Solution Advanced Accounting May 2024
Solution Advanced Accounting May 2024
SOLUTIONS OF
ADVANCED
ACCOUNTING
FOR May 2024
BY
CA. IQTIDAR A. MALIK
(B.COM (H), FCA, CS)
SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 2
DISCLAIMER
SOLUTIONS ARE MADE ON THE BASIS OF MY OWN ASSUPMTIONS, INSTITUTE ASSUMPTIONS
MAY BE DIFFERNET.
PART II – 70 Marks
QUESTION NO 1 (a) (7 Marks)
Solution:
Statement showing Borrowing cost capitalized as per AS 16 (Up to 31-01-24)
`
Borrowing Cost on Expenditure incurred on 01-04-2023 (Out of Specific Borrowing) 40,000
(4,00,000 X 12% X 10/12)
Borrowing Cost on Expenditure incurred on 01-08-2023 (Out of Specific Borrowing) 60,000
(10,00,000 X 12% X 6/12)
Borrowing Cost on Expenditure incurred on 01-012-2023(Out of General Borrowing) 45,000
(25,00,000 X 10.8% (WN 1) X 2/12)
Borrowing Cost on Expenditure incurred on 31-01-2024 (Out of General Borrowing) --
(5,00,000 X 10.8% X 0/12)
Less: Interest income on specific borrowings (15,000)
Borrowing cost capitalized 1,30,000
Journal Entry
` `
31st January, 2024 Building A/c Dr. 45,30,000
To Bank A/c 45,30,000
[Being amount of cost of Building and borrowing cost
thereon capitalized (44,00,000 + 1,30,000)]
Working Notes
1. Calculation of weighted average capitalization rate
Interest on 20,00,000 lakhs @ 15% = 3,00,000
Interest on 30,00,000 lakhs @ 8% = 2,40,000
Total Interest 5,40,000
WACR = (5,40,000/50,00,000) X 100 = 10.8%
Cost of Inventories
Particular units Cost Per unit Total cost
Cost of P (5,76,000 X 125/185) 1,600 31.14 49,824
Sale value of N (5,76,000 X 60/185) 400 18.68 7,472
Particulars ` `
ES Capital a/c (` 100) Dr. 60,00,000
To ES Capital a/c (` 10) 60,00,000
(Bening 60,000 equity shares of ` 100 are sub
divided into 6,00,000 equity shares of ` 10 each)
ES Capital a/c (` 10) 60,00,000
To ES Capital a/c (` 6) 36,00,000
To Capital Reduction a/c 24,00,000
(Bening 6,00,000 equity shares of ` 10 are
converted into 6,00,000 equity shares of ` 6 each)
Bank Account;
Particulars ` Particulars `
To Balance b/d 1,33,000 By Capital Reduction (Pref div) 1,68,000
To Own Debentures a/c 2,35,200 By Capital Reduction (Penalty) 60,000
By Balance c/d 1,40,200
3,68,200 3,68,200
(ii) Statement showing Contract Profit recognized each year (Fig in Crores)
Y1 Y2 Y3 Y4
(a) Total Contract Revenue 400 400 410 410
(b) Degree of completion 26.35% 53.97% 80.37% 100%
On 1st April, 2024, both the companies agreed to amalgamate and form a new
company 'Genius Limited' with an authorized capital of ` 40,00,000 divided
into 30,000 equity shares of 100 each and 10,000 8% preference shares of
`100 each.
The amalgamation has to be carried out on the basis of following
agreement:
(1) Assets of both the companies were to be revalued as follows:
(a) Issue 22,000 Equity Shares of ` 100 each fully paid up in the
proportion of the sum of their profitability in the preceding two
financial years.
(b) Preference shareholders of both companies are issued equivalent
number of 10% Preference Shares of ` 100 each of Genius Limited at
a price of ` 125 per share.
(c) 12% debentures of ` 100 each in Genius Limited at par to provide
an income equivalent to 10% return on the basis of net assets in their
respective business as on 1st April, 2024 after revaluation of assets.
You are required to:
• Compute the Amount of Shares & Debentures to be issued to
Intelligent Limited and Diligent Limited.
• Prepare a Balance Sheet of Genius Limited showing the position
immediately after amalgamation.
Solution:
Statement showing amount of debenture and shares to be issued to ‘X’ Ltd. and ‘Y’ Ltd.
Intelligent Ltd. Deligent Ltd. Total
(₹) (₹) (`)
Issue of Equity Shares 14,00,000 8,00,000 22,00,000
(22,000 shares of ` 100 each) (14,000 shares) (8,000 shares)
(In ratio 7:4) Wn 1
Issue of 10% Preference Shares 3,75,000 2,50,000 6,25,000
(Equivalent shares of ` 100 each @ 125) (3000 shares) (2000 shares)
Authorized Capital
Equity share capital (30,000 shares of ` 100 each) 30,00,000
Preference share capital (10,000 shares of ` 100 each) 10,00,000
40,00,000
Issued, Subscribed, called up and Paid-
UpCapital
22,00,000
Equity shares capital
(22,000 equity shares of Rs. 100 each, such shares are issued for consideration other
than cash in the scheme of amalgamation)
5,00,000
Preference shares capital
(5,000 pref shares of Rs. 100 each, such shares are issued for consideration other
than cash in the scheme of amalgamation)
27,00,000
Note 2 – Reserve & Surplus
Total 1,25,000
11,77,000 7,40,000
Assets
(a) Non-current Assets
• Property, plant & Equipment 4 4,21,000 3,60,000
• Non-current Investment 5 4,32,000 ---
(b) Current Assets
• Inventories 1,66,000 2,05,000
• Trade receivables 1,33,500 1,68,300
• Cash & Cash equivalent 24,500 6,700
6
11,77,000 7,40,000
Notes to Accounts:
Pa particulars Art Craft Limited
Limited (`) (`)
Share capital
6,500 shares of ` 100 each 6,50,000 -
4,000 shares of ` 100 each fully paid-up - 4,00,000
Total 6,50,000 4,00,000
Reserves and Surplus
General Reserve 1,20,000 40,000
Profit and Loss Account
Total 1,92,000 2,08,000
3,12,000 2,48,000
Short term borrowings
Bank overdraft 70,000 -
Solution:
Consolidated Balance Sheet of Ant Ltd with Craft Ltd as at 31.03.2024
Particular Notes Amounts (`)
EQUITY AND LIABILITIES
(1) Shareholders’ funds
Share capital 6,50,000
Consolidated Reserves and surplus (wn 5) 3,73,460
(2) Minority Interest (wn 4) 1,26,740
(3) Current liabilities
Trade Payables 2,37,000
Short term Borrowing (Bank OD) 70,000
Total 14,57,200
ASSETS
(1) Non-current assets
PPE
Land & Building (1,90,000 + 1,35,000) 3,25,000
Plant & Machinery (Wn 1) 4,40,000
(2) Current assets
Inventories (1,66,000 + 2,05,000 – 13,500 Stock Reserve) 3,57,500
Trade Receivable (1,33,500 + (1,68,300 + 1,700 Prov reve) 3,03,500
Cash and cash equivalents (24,500 + 6,700) 31,200
Total 14,57,200
Holding = 80%
Minority Int = 20%
Wn1 Revaluation
Profit or Loss on Revaluation of Plant & Machinery
`
Balance on 01-04-23 2,50,000
Less: Depreciation up 1st Oct (2,50,000 X 10% X 6/12) 12,500
Value on 1st Oct 2,37,500
Revised Value 2,20,000
Loss on Revaluation 17,500
Ant Ltd (80%) 14,000
MI (20%) 3,500
Saving in Depreciation
`
Depreciation already charged in post period 12,500
Less: Depreciation on revised value in post period (2,20,000 X 10% X 6/12) 11,000
Saving in Dep 1,500
Wn 2. Analysis of Profit
Reserve
Pre Post Total
Balance on 01-01-2020 40,000 -- 40,000
Ant Ltd (80%) 32,000
MI (20%) 8,000
Wn 3. Cost of Control
`
Cost of Investments 4,32,000
Less: Share Capital (80%) (3,20,000)
Less: Share in Pre-Reserve (32,000)
Less: Share in Pre-Profit (1,07,360)
Add: Share in Revaluation Loss 14,000
Capital Reserve 13,360
Wn 4. Minority Interest
`
Share Capital (20%) 80,000
Share in Pre and Post Reserve 8,000
Share in Pre and Post Profit 42,240
Less: share in revaluation loss (3,500)
Total 1,26,740
`
Cost of the machine 18,00,000
Lease term 3 years
Fair market value of the machine 18,00,000
Unguaranteed residual value as on 31.3.2024 2,00,000
Internal rate of return 12%
Other information:
The expected useful life of the machine is 5 years. The machine will revert to
Colour Limited on termination of the lease. The lease payment is to be made
at the end of each year in 3 equal parts.
The present value of ` 1 due at the end of 3 rd year at 12% rate of interest is `
0.7118. The present value of annuity of ` 1 due at the end of 3 rd at 12% IRR
is ` 2.4018.
You are required to analyze whether lease constitutes finance lease. Also
calculate unearned finance income, if any.
Solution:
Since lease term cover major part of useful life of assets (3 out 5), so it is Finance lease
OR
On 1st April 2023, ABC Limited has given the following information :
`
50,000 equity shares of ` 100 each 40,00,000
(` 80 paid up by all shareholders)
2,00,000, 8% Preference shares of ` 10 each 20,00,000
10,000, 12% Debentures of ` 100 each 10,00,000
(Each debenture is convertible into 3 equity shares of ` 100 each)
On 1st July 2023, the remaining ` 20 was called up and paid by all the
shareholders except one shareholder holding 10,000 equity shares.
During the year 2023-24 the company had a profit after tax of ₹ 3,44,000. Tax
rate is 30%.
You are required to compute Basic and Diluted EPS.
Solution:
Earnings available for ESH
`
PAT 3,44,000
Less: Preference Dividend (Assumed cumulative) (1,60,000)
Earning available for ESH for Basic EPS 1,84,000
Add: Saving in Interest after conversion of Debentures (10,00,000 X 12% X 70%) 84,000
Revised Earning for Diluted EPS 2,68,000
Solution:
(1) Average Rate of Dividend of last 3 years = (12% + 14% + 10%)/3 = 12%
(2) 10% of Paid-up cap and Free reserve (500 Lakhs + 100 Lakhs) X 10% = ` 60 Lakhs
(3)
Balance in General reserve 100 Lakhs
Less: 15% of paid-up capital to be maintained (75)
Amount withdrawable 25
Maximum amount which can be withdrawn from reserve is 25 or 60 which ever is lower. So ` 25
Lakhs can be withdrawn. But out of such 25 Lakhs, first of all, current year loss of ` 5 Lakhs will be
written off. So available amount for dividend will be 20 Lakhs.
Rate of Dividend = 20/500 X 100 = 4%
Company can not distribute 10% dividend out of reserve. It can distribute only 4%.
Incomes : 1,32,000
Creditors : 15,570
HO Control a/c : 5,820
(1) The average exchange rate during the above financial year was
1 USD = ` 56.
(2) The fixed assets were purchased when the exchange rate was 1
USD ` 55.
(3) The closing exchange rate on reporting date is 1 USD = ` 58.
(4) Stock item 'P' is valued at cost of USD 5,520, purchased when
the exchange rate was ` 56.50. The present net realizable value
of this item is ` 2,85,000.
(5) Stock item 'Q' is carried at net realizable value of USD 1,035, but
its cost in USD is 1,065, It was purchased when exchange rate
was 1 USD = ` 53.
(6) Branch Control Account as per HO books was ` 2,66,265.
You are required to show how it will be reflected in the books of Head
Office in the form of Trial Balance, if the USA Branch Office is
classified as an integral Foreign Operation.
Solution:
Trial Balance for the year ended 31-03-2009
Rates £ `
`/$ Dr. Cr. Dr. Cr.
Expenditure (Excluding Dep) 56 1,03,095 -- 57,73,320 --
Cash & Bank 58 2,175 -- 1,26,150 --
Debtors 58 7,365 -- 4,27,170 --
Fixed Assets (Net) 55 27,360 15,04,800 --
Depreciation 55 6,840 -- 3,76,200 --
Inventory
P NRV 5,520 -- 2,85,000 --
Q (1,035 at NRV in USD) 58 1,035 -- 60,030 --
Incomes 56 1,32,000 -- 73,92,000
Creditors 58 15,570 -- 9,03,060
H.O. Control a/c Actual 5,820 -- 2,66,265
Exchange Difference (B/F) 8,655
1,53,390 1,53,390 85,61,325 85,61,325