Paul’s UniversitySt.
Solution: Assignment#2
September-December 2014
(A)
Marks: 05
On Nov 1, 2008 the company borrowed $ 4,000,000 at 24% to finance construction of
the plant.
Repayment of loan will start a month after completion of project.
During the year ended Oct.31, 2009, expenditure on the building was $3, 000,000. The
expenditure was incurred evenly through the year.
What amount of interest should be capitalized in year ended Oct, 31 2009?
Solution:
$
Average expenditure ($)
($ 3,000,000/2)
1,500,000
Interest rate to be used
24%
Avoidable Interest ($)
360,000
Interest to be capitalized ($)
360,000
Since the loan exceeds the expenditure, it is a case of specific borrowing.
Marks: 05
(B)
Net profit for year ended December 31,2007
weighted average number of ordinary shares outstanding during 2007
Average value of one ordinary share during year 2007
Weighted average number of share under option during 2007
Exercise price for shares under option during year 2007
$
1,300
200 shares
$
25
80 shares
$
20
Required:
Compute basic and diluted earning per share.
Solution
Per share
$
Net profit for year 2007
Weighted average shares outstanding during year 2007
Basic earning Per share
Number of shares under option
Number of shares that would have been issued at fair value
(80 x $20/$25)
Diluted earning per share
Earnings No of shares
$
$
1,300
200
6.50
80
(64)
6.02
1,300
Group Account
(C)
Five years ago, Hassan Ltd acquired the following shares in Pervaiz Ltd:
Marks: 10
216
Solution: Assignment#2
September –December 2014
Rupees
75,000 Ordinary shares of $ 1 --- cost
15,000 6% Preferred shares of $ 1 --- cost
93,100
16,050
109,150
At the date of acquisition, the retained earnings of Pervaiz Ltd amounted to $ 11,000.
The summarized balance sheets of the two companies at 31 December 2008 were as
follows:
Ordinary Shares of $ 1
6% Preferred Shares of $ 1
Reserves
Sundry payables
Tangible Non- Current assets
Investments
Inventory
Receivables
Cash at Bank
Hassan Ltd
(Rupees)
350,000
---348,420
93,400
791,820
431,100
109,150
143,070
89,200
19,300
791,820
Pervaiz Ltd
(Rupees)
100,000
60,000
132,700
51,150
343,850
219,350
---71,120
36,230
17,150
343,850
During the year Hassan Ltd sold goods whose invoice value was $ 24,000 to Pervaiz
Ltd. These goods were invoiced at cost plus 25%, and one-quarter were still in Pervaiz’s
inventory at the year end.
Required:
Prepare the consolidated balance sheet of Hassan Ltd as at 31 December 2008.
Solution:
Hassan Ltd and its subsidiary
Group Balance Sheet
As at 3 December 2008
Rupees
Assets
Non-current assets ---- tangible
---- intangible (W2)
Current assets
Inventory (W5)
Rupees
650,450
10,900
661,350
212,990
Solution: Assignment#2
September – December 2014
Receivables
Cash at bank
125,430
36,450
Total Assets
Equity & Liabilities
Equity attributable to equity holders of the parent
Share Capital
Reserves (W3)
374,870
1,036,220
350,000
438,495
788,495
58,175
846,670
Minority interest (W4)
Non-current liabilities
Preference shares ($ 60,000 – $ 15,000)
Current liabilities
Total Equities & Liabilities
45,000
144,550
1,036,220
Workings:
(W1): Shareholders in Pervaiz Ltd.
Group
Minority
Ordinary %
75
25
100
Preferred %
25
75
100
Rupees
Rupees
109,150
(W2): Goodwill:
Cost of investment
Less: Share of Net Assets at acquisition
Ordinary Share Capital
Reserves
Preference Share Capital
Goodwill
100,000
11,000
111,000
* 75%
60,000
* 25%
(83,250)
(15,000)
10,900
(W3): Consolidated reserves:
Hassan Ltd
Less: Provision for unrealized profit on inventory
(25 / 125 * 1 / 4 * 24,000)
Pervaiz Ltd: 75% (132,700 – 11,000)
Rupees
348,420
(1,200)
91,275
Solution: Assignment#2
September – December 2014
438,495
(W4): Minority interest:
Net Assets of Pervaiz Ltd
Ordinary Share Capital
Reserves
Rupees
100,000
132,700
232,700
* 25%
58,175
(W5): Consolidated inventory:
Hassann Ltd
Provision for unrealized profit
Pervaiz Ltd
Rupees
143,070
(1,200)
71,120
212,990