Roll No……………

Total No. of Questions — 6] [Total No. of Printed Pages — 5

Time Allowed : 3 Hours Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate
who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Answer all Questions.
Working notes should form part of the answer.
Marks

1. The draft Balance Sheets of 3 Companies as at 31st March, 2007 are as below: 16 (0)

(In Rs.000's)
Morning Evening Night
Liabilities
Ltd. Ltd. Ltd.
Share Capital – shares of Rs.100 40,000 20,000 10,000
each 1,800 1,000 900
Reserves 1,500 2,000 800
P/L A/c (1.4.06) 7,000 3,800 1,800
Profit for 2006–07 — 5,000 —
Loan from Morning Ltd. 2,500 1,000 1,400
Creditors 52,800 32,800 14,900
Assets:
Investments:
1,60,000 shares in Evening 18,000 — —
75,000 shares in Night 8,000 — —
Loan to Evening Ltd. 5,000 — —
Sundry assets 21,800 32,800 14,900
52,800 32,800 14,800
Following additional information is also available:

(a) Dividend is proposed by each company at 10%.

(b) Stock transferred by Night Ltd. to Evening Ltd. fully paid for was Rs.8
lacs on which the former made a Profit of Rs.3 lacs. On 31st March,
2007, this was in the inventory of the latter.
Loan referred to is against 8% interest. Neither Morning Ltd. nor Evening
(c)
Ltd. has considered the interest.
Reserves as on 1.4.2006 of Evening Ltd. and Night Ltd. were Rs.8,00,000
(d)
and Rs.7,50,000 respectively.
Cash–in–transit from Evening Ltd. to Morning Ltd. was Rs.1,00,000 as on
(e)
31.3.2007.
The shares of the subsidiaries were all acquired by Morning Ltd. on
(f)
1st April, 2006.
Prepare consolidated Balance Sheet as on 31st March, 2007. Workings should be part of the answer.
2. The Balance Sheets of Strong Ltd. and Weak Ltd. as on 31.03.2007 is as below: 16 (0)

Balance Sheet as on 31.03.2007

Strong Ltd. Weak Ltd. Assets Strong Ltd. Weak Ltd.
Liabilities
Rs. Rs. Rs. Rs.
Equity Fixed
Share 50,00,000 30,00,000 Assets 30,00,000 20,00,000
 Capital 4,00,000 2,00,000 other 8,00,000 6,00,000
(Rs.100 6,00,000 4,00,000 than 14,00,000 9,00,000
each) 5,00,000 3,00,000 Goodwill 12,00,000 3,50,000
Reserve Stock 1,00,000 50,000
P/L A/c 65,00,000 39,00,000 Debtors 65,00,000 39,00,000
Creditors Cash &
Bank
Preliminary
Expenses
Strong Ltd. takes over Weak Ltd. on 01.07.07. No Balance Sheet of Weak Ltd. is available as on that date. It is
however estimated that Weak Ltd. earns estimated profit of Rs.2,00,000 after charging proportionate depreciation
@ 10% p.a. on fixed assets, during April–June, 2007.

Estimated profit of Strong Ltd. during these 3 months is Rs.4,00,000 after charging proportionate depreciation @
10% p.a. on fixed assets.

Both the companies have declared and paid 10% dividend within this 3 months' period. Goodwill of Weak Ltd. is
valued at Rs.2,00,000 and Fixed Assets are valued at Rs.1,00,000 above the estimated book value. Purchase
consideration is to be satisfied by Strong Ltd. by shares at par. Ignore Income–tax.
You are required to calculate the following:

No. of shares to be issued by Strong Ltd. to Weak Ltd. against purchase

(i)
consideration;
(ii) Net Current Assets of Strong Ltd. and Weak Ltd. as on 01.07.2007;
(iii) P/L A/c balance of the Strong Ltd. as on 01.07.2007;
(iv) Fixed Assets as on 01.07.2007;
Balance Sheet of Strong Ltd. as on 01.07.2007 after take over of Weak
(v)
Ltd.
3. (a) Shivaji Ltd. purchased Fixed assets worth Rs.90,00,000 on 1st April, 2002. The life of the assets is 10 years 8 (0)
and they are to be depreciated on straight line basis. The assets were revalued on 1st April, 2004 when 50%
of the assets was assessed at 10% less than the book value, and the remaining assets were revalued at 15%
higher than book value. The assets were ultimately sold on 1.4.2006 for Rs.54,80,000. Excess depreciation
on revaluation, if any, should be charged to Revaluation Reserve.
Show Fixed Assets A/c, Depreciation A/c and Revaluation Reserve A/c, supported by Workings wherever
necessary.
(b) The Balance Sheet of Domestic Ltd. as on 31st March, 2007 is as under: 20 (0)

(All figures are in lacs)

Liabilities Rs. Assets Rs.
Equity Shares Rs.32 3,000 Goodwill 744
Rs.10 each Rs.1,100 Premises and 400
Reserves 1,000 Land at cost 3,000
(including 2,000 Plant and 40
provision 200 Machinery
for taxation of 300 Motor Vehicles 920
Rs.300 lacs) (purchased on 130
5% Debentures 1.10.06) 180
Secured Loans 1,132 Raw materials at 400
Sundry Creditors cost
Profit & Loss A/c Work–in–progress
Balance from at cost
previous B/S Finished Goods at
Profit for the year cost
(After taxation) Book Debts
 Investment
(meant for
replacement of 1,600
Plant 192
and Machinery) 10
Cash at Bank and
Cash in hand 16
Discount on
Debentures
Underwriting
Commission
7,632 7,632
The resale value of Premises and Land is Rs.1,200 lacs and that of Plant and Machinery is Rs.2,400 lacs.
Depreciation @ 20% is applicable to Motor Vehicles. Applicable depreciation on Premises and Land is 2%, and
that on Plant and Machinery is 10%. Market value of the Investments is Rs.1,500 lacs. 10% of book debts is
bad. In a similar company the market value of equity shares of the same denomination is Rs.25 per share
and in such company dividend is consistently paid during last 5 years @ 20%. Contrary to this, Domestic Ltd.
is having a marked upward or downward trend in the case of dividend payment.
Past 5 years' profits of the company were as under:

2001–02 Rs.67 lacs

2002–03 (–) Rs.1,305 lacs (loss)
2003–04 Rs.469 lacs
2004–05 Rs.546 lacs
2005–06 Rs.405 lacs
The unusual negative profitability of the company during 2002–03 was due to the lock out in the major
manufacturing unit of the company which happened in the beginning of the second quarter of the year 2001–
02 and continued till the last quarter of 2002–03.

Value the Goodwill of the Company on the basis of 4 years' purchase of the Super Profit. (Necessary
assumption for adjustment of the Company's inconsistency in regard to the dividend payment, may be made
by the examinee).
4. (a) Indian Engineering and Technological Institute, an autonomous body furnishes the following information: 8 (0)

On 1.4.2006, unutilised restricted government grant (capital) balance is Rs.40,00,000; unutilised unrestricted
government grant (revenue) balance is Rs.9,00,000; Institute's own corpus fund is Rs.25,00,000. Besides, a
private endowment fund of Rs.18,50,000 is there on that date. The entire endowment fund is in fixed deposit
with a bank fetching interest of 9.5% p.a. half–yearly transferred on 30th September and 31st March to a
current account meant for scholarship and awards. The said current account has a debit balance of
Rs.1,37,500. Apart from this, total cash and bank balance as on 1.4.06 is Rs.85,00,000.
Following transactions took place during the year 2006–07:

(1) Salary paid out of own fund is Rs.65,00,000.

Salary to the research associates of a Government sponsored research
(2)
scheme is Rs.4,00,000 paid out of unrestricted government grant.
(3) Cost of renovation of the administrative building borne out of the
Institute's own fund is Rs.4,75,000. The renovation work was
completed on 21st November, 2006 which was also the date of
payment. Book value of the building was Rs.38,00,000 on 1.4.06. The
rate of depreciation is 5% p.a. calculated at full year's rate if the asset
exists for a period exceeding 6 months, and at half–year's rate in
other cases. The same principle is followed by the Institute in all cases
of depreciation.
(4) Tuition fees were received Rs.85,00,000.
th
(5) Scholarships and awards of Rs.1,43,000 were given on 9 December,
2006.
 (6) A laboratory building was under construction for the last two years.
Balance of capital work–in–progress on 1.4.06 was Rs.28,00,000. The
work has been completed on 25th May, 2006. Final payment was
made earlier on 29.4.2006. Total expenditure comes to Rs.37,00,000.
Rate of depreciation on the laboratory building is 5%. The entire
expenditure will be spent from the restricted government (capital)
Grant on certain conditions attached by the government. The Institute
follows the principles of AS 12 in the case of use of revenue and
capital grant. Since certain conditionality will apply over a period of
time, it is decided that deferred income method will be followed.

Show the following Ledger accounts:

(i) Restricted Government Grant (capital) A/c.

(ii) Unrestricted Government Grant (revenue) A/c.
(iii) Current A/c of Endowment and Scholarship.
(iv) Cash and Bank A/c.
(b) Value Added Ltd. furnishes the following Profit and Loss A/c: 8 (0)

Profit and Loss A/c for the year ended 31st March, 2007
Income Notes Rs.
Turnover 1 ('000)
Other Income 29,872
1,042
30,914
Expenditure
Operating expenses 2 26,741
Interest on 8% Debenture 987
Interest on Cash Credit 3 151
Excise duty 1,952
29,831
Profit before depreciation 1,083
Less: Depreciation 342
Profit before tax 741
Provision for tax 4 376
Profit after tax 365
Less: Transfer to Fixed Assets Replacement 65
Reserve 300
125
Less:Dividend paid 175
Retained Profit
Notes:

(1) Turnover is based on invoice value and net of sales tax.

Salaries, wages and other employee benefits amounting to Rs.14,761
(2)
('000) are included in operating expenses.
Cash Credit represents a temporary source of finance. It has not been
(3)
considered as a part of capital.
 Transfer of Rs.54 ('000) to the credit of deferred tax account is
(4)
included in provision for tax.
Prepare value added statement for the year ended 31st March, 2007 and reconcile total value added with
profit before taxation.

5. (a) Arrange and redraft the following Cash Flow Statement in proper order keeping in mind the requirements of 6 (0)
AS 3:

Rs.(in Rs.(in
lacs) lacs)
Net Profit 60,000
Add: Sale of Investments 70,000
Depreciation on Assets 11,000
Issue of Preference Shares 9,000
Loan raised 4,500
Decrease in Stock 12,000
1,66,500
Less: Purchase of Fixed Assets 65,000
Decrease in Creditors 6,000
Increase in Debtors 8,000
Exchange gain 8,000
Profit on sale of investments 12,000
Redemption of Debenture 5,700
Dividend paid 1,400
Interest paid 945 1,07,045

59,455
Add: Opening cash and cash 12,341
equivalent 71,796
Closing cash and cash equivalent
(b) P Ltd. has 60% voting right in Q Ltd. Q Ltd. has 20% voting right in R Ltd. Also, P Ltd. directly enjoys voting 4 (0)
right of 14% in R Ltd. R Ltd. is a listed company and regularly supplies goods to P Ltd. The management of R
Ltd. has not disclosed its relationship with P Ltd.

How would you assess the situation from the viewpoint of AS 18 on Related Party Disclosures?
(c) Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being Rs.7,00,000. The economic life of 6 (0)
the machine as well as the lease term is 3 years. At the end of each year Lessee Ltd. pays Rs.3,00,000.
Guaranteed Residual Value (GRV) is Rs.22,000 on expiry of the lease. Implicit Rate of Return (IRR) is 15%
p.a. and present value factors at 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years
respectively.
Calculate the value of machine to be considered by Lessee Ltd. and the interest (Finance charges) in each
year.
6. Write short notes on the following: 6+5+5=16
(a) The concept of Materiality. (0)

(b) Maintenance of Books of Account by Stock Brokers. (0)

(c) Human Resources Accounting. (0)