Professional Documents
Culture Documents
5th Semester Accounts Notes CU
5th Semester Accounts Notes CU
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Employee Stock Option Plan (in option of underwriting) 26 – 31
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Underwriting (10 marks) (1 option) 32 – 40
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3. Buy back and Redemption of preference shares (10 Marks)
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Redemption of Preference Shares (buyback in option) 41 – 52
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8. Honours & General Paper 2019, 2020 & 2021 142 –175
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Group B (1 Question of 15 marks) (1 Question with alternative):
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Question 6 (Amalgamation or Internal Reconstruction): (Practical)
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Question 7 (Company Final Accounts): (Practical)883
Note:
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No Compulsory Theory
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• Admission going on throughout the year but join early to finish early and
then do free revision till exams.
• Online, offline & recorded all options. Offline classes at Girish Park.
Bhalotia Classes (9883034569): Corporate Accounting (5th Sem)
CORPORATE ACCOUNTING:
Internal Assessment: 20 marks
Semester-end Examinations: 80 marks
Total 100 marks
Unit – I: Company – Introduction And Accounting for Shares & debentures
[10 + 10 Marks] [1 Question with option]
• Meaning of Company; Maintenance of Books of Accounts; Statutory Books; Annual Return
• Issue of Shares – issue, forfeiture, reissue, issue other than in cash consideration and issue to the promoters;
Pro-rata issue of shares. Issue of debentures. Sweat equity.
• Right and Bonus Share – Rules, Accounting
• Underwriting of shares and debentures: Rules; Determination of Underwriters Liability – with marked,
• unmarked & firm underwriting; Accounting.
• Employee Stock Option Plan – meaning; rules; Vesting Period; Exercise Period. Accounting for ESOP.
Meaning and Accounting of ESPS.
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Unit – 2: Buy back and Redemption of preference shares [1 Question with option]
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• Buy Back of Securities – meaning, rules and Accounting.
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• Redemption of Preference Shares – Rules and Accounting (with and without Bonus Shares)
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Unit – 3: Company Final Accounts [15 Marks] [1 Question of 15 Marks] [no option]
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Introduction to Schedule III; Treatment of Tax; transfer to reserve, Dividend and applicable tax (out of current profit,
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out of past reserve); Preparation of Statement of Profit & Loss and Balance Sheet. (tax on net profit without
recognizing deferred tax)
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Redemption of Debenture – Important Provisions, Accounting for Redemption: by conversion, by lot, by purchase in
the open market (cum and ex-interest), held as Investment and Use of Sinking Fund
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• Goodwill – valuation using different methods, i.e., Average Profit, Super Profit, Capitalisation and Annuity.
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• Shares – Valuation using different methods: Asset approach, Earnings approach, Dividend Yield, Earnings-
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Price, Cum-div and Ex-div, Majority and Minority view and Fair Value
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• Amalgamation, Absorption and Reconstruction– Meaning; relevant standard and meaning of different
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terms, Accounting in the books of Transferor Company. Accounting in the books of Transferee (based on
relevant accounting standard); inter-company transactions (excluding inter-company shareholding).
• Internal reconstruction – meaning, provisions and Accounting, Surrender of Shares for redistribution;
preparation of Balance Sheet after reconstruction
Relevant Accounting Standards issued by the Institute of Chartered Accountants of India are to be
followed.
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When the number of shares applied for, is more than the number of shares offered for subscription,
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the shares are said to be oversubscribed. Allotment of shares cannot be made to all the applicants in
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full.
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In case of oversubscription, following three alternatives are available
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(a) Rejection of applications
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When the number of shares applied for, is less than the number of shares offered to the public, the
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4. Calls-in-arrears
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It may happen that shareholders do not pay the call amount on due date. When any shareholder fails
to pay the amount due on allotment or on any of the calls, such amount is known as ‘Calls in
Arrears’. Calls in Arrears represent the debit balance of all the calls account.
Calls in Arrears A/c….. Dr.
To Share First Call Account A/c
To Share Second and Final Call Account A/c
(Calls in arrears brought into account)
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shown as an addition to the total paid-up capital of the company under the head ‘Share Capital’ under
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title ‘Equity and Liabilities’ of the Balance Sheet till the forfeited shares are reissued.
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7. What is meant by pro-rata allotment of shares?
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In the case of over subscription, it is not possible to allot shares to all applicants. Applicants may be
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allotted less number of shares than they have applied for. This type of allotment of shares is known
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as pro-rata allotment of shares, e.g. if company allots 50,000 shares to applicants of 75,000 shares, it
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There are instances where a company enters into an arrangement with the vendors from whom it has
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purchased assets, whereby the latter agrees to accept, the payment in the form of fully paid shares of
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the company issued to them. Number of shares to be issued= Amount Payable /Issue Price
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board’s resolution no. …. Dated………)
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(c) For Money Refunded on Rejected Application
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Equity Share Application A/c…….. Dr.
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To Bank A/c
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(Allotment money on _____ Shares allotted transferred to Share Capital & Premium as per
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6 9)
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(h) For Receipt of 1st Call Amount
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Bank A/c ………Dr.
Calls in arrear …… Dr
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To Equity Share 1st Call A/c
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(Final Call money due on ___Shares @ ₹ ____ /share as per board’s resolution no. ….
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Dated………)
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(l) Forfeiture of Shares Originally Issued at Premium and Premium was Received
Equity Share Capital A/c ………..Dr (Called-up Capital)
To Forfeited Shares A/c (Amount received excluding premium)
To Calls in arrear A/c (Amount not received)
(Being forfeiture of…… shares as per board’s resolution no. …. Dated………)
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(m) Forfeiture of Shares Originally Issued at Premium and Premium was not Received
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Equity Share Capital A/c ………..Dr (Called-up Capital)
Securities Premium A/c….. Dr
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(Unpaid premium)
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To Forfeited Shares A/c (Amount received)
To Calls in arrear A/c (Amount not received)
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(r) Issue of Shares to Promoters
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Formation Expenses/Goodwill A/c…………Dr
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To Equity Share Capital A/c
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(Being … share of … each issued to promoters of the company)
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To Liabilities (Individually)
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To Capital Reserve A/c [If Purchase consideration is less than Net Assets taken over]
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was adjusted on account of sums due on allotment. Kapil to whom 500 shares were allotted failed to
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pay the allotment money and on his subsequent failure to pay the first call money his shares were
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forfeited. Srinath who originally applied for 240 shares failed to pay the two calls and his shares were
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forfeited after the final call. Subsequently, out of these forfeited shares 600 shares (including all
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shares of Kapil) were re-issued to Sharma as fully paid up at ₹ 9 per share. Show the Journal entries
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F (₹) (₹)
Bank A/c ………………………………………..Dr. 30,000
To Equity Share Application A/c 30,000
(Being amount received on application for 15,000 equity
shares @ ₹ 2 per share)
Equity Share Application A/c ……………………Dr. 30,000
To Equity Share Capital A/c (10,000 shares @ ₹ 2) 20,000
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To Equity Share Allotment A/c (2,000 shares @ ₹ 2) 4,000
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To Bank (3,000 shares @ ₹ 2) 6,000
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(Being Application money on 10,000 Shares transferred to
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Share Capital, Application money on 2,000 shares
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Equity Share Capital A/c ………..Dr (Called-up Capital)
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3,500
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(500 shares @ ₹ 7)
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Securities Premium A/c…………. Dr (Unpaid premium) 1,000
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(500 shares @ ₹ 2)
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To Forfeited Shares A/c (Amount received) 1,200
To Calls in arrear A/c (Amount not received)
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3,300
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no……. Dated………)
Bank A/c ………………………………………..Dr. 27,900
Calls in Arrear A/c ……….……………………..Dr. 600
To Equity Share Final Call A/c 28,500
(Being amount received on final call money on 9,300
shares and unpaid amount on 200 shares transferred to
calls in arrear A/c)
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Forfeited Shares A/c …………Dr 1,100
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To Capital Reserve A/c 1,100
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(Being Profit on re-issued shares transferred to capital
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reserve account) (Refer working note vi)
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Working Notes:
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(iv) Srinath:
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Applied = = 240 shares
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Alloted = 240 x 5/6 = 200 shares
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Calls in arrear at the time of 1st call = 200 shares x ₹ 2 = ₹ 400
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Calls in arrear at the time of Final call = 200 shares x ₹ 3 = ₹ 600
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In the Books of Sunshine Ltd.
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Journal Entries
Dr. Cr.
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Date Particulars L. Amount Amount
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F (₹) (₹)
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Bank A/c ………………………………………..Dr. 2,40,000
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arrear A/c) (₹ 3,00,000 – ₹ 75,000)
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Equity Share First & Final Call A/c ……………………….…Dr. 1,50,000
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To Equity Share Capital A/c 1,50,000
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(First & Final Call money on 50,000 Shares @ ₹ 3/share
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transferred to Share Capital as per board’s resolution
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no……. Dated………)
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Less: Application considered for Pro-rata 75,000 shares
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Application Rejected 5,000 shares
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Application Money refunded on 5,000 shares @ ₹ 3 each = ₹ 15,000
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Excess Application Money on 25,000 shares @ ₹ 3 each = ₹ 75,000 adjusted with allotment
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money due.
Pro-rata Allotment = 75,000 : 50,000 = 3 : 2 (i.e. 2 shares alloted for every 3 shares applied)
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(iii) Sourav:
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(vi) Amount to be Transferred to capital Reserve on Re-issued Shares:
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Sourav (400 shares r-issued), Amount Forfeited = ₹ 1800
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Rahul (250 shares re-issued), Amount forfeited =
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(3500/500) x 250
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Total ₹ 3,550
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4. Forfeiture and re-issue of shares [2012 Pass]
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Zindal Ltd. issued 8,000 equity shares of ₹ 10 each payable as ₹ 3 per share an application, ₹ 5 per
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share in allotment (including ₹ 2 each as premium) and ₹ 4 per share on call. All the shares were
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subscribed. Money due on all shares was fully paid excepting Mr. A holding 50 shares who failed to
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pay the allotment money and call money and Mr. B holding 100 shares who failed to pay the call
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money. All these 150 shares were forfeited. Out of the forfeited shares, 125 shares including all of
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Mr. A were reissued at ₹ 8 per share. Show necessary Journal Entries in the books of the company.
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AS
P. Ltd. having an Authorised Capital of ₹ 1,00,000 divided into 1,000 Equity Shares of ₹ 100 each
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payable as ₹ 20 per share on application, ₹ 30 per share on allotment (including ₹ 10 per share as
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premium), ₹ 20 per share on first call and the balance on final call, issued 500 of the shares which
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were duly subscribed for. Application and allotment moneys were paid on all shares. On first call,
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one shareholder Mr. X holding 50 shares, failed to pay the first call money. His shares were duly
forfeited after the first call and 30 of these shares were subsequently re issued to Mr. Y at ₹ 50 per
share as ₹ 60 per share paid up. After that final call was made. Final call money received on all the
shares. Journalise the above transactions.
[Amount of Capital Reserve ₹ 900; Balance of Share Forfeiture A/c ₹ 800]
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issued at 20% premium. The money payable on the shares are as follows :
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On application : ₹ 6 per share (including premium of ₹ 2);
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On allotment : ₹ 4 per share;
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On call: Balance amount. 88
Applications were received for 40,000 shares and allotment was made pro-rata amongst the applicants.
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All the shareholders paid their dues within the due time except Miss Ritika, applied for 400 shares,
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failed to pay the allotment money. Her shares were forfeited after the subsequent call.
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200 forfeited shares were reissued as fully paid on payment of ₹ 8 per share to Miss Ankita.
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Show the necessary journal entries (including cash transaction) in the books of Finolex Ltd.
The directors of KPL Industries Ltd. have invited application for 72,000 Equity Shares of ₹ 10 each to
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01.05.18: On application ₹ 2
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shares of Antasri) were re-issued to Anup as fully paid at ₹ 9 per share.
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Show the Journal entries to record the above transactions.
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[Transfer to capital reserve after re-issue ₹ 1,500]
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10. Issue of shares [Pro-rata Allotment] [Honours 2016]*****
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Bengal Ltd. was registered with an authorised capital of ₹ 5, 00,000 divided into 30,000 Equity Shares of ₹
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10 each and 4,000, 10% Preference Shares of ₹ 50 each. The company made an issue of 15,000 Equity Shares
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Applications were received for 24,000 shares. No allotment was made to the applicants of 4,000 shares and the
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amount received thereon was refunded. The rest of the applicants were issued shares on pro – rata basis. Mr. A
who had applied for 120 shares failed to pay allotment and call moneys. Mr. B who had applied for 80 shares
failed to pay two calls and Mr. C to whom 45 shares were allotted failed to pay the final call money. Shares of
Mr. A, Mr. B and Mr. C were forfeited after the final call was made. 160 of the forfeited shares (including
whole of A and Balance of B) were reissued to Mr. D at ₹ 12 per share.
Show the Journal entries in the books of the Company.
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amount due on call only. These shares were forfeited. 160 forfeited shares of Mr. X and 40 forfeited
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shares of Mr. Y were re-issued at a discount of ₹ 1 per share to Mr. Z.
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Pass journal entries in the books of the company.
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[Rate of pro-rate allotment 4: 5; Amount of Capital Reserve ₹ 720; balance Sheet: 239950]
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K Ltd. made an issue of 20,000 Equity Shares of ₹ 10 each at 20% premium, payable as under:
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Applications were received for 25,000 shares and allotment was made as follows:
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Applicants for 200 shares in category (a) and applicants for 150 shares in category (b) failed to pay
the allotment money and these shares were forfeited on their failure to pay the first call money.
Holders of 200 shares under category (c) failed to pay the first and final call money and those shares
were forfeited after final call was made. 300 shares [200 of category (a) and 100 of category (b)]
were re – issued at ₹ 7 per share as fully paid. Show Journal entries in the books of K Ltd.
[Capital Reserve ₹ 500]
BONUS Bonus issue means a issue of free additional shares to existing shareholders
SHARES A company may issue fully paid-up bonus shares to its shareholders out of—
(i) its free reserves;
(ii) securities premium account; or
(iii) capital redemption reserve account:
Bonus shares should not be issued out of revaluation reserves (i.e., reserves created
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by the revaluation of assets)
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RIGHT ISSUE Rights issue is an issue of rights to a company's existing shareholders that
entitles them to buy additional shares directly from the company in
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proportion to their existing holdings, within a fixed time period.
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2. Journal entries For Bonus to Fully paid up shares
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resolution dated…….)
(B) On Making Final Call Money Due:
Share Final Call Account………………………………Dr.
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To Equity Share Capital Account
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(Final call of ₹ …. per share on ……… equity shares due as per Board’s Resolution dated.........)
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(C) On adjustment of final call
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Bonus to Shareholders Account………………………………Dr.
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To Equity Share Final Call Account
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Note:
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Capital Redemption Reserve & Securities Premium can’t be used for bonus to partly paid-up shares.
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The accounting treatment of rights share is the same as that of issue of ordinary shares and the
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In case rights shares are being offered at a premium, the premium amount is credited to the securities
premium account. The accounting entry is usual and is
Bank A/c ………………………………………………..Dr.
To Equity Share Capital A/c
To Securities Premium A/c
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Profit & Loss Account 80,000
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Revaulation Reserve 20,000
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Development Rebate Resere 10,000
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At the annual general meeting of the company the following resolutions were passed:
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(i) To issue 2 bonus shares for every five shares hold as on date; and
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(ii) To give existing shareholders the option to purchase three ₹ 10 Right shares at ₹ 14 per share
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for every five shares held before the issue of bonus shares.
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All the shareholders took up the option of right shares and bonus shares were dully allotted. Show
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appropriate journal entries to record the above transactions in the books of T Ltd.
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Solution:
Books of S Ltd.
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Journal Entries
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Dr. Cr.
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F (₹) (₹)
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Working Notes:
(i) Number of Bonus Shares to be issued = 20,000 x 2/5 = 8,000 shares @ ₹ 10 each
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Amount of Bonus = ₹ 80,000
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(ii) Number of Right shares offered = 20,000 x 3/5 = 12,000 shares @ ₹ 14 each
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(face value ₹ 10/share, Securities premium = ₹ 4 per share)
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2. Issue of Bonus Shares [B.com 5sem Pass 2020]***
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Particulars ₹
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12,000, 12% preference shares of ₹ 10 each fully paid ₹ 1,20,000
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80,000 Equity Shares of ₹ 10 each fully paid ₹ 8,00,000
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Reserve and Surplus
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Capital Redemption Reserve ₹ 2,50,000
Securities Premium ₹ 1,00,000
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Revaluation Reserve ₹ 1,50,000
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General Reserve ₹ 1,00,000
Profit and loss balance (Cr.) ₹ 3,00,000
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Company has decided in its General Meeting to capitalize its reserve by issue of 1 fully paid bonus
share for every 2 equity shares held after fulfilling the legal formalities. Pass the journal entries to
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The authorised capital of X Ltd. is 15,000 Equity Shares of ₹ 10 each. Out of which 8,000 Equity
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Shares of ₹ 10 each are fully paid – up and 2,000 Equity Shares of ₹ 10 each have been called and
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Particulars ₹
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growth of the company.
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(b) Stock options create long term wealth in the hands of the employees.
(c) They are important means to attract, retain and motivate the best available talent for the
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company.
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(d) It creates a common sense of ownership between the company and its employees.
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1. Option: Option means a right but not an obligation granted to an employee for a specified
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period of time in pursuance of ESOS to purchase or subscribe to the shares of the company at
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a pre-determined price.
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3. Vesting: It is the process by which the employee is given the right to apply for shares of the
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company against the option granted to him in pursuance of employee stock option scheme.
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4. Vesting Period: It is the time period between grant date and the date on which all the
specified vesting conditions of an employee share based payment plan are to be satisfied.
5. Exercise Period: It is the time period after vesting within which the employee should exercise his
right to apply for shares against the option vested in him in pursuance of the ESOS.
6. Exercise Price: It is the price payable by the employee for exercising the option granted to
6 9)
To Employees Stock Option Outstanding Account 12,000
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(Being compensation expense recognised in respect of
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1,000 options granted to employees at discount of ₹ 30
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each, amortized on straight line basis over 2½ years)
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(Refer W.Note ii)
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To Equity Share Capital Account (₹ 10 × 1,000) 10,000
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To Securities Premium Account (₹ 80 × 1,000) 80,000
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(Being allotment to employees 1,000 shares of ₹ 10 each
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at a premium of ₹ 80 at an exercise price of ₹ 60 each)
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Working Notes:
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(ii) Employees compensation expense has been written off during 2½ years on straight line basis as
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under:
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31.3.2019 Employees Compensation Expense Account……... Dr. 48,000
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To Employees Stock Option Outstanding Account 48,000
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(Being compensation expense recognised in respect of
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1,000 options granted to employees at discount of ₹ 120
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each, amortized on straight line basis over 2½ years)
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Stock Option Outstanding A/c (₹ 120 x 600)……………Dr 72,000
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To Equity Share Capital Account (₹ 10 × 600) 6,000
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To Securities Premium Account (₹ 150 × 600) 90,000
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(Being allotment to employees 600 shares of ₹ 10 each at
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a premium of ₹ 150 at an exercise price of ₹ 40 each)
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Working Notes:
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(ii) Employees compensation expense has been written off during 2½ years on straight line basis as
under:
I year = ₹ 48,000 (for full year)
II year = ₹ 48,000 (for full year)
III year = ₹ 24,000 (for half year)
- 30 –Admission Going on for Regular/Crash Course for B.com. Call
Bhalotia Classes (9883034569): Corporate Accounting (5th Sem)
(iii) On 31.3.2021, ABC Ltd. will examine its actual forfeitures and make necessary adjustments, if
any, to reflect expenses for the number of options that actually vested. Considering that 700
stock options have completed 2.5 years vesting period, the expense to be recognized during
the year is in negative i.e.
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Less: Expenses recognized (₹ 84,000)
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Excess expense transferred to general reserve ₹ 12,000
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Employee Stock Options Outstanding will appear in the Balance Sheet under a separate heading,
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between ‘Share Capital’ and ‘Reserves and Surplus’.
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BETA Ltd. granted 15,000 options at ₹ 40 to its employees under Employee's stock Option Scheme
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(ESOS). The face value of each option was ₹ 10 and its market price at that time was ₹ 120. Two years
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were the vesting period. All the employees exercised their options fully. Show Journal Entries.
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Underwriting
Underwriting is an agreement, with or without conditions, to subscribe to the securities of a company
when existing shareholders of the company or the public do not subscribe to the securities offered to
them.
When a company goes in for an initial public offer (IPO), it may face certain uncertainty about whether
its offer of shares or other securities will be subscribed in full or not. As per SEBI Guidelines it is
required that if the company is not able to collect 90 % of the offer amount, then it needs to
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compulsorily return the money to those who have subscribed to the shares and causing lot of issue
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expenses to go waste. This uncertainty could be avoided by the help of a specialised group of risk-
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redeemers — called Underwriters.
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Underwriting commission:
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Normal underwriting:
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Under this type of agreement, the underwriter agrees to take up agreed proportion of shares, not taken
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up by the public. If the shares are fully subscribed by the public, the underwriter does not take up any
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share.
Firm Underwriting
It signifies a definite commitment to take up a specified number of shares irrespective of the number of
shares subscribed for by the public. In such cases the obligation or liability of the underwriter is the
aggregate of shares to be taken up under firm commitment and the shares as per underwriting
commitment.
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Unmarked (Do not bear any stamp Unmarked applications are always distributed among all the
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of underwriter. Received by underwriters in the ratio of gross liability (if no information
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Company directly) given)
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Firm Underwriting (Applications Treatment No.1 The applications for the firm shares are
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made by the underwriters for given to individual underwriter (i.e. treated as marked)
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(X & Y) (in the Ratio of gross liability)
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G Net Liability as per agreement ( if no ××× ××× ×××
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balance is negative) [ E
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3. Calculation of liability of underwriters (Firm underwriting)
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Statement showing Net liability of underwriters
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No Particulars Basis X Y Z
A Gross liability Ratio of Shares ××× ××× ×××
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Underwritten
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D Less: Unmarked applications allotted Ratio of Gross Liability ××× ××× ×××
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Case (b): In case of firm underwriting: (If gross application received does not include firm
underwriting OR Application received from the public)
Gross subscriptions Received (excluding firm underwriting) ******
Less: Total Marked applications received (excluding firm underwriting) ******
******
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Case (C): In case of firm underwriting: (If gross application received includes firm underwriting)
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Gross subscriptions Received (including firm underwriting) ******
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Less: Total Marked applications received (excluding firm underwriting) ******
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Less: Total Firm underwriting ******
******
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Unmarked applications
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underwriters
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No Particular A B
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s
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as unmarked). Also ascertain the underwriting commission payable to different Underwriters.
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(B) if Individual benefit of firm underwriting is given (i.e.treated as marked).
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Solution:
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(A) Calculation of Net liability of each underwriter (in Shares)
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(assuming that the benefit of firm underwriting is given to all in gross liability ratio)
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Particulars P Q R S
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underwriting)
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Less: Firm underwriting allotted in the ratio of 2,100 2,100 1,400 1,400
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(7,000 x 3 : 3 : 2 : 2)
Balance 5,300 14,300 (4,800) 8,200
Surplus of R is allocated to others (P, Q & S) (in (1,800) (1,800) 4,800 (1,200)
the Ratio of gross liability) (4,800 x 3 : 3 : 2)
Net Liability (excluding firm underwriting) 3,500 12,500 Nil 7,000
Add: Firm Underwriting (Actual) 3,000 2,000 1,000 1,000
Net Liability (Including firm underwriting) 6,500 14,500 1,000 8,000
As per law in force, underwriting commission is payable @ 5% of the issue price of shares.
Underwriting commission payable to P and Q = 5% of ( 15 x 30,000 shares) = ₹ 22,500.
Underwriting commission payable to R and S = 5% of ( 15 x 20,000 shares)= ₹ 15,000.
Calculate the Net liability of each underwriter if Individual benefit of firm underwriting is given
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(i.e.treated as marked).
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(B) Calculation of Net liability of each underwriter (in Shares)
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(assuming that the individual benefit of firm underwriting is given)
3
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Particulars P Q R S
(9
underwriting)
CL
Surplus of R is allocated to others (P, Q & S) (in (1,650) (1,650) 4,400 (1,100)
the Ratio of gross liability) (4,400 x 3 : 3 : 2)
Net Liability (excluding firm underwriting) 2,750 12,750 Nil 7,500
Add: Firm Underwriting (Actual) 3,000 2,000 1,000 1,000
Net Liability (Including firm underwriting) 5,750 14,750 1,000 8,500
9)
C 4,000 ,,
6
45
Applications were received for 16,000 Shares of which marked applications were as follows :
A 8,000 Shares
03
B 2,850 ,,
C 4,150
3
,,
88
You are required to find out the Liabilities of individual Underwriters.
(9
[Division of unmarked shares of A - 500, B - 300, C - 200; Surplus of C - 350 shares allocated
between A and B as 10 : 6 ratio; Net Liability of A - 1,281 shares and B - 2,719 shares]
S
SE
AS
Sam Ltd. invited applications from public for 1,00,000 Equity Shares of ₹ 10 each at a premium of ₹ 5
per shares. The entire issue was underwritten by the underwriters A,B,C and D to the extent of 30 %,
A
TI
30 %, 20 % and 20% respectively with the provision of firm underwriting of 3,000, 2,000, 1,000 and
O
1,000 shares respectively. The underwriters were entitled to the maximum commission permitted by
AL
law.
BH
The Company received applications for 70,000 shares from the public out of which applications for
19,000, 10,000, 21,000 and 8,000 shares were marked in favour of A, B, C and D respectively.
Calculate the Liability to each underwriter assuming the firm underwriting as (i) marked application,
(ii) unmarked application. Also ascertain the underwriting commission payable to each underwriter.
[Net Liability (i) A - 2,750 Shares, B - 12,750 Shares, C - Nil and D - 7,500 Shares . (ii) A - 3,500
Shares, B - 12,500 Shares, C - Nil, D - 7,000 Shares. Commission : A - ₹ 11,250, B - ₹ 11,250, C
- ₹ 7,500 and D - ₹ 7,500]
9)
underwriting by X, Y and Z in the ratio of 3:2:1. Their firm underwriting was as follows:
6
45
X : 35,000, Shares Y : 20,000 shares, Z : 22,500 shares.
03
The total subscription excluding firm underwriting & including marked application were for 1,60,000
3
shares. Marked application received were as follows: 88
X : 45,000, Shares Y : 22,500 shares, Z : 17,500 shares.
(9
The underwriting contract provided that credit for unmarked applications to be given to the
S
SE
underwriters in proportion to the shares underwritten and benefit of firm underwriting is to be given to
AS
all Underwriters.
CL
Remo Ltd. issued a prospectus inviting applications for subscription in 10,00,000 equity shares of ₹ 10
AL
6 9)
20,000 and 10,000 shares respectively. Applications were received for 10,10,000 shares and the
45
details are as below:
03
Marked Applications:
3
88
A – 5, 80,000 shares (including firm applications)
(9
B – 2, 20,000 shares (including firm applications)
S
Calculate the total liability of each underwriter assuming that firm applications are to be treated as
CL
unmarked.
A
TI
BD Flour Mills Ltd. floated a public issue of 1, 50,000 Equity Shares having face value of ₹ 10 each
BH
at par. A, B and C have taken underwriting of the issue in equal share with firm underwriting of
25,000, 20,000 and 20,000 shares respectively. Applications were received for 1,46,000 shares out of
which the marked applications were as under: A – 24,600, B – 20,000 and C – 15,000
Credit of unmarked applications is to given to underwriters equally. The agreed underwriting
commission was 5%. Total amount payable on application and allotment was ₹ 5 per share and
balance in calls.
Compute the following: (i) Liability of each underwriter (in shares as well as in amount). (ii)
Commission due to underwriter.
Redemption of Preference
Shares [10 Marks]
1. Redemption of Preference shares
Redemption is the process of repaying an obligation, at prearranged amounts and timings. It is a
contract giving the right to redeem preference shares within or at the end of a given time period at
an agreed price.
69)
45
(b)
03
Capitalisation Combination
By Fresh issue
3
of (a) and (b)
of shares (a) of
88
undistributed
profits
(9
S
SE
AS
2. Accounting Entries
CL
9)6
45
When preference shares are redeemed at par
03
Redeemable Preference Share Capital Account………………..Dr.
To Preference Shareholders Account
3
88
(Being the amount payable on redemption of preference shares transferred to Preference
(9
Shareholders Account)
S
SE
AS
6 9)
To Capital Redemption Reserve Account
45
(Being the amount transferred to Capital Redemption Reserve Account as per the requirement of
03
the Act).
3
88
Note:
(9
(a) Partly paid-up/called up Preference Shares are not eligible for Redemption.
S
(b) Securities premium and capital reserve cannot be utilised for transfer to Capital
SE
Redemption Reserve.
AS
CL
3. Computation of CRR
A
TI
(b) If shares were issued at Discount then Proceeds from fresh issue = Net amount received
(c) Proceeds from issue of Debentures can’t be used for computation of CRR.
9)
Reserve]
6
45
5. If Minimum Bank Account to be Maintained
3 03
Step 1: Prepare Bank Account And balancing figure will be Procees from issed of shares
88
(9
Note:
(a) If shares were issued at Par/Premium then Proceeds from fresh issue = Face value
(b) If shares were issued at Discount then Proceeds from fresh issue = Net amount received
(c) Proceeds from issue of Debentures can’t be used for computation of CRR.
9)
Cash at bank amounted to ₹ 98,000.
6
Preference shares are to be redeemed at a Premium of 10% and for the purpose of redemption, the
45
directors are empowered to make fresh issue of Equity Shares at par after utilising the
03
undistributed reserve and surplus, subject to the conditions that a sum of ₹ 20,000 shall be
3
88
retained in general reserve and which should not be utilised.
(9
Pass Journal Entries to give effect to the above arrangements and also show how the relevant
S
items will appear in the Balance Sheet of the company after the redemption carried out.
SE
Solution:
AS
Journal Entries
A
Dr. Cr.
TI
O
F (₹) (₹)
BH
Resolution No…..dated…….)
9)
General Reserve A/c ………………………………………………...Dr. 60,000
6
45
Profit & Loss A/c. ……………………………………………………..Dr. 10,000
03
Investment Allowance Reserve A/c……………………………Dr. 5,000
Particulars Notes ₹
A
No.
TI
1. Shareholders’ funds
a Share capital 1 2,25,000
BH
6 9)
Computation of No of Shares to be issued for redemption of Preference Shares:
45
Face value of shares redeemed ₹1,00,000
03
Less: Profit available for distribution as dividend:
3
88
General Reserve : ₹(80,000-20,000) ₹60,000
(9
Profit and Loss (20,000 – 10,000 set aside for adjusting premium payable
S
₹ 25,000
CL
9)
sold at a Profit of 10% and 5,000 equity Shares of ₹ 10 each were issued at ₹ 10.50 per Shares. The
6
45
Preference Shares were duly redeemed. Show Journal entries.
3 03
3. Redemption of preference shares [B.com Pass 1993]*88
(9
Payout Ltd. had following balances in its balance sheet as on 31.12.21: ₹
5,000 equity shares of ₹ 100 each, fully paid 5,00,000
S
SE
On 1.1.22 the preference shares are redeemed at 10% premium. For the purpose of redemption, 1.000 equity
O
shares of ₹ 100 each. are issued at 15% premium and investments costing ₹ 50,000 are sold at ₹ 40,000.
AL
Profit and loss account balance should be utilized first. Give necessary journal. entries to complete the
BH
transactions and show the share capital and reserve sections of the balance sheet immediately after the
redemption.
[Premium on redemption ₹ 30,000 will be provided out of Securities Premium A/c. Transfer to Capital
Redemption Reserve A/c ₹ 2,00,000 (₹ 1,90,000 from P/L and ₹ 10,000 from G/R]
9)
issued 10,000 Equity Shares of ₹ 10 each at 10% premium. Holders of 200, 8% Preference Shares could not
6
be traced. Minimum use of General Reserve was made. Show Journal entries.
45
[20,000, 8% Pref. Shares of ₹ 10 each can be redeemed; Capital Redemption Reserve to be created ₹
03
1,00,000]
3
88
(9
5. Redemption of preference shares [Honours 2002] ******
S
The books of the XYZ Ltd. showed the following balances on 31st December, 2021:
SE
₹
AS
6 9)
in general reserve. Pass journal entries to give effect to the above arrangement assuming that the
45
company could not trace the holders of 100 preference shares.
03
7. Redemption of preference shares [2014 Honours] *****
3
88
The following is the extract of Balance Sheet of Tik-Tok Ltd. as on 31.12.2021
(9
₹ ₹
S
9)
The Balance Sheet of Gyan Ltd. as on 31.03.2021 is an follows:
6
Equity and Liabilities Amount (₹)
45
Shareholder’s fund
03
(a) Shareholders’ fund
3
Equity Share Capital of ₹ 10 each fully paid
88 2,00,000
10% Preference Share Capital of ₹ 100 each fully paid 3,00,000
(9
(b) Reserve and Surplus
General Reserve 1,20,000
S
SE
11,00,000
Assets Amount (₹)
A
TI
Non-current investment
O
9)
20,000 Equity Shares of ₹ 10 each, fully paid up;
6
General Reserve ₹ 2,20,000;
45
Profit & Loss account ₹ 80,000;
03
Capital Reserve ₹ 20,000;
3
Securities Premium ₹ 20,000 (both the categories of Preference shares were issued prior to 2012.)
88
Preference Shares are to be redeemed at 10% premium. For this purpose 5,000 Equity Shares of ₹ 10
(9
each are issued at 10% premium. Holders of 500, 10% Preference Shares are not traceable. Minimum
use of free reserve is to be made for the purpose of redemption of Preference Shares. Pass necessary
S
SE
Journal Entries.
AS
₹
TI
Calls-in-arrear 2,000
AL
The preference shares are fully called up and are due for redemption at a premium of 10 %.
Calls-in-Arrear are in respect of final call at the rate of ₹ 4 per share and these shares are held by Mr. M. Sen
whose whereabouts are not known.
The Board of Directors decided that 50% of the General Reserve is to be utilised for the purpose of redemption
of redeemable Preference shares and for the balance necessary amount of equity shares of ₹ 10 each were
issued at a premium of 20%.
The redemption of preference shares were duly carried out and subsequently the company utilised the balance
of Capital Redemption Reserve A/c to issue equity shares at ₹ 10 each as bonus to shareholders.
You are required to pass the necessary Journal entries in the books of X Ltd.
[Ans. equity shares issued 14,500; Pref. shares to be redeemed 19,500; Bonus Shares to be issued 5,000.]
The Companies Act, 2013 under Section 68 (1) permits companies to buyback their own shares
and other specified securities out of:
(a) its free reserves; or
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities.
9)
2. Determination of quantum for buy-back
6
45
The maximum number of shares to be bought back is determined as the least number of shares
03
arrived by performing the following tests:
3
88
(1) Share Outstanding test :
(9
(b) 25% of the number of shares is eligible for buy back with the approval of shareholders.
AS
(a) Ascertain shareholders’ fund (Share Capital + Reserves & Surplus – Preliminary expenses etc)
A
(b) No. of shares held for buyback = Shareholders’ funds ÷ Buy back price
TI
O
AL
Maximum shares that can be bought back = Least of (1), (2) or (3)
6 9)
45
(c) Adjustment of premium on buyback
03
Securities Premium A/c……………………………Dr.
3
88
General Reserve A/c……………………………….Dr.
(9
Profit & Loss A/c …………………………………Dr.
S
Note:
Securities premium may be utilised for capital Redemption Reserve if needed.
Revaluation Reserve & Specific Reserves can’t be used for capital Redemption Reserve.
Specific Reserves (free portion only) be used for capital Redemption Reserve.
XYZ Ltd. has the following capital structure on of 31st March 2021.
Particulars ₹ in Lakhs
a. Equity Share capital (Shares of ₹ 10 each) 300
b. Reserves :
General reserve 270
Security Premium 100
Profit and Loss A/c 50
Export Reserve (Statutory reserve) 80
6 9)
c. Loan Funds 800
45
Advice the company on maximum number of shares that can be bought back if the buyback price is ₹
03
30 each and record journal entries.
3
88
Solution:
(9
In the Books of XYZ Ltd.
S
Journal Entries
SE
Dr. Cr.
AS
F (₹ in lakhs) (₹ in lakhs)
A
6 9)
No. of shares outstanding 30 lakhs
45
25% of shares outstanding 7.5 lakhs
03
WN # 2: Resources test:
3
88
Particulars Amount (₹ in lakhs)
(9
a. Paid up capital 300
S
Particulars Amount
BH
(₹ in lakhs)
(a) Borrowed Funds 800
(b) Minimum equity to be maintained after buy back in the ratio 2:1 400
(c) Present equity 720
(d) Maximum possible dilution in equity [c – b] 320
(e) Maximum shares that can be bought back @ ₹ 30/share [d ÷ 30] 10.67 lakhs shares
Maximum shares that can be bought back = Least of (1), (2) and (3) = 6 lakhs shares.
Delight Ltd. decided to buy-back 60,000 of its equity shares of ₹ 10 each at a premium of 25%. For
this, it issues 5,000, 7.5 % Preference shares of ₹ 100 each at par. The company has ₹ 90,000 in
General Reserve; ₹ 80,000 in Profit and Loss Account (Cr.); ₹ 1,20,000 in Capital Reserve and ₹
1,00,000 in security premium. It decided to utilise profits and reserves also. Give journal entries for
the above.
[Ans. Amount transferred to Capital Redemption Reserve ₹ 1,00,000]
9)
Liabilities ₹ Assets ₹
6
45
Share Capital of ₹ 10 each Land & Building 30,00,000
03
fully paid up 80,00,000 Machinery 45,00,000
3
Securities Premium 25,00,000 Furniture
88 10,00,000
General Reserve 7,00,000 Investments 10,80,000
(9
1,22,33,000 1,22,33,000
On 1st April, 2021 the company announced the buy back of its 25% Equity Shares at ₹ 20 per shares.
A
TI
For that purpose the Company sold its entire investments at ₹ 12,00,000 and issued 8,000, 10%
O
Preference Shares of ₹ 100 each. The Company utilised 50% of the General Reserve, 100% of the
AL
Profit and Loss A/c and the rest was taken from the Securities Premium A/c. Show necessary Journal
BH
Entries.
[Ans. Amount transfer to Capital Redemption Reserve ₹ 12,00,000]
(Amount) (₹)
6,00,000 Equity Shares of ₹ 10 each fully paid 60,00,000
General Reserve 14,00,000
Securities Premium 10,10,000
12% Debentures of ₹ 100 each 28,00,000
Trade Payables 9,20,000
On 1st April 2021, the shareholders of the company have approved the scheme of buyback of equity
shares as under :
(a) 20 % of the equity shares would be bought back at ₹ 16 per shares.
9)
(b) Premium payable on buyback of shares should be met from the Securities Premium Account.
6
45
(c) Investments would be sold for ₹ 7,80,000 (Book value being ₹ 7,40,000).
03
Pass journal entries to record the above transactions.
3
88
(9
5. Buy-Back of equity Shares [5th Semester Honours 2020] *
S
Following figures are available from the Balance Sheet of King Ltd. as on 31.03.2021 (in ₹.) :
SE
₹
AS
Assets 1,12,57,000
Non – current assets :
Fixed assets
9)
Investments 66,00,000
6
Current assets : 18,00,000
45
Inventories 11,87,000
03
Trade receivables 9,60,000
Cash and cash equivalents 7,10,000
3
88
1,12,57,000
(9
Notes :
Share capital : ₹
S
SE
Securities premium
6,50,000
General reserve
3,75,000
A
15,65,000
AL
The shareholder adopted the resolution on the date of the above mentioned balance sheet to:
BH
9)
Stock – in trade 20,00,000
6
Trade receivable 16,00,000
45
Cash and bank 36,00,000
03
1,44,00,000
3
The company intends to buy – back 40,000 equity shares at a premium of ₹ 30 per shares. State whether the
88
company can do so and, if your answer is affirmative, pass journal entries for the same.
(9
The following information is available from the Balance Sheet of Everest Co. Ltd. as on 31.03.2021.
AS
12,00,000
TI
On the above date equity shares are bought back by the company to the extent possible as per section 68(2) of
the Companies Act, 2013, at premium of ₹ 40 per shares. You are required to give journal entries to give the
effect to buy-back and also show all workings.
Redemption of Debentures
[10 Marks]
1. REDEMPTION OF DEBENTURES
Redemption of debentures is the process of discharging the liability on account of debentures in
accordance with the terms of redemption stated in the debenture trust deed. Discharge of debenture
liability is usually by paying cash to the debenture holde ₹
9)
6
Profit and Loss A/c……………………………………………………….....Dr.
45
To Sinking Fund A/c
03
(Setting aside the required amount based on sinking fund table)
3
88
(9
Sinking Fund Investment A/c……………………………………………….Dr.
S
To Bank A/c
SE
Bank A/c…………………………………………………………………….Dr.
TI
Last year
Bank A/c…………………………………………………………………….Dr.
To Sinking fund interest A/c
(Interest on sinking fund investment received.)
9)
To Sinking fund A/c
6
(Transfer of interest account to sinking fund.)
45
03
Profit and loss A/c……………….………………………………………..Dr.
3
88
To Sinking fund A/c
(9
Bank A/c……………………………………………………………………Dr.
A
Debenturesholders A/c………………………………………………...Dr.
To Bank A/c
(Payment to Debentureholders)
9)
(Premium on redemption of Debentures written off)
6
45
03
Sinking fund A/c……………………………………………………….Dr.
To General reserve A/c
3
88
(Transfer of balance of sinking fund account to General Reserve)
(9
Note:
S
SE
It may be noted that in the final year the amount appropriated from the profits of the
AS
company and the amount received as interest on sinking fund investment are not invested,
CL
as the amount would be needed on the following day for the redemption of debenture.
A
TI
Debentures A/c………………………………………………………..Dr.
AL
6 9)
45
4. Purchase from Open Market & cancelled subsequently
03
Own Debentures A/c………………………………………………… Dr.
Debenture Interest A/c………………………………………………...Dr.
3
88
To Bank A/c
(9
Debentures A/c………………………………………………………..Dr.
CL
9)
Solution:
6
45
DRF = Debenture Redemption Fund, DRFI = Debenture Redemption Fund Investment
3 03
Dr. Debentures Redemption Fund Investment (DRFI) Account Cr.
88
(9
2,10,000 2,10,000
O
AL
9)
31.03.2018 Premium on redemption of 22,100 01.04.2017 By Balance b/d 3,31,000
6
Debentures A/c
45
03
To Debenture Redemption 4,51,000 31.03.2018 By Interest on DRFI A/c 33,100
Reserve A/c or General
3
Reserve A/c 88
31.03.2018 By P&L App. A/c 1,00,000
(9
By Debenture Redemption
Fund Investment A/c (Profit)
S
4,73,100 4,73,100
SE
Working Notes:
AS
9)
(iii) Sinking Fund Investment Account - ₹ 1, 00,000
6
45
(Investment in 6% Govt. Loan, nominal Value being ₹ 1, 10,000)
On 31.03.2021 annual contribution added to the Sinking Fund was ₹ 13,400. Interest for the year was
03
received. All the investments were realised at 90% of nominal value and Debentures were paid off at par.
3
Balance at Bank on that date was ₹ 42,500. Show the necessary ledger accounts in the books of the
88
company for the year ended 31.03.2021.
(9
[Amount realised on sale of Investment ₹ 99,000; Sinking Fund balance transferred to G.R ₹ 1,19,000]
S
SE
The following balances appeared in the books of Roy Co. Ltd. on 1.4.21:
(a) Debenture redemption fund account : ₹ 40,000 represented by Investments at cost of an equal amount
CL
The company sold investments of the nominal value of ₹ 30,000 @ ₹ 90 for the purpose of redemption of ₹
O
Show the: (i) 12% debentures account ; (ii) Debenture redemption fund account ; (iii) Debenture redemption
fund investment account. (Ignore interest, brokerage etc.)
BH
9)
2020-21 and cancellation was done on 31st March, 2021:
6
45
(a) On 1st April, 2020: ₹ 50,000 Nominal Value, Purchased for ₹ 49,450 (ex-interest)
(b) On 1st September, 2020: ₹ 30,000 Nominal Value, Purchased for ₹ 30,250 (Cum-interest).
03
Show the journal entries for the transactions that took place in the financial year 2020-21.
3
88
8. Redemption of Debentures [B. Com. (Hons.) 2014 type] **
(9
Silicon Ltd. has ₹ 1,50,000; 6% Debentures on 1.1.2021. There is no Sinking Fund for redemption of
S
(i) On 1.4.2021 ₹ 10,000 own debentures were purchased at ₹ 94 cum-interest by Silicon Ltd. and
AS
immediately cancelled.
(ii) On 1.6.2021 ₹ 25,000 own debentures were purchased at ₹ 95 cum-interest and held as investment.
CL
(iii) On 1.10.2021 ₹ 30,000 own debentures were purchased at ₹ 96 ex-interest and held as investment.
A
Show journal entries in the books of the company. Date of closing of books of account is 31st December.
O
AL
Silicon Ltd. issued 8% Debentures of ₹ 4,00,000 in earlier year on which interest is payable half-early on 31st
March and 30th September. The Company has power to purchase its own debentures in the open market for
cancellation thereof subsequently. The following purchases were made during the financial year 2020-21 and
cancellation was done as 31.03.2021:
a) On 01.04.2020 ₹ 60,000 Nominal value, Purchased for ₹ 59,340 (ex-interest)
b) On 01.09.2020 ₹ 40,000 Nominal value, Purchased for ₹ 40,333 (cum-interest)
Show the journal entries for the transaction that took place during 2020-21.
b. Weighted Average Method = Weighted Average trading Profit after tax x Years of Purchase
6 9)
Average Trading Profit after tax
45
Less: Normal Profit (Closing or average Capital Employed x Normal Rate of Return)
03
Less: Fair Remuneration to Partner
3
88
Super Profit
(9
S
SE
Assets Approach –
Fixed Assets (Excl. G/Will) (Revalued Figure)
Add: Current Assets (Revalued Figure)
Less: Current Liabilities(Revalued Figure)
Liabilities Approach –
Share Capital
Add: Reserve & Surplus
Add: Revaluation Profit
Add: Long-Term Loan
Less: Goodwill
9)
Less: Investment
6
45
Less: Revaluation Loss
Less: Misc. Expenditure
03
Less: P/L (Deficit Balance)
3
88
Note: If Capital Employed is given:-
(9
Capital Employed
Add: Revaluation Profit
S
SE
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃
4. Capitalisation of super profit Method =
O
Net Assets means All Assets (other than fictitious assets, goodwill and non-trade investments) at their
current values – Outsider’s Liabilities.
9)
which was charged to revenue. The said sum is agreed to be capitalized for goodwill calculation subject
6
to adjustment of depreciation @ 10% per annum on reduction balance method.
45
(b) The closing stock on 31st March, 2021 was overvalued by ₹ 12,000.
03
(c) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of valuation
of goodwill.
Compute the value of goodwill of the business.
3
88
Solution
(9
9)
3. Valuation of Goodwill [B.com 2016 Honours] *****
6
From the following particulars of a company, ascertain the value of goodwill under the following under the
45
followings methods:
03
i. 3 years’ purchase of super profit method and,
3
ii. Capitalizations method 88
iii. Annuity of super profit method when Present value of an annuity of ₹ 1.00 for 3 years at 10 % interest
is 2.49.
(9
Particulars:
S
b. Net Trading Profit of the firm for past 3 years: ₹ 2,15,200; ₹ 1,81,400 and ₹ 2,25,000.
AS
e. The profit included non-recurring profits on average basis of ₹ 2,000 out of which it was considered
that even non-recurring profits had a tendency to be recurring at an average rate of ₹ 1,200 per year.
A
f. Sundry assets of the company ₹ 15,00,000 and current liabilities ₹ 60,000. Ignore taxation.
TI
O
Calculate goodwill as per (a) annuity method ; (b) five years purchase of super-profits method and (c)
BH
9)
The current market value of the plant included in fixed assets is ₹ 15,000 more. The average profit of the
6
company (after deductions for interest & Govt. taxes) is ₹ 68,000. Expected rate of return is 10 %.
45
[Closing capital Employed ₹ 4,85,000; Average capital Employed ₹ 449425; Goodwill ₹ 1,26,035]
03
6. Valuation of Goodwill [C.U B.com 2013 Pass]****
3
88
Balance Sheet of Ex. Td. As on 31.03.2021 is as follows:
(9
Liabilities ₹ Assets ₹
Share Capital 6,00,000 Fixed Assets 3,70,000
S
SE
The net profits of the company before tax were: 2017 – 18: ₹ 3, 18,000, 2018 – 19: ₹ 3, 40,000, 2019 - 20: ₹
TI
3,12,000. On 31.03.2021 the fixed assets are valued at ₹ 4, 50,000. Sundry debtors on the same date
O
included ₹ 10,000 which is unrealizable. Having regard to the type of a business a 10% return on capital
AL
Ascertain the value of goodwill on the basis of three years purchase of annual super profits.
[Ans. Value of goodwill ₹ 4,45,000]
6 9)
8. Valuation of Goodwill [B.com 2018 Honours] ******
45
From the following information calculate the value of goodwill as on 31.03.21:
03
a) Equity share capital (₹ 10) ₹ 4,00,000
3
b) 10% Pref. Share capital ₹ 1,00,000. 88
c) Reserve & Surplus ₹ 90,000
d) 9% Debenture ₹ 1,00,000
(9
f) Creditors ₹ 70,000.
SE
g) Market value of Assets is ₹ 90,000 more than the book value and non-trade investment included in
AS
assets ₹ 1,30,000.
h) Profits for last three years after 40% tax were:
CL
k) Goodwill is to be valued on the basis of 4 years purchase of Super Profit.(Take simple average profit)
O
AL
From the information given below calculate the value of Goodwill by Capitalisation of Average Operating
Profit:
Capital and liabilities of the company (as per its Balance Sheet as on 31-3-2021) includes the following:
Shareholders’ fund ₹ 12,50,000
7% Debentures ₹ 4,50,000
Profits after charging 40% income tax for the last three years were:
2018-19: ₹ 1,56,000, 2019-20: ₹ 1,84,000 and 2020-21: ₹ 1,76,000
It was found that, in 2018-19 the company purchased a machine at ₹ 50,000 and charged the same against its
profit. The company charges depreciation @ 20% on WDV of such machinery. Debentures were issued prior
to 2018-19.
Similar companies earn after tax operating profit @ 8%. [Consider simple average profit]
- 74 –Admission Going on for Regular/Crash Course for B.com. Call
Bhalotia Classes (9883034569): Corporate Accounting (5th Sem)
10. Valuation of Goodwill [B.com 2015 Honours] ******
Following information relate to a company as on 31.03.2021:
(a) Equity Share Capital: 40,000 shares of ₹ 10 each fully paid and 25,000 shares of ₹ 10 each, ₹ 4 paid.
(b) 9%, Pref. Shares Capital ₹ 3, 00,000.
(c) Reserve & Surplus ₹ 90,000.
(d) 12% Debentures ₹ 2, 50,000.
(e) Assets include a non – trade investment, the market value of which is ₹ 1,20,000 (Book value being ₹
1,40,000)
(f) Before tax profits for last three years were ₹ 95,000, ₹ 1, 25,000 and ₹ 1, 40,000 respectively
(including income from non – trade investment of ₹ 10,000 on an average.)
(g) Rate of income tax is 30%.
(h) Fair Return on Capital Employed in this type of business is estimated at 9%.
You are required to calculate –
(i) The value of goodwill using 3 years’ purchase of Super Profit Method, and
9)
(ii) The value of each fully paid equity share taking the value of goodwill as computed in ‘a’.
6
(Take simple average profit).
45
[Ans. Value of goodwill ₹ 24,000; Capital Employed ₹ 10,00,000; Super Profit ₹ 8,000, Value/share ₹ 11.45
03
& ₹ 5.45.
3
88
11. Valuation of Goodwill [B.com 2021 Honours] ******
(9
The following particulars of A.Ltd are given below:
(a) Equity share capital: 20,000 equity shares of ₹ 10 each fully paid
S
SE
(b) Preference share capital: 2,000, 8% preference shares of ₹ 100 each fully paid
AS
(e) Average normal profit after tax earned in each year by the company ₹ 60,000
A
Valuation of Shares
[10 Marks]
There are three types of method:
a. Intrinsic Value Method/Assets Backing Method
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎ℎ𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹
Value/Equity Shares =
𝑁𝑁𝑁𝑁.𝑜𝑜𝑜𝑜 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎
6 9)
b. Dividend Yield Method/Earning Capacity Method
45
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 (𝑜𝑜𝑜𝑜 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸)
Yield Value/Shares = x Paid up value/Share
𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 (𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅)
3 03
𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑡𝑡𝑡𝑡 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎ℎ𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜
Expected Rate of Dividend = x 100
88
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑈𝑈𝑈𝑈)
(9
9)
On 31st December 2004, the fixed assets were independently valued at ₹ 3, 50,000 and the goodwill at ₹
6
50,000. The net profits for the three years were: 2002 ₹ 51,600; 2003 ₹ 52,000 and 2004 ₹ 51,650 of which
45
20% was placed to Reserve Account and this proportion being considered reasonable in the industry in which
03
the Company is engaged and where a fair investment return may be taken at 10%. Compute the value of the
Company’s share by (a) the Assets Method and (b) the Yield Method.
3
88
(9
S
SE
AS
CL
A
TI
O
AL
BH
9)
(a) Capital: 6,000, 6% Preference Shares of ₹ 100 each fully paid and 5,000 Equity Shares of ₹ 100 each
6
fully paid.
45
(b) External Liabilities - ₹ 75,000;
03
(c) Reserved & Surplus - ₹ 50,000;
3
(d) The average expected profit (after tax) -₹ 90,000; 88
(e) The normal Profit earned on the market value of Equity Shares of the same Company -10 %.
(f) Transfer to Reserve - 10% of the Net Profit.
(9
Calculate the intrinsic value per Equity Share and the value per Equity Share according to Dividend Yield
S
c) External Liabilities:
Creditors – ₹ 30,000
Bills payable – ₹ 10,000.
d) The average normal profit (after taxation) earned each year by the company, ₹ 35,000. Assets of the
company include one fictitious item ₹ 3,000.
The fair or normal rate of return in respect of the Equity share and preference share of this type of
company is ascertained at 10%.
Calculate the value of each type of share by:
i. The Assets Backing Method.
ii. The Earning Capacity Method.
[Answer: Intrinsic value ₹ 122. Yield value ₹ 230]
9)
14% Preference shares of ₹ 10 each 20,00,000
6
Equity shares of ₹ 10 each 32,00,000
45
Reserve & Surplus 16,00,000
03
10% Debentures 24,00,000
11% Loans from banks/financial institutions 28,00,000
3
88
1,20,00,000
The average annual profit before payment of tax and interest is ₹ 24,00,000. The income- tax rate is assumed
(9
to be @ 50 %. Compute the value of equity shares of the company, if the applicable price-earning ratio is 9.
S
[Ans. Value of Equity share under: (i) Asset Backing Method ₹ 15; (ii) Earning Method ₹ 18.18; (iii)
SE
9)
On the basis of the following information, calculate the value of equity shares:
6
45
₹
5,000 6% preference shares of ₹ 100 each, fully paid 5, 00,000
03
30,000 equity shares of ₹ 10 each fully paid 3, 00,000
3
Total tangible assets (other than goodwill) 88 9, 49,000
Total outside liabilities 95,000
(9
Average net profit after tax 62,560
Expected normal yield for equity shares is 7% of capital employed. Goodwill is to be taken at 5 years’
S
SE
5,50,000 5,50,000
Further Information:
9)
(a) Current Cost of Sundry Fixed Assets is ₹ 3, 70,000 and that of Stock is ₹ 1, 00,000.
6
(b) Investment could fetch only ₹ 10, 000.
45
(c) 50% of Debtors are doubtful.
03
(d) Preference dividend is in arrear for the last five years.
Find out the intrinsic value of each Equity Share of the company.
3
88
[Ans: ₹ 8.94 & ₹ 4.94]
(9
S
(a) Equity share capital – 4,000 equity share Rs 100, fully paid.
CL
9)
(a) Revenue from operation
6
(b) Other income
45
Total Revenue (a + b)
03
II. Expenses:
(a) Cost of material consumed
3
(b) Purchase of stock-in-trade
88
(9
(c) Change in inventories of Finished
Goods / Work- in- progress and Stock-
S
SE
In-Trade
AS
Total expenses
O
AL
9)
(a) Long term borrowings
6
45
(4) Current Liabilities
(a) Short term borrowings
03
(b) Trade payable
(c) Other current liabilities
3
88
(d) Short term provision
(9
Total
S
II Assets
SE
(ii)Intangible assets
TI
9)
Total
6
45
(3) Cost of Material Consumed
03
Particulars Amount
Opening Stock of Raw Material
3
88
Add: Purchase of Raw Material
(9
Less: Closing Stock of Raw Material
S
Total
SE
AS
Gross Purchases
Less: Purchase Return
A
TI
Total
O
AL
Opening Stock
Less: Closing Stock
Total
9)
Rent
Insurance
6
45
Rates and taxes (other than income tax)
Donation
03
Payment to auditor
(a) For accounting & Audit work
3
88
(b) For Taxation
(9
(c) For other Services
S
Legal, charges
SE
Director fees
Miscellaneous
CL
Total
A
TI
Particulars Amount
AL
9)
negative item. Similarly if there is negative balance in any reserve after adjustment then that reserve should be
6
45
presented in the head also as negative item.
03
(12) Long-term Borrowing
3
Particulars Amount
88
Debenture
(9
Term loan from Bank
Total
S
SE
AS
Bank O/D
Other Short term loans and advances
A
TI
Total
O
AL
Creditors
Bills payables
Total
9)
6 Office Equipments
6
45
Total
03
(18) Intangible
Particulars
3 Amount
88
1 Goodwill
(9
2 Brands/trades Marks
S
4 Copyrights:
SE
5 Patents
AS
Total
CL
(23) Inventories
Particulars Amount
Raw material
Work in progress
Finished goods
Stores and spares
Loose tools
Total
9)
(24) Trade Receivable
6
45
Particulars Amount
Debtors
03
Bills Receivable
Total
3
88
(9
Particulars Amount
SE
Cash on Hand
Total
CL
A
Particulars Amount
O
Advance Tax
BH
Total
9)
Trade creditors 6,12,000
6
General reserve 3,00,000
45
Profit and loss account (1.4.2020) 1,76,000
Bank overdraft 2,23,600
03
Purchase and returns 48,00,000 1,00,000
3
Sales and returns 1,40,000 61,56,000
88
Advertisement 1,78,800
(9
Legal charges 20,000
S
1,35,67,600 1,35,67,600
AL
Additional information:
BH
1. Closing stock was valued at ₹ 10,82,000 at cost, but market value of which was ₹ 12,10,000
2. Provision for doubtful debts to be created @ 5%.
3. Depreciation on all assets was calculated for the amount of ₹ 2,86,400 for the year 2020-21.
4. Trade expenses include ₹ 10,000 for audit fees and ₹ 2,000 paid to the auditor for attending taxation mattersof the company.
5. Calls on arrear includes ₹ 4,000 due from directors.
6. Directors declared an interim dividend @ 2.5% and recommended dividend for the amount of ₹ 1,46,260.
7. Assume dividend tax rate is 17%.
8. Provide for income tax of ₹ 70,000 for the year 2020-21.
Prepare the company’s balance sheet as on 31.03.2021 and its statement of profit and loss for the year ended
31.03.2021.
K Limited
69)
(b) Purchase of stock in trade 3 47,74,000
45
(c) Changes in inventories 4 (1,30,000)
03
(d) Employee benefit expenses 5 4,64,000
3
88
(e) Finance cost 6 1,20,000
(9
Total 58,05,200
CL
9)
a. Short term borrowings (Bank overdraft) 2,23,600
6
45
b. Trade payables 11 6,12,000
03
c. Other current liabilities 12 1,48,750
3
d. Short term provisions
88 13 2,57,512
(9
Total 75,32,400
S
II: Assets
SE
9)
3. Purchase of Stock (₹)
6
45
Purchase 48,00,000
03
Less returns 1,00,000
3
88 47,00,000
(9
Add: carriage on goods purchased 74,000
S
47,74,000
SE
AS
1,30,000
AL
BH
9)
Less calls in arrear of directors 4,000
6
45
Less calls in arrears for others 46,000
03
39,50,000
3
88
(9
9. Reserves and Surplus ( ₹) ( ₹) ( ₹)
S
3,26,800
A
TI
Less: Appropriation
O
9)
Provision for tax 70,000 2,57,912
6
45
03
14. Property, Plant & Equipment (₹) (₹)
3
Tangible
88
(9
Land and building 51,12,000
S
Furniture 2,66,000
SE
53,78,000
AS
Goodwill 3,20,000
AL
BH
9)
Advance tax 56,000
6
45
03
20. Other current assets (₹)
Accrued interest
3 10,000
88
(9
S
SE
Note :
AS
2,45,010
9)
Administrative Expenses 25,000 Profit & Loss Balance 30,000
6
45
Plant & Machinery 1,50,000 Creditors 50,000
03
Debtors 70,000 Bills Payable 20,000
Cash 15,000
3
88
Bank 30,000
(9
S
10,95,000 10,95,000
CL
Additional information:
A
TI
From the above information, prepare Statement of Profit and Loss for the year ended 31.03.2021
and a Balance Sheet as on that date.
9)
Auditor’s fees 9,000 Securities Premium 24,000
6
45
Directors’ remuneration 32,000 Share Capital 4,00,000
03
Freehold Premises 1,64,000
Plant and Machinery 1,30,000
3
Furniture and Fittings 42,000
88
Patents 20,000
(9
You are required to prepare the Statement of Profit & Loss for the year ended 31.03.2021 and the Balance
AL
9)
Sundry expenses 8,250
6
Balance of Profit and Loss (1-4-2020) 25,000
45
Share capital (Subscribed and paid up) ₹ 10 each 1,00,000
03
Interim Dividend 8,000
3
Debtors and Creditors 88 26,200 15,500
Plant and Machinery 1,23,000
(9
General Reserve 10,000
S
Patent 4,000
SE
5,63,500 5,63,500
CL
Prepare Statement of Profit & Loss for the year ended 31st March, 2021 and a Balance Sheet as on that date
as per Schedule II of the Companies Act, 2013, taking into consideration the following adjustments:
A
TI
c) On 31st March, 2021 outstanding rent amounted to ₹ 800 while outstanding salaries totaled ₹
BH
1,200
d) Make a provision for doubtful debts @ 5%
e) Provision for tax is to be made @ 30%.
f) The directors proposed a dividend @ 10% for the year ended 31st March, 2021 excluding interim
dividend and decided to transfer ₹ 10,000 to General Reserve.
g) Patents have a life of 4 year.
h) Ignore tax on dividend.
You are also required to prepare rated to account in relation to Reserve and Surplus.
9)
18% Bank Loan (Secured) - 50,000
6
Interest on bank loan 4,500 -
45
Office salaries and expenses 17,870 -
03
Auditor’s fees 8,600 -
Director’s Remuneration 32,250
3 -
88
Freehold premises 1, 64,210 -
(9
Furniture 5,000 -
Patents 20,000 -
AS
9)
Debtors 27,500
6
45
Plant and machinery 29,000
03
Cash at bank 46,200
3
Patents 4,800 88
Bills receivable 5,000
(9
5,08,000 5,08,000
S
SE
Prepare the profit and loss account for the year ended 31st March, 2021 and a balance sheet as on that date
after considering the following adjustments:
AS
(c) Depreciate plant and machinery at 15%. Furniture at 10%, patents at 5%.
TI
(d) On 31st March, 2005 outstanding rent amounted to ₹ 800 and salaries ₹ 900.
O
AL
(e) The board recommends payment of a dividend @ 15% per annum. Transfer the minimum required
BH
Internal Reconstruction
[15 Marks]
Journal Entry:
a. ………Equity Shares of ₹ …………. each reduced to Equity Shares of ₹ ……. each
Equity Share Capital A/c (old)---------------Dr.
To Equity Share Capital A/c (New)
To Capital Reduction A/c
(Being ……….Equity shares of …………each reduced .to…………….each and balance transferred
to Capital Reduction A/c as per special resolution no. ……..dated……….)
6 9)
b. ……….Pref. Share Capital of ₹ ………….each reduced to Pref. Share Capital of …………each
45
Pref. Share Capital A/c (old) ---------------Dr.
03
To Pref. Share Capital A/c (New)
3
88
To Capital Reduction A/c
(9
(Being ……….Preference shares of …………each reduced to…………….each and balance
S
To Debenture (New)
O
d. Arrear Preference Dividend or any unrecorded liability cancelled (or waived off or foregone)
(Not given in B/Sheet or it is given in Contingent Liability)
No Enty
Note:
No Entry to be passed for cancellation off arrear preference dividend.
(Being ……….Equity Shares of ……. each issued for arrears of Preference Share dividend)
6 9)
To Capital Reduction A/c
45
(Being creditors reduced their ……….claim as per as per scheme of reconstruction)
03
3
88
g. Creditors agreed to forego part of their claim and balance were paid off immediately
(9
(Being creditors reduced their ……….claim and balance were paid off as per as per scheme of
reconstruction)
A
TI
O
9)
l. Provision for Bad debts raised:
6
Capital Reduction A/c --------------------Dr.
45
To Provision for Bad debts A/c
303
(Being securities premium utilised for capital reduction)88
(9
m. P/L (Deficit Balance), Preliminary Expenses, Deferred Expenses, Goodwill are always to be
S
SE
To Goodwill A/c
BH
(Being Profit & Loss A/c, Preliminary Expenses A/c, Deferred Expenses A/c and Goodwill A/c
written off as per scheme of reconstruction)
9)
Bank A/c -----------------------Dr.
6
Capital Reduction A/c………Dr.
45
03
To Investment A/c
3
(Being Investment Sold) 88
r. Expenses on Reconstruction:
(9
To Bank A/c
AS
t. Loan taken ₹ ………to pay off Bank overdraft ₹ …… & balance to be used for working capital
(a) Bank A/c -------------------Dr.
To Loan A/c
(Being Bank Loan Taken)
(ii) Bank overdraft A/c ---------------Dr.
To Bank A/c
(Being Bank overdraft paid off)
69)
(Being Call Money Received)
45
03
w. Balance of Capital Reduction: transfer to Capital Reserve or Goodwill
(for this capital reduction A/c is to be prepared)
3
88
(9
Surplus = Excess Credit Balance
S
Surrender of Shares
(a) Each Equity Share shall be sub-divided into…….fully paid Equity Shares of ₹ ……each.
Equity Share Capital A/c ……………………………… Dr.
To Equity Share Capital A/c (New)
(Being ……….Eq. Sh. of ₹ ………each fully paid subdivided into …………Eq. Sh. of ₹ ……..
each fully paid up as per Scheme of Reconstruction)
(b) After sub-division each shareholder will surrender ….% of the holding for the purpose of
re-issue to Debentureholders & Creditors, so far as required and otherwise for cancellation.
Equity Share Capital A/c (New) ………………………………….Dr.
9)
To Shares Surrendered A/c
6
45
(Being ……………% of Equity Shares were surrendered for conversion or cancellation as per as
03
per Scheme of Reconstruction)
3
88
(c) The Debenture holders' total claims shall be reduced to ₹……….. This will be satisfied by
(9
Reconstruction)
O
AL
(d) Out of the surrendered shares, ……….Equity shares of ₹ …………..each shall be converted
BH
(f) The claims of Creditors shall be reduced by ……… of the amount and the balance shall be
satisfied by allotting them Equity Shares of ₹ 10 each from the Shares surrendered.
Creditors A/c………………………………………… Dr.
To Capital Reduction A/c
9)
(Being the entire balance of Creditors A/c transferred to Capital Reduction A/c as per scheme of
6
Reconstruction)
45
03
Shares Surrendered A/c ………………………………………… Dr.
3
88
To Equity Share Capital (New) A/c
(9
(Being ……… Equity Shares of ₹ ….each were Issued to Sundry Creditors out of surrendered
S
(g) Creditors' claims reduced by ₹ ………and in consideration they will receive equity shares
CL
Practical Questions
1. Internal Reconstruction
The Balance Sheet of Vaibhav Ltd. as on 31st March 2021 is as follows:
Liabilities ₹ Assets ₹
Equity Shares of ₹ 100 each 2,00,00,000 Fixed Assets 2,50,00,000
Investments
6%, Cumulative Preference
1,00,00,000 (Market Value 20,00,000
Shares of ₹ 100 each
₹ 19,00,000)
5% Debentures of ₹ 100 each 80,00,000 Current Assets 2,00,00,000
Sundry Creditors 1,00,00,000 P & L A/c 12,00,000
Provision for taxation 2,00,000
9)
TOTAL 4,82,00,000 TOTAL 4,82,00,000
6
45
03
The following scheme of Internal Reconstruction is sanctioned:
3
(i) All the existing equity shares are reduced to ₹ 40 each.
88
(ii) All preference shares are reduced to ₹ 60 each.
(9
(iii) The rate of Interest on Debentures increased to 6%. The Debenture holders surrender
S
their existing debentures of ₹ 100 each and exchange the same for fresh debentures of
SE
(vii) One of the creditors of the company to whom the company owes ₹
O
40,00,000 decides to forgo 40% of his claim. The creditor is allotted with 60000 equity
AL
₹ ₹
(i) Equity share capital ( ₹ 100) A/c…………………..Dr. 2,00,00,000
To Equity Share Capital ( ₹ 40) A/c 80,00,000
To Capital Reduction A/c 1,20,00,000
(Being conversion of equity share capital of
₹ 100 each into ₹40 each as per
reconstruction scheme)
(ii) 6% Cumulative Preference Share 1,00,00,000
capital ( ₹ 100) A/c ………………………………………Dr.
To 6% Cumulative Preference Share 60,00,000
Capital ( ₹ 60) A/c
9)
To Capital Reduction A/c 40,00,000
6
(Being conversion of 6% cumulative preference
45
shares capital of ₹ 100 each into
03
₹ 60 each as per reconstruction scheme)
(iii) 5% Debentures ( ₹ 100) A/c…………………………Dr. 80,00,000
3
88
To 6% Debentures ( ₹ 70) A/c 56,00,000
To Capital Reduction A/c 24,00,000
(9
reconstruction scheme)
CL
6 9)
45
Balance Sheet of Vaibhav Ltd. (After Reconstruction) as on 31st March, 2021
03
Particulars Notes ₹
3
88
I: Equity and Liabilities
1 Shareholders' funds
(9
2 Non-current liabilities
Long-term borrowings 3 56,00,000
CL
3 Current liabilities
A
Total 3,06,00,000
O
AL
II: Assets
1 Non-current assets
BH
Total 3,06,00,000
₹
1. Share Capital
Equity share capital
6 9)
Secured
45
6% Debentures 56,00,000
03
4. Tangible assets
Fixed Assets
3 2,50,00,000
88
Adjustment under scheme of reconstruction (50,00,000) 2,00,00,000
(9
5. Investments 20,00,000
S
SE
2,00,00,000
Adjustment under scheme of reconstruction 110,00,000
CL
90,00,000
A
Working Note:
O
6 9)
It was decided to reconstruct the company for which necessary resolution was passed and
45
sanctions were obtained from appropriate authorities. Accordingly, it was decided that:
03
(a) Each share is sub-divided into ten fully paid up equity shares of ₹ 10 each.
(b)
3
After sub-division, each shareholder shall surrender to the company 50% of his holding,
88
for the purpose of re-issue to debenture holders and trade payables as necessary.
(9
(c) Out of shares surrendered, 10,000 shares of ₹ 10 each shall be converted into 12%
S
(d) The claims of the debenture-holders shall be reduced by 75%. In consideration of the
AS
reduction, the debenture holders shall receive preference shares of ₹ 1,00,000 which are
CL
You are required to show the journal entries giving effect to the above and the resultant Balance
Sheet.
F (₹) (₹)
Equity Share Capital A/c (₹ 100) A/c………………Dr. 10,00,000
To Equity Share Capital A/c (₹ 10) 10,00,000
(Being 10,000 Equity Shares of ₹ 100 each fully paid
subdivided into 1,00,000 Eq. Sh. of ₹ 10 each fully
paid up as per Scheme of Reconstruction)
9)
Equity Share Capital (₹ 10) A/c …………………..Dr. 5,00,000
6
To Shares Surrendered A/c 5,00,000
45
(Being 50% of Equity Shares were surrendered for
03
conversion or cancellation as per as per Scheme of
3
88
Reconstruction)
(9
1,00,000
TI
9)
To Profit & Loss A/c 6,00,000
6
45
(Being Profit & Loss A/c written off as per scheme of
03
reconstruction)
Capital Reduction A/c ………………………..Dr.
3 4,000
88
To Capital Reserve A/c 4,000
(9
Dr. Cr.
Particulars Amount (₹) Particulars Amount
O
(₹)
AL
6,04,000 6,04,000
9)
7,20,000
6
Total
45
II. Assets
03
(1) Non-current assets
3
88
(a) Property, Plant Equipment
6 1,00,000
(9
3,20,000
(b) Inventories
CL
2,70,000
(c) Trade receivables
A
30,000
TI
Total
AL
BH
9)
Capital Reserve 4,000
6
3. Long-term borrowings
45
12% Debentures
03
50,000
5. Short-term provisions
S
24,000
SE
6. Tangible assets
Machineries
CL
1,00,000
A
Dr. Cr.
Particulars Amount (₹) Particulars Amount
BH
(₹)
To Profit & Loss A/c 6,00,000 By 12% Debenture A/c 1,50,000
6,04,000 6,04,000
9)
[Balance of Capital Reduction ₹ Nil, Balance Sheet ₹ 5,40,000]
6
45
4. Internal Reconstruction [B.com Pass 2015]*
03
Following was the Balance Sheet of SUN PHARMA as on 31.12.2021 :
3
Liabilities ₹ Assets
88 ₹
(9
4,000 Equity shares of ₹ 100 Goodwill 60,000
each 4,00,000 Plant & Machinery 2,00,000
S
SE
8,00,000 8,00,000
BH
9)
Intangible (Goodwill) 2,00,000
6
Current assets :
45
Inventories 1,00,000
03
Trade receivable 1,40,000
Cash and cash equivalents 10,000
3
88 11,50,000
Notes to Accounts:
(9
1,50,000
( 2) Fixed assets :
CL
Tangible
A
7,00,000
AL
In view of the heavy losses the company approved the following scheme of reconstruction :
(a) The share capital be reduced to 1,00,000 equity shares of ₹ 5 each fully paid.
BH
9)
(a) Trade Payables (Trade Creditors) 5,00,000
6
45
Total 7,00,000
03
II. Assets :
1. Non-current Assets :
(a) Fixed Assets :
3
88
(i) Tangible Assets :
(9
Buildings 1,00,000
S
Machinery 4,00,000
SE
2. Current Assets :
(a) Inventories (Stock) 60,000
CL
7,00,000
O
9)
Goodwill 42,300
6
Patent 18,000
45
Inventory 88,800
03
Debtors 1,50,900
3
88
Dividends on Preference Shares are in arrear for three years. The company passes a special resolution
(9
to reduce its capital in accordance with the following scheme and the same is duly sanctioned by the
S
SE
Court :
AS
(a) Each 6% preference share is converted to 8%, Preference shares of ₹ 75 each, fully paid. The
CL
(d) Land & Building and Plant & Machinery are revalued at 135% and 80% of their respective book
AL
BH
values.
(e) Book debts worth ₹ 7,200 are to be treated as bad and hence to be written off.
(f) The balance of total capital reduction is to be utilised in writing down patents.
9)
9. Internal Reconstruction [B.com Honours 2005]*
6
45
The following is the balance sheet of Titanic Ltd. as on March 31, 2021:
Equity and liability ₹
03
Equity share capital of ₹ 10 each 6,00,000
3
8% preference share capital of ₹ 100 each 88 2,00,000
General Reserve 1,50,000
(9
Deficit in statement of profit and loss (1,20,000)
6% debentures of ₹ 100 each 1,00,000
S
SE
Assets
CL
9,70,000
AL
During the last few years the company passed through very bad times. Company has now puts the following
BH
9)
Current assets :
6
Inventories 8,12,500
45
Trade receivable 4,67,500
03
Cash 24,500
17,51,500
3
Notes to Accounts:
88 ₹
(1) Share capital:
(9
14,00,000
(2) Reserve and surplus :
CL
(103000)
O
(a) Each existing preference share is to be reduced to ₹ 35 of which ₹ 20 will be represented by new 12%
preference share of ₹ 15 by new equity shares.
(b) Each debenture is to be exchanged for ₹ 50 of new 13% debentures, one new 12% preference shares
of ₹ 20 each and four new equity shares of ₹ 2.50 each.
(c) Each existing equity share is to be converted into ₹ 2.50 each.
(d) Reserves to be written off in full.
(e) Reduction in assets to be made as follows : (i) Inventories 50% ; (ii) Trade receivables 50% ; (iii) Losses
100% ; (iv) Fixed assets – to the extent possible.
Show necessary journal entries and draw up the revised balance sheet.
[Answer: Balance Sheet total ₹8,04,500. Fixed assets to be written off by ₹ 3,07,000]
9)
Patent 40,000
6
Goodwill 1,20,000
45
Investment 60,000
03
Debtors 4,00,000
Stock 4,50,000
3
88
Profit & Loss Account 5,50,000
22,20,000
(9
A scheme of re-organisation as approved by the Court was to take effect on 01.04.2021 by adopting the
S
SE
following course:
(a) Preference Shares are to be written down to ₹ 75 each and Equity Shares to ₹ 1 each.
AS
(b) Preference dividend were in arrear for 4 years. 1/4th of the total arrear dividend is to be satisfied by
CL
Show the Journal Entries including narration to give effect of the above transactions in the books of the
Company.
9)
The directors have had a valuation made of the Plant and Machinery and find it overvalued by ₹ 10,000. It is
6
proposed to write down this asset to its true value and to extinguish the deficiency in the Profit and Loss A/c
45
and to write off Goodwill and Preliminary Expenses be the adoption of the following course :—
03
(a) Forfeit the shares on which the call is outstanding.
(b) Reduce the paid up capital by ₹ 3 per shares.
3
(c) Re-issue the forfeited shares at ₹ 5 per shares.
88
(d) Utilise the provision for taxes, if necessary.
(9
The shares on which calls were in arrear, were duly forfeited and re-issued on payment of ₹ 5 per shares.
S
Draft the necessary journal entries and the new Balance Sheet of the company, showing working where
SE
necessary.
AS
[Profit on re-issue of shares ₹ 15,000; Provision for Tax utilised ₹ 300; Total of B/Sheet ₹ 1,03,125]
CL
The following is the summarised balance sheet of Y Ltd. as on 31st March, 2021.
TI
9)
pay off bank overdraft.
6
45
Show the necessary journal entries to record the scheme of capital reduction and draw up a new balance sheet
immediately after the implementation of the scheme and writhing of plant and machinery by 10% and obsolete
03
inventory of ₹ 30,000.
3
[Balance sheet total 12,40,000. Transfer to Capital reserve ₹ 52,000. Cash balance ₹ 1,70,000 Equity
88
capital ₹ 5,56,000]
(9
Green Ltd. has decided to reconstruct the Balance Sheet since it had accumulated huge losses. The following
AS
1. Shareholders Fund
A
9)
Share of ₹ 50 each and five Equity Shares of ₹ 5 each.
6
(iv) The debits balance i.e. the negative balance of profit and loss to be written off. Plant and
45
Machinery to be written down as much as possible. Goodwill is to be written in full.
03
(v) The debentures are to be redeemed at 5% premium. Holders being given the option to subscribe
3
at par for new 12% Debentures. 88
Approval of the Court is obtained 2,00,000 new equity shares are issued at par payable in full on application.
(9
Holders of old debentures to the extent of ₹ 1,00,000 exercised their option and subscribes for new
debentures. Expenses in connection with the scheme amounted to ₹ 6,750.
S
SE
Show the journal entries (without narration) and set out the new balance sheet of the Company.
AS
The following is the balance sheet of Tipu Ltd., a company which is incurring losses for the last two years:
A
Shareholders fund :
AL
Non-Current Liabilities:
Long term borrowings 1,00,000
Current Liabilities:
Trade payable 3,25,000
11,50,000
Assets ₹
Non-current Assets :
Fixed assets 6,90,000
Current assets :
9)
6% debentures of ₹ 100 each 1,00,000
6
45
(4) Contingent Liability :
Preference dividend are in arrear for two Years.
03
The directors decided upon a scheme of reconstruction with a reduction of capital and it is approved on the
3
following terms: 88
(a) Equity shares to be converted into same number of equity shares of such face value as to reduce the paid-
(9
up equity share capital by 30%.
(b) Preference shares to be converted into same number of preference shares of ₹ 60 each, fully paid up.
S
SE
(e) Fixed assets and stock are to be reduced by ₹ 2,76,000 and ₹ 19,000 respectively.
(f) Arrears of preference dividend to be written off in full. Profit and loss account also to be written off.
A
(i) Unrecorded debtors ₹ 1, 67,000. (ii) Unrecorded payment to creditors ₹ 40,000. (iii) Reconstruction
O
Pass necessary journal entries to give effect to the above scheme and prepare the resultant balance sheet of
BH
the company.
[Balance Sheet ₹ 9, 76, 250. Transfer to capital reserve ₹ 16,250. Cash at bank ₹ 1,14,250.]
9)
II. Assets:
6
1. Non-current Assets
45
a) Fixed Assets
Tangible : (Building ₹ 6,00,000; Plant and Machinery ₹ 4,00,000)
03
10,00,000
Intangible (Goodwill) 2,00,000
3 ---
b) Non-current Investment
88
2. Current Assets:
(9
Inventory
3,00,000
S
Total 18,00,000
CL
prepared the following scheme of reconstruction and it was approved by the Court:
TI
a) Equity shares are to be converted into shares of ₹ 5 each, ₹ 3 paid-up. ₹ 2 to be immediately called
O
b) 8% Preference Shares are to be converted into 10% Preference Shares of ₹ 5 each, fully paid. 50% of
BH
arrear dividend is to be foregone by them and balance to be satisfied by issue of sufficient equity
shares of ₹ 5 each, fully paid.
c) 10% debenture are to be converted into sufficient 12% Debenture to earn same amount of interest as
before, the debenture holders agreed to forgo the accrued interest of 2020-21 which had not been
recorded in the books.
d) An unrecorded claim of ₹ 90,000 is to be paid off immediately.
e) Reconstruction expenses are to be written off. Actual expense amounted to ₹ 10,000.
f) Accumulated losses and Goodwill are to be written off and the balance of sum made available by the
scheme is to be used to write down the Plant and Machinery.
You are required to pass necessary journal entries (without narration) to give effect to the above
scheme and also to prepare the Balance Sheet of the company after reconstruction.
9)
For the purpose of reconstruction of the company, necessary resolutions are passed on the following lines:
6
(a) The equity shares are to be sub-divided into shares of ₹ 1 each and each shareholder shall surrender 60%
45
of his holding.
03
(b) Out of the surrendered shares, 60,000 shares will be converted to 8% preference shares of ₹ 10 each.
(c) Debenture-holders will reduce their total claims by ₹ 1,40,000 and in consideration, the debenture-holders
3
88
are to get the entire preference share capital converted shares surrendered.
(d) Creditors' claims are to be reduced by ₹ 1,00,000 and in consideration they are to receive equity shares of
(9
(e) Goodwill and profit and loss account (Dr.) are to be written off completely.
SE
You are required to give the journal entries and the resultant balance sheet of the company.
[Balance sheet total ₹ 9,00,000. Transfer to capital reserve ₹ 40,000]
CL
A
Passing through bad times and incurring heavy losses during the past few years Info Industries Ltd. decided to
O
undertake certain financial measures to revitalise the company. Their assets and liabilities as on 31st
AL
₹
50,000 equity shares of ₹ 100 each 50,00,000
10,000 18% debenture of ₹ 100 each 10,00,000
Outstanding interest on debentures 3,60,000
Trade creditors 5,00,000
Land and building 15,00,000
Plant 10,50,000
Furniture 9,10,000
Stock 8,00,000
Debtors 6,00,000
Cash at bank 1,80,000
9)
19. Internal Reconstruction [C.U., B.Com 2007]*
6
45
The position (besides accumulated loss) of Sunset Ltd. as on 31.03.21 was as follows:
03
₹
50,000, Equity Shares of ₹ 100 each 50,00,000
3
25,000, 9% Preference Shares of ₹ 100 each
88 25,00,000
Preference Dividend in Arrears (not shown in Balance Sheet) 4,50,000
(9
Creditors 12,50,000
S
(b) The Equity Shares were subdivided into share of ₹ 5 each and 80% of these shares were surrendered.
A
(c) The preference shareholders' claim was reduced by 50% and in consideration they were allotted equity
TI
(d) The creditors agreed to reduce their claim by ₹ 7,50,000, one third of which was satisfied by the issue of
AL
Pass Journal Entries and prepare the Balance Sheet just after re-construction.
[Ans. Profit on Capital reduction ₹ 6,25,000, Balance Sheet total ₹ 42,50,000]
9)
Equity Share (Face Value ₹ 100, 60% paid up) 6,00,000
6
45
Due to heavy accumulated losses and overvaluation of fixed assets, following scheme of reconstruction is
agreed upon –
03
(a) To make call against the existing equity shares to make them fully paid up and then to subdivide them to
shares of ₹ 20 each
3
88
(b) After subdivision the equity shareholders to surrender 80% of their holding for redistribution or
(9
otherwise for cancellation.
S
(c) To settle the claim (including interest) of the holders of the 1st Debentures by issuing 1,000, 13.5%
SE
Debentures of ₹ 100 each. They are also to be issued 3,000 equity shares out of surrendered shares.
AS
(d) To issue 15,000 equity shares out of surrendered shares to the holders of the 2nd Debentures in full
settlement of their claim (including interest).
CL
(e) To issue 10,000 equity shares out of surrendered shares to Y in full settlement of his account;
(f) To write of all accumulated losses, fictitious assets and writing down the fixed assets to the extent
A
TI
possible.
O
Pass necessary Journal Entries (without narration) to give effect to the above transactions and prepare the
AL
9)
Plant 3,00,000
6
Loose tools 10,000
45
Inventories 1,50,000
03
Trade receivable 2,50,000
3
Cash 88 10,000
Bank 35,000
(9
Preliminary 5,000
8,10,000
S
The following scheme of reconstruction has been agreed upon and approved by the court:
SE
(a) Equity shares to be converted into shares of ₹ 2 each and equity shareholders agreed to surrender 90 %
AS
of the holdings.
CL
(b) Preferance share holders agreed to forego arrears of preferance dividend for three years in lieu thereof
the rate of dividend to be increased to 9 %.
A
1
(d) Creditors (trade payables) agreed to reduce their claims by 𝑡𝑡ℎ in consideration of their getting new
O
5
shares worth ₹ 35,000.
AL
9)
50,40,000
6
II. Assets
45
1. Non-current Assets:
03
(a) Property, Plant and Equipment
(i) Tangible Assets 33,00,000
(ii) Intangible Assets (Goodwill)
3 6,00,000
88
2. Current Assets:
(9
(a) Inventories 5,00,000
(b) Trade Receivables 6,00,000
S
50,40,000
AS
The following scheme of reconstruction has been passed and approved by the Court:
CL
(i) The Equity Shares are to be subdivided into shares of ₹ 10 each and each shareholder shall
A
(ii) The company issues 100000 Equity Shares of ₹ 10 each at a premium of ₹ 5 each.
AL
Working Note:
i. Amalgamation in nature of purchase
ii. Amalgamation in nature of merger
9)
AMALGAMATION IN NATURE OF PURCHASE
6
45
Working Notes:
a. Purchase Consideration: - Payment to shareholders (Mode of payment in shares, cash etc.)
03
Equity Shareholders = _________
3
Pref. Shareholders = _________ 88
(9
b. Net Assets Taken Over (NATO): -
Sundry Assets taken over [Excl. G/Will, Misc. Exp., P/L (Dr. Bal.)] _________
S
SE
If Purchase Consideration is not given then Purchase Consideration = NATO (including G/Will)
TI
O
Journal Entry
BH
9)
(Being inter company debt set off)
6
45
f. Bills Payable A/c -------------------Dr.
03
To Bills Receivable A/c
3
(Being inter company acceptance set off) (Note: Discounted bill will not be set off)
88
(9
g. Goodwill A/c ---------------------Dr.
To Bank A/c
S
SE
To Bank A/c
(Formation Expenses paid by new company)
A
TI
9)
Bank A/c ---------------------Dr.
6
To Realisation A/c
45
(Being Sundry Assets Sold)
03
3
d. Liabilities paid off (if not taken over) 88
Realisation A/c -------------Dr.
(9
To Bank A/c
(Being Sundry liabilities paid off)
S
SE
To Bank A/c
(Being Realisation Expenses paid)
A
TI
To Realisation A/c
BH
9)
k. Equity Shareholder --------------------Dr.
6
To Realisation A/c
45
(Being Realisation Loss transferred to equity shareholders Account)
3 03
l. Purchase Consideration received: 88
Equity Shares in new company A/c -----------------Dr.
(9
Preference Shares in new company A/c -----------Dr.
Bank A/c ---------------------Dr.
S
SE
To Bank A/c
TI
Determine the amount of purchase consideration as per AS-14 and pass the journal entry in the books
of B Ltd. (without narration)
9)
2. Amalgamation [B.com General 6th semester 2021, 2020]
6
45
Som Ltd. agreed to takeover Dove Ltd. on Apri. 1, 2021. The terms and conditions of takeover were as
03
follows :
(i)
3
Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 15 per share to the
88
equity shareholders of Dove Ltd.
(9
(ii) Cash payment of ₹ 39,000 was made to equity shareholders of Dove Ltd.
S
SE
(iii) 24,000 fully paid preference shares of ₹ 50 each issued at per to discharge the preference
AS
(iv) The 8% Debentures of Dove Ltd. (₹ 78,000) converted into equivalent value of 9%
A
(v) The actual cost of liquidation of Dove Ltd. was ₹ 23,000. Liquidation cost is to be reimbursed
AL
9)
Staff Provident Fund 10,200 4,000
6
Provision for taxation 12,300 5,000
45
Total 11,93,569 3,11,356
03
ASSETS :
Non – Current Assets
3
Tangible Assets :
88
4,12,000 1,00,000
Plant & Machinery
(9
80,000 30,000
Furniture
S
Intangible Assets :
SE
2,00,000 60,000
Goodwill
AS
2,21,200 46,000
Debtors - 700
A
Amount Amount
I. Equity and Liability:
1. Shareholders’ Funds:
Equity Shares of 10 each 20,00,000 12,00,000
Reserves and Surplus 5,00,000 3,00,000
2. Non-Current Liabilities:
10% Debentures 6,00,000 4,00,000
9)
3. Current Liabilities:
6
45
Short term Loan — 3,00,000
03
Trade Payable 2,50,000 1,50,000
TOTAL
3 33,50,000 23,50,000
88
II. Assets
(9
1. Non-Current Assets:
S
2. Current Assets:
CL
33,50,000 23,50,000
AL
The companies decide to amalgamate on 01.04.2021 and form Flower Ltd. on the following terms:
BH
(a) All Assets and Current Liabilities of the old companies are taken over by the Flower Ltd. The
net worths of Root Ltd. and Fruit Ltd. have been determined at ₹ 36 lakhs and ₹ 18 lakhs
respectively.
(b) The purchase considerations have been discharged by issuing sufficient numbers of Equity
Show the Journal Entries in the books of Flower Ltd. and the Opening Balance Sheet of Flower Ltd.
9)
TOTAL 4,40,000
6
II. Assets
45
1. Non-Current Assets
03
(a) Property, Plant and Equipment 3,12,000
(b) Non-Current Investment —
2. Current Assets
3
88
(a) Inventory 81,000
(9
(b) Trade Receivables 34,200
(c) Cash and Cash Equivalent 12,800
S
SE
TOTAL 4,40,000
AS
Particulars Amount(₹ )
1. Reserves and Surplus:
A
1,44,000
AL
9)
adjusted with allotment. Sourav, to whom 400 equity were allotted, failed to pay the allotment and call money.
6
Rahul, who applied for 750 equity shares, failed to pay call money. These shares were subsequently forfeited
45
and all the shares of Sourav and 50% shares of Rahul were reissued at a discount of 10% to Sachin as fully
03
paid up. Show the necessary journal entries (narrations required) in the books of the company.
3
88
Question 2 (ESOP or Underwriting):
(9
Akash Ltd. granted on 1st April, 2016 options for 2000 shares of ₹ 10, to its employee at ₹ 60 each. The
S
The vesting period was 3 years and the maximum exercise period was 6 months. Options for 200 shares were
AS
lapsed on 14.01.18. All the options were exercised on 30.09.2019 except for 100 shares. Show the journal
entries in the books of Akash Ltd. (Narration not required.)
CL
Or
A
Remo Ltd. issued a prospectus inviting applications for subscription in 10,00,000 equity shares of ₹ 10 each.
TI
Applications were received for 8,00,000 shares of which marked applications (excluding firm) were as
BH
follows:
A – 1,80,000; B – 2,00,000; C – 2,03,000 and D – 1,67,000.
Firm applications were : A – 60,000 and B – 40,000 shares.
Determine the liability of each underwriter.
On the above date equity shares are bought back by the company to the extent possible as per section 68(2) of
the Companies Act, 2013, at premium of ₹ 40 per shares. You are required to give journal entries to give the
effect to buy-back and also show all workings.
6 9)
Or
45
The following balances are extracted from the books of Sun Ltd.:
10,000, 10% Preference Shares of ₹ 10 each, fully paid up; 6,000, 9% Preference Shares of ₹ 10 each, ₹ 9
03
paid up; 20,000 Equity Shares of ₹ 10 each, fully paid up; General Reserve ₹ 2,20,000; Profit & Loss account
₹ 80,000; Capital Reserve ₹ 20,000; Securities Premium ₹ 20,000 (both the categories of Preference shares
3
were issued prior to 2012.)
88
Preference Shares are to be redeemed at 10% premium. For this purpose 5,000 Equity Shares of ₹ 10 each are
(9
issued at 10% premium. Holders of 500, 10% Preference Shares are not traceable. Minimum use of free
reserve is to be made for the purpose of redemption of Preference Shares. Pass necessary Journal Entries.
S
SE
AS
The following balances as on 31.03.2018 were extracted from the books of P Ltd.:
₹
A
Annual contribution to the Sinking Fund was made on 31st March each year of ₹ 64,000. On 31st March,
2019 balance at bank was ₹ 1,60,000. On the same date interest on investment was received. Investments
were sold at 105% and the debentures were redeemed at par. You are required to prepare 12% Debenture
Account, Debenture Sinking Fund Account and Debenture Sinking Fund Investment Account for the year
ended 31.03.2019.
Standard Price Earning ratio is 8 and dividend yield is 15%. During the last three years the company paid
equity dividend at 20%, 17% and 20% respectively.
OR
9)
From the following information, calculate the value of goodwill as on 31.12.2018:
6
Equity Share Capital ( ₹ 10) ₹ 6,00,000
45
Preference Share Capital ₹ 1,00,000
03
Reserve and Surplus ₹ 90,000
10% Debentures ₹ 90,000
Depreciation Fund
3 ₹ 50,000
88
Creditors ₹ 50,000
(9
Total assets include preliminary expenses ₹ 20,000
Market value of assets is 70,000 higher than the book value.
S
SE
Profits for last three years after 40% tax were ₹ 95,000, ₹ 90,000 and ₹ 1,10,000 respectively for the year 1,
2 and 3.
AS
Calculate the value of goodwill by capitalization of Average Profit on the basis of weighted Average Profit
(Weights are to be considered as 1, 2 and 3 for last 3 years respectively).
A
TI
O
AL
BH
9)
Long-term borrowings
6
(10% Debentures of ₹ 100 each) 60 30
45
Trade Payables 420 190
03
Total
2,000 1,500
3
88
(9
2. Assets:
Fixed Assets:
S
900 650
Tangible Assets
SE
150 50
Non-current Investments (Investments)
AS
350 250
Inventories (Stock)
300 350
CL
Trade Receivables
300 200
Cash and Cash equivalents (Cash and Bank)
A
Notes to Accounts:
AL
BH
9)
70,000 Equity Shares of ₹ 10 each 7,00,000
6
5,000 10% Preference Shares of ₹ 100 each 5,00,000
45
9% Debenture 4,00,000
03
Accrued interest 36,000
Bank Overdraft 2,50,000
3
88
Creditors 3,34,000
22,20,000
(9
Assets:
S
Land 4,00,000
SE
Plant 2,00,000
AS
Patent 40,000
CL
Goodwill 1,20,000
Investment 60,000
A
Debtors 4,00,000
TI
Stock 4,50,000
O
22,20,000
BH
A scheme of re-organisation as approved by the Court was to take effect on 01.04.2019 by adopting the
following course:
(a) Preference Shares are to be written down to ₹ 75 each and Equity Shares to ₹ 1 each.
(b) Preference dividend were in arrear for 4 years. ¼th of the total arrear dividend is to be satisfied by
issue of Equity Shares of ₹ 1 each and 3/4th of the claim is to be waived.
(c) Accrued interest on Debentures are to be paid in cash.
(d) Investments are to be sold for ₹ 1,00,000.
(e) Provision for bad debts is to be considered ₹ 9,000.
(f) Plant is valued at ₹ 1,78,000.
(g) All the intangible assets are to be written off to maximum extent.
Show the Journal Entries including narration to give effect of the above transactions in the books of the
Company.
9)
Purchases 6,50,000
6
45
Dividend paid 12,000
Dividend Distribution Tax 2,400
03
Advance Tax for current year 20,000
Carriage Inward 2,800
3
88
Cash in Hand 3,600
(9
13,11,400 13,11,400
A
Additional Information:
TI
(b) Depreciation is to be provided on the diminishing values of assets as vehicles @ 20%; Building @ 5%;
AL
Machinery @ 15% and furniture @ 10%. Land and Buildings include ₹ 16,000 as cost of land.
BH
Prepare (i) Statement of Profit and Loss for the year ended 31.03.2019 and (ii) a Balance Sheet on that date.
[Note no 1. Property, Plant & Equipment; 2. Reserve & Surpluses are to be shown.]
9)
Zenith Ltd., issued 3,00,000 shares of ₹ 10 each at a premium of ₹ 2. The entire issue was underwriting by X, Y
6
45
and Z in the ratio of 3:2:1. Their firm underwriting was as follows:
X : 35,000, Shares Y : 20,000 shares, Z : 22,500 shares.
03
The total subscription excluding firm underwriting & including marked application were for 1,60,000 shares.
3
Marked application received were as follows: 88
X : 45,000, Shares Y : 22,500 shares, Z : 17,500 shares.
(9
The underwriting contract provided that credit for unmarked applications to be given to the underwriters in
proportion to the shares underwritten and benefit of firm underwriting is to be given to all Underwriters.
S
SE
Or
(a) Following is the extracts of Balance sheet of BPA Limited as on 31.03.19:
CL
Share capital:
A
9)
Non-current investment
6
45
(c) Property Plant and equipment - tangible 5,00,000
(d) Non-current investment 3,00,000
03
Current Assets
Cash and cash equivalent
3 3,00,000
88
11,00,000
(9
(iii) Utilize the reserve and profit and loss balance after maintaining balance in Profit and Loss
Account ₹ 3,00,000 for redemption.
CL
(iv) To issue minimum number of equity shares of ₹ 10 each for the purpose of redemption.
You are requirement to pass necessary journal entries to record the above transactions.
A
Or
TI
Shareholders’ fund
BH
9)
13% Debenture redemption Fund Investment Account (Nominal Cost) ₹ 5,00,000
6
45
The annual contribution to the Debenture Redemption Fund was ₹ 7,00,000 and redeemed the debentures on
31.03.2019.
03
Prepare 13% Debenture Account, Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account up to 31.03.2019.
3
88
Question 5 (Valuation of Goodwill or Valuation of Shares):
Following information is extracted from the records of XYZ Ltd. Calculate the value of Goodwill as on
(9
31.03.2019:
S
• Creditors ₹ 70,000
• Non-trade investment ₹ 80,000
A
• Profits for last three years before tax were: 2016-17: ₹ 1,60,000; 2017-18: ₹ 2,20,000 and 2018-19:
TI
₹ 2,40,000 respectively.
O
• Non-trade income of ₹ 6,400 (before tax) was included on an average for each of these years.
AL
Or
The following particulars are available in relation to Chamling Ltd:
• Equity Share Capital: 5,000 Equity Shares of ₹ 20 each.
• Preference Share Capital: 1,000. 8% Preference Shares of ₹ 100 each
• Total assets (Market value ₹ 3,00,000) ₹ 2,50,000.
• Current Liabilities ₹ 18,000
• Average trading Profit after tax ₹ 40,000
• Amount transfer to General Reserve 15%
• Normal rate of return on equity shareholders in market 10%.
9)
Land 3,00,000 Sales 8,70,000
6
12% Investment (non- 1,30,000 Bills Payable 25,000
45
current)
03
(Purchased 01.04.18 Nominal Interest Received 10,400
Value ₹ 1,20,000)
3
Bills Receivable 10,000
88
General Reserve 75,000
Debtors 30,000 Surplus balance (01.04.18) 87,600
(9
Purchases 5,00,000 10% Debentures 1,00,000
S
expenses
Cash 2,000 Bad debt recovery 1,500
A
Bank 20,000
TI
14,94,500 14,94,500
You are required to prepare the Statement of Profit and Loss for the year ended 31.03.19 and the Balance
BH
Sheet as on that date after considering the following in the books of JK Ltd.
(a) Unsold stock on 31.03.19 at cost ₹ 20,000.
(b) Depreciation to be charged on Machinery @ 10% and on Furniture @ 5% p.a. on diminishing Balance
Method.
(c) Rate of Income Tax is 30% (ignore surcharge and cess).
(d) 10% profit transferred to General Reserve.
(e) Salaries outstanding ₹ 1,500.
9)
(ii) Pass Journal Entry relating to discharge of purchase consideration in books of Sun Ltd.
6
45
Or
Following is the Balance Sheet of B Ltd. as on 31.03.2019 (Notes of Balance Sheet includes)
03
Particulars Note ₹ Particulars ₹
3
No. 88
I. EQUITY AND LIABILITIES 1. Share Capital
1. Shareholders’ funds 3,000, 5% Pref. share of
(9
each 8,00,000
AS
2. Non-current liabilities
Long-term borrowing: 2. Tangible Assets
A
Secured Loan
TI
69)
45
3 03
88
(9
S
SE
AS
CL
A
TI
O
AL
BH
9)
The firm underwriting was to be : A – 2000 shares, B – 1000 shares and C – 1000 shares. Shares
6
applied for were 18000 (including firm underwriting). Marked applications being, A – 7000 shares, B
45
– 2800 shares and C – 3200 shares.
03
Calculate the liability of the underwriters (in number of shares).
Question 3:
3
88
Following figures are available from the Balance Sheet of King Ltd. as on 31.03.2019 (in ₹.) :
₹
(9
The company decided to buy-back 6000 equity shares at ₹ 125 per shares. For this purpose it
O
decided to issue 2,000 10% Preference Shares of ₹ 100 each at 10% premium. It also sold 3/4 th of
AL
Pass necessary journal entries in the books of King Ltd to give effect to the above (Narrations not
required).
Question 4:
From the following particulars of K. Ltd., calculate the value of equity share under (a) intrinsic value
method and (b) earnings-yield method.
Tangible assets ₹ 11,60,000; Goodwill ₹ 1,00,000; Current Assets ₹ 3,60,000; Discount on issue of
debentures ₹ 20,000; 5% Debentures ₹ 2,00,000; Current Liabilities ₹ 2,60,000.
The net profits after tax for three years were : 2017-18 ₹ 1,03,200; 2018-19 ₹ 1,04,000; 2019-20 ₹
1,03,300. It is the practice of the company to transfer 20% of the profit to Reserves. Normal rate of
return is 10%. Issued and paid up Equity Capital - 80000 Equity shares of ₹ 10 each fully paid-up.
9)
(Narrations required).
6
Question 7:
45
The capital structure of a company as on 31.03.2020 consisted of 20000 equity shares of ₹ 10 each
03
fully paid up and 1000, 8% Redeemable preference shares of ₹ 100 each fully paid up. Undistributed
reserves and surplus were as under :
3
General Reserve
88 ₹ 80,000
Balance in Statement of Profit & Loss ₹ 32,000
(9
Cash at Bank amounted to ₹ 98,000. Preference shares are to be redeemed at a premium of 10% and
for the purpose of redemption, the directors are empowered to make fresh issue of equity shares at
S
SE
par after utilizing the reserves and surplus subject to the condition that a sum of ₹ 25,000 shall be
retained in General Reserve.
AS
Pass necessary journal entries to give effect to the above arrangements (narration required) and also
CL
(a) 5 years’ purchase of Super Profit method and (b) Capitalization of Average Profit method from
O
9)
Show necessary journal entries (including cash transactions) in the books of Care Ltd. (Narrations not
6
required)
45
03
Question 10:
3
(h) State the conditions to be satisfied as per AS 14 in case of amalgamation in the nature of
88
merger.
(9
(i) Distinguish between pooling of interest method and purchase method of accounting for
S
SE
9)
(a) Trade Payables (Trade Creditors) 5,00,000
6
Total 7,00,000
45
II. Assets :
03
1. Non-current Assets :
3
(a) Fixed Assets :
88
(i) Tangible Assets :
(9
Buildings 1,00,000
S
Machinery 4,00,000
SE
2. Current Assets :
(a) Inventories (Stock) 60,000
CL
7,00,000
O
9)
Directors’ remuneration 32,000 Share Capital 4,00,000
6
Freehold Premises 1,64,000
45
Plant and Machinery 1,30,000
03
Furniture and Fittings 42,000
Patents 20,000
3
88
Interim dividend paid 20,000
Sundry Debtors 96,000
(9
17,84,000 17,84,000
CL
A
You are required to prepare the Statement of Profit & Loss for the year ended 31.03.2020 and the Balance
TI
(j) Depreciation is to be provided on Plant and Machinery @ 20 % and on Furniture and Fittings
@10%.
(k) 1/4th of Patents is to be amortised.
(l) Provision for tax is to be maintained @ 30%
(m) 10% of profit for the year is to be transferred to General Reserve.
(n) Ignore tax on dividend.
Question 2:
The following underwriting took place for Pioneer Ltd., which invited applications for 10,000 shares of
9)
₹ 10 each :
6
45
X : 6,000 shares, Y : 2,500 shares, Z : 1,500 shares
03
In addition, there were firm underwriting as follows :
3
X : 800 shares Y : 300 shares Z : 1,000 shares 88
Total subscription including firm underwriting was 7,100 shares, and the forms included the following
(9
marked forms :
S
SE
You are required to compute the underwriter’s liability in number of shares when the specific benefit of
CL
Question 3:
A
TI
Particulars ₹
AL
Question 4:
The Summarised Balance Sheet of Green Private Ltd. as at 31.03.2020 is given below :
Particulars ₹
9)
Creditors 10,450
6
Tangible assets
45
33,900
4% Investment (Face value ₹ 8,000) 7,200
03
Inventories 16,000
3
88
Debtors 19,350
(9
Cash and bank 8,000
S
The net earnings for the last three years were as follows :
SE
Year ended 31.03.2018: ₹10,100; Year ended 31.03.2019: ₹ 10,850; Year ended 31.03.2020: ₹ 12,200.
AS
You are required to ascertain the value of goodwill at 3 years’ purchase of super profit (take simple
CL
average profit) assuming normal rate of return on capital employed at 10%. Ignore income tax.
A
TI
O
Question 5:
AL
Question 7:
State the relevant provisions of the Companies Act, 2013 relating to redemption of Preference Shares.
6 9)
Question 8:
45
03
The following balances are included Balance Sheet of E. Ltd. as on 31st Mrach, 2020 :
3
88
(Amount) (₹)
(9
6,00,000 Equity Shares of ₹ 10 each fully paid 60,00,000
General Reserve 14,00,000
S
SE
shares as under :
O
(e) Premium payable on buyback of shares should be met from the Securities Premium Account.
BH
(f) Investments would be sold for ₹ 7,80,000 (Book value being ₹ 7,40,000).
Pass journal entries to record the above transactions.
9)
failed to pay the allotment money. Her shares were forfeited after the subsequent call.
6
45
200 forfeited shares were reissued as fully paid on payment of ₹ 8 per share to Miss Ankita.
03
Show the necessary journal entries (including cash transaction) in the books of Finolex Ltd.
3
88
(9
Question 10:
S
SE
Debit ₹ Credt ₹
CL
9)
Question 11:
6
45
(a) Mention the conditions that are to be satisfied (as per AS-14) to consider amalgamation in the
03
nature of merger.
3
(b) Som Ltd. agreed to takeover Dove Ltd. on Apri. 1, 2020. The terms and conditions of takeover
88
were as follows :
(9
(vi) Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 15 per share to the
S
SE
(vii) Cash payment of ₹ 39,000 was made to equity shareholders of Dove Ltd.
CL
(viii) 24,000 fully paid preference shares of ₹ 50 each issued at per to discharge the
A
(ix) The 8% Debentures of Dove Ltd. (₹ 78,000) converted into equivalent value of 9%
AL
(x) The actual cost of liquidation of Dove Ltd. was ₹ 23,000. Liquidation cost is to be
6 9)
Patent 18,000
45
Inventory 88,800
03
Debtors 1,50,900
3
88
Dividends on Preference Shares are in arrear for three years. The company passes a special resolution
(9
to reduce its capital in accordance with the following scheme and the same is duly sanctioned by the
S
Court :
SE
(g) Each 6% preference share is converted to 8%, Preference shares of ₹ 75 each, fully paid. The
AS
(h) The arrears of dividend on preference shares are sacrificed by the preference shareholders.
A
TI
(j) Land & Building and Plant & Machinery are revalued at 135% and 80% of their respective book
AL
values.
BH
(k) Book debts worth ₹ 7,200 are to be treated as bad and hence to be written off.
(l) The balance of total capital reduction is to be utilised in writing down patents.
6 9)
The Board of Directors resolved the following :
45
(i) To make a call of ₹ 2 per share to the equity shareholders.
03
(ii) To issue three Bonus shares for every five equity shares held.
3
88
(iii) To utilise General Reserve as minimum as possible.
(iv) To issue 40000 Right shares of ₹ 10 each fully paid up at ₹ 13 per share to its equity
(9
shareholders.
S
Assuming that all call moneys were collected in due time and the right shares were duly taken up by the
SE
shareholders, pass necessary journal entries in the books of the company. [Narration not required]
AS
Question 2:
CL
P Ltd. granted option for 8000 equity shares on October 1, 2016 at ₹ 80 (Face value ₹ 10 each), when the
market price was ₹ 70. The vesting period was 2½ years. The maximum exercise period was 1 year.
A
Show necessary journal entries to record the above transactions in the books of the company [Narrations
O
required].
AL
Question 3:
BH
A Ltd. has authorized capital of ₹ 50,00,000 divided into 100000 equity shares of ₹ 50 each. The company
issued for subscription 50000 shares at a premium of ₹ 10 each. The entire issue was underwritten as follows :
X — 30000 shares (firm underwriting – 5000 shares)
Y — 15000 shares (firm underwriting – 2000 shares)
Z — 5000 shares (firm underwriting – 1000 shares)
Out of total issue, 45000 shares including firm underwriting, were subscribed. The following were the marked
forms including firm : X – 15600 shares; Y – 10400 shares and Z – 4000 shares.
Calculate the total liability (in number of shares) of each underwriter considering firm applications as
marked.
6 9)
Question 5:
45
The following balances appeared in the books of Syska Ltd. As on 01.04.2020 :
03
₹
3
13% Debentures Account 88 7,00,000
Debenture Redemption Fund Account 6,35,000
(9
Debenture Redemption Fund Investment
(Nominal Value = Cost) 6,35,000
S
SE
The company sold its investments for ₹ 7,50,000 and redeemed the debentures at par on 01.04.2020. Prepare
13% Debentures Account, Debenture Redemption Fund Account and Debenture Redemption Fund Investment
AS
Question 6:
A
₹
O
On 31.03.2021, investments standing in the books at ₹ 20,000 were sold for ₹ 18,000. On the same date it
was resolved to redeem the eligible preference shares at 10% premium by issuing sufficient equity shares at
9)
20% premium, subject to leaving a balance of ₹ 10,000 in Reserve Fund.
6
Give necessary journal entries assuming that all transactions were immediately given effect and payments were
45
made to the Preference Shareholders. (Narration not required)
03
Question 8:
3
Balance Sheet of G. Ltd. as on 31.03.2021 included the following :
88
₹ ₹
(9
Share Capital :
S
80,000
O
(c) to allot the balance of the available shares pro-rata among the other applicants; and
6 9)
Mr. X holding 250 shares, to whom shares were allotted on pro-rata basis, failed to pay the amount due on
45
allotment and call. Mr. Y holding 150 shares to whom full allotment was made, also failed to pay allotment
03
and call money. These shares were forfeited after call. 150 forfeited shares of Mr. X and 100 forfeited shares
3
of Mr. Y were reissued at ₹ 9 per share as fully paid up to Mr. Z.
88
Show the necessary journal entries including cash transactions in the books of Televista Ltd. [Narrations not
(9
required]
S
SE
Question 10:
AS
Following are the items appearing in the Balance Sheet of X Ltd. as on 31.03.2020 :
CL
₹
Share Capital :
A
A scheme of reconstruction was adopted with a reduction of capital which was approved by the tribunal on
the following terms :
(a) Equity shares to be converted into same number of equity shares of such face value as to
reduce the paid up equity share capital by 30%.
9)
Question 11:
6
45
BT Ltd. is absorbed by the CT Ltd. on 01.04.2021, on which date the assets and liabilities of BT Ltd. were as
03
follows :
Amount (₹ )
3
I. Equity and Liability :
88
1. Shareholder’s Fund :
(9
Total 2,15,000
O
(b) Exchange of 3 shares in CT Ltd. of ₹ 5 each (to be issued at ₹ 6 each) for every share in BT Ltd.
(c) A further payment in cash at ₹ 4 for each share in BT Ltd.
(d) The expenses of liquidation ₹ 3,000 were paid by the BT Ltd.
Calculate the purchase consideration, and show Realisation A/c, CT Ltd. A/c, Equity Share Holders A/c and
Bank A/c in the books of BT Ltd to close its books.
9)
Balance in Profit & Loss Statement (01.04.2019) — 50,000
6
Paid up Capital — 2,00,000
45
Interim dividend 16,000 —
03
Dividend distribution tax on interim dividend 3,290 —
Debtors and Creditors 52,400 31,000
3
88
Plant and Machinery 2,46,000 —
General Reserve — 20,000
(9
Patents 8,000 —
S
SE
11,27,000 11,27,000
Prepare a statement of Profit and Loss for the year ended on 31.03.2020 and a Balance Sheet as at
CL
that date as per schedule III of Companies Act. 2013 taking into consideration the following adjustments :
A
(b) Depreciate Plant and Machinery @ 15%, Furniture and Fittings @ 10%
O
AL
9)
Following is the Balance Sheet of M.N. Ltd. as on March 31, 2021 :
6
45
NOTES TO BALANCE SHEET
03
Particulars Note ` Particulars `
No.
3
88
I. EQUITY AND 1. Share capital :
(9
Question 4:
Balance Sheet of Black Ltd. as on 31.03.2021 is as follows :
NOTES TO BALANCE SHEET (includes)
9)
(2) Non-current liabilities 2. Reserves and surplus :
6
Long-term borrowings : Securities premium 25,00,000
45
6.5% Debentures 3,00,000 General reserve 7,00,000
03
(3) Current Liabilities Balance in SPL 4,80,000
Trade Payable :
3
88 36,80,000
Sundry creditors 2,53,000
(9
Total 1,22,33,000
II. ASSETS 3. Tangible assets :
S
investment 10,80,000
TI
O
Total 1,22,33,000
On April 1, 2021 the company announced the buy-back of its 25% Equity shares at ₹ 20 per share. For that
purpose the Company sold its entire investments at ₹ 12,00,000 and issued 8,000, 10% Preference shares of ₹
100 each. The Company utilised 50% of the General Reserve, 100% of the surplus balance of Statement of
Profit and Loss and the rest was taken from the Securities Premium.
Show necessary journal entries (narrations not required).
(d) Non-trading income ₹ 10,000 and Debenture interest ₹ 20,000 on an average included in the Statement
of Profit and Loss.
Question 6:
The following particulars are available in relation to HOTELS Ltd.
(a) Capital:
9)
450, 6% Preference shares of ₹ 100 each, fully paid.
6
45
4,500 Equity shares of ₹ 10 each, fully paid.
03
(b) External Liabilities ₹ 7,500.
3
(c) Reserves and Surplus ₹ 3,500. 88
(d) The average normal profit (after taxation) earned every year by the company ₹ 8,505.
(9
(e) The normal profit earned on the market value of fully paid equity shares by the same
S
type of companies is 9%
SE
(f) Out of the total assets, assets worth ₹ 350 are fictitious.
AS
Ascertain the intrinsic value and earning capacity value of an equity share.
CL
Question 7:
A
TI
The share capital of M Ltd consists of 4,00,000 equity shares of ₹ 10 each fully paid.
O
Question 8:
State the conditions that are required to be fulfilled for an amalgamation to be considered as an
amalgamation in the nature of merger.
9)
13% Debentures Account ₹ 7,00,000
6
Debenture Redemption Fund Account ₹ 5,00,000
45
13% Debenture Redemption Fund Investment Account (Nominal = Cost) ₹ 5,00,000
The annual contribution to the Debenture Redemption Fund was ₹ 70,000. The company sold its investments for
03
₹ 7,00,000 and redeemed the debentures on 31.03.2021. Prepare 13% Debentures Account, Debenture
3
Redemption Fund Account and Debenture Redemption Fund Investment Account upto 31.03.2021.
88
Question 12:
(9
The trial balance of P Ltd. as on 31.03.2020 is as follows :
S
Prepare statement of Profit and Loss for the year ended on 31.03.2020 and Balance Sheet on that date
considering the following information :
(a) Stock as on 31.03.2020: ₹ 1,76,000
(b) Provide for Income tax @ 30%
9)
(2) Current liabilities
6
(a) Trade Payable :
45
Creditors 1,70,000
03
(b) Short-term provisions:
3
Provision for tax 10,000 88
Total 5,80,000
(9
II. ASSETS
S
Equipment :
Trangible assets 2,70,000
CL
Debtors 1,70,000
AL
equivalents 20,000
Total 5,80,000
9)
All Subjects (Hons) 400 7,500
6
45
• Admission going on throughout the year but join early to finish early and then do
03
free revision till exams.
3
88
(9
• Online, offline & recorded all options. Offline classes at Girish Park.
S
SE