LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
B.B.A.
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DEGREE EXAMINATION –BUSINESS ADMINISTRATION
FOURTH SEMESTER – APRIL 2007
BU 4500 – CORPORATE ACCOUNTING
Date & Time: 21/04/2007 / 9:00 – 12:00 Dept. No. Max. : 100 Marks
PART A
Answer ALL questions 10 x 2 = 20 marks
Explain the following:
- Forfeiture of shares
- Capital redemption reserve
- Redemption of debentures cum interest and ex-interest
- Vendors suspense account
- Liquidators remuneration
- Contingent liability
- A Ltd., had share capital of 10,000 equity shares of Rs.10 each, Rs.40,000 in P & L and Rs.30,000 in general reserve. It is decided to issue bonus shares, in the ratio of one share for every 5 held. Pass entries.
- The expected profit of a company before tax @ 40% is Rs.50,000, Its capital consists of 10,000 equity shares of Rs.10 each and 10,000 8% preference shares of Rs.10 each. It is the company’s policy to transfer 20% of the profits to general reserve. If the normal rate of return is 10%, calculate the yield value per share.
- X Ltd., has made the following profits during the past three years: Rs.60,000, Rs.75,000 and Rs.90,000. Its assets are worth Rs.5,00,000 and liabilities Rs.2,00,000. Calculate the value of goodwill of the firm at 2 years purchase of super profits, the normal rate of return being 15%.
- State under which heading in the Balance sheet of the company the following items will appear:
- a) Loose tools (b) unclaimed dividends (c) public deposits (d) bills receivable.
PART B
Answer ANY FIVE questions 5 x 8 = 40 marks
- (a) State the maximum commission payable to underwriters
(b) The following underwriting took place:
A – 5,000 shares; B – 3,000 shares; C – 2,000 shares.
In addition there was firm underwriting:
A – 1,000 shares; B – 500 shres; C – 1,500 shares.
The share issue was for 10,000 shares. Total subscription including firm underwriting was 8,500 shares and the forms included the following marked forms:
A – 2,000 shares; B – 1,000 shares; C – 1,000 shares.
Show the allocation of liability of the underwriters assuming that shares underwritten firm are treated as unmarked.
- Distinguish between Amalgamation in the nature of purchase and merger.
- X Co. Ltd., had 10,000 equity shares of Rs.10 each fully paid and 5,000 7% redeemable preference shares of Rs.10 each fully paid, redeemable at a premium of 10%. It had a credit balance of Rs.40,000 on profit and loss account and Rs.50,000 on general reserve.
The company resolved:
- To issue 3,000 equity shares of Rs.10 each at Rs.12 per share in order to provide part of the funds for the redemption of the preference shares.
- To redeem the preference shares.
- To make a bonus issue of one share for every two held by the existing equity shareholders from the general reserve. The resolutions were carried into effect.
Journalize.
- Krishna Ltd., which had Rs.5,00,000 12% debentures outstanding on 1/1/1997, made the following purchases in the open market:
1.4.1997 1,000 debentures of Rs.100 each at Rs.99 ex-interest
1.9.1997 500 debentures of Rs.100 each at Rs.97 cum interest
The debentures purchased on 1/4/97 were cancelled on 31/12/97.
Pass entries for the year 1997, assuming that the interest is payable every year on 30th June and 31st December.
- M Ltd., was incorporated on 1.1.94 with an authorized capital of 50,000 equity shares of Rs.10 each to take over the running business of V Ltd., as from 1.10.93. The following is the summarized profit and loss account for the year ended 30.9.94
Rs. Rs.
Sales – 1.10.93 to 31.12.94 6,000
1.1.94 to 30.9.94 19,000 25,000
Cost of sales 16,000
Administrative expenses 1,768
Selling commission 875
Goodwill written off 200
Interest paid to vendors 373
(loan repaid on 1.2.94)
Distribution expenses (60% variable) 1,250
Preliminary expenses written off 330
Debenture interest 320
Depreciation 444
Directors’ fees 100 21,660
Profit 3,340
The company deals with one type of product.
The unit cost of sales was reduced by 10% in the post incorporation period as compared to the pre-incorporation period. Apportion the net profit between pre-incorporation and post-incorporation periods showing the basis of apportionment.
- (a) What is the maximum remuneration payable to different classes of managerial personnel as per the Company’s Act?
(b) From the following particulars, determine the maximum remuneration available to a full time director of a manufacturing company.
The Profit & Loss Account of the company showed a net profit of Rs.40,00,000 after taking into account the following items:
Rs.
(a) Depreciation (including special depreciation of Rs.40,000) 1,00,000
(b) Provision for income tax 2,00,000
(c) Donation to political parties 50,000
(d) Ex-gratia payment to a worker 10,000
(e) Capital profit on sale of assets 15,000
- The share capital of Z Ltd., consisted of the following: 10,000 6% Preference shares of Rs.100 each and 50,000 equity shares of Rs.10 each.
The company had accumulated losses totaling Rs.3,50,000 and preliminary expenses not written off to the extent of Rs.20,000. It is ascertained that Fixed Assets that stood in the books at Rs.14,00,000 was over valued to the extent of Rs.4,00,000.
The following scheme was adopted to write off the losses and reduce the assets:
- 6% preference shares were to be converted into 7% preference shares of Rs.60 each.
- Equity shares to be reduced to Rs.2 each
- The Directors to refund Rs.10,000 fees received by them.
- Preference dividend which is in arrears for 3 years, is to be settled by the issue of 5,000 equity shares of Rs.2 each.
Journalize.
- The following particulars related to ABC Ltd., which went into voluntary liquidation.
Preferential creditors Rs.25,000
Unsecured creditors Rs.50,000
Secured creditor Rs.10,000
(secured on machinery of the book value of Rs.25,000)
Machinery realized Rs.15,000
Other assets realized Rs.75,000
Expenses of liquidation Rs. 1,500
Liquidators remuneration was agreed at 21/2% on the amount realized and 2% on the amount paid to unsecured creditors.
Prepare liquidator’s final statement of account.
PART C
Answer ANY TWO questions 2 x 20 = 40 marks
- ABC Ltd. issued a prospectus inviting applications for 2,000 shares of Rs.10 each at a premium of Rs.2 per share, payable as follows:
On application Rs.2
On allotment Rs.5 (including premium)
On first call Rs.3
On second call Rs.2
Applications were received for 3,000 shares and allotment was made pro-rata to applicants of 2,500 shares, the remaining applications being refused. Amount overpaid on application was adjusted against amount due on allotment.
X to whom 80 shares were allotted failed to pay allotment money and on a subsequent failure to pay the first call, his shares were forfeited.
Y the holder of 40 shares failed to pay the two calls and the shares were forfeited. Of the shares forfeited, 100 shares were sold at Rs.9 per share fully paid ( all the shares of X being included).
Journalize.
- The business of A Ltd., was purchased by B Ltd., on the following terms:
- i) A payment of cash of Rs.20 for every share in A Ltd.
- ii) A payment of Rs.55 in cash for every debenture in A Ltd.
iii) The exchange of 3 shares in B Ltd., of Rs.10 each (market value of Rs.20) for every share in A Ltd.
- Expenses of realization Rs.5,000 to be paid by B Ltd.
- B Ltd., valued the buildings of A Ltd., at Rs.40,000 and machinery at Rs.15,000
The balance of sheet A Ltd.on date of purchase stood as follows:
| Liabilities Rs. | Assets Rs. |
| 800 equity shares of
Rs.50 each 40,000 8% debentures of Rs.50 each 6,000 Export profit reserve 4,000 (statutory) P & L 1,000 Creditors 4,200 ——– 55,200
|
Building 15,000
Machinery 21,000 Stock 10,000 Debtors 9,000 Cash 200
——— 55,200 |
Prepare realization account, B Ltd., account and equity shareholders’ account in the books of A Ltd. Also pass journal entries in the books of B Ltd., to record the take over.
- B Ltd. had an authorized capital of Rs.6 lakhs divided into equity shares of Rs.10 each. The following is the Trial Balance of the company as on 31.3.2006.
| Rs. | Rs. |
| Calls in arrears 7,500
Building 3,60,000 Machinery 3,00,000 Interim dividend paid 7,500 Purchases 1,85,000 Preliminary expense 5,000 Freight 18,840 Bad debts 2,110 8% Govt. bonds 60,000 Stock (1.4.05) 75,000 Debtors 94,200 Cash 25,750 Bank 39,900 Advance tax paid 14,800 Wages 70,000 Salaries 31,400 Debenture interest (up to 30.9.05) 9,000 ————- Total 13,06,000 |
6% debentures 3,00,000
P & L (.1.4.05) 14,500 Creditors 50,000 General reserve 25,000 Share capital 4,60,000 Bills payable 38,000 Sales 4,15,000 Provision for bad debts 3,500
————– 13,06,000 |
Prepare final accounts for the year ending 31.3.06 after considering the following adjustments:
- 60,000 was added to machinery on 1.10.05. Depreciate machinery by 10% and building by 5%.
- Write off ½ of preliminary expenses.
- Provide 5% for bad debts.
- Provide for income tax Rs.25,000
- Transfer Rs.10,000 to general reserve.
- Stock on 31.3.06 was Rs.1,01,000
- Directors propose 5% final dividend on equity shares.
- bonds were purchased on 31.3.06.