ICFAI MBA Finance Question Paper

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ICFAI MBA Finance Question Paper
1. Which of the following statements is false with respect to goodwill?
(a) It is normally represented by the capacity of a business to earn excess profits
(b) For the calculation of goodwill, past profits will have to be adjusted in order to determine the
future expected maintainable profit
(c) It is an excess of acquisition cost over net assets acquired
(d) It is an identifiable intangible asset
(e) It can be defined as the present value of firm’s anticipated excess earnings.
2. Amortization of intangible assets, such as copyrights or patents, is the accounting process of
(a) Determining the cash flow from operations for the current period
(b) Systematically allocating the cost of the intangible assets to the period of use
(c) Accumulating a fund for the replacement of the asset at the end of its useful life
(d) Systematically reflecting the change in general price level over the current period
(e) Asset valuation based on net realizable value at the statement of financial position.
3. Flier Ltd., issued 5,000, equity shares at Rs.25 each with par value of Rs.20 each, and all shares are
subscribed and total amount duly received. The journal entry to record this transaction would include a
(a) Debit to Cash for Rs.1,00,000
(b) Credit to Equity Share capital for Rs.1,25,000
(c) Debit to Securities premium for Rs.25,000
(d) Credit to Equity Share capital for Rs.1,00,000
(e) Credit to Cash for Rs.1,25,000.
4. Which of the following is false with regard to rights shares?
(a) Rights shares are first offered to the existing shareholders
(b) The price of rights shares offered is normally below the market price of the shares
(c) Where the rights are offered at a price over the face value, the excess amount is credited to
securities premium account
(d) The number of rights shares offered need not be in proportion to the equity shares already held
(e) Bank account is debited with the amount received and equity share capital account is credited
with the face value of shares.
5. If forfeited shares are reissued at a premium, the amount of such premium will be credited to
(a) Share forfeiture account
(b) Securities premium account
(c) Capital reserve account
(d) Discount on issue of shares account
(e) Share capital account.
6. If a company issues some of its common shares in exchange for assets other than cash, the transaction
should be recorded at the
(a) Current market value of the assets acquired
(b) Stated value of the shares issued
(c) Par value of the shares issued
(d) Book value of the shares issued
(e) Net realizable value of asset.
7. Unless the Board of Directors approve the allotment of shares, the application money received from
public will remain with the company as a/an
(a) Liability
(b) Additional capital
(c) Share capital
(d) Securities premium
(e) Calls-in-advance.
8. The amount of capital, to describe the shares offered to public for subscription is
(a) Authorized Capital
(b) Issued Capital
(c) Outstanding Capital
(d) Subscribed Capital
(e) Called up Capital.
9. Which of the following signifies the difference between par value and an issue price below par?
(a) Securities premium
(b) Discount on issue of shares
(c) Calls in arrear
(d) Calls in advance
(e) Rebate on shares.
10.If a shareholder does not pay his dues on allotment, for the amount due, there will be a
(a) Credit balance in share allotment account
(b) Debit balance in share forfeiture account
(c) Credit balance in share forfeiture account
(d) Debit balance in share allotment account
(e) Debit balance in share capital account.
11.The value of equity share of Good Strength Ltd., as per yield method is Rs.19.50 and as per fair value
method is Rs.22.50. The value of share according to intrinsic value method is
(a) Rs.21.00
(b) Rs.25.50
(c) Rs.19.50
(d) Rs.22.50
(e) Rs.26.50.
12.________ have the right to receive dividends in arrears, whenever earnings become adequate.
(a) Cumulative preference shares
(b) Participating preference shares
(c) Convertible preference shares
(d) Callable preference shares
(e) Redeemable preference shares.
13.Red Rock Ltd., issued 5,000, 15% Debentures of Rs.100 each at a discount of 5%, repayable after 5
years at a premium of 5%. The amount debited to loss on issue of debentures account is
(a) Rs. 25,000
(b) Rs. 50,000
(c) Rs. 75,000
(d) Rs.1,00,000
(e) Nil.
14.The interest on calls in advance is paid for the period from the
(a) Date of receipt of application money to the date of appropriation
(b) Date of receipt of allotment money to the date of appropriation
(c) Date of receipt of advance to the date of appropriation
(d) Date of appropriation to the date of dividend payment
(e) Date of appropriation to the date of receipt of final call.
15.Which of the following does not appear under the head share capital of a balance sheet?
(a) Preference share capital
(b) Minority interest in subsidiaries
(c) Calls-in-arrear
(d) Equity share capital
(e) Shares forfeited account.
16.As per SEBI guidelines, for a debenture issue having a maturity of more than 18 months, a Debenture
Redemption Reserve shall be created out of profits, prior to the commencement of the redemption, for a
minimum percentage of debenture issue. Such minimum percentage is
(a) 25%
(b) 50%
(c) 10%
(d) 15%
(e) 5%.
17.At the end of the financial year, the cumulative total of “interest on own debentures account” is
transferred to
(a) Profit and Loss account
(b) Profit and Loss Appropriation account
(c) Own Debentures account
(d) Securities premium account
(e) Bank account.
18.Premium on issue of debentures account is transferred to
(a) Capital reserve
(b) General reserve
(c) Securities premium account
(d) Capital redemption reserve
(e) Debentures account.
19.The long term investments are accounted for in the balance sheet at
(a) Cost price less depreciation
(b) Cost price or market price, whichever is lower
(c) Cost price
(d) Replacement price
(e) Net realizable value.
20.Tax deducted at source on the payments made by a company appears in the Balance Sheet of the
company on the
(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.
21.The periodical interest received in respect of investments made on account of debenture redemption
fund is transferred to
(a) Interest income account
(b) Debenture holders account
(c) Debentures account
(d) Debenture redemption fund account
(e) Bank account.
22.On December 01, 2008, Lucas Ltd., purchased 5,000 of its 12% Debentures of Rs.100 each at a price of
Rs.98 ex-interest. Interest on debentures is payable on March 31 and September 30, every year. At the
time of recording the purchase of debentures, the interest account will be debited by
(a) Rs. 5,000
(b) Rs. 100
(c) Rs.15,000
(d) Rs.10,000
(e) Nil.
23.Which of the following receipts is included in the profits for the purpose of calculating managerial
remuneration?
(a) Profits by way of premium on shares
(b) Profits from sale of an undertaking
(c) Profits by way of premium on debentures
(d) Subsidies received from the Government
(e) Profits on sales of forfeited shares by the company.
24.The gross profit and the administrative expenses of Payal Ltd., for 2006-07 was Rs.3,00,000 and
Rs.2,00,000 respectively. In 2007-08 the gross profit increased by 20% and administrative expenses
also increased by 10% from previous year. If the sales during 2007-08 were Rs.8,00,000, the net profit
increased by
(a) Rs.40,000
(b) Rs.20,000
(c) Rs.60,000
(d) Rs.30,000
(e) Rs.10,000.
25.Uncalled liability on shares partly paid is shown
(a) As a current liability in the balance sheet of a company
(b) As a miscellaneous expenditure in the balance sheet of a company
(c) Under the head ‘reserves’ on the liabilities side of the balance sheet of a company
(d) By way of notes to the balance sheet of a company
(e) In the Profit and Loss account of a company.
26.Which of the following statements is false with regard to special audit?
(a) A special auditor shall submit a report to the Central Government
(b) A special auditor cannot be the company’s statutory auditor
(c) The Board of Directors appoints the special auditor
(d) The special auditor’s report has to be acted upon by the Central Government within four months
from the date of its receipt
(e) The expenses of audit will be determined by the Central Government and paid by the company.
27.Which of the following need not be stated in the Director’s Report?
(a) Technology absorption
(b) Financial state of affairs of the company
(c) Foreign exchange earnings of the company
(d) Statement of accounting policies
(e) Conservation of energy.
28.Which of the following is not a duty of the auditor of the company?
(a) Scrutinize Loans and Advances
(b) Scrutinize entries
(c) Scrutinize expenses
(d) Scrutinize investments
(e) Scrutinize professional efficiency of management.
29.If the forfeited shares are issued at a discount, the amount of discount shall be debited to
(a) Profit and loss account
(b) Capital reserve account
(c) Share forfeiture account
(d) Securities premium account
(e) Share capital account.
30.If no auditor is appointed or re-appointed at an Annual General Meeting, the company should inform
the fact to the Central Government within
(a) 7 days
(b) 15 days
(c) 30 days
(d) Three months
(e) Six months.
31.If proposed dividend declared out of pre-acquisition profits appears in the balance sheet of the
subsidiary company, the proportionate share of the holding company in such proposed dividend should
be
(a) Debited to Profit and Loss Appropriation account of holding company
(b) Added to the cost of control
(c) Shown under ‘proposed dividend in the consolidated balance sheet
(d) Credited to the investment account of the holding company
(e) Credited to the consolidated Profit and Loss account.
32.Which of the following is treated as revenue profits by the holding company at the time of preparation
of consolidated balance sheet?
(a) Profits arising out of inter-company transactions
(b) Reserves of the subsidiary company up to the date of acquisition
(c) Current year profit of subsidiary company up to the date of acquisition
(d) The profit on the revaluation of assets during acquisition
(e) Profits earned by the subsidiary company after the date of acquisition.
33.Which of the following statements is false?
(a) A bill drawn by the holding company and accepted by its subsidiary company is an outside
obligation for holding company
(b) A consolidated balance sheet shows the assets and liabilities of the holding company and its
subsidiaries
(c) A holding company can acquire control over its subsidiary company by controlling the
composition of board of directors of the subsidiary company
(d) A subsidiary company is excluded from consolidation, if the control is intended to be
temporary
(e) A group consists of parent and all its subsidiaries.
34.Hero Cycles Ltd., acquired 85% shares of Villan Cycles Ltd., for Rs.75,000. The balance sheet of
Villan Cycles Ltd., as on March 31, 2008 was as follows:
The amount of goodwill to be shown in the consolidated balance sheet prepared by Hero Cycles Ltd.,
as on March 31, 2008 was
Liabilities Rs. Assets Rs.
Share capital: Fixed assets 72,000
Equity shares of Rs.10 fully paid-up 80,000 Current assets 28,000
Current liabilities 20,000
Total 1,00,000 1,00,000
(a) Rs.7,000
(b) Rs.5,000
(c) Rs.3,000
(d) Rs.2,500
(e) Rs.7,500.
35.On January 01, 2008 Sayo Ltd., acquired 8,000 shares of Musi Ltd. The share capital of Musi Ltd.,
consists of 10,000 shares of Rs.100 each fully paid. Musi Ltd., furnished the following details:
The share of revenue profit of Sayo Ltd., was
Particulars Rs.
Profit and Loss account (Cr.) as on April 01, 2007 1,50,000
Profit for the year 2007-08 (Cr.) 50,000
Dividends paid out of pre-acquisition profits on May 05, 2007 75,000
(a) Rs.10,000
(b) Rs.12,500
(c) Rs.50,000
(d) Rs.40,000
(e) Rs.35,000.
36.Double Ltd., acquired 70% shares of Single Ltd., on January 01, 2008. The book value of total assets of
Single Ltd., on the date of acquisition was Rs.5,00,000 and during the acquisition the total assets were
revalued at Rs.6,05,250. The share of Double Ltd., in the capital profit, to be shown in the Consolidated
Balance Sheet as on March 31, 2008 was
(a) Rs. 73,675
(b) Rs. 55,250
(c) Rs.1,05,250
(d) Rs. 18,750
(e) Rs.1,50,000.
37.On July 31, 2007 Nizam Ltd., acquired 70% shares of Orugallu Ltd., for Rs.6,50,000. The share capital
of Orugallu Ltd., consists of 2,25,000 shares of Rs.100 each. The Profit and Loss account showed a
balance of Rs.75,000 (Dr.) on April 01, 2007 and Rs.2,25,000 (Cr.) on March 31, 2008 respectively.
The total amount of pre-acquisition profits was
(a) Rs.25,000
(b) Rs.16,667
(c) Rs.91,667
(d) Rs.75,000
(e) Rs.26,667.
38.Which of the following items should not be deducted to adjust the Gross profit, while calculating the
Managerial Remuneration?
(a) Any tax notified by the Central Government as being in the nature of a tax on abnormal profit
(b) Any tax on business profits imposed for special reasons by the Central Government
(c) Interest on unsecured loans
(d) Compensation paid voluntarily
(e) Bad debts written-off.
39.Which of the following is true with reference to dividends?
(a) Dividends are an expense to the company
(b) Dividends are deducted from revenue in the income statement
(c) Dividends are always equal to net income
(d) Dividends reduce both assets and owners’ equity
(e) Dividends are paid out of capital.
40.In computation of gross value added, which of the following is not included?
(a) Sales revenue
(b) Income from royalties
(c) Cost of all materials and services
(d) Depreciation
(e) Income from investments.
41.Which of the following can be used as a means for introducing productivity linked bonus schemes for
the employees?
(a) Value added statement
(b) Value added ratios
(c) Economic value added
(d) Market value added
(e) Brand value added.
42.The shortcomings of Economic Value Added, calculated on the basis of historical costs can be
overcome by using ________ in place of book values.
(a) Current value
(b) Replacement cost
(c) Net realizable value
(d) Standard cost
(e) Marginal cost.
43.Which of the following statements is false regarding underwriting?
(a) An underwriter guarantees that the shares underwritten by him will be sold
(b) The company undertakes to pay an underwriting commission for the service rendered by
underwriter
(c) Underwriting commission need not be paid on shares required to be purchased by the
underwriter as per agreement
(d) Underwriting commission is allowed for undertaking the issue of debentures
(e) If the public do not take up all the shares, the underwriter will himself purchase the remaining
shares.
44.EVA can be improved by
I. Investing in high return projects.
II. Increasing the rate of return for the same capital base.
III. Downsizing unprofitable operations, units or by selling off sub standard assets.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
45.Addition of wealth made by the organization with the efforts of management and employees using
capital is called
(a) Value addition
(b) Enterprise resource planning
(c) Allocation
(d) Appreciation
(e) Utilization.
46.Economic value addition can be computed as
(a) Gross profit minus cost of debt
(b) Net profit minus cost of capital
(c) Sales minus gross profit
(d) Net operating profit after tax minus weighted average cost of capital
(e) Net operating profit before tax minus depreciation.
47.Shown below are selected data from income statement of Amitabh Ltd.:
Considering the above data, the value added is
Particulars Rs.
Sales 5,00,000
Other income (investment) 1,20,000
6,20,000
Operating expenses 2,60,000
Excise duty 50,000
(a) Rs.3,10,000
(b) Rs.1,90,000
(c) Rs.3,60,000
(d) Rs.2,40,000
(e) Rs.4,50,000.
48.The net profits of Pfizer Ltd., after providing for taxation for the past five years were as follows:
The average capital employed in the business was Rs.12,00,000 on which normal rate of return of 10%
is expected. The amount of goodwill on 5 years’ purchase of super profits calculated on the basis of the
average profits of the last 5 years was
Year ending profits Rs.
2003-04 1,20,000
2004-05 1,50,000
2005-06 1,30,000
2006-07 1,80,000
2007-08 1,60,000
(a) Rs.1,50,000
(b) Rs.1,48,000
(c) Rs.1,40,000
(d) Rs.1,20,000
(e) Rs.1,00,000.
49.Raghavan Ltd., proposed redemption of its preference shares at a premium of 10%. The data pertaining
to it is as follows:
Particulars Rs.
12% Preferential share capital 2,00,000
The required fresh issue of equity shares is worth
General reserve 30,000
Securities premium 10,000
Profit and Loss a/c (Cr.) 44,000
(a) Rs.1,90,000
(b) Rs.1,80,000
(c) Rs.1,66,000
(d) Rs.1,36,000
(e) Rs.1,16,000.
50.The following is the balance sheet of Trialblazer Ltd., as on March 31, 2008:
Additional information:
The profits earned by the company after payment of tax at the rate of 40% in the last 4 years were as
under:
The dividends paid by the company for the last 4 years were as follows:
The value of goodwill of the company by using the capitalization method (simple average) is
Liabilities Rs. Assets Rs.
Equity share capital
7,500 Equity shares of Rs.10
each, fully paid
75,000 Goodwill 3,000
General reserve 10,000 Plant & Machinery 60,000
Profit & Loss a/c 23,000 Land &Building 25,000
Bank Loan (20%) 15,000 Stock-in-trade 11,000
Sundry creditors 28,000 Sundry debtors 40,000
Provision for taxation 14,000 Cash at bank 9,000
Discount on issue of shares 2,500
Preliminary expenses 14,500
1,65,000 1,65,000
Year 2004-05 2005-06 2006-07 2007-08
Profit (in Rs.) 11,000 12,000 14,000 15,000
Year 2004-05 2005-06 2006-07 2007-08
Dividend 11% 12% 14.5% 14.5%
(a) Rs.1,00,000
(b) Rs. 88,000
(c) Rs. 12,000
(d) Rs. 13,000
(e) Rs. 30,000.
51.ZED Consultancy Ltd., provides the following information:
The following information is provided:
1. On April 1, 2005, the company purchased fixed assets of Rs.8,000 that were wrongly accounted
as an expense in the year 2005-06. The company depreciates fixed assets @10% p.a. on Straightline
method.
2. Non-recurring expenditure of Rs.9,000 is included in the Profit and Loss account of 2007-08.
3. In 2006-07, dividend received from subsidiary company Rs.9,050 is included in the Profit and
Loss account of 2006-07.
The average adjusted profit (weighted) for calculation of goodwill was
Year ending 2005-06 2006-07 2007-08
Profit (Rs.) 48,000 57,600 24,000
Weights 1 2 3
(a) Rs.41,217
(b) Rs.96,500
(c) Rs.82,433
(d) Rs.39,200
(e) Rs.47,750.
52.The following are the details pertaining to the operations of Dweep Ltd.:
If the tax rate is 35%, the value of goodwill on the basis of 4 years’ purchase of average post-tax
profits was
Particulars
March 31, 2006
(Rs.)
March 31, 2007
(Rs.)
March 31, 2008
(Rs.)
Gross Profit 2,50,000 3,25,000 4,80,000
Other expenses 60,000 72,000 80,000
Interest on debentures 48,000 48,000 48,000
(a) Rs. 6,05,800
(b) Rs. 4,52,600
(c) Rs. 2,48,330
(d) Rs.10,21,320
(e) Rs. 3,06,400.
53.Consider the following Balance sheet of Friends Enterprises as on March 31, 2008:
The profit of the year 2007-08 was Rs.25,000 and has accrued evenly throughout the year.
The rate of return in a similar business is 10%. The normal profit of Friends Enterprises was
Liabilities Rs. Assets Rs.
Capital 2,50,000 Land and building 1,50,000
Long-term loan 1,00,000 Machinery 1,25,000
Creditors 25,000 Debtors 37,500
Bank overdraft 12,500 Stock 40,000
Cash 5,000
Profit &Loss a/c (Dr.) 30,000
3,87,500 3,87,500
(a) Rs.12,500
(b) Rs.22,000
(c) Rs.22,500
(d) Rs.20,750
(e) Rs.18,000.
54.Consider the following data pertaining to Ashutosh Ltd., for the last three years:
Additional information:
• Provide depreciation at 10% on revaluation of fixed assets of Rs.1,00,000.
• The rate of taxation is 50%.
• Directors remuneration shall be payable at the same rate on profits.
Considering the above data, the future maintainable profit of the company is
Year PAT
(Rs.)
Taxes
(Rs.)
Directors
Remuneration (Rs.)
2005-06 72,750 72,750 4,500
2006-07 87,300 87,300 5,400
2007-08 97,000 97,000 6,000
(a) Rs.1,61,367
(b) Rs.1,00,000
(c) Rs. 80,833
(d) Rs.1,76,667
(e) Rs. 69,690.
55.Poornendu Ltd., was formed with an authorized capital of Rs.5,00,000 divided into 50,000 equity
shares of Rs.10 each. It issued shares as given below:
45,000 shares were offered to public for subscription payable as follows:
On application Rs.3
On allotment Rs.5 (including premium)
Applications were received for 60,000 shares from the public. Applicants of 6,000 shares were
refunded and remaining applicants were allotted the shares on pro-rata basis. All the calls were called
up by the company. Call-in-arrears were as follows:
i. Mr. Arun who was allotted 1,250 shares paid application money only.
ii. Mr. Tarun who was allotted 2,500 shares did not pay calls money.
iii. Mr. Pandit who was allotted 6,250 shares did not pay the final call money.
The total amount in calls-in-arrears account was
On first call Rs.2
On final call Rs.2.
(a) Rs.29,250
(b) Rs.33,750
(c) Rs.33,000
(d) Rs.28,000
(e) Rs.25,000.
56.Gold Plated Ltd., invited applications for 2,00,000 equity shares of Rs.20 each, at a premium of Rs.4
per share. The entire issue was underwritten by three underwriters in the following percentages:
The details of marked and unmarked applications received are:
The final liability of Satya in terms of number of shares is
Siri 30%
Satya 40%
Narayana 30%
Marked applications of: Siri 44,000 shares
Satya 48,000 shares
Narayana 56,000 shares
Unmarked applications 32,000 shares
(a) Nil
(b) 19,200
(c) 12,800
(d) 32,000
(e) 16,000.
57.The Balance Sheet of Pashupathi Ltd., as on March 31, 2008 showed the following position:
Additional information:
• The market values of the assets were as follows:
Stock – Rs.7,75,000
Plant and machinery – Rs.5,20,000 and
Factory premises – Rs.6,41,500.
• Goodwill of the business has been valued at Rs.52,250.
Liabilities Rs. Assets Rs.
Share capital:
30,000 shares of Rs.20
each, fully paid
10,000 shares of Rs.20
each, Rs.16 per share paid
10,000 shares of Rs.20
each, Rs.14 per share paid
6,00,000
1,60,000
1,40,000
Fixed Assets:
Factory premises
Plant and machinery
5,75,000
5,00,000
General reserve 4,00,000 Current Assets:
Profit and Loss account 1,75,000 Stock in hand 7,50,000
Current liabilities:
Bank overdraft
1,50,000
Debtors 2,50,000
Creditors 2,00,000
Provision for taxation 2,50,000
Total 20,75,000 Total 20,75,000
The value of each fully paid equity share under intrinsic value method is
(a) Rs.32.275
(b) Rs.31.675
(c) Rs.30.775
(d) Rs.34.775
(e) Rs.28.775.
58.The following is an extract of the Balance Sheet of Sandeep Raja Ltd.:
The directors decided to issue three bonus shares for every five shares held. It was decided to use
capital reserve, securities premium, general reserve to the fullest extent possible and the deficit to be
adjusted from Profit and Loss account. The amount to be adjusted from Profit and Loss account, for the
issue of bonus shares is
Liabilities Rs.
60,000, Equity shares of Rs.20 each, fully paid-up 12,00,000
General reserve 4,00,000
Securities premium (includes Rs.20,000 on promoters shares) 1,00,000
Capital reserve (includes a cash gain of Rs.1,20,000 on sale of machinery) 2,00,000
Profit and Loss account 7,00,000
(a) Rs.3,00,000
(b) Rs.1,80,000
(c) Rs.2,40,000
(d) Rs.1,20,000
(e) Rs.1,00,000.
59.Ahana Ltd., issued 1,00,000 equity shares of Rs.10 each at par, payable as Rs.5 per share on
application, Rs.2 per share on allotment and the balance on the first and final call. Call money on 2,000
shares were not received. These shares were forfeited. Out of the forfeited shares, 1,200 shares were
reissued to Mr. Suraj at Rs.8 per share. Later, 200 shares were reissued to Ms. Basuli at par. The
remaining shares were re-issued to Ms. Swathi at Rs.11 per share.
The amount transferred from shares forfeited account to capital reserve in respect of the shares reissued
to Ms. Swathi is
(a) Nil
(b) Rs.9,600
(c) Rs.2,400
(d) Rs.4,200
(e) Rs. 600.
60.On March 31, 2008, the balance of 12% Debentures of Rs.100 each of Tops Ltd., was Rs.6,00,000. The
company reserves the right to redeem the debentures in any year by purchase in the open market.
Interest on debentures is payable on September 30 and March 31, every year.
On July 1, 2008, the company purchased 1,200 of its 12% Debentures as investment at Rs.102 cuminterest.
The company cancelled 1,200 own debentures on September 01, 2008. The profit/loss on cancellation
of own debentures is
(a) Rs.4,800 (Profit)
(b) Rs.4,800 (Loss)
(c) Rs.3,600 (Loss)
(d) Rs.1,200 (Loss)
(e) Rs.1,200 (Profit).
61.Hilly Ltd., has issued 25,000, 10% Preference Shares of Rs.100 each, fully paid and 2,50,000 Equity
Shares at Rs.20 each fully paid, (par value at Rs.15 each). The profit for the year 2007-08 was
Rs.21,68,000.
The company has to provide Rs.7,60,000 for taxation of the previous year 2006-07. The company
declared an equity dividend of 10%. The total amount debited to Profit and Loss Appropriation account
on account of the above decisions was
(a) Rs. 4,60,000
(b) Rs. 2,86,000
(c) Rs.13,62,000
(d) Rs.13,85,000
(e) Rs.11,36,000.
62.The Managing Director of Ortega Ltd., is entitled to a commission of 4% on net profits after charging
such commission. The net profit of the company for the year ended March 31, 2008 was reported to be
Rs.45,00,000. Subsequently, it was noticed that the following transactions were omitted:
The commission payable by the company to the managing director for the year 2007-08 was
Particulars Rs.
Payment of Director’s remuneration 1,50,000
Sale of a plant (cost price Rs.3,00,000; written down value Rs.2,40,000) 3,30,000
Payment of bonus to Production Executive 75,000
Payment of income tax and super tax 30,000
(a) Rs.1,66,731
(b) Rs.1,74,205
(c) Rs.1,77,406
(d) Rs.1,73,661
(e) Rs.1,78,200.
63.The Profit and Loss account of Urmila Ltd., for the year ended March 31, 2008 showed a debit balance
of Rs.75,000. Subsequently, it was noticed that the following transactions were omitted:
• Goods worth Rs.3,000 returned to the supplier and were not recorded in the books.
• The rent of the godown is Rs.24,000 p.a. out of which only Rs.20,000 was paid. The rent accrued
but not paid was not considered in the books of account.
• One cheque given by a customer for Rs.7,000 was dishonored and the fact of dishonor was not
recorded in the books.
The profit/loss made by the company after considering the above transactions is
(a) Rs.76,000 (Profit)
(b) Rs.74,000 (Profit)
(c) Rs.83,000 (Loss)
(d) Rs.69,000 (Profit)
(e) Rs.76,000 (Loss).
64.Pavani Ltd., was registered with an Authorised Capital of Rs.20,00,000 consisting shares of Rs.100
each. The following transactions were made during the year 2007-08:
• It acquired fixed assets worth Rs.8,80,000 from Kiran Bros. and the purchase consideration was
paid in the form of shares at a premium of 10%.
• Further, the company allotted 1,000 shares to promoters in lieu of their services and the shares
were issued at par to the promoters.
• The company offered to the public 3,000 shares at a premium of 10%, the entire share amount
being payable on application. The issue was fully subscribed by the public.
The total of Balance Sheet of the company after considering the above transactions was
(a) Rs.13,10,000
(b) Rs.14,00,000
(c) Rs.13,00,000
(d) Rs.12,40,000
(e) Rs.11,70,000.
65.The following balances were extracted from the books of Vaibhav Ltd., as on March 31, 2008:
Particulars Rs. Particulars Rs.
Called-up share capital 6,00,000 Fixed assets 9,24,000
Secured loans 4,80,000 Calls in arrears 36,000
Loans to employees 61,440 Capital reserve 1,08,000
Cash 4,800 Profit and Loss account 60,000
The balance sheet total of Vaibhav Ltd., as on March 31, 2008, prepared in accordance with Part I of
Schedule VI of the Companies Act, 1956 was
Sundry debtors 1,32,000 (credit balance)
Stock 1,15,200 Sundry creditors 1,09,440
Bank balance 48,000 Preliminary expenses 36,000
(a) Rs.13,21,440
(b) Rs.14,35,550
(c) Rs.12,34,670
(d) Rs.14,35,850
(e) Rs.15,34,550.
66. Alpha Ltd., furnished the following data as on March 31, 2008:
Additional information:
• Provision for income tax is to be created at 60%.
• Managing Director is to be paid commission at 5% of the annual net profit (before charging such
commission)
The profit after tax of Alpha Ltd., was
Debit Balances Rs. Credit Balances Rs.
Investment (market value
Rs.9,60,000)
10,00,000 Equity Share Capital 70,00,000
Establishment Charges 15,40,000 Commission 50,000
Income tax paid for the year
2006-07
6,00,000 Gross Profit 52,30,000
Depreciation 4,30,000 Provision for Taxation
(2006-07)
4,30,000
(a) Rs.33,10,000
(b) Rs. 1,65,500
(c) Rs.15,72,250
(d) Rs.12,57,800
(e) Rs.18,86,700.
67.Following is the data pertaining LIMA Ltd., as on March 31, 2008 :
If final dividend of 9% is declared (in addition to interim dividend), the amount that will have to be
transferred to General Reserve in lieu of dividend declared (inclusive of interim dividend) out of
current year profit would be
Particulars Rs.
Authorized share capital (25,000 shares of Rs.100 each) 25,00,000
Issued/subscribed/called-up capital 12,35,000
Calls-in-arrear 10,000
Interim dividend declared 49,000
Current year profit 3,75,000
(a) Nil
(b) Rs.16,850
(c) Rs.33,700
(d) Rs.15,000
(e) Rs.18,750.
68.Strong Ltd., acquired 3,200 equity shares of Weak Ltd., on March 31, 2008. The summarized Balance
Sheets of the two companies as on that date are given below:
Liabilities
Strong Ltd.
(Rs.)
Weak Ltd.
(Rs.)
Assets
Strong Ltd.
(Rs.)
Weak Ltd.
(Rs.)
Share capital (shares
of Rs.100 each fully
paid-up)
10,00,000
4,00,000
Fixed assets 7,80,000 6,78,800
The additional information is as follows:
i. Weak Ltd., made a bonus issue on March 31, 2008 of one equity share for every four shares held
by its shareholders. This has not yet been accounted for.
ii. Sundry creditors of Strong Ltd., included Rs.24,000 due to Weak Ltd.
If the value of goodwill was Rs.14,400, the total of assets side of Consolidated Balance Sheet was
General reserve 4,80,000 3,40,000 Investments in
Weak Ltd.
6,80,000
—
Profit and Loss
account
1,14,400 72,000 Stocks 2,40,000 72,000
Bills payable
(including Rs.6,000
to Strong Limited)
—
16,800
Sundry debtors 88,000 80,000
Sundry creditors 2,54,400 18,000 Bills receivable
(including
Rs.6,000 from
Weak Limited)
31,600
—
Cash at bank 29,200 16,000
Total 18,48,800 8,46,800 Total 18,48,800 8,46,800
(a) Rs.40,40,000
(b) Rs.20,00,000
(c) Rs.21,30,000
(d) Rs.23,60,000
(e) Rs.34,60,000.
69.Indrani Ltd., issued 4,000 10% Preference shares of Rs.100 each at par, which are redeemable at a
premium of 10%. For the purpose of redemption, the company issued 3,000 Equity Shares of Rs.100
each at a premium of 20% per share. At the time of redemption of Preference Shares, the amount to be
transferred by the company to the Capital Redemption Reserve Account is
(a) Rs.1,00,000
(b) Rs. 80,000
(c) Rs.4,00,000
(d) Rs.4,40,000
(e) Rs.1,40,000.
70.Consider the following Balance Sheets of Long Ltd., and Short Ltd., as on March 31, 2008:
Long Ltd., has acquired the shares of Short Ltd., on March 31, 2008. The Minority interest shown in
the Consolidated Balance Sheet was
Liabilities
Long
Ltd.
(Rs.)
Short
Ltd.
(Rs.)
Assets
Long Ltd.
(Rs.)
Short
Ltd.
(Rs.)
Share Capital
(Equity shares of
Rs.10 each) 24,000 12,000
Investment in
Short Ltd. (960
Shares) 9,600
Other Liabilities 12,000 6,000 Other Assets 26,400 18,000
36,000 18,000 36,000 18,000
(a) Rs.2,400
(b) Rs.2,500
(c) Rs.5,000
(d) Rs.3,000
(e) Rs.8,000.
71.Green Ltd., acquired 75% share in the Share Capital of Rs.75,000 of Yellow Ltd., at a price of
Rs.1,05,000. The pre-acquisition profits and post-acquisition profits of the subsidiary company were
Rs.38,000 and Rs.25,000 respectively. The amount of goodwill shown in the Consolidated Balance
Sheet was
(a) Rs.84,750
(b) Rs.26,000
END OF QUESTION PAPER
(c) Rs.20,250
(d) Rs.28,500
(e) Rs.56,250.
72.Nippon Batteries Ltd., issued 1,00,000 shares of Rs.100 each at a premium of 30% payable Rs.20 on
application, Rs.50 (including premium) on allotment and the balance on calls. Applications were
received for 1,92,000 shares and allotments were made as under:
• Applicants for 50,000 shares were allotted 35,480 shares on pro-rata basis.
• Applicants for 96,000 shares were allotted 38,400 shares on pro-rata basis.
• Applicants for 46,000 shares were allotted 26,120 shares on pro-rata basis.
The amount adjusted towards allotment money was
(a) Rs.38,40,000
(b) Rs.20,00,000
(c) Rs.18,40,000
(d) Rs.19,20,000
(e) Rs.29,00,000.
73.Maggy Ltd., issued 5,000 shares of Rs.100 each at a premium of Rs.20 per share of which 4,500 shares
are subscribed for. The amount to be paid is as follows:
Rs.50 - on application, including premium of Rs.20.
Rs.50 - on allotment.
Rs.20 - on first and final call.
Call money was not received on 500 shares. On forfeiture of these shares, the amount standing to the
credit of securities premium account is
(a) Rs.1,00,000
(b) Rs. 90,000
(c) Rs. 80,000
(d) Rs. 70,000
(e) Rs. 10,000.
74.Zolor Ltd., acquired the shares of Zeft Ltd. The closing stocks of two companies were Rs.44,000 and
Rs.72,000 respectively. Closing stock of Zolor Ltd., included goods worth Rs.3,600 purchased from
Zeft Ltd. Zeft Ltd., sells goods at a profit of 50% on cost. The net amount of closing stock appearing in
the consolidated balance sheet was
(a) Rs.1,14,800
(b) Rs.1,14,200
(c) Rs.1,12,400
(d) Rs.1,20,000
(e) Rs.1,16,400.
75.According to which of the following accounting concepts, the consolidated financial statements are
prepared when a parent-subsidiary relationship exists?
(a) Going concern
(b) Business entity
(c) Materiality
(d) Cost
(e) Periodicity.
Suggested Answers
Financial Accounting - II (MSF1A2)
Answer Reason
1. D Intangible assets are classified as either identifiable or unidentifiable. Goodwill (d), arising out of payment for
reputation, brand name, location, loyalty etc. is an unidentifiable intangible asset. Hence, alternative (d) is
correct answer.
2. B Amortization is the accounting process of systematically allocating cost of intangible assets to the period of
use. It is not the process of determining cash flow from operations. It is not creating any fund to replace the
asset. It is not the process of adjusting the change of price level, and it is not the asset valuation process.
Hence (b) is correct.
3. D The credit to equity share capital should be for Rs.1,00,000; the amount of the legal capital requirement as
determined by the Rs.20 par value (5,000 shares x Rs.20 per share). The entire entry to record this transaction
would be debit Cash, Rs.1,25,000; credit Share capital, Rs.1,00,000; and credit securities premium Rs.25,000.
The journal entry is :
Cash a/c Dr. Rs.1,25,000
To Equity share capital Rs.1,00,000
To Securities premium a/c Rs. 25,000
4. D The number of rights shares offered is in proportion to the equity shares already held and they are not
disproportionately issued.
5. B If the forfeited shares are reissued at a premium, the amount of such premium shall be credited to securities
premium account.
6. A If a company issues some of its common shares in exchange for assets other than cash, the transaction should
be recorded at the current market value of the assets acquired.
7. A Unless the Board of Directors approve the allotment of shares, the application money received from public
will remain with the company as a liability.
8. B The amount of capital that is offered to the public for subscription is called issued capital. The value of
shares taken up by the public is subscribed capital. The part of the capital that has been called up is called up
capital. Thus the alternative (b) is the correct answer.
9. B When shares are issued at less than par value, the difference is the discount on issue of shares.
10. D If the allotment money is not paid by the shareholder, there will be a debit balance (of that unpaid money) in
share allotment account. Other options, stated in (a), (b), (c) and (e) are not correct.
11. B Value as per fair value method is (value as per intrinsic value method + value as per yield method)/2 Value as
per intrinsic value method is (2 × Rs.22.5) – Rs.19.5 = Rs.25.5.
12. A Cumulative preference shares have the right to receive dividends in arrears, whenever earnings become
adequate.
13. B The journal entry to be made for the issue is
Hence the correct answer is (b).
Particulars Rs. Rs.
Bank Account Dr. 4,75,000
Loss on issue of debentures Dr. 50,000
To 15% Debentures A/c. 5,00,000
To Premium on Redemption of
Debentures
25,000
14. C The company may receive from the shareholders the amount uncalled on the shares held by them even though
the amount is not called for. In such a case the company is compelled to pay interest on the calls in advance at
prescribed rate from the date of receipt of advance to the date of appropriation i.e. the date when the call is
made and the advance received is appropriated from calls in advance account to the relevant call account.
Hence the correct answer is (c).
15. B Except minority interest in subsidiaries all other above mentioned items are included in owners equity of a
balance sheet.
16. B As per SEBI guidelines, for debentures issued having a maturity of more than 18 months, a Debenture
Redemption Reserve shall be created out of profits, prior to the commencement of the redemption, for a
minimum percentage of debenture issue. Such minimum percentage is 50%.
17. A At the end of the financial year, the cumulative total of “interest on own debentures account” is transferred to
(a) Profit and Loss account.
18. A The premium collected on issue of debentures is recorded in the debenture premium account and
subsequently transferred to capital reserve. It is an income to the issuing company. There are no restrictions as
to its use. It is not transferred to General reserve (b), capital redemption reserve (d). Securities premium
account (c) reflects only premium on issue of shares. It is not a debt to be transferred to debentures (e). Thus,
the correct answer is (a).
19. C The long term investments are accounted for in the balance sheet at cost price.
20. A Tax deducted at source is the liability of the company towards the tax authority. It is also payable to the tax
authority within a short period. Therefore, it is to be shown on liabilities side of the balance sheet under
current liabilities Hence, (a) is correct answer.
21. D The periodical interest received in respect of investments made on account of debenture redemption fund is
credited to (d) Debenture redemption fund account. Hence, option (d) is the correct answer.
22. D At the time of purchase of debentures, the interest account will be debited with
Interest = 5,00,000 × 12% × 2/12 = Rs.10,000.
23. D Subsidies received from the Government are included in the profits for the purpose of calculating managerial
remuneration. Therefore, option (d) is the correct answer.
24. A Increase in gross profit in 2007-08 = 3,00,000 × 20/100 = Rs.60,000
Increase in operating expenses in 2007-08= 2,00,000 × 10/100 = Rs.20,000
Increase in net profit = Rs.60,000 – Rs.20,000 = Rs.40,000.
25. D A company should also show, by way of notes to the balance sheet, certain contingent liabilities listed below:
1. Claims against the company not acknowledged as debts.
2. Uncalled liability on shares partly paid.
3. Arrears of fixed cumulative dividends.
4. Estimated amount of contracts remaining to be executed on capital account and not provided for.
5. Other money for which the company is contingently liable.
Therefore option (d) is the correct answer.
26. C The Central Government appoints a Chartered Accountant or the company’ auditor as a special auditor, but
not by the Board of Directors of the company.
27. D Statement of accounting policies need not be stated in the Director’s Report. It is to be stated in Auditors
Report
28. E Scrutinizing professional efficiency of management is not a duty of an auditor.
29. C If a company reissues forfeited shares at a discount, that discount amount will be debited to share forfeited
account. Hence (c) is the correct answer. 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 the reissue of forfeited shares.
30. A 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 (a) is the correct answer
31. D The amount of proposed dividend out of pre-acquisition profits of the subsidiary company belonging to the
holding company is credited to the investment account of the holding company. Therefore option (d) is the
correct answer.
32. E Option (e) is the correct answer because profits earned after the date of acquisition are treated as revenue
profits for a holding company.
33. A Bills drawn or accepted either by the holding company or its subsidiary company is not an outside obligation
for the holding company. The item “Bills Receivable” in one company’s balance sheet and corresponding
item “Bills Payable” in another company’s balance sheet are to be eliminated under inter-company
transactions against each other. Hence option (a) is correct answer.
34. A
Particulars Rs.
Cost of acquisition of shares 75,000
Less: Nominal value of shares 80,000 × 85% 68,000
Goodwill 7,000.
35. A Revenue Profits of Musi Ltd. = Rs.50,000 × 3/12 = 12,500
The share in revenue profit of Sayo Ltd. = Rs.12,500 × 80% = Rs.10,000
36. A Total profit on revaluation of assets = Rs.6,05,250 – Rs.5,00,000 = Rs.1,05,250
Share of Double Ltd., in the capital profit = Rs.1,05,250 × 70% = Rs.73,675.
37. A Amount of profit for the year 2007-08 is Rs.2,25,000 + Rs.75,000 = Rs.3,00,000
Amount of profit for 4 months from April 01, 2007 to July 31, 2007
=
Pre-acquisition profits = Rs.1,00,000 – Rs.75,000 = Rs.25,000.
Rs.3,00,000
4 Rs.1,00,000
12
× =
38. D Any compensation, damages or payments made voluntarily shall not be deducted from the gross profit while
calculating the managerial remuneration, except this all the other items should be deducted from the gross
profit to calculate managerial remuneration. Hence the answer is (d).
39. D Dividends are distributions of profits to the investors (stockholders) of the company. Dividends are not
expenses and do not appear in the income statement They are appropriation of profits and appear in the profit
and loss appropriation account. When dividends are declared and paid they reduce both the assets and
owner’s equity.
40. D Gross value added does not include depreciation.
41. A Value added statement can be used as a means in introducing productivity linked bonus schemes for the
employees.
42. A Current value of assets can be used in place of historical costs to overcome the drawback in computing EVA
on the basis of historical costs.
43. C Option (c) is the correct answer because underwriting commission is paid on shares purchased by the
underwriter as per agreement.
44. E EVA can be improved by
I. Investing in high return projects.
II. Increasing the rate of return for the same capital base.
III. Downsizing unprofitable operations, units or by selling off sub standard assets.
All are steps for improvement of EVA. Alternative (e), the combination of above, is the correct answer.
45. A Addition of wealth made by the organization with the efforts of management and employees using capital is
called as value addition.
46. D Economic value addition = Net operating profit after tax – Weighted average cost of capital.
47. B Value added = Sales − Operating expenses – Excise duty
Value added = Rs.5,00,000 – Rs 2,60,000 – Rs.50,000 = Rs.1,90,000.
48. C
Rs.
Average annual profits = Rs.7,40,000 ÷ 5 = 1,48,000
Less: 10% Return on Rs.12,00,000 (average capital employed) = 1,20,000
Super profit 28,000
Goodwill = 5 × Rs.28,000 = Rs.1,40,000.
Year Profits (Rs.)
2003-04 1,20,000
2004-05 1,50,000
2005-06 1,30,000
2006-07 1,80,000
2007-08 1,60,000
7,40,000
49. D
Particulars Rs.
Preference share capital 2,00,000
Add: Premium on redemption @ 10% 20,000
Amount required for redemption 2,20,000
Less: Amount available for redemption Rs.30,000 + Rs.10,000 + 84,000
Rs.44,000
Required fresh issue of shares 1,36,000
50. C Computation of net tangible assets
Computation of average maintainable profit
Average profit after tax = (11,000 + 12,000 + 14,000 + 15,000) / 4 = Rs.13,000
Average dividend paid = (11% + 12% + 14.5% + 14.5%) / 4 = 13%
Therefore, normal rate of dividend = 13%
Total value of the business = (Average maintainable profit / Normal rate of return) × 100
= Rs.13,000 / 13% = Rs.1,00,000
Goodwill = Total value of the business − Net tangible assets
= Rs.1,00,000 – Rs.88,000 = Rs.12,000.
Particulars Rs. Rs.
Plant & machinery 60,000
Land & building 25,000
Stock in trade 11,000
Sundry debtors 40,000
Cash at bank 9,000 1,45,000
Less: Bank loan 15,000
Sundry creditors 28,000
Provision for taxation 14,000 57,000
Net tangible assets 88,000

[Quick Sam]

51. A
Weighted average profit
= (55,200 + 95,500 + 96,600 ) / 1 + 2 + 3
= 2,47,300 / 6 = Rs.41,217.
Particulars Mar. 31, 2006 Mar. 31, 2007 Mar. 31, 2008
Profit as per books
Purchase of Fixed asset
(W.N.1)
Non-recurring expenditure
Profits from subsidiary
company
Adjusted Profit
Weights (assumed)
Weighted average profit
48,000
8,000
−800
57,600
−800
−9,050
24,000
−800
9,000
55,200
1
55,200
47,750
2
95,500
32,200
3
96,600
52. A
Average post-tax profits = (Rs.92,300 + 1,33,250 + 2,28,800) / 3 = Rs.1,51,450
Goodwill = Rs.1,51,450 × 4 = Rs.6,05,800.
Particulars March 31, 2006
(Rs.)
March 31, 2007
(Rs.)
March 31, 2008
(Rs.)
Gross Profit 2,50,000 3,25,000 4,80,000
Less: Other expenses 60,000 72,000 80,000
Interest on
debentures
48,000 48,000 48,000
Pre-tax profit 1,42,000 2,05,000 3,52,000
Less: Tax @35% 49,700 71,750 1,23,200
Post-tax profits 92,300 1,33,250 2,28,800
53. D
Particulars Rs.
Total assets 3,87,500
Less: Profit and Loss account (loss) 30,000
Long-term loan 1,00,000
Creditors 25,000
Bank overdraft 12,500
Normal profit
= Average capital employed x normal rate of return
= Rs.2,07,500 × 10% = Rs.20,750.
Capital employed at the end 2,20,000
Less: ½ of the profit during the year 12,500
Average capital employed 2,07,500
54. C
Year PAT
(Rs.)
Taxes
(Rs.)
Directors
Remuneration
(Rs.)
Profit before tax
and remuneration
(Rs.)
2005-06 72,750 72,750 4,500 1,50,000
2006-07 87,300 87,300 5,400 1,80,000
2007-08 97,000 97,000 6,000 2,00,000
5,30,000
Particulars Rs. Rs.
Average Profit before tax and directors
remuneration
1,76,667
Less: Additional Depreciation @ 10% on
Rs.1,00,000
10,000
Directors Remuneration on Rs.1,66,667 @ 3% 5,000 15,000
1,61,667
Less Income Tax @ 50% 80,834
Future Maintainable Profits 80,833
55. C Computation of total amount of calls-in-arrear:
Pro-rata ratio = 54,000 : 45,000 = 6 : 5
Mr. Arun who did not pay allotment
money applied for shares = 1,250 × 6 / 5 = 1,500 shares
Amount paid by Mr. Arun on application = Rs.3 × 1,500 shares = Rs.4,500
Amount adjusted against allotment = Rs.3 × 250 = Rs.750.
Amount due from Mr. Arun:
Due on allotment = Rs.5 × 1,250 = Rs. 6,250
Less: Amount adjusted from application = Rs. 750
= Rs. 5,500
Due on calls = Rs.4 × 1,250 = Rs. 5,000
\Amount due from Mr. Arun = Rs.10,500
Amount due from Mr. Tarun = Rs.2,500 × 4 = Rs.10,000
Amount due from Mr. Pandit = Rs.6,250 × 2 = Rs.12,500
Total amount of calls-in-arrear is Rs.33,000
56. E (No. of shares)
Particulars Siri Satya Narayana Total
Liability 60,000 80,000 60,000 2,00,000
Less: Unmarked applications in the ratio of 3 : 4 : 3 9,600 12,800 9,600 32,000
50,400 67,200 50,400 1,68,000
Less: Marked (Stamped) applications 44,000 48,000 56,000 1,48,000
6,400 19,200 (5,600) 20,000
Less: Division of Sunil’s surplus
(in the ratio of 3:4)
2,400
3,200
5,600
–
Final liability of each underwriter 4,000 16,000 Nil 20,000
57. D Valuation of shares under Intrinsic Value Method:
Calculation of capital employed under net assets basis:
Particulars Rs. Rs.
Assets:
Assets Available to equity shareholders:
Number of shares = 50,000
Intrinsic value of shares = Rs.17,38,750 / 50,000 = Rs.34.775.
Intrinsic value fully paid share = Rs.34.775
Intrinsic value of partly paid share (Rs.16 paid per share) = Rs.34.775 – Rs.4 = Rs.30.775.
Intrinsic value of partly paid share (Rs.14 paid per share) = Rs.34.775 – Rs.6 = Rs.28.775
Goodwill
Debtors
Stock in hand
Plant and machinery
Factory premises
52,250
2,50,000
7,75,000
5,20,000
6,41,500
22,38,750
Less outside liabilities:
Bank overdraft
Creditors
Provision for taxation
1,50,000
2,00,000
2,50,000
6,00,000
Net assets 16,38,750
Particulars Rs. Rs.
Notional calls on partly paid
shares 10,000 × Rs.4
10,000 × Rs.6
40,000
60,000
1,00,000
Funds available to Equity share
holders
17,38,750
58. D Number of bonus shares = 60,000 × 3/5 = 36,000
The securities premium collected in cash can be utilized for the bonus issue. Hence the amount of Rs.20,000
on issue of shares to promoters cannot be utilized for issue of bonus shares.
Particulars Rs.
Amount of bonus issue = 36,000 × Rs.20 7,20,000
Less: Amount to be adjusted against
Capital reserve (amount realized in cash) 1,20,000
Securities premium (Rs.1,00,000 – Rs.20,000) 80,000
General reserve 4,00,000
Amount to be utilized from Profit and Loss
account
1,20,000
59. D Amount transferred to forfeited shares account in respect of shares reissued to Swathi
= 600 × 7 = Rs.4,200.
Therefore, Rs.4,200 can be transferred to capital reserve.
60. E
Thus, the profit on cancellation of own debentures transferred to capital reserve is Rs.1,200.
Date Particulars
Dr.
(Rs.)
Cr.
(Rs.)
July 1,
2008
Own Debentures
a/c. Dr.
1,18,800
Interest on Debentures A/c. Dr. 3,600
To Bank A/c. 1,22,400
(Being the purchase of 1,200 own debentures at the
rate of Rs.102 cum interest. Interest for 3 months
from April 1,2008 to June 30, 2008 is Rs.3,600)
Sept.01,
2008
12% Debentures A/c. Dr. 1,20,000
To Own debentures A/c. 1,18,800
To Capital reserve A/c. 1,200
(Being the profit on redemption of debentures
transferred to capital reserve A/c.)
61. D Provision for taxation of the previous year = Rs. 7,60,000
Dividend on 10% 25,000 Preference Shares of Rs.100 = Rs. 2,50,000
10% Dividend on 2,50,000 equity shares of Rs.15 each = Rs. 3,75,000
The total amount debited to Profit and Loss appropriation account = Rs.13,85,000
62. A
Where the amount for which the fixed asset is sold exceeds the written-down value, credit shall be given for
so much of the excess as is not higher than the difference between the original cost of the fixed asset and its
written down value. Hence only Rs.60,000 (Rs.3,00,000 – Rs.2,40,000) should be added.
The director’s remuneration and the bonus paid to any member of company’s staff should be deducted
whereas Income tax and super tax should not be deducted.
Credit should not be given to profits by way of premium on shares
Managing Director’s Commission = Rs.43,35,000 × 4 / 104 = Rs.1,66,731.
Particulars Rs. Rs.
Net Profit as calculated 45,00,000
Add: Revenue Profit on sale of plant 60,000
45,60,000
Less: Director’s remuneration 1,50,000
Bonus paid to production executive 75,000 2,25,000
Net Profit 43,35,000
63. E
Non-recording of return of cheque does not affect the profit & Loss account.
Particulars Rs.
Loss as reported by the accountant 75,000
Less: Goods returned to supplier (3,000)
Add: Rent not considered 4,000
Loss after considering all aspects 76,000
64. A Balance Sheet of Pavani Ltd.
Working Note: Assets are acquired against issue of shares at a premium of 10%. i.e.Rs.8,80,000 × 100 / 110
= Rs.8,00,000 = Share capital of Rs.8,00,000 and shares premium of Rs.80,000 Share issued to promoters
1,000 at par of Rs.100 = 1,00,000 and the account debited is goodwill with Rs.1,00,000; 3,000 shares are
issued to public at a premium of 10% i.e. the amount received 3,000 × Rs.110 = Rs.3,00,000 against share
capital and Rs.30,000 against securities premium.
Liabilities Rs. Assets Rs.
Share Capital 12,00,000 Goodwill 1,00,000
Securities
Premium
1,10,000 Fixed Assets 8,80,000
Bank 3,30,000
Total 13,10,000 Total 13,10,000
65. A Balance Sheet of Vaibhav Ltd., as on March 31, 2008
Liabilities Rs. Assets Rs.
Share capital 6,00,000 Fixed assets 9,24,000
Less call in
arrears
36,000
5,64,000
Sundry debtors 1,32,000
Capital reserve 1,08,000 Stock 1,15,200
P & L A/c
60,000
Loans to
employees
61,440
Secured loans 4,80,000 Cash 4,800
Bank 48,000
Sundry
creditors
1,09,440
Preliminary
expenses
36,000
13,21,440 13,21,440
66. D Alpha Ltd.
Dr. Profit and Loss account for the year ended March 31, 2008 Cr.
Particulars Rs. Particulars Rs.
To Establishment charges 15,40,000 By Gross profit 52,30,000
Working notes:
1. Managing Director’s remuneration has been calculated on the profit of Rs.33,10,000 {(Rs.52,30,000 +
Rs.50,000) – (Rs.15,40,000 + Rs.4,30,000)} because this profit is in conformity with the provisions of
Section 349 and 350 of the Companies Act,1956. Therefore, Managing Director’s remuneration will be
5% of Rs.33,10,000 = Rs.1,65,500.
2. Provision for Income Tax:
Profit before remuneration and taxes Rs.33,10,000
Less M.D.’s remuneration Rs. 1,65,500
Profit before tax Rs.31,44,500
Income tax @60% on Rs.31,44,500 = Rs.18,86,700
To Depreciation 4,30,000 By Commission
50,000
To M.D.’s Remuneration (Note-1) 1,65,500
To Provision for Income Tax
(Note-2)
18,86,700
To Net profit c/d 12,57,800
52,80,000 52,80,000
67. E Calculation of Transfer to General Reserve:
Final dividend declared (Rs.12,35,000 – Rs.10,000) × 9% = Rs.1,10,250
Total of dividend declared and proposed during the year
= Rs.(49,000 + 1,10,250) = Rs.1,59,250
Dividends as a percent of paid-up capital = (1,59,250 / 12,25,000) × 100 = 13%
Since this rate of dividend falls in the slab – greater than 12.5% but less than 15% – the transfer to reserves
should be 5% of the current profits.
Transfer to reserves = (5 / 100) × Rs.3,75,000 = Rs.18,750.
68. B Asset side of Consolidated Balance Sheet of Strong Ltd. and Weak Ltd. as at March 31, 2008
Assets Rs. Rs.
Goodwill 14,400
Fixed assets:
Strong Ltd. 7,80,000
Weak Ltd. 6,78,800 14,58,800
Stock:
Strong Ltd. 2,40,000
Weak Ltd. 72,000 3,12,000
Sundry debtors:
Strong Ltd. 88,000
Weak Ltd. 80,000
1,68,000
Less: Mutual indebtedness 24,000 1,44,000
Bills receivable:
Strong Ltd. 31,600
Less: Mutual indebtedness 6,000 25,600
Cash at bank:
Strong Ltd. 29,200
Weak Ltd. 16,000 45,200
Total 20,00,000
69. A
The premium received on fresh issue of shares should not be used for redemption of preference shares.
However, the same can be used for the premium payable on redemption of preference shares.
Particulars Rs.
Face value of shares to be redeemed (4,000 × Rs.100) 4,00,000
Less: Proceeds from fresh issue (3,000 × Rs.100) 3,00,000
Balance to be utilized from profit & loss a/c. Hence, amount to be
transferred to capital redemption reserve 1,00,000
70. A
=
Minority Interest = (12,000 × 1/5) = Rs.2,400.
960
1,200
4
Holding Company
5


 
 
71. C
Particulars Rs. Rs.
Cost of control on acquisition or cost of
investments
1,05,000
Less: share in share capital 75% of Rs.75,000 56,250
Less: share in pre-acquisition profit
i.e.75% of Rs.38,000 28,500 84,750
Goodwill 20,250
72. C
Hence the amount adjusted towards allotment is Rs.18,40,000.
Shares
applied
Shares
allotted
Application
money
received
(Rs.)
Application
money due
(Rs.)
Excess money
(Rs.)
Allotment
money due
(including
premium)
(Rs.)
Surplus /
(deficit)
(Rs.)
(1) (2) (3) = (1) ×
Rs.20
(4) = (2) ×
Rs.20
(5) = (3) – (4) (6) = (2) ×
Rs.50
(7) = (5)–
(6)
50,000 35,480 10,00,000 7,09,600 2,90,400 17,74,000 (14,83,600)
96,000 38,400 19,20,000 7,68,000 11,52,000 19,20,000 (7,68,000)
46,000 26,120 9,20,000 5,22,400 3,97,600 13,06,000 (9,08,400)
1,92,000 1,00,000 38,40,000 20,00,000 18,40,000
73. B The amount received on account of securities premium is 4,500 shares × Rs.20 = Rs.90,000. 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.
74. A Extract of consolidated balance sheet of Zolor Ltd., as on March 31,2008
Liabilities Rs. Assets Rs.
Closing stock
Zolor 44,000
Zeft 72,000
1,16,000
Less:
Unrealized 1,200
profit
(Rs.3,600 × 50 / 150)
1,14,800
75. B Consolidated financial statements should reflect the economic activities of a business enterprise measured
without regard to the boundaries of the legal entity. A parent and subsidiary are legally separate but are
treated as a single business enterprise in consolidated statements, in recognition of Business entity concept
(b). The other concepts do not explain about consolidation of financial statements. The Going concern
concept (a) assumes that the business entity will continue to operate in the absence of evidence to the
contrary. Materiality (c) requires reporting the information that has a value significant enough to affect
decisions of those using the financial statements. Cost concept (d) explains how the assets are to be recorded
in the books of accounts. According to this, fixed assets are to be recorded at cost less accumulated
depreciation. Periodicity (e) explains that the financial accounting process is meant to provide the information
about the economic activities of the business enterprise at regular intervals. It does not speak about
consolidation of financial statements. Alternative (b) is the correct answer.

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