ca intermediate may’19
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CA INTERMEDIATE – May’19
SUBJECT - ACCOUNTS
Test Code – CIM 8046
(Date : 02/09/2018)
(Marks - 50 ) Topics : Company Final Account, Dissolution, Piecemeal Distribution , Amalgamation & Conversion
Question 1:
Ajay Enterprises, a Partnership firm in which A, B and C are three partners sharing profits and losses in the ratio of 4 : 3 : 3. The balance sheet of the firm as on 31st December, 20X1 is as below:
On balance sheet date all the three partners have decided to dissolve their partnership. Since the realisation of assets was protracted, they decided to distribute amounts as and when feasible and for this purpose they appoint C who was to get as his remunerations 1% of the value of the assets realised other than cash at Bank and 10% of the amount distributed to the partners.
Assets were realised piecemeal as under:
First instalment Rs. 18,650
Second installment Rs. 17,320
Third installment Rs. 10,000
Last instilment Rs. 7,000
Dissolution expenses were provided for estimated amount of Rs. 3,000
The creditors were settled finally for Rs. 15,900
Prepare a statement showing distribution of cash amongst the partners by ‘Higher Relative Capital
Method’. (10 marks)
Liabilities Rs. Assets Rs.
A’ s Capital 15,000 Factory Building 24,160
B’ s Capital 7,500 Plant & Machinery 16,275
C’ s Capital 15,000 Debtors 5,400
B’ s Loan 4,500 Stock 12,390
Sundry Creditors 16,500 Cash at Bank 275
58,500 58,500
Question 2:
(A)
The following is the Draft Profit & Loss A/c of Mudra Ltd., the year ended 31st March, 20X1:
Rs.
Rs.
To Administrative, Selling and By Balance b/d 5,72,350
distribution expenses 8,22,542 Balance from Trading A/c 40,25,365
Subsidies received from Govt. 2,73,925
” Directors fees 1,34,780
” Interest on debentures 31,240
” Managerial remuneration 2,85,350
” Depreciation on fixed assets 5,22,543
” Provision for Taxation 12,42,500
” General Reserve 4,00,000
” Investment Revaluation Reserve 12,500
” Balance c/d 14,20,185
48,71,640 48,71,640
Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was
Rs.5,75,345. You are required to calculate the maximum limits of the managerial
Remuneration as per Companies Act, 2013. (5 marks)
(B)
Futura Ltd. had the following items under the head “Reserves and Surplus” in the Balance
Sheet as on 31st March, 20X1:
Amount Rs. in lakhs
Securities Premium Account 80
Capital Reserve 60
General Reserve 90
The company had an accumulated loss of Rs. 250 lakhs on the same date, which it has disclosed
under the head “Statement of Profit and Loss” as asset in its Balance Sheet. Comment on accuracy of
this treatment in line with Schedule III to the Companies Act, 2013. (5 marks)
Question 3:
(A) X, Y and Z are partners of the firm XYZ and Co., sharing Profits and Losses in the ratio of
4 : 3 : 2. Following is the Balance Sheet of the firm as at 31st March, 20X1:
Balance Sheet as at 31st March, 20X1
Liabilities Rs. Assets Rs.
Partners’ Capitals: Fixed Assets 5,00,000
X 4,00,000 Stock in trade 3,00,000
Y 3,00,000 Sundry debtors 5,00,000
Z 2,00,000 Cash in hand 10,000
General Reserve 90,000
Sundry Creditors 3,20,000
13,10,000
13,10,000
Partners of the firm decided to dissolve the firm on the above said date. Fixed assets
realisedRs.5,20,000 and book debts Rs.4,40,000.
Stocks were valued at Rs.2,50,000 and it was taken over by partner Y.
Creditors allowed discount of 5% and the expenses of realisation amounted to Rs.6,000. You are
required to prepare:
i) Realisation account;
ii) Partners’ capital account; and
iii) Cash account. (10 marks)
Question 4:
P and Q are partners of P & Co. sharing Profit and Losses in the ratio of 3:1 and Q and R are partners
of R & Co. sharing Profits and Losses in the ratio of 2:1. On 31st March, they decide to amalgamate
and form a new firm M/s. PQR & Co. wherein P, Q and R would be the partners sharing profits and
losses in the ratio of 3:2:1. The Balance Sheets of two firms on the above date are as under :
Capital and Liabilities P & Co. R & Co. Properties and Assets P & Co. R & Co.
Capitals: Fixed Assets: Building 50,000 60,000
- P 2,40,000 - Plant & Machinery 1,50,000 1,60,000
- Q 1,60,000 2,00,000 Office Equipment 20,000 6,000
- R - 1,00,000 Current Assets:
Stock-in-Trade 1,20,000 1,40,000
Reserves 50,000 1,50,000 Sundry Debtors 1,60,000 2,00,000
Sundry Creditors 1,20,000 1,16,000 Bank Balance 30,000 90,000
Due to P & Co. - 1,00,000 Cash in Hand 20,000 10,000
Bank Overdraft 80,000 - Due from R & Co. 1,00,000 -
Total 6,50,000 6,66,000 Total 6,50,000 6,66,000
The amalgamated Firm took over the business on the following terms -
1. Building of P & Co. was valued at Rs. 1,00,000.
2. Plant and Machinery of P & Co. was valued at Rs. 2, 50,000 and that of R & Co. at
Rs.2,00,000.
3. All Stock-in-Trade is to be appreciated by 20%.
4. Goodwill Value of P & Co. at Rs. 1,20,000 and R & Co. at Rs. 60,000, but the same will not
appear in the Books of PQR & Co.
5. Partners of New Firm will bring the necessary cash to pay other Partners to adjust their
capitals according to the Profit Sharing Ratio.
6. Provision for Doubtful Debts has to be carried forward at Rs. 12,000 in respect of Debtors of
P & Co. and Rs. 26,000 in respect of Debtors of R & Co.
You are required to prepare the Balance Sheet of new Firm and Capital Accounts of the Partners in
the Books of old Firms. (10 MARKS)
Question 5:
Ramesh, Roshan and Rohan were partners of the firm ‘3R Enterprises’ sharing profits and losses in
the ratio of 3:2:1 respectively. On 31st March, 20X1 their Balance Sheet stood as follows:
Liabilities Rs. Assets Rs.
Ramesh’s Capital A/c 16,80,000 Land and Buildings 14,00,000
Roshan’s Capital A/c 11,60,000 Machinery 11,00,000
Rohan’s Capital A/c 6,70,000 Furniture 6,10,000
General Reserve 6,30,000 Stock 8,40,000
Creditors 6,00,000 Debtors 6,00,000
Cash at Bank 1,90,000
47,40,000 47,40,000
On the above-mentioned date, the partners decided to convert their firm into a private limited
company and named it ‘3R Enterprises (Private) Ltd.’. The company took over all the assets including
cash at bank and all the creditors for Rs. 42,00,000 payable in the form of fully paid equity shares of
Rs. 10 each. It recorded in its books, land and buildings at Rs. 16,40,000, machinery at Rs. 9,90,000
and created a provision for bad debts @ 5% on debtors. The expenses of the take-over came to Rs.
23,000 which were paid and borne by the company.
The expenses of getting the company incorporated were Rs. 57,000.
The partners distributed the company’s shares amongst themselves in their profit sharing ratio. They
settled their accounts by paying or receiving cash.
Prepare Realization Account and all the partners’ capital accounts in the firm’s ledger and pass
journal entries in the books of the company for all of its transactions mentioned above. (10 MARKS)
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SUGGESTED SOLUTION
INTERMEDIATE MAY 2019 EXAM
SUBJECT- ACCOUNTS
Test Code - CIM 8046
BRANCH - () (Date : 02/09/2018)
Head Office : Shraddha, 3rd Floor, Near Chinai College, Andheri (E), Mumbai – 69.
Tel : (022) 26836666
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Answer 1:
(A)
Statement showing distribution of cash amongst the partners
Creditors B’s
Loan
A(Rs.)
Capitals
B(Rs
.)
C(Rs.)
Balance Due 16,500 4,500 15,000 7,500 15,000
On 1st Instalment amount with the
firm Rs. (275 + 18,650) 18,925
Less: Dissolution expenses
provided for (3,000)
15,925
Less: C’s remuneration of 1% on
assets realised (18,650 x 1%) (187)
15,738
Less: Payment made to creditors (15,738) (15,738)
Balance due Nil 762
2nd instalmentrealized
17,320
Less: C’s remuneration of 1% on
assets realised (17,320 x 1%) (173)
17,147
Less: Payment made to creditors (162) (162)
Transferred to P& L A/c 600
Balance available 16,985
Less: Payment for B’s loan A/c (4,500) (4,500)
Amount available for distribution
to partners 12,485 nil
Less: C’s remuneration of 10% of
the amount distributed to partners
(12,485 x 10/110) (1,135)
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Working Note:
i. Rs. 275 added to the first instalment received on sale of assets represents the Cashin Bank. ii. The amount due to Creditors at the end of the utilisation of First InstalmentisRs. 762/-. However,
since the creditors were settled for Rs. 15,900/- only the balance 162/- were paid and the balance Rs. 600/- was transferred to the Profit & Loss Account.
Highest Relative Capital Basis
A B C
Rs. Rs. Rs.
Balance of Capital Accounts (A) 15,000 7,500 15,000
Profit sharing ratio 4 3 3
Capital Profit sharing ratio 3,750 2,500 5,000
Capital in profit sharing
ratio taking B’s Capital as base (B) 10,000 7,500 7,500
Excess of A’s Capital and C’s Capital (A-B) =(C) 5,000 nil 7,500
Again repeating the process
Profit sharing ratio 4 3
Balance distributed to partners on the basis of HRCM 11,350 Less: Paid to C (W.N.1) (3,750) (3,750)
7,600 11,250
Less: Paid to A and C in 4:3 (W.N.1)
(7,600) (4,343) - (3,257)
Balance due nil 10,657 7,500 7,993 Amount of 3rd installment 10,000 Less: C’s remuneration of 1% on Assets realised (10,000 x 1%) (100)
9,900 Less: C’s remuneration of 10% of the amount distributed to partners (9,900 x 10/110) (900)
9,000 Less: Paid to A and C in 4:3 for (Rs. 8,750 – 7,600) (W.N.1) (1,150) (657) - (493)
7,850 10,000 7,500 7,500
Less: Paid to A, B and C in 4:3:3 (7,850) (3,140) (2,355) (2,355)
Balance due nil 6,860 5,145 5,145
Amount of 4th and last instalment
7,000 Less: C’s remuneration of 1% on assetsrealised (7,000 x 1%) (70)
6,930 Less: C’s remuneration of 10% of the amount distributed to partners (6,930 x 10/110) (630)
6,300
Less: Paid to A, B and C in 4:3:3 (6,300) (2,520) (1,890) (1,890)
Loss suffered by partners
4,340
3,255
3,255
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Capital Profit sharing ratio 1,250 2,500
Capital in profit sharing
ratio taking A’s Capital as base (D) 5,000 3,750
Excess of C’s Capital (C-D)=(E) nil 3,750
Therefore, firstly Rs. 3,750 is to be paid to C then A and C to be paid in proportion of 4:3 uptoRs. 8,750 to bring the capital of all partners A, B and C in proportion to their profit sharing ratio. Thereafter, balance available will be paid in their profit sharing ratio 4:3:3 to all partners viz A, B and C.
Answer 2:
(A)
Calculation of net profit u/s 198 of the Companies Act, 2013
Rs. Rs.
Balance from Trading A/c 40,25,365
Add : Subsidies received from Government 2,73,925 42,99,290
Less : Administrative, selling and distribution expenses 8,22,542
Director’s fees 1,34,780
Interest on debentures 31,240 Depreciation on fixed assets as per Schedule II 5,75,345 (15,63,907) Profit u/s 198 27,35,383
Maximum Managerial remuneration under Companies Act, 2013 is 11% of Rs. 27,35,383 =
Rs.3,00,892.
(B)
Part I of Schedule III to the Companies Act, 2013 provides that debit balance of Statement of Profit and Loss (after all allocations and appropriations) should be shown as a negative figure under the head ‘Surplus’. Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of surplus, should be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative. In this case, the debit balance of profit and loss i.e. Rs. 250 lakhs exceeds the total of all the reserves i.e. Rs. 230 lakhs. Therefore, balance of ‘Reserves and Surplus’ after adjusting debit balance of profit and loss is negative by Rs. 20 lakhs, which should be disclosed on the face of the balance sheet. Thus the treatment done by the company is incorrect.
Answer 3:
(i) Realisation Account
Rs. Rs.
To Fixed assets
To Stock in trade
To Debtors
To Cash - Expenses
5,00,000
3,00,000
5,00,000
6,000
By Creditors
By Cash (5,20,000+4,40,000)
By Y (Stock taken over)
By Loss transferred to partners’ capital accounts
3,20,000
9,60,000
2,50,000
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To Cash -Creditors
(3,20,000 x
95%)
3,04,000
16,10,000
X
Y
Z
35,555
26,667
17,778
16,10,000
(ii) Partners’ CapitalAccounts
(iii) CashAc (iii) C
Cash Account
Rs. Rs.
To Balance b/d 10,000 By
By
By
By
By
Realisation
(Expenses)
Realisation
(Creditors)
X
Y
Z
A/c
A/c
6,000
To Realisation A/c 9,60,000 3,04,000
(Fixed assets and
book debts realised)
4,04,445
53,333
2,02,222
9,70,000 9,70,000
Answer 4:
1. Adjustment for raising & writing off of Goodwill
Particulars P Q R Total
Goodwill of P & Co. (raised in 3:1) 90,000 30,000 - 1,20,000
Goodwill of Q & Co. (raised in 2:1) - 40,000 20,000 60,000
Total(Cr.) 90,000 70,000 20,000 1,80,000
Written off in New Ratio (3:2:1) (Dr.) 90,000 60,000 30,000 1,80,000
Difference - Cr. 10,000 Dr. 10,000 -
X Y Z X Y Z
Rs. Rs. Rs. Rs. Rs. Rs.
To Realisation 35,555 26,667 17,778 By Balance 4,00,000 3,00,000 2,00,000
Account b/d
To Realisation - 2,50,000 - By General 40,000 30,000 20,000
Account reserve
To Cash 4,04,445 53,333 2,02,222 4,40,000 3,30,000 2,20,000 4,40,000 3,30,000 2,20,000
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2. Revaluation A/c in the books of P & Co.
Particulars Rs. Rs. Particulars Rs.
To Provision for Doubtful Debts 12,000 By Building 50,000
To Partners’ Capital A/c (transfer in 3:1) By Plant & Machinery 1,00,000
- P
- Q
1,21,500
40,500
1,62,000
By Stock 24,000
Total 1,74,000 Total 1,74,000
3. Partners’ Capital A/c in the Books of P & Co.
Particulars P Q Particulars P Q
To balance c/d 3,99,000 2,13,000 By balance b/d
By Reserves (3:1)
By Revaluation A/c (3:1)
2,40,000
37,500
1,21,500
1,60,000
12,500
40,500
Total 3,99,000 2,13,000 Total 3,99,000 2,13,000
4. Revaluation A/c in the books of R & Co.
Particulars Particulars Rs.
To Provision for Doubtful Debts 26,000 By Plant & Machinery 40,000
To Partners Capital A/c (transfer in 2:1)
- P 28,000
- Q 14,000
42,000
By Stock-in-Trade 28,000
Total 68,000 Total 68,000
5. Partners’ Capital A/c in the books of R & Co.
Particulars Q R Particulars Q R
To balance c/d 3,28,000 1,64,000 By balance b/d
By Reserves(2:1)
By Revaluation A/c(2:1)
2,00,000
1,00,000
28,000
1,00,000
50,000
14,000
Total 3,28,000 1,64,000 Total 3,28,000 1,64,000
6. Computation of Capital of the Partners in New Firm
Particulars P Q R
Transferred from P & Co. 3,99,000 2,13,000 -
Transferred from R & Co. - 3,28,000 1,64,000
Total Capital Balance 3,99,000 5,41,000 1,64,000
(+)/(-): Adjustment for Goodwill 10,000 (10,000)
(a) Capital Balance after Adjustment for Goodwill 3,99,000 5,51,000 1,54,000
(b) Profit Sharing Ratio 3 2 1
(c) Capital per unit of Profit (b ÷ a) 1,33,000 2,75,500 1,54,000
(d) Taking Q’s Capital as Base Capital, Total Capital of the Partners
8,26,500 5,51,000 2,75,500
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(e) Cash Brought by the Partners (a - d) 4,27,500 - 1,21,500
Note: For this purpose, Partner having the Highest Capital per unit of Profit shall be considered,
since any other criteria will result in refund of money to Partners, thereby reducing the Capital Base
of the Firm.
7. Balance Sheet of M/s. PQR & Co.
Capital and Liabilities Rs. Rs. Properties and Assets Rs.
Capital account : Non-Current Assets : Tangible Assets
- P 8,26,500 Building 1,60,000
- Q 5,51,000 Plant and Machinery 4,50,000
- R 2,75,500 16,53,000 Office Equipment 26,000
Current Liabilities : Current Assets :
Sundry Creditors 2,36,000 Stock in Trade 3,12,000
Bank Overdraft 80,000 Sundry Debtors 3,60,000
Provision for Bad & Doubtful Debts
38,000 Bank Balance 1,20,000
Cash (B/S. 30,000 + WN 6 427500 + 121500)
5,79,000
Total 20,07,000 Total 20,07,000
Answer 5:
In the books of 3R Enterprises
Realization Account
Particular Rs. Particulars Rs.
To Land and Buildings 14,00,000 By Creditors 6,00,000
To Machinery 11,00,000 By 3R Enterprises (Pvt.) Ltd. A/c 42,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000
To Cash at Bank 1,90,000
To Ramesh’s capital 30,000
To Roshan’s capital 20,000
To Rohan’s capital 10,000
48,00,000 48,00,000
Partners’ Capital Accounts
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Ramesh Roshan Rohan Ramesh Roshan Rohan
Rs. Rs. Rs. Rs. Rs. Rs.
To Shares in3R Enterprises (Pvt.) Ltd. A/c
21,00,000 14,00,000 7,00,000 By Balance b/d 16,80,000 11,60,000 6,70,000
To Bank A/c (Settlement) - - 85,000 By General Reserve
3,15,000 2,10,000 1,05,000
By Realisation A/c (Profit)
30,000 20,000 10,000
By Bank A/c (Settlement)
75,000 10,000 -
21,00,000 14,00,000 7,85,000 21,00,000 14,00,000 7,85,000
In the Books of 3R Enterprises (Private) Ltd
Journal Entries
Rs. Rs.
1. Business Purchase A/c Dr. 42,00,000
To M/s 3R Enterprises 42,00,000
(Consideration payable for business purchased)
2. Land and Buildings A/c Dr. 16,40,000
Machinery A/c Dr. 9,90,000
Furniture A/c Dr. 6,10,000
Stock A/c Dr. 8,40,000
Debtors A/c Dr. 6,00,000
Bank A/c Dr. 1,90,000
To Creditors A/c 6,00,000
To Provision for doubtful debts A/c 30,000
To Business Purchase A/c 42,00,000
To Capital Reserve A/c (balancing figure) 40,000
(Assets and liabilities taken over for Rs. 42,00,000; balance
credited to capital reserve)
3. Capital reserve A/c (Expenses of takeover) Dr. 23,000
To Bank A/c 23,000
(Expenses for take over debited to capital reserve)
4. M/s 3R Enterprises A/c Dr. 42,00,000
To Equity share capital A/c 42,00,000
(Allotment of fully paid equity shares to discharge
consideration for business)
5. Preliminary expenses A/c Dr. 57,000
To Bank A/c 57,000
(Expenses incurred to get the company incorporated)
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