Corporate Accounting – II

St. Joseph’s College of Commerce (Autonomous)

End Semester Examinations – March /April 2013

B.COM – IV SEMESTER

 Corporate Accounting- ii

 

Time: 3 Hrs                                                                                                   Marks: 100

Section – A

 

1. Answer ALL Questions. Each carries 2 marks:                                   (10 x 2 =20)

 

1. Who is a liquidator?
2. What are the two forms of internal reconstruction?
3. Distinguish between Capital Reduction Account and Capital Redemption Reserve Account.
4. What is the purpose of AS – 14?
5. Explain the 2 types of voluntary winding up?
6. How is the balancing figure treated while incorporating assets and liabilities of selling company, when it is (a) Nature of merger (b) Nature of purchase?
7. What are the four methods of purchase consideration?
8. Give the meaning of redemption of preference shares?
9. Explain sub – division of shares with an example?
10. What is the entry passed when statutory Reserves are to be maintained in the books of the New Company?

 

Section – B

 

1. Answer any FOUR Questions. Each carries 5 marks:                         (4 x 5 = 20)

 

 

11. On the reconstruction of a company, the following terms were agreed upon: the shareholders to receive in lieu of their present holding (viz., 50,000 shares of Rs.10 each) the following:
12. Fully paid Equity Shares equal to 2/5^th of their holdings
13. 6% Preference shares fully paid, to the extent of 1/5^th of the above new Equity shares
14. 60,000/- 5% Second Debentures

An issue of Rs.50,000/- 5% First Debentures was made and allotted payment for the same having been received in cash.

 

The Goodwill which stood at Rs.3,00,000/- was written down to Rs.1,50,000.

 

The Plant and Machinery, which stood at Rs.1,00,000 were written down to Rs.75,000.

The Freehold and Leasehold Premises, which stood at Rs.1,50,000 were written down to Rs.1,25,000.

 

Pass the Journal Entries in the books of the company necessitated by the above reconstruction.

 

12. Bring out the differences between Amalgamation and External Reconstruction.

 

13. Explain the various circumstances under which a company would have to go in for the legal formalities of winding up.

 

14. Luckless limited went into voluntary liquidation on 31/12/2001 when the sale of affairs was as below:

Unsecured creditors was Rs.4,00,000 including Rs. 50,000 preferential claim.  Secured creditors, secured on plant and machinery, stood at Rs. 2,00,000. Cash in hand was Rs.10,000.

 

The liquidator realized plant and machinery for Rs.1,50,000 and the other assets realized Rs.1,00,000/- The liquidation expenses came to Rs.10,000 and the liquidator’s remuneration was fixed at 4% of the amount realized including cash balance and 2% of the amount distributed to unsecured creditors including preferential creditors.

 

Prepare Liquidator’s Final Statement of Account showing the distribution of cash.

 

15. Super Express Ltd., and Fast Express Ltd., were in competing business. They decided to form a new company named Super Fast Express Ltd.  The summarized balance sheets of both the companies were as under:

 

Super Express Ltd

Balance Sheet as at 31^st December 2012

	Rs.		Rs.
20,000 Equity shares of Rs.100 each	20,00,000	Buildings	10,00,000
Provident Fund	1,00,000	Machinery	4,00,000
Sundry creditors	60,000	Stock	3,00,000
Insurance reserve	1,00,000	Sundry debtors	2,40,000
		Cash at bank	2,20,000
		Cash in hand	1,00,000
	22,60,000		22,60,000

 

Fast Express Ltd

Balance Sheet as at 31^st December 2012

	Rs.		Rs.
10,000 Equity shares of Rs.100 each	10,00,000	Goodwill	1,00,000
Employees profit sharing account	60,000	Buildings	6,00,000
Sundry creditors	40,000	Machinery	5,00,000
Reserve account	1,00,000	Stock	40,000
Surplus	1,00,000	Sundry debtors	40,000
		Cash at bank	10,000
		Cash in hand	10,000
	13,00,000		13,00,000

The assets and liabilities of both the companies were taken over by the new company at their book values.  The companies were allotted equity shares of Rs.100 each in lieu of purchase consideration.  Prepare opening balance sheet of Super Fast Express Ltd.

 

16. The Balance Sheet of X Ltd., on the date of redemption of preference shares is as follows:

Liabilities	Rs.	Assets	Rs.
Equity Share Capital (Rs.10 each)	4,00,000	Fixed Assets	10,50,000
Preference Share Capital (Rs.100 each partly paid up)	1,00,000	Investments (Face value Rs.2,37,500)	2,00,000
Preference Share Capital (Rs.100 each fully paid)	2,00,000	Bank	1,00,000
Capital Redemption Reserve	1,00,000	Other Current Assets	1,50,000
Securities Premium	5,000
Profit and Loss A/c	2,95,000
Liabilities	4,00,000
	15,00,000		15,00,000

 

To redeem preference shares following resolution is passed:

• Preference shares are to be redeemed at a premium of 20%
• Investments are to be sold at a loss of 5%
• 5,000 equity shares of Rs.10 each are to be issued at par for the purpose of redemption of preference shares

 

Pass journal entries to record the above transactions assuming that all the necessary formalities are complied with.

 

 

Section – C

 

• Answer any THREE Questions. Each carries 15 marks:     (3 x 15 = 45)

 

17. The following is the summarized Balance Sheet of Redeemable Limited:

 

Liabilities		Rs.	Assets	Rs.
Paid up Share Capital Equity Shares:			Bank	90,000
50,000 shares of Rs.10 each		5,00,000	Other Assets	8,10,000
10% Redeemable Pref. Shares:
1,000 shares of Rs.100 each fully called – up	1,00,000
Less: Calles – in – arrear	1,000	99,000
(on 50 shares @ Rs.20 each)		5,99,000
Reserves & Surplus
General Reserve	1,00,000
Dev. Rebate Reserve	50,000	1,50,000
Other Liabilities		1,51,000
		9,00,000		9,00,000

 

The Redeemable Preference Shares were redeemed on the following basis:

• Further 4,500 equity shares were issued at a premium of 10 per cent:
• Expenses for fresh issue of shares – Rs.5,000;
• Of the 50 Preference Shares, holders for 40 shares paid the call before the date of redemption. The balance 10 shares were forfeited for non – payment of calls before redemption.  The forfeited shares were reissued as fully paid on receipt of Rs.500 before redemption;
• Preference shares were redeemed at a premium of 10 percent, and securities premium amount was utilized in full for the purpose.

 

Show journal entries including those relating to cash and the summarized Balance Sheet after redemption showing rough workings.

 

 

 

 

 

 

 

 

 

 

18. The balance sheet of H Ltd., was as follows on 31/12/2001

 

Liabilities	Rs.	Assets	Rs.
Authorized and issued capital		Goodwill	40,000
5,000, 6% preference shares of Rs.10 each fully paid	50,000	Sundry other assets	1,64,500
15,000 ordinary shares of Rs.10 each fully paid	1,50,000	Patents	15,000
6% Debentures	30,000	Cash	500
Creditors	20,000	Profit & Loss A/c	28,000
(Preference dividend is in arrears for 4 year )		Preliminary expenses	2,000
	2,50,000		2,50,000

 

A scheme of external reconstruction was agreed upon as follows:

• A new company called J Ltd., was formed with an authorized capital of Rs.3,25,000/- All in ordinary shares of Rs.10
• One ordinary share, Rs.5/- paid, in new company to be issued to each ordinary share held in H Ltd.
• Two ordinary shares, Rs.5 paid, in the company to be issued for each preference share in H Ltd.
• Arrears to be cancelled
• Debenture holders are to get 3,000 ordinary shares in the new company credited as fully paid
• Creditors to be taken over by new company
• The remaining unissued shares to be taken up and paid for fully by the directors.
• The new company to take over old company’s assets except patents, subject to writing down “sundry assets” by Rs.35,000/-
• Patents were realized by H Ltd for Rs.1,000/-

 

Show:

1. Realization Account
2. Equity holders accounts
3. J Ltd A/c in H Ltd., books and
4. Reconstructed balance sheet in J Ltd.

 

 

 

 

 

 

19. Quick Consumption Limited went into voluntary liquidation on 31/12/2001. The balance sheets as on that date was:

Liabilities	Rs.	Assets	Rs.
Share Capital:		Land and buildings	2,50,000
5,000 6% Cumulative preference shares of Rs.100 each	5,00,000	Machinery	6,25,000
2,500 Equity share of Rs.100 each Rs.75 paid up	1,87,500	Patents	1,00,000
7,500 Equity shares of Rs.100 each Rs.60 paid up	4,50,000	Stock	1,37,500
5% mortgage Debentures	2,50,000	Debtors	2,75,000
Interest outstanding on Debentures	12,500	Cash at bank	75,000
Creditors	3,62,500	Profit & Loss A/c	3,00,000
	17,62,500		17,62,500

The liquidator is entitled to a commission of 3% on all assets realized except cash and 2% on amounts distributed to unsecured creditors.

 

Creditors include Rs.17,500/- for income tax due to government, Rs.5,000/- outstanding salaries of employees and an award of Rs.15,000/- made under Workmen’s Compensation Act.  It also includes a loan for Rs.1,25,000/- secured by mortgage on Land and buildings.

 

The preference dividends were in arrears for two years.  The assets realized as follows:

	Rs.
Land & Buildings	3,00,000
Machinery	5,00,000
Patents	75,000
Stock	1,50,000
Debtors	2,00,000
Expenses of liquidation amounted to	27,250
Prepare the Liquidator’s Final Statement of Account

 

 

 

 

 

 

 

 

 

20. M/s. Platinum Limited has decided to reconstruct the Balance Sheet since it has accumulated huge losses. The following is the Balance Sheet of the company as on 31^st March 2012 before reconstruction.

Liabilities	Rs.	Assets	Rs.
Share Cpital
50,000 shares of Rs.50 each fully paid up	25,00,000	Goodwill	22,00,000
1,00,000 shares of Rs.50 each Rs.40 paid up	40,00,000	Land & Building	42,70,000
Capital Reserve	5,00,000	Machinery	8,50,000
8% Debentures of Rs.100 each	4,00,000	Computers	5,20,000
12% Debentures of Rs.100 each	6,00,000	Stock	3,20,000
Trade Creditors	12,40,000	Trade Debtors	10,90,000
Outstanding Expenses	10,60,000	Cash at Bank	2,68,000
		Profit & Loss A/c	7,82,000
Total	1,03,00,000	Total	1,03,00,000

Following is the interest of Mr. Shiv and Mr. Ganesh in M/s. Platinum Limited

	Mr. Shiv	Mr. Ganesh
8% Debentures	3,00,000	1,00,000
12% Debentures	4,00,000	2,00,000
Total	7,00,000	3,00,000

The following scheme of internal reconstruction was framed and implemented as approved by the court and concerned parties:

• Uncalled capital is to be called up in full and then all the shares to be converted into Equity Shares of Rs.40 each
• The existing shareholders agree to subscribe in cash, fully paid up equity shares of 40 each for Rs.12,50,000/-
• Trade Creditors are given option of either to accept fully paid equity shares of 40 each for the amount due to them or to accept 70% of the amount due to them in cash in full settlement of their claim. Trade Creditors for Rs.7,50,000/- accept equity shares and rest of them opted for cash towards full and final settlement of their claim.
• Shiv agrees to cancel debentures amounting to Rs.2,00,000/- out of total debentures due to him and agree to accept 15% Debentures in cash amounting to Rs.1,00,000/-
• Ganesh agrees to cancel debentures amounting to Rs.50,000 out of total debentures due to him and agree to accept 15% Debentures for the balance amount due.
• Land & Building to be revalued at Rs.51,84,000, Machinery at Rs.7,20,000, Computers at Rs.4,00,000, Stock at Rs.3,50,000 and Trade Debtors at 10% less to as they are appearing in Balance Sheet as above.
• Outstanding Expenses are fully paid in cash
• Goodwill and Profit & Loss A/c will be written off and balance, if any, of Capital Reduction A/c will be adjusted against Capital Reserve.

You are required to pass necessary Journal Entries for all the above transactions and draft the company’s Balance Sheet immediately after the reconstruction.

 

21. Ram Limited and Shyam Limited carry on business of a similar nature and it is agreed that they should amalgamate. A new company, Ram and Shyam Limited, is to be formed to which the assets and liabilities of the existing companies, with certain exception, are to be transferred.  On 31^st March 2011, the Balance Sheets of the two companies were as under:

Ram Limited

Balance Sheet as at 31^st March 2011

Liabilities	Rs.	Assets	Rs.
Issued and subscribed		Freehold Property, at cost	2,10,000
Share Capital:		Plant and Machinery, at cost Less: Depreciation	50,000
30,000 Equity Shares of Rs.10 each fully paid	3,00,000	Motor Vehicles, at cost less Depreciation	20,000
General Reserve	1,60,000	Stock	1,20,000
Profit and Loss Account	40,000	Debtors	1,64,000
Sundry Creditors	1,50,000	Cash  at Bank	86,000
	6,50,000		6,50,000

 

Shyam Limited

Balance Sheet as at 31^st March 2011

Liabilities	Rs.	Assets	Rs.
Issued and subscribed		Freehold Property, at cost	1,20,000
Share Capital:		Plant and Machinery, at cost Less: Depreciation	30,000
16,000 Equity Shares of Rs.10 each fully paid	1,60,000	Stock	1,56,000
Profit and Loss Account	40,000	Debtors	42,000
6% Debentures	1,20,000	Cash  at Bank	36,000
Sundry Creditors	64,000
	3,84,000		6,50,000

Assets and Liabilities are to be taken at book value, with the following exceptions:

• Goodwill of Ram Limited and of Shyam Limited is to be valued at Rs.1,60,000 and Rs.60,000/- respectively.
• Motor Vehicles of Ram Limited are to be valued at Rs.60,000/-
• The debentures of Shyam Limited are to be discharged by the issue of 6% Debentures of Ram and Shyam Limited at a premium of 5%.
• The Debtors of Shyam Ltd., realized fully and Bank Balance of Shyam Limited 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:

1. Compute the basis on which shares in Ram and Shyam Limited will be issued to the Shareholders of the existing companies assuming that the nominal value of each share in Ram and Shyam Limited is Rs.10/-

 

1. Draw up a Balance Sheet of Ram and Shyam Limited as of 1^st April, 2011 the date of completion of amalgamation

 

• Write up Journal entries, including Bank entries, for closing the books of Shyam Limited.

 

Section – D

 

1. Compulsory Question: (15 marks)

 

22. As on 31^st March 2008, the following is the balance sheet of Agile Industries Ltd:

 

Liabilities	Rs. (in ‘000)	Assets	Rs. (in ‘000)
Share Capital:		Fixed Assets	97.50
14% Preference Share Capital of Rs.100 each	22.50	Investments	18.00
Equity Shares of Rs.10 each	45.00	Current Assets	15.00
General Reserve	27.00
15% Debentures	21.00
Current Liabilities	15.00
	130.50		130.50

 

 

 

 

 

 

 

Ankit Industries Ltd., agreed to take over the assets and liabilities of Agile Industries Ltd., on the following terms and conditions:

 

• – Discharge of 15% debentures at a premium of 10% by issuing 15% debentures in Ankit Industries Ltd.
• Fixed Assets 10% above the book value
• Investments at par value
• Current Assets at a discount of 10%
• Current liabilities at book value

 

• – Discharge the debenture holders of Agile Industries Ltd., at 10% premium by issuing 15% debentures of Ankit Industries Ltd.
• Preference shareholders are discharged at a premium of 10% by issuing 15% preference shares of Rs.100
• Issue 3 equity shares of Rs.10 each for every 2 equity shares in Ankit Industries Ltd., and pay cash @ Rs.3 per equity share.

 

Calculate purchase consideration under ‘net assets method and net payment method’.