Financial Accounting : For University of Mumbai

775 Pages·2010·4.538 MB·English

by  Minaxi A. Rachchh, Siddheshwar Gadade,  Eknath A. Patil,  Gunvantrai A. Rachchh,

FINANCIAL ACCOUNTING
AND AUDITING
PA P E R – I I I
( F I N A N C I A L A C C O U N T I N G )
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FINANCIAL

ACCOUNTING
AND AUDITING
Paper – III
(Financial Accounting)
T.Y.B.Com.
With eff ect from 2009–2010
(University of Mumbai )
CA Minaxi A. Rachchh
M.Com., M.Phil., F.C.A.
ICLES’ Motilal Jhunjhunwala College of Arts, Science and Commerce, Mumbai
Principal Dr Siddheshwar C A Eknath A. Patil
Gadade B.Com., F.C.A.
M.Com., L.L.B. (General), M.Phil., Ph.D. Ex-Chairman, Board of Study,
Dean, Faculty of Commerce, University of Mumbai
University of Mumbai ICLES’ Motilal Jhunjhunwala College of
Changu Kana Thakur Arts, Commerce Arts, Science and Commerce, Mumbai
and Science College, Mumbai
CA Gunvantrai A. Rachchh
M.Com., F.C.A.
Smt. P. N. Doshi Women’s College, Mumbai
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Assistant Acquisitions Editor: Anshul Yadav
Associate Production Editor: Ruchi Sachdev
Composition: Pen2Print Media Solutions

Copyright © 2010 Dorling Kindersley (India) Pvt. Ltd.

This book is sold subject to the condition that it shall not, by way of trade or otherwise,
be lent, resold, hired out, or otherwise circulated without the publisher’s prior written
consent in any form of binding or cover other than that in which it is published and
without a similar condition including this condition being imposed on the subsequent
purchaser and without limiting the rights under copyright reserved above, no part of this
publication may be reproduced, stored in or introduced into a retrieval system, or
transmitted in any form or by any means (electronic, mechanical, photocopying,
recording or otherwise), without the prior written permission of both the copyright owner
and the publisher of this book.

Published by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in
South Asia.

ISBN: 978-81-317-3176-5

10 9 8 7 6 5 4 3 2 1

Head Office: 7th Floor, Knowledge Boulevard, A-8(A), Sector-62, Noida-201309, India
Registered Office: 11 Community Centre, Panchsheel Park, New Delhi 110 017, India
CONTENTS
Preface ix
Syllabus w.e.f. 2009–2010 xi
Pattern of Question Paper xiii
Section I
1 Shares 3
1.1 Meaning 3
1.2 Classes of Shares 3
1.3 Share Capital 4
1.4 Mode of Issue 5
1.5 Pricing of Issues 7
1.6 Accounting Treatment Relating to Issue of Shares 7
1.7 Forfeiture of Shares 12
1.8 Re-issue of Forfeited Shares 12
1.9 Illustrations 13
2 Redemption of Preference Shares 95
2.1 Meaning 95
2.2 Company Provisions 95
2.3 Methods of Redemption 95
2.4 Accounting Treatment 96
2.5 Illustrations 98
3 Buyback of Shares 127
3.1 Meaning 127
3.2 Purpose of Buyback of Shares 127
3.3 Benefi ts of Buyback 127
3.4 Company Law Provisions for Buyback of Equity Shares 128
3.5 Source of Buyback 128
3.6 Methods of Buyback 129
3.7 Accounting Treatment 129
3.8 Illustrations 130
4 Issue of Debentures 167
4.1 Nature and Meaning of Debentures 167
4.2 Types of Debentures 168
4.3 Diff erences and Similarities Between Shares and Debentures 169
4.4 Issue of Debentures 170
4.5 Provision for Redemption of Debentures 175
4.6 Disclosure Requirements 175
4.7 Illustrations 175
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vi CONTENTS
5 Redemption of Debentures 199
5.1 Meaning of Redemption 199
5.2 Methods of Redemption 199
5.3 Purchase of Own Debentures 202
5.4 Illustrations 203
6 Ascertainment and Treatment of Profi t Prior to Incorporation 263
6.1 Meaning 263
6.2 Calculation of Profi t or Loss 263
6.3 Accounting Treatment 264
6.4 Illustrations 264
7 Preparation of Final Accounts of Companies 295
7.1 Meaning of Financial Statements 295
7.2 Objectives of Financial Statements 296
7.3 Financial Statement—Requirements and Contents 296
7.4 Requirements of Profi t and Loss Account and Balance Sheet 299
7.5 Some Particulars Items of Adjustments 305
7.6 Illustrations 305
8 Amalgamation of Companies (AS 14) 363
8.1 Meaning 363
8.2 Accounting Standard 14 Issued by Institute of Chartered Accountants of India 363
8.3 Types of Amalgamation 364
8.4 Purchase Consideration 364
8.5 Methods of Computing Purchase Consideration 364
8.6 Accounting Procedure in the Books of Transferor Company and Transferee Company 365
8.7 Illustrations 368
9 Capital Reduction and Internal Reconstruction 441
9.1 Need for Reconstruction 441
9.2 Reconstruction of a Company 441
9.3 Procedure for Internal Reconstruction 443
9.4 Pro Forma of Capital Reduction Account and Balance Sheet Aft er Reconstruction 447
9.5 Diff erence Between External Reconstruction and Internal Reconstruction 447
9.6 Illustrations 448
10 Investment Accounting 489
10.1 Meaning and Defi nition of Investment 489
10.2 Purpose of Making Investment 489
10.3 Classifi cation of Investments 490
10.4 AS 13 490
10.5 Accounting Treatment 494
10.6 Disclosure under AS 13 497
10.7 Illustrations 498
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CONTENTS vii
11 Accounting for Translation of Foreign Currency Transactions (AS 11) 543
11.1 Introduction 543
11.2 Accounting Standard No. 11 (Revised) Issued by the Institute of Chartered Accountants of
India 543
11.3 Foreign Currency Transactions 544
11.4 Illustrations 545
Section II University Questions with Solutions (2003 to 2008)
1 Redemption of Preference Shares 569
2 Buyback of Shares 589
3 Redemption of Debentures 597
4 Profi t Prior to Incorporation 603
5 Preparation of Final Accounts of Companies 627
6 Amalgamation of Companies (AS 14) 673
7 Capital Reduction and Internal Reconstruction 703
8 Investment Accounting 731
9 Accounting for Translation of Foreign Currency Transactions (AS 11) 743
10 Theory Questions 759
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Preface
We are delighted to place this book Financial Accounting and Auditing for “Financial Accounting Paper-
III” for the students of T.Y.B.Com. of the University of Mumbai. Th is book provides comprehensive cov-
erage of the syllabus of the University of Mumbai. It covers the topics in the syllabus in simple and lucid
style. It deals with theory and applications of concepts. A variety of problems on each topic have also been
included. Th e special feature of this book is that in each topic the practical illustrations are divided into
diff erent types to understand the topic easily.
Th is book has been specially designed to help students and readers to understand and acquaint
the practical application of each topic. It has two sections, Section I covers the explanation and
problems on each topic and Section II covers the past university problems with solutions on each topic
separately. Th is book adopts the approach/s for solving the problems as mentioned in the syllabus.
A large number of problems have been solved keeping in view the diffi culties encountered by the students
in understanding the subject. Th e problems have been framed to suit the requirements of the examinations.
Th e subject and the level of knowledge expected of the students has been kept in mind while framing the
problems. Our experience in practical and academic fi eld help to give our best to students. Exercises at the
end of each chapter have been provided: which would help the students to develop suffi cient confi dence in
facing the examinations. It is hoped that the students preparing for the examination would fi nd it useful
and immensely benefi cial. Th e teachers would also fi nd it useful as a reference book.
We express our gratitude to Raza Khan, Anshul Yadav, Praveen Tiwari and the whole team of Pearson
for encouragement and bringing out the fi rst edition of this book.
Suggestions for the improvement of this book are most welcome at [email protected].
AUTHORS
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