Corporate Accounts CIA 2

Accounts CIA II
Assigned on:      2nd August, 08 Saturday
Due on:               4th August, 08 Monday

Solutions prepared by
Deoreena (Solution 1) and Ravi (Solution 2).

Editors Notes: The following needs to be handwritten and submitted to Prof. Nagraj latest by monday since he has to give in our CIA marks on Tuesday. I specifically asked for permission to print the solution but he said no. He wants it handwritten. Should take you a maximum of 20 mins after you have this 🙂

Q1.

The following is a summarised Balance Sheet of Priya & Co. Ltd as at 31.12.2008:

Liabilities

Assets

Share Capital Fixed Assets (including GW)

220000

30,000 Equity shares @ Rs.10 each (fully paid up)

300000

Stock

200000

30,000 Equity shares @ Rs.10 each (fully paid up)

150000

Book Debts

140000

10,000 Equity shares @ Rs.5 each (fully paid up)

50000

Cash at Bank

140000

General Reserve

120000

Sundry Creditors

80000

TOTAL

700000

TOTAL

700000

The average profit for the last 4 years after Income Tax is Rs. 92,000; 1,06,000; 1,30,000 and 80,000.
Fair return on investment is 10%.
It is the practice of the company to transfer 20% of the profit to reserves.
Book debts include Rs. 8,000 bad debts.
Compute the value of the equity shares under:
1) Net Assets Method
2) Yield Method

Solution:

Net Assets Method:

Assets:
Fixed Assets

220000

Stock

200000

Book debts

140000

Less: Bad Debts

8000

132000

Cash at Bank

140000

692000

Less: Liabilities
Sundry Creditors

80000

Assets Available to Equite Share Holders

612000

Instrinsic Value of Shares:

612000 / 50000 = Rs. 12.24

For Rs. 10 face value       –  12.24

For  Rs. 7.5 face value   – 12.24/10*7.5 = 9.18

For Rs.5 face value   – 12.24/10*5 =  6.12

Yield Method:

Average profits: (92000+106000+130000+80000) / 4 = 102000

Profits Available to Equity Share Holders
Average Profits

102000

Less: 20% Transferred to Reserves

-20400

Profits Available

81600

Expected Rate of Returns =

Profits Available to Equity Shareholders/ Equity Share Capital/100

=81600/500000 X 100

= Rs. 16.32

Value of Shares = ERR / WRR X Paid up Capital

=16.32 / 10 X10                      =16.32/10 X 7.5                      =16.32/10 X 5

=16.32                                     = 12.24                                    = 8.16

Value of Shares: 16.32, 12.24 and 8.16

Q2.

X Company Ltd. was incorporated on 1.5.2001 to take over the business of M/s. X & Y as a going concern as from 1.1.2001. The P/L account of the company for Year ended 31.12.2001 was as follows:

Salaries and Allowances

60000

By Gross Profit

200000

Rent and Rates

23000

General Expenses

7200

Directors Fees

3000

Selling Expenses

4000

Discount on Sales

1000

Advertising Expenses

3000

Audit Fees

4500

Formation Expenses

1800

Miscellenous Expenses

1500

Interest on Debentures

1400

Interest to Vendors (upto 30.6.01)

6000

Repairs to Building

1200

Depreciation

2400

Net Profit

80000

TOTAL

200000

TOTAL

200000

The following further information is available:

1.       Rent was paid at Rs. 1000 p.m. upto 1.5.2001 and further increased to Rs. 2000 p.m.

2.       The average monthly sales for the first 4 months during the period was Rs. 60,000 and the average monthly sales for the subsequent period was Rs. 70,000

Prepare the statement showing the Profit Prior To  and After incorporation

Solution:

Particulars Pre Post Particulars Pre Post
Salaries and Allowances

20000

40000

Gross Profit

60000

140000

Rent

4000

16000

Rates

1000

2000

General Expenses

2400

4800

Directors Fees

3000

Selling Expenses

1200

2800

Discount on Sales

300

700

Advertising Expenses

900

2100

Audit Fees

4500

Formation Expenses

1800

Miscellenous Expenses

500

1000

Interest on Debentures

1400

Interest to Vendors

4000

2000

Repairs to Building

400

800

Depreciation

800

1600

Capital Reserves

24500

Net Profit

55500

TOTAL

60000

140000

TOTAL

60000

140000

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15 Responses to “Corporate Accounts CIA 2”

  1. vidyuth Says:

    hey ! there are 2 questions for the assignment but there is only 1 posted. please post the next one too so tat no one gets misled.

  2. vidyuth Says:

    hey ! i just noticed tat everything has been rectified. good job maulik and i would really like to thank deo and ravi. they made things so much easier. 🙂

  3. Maulik Says:

    🙂 yeah they worked in a real hurry too…

    lets hope everyone submits the assignment on time this time! It will be something we’ve never seen before!! Haha…

  4. Shreya Says:

    This is really really good.
    Great Job Maulik !!!
    Proud of you !

    Thanks Deo! Thanks Ravi!

  5. Rohit Says:

    Hey thanks a lot.. This is really great !!

  6. nishant Says:

    thanx maulik ravi n deo….

  7. Rohit Says:

    hey i think the first sum might be wrong.. cause the nos of equity shares in the question dont seem right and also the calcutation in the intrinsic method didvides by 60000 equity shares, which i’m not sure is correct

  8. mOHIT jA$WaNi Says:

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  9. pinky Says:

    Thank u soo much……..

  10. Chung Says:

    Hey guys…. gud job wid d blog…. simply awesome……….. love it….. gud job evry1:-)

  11. Maulik Says:

    Thanks Rohit, you will notice that the correction has been made. 🙂

  12. mOHIT jA$WaNi Says:

    hey mast hai……….

    Simply Copy & Paste…..

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    I am lovin it 🙂

  13. mOHIT jA$WaNi Says:

    😉

  14. Harsh Says:

    Hey! Job well started and well done..
    A quote with a variation:
    All ends well if starts well

  15. mishika Says:

    i want notes of computer application in business of class bcom3rd yr

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