WORK BOOK COMPANY ACCOUNTS & AUDIT - …

1 WORK BOOK COMPANY ACCOUNTS & AUDIT INTERMEDIATE GROUP II PAPER 12 The Institute of Cost Accountants of India (Statutory body under an Act of Parliament) First Edition : March 2018 Completed by : Academics Department The Institute of Cost Accountants of India Published by : Directorate of Studies The Institute of Cost Accountants of India 12, Sudder Street, Kolkata 700 016 Copyright of these study notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof.

2 Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Work Book COMPANY ACCOUNTS & AUDIT INTERMEDIATE GROUP II PAPER 12 INDEX Sl. No. Page No. 1. Accounting of Shares and Debentures 1 44 2. Presentation of Financial Statements 45 58 3. Cash Flow Statement 59 81 4. ACCOUNTS of Banking, Electricity and Insurance COMPANY 82 92 5. Accounting Standards 93 101 6. Auditing Concepts 102 166 7. Provision Relating to AUDIT under Companies Act 167 182 Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Work Book : COMPANY ACCOUNTS & AUDIT Chapter 1 ACCOUNTING OF SHARES AND DEBENTURES 1.

3 Multiple choice questions: Choose the correct alternative: (i) Which of the following is not a condition of buy-back of securities? (a) Both fully and partly paid-up securities can be bought back. (b) Buy-back must be authorised by the Articles of Association. (c) Buy-back must be authorised by passing a special resolution in general meeting. (d) Buy-back should be completed within 1 year from the state of passing of special resolution. (ii) Which of the following is the modern approach of fixation of issue price of shares? (a) Fixed price method. (b) Mark-to-Market method.

4 (c) Book Building method. (d) None of the above (iii) Which of the following is/ are advantage(s) of Rights issue? (a) Control in the hands of existing shareholders. (b) Less costly (c) No dilution in existing value of shares. (d) All of the above. (iv) When an entire issue of securities is underwritten by two or more underwriters jointly, it is referred to as (a) Full underwriting (b) Firm underwriting (c) Regular underwriting (d) Syndicate underwriting (v) Which of the following is not a feature of sweat equity shares? (a) These are only to its directors or employees.

5 (b) They are issued only for acquisition of tangible assets. (c) They are are by nature equity shares (d) All of the above Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1 Work Book : COMPANY ACCOUNTS & AUDIT Answer: (i) (a) (ii) (c) (iii) (d) (iv) (d) (v) (b) 2. Match the following: Column A Column B 1. Private placement A Shares are offered to the existing shareholders at a price below market price 2. Offer for sale B shares are offered to the existing shareholders free of cost 3. Public offer C Shares are placed to a small number of selected investors 4.

6 Rights issue D COMPANY offers its entire issue of shares to an issuing house 5. Bonus issue E Shares are offered directly to the investing public Answer: 1. C 2. D 3. E 4. A 5. B 3. Fill in the blanks: (i) In case of redemption of preference shares, an amount equal to the nominal value of the shares redeemed out of profits and free reserves is to be transferred to _____ Account. (ii) The conditions for issue of bonus shares are covered u/s _____ of Companies Act, 2013. (iii) _____ _____ are equity shares issued by a COMPANY to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

7 (iv) The issue of _____ shares is also called Capitalisation Issue. (v) The application forms which are collected by an investor from an underwriter are called _____ applications. Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2 Work Book : COMPANY ACCOUNTS & AUDIT Answer: (i) Capital Redemption Reserve (ii) 63 (iii) Sweat Equity (iv) Bonus (v) Marked 4. State whether the following statements are true or false: (i) The provisions regarding redemption of preference shares are covered u/s 80 of Companies Act, 2013.

8 (ii) Rights issue is usually made at a price that is above the face value but lower than the market price. (iii) Debentures form part of owned capital of an entity. (iv) A bonus issue can be made only out of free reserves built out the genuine profits or Securities Premium collected in cash only. (v) Issue of bonus shares does not cause any change in the paid-up capital of the issuing COMPANY . Answer: (i) False (ii) True (iii) False (iv) True (v) False ISSUE OF SHARES 5. D Ltd. has authorised capital of ` 8,00,000. The COMPANY issues 20,000 equity shares of `10 each at a premium of `5 per share payable as: On application ` 6 (including premium ` 3) On allotment ` 5 (including balance of premium), and balance in two calls.

9 Applications were received for 35,000 shares. The applicants were divided in the following groups: Group A Applying for 5,000 shares allotted fully Group B Applying for 20,000 shares are made prorata allotment for 15,000 shares Group C Applying for total 10,000 shares are, refunded. Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3 Work Book : COMPANY ACCOUNTS & AUDIT Directors while making allotment adjust the excess amount received on application against allotment money due. When second and final calls were made, shareholders holding 500 shares failed to pay the final call money.

10 The director s forfeited these shares. All the forfeited shares were reissued at ` 9 per share. It is agreed that brokerage @ 3% and underwriting commission @3% will be paid for this issue. Claims of brokers and underwriters are satisfied by issuing to them additional equity shares of ` 10 each at a premium of ` 5 per share (without any cash payment). Show Journal entries in the books of the COMPANY . Answer: In the Books of D Ltd. Journal Particulars Dr. Cr. Bank Account A/c To Equity Share Application A/c (Being Application money received on 35,000 share @ ` 6/- share) Dr.