UNIT 2 ACCOUNTING STANDARDS AS 1: 1. A Ltd. sold its building for Rs.50 lakhs to B ltd.

. and has also given the possession to B ltd. The book value of the building is Rs.30 lakhs. As on 31st march, 2006, the documentation and legal formalities are pending. The company has not recorded the sale and has shown the amount received as advance. Do you agree with this treatment? AS 2: 1. Ambica stores is a departmental store, which sells goods on retail basis. It makes a gross profit of 20% on net sales. The following figures for the year-end are available: Opening stock Purchases Purchases returns Freight inwards Gross sales Sales returns Carriage outwards 50000 360000 10000 10000 450000 11250 5000

Compute the estimated cost of the inventory on the closing date. 2. The closing inventory at cost of a company amounted to Rs.284700. The following items were included at cost in the total: a. 400 coats, which had cost Rs.80 each and normally sold for Rs.150 each. Owing to a defect in manufacture, they were all sold after the balance sheet date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds. b. 800 skirts, which had cost Rs.20 each. These too were found to be defective. Remedial work in April cost Rs.5 per skirt, and selling expenses for the batch totaled Rs.800. They were sold for Rs.28 each.

What should the inventory value be according to AS 2 after considering the above items? AS 3: 1. Classify the following activities as (a) operating (b) investing (c) financing (d) cash equivalents. a) Purchase of machinery b) Proceeds from issuance of equity share capital c) Cash sales d) Proceeds from long term borrowings e) Proceeds from debtors f) Purchase of investment. 2. Classify the following activities as (a) operating (b) investing (c) financing (d) cash equivalents. a) Cash receipts from debtors b) Trading commission received c) Redemption of preference share d) Proceeds from sale of investment e) Purchase of goodwill f) Interim dividend paid on equity shares g) Marketable securities. AS 4: 1. Pure oil ltd. closed the books of accounts on march 31, 2006 for which financial statement was finalized by the board of directors on September 4, 2006. During the month of December 2005, company undertook the project of lying a pipeline across the country and during may 2006 engineers realized that due to unexpected heavy rain, total cost of the project will be inflated by Rs.50 lakhs. How this should be provided for in the balance sheet of 2005-06 accordance to AS 4?

AS 5: 1. Sagar ltd. belongs to the engineering industry. The chief accountant has prepared the draft accounts for the year ended 31/3/96. You are required to advise the company on the following item on the viewpoint of finalization of accounts, taking note of the mandatory accounting standards: An audit stock verification during the year revealed that the opening stock of the year was understated by Rs.3 lakhs due to wrong counting. 1. There was a major theft of stores valued at Rs.10 lakhs in the preceding year which was detected only during current financial year (2005-06). How will you deal with this information in preparing the financial statement of R ltd. for the year ended 31st, march 2006? AS 6: 1. Mr. X set up a new factory in the backward area and purchased plant for Rs.500 lakhs for the purpose. Purchases were entitled for the CENVAT credit of Rs.10 lakhs and also government agreed to extend the 25% subsidy for backward area development. Determine the depreciable value for the asset. AS 7: 1. B undertook a contract for Rs.1500000 on an arrangement that 80% of the value of work done as certified by the architect of the contractee, should be paid immediately and that the remaining 20% be retained until the contract was completed. In 2005, the amounts expended were Rs.360000; the work was certified for Rs.300000 and 80% of this was paid as agreed. It was estimated that future expenditure to complete the contract would be Rs.1000000. In 2006, the amounts expended were Rs.475000. Three-fourths of the contract was certified as done by December 31st and 80% of this was received accordingly. It was estimated that future expenditure to complete the contract would be Rs.400000. In 2007, the amounts expended were Rs.310000 and on June 30th the whole contract was completed.

2. On 1st December 2005, vishwakarma construction co. undertook a contract to construct a building for Rs.85 lakhs. On 31st march, 2006 the company found that it had already spent Rs.6499000 on the construction. Prudent estimate of additional cost for completion was Rs.3201000. What amount should be charged to revenue in the final accounts for the year ended 31st march, 2006 as per provisions of AS 7 (Revised)? AS 9: 1. A public sector company is trading gold in India for its customers, after purchasing gold the price of gold is fixed within 120 days as per rules and regulation of Indian bullion market by the customer. At the close of the year, price of some gold was not fixed on March31, 2006. The details are given below: Quantity of gold Gold rate as on March 31, 2006 company Rs.273/TT bar. Calculate the amount of sales regarding 10000 bars to be booked in the companys account for the year ended March 31, 2006. 2. The board of directors decided on 31/3/2006 to increase the sale price of certain items retrospectively from 1st January, 2006. In view of this price revision with effect from 1st January 2006, the company has to receive Rs.15 lakhs from its customers in respect of sales made from 1st January, 2006 to 31st March, 2006 and the accountant cannot make up his mind whether to include Rs.15 lakhs in the sales for 2005-06. AS 10: 1. ABC ltd. is constructing fixed assets. Following are the expenses incurred on the construction: Materials Direct expenses Total direct labour 1000000 250000 500000 10000 TT bars Rs.275/TT bar

Gold rate was fixed on June 26, 2006 before the finalization of accounts of

(1/10th of the total labour time was chargeable to construction) Total office & administrative expenses (5% is chargeable to the construction) Depreciation of the assets used for the construction of this assets 10000 Calculate the cost of fixed assets. 2. On March 1, 2007, X ltd. purchased Rs.5 lakhs worth of land for a factory site. Company demolished an old building on the property and sold the material for Rs.10000. Company incurred additional cost and realized salvaged proceeds during the March 2007 as follows: Legal fees for purchase contract and recording ownership Title guarantee insurance Cost for demolition of building sheet. AS 11: 1. Mr. A bought a forward contract for 3 months of US$ 100000 on 1st December at 1 US$ = Rs.47.10 when exchange rate was US$ = Rs.47.02. On 31st December when he closed his books exchange rate was US$ 1 = Rs.47.15. On 31st January, he decided to sell the contract at Rs.47.18 per dollar. Show how the profits from contract will be recognized in the books. AS 13: 1. An unquoted long term investment is carried in the books at a cost of Rs.2 lakhs. The published accounts of the unlisted company received in May, 2006 showed that the company was incurring cash losses with declining market share and the long term investment may not fetch more than Rs.20000. how will you deal with this in preparing the financial statements of R ltd. for the year ended 31st March, 2006? 25000 10000 50000 800000

Compute the balance to be shown in the land account on March 31,2007 balance

AS 14: 1. A ltd. takes over B ltd. on April 1, 2007 and discharges consideration for the business as follows: Issued 42000 fully paid equity shares of Rs.10 each at par to the equity shareholders of B LTD., Issued fully paid up 15% Preference shares of Rs.100 each to discharge the preference shareholders ( Rs.170000) of B.ltd at a premium of 10% It is agreed that the debentures of B ltd ( Rs.50000) will be converted into equal number and amount of 13% debentures of A ltd. AS 15: 1. Omega limited belongs to the engineering industry. The company received an actuarial valuation for the first time for its pension scheme which revealed a surplus of Rs. 6 lakhs. It wants to spread the same over the next 2 years by reducing the annual contribution to Rs.2 lakhs instead of Rs. Lakhs. The average remaining life of the employees is estimated to be 6 years. You are required to advise the company on the following items from the view point of finalization of accounts, taking note of the mandatory accounting standards. AS 16: 1. PRM ltd. obtained a loan from a bank for Rs. 50 lakhs on 30/4/2005. It was utilized as follows: PARTICULARS Construction of a shed Purchase of a machinery Working capital Advance for purchase of truck Rs. (In lakhs) 50 40 20 10

Construction of shed was completed in March 2006. The machinery was installed on the same date. Delivery truck was not received. Total interest charged by the bank for the year ending 31/3/2006 was Rs.18 lakhs. Show the treatment of interest.

2. The notes to accounts of X ltd. for the year 2005-06 include the following: Interest on bridge loan from banks and financial institutions and on debentures specifically obtained for the companys fertilizer project amounting to Rs.18080000 has been capitalized during the year, which includes approximately Rs.17033465 capitalized in respect of the utilization of loan and debenture money for the said purpose. Is the treatment correct? Briefly comment. AS 18: 1. Identify the related parties in the following cases as per AS 18: A ltd. holds 51% of B ltd. B ltd holds 51% of O ltd. Z ltd. holds 49% of O ltd. 2. Mr. Raj a relative of key management personnel received remuneration of Rs.250000 for his services in the company for the period from 1/4/2004 to 30/6/2004. On 1/7/2004 he left the service. Should the relative be identified as at the closing date i.e. on 31/3/2005 for the purpose of AS 18? 3. X ltd. sold goods to its associate company for the 1st quarter ending 30/6/2006. After that, the related party relationship ceased to exist. However, goods were supplied as was supplied to any other ordinary customer. Decide whether the transactions of the entire year have to be disclosed as related party transaction. AS 20: 1. DATE 1 January
st

PARTICULARS Balance at the beginning of year

NO. OF SHARE FACE VALUE 1800 600

PAID UP VALUE Rs.10 Rs.10 Rs.10 Rs.5

31st October Issue of shares Calculate weighted number of shares.

2. Net profit for the year 2005 Weighted average number of equity shares outstanding during the year 2005 Average fair value of one equity share during the year 2005 Weighted average number of shares under option during 2005 Exercise price for shares under option during the year 2005 Compute basic and diluted earnings per share. 3. Net profit for the year 2006 Net profit for the year 2007 Rs.1800000 Rs. 6000000 2000000 Rs.1200000 500000 shares Rs.20 100000 shares Rs.15

No of equity shares outstanding until 30th September 2007 outstanding at 30th September, 2007 Calculate basic earnings per share. AS 21:

Bonus issue 1st October 2007 was 2 equity shares for each equity share

1. A ltd. had acquired 80% share in the B ltd. for Rs.25 lakhs. The net assets of B ltd. on the day are Rs.22 lakhs. During the year A ltd. sold the investment for Rs.30 lakhs and net assets of B ltd. on the date of disposal was Rs.35 lakhs. Calculate the profit or loss on disposal of this investment to be recognized in consolidated financial statement. 2. A ltd. had acquired 80% of share in the B ltd. for Rs.15 lakhs. The net assets of B ltd. on the day are Rs.22 lakhs. During the year A ltd. sold the investment for Rs.30 lakhs and net assets of B ltd. on the date of disposal was Rs.35 lakhs. Calculate the profit or loss on disposal of this investment to be recognized in consolidated financial statement.

AS 22:

1. From the following details of A ltd. for the year ended 31/3/2006, calculate the deferred tax asset/liability as per AS 22 Accounting profit Book profit as per MAT Profit as per income tax act Tax rate MAT rate 2. Ultra ltd. has provided the following information: Depreciation as per accounting records = Rs.200000 Depreciation as per tax records = Rs.500000 Unamortized preliminary expenses as per tax record = Rs.30000 There is adequate evidence of future profit sufficiency. How much deferred tax asset/liability should be recognized as transitional adjustment? Tax rate 50% AS 25: 1. The accounting year of X ltd. ends on 30th September, 2006 and it makes its reports quarterly. However for the purpose of tax, year ends on 31st march every year. For the accounting year beginning on 1/10/2005 and ends on 30/9/2006, the quarterly income as under:1st quarter ending on 31/12/2005 2nd quarter ending on 31/12/2006 3rd quarter ending on 31/6/2006 4th quarter ending on 31/9/2006 Rs.200 crores Rs.200 crores Rs.200 crores Rs.200 crores 600000 350000 60000 20% 7.5%

Average actual tax rate for the financial year ending on 31/3/2006 is 20% and for financial year ending 31/3/2007 is 30%. Calculate tax expense for each quarter. 2. Accountants of Poornima ltd. show a net profit of Rs.720000 for the third quarter of 2005 after incorporating the following: Bad debts of Rs.40000 incurred during the quarter. 50% of the bad debts have been deferred to the next quarter.

 Extra ordinary loss of Rs.35000 incurred during the quarter has been fully recognized in this quarter. Additional depreciation of Rs.45000, resulting from the change in the method of charge of depreciation. Ascertain the correct quarterly income. AS 26: 1. 1. Dell international ltd. is developing the new production process. During the financial year 31st march, 2006 the total expenditure incurred on its process was Rs.40 lakhs. The production process met the criteria for recognition as an intangible asset on 1st 2005. Expenditure incurred till the date was 16 lakhs. Further expenditure incurred on the process for the financial year ending 31st march 2007 was Rs.70 lakhs. As at 31/3/2007, the recoverable amount of know how embodied in the process is estimated to be Rs.62 lakhs. This includes estimates of future cash outflows as well as inflows. You are required to workout a) what is the expenditure to be charged to P&L a/c for the financial year ended 31.3.2006 ( ignore depreciation for this purpose) b) What is the carrying amount of the intangible asset as at 31.3.2006 c) what is the expenditure to be charged to P&L a/c for the financial year ended 31.3.2007 ( ignore depreciation for this purpose) d) What is the carrying amount of the intangible asset as at 31.3.2007 2. A pharma company spent Rs.33 lakhs during the accounting year ended 31st march, 2006 on a research project to develop a drug to treat AIDS. Experts are of the view that it may take four years to establish whether the drug will be effective or not and even if found effective it will take 2 to 3 years to produce the medicines which can be marketed. The company wants to treat the expenditure as deferred revenue expenditure. Comment. UNIT 4

1. While closing its books of account on 31st March, 2005 a non banking finance company has its advances classified as follows: Rs. In lakhs Standard assets Sub-standard assets Secured portions of doubtful debts: -up to one year -one year to three years - More than three years Unsecured portion of doubtful debts Loss Assets 160 70 20 87 24 8,400 910

Calculate the amount of provision which must be made against the advances. 2. while closing its books of accounts, a non-banking finance company has its advances classified as follows: Rs. In lakhs Standard assets Sub-standard assets Secured portions of doubtful debts: -up to one year -one year to three years - More than three years Loss assets 700 400 200 500 16000 1300

Calculate the amount of provision which must be made against the advances. 3. On 31st March 1998, bharat & Co., a non-banking finance company, finds its advances classified as follows: Rs

Standard assets Sub-standard assets Secured portions of doubtful debts: -up to one year -one year to three years - More than three years Loss assets

1491300 92800

25660 15640 6580 10350

Calculate the amount of provision which must be made against the advances 4. The following particulars are available for a scheme of a mutual fund. Calculate current asset value (NAV) of each unit of the scheme. Scheme size In shares of Investments Market value of shares Rs. 1000000 Rs. 10 In shares Rs. 2500000

5. Prudential XYZ Mutual Funds have introduced a scheme ABC Premier. Its major details are as follows: Scheme Name Scheme Size Face value of units Investments : ABC Premier : Rs.1000000000 (Rupees One hundred crores) : Rs.20 : in shares : Rs.1500000000 (Rs One hundred and fifty crs)

Market value of Shares

Compute the net assets value per unit of ABC Premier. Is there an appreciation of the value invested in units of ABC Premier?