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Solution Advanced Accounting May 2024

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0% found this document useful (0 votes)
25 views24 pages

Solution Advanced Accounting May 2024

Uploaded by

Ashiq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CA- INTER – GROUP 1

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.

SUGGESTIONS AND FEEDBACK ARE WELCOMED.


REGARDS
CA. IQTIDAR A. MALIK
Email: [email protected]

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 3

PART II – 70 Marks
QUESTION NO 1 (a) (7 Marks)

On 1st April, 2023, Green Limited started the construction of an Office


Building (qualified asset). The land under the building is regarded as a separate
asset and is not a part of qualifying asset.
For the purpose of construction of building, the company raised a specific loan
of ` 14 lakhs from a Bank at an interest rate of 12% per annum. An interest
income of ` 15,000 was earned on this loan while it was held in anticipation of
payments.
The company's other outstanding loans on 1st April, 2023 were as
follows:

Amount of loan Rate of interest per annum


` 20,00,000 15%
` 30,00,000 8%
The construction of building started on 1st April, 2023 and was completed on
31st January, 2024 when it was ready for its intended use. Up to the date of
completion of the building, the following payments were made to the contractor:

Payment date Amount in `


1 April, 2023
st 4,00,000
1st August, 2023 10,00,000
1st December. 2023 25,00,000
31st January, 2024 5,00,000
The life of building is estimated to be 20 years and depreciation is calculated
on straight line method.
You are required to:
(a) Calculate the amount of borrowing cost to be capitalized.
(b) Pass initial journal entry to recognise the cost of building.
(c) Depreciation on building for the year ending 31st March, 2024.
(d) Carrying value of building on 31st March, 2024.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 4

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)]

Statement showing Depreciation and Carrying Amount of Building on 31-03-24)


`
Cost of Building on 31-01-24 45,30,000
Less: Depreciation on 31-03-24 (45,30,000 /20) X 2/12 (37,750)

Carrying Amount of Building on 31-03-24 44,92,250

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%

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 5

QUESTION NO 1 (b) (7 Marks)


Well Wear Limited is a Textile Manufacturing Company and engaged in the
production of Polyester (P) and Nylon (N). While manufacturing the main
products, a by-product Fiber (F) is also produced. Details of the cost of
production are as under:
Purchase of Raw Material for manufacturing process of
30,000 units ` 3,50,000
Wages paid ` 1,60,000
Fixed overheads ` 12,0,000
Variable overheads ` 1 60,000
Output:
Polyester (P) 12,500 units
Nylon (N) 10,000 units
Fiber (F) 3,200 units
Closing Inventory:
Polyester (P) 1,600 units
Nylon (N) 400 Units
Average market price of Polyester and Nylon is ` 100 and ` 760 per unit
respectively, by-product Fiber is sold @ ` 40 per unit. There is a profit of `
8,000 on sale of by-product after incurring separate processing expenses of `
10,000 and packing charges of ` 9,000. ` 5,000 was realized from sale of scrap.
On the basis of the above information, you are required to compute the value
of closing inventory of Polyester and Nylon.
Solution:
Calculation of Net Joint cost
Particular `
Raw material 3,50,000
Wages 1,60,000
Fixed OH 1,20,000
Variable OH 60,000
Less: Realizable value of By product (3200 X 40) – 10,000 – 9,000 (1,09,000)
Less: Realizable value of scrape (5,000)
Net Joint Cost 5,76,000

Calculation of sale value of Joint Products


Particular `
Sale value of P (12,500 X 100) 12,50,000
Sale value of N (10,000 X 60) 6,00,000
Ratio 125:60

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 6

Allocation of Net Joint cost over Joint Products


Particular Total Per unit
Cost of P (5,76,000 X 125/185) 3,89,189 31.14
Sale value of N (5,76,000 X 60/185) 1,86,811 18.68
Ratio 5,76,000 125:60

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

ANSWER TO QUESTION NO 2 (14 Marks)

Following is the summarized Balance Sheets of Z Limited as on 31st March,


2024:
(`)
EQUITY AND LIABILITIES:
Share Capital
Equity shares of ` 100 each 60,00,000
8% preferences share of ` 100 each 21,00,000
10% Debentures of ` 100 each 18,00,000
Trade payables 16,80,000
Total 1,15,80,000
ASSETS:
Goodwill 81,000
Property, Plant and Equipment 72,00,000
Trade receivables 13,75,000
Inventories 9,80,000
Cash at bank 1,33,000
Own debentures (Nominal value of ` 6 lakhs) 5,76,000
Profit and Loss A/c 12,35,000
Total 1,15,80,000

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 7

On 1st April, 2024, court approved the following reconstruction scheme


for Z Limited:
(a) Each equity share shall be sub-divided into 10 equity shares of ` 10 each
fully paid up. After sub-division, equity share capital will be reduced by
40%.
(b) Preference share dividends are in arrear for last 4 years. Preference
shareholders agreed to waive 75% of their dividend claim and accept
payment for the balance.
(c) Own debentures of ` 2,40,000 (nominal value) were sold at ` 98 cum
interest and remaining own debentures were cancelled.
(d) Debenture holders of ` 6,00,000 agreed to accept one machinery of book
value of ` 9,00,000 in full settlement.
(e) Remaining Property, Plant and Equipment were valued at ` 60,00,000.
(f) Trade Payables, Trade Receivables and Inventories were valued at `
15,00,000; ` 13,00,000 and ` 9,44,000 respectively. Goodwill and Profit
and Loss Account (Debit balance) are to be written off.
(g) Company paid ₹ 60,000 as penalty to avoid capital commitments of ` 12
lakhs.
(h) Interest on 10% Debentures is paid every year on 31st March.
You are required to:
(1) Pass necessary journal entries in the books of Z Limited to implement
the above schemes.
(2) Prepare Capital Reduction Account.
(3) Prepare Bank Account

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)

Capital Reduction A/c Dr. 1,68,000


To Bank A/c 1,68,000
(Being payment made to PSH for 25% (21,00,000 X
8% X4 X 25%)
Bank a/c (2400 X 98) Dr. 2,35,200
To Own Debentures A/c (5,76,000 X 40%) 2,30,400
To Capital Reduction A/c 4,800
(Being 40% own debentures sold)
CA IQTIDAR A. MALIK [B.COM, FCA, CS]
SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 8

10% Debentures a/c Dr. 3,60,000


To Own Debentures A/c 3,45,600
To Capital Reduction A/c 14,400
(Being 60% own debentures Cancelled)
10% Debentures a/c Dr. 6,00,000
Capital Reduction A/c Dr. 3,00,000
To PPE 9,00,000
(Being debenture holders accepted machinery)
Capital Reduction A/c Dr. 17,27,000
To PPE 3,00,000
To Trade Receivable a/c 75,000
To Stock 36,000
To Goodwill 81,000
To Profit and loss A/c 12,35,000
Being Assets are revalued and the Goodwill loss
written off)
Trade Payables A/c Dr. 1,80,000
To capital Reduction A/c 1,80,000
(Being Trade Payable reduced)
Capital Reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being Penalty paid)

Capital Reduction Account;


Particulars ` Particulars `
To Loss on Machinery take over 3,00,000 By ES Capital 24,00,000
To Sundries (w/o) 17,27,000 By profit on sale and cancellation of
To Bank (Penalty) 60,000 own debentures (4,800 +14,400)
To Capital Reserve 5,12,200 By Trade Payables 19,200
1,80,000
25,99,200 25,99,200

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

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 9

QUESTION NO 3 (a) (7 Marks)


Constructions Limited is engaged in the business of constructing
Flyovers and Railway over bridges. It obtained a contract from Railway
Authorities to construct a railway over bridge for ` 400 crores. The
construction of the railway over bridge is expected to be completed in 4 years.
At the outset of the contract, it was estimated that the total costs to be incurred
will be ` 370 crores but by the end of year 1, this estimate stands revised to `
375 crores.
During year 3, the Construction Limited has requested for a variation in the
contract which is approved by Railway Authorities and accordingly the total
contract value will increase by 10 crores and costs will increase by ` 7 crores.
The Constructions Limited decided to measure the stage of completion on the
basis of the proportion of contract costs incurred to the total estimated
contract costs. Contract costs incurred at the end of each year is:
Year 1 : ` 98.8 crores
Year 2 : ` 202.4 crores
Year 3 : ` 310 crores (including unused material of 3 crores)
Year 4 : ` 382 crores
You are required to:
(a) Calculate stage of completion of contract for each year
(b) Profit to be recognized for each year.
Ans.
(i) Calculation of Stage/Degree of completion of contract at end of each year
DOC = Cost incurred up to Date X 100
Total Estimated Cost
Year 1 98.8 X 100
375 = 26.35%

Year 2 202.4 X 100


375 = 53.97%

Year 3 (310 – 3) X 100


382 = 80.37%

Year 4 382 X 100


382 = 100%

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 10

(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%

Contract Revenue Recognized (a x b) 105.40 215.88 329.517 410


Less: Cost incurred up to Date 98.80 202.40 307.00 382
Profit recognized up to date 6.60 13.48 22.517 28
Profit recognized in earlier years -- 6.60 13.48 22.517
Profit for current year 6.60 6.88 9.037 5.483

QUESTION NO 3 (b) (7 Marks)

The following information is provided for Aarambh Limited:

Pa Particulars 31st March 31st March


2023 (`) 2024 (`)
Profit and loss A/c 5,400 (Dr.) 37,800
Provision for taxation 2,21,400 1,35,000
General Reserve 54,000 81,000
12% Debentures 1,18,000 2,91,600
Trade payables 1,29,600 1,18,800
8% Current investments 54,000 1,08,000
Property, plant and equipment (Goss) 3,99,600 3,99,600
Accumulated Depreciation 1,29,600 1,62,000
Trade Receivables (Gross) 81,000 2,61,360
Provision for Doubtful debts 27,000 54,000
Inventories 1,35,000 81,000
Cash and cash equivalents 5,400 30,240
Additional information:
(a) Income tax provided during the year ₹ 1,62,000.
(b) New debentures have been issued at the end of current financial
year.
(c) New investments have been acquired at the end of the current
financial year.
You are required to calculate net Cash Flow from Operating Activities.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 11

Solution: Cash flow Statements of Aarambh Limited


For the year ended 31-03-24
Particular (`) (`)
Cash flow from operating Activities
Difference in P&L as per Balance Sheet (37,800 + 5,400) 43,200
Add: Transfer to General Reserve 27,000
Add: Provision for Tax 1,62,000
Add: Debentures Interest 14,256
Add: Depreciation (1,62,000 – 1,29,600) 32,400
Add: Increase in provision for Doubtful debts 27,000
Less: Income from Investments (4,320)
Cash from operation before change in working capital 3,01,536
Adjustments for working capital changes:
Decrease in Trade payables (10,800)
Increase in Trade receivables (1,80,360)
Decrease in Inventories 54,000 (1,37,160)
Cash from operation before Tax 1,64,376
Less: Tax Paid (2,21,400 + 1,62,000 – 1,35,000) (2,48,400)
Net cash flow from operating Activities (84,024)

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 12

QUESTION NO 4 (14 Marks)


Intelligent Limited and Diligent Limited are carrying their business
independently for last two years. Following financial information in respect of
both the companies as at 31 March, 2024 has been given to you:
Particulars Intelligent Diligent
Limited (`) Limited (`)
Equity Share Capital of ` 100 each 12,00,000 10,00,000
8% Preference shares of ` 100 each 3,00,000 2,00,000
Trade payables 12,00,000 4,00,000
Retirement Gratuity Fund (Long Term) 3,00,000 2,00,000
Profit and Loss account
Opening balance 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,00
Land and Buildings 10,00,000 8,00,000
Plant and machinery 10,00,000 6,00,000
Inventories 7,00,000 4,00,000
Trade receivables 6,00,000 3,00,000
Cash at bank 4,00,000 1,00,000

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:

P Particulars Intelligent Diligent


Limited (`) Limited (`)
Land and buildings 11,00,000 8,50,000
Plant and machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
(2) Trade payables of Intelligent Limited includes ` 1,00,000 due to Diligent
Ltd. and the Trade receivables of Diligent Limited shows ` 1,00,000
receivables from Intelligent Limited.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 13

(3) The purchase consideration is to be discharged in the following manner:

(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)

Issue of 12 % Debentures (WN 2) 17,50,000 11,25,000 28,75,000


Total PC 35,25,000 21,75,000 57,00,000
Wn 1. Calculation of two years profits
Intelligent Ltd. Diligent
(₹) Ltd. (₹)
Profit of Last year 4,50,000 2,50,000
Profit of current year 2,50,000 1,50,000
Total Profit of Two years 7,00,000 4,00,000
Ratio for distribution of equity shares: 7:4
Wn 2. Calculation of 12% Debenture issued
Intelligent Diligent
Ltd. (₹) Ltd. (₹)
Land & Building 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade receivables 6,00,000 3,00,000
Cash and Bank 4,00,000 1,00,000
Less: Trade Payables (12,00,000) (4,00,000)
Less: Gratuity fund (3,00,000) (2,00,000)

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 14

(A) Net Assets 21,00,000 13,50,000

(B) Income equivalent to 10% on Net Assets 2,10,000 1,35,000


Debentures Issued (`) 17,50,000 11,25,000
(B /12%)

Wn 3. Calculation of Goodwill or capital reserve


Both companies
Land & Building 19,50,000
Plant & Machinery 13,00,000
Inventories 9,00,000
Trade receivables 9,00,000
Cash and Bank 5,00,000
Less: Trade Payables (16,00,000)
Less: Gratuity fund (5,00,000)
Net Assets Acquired 34,50,000
57,00,000
PC Paid
Goodwill 22,50,000

Balance Sheet of Genius Ltd. As at 31st March, 2023

Particular Notes Amounts (`)


EQUITY AND LIABILITIES
(1) Shareholders’ funds
Share capital 1 27,00,000
Reserves and surplus 2 1,25,000
(2) Non-current liabilities
12% Debentures 28,75,000
Retirement Gratuity fund 5,00,000
(3) Current liabilities
Trade Payables
(12,00,000 + 4,00,000 – 15,00,000
1,00,000 contra)
Total 77,00,000
ASSETS
(1) Non-current assets
PPE 32,50,000
Goodwill
(2) Current assets 22,50,000
Inventories 9,00,000
Trade receivables (9,00,000 – 1,00,000 contra) 8,00,000
Cash & Cash Equ. 5,00,000
Total 77,00,000

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 15

Note 1 – Share Capital

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

Securities Premium on preference share issues (5000 shares @ ` 25) 1,25,000

Total 1,25,000

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 16

QUESTION NO 5 (14 Marks)


The balance sheets of Ari Limited and craft limited as on 31 st March 2024 are
as blow:
Particulars Note Art Limited (`) Craft
No. Limited (`)
Equity and Liabilities
(a) Shareholder’s fund
• Share capital 1 6,50,000 4,00,000
• Reserve & Surplus 2 3,12,000 2,48,000
(b) Current liabilities
• Trade payables 1,45,000 92,000
• Short-term borrowings 70,000
3 -

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 -

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 17

Property plant & Equipment 1,90,000 1,35,000


Land & Building 2,25,000
Plant & Machinery 2,31,000
Total 4,21,000 3,60,000
Non-current investments
Investment in Craft Limited (Cost 4,32,000 -
Cash & Cash equivalents
Cash 24,000 6,700
Additional information:
(a) Art Limited acquired 3,200 ordinary shares of Craft Limited on 1"
October, 2023. The Reserve & Surplus and Profit & Loss Account of
Craft Limited showed a credit balance of ` 40,000 and ` 58,700
respectively as on 1st April, 2023.
(b) The Plant & Machinery of Craft Limited which stood at ` 2,50,000 as
onn1st April, 2023 was considered worth ` 2,20,000 on the date of
acquisition. The depreciation on Plant & Machinery is calculated @ 10%
p.a. on the basis of useful life. The revaluation of Plant & Machinery is
to be considered at the time of consolidation.
(c) Craft Limited deducts 1% from Trade Receivables as a general provision
against doubtful debts. This policy is not followed by Art Limited.
(d) On 31st March 2024, Craft Limited's inventory includes goods which it
had purchased from Art Limited for 1,03,500) which made a profit of
15% on cost price.
You are required to prepare a consolidated Balance Sheet as on 31st
March 2024.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 18

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

Plant & Machinery in CBS


`
Ant Ltd 2,31,000
Craft Ltd (revied Value) 2,20,000
Less: Dep in post period on revised value) (11,000)
P&M in CBS 4,40,000

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 19

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

Profit & Loss a/c


Pre Post Total
(1-10-23)
Balance on 01-01-2020 58,700 2,08,000
+ Provision for D. debts reversed (1,68,300 X 1/99) 1,700
Total 58,700 1,51,000 2,09,700
Time Adjustment (6 Months) 75,500 (75,500)
Add: saving in Depreciation 1,500

Balance 1,34,200 77,000


Art Ltd (80%) 1,07,360 61,600
Minority Interest (20%) 26,840 15,400

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

Wn 4. Consolidated Reserve & Surplus


`
Capital Reserve 13,360
Reserve (1,20,000 + 0) 1,20,000
Profit & Loss a/c (1,92,000 + 61,600) 2,53,600
Less: Stock reserve (1,03,500 15/115) (13,500)
Total 3,73,460

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 20

QUESTION NO 6 (a) (4 Marks)

Colour Limited leased a Machine to Red Limited on 1st April, 2021 on


the following terms:

`
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

Calculation of Unearned finance Income


`
Total Lease Rental (6,90,166 X 3) 20,70,498
Add: UGRV 2,00,000
Gross Investments 22,70,498
Less: Net Investments (Fair value) 18,00,000
Unearned Finance Income 4,70,498

Wn 1 Calculation of Lease rental p.a.


`
Net Investments (Fair value) 18,00,000
Less: Present value of UGRV (2,00,000 X 0.7118) (1,42,360)
Present Value of Rentals 16,57,640
Lease Rental p.a. (16,57,640 / 2.4018) 6,90,166

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 21

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

Weighted Average No of shares


`
50,000 X 80/100 X 12/12 40,000
Call made: 50,000 – 10,000 (40,000 X 20/100 X 9/12) 6,000
WANOES for Basic EPS 46,000
Add: Shares to be issued on conversion (10,000 X 3) 30,000
Revised WANOES for Diluted EPS 76,000

Basic EPS = 1,84,000/46,000 = ` 4


Diluted EPS = 2,68,000/76,000 = ` 3.53

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 22

QUESTION NO 6 (b) (4 Marks)


Following information are available in respect of Z Limited as on
31st March, 2024
1. Equity shares of ` 100 each ` 500 lakhs
2. General Reserve ` 100 lakhs
3. Loss for the year ending 31 st March, 2024 ` 5 lakhs
Due to absence of profits during the year 2023-24, the management
recommends to declare dividend of 10% on equity share capital out of
general reserve.
The rates of equity dividend for the last 5 years immediately preceding
the year 2023-24 are as follows:

2022-23 2021-22 2020-21 2019-20 2018=19


12% 14% 10% 10% 7%
As an accountant of the company, you are required to suggest whether
the recommendation of the management is justified? If, you do not
agree, then suggest the rate of dividend.

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%.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 23

QUESTION NO 6 (c) (6 Marks)


Smart Limited is an Indian Company and has its Branch at New York. The
following balances in respect of Smart Limited's USA Branch office are
provided:

• Debit Balances (in USD)

Expenditure (excluding Depreciation) : 1,03,095


Cash & bank balances : 2,175
Debtors : 7,365
Fixed Assets (Gross) : 34,200
(Rate of Depreciation on Fixed Assets: 20%)
Inventory - Stock 'P' : 5,520
Inventory - Stock ‘Q' : 1,035
• Credit Balances (in USD)

Incomes : 1,32,000
Creditors : 15,570
HO Control a/c : 5,820

The following additional information is provided:

(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.

CA IQTIDAR A. MALIK [B.COM, FCA, CS]


SOLUTIONS CA INTERMIDIATE GROUP 1- ADVANCED ACCOUNTING MAY 2024 24

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

CA IQTIDAR A. MALIK [B.COM, FCA, CS]

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