Suggested answers May 2018 - Advance accounting Old Course IPCC

1(a)

Provision to be made for warranty under AS29
	Amount
At 31st March 2017 = 80,000 X 2% + 50,000 X 3%	3,100
At 31st March 2018 = 50,000 X 2% + 180000 X 3%	6,400

Amount to be debited to SPL for 31st March 2018
Balance of provision required as on 31st March 2018	6,400
Less opening balance	(3,100)

Amount debited to SPL	3,300

No provision for 80,000 for 31St March 2018 because warranty has lapsed

1(b)

	Amount Rs.
(i) interest for the period 2017-18 = $20 X 4% X Rs. 65	52.00
(ii) increase in liability towards principal amount = $20 X (65-61)	80.00
(iii) Interest that would have resulted if the loan was taken in Indian Currency = Rs.61 X $20 X 10.50%	128.10
(iv) Difference between Local currency borrowing and foreign currency borrowing	76.10
Therefore out of Rs. 80 Lakhs increase in liability towards principal amount

Only Rs. 71.10 Lakhs will be considered as Borrowing cost.

Thus the borrowing cost would be Rs. 128.10 Lakhs being aggregate of Difference between local currency borrowing and FCB + Interest of FCB.
Exchange difference will be Rs. 80 - 76.10 = Rs.03.90

1(c)

(i)	FV>WDV, SP = FV, immediatly recognize profit Rs. 25
(ii)	FV=WDV, SP< FV, Immediatly recognize loss of Rs. 12.5
(iii)	FV>WDV, SP>FV, Immediatly recognize profit of Rs. 137.5-125 = Rs.12.5
	Balance profit 155-137.5 to be recognized in lease period = 17.5
(iv)	FV<WDV, SP>FV, Immediatly recognize loss of Rs. 125-112.5 = Rs.12.5
	Balance profit 120-112.5 to be recognized in lease period = 7.5

1(d)

Amortization cost of patent as per AS 26
In first three years patent cost will be amortized in ratio 600:600:600:300:300 i.e. 2:2:2:1:1 i.e.
0.25:0.25:0.25:0.125:0.125 of Rs. 1200

The unamortized amount of patent after 3rd Year will be Rs.1200(-) 1200 X 0.75 = Rs.300
which will be amortized in revised ratio (300:300:150) of Rs. 300

3(a)

Statement showing liability of underwriters
	D	E	F
Gross liability (Total Less purchase by promotors)	15,00,000	15,00,000	15,00,000
Less: Marked application (Excluding firm underwriting)	(12,75,000)	(13,50,000)	(10,50,000)
Total	2,25,000	1,50,000	4,50,000
Less: Unmarked Application (Equally)	(72,000)	(72,000)	(72,000)
Total	1,53,000	78,000	3,78,000
Less: Firm underwriting	(1,40,000)	(1,40,000)	(1,40,000)
Total	13,000	(62,000)	2,38,000
Suplus to be distributed between others equally	(31,000)	62,000	(31,000)
Total	(18,000)	-	2,07,000
Suplus to be distributed between others equally	18,000		(18,000)
Total	-	-	1,89,000
Add: Firm Undertaking	1,40,000	1,40,000	1,40,000
Total Liablity of underwriters	1,40,000	1,40,000	3,29,000


Calculation of amounts payable by underwriters

Liability in number of shares	1,40,000	1,40,000	3,29,000
Amount payable	6,30,000	6,30,000	14,80,500
Less Amount paid on firm application	(3,50,000)	(3,50,000)	(3,50,000)
Balance payable	2,80,000	2,80,000	11,30,500

* Alternate approach that 38,91,000 also includes firms underwriting, then answer shall be modified accordingly. Here I have assumed that "subscriptions totaled" is "public subscription" and thus does not include underwriting of 1,40,000 each i.e. 4,20,000. Similar question 5.16 of new material illustration 4.

3(b)

6% Debenture A/c

28-02-2018	Debenture redemption	25,00,000	01-01-2018	Balance	25,00,000
		25,00,000			25,00,000

Debenture redemption account


	Bank	25,25,000		6% Debenture	25,00,000
				Premium	25,000
		25,25,000			25,25,000

Debenture Interest

	To Bank	25,000		By PL	25,000
		25,000			25,000


Sinking fund
28-02-2018	Sinking fund Investment	2,66,600	01-01-2018	Balance BD	26,05,000
	Premium on redemption w/o	25,000
	GR	23,13,400
		26,05,000			26,05,000	-



Sinking fund bank

28-02-2018	4% GL	11,48,400	01-01-2018	By balance	70,000
28-02-2018	3.5% GP	12,60,000		By Bank	23,38,400
		24,08,400			24,08,400	-


Sinking Fund Investment 4% Government Loan

01-01-2018	balance BD	13,20,000	13,20,000	28-02-2018	Sinking fund bank	13,20,000	11,48,400
					Sinking fund		1,71,600
			13,20,000				13,20,000

Sinking Fund Investment 3.5% Government paper
	balance BD	14,00,000	13,55,000		Sinking fund bank	14,00,000	12,60,000
					Sinking fund		95,000
			13,55,000				13,55,000

5(a)

Income
Interest earned
Interest/discount (Net of rebalate on bills)	59,29,180
Add: Rebate on bills discounted on previous year	19,000
Less: Rebate on bills discounted in current year	(25,000)
Other Income
Commission, exchange and brokerage	3,04,000
Profit on sale of investments	3,20,000
Rent Received	1,04,000

	66,51,180

Expenditure
Interest expended	32,59,920
Operating expenses
Payment to and provisions for employees	3,20,000
Rent, taxes, and lighting	1,44,000
Depreciation on bank's properties	48,000
Director's fee, allowances, and expenses	48,000
Auditor's fee	28,000
Law (Statutory) Charges	44,000
Postage and telegrams	96,460
Preliminary Expenses(fully w/off)	40,000
Provisions and contingencies (Thanks Vaibhav Kankaria for Update)	20,70,000
Total	60,98,380


Profits/Losses
Net Profit for the year	05,52,800
Profit brought forward	-
	05,52,800

Appropriations
Transfer to Statutory reserve	1,38,200
Proposed dividend	1,60,000
Balance carried over to balance sheet	2,54,600
	05,52,800

5(b)

Form B-RA

Revenue account

Premium received		22,40,000
Less Adjustment for change in reserve for unexpired risk

Reserve for unexpired risk closing	11,20,000
Additional reserve	1,50,000
	12,70,000

Less
Reserve for unexpired risk Opening	10,00,000
Additional reserve	2,00,000
	(12,00,000)	70,000	21,70,000



Profit or loss on sale/redemption of investment			22,000
Others
Interest, dividend and rent (Gross)			1,28,500
			23,20,500
Claims incurred

Claims paid	12,80,000
Add: Legal Expenses	60,000
Add: Claims outstanding closing	1,80,000
Less: Claims outstanding Opening	(1,30,000)		13,90,000

Commission			3,04,000
Operating expenses related to insurance			5,00,000
			21,94,000
Operating profit and loss			1,26,500

6(a)

Departmental trading account in books

Particulars	X	Y	Particulars	X	Y
Opening Stock	2,45,000	2,43,000	Sales	20,02,000	20,70,000
Purchase	13,72,000	13,41,000	Transfer
Carriage Inward	21,000	40,500	Purchased Goods	1,26,000	2,25,000
Wages	1,89,000	1,62,000	FG	4,55,000	5,31,000
			Closing
Transfer			Purchased Goods	84,000	1,35,000
Purchased goods	2,25,000	1,26,000	FG	3,57,000	2,79,000
FG	5,31,000	4,55,000

GP	4,41,000	8,72,500
	30,24,000	32,40,000		30,24,000	32,40,000
				-	-
Particulars				4,41,000	8,72,500
Stock of FG	3,57,000	2,79,000
Stock related to other dep	1,07,100	83,700
(30% of FG)

Department X to Y	6,12,500	1,57,500	4,55,000
Department Y to X	6,75,000	1,44,000	5,31,000


GPL

Provision for unrealised profit		GP
including in closing stock
		Department X	4,41,000
Department X	35,926	Department Y	8,72,500
Department Y	15,023

NP	12,62,550
	13,13,500		13,13,500	-
35,926				12,62,550
15,023


	Working notes
1	Calculation of GP Margin
		X	Y
	Sales	20,02,000	20,70,000
Add	Transfer of FG	6,12,500	6,75,000
		26,14,500	27,45,000
Less	Return of FG	(1,57,500)	(1,44,000)
		24,57,000	26,01,000
	GP	4,41,000	8,72,500
	GP Margin	17.95	33.54

Unrealised profit included in stock

X= 33.54%, 3,57,000, 30% = 1,07,100

Y=17.95%, 2,79,000, 30% = 83,700

6(b)

Branch Stock Account

Balance BD	4,50,000	Goods sent to branch (Returns)	90,000
Goods sent to branch	45,00,000	Bank (Cash sales)	15,00,000
Branch debtors (Returns)	60,000	Branch debtors (Credit sales)	27,00,000
Branch adjustment (Surplus over IP)	1,80,000	Balance CD	9,00,000
	51,90,000		51,90,000

Branch Adjustment Account		20%

Stock Reserve (closing)	1,80,000	Stock reserve (Opening)	90,000
Branch P and L	9,72,000	Goods sent to branch	8,82,000
		Branch Stock	1,80,000
	11,52,000		11,52,000

Branch Profit and loss account

Branch expenses	6,30,000	Branch Adjustment account	9,72,000
Branch debtors (Discount)	45,000
Branch debtors (Bad Debts)	30,000
Net Profit (Transferred to PL)	2,67,000
	9,72,000		9,72,000


Branch Expense Account

Bank A/c (Rent Rate Taxes)	1,35,000	Branch Profit and loss account (Trs)	6,30,000
Bank A/c (Salaries and wages)	4,50,000
Bank A/c (Office Expenses)	45,000
	6,30,000		6,30,000

Branch Debtor account

Balance BD	5,40,000	Bank A/c	24,00,000
Branch Stock	27,00,000	Branch PL (Bad debts + discount)	75,000
		Branch stock trf (Sales return)	60,000
		Balance CD (Bf)	7,05,000
	32,40,000		32,40,000

Goods Sent to Branch account

Branch stock	90,000	Branch Stock	45,00,000
Branch adjustment	8,82,000
Purchases	35,28,000
	45,00,000		45,00,000

*Similar question in PM 8.27 question 15. Although practice manual question has specifically asked to use Stock and debtor method. I have also used stock and debtor method considering information more relevant for stock and debtor method.

Alternatively, few students have used Only Debtors method. (My opinion still stands with Stock and Debtor method)

7(a)

Business started		01-04-2017
Capital	Rs.	12,00,000	Stock	60,000	20	12,00,000
		12,00,000				12,00,000

Income	30	18,00,000

Opening stock		12,00,000
Closing		-
		12,00,000

Profit from Operations		6,00,000


Business started		01-04-2017
Capital	Rs.	12,00,000
Profit		6,00,000	Cash	60,000	30	18,00,000
		18,00,000				18,00,000

Maximum amount		6,00,000

7(b)

Liquidator entitled to receive remuneration	2%	Assets realised
	3%	Amount distributed to preferential creditors
	3%	Payment made to unsecured creditors

Assets realised for	50,00,000	2%	1,00,000

Payments

Liquidation	50,000
Secured creditors	20,00,000
Preferential creditors	1,50,000	3%	4,500
The amount due to unsecured creditors	30,00,000
	52,00,000

Unsecured
	26,95,500	3%	78,510	Grossing Up
Total Remuneration payable to liquidator			1,83,010

7(c)

Types of reinsurance contracts

If insurer does not wish to under take the whole risk under a policy written by him, he may reinsure a part of the risk with some other insurer, In such a case the insurer is said to have ceded a part of his business to other insurer. The reinsurance tran

A 'ceding company' is the original insurance company which has accepted the risk and has agreed to 'cede' or pass on that risk to another insurance co. or a reinsurace co. It may however be emphasised that the agreement of reinsuracne is purely an arrange

There are two types of reinsurance contracts, Faculatative and treaty.

7(d)

Solution credits: Rachit Sognai


Balance outstanding 12,00,000
Less
Realizable value 70% = (-) Rs. 3,50,000 (Rs. 5,00,000)
ECGC cover 50% = (-) Rs. 4,25,000*
Unsecured portion = 4,25,000 X 100%
Secured portion = 3,50,000 X 100%
Total Provision 7,75,000 * 12,00,000 (-) 3,50,000 = 8,50,000 X 50%
Period for which advance remained doubtful = More than 3 years

7(e)

	Partnership	LLP
Applicable law:	Partnership act 1932,	LLP Act, 2008
Number of Partners:	2 - 20,	2 - Unlimited
Ownership of Assets:	Partners have joint owenership of assets,	LLP independent of partners have owenership of assets.
Liability:	Since the partner and the firm is not considered as a separate legal entity. Hence, Partners are personally liable for the unlimited amount of liabilities of the partnership, One of the main difference between LLP and Partnership is about the liability of Partners.	Since the partner and the firm is considered as a separate legal entity. Hence, the liability of the partners is limited to the amount invested in the company.

Following are draft solution of Question 2 and open for suggestion (Find mistake and reply with your comments)

Realisation account

Particulars	Amount	Particulars	Amount
Land and Building	5,00,000	Sargam Ltd.	13,85,000
Furniture	2,00,000
Stock	5,00,000
Partner's capital account	1,85,000
	13,85,000		13,85,000

Particulars	Sunil	Sachin	Particulars	Sunil	Sachin
Agent fees to Sargam	18,900	18,900	Balance	7,50,000	5,00,000
Cash	11,100	11,100	Creditors (Profit on discount)	5,000	5,000
Shares in Sargam Ltd.	8,17,500	5,67,500	Realisation account	92,500	92,500
	8,47,500	5,97,500		8,47,500	5,97,500
				8,17,500	5,67,500
				59.03%	40.97%

Cash In books of Partnership

Particulars	Amount	Particulars	Amount
Balance	20,000	Creditor (Payment)	2,90,000
Debtor (Receipt)	3,30,000	Commission paid to Sargam Ltd.	37,800
		Sunil	11,100
		Sachin	11,100
	3,50,000		3,50,000

Cash	As per Books	Adjustment	Net realized	Receipt from partnership to company	Sargam Ltd. charges	Net Amount
Creditors	(3,00,000)	(10,000)	(2,90,000)	4.50%	13,050	(3,03,050)
Debtors	3,30,000	-	3,30,000	7.50%	24,750	3,05,250
			40,000		37,800	2,200

View 1: The Above answer is correct

View 2: Do not allocate cash balance of Rs. 22,200, and distribute the purchase consideration i.e. Shares in ratio of final claim excluding cash of 11,100 each and balancing figure is cash.

What is your View?

Ajmer din

Search This Blog