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CAIPCCExampapers

SanthoshKumarGelliDate:12122011

[email protected]

November 2010

Free of Cost ISBN : 978-81-7666-961-0

Appendix IPCC Gr. I (New Course)

November - 2010

Paper - 1 : Accounting

Chapter-1 : Accounting Standards2010 - Nov [1] {C} (b) HP is a leading distributor of petrol. A detail inventory of petrol in handis taken when the books are closed at the end of each month. At the end of month followinginformation is available :

Sales Rs. 47,25,000General overheads cost Rs. 1,25,000Inventory at beginning 1,00,000 litres @ 15/- per litrePurchasesJune 1 two lakh litres @ 14.25June 30 one lakh litres @ 15.15Closing inventory 1.30 lakh litres

Compute the following by the FIFO as per AS-2 :(i) Value of Inventory on June 30.

(ii) Amount of cost of goods sold for June.(iii) Profit/Loss for the month of June. (5 marks)

Answer :(i) Cost of closing inventory for 1,30,000 litres as on 30th June

Particulars `

1,00,000 litres @ 15.1530,000 litres @ 14.25

15,15,0004,27,500

Total 19,42,500

(ii) Computation of cost of goods sold

Appendix IPCC Gr. I Paper 1 : 2010 November I-2

Particulars `

Opening inventories (1,00,000 litres @ 15)Purchases June-1 (2,00,000 liter @ 14.25)

15,00,00028,50,000

June-30 (1,00,000 litres @ 15.15) 15,15,000

Less : Closing inventories 58,65,000(19,42,500)

Cost of goods sold 39,22,500(iii) Computation of profit

Particulars `

Sales (Given) (A)Cost of goods soldAdd: General overheadsTotal cost (B)

47,25,00039,22,500 1,25,00040,47,500

Profit (A!B) 6,77,5002010 - Nov [7] Answer the following :(a) A company installed a plant at a cost of Rs. 20 lacs with estimated useful life of 10 years

and decided to depreciate on straight line method. In the fifth year company decided toswitch over from straight line method to written down value method. Compute the resultantsurplus/deficiency if any, and state how will you treat the same in the accounts.(4 marks)

(c) An amount of Rs. 9,90,000 was incurred on a contract work upto 31-3-2010. Certificateshave been received to date to the value of Rs. 12,00,000 against which Rs. 10,80,000 hasbeen received in cash. The cost of work done but not certified amounted to Rs. 22,500. Itis estimated that by spending an additional amount of Rs. 60,000 (including provision forcontingencies) the work can be completed in all respects in another two months. The agreedcontract price of work is Rs. 12,50,000. Compute a conservative estimate of the profit tobe taken to the Profit and Loss Account as per AS-7. (4 marks)

Answer :(a) Table showing depreciation under Straight Line Method (SLM) and depreciation under

Written Down Value Method (WDV)Depreciation ` in lacs

Year SLM WDVI 2.00 (Note!1) 2.00 (Note!2)II 2.00 1.80III 2.00 1.62


IV 2.00 1.46Total 8.00 6.88

Resultant surplus on change in method of depreciation from SLM to WDV = (8.00 6.88)` 1.12 lakhs. According to AS 6 Depreciation Accounting, when a change in the method of

depreciation is made, depreciation should be re-calculated in accordance with the newmethod from the date of the asset put to use.

The deficiency or surplus arising from retrospective re-computation of depreciationin accordance with the new method should be adjusted in the accounts in the year inwhich the method of depreciation is changed.

In the given question, surplus amounting 1.12 lakhs (8.00 6.88) should be creditedto profit and loss statement in the fifth year. Such a change should be treated as achange in accounting policy and its effect should be quantified and disclosed as perAS 5. Net Profit loss for the period, prior period items and changes in AccountingPolicies.

Note 1 : Depreciation as per SLM ` 20 lakhs/10years = 2 lakhs.Note 2 : Depreciation rate under SLM is 10% (2,00,000/20,00,000 100). It is assumed thatdepreciation rate will remain same under WDV method also.(c) Computation of estimate of profit as per AS 7

Particulars `

Expenditure incurred upto 31.3.2010Estimated additional expenses (including provision for contingency)Estimated cost (A)Contract price (B)Total estimated profit [(B-A)]Percentage of completion (9,90,000/10,50,000) 100

9,90,000 60,000

10,50,00012,50,000 2,00,000

94.29%Computation of estimate of the profit to be taken to Profit and Loss Account : = Total estimated profit

= 2,00,000 = 1,88,571

According to AS 7 Construction Contracts, when the outcome of a construction contractcan be estimated reliably, contract revenue and contract costs associated with theconstruction contract should be recognised as revenue and expenses respectively byreference to stage of completion of the contract activity at the reporting date. Thereforeestimated profit amounting 1,88,571 should be recognised as revenue in the statement ofprofit and loss.


Chapter - 3 : Cash Flow Statement2010 - Nov [3] From the following information, prepare a Cash Flow Statement as per AS-3 forBanjara Ltd., using direct method: Balance Sheet as on March 31, 2010 (Rs. 000)

2010 2009Assets :Cash on hand and balances with bank 200 25Marketable securities (having one month Maturity) 670 135Sundry Debtors 1,700 1,200Interest Receivable 100 Inventories 900 1,950Investments 2,500 2,500Fixed Assets at Cost 2,180 1,910Accumulated Depreciation (1,450) (1,060)Fixed Assets (net) 730 850Total Assets 6,800 6,660Liabilities :Sundry Creditors 150 1,890Interest Payable 230 100 Income tax Payable 400 1,000Long term Debt 1,110 1,040Total Liabilities 1,890 4,030Shareholders Fund :

Share Capital 1,500 1,250Reserves 3,410 1,380

4,910 2,630Total Liabilities and Shareholders Fund 6,800 6,660

Statement of Profit or Loss for the year ended 31-3-10(Rs.000)

Sales 30,650Cost of sales (26,000)Gross profit 4,650Depreciation (450)Administrative and Selling expenses (910)Interest expenses (400)Interest income 300Dividend income 200Net profit before taxation and extraordinary items 3,390

Extraordinary items :


Insurance proceeds from earthquake disaster settlement 140Net profit after extraordinary items 3,530Income tax (300)

Net profit 3,230Additional information : (Rs. 000)

(i) An amount of Rs. 250 was raised from the issue of share capital and a further Rs. 250was raised from long- term borrowings.

(ii) Interest expense was Rs. 400 of which Rs. 170 was paid during the period Rs. 100relating to interest expense of the prior period was also paid during the period.

(iii) Dividends paid were Rs. 1,200.(iv) Tax deducted at source on dividends received (included in the tax expense of Rs. 300 for

the year ) amounted to Rs. 40. (v) During the period the enterprise acquired Fixed Assets for Rs. 350. The payment was

made in cash. (vi) Plant with original cost of Rs. 80 and accumulated Depreciation of Rs. 60 was sold for

Rs. 20.(vii) Sundry debtors and Sundry creditors include amounts relating to credit sales and credit

purchase only. (16 marks)Answer :

Cash Flow Statement (direct method)Particulars Amount

(`)Amount

(`)

Cash flows from Operating ActivitiesCash receipts from customers (W.N.2)Cash paid to suppliers, employees and for expenses (W.N.3)Cash generated from operationsIncome tax paid (W.N.4)

Cash flow before extraordinary item:proceeds from earthquake disaster settlementNet cash from operating activitiesCash flows from Investing ActivitiesPurchase of fixed assetsProceeds from sale of equipmentInterest received (300 100)Dividends received (200 40)Net cash from investing activities

30,150(27,600) 2,550 (860)

1,690

140

(350) 20

200 160

1,830

30


Cash flows from Financing ActivitiesProceeds from issuance of share capitalProceeds from long term borrowingsRepayment of long term borrowings (W.N.5)Interest paid (W.N.6)Dividends paidNet cash used in financial activities

250250

(180)(270)

(1,200) (1,150)

Dividends paidCash and cash equivalents at beginning of the period (W.N.1)

710160

Cash and cash equivalents at end of the period (W.N.1) 870Working Notes:(1) Cash and cash equivalents

Cash and cash equivalents includes cash in hand and balances with banks and investmentsin money market instruments for short period.

((`) in `000)

Particulars 2010 2009

Cash in hand and balance with bankShort-term investments

200670

25135

Cash and cash equivalents 870 160(2) Cash receipts from customers

Particulars (`) in`000

Total salesAdd: Sundry debtors at the beginning of the year

Less: Sundry debtors at the end of the yearCash sales

30,650 1,20031,850(1,700)30,150

(3) Cash paid to suppliers, employees and for expensesParticulars (`) in `000

Cost of salesAdministrative and selling expenses

Add : Sundry creditors at the beginning of the year Inventories at the end of year

1,890 900

26,000 91026,910

2,79029,700


Less : Sundry creditors at the end of year Inventories at the beginning of the year

(150)(1,950)

(2,100) 27,600

(4) Income tax paid (including TDS from dividends received)

Particulars (`) in `000

Income tax expense for the year(including tax deducted at source from dividends received)Add : Income tax liability at the beginning of the year

300

1,0001,300

Less : Income tax liability at the end of the year (400) 900

Note : Out of ` 900 thousands, tax deducted at source on dividends received (amounting to`40thousands) is included in cash flows from investing activities and the balance of 860 thousandsis included in cash flows from operating activities.(5) Repayment of long term borrowings during the year


Long term debts at the beginning of the yearAdd : Long term borrowings made during the year

Less : Long term borrowings at the end of the year

1,040 250

1,290(1,110)

180(6) Interest paid during the year


Interest expense for the yearAdd : Interest payable at the beginning of the year

Less : Interest payable at the end of the year

400100500

(230)

270


Chapter - 4 : Alteration & Conversion of Share Capital2010 - Nov [5] (a) The following is the Balance Sheet of Bumbum Limited as at 31st March,2009:Sources of Funds Rs. Authorized Capital50,000 Equity shares of Rs. 10 each 5,00,000

10,000 Preference shares of Rs. 100 each 10,00,000Issued subscribed and paid up 15,00,00030,000 Equity shares of Rs. 10 each 3,00,0005,000 Redeemable 8% Preference shares of Rs. 100 each 5,00,000

Reserves & Surplus Securities Premium 6,00,000General Reserve 6,50,000Profit & Loss A/c 1,80,000

2500, 9% Debentures of Rs. 100 each 2,50,000Sundry Creditors 1,70,000

26,50,000Application of Funds Fixed Assets (net) 7,80,000Investments (market value Rs. 5,80,000) 4,90,000Deferred Tax Assets 3,40,000Sundry Debtors 6,20,000Cash & Bank balance 2,80,000Preliminary expenses 1,40,000

26,50,000In Annual General Meeting held on 20th June, 2009 the company passed the followingresolutions :

(i) To split equity share of Rs. 10 each into 5 equity shares of Rs. 2 each from 1 st July, 09.(ii) To redeem 8% preference shares at a premium of 5%.

(iii) To redeem 9% Debentures by making offer to debentureholders to convert their holdingsinto equity shares at Rs. 10 per share or accept cash on redemption.

(iv) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares heldon record date.

On 10th July, 2009 investments were sold for Rs. 5,55,000 and preference shares were redeemed.40% of Debentureholders exercised their option to accept cash and their claims were settled

on 1st August, 2009. The company fixed 5th September, 2009 as record date and bonus issue was concluded by

12th September, 2009.


You are requested to journalize the above transactions including cash transactions andprepare Balance Sheet as at 30th September, 2009. All working notes should form part of youranswer. (12 marks)Answer :

Bumbum LimitedJournal Entries

Date Particulars Dr. (`) Cr. (`)

2009July 1

Equity Share Capital A/c (` 10 each) Dr.To Equity share capital A/c (` 2 each)

(Being equity share of ` 10 each splitted into 5 equityshares of ` 2 each)

3,00,0003,00,000

July 10 Cash & Bank balance A/c Dr.To Investment A/cTo Profit & Loss A/c

(Being investment sold out and profit on sale credited toProfit & Loss A/c)

5,55,0004,90,000

65,000

July 10 8% Redeemable preference share capital A/c Dr.Premium on redemption of preference share A/c Dr.

To Preference shareholders A/c(Being amount payable to preference share holders onredemption)

5,00,00025,000

5,25,000

July 10 Preference shareholders A/c Dr.To Cash & bank A/c

(Being amount paid to preference shareholders)

5,25,0005,25,000

July 10 Securities premium A/c Dr.To Capital redemption reserve A/c

(Being amount equal to nominal value of preferenceshares transferred to Capital Redemption Reserve A/c onits redemption as per the law)

5,00,0005,00,000

Aug. 1 9% Debentures A/c Dr.Interest on debentures A/c Dr.

To Debentureholders A/c(Being amount payable to debentureholders along withinterest payable)

2,50,0007,500

2,57,500


Aug. 1 Debentureholders A/cTo Cash & bank A/c (1,00,000 + 7,500)To Equity share capital A/cTo Securities premium A/c

(Being claims of debenture holders satisfied)

2,57,0001,07,500

30,0001,20,000

Sept. 5 Securities premium A/cTo Bonus to shareholders A/c(Being securities premium capitalized to issue bonusshares)

1,10,0001,10,000

Sept.12 Bonus to shareholders A/cTo Equity share capital A/c(Being 55,000 fully paid equity shares of ` 2 each issuedas bonus in ratio of 1 share for every 3 shares held)

1,10,0001,10,000

Sept.30 Securities Premium A/c Dr.To Premium on redemption of preference shares A/c(Being premium on preference shares adjusted fromsecurities premium account)

25,000 25,000

Sept.30 Profit & Loss A/c DrTo Interest on debentures A/c

(Being interest on debentures transferred to Profit andLoss Account).

7,500 7,500

Note : For capitalisation of Bonus shares and transfer to CRR account any other free reservesgiven in the balance sheet may also be used.

Balance Sheet as at 30th September, 2009

Particulars Amount (`)

Sources of fundsAuthorized share capital

2,50,000 Equity shares of ` 2 each10,000 Preference shares of `100 each

Issued, subscribed and paid up2,20,000 Equity shares of ` 2 each

Reserves & Surplus

5,00,00010,00,00015,00,000

4,40,000


Securities PremiumCapital Redemption ReserveGeneral ReserveProfit & Loss A/c (1,80,000 + 65,000 7,500)

Current Liabilities & ProvisionsSundry Creditors

TotalApplication of funds

Fixed assets (Net)Deferred tax assetsSundry debtorsCash & bank balancePreliminary expenses

Total

85,0005,00,0006,50,0002,37,500

1,70,00020,82,500

7,80,0003,40,0006,20,0002,02,500

1,40,00020,82,500

Working Notes :1. Redemption of preference share :

5000 preference shares of ` 100 each ` 5,00,000Premium on redemption @ 5% ` 25,000Amount Payable ` 5,25,000

2. Redemption of Debentures :2,500 Debentures of ` 100 each ` 2,50,000Less : Cash option exercised by 40% holders ` (1,00,000)

Conversion option exercised by remaining 60% ` 1,50,000

Equity shares issued on conversion = ` = 15,000 shares

3. Issue of Bonus Shares :Existing equity shares after split (30,000 5) 1,50,000 sharesEquity shares issued on conversion 15,000 sharesEquity shares entitled for Bonus 1,65,000 sharesBonus shares (1 share for every 3 shares held) to be issued 55,000 shares

4. Securities Premium A/c


Particulars (`)

Balance as per balance sheetAdd: Premium on equity shares issued on

conversion of debentures (15,000 x 8)Less: Capitalization for bonus issue (55,000 x 2)

Adjustment for premium on preference shares Transfer to capital redemption reserve

6,00,000 1,20,000

7,20,000(1,10,000) (25,000)

(5,00,000)

Balance 85,0005. Cash and Bank Balance

Particulars (`)

Balance as per balance sheetAdd : Realization on sale of investment

Less : Paid to preference share holders Paid to Debenture holders (7,500 + 1,00,000)

2,80,0005,55,000

8,35,000(5,25,000)(1,07,500)

Balance 2,02,5006. Interest of ` 7,500 paid to debenture holders have been debited to Profit & Loss Account.Chapter - 5 : Accounting for Business Acquisition, Amalgamation and Reconstruction2010 - Nov [1] {C} (c) A and B decide to amalgamate themselves into Sharp Limited. Thefollowing are their Balance Sheets as on 31st December, 2009.Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.Face value and paid up InvestmentscapitalShare capital (Rs. 100each) 5,00,000 4,00,000 1,000 shares in B Ltd. 1,30,000 General Reserves 2,00,000 1,00,000 2,000 shares in A Ltd. 2,10,00010% Debentures 2,00,000 1,50,000 Sundry Assets 7,70,000 4,40,000

9,00,000 6,50,000 9,00,000 6,50,000Compute the amount of purchase consideration each of these companies under purchase methodas per AS-14. (5 marks)Answer :Let the net assets of A Ltd. be a and net assets of B Ltd. be b.Then a = 7,70,000 2,00,000 + ba = 5,70,000 + b

4a ! b = 22,80,000 (i)Similarly


b = 4,40,000 1,50,000 + 2/5 xb = 2,90,000 + 2/5 a!2a + 5b = 14,50,000 (ii)By multiplying equation (ii) by 2, we get!4a + 10b = 29,00,000 (iii)By adding equation (i) with equation (iii), we get4a ! b = 22,80,000!4a +10b = 29,00,000

9b = 51,80,000 i.e. b = = 5,75,556

Putting the value of b in equation (i) we get4a 5,75,556 = 22,80,0004a = 22,80,000 + 5,75,556

a = 7,13,889

Computation of Parches Consideration :

Particulars A Ltd. B Ltd.

Total value of net assetsLess : 1/4 for shares held by A Ltd.Less : 2/5 for shares held by B Ltd.

7,13,889

2,85,556

5,75,5561,43,889

Purchase consideration 4,28,333 4,31,667Assuming that the shares in Sharp Ltd. consist of 100 each, Sharp Ltd. may satisfy the purchaseconsideration as follows :

A Ltd. B. Ltd.Shares in Sharp Ltd. (@ ` 100) 4,28,300 5,75,556Cash 33 67

4,28,333 4,31,6672010 - Nov [6] (a) The partners of Shri Enterprises decided to convert the partnership firm intoa Private Limited Company Shreya (P) Ltd. with effect from 1st January, 2008. However,company could be incorporated only on 1st June, 2008. The business was continued on behalfof the company and the consideration of Rs. 6,00,000 was settled on that day along with interest@ 12% per annum. The company availed loan of Rs. 9,00,000 @ 10% per annum on 1st June,2008 to pay purchase consideration and for working capital. The company closed its accountsfor the first time on 31st March, 2009 and presents you the following summarized profit and lossaccount :

Rs. Rs.Sales 19,80,000Cost of goods sold 11,88,000


Discount to dealers 46,200Directors remuneration 60,000Salaries 90,000Rent 1,35,000Interest 1,05,000Depreciation 30,000Office expenses 1,05,000Sales promotion expenses 33,000Preliminary expenses

(to be written off in first year itself) 15,000 18,07,200Profit 1,72,800Sales from June, 2008 to December, 2008 were 2 times of the average sales, which furtherincreased to 3 times in January to March quarter, 2009. The company recruited additional workforce to expand the business. The salaries from July, 2008 doubled. The company also acquiredadditional showroom at monthly rent of Rs. 10,000 from July, 2008.

You are required to prepare a Profit and Loss Account showing apportionment of cost andrevenue between pre-incorporation and post-incorporation periods. Also suggest how the pre-incorporation profits/losses are to be dealt with. (10 marks)Answer :

Shreya (P) LimitedProfit and Loss Account

for 15 months ended 31st March, 2009Dr. Cr.Particulars Pre. inc.

(5 months)Pos. inc.

(10 months)Particulars Pre. inc.

(5 months)Pos. inc.

(10 months)

(`) (`) (`) (`)

To Cost of salesTo Gross profitTo Discount to

dealersTo D i r e c t o r s

remuneration

1,80,0001,20,0003,00,000

7,000

10,08,000 6,72,00016,80,000

39,20060,000

By Sales(W.N.1)

By G.P.By Loss

3,00,000

3,00,0001,20,000

750

16,80,000

16,80,000 6,72,000


To Salaries (W.N.2)To Rent (W.N.3)To Interest (W.N.4)To DepreciationTo Office expensesTo PreliminaryexpensesTo Sales promotionexpensesTo Net profit

18,75015,00030,00010,00035,000

5,000

71,2501,20,000 75,000 20,000 70,000 15,000

28,000

1,73,550

1,20,750 6,72,000 1,20,750 6,72,000Treatment of pre-incorporation loss : Pre-incorporation loss may, either be considered as areduction from any capital reserve accruing in relation to the transaction or be treated asgoodwill.Working Notes :1. Computation of sales ratio :

Let the average sales per month in pre-incorporation period be aAverage Sales (Pre-incorporation) = a 5 = 5aSales (Post incorporation) from June to December, 2008 = 2a 7 = 17.5aFrom January to March, 2009 = 3a 3 = 10.5a

Total Sales 28.0aSales ratio of pre-incorporation & post incorporation is 5a : 28a

2. Computation of ratio for salaries :Let the average salary be aPre-incorporation salary = a 5 = 5aPost incorporation salary

June, 2008 = aJuly to March, 2009 = a 9 2 = 18a

19a Ratio is 5 : 19

3. Computation of Rent :Total rent 1,35,000Less: Additional rent for 9 months @ 10,000 p.m. 90,000Rent of old premises apportioned in time ratio 45,000

Apportionment Pre Inc. Post Inc.Old premises rent 15,000 30,000Additional Rent 90,000

15,000 1,20,000

4. Computation of interest :


Pre-incorporation period from January, 2008 to May, 2008

= 30,000

Post incorporation period from June, 2008 to March, 2009

= 75,000

1,05,000Chapter - 6 : Average Due Date2010 - Nov [7] (e) From the following details find out the average due date :

Date of Bill Amount (Rs.) Usance of Bill29th January, 2009 5,000 1 month20th March, 2009 4,000 2 months

12th July, 2009 7,000 1 month10th August, 2009 6,000 2 months

(4 marks)Answer :Calculation of Average Due Date

(Taking 3rd March, 2009 as base date)Date of bill

2009Term Due date Amount

(`)

No. of days fromthe base date i.e.3rd March,2009

(`)

Product

(`)

29th January20th March12th July10th August

1 month2 months1month2 months

2009 3rd March 1(Note!1) 23rd May14th Aug.(Note!2) 13th Oct

5,000

4,0007,000

6,000

081

164224

03,24,000

11,48,00013,44,000

22,000 28,16,000Note 1 : 1 Bill dated 29th January, 2009 has the maturity period of one month, but there is no

corresponding date in February, 2009. Therefore, the last day of the month i.e. 28thFebruary, 2009 shall be deemed maturity date and due date would be 3rd March, 2009(after adding 3 days of grace).

Note 2 : Bill dated 12th July, 2009 has the maturity period of one month, due date (after adding3 days of grace) falls on 15th August, 2009. 15th August being public holiday, duedate would be preceding date i.e. 14th August, 2009.Average due date = Base date + Days equal to +


= 3rd March, 2009 +

= 3rd March, 2009 + 128 days= 9th July, 2009.

Chapter - 8 : Self Balancing Ledgers2010 - Nov [5] (b) Ujju Enterprise furnishes you the following information for the periodOctober to December, 2009 . You are requested to draw up Debtors Ledger Adjustment Accountin the General Ledger:

(i) Total sales amounted to Rs. 2,20,000 including sale of old motor car for Rs. 10,000(book value Rs. 5,000). Total credit sales were 80% higher than the cash sales.

(ii) Cash collection from debtors amounted to 60% of the aggregate of the opening debtorsamounting to Rs. 40,000 and credit sales for the period. Debtors were allowed discountof Rs. 10,000.

(iii) Bills receivables drawn during the period totalled Rs. 20,000 of which one bill ofRs. 5,000 was dishonoured for non-payment as the party became insolvent, his estaterealized 50 paise in a rupee.

(iv) A sum of Rs. 3,000 was written off as bad debts, Rs. 7,000 was realized against baddebts written off in earlier years and provision of Rs. 6,000 was made for doubtful debts.

(4 marks)Answer :

In the book of Ujju EnterpriseDebtors Ledger Adjustment Account in the General Ledger

Dr Cr.Particulars Amount

(`)Particulars Amount

(`)

2009Oct.1

Oct.1 toDec31

To Balance b/d

To General Ledger Adj.A/c :Sales (Refer W.N.)Bills Receivablesdishonoured

40,000

1,35,0005,000

2009'Oct. 1to Dec31

By General Ledger Adj.A/c :Collection from debtors-bank [60% of (40,000 +1,35,000)]

Discount allowedBills receivablesBad debts (` 2,500 +` 3,000)By Balance c/d

1,05,000

10.00020,000

5,500 39,500

1,80,000 Total 1,80,000

Note : No entries are required :(a) For ` 7,000 realised against bad debts written off in earlier years, and


(b) For provision of ` 6,000 made for doubtful debts.Working Note:Calculation of credit sales :

(`)Total trade sales = 2,20,000 10,000 = 2,10,000

Less: Cash sales = 2,10,000 = (75,000)

Credit sales = 1,35,000Chapter - 9 : Financial Statements of Not for profit Organisation2010 - Nov [2] The Young Trust runs a Charitable Hospital and a Dispensary. The followinginformation is available for the year ended 31st March, 2009 from the books of accounts :

Dr. Cr.Rs. Rs.

Capital Fund 9,00,000Donations received during the year 6,00,000Recovery of the Rent 2,75,000Fees received from patients 3,00,000Recovery of Food Supplies 1,40,000Surgical Equipments 4,55,000Building & Operation Theatres 3,20,000Consumption in the Hospital of :

Medicines 1,20,000Food Stuff 90,000Chemicals 30,000

Closing Stock of HospitalMedicines 20,000Food Stuff 4,000Chemicals 1,000

Sales of Medicines (Dispensary) 3,10,000Opening Stock of Medicines (Dispensary) 55,000Purchase of Medicines (Dispensary) 3,00,000Salaries :

Administrative Staff 30,000Doctors/Nurses 1,50,000Assistant at the Dispensary 15,000

Electricity & Power Charges :Hospital 1,05,000Dispensary 2,000

Furniture & Equipments 80,000Ambulance 30,000Postage & Telephone Expenses less recovery 26,000


Subscription to Medical Journals 21,000Ambulance Maintenance Charges less recovery 800Consumption of Bed Sheets 90,000Fixed Deposits made on 01-04-2008 for three years at interest

@ 11% p.a. 5,00,000Cash & Bank Balances 41,300Sundry Debtors (Dispensary) 60,500Sundry Creditors (Dispensary) 41,000Remuneration to Trustees, Trust Office Expenses etc. 21,000Additional Information :(a) The dispensary supplied medicines to the hospital worth Rs. 60,000, for which no

adjustment was made in the books.(b) The closing stock of the medicines was Rs. 40,000 at the dispensary.(c) The stock of medicines on 31st March, 2009 at the hospital included Rs. 4,000 worth of

medicines belonging to the patients, which has not been considered while arriving at thefigure of consumption of medicines.

(d) The donations were received towards Corpus of the Trust.(e) On 15th August, 2008, surgical equipments were donated having market value of

Rs. 40,000.(f) The hospital is to receive the grant of 25% of the amount spent on treatment of the poor

patients from the Red Cross Society. Such expenditure was Rs. 50,000.(g) Out of the fees recovered from the patients, 10% is to be given to the Specialist retained by

the Hospital.(h) Depreciation on the assets on the closing balances :

Surgical Equipments @ 20%Building @ 5%Furniture & Equipments @ 10%Ambulance @ 30%

You are required to prepare :(i) Income and Expenditure Account of the Hospital, Dispensary and Trust.

(ii) Statement of Affairs of the Trust for the year ended 31st March, 2009. (16 marks)

Answer :Income & Expenditure Account of Dispensary

(For the year ended 31st March, 2009)


Particulars Amount(`)


To Opening stock of medicinesTo Purchase of medicinesTo Salaries to assistantsTo Electricity & power chargesTo Surplus transferred to trust

income & expenditureaccount (Bal.Fig.)

55,0003,00,000

15,0002,000

38,000

By Sales of medicineBy Supply of medicines tohospitalBy Closing stock of medicines

3,10,000

60,00040,000

4,10,000 4,10,000Income & Expenditure Account of Hospital

(For the year ended 31st March, 2009)

Particulars Amount (`)


To Consumption of:Medicines (W.N.1) 1,84,000Food stuff 90,000 Chemicals 30,000To Salaries: Admn. staff 30,000 Doctors & nurses 1,50,000To Electricity & power chargesTo Consumption of bed sheetsTo Subscription to medical

journalsTo Retainership of specialists

outstanding (W.N.2)To Depreciation on: Surgical equipments 99,000 Building 16,000 Furniture & fixtures 8,000 Ambulance 9,000

3,04,000

1,80,0001,05,000

90,000

21,000

30,000

1,32,000

By Fees received from patientsBy Recovery for rentBy Recovery of food suppliesBy Ambulance maintenance

charges less recoveryBy Grant receivable from Red

Cross Society (25% of 50,000)By Deficit transferred to trust

income & expenditureaccount

3,00,0001,40,0002,75,000

800

12,500

1,33,700

8,62,000 8,62,000

Income & Expenditure Account of the Young Trust(For the year ended 31st March, 2009)




To Deficit from hospitalTo Postage & telephone expenses

less recoveryTo Remuneration to trustees, trust

office expenses etc.

1,33,700

26,000

21,000

By Surplus from dispensaryBy Interest accrued on fixed

depositsBy Deficit (Excess of expenditure over

income)

38,000

55,000

87,700

1,80,700 1,80,700Statement of Affairs of Young Trust

(As on 31st March, 2009)Liabilities Amount

(`)Assets Amount

(`)

Capital fund :Opening balanceAdd : Donations :

CashSurgicalequipment

Less : DeficitSundry creditors(dispensary)Outstandingretainership tospecialist (W.N.2)

9,00,000

6,00,000

40,00015,40,000 87,700 14,52,300

41,000

30,000

BuildingLess : DepreciationSurgical equipmentAdd: Donation

Less : DepreciationFurnitureLess : DepreciationAmbulanceLess : DepreciationStock:Medicines :DispensaryHospital

3,20,000 16,0004,55,000

40,0004,95,000

99,00080,000

8,00030,000

9,000

40,00016,000

3,04,000

3,96,000

72,000

21,000


Food stuffHospital(20,000 4,000) ChemicalsSundry debtors(Dispensary)Grant receivablefrom Red CrossSocietyfixed depositsInterest accruedCash & bank balance

4,000

1,000 61,000

60,500

12,5005,00,000 55,000

41,300

15,23,300 15,23,300Working Notes :1. Consumption of medicines in hospital :

Medicines 1,20,000Supplies received from dispensary 60,000Medicines in stock belonging to patients 4,000Total 1,84,000

2. Calculation of fee given to specialist:10% of ` 3,00,000 = ` 30,000

Note : It is assumed that surgical equipment donated on 15th August 2008 was not includedin the closing balance of surgical equipments as on 31 st March, 2009.

Chapter - 11 : Hire Purchase & Instalment Sale Transactions2010 - Nov [6] (b) Sonam Corporation sells goods on hire purchase basis. The hire purchaseprice is cost plus 50%.

From the following particulars prepare Hire Purchase Trading Account for the year ended31st March, 2010 :

Instalments not yet due on 01-04-09 3,00,000Instalments due on 01-04-09 1,50,000Goods sold on hire purchase during the year 9,00,000Instalments collected from HP debtors 6,80,000Stock with customers at hire purchase price 4,50,000Goods re-possessed during the year 60,000On 31-03-2010 Goods repossessed were valued at Cost less 40% (6 marks)

Answer :


Hire Purchase Trading Account for the year ended 31.03.2010Particulars Amount (`) Particulars Amount (`)

To Opening balance:Hire purchase stockHire purchase debtors

To Goods sold on hirepurchase

To Hire purchase stock reserve(closing)

To Profit & Loss A/c

3,00,0001,50,000

9,00,0001,50,000

2,14,000

By Hire purchase stock reserve(opening)

By Bank (Installments Collected)By Goods re-possessed (W.N.3)By Goods sold on hire purchase

(loading)By Closing balances :

Hire purchase stockBy Hire purchase

debtors (W.N.2)

1,00,000

6,80,00024,000

3,00,000

4,50,000

1,60,000

17,14,000 17,14,000Working Notes :(1) Memorandum Hire Purchase Stock A/cParticulars Amount (`) Particulars Amount (`)

To Balance b/d To Goods sold on hire purchase

3,00,0009,00,000

By Hire purchase debtors A/c (Bal. fig.)By Balance c/d

7,50,000

4,50,000

1200000 1200000(2) Memorandum Hire Purchase Debtors A/cParticulars Amount (`) Particulars Amount (`)

To Balance b/dTo Hire purchase stock A/c (W.N.1)

1,50,0007,50,000

By Bank/CashBy Goods repossessedBy Balance c/d (Bal. fig.)

6,80,00060,000

1,60,000

9,00,000 9,00,000

(3) Value of goods re-possessed: = ` 24,000

Assumption : It is assumed that figures given in the question are at invoice price.

Chapter - 12 : Investment Account


2010 - Nov [1] {C} (d) H purchased 500 equity shares of Rs. 100 each in the ABC CompanyLimited for Rs. 62,500 inclusive of brokerage and stamp duty. Some years later the companydecided to capitalise its profit and to issue to the holders of equity shares one equity share asBonus for every equity share held by them. Prior to capitalization, the shares of ABC CompanyLimited were quoted at Rs. 175 per share. After the capitalization, the shares were quoted atRs. 92.50 per share. H sold the Bonus shares and received Rs. 90 per share. Show InvestmentA/c in Hs books on average cost basis as per AS-13. (5 marks)Answer :

In the books of HInvestment Account (Equity Shares of ABC Co. Ltd.)

Particulars FaceValue

Cost Particulars FaceValue

Cost

To Balance b/d *To Bonus Shares A/cTo Profit & Loss A/c (W.N. 1)(Profit on sale)

50,00050,000

62,500

13,750

By Bank A/cBy Balance c/d

(W.N.2)

50,00050,000

45,00031,250

1,00,000 76,250 1,00,000 76,250Working Note:1. Computation of profit on sale of bonus shares :

Sale price of bonus shares 45,000

Less : Average cost of shares sold 50,000 = (31,250)

Profit 13,7502. Valuation of closing investment :

Market value of shares 62.50 = 46.250

Cost price of shares (W.N. 1) = 31,250= 46,250

Value of investment will be least of market value or average cost price, i.e. 31,250Chapter - 13 : Insurance Claims for Loss of Stock and Loss of Profit2010 - Nov [7] Answer the following :(d) A trader intends to take a loss of profit policy with indemnity period of 6 months, however,

he could not decide the policy amount. From the following details, suggest the policyamount :

Rs.


Turnover in last financial year 4,50,000Standing charges in last financial year 90,000Net profit earned in last year was 10% of turnover and the same trend expected insubsequent year.Increase in turnover expected 25%To achieve additional sales, trader has to incur additional expenditure of ` 31,250.

(4 marks)Answer :(a) Computation of Gross Profit

Gross Profit =

= = 30%

(b) Computation of policy amount to cover loss of profit

Particulars `

Turnover in the last financial yearAdd : 25% increase in turnover

Gross profit on increased turnover (5,62,500 30%)Add : Additional standing charges

4,50,0001,12,5005,62,5001,68,750

31,250

Policy Amount 2,00,000Therefore, the trader should go in for a loss of profit policy of ` 2,00,000.Chapter-14 : Introduction to Partnership Accounts2010 - Nov [1] {C} (a) Following two problems are regarding issues in Partnership Accounts,kindly solve both :

(i) Anil and Mukesh are partners sharing profit and losses in the ratio of 3 : 2. Govind isadmitted for th share of firm. Thereafter Madan enters for 20 paisa in a rupee. Computenew profit sharing ratios under both the admission of partners.

(ii) The following Goodwill Account was opened by the partners of R and S, on theadmission of H as a new partner into firm Om and Sons. Calculate the share of profitagreed to be given to H.

Goodwill A/c.Dr. Cr.


Rs. Rs.1-4-2010 To Rs Capital A/c 24,800 1-4-2010 By Rs Capital A/c 12,4001-4-2010 To Ss Capital A/c 18,600 1-4-2010 By Ss Capital A/c 12,400

1-4-2010 By Hs Capital A/c 18,60043,400 43,400

(5 marks)Answer :

(i) 1. At the time of admission of Govind :Let the total share of profit at the time of admission of Govind is 1Share of New Partner Govind = Remaining share of profit = 1 =

New share of Anil = =

New share of Mukesh = = New profit sharing of Anil, Mukesh & Govind is

: : i.e. = 9 : 6 : 5

2. At the time of admission of Madan :Let total share at the time of admission of Madan is 1Share of new partner Madan = 1/5Remaining share = 1 1/5 = 4/5Now,

New share of Anil = = New share of Mukesh = 4/5 x 6/20 = 6/25New share of Govind = 4/5 x 5/20 =5/25New profit sharing ratio of Anil, Mukesh, Govind and Madan is

: : : i.e. 9 : 6 :5 :5

(ii) Share of H in profit sharing ratio :

Hs share = =

2010 - Nov [4] Ramu, Shamu and Raju were partners sharing profits and losses in the ratio of3 : 2 : 2. Their Balance Sheet as on 01-01-2009 was as follows:

Liabilities Rs. Assets Rs.Capital Accounts Fixed Assets 80,000

Ramu 30,000 Stock 15,000Shamu 20,000 Debtors 12,000Raju 20,000 70,000 Cash & Bank 1,951

Reserves 14,000Creditors 24,951 _______


1,08,951 1,08,951On 1st October, 2009 Ramu died. His heirs agreed that:

(i) Goodwill of the firm be valued at 2 years purchase of average profit of past three years.Profits for the year 2006, 2007 and 2008 were Rs. 30,000, Rs. 40,000 and Rs. 47,600respectively.

(ii) Fixed Assets be revalued at Rs. 1,01,000. (iii) Profit to be shared, earned in subsequent period after death of Ramu till settlement of

his executors claim. Ramus heirs account was settled on 31-12-2009 by bringing in required cash by remainingpartners in equal proportion leaving cash balance of Rs. 1,234. Each partner had drawn @Rs. 1,000 per month for personal use.

Profit for the current year after charging depreciation of Rs. 9,000 (Rs. 6,000 for first threequarters and Rs. 3,000 for last quarter) was Rs. 46,600 earned evenly through-out the year.

You are requested to prepare Profit & Loss Appropriation A/c, Cash & Bank A/c, RamusExecutors A/c and Partners Capital Accounts for the year ended on 31-12-2009 assumingremaining partners decided not to retain goodwill in the books. (16 marks)Answer :(i) Profit & Loss Account

Particulars (`) (for 9months)

(`) (for 3months)


(`) (for 9months)

To DepreciationTo Net profit

6,00035,700

3,00010,900

By Profit (W.N.1) 41,700

13,900

41,700 13,900 41,700 13,900 Profit & Loss Appropriation Account


(`) (for 3months)


(`) (for 3months)

To Partners capital A/csRamuShamuRaju

To Ramus Executor A/c

15,30010,20010,200

3,04310,044

4,813

By Net Profit35,700 10,900

(W.N.2) 35,700 10,900 10,900 10,900

(ii) Partners Capital Accounts as on 1st October, 2009Particulars Ramu Shamu Raju Particulars Ramu Shamu Raju


To DrawingsTo Ramus Executors A/cTo Balance c/d

9,00087,414

96,414

9,000

55,276

64,276

9,000

55,276

64,276

By Balance b/dBy ReservesBy Goodwill(Note) (W.N.3)By Fixed Assets (Note)By Profit & LossAppropriation A/c

30,0006,000

36,1149,000

15,30096,414

20,0004,000

24,0766,000

10,20064,276

20,0004,000

10,20064,276

Note : According to AS 10, Accounting for fixed Assets, goodwill should be recorded in thebooks only when some consideration in money or moneys worth has been paid for it. But in theabove solution, goodwill has been raised in the books at the time of death of a partner and writtenoff by the remaining partners, as per the information given in the question. Appreciation of fixedassets may also be recorded through Revaluation Account.

(iii) Partners Capital Accounts as on 31.12.2009Particulars Shamu

(`)Raju

(`)Particulars Shamu

(`)Raju

(`)

To DrawingsTo Goodwillto Balance c/d

3,00042,133

75,441

3,00042,133

75,442

By Balance b/dBy CashBy Profit & LossAppropriation A/c

55,27662,255

3,043

55,27662,255

3,044

120,574 1,20,575 1,20,574 1,20,575(iv) Ramus Executors A/c as on 31.12.2009

Particulars (`) Particulars (`)

To Bank 92,227 By Balance b/dBy P&L Appropriation A/c

87,414 4,813

92,227 92,227

(v) Cash & Bank A/c

Particulars (`) Particulars (`)


To Balance b/dTo Shamus capital A/cTo Rajus capital A/c

1,95162,25562,255

By Ramus executors A/cBy Partners Capital A/cs (Drawings):

Ramu Shamu RajuBy Balance c/d

92,227

9,00012,00012,000

1,234

1,26,461 1,26,461Working Notes:1. Profit for the year before depreciation :

Profit after depreciation 46,600Add : Depreciation 9,000

Profit before depreciation 55,6002. According per section 37 of Partnership Act, the settlement of deceased partners account

on the date other then the date of death, the executor of deceased partner has a choice totake either profit earned on un-settled capital or Interest on Capital @ 6% for un-settledperiod.

(a) Profit earned on un-settled capital = Profit

= 10,900

= 10,900 = 4,813

OR(b) Interest on capital @ 6% i.e. 87,414 6% 3/12 = ` 1,311

Option A is beneficial, therefore heirs of Ramu will opt for proportionate share ofprofit i.e. ` 4,813.

3. Valuation of Goodwill :

Weight Product

Profit for 2006 30,0002007 40,0002008 47,600

1,17,600

1236

30,00080,000

1,42,8002,52,800

Weighted Average Profit = = ` 42,133Goodwill = 2 years purchase of average profit

= ` 42,133 2


= ` 84,266.Chapter - 15 : Accounting in Computerised Environment2010 - Nov [7] Answer the following :(b) A large size multi departments hospital decided to outsource the accounting functions.

Hospital invited proposals from vendors through open tender and received threeproposals. How will you select the vendor ? (4 marks)

Answer :The proposals will be evaluated and vendor will be selected considering the followingcriteria:(a) Reputation and background of the vendor.(b) Comparative costs of the various propositions.(c) Quantum of services provided and whether the same matches with the requirements of

the hospital.(d) Organizational set up of the vendor particularly technical staffing to obtain services

without inordinate delay.(e) Data storage and processing facilities.(f) Assurance of quality, confidentiality and secrecy.

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002Visit us : www.shuchita.com

Solved Ans. LAW CA IPCC Nov. 2010 1

Attention C.A. Pcc & Ipcc Students

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Solved Ans. LAW CA IPCC Nov. 2010 2 Roll No. Total No. of Questions - 7 Total No. of Printed Pages - 7 Time Allowed - 3 Hours Maximum Marks - 100

Law Ipcc & Pcc Answers to questions are to be given only in English except in the case of candidates who have opted for Hindi

Medium. If a candidate has not opted for Hindi medium, his answers in Hindi will not be valued.

Question No. 1 is compulsory.

Attempt any five questions from the remaining six questions. Qn 1. (a) X sent a consignment of mobile phones worth Rs. 60,000 to Y and obtained a railway receipt therefor. Later, he borrowed a loan of Rs. 40,000 from Star Bank and endorsed the railway receipt in favour of the Bank as security. In transit the consignment of mobile phones was lost. The Bank files a suit against the railway for a claim of Rs. 60,000, the value of the consignment. The railway contended that the Bank is entitled to recover the amount of loan i.e. Rs. 40,000 only. Examining the provisions of the Indian Contract Act, 1872, decide whether the contention of the railway is valid. [ 5 marks ] Ans: In the given case X sent consignment and to secure the bank loan endorsed the railway receipt to bank as security. Star Bank is holder of the document of title and in this capacity entitled to take possession of the goods or to claim damages incase of loss. Bank in this case entitled to claim Rs. 60,000 from the railway and required to handover the excess amount of Rs. 20,000 to X. (b) (I) State with reasons whether the following statements are correct or incorrect. (i) A promissory note duly executed in favour of minor is void. (ii) No consideration is necessary to create an agency. [ 2 x 1 = 2 marks ] Ans: (i) Incorrect : As per law a minor is incapable to enter into a contract and incur liability. But law does not prohibit a minor to become a beneficiary under the contract. So, a minor cannot execute a promissory note but a promissory note may be executed in favour of a minor. (ii) Correct: As per section 185 of the Indian Contract Act no consideration is necessary to create an agency. (II) Choose the correct answer from the following and give reasons.

(i) Where both the parties to an agreement are under mistake as to a matter of fact, which is essential to the agreement, the agreement is : (a) valid (b) voidable (c) void (d) illegal. Ans: (c) If both the parties are under mistake as to a matter of fact, there would not be Conesus add item i.e. both the parties have not consented on the same thing in the same manner. Due to absence of consent contract will become void.

(ii) In a contract of guarantee there are : (a) one contract (b) two contracts (c) three contracts (d) four contracts. Ans: (c) Contract between Principal Debtor and Creditor, Principal Debtor and Surety and Surety and Creditor.

(iii) Cash is withdrawn by the customer of a bank from the automatic teller machine is an example of: (a) express contract (b) void contract (c) tacit contract (d) illegal contract.

Solved Ans. LAW CA IPCC Nov. 2010 3 Ans: (c) By entering the ATM card and providing correct PIN customer by his conduct entered into a contract with bank. [ 3 x 1 = 3 marks ]

(c) RSP Limited allotted 500 fully paid-up shares of Rs. 100 each to Z, a minor, in response to his application without knowing that he was a minor and entered his name in the Register of members. Later on, the company came to know of this fact. The company cancelled the allotment and struck-off his name from the Register of members and also forfeited his entire share money. He filed a suit against the action of the company. Decide whether Z would be given any relief by the court under the provisions of the Companies Act, 1956. [ 5 marks ] Ans: As per Companies Act, 1956 fully paid up shares can be issued to the minor. In the instant case RSP Limited allotted 500 fully paid-up shares of Rs. 100 each to Z, a minor, in response to his application without knowing that he was a minor and entered his name in the ROM. Since, the shares are fully paid-up, it can be issued to minor. In this case company cannot remove the name of Z from the ROM. (d) (I) State with reasons whether the following statements are correct or incorrect.

(i) A company should file its annual return within six months of the closing of the financial year. (ii) If company does not receive the minimum subscription, it should refund money received from

applicants within 120 days of issue of prospectus. [ 2 x 1 = 2 marks ]

Ans (i): Incorrect: The company shall prepare and file the annual return with the Registrar within 60 days from the day of holding the annual general meeting. (Sec 159).

Ans (ii) Correct: If the minimum Subscription not received within one hundred and twenty days(120) after the first issue of the prospectus, all moneys received from applicants for shares shall be forthwith repaid to them without interest; and if any such money is not so repaid within one hundred and thirty days after the issue of the prospectus, the directors, of the company shall be jointly and severally liable to repay that money with interest at the rate of six per cent per annum from the expiry of the one hundred and thirtieth day.

(II) Choose the correct answer from the following and give reasons : (i) An index of members must be maintained by a company when its membership exceeds :

(a) 20 (b) 50 (c) 70 (d) 80.

(ii) Unless the Articles provide for a large number, the quorum for a general meeting for a public limited company is

(a) 1/3rd of the members (b) 5 members personally present (c) 2 members (d) 7 members.

(iii) Sources of funds for buy back of shares are : (a) free reserves or securities premium account (b) the proceeds of any shares or other specified securities (c) and (b) both (d) none of the above. [ 3 x 1 = 3 marks ] Ans (i) : (b) As per section 151 of the Companies Act, 1956 every company having more than 50 members shall maintain an index of members. Ans(ii) : (b) As per section 174 of the Companies Act quorum for general meeting of a public company is 5 members personally present. Ans (iii) : (c) company may buy back its own shares or other specified securities from following sources- (a) out of its free reserves ; or (b) out of the securities premium a/c; or (c) out of the proceeds of an earlier issue other than fresh issue of shares made specifically for buy back purposes.

Qn. 2. (a) X was an employee of Universal Limited. He retired from the company on 31st March, 2010 and died after few months. Y, the heir of X, applied within the prescribed time to the company for payment of due bonus of X. The

Solved Ans. LAW CA IPCC Nov. 2010 4 company refused to pay the bonus. Examine the validity of the company's refusal and also state the procedure to recover the bonus under the provisions of the Payment of Bonus Act, 1965. [ 8 marks ] Ans: Company cannot refuse to pay the bonus amount to the legal heir. Section 19 says that all amounts payable to employee shall be paid in CASH within following time limit :- i ) Where, there is a dispute pending before any authority u/s 22, then within one month from the date on which award becomes enforceable or settlement comes in operations, in respect of such dispute. ii) In any other case, within eight months from the end of accounting year. However, if the employer applies to appropriate government or any authorised officer, and has SUFFICIENT REASONS, then that Govt. or authority may extend this period of eight months upto TWO YEARS.

Section 21 states that money may be due from employer to employee under settlement, award or agreement. Employer may not pay the amount. In such case, employee or any authorised person, or if employee is dead, then his heirs or assignee may make application to APPROPRIATE GOVERNMENT. If appropriate govt. or other authority appointed by appropriate govt. for this purpose is satisfied, that money is so due, it shall issue a CERTIFICATE for that amount to collector, who shall recover the same as land revenue. Time Limit : The aforesaid application must be made within one year from the date on which money is due from employer to employee. But appropriate govt. may accept the application even after one year if applicant has sufficient cause. Qn 2 (b) Explain the Social Sins listed by Mahatma Gandhi. [ 4 marks ] Ans. Mahatma Gandhi said that seven things will destroy us. Notice that all of them have to do with social and political conditions. Note also that the antidote of each of these "deadly sins" is an explicit external standard or something that is based on natural principles and laws, not on social values.

Wealth Without Work

This refers to the practice of getting something for nothing - manipulating markets and assets so you don't have to

work or produce added value, just manipulate people and things. Today there are professions built around making

wealth without working, making much money without paying taxes, benefiting from free government programs

without carrying a fair share of the financial burdens, and enjoying all the perks of citizenship of country and

membership of corporation without assuming any of the risk or responsibility.

Pleasure Without Conscience

The chief query of the immature, greedy, selfish, and sensuous has always been, "What's in it for me? Will this

please me? Will it ease me?" Lately many people seem to want these pleasures without conscience or sense of

responsibility, even abandoning or utterly neglecting spouses and children in the name of doing their thing. But

independence is not the most mature state of being - it's only a middle position on the way to interdependence,

the most advanced and mature state. To learn to give and take, to live selflessly, to be sensitive, to be considerate,

is our challenge. Otherwise there is no sense of social responsibility or accountability in our pleasurable activities.

The ultimate costs of pleasures without conscience are high as measured in terms of time and money, in terms of

reputation and in terms of wounding the hearts and minds of other people who are adversely affected by those

who just want to indulge and gratify themselves in the short term. It's dangerous to be pulled or lulled away from

natural law without conscience. Conscience is essentially the repository of timeless truths and principles - the

internal monitor of natural law.

Knowledge Without Character

As dangerous as a little knowledge is, even more dangerous is much knowledge without a strong, principled

character. Purely intellectual development without commensurate internal character development makes as much

Solved Ans. LAW CA IPCC Nov. 2010 5 sense as putting a high-powered sports car in the hands of a teenager who is high on drugs. Yet all too often in

the academic world, that's exactly what we do by not focusing on the character development of young people.

One of the reasons I'm excited about taking the Seven Habits into the schools is that it is character education.

Some people don't like character education because, they say, "that's your value system." But you can get a

common set of values that everyone agrees on. It is not that difficult to decide, for example, that kindness,

fairness, dignity, contribution, and integrity are worth keeping. No one will fight you on those. So let's start with

values that are unarguable and infuse them in our education system and in our corporate training and

development programs. Let's achieve a better balance between the development of character and intellect.

Commerce (Business) Without Morality (Ethics)

In his book Moral Sentiment, which preceded Wealth of Nations, Adam Smith explained how foundational to the

success of our systems is the moral foundation : how we treat each other, the spirit of benevolence, of service, of

contribution. If we ignore the moral foundation and allow economic systems to operate without moral foundation

and without continued education, we will soon create an amoral, if not immoral, society and business. Economic

and political systems are ultimately based on a moral foundation.

To Adam Smith, every business transaction is a moral challenge to see that both parties come out fairly. Fairness

and benevolence in business are the underpinnings of the free enterprise system called capitalism. Our economic

system comes out of a constitutional democracy where minority rights are to be attended to as well. The spirit of

the Golden Rule or of win-win is a spirit of morality, of mutual benefit, of fairness for all concerned. Paraphrasing

one of the mottos of the Rotary Club, "Is it fair and does it serve the interests of all the stakeholders?" That's just a

moral sense of stewardship toward all of the stakeholders.

Science Without Humanity

If science becomes all technique and technology, it quickly degenerates into man against humanity. Technologies

come from the paradigms of science. And if there's very little understanding of the higher human purposes that the

technology is striving to serve, we becomes victims of our own technocracy. We see otherwise highly educated

people climbing the scientific ladder of success, even though it's often missing the rung called humanity and

leaning against the wrong wall.

Religion Without Sacrifice

Without sacrifice we may become active in a church but remain inactive in its gospel. In other words, we go for the

social facade of religion and the piety of religious practices. There is no real walking with people or going the

second mile or trying to deal with our social problems that may eventually undo our economic system. It takes

sacrifice to serve the needs of other people - the sacrifice of our own pride and prejudice, among other things.

If a church or religion is seen as just another hierarchical system, its members won't have a sense of service or

inner workship. Instead they will be into outward observances and all the visible accoutrements of religion. But

they are neither God-centered nor principle-centered.

Politics Without Principle

Solved Ans. LAW CA IPCC Nov. 2010 6 If there is no principle, there is no true north, nothing you can depend upon. The focus on the personality ethic is

the instant creation of an image that sells well in the social and economic marketplace.

You see politicians spending millions of dollars to create an image, even though it's superficial, lacking substance,

in order to get votes and gain office. And when it works, it leads to a political system operating independently of

the natural laws that should govern - - that are built into the Declaration of Independence : "We hold these Truths

to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable

Rights, that among these are Life, Liberty, and the Pursuit of Happiness . . . . "

In other words, they are describing self-evident, external, observable, natural, unarguable, self-evident laws: "We

hold these Truths to be self-evident." The key to a healthy society is to get the social will, the value system,

aligned with correct principles. You then have the compass needle pointing to true north - true north representing

the external or the natural law - and the indicator says that is what we are building our value system on : they are

aligned.

But if you get a sick social will behind the political will that is independent of principle, you could have a very sick

organization or society with distorted values. For instance, the professed mission and shared values of criminals

who rape, rob and plunder might sound very much like many corporate mission statements, using such words as

"teamwork," "cooperation," "loyalty," "profitability," "innovation," and "creativity." The problem is that their value

system is not based on a natural law.

Figuratively, inside many corporations with lofty mission statements, many people are being mugged in broad

daylight in front of witnesses. Or they are being robbed of self-esteem, money, or position without due process.

And if there is no social will behind the principles of due process, and if you can't get due process, you have to go

to the jury of your peers and engage in counterculture sabotage.

In the movie The Ten Commandments, Moses says to the pharaoh, "We are to be governed by God's law, not by

you." In effect he's saying, "We will not be governed by a person unless that person embodies the law." In the

best societies and organizations, natural laws and principles govern - that's the Constitution - and even the top

people must bow to the principle. No one is above it.

Qn 2 (c) MNP Limited was incorporated in September 2010. Now the company wants to hold its first meeting of the Broad of Directors. Draft a notice of the said meeting along with agenda. [ 4 marks ] Ans. 2 (c) Notice of Annual General Meeting

MNP Limited

Regd office : MNP Limited notice is hereby given that the 1st Annual General Meeting (AGM) of the members of MNP Limited will be held on . At 10:30 a.m. at the registered office of the company at . to transact the following business. Ordinary Business : 1. To receive, consider and adopt the Audited Balance Sheet of the company as the 31st March . and the profit and loss account for the year ended on that date together with the reports of the Board of Directors and Auditors thereon.

http://www.mkgandhi.org/mgmnt.htm#top#top

Solved Ans. LAW CA IPCC Nov. 2010 7

Qn 3. (a) K is an employee of RST Limited, a software company which works five days in a week. K was not in continuous service during the financial year 2009-10. However, she worked only for 150 days because she was on maternity leave with full pay for 50 days. Referring to the provisions of the Payment of Gratuity Act, 1972 decide whether K is entitled to gratuity payable under the Act. Would your answer remain the same in case RST Limited works six days in a week ? [ 8 marks ] Ans: For the purposes of Gratuity Act, - (1) an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing order, rules or regulations governing the employees of the establishment), lay off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act. (2) where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer - (a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than - (i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and (ii) two hundred and forty days, in any other case; Explanation : For the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which - (i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Order's) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment; (ii) he has been on leave with full wages, earned in the previous year; (iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and (iv) in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks. In the given case K is an employee of RST Limited, a software company which works five days in a week. K was not in continuous service during the financial year 2009-10. However, she worked only for 150 days because she was on maternity leave with full pay for 50 days. As per the explanation given above she has worked for 200 days (150 + 50) and shall be deemed to be in continuous service. No, if RST Limited works 6 days in a week our answer will be changed. Now she has to worked atleast 240 days in the year to become eligible for gratuity. Qn 3. (b) Explain the fundamental principles relating to ethics. [ 4 marks ] Ans. 3 (b) MORALS AND ETHICS :- Moral is concerned with principles of right and wrong or conforming to standards of behavior and character based on those principles. Though on the face of it moral and ethics seem to be similar, there is a distinction.

In Greek moral means character and ethics means custom. Character is a personal attribute and is associated with people. However, ethics is the accepted norms by a group of people and reflects the views of the society. Therefore, defining right and wrong on the basis of character and custom provide two very different angles and depending on a case to case basis, character and custom are appropriate for certain situations. ETHICAL DILEMMAS :- An ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one, would result in transgressing another. This is also called an ethical paradox, since in moral philosophy, paradox plays a central role in ethics debates.

Codes of ethics have been drafted to influence moral behaviour of a group having a long tradition. They set formalised rules and standards that communicate their ethical standards to the employees and establish what the company expects from them.

Solved Ans. LAW CA IPCC Nov. 2010 8 Qn 3. (c) A, B and C are partners of a firm. A retires from the firm by mutual consent due to sickness. Remaining partners (B and C) decide to admit D as a new partner in their firm. Draft a deed for reconstitution of partnership. [4 marks] Ans. 3 (c) Simple Deed of Partnership

THIS DEED OF PARTNERSHIP is executed on this________ day of _________ between: a. Sh. ________________ , s/o Sh. ___________, r/o of ______________, hereinafter referred to as the First

Party and b. Sh. _______________, s/o Sh. _________________, r/o of __________________, hereinafter referred to as

the Second Party and c. Sh. _______________, s/o Sh. __________________, r/o of ________________, hereinafter referred to as the

Third Party and

The Party of the First Part, Second Part and the Third Part hereinafter collectively referred to as the "Parties".

WHEREAS all the Parties are desirous of joining hands to carry on the business of _______________ in Partnership, it has been mutually decided to reduce into writing the terms and conditions of the Partnership. NOW THIS DEED OF PARTNERSHIP WITNESSETH AS UNDER: a) Name That the business of the Partnership shall be carried on under the name and style of __________________. b) Term of Partnership That the Partnership shall be deemed to have commenced from ________ and shall continue unless otherwise determined by the Parties. c) Place of Carrying Business That the business of Partnership shall be carried from _______________ or any other place as may be agreed upon by the Parties. d) Profit Sharing Ratio That irrespective of capital investment, profits or losses of Partnership (including losses of capital nature, if any) shall be divided amongst and borne by the Parties as under: First Party 33 1/3% Second Party 33 1/3% Third Party 33 1/3% (It has been assumed that the partnership is an equal partnership) e) Capital Contribution & Interest on Capital That the necessary capital as well as further funds required for the purpose of Partnership business shall be contributed or arranged by the Parties in such manner as may be mutually agreed upon by and between the Parties from time to time. Interest at the rate of __ percent per annum or as may be prescribed under Section 40 (b) of the Income Tax Act, 1961 or any other applicable provisions as may be in force under the Income tax assessment of Partnership firm for the relevant accounting period shall be payable to the Parties on account standing to the credit of the account of the Parties. Such interest shall be calculated and credited to the account of each partner at the close of each accounting year. However, in case of loss or lower income, rate of interest can be nil or lower than __ percent as may be agreed upon by and between the Parties from time to time. f) Remuneration That all the Parties shall be working partner in the firm. It is hereby agreed that in consideration of the Parties working in the Partnership they will be entitled to remuneration as under: -

i. (The remuneration here in above has been fixed assuming equal partnership among partners and keeping in view the provisions of the Income Tax Act, 1961. The same may, however, vary depending upon understanding between the parties) ii. The Parties will not be entitled to draw any remuneration in the accounting period in which the Partnership firm has suffered loss on the basis of the Income as computed under the provisions of the Income Tax Act, 1961 referred to in (a) above. iii. The remuneration payable to the Parties shall be credited to their account at the close of the accounting period when final accounts of the Partnership are made up and the amount of the remuneration shall fall due to them as determined in the above manner. iv. The Parties shall be entitled to draw remuneration at the end of the relevant accounting year. However, nothing herein contained shall preclude the Parties from withdrawing any amount from the Partnership firm against the amount standing to their capital and/or current or loan account or their shares of profit for the relevant accounting year in such manner as may be determined by mutual consent of the Parties.

Solved Ans. LAW CA IPCC Nov. 2010 9 v. The Parties shall be entitled to increase or reduce the above remuneration and may also agree to revise the mode of calculating the above-said remuneration as may be agreed upon from time to time by and between the parties. g) Maintenance of Accounts That regular books of accounts shall be maintained during the course of the business and these shall be closed on the 31st March each year and shall be opened to inspection of the parties to this deed at all reasonable hours at the Principal place of business. h) Operation of Bank Accounts That the bank account(s) of the firm will be operated by the Parties jointly or any two of them jointly. i) Partners to work in the interests of Partnership That all the Parties to this Deed shall work honestly, diligently and shall devote their whole time and attention to the business of the firm and shall do nothing to harm the interests of the Partnership. j) Partners not to do certain Acts Neither partner shall, without the consent of all other partners i. Engage or be concerned or interested in any other business or occupation either directly or indirectly; ii. Take any apprentice or hire or dismiss any agent or servant of the firm; iii. Lend any of the moneys or deliver, upon credit, any of the goods of the firm to any person or persons whom the other partner shall have previously in writing forbidden him to trust; iv. Except in the ordinary course of business give any security or promise for the payment of money on account of the firm; v. Draw or accept or endorse any bill of exchange or promissory note on account of the firm; vi. Remit the whole or any part of any debt or sum due to the firm; k) Discharge of Personal debts That the Parties shall punctually pay and discharge their personal debts and liabilities. I) Dissolution of Partnership i. That the Partnership is at will and may be dissolved at any time mutually or by giving one month notice in writing by the outgoing party to the others. In the event of death of a partner, the Partnership shall continue with the nominee/ legal heir of such Partner, joining the firm. ii. That in the case of dissolution of the firm the net realization on the sale of assets shall be distributed amongst the Parties equally after meeting the liabilities of the firm. m) Arbitration Clause Every dispute or difference arising between the partners as to the interpretation, operation, or effect of any clause in the partnership which cannot be mutually resolved, shall be referred to the arbitration of __________(name of the Arbitrator) failing him, to any other arbitrator chosen by the partners in writing. The decision of such an arbitrator shall be binding on the partners. Subject as aforesaid the Arbitration and Conciliation Act, 1996 and the rules made thereunder shall apply to the arbitration proceedings under this clause. n) Governing Law Except as aforesaid, the Partnership shall further abide by the provisions of the Indian Partnership Act, 1932.

IN WITNESS WHEREOF, the parties have set their hands this ______ day of

First Party Second Party Third Party Witnesses: 1. 2.

Qn. 4. (a) Unique Builders Limited decides to pay 2.5 percent of the value of debentures as underwriting commission to the underwriters but the Articles of the company authorize only 2.0 percent underwriting commission on debentures. The company further decides to pay the underwriting commission in the form of flats. Examine the validity of the above arrangements under the provisions of the Companies Act, 1956. [ 8 marks] Ans: As per section 76 The amount of commission should not exceed in case of shares, 5% of price at which shares have been issued or rate authorised by AOA/LOWER, and incase of debentures, 2.5% of issue price or AOA/LOWER. In the given case, the company proposes to pay underwriting commission at the rate of 2.5% of issue price of shares. However, the maximum rate of commission as permitted by the articles is 2% of issue price.

Solved Ans. LAW CA IPCC Nov. 2010 10 Conclusion

(a) The company cannot pay more than 2% of the issue price of shares as underwriting commission (being the maximum rate permitted by the articles). Therefore, the decision of the Board to pay 2.5% of the issue price as underwriting commission is not valid.

(b) There is no condition that underwriting commission cannot be paid in kind. Therefore, Company may pay underwriting commission in the form of flats.

(b) State some examples of ethical issues faced by an individual at the workplace. [4 marks] Ans. 4 (b) Some ethical issues faced by an individual at the workplace are as follows :

An ethical dilemma is one where a person has to make a decision among two perplexing alternatives. Employees at work place face many situations where they have to make quick decisions from two such alternatives, where one would appear to be the obvious choice. However, what appears to be the most obvious choice, may not necessarily be so. Also some dilemmas faced are such which has no clear alternatives, as both the^ alternatives appear to be right and the interests of many parties are involved.

Business relationships, i.e. relationships with customers, suppliers and others in the work place also have ethical concerns. Ethical behaviour in the business involves meeting obligations and responsibilities duly on time, keeping company secrets and avoiding undue pressure that may force others to act unethically.

The managers and other superiors can use their authority to influence the employees and make them act in an unethical manner. In the process, the manager may tell the employees to adopt unethical tactics which the employee may not be willing to adopt.

A conflict of interest is a situation in which someone has to make a decision when such person, in official capacity stands to profit personally from the decision.

Eg : A judge who rules on a case involving a corporation in which he or she owns stock has a conflict of interest.

There are several other cases where personal interest precedes the interest of the organisation.

Eg : Several Sandia National Laboratories employees withheld crucial terrorist-fighting technology from Nanodetex in an attempt to illegally take the technology and start their own company.

Almost all companies small and big have a clause in their code of conduct where they mention that conflicts of interest should be avoided and company interests should precede that of the individuals. Employees must find a balance between personal interests and business dealings to overcome conflicts of interest

Fairness and honesty go a long way in helping a business achieve success, breaking the legal norms may lead to temporary success, but, in the long run firms which follow the path of fairness and honesty are destined to succeed. Practising strong business ethics is a win-win for everyone.

The business persons can at the least abstain from breaking laws, if not set new examples for honesty and fairness. They should follow all the laws and regulations applicable to them.

Communications is another area where companies often indulge in unethical practices. One can come across several cases of false and misleading advertisements where the company either make exaggerated claims or where they hide certain essential facts in order to boost their sales. The customers are empowered to know all the correct information regarding product safety, quality, price and quantity. However, in actuality some advertisements fail to provide subtle differences about the product which can have a huge impact on the desirability of the product by consumers.

Harass' means torment by subjecting to constant interference or by bullying which is prohibited by the law. It creates a very negative work environment where work is extracted from the employees by intimidating them and using coercive measures to get the job done.

Harassment in business can be of any of the following forms:

1. Racial Harassment Racial or colour harassment includes offensive written or physical conduct, directed at the characteristics of a person's race, ethnic or national origin name or colour. It includes emphasising stereotypes, racial slurs and racial origins, ridicule based on cultural grounds, derogatory name calling, racist jokes and incitement of others to commit any of the above. Racial harassment is not as rare as one perceives it to be in today's work environment, and is quite prevalent. It is considered anti-social and is a highly condemnable action.

Solved Ans. LAW CA IPCC Nov. 2010 11 2. Sexual Harassment Sexual harassment is defined as "a continuum of behaviours that intimidate, demean, humiliate, or coerce". These behaviours range from the subtle forms that can accumulate into a hostile working environment to the most severe forms of stalking, assault, or rape. Employees at work use their authority to coerce, intimidate those employees at a lower level to give into their sexual demands or face the risk of either losing their job or pay hikes, demotion. It puts a massive dent to the psychology of the employee. It is also a highly condemnable offence and is prevalent in business organisations. The employers are held responsible for any acts of sexual harassment in the organisation irrespective of the fact that they are aware of it or not or if it were "forbidden by the employers" (c) Explain the various forms of formal communication. [4 marks] Ans. 4 (c) Formal communication refers to official communication which takes place following the chain of command. A formal communication flows only through prescribed channels and the organizational members are obliged to follow. The organisation structure reflecting superior-sub-ordinate relationship determines the flow of formal communication. Thus, this hierarchical system of authority established by the organisation provides the channels for all official communication between members of the organisation and parties outside the organisation such as government, customers etc.

Formal communication usually takes the form of written communication such as notes, memos, letters, reports and statements. Formal communication can be verbal or through gestures also. Teleconferencing is also becoming increasingly popular.

i) Direction of flow of formal communication Downward Upward Horizontal Diagonal or Crosswise Communication

Communication between individuals and groups which are not officially recognised is known as Informal communication. It consists of exchange of ideas and information resulting from social interaction among the members of an organisation.

The main objective of Informal communication is to achieve the major objective which formal communication fails to address i.e. necessity of informal communication arises among people to satisfy their social needs. It may involve work related matter or other matters of mutual interest to the parties. Qn. 5. (a) P draws a bill on Q for Rs. 10,000. Q accepts the bill. On maturity the bill was dishonoured by non-payment. P files a suit against Q for payment of Rs. 10,000. Q proved that the bill was accepted for value of Rs. 7,000 and as an accommodation to the plaintiff for the balance amount i.e. Rs. 3,000. Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether P would succeed in recovering the whole amount of the bill. [ 8 marks ] Ans: Consideration is presumed under Negotiable Instrument Act. But this can be rebutted contrary. Again incase of accommodation bill liability of acceptor is primary against third party. But if bill is held by the accommodated party acceptor will not be liable to pay the bill amount if it has been proved to be an accommodation bill. In the given case P draws a bill on Q for Rs. 10,000. Q accepts the bill. On maturity the bill was dishonoured by non-payment. P files a suit against Q for payment of Rs. 10,000. Q proved that the bill was accepted for value of Rs. 7,000 and as an accommodation to the plaintiff for the balance amount i.e. Rs. 3,000. Since, actual liability is only for Rs. 7000/- whole amount cannot be recovered by P. (b) State with reasons whether the following statements are correct or incorrect. [ 2 x 2 = 4 marks ] (i) Business and industry are closely linked with environment and resource utilization. Ans. 5 (b) (i) Business and Industry rely heavily on the environment to satisfy their wants and achieve their goals. So, it would seem obvious that they should play a part in conserving it for their own sake apart from the environment's sake. Eco-friendly technologies and novel production methods, which do not affect the environment, play a very important role in the conservation of the environment.

Accordingly waste management can be done through following systems: a) Increased recycling of the wastes:

It is the collection and separation of materials from waste and subsequent processing to produce marketable products.

Solved Ans. LAW CA IPCC Nov. 2010 12 b) Composting of the wastes:

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