- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – APRIL 2013
B.COM – II SEMESTER
ADVANCED ACCOUNTING – I
Max. Time: 3 Hrs. Max. Marks: 100
SECTION – A
- Answer ALL questions in One or Two sentences: (10 x 2 = 20)
- Write the different methods of valuation of Shares.
- What is the main purpose of having an average clause in an insurance policy?
- What do you mean by Short Working?
- Write the different methods of valuation of non-purchased Goodwill.
- Under what heads the Debit balance of Profit and Loss Account and the balance in Preliminary Expenses appear in the Revised Schedule VI?
- Write any two types of Royalty.
- Loss of stock by fire is Rs. 20,00,000. Amount of Policy is Rs. 17,10,000. Total Value of Stock on the date of fire is Rs. 22,80,000. Find the amount of claim applying Average Clause.
- Write any two objectives of Branch Accounting.
- Write any two factors affecting the valuation of shares.
- Normal Profit is Rs. 2,25,000 and the Adjusted Average Profit is Rs. 3,85,000. If Goodwill is to be valued at 4 years purchase of Super Profits, find the value of Goodwill.
SECTION –B
- Answer ANY FOUR questions: (4 x 5 = 20)
- On 12th June, 2012 fire occurred in the premises of N.R. Patel, a paper merchant. Most of the stocks were destroyed, cost of stock salvaged being Rs. 11,200. In addition, some stock was salvaged in a damaged condition and its value in that condition was agreed at Rs. 10,500. From the books of account, the following particulars were available.
- His stock at the close of account on December 31, 2011 was valued at Rs. 83,500.
- His purchases from 1.1.2012 to 12.06.2012 amounted to Rs. 1,12,000 and his sales during that period amounted to Rs. 1,54,000.
On the basis of his accounts for the past three years it appears that he earns on an average a Gross profit of 25% on cost.
Patel has insured his stock for Rs. 60,000. Compute the amount of claim applying average clause.
- Under what headings and sub-headings will you show the following items in the Balance Sheet of the Company?
| Unclaimed Dividend | Capital Reserve |
| Prepaid Insurance | Goodwill |
| Calls in arrears | Provision for tax |
| Bills Payable | Proposed Dividend |
| Discount on Issue of Debentures | Securities Premium |
- It was agreed to calculate the value of Goodwill of a company at three years purchase of the weighted average profits of the past four years. The appropriate weights to the used are
| 2009 | 2010 | 2011 | 2012 |
| 1 | 2 | 3 | 4 |
The profits for these years after tax are:
| 2009 | 2010 | 2011 | 2012 |
| Rs. 20,200 | Rs. 24,800 | Rs. 20,000 | Rs. 30,000 |
On a scrutiny of the accounts the following matters are revealed:-
- On 1st September, 2011 a major repair was made in respect of the plant incurring Rs. 6,000 which amount was charged to revenue. The paid 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 2010 was over-valued by Rs. 2,400.
- To cover management cost an annual charge of Rs. 4,800 should be made for the purpose of goodwill valuation.
- Income tax rate should be taken at 50%.
- Accounts are closed on 31st every year.
Compute the Value of Goodwill.
- Hindustan Ltd. invoices goods to its Poona Branch at Cost. The branch sells the goods only for cash. From the following details, prepare the Branch Account for the year ending 31.12.2012:
| Particulars | Rs. |
| Stock on 1.1.2012 | 12,500 |
| Stock on 31.12.2012 | 14,500 |
| Goods supplied to branch | 45,400 |
| Goods returned by branch | 600 |
| Petty cash on 1.1.2012 | 150 |
| Petty cash on 31.12.2012 | 320 |
| Cash Remitted to branch for: | |
| Rent | 1,200 |
| Salary | 4,500 |
| Petty Cash | 1,000 |
| Cash Sales | 81,300 |
- X Coal Ltd., leased a colliery on 1st, 2009 at a minimum rent of Rs. 15,000 merging into a Royalty of Re. 0.50 per ton with a stipulation to recoup short workings over the first three years of the lease. The output for the first four years of the lease was 16,000; 26,000; 42,000 and 36,000 tons respectively.
Prepare Short Workings A/c and Land Lord’s A/c in the books of X Coal Ltd.
- The following is the Balance Sheet of Bangalore Trading Co. Ltd.
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| 2,000 6% Preference Shares of Rs. 100 each | 2,00,000 | Fixed Assets | 3,00,000 |
| 30,000 Equity Shares of Rs. 10 each | 3,00,000 | Current Assets | 3,00,000 |
| Other outside liabilities | 1,00,000 | ||
| Total | 6,00,000 | Total | 6,00,000 |
The market value of Fixed Assets is 25% more than the book value were as Current Assets is 15% less than the book value. There is an unrecorded liability of Rs. 10,000. Assume Preference shareholders have right over the Equity Share holders.
You are required to value each Equity Share under Net Asset Method.
SECTION –C
- Answer ANY THREE questions: (3 x 15 = 45)
- On 1st April, 2012 the stock of Shri Ramesh was destroyed by fire but sufficient records were saved from which following particulars were ascertained:
| Particulars | Amount (Rs.) |
| Stock at Cost 1.1.2011 | 73,500 |
| Stock at Cost 31.12.2011 | 79,600 |
| Purchases – year ended 31.12.2011 | 3,98,000 |
| Sales – year ended 31.12.2011 | 4,87,000 |
| Purchases from 1.1.2012 to 31.3.2012 | 1,62,000 |
| Sales from 1.1.2012 to 31.3.2012 | 2,31,200 |
In valuing the stock for the Balance Sheet at 31st December, 2011, Rs. 2,300 had been written off on certain stock which was of poor selling line having the cost of Rs. 6,900. A portion of these goods were sold in March, 2012 at a loss of Rs. 250 on original cost of Rs. 3,450. The remainder of this stock was now estimated to be worth its original cost. Subject to the above exception, Gross Profit had remained at a uniform rate throughout the year.
The value of stock salvaged was Rs. 5,800. The policy was for Rs. 50,000 and was subject to the average clause. Work out the amount of the claim of loss by fire.
- From the following particulars furnished by Abhishek Ltd. prepare the Balance Sheet as at 31st March 2012 as required by Schedule VI of the Companies Act.
| Particulars | Debit | Credit |
| Equity Capital (Face Value Rs. 100) | 10,00,000 | |
| Calls in arrears | 1,000 | |
| Land | 2,00,000 | |
| Building | 3,50,000 | |
| Plant and Machinery | 5,25,000 | |
| Furniture | 50,000 | |
| General Reserve | 2,10,000 | |
| Loan from State Finance Corporation | 1,50,000 | |
| Stock of Finished Goods | 2,00,000 | |
| Stock of Raw Materials | 50,000 | |
| Provision for Taxation | 68,000 | |
| Sundry Debtors | 2,00,000 | |
| Advances | 42,700 | |
| Proposed Dividend | 60,000 | |
| Profit and Loss Account | 1,00,000 | |
| Cash | 30,000 | |
| Bank | 2,47,000 | |
| Preliminary Expenses | 13,300 | |
| Loans (Unsecured) | 2,21,000 | |
| Sundry Creditors (for goods and expenses) | 2,00,000 | |
| TOTAL | 19,09,000 | 19,09,000 |
- Balance Sheet of Golden Ltd. as on 31.12.2012
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Share Capital: 2,000 shares of Rs. 100 each | 2,00,000 | Land & Buildings | 1,10,000 |
| General Reserve | 40,000 | Plant & Machinery | 1,30,000 |
| Profit & Loss A/c | 32,000 | Patents & Trade Marks | 20,000 |
| Sundry Creditors | 1,28,000 | Stock | 48,000 |
| Income tax payable | 60,000 | Debtors | 88,000 |
| Bank | 52,000 | ||
| Preliminary Expenses | 12,000 | ||
| Total | 4,60,000 | Total | 4,60,000 |
The expert valuer valued Land and Building at Rs. 2,40,000; Goodwill at Rs. 1,60,000 and Plant and Machinery at Rs. 1,20,000. Out of the total Debtors, it is found that debtors of Rs. 8,000 are bad. The profits of the company after tax have been as follows:-
| 2010 | 2011 | 2012 |
| Rs. 80,000 | Rs. 90,000 | Rs. 86,000 |
The Company follows the practice of transferring 25% of the profits to General Reserve. Similar types of companies, each, earn a profit of 10% of the value of their shares. Income tax rate is 50%. Ascertain the value of shares of the company under:
- Intrinsic Value Method b) Yield Method c) Fair Value Method
- The summarized Balance Sheet of Raj Ltd., as on 31st December, 2012 is as follows:
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| 1,500 6% Preference Shares of Rs. 100 each | 1,50,000 | Goodwill | 50,000 |
| 6,500 Equity Shares of Rs. 100 each | 6,50,000 | Freehold Property | 3,75,000 |
| Profit and Loss A/c | 4,50,000 | Plant & Machinery | 3,50,000 |
| 5% Debentures | 3,00,000 | Stock | 3,70,000 |
| Sundry Creditors | 2,39,250 | Debtors (net) | 3,99,250 |
| Bank | 2,45,000 | ||
| Total | 17,89,250 | Total | 17,89,250 |
Profit after tax for the last 3 years was as follows:
| 2010 | 2011 | 2012 |
| Rs. 2,20,500 | Rs. 3,22,500 | Rs. 2,40,000 |
Mr. Anesh is interested in buying all the Equity Shares and requests you to let him know the proper price.
You are given the following information:
- Normal Profit to be calculated at 10% of the Closing Capital Employed.
- Goodwill may be calculated on the basis of an annuity of super profits of the 3 years. The present value of an annuity of Re. 1 for 3 years at 10% p.a. interest is Rs. 2.478.
- The value of freehold property is to be ascertained on the basis of 10% return. The current rental value is Rs. 60,800.
- Rate of Income tax is 50%.
- 10% of profits before tax for 2011 arose from a transaction of a non-recurring nature.
- A provision of Rs. 15,750 on sundry debtors was made in 2012, which is no longer required.
- A claim of Rs. 5,000 against the company is to be provided and adjusted against profit for 2012.
- Closing Stock of 2011 was over-valued by Rs. 10,000.
- A Major repair of plant was made on 1.7.2010 incurring Rs. 25,000. The said sum is agreed to be capitalized, subject to adjustment of depreciation at 10% p.a. on straight line method.
Ascertain the value of Goodwill of the Company.
- X Coal Ltd. has taken on lease coalfields from Y, on the following terms:
- Lease is for 99 years.
- Lease rent is to be 50 paise for every tonne of coal raised.
- Minimum royalty per annum is to be Rs. 30,000 and the lessee has a right to recoup any short working within a period of three years for which the excess payment was made.
- In case the working of the mines was affected by any strike or riot and there were no raisings, then the minimum rent payable would abate proportionately.
- The following were the raisings for the different years:
| Year | Tonnes | Other Information |
| 1997 | 20,000 | |
| 1998 | 35,000 | |
| 1999 | 30,000 | There was a strike for 3 months during which no coal was mined. |
| 2000 | 70,000 | |
| 2001 | 80,000 | |
| 2002 | 1,00,000 |
You are required to show the Royalties, Short-workings and Y’s A/c in the books of X Coal Ltd. Analytical Table should form part of your answer.
SECTION – D
- COMPULSORY QUESTION: (1 x 15 = 15)
- On account of a fire on 15th June 2011, in the business house of a Company, the working remained disturbed upto 15th December,2011 as a result of which it was not possible to effect any sales. The company had taken out an insurance policy with an average clause against consequential losses for Rs. 35,000, and a period of 7 months has been agreed upon as Indemnity Period. An increase of 25% was marked in the current year’s sales as compared to the last year. The company incurred an additional expenditure of Rs. 3,000 to make sales possible and made a saving of Rs. 500 in the Insured Standing charges. The following further details are available:-
| Particulars | Amount in Rs. |
| Actual Sales from 15th June 2011 to 15th Dec. 2011 | 17,500 |
| Sales from 15th June 2010 to 15th Dec. 2010 | 60,000 |
| Net Profit for the Last financial year | 20,000 |
| Insured Standing Charges for the Last Financial Year | 17,500 |
| Total Standing Charges for the Last Financial Year | 30,000 |
| Turnover for the Last Financial Year | 1,50,000 |
| Turnover for one year : 16th June 2010 to 15th June 2011 | 1,40,000 |
Ascertain the Claim for Loss of Profits.
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