CA INTER NEW COURSE

ADVANCE ACCOUNTING

Test-2 Chapters-3,4,7

Solution

A-1 Fair value of an option = Rs 56 – Rs 50 = Rs 6

Number of shares issued = 4,000 employees x 100 shares = 4,00,000 shares

Fair value of ESOP = 4,00,000 shares x Rs 6 = Rs 24,00,000

Vesting period = 1 year

Expenses recognized in 2021 – 22 = Rs 24,00,000

Date Particulars Rs Rs
31.03.2022 Bank (4,00,000 shares X Rs 50) Dr. 200,00,000
Employees stock compensation expense A/c Dr. 24,00,000
To share capital (4,00,000 shares X Rs 10) 40,00,000
To securities premium (4,00,000 shares X Rs 46) 184,00,000
(being option accepted by 4,000 employees &
payment made @ Rs 56 share)
Profit & loss A/c Dr. 24,00,000
To employees stock compensation expense A/c 24,00,000
(being employees stock compensation expense
transferred to profit & loss A/c)
(4 marks)

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A-2 Determination of maximum no. of shares that can be bought back as per the Companies
Act, 2013

1. Shares Outstanding Test

Particulars (shares)
Number of shares outstanding 1,70,000
25% of the shares outstanding 42,500

2. Resources Test: Maximum permitted limit 25% of Equity paid up capital + Free Reserves
Particulars
Paid up capital (Rs) 17,00,000
Free reserves (Rs) (23,50,000 + 2,50,000 + 2,00,000) 28,00,000
Shareholders’ funds (Rs) 45,00,000
25% of Shareholders fund (Rs) 11,25,000
Buy back price per share Rs 30
Number of shares that can be bought back (shares) 37,500
Actual Number of shares proposed for buy back 35,000

3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Shareholder’s
Funds post Buy Back

Particulars Rs
(a) Loan from (Rs) (38,00,000 + 8,50,000) 46,50,000
(b) Minimum equity to be maintained after buy back in the ration of 2:1 (Rs) 23,25,000
(a/2)
(c) Present equity/ shareholders fund (Rs) 45,00,000
(d) Future equity/ shareholders fund (Rs) (see W.N.) (45,00,000 – 5,43,750) 39,56,250
(e) Maximum permitted buy back of Equity (Rs) [(d) – (b)] 16,31,250

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 (f) Maximum number of shares that can be bought back @ Rs 30 per share 54,375
shares
(g) Actual Buy Back Proposed 35,000
Shares

Summary statement determining the maximum

number of shares to be bought back

Particulars Number of
shares
Shares Outstanding Test 42,500
Resources Test 37,500
Debt Equity Ratio Test 54,375
Maximum number of shares that can be bought back [least of the above] 37,500

Company qualifies all tests for buy-back of shares and it can buy back maximum 37,500 shares
on 1st April, 2022.

However, company wants to buy-back only 35,000 equity shares @ Rs 30. Therefore, buy-back
of 35,000 shares, as desired by the company is within the provisions of the Companies Act,
2013.

Working Note:

Amount transferred to CRR and maximum equity to be bought back will be calculated by
simultaneous equation method.

Suppose amount transferred to CRR account is ‘x’ and maximum permitted buy -back of equity
is ‘y’.

Then

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(45,00,000 – x) – 23,25,000 = y (1)

𝑦
× 10 = 𝑋 Or 3x = y (2)
30

By solving the above equation, we get

X = Rs 5,43,750

Y = Rs 16,31,250

(7 marks)

A-3

BT Limited
Liquidator’s Statement of Account

Receipts Rs Payments Rs
To assets realized: By Liquidation 45,000
Bank 75,700 expenses
Other assets: By Preferential 75,000
Land & building 24,50,000 creditors
Plant & machinery 9,00,000 By Liquidator’s 1,29,600
Furniture 2,85,000 Remuneration (W.N.1)
Patents 90,000 By Debenture holders:
Stock 2,80,000 Debentures 10,00,000
Trade receivables 3,15,000 43,20,000 Interest accrued 1,20,000
Interest 1-4-22 to 30- 30,000 11,50,000
6-22

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 By Unsecured 7,36,250
creditors
By Preferential
shareholders
Preference capital 10,00,000
Arrear of Dividend 1,20,000 11,20,000
By Equity shareholders
–
Rs 32.995 on 20,000 6,59,900
shares
Rs 47.995 on 10,000 4,79,950
shares
43,95,700 43,95,700

Working Notes:

(1) Liquidator’s remuneration 43,20,000 × 3/100 = Rs 1,29,600

(2) As the company is solvent, interest on the debentures will have to be paid for the period 1 -
4- 2022 to 30-6-2022
10,00,000 x 12% x3/12 = Rs 30,000
(3) Total equity capital - paid up (7,50,000 +12,00,000) Rs 19,50,000
Less: Balance available after payment to unsecured creditors and preference shares
(43,95,700 — 32,55,850) Rs (11,39,850)
Rs 8,10,150
Loss to be born by 30,000 equity shares
Loss per share Rs 27.005
Hence, Refund for share on Rs 60 paid share (60 - 27.005) Rs 32.995
Refund for share on Rs 75 paid (75 - 27.005) Rs 47.995
(10 marks)

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A-4

In the books of Rohan Limited

Journal Entries

Particulars Dr. Rs. Cr. Rs.

1. Bank A/c Dr. 3,60,000
To 14 % Debenture A/c 3,00,000
To Securities Premium A/c 60,000
(Being 14 % debentures issued to finance buy back)
2. Bank A/c Dr. 2,50,000
To 10% preference share capital A/c 2,50,000
(Being 10% preference share issued to finance buy back)
3. Bank A/c Dr. 1,50,000
To Investment A/c 1,00,000
To Profit on sale of investment 50,000
(Being investment sold on profit)
4. Equity share capital A/c (62,500 x Rs 20) Dr. 12,50,000
Premium on buyback or Securities premium A/c Dr. 10,00,000
(62,500 x Rs16)
To Equity shares buy back A/c (62,500 x Rs 36)
(Being the amount due to equity shareholders on 22,50,000
buy back)
5. Equity shares buy back A/c Dr. 22,50,000
To Bank A/c 22,50,000
(Being the payment made on account of buy back of
62,500 Equity Shares as per the Companies Act)
6. Revenue reserve Dr. 3,00,000
Securities premium Dr. 2,60,000
Profit and Loss A/c Dr. 4,40,000

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 To Capital redemption reserve A/c 10,00,000
(Being amount equal to nominal value of buy back
shares from free reserves transferred to capital
redemption reserve account as per the law)
[12,50,000 less 2,50,000]
7. Capital redemption reserve A/c Dr. 7,50,000
To Bonus shares A/c 7,50,000
(Being the utilization of capital redemption reserve to
issue 37,500 bonus shares)
8. Bonus shares A/c Dr. 7,50,000
To Equity share capital A/c 7,50,000
(Being issue of 3 bonus equity share for every
15equity shares held)
(7 marks)

A-5

(i) Vesting: It means the process by which the employee is given the right to apply for the
shares of the company against the option granted to him under the employees’ stock
option plan.
(ii) Exercise Period: It is the time period after vesting within which the employee should
exercise his right to apply for shares against the option vested in him in pursuance of
the employees’ stock option plan.
(iii) Grant Date: It is the date at which the enterprise and its employees agree to the terms
of an employee share-based payment plan. At grant date, the enterprise confers on the
employees the right to cash or shares of the enterprise, provided the specified vesting
conditions, if any, are met.

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(iv) Exercise Price: It is the price payable by the employee for exercising the option granted
to him in pursuance of employees’ stock option scheme.
(4 marks)

A-6

Receiver’s Receipts and Payments Account

Receipts Rs. Payments Rs.

Sundry Assets realised 2,00,000 Costs of the Receiver 2,000
Surplus received from Preferential payments:
Mortgage: Paid Taxes raised 26,000
Sale Proceeds of land 1,50,000 within 12 months
and building Debentures holders:-
Less: Applied to Principal 1,50,000
Discharge of mortgage (80,000) 70,000 Interest for half year 9,750
loan Surplus transferred to 1,59,750
the Liquidator
82,250
2,70,000 2,70,000

Liquidator’s Final Statement of Account

Receipts Rs. Payments Rs.

Surplus received from Cost of Liquidation 2,800
Receiver 82,250 Remuneration to 3,000
Assets Realised 1,00,000 Liquidator
Calls on Contributories: (1,00,000x 3%)

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 On holder of 5,000 at the rate of Rs Unsecured Creditors:
2.17 per share 10,850 For Trade
Directors for payment 32,000
of Bank O/D
Preferential
Shareholders: 30,000 62,000
Principal
Arrears of Dividends
Equity shareholder:
Return of money to 1,00,000
contributors to
holders of 22,000 1,22,000
10,000 shares at 33
paise
each 3,300

1,93,100 1,93,100

Working Note:

Call from partly paid shares

Deficit before call from Equity Shares (1,82,250 — 1,89,800) = 7,550

Notional call on 5,000 shares @ Rs 2.50 each 12,500

Net balance after notional call (a) 4,950

No. of shares deemed fully paid (b) 15,000

4,950
Refund on fully paid shares = 33p
15,000

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Calls on party paid share (2.50 — 0.33) =Rs 2.17

(8 marks)

A-7

Statement of Affairs (In liquidation) of X Ltd. on 31 March, 20X2

Estimated Realisable value:

Rs
Assets not specifically pledged (as per list A)
Cash 500
Debtors 20,000
Building 3,00,000
Plant 5,25,000
Fixtures 10,000
Goodwill 1,000
8,56,500
Assets specifically pledged (as per list B)
(a) (b) (c) (d)
Estimated Due to Deficiency Surplus carried to
Realisable secured ranking as the last column
Value creditors unsecured
Rs Rs Rs Rs
Stock 31,000 25,000 - 6,000
Estimated surplus from assets specifically pledged 6,000
Estimated total assets available for preferential creditors, 8,62,500

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 Debenture holders secured by a floating charge and unsecured
creditors (carried forward)
Summary of Gross Assets :
Gross realised value of assets specifically
pledged 31,000
Other Assets 8,56,500
Total 8,87,500

Liabilities
Gross Liabilities

Rs Rs Rs
25,000 Secured creditors (as per list B) to the extent which claims
are estimated to be covered by assets specifically pledged
18,000 Preferential creditors (as per list ‘C’ Estimated 18,000
balance of assets available for Debenture holders secured
by a floating charge and unsecured creditors) 8,44,500
1,64,000 Debenture holders secured by floating charge (as per list 1,64,000
D)
Estimated surplus as regards debenture holders* 6,80,500
Unsecured creditors (as per list E)
Estimated unsecured balance of claims of creditors partly
secured on specific assets brought forward (c)
Creditors on Trade Account
23,000 Outstanding Expenses 23,000
2,30,000 Estimated surplus as regards creditors, 6,57,500
difference between Gross Assets (D) and
Gross Liabilities as per column (E)
Issued and called up capital :

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 1000 Equity Shares of Rs100 each fully called up as per list 10,00,000
(G)
Estimated deficiency as regards contributories 3,42,500

*Note: This must be read subject to the following:

(1) There is no unpaid capital to the called-up.

(2) The estimates are subject to cost of the winding up and to any surplus or deficiency on
trading pending realisation of assets.

List H Deficiency Account

Items contributing to deficiency:

(1) Excess of capital and liabilities over assets three years 77,925
ago as shown by the balance sheet
(2) Net dividends or bonuses declared during the period Nil
(3) Net Trading Losses (after charging items shown in 60,575
Note below) for the same period
(4) Losses other than trading losses written off or for Nil
which provision has been made in the books during
the same period
(5) Estimated losses now written off for which provision has been made for the purpose of
preparing the statement:
Bad Debts (Debtors) 5,000
Loss on
Goodwill 99,000
Buildings 50,000
Plant 25,000
Fixtures 13,000

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 Stock 7,000
Workmen’s Compensation 5,000 2,04,000
(6) Other items contributing to deficiency: 3,42,500
Items reducing deficiency: Nil
Deficiency as shown by the Statement of affairs 3,42,500
Notes as to net trading profits and losses :
Provision for depreciation on Property, plant and Equipment 6,700
Charged of Income-tax Nil
Interest on Debentures 24,000
Payment to directors made by the company and
required by law to be disclosed in the accounts 3,000
Balance (being other trading losses) 26,875
60,575

Particulars of Creditors for expenses Unsecured Preferential

Directors Fees 500
Income tax on salaries - 1,000
Rent (not distrained by landlord) 3,000 -
Wages (15 men for 4 months at Rs 100 each) - 6,000
Salaries (5 men for 4 months at Rs 300 each, 3,000 6,000
Rs 9,000)
Workmen’s Compensation 5,000
6,500 18,000

Creditors on trade account are Rs 16,500 (i.e., Rs 36,000 less the total of creditors
mentioned above, excluding Rs 5,000 for workmen’s compensation).

Working Note:

Balance in Profit & Loss A/c (Dr.) 1,38,500

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(Given in Balance Sheet)

Add: Estimated Losses on Realization of Assets:

Bad Debts (Debtors) 5,000

Loss on

Goodwill 99,000

Buildings 50,000

Plant 25,000

Fixtures 13,000

Stock 7,000

Workmen’s Compensation 5,000 2,04,000

Total Deficiency 3,42,500

(10 marks)

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