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Pinnacle Academy
Mock Test Series for
May 2016 C A Final Examination
2nd Floor Florence Classic, 10, Ashapuri Society,
Besides Unnati Vidhyalay, Opp. VUDA Flats, Jain Derasar Rd., Akota, Vadodara-20
Time Allowed-2½ hours
FR Mock Test 2
Maximum Marks- 80
12th March 2016
Q 1 is compulsory.
Answer any 4 from the remaining.
Q1
(a)
Give your accounting treatment in respect of following events given that balance
sheet has been drawn for the year ended 31st December, 2007 and has not been
approved by the board till date:
(i)
(ii)
(iii)
(b)
i.
ii.
iii.
A particular item of inventory was valued at cost under the assumption that net
realizable value is higher than the cost as there was no sale in the last three
months before 31st December, 2007. However, subsequent sales on 5th
February, 2008 revealed that net realizable value of that item of inventory is
lower than the cost.
A particular item of investments is classified as current investments. On 11th
March, 2008, the current market price of the said investments has significantly
fallen reducing its fair value below the fair value shown in the balance sheet.
A particular item of foreign loan was translated at the closing rate on 31st
December, 2007. However, this loan was not covered by any forward exchange
contract. On 22nd February, 2008, the Indian rupee fell significantly against the
dollar. This increased the foreign exchange liability by Rs.20 lakhs.
(6 Marks)
Net profit of Rs.5,40,000 has been determined before tax for third quarter ended 31st
December 2010. The net profit has been calculated considering following items:
Extra-ordinary loss of Rs.50,000 has been incurred on 2nd November 2010. 50% has
been allocated to 4th quarter
Extra-ordinary gain of Rs.90,000 was earned on 1st May 2010. It has been allocated
equally to 1st, 2nd and 3rd quarter.
Bad debts of Rs.80,000 was incurred on 5th September 2010. 50 % has been
allocated to 3rd quarter.
(Assessed answer papers shall be returned on 26th March 2016)
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iv.
v.
Provision for warranty costs is Rs.20,000. Out of this Rs.15,000 provision relates to
2nd quarter due to wrong estimate in 2nd quarter. However, Rs.20,000 deducted in 3rd
quarter.
Depreciation method was changed on 31st December 2010. Excess depreciation of
Rs.75,000 has been provided in 3rd quarter. However, only Rs.15,000 of excess
depreciation is related to current quarter.
Calculate income for the quarter ended 31st December 2010.
(6 Marks)
(c)
Milton Ltd. is a full tax free enterprise for the first 10 years of its existence.
Depreciation timing difference resulting in deferred tax liability in years 1 and 2 is
Rs.200 lakhs and Rs.400 lakhs respectively. From the 3rd year onwards, it is
expected that timing difference would reverse each year by Rs.10 lakhs. Assuming
tax rate of 35%, find out DTL at the end of 1st and 2nd year.
(4 Marks)
(d)
Victory Ltd. purchased goods on credit from Lucky Ltd. for Rs.250 crores for export.
The export order was cancelled. Victory Ltd. decided to sell the same goods in local
market with a price discount. Lucky Ltd. was requested to offer a price discount of
15%. The chief accountant of Lucky Ltd. wants to adjust the sales figure to the
extent of the discount requested by Victory Ltd. Is this treatment justified?
(4 Marks)
Q2
As on 31st March 2013 the balance sheets showed the following position:
Fixed assets
Investments at cost
Stock
Debtors
Balances at bank
Equity shares of Rs.10 each
Capital reserve
Revenue reserve
Creditors
Taxation
Proposed dividends
A
Rs.
1,35,000
1,60,000
55,240
1,10,070
1,31,290
5,91,600
B
Rs.
60,000
1,50,000
36,840
69,120
16,540
3,32,500
C
Rs.
70,000
10,000
61,760
93,880
52,610
2,88,250
2,00,000
50,000
99,540
1,12,060
30,000
1,00,000
5,91,600
1,50,000
--49,370
73,130
--60,000
3,32,500
80,000
23,000
45,060
78,190
22,000
40,000
2,88,250
You also obtain the following information:
(1)
(2)
(3)
B acquired 6,800 shares in C at Rs.22 per share in 2009 when the balance on
capital reserve was Rs.15,000 and on revenue reserve Rs.30,500.
A purchased 8,000 shares in B in 2009 when the balance on the revenue reserve
was Rs.40,000. A purchased a further 4,000 shares in B in 2010 when revenue
reserve was Rs.45,000. A held no other investments on 31st March 2013.
Parent companies included their share of proposed dividend in debtors account
Prepare the consolidated balance sheet as on 31st March 2013.
(16 Marks)
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Q3
(a)
Tender Ltd. has earned a net profit of Rs.15 lakhs after tax at 30%. Interest cost is
Rs.10 lakhs. The invested capital is Rs.95 lakhs of which 55% is debt. The company
maintains WACC of 13%. The company has 6 lakh equity shares. Determine:
a. Operating Income
b. EVA
c. DPS that can be paid before the value of entity starts declining
(4 Marks)
(b)
(c)
st
A Ltd. acquired 35% of the capital of B Ltd. on 1 July 2010 for Rs.1,20,000. The
balance of reserves and surplus on 1st April 2010 was Rs.40,000. On 31st March
2011 reserves and surplus of B Ltd. stood at Rs.2,50,000 including revaluation
reserve created after 1st July 2010 of Rs.90,000. Equity share capital of B Ltd. is
Rs.2,50,000. B Ltd. has proposed dividend of Rs.60,000 for the year effect of which
has already been given. A Ltd. has subsidiary and hence shall prepare CFS. How
shall the investment in B Ltd. be disclosed in consolidated balance sheet to be
prepared on 31st March 2011?
(8 Marks)
PQR Ltd. gives following information about past profits:
Year
Profits
(Rs. in ‘000s)
2006
2007
2008
2009
2010
2170
2250
2370
2450
2110
On scrutiny it is found that up to 2008 PQR Ltd. followed FIFO method of finished
good valuation and thereafter adopted LIFO method. Also, up to 2009 it followed
SLM depreciation and thereafter adopted WDV method. Given below are the details
of stock valuation:
(figures in ‘000 Rs.)
Year
2006
2007
2008
2009
2010
Opening Stock
FIFO
LIFO
4000
3980
4600
4120
4920
4790
3890
3910
4200
3850
Closing Stock
FIFO
LIFO
4600
4120
4920
4790
3890
3910
4200
3850
4500
4310
SLM and WDV depreciation are as follows:
Year
2006
2007
2008
2009
2010
(figures in ‘000 Rs.)
Depreciation
SLM
WDV
1210
1700
1415
1810
1500
1925
1670
1960
1800
1940
Determine adjusted profits for valuation of goodwill.
(4 Marks)
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Q4
(a)
Albert Finance Ltd. has made the following investments:
(i) Purchased following equity shares from stock exchange on 1st June 2009:
Scrip X
Scrip Y
Scrip Z
Cost
(Rs.)
1,80,000
50,000
1,70,000
4,00,000
(ii) Purchased gold of Rs.3,00,000 on 1st April 2006
(iii) Invested in mutual funds at a cost of Rs.6,00,000 on 31st August 2009
(iv) Purchased government securities at a cost of Rs.5,00,000 on 1st April 2009
How will you treat these investments as per AS 13 in the books of the company for
the year ended 31st March 2010?
On 31st March 2010, value of these investments are as follows:
Scrip X
Scrip Y
Scrip Z
Gold
Mutual Funds
Government Securities
Amount
(Rs.)
1,90,000
40,000
70,000
Amount
(Rs.)
3,00,000
5,00,000
4,50,000
7,00,000
Also explain, is it possible to off-set depreciation in investment in mutual funds
against appreciation of the value of investment in government securities?
(8 Marks)
(b)
Suram Ltd. wants to re-classify its investments in accordance to AS 13. Decide on
the treatment for the following cases:
i. A portion of Current Investments of Rs.20 lakhs are to be re-classified as long-term
investments. The market value on balance sheet date is Rs.25 lakhs.
ii. Another portion of Current Investments purchased for Rs.15 lakhs is to be classified
as long-term. Market value of these investments as on date of balance sheet is
Rs.6.5 lakhs
iii. Certain Long-term investments no longer considered for holding purpose is to be
reclassified as Current Investments. Original cost of these was Rsw.18 lakhs but
they had been written down to Rs.12 lakhs to recognize permanent decline as per
AS 13.
(5 Marks)
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(c)
An enterprise operates a plan that provides a gratuity of 5 % of final salary for each
year of service. The benefits become vested after ten years of service. On 1 July
2006 the enterprise improves the gratuity to 7.5 % of final salary for each year of
service starting from 1 July 2001. At the date of the improvement, the present value
of the additional benefits for service from 1 July 2001 to 1 July 2006 is as follows:
Employees with less than ten years’ service at 1 / 7 / 06
(average period until vesting: seven years)
Employees with more than ten years’ service at 1 / 7 / 06
Rs.10,69,950
Rs. 7,80,050
What journal entries shall you pass for accounting the above past service cost?
(3 Marks)
Q5
(a)
While closing its books of accounts on 31st March 2016, an NBFC has its advances
classified as follows:
Standard assets
Sub-standard assets
Secured Portions of doubtful debts:
Up to one year
One year to three years
More than three years
Unsecured portion of doubtful debts
Loss assets
Amount
(Rs. in lakhs)
16,800
1,340
320
90
30
97
48
Calculate the amount of provision against the advances.
(b)
(4 Marks)
From the following Profit & Loss Account for the year ended 31st March 2014 of XYZ
Ltd. prepare Gross Value Added Statement:
Notes
Sales less return
Trading Profit
Less: Depreciation
Interest
1
2
Add: Other income
Provision for tax
Profit after tax
Less: Extraordinary items
Less: Proposed Dividend
Retained Profit
Amount
Amount
(Rs. 000) (Rs. 000)
21,350
3
4
1,920
302
140
442
1,478
80
1,558
688
870
15
855
340
515
Notes:
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Amount Amount
(Rs. 000) (Rs. 000)
1. Trading Profit is arrived at after charging the following:
Salaries, wages, etc. to employees
Directors’ remuneration
Audit Fees
Hire of equipment
3,685
360
220
290
2. Interest figure is ascertained as below:
Interest paid on bank loans and overdraft
Less: Interest Received
160
20
140
35
20
15
3. Extra-ordinary items are:
Loss of goods by fire
Less: Surplus on sale of properties
4. Charge of taxation include a transfer of Rs.1,48,000
to the credit of deferred tax account
(8 Marks)
(c)
Vital Ltd. is a highly profitable company. The management has decided to capitalize
a part of free reserves and issue bonus shares. The bonus issue shall be subject to
following two stipulations:
(i)
Reserves remaining after the amount capitalized for bonus issue should
be at least equal to 40 % of the increased paid-up share capital and
(ii)
30 % of the previous three years’ average pre-tax profits should be at
least equal to 10 % of the increased paid-up share capital.
Following data has been assembled from company’s annual reports:
Paid-up share capital:
Reserves:
Average PBT of previous three years:
Q6
Rs.160 crores
Rs.200 crores
Rs.100 crores
The management of Vital Ltd. has approached you to suggest a bonus ratio, which
fulfills the above guidelines to enable it to resort to the desired corporate
restructuring.
(4 Marks)
Following are the balance sheets of two companies as on 31st March 2008:
Liabilities
Equity shares (Rs.10)
Securities Premium
Profit and Loss A/c
General Reserve
Other reserves
9 % Debentures
Creditors
P Ltd.
12,00,000
8,00,000
2,50,000
4,00,000
5,10,000
10,00,000
12,50,000
54,10,000
Q Ltd.
8,00,000
4,00,000
1,25,000
2,00,000
3,35,000
----1,65,000
20,25,000
Assets
Fixed Assets
Investment in
10,500 shares
of Q Ltd. at cost
Stock
Debtors
Cash and Bank
P Ltd.
18,75,000
Q Ltd.
10,25,000
12,00,000
13,35,000
8,00,000
2,00,000
54,10,000
----4,25,000
2,75,000
3,00,000
20,25,000
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P Ltd. and Q Ltd. are interested in valuing their shares. Following information is
gathered for your perusal:
Both companies shall value their goodwill following capitalisation method. Normal
rate of return is 18%. Ignore trend of profits.
i.
The current market value of fixed assets of both the companies is above 30%
of their book values. Debtors of Q Ltd. are bad to the extent of Rs.25,000.
Stock of P Ltd. includes obsolete items of Rs.15,000. An expense creditor of
Rs.5,000 has not been recorded by Q Ltd.
ii.
P Ltd. has purchased the shares of Q Ltd. two years back. Each year Q Ltd.
has paid dividend at 10%. The investment is classified as non-trade. Q Ltd. is
an unlisted company.
iii.
The pre tax profits of last two years are: P Ltd.: 2007-08: Rs.8,65,620 2006-07:
Rs.6,10,080 Q Ltd.: 2007-08: Rs.7,04,650 2006-07: Rs.2,84,850
iv.
Depreciation on incremental value of fixed assets to be ignored. Profit of 200708 of P Ltd. is after considering expense of Rs.12,000 which is non-recurring.
v.
Q Ltd. anticipates additional expense of Rs.5,000 in future.
What is the intrinsic value per share of the two companies as on 31st March 2008?
(16 Marks)
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Solution of
FR Mock Test 2
12th February 2016
Q1
(a)
As per AS-4, Events occurring after the balance sheet date are those significant
events, both favourable and unfavourable, that occur between the balance sheet
date and the date on which the financial statements are approved by the Board of
Directors in case of company, and by the corresponding approving authority in case
of any other entity. The events that provide evidence of conditions existing on the
balance sheet date, in terms of AS-4, are adjusting events. Such events call for need
for adjustments to assets and liabilities as at the balance sheet date.
(1 ½ Mark)
Using the above discussion as a backdrop, each of the event given in the question
has been discussed:
(i)
As per AS-2, inventories are to be valued at lower of cost or net realizable value. As
there was no sale in the last three months of the year, it was not possible to estimate
its net realizable value. However, sales subsequent to balance sheet date is
revealing significant decline in net realizable value. This provides substantial
evidence of the net revisable value prevailing on the balance sheet date and hence
inventories should be written down to its net realizable value.
(ii)
As per AS-13, current investments are to be valued at cost or fair value, whichever is
lower. A significant decline in market prices subsequent to balance sheet date is not
an adjusting event as the conditions of decline of prices was not pre-existing.
Movements in market prices are a natural phenomenon and cannot be attributed to
any past date. The adverse fall in fair value shall be reflected when the company
draws its next balance sheet.
(iii)
Movements in exchange rates on a particular day cannot be attributed to a past
date. The conditions of adverse fall in the value of Indian rupee cannot be deemed to
have been existing on the balance sheet date; otherwise the firm would have hedged
itself on that date itself. As the event does provide any additional evidence of
conditions existing on balance sheet date it is non-adjusting.
(1½ Mark each i.e. 4 ½ Marks)
(b)
AS 25 “Interim Financial Reporting” prescribes discrete view i.e. it considers each
interim period as a separate financial period. Hence, allocation of income and
deferment of expenditure of one interim period to another interim period is not
permissible. Further, if any accounting policy is changed in current interim period
effect of such change of previous interim periods should be provided in previous
interim periods since an accounting policy is changed retrospectively. However, if an
accounting estimate is changed in current interim period, its entire effect shall be
given in current interim period since an accounting estimate is changed
prospectively.
(1 Mark for above write up)
Solution prepared by
CA. Ashish Lalaji
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Calculation of Net Income for the quarter ended 31st December 2010:
Net Profit as given
Extra-ordinary loss wrongly allocated to 4th quarter
Extra-ordinary gain of 1st quarter wrongly allocated
to 3rd quarter
Bad debts of 2nd quarter wrongly allocated to 3rd quarter
Change in provision is change in accounting estimate
Excess Depreciation not related to 3rd quarter
5,40,000
(25,000)
(30,000)
40,000
No Effect
60,000
5,85,000
(1 Mark each for above i.e. 5 Marks)
(c)
As per AS 22, In case of tax free companies, no deferred taxes are to be recognized
for timing differences that originate and reverse in the tax holiday period. Deferred
taxes should be recognized for those timing differences that originate in tax holiday
period but are expected to reverse after the tax holiday period. For this purpose,
adjustments are done in accordance with the FIFO method.
(1 Mark for above write up)
In the first year, of the timing difference of Rs.200 lakhs, Rs.80 lakhs will reverse in
tax holiday period. Hence, DTL of Rs.42 lakhs [120 X 35%] should be recognized.
(1 Mark)
In the second year, entire Rs.400 lakhs will reverse only after the tax holiday period.
Hence, further DTL of Rs.140 lakhs [400 X 35%] should be recognized. Thus, DTL
balance in balance sheet shall be Rs.182 lakhs [42 + 140].
(2 Marks)
(d)
Lucky Ltd. had sold goods to Victory Ltd. on credit worth Rs.250 crores and the sale
was complete in all respects. Thus, the sale has already been recorded in books.
The price discount offered by Lucky Ltd. due to cancellation of export order of
Victory Ltd. is not in the nature of discount since it indeed was such discount would
have been given at the time of sale itself. There now seems to be uncertainty in
respect of collectability of debt from Victory Ltd. It would be appropriate to make a
separate provision to reflect the uncertainty relating to collectability rather than to
adjust the amount of revenue originally recorded. Therefore, such discount should
be written off to profit and loss account and not shown as deduction from sales.
(4 Marks)
Q2
Working Notes:
(1) Profits earned by subsidiaries after relevant date:
Revenue Reserves as on 31.03.13
Add: Proposed Dividend
Proposed Dividend from C Ltd.
wrongly included (40,000 X 85%)
Less: Revenue Reserves in 2009
B Ltd. C Ltd.
(Rs.)
(Rs.)
49,370 45,060
60,000 40,000
(34,000) -------75,370 85,060
40,000 30,500
35,370 54,560
(1 Mark)
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(2) Analysis of Profits of Subsidiaries:
(i) C Ltd.
Capital Revenue
Capital
Profits
Profits Reserve
15,000
----------------30,500
----------------54,560
--------45,500
54,560
------------------------8,000
45,500
54,560
8,000
6,825
8,184
1,200
38,675
46,376
6,800
Capital Reserve in 2009
Revenue Reserve in 2009
Profits after 2009
Increase in capital reserve
Minority (15%)
B Ltd. (85%)
(ii) B Ltd.
Revenue Reserve in 2009
Profits after 2009
Share from C Ltd.
Minority (20%)
A Ltd. (80%)
Adjustment for additional 26.67%
shares for profits earned from
2009 to 2010
(45,000 – 40,000 i.e. 5,000 X 26.67%)
A Ltd. (Revised)
40,000
----------------40,000
8,000
32,000
------------------------1,334
33,334
--------35,370
46,376
81,746
16,349
65,397
------------------------(1,334)
64,063
----------------6,800
6,800
1,360
5,440
--------------------------------5,440
(5 Marks)
(3) Cost of Control:
Cost of Shares
Less: Paid up value
Share in capital profits
Goodwill
A Ltd. in B Ltd. B Ltd. in C Ltd.
1,60,000
1,49,600
1,20,000
68,000
33,334
38,675
6,666
42,925
49,591
(2 Marks)
(4) Minority Interest:
Paid up value of shares
Share in profits and reserves
B Ltd. C Ltd.
30,000 12,000
25,709 16,209
55,709 28,209
83,918
(1 Mark)
(5) Consolidated Revenue Reserve and Capital Reserve:
Reserve as on 31.03.13 of A Ltd.
Add: Proposed Dividend from B Ltd. wrongly included
(60,000 X 80%)
Add: Share from B Ltd.
Revenue
Capital
Reserve Reserve
99,540
50,000
(48,000)
64,063
1,15,603
------5,440
55,440
(1 Mark)
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Consolidated Balance Sheet of A Ltd. as on 31st March 2013
I.
1.
(a)
(b)
Equity and Liabilities:
Shareholders’ Funds
Share Capital
Reserves and Surplus
2.
Minority Interest
3.
Current Liabilities
Trade Payables
Short Term Provisions
Note No.
Amount
1
2,00,000
1,71,043
3,71,043
83,918
4,15,380
2
2,63,380
1,52,000
8,70,341
Total
II.
1.
2.
Amount
Assets:
Non Current Assets
Fixed Assets
- Tangible
- Intangible (Goodwill)
Non Current Investments
3,24,991
2,65,000
49,591
10,400
Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
Total
5,45,350
3
1,53,840
1,91,070
2,00,440
8,70,341
See accompanying notes to Consolidated Balance Sheet.
(6 Marks)
Notes forming part of Consolidated Balance Sheet
Note
No.
1
2
3
Amount
(Rs.)
Reserves and Surplus
Consolidated Capital Reserve
Consolidated Revenue Reserve
Short Term Provisions
Provision for Tax
Proposed Dividend
55,440
1,15,603
1,71,043
52,000
1,00,000
1,52,000
Trade Receivables
Debtors
Less: Proposed Dividend wrongly included
(48,000 + 34,000)
Solution prepared by
Amount
(Rs.)
2,73,070
82,000
1,91,070
CA. Ashish Lalaji
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Q3
(a)
(i) PBT = PAT / 1 – t = 15 / 1 – 0.3 = Rs.21.43 lakhs
Operating Profit, PBIT = 21.43 + Interest 10 = Rs.31.43 lakhs
(1 Mark)
(ii) NOPAT = 31.43 – Tax @ 30 % = Rs.22 lakhs
EVA = 22 – (95 X 13%) = Rs.9.65 lakhs
(1 Mark)
(iii) DPS before value of entity starts declining = 9.65 / 6 = Rs.1.6083 per share
(2 Marks)
(b)
Profit earned by B Ltd. during 2010-11:
Reserves and Surplus on 31.03.11 (2,50,000 – 90,000)
Add: Proposed dividend for 2010-11
Less: Reserves and Surplus on 01.04.10
Amount
(Rs.)
1,60,000
60,000
2,20,000
40,000
1,80,000
(1 Mark)
Analysis of Profits of B Ltd.:
Reserves on 01.04.10
Profits in 2010-11 (3:9)
Revaluation gain after 01.07.10
A Ltd. (35%)
Capital Revenue Revaluation
Profits
Profits
Reserve
40,000
--------45,000 1,35,000
------------90,000
85,000 1,35,000
90,000
29,750
47,250
31,500
(2 Marks)
Goodwill / Capital Reserve:
Cost of shares
Less: Paid up value (2,50,000 X 35%)
Share in capital profits
Goodwill
Amount
(Rs.)
1,20,000
87,500
29,750
2,750
(1 Mark)
Carrying Amount of Investment in B Ltd.:
Cost of shares
Add: Share in revenue profits and revaluation reserve
Amount
(Rs.)
1,20,000
78,750
1,98,750
(2 Marks)
Solution prepared by
CA. Ashish Lalaji
12
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Extract of Consolidated Balance Sheet of
A Ltd. as on 31st March 2011 (Asset Side).:
Amount
(Rs.)
Amount
(Rs.)
Investment in B Ltd. (Associate)
Goodwill
2,750
Share in net assets
1,96,000 1,98,750
(2 Marks)
(c)
Determination of Adjusted Profits:
Year
Profits as given
SLM depreciation reversed
WDV depreciation provided
FIFO opening stock reversed
FIFO closing stock reversed
LIFO opening stock provided
LIFO closing stock provided
Adjusted Profits
2006
2170
1210
(1700)
4000
(4600)
(3980)
4120
1220
2007
2250
1415
(1810)
4600
(4920)
(4120)
4790
2205
2008
2370
1500
(1925)
4920
(3890)
(4790)
3910
2095
2009
2450
1670
(1960)
3890
----(3910)
----2140
2010
2110
------------------------2110
(4 Marks for above)
Q4
(a)
As per AS 13, “Current Investments” should be valued at lower of cost or FMV.
Long-term investments should be continued to be reported at cost. However, if there
is permanent diminution in value of long-term investments then it should be provided
for.
(1 Mark)
Valuation of Investment in Shares:
Shares are purchased on 1st June 2009 and continued to be held up to 31st March
2010. A period of 12 months from the date of purchase of the shares has yet not
been completed. Hence, the classification of these shares may be current or longterm.
Scrip X
Scrip Y
Scrip Z
Cost
FMV
1,80,000
50,000
1,70,000
1,90,000
40,000
70,000
Valuation if Classified as
Long-Term
Current
1,80,000
1,80,000
50,000
40,000
1,70,000
70,000
(2 ½ Marks)
Valuation of Investment in Gold:
Gold was purchased on 1st April 2006 and has not been sold up to 31st March 2010.
Thus, gold is presumed to have been classified as long term and hence continued to
be reported at cost of Rs.3,00,000.
(1 Mark)
Valuation of Investment in Mutual Funds:
Shares are purchased on 31st August 2009 and continued to be held up to 31st
March 2010. A period of 12 months from the date of purchase of mutual fund has yet
not been completed. Hence, the classification may be current or long-term.
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Mutual Funds
Cost
FMV
6,00,000
4,50,000
Valuation if Classified as
Long-Term
Current
6,00,000
4,50,000
(1 ½ Marks)
Valuation of Investment in Government Securities:
Government Securities were purchased on 1st April 2009 and has not been sold up
to 31st March 2010. A period of 12 months from the date of purchase has been
completed. Thus, these securities are presumed to have been classified as long
term and hence continued to be reported at cost of Rs.5,00,000.
(1 Mark)
Inter category adjustments of appreciation and depreciation in value of investments
cannot be done. It is not possible to offset depreciation in investments in mutual
funds against appreciation in value of investment in government securities.
(1 Mark)
(b)
As per AS 13 when investments are reclassified from current investment category to
long-term investment category transfers are taken at lower of cost or FMV on the
date of transfer.
(1 Mark)
(i) Cost is Rs.20 lakhs and FMV is Rs.25 lakhs. Transfer shall be taken at Rs.20
lakhs.
(1 Mark)
(ii) Cost is Rs.15 lakhs and FMV is Rs.6.5 lakhs. Transfer shall be taken at Rs.6.5
lakhs. This will require a loss of Rs.8.5 lakhs to be charged to P & L A/c.
(1 Mark)
As per AS 13 when investments are reclassified from long-term category to current
category transfers are taken at lower of cost and carrying amount on the date of
transfer.
(1 Mark)
(iii) Cost if Rs.18 lakhs and Carrying amount is Rs.12 lakhs. Transfer shall be taken
at Rs.12 lakhs.
(1 Mark)
(c)
Vested Past Service Cost A/c
Dr.
7,80,050
Non-vested Past Service Cost A/c
Dr.
10,69,950
To Provision for Defined Benefit Obligation
18,50,000
Profit and Loss A/c
Dr.
To Non-vested Past Service Cost A/c
To Vested Past Service Cost A/c
1,52,850
7,80,050
9,32,900
(3 Marks)
Solution prepared by
CA. Ashish Lalaji
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Q5
(a)
Computation of Provision Against Advances for the NBFC:
Standard assets
Sub-standard assets
Secured Portions of doubtful debts:
Up to one year
One year to three years
More than three years
Unsecured portion of doubtful debts
Loss assets
Amount
(Rs. in
lakhs)
16,800
1,340
% of
Provision
0.3
10
320
90
30
97
48
20
30
50
100
100
Provision
(Rs. in
lakhs)
50.4
134
64
27
15
97
48
435.4
(4 Marks)
(b)
Determination of Cost of Bought-in materials and Services:
Sales
Less: Trading Profit
Total Cost
Less:
Salaries and Wages
Director’s remuneration
Cost of bought-in materials and services
Amount
(Rs. in ‘000s)
21,350
1,920
19,430
3,685
360
15,385
(2 Marks)
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Gross Value Added Statement of XYZ Ltd. for the year ended 31st March 2014:
(Rs. in ‘000s)
VALUE ADDED
Amount
Sales less return
Less: Cost of bought-in materials and services
Value Added by manufacturing and trading activities
Add: Interest received
Other income
Less: Extraordinary items
Surplus on sale of properties
Loss of goods by fire
Gross Value Added
Amount
%
21,350
15,385
5,965
20
80
20
(35)
100
(15)
6,050
VALUE APPLIED
To Pay Employees:
Salaries, wages and other benefits
3,685
60.91
To Pay Directors:
Director’s remuneration
360
5.95
To Pay Government:
Income Tax (688 – 148)
540
8.93
500
8.26
To Pay Providers of Capital:
Interest on loans and overdraft
Proposed Dividend
160
340
To Provide for Maintenance and Expansion:
Depreciation
Transfer to Deferred Tax
Retained Profit
302
148
515
965
15.95
6,050 100.00
(6 Marks)
(c)
As per condition 1:
i.e.
i.e.
200 – Bonus = 0.4 [160 + Bonus]
200 – Bonus = 64 + 0.4 Bonus
Bonus = Rs.97.14 crores
As per condition 2:
i.e.
0.3 (100) = 0.1 [160 + bonus]
Bonus = Rs.140 crores
Thus, bonus issue should be of Rs.97.14 crores i.e. bonus ratio should be
approximately 0.61 [97.14 / 160]
(4 Marks)
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Q6
Determination of Average Future Maintainable Profits (FMP):
For P Ltd.:
2007-08 2006-07
Profits as given
8,65,620 6,10,080
Income from non-trade investment in Q Ltd. (10,500) (10,500)
[10,500 shares X Rs.10 X 10%]
Non-recurring expense
12,000
----Stock written off
(15,000)
----Adjusted pre tax profit
8,52,120 5,99,580
Average adjusted pre tax profit
7,25,850
(2 Marks)
For Q Ltd.:
2007-08 2006-07
Profits as given
7,04,650 2,84,850
Bad debts
(25,000)
----Creditor not recorded
(5,000)
----Adjusted pre tax profit 6,74,650 2,84,850
Average adjusted pre tax profit
Less: Expense expected in future
4,79,750
5,000
4,74,750
(2 Marks)
Determination of Capital Employed as on 31st March 2008:
P Ltd.
Q Ltd.
24,37,500 13,32,500
13,20,000
4,25,000
8,00,000
2,50,000
2,00,000
3,00,000
47,57,500 23,07,500
Less: 9 % Debentures
10,00,000
----Creditors
12,50,000
1,70,000
Closing capital employed 25,07,500 21,37,500
Fixed Assets
Stock
Debtors
Cash and Bank
(4 Marks)
Valuation of Goodwill:
P Ltd.
Q Ltd.
Capitalised value of Average FMP
7,25,850 / 18%
40,32,500
-----4,74,750 / 18%
----26,37,500
Less: Closing Capital Employed
25,07,500 21,37,500
Goodwill 15,25,000 5,00,000
(4 Marks)
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Calculation of Intrinsic Value Per Share [IVPS]:
P Ltd.
Q Ltd.
Goodwill
15,25,000 5,00,000
Investment in Q Ltd.
10,500 shares at Rs.32.97
3,46,185
-----Closing Capital Employed
25,07,500 21,37,500
(a) Net assets to equity shareholders 43,78,685 26,37,500
(b) No. of equity shares
1,20,000
80,000
(c) IVPS [a/b]
36.49
32.97
(4 Marks)
Dear Student,
Observations on assessment of Answer books for this test have been
enumerated hereunder. A glance at these comments may help you elevate your
marks in the Final Examination.Hope you reap the benefits of one more student
friendly step taken by Pinnacle Academy.
Sharing with you the observations of the evaluator.
Yours lovingly
CA. Ashish Lalaji
Observations on evaluation of Answer Books for FR Question Paper
Dated; 12-Mar-16
1(a)
- Majority students did not give backdrop write-up of AS -4.
1 (b)
- Majority students did not give backdrop write-up of AS -25.
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1(c)
- Satisfactorily answered. In some cases, students mentioned DTL for Second
year as 140 Lacs instead of 182 Lacs (missed to add 42 Lacs DTL of First
year)
1 (d)
- Although all students gave correct conclusion about accounting treatment of
discount, many students were not clear about the basic concept of Revenue
Recognition as per AS 9. For example, some mentioned revenue recognition
is when sales is invoiced, some mentioned revenue recognition is on cash
receipt etc…
2 (a)
- Majority of the students have not attempted this question.
- Proposed dividend of Rs.34, 000/- from C Ltd was not considered while
calculating profit earned by B Ltd.
3 (a)
Few of the students not able to calculate PBT by not considering tax rate
impact.
3 (b)
- While doing the analysis of Profits of B Ltd, Profits in 2010-11 not
apportioned correctly into Capital Profits & Revenue Profits.
- Extract of Consolidated Balance Sheet not prepared by majority students.
3 (c)
- Few of the students not considered stock movements specifically in year
2009.
4 (a)
- Most of the students have not done valuation of shares by bifurcating into
Long Term & Current Investments and did the valuation in totality instead of
scrip wise.
4 (b)
- Satisfactory
4 (c)
- Satisfactory
5 (a)
- Many students made mistake in calculating provision for standard assets.
They had considered % of provision 25 instead of 30. A few students did not
mention correct % of provisions against each line item.
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5 (b)
- Majority students did not show separate calculate/working for cost of
Bought-in materials and Services as shown in suggested solution.
5 (c)
- Most of the students not calculated Bonus condition wise.
6
- Some students were incorrect in calculation of Average Future Maintainable
Profit having consequential impact on calculation of Goodwill. Capital
Employed was correct in most of all cases.
General Comments:
-
Students need to be careful while attaching Supplementary Answer books.
For example, in one of the case Supplementary Answerbooks were attached
in wrong order. This may sometimes lead to disadvantage of marks as
Examiner may not find continuity in answers.
-
While students should attempt questions in order of preference, it is
advisable to keep together the sub-questions (a,b,c) within a main question.
-
It is observed in some cases that answer numbers mentioned in Answer
book are incorrect.
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