REG NO:

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2016

B.COM (Regular ) – II SEMESTER

C1 15MC201: CORPORATE ACCOUNTING

Duration: 3 Hours Max. Marks: 100

SECTION – A

Answer ALL the questions. Each carries 2 marks. (10×2=20)

Mention any two factors affecting the valuation of shares.

What is Non-purchased Goodwill? Mention any two features of Non-purchased Goodwill.

Mention the four methods of calculation of Purchase Consideration.

What is Minority Interest? How do you calculate it?

Can partly paid preference shares be redeemed? What is the procedure to redeem partly paid preference shares?

Explain Pre-acquisition Profits and Post-acquisition Profits with respect to Consolidation of Financial Statements.

Write any two accounting differences between an amalgamation in the nature of merger and amalgamation in the nature of purchase.

Given that Yield Value of a Share is Rs. 188 and the Fair Value of a Share is

Rs. 194, find the Intrinsic Value per Share.

During the year 2010-11, X Ltd. issued 50,000 11% Preference Shares of Rs. 100 each at a premium of 5%, which are redeemable at the end of 3rd year at par. At the end of the 3^rd year, the company did not have sufficient cash resources to redeem the preference shares. Hence it issued 10,000 Equity Shares of Rs. 100 each at a premium of 10%. Calculate the amount to be transferred to Capital Redemption Reserve at the time of redemption of Preference Shares.

10.

Find the value of Goodwill, if it is to be calculated at 3 years purchase of average profits of last four years. The last four year’s profits are as below:

Year 1	Profit Rs. 25,000	Year 2	Loss Rs. 10,000
Year 3	Profit Rs. 35,000	Year 4	Profit Rs. 40,000

SECTION – B

II)

Answer any FOUR questions. Each carries 5 marks. (4×5=20)

11.

Balance Sheet Extract of H Ltd. and S Ltd. as at 31^st March 2015 is as below:

Rs. In thousands

Liabilities	H Ltd	S Ltd	Assets	H Ltd	S Ltd
Equity Shares of Rs. 10 each fully paid up	1,050.00	175.00	13,125 shares of S Ltd.	192.50	0
General Reserve	87.50	52.50
Surplus A/c	140.00	70.00

Additional Information:

At the time of acquisition of 13,125 shares by H Ltd in S Ltd, S Ltd had Rs. 42,000 in General Reserve and Rs. 66,500 credit balance in Profit and Loss A/c from which 15% dividend was paid by S Ltd and dividend received by H Ltd. on these shares were credited to Surplus A/c.

You are required to calculate:

A) Analysis of Profits of S Ltd

B) Minority Interest

12.

Liabilities and Assets of Vivek Ltd. as on 31^st Dec, 2015 stood as under:

Rs. In Lakhs

Liabilities	Amount	Assets	Amount
10% Preference Shares of Rs. 100 each	25.5	Fixed Assets	110.5
Equity Shares of Rs. 10 each	51.0	Investments	20.4
General Reserve	30.6	Current Assets	17.0
12% Debentures	23.8
Current Liabilities	17.0
Total	147.9	Total	147.9

Karan Ltd. signified its agreement to take over the assets and liabilities of Vivek Ltd. as per the following terms and conditions:

a) Fixed assets at 110% of the books value.

b) Investments at 25% below the par value.

c) Current assets and liabilities at book value except that stock in trade at cost amounting to Rs. 10 lakh was agreed to be taken over at a discount of 20%.

d) 12% Debentures are to be discharged at a premium of 10% by issuing 12% debentures of Karan Ltd.

Calculate Purchase consideration for the takeover under Net Assets Method.

13.

The Board of Directors of a Company decided to issue minimum number of equity shares of Rs. 10 each at 10% discount to redeem Rs. 15,00,000 preference shares. The maximum amount of divisible profits available for redemption is Rs. 8,00,000. Calculate the number of shares to be issued (if the company decides to issue shares in multiple of 50 only) by the company to ensure that provisions of the companies act is not violated. Also pass the necessary Journal Entries.

14.

From the following information, calculate the value of an Equity share under the yield method.

a. The paid up share capital of the company consists of 1,000, 15% preference shares of Rs. 100 each and 20,000 Equity shares of Rs.10 each.

b. The average annual profit of the company, after providing for depreciation and taxation amounted to Rs. 1,01,250. It is considered necessary to transfer Rs.13,500 to general reserve before declaring dividend.

c. The normal return expected by investors on Equity shares from this type of business on by the company is 12%.

15.

From the information given below, Compute Cost of Control.

Cost of Acquisition	Rs. 5,00,000
Dividend from Post Acquisition Profits received by holding Co.	Rs. 10,000
Dividend from Pre-acquisition Profits received by holding Co.	Rs. 20,000
Paid up Share Capital held by the holding Co. in Subsidiary Co.	Rs. 4,50,000
Holding Company’s share of Capital Profits in Subsidiary Co.	Rs. 50,000
Holding Company’s share of Revenue Profits in Subsidiary Co.	Rs. 75,000

16.

What is Goodwill? Mention any four factors affecting the value of Goodwill.

SECTION – C

III)

Answer any THREE questions. Each carries 15 marks. (3×15=45)

17.

The following is the balance sheet of XYZ Ltd as on 31-12-2015.

LIABILITIES	Rs.	ASSETS	Rs.
11,520 15% Preference shares of Rs.100 each	11,52,000	Sundry assets (book value)	34,56,000
17,280 Equity shares of Rs.100 each	17,28,000
Bills payable	1,44,000
Creditors	4,32,000

Total	34,56,000	Total	34,56,000

The market value of 60% of the assets is supposed to be 15% more than the book value and that of the remaining 40% at 10% less than the book value. There is an unrecorded liability of Rs. 28,800. Find the value of each Equity share.

18.

The Financial Position of Ojaswi Ltd. at 1^st January was as follows:

Equity and Liabilities	Rs.	Assets	Rs.
4,000 5% Redeemable Preference Share Capital of Rs. 10 each	4,00,000	Sundry Assets	8,40,000
20,000 Equity Shares of Rs. 10 each fully paid	2,00,000	Cash and Bank	3,00,000
Securities Premium	50,000
Profit and Loss A/c	2,80,000
Sundry Liabilities	2,10,000
Total	11,40,000		11,40,000

As per the terms of issue of the Preference Shares, these were redeemable at a premium of 5% on 1^st February, and it was decided to arrange this as far as possible out of the Company’s resources subject to leaving a balance of Rs. 50,000 in the credit of the profit and loss account. It was also decided to raise the balance amount by issue of 17,000 Equity Shares of Rs. 10 each at a premium of Rs. 2.50 per share.

You are required to pass necessary Journal Entries and draft the balance sheet after redemption.

19.

XYZ Co. intends to purchase the business of ABC Co. Goodwill for this purpose is agreed to be valued at 3 years purchase of the weighted average profits of the past 4 years. The profits after tax for these years and the appropriate weights to be used are:-

Year	Profits after tax (Rs)	Weights
2012	1,80,000	1
2013	2,05,000	2
2014	2,75,000	3
2015	3,05,000	4

The following information was available:-

a. On 1.1.2013 a major repair was made in respect of a plant at a cost of Rs. 60,000 and was charged to revenue. The said sum is agreed to be capitalized for goodwill calculation, subject to adjustment of depreciation at 15% on diminishing balance method.

b. The closing stock for the year 2012 was overvalued by Rs.13,000.

c. The Closing Stock for the year 2014 was undervalued by Rs. 2,000.

d. There was an abnormal loss of Rs. 38,000 in the year 2013.

e. Abnormal gain in the year 2015 amounted to Rs. 3,500.

f. To cover the management cost an annual charge of Rs. 25,000 should be made for the purpose of goodwill valuation.

Compute the value of goodwill for the company. Tax rate = 50%.

20.

From the Balance Sheets given below as at 31^st March, prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary company S Ltd. as at that date.

Rs. In thousands

Liabilities	H Ltd	S Ltd	Assets	H Ltd	S Ltd
Equity Shares of Rs. 10 each fully paid up	425.00	85.00	Fixed Assets	340.00	51.00
Surplus A/c	170.00	51.00	Stock	255.00	102.00
Reserve	51.00	34.00	Debtors	63.75	72.25
Bills Payable	0	12.75	Bills Receivable	17.00	0
Trade Creditors	93.50	51.00	Shares in S Ltd. (6375 share at cost)	63.75	0
			Preliminary Expenses	0	8.50
Total	739.50	233.75	Total	739.50	233.75

Additional Information:

a. The bills accepted by S Ltd. are all in favour of H Ltd.

b. The stock of H Ltd. includes Rs. 21,250 bought from S Ltd. at a profit to the latter at 20% of sales.

c. All the surplus of S Ltd. has been earned since the shares were acquired by H Ltd. but there was already the reserve of Rs. 34,000 at that date.

21.

Balance Sheets as at 31^st March

Rs. In Thousands

Liabilities	Ram Ltd.	Rahim Ltd.	Assets	Ram Ltd.	Rahim Ltd.
Equity Shares of Rs. 10 each	2,500	1,500	Building	1,250	775
14% Preference Shares of Rs. 100 each	1,100	850	Plant and Machinery	1,625	850
General Reserve	250	250	Furniture and Fixture	287.50	175
Export Profit Reserve	150	100	Investments	350	250
Investment Allowance Reserve	0	50	Stock	625	475
Profit and Loss A/c	375	125	Sundry Debtors	400	460
15% Debentures (Rs. 100 each)	250	175	Bills Receivable	50	55
Trade Creditors	150	75	Cash at Bank	362.50	260
Bills Payable	75	100
Other Current Liabilities	100	75
Total	4,950	3,300		4,950	3,300

All the Bills Receivables of Rahim Ltd. were having Ram Ltd’s acceptances. Ram Ltd. takes over Rahim Ltd. on the above data.

The Purchase Consideration is discharged as follows:

a) Issued 82,500 Equity Shares of Rs. 20 each at par to the Equity Shareholders of Rahim Ltd.

b) Issued 15% Preference Shares of Rs. 50 each to discharge the Preference Shareholders of Rahim Ltd., at 10% premium.

c) The Debentures of Rahim Ltd. will be converted into equivalent number of Debentures of Ram Ltd.

d) The Statutory Reserves of Rahim Ltd. is to be maintained for two more years.

e) Expenses of Amalgamation amounting to Rs. 50,000 will be borne by Ram Ltd.

You are required to:

i) Compute Purchase Consideration.

ii) Show the necessary Ledger Accounts in the books of Rahim Ltd. and

iii) The Opening Balance journal entries in the books of Ram Ltd. on the assumption that the amalgamation is in the nature of Purchase.

SECTION – D

IV)

Case Study – (1×15=15)

22.

X Ltd. and Y Ltd. amalgamated on and from 1^st Jan. A new Company Z Ltd. was formed to take over the business of the existing companies. Their Balance Sheets as on 31^st December was:

Rs. In thousands

Liabilities	X	Y	Assets	X	Y
Share Capital: Equity Shares of Rs. 10 each	4,500.00	5,250.00	Sundry Fixed Assets	6,375.00	5,625.00
General Reserve	1,125.00	1,500.00	Investments	787.50	412.50
Profit and Loss A/c	750.00	375.00	Stock	937.50	2,062.50
Investment Allowance Reserve	375.00	75.00	Debtors	1,350.00	3,000.00
Export Profit Reserve	37.50	75.00	Cash and Bank	337.50	300.00
12% Debentures	2,250.00	3,000.00
Sundry Creditors	750.00	1,125.00
Total	9,787.50	11,400.00	Total	9,787.50	11,400.00

Z Ltd. issued requisite number of shares to discharge the claims of the Equity Shareholders of the Transferor companies.

You are required to:

Draft the Balance Sheet of Z Ltd (after amalgamation in nature of Merger) as per Schedule III of the Companies Act 2013. Notes forming part of the balance sheet need not be provided.

You are required to calculate value of each Equity Share based on Discounted Cash Flow Method from the information given below:

i) Free Cash Flow Estimates:

Year	1	2	3	4	5
Free Cash Flows (Rs)	3,00,000	3,20,000	2,80,000	2,10,000	1,80,000

ii) After tax Cost of Capital is 17.5%

iii) Present Value factor at 17.5%

Year	1	2	3	4	5
PVF @ 17.5%	0.851	0.724	0.616	0.525	0.446

iv) No. of Equity Shares = 50,000.

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