18426compsuggans Pcc Advacc Chapter3

8/3/2019 18426compsuggans Pcc Advacc Chapter3

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C hap ter 3C ompa ny A cc ou nts

U n it 1 : P re pa ra tio n o f F in an cia l S ta tem en tsQ ue stion 1A com pany lodged a cla im to insu rance com pany fo r Rs. 5 ,00 ,000 in Septem ber, 2006 . The c la im w asse ttled in Februa ry , 2007 fo r Rs. 3 ,50 ,000 . H ow w ill you reco rd the short fa ll in c la im se ttlem en t in thebooks of th e c omp a ny .

(2 M a rk s) (N o vem be r, 2 00 7)Answer

J ou rn al E ntr yP ro fit a nd L os s A lc

T o In su ra nc e C om pa ny A lc[B ein g th e s ho rtfa ll in in su ra nc e c la im is th e lo ss , tra ns fe rre d toP ro fit a nd L os s Alc]Q ue stion 2The Ar ti cl e s o f Associat ion o f S L td . p ro vid e th e fo llo w in g:(i) Tha t 20% o f th e n e t p ro fit of e ac h y ea r s ha ll b e tra ns fe rre d to re se rv e fu nd .

D r.Rs.

1,50 ,000Rs.

1,50 ,000

( ii) Tha t an am oun t equa l to 10% o f e qu ity d iv id en d s ha ll b e s et a sid e fo r s ta ff b on us .(iii) T ha t the b alan ce a va ilab le fo r d is tribu tion sha ll be a pp lie d:

(a i n p a y in g 14% o n c umu la tiv e p re fe re n ce s ha re s .(b ) in pay ing 20% div idend on equ ity shares .(c ) one-th ird of th e b ala nc e a va ila ble a s a dd itio na l d iv id en d o n p re fe re nc e s ha re s a nd 2/3 as

add it io n a l e q u it y d iv id e n d.A fu rthe r co nd itio n w as im pose d b y th e artic les v iz . tha t the ba lance ca rried fo rw ard sha ll b e e qu al to 12 %o n pre fe ren ce shares a fte r m ak in g prov is ion s (i), ( ii) a nd (iii) m en tion ed a bove . T he co mp any ha s issue d13,000 , 14% c umu la tiv e p a rtic ip at in g p re fe re n ce s h ar es of R s. 1 00 e ac h fu lly p aid a nd 7 0,0 00 e qu ity s ha re so f Rs. 10 e ac h fu lly p aid u p.The pro fit fo r the yea r 2008 was R s. 10 ,00 ,000 and ba lance brought from p rev ious yea r Rs. 80 ,000 .P rov ide R s. 31 ,200 fo r deprec ia tion and R s. 80 ,000 fo r taxa tion be fo re m ak ing o the r app ropria tions .P re pa re P ro fit a nd L os s A cco un t -b elo w th e lin e.

(8 M a rk s)(N o vem be r, 2 00 8)Answer

To Deprec ia tion

P ro fit a nd L oss A cc ou nt -(b elo w th e lin e)fo r the year ended 2008

Rs.31 ,200 B y P ro fit

Rs.10,00 ,000


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To P rov is ion for in com e tax 80,000To Ne t pro fit c ld 8 188 1800

10 100 1000To Reserve fund 1,77 ,760 B y Balance b lfTo P roposed pre ference d iv idend 2 ,75 ,450 B y N e t pro fit b Id(1 ,8 2,0 00 + 9 3,4 50 )To P roposed equ ity d iv idend 3 ,26 ,900

( 1,4 0 ,0 0 0 + 1 ,8 6 ,9 0 0)To Bonus to e m p loyees (14 ,000 + 32,690

18,690)To Ba lance c ld 1 156 1000

9 168 1800W o rk in g N ote :

10 100 100080,000

8,88,800

9 168 1800

Balance o f a mou nt a vailab le fo r P re fe re nce a nd E qu ity sh are ho ld ers a nd B on us fo r E m plo ye esC r ed it S id eLess: D r. s id e [1 ,7 7,7 60 + 1 ,8 2,0 00 +1 ,4 0,0 00 +1 4,0 00 + 1 ,5 6,0 00 ]

Rs.9,68,8006 169 17602 199 1040

S up po se re ma in in g b ala nc e w ill b e = x1 1S up po se p re fe re nc e s ha re ho ld ers w ill g et s ha re fro m re ma in in g b ala nc e = x x - = - x3 3

2 2E qu ity s ha re ho ld ers w ill g et s ha re fro m re ma in in g b ala nc e = x x - = - x3 32 10 2B on us to E m plo ye es = -x x-= -x3 100 30

2 1 2Now , - x+ - x+ - x=2,99 ,0403 3 3032 x = 89,71 ,200

x = 8 9 , 7 1 , 2 0 0 / 3 2 = Rs.2 ,80 ,3501S ha re of pre fe re nce sh areh olde rs - R s. 2 ,8 0,3 50 x- = Rs.93,4503

S ha re of e qu ity sha re ho ld ers - R s.2 ,8 0,3 50 x ~ = Rs . 1 , 86 ,90032Bonus to em ployees - R s.2 ,80 ,350 x - = Rs.18,69030

Quest ion 3The M anag ing D irec to r o f A L td . is en titled to 5% o f the annua l ne t pro fits , as h is rem unera tion , sub jec t to am in im um o f R s.25 ,000 pe r m on th . The ne t p ro fits , fo r th is pu rpose , a re to be taken w ithout cha rg ingincom e-tax and h is rem une ra tion itse lf. Du ring the year, A Ltd . m ade net p ro fit o f R s .43 ,00 ,000 be forecha rg ing M D's rem unera tion , bu t a fte r charg ing p rov is ion for taxa tion of Rs.17 ,20 ,000 . C om puterem une ra tion payab le to the M anag ing D irec to r. (2 M arks) (June , 2009 )


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AnswerC alc ula tio n o f re mu ne ra tio n o f th e M an ag in g D ire cto rN et p ro fit a s pe r bo oksAdd : P ro vis io n fo r ta xa tio nA nn ua l p ro fit fo r th e p urp os e o f m an ag eria l re mu ne ra tio n

R s. in Lacs43.0017.2060.20

M a n ag in g D ir ec to r's R em u ne ra tio n @ 5% o f aboveM in im um re mu ne ra tion to be pa id to th e M an ag in g D ire cto r

= R s.2 5,0 00 p er m on th x 12

3.01

3.00H en ce , in th is ca se , rem une ra tion to be pa id to the M anag ing D ire c to r o f A L td . =Rs.3 ,01 ,000.


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(xv i) P rovision for Income-tax debited in P & LAIcC ash and bank balance on 1.4 .2006C ash an d b an k ba la nce on 31 .3 .20 07

Y ou a re re qu ire d to p rep are a ca sh flow sta tem en t a s p er A S-3 (R evise d).

6,0006,0008,000

(1 6 Ma rk s) (N ov em b er, 2 00 7)Answer

Cash F low S ta tem en t as per AS 3Ca sh flo ws from o pe ra tin g a ctiv itie s:N et p ro fit b efo re ta x p ro vis io nAdd: N o n c as h e xp en d it ur es :

Depreciat ionLoss on sa le o f asse tsI n te r e st e xpend it u re

R s. in la cs36 ,000

24 ,00048

12 ,000 36 ,04872 ,048

Less: N on ca sh incom eAm ortisa tio n o f cap ita l g ran t rece ived (10 )P ro fit on sa le o f inves tm en ts (120 )In te res t incom e from inves tm en ts (3 ,000 ) 31130

O pera ting p ro fit 68 ,918Less: In cre as e in w o rk in g c ap ita l (671290)

C ash from ope ra tions 1 ,628Less: In co me ta x p aid (5 1100)N e t cash used in opera ting ac tiv ities (3 ,4 72 )Ca sh flo ws from in ve stin g a ctiv itie s:

Sa le o f asse ts (222 - 48 ) 174Sa le of inves tm en ts (33 ,318+120) 33 ,438In te res t i ncom e f rom inves tm en ts 3 ,000Purchase of fixed asse ts (22 ,092 )E xpend itu re on cons truc tion work (411688)

N e t cash used in inves ting ac tiv itie s (27 ,168 )Ca sh flo ws from fin an cin g a ctiv itie s:

G ran ts fo r cap ita l p ro jec ts 18Long te rm borrow ings 55 ,866


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In te re s t p a idD iv id en d p aid

N e t c as h fro m fin an cin g a ctiv itie sN et in cre as e in c as hAdd : C ash and bank ba lance as on 1 .4 .2006C as h a nd b an k b ala nc e a s o n 3 1.3 .2 00 7Q ue stio n 3

F rom the fo llow ing sum marised C ash account o f S Ltd ., p repare cash flow sta tem ent fo r the yearended 31 st M arch , 2009 in accordance w ith A S 3 (re vis ed ) u sin g d ire ct m e th od .

(13 ,042)(10 ,202)

2 ,0006,000

S um m aris ed C as h A cc ou nt(Rs .OOO)

50 P aym ent to supp lie rs300 Purchase o f f ix e d a s se ts

2 ,800 O verhead expenses100 W ages and sa la ries

T a x pa idD i vid e nd pa idB a nk lo anC l o si ng b a la n ce

Open in g ba la n ceIssue o f s h ar e c a pit alR e ce iv ed from c us tom ersSa le o f f ix e d a s se ts

Answe rC ash F low S ta tem en t fo r the year ended 31 .3 .2009

C as h flo w fro m O pe ra tin g A ctiv it ie sC ash re ce iv ed fro m c usto me rsLess : C as h p aid to s up plie rs

C ash pa id fo r ove rhead expensesC ash pa id fo r w ages and sa la r ie s

Less : In com e tax pa idN et ca sh g en era te d fro m O pe ra tin g A ctiv itie sC as h flo w fro m In ve stin g A ctiv it ie sS ale o f fix ed a ss etsLess : P urch as e o f fix ed a ss ets

(Rs .OOO)2,0002002001002505 0

300150

3,250(8 Ma r ks )( June ,2009 )

R s. in '000

2,8002,000200

_jQQ 2,300500250

250

100200


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N et c as h u se d in In ve stin g A ctiv itie s (100)

C as h flo w fro m F in an cin g A ctiv it ie sR ec eiv ed fro m iss ue o f s ha re ca pita lLess : P aym en t o f bank loan

P ay m en t o f d iv id en dN et c as h u se d in F in an cin g A ctiv itie sN et in cre as e in c as h a nd e qu iv ale ntsAdd : C ash and equ iva len ts a t th e beg inn ing o f the yea rC ash and equ iva len ts a t th e end o f the yea r

Q ue stio n 4B a la nc e S he et o f R am an L td . is g ive n b elo w:

30030050

i l iQl1002Q .150

(R s. in '00 0)L iab ilit ies 31.3 .08 31.3 .09 Asse ts 31 .3 .08 31 .3 .09S h a re c a pit al 500 500 Land & bui lding 300 3009% D eben tu res 200 160 Mach ine ry 1 6 4 180Sundry cred ito rs 230 2 1 6 S tock-in -trade 200 2 2 8P ro fit a nd L oss A le 4 0 5 4 Sundry deb to rs 170 1 6 2D e pre cia tio n fu nd 8 0 8 8 C ash and b ank ba lances 120 110C on tingency reserve 140 110 C urren t Inves tm en t 2 6 2 190Ou ts ta n din g e x pe n se s _ _ _ ] Q ~ P re -p a id e x pe n se s 4 _ 6

1,220 1 , 1 7 6 1,220 1 , 1 7 6T he fo llo w in g in fo rm a tio n is fu rn is he d:(i) O ne o ld m ach ine ry wh ich has o rig ina l cost o f Rs.30 ,000 w as so ld fo r R s.10 ,000 . The

a cc um u la te d d ep re cia tio n in re sp ec t o f th e sa id m ac hine ry am ou nts to R s.1 6,0 00.(ii) O ne new mach ine ry was acqu ired fo r R s .4 6 ,000 .(iii) 9% D eben tu res w ere redeem ed a t a discount o f 4% o f th eir fa ce v alu e.(iv ) D iv idend at 1 2 % w as decla red and paid in cash .(v) Incom e-tax liab ility o f R s.3 0,0 00 p aid w as d eb ited to c on ting en cy re se rve .Y ou a re requ ired to prepa re C ash F low S ta tem en t in acco rdance w ith the Accoun ting S tanda rd 3 .

(16 M arks ) (N ove mb er, 2 009 )


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Answe rC ash F low S ta tem en t o f R am an L td .fo r th e year ended 31 st M arc h, 2 00 9

Rs. R s.A . C a sh flo w fro m O Q era tin g A ctiv itie s

N et p ro fit b efo re ta x (R s. 5 4,0 00 - R s. 4 0,0 00 + Rs . 6 0 ,000 ) 74 ,00 0Add : A d jus tm en t fo r d e p rec ia tion (W .N .1 ) 2 4 ,0 00

In te res t on de ben tu re s" (R s.1 ,60 ,00 0 x 9% ) 14,400Loss on sa le of m ach in e ry (W .N .2 ) 4 1000

1,16 ,400Less : P ro fit o n re de m ptio n o f d eb en tu re s ( 1 1 600 )

1 ,14 ,800Less : In co me ta x p aid (3 01000 )O pe ra ting p ro fit be fo re changes in W o rk ing C ap ita l 84 ,80 0Add : In c rea se in o u ts tan d ing e xpenses 18 ,0 00

D ec rea se in sund ry deb to rs 8 ,0 00D e cre as e in c urre nt investment" 721000 981000

1,82 ,800Less : D ec rea se in sund ry c re d ito rs 1 4 ,0 00

In c re ase in s tock in trad e 28 ,0 00In c re ase in prepa id expense s 21000 (441000 )

N et c as h fro m o pe ra tin g a ctiv itie s 1,38 ,800B . C a sh flo w fro m In ve stin g A ctiv itie s

S a le o f o ld m ach ine ry 10 ,000Pu rch ase o f m ach in e ry (461000 )

N et c as h u se d in in ve stin g a ctiv itie s (36 ,000)

C . C ash flow from F inanc ing A c tiv itie sR ede mp tion o f deb en tu res (R s. 4 0,0 00 - R s.1 ,6 00 )P ay m en t o f d iv id en dP ay me nt o f in te re st o n d eb en tu re s

(38 ,400)(60 ,000)(14 ,400)

* It is assumed that debentures were redeemed at the beginning of the year.** It is assumed that current investments cannot be liquidated within short duration of 3 months, therefore ithas not been considered as part of cash and cash equivalents.


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N et c as h u se d fin an cin g a ctiv itie s (1 ,12 ,800)N e t d ec rease in cash and cash equ iva len ts du rin g the yea r (10 ,000 )C ash and cash equ iva len ts a t the beg inn ing o f the yea r 1 )0 1000C ash a nd cash e qu iva len ts a t the end of the yea r 1 110 1000

W o rk in g N ote s:1 . D ep rec ia tion F und

Rs. R s.To M ach ine ry A lc 16 ,000 By Ba lance b Id 80 ,000To Ba lance cl d 88 ,000 By P ro fit and Loss A lc 24,000

( C ur re n t y e ar d e pr ec ia tio n )1 104 1000 1 104 1000

2 . M ach ine ry A lcRs. R s.

To Ba lance b Id 1 ,64 ,000 B y D ep rec ia tion Fund 16 ,000To Bank 46 ,000 B y Bank 10 ,000

B y P ro fit and loss A lc (lo ss on sa le ) 4 ,000B y Ba lance cl d 1 180 1000

2 110 1000 2 110 1000


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U nit 3 : P ro fit o r L os s P rio r to In co rp ora tio nQues t i on1

T h e p a rtn e rs h ip o f Saksh i Agencies decided to conve rt the pa rtne rsh ip in to P riva te L im itedC ompany nam ed Rameshw ar C om pany Pv t. L td . w ith e ffec t from t January , 2008. Thecons ide ra tion w as ag reed a t R s.2 ,34 ,00 ,000 based on firm 's B alance S hee t as on 31 st December ,2007 . H ow eve r, due to som e procedu ra l d ifficu lties , the com pany cou ld be inco rpo rated on ly on1 st April, 2008 . M eanwh ile , the bus iness was con tinued on beha lf o f the com pany and thec ons ide ra tio n w as s ettle d o n th at d ay w ith in te re st a t 12% p .a. The sam e books o f a cc ou nts w erecontinued by the com pany, w h ich c losed its accoun ts fo r the firs t tim e on 31 st M arch , 2009 andp re pa re d th e fo llo win g s um m ariz ed P ro fit a nd Lo ss a cco un t:

R s. R s.4 ,68,00,000o C ost o f goods sold 3 ,27 ,60,000 B y Sa les

To Sala ries 23 ,40 ,000To D eprec ia tion 3,60,000To Adve rtisem ent 14 ,04 ,000To D iscoun t 23 ,40 ,000To Manag ing D irec to r's 1 ,80 ,000

remunerat ionTo M isce llaneous office expenses 2,4 0 ,000To O ffice cum show room ren t 14 ,40 ,000To In te rest 19 ,02 ,000To P ro fit 3 8 13 4 10 0 0

4 16 8 10 0 10 0 0 { 6 8 IO O , O O OThe com pany 's on ly bo rrow ing was a loan o f R s.1 ,0 0,0 0,0 00 a t 12% p .a. to pay the pu rchasecons ide ra tion due to the firm and fo r work ing capita l requ irem en ts . The com pany was ab le todoub le the m on th ly average sales o fthe firm from i= A pril, 2 00 8, bu t the sa la rie s treb le d fro m th eda te. It had to occupy add itiona l space from t= Ju ly , 2008 fo r wh ich ren t was R s.60 ,000 permon th .Prepare a Pro fit and Loss accoun t in co lum nar fo rm apportion ing costs and revenue be tw een pre -in co rp ora tio n a nd p os t-in co rp ora tio n p erio ds .

Answe r( 8 Marks ) (June ,2009 )

P ro fit and Loss A ccoun t fo r the year ended 31 .3 .0 9To ta l R a tio P re P os t To ta l R a tio P re P o s t(R s .) (R s .) (R s .) (R s .) (R s .) (R s .)

T o S a la r ie s 2 3 ,4 0 ,0 0 0 1 :1 2 1 ,8 0 ,0 00 2 1 ,6 0 ,0 0 0 B y Gros sp ro fit 1 ,4 0 ,4 0 ,0 0 0 1 :8 1 5 ,6 0 ,0 0 0 1 ,2 4 ,8 0 ,0 0 0

To D ep re c ia t io n 3 ,6 0 ,0 0 0 1 :4 7 2 ,0 00 2 ,8 8 ,0 0 0 B y G oo dw ill 3 8 ,0 00( b a l. f ig . )

T o A dve rtisem e n t 1 4 ,0 4 ,0 0 0 1 :8 1 ,5 6 ,0 00 1 2 ,4 8 ,0 0 0To D isco un t 2 3 ,4 0 ,0 0 0 1 :8 2 ,6 0 ,0 0 0 2 0 ,8 0 ,0 0 0To M an a g in g


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d i rec to r ' srem u n e ra tio n 1 ,8 0 ,0 0 0 P o s t 1 ,8 0 ,0 0 0

To O ff ice cumsh ow ro om re n t 1 4 ,4 0 ,0 0 0 A c tu a l 1 ,8 0 ,0 0 0 1 2 ,6 0 ,0 0 0

To M is ce lla n e o u so ff ice e xp e n se s 2 ,4 0 ,0 0 0 1 :4 4 8 ,0 0 0 1 ,9 2 ,0 0 0

To In te re s t 1 9 ,0 2 ,0 0 0 A c tu a l 7 ,0 2 ,0 0 0 1 2 ,0 0 ,0 0 0To N e t p ro f it (8 a l. fig .) -- 38 , 7 2 . 0 00 ------ --------1 5 ,9 8 ,0 0 0 1 2 4 ,8 0 ,0 0 0 1 5 ,9 8 ,0 0 0 1 2 4 ,8 0 ,0 0 0Note : S ince the pro fits p rio r to inco rpo ra tion a re in the negative , they w ou ld :

(a ) e ithe r be cons ide red as a reduction from any cap ita l reserve acc ru ing in re la tion to thetra ns ac tio n, o r

( b ) b e tre ate d a s g oo dw ill.W o rk in g N o tes :(1 ) C alcu la tio n o f T im e R atio

P re -In co rp ora tio n P erio d1 st Janua ry , 2008 to 31 st M arc h, 2 00 8(3 M o nth s)3 :

P o st- In c or po ra tio n P e rio d1 st April, 2008 to 31 st M arc h, 2 00 9(1 2 M o nth s)12

1 : 4(2 ) C alcu la tio n o f S ale s R atio

P re -In co rp ora tio n P erio d3 M on th s3 x 13 :1 :

P o st- In c or po ra tio n P e rio d1 2 M o nth s12 x 2248

(3 ) C alcu la tio n o f S ta ff S ala ry R atioP re -In co rp ora tio n P erio d3 M on th s3 x 13 :1 :

P os t-In co rp ora tio n P erio d1 2 M o nth s12 x 33612

(4 ) C a lc u la tio n o f In te re stP re -In co rp ora tio n P erio d2 ,34 ,00 ,000 x 3 /12 x 12 /100= Rs.7 ,02 ,000

(5 ) C alc ula tio n o f R en t1 Ju ly 2008 to 31 st M arc h, 2 00 9T ota l a dd ition al re ntR em ain in g re nt

P os t-In co rp ora tio n P erio d1 ,0 0,0 0,0 00 x 1 2/1 00= Rs.12,00 ,000

= 9 M on th s= 6 0 , 0 0 0 x 9 = R s . 5 , 4 0 , O O O= 1 4 , 4 0 ,0 0 0 - 5 , 4 0 , 0 0 0 = R s . 9 , O O , O O O


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R en t pe r m on th = 9,00 ,000 = Rs . 60 , 00015 p er m o nth

P re -In co rp ora tio n P erio d re nt = 60 ,000 x 3 = 1 180 1000P os t-In co rp ora tio n P erio d re nt = 60 ,000 x 12 = 7,20 ,000

A dd itio na l re nt = 5AO I00012 160 1000(6 ) C alc ula tio n o f G ro ss P ro fit

T ra din g A c co u ntRs. R s.

To C os t of goods so ld 3 ,27 ,60 ,00 0 8 y S a les 4 ,68 ,00 ,00 0To G ross p ro fit (8a l. fig .) 1 140 140 1000

4 168 100 1000 4 168 100 1000


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U nit 4Ques t i on1X C o . Ltd . has its share cap ita l d iv ided in to equ ity shares o f Rs.10 each . On 1.10 .2008 it g ran ted20 ,000 em ployees' s tock op tion a t R s.50 per share , when the m arke t p rice w as Rs.120 per share . Theoptions were to be exerc ised between10 th D ecem ber, 2008 and 31 st M arch , 2009 . The em ployees exercised the ir op tions fo r 16 ,000 shareson ly and the rem ain ing op tions lapsed . The company c loses its books on 31 st M arch every year.S how Journa l en tries (w ith narra tion ) as w ou ld appear in the books o f the company up to 3 1 st March ,2009 .

(4 m arks) (N ovem ber, 2009 )Answe r

In th e books o f X C o . L td .J o ur na l E n tr ie s

Rs. R s.1 .1 0.2 00 8 E mp lo yee com pen sa tion exp ense A lc D r. 14 ,00 ,000

T o E m plo ye e s to ck o ptio n o uts ta nd in g A lc 14,00 ,000(B e in g the g ran t o f 20 ,0 00 s tock op tion s to em ployees a tR s.50 w hen m arke t p rice is R s.120 )

10 .12 .08 B ank Alc D r. 8 ,00 ,00 0to Em p lo yee s tock op tion ou ts tand ing A lc D r. 11 ,20 ,00031.3 .09 T o E qu ity s ha re c ap ita l Alc 1,60 ,000

T o S ec uritie s p re m iu m A lc 17,60 ,000(B e in g sha res issued to th e em ployee s aga in s t the op tion sves te d to th em in pu rsuance o f Em p loyee S to ck O p tionP l an )

3 1 .3 .09 Em plo yee s tock op tion ou ts tand ing A lc D r. 2 ,80 ,00 0T o E m plo ye e c om pe ns atio n e xp en se A lc 2,80 ,000

(B e in g reve rse en try p assed fo r la pse o f 4 ,0 00 s tockopt ions)

3 1 .3 .09 P ro fit and Loss A lc D r. 11 ,20 ,000T o E m plo ye e c om pe ns atio n e xp en se A lc 11,20 ,000

(B e in g tra ns fe r o f em ployee com pensa tion tran s fe rred toP ro fit a nd L os s A cc ou nt)


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U nit 5 : U nd erw ritin g o f S haresQ ue stio n 1W h at d o y ou u nd ers ta nd b y th e te rm 'F irm U nd erw ritin g'?

(2 M a rk s) ((N o vem be r, 2 00 7)Answe r'F irm underw riting ' s ign ifies a defin ite com m itm en t to take up a specified num ber o f sha res irrespec tive ofthe num ber o f sha res subscribed fo r by the pub lic . In such a case , un less it has been o the rw ise agreed , theunderw rite r's liab ility is dete rm ined w ithou t tak ing into accoun t the num ber of sha res taken up 'firm ' by h im ,i.e . th e un de rw rite r is o blig ed to ta ke u p:1 . the number o f sha res he has app lied fo r 'firm '; and2. the number o f sha res he is ob liged to take up on the bas is o f the underw riting ag reemen t.Q ues tion 2A lbe rt L td . issue d 5 0,0 0,0 00 E qu ity shares o f Rs.10 each . The who le issue was underw ritten by A , Band C a s b elo w :

A 15,00 ,000 sharesB 25 ,0 0 ,0 0 0 sha re sC 10 ,0 0 ,0 0 0 sha re s

A pp lic atio ns w ere re ce iv ed fo r 4 8,5 0,0 00 s ha re s o f w hich th e m arked a pp lica tio ns w ere a s fo llo ws:A 12,00 ,000 sharesB 25 ,0 0 ,0 0 0 sha re sC 8 ,5 0 ,0 0 0 sha re s

C a lc ula te th e n um be r o f sh ares to b e ta ken u p by the un de rw rite rs .

G r os s L ia bilit y ( 3:5 :2 )Less : Marked app li ca t io n s

(4 M arks) (M ay, 2 008 )

(Numbe r o f shares)A B C

15 ,00 ,000 25,00 ,000 10 ,00,00012 ,00 ,000 25,00 ,000 8 ,50 ,0003 ,00 ,000 N il 1 ,50 ,00090 ,000 1 ,50 ,000 60 ,000

2 ,10 ,000 (1 ,50 ,000 ) 90 ,00090 ,000 1 ,50 ,000 60 ,000

1,20,000 N il 30,000

Answe r

Less : U nma rk ed a pp lic afio ns " in 3 :5 :2 ra tio

Less : Surp lus o f B a lloca ted to A & C in 3:2 ra tioN um ber o f sha res to be taken up by the underw rite rs

*48,50,000 shares - (12,00,000 + 25,00,000 + 8,50,000) =3,00,000 shares.


15/39

Q uestion 3C o ns id er th e fo llo win g d ata p erta in in g to th re e u nd erw rite rs , A ja y, S am a y a nd V ija y:

Par t icularsSha res unde rwr it tenMa r ked app li cat ion

Ajay8,0006,000

Answer

Part icularsSha re s unde rw r it te nLess : 1 9 ,8 0 0* U nma rk e d

a pp lic atio ns ( in th e r atio 1 :2 :3 )

Ajay8,000

3,3004,7006,000

(1 ,300)Less : Ma r ked app li ca ti on s

Less : Surp lus o f A jay 's sha re (in ther a tio 2 :3 )

F i na l l iab i li ty1 ,300

N il

Samay V ijay16 ,000 24 ,0008,000 11,000

(2 M a rk s) (N ov em b er, 2 00 8)

( in sha res )Samay V ijay Tota l16 ,000 24 ,000 48 ,000

6 ,600 9 ,900 19 ,8009 ,400 14 ,100 28 ,2008 ,000 11 ,000 25 ,0001 ,400 3 ,100 3 ,200

520 780 N il880 2 ,320 3 ,200

Q uestion 4A com pany ente red in to an underw riting agreem ent w ith M r. B fo r 60% o f th e is su e o f Rs.50,00,000,15% debentu res , w ith a f irm unde rw r it in g o f R s.5 ,00 ,000 . M arked app lica tions were in respec t o fd eb en tu re s w orth R s.3 5,0 0,0 00 . C o mp ute lia bility o f M r. B a nd co mm ission payab le to h im .

(2 M arks) (June , 2009 )Answer

Rs.30,00 ,000r os s L ia b ility ( R s.5 0 ,0 0 ,0 0 0 x 60%)

Less : M arked app lica tions R s.35 ,00 ,000 w hich is m ore than theL ia bility b ut cre dit w ill n ot b e g iv en m ore th an g ro ss lia bilityNe t l iab i li tyAdd : F irm unde rw r it in gTo t a l l iab i li ty

30 ,00 ,000N IL

5,00 ,0005,00 ,000

* To ta l U nm arked app lica tions = To ta l app lica tions rece ived - T o ta l m a rked app lica tionsi.e . 4 4,8 00 - 2 5,0 00 = 1 9 ,8 0 0 u nm a rk e d a p plic a tio n s.


16/39

C a lc ula tio n o f u nd er wr it in g c omm is sio n = 30,00,000 x 2 .5 =Rs.75 ,000100U nderw riting Com mission payab le @ 2.5% * 75,000

* Section 76 of the Companies Act provides that underwriting commission is provided only at a rateauthorized by the articles of the company, not exceeding 2.5% of the issue price of debentures. Therefore,in the above solution, underwriting commission has been calculated at 2.5%.


17/39

U nit 6 : R ed em p tio n o f D eb en tu re sQ ue stion 1A com pany purchased its ow n 11% deb en tu res in the o pe n m arke t fo r R s. 5 0,0 0,0 00 (cum -in te res t). T hein te res t am ount inc luded in the purchase p rice is Rs. 1 ,50 ,000 . The face va lue o f t he d eb e ntu re sp urc ha se d is R s. 5 2,0 0,0 00 . T he c om pa ny c an ce lle d th e d eb en tu re s s o p urc ha se d.P as s J ou ma l E ntrie s in th e b oo ks of th e c om p an y fo r p urc ha se a nd imm e dia te c an ce lla tio n of debentu res .

(4 M a rk s) (N o vem be r, 2 00 7)Answer

J o ur na l E n tr ie s1 1% O w n D eb en tu re s A lcDe b en tu re in te re st A lc

T o B ank[B ein g p urc ha se o f ow n d eb entu res fro m th e m arke t]

D r. 48 ,50 ,000D r. 1 ,50 ,000

50,00 ,000

D r. 52 ,00 ,00048,50 ,0003,50,000

1 1% De b en tu re s A lcTo 11% Own De be n tu re s A lcT o C a pita l R e se rv e

[B ein g p ro fit o n c an ce lla tio n o f d eb en tu re s tra ns fe rre d to C a pita lReserve A l c ]Q ue stion 2On 1 st Apr i l , IX ' purchased 12% d eb entu res in IM 'L td . fo r R s.6 ,50 ,00 0. T he face va lue of t he s e deben tu re sw ere R s.6 ,00 ,00 0. In te re st on de be ntu re s fa lls d ue o n 30 th June and 31 st D ecem ber. C om pute the cos t o facquis i t ion of debentu res . (2 M a rk s) (N o vem be r, 2 00 8)AnswerC om p uta tio n o f c os t o f a cq uis itio n o f d eb en tu re s:C um - in te re st p urc ha se p ric e o f d eb en tu re s

Rs.6,50 ,000

Less : In te res t from the las t da te o f paym en t o f in te res t to the da te o f purchase i.e . fo r 33 12m o n th s 6 ,0 0 ,0 0 0x1 2 x 100 18,000

C os t o f d eb en tu re s a t th e tim e o f a cq uis itio nQuest ion 3A rjun L td . issu ed 1 0,0 00 (N os.) o f 12% debentu res o f R s.100 each in A pril, 2007 . In te res t is payab leon 30 th S eptem ber and 31 st M arch every year. The com pany pu rchased 2,000 deben tu res a t R S.104pe r debentu re on cum -in te res t bas is on 1 .7 .2008 . The ow n debentu res w ere cance lled on 30 .9 .2009 .S how Jou rna l en tries tha t a re requ ired to be passed fo r pu rchase of ow n debentu res , in te res t on ow nd eb en tu re s a nd fo r c an ce lla tio n o f t ho s e deben tu re s .

6,32 ,000

(2 M arks) (N ove mb er, 2 009 )


18/39

Answe rJ ou rn a l E n tr ie s

Rs. R s.1 .7 .20 08 12% Ow n D eben tu re s A lc D r. 2 ,02 ,00 0

In te re st o n o wn D eb en tu re s A / c D r. 6 ,0 00To B ank A /c 2,08 ,000

(B e in g pu rch ase o f 1 2% ow n deben tu re o n cumin te re s t b a s is )

3 0 .9 .20 08 12% D eben tu re In te res t A / c D r. 60 ,000To B ank A /c 48 , 000T o In te re st on O wn D eb en tu res A lc 12 , 000

(B e in g in te re s t on D eben tu res in c lu d ing ow nd eb en tu re s fo r 6 m on th s i.e . u pto 3 0.9 .2 00 8)





3 0 .9 .20 09 12% D eben tu re s A lc D r. 2 ,00 ,00 0L os s o n c an ce lla tio n o f 1 2% D eb en tu re s A / c D r. 2 ,0 00

To 12% O wn D eben tu re s A / c 2,02 ,000(B ein g c an ce lla tio n o f 2 ,0 00 o wn d eb en tu re s)

3 0 .9 .20 09 P ro fit and Loss A / c D r. 2 ,0 00To L oss on c ance lla tio n o f 1 2% D eben tu res 2 ,0 00

(B ein g lo ss o n c an ce lla tio n tra ns fe rre d)


19/39

U nit 7 : Am a lg am a tio n a nd R ec on stru ctio nQ ues tion 1P and Q have been ca rry ing on sam e business independen tly . D ue to com pe tition in the m arke t, theydecided to am algam ate and fo rm a n ew co mp an y ca lle d PQ Ltd.F ollo win g is th e B ala nce S he et o f P and Q a s a t 3 1.3 .2 00 7:L iab ilit ies P Q Assets P Q

Rs. R s. R s . R s.C ap ita l 7 ,75 ,000 8,55,000 Plant & mach ine ry 4 ,85 ,000 6 ,14 ,000C urrent liab ilit ies 6,23 ,500 5,57,600 B u ild ing 7 ,50 ,000 6 ,4 0 ,000

C u rr en t a s se ts 1163 1500 1158 160 013 1981500 14112 1600 131981500 14112 160 0

F ollo w in g a re th e a dd itio na l in fo rm a tio n:(i) The au tho rised cap ita l o f the new com pany w ill be Rs .25 ,00 ,000 d iv ided in to 1 ,00 ,000 equ ity

shares o f RS .2 5 e ac h.(ii) L ia bilitie s o f P inc ludes R s.50 ,000 due to Q fo r the p urch ase s m ad e. Q made a prof i t o f 20% on

sa le to P .(iii) P has goods pu rchased from Q , cos t to h im Rs.10 ,000 . Th is is inc luded in the C urren t asse t o f P

as a t 31 st Ma rc h, 2 00 7.(iv ) The assets o f P and Q are to be reva lued as under:

P QRs. R s .

P la n t a n d ma c hin e ryBui ld ing

5,25,0007,75,000

6,75,0006,48,000

(v) The purchase consideration is to be discharged as under:(a ) Issue 24 ,000 equ ity sha res o f Rs. 25 e ach fu lly p aid u p in th e p ro po rtio n o f the i r pro f itab i li t y

in th e p re ce din g 2 years.(b ) P ro fits fo r th e p re ce din g 2 ye ars a re g ive n b elo w:

P QRs. R s .

1 st yea r 2 ,62 ,800 2,75,125lind yea r 2112)00 2149 187 5Tota l 4) 51000 5125 100 0

(c) Issue 12 % p re fe re nc e s ha re s o f R s.10 each fu lly pa id up a t pa r to p rov ide incom e equ iva len tto 8% re tu rn o n ca pita l e mp loy ed in th e bu sine ss a s on 31 .3.2 007 a fte r re va lu atio n o f assetso f P and Q respect ively.


20/39

Y ou are re quire d to :(i) C om pu te the am ount o f equ ity and p re fe rence sha res issued to P and Q .(ii) P repa re the B alance Sheet o f P & Q L td . imm e dia te ly a fte r am alg am a tio n.

(1 6 M arks) (M ay, 2 00 7)Answer(i) C alcu la tion o f am ount o f equ ity shares issued to P and Q

P ro fits o f P QRs. R s.

1 st year 2 ,62 ,800 2 ,75 ,125l ind year 2 ,12 ,200 2,49 ,875Tota l 4 ,75 ,000 5,25 ,000N o . o f shares to be issued = 24 ,000 equ ity shares in the proportion o f the p reced ing 2 yea rs 'prof itabil i ty24000 x 475 /1000 11 ,400 equ ity sha res24000 x 525 /1000 12,600 equ ity sha res

C alcu lation o f am oun t of 12% Prefe rence shares issued to P and QP Q

Rs. R s.Cap ita l em ployed (Re fer w o rk ing no te 1 ) 8 ,40 ,000 9 ,24 ,0008% re turn on cap ita l em ployed 67,200 73 ,920

. [ 100] Rs . 5 ,6 0 ,0 0 012 % P refe ren ce sh are s to b e Issu ed 67,200 x12[ 73 920 x 100] Rs . 6 ,1 6 ,0 0 0, 12

Tot al P u rc h as e Co n sid e ra tio np Q

Rs. R s.Equ ity Shares 2 ,85 ,000 3 ,15 ,0001 2% P re fe re nc e s ha re s 5,60 ,000 6 ,16 ,000Tota l 8 ,45 ,000 9 ,31 ,000


21/39

(i i)Liabilit iesA u th oris ed s ha re c ap ita l:1 ,0 0,0 00 E qu ity S ha re o f R S.2 5 e ach

B ala nc e S he et o f P Q L td . (a fte r a m alg am a tio n)

Is su ed a nd s ub sc rib ed s ha re c ap ita l:24 ,000 E qu ity S hares o f R S.25 each1 ,17 ,600 12% P re fe rence shares o fR s.1 0 e ac h(A ll o f th e e qu ity an d p re fe re nce sh aresh av e b ee n is su ed fo r c on sid era tio nothe r tha n ca sh )C urrent L iab ilit ies (WN . 3 ) 11 ,31 ,100

29,07,100

Rs. Asse ts Rs.F ix e d a s se ts :

25,00,000 G oodw ill (WN .1 ) 14 ,000P lan t and M ach ine ry 12 ,00 ,000

6 ,00 ,000 Bu ild ing 14 ,23 ,00011,76,000 Cu rr en t As se ts (W .N .2 ) 2 ,70 ,100

29,07,100W o rk in g N o te s:1 . G oodw ill

P la nt a nd ma ch in eryBuildingC u rr en t a ss ets

P QRs. Rs.

5 ,25 ,000 6 ,75 ,0007 ,75 ,000 6 ,48 ,0001,63,500 1 ,58 ,60014 ,63 ,500 14 ,81,6006 ,23 ,500 5 ,57 ,6008 ,40 ,000 9 ,24 ,0008 ,45 ,000 9 ,31 ,000

5 ,000 7 ,00012,000

2,00014,000

Less : Cu r ren t l ia b il it ie sN et a ss ets ta ke n (c ap ita l e m plo ye d)Less : Pu rc h as e c o ns id e ra tio nGoodwi l lT ot al p urc ha se d g oo dw illAdd: U nrea lised pro fit o f R s.10 ,000 @ 20% = R s.2 ,0 00 is a dju ste d fro mcurrent assets and from goodw ill (s ince P & LA Ic is no t g iven )To ta l G o o dw ill

2 . C u rren t A sse ts

B a la nc es b efo re amalg ama tio nLess: L iabilities o f P due to Q

P QRs. Rs.

1,63 ,500 1 ,58 ,60050,000

Less: Unrea lised P rofit on s tock i.e .R s.1 0 ,000 x 20% 2,000


22/39

Tota lG ra nd T ota l

3 . C urren t L iab ilit ies

1 1 6 1 1 5 0 0 1 1 0 8 1 6 0 02 } 0 1 1 0 0

P QRs. R s.

6 ,2 3 ,5 0 0 5 ,5 7 ,6 0 05 0 1 0 0 0

5 1 7 3 1 5 0 0 5 1 5 7 1 6 0 01 1 1 3 1 1 1 0 0

B a la n ce s b e fo re am a lg am atio nLess : L ia bilitie s o f P d ue to QTota lG ra nd T ota l

Q ue stio n 2F ollo win g is th e B ala nc e S he et o f A B C Ltd . as a t 31 st Ma rc h, 2 00 7:L iab ilities Rs. Asse tsShare cap ita l: P lan t and mach inery2 ,0 0,0 00 E q uity s ha re s of Fu rn it ur e a n d f ix tu re sRs 10 each fu lly pa id up 20,00 ,000 Paten ts and copyrigh ts6 ,0008% Pre fe rence shares Investm ents (a t cost)o f R s. 100 each 6,00,000 (M a rk et v alu e R s. 5 5,0 00 )9% D ebentu res 12 ,00 ,000 S tockB ank o verdra ft 1 ,50 ,000 Sundry deb to rsSundry cred ito rs 5 ,92 ,000 C ash a nd b ank ba lance

P ro fit a nd L oss A lc45 142 1000

Rs.9,00,0002,50,000

70,00068,000

14,00,00014 ,39 ,000

10,000{0 5IO O O

4 5 A2 1000T he fo llo w in g s ch eme of r ec o ns tr uc tio n wa s f in a li se d :(i) P re fe rence shareho lders wou ld g ive up 30% of the ir cap ita l in exchange fo r a llo tm ent o f 11%

D e be ntu re s to th em .(ii) D ebentu reho lders having charge on p lan t and m ach inery w ou ld accep t p lan t and m ach inery in fu ll

set t lement o f t he ir d u es .(iii) S tock equa l to R s. 5 ,00 , 000 in book va lue w ill be taken over by sundry cred ito rs in fu ll se ttlem ent o f

t he ir d u es .(iv ) Inves tm ent va lue to be reduced to m arke t p rice .(v ) The company wou ld issue 11% D ebentu res fo r R s.3 ,00 ,000 and augm ent its w ork ing cap ita l

r eq u ir emen t a ft er s e tt lemen t of bank o ver dr af t.


23/39

P ass necessary Journa l E ntries in the books o f the com pany. P repare C ap ita l R eduction account andB a la nc e S he et o f t he c ompan y a ft er in te rn a l r ec o ns tr uc tio n .

(1 6 M a rk s) (N ov em b er, 2 00 7)Answer

In the Books of ABC Ltd .J o ur na l E n tr ie sParticu la rs Rs. Rs.8 % P re fe re nc e sh are c ap ita l Alc D r. 6 ,00 ,000

T o P re fe re n ce s ha re h old er s Alc 4,20,000T o C a pita l r ed u ctio n Alc 1,80,000

[B ein g 3 0% re du ctio n in lia bility o f p re fe re nc e s ha re c ap ita l]P r ef er en c e s h ar eh o ld e rs Alc D r. 4 ,20 ,000

To 11% Deben tu re sA lc 4 ,20 ,000[B ein g th e is su e o f d eb en tu re s to p re fe re nc e s ha re ho ld ers ]9% D e be n tu re s Alc D r. 12 ,00 ,000

T o D eb en tu re h old ers A lc 12 ,00 ,000[B ein g tra ns fe r o f 9 % d eb en tu re s to d eb en tu re h old ers Alc]D e be ntu re h old er s Alc D r. 12 ,00 ,000

T o P la nt & mach ine ry A lc 9,00,000T o C a pita l r ed u ctio n Alc 3,00,000

[S ettle me nt o f d eb en tu re h old ers b y a llo tm en t o f p la nt &mach ine ry ]S u n d ry c re d it or s Alc D r. 5 ,92 ,000

T o S to ck Alc 5,00,000T o C a pita l r ed u ctio n Alc 92 ,000

[B ein g s ettle m en t o f c re dito rs b y g iv in g s to ck s]Bank Alc D r. 3 ,00 ,000

To 11% Deben tu re sA lc 3 ,00 ,000[B ein g fre sh is su e o f d eb en tu re s]B a n k o v e rd ra ft Alc D r. 1 ,50 ,000

To B ank Alc 1,50,000[B ein g s ettle m en t o f b an k o ve rd ra ft]C a p it al r ed u c ti on Alc D r. 5 ,72 ,000

T o In ve s tm e n t A lc 13 ,000


24/39

T o P ro fit a nd loss A lcT o C ap ita l re se rv e A lc

[Be ing decrease in inves tm en t and pro fit and loss accoun t(D r. ba l.); and ba lance o f cap ita l reduction accoun ttr an sf er re d t o c ap ita l r es er ve ]

To Inves tm en ts A lcTo P ro fit and loss A lcTo Cap ita l rese rve A lc

C a pita l R ed u ctio n A c co u ntRs.

13 ,000 B y P re fe rence share cap ita l A lc4 ,05 ,000 B y 9% Deben tu re ho lde rs Alc1 ,54 ,000 B y Sund ry c red ito rs A lc5 ,72 ,000

Balance S heet o f A BC L td . (A nd Redu ced )As on 31st M arc h 2 00 7

L iabilities Rs. Asse tsShare cap ita l P lan t & mach ine ry

(9 ,0 0,0 00 - 9 ,0 0,0 00 )2 ,00 ,000 Equ ity sha res o f R s .1 0 Furn itu re & f ix tureseach fu lly p a id -up 20 ,00 ,000Cap ita l r ese rve 1 ,54 ,000 Pa ten ts & copyr ights11% Deben tu res 7 ,20 ,000 Inves tm en ts(R sA ,20 ,000 + R s.3 ,00 ,000 ) (R s .68 ,000 - R s .13 ,000 )

Stock(R s .1 4, 00 ,0 00 - R s .5 ,0 0 ,0 0 0)S u nd ry d eb to rsC ash a t ban k (re fe r W .N .)

28 ,74 ,000W o rk in g N ote :C ash a t bank = O pen ing ba lance + 11% D eben tu res issued - Bank ove rd ra ft pa id

= R s.1 0 ,0 00 + R s.3 ,0 0,0 00 - R s.1 ,5 0,0 00= Rs .1 ,60 ,000

Quest ion 3W hat are the tw o m ain m ethods o f a c co u nt in g f or ama lg ama tio n o f companies?

4,05,0001,54,000

Rs.1,80,0003,00,00092 ,000

5,72,000

Rs.N il

2 ,50,000

70 ,00055 ,000

9,00,000

14 ,39 ,0001,60,000

28 ,14 ,000

(2 M arks ) (N ov em ber, 20 07)


25/39

Answe rT wo m ain m eth od s o f a cc ou ntin g fo r a ma lg am atio ns a re(i ) T he P oo lin g o f In te re sts m e th od - U nd er th is m eth od , th e a ss ets , lia bilitie s a nd re se rv es o f th e

trans fe ro r com pany a re reco rd ed by the trans fe ree com pany a t the ir ex is ting ca rry ing am oun tsa fte r m ak ing the ad jus tm en ts requ ired in pa ra 11 o f A S 14 .

(ii) The Pu rchase m ethod - U nde r th is m e thod , the trans fe ree com pany accoun ts fo r thea m alg am a tio n e ith er b y in co rp ora tin g th e a ss ets a nd lia bilitie s a t th eir e xis tin g c arry in g a m ou nts o ro n th e b as is o f th eir fa ir v alu es a t th e d ate o f a ma lg am atio n.

Q ues tio n 4F ollow ing are the sum marised B alance S heets o f A Ltd . and B L td . a s a t 3 1.3 .2 00 8:Particu la rs A Ltd . B Ltd.S h are c ap ita l: E q uity s ha re s 10 each (fu lly pa id up) 10 ,00 ,000 6,00,000Securities prem ium 2,00 ,000Gene ra l r es e rv e 3,00,000 2,50,000P ro fit and loss account 1 ,80 ,000 1 ,60 ,00010% Debent ur es 5,00,000Se cu re d lo an 3,00,000Sundry cred ito rs 2 ,60 ,000 1)0 1000

24AO,000 14 180 100 0L an d a nd b uild in g 9,00,000 4,50,000P la nt a nd ma ch in ery 5 ,00 ,000 3 ,80 ,000I nv es tm e nt (5 ,0 00 s ha re s o f B Ltd.) 80,000S tock 5 ,20 ,000 3,50,000D ebto rs 4 ,10 ,000 2 ,60 ,000C ash at bank 30 100 0 40 100 0

24AO,000 14 180 100 0T he c om pa nie s a gre e o n a scheme o f am alg am atio n o n th e fo llo win g te rm s :(i) A new company is to be fo rm ed by name AB Ltd.(ii) AB Ltd . to take over a ll the asse ts and liab ilities o f th e e xis tin g c omp an ie s.(iii) For the purpose o f am algam ation , the shares o f the ex is ting compan ies are to be va lued asunder :

A L td . = Rs. 18 p er s ha reB Ltd. = R s.2 0 p er s ha re

(iv ) A co ntin ge nt lia bility o f A Ltd . o f R s.6 0,0 00 is to b e tre ate d a s a ctu al e xistin g lia bility .(v ) The shareho lders o f A Ltd . and B Ltd . a re to be pa id by issu ing su ffic ien t num ber o f shares o f AB

Ltd . a t a premium o f R s.6 p er sh are .


26/39

(v i) The face value o f shares o f AB L td . a re to be o f R s.1 0 e ac h.Y ou are re quire d to :(i) C alcu la te the pu rchase conside ration (i.e ., num ber o f sha res to be issued to A L td . and B Ltd.) .(ii) P ass jou rna l entries in the books o f A L td . for th e tra ns fe r o f a s se ts a n d lia b ilitie s .(iii) P ass jou rna l entries in the books o f A B L td . fo r a cq uis itio n o f A Ltd . and B Ltd.(iv ) P repa re the B alance Sheet o f AB L td .

Answe r(i) S ta tem en t s how in g ca lcu la tion o f pu rc ha se c on sid era tio n

(1 6 M arks) (M ay, 2 00 8)

(Number o f shares)A Ltd . B . Ltd.

1 ,00 ,000 60 ,0005 ,000

E x is tin g s h ar esLess : S hares he ld by A L td .

V alu e p er s ha reT o ta l v alu eNo . o f sha re s to be issued a t a p rem ium of R s .6 pe rs ha re i.e . R s.1 6 (1 0+ 6)

1,00,000Rs.18

Rs.18 ,00 ,000

S h ar e c ap it alAdd : Se cur it ie s p rem i umT o ta l p u rc ha se c on sid er at io n

1 ,1 2, 50 0 s ha re sRs.

11 ,25 ,0006.75,00018 ,00 ,000

Jou rna l En trie s in th e books o f A L td .i i )

55 ,000Rs.20

Rs.11 ,00 ,000

6 8, 75 0 s ha re sRs.

6,87,5004,12,50011 ,00 ,000

Real isat ion A lcT o La nd & bui ld ing A lcT o P la nt & mach ine ry AlcT o S to ck A lcT o S un dry d eb to rs A lcTo I nv e stme nt s A lcTo B ank A lc

(B ein g a ss ets tra ns fe rre d to R ea lis atio n Alc)

Rs. R s .24 ,40 ,000

9,00,0005,00,0005,20,0004,10,00080 ,00030 ,000

D r.


27/39

P ro fit a nd lo ss A lc D r. 60 ,000To C r ed it or s A lc 60 ,000

( Be in g c on tin ge n t lia bilit y t re at ed a s r ea l lia b ilit y)1 0% D e be nt ur es Alc D r. 5 ,00 ,000Credi tors A lc D r. 3 ,20 ,000

To Rea lis a tio n A lc 8,20,000( Be in g t ra ns fe r o f lia bilitie s t o R e alis at io n Alc)AB Ltd . D r. 18 ,00 ,000

To Rea lis a tio n A lc 18 ,00 ,000(B ein g th e p urc ha se c on sid era tio n a cc ou nte d fo r)S ha re in A B L td . A lc D r. 18 ,00 ,000

To AB Ltd . 18 ,00 ,000(B ein g p urc ha se c on sid era tio n re ce iv ed )S h ar e C a pit al A lc D r. 10 ,00 ,000S e cu ritie s p rem ium A lc D r. 2 ,00 ,000G e n er al R e se rv e Alc D r. 3 ,00 ,000P ro fit a nd L os s Alc D r. 1 ,20 ,000Real isat ion A lc D r. 1 ,80 ,000

To Sh a re h o ld e rs A lc 18 ,00 ,000(B ein g tra ns fe r o f b ala nc es to s ha re ho ld ers ' a cc ou nt)Shareho lde rs A lc D r. 18 ,00 ,000

To Shares in AB L td . 18 ,00 ,000(B ein g c lo su re o f s ha re ho ld ers a /c )

(iii) Journal Entries in the Books of AB Ltd.Rs. Rs.

Land & bui ld ing A lc D r. 9 ,00 ,000P lan t & mach ine ry A lc D r. 5 ,00 ,000Stock Alc D r. 5 ,20 ,000Deb to rs A lc D r. 4 ,10 ,000Bank A lc D r. 30 ,000Goodw i l l A lc D r. 2 ,60 ,000

To 10% Deben tu resA lc 5 ,00 ,000T o S un dry c re dito rs A lc 3 ,20 ,000


28/39

T o L iqu id ato r o f A L td . Alc(B ein g th e p urc ha se c on sid era tio n o f A L td . a cc ou nte d fo r)Land & bui ld ing Alc D r.P lan t & mach ine ry Alc D r.S tock Alc D r.Deb to rs Alc D r.Bank Alc D r.Goodw i l l Alc D r.

T o S ecured loan AlcT o S un dry c re dito rs AlcT o L iqu id ato r o f B L td . Alc

(B ein g p urc ha se c on sid era tio n o f B L td . a cc ou nte d fo r)L iq uid ato r o f A L td . Alc D r.

T o E qu ity s ha re c ap ita l AlcT o S ec uritie s p re m iu m Alc

(B eing shares issue d to L iqu ida to r o f A L td .)

L iq uid ato r o f B L td . AlcT o E qu ity s ha re c ap ita l AlcT o S ec uritie s p re m iu m Alc

(B eing shares issue d to L iqu ida to r o f B L td .)

D r.

( iv ) Ba lan ce Shee t o f AB L td .

18 ,00 ,000

4,50,0003 ,80 ,0003 ,50 ,0002,60,00040 ,00090 ,000

3 ,00 ,0001,70,00011 ,00 ,000

18 ,00 ,00011 ,25 ,0006,75,000

11 ,00 ,0006,87,5004,12,500

Liabilit ies(A fte r a m alg am a tio n o f A L td . & B L td .)

Rs. Asse tsSha re c a pit al:1 ,81 ,250 Equ ity sha res o fR s.10 e ach fu lly pa id up(above shares have beenissued fo r cons ide ra tiono th er th an c as h)S e cu ritie s p rem ium1 0% D e be nt ur esS ec ure d lo anSu n d ry c re d it or s

G o od w ill (2 ,6 0,0 00 + 9 0,0 00 )18 ,12 ,500 Land & building

Rs.3,50,00013 ,50 ,000

P lan t & mach ine ryStock

10 ,87 ,500 S undry deb to rs5 ,00 ,000 C ash a t bank3,00,0004,90,000

8,80,0008,70,000

6,70,00070 ,000


29/39

41 ,90 ,000Q uestio n 5T he B a la nc e S he et o f R Ltd ., a t M arch , 2008 w as as fo llow s:

Rs.Sha re c a pi ta l a u th o ri se dI ss u ed : 6 4 ,0 0 0, 8% cumulat ivep re fe re n ce shar es o f Rs. 10e ac h, fu lly p aid6 4 ,0 00 E q uity s ha re s o f Rs. 10e ac h, R s. 7 .5 paidL oa ns from d ire cto rs

Sundr y c re d it or sB an k o ver dr af t

1 ,4 0,0 00 In ta ng ib le s6 ,4 0,000 F reeho ld prem ises a t cost

4 ,80 ,000 P lan t and equ ipm ent a t cos tl ess dep rec ia t ion

60 ,000 Inves tm ents in shares in Q Ltd.a t c os t

4 ,40 ,000 S tocks2 ,08 ,000 D ebto rs

De f er re d r ev e nue e xpendi tu reP ro fit a nd lo ss a cc ou nt

41 ,90 ,000

Rs.68,000

1,40,000

2,40,000

3,24,000

2,48,0003,20,000

48 ,0004.40,000

18,28,0008,28,000No te : The a rr ea r o f p re fe re nc e d iv id en ds am ou nt to R s. 5 1,2 00 .A schem e o f re co nstru ctio n w as d uly a pp ro ve d w ith e ffe ct fro m 1 st A pril, 2 00 8 u nd er th e co nd itio ns sta te dbe low:(a ) The unpa id amoun t on the equ ity shares wou ld be ca lled up .(b ) The pre fe rence shareho lders w ou ld fo rego the ir a rrear d iv idends . In add ition , they w ou ld accep t a

reduct ion o f Rs. 2 .5 per share . T he d iv idend ra te w ou ld be enhanced to 10% .(c ) The equ ity shareho lders wou ld accep t a reduct ion o f Rs. 7 .5 p er s ha re .(d ) R Ltd . ho lds 21 ,600 shares in Q L td . T h is r ep re s en ts 15% o f th e s ha re c ap ita l o f t ha t c ompan y . Q

Ltd . is no t a quoted com pany. The average net p ro fit (a fte r tax) o f th e c om pa ny is R s. 2 ,5 0,0 00 .The shares w ou ld be va lued based on 12% cap it a li zat ion r a te .

(e ) A bad debt p rov is ion a t 2% wo uld b e c re ate d.(f) The o ther asse ts wou ld be va lued as under:

Intangib lesPlan tF re e ho ld p rem is e sStocks

R s.48 ,000

1,40,0003,80,0002,50,000

(g) T he pro fit and loss account deb it ba lance and the ba lance s tand ing to the deb it o f th e d efe rre d re ve nu ee xp en ditu re a cc ou nt w o uld b e e lim in ate d.


30/39

(h ) The d irec to rs w ou ld have to take equ ity shares a t the new face va lue o f Rs. 2.5 s ha re in s ettlem en t o ft he ir lo a n.

(i) T he e qu ity s ha re ho ld ers , in clu din g th e d ire cto rs, w ho w ou ld re ce iv e e qu ity sh are s in s ettle me nt o f theirloans, w ou ld take up tw o new equ ity shares fo r every one he ld .

0) T he p re fe re nc e sh are ho ld ers w ou ld ta ke u p o ne n ew p re fe re nc e sh are fo r e ve ry fo ur h eld .(k ) T he a uth orise d sh are c ap ita l w ou ld b e re sta te d to R s. 1 4,0 0,0 00 .( I) T he n ew fa ce v alu es o f th e s ha re s-p re fe re nc es a nd e qu ity w ill b e m a in ta in ed a t th eir re du ce d le ve ls .Y ou a re re qu ire d to p re pa re :

( i) Necessary ledger accounts to e ffec t the above ; and(ii) The Ba lance Sheet o f t he c ompan y a ft er r ec o ns tr uc tio n .

Answer(1 6 M a rk s) (N ov em b er, 2 00 8)

In the books of R L td .L e d ge r A c coun ts

C ap ita l R ed u ctio n A cc ou n tRs.

To In tang ib les (68 ,000 - 48,000 ) 20,000 By 8% Cumu la tive pre fe rences ha re s c ap ita l a cc ou nt

To P lan t and equ ipm en t account 1 ,00 ,000 By Equ ity sha re cap ita l account( 2,4 0,0 00 - 1 ,4 0,0 00 )

To D efe rred revenue expend itu re 48 ,000 By F reeho ld prem ises accountaccount (3 ,80 ,000 - 1 ,40 ,000 )To P ro fit a nd loss accoun t 4 ,40 ,000 By S tock accoun t

( 2 ,5 0 ,0 0 0 - 2 ,4 8 ,0 0 0 )To Inves tm en t accoun t (W .N . 2 ) 11 ,500To P rov is ion for doubtfu l debts 6 ,400To C ap ita l reserve accoun t (Ba lance

Transfer red) 2,56,1008,82 ,000

To C ap ita l reduction accoun tTo Ba lance c ld

E qu ity S ha re C ap ita l A cc ou ntRs. R s.

4 ,80 ,000 By Ba lance bId 4 ,80 ,0006,60 ,000 By Equ ity sha re fina l ca ll 1 ,60 ,000

a cc o un t ( 64 ,0 0 0 x Rs.2 .5)By Loan from D irec to rs accoun t 60 ,000By Bank account

Rs.

1,60 ,0004,80 ,000

2,40 ,000

2,000

8,82,000


31/39

[(6 4,0 00 +2 4,0 00 ) x 2 xR s .2 .5 ] 4 ,40 ,000

11,40 ,0001,40 ,000

8% C um ula tive P re fe rence S ha re C ap ita l A ccoun tRs.

To 10% Cum ula tive p re fe rences ha re c ap ita l a cc ou nt

To C ap ita l reduc tion accoun t

To Equ ity sha re fina l ca lla ccoun t

To Equ ity sha re cap ita l accoun tTo 10% Cum u la tive p re fe rence

s ha re c ap ita l a cc ou nt

To Ba lance b Id

Rs.6,40 ,000,80 ,000 B y Ba lance b Id

1 ,60 ,0006,40 ,000

B an k A cc ou ntR s.

1 ,60 ,000 B y Ba lance b Id (ove rd ra ft)

6 ,40 ,000

R s .2 ,08 ,000

4 ,40 ,000 B y Ba lance c ld 5,12 ,000

1,20 ,0007,20 ,0005,12 ,000

7,20 ,000

1 0% C um ula tive P re fe re nc es S ha re C ap ita l A cco un tR s. R s .

To Ba lance c ld 6 ,00 ,000 B y 8% Cum u la tive p re fe rence 4 ,80 ,000s ha re c ap ita l a cc ou ntB y B ank 1 120 1000

6 100 1000 6 100 1000B y Ba lance b Id 6 ,00 ,000

R . L td ., (a nd R ed uc ed )Ba lance Shee t as a t 1 A p ril, 2008

R s. R s .Authorised: Sha re cap ita l 14 100 1000 In tang ib les 48 ,000Issued: 80 ,000 10% Cum u la tive F reeho ld p rem ises 3 ,80 ,000p re fe rence sha res o f R s .7 .5 each 6 ,00 ,0002 ,64 ,000 equ ity sha res o f R s .2 .5 6 ,60 ,000 P lan t and equ ipm en t 1 ,40 ,000eachC ap ita l rese rve 2 ,56 ,100 Investm en t in Q L td ., (W .N .1 ) 3 ,12 ,500Sund ry c red ito rs 4 ,40 ,000 S tock 2 ,50 ,000


32/39

D e bto rs le ss p ro vis io n fo r d ou btfu ldeb ts (R s .3 ,20 ,000 - R s.6 ,400 ) 3 ,13 ,600Bank 5 ,12 ,000

19 ,56 ,100 19 ,56 ,100W o rk in g N ote s:1 . V a lua tion o f in ves tm en ts in sha res o f Q Ltd. , = Rs.2 ,50 ,000 x~= Rs.3 ,12 ,50012% 1002 . R eduction in the va lue o f in ves tm en t in sha res o f Q Ltd .

R s .3 ,2 4,0 00 - R s .3 , 1 2 ,5 00 = Rs . 11 , 50 0 .Q ue stion 6G ive th e jou rn al en try to be pa sse d fo r acco un tin g u nrea lized p ro fit on s tock , und er am alga ma tion .

(2 M arks) (J un e, 20 09 )AnswerJou rna l en try to be passed fo r accoun ting un rea lized P ro fit on s tock :U nd er am alg am ation in the na tu re o f merger :G en era l R es erv elP ro fit a nd L os s Alc D r.

T o S to ck Alc ( Sto ck R e se rv e A/c)(B ein g a mo un t a dju ste d fo r u nre alize d p ro fit o n s to ck )ORIf a ma lgam atio n is in n atu re o f pu rch ase , J ou rn al e ntry w ou ld be :G oo dw ill o r C ap ita l R ese rve A lc D r.

T o S to ck Alc ( Sto ck R e se rv e A/c)(B ein g a dju stm en t fo r u nre alize d p ro fit o n s to ck )

Q ue stion 7Th e B ala nce S he et o f N ep tune L td as on 31 .3 .2009 is g iven be low :L iab ilit ie s R s. R s. A sse ts Rs.8 0,0 00 , E q uity s ha re s o f Rs.10 F re e hol d p ro p e rt y 5 ,00 ,000e ac h fu lly p aid 8,00,0005 ,000 , 6% Cumula t ive Plan t & mach inery 1 ,80 ,000p re fe re nc e s ha re s o f R s . 1 00e ac h fu lly p aid 5,00,0006% D ebentu res (secured by 3 ,75 ,000 T rade inves tm ent (a t 1 ,70 ,000freeho ld p rope rty ) cos t)A rrear in te res t 22 ,500 3 ,97 ,500 Sund ry deb to rs 4 ,50 ,000Sund ry c red ito rs 17 ,500 S tock in trade 2 ,00 ,000D i re cto r's lo a n 3 ,00 ,000 D eferred

adver t isement


33/39

expend itu re 1 ,50 ,000P ro fit and Loss A lc 3,65,000

20,15 ,000 20,15 ,000T he C ou rt a pp ro ve d a scheme o f re -o rgan isa tion to take e ffec t on 1 .4 .2009 and the te rm s are g ivenbe low:(i) P re fe rence shares are to be w ritten dow n to Rs.75 each and equ ity shares to Rs.2 each .(ii) P re fe rence d iv idend in arrear fo r 4 years to be wa ived by 75% and fo r the ba lance equ ity shares

o f R s.2 each to be a llo tted .(iii) A rre ar o f debentu re in te res t to be pa id in cash .(iv ) D ebentu reho lders agreed to take one freeho ld property (B ook va lue R s.3 ,00 ,000) a t a valuat ion o f

R s.3 ,00 ,000 in part paym ent o f the ir ho ld ing . B alance debentu res to rem ain as liab ility o f th ecompany.

(v ) D efe rred advertisem ent expend itu re to be w ritten o ff.(v i) S tock va lue to be w ritten o ff fu lly in th e b oo ks.(v ii) 50% o f the S undry D ebto rs to be w ritten o ff as bad debt.(v iii) R em ain ing freeho ld property (a fte r take over by debentu reho lders ) to be va lued a t R s.3 ,50 ,000 .(ix ) Inves tm ent so ld ou t fo r R s.2 ,00 ,000 .(x ) 80% o f the D irec to r's loan to be wa ived and fo r the ba lance , equ ity shares o f Rs.2 each to be

issued.(x i) C om pany 's con trac tua l com mitm ents am ounting to R s.5 ,00 ,000 to be cance lled by paying pena lty

a t 3% o f c on tra ct v alu e.(x ii) C os t o f re -c on stru ctio n s ch em e is R s.2 0,0 00 .Show the Journa l en tries (w ith narra tion ) to be passed fo r g iv ing e ffec t to the above transactions anddraw B alance S heet o f the com pany a fte r e ffecting the schem e.

(1 6 M arks )(N ove mb er, 2 00 9)Answe r

Jou rna l En tries in th e B ooks o f N ep tune L td .Particu la rs R s. R s.

( i) 6% P re fe ren ce sha re cap ita l A lc (R s . 10 0 ) D r. 5 ,00 ,00 0T o 6% P re fe re nce sh are ca pita l Alc (R s . 7 5 ) 3 ,75 ,00 0T o C a pita l re du ctio n A lc 1,25 ,000

(B e in g p re fe re nce sha re s o f R s.1 00 each reduced to R s.7 5 eacha s pe r the schem e)

( ii) E q u ity sha re cap ita l A lc (R s .1 0 ) D r. 8 ,00 ,00 0T o E qu ity s ha re c ap ita l Alc (R s.2 ) 1 ,6 0 ,0 00T o C a pita l re du ctio n A lc 6,40 ,000

(B e in g equ ity sh a res o f R s.10 each redu ced to R s.2 each a s pe r


34/39

th e s ch em e )( ii i) C ap ita l redu c tion Alc D r. 30 ,000

T o E qu ity s ha re c ap ita l Alc 30,000(B e in g a rrea rs o f p re fe ren ce sha re d iv ide nd o f o ne yea r to besa tis fied by issue o f 1 ,50 0 equ ity sh a res o f R s.2 e ach a s pe r th es cheme )

( iv ) A cc ru ed deben tu re in te re s t Alc D r. 22 ,50 0To B ank Alc 22 , 500

(B ein g a cc ru ed in te re st o n d eb en tu re s p aid )(v ) 6% D eben tu re A lc D r. 3 ,00 ,00 0

T o F re eh old p ro pe rty A lc 3,00 ,000(B e in g c la im o f deben tu reh o lde rs se ttle d in pa rt by tra ns fe r o ffre eh old p rope rty as p er th e schem e)

(v i) C ap ita l redu c tion Alc D r. 9 ,40 ,00 0T o P ro fit an d lo ss A lc 3,65 ,000T o D e fe rre d a dv ertis in g e xp en se s Alc 1,50 ,000T o S to ck Alc 2,00 ,000T o S un dry d eb to rs Alc 2,25 ,000

(B ein g the va rio us asse ts w ritte n o ff a s pe r th e sche me)(v ii) F re eho ld p rope rty A lc D r. 1 ,5 0 ,0 00

T o C a pita l re du ctio n A lc 1,50 ,000(B ein g a pp re cia tio n in th e v alu e o f re ma in in g p ro pe rty )

(v iii) B a nk Alc D r. 2 ,00 ,00 0T o T ra de in ve stm e nt A lc 1,70 ,000T o C a pita l re du ctio n A lc 30,000

(B ein g tra de in ve stm en t s old o n p ro fit)( ix ) D irec to r 's loa n Alc D r. 3 ,00 ,00 0

T o E qu ity s ha re c ap ita l Alc 60 , 000T o C a pita l re du ctio n A lc 2,40 ,000

(B e in g D irec to r's loa n re duced by 80% and rem ain ing ba lan ced isch a rged b y issu e o f e qu ity sh a res o f R s. 2 e ach )

(x ) C ap ita l redu c tion Alc D r. 15 ,0 00To B ank Alc 15 , 000

(B e in g pa ym en t o f 3% pena lty o n can ce lla tion o f con tra c tua lcomm i tmen t s )

(x i) C ap ita l redu c tion Alc D r. 20 ,00 0To B ank Alc 20 , 000

(B ein g re co ns tru ctio n e xp en se s p aid )


35/39

(x ii) C ap ita l redu c tion A lcT o C a pita l re se rv e A lc

(B ein g b ala nc e o f c ap ita l re du ctio n a cc ou nt tra ns fe rre d)

D r. 1 ,8 0 ,0 00

B alance Shee t o f N ep tune L td . (A nd R educed )a s a t 1st A p ril, 2 00 9

L iab ilit ie s Rs. A sse ts R s.1 ,2 5 ,0 00 , E qu ity sh a res o f 2 ,5 0 ,0 00 F reeho ld p rope rty 3 ,50 ,00 0R s .2 ea ch (ou t o f ab ove P la n t 1 ,8 0 ,0 0045 ,000 sha res ha ve beenissue d fo r con sid era tion o the rth an c as h)5 , 000 , 6% C um u la tive 3 ,75 ,0 00 D eb to rs 2 ,25 ,00 0P re fe rence sha res o f R s .7 5each fu lly pa id upC ap ita l rese rve 1 ,80 ,000 C ash a t bank (2 ,0 0 ,0 00 - 1 ,4 2 ,5 0022 ,500 - 1 5 ,0 00 - 20 ,00 0 )6% D eben tu res (3 ,7 5 ,0 00 - 75 ,00 03,00 ,000)Cred i to rs 17 , 500

8 ,97 ,5 00 8 ,97 ,50 0

1,80 ,000


36/39

U nit 8 : L iq uid atio n o f C ompa nie sQ ue stio n 1W h at is B l is t cont r ibutor ies?

(4 M a rk s) (N o vem be r, 2 00 8)Answe rB lis t c on trib uto rie s are th e sha re ho ld ers w ho tran sfe rred pa rtly pa id sh are s (o th erw ise th an by op era tio n o flaw o r by dea th) w ith in one yea r, p rio r to the da te o f w ind ing up . They m ay be ca lled upon to pay an am ount(no t exceed ing the am oun t no t ca lled up w hen the sha res we re trans ferred ) to payo ff such c red ito rs , asex is ted on the da te o f transfer o f shares and cannot be pa id ou t o f the funds o the rw ise ava ilab le w ith theliq uid ato r, p ro vid ed a ls o th at th e e xis tin g s ha re ho ld ers h av e fa ile d to p ay th e a mo un t d ue o n th e s ha re s.Q ues tio n 2F rom the data re la ting to a co mp an y w hich w ent in to vo lu nta ry liq uid atio n, yo u are re qu ired to p rep areth e liq uid ato r's F in al S ta tem en t o f Account .(i) C ash w ith liqu ida to rs (a fte r a ll asse ts a re rea lised and secu red cred ito rs and deben tureho lders

a re p aid ) is R s.7 ,5 0,0 00 .(ii) P re fe ren tia l cred ito rs to be pa id R s.35, 000 .(iii) O th er u ns ec ure d c re dito rs R s.2 ,3 0,0 00 .(iv ) 5 ,000 , 10% pre fe rence sha res o f R s.1 00 e ac h fu lly p aid .(v) 3 ,000 equity shares o f R s.1 00 ea ch, R s. 75 per sha re pa id up.(v i) 7 ,000 equity shares o f R s.100 each, R s.60 pe r sha re pa id up.(v ii) L iq uid ato r's re m un era tio n is 2% o n p ay me nts to p re fe re ntia l a nd o th er u ns ec ure d c re dito rs

(8 M ark s) (J un e, 2 00 9)Answe r

L iq uid ato r's F in al S ta te m en t o f A cc ou ntRs. R s.

To Cash in hand 7 ,50 ,000 By L iqu ida tor's rem une ra tion 5 ,300( 2% o n 2 ,6 5 ,0 0 0* )

To C ash / ba nk 45,710 By P re feren tia l c red ito rs 35,000(Am oun t r ece ived on ca ll fo r By U nsecu red cred ito rs 2 ,30 ,0007 ,0 0 0 e q uity s ha re s @ RS .6 .53 By P re ference sha reho lders 5 ,00 ,000p e r s h ar e)By Equ ity shareho lde rs(A mo un t pa id to h old ers o f3 ,000 equ ity sha res @RS .8 .47 per equ ity sha re) 25 ,410

7 ,95 ,710 7,95 ,710

* 35,000 + 2,30,000 =2,65,000


37/39

W o rk in g N ote :C a lcu la tio n o f am oun t rece ivab le from equ ity shareho ld e rs o r p ayab le to equ ityshareho lde rs

Rs. R s .C ash in hand (Asse ts rea lized ) 7 ,50 ,000Less : P ay me nts m ad e:

L iqu ida to r 's rem une ra tion 5 ,300P re fe rence c red ito rs 35 ,000U nsecu red cred ito rs 2 ,30 ,000P re fe rence sha reho lde rs 5 ,00 ,000 7 )0 1300

20,300Add :(p aid u p):

A m ou nt p ay ab le to e qu ity s ha re ho ld ers

3 ,000 equ ity sha re o f R s.100 each R s.75 2,25 ,000pa id up

7 ,000 equ ity sha re o f R s.100 each R s.60 4 )0 1000 6.45 1000pa id upT ota l lo ss to b e b orn e b y e qu ity s ha re ho ld ersN o. o f e qu ity sh are s

. 665300Loss pe r equ ity sha res " Rs.66.5310,000Amo u nt r ec e iv a ble fr om 7 ,0 0 0 e q uity s h ar eh o ld e rs = 7 ,0 00 x 6 .5 3 (i.e . 6 6.5 3 - 6 0) = Rs . 4 5 ,7 1 0A m ou nt p ay ab le to 3 ,0 00 e qu ity s ha re ho ld ers = 3,000 x 8 .4 7 (i.e . 7 5 - 6 6.5 3) = Rs . 2 5 ,4 1 0

6 165)001 0,0 00 s ha re s

Ques t i on 3TM Ltd . w en t in fo r vo lun ta ry liqu ida tion on 31 st M arc h, 2 00 9.T he B ala nc e S he et o f the com pany as a t 31 .3 .2009 is g iven be low :

L iab ilities R s . Asse ts R s.Sha re C ap ita l: F reehold p roperty 11 ,85 ,0001 ,0 0,0 00 E q uity s ha re s o f 10 ,00 ,000 P lan t 6 ,03,000R s. 1 0 each fu lly pa id up1 0% P re fe re nc e s ha re s o f 12 ,00 ,000 Moto r veh ic les 1 ,15,000R s. 100 each fu lly pa id upSecu rities p rem ium 1,00 ,000 S tock 3 ,72 ,0005% D eben tu res 2 ,00 ,000 Sundry deb tors 1 ,4 8,000I nte re st o n d eb en tu re s 5,000 Prof i t & Loss A le 4 ,28 ,000B ank ove rd ra ft 1 ,16 ,000S u n dr y c re d ito rs 2,30,000

28 ,51 ,000 28 ,51 ,000T he p refe re nce d iv id en ds a re in a rre ar fo r th e ye ars 2 00 7-08 a nd 20 08 -0 9.


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T he c om pa ny 's A rtic le s p ro vid e th at o n liq uid atio n, o ut o f s urp lu s a ss ets re m ain in g a fte r p aym en t o fliq uid atio n c os ts a nd o uts id e lia bilitie s, it s ha ll b e a pp lie d firs tly to w ard s a rre ars o f p re fe re n c e d iv id e n d,secon dly to p re fe re nce sha re ho ld ers w ith a p rem ium thereon a t Rs.10 pe r share and fina lly anyre sid ue s ha ll b e p aid to th e e qu ity s ha re ho ld ers .T he L iq uida to r re alised th e asse ts as b elow :

Rs.F reeho ld property 14 ,25 ,000Plan t 5 ,05 ,000M otor veh ic les 1 ,18 ,000S to ck in tra de 3 ,00 ,000Sundry deb to rs 1 ,20 ,000C red ito rs w ere p aid le ss d iscou nt o f 5% . D e be ntu re ho ld ers w ere p aid a lo ng with a cc ru ed in te re stu p to 3 0 .6 .2 0 0 9.L iq uid a to rs rem u ne ra tio n is 2% o f th e a ss ets re alis ed a nd c os t o f liq u id a tio n w a s R s .7 ,6 4 0.P re pa re th e L iq uid ato r's S ta te m en t o f Account .

(8 M arks) (N ove mb er, 2 009 )Answe r

T M L td . (In L iq uid atio n)L iq uid ato r's F in al S ta te m en t o f A cc ou nt

Particu la rs Rs. P articu la rs Rs. R s.To A sse ts rea lised : B y L iq u id a to r's r em u n e ra ti on 49,360

(24 ,68 ,000x J { o o )F reeho ld 14 ,25 ,000 B y L iqu ida tion cos t 7 ,640

proper tyP lan t 5 ,05 ,000 B y D eben tu re ho lde rs :M o to r veh ic le s 1 ,18 ,000 5% D eben tu res 2 ,00 ,000S tock 3 ,00 ,000 Add: D e be ntu re In te re st 5 ,000D eb to rs 1 ,20 ,000 In te res t fo r 3 m on ths up to

30 .6 .2009 2,500 2,07 ,500B y Bank ove rd ra ft 1 ,16 ,000B y C red ito rs 2 ,30 ,000

Less : 5% d is co un t 11 ,500 2,18 ,500B y P re fe rence S ha reho lders :

S ha re C ap ita l 12 ,00 ,000Add: 10% p rem ium 1 ,20 ,000Add: O /s d iv idend (fo r 2years) 2 ,40 ,000 15,60 ,000

B y E q uity s ha re ho ld ers [( Ba l.F ig .) a t the ra te o f R S.3 .09p er s ha re ] 3 ,09 ,000

24 ,68 ,000 24 ,68 ,000


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18426compsuggans Pcc Advacc Chapter3