Financial Accounting CHP 1, 2 & 3 – IOS, CR & PPI Institute by choice 9004051641 Test: 02/FA 1 TEST – 02/FA Date: _______________ Duration: 2hr Marks – 75 marks Name: _______________ All Questions are compulsory. Working notes should form part of Answer. 1. Match the following: (06 marks) a) Fictitious Assets 1) No Allocation b) Surrender of Shares 2) Transfer to Capital Reduction c) Cancellation of Surrendered shares 3) Unchanged Capital d) Loans 4) Time Ratio e) Pre-incorporation loss 5) Adjust against purchase consideration f) Venders Capital 6) Goodwill 7) Transfer to Capital Reserve 2. Fill In the Blanks (07 marks) a) The sub-division of shares does not result in ______ of capital. b) The scheme of reconstruction requires approval of ________. c) A scheme of ________ or ___________ means the scheme having same effect. d) Shareholders not approving scheme are called ________ shareholders. e) For allocation of income and expenses, the date of _______ is not to be considered. f) Share transfer fee is to be allocated to _____ period. g) If value of net assets taken over is higher than consideration, the difference is called _______. 3. State with reasons whether true or false. (07 marks) a) Capital reduction is one variety of capital restructuring. b) Sub-division of shares results in gain for a company. c) Statutory reserve can be utilized to set-off loss under scheme of Capital Reduction. d) Various items in balance sheet should be allocated in the ratio of time for pre and post incorporation period. e) The additional information given for some items of expenses should be ignored. f) The final accounts prepared after reconstruction should be suffixed by words “and reduced”. g) Columnar trading account for pre and post incorporation period can never be prepared. 4. Multiple Choice Questions: (07 marks) a) Capital reduction is implemented as per section ______ of companies Act. 1) 77 3) 80 2) 75 4) 100 b) The expenses related to company should be allocated to _____ period. 1) Pre-incorporation 3) none 2) Post-incorporation 4) time Financial Accounting CHP 1, 2 & 3 – IOS, CR & PPI Institute by choice 9004051641 Test: 02/FA 2 c) The excess of net assets over consideration paid is called _______. 1) Capital reserve 3) Goodwill 2) Reserve Capital 4) Security Premium d) And reduced words are to be shown as in Balance sheet as per _______ requirement. 1) Company law 3) Income tax 2) AS 4) Stock Exchange e) The interest paid to vendors should be allocated in the ratio of ______. 1) Time 3) Specific Time period. 2) Sales 4) None f) The cancellation of contingent liability is ___________ for the company. 1) Profit 3) Loss 2) No profit – No loss 4) Capital profit. g) The scheme of reconstruction involves _____ company. 1) One 2) Two 3) Three 4) Four 5. Problem 01 (16 marks) The following was the Balance Sheet of Japan Construction Ltd as on 31st March, 2011. Amt.Amt.Rs.RsAuthorised CapitalGoodwill10,000 20000 Equity Shares of Rs.10each200,000 Land & Building20,500 Issued, Subscribed & Paid up Capital:Plant & Machinery50,850 12000 Shares of Rs. 10 each120,000 Preliminary Expenses1,500 Less: Calls -in-Arrear:(Rs. 3per Share on 3000 Shares)(9,000)111,000 Stock10,275 Sundry Creditors15,425 Book Debts15,000 Provision for Taxes4,000 Cash at Bank1,500 Profit & Loss A/cBalance as per Last Balance Sheet22,000 Less: Profits for the year(1,200)20,800 130,425 130,425 LiabilitiesAssetsFinancial Accounting CHP 1, 2 & 3 – IOS, CR & PPI Institute by choice 9004051641 Test: 02/FA 3 The Directors have had a valuation made of the machinery & find it over-valued Rs. 10000. It is proposed to write down this asset to its true value & to extinguish the deficiency in the Profit & Loss A/c & write off Goodwill & Preliminary expenses by the adoption of the following course: 1. Forfeit the shares on which the call is outstanding. 2. Reduce the paid up capital by Rs. 3 per Share. 3. Reissue the forfeited shares at Rs. 5 per share. 4. Utilize the provision for taxes, if necessary. The shares on which the calls were in arrears were duly forfeited & reissued payment of Rs. 5 per share. You are required to draft the Journal Entries necessary & the Balance Sheet of the Company after carrying out the terms of the scheme as set above. 6. Problem 02 (16 marks) The summarized balance Sheet of Vijay Kumar Ltd as on 31st March, 2010 was as follows. The company proposed to make a fresh issue of capital to the public in June 2010. However, before doing so the directors desire to carry out the following scheme of reconstruction: 1. The preference shares shall be redeemed at 10% premium. 2. The company to issue bonus shares in the ratio of one share for every two existing equity shares. 3. The equity capital thereafter to be sub divided into shares of Rs. 10 each. 4. The fictitious assets shall be written off. 5. The fixed assets to be appreciated by 2o%. 6. The goodwill of the company valued at Rs. 2500000 shall be brought into the books. 7. A provision of 5% shall be made against the other current assets for likely shortfall in its realization by ear-marking the requisite amount from the existing reserves. You are required to prepare Capital Reduction A/c. Amt.Amt.Rs.RsEquity Shares of Rs. 100 each fully paid5000000Fixed Assets5000000Redeemable Preference Shares of 100 each fully paid1000000Cash on hand500000Reserves2500000Cash in ICICI Bank2000000Sundry Creditors2000000Other Current Assets5000000Loans2500000Preliminary Expenses5000001300000013000000LiabilitiesAssetsFinancial Accounting CHP 1, 2 & 3 – IOS, CR & PPI Institute by choice 9004051641 Test: 02/FA 4 7. Problem 03 (16 marks) MohanLal Ltd. was incorporated on 1st March 2009 to acquire a timber merchant's business as from 1st January 2009. The purchase consideration was agreed at Rs. 6,00,000 to be satisfied by the issue of 30,000 equity shares of Rs. 10 each and 3,000 -6% Debentures of Rs. 100 each. The following is trading and Profit & Loss A/c. for the year ended 31st March 2010. Particulars Rs. Particulars Rs. To Material Consumed 774,000 By Sales 15,00,000 To Gross Profit 726,000 15,00,000 15,00,000 To Salaries to Staff 340,000 By Gross Profit 726,000 To Office Expenses 24,000 By Interest on Investment 6,000 To Rent 21,000 By Share transfer fees 1,000 To Selling Expenses 66,000 To Carriage outwards 11,000 To Debenture interest 13,500 To Director's Fees 24,000 To Preliminary Exp. 28,700 To Interest on Purchase Consideration 9,000 To Loss on Sale of Furniture 3,000 To Audit fees 30,000 To Net Profit 162,000 7,33,000 7,33,000 You obtain the following Information: 1. Sales are of one commodity at a fixed price and the average of the monthly sales for the first two months was one-half of the average of the monthly sales for the reminder months of the year. 2. The shares and debentures were issued to the vendor on 1st April 2009. 3. Interest at 6% per annum was paid on the purchase consideration from 1st January 2002 to the date settlement. & Furniture was sold on 1st February 2009. 4. Interest on investment was in respect on investments made by the company on 1st April 2009. 5. The number of staff in the pre-incorporation period was 10 and it was increased to 15 in the post of incorporation period (Assume that rate of payment is same in all cases). 6. Rent upto 31st October was Rs. 18,000 p.a. after which it was increased to Rs. 36,000 p.a. Prepare Profit & Loss Account in Columnar form showing distinctly the allocation of profits between pre-incorporation and post incorporation periods, indicating the basis of allocation of each item.