Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Gurukripa’s Guideline Answers for May 2015 IPCC Exam Questions
ADVANCED ACCOUNTING Group – II
Question No.1 is Compulsory. Answer any 5 Questions from the remaining 6 Questions.
Wherever appropriate, suitable assumption(s) should be made and indicated in the answer by the Candidates.
Working Notes should form part of the answer.
All Page References given are from Padhuka’s Students’ Handbook on Advanced Accounting – For CA Inter (IPC)
Question 1 (a): AS–29 Provisions
5 Marks
Shishir Ltd, a Public Sector Company, provides Consultancy and Engineering Services to its Clients. In the year 2014–2015, the
Government set up a Commission to decide about the pay revision. The pay will be revised with respect from 01–01–2012
based on the recommendations of the Commission. The Company makes the provision of ` 1250 Lakhs for pay revision in the
Financial Year 2014–2015 on the estimated basis as the report of the Commission is yet to come. As per the contracts with
Client on Cost–plus–Job, the Billing is done on the actual payment made to the Employees and allocated to jobs based on
hours booked by these Employees on each job.
The Company discloses though Notes to Accounts:
“Salaries and Benefits include Provision of ` 1250 Lakhs in respect of Pay Revision. The amount chargeable from
Reimbursable Jobs will be billed as per the contract when the actual payment is made.”
The Accountant feels that the Company should also book/recognize the Income by ` 1250 Lakhs in Profit & Loss Account as
per the terms of the contract. Otherwise, it will be the violation of matching concept & understatement of profit.
Comment on the opinion of the Accountant with reference to relevant Accounting Standards.
Solution:
1.
Principles:
Similar to Page No.B.9.19, Illustration 6 [RTP]
Reimbursements from Third Party: Refer Para 46 of AS–29,
(a) Reimbursements can be recognised only when it is virtually certain that the reimbursement will be received
when the Enterprise settles the obligation.
(b) Also, potential loss to an Enterprise may be reduced or avoided because a Contingent Liability is matched by a
related counter–claim or claim against a third party. In such cases, the amount of the provision is determined after
taking into account the probable recovery under the claim if no significant uncertainty as to its measurability or
collectability exists.
2.
Analysis: In the above case, the provision for Salary to Employees ` 1,250 Lakhs will be ultimately collected from the
Client, as per the terms of the contract. So, the liability of ` 1,250 Lakhs is matched by the counter–claim from the
Client. Therefore, the Provision for Salary of Employees should be made after reducing the claim to be made from the
Client. It appears that the whole amount of ` 1,250 Lakhs is recoverable from Client and there is no significant
uncertainty about the collection. Hence, the net charge to Profit & Loss Account should be Nil.
3.
Conclusion:
(a) As per the terms of the agreement, if there is a Reimbursement Clause of “Price Escalation” with retrospective effect,
then the reimbursement can be considered as virtually certain. In such case, it may be recognized as Income.
(b) If the certainty criteria is not satisfied, the amount cannot be recognized as Income.
Question 1 (b): AS–28 Intangible Assets
5 Marks
Mahesh Ltd is developing a new production process. During the Financial Year ended 31st March 2013, the Total Expenditure
incurred on the Process was ` 60 Lakhs. The Production Process met the criteria for recognition as an Intangible Asset on 1st
December 2012. Expenditure incurred till this date was ` 32 Lakhs.
Further expenditure incurred on the process for the Financial Year ending 31st March 2014 was ` 90 Lakhs. As on 31.03.2014,
the Recoverable Amount of Know–How embodied in the Process is estimated to be ` 82 Lakhs. This includes estimated of
future Cash Outflows and Inflows.
You are required to work out:
May 2015.1
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
(i)
(ii)
(iii)
(iv)
What is the expenditure to be charged to Profit and Loss Account for the year ended 31st March 2013?
What is the Carrying Amount of the Intangible Asset as on 31st March 2013?
What is the expenditure to be charged to Profit & Loss Account for the year ended 31st March 2014?
What is the Carrying Amount of the Intangible Asset as on 31st March 2014?
Solution:
Similar to Page No.B.8.13, Q.No.36 [F – A/c M 08]
1.
Expenditure charged to P&L A/c for 2012–2013: ` 32 Lakhs will be recognized as an Expense because the
recognition criteria were not met until 1st December 2012. This expenditure will not form part of the cost of the
Production Process recognized in the Balance Sheet.
2.
Carrying Value of Intangibles as on 31.03.2013: The Production Process will be recognized (i.e. Carrying
Amount) as an Intangible Asset at a cost of ` 28 Lakhs (i.e. expenditure incurred since the date the recognition
criteria were met, i.e. Total during FY 2012–13 ` 60 Lakhs Less Expenses upto 1st Dec 2012 ` 32 Lakhs).
3.
Expenditure charged to P&L A/c for 2013–2014:
Particulars
Book Value on 31.3.2014 = Carrying Amt on 31.3.2013 + Expenditure in 2013–2014 = 28 + 90
Less: Recoverable Amount
Impairment Loss to be charged to P&L A/c
4.
` Lakhs
118
82
36
Carrying Value of Intangibles as on 31.03.2014: The Production Process will be shown at Book Value ` 118
Lakhs, or Recoverable Amount ` 82 Lakhs, whichever is less, hence at ` 82 Lakhs.
Question 1 (c): AS–16 Borrowing Cost
5 Marks
Ayush Ltd began construction of a New Building on 1st January 2014. It obtained ` 3 Lakh Special Loan to finance the
construction of the Building on 1st January 2014 at an interest rate of 12% p.a. The Company’s other outstanding two Non–
Specific Loans were:
Amount
Rate of Interest
11% p.a.
` 6,00,000
13%
p.a.
` 11,00,000
The Expenditure that were made on the Building Project were as follows:
January, 2014
April, 2014
July, 2014
` 3,00,000
` 3,50,000
` 5,50,000
December, 2014
` 1,50,000
The Building was completed on 31st December 2014. Following the principles prescribed in AS 16 ‘Borrowing Cost’,
calculate the amount of interest to be capitalized and pass one Journal Entry for capitalizing the cost and borrowing in
respect of the Building.
Solution:
1.
1.
2.
3.
4.
Similar to Page No.B.5.8, Q.No.21 [F – A/c M 08]
Computation of Average Accumulated Expenses
` 3,00,000 × 12 / 12
` 3,50,000 × 9 / 12
` 5,50,000 × 6 / 12
` 1,50,000 × 1 / 12
=
=
=
=
` 3,00,000
` 2,62,500
` 2,75,000
` 12,500
` 8,50,000
2. Computation of Average Interest Rate
(a) Total Interest Expense =
= (` 6,00,000 ¯ 11%) + (` 11,00,000 ¯ 13%)
= ` 2,09,000.
(b) Total Loan Amount = ` 17,00,000.
(c) So, Average Interest Rate = (a ÷ b) = 12.294%
Note: Out of the above, ` 3,00,000 is from Specific Loan,
and balance ` 5,50,000 is from Non–Specific Loans.
3.
Add:
Computation of amount to be capitalised
Particulars
Cost of Building ` (3,00,000 + 3,50,000 + 5,50,000 + 1,50,000)
Interest Cost to be capilised:
Specific Borrowings (` 3,00,000 × 10%)
Non–Specific Borrowings (` 5,50,000 × 12.294%)
Total Amount to be captilized for the Building
May 2015.2
`
13,50,000
30,000
67,617
14,47,617
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
4. Journal Entry
Particulars
Date
st
31 Dec
Dr. (`)
Building Account
To Bank Account
(Being amount of Cost of Building and Borrowing Cost capitalized thereon)
Dr.
Cr. (`)
14,47,617
14,47,617
Question 1 (d): AS–20 EPS
5 Marks
A Ltd had 8,00,000 Equity Shares outstanding on 1st April 2013. The Company earned a Profit of ` 20,00,000 during the year
2013–2014. The Average Fair Value per Share during 2013–2014 was` 40. The Company has given Share Option to its
Employees of 1,00,000 Equity Shares at Option Price of ` 20.
Calculate Basic EPS and Diluted EPS.
Solution:
1.
2.
3.
Similar to Page No.B.7.23, Q.No.51 [M 08, N 10, M 13]
Particulars
(1)
Net
Profit
for
the
period
attributable to Equity Shareholders
Weighted Avg No. of Equity
Shares
EPS = 1 ÷ 2
Computation of Basic and Diluted EPS
For Basic EPS
Adjustment for Dilution
(2)
(3) For Adjusted EPS
(4) = (2) + (3)
NIL
` 20,00,000
= 50,000
8,50,000
Given ` 20,00,000
Given 8,00,000
1,00,000 ×
Basic EPS = ` 2.50
40 − 20
40
Diluted EPS = ` 2.35
Question 2: Partnership – Death, Sharing of Profits and Dissolution
16 Marks
X, Y and Z were in Partnership sharing Profits and Losses 3:2:1. There was no provision in the agreement for Interest on
Capital or Drawings.
X died on 31.03.2013 and on that date, the Partners’ balances were as under:
Capital Account: X – ` 60,000, Y – ` 40,000, Z – ` 20,000.
Current Account: X – ` 40,000 (Cr.), Y – ` 30,000 (Cr.), Z – ` 10,000 (Dr.)
By the Partnership Agreement, the sum due to X’s Estate was required to be paid within a period of 3 years, and minimum
installment of ` 30,000 each were to be paid, the first such installment falling due immediately after death and the subsequent
installments at half–yearly Intervals. Interest @ 6% p.a. was to be credited half–yearly.
In ascertaining his share, Goodwill (not recorded in the books) was to be valued at ` 90,000 and the Assets, excluding the Joint
Endowment Policy (mentioned below), were valued at ` 60,000 in excess of the Book Values.
No Goodwill Account was raised and no alteration was made to the Book Values of Fixed Assets. The Joint Assurance Policy
shown in the Books at ` 40,000 matured on 01.04.2014, realizing ` 52,000, Payments of ` 30,000 each were made to X’s
Executors on 01.04.2013, 30.09.2013 and 31.03.2014. Y and Z continued trading on the same terms as previously and the Net
Profit for the year ending 31.3.2014 (before charging the Interest due to X’s Estate) amounted to ` 52,000. During the period, the
Partners’ Drawings were Y – ` 15,000, and Z – ` 8,000.
On 01.04.2014, the Partnership was dissolved and an offer to purchase the business as a going concern for ` 1,80,000 was
accepted was accepted on that day. A cheque for that sum was received on 30.06.2014.
The balance due to X’s Estate, including Interest, was paid on 30.06.2014 and on that day, Y and Z received the sums due to them.
You are required to write-up the Partners’ Capital and Current Accounts from 1.4.2013 to 30.6.2014. Show also the account of
the Executors of X.
Solution:
Similar to Page No.A.2.54, Q.No.31 [RTP]
Note: Since no Goodwill Account was raised and no alteration was made to the Book Value of Fixed Assets, these
adjustments are carried out on Memorandum basis, through Memorandum G/w and Memorandum Fixed Assets A/c.
May 2015.3
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Particulars
To balance b/d
To
Memo.G/w
(on
death)(w/off in 2:1)
To Memo Fixed Assets
(w/off in 2:1)
To X’s Capital A/c –
transfer
Total
1. Partners’ Current Account (01.04.2013)
Y
Z
Particulars
–
10,000 By balance b/d
60,000
30,000 To Memo. G/w (on
death) (raised in 3:2:1)
–
40,000
20,000 By Memo Fixed Assets
(increase in 3:2:1)
1,21,000
–
– By Joint Life Policy A/c
(` 52,000 – ` 40,000)
By balance c/d
1,21,000 1,00,000 60,000
Total
X
–
–
X
40,000
45,000
Y
30,000
30,000
Z
–
15,000
30,000
20,000
10,000
6,000
4,000
2,000
–
1,21,000
16,000
1,00,000
33,000
60,000
Particulars
To balance b/d
To Drawings A/c
Total
2. Partners’ Current Account (01.04.2013 to 31.03.2014) Y
Z
Particulars
16,000
33,000 By P&L Approp. A/c (43,704 in 2:1) (WN 1)
15,000
8,000 By balance c/d (bal. fig.)
31,000
41,000
Total
Y
29,136
1,864
31,000
Z
14,568
26,432
41,000
Particulars
To balance b/d
To Y’s Capital A/c (transfer)
Total
3. Partners’ Current Account (01.04.2014 to 30.06.2014)
Y
Z
Particulars
1,864
26,432 By Realisation A/c (Profit) (WN 3)
29,810
– By Z’s Capital A/c (transfer)
31,674 26,432
Total
Y
31,674
–
31,674
Z
15,837
10,595
26,432
Date
01.04.13
01.04.13
31.03.14
30.06.14
30.06.14
Particulars
To X’s Exec–
utor’s A/c
To bal c/d
Total
To bal c/d
Total
To Z’s Current
A/c – tfr
To Bank A/c
(settlement)
Total
Date
01.04.2013
01.04.2013
30.09.2013
30.09.2013
31.03.2014
31.03.2014
30.06.2014
X
4. Partners’ Capital Account
Y
Z
Date
Particulars
1,81,000
–
–
01.04.13
By bal b/d
–
1,81,000
–
–
40,000
40,000
40,000
40,000
20,000
20,000
20,000
20,000
01.04.13
By X Current a/c
Total
By bal b/d
Total
–
–
10,595
01.04.14
–
69,810
9,405
30.06.14
69,810
20,000
Particulars
To Bank A/c
To balance c/d
Total
To Bank A/c
To balance c/d
Total
To Bank A/c
To balance c/d
Total
To Bank A/c
(final settlement)
Total
01.04.13
01.04.2013
Y
Z
60,000
40,000
20,000
1,21,000
1,81,000
–
–
–
40,000
40,000
40,000
–
20,000
20,000
20,000
–
40,000
20,000
–
29,810
–
69,810
20,000
By bal b/d
By Y’s Current
A/c – tfr
Total
5. X’s Executors Account
Date
`
30,000
1,51,000
1,81,000
30,000
1,25,530
1,55,530
30,000
99,296
1,29,296
1,00,785
X
Particulars
By X’s Capital A/c
Total
01.04.2013
30.09.2013
01.10.2013
31.03.2014
01.04.2014
30.06.2014
1,00,785
May 2015.4
By balance b/d
By Interest (6% × 1,51,000 × 1/2)
Total
By balance b/d
By Interest (6% × 1,25,530 × 1/2)
Total
By balance b/d
By Interest (6% × 99,296 × 3/12)
Total
`
1,81,000
1,81,000
1,51,000
4,530
1,55,530
1,25,530
3,766
1,29,296
99,296
1,489
1,00,785
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Working Notes:
Less:
1. Profit for the year ended 31.03.2014
Particulars
`
Profit before charging Interest on balance due to X’s Executors
Interest payable to X’s Executors:
(a) From 01.04.2013 to 30.09.2013 (1,51,000 × ½ year × 6%)
(b) From 01.10.2013 to 31.03.2014 (1,25,530 × ½ year × 6%)
Balance of Profit to be shared by Y and Z (in 2:1 ratio)
52,000
4,530
3,766
2. Statement of Affairs as on 30.06.2014 (to compute Net Assets on takeover by Company)
Capital and Liabilities
Properties and Assets
`
Capital Account:
– Y
– Z
X’s Executors A/c
Total
40,000
20,000
99,296
1,59,296
Sundry Assets (balancing figure)
Current Account:
– Y
– Z
Total
8,296
43,704
`
1,31,000
1,864
26,432
1,59,296
3. Realisation A/c
Particulars
Particulars
`
To Sundry Assets A/c (WN 2)
To Interest (X’s Executors) (6% × 99,296 × 3/12)
To Partners Capital A/c (Pft on Realisation) (2:1)
– Y
31,674
– Z
15,837
Total
1,31,000
1,489
By Bank A/c
`
1,80,000
(Purchase Consideration)
47,511
1,80,000
Total
1,80,000
4. Bank A/c
Receipts
To Realisation A/c (Purchase Consideration recd)
Total
Payments
`
1,80,000
1,80,000
By X’s Executors A/c (final settlement)
By Y’s Capital A/c (final settlement)
By Z’s Capital A/c (final settlement)
Total
Question 3(a): Debentures – Theory
Comment on adequacy of Debenture Redemption Reserve (DRR) w.r.t. following:
Solution:
`
1,00,785
69,810
9,405
1,80,000
4 Marks
Refer Principles in Page No.A.3.59, Q.No.2 Point 4
Question 3(b): Debenture Redemption – Purchase and Cancellation
Piyush Ltd had the following among their Ledger Opening Balances on 1st January 2014:
11% Debentures A/c (2002 Issue)
Debenture Redemption Reserve A/c
13.5% Debenture in Sneha Ltd A/c (Face Value ` 30,00,000)
Own Debentures A/c (Face Value ` 30,00,000)
12 Marks
` 80,00,000
` 70,00,000
` 29,00,000
` 27,00,000
As 31st December 2014 was the date of redemption of the 2002 Debentures, the Company started buying Own Debentures and
made the following purchases in the Open Market:
01–02–2014 – 5000 Debentures at ` 98 cum–interest.
01–06–2014 – 5000 Debentures at ` 99 ex–interest.
Half–yearly Interest is due on the Debentures on 30th June and 31st December in the case of both the Companies.
On 31st December 2014, the Debentures in Sneha Ltd were sold for ` 95 each ex–interest. On that date, the Outstanding
Debentures of Piyush Ltd were redeemed by payment and by cancellation.
May 2015.5
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Show the entries in the following Ledger Accounts of Piyush Ltd during 2014:
(a) Debenture Redemption Reserve Account, (b) Own Debenture Account. Note: The Face Value of Debenture was ` 100.
Solution:
Refer Principles in Page No.A.3.85, Q.No.14 [N 89]
Date
Particulars
Dec 31
Dec 31
1. 11% Debentures Account
` Date
To Own Debentures A/c – Cancellation
To Bank A/c (Bal. Fig.) – Redemption
Total
Date
40,00,000
40,00,000
80,00,000
Jan 1
Particulars
`
By balance b/d
80,00,000
Total
80,00,000
2. Debenture Redemption Fund / Reserve Account
Date
Particulars
`
Particulars
`
Dec 31
To Debentures in Sneha
50,000
Jan 1
By balance b/d
Ltd. (Loss on Sale)
June 30 By Interest from Sneha Ltd (I half year)
Dec 31 To General Reserve
77,67,500
Dec 31
By Interest from Sneha Ltd (II half year)
(Transfer)
Dec 31
By Interest on Own Debentures (transfer)
Total
78,17,500
Total
Note: Interest from Sneha Ltd for each Half Year = ` 30,00,000 × 13.5% × ½ year = ` 2,02,500.
Date
Jan 1
Particulars
To balance
b/d
To Bank A/c
– purchase
Nominal
30,00,000
Dec
31
To Bank A/c
– purchase
5,00,000
Dec
31
To
P&L
(Profit
on
Cancellation)
To DRR A/c
Feb 1
Dec
31
Total
5,00,000
3. Own Debentures Account (amounts in `)
Interest
Cost Date Particulars
–
27,00,000 June By
Deb.
30
Interest A/C
4,85,417
Dec By
Deb.
4,583
31
Interest A/C
(Note 1)
4,95,000
Dec
By
11%
22,917
31
Debentures
(Note 2) (5,000×99)
3,19,583
–
40,00,000
4,12,500
(Int. Tfr)
4,40,000
70,00,000
2,02,500
2,02,500
4,12,500
78,17,500
Nominal
–
Interest
2,20,000
Cost
–
–
2,20,000
–
40,00,000
–
40,00,000
40,00,000
4,40,000
40,00,000
A/c
(Cancellation)
40,00,000
Total
Note:
1.
2.
1
(Jan Only) = ` 4,583. Total Amt paid cum–
12
interest = (5,000×98) = ` 4,90,000. Balance attributable to Cost = Total (–) Interest = 4,90,000 – 4,583 = ` 4,85,417.
5
Interest Component of Purchase on 1st Jun= ` 5,00,000 ×11%×
(Jan to May)=` 22,917. Since this is an ex–
12
interest purchase, it need not be deducted / adjusted against cost.
Interest Component of Purchase on 1st Feb = ` 5,00,000 ×11%×
Date
Jan 1
Dec
31
Particulars
To balance
b/d
To
Debenture
FV
30,00,000
–
3. 13.5% Debenture in Sneha Ltd.
Interest
Cost Date Particulars
–
29,00,000 June By Bank A/C
30
(I half year)
4,05,000
–
Dec
By Bank A/C
31
(II half year)
(Int. Tfr)
Redemption
Reserve
Total
Dec
31
Dec
31
30,00,000
4,05,000
29,00,000
By
Bank
(Sale)
By DRR–loss
on Sale
Total
FV
–
Interest
2,02,500
Cost
–
–
2,02,500
–
30,00,000
–
28,50,000
–
–
50,000
30,00,000
4,05,000
29,00,000
Question 4: Amalgamation
The summarized Balance Sheet of M/s. A Ltd. and M/s. B Ltd. as on 31.03.2014 were as under:
May 2015.6
16 Marks
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Liabilities
Share Capital:
40,000 Equity Shares of ` 10 each, Fully paid
30,000 Equity Shares of ` 10 each, Fully paid
General Reserve
Profit & Loss Account
Trade Payables
6% Debentures
A Ltd `
B Ltd `
4,00,000
–
2,40,000
50,000
2,10,000
–
9,00,000
–
3,00,000
–
50,000
1,30,000
1,20,000
6,00,000
Assets
Freehold Property
Plant & Machinery
Motor Vehicle
Trade Receivables
Inventory
Cash at Bank
A Ltd `
3,00,000
60,000
30,000
2,00,000
2,30,000
80,000
B Ltd `
2,40,000
40,000
20,000
80,000
1,80,000
40,000
9,00,000
6,00,000
A Ltd and B Ltd carry on business of similar nature and they agreed to amalgamate. A New Company, M/s. AB Ltd is formed to
take over the Assets and Liabilities of A Ltd and B Ltd on the following basis:
Assets and Liabilities are to be taken on Book Value, with the following exceptions:
(a) Goodwill of A Ltd and B Ltd is to be valued at ` 1,40,000 and ` 40,000 respectively.
(b) Plant and Machinery of A Ltd are to be valued at ` 1,00,000.
(c) The Debentures of B Ltd are to be discharged by the issue of 6% Debentures of AB Ltd at a premium of 5%.
You are required to:
(i) Compute the basis on which Shares in AB Ltd will be issued to Shareholders of the existing Companies assuming the
value of each Share of AB Ltd is ` 10.
(ii) Draw up a Balance Sheet of AB Ltd as on 1st April 2014, when amalgamation is completed.
(iii) Pass Journal Entries in the Books of AB Ltd for acquisition of A Ltd and B Ltd.
Solution:
Similar to Page No.A.5.41, Illustration 18 [M 12]
1. Computation of Purchase Consideration
Particulars
Assets taken over:
Freehold Property
Plant & Machinery
Motor Vehicles
Trade Receivables
Inventory
Bank Balance
Goodwill
Total Assets taken over
Liabilities taken over:
Sundry Creditors
6% Debentures
Additional Liability for discharge of Debentures (5% Premium)
Total Liabilities taken over
Net Assets taken over = Purchase Consideration
A Ltd (`)
3,00,000
1,00,000
30,000
2,00,000
2,30,000
80,000
1,40,000
10,80,000
2,10,000
–
Number of Shares (Face Value ` 10)
I
(1)
(2)
(3)
II
(1)
2. Balance Sheet of AB Ltd (after Amalgamation)
Particulars
Note
EQUITY AND LIABILITIES:
Shareholders’ Funds:
Share Capital
1
Non–Current Liabilities:
Long Term Borrowings
6% Debentures (1,20,000 + 5%)
Current Liabilities:
Trade Payables
(2,10,000 + 1,30,000)
Total
ASSETS
Non–Current Assets:
Fixed Assets:
(i) Tangible Assets
2
(ii) Intangible Assets
– Goodwill (1,40,000 + 40,000)
May 2015.7
2,10,000
8,70,000
87,000
This Year
12,54,000
1,26,000
3,40,000
17,20,000
7,30,000
1,80,000
B Ltd (`)
2,40,000
40,000
20,000
80,000
1,80,000
40,000
40,000
6,40,000
1,30,000
1,20,000
6,000
2,56,000
3,84,000
38,400
Prev. Yr
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Particulars
(2)
Current Assets:
(a) Inventories
(b) Trade Receivables
(c) Cash and Cash Equivalents
Note
This Year
– (2,30,000 + 1,80,000)
– (2,00,000 + 80,000)
– (80,000 + 40,000)
Total
Prev. Yr
4,10,000
2,80,000
1,20,000
17,20,000
Note 1: Share Capital
Particulars
Authorised:
…………………Equity Shares of …… each
Issued, Subscribed & Paid up: 1,25,400 Equity Shares of ` 10 each
(All the above Shares are issued for non–cash consideration as per scheme of amalgamation)
Total
This Year
Prev. Yr
12,54,000
12,54,000
Note 2: Tangible Fixed Assets
Freehold Property
Plant & Machinery
Motor Vehicles
S.No.
1.
2.
3.
4.
5.
Particulars
(3,00,000 + 2,40,000)
(1,00,000 + 40,000)
(30,000 + 20,000)
Total
This Year
5,40,000
1,40,000
50,000
7,30,000
3. Journal Entries in the Books of AB Ltd
Particulars
Business Purchase A/c
To Liquidator of A Ltd A/c
(Being Purchase Consideration due in respect of takeover of A Ltd)
Goodwill A/c
Freehold Property A/c
Plant and Machinery A/c
Motor Vehicle A/c
Trade Receivables A/c
Inventory A/c
Cash at Bank A/c
To Sundry Creditors A/c
To Business Purchase A/c
(Being various Assets and Liabilities recorded upon acquisition)
Liquidator of A Ltd A/c
To Equity Share Capital A/c
(Being 87,000 Equity Shares of ` 10 each allotted to the Shareholders of A Ltd)
Business Purchase A/c
To Liquidator of B Ltd.
(Being Purchase Consideration due in respect of takeover of B Ltd)
Goodwill A/c
Freehold Property A/c
Plant and Machinery A/c
Motor Vehicle A/c
Trade Receivables A/c
Inventory A/c
Cash at Bank A/c
To 6% Debentures A/c
To Sundry Creditors A/c
To Business Purchase A/c
(Being various Assets and Liabilities of B Ltd recorded upon acquisition)
May 2015.8
Dr. (`)
Dr.
Prev. Yr
Cr. (`)
8,70,000
8,70,000
Dr.
Dr. Dr. Dr. Dr. Dr.
Dr.
1,40,000
3,00,000
1,00,000
30,000
2,00,000
2,30,000
80,000
2,10,000
8,70,000
Dr.
8,70,000
8,70,000
Dr.
3,84,000
3,84,000
Dr.
Dr. Dr. Dr. Dr. Dr.
Dr.
40,000
2,40,000
40,000
20,000
80,000
1,80,000
40,000
1,26,000
1,30,000
3,84,000
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
S.No.
6.
Particulars
Dr. (`)
Liquidator of B Ltd A/c
To Equity Share Capital A/c
(Being 38,400 Shares of ` 10 each allotted to the Shareholders of B Ltd)
Dr.
Cr. (`)
3,84,000
3,84,000
Question 5(a): Accounts of Banking Companies – Various Accounting Aspects
12 Marks
Following facts have been taken out from the records of Sneha Bank Ltd in respect of the year ending 31st March 2015.
(i) On 01–04–2014, Bills for Collection were ` 10,15,000. During the year 2014–2015, Bills Received for Collection amounted to
` 89,75,000, Bills Collected were ` 64,50,000 and Bills Dishonoured and Returned were ` 11,25,000.
Prepare Bills for Collection (Assets) Account and Bills for Collection (Liability) Account.
(ii) On 1–4–2014, Acceptances, Endorsements, etc. not yet satisfied amounted to ` 27,50,000. Druing the year under
question, Acceptances, Endorsements, Guarantees, etc. amounted to ` 67,50,000. The Bank honoured Acceptances to
the extent of ` 44,50,000. Clients paid off ` 15,00,000 against the guaranteed liability. The Clients failed to pay `
4,00,000 which the Bank had to pay.
Prepare the “Acceptances, Endorsements and other obligations Account” as it would appear in the General Ledger.
(iii) It is found from the Books, that a Loan of ` 50,00,000 was advanced on 30.09.2014 @ 14% p.a. Interest payable half–yearly,
but the Loan was outstanding as on 31.03.2015 without any payment recorded in the meantime, either towards Principal or
towards Interest. The Security for the loan was 1,00,000 Fully Paid Shares of ` 100 each (Market Value was ` 98 per Share
as per the Stock Exchange information as on 30th September 2014.) But due to fluctuations, the Price fell to ` 45 per Share
in January 2015. On 31–03–2015, the Price as per Stock Exchange rate was ` 85 per Share.
Show how would you classify the Loan as Secured / Unsecured in the Balance Sheet of the Company.
(iv) The following balances are extracted from the Trial Balance as on 31.03.2015:
Dr.(`)
Cr.(`)
Interest and Discounts
98,00,000
Rebate for Bills Discounted
45,000
Bills Discounted and Purchased
5,00,000
It is ascertained that the proportionate discounts not yet earned for bills of mature in 2014–2015 amount to ` 24,000.
Prepare Ledger Accounts.
Solution: 5(a)(i)
Similar to Page No.A.7.46, Illustration 20 [M 06]
1. Bills for Collection (Asset) A/c
Particulars
`
Particulars
To Balance b/d (as on 01.04.14)
To Bills for Collection (Liability) A/c
10,15,000
89,75,000
Total
Particulars
99,90,000
Date
`
64,50,000
11,25,000
24,15,000
99,90,000
2. Bills for Collection (Liability) A/c
Particulars
`
To Bills for Collection (Asset)A/c
To Bills for Collection (Asset)A/c
To balance c/d (as on 31.03.15) (bal. fig.)
Total
Solution: 5(a)(ii)
By Bills for Collection (Liability) A/c
By Bills for Collection (Liability) A/c
By balance c/d (as on 31.03.15) (bal. fig.)
Total
64,50,000
11,25,000
24,15,000
99,90,000
`
By balance b/d (as on 01.04.2014)
By Bills for Collection (Asset) A/c
Total
10,15,000
89,75,000
99,90,000
Similar to Page No.A.7.47, Illustration 21 [N 99]
Acceptances, Endorsements and Other Obligations Account (in General Ledger)
Particulars
Date
Particulars
` 000’s
2014–15
To Constituents’ Liabilities for Acceptances /
Guarantees etc. (Paid off by Clients)
1,500
2014–15
To Constituents’ Liabilities for Acceptances /
Guarantees etc. (Honoured by Bank)
4,450
May 2015.9
01.04.14
2014–15
By balance b/d
By Constituent’s Liabilities for
acceptance / guarantees, etc.
` 000’s
2,750
6,750
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Date
Particulars
` 000’s
To Constituents Liabilities for Acceptances /
Guarantees etc. (Honoured by Bank on
Party’s failure to pay)
To balance c/d – Acceptance not yet satisfied
[Will be shown as Contingent Liability]
31.03.15
Total
Solution: 5(a)(iii)
Asset Classification
Security Evaluation
Solution: 5(a)(iv)
Date
Particulars
` 000’s
400
3,150
9,500
Total
9,500
Refer Principles in Chapter 7
(a) Date of Loan: 30.09.2014 [Interest Payable Half Yearly]
(b) The First Instalment is due on 31.03.2015. Hence, as on that date, the Account is not
overdue. Hence, it is a Performing Asset.
(a) The Loan is secured by 1,00,000 fully paid shares of ` 100 each.
(b) The value of security should be reckoned with respect to Balance Sheet Date (i.e. ` 85 ×
1,00,000 = ` 85 Lakhs)
(c) Hence, the Loan should be disclosed as “Fully Secured Performing Asset” as on 31.03.2015.
Similar to Page No.A.7.40, Illustration 8 [N 03, M 12]
Note: It is assumed that the Rebate on Bills Discounted A/c ` 45,000 is as on 31.03.2014, i.e. Opening Balance.
Add:
Less:
1. Computation of amount to be credited to P&L A/C
Particulars
Opening Balance of Rebate on Bills Discounted
Interest & Discounts
Rebate on Bills as on March 31
Amount to be credited in P&L A/C
Date
01.04.2014
31.03.2015
Date
31.03.2015
31.03.2015
Particulars
To Interest & Discount A/c
To balance c/d
Total
2. Rebate on Bills Discounted Account
Date
Particulars
`
45,000 01.04.2014 By balance b/d
24,000 31.03.2015 By Interest & Disc.(Rebate Reqd at end)
69,000
Total
3. Interest and Discount Account
Particulars
Date
Particulars
`
To Rebate on Bills Discounted
24,000 01.04.2014 By Rebate on Bills Discounted
(Opening Balance)
To Profit & Loss A/c (bal. fig.)
98,21,000
(Income for the year)
31.03.2015 By Customers A/C (given)
Total
98,45,0000
Total
`
45,000
98,00,000
(24,000)
98,21,000
`
45,000
24,000
69,000
`
45,000
98,00,000
98,45,000
Question 5(b): Accounts of Banking Companies – Provisioning with DICGC Cover
4 Marks
From the following information of XY Bank Ltd for the year ended 31st March 2014, Compute the Provisions to be made in the
Bank’s Books for Doubtful Assets: (Amounts ` in Lakhs)
Doubtful Assets (More than 3 Years)
2,000
DICGC 100% Cover
200
Value of Security including DICGC Cover
1,000
Solution:
Similar to Page No.A.7.43, Illustration 14 [M 00, M 02, M 04, N 12]
Particulars
Less:
Less:
Loan Outstanding
Realisable Value of Securities (excluding ECGC Cover)
Unsecured Portion subject to ECGC Cover
DICGC/ ECGC Coverage
Unsecured Portion
May 2015.10
` Lakhs
(1,000 – 200)
(100% on 200)
2,000
(800)
1,200
(200)
1,000
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Particulars
` Lakhs
Provision to be created: (Doubtful more than 3 years)
– Unsecured Portion at 100%
– Secured Portion at 100%
Total Provision to be made
(100% × 1,000)
(100% × 800)
1,000
800
1,800
Question 6(a): Branch Accounts
8 Marks
M/s. Sandeep, having Head Office at Delhi has a Branch at Kolkata. The Head Office does Wholesale Trade only at Cost plus
80%. The Goods are sent to Branch at the Wholesale Price, viz. cost plus 80%. The Branch at Kolkata wholly engaged in Retail
Trade and the goods are sold at cost to Head Office plus 100%.
Following details are furnished for the year ended 31st March 2014:
Particulars
Opening Stock (as on 01.04.2013)
Purchases
Goods sent to Branch (cost to H.O. plus 80%)
Sales
Office Expenses
Selling Expenses
Staff Salary
Head Office (`)
1,25,000
21,50,000
7,38,000
23,79,600
50,000
32,000
45,000
Kolkata Branch (`)
–
–
–
7,30,000
4,500
3,300
8,000
Prepare Trading and Profit & Loss Account of the Head Office and Branch for the year ended 31st March 2014.
Solution:
To
To
To
To
To
To
To
To
Similar to Page No.A.1.48, Illustration 10 [N 07]
A. Trading and Profit and Loss Account for the year ended on 31st March (in `)
Particulars
HO
Branch
Particulars
HO
Opening Stock
1,25,000
Nil By Sales
23,79,600
Purchases
21,50,000
Nil By Goods Sent to Branch
7,38,000
Goods received from HO
–
7,38,000 By Closing Stock (WN 2,3)
5,43,000
Gross Profit (bal.figure)
13,85,600
73,000
Total
36,60,600
8,11,000
Total
36,60,600
Staff Salary
45,000
8,000 By Gross Profit b/d
13,85,600
Office Expenses
50,000
4,500
Selling Expenses
32,000
3,300
NP trfd to General P&L (b/f)
12,58,600
57,200
Total
13,85,600
73,000
Total
13,85,600
Branch
7,30,000
Nil
81,000
8,11,000
73,000
73,000
B. General Profit and Loss Account
Particulars
Working Notes:
Add:
Particulars
`
80
To Stock Reserve on Branch Clg Stock (` 81,000 ×
)
180
To Net Profit (balancing figure)
Total
36,000
12,79,800
13,15,800
By Head Office Profit b/d
By Branch Profit b/d
Total
1. Computation of Loading Margin
Particulars
Cost of Goods to Head Office
Loading by HO to Branch
Whole Sale Price, i.e. Invoice Price to Branch
Sale Price at Branch
`
12,58,600
57,200
13,15,800
`
100
80
180
200
May 2015.11
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
2. Closing Stock at Branch
Goods Received from HO at Whole Sale Price
Less:
Sales converted in to Wholesale Price (` 7,30,000 ×
` 7,38,000
180
)
200
` 6,57,000
Closing Stock at Branch
` 81,000
3. Closing Stock of HO = Opening Stock + Purchases – Cost of Goods Sent to Branch – Cost of Goods Sold by HO
100
100
) – (` 23,79,600 ×
)
= ` 1,25,000 + ` 21,50,000 – (` 7,38,000 ×
180
180
= ` 1,25,000 + ` 21,50,000 – ` 4,10,000 – ` 13,22,000
= ` 5,43,000
Question 6(b): Departmental Accounts
8 Marks
Suman Enterprises has two Departments, Finished Leather and Shoes. Shoes are made by the Firm Itself out of leather
supplied by Leather Department at its usual Selling Price. From the following figures, prepare Departmental Trading and Profit
& Loss Account for the year ended 31st March 2014:
Particulars
Finished Leather Department (`)
Shoes Department (`)
Opening Stock (as on 01.04.2013)
30,20,000
4,30,000
Purchases
1,50,00,000
2,60,000
Sales
1,80,00,000
45,20,000
Transfer to Shoes Department
30,00,000
–
Manufacturing Expenses
–
5,00,000
Selling Expenses
1,50,000
60,000
Rent and Warehousing
5,00,000
3,00,000
Stock on 31.03.2014
12,20,000
5,00,000
The following further information are available for necessary consideration:
(i) The Stock in Shoes Department may be considered as consisting of 75% of Leather and 25% of Other Expenses.
(ii) The Finished Leather Department earned a Gross Profit @ 15% in 2012–2013.
(iii) General Expenses of the Business as a whole amount to ` 8,50,000.
Solution:
Particulars
To Opg Stock
To Purchases
To Tfr from
Leather Dept.
To Mfg. Exps.
To GP c/d
Total
To Selling
Expenses
To Rent &
Warehousing
To Profit c/d
Total
Similar to Page No.A.1.12, Illustration 6 [N 03, N 11]
Departmental Trading and Profit and Loss A/c for the year ending 31st March (`)
Leather
Shoes
Total
Particulars
Leather
Shoes
30,20,000
4,30,000
34,50,000 By Sales
1,80,00,000
45,20,000
1,50,00,000
2,60,000
1,52,60,000 By Tfr. to RM
30,00,000
–
–
30,00,000
30,00,000 By Clg Stock
12,20,000
5,00,000
–
42,00,000
2,22,20,000
1,50,000
5,00,000
8,30,000
50,20,000
60,000
5,00,000
50,30,000
2,72,40,000
2,10,000
5,00,000
3,00,000
8,00,000
35,50,000
42,00,000
4,70,000
8,30,000
40,20,000
50,30,000
Particulars
To General Expenses
To Stock Reserve (Note)
To Net Profit (balancing figure)
Total
Total
2,25,20,000
30,00,000
17,20,000
Total
By GP b/d
2,22,20,000
42,00,000
50,20,000
8,30,000
2,72,40,000
50,30,000
Total
42,00,000
8,30,000
50,30,000
2. General Profit and Loss Account
Total
Particulars
8,50,000 By Profit b/d
26,625
31,43,375
40,20,000
Total
May 2015.12
Total
40,20,000
40,20,000
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Note 1: Stock Reserve to be additionally provided is 75,000 – 48,375= ` 26,625, computed as under –
Particulars
Last Year i.e. Opg Stock
This Year i.e. Closing Stock
Rate of GP on Sales in Leather Dept
Given = 15% 42,00,000 ÷ 2,10,00,000 = 20%
Element of Leather Stock in Shoes Department
75% of 4,30,000 = ` 3,22,500
75% of 5,00,000 = ` 3,75,000
Stock Reserve required to be maintained
3,75,000 × 20% = ` 75,000
3,22,500 × 15% = ` 48,375
Note 2: In this case, it is possible to ascertain the Reserve already created against Unrealised Profit in the Opening
Stock. In the absence of information, the Reserve should be computed on the difference in the Opening and Closing
Stocks i.e. ` 70,000 in this question. Since the Closing Stock has increased, the Stock Reserve computed would be
debited to P&L A/c. In case of decrease in Stocks, the Reserve would be credited to P&L A/c.
Question 7(a): Insurance Companies – Theory
What are the differences between Life Insurance and other forms of insurance?
Solution:
4 Marks
Same as Page No.A.8.1, Illustration 3
Question 7(b): AS–12 Government Grants
4 Marks
A Ltd has set up its business in a designated backward area with an investment of ` 200 Lakhs. The Company is eligible for
25% Subsidy and has received ` 50 Lakhs from the Government. Explain the treatment of the Capital Subsidy received from the
Government in the books of the Company.
Solution:
Similar to Page No.B.4.9, Illustration 26 [M 12]
Hint Answer: Subsidy received in this case, is not in relation to specific Fixed Asset or in relation to revenue. Hence, it should not
be treated as Deferred Income or as an item of Revenue. The correct treatment is to credit the Subsidy to Capital Reserve.
Question 7(c): Liquidation – Computation of Remuneration
4 Marks
A Liquidator is entitled to receive remuneration at 2% on the Assets realized, 3% on the amount distributed to Preferential
Creditors and 3% on the payment made to Unsecured Creditors. The Assets were realized for ` 45,00,000 against which
payment was made as follows:
Liquidation Expenses ` 50,000,
Secured Creditors ` 15,00,000,
Preferential Creditors ` 1,25,000
The amount due to Unsecured Creditors was ` 15,00,000. You are asked to calculate the Total Remuneration Payable to the
Liquidator. Calculation shall be made to the nearest multiple of a rupee.
Solution:
Similar to Page No.A.6.7, Illustration 2 [M 12]
Particulars
Computation
`
2% on Assets realized
90,000
` 45,00,000 × 2%
3% on Amount distributed to Preferential Creditors
3,750
` 1,25,000 × 3%
3% on Amount distributed to Unsecured Creditors
45,000
` 15,00,000 × 3%
Total Remuneration to Liquidator
1,38,750
Note: Amount available for Unsecured Creditors + Liquidator’s Remuneration at 3% thereon = Assets realized ` 45,00,000
– Liquidation Expenses ` 50,000 – Payment to Secured Creditors ` 15,00,000 – ` Payment to Preferential Creditors `
1,25,000 – Liquidator’s Other Remuneration ` 90,000 and ` 3,750 = ` 27,31,250. Hence, amount due = ` 15,00,000.
Question 7(d): AS–19 Leases
State any four situations when a Lease would be classified as Finance Lease.
Solution:
4 Marks
Same as Page No.B.6.5, Illustration 14 [N 12]
Question 7(e): LLP – Theory
Under what circumstances, an LLP can be wound up by the Tribunal?
As
1.
2.
3.
4.
5.
4 Marks
per Sec.64 of the Limited Liability Partnership Act, an LLP may be wound up by the Tribunal if –
The LLP decides that it would be wound up by the Tribunal,
For a period of more than 6 months, the number of Partners of the LLP is reduced below 2,
LLP is unable to pay its debts,
LLP has acted against the interests of the sovereignty and integrity of India, the Security of the State or Public Order,
LLP has made default in filing the Statement of Accounts, its Solvency, Annual Return with the Registrar for any 5
consecutive Financial Years,
6. The Tribunal is of the opinion that the LLP be wound up.
May 2015.13
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Additional Questions for Practice
Question 1: Inter Departmental Profits
RTP
The following balances were extracted from the books of Hari Associates. You are required to prepare Departmental Trading Account
and Profit and Loss Account for the year ended 31st March after adjusting the unrealized Department Profits if any.
Particulars
Deptt. A
Deptt. B
Opening Stock
` 40,000
` 50,000
Purchases
` 9,10,000
` 6,50,000
Sales
` 15,00,000
` 10,00,000
General Expenses incurred for both the Departments were ` 1,25,000 and you are also supplied with the following information:
(a) Closing Stock of Department A ` 1,00,000 including goods from Department B for ` 20,000 at cost of Department A.
(b) Closing Stock of Department B ` 2,00,000 including goods from Department A for ` 30,000 at cost to Department B.
(c) Opening Stock of Department A and Department B include goods of the value of ` 10,000 and ` 15,000 taken from
Department B and Department A respectively at cost to Transferee Departments.
(d) The rate of Gross Profit is uniform from year to year.
1.Departmental Trading and Profit & Loss Account for the year ended 31st March
Particulars
Deptt. A
Deptt. B
Particulars
Deptt. A
Deptt. B
Opening Stock
50,000
40,000 By Sales
10,00,000
15,00,000
Purchases
6,50,000
9,10,000 By Closing Stock
1,00,000
2,00,000
Gross Profit
4,00,000
7,50,000
Total
11,00,000 17,00,000
Total
11,00,000 17,00,000
General Expenses (in ratio of Sales)
50,000
75,000 By Gross Profit
4,00,000
7,50,000
Profit tfr to General Profit and Loss A/c
3,50,000
6,75,000
Total
4,00,000
7,50,000
Total
4,00,000
7,50,000
Solution:
To
To
To
To
To
2.General Profit and Loss Account
Particulars
Particulars
`
To Stock Reserve (Additional)
By Profit from:
5,000
Deptt. A
Stock in Deptt. A: (` 20,000 – ` 10,000) × 50% GP of ‘B’
6,000
Deptt. B
Stock in Deptt. B: (` 30,000 – ` 15,000) × 40% GP of ‘A’
To Net Profit
10,14,000
Total
10,25,000
Total
4,00,000
7,50,000
Note: GP Rates:
Dept A.
= 40%;
Dept B.
= 50%
10,00,000
15,00,000
Question 2: Partnership
What are the Liabilities of Designated Partners in a LLP? Explain in brief.
`
3,50,000
6,75,000
10,25,000
RTP
Solution:
Liabilities of Designated Partners of LLP
As per Section 8 of LLP Act, unless expressly provided otherwise in this Act, a Designated Partner shall be–
1. responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance
of the provisions of the LLP Act, including filing of any Document, Return, Statement, Report, etc. pursuant to the
provisions of the LLP Act and as may be specified in the LLP agreement, and
2. liable to all penalties imposed on the LLP for any contravention of those provisions.
Question 3: ESOP – Expense Recognition – Lapse of All Options
The following particulars in respect of Stock Options granted by a Company are available:
Grant Date
Number of Employees covered
Number of Options granted per Employee
Fair value of Option per Share on Grant Date (`)
RTP
April 1, 2012
50
1,000
9
The Option will vest to employees serving continuously for 3 years from vesting date, provided the Share Price is ` 70 or
above at the end of 2014–2015.
May 2015.14
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
The estimates of number of employees satisfying the condition of continuous employment were 48 on 31.03.2013 and 47 on
31.03.2014. The number of employees actually satisfying the condition of continuous employment was 45. The Share Price
at the end of 2014–2015 was ` 68.
Compute the Expenses to recognize in each year and show important accounts in books of the Company.
Solution:
Notes:
1. The vesting of Options is subject to satisfaction of two conditions, viz. Service Condition of continuous employment
for 3 years and Market Condition that the Share Price at the end of 2014–2015 is not less than ` 70.
2. Since the Share Price on 31.03.2015 was ` 68, the actual vesting is Nil. Despite this, the Company should recognize the
value of Option over 3–year vesting period from 2012–2013 to 2014–2015.
3. At the end of 3–year period, the balance in ESOP Outstanding A/c will be transferred to General Reserve, since the
options could not vest.
(a)
(b)
(c)
(d)
(e)
(f)
1. Amount of Employee Compensation Expense to be recognized
Details
FY 2012 – 2013
FY 2013 – 2014
No. of Employees expected to satisfy condition
48
47
Total No. of Options Expected to Vest on Exercise Date
48,000
47,000
= [(a) × 1,000]
Total Value of Options Expected to Vest at the end of
` 4,32,000
` 4,23,000
Vesting Period = [(b) × FV of Option ` 9]
[(c) × 2/3]
[(c) × 1/3]
Proportionate Cost of Options
= ` 2,82,000
= ` 1,44,000
0
Less: Already recognized in Previous Years
(` 1,44,000)
Amount to be Expensed this Year
` 1,44,000
` 1,38,000
FY 2014 – 2015
45
2. Employees’ Compensation Expense Account
Year
Particulars
Particulars
`
2012–2013 To ESOP Outstanding A/c
1,44,000 By Profit and Loss Account
1,44,000
2013–2014 To ESOP Outstanding A/c
1,38,000 By Profit and Loss Account
1,38,000
2014–2015 To ESOP Outstanding A/c
1,23,000 By Profit and Loss Account
1,23,000
45,000
` 4,05,000
[(c) × 3/3]
= ` 4,05,000
(` 2,82,000)
` 1,23,000
`
1,44,000
1,44,000
1,38,000
1,38,000
1,23,000
1,23,000
3. ESOP Outstanding A/c
Year
Particulars
2012–2013 To Balance c/d
2013–2014 To Balance c/d
2014–2015 To General Reserve (Year End)
Particulars
`
1,44,000 By Employees’ Compensation Expense A/c
1,44,000
2,82,000 By Balance b/d
By Employees’ Compensation Expense A/c
2,82,000
4,05,000 By Balance b/d
By Employees’ Compensation Expense A/c
4,05,000
`
1,44,000
1,44,000
1,44,000
1,38,000
2,82,000
2,82,000
1,23,000
4,05,000
Question 4: Redemption of Debentures
RTP
Mallika Ltd has Authorized Capital of 8,00,000 Equity Shares of ` 10 each. But out of these 2,40,000 Shares have been issued
as fully paid. The Company has an outstanding 14% Debentures Loan of ` 24,00,000 redeemable at 102% and Interest has been
paid up to date.
The Directors resolved to redeem the Debentures on 1st January and the Holders are given an option to receive payment either
wholly in cash or wholly in fully Paid Equity Shares @ 8 Shares for every ` 100 of Debentures.
On that date, the balance of the Debenture Redemption Reserve Account is ` 20,00,000 and corresponding Investment Account
` 20,00,000 (at cost) of which the Market Value is ` 18,00,000.
75% of the Holders decided to exercise the option for taking Shares in repayment and cash for the rest is procured by realizing
an adequate amount of Investment at the prevailing Market Value.
Draw up Journal Entries (including Cash Book Entries) to give effect to the above transactions.
May 2015.15
Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Advanced Accounting – Group II Exam
Solution:
1.
2.
3.
4.
5.
6.
7.
Journal Entries
Particulars
14% Debentures A/c
Premium on Redemption of Debentures A/c
To Debentureholders A/c
(Being amount payable on redemption of ` 24,00,000 Debentures at 2% Premium)
Profit and Loss A/c
To Premium on Redemption of Debentures A/c
(Being Premium on Redemption provided out of Profits.) Note: Alternatively, General
Reserve A/c, Debenture Redemption Reserve A/c, may be used for this purpose.
Debentureholders A/c ` 24,48,000 × 75%
To Equity Share Capital A/c (1,44,000 × `10)
To Securities Premium A/c (1,44,000 x ` 2.75)
(Being issue of 1,44,000 Shares of ` 10 each at a premium of ` 2.75 per share to 75%
debenture holders who exercised conversion option) (WN 1 & 2)
Bank A/c (` 24,48,000 × 25%)
Profit & Loss A/c (6,80,000 × 10%) or (balancing figure)
To Debenture Redemption Reserve Investment A/c (WN 3)
(Being investment sold & loss transferred to Profit & Loss A/c)
Debentureholders A/c (24,48,000 x 25%)
To Bank A/c
(Being cash payment for settlement to debenture holders of 25%)
Debenture Redemption Reserve A/c (` 20,00,000 – 68,000)
To General Reserve A/c
(Being balance of Debenture Redemption Reserve transferred on 100% redemption)
Investment A/c
To Debenture Redemption Reserve Investment A/c (20,00,000 – 6,80,000)
(Being balance of Debenture Redemption Reserve Investment transferred to
Investment (General) A/c)
Dr.
Dr.
Debit `
24,00,000
48,000
Dr.
48,000
Dr.
18,36,000
Credit `
24,48,000
48,000
14,40,000
3,96,000
Dr.
Dr.
6,12,000
68,000
Dr.
6,12,000
Dr.
19,32,000
6,80,000
6,12,000
19,32,000
Dr.
13,20,000
13,20,000
Working Notes:
(1)
Less:
(2)
(3)
Particulars
For every ` 100 Debenture, amount payable on Redemption including Premium =
Face Value of 8 Shares of ` 10 each to be issued for redemption of each debenture (8 × ` 10)
Premium on Issue of 8 Shares
So, Premium on issue of each Share = ` 22 ÷ 8 shares =
8
100
Investments Cost = ` 20,00,000 but Market Value = ` 18,00,000. So, Mkt Value realizable = 90% of
Cost. So, to realise ` 6,12,000 for payment, Cost of Investments to be sold = ` 6,12,000 ÷ 90% =
Shares to be issued on conversion = 8 Shares for every `100 Debenture = ` 24,00,000 × 75% ×
`
` 102
` 80
` 22
` 2.75
1,44,000
Shares
` 6,80,000
Question: AS – 5 Changes not regarded as Accounting Policy Change
RTP
Explain whether the following will constitute a change in accounting policy or not as per AS–5.
1. Introduction of a formal Retirement Gratuity Scheme by an Employer in place of ad hoc Ex–Gratia Payments to Employees
on retirement.
2. Management decided to pay Pension to those Employees who have retired after completing 5 years of service in the Firm.
Such Employees will get Pension of ` 20,000 per month. Earlier there was no such scheme of Pension in the Firm.
Solution: See Page B.2.6, Q.20, Para 31 of AS–5. Both items will not be considered as a change in accounting policy.
May 2015.16