X Ltd. purchased assets of Y Ltd. as under –

Plant and machinery of Rs. 20,00,000 at Rs. 18,00,000; Land and building of Rs. 30,00,000 at Rs. 42,00,000 for purchase consideration of Rs. 55,00,000 and paid Rs. 10,00,000 in cash and remaining by issue of 8% debentures of 100 each at a premium of 20%. No. of debentures issued to vendors will be

37,000
37,500
35,500
38,000

Solution

When a company acquires any asset, the purchase consideration can be settled either in cash or in any way as decided between the seller and the company. It may be settled by issuing shares in the company or debentures also.

In this problem X Ltd. purchased Plant and machinery of Rs. 20,00,000 at Rs. 18,00,000; Land and building of Rs. 30,00,000 at Rs. 42,00,000 for purchase consideration of Rs. 55,00,000 and paid Rs. 10,00,000 in cash and remaining by issue of 8% debentures of 100 each at a premium of 20%.

Total consideration to be paid = Rs. 55,00,000

Consideration paid in cash = 10,00,000

Consideration to be paid by issue of debentures = Rs. 45,00,000

The debentures are being issued at a premium thus the value of each debentures issued will be 100 + 20% of 100 = 100 + 20 = Rs. 120

Number of debentures issued = total value of assets acquired/value per debenture = 45,00,000/120 = 37,500 debentures.

A company on non-receipt of First Call money of Rs.2 per share and Final Call money of Rs.3 per share from Rahul, debited Call-in-Arrears account by Rs. 2,000 and Rs.3,000 respectively. After due notice 1,000 shares of Rs.10 each were forfeited from Rahul. The amount to be credited to First Call Account at the time of entry for forfeiture will be

Rs.2,000
Rs.3,000
Nil
Rs.10,000

Solution

Here a company on non-receipt of First Call money of Rs. 2 per share and Final Call money of Rs. 3 per share from Rahul, debited Call-in-Arrears account by Rs. 2,000 and Rs. 3,000 respectively. After due notice 1,000 shares of Rs.10 each were forfeited from Rahul.

Since already the amount due on forfeited shares has been transferred to ‘Unpaid Calls A/c’.

So the amount to be credited to First Call Account at the time of entry for forfeiture will be NIL.

X Ltd. purchased the business of Y Ltd. for Rs. 90,000 payable in fully paid shares of 10 each; shares were issued at a premium of 25%. Number of shares issued against purchased consideration will be –

6,000 shares
7,200 shares
8,000 shares
7,000 shares

Solution

When a company acquires any business, the purchase consideration can be settled either in cash or in any way as decided between the seller and the company. It may be settled by issuing shares in the company or debentures also.

In this problem X Ltd. purchased the business of Y Ltd. for Rs. 90,000 payable in fully paid shares of 10 each; shares were issued at a premium of 25%.

The shares are being issued at a premium thus the value of each share issued will be 10 + 25% of 10 = 10 + 2.5 = Rs. 12.5

Total value of business acquired = Rs. 90,000

Number of shares issued = total value of business acquired/value per share = 90,000/12.5 = 7,200 shares

Which of the following expense is not considered as part of cost of inventory?

Packing, loading & insurance paid by consignor
Inward consignment freight paid by consignee
Transport charges up to godown paid by consignee
Insurance Charges paid by consignee

Solution

Insurance charges will not be included in the cost of inventory. The charges till the point of arrival in consignee’s godown will only be considered.

Consignment inventory will be recorded in the balance sheet of consignor on asset side at:

Invoice Value
At invoice value less inventory reserve
At lower than cost price
At 10% lower than invoice value

Solution

Consignment inventory will be recorded in consignor’s balance sheet at invoice value less stock reserve on it.

Gopal was holding 100 shares of 10 each of a company on which he had paid Rs. 3 on application and Rs. 2 allotment, but could not pay Rs. 2 on first call. Forfeited shares a/c will be credited with

Rs. 500
Rs. 400
Rs. 600
None of the three

Solution

Here Gopal was holding 100 shares of 10 each of a company on which he had paid Rs. 3 on application and Rs. 2 allotment, but could not pay Rs. 2 on first call.

So amount received per share = 3 + 2 = 5

Here total amount received for the shares is 100 × 5 = Rs. 500. Thus Forfeited shares a/c will be credited with Rs. 500.

A, B and C entered into a joint venture with equal risks contributing Rs. 20,000, Rs. 27,500 and Rs. 35,000 respectively. The amounts were banked in a joint account. Joint Transactions were as follows:

Purchase of goods Rs. 66,600
Expenses on goods purchased Rs. 6,629
Total sales Rs. 89,000

C, who effected these transactions, was allowed 6% commission on sales. Profit on joint venture will be –

Rs. 10,431
Rs. 10,000
Rs. 11,000
Rs. 12,000

Solution

A, B and C share profit and losses in the ratio of 3:2:1 upon admission of D. They agreed to share 5:4:2:1 sacrificing ratio will be

1/12:NIL:NIL
NIL:1/12:NIL
NIL: NIL:1/12
None of the three

Solution

When a new partner comes into the business, old partners have to give him his profit share from their portion. Thus change in profit sharing ratio is an important aspect to be considered on reconstitution by admission. In academic accounting, change in profit sharing ratio can be presented in various ways. The existing partners may decide to change their profit sharing ratio for various reasons. When the profit sharing ratio is revised among existing partners, there ought to be a partial sacrifice of profit share by some partners in favour of others. The sacrifice of one or a group of partners becomes the gain of the remaining partners. Following is the formula for calculating sacrificing ratio:

Sacrificing ratio = Old ratio – new ratio

New ratio

A, B and C share the profits and losses in the ratio of 3:2:1. D is admitted. He gets ¹⁄₆ in share entirely from A. New ratio will be

¹⁄₃ : ¹⁄₃ : ¹⁄₆ : ¹⁄₆
3 : 1 : 1 : 1
2 : 2 : 2 : 1
None of the three

Solution

When a new partner comes into the business, old partners have to give him his profit share from their portion. Thus change in profit sharing ratio is an important aspect to be considered on reconstitution by admission. In academic accounting, change in profit sharing ratio can be presented in various ways. The existing partners may decide to change their profit sharing ratio for various reasons. When the profit sharing ratio is revised among existing partners, there ought to be a partial sacrifice of profit share by some partners in favour of others. The sacrifice of one or a group of partners becomes the gain of the remaining partners. Following is the formula for calculating new ratio:

New ratio = Old ratio – Sacrificing ratio

New ratio

So the new ratio between A : B : C : D will be 1/3 : 1/3 : 1/6 : 1/6

Goodwill is to be calculated at one year’s purchase of the average of the last 3 years profit.

The profit of the first year was Rs. 6,000, second year twice the profit of the first year and the third year one and half times of the profit of the second year goodwill amount will be –

Rs.10,000
Rs.12,000
Rs.11,000
Rs.13,000

Solution

Average Profits Method:

Under this method goodwill is calculated on the basis of the average of some agreed number of past years. The average is then multiplied by the agreed number of years. This is the simplest and the most commonly used method of the valuation of goodwill.

Goodwill = Average Profits × Number of years of Purchase

Profit of the year 1 : 6,000

Profit for the year 2 : 6,000 × 2 = 12,000

Profit for year 3 : 12,000 × 1.5 = 18,000

Average profit of last 3 years = (6,000 + 12,000 + 18,000)/3 = Rs. 12,000

Goodwill = 12,000 × 1 = Rs. 12,000

1,52,036
1,52,000
1,50,000
None of the three

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