Suggested Answers_Syl 2016_December 2019_Paper 12

(b) As per AS 11, transactions such as purchase, sales etc. are to be recorded in the books of
accounts at the exchange rate prevailing on the date of transaction. Any exchange
gain/ loss arising subsequently is to be transferred to Income Statement.

Value of the goods purchased = $ 50,000

Exchange rate on the date of transaction = ₹47.40/$
So, purchase to be recorded in the books = 50,000 x 47.40 = ₹ 23,70,000
Exchange rate on the date of reporting (31.03.19) =₹46.00/$
Value of the payables on 31.03.19 = 50,000 x 46 = ₹ 23,00,000

Exchange gain on 31.03.2019 = ₹ (23,70,000 – 23,00,000) = ₹ 70,000, to be credited to

P/L A/C.
Exchange rate on the date of settlement (30.06.19) = ₹ 47.80/$
Exchange loss on 30.06.19 = 50,000 x (47.80 — 46.00) = ₹ 90,000 to be debited to P/L
A/c.

3. (a) The following figures have been extracted from the books of M Limited for the year
ended on 31.03.2019. You are required to prepare a Cash Flow Statement.

(i) Net profit, before adjusting income tax but after taking into account the
following items, was ₹10 lakhs.

• Depreciation on Assets ₹2,50,000.

• Discount on issue of Debentures written off ₹15,000.
• Interest on Debentures paid ₹1,75,000.
• Book value of investment ₹1,50,000 (Sold for ₹1,60,000).
• Interest received on investments ₹30,000.

(ii) Income tax paid during the year ₹4,80,000.

(iii)7,500 10% preference shares of ₹100 each were redeemed on 31.03.2019 at a
premium of 5%. Further the company issued 25,000 equity shares of ₹10 each
at a premium of 20% on 02.04.2018. Dividend on preference shares were paid
at the time of redemption.
(iv) Dividends paid for the year 2017-18 ₹2,50,000 and interim dividend paid
₹1,50,000 for the year 2018-19.
(v) Land was purchased on 02.04.2018 for ₹1,20,000 for which the company issued
10,000 equity shares of ₹10 each at a premium of 20% to the land owner as
consideration.
(vi) Current assets and liabilities were as follows:
Particulars 31.03.2018 (₹) 31.03.2019 (₹)
Stock 6,00,000 6,59,000
Sundry Debtors 1,04,000 1,06,550
Cash in hand 98,150 17,650
Bills Receivable 25,000 20,000
Bills Payable 22,500 20,000
Sundry Creditors
. 83,000 85,650
Out standing expenses 37,500 40,900
8

(b) The books of a Bank include a loan of ₹5,00,000 advanced on 30.09.2017, interest
chargeable @ 16% p.a. compounded quarterly. The security for the loan being 7,000
shares of ₹100 each in a public limited company valued @ ₹90 each. There is no
repayment till 31.12.2018. On 31.12.2018, the value of shares declined to ₹85 per shares.
How would you classify the loan as secured or unsecured in the Balance Sheet? 4

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 Suggested Answers_Syl 2016_December 2019_Paper 12
Answer :

3. (a)
Cash Flow Statement
For the year ended 31.03.2019

Particulars Amount Amount Amount

(₹) (₹) (₹)

1. Cash Flow from Operating Activities:

Net Profit 10,00,000
Add: Adjustment for non-cash expenses
Depreciation on assets 2,50,000
Discount on issue of debentures 15,000
Interest on debentures 1,75,000
4,40,000
14,40,000
Less: Profit on sale of investment (1,60,000 -1,50,000) 10,000
Interest received on investment 30,000 (40,000)

Operating profit before adjustment for changes in W.C. 14,00,000

Add: Decrease in Bills Receivable (25,000 - 20,000) 5,000

Increase in Sundry Creditors (85,650 - 83,000) 2,650
Increase in Outstanding Expenses (40,900 - 37,500) 3,400 11,050
14,11,050
Less: Increase in Stock (6,59,000 - 6,00,000) 59,000
Increase in Sundry Debtors (1,06,550 - 1,04,000) 2,550
Increase in Bills Payable (22,500 - 20,000) 2,500 (64,050)
13,47,000
Less: Income Tax paid 4,80,000
Net Cash Flow from Operating Activities 8,67,000

2. Cash Flow from Investing Activities:

Sale of investment 1,60,000

Interest received on investment 30,000
1,90,000

3. Cash Flow from Financing Activities:

Issue of shares at premium 3,00,000
Redemption of preference shares at 5% premium (7,87,500)
Preference dividend paid (75,000)
Interest on debenture paid (1,75,000)
Equity dividend paid (2,50,000+1,50,000) (4,00,000) (11,37,500)

Total Cash Flow (1+2+3) (80,500)

Add: Opening cash & cash equivalent 98,150
Closing cash & cash equivalent 17,650

Notes: Purchase of land against shares has not been shown in the C/F Statement as it does
not amount to any inflow or outflow of cash.

(b)
Date Particulars Amount (₹)
31.12.2018 Balance of Loan (Principal) 5,00,000
Add: Outstanding Interest 1,08,326
Total Claim 6,08,326
Less: Value of Security at that date ( 7,000 shares @ ₹85 per 5,95,000
share)
Balance 13,326

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 Suggested Answers_Syl2016_June 2019_Paper 12

Cash and cash equivalents

Cash at bank
With scheduled banks 2,45,000
With others (Perfect Bank Ltd.) 2,000 2,47,000
Cash in hand 30,000
Other bank balances Nil
Total 2,77,000

Note: Estimated amount of contract remaining to be executed on capital account and

not provided for ₹ 1,50,000. It has been assumed that the company had given contract
for purchase of machinery.

5. Write short note on (any three): 4×3=12

(a) Reasons for preparation of Cash Flows

(b) Differences between Shares & Debentures
(c) Surrender Value of a Life Insurance Policy
(d) Finance Lease

Answer:

5. (a) Reasons for preparation of Cash Flows:

Cash Flow statement is considered to be a summarized statement showing sources of

Cash Inflows and application of cash outflows of an enterprise during a particular
period of time. It is prepared on the basis of the published data as disclosed by the
Financial Statement of two different financial periods. It is an essential tool for
managerial decision-making. Cash Flow Statement reports the management net
Cash Flow (i.e. cash inflow less cash outflow or vice versa) from each activity of the
enterprise as well as of the overall business of the enterprise. The management of the
enterprise gets a picture of movement of cash resources from the Cash Flow
Statement and can assess the stronger and weaker area of movement of cash for
different activities of the business for drawing up the future planning.

(b) Difference between Shares & Debentures:

SHARES DEBENTURES
Definition An instrument to acknowledge An instrument to acknowledge
the ownership of the company. the creditors of the company.
Status A shareholder is the owner and a A debenture holder is not a
member of the company. member but a creditor.
Return A shareholder may receive A debenture holder has a right
dividend only when a company to interest even if the company
makes a profit. does not make profit.
Rate of Dividend rate can vary depending Debenture carries a fixed rate of
return on the profit position. interest.
Accounting Dividend is given out of appropriate Debenture interest is chargeable
Treatment profit and not chargeable to Profit to Profit and Loss Account.
& Loss Account.
Redemption In case of shares, the concept of Debentures are normally

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 Suggested Answer_Syl16_Dec2018_Paper_12
Profit and Loss Account 3,85,000
Answer: 2(b)

Calculation of reportable segments

(Rs.000)
A B C D E F Total (segment)
1. Segment Revenue
(a) External Sales -- -- 550 250 150 50 50 1050
(b) Inter Segment Sales 100 100 50 200 -- 50 500
Total 100 650 300 350 50 100 1550
2. Segment Results
(90) 25 (5) (15) 5 10 (110)/40
Profit/(Loss)
3. Segment Assets 30 50 10 20 10 5 125

10% of total revenue of all segments=155

Reportable segments under revenue criterion=B, C and D
10% of segment result (higher of total profit or loss in absolute figure)=11
Reportable segments under result criterion = A, B, and D
10% of total segment assets = 12.5
Reportable segments under asset criterion = A, B and D

3. (a) Following are the summarized Balance Sheets of Beta Ltd

Liabilities 31.03.17 31.03.18 Assets 31.03.17 31.03.18

Rs. Rs. Rs. Rs.
Equity Share Capital
4,00,000 5,00,000 Land & Building 4,00,000 3,80,000
(Rs.10)
General Reserve 1,00,000 1,20,000 Plant & Machinery 3,00,000 3,38,000
Profit & Loss (Cr.) 61,000 61,200 Inventory 2,00,000 1,48,000
Bank Loan 1,40,000 -- Trade Receivable 1,60,000 1,28,400
Trade Payable 3,00,000 2,70,400 Cash in hand 1,000 1,200
Provision for 70,000 -- 16,000
60,000 Cash at Bank
Taxation
Goodwill -- 10,000
10,61,000 10,21,600 10,61,000 10,21,600
Additional Information:
(i) Dividend paid during the year Rs.46,000
(ii) Net profit for the year Rs.1,32,200
(iii) Depreciation written-off on building Rs.20,000 and on machinery Rs.28,000
(iv) Income tax paid during the year Rs.56,000
(v) The following assets of another company were purchased for a consideration of
Rs.1,00,000 and paid in shares
Assets were:Inventory Rs.40,000 and Machinery Rs.50,000
(vi) Further machinery was purchased for Rs.50,000 during the year. There was a sale of

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 Suggested Answer_Syl16_Dec2018_Paper_12
Machinery
Your are required to prepare a Cash Flow Statement as per AS 3 9

(b) From the following information calculate return on equity as per Regulation 21 of the
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulation
2004: 3
(i) Date of commercial operation of COD=01.04.2014
(ii) Approved opening capital cost as on 01.04.2014=Rs.30,00,000
(iii) Details of allowed additional capital expenditure:

Year 1 2 3 4
Additional Capital Expenditure (Rs.) 2,00,000 60,000 40,000 20,000

Answer: 3(a)

Cash Flow Statement For year ended 31.03.2018

Particulars Rs. Rs. Rs.
1. Cash flow from operating activities
Net profit 132200
Add: Adjustment for non-cash expenses
Depreciation on land and buildings 20000
Depreciation on plant and machinery 28000 48000
Operating profit before adjustment for w.c changes 180200
Add: Decrease in inventory [200000-(148000-40000)] 92000
Decrease in trade receivable (160000-128400) 31600 123600
303800
Less: Decrease in trade payable (300000-270400)tax paid 29600
274200
Less: tax paid 56000
Net cash from operating activities 218200
2. Cash flow from investing activities
Sale of machinery 34000
Less: purchase of machinery 50000
(16000)
3. Cash flow from financing activities
Repayment of bank loan (140000)
Payment of dividend (46000) (186000)
1+2+3 16200
Add: Opening cash and cash equivalent 1000
Closing cash and cash equivalent 17200

Workings:
Plant and Machinery A/c
Particulars Rs. Particulars Rs.
To balance b/d 300000 By Depreciation 28000

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 Suggested Answer_Syl16_Dec2018_Paper_12
To vendor A/c 50000 By bank-sale 34000
To Bank A/c 50000 By balance c/d 338000
400000 400000
Land and Building A/c
Particulars Rs. Particulars Rs.
To balance b/d 400000 By Depreciation 20000
By balance c/d 380000

400000 400000

Answer: 3(b)
Calculation of Return on Equity
Particulars Year 1 Year 2 Year 3 Year 4
A. Opening Equity 900000 960000 978000 990000
(30% of Opening Capital Cost) (3000000*30%)
B. Additional Equity 18000 12000 6000
60000
(30% of Additional Expenditure)
C. Closing Equity (A+B) 960000 978000 990000 996000
D. Average Equity [(A+C)/2] 930000 969000 984000 993000
E. Return of Equity 135660 137760 139020
130200
(14% of Average Equity)

4. The following is the Trial Balance of Omega Limited as on 31.03.2018:

(Figures in Rs..’000)

Debit Credit
Equity Capital (Shares of
Land at cost 220 300
Rs.10each)
Plant and Machinery at cost 770 10% Debentures 200
Trade Receivables 96 General Reserve 130
Inventories (31.03.2018) 86 Profit & Loss A/c 72
Bank 20 Securities Premium 40
Adjusted Purchases 320 Sales 700
Factory Expenses 60 Trade Payables 52
Administration Expenses 30 Provision for Depreciation 172
Selling Expenses 30 Suspense Account 4
Debenture Interest 20
Interim Dividend Paid 18
1,670 1,670

Additional Information:
(i) The Authorized Share Capital of the Company is 40,000 shares of Rs.10 each
(ii) The Company on the advice of independent valuer wish to revalue the land Rs.3,60,000
(iii) Declared final dividend @10% (over Interim Dividend of Rs.18,000)

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 Suggested Answers_Syl2016_June2018_Paper 12

(b) (i) Computation of average accumulated expenses:

`
`3,00,000 X 12/12 3,00,000
` 3,50,000 X 9/12 2,62,500
` 5,50,000 X 6/12 2,75,000
` 1,50,000 X 1/12 12,500
` 13.50.000 8,50,000

(ii) Calculation of average interest rate other than for specific borrowings:

Amount of loan (`) Rate of interest Amount of interest (`)

6,00,000 11 % = 66,000
11,00,000 13% =1,43,000
17,00,000 2,09,000
Weighted average rate of interest 2,09,000 =12.29%
×100
17,00,000

(iii) Interest amount to be capitalized:

Particulars `
Specific borrowings (` 3,00,000 × 12%) = 36,000
Non-specific borrowings [` 5,50,000 (` 8,50,000 - ` 3,00,000)×12.29%] = 67,595
Amount of interest to be capitalized = 1,03,595

(iv) Computation of actual interest costs incurred during the year —

Particulars Amount (`)
`3,00,000 × 12% 36,000
`6,00,000 × 11% 66,000
`11,00,000 × 13% 1,43,000
2,45,000

Amount to be capitalized is `13,50,000 + `1,03,595 i.e. `14,53,595 which is not

more than `2,45,000.
(iv)
Journal Entry
Date Particulars Dr. (`) Cr.(`)
31.12.2017 Building Account (13,50,000 +1,03,595) Dr. 14,53,595
To Bank Account 14,53,595
(Being amount of cost of building and borrowing
cost thereon capitalized)

3. (a) The following are the summarized Balance Sheets of ABC Limited as on 31st March,
2016 and 2017:
Liabilities 31.03.16 31.03.17 Assets 31.03.16 31.03.17
Share Capital 4,60,000 4,60,000 Land & Building 3,00,000 3,00,000
Profit & Loss Balance 32,000 46,000 Machinery 1,04,000 1,40,000
Reserve 1,20,000 1,20,000 Investments 2,20,000 1,48,000
8% Debentures 1,80,000 1,40,000 Stock 1,64,000 2,12,000
Depreciation Fund 80,000 88,000 Debtors 1,34,000 86,000
Creditors 2,06,000 1,92,000 Cash 1,80,000 1,80,000
Outstanding expenses 26,000 24,000 Prepaid expenses 2,000 4,000
11,04,000 10,70,000 11,04,000 10,70,000

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 Suggested Answers_Syl2016_June2018_Paper 12

Additional Information:
(i) 10% Dividend was paid during 2016-17.
(ii) Old Machinery costing ` 24,000 (accumulated depreciation ` 12,000) was sold for
` 8,000.
(iii) 40,000 8% Debenture were redeemed by purchase from open market at ` 96 for a
debenture of ` 100 on 31.03.2017.
(iv) Investments worth ` 72,000 were sold at book value.
(v) Bad debt written off during the year ` 10,000.

Prepare a Statement of Cash Flow for the year ended 31.03.2017. 8

(b) Given below are details of interest on advance of a Commercial Bank as on
31.03.2017:
Particulars Interest Earned Interest Received
(` in Crore) (` in Crore)
Performing Assets
Term Loan 120 80
Cash Credit and Overdraft 750 620
Bills Purchased and Discounted 150 150
Non-Performing Assets
Term Loan 75 5
Cash Credit and Overdraft 150 12
Bills Purchased and Discounted 100 20
Find out the income to be recognized for the year ended 31st March, 2017. 4

Answer:

3. (a)
ABC Ltd.
Cash Flow Statement for the year ended 31.03.2017
Particulars ` ` `
1. Cash Flows under Operating Activities
Operating Profit (As per adjusted P/L A/c) 96,800
Add: Decrease in Debtors 48,000
1,44,800
Less: Increase in stock 48,000
Increase in prepaid expenses 2,000
Decrease in creditors 14,000
Decrease in outstanding expenses 2,000 66,000
Net cash from Operating Activities 78,800
2. Cash Flows from Investing Activities :
Sale of machinery 8,000
Sale of investment 72,000
Less: Purchase of machinery 80,000
Net cash from Investing 60,000 20,000
3. Cash Flows from Financing Activities :
Redemption of Debenture (96/100 × 40,000) (38,400)
Payment of interest (14,400)
Payment of dividend (46,000)
Net cash from Financing activities (98,800)
Net change in cash and cash equivalent for the year Nil
Add : Cash at the beginning of the year 1,80,000
Cash at the end of the year 1,80,000

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 Suggested Answers_Syl2016_June2018_Paper 12

(1) Machinery Account

Dr. Cr.
Particulars ` Particulars `
To Balance b/d 1,04,000 By Bank - Sale proceeds 8,000
" Bank - Purchase (Bat. Fig.) 60,000 " Depreciation fund 12,000
" Adj. P/L A/c - loss on sale 4,000
By Balance c/d 1,40,000
1,64,000 1,64,000

(2) Depreciation Fund Account

Dr. Cr.
Particulars ` Particulars `
To Machinery A/c 12,000 By Balance b/d 80,000
To Balance c/d 88,000 " Adj. P/L A/c— Depreciation 20,000
1,00,000 1,00,000

(3) Investment Account

Dr. Cr.
Particulars ` Particulars `
To Balance b/d 2,20,000 By Bank 72,000
By Balance c/d 1,48,000
2,20,000 2,20,000

(4) Adjusted Profit & Loss Account

Dr. Cr.
Particulars ` Particulars `
To Machinery A/c - loss on sale 4,000 By Balance b/d 32,000
" Depreciation Fund - 20,000 " 8% Debenture-Profit on 1,600
Depreciation cancellation
" Dividend 46,000 By Operating profit (Bal. figure) 96,800
" Interest (1,80,000 x 8/100); 14,400
To Balance c/d 46,000
1,30,400 1,30,400
Note: There is no need to make any adjustment entry for bad debt as it has already
been written off.

(b) As per RBI Circular, Interest on non-performing assets are considered on Cash Basis
whereas interest on performing assets are considered on Accrual Basis.

Statement Showing the Recognition of Income

(` in Crore)
Particulars Amount (`) Amount (`)
1. Interest on Term Loans
(i) Performing Assets 120
(ii) Non-performing Assets 5
125
2. Interest on Cash Credit and Overdraft
(i) Performing Assets 750
(ii) Non-performing Assets 12
762
3. Interest on Bills Purchased and Discounted
(i) Performing Assets 150
(ii) Non-performing Assets 20
- 170
Income to be recognized 1057

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 Suggested Answer_Syl2016_Dec2017_Paper 12

P/L A/c.
Exchange rate on the date of settlement (30.06.17) = ` 65.80/$
Exchange loss on 30.06.17 = 50000×(66.00 – 65.80) = ` 10,000 to be debited to P/L A/c.

3. (a) On the basis of the following information provided by X Ltd. prepare a Cash Flow
Statement for the year ended on 31st March 2017.
(i) X Ltd. sold all the goods for cash only and purchased the goods in credit only.
(ii) The company earned a Gross Profit of ` 4,00,000 with a Gross Profit Ratio of 25%.
(iii) The closing inventory was higher than the opening inventory by ` 20,000.
(iv) The company paid ` 4,50,000 as wages and ` 90,000 as office expenses during
the year.
(v) Balance of Suppliers accounts on 31.03.2016 were higher than the balance on
31.03.2017 by ` 30,000.
(vi) Tax paid by the company amounts to ` 80,000 while provision for taxation was
` 70,000.
(vii) The company repaid bank loan of ` 1,75,000 which included interest of ` 15,000.
(viii) Dividend paid during the year ` 50,000 (including dividend distribution tax).
(ix) X Ltd. sold investments of ` 6,00,000 at a profit of ` 40,000.
(x) Depreciation charged on fixed assets ` 1,20,000.
(xi) Furniture purchased during the year ` 2,00,000.
(xii) Cash and Cash Equivalents as on 31.03.2016 was ` 1,00,000.
(xiii) Cash and Cash Equivalents as on 31.03.2017 was ` 4,95,000. 8

(b) From the following information for a Bank calculate the amount of discount to be
transferred to the Statement of Profit and Loss.
(i) Rebate on Bills Discounted (as on 01.04.2016) ` 28,000. Discount Received `
1,02,000.
(ii) The following bills have been discounted during the year:
Amount of Bill (`) Rate of Discount Due Date (including grace days)
65,000 13%p.a. June 14,2017
1,50,000 15% p.a. July 19,2017
4,30,000 12% p.a. August 30,2017

Also pass the necessary journal entry for the unexpired discount as on 31.03.2017.
3+1=4
Answer:

3. (a) Workings Note 1:

Gross Profit @ 25% on Sales = ` 4,00,000, So Total Sales = ` 16,00,000 (all for cash)
COGS = Sales -G.P = ` 12,00,000
Let closing inventory is x and hence opening inventory is (x – 20,000)
Now, COGS = Op. Inventory + Purchase + Wages - CI. Inventory
Or. 12,00,000 = (x-20,000) + Purchase – 4,50,000 - x
Or. Purchase = 7,70,000.

Working Note 2:
Let closing balance of suppliers = y, hence opening balance = (y +30,000)

Suppliers' Account
Dr. Cr.
` `
To Payment to Suppliers (Bal. Fig.) 8,00,000 By Balance b/f Y + 30,000
To Balance c/f y By Purchase 7,70,000
y + 8,00,000 y + 8,00,000

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 Suggested Answer_Syl2016_Dec2017_Paper 12

Cash Flow Statement for the year ended on 31.03.2017

Particulars ` `
A. Cash Flow from Operating Activities
Cash Sales 16,00,000
(-) Cash payments
Payment to suppliers 8,00,000
Wages paid 4,50,000
Office expenses paid 90,000 13,40,000
2,60,000
(-) Income tax paid 80,000
1,80,000
B. Cash Flow from Investing Activities
Sale of Investments 6,40,000
Purchase of furniture (2,00,000) 4,40,000
C. Cash Flow from Financing Activities
Bank loan repaid with interest (1,75,000)
Dividend paid with distribution tax (50,000) (2,25,000)
(A+B+C) 3,95,000
D. Opening Cash and Cash Equivalent 1,00,000
E. Closing Cash and Cash Equivalent 4,95,000

(b) Calculation for rebate on bill discounted

Bill Due Date Days after due date Amount (`) Rate Discount
14.06.17 75 65,000 13% 1,736
19.07.17 110 1,50,000 15% 6,781
10.08.17 132 4,30,000 12% 18,661
Total 27,178

Amount to be credited to P/L = 28000 + 102000 - 27178 = ` 102822.

Journal Entry:

Interest and Discount A/C ............…………..Dr 27,178

To Rebate on Bill Discounted A/C 27,178

4. ABC Ltd. provides the following Trial Balance as on 31st March 2017:
Particulars Dr. Balances Cr. Balances
(`) (`)
Equity Share Capital: 350000 shares of ` 10 each fully paid 35,00,000
10% Debentures 3,00,000
Motor Van 4,00,000
Machinery 20,00,000
Land and Building 12,00,000
12% Long Term Govt. Securities 2,00,000
Sales 60,00,000
Sales Return 3,00,000
Interest on Debenture 22,500
Purchase 36,00,000
Purchase Returns 4,00,000
Opening Stock 3,00,000
Discount 7,500
Carriage Outward 1,50,000
Rent and Rates 50,000
Income from Govt. Securities 24,000

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 Suggested Answer_ Syllabus 2016_Jun2017_Paper 12
shares other than shares underwritten Firm and also calculate the amount due from/to
the Underwriters. 8

(b) M Ltd. sold machinery having WDV of ` 200 Lakhs to N Ltd. for ` 250 Lakhs and the
same machinery was leased back by N Ltd. to M Ltd. The lease back is an operating
lease. Comment on the accounting treatment as per AS 19 in the following
circumstances:
(i) Fair value is ` 230 Lakhs and sale price is ` 250 Lakhs
(ii) Fair value is ` 175 Lakhs and sale price is ` 195 Lakhs 4

Answer:

2. (a) Total number of shares issued = 5,00,000

Less: Shares taken by the directors etc. 50,000
Shares offered to public 4,50,000

Calculation of underwriters' liability

Particulars P Q R
Gross liability (65:25:10) 2,92,500 1,12,500 45,000
(-) Marked application 59,750 28,750 5,250
2,32,750 83,750 39,750
(-) Unmarked application in the ratio of gross liability 2,27,500 87,500 35,000
Resultant liability (or surplus) 5,250 (3,750) 4,750
(-)Surplus of Q allocated to P and R in the ratio of 65:10 3,250 3,750 500
Net liability 2,000 Nil 4,250

Workings: Calculation of amount due from/to underwriters

Particulars P Q R
No. of shares to be subscribed as per agreement (exc. Firm) 2,000 Nil 4,250
Amount payable @ ` 11 22,000 Nil 46,750
Underwriting commission @2 %
P: (292500×11×2%) 64,350
Q: (112500×11×2%) 24,750
R: (45000×11×2%) 9,900
Amount (paid) / received (42,350) (24,750) 36,850

(b) Here the leaseback is an operating lease.

So, the treatment of the given circumstances will be as follows:
(i) Here, sale price > Fair value, so, profit of `(230-200) = `30 Lakhs is to be
immediately recognized by M Ltd in its books and balance profit of `(250-230) i.e.
`20 Lakhs is to be amortized over the lease period.
(ii) Here, sale price > Fair value, so, loss of `(200-175) = `25 Lakhs is to be immediately
recognized by M Ltd in its books and balance profit of ` (195-175) i.e. `20 Lakhs is
to be amortized over the lease period.

3. (a) From the following information provided, prepare a Cash Flow Statement as per AS-3.
Balance Sheet of PQR Ltd.
Particulars Note As on As on
No. 31.03.16 31.03.15
` `
I Equity and Liabilities
1. Shareholders' fund
(a) Share Capital 1 20,00,000 20,00,000
(b) Reserves and Surplus 2 10,00,000 8,70,000
2. Share application money pending allotment Nil Nil

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 Suggested Answer_ Syllabus 2016_Jun2017_Paper 12
3. Non-Current Liability Nil Nil
4. Current Liabilities 6,50,000 8,00,000
Total 36,50,000 36,70,000
II Assets
1. Non-current Assets
(a) Fixed Assets (Tangible) 16,50,000 15,00,000
(b) Non-current Investment 7,00,000 8,00,000
2 Current Assets
(a) Inventories 7,60,000 7,00,000
(b) Trade Receivables 4,50,000 5,00,000
(c) Cash and Cash Equivalent 6,000 74,000
(d) Short term loan and advances (Prepaid Expenses) 84,000 96,000
36,50,000 36,70,000

Notes to Accounts:
1. Share Capital
Equity Share Capital 20,00,000 15,00,000
Redeemable Preference Share Capital of `100, `50 paid Nil 5,00,000
20,00,000 20,00,000
2. Reserve and Surplus
Balance of Profit 3,00,000 4,50,000
General Reserve 2,00,000 4,00,000
Capital redemption reserve 5,00,000 Nil
Securities Premium Nil 20,000
10,00,000 8,70,000
Additional information:
(i) During the year the company got income from investment ` 80,000.
(ii) Company paid `1,50,000 as equity dividend and ` 76,000 as preference dividend.
(iii) The company redeemed the preference shares at a premium of 5% after making
a successful call of ` 50 per share to make the shares fully paid.
(iv) During the year one machine was sold for ` 50,000 and the profit on sale of ` 6,000
was taken to Profit and Loss A/c. Depreciation for the year on fixed assets was
` 1,80,000. 9

(b) From the following information calculate Return on Equity as per Regulation 21 of the
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations,
2004:
(i) Date of Commercial Operation COD = 1st April 2016
(ii) Approved Opening Capital Cost as on 1st April 2016 = ` 20,00,000
(iv) Return of equity to be computed @ 14% p.a.
(v) Additional Capital Expenditure (Allowed) is as follows:
Year 1 2 3 4
Amount (`) 1,20,000 40,000 30,000 15,000
3
Answer:

3. (a)
Particulars ` `
1. Cash Flow from Operating Activities:
Fund from Operation 5,00,000
(-) increase in Inventory 60,000
(+) Decrease in Trade Receivables 50,000
(+) Decrease in Prepaid Expenses 12,000
(-) Decrease in Current Liability 1,50,000

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 Suggested Answer_ Syllabus 2016_Jun2017_Paper 12
Cash Flow from operating activities 3,52,000

II. Cash Flow from Investing Activities:

Income received from investment 80,000
Machinery sold 50,000
Sale of investment 1,00,000
Purchase of machinery (3,74,000) (1,44,000)

III. Cash Flow from Financing Activities

Dividend Paid (1,50,000+76,000) (2,26,000)
Call received on Preference shares 5,00,000
Preference shares redeemed at premium (10,50,000)
Equity share issued 5,00,000 (2,76,000)
(68,000)
(+)Opening cash and cash equivalent 74,000
Closing cash and cash equivalent 6,000

Workings:
Profit & Loss Account
Dr. Cr.
To Dividend 2,26,000 By Balance b/f 4,50,000
To Prem. on redemption 30,000 By Profit on Sale of Machine 6,000
To Cap. Red. Reserve 3,00,000 By Income from Investment 80,000
To Depreciation 1,80,000 By Fund from Operation (bal.fig) 5,00,000
To Balance c/f 3,00,000
10,36,000 10,36,000

Fixed Assets Account

Dr. Cr.
To Balance b/f 15,00,000 By Bank 50,000
To Profit and Loss 6,000 By Depreciation 1,80,000
To Bank (bal.fig.) 3,74,000 By Balance c/f 16,50,000
18,80,000 18,80,000

Equity Share Capital Account

Dr. Cr.
By Balance c/f 15,00,000
By Bank 5,00,000
To Balance c/f 20,00,000
20,00,000 20,00,000

Preference Share Capital Account

Dr. Cr.
To PSH 10,00,000 By Balance c/f 5,00,000
By Bank 5,00,000
10,00,000 10,00,000

Preference Share Holders (PSH) Account

Dr. Cr.
To Bank 10,50,000 By Pref. Sh. Capital 10,00,000
By Premium on Redemption 50,000
10,50,000 10,50,000

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 Suggested Answer_ Syllabus 2016_Jun2017_Paper 12
General Reserve Account
Dr. Cr.
To CRR 2,00,000 By Balance b/f 4,00,000
To Balance c/f 2,00,000
4,00,000 4,00,000

Capital Redemption Reserve Account

Dr. Cr.
To Balance c/f 5,00,000 By Balance b/f Nil
By General Reserve 2,00,000
By Profit & Loss 3,00,000
5,00,000 5,00,000

Securities Premium Account

Dr. Cr.
To Premium on Redemption 20,000 By Balance b/f 20,000
To Balance c/f Nil
20,000 20,000

Premium on Redemption Account

Dr. Cr.
To Securities Premium 20,000 By PSH 50,000
To Profit and Loss 30,000
50,000 50,000

Investment Account
Dr. Cr.
To Balance b/f 8,00,000 By Bank 1,00,000
By Balance c/f 7,00,000
8,00,000 8,00,000

(b)
Calculation for Return on Equity
Particulars 1st Year 2nd Year 3rd Year 4th Year
A. Opening Equity (30%) 6,00,000 6,36,000 6,48,000 6,57,000
B. Additional equity (30%) 36,000 12,000 9,000 4,500
C. Closing Equity (A+B) 6,36,000 6,48,000 6,57,000 6,61,500
D. Average Equity [(A+C)/2] 6,18,000 6,42,000 6,52,500 6,59,250
E. Return on Equity (14% of D) 86,520 89,880 91,350 92,295

4. Elixir Ltd. provides the following Trial Balance as on 31st March 2016:
Particulars Dr. Balance Cr. Balance
(`) (`)
Equity Share Capital 300000 shares of ` 10 each fully paid 30,00,000
12% Bank Loan 2,00,000
Furniture 2,25,000
Machinery 7,50,000
Building 12,50,000
Non-current Investment 2,00,000
Sales 48,00,000
Sales Return 4,00,000
Interest Received on Investment 20,000
Interest on Bank Loan 20,000
Purchase 33,20,000

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 6