Question Paper

Financial Accounting-II (112) : April 2004

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1. Under which of the following situations, is a holding company not required to prepare the consolidated Ans
financial statements? wer
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I. Where the holding company is a subsidiary of another company.
II. Where the control in the subsidiary company is intended to be temporary.
III. Where the subsidiary company operates under severe long-term restrictions, which
significantly impair its ability to transfer funds to the parent.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
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2. Which of the following persons can be appointed as an auditor of a company? Ans
wer
(a) A body corporate >
(b) A person indebted to the company for Rs.1,500
(c) A person holding the shares of the company as a trustee
(d) A person disqualified to be appointed as an auditor of its subsidiary company
(e) An officer of the company.
(1 mark)
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3. In terms of Part I Schedule VI of the Companies Act, 1956, which of the following assets is categorized Ans
under “Fixed Assets”? wer
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(a) Vehicles (b) Loose tools
(c) Debts outstanding for a period exceeding six months
(d) Balance with bank (e) Long-term investments.
(1 mark)
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4. The reduction in the value of a fixed assets of a subsidiary company, on the date of acquisition by a Ans
holding company, must be wer
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(a) Credited to goodwill account (b) Debited to goodwill account
(c) Credited to capital reserve account (d) Debited to profit and loss account
(e) Debited to investment account.
(1 mark)
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5. The auditor of a company gives a report that the financial statements of the company reflect a true and Ans
fair view subject to certain reservations. Such report/opinion is known as wer
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(a) Clean report (b) Qualified opinion
(c) Unqualified opinion (d) Provisional report subject to issue of final report
(e) Both (a) and (c) above.
(1 mark)
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6. The issue of bonus shares should be Ans
wer
(a) Authorized by Articles of Association >
(b) Sanctioned by National Company Law Tribunal
(c) Approved by Central Government
(d) Authorized by a special resolution of the company
(e) Authorized by an ordinary resolution of the company.
(1 mark)
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7. When should the first auditor of a company be appointed by the Board of Directors? Ans
wer
(a) In the first Annual General Meeting of the company >
 (b) Within one month from the date of registration of the company
(c) Within 3 months from the date of registration of the company
(d) Within 6 months from the date of registration of the company
(e) Within 12 months from the date of registration of the company.
(1 mark)
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8. To which account should the costs in chartering a company be debited? Ans
wer
(a) Share capital (b) General administrative expenses >
(c) Preliminary expenses (d) Profit and loss appropriation account
(e) Legal expenses.
(1 mark)
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9. A company cannot issue redeemable preference shares for a period exceeding Ans
wer
(a) 6 years (b) 7 years (c) 8 years (d) 20 years (e) 25 years. >
(1 mark)
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10. The profit or loss on own debentures is to be accounted for at the time of Ans
wer
(a) Purchase of own debentures (b) Subsequent interest payment >
(c) Cancellation of own debentures (d) Original issue of debentures
(e) Liquidation of the company.
(1 mark)
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11. According to Schedule VI of the Companies Act, 1956, which of the following appears in the Balance Ans
Sheet of a Holding Company? wer
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I. Investment in shares, debentures of subsidiary company.
II. Debts due from subsidiary company.
III. Minority interest of the subsidiary company.
IV. Secured loans from subsidiary company.

(a) Both (I) and (II) above (b) Both (II) and (IV) above
(c) Both (III) and (IV) above (d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
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12. Which of the following equations is equal to Net Value Added? Ans
wer
(a) Gross Value Added + Depreciation (b) Gross Value Added + Interest >
(c) Gross Value Added – Depreciation (d) Gross Value Added – Inventory
(e) Gross Value Added + Inventory.
(1 mark)
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13. According to Schedule VI of the Companies Act, 1956, which of the following will be shown under Ans
“Current Assets”? wer
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(a) Livestock (b) Loose tools
(c) Development of property (d) Railway sidings (e) Leaseholds.
(1 mark)
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14. Which of the following is false with regard to Economic Value Added (EVA)? Ans
wer
(a) EVA is the residual income measure that subtracts the cost of capital from the operating income >
generated by a business
(b) EVA can be improved by downsizing unprofitable units
(c) Decisions based on EVA can be misleading, particularly, in case of companies which are in their
growth phase
(d) While calculating EVA, the cost of equity as well as the cost of debt should be deducted
(e) The computation of EVA involves a simple procedure.
(1 mark)
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15. If no auditor is appointed or re-appointed at an Annual General Meeting, the company should inform Ans
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the fact to the Central Government within >

(a) 7 days (b) 15 days (c) 30 days (d) Three months (e) Six months.
(1 mark)
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16. Which of the following area(s) is/are prone to multiplicity of accounting policies to inflate or deflate Ans
profits? wer
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(a) Valuation of inventories (b) Conversion of foreign currency items
(c) Depreciation methods (d) Recognition of revenues/expenses
(e) All of the above.
(1 mark)
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17. Which of the following is not specifically identifiable intangible asset? Ans
wer
(a) Patents (b) Trademarks >
(c) Goodwill (d) Franchises (e) Secret processes.
(1 mark)
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18. Which of the following statements is/are true with regard to weighted average profits in evaluation of Ans
goodwill? wer
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(a) Weighted average is appropriate when an average fails to aid future projections
(b) It is more appropriate where the past profits of a business fluctuate widely from year to year
(c) Chronologically arranged profits under consideration will result in assigning the largest weight to
the most recent and the least for the remotest
(d) Both (a) and (b) above
(e) (a), (b) and (c) above.
(1 mark)
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19. When shares are issued to promoters for the services offered by them, the account that will be debited Ans
with the nominal value of shares is wer
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(a) Preliminary expenses (b) Goodwill
(c) Asset account (d) Share capital (e) Loss on issue of shares.
(1 mark)
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20. According to the Companies Act, 1956, the companies have to compulsorily maintain their books of Ans
accounts only on wer
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(a) Accrual basis (b) Cash basis
(c) Accrual basis or cash basis whichever is followed consistently (d) Hybrid basis
(e) Tax basis.
(1 mark)
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21. According to the Companies Act, 1956, the period to which the accounts of a company relate should Ans
not exceed wer
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(a) 12 months (b) 15 months (c) 18 months (d) 24 months (e) 21 months.
(1 mark)
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22. As per the Accounting Standard 18, if two or more companies are subsidiaries of the same holding Ans
company, each subsidiary is known as ___________ of the other subsidiary. wer
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(a) Fellow subsidiary (b) Co-subsidiary
(c) Subsidiary (d) Associate (e) Sub-subsidiary.
(1 mark)
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23. No disclosure is required in consolidated financial statements in respect of Ans
wer
(a) Remittances-in-transit (b) Capital reserve >
(c) Intra-group transactions (d) Goodwill (e) Minority interest.
(1 mark)
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24. Which of the following is/are true with respect to debentures? Ans
 (a) They can be issued for cash (b) They can be issued for consideration other than cash wer
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(c) They can be issued as collateral security (d) They can be issued in lieu of dividends
(e) (a), (b) and (c) of the above.
(1 mark)
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25. In addition to the Managing Director or Manager of the company, who among the following is/are Ans
responsible for keeping proper books of accounts of a company? wer
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I. Every legal advisor of the company. II. Every banker of the company.
III. Every officer and other employee and agent in default.
IV. Every auditor of the company. V. Every member of the company.

(a) Only (III) above (b) Both (I) and (IV) above
(c) Both (III) and (IV) above (d) Both (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
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26. Which of the following is not considered as Research and Development Costs? Ans
wer
(a) Testing in search for product alternatives >
(b) Legal work on patent application
(c) Modification of design of a process
(d) Searching for application of new research findings
(e) The design of tools, moulds and dies involving new technology.
(1 mark)
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27. Which of the following methods is/are followed for amortization of intangible assets? Ans
wer
(a) Straight-line method (b) Written down method >
(c) Sum of the years’ digits method (d) Annuity method
(e) Both (a) and (b) above.
(1 mark)
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28. If the forfeited shares are issued at a discount, the amount of discount shall be debited to Ans
wer
(a) Profit and loss account (b) Capital reserve account >
(c) Share forfeiture account (d) Share premium account
(e) Share capital account.
(1 mark)
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29. Dividends are usually paid as a percentage of Ans
wer
(a) Authorized share capital (b) Net profit >
(c) Paid-up capital (d) Called-up capital
(e) Called-up share capital plus calls-in-advance less un-paid calls.
(1 mark)
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30. Which of the following factors is used as a multiplier of super profits in valuation of goodwill of a Ans
business? wer
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(a) Average capital employed in the business (b) Simple profits
(c) Number of years’ purchase (d) Normal rate of return
(e) Normal profits.
(1 mark)
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31. The excess price received over the par value of shares should be credited to Ans
wer
(a) Calls-in-advance account (b) Share capital account >
(c) Reserve capital account (d) Securities premium account
(e) Share allotment account.
(1 mark)
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32. Underwriting commission will not be paid on the amount of shares taken by Ans
wer
(a) Promoters (b) Directors >
 (c) Employees (d) Directors’ friends (e) All of the above.
(1 mark)
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33. Which of the following items should not appear under the heading ‘unsecured loans’ in the Balance Ans
Sheet of a company? wer
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(a) Sinking funds (b) Loans and advances from subsidiaries
(c) Short term loans and advances from banks (d) Loans and advances from others
(e) Fixed deposits from others.
(1 mark)
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34. Which of the following is/are limitation(s) of a Balance Sheet? Ans
wer
I. It does not contain certain assets and liabilities despite its claim to be the statement of all assets >
and liabilities.
II. The factors, which have a vital bearing on the earnings of the organization, are not disclosed.
III. Personal judgment plays a great part in determining the figures of the balance sheet.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
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35. Premium on redemption of debentures account is Ans
wer
(a) A real account (b) A nominal account - income >
(c) A personal account (d) A nominal account - expenditure
(e) A capital reserve.
(1 mark)
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36. According to the SEBI guidelines, before the redemption of debentures having a maturity of more than 18 Ans
months, the debenture redemption reserve created, should be at least equivalent to wer
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(a) 10% of the debenture issue (b) 25% of the debenture issue
(c) 30% of the debenture issue (d) 50% of the debenture issue
(e) 75% of the debenture issue.
(1 mark)
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37. Share premium cannot be used to Ans
wer
(a) Issue bonus shares (b) Redeem preference shares >
(c) Write-off preliminary expenses (d) Write-off discount on issue of shares
(e) Provide for premium payable on redemption of debentures.
(1 mark)
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38. Which of the following statements is true? Ans
wer
(a) Brokerage can be paid in respect of promoters’ quota >
(b) Brokerage can be paid when applications are made by institutions/ banks against their
underwriting commitments
(c) The mailing cost and out-of-pocket expenses for canvassing public issues, etc., incurred by a
broker will be reimbursed by the company
(d) Brokerage must be paid only to a person carrying on the business of broker but not to a private
person
(e) Brokerage need not be disclosed in the prospectus or statement in lieu of prospectus.
(1 mark)
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39. Tax deducted at source appears in the Balance Sheet on the Ans
wer
(a) Liabilities side under current liabilities (b) Liabilities side under provisions >
(c) Assets side under current assets (d) Assets side under loans and advances
(e) Assets side under miscellaneous expenditure.
(1 mark)
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40. Which of the following shall not be deducted for the purpose of calculating managerial remuneration of Ans
 wer
a company? >

(a) Damages paid for breach of a contract (b) Loss on sale of part of the undertaking
(c) Directors’ remuneration (d) Bonus payable to company’s staff
(e) Interest on unsecured loans.
(1 mark)
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41. Consider the following Balance Sheet of Ravera Enterprises as on March 31, 2004: An
sw
Liabilities Rs. Assets Rs. er
Capital 5,00,000 Land and building 2,50,000 >
Long term loan 1,50,000 Machinery 3,00,000
Creditors 90,000 Fictitious assets 60,000
Bank overdraft 35,000 Debtors 95,000
Stock 60,000
Cash 10,000
7,75,000 7,75,000 The profit
of the year 2003-2004 was Rs.60,000 and has accrued evenly throughout the year. The rate of return in
similar business is 12%. The normal profit of Ravera Enterprises is
(a) Rs.56,400 (b) Rs.49,200 (c) Rs.67,200 (d) Rs.60,000 (e) Rs.52,800.
(2 marks)
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42. On April 01, 2004, the balance in debenture redemption fund account of Rainbow Ltd. was Rs.1,20,000. An
This fund was invested in the following securities: sw
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Rs.60,000, 10% Government loan Rs.52,500 >
Rs.37,500, 8% Debentures Rs.31,500
300 Equity shares of Rs.100 each Rs.36,000
On April 01, 2004, Government loan was sold at par, 8% debentures were sold at 98% and the equity
shares were sold at Rs.125 per share. The amount transferred from debenture redemption fund investment
account to debenture redemption fund account of the company was
(a) Rs. 14,250 (b) Rs. 6,750 (c) Rs.1,34,250 (d) Rs.1,20,000 (e) Rs.1,05,750.
(2 marks)
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43. The profits of Matrix Enterprises Ltd. for the past 5 years are as under: An
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Year Rs. er
1999-2000 9,000 >
2000-2001 36,000
2001-2002 45,000
2002-2003 54,000
2003-2004 89,100
On October 01, 2001, repair expenses of
Rs.3,600 of office equipment were capitalized. The company provides depreciation at the rate of 10% on
straight-line method. The profit for the year 2003-2004 includes the profit on sale of plant of Rs.2,700.
The weighted average profit of the company is
(a) Rs.57,132 (b) Rs.45,540 (c) Rs.34,092 (d) Rs.60,012 (e) Rs.45,420.
(2 marks)
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44. The directors of Zenith Ltd. made the final call of Rs.30 per share on January 15, 2004 indicating the last An
date of payment of call money to be January 31, 2004. Mr. Naveen, holding 7,500 shares paid the call sw
money on March 15, 2004. er
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If the company adopts Table A, of the Companies Act the amount of interest on calls-in-arrear to be paid
by Mr. Naveen is
(a) Rs.937.50 (b) Rs.1,406.25 (c) Rs.1,125.00 (d) Rs.1,687.50 (e) Rs.1,875.00.
(1 mark)
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45. Genial Ltd. issued 50,000 shares of Rs.100 each at a premium of 20% per share payable as follows: An
sw
On application Rs.20 er
 On allotment Rs.50 (including premium) >
On first call Rs.30
On second and final call Rs.20
Applications were received for 75,000 shares and pro rata allotment was made to applicants of 60,000
shares. Money excess received on application was employed on account of sum due on allotment.
Ramesh, to whom 1,000 shares were allotted failed to pay the allotment money and on his subsequent
failure to pay the first call, his shares were forfeited and Mohan, the holder of 1,500 shares failed to pay
the two calls and his shares were forfeited after the second call. Of the forfeited shares, 2,000 shares were
reissued to Kamal at a discount of 10%, the whole of Ramesh’s forfeited shares being reissued.
The total of liabilities side of the Balance Sheet of the company after affecting the above transactions will
be
(a) Rs.60,00,000 (b) Rs.60,09,000 (c) Rs.70,00,000 (d) Rs.69,50,000 (e) Rs.59,45,000.
(3 marks)
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46. Kiranmai Ltd. issued 7,500 shares of Rs.100 each at par payable Rs.20 on application, Rs.40 on allotment An
and Rs.40 on call. Applications were received for 7,000 shares and all applicants were allotted in full. sw
Raval, who was allotted 500 shares, paid Rs.32,500 at the time of allotment indicating that the excess er
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amount to be adjusted against call money. The entry to record the receipt of amount on allotment is
(a) Bank a/c. Dr. Rs.2,92,500
To Share allotment a/c. Rs.2,92,500
(b) Bank a/c. Dr. Rs.2,92,500
To Share capital a/c. Rs.2,92,500
(c) Share allotment a/c. Dr. Rs.2,80,000
To Share capital a/c. Rs.2,80,000
(d) Bank a/c. Dr. Rs.2,92,500
To Share allotment a/c. Rs.2,80,000
To Calls in advance a/c. Rs. 12,500
(e) Bank a/c. Dr. Rs.2,92,500
To Share allotment a/c. Rs.2,80,000
To Share premium a/c. Rs. 12,500.
(2 marks)
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47. Excl Ltd. acquired Building worth Rs.6,30,000 from Light-blue Ltd. by issue of shares of Rs.100 at a An
discount of 10%. The number of shares to be issued by Excl Ltd. to settle the purchase consideration is sw
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(a) 6,300 shares (b) 7,500 shares (c) 7,000 shares (d) 5,727 shares (e) 5,670 shares. >
(1 mark)
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48. Great Pals Ltd. issued 40,000 shares of Rs.20 each at a premium of 25% payable Rs.4 on application, An
Rs.9.00 (including premium) on allotment and the balance on two equal calls. Applications were received sw
for 96,400 shares and the allotment was made as under: er
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Applicants for 25,400 shares were allotted 15,240 shares pro-rata
Applicants for 48,000 shares were allotted 14,200 shares pro-rata
Applicants for 23,000 shares were allotted 10,560 shares pro-rata
The surplus money, if any, would be refunded only after utilizing the excess received on application
towards the payment of allotment dues. The amount refunded to the applicants is
(a) Rs. Nil (b) Rs.7,400 (c) Rs.1,92,800 (d) Rs.1,34,400 (e) Rs.2,25,600.
(2 marks)
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49. Dinakar operates a garment store in a hired premises at a rent of Rs.1,20,000 per annum. The owner of An
the premises, who has recently completed her fashion-designing course, wishes to purchase the garment sw
store. The details of the business of Dinakar are as under: er
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The profit for the year 2003-2004 is Rs.2,30,000.
The capital employed by Dinakar is Rs.20,00,000.
The value of the premises is Rs.4,00,000.
 If the normal return on capital employed is 12%, the super profit is
(a) Rs.58,000 (b) Rs.62,000 (c) Rs.1,10,000 (d) Rs.1,20,000 (e) Rs.1,78,000.
(3 marks)
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50. Consider the following Balance Sheet of Kumar Ltd. as on March 31, 2004: An
sw
Liabilities Rs. Assets Rs. er
Share capital 7,00,000 Land and building 4,60,000 >
Capital reserve 2,90,000 Plant and machinery 3,20,000
Profit and loss account 1,80,000 Non-trading investments 2,80,000
Sundry creditors 80,000 Sundry debtors 80,000
Inventory 90,000
Cash and bank 10,000
Preliminary expenses 10,000
12,50,000 12,50,000 The
market values of assets are as under:
Land and building – Rs.5,50,000
Plant and machinery – Rs.4,00,000
Non-trading investments – Rs.2,50,000
Sundry debtors includes Rs.10,000 due from Suchitra who has become insolvent. The capital employed
of the company, for the purpose of valuation of goodwill is
(a) Rs.12,90,000 (b) Rs.10,40,000 (c) Rs.13,00,000 (d) Rs.11,20,000 (e) Rs.13,70,000.
(2 marks)
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51. Kusuma Ltd. announced a rights issue of four shares of Rs.100 each at a premium of 160% for every five An
shares held by the existing shareholders. The market value of the share at the time of rights issue is sw
Rs.440. The value of right is er
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(a) Rs.124 (b) Rs.352 (c) Rs.80 (d) Rs.110 (e) Rs.65.
(1 mark)
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52. The profits of Yankee Ltd. is Rs.15,75,000, which is arrived at after considering the following: An
sw
Directors’ remuneration Rs. 21,000 er
Subsidy received from the Government Rs.3,15,000 >
Income tax paid Rs. 94,500
Damages paid by virtue of legal liability Rs. 42,000
If the managerial remuneration payable to directors is 5% after charging such commission, the
commission payable is
(a) Rs.80,500 (b) Rs.64,500 (c) Rs.82,500 (d) Rs.79,500 (e) Rs.87,000.
(2 marks)
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53. On April 01, 2003, the balance of 12% Debentures of Rs.100 each of Mars Ltd. was Rs.5,00,000. The An
company reserves the right to redeem the debentures in any year by purchase in the open market. Interest sw
on debentures is payable on September 30 and March 31, every year. On July 1, 2003, the company er
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purchased 1,000 of its 12% Debentures as investment at Rs.99 cum-interest. On August 01, 2003, it
purchased another 1,000 of its debentures at Rs.98 ex-interest. The company cancelled 2,000 own
debentures on September 01,2003. The profit/loss on cancellation of own debentures is
(a) Rs.1,000 (Loss) (b) Rs.6,000 (Profit)
(c) Rs.3,000 (Profit) (d) Rs.2,000 (Loss) (e) No Profit/No Loss.
(2 marks)
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54. Sunshine Ltd. issued 2,00,000 equity shares of Rs.10 each at a premium of 20%, payable: An
sw
On application Rs.2 er
On allotment Rs.5 (including premium) >

On first call Rs.3

On final call Rs.2 Mr. Suresh, to whom 1,000
shares were allotted, failed to pay the first call money and his shares were forfeited before the final call is
 made. The journal entry passed by the company to record the forfeiture of shares is
Rs. Rs.
(a) Share capital a/c.
8,000
Dr.
Share premium a/c.
2,000
Dr.
To Share first call a/c. 3,000
To Share forfeiture a/c. 7,000
(b) Share capital a/c.
10,000
Dr.
Share premium a/c.
2,000
Dr.
To Share first call a/c. 3,000
To Share final call a/c. 2,000
To Share forfeiture a/c. 7,000
(c) Share capital a/c.
8,000
Dr.
To Share first call a/c. 3,000
To Share forfeiture a/c. 5,000
(d) Share capital a/c.
10,000
Dr.
To Share first call a/c. 3,000
To Share forfeiture a/c. 7,000
(e) Share capital a/c
10,000
Dr.
To Share premium a/c. 2,000
To Share first call a/c. 3,000
To Share forfeiture a/c. 5,000 (2 marks)
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55. Sanjay Ltd. proposed to issue 6,000 equity shares of Rs.100 each at a premium of 40%. The minimum An
amount of application money to be collected per share is sw
er
(a) Rs.5.00 (b) Rs.6.00 (c) Rs.7.00 (d) Rs.8.40 (e) Rs.10.00. >
(1 mark)
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56. Sundar Ltd., a listed company, proposed to issue 1,000 equity shares of Rs.100 each at par by way of An
private placement. The maximum amount of brokerage that can be paid by the company is sw
er
(a) Rs. 500 (b) Rs.1,500 >
(c) Rs.2,500 (d) Rs.5,000 (e) No brokerage can be paid.
(1 mark)
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57. Consider the following data pertaining to three underwriters, Ajay, Samay and Vijay An
sw
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Particulars Ajay Samay Vijay
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Shares underwritten 8,000 16,000 24,000

Marked applications 6,000 8,000 11,000

If total applications received are for
44,800 shares, the final liability of Vijay is
(a) 3,200 Shares (b) 2,320 Shares (c) 3,000 Shares (d) 3,100 Shares (e) 880 Shares.
(2 marks)
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58. The following are the Balance Sheets of H Ltd. and S Ltd. as on March 31, 2004: An
sw
er
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 H Ltd. S Ltd. H Ltd. S Ltd.
Liabilities Assets
Rs. Rs. Rs. Rs.
Share capital 15,00,000 3,00,000Land and building 5,90,000 1,90,000
Profit and loss Plant and machinery 3,60,000 90,000
account 2,00,000 1,00,000 Furniture and fittings 1,80,000 75,000
Sundry creditors 40,000 20,000 Investments in S Ltd. 3,00,000 -
Bills payable 10,000 15,000 Sundry debtors 95,000 46,000
Short-term loan 15,000 - Bills receivable 70,000 20,000
Closing stock 95,000 5,000
Cash on hand 20,000 3,000
Cash at bank 55,000 6,000
17,65,000 4,35,000 17,65,000 4,35,000 H
Ltd. acquired 60% shares of S Ltd. on March 31, 2004. The total of Consolidated Balance Sheet of H Ltd.
and its subsidiary S Ltd. as on March 31, 2004 is

(a) Rs.19,60,000 (b) Rs.19,00,000 (c) Rs.22,00,000 (d) Rs.20,65,000 (e) Rs.19,45,000.
(2 marks)
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59. Wealth Ltd. acquired 55% shares of Gold Ltd. on February 01, 2003. Wealth Ltd. sells goods at cost plus An
20%. During the year 2003-04, it supplied goods worth Rs.90,000 to Gold Ltd., out of which, 60% are sw
still in stock of Gold Ltd. as on March 31, 2004. The unrealized profit on stock to be adjusted while er
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preparing Consolidated Balance Sheet as on March 31, 2004 is
(a) Rs.4,950 (b) Rs.5,940 (c) Rs.9,900 (d) Rs.10,800 (e) Rs.6,000.
(1 mark)
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60. The authorized capital of Shilpa Ltd. consists of 2,00,000 equity shares of Rs.10 each. The called-up and An
paid-up capital as on April 01, 2003 is 50,000 shares of Rs.10 each. During the year 2003-2004, the sw
following transactions took place: er
>
On April 01, 2003, the company declared dividend in the form of bonus shares of one share for every two
shares held.
On December 31, 2003, the company offered rights shares to the existing shareholders at the rate of two
shares for every five shares held for Rs.12.5 per share. All the shareholders subscribed to the rights issue
offered to them.
The share capital of the company as on March 31, 2004, after considering the above information is
(a) Rs.11,25,000 (b) Rs.10,50,000 (c) Rs.9,50,000 (d) Rs.10,00,000 (e) Rs.12,00,000.
(2 marks)
<
61. On July 01, 2003, Silver Spoon Ltd. acquired 7,000 equity shares of Pure Products Ltd. for a An
consideration of Rs.8,00,000. The share capital of Pure Products Ltd. consists of 10,000 equity shares of sw
Rs.100 each. er
>
The balances of General reserve and Profit and loss account of Pure Products Ltd. are as under:
As on July 01, 2003 As on March 31, 2004
Rs. Rs.
General reserve 1,70,000 2,00,000
Profit and loss account 1,50,000 1,75,000 The
amount of minority interest shown in Consolidated Balance Sheet as on March 31, 2004 is
(a) Rs.4,57,500 (b) Rs.3,60,000 (c) Rs.3,07,500 (d) Rs.4,05,000 (e) Rs.4,12,500.
(2 marks)
<
62. Highfi Ltd. issued 10,000 equity shares of Rs.10 each, out of which only Rs.8 is called-up and paid-up. An
As the company has accumulated free reserves, it declared a bonus issue. This bonus issue is made by sw
converting the partly paid shares into fully paid-up and by issue of one share for every four shares held er
>
by the existing shareholders.
The total amount required for bonus issue is
(a) Rs.25,000 (b) Rs.20,000 (c) Rs.45,000 (d) Rs.5,000 (e) Rs.1,25,000.
 (1 mark)
<
63. The directors of Prosperous Ltd. proposed a dividend of 14%. The minimum amount of current profits to An
be transferred by the company to reserves is sw
er
(a) 2.5% (b) 10% (c) 7.5% (d) 5% (e) 20%. >
(1 mark)
<
64. The Balance Sheet of Seven Hills Ltd. as on March 31, 2004 is as follows: An
sw
Liabilities Rs. Assets Rs. er
>
Equity share capital of Rs.10 each, 10,00,000 Building 6,00,000
called-up and paid-up
Capital redemption reserve 2,00,000 Plant & Machinery 5,00,000
Asset revaluation reserve 1,80,000 Furniture 2,00,000
Development rebate reserve 50,000 Stock 1,00,000
General reserve 1,10,000 Sundry debtors 1,80,600
Securities premium account 90,000 Cash at bank 2,19,400
(Received in cash)
Investment allowance reserve 70,000
Sundry creditors 1,00,000
18,00,000 18,00,000
The
company intends to issue bonus shares at the rate of two shares for every five shares held. Resolution to
this effect was passed and the legal requirements are complied with.
The journal entry passed for the bonus issue is
(a) Securities premium a/c. Dr. Rs.90,000
Capital Redemption Reserve a/c. Dr. Rs.2,00,000
General Reserve a/c. Dr. Rs.1,10,000
To Bonus to share holders a/c. Rs. 4,00,000
(b) Bonus to share holders a/c. Dr. Rs.4,00,000
To Cash a/c. Rs.
4,00,000
(c) Securities premium a/c. Dr. Rs.90,000
Asset Revaluation Reserve a/c. Dr. Rs.1,80,000
General Reserve a/c. Dr. Rs.1,30,000
To Bonus to share holders a/c. Rs.4,00,000
(d) Equity share capital a/c. Dr. Rs.4,00,000
To Bonus to share holders a/c. Rs.4,00,000
(e) Capital Redemption Reserve a/c. Dr. Rs.2,00,000
Asset Revaluation Reserve a/c. Dr. Rs.1,80,000
Securities premium a/c. Dr. Rs. 20,000
To Bonus to share holders a/c. Rs.4,00,000.
(2 marks)
<
65. On October 1, 2003, out of 2,000 equity shares of Lilliput Company, the Gulliver Company acquired An
1,600 equity shares. The profit and loss account of Lilliput Company showed the following balances: sw
er
On April 1, 2003 Rs.50,000 (Cr.) >
On March 31, 2004 Rs.98,000 (Cr.)
At the time of consolidation of balance sheet, the share of capital profit of Gulliver Company is
(a) Rs.78,400 (b) Rs.59,200 (c) Rs.49,000 (d) Rs.24,000 (e) Rs.79,200.
(2 marks)
<
66. Good Look Ltd. has come up with a public issue of 10,000 shares of Rs.100, each which are issued at a An
premium of Rs.20 per share. Mr. Ziden entered into an underwriting agreement for 80% of the issue sw
 er
under a clause of maximum commission. Marked applications were for 8,000 shares. The underwriting >
commission payable to Mr. Ziden is
(a) Rs.60,000 (b) Rs.48,000 (c) Rs.36,000 (d) Rs.40,000 (e) Rs.24,000.
(2 marks)
<
67. BC Ltd. purchased 500 of its own 12% debentures of Rs.100 each on April 01,2004 at the rate of Rs.96 An
cum-interest. The company pays interest on May 31 and November 30 every year. The amount debited to sw
interest account at the time of purchase was er
>
(a) Rs.3,000 (b) Rs.2,500 (c) Rs.2,000 (d) Rs.1,500 (e) Rs.1,000.
(1 mark)
<
68. H Ltd. acquired 7,500 shares of S Ltd. on August 1, 2003. The equity share capital of S Ltd. is An
Rs.1,00,000 of Rs.10 per share. The machinery of S Ltd. is revalued upwards by Rs.2,00,000. The sw
minority group interest shown in the consolidated balance sheet as on March 31, 2004 was er
>
(a) Rs.2,00,000 (b) Rs.1,50,000 (c) Rs.1,00,000 (d) Rs. 75,000 (e) Rs. 50,000.
(2 marks)
<
69. Mazigon Ltd. issued 10,000 shares of Rs.100 each at a premium of Rs.20 per share. The amount to be An
paid is as follows: sw
er
Rs.50 - on application, including premium of Rs.20 >
Rs.50 - on allotment
Rs.20 - on first and final call.
Applications were received for 9,000 shares and they were allotted in full.
Call money was not received on 1,000 shares and these share were forfeited. On forfeiture of these
shares, the amount standing to the credit of securities premium account is
(a) Rs.2,00,000 (b) Rs.1,80,000 (c) Rs.1,60,000 (d) Rs.1,40,000 (e) Rs. 20,000.
(2 marks)
<
70. Consider the following data pertaining to Orion Ltd. as on March 31, 2004 : An
sw
Particulars Rs. er
>
Nominal equity share capital 50,000
Issued and called-up capital 48,000
Paid-up capital 48,000
Calls in advance 1,000
10% Preference share capital (fully paid-up) 50,000
The company showed a net profit
of Rs.1,20,500 during the year 2003-04.
If the company declares a dividend of 10% on March 31, 2004, the total dividend payable is
(a) Rs.10,100 (b) Rs.10,000 (c) Rs.4,800 (d) Rs.9,800 (e) Rs.12,050.
(2 marks)
<
71. Rahul Ltd. proposed redemption of its preference shares at a premium of 10%. The data pertaining to it An
is as follows: sw
er
Particulats Rs. >
12% Preferential share capital 1,00,000
General reserve 15,000
Share premium 5,000
Profit and loss a/c. (Cr) 22,000 The required fresh issue
of equity shares is, worth
(a) Rs.95,000 (b) Rs.90,000 (c) Rs.83,000 (d) Rs.68,000 (e) Rs.58,000.
(2 marks)
<
72. Consider the following information pertaining to issue of shares of Arvind Ltd. The company issued 1000 An
 sw
shares of Rs.10 each at a premium of 20% payable as: er
>
On application –– Rs.3
On allotment –– Rs.4 (including premium)
On first call –– Rs.3
On second and final call –– Rs.2
Mr. Deepak who was allotted 100 shares failed to pay the first call money. The company has forfeited the
100 shares after the first call. On forfeiture, the amount debited to share capital account is
(a) Rs.1,200 (b) Rs.1,000 (c) Rs.800 (d) Rs.700 (e) Rs.500.
(2 marks)
<
73. The creditors of H. Ltd. include Rs.5,000 due to S. Ltd. and the debtors of H. Ltd. include Rs.3,000 owed An
by S. Ltd. At the time of consolidation, the adjustment will be to sw
er
(a) Reduce total creditors by Rs.5,000 >
(b) Reduce total debtors by Rs.3,000
(c) Reduce total debtors and creditors by Rs.2,000
(d) Reduce total debtors and creditors by Rs.3,000
(e) Reduce total debtors and creditors by Rs.5,000.
(1 mark)
<
74. Leo Ltd. issued 50,000 equity shares of Rs.10 each payable as follows: An
sw
On application Rs.2 er
>
On allotment Rs.3
On first call Rs.3
On second call Rs.2
Applications were received for 45,000 shares and
allotment was made in full. Mr. Gautam, to whom 2,500 shares were allotted, failed to pay the money due on first
call. Consequently his shares were forfeited. The amount to be credited to shares forfeiture account is
(a) Rs.5,000 (b) Rs.25,000 (c) Rs.20,000 (d) Rs.7,500 (e) Rs.12,500.
(2 marks)

END OF QUESTION PAPER

 Suggested Answers
Financial Accounting-II (112) : April 2004
1. Answer : (e) <
TOP
Reason : Consolidated financial statements need not be prepared by a holding company which is a subsidiary of >
another holding company. A subsidiary company is excluded from consolidation if the control is intended to
be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal
in the near future or if the subsidiary company operates under severe long-term restrictions, which
significantly impair its ability to transfer funds to the parent. Hence the answer is (e).
2. Answer : (c) <
TOP
Reason : According to Section 226(3) of the Companies Act, 1956, a body corporate, an officer of the company, a >
person indebted to the company for an amount exceeding Rs.1,000, a person disqualified to be appointed as
an auditor of its subsidiary company, a person holding any security of the company are disqualified to be
appointed as an auditor. However, a person holding the shares of the company as a nominee or a trustee for
any third person and in which the holder has no beneficial interest shall not be disqualified. Hence the
answer is (c).
3. Answer : (a) <
TOP
Reason : According to Schedule VI of the Companies Act, 1956, Vehicles are to be shown in the Balance Sheet under >
the head ‘Fixed Assets’. Loose tools and debts outstanding for more than 6 months and balance bank are to
be shown under Current assets. The long-term investments are to be shown under the head investments. Thus
the answer is (a).
4. Answer : (b) <
TOP
Reason : If there is reduction in the value of fixed assets of subsidiary company as on the date of acquisition by >
holding company, it must be treated as capital loss and debited to goodwill account (b). It should not be
credited to goodwill and therefore alternative (a) is the correct answer. Crediting to capital reserve account
(c) is not the correct answer as there is no capital profit from the given event. It should not be debited to
profit and loss account as the loss is of capital nature. Therefore, alternative (d) is not the correct answer.
Debiting to investment account (e) is of no meaning as the event is related to fixed assets and nothing to do
with the investment account. Therefore, alternative (b) is the correct answer.
5. Answer : (b) <
Reason : The auditor of a company gives a report that the financial statements of the company reflect a true and fair view TOP
>
subject to certain reservations. Such a report is known as qualified opinion (b). Hence, alternative (b) is the
correct answer. Clean report (a) specifies that the that financial statements of the company reflect a true and fair
view and there are nothing which needs to be qualified. Un-qualified opinion (c) states that there is nothing
which needs to be qualified it is a clean report and is not the correct answer. Provisional report subject to issue
of final report (d) is not a report to be given by the auditor and is not the correct answer. Alternative (e) which
is the combination of two incorrect answers is also incorrect. Thus, alternative (b) is the correct answer.
6. Answer : (a) <
Reason : Bonus shares are allotted to the existing shareholders without any consideration being received from them, if TOP
>
authorized by the articles of association. Therefore, alternative (a) is the correct answer. For issue of bonus
shares, neither the sanction by National Company Law Tribunal (b) nor the approval by Central Government
is required (c). A company cannot issue bonus shares by passing a special resolution (d) or by an ordinary
resolution (e) if it is not authorized by the articles of Association. Therefore, alternative (a) is the correct
answer.
7. Answer : (b) <
Reason : According to the provision of Companies Act, the first auditor of a company should be appointed by the TOP
>
board of directors within one month from the date of registration of the company. Therefore, alternative (b) is
the correct answer.
8. Answer : (c) <
Reason : The costs in chartering a company are considered as preliminary expenses and hence should be debited to TOP
>
preliminary expenses account. Subsequently, they will be written off over a period of time. It is not the share
capital (a), not a general administrative expense (b), it is not appropriation of profits (d) and it is cannot be
categorized into legal expenses (e). Therefore, alternative (c) is the correct answer.
9. Answer : (d) <
TOP
Reason : As per the Companies Amendment Act, 1988, only preference shares, which are redeemable within 20 years, >
can be issued. As a corollary, a company cannot issue redeemable preference share for a period exceeding 20
 years. Therefore, alternative (d) is the correct answer.
10. Answer : (c) <
TOP
Reason : The profit or loss on own debentures is to be calculated at the time of cancellation of own debentures and not >
at the time of purchase or next interest payment or original issue of debentures or liquidation of the company.
Therefore, alternative (c) is the correct answer.
11. Answer : (d) <
TOP
Reason : According to Schedule VI of the Companies Act, 1956, the following are to be shown in the balance sheet of >
holding company:
Investment in shares, debentures of subsidiary company
Debts due from subsidiary company
Secured loans from subsidiary company
Thus, minority interest of the subsidiary company is shown in the consolidated Balance Sheet and not in the
Balance Sheet of hold company.
Therefore, alternative (d), i.e., (I), (II) and (IV) above, is the correct answer.
12. Answer : (c) <
TOP
Reason : Net value-added is derived by deducting depreciation from the gross value added. Gross value added is >
arrived at by deducting cost of all materials and services and other extraordinary expenses from sales
revenue and any other income. Therefore, Net value added = Gross value added – Depreciation. Therefore,
alternative (c) is the correct answer.
13. Answer : (b) <
TOP
Reason : According to Schedule VI of the Companies Act 1956, loose tools should be indicated in current assets. >
Livestock, development of property, railway sidings and leaseholds are to be indicated under fixed assets.
Therefore, alternative (b) is the correct answer.
14. Answer : (e) <
TOP
Reason : The computation of EVA involves a complex procedure. Stern and Stewart suggested 175 different >
assumptions and adjustments on the basic measure. Hence (e) is false. EVA is the residual income measure
that subtracts the cost of capital from the operating income generated by a business. EVA can be improved by
downsizing unprofitable operations, units or by selling off sub-standard assets. Decisions based on EVA can
be misleading, particularly, in case of companies which are in their growth phase. Such companies may have
negative EVA even though the rate of return is good. Unlike the traditional method of accounting profit, EVA
requires the deduction of both cost of equity as well as cost of debt. Therefore, alternative (e) is the correct
answer.
15. Answer : (a) <
TOP
Reason : If no auditor is appointed or re-appointed at annual general meeting, the company should inform the Central >
Government within 7 days and the Central Government may appoint a person to fill-up the vacancy.
Therefore, alternative (b) is the correct answer.
16. Answer : (e) <
TOP
Reason : The valuation of inventories (a) can be a tool to inflate or deflate the actual profits by adoption of various >
methods depending on economic conditions. While translating the foreign currency transactions (b) into
reporting currency, different rates can be adopted to manipulate the profits. Various depreciation methods (c)
change the value of depreciation where by profits can be inflated or deflated. The policy of recognizing
expenses / incomes (d) as capital revenue matters considerably and changes the profits of a business thus, in
all the areas (a), (b), (c) and (d), the changes in existing accounting policies result in inflation or deflation of
profits. These are prone to multiplicity of accounting policies. Therefore, alternative (e) is the correct answer.
17. Answer : (c) <
TOP
Reason : Patents, trademarks, franchises and secret processes are specifically identifiable intangible assets. They can >
be sold individually. However goodwill is unidentifiable intangible asset. Customer loyalty, and a reputation
for quality are unidentifiable intangibles, they cannot be sold without selling the enterprise. Hence the
answer is (c).
18. Answer : (e) <
TOP
Reason : Weighted average is appropriate when an average fails to aid future projections. It is more appropriate where >
the past profits of a business are widely fluctuating from year to year. The chronologically arranged years’
profits under consideration will result in the largest weight to the most recent past and the least for remotest.
 All the three statements, i.e., (a), (b) and (c) are true and hence (e) is the answer.
19. Answer : (b) <
TOP
Reason : When shares are issued to promoters for the services offered by them, the account that will be debited with >
the nominal value of shares is goodwill account. They are not the expenses incurred prior to incorporation to
be debited to preliminary expenses, neither a loss on issue of shares to be debited to loss on issue of shares. It
is not a tangible value to debit to asset account on the other hand share capital is credited but not debited.
Therefore, alternative (b) is the correct answer.
20. Answer : (a) <
TOP
Reason : According to the Companies Act, 1956, the companies have to compulsorily maintain their books of account >
only on accrual basis. Cash basis should not be followed. Therefore, alternative (a) is the correct answer.
21. Answer : (b) <
TOP
Reason : According to the Companies Act, 1956, the period to which the accounts of a company relate should not >
exceed 15 months. Therefore, alternative (b) is the correct answer.
Answer : (a) <
22. TOP
Reason : As per accounting standard 18, if two or more companies are subsidiaries of the same holding company, each >
subsidiary is known as Fellow subsidiary. Therefore, alternative (a) is the correct answer.
Answer : (c) <
23. TOP
Reason : No disclosure is required in consolidated financial statements in respect of Intra-group transactions. The >
other items, Remittances-in-transit, capital reserve/Goodwill and minority interest are disclosed in
consolidated financial statements. Therefore, alternative (c) is the correct answer.
24. Answer : (e) <
TOP
Reason : Debentures can be issued for cash or consideration other than cash. It can be issued as collateral security, but >
it cannot be issued in lieu of dividends. Hence, (e) is true.
25. Answer : (a) <
TOP
Reason : (III) Every officer and other employee and agent in default is/are held responsible for keeping proper books >
of accounts of a company in addition to the Managing Director or Manager of the company Thus, alternative
(a) is the correct answer. The other persons mentioned in other statements and alternatives (b), (c), (d) and (e)
are incorrect because they are not the persons held liable for proper keeping books of accounts. Thus, the
correct answer is (a).
26. Answer : (b) <
TOP
Reason : Accounting standard 26 identifies certain costs as Research and Development costs. Legal work on patent >
application is not related to research and development work. Other activities referred in (a), (c), (d) and (e)
are relevant to research and development work. Hence, (b) is the item which is not considered as research
and development cost and hence it is the correct answer.
27. Answer : (a) <
TOP
Reason : Amortization of intangible assets signifies, the systematic writing down of the value of the intangible assets >
overt its life. The method adopted is straight line method. The other alternatives written down value method,
sum of the years’ digits method and Annuity method are used for depreciating the value of tangible fixed
assets. Therefore, alternative (a) is the correct answer.
28. Answer : (c) <
TOP
Reason : If a company reissues the forfeited shares at a discount, that discount amount will be debited to forfeited >
share account.
According to the Companies Act, the company cannot debit share capital account, profit and loss account,
capital redemption reserve account and capital reserve account for the amount of discount allowed on reissue
of forfeited shares. Therefore, alternative (c) is the correct answer.
29. Answer : (c) <
TOP
Reason : Dividends are usually paid as a percentage of paid-up capital (i.e., called-up capital less calls-in-arrear) (c). It >
is not paid on authorized capital (a) unless it is fully called-up and paid-up. Net profit (b) is the basis for
declaring dividends but the computation is as a percentage of paid-up capital and is not the correct answer.
No dividend is payable on calls-in-advance hence the alternative (d) which states paid-up share capital plus
calls-in-advance is incorrect. The alternative (e) is also incorrect because, it also includes calls-in-advance.
Thus, alternative (c) is the correct answer.
30. Answer : (c) <
TOP
Reason : Number of years’ purchase is the factor with which the super profits will have to be multiplied in order to >
 arrive at the value of goodwill.
Super profits = Average annual profits – (Average capital employed x Normal rate of return)
Goodwill = Number of years’ purchase x super profits
31. Answer : (d) <
TOP
Reason : If by the terms of issue, the price payable is above the par value of shares, it is called an issue at premium. >
The amount so received is to be credited to securities premium account. Therefore, alternative (d) is the
correct answer.
32. Answer : (e) <
TOP
Reason : According to Sec.76 of the Companies Act, a company is authorized to pay underwriting commission only if >
the shares or debentures are offered to the general public. No underwriting commission can be paid, if the
issue is privately placed. The shares taken by Promoters, Directors, employees and directors’ friends cannot
be considered as shares offered to the general public. As such no underwriting commission is payable on
these shares. Therefore, alternative (e) is the correct answer.
33. Answer : (a) <
TOP
Reason : Sinking fund is created out of profit. It is the part of profit and should be listed under the heading “Reserves >
and Surplus” and not under “unsecured loans”. Loans and advances from subsidiaries, short term loans and
advances from banks, loans and advances from others and fixed deposits from others are unsecured loans.
34. Answer : (e) <
TOP
Reason : Though the balance sheet is claimed to be the statement of all assets and liabilities, still it does not contain >
certain assets and liabilities. For example, the efficient management force is a human asset available to the
organization. Though efforts are being made to quantify and present the human resources, most of the
balance sheets do not present the same. Also dissatisfied labor force is a liability to the organization. The
factors, which have a vital bearing on the earnings of the organization such as changes in the managerial
personnel, cessation of agreements, loss of markets, are not disclosed. Personal judgment plays a great part
in determining the figures for the balance sheet. Example: provision for depreciation, stock valuation,
provision for bad debts are more based on the personal judgment and is therefore not free from bias. Hence
the answer is (e).
<
35. Answer : (c) TOP
Reason : Premium on redemption of debentures account represents the additional amount payable to debenture holders >
at the time of redemption of debentures and is a personal account.
36. Answer : (d) <
TOP
Reason : According to SEBI guidelines, a debenture issue having a maturity of more than 18 months necessitates the >
creation of a special reserve known as debenture redemption reserve. Such debenture redemption reserve
should be equivalent to at least 50% of the amount of debenture issue prior to the commencement of the
redemption. Thus, (d) is the correct answer.
37. Answer : (b) <
TOP
Reason : Share premium should not be used for redemption of preference shares whereas they can be used to provide >
for premium on redemption of preference shares or debentures, to issue bonus shares, to write-off
preliminary expenses and discount on issue of shares.
38. Answer : (d) <
TOP
Reason : Brokerage should be paid only to the person carrying business of broker. Brokerage should not be paid in >
respect of promoters quota and when applications are made against underwriting commitments. The mailing
costs and out-of-pocket expenses should be borne by the broker Brokerage should be disclosed in the
prospectus or statement in lieu of prospectus.
39. Answer : (a) <
TOP
Reason : Tax deducted at source is the liability of the company towards the tax authority. It is also payable to the tax >
authority within very short period. So, it is the item of current liabilities. It cannot be treated as provisions or
assets.
40. Answer : (b) <
TOP
Reason : Loss of a capital nature including loss on sale of undertaking does not qualify as a deduction in the >
computation of managerial remuneration. Damages paid for a breach of contract, Directors’ remuneration,
bonus payable to company’s staff and interest on unsecured loans are deductible to arrive at the profit for
calculating managerial remuneration.
41. Answer : (b) <
TOP
Reason : >
Particulars Rs.
Total assets 7,75,000
Less: Fictitious assets 60,000
Long term loan 1,50,000
Creditors 90,000
Bank overdraft 35,000
Capital employed at the end 4,40,000
Less: ½ of the profit during the year 2003-2004 30,000
Average capital employed 4,10,000 Normal
profit = Average capital employed ×Normal rate of return = Rs.4,10,000 ×12%
= Rs.49,200.
42. Answer : (a) <
TOP
Reason : Debenture redemption fund investment account >
Dr. Cr.
Particulars Rs. Particulars Rs.
To Balance b/d. By Bank:
10% Government loan 52,500 10% Government loan 60,000
8% Debentures 31,500 8% Debentures 36,750
Equity shares 36,000 Equity shares 37,500
To Debenture redemption fund 14,250
a/c.
1,34,250 1,34,250
43. Answer : (a) <
TOP
Reason : >
1999- 2000- 2001- 2002- 2003- Total
2000 2001 2002 2003 2004
Rs. Rs. Rs. Rs. Rs. Rs.
Profit 9,000 36,000 45,000 54,000 89,100
Less: repair - 3,600
expenses
Add: 180 360 360
Depreciation
Less: profit on
sale of plant –2,700
Adjusted profits 9,000 36,000 41,580 54,360 86,760
Weights 1 2 3 4 5
Profits × weights 9,000 72,000 1,24,740 2,17,440 4,33,800 8,56,980
Weighted average profits = Rs.8,56,980 / 15 = Rs.57,132
44. Answer : (b) <
TOP
Reason : If a company adopted Table A, interest on calls-in arrear is to be paid at the rate of 5% per annum for the >
period between the last date fixed for payment of call and the actual date of payment. Accordingly, the
interest payable by Mr.Naveen is for one and half month at the rate of 5% on Rs.2,25,000 (Rs.30 × 7,500
shares).
5 1.5
×
10 12
Interest = 2,25,000 ×
= 1406.25
Hence interest is Rs.1406.25.
45. Answer : (b) <
TOP
Reason : Progress Ltd.
>
Balance Sheet (extract)
 Liabilities Rs.
Share Capital:
49,500 shares of Rs.100 each fully paid 49,50,000
Shares premium 9,80,000
Shares forfeiture 25,000
Capital reserve 54,000
Total 60,09,000 Thus,
the total of liabilities side of Balance sheet is Rs.60,09,000.
Working:
Rs.
1. Share application money received 75,000 × Rs.20 15,00,000
Less : Shares allotted on pro-rata – 50,000 against 60,000
applications 50,000 × Rs.20 10,00,000
Less : Shares rejected and money refunded 15,000 × Rs.20 3,00,000
Surplus money available for allotment 2,00,000
Rs.
2. Share allotment money 50,000 (Rs.30 + Rs.20) 25,00,000
Less:available on account of share application excess money 2,00,000
Less: default on a/c of Ramesh (Rs.50,000 – Rs.4,000)
**46,000
22,54,000
Amount defaulted by Ramesh:-
60, 000
50, 000
*Share applied by Ramesh 1000 × = 1200
Amount paid by him on application = 1200 × Rs.20 Rs.24,000
Adjusted for application money = 1000 × Rs.20 Rs.20,000
Balance available for allotment 4,000
Amount due on allotment (1000 × Rs.50) Rs.50,000
Application money available for adjustment Rs.4,000
**
Amount defaulted by Ramesh Rs.46,000
3. Share first call money 50,000 × Rs.30 15,00,000
Less: Default by Ramesh 1000 × Rs.30 30,000
Mahesh 1500 × Rs.30 45,000
14,25,000
4. Share second call money 49,000 × Rs.20 9,80,000
Less: Default by Mohan 1500 × Rs.20 30,000
9,50,000
 5. Shares forfeiture:
Rs.
Money received on shares held by Ramesh 24,000
Money received on Shares held by Mohan 1500 × Rs.50 (Rs.20 + Rs.30) 75,000
99,000
Less: 2000 shares issued at 10% discount 2000 × Rs.10 20,000
Less: Balance transferred to capital reserve on reissued shares
Total money received : 1200 × 20 = 24,000
1000 × 50 = 50,000

74,000
Less : Discount on reissued shares
20,000
54,000
Balance in shares forfeiture a/c 25,000
6. Share capital a/c
Total shares – forfeited + re-issued
[50,000–(1000+1500) + 2000] = 49,500]× Rs.100 49,50,000
7. Share premium [50,000 – 1000 = 49,000] × Rs.20 9,80,000
8. Capital reserve Rs.54,000
46. Answer : (d) <
TOP
Reason : Amount payable by Rahul on allotment is 500 shares × Rs.40 = Rs.20,000 >
Amount received on allotment of shares is (6500 shares × Rs.40) + Rs.32,500 = Rs.2,92,500
Bank a/c Dr = Rs.2,92,500
To share allotment a/c Rs.2,80,000
To calls in advance a/c Rs.12,500
47. Answer : (c) <
TOP
Reason : >
Issue Price :- Rs.
Face value 100
Less : Discount (100×10%) 10

Issue price 90
Number of shares to be issued =
Rs.6,30,000
=7,000 shares
Rs.90

48. Answer : (b) <

TOP
Reason : >
Shares Shares Application Application Excess Allotment Surplus / (deficit)
applied allotted money money due money money due
received (including
premium)
Rs.
Rs. Rs. Rs. Rs.
(1) (2) (3)=(1)×Rs.4(4)=(2) × (5)=(3) – (6)=(2)×Rs.9 (7) = (5)– (6)
Rs.4 (4)
25,400 15,240 1,01,600 60,960 40,640 1,37,160 (96,520)
48,000 14,200 1,92,000 56,800 1,35,200 1,27,800 7,400
23,000 10,560 92,000 42,240 49,760 95,040 (45,280)
96,400 40,000 3,85,600 1,60,000 2,25,600 3,60,000
Hence the amount of refund is Rs.7,400.
49. Answer : (b) <
TOP
Reason : >
Particulars Rs.
Profit for the year 2003-2004 2,30,000
Add: Rent (not relevant if the owner of the premises operates the 1,20,000
business)
Adjusted maintainable profits 3,50,000
Capital employed by Dinakar 20,00,000
Add: Value of premises 4,00,000
Total capital employed 24,00,000
Normal profit (12% of Rs.24,00,000) 2,88,000
Super profits (Rs.3,50,000 – Rs.2,88,000) 62,000
50. Answer : (b) <
TOP
Reason : Consider the following Balance Sheet of Kumar Ltd. as on March 31, 2004: >

Assets Rs.
Land and building 5,50,000
Plant and machinery 4,00,000
Sundry debtors 70,000
Inventory 90,000
Cash and bank 10,000
11,20,000
Less: Sundry creditors 80,000
Capital employed 10,40,000
51. Answer : (c) <
TOP
 r  >
 N + r  (M − S)
 
Reason : Value of right =
Where r = No of rights issued
N = No. of existing shares
M = Market price
S = Issue price of rights= Rs.100 + 160% premium = Rs.100 + Rs.160 = Rs.260
 4 
 4+5  (440-260)
 
∴Value of rights = = Rs.80
52. Answer : (d) <
TOP
Reason : To arrive at the profits for calculating managerial remuneration, the director’s remuneration, damages paid >
by virtue of legal liability shall be deducted and subsidy received from Government shall be added.
However the income tax payable shall not be deducted. Hence the profit for the purpose of calculating
managerial remuneration is Rs.15,75,000 + Rs.94,500 = Rs.16,69,500
5
Rs.16, 69, 500 ×
105
Commission = = Rs.79,500.
53. Answer : (b) <
TOP
Reason : >
 Dr. Cr.
Date Particulars
(Rs.) (Rs.)
July 1, Own Debentures a/c. Dr. 96,000
2003
Interest on Debentures A/c. Dr. 3,000
To Bank A/c. 99,000
(Being the purchase of 1000 own debentures at the rate
of Rs.99 cum interest. Interest for 3 months from April
1,2003 to June 30, 2003 is Rs.3,000)
August 01, Own Debenture A/c. Dr. 98,000
2003 Interest on Debenture A/c. Dr. 4,000
To Bank A/c. 1,02,000
(Being the purchase of 1000 own debentures at Rs.98
ex-interest. Interest for 4 months from April 1,2003 to
July 31, 2003 is Rs.4,000)
September 12% Debentures A/c. Dr. 2,00,000
01, 2003 To Own debenture A/c. 1,94,000
To Capital reserve A/c. 6,000
(Being the profit on redemption of debentures
transferred to capital reserve A/c.)
Thus, the profit on cancellation of own debentures transferred to capital reserve is Rs.6,000.
54. Answer : (c) <
TOP
Reason : When shares are forfeited, the share capital account should be debited with called up amount (excluding >
premium) and corresponding credit should be given to share call account with amount not received and
share forfeiture account with amount received. If the premium is already received, the same should not be
reversed. Hence the entry is

Share capital a/c Dr. Rs. 8,000

To Share first call a/c Rs.3,000
To Share forfeiture a/c Rs.5,000
55. Answer : (a) <
TOP
Reason : The application money should not be less than 5% of the nominal value of the shars. Hence, the minimum >
amount of application money is Rs.5 per share.
56. Answer : (a) <
TOP
Reason : The listed companies are allowed to pay brokerage on private placement of capital at a maximum rate of >
0.5 %.
Hence the maximum amount of brokerage that can be paid by M/s. Sundar Ltd. is
1,000 shares x Rs. 100x 0.5% = Rs.500

57. Answer : (b) <

TOP
Reason : >

Particulars Ajay Samay Vijay Total

Shares underwritten 8,000 16,000 24,000 48,000
Less: unmarked applications 3,300 6,600 9,900 19,800
(in the ratio 1:2:3)
4,700 9,400 14,100 28,200
Less: Marked applications 6,000 8,000 11,000 25,000
(1,300) 1,400 3,100 3,200
Less: Surplus of Ajay’s share
(in the ration 2:3) 1,300 –520 –780 Nil
Final liability Nil 880 2,320 3,200
58. Answer : (a) <
TOP
 Reason : Goodwill: >

Particulars Rs.
Investments in S Ltd. 3,00,000
Less: Face value of shares (Rs.3,00,000 x 60%) 1,80,000
Share of capital profit (Rs.1,00,000 x 60%) 60,000
Goodwill 60,000

Minority interest:
Particulars Rs.
Face value of shares (Rs.3,00,000 x 40%) 1,20,000
Share of profit (Rs.1,00,000 x 40%) 40,000
Minority interest 1,60,000
Consolidated Balance Sheet of M/s.H Ltd. and its subsidiary M/s.S Ltd.
as on March 31, 2003
Liabilities Rs Assets Rs.
Share capital 1500,000 Goodwill 60,000
Profit and loss a/c 2,00,000 Land and building 7,80,000
Sundry creditors 60,000 Plant and machinary 4,50,000
Bills payable 25,000 Furniture & fittings 2,55,000
Minority interest 1,60,000 Sundry debtors 1,41,000
Short term loan 15,000 Bills receivable 90,000
Closing stock 1,00,000
Cash 23,000
Bank 61,000
19,60,000 19,60,000
59. Answer : (a) <
TOP
Reason : Value of goods in stock = Rs.90,000 x 60% = Rs.54,000
>
Profit included in the goods = Rs.54,000 x 20 / 120 = Rs. 9,000
Unrealised stock to be adjusted = Rs.9,000 x 55% = Rs.4,950
60. Answer : (b) <
TOP
Reason : >
Particulars Rs.
Paid-up capital as on April 01, 2002 (50,000 x Rs.10) 5,00,000
Bonus shares (50,000/2) x Rs.10 2,50,000
Rights shares (75,000 x 2/5) x Rs.10 3,00,000
Share capital as on March 31, 2004 10,50,000
61. Answer : (e) <
TOP
Reason : >
Particulars Rs.
Nominal value of 3,000 shares @ Rs.100 per share 3,00,000
Share of capital Profit (1,70,000 + 1,50,000) × 30% 96,000
Share of Revenue Profit
[(2,00,000-1,70,000)+(1,75,000 – 1,50,000)] × 30% 16,500
Minority interest 4,12,500
62. Answer : (c) <
TOP
Reason : >

Amount to make partly paid shares into fully paid (10,000 × Rs.2) Rs.20,000
 10, 000 
 4 × Rs.10  Rs.25,000
 
Amount of bonus shares
Amount of bonus issue Rs.45,000
63. Answer : (d) <
TOP
Reason : Where the dividend proposed exceeds 12.5% but does not exceed 15%, the amount to be transferred to the >
 reserves shall not be less than 5% of the current profits

64. Answer : (a) <

TOP
Reason : In the books of Seven Hills Ltd. >
Journal
10, 00, 000 1, 00, 000
×2 = 40, 000
10 5
No. of shares Rs. = 1,00,000 shares ; Bonus shares =
Particulars Dr. (Rs.) Cr. (Rs.)
Securities premium a/c. Dr. 90,000
Capital redemption reserve a/c. Dr. 2,00,000
General reserve a/c. Dr. 1,10,000
To Bonus to shareholder a/c. 4,00,000
(Being issue of 40,000 shares of Rs.10 each as bonus shares)
65. Answer : (b) <
TOP
Reason : Share of Gulliver company is 100 x 1600 / 2000 = 80% >
Date of acquisition is October 1, 2003. Profit prior to date of acquisition is capital profit.
Capital profit for 6 months (up to 1st October) = 50% of (Rs.98,000 – Rs.50,000) Rs.48,000
= Rs.24,000
Share of Gulliver Company is 80% of (Rs.50,000 + Rs.24,000) = 80% of Rs.74,000 = Rs.59,200.
66. Answer : (b) <
Reason : Underwriting commission on shares is 5% of the issue price of the shares or any rate prescribed in the TOP
articles whichever is less. Since, the maximum rate 5% is considered to be rate of commission >
Shares underwritten = 80% of the issue = 80% of 10000 = 8000 shares
Issue price per share = Rs.100 + Rs.20 = Rs.120
Value of 8000 applications = 8000 × Rs.120
= Rs.9,60,000
Underwriting commission @ 5% on issue price
9, 60, 000 ×5
=Rs.48, 000.
100
=
67. Answer : (c) <
TOP
Reason : (from December 1, 2003 to March 31, 2004 is 4 months) >
500 debentures × Rs.100 per debenture x 12% × 4/12
12 4
×
100 12
= 500 × Rs.100 × = Rs.2,000
68. Answer : (d) <
TOP
Reason : Number of shares of S Ltd. = Rs. 100000 / Rs. 10 = 10000 >
Minority interest = 10000 – 7500 = 2500 = 25%
Profit on revaluation of machinery = Rs.2,00,000.
Share of minority group of S Ltd. = 25%
Share of profit on revaluation = 25% of Rs.2,00,000
25
× Rs. 2, 00, 000 =
100
Rs. 50,000
Equity share capital [2500×10] Rs. 25,000

Total minority interest = Rs. 75,000

69. Answer : (b) <
TOP
Reason : The amount received on account of securities premium is 9,000 shares x Rs.20 = Rs.1,80,000. There is no
>
impact of forfeiture of shares on securities premium account. The amount of premium received is to be
utilized as per the provisions of the Companies Act.
70. Answer : (d) <
TOP
Reason : Dividend is paid on paid-up capital
>
Equity share capital + Preference share capital
= Rs.48,000 + Rs.50,000 = Rs.98,000
= 10% of it = Rs.9,800
71. Answer : (d) <
TOP
Reason :
>
Particulars Rs.
Preference share capital 1,00,000
Add: Premium on redemption @ 10% 10,000
Amount required for redemption 1,10,000
Less: Amount available for redemption Rs.15,000 + Rs.5,000 + 42,000
Rs.22,000
Required fresh issue of shares 68,000
72. Answer : (c) <
TOP
Reason : Since the called up value per share is Rs.8 an amount of Rs.800 has already been credited to share capital >
account. Now on forfeiture of 100 shares, Rs.800 (Rs.8 × 100) shall be debited to share capital account
(reversal).
73. Answer : (d) <
Reason : At the time of consolidation, inter company debts should be eliminated. In the present instance, it is a TOP
result of goods sold on credit. The minimum amount of Rs.3,000 is to be eliminated from sundry debtors >
as well as sundry creditors. Hence the answer (d) reduce total debtors and creditors by 3,000 is correct.
The other alternatives–
a. The intercompany debt is only Rs.3,000 and reducing total creditors by Rs.5,000 is incorrect and
only one aspect of the inter company debt is dealt with.
b. Reducing total debtors by Rs.3,000 is incorrect as the dual aspect of transaction is not taken care.
Hence, the answer is incorrect.
c. Reduce total creditors and debtors by Rs.2,000 is not correct because the amount of inter company
debt is Rs.3,000.
e. e. The minimum amount of inter company debt is Rs.3,000 only. As such, reduction of 5,000 is not
correct.
74. Answer : (e) <
Reason : Shares allotted to Gautam = 2,500 TOP
Amount received 2,500 x Rs.5 = Rs.12,500 >

On share forfeiture, shares forfeiture account is credited with Rs. 12,500.

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