Test Series: February, 2016 MOCK TEST PAPER - 1 FINAL GOURSE: GROUP =I PAPER - 1: FINANGIAL REPORTING ‘Question No. + is compulsory. ‘Attempt any five questions from the remaining six questions. Working notes should form part of the answer. ‘Wherever necessary, suitable assumption(s) may be made by the candidates. 1. (a) An asset does not meet the requirements of environment laws which have been reoently enacted. The asset has to be destroyed as per the law. The asset is carried in the Balance Sheet at the year end at Rs. 12,00,000. The estimated cast of destroying the asset is Rs. 1,40,000. How is the asset to be accounted for? (b) X Lid, has been successful jewellers for the past 100 years and sales are against cash only. The company diversified into apparels. A young senior executive was put in-charge of Apparels business and sales inoreased 5 times. One of the conditions for sales is that dealers can return the unsold stocks within one month of the end of season. Sales retum for the year was 25% of sales. Suggest 3 sutable Revenue Recognition Policy, with reference to AS 9. {0} A Limited was making provisions up to 31-3-2014 for non-moving inventories based con no issues for the last 12 months. Based on a technical evaluation the company wants to make provisions during the year 31-03-2015 in the following manner: Total value of inventory Rs. 3 crores. Provision required based on “2 months RS. 8 lakhs. Provision required based on technical evaluation Rs. 7.50 lakhs, ‘Does this amount to change in accounting policy? Gan the company change the method of provision? (d) The Chief Accountant of M Limited gives the following data regarding its six segments: Rs. in lakhs Particulars: M N o P a RI Total Segment Assets, 20 40) 15) 10] 10 5) 100 Segment Results 25) (85) a 5) GH} 15) G0) [Segment Revenue 150} 310] 40] 30] 4030] 600 ©The Institute of Chartered Accountants of IndiaThe Chie! acsountant is of the opinion that segments “N” and “N" alone should be reported. Is he justiiad in his view? Discuss. 2. "H' Limited is a company carrying on the business of beauty products and is having 3 (4x5 = 20 Marks) ‘Subsidiary 'S' Limited. Their Balance-sheets as on 31" March 2015 were a8 under: Hlimited (Rs) [ _S Limited (Rs) Equity and Liabilities Shareholders’ Funds Share Capital 25,00,000 5,80,000 Reserves and Surplus General Reserve 2,00,000 1,20,000 Profit and Loss Acoount 3.12500 2,05,000 Current Liabilities ‘Trade Payables 4,556,000 2,35,500 Bills Payables 28,000 83,000 Total 34.95.50 412,23,500 Assets Non-current Assets Fixed Assets 21,70,000 6,25,000 Investments ‘4060 Shares in S Limited 5,10,000 . Current Assets Inventories 4,80,000 3,19,200 ‘Trade Payable 4,80,000 1,64,000 Bills Receivable 68,000 1,00,000 Cash and Bank Balance 87,500 15,300 Total 34.95.50 42,23,500 H Limited has also given the following information: (3) H Limited has acquired the shares in S Limited in two lots on two different dates. The relevent information at the time of acquisition of shares was as under No. of shares aoquired Balance in General | Balance in Profit and Loss Reserve ‘Apcount ‘acquisition 3480 80,000 25,000 2 acquisition 580 85,000 1,02,000 ©The Institute of Chartered Accountants of India(i) Bills Receivables of H Limited includes €15,000 being acceptance from $ Limited. (ii) Both the companies have declared dividend of 10% for ine year ended on 31" March 2095, but t has not been provided in the books of accounts, (iv) $ Limited's inventory includes stock of & 1,45,000 purchased from H Limited. H Limited sells goods at mark up of 25% on its cost. Prepare the Consolidated Balance Sheet of H Limited along with ‘Notes to accounts” (16 Marks) 3. {a} Let us say on 20" March 2015 an entity enters into an agreement to purchase a Finaneial Asset for Rs. 200 which is the Fair Value on that date. (On Balance Sheet date ie. 31/9/2015 the Fair Value is 204 and on Settlement date i.e, 2/4/2015 Fair Value is 206, Pass necessary Joumal entries on trade date and settlement date when the asset acquired is measured at FVTOCI. (0) The investment portfolio of a mutual fund scheme includes 2,500 shares of A Ltd. and 2,000 shares of B Lid. acquired on 31-12-2013. The cost of A Lid’s shares is RRs. 40 while that of 8 Ltd's shares is Rs. 60. The market value of these shares at the end of 2013-14 were Rs. 38 and Rs. 64 respectively. On 30-06-2014, shares of both the companies were disposed off realizing Rs, 37 per A Lid. shares and Rs. 67 per B Lid. shares. Show important accounting entrias in the books of the fund for the accounting years 2013-14 and 2014-15. (88 = 16 Marks) 4, The summarised Balance Sheet of O Ltd. a8 on 31" March, 2015 is a5 under: Liabilities ARs. in | Assets, (Rs. in Eo) lakhs) Equity shares of Rs. 10-each 6,000 | Goodwill 1,486 Reserves {including provision for Premises and Land at cost} 800 taxation of Rs. 600 lakhs) 2,000 | Plant — and = Machinery | 6,000 Motor vehicles 5% Debentures 4,000 | (purchased on 1.10.14) a0 Secured loans 400 | Raw materisis at cost 1,840 Trade Payables 600 | Work-in-progress at cost 260 Profit & Loss Alc: Finished goods at cost 360 ‘i ‘Trade Reosivables Investment Balance from previous year 64 (meant for 800 Profitfor the year replacement of plant and | 4 599 {after taxation) 2.200 | 2,264 | machinery) “ ©The Institute of Chartered Accountants of IndiaCash at bank and cash in hand 38 Discount on debentures: 20 Underwriting commission 32 15284 15.26 1. The resale value of premises and land is Rs. 2,400 lakhs and that of plant and machineryis Rs. 4,800 lakhs. 2. Depreciation @ 20% is applicable to motor vehicles, 3. Applicable depreciation on premises and land is 2% and that on plant and machineryis 10%. 4. Market value of the investments is Rs. 1,500 lakhs. 5. 10% of trade receivables is bad. 6. The company a'so revealed that the depreciation was not charged to Profit and Loss account and the provision for taxation already made is sufficient. 7. Ina similar company the market value of eauity shares of the same denomination is Rs. 25 per share and in such company dividend is consistently paid during last 5 years @ 25%. Contrary to this, D Lid. is having a marked upward or downward trend in the case of dividend payment 8. In 2008-10 and in 2010-11, the normal business was hampered. The profit eared uring 2008-10 is Rs. 134 lakhs, but during 2010-11 the company incurred a loss of Rs. 2,610 lakhs. Past 3 years' profits of the company were as under: Rs, $38 lakhs Rs, 1092 lakhs Rs, 810 lakhs ‘The unusual negative profitability of the company during 2010-11 was due to the lock out in the major manufacturing unit of the company which happened in the beginning of the second quarter of the year 2008-10 and continued tll the last quarter of 2010-11. ‘Value the goodwill of the company on the basis of 4 years’ purchase of the super profit. (16 Marks) 5. The Abridged Balance Sheet (Draft) of Hello Lid. as on 31° March, 2014 is-as under. Liabilities Rs. | Assets Rs. 48000, Equity shares of Rs. 10 | 480,000 | Goodwil 10,000 e ©The Institute of Chartered Accountants of India10,000, 8% cumulative preference Fived Assets 5,14,000 ‘shares of Rs. 10 each 4,00,000 | inventory 1,00,000 ‘8% Debentures, 2,00,000 | Trade receivables 1,20,000 Interest accrued on debentures 16,000 | Bank 2,000 Trade payables 2,00,000 | Profit & Loss Acoounts | 2,50,000 9,96,000 9,96,000 “The following scheme is passed and sanctioned by the court: (Anew company Mike Lid. is formed with Rs. €,00,000, divided into 69,000 Equity shares of Rs. 10 each. (i) The new company will acquire the assets and liabilities of Hello Ltd. on the following terms: (a) Old company’s debentures are paid by similar debentures in new company and ‘or outstanding accrued interest shares of equal amount are issued at par. (b) The trade payables are paid for every Rs. 100, Rs. 16 in cash and 10 shares issued at par. (c) Preference sharchalders are to get equal number of equity shares at par. For arrears of dividend amounting to Rs. 24,000, $ shares are issued at par for ‘each Rs. 100 in full satisfaction. (0) Equity shareholders are issued one share at par for every three shares held. (e} Expenses of Rs. 16,000 are to be borne by the new company. (iil) Current Assets are to be taken at book value (except stock, which is to be reduced by Rs. 6,000). Goodwill is to be eliminated, balance of purchase consideration being attributed to fixed assets. (iv) Remaining shares of the new company are issued to public-at par and are fully paid. ‘You are required to show: {a} Inthe old company’s books: (0) Realisation and Reconstruction (combined) Account (i) Equity Shareholder's Account {b) Inthe new company’s books: (i) Bank Account (i) Summarised Balance Sheet as par the requirements of Schedule Il. (16 Marks) 6. {a} On the basis of the following Profit and Loss Account of Lee Limited and the supplementary information provided thereafter, prepare Gross Walue Added 5 ©The Institute of Chartered Accountants of IndiaStatement of the company for the year ended 31st March, 2015. Profit and Loss Account of Lee Limited for the year ended 31st March, 2018. ‘Amount ‘Amount (Rs. in lakhs) | (Rs. in lakhs) Income Sales 10,020 Other Income — 260) 10,280 Expenditure Production and Operational Expenses 7,500 ‘Administrative Expenses 370 Interest 470 Depreciation 1g) (6.680)} Provit before Taxation 1,600 Provision for Taxation 1580) Profit after Taxation 1,040 [Credit Balance as per last Balance Sheet — 20) 1120) Appropriations Transfer io General Reserve 200 Preference Dividend (interim) paid 00 Proposed Preference Dividend (Final) 4100 Proposed Equity Dividend 600 Balance carried to Balance Sheet 120) 1.420 [Supplementary Information Production and Operational Expenses consist of: Raw Materials and Stores consumed 3,600 Wages, Salaries and Bonus 4.220 Local Taxes including Gess 440 ‘Other Manufacturing Expenses 1.840) 1.100 ©The Institute of Chartered Accountants of India[Administrative Expenses consist of: Salaries and Commission to Directors 120 ‘Audit Fee 48 Provision for Bad and Doubtful Debts 40 Other Administrative Expenses 162 370] Interest is on Loan from Bank for Working Capital 70 Debentures 400] 470 (b) Like Ltd. grants. 100 stock options to each of its 500 employees on 1.4.2012 for Rs. 20, depending upon the employees at the time of vesting of options. The market price of the share is Rs. 50. These options wil vest at the end of year 1 if the eaming of Like Ltd. is. 16%, or it wil vest at the end of the year 2if the average eaming of two years is 13%, or lastly i will vest at the end of the third year if the average earring of 3 years will be 10%. 5,000 unvested options lapsed on 31.3.2013. 4,000 unvested options lapsed on 313.2014 and finally 3,500 unvested options lapsed on 313.2015, Following is the earning of Like Lid.: ‘Year ended on Earning (in) 313.2013 14% 313.2014 10% 313.2015 Tm! 350 employees exercised their vested options within a year and remaining options were unexercised at the end of the contractual fe. Pass Joumal entries for the above Assuming face volue of a share as Rs. 10 each {8 +8 = 16 Marks) 7. Answer any four ofthe folowing: (a) Explain the carve out in Ind AS 4 ftom IAS 4 along with the reason. (o) Mr. Kumar 5 @ contractor has just entered into @ contract with a local municipal body for building @ fiyqver. As per the contract terms, Kumar will receive an additional Rs. 4 crore if the construction of the fyover were to be finished within 2 period of two years of the commencement of the contract. Kumar wants to recognize this revenue since in the past he has been able to meet similar targeis very easily. |sKumar correct in his proposal? Discuss. 7 ©The Institute of Chartered Accountants of India(6) © Lid. purchased machinery for Rs. 40 lakhs from L Lid. during 2014-18 and installed the same immediately. Price includes excise duty of Rs. 4 lakhs. During the year 2014-15, the company produced excisable goods on which excise duty of Rs, 3.6 lakhs was charged. Give necessary entries explaining the treatment of CENVAT credit. (d) On 30-6-2014, Lal Limited incurred Rs. 6,00,000 net loss trom disposal of 2 business segment. Also on 31-7-2014, the company paid Rs. 1,60,000 for property taxes assessed for the calendar year 2014. How should the above transactions be included in determination of net income of Lal Limited for the six months interim period ended on 30-8-20147 {e) The following data apply to P Ltd. defined benefit pension plan for the year ended 31.00.15, calculate the actual retum on plan assets: ~ Benefits paid 400,000 ~ Employer contribution 560,000 - Fair market value of plan assets on 31.03.15 22,80,000 + Fair market value of plan assets as on 31.03.14 16,0000 (4x4 = 16 Marks) ©The Institute of Chartered Accountants of India