- JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – SEPT /OCT 2014
BCOM – III SEMESTER
ADVANCED ACCOUNTING- II
Duration: 3 Hours Max. Marks: 100
SECTION – A
- Answer ALL the questions. Each carries 2 marks. (10 x2 =20)
- What is meant by Buy-Back of shares? State the sources of buying back the companies own shares.
- On 31-12-2009 B Ltd. had 20,000, Rs. 10 Equity Shares as authorised capital and the shares were all issued on which Rs. 8 was paid up. In June, 2010 the company in general meeting decided to sub-divide each share into two shares of Rs. 5 with Rs. 4 paid up. In June, 2011 the company in general meeting resolved to consolidate 20 shares of Rs. 5, Rs. 4 per share paid up into one share of Rs. 100 each, Rs. 80 paid up. Pass Journal Entries.
- C Ltd., has 10,000 10% redeemable preference shares of Rs. 100 each, fully paid up. The company decided to redeem these preference shares at par, by issue of sufficient number of equity shares of Rs. 10 each at a premium of Rs. 2 per share as fully paid up. You are required to pass necessary journal entries including cash transactions in the books of the company.
- What is meant by redemption of debenture and different methods of redemption of debentures?
- What is meant by surrender of shares?
- State any 2 difference between external and internal reconstruction?
- What is meant by Minority Interest?
- State the procedure for Internal Reconstruction.
- A ltd., has acquired 80% share in B ltd., for Rs. 1,50,000. The net assets of B ltd., on the day are Rs. 2,20,000. During the year A ltd., sold the investment for Rs. 3,00,000 and the net assets of B ltd., on the date of disposal was Rs. 3,50,000. Calculate the profit or loss on disposal of this investment to be recognized in consolidated financial statement?
- What is meant by Purchase Consideration? What are the different methods of calculating Purchase Consideration?
SECTION – B
- Answer any FOUR Each carries 5 marks. (4×5=20)
- Explain the conditions for buy-back of shares as per companies act Section 77A.
- Determine the amount of fresh issue of shares from the following information:
Redeemable preference share capital – Rs. 80,00,000
Premium on redemption – 10%
General reserve – 12,00,000
Profit and loss a/c – 4,00,000
Security premium – 6,00,000
- Fresh issue to be made at a discount of 10% to the extent desirable for redemption of preference shares which could not otherwise be redeemed.
- Fresh issue to be made at a premium of 10% to the extent desirable for redemption of preference shares which could not otherwise be redeemed.
- Briefly explain provisions of companies act Sec 80?
- The following is the summarized balance sheet of A Ltd., as on 31/3/2012:
| Liabilities | Amount | Assets | Amount |
| 14,000 equity shares of Rs. 100 each fully paid
General reserve 10% Debentures Sundry creditors Bank overdraft Bills payable |
14,00,000
10,000 2,00,000 2,00,000 50,000 40,000 |
Sundry assets
Discount on issue of dentures P & L a/c |
18,00,000
10,000
90,000 |
| 19,00,000 | 19,00,000 |
R Ltd., agreed to take over the business of A ltd. Calculate Purchase consideration under Net Assets method on the basis of the following:
The market value of 75%of the sundry assets is estimated to be 12% more than the book value and that of the remaining 25% at 8% less than the book value. The liabilities are taken over at book values. There is an unrecorded liability of Rs. 25,000.
- A ltd., purchased 40% stake of B ltd., for Rs 12 per share. After 2 years A ltd decided to purchase another 40% share in B ltd. B ltd, has 1,00,000 equity shares of Rs 10 each as fully paid up shares. The purchase deal was finalized on the following terms:
- Purchase price per share to be calculated on the basis of average profit of last 3 years capitalized at 7.5%. profits for the last 3 years are Rs. 35,000; Rs. 65,000 and Rs. 89,000.
- Total assets of B ltd., of Rs. 11,50,000. Assets to be appreciated by Rs. 40,000
- Of the external creditors for Rs. 2,50,000 one creditor to whom Rs 10,000 was due has expired and nothing is to be paid to settle this liability.
- B ltd., will declare dividend @ 15%.
Calculate the goodwill or capital reserve for A ltd. In consolidated financial statement?
- Distinguish between Amalgamation in the nature of Purchase and Merger?
SECTION – C
III) Answer any THREE questions. Each carries 15 marks. (3×15=45)
- Ram Ltd. and Shyam Ltd. Carry on business of a similar nature and it is agreed that they should amalgamate. A new company Ramayam Ltd. is to be formed to which the assets and liabilities of the existing companies, with certain exception, are to be transferred. On 31/12/2011, the balance sheets of the 2 companies were as under:
| Liabilities | Ram Ltd. | Shyam Ltd. | Assets | Ram Ltd. | Shyam Ltd. |
| Equity shares of Rs 10 each | 3,00,000 | 1,60,000 | Freehold property at cost | 2,10,000 | 1,20,000 |
| General reserve | 1,60,000 | — | Plant & m/c at cost less depreciation | 50,000 | 30,000 |
| P & L a/c | 40,000 | 40,000 | Motor vehicles at cost less depreciation | 20,000 | — |
| Sundry creditors | 1,50,000 | 64,000 | Stock | 1,20,000 | 1,56,000 |
| 6% Debentures | — | 1,20,000 | Debtors | 1,64,000 | 42,000 |
| Cash at bank | 86,000 | 36,000 | |||
| 6,50,000 | 3,84,000 | 6,50,000 | 3,84,000 |
Assets and liabilities are to be taken at book value, with the following exceptions:
- Good will of Ram ltd., and Shyam ltd., are to valued at Rs. 1,60,000 and Rs. 60,000 respectively.
- Motor vehicles of Ram ltd are to be valued at Rs. 60,000.
- The debentures of Shyam ltd., are to be discharged by the issue of 6% debentures of Ram and Shyam ltd., at a premium of 5%.
- The debtors of Shyam ltd., realized fully and bank balance of Shyam Ltd., are to be retained by the liquidator and the sundry creditors of Shyam ltd., are to be paid out of the proceeds thereof.
You are required to:
- Compute the basis on which shares in Ram and Shyam ltd., will be issued to the shareholders of the existing companies assuming that the nominal value of each share in Ram and Shyam ltd is Rs. 10.
- Draw up the balance sheet of Ramayam ltd., as of 1st april 2011, the date of completion of amalgamation.
- Write up journal entries, including bank entries, for closing the books of Shyam ltd.
- The following is the balance sheet of TOM ltd., as on 31/3/2007:
| Liabilities | Amount | Assets | Amount |
| Authorized capital:
Preference shares of Rs. 10 each 50,000 equity shares of Rs. 10 each 4,50,000 |
Fixed assets:
Gross block 1,50,000 Less: depreciation 50,000 |
1,00,000 |
|
| Issued, subscribed and paid up capital:
5,000 10 % redeemable preference shares of Rs. 10 each. 5,000 equity shares of Rs. 10 each |
50,000
50,000 |
Investments | 50,000 |
| Reserves and surplus:
General reserve Share premium P & L a/c |
60,000 35,000 9,250 |
CA, Loans and Advances:
Inventory Debtors Cash and Bank Bal |
12,500 12,500 25,000 |
| CL & Provisions:
Sundry creditors |
5,750 |
Misc. exps to the extent not written off | 10,000 |
| 2,10,000 | 2,10,000 |
For year ended 31/3/2008, the company made a net profit of Rs. 7,500 after providing Rs. 10,000 depreciation and writing off the miscellaneous expenditure of Rs. 10,000.
The following additional information is available with regard to company’s operation:
- The preference dividend for the year ended 31/3/2008 was paid before 31/3/2008.
- The company redeemed the preference shares at a premium of 10%
- To meet the cash requirements of redemption, the company sold a portion of the investments, so as to leave a minimum balance of Rs. 15,000 after such redemption.
- Except cash and bank balances other current assets and current liabilities as on 31/3/2008 was the same as on 31/3/2007.
- The company issued bonus shares in the ratio of one share for every equity share held as on 31/3/2008.
- Investments were sold at 90% of cost on 31/3/2008.
You are required to:
- Prepare necessary journal entries to record redemption and issue of bonus shares.
- Prepare the cash and bank account.
- Prepare the Balance Sheet as on 31/3/2008 incorporating the above transactions.
- Given below is the summarized balance sheet of Rebuilt Ltd. as on 31.3.2012:
| Liabilities | Amount | Assets | Amount |
| 12,000, 7% Preference shares of Rs. 50 each (Note: Preference dividend is in arrear for five years) | 6,00,000 | Building at cost less depreciation | 4,00,000 |
| 15000 Equity shares of Rs. 50 each | 1,50,000 | Plant at cost less depreciation | 2,68,000 |
| Loan | 5,73,000 | Trademarks and goodwill at cost | 3,18,000 |
| Sundry creditors | 2,07,000 | Stock | 4,00,000 |
| Other liabilities | 35,000 | Debtors | 3,28,000 |
| Preliminary expenses | 11,000 | ||
| Profit and loss account | 4,40,000 | ||
| 21,65,000 | 21,65,000 |
The Company is now earning profits short of working capital and a scheme of reconstruction has been approved by both the classes of shareholders. A summary of the scheme is as follows:
(a) The equity shareholders have agreed that their Rs. 50 shares should be reduced to Rs. 2.50 by cancellation of Rs. 47.50 per share. They have also agreed to subscribe for three new equity shares of Rs. 2.50 each for each equity share held.
(b) The preference shareholders have agreed to cancel the arrears of dividends and to accept for each Rs. 50 share, 4 new 5% preference shares of Rs. 10 each, plus 6 new equity shares of Rs. 2.50 each, all credited as fully paid.
(c) Lenders to the company for Rs, 1,50,000 have agreed to convert their loan into share and for this purpose they will be allotted 12,000 new preference shares of Rs. 10 each and 12,000 new equity shares of Rs. 2.50 each.
(d) The directors have agreed to subscribe in cash for 40,000, new equity shares of Rs. 2.50 each in addition to any shares to be subscribed by them under (a) above.
(e) Of the cash received by the issue of new shares, Rs.2,00,000 is to be used to reduce the loan due by the company.
(f) The equity share capital cancelled is to be applied:
i. to write off the preliminary expenses:
ii. to write off the debit balance in the profit and loss A/c: and
iii. to write off Rs. 35,000 from the value of plant.
Any balance remaining is to be used to write down the value of trademarks and goodwill. Show by journal entries how the financial books are affected by the scheme and prepare the balance sheet of the company after reconstruction. The nominal capital as reduced is to be increased to Rs.6,50,000 for preference share capital and Rs.7,50,000 for equity share capital.
- H ltd. Acquired all the shares in S ltd., on 1/1/2012 and liabilities and assets of the 2 companies on 31/2/2012 were as follows:
| Liabilities | H ltd. | S ltd. | Assets | H ltd. | S ltd. |
| Share capital | 50,000 | 30,000 | Sundry assets | 65,000 | 70,000 |
| Reserve on 1/4/2011 | 20,000 | 15,000 | Shares in S ltd. At cost | 50,000 | — |
| Surplus a/c | 25,000 | 10,000 | |||
| Creditors | 20,000 | 15,000 | |||
| 1,15,000 | 70,000 | 1,15,000 | 70,000 |
The surplus account of S ltd., had a credit balance of Rs. 3,000 on 1/4/2011. Prepare a Consolidated Balance Sheet as on 31/3/2012.
- The summarized balance sheet of Mars ltd., as on 31/3/2012 was as follows:
| Liabilities | Amount | Assets | Amount |
| 1,00,000 equity shares of Rs. 10 each fully paid | 10,00,000 | Land and building | 7,64,000 |
| Capital reserve | 42,000 | Stock | 7,75,000 |
| Contingency reserve | 2,70,000 | Debtors 1,60,000
Less: provision For DD 8,000___ |
1,52,000 |
| P & L a/c | 2,52,000 | Bills receivable | 30,000 |
| Bills payable | 40,000 | Cash at bank | 3,29,000 |
| Sundry creditors | 2,26,000 | ||
| Provision for income tax | 2,20,000 | ||
| 20,50,000 | 20,50,000 |
On 1/4/2012, Jupiter ltd., agreed to absorb Mars Ltd., on the following terms and conditions:
- Jupiter ltd., will take over the assets at the following values: land and building – Rs. 10, 80,000; stock – Rs. 7,70,000; bills receivables – Rs. 30,000.
- Purchase consideration will be settled by Jupiter ltd., as under: 4,100 fully paid 10% preference shares of Rs. 100 will be issued and the balance will be settled by issuing equity shares of Rs 10 each at Rs. 8 paid up.
- Liquidation expenses are to be reimbursed by Jupiter ltd., to the extent of Rs. 5,000.
- Sundry debtors realized Rs. 1,50,000,bills payable were settled for Rs. 38,000, income tax authorities fixed the taxation liability at Rs. 2,22,000 and the same was paid.
- Creditors were finally settled with cash remaining after meeting liquidation expenses amounting to Rs. 8,000.
You are required to:
- Calculate the number of equity shares and preference shares to be allotted by Jupiter ltd., in discharge of Purchase Consideration.
- Prepare Realization a/c; bank account; equity shareholders a/c; and Jupiter ltd., a/c in the books of Mars Ltd.
SECTION – D
- IV) Case study- Compulsory questions. (15 marks)
- D Ltd. and F Ltd. were amalgamated on and from 1st April, 2009. A new Company P Ltd. was formed to takeover the business of the existing companies. The Balance Sheets of D Ltd. and F Ltd. as on 31st March, 2009 are given below :
| Liabilities | D Ltd. | F Ltd. | Assets | D Ltd. | F Ltd. |
| Share Capital:
Equity Share of Rs. 10 each 9% Preference Shares of Rs. 100 each Reserves and surplus: Revaluation reserve General reserve Export profit reserve Secured Loan : 13% Debentures of Rs. 100 each Current liabilities and Provisions: Bills Payable Sundry creditors |
85,000
32,000
12,500 24,000 7,500
5,000
2,000 14,500
|
72500
17,500
8,000 16,000 3,000
2,800
— 7,500 |
Fixed Assets:
Land and Building Investments Current assets: Stock Debtors Bills receivable Cash and bank |
79,500 7,500
32,500 30,500 2,500 30,000 |
43,400 5,000
26,900 27,000 — 25,100 |
| 1,82,500 | 1,27,000 | 1,82,500 | 1,27,300 |
Other information:
- 13% Debenture holders of D Ltd. and F Ltd. are discharged by P Ltd. by issuing such number of its 15% Debentures of Rs. 100 each so as to maintain the same amount of interest.
- Preference Shareholders of the two companies are issued equivalent number of 12% Preference Shares of P Ltd. at a price of Rs. 12.50 per share (face value Rs.10).
- P Ltd. will issue 2 equity shares for each equity share of D Ltd. and 2 equity shares for each equity share of F Ltd. at Rs. 15 per share having a face value Rs. 10.
- Export Profit Reserve is to be maintained for two more years.
Prepare Journal Entries and prepare the Balance Sheet of P Ltd. after the amalgamation is carried out using under Merger Method.