- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – OCTOBER 2014
B.Com (Travel & Tourism) – III SEMESTER
CORPORATE ACCOUNTING
Duration: 3 Hours Max. Marks: 100
SECTION – A
- Answer ALL the questions. Each carries 2 marks. (10×2=20)
- Give 2 differences between Reserves & Provisions ?
- What is meant by Statutory Reserves ?
- The Shareholders get Rs. 5 cash for every share in X Ltd. (Shares in X Ltd. is 10,000 shares of Rs. 10 each ) and 2 shares of Rs. 20 each for every 5 shares held b X Ltd. Calculate purchase consideration.
- What is Capital Reduction Account ?
- What is meant by Inter Company Owings?
- What is Unclaimed Dividend ? How is it treated while preparing the final accounts of a company ?
- Explain the meaning of Corporate Dividend Tax.
- What is the meaning of Fair value per share?
- Closing capital employed is Rs 6,00,000, net profit for the current year is 1,20,000. What is average capital ?
- Mention 2 factors determining the value of Goodwill.
SECTION – B
- Answer any FOUR Each carries 5 marks. (4×5=20)
- Under what heading do you show the following items in the Balance sheet of a company?
(a) Provision for taxation
(b) Bills payable
(c) Livestock
(d) Bills receivable
(e) Work-in –progress
(f) Patterns
(g) Accrued interest on investments
(h) Patents and Trade Marks.
(i) Unclaimed dividend
- Explain the differences between Amalgamation by purchase method & Amalgamation by Merger Method?
- A company Ltd. is absorbed by B company Ltd. The consideration being :
(a) Assumption of liabilities .
(b) Discharge of debentures at a premium of 5% by the issue of 5% debentures in B Company Ltd.
(c) A payment of Cash of Rs. 30. Per share and
(d) To exchange 3 shares of Rs.10 each in B company Ltd. at an agreed value of Rs. 15 per share. For every share in A company Ltd.
| Liabilities | Rs. | Assets | Rs. |
| Share Capital:
60,000 Shares of Rs.50 each fully paid |
30,00,000 | Goodwill | 2,50,000 |
| General Reserve | 3,20,000 | Land& Buildings | 7,65,000 |
| Profit & Loss A/c | 1,80,000 | Plant & Machinery | 22,00,000 |
| 5% Debentures | 15,00,000 | Patents | 50,000 |
| Creditors | 2,00,000 | Patterns | 25,000 |
| Investments | 50,000 | ||
| Stock | 10,60,000 | ||
| Debtors | 4,50,000 | ||
| Bank | 3,50,000 | ||
| 52,00,000 | 52,00,000 |
Pass journal entries to close the books of A company Ltd. under purchase method
- Raj Ltd. Proposed to purchase the business carried on by Mr. Ram. Goodwill for this purpose is agreed to be valued at 3 years purchase of the weighted average profits of the past 4 years. The appropriate weights to be used are :
1998 1
1999 2
2000 3
2001 4
The profits for these year are:
1998 Rs.1,01,000
1999 Rs.1,24,000
2000 Rs.1,00,000
2001 Rs.1,50,000
On a scrutiny of the accounts the following matters are revealed:
On 1st January. 2000 a major repair was made in respect of the plant incurring Rs.30,000 which amount was charged to revenue. The said sum is agreed to be capitalized for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
The closing stock for the year 1999 was overvalued by Rs.12,000.
To cover management cost an annual charge of Rs. 24,000 should be made for the purpose of goodwill valuation.
Compute the value of goodwill of the firm.
- The following is the Balance sheet of Sunmate Ltd. As on 31.3.2013:
| Liabilities | Rs | Assets | |
| 2,000. 6% Preference shares of Rs 10. Each | 20,000 | Buildings | 55,000 |
| 8,000 Equity shares of Rs 10 each | 80,000 | Machinery | 65,000 |
| Reserve Fund | 50,000 | Patents | 10,000 |
| Profit & Loss A/c | 16,000 | Stock | 28,000 |
| Workmen’s saving A/c | 15,000 | Sundry Debtors | 40,000 |
| Sundry Creditors | 49,000 | Cash | 26,000 |
| Preliminary expenses | 6,000 | ||
| 2,30,000 | 2,30,000 |
- a) It was discovered that machinery was under depreciated by Rs.5,000.
- b) Value for buildings is Rs.1,30,000 and Goodwill is Rs.20,000.
- 6,000 worth of debts are bad.
- The preference shares have priority for capital repayment.
Find out the intrinsic value of both types of shares.
- Given below is the Balance Sheet of Unsuccessful Limited as on 31.12.2001:
| Liabilities | Amount Rs. | Assets | Amount Rs. |
| 5,000, 8% Preference Shares of Rs. 10 each | 50,000 | Goodwill | 1,00,000 |
| 5,000 Equity shares of Rs 10 each | 50,000 | Buildings | 4,000 |
| Creditors | 18,000 | Plant | 5,000 |
| Bank Overdraft | 20,000 | Debtors | 1,200 |
| Stock | 22,000 | ||
| Preliminary expenses | 3,000 | ||
| Profit & Loss A/c | 2,500 | ||
| Cash | 300 | ||
| 1,38,000 | 1,38,000 |
The following scheme of Reconstruction was adopted:
- Rs.10 Preference Shares were to be reduced to an equal number of fully paid shares of Rs.8 each.
- Rs. 10 Equity Shares were to be reduced to an equal number of fully paid shares of Rs.5 each.
- Creditors agreed to forego Rs.8,000.
- The amount thus available was to be utilized to the nominal assets and the balance if any, to be written off Goodwill.
Pass necessary Journal Entries
SECTION – C
III) Answer any THREE questions. Each carries 15 marks. (3×15=45)
- The following is the T.B. of Reliance Co.Ltd.. as on 31.3.2013:
| Particulars | Dr Rs | Cr Rs |
| Share Capital | 3,00,000 | |
| Reserve Fund | 1,50,000 | |
| Furniture | 40,000 | – |
| Building | 80,000 | – |
| Wages | 50,000 | – |
| Salaries | 20,000 | – |
| Debtors | 1,60,000 | – |
| Bills Receivable | 60,000 | – |
| Interim Dividend | 30,000 | – |
| Audit Fees | 10,000 | – |
| Freight charges | 5,000 | |
| Director’s Fees | 5,000 | – |
| Light and Water | 10,000 | – |
| Printing and Stationery | 12,000 | – |
| Purchases | 2,40,000 | – |
| Sales | – | 3,80,000 |
| Loose Tools | 40,000 | – |
| P&L Appropriation A/c | – | 20,000 |
| Cash at Bank | 50,000 | – |
| Forfeited Share Capital A/c | – | 10,000 |
| Calls in Arrears | 20,000 | – |
| General Expenses | 10,000 | – |
| Goodwill | 50,000 | – |
| Stock (1.4.2008) | 60,000 | – |
| Investments | 50,000 | – |
| Machinery | 40,000 | – |
| Creditors | – | 1,80,000 |
| Returns | 20,000 | 10,000 |
| Bills Payable | – | 20,000 |
| Cash in Hand | 38,000 | – |
| Securities Premium | 30,000 | |
| 11,10,000 | 11,10,000 |
- Stock on 31.3.2013 was valued at Rs 90,000.
- Depreciate machinery at 10% and buildings at 5%.
- Provide RDD at 5 % on Debtors.
- Transfer 25,000 to Reserve fund.
- Director’s recommended dividend of 10% for the year.
- Make provision for taxation 10,000.
Prepare final accounts of the company.
- The following are the balance sheet as on 31st December 1999 of X Ltd. and Y Ltd.
| Liabilities | X Ltd. | Y Ltd. | Assets | X Ltd. | Y Ltd. |
| Equity Share Capital | 1,00,000 | 60,000 | Land & Buildings | 30,000 | |
| (Rs. 100 per share) | – | Plant & Machinery | 1,10,000 | 50,000 | |
| 6 % Debentures (Rs. 10 each) | 20,000 | Stock | 16,000 | 8,000 | |
| Reserve Fund | 34,000 | – | Debtors | 14,000 | 9,000 |
| Dividend Equalization Fund | 4,000 | – | Cash | 3,000 | 1,000 |
| Employees Provident Fund | 3,000 | – | |||
| Trade Creditors | 10,000 | 8,000 | |||
| Profit & Loss A/c | 2,000 | – | |||
| 1,73,000 | 68,000 | 1,73,000 | 68,000 |
The two companies agree to amalgamate and form a new company called Z Ltd. which takes over the assets and liabilities of both companies. The authorized Capital of Z Ltd. is Rs. 10,00,000 consisting of Rs. 1,00,000 equity shares of Rs. 10 each. The assets of X Ltd. are taken over at a reduced valuation of 10% with the exception of Land and Buildings which are accepted at a book value.
Both the companies are to receive 5% of the valuation of their respective business as Goodwill the entire purchase price is to be paid by Z Ltd. in fully paid shares. In return for Debentures in X Ltd. Debenture of the same amount at denomination are to be issued by Z Ltd.
Prepare the necessary ledger accounts in the books of X Ltd. and Y Ltd. and show the opening Balance sheet of Z Ltd. Under amalgamation in the nature of purchase.
- Following is the Balance sheet of Venus Ltd:
Balance Sheet as on 31.12.2001
| Liabilities | Amount Rs. | Assets | Amount Rs. |
| Share Capital
15,000 Preference share of Rs. 5 each fully paid |
75,000 | Buildings | 50,000 |
| 30,000 Equity Shares of Rs. 5 each fully paid | 1,50,000 | Stock | 1,00,000 |
| Debentures | 50,000 | Debtors | 1,15,000 |
| Loan Creditors
(Secured by Investments) |
25,000 | Investments | 35,000 |
| Trade Creditors | 75,000 | Profit & Loss A/c | 75,000 |
| 3,75,000 | 3,75,000 |
The company was reconstructed on the following lines:
- Loan creditors are to be paid off by selling Investments which realised Rs. 35,000.
- Trade creditors agree to accept Preference Shares of Rs.5 to extend of two-third of their dues in full satisfaction.
- The preference shares are to be reduced to shares of Rs. 3 each fully paid.
- The Equity shares are to be reduced to shares of Rs. 3 each and shareholders are to pay Rs.2 per share making the share again Rs.5 fully paid.
Prepare Capital Reduction Account and the reconstructed Balance sheet of Venus Ltd.
- Balance sheet of Weak Ltd. as on March 31,2002
| Rs. | Rs. | ||
| Share capital | Sundry asssets | 5,10,000 | |
| 10,000, 6% preference shares of Rs 10 each, fully paid | 1,00,000 | Discount on debentures | 10,000 |
| 30,000 ordinary shares of Rs 10 each, fully paid | 3,00,000 | Preliminary expenses | 30,000 |
| Debenture Redemption Fund | 30,000 | Profit and Loss A/c | 60,000 |
| 7% Debentures | 50,000 | ||
| Depreciation fund | 30,000 | ||
| Sundry creditors | 1,00,000 | ||
| 6,10,000 | 6,10,000 |
The sundry assets are worth Rs 5,25,000. One year’s interest is owing on debentures and the dividends on preference shares are in arrears for two years. You are required to value the shares on the Net Assets Method, if:
(a) Preference shares have priority both as to the payment of capital and arrears of dividend in the event of liquidation.
(b) Preference shares have no priority as to capital or arrears of dividend.
(c) Preference shares have priority as to payment of capital only.
(d) Preference shares have priority as to the payment of arrears of dividend only.
- The Balance sheet of X Ltd. as on 31.3.2002 is as follows.
| Liabilities | Rs. | Assets | RS. |
| 8% 5,000 Preference shares of Rs 10 each | 50,000 | Goodwill | 10,000 |
| 10,000 Equity shares of Rs 10 each | 1,00,000 | Fixed Assets | 1,80,000 |
| Reserves (including provision for taxation Rs 10,000) | 1,00,000 | Investments (5% Govt. Loan) | 20,000 |
| 8% Debentures | 50,000 | Current Assets | 1,00,000 |
| Creditors | 25,000 | Preliminary Expenses | 10,000 |
| Discount on Debentures | 5,000 | ||
| 3,25,000 | 3,25,000 |
The average profit of the company (after deducting interest on debentures and taxes) is Rs 31,000. The market value of the machinery included in fixed assets is Rs5,000 more. Expected rate of return is 10% . Evaluate the goodwill of the company at five times of the super Profits.
SECTION – D
- IV) Case study- Compulsory questions. (15 marks)
- The Creditors and Shareholders agreed upon a scheme of reconstruction the Unsound Company Ltd., went into voluntary liquidation. The Balance Sheet as on 31.12.2001 stood as follows.
Balance sheet of Enterprise Ltd.
| Liabilities | Rs. | Assets | Rs. |
| 25,000 share of Rs.10 each | 2,50,000 | Goodwill | 30,000 |
| 8% Debentures | 1,00,000 | Factory Building | 95,000 |
| Trade Creditors | 40,000 | Plant | 1,05,000 |
| Depreciation Fund | 27,000 | Stock | 50,000 |
| Debtors | 60,000 | ||
| Cash at Bank | 2,000 | ||
| Profit & Loss A/c | 75,000 | ||
| 4,17,000 | 4,17,000 |
The scheme of reconstruction provided:
- That a new company called Sound Ltd., be formed with a share capital of Rs.5,00,000 in 50,000 shares of Rs.10 each to take over from the above company stock and debtors at 20% less than the book value. Factory Buildings and Plant at Rs.77,000 and Rs.1,00,000 respectively.
- The Debenture holders were to be satisfied by the issue of 9% Mortgage Debentures of Rs.1,05,000 in Sound Ltd., in exchange for the old Debentures.
- The trade creditors agreed to receive Rs.35,000 from Sound Ltd., in full satisfaction of their claims.
- The Shareholders agreed to receive 25,000 shares of Rs.10 each, credited with Rs.5 per share paid up, with a call of Rs.2.50 per share to be made forthwith.
- The Bank balance was utilized in payment of reconstruction cost.
Pass necessary journal entries to close the Books of Unsound Ltd., and also the opening entries in the Books of Sound Limited assuming that the call made on the shareholders was duly received.
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