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Pinnacle Academy
Solutions of Tests of
April 2015 Batch
201-202, Florence Classic, Besides Unnati Vidhyalay,
Jain Derasar Road, Ashapuri Society, Akota, Vadodara-20. ph: 98258 561 55
Test of
Disclosure Accounting Standards
Conducted on 29th May 2015
(Solution is at the end with markings for self assessment)
Time Allowed-1 hour
Q1
(a)
Maximum Marks- 30
A company reported a PBT of Rs.4 lakhs for the third quarter ending 30.09.13. On
enquiry you observe the following:
i.
ii.
iii.
iv.
v.
vi.
Dividend income of Rs.4 lakhs received during the quarter has been
recognized to the extent of Rs.1 lakh only
80% of sales promotion expenses of Rs.15 lakhs incurred in the third quarter
has been deferred to the fourth quarter as the sales in the last quarter is high
In the third quarter, the company changed depreciation method from WDV to
SLM which resulted in excess depreciation of Rs.12 lakhs. Entire amount is
debited to 3rd quarter, though the share of the 3rd quarter is only Rs.3 lakhs
Rs.2 lakhs of extra-ordinary gain received in third quarter was allocated
equally to third and fourth quarter
Cumulative loss resulting from change in method of inventory valuation was
recognized in third quarter of Rs.3 lakhs. Out of this loss Rs.1 lakh relates to
previous quarters.
Sale of investments in the first quarter resulted in gain of Rs.20 lakhs. The
company had apportioned this equally to four quarters.
Applying AS 25, determine adjusted PBT for the third quarter.
(6 Marks)
(b)
Determine Basic and Diluted EPS as mandatorily demanded by AS 20 on the basis
of following information:
Profit before interest and tax
Equity Shares as on 01.04.13 (Face value Rs.10)
Extraordinary gain included in above profit
New issue of equity shares on 01.06.13 (ex-bonus)
Bonus shares on 01.06.13
Rs.19,05,000
2,10,000
1,15,000
1,20,000
1:1
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Convertible Debentures (Face value Rs.1,000) issued on 01.04.09
Coupon rate of Convertible Debentures
Debentures convertible into equity shares on 01.04.16
5 % Non cumulative preference shares (non convertible)
Preference dividend is in arrears since last 2 years
(not provided in books)
Current year preference dividend is also not provided in books
Tax rate
Rs.5,00,000
6%
10 : 1
Rs.4,00,000
30 %
What difference shall it make if the given company were SMC?
(10 Marks)
Q2
(a)
From following information for four business segments of November Ltd. identify
reportable segments as per AS 17. It does not have any geographical segments:
(Rs. in lakhs)
External Sales
Inter-segment Sales
External Expenses
Inter-segment Expenses
Segment Assets
Deferred Tax Asset included in above
Segment Liabilities
Corporate Assets
Corporate Liabilities
Non-allocable Income
Non-allocable Expenses
A
80
18
38
11
160
10
34
B
8
2
-1
100
5
30
C
9
-10
-33
4
20
Prepare Segment Report providing necessary reconciliations.
(b)
D
3
-2
-27
1
14
Total
100
20
50
12
320
20
98
56
26
14
11
(10 Marks)
Following is the Income statement for Omega Ltd. for the year ended 31st March
2012:
(Rs. in lakhs)
Turnover
Operating Expenses
EBIT
Interest
PBT
Tax provision at 30%
PAT
Food
Division
90
65
25
10
15
4.5
10.5
Beverage
Division
80
60
20
8
12
3.6
8.4
Clothing
Division
50
27
23
5
18
5.4
12.6
Clothing division is considered to be inconsistent with the long-term strategy of the
company. Hence, it was decided that the clothing division should be disposed off. On
15th November 2011, the Board approved a detailed formal plan for disposal of the
clothing division and made an announcement of it.
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The board declared that potential buyers for the clothing division shall be searched
out for and expected the disposal to be completed by 30th September 2012. It was
also decided to continue the division till it is disposed off. Prepare a statement
providing disclosures related to continuing and discontinuing operations as
demanded by AS 24.
(4 Marks)
(Assessed answer papers shall be returned latest by 19th June 2015)
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Solution of Test of Disclosure Accounting Standards
Conducted on 29th May 2015
Q1
(a)
Determination of Profit for 3rd quarter ended 30th September 2013 as per AS 25:
Profit as given
Dividend income of current quarter not recognized (4 – 1)
Sales promotion expenditure of current quarter wrongly
debited to fourth quarter (15 X 80%)
Additional depreciation due to change in method in current
quarter related to previous quarters (12 – 3)
Extra-ordinary gain of current quarter wrongly allocated to
fourth quarter (2 X 50%)
Cumulative loss of inventory valuation method related to
previous quarters
Gain on sale of investments in first quarter wrongly allocated
to third quarter (20 / 4)
Adjusted PBT as per AS 25
Amount
(Rs. in lakhs)
4.00
3.00
(12.00)
9.00
1.00
1.00
(5.00)
1.00
(1 Mark for each correct adjustment i.e. 6 Marks in total)
(a)
Calculation of Profit to Equity Shareholders:
PBIT as given
Less: Interest (5,00,000 X 6%)
PBT
Less: Tax @ 30%
PAT / Profit to equity shareholders
Amount
(Rs.)
19,05,000
30,000
18,75,000
5,62,500
13,12,500
Notes:
i.
Profit to equity shareholders is inclusive of extraordinary gain
ii.
Preference dividend for non-cumulative preference shares is deducted only if
provided in books; otherwise ignored
(2 Marks)
Calculation of Weighted Average Number of Equity Shares (WANES) for the
year ended 31st March 2014:
Date
01.04.13
01.06.13
Particulars
At the beginning
Bonus shares*
Issued for cash
No. of
shares
2,10,000
2,15,000
1,20,000
Time
Weight
12 / 12
12 / 12
10 / 12
Weighted
Product
2,10,000
2,15,000
1,00,000
5,25,000
(2 Marks)
Solution prepared by
CA. Ashish Lalaji
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* Determination of Bonus shares issued:
Bonus ratio is 1:1 and bonus shares are issued on equity shares outstanding as on
01.04.13 i.e. 2,10,000 shares. Hence, bonus shares issued is 2,10,000. Further, a
company having convertible debentures shall have to issue bonus shares, through
reservation of shares, also on the convertible portion of such debentures.
500 debentures X 10 i.e. 5,000 equity shares X 1/1 = 5,000 bonus.
Thus, total bonus shares issued is 2,15,000 on 01.06.13. However, for the purpose
of WANES it shall be presumed as if the bonus shares were issued from the
beginning of the earliest reporting period.
(1 Mark)
Computation of Basic EPS for the year ended 31st March 2014:
Basic EPS = 13,12,500 / 5,25,000 = Rs.2.50
(1 Mark)
Computation of Diluted EPS for the year ended 31st March 2014:
On conversion of debentures, additional 5,000 (500 X 10) equity shares shall be
issued. There shall be savings of interest of Rs.30,000, which net of tax savings
shall increase the profit by Rs.21,000.
Diluted EPS = 13,12,500 + 21,000 / 5,25,000 + 5,000 = Rs.2.52
The EPS is increasing i.e. Convertible Debentures are anti-dilutive and hence
ignored. In other words, the given company does not have any diluted EPS.
(3 Marks)
If the given company were SMC:
SMC shall disclose only basic EPS. Diluted EPS shall not be determined.
(1 Mark)
Q2
(a)
Identification of Reportable Segments:
Criteria 1: Segment revenue is at least 10 % or more than segment revenue of all
the segments. Segment revenue shall comprise of external sales as well as intersegment sales.
A
B
C
D
Total
External Sales
80
8
9
3
100
Inter-segment Sales
18
2
--20
Segment Revenue
98
10
9
3
120
(1 Mark)
Segments having total sales of Rs.12 lakhs or more reportable i.e. A.
Criteria 2: Segment result is at least 10 % or more of the higher of the combined
result of all segments either in profit or in loss.
(A)
A
98
B
10
C
9
D
3
Total
120
External Expenses
Inter-segment Expenses
Segment Expenses (B)
38
11
49
-1
1
10
-10
2
-2
50
12
62
Segment Result
49
9
(1)
1
58
Segment Revenue
(A) – (B)
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Combined result of all segments in profit is Rs.59 lakhs and in loss is Rs.1 lakh.
Thus, segments having profit or loss of Rs.5.9 lakhs or more are reportable i.e. A
and B.
(2 Marks)
Criteria 3: Segment assets are at least 10 % or more than segment assets of all the
segments. Segment assets do not include deferred tax asset (DTA)
Segment Assets as given
DTA excluded
Segment Assets (actual)
A
160
10
150
B
100
5
95
C
33
4
29
D
27
1
26
Total
320
20
300
Segments having assets of Rs.30 lakhs or more are reportable i.e. segments A and
B.
(2 Marks)
Also, at least 75 % of total external sales should belong to segments for which
separate disclosures shall be provided. Segments A and B cover 88 % of such
external sales.
(1 Mark)
Thus, separate disclosures shall be provided for A and B and aggregate disclosures
shall be provided for C and D as “other segments”.
Segment Report as per AS 17:
(Rs. in lakhs)
InterTotal
Segment
Elimination
--100
(20)
--(20)
100
A
B
Other
Segments
External Sales
Inter-segment Sales
Segment Revenue (A)
80
18
98
8
2
10
12
-12
External Expenses
Inter-segment Expenses
Segment Expenses (B)
38
11
49
-1
1
12
-12
--(12)
(12)
50
--50
Segment Result (A) – (B)
Non-allocable Income
Non-allocable Expenses
PBT
49
9
---
(8)
50
14
(11)
53
Segment Assets
Deferred Tax Asset
Corporate Assets
Total Assets
150
95
55
---
300
20
56
376
Segment Liabilities
Corporate Liabilities
Total Liabilities
34
30
34
---
98
26
124
Solution prepared by
CA. Ashish Lalaji
(4 Marks)
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(b)
In the books of Omega Ltd.
Disclosure related to Discontinuing Operations for the year ended 31st March
2012:
(Rs. in lakhs)
Turnover
Operating Expenses
EBIT
Interest
PBT
Tax provision at 30%
PAT
Continuing
Operations
170
125
45
18
27
8.1
18.9
Discontinuing
Operations
50
27
23
5
18
5.4
12.6
Total
220
152
68
23
45
13.5
31.5
Clothing division, representing a distinguishable component of the enterprise, and
representing a major line of business is considered to be inconsistent with the longterm strategy of the company. Hence, it was decided that the clothing division should
be disposed off. On 15th November 2011, the Board approved a detailed formal plan
for disposal of the clothing division and made an announcement of it.
The disposal is expected to be completed by 30th September 2012.
(2 Marks for quantitative disclosure; 2 marks for descriptive disclosure)
Solution prepared by
CA. Ashish Lalaji
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