LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com. DEGREE EXAMINATION – COMMERCE

FOURTH SEMESTER – APRIL 2011

CO 4502/CO 4500 – COMPANY ACCOUNTS

Date : 07-04-2011 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

Part – A

Answer ALL Questions: 10 X 2 = 20 marks

State any two legal provisions as to the utilization of securities premium.
Enumerate the various ways of redemption of debentures.
Give an imaginary Profit & Loss appropriation account of a limited company.
Write a note on “Intrinsic Value of Shares”.
What do you understand by “Consolidation of shares”?
Ltd. forfeited 1,000 equity shares of Rs.10 each, issued at a discount of 10% for non-payment of the first call of Rs.2 and the final call of Rs. 3 per share. Show the necessary journal entry.
Ltd. redeemed Rs.10,000, 12% debentures out of capital by drawing a lot and it has also redeemed Rs.20,000 10% debentures out of profit by drawing a lot. Journalize.
Dharran Ltd. earned a profit after tax of Rs.10,00,000 in 2008-09 and it wanted to pay a dividend of 18% on its Capital of Rs.30,00,000. What will be the balance left in the Profit & Loss A/c.
Give journal entries for the following transactions in connection with internal reconstructions:-
- 30,000 equity shares of Rs.10 each fully paid reduced to shares of Rs.5 each fully paid.

300 9% debentures Rs.1000 each converted into 1500

12% debentures of Rs.100 each.

Total assets of the firm is Rs.8,40,000. The liabilities of the firm is Rs.4,40,000. Normal rate of return in this class of business is 12.5%. The firm earned a profit of Rs.64,000. Calculate goodwill, if it is to be valued at 2 years’ purchase of super profit.

PART – B

5 X 8 – 40 MARKS

Answer any FIVE Questions:

Explain the law relating to calculation of ‘Managerial Remuneration’.
What are preference shares? What are the conditions for the redemption of preference shares?
Define goodwill. What are the different methods of calculation of goodwill?
A company issued 10,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable. Rs.5 on application, Rs.5 (including Premium) on allotment and the balance on call. All the shares offered were applied for and allotted. All the moneys due on allotment were received except on 200 shares. Call was made. All the amount due thereon was received except on 300 shares. Directors forfeited 200 shares on which both allotment and call money was not received.

Pass the necessary journal entries to record the above and also show how this will appear in the Balance Sheet of the Company.

On 1^st January ‘X’ Ltd. has Rs.1,00,000 6% debentures. In accordance with the power under the deed the directors acquire the debentures as follows in the open market for immediate cancellation:

March 1 – Rs.20,000 at Rs.98

August 1 – Rs.40,000 at Rs.100.25

December 15 – Rs.10,000 at Rs.98.5

You are required to give journal entries for purchase and cancellation of debentures.

If the above purchase rates are ‘Ex-Interest’
If the above purchase rates are ‘Cum-Interest’.

Assume that interest is payable every year on 30^th June and 31^st December.

From the following Balance Sheet as on 31.12.2005 and 31.12.2006. You are required to prepare a cash flow statement:

Liabilities 2005 2006 Assets 2005 2006

Share Capital 1,00,000 1,50,000 Fixed Assets 1,00,000 1,50,000

Profit & Loss A/c 50,000 80,000 Goodwill 50,000 40,000

General Reserve 30,000 40,000 Inventories 50,000 80,000

12% Bonds 50,000 60,000 Debtors 50,000 80,000

Sundry Creditors 30,000 40,000 Bills receivable 10,000 20,000

Outstanding Expen. 10,000 15,000 Bank 10,000 15,000

2,70,000 3,85,000 2,70,000 3,85,000

P Mills Ltd., was incorporated on 31^st July 2007 to purchase the business of H. & Co., as on 1.4.2007. The books of account disclosed the following on 31^st March 2008.
- Sales for the year Rs.32,10,400 (1^st April to 31^st July 2007 Rs.8,02,600; 1^st July 2007 to 31^st March 2008 Rs.24,07,800)
- Gross Profit for the year Rs.4,12,800; Managing Directors’ Salary Rs.12,000; Preliminary expenses written off Rs.18,000; Company Secretary’s salary Rs.58,000.
- Bad debts written off Rs.14,890 (prior to 31^st July Rs.4,020, after 31^st July Rs.10,870)
- Depreciation on Machinery Rs.25,200; General expenses Rs.51,000; Advertising Rs.7,400; Interest on debentures Rs.20,000.

You are required to prepare a statement apportioning properly the net profit of the company as between pre-Incorporation and post-incorporation.

The issued Share Capital of a company was Rs.10,00,000 consisting 10,000 equity shares of Rs.100 each. The net profits for the last 5 years were Rs.1,00,000; Rs.80,000 ; Rs.1,20,000; Rs.1,60,000 and Rs.1,40,000 of which 20% was placed to reserve, this proportion being considered reasonable in the industry in which the company is engaged and where a fair investment return may be taken at 12%. Compute the value of Company’s share by the yield value method.

PART – C

Answer any two questions: – Marks: 2 X 20 – 40

The following is the Trial Balance of Bee Ltd. as on 31^st March 2008

Rs. Rs.

Stock on 1.4.2007 75,000 Purchase returns 10,000

Purchases 2,45,000 Sales 3,40,000

Wages 30,000 Discount 3,000

Carriage 950 Profit & Loss A/c. 15,000

Furniture 17,000 Share Capital 1,00,000

Salaries 7,500 Creditors 17,500

Rent 4,000 General Reserve 15,500

Sundry Trade Exp. 7,050 Bills Payable 7,000

Dividend Paid 9,000

Debtors 27,500

Plant & Machinery 29,000

Cash at Bank 46,200

Patents 4,800

Bills receivable 5,000

5,08,000 5,08,000

Prepare the Profit and Loss account for the year ended 31.03.2008 and a balance sheet as on that date after considering the following adjustments:

Stock on 31.3.2008 Rs.88,000
Provide for Income tax at 50%
Depreciate Plant & Machinery at 15%, furniture at 10%, and patents at 5%
On 31.3.2008 outstanding rent amounted to Rs.800 and Salaries Rs.900.
The Board recommends payment of a dividend of 15% p.a. Transfer the minimum required amount to General reserve.
Provide Rs.510 for doubtful debts.
Provide for managerial remuneration at 10% on profit before tax.

The following was the Balance Sheet of ABC Limited as on 31.12.2006.

Liabilities Rs. Assets Rs.

Share Capital Goodwill 10,000

12000 shares of Land & Building 20,500

Rs.10 each 1,20,000 Machinery 50,850

Less Calls in arrear Preliminary Exp. 1,500

Rs.3 per share Stock 10,275

300 shares 9,000 1,11,000 Debtors 15,000

Creditors 15,425 Bank 1,500

Provision for tax 4,000 P & L A/c 22,000

(-) net

profit of 1,200 20,800

this year

1,30,425 1,30,425

Machinery value was Rs.10,000 in excess. It is proposed to write down this asset and to extinguish the profit & Loss A/c debit. balance and to write off goodwill and preliminary expenses by the adoption of the following scheme:-

forfeit the shares on which the calls are outstanding.
Reduce the paid up Capital by Rs.3 per share.
Re-issue the forfeited shares at Rs.5 per share.
Utilize the provision for tax if necessary

You are required to draft the journal entries necessary and the balance sheet after carrying out the scheme.

On 31.3.2008 the date of liquidation of a company, its balance sheet was as under:

Liabilities Rs. Assets Rs.

Share Capital:

7% preference shares 3,00,000 Land & Buildings 4,00,000

6000 Eq. Shares of Rs.10 48,000 Plant & Machinery 1,60,000

Each Rs.8 Paid up

Stock 4,00,000

3000 Eq. Shares of Rs.10 21,000 Debtors 6,40,000

Each Rs.7 paid up

Cash at Bank 51,000

6% Debentures of Rs.100 12,00,000

each

Outstanding interest on 72,000

debentures

Creditors 8,000

Bills Payable 2,000

16,51,000 16,51,000

The assets were realized as under:

Land & Buildings Rs.3,50,000 ; Plant & Machinery Rs.2,00,000 ; Debtors Rs.6,00,000 ; Stock Rs.4,61,000 ; Liquidation expenses Rs.2000. Remuneration of liquidator 0.5% on assets realized including cash and 1% on the amount paid to unsecured creditors.

Creditors shown in the balance sheet included Rs.2000 preferential. Interest on debentures is to be paid up to 31.5.2008. Dividend on preference. Shares is in arrears for 1 ½ years. Legal charges Rs.1,000/-. Prepare liquidator’s final statement of Account as on 31-3-2008.

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