- JOSEPH’ S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – OCTOBER 2014
B.B.M. -V SEMESTER
ADVANCED FINANCIAL ACCOUNTING (ELECTIVE – II- ACCOUNTS)
Duration: 3 Hours Max. Marks: 100
SECTION – A
- Answer ALL the questions. Each carries 2 marks. (10 x2 =20)
- Distinguish between EVA and Value Added.
- State the four approaches to Price Level Accounting.
- While preparing a consolidated Balance Sheet, how would you treat contingent liabilities?
- As per the Companies Act, 2013 what new inclusions (any two) has been made with regard to Corporate Social Responsibility?
- What are the three important aspects that Human Resource Accounting focuses on while accounting?
- Give the equation of Brand equity.
- X purchased a piece of land for Rs. 40,000 when the general price index was 120. Five years later he sold this piece of land for Rs. 60000 when the price index was 200. Find out the profit or loss on this transaction.
8.“Indian companies are generally following the model of human resource accounting suggested by Lev and Schwartz”—is this statement true? Mention any one company which has adopted this model.
- Describe in two sentences Environmental Accounting.
- Calculate EVA from the following information: net operating profit after tax – Rs. 98,00,000; capital structure: equity capital – Rs. 1,70,00,000; reserve and surplus – Rs. 1,30,00,000; 10% debentures – Rs. 4,00,00,000; cost of equity – 17.5%; income tax rate – 30%.
SECTION – B
- Answer any FOUR Each carries 5 marks. (4×5=20)
- From the following information taken from the books of Aarav Ltd. relating to staff and community (social) benefits& cost, you are required to prepare a statement classifying the various items under the appropriate heads:
| Environmental improvements | Extra work put in by staff and officers for drought relief |
| Medical facilities | Leave encashment and leave travel benefits |
| Training facilities | Educational facilities for children of staff members |
| Generation of Job Opportunities | Increase in cost of living in the vicinity due to a thermal power station |
| Municipal Taxes | Concessional transport, water supply |
- 12. Manish Ltd. acquired all the shares in Shwetha Ltd. on 1st January, 2013 and liabilities and assets of the two companies on 31st March, 2013 were as follows:
| Liabilities | Manish Ltd. | Shwetha Ltd. | Assets | Manish Ltd. | Shwetha Ltd. |
| Share capital | 50,000 | 30,000 | Sundry Assets | 65,000 | 70,000 |
| Reserve on 1-4-2012 | 20,000 | 15,000 | Shares in S Ltd. at cost. | 50,000 | —– |
| Surplus A/c | 25,000 | 10,000 | |||
| Sundry creditors | 20,000 | 15,000 | |||
| 1,15,000 | 70,000 | 1,15,000 | 70,000 |
Surplus of Shwetha ltd. had a credit balance of Rs. 3000 on 1st April 2012. Calculate the ratio of holding, pre-acquisition profits, post -acquisition profits and cost of control or capital reserve.
13.“HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties”- in this context, bring out the various objectives of HRA.
- From the following data, calculate the gearing adjustment required under CCA Method:
| Particulars | Opening (Rs.) | Closing (Rs.) |
| Convertible Debentures | 2000 | 2400 |
| Bank Overdraft | 1200 | 1600 |
| Cash | 200 | 600 |
| Paid-Up Capital | 3000 | 4000 |
| Reserves | 1000 | 1600 |
Cost of sales Adjustment Rs. 400
Monetary Working Capital Adjustment Rs. 300
Depreciation Adjustment Rs. 100. Therefore total adjustment is Rs. 800.
- State whether the following is True or False with reasons.
- Disclosure of the value of HRA in the financial statements is made as a statutory obligation.
- Charging depreciation on current values of fixed assets is acceptable to income tax authorities.
- As per Business Income concept accounting income and economic income are one and the same.
- Minority Interest = Paid up value of shares held by outsiders.
- Social accounting is one of the oldest forms of accounting.
- Following information is available of a concern. Calculate EVA.
| Debt Capital 12% | Rs. 4000 crores | Beta Factor | 1.05 |
| Equity Capital | Rs. 1000 crores | Market Rate of Return | 19% |
| Reserves and Surplus | Rs. 15,000 crores | Equity (Market) Risk Premium | 10% |
| Capital Employed | Rs. 20,000 crores | Operating Profit after tax | Rs. 4,200 crores |
| Risk-free Rate | 9% | Tax Rate | 30% |
SECTION – C
III) Answer any THREE questions. Each carries 15 marks. (3×15=45)
17.On the basis of the following Statement of Profit and Loss of Zinc Ltd. and the supplementary information provided thereafter, prepare Gross Value Added Statement of the company for the year ended 31st March, 2013including percentage calculation. Also prepare another statement showing reconciliation of Gross Value Added with Profit before Taxation.
| Particulars | Amount (in Lakhs) | Amount (in Lakhs) |
| Income: | ||
| Sales | 5,010 | |
| Other Income | 130 | |
| 5,140 | ||
| Expenditure: | ||
| Production and Operational Expenses | 3,550 | |
| Administration Expenses | 185 | |
| Interest | 235 | |
| Depreciation | 370 | 4,340 |
| Profit before taxation | 800 | |
| Provision for Taxation | 280 | |
| Profit after taxation | 520 | |
| Credit Balance as per last Balance Sheet | 40 | |
| 560 | ||
| Appropriations: | ||
| Transfer to General Reserve | 100 | |
| Preference Dividend (interim) paid | 50 | |
| Proposed preference dividend (final) | 50 | |
| Proposed Equity Dividend | 300 | |
| Balance carried to Balance Sheet | 60 | |
| 560 | ||
| Supplementary Information: | ||
| Production and operational expenses consist of: | ||
| – Raw materials and stores consumed | 1900 | |
| – Wages, salaries and Bonus | 610 | |
| – Local taxes including Cess | 220 | |
| 3,550 | ||
| Administrative Expenses consist of: | ||
| – Salaries and commission to Directors | 60 | |
| – Audit Fee | 24 | |
| – Provision for Bad and Doubtful Debts | 20 | |
| – Other Administrative Expenses | 81 | |
| 185 | ||
| Interest is on: | ||
| Loan from bank for working capital | 35 | |
| debentures | 200 | |
| 235 |
- Following are the Balance Sheets and Profit and Loss account of a Firm prepared on the basis of Historical cost accounting.
Balance Sheet as on 1.4.2012
| Capital | Rs. 10,00,000 | Fixed Assets | Rs. 10,00,000 |
| Profit & Loss A/c | Rs. 3,00,000 | Inventories | Rs. 4,00,000 |
| Sundry Liabilities | Rs. 5,00,000 | Debtors | Rs. 3,00,000 |
| Cash | Rs. 1,00,000 | ||
| Rs. 18,00,000 | Rs. 18,00,000 |
Balance Sheet as on 31.3.2013
| Capital | Rs. 10,00,000 | Fixed Assets less Depreciation @ 10% Rs. 1,00,000 | Rs. 9,00,000 |
| Profit & Loss A/c | Rs. 5,00,000 | Inventories | Rs. 3,20,000 |
| Sundry Liabilities | Rs. 3,00,000 | Debtors | Rs. 4,00,000 |
| Cash | Rs. 1,80,000 | ||
| Rs. 18,00,000 | Rs. 18,00,000 |
Profit & Loss Account for the year ending 31.3.2013
| To Inventory (1.4.2012) | Rs. 4,00,000 | By sales | Rs. 30,00,000 |
| To Purchases | 23,20,000 | By Inventory (31.3.2013) | 3,20,000 |
| To Depreciation | 1,00,000 | ||
| To Other Operating Expenses | 3,00,000 | ||
| To Net Profit | 2,00,000 | ||
| 33,20,000 | 33,20,000 |
Additional Information:
- The current replacement cost of the goods on the dates sales were made amounted to Rs. 23,60,000.
- On 31.3.2013, the replacement cost of the fixed assets was Rs. 12,00,000.
- The current replacement cost of the inventory on 31.3.2013 is Rs. 3,50,000.
You are required to prepare Income Statement for the year ending 31.3.2013 and Balance Sheet as on that date on the basis of Current Cost Accounting.
- Following are the liabilities and assets of H Ltd. and S Ltd. as on 31st March, 2013:
| Liabilities | H Ltd. (Rs.) | S Ltd. (Rs.) | Assets | H Ltd. (Rs.) | S Ltd. (Rs.) |
| Share Capital: Equity shares of Rs.100 each | 9,00,000 | 4,00,000 | FixedAssets:Plant &Machinery | 3,30,000 | 1,80,000 |
| Preference Share Capita | 3,00,000 | 40,000 | Land & Building | 6,00,000 | 2,60,000 |
| Reserves & Surplus: General Reserve on 1.4.2012 | 2,00,000 | 1,20,000 | Goodwill | 70,000 | 60,000 |
| Surplus A/c | 2,80,000 | 1,80,000 | Investments: 3,000 shares in S Ltd. (30.9.2012) | 4,80,000 | —— |
| Current Liabilities Creditors | 1,60,000 | 1,00,000 | Current Assets:
Stock |
2,00,000 | 1,80,000 |
| Bills Payable | —— | 40,000 | Debtors | 40,000 | 1,50,000 |
| Cash | 1,20,000 | 40,000 | |||
| Preliminary expenses | —– | 10,000 | |||
| 18,40,000 | 8,80,000 | 18,40,000 | 8,80,000 |
Following further information is furnished:
- A dividend of 15% was paid by S Ltd. in October, 2012 for the year ended 31st March, 2012.
- Plant & Machinery of S Ltd. in the beginning was Rs. 2,00,000. H Ltd. revalued it by Rs. 1,10,000.
- There was a bonus issue of Rs. 40,000 out of post- acquisition profits by S Ltd.
- Credit balance of Surplus A/c of S Ltd. on 1st April, 2012 was Rs. 1,00,000.
- Included in creditors of S Ltd. is Rs. 40,000 for goods supplied by H Ltd. Also included in stocks of S Ltd. are goods to the value of Rs. 16,000 which were supplied by H Ltd. at a profit of 25 % on sales.
Prepare a Consolidated Balance Sheet with all the necessary calculations as per Schedule III, Companies Act, 2013.
- Balance Sheet of a Partnership Firm as on 1st April, 2012 and Profit & Loss Statement for the year ending March, 2013 are given below:
Balance Sheet as on 1.4.2012
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Capital | 8,00,000 | Plant & Machinery | 6,00,000 |
| 13% Loan | 2,00,000 | Furniture & Fixture | 80,000 |
| Current Liabilities | 1,00,000 | Inventory | 1.20,000 |
| Debtors | 1,00,000 | ||
| Cash | 2,00,000 | ||
| 11,00,000 | 11,00,000 |
Profit & Loss Statement for the year ending 31st March, 2013
| Sales | 20,00,000 | |
| Less: Cost of Goods Sold: Opening Inventory | 1,20,000 | |
| Add: Purchases | 14,20,000 | |
| 15,40,000 | ||
| Less: Closing Inventory | 1,40,000 | 14,00,000 |
| Gross Profit | 6,00,000 | |
| Less: Operating Expenses | 3,02,000 | |
| Interest on Loan | 26,000 | |
| Depreciation on machinery | 90,000 | |
| Depreciation on furniture | 8,000 | 4,26,000 |
| Net Profit | 1,74,000 |
Debtors and Current Liabilities balances remained constant throughout the year. Interest on debentures was paid on 31.3.2013
The general price index was as follows:
On April 1, 2012: 300; Average for the year: 320; On March 31, 2013: 360.
You are required to prepare the financial statements for the year 2012-2013 after adjusting for price level changes under Current Purchasing Power Method.
- a) Briefly discuss the advantages and disadvantages of Price Level Accounting. (5 marks)
- b) “It is clear that discharge of social responsibilities by a business unit is not something opposed to earning profits.”—in this context explain the various social responsibilities of business as a social unit. (5 marks)
- c) Write a short note on Recording and Disclosure of HRA in Financial Statements. (5 marks)
SECTION – D
- IV) Case study- Compulsory questions. (15 marks)
- A Ltd. acquired 8,000 shares of Rs. 100 each in B Ltd. on 30th September 2012. The Liabilities and Assets of the two Companies as on 31st March, 2013 were as follows:
| Liabilities | A Ltd. (Rs.) | B Ltd. (Rs.) | Assets | A Ltd. (Rs.) | B Ltd. (Rs.) |
| Share Capital: 30,000 shares of Rs. 100 each | 30,00,000 | —- | Fixed Assets | 15,00,000 | 14,47,000 |
| 10,000 shares of Rs. 100 each | —– | 10,00,000 | Investment in B Ltd. at cost | 17,00,000 | —– |
| Capital Reserve | —– | 5,50,000 | Stock in hand | 4,00,000 | 2,00,000 |
| General Reserve | 3,00,000 | 50,000 | Loan to A Ltd. | —– | 20,000 |
| Surplus A/c | 3,82,000 | 1,80,000 | Bills Receivable (including Rs. 5000 from B Ltd.) | 12,000 | —— |
| Loan from B Ltd. | 21,000 | —– | Debtors | 2,50,000 | 1,80,000 |
| Bills Payable (including Rs. 5000 to A Ltd.) | —– | 17,000 | Cash & Bank Balance | 20,000 | 20,000 |
| Creditors | 1,79,000 | 70,000 | |||
| 38,82,000 | 18,67,000 | 38,82,000 | 18,67,000 |
Note: On the Balance Sheet of A Ltd., there is a contingent liability for bills discounted of Rs. 6,000.
You are given the following information:
- B Ltd. made a bonus issue on 31st March, 2013 of one share for every two shares held, reducing the Capital Reserve equivalently but the accounting effect to this has not been given in the above Balance sheet.
- Interest receivable for the year (Rs. 1000) in respect of the loan due by A Ltd. to B Ltd. has not been credited in the books of B Ltd.
- The credit balance in Surplus A/c of B Ltd. as on 1.4.2012 was Rs. 21,000.
- The directors decided on the date of the acquisition that the fixed assets of B Ltd. were over -valued and should be written down by Rs. 50,000. Consequently adjustments on depreciation are to be ignored.
Prepare Consolidated Balance Sheet as at 31st March, 2013 showing your working.
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