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Pinnacle Academy
Mock Tests for
November 2015 C A Final Examination
201-202, Florence Classic, Besides Unnati Vidhyalay,
10, Ashapuri Society, Jain Derasar Rd., Akota, Vadodara-20. ph: 98258 561 55
FR Mock Test 2
Time Allowed-2.5 hours
Maximum Marks- 80
Q 1 is compulsory.
Answer any 4 from the remaining.
Q1
(a)
Closing inventory at cost of a company amounted to Rs.9,56,700. Following items
were included at cost in the total:
(i)
350 shirts, which had cost of Rs.380 each and normally sold for Rs.750 each.
Owing to a defect in manufacture, they were all sold after the balance sheet
date at 50% of their normal price. Selling expenses amounted to 5% of the
proceeds.
(ii)
700 trousers, which had cost of Rs.520 each. These were too found to be
defective. Selling expenses for the batch totaled Rs.3,800. They were sold for
Rs.950 each.
What would be the closing inventory value (to nearest rupee) after considering the
above items?
(4 Marks)
(b)
To comply with listing requirements and other statutory obligations Quaker Ltd.
prepares interim financial reports at the end of each quarter. The company has
brought forward losses of Rs.700 lakhs under Income Tax Law of which 90% is
eligible for set off as per recent verdict of the Court that has attained finality.
No DTA has been recognized in view of uncertainty over its eligibility for set off.
The company has reported quarterly profits of Rs.700 lakhs and Rs.300 lakhs
respectively for the first two quarters of financial year 2013 – 14 and anticipates a
net profit of Rs.800 lakhs in the coming half year ended March 2014 of which Rs.100
lakhs shall be loss in the quarter ended December 2013.
Tax rate for the company is 30% with 10% surcharge.
Calculate amount of tax expense to be reported for each quarter of the financial year
2013 – 14.
(4 Marks)
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(c)
Speedy Construction Ltd. has recognized contract revenue on a contract awarded in
the financial year 2012 – 13. The target period of completion is 5 years. The contract
provides for incentives for early completion at the rate of Rs.1,000 per day subject to
a maximum of Rs.3 lakhs. The company has included this amount in contract
revenue on the ground that based on previous experience in similar contracts, it is
confident of completing the contract in 4 years. The company’s past track record
shows that the company is able to complete contracts well in time and earn
incentives. Comment on the company’s accounting policy for recognition of such
incentives.
(4 Marks)
(d)
Faulad Iron and Steel Ltd. is establishing an integrated steel plant consisting of four
phases. It is expected that the full plant will be established over several years but
phase I and phase II of Plant will be started as soon as they are completed.
Following is the detail of work done on different phases of the plant during the
current year:
Phase I
Phase II
Phase III
Phase IV
Cash Expenditure
20,00,000 35,00,000 25,00,000
40,00,000
Plants Purchased
28,00,000 40,00,000 30,00,000
48,00,000
Total Expenditure
48,00,000 75,00,000 55,00,000
88,00,000
Total Expenditure of all phases
2,66,00,000
Loan taken @ 16%
2,40,00,000
During current year, phase I and phase II have become operational. Find out the
total amount of interest to be capitalized and to be expensed during the year.
(4 Marks)
(e)
A company acquired for its internal use a software on 28.01.2012 from USA for
USD 1,00,000. Exchange rate of that date was Rs.52 per $. The seller allowed trade
discount of 5%. Other expenditures were:
Import duty:
20%
Purchase tax:
10%
Entry tax:
5% (Recoverable later from tax department)
Installation expenses:
Rs.25,000
Professional fees for clearance from customs:
Rs.20,000
Compute cost of software to be capitalized.
(4 Marks)
Q2
(a)
A Ltd. is the sole manufacturer of product X. A particular machine is exclusively used
for production of product X. The company had near monopoly of the product. A
competitor has recently come out with a cheaper substitute of product X. The
company is anticipating fall in demand for its product and cash flow from the
machine used in production of X is also expected to fall.
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As per the latest budget estimates, taking entry of the competitor in consideration,
the operating pre-tax cash flows from the machine expected over next five years are
(in ‘000s of rupees) 900, 800, 600, 550 and 500 respectively.
Expected life of the machine is 10 years. Declining growth rates for future cash flows
are estimated from year 6 onwards at 10%, 20%, 30%, 40% and 60% respectively.
The disposal value (net of expected cost of disposal) realisable at the end of 10th
year is Rs.100 thousands.
Machine can be disposed off immediately for Rs.2,500 thousands subject to
payment of brokerage of 2% on disposal value. Carrying amount of the machine on
current date is Rs.3,500 thousands.
(b)
Appropriate discount rate is 10%. Determine impairment loss, if any and give journal
entries in books of A Ltd.
(9 Marks)
Following transactions were reported during the year 2012 – 13:
(i)
Interest of Rs.10 lakhs not paid in cash in the year 2011 – 12. Out of that
Rs.10 lakhs, interest of Rs.4 lakhs was paid in the current year.
Bonus of Rs.12 lakhs debited in Profit and Loss on accrual basis for current
year. Bonus of Rs.9 lakhs only paid in cash.
A pollution control device of Rs.100 lakhs was purchased in 2010 – 11. 100%
deduction was claimed in that year. In accounts the said asset is been
depreciated following SLM over 4 years.
An asset is disposed off in the current year resulting into loss of Rs.30 lakhs
for tax. For accounts the loss is only Rs.5 lakhs as in previous year
impairment loss of Rs.25 lakhs was already recognized.
Loss of Rs.12 lakhs in current year under the head of capital gains. The firm
is reasonably certain about availability of taxable capital gains the next year.
(ii)
(iii)
(iv)
(v)
Decide whether the above items result into recognition of DTL / DTA or reversal of
earlier recognized DTL / DTA. Consider tax rate to be 30%.
(6 Marks)
Q3
(a)
During the financial year 2011 – 12, Smart Ltd. had following transactions:

On 1st April 2011, Smart Ltd. purchased running business of Ok Ltd. for
Rs.7,00,000. Fair value of net assets of Ok Ltd. was Rs.3,44,000. Smart Ltd.
is of the view that due to popularity of products of Ok Ltd., the life of resulting
goodwill is unlimited.

On May 2011, Smart Ltd. purchased a franchise to operate boating service
from the State Government for Rs.1,20,000 at an annual fee of 1% of boating
revenues. Franchise is for 5 years. Boating revenues were Rs.40,000 during
financial year 2011 – 12. Smart Ltd. projects future revenue of Rs.80,000 in
2012 – 13 and Rs.1,20,000 p.a. for 3 years thereafter.
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
On 5th July 2011, Smart Ltd. was granted a patent. During 2011 – 12, Smart
Ltd. incurred legal costs of Rs.1,02,000 to register the patent and additional
Rs.1,70,000 to successfully prosecute a patent infringement suit against a
competitor. Smart Ltd. expects the patent’s economic life to be of 10 years.
The accounting policy of Smart Ltd. is to amortize all intangible assets
(including goodwill) on SLM basis over the maximum period permitted by
accounting standard taking a full year amortization in the year of acquisition.
Prepare:
(i)
A schedule showing intangible section in Smart Ltd. balance sheet at 31st
March 2012
(ii)
(b)
A schedule showing the related expenses that would appear in the Statement
of Profit and Loss of Smart Ltd. for 2011 – 12
(10 Marks)
Annual Lease Rent = Rs.40,000 at end of each year
Lease Period = 5 years
Guaranteed Residual Value = Rs.14,000
Fair value at the inception of lease = Rs.1,50,000
Interest rate implicit in lease = 12.6%
PVF at 12.6%:
1 – 0.89;
2 – 0.79;
3 – 0.7;
4 – 0.622;
5 – 0.552
Show the journal entry to record the asset taken on finance lease in the books of
lessee.
(5 Marks)
Q4
Draft consolidated balance sheet of Helpful Ltd. group as on 31st March 2012 is
given below:
(Rs. in ‘000s)
Liabilities
Share Capital
Capital Reserve
Profit and Loss Account
Minority Interest
Non-Current Liabilities
Current Liabilities
Amount
(Rs.)
1,200
30
875
450
900
600
4,055
Assets
Fixed Assets
Investment in Need Ltd.
Investment in Desire Ltd.
Current Assets
Amount
(Rs.)
3,000
180
375
500
4,055
Helpful Ltd. acquired 25% stake in Need Ltd. for Rs.1.8 lakh and 40% stake in joint
venture Desire Ltd. for Rs.3.75 lakh on 01.01.2011. Profit and loss account balances
of Need Ltd. and Desire Ltd. on that date were Rs.2 lakh and Rs.3 lakh respectively.
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Summarised balance sheet of Need Ltd. and Desire Ltd. as on 31st December 2011
are given below:
(Rs. in ‘000s)
Liabilities
Need Desire Assets
(Rs.)
(Rs.)
Share Capital
Profit and Loss Account
Non-Current Liabilities
Current Liabilities
500
300
100
100
1,000
Need Desire
(Rs.)
(Rs.)
600 Fixed Assets
600
400 Current Assets
400
150
350
1,500
1,000
800
700
1,500
Earnings of Need Ltd. for the first quarter of 2012 was Rs.32,000. There were no
changes in long term assets and liabilities. Current assets and liabilities increased
during the period by Rs.27,000 and Rs.18,000 respectively. In the first quarter of
2012, Desire Ltd. redeemed debentures of Rs.1 lakh at par (standing in the books as
non-current liability) and earned Rs.40,000.
Current assets and liabilities increased during the period by Rs.38,000 and
Rs.25,000 respectively.
Prepare consolidated balance sheet of Helpful Ltd. group adjusting its investments in
associate and joint venture.
(15 Marks)
Q5
A company announced a share based payment plan for its employees on 01.04.10
subject to a vesting period of 3 years. By the plan, the employees can (i) either claim
difference between exercise price Rs.144 per share and market price of those
shares on vesting date in respect of 5,000 shares or (ii) can subscribe to 6,000
shares at exercise price of Rs.144 per share subject to lock in period of 3 years.
On 01.04.10 fair value of the option, considering restrictions on transfers was Rs.60
and that without considering restrictions on transfer is higher by 20%. The fair value
estimates without considering restrictions on transfer was Rs.27. The fair value
without considering transfer restrictions increases by 6%, 10% and 15% respectively
at the end of 2010 – 11, 2011 – 12 and 2012 – 13. Nominal value per share is Rs.10.
Compute amount of expense to be recognized each year.
Prepare Employees’ Compensation A/c, Provision for Liability Component A/c and
ESOP Outstanding A/c if employees opt for –
(i) Cash Settlement
(ii) Equity Settlement
Be free to send your suggestions / comments to
(15 Marks)
CA. Ashish Lalaji at 9825856155 /
ashishlalaji@rediffmail.com
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Q6
Following are the balance sheets of H Ltd. and S Ltd. as on 31st March 2012:
(Rs. in lakhs)
H Ltd.
S Ltd.
Equity Share Capital (Rs.10 each)
General Reserve
Profit and Loss Account
Non-current Liabilities
Current Liabilities
Total
50
50
20
20
30
170
10
20
15
3
2
50
Tangible Fixed Assets
Investment in S Ltd. (60,000 shares)
Current Assets
Total
60
6
104
170
18
-32
50
H Ltd. holds 60% of the paid up capital of S Ltd. and the balance is held by a foreign
collaborating company. The foreign company agreed as under:
(i)
(ii)
(iii)
The shares held by foreign company will be sold to H Ltd. at Rs.50 above
than nominal value per share
The actual cost per share to the foreign company is Rs.11, gain accruing to
foreign company is taxable @ 20%. The tax payable will be deducted from
sale proceeds and paid immediately to government by H Ltd. 50% of the
consideration (after TDS) shall be remitted to foreign company by H Ltd. and
also any cash for fractional shares allotted.
For the balance of consideration H Ltd. would issue its shares at its intrinsic
value
It was also decided that H Ltd. would simultaneously absorb S Ltd. by writing down
the tangible fixed assets of S Ltd. by 10%. The balance sheet figure of current
assets included a sum of Rs.1 lakh due by S Ltd. to H Ltd.
Prepare balance sheet of H Ltd. after absorption of S Ltd.
(15 Marks)
Be free to send your suggestions / comments to
CA. Ashish Lalaji at 9825856155 /
ashishlalaji@rediffmail.com
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Solution of
FR Mock Test 2
Conducted on 11th September 2015
Q1
(a)
Valuation of Shirts as per AS 2:
Amount
(Rs.)
380
Cost per shirt
NRV per shirt:
Selling Price of a shirt (750 X 50%)
Less: Selling expense (375 X 5%)
NRV of a shirt
375.00
18.75
356.25
As per AS 2, inventories are valued at cost or NRV, whichever is lower.
Difference of cost and NRV
356.25
23.75
Thus, value of inventory of shirts is reduced by 350 X 23.75 i.e. Rs.8,313
(1½ Marks)
Valuation of Trousers as per AS 2:
Amount
(Rs.)
520
Cost per trouser
NRV per trouser:
Selling Price of a trouser
Less: Selling expense (3,800 / 700)
NRV of a trouser
950.00
5.43
944.57
As per AS 2, inventories are valued at cost or NRV, whichever is lower.
Difference of cost and NRV
520
Nil
Thus, value of inventory of trousers shall be continued to be reported
at cost.
(1½ Marks)
Calculation of value of closing inventory:
Value of closing inventory (given)
Less: Adjustment to bring inventory of shirts to its NRV
Revised value of closing inventory as per AS 2
Amount
(Rs.)
9,56,700
8,313
9,48,387
(1 Mark)
Solution prepared by
CA. Ashish Lalaji
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(b)
Total profit expected in half year ended 31st March 14 (i.e. quarter III and IV) is
Rs.800 lakhs, off which loss in quarter III ended 31st December 13 is Rs.100 lakhs.
Thus, profit expected in quarter IV is Rs.900 lakhs.
Computation of Taxable Income & Current Tax:
Particulars
Amount
(Rs. in lakhs)
Annual Accounting PBT [700 + 300 – 100 + 900]
Taxation Loss set off [700 X 90%]
Taxable Income
X Tax Rate
Current Tax
1,800
630
1,170
33 %
386.10
No timing differences are provided and hence there shall be no impact of deferred
taxes. Annualised weighted average tax rate is 386.1 / 1,800 i.e. 21.45%
(2 Marks)
Computation of Tax Expense recognized each quarter:
Quarter Accounting Annualized Tax Expense
PBT
Tax Rate
(Current Tax)
I
II
III
IV
700
300
(100)
900
21.45 %
21.45 %
21.45 %
21.45 %
150.15
64.35
(21.45)
193.05
386.10
(2 Marks)
(c)
As per AS 7 “Construction Contracts”, incentive payments are included in contract
revenue only when –
o
The contract is sufficiently advanced and it is probable that the specified
performance standards will be met or exceeded and
o
The amount of the incentive payment can be measured reliably
(2 Marks)
In the given case, contract is not sufficiently advanced as it is in the first year of
construction and the normal time for construction is four to five years.
Further, past track record is not the criteria for recognition of incentive payments
receivable for early completion of the contract.
Since recognition criterias are not met, it is inappropriate to recognize incentive
payments in the current year as part of contract revenue. The accounting policy to
recognize incentive payments in the first year of construction is not in accordance to
AS 7.
(2 Marks)
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(d)
Total capital expenditure is Rs.2,66,00,000, while the loan taken is Rs.2,40,00,000
only. It appears that the balance amount of Rs.26,00,000 would have been spent by
the company from its own resources on which no interest would have been payable.
Interest payable on loan of Rs.2,40,00,000 @ 16% is Rs.38,40,000.
As phase I and phase II have become operational during the year, interest in
proportion to their cost should be treated as expense of the year and interest in
respect of phase III and phase IV should be capitalized.
(1 Mark)
Total cost of phase I and II (48,00,000 + 75,00,000)
Total cost of phase III and IV (55,00,000 + 88,00,000)
Total cost
Amount
(Rs.)
1,23,00,000
1,43,00,000
2,66,00,000
Total loan
2,40,00,000
Proportionate loan used for phase I and II
[(2,40,00,000 X 1,23,00,000) / 2,66,00,000]
Proportionate loan used for phase III and IV
[(2,40,00,000 X 1,43,00,000) / 2,66,00,000]
1,10,97,744
Interest on loan used for phase I and II @ 16%
Interest on loan used for phase III and IV @ 16%
Total Interest
1,29,02,256
17,75,639
20,64,361
38,40,000
Interest of Rs.17,75,639 shall be expensed off and interest of Rs.20,64,361 shall be
capitalized to the cost of phases III and IV.
(3 Marks)
(e)
Determination of Cost of Software (Intangible Asset) as per AS 26:
Purchase cost of software
Less: Trade Discount @ 5 %
$ 1,00,000
$ 5,000
$ 95,000
(Rs.)
Cost in INR ($95,000 X 52)
Add: Import duty @ 20%
Add: Purchase Tax @ 10%
Installation expenses
Professional fee for clearance from customs
Cost of software to be capitalized
49,40,000
9,88,000
59,28,000
5,92,800
25,000
20,000
65,65,800
Entry tax is mentioned to be as recoverable / refundable tax and hence not
considered as part of cost of the asset.
(4 Marks)
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Q2
(a)
Determination of Value-in-use:
(Rs. in ‘000s)
Year Growth Operating Disposal
Rate
CFBT
Value
1
2
3
4
5
6
7
8
9
10
- 10%
- 20%
- 30%
- 40%
- 60%
900.00
800.00
600.00
550.00
500.00
450.00
360.00
252.00
151.20
60.48
Total
PVF
CFBT (10%)
900.00
800.00
600.00
550.00
500.00
450.00
360.00
252.00
151.20
100 160.48
.909
.826
.751
.683
.621
.564
.513
.467
.424
.386
PV
818.10
660.80
450.60
375.65
310.50
253.80
184.68
117.68
64.11
61.95
3,297.87
(4 Marks)
Determination of Net Selling Price:
Net Selling Price = 2,500 – 2% = Rs.2,450 thousands
(1 Mark)
Determination of Recoverable Amount:
Recoverable amount is higher of net selling price and value in use i.e. 3,297.87
thousands
(1 Mark)
Determination of Impairment Loss:
As per AS 28 “Impairment of Assets”, impairment loss is the excess of carrying
amount over recoverable amount.
Impairment Loss = 3,500 – 3,297.87 = Rs.202.13 thousands
(1 Mark)
Journal Entries:
Rs. in thousands
Impairment Loss A/c
To Machine A/c
(being impairment loss provided for)
Dr.
Profit and Loss A/c
To Impairment Loss A/c
(being impairment loss recognized as an expense)
Dr.
202.13
202.13
202.13
202.13
(2 Marks)
Solution prepared by
CA. Ashish Lalaji
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(b)
Statement showing determination of Deferred Taxes:
(Rs. in lakhs)
Source of
Difference
Nature Impact
Interest
Timing
Bonus
Timing
Depreciation Timing
Impairment
Loss
Timing
Capital
Loss
Timing
DTL
Interest of Rs.10 lakhs was not paid in cash in
2011 – 12. Hence, in 2011 – 12 DTA must
have been recognized, which is now reversing.
(4 X 30%)
For that portion of bonus not paid in cash, DTA
shall be recognized.
(3 X 30%)
DTA
----- (1.20)
-----
0.90
In the year 2010 – 11 when full cost was
claimed as deduction, DTL must have been (7.50)
recognized, which is now reversing.
(100 / 4 i.e. 25 X 30%)
In previous year, DTA must have been
recognized on impairment loss, which is now
reversing. (25 X 30%)
DTA is recognized as the firm is reasonably
certain about availability of taxable capital
gains next year.
(12 X 30%)
-----
----- (7.50)
-----
3.60
DTA is recognized on bonus assuming that the firm is reasonably certain that there
shall be sufficient taxable income in future against which such DTA shall be realised.
(5 Marks for each item &
1 mark for DTA assumption)
Q3
(a)
Determination of Goodwill:
Purchase Consideration
Less: Net Assets Taken over
Goodwill
Amount
(Rs.)
7,00,000
3,44,000
3,56,000
Amortization charge for 2011 – 12 shall be Rs.35,600.
(2 Marks)
Amortization charge for franchise shall be Rs.24,000 (1,20,000 / 5)
(1 Mark)
Solution prepared by
CA. Ashish Lalaji
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Determination of Cost of Patent:
Registration Cost
Add: Legal costs
Cost of Patent
Amount
(Rs.)
1,02,000
1,70,000
2,72,000
Amortization charge for 2011 – 12 shall be Rs.27,200.
(2 Marks)
Extract of Balance Sheet of Smart Ltd. as on 31st March 2012
II. Assets:
1. Non Current Assets
Fixed Assets
- Tangible
- Intangible
Note No.
Amount
1
6,61,200
Amount
(1 Mark)
Extract of Statement of Profit and Loss of Smart Ltd. for the year ended 31st
March 2012
I.
II.
Revenue from Operations
Expenses
- Amortization
- Other expenses
Note No. Amount Amount
40,000
2
3
86,800
400
(1 Mark)
Notes to accounts (extract)
Note
No.
1
2
3
Amount
(Rs.)
Intangible Assets
Goodwill (3,56,000 – 35,600)
3,20,400
Franchise (1,20,000 – 24,000)
96,000
Patent (2,72,000 – 27,200)
2,44,800
Amortization Expense
Goodwill
Franchise
Patent
Other Expenses
Franchise (40,000 X 1%)
Amount
(Rs.)
6,61,200
86,800
35,600
24,000
27,200
400
(3 Marks)
Solution prepared by
CA. Ashish Lalaji
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(b)
Finance lease is recorded in the books of lessee as an asset as well as liability at
lower of –
(i) Fair value of asset leased i.e. Rs.1,50,000; or
(ii) PV of Minimum Lease Payment (MLP) determined as under:
Year
Lease
PVF
PV
Payment (12.6%)
1–5
40,000
3.554 1,42,160
5
14,000
0.552
7,728
1,49,888
(3 Marks)
Journal Entry:
Asset on Lease A/c
To Lessee A/c
(being recognition of finance lease as asset and
liability)
Dr. 1,49,888
1,49,888
(2 Marks)
Q4
Working Notes:
(1) Calculation of Change in Cash and Bank Balance from 01.01.12 to 31.03.12:
(Rs. in ‘000s)
Need Desire
(Rs.)
(Rs.)
Profit earned from 01.01.12 to 31.03.12
* Increase in current assets
* Increase in current liabilities
* Redemption of debentures
32
(27)
18
---23
40
(38)
25
(100)
(73)
(2) Calculation of Profits earned from 01.01.11 to 31.03.12:
Need Desire
(Rs.)
(Rs.)
P & L A/c as on 31.03.12
Less: P & L A/c on 01.01.11
332
200
132
440
300
140
(1 Mark)
Solution prepared by
CA. Ashish Lalaji
(3) Analysis of Profits:
(a) Need Ltd.:
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Capital Revenue
Profits
Profits
(Rs.)
(Rs.)
P & L A/c on 01.01.11
Profits from 01.01.11 to 31.03.12
200
---200
50
Helpful Ltd. (25%)
---132
132
33
(b) Desire Ltd.:
Capital Revenue
Profits
Profits
(Rs.)
(Rs.)
P & L A/c on 01.01.11
Profits from 01.01.11 to 31.03.12
300
---300
120
Helpful Ltd. (40%)
---140
140
56
(3 Marks)
(4) Calculation of Goodwill:
Need Desire
(Rs.)
(Rs.)
Cost of Shares
Less: Paid up value of shares
Share in capital profits
180
125
50
5
375
240
120
15
(2 Marks)
(5) Determination of Carrying Amount of Investment in Need Ltd:
Amount
(Rs.)
Cost of Shares
Add: Share in revenue profits
180
33
213
(1 Mark)
(6) Consolidated Profit and Loss A/c:
Amount
(Rs.)
P & L A/c on 31.03.12 of Helpful Ltd. group
Add: Share in revenue profits (33 + 56)
875
89
964
(1 Mark)
Solution prepared by
CA. Ashish Lalaji
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(7) Balance sheet of Need Ltd. and Desire Ltd. as on 31st March 2012:
(Rs. in ‘000s)
Liabilities
Need Desire Assets
(Rs.)
(Rs.)
Share Capital
Profit and Loss Account
Non-Current Liabilities
Current Liabilities
500
332
100
118
1,050
Need Desire
(Rs.)
(Rs.)
600 Fixed Assets
600
440 Current Assets
50
400 + 27 + 23
450
375
700 + 38 – 73
---1,465
1,050
800
---665
1,465
(2 Marks)
Consolidated Balance Sheet of Helpful Ltd. as on 31st March 2012
(Rs. in ‘000s)
Note No. Amount
Amount
I.
1.
(a)
(b)
Equity and Liabilities:
Shareholders’ Funds
Share Capital
Reserves and Surplus
2.
Minority Interest
450
3.
Non Current Liabilities
920
4.
Current Liabilities
II.
1.
2.
2,194
1
Total
Assets:
Non Current Assets
Fixed Assets
- Tangible
- Intangible (Goodwill)
Non Current Investment in Need Ltd.
1,200
994
750
4,314
3,548
2
3,320
15
213
Current Assets
766
4,314
Total
See accompanying notes to Consolidated Balance Sheet.
(5 Marks)
Notes forming part of Consolidated Balance Sheet
Note
No.
1
2
Reserves and Surplus
Capital Reserve
Consolidated Profit and Loss Account
Non Current Investment in Need Ltd.
(Goodwill: 5)
Amount Amount
(Rs.)
(Rs.)
994
30
964
213
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Q5
Computation of Fair Values:
Fair Value of shares with restrictions on 01.04.10
Add: % increase for shares without restrictions
Fair Value of shares without restrictions on 01.04.10
Add: % increase in 2010 – 11
Fair Value of shares without restrictions on 31.03.11
Add: % increase in 2011 – 12
Fair Value of shares without restrictions on 31.03.12
Add: % increase in 2012 – 13
Fair Value of shares without restrictions on 31.03.13
60
20%
72
6%
76.32
10%
83.95
15%
96.54
(2 Marks)
Expense to be recognized for Equity Component:
Fair Value under equity settlement option (6,000 X 60)
Less: Fair value under cash settlement option (5,000 X 72)
Equity Component
Expense to be recognized for equity component
3,60,000
3,60,000
Nil
Nil
(1 Mark)
Expense to be recognized for Liability Component:
Date
Expected
Fair Value of
Liability
Provision
p.a. based
on FV
Cumulative
Provision to
be recognized
Provision
Already
Recognised
Provision
to be
Recognised
31.03.11
5,000 X 76.32
i.e. Rs.3,81,600
3,81,600
3
i.e. 1,27,200
1,27,200
---------
1,27,200
5,000 X 83.95
i.e. Rs.4,19,750
4,19,750
3
i.e. 1,39,917
1,39,917 X 2 i.e.
2,79,834
1,27,200
1,52,634
-----
4,82,700
2,79,834
2,02,866
31.03.12
31.03.13
5,000 X 96.54
i.e. Rs.4,82,700
(3 Marks)
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Employees Compensation Expense Account
31.03.11
To Provision for Liability A/c
1,27,200
31.03.11
By Profit and Loss A/c
1,27,200
31.03.12
1,52,634
To Provision for Liability A/c
1,27,200
31.03.12
By Profit and Loss A/c
1,52,634
31.03.13
To Provision for Liability A/c
2,02,866
1,27,200
1,52,634
1,52,634
31.03.13
By Profit and Loss A/c
2,02,866
2,02,866
2,02,866
(2 Marks)
Provision for Liability Component Account
31.03.11
To Balance c/d
1,27,200
31.03.11
By Employee Compensation A/c
1,27,200
31.03.12
To Balance c/d
2,79,834
1,27,200
01.04.11
By balance b/d
1,27,200
31.03.12
By Employee Compensation A/c
1,52,634
2,79,834
31.03.13
To Balance c/d
4,82,700
1,27,200
2,79,834
01.04.12
By balance b/d
2,79,834
31.03.13
By Employee Compensation A/c
2,02,866
4,82,700
4,82,700
(3 Marks)
If Employee Opts for Cash Settlement:
Provision for Liability Component Account
31.03.14
To Bank A/c
4,82,700
(5,000 X 96.54)
4,82,700
01.04.13
By balance b/d
4,82,700
4,82,700
(1 Mark)
If Employee Opts for Equity Settlement:
Provision for Liability Component Account
31.03.14
To ESOP Outstanding A/c
4,82,700
01.04.13
By balance b/d
4,82,700
(1 Mark)
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ESOP Outstanding Account
31.03.14
To Equity Share Capital
A/c (6,000 X 10)
31.03.14
To Securities Premium
60,000
31.03.14
By Provision for Liability
Component A/c
4,82,700
12,86,700
31.03.14
By Bank (6,000 X 144)
8,64,000
13,46,700
13,46,700
(2 Marks)
Q6
Determination of Purchase Consideration:
No. of shares in selling company
Less: Shares already owned by purchasing company
Shares owned by foreign company (outsiders)
X Agreed price per share [10 + 50]
Purchase Consideration
Amount
(Rs.)
1,00,000
60,000
40,000
60
24,00,000
(2 Marks)
Determination of Net Consideration:
Purchase Consideration
Less: TDS 20 % of [24,00,000 – (40,000 X 11)]
Net Consideration
Amount
(Rs.)
24,00,000
3,92,000
20,08,000
(1 Mark)
Determination of Intrinsic Value per share of H Ltd.:
Tangible Fixed Assets
Investment in shares of S Ltd. (60,000 X 60)
Debtors
Inventories
Cash at bank
Less: Secured Loans
Current Liabilities
Net Assets to Equity Shareholders
÷ No. of equity shares
IVPS
Amount
(Rs.)
60,00,000
36,00,000
35,00,000
30,00,000
39,00,000
2,00,00,000
20,00,000
30,00,000
1,50,00,000
5,00,000
30
(2 Marks)
Be free to send your suggestions / comments to
CA. Ashish Lalaji at 9825856155 /
ashishlalaji@rediffmail.com
18
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Settlement of Net Consideration:
Amount
(Rs.)
To Equity Shareholders:
(a) In Cash
50% of Net Consideration
(b) In Equity Shares:
10,04,000 / 30 i.e. 33,466 shares @ Rs.30
(c) Cash For Fractional Share
.67 X Rs.30
10,04,000
10,03,980
20
20,08,000
(2 Marks)
Determination of Goodwill / Capital Reserve on absorption:
Tangible Fixed Assets (18 – 10%)
Debtors
Inventories
Cash at bank
Less: Secured Loans
Current Liabilities
Net assets taken over
Less: Purchase Consideration
Capital Reserve
Less: Utilised for writing off cost of investment in S Ltd.
Net Capital Reserve
Amount
(Rs.)
16,20,000
5,00,000
25,00,000
2,00,000
48,20,000
3,00,000
2,00,000
43,20,000
24,00,000
19,20,000
6,00,000
13,20,000
(3 Marks)
Balance Sheet of H Ltd. as on 31st March 2012:
Note
No.
I.
3
143.2398
1
2
Non Current Liabilities
Secured Loans
Current Liabilities (30 + 2 – 1)
Assets
Non Current Assets
Fixed Assets – Tangible
53.3466
89.8932
23.0000
Total
II.
1
(Rs. in lakhs)
Amount
(Rs.)
Equity and Liabilities
1 Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
2
Amount
(Rs.)
31.0000
197.2398
76.2000
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2
Current Assets
Inventories
Debtors (35 + 5 – 1)
Cash at bank (39 + 2 – 10.0402 – 3.92)
121.0398
55.0000
39.0000
27.0398
Total
197.2398
See accompanying notes.
Note
No.
1
2
Amount
(Rs.)
Share Capital
5.33466 lakh shares of Rs.10 each
(.33466 lakh shares issued for consideration other than cash)
Reserves and Surplus
Profit and Loss Account
General Reserve
Securities Premium (.33466 X 20)
Capital Reserve
53.3466
20.0000
50.0000
6.6932
13.2000
89.8932
(5 Marks)
Solution prepared by
CA. Ashish Lalaji
Be free to send your suggestions / comments to
CA. Ashish Lalaji at 9825856155 /
ashishlalaji@rediffmail.com
20