Question Paper

Financial Accounting (112) : January 2004

Section A : Basic Concepts (40 Marks)
• • This section consists of questions with serial number 1 - 40.
• • Answer all questions.
• • Each question carries one mark.
< Answer
1. Which of the following statements is true with regard to issue of shares by a joint stock company? >

a. Shares cannot be issued for consideration other than cash

b. In the event of over-subscription, the company can allot more number of shares than those specified in the
prospectus
c. As per the SEBI guidelines, the minimum subscription clause is applicable only to the first issue of shares
by the company
d. The share application money is converted into share capital only after the board of directors approving the
allotment of shares
e. The first issue of shares can be made at a discount.
< Answer
2. Nilgiri Ltd. purchased its own 10% debentures from the open market and later on cancelled them. The gain on >
redemption of its own debentures by cancellation is to be credited to
a. Capital reserve b. Capital redemption reserve c. General reserve
d. Securities premiums account e. Profit and loss account.
< Answer
3. Which of the following methods of valuation of goodwill uses the present value factor? >

a. Capitalization of average profits methods

b. Capitalization of super profits method c. Annuity method of super profits
d. Number of years’ purchase of average profits method e. Super profits method.
< Answer
4. Who among the following is not disqualified for appointment as auditor of a company? >

a. A body corporate b. Managing Director of the company

c. Wife of the Managing Director of the company d. A shareholder of the company
e. An individual who is indebted to the company for a sum exceeding Rs.1,000.
< Answer
5. Which of the following will not form part of ‘Miscellaneous Expenditure’ of the Balance Sheet of a company? >

a. Preliminary expenses b. Underwriting expenses

c. Loss on sale of fixed assets d. Discount on issue of shares
e. Interest paid out of capital during construction.
< Answer
6. Which of the following cannot be utilized for the redemption of Preference Shares of a company? >

a. Proceeds of fresh issue of shares b. Securities premium on fresh issue of shares

c. General reserve d. Profit and loss account
e. Dividend equalization reserve.
< Answer
7. According to AS 23, which of the following accounting methods is adopted in accounting of an Associate in the >
Consolidated Financial Statements?
a. Cost method b. Equity method c. Amortised cost method
d. Super profit method e. Moving average method.
< Answer
8. In the Consolidated Balance Sheet of a Holding Company, the value of minority interest consists of the >
proportionate share of minority shareholders in the
I. Nominal value of share capital of subsidiary company.
II. Reserves of the holding company.
III. Reserves and profits of the subsidiary company at the time of acquisition by the holding company.
IV. Income of the holding company after its acquisition.
V. Income of the subsidiary company after its acquisition by the holding company.
 a. Only (I) above b. Both (I) and (II) above c. Both (I) and (IV) above
d. (I), (III) and (IV) above e. (I), (III) and (V) above.
< Answer
9. When the amount of investment in subsidiary is more than the nominal value of the share capital acquired by >
the holding company, the difference represents
a. Goodwill b. Capital reserve c. Securities premium
d. Capital profit e. Both (a) and (d) above.
< Answer
10. Under which of the following circumstances, is a special resolution not required to appoint an auditor of a >
company?
a. Where 27% of equity share capital is held by a State Government
b. Where 30% of preference share capital is held by a public financial institution
c. Where 49% of equity share capital is held by the Central Government
d. Where 78% of debentures is held by a nationalized bank
e. Both (b) and (d) above.
< Answer
11. The accounting entry involved for issue of shares to promoters for the services rendered by them is >

a. Debit goodwill account and credit share capital account

b. Debit cash account and credit share capital account
c. Debit promoters’ account and credit share capital account
d. Debit share capital account and credit cash account
e. Debit goodwill account and credit calls in arrear account.
< Answer
12. Which of the following is not a feature of goodwill? >

a. It represents a non-physical value over and above the physical assets

b. It is the present value of firm’s expected super earnings
c. It is a non-monetary fixed asset
d. It can either be purchased goodwill or inherent goodwill
e. It is non-monetary identifiable intangible asset.
< Answer
13. Dividends paid by a subsidiary company out of pre-acquisition profits are >

a. Adjusted against investment in subsidiary at the time of consolidation of accounts

b. Adjusted against general reserve at the time of consolidation of accounts
c. Credited to Profit and Loss account as revenue receipts at the time of consolidation of accounts
d. Ignored for consolidation purposes
e. The claims of the shareholders of the holding company.
< Answer
14. Underwriting commission will not be paid on the amount of shares taken by >

a. Promoters b. Directors c. Employees

d. Directors’ friends e. All of the above.
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15. The costs in chartering a company should be debited to >

a. Share capital b. General administrative expenses

c. Preliminary expenses d. Profit and loss appropriation account e. Legal expenses.
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16. Which of the following receipts is included in calculation of net profits for the purpose of calculating >
remuneration payable to managerial personnel?
a. Subsidy received from any Government b. Profit on sale of forfeited shares
c. Profit from the sale of part of undertaking d. Profit from the sale of immovable property
e. Profit on issue of shares at a premium.
< Answer
17. The money received on reissue of forfeited shares is inadvertently credited to ‘Capital Suspense’ account. The >
adjustment entry involved in reversing the capital suspense account is
a. Debit to Capital Suspense account b. Credit to Share Capital account
c. Debit to Share forfeiture account d. Both (a) and (b) above
e. (a), (b) and (c) above.
 < Answer
18. According to Accounting Standard-18, an individual is considered to have a substantial interest in an enterprise, >
if that individual, directly or indirectly, has
a. 20% interest in the preference share capital of the enterprise
b. 10% or more interest in the equity share capital of the enterprise
c. 15% or more interest in the voting power of the enterprise
d. 20% or more interest in the voting power of the enterprise
e. 5% or more interest in the voting power of the enterprise.
< Answer
19. According to Accounting Standard-23, which of the following evidences the existence of significant influence >
by an investor?
a. Representation on the board of directors of the investee
b. Participation in policy making processes c. Provision of essential technical information
d. Both (a) and (b) above e. (a), (b) and (c) above.
< Answer
20. At the time of consolidation of accounts of the holding company, which of the following is/are to be considered >
while calculating the cost of control?
I. Value of shares acquired. II. Pre-acquisition profits/losses.
III. Profits/losses on revaluation of assets. IV. Profits/losses on revaluation of liabilities.
V. Post-acquisition profits/losses.

a. Only (I) above b. Both (I) and (II) above c. (I), (II) and (III) above
d. (I), (II), (III) and (IV) above e. All (I), (II), (III), (IV) and (V) above.
< Answer
21. The assets of the subsidiary company are revalued as on the date of acquisition by the holding company. In the >
consolidated Balance Sheet, the reduction in the value of assets (if any) of the subsidiary company is to be
debited to
a. Goodwill b. Capital reserve of the holding company
c. Profit and loss account of the holding company
d. Profit and loss account of the subsidiary company
e. General reserve of the holding company.
< Answer
22. Value added is measured as a difference between the >

a. Sales revenue and the cost of material bought

b. Sales revenue and the cost of services bought c. Pre tax profit and the depreciation
d. Sales revenue and the cost of labor, depreciation and interest
e. Sales revenue and the cost of material and services bought.
< Answer
23. While computing the profits of a business, which of the following measures considers the cost of debt as well as >
the cost of equity?
a. Gross value added b. Net value added c. Economic value added
d. Market value added e. Brand value added.
< Answer
24. Capital employed is equal to >

a. Gross fixed assets + Current assets b. Gross fixed assets – Depreciation + Current assets
c. Gross fixed assets + Current assets – Current liabilities
d. Gross fixed assets – Depreciation + Current assets – Current liabilities
e. Current assets – Current liabilities.
< Answer
25. As per schedule VI of the Companies Act, 1956, which of the following is not shown in the Balance Sheet of a >
company under the head ‘Fixed Assets’?
a. Lease hold property b. Development of property c. Railway sidings
d. Designs e. Unadjusted development expenditure.
< Answer
26. According to Schedule VI of the Companies Act, 1956, which of the following assets is/are shown under the >
head ‘investments’ in the balance sheet of a company?
 I. Investments in the capital of partnership firms. II. Investment in trust securities.
III. Investment in shares. IV. Investment in debentures.

a. Only (I) above b. Only (II) above c. Both (III) and (IV) above
d. (II), (III) and (IV) above e. All (I), (II), (III) & (IV) above.
< Answer
27. Which of the following statements is/are false with regard to maintenance of books of accounts by a company? >

a. The books of account can be either on cash system or accrual system of accounting
b. Companies have to compulsorily follow double entry system of accounting
c. A set of cost accounts must be maintained in addition to the financial accounts by the companies that are
engaged in manufacturing, processing or mining activities
d. The books of accounts should be preserved for a period of eight years preceding the current year
e. The books of accounts shall be open to inspection by any director during business hours.
< Answer
28. The auditor of a company gives a report that the financial statements of the company reflect a true and fair view >
subject to certain reservations. Such a report is known as
a. Clean report b. Qualified opinion c. Unqualified opinion
d. Provisional report subject to issue of final report e. Both (a) and (c) above.
< Answer
29. Which of the following conditions is/are essential for the reappointment of the retiring auditor? >

I. Passing of resolution at the Annual General Meeting.

II. Approval from the Central Government.
III. The retiring auditor should be qualified for reappointment.
IV. The retiring auditor has not notified in writing his unwillingness to be reappointed.

a. Only (I) above b. Only (II) above c. Both (I) and (II) above
d. (I), (II) and (III) above e. (I), (III) and (IV) above.
< Answer
30. In addition to the Managing Director or Manager of the company, who among the following is/are responsible >
for keeping proper books of accounts of a company?
I. Every legal advisor of the company. II. Every banker of the company.
III. Every officer and other employee and agent in default.
IV. Every auditor of the company. V. Every member of the company.

a. Only (III) above b. Both (I) and (IV) above

c. Both (III) and (IV) above d. Both (IV) and (V) above
e. All (I), (II), (III), (IV) and (V) above.
< Answer
31. Special Auditor is appointed to conduct special audit of a company by the >

a. Board of directors of the company b. Members of the company

c. Central Government d. Statutory auditors e. Income Tax authorities.
< Answer
32. Dividends are usually paid as a percentage of >

a. Authorized share capital b. Net profit c. Paid-up capital

d. Called-up capital e. Called-up share capital plus calls-in-advance less un-paid calls.
< Answer
33. At the time of forfeiture of shares which were originally issued at a discount, the accounting entry involves >

I. A debit to Share capital account with the called-up value of shares forfeited.
II. A credit to Share forfeiture account with the amount received on forfeited shares.
III. A credit to Discount on issue of shares with the amount of discount allowed on forfeited shares.
IV. A credit to Calls-in-arrears with the amount due but not paid on forfeited shares.
V. A debit to Share capital account with the paid-up value of shares.
a. Both (I) and (IV) above b. Both (IV) and (V) above c. Both (I) and (II) above
d. (I), (II) and (III) above e. (I), (II), (III) and (IV) above.
< Answer
34. As per Schedule VI of the Companies Act, 1956, under which of the following heads is ‘Premium on issue of >
 debentures’ shown in the balance sheet of a company?

a. Miscellaneous expenditure b. Debentures c. Reserves and surplus

d. Current liabilities and provisions e. Current Assets.
< Answer
35. The profit or loss on cancellation of own debentures is calculated at the time of >

a. Issue of debentures b. Creation of sinking fund for redemption

c. Purchase of own debentures d. Cancellation of own debentures
e. Payment of interest in subsequent interval.
< Answer
36. At the time of forfeiture of defaulted shares, the share forfeiture account is >

a. Debited with called-up amount of the forfeited shares

b. Debited with paid-up amount of the forfeited shares
c. Credited with called-up amount of the forfeited shares
d. Credited with calls-in-arrear amount of the forfeited shares
e. Credited with paid-up amount of the forfeited shares.
< Answer
37. Which of the following is/are limitation(s) of a Balance Sheet? >

I. It does not contain certain assets and liabilities despite its claim to be the statement of all assets and
liabilities.
II. The factors, which have a vital bearing on the earnings of the organization, are not disclosed.
III. Personal judgment plays a great part in determining the figures of the balance sheet.
a. Only (I) above b. Only (II) above c. Only (III) above
d. (II) and (III) above e. All (I), (II) and (III) above.
< Answer
38. According to the SEBI guidelines, before the redemption of debentures having a maturity of more than 18 months, >
the debenture redemption reserve created, should be at least equivalent to
a. 10% of the debenture issue b. 25% of the debenture issue
c. 30% of the debenture issue d. 50% of the debenture issue e. 75% of the
debenture issue.
< Answer
39. Declared dividend should be classified in the Balance Sheet as a >

a. Provision b. Current liability c. Reserve

d. Current asset e. Miscellaneous expenditure.
< Answer
40. According to the Companies Act, 1956, which of the following items is/are not shown under the head >
‘Provisions’ in the balance sheet?
a. Proposed dividends b. Provision for taxation c. Unclaimed dividends
d. Provisions for insurance, pension and similar staff benefit schemes
e. Both (b) and (c) above.

END OF SECTION A
 Section B : Problems (60 Marks)
• • This section consists of questions with serial number 41 - 73.
• • Answer all questions.
• • Marks are indicated against each question.
< Answer
41. ESS Ltd. issued 1,000, 10% debentures at the rate of Rs.100 each during the year 1999-2000. Interest on >
debentures is payable half yearly on September 30 and March 31 every year. The company has power to
purchase its own 10% debentures in the open market for cancellation. The following purchases were made
during the year 2002-2003:
On July 01, 2002 – 400 of its own 10% debentures at the rate of Rs.96 ex-interest.
On December 01, 2002 – 300 of its own 10% debentures at the rate of Rs.102 cum- interest.
The total amount debited to own debenture investment account was
a. Rs. 70,000 b. Rs. 68,500 c. Rs. 69,000 d. Rs. 70,600 e. Rs. 71,600.
(2 marks)
< Answer
42. Sangria Ltd. proposed to issue 10,000 equity shares of Rs.100 each at a premium of 200%. The minimum >
amount of application money to be collected per share is
a. Rs. 5.00 b. Rs.30.00 c. Rs.15.00
d. Rs.10.00 e. Cannot be issued at a premium of 200%.
(1 mark)
< Answer
43. On April 01, 2002 the balance of 12% Debentures of Rs.100 each of Libra Ltd. was Rs.5,00,000. The company >
reserves the right to redeem the debentures in any year by purchase in the open market. Interest on debentures
is payable on September 30, and March 31, every year.
On July 01, 2002, the company purchased 1,000 of its own 12% debentures as investment at Rs.99 cum-interest.
The company cancelled its own 1,000 debentures on March 31, 2003.
The amount of profit/loss on cancellation of own debentures on March 31, 2003 was
a. Rs.1,000 (loss) b. Rs.4,000 (loss) c. Rs.4,000 (profit)
d. Rs.3,000 (loss) e. Rs.1,000 (profit).
(2 marks)
< Answer
44. The following is the balance sheet of VIBGYR Ltd. as on March 31, 2003: >
Liabilities Rs. Assets Rs.
Equity shares of Rs.10 each fully paid up 10,00,000 Sundry assets 19,50,000
12% Redeemable preference shares of Rs.100 Investments 4,50,000
each fully paid up 8,00,000
General Reserve 4,00,000 Cash at bank 2,00,000
Profit & Loss account 2,50,000
Share premium 25,000
Sundry creditors 1,25,000
26,00,000 26,00,000 The Board of
Directors of the company decided to redeem the preference shares at a premium of 10%. In order to facilitate
the redemption, the Board has taken the following decisions:
• • To sell the investments for Rs.4,00,000.
• • To issue sufficient equity shares at a premium of Rs.2 per share to raise the balance need of funds.
• • To maintain minimum bank balance of Rs.50,000.
The Board of Directors initiated the above course of action during the month of April, 2003 and redeemed all
the preference shares.
The amount to be transferred to Capital Redemption Reserve is
a. Rs.70,000 b. Rs.5,25,000 c. Rs.1,25,000 d. Rs.8,00,000 e. Rs.5,50,000.
(2 marks)
 < Answer
45. Silver Coats Ltd. invited applications for 1,00,000 equity shares of Rs.10/- each at a premium of Rs.2 per share. The >
entire issue was underwritten by three underwriters in the following percentages:
Anil 30%
Vimal 40%
Sunil 30% The details of marked and unmarked applications received
are:
Marked applications of Anil 22,000 shares
Vimal 24,000 shares
Sunil 28,000 shares
Unmarked applications 16,000 shares The final liability of Vimal in terms of
number of shares is
a. Nil b. 9,600 c. 3,200 d. 16,000 e. 8,000.
(2 marks)
< Answer
46. H. Ltd. acquired 80% shares of S. Ltd. on April 01, 2002. The Balance Sheets of H. Ltd. and >
S. Ltd. as on March 31, 2003 are as follows:
Balance sheets of H. Ltd. and S. Ltd. as on March 31, 2003
H. Ltd. S. Ltd. S. Ltd.
Liabilities Assets H. Ltd. (Rs.)
(Rs.) (Rs.) (Rs.)
Share capital (Rs.10 each) 9,00,000 3,00,000 Land & building 4,20,000 2,40,000
General reserve 3,90,000 1,50,000 Plant & machinery 3,90,000 1,30,000
Profit & loss a/c 1,90,000 1,30,000 Furniture & fixtures 1,90,000 90,000
Sundry creditors 1,00,000 60,000 Investments 3,20,000 20,000
Bills payable 60,000 50,000 Stock 90,000 50,000
Sundry debtors 1,20,000 1,00,000
Bills receivable 70,000 40,000
Cash & bank 40,000 20,000
16,40,000 6,90,000 16,40,000 6,90,000
Other information:
i. As on the date of acquisition, the following balances were revealed in the books of S. Ltd.:
General reserve –– Rs.1,00,000
Profit & loss account –– Rs. 60,000 (cr.)
ii. H. Ltd. received a dividend of Rs.24,000 from S. Ltd. from pre-acquisition profits and credited the
amount to investment account.
iii. Sundry debtors of H. Ltd. include Rs.10,000 due from S. Ltd.
iv. Total bills payable of S Ltd. consisted of bills drawn by H. Ltd. and the same were discounted with the
bank by H. Ltd.
The total of Consolidated Balance Sheet of H. Ltd. and S. Ltd. as on March 31, 2003 was
a. Rs.23,30,000 b. Rs.20,10,000 c. Rs.20,24,000
d. Rs.20,00,000 e. Rs.19,60,000.
(3 marks)
< Answer
47. The following is the balance sheet of Rainbow Ltd. as on March 31, 2003. >
 Liabilities Rs. Rs. Assets Rs.
80,000 Equity shares of Rs.10 each 8,00,000 Goodwill 40,000
General reserve 1,00,000 Plant & Machinery 4,70,000
Profit & loss A/c.: Land & Building 4,20,000
Balance as on April 01, 2002 40,000 Investments (10%) 50,000
Profit before tax for the year 1,60,000 2,00,000 Stock 40,000
Sundry creditors 70,000 Sundry debtors 1,00,000
Bills payable 30,000 Bills receivable 40,000
Provision for taxation 50,000 Cash & Bank 50,000
Discount on issue of
shares
40,000
12,50,000 12,50,000
Additional information:
i.. The assets were revalued as under
• • Plant & Machinery Rs.5,00,000
• • Land & Building Rs.4,00,000
• • Investments Rs. 70,000
ii. Profit includes Rs.5,000 income from non-trading investments.
iii. Normal return on capital employed in the similar business is 10%.
iv. Adjustment of depreciation is not required for valuation of goodwill.
v. Income-tax rate is 30%.
The value of goodwill on the basis of 4 years’ purchase of super profits of the company is
a. Nil b. Rs.19,600 c. Rs.15,925 d. Rs.63,700 e. Rs.78,400.
(3 marks)
< Answer
48. Fairex Ltd. issued 2,000 10% Preference shares of Rs.100 each at par, which are redeemable at a premium of >
10%. For the purpose of redemption, the company issued 1,500 Equity Shares of Rs.100 each at a premium of
20 % per share. At the time of redemption of Preference Shares, the amount to be transferred by the company
to the Capital Redemption Reserve Account is
a. Rs. 50,000 b. Rs. 40,000 c. Rs.2,00,000 d. Rs.2,20,000 e. Rs. 70,000.
(1 mark)
< Answer
49. The value of equity share of Buzy bee Ltd. as per yield method is Rs.195.80 and as per fair value method is >
Rs.205.20. The value of the equity share according to intrinsic value method is
a. Rs.205.50 b. Rs.214.60 c. Rs.195.80 d. Rs.225.50 e. Rs.265.00.
(1 mark)
< Answer
50. The Balance Sheet of Marvel Ltd. as on March 31, 2003 is as under: >

Liabilities Rs. Assets Rs.

Equity share capital 6,00,000 Land and building 4,70,000
Reserves and surplus 2,10,000 Plant and machinery 2,50,000
12% Debentures 1,50,000 Furniture and fixtures 2,00,000
Sundry creditors 72,500 Sundry debtors 90,000
Bank overdraft 32,500 Inventories 65,000
Provision for taxation 45,000 Cash 35,000
11,10,000 11,10,000 The following assets
are revalued as under:
 Land and building Rs.5,00,000
Plant and machinery Rs.2,00,000
Sundry debtors Rs. 85,000 The profit of the company for the year ended March 31, 2003
was Rs.1,15,500. The company charges depreciation on all its fixed assets at the rate of 10% per annum. The
depreciation adjustment on the revalued assets should be made for one year. The return on capital employed to
equity shareholders is

a. 14.33% b. 12.89 % c. 13.12 % d. 10.85 % e. 14.15 %.

(2 marks)
< Answer
51. Consider the following balances pertaining to Vardhan Ltd. as on March 31, 2003: >

20% Debentures a/c Rs.1,00,000

Debenture redemption fund a/c Rs.1,13,000 The above fund was invested
in the following securities and shares:

Particulars Rs.
Rs.32,000, 9.5%Government loan 34,000
Rs.36,000, 12% Government loan 34,400
Rs.12,000, 18% Debentures 11,200
334 Preference shares of Rs.100 each 33,400 The above investments were
sold on the same day as under:
9.5% Government loan at par
12% Government loan at 96%
18% Debentures at Rs.90 each
Preference shares at Rs.105 each.
On April 01, 2003, the company redeemed the debentures at a premium of 10%.

The amount transferred to general reserve out of debenture redemption fund account is

a. Rs.1,14,830 b. Rs.1,04,830 c. Rs.1,10,600 d. Rs.1,12,430 e. Rs.1,02,430.

(3 marks)
< Answer
52. The following is the Balance Sheet of Pioneer Ltd. as on March 31, 2003. >

Balance Sheet as on March 31, 2003

Liabilities Rs. Assets Rs.
75,000 equity shares of Rs.10 each Goodwill 60,000
fully paid 7,50,000 Plant and Machinery 6,00,000
General reserve 1,00,000 Land and Building 2,50,000
Profit & loss a/c. 2,30,000 Stock-in-trade 1,10,000
Bank loan (20%) 1,50,000 Sundry debtors 4,00,000
Sundry creditors 2,80,000 Cash at bank 90,000
Provision for taxation 1,40,000 Discount on issue of shares 50,000
Preliminary expenses 90,000
16,50,000 16,50,000
Additional information:
i. Sundry debtors include a debt of Rs.90,000 of which only Rs.60,000 is likely to be recovered. A provision
has to be made for the balance.
ii. The profits earned by the company after payment of tax at the rate of 40% in the last four years were as
under:
 1999-2000 Rs.1,00,000
2000-2001 Rs.1,10,000
2001-2002 Rs.1,30,000
2002-2003 Rs.1,40,000 iii. The dividends paid by the company for the last four years
were as follows:
1999-2000 11%
2000-2001 12%
2001-2002 14.5%
2002-2003 14.5% The value of goodwill (rounded off) of the company by using the
capitalization method is
a. Rs. 60,000 b. Rs. 73,000 c. Rs. 90,000
d. Rs.1,10,000 e. No goodwill.
(3 marks)
< Answer
53. The Authorized Share Capital of SIRI Ltd. is Rs.15,00,000, which is divided into 1,00,000 Equity Shares of >
Rs.10 each and 5,000 10% Preference Shares of Rs.100 each. Out of 1,00,000 equity shares, 80,000 shares
have been subscribed and called up and paid up to the extent of Rs.8 per share.
The company has the following balances as on March 31, 2003:

Profit & Loss a/c.(Credit) Rs.2,00,000

General reserve Rs.2,20,000

The company has decided in a general meeting to
capitalize part of the above reserves for the following purposes:
• • To make partly paid equity shares into fully paid shares.
• • To issue one bonus share for every eight shares held.
The amount to be transferred to Bonus to Shareholders account to effect the above transactions is
a. Rs.1,00,000 b. Rs.1,60,000 c. Rs.2,60,000 d. Rs.3,10,000 e. Rs.4,20,000.
(2 marks)
< Answer
54. On December 31, 2003, Audi Monocarp Ltd. buys 1,000 of its own 12% Debentures of the nominal value of >
Rs.100 each at Rs.97 ex-interest from the open market. The company pays debenture interest half-yearly on
September 30 and March 31.
The amount paid by the company in respect of the above purchase is
a. Rs. 93,000 b. Rs. 97,000 c. Rs.1,00,000 d. Rs.1,01,000 e. Rs.1,04,000.
(1 mark)
< Answer
55. The following information is extracted from the books of Mercury Limited: >

i. The paid-up share capital of the company consists of 1,000, 15% preference shares of Rs.100 each and
20,000 equity shares of Rs.10 each.
ii. The average annual profits of the company after providing for depreciation and taxation amounted to
Rs.75,000. It is considered necessary to transfer Rs.10,000 to general reserve before declaring any
dividend.
iii. The normal return expected by investors on equity shares in similar business is 10%.
The value of an equity share of Mercury Ltd. is
a. Rs.33.3 b. Rs.37.5 c. Rs.10.0 d. Rs.25.0 e. Rs.27.5.
(2 marks)
< Answer
56. Sonic Ltd. issued 10,000 equity shares of Rs.10 each at a premium of 20%. The share amount was payable as: >
 On application Rs.2

On allotment (including premium) Rs.5

On first call Rs.3

On second and final call Rs.2

Applications were received for
14,000 shares and the shares were allotted to applicants on pro-rata. Vikas, who was allotted 300 shares, failed
to pay the first call. On his subsequent failure to pay the second and final call, all his shares were forfeited. Out
of the forfeited shares, 200 shares were re-issued @ Rs.9 per share. The amount transferred to capital reserve is

a. Rs. 200 b. Rs.1,000 c. Rs. 800 d. Rs.1,300 e. Rs.1,200.

(2 marks)
< Answer
57. The profits of Kavya Ltd. for the past 5 years are as under: >

Year Rs.
1998-1999 75,000
1999-2000 3,00,000
2000-2001 3,75,000
2001-2002 4,50,000
2002-2003 7,42,500 The company noticed the following errors, while
computing the weighted average profits for the purpose of valuation of goodwill:
•• On October 01, 2000, repair expenses of Rs.30,000 of machinery were capitalized. Kavya Ltd. provides
depreciation at the rate of 10% on straight-line method.
•• The profit for the year 2002-2003 includes profit of Rs.22,500 on sale of plant.
The weighted average profit of the company to be considered for valuation of goodwill is
a. Rs.4,76,100 b. Rs.3,79,500 c. Rs.2,84,100 d. Rs.5,00,100 e. Rs.3,78,500.
(2 marks)
< Answer
58. Amax Ltd., a listed company, proposed to issue 10,000 equity shares of Rs.100 each at par by way of private >
placement. The maximum amount of brokerage that can be paid by the company is
a. Rs. 5,000 b. Rs 10,000 c. Rs.50,000 d. Rs.25,000 e. No brokerage can be paid.
(1 mark)
< Answer
59. The profit and loss account of Urmila Ltd. for the year ending March 31, 2003 showed a debit balance of >
Rs.75,000. Subsequently, it was noticed that the following transactions were omitted:
 Goods worth Rs.3,000 were returned to the supplier and was not recorded in the books.
 The rent of the godown is Rs.24,000 per annum, out of which only Rs.20,000 was paid. The rent accrued
but not paid was not considered in the books of account.
 One cheque given by a customer for Rs.7,000 was dishonored and the fact of dishonor was not recorded
in the books.
The profit/loss made by the company after considering the above transactions is
a. Rs.76,000(Profit) b. Rs.74,000(Profit) c. Rs.83,000(Loss)
d. Rs.69,000(Profit) e. Rs.76,000(Loss).
(2 marks)
< Answer
60. The issued capital of Marshal Ltd. is Rs.100,00,000 divided into 10,00,000 shares which were issued at a >
premium of 100%. The company offers two shares for every three shares held to its existing shareholders. If the
rights issue price is Rs.410 per share and the market value at the time of rights issue is Rs.560 per share, the
value of right is
a. Rs. 60 b. Rs. 20 c. Rs.150 d. Rs.410 e. Rs.560.
 (1 mark)
< Answer
61. Consider the following data pertaining to Zenith Ltd. as on March 31, 2003: >

Particulars Rs.
Share capital:
Authorized share capital 5,00,000
(50,000 equity shares of Rs.10 each)

Called-up and Paid-up capital 3,00,000

(37,500 shares of Rs.8 each)
Capital employed 4,50,000
Profit for the year 2002-2003 63,000
If the normal return is
10%, the value of equity share of Zenith Ltd. is
a. Rs.11.67 b. Rs. 8.50 c. Rs.11.20 d. Rs. 9.30 e. Rs 14.00.
(2 marks)
< Answer
62. Consider the following data pertaining to Ravera Ltd. >

Authorized share capital Rs. 20,00,000

Issued, called-up and paid -up capital Rs. 12,00,000
Calls in advance Rs. 80,000
Securities Premium Rs. 1,20,000
Profit for the current year Rs. 2,55,600 The directors of the company proposed
a dividend of 12%. The amount debited to Profit and Loss Appropriation account on account of proposed
dividend is
a. Rs. 30,672 b. Rs.2,40,000 c. Rs.1,53,600 d. Rs.1,44,000 e. Rs.1,58,400.
(1 mark)
< Answer
63. Planet Ltd. issued 1,000 14% debentures of Rs.100 each at a premium of 10%, redeemable at a premium of >
5%. The journal entry to record the issue of debentures is
 Rs. Rs.
Bank a/c Dr. 1,10,000
Discount on issue of Debentures a/c Dr. 5,000
To 14% Debentures a/c 1,15,000
Bank a/c Dr. 1,10,000
Loss on redemption of Debentures a/c Dr. 5,000
To 14% Debentures a/c 1,00,000
To Premium on redemption of Debentures a/c 5,000
To Debenture premium a/c 10,000
Bank a/c Dr. 1,10,000
To 14% Debentures a/c 1,00,000
To Debenture premium a/c 10,000
Bank a/c Dr. 1,10,000
Loss on issue of Debentures a/c Dr. 5,000
To 14% Debentures a/c 1,10,000
To Premium on redemption of Debentures a/c 5,000
14% Debentures a/c Dr. 1,00,000
Loss on issue of Debentures a/c Dr. 5,000
To Bank a/c 1,05,000.
(2
marks)
< Answer
64. Mars Ltd. issued 10,000 18% debentures of Rs.100 each at a premium of 20%. Mr. Solomon entered into an >
underwriting agreement for 80% of the issue with a firm liability of 1,000 debentures under a clause of
maximum commission. Marked applications were for 6,000 debentures. The underwriting commission payable
to Mr. Solomon is
a. Rs.30,000 b. Rs.24,000 c. Rs.48,000 d. Rs.20,000 e. Rs.18,000.
(2 marks)
65. Consider the following data pertaining to Wise Ltd. as on March 31, 2003:

Particulars Rs.