Download From http://caknowledge.

in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Gurukripas Guideline Answers for Nov 2015 IPCC Exam Questions

ADVANCED ACCOUNTING Group II
Question No.1 is Compulsory. Answer any 5 Questions from the remaining 6 Questions. [Any 4 out of 5 in Q.7]
Wherever appropriate, suitable assumption(s) should be made and indicated in the answer by the Candidates.
Working Notes should form part of the answer.

All Page References given here are from Padhukas Students Handbook on Advanced AccountingFor CA Inter (IPC)

Question 1(a): AS11 Reporting of Monetary Items at B/s Date 5 Marks

Explain the accounting treatment needed in the following cases as per AS11 as on 31.03.2015. US $ 1 = ` 61.20 on 31.03.2015.
(i) Sundry Debtors include amount receivable from Umesh ` 5,00,000 recorded at the prevailing exchange rate on the date of
sales, transaction recorded at US $ 1 = ` 58.50.
(ii) LongTerm Loan taken from a US Company, amounting to ` 60,00,000. It was recorded at US $ 1 = ` 55.60, taking the
exchange rate prevailing at the date of transaction.

Solution: Refer Principles in Page B.3.7, Q.No.18 and Q.No.20, 21 Illustrations

1. Computation of Gain / (Loss) on Foreign Exchange

Sundry Debtors= Receivable LongTerm Loan = Payable
Transaction Date Balance Sheet Date 31st March Transaction Date Balance Sheet Date 31st March
USD = ` 58.50 USD = ` 61.20 USD = ` 55.60 USD = ` 61.20

Exchange Difference = ` 2.7 per USD (Gain) Exchange Difference=` 5.6 per USD (Loss)
5,00,000 60,00,000
(due to Reporting) i.e. 2.7 = ` 23,077 (due to Reporting) i.e. 5.6 = ` 6,04,317
58.50 55.60
Credited to P&L A/c for the year ending 31st March 2015. Debited to P&L A/c for year ending 31st March 2015.

2. Disclosure in Balance Sheet: Sundry Debtors & Long Term Loan taken are Monetary Items as per AS11. At each
Balance Sheet date, they should be reported using the Closing Rate. The difference in reporting should be recognized
in the Statement of Profit and Loss for the current year. The Balances to be shown in the Balance Sheet are
5,00,000 60,00,000
Sundry Debtors = 61.20 = ` 5,23,077, and LongTerm Loan = 61.20 = ` 66,04,317.
58.50 55.60

Question 1(b): AS19 Operating vs Finance Lease Evaluation 5 Marks

Aksat International Limited has given a Machinery on lease for 36 months and its useful life is 60 months. Cost & Fair Market
Value of the Machinery is ` 5,00,000. The amount will be paid in 3 equal annual instalments and the Lessee will return the
Machinery to Lessor at the termination of lease. The Unguaranteed Residual Value at the end of 3 years is ` 50,000. IRR of
investment is 10% and Present Value of Annuity Factor of ` 1 due at the end of 3 years at 10% IRR is 2.4868 and Present Value
of ` 1 due at the end of 3rd year at 10% IRR is 0.7513.
You are required to comment with reason whether the Lease constitute Finance Lease or Operating Lease. If it is Finance
Lease, calculate Unearned Finance Income.

Solution: Similar to Page. B.6.6, Q.No.17 [RTP, P M 10, F M 05 Qn]

1. Finance vs Operating Lease

Particulars `
(a) Present Value of Unguaranteed Residual Value (URV) ` 50,000 0.7513 37,565
(b) Present Value of Lease Payments (PV of MLP) ` 5,00,000 ` 37,565 4,62,435
` 4,62,435
(c) % of PV of MLP to Fair Value 92.49%
` 5,00,000
Conclusion: The Lease Term is 60%, 3/5th of the Assets Useful Life. Also, the Present Value of Lease Payments is around
92% of the Fair Value, constituting substantial portion of the Fair Value. Therefore, the Lease is a Finance Lease.

Nov 2015.1
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

2. Computation of Unearned Finance Income

Particulars `
PV of Lease Payments ` 4,62,435
Annual Lease Payments= = = 1,85,956 p.a
Annuity Factor for 3 years at 10% 2.4868
Total Lease Rentals for the Lease Period = ` 1,85,956 p.a 3 years = MLP 5,57,868
Residual Value 50,000
Gross Investment in the Lease 6,07,868
Less: Present Value of MLP & URV = (4,62,435 + 37,565) (See Note) (5,00,000)
Unearned Finance Income 1,07,868
Note: PV of MLP & URV equals the Fair Value / Cost of Equipment at the inception of the lease = ` 5,00,000.

Question 1(c): P&L on Not Going Concern basis 5 Marks

Balance Sheet of Anurag Trading Co. on 31st March 2014 is given below:
Liabilities ` Assets `
Capital 50,000 Fixed Assets 69,000
Profit & Loss A/c 22,000 Stock in Trade 36,000
10% Loan 43,000 Trade Receivables 10,000
Trade Creditors 18,000 Deferred Expenditure 15,000
Bank 3,000
Total 1,33,000 Total 1,33,000
Additional Information:
(i) Remaining life of Fixed Assets is 5 years with even use. The Net Realizable Value of Fixed Assets as on 31st March 2015
was ` 64,000.
(ii) Firms Sales and Purchases for the year 20142015 amounted to ` 5 Lakhs and ` 4.50 Lakhs respectively.
(iii) The Cost and Net Realizable Value of the Stock were ` 34,000 and ` 38,000 respectively.
(iv) General Expenses for the year 20142015 were ` 16,500.
(v) Deferred Expenditure is normally amortized equally over 4 years starting from F.Y. 20132014, i.e. ` 5,000 per year.
(vi) Out of Debtors worth ` 10,000, collection of ` 4,000 depends on successful redesign of certain product already supplied
to the customer.
(vii) Closing Trade Payable is ` 10,000, which is likely to be settled at 95%.
(viii) There is prepayment penalty of ` 2,000 for Bank Loan Outstanding.

Prepare Profit & Loss Account for the year ended 31st March 2015 by assuming it is not a Going Concern.

Solution: Refer Principles in Page No.A.1.4, Q.No.13 on Valuation Bases

Trading and P&L A/c for the year ended 31.03.2015 (not on Going Concern)
Particulars ` Particulars `
To Opening Stock 36,000 By Sales 5,00,000
To Purchases 4,50,000 By Closing Stock in Trade (at NRV) 38,000
To Gross Profit 52,000
Total 5,38,000 Total 5,38,000
To General Expenses 16,500 By Gross Profit 52,000
To Writeoff of Fixed Assets (69,000 64,000) 5,000 By Gain on Settlement of Crs (10,000 5%) 500
To Deferred Expenditure (fully recognized as Exp) 15,000
To Debtors not recoverable(assumed no redesign) 4,000
To Prepayment Penalty on Bank Loan 2,000
To Net Profit 10,000
Total 52,500 Total 52,500

Nov 2015.2
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Question 1(d): AS16 Forex Differences on Foreign Currency Loans ASI 10 5 Marks
Shan Builders Limited has borrowed a sum of US $ 10,00,000 at the beginning of Financial Year 20142015 for its Residential
Project at LIBOR + 3%. The interest is payable at the end of the Financial Year. At the time of the availment, the Exchange Rate
was ` 56 per US $ and the rate as on 31st March 2015 was ` 62 per US $. If Shan Builders Limited borrowed the Loan in India in
Indian Rupee equivalent, the pricing of Loan would have been 10.50%. Compute the Borrowing Cost and Exchange Difference
for the year ending 31st March 2015 as per applicable Accounting Standard. (Applicable LIBOR is 1%)
Solution: Similar to Page No.B.5.18, Q.No.42, 43 [F (A/c) M 12], [P (A/c) N 13]

Particulars Result
1. Interest Payable if Borrowed in INR =
(USD 10,00,000 x Opening Exchange Rate ` 56 x INR Loan Interest Rate 10.50%) ` 58,80,000
2. Interest Actually Paid in Foreign Currency =
Foreign Currency Loan USD 10,00,000 x Closing Exchange Rate ` 62 x USD Interest Rate 4% ` 24,80,000
3. Notional Savings in Interest due to Foreign Currency Borrowings = (1 2) ` 34,00,000
4. Change in Carrying Amount of Principal due to Exchange Rate Difference =
(Closing Exchange Rate ` 62 less Opening Exchange Rate ` 56) x USD 10,00,000 ` 60,00,000
Note: Since Closing Rate > Opening Rate, there is an Increase in Carrying Amount in this case.
5. Further Amount to be treated as Borrowing Cost = Least of (3) and (4) ` 34,00,000
6. Aggregate Borrowing Cost as per AS 16 = Actual Interest as per (2) + Additional in (5) ` 58,80,000
7. Exchange Rate Loss to be Recognized in Statement of P&L = (4 5) ` 26,00,000

Question 2: Partnership Accounts Sale to Company, Retirement of a Partner 16 Marks

Yash, Tanish and Ruchika were Partners sharing Profit & Loss in ratio of 3:2:1. Balance Sheet of the Firm is as follows:
Liabilities ` Assets `
Fixed Capital: Yash 50,000 Fixed Assets 45,000
Tanish 20,000 Investments 15,000
Ruchika 10,000 Current Assets: Stock 10,000
Current Accounts:Yash 6,000 Debtors 27,500
Ruchika 4,000 Cash & Bank 12,500
Unsecured Loans 15,000 Current Account: Tanish 10,000
Current Liabilities 15,000
1,20,000 1,20,000
On 1st April 2014, all the Partners agreed to form a New Company YTR Pvt. Ltd which shall take over the Firm as going concern
including Goodwill, but excluding Cash and Bank Balances. The following matters were also agreed upon:
(i) Goodwill shall be valued at 3 years purchase of Super Profits.
(ii) Actual profit for the purpose of Goodwill Valuation will be ` 20,000.
(iii) The Normal Rate of Return will be 17.50% per annum of Fixed Capital.
(iv) All other Assets and Liabilities will be taken over at Book Value.
(v) The Purchase Consideration will be paid partly in Shares of ` 1 each and partly in cash. Yash and Tanish to acquire
interest in New Company in the ratio of 3:2 at Face Value. Ruchika agreed at retire after taking her share in cash.
(vi) Realization Expenses amounted to ` 5,000.
Prepare Realisation Account, Cash and Bank Account, YTR Private Limited Account and Capital Accounts of the Partners.

Solution: Similar to Page No.A.2.33, Q.No.20 [M 97, M 04 Qn]

1. Computation of Goodwill
Particulars `
Actual Profit 20,000
Less: Normal Profit = (Fixed Capital ` 80,000 Normal Rate of Return 17.50%) (14,000)
Super Profit 6,000
Goodwill = 3 Years Purchase of Super Profit = ` 6,000 3 Years 18,000
Partners Share in Goodwill, in PSR 3: 2: 1. So, the amounts are Yash ` 9,000, Tanish ` 6,000 & Ruchika ` 3,000

Nov 2015.3
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

2. Computation of Purchase Consideration

Particulars `
Fixed Assets 45,000
Investments 15,000
Stock 10,000
Debtors 27,500
Goodwill 18,000
Total Assets 1,15,500
Less: Unsecured Loans (15,000)
Current Liabilities (15,000)
Purchase Consideration 85,500

3. Realisation Account
Particulars ` Particulars `
To Sundry Assets A/c (transfer) By Unsecured Loan A/c (transfer) 15,000
Fixed Assets 45,000 By Current Liabilities A/c (transfer) 15,000
Investments 15,000 By YTR (P) Ltd (Purchase Consideration) 85,500
Stock 10,000 By Loss on Realisation: (trfd in 3:2:1)
Sundry Debtors 27,500 Yash 2,500
To Bank A/c (Realisation Expenses) 5,000 Tanish 1,667
To Goodwill A/c 18,000 Ruchika 833 5,000
Total 1,20,500 Total 1,20,500

4. Partners Capital Account

Particulars Yash Tanish Ruchika Particulars Yash Tanish Ruchika
To Current A/c 10,000 By balance b/d 50,000 20,000 10,000
To Realisation A/c 2,500 1,667 833 By Current A/c 6,000 4,000
To Cash (bal. fig.) 16,167 By Goodwill A/c (WN 1) 9,000 6,000 3,000
To Tanish Capital (Note) 16,400 By Yash Capital (Note) 16,400
To YTR (P) Ltd(Note) 46,100 30,733
Total 65,000 42,400 17,000 Total 65,000 42,400 17,000
Note: The amount of ` 16,400 represents amount payable by Tanish to Yash on dissolution so that their entitlement in
the new Company, i.e. YTR (P) Ltd is in the ratio of 3:2. This amount can be obtained as bal.fig, after completing
WN 6 and transferring the Shares in YTR Ltd to Yash Capital and Tanish Capital A/cs.

5. Cash and Bank Account

Receipts ` Payments `
To balance b/d 12,500 By Realisation A/c (Expenses) 5,000
To YTR (P) Ltd (balancing figure) 8,667 By Ruchika Capital A/c 16,167
Total 21,167 Total 21,167

6. YTR (P) Ltd Account

Particulars ` Particulars `
To Realisation A/c (Purc. Consideration Due) 85,500 By Cash (WN 5) 8,667
To Shares in YTR (P) Ltd (bal. fig.)
Yash (76,833 3/5) 46,100
Tanish (76,833 2/5) 30,733 76,833
Total 85,500 Total 85,500

Question 3(a): Accounting for Employee Stock Options Vesting Period > 1 Year 8 Marks
P Ltd granted option for 8000 Equity Shares on 1st October 2010 at ` 80 when the Market Price was ` 170. The vesting period is
4 years. 4,000 unvested options lapsed on 1st December 2012. 3,000 options are exercised on 30th September 2014 and 1,000
vested options lapsed at the end of the exercise period. Pass Journal Entries for above transactions.

Nov 2015.4
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Solution: Similar Page No.A.3.31, Q. No. 17

1. Computation of Expense to be recognised (Vesting Period = 4 years)

Particulars Result
(a) Fair Value of Option per Share = MPS on Grant Date ` 170 less Exercise Price ` 80 ` 90
(b) No. of Shares vesting under the Scheme = given 8,000 Shares
(c) Total Fair Value of Options (ab) to be recognised as Expense in 4 years on straightline basis ` 7,20,000
(d) Expense to be recognised for Year 1 (01.10.2010 to 31.03.2011) (Half year) ` 80,000
for Year 2 (01.04.2011 to 31.03.2012) (full year) ` 1,60,000
for Year 3 (01.04.2012 to 31.03.2013) (full year) ` 1,60,000
for Year 4 (01.04.2013 to 31.03.2014) (full year) ` 1,60,000
for Year 5 (01.04.2014 to 31.03.2015) (full year) ` 1,60,000
(e) Value of Active Options (after lapse of 4,000 Options) as on 31.03.2013 = 4,000 ` 90 ` 3,60,000
(f) Cum. Balance in ESOS O/s A/c at end of Yr 3 = ` 80,000 + ` 1,60,000 + ` 1,60,000. ` 4,00,000
(g) Hence, Excess Expenses to be reversed by transfer to General Reserve at the end of Year 3 (fe) ` 40,000

Note: Value of Option: Intrinsic Value = MPS on Grant Date Less Exercise Price = ` 170 ` 80 = ` 90.

2.Journal Entries
Date Particulars Dr. (`) Cr. (`)
Year 1
31.03.2011 Employee Compensation Expense A/c Dr. 80,000
(yrend) To Employee Stock Options Outstanding A/c 80,000
(Being Compensation Expense recognized in respect of the Employee Stock Option
Plan, i.e. 8,000 Options granted to Employees at a discount of ` 90 each, amortized
on Straight Line Basis over 4 Years = 8,000 ` 20 6/12 [` 90 4.5 = ` 20])
31.03.2011 Profit and Loss A/c Dr. 80,000
(yrend) To Employee Compensation Expense A/c 80,000
(Being transfer of Employee Compensation Expense to P & L A/c at yearend)
Year 2
31.03.2012 Employee Compensation Expense A/c Dr. 1,60,000
(yrend) To Employee Stock Options Outstanding A/c 1,60,000
(Being Compensation Expense recognized in respect of the Employee Stock Option
Plan, i.e. 8,000 Options granted to Employees at a discount of ` 90 each, amortized
on Straight Line Basis over 4 Years = 8,000 ` 20 [` 90 4.5 = ` 20])
31.03.2012 Profit and Loss A/c Dr. 1,60,000
(yrend) To Employee Compensation Expense A/c 1,60,000
(Being transfer of Employee Compensation Expense to P & L A/c at yearend)
Year 3
31.03.2013 Employee Compensation Expense A/c Dr. 1,60,000
(yrend) To Employee Stock Options Outstanding A/c 1,60,000
(Being Compensation Expense recognized in respect of the Employee Stock Option
Plan, i.e. 8,000 Options granted to Employees at a discount of ` 90 each, amortized
on Straight Line Basis over 4 Years = 8,000 ` 20 [` 90 4.5 = ` 20])
31.03.2013 Profit and Loss A/c Dr. 1,60,000
(yrend) To Employee Compensation Expense A/c 1,60,000
(Being transfer of Employee Compensation Expense to P&L at yearend)
31.03.2013 Employee Stock Options Outstanding A/c (WN 1g) Dr. 40,000
(yrend) To General Reserve A/c 40,000
(Being excess of Employees Compensation Exp. transferred to General Reserve A/c)
Year 4 No Expense Entry is required, since the Value of 4000 Options Outstanding is already
30.09.2014 accumulated in the ESOP A/c (Cr.), over the first three years itself.

Nov 2015.5
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Date Particulars Dr. (`) Cr. (`)

Year 5
30.09.2014 Bank A/c (3,000 Options ` 80) Dr. 2,40,000
(Date of Employee Stock Options Outstanding A/c (3,000 Options ` 90) Dr. 2,70,000
exercise of To Equity Share Capital A/c (3,000 Options ` 10) 30,000
Option) To Securities Premium A/c (3,000 Options ` 160) 4,80,000
(Being 3,000 Employee Stock Options exercised at an Exercise Price of ` 80 each)
31.03.2015 Employee Stock Option Outstanding A/c (1,000 Options ` 90) Dr. 90,000
(End of To General Reserve A/c 90,000
Exercise (Being ESOS Outstanding A/c on the lapse of 1,000 Options at the end of exercise of
Period) Option period, transferred to General Reserve A/c)

Question 3(b): Underwriting Liability of Underwriters 8 Marks

Saurav Flour Mills Pvt Ltd floated a Public Issue of ` 1,50,000 Equity Shares having Face Value of ` 10 each at par. A, B & C
has taken underwriting of the issue in equal shares, with Firm Underwriting of 25,000, 20,000 & 20,000 Shares respectively.
Applications were received for 1,46,000 Shares out of which the Marked Applications were as under:
A 24,600 B 20,000 C 15,000
Credit of Unmarked Applications is to be given to Underwriters equally. The agreed Underwriting Commission was 5%. Total
amount payable on application and allotment was ` 5 and balance in calls.
Compute the following:
(i) Liability of each Underwriter (In Shares as well as in amount).
(ii) Commission due to Underwriters.
(iii) Net Cash paid / received from Underwriters
Also pass Journal Entries for above.

Solution: Similar to Page No.A.3.51, Q.No.13 to 17 [N 87, M 90, M 01, N 05, N 12, M 13 Qn]

Note: It is assumed that the Total Applications 1,46,000 Shares include Marked Applications, Unmarked Applications and
Firm Underwriting also. So, Balance Unmarked Applications = 1,46,000 () Marked 59,600 () Firm 65,000 = 21,400

1. Underwriters Liability [No. of Shares] and Amount due from Underwriters

Particulars A B C Total
Gross Liability 50,000 50,000 50,000 1,50,000
Less: Marked Applications (24,600) (20,000) (15,000) (59,600)
Less: Unmarked Applications (See Note above) (7,133) (7,133) (7,134) (21,400)
Less: Firm Underwriting (25,000) (20,000) (20,000) (65,000)
Net Liability under the Contract (6,733) 2,867 7,866 4,000
Adjust: Surplus of A transferred to B and C equally 6,733 (3,367) (3,366) Nil
Net Balance Nil (500) 4,500 4,000
Adjust: Surplus of B transferred to C Nil 500 (500) Nil
Balance to be underwritten = Net Liability Nil Nil 4,000 4,000
Add: Firm Underwriting 25,000 20,000 20,000 65,000
Total Liability=Shares to be taken up by Underwriters 25,000 20,000 24,000 69,000
Amount Due to Company at ` 5 per Share on Net Liability (`) Nil Nil 20,000 20,000
Less: Commission due to Underwriters [Gross Liability`105%)] (`) (25,000) (25,000) (25,000) (75,000)
Amount Receivable / (Payable) (`) (25,000) (25,000) (5,000) (55,000)

Note: Amount due to Company is taken at ` 5 per Share for the Net Liability taken up by the Underwriters (for C only). This
is because the Underwriters would already have applied for Firm Shares along with the Application Money due thereon.
Alternatively, Amount due to Company may be also computed for the Total Liability by assuming that the Underwriters are
yet to pay the amount on their Firm Shares applied for.

Nov 2015.6
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

2. Journal Entries in the books of the Company

Particulars Dr. (`) Cr. (`)
1. Bank A/c Dr. 7,30,000
To Equity Share Application and Allotment A/c 7,30,000
(Being amount received on 1,46,000 Shares at ` 5 per Share, including Firm
Underwriting 25,000, 20,000 and 20,000 from A, B and C Underwriters)
2. C A/c Dr. 20,000
To Equity Share Application and Allotment A/c 20,000
(Being amount due from Underwriter C on Net Liability of 4,000 Shares at ` 5)
3. Underwriting Commission A/c Dr. 75,000
To A A/c 25,000
To B A/c 25,000
To C A/c 25,000
(Being Underwriting Commission on the Shares underwritten)
4. Equity Share Application and Allotment A/c Dr. 7,50,000
To Equity Share Capital A/c 7,50,000
(Being allotment of Shares, including Firm Underwriting Shares)
5. A A/c Dr. 25,000
B A/c Dr. 25,000
C A/c Dr. 5,000
To Bank A/c 55,000
(Being balance paid to Underwriters)

Question 4: Internal Reconstruction 16 Marks

The following is the Balance Sheet of Star Ltd as on 31st March 2015:
A. Equity & Liabilities: `
1. Shareholders Fund:
(a) Share Capital: 9,000 7% Preference Shares of ` 100 each fully paid 9,00,000
10,000 Equity Shares of ` 100 each fully paid 10,00,000
(b) Reserves & Surplus: Profit & Loss Account (2,00,000)
2. NonCurrent Liabilities: A 6% Debentures (Secured on Bombay Works) 3,00,000
B 6% Debentures (Secured on Chennai Works) 3,50,000
3. Current Liabilities and Provisions:
(a) Workmens Compensation Fund: Bombay Works 10,000
Chennai Works 5,000
(b) Trade Payables 1,25,000
Total 24,90,000
B. Assets:
1. NonCurrent Assets: Tangible Assets:
Bombay Works: 9,50,000
Chennai Works 7,75,000
2. Investments: Investments for Workmans Compensation Fund 15,000
3. Current Assets:
(a) Inventories 4,50,000
(b) Trade Receivables 2,50,000
(c) Cash at Bank 50,000
Total 24,90,000
A Reconstruction Scheme was prepare and duly approved. The salient features of the Scheme were as follows:
(i) Paid Up Value of 8% Preference Shares to be reduced to ` 80, but the Rate of Dividend being raised at 9%.
(ii) Paid Up Value Equity Shares to be reduced to ` 10.
(iii) The Directors to refund ` 50,000 of the Fees previously received by them.

Nov 2015.7
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

(iv) Debenture Holders to forego their Interest of ` 26,000 which is included among the Sundry Creditors.
(v) Preference Shareholders agreed to waive their claims for Preference Share Dividend, which is in arrears for the last 3 years.
(vi) B 6% Debentureholders agreed to take over the Chennai Works at ` 4,25,000 and to accept an allotment of 1,500 Equity
Shares of ` 10 each at par, and upon their forming a Company called Zia Ltd (to take over the Chennai Works), they
allotted 9,000 Equity Shares of ` 10 each fully paid at par to Star Ltd.
(vii) The Chennai Worksmen Compensation Fund disclosed that there were actual liabilities of ` 1,000 only. As a consequence,
the Investments of the Fund were realized to the extent of the balance. Entire Investments were sold at a Profit of 10% on
Book Value and the proceeds were utilized for part payment of the Creditors.
(viii) Stock was to be written off by ` 1,90,000 and a Provision for Doubtful Debts is to be made to the extent of ` 20,000.
(ix) Chennai Works completely written off.
(x) Any balance of the Capital Reduction Account is to be applied as twothirds to write off the value of Bombay Works and
onethird to Capital Reserve.
Pass necessary Journal Entries in the books of Star Ltd after the Scheme has been carried into effect.

Solution: Refer Principles in Various Illustrations in Chapter 4

1. Journal Entries in the Books of the Company

S.No. Particulars Dr. (`) Cr. (`)
1. 7% Preference Share Capital (` 100 paid up) A/c Dr. 9,00,000
To 9% Preference Share Capital (` 80 paid up) A/c (9,000 80) 7,20,000
To Capital Reduction A/c 1,80,000
(Being 9,000 7% Pref. Shares of ` 100 reduced to 9% Pref. Shares of ` 80
Paid up and balance amount transferred to Reconstruction A/c vide approved
Reconstruction Scheme dated)
2. Equity Share Capital (` 100 paid up) A/c Dr. 10,00,000
To Equity Share Capital (` 10 paid up) A/c 1,00,000
To Capital Reduction A/c 9,00,000
(Being the reduction of Equity Shares of ` 100 each to Shares of ` 10 Paid up,
as per approved Reconstruction Scheme)
3. Cash / Bank A/c Dr. 50,000
To Capital Reduction A/c 50,000
(Being Refund of Fees by Directors received back by Company.)
4. Trade Payables A/c Dr. 26,000
To Capital Reduction A/c 26,000
(Being Interest foregone by Debenture Holders, which is included among the
Sundry Creditors)
5. No Journal Entry for Preference Shareholders to waive their claims for Arrears
of Preference Share Dividend
6. B 6% Debentures A/c Dr. 3,50,000
Capital Reduction A/c (balancing figure) Dr. 90,000
To Chennai Works A/c (agreed value of takeover) 4,25,000
To Equity Share Capital A/c (1,500 ` 10 paid up) 15,000
(Being B 6% Debentures settled by Chennai Works and allotment of 1500
Equity Shares of ` 10 each)
7. Equity Shares of Zia Ltd A/c (9,000 ` 10) Dr. 90,000
To Capital Reduction A/c 90,000
(Being 9,000 Equity Shares of ` 10 each allotted by Zia Ltd)
8. Bank A/c Dr. 4,400
To Investment for Workmen Compensation Fund A/c (Chennai) 4,000
To Capital Reduction A/c (4,000 10%) 400
(Being Workmen Compensation Fund Investments realized for Chennai Works
portion, and proceeds are utilized to settle Trade Payables) [Note: Assumed
that Bombay Works Fund and Investment are retained as such for ` 10,000]

Nov 2015.8
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

S.No. Particulars Dr. (`) Cr. (`)

9. Trade Payables Dr. 4,400
To Bank A/c 4,400
(Being Part Payment of Trade Payables out of Investment Proceeds.)
10. Capital Reduction A/c Dr. 7,60,000
To Stock A/c 1,90,000
To Provision for Doubtful Debts A/c 20,000
To Chennai Works A/c (B/s Value 7,75,000 Takeover 4,25,000) 3,50,000
To Profit and Loss A/c 2,00,000
(Being Stock, Provision for Doubtful Debts , Chennai Works Balance, Profit and
Loss Account written off out of Capital Reduction / Reconstruction A/c)
10. Capital Reduction A/c Dr. 3,96,400
To Bombay Works A/c 2,64,267
To Capital Reserve Ac 1,32,133
(Being Balance in Capital Reduction A/c is applied as 2/3rd to write off the value
of Bombay Works and 1/3rd is transferred to Capital Reserve.)

2. Capital Reduction Account

Particulars ` Particulars `
To Chennai Works/B Debentures A/c 90,000 By 8% Preference Share Capital A/c 1,80,000
To Stock A/c 1,90,000 By Equity Share Capital (` 100) A/c 9,00,000
To Provision for Doubtful Debts A/c 20,000 By Cash A/c 50,000
To Chennai Works A/c(7,75,000 4,25,000) 3,50,000 By Trade Payables A/c 26,000
To Profit & Loss A/c 2,00,000 By Equity Shares of Zia Ltd A/c (9,000 ` 10) 90,000
To Bombay Works A/c (b/f) 2,64,267 By Bank (Gain on Sale of Investments) 400
To Capital Reserve A/c (b/f) 1,32,133
Total 55,00,000 Total 12,46,400

Question 5(a): Insurance Companies Marine Insurance Revenue Account 12 Marks

Prepare Revenue Account of M/s Ishan Insurance Co. engaged in Marine Insurance Business:
Particulars Direct Business (`) ReInsurance (`)
I. Premium:
Received 3,60,000 38,000
Receivable 1st April 2014 10,000 1,600
31 March 2015
st 16,000 1,800
Premium Paid 24,000
Premium Payable 1st April 2014 1,000
31st March 2015 2,200
II. Claims:
Paid 1,54,000 14,000
Payable 1st April 2014 78,000 1,500
31st March 2015 16,000 4,200
Received 17,000
Receivable 1 April 2014
st 1,400
31st March 2015 1,900
III. Commission:
On Insurance accepted 96,000 5,600
On Insurance ceded 8,000

Details of Other Expenses & Income are as below: `

Establishment Expenses 30,000
Rent, Rates & Taxes 14,000
Printing & Stationery 1,800

Nov 2015.9
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Details of Other Expenses & Income are as below: `

Income Tax Paid 10,000
Income from Dividend 18,000
Legal Expenses (Inclusive of ` 1,200 in connection with settlement of Claims) 2,000
Double Income Tax Refund 24,000
Bad Debts 1,300
Profit on Sale of Furniture 700
Balance of Fund as on 1st April 2014 was ` 7,65,000 including Additional Reserve of ` 33,000. Additional Reserve is to be
created @ 5% of the Net Premium of the year.

Solution: Similar to Page No.A.8.58, Q.No.18 [M 88, N 02 Qn]

1. FormBRA Revenue Account for the year ending 31st March 2015
Particulars Sch. This Yr Last Yr
Premium Earned (Net) 1 7,46,050
Total (A) 7,46,050
1. Claims Incurred (Net) 2 92,400
2. Commission 3 93,600
3. Operating Expenses related to Insurance Business 4 46,600
Total (B) 2,32,600
Operating Profit / (Loss) from Marine Insurance Business (A B) 5,13,450
Appropriations NIL
Total (C) 5,13,450
Note: IT paid, Income from Dividend, IT Refund, Bad Debts & Profit on Sale of Furniture are not directly related to
Insurance Business and hence not disclosed in Revenue A/c.

Schedule 1 Premium Earned (Net)

Particulars This Yr
Premium on Direct Business (Recd 3,60,000 + Due at end 16,000 Due at opg 10,000) 3,66,000
Add: Premium on ReInsurance Accepted (Recd 38,000 + Due at end 1,800 Due at opg 1,600) 38,200
Less: Premium on ReInsurance Ceded (Paid 24,000 + Due at end 2,200 Due at opg 1,000) (25,200)
Net Premium 3,79,000
Adjust: Adjustment for change in Unexpired Risk Reserve (Note) 3,53,000
Adjust: Adjustment for change in Additional Reserve (Note) 14,050
Premium Earned (Net) 7,46,050

Note: Adjustment for Changes in Reserve for Unexpired Risks is computed as under
Particulars Reserve Addnl Reserve
Closing Balance required 100% of 3,79,000=3,79,000 5% of 3,79,000 = 18,950
Less: Opening Balance available 7,65,000 33,000= 7,32,000 Given 33,000
Amt to be transferred to /(from) Reserve for the year (3,53,000) (14,050)

Schedule 2 Claims Paid (Net)

Particulars This Yr
Claims Paid Direct (Paid 1,54,000 + Legal Exps 1,200) 1,55,200
Add: ReInsurance Accepted (Paid) 14,000
Less: ReInsurance Ceded (Recd) (17,000)
Net Claims Paid 1,52,200
Add: Claims Outstanding at the end of the year
(Direct 16,000 + On ReInsurance Accepted 4,200 (less) On ReInsurance Ceded 1,900) 18,300
Less: Claims Outstanding at the beginning of the year
(Direct 78,000 + On ReInsurance Accepted 1,500 (less) On ReInsurance Ceded 1,400) (78,100)
Total Claims Incurred 92,400

Nov 2015.10
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Schedule 3 Commission
Particulars This Yr Last Yr
Commission Paid Direct 96,000
Add: ReInsurance Accepted 5,600
Less: Commission on ReInsurance ceded (8,000)
Net Commission 93,600

Schedule 4 Operating Expenses related to Insurance Business

Particulars This Yr Last Yr
1. Employees Remuneration and Welfare Benefits Salary 30,000
2. Rent, Rates and Taxes 14,000
3. Printing and Stationery 1,800
4. Legal and Professional Charges (2,000 Claims related 1,200) 800
Total 46,600

Question 5(b): Banking Companies Rebate on Bills Discounted 4 Marks

ABC Bank Ltd has a balance of ` 40 Crores in Rebate on Bills Discounted Account as on 31st March 2014. The Bank provides
you the following information:
(i) During the Financial Year ending 31st March 2015, ABC Bank Ltd discounted Bills of Exchange of ` 5,000 Crores charging
interest @ 14% and the average period of discount being 146 days.
(ii) Bills of Exchange of ` 500 Crores were due for realization from the Acceptors / Customers after 31st March 2015. The
average period of outstanding after 31st March 2015 being 73 days. These Bills of Exchange of ` 500 Crores were
discounted charging interest @ 14% p.a.
You are requested to pass necessary Journal Entries in the books of ABC Bank Ltd for the above transactions.

Solution: Similar to Page No.A.7.39, Q.No.6 [N 10 Qn]

Journal Entries in the Books of ABC Bank Ltd (` in Crores)

S No Particulars Dr. Cr.
1. Rebate on Bill Discounted A/c Dr. 40
To Discount Received A/c 40
(Being transfer of Opening Balance in Rebate A/c, to Discount Received)
2. Bills Purchased A/c Dr. 5,000
146 280
To Discount Received A/c (` 5,000 Crores 14% )
365
To Customer A/c (balancing figure) 4,720
(Being Bills Discounted during the year)
3. Discount Received A/c Dr. 14
73 14
To Rebate on Bills Discounted A/c (` 500 Crores 14% )
365
(Being Provision for Unexpired Discount Charges as on 31.03.2015)
4. Discount Received A/c (40 + 280 14) Dr. 306
To Profit and Loss A/c 306
(Being transfer of Discount Income net after adjustment)

Question 6(a): Branch Accounts 12 Marks

Raju Industries, Kolkata has a Branch in Delhi to which office goods are invoiced at Cost plus 25%. The Branch sells both for
cash and on credit. Branch Expenses are paid direct from Head Office, and Branch has to remit all cash received to the Head
Office Bank Account.

From the following details, relating to calendar year 2014, prepare the accounts in the Head Office Ledger and ascertain the
Branch Profit. Branch does not maintain any books of account, but sends weekly returns to the Head Office.

Nov 2015.11
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Particulars `
Goods received from Head Office at Invoice Price 6,00,000
Returns to Head Office at Invoice Price 12,000
Stock at Delhi as on 1st January 2014 60,000
Sales during the year Cash 1,80,000
Credit 3,80,000
Sundry Debtors at Delhi as on 1st January 2014 72,000
Discount allowed to Debtors 8,000
Bad Debts in the year 6,000
Sales Returns at Delhi Branch 6,000
Rent, Rates, Taxes at Branch 16,000
Salaries, Wages, Bonus at Branch 62,000
Office Expenses 6,000
Stock at Branch on 31st December 2014 1,20,000

Solution: Similar to Page No.A.1.59, Q.No.17 [M 10 Qn]

Delhi Branch Account in the books of Head Office

Particulars ` Particulars `
To balance b/d 25
By Stock Reserve on Opg Stk (60,000 ) 12,000
Stock 60,000 125
Debtors 72,000 By Cash (Sales) 1,80,000
To Goods sent to Branch A/c (Goods sent) 6,00,000 By Goods sent to Branch 1,20,000
To Goods sent to Branch A/c
25 25
(Loading reversed on Returns = 12,000 ) 2,400 (Loading Removal = 6,00,000 )
125 125
To Cash A/c By Goods sent to Branch (Returns to HO) 12,000
Salaries and Wages 62,000 By balance c/d
Rent & Rates and Taxes 16,000 Stock 1,20,000
Office Expenses 6,000 Debtors (WN) 4,32,000
25
To Stock Reserve on Clg Stk (1,20,000 ) 24,000
125
To P & L A/c Profit tfr (balancing figure) 33,600
Total 8,76,000 Total 8,76,000

Working Notes: Memorandum Branch Debtors Account (to ascertain Closing Balance)
Particulars ` Particulars `
To balance b/d 72,000 By Discount Allowed 8,000
To Sales 3,80,000 By Bad Debts 6,000
By Sales Returns 6,000
By balance c/d (balancing figure) 4,32,000
Total 4,52,000 Total 4,52,000

Question 6(b): Department Accounts 4 Marks

Sona Ltd has three Departments P, Q and R. From the following particulars given below, compute:
(i) The Departmental Results, and (ii) The Value of Stock as on 31st December 2014.
Particulars P Q R
Stock as on 01.01.2014 30,000 45,000 15,000
Purchases 1,60,000 1,30,000 60,000
Actual Sales 1,88,000 1,66,000 93,000
1
Gross Profit on Normal Sales Price 25% 33 % 40%
3

Nov 2015.12
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

During the year 2014 some items were sold at discount and these discounts were reflected in the above Sales Value. The
details are given below:
Particulars P Q R
Sales at Normal Price 15,000 8,000 6,000
Sales at Actual Price 11,000 6,000 4,000

Solution: Similar to Page No.A.1.11, Q.No.5 [RTP, M 12 Qn]

1. Computation of Cost of Goods Sold

Particulars P Q R
Sales at Actual Price 1,88,000 1,66,000 93,000
Less: Sales at Discounted Price (11,000) (6,000) (4,000)
Net Sales at Normal Price 1,77,000 1,60,000 89,000
Add: Normal Value of Discounted Sales 15,000 8,000 6,000
Total Sales at Normal Selling Price 100% 1,92,000 100% 1,68,000 100% 95,000
Less: GP on Normal Selling Price 25% (48,000) 33.33% (56,000) 40% (38,000)
Total Cost of Goods Sold 75% 1,44,000 66.67% 1,12,000 60% 57,000

2. Computation of Value of Closing Stock

Particulars P Q R
Opening Stock 30,000 45,000 15,000
Add: Purchases 1,60,000 1,30,000 60,000
1,90,000 1,75,000 75,000
Less: Cost of Goods Sold (WN 1) (1,44,000) (1,12,000) (57,000)
Closing Stock 46,000 63,000 18,000

3. Departmental Trading and Profit and Loss A/c for the year ending 31st December 2014 (in `)
Particulars P Q R Particulars P Q R
To Opening Stock 30,000 45,000 15,000 By Sales 1,88,000 1,66,000 93,000
To Purchases 1,60,000 1,30,000 60,000 By Closing Stock 46,000 63,000 18,000
To Gross Profit 44,00 54,000 36,000 (WN 2)
Total 2,34,000 2,29,000 1,11,000 Total 2,34,000 2,29,000 1,11,000

Question 7(a): AS20 WANES 4 Marks

What do you mean by Weighted Average Number of Equity Shares Outstanding during the period and why is it required to be
calculated? Compute Weighted Average Number of Equity Shares in the following case:
No. of Shares
1st April 2014 Balance of Equity Shares 5,00,000
30th June 2014 Equity Shares issued for Cash 1,00,000
15th January 2015 Equity Shares bought back 50,000
31st March 2015 Balance of Equity Shares 5,50,000

Solution: Similar to Page B.7.6, Q.No.12, 14 [M 09, M 12 Qn]

Computation of Weighted Average Number of Equity Shares Outstanding at the end of the Period
Date No. of Equity Period Outstanding Time Weighting Weighted Average
Shares (Upto 31st Mar) Factor Number of Shares
(1) (2) (4) (5) (6) = (2) (3) (5)
01.04.2014 5,00,000 12 12/12 5,00,000
30.06.2014 1,00,000 9 9/12 75,000
15.01.2015 50,000 2.5 2.5/12 (10,417)
Weighted Average Number of Equity Shares Outstanding at the end of the Period 5,64,583

Nov 2015.13
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

Question 7(b): Liquidation Theory 4 Marks

What are the contents of Liquidators Statement of Account?

Refer Page A.6.5, Point 4, Q.No.12

Question 7(c): Banking Companies Theory 4 Marks

Specify the conditions when Cash Credit Overdraft Account is treated as Out of Order?

Refer Page A.7.25, Q.No.32

Question 7(d): Liquidation Theory 4 Marks

Write the LISTS which should accompany the Statement of Affairs, in case of a winding up by Court.

Refer Page A.6.2, Q.No.5

Question 7(e): Branch Accounts Journal Entries 4 Marks

Pass necessary Journal Entries (with narration) in the books of Branch to rectify or adjust the following:
(i) Branch Paid ` 24,000 as Salary to HO Supervisor and the amount was debited to Salaries Account by the Branch.
(ii) Head Office Expenses allocated to Branch were ` 22,500, but these expenditure were not recorded by the Branch.
(iii) HO collected ` 50,000 directly from the Customer on Branchs behalf.
(iv) Branch has sent remittance of ` 1,20,000 but the same has not year been received by HO.

Solution: Similar to Page A.1.39, Q.No.3 [M 14 Qn]

Journal Entries in the books of Branch

S.No. Particulars Dr. (`) Cr. (`)
1. Head Office A/c Dr. 24,000
To Salaries A/c 24,000
(Being the Salary paid on behalf of HO to the HO Manager)
2. Expenses A/c Dr. 22,500
To Head Office A/c 22,500
(Being the Expenses allocated by the Head Office, recorded in Branch books)
3. Head Office A/c Dr.
To Debtors A/c 50,000 50,000
(Being the adjustment of collection by HO directly from Branch Debtors)
4. No Journal Entry is required in Branch Books, for the remittance of Branch not recorded in
the books of HO. It should be recorded as Remittances in Transit in HO Books.

Nov 2015.14
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

STUDENTS NOTES

Nov 2015.15
 Download From http://caknowledge.in/
Gurukripas Guideline Answers for Nov 2015 CA Inter (IPC) Advanced Accounting Group II Exam

STUDENTS NOTES

Nov 2015.16