MAHATMA GANDHI UNIVERSITY KOTTAYAM

M.Com Degree (CSS) Examination, April 2024

Semester II, Advanced Corporate Accounting, QP Code – 24018962
Answer Key

Instructions to Examiners- (i) Please do not put mark inside the answer scripts, (ii) Minimum Pass
mark- 60, (iii) Each answer shall be awarded A+, A, B, C, D or E grade for 5, 4, 3,2, 1 and 0 grade
points respectively, (iv) Consider scheme of valuation as a reference and give full mark if key points
are covered, (v) Step wise grades have to be awarded in problem papers. Due consideration shall be
given for the approach formula and application.
Part A
1) A company is a subsidiary of a holding company when the holding company controls the composition
of the Board of Directors of the subsidiary company, - the holding company is able to appoint or
dismiss the majority of directors of the subsidiary company.- Where the holding company holds more
than 50% in nominal value of the equity share capital of the subsidiary company,- the holding
company holds the majority of voting power in the subsidiary company.

2) Pre- acquisition profit in a holding company refers to the profits earned by a subsidiary company
before the holding company acquires a controlling interest in it.- If there exists some profits of the
subsidiary company on the date of the acquisition of shares of the subsidiary company, - the outsider’s
share of such reserves and profits is added to the non- controlling interest and the balance of such
reserves and profits are capital profits of the holding company and are shown as capital reserve in the
consolidated balance sheet.
3)

Double Account System Single Account System

Under double account system the Under single account system only one balance
balance sheet is prepared and presented sheet is presented in its usual form of a
in two parts that is capital account and statement of assets and liabilities.
general Balance Sheet.
The main purpose of preparing the The main purpose of preparing the balance
balance sheet is to show the amount of sheet is to show the financial position of a
capital raised and how the same has concern on a particular date.
been spent on the acquisition of fixed
assets.

Assets as shown at the original value in Assets are shown in the balance sheet after
the capital account and depreciation deduction of depreciation from the concern
fund created for charging depreciation is assets.
shown on the liability side of the
general balance sheet.

4) Under the Insolvency Code, the government will set up an Insolvency and Bankruptcy Board of India
(IBBI). The IBBI will perform the role of a regulator for insolvency and bankruptcy matters with
powers to frame regulations to implement the Insolvency Code. The IBBI will have regulatory
oversight over insolvency professional agencies, insolvency professionals and informational utilities.
 The National Company Law Tribunal (NCLT) will act as adjudicating authority with quasi-judicial
powers. The insolvency resolution and liquidation processes will be monitored and overseen by
NCLT. An appeal against the orders of NCLT will lie in the National Company Law Appellate
Tribunal, from which appeals can be filed before the Supreme Court of India.

5)
(1) Subject to the provisions of section 60, the adjudicating authority, in relation to insolvency matters
of individuals and firms shall be the Debt recovery tribunal having territorial jurisdiction over the
place where the individual debtor actually and voluntarily resides or carries on business or personally
works for gain and can entertain an application under this code regarding such person.
(2) The Debt Recovery Tribunal shall, notwithstanding anything contained in any other law for the
time being in force, have jurisdiction to entertain or dispose of- a) any suit or proceeding by or against
the individual debtor; b) any claim made by or against the individual debtor; c) any question of
priorities or any other question whether of law or facts, arising out of or in relation to insolvency and
bankruptcy of the individual debtor or firm under the code.
(3) Notwithstanding anything contained in the Limitation Act, 1963 (14 of 1963) or in any other law
for the time being in force, in computing the period of limitation specified for any suit or application in
the name and on behalf of a debtor for which an order of moratorium has been made under this Part,
the period during which such moratorium is in place shall be excluded.

6) Preferential creditors are those unsecured creditors who are paid in priority to creditors having a
floating charge and other unsecured creditors. (a)All revenues, taxes, cesses and rates due to the
Central or State Government or to a local authority, (b) All wages or salaries of any employee not
exceeding Rs.20, 000. c)All compensation due under Workmen's Compensation Act, 1923 in respect
of death or disablement of any employee of the company.

7) The liquidator is either a whole time or part time officer attached to each high court and appointed by
the central government. In case of voluntary winding up, the liquidator is appointed by the company in
general meeting and his remuneration is fixed by the company. The liquidator takes control of the
company, collets all assets, pay its debts and distributes any surplus among the shareholders in
accordance with their rights.

8) When the estimated realizable value is not sufficient enough to pay off secured creditors, available
amount is given to secured creditors and the balance due will show on as per list E.

9) Voyage Account is a nominal account. Shipping companies are required to or loss for of accounting,
known as Voyage Accounting. All expenses relating to the voyage including wages and salaries of the
crew, captain and other staff, stores consumed, insurance, depreciation, commission, brokerage etc. are
debited to this account and all earnings, freight, primage and passage money are credited.
10) Address commission is calculated as a percentage of freight including primage, if any earned by the
shipping company. Address commission may also become payable to brokers for procurement of
freights from different parties.
Part B

11) Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31 st December, 2017

Liabilities Amount Assets Amount

Share capital 20,000 Sundry Assets (22000+15000) 37,000
Minority interest 2,000
Sundry Liabilities 15,000
(10000+5000)
37,000 37,000
12) Dividends may be received out of capital or revenue profits of the subsidiary company. Dividends
received by the holding company from the capital profits of the subsidiary company are credited to
Investment in Shares of the Subsidiary Account thereby reducing the cost of control or increasing
capital reserve. On the other hand, dividends received out of the revenue profits (i.e., post-acquisition
profits) are treated as income and credited to Surplus Account by the holding company. If dividend is
declared partly out of capital profits (i.e. pre-acquisition profits) and partly out of revenue profits (i.e.,
post-acquisition profits), the dividend received is divided into two parts in proportion to its declaration
out of capital profits and revenue profits. The dividend pertaining to the first part (i.e., capital profits)
is credited to Investment Account reducing the cost of control or increasing the capital reserve and
dividend pertaining to the second part (i.e., revenue profits) is credited to Surplus Account.
If the dividend has simply been proposed by the subsidiary company and appears as ‘Proposed
Dividend' in its Balance Sheet, holding company's share of such dividend will appear with the Surplus
Account balance in the Consolidated Balance Sheet and share of such dividend belonging to non-
controlling shareholders will be added to the non-controlling interest (Minority Interest). Proposed
dividend need not be shown in the consolidated Balance Sheet because it has been added to the non-
controlling interest and Surplus Account balance of the holding company.

13) 1) Double Account System is a special form of Final Accounts in greater detail, accompanied by a
number of statistical statements. 2) The undertakings which adopt this system of presenting their final
accounts require large amount of fixed capital and it is permanently invested in fixed assets. 3)
Balance Sheet under this system is prepared and presented in two parts i.e., Capital Account and
General Balance Sheet. Capital Account (also called Receipts and Expenditure on Capital Account)
displays on the debit or expenditure side capital expenditure incurred on the acquisition of fixed assets
and on the credit or receipts side, receipts on capital account such as shares, debentures, premium on
shares and debentures, fixed loans, and calls received in advance. The difference between the two sides
of this account is carried to the General Balance Sheet to the appropriate side. 4) Revenue Account is
prepared in lieu of Statement of Profit and Loss; similarly Net Revenue Account is prepared in lieu of
Surplus Account. 5) The fixed assets are not shown in the General Balance Sheet. They appear in the
Capital Account at cost and not at depreciated value Depreciation Fund is created and shown in the
General Balance Sheet as these companies require a huge amount for replacement of their assets. 6)
Other reserves such as general reserve, investment fluctuation reserve are also shown in the general
balance sheet on the liabilities side. 7) Interests on debentures and loans are shown in the net revenue
account. 8) Usually, there is no adjustment of assets value in the capital account. 9) Discounts and
premiums are permanently retained as capital items. 10) Loans and debentures are treated as Capital
and shown in the capital account.

14) In the books of Electric supply ltd

Journal
Particulars Dr. Cr.
Bank A/c Dr. 70,000
To, Replacement A/c 70,000
(Being sale of old material)
Main A/c Dr.
To, Replacement A/c
2,00,000
(Being the reuse of old material)
 Replacement A/c Dr.
Main a/c Dr. 2,00,000
To, Bank A/c 40,00,000
(Being the allocation of actual cash 19,05,000
spend between revenues and
capital) 20,95,000
Revenue A/c Dr.
To, Replacement A/c
(Being balance of replacement 37,30,000
adjusted in revenue account)
37,30,000

Working Note:

Computation of current replacement cost- Proportion of labour to materials – 2:3-Old value =15, 00,000
Material 15,00,000 *3/5 =9, 00,000, Labour (15,00,000 ×2/5) =6, 00,000 Add : increase in the value of
material, (9, 00,000+9, 00,000*25/100) , Add: Increase in the value of labour (6,00,000 + 6,00,000 x 30/ 100
=7,50,000, Estimated total cost of replacement (11,25,000 + 7,80,000) =19,05,000.
Computation of amount to be charged to revenue account
Estimated total cost =19, 05,000 Less: scrap value =70, 000, Reused value =2, 00,000
16,35,000 Computation of amount to be capitalized- Cost of new main =40, 00,000 Less : cost of replacing
old main =19, 05,000 , 20,95,000

15) Report of Resolution professional on repayment plan.

1) The resolution professional shall submit the repayment plan under section 105 along with his report
on such plan to the Adjudicating authority within a period of twenty-one days from the last date of
submission of claims under section 102.
2) The report referred in sub-section (1) shall include that – a) the repayment plan is in compliance
with the provisions of any law for the time being in force, b) the repayment plan has a reasonable
prospect of being approved and implemented c) there is a necessity of summoning a meeting of
creditors, if required, to consider the repayment plan provided that where the resolution professional
recommends that a meeting of the creditors is not required to be summoned, reasons for the same shall
be provided.
3) The report referred to in sub-section (2) shall also specify the date on which, and the time and place
at which, the meeting should be held if he is of the option that a meeting of the creditors should be
summoned.
4) For the purposes of sub-section (3) a) the date on which the meeting is to be held shall be not less
than 14 days and not more than 28 days from the date of submission of report under sub-section (1)
b) the resolution professional shall consider the convenience of creditors in fixing the date and venue
of the meeting of the creditors.
16) Liquidator is a person who helps the Tribunal to complete the liquidation proceedings. The
Liquidator has to realize the assets of the company and distribute them among the creditors and
contributories. A liquidator is entrusted with the following duties: i) To take into his into his custody or
under his control all the property of the company. ii) To institute or defend any suit, or other legal
proceedings in the name of the company. iii) To carry on the business for its beneficial winding up. iv)
To raise money on the security of the assets of the company right to sale-, v) to sell company's
property. vi) To take all other things required for the purpose of winding up.

17) Liquidator's Final Statement

 1.Calculation of Assets Realized: Securities in the hands of secured creditors: Rs. 25,000, Other
assets: Rs. 26,000, Total assets realized: Rs. 51,000

Liabilities: Secured creditors: Rs. 20,000 (secured by securities realized), Preferential creditors: Rs.
600, Unsecured creditors: Rs. 30000, Liquidation expenses: Rs. 252, Total liabilities: Rs. 50852

Liquidator's Remuneration:

3% on amounts realized (including securities): Rs. 1,530 (3% of Rs. 51,000), - 1.5% on amount
distributed to unsecured creditors: 367.17

Assets in the hands 26000 Liquidation expenses 252

Securities in the hands 25000 Liquidator's Remuneration:
of secured creditors Asset realized:1,530
Unsecured creditors:367 1897
Secured Creditors 20000
Preferential creditors 600
Unsecured creditors 24458
Deficiency 3793
51000 51000

18) The preparation of final accounts of hotels is similar to that of any other business concern. Final
accounts include Trading and Profit & Loss Account and Balance Sheet which are prepared with the
help of trial balance and additional information provided. The various items of revenue and
expenditure in case of Hotel Accounting are given below: Items of Revenue- 1. Room Rentals, (2)
Food, (3) Beverages, (4) Use of conference rooms, banquet halls, etc. (5)Use of services like
telephone, laundry, secretarial service, etc

Items of Expenditure
Apart from the normal accounts framed in any business like- (1) Salary and wages (2) Rent, rates and
taxes (3) Travelling (4) Publicity. Purchase of raw foodstuff, beverage, ice-cream, water, fuel,
housekeeping repairs to elevators/air conditioning plant, sundry repairs, consumables, etc.

PART – C

19. Consolidated Balance Sheet as at 31st December 2010

Liabilities Rs. Assets Rs.
Share Capital 10,00,000 Goodwill 24,000
Minority interest 80,000 Machinery 7,80,000
Reserves 4,80,000 Furniture 1,34,000
Profit & Loss Account 2,16,000 Other Assets (Current 11,66,000
Creditors 4,00,000
21,76,000 21,76,000

Workings
1. Calculation Pre-acquisition and Post-acquisition Reserves and Profits of S Ltd.:
Pre-acquisition Reserves and Profits:
• Reserves: Rs. 50,000 • Profit & Loss Account (Cr.): Rs. 30,000 •Total: Rs. 80,000
Revaluation of Assets:
• Machinery Revaluation: Rs. 3,00,000 - Rs. 2,00,000 = Rs. 1,00,000 (Increase)
• Furniture Revaluation: Rs. 30,000 - Rs. 40,000 = Rs. (10,000) (Decrease)
• Net Increase: Rs. 90,000
Total Pre-acquisition Reserves including revaluation surplus = Rs. 80,000 + Rs. 90,000 = Rs. 1,70,000
2. Calculation of the Cost of Investment S Ltd
• Cost of Investment in S Ltd. by H Ltd. = Rs. 3,20,000, • Net Worth of S Ltd. (at the date of
acquisition): Share Capital: Rs. 2,00,000, Reserves & P/L (Pre-acquisition): Rs. 1,70,000
Total: Rs. 3,70,000
Holding of H Ltd. in S Ltd.:
• H Ltd. holds 80% in S Ltd., so the share of H Ltd. in the Net Worth = 80% of Rs. 3,70,000 = Rs.
2,96,000
Goodwill/Capital Reserve on Consolidation:
• Cost of Investment (Rs. 3,20,000) - Share of Net Worth (Rs. 2,96,000) = Rs. 24,000
Minority Interest:
Minority’s share in Net Assets of S Ltd.:
20% of (Rs. 2,00,000 + Rs. 1,50,000 + Rs. 50,000) = 20% of Rs. 4,00,000 = Rs. 80,000

20)

a) Calculation of clear profit

Revenue: Sale of energy 12,40,000
Meter rents 90,000
Transfer fees 1,000
Contingency reserve 5,000
investment income
Interest on bank deposits 600 13,36,600
Less: Operating expenses
Cost of generation 605000
Distribution and selling 65,000
expenses
Rent, rates and taxes 18,000
Interest on loan from 9,000
Electricity Board
Interest on security deposits 1,000
Audit fees 5,000
Management expenses 90,000
Depreciation 60,000
Contribution to Provident Fund 32,000 8,85,000
Less : Special 451600
Appropriations :
Intangible assets written off 3,000
Transfer to Contingency 8,000 11,000
reserve
Clear Profit 4,40,600
b) Calculation of Capital
Base
Original cost of fixed assets 27,00,000
Less :Contribution from 2,00,000 25,00,000
consumers
Cost of intangible assets 50,000
Contingency reserve 50,000
investments
Working capital ½(40, 000+60, 000) +1/2(30, 000+50, 000) 90,000
26,90,000
Less: Depreciation written off 5,60,000
Intangible assets written off 43,000
Loan from electricity board 90,000
Tariffs and dividend control 80,000
reserve
Security deposits of customers 20,000
Development reserve 1,20,000
Amount carried forward for distribution to consumers 15,000 9,28,000
Capital Base 17,62,000
c) Calculation of reasonable
return
Standard yield = bank rate 8%+2%=10% on capital base of 176200
17,62,000
Add: Interest income on bank deposits 600
½ % on loan from electricity board 90, 000 450
½ % on development reserve 1, 20,000 600
1,77,850
Clear profit 4,40,600
Reasonable return 1,77,850
Surplus = clear profit – reasonable return
(Subject to the limit of 20% of 4,40,600-1, 77,850 = 2,62,750
reasonable return)
But 20% of reasonable return =20/100* 1,77,850 = 35,570
Excess(i.e., 2,62,750-35, 570 = 2,27,180 transferred to
consumer’s benefit reserve.
Particulars Amount Disposal of surplus of 35,570
a) Amount at disposal of
company
5% of 1,77,850(reasonable return = 8,893
1/3 of 35,570(surplus) 8 , 893
= 11,857
b) Amount transferred to tariffs and dividend control
reserve =1/2*(35, 570-8, 893) = 13,339
c) Amount transferred to consumers benefit reserve 13,338 Total = 35,570
Amount available for dividends=reasonable return +8893 1,86,743
=1,77,850+8, 893 =
Amount transferred to tariffs and dividend control reserve 13,339
Amount transferred to consumers rebate reserve = 2,27,180+13, 2, 40 518
338 =
4,40,000

21) Statement of Affairs

Particulars Amount
Assets not specifically pledged
Plant and Machinery 150000
Stock 135000
Book Debt 70000
Calls in Arrear 90000
Cash in hand 10000
445000
Assets specifically pledged
Item Realized Loan Deficiency Surplus
Building 120000 30000 90000 90000
 Liability
Gross 287000
30000 Secured Creditors 500000
6000 Preferential Creditors for tax and wages 6000
200000 Debentures 200000
Unsecured Creditors
40000 Creditors 40000
2000 Miscellaneous Expenses 2000
Estimated surplus to Contributories 287000
Issued and paid up capital 500000
Estimated deficiency as regards 213000

22) Voyage Account is a nominal account. Shipping companies are required to prepare an account to
reveal the profit or loss of each voyage separately, all income items are to be credited and expenses are
credited to the account related to the specific voyage is in a nominal account known as Voyage
Account.
Expenses
1. Bunker Cost: This is the expenditure incurred on fuel oil, diesel, coal and fresh water used during
the voyage. Now-a-days oil and diesel are used in place of coal. The bin or storing place of coal is
referred to as bunker cost.
2. Port Charges: Port is used by the shipping companies for loading and unloading of goods and
parking of ships, hence the charges paid for these purposes are known as port charges.
3. Depreciation: Depreciation of the ship for the period of voyage is calculated and charged to the
Voyage Account.
4. Insurance: Insurance premium of cargo must be entirely debited to the concerned Voyage Account
whereas the insurance charges of the ship are charged proportionately to each voyage on the basis of
time of voyage.
5. Address Commission and Brokerage: This is payable to the brokers and agents who help the
shipping company in procurement of cargo, i.e., freight or business. This is calculated at a certain per
cent of the freight earned including the primage or surcharge and debited to Voyage Account. Address
commission is payable to the Charterer whereas brokerage is payable to the agent of the charterer.
6. Stevedoring Charges: The expenses which are incurred in loading of goods on the ships and
unloading of goods from the ships are known as stevedoring charges.
7. Port Charges: These are the charges paid to port authorities for allowing the ship to use the port
either for loading or unloading the cargo.
8. Salaries and wages of the crew, captain and other staff. 9. Harbour charges, 10. Manager’s
commission, if any.
Incomes- 1. Freight: The amount charged by the shipping company from the cargo owners for the
cargo loaded on the ship is known as freight. It includes both freight outward and inward journey. 2.
Primage: It is additional freight just like surcharge on freight originally collected for the captain of
the ship, 3.Passage Money: The fare collected by the company from the passengers who are carried on
the ship along with merchandise by the captain is called passage money.4 Any other specifically
related to the shipping company.