QUESTION PAPER 1 (Solution)

Q.1 A) MULTIPLE CHOICE QUESTIONS.

1. RBI is a
a) Statutory company b) Registered company
c) Listed company d) Chartered company
2. Discounted bill of exchange is a
a) Contingent Liability b) current liability
c) Non-Current Liability d) Fixed Liability
3. Partly paid shares can be made fully paid by capitalizing
a) General reserve c) Securities Premium
b) Capital Redemption Reserve d) All of the above
4. Bonus shares cannot be issued by capitalizing
a) Revaluation reserve c) Capital Reserve
b) Securities premium d) General Reserve
5. Discount on issue of Debentures is a
a) Capital loss c) Revenue loss
b) Capital profit d) Revenue profit
6. The Companies Act 2013
a) Prescribes restrictions on issue of debentures at discount
b) Does not prescribe any restrictions on issue of debentures at discount
c) Provides no issue of debentures at discount
d) All of the above
7. The reserve which cannot be transferred to Capital Redemption Reserve
a) Securities premium A/c c) Revaluation Reserve
b) Profit prior to incorporation d) All of the above
8. A company can issue
a) Only redeemable preference shares c) only Deferred shares
b) Only irredeemable preference shares d) All of the above
9. Debentures may be redeemed out of
a) Capital b) Profit
c) Conversion into shares d) All of the above
 10. Capital Reserve is
a) Current year’s profit b) Past accumulated profits
c) Capital profit d) Divisible profit
11. For computation of pre-incorporation profit carriage on purchases is _____.
a) Allocated in sales ratio b) allocated in purchase ratio
c) Debited to pre-incorporation period d) debited to post-incorporation period
12. For computation of pre-incorporation profit travelling expenses are allocated
______.
a) Pre-incorporation period b) post incorporation period
c) In sales ratio d) in time ratio

Q.1 B) TRUE OR FALSE

1. Loose tools are shown under current liabilities.
2. Short term loan is the loan due for more than 5 years.
3. Calls in arrears is added to subscribed capital.
4. The document inviting offer from public for subscription is share certificate.
5. Rate of underwriting commission in case of debentures cannot exceed 10%.
6. Issue of debentures must be sanctioned by state government.
7. Capital redemption reserve is used for payment of dividend
8. Capital reserve is a divisible profit.
9. Preference shareholders have voting rights.
10. Preference shares may be convertible into equity shares.
11. For computation of pre-incorporation profit advertising expenses are
allocated in time ratio.
12. Profit prior to incorporation is available for payment of dividend.

Solution: [Ans. True: 10]

False: 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, and 12]
 Q.2 Solution:
Journal of Straight Ltd.
Date Particulars Dr. Cr. MARKS

11112017 Preference share Final Call A/c Dr. 1,00,000

April 1 To 9% Preference share Capital A/c 1,00,000
(Being final call money due on 10,000 shares @ 10 per (1)
share)
Bank A/c Dr. (1)
To preference share final call A/c 1,00,000
(Being collected final call on 10,000 preference per 1,00,000
shares @ 10 per share )
Preference share Capital A/c Dr. (2)
Premium on Redemption of Preference 10,00,000
share Capital A/c Dr.
To 9% preference shareholders A/c 20,000
(Being claim of preference shareholders) 10,20,000
Bank A/c Dr. (2)
To Investment A/c 10,10,000
To Profit & Loss A/c 10,00,000
(Being sold investment at a profit of 1,000) 10,000
Bank A/c Dr. (2)
To equity share capital A/c 2,10,100
To Securities Premium A/c 1,91,000
(Being issue of 2000 equity shares of 100 each at a 19100
premium of 10% for redemption of preference shares)
Profit and Loss A/c Dr. (1)
To Premium on Redemption A/c 20,000
(Being adjusted premium on redemption out of profit 20,000
and loss A/c)
General Reserve A/c Dr. (2)
Profit & Loss A/c Dr. 3,00,000
Dividend Equalization Reserve A/c Dr. 3,09,000
To Capital Redemption Reserves A/c 2,00,000
(Being created capital redemption reserve for
redemption of preference shares) 8,09,000
Preference shareholders A/c Dr. (1)
To bank A/c (9,850 × 102) 10,04,700
(Being redeemed preference shares except the holders
of 150 shares) 10,04,700
 WORKING NOTE (3 MARKS)
1. Preference share Capital 10,00,000
a) Divisible profit 8,00,000 CRR
b) Proceeds of Fresh Issue 2,00,000
10,00,000
2. Claim:
Preference share capital 10,00,000
Add: Premium on redemption 2% 20,000
10,20,000
Less: Claim of Non-Traceable Holders
105 × 100 = 15,000
Premium 2% = 300 15,300
10,04 700

OR
Q.2 Solution:
Journal Entries in the books of Moonlight Ltd.
Date Particulars Dr. Cr. Marks

31/3/17 Bank A/c Dr. 1,90,000 (2)

To Investments A/c 1,50,000
To Profit & Loss A/c 40,000
(Being investments sold at a profit)
31/3/17 Bank A/c Dr. 48,000 (3)
To Equity Share Capital A/c 40,000
To Security Premium A/c 8,000
( Being 4,000 Equity Shares of 10/- each issued at a
31/3/17 premium of 2/- per shares) 1,60,000
Profit / Loss A/c Dr. 1,60,000 (1)
To Capital Redemption Reserve A/c
31/3/17 (Being CRR credit out of Profit / Loss A/c ) 2,00,000
8% Redeemable Preference Share Capital A/c Dr. 10,000 (3)
Premium on Redemption of Preference Shares Capital A/c 2,10,000
To 8% Redeemable Preference shareholders A/c
(Being amount payable to preference share holders along
with premium transferred to preference shareholders
31/3/17 A/c) 2,10,000
 8% Redeemable Preference Shareholders A/c Dr. 1,99,500 (3)
To Bank A/c 10,500
To Preference shareholders A/c
31/3/17 (Being amount paid on redemption except on 100 shares) 10,000
Profit & Loss A/c Dr. (3)
To Premium on Redemption of Redeemable 10,000
Preference Shares Capital A/c
(Being premium on redemption of preference shares
adjusted out of Profit and Loss A/c)
8,28,000 8,28,000

Q.3 Solution:
Journal Entries in the Books of Roshan Ltd.
particular L.F. Dr. Cr. Marks

1. Securities Premium Dr. 20,000

To Premium on redemption A/c 20,000 (2)
(Being Premium on redemption adjusted against
security premium A/c)
2. 8% Debentures A/c Dr. 4,00,000 (3)
Premium on redemption A/c 20,000
To Debentures holders A/c 4,20,000
(Being amount due on Redemption A/c)
3. Debenture Holders A/c Dr. 1,47,000 (4)
To 11% Preference share Capital A/c 1,17,600
To Security Premium A/c 29,400
(Being preference share holders allotted on
redemption of debentures)

4. Debenture Holders A/c Dr. 1,68,000 (2)

To 10% Debentures A/c 1,68,000
(Being new debentures allotted on existing
debentures)
5. Debentures Holders A/c Dr. 1,05,000 (2)
To Cash / Bank A/c 1,05,000
(Being Remaining amount paid on Redemption)
 Debentures Redemption Reserve A/c Dr. (2)
6. To General Reserve A/c 4,00,000
( Being amount of General Reserve transferred to 4,00,000
Debenture Redemption Reserve)

OR

Q.3 Solution:
1.
Dr. 12% Debentures A/c (1 MARK) Cr.
Date Particular Date Particular
31.3.13 To Debentureholders 7,50,000 1.4.12 By Balance b/d 7,50,000
A/c
7,50,000 7,50,000
2.
Dr. Sinking Fund A/c (5 MARKS) Cr.
Date Particular Date Particular
31.3.13 To 10% sec. Bond A/c 15,000 1.4.12 By Balance b/d 6,00,000
(Loss) 31.3.13 By Profit & Loss A/c 1,20,000
31.3.13 To General Reserve A/c 7,70,000 By Interest as
(Bal. Fig.) Sinking Fund A/c 65,000
(interest on 10%
Govt. Bond [
6,50,000 × 10%]

7,85,000 7,85,000
3.
Dr. Sinking Fund Investment A/c (10% Secured Bonds of Govt.) (5 MKS) Cr
Date Particular Date Particular
1.4.12 To Balance b/d 6,00,000 31.3.13 By Bank A/c 5,85,000
(6,50,000 × 90% =
5,85,000)
31.3.13 By Sinking Fund
A/c 15,000
6,00,000 6,00,000
4.
Dr. Bank A/c(2 mks) Cr.
 Date Particular Date Particular
31.3.13 To Balance b/d 6,00,000 31.3.13 By 12% Debentures 8,25,000
To Sinking Fund A/c By Balance c/d 1,25,000
Interest 65,000
To Sinking Fund
investment A/c 5,85,000
9,50,000 9,50,000
5.
Dr. Debenture Holders A/c(2 mks) Cr.
Date Particular Date Particular
31.3.13 To Bank A/c 8,25,000 31.3.13 By 12% Debentures 7,50,000
31.3.13 By Premium on
Redemption of
Debentures 75,000
8,25,000 8,25,000

Q.4 Solution:
i) Journal
Date Particulars L.F. Dr. Cr. Marks

Bank A/c Dr. 2,20,000

To Building A/c 1,60,000 (2)
To Capital Reserve A/c 60,000
(Being proceeds of building received and profit on sale
credited to capital reserve)
P & L Appropriation A/c Dr. 70,000 (1)
To Debenture Redemption Reserve A/c 70,000
(Being the transfer of profit to DRR)
12% Debentures A/c Dr. 70,000 (3)
Premium on Redemption of Debentures A/c Dr. 7,000
To Debentureholders A/c 77,000
(Amount payable to debentureholders on redemption at
a premium of 10% ride Board’s Resolutions on……dated)
Debentureholders A/c Dr. 77,000 (1)
To Bank A/c 77,000
(Amount paid to debentureholders on redemption)
 12% Redeemable preference shares Capital A/c Dr. 50,000 (3)
Premium on redemption of Preference Shares A/c Dr. 5,000
To Preference Shareholders A/c 55,000
(Amount payable to preference shareholders on
redemption at a premium of 10% vide Board’s
Resolution no. …… dated …….)
Preference Shareholders A/c Dr. 55,000 (1)
To Bank A/c 55,000
(Amount paid to preference shareholders on
redemption)
Profit and Loss A/c Dr. 50,000 (1)
To Capital redemption reserve A/c 50,000
(Amount transferred to capital Redemption reserve on
redemption of preference shares out of profit vide
board’s resolution no. …….dated …….)
Debentures Redemption Reserves A/c Dr. (1)
To General Reserves 70,000
70,000
Profit and Loss A/c Dr. 7,000 (1)
To premium on redemption of debentures A/c 7,000
(premium on preference of debentures charged to P & L
A/c)
Profit and Loss A/c Dr. 5,000 (1)
To premium on redemption of preference shares A/c 5,000
(premium on preference of preference shares charged
to P & L A/c)
OR

Q.4 Solution:

Journal
Date Particulars L.F. Dr. Cr. Marks

2018
Oct. 01 10% Debentures A/c Dr. 10,00,000
Premium on Redemption of Debentures A/c Dr. 40,000 (3)
To Debentureholders A/c 10,40,000
 (Being transfer of amount due on redemption of 10%
debentures – nominal value 10,00,000 plus
premium ( 40,000)
4,16,000
Debentureholders A/c Dr. 3,20,000 (3)
To 11% Preference Share Capital A/c 96,000
To Securities Premium A/c
(Being issue of 3,200 preference shares of 100
each at a premium of 30 each in exchange of 4,000
Oct. 01 debentures) 4,99,200
Debenturholders A/c Dr. 20,800 (3)
Discount on issue of 11% Second Debenture A/c Dr. 5,20,000
To 11% Second Debentures A/c
(issue of 5,200 11% second Second debentures of
100 each at a discount or 4 in exchange of 4,800
Debentures) 1,24,800
Debentureholders A/c Dr. 1,24,800 (1)
To Bank A/c
(Being the redemption of 1,200 debentures by cash) 60,000
Profit & Loss Appropriation A/c Dr. 60,000 (1)
To Debenture Redemption Reserve A/c
(Being the transfere of profits to DRR as per sec. 117
(c) ) 60,000
60,000
Debentures Redemption Reserves A/c Dr. (1)
To General Reserves A/c
WORKING NOTE (3 mks)

i) Redemption of Debentures by issuing Preference Shares:

a) Claim of the holders of 4,000 debentures @ 104 4,16,000
b) Issue Price of a Preference Shares 130
c) Number of preference shares to be issued [ 4, 16,000/130] 3,200
d) Face value of preference shares @ 100 each [3,200 × 100] 3,20,000
e) Premium of preference shares @ 30 each [ 3,200 × 30]
96,000
ii) Redemption of debentures by issuing 11% second Debentures:
a) Claim of the holders of 4,800 debenture @ 104 4,99,200
b) issue price of a preference share 96
c) Number of 11% Second Debentures to be issued [ 4, 99,200 / 96] 5,200
d) face value of 11% second Debentures @ 100 each [5,200 × 100]
5,20,000
e) discount on issue of debentures @ 4 each [5,200 × 4] 20,800
iii) Redemption of Debentures in Cash:
a) Claim of the holders of 1,200 debentures @ 104
(10,000-4,000-4,800=1,200)
1,24,800

Q.5 Solution:
Profit & Loss A/c
For the year ended 31st March, 2018 (10 mks)
Particulars Basis Pre- Post- Particulars Basis Pre Post
incorpor incorpora incorpor incorpora
ation tion ation tion
 To Office salaries Tune 70,000 1,40,000 By Gross Profit 2:5 2,00,000 5,00,000
To Partner’s Salary Pre 60,000 - By Share
To Advertising 2:5 18,000 45,000 Transfer Fees Post - 10,000
To printing & stationery 1:2 5,000 10,000 By Goodwill Pre 37,000 -
To Travelling Expenses:
Sales Promotion 2:5 2,000 5,000
Other 1:2 11,000 22,000
To office Rent Specif 28,000 68,000
To Director’s Fees ic - 10,000
To Auditor’s Remuneration Post
To Bad Debts 2,000 4,000
To sales commission 1:2 4,000 8,000
To Preliminary Expenses Specif 14,000 35,000
To Debenture Interest ic - 7,000
To Interest on Capital 2:5 - 16,000
To Depreciation: Post 18,000 -
Specific Post
Balance Pre - 6,000
To Net Profit (Bal. Fig.) 5,000 10,000
post - 1,24,000
1:2 2,37,000 5,10,000 2,37,000 5,10,000
Post
Ratios for Allocation (5 mks)
items Pre-incorporation total Post-incorporation Total
period April may June July April- Augus Septem Octobe Nove Decem Janua Februa Mar Aug-
July t ber r mber ber ry ry ch Mar
1.Time 4 8
2. Sales 5,00,000 5,00,0 5,00,0 5,00, 20,00, 6,25,0 6,25,00 6,25,00 6,25,0 6,25,00 6,25,0 6,25,00 6,25, 50,00,
3. office 00 00 000 000 00 0 0 00 0 00 0 000 000
rent 7,000 7,000 7,000 7,00 28,00 7,000 7,000 9,000 9,000 9,000 9,000 9,000 9,00 68,000
0 0 0
Time Ratio – 4:8=1:2. Sales Ratio- 2:5. Rent Ratio – 14: 34 = 7:17.
Travelling Expenses Depreciation
40,000 – 7,000 = 33,000 21,000

April to July Aug. to March 15,000 6,000 Post

4 months 8 months Total Dep. For Post
11,000 22,000 incorporation 10,000
5,000 pre 10,000 post + 6,000=16,000

OR
 Q.5 Solution:
Profit & Loss A/c for the year ended 31st March, 2018(10 mks)

Particulars Basis Pre- Post- Particulars Basis pre Post

incorporat incorpor incorpora incorpor
ion ation tion ation
To Director’s Fees Post Nil 49,000 By Gross Profit 1:3 2,40,000 7,20,000
To Rent 1:4 17,100 68,400 By Goodwill (Bal. Fig.) 533
To bad debts Given 3,375 8,625
Salaries: Amit Given 48,000 1,20,000
Clerks Given 3,000 12,000
To interest on Debentures Post Nil 24,000
To Depreciation 1:2 22,000 44,000
To Preliminary Expenses Post Nil 42,000
To General Expenses 1:2 16,400 32,800
To Commission on Sales 1:3 9,000 27,000
To Printing & Stationary 1:2 31,000 62,000
To Advertising 1:3 30,125 90,375
To Auditor’s Fees 1:2 19,533 39,067
To Carriage Outwards 1:3 18,200 54,600
To electricity Charges 1:2 14,800 29,600
To Insurance Premium 1:2 8,000 16,000
To Net profit (Bal. Fig.) Post - 533

2,40,533 7,20,000 2,40,533 7,20,000

WORKING NOTE( 5 mks)

Items Pre-incorporation Total Post-incorporation Total

Period April May Jun July April- August Septe Octobe Novem Decem January February March Aug-Mar
July mber r ber ber
1. Time 4 8
2. Slaes 1 1 1 1 4 1 1 1 1 2 2 2 2 12
3. Rnt 1 1 1 1 4 2 2 2 2 2 2 2 2 16
4. Amit 12,000 12,000 12,000 12,000 48,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 1,20,000
5. Clerks - - - 3,000 3,000 3,000 3,000 3,000 3,000 - - - - 12,000

Time Ratio-4:8 = 1:2. Sales Ratio – 4:12 = 1:3. Rent Ratio – 4:16=1:4.
Total Salary in profit & Loss Account 1, 83,000
Less: Salary to Amit (12,000 × 4) + (15,000 × 8) 1, 68,000
Balance to Clerks for 5 months (i.e. @ 3,000 p.m.) 15,000
 Bad Debts

Pre 500 Balance 11,500

Pre ¼ ¾
2,875 8,625

** For Any Clarification contact :

1. Dr. Kishor Peshori : 9324350028
2. Dr. Madhura Kulkarni : 9224208579
3. Prof. Virendra Prajapati : 9850196971