LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
B.Com. DEGREE EXAMINATION –COMMERCE
SUPPLEMENTARY EXAMINATION – JUNE 2007
CO 4500 - CORPORATE ACCOUNTING
Date & Time: 25/06/2007 / 9:00 - 12:00
Dept. No.
Max. : 100 Marks
SECTION – A
Answer ALL questions:
( 10 x 2 = 20 )
1. Under what circumstances can a company fofeit shares?
2. What do you mean by ex-interest price?
3. What is ‘acquisition of business’?
4. What is ‘consideration’ under AS-14?
5. Distinguish between marked application and unmarked application.
6. A firm earned net profits during the last three years as follows:
I year – Rs.36,000; II year – Rs.40,000; III year – Rs.44,000
The capital investment of the firm is Rs.1,00,000. A fair return on the capital, having regard to the
risk involved, is 10%. Calculate the value of goodwill on the basis of 3 years’ purchase of super
profit.
7. Tally Ltd. issued 1,000 (8%) debentures of Rs.100 each. Give appropriate journal entries in the
books of the company, if the debenture were issued
(a) Issued at par, redeemable at a premium of 10%;
(b) Issued at discount of 5%, repayable at a premium of 10%.
8. A company issues 10,000 equity shares of Rs.10 each at par. The issue was underwritten by K &
Co. for maximum commission permitted by law. The public applied for and received 8,000 shares.
Give journal entries in the company’s books.
9. From the following, determine the maximum remuneration available to a full time director of a
manufacturing company. The profit & loss account of the company showed a net profit of
Rs.40,00,000 after taking into account the following items:
Depreciation (including special depreciation of Rs.40,000) – Rs.1,00,000
Provision for income tax – Rs.2,00,000; Donation to political party – Rs.50,000
Ex-gratia payment to a worker – Rs.10,000; Capital profit on sale of assets – Rs.15,000.
10. You are required to calculate the Time ratio for the Pre and Post incorporations periods from the
following particulars:
Date of incorporation – 1st June 1999; Period of financial accounts – Apr.99 – Mar.2000
Total wages – Rs.4,800;
Number of workers – Pre incorporation period : 5
Post incorporation period : 25
Also divide the total wages between Pre and Post incorporation periods.
SECTION – B
Answer any FIVE questions:
( 5 x 8 = 40 )
11. State the conditions for redemption of preference shares.
12. (a) What is the order in which liabilities are discharged in the event of liquidation of a
company?
(b) Enumerate the reasons for valuing goodwill.
13. Explain the different methods of redemption of debentures.
14. Pani Mills Ltd. was incorporated on 31st July 1997 to purchase the business of Hem & Co. as on
1st April 1997. The books of accounts disclosed the following on 31st March 1998.
(i)
Sales for the year Rs.32,10,400 (1st April to 31st July 1997 – Rs.8,02,600; 1st July 1997
to 31st March 1998 – Rs.24,07,800).
(ii)
Gross profit for the year Rs.4,12,800; Managing Directors’ salary Rs.12,000;
Preliminary expenses written off Rs.18,000. Company Secretary’s salary Rs.58,000.
(iii) Bad debts written off Rs.14,890 (prior to 31st July Rs.4,020, after 31st July Rs.10,870).
(iv)
Depreciation on machinery Rs.25,200; general expenses Rs.51,000; Advertising
Rs.7,400; Interest on debentures Rs.20,000.
You are required to prepare a statement apportioning properly the net profit of the company as
between pre and post period.
15. (a) A company had as part of its share capital 1,000 redeemable preference shares of Rs.100
each fully paid up. When the shares became due for redemption the Company had Rs.60,000 in its
reserve fund. The company issued necessary equity shares of Rs.25 specifically for the purpose of
redemption and received cash in full. The redeemable preference shares were then paid out of the
new issue, the balance being met from the reserve fund. Make the necessary journal entries
recording the above transactions.
(b) A Company incorporated on 1st January 2004 issued a prospectus inviting applications for
5,00,000 equity shares of Rs.10 each.
A whole issued was fully underwritten by four persons:
A – 2,00,000 shares; B – 1,50,000 shares; C – 1,00,000 shares and D – 50,000 shares
Applications were received for 4,50,000 shares of which marked applications were as follows:
A – 2,20,000; B – 90,000; C – 1,10,000; and D – 10,000
Find out the liabilities of individual underwriters.
16. On 31st December 2004, the Balance Sheet of a Limited company disclosed the following
position:
Liabilities
Assets
Share capital (Rs.10 each)
4,00,000
Fixed Assets
5,00,000
Reserves
90,000
Current Assets
2,00,000
Profit & Loss
20,000
Goodwill
40,000
5% Debentures
1,00,000
Current Liabilities
1,30,000
--------------------7,40,000
7,40,000
st
On 31 December 2004 the fixed assets were independently valued at Rs.3,50,000 and the goodwill
at Rs.50,000. The net profits for the three years were:
2002 – Rs.51,600; 2003 – Rs.52,000 and 2004 – Rs.51,650 of which 20% was placed to Reserve
account and this proportion being considered reasonable in the industry in which the company is
engaged and where a fair investment return may be taken at 10%. Compute the value of the
company’s share by (a) the Assets Method and (b) the Yield Method.
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17. A Limited company went into liquidation having the following liabilities:
(a) Secured creditors Rs.20,000 (secured realized Rs.25,000)
(b) Preferential creditors Rs.600
(c) Unsecured creditors Rs.30,500
Liquidator’s expenses amount to Rs.252. The Liquidator is entitled to a remuneration of 3% on the
amount realized and 1½% on the amounts distributed to unsecured creditors. The various assets
(excluding securities) realized Rs.26,000. Prepare Liquidator’s Final Statement of Account.
18. X Co. Ltd. resolved to write off one-half of its subscribed capital by reducing each Rs.100
share, both preference and equity to Rs.50 fully paid up and to reduce the book figures of its assets
by an equivalent amount by wiping out the goodwill and the debit balance on the profit and loss
account and by writing down Land & Buildings by Rs.15,000, Plant & Machinery by Rs.10,000 and
reserving the balance for bad debts.
The balance Sheet of the Company before the reduction of capital was as under:
Liabilities
2,000 Pref. Shares of Rs.100 each
3,000 Equity shares of Rs.100 each
Sundry Creditors
2,00,000
3,00,000
1,00,000
Assets
Goodwill
Land & Bldgs
Plant & Mach.
Stock
Sundry Debtors
Cash
Profit & Loss a/c
1,00,000
1,10,000
90,000
80,000
90,000
10,000
1,20,000
---------------------6,00,000
6,00,000
Pass Journal entries to give effect to the above resolution, showing the new Balance Sheet of the
company.
SECTION – C
Answer any TWO questions:
( 2 x 20 = 40 )
19. A company issued for public subscription 40,000 equity shares of Rs.10 each at a premium of
Rs.2 per share payable thus:
On application Rs.2 per share; on allotment of Rs.5 per share (including premium); on first call Rs.2
per share; on second call Rs.3 per share.
Applications were received for 60,000 shares. Allotment was made pro-rata to the
applicants for 48,000 shares, the remaining applications being refused. Money overpaid on
application was utilized towards sums due on allotment.
Ram to whom 1,600 shares were allotted failed to pay the allotment money and first and
second call moneys and Hari to whom 2,000 shares were allotted failed to pay the two calls. These
shares were subsequently forfeited after the second call was made. All the forfeited shares were
sold to Balu as fully paid up at Rs.8 per share. Show the journal entries to record the above
transactions.
20. A Ltd. was registered with an authorized capital of Rs.6,00,000 in equity shares of Rs.10 each.
The following is its Trail Balance on 31st March 1998:
Debit
Rs.
Credit
Rs.
Goodwill
25,000 Share Capital
4,00,000
Cash
750 12% Debentures
3,00,000
Bank
39,900 P & L a/c
26,250
Purchases
1,85,000 Sales
4,15,000
Preliminary expenses
5,000 Bills payable
37,000
Calls-in-arrears
7,500 Sundry creditors
40,000
Premises
3,00,000 General reserve
25,000
Plant & Machinery
3,30,000 Provision for bad debts
3,500
Interim dividend
39,250
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Stock (1-4-97)
Furniture & Fixtures
Sundry debtors
Wages
General expenses
Freight & Carraige
Salaries
Director’s fees
Bad debts
Debenture interest paid
75,000
7,200
87,000
84,865
6,835
13,115
14,500
5,725
2,110
18,000
12,46,750
12,46,750
Prepare Profit & Loss account, Profit & Loss Appropriation account and Balance Sheet in proper
form after making the following adjustments:
(i)
Depreciation plant and machinery 15%;
(ii)
Write off Rs.500 from preliminary expenses;
(iii) Provide for 6 months interest on debentures;
(iv)
Leave bad and doubtful debts provision at 5% on sundry debtors;
(v)
Provide for income tax at 50%;
(vi)
Stock on 31-3-1998 was Rs.95,000.
21. The following are the summarized balance sheets of Amar Ltd. and Samar Ltd. as on 31st March
1998.
Liabilities
Amar
Samar
Assets
Amar
Samar
Share capital
8,00,000
6,00,000
Goodwill
--- 1,20,000
(Rs.10)
Profit & Loss
1,40,000
---Fixed Assets
6,00,000 2,40,000
a/c
Creditors
80,000
2,40,000
Current Assets
4,20,000 2,80,000
P & L a/c
--- 2,00,000
10,20,000
8,40,000
10,20,000 8,40,000
Amar Ltd. agreed to takeover the business of Samar Ltd. as on the date of the balance sheets. After
due negotiations, it was determined that the shares of Amar Ltd. are worth Rs.12 each and the
shares of Samar Ltd. are worth Rs.5 each.
(i)
Prepare Realisation account and Equity share holders accounts in the books of Samar
Ltd.
(ii)
Pass necessary journal entries in the books of Amar Ltd.
(iii) Draw up the balance sheet of Amar Ltd. after the takeover.
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