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Posted By: RAFI Member Level: Gold Posted Date: 16 May 2008
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2006 ICFAI University M.B.A Business Administration Financial Accounting – I (MB131) : October 2006 Question paper
Question Paper
Financial Accounting – I (MB131) : October 2006
?Answer all questions.
?Marks are indicated against each question.
1. Gross profit is the difference between
(a) Net sales and cost of goods sold
(b) PAT and dividends
(c) Net sales and cost of production
(d) Net sales and direct costs of production
(e) Net sales and net purchases.
(1 mark)
2. Recording of capital contributed by the owner as liability ensures the adherence of principle of
(a) Double entry
(b) Going concern
(c) Separate entity
(d) Materiality
(e) Consistency.
(1 mark)
3. If the going concern concept is no longer valid, which of the following is true?
(a) All prepaid assets would be completely written off immediately
(b) Total contributed capital and retained earnings would remain unchanged
(c) The allowance for uncollectable accounts would be eliminated
(d) Intangible assets would continue to be carried at net amortized historical cost
(e) Land held as an investment would be valued at its realizable value.
(1 mark)
4. The accounting measurement that is not consistent with the going concern concept is
(a) Historical cost
(b) Realization
(c) The transaction approach
(d) Liquidation value
(e) Continuity.
(1 mark)
5. X Ltd. purchased goods for Rs.5 lakh and sold 9/10th of the value of goods for Rs.6 lakh. Net expenses during
the year were Rs.25,000. The company reported its net profit as Rs.75,000. Which of the following concepts is
violated by the company?
(a) Realization
(b) Conservation
(c) Matching
(d) Accrual
(e) Materiality.
(1 mark)
6. Which of the following statements are/is true? “Events after balance sheet date” are
(a) All the significant events after the balance sheet date
(b) The events after balance sheet date but before submitting it to the Registrar of Companies
(c) The events after balance sheet date but before its approval by the board
(d) All changes after balance sheet date but before its approval by the shareholders
(e) All the errors rectified after the balance sheet date.
(1 mark)
2
7. Which of the following is true with respect to reporting of contingencies?
(a) Guarantees of others’ indebtedness are reported as a loss contingency only if the loss is considered
imminent or highly probable
(b) Disclosure of a loss contingency is to be made if there is a remote possibility that the loss has been
incurred
(c) Disclosure of a loss contingency must include a rupee estimate of the loss
(d) Disclosure of a loss contingency is required for unasserted claims even if there is no manifestation of the
claim and only a remote possibility that the outcome will be unfavorable
(e) A loss that is probable but cannot be estimated must be disclosed with a notation that the amount of the
loss cannot be estimated.
(1 mark)
8. Which of the following is not treated as `unusual item’ by AS-5?
(a) Sale of significant part of the business
(b) Sale of investment acquired without an intention of resale
(c) Write-off of inventory due to obsolescence
(d) Liability arising on account of legislative changes
(e) Liability arising on account of judicial pronouncements.
(1 mark)
9. Which of the following items is/are covered under Accounting Standard-2 with regard to accounting for
inventory?
I. Financial instruments held as stock-in-trade.
II. Work-in-progress arising under construction contracts.
III. Work-in-progress of service providers.
IV. Work-in-progress of a manufacturing industry.
(a) Only (I) above
(b) Only (IV) above
(c) Both (I) and (II) above
(d) Both (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
10. When fixed assets are sold
(a) The total assets will increase
(b) The total liabilities will increase
(c) The total assets will decrease
(d) There is no change in the total assets
(e) The liabilities will decrease.
(1 mark)
11. Withdrawals by proprietor would
(a) Reduce both assets and owner’s equity
(b) Reduce assets and increase liabilities
(c) Reduce owner’s equity and increase liabilities
(d) Have no affect on the balance sheet
(e) Reduce owner’s equity and increase assets.
(1 mark)
12. If the petty cash fund is not reimbursed just prior to an year end and an appropriate adjusting entry is not made,
then
(a) A complete audit is necessary
(b) The petty cash account is to be returned to the company’s cashier
(c) Expenses are overstated and cash is understated
(d) Cash is overstated and expenses are understated
(e) Cash is overstated and expenses are overstated.
(1 mark)
3
13. Which of the following statements is false?
(a) When the bank column of a cash book shows a credit balance, it means an amount is due to the bank
(b) When passbook shows a debit balance, it means overdraft as per passbook
(c) While preparing bank reconciliation statement, cheques paid into bank but not yet cleared are deducted
from the balance as per cash book to arrive at the balance as per passbook
(d) A bank reconciliation statement is a part of passbook
(e) A bank reconciliation statement is a statement, but not the account by the customer of the bank.
(1 mark)
14. ABC Ltd. makes payments to its sundry creditors through cheques and the cash discount received on these
payments is recorded in the triple columnar cash book. In the event of dishonour of any such cheques, the
discount so received should be written back through
I. A debit to discount column of the cash book.
II. A credit to discount column of the cash book.
III. A credit to bank column of the cash book.
IV. A debit to discount account through journal proper.
V. A credit to creditor’s account through journal proper.
(a) Only (I) above
(b) Only (II) above
(c) Only (IV) above
(d) Both (I) and (III) above
(e) Both (IV) and (V) above.
(1 mark)
15. If office equipment is purchased for cash, what effect will this transaction have on the financial position of the
company?
(a) There is no change in the assets, liabilities and owners’ equity
(b) There is a decrease in assets, increase in liabilities and no change in owners' equity
(c) There is a decrease in assets, no change in liabilities and a decrease in owners' equity
(d) There is an increase in assets, decrease in liabilities and no change in owners’ equity
(e) There is an increase in assets, no change in liabilities and an increase in owners’ equity.
(1 mark)
16. The adjustment to be made for prepaid expenses is
(a) Add prepaid expenses to respective expenses and show it as asset
(b) Deduct prepaid expenses from respective expenses and show it as an asset
(c) Add prepaid expenses to respective expenses and show it as a liability
(d) Deduct prepaid expenses from respective expenses and show it as liability
(e) Deduct prepaid expenses from respective income and show it as an asset.
(1 mark)
17. Closing stock in the trial balance implies that
(a) It is already adjusted in the opening stock
(b) It is adjusted in the purchase a/c
(c) It is adjusted in the cost of sale a/c
(d) It is adjusted in the sale a/c
(e) It is adjusted in the profit and loss a/c.
(1 mark)
18. Which of the following statements is correct?
(a) Depreciation cannot be provided in case of loss in a financial year
(b) Depreciation is a charge against profit
(c) Depreciation is provided in the books only when there is profit
(d) Depreciation is an appropriation of profit
(e) Depreciation is a loss to the business.
(1 mark)
19. While finalizing the current year’s accounts, the company realized that an error was made in the calculation of
closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a result
4
closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000. As a result
(a) Previous year’s profit is overstated and current year’s profit is also overstated
(b) Previous year’s profit is understated and current years profit is overstated
(c) Previous year’s profit is understated and current years profit is also understated
(d) Previous year’s profit is overstated and current years profit is understated
(e) There will be no impact on the profit of either the previous year or the current year.
(1 mark)
20. Sundry debtors as per Trial Balance is Rs.43,000 which includes Rs.2,200 due from `H’ in respect of goods sent
to him on approval basis, the cost price of which is Rs.1,800. Rectification would involve:
(a) Adding Rs.2,200 to closing stock
(b) Deducting Rs.1,800 from closing stock and deducting Rs.2,200 each from debtors and sales
(c) Adding Rs.1,800 to closing stock and deducting Rs.2,200 each from debtors and sales
(d) Deducting Rs.1,800 from debtors
(e) Deducting Rs.1,800 from sales.
(1 mark)
21. Which of the following equations is correct?
(a) Gross profit + Sales + Direct expenses + Purchases + Closing stock = Opening stock
(b) Gross profit + Sales + Direct expenses + Purchases – Closing stock = Opening stock
(c) Gross profit + Opening stock + Direct expenses + Purchases – Closing stock = Sales
(d) Gross profit – Opening Stock + Direct expenses + Purchases + Closing stock = Sales
(e) Gross profit + Purchases – Administrative and other expenses = Net profit.
(1 mark)
22. Cash profit is
(a) Gross profit – Net profit
(b) Net profit – Non-trading profit – Depreciation and provision
(c) Gross profit – Non-trading profit + Depreciation and provision
(d) Net profit + Depreciation and provision
(e) Gross profit – Operational expenses.
(1 mark)
23. Which of the following is not a financial statement?
(a) Profit and loss account
(b) Profit and loss appropriation account
(c) Balance sheet
(d) Cash flow statement
(e) Trial Balance.
(1 mark)
24. Tax deducted at source appears in the Balance Sheet __________ .
(a) On the assets side under current assets
(b) On the assets side under loans and advances
(c) On the liabilities side under current liabilities
(d) On the liabilities side under provisions
(e) On the assets side under miscellaneous expenditure.
(1 mark)
25. Which of the following statements is true?
(a) The balance of the goods account shows the value of stock in hand
(b) Balancing of all accounts must be done at the end of each day
(c) Balances of nominal accounts are carried forward to the next financial year
(d) Assets which are to remain in business for continuous use and not meant for conversion into cash are
fixed assets
(e) Balance sheet discloses income position of the business.
(1 mark)
5
26. Cost of production is equal to
(a) Prime costs + Other manufacturing costs
(b) Production costs + Administration expenses
(c) Works cost + Administration costs + Selling expenses
(d) Prime costs + Manufacturing costs + Opening W.I.P – Closing W.I.P
(e) Prime cost + Other manufacturing costs + Administrative expenses.
(1 mark)
27. By-products should be valued at
(a) Cost
(b) Net realizable value
(c) Cost or net realizable value whichever is less
(d) Cost or net realizable value whichever is more
(e) Cost or market value whichever is less.
(1 mark)
28. During a period of steadily rising prices, which of the following methods of measuring the cost of goods sold is
likely to result in the lowest possible taxable income?
(a) Average cost
(b) Weighted average cost
(c) First in first out
(d) Last in first out
(e) Next in first out.
(1 mark)
29. The method of pricing inventory where all items are assigned the same unit cost is
(a) LIFO
(b) FIFO
(c) Average cost
(d) Specific identification
(e) Base stock.
(1 mark)
30. Revenues of an entity are normally measured by the exchange values of the assets or liabilities involved.
Recognition of revenues does not occur until
(a) The revenue is recognized and assured of collection
(b) The revenue is realized and earned
(c) Products or services are exchanged for cash or claims to cash
(d) The company has substantially accomplished what it agreed to do
(e) The revenue is earned and recorded.
(1 mark)
31. Which of the following methods is not a practical way of realizing revenue?
(a) Delivery method
(b) Percentage-of-completion method
(c) Production method
(d) Installment method
(e) Moving average method.
(1 mark)
32. The cost of self-constructed assets is taken as
(a) Prime cost + Indirect cost
(b) Construction cost + Interest cost on funds borrowed for construction till all the inputs are acquired
(c) Construction cost + Interest cost on funds borrowed for construction till the asset is ready for its intended
use
(d) Construction costs + Interest on borrowing – Losses due to strikes
(e) Total construction cost or market value whichever is less.
(1 mark)
6
33. Which of the following items should not be capitalized according to AS-10, relating to fixed assets?
(a) Interest payable on loans or deferred credits taken for the acquisition or construction of fixed assets
before they are ready for use
(b) Stand by equipment and servicing equipment
(c) Expenditure incurred on test runs and experimental production
(d) Administration and general expenses
(e) Cost of the asset if it is acquired through a trade-in.
(1 mark)
34. Which of the following is true with respect to providing depreciation under diminishing balance method?
(a) The amount of depreciation keeps increasing every year while the rate of depreciation keeps decreasing
(b) The amount of depreciation and the rate of depreciation decrease every year
(c) The amount of depreciation decreases while the rate of depreciation remains the same
(d) The amount of depreciation and the rate of depreciation increases every year
(e) The amount of depreciation increases while rate of depreciation remains the same.
(1 mark)
35. From which of the following accounts can transfers be made to capital redemption reserve?
(a) Share premium
(b) Capital reserve
(c) Development rebate reserve
(d) Profits prior to incorporation
(e) Sinking fund.
(1 mark)
36. Which of the following statements is true with regard to the underwriting commission?
(a) It is paid to the underwriters on the amount of subscription procured by them
(b) It is paid to the underwriters on the amount of shares or debentures underwritten by them
(c) It is paid only for the amount subscribed by the general public and not on firm underwriting
(d) Underwriting commission is not paid on the amount of shares or debentures devolved on the
underwriters
(e) Underwriting commission is paid on the amount of privately placed issue.
(1 mark)
37. The premium collected on issue of debentures is transferred to
(a) Profit & loss account
(b) Profit & loss appropriation account
(c) Capital reserve account
(d) Reserve capital account
(e) General reserve account.
(1 mark)
38. As per Schedule VI, which of the following is true regarding the treatment of calls in arrears in the final
accounts of a company?
(a) The amount will be shown under the head `current assets’ on the assets side of the balance sheet
(b) The amount will be deducted from the share capital in the balance sheet
(c) The amount will be shown under the head `current liabilities’
(d) The amount will be shown in the P & L account as a loss without showing it in the balance sheet
(e) The amount will be added to the share capital in the balance sheet.
(1 mark)
39. Brokerage on shares can be paid by the listed companies, in respect of
(a) Rights issue taken up by the existing shareholders
(b) Rights issue renounced by the existing shareholders
(c) Private placement of shares
(d) Applications made by institutions / banks against their underwriting commitments
(e) Shares taken by directors’ friends.
(1 mark)
7
40. Which of the following statements is not true regarding the issue of convertible debentures?
(a) Compulsory credit rating is required if conversion of FCDs is made after 18 months from the date of
allotment
(b) The discount on non-convertible portion of PCDs need not be disclosed in prospectus
(c) Issue of FCDs with a conversion period of more than 36 months will not be permissible
(d) Premium on conversion of FCDs shall be predetermined
(e) Any conversion, in part or whole, will be optional at the hands of the debenture holder, if it takes place
after 18 months from the date of allotment.
(1 mark)
41. Sinking fund for redemption of debentures is created out of
(a) Reserve capital account
(b) Capital reserve account
(c) Share premium account
(d) Current year profit
(e) Capital redemption reserve account.
(1 mark)
42. The cost price of a long-term construction project is Rs.7,20,000 and total costs are estimated at Rs.5,00,000.
During the first year, cost incurred on the project amounted to Rs.3,00,000. If the percentage of completion
method is used, the gross profit recognized for the year on the project would be
(a) Rs.2,20,000
(b) Rs.2,00,000
(c) Rs.1,50,000
(d) Rs.1,20,000
(e) Rs.1,32,000.
(2 marks)
43. The balance shown on the bank statement is Rs.3,093 but this does not agree with the cash book. The differences
are found to be a cheque written by the firm for Rs.30 not yet presented; a standing order of the firm to bank for
payment of Rs.21 recorded in cash book only; a dividend of Rs.84 paid direct to the bank.
The balance shown in the cash book is
(a) Rs.2,958
(b) Rs.2,988
(c) Rs.3,000
(d) Rs.3,126
(e) Rs.3,228.
(2 marks)
44. The bank passbook of Reddy Ltd. showed a credit balance of Rs.6,300 on December 31, 2005. The cash book
bank balance did not agree with the bank passbook balance. The reasons were as follows:
i. On Dec. 27th, two customers of Reddy Ltd. had paid direct to the company’s bank account Rs.499 and
Rs.157 respectively in payment of goods supplied. The advices were not received by the company until Jan,
1st, and were entered in the cash book under that date.
ii. On September 30, the company had entered into a hire purchase agreement to pay by banker’s order a sum of
Rs.26 on the 10th day of each month, commencing from October. No entries had been made in the cash book.
iii. Rs.364 paid into the bank had been entered twice in the cash book.
The bank balance as per cash book on December 31, 2005 was
(a) Rs.5,358 (favorable)
(b) Rs.5,930 (favorable)
(c) Rs.6,514 (favorable)
(d) Rs.6,086 (favorable)
(e) Rs.6,670 (favorable).
(2 marks)
45. The accountant of Narmada Ltd. has drawn the below trial balance on March 31, 2006.
Particulars Debit Credit
8
Rs. Rs.
Opening stock 10,000
Purchases 50,000
Reserve fund 5,000
Carriage on goods purchased 1,000
Bank deposit 50,000
Cash in hand 2,000
Purchase returns 1,500
Sales 92,600
Sales returns 2,400
Capital 1,50,000
Import duty 1,200
Export duty 1,050
Debtors 50,000
Creditors 22,500
Plant and Machinery 62,500
Salary 20,000
Wages 10,000
B/R 15,000
B/P 10,000
Interest received 3,000
Commission on sales 1,000
Miscellaneous expenses 6,600
Carriage on goods sold 1,850
Total 2,01,100 3,68,100
In the above trial balance which of the following accounts are wrongly placed?
(a) Opening stock, Reserve fund, bank deposits, carriage on goods purchased
(b) Reserve fund, Bank deposits, Purchase returns, Export duty, Import duty
(c) Reserve fund, Carriage on goods sold, Creditors, Plant and machinery, Commission on sales
(d) Plant and machinery, Creditors, Purchase returns, Bank deposits, Reserve fund
(e) Creditors, Debtors, Sales, Purchases and Commission on sales.
(3 marks)
46. Kamraj & Co. employs 15 workers who are paid Rs.3,500 per month. On April 01, 2005 the proprietor revised
their pay with effect from January 01, 2005 to Rs.4,000 per month. On March 31, 2006 Rs.8,000 were
outstanding. The amount of wages to worker to be debited to Trading account for the period ended March 31,
2006 was
(a) Rs.9,00,000
(b) Rs.7,87,500
(c) Rs.7,20,000
(d) Rs.7,28,000
(e) Rs.7,12,000.
(2 marks)
47. The following balances are extracted from the books of Shangai & Co. for the year ended March 31, 2006.
Particulars Rs.
Credit Sales 9,36,000
Debtors balance (as on April 1, 2005) 97,200
Discount allowed 5,600
Cash received from debtors 8,40,000
Return inward 22,000
Carriage outward 4,200
i. A cheque of Rs.3,100 received from Mr.Reddy, a customer, has been returned by the bank with the reason
“Refer to drawer”.
ii. During the year, Rs.3,900 has been declared as bad debts.
The closing balance in the sundry debtors account after effecting the above adjustments is
9
(d) Rs.1,90,700
(e) Rs.1,86,800.
(2 marks)
48. Trial Balance of Aakash as at 31st December, 2005 is as under:
Particulars Debit Credit
Rs. Rs.
Purchases 1,65,625
Sales 2,56,650
Returns 4,250 3,120
Provision for doubtful debts 5,200
Sundry Debtors and Creditors 40,200 25,526
Bills payable 8,950
Stock on 1-1-05 26,725
Wages 20,137
Salaries 8,575
Furniture 6,075
Alterations to shop 4,500
Postage, Printing and Insurance 3,226
Lighting 350
Sundry expenses 2,314
Rent, Rates and Taxes 3,517
Bad debts 525
Loan at 5% to Bharat (1-9-05) 3,000
Investments 11,500
Dividend from investments 825
Prepaid insurance 524
Cash at Bank 5,752
Bills receivable 17,070
Capital account 28,000
Drawings 6,000
Outstanding wages 2,019
Rent accrued 750
Depreciation on furniture 675
Additions to furniture 500
Total 3,31,040 3,31,040
Adjustments:
i. Sundry debtors include Rs.250 for goods supplied to the proprietor and Rs.600 due from a customer who
has become insolvent.
ii. Provision for doubtful debts is to be maintained at 5% of the sundry debtors.
iii. One fifth of the alterations to the shop is to be written off.
iv. Goods of the value of Rs.1,000 have been destroyed by fire and the insurance company has admitted the
claim for Rs.700.
v. Bills receivable include a dishonored promissory note for Rs.650.
vi. Stock at the end was Rs.10,520.
vii. An intimation from the bank that a customer’s cheque for Rs.1,000 had been dishonored is still to be
entered in the books.
The total balance sheet as on 31.12.2005 after making all the adjustment was
(a) Rs.94,568
(b) Rs.92,365
(c) Rs.96,591
(d) Rs.96,277
(e) Rs.96,681.
10
(3 marks)
49. Jojo Ltd. uses a periodic inventory system. The beginning inventory was Rs.50,000 and year-end inventory was
Rs.60,000. Purchase of goods and sales during the year were Rs.2,00,000 and Rs.3,00,000 respectively. The
company’s cost of goods sold during the year is
(a) Rs.2,00,000
(b) Rs.1,90,000
(c) Rs.1,50,000
(d) Rs.1,40,000
(e) Rs.1,10,000.
(1 mark)
50. Following data was extracted from the books of Peter Ltd. for the period 2005-06.
Particulars Opening balance in (Rs.) Closing balance in (Rs.)
Raw material inventory 1,54,000 1,63,000
Work-in-process 19,000 43,000
Finished goods inventory 69,000 66,000
If the purchases for the period were Rs.2,73,000 and the other manufacturing costs amounted to Rs.3,30,000.
Value of raw material used in the production is
(a) Rs.44,000
(b) Rs.2,64,000
(c) Rs.1,54,000
(d) Rs.2,73,000
(e) Rs.2,82,000.
(2 marks)
51. On 1st April, 2006, Bihar Collieries obtained wagons on hire purchase system, the total amount payable being
Rs.2,50,000. Payment was to be made Rs.50,000 down, and the balance in four installments of Rs.50,000 each.
Interest charged was at the rate of 15%. The capital content in the payments amounts to
(a) Rs.2,00,000
(b) Rs.1,30,000
(c) Rs.2,87,500
(d) Rs.1,92,749
(e) Rs.1,50,350.
(2 marks)
52. A fixed asset has a life of 4 years. If it is depreciated by the W.D.V method, its book value at the end of 4 years
is 24% of its original cost. Hence the rate of depreciation applied is ____ (choose nearest answer).
(a) 24%
(b) 28%
(c) 30%
(d) 32%
(e) 34%.
(2 marks)
53. ABC Limited issued 50,000 equity shares of Rs.10 each at a premium of Rs.2.50 per share. Under the terms of
the issue, the shares were to be paid for as follows:
2006 January 1, on application (including Rs.2.50
premium on issue per share)
Rs.5.00
February 1, on allotment Rs.5.00
March 1, balance Rs.2.50
The issue was oversubscribed. The applications received are summarized below:
Number of Applications in
Categories
40 20 1
Applied for by each applicant in the
three categories
1,000 10,000 40,000
Issued to each applicant 500 1,000 10,000
11
One of the conditions of the issues was that amounts overpaid on application were to be retained by the company
and used in reduction of further sums due on shares allotted. All surplus contributions were refunded on 15th
February, 2006.
S who had subscribed Rs.5,000 on an application for 1,000 shares was unable to meet the claim due on March 1.
On April 1, 2006 the directors forfeited his shares. All other shareholders paid the sums requested on the due
dates. On May 1, 2006 the directors reissued the forfeited shares as fully paid to G, on receiving a payment of
Rs.5,250.
The amount transferred to Calls-in-advance for various categories of the applicants are
(a) Nil, Rs.7,50,000, Rs.50,000
(b) Nil, Rs.50,000, Rs.25,000
(c) Rs.50,000, Nil, Rs.25,000
(d) Rs.75,000, Rs.50,000, Rs.25,000
(e) Rs.50,000, Rs.25,000, Nil.
(3 marks)
54. Kumar Ltd. issued 75,000 shares of Rs.10 each at par payable Rs.2 on application, Rs.4 on allotment and Rs.4 on
call. Applications were received for 75,000 shares and all applicants were allotted in full. Rahul, who was allotted
500 shares, paid Rs.2,500 at the time of allotment indicating that the excess amount to be adjusted against call
money. Subsequently, when the directors made the call, Rahul paid the balance amount. The entry to record the
receipt of balance amount and adjustment of calls-in-advance of Rahul is
Rs. Rs.
(a) Bank a/c Dr. 500
Calls-in-Advance a/c. Dr. 1,500
To Share first and final call a/c. 2,000
(b) Share first and final call a/c. Dr. 2,000
To Bank a/c. 1,500
To Calls-in-Advance a/c. 500
(c) Bank a/c. Dr. 500
To Calls-in-Advance a/c. 500
(d) Bank a/c. Dr. 1,500
Calls-in-Advance a/c. Dr. 500
To Share first and final call a/c. 2,000
(e) Share first and final call a/c. Dr. 1,500
Bank a/c. Dr. 500
To Calls-in-Advance a/c. 2,000.
(2 marks)
55. XY Ltd. offers to its existing shareholders 3 shares for every 7 shares held by them. The market value of the
share is Rs.80 and the right issue price is Rs.60 per share. The value of right is ____ and post issue price is ____.
(a) Rs.6.00; Rs.74
(b) Rs.8.57; Rs.71.43
(c) Rs.18.00; Rs.62
(d) Rs.20.00; Rs.80
(e) Rs.24.00; Rs.84.
(2 marks)
56. The following is the Balance Sheet of May Fair Co. Ltd. as at 31st December 2005:
Liabilities Rs. Assets Rs.
Share capital: Fixed Assets:
Equity Shares of Rs.100 each 10,00,000 Goodwill 1,00,000
Less: Calls-in-Arrears 1,00,000 Machinery 5,00,000
Factory Shed 5,50,000
Vehicle 1,50,000
9,00,000 Furniture 50,000
Investments 2,00,000
10% Preference Shares of Current Assets:
Rs.10 each fully paid 4,00,000 Stock-in-trade 4,00,000
Reserve and Surplus: Sundry Debtors 7,00,000
General Reserve 4,00,000 Cash at bank 1,00,000
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General Reserve 4,00,000 Cash at bank 1,00,000
Profit and Loss Account 3,00,000 Miscellaneous Expenditure:
Current Liabilities Preliminary Expenses 50,000
Bank Loan 2,00,000
Sundry Creditors 6,00,000
Total 28,00,000 Total 28,00,000
Additional Information is as under:
i. Fixed assets are worth 20% above their book value. Depreciation on appreciated value of fixed assets not to
be considered for valuation of goodwill.
ii. Of the investments, 60% is non-trading and the balance is trading. All trade investments are to be valued at
25% above cost. A uniform rate of dividend @ 15% is earned on all investments.
iii. For the purpose of valuation of shares, goodwill is to be considered on the basis of 4 years purchase of the
super profits based on average profit (after tax) of the last 3 years.
Profits (after tax) are as follows:
Rs.
2003 4,00,000
2004 4,30,000
2005 4,50,000
In a similar business, return on capital employed is 15% (after tax).
iv. In 2003 new machinery costing Rs.20,000 was purchased but wrongly charged to revenue
(no effect has yet been given for rectifying the same).
Depreciation charged on machinery is @ 10% on reducing balance method.
The Net Tangible operating assets on 31st December, 2005 was
(a) Rs.20,17,496
(b) Rs.20,17,469
(c) Rs.20,17,964
(d) Rs.20,17,946
(e) Rs.20,17,649.
(3 marks)
57. The Balance Sheet of Marvel Ltd. as on March 31, 2006 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
Total 11,10,000 Total 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, 2006 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)
58. The following information is made available from the books of a public limited company:
Paid-up Share Capital:
Equity shares of Rs.10 each Rs.11,00,000
14% Preference shares of Rs.100 each Rs. 9,00,000
Rs.20,00,000
Average net profit and expected normal yield are Rs.5,25,000 and 24% respectively. It is also observed that the
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net tangible assets are revalued by Rs.1,85,000 more than the amounts at which they are stated in the books.
For the purpose of valuation of shares, goodwill is to be considered on the basis of 2 years’ purchase of the super
profit.
Earning per share for the purpose of valuing equity shares on yield basis is
(a) Rs.4.22
(b) Rs.5.12
(c) Rs.5.22
(d) Rs.6.12
(e) Rs.3.63.
(2 marks)
59. Bach and Chenoy Limited’s Balance Sheet as on 31st March, 2006 is given below:
Liabilities and Capital Amount
Rs.
Assets Amount
Rs.
Share Capital:
1,00,000 Equity Shares of Rs.10/-fully paid-up 10,00,000 Sundry Net Fixed
Assets
28,00,000
50,000 Equity shares of Rs.10/-, Rs.8 paid-up 4,00,000 Non Trade
Investments
13,00,000
1,00,000 Equity Shares of Rs.5/-fully paid-up 5,00,000 Stock 12,00,000
Free Reserves 15,00,000 Sundry Debtors 22,00,000
13% Debentures 12,00,000 Cash and Bank 6,00,000
Sundry Creditors 28,95,000 Preliminary
Expenses
2,80,000
Tax Provision 6,00,000
Proposed Dividend 2,85,000
Total 83,80,000 Total 83,80,000
Information:
1. Profit before taxes for the last five years are as follows –
2001 – Rs.4,40,000
2002 – Rs.4,60,000
2003 – Rs.4,20,000
2004 – Rs.4,50,000
2005 – Rs.4,40,000
Goodwill to be computed based on 5 years purchase of super profit based on average profit of the last 5
years.
2. The 13% Debentures are partially convertible. 50% of these will be converted into equity shares next year.
3. Non-trade investments earn @ 6% p.a.
4. The company is planning to shift its offices to a bigger location. The estimated additional costs would be
Rs.20,000 per annum.
5. Since the value of the Indian rupee is appreciating, the company expects a foreign currency loss of
Rs.24,000 p.a. on its exports for the foreseeable future .
6. Present tax rate is 35%, but the company expects it to fall to 30% in future.
7. Normal return is 8% on the closing capital.
8. Assume that proposed dividend rate will not change after conversion of part of debentures into equity.
Net assets available to the share holders is
(a) Rs.38,71,000
(b) Rs.37,71,000
(c) Rs.38,72,000
(d) Rs.42,62,000
(e) Rs.41,00,000.
(3 marks)
60. An investor purchases one share of Rs.100 each (face value and paid-up value) at Rs.190 from a stock exchange
on which he receives a dividend @ 20%. The yield of the investor will be
(a) 20%
(b) 13.33%
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(b) 13.33%
(c) 22.22%
(d) 10.53%
(e) 10%.
(1 mark)
61. Sunder Ltd. issued debentures at 94% for Rs.2,00,000 on 1st January, 2004 repayable by five equal annual
drawing of Rs.40,000 each. The company closes its accounts on 31st March every year. The company decides to
write-off the debenture discount during the life of the debentures.
The amount of discounts which the company needs to write-off respectively in year 1, 2 and 3 are
(a) Rs.1,200, Rs.4,300 and Rs.3,000
(b) Rs.1,600, Rs.3,600 and Rs.2,800
(c) Rs.2,200, Rs.3,800 and Rs.3,200
(d) Rs.1,000, Rs.3,800 and Rs.3,000
(e) Rs.1,000, Rs.3,800 and Rs.3,200.
(3 marks)
62. Komal Ltd. issued 20,000, 8% debentures of Rs.10 each at par, which are redeemable after 5 years at a premium
of 20%. The amount of loss on redemption of debentures to be written-off every year is
(a) Rs.40,000
(b) Rs.10,000
(c) Rs.20,000
(d) Rs.8,000
(e) Rs.5,000.
(1 mark)
63. Well Done Ltd. issued 500 Debentures of Rs.100 each at a discount of 10%. Holders of these debentures have an
option to convert their holdings to equity shares of Rs.100 each at a premium of Rs.25 at anytime within 3 years.
The total number of equity shares to be issued, if all the debenture holders opt for conversion, is
(a) 500
(b) 450
(c) 430
(d) 400
(e) 360.
(2 marks)
64. In the month of April 2006, the accountant of Aditya & Co. found the following errors in the books of accounts
for the year 2005-2006, in spite of the agreed balance sheet:
Goods worth Rs.20,050 sold to Mr. Dutta was entered in the sales day book as Rs.20,500 and it was debited to
Mr. Dutta’s account as Rs.25,000.
Goods worth Rs.16,000 were purchased from M/s.Philip & Company on March 30, 2006. The invoice was not
passed through the purchases day book.
Goods to the value of Rs.2,750 returned by Mr. Rajkumar, was debited to his account and also to sales returns
account.
The purchases day book for the month of March 2006 was undercast by Rs.10,000.
Bank interest on overdraft for the month of March 2006, amounting to Rs.3,750 was not recorded in the books of
accounts.
A credit sale of goods worth Rs.20,000 on March 29, 2006, was completely omitted to be recorded in the sales
day book.
The effect of rectification of the above transactions on the profit for the year 2005-2006 will be
(a) Profit will increase by Rs.10,200
(b) Profit will decrease by Rs.30,450
(c) Profit will decrease by Rs.3,750
(d) Profit will increase by Rs.36,450
(e) Profit will decrease by Rs.10,200.
(3 marks)
65. The following information is extracted from the books of Mercury Limited:
15
i. The average annual profits of the company after providing for depreciation and taxation amounted to
Rs.60,000. It is considered necessary to transfer Rs.10,000 to general reserve before declaring any
dividend.
ii. The paid-up share capital of the company consists of 20,000 equity shares of Rs.10 each.
iii. The normal return expected by investors on equity shares from this type of business carried on by the
company is 10%.
The value of the equity share is
(a) Rs.10
(b) Rs.12.50
(c) Rs.15
(d) Rs.20
(e) Rs.25.
(2 marks)
66. Advertisement expenses of Rs.24,000 were paid on January 24, 2006. The company believes that the effect of
advertisement being not yet expired, 1/4 of the amount of advertisement expenses is to be carried forward to the
next year.
The amount of advertisement expenses debited to profit and loss account during the period ended March 31,
2006 is __________ and the heading under which the advertisement expenses carried forward are shown is
___________.
(a) Rs.18,000; Prepaid expenses
(b) Rs.6,000; Prepaid expenses
(c) Rs.18,000; Miscellaneous expenditure
(d) Rs.12,000; Miscellaneous expenditure
(e) Rs.6,000; Current assets.
(2 marks)
67. Sonex Ltd., had allotted 10,000 shares to applicants of 14,000 shares on pro rata basis. The amount payable on
application is Rs.2. Pramod applied for 420 shares. The number of shares allotted and the amount carried
forward for adjustment against allotment money due is
(a) 60 shares; Rs.120
(b) 340 shares; Rs.160
(c) 320 shares; Rs.200
(d) 300 shares; Rs.240
(e) 420 shares; Nil.
(2 marks)
68. The capital employed of Manchuria Ltd. is Rs.12,00,000.
i. Net profit of the company for the last 4 (four) years before providing taxation was as follows:
1st year Rs.2,00,000
2nd year Rs.2,50,000
3rd year Rs.2,10,000
4th year Rs.3,00,000
ii. Income tax rate is 35%.
iii. Normal rate of return in the similar business is 10%.
The value of goodwill on the basis of 4 years’ purchase of super profits based on 4 years average profit of the
company is
(a) Rs.2,40,000
(b) Rs.1,56,000
(c) Rs.1,20,000
(d) Rs.1,44,000
(e) Rs.1,08,000.
(3 marks)
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