PAPER – 5 : ADVANCED ACCOUNTING

All questions are compulsory

Working notes should form part of the answer.
Wherever necessary, suitable assumption(s) may be made and disclosed by the candidates.
Question 1
Answer the following questions:
(i) Goods worth Rs. 5,00,000 were destroyed due to flood in September, 2006. A claim was
lodged with insurance company. But no entry was passed in the books for insurance
claim in the financial year 2006-07.
In March, 2008, the claim was passed and the company received a payment of
Rs.3,50,000 against the claim. Explain the treatment of such receipt in final accounts for
the year ended 31st March, 2008.
(ii) Briefly indicate the items which are included in the expressions “Borrowing Cost” as per
AS 16.
(iii) Sterling Ltd. purchased a plant for US $ 20,000 on 31 st December, 07 payable after 4
months. The company entered into a forward contract for 4 months @ Rs. 48.85 per
dollar. On 31st December, 07, the exchange rate was Rs. 47.50 per dollar.
How will you recognize the profit or loss on forward contract in the books of Sterling
Limited for the year ended 31 st March, 2008.
(iv) A company created a provision of Rs. 75,000 for staff welfare while preparing the
financial statements for the year 2007-08. On 31st March, in a meeting with staff welfare
association, it was decided to increase the amount of provision for staff welfare to
Rs. 1,00,000. The accounts were approved by Board of Directors on 15 th April, 2008.
Explain the treatment of such revision in financial statements for the year ended
31st March, 2008.
(v) Explain “Employee’s stock option plan”.
(vi) A company entered into an agreement to sell its immovable property to another company
for 35 lakhs. The property was shown in the Balance Sheet at Rs.7 lakhs. The agreement
to sell was concluded on 15 th February, 2008 and sale deed was registered on 30 th April,
2008. The financial statements for the year 2007-08 were approved by the board on
12th May,2008.
You are required to state, how this transaction would be dealt with in the financial
statements for the year ended 31 st March, 2008.
 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

(vii) A Ltd. entered into a binding contract with C Ltd. to buy a machine for Rs. 1,00,000. The
machine is to be delivered on 15 th February, 2009. On 1 st January, 2009, A Ltd. changed
its process of production. The new process will not require the machine ordered and it
shall have to be scrapped after delivery. The expected scrap value of the machine is nil.
Explain how A Ltd. should recognise the entire transaction in the books of account for the
year ended 31st March, 2009.
(viii) Goods are transferred from Department P to Department Q at a price 50% above cost.
If closing stock of Department Q is Rs. 27,000, compute the amount of stock reserve.
(ix) X Ltd. received a revenue grant of Rs.10 crores during 2006-07 from Government for
welfare activities to be carried on by the company for its employees. The grant
prescribed the conditions for utilization.
However during the year 2008-09, it was found that the prescribed conditions were not
fulfilled and the grant should be refunded to the Government.
State how this matter will have to be dealt with in the financial statements of X Ltd. for
the year ended 2008-09.
(x) “Conversion of debt into equity is a non-cash transaction.” Comment. (10 × 2 = 20 Marks)
Answer
(i) As per the provisions, of AS 5 “Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies”, prior period items are income or expenses, which arise
in the current period as a result of error or omissions in the preparation of financial
statements of one or more prior periods. Further, the nature and amount of prior period
items should be separately disclosed in the statement of profit and loss.
In the given situation, it is clearly a case of error in preparation of financial statements for
the financial year 2006-07. Hence claim received in the financial year 2007-08 is a prior
period item and should be separately disclosed in the statement of profit and loss for the
year ended 31st March, 2008.
(ii) Borrowing costs are interest and other costs incurred by an enterprise in connection with
the borrowing of funds. Borrowing cost may include:
(a) Interest and commitment charges on bank borrowings and other short term and long
term borrowings.
(b) Amortisation of discounts or premiums relating to borrowings.
(c) Amortisation of ancillary costs incurred in connection with the arrangement of
borrowings.
(d) Finance charges in respect of assets required under finance leases or under other
similar arrangements; and
(e) Exchange differences arising from foreign currency borrowings to the extent that
they are regarded as an adjustment to interest costs.

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 PAPER – 5 : ADVANCED ACCOUNTING

(iii) Calculation of profit or loss to be recognised in the books of Sterling Limited

Forward contract rate Rs.48.85
Less: Spot rate Rs.47.50
Loss Rs.1.35
Forward Contract Amount $20,000
Total loss on entering into forward contract = ($20,000 × Rs.1.35) Rs.27,000
Contract period 4 months
Loss for the period 1 st January, 2008 to 31st
March, 2008 i.e.
3 Rs.20,250
3 months falling in the year 2007-2008 will be Rs.27,000  =
4
Balance loss of Rs.6,750 (i.e. Rs. 27,000 – Rs. 20,250) for the month of April, 2008
will be recognised in the financial year 2008-2009.
(iv) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies”, the change in amount of staff welfare provision amounting
Rs. 25,000 is neither a prior period item nor an extraordinary item. It is a change in
estimate, which has been occurred in the year 2007-2008.
As per the provisions of the standard, normally, all items of income and expense which
are recognised in a period are included in the determination of the net profit or loss for
the period. This includes extraordinary items and the effects of changes in accounting
estimates. However, the effect of such change in accounting estimate should be
classified using the same classification in the statement of profit and loss, as was used
previously, for the estimate.
(v) “Employee Stock Option Plan” is a plan in which option is given for a specified period, to
employees of a company, which gives such directors, officers or employees the right, but
not the obligation, to purchase or subscribe, the shares of the enterprise at a fixed or
determinable price.
(vi) According to para 13 of AS 4 “Contingencies and Events Occurring after the Balance
Sheet Date”, assets and liabilities should be adjusted for events occurring after the
balance sheet date that provide additional evidence to assist the estimation of amounts
relating to conditions existing at the balance sheet date.
In the given case, sale of immovable property was carried out before the closure of the
books of accounts. This is clearly an event occurring after the balance sheet date but
agreement to sell was effected on 15th February 2009 i.e. before the balance sheet date.
Registration of the sale deed on 30th April, 2009, simply provides additional information
relating to the conditions existing at the balance sheet date. Therefore, adjustment to
assets for sale of immovable property is necessary in the financial statements for the
year ended 31st March, 2009.

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

(vii) A Ltd. entered into a binding contract with C Ltd. and therefore, it should recognise a
liability of Rs.1,00,000. The entire amount of purchase price of the machine should be
recognised in the year ended 31st March, 2009 as loss because future economic benefit
from the machine to the enterprise is improbable.
The accounting entry should be as follows:
Rs. Rs.
Profit and Loss A/c Dr. 1,00,000
To C Ltd. 1,00,000
(Being value of machinery fully depreciated
because of change in the process of production
i.e. obsolescence)
(viii) Calculation of Stock Reserve
Rs.
Closing stock of Department Q 27,000
Goods sent by Department P to Department Q at a price 50% above cost
 Rs.27,000  50  9,000
Hence, profit of Department P included in the stock will be  
 150 
Amount of stock reserve will be Rs.9,000
(ix) As per para 11 of AS 12 “Government Grants”, a grant that became refundable should be
treated as an extra-ordinary item as per Accounting Standard 5 “Net Profit or Loss for the
Period, Prior Period Items and Changes in Accounting Policies”. The amount refundable
in respect of a government grant related to revenue, is applied first against any
unamortised deferred credit remaining in respect of the grant. To the extent that the
amount refundable exceeds any such deferred credit, or where no deferred credit exists,
the amount is charged immediately to profit and loss statement. Therefore, refund of
grant of Rs. 10 crores should be shown in the profit and loss account of the company as
an extra-ordinary item during the financial year 2008-09.
(x) Sometimes debenture holders are offered an option to convert their debts into equity by
issuing equity share capital. In such transactions, debentures are redeemed by issuing
fresh share capital.
Journal Entry will be as follows:
Debentures A/c Dr.
To Equity share capital A/c
In the above entry, no cash account is opened. Therefore, one can conclude that the
conversion of debt to equity is a non-cash transaction.

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 PAPER – 5 : ADVANCED ACCOUNTING

Question 2
Sun Ltd. and Moon Ltd. were amalgamated on and from 1 st April, 2009. A new company Star
Ltd. was formed to take over the business of the existing companies. The Balance Sheets of
Sun Ltd. and Moon Ltd. as at 31st March, 2009 are given below:
(Rs. in lakhs)
Sun Moon Sun Moon
Liabilities Assets
Ltd. Ltd. Ltd. Ltd.
Share capital: Fixed Assets:
Equity shares of Rs.100 400 375 Land & Building 275 200
each
12% Preference shares of 150 100 Plant & Machinery 175 125
Rs.100 each Investments 75 25
Reserves and surplus: Current Assets, Loans and
Advances:
Revaluation reserve 75 50 Stock 175 125
General reserve 85 75 Sundry Debtors 125 150
Investment allowance 25 25 Bills Receivables 25 25
reserve Cash and Bank balances 150 100
Profit and Loss Account 25 15
Secured loan:
10% Debentures (Rs.100 30 15
each)
Current liabilities and
provisions:
Sundry creditors 135 60
Acceptance 75 35
1,000 750 1,000 750
Additional information:
(a) Star Ltd. will issue 5 equity shares for each equity share of Sun Ltd. and 4 equity shares
for each equity share of Moon Ltd. The shares are to be issued @ Rs. 30 each, having a
face value of Rs. 10 per share.
(b) Preference shareholders of the two companies are issued equivalent number of 15%
preference shares of Star Ltd. at a price of Rs. 150 per share (face value Rs. 100).
(c) 10% Debentureholders of Sun Ltd. and Moon Ltd. are discharged by Star Ltd., issuing
such number of its 15% Debentures of Rs.100 each so as to maintain the same amount
of interest.

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 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

(d) Investment allowance reserve is to be maintained for 4 more years.

(e) Liquidation expenses are:
Sun Ltd. Rs.2,00,000
Moon Ltd. Rs.1,00,000
It was decided that these expenses would be borne by Star Ltd.
(f) All the assets and liabilities of Sun Ltd. and Moon Ltd. are taken over at book value.
(g) Authorised equity share capital of Star Ltd. is Rs. 5,00,00,000, divided into equity shares
of Rs. 10 each. After issuing required number of shares to the Liquidators of Sun Ltd.
and Moon Ltd., Star Ltd. issued balance shares to Public. The issue was fully subscribed.
Required :
Prepare the Balance Sheet of Star Ltd. as at 1 st April, 2009 after amalgamation has been
carried out on the basis of Amalgamation in the nature of purchase. (16 Marks)
Answer
Balance Sheet of Star Ltd. as at 1 st April, 2009
(Rs. in Lakhs)
Liabilities Amount Assets Amount
Share capital: Fixed assets:
Authorised share capital Goodwill (10+2+1) 13
50,00,000 Equity shares of Rs.10 each 500 Land and building 475
(275+200)
Issued and subscribed Plant and machinery 300
(175+125)
50,00,000 Equity shares of Rs.10 each 500 Investment (75+25) 100
2,50,000 Preference shares of Rs.100 250 Current assets, loans and
each advances:
(Of the above shares 35,00,000 equity Stock (175+125) 300
shares and all preference shares are
allotted as fully paid up for consideration
other than cash)
Reserves and surplus: Sundry debtors (125+150) 275
Securities premium (75 + 50 + 400 + 300) 825 Cash and bank (250+150-3) 397
Investment allowance reserve (25+25) 50 Bills receivables (25+25) 50
Secured Loans: Miscellaneous expenditure:

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15% Debentures (20+10) 30 Amalgamation adjustment 50

account
Unsecured loans: Nil
Current liabilities and provisions:
Acceptances (75+35) 110
Sundry creditors (135+60) 195
1,960 1,960
Working Notes:
1. Computation of Purchase Consideration Rs. in lakhs
Sun Ltd. Moon Ltd.
(a) Preference shareholders:
1,50,00,000/100 = 1,50,000 shares
Share capital = 1,50,000 shares × Rs.100 each 150
Securities premium = 1,50,000 shares × Rs.50 each 75 225
1,00,00,000/100 = 1,00,000 shares
Share capital = 1,00,000 shares × Rs.100 each 100
Securities premium= 1,00,000 shares × Rs.50 each 50 150
(b) Equity shareholders:
4,00,00,000/100 × 5 = 20,00,000 shares
Share capital = 20,00,000 shares × Rs.10 each 200
Securities premium=20,00,000 shares× Rs.20 each 400 600
3,75,00,000/100 × 4 = 15,00,000 shares
Share capital = 15,00,000 shares ×Rs.10 each 150
Securities premium = 15,00,000 shares ×Rs.20 each 300 450
Amount of purchase consideration 825 600

2. Calculation of number of debentures issued Rs. in lakhs

Sun Ltd. Moon Ltd.
10% Debentures of Rs.100 each 30 15
15% Debentures to be issued to maintain same amount of
interest:
Interest = Rs.30,00,000 x 10% = Rs.3,00,000

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

Rs.3,00,000
Number of 15% Debentures =  100 20
15
Interest = Rs.15,00,000 x 10%
Rs.1,50,000
Number of 15% Debentures =  100 10
15

3. Net assets taken over Rs. in lakhs

Sun Ltd. Moon Ltd.
Assets taken over
Land and building 275 200
Plant and machinery 175 125
Investments 75 25
Stock 175 125
Sundry debtors 125 150
Bills receivable 25 25
Cash and bank 150 100
1,000 750

Less: Liabilities taken over

Debentures 20 10
Sundry Creditors 135 60
Bills payable 75 35
230 105
Net assets taken over 770 645
Purchase consideration 825 600
(Goodwill)/ Capital Reserve (55) 45
Net goodwill (10)

4. Liquidation expenses of Sun Ltd. and Moon Ltd., Rs.2 lakhs and Rs.1 lakhs respectively
will be debited to Goodwill account in the books of Star Ltd.

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 PAPER – 5 : ADVANCED ACCOUNTING

Question 3
The Balance Sheet of Dee Limited on 31 st March, 2009 was as follows:
Balance Sheet as at 31 st March, 2009
Liabilities Amount Assets Amount
Rs. Rs.
Share capital: Fixed assets (at cost less 8,00,000
Authorised capital depreciation)
50,000, Equity shares of Debenture redemption fund
Rs.10 each 5,00,000 investment 2,00,000
Issued and subscribed capital Cash balance 2,50,000
25,000 Equity shares of Rs.10 Other current assets 10,00,000
each fully paid up 2,50,000
Reserves and surplus:
General reserve 2,75,000
Profit and loss A/c 1,00,000
Debenture redemption reserve 2,50,000
Secured loans:
12% Convertible debentures 5,00,000
(5,000 Debentures of Rs.100
each)
Other secured loans 2,50,000
Current liabilities and 6,00,000
provisions
Proposed dividend 25,000
22,50,000 22,50,000
At the General Meeting it was resolved to:
1. Pay proposed dividend of 10% in cash.
2. Give existing shareholders the option to purchase one share of Rs.10 each at Rs.15 for
every five shares held. This option was taken up by all the shareholders.
3. Redeem the debentures at a premium of 5% and also confer option to the
debentureholders to convert 50% of their holding into equity shares at a predetermined
price of Rs. 15 per share and balance payment to be made in cash.
Holders of 3,000 debentures opted to get their debentures redeemed in cash only while the
rest opted for getting the same converted into equity shares as per the terms of issue.
Debenture redemption fund investment realized Rs. 1,80,000 on sales.

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

You are required to redraft the Balance Sheet after giving effects to the right issue and
redemption of debentures. Also show the calculations in respect of number of equity shares
issued and cash payment. (16 Marks)
Answer
(a) Balance Sheet of Dee Ltd.
as at 31st March, 2009

Liabilities Amount Assets Amount

(Rs.) (Rs.)
Authorised Capital Fixed Assets (at cost
50,000 Equity shares of Rs.10 each 5,00,000 less depreciation) 8,00,000
Issued and subscribed capital Other current assets 10,00,000
37,000 Equity shares of Rs.10
each fully paid up 3,70,000
Reserves & surplus Cash balance (W.N.4) 60,000
General reserve (W.N.2) 4,80,000
Securities premium (W.N.3) 60,000
Profit and loss A/c 1,00,000
Secured loan
Other secured loan 2,50,000
Current liabilities and provisions 6,00,000
18,60,000 18,60,000

(b)
Calculation of number of equity shares issued:
I. Number of equity shares issued as right issue (25,000 shares ÷ 5) 5,000 shares
II. Debentureholders who opted for the scheme of conversion into equity shares
2,000 debentureholders opted for the scheme
Total value (2,000 debentures × Rs.100) Rs.2,00,000
Premium on redemption @ 5% Rs.10,000
Rs.2,10,000
50% of their holding converted into equity shares Rs.1,05,000

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Number of equity shares to be issued to debentureholders

 Rs.1,05,000  7,000 shares
= 
 Rs.15 
Total number of equity shares issued (5,000 + 7,000) shares 12,000 shares

(c) Cash payment to debentureholders:

Rs.
I. 3,000 Debentureholders preferred cash
Total cash paid to them 3,00,000
Premium on redemption @ 5% 15,000 3,15,000
II. 2,000 Debentureholders opted for the scheme
Total value 2,00,000
Add: Premium on redemption @ 5% 10,000
2,10,000
50% of their value converted into equity shares 1,05,000
Balance paid to debentureholders in cash 1,05,000
Total cash paid to debentureholders 4,20,000
Working Notes:
1. Debenture Redemption Reserve Account
Particulars Rs. Particulars Rs.
To Premium on redemption of 25,000 By Balance b/d 2,50,000
debentures (15,000 + 10,000)
To Loss on sale of Debenture 20,000
Redemption Reserve
Investment
To General Reserve 2,05,000
2,50,000 2,50,000
2. General Reserve Account
Particulars Rs. Particulars Rs.
To Balance c/d 4,80,000 By Balance b/d 2,75,000
By Debenture redemption reserve
(W.N.1) 2,05,000
4,80,000 4,80,000

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

3. Calculation of Securities Premium

Number of equity shares of Rs.10 issued at Rs.15 per share 12,000 shares
Security premium per share Rs.5
Total securities premium (12,000 shares x Rs.5) Rs.60,000
4. Cash Account
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Balance b/d 2,50,000 By Proposed dividend 25,000
To Equity shareholders 75,000 By Debentureholders 4,20,000
(5,000×15) (Rs.1,05,000+Rs.3,15,000)
To Sale of Debenture By Balance c/d 60,000
Redemption Reserve
Investment 1,80,000
5,05,000 5,05,000
Question 4
DM Ltd., Delhi has a branch in London. London branch is an integral foreign operation of DM
Ltd. At the end of the year 31 st March, 2009, the branch furnishes the following trial balance in
U.K. Pound:
Particulars £ £
Dr. Cr.
Fixed assets (Acquired on 1st April, 2005) 24,000
Stock as on April, 2008
1st 11,200
Goods from head office 64,000
Expenses 4,800
Debtors 4,800
Creditors 3,200
Cash at bank 1,200
Head office account 22,800
Purchases 12,000
Sales 96,000
1,22,000 1,22,000

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In head office books, the branch account stood as shown below:

London Branch A/c
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 20,10,000 By Bank A/c 52,16,000
To Goods sent to branch 49,26,000 By Balance c/d 17,20,000
69,36,000 69,36,000
The following further information are given:
(a) Fixed assets are to be depreciated @ 10% p.a on straight line basis.
(b) On 31st March, 2009 :
Expenses outstanding - £ 400
Prepaid expenses - £ 200
Closing stock - £ 8,000
(c) Rate of Exchange:
1st April, 2005 - Rs. 70 to £ 1
1st April, 2008 - Rs. 76 to £ 1
31st March, 2009 - Rs. 77 to £ 1
Average - Rs. 75 to £ 1
You are required to prepare:
(i) Trial balance, incorporating adjustments of outstanding and prepaid expenses,
converting U.K. pound into Indian rupees.
(ii) Trading and profit and loss account for the year ended 31st March, 2009 and the Balance
Sheet as on that date of London branch as would appear in the books of Delhi head
office of DM Ltd. (16 Marks)
Answer
(i) Trial Balance of London Branch as on 31 st March, 2009

Particulars U.K. Rate per Dr. (Rs.) Cr. (Rs.)

Pound U.K.
Pound
Fixed assets 24,000 70 16,80,000
Stock (as on 1 st April, 2008) 11,200 76 8,51,200
Goods from head office 64,000 - 49,26,000

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 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

Sales 96,000 75 72,00,000

Purchases 12,000 75 9,00,000
Expenses (4,800 + 400 – 200) 5,000 75 3,75,000
Debtors 4,800 77 3,69,600
Creditors 3,200 77 2,46,400
Outstanding expenses 400 77 30,800
Prepaid expenses 200 77 15,400
Cash at bank 1,200 77 92,400
Head office account - 17,20,000
Difference in foreign exchange
translation 12,400
92,09,600 92,09,600
Closing stock will be (£ 8,000 × Rs. 77) = Rs.6,16,000
(ii) Trading and Profit & Loss Account
for the year ended 31st March, 2009
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Opening stock 8,51,200 By Sales 72,00,000
To Purchases 9,00,000 By Closing stock 6,16,000
To Goods from head office 49,26,000
To Gross profit 11,38,800
78,16,000 78,16,000
To Expenses 3,75,000 By Gross profit 11,38,800
To Depreciation 1,68,000 By Profit due to foreign exchange
difference 12,400
To Net profit 6,08,200
11,51,200 11,51,200
(iii) Balance Sheet as on 31 st March, 2008
Liabilities Rs. Rs. Assets Rs. Rs.
Head office Fixed Assets 16,80,000
Balance 17,20,000 Less: Depreciation 1,68,000 15,12,000
Add: Net profit 6,08,200 23,28,200 Debtors 3,69,600

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Outstanding 30,800 Prepaid expenses 15,400

expenses
Creditors 2,46,400 Closing stock 6,16,000
Cash at bank 92,400
26,05,400 26,05,400
Question 5
(a) From the following information, you are required to prepare Profit and Loss Account of
Zee Bank Ltd., for the year ending 31 st March, 2009:
Rs. Rs.
Interest and Discount 44,00,000 Interest expended 13,60,000
Other Income 1,25,000 Operating expenses 13,31,000
Income on investments 5,000 Interest on balance with RBI 25,000
Additional information:
(a) Rebate on bills discounted to be provided for Rs. 15,000
(b) Classification of advances:
Rs.
Standard assets 25,00,000
Sub-standard assets 5,60,000
Doubtful assets not covered by security 2,55,000
Doubtful assets covered by security
For 1 year 25,000
For 2 years 50,000
For 3 years 1,00,000
For 4 years 75,000
Loss assets 1,00,000
(c) Make tax provision @ 35%
(d) Profit and Loss A/c (Cr.) Rs. 40,000.
(b) Dee Limited furnishes the following Balance Sheet as at 31 st March, 2008:

Rs.’000 Rs.’000
Liabilities
Share capital:
Authorised capital 30,00

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

Issued and subscribed capital:

2,50,000 Equity shares of Rs.10 each fully paid up 25,00
2,000, 10% Preference shares of Rs.100 each
(Issued two months back for the purpose of buy back) 2,00 27,00
Reserves and surplus:
Capital reserve 10,00
Revenue reserve 30,00
Securities premium 22,00
Profit and loss account 35,00 97,00
Current liabilities and provisions: 14,00
1,38,00
Assets
Fixed assets 93,00
Investments 30,00
Current assets, loans and advances (including cash and bank balance) 15,00
1,38,00
The company passed a resolution to buy back 20% of its equity capital @ Rs.50 per
share. For this purpose, it sold all of its investment for Rs.22,00,000.
You are required to pass necessary journal entries and prepare the Balance Sheet.
(8 + 8 = 16 Marks)
Answer
(a) Form ‘B’
Zee Bank Ltd.
Profit & Loss Account for the year ended 31 st March, 2009
Year ended
Particulars Schedule No. 31st March,
2009
I. Income:
Interest Earned 13 44,30,000
Other Income 14 1,25,000
Total 45,55,000

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II. Expenditure
Interest Expended 15 13,60,000
Operating Expense 16 13,31,000
Provisions and Contingencies (W.N.3) 10,17,050
Total 37,08,050
III. Profit/Loss
Net profit for the year 8,46,950
Profit brought forward 40,000
Total 8,86,950
IV. Appropriations:
Transfer to Statutory Reserve (@ 25% on Rs.8,46,950) 2,11,737.50
Balance carried forward to Balance Sheet 6,75,212.50
Total 8,86,950

Schedule 13: Interest Earned

Particulars Rs.
Interest and discount 44,00,000
Income on Investment 5,000
Interest on balance with RBI 25,000
Total 44,30,000
Working Notes:
1. Calculation of provisions on non-performing assets
Amount % of Provision
Particulars
Rs. Provisions Rs.
Standard assets 25,00,000 0.40 10,000
Sub-standard assets 
5,60,000 10 56,000
Doubtful assets not covered by security 2,55,000 100 2,55,000
Doubtful assets covered by security
For 1 year 25,000 20 5,000
For 2 years 50,000 30 15,000
For 3 years 1,00,000 30 30,000


It is assumed that the all sub-standard assets are fully secured.

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

For 4 years 75,000 100 75,000

Loss assets 1,00,000 100 1,00,000
5,46,000

2. Calculation of provision for tax

Tax = 35% of [Total income – Total expenditure (excluding tax)].
Tax = 35% of [Rs.44,30,000+Rs.1,25,000–(Rs.13,60,000+Rs.13,31,000+Rs.5,46,000+Rs.15,000)]
Tax = Rs.4,56,050
3. Total amount of provisions and contingencies
= Provision for non-performing assets + Provision for tax + Rebate on bills discounted
= Rs.5,46,000 + Rs.4,56,050 + Rs.15,000
= Rs.10,17,050
(b) In the books of Dee Limited
Journal Entries
Particulars Dr. Cr.
(Rs. in ’000)
(i) Bank Account Dr. 22,00
Profit and Loss Account Dr. 8,00
To Investment Account 30,00
(Being the investments sold at loss for the purpose of buy back)
(ii) Equity Share Capital Account Dr. 5,00
Premium payable on buy back Account Dr. 20,00
To Equity shares buy back Account 25,00
(Being the amount due on buy back)
(iii) Securities Premium Account Dr. 20,00
To Premium payable on buy back Account 20,00
(Being the premium payable on buy back adjusted against
securities premium account)

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 PAPER – 5 : ADVANCED ACCOUNTING

(iv) Revenue Reserve Account Dr. 3,00

To Capital Redemption Reserve Account 3,00
(Being the amount equal to nominal value of equity shares
bought back out of free reserves transferred to capital
redemption reserve account)
(v) Equity shares buy-back Account Dr. 25,00
To Bank Account 25,00
(Being the payment made on buy back)

Balance Sheet of Dee Limited as on 1 st April, 2008

(After buy back of shares)
Liabilities Rs.’000 Rs.’000
Share capital
Authorised capital: 30,00
Issued and subscribed capital:
2,00,000 Equity shares of Rs.10 each fully paid up 20,00
2,000 10% Preference shares of Rs.100 each fully paid up 2,00 22,00
Reserves and surplus:
Capital reserve 10,00
Capital redemption reserve 3,00
Revenue reserve 29,00
Profit and loss A/c (35,00 – 8,00) 27,00 69,00
Current liabilities and provisions 14,00
10,500
Fixed Assets 93,00
Current assets loans and advances (including cash and
bank balance) (15,00+22,00- 25,00) 12,00
10,500


Alternatively, ‘Securities Premium’ account may also be used for transfer to ‘Capital
Redemption Reserve Account.’

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

Question 6
(a) P, Q and R are partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance
Sheet as on 31st March, 2009 is as follows:

Liabilities Rs. Assets Rs.

Capital Accounts: Plant & Machinery 1,08,000
P 1,20,000 Fixtures 24,000
Q 48,000 Stock 60,000
R 24,000 1,92,000 Sundry debtors 48,000
Reserve fund 60,000 Cash 60,000
Creditors 48,000
3,00,000 3,00,000
They decided to dissolve the firm. The following are the amounts realized from the
assets:

Rs.
Plant and Machinery 1,02,000
Fixtures 18,000
Stock 84,000
Sundry debtors 44,400
Creditors allowed a discount of 5% and realization expenses amounted to Rs.1,500. A
bill for Rs.4,200 due for sales tax was received during the course of realization and this
was also paid.
You are required to prepare:
(a) Realization account
(b) Partners’ capital accounts
(c) Cash account. (6 Marks)
(b) Answer the following:
(i) Axe Limited began construction of a new plant on 1 st April, 2008 and obtained a
special loan of Rs.4,00,000 to finance the construction of the plant. The rate of
interest on loan was 10%.

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 PAPER – 5 : ADVANCED ACCOUNTING

The expenditure that were made on the project of plant were as follows:
Rs.
1st April, 2008 5,00,000
1st August, 2008 12,00,000
1stJanuary, 2009 2,00,000
The company’s other outstanding non-specific loan was Rs.23,00,000 at an interest
rate of 12%.
The construction of the plant completed on 31 st March, 2009. You are required to:
(a) Calculate the amount of interest to be capitalized as per the provisions of AS
16 “Borrowing Cost”.
(b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect
of the plant. (5 Marks)
(ii) Compute Basic Earnings per share from the following information:

Date Particulars No. of shares

1st April, 2008 Balance at the beginning of the year 1,500
1st August, 2008 Issue of shares for cash 600
31st March, 2009 Buy back of shares 500
Net profit for the year ended 31 st March, 2009 was Rs.2,75,000. (5 Marks)
Answer
(a) Realisation Account
Particulars Amount Amount
To Debtors A/c 48,000 By Creditors A/c 48,000
To Stock A/c 60,000 By Cash A/c (assets
realised):
To Fixtures A/c 24,000 Plant & Machinery 1,02,000
To Plant and machinery Fixtures 18,000
A/c 1,08,000
To Cash A/c (Creditors) 45,600 Stock 84,000
To Cash A/c(Sales Tax) 4,200 Debtors 44,400 2,48,400
To Cash A/c (realisation
expenses) 1,500

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

To Profit on realisation
P 2,040
Q 2,040
R 1,020 5,100
2,96,400 2,96,400

Partners’ Capital Accounts

Particulars P Q R Particulars P Q R
To Cash A/c 1,46,040 74,040 37,020 By Balance 1,20,000 48,000 24,000
(Bal. fig.) b/d

By Reserve 24,000 24,000 12,000

fund
By Realisation
A/c (Profit) 2,040 2,040 1,020
1,46,040 74,040 37,020 1,46,040 74,040 37,020

Cash Account

Particulars Amount Particulars Amount

(Rs.) (Rs.)
To Balance b/d 60,000 By Realisation A/c (Creditors) 45,600
To Realisation A/c (assets 2,48,400 By Realisation A/c (Expenses) 1,500
realised)
By Realisation A/c (Sales tax) 4,200
By Partners’ Capital Accounts
P 1,46,040
Q 74,040
R 37,020
3,08,400 3,08,400

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 PAPER – 5 : ADVANCED ACCOUNTING

(b) Total expenses to be capitalised for borrowings as per AS 16 “Borrowing Costs”:

Rs.
Cost of Plant (5,00,000 + 12,00,000 + 2,00,000) 19,00,000
Add: Amount of interest to be capitalised (W.N.2) 1,54,000
20,54,000

Journal Entry
Rs. Rs.
31st March, 2009 Plant A/c Dr. 20,54,000
To Bank A/c 20,54,000
[Being amount of cost of plant
and borrowing cost thereon
capitalised]

Working Notes:
1. Computation of average accumulated expenses
Rs.
1st April, 2008 12 5,00,000
Rs.5,00,000 ×
12
1st August, 2008 8 8,00,000
Rs.12,00,000 ×
12
1st January, 2009 3
Rs.2,00,000 × 50,000
12
13,50,000

2. Amount of interest capitalised

Rs.
On specific borrowing (Rs. 4,00,000 ×10%) 40,000
On non-specific borrowings (Rs. 13,50,000 – Rs. 4,00,000) × 12% 1,14,000
Amount of interest to be capitalised 1,54,000

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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2009

(b) (ii) Computation of weighted average number of shares outstanding during the
period
No. of equity Period Weights Weighted average
Date
shares outstanding (months) number of shares
(1) (2) (3) (4) (5) = (2) x (4)
1st April, 1,500
12 months 12/12 1,500
2008 (Opening)
1st August, 600 (Additional
8 months 8/12 400
2008 issue)
31st March,
500 (Buy back) 0 months 0/12 -
2009
Total 1,900

Net Profit or Loss for the period attributable to Equity Shareholders

Basic Earnings Per Share =
Weighted Average Number of Equity Shares outstanding during the period

Rs. 2,75,000
= = Rs.144.74
1,900 shares

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