Sunday, April 16, 2017

Corporate Accounting Solved Question Papers - May' 2016


2016 (May)
(General/Speciality)
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
1. (a) Fill in the blanks: 1x4=4
  1. Out of the face value of shares, at least 5% is payable with application under Section 39 of the Companies Act, 2013.
  2. Capital Reserve is not used for issue of Bonus shares.
  3. The dividend which is declared in between two annual general meetings of a company is called Interim dividend.
  4. Section 2(87) of the Companies Act, 2013 defines a subsidiary company.
(b) State the following statements whether ‘True’ or ‘False’: 1x4=4
  1. Shares can be converted into debentures. False
  2. Accounting Standard – 14 relates to Accounting for Amalgamation. True
  3. Under Income-tax Act, 1961, companies are required to pay advance income tax on their expected profits. True
  4. If the holding company has 100% shares in a subsidiary company, then only assets of the subsidiary company belongs to the holding company. False
2. Write brief notes on any four of the following: 4x4=16

a) Securities Premium Reserve A/c.
Ans: If Shares are issued at a price, which is more than the face value of shares, it is said that the shares have been issued at a premium. The Company Act, 2013 does not place any restriction on issue of shares at a premium but the amount received, as premium has to be placed in a separate account called Securities Premium Reserve Account.
Under Section 52 of the Company Act 2013, the amount of securities premium reserve account may be used only for the following purposes:
  1. To write off the preliminary expenses of the company.
  2. To write off the expenses, commission or discount allowed on issued of shares or debentures of the company.
  3. To provide for the premium payable on redemption of redeemable preference shares or debentures of the company.
  4. To issue fully paid bonus shares to the shareholders of the company.
  5. In purchasing its own shares (buy back).
b) Sinking Fund.
Ans: Sinking fund is a fund into which a company sets aside money over time, in order to retire its preferred stockbonds or debentures. Such fund is created mainly for some specific purposes which are:
  1. To redeem or repay long term liabilities.  For example: debentures, long term loans etc.
  2. To replace wasting assets. For example: mines etc.
  3. To replace an asset of depreciable nature. For example fixed assets.
Creation of Sinking fund for redemption of debentures:
For redemption of debentures or other long term liabilities, a fixed amount is kept aside yearly as sinking fund for the specific purpose and the same amount is invested in securities etc.  for a specific period so that the sufficient amount is available at the time of redemption of long term liabilities. The amount to be set aside can be determined with the help of Sinking fund table. The amount kept aside should not be debited to Profit and loss account but to Profit and loss appropriation account because the same is an allocation of profit not expenditure.
c) Advance Payment of Tax.
Ans: Under Income Tax Act 1961, companies are required to pay advance tax on their expected profits. When advance payment of tax is made, the entry is:

Advance Income Tax Account ………………………………………………………………….. Dr.
   To Bank Account
(Being payment of tax in advance)
L/f
Amount
Amount
Since the actual amount payable as income tax will be known long after the preparation of the Profit and Loss Account (i.e. when the assessment is made by the Income Tax Department), the liability for taxes has to be estimated while preparing the Profit and Loss Account so that dividend to shareholders may be made from revenue profits and not from capital profits. So, liability for taxes is estimated and provided for in the books. The entry is:

Profit and Loss Account……………………………………………………………..…………... Dr.
   To Provision for Income Tax Account
(Being provision for income tax for the year)
L/f
Amount
Amount
When the actual assessment of tax is made, balances appearing in Provision for Income Tax Account, Advance Income Tax Account and tax deducted at source on income earned by the company are transferred to Income Tax Account. If the actual assessment of tax comes to be more than the provision made, the balance is deducted from the Surplus in the Balance Sheet. The amount is not debited to the Profit and Loss Account because tax assessed related to the profits of the last year. Similarly, if the actual assessment of tax is less than the amount provided for, the difference is added to the Surplus Account shown in the Balance Sheet.
d) Reduction of share capital.
Ans: Reduction of Capital: Sometimes there may be a genuine necessity for the reduction of capital. This power is, given by Section 66 of the Companies Act, 2013, subject to the compliance of conditions. According to this, a company may,
(1) Extinguish or reduce the liability on any of its shares in respect of share capital not paid up
(2) cancel any paid-up share capital which is lost or is unrepresented by any available assets;
(3) pay off any paid-up share capital which is in excess of what is required by the company. Conditions for effecting a reduction
Following conditions are required to be fulfilled by a company to reduce its share capital –
(a) The Articles of Association of the company must permit it to reduce its capital;
(b) The company in general meeting shall pass a special resolution to reduce its capital; and
(c) The approval of National Company Law Tribunal (previously Court) shall be obtained for the scheme of reduction in share capital.
e) Consolidated Balance Sheet.
Ans: In India, the law does not compel a holding company to prepare a consolidated Balance Sheet & Profit & Loss Account. It is only for convenience that these statements are prepared. Shareholders of a holding company are interested in knowing the affairs of the subsidiary company as part of their money given to the holding company is invested in subsidiary company. So it becomes safe for directors of the holding company to disclose to the shareholders of the holding company the extent to which they are entitled to the net assets of the subsidiary company. By way of consolidated Balance Sheet, the investments of the holding company in the subsidiary company are replaced by assets.
Consolidation of Balance Sheet & Profit & Loss Account means the combining of the separate Balance Sheet & the separate Profit & Loss Accounts of the Holding company & its subsidiary company or companies into Single Balance Sheet & a Single Profit & Loss Account.
The purpose of a Consolidated Balance Sheet & Profit & Loss Account is to show the financial position & Operating results of a group consisting of a holding company & one or more subsidiaries. The consolidated statements are reports of notional accounting entity which subsist on the view that the holding & subsidiary companies are to be treated as one economic unit. The Financial position & Operating results reported through the consolidated statements are portrayed from the interest of the members of the holding company.
3. (a) A company invited the public to subscribe for 100000 equity shares of Rs. 10 each at a premium of Rs. 1 per share payable on allotment. Payments were to be made as follows:
On application – Rs. 3 per share.
On allotment – Rs. 3 per share.
On first call – Rs. 3 per share.
On final call – Rs. 2 per share.
Applications were received for 130000 shares. Applications for 20000 shares were rejected and allotment was made proportionately to the remaining applicants. Both the calls were made and all the money received expect the final call on 3000 shares which were forfeited after due notice. Later on these shares were reissued as fully paid at Rs. 8.50 per share. Pass Journal Entries in the books of the company. 14



Or
(b) Discuss the provisions of law with regard to redemption of redeemable preference shares as laid down in Section 55 of the Companies Act, 2013. 14
Ans: Preference shares:  Sec. 43 (b) of the Companies Act, 2013 defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights viz.
(a) Preference in payment of dividend and
(b) Preference in repayment of capital in case of winding up of the company, must attach to preference shares.
The rate of dividend on these shares is fixed and the dividend on these shares must be paid before any dividend is paid to ordinary shares. Directors, however, may decide not to pay any dividend to any class of shareholders even if there are sufficient profits. But, if any how, they decide to pay the dividend, preference shareholders will get the priority to pay the ordinary shareholders.
Conditions for redemption of Preference Shares: Under section 55 of the Companies Act, 2013, a company should have to follow the conditions:
  1. No authorization is required in the articles to redeem the preference shares of a company.
  2. The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.
  3. The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of fresh issue of shares for the purpose of redemption.
  4. If the shares are redeemed at a premium, it should be should be provided out of securities premium or out of profits of the company.
  5. The proceeds from fresh issue of debentures cannot be utilized for redemption.
  6. The amount of capital reserve cannot be used for redemption of preference shares.
  7. If the shares are redeemed out of undistributed profit, the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve Account. This is also known as capitalization profit.
  8. CRR may be utilised only for the purpose of issuing fully paid bonus shares to the members.
4. (a) Draw a company Balance Sheet as per Schedule VI of the Companies Act, 2013. Write a short note on International Financial Reporting Standard – 2, 3 and 5 (IFRS – 2, 3 and 5). 7+7=14
Ans:
Proforma of Balance Sheet
Name of the Company …………………………………….
Balance Sheet as at……………………………………..
Particulars
Note
No.
Amount
(Current Year)
Amount
(Previous Year)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share capital
(b) Reserves and surplus
(c) Money received against share Warrants
(2) Share application money pending allotment
(3) Non – current liabilities
(a) Long term borrowings
(b) Deferred tax liabilities (net)
(c) Other long term liabilities
(d) Long term provisions
(4) Current liabilities
(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short term provisions



Total



II ASSETS
(1) Non-Current Assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work in progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short term loans and advances
(f) Other current assets



Total



IFRS 2 - Share-based payment: The major objective of this IFRS is to reflect the effect of share based transitions in the financial statements of an entity, including expenses associated with transactions in which share options are granted to employees. It is entailed for an entity to mention all the transactions which are associated with employees or other parties to be settled either in cash or other equity instruments of the business entity.
IFRS 3 - Business combinations: The major objective of this IFRS is to specify all requirements for an entity when it undertakes a business. Business combination means combining two separate entities in to a single economic entity. As a result of this, an enterprise obtains the control over the net assets or operations of other enterprises.
IFRS 5 - Non-current assets held for sale and discontinued operations: The main purpose of this IFRS is to measure the accounting for the assets held for sale, and the preparation and disclosure of discontinued operations in the financial statements of an entity. Particularly, the IFRS requires those assets which can be categorized as held for sale to be measured at the lower degree of carrying amount and fair value less costs to sell, and the amount of depreciation on such assets to cease.
Or
(b) Following is the Trial Balance of Luit Co. Ltd. as on 31st March, 2016:

Dr. Balances
Rs.
Cr. Balances
Rs.
Stock, 1st April, 2015
Sales
Purchases
Wages
Discount
Furniture and Fittings
Salaries
Rent
Sundry Expenses
Surplus A/c, 1st April, 2015
Dividend paid
Share Capital
Debtors and Creditors
Plant and Machinery
Cash at Bank
Reserve fund
Patents and Trade Mark
75,000

2,45,000
50,000

17,000
7,500
4,950
7,050

9,000

37,500
29,000
16,200

4,830

3,50,000


5,000




15,030

1,00,000
17,500


15,500

5,03,030
5,03,030
Prepare the Statement of Profit and Loss for the year ended 31st March, 2016 and Balance sheet as on that date. Take into consideration of the following adjustments: 7+7=14
  1. Stock on 31st March, 2016 was valued at Rs. 82,000.
  2. Depreciation on fixed assets @ 10% p.a.
  3. Make a provision for income tax @ 50% p.a.
  4. Ignore corporate dividend tax.
REFER ILLUSTRATION NUMBER 2 OF YOUR BOOK
5. (a) What do you mean by amalgamation? What are its features? Discuss ‘pooling of interest method’ of amalgamation. 2+4+8=14
Ans: Amalgamation: Amalgamation means the merging of two or more than two companies for eliminating competition among them or for growing in size to achieve the economies of scale. Amalgamation is a broad term which includes mergers (uniting of two existing companies) and acquisition (one company buying out another company). There are two types of amalgamation. According to AS-14 amalgamation is divided into the following two categories for accounting purposes: 
(A) Amalgamation in the nature of merger; and 
(B) Amalgamation in the nature of purchase.
Features of Amalgamation
1) Two or more companies are liquidated in the process of amalgamation.
2) Amalgamation involves formation of a new company.
3) Normally companies of same size and same nature are amalgamated for the purpose of expansion.
4) Amalgamation of companies results in combination of companies.
Pooling of Interest Method: In preparing financial statements of the transferee company, assets, liabilities and reserves of the transferor company should be recorded as existing carrying amounts and in the same form at the date of amalgamation, balance of the profit and loss account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to general reserve if any. If at the time of amalgamation the accounting policies followed by the transferor company and transferee company are in conflict, it should be resolved, and brought in line with the policies of the transferee company. The difference between the amount recorded in share capital issued and the amount of share capital issued by the transferor company should be adjusted in reserves and surplus.
Or
(b) The ledger balances of HiFi Ltd. as on 31st March, 2016 are as follows:
Cr. Balances
Amount
Rs.
Dr. Balances
Amount
Rs.
Share Capital:
Authorized Capital:
50000 Preference shares of Rs. 10 each
50000 Equity shares of Rs. 10 each
Issued and Paid-up:
25000 Preference shares of Rs. 10 each
25000 Equity shares of Rs. 10 each
Current Liabilities:
Sundry Creditors
Bank Overdraft


5,00,000

5,00,000
10,00,000

2,50,000
2,50,000

40,000
36,000
Goodwill
Leasehold Premises
Plant and Machinery
Patents
Stock
Debtors
Cash
Surplus A/c
(negative balance)
60,000
1,07,000
60,000
1,73,900
34,000
56,000
100

1,25,000

5,76,000

5,76,000
The company proved unsuccessful and resolutions were passed to carry out the following scheme of reconstruction by reduction of capital:
  1. That the Preference Shares be converted to an equal number of fully paid shares of Rs. 5 each.
  2. That the Equity shares be reduced to an equal number of fully paid shares of Rs. 2.50 each.
  3. That the amount so available be utilized towards wiping out losses and reduction of assets as follows:
Goodwill and Surplus A/c (negative balance) to be written off entirely; Rs. 27,000 to be written off from Leasehold Premises, Rs. 14,000 to be written off from Stock; Rs. 6,000 to be provided for Doubtful debts, 20% should be written off from Plant and Machinery and the balance be written off from patents.
Make Journal Entries in the books of the company and prepare Balance Sheet giving effect to the above scheme.
Journal Entries
In the books of Hifi Ltd.
Particulars
L/F
Amount
Amount
Equity Share Capital A/c (10)                                                                       Dr.
To Equity Share Capital A/c (2.5)
To Capital Reduction A/c (7.5)

2,50,000

62,500
1,87,500
Preference Share Capital A/c (10)                                                               Dr.
To Preference Share Capital A/c (5)
To Capital Reduction A/c (5)

2,50,000

1,25,000
1,25,000
Capital Reduction A/c                                                                                    Dr.
To Goodwill a/c
To Patents A/c
To Surplus a/c
To Leasehold Premises A/c
To Stock A/c
To Provision for bad debts A/c
To Plant & Machinery A/c

3,12,500

20,000
1,08,500
1,25,000
27,000
14,000
6,000
12,000
Balance Sheet
Particulars
Note No.
Amount
  1. Equity & Liabilities:
  1. Shareholders fund:
  1. Share Capital
Equity Share Capital
Preference Share Capital




62,500
1,25,000

  1. Non Current Liabilities:
  1. Current Liabilities
  1. Short term borrowing
Bank Overdraft
  1. Trade Payable


NIL



36,000
40,000
Total (1 + 2 + 3)

2,63,500
  1. Assets:
  1. Non Current Assets:
  1. Fixed Assets
Tangible Fixed Assets:
Leasehold Premises (1,07,000 – 27,000)
Plant & Machinery (60,000 – 12,000)

Intangible Fixed Assets:
Patents (1,73,900 – 1,08,500)                

  1. Current Assets
  1. Inventories (34,000 – 14,000)
  2. Trade receivable (56,000 – 6,000)
  3. Cash & cash equivalent





80,000
48,000


65,400


20,000
50,000
100
Total (1 + 2)

2,63,500

6. (a) Following are the Balance Sheets of H Ltd. and its subsidiary company S Ltd. as on 31st March, 2014:
Liabilities
H Ltd.
S Ltd.
Assets
H Ltd.
S Ltd.
Share Capita:
Shares of Rs. 10 each fully paid-up
General Reserve
Profit & Loss A/c
Creditors

6,00,000
1,50,000
70,000
1,30,000

2,00,000
70,000
50,000
1,00,000
Machinery
Furniture
Investment:
70% Shares in S Ltd. at cost
Stock
Debtors
Cash at Bank
Preliminary Expenses
3,00,000
70,000

2,60,000
1,75,000
95,000
50,000
-
1,00,000
45,000

-
1,89,000
70,000
10,000
6,000

9,50,000
4,20,000

9,50,000
4,20,000
H Ltd. acquired the shares of S Ltd. as on 30th June, 2013. On 1st April, 2013, the balance of General Reserve and Profit & Loss A/c of S. Ltd. stood at Rs. 60,000 and Rs. 20,000 respectively. No part of preliminary expenses was written off during the year ended on 31st March, 2014.
Prepare the Consolidated Balance Sheet of H. Ltd. and its subsidiary company S Ltd. as at 31st March, 2014. 14
  1. H Ltd. = 70%
S Ltd. = 30%
  1. Profit during the year = 50,000 – 20,000 + 10,000 (Transfer to reserve) = 40,000
  2. Control Chart A:
Particulars
Total
H. Ltd
S. Ltd
  1. Pre-acquisition Profit
General Reserve
Surplus upto (1-4-12)                                                       20,000
Add: (40,000*3/12)                                                          10,000

60,000

30,000



Less: Preliminary Expenses
90,000
6,000



84,000
58,800
25,200
  1. Post-acquisition Profit
General Reserve (70,000+60,000)
Surplus (40,000*9/12)                                                      30,000          
Less: Transfer to Reserve                                                 10,000

10,000

20,000



30,000
21,000
9,000
  1. Share Capital
2,00,000
1,40,000
60,000
Minority Interest


94,200

  1. Control Chart B:
Particulars
Amount (Rs.)
Cost of Investment
Less: (i) Pre-acquisition Profit in H Ltd.
(ii) Share Capital in H Ltd.
2,60,000
58,800
1,40,000
Goodwill
61,200
  1. Control Chart C:
Particulars
Machinery
Furniture
Stock
B/R
Debtors
Cash at Bank
Creditors
B/P
H Ltd.
S Ltd.
30,000
1,90,000
70,000
45,000
1,75,000
1,89,000
20,000
10,000
55,000
30,000
50,000
10,000
90,000
60,000
20,000
10,000

Less: Mutual owing
2,20,000
1,15,000
3,64,000
30,000
8,000
85,000
20,000
60,000
1,50,000
20,000
30,000
8,000

2,20,000
1,15,000
3,64,000
22,000
65,000
60,000
1,30,000
22,000
Consolidated Balance Sheet of H Ltd. & S Ltd
Particulars
Amount (Rs.)
  1. Equity & Liabilities:
  1. Shareholder’s Fund
  1. Share Capital
  2. Reserve & Surplus
General Reserve                                                                                                                 1,50,000                              
Surplus                                                                                                                     70,000
Add: Revenue Profit                                                                                              21,000    91,000
  1. Minority Interest
  2. Non-Current Liabilities
  3. Current Liabilities:
Bills Payable
Trade Payable


6,00,000



2,41,000

94,200
NIL
22,000
1,30,000
Total (a + b + c + d)
10,87,200
  1. Assets:
  1. Non-Current Assets
  1. Fixed Assets
Tangible
Machinery
Furniture
Intangible: Goodwill
  1. Current Assets:
  1. Inventories                                 
  2. Trade Receivable
  3. Bills Receivable  
  4. Cash & Cash Equivalent




4,00,000
1,15,000
61,200

3,64,000
65,000
22,000
60,000
Total (a + b)
10,87,200

Or
(b) (i) State the distinction between Holding Company and Subsidiary Company.
Ans: Holding Company: As per Section 2(46) “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies. According to this section, one company can become the holding company of another in any of the following three ways:
1. By holding more than 50% of nominal value of the equity shares of the other company i.e. the holding company holds the majority of voting power in the subsidiary company.
2. By controlling the composition of the Board of Directors of the other company so that the holding company is able to appoint or remove the directors of the subsidiary company.
3. By controlling a holding company which controls another subsidiary or subsidiaries. For example, if B Ltd is a Subsidiary of C Ltd & C Ltd is a subsidiary of A Ltd then B Ltd is also deemed to be a subsidiary of A Ltd.
Meaning of “subsidiary Company” 
As per Section 2(87) of the Companies Act, 2013, a company is a “subsidiary company” of another company, i .e.“holding company”, if that other company:
  1. holds a majority of the voting rights in it, or
  2. is a member of it and has the right to appoint or remove a majority of its board of directors, or
  3. is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company.
(ii) State three merits and three demerits of holding company. 8+6=14
Ans: Advantages of Holding Company:  Following are the important advantages of holding company:
  1. Easy Formation: The holding company can be formed very easily. There is no legal formality. Any company may purchase the majority shares from stock exchange and can become holding company.
  2. Large Business:  A holding company can collect the capital and expand the business on large scale.
  3. Foreign Capital: The holding company may also attract the foreign capital for the expansion of a business.
  4. A Stable Combination: The holding company is a very stable form of business organization. Its life is not affected by the disagreement of subsidiary company.
  5. Goodwill: When the goodwill of the holding company is established in the market, it also improves the goodwill of its subsidiary company before the public.
  6. Separate Position: The subsidiary companies can maintain their separate position under this system. They do not lose their identity.
  7. Control on Production: A holding company can check the production and adjusts the supply according the demand. So over production cannot take place.
Disadvantages or Defects of Holding Company: Following are the main defects of the holding company:
  1. Problem of Monopoly: A holding company tries to create monopoly over the market. Monopoly is always against the public interest. It fixes higher prices and consumer suffers a loss.
  2. Unequal Distribution of Wealth: Due to holding companies wealth goes in few hands and society is divided into two classes, rich and poor. Rich class enjoys all the amenities of life while poor class faces poverty and hunger.
  3. Costly Management: A holding company spends a lot of money on the officers and offices. All the units are managed by the central authority. So it is costly to maintain the proper control on large number subsidiary companies.
  4. Minority Interest Ignored: The interest of the minority shareholders is ignored and the members of the holding company dispose of every resolution for their own interest.
  5. Misuse of Funds: The director of the company enjoys unlimited powers and they take undue advantages. They misuse the funds also.
  6. Over Capitalization: There is always a danger of over capitalization in the holding companies. It is very harmful for both the companies.
  7. False Reports: Generally the directors of the company present false reports about the company's financial position. The true condition of the company nobody knows, and due to this sometimes creditors suffer a loss.
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
1. (a) State whether the following statements are ‘True’ or ‘False’: 1x4=4
  1. A debenture holder is an owner of the company. False
  2. Out of the face value of the shares, at least 20% is payable with application.    False
  3. Reduction of share capital is unlawful except when sanctioned by the court. True
  4. Insolvency is not a necessary condition for liquidation of a company.
(b) Fill in the blanks: 1x4=4
  1. Preference shares can be redeemed if they are Fully Paid-up.
  2. The portion of the authorized capital which can be called up only on the liquidation of the company is called Reserve capital.
  3. Consolidated Financial Statements are prepared as per Accounting Standard 21.
  4. Accounting Standard 14 relates to Accounting for Amalgamation.
2. Write short notes on any four of the following: 4x4=16
a) Preliminary Expenses.
Ans: Preliminary Expenses: Preliminary expenses are those expenses which are incurred on the formation of the company. Such expenses include stamp duty and fees payable on registration of the company, legal and printing charges for preparing the Prospectus, Memorandum and Articles of Association, Accountants’ and Valuers’ fees for reports, certificates, etc. Cost of printing the stamping letters of allotment and share certificates, cost of company seal, books of account, statutory books and statistical books, etc. Such expenses are written off from the Statement of Profit and Loss in the year in the year of their incurrence as per AS-26.
b) Sinking Fund.
Ans: Sinking fund is a fund into which a company sets aside money over time, in order to retire its preferred stockbonds or debentures. Such fund is created mainly for some specific purposes which are:
  1. To redeem or repay long term liabilities.  For example: debentures, long term loans etc.
  2. To replace wasting assets. For example: mines etc.
  3. To replace an asset of depreciable nature. For example fixed assets.
Creation of Sinking fund for redemption of debentures:
For redemption of debentures or other long term liabilities, a fixed amount is kept aside yearly as sinking fund for the specific purpose and the same amount is invested in securities etc.  for a specific period so that the sufficient amount is available at the time of redemption of long term liabilities. The amount to be set aside can be determined with the help of Sinking fund table. The amount kept aside should not be debited to Profit and loss account but to Profit and loss appropriation account because the same is an allocation of profit not expenditure.
c) Minority Interest.
Ans: Minority Interest: When some of the shares in the subsidiary are held by outside shareholders they will be entitled to a proportionate share in the assets and liabilities of that company. The share of the outsider in the subsidiary is called minority interest.
Amount of minority interest is calculated by adding subsidiary company’s share in pre-acquisition profit, post-acquisition profit and in share capital of the company. Preference share capital to the extent of not purchased by holding company is also added with minority interest. In the consolidated balance sheet all the assets and liabilities of the subsidiary   are consolidated with assets and liabilities of the holding company and the minority interest representing the interest of the outsider in the subsidiary is shown as a liability.
d) Amalgamation in the nature of purchase.
Ans: Amalgamation in the nature of Purchase: An amalgamation will be treated as “Amalgamation in the nature of purchase” if any of the below mentioned conditions is not satisfied:
a. After amalgamation, all the assets and liabilities of the transferor company becomes the assets and liabilities of the transferee company.
b. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become the equity shareholders of the transferee company by virtue of amalgamation.
c. The business of the transferor company is intended to be carried on after the amalgamation by the transferee company.
d. Purchase consideration should be discharged only by issue of equity shares in the transferee company except that cash may be paid in respect of any fractional shares.
e. No adjustments are required to be made in the book values of the assets and liabilities of the transferor company, when they are incorporated in the financial statements of the transferee company. If any one of the condition is not satisfied in a process of amalgamation, it will not be considered as amalgamation in the nature of merger.
e) Winding-up of a company.
3. (a) Give a brief description of the books of accounts and registers which are to be maintained by a company as per provisions of the Indian Companies Act, 1956. 7+5=12
Ans: Statutory and Statistical Books Maintained by Company:
Statutory book: Such books are those which a limited company is under statutory obligation to maintain at its registered office with a view to safeguard the interests of shareholders and creditors. Main statutory books are:
  1. Register of investments held and their names
  2. Register of charges
  3. Register of members
  4. Register of debenture holders
  5. Annual returns
  6. Minute books
  7. Register of contracts
  8. Register of directors
  9. Register of director’s shareholdings
  10. Register of loans to companies under the same management
  11. Register of investment in the shares and debentures of other companies
  12. Register of fixed deposits
  13. Index of members where the number is more than fifty unless register of members itself affords an index
  14. Index of debenture holders where the number is more than fifty, unless the register of debenture holders itself affords an index
  15. Foreign register of members and debenture holders, if any
  16. Register of renewed and duplicate certificates.

Statistical Books:
In order to keep a complete record of numerous details of certain transactions and activities of the company the following statistical books are usually maintained by joint stock companies in addition to statutory books. The keeping of such books are optional. The main books are:
  1. Share application and allotment book
  2. Share calls book
  3. Share certificate book
  4. Debenture application and allotment book
  5. Debenture calls book
  6. Register of share transfers
  7. Dividend book
  8. Debenture interest book
  9. Register of documents sealed
  10. Register of share warrants
  11. Dividend mandates register
  12. Register of debenture transfers
  13. Register of powers of attorney
  14. Agenda book
  15. Register of lost share certificates
  16. Register of director’s Attendance
Or
(b) The Balance Sheet of J. K. Ltd. as on 31st March, 2016 is given below:
Liabilities
Amount
Assets
Amount
9% Redeemable Preference Shares of Rs. 100 each fully paid-up
Equity Shares of Rs. 5 each fully paid-up
General Reserve
Profit & Loss A/c
Sundry Creditors

6,50,000
2,25,000
1,00,000
2,60,000
57,500
Sundry Assets
Investments
Cash at Bank
9,50,000
2,75,000
67,500

12,92,500

12,92,500
The Preference Shares are to be redeemed on 1st April, 2016 at a premium of 7 ½ %. In order to facilitate redemption, the company had decided the following:
  1. To sell the investments for Rs. 2,60,000.
  2. To finance a part of the redemption from the company’s Reserve Fund.
  3. To issue sufficient equity shares at a premium of Rs. 1 per share to raise the balance of the fund required.
  4. Minimum bank balance to be retained at Rs. 10,500. The investments were sold, the equity shares were fully subscribed and the preference shares were dully redeemed.
Show the Journal Entries and prepare the balance sheet after redemption. 7+5=12
16. Journal Entries.
Date
Particulars
L/F
Amount
Dr.
Amount
Cr.

Bank A/c                                                                                           Dr.
Surplus A/c                                                                                       Dr.
     To Investment A/c
(Being the investment sold at Rs. 2,60,000 and loss debited to P/L A/c.)

2,60,000
15,000


2,75,000

9% Redeemable preference Share Capital A/c                          Dr.
Premium on redemption A/c                                                        Dr.
     To Preference Shareholders A/c
(Being the preference share capital due for redemption at a premium of 7.5%)

6,50,000
48,750


6,98,750

Bank A/c                                                                                            Dr.
     To Equity share capital A/c
     To Securities Premium A/c


3,81,750


General Reserve A/c                                                                       Dr.
Surplus A/c                                                                                       Dr.
     To Capital Redemption Reserve A/c
(Being the amount of preference share capital redeemed out of profit transferred to Capital Redemption Reserve.)

1,00,000
2,31,875


3,31,875

Securities Premium A/c                                                                 Dr.
     To Premium on redemption A/c
(Being the premium payable on redemption of Preference share charged to securities premium.)

48,750

48,750

Preference shareholders A/c                                                        Dr.
     To Bank A/c
(Being the final payment made to preference shareholders.)

9,45,000

9,45,000
Cash A/c
Particulars
Amount
Particulars
Amount
To Balance b/d
To Investment A/c
To Equity Share Capital
To Securities Premium
67,500
2,60,000
3,18,125
63,625
By preference shareholders A/c
    (6,50,000 + 48,750)
By balance c/d
6,98,750

10,500

7,09,250

7,09,250

4. (a) (i) What do you mean by ‘buyback of shares’? State the legal provisions relating to buyback of shares.     2+3=5
Ans: Buy-back means the repurchase of its own shares by the company. When a company has substantial cash resources, it may like to buy its own shares from the market, particularly when the prevailing rate of its shares in the market is much lower that the book or what the company perceives to be its true value. This is known as buy back of shares. Buy back procedure thus enables a company to go back to the holders of its shares and offers to purchase from them the shares they hold. The shares thus bought back have to be cancelled.
Conditions of Buy Back:  The buy-back is authorised by the Articles of association of the Company;
  1. A special resolution has been passed in the general meeting of the company authorising the buy-back. In the case of a listed company, this approval is required by means of a postal ballot. Also, the shares for buy back should be free from lock in period/non transferability. The buy back can be made by a Board resolution If the quantity of buyback is or less than ten percent of the paid up capital and free reserves;
  2. The buy-back is of less than twenty-five per cent of the total paid-up capital and fee reserves of the company and that the buy-back of equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in that financial year;
  3. The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back;
  4. There has been no default in any of the following
    1. in repayment of deposit or interest payable thereon,
    2. redemption of debentures, or preference shares or
    3. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the date of declaration of dividend or
    4. repayment of any term loan or interest payable thereon to any financial institution or bank;
  5. There has been no default in complying with the provisions of filing of Annual Return, Payment of Dividend, and form and contents of Annual Accounts;
  6. All the shares or other specified securities for buy-back are fully paid-up;
  7. The buy-back of the shares or other specified securities listed on any recognised stock exchange shall be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf; and
  8. The buy-back in respect of shares or other specified securities of private and closely held companies is in accordance with the guidelines as may be prescribed.

(ii) Mention any three advantages and three disadvantages of buyback of shares. 3+3=6
Ans: Advantages of Buyback of shares:
1. Tax efficient way to return investor's money: Healthy  companies make profits and they must find an efficient way to give the  profits to the shareholders if they they don't have a good way to use  them.
2. Signal to the market that the board thinks the company is strong: When  a company is buying back shares, it sends a message to the market that the cash position of the company is sound. 
3. Compensate for stock options & bonuses: Companies  give out stocks to their employees in the form of options & grants by buying back some of the old shares from public.
Disadvantages of Buyback of shares
1. Poor predictions: While the idea is for companies to buy up their stock when it’s cheap, often that doesn’t happen.
2. Sinking dividends: Sometimes companies spend a lot of money buying up shares and then cut their dividend as a result.
3. Opportunity cost: When a company is spending millions in buying their own stock, there are chances that a company can miss profit making opportunity due to insufficient cash.
Or
(b) XYZ Co. Ltd. issued 500, 6% debentures of Rs. 100 each on 1st January, 2012, repayable at a premium of 5% at the end of 3 years. In order to ensure repayment, a sinking fund was created at 5% p.a. at compound interest. Investment realized Rs. 33,000 on 31st December, 2014 and the debentures were paid of on that date. Sinking Fund Table shows that Rs. 0.317208 amounts to Rs. 1 in 3 years at 5% compound interest. Pass the necessary Journal Entries. 11
5. (a) X Ltd. and Y Ltd. decided to amalgamate and a new company XY Ltd. is formed to take over both the companies as on 31st March, 2016. The following are the Balance Sheets of the companies as on that date:
Liabilities
X Ltd.
Rs.
Y Ltd.
Rs.
Assets
X Ltd.
Rs.
Y Ltd.
Rs.
Share Capita:
Shares of Rs. 10 each fully paid
Reserve fund
Profit & Loss A/c
Dividend Equalization Fund
Workmen Compensation fund
Bank Overdraft
Sundry Creditors
Bills Payable

5,00,000
2,00,000
30,000
-
20,000
-
1,00,000
50,000

3,00,000
1,50,000
50,000
1,00,000
-
50,000
1,20,000
30,000
Goodwill
Land and Buildings
Plant and Machinery
Patents and Trade Mark
Stock
Sundry Debtors
Bills Receivable
Cash at Bank
1,00,000
2,50,000
2,00,000
-
2,00,000
1,00,000
-
50,000
80,000
1,90,000
2,55,000
52,500
1,50,000
50,000
20,000
2,500

9,00,000
8,00,000

9,00,000
8,00,000
Show how the amount payable to each company is arrived at the prepare the amalgamated Balance Sheet of XY Ltd. assuming amalgamation is done in the nature of purchase. 5+6=11
Journal Entries
Particulars
L/F
Amount
Amount
Business Purchase A/c                                                                                      Dr.
To Liquidator of X Ltd.
To Liquidator of Y Ltd.

13,50,000

7,50,000
6,00,000
Goodwill A/c                                                                                                      Dr.
Land & Building A/c                                                                                          Dr.
Plant & Machinery A/c                                                                                     Dr.
Stock A/c                                                                                                             Dr.
Sundry Debtors A/c                                                                                           Dr.
Bills Receivable A/c                                                                                           Dr.
Cash at Bank A/c                                                                                                Dr.
To Sundry Creditors A/c
To Bills Payable A/c
To Business Purchase A/c

1,00,000
2,50,000
2,00,000
2,00,000
90,000
-
50,000







90,000
50,000
7,50,000
Goodwill A/c                                                                                                     Dr.
Land & Building A/c                                                                                         Dr.
Plant & Machinery A/c                                                                                    Dr.
Patent & Trade Marks A/c                                                                              Dr.
Stock A/c                                                                                                            Dr.
Sundry Debtors A/c                                                                                          Dr.
Bills Receivable A/c                                                                                          Dr.
Cash at Bank A/c                                                                                               Dr.
To Bank Overdraft A/c
To Sundry Creditors A/c
To Bills Payable A/c
To Purchase Consideration A/c

80,000
1,90,000
2,55,000
52,500
1,50,000
40,000
20,000
2,500








50,000
1,10,000
30,000
6,00,000
Liquidator of X Ltd. A/c                                                                             Dr.
Liquidator of Y Ltd. A/c                                                                        Dr.
To Equity Share Capital A/c

7,50,000
6,00,000


13,50,000
Balance Sheet
Particulars
Amount
  1. Equity & Liabilities:
  1. Shareholders fund:
  1. Share Capital
  2. Reserve & Surplus:


13,50,000
-

  1. Non Current Liabilities:
  2. Current Liabilities
  1. Short term borrowing
  2. Trade Payable
-
------

50,000
2,80,000
Total (1 + 2 + 3)
16,80,000
  1. Assets:
  1. Non Current Assets:
  1. Fixed Assets
Tangible Fixed Assets:
Land & Building                        4,40,000
Plant & Machinery                   4,55,000

Intangible Fixed Assets:
Patent & trademarks                           52,500
Goodwill (1,00,000 + 80,000)         1,80,000

  1. Current Assets
  1. Inventories
  2. Trade receivable:
Bills Receivable                          20,000
Debtors                                    1,30,000
  1. Cash & cash equivalent





8,95,000



2,32,500


3,50,000


1,50,000
52,500
Total (1 + 2)
16,80,000
Calculation of Purchase Consideration Net Assets Method
Assets – Liabilities
X Ltd.
Y Ltd.
Assets:
Goodwill
Land & Building
Plant & Machinery
Patent & Trademarks
Stock
Sundry Debtors
Bills Receivable
Cash at Bank

1,00,000
2,50,000
2,00,000
-
2,00,000
90,000
-
50,000

80,000
1,90,000
2,55,000
52,500
1,50,000
40,000
20,000
2,500

Less: Liabilities:
Bank Overdraft
Sundry Creditors
Bills Payable
8,90,000

-
90,000
50,000
7,90,000

50,000
1,10,000
30,000
Purchase Consideration
7,50,000
6,00,000
Or
(b) (i) Distinguish between Amalgamation and Absorption. 4
Ans: Meaning of Amalgamation: Amalgamation means the merging of two or more than two companies for eliminating competition among them or for growing in size to achieve the economies of scale. Amalgamation is a broad term which includes mergers (uniting of two existing companies) and acquisition (one company buying out another company).
Meaning of Absorption: Absorption is the process in which the one dominant company takes control over the weaker company.
Difference between Amalgamation and Absorption:
1) Two or more companies are liquidated in the process of amalgamation. One or more companies are liquidated in absorption.
2) Amalgamation involves formation of a new company. However, Absorption of companies does not involve formation of a new company
3) There is no such matter of size of amalgamating companies. Generally, size of purchasing company is greater than that of vendor company in absorption.
(ii) What do you mean by internal reconstruction of a company? Explain its scope. 3+4=7
Ans: Internal Reconstruction: Internal reconstruction means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. In internal reconstruction neither the existing company is liquidated, nor is a new company incorporated. It is a scheme in which efforts are made to bail out the company from losses and put it in profitable position. Internal reconstruction of a company is done through the reorganization of its share capital. It is a scheme of reorganization in which all interested parties in the capital structure volunteer to sacrifice. They are the company’s shareholders, debenture holders, creditors etc. Under internal reconstruction, the accumulated trading losses and fictitious assets are written off against the sacrifice made by these interest holders in the form of reduction of paid up value of their interest.
Forms of Internal reconstruction of a company (Scope of Internal reconstruction)
Internal reconstruction of a company can be carried out in the following different ways. These are as under:
(A) Alteration of Share Capital; and
(B) Reduction in Share Capital
Alteration of Share Capital: Memorandum of Association contains capital clause of a company. Under Section 61 of the Companies Act 2013, a company, limited by shares, can alter this capital clause, if is permitted by (i) the Articles of Association of the company; and (ii) if a resolution to this effect is passed by the company in the general meeting. A company can alter share capital in any of the following ways:
(a) The company may increase its capital by issuing new shares.
(b) It may consolidate the whole or any part of its share capital into shares of larger amount.
(c) It may convert shares into stock or vice versa.
(d) It may sub-divide the whole or any part of its share capital into shares of smaller amount.
(e) It may cancel those shares which have not been taken up and reduce its capital accordingly.
To alter capital by any of the above modes require a resolution at a general meeting, but does not require confirmation by the National Company Law Tribunal. The company is required to give a notice to the Registrar within thirty days of alteration.
The accounting treatment of the above five types of capital alteration is discussed below.
(a) If the company has issued all of its authorised capital, then, for the purpose of raising fund by the issue of fresh shares, it will have to increase its authorised capital first. For increasing the authorised capital, the Capital clause of Memorandum of Association of the company is required to be altered and permission of S.E.B.I. is also required to be obtained.  No accounting entry is necessary for increasing authorised share capital. The company will have to observe the formalities prescribed under the Companies Act, 2013.
(b) The company may decide to change the shares of smaller denomination into larger denomination. This process is called consolidation of shares. On account of consolidation, the total amount of capital of the company will not change but the number of shares will decrease.
(c) A company, in order to alter its share capital, may convert all or any of its fully paid up shares into Stock or Stock into fully paid up shares. In case, shares are converted into Stock, the members get a part of Stock Capital in place of shares. By converting Shares into Stock, any amount of Stock Capital can be transferred to any other person.
(d) When the shares of a company are sub-divided in shares of small value, it is known as sub-division of shares. In sub-division of shares, the face value of a share is converted into smaller denomination from larger denomination. The total capital of the company remains unaffected by sub-division but the total number of shares increase.
(e) Cancellation of capital may take the following form:
(i) Cancellation of unissued capital; and
(ii) Cancellation of uncalled capital.
(i) Cancellation of unissued capital: Cancellation of unissued capital means cancellation of unissued shares by a company. It means that the part of the authorised capital which has not yet been issued to the public may be cancelled by the company.
(ii) Cancellation of uncalled capital: Cancellation of uncalled capital means cancellation of that part of the face value of the share which has not yet been called by the company.
Reduction of Capital: Sometimes there may be a genuine necessity for the reduction of capital. This power is, given by Section 66 of the Companies Act, 2013, subject to the compliance of conditions. According to this, a company may,
(1) Extinguish or reduce the liability on any of its shares in respect of share capital not paid up
(2) cancel any paid-up share capital which is lost or is unrepresented by any available assets;
(3) pay off any paid-up share capital which is in excess of what is required by the company. Conditions for effecting a reduction
Following conditions are required to be fulfilled by a company to reduce its share capital –
(a) The Articles of Association of the company must permit it to reduce its capital;
(b) The company in general meeting shall pass a special resolution to reduce its capital; and
(c) The approval of National Company Law Tribunal (previously Court) shall be obtained for the scheme of reduction in share capital.

6. (a) (i) Who are the preferential creditors? 3
(ii) XYZ Ltd. went into voluntary liquidation on 31st March, 2016. The position of the company on that date as follows:

Rs.
Share Capita: 5000 Equity shares of Rs. 10 each, Rs. 8 per share called up
Unsecured Creditors:
Preferential
Non-preferential
Secured creditors (secured on Plant and Machinery)
Cash in hand
40,000

5,000
25,000
15,000
1,000
Plant and Machinery finally realized Rs. 10,000 and other assets realized Rs. 10,000. The liquidation expenses amounted to Rs. 500 and the liquidator was entitled to a remuneration of 5% on the amount realized excepting cash in hand and 2% on the amount distributed to unsecured creditors.
Prepare the Liquidator’s Final Statement Account showing the percentage of distribution finally made to unsecured creditors. 8
Or
(b) What do you understand by the ‘Liquidator’s Final Statement of Account? Give a proforma of such an account with imaginary figures. 4+7=11

7 (a) From the following Balance Sheets of H. Ltd. and its subsidiary company S Ltd. drawn up on 31st March, 2016, prepare a Consolidated Balance Sheet as on that date. On the date of acquisition of the shares, the General reserve of S Ltd. amounted to Rs. 20,000 and the Surplus A/c balance amounted to Rs. 40,000 (Cr.): 11
Liabilities
H Ltd.
Rs.
S Ltd.
Rs.
Assets
H Ltd.
Rs.
S Ltd.
Rs.
Share Capita:
Shares of Rs. 10 each fully paid
General Reserve
Surplus A/c
Sundry Creditors


10,00,000
1,00,000
1,50,000
1,50,000


4,00,000
20,000
60,000
40,000
Freehold Property (at cost)
Plant & Machinery (at cost less depreciation)
Investment:
40000 shares in S Ltd. at cost.
Stock
Sundry Debtors
Bank Balance
2,00,000
2,50,000



4,00,000
1,50,000
2,00,000
2,00,000
-
1,20,000



-
2,00,000
1,00,000
1,00,000

14,00,000
5,20,000

14,00,000
5,20,000
2008/2016 (General paper)
  1. Degree of Control
H Ltd = 100%
S Ltd = NIL
  1. Control Chart A:
Particulars
Total
H  Ltd
S Ltd
  1. Pre-acquisition Profit:
General Reserve                                           20,000
P/L A/c                                                            40,000


60,000



60,000
60,000
NIL
  1. Post-acquisition Profit
General Reserve                                           20,000
Less: Pre                                                         20,000

Surplus                                                            60,000
Less: Pre                                                         40,000


NIL


20,000



20,000
20,000
NIL

  1. Share Capital

4,00,000

4,00,000

NIL



NIL
  1. Control Chart B:
Particulars
Amount (Rs.)
Cost of Investment
Less: (i) H Ltd. shares in Pre-acquisition Profit
(ii) H Ltd. shares in Share Capital
4,00,000
60,000
4,00,000
Capital Reserve
(60,000)
  1. Control Chart C:
Particulars
Plant & Machinery
Freehold Property
Stock
Debtors
Bank
Creditors
H. Ltd
S. Ltd
2,50,000
2,00,000
2,00,000
-
1,50,000
2,00,000
2,00,000
20,000
2,00,000
1,00,000
1,50,000
40,000

4,50,000
2,00,000
3,50,000
2,20,000
3,00,000
1,90,000
Consolidated Balance Sheet of H Ltd. & S Ltd
Particulars
Amount (Rs.)
  1. Equity & Liabilities:
  1. Shareholder’s Fund
  1. Share Capital
  2. Reserve & Surplus
General Reserve                                                         1,00,000
Surplus                                          1,50,000
Add: Revenue  Profit                     20,000
Add: Capital Reserve                     60,000                2,30,000

  1. Minority Interest
  2. Non-Current Liabilities
  3. Current Liabilities:
Sundry Creditors  


10,00,000




3,30,000

NIL
NIL

1,90,000
Total (a + b + c + d)
15,20,000
  1. Assets:
  1. Non-Current Assets
  1. Fixed Assets
Tangible (Freehold + Plant & Machinery)
Intangible

  1. Current Assets:
  1. Inventories (Stock)
  2. Trade Receivable (Debtors)
  3. Cash & Cash Equivalent


6,50,000
NIL



3,50,000
2,20,000
3,00,000
Total (a + b)
15,20,000
Or
(b) Describe the documents in respect of each subsidiary company to be attached to the Balance Sheet of the holding company under Section 212 of the Indian Companies Act, 1956. 11
Ans: Section 212 of the Companies Act stipulates the conditions regarding the manner in which the Balance Sheet of the holding Company should be prepared. The provisions of the Section are given below:
(1) There shall be attached to the Balance Sheet of a holding company having a subsidiary or subsidiaries at the end of the financial year as at which the holding company’s Balance Sheet is made out, the following documents in respect of such subsidiary or of each such subsidiary, as the case may be:
(a) A copy of the Balance Sheet of the subsidiary;
(b) A copy of its Profit and Loss Account;
(c) A copy of the Report of its Board of Directors;
(d) A copy of the Report of its Auditors;
(e) A statement of holding company’s interest in the subsidiary;
(f) The statement referred to in sub-section (5) if any; and
(g) The report referred to in sub-section (6), if any.
(2) The Balance Sheet, profit and loss accounts and the reports of the board of directors and the auditors shall be made out in accordance with the requirements of this Act.
(i) As the end of the financial year of the subsidiary, where such financial year coincides with the financial year of the holding company;
(ii) As at the end of the financial year of the subsidiary last before that of the holding where the financial year of the subsidiary does not coincide with that of the holding company.
Where the financial year of a subsidiary is shorter in duration than that of its holding company, then financials statements of subsidiary company shall be construed for two more financial years of the subsidiary company the duration of which, in the aggregate, in not less than the duration of holding company’s financial year.
(3) The statement holding company’s interest in subsidiary company shall specify.
(a) The extent of the holding company’s interest in the subsidiary at the end of the financial year or of the last of the financial year of the subsidiary;
(b) the net aggregate amount, so far as it concerns members of the holding company and is not dealt with in the company’s accounts, of the subsidiary’s profit after deducting its losses or vice versa.
(i) For the financial year or years of the subsidiary aforesaid; and
(ii) For the previous financial years of the subsidiary since it became the holding company’s subsidiary;
(c) The net aggregate amount of the profits of the subsidiary after deducting its losses or vice versa.
(i) For the financial year of years of the subsidiary aforesaid; and
(ii) For the previous financial years of the subsidiary since it became the holding company’s subsidiary;
(4) Clauses (b) and (c) of sub-section (3) shall apply only to profits and Losses of the subsidiary which may properly be treated in the holding company’s accounts as revenue profits or losses, and the profits or losses attributable to any shares in a subsidiary for the time being held by the holding company or any other of its subsidiaries shall not (for that on any other propose) be treated as aforesaid so far as they are profits or losses for the period before the date on or as from which the shares were acquired by the company or any of its subsidiaries.
(5) Whether the financial year or years of a subsidiary do not coincide with the financial year of the holding company, a statement containing information on the following matters shall also be attached to the Balance Sheet of the holding Company:
(a) Whether there has been any, and if so, what change in the holding company’s interest in the subsidiary between the end of the financial year or of the last of the financial years of the subsidiary and the end of the holding company’s financial year;
(b) Details on any material changes which have occurred between the end of the financial year or of the last of the financial years of the subsidiary and the end of the holding company’s financial year in respect of
(i) The subsidiary’s fixed assets ;
(ii) Its investments ;
(iii) The money lent by it ;
(iv) The money borrowed by it for any purpose other than that of meeting current liabilities.
(6) If, for any reason, the Board of Directors of the holding company is unable to obtain information on any of the matter required to be specified by sub-section (4), a report in writing to that effect shall be attached to the Balance Sheet of the holding company.
(7) The documents referred to in clauses (c), (f) and (g) of sub-section (1) shall be signed by the persons by whom the Balance Sheet of the holding company is required to be signed.
(8) The Central Government may, on the application or with the consent of the Board of Directors of the company, direct that in relation to any subsidiary, the provisions of this section shall not apply or shall apply only to such extent as may be specified in the direction.
(9) If the board of directors of the holding company fails to take all reasonable steps to comply with the provisions of this Section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extent to six months, or with a fine which may extend to one thousand rupees, or with both :  Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed willfully.

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