Financial Reporting - Test Paper

Paper – 1

Financial Reporting

 

Note: All Questions are compulsory

 

Working Notes should form the part of the answer

Wherever necessary, suitable assumptions should be made the candidates

 

 

Q. 1 Nice and WISE Ltd. Decided to amalgamate as on 1.4.2008.  Their Balance sheet as on 31.3.2013 were as follows.         

                                                                                    

Particulars	Nice Ltd	WISE Ltd
Sources of Funds Equity share Capital (Rs. 10/- each) 9% preference share capital (Rs. 100 each) Investment Allowance Reserve Profit and Loss Account 10% Debentures Sundry Creditors Tax Provisions	150000 30000 5000 10000 50000 25000 7000	140000 20000 2000 6000 30000 15000 4000
Total	277000	217000
Application of Funds Building Plant and Machinery Investment Sundry Debtors Stock Cash and Bank Preliminary Expenses	60000 80000 10000 45000 36000 40000 60000	50000 70000 5000 35000 40000 17000 -
Total	277000	217000

 

From the following information, you are to prepare the draft balance sheet as on 1.4.2013 of a new company, Intranet Ltd. Which was formed to take over the business of both the companies and took over all the assets and liabilities.

 

1) Debentures are to be converted into equity shares of the new company

2) Investments are long term in nature

3) Fixed Assets of Nice Ltd were valued at 10% above cost and of WISE Ltd at 5% above cost.

4) 10% of sundry debtors were doubtful for both the companies. Stocks to be carried at cost.

5) Preference share holders were discharged by issuing equal number of 10% preference shares at par.

6) Equity shareholders of both the transferor companies are to be discharged by issuing equity shares of Rs. 10 each of the new company at par.

7) Investment allowance reserve should be kept for 2 more years as per the income tax act.  

Amalgamation is in the nature of purchase.

 

Q. 2 Given below balance sheet of Ravi Ltd. and Ramu Ltd. as on 31.12.2013. Ramu Ltd. was merged with Ravi Ltd. with effect from 1.1.2014.

 

Balance sheet as on 31.12.2013

Liabilities	Ravi Ltd.	Ramu Ltd.	Assets	Ravi Ltd.	Ramu Ltd.
Share Capital Equity shares of Rs. 100 General Reserves Profit and Loss A/c Export Profit Reserve 12% Debenture Sundry Creditors Provision for taxation Proposed Dividend	7,00,000 3,40,000 2,10,000 70,000 1,00,000 40,000 1,00,000 1,40,000	2,50,000 1,20,000 65,000 40,000 1,00,000 45,000 60,000 50,000	Fixed Assets Investments (Non Trade) Stock Debtors Advance Tax Cash and Bank	9,50,000 2,00,000 1,20,000 75,000 80,000 2,75,000	4,00,000 50,000 50,000 80,000 20,000 1,30,000
	17,00,000	7,30,000		17,00,000	7,30,000

 

Ravi Ltd. Would issue 12% debentures to discharge the claims of the debenture holders of Ramu Ltd. at par. Non-trade investments of Ravi Ltd. fetched @ 25% while those of Ramu Ltd. fetched @ 18%. Profit (pre-tax) by Ravi Ltd. and Ramu Ltd. during last 3 yrs are as follows

            Year                 Ravi Ltd.                      Ramu Ltd.

            2011                5,00,000                      1,50,000

            2012                6,50,000                      2,10,000

            2013                5,75,000                      1,80,000

 

Goodwill may be calculated on the basis of capitalization method taking 20% as the pre tax normal rate of return. Purchase consideration is discharged by Ravi Ltd. on the basis of intrinsic value per share. Both companies decided to cancel the proposed dividend.

 

Required balance sheet of Ravi Ltd. after merger.

 

Q 3. Shruti Ltd and Shruti.nx Ltd. had the following financial position as at 31st March, 2013.

 

	Shruti Ltd	Shruti.nx Ltd		Shruti Ltd	Shruti.nx Ltd
Share capital Equity shares of Rs 100 each fully paid General Reserve Profit and Loss A/c Creditors	5,00,000   1,50,000 - 1,00,000	3,00,000   1,00,000 1,50,000    75,000	Goodwill Fixed assets Investment at Cost Current assets	2,50,000 2,00,000   1,50,000 1,50,000	50,000 3,50,000   1,00,000 1,25,000
	7,50,000	6,25,000		7,50,000	6,25,000

 

It was decided that Shruti Ltd . will taken over the business of Shruti.nx Ltd., on that date , on the basis of the respective share value adjusting, wherever necessary, the book values of assets and liabilities on the strength of information given below:

 

1) Investment of Shruti.nx Ltd., include 500 shares in Shruti Ltd., acquired at a cost of Rs 150 per shares. The other investments of Shruti.nx Ltd have a market value of Rs 12,500.

 

2) Goodwill of Shruti Ltd., and  Shruti.nx Ltd .,  are to be taken at Rs 4,00,000 and Rs  2,00,000  respectively:

 

3) The market value of investments of Shruti Ltd., was Rs  1,00,000 .

 

4) Current assets of Shruti Ltd., include Rs 50,000 of stock in trade obtained from Shruti.nx Ltd. Which  company sold at a profit of 25% over cost:

 

5) Fixed assets of Shruti Ltd., and Shruti.nx Ltd., are valued at Rs 2,50,000 and Rs 3,75,000 respectively.

 

Suggest the scheme of absorption and show the journal entries necessary in the book of Shruti Ltd. Also prepare the balance sheet of that company after takeover of the business of Shruti.nx Ltd.

 

Thanks.