CMA INTERMEDIATE

Paper- 10 Corporate Accounting & Auditing

Issue of Shares
1. Balance Sheet of Chanakya Ltd. as on 1.4.2014 (after Redemption and Buyback)
as per Schedule III (Extracts)

Particulars Note No Amt. (₹ Lakhs)

(I) Equity and Liabilities
1 Shareholder’s Funds:
(a) Share Capital 1 6,300
(b) Reserves and Surplus 2 7,930
2 Non-Current Liabilities
(a) Long Term Borrowings 3 4,870
3 Current Liabilities
(a) Trade Payables 3,800
(b) Short Term Provisions 1,100
Total 24,000
(II) Assets
(1) Non-Current Assets
Fixed Assets 15,000
Current Assets:
(a) Cash and Cash equivalents (W N) 1,450
(b) Other Current Assets 7,550
Total 24,000

Notes of Accounts
(Related Notes)

₹ In Lakhs
1. Share Capital
630 lakh Equity Shares of ₹ 10 each
Fully Paid up (70 lakh Equity Shares 6,300
bought back)
2. Reserve and Surplus
General Reserve 5,800
Less: Transfer to CRR 3,700 2,100
Capital Redemption Reserve 1,100
Add: Transfer due to buy-back of
shares
from Gen. res. 3,700 4,800
Securities premium 700
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Less: Adjustment for premium paid on

redemption of preference shares (300)
Less: Adjustment for premium paid on
buy back 70 330
P & L A/c 500
Add: Profit on sale of investment 200 700 7930
3. Long-term borrowings
Secured
9% Debentures 4,000
Terms Loans-From Banks 870 4870
Working Note:
Bank Account
Particulars Amt. Particulars Amt.
(₹ Lakhs) (₹ Lakhs)
To Balance b/d 1,450 By Preference Shareholders 3,300
A/c
To Investment A/c By Equity Shareholders A/c 770
(Sale Proceeds) 3,200 By Balance C/d 1,450
To Bank Loan A/c
(Loan received) 870
5,520 5,520

2. Journal Entries in the Books of CEC Ltd.

S. Particulars Dr. Cr.

No.
1. Cash/Bank A/c Dr. 1,60,000
To Share Application A/c 1,60,000
(Being Share Application money received)
2. Share Application A/c Dr. 1,60,000
To Equity Share Capital 80,000
A/c To Cash/Bank A/c 56,000
To share Allotment A/c
(Being Application money received transferred to 24,000
various latter A/c as per Board Resolution No. date..)

3. Share Allotment A/c Dr. 1,00,000

To Equity Share Capital 60,000
A/c To Security Premium
40,000
A/c
(Being Allotment of Share as per board Resolution No…
date…)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Cash/Bank A/c Dr. (W.n.2)

4. Calls in Arrears A/c Dr. 71,000
To Share Allotment A/c 5,000
(Being amount received on Allotment and calls in 76,000
arrear on Allotment of Share)

Share First & Final Call A/c Dr.

5. To Equity Share Capital A/c 60,000
(Being first and final call made as per board resolution 60,000
No…date….)

Cash/Bank A/c Dr. (W.n.3) 55,200

6. Calls in Arrear A/c Dr. 4,800
To First & Final Call A/c
(Being amount received and Calls in Arrears on first 60,000
and final call)

Equity Share Capital A/c Dr.

16,000
To Calls in Arrears A/c
7.
To Share Forfeiture 9,800
A/c 6,200
(Being entry for forfeiture of 160 Share as per board
Resolution No…dated…) 12,800
3200
Cash/Bank A/c (80 x 160) Dr.
8. Share Forfeiture A/c Dr.
To Equity Shares Capital A/c 16000
(Being Forfeited Share re-issued at a discount of ₹ 20 as
per Board’s resolution No… dated…)
9. 3,000
Share Forfeiture A/c Dr.
To Capital Reserve A/c 3,000
(Being profit on re-issue transferred to Capital Reserve)

Working Notes:
(1) Issue of 2,000 Equity Share of ₹ 100 each at ₹ 20/-
premium. For Application of ₹ 40/-
Amount received = 4000 x 40 = 1,60,000
Application Allotment
200 200
1400 Rejected
2400 (4:3) 1800
4000 2000

(2) For Allotment

Refund of Application = 1400 x 40 = 56,000
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Paper- 10 Corporate Accounting & Auditing

Excess Application Amount = 600 x 40 = 24,000

Amount due = 2000 x 50 = 1,00,000

Amount received: ₹
Amount due 1,00,000
Less: Already received
24,000
76,000
Less: Calls in Arrears 5,000

(Ravi) (100 x 50)

Amount received 71,000

(3) For Share first and final Call:

(₹ 30) Amount due = 2000 x
30 = ₹60,000 Amount
received:
Amount due 60,000
Less: Calls in Arrears
(Ravi) (100 x 50) 3,000
Ruby (60 x 30) 1,800
Amount received 55,200
(4) Amount to be transfer to Capital Reserve = 4,000 + 4,200 – 3,200 = 5,000

3. Working Note
Capital Premium
Application 5 -
Allotment 2 2
First Call 2 -
Final Call 110 2

Category Applied Proportion Allotted

2,40,000 2,00,000
1,00,000 (1 : 1) 1,00,000
1,40,000 1,00,000
80,000 (4 : 3) 60,000
60,000 (3 : 2) 40,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Bank A/c Dr. 12,00,000

To Share Application A/c 12,00,000
(Being share application money received)
Share application A/c Dr. 12,00,000
To Equity share capital A/c 10,00,000
To Share Allotment A/c 2,00,000
(Being application money received on 2,40,000
shares
transferred to Share capital and on 40,000 shares
adjusted towards amount due on allotment)
Share Allotment A/c Dr. 8,00,000
To Equity Share Capital A/c 4,00,000
To Securities Premium A/c 4,00,000

(Being allotment money of ₹ 4 per share including

premium of ₹ 2 per share)
Bank A/c (w.n.1) Dr. 5,93,900
Calls – in arrears A/c Dr. 6,100
To Share Allotment A/c 6,00,000
(Being allotment money is received in full, after
adjustment of Excess application money)

Share first call A/c Dr. 4,00,000

To Equity share capital A/c 4,00,000
(Being first call money on 2,00,000 shares @ ₹ 2
per share)

Bank A/c Dr. 3,93,800

Calls – in arrears A/c Dr. (w.n.2) 6,200
To Share first call A/c 4,00,000
(Being first call money received on 1,96,900 shares @
₹ 2 per Share)
Share Capital Dr. 17,100
Sec. Premium Dr. 3,800
To Calls in Arrear A/c 9,900
To Share forfeited 11,000
A/c
(Being forfeiture of 1900 shares on which first call &
allotment was due as for Board’s Resolution)
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Paper- 10 Corporate Accounting & Auditing

Share Second call a/c Dr. 1,98,100

To Equity share capital A/c 1,98,100
(Being second call money on 1,97,300 shares @ ₹
1 per share)

Bank A/c Dr. 1,96,900

Calls in arrears A/c Dr. 1,200
To Shares Second Call A/c 1,98,100
(Being second call money on 1,97,300 shares @ ₹
1 per share)

Bank A/c Dr. 10,400

Forfeited shares A/c Dr. 2,600
To Equity share capital A/c 13,000
(Being issue of 1300 forfeited shares at ₹ 8 fully
paid up)

Forfeited shares A/c Dr. 4,400

To Capital Reserve A/c 4,400
(Being transfer of forfeited shares to Capital
Reserve A/c)

Bank A/c
Particulars Amt. Particulars Amt.
To Share Application 12,00,000 By Bal. c/d 23,95,000
A/c To Share 5,93,900
Allotment A/c To
3,93,800
Share first call A/c
To Share Second call A/c 1,96,900
To Equity share capital 10,400
A/c 23,95,000 23,95,000

Working Note for call in arrear

1. Category (A) 100 x 4 = 4000
(No excess in Application full Allotment as made in
1:1) Category (B) Applied 1200 shares
Allotted = 1200 x ¾ = 900 shares
Application money received 1200 share x 5 =6,000
(-) Application money Adjusted =4,500
Excess Application Money Adjusted in Allotment =1,500
Allotment due on 900 shares x 4 =3,600
(-) Excess Adjusted =1,500
Call in arrear 2,100
Total call in arrear
Category (A) + Category (B)
4,000 + 2,100 = 6,100

2. W.N.2 Call in Arrears on First Call

CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Category
A = 1000 shares
B = 900 shares
C = 1200 shares
3,100 shares @ 2/- per share = 6,200/-

Call in Arrear
Allotment First Call Final Call
(a) 1000 1000 --
(b) 900 900 --
(c) -- 1200 1200
1900 3100 1200
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

2. Issue of Bonus Shares

Ans. 1.
Application Allotment Adjustment of Excess Money

No. Amt. @ Nos Allotment Application Excess Against Calls in Refund

6 Money money adj. Application Allotment advance
money
45,000 2,70,000 30,000 2,10,000 1,80,000 90,000 60,000 30,000
45,000 2,70,000 30,000 2,10,000 1,80,000 90,000 60,000 - 30,000

Allotment money received: Amount x failed to pay

Share premium @ 5/- 1,50,000 Gross amount due from X 21,000
Share capital @ 2/- 60,000 (3000 x 7)
Total allotment dues 2,10,000 (-)Excess application
money Adjusted
(-) Excess Application money 60,000 × 3,000
adjusted 30,000
60,000 6,000
Net due from which he
Net due 1,50,000
(-) not recd. From Mr. X 15,000
Allotment money received
1,35,000 15,000
Journal Entries in the Books of Madox Ltd.
Particulars Dr. (₹) Cr. (₹)
Bank A/c Dr. 2,70,000
To Share Application 2,70,000
A/c (Application money
received)
Share allotment A/c Dr. 2,10,000
Share Application A/c Dr. 1,80,000
To Share capital A/c 2,40,00
To Security premium A/c 0
(Shares allotted, allotment money due of 1,50,00
application money on the shares allotted 0
adjusted)
Share application A/c Dr. 90,000
To Bank A/c 30,000
To Share Allotment A/c 60,000
(Excess Application money adjusted/ refunded)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Bank A/c Dr. 1,35,000

To Share Allotment A/c 1,35,000
(Share allotment money received from all except)
holding 3000 shares)
1st & Final Call A/c Dr. 60,000
To Share capital 60,000
(1st & Final Call A/c @ 2 due)
Bank A/c Dr. 54,000
To 1st & Final Call 54,000
(1st & Final call reed from all except Mr. X
holding 3000 shares)
Share Capital A/c Dr. (3000 x 10) 30,000
Security Premium A/c Dr. (3000 x5) 15,000
To Share Allotment A/c 15,000
To 1 st & Final Call 6,000
A/c To Share 24,000
forfeiture A/c
(3000 shares of x forfeited for non-payment of
allotment
money of 1st & Final Call)
Bank A/c Dr. (2000 x 7) 14,000
Share forfeiture A/c Dr. (2000 x 3) 6,000
To Share Capital a/c 20,000
(2000 forfeited shares originally belonging to x
reissued at a discount of ₹ 3)
Share forfeiture A/c 10,000
To Capital Reserve A/c 10,000
(Balance of share forfeiture A/c 2000 X reissued
(24000/3000) x 2000 = 16000 less discount allowed
on reissue ₹ 6000/- transferred to capital reserve)
12% Redeemable preference share A/c Dr. 5,00,000
Premium on redemption A/c Dr. 50,000
To Preference Share holder A/c (Amount due on
redemption of 5000, 12% 5,50,000
redeemable preference shares face value of ₹ 100
each at 10% premium)
Security Premium A/c Profit & Loss A/c 50,000
To Premium on redemption A/c 5,00,000
To Capital redemption Reserve A/c (Amount of face
value of redeemable preference share transferred to 50,000
CRR A/c & premium on 5,00,000
redemption transferred to security premium A/c)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Preference shareholder A/c To Bank A/c 5,50,000

(Amount paid to preference share holder)
5,50,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

ESOP and Sweat Equity Shares

1. Journal of Kachari Limited
01/4/12 Employee Compensation Expense A/c Dr. 81,25,000
To Employee Stock Options
Outstanding A/c 81,25,000
(Being grant of 25000 stock options to
employees at ₹ 100 when market
price is ₹ 425)

(16/10/12 Bank A/c Dr. 22,50,000

to Employee stock options outstanding A/c 73,12,500
15/3/14 Dr. 2,25,000
To Equity share capital 93,37,500
A/c To Security premium
A/c
(Being allotment to employees of
22500 equity shares of ₹ 10 each at a
premium of ₹ 415 per share in
exercise of stock
options by employees)
16/3/14 Employee stock options 8,12,500
outstanding A/c Dr.
To Employee compensation 8,12,500
expenses A/c
(Being entry for lapse of stock options
for 2500 Shares)
31/3/14 Profit & Loss A/c Dr. 73,12,500
To Employee compensation
expenses A/c 73,12,500
(Being transfer of employee compensation
Expense to profit and
loss account)

Note: Employee stock options outstanding will appear in the Balance Sheet as
part of Net Worth or Shareholder’s Equity
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Buy-Back of Shares
1. Journal Entries in the books of Vikas Limited
I Equity share final call A/c Dr. 10,00,000
To Equity share capital A/c 10,00,000
(Being final call money due for 5,00,000
equity shares @ ₹ 2 per share)
II Bank A/c Dr. 10,00,000
To Equity share final call A/c 10,00,000
(Being final call money received for 5,00,000
equity shares @ ₹ 2 per share)
III Equity shareholders Dr. 1,25,00,000
A/c To Bank A/c 1,25,00,000
(Being amount paid on buy back of shares
@₹
25 per share)
IV Equity share capital Dr. 50,00,00
A/c Securities Dr. 0
premium A/c 60,00,00
Dr.
General Reserve A/c 0
To Equity Shareholders A/c
15,00,00
(Being cancellation of 5,00,000 equity
0
shares on buy back)
1,25,00,000

V General Reserve A/c Dr. 35,00,00

Profit & Loss A/c Dr. 0
To Capital Redemption Reserve A/c 15,00,00
(Being transfer of General Reserve of ₹ 0
35,00,000 & ₹ 15,00,000 to cover the 50,00,000
nominal
amount of shares brought back to Capital

2. In the books FCS Ltd.

Journal Entries
Date Particulars L.F. Dr. (₹) Cr. (₹)
1. Bank A/c Dr. 150
To Investments A/c 150
(Being the Sale of investments)
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Paper- 10 Corporate Accounting & Auditing

2. Investments A/c Dr. 2

To Profit and Loss A/c 2
(Being the t/f of Profit on sale
of Investments)

3. Bank A/c Dr. 200

To 14% Preference Share
Application & Allotment 200
A/c
(Being the Application money received)
4. 14% Preference Share Application &
Allotment A/c Dr. 200
To 14% Preference Share Capital
A/c
(Being the Allotment of shares) 200

5. Equity Shares Buy Back Dr. 900

A/c To Bank A/c 900
(Being the payment made to equity
shareholders on buy-back)
6. Equity Share Capital A/c Dr. 600
Securities Premium A/c Dr. 300
To Equity Shares Buy Back A/c (Being
the cancellation of share bought
back)
900
7. General Reserve A/c Dr. 600
To Capital Redemption Reserve A/c
(Being creation of Capital Redemption
Reserve A/c to the extent of the face
value of equity shares bought back)
600
8. Capital Redemption Reserve A/c Dr. 400
Securities Premium A/c Dr. 50
To Bonus Issue A/c (Being the
utilization of Capital
Redemption reserve and securities
premium to issue one bonus share for
every four shares held)
450
9. Bonus Issue A/c Dr. 450
To Equity Share Capital A/c
(Being the Issue of one bonus share
for every four equity shares)
450
Note: Amount of Bonus Issue = 25% of (2400 – 25% of 2400) = ₹ 450 lakhs
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

3. Journal Entries In the Books of Anukula Ltd:

Particulars Dr. Cr.

1. Bank A/c Dr. 28
Profit and Loss A/c Dr. 2
To Investments A/c 30
(Being investment sold for the purpose of
buy- back of Equity Shares)
2. Preference Share Final Call A/c Dr. 10
To 8% Preference Share Capital A/c 10
(Being call money received)
3. Bank A/c Dr. 10
To Preference Share Final Call A/c 10
(Being call money received)
4. 8% Preference Share Capital A/c Dr. 50
Premium on Redemption of Dr 12.50
Preference Shares A/c Dr.
62.50
To Preference Shareholders A/c
(Being redemption of preference share capital at
premium of 25%)
5. Preference Shareholders A/c Dr. 62.50
To Bank A/c 62.50
(Being payment made to preference shareholders)
6. General Reserve A/c Dr. 66
To Capital Redemption Reserve A/c 66
(Refer Note)
(Being creation of Capital redemption reserve)
7. Equity Share Capital A/c Dr. 16
Securities Premium A/c Dr. 40
(Premium payable on buy-back)
To Equity Shares Buy-back A/c 56
(Being the amount due on buy-back of
equity shares.)
8. Equity Shares Buy-back A/c Dr. 56
To Bank A/c 56
(Being payment made for buy-back of
equity shares.)
9. 12% Debentures A/c Dr. 11.5
To Own Debentures A/c 10
To Capital Reserves A/c
(Being own debentures cancelled at profit) 1.50

10. Securities Premium A/c Dr.

12.50
To Premium on Redemption of Preference
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Shares A/c 12.50

(Being premium on redemption of preference shares
adjusted through securities premium)
Note: Transfer to Capital Redemption Reserve A/c as:

₹
For Redemption of P.S. Capital 50 lakhs
For Buy-back of Equity Shares 16 lakhs
Total 66 lakhs

4. Journal of X Co. Ltd.

Particulars Dr. Cr.

₹ ₹
Bank A/c Dr. 95,000
To Investment A/c 70,000
To Profit on sale on 25,000
investment (Being Sale of
investment)
Equity Share Capital Account Dr. 1,00,000
To Equity Shareholder 90,000
account To Capital reserve 10,000
account
(Being transfer of equity capital to shareholders
account)
and profit on purchase of own shares).
Free reserves account Dr. 1,00,000
To Capital Redemption reserve account 1,00,000
(Being the nominal value of shares purchased)
Buyback expenses account Dr. 1,000
To Bank 1,000
(Being Expense of buyback)
Profit on sale on investment Dr. 25,000
account To Profit and Loss 25,000
Account
(Being transfer of profit on sale of investment to P &L
account)
Profit and Loss Account Dr. 1,000
To Buyback expenses Account 1,000
(Being transfer of buyback expenses to P & L
Account)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Underwriting of Shares
(1) Computation of Liabilities of underwriters (No. of shares):
Particulars P Q R
Gross liability 12,00,000 12,00,000 12,00,000
Less: Firm underwriting 1,00,000 1,00,000 1,00,000
11,00,000 11,00,000 11,00,000
Less: Market applications 7,25,000 8,40,000 13,10,000
3,75,000 2,60,000 (2,10,000)
Less: Unmarked applications distributed to1,12,500 1,12,500 Nil
P and Q in equal ratio
2,62,500 1,47,500 (2,10,000)
Less: Surplus of R distributed to P and Q in
equal ratio 1,05,000 1,05,000 2,10,000
Net liability (excluding firm underwriting) 1,57,500 42,500 Nil
Add: Firm underwriting 1,00,000 1,00,000 1,00,000
Total liability (No. of share) 2,57,500 1,42,500 1,00,000

(2) Computation of amounts payable by underwriters:

Particulars P Q R
Liability towards shares to be subscribed @
12 30,90,000 17,10,000 12,00,000
per share
Less: Commission (5% on 12 lakhs shares @
10 each) 6,00,000 6,00,000 6,00,000
Net amount to be paid by underwriters 24,90,000 11,10,000 6,00,000

(3) In the Books of Masood Ltd.

Journal Entries
Particulars Dr. (₹) Cr. (₹)
Underwriting commission A/c Dr. 18,00,000
To P A/c 6,00,000
To Q A/c 6,00,000
To R A/c 6,00,000
(Being underwriting commission on the
shares
underwritten)
P A/c Dr. 30,90,000
Q A/c Dr. 17,10,0000
R A/c Dr. 12,00,000
To Equity share capital A/c 50,00,000
To Share premium A/c 10,00,000
(Being shares including firm underwritten
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Paper- 10 Corporate Accounting & Auditing

shares
allotted to underwriters)
Bank A/c Dr. 42,00,000
To P A/c 24,90,000
To Q A/c 11,10,000
To R A/c 6,00,000
(Being the amount received toward shares
allotted to underwriters less underwriting
commission due to them)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Redemption of Preference Shares

Ans 1.
Nominal Value of Preference Shares + Premium on Redemption = Existing
Securities Premium + Divisible Profits available for redemption + Sale
Proceeds of fresh issue of New Shares.
65,000 + 6,500 = 1,000 + 45,500 + X
X = 25,000
Minimum number of equity shares to be issued for redemption of preference share
= Sale Proceeds of fresh issue of New Shares/ Issue Price
= 25,000 /12.50
= 2000.

Ans 2. Books of Mogari Limited

Journal (in Lakhs)

Particulars Dr. (₹) Cr. (₹)

1) Bank A/c Dr. 28,00,000
To E.S. Application 18,00,00
A/c To Debenture A/c 0
(Application money received on 1,20,000 10,00,00
equity shares @ ₹ 15 per share and on 0
10,000 debentures @ ₹ 10 each)

2) Bank A/c Dr. 5,60,000

To Profit & Loss A/c 60,000
To Investment A/c 5,00,000
(Profit on sale of investment)
3) E.S. Application A/c Dr. 18,00,000
To E. S. Capital A/c 12,00,000
To Securities Premium A/c 6,00,000
(Application money transferred)
4) Debenture Application Dr. 10,00,000
A/c 10,00,000
To 12% Debenture A/c
5) Security Premium A/c Dr. 7,00,000
General Reserve A/c Dr. 50,000
To Premium on redpm. Of pref. sh. A/c
7,50,000
6) General Reserve A/c Dr. 12,50,000
Profit & Loss A/c Dr. 5,50,000
To Capital Redemption Reserve A/c
18,00,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

7) 10% Redeemable P.S. Capital A/c Dr. 30,00,000

Premium on Red. of P.S. A/c Dr. 7,50,000
To Bank A/c
37,50,000
Note: Preference shares are redeemed either out of distributable profits or proceeds
from fresh issue of shares or both. Hence, Preference shares of 12,00,000 redeemed
through fresh issue of equity shares and remaining of 18,00,000 redeemed out of
profits.
Ans 3. Book of All Xerox Ltd.
Journal Entries

Date Particulars Amt. (₹) Amt. (₹)

Redeemable Preference Share Capital A/c Dr. 1,95,000
Premium on Redemption of Pref. Shares A/c Dr. 19,500
To Preference Shareholders A/c
2,14,500
(Being 19,500 fully paid Red. Pref. Shares
along with premium payable on redemption as
per
Board resolution no……. dt…….)
General Reserve A/c Dr. 50,000
To Capital Redemption Reserve A/c 50,000
(Being General Reserve transferred)
Bank A/c Dr. 1,74,000
To Equity Shares Capital 1,45,000
A/c To Equity Shares 29,000
Premium A/c
(Being issue of 14,500 Equity shares a a
premium of 20%)
Share Premium A/c Dr. 19,500
To Premium on Redemption on P.V. of Shares A/c 19,500
(Being premium payable adjusted)
Preference Shareholders A/c Dr. 2,14,500
To Bank A/c 2,14,500
(Being amount paid off to Pref. Shareholders)
Capital Redemption Reserve Dr. 50,000
A/c To Bonus to 50,000
Shareholders A/c
(Being Bonus declared and transferred to
Capital
Redemption Reserve account)
Bonus to Shareholders A/c Dr. 50,000
To Equity Share Capital A/c 50,000
(Being amount transferred to Equity Share capital)
Working Note: Sources of redemption as per Sec. 55 of Companies Act, 2013
Nominal Value of Share Redeemed ₹ 1,95,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Out Free reserve ₹ 5,000 Out of Proceeds of new

issue of Reserve General Shares ₹ 1,45,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Debentures
Ans 1. Journal Entries in the Books of Vardhman Ltd.

Date Particulars Amt. Amt.

Dr. Cr.
01-01-2004 Bank A/c Dr. 20,00,000
To 9% Debenture Application 20,00,000
A/c
01-01-2004 9% Debenture Application A/c Dr. 20,00,000
To 9% Debenture 20,00,000
01-02-2005 Own Debenture A/c Dr. 2,04,000
To Bank A/c 2,04,000
01-02-2005 9% Debentures Dr. 2,00,000
Loss on Dr. 4,000
Cancellation 2,04,000
To Own Debentures A/c
01-01-2008 9% Debenture A/c Dr. 3,00,000
To Debentureholder 3,00,000
01-01-2008 Debentureholder A/c Dr. 3,00,000
To Bank 3,00,000
01-06-2010 Own Debenture A/c Dr. 1,97,800
To Bank A/c 1,97,800
01-06-2010 9% Debenture Dr. 2,00,000
To Capital Reserve 2,200
To Own Debenture A/c 1,97,800
01-06-2010 Profit on cancellation of own
Debenture A/c Dr. 2,200
To Capital Reserve A/c
2,200
(Being transfer of profit on
cancellation of own debenture to
capital reserves)
01-02-2014 9% Debenture A/c Dr. 13,00,000
Premium on redemption of Dr. 39,000
Debenture To
13,39,000
Debentureholder
01-02-2014 Debentureholder A/c Dr. 13,39,000
To Bank 13,39,000
01-02-2014 Securities Premium A/c Dr. 39,000
To Premium on redemption
of debenture
39,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Ans 2.
Journal Entries in the books of Neel Limited on redemption of
debentures

5th Year Particulars Dr. Cr.

Dec. 31 (₹) (₹)
I Debentures A/c Dr. 20,000
To Debentureholders A/c 20,000
(Being the amount due on redemption of
debentures) 2,000 x 10
II Profit & Loss Appropriation A/c Dr. 20,000
To Debentures Redemption Reserve A/c 20,000
(Being the transfer of Profit to Debenture
Redemption Reserve A/c as per SEBI
guidelines)

III Debenturesholders A/c Dr. 20,000

To Bank A/c 20,000

Ans 3.
(1) Journal of Mahi Ltd.
Particulars (₹) (₹)
Bank A/c Dr. 15,00,000
To Bank Loan A/c 15,00,000
(Loan taken from SBI)
Debenture Suspense A/c Dr. 25,00,000
To 12% Debentures 25,00,000
A/c
(12% Debentures worth ₹ 20 Lakhs issued as
collateral security for a Loan from SBI as per
Board’s Resolution NoDate)

(2)
Particulars Dr. Cr.
(₹) (₹)
12% Debentures A/c (250 x 100) Dr. 25,000
Debenture Interest A/c Dr. 1,250
To Bank A/c (250 x ₹ 97) 24,250
To Profit on Redemption of Debentures A/c 2,000
(250 debentures cancelled by purchased from
open
marked)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing
12 5
Accrued Interest upto 1.6.2015= 250 x 100 x 𝑋 12 = 1250
100

Ans 4.
Debenture Redemption Fund A/c
Particulars Amount Particulars Amount
To General Reserve 25,000 By Balance 40,000
“ Premium redemption of b/d “Debenture
Redemption fund A/c
debenture A/c 500 3,000
“ Balance c/d 17,500
43,000 43,000

Debenture Redemption
Fund Investment A/c
Nominal Cost Nominal Cost
Value Value
To Balance b/d 50,000 40,000 By Bank A/c 30,000 27,000
To Debenture “ Balance c/d 20,000 16,000
redemption fund
A/c
- Profit on sale (B/f) - 3,000
50,000 43,000 50,000 43,000

12% Debentures A/c

Particulars Amount Particulars Amount
To Debenture holders 25,000 By Balance b/d 90,000
A/c To Balance c/d 65,000
90,000 90,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Banking Company Accounts

Ans1.
Computation of Provision for Doubtful Debts
(₹ In crores)
Provisions
1. Standard Advances 40 4% 1.60
2. Doubtful Advances 25 + 40% of secured
Unsecured 25 portion of 25 35
Secured 25 50 15% 9.0
3. Sub- standard Advances 100% 20.4
4. Irrecoverable Advances 60 4% 0.4
(Loss Assets) 20
5. Small Advances 10
66.0
Amount of provision is required for 66 Crores.
Note: (As per guidelines of Reserve Bank of India)
Ans 2.
Profit and Loss Account

for the year ending 31st March, 2009

I. Income:
Interest Earned 781.00
Other Income
9.20
760.20
II. Expenditure:
Interest Expended 385.00
Operating Expenses 82.20
Provisions & Contingencies 195.65

(WN4) 662.85
III. Profit/Loss:

Net Profit /Loss (-) for the year 127.35

Profit /Loss (-) brought forward --

127.35
IV. Appropriation

Transfer to Statutory Reserve 25.47

CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

(20% of 127.35 Balance Carried) 101.88

over to Balance Sheet 127.35

Schedule – 13: Interest Earned

I. Interest on Advances on 779.00
II. Discount on Bills 2.00
Income on Sale of Investments 781.00

Schedule – 14: Other Income

I. Commission, Exchange and Brokerage 5.20
II. Profit on Sale of Investments 4.00
9.20

Schedule – 15: Interest Extended

I. Interest on Deposit 385.00
385.00

Schedule – 16: Operating Expenses

I. Payment to and Provision for employees (Establishment) 54.00
II. Rent, Taxes and Lighting 18.00
III. Printing and Stationary 2.90
IV. Directors Fees, Allowances and Expenses 3.00
V. Auditors Fees and Expenses 1.20
VI. Postage, Telegrams, Telephones etc. 1.40
VII. Other Expenditure (Sundry Charges) 1.70
82.20
Note:
1. Calculation of Interest and Discount for Schedule No. 13

Interest on Loans 256

Interest on Cash Credit 223
Interest on Overdrafts 154
Discount on Bills Discounted
146
779
2. Calculation of Interest on Deposits for Schedule No. 15
Interest on Fixed Deposits 275
Interest on Current Accounts 42
Interest on Savings Bank Deposits A/c 68
385
3. Calculation of Provision for Income Tax
Interest on Fixed Deposits 275
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Interest on Current Assets 42

Interest on Savings Bank Deposits A/c 68
385
Ans 3.
New Bank Ltd.
Rebate on Bills Discounted A/c
Date Particulars Amt. (₹) Date Particulars Amt. (₹)
31.03.2015 To P & L A/c 21,25,000 01.04.201 By Balance b/d 2,43,000
(Balancing Fig.) 4
To Balance c/d By Sundry
31.03.2015 2,18,000 21,00,000
31.03.201 Parties
5
23,43,000 23,43,000

Ans 4.
₹ (in lakhs)
Outstanding balance of term loan 45.0
Less: Value of security held 18.0
(subject to reliable value)
Unsecured portion 27.0
Less: DICGC Cover (40%) 10.80
Balance 16.2
Provision (16.2 + 18) 34.2

Ans 5.
Computation of Provision
Doubtful Assets (upto 1 year) 6,73,000
Less: Value of security 1,50,000
5,23,000
Less: ECGC Coverage (limited to ₹ 1 lakh) 1,00,000
Unsecured portion 4,23,000
Provision on secured portion @ 25% on 1,50,000 37,500
Provision on unsecured portion @ 100% on 4,23,000 4,23,000
Total provision 4,60,500
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Ans 6.
CANHC Bank Limited
Profit & Loss A/c for year ended
31.03.2012

Particulars Schedule Year ended

No. 31.03.2012
Amt. (₹)
(₹ ‘000)

I. Income:
Interest earned 13 596
Other income 14 13
609
II. Expenditure:
Int. expended 15 230
Operating exp. 16 92
Provision & contingencies (72 + 31) 103
Total 425
III. Profit or Loss:
Net Profit for the year 184
P/L brought forward ---
184
IV. Appropriations:
Transfer to statutory reserve @ 25% 46
Balance carried over to Balance-sheet 138
Total 184
Schedule 13
Interest earned
Interest / discount 596
(225 + 201 + 105 + 95 - 30)
Interest on investments ---
Interest on balance with RBI & other banks ---
596
Schedule 14
Other Income
Commission, exchange brokerage 47
(-) loss on investment 34
13
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Schedule 15
Interest expended
Interest on deposits 230
Interest on RBI /other bank borrowings
230
Schedule 16
Operating Expenses
Salaries & allowances 82
Printing & Stationery 5
Auditor fees 5
92

Provision for Doubtful Debts A/c

Dr. Cr.
Particulars Amount Particulars Amount
To Bad debts 21 By Balance 42
To Balance 52 b/d By P/L 31
c/d 73 (B.f.) 73

Provision for Taxation

Particulars Amount Particulars Amount
To Bank 54 By Balance 66
To Balance c/d 84 b/d By P/L 72
138 (B.f.) 138

Ans 7.
Rebate on Bills Discounted
Due date Days after Discount ₹
90,000 18.6.15 79 8% 1,558
60,000 13.6.15 74 9% 1,095
2,653

Ans 8.
Rebate on bills discounted
Due date Days after Discount ₹
31.03.15 Rate
2,50,000 8..6.15 69 10% 4,726
1,50,000 13.6.15 74 9% 2,740
2,00,000 28.6.15 89 9% 4,389
3,00,000 23.6.15 84 8% 5,523
17,378
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Rebate on bills discounted A/c Dr. 44,320

To Discount on bills A/c 44,320
Bill A/c Dr. 9,00,000
To Discount A/c 2,11,416
To Client A/c 6,88,584
Discount on bills A/c Dr. 17,378
To Rebate on bills discounted A/c 17,378
Discount on bills A/c Dr. 2,38,361
To P/L 2,38,361

Ans 9. Heaven Bank Ltd.

Profit & Loss A/c for the year ended 31.3.2016
I. Income:
Interest 13 389.60
earned Other
14 48.00
Income
Total 437.60
II. Expenditure:
Interest expended 15 204.00
Operating expenses 16 46.00
Provisions & contingencies (65 + 50 + 15)
130.00
Total 380.00
III. Profits/Losses:
Net profit for the year 57.60
Profit brought forward Nil
Total 57.60
IV. Appropriations:
Transfer to statutory reserve 14.40
Proposed dividend 10.00
Balance c/f to B/s 33.20
Total 57.60
Schedule – 13 Interest earned:
Interest390.00 Add: Rebate on 31.3.2015
1.20
Less: Rebate on 31.3.2016 1.60
389.60

Schedule – 14 Other income:

Commission, exchange & brokerage 20.00
Profit on sale of inv. 21.00
Profit on exchange transaction 7.00
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

48.00

Schedule – 16 Operating Expenses:

Payment to & Prov. For employees 20.00
Rent & Taxes 9.00
Depreciation 3.00
Director’s fees 3.00
Auditor’s fees 1.00
Law charges 4.00
Postage & telegram 6.00
Total 46.00
Shareholder’s share: 5% of 92 = 4.6
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Insurance Company Accounts

Ans 1. Star Insurance Co. Ltd.

Revenue Account for the year ending 31st December, 2006

Particulars ₹ ₹
Claims less Balance of Fund
reinsurance at the
beginning of
the year 12,56,450

By death 93,584 Premia 1,68,457

Add further Claim Add 5,920 1,74,377
Outstanding
Intimated 6,400
99,984 Consideratio
n for
Annuities
granted
Interest,
dividends
and
By maturity 77,136 rents 41,969
1,77,120 Add accrued 12,320 54,289
int.
Less: Reinsurance 8,000 1,69,120 Fines for getting
Surrender’s 17,414 lapsed NIL
Bonus 4,000 21,414 Polices revised NIL
surrendered
Annuities 23,536 Other Receipts NIL
Bonus (paid
in
cash) 7,560
Bonus in
consideration of
Premium NIL
Expenses of
management
Paid

23,912
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Commissio 29,233 53,145

n Income-
tax on
profits 2,448
Dividend and
Other items
Balance of NIL
Fund at the end
of the year to be
transferred to
Balance Sheet

12,16,389
14,93,612 14,93,612

Star Insurance Co. Ltd.

Balance Sheet as at 31st December, 2006
Liabilities ₹ Assets ₹
Share Capital Loans NIL
Issued and Paid 4,80,000 Investments:
up
Reserve and Profit Government
and Loss Securities 13,52,712
balances:
Investments Accrued 12,320
Interests
Reserve 48,000 Outstanding
Life Assurance 12,16,389 Premium 5,920
Fund
Amount due to Less: Bonus
Other
Persons NIL Surrendered 1,200 4,720
Other Liabilities Outstanding
Dividends, rent, NIL
etc
Amount due
from
Other Insurers:
Outstanding 64,027 Reinsurance
claims
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

claims 8,000
Claims intimated 6,400 Sundry debtors
&
Bills receivable NIL
Annuities due but Sundry Assets 4,54,488
Not paid 17,904 88,331 Other Items, if
any
Preliminary
expenses 480
18,32,720 18,32,720
Ans 2.
₹
Balance of Fund as on 31.03.2011 75,20,400
Add Bonus utilized in reduction ₹
of premium 6,300
Interest on securities 13,240
Premium outstanding 10,180 29,720
75,50,120
Less: Claims outstanding 32,400
Less: Covered under re-ins. 17,000 15,400
Add, bonus in reduction of premium 6,300 21,700
Balance of life Assurance Fund 75,28,420
Ans 3.
Valuation Balance Sheet as on 31.3.2012
Particulars ₹ Assets ₹
Net liabilities 4,250 Life Insurance 5,000
Net profit 750
5,000 5,000
Net profits for two year period.
Profit as per valuation balance sheet 7,50,000
Add: Interim bonus paid 80,000
NetProfit 8,30,000
Distribution of profits:
Net profits 8,30,000
Less: Amount proposed for carry forward 1,50,000
6,80,000

Share of policy holders – 95% of 6,80,000 = 6,46,000

Less: Interim bonus 80,000
Amount due to policy holders 5,66,000
Share of shareholders (5% of 6,80,000) = 34,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Ans 4.
Statement showing Life Insurance Fund as on 31.03.2012

Particulars Amt. (₹) Amt. (₹)

Balance of Fund on 31.03.2012 75,00,000
Add: Bonus Utilised in reduction on 4,25,000
Premium
Dividend from Investment 3,20,000
Premium Outstanding 25,000 7,70,000
Less: Claims Intimated but not admitted 8,15,000 82,70,000
Claims covered under Re-insurance 3,15,000 5,00,000
Income Tax 35,000
Bonus Utilsed in reduction on Premium 4,25,000 9,60,000
Balance of Life insurance Fund 73,10,000

Ans 5.
Bisla Life Insurance Co.
Valuation Balance Sheet as on
31.03.2012
Particulars ₹ Particulars ₹
To Net Liability as per 1,20,00,000 By Life Insurance Fund 1,40,00,000
Actuarial valuation
To Surplus 20,00,000
1,40,00,000 1,40,00,000
Statement Showing Net Profit for the valuation period
Particulars ₹
Surplus as per Valuation Balance Sheet 20,00,000
Add: Interim Bonus Paid 2,50,000
Net Profit 22,50,000

Ans 6. Fact General Insurance Co. Ltd.

Claims incurred (Net)
₹
Claims paid 64,50,000
Add: Claims outstanding at the end of the year 5,60,000
70,10,000
Less: Claims outstanding at the beginning of the year 5,20,000
64,90,000
Less: Recoverable from re-insurance as on 31.03.2013 1,90,000
63,00,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Ans 7.

Statement showing Life Assurance Fund as at 31st March, 2013

Particulars Amt. (₹) Amt. (₹) Amt. (₹)

Balance of fund as on 31st March, 2013 60,20,000

Add: Interest on securities 82,600
Premium outstanding 60,000 1,42,600

61,62,600
Less: Claim outstanding 3,00,000
Less: Covered under Re- 1,20,000 1,80,000
insurance Bonus in reduction of 45,000 2,25,000
Premium
59,37,600
Balance of (correct) Life Assurance Fund
Note: Bonus is nothing but the share of profit which is payable by the
insurance company to the policyholders and Bonus in reduction of premium
is applied to reduce further premium.

Ans 8.
(i) Preparation of Valuation Balance Sheet:
Particulars Amount (₹)
Life Assurance Fund as 31.12.2012 55,55,000
Less: Dividend for the year 2012 55,000
55,00,000
Valuation Balance Sheet as at 31st December, 2012
Liabilities ₹ Assets ₹
Net Liabilities 35,00,000 Life Assurance Fund
Actuarial Valuation as as per Balance Sheet 55,00,000
at 31.12.2012 Surplus 20,00,000
55,00,000 55,00,000

Net Profit for the Period:

Particulars Amount (₹)
Surplus (as per Valuation Balance Sheet) 20,00,000
Add: Interim bonus for the period 1,00,000
Therefore, Net profit for the period 21,00,000
Distribution of the surplus:
Particulars Amount (₹)
Net Profit (Calculated as above) 21,00,000
Policyholders’ shares 95% (i.e. ₹ 21,00,000 x 95 / 100) 19,95,000
Less: Payment of Interim Bonus 1,00,000
Reversionary Bonus to be declared 18,95,000
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Shareholders’ share only @ 5% (₹ 21,00,000 x 5 / 100) 1,05,000

Ans 9.
Valuation Balance Sheet (₹ in lakhs)
Particulars Amount Particulars Amount
To Net liability on 31st By Life insurance Fund 155
March as per actuarial 132
valuation 23
To Surplus 155 155

Ans 10. Sukham Life Insurance Co.

Valuation Balance Sheet as on
31.03.2016
Liabilities Amount Assets Amount
To Net liability as per actuarial By Life Assurance Fund 650
Valuation 510
To Surplus
140
650a 650
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Electricity Company Account

Ans1.
Reasonable Return
Capital Base x (Bank Rate + 2%)
i.e. 6,57,25,000 x 10% 65,72,500
+ Income from reserve fund investment 16,80,000
+ Intt. Income from debentures @ ½ % 90,000
+ Interest Income from Loan from Electricity Board @ ½% 1,75,000
+ Interest Income from Development Reserve @ ½% 7,800
Reasonable Return 85,25,300
Disposal of Surplus
Profit 1,14,65,300
Less: Debenture interest 25,20,000
89,45,300
Less: Reasonable Return 85,25,300
Surplus 4,20,000
Disposal
1/3 (being less than 5% of reasonable return) at the disposal of
the
company of the balance 1,40,000
½ to TDCR 1,40,000
½ to consumer’s benefit A/c 1,40,000
4,20,000

Ans2.
NARMODA ELECTRICITY CO. LTD.
Revenue Account Year ended 31st March, 2015
Dr. Cr.
Particulars ₹ In lakh Particulars ₹ In lakh
Expenses of management 14,400 By Sale of energy for lighting 80,000
Cost of distribution 6,000 By Sale of energy for power 76,000
Depreciation 24,000 By Meter rent 6,000
Cost of generation 42,000
Rent rates and taxes 6,000
To Net Revenue a/c 69,600
1,62,000 1,62,000

Dr. Net Revenue A/c for the year ended 31st March, 2015 Cr.
Particulars ₹ In lakh Particulars ₹ In lakh
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

By Balance from last year’s

Interest on deb. 12,000 34,200
a/c
Dividend 24,000 By Bal. b/f revenue A/c 69,600
Bal. Carried general b/s 67,800
1,03,800 1,03,800

General Balance Sheet as on 31st March, 2015

Liabilities ₹ In lakh Assets ₹ In lakh
Capital Account Capital Account:
Amount received 8,98,800 Amount expended on works 12,13,200
Sundry Creditors 1,200 Sundry Debtors
Net revenue A/c balance 67,800 For Energy supplied 48,000
Depreciation fund A/c 3,00,000 Other 600 48,600
Cash balance 6,000
12,67,800 12,67,800

Working:
1) Amount received : 6,58,800 + 2,40,000 = 8,98,800₹
2) Amount expended on works
₹ (1,80,000 + 7,20,000 + 2,40,000 + 6,000 + 61,200)
₹ 12,13,200

Ans3.
In the books of Great Power Ltd.
1, July 2015 Bank A/c Dr. 2,00,000
To Security Deposit A/c 2,00,000
(Being Security Deposit
received)
31st March, Interest expense A/c Dr. 12,000
2016 To Interest accrued on Security Deposit A/c 12,000
(Being provision for interest accrued on
Security Deposit made)
Interest accrued on Security Deposit A/c Dr. 12,000
To Sales Turnover A/c 12,000
(Being Adjustment of Interest accrued in
consumer’s bill)
CMA INTERMEDIATE
Paper- 10 Corporate Accounting & Auditing

Ans4.
Computation of Return on Equity
Particulars 2013 2014 2015 2016
Opening Equity (30%) (A) 22,50,000 24,00,000 24,45,000 24,75,000
Additional Equity (30%) (B) 1,50,000 45,000 30,000 15,000
Closing Equity (A + B) (c) 24,00,000 24,45,000 24,75,000 24,90,000

Average Equity (A + C)/2 (D) 23,25,000 24,22,500 24,60,000 24,82,000

Return on Equity (D x 14%) 3,25,500 3,39,150 3,44,400 3,47,550