchase Consideration
V Ltd.
`
1,00,000
8,50,000
3,30,000*
3,00,000
15,80,000
2,00,000
13,80,000
6,000
230
`
Value of Assets of V Ltd
Less: Value erosion on investments ( ` 2,50,000 – 1,92,500)
Less: Sundry Creditors
15,00,000
57,500
2,00,000
12,42,500
Settlement of Purchase Consideration
Net assets of V Ltd.
Value of Shares of D Ltd.
Number of shares to be issued in D Ltd. to V Ltd. (13,80,000
Less: Shares already held by V Ltd.
Additional shares to be issued
÷
137.50)
`
13,80,000
137.50
10,036.36
1,000
9,036.36
Total value of shares to be issued (9036
×
137.50)
Cash payment for fractional share (.36
×
137.50)
12,42,450
50
12,42,500

2.
(a)
Particulars
I.
Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital
(b) Reserves and Surplus
(2) Non-Current Liabilities
(a) Long-term borrowings - Unsecured Loans
(3) Current Liabilities
(a) Short-term provisions
Total
II.
Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets
(2) Current assets
(a) Cash and cash equivalents
(b) Other current assets
Total
Notes to Accounts:
1 Share Capital
5,50,000 Equity Shares of ` 10 each
2 Reserve and Surplus
General Reserve
Add: Debenture Redemption Reserve transfer
Add: Profit on sale of investments
Less: Premium on redemption of debentures (80,000 x ` 5)
Securities Premium Account (1,50,000 x ` 1.9)
Note No
1
2
50,00,000
35,00,000
85,00,000
2,00,000
87,00,000
(4,00,000)
Amt( ` )
55,00,000
85,85,000
45,00,000
90,00,000
2,75,85,000
1,50,00,000
5,85,000
1,20,00,000
2,75,85,000
`
55,00,000
83,00,000
2,85,000
85,85,000
Page 9 of 15

Working Notes:
(i) Calculation of number of shares to be allotted
Total number of debentures
Less : Number of debentures not opting for conversion
80,000
12,000
68,000
25% of 68,000 17,000
Redemption value of 17,000 debenture: ` 17,85,000 Number of Equity Shares to be allotted:
=
17,85,000
11.90
= 1,50,000 shares of ` 10 each.
(ii) Calculation of cash to be paid
Number of debentures
Less: number of debentures to be converted into equity shares
80,000
17,000
Redemption value of 63,000 debentures (63,000 × ` `
63,000
66,15,000
(iii) Cash and Bank Balance
Balance before redemption
Add : Proceeds of investments sold
Less : Cash paid to debenture holders
`
40,00,000
32,00,000
72,00,000
(66,15,000)
5,85,000 b)
Fair value of an option = ` 28
Difference between Fair value and Issue Price = ` 28 – ` 25 = 3.
Number of employees accepting the offer = 400 employees x 50% = 200 employees Number of shares issued = 200 employees x 100 shares/employee = 20,000 shares Employee Compensation
Expenses recognized in 2012-13 =20,000 shares x ` 3 = ` 60,000
Securities Premium A/c = ` 28 – 10 = ` 18 per share = 20,000 x 18 = ` 3,60,000
Journal Entry
Date Particulars
30.04.2012 Bank (20,000 shares x ` 25) Dr.
`
5,00,000
`
Employees compensation expense A/c Dr. 60,000
To Share Capital
2,00,000
To Securities Premium
3,60,000
(Being stock purchase option accepted by 200 employees for 100 shares each at ` 25 per share on a Fair Value of ` 28 per share)
Page 10 of 15

3.
a)
Particulars
To Op. Stock at cost
To Purchases
To Transfer from Dept Y
To Gross Profit
Particulars
To Balance b/d
To Purchases
To Memorandum Mark-up A/c
(on purchases)
To transfer
To Memorandum Mark-up A/c
(on transfer)
To Memorandum Mark-up A/c
Particulars
To Balance b/d
To Memorandum Stock A/c
(on transfer)
To Memorandum Stock A/c
(mark down)
To Memorandum Stock A/c
(mark down on goods lost)
To Gross Profit
(balancing figure)
To Balance c/d
Working Notes:
1. Closing stock at cost
Closing stock at invoice price
At Cost
Southern Stores Ltd.
Trading Account for the year ebded 31st Dec, 2014
Dept Y Dept Z Particulars
24,000 36,000 By Sales
1,62,000 1,90,000 By Transfer to Dept Z
51,518 92,496 By Cl. Stock at cost
2,37,518 3,21,196
Memorandum Stock Account
Dept Y Dept Z Particulars
32,000
2,700 By Goods lost
54,000 By Balance b/d
1,62,000 1,90,000 By Sales
(on marked down goods in stock)
54,000 95,000 By Transfer
By Memorandum Mark-up A/c
2,700 (on transfer)
1,350 By Memorandum Mark-up A/c
(Mark down on purchases)
344 By Loss of stock
By Memorandum Mark-up A/c
2,48,000 3,43,394
(on lost stock)
By Balance c/d
Y Dept.
32,770
X Dept.
54,294
(3/4) 24,578 (2/3) 36,196
Page 11 of 15
Dept Y Dept Z
2,10,000 2,85,000
2,700
240
24,578 36,196
2,37,518 3,21,196
Dept Y Dept Z
510
2,10,000 2,85,000
2,700
900
800 4,100
240
80
32,770 54,294
2,48,000 3,43,394
Memorandum Mark-up Account
Dept Y Dept Z Particulars
510
900
By Balance b/d
By Memorandum Stock A/c
(mark up on purchase)
800 4,100 By Memorandum Stock A/c
80
(mark up on transfer)
By Memorandum Stock A/c
51,518 92,496
(mark down on goods still in stock)
8,192 18,098
Dept Y Dept Z
8,000 18,000
54,000 95,000
1,350
344
62,000 1,14,694 62,000 1,14,694

2.
Mark down in unsold stock of Z Dept.:
Mark-down x Value of Stock
Value after mark down
= ` 344
.
Verification of Gross Profit
Sales
Add: Reduction (mark down)
Gross Profit
Less: Mark down
Gross profit as per memorandum mark up account
Y Dept. X Dept.
2,10,000 2,85,000
1,310 3,756*
2,11,310 2,88,756
(1/4)
52,828
1,310
51,518
(1/3)
96,252
3,756
92,496
Note:
1) Mark down on opening stock, purchases and closing stock have been shown on reverse side of stock A/c and mark up A/c. Alternatively, these can be shown as a deduction from respective values.
2) Trading Account will be prepared at cost.
3.
b) i) Calculation of Profit earned by the branch
Particulars ` Particulars `
To Opening Stock
To Goods received by Head office
To Expenses
To Gross Profit
2,20,000 By Sales
1,10,0000 By Closing stock
45,000 (refer W.N.)
1,95,000
15,60,000
12,00,000
36,0000
15,60,000 ii) Stock reserve in respect of un realised profit
` 3,60,000 x (20/120) =
Working Notes:
` 60,000
Cost Price
Invoice Price
Sales Price
Calculation of closing stock at invoice price
Opening stock at invoice price
Goods received during the year at invoice price
Less: Cost of goods sold at invoice price
Closing stock
`
100
120
150
2,20,000
11,00,000
13,20,000
9,60,000 [12,00,000 x (120/150)]
3,60,000
Page 12 of 15

4.
a) Computation of liabilities of underwriters (No. of shares):
Particulars
Gross liability
Less: Firm underwriting
A & Co.
12,00,000
1,00,000
11,00,000
7,25,000
3,75,000
Less: Marked applications
Less: Unmarked applications distributed to A & Co. and B
& Co. in equal ratio
Less: Surplus of C & Co. distributed to A & Co. and B &
Co. in equal ratio Net liability (excluding firm underwriting)
Add: Firm underwriting
Total liability (No. of shares)
1,12,500
2,62,500
1,05,000
1,57,500
1,00,000
2,57,500
B & Co.
12,00,000
1,00,000
11,00,000
8,40,000
2,60,000
1,12,500
1,47,500
1,05,000
42,500
1,00,000
1,42,500
C & Co.
12,00,000
1,00,000
11,00,000
13,10,000
-2,10,000
Nil
-2,10,000
2,10,000
Nil
1,00,000
1,00,000
Total Subscriptions received for 31,00,000 Shares out of which marked shares were 28,75,000/-, Hence unmarked shares received were 2,25,000 shares which will be distributed between A & Co and B & Co only equally (agreed ratio underwriting). C & Co has already exceeded the underwriting limit hence will not be required to absorb unmarked shares.
No of shares purchased by Underwriters collectively will be 5 Lakh shares as under:
Total Shares Issued
Less: Purchased by Promoters etc
Shares offered to the Publilc
Total Subscription received
Shares purchased by Underwriters including firm commitment b) Computation of amount payable to underwriters:
Liability towards shares to be subscribed @ 12 per share
Less: Commission
(5% on 12 lakhs shares @ 10 each) Net amount to be paid by underwriters amounts payable
Page 13 of 15
45,00,000
9,00,000
36,00,000
31,00,000
5,00,000
30,90,000
6,00,000
24,90,000
17,10,000
6,00,000
11,10,000
12,00,000
6,00,000
6,00,000

Determination of Buy back of maximum no. of shares as per the Companies Act, 2013:
1. Shares Outstanding Test
Particulars
Number of shares outstanding
25% of the shares outstanding
(Shares)
1,25,000
31,250
Resources Test: Maximum permitted limit 25% of Equity paid up capital + Free Reserves
Particulars
Paid up capital ( ` )
Free reserves ( ` )
(15,00,000 + 2,50,000 + 1,25,000)
Shareholders’ funds ( ` )
25% of Shareholders fund ( `
)
Buy back price per share
Number of shares that can be bought back (shares)
Actual Number of shares for buy back
3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy Back
Particulars a) Loan funds ( ` )
(18,75,000+10,00,000+16,50,000) b) Minimum equity to be maintained after buy back in the ratio of 2:1 ( `
)
(a/2) c) Present equity/shareholders fund ( ` ) d) Future equity/shareholders fund ( `
)
(see W.N.)
(31,25,000 – 2,87,500) e) Maximum permitted buy back of Equity ( `
)
[(d) – (b)] f) Maximum number of shares that can be bought back @ ` 20 per share g) Actual Buy Back Proposed
Summary statement determining the maximum number of shares to be bought back:
`
12,50,000
`
18,75,000
31,25,000
7,81,250
` 20
39,062
25,000
45,25,000
22,62,500
31,25,000
28,37,500 ∗
5,75,000
28,750 shares
25,000 Shares
Particulars
Shares Outstanding Test
Resources Test
Debt Equity Ratio Test
Maximum number of shares that can be bought back [least of the above]
Number of shares
31,250
39,062
28,750
28,750
Page 14 of 15

Company qualifies all tests for buy-back of shares and came to the conclusion that it can buy maximum 28,750 shares on 1st April, 2012.
However, company wants to buy-back only 25,000 equity shares @ ` 20. Therefore, buy-back of 25,000 shares, as desired by the company is within the provisions of the Companies Act, 2013.
Journal Entries of Buy Back of Shares:
Dr.
Debit( ` )
Credit ( ` )
5,00,000
5,00,000
(a) Equity shares buy-back account
To Bank account
` 20 per share)
(Being buy back of 25,000 equity shares of ` 10 each @
(b) Equity share capital account
Securities premium account
To Equity shares buy-back account
(Being cancellation of shares bought back)
(c) Revenue reserve account
To Capital redemption reserve account
(Being transfer of free reserves to capital redemption reserve to the extent of nominal value of capital bought back through free reserves)
Dr.
Dr.
Dr.
2,50,000
2,50,000
2,50,000
5,00,000
2,50,000
________________________________________________________________________________________________________________________________________________________________________________________________
Questions and Solutions prepared by Jai Shah, CA & CFA (USA)
M: +91-9601258161; website: www.ashishlalaji.net
Page 15 of 15