CA/CMA/CS ISFS -International School for Financial Studies

CA INTER ROB GROUP 1 RE-2

PAPER 1: ACCOUNTING

Date: 15th Sept, 2019 Time Allowed – 1hr 30min Maximum Marks -50

1. a) A company has fled a legal suit against the debtor from whom ₹ 15 lakh is recoverable as on 31.3.2017. The chances of
recovery by way of legal suit are not good as per legal opinion given by the counsel in April, 2017. Can the company provide
for full amount of ₹ 15 lakhs as provision for doubtul debts? Discuss. 5M

b) Explain whether the following will constitute a change in accounting policy or not as per AS 5.
i. Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc ex-gratia payments to employees
on retirement.
ii. Management decided to pay pension to those employees who have retired after completing 5 years of service in the
organisation. Such employees will get pension of ₹ 20,000 per month. Earlier there was no such scheme of pension in
the organisation. 5M

2. X Ltd. purchased 3 milk vans from Super Motors costing ₹ 75,000 each on hire purchase system. Payment was to be made: ₹
45,000 down and the remainder in 3 equal instalments together with interest @ 9%. X Ltd. writes off depreciation @ 20% on
the diminishing balance. It paid the instalment at the end of the 1st year but could not pay the next.
Super Motor agreed to leave one milk van with the purchaser, adjusting the value of the other two milk vans against the
amount due. The milk vans were valued on the basis of 30% depreciation annually on written down value basis. X Ltd.
settled the seller’s dues after three months.
You are required to give necessary journal entries and the relevant accounts in the books of X Ltd. 10M

3. S & M Ltd. give the following Trading and Proft and Loss Account for year ended 31 st December, 20X1:

Trading and Profit and Loss Account for the year ended 31st December, 20X1

The company had taken out policies both against loss of stock and against loss of proft, the amounts being ₹ 80,000 and ₹
1,72,000. A fre occurred on 1st May, 20X2 and as a result of which sales were seriously affected for a period of 4 months.
You are given the following further information:
a. Purchases, wages and other manufacturing expenses for the frst 4 months of 20X2 were ₹ 1,00,000, ₹ 50,000 and ₹
36,000 respectively.
b. Sales for the same period were ₹ 2,40,000.

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c. Other sales fgures were as follows :

₹
From 1st January 20X1 to 30th April, 20X1 3,00,000
From 1st May 20X1 to 31st August, 20X1 3,60,000
From 1st May, 20X2 to 31st August, 20X2 60,000
d. Due to rise in wages, gross proft during 20X2 was expected to decline by 2% on sales.
e. Additional expenses incurred during the period after fre amounted to ₹ 1,40,000. The amount of the policy included ₹
1,20,000 for expenses leaving ₹ 20,000 uncovered. Ascertain the claim for stock and for loss of proft.
All workings should form part of your answers. 10M

4. a) On 01-04-20X1, Mr. T. Shekharan purchased 5,000 equity shares of ₹ 100 each in V Ltd. @ ₹ 120 each from a broker, who
charged 2% brokerage. He incurred 50 paisa per ₹ 100 as cost of shares transfer stamps. On 31-01-20X2 bonus was declared
in the ratio of 1: 2. Before and after the record date of bonus shares, the shares were quoted at ₹ 175 per share and ₹ 90 per
share respectively. On 31-03-20X2, Mr. T. Shekharan sold bonus shares to a broker, who charged 2% brokerage.
Show the Investment Account in the books of T. Shekharan, who held the shares as Current Assets and closing value of
investments shall be made at cost or market value whichever is lower. 5M

b) The following notes pertain to Brite Ltd.'s Balance Sheet as on 31st March, 20X1: 5M
Notes ₹ in Lakhs
(1) Share Capital
Authorised :
20 crore shares of ₹ 10 each 20,000
Issued and Subscribed:
10 crore Equity Shares of ₹ 10 each 10,000
2 crore 11% Cumulative Preference Shares of ₹ 10 each 2,000
Total 12,000
Called and paid up:
10 crore Equity Shares of ₹ 10 each, ₹ 8 per share called and paid up 8,000
2 crore 11% Cumulative Preference Shares of ₹ 10 each, fully called and paid up 2,000
Total 10,000
(2) Reserves and Surplus:
Capital Redemption Reserve 1,485
Securities Premium(collected in cash) 2,000
General Reserve 1,040
Surplus i.e. credit balance of Proft & Loss Account 273
Total 4,798

On 2nd April 20X1, the company made the fnal call on equity shares @ ₹ 2 per share. The entire money was received in the
month of April, 20X1.
On 1st June 20X1, the company decided to issue to equity shareholders bonus shares at the rate of 2 shares for every 5
shares held. Pass journal entries for all the above mentioned transactions. Also prepare the notes on Share Capital and
Reserves and Surplus relevant to the Balance Sheet of the company immediately after the issue of bonus shares. 5M

5. The partners Kamal and Vimal decided to convert their existing partnership business into a Private Limited Company called
M/s. KV Trading Private Ltd. with effect from 1-7-20X2.
The same books of accounts were continued by the company which closed its account for frst term on 31-3-20X3.

The summarised Profit and Loss Account for the year ended 31-3-20X3 is below:
(₹) in lakhs (₹) in lakhs
Turnover 240.00
Interest on investments 6.00
246.00
Less: Cost of goods sold 102.00
Advertisement 3.00
Sales Commission 6.00
Salary 18.00
Managing director’s remuneration 6.00
Interest on Debentures 2.00
Rent 5.50

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Bad Debts 1.00

Underwriting Commission 2.00
Audit fees 2.00
Loss on sale of investment 1.00
Depreciation 4.00 152.50
93.50
The following additional information was provided:
i. The average monthly sales doubled from 1-7-20X2. GP ratio was constant.
ii. All investments were sold on 31-5-20X2.
iii. Average monthly salary doubled from 1-10-20X2.
iv. The company occupied additional space from 1-7-20X2 for which rent of ₹ 20,000 per month was incurred.
v. Bad debts recovered amounting to ₹ 50,000 for a sale made in 20X0, has been deducted from bad debts mentioned
above.
vi. Audit fees pertains to the company.
Prepare a statement apportioning the expenses between pre and post incorporation periods and calculate the Proft/Loss for
such periods. 10M

6. a) In a production process, normal waste is 5% of input. 5,000 MT of input were put in process resulting in wastage of 300
MT. Cost per MT of input is ₹ 1,000. The entire quantity of waste is on stock at the year end. State with reference to
Accounting Standard, how will you value the inventories in this case? 5M

b) ABC Ltd. was making provision for non-moving inventories based on issues for the last 12 months up to 31.3.2016. The
company wants to provide during the year ending 31.3.2017 based on technical evaluation:

Total value of inventory ₹ 100 lakhs

Provision required based on 12 months issue ₹ 3.5 lakhs
Provision required based on technical evaluation ₹ 2.5 lakhs

Does this amount to change in Accounting Policy? Can the company change the method of provision? 5M

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