FYUG Even Semester Exam, 2024
COMMERCE (2nd Semester)
Corporate Accounting (COMDSC-151T)

SECTION-A: Short Answer Type

Answer any ten questions. (10 x 2 = 20 Marks)

Question 1

[2 Marks]

Mention any two factors affecting the value of goodwill.

• Nature of Business: Companies dealing in high-demand products with stable profits tend to have higher goodwill.
• Location: A favorable or central location of the business premises increases customer walk-ins and value.

Question 2

[2 Marks]

Name two methods of valuation of goodwill.

• Average Profit Method
• Super Profit Method

Question 3

[2 Marks]

Name two methods of valuation of shares.

• Net Assets Method (Intrinsic Value Method)
• Yield Basis Method

Question 4

[2 Marks]

What do you mean by a contingent liability?

A contingent liability is a potential liability that may occur in the future depending on the outcome of an uncertain specific event (e.g., a pending lawsuit).

Question 5

[2 Marks]

Write a note on 'interim dividend'.

Interim dividend is the dividend declared and paid by the Board of Directors between two Annual General Meetings (AGMs), usually out of the profits of the current financial year before final accounts are closed.

Question 6

[2 Marks]

Point out any two differences between Capital Reserve and Reserve Capital.

Basis	Capital Reserve	Reserve Capital
Creation	Created out of capital profits.	Part of uncalled capital kept for winding up.
Requirement	Mandatory to maintain.	Not mandatory; requires a resolution.

Question 7

[2 Marks]

Name two types of amalgamation.

• Amalgamation in the nature of Merger.
• Amalgamation in the nature of Purchase.

Question 8

[2 Marks]

Which accounting standards deal with amalgamation?

Accounting Standard 14 (AS-14) deals with Accounting for Amalgamations.

Question 9

[2 Marks]

Name two methods of internal reconstruction.

• Alteration of Share Capital.
• Reduction of Share Capital.

Question 10

[2 Marks]

What are the modes of liquidation?

1. Compulsory Winding Up by the Tribunal.
2. Voluntary Winding Up (Members' or Creditors').

Question 11

[2 Marks]

Who are preferential creditors as per Section 327 of the Companies Act, 2013?

Preferential creditors are those unsecured creditors who are paid in priority over other unsecured creditors, such as government taxes, wages/salaries of employees, and provident fund dues.

Question 12

[2 Marks]

How would you calculate the minority interest for a holding company?

Minority Interest = (Face value of shares held by outsiders) + (Proportionate share in Capital Profits) + (Proportionate share in Revenue Profits).

Question 13

[2 Marks]

Point out any two significances of Corporate Governance Reports.

• Transparency: Ensures stakeholders are informed about the decision-making process.
• Accountability: Protects the interests of minority shareholders and ensures ethical management.

Question 14

[2 Marks]

What are the primary objectives of Corporate Reporting?

The primary objectives are to provide useful information to investors and creditors for decision making, and to report on the management's stewardship of resources.

Question 15

[2 Marks]

How does corporate reporting differ between Public and Private Companies?

Public companies have much stricter disclosure requirements, must publish reports for the general public, and adhere to SEBI norms, whereas private companies report primarily to their members and the Registrar of Companies (ROC).

SECTION-B: Descriptive Answer Type

Answer any five questions. (5 x 10 = 50 Marks)

Question 16

[10 Marks]

Mention the precautions to be taken while valuing goodwill. Discuss the various types of goodwill and methods of calculating goodwill. Support your answer with suitable examples.

Precautions in Valuation:

• Eliminate non-recurring or abnormal gains and losses from past profits.
• Ensure depreciation is provided correctly on current asset values.
• Consider future tax implications and changes in management.

Types of Goodwill:

• Purchased Goodwill: Arises when a business is bought for a price higher than its net assets. Recorded in books.
• Self-Generated Goodwill: Developed internally over time. Not recorded in books as per AS-26.

Methods of Calculation:

1. Average Profit Method: Goodwill = Average Profit x Number of years' purchase.
2. Super Profit Method: Goodwill = Super Profit x Number of years' purchase. (Where Super Profit = Actual Profit - Normal Profit).
3. Capitalization Method: Capitalizing average profit or super profit at the normal rate of return.

Question 17 (Numerical)

[10 Marks]

Find the value of shares by Net Assets Method (a) before issue of bonus shares; (b) after issue of bonus shares.

Working Notes:

• PPE (Revalued): 4,50,000 + 30,000 = 4,80,000
• Current Assets (Revalued): 30,000 - 2,000 = 28,000
• Total Assets = 4,80,000 + 28,000 = 5,08,000
• Current Liabilities = 1,80,000 (Calculated: Total Liab 4.8L - Share Cap 3L - Gen Res 50k - Surplus 10k + adjustment) -> *Correction based on balance sheet logic: Liabilities = Total Assets (4.8L) - Equity (3.6L) = 1,20,000.*
• Net Assets = 5,08,000 - 1,20,000 = 3,88,000.

(a) Before Bonus Issue:

Value per Share = Net Assets / Number of Shares = 3,88,000 / 30,000 = 12.93 per share.

(b) After Bonus Issue:

Bonus Ratio = 1:3. New shares = 10,000. Total shares = 40,000.

Value per Share = 3,88,000 / 40,000 = 9.70 per share.

Question 20

[10 Marks]

Define purchase consideration. Explain various methods to calculate it by taking suitable examples.

Definition: Purchase consideration is the price paid by the purchasing company to the vendor company for taking over its business.

Methods:

• Lump-sum Method: A fixed agreed amount (e.g., A Ltd buys B Ltd for 50,00,000).
• Net Assets Method: Sum of agreed values of assets taken over minus agreed values of liabilities taken.
• Net Payment Method: Total of all payments made to shareholders in cash, shares, or debentures.
• Intrinsic Value Method: Based on the ratio of the intrinsic value of shares of both companies.

Question 22

[10 Marks]

Narrate the term 'Parent Company'. Discuss the various steps/processes involved in preparing a 'Consolidated Balance Sheet'.

A Parent Company is a company that has control over one or more other companies (subsidiaries), usually by owning more than 50% of their voting power.

Steps for Consolidation:

1. Identify the date of acquisition and the holding ratio.
2. Calculate Capital Profits (pre-acquisition) and Revenue Profits (post-acquisition).
3. Determine Minority Interest.
4. Calculate Cost of Control (Goodwill) or Capital Reserve.
5. Eliminate inter-company balances (debtors/creditors).
6. Combine all assets and liabilities line-by-line.

Question 25

[10 Marks]

Point out any five essential features of value added reports. State in brief any five key components of Auditor's Report.

Value Added Reports Features:

• Shows wealth created by the entity.
• Demonstrates how wealth is distributed among stakeholders (employees, govt, shareholders).
• Easier for non-financial users to understand compared to P&L.
• Focuses on the contribution of the firm to the economy.
• Includes Gross Value Added and Net Value Added.

Auditor's Report Components:

1. Title (Independent Auditor's Report).
2. Addressee (Members of the Company).
3. Opinion Section (True and Fair view).
4. Basis for Opinion.
5. Management’s Responsibility for Financial Statements.