Practice Manual- Company Accounts and Auditing Practices

483 Pages·2015·10.57 MB·English

EXECUTIVE PROGRAMME
MODULE 2, PAPER 5

Company Accounts
and
Auditing Practices
NOVEMBER 2015
Price : Rs. 300/-
© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA
No part of this Publication may be translated or copied in any form or by any means
without the prior written permission of The Institute of Company Secretaries of India.

The PRACTICE MANUAL has been prepared by competent persons and the
Institute hopes that it will facilitate the students in preparing for the
Institute's examinations. It is, however, to be noted that the answers are to be
treated as model answers and not as exhaustive and there can be alternative
solutions available for a questions provided in this practice manual. The
Institute is not in any way responsible for the correctness or otherwise of the
answers.
The Practice Manual contains the information based on the Laws/Rules
applicable at the time of preparation. Students are expected to be well versed
with the amendments in the Laws/Rules made upto six months prior to the
date of examination.

ISBN No. : 978-98-82207-60-3
Printed at : Samrat Offset Works/500/November 2015
PREFACE
With the continuous developments in the external environment, the role of Company
Secretaries is being continuously redefined, which demand that our students - the
prospective Company Secretaries, are better prepared, developed and trained by providing
regular quality academic inputs, so that they are equipped to face the challenges of
dynamic environment with ease and efficiency. To become competitive, a student need not
only be aware of the basic theoretical provisions of subjects but also be conversant with the
practical aspects of it.
Developing competency in practical papers is a little more challenging as mastering these
subjects requires practicing more problems based on them. Although the study materials of
the Institute contains a lot of numerical and scenario based problem solving inputs but
nevertheless they can be supplemented further.
With the intent of developing our students in practical oriented subjects, the Institute has
brought out “Practice Manual”, a repository of solved questions, to build competency in
practical oriented subjects by providing the students with a pool of solved practical
problems. I am proudly presenting this practice manual prepared specifically for the
subject “Company Accounts and Auditing Practices” to the students of professional
programme.
Students learn best when they are shown how practical questions are framed and solved
on variety of topics, in a step by step method with proper explanation. With this
consistency, students would be able to see the underlying patterns clearly and will learn
better. The manual has adopted an easy-to-understand method of providing solutions so
that students can understand themselves without an aid of a teacher. It will prove to be a
significant preparation resource for the students and will also serve as a self assessment
tool in the preparation for examination.
I acknowledge with thanks all those experts authors and institutions whose material has
been consulted and referred in preparation of this Practice Manual.
I place on record my sincere appreciation to Ms. Khusbu Mohanty, Assistant Education
Officer in the Academic Team at the Institute headed by Ms. Sonia Baijal, Director for this
new initiative under the overall supervision of CS Sutanu Sinha, Chief Executive and
Officiating Secretary.
I will urge my students to take maximum benefit out of it by meticulously practicing the
questions given therein. Practicing more will develop better understanding of the concepts
and provide stronger grip on the subject, for which Practice Manual will certainly serve as a
means.

My best wishes to you all!

New Delhi CS Atul H. Mehta
4th November, 2015 President, ICSI

(iii)
I N D E X
Sl. No. Subject Page Nos.
1. Share Capital 1
2. Debentures 64
3. Final Accounts of Companies 102
4. Corporate Restructuring 151
5. Consolidation of Accounts 243
6. Valuation of Shares and Intangible Assets 324
7. Liquidation of Company 347
8. Corporate Financial Reporting 362
9. Accounting Standards 382
10. Auditing Concepts 417
11. Types of Company Audit 430
12. Internal Audit 447
13. Internal Control 454
14. Review of Internal Control 462
15. Audit Engagement and Documentation 469

(v)
1

Share Capital

Question 1
On 1st April, 2014, A Ltd. issued 45,000 shares of Rs.100 each payable as follows:
Rs. 30 on application;
Rs. 20 on allotment;
Rs. 25 on 1st October, 2014; and
Rs. 25 on 1st February, 2015.
By 20th May, 2014 40,000 shares were applied for and all applications were accepted.
Allotment was made on 1st June. All sums due on allotment were received on 15th July;
those on 1st call were received on 20th October. Journalise the transactions when
accounts were closed on 31st March, 2015.
Answer
Case of under subscription
Shares issued by the company 45000
Shares applied by the public 40000
A Ltd. Journal
Date Particular Amount Amount
(Dr.) (Cr.)
May 20 Bank A/c (40000 x Rs. 30) Dr. 1 2 ,0 0 , 0 0 0
To Share Application A/c 12,00,000

(Application money received on 40,000
shares at Rs. 30 per share.)

June 1
Share Application A/c Dr. 12,00,000
12,00,000
To Share Capital A/c
(Application money transferred to Share capital)

Note : Share Application A/c will be transferred

to share capital A/c on the date of Allotment.

1
June 1 Share Allotment A/c (40000 x Rs. 20) Dr. 800000
To Share Capital A/c 800000
(Amount due on allotment on 40000 shares
@ Rs. 20 per share)

July 15 Bank A/c Dr. 8 0 0 0 0 0
To Share Allotment A/c 800000
(The amount due on allotment received)

Oct. 1 Share First Call A/c (40000 x Rs. 25) Dr. 10,00,000 10,00,000
To Share Capital A/c
(Amount due on First call on 40000 shares
@ Rs. 25 per Share)
Oct. 20 Bank A/c Dr. 10,00,000 10,00,000
To Share First Call Account
(Amount received on First call)
Feb. 1 Share second and final Call A/c Dr. 1 0 , 0 0 ,000
(40000 x Rs. 25) 10,00,000
To Share Capital A/c

(Amount due on Second and Final call on
40000 shares @Rs. 25 Per share)

Mar. 31 Bank A/c Dr. 10,00,000
10,00,000
To Share Second & Final Call A/c
(Amount received on Second and Final
call)
Question 2
Pioneer Equipment Limited received on October 1, 2014 applications for 60,000 Equity
Shares of 100 each to be issued at a premium of 25 per cent payable at thus:
On Application Rs. 30
On Allotment Rs. 75 (including premium)
Balance Amount on Shares as and when required
The shares were allotted by the Company on October 20, 2014 and the allotment money
was duly received on October 31, 2014.
Record journal entries in the books of the company to record the transactions in
connection with the issue of shares.
2
Answer
Pioneer Equipment Limited
Journal
Date Particulars Amount Dr. Amount Cr.
Oct. 1 Bank A/c (60000 x 30) Dr. 1 8 , 0 0 , 0 0 0
To Equity Share Application A/c
18,00,000
(Share Application money received
on 60000shares @ Rs. 30 per Share)
_
Oct. 20 Equity Share Application A/c Dr. 18,00,000
To Equity Share Capital A/c 18,00,000
(Share application money transferred
to share capital)
Oct. 20 Equity Share Allotment A/c (60000 x 75) Dr. 4 5 , 0 0 ,000
To Equity Share Capital A/c (60000 x 50) 30,00,000
To Securities Premium A/c (60000 x 25) 15,00,000
(Amount due on allotment of 60,000 Shares @
Rs. 75 per share including premium of Rs. 25)
Oct. 31 Bank A/c Dr. 45,00,000
To Equity Share Allotment A/c 45,00,000
(Amount received on allotment)
Question 3
X Ltd. invited applications for 10,000 shares of Rs. 100 each payable as follows :
On Application Rs. 25
On Allotment (on 1st May, 2014) Rs. 25
On First Call (on 1st Oct., 2014) Rs. 25
On Final Call (on 1st Feb., 2015) Rs. 25
All the shares were applied for and allotted. A shareholder holding 200 shares paid the
whole of the amount due along with allotment. Journalise the transactions, assuming all
sums due were received. Interest was paid to the shareholder concerned on 1st February,
2015.
3
Answer
Journal of X Ltd.
Date Particulars Amount Dr. Amount Cr.
May 1 Bank A/c (10000 x 25) Dr. 2 , 5 0 , 0 0 0
To Shares Application A/c 2,50,000
(Amount of share application received for
10,000 shares @ Rs. 25 per share.)
May 1 Share Application A/c Dr. 2,50,000
To Share Capital A/c 2,50,000
(share application money transferred to share
capital)

May 1 Share allotment A/c Dr. 2,50,000
To Share capital A/c 2,50,000
(Share allotment money due on 10,000 shares
@Rs. 25 per share)
May 1 Bank A/c Dr. 2 , 6 0 , 0 0 0
To Shares Allotment A/c 2,50,000
To Calls in Advance A/c 10,000
[Receipt of money due on allotment, also the
two calls (Rs. 25 and Rs. 25) on 200 shares.]
Oct. 1 Share First Call A/c Dr. 2 , 5 0 , 0 0 0
To Share Capital A/c 2,50,000
(The amount due on 10,000 shares @ Rs. 25
on first call.)
Oct.1 Bank A/c Dr. 2,45,000
Calls in Advance A/c Dr. 5 , 0 0 0
To Share First Call A/c 2,50,000
(Receipt of the first call on 9,800 shares, the
balance having been previously received and
now debited to call in advance account.)
4
2015
Feb. 1 Share Final Call A/c Dr. 2,50,000
To Share Capital A/c 2,50,000
(The amount due on Final Call on 10,000
shares@ Rs. 25 per share.)
Feb. 1 Bank A/c Dr. 2,45,000
Calls in Advance A/c Dr. 5,000
To Share Final Call A/c 2,50,000
(Receipt of the moneys due on final call on
9,800 shares, the balance having been
previously received.)
Feb. 1 Interest A/c Dr. 700
To Bank A/c 700
The interest on calls in advance paid @ 12% on :
Rs. 5,000 (first call) from 1st May to 1st Oct., 2014–5 months 250
Rs. 5,000 (final call) from 1st May, 2014 to 1st Feb., 2015–9 months 450
700
Question 4
X Ltd. Invited applications for 11,000 shares of Rs.10 each, issued at 20% premium payable
as :
Application Rs. 3 (including Re.1 premium)
Allotment Rs. 4 (including Re.1 premium)
Ist call Rs. 3
IInd call Rs. 2
Applications were received for 24,000 shares
Category I :- One fourth of the shares applied for allotted 2000 shares
Category II :- Two fourth of the shares applied for allotted 9000 share
Category III :- Remaining applications were rejected
Excess amount received is to be adjusted towards allotment and any amount beyond that
shall be refunded.
Mr. Remo, holding 300 shares out of category II failed to pay allotment and two calls and
his shares were forfeited and re-issued @ Rs.11 fully paid up.
Pass journal entries.
5