Question 6 (a) On 01.04.2023, Mr. Day has 25,000 shares of Squares Ltd. at a book value of 25 per share (nominal value of 10 each). Further informa...

Question

Question 6 (a) On 01.04.2023, Mr. Day has 25,000 shares of Squares Ltd. at a book value of 25 per share (nominal value of 10 each). Further information is as under: (i) On 31st July 2023, the Directors of Squares Ltd. issued one equity bonus share for every five shares held by the shareholders. (ii) On 30th September 2023, the Directors of Squares Ltd. announced a right issue which entitled the ·holders to subscribe three shares for every two shares at 20 per share. Shareholders can transfer their rights in full or in part. Mr. Day sold 1/4th of entitlement to Dhwani for a consideration of 5 per share and subscribed the rest on 5th October, 2023. You are required to prepare Investment A/c in the books of Mr. Day for the year ending 31.03.2024. OR (a) "In determining the cost of inventories, it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred." Provide examples of such costs as per AS 2 (Revised) 'Valuation of Inventories. ADVANCED ACCOUNTING (b) The following scheme of reconstruction has been approved for Equity shareholders and Debenture holders of TP Ltd. (i) The Equity shareholders to receive in lieu of their present holding of 1,50,000 shares of 10 each, the following : (1) For 50,000, equivalent cash (2) For 9,00,000, 10% debentures issued at premium of 20% (Face value of debenture is I00 each) (3) For balance 5,50,000, Equity shareholders agreed to accept 50,000 equity shares of 10 each in full settlement. (ii) 8% Debenture 5,00,000. Debenture holders agreed to accept Freehold property (Book value 3,50,000) at a valuation of 4,45,000 in full settlement of their claim. Pass necessary Journal Entries in the Books of TP Ltd. for the above reconstruction. Narration for Journal entries is not required to be given. (c) Following is the information of Kullu Branch of M/s Best Enterprises of Shimla for the year ending 31st March 2023 : (1) Goods are invoiced to the branch at cost plus 20% (2) Branch sold goods at invoice price plus 25%. (3) Other Information is as follows: (i) Stock (at cost price) as on 1st April, 2022 is 2,25,000 (ii) Goods sent by Head office to branch during the year (at cost price) are 14,85,000 (iii) Goods returned by Branch to Head office during the year (at Invoice price) are 75,000 (iv) Sales by the branch during the year 19,50,000 (v) Expenses incurred at Branch 56,000. You are required to ascertain the following: (a) Profit earned by the Branch by Preparing Trading and profit and loss account for the year ended 31st March 2023 (b) Also find the stock reserve on Closing stock (4 + 6 + 6 = 14 Marks)

Accepted Answer

Answer Solution: (a) In the books of Mr. Day Investment Account (Equity shares in Square Ltd.) Date Particulars No. of shares Amount () Date Particulars No. of shares Amount () 1.4.23 To Balance b/d 25,000 6,25,000 31.3.24 By Balance c/d (Bal. fig.) 63,750 13,00,000 31.7.23 To Bonus issue (W.N.1) 5,000 - 5.10.23 To Bank A/c (right shares) (W.N.4) 33,750 6,75,000 63,750 13,00,000 63,750 13,00,000 Working Notes: (1) Bonus shares = 25,000 5 = 5,000 shares (2) Right shares = 25,000 + 5,000 2 3 × = 45,000 shares (3) Sale of rights = 45,000 shares × 1 4 × 5 = 11,250 x 5 = 56,250 56,250 to be credited to statement of profit and loss (4) Rights subscribed = 45,000 shares × 3 4 × 20 = 6,75,000 ADVANCED ACCOUNTING Or In determining the cost of inventories, it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred. Examples of such costs are: (a) Abnormal amounts of wasted materials, labour, or other production costs; (b) Storage costs, unless the production process requires such storage. (c) Administrative overheads that do not contribute to bringing the inventories to their present location and condition. (d) Selling and distribution costs. (b) Journal Entries Equity Share Capital (old) A/c Dr. 15,00,000 To Equity Share Capital ( 10) A/c 5,00,000 To Cash A/c 50,000 To 10% Debentures A/c 7,50,000 To Securities premium 1,50,000 To Capital Reduction/Reconstruction A/c 50,000 (Being new equity shares, 8% Debentures issued, cash of 50,000 and the balance transferred to Reconstruction account as per the Scheme) 8% Debentures A/c To Freehold Property A/c To Capital Reduction/Reconstruction A/c (Being the debenture holders claim settled partly and foregone partly as per reconstruction scheme) Dr. 5,00,000 4,45,000 55,000 Capital Reduction/Reconstruction A/c To Capital Reserves A/c (Being balance in capital reduction account transferred to Capital Reserves A/c) Dr. 1,05,000 1,05,000 (c) (i) In the books of Kullu Branch Trading and Profit and Loss Account Particulars Amount Particulars Amount To Opening stock 2,70,000 By Sales 19,50,000 To Goods received by Head office 17,82,000 By Goods returned by Branch 75,000 To Expenses 56,000 By Closing stock (Refer W.N.) 4,17,000 To Net profit (Bal fig) 3,34,000 24,42,000 24,42,000 (ii) Calculation of Closing Stock Cost price 100 Invoice price 120 (100+20) Sales price 150 (120+25% of 120) Opening Stock 2,70,000 Goods received 17,82,000 Less: Goods Returned 75,000 19,77,000 Less: Cost of Goods Sold (Invoice price) 15,60,000 Closing Stock 4,17,000 Stock reserve in respect of unrealised profit = 4,17,000 x (20/120) = 69,500

Detailed Solution & Explanation

Key Concepts to Understand

Consideration

Debentures

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