Corporate Accounting Solved Question Papers Dibrugarh UniversityCorporate Accounting Solved Paper May 2015 (Old Course)COMMERCE (General/Speciality)Course: 203 (Corporate Accounting )The figures in the margin indicate full marks for the questionsFull Marks: 80Pass Marks: 24Time: 3 hours
a) Profit on reissue of forfeited shares is transferred to Capital Reserve. (Capital Reserve/General Reserve).
b) In case of cum-interest price, the interest accrued on debenture is included (included/excluded) in the price quoted.
c) Accounting for amalgamation is associated with Accounting Standard 14. (14/15/16)
d) In liquidation, liquidator’s final statement of account shows cash receipts and payments. (cash receipts and payments/assets and liabilities).
e) Profit & Loss A/c balance including reserves after acquisition, is considered as revenue profit.(capital profit/ revenue profit).
(b) State the following items whether ‘True’ or ‘False’: 1x3=3
a) External reconstruction means reduction of share capital of a company which is to be reconstructed. false
b) Consolidated financial statements are prepared as per Accounting Standard – 21. True
c) A debenture holder is the owner of a company. False
2. Write short notes on the following: 4x4=16
a) Legal provisions in respect to redemption of preference shares.
b) Redemption of debentures by sinking fund method.
c) Four points of distinction between bonus shares and right shares.
d) Minority interest.
Ans: a) Conditions for redemption of Preference Shares:
Under section 55 of the Companies Act, 2013, a company should have to follow the conditions:
1. No authorization is required in the articles to redeem the preference shares of a company.
2. The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.
3. The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of fresh issue of shares for the purpose of redemption.
4. If the shares are redeemed at a premium, it should be should be provided out of securities premium or out of profits of the company.
5. The proceeds from fresh issue of debentures cannot be utilized for redemption.
6. The amount of capital reserve cannot be used for redemption of preference shares.
7. If the shares are redeemed out of undistributed profit, the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve Account. This is also known as capitalization profit.
8. CRR may be utilised only for the purpose of issuing fully paid bonus shares to the members.
b) Redemption of debentures by sinking fund method.
Ans: Sinking fund is a fund into which a company sets aside money over time, in order to retire its preferred stock, bonds or debentures. Such fund is created mainly for some specific purposes which are:
1. To redeem or repay long term liabilities. For example: debentures, long term loans etc.
2. To replace wasting assets. For example: mines etc.
3. To replace an asset of depreciable nature. For example fixed assets.
Creation of Sinking fund for redemption of debentures:
For redemption of debentures or other long term liabilities, a fixed amount is kept aside yearly as sinking fund for the specific purpose and the same amount is invested in securities etc. for a specific period so that the sufficient amount is available at the time of redemption of long term liabilities. The amount to be set aside can be determined with the help of Sinking fund table. The amount kept aside should not be debited to Profit and loss account but to Profit and loss appropriation account because the same is an allocation of profit not expenditure.
c) Four points of distinction between bonus shares and right shares.
Ans: Bonus shares: Where company have large amount of undistributed profit and these profits are capitalised by converting them into shares and issued free of charge to the existing shareholders, such shares are known as bonus shares.
Right Issue: Rights Issue is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.
Difference between Bonus shares and Right issue
(a) Bonus shares are offered free of charge. Whereas, Right shares are offered at a discounted price for existing shareholders in a new share issue.
(b) Bonus shares are issued to compensate for the prevailing cash limitations. Whereas, Rights shares are issued to raise new capital for future investments.
(c) Bonus shares do not result in cash receipt. Whereas, Rights shares result in cash receipt for the company.
d) Minority interest.
Ans: Minority Interest: When some of the shares in the subsidiary are held by outside shareholders they will be entitled to a proportionate share in the assets and liabilities of that company. The share of the outsider in the subsidiary is called minority interest.
Amount of minority interest is calculated by adding subsidiary company’s share in pre-acquisition profit, post-acquisition profit and in share capital of the company. Preference share capital to the extent of not purchased by holding company is also added with minority interest. In the consolidated balance sheet all the assets and liabilities of the subsidiary are consolidated with assets and liabilities of the holding company and the minority interest representing the interest of the outsider in the subsidiary is shown as a liability.
3. (a) XYZ Co. invited applications for 10000 shares of Rs. 100 each. The shares were issued at a premium of 10%. The amount was payable as follows:
On Application – Rs. 20
On Allotment – Rs. 40 (including premium of Rs. 10)
The balance on first and final call
Applications for 15000 shares were received. Applications for 3000 shares were rejected and allotment was made to the remaining applicants on pro-rata basis. All calls were made and were duly received except the final call on 100 shares. These shares were forfeited and reissued at Rs. 110 per shares as fully paid up. Pass necessary Journal Entries and prepare the Balance Sheet in the books of the XYS Co. 7+5=12
Journal Entries
In the books of XYZ Co. Ltd
Particulars
|
L/F
|
Amount (Dr.)
|
Amount (Cr.)
|
Bank A/c (15,000 x 20) Dr.
To Share Application A/c
(Being the application money received on 15,000 shares @ Rs. 20 each)
|
3,00,000
|
3,00,000
| |
Share Application A/c Dr.
To Share Capital A/c (10,000 x 20)
To Bank A/c (3000 x 20)
To Share Allotment A/c (2,000 x 20)
(Being the application money on 10,000 shares transferred to share capital and excess application money adjusted)
|
3,00,000
|
2,00,000
60,000
40,000
| |
Share Allotment a/c Dr.
To Share Capital A/c (10,000 x 30)
To Securities Premium Reserve A/c (10,000 x 10)
(Being the allotment money due on 10,000 shares @ Rs. 40 each including premium @ Rs. 10 per share)
|
4,00,000
|
3,00,000
1,00,000
| |
Bank A/c Dr.
To Share Allotment a/c
(Being the allotment money received)
|
3,60,000
|
3,60,000
| |
Share 1st & Final Call A/c Dr.
To Share Capital A/c (10,000 x 50)
(Being the first and final call money due on 10,000 shares @ Rs. 50 each)
|
5,00,000
|
5,00,000
| |
Bank A/c Dr.
Calls in arrear A/c (100 x 50) Dr.
To share 1st & Final Call A/c
(Being the first and final call money received on 9,900 shares @ Rs. 50 each)
|
4,95,000
5,000
|
5,00,000
| |
Share Capital A/c Dr.
To forfeited Share A/c (100 x 50)
To Calls in arrear A/c (100 x 50)
(Being the 100 shares forfeited due to nonpayment of first and final call money)
|
10,000
|
5,000
5,000
| |
Bank A/c Dr.
To Share Capital A/c (100 x 100)
To Securities Premium Reserve A/c (100 x 10)
(Being the 100 forfeited shares re-issued @ Rs. 110 each)
|
11,000
|
10,000
1,000
| |
Forfeited Share A/c Dr.
To Capital Reserve A/c
(Being the profit on re-issue of forfeited shares transferred to capital reserve)
|
5,000
|
5,000
|
Balance Sheet of XYZ Co. Ltd
Particulars
|
Amount
|
I. Equity & Liabilities:
1) Share Holders Fund:
a) Share Capital:
10,000 shares @ Rs. 100 each
2) Reserves & Surplus:
S.P.R.
Capital Reserve
|
10,00,000
1,01,000
5,000
|
11,06,000
| |
II. Assets:
1) Cash & Cash Equivalents
|
11,06,000
|
11,06,000
|
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CORPORATE ACCOUNTING SOLVED QUESTION PAPERS (2010 Till Date)
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Ans: SEBI GUIDELINES on the issue of bonus shares
There are no guidelines for issuing bonus shares by the private companies or unlisted public companies have been issued by the SEBI. However, the listed public companies for issuing bonus shares to the shareholders must comply with the guidelines issued by the SEBI. The requirements of the guidelines of SEBI are given below:-
a) Right of FCD/PCD holders: No company shall pending the conversion of FCDs/PCDs issue any shares by way of bonus unless similar benefit is extended to the holders of FCDs/PCDs, through reservation of shares in proportion to such convertible part of FCDs/PCDs. The shares so reserved may be issued at the time of conversion of such debentures on the same terms on which the rights or bonus issues were made.
b) Out of free reserves: the bonus issue shall be made out of free reserves built out of genuine profits or share premium collected in cash only.
c) Revaluation of fixed assets: reserves created by revaluation of fixed assets should not be capitalised. If assets are subsequently sold and the profits are realized, such profits could be utilised for capitalization.
d) Bonus issue not to be in lieu of dividend: The declaration of bonus issue, in lieu of dividend, should not be permitted.
e) Fully paid shares: Bonus issue shall not be made, unless the partly paid shares, if any, existing are made fully paid up.
f) No default in respect of deposit/debentures: the company should not have defaulted in payment of any interest or principal in respect its fixed deposits and interest on debentures or redemption of debentures.
g) Statutory dues of the employees: the company should not be defaulted in payment of its statutory dues to the employees such as contribution to PF, gratuity, bonus, minimum wages, workmen’s compensation, retrenchment, payment to contract labour etc.
h) Implementation of proposal: the bonus issue shall be implemented within a period of 15 days after the date of approval of the BoD; it does not require the shareholders’ approval for capitalization of profits or reserves for making bonus issue as per the AoA of the company.
However, if the company is required to get the shareholders’ approval as per AoA of the company for capitalization of profits or reserves, the bonus issue shall be implemented within 2 months from the date of the meeting of the BoD.
i) Provision in the AoA: the AoA of the company should provide the provision for the capitalization profits, i.e. it must authorize the bonus issue, if not, and steps should be taken to alter the AoA suitably.
j) Authorised capital: consequent upon bonus issue if the subscribed or paid up capital of the company exceed the authorised capital, then a resolution shall be passed by the company at its GM for increasing its authorised capital to that extent.
k) Certificate: A certificate duly signed by the issuer company and countersigned by the statutory auditor or the company secretary in practice to the effect that the provisions of the guidelines has been complied with shall be forwarded to the SEBI.
4. (a) On 1st January, 2010 Ashok Co. Ltd. Issued 1000, 6% debentures of Rs. 100 each, repayable at par at the end of 4 years. It was decided to create a sinking fund for repayment of the debentures and invest the amount of fund in 6% Government Securities. Show the Ledger A/c for 4 years assuming that the investments were realized for Rs. 70,000 only and the debentures were paid-off at the end of the period. Annual installment to provide Rs. 1 at the end of 4 years at 6% compound interest is Rs. 0.228591. 10
Ans: Amount to be transferred to Sinking fund = 1,00,000*0.228591 = 22,859
6% Debentures A/c
Date
|
Particulars
|
Amount
|
Date
|
Particulars
|
Amount
|
31-12-10
|
To Balance c/d
|
1,00,000
|
1-1-10
|
By Bank A/c
|
1,00,000
|
1,00,000
|
1,00,000
| ||||
31-12-11
|
To Balance c/d
|
1,00,000
|
1-1-11
|
By Balance b/d
|
1,00,000
|
1,00,000
|
1,00,000
| ||||
31-12-12
|
To Balance c/d
|
1,00,000
|
1-1-12
|
By Balance b/d
|
1,00,000
|
1,00,000
|
1,00,000
| ||||
31-12-13
|
To Bank A/c
|
1,00,000
|
1-1-13
|
By Balance b/d
|
1,00,000
|
1,00,000
|
1,00,000
|
Sinking Fund Investment A/c
Date
|
Particulars
|
Amount
|
Date
|
Particulars
|
Amount
|
1-1-10
|
To Bank A/c
|
22,859
|
31-12-10
|
By balance c/d
|
22,859
|
22,859
|
22,859
| ||||
1-1-11
|
To Balance b/d
To Bank A/c (22,859 + 1,372)
|
22,859
24,231
|
31-12-11
|
By Balance c/d
|
47,090
|
47,090
|
47,090
| ||||
1-1-12
|
To Balance b/d
To Bank A/c (22,859 + 2,825)
|
47,090
25,684
|
31-12-12
|
By Balance c/d
|
72,774
|
72,774
|
72,774
| ||||
1-1-13
|
To Balance b/d
|
72,774
|
31-12-13
|
By Bank A/c
By Sinking Fund A/c
|
70,000
2,774
|
72,774
|
72,774
|
Or
(b) Define debenture. Which is the best method of redemption of debenture? Justify your opinion. 4+6
Ans: Meaning of Debentures
According to Sec. 2 (30) of the companies Act, 2013, debentures include “debenture stock, bonds and any other securities of a company evidencing a debt, whether constituting a charge on the assets of the company or not.”
Debentures are debt instruments issued by a joint stock company. Amounts collected by way of debentures form part of the loan capital of a company. They are repayable after a fixed period. Debenture holders get interest on their debentures. They are creditors of the company. They do not get dividend. Only shareholders get dividend.
The characteristics of debentures can be summarised as follows:
a) Debentures are debt instruments.
b) They generally carry fixed rate of interest.
c) They are normally repayable at the end of a fixed period. Repayment of debenture or cancellation of debenture liability in the books of the company is known as redemption of debentures.
d) They can be issued at par, premium or at discount depending on the reputation of the company.
e) They can either be placed privately or offered for public subscription.
f) They may or may not be listed in the stock exchange.
g) If offered for public subscription, they should be rated by a credit rating agency approved by SEBI, prior to listing.
Best Methods of Redemption of Debentures
Sinking Fund method: Sinking fund is a fund into which a company sets aside money over time, in order to retire its preferred stock, bonds or debentures. Such fund is created mainly for some specific purposes which are:
1) To redeem or repay long term liabilities. For example: debentures, long term loans etc.
2) To replace wasting assets. For example: mines etc.
3) To replace an asset of depreciable nature. For example fixed assets.
Creation of Sinking fund for redemption of debentures: For redemption of debentures or other long term liabilities, a fixed amount is kept aside yearly as sinking fund for the specific purpose and the same amount is invested in securities etc. for a specific period so that the sufficient amount is available at the time of redemption of long term liabilities. The amount to be set aside can be determined with the help of Sinking fund table. The amount kept aside should not be debited to Profit and loss account but to Profit and loss appropriation account because the same is an allocation of profit not expenditure.
This method is considered as the best method for redemption of debentures because of the following reasons:
a) Funds for redemption of debentures can be easily arranged by transferring the surplus to sinking fund every year.
b) Interest on investment can be earned on sinking fund investments.
c) Funds are arranged every year. It helps in reducing pressure of repayment of liabilities all at a time.
d) It helps in reducing income tax liability of the company.
5. (a) The summarized Balance Sheet of Ranjan Ltd. as on 31st March, 2013 was as follows:
Liabilities
|
Rs.
|
Assets
|
Rs.
|
Shares of Rs. 10 fully paid
General Reserve
Profit & Loss A/c
12% Debentures
Creditors
|
6,00,000
1,70,000
1,10,000
1,00,000
20,000
|
Goodwill
Land and Buildings & Plant
Stock
Debtors
Cash
|
1,00,000
6,40,000
1,68,000
36,000
56,000
|
10,00,000
|
10,00,000
|
Anjan Ltd. agreed to absorb the business of Ranjan Ltd. with effect from 1st April, 2013. The purchase consideration payable by Anjan Ltd. was agreed as follows:
1) A cash payment equivalent to Rs. 2.50 for every Rs. 10 shares in Ranjan Ltd.
2) The issue of 90000 equity shares of Rs. 10 each fully paid in Anjan Ltd. having an agreed value of Rs. 15 per share.
3) The issue of such an amount of fully paid 14% debentures in Anjan Ltd. at Rs. 96 per debenture as is sufficient to discharge 12% debentures in Ranjan Ltd. at a premium of 20%. While computing purchase consideration, Anjan Ltd. valued Land, Building and Plant at Rs. 12,00,000, stock Rs. 1,42,000 and Debtors at their face valued subject to a reserve of 5% for doubtful debts. The cost of liquidation of Ranjan Ltd. was Rs. 5,000.
i. Prepare Realization A/c in the books of Ranjan Ltd. 4
ii. Pass Journal Entries in the books of Anjan Ltd. 8
Purchase Consideration
Particulars
|
Rs.
|
Cash (60,000x2.5)
Equity Shareholder:
90,000 Equity Share @ Rs. 10 each
Securities Premium Reserve
90,000 Equity Share @ Rs. 5 each
|
1,50,000
9,00,000
4,50,000
|
Purchase Consideration
|
15,00,000
|
Journal Entries
In the books of Anjan Ltd.
Particulars
|
L/F
|
Amount
|
Amount
|
Business Purchase A/c Dr.
To Liquidator of Ranjan Ltd.
(Being the purchase consideration due to the liquidator of Ranjan Ltd)
|
15,00,000
|
15,00,000
| |
Land & Building A/c Dr.
Stock A/c Dr.
Debtors A/c Dr.
Cash A/c Dr.
Goodwill A/c Dr.
To 12% Debenture of Ranjan A/c
To Creditors A/c
To Business Purchase A/c
(Being the assets and liabilities of Ranjan Ltd. taken over)
|
12,00,000
1,42,000
34,200
56,000
2,07,800
|
1,20,000
20,000
15,00,000
| |
12% Debentures of Ranjan Ltd. A/c Dr.
Discount on issue of Debenture A/c Dr.
To 14% Debenture A/c
(Being the debentures of Ranjan Ltd. converted into 14% Debentures)
|
1,20,000
5,000
|
1,25,000
| |
Goodwill A/c Dr.
To Bank A/c
(Being the liquidation expenses paid)
|
5,000
|
5,000
| |
Liquidator of Ranjan Ltd. A/c Dr.
To Share Capital a/c
To S.P.R A/c
To Bank A/c
(Being the final payment made to the liquidator of Ranjan Ltd.)
|
15,00,000
|
9,00,000
4,50,000
1,50,000
|
Realisation A/c
Particulars
|
Amount
|
Particulars
|
Amount
|
To Goodwill A/c
To Land & Building A/c
To Stock A/c
To Debtors A/c
To Cash A/c
To Bank A/c
To Equity Share Capital a/c
|
1,00,000
6,40,000
1,68,000
36,000
56,000
5,000
6,15,000
|
By 12% Debenture A/c
By Creditors A/c
By Anjan Ltd. A/c
|
1,00,000
20,000
15,00,000
|
16,20,000
|
16,20,000
|
For Solutions Click Here:
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(b) Define ‘internal reconstruction’. Explain various ways in which internal reconstruction of a company can be carried out. 4+8=12
Ans: Refer notes
6. (a) The following particulars relate to a limited company which has gone into voluntary liquidation. You are required to prepare the Liquidator’s Final A/c, allowing for his remuneration @2% on the amount realized and 2% on the amount distributed to insecured creditors other than preferential creditors: 12
Preferential Creditors: Rs. 10,000
Insecured Creditors: Rs. 32,000
Debentures: Rs. 10,000
The assets realized the following sums:
Land and Building: Rs. 20,000
Plant and Machinery: Rs. 18,650
Fixtures and Fittings: Rs. 1,000
The liquidation expenses amount: Rs. 1,000
Or
(b) Discuss various modes of winding up of companies in detail.
7. (a) A Ltd. (holding company) acquired 4000 shares of B Ltd. (subsidiary company) as on 1st January, 2013. Their Balance Sheet as on 31st December, 2013 stood as follows:
Liabilities
|
A Ltd.
Rs.
|
B Ltd.
Rs.
|
Assets
|
A Ltd.
Rs.
|
B Ltd.
Rs.
|
Shares Capital
10000 E/shares of Rs. 10 each, fully paid
5000 E/Shares of Rs. 10 each fully paid
Profit & Loss A/c
Creditors
|
1,00,000
-
40,000
40,000
|
-
50,000
10,000
20,000
|
Fixed Assets
Investment:
4000 Equity Shares
of B Ltd. at Rs. 12.50
Current Assets
|
1,00,000
50,000
30,000
|
60,000
-
20,000
|
1,80,000
|
80,000
|
1,80,000
|
80,000
|
On 1st January, 2013, the Profit & Loss A/c of B Ltd. showed a loss of Rs. 15,000 which was written off out profits earned in 2013. Prepare a Consolidated Balance Sheet as on 31st December, 2013. 10
Solution: Refer 2018 Old course paper
Or
(b) How do you treat the following while preparing the Consolidated Balance Sheet? 5+5=10
(1) Capital profit and revenue profit of subsidiary company.
(2) Cost of control, goodwill and capital reserve.
Ans: (1) Capital profit and revenue profit of subsidiary company.
Capital Profit or Pre-acquisition profit: General Reserve & Profit & Loss Account (credit balance) appearing in the books of the subsidiary company on the date of acquisition are treated as pre – acquisition profits. Since, they were not earned by the holding company in the ordinary course of business they are capitalized & set off against the purchase price of the shares. A pre – acquisition loss appearing in the books of the subsidiary company is treated as a capital loss & debited to goodwill account.
Revenue Profit or Post acquisition profits: Post acquisition profits or losses are those that are made or suffered by a subsidiary company after its shares have been purchased by the holding company. Revenue profits are added to the profits of the holding company if it acquires all the shares of the subsidiary company or to extent of its share holding in the subsidiary company. A post acquisition loss is treated as a revenue loss & deducted from the profits of the holding company. If the date of acquisition is during the course of the year it becomes necessary to make an estimate of pre acquisition & post acquisition periods on time basis so as to apportion profits.
(2) Cost of control, goodwill and capital reserve.
In practice the holding company may pay more or less than the net worth of the subsidiary company. If the holding company feels that a company the shares of which it wants to acquire enjoys considerable reputation or exceptionary favourable factor it may pay more than the paid up value of shares or net assets. The excess of acquisition price over net assets represents goodwill or cost of control.
If on the other hand the acquisition price is less than the paid up value of shares the difference is again to the holding company & is known as capital reserve.
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