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2 nd
Floor Florence Classic, 10, Ashapuri Society,
Besides Unnati Vidhyalay, Opp. VUDA Flats, Jain Derasar Rd., Akota, Vadodara-20
Time Allowed-3 hours Maximum Marks- 100
14 th April 2016
Q1
(a) Q Ltd. is in the business of manufacture of Passenger cars and commercial vehicles.
The company is working on a strategic plan to shift from the Passenger car segment over the coming 5 years However no specific plans have been drawn up for sale of neither the division nor its assets. As part of its plan it will reduce the production of passenger cars by 20% annually. It also plans to commence another new factory for the manufacture of commercial vehicles and transfer plus employees in a phased manner.
(i) You are required to comment if mere gradual phasing out in itself can be considered as a ‘Discontinuing Operation' within the meaning of AS 24.
(ii) lf the company passes a resolution to sell some of the assets in the passenger car division and also to transfer few other assets of the passenger car division to the new factory, does this trigger the application of AS 24 ?
(iii) Would your answer to the above be different if the company resolves to sell the assets of the Passenger Car Division in a phased but time bound manner?
(8 Marks)
(b) Following are the details in respect of borrowings:
Borrowing Date of
Borrowing
Amount
(Rs. inlakhs)
15% Term Loan
10% Debentures
01-04-10
01-10-10
1,000
1,000
12% Term Loan 01-04-10 20
Purpose
General
General
Specific
Total expenditure incurred on a qualifying asset for the year ended 31 st
March 2011 is Rs.100 lakhs. The specific borrowing was invested temporarily and an interest of
Rs.0.50 lakhs has been earned. Suggest the treatment of specific and general borrowings.
(7 Marks)
rd
Best of Luck
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(c) Certain callable convertible debentures are issued at Rs.60. The value of similar debentures without call or equity conversion option is Rs.57. The value of call as determined using Black and Scholes model for option pricing is Rs.2. Determine values of liability and equity component.
(5 Marks)
Q 2 X Ltd. purchased 80% shares of Y Ltd. and 70% shares of Z Ltd. on 1 st
July 2007.
On the date of acquisition of shares, the shareholders’ funds of each of the two companies were as follows:
(Rs. in lakhs)
Paid-up Capital
Y Ltd. Z Ltd.
3.00 1.60
Reserves 0.70 0.20
Profit and Loss A/c 0.50 0.30
Extracts from the balance sheets of all the companies as on 30 follows: th
June 2008 are as
(Rs. in lakhs)
X Ltd. Y Ltd. Z Ltd.
Paid-up capital
Reserves
4.00
1.50
3.00
0.70
1.60
0.20
Profit and Loss A/c 0.90 0.20 0.14
Profit for the year ended 30 th
June 2008 1.20 0.35 0.26
Debentures
Creditors
Inter-company advances
Plant and Machinery
Debentures in Z Ltd. (at par)
Shares in Y Ltd.
Shares in Z Ltd.
Stock in trade
Debtors
Total
2.00 ----- 0.50
0.80 0.30 0.20
0.30 -----
10.70 4.55
0.10
3.00
2.80 2.60 2.20
0.20 ----- -----
4.00 ----- -----
1.40 ----- -----
1.20 0.95 0.30
1.00 0.70 0.50
Inter-company advances:
X Ltd.
Y Ltd.
Total
----- 0.30 -----
0.10 -----
10.70 4.55
-----
3.00
Additional Information: i. Included in the stock in trade on 30 th
June 2008 were goods acquired from respective companies on which profits have been made as under:
•
X Ltd.: Goods from Y Ltd. at Rs.6,000 above cost
•
Y Ltd.: Goods from Z Ltd. at Rs.4,000 above cost
•
Z Ltd.: Goods from X Ltd. at Rs.2,000 above cost ii. X Ltd. purchased an item of plant from Y Ltd. on 30 th
September 2007 for Rs.24,000 on which the latter company made profit of Rs.2,400. Depreciation has been charged in the accounts on purchase at 10% p.a.
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iii. Dividends were paid during the year as follows:
•
X Ltd. at the rate of 10% p.a.
•
Z Ltd. at the rate of 10% p.a. out of pre-acquisition profits
•
Y Ltd. at the rate of 10% p.a. out of pre-acquisition profits iv. X Ltd. has included all dividends received during the year in its profit and loss account.
Prepare Consolidated Balance Sheet of X Ltd. as on 30 th
June 2008.
(16 Marks)
Q 3
(a) From the following information of a concern you are required to calculate E.V.A.:
Debt capital 12%
Equity capital
Rs. 2,000 crores
Rs. 500 crores
Reserve and surplus
Capital employed
Risk-free rate
Beta factor
Rs. 7,500 crores
Rs. 10,000 crores
9%
1.05
Market rate of return
Equity (market) risk premium
19%
10%
NOPLAT
Tax rate
Rs.2,100 crores
30% (8 Marks)
(b) Tar Ltd. acquired 25 % of equity shares of Var Ltd. for Rs.2,40,000 on 01.07.2009.
Tar Ltd. received dividend of Rs.8,000 from Var Ltd. for the year 2008-09. Equity share capital of Var Ltd. is Rs.5,00,000. Var Ltd. had not provided for the dividend when the accounts for the year 2008-09 were prepared. Profit and Loss account balances of Var Ltd. were Rs.84,000 and Rs.1,92,000 respectively at the end of
2008-09 and 2009-10. Calculate goodwill / capital reserve and carrying amount of investment of Tar Ltd. in Var Ltd. following equity method specified in AS 23.
Assume Tar Ltd. has subsidiary.
(8 Marks)
Q 4
(a) Following details of two companies are available:
20,000 equity shares of Rs.10, Rs.2 paid up
12,000 equity shares of Rs.10, Rs.4 paid up
16,000 equity shares of Rs.5, Re.1 paid up
20,000 equity shares of Rs.15, Rs.7.50 paid up
9 % Preference shares of Rs.100 each
12 % Debentures of Rs.100 each
EBIT before tax of 30 % for both firms
Value net assets to partly paid equity shareholders
A Ltd.
40,000
----
16,000
B Ltd.
---
48,000
-----
----- 1,50,000
1,00,000 50,000
50,000 1,00,000
60,000 66,000
7,80,000 10,50,000
Value partly paid equity shares of the two companies. If you were to invest in preference shares of either of the two companies, which company shall you prefer and why?
Solution prepared by
(10 Marks)
CA. Ashish Lalaji
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(b) A company has a capital base of Rs.1 crore and has earned profits to the tune of
Rs.11 lakhs. The Return on Investment (ROI) of the particular industry to which the company belongs is 12.5%. If the services of a particular executive are acquired by the company, it is expected that the profits will increase by Rs.2.5 lakhs over and above the target profit. Determine the amount of maximum bid price for that particular executive and the maximum salary that could be offered to him.
(6 Marks)
Q 5 As part of its expansion strategy, White Ltd. has decided to amalgamate its business with that of Black Ltd. and a new company, Black and White Ltd., is to be incorporated from 1 st
September 2010 having authorized equity capital of 2 crore shares of Rs.10 each. Black and White Ltd. shall in turn acquire the entire ownership of White Ltd. and Black Ltd. in consideration for issuing its equity at 25% premium on
1 st
October 2010. It has also agreed that the consideration be based on the product of profits available to equity shareholders of each entity, times its PE multiple. The preference shareholders and the debenture holders are to be satisfied by the issue of similar instruments in Black and White Ltd. on 1 st
October 2010 in lieu of their existing holdings. Accordingly, following information is made available to you:
Ordinary shares of Rs.10 each (Nos.)
8% Preference shares of Rs.10 each (Nos.)
5 % Debentures of Rs.10 each (Nos.)
Profit before interest and tax (Rs.)
Average PE Ratio
White Ltd.
3 lakh
6,00,000
15
Black Ltd.
1.2 lakh
1 lakh
0.8 lakh
4,40,000
10
To augment the cash retention level of Black and White Ltd., it is decided that on 1 st
October 2010, Black and White Ltd. shall collect full share application money for the issue of 20,00,000 equity shares at 40% premium under private placement. The allotment of the shares will be made on 31 st
December 2010 and such shares shall qualify for dividend from 2011 only.
Black and White Ltd. shall also avail a 12.5% TOD of Rs.15 lakhs to meet its preliminary expenses and cost of working amounting to Rs.12 lakhs and Rs.2 lakhs respectively. The TOD will be availed on 1 st
November 2010 and closed on 31 st
December 2010. Preliminary expenses are tax deductible at 20% each year. Due to an accounting omission the opening inventory of Black Ltd. of Rs.5 lakhs (actual value) and the closing stock of White Ltd. of Rs.2.2 lakhs was understated and overstated by 5% and 10% respectively. The dividend schedule proposed is that all companies would pay interim dividend for equity for the period from 1 st
October 2010 to 31 st
December 2010. The rates of dividend being White Ltd. @ 5%, Black Ltd. @
2% and Black and White Ltd. @ 3.5%. The preference shareholders and debenture holders dues for the post take over period are discharged on 31.12.2010.
It is proposed that in the period October-December 2010, Black and White Ltd., would carry out trade in futures that would generate an absolute post tax return by
18% by using the funds generated from private placement. The trades would be squared off on 31 st
December 2010. Proceeds from such transactions are not liable to withholding taxes. You are required to prepare projected Profit and Loss A/c for the period ended 31 st
December 2010 and a Balance Sheet on that date for Black and White Ltd. Consider corporation tax rate for the company to be 40%.
(16 Marks)
Q 6
(a) State any six mandatory exceptions and any six voluntary exemptions allowed under
Ind AS 101.
(6 Marks)
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(b) Global Ltd. has initiated a lease for three years in respect of an equipment costing
Rs.1,50,000 with expected life of four years. The asset would revert to Global Ltd. under the lease agreement. The other information is:
•
The unguaranteed residual value of the equipment after the expiry of the lease term is estimated at Rs.20,000
•
The implicit interest rate is 10%
•
The annual payments have been determined in such a way that the present value of the lease payments plus the residual value is equal to the cost of the asset
Ascertain for Global Ltd.: i. Annual lease payment ii. Unearned finance income iii. Segregation of finance income
(10 Marks)
Q 7
(a) State the treatment of the following items with reference to Accounting Standards and Indian Accounting Standards
(i) Discontinued operations – definition and measurement
(ii) Acquired intangible assets.
(6 Marks)
(b) Perfect Ltd. manufactures machinery used in Power Plants. In response to the tenders issued by Power Plants, Perfect Ltd quotes its price. As per terms of contract, full price of machinery is not released by the power plants, but 10% thereof is retained and paid after one year if there is satisfactory performance of the machinery supplied. From past experience, it is observed that Perfect Ltd. normally performs satisfactorily and fulfills the expectations of Power Plants. Perfect Ltd. accounts for only 90% of the invoice value as sales revenue and books the balance amount in the year of receipt to the extent of actual receipts only. Comment on the treatment done by the company.
(5 Marks)
(c) Option Ltd. is engaged in manufacturing of steel. For its steel plant, it required machineries of latest technology. It usually resorts to Long Term Foreign Currency
Loans (LTFCL) for its fund requirements. On 1 st
April 2011, it borrowed USD 1 million from International Funding Agency, USA when exchange rate was 1 $ =
Rs.52. The funds were used for acquiring machines on the same date to be used in three different steel plants. The useful life of the machineries is 10 years and their residual value is Rs.20,00,000. Earlier, also the company used to purchase machineries out of LTFCL. The exchange differences arising on such borrowings were charged to Profit and Loss account and were not capitalized even though the company had an option to capitalize it as per amended AS 11. Now, for this new purchase of machinery, Option Ltd. is interested to avail the option of capitalizing the same to the cost of asset. Exchange rate on 3st March 2012 is 1 $ = Rs.51. Assume that on 31 st
March 2012, Option Ltd. is not having any old LTFCL except for the amount borrowed for machinery purchased on 1 st
April 2011. Can Option Ltd. capitalize the exchange difference to the cost of the asset on 31 st
March 2012? If yes, calculate amount of depreciation on machineries as on 31 st
March 2012.
Answer in lakhs of rupees.
(5 Marks)
Solution prepared by
CA. Ashish Lalaji
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14 th April 2016
Q 1
(a) Mere gradual phasing is not considered as discontinuing operation as defined under
AS 24, ‘ Discontinuing Operation’.
Examples of activities that do not necessarily satisfy criterion of the definition, but that might do so in combination with other circumstances, include:
(a) Gradual or evolutionary phasing out of a product line or class of service.
(b) Shifting of some production or marketing activities for a particular line of business from one location to another and
(c) Closing of a facility to achieve productivity improvements or other cost savings.
(3 Marks)
In view of the above the answers are:
(i) No. The companys’ strategic plan has no final approval from the board through a resolution and no specific time bound activities like shifting of
Assets and employees and above all the new segment commercial vehicle production line and factory has started.
(ii) No. The resolution is salient about stoppage of the Car segment in definite time period. Though, some assets sales and transfer proposal was passed through a resolution to the new factory, closure road map and new segment starting road map is missing. Hence, AS-24 will not be applicable.
(iii) Yes. Phased and time bound programme resolved in the board clearly indicates the closure of the passenger car segment in a definite time frame and clear road map. Hence, this action will attract AS-24 compliance.
(5 Marks)
(b) Treatment of Specific Borrowings:
Interest expense = 20 X 12% = Rs.2.4 lakhs
Interest to be capitalized = 2.4 – Interest income earned
= 2.4 - .5 i.e. Rs.1.9 lakhs
(2 Marks)
Treatment of General Borrowings:
Annualised weighted average rate of borrowing has been determined as under:
Solution prepared by
CA. Ashish Lalaji
Date Borrowing Amount Time Interest Weighted
01.04.10 15 % Loan 1,000
01.10.10 10 % Loan 1,000
Weight
12 / 12
6 / 12
150
50
200
Borrowings
1,000
500
1,500
Annualised weighted average rate of borrowing = 200 / 1500 = 13.33 %
(3 Marks)
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Borrowing costs to be capitalized = (100 – 20) X 13.33% = Rs.10.664 lakhs
(2 Marks)
Thus, total borrowing costs to be capitalized is Rs.12.564 lakhs.
(c) A callable convertible debenture is one that gives the issuer a right to buy a convertible debenture from the debentureholder at a specified price. This feature in effect is a call option written by the debentureholder. The value of call (i.e. option premium) is payable by the issuer.
Liability component of non-convertible debentures
(disregarding the call value)=
Less: Value of call payable by the issuer =
Net liability component of non-convertible debentures =
Rs.57
Rs.2
Rs.55
Equity component in callable convertible debentures = 60 –55 = Rs.5
(5 Marks)
Q 2 (1) Analysis of Profits:
(i) Y Ltd.
Reserves on 01.07.07
P & L A/c on 01.07.07
Profit earned after 01.07.07
Dividend paid
Unrealised profit in sale of goods
Unrealised profit in sale of fixed assets
Minority Interest (20%)
X Ltd. (80%)
(ii) Z Ltd.
Reserves on 01.07.07
P & L A/c on 01.07.07
Profit earned after 01.07.07
Dividend paid
Unrealised profit in sale of goods
Minority Interest (30%)
X Ltd. (70%)
Capital Profits Revenue Profits
0.7
0.5
---
---
---
1.2
(0.3)
---
---
0.90
0.18
0.72
0.2
0.3
---
0.5
(0.16)
---
0.340
0.102
0.238
0.35
0.35
---
(0.06)
(0.024)
0.2660
0.0532
0.2128
---
---
0.26
0.26
---
(0.04)
0.220
0.066
0.154
(6 Marks)
(2) Cost of Control & Cancellation of Investment in Debentures:
Y Ltd. Z Ltd. Z Ltd.
Cost of investment in equity shares / Debentures 4.00 1.40 0.20
Less: Pre-acquisition period dividend
[0.3 X 80%] & [0.16 X 70%] 0.24
3.76
3.76
0.112
1.288
1.488
Less: Paid-up value
Share in capital profits
Goodwill
2.40 1.120 0.20
0.72 0.238 N.A.
0.64 (0.07)
0.57
Nil
(3 Marks)
Solution prepared by
CA. Ashish Lalaji
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(3) Minority Interest:
Y Ltd. Z Ltd.
Paid-up value of shares 0.6000 0.480
Add: Share in profits 0.2332 0.168
0.8332 0.648
1.4812
(1 Mark)
(4) Consolidated Profit and Loss A/c:
P & L A/c as on 30.06.08
Share in revenue profits
•
Y Ltd
•
Z Ltd
Pre-acquisition period dividend
•
Y Ltd
•
Z Ltd
Unrealised profit in sale of goods
Excess depreciation provided [0.024 X 10% X 9 / 12]
Amount
2.1000
0.2128
0.1540
(0.2400)
(0.1120)
(0.0200)
0.0018
2.0966
(2 Marks)
Liabilities
Equity share capital
Reserves
Con. P & L A/c
Debentures
Less: Mutual obligation
Creditors
Advances
Consolidated Balance sheet of X Ltd. as on 30 th
June 2008
Less: Inter-company
Minority Interest
2.5
0.2
0.4
0.4
4.0000
1.5000
2.0966
2.3000
1.3000
--------
1.4812
12.6778
Assets
Goodwill on consolidation
Plant and Machinery
Less: Unrealised Profit
Add: Excess depreciation
Stock
Less: Unrealised profit
Debtors
Advances
Less: Inter-company
7.6000
0.0240
7.5760
0.0018
2.45
(Rs. in lakhs)
0.5700
7.5778
0.12
0.4
0.4
2.3300
2.2000
--------
12.6778
(4 Marks)
Q 3
NOPLAT = Net Operating Profit Less Adjusted Tax
COCE = Cost of Capital Employed
COCE = Weighted Average Cost Of Capital X Capital Employed
(a) E.V.A. = NOPLAT - COCE
Debt Capital
Equity capital
Rs.2,000 crores
500 + 7,500 = Rs.8,000 crores
Capital employed Rs.10,000 crores
Debt to capital employed = 2,000 / 10,000 = 20%
Equity to Capital employed = 8,000 / 10,000 = 80%
Debt cost before Tax 12%
Less: Tax (30% of 12%) 3.6%
Debt cost after Tax 8.4%
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According to Capital Asset Pricing Model (CAPM)
Cost of Equity Capital = 9 + 1.05 X (19-9) = 9 + 1.05 X 10 = 19.5%
WACC = 15.60% + 1.68% = 17.28%
COCE = WACC X Capital employed = 17.28% X 10,000 crores = 1728 crores
E.V.A. = NOPLAT - COCE = Rs. 2,100 - Rs. 1,728 = Rs. 372 crores
(8 Marks)
(b) Workings:
1. Profits earned by Var Ltd.
P & L A/c on 31.03.10
Add: Dividend for 2008-09 [8,000 / 25%]
1,92,000
32,000
Less: P & L A/c on 01.04.09
2,24,000
84,000
1,40,000
(1 Mark)
2. Analysis of Profits of Var Ltd.
Capital
Profits
Revenue
Profits
P & L A/c on 01.04.09 84,000
Profits in 2009 -10 [3:9] 35,000
-----
1,05,000
1,19,000 1,05,000
Dividend for 2008-09 (32,000) -----
Tar Ltd. (25%)
87,000
21,750
1,05,000
26,250
(3 Marks)
Identification of Goodwill / Capital Reserve:
Cost of Shares
Less: Pre-acquisition dividend
2,40,000
8,000
2,32,000
Less: Paid-up value [5,00,000 X 25%] 1,25,000
Share in capital profits
Goodwill
21,750
85,250
(2 Mark)
Carrying Amount of Investment as per Equity Method:
Net Cost of shares
Add: Share in revenue profits
2,32,000
26,250
2,58,250
(2 Mark)
Q 4
(a) Determination of Equivalent No. of shares in terms of FV of Rs.10:
A Ltd. B Ltd.
Rs.10 face value 20,000 12,000
Rs.5 face value (16,000 X 5/10) 8,000 -----
Rs.15 face value (20,000 X 15/10) --------- 30,000
28,000 42,000
(2 Marks)
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Determination of Value per equity share:
Value of net assets to partly paid equity shareholders
Add: Notional call
•
20,000 X 8
•
12,000 X 6
•
16,000 X 4
•
20,000 X 7.5
(a) Net assets if equity shares are fully paid up
(b) No. of equivalent equity shares
(c) Value of Rs.10 face value share if fully paid up
(d) Value of Rs.5 face value share if fully paid up [35.86 X 5 / 10]
(e) Value of Rs.15 face value share if fully paid up [30.29 X 15 /
10]
(f) Value of Rs.10 face value share, Rs.2 paid-up [35.86 – 8]
(g) Value of Rs.10 face value share, Rs.4 paid-up [30.29 – 6]
(h) Value of Rs.5 face value share, Re.1 paid-up [17.93 – 4]
(i) Value of Rs.15 face value share, Rs.7.5 paid-up [45.44 – 7.5]
A Ltd. B Ltd.
7,80,000 10,50,000
1,60,000 ------
-----
64,000
------------
72,000
-----
1,50,000
10,04,000 12,72,000
28,000 42,000
35.86
17.93
----
30.29
-----
45.44
27.86
----
13.93
-----
(6 Marks)
Selection of Preference shares for investment:
EBIT (given)
Less: Interest
EAT
A Ltd. B Ltd.
60,000 66,000
6,000 12,000
54,000 54,000
Less: Tax
(a) Profit to share holders
(b) Preference dividend
16,200 16,200
37,800 37,800
9,000 4,500
(c) Preference dividend coverage ratio [a / b] 4.20 8.40
Preference shares of B Ltd. are preferable in view of higher preference dividend coverage ratio.
(2 Marks)
(b) Capital Base = Rs.1,00,00,000
Actual Profit = Rs. 11,00,000
Target Profit @ 12.5% = Rs. 12,50,000
Expected Profit on employing the particular executive
= Rs.12,50,000 + 2,50,000 = Rs.15,00,000
Additional Profit = Expected Profit – Actual Profit
= 15,00,000 – 11,00,000 = Rs.4,00,000
Maximum bid price = 4,00,000 / 12.5 % = Rs.32,00,000
Maximum salary that can be offered = 12.5% of Rs.32,00,000 i.e., 4,00,000
Maximum salary can be offered to that particular executive up to the amount of additional profit i.e., Rs.4,00,000.
(6 Marks)
-----
24.29
-----
37.94
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Q 5 Determination of Number of Equity Shares to be issued:
Particulars
Profit before interest and tax (given)
Opening stock is understated (5,00,000 X 5%)
White Ltd. Black Ltd.
6,00,000 4,40,000
----------- (25,000)
Closing stock is overstated (2,20,000 / 110% X 10%) (20,000) -----------
Debenture interest (80,000 X Rs.10 X 5%) ----------- (40,000)
Adjusted Profit before tax
Less: Tax @ 40%
5,80,000
2,32,000
3,75,000
1,50,000
Adjusted Profit after tax
Less: Preference Dividend (1,00,000 X Rs.10 X 8%)
Adjusted Profit to equity shareholders
X PE Ratio
Total Value of Equity Shares
Agreed Issue price per equity share
New equity shares to be issued
3,48,000
-----------
2,25,000
80,000
3,48,000 1,45,000
15
12.5
4,17,600
10
52,20,000 14,50,000
12.5
1,16,000
(4 Marks)
Determination of Bank Balance:
Particulars Amount
From issue of shares (20,00,000 X 14)
12.5 % Term Deposit (TOD)
Profit from trading in futures (pre-tax)
(2,80,00,000 X 18%) / 60%
Dividend Received from -
White (3,00,000 X Rs.10 X 5%)
Black (1,20,000 X Rs.10 X 2%)
(Rs.)
2,80,00,000
15,00,000
84,00,000
1,50,000
24,000
Dividend Paid [4,17,600 + 1,16,000 i.e. 5,33,600 X 10 X 3.5%] (1,86,760)
Preliminary expenses (12,00,000)
Working expenses
TOD interest (15,00,000 X 12.5% X 2/12)
TOD settled
(2,00,000)
(31,250)
(15,00,000)
Debenture interest (80,000 X Rs.10 X 5% X 3/12)
Preference Dividend (1,00,000 X Rs.10 X 8% X 3/12)
(10,000)
(20,000)
3,49,25,990
(4 Marks)
Determination of Provision for Tax:
Particulars
Profit from trading in futures (pre-tax)
Amount
(Rs.)
84,00,000
Less:
Preliminary expenses (12,00,000 X 20%) 2,40,000
Working expenses
TOD interest
Debenture interest
Taxable Income
X Tax Rate
Provision for tax
2,00,000
31,250
10,000
79,18,750
40%
31,67,500
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(2 Marks)
Statement of Profit and Loss of Black and White Ltd. for the period 1 st
October
2010 to 31 st
December 2010:
Particulars
I. Revenue from Operations
(Dividend Received)
II. Other Income
(Profit from futures)
III. Total Revenue (I + II)
IV. Expenses:
Working expenses
TOD interest
Debenture interest
V. Profit before tax (III – IV)
VI. Tax Expenses
(a) Current tax
Note
No.
(b) Deferred tax
VII. Profit for the period (V – VI)
Amount
(Rs.)
2,00,000
31,250
10,000
31,67,500
-------------
Amount
(Rs.)
1,74,000
84,00,000
85,74,000
2,41,250
83,32,750
31,67,500
51,65,250
(4 Marks)
Balance Sheet of Black and White Ltd. as on 31 st
December 2010:
I.
1.
Equity and Liabilities:
Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
Note No.
2
1
Amount Amount
3,94,28,490
2,63,36,000
1,30,92,490
2. Non Current Liabilities
Long Term Borrowings 8,00,000
8,00,000
(5% Debentures)
3. Current Liabilities
Short Term Provision (Provision for tax)
Total
II. Assets:
31,67,500
31,67,500
4,33,95,990
1. Non Current Assets
Non Current Investment in subsidiaries:
Equity Shares
(52,20,000 + 14,50,000)
66,70,000
84,70,000
Preference shares
Debentures
2. Current Assets
Cash and Cash Equivalents
Total
10,00,000
8,00,000
3,49,25,990
3,49,25,990
4,33,95,990
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See accompanying notes:
Note
No.
1 Share Capital:
(a) Equity Share Capital:
5,33,600 + 20,00,000 i.e. 25,33,600 equity
Amount
(Rs.)
Amount
(Rs.)
2,63,36,000 shares of Rs.10 each fully paid up 2,53,36,000
(of which 5,33,600 shares issued for consideration other than cash)
(b) Preference Share Capital:
8 %, 1,00,000 Preference shares of Rs.10 each
2 Reserves and Surplus
Securities Premium
[(5,33,600 X 2.5) + (20,00,000 X 4)]
10,00,000
93,34,000
12,00,000 81,34,000 Less: Preliminary expenses
Profit and Loss Account
Opening Balance
Add: Profit for the period
Less: Dividend Paid
Equity
Preference
-------------
51,65,250
51,65,250
1,86,760
20,000 49,58,490
1,30,92,490
(6 Marks)
Q 6
(a) More than 6 are provided for reference:
Mandatory Exceptions
Ind AS 101 provides that an entity should apply the following mandatory exceptions: i.
estimates ii.
derecognition of financial assets and financial liabilities; iii.
hedge accounting; iv.
non-controlling interests; v.
classification and measurement of financial assets; vi.
impairment of financial assets; vii.
embedded derivatives; and viii.
government loans
Voluntary Exemptions
An entity may elect to use one or more exemptions given in Ind AS 101 in the context of the following: i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
share-based payment transactions; insurance contracts; deemed cost; leases; cumulative translation differences; investments in subsidiaries, joint ventures and associates; assets and liabilities of subsidiaries, associates and joint ventures; compound financial instruments; designation of previously recognised financial instruments; x.
fair value measurement of financial assets or financial liabilities at initial recognition; xi.
decommissioning liabilities included in the cost of property, plant and equipment;
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xii.
financial assets or intangible assets accounted for in accordance with Appendix
C to Ind AS 115, Service Concession
Arrangements; xiii.
borrowing costs xiv.
extinguishing financial liabilities with equity instruments; xv.
severe hyperinflation; xvi.
joint arrangements; xvii.
stripping costs in the production phase of a surface mine; xviii.
designation of contracts to buy or sell a non-financial item; xix.
revenue from contracts with customers; and xx.
non-current assets held for sale and discontinued operations.
(6 Marks)
(b) Let the lease rent charged at the end of each year be Rs.x
Year Lease Receipts PVF (10%) PV
1 – 3
3
X
20,000
2.487
0.751
2.487X
15,020
2.487X + 15,020
Lease rent is charged in such a manner that cost of the asset is recovered.
2.487X + 15,020 = 1,50,000 i.e. X = Rs.54,274 (4 Marks)
Unearned finance income = [(54,274 X 3) + 20,000 ] – 1,50,000 = Rs.32,822
(1 Mark)
Finance Income each year:
Year Amount
1
2
3 o/s at
Finance
Income beginning @ 10% end
1,50,000 15,000 1,65,000 54,274 1,10,726
1,10,726
67,525
11,073
6,749
32,822
Total
Dues
1,21,799
74,274
Lease
Receipt
54,274
54,274
Amount o/s at
67,525
20,000
(3 Marks)
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Q 7
(a)
(i) Discontinued
Operations –
Definition &
Measurement
Accounting Standards distinguished for financial reporting and represent major
Indian Accounting Standards
Operations and cash flows Definition of discontinued similar to AS 24. However, it also includes a subsidiary
(ii) Acquired
Intangible
Assets operations are discontinued operations.
Measurement of discontinued operations is based on AS
24.
Discontinued operations are measured at lower of carrying amount and fair value less cost to sell.
If recognition criteria are If recognition criteria are satisfied then it can be satisfied then it can be capitalized. capitalized.
All intangibles are amortized It is amortized over useful life. least annually for impairment.
Revaluations are not permitted.
(6 Marks)
(b) As per AS 9 “Revenue Recognition”, revenue from sale of goods should be recognsied when – rebuttable presumption of not exceeding 10 years. indefinite useful life are not amortized but reviewed at
(i) Property in goods has been transferred from seller to buyer, or
(ii) Significant risks and rewards incident to ownership has been transferred from seller to buyer
(2 Marks)
In the present case, the goods, as well as risks and rewards incident to ownership has been transferred to the power plants. Even the invoice is raised for full amount by Perfect Ltd. though it receives 90 % and balance 10 % is kept as retention money.
Perfect Ltd. should recognize revenue at full invoice price i.e. 100% of sales price.
The company should make a separate provision for the balance 10 % amount to reflect the uncertainty rather than to adjust the amount of revenue.
(2 Marks)
Solution prepared by
CA. Ashish Lalaji
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Thus, the practice adopted of recognizing only 90 % of sales price as revenue by
Perfect Ltd. is not in consonance with AS 9.
(c) Amended AS 11 provides an alternate treatment of exchange differences arising on translation of LTFCL, whereby such exchange differences are adjusted to cost of depreciable fixed assets acquired from use of such LTFCL.
Option Ltd. can avail this alternative treatment but once this option is exercised, it is irrevocable.
(2 Marks)
Determination of amount of depreciation:
Particulars
Cost of machineries on 01.04.11 ($ 10 lakhs X 52)
Less: Exchange gain on translation of LTFCL
[$ 10 lakhs (52 – 51)]
Less: Depreciation for 2011 – 12 [510 – 20 / 10 years]
Carrying amount of machineries as on 31.03.12
Amount
(Rs. in lakhs)
520
10
510
49
461
(3 Marks)
Solution prepared by
CA. Ashish Lalaji
Be free to send your suggestions / comments to
CA. Ashish Lalaji at 9825856155 / ashishlalaji@rediffmail.com
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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.
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.
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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.
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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