CA INTER NEW COURSE (May 2021)
ADVANCED ACCOUNTING
Test-1 (Chapters- 5, 6)
Solution
A-1:-
a) Journal Entries in the books of Lion Ltd
Particulars Debit Credit
(Rs in lakhs) (Rs in lakhs)
(i) 8% Preference share capital A/c (Rs100 each) Dr. 400
To 8% Preference share capital A/c 320
(Rs 80 each)
To Capital Reduction A/c 80
(Being the preference shares of Rs100 each
reduced to Rs80 each as per the approved
scheme)
(ii) Equity share capital A/c (Rs10 each) Dr. 1,000
To Equity share capital A/c (Rs 2 each) 200
To Capital Reduction A/c 800
(Being the equity shares of Rs10 each
reduced to Rs2 each)
(iii) Capital Reduction A/c Dr. 32
To Equity share capital A/c (Rs 2 each) 32
(Being 1/3rd arrears of preference share
dividend of 3 years to be satisfied by issue of 16
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lakhs equity shares of Rs2 each)
(iv) 6% Debentures A/c Dr. 300
To Freehold property A/c 300
(Being claim of Debenture holders settled in
part by transfer of freehold property)
(v) Accrued debenture interest A/c Dr. 24
To Bank A/c 24
(Being accrued debenture interest paid)
(vi) Freehold property A/c Dr. 150
To Capital Reduction A/c 150
(Being appreciation in the value of freehold
property)
(vii) Bank A/c Dr. 250
To Investments A/c 200
To Capital Reduction A/c 50
(Being investment sold at profit)
(viii) Director’s loan A/c Dr. 300
To Equity share capital A/c (Rs 2 each) 90
To Capital Reduction A/c 210
(Being director’s loan waived by 70%
and balance being discharged by issue of 45
lakhs equity shares of Rs2 each)
(ix) Capital Reduction A/c Dr. 972
To Profit and loss A/c 522
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To Trade receivables A/c (450 x 40%) 180
To Inventories-in-trade A/c (300x 80%) 240
To Bank A/c (600 x 5%) 30
(Being certain value of various assets, penalty
on cancellation of contract, profit and loss
account debit balance written off through
Capital Reduction Account)
(x) Capital Reduction A/c 286
To Capital reserve A/c 286
(Being balance transferred to capital reserve
account as per the scheme)
(4 marks)
(b) Capital Reduction Account
Dr. Cr.
(Rs in (Rs in lakhs)
lakhs)
To Equity Share Capital 32 By Preference Share Capital 80
To Trade receivables 180 By Equity Share Capital 800
To Finished Goods 240 By Freehold Property 150
To Profit & Loss A/c 522 By Bank 50
To Bank A/c 30 By Director’s Loan 210
To Capital Reserve 286
1,290 1,290
(3 marks)
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(c) Notes to Balance Sheet
(Rs in lakhs) (Rs in lakhs)
1. Share Capital
Authorized:
200 lakhs Equity shares of Rs 2 each 400
8 lakhs 8% Preference shares of Rs 80 each 640
Issued: 1,040
161 lakhs equity shares of Rs2 each 322
4 lakhs Preference Shares of Rs80 each 320 642
2. Tangible Assets
Freehold Property 550
Less: Utilized to pay Debenture holders (300)
250
Add: Appreciation 150 400
Plant and Machinery 200
600
(3 marks)
A-2:-
(i) Computation of Purchase consideration and Basis for issue of Shares
Trump Ltd. Biden Ltd.
Average profits 2,75,000 1,75,000
Less: Normal profits 1,77,500 1,12,500
Super Profit 97,500 62,500
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Goodwill (at 2 years purchase) 1,95,000 1,25,000
Land and Building 9,35,000 6,32,500
Plant and Machinery 3,79,500 2,47,500
Inventory 4,62,000 2,64,000
Debtors less provision 2,74,500 2,56,500
Bank (less liquidation expenses Rs 40,000: 20,000) 1,40,000 25,000
23,86,000 15,50,500
Less: Creditors (55,000) (50,500)
Debentures - (2,75,000)
Purchase consideration (Basis for issue of shares) 23,31,000 12,25,000
To be satisfied by issue of equity share of kamla haris Ltd. 23,310 12,250
@ 100 face value
(4 marks)
(ii) Balance Sheet of kamla haris Ltd. (After Amalgamation) as on 01.04.2021
Particulars Notes Rs
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 38,31,000
b Reserves and surplus -
2 Current liabilities
a Trade Payables 1,05,500
Total 39,36,500
Assets
Non-current assets
1
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a Fixed assets
(i)Tangible assets 2 21,94,500
(ii) Intangible assets 3 3,20,000
2 Current assets
Inventories 7,26,000
Trade receivables 4 5,31,000
Cash and cash equivalents 5 1,65,000
Total 39,36,500
(4 marks)
Notes to accounts
Rs
1. Share Capital
Equity share capital
35,560 equity shares of Rs 100 each 35,56,000
2,750 12% Preference shares @ Rs 100 each 2,75,000 38,31,000
(The above shares have been issued for consideration
other than cash)
2. Tangible assets
Fixed Assets
Land and Building (Rs 9,35,000 + Rs 6,32,500) 15,67,500
Plant and Machinery (Rs 3,79,500 + Rs 2,47,500) 6,27,000 21,94,500
3. Intangible assets
Goodwill (Rs 1,95,000 + Rs 1,25,000) 3,20,000
Current Assets
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4. Trade Receivables Rs (3,05,000 + 2,85,000) 5,90,000
Less: Provision for doubtful debts (59,000) 5,31,000
5. Cash and cash equivalents (Bank) 1,65,000
(2 marks)
A-3:- In the books of Parth Ltd. Journal entries
Particulars Dr. Cr.
Reconstruction A/c 2,39,000
To Furniture and Fixtures A/c 55,000
To Plant and machinery A/c 89,000
To Investment A/c 95,000
(Writing off overvalued assets as per Reconstruction Scheme dated...)
Freehold premises A/c 55,000
To Reconstruction A/c 55,000
(Being the increase in the premises credited to reconstruction
account as per reconstruction scheme)
9% Debentures A/c 2,50,000
To Bank A/c 50,000
To Land and building A/c 72,000
To Reconstruction A/c 1,28,000
(Being the debenture holders claim settled partly and foregone partly
as per reconstruction scheme)
Reconstruction A/c 70,000
To Profit and loss A/c 70,000
(Being the loss written off as per reconstruction scheme)
General reserve A/c 1,26,000
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To Reconstruction A/c 1,26,000
(Being the balance in general reserve utilized to write off the losses as
per reconstruction scheme)
(8 marks)
A-4:- In the books of Rebuilt Ltd. Journal Entries
Particulars Debit Credit
(Rs ) (Rs )
1. Equity share capital A/c (Rs 50) Dr. 7,50,000
To Equity share capital A/c (Rs 2.50) 37,500
To Capital reduction A/c 7,12,500
(Being equity capital reduced to nominal value
of Rs 2.50 each)
2. Bank A/c Dr. 1,12,500
To Equity share capital 1,12,500
(Being 3 right shares against each share was issued
and subscribed)
3. 7% Preference share capital A/c (Rs 50) Dr. 6,00,000
Capital reduction A/c Dr. 60,000
To 5% Preference share capital (Rs 10) 4,80,000
To equity share capital (Rs 50) 1,80,000
(Being 7% preference shares of Rs 50 each
converted to 5% preference shares of Rs 10
each and also given to them 6 equity shares
for every share held)
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4. Loan A/c Dr. 1,50,000
To 5% Preference share capital A/c 1,20,000
To Equity share capital A/c 30,000
(Being loan to the extent of Rs 1,50,000
converted into share capital)
5. Bank A/c Dr. 1,00,000
To Equity share application money A/c 1,00,000
(Being shares subscribed by the directors)
6. Equity share application money A/c Dr. 1,00,000
To Equity share capital A/c 1,00,000
(Being application money transferred to
capital A/c)
7. Loan A/c Dr. 2,00,000
To Bank A/c 2,00,000
(Being loan repaid)
8. Capital reduction A/c Dr. 6,52,500
To Profit and loss A/c 4,51,000
To Plant A/c 35,000
To Trademarks and Goodwill A/c (Bal.fig.) 1,66,500
(Being losses and assets written off to the
extent required)
(4 marks)
Balance sheet of Rebuilt Ltd. (and reduced) as on 31.3.20X1
Particulars Notes Rs
Equity and Liabilities
1 Shareholders' funds
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a Share capital 1 10,60,000
2 Non-current liabilities
a Long-term borrowings 2,23,000
3 Current liabilities
a Trade Payables 2,07,000
b Other current liabilities 35,000
Total 15,25,000
Assets
1 Non-current assets
a Property, Plant Equipment
Tangible assets 2 6,33,000
Intangible assets 3 1,51,500
2 Current assets
a Inventories 4,00,000
b Trade receivables 3,28,000
c Cash and cash equivalents 4 12,500
Total 15,25,000
(2 marks)
Notes to accounts
Rs
1 Share Capital
Authorized capital:
65,000 Preference shares of Rs 10 each 6,50,000
3,00,000 Equity shares of Rs 2.50 each 7,50,000 14,00,000
Issued, subscribed and paid up:
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1,80,000 equity shares of Rs 2.5 each 4,60,000
60,000, 5% Preference shares of Rs 10 each 6,00,000 10,60,000
2 Tangible assets
Building at cost less depreciation 4,00,000
Plant at cost less depreciation 2,33,000 6,33,000
1. Intangible assets
Trademarks and goodwill 1,51,500
2. Cash and cash equivalents
Bank (1,12,500+1,00,000-2,00,000) 12,500
(2 marks)
A-5:- Pooling of Interest Method
Under pooling of interests method, the assets, liabilities and reserves of the Transferor
Company will be taken over by Transferee Company at existing carrying amounts unless any
adjustment is required due to different accounting policies followed by these companies. As a
result the difference between the amount recorded as share capital issued (plus any additional
consideration in the form of cash or other assets) and the amount of share capital of Transferor
Company should be adjusted in reserves.
(2 marks)
Purchase Method
The assets and liabilities of the transferor company should be incorporated at their existing
carrying amounts or the purchase consideration should be allocated to individual identifiable
assets and liabilities on the basis of their fair values at the date of amalgamation. No reserves,
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other than statutory reserves, of the transferor company should be incorporated in the
financial statements of Transferee Company.
(2 marks)
A-6:-
(a) Amalgamation in the nature of merger:
Balance Sheet of X Ltd
Particulars Notes Rs in '000
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 12,570
b Reserves and Surplus 2 1,930
2 Non-current liabilities
a Long-term borrowings 3 850
3 Current liabilities
a Trade Payables 800
b Other current liabilities 350
Total 16,500
Assets
1 Non-current assets
a Fixed Assets
Tangible assets 4 9,925
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b Non-current investments 1,200
2 Current assets
a Inventories 2,200
b Trade receivables 1,930
c Cash and cash equivalents 1,245
Total 16,500
(3 marks)
Notes to accounts
Rs in ‘000
1. Share Capital
Equity share capital
85,00 Equity Shares of Rs 10 each
8,500
Preference share capital
18,700, 15% Preference Shares of Rs 100 each 1,870
22,000, 14% Preference Shares of Rs 100 each 2,200
Total 12,570
2. Reserves and Surplus
General Reserve of X Ltd. 500
Add: General reserve of Y Ltd. 250
750
Less: Adjustment for amalgamation*
(670) 80
Export Profit Reserve of X Ltd 300
Add: Export Profit Reserve of Y Ltd. 200 500
Investment Allowance Reserve 100
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Profit & Loss A/c of X Ltd. 750
Add: Profit & Loss A/c of Y Ltd. 500 1,250
Total 1,930
3. Long-term borrowings
Secured
8,500 13% Debentures of Rs 100 each
850
Total 850
4. Property, Plant and Equipment
Land & Buildings
4,050
Plant & Machinery
4,950
Furniture & Fittings
925
Total 9,925
*The difference between the amount recorded as share capital issued and the amount of
share capital of transferor-company should be adjusted in reserves. Thus, Adjustment for
amalgamation = Rs ’000 (53,70 – 47,00) = Rs (’000) 670
(2 marks)
(b) Amalgamation in the nature of purchase:
Balance Sheet of X Ltd
Particulars Notes Rs in'000
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 12,570
b Reserves and Surplus 2 1,930
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2 Non-current liabilities
a Long-term borrowings 3 850
3 Current liabilities
a Trade Payables 800
b Other current liabilities 350
Total 16,500
Assets
1 Non-current assets
a Fixed Assets
Tangible Assets 4 9,925
b Non-current investments 1,200
2 Current assets
a Inventories 2,200
b Trade receivables 1,930
c Cash and cash equivalents 1,245
Total 16,500
(2 marks)
Notes to accounts
Rs in ‘000
1. Share Capital
Equity share capital
8,50,000 Equity Shares of Rs 10 each 8,500
Preference share capital
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18,700, 15% Preference Shares of Rs 100 each 1,870
22,000, 14% Preference Shares of Rs 100 each 2,200
Total 12,570
2. Reserves and Surplus
Capital Reserve 380
General Reserve 500
Amalgamation adjustment reserve (300)
Export Profit Reserve
500
Investment Allowance Reserve
100
Surplus (Profit & Loss A/c)
750
Total 1930
3. Long-term borrowings
Secured
8,500 13% Debentures of Rs 100 each 850
Total 850
4. Property, Plant and Equipment
Land & Buildings 4,050
Plant & Machinery 4,950
Furniture & Fittings 925
Total 9,925
(1.5 marks)
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Workings Notes: Capital Reserve arising on Amalgamation:
(A) Net Assets taken over: Rs(’000) Rs (’000)
Sundry Assets 66,00
Less: 13% Debentures 3,50
Trade payables 3,50
Other current liabilities 1,50 (8,50)
57,50
(B) Purchase consideration:
To Equity Shareholders of Y Ltd. 35,00
To Preference Shareholders of Y Ltd 18,70
53,70
(c) Capital Reserve (A – B) 3,80
(1.5 marks)
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