CA Inter Advanced Accounting Important Question

 

 

Revenue in respect of sale of goods is recognized fully at the time of sale itself assumed that the company has complied with the conditions stated in AS 9 relating to recognition of revenue in the case of sale of goods. As per AS 9, in a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled:

 

(i) Seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and

(ii) No significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. AS 9 also provides that in case of retail sales offering a guarantee of money back, if not completely satisfied, it may be appropriate to recognize the sale but to make a suitable provision for returns based on previous experiences.

 

Therefore, sale of ₹ 36 lakhs, ₹ 48 lakhs and ₹ 60 lakhs made in the months of January, February and March will be recognized at full value. Thus, total revenue to be recognized for RS. 400 lacs for the year.

 

 

	(₹ in lacs)
Sales for the year	400
Less: Cost of sales	(320)
Profit	80
Profit mark up on sales (80/400) x 100 = 20%

 

Question 2. 

The company has not made provision for warranty in respect of certain goods considering that the company can claim the warranty cost from the original supplier.

You are required to examine in line with the provisions of AS 29.

Answer: 

For more download our app - Download App

AS 4 - Contingencies and Event occuring after the Balance Sheet Date

Question 1. 

With reference to AS 4 "Contingencies and events occurring after the balance sheet date", state whether the following events will be treated as contingencies, adjusting events or non-adjusting events occurring after balance sheet date in case of a company which follows April to March as its financial year.

(i) A major fire has damaged the assets in a factory on 5th April, 5 days after the year-end. However, the assets are fully insured and the books have not been approved by the Directors.

(ii) A suit against the company's advertisement was filed by a party on 10th April, 10 days after the year-end claiming damages of ₹ 20 lakhs.

Answer: 

According to AS 4 on ‘Contingencies and Events Occurring after the Balance Sheet Date’, adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date.

However, adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date, if such events do not relate to conditions existing at the balance sheet date. “Contingencies” used in the Standard is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur.

(i) Fire has occurred after the balance sheet date and also the loss is totally insured. Therefore, the event becomes immaterial and the event is non-adjusting in nature.

(ii) The contingency is restricted to conditions existing at the balance sheet date.

However, in the given case, suit was filed against the company’s advertisement by a party on 10th April for amount of ₹ 20 lakhs. Therefore, it does not fit into the definition of a contingency and hence is a non-adjusting event.

Question 2. 

As per the provision of AS 4, you are required to state with reason whether the following transaction are adjusting event or non-adjusting event for the year ended 31.03.20X2 in the books of NEW Ltd. (accounts of the company were approved by board of directors on 10.07.20X2):

1. Equity Dividend for the year 20X1-X2 was declared at the rate of 7% on 15.05.20X2:
2. On 05.03.20X2, ₹ 53,000 cash was collected from a customer but not deposited by the cashier. This fraud was detected on 22.06.20X2.
3. One Building got damaged due to occurrence of fire on 23.05.20X2. Law was estimated to be ₹ 81,00,000.

Answer: 

For more download our app - Download App

AS 5 - Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies 

Question 1. 

i. During the year 20X1-20X2, a medium size manufacturing company wrote down its inventories to net realisable value by ₹ 5,00,000. Is a separate disclosure necessary?

ii. A company signed an agreement with the Employees Union on 1.9.20X1 for revision of wages with retrospective effect from 30.9.20X0. This would cost the company an additional liability of ₹ 5,00,000 per annum. Is a disclosure necessary for the amount paid in 20X1-X2? 

Answer: 

(i) Although the case under consideration does not relate to extraordinary item, but the nature and amount of such item may be relevant to users of financial statements in understanding the financial position and performance of an enterprise and in making projections about financial position and performance. AS 5 on ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’ states that:

“When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.”

Circumstances which may give to separate disclosure of items of income and expense in accordance with AS 5 include the write-down of inventories to net realisable value as well as the reversal of such write-downs.

(ii) It is given that revision of wages took place on 1st September, 20X1 with retrospective effect from 30.9.20X0. Therefore wages payable for the half year from 1.10.20X1 to 31.3.20X2 cannot be taken as an error or omission in the preparation of financial statements and hence this expenditure cannot be taken as a prior period item.

Additional wages liability of ₹7,50,000 (for 1½ years @ ₹ 5,00,000 per annum) should be included in current year’s wages. It may be mentioned that additional wages is an expense arising from the ordinary activities of the company. Such an expense does not qualify as an extraordinary item. However, as per AS 5, when items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.

Question 2. 

PQR Ltd. is in the process of finalizing its accounts for the year ended 31st March, 20X4.

The company seeks your advice on the following:

Goods worth ₹ 5,00,000 were destroyed due to flood in September, 20X1. A claim was lodged with insurance company. But no entry was passed in the books for insurance claim in the financial year 20X1-X2. In March, 20X4, the claim was passed and the company received a payment of ₹ 3,50,000 against the claim. Explain the treatment of such receipt in final account for the year ended 31st March, 20X4.

Answer: 

For more download our app - Download App

AS 11 - The Effects of Changes in Foreign Exchanges Rates 

Question 1. 

During the financial year 20X1-X2, Zeds Ltd., an e-commerce firm entered into a foreign currency transaction relating to fees for technical services paid to a Lucas Ltd., an Atlanta based organisation in the USA. The transaction was for $24,000, which was entered into on 07.12.20X1. The payment for the same was made on 20.05.20X2. Given that the exchange rates are: on 07.12.20X1: $1 = ₹ 68.80; on 01.01.20X1: $1 = ₹ 68.95; on 31.03.20X2: $1 = ₹ 70.45; on 20.05.20X2: $1 = ₹ 71.50.

You are required to:

(a) ascertain the amount at which the transaction would get recognised in the books; and

(b) calculate amount of foreign exchange gain/ loss to be recorded in the financial statement for the years 20X1-X2 and 20X2-X3.

Answer: 

(a) As per AS 11, a foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

⸫ Fees for technical services $24,000 would be recorded on 07.12.20X1 applying the exchange rate existing on that date = 24,000 × ₹ 68.80 = ₹ 16,51,200.

(b) For 20X1-X2:

On 31.03.20X2, Outstanding fess for technical services should be reflected in the balance sheet using the closing rate ($1 = ₹ 70.45) i.e. 24,000 × ₹ 70.45 = ₹ 16,90,800.

⸫ Exchange loss to be charged to the Statement of Profit and Loss = ₹ (16,90,800 – 16,51,200) = ₹ 39,600.

For 20X2-X3:

On 20.05.20X2, Outstanding fess for technical services paid should be recognised using the existing rate ($1

= ₹ 71.50) i.e. 24,000 × ₹ 71.50 = ₹ 17,16,000.

⸫ Exchange loss on settlement to be charged to the Statement of Profit and Loss = ₹ (17,16,000 – 16,90,800)

= ₹ 25,200.

Question 2. 

Karan Enterprises having its Head Office in Mangalore, Karnataka has a branch in Greenville, USA. Following is the trial balance of Branch as at 31-3-2024: 

Particulars	Amount ($) Dr.	Amount ($) Cr.
Fixed assets	8,000
Opening inventory	800
Cash	700
Goods received from Head Office	2,800
Sales		24,050
Purchases	11,800
Expenses	1,800
Remittance to head office	2,450
Head office account		4,300
	28,350	28,350

(i) Fixed assets were purchased on 1st April, 2020.

(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method.

(iii) Closing inventory at branch is $ 700 as on 31-3-2024.

(iv) Goods received from Head Office (HO) were recorded at ₹ 1,85,500 in HO books.

(v) Remittances to HO were recorded at ₹ 1,62,000 in HO books.

(vi)   HO account is recorded in HO books at ₹ 2,84,500.

(vii)  Exchange rates of US Dollar at different dates can be taken as :

1-4-2020	₹ 63
1-4-2023	₹ 65 and
31-3-2024	₹ 67

Prepare the trial balance after been converted into Indian rupees in accordance with AS-11. 

Answer: 

For more download our app - Download App

AS 22 - Accounting for Taxes on Income 

Question 1. 

The following particulars are stated in the Balance Sheet of Deep Limited as on 31st March, 2020:

	(₹ In Lakhs)
Deferred Tax Liability (Cr.)	28.00
Deferred Tax Assets (Dr.)	14.00

The following transactions were reported during the year 2020-2021:

(i) Depreciation as per books was ₹ 70 Lakhs whereas Depreciation for Tax purposes was ₹ 42 Lakhs. There were no additions to Fixed Assets during the year.

(ii) Expenses disallowed in 2019-20 and allowed for tax purposes in 2020-21 were ₹ 14 Lakhs.

(iii) Share issue expenses allowed under section 35(D) of the Income Tax Act, 1961 for the year 2020-21 (1/10th of ₹ 70.00 lakhs incurred in 2019-20).

(iv) Repairs to Plant and Machinery were made during the year for ₹ 140.00 Lakhs and was spread over the period 2020-21 and 2021-22 equally in the books. However, the entire expenditure was allowed for income-tax purposes in the year 2020-21.

Tax Rate to be taken at 40%.

You are required to show the impact of above items on Deferred Tax Assets and Deferred Tax Liability as on 31st March, 2021.

Answer: 

Impact of various items in terms of deferred tax liability/deferred tax asset on 31.3.21

Transactions	Analysis	Nature of difference	Effect	Amount (₹)
Difference in depreciation	Generally, written down value method of depreciation is adopted under IT Act which leads to higher depreciation in earlier years of useful life of the asset in comparison to later years.	Responding timing difference	Reversal of DTL	28 lakhs  40% = ₹ 11.20 lakhs
Disallowances, as per IT Act, of earlier years	Tax payable for the earlier year was higher on this account.	Responding timing difference	Reversal of DTA	14 lakhs × 40% = 5.6 lakhs
Share issue expenses	Due to disallowance of full expenditure under IT Act, tax payable in the earlier years was higher.	Responding timing difference	Reversal of DTA	7 lakhs × 40% = ₹ 2.8 lakhs
Repairs to plant and machinery	Due to allowance of full expenditure under IT Act, tax payable of the current year will be less.	Originating timing difference	Increase in DTL	70 lakhs × 40% =28 lakhs

 

Question 2. 

Rama Ltd., has provided the following information:

	₹
Depreciation as per accounting records =	2,00,000
Depreciation as per income tax records =	5,00,000
Unamortised preliminary expenses as per tax record =	30,000

There is adequate evidence of future profit sufficiency.

You are required to calculate the amount of deferred tax asset/liability to be recognized as transition adjustment assuming Tax rate as 50%.

Answer: 

For more download our app - Download App

AS 7 - Construction Contracts 

Question 1. 

Rajendra undertook a contract ₹ 20,00,000 on an arrangement that 80% of the value of work done, as certified by the architect of the contractee should be paid immediately and that the remaining 20% be retained until the Contract was completed.

In Year 1, the amounts expended were ₹ 8,60,000, the work was certified for ₹ 8,00,000 and 80% of this was paid as agreed. It was estimated that future expenditure to complete the Contract would be ₹ 10,00,000.

In Year 2, the amounts expended were ₹ 4,75,000. Three-fourth of the work under contract was certified as done by December 31st and 80% of this was received accordingly. It was estimated that future expenditure to complete the Contract would be ₹ 4,00,000.

In Year 3, the amounts expended were ₹ 3,10,000 and on June 30th, the whole Contract was completed. 

Show how Contract revenue would be recognized in the P & L A/c of Mr. Rajendra each year

Answer: 

Year 1	₹
Actual expenditure	8,60,000
Future estimated expenditure	10,00,000
Total Expenditure	18,60,000

% of work completed = 8,60,000/18,60,000 x 100 = 46.24% (rounded off) 

Revenue to be recognized = 20,00,000 x 46.24% = ₹ 9,24,800

Year 2	₹
Actual expenditure	4,75,000
Future Expenditure	4,00,000
Expenditure incurred in Year 1	8,60,000
	17,35,000

% of work completed = 4,75,000+8,60,000/17,35,000= 76.95% (rounded off) 

Revenue to be recognized (cumulative)	= 20,00,000 x 76.95%	15,39,000
Less: revenue recognized in Year 1		(9,24,800)
Revenue to be recognized in Year 2		₹ 6,14,200

Year 3

Whole contract got completed therefore total contract value less revenue recognized up to year 2 will be amount of revenue to be recognized in year 3 i.e. 20,00,000 – 15,39,000 (9,24,800 + 6,14,200) = ₹ 4,61,000.

Question 2. 

On 1st December 2020, “Sampath” Construction Limited undertook a contract to construct a building for ₹ 108 lakhs. On 31st March 2021 the company found that it had already spent ₹ 83.99 lakhs on the construction. A prudent estimate of additional cost for completion was ₹ 36.01 lakhs.

You are required to compute the amount of provision for foreseeable loss, which must be made in the Final Accounts for the year ended 31st March 2021 based on AS 7 “Accounting for Construction Contracts.”

Answer: 

For more download our app - Download App

AS 9 - Revenue Recognition

Question 1. 

Mithya Ltd. entered into agreement with Satya Ltd. for sale of goods costing ₹ 8 lakh at a profit of 20% on cost. The sale transaction took place on 1st February, 2024. On the same day, Satya Ltd. entered into another agreement with Mithya Ltd. to resell the same goods at ₹ 10.80 lakh on 1st August, 2024. State the treatment of this transaction in the financial statements of Mithya Ltd. as on 31.03.2024. The predetermined re selling price covers the holding cost of Satya Ltd. Give the Journal Entries as on 31.03.2024 in the books of Mithya Ltd.

Answer: 

In the given case, Mithya Ltd. concurrently agreed to repurchase the same goods from Satya Ltd. on 1^st February, 2024. Also the re-selling price is pre-determined and covers purchasing and holding costs of Satya Ltd. Hence, the transaction between Mithya Ltd. and Satya Ltd. on 1st February, 2024 should be accounted for as financing rather than sale. The resulting cash flow of ₹ 9.60 lakh received by Mithya Ltd., cannot be considered as revenue as per AS 9 “Revenue Recognition”.

Journal Entries in the books of Mithya Ltd

			₹ in lakh
1.2.2024	Bank Account	Dr.	9.60
	To Advance from Satya Ltd∗			9.60
	(Being advance received from Satya Ltd. amounting [₹ 8 lakh + 20% of ₹ 8 lakh = 9.60 lakh] under sale and re-purchase agreement)
31.3.2024	Financing Charges Account	Dr.	0.40
	To Satya Ltd			0.40
	(Financing charges for 2 months [(10.80 – 9.60) x 2/6]
31.3.2024	Profit and Loss Account	Dr.	0.40
	To Financing Charges Account			0.40
	(Being amount of finance charges transferred to P& L Account)

 

Question 2. 

A Limited sells goods with unlimited right of return to its customers .

The following pattern has been observed in the Return of Sales:

Time frame of Return from date of purchase	% of Cumulative Sales
Between 0-1 month	6%
Between 1-2 months	7%
Between 2-3 months	8%

The Company has made Sales of ₹ 36 Lakhs in the month of January, ₹ 48 Lakhs in the month of February and of ₹ 60 Lakhs in the month of March. The Total Sales for the Financial Year have been ₹ 400 Lakhs and the Cost of Sales was ₹ 320 Lakhs.

You are required to determine the revenue to be recognized as on 31st March.

Answer: 

For more download our app - Download App

AS 12 - Accounting for Goverment Grants 

Question 1. 

A Ltd. purchased a Machinery for ₹ 75 Lakhs. Government Grant received towards this Machinery is ₹ 10, Lakhs. Residual Value of Machinery at the end of useful life of 6 Years is ₹ 5 Lakhs.

Asset is shown in Balance Sheet at net of grant. 

At the beginning of the 3™ year, an amount becomes refundable to the extent of ₹-8 Lakhs due to non-compliance of certain conditions of grant. 

You are required to give necessary Journal entries for the 1 year and the 3 year in the books of A Ltd. 

Answer: 

Journal Entries in the Books of A Ltd. 

Year	Particulars		₹ in lakhs (Dr.)	₹ in lakhs (Cr.)
1	Machinery Account	Dr.	75
	To Bank Account			75
	(Being machinery purchased)
	Bank Account	Dr.	10
	To Machinery Account			10
	(Being grant received from the government reduced from the cost of machinery)
	Depreciation Account (W.N.1)	Dr.	10
	To Machinery Account			10
	(Being depreciation charged on Straight Line method (SLM))
	Profit & Loss Account	Dr.	10
	To Depreciation Account			10
	(Being depreciation transferred to Profit and Loss Account at the end of year 1)
3.	Machinery Account	Dr.	8
	To Bank Account			8
	(Being government grant on machinery partly refunded which increased the cost of fixed asset)
	Depreciation Account (W.N.2)	Dr.	12
	To Machinery Account			12
	(Being depreciation charged on SLM on revised value of fixed asset prospectively)
	Profit & Loss Account	Dr.	12
	To Depreciation Account			12
	(Being depreciation transferred to Profit and Loss Account at the end of year 3)

Working Notes: 

1. Depreciation for Year 1 

	₹ in lakhs
Cost of the Machinery	75
Less: Government grant received	(10)
	65
Depreciation [(65 - 5)/ 6]	10

2. Depreciation for Year 3 

	₹ in lakhs
Cost of the Machinery	75
Less: Government grant received	(10)
	65
Less: Depreciation for the first two years	20
	45
Add: Government grant refundable	8
	53
Depreciation for the third year [(53-5)/ 4]	12

 

Question 2. 

Ram Ltd. purchased machinery for ₹ 80 lakhs (useful life 4 years and residual value ₹ 8 lakhs). Government grant received was ₹ 32 lakhs. The grant had to be refunded at the beginning of third year.  Show the Journal Entry to be passed at the time of refund of grant and the value of the fixed assets in the third year and the amount of depreciation for remaining two years, if the grant had been credited to Deferred Grant A/c.

Answer: 

For more download our app - Download App

AS 23 - Accounting for Investments in Associates in Consolidated Financial Statement 

Question 1. 

A Ltd. invested ₹ 1,00,000 to acquire 10% stake (Investment I) in B Ltd.and later invested ₹ 3,00,000 to acquire additional 20% (Investment II). The net asset value of the B ltd. at the respective investment dates was ₹ 7,50,000 and ₹ 12,50,000 respectively. Determine whether B Ltd. is an associate of A Ltd. Also, calculate goodwill arising on the acquisition of the associate.

Answer: 

As per para 3 of AS 23 an associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Significant influence may be gained by share ownership, statute or agreement. As regards share ownership, if an investor holds, directly or indirectly through subsidiary(ies), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. In this case, A Ltd. has invested 30 % in B Ltd. so B Ltd. is to be considered as an associate of A Ltd.

The goodwill arising on the acquisition of the associate will be computed as follows:

		₹
Investment I		1,00,000
Share of net assets	(10 percent of ₹ 7,50,000)	(75,000)
Goodwill (A)		25,000
Investment II		3,00,000
Share of net assets	(20 percent of ₹ 12,50,000)	(2,50,000)
Goodwill (B)		50,000
Total goodwill (A + B)		75,000

 

Question 2. 

The 31st December, 2009 balance sheets of A Ltd. and its subsidiaries, BL and C Ltd, were as follows:

			(Rs in'000)
	A Ltd	B Ltd	C Ltd
Investment ,at cost
1,00,000 Shares in B Ltd	100	-	-
1,00,000 Shares in C  Ltd	300	-	-
Land	-	-	100
Other assests	600	600	400
	1000	600	500
Share captial @Rs 1 per share	400	100	100
Retained profit	400	300	200
Liabilities	200	200	200
	1 ,000	600	500

A Ltd. acquired its investment in B Ltd. in January 2007 when B Ltd. was formed with a share capital of Rs. 1,00,000.

A Ltd.'s acquired its investment in C Ltd. in February 2007 when C Ltd.'s net assets were represented by share capital of Rs. 1,00,000 and retained profits of Rs. 1,00,000. On this date, C Ltd.'s land, which was purchased in 2003, was revalued at Rs. 2,00,000.

On 30th September, 2010, A Ltd. sold 70,000 of C Ltd.'s shares for cash consider- ation of Rs. 2,60,000.

The final accounts of the companies for the year 2010 were as follows:

			(Rs in'000)
	A Ltd	B Ltd	C Ltd
investment ,at cost
1,00,000 Shares in B Ltd	100	-	-
1,00,000 Shares in C  Ltd	90	-	-
Land	-	-	100
Other assests	970	800	600
	1160	800	700
Share captial @Rs 1 per share	400	100	100
Retained profit	550	420	280
Liabilities	210	280	320
	1 ,160	800	700

(2) Profit and Loss A/c for the year ended 31-12-2010

			(Rs in'0000)
	A Ltd	B Ltd	C Ltd
profit before tax	150	180	120
Taxation	50	60	40
profit after tax	100	120	80
Extraordinary items	50	-	-
profit after tax and EI	150	120	80
Beginning retained profit	400	300	200
End retained profit	550	420	280

profit on disposal of shares in C Ltd 

Required: Prepare for A Ltd. group the 2009 consolidated balance sheet and the 2010 consolidated balance sheet and consolidated profit and loss account 

Answer: 

For more download our app - Download App

AS 27 - Financial Reporting of Interests in Joint Ventures 

Question 1. 

 X Ltd. floated a joint venture with Y Ltd. a new venture Z Ltd, on 1:1 basis. Balance Sheet of three companies as on 31-03-2010 are given below on

Proportionate Consolidation method 

	X Ltd	Y Ltd	Z Ltd
Share capital	14000	10000	4000
Reserves & surplus	24000	26000	2000
Loan funds	14000	10000	8000
Total	52000	46000	14000
Fixed assets - net	36000	40000	10000
Investment in Joint Ventures	2000	2000	-
Net current assets	14000	4000	4000
Total	52000	46000	14000

 

Answer:

Proportionate Consolidation

		X Ltd		Y Ltd
Share Capital		14000		10000
Reserve & surplus	24000 +1000	25000	26000 +1000	27000
Loan funds	14000 + 4000	18000	10000+4000	14000
Total		57000		51000
Fixed assets - net	36000 +5000	41000	40000+5000	45000
Net current assets	14000 +2000	16000	4000+2000	6000
Total		57000		51000

 

Question 2.

A Ltd. entered into a joint venture with B Ltd. on 1:1 basis and a new company C Ltd. was formed for the same purpose and following is the balance sheet of all the three companies:

Particulars	A Ltd.	B Ltd.	C Ltd.
Share Capital	10,00,000	7,50,000	5,00,000
Reserve & Surplus	18,00,000	16,00,000	12,00,000
Loans	3,00,000	4,00,000	2,00,000
Current Liabilities	4,00,000	2,50,000	1,00,000
Property, Plant and Equipment	30,50,000	26,25,000	19,50,000
Investment in JV	2,50,000	2,50,000	-
Current Assets	2,00,000	1,25,000	50,000

Prepare the balance sheet of A Ltd. and B Ltd. under proportionate consolidatIon method.

Answer: 

For more download our app - Download App

---

Chapter 3: Preparation of Financial Statements

Question 1.

Sumedha Ltd. took a loan from bank for ₹ 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.20X1 of ₹ 1,00,000. Determine how the loan will be classified in preparation of Financial Statements of Sumedha Ltd. for the year ended 31st March, 20X1 according to Schedule III.

Answer: 

As per Schedule III, a liability should be classified as current when it satisfies any of the following criteria:

(i) it is expected to be settled in the company’s normal operating cycle;

(ii) it is held primarily for the purpose of being traded;

(iii) it is due to be settled within twelve months after the reporting date; or

(iv) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

In the given case, installments due on 30.09.20X1 and 31.03.20X2 will be shown under the head ‘other current liabilities’ as per criteria (iii).

Therefore, in the balance sheet as on 31.3.20X1, ₹ 8,00,000 (₹ 1,00,000 x 8 instalments) will be shown under the heading ‘Long term Borrowings’ and ₹ 2,00,000 (₹ 1,00,000 x 2 instalments) will be shown under the heading ‘Other Current Liabilities’ as current maturities of loan from bank.

Question 2.

Shree Ltd. has authorized capital of ₹ 50 lakhs divided into 5,00,000 equity shares of ₹ 10 each. Their books show the following balances as on 31st March, 20X1:

	₹		₹
Inventory 1.4.20X0	6,65,000	Bank balance in Current Account	20,000
Discounts & Rebates allowed	30,000	Cash in hand	8,000
Carriage Inwards	57,500	Interest (bank overdraft)	1,11,000
Patterns	3,75,000	Calls in Arrear @ ₹2 per share	10,000
Rate, Taxes and Insurance	55,000	Equity share capital (2,00,000 shares of ₹ 10 each)	20,00,000
Furniture & Fixtures	1,50,000	Bank Overdraft	12,67,000
Purchases	12,32,500	Trade Payables (for goods)	2,40,500
Wages	13,68,000	Sales	36,17,000
Freehold Land	16,25,000	Rent (Cr.)	30,000
Plant & Machinery	7,50,000	Transfer fees received	6,500
Engineering Tools	1,50,000	Profit & Loss A/c (Cr.)	67,000
Trade Receivables	4,00,500	Repairs to Building	56,500
Advertisement	15,000	Bad debts	25,500
Commission & Brokerage (Dr.)	67,500
Business Expenses	56,000

You are required to prepare Statement of Profit & Loss for the year ended 31st March, 20X1 and Balance Sheet as on that date in line with Schedule III to the Companies Act, 2013 after considering the following:

1. The inventory (valued at cost or market value, which is lower) as on 31st March, 20X1 was ₹ 7,08,000.
2. Outstanding liabilities for wages ₹ 25,000 and business expenses ₹ 36,000.
3. Charge depreciation on closing written down value of Plant & Machinery @ 5%, Engineering Tools @ 20%; Patterns @ 10%; and Furniture & Fixtures @10%.
4. Provide 25,000 as doubtful debts after writing off ₹16,000 as additional bad debts.
5. Provide for income tax @ 30%.

Answer: 

For more download our app - Download App

Question 3.

Particulars	₹
Equity shares capital (fully paid shares of ₹ 10 each)	1,05,00,000
General Reserve	21,84,000
Loan from State Finance Corporation (Secured by hypothecation of Plant & Machinery - Repayable within one year ₹ 3,00,000)	15,75,000
Loans: Unsecured (Long term)	12,70,500
Sundry Creditors for goods & expenses (Payable within 6 months)	21,00,000
Profit & Loss Account	12,25,350
Provision for Taxation	1,99,04,850

Debit Balance

Particulars	₹
Calls in arrears	10,500
Land	21,00,000
Buildings	30,75,000
Plant and Machinery	55,12,500
Furniture & Fixture	5,25,000
Inventories : Finished goods	21,00,000
Raw Materials	5,25,000
Trade Receivables	21,00,000
Advances: Short-term	4,48,350
Cash in hand	3,15,000
Balances with banks	25,93,500
Patents & trademarks	6,00,000
	1,99,04,850

The following additional information is also provided in respect of the above balances:

 6,30,000 fully paid equity shares were allotted as consideration for land & buildings.

1. Cost of Building                                ₹ 42,00,000
2. Cost of Plant & Machinery              ₹ 73,50,000
3. Cost of Furniture & Fixture              ₹ 6,56,250
4. Trade receivables for ₹ 5,70,000 are due for more than 6 months.
5. The amount of Balances with Bank includes ₹ 27,000 with a bank which is not a scheduled Bank and the deposits of ₹ 7,50,000 are for a period of 9 months.
6. Unsecured loan includes ₹ 3,00,000 from a Bank and ₹ 1,50,000 from related parties.

You are not required to give previous year figures. You are required to prepare the Balance Sheet of the Company as on 31st March, 20X1 as required under Schedule III of the Companies Act, 2013.

Answer: 

For more download our app - Download App

---

Chapter 4:  Cash Flow Statement 

Question 1.

ABC Ltd. Company’s Comparative Balance Sheet for 20X2 and the Company’s Income Statement for the year are as follows:

XYZ Ltd. 

Comparative Balance Sheet March 31, 20X2 and 20X1

(Rs. in crores)			20X2			20X1
Sources of funds:
Shareholder’s funds
Share Capital		140		140
Retained earnings		110	250	92		232
Loan funds
Bonds payable			135			40
			385			272
Application of funds
Fixed Assets
Plant and Equipment	430			309
Less: Accumulated	(218)		212	(194)		115
depreciation
Investments			60			75
Current Assets				160
Inventory	205			270
Accounts receivable	180			20
Pre-paid expenses	17			10
Cash	26	428			460
Less : Current liabilities and provisions
Accounts payable	230			310
Accrued liabilities	70			60
Deferred income-tax provision	15	315	113	8	378	82
			385			272

ABC Ltd. 

Income Statement for the year ended March 31, 20X2

(Rs. in crores)

Sales	Rs.1,000
Less : Cost of goods sold	530
Gross margin	470
Less : Operating expenses	352
Net operating income	118
Non-operating items:
Loss on sale of equipment	(4)
Income before taxes	114
Less : Income-taxes	48
Net income	66

Additional information:

(i) Dividends of ₹48 crores were paid in 20X2.

(ii) The loss on sale of equipment of ₹.4 crore reflects a transaction in which equipment with an original cost of ₹12 crore and accumulated depreciation of ₹5 crore were sold for ₹3 crore in cash.

Required:

Using the indirect method, determine the net cash provided by operating activities for 2017 and construct a statement of cash flows.

Answer: 

Statement of net cash flows provided by operating activities for the year ended March 31, 20X2

(using indirect method)

(₹ in crores)

Operating Activities
Net Income	66
Adjustment to convert net income to a cash basis
Depreciation and amortization charges	29
Decrease in accounts receivable	90
Increase in inventory	(45)
Decrease in pre-paid expenses	3
Decrease in accounts payable	(80)
Increase in accrued liabilities	10
Increase in deferred income tax	7
Loss on sale of equipment	4
Net cash provided by operating activities	84
Cash Flow from Investing Activities
Additions to property, building & equipment	(133)
Decrease in long term investments	15
Proceeds from sale of equipment	3
Net cash used in investing activities	115
Cash Flows from Financing Activities
Increase in bonds payable	95
Cash dividends paid	(48)
Net cash used in financing activities	47
Net increase in cash & cash equivalents	16
Cash & cash equivalents at the beginning of year	10
Cash & cash equivalents at the end of year	26

 

Question 2. 

Following are the extracts from the Balance Sheet of ABC Ltd.

Liabilities	31.3.2020	31.3.2021
Equity Share Capital	25,00,000	35,60,000
10 % Preference Share Capital	7,00,000	6,00,000
Securities Premium Account	5,00,000	5,50,500
Profit & Loss A/c	20,00,000	28,00,000

Equity Share Capital for the year ended 31^st March 2021 includes ₹ 60,000 of equity shares issued to Grey Ltd at par for supply of Machinery of ₹ 60,000.

Profit & Loss account on 31^st March 2021 includes ₹ 50,000 of divided received on Equity Shares invested in X Ltd.

Show how the related items will appear in the Cash Flow Statement of ABC Ltd. As per AS-3 (Revised)

Answer: 

For more download our app - Download App

Question 3. 

Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended 31.3.20X1.

Particulars	Amount (₹)
Machinery acquired by issue of shares at face value	2,00,000
Claim received for loss of machinery in earthquake	55,000
Unsecured loans given to associates	5,00,000
Interest on loan received from associate company	70,000
Pre-acquisition dividend received on investment made	52,600
Debenture interest paid	1,45,200
Term loan repaid	4,50,000
Interest received on investment (TDS of ₹ 8,200 was deducted on the above interest)	73,800
Book value of plant & machinery sold (loss incurred ₹ 9,600)	90,000

Answer: 

For more download our app - Download App

---

Chapter 5: Buyback of Securities

Question 1. 

Galaxy Ltd. and Glory Ltd., are two companies engaged in the same business of chemicals. To  mitigate competition, a new company Glorious Ltd, is to be formed to which the assets and liabilities of the existing companies, with certain exception, are to be transferred. The summarized Balance Sheet of Galaxy Ltd. and Glory Ltd. as at 31st March, 20X1 are as follows:

				Galaxy Ltd.	Glory Ltd.
i	Equity & Liabilities			Rs.	Rs.
	(1)	Shareholders' fund
		Share Capital
		Equity shares of Rs 10 each		8,40,000	4,55,000
		Reserves & Surplus
		General Reserve		4,48,000	40,000
		Profit & Loss A/c		1,12,000	72,000
	(2)	Non-current Liabilities
		Secured Loan
		6% Debentures			3,30,000
	(3)	Current Liabilities
		Trade Payables		4,20,000	1,83,000
			Total	18,20,000	10,80,000
ii	Assets
	(1)	Non-current assets Property, Plant & Equipment
		Freehold property, at cost		5,88,000	3,36,000
		Plant & Machinery, at cost less depreciation		1,40,000	84,000
		Motor vehicles, at cost less depreciation		56,000
	(2)	Current Assets
		Inventories		3,36,000	4,38,000
		Trade Receivables		4,62,000	1,18,000
		Cash at Bank		2,38,000	1,04,000
			Total	18,20,000	10,80,000

Assets and Liabilities are to be taken at book value, with the following exceptions:

(i) The Debentures of Glory Ltd. are to be discharged, by the issue of 8% Debentures of Glorious Ltd. at a premium of 10%. 

(ii) Plant and Machinery of Galaxy Ltd. are to be valued at Rs 2,52,000. 

(iii) Goodwill is to be valued at : 

Galaxy Ltd. Rs 4,48,000

Glory Ltd. Rs 1,68,000

(iv) Liquidator of Glory Ltd. is appointed for collection from trade debtors and payment to trade creditors. He retained the cash balance and collected Rs 1,10,000 from debtors and paid Rs 1,80,000 to trade creditors. Liquidator is entitled to receive 5% commission for collection  and 2.5% for payments. The balance cash will be taken over by new company. 

You are required to :

1. Compute the number of shares to be issued to the shareholders of Galaxy Ltd. and Glory Ltd, assuming the nominal value of each share in Glorious Ltd. is Rs 10.
2. Prepare Balance Sheet of Glorious Ltd., as on 1st April, 20X1 and also prepare notes to the accounts as per Schedule III of the Companies Act, 2013.

Answer: 

Calculation of Purchase consideration (or basis for issue of shares of Glorious Ltd.

	Galaxy Ltd.  Rs	Glory Ltd.  Rs
Purchase Consideration:
Goodwill	4,48,000	1,68,000
Freehold property	5,88,000	3,36,000
Plant and Machinery	2,52,000	84,000
Motor vehicles	56,000
Inventory	3,36,000	4,38,000
Trade receivables	4,62,000
Cash at Bank	2,38,000	24,000
	23,80,000	10,50,000
Less: Liabilities :
6% Debentures (3,00,000 x 110%)	-	(3,30,000)
Trade payables	(4,20,000)
Net Assets taken over	19,60,000	7,20,000
To be satisfied by issue of shares of Glorious. Ltd. @ Rs 10 each	1,96,000	72,000

 

Balance Sheet of Glorious Ltd. as at 1st April, 20X1 

		Particulars	Note No	Amount
		EQUITY AND LIABILITIES
1		Shareholders' funds
	(a)	Share capital	1	26,80,000
	(b)	Reserves and surplus	2	30,000
2		Non-current liabilities
	(a)	Long-term borrowings	3	3,00,000
		Current liabilities
	(a)	Trade payables		4,20,000
		Total		34,30,000
		ASSETS
1		Non-current assets
	(a)
	i	Property, plant and equipment	4	13,16,000
	ii	Intangible assets	5	6,16,000
2		Current assets
	(a)	Inventories	6	7,74,000
	(b)	Trade receivables		4,62,000
	(c)	Cash and cash equivalents	7	2,62,000
		Total		34,30,000

 

Notes to accounts: 

		Rs	Rs
1.	Share Capital
	Equity share capital
	2,68,000 shares of Rs 10 each		26,80,000
	(All the above shares are issued for consideration other than cash)
2.	Reserves and surplus
	Securities Premium
	(10% premium on debentures of Rs3,00,000)		30,000
3.	Long-term borrowings
	Secured
	8% 3,000 Debentures of Rs100 each		3,00,000
4.	Property Plant and Equipment
	Freehold property
	Galaxy Ltd.	5,88,000
	Glory Ltd.	3,36,000	9,24,000
	Plant and Machinery
	Galaxy Ltd.	2,52,000
	Glory Ltd.	84,000	3,36,000
	Motor vehicles - Galaxy Ltd.		56,000
			13,16,000
5.	Intangible assets
	Goodwill
	Galaxy Ltd	4,48,000
	Glory Ltd.	1,68,000	6,16,000
6	Inventories
	Galaxy Ltd.	3,36,000
	Glory Ltd.	4,38,000	7,74,000
7	Cash and cash equivalents
	Galaxy Ltd.	2,38,000
	Glory Ltd.(As per working note)	24,000	2,62,000

Working note: 

Calculation of cash balance of Glory Limited to be taken over by Glorious Limited

	Rs
Cash balance as at 31st March,20X1	1,04,000
Add: Received from debtors	1,10,000
	2,14,000
Less: paid to creditors	(1,80,000)
	34,000
Less: Commission to liquidators
On Debtors @ 5% 5,500
On Creditors @ 2.5% 4,500
	(10,000)
	24,000

Note:

1.  It is assumed that the nominal value of debentures of Glory Ltd. is Rs 100 each. 
2.  As per the information given in the question, debentures of Glory Ltd. are to be discharged by the issue of debentures of Glorious Ltd. at premium of 10%. It is assumed in the above solution that the debentures are issued at premium of Rs 10 for discharge of debentures of Rs 3,30,000. Alternative answer considering other reasonable assumption is also possible.

Question 2. 

Raman Limited and Naman Limited decided to amalgamate and form a new company Rana Limited as on 31^st March, 2023 and provided  you the following information :

Particulars	As on 31st March,2023		Revalued Figures for Amalgamation
	Raman Limited (₹)	Naman Limited (₹)	Raman Limited (₹)	Naman Limited (₹)
Equity shares of ₹ 10 each	6,72,000	2,52,000
10% Preference Shares of T 100 each	3,36,000	1,68,000
Reserves and Surplus	5,44,240	2,65,480
Trade Payables	84,000	1,76,000	80,640	1,68,960
Property, Plant and Equipment	7,69,000	4,36,400	10,58,100	5,20,100
Goodwill	1,62,000	-	1,62,000	-
Inventories	1,89,000	1,17,600	2,78,620	2,06,780
Trade Receivables	2,81,000	1,47,000	2,47,140	1,38,180
Cash & Cash Equivalents	2,35,240	1,60,480

The purchase consideration is to be satisfied as follows : 

(i) By issue of 4 Preference Shares of ₹ 100 each in Rana Limited @ ₹ 85 paid up and at a premium of ₹ 30 per share for every 3 preference shares held in both the companies.

(ii) By issue of 5 Equity shares of ₹ 10 each in Rana Limited @ ₹ 7 paid up and at a premium of 25 per share for every 3 equity shares held in both the companies.

(iii) In addition, necessary cash should be paid to equity shareholders of both the companies as required to adjust the rights of shareholders of both the companies in accordance with the intrinsic value of the shares of both the companies.

You are required to compute the purchase consideration for both the  companies 

Answer: 

For more download our app - Download App

Question 3. 

Mohan Ltd. furnishes the following summarized balance Sheet as on 31st March 20X1.

(₹ in lakhs)

	Amount
Equity and Liabilities:
Shareholder’s fund
Share Capital
Equity Shares of  ₹10 each fully paid up	780
6% Redeemable Preference shares of  ₹50 each fully paid up	240
Reserves and Surplus
Capital Reserves	58
General Reserves	625
Security Premium	52
Profit & Loss	148
Revaluation Reserve	34
Infrastructure Development Reserve	16
Non-current liabilities
7% Debentures	268
Unsecured Loans	36
Current Liabilities	395
	2652
Assets:
Non-current Assets
Plant and Equipment less depreciation	725
Investment at cost	720
Current Assets	1207
	2652

Other information:

• The company redeemed preference shares at a premium of 10% on 1^st April, 20X1.
• It also offered buy back the maximum permissible number of equity shares of ₹ 10 each at ₹ 30 per share on 2^nd April, 20X1.
• The payment for the above was made out of available bank balance, which appeared as a part of the current assets.
• The company had investment in own debentures costing ₹ 60 lakhs (face value ₹ 75 lakhs). These debentures were cancelled on 2^nd April, 20X1.
• On 4^th April, 20X1 company issued one fully paid up equity share of ₹ 10 each by way of bonus for every five equity shares held by the shareholders.

You are required to:

• Calculate maximum possible number of equity shares that can be bought back as per Companies Act, 2013 and
• Record the Journal Entries for the above mentioned information.

Answer: 

For more download our app - Download App

---

Chapter 6: Amalgamation of Companies

Question 1. 

The financial position of two companies Hari Ltd. and Vayu Ltd. as on 31st March, 20X1 was as under:

		Particulars	Notes	Hari Ltd.	Vayu Ltd.
		Equity and Liabilities
1		Shareholders’ funds
	A	Share capital		11,00,000	4,00,000
	B	Reserves and Surplus		70,000	70,000
2		Non-current liabilities
	A	Long term provisions	3	50,000	20,000
3		Current liabilities
	A	Trade Payables		1,30,000	80,000
		Total		13,50,000	5,70,000
		Assets
1		Non-current assets
	A	Property, Plant and Equipment	4	8,00,000	2,50,000
	B	Intangible assets	5	50,000	25,000
2		Current assets
	A	Inventories		2,50,000	1,75,000
	B	Trade receivables		2,00,000	1,00,000
	C	Cash and Cash equivalents		50,000	20,000
		Total		13,50,000	5,70,000

Notes to accounts

		Hari Ltd.	Vayu Ltd.
1	Share Capital
	Equity shares of ₹ 10 each	10,00,000	3,00,000
	9% Preference Shares of ₹ 100 each	1,00,000
	10% Preference Shares of ₹ 100 each		1,00,000
		11,00,000	4,00,000
2	Reserves and Surplus
	General reserve	70,000	70,000
		70,000	70,000
3	Long term Provisions
	Retirement gratuity fund	50,000	20,000
		50,000	20,000
4	Property, plant and Equipment
	Land and Building	3,00,000	1,00,000
	Plant and machinery	5,00,000	1,50,000
		8,00,000	2,50,000
5	Intangible assets
	Goodwill	50,000	25,000
		50,000	25,000

Hari Ltd. absorbs Vayu Ltd. on the following terms:

(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference Shares of Hari Ltd.

(b) Goodwill of Vayu Ltd. is valued at ₹ 50,000, Buildings are valued at ₹ 1,50,000 and the Machinery at ₹ 1,60,000. 

(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created @ 7.5%. 

(d) Equity Shareholders of Vayu Ltd. will be issued Equity Shares @ 5% premium. 

Prepare necessary Ledger Accounts to close the books of Vayu Ltd. and show the acquisition entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st March, 20X1.

Answer: 

 In the Books of Hari Ltd. 

Journal Entries 

		₹	₹
Business Purchase A/c	Dr.	5,30,000
To Liquidators of Vayu Ltd. Account			5,30,000
(Being business of Vayu Ltd. taken over)
Goodwill Account	Dr.	50,000
Building Account	Dr.	1,50,000
Machinery Account	Dr.	1,60,000
Inventory Account	Dr.	1,57,500
Trade receivables Account	Dr.	1,00,000
Bank Account	Dr.	20,000
To Retirement Gratuity Fund Account			20,000
To Trade payables Account			80,000
To Provision for Doubtful Debts Account			7,500
To Business Purchase A/c			5,30,000
(Being Assets and Liabilities taken over as per agreed valuation)
Liquidators of Vayu Ltd. A/c	Dr.	5,30,000
To 9% Preference Share Capital A/c			1,10,000
To Equity Share Capital A/c			4,00,000
To Securities Premium A/c			20,000
(Being Purchase Consideration satisfied as above).

Balance Sheet of Hari Ltd. (after absorption) 

as at 31st March, 2023 

	Particulars	Notes	₹
1	Equity and Liabilities
A	Share capital	1	16,10,000
B	Reserves and Surplus	2	90,000
2	Non-current liabilities
A	Long-term provisions	3	70,000
3	Current liabilities
A	Trade Payables		2,10,000
	Total		19,80,000
	Assets
1	Non-current assets
A	Property, Plant and Equipment	4	11,10,000
B	Intangible assets	5	1,00,000
2	Current assets
A	Inventories		4,07,500
B	Trade receivables	6	2,92,500
C	Cash and cash equivalents		70,000
	Total		19,80,000

Notes to accounts 

			₹
1	Share Capital
	Equity share capital		14,00,000
	1,40,000 Equity Shares of ₹ 10 each fully paid (Out of above40,000 Equity Shares were issued in consideration other than for cash)
	Preference share capital		2,10,000
	2,100 9% Preference Shares of ₹ 100 each (Out of above 1,100 Preference Shares were issued in consideration other than for cash)
	Total		16,10,000
2	Reserves and Surplus
	Securities Premium		20,000
	General Reserve		70,000
	Total		90,000
3	Long-term provisions
	Retirement Gratuity fund		70,000
	Total		70,000
4	Property, Plant and Equipment
	Buildings		4,50,000
	Machinery		6,60,000
	Total		11,10,000
5	Intangible assets
	Goodwill		1,00,000
6	Trade receivables		3,00,000
	Less: Provision for Doubtful Debts		7,500
			2,92,500

Working Notes: 

Purchase Consideration:	₹
Goodwill	50,000
Building	1,50,000
Machinery	1,60,000
Inventory	1,57,500
Trade receivables	92,500
Cash at Bank	20,000
	6,30,000
Less: Liabilities:
Retirement Gratuity Fund	(20,000)
Trade payables	(80,000)
Net Assets/ Purchase Consideration	5,30,000
To be satisfied as under:
10% Preference Shareholders of Vayu Ltd.	1,00,000
Add: 10% Premium	10,000
1,100 9% Preference Shares of Hari Ltd.	1,10,000
Equity Shareholders of Vayu Ltd. to be satisfied by issue of 40,000 Equity Shares of Hari Ltd. at 5% Premium	4,20,000
Total	5,30,000

 

Question 2. 

Som Ltd. agreed to takeover Dove Ltd. on 1st April, 20X1. The terms and conditions of takeover were as follows:

(i) Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 10 per share to the equity shareholders of Dove Ltd.

(ii) Cash payment of ₹ 1,00,000 was made to equity shareholders of Dove Ltd.

(iii) 20,000 fully paid preference shares of ₹ 70 each issued at par to discharge the preference shareholders of Dove Ltd.

You are required to calculate the amount of purchase consideration as per the provisions of AS 14.

Answer: 

For more download our app - Download App

Question 3. 

S. Ltd. is absorbed by P. Ltd. S ltd. gives the following information on the date of  absorption: 

	₹
Sundry Assets	13,00,000
Share capital:
2,000 7% Preference shares of ₹ 100 each (fully paid-up)	2,00,000
5,000 Equity shares of ₹ 100 each (fully paid-up)	5,00,000
Reserves	3,00,000
6% Debentures	2,00,000
Trade payables	1,00,000

Additional information: 

P. Ltd. has agreed: 

(i) to issue 9% Preference shares of ₹ 100 each, in the ratio of 3 shares of P. Ltd.  for 4 preference shares in S. Ltd. 

(ii) to issue to the debenture-holders in S Ltd. 8% Mortgage Debentures at ₹ 96 in lieu of 6% Debentures in S. Ltd. which are to be redeemed at a premium of 20%; 

(iii) to pay ₹ 20 per share in cash and to issue six equity shares of ₹ 100 each issued at the market value ₹ 125 in lieu of every five shares held in S. Ltd.; and 

(iv) to assume the liability to trade payables. 

You are required to calculate the purchase consideration. 

Answer: 

For more download our app - Download App

---

Chapter 7: Accounting for Reconstruction of Companies 

Question 1. 

X Ltd. had ₹ 1,00,000 equity share capital divided into 1,000 shares of ₹ 100 each out of which ₹ 80 per share was called up and paid up. It has 1,500 cumulative preference shares of ₹ 100 each fully paid up. Intangible assets include Goodwill of ₹ 80,000 and patents of ₹27,800. Preference dividends are in arrears of ₹ 33,000.

You are required to show the entries (Ignore dates) under each of the following conditions:

(i) If X Ltd. resolves to subdivide the equity shares into 10,000 equity shares of ₹ 10 each of which ₹ 8 per share is called up and paid up. 

(ii) If X Ltd. resolves to convert its 1,000 equity shares of ₹ 100 each (assume fully - paid) into ₹ 1,00,000 worth of stock. 

(iii) The preference shares are to be converted into 11% unsecured debentures of ₹ 100 each (including arrears of dividends). 

(iv) Patents and Goodwill to be written-off. 

Answer: 

Journal Entries in the books of X Ltd. 

			₹	₹
(i)	Equity Share Capital (₹ 100) A/c	Dr.	80,000
	To Equity Share Capital (₹ 10) A/c			80,000
	(Being the sub-division of 1,000 shares of ₹ 100 each with ₹ 80 paid up into 10,000 shares ₹ 10 each with ₹ 8 paid up by resolution in general meeting dated....)
(ii)	Equity Share Capital (₹ 100) A/c	Dr.	1,00,000
	To Equity Stock A/c			1,00,000
	(Being conversion of 1,000 fully paid Equity Shares of ₹ 100 into ₹ 1,00,000 Equity Stock as per resolution in general meeting dated…)
(iii)	Cumulative Preference Share Capital A/c	Dr.	1,50,000
	Capital Reduction (Reconstruction) A/c	Dr.	33,000
	To 11% Debentures (Unsecured)			1,83,000
	(Being 1,500 cumulative preference shares of ₹ 100 each fully paid up converted into 11% debentures of ₹ 100 each (including arrears of dividends amounting ₹ 33,000)
(iv)	Capital Reduction (Reconstruction) A/c	Dr.	1,07,800
	To Goodwill			80,000
	To Patents			27,800
	(Writing off patents, goodwill)

 

Question 2. 

The Paid-up capital of S Limited amounted to Rs. 5,00,000 Equity Shares of Rs. 10 each. Due to continuous losses incurred by the company, the following scheme of reconstruction has been approved for S Limited on 1^st April, 2020:

(i) In lieu of present holding the Equity Shareholders are to receive:

     (a) Fully Paid Equity Shares equal to 3/5th of their holding.

     (b) 8% Preference Shares fully paid to the extent of 20% of the above new Equity Shares.

     (c) 10% Second Debentures of Rs. 40,000.

(ii) An issue of 8% Debentures First Debentures of Rs. 1,00,000 was made and fully subscribed for cash,

(iii) The Assets were reduced as follows:-

        (a) Building from Rs. 2,00,000 to Rs. 1,50,000

        (b) Plant & Machinery from Rs. 1,50,000 to Rs. 1,30,000

         (c) Goodwill from Rs. 30,000 to Nil.

Show the Journal Entries in the books of S Limited to give effect of the scheme of Reconstruction

Answer: 

For more download our app - Download App

Question 3. 

Preeti Limited gives the following information as on 31st March 20X1, was as follows: 

	(₹)
Authorized and subscribed capital:
20,000 Equity shares of ₹ 100 each fully paid	20,00,000
Unsecured loans:
15% Debentures	6,00,000
Interest payable thereon	90,000
Current Liabilities:
Trade payables	1,04,000
Provision for income tax	72,000
Property, plant and equipment
Machineries	7,00,000
Current Assets:
Inventory	5,06,000
Trade receivables	4,60,000
Bank	40,000
Profit & loss A/c (Dr.)	11,60,000

It was decided to reconstruct the company for which necessary resolution was passed and sanctions were obtained from the appropriate authorities.  Accordingly, it was decided that: 

(i) Each share be sub-divided into 10 fully paid up equity shares of ₹ 10 each.

(ii) After sub-division, each shareholder shall surrender to the company 50% of his holding for the purpose of reissue to debenture holders and trade payables as necessary. 

(iii) Out of shares surrendered 20,000 shares of ₹ 10 each shall be converted into 10% Preference shares of ₹ 10 each fully paid up.

(iv) The claims of the debenture holders shall be reduced by 50%. In consideration of the reduction, the debenture holder shall receive Preference Shares of ₹ 2,00,000 which are converted out of shares surrendered.

(v) Trade payables claim shall be reduced by 25%. Remaining trade payables are to be settled by the issue of equity shares of ₹ 10 each out of shares surrendered.

(vi) Balance of Profit and Loss account to be written off.

(vii) The shares surrendered and not re-issued shall be cancelled.

Pass Journal Entries giving effect to the above.  

Answer: 

For more download our app - Download App

---

Chapter 8: Accounting for Branches including Foreign Branches

Question 1. 

Yatri Ltd. having its principal place of business at Chennai has a branch at New Delhi. The company sends goods to its branch at cost plus 33 1/3% which is the selling price. The following information is given in respect of the branch for the year ended 31st March, 20X2.

	₹
Goods sent to Branch (invoice value)	24,00,000
Stock at Branch (01.04.20X1) at selling price	1,20,000
Cash Sales	9,00,000
Returns from Customers	30,000
Branch Expenses paid for cash	2,67,500
Branch Debtors' Balance (01.04.20X1)	1,50,000
Discounts allowed	5,000
Bad Debts	7,500
Stock at Branch (31.03.20X2) at selling price	2,40,000
Branch Debtor's Balance(31.03.20X2)	1,82,500
Collections from Debtors	13,50,000
Branch Debtors' Cheques returned dishonoured	25,000

You are required to prepare:

(i) Branch Stock Account

(ii) Branch Debtors Account and

(iii) Branch Adjustment Account to reveal the profit of the Branch for the year ended March 31, 20X2.

Answer: 

Book of Yayati Ltd. (H.O.)

Branch Stock Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance b/d (Opening stock)	1,20,000	By Cash (Cash Sales)A/c	9,00,000
To Goods sent to Branch A/c	24,00,000	By Branch Debtors A/c (Credit Sales)	14,00,000
To Branch Debtors A/c (Returns inward)	30,000	By Branch Adjustment A/c
		Spoilage:
		Loss:  7,500
		Loading: 2,500 (Balancing figure)	10,000
		By Balance c/d (closing stock)	2,40,000
	25,50,000		25,50,000

Branch Debtors Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Balance (Opening b/d)	1,50,000	By Branch Stock A/c	30,000
To Bank (Dishonour of cheque)	25,000	By Bank-Collections from Debtors	13,50,000
To Branch Stock A/c	14,00,000	By Branch Expenses:
(balancing figure-credit sales)		Bad debts :7,500
		Discount allowed :5,000	12,500
		By Balance (Closing) c/d	1,82,500
	15,75,000		15,75,000

Branch Adjustment Account

Dr.			Cr.
Particulars	₹	Particulars	₹
To Stock Reserve A/c (on closing stock)	60,000	By Stock Reserve A/c (On opening stock)	30,000
To Branch stock A/c (spoilage-loading)	2,500	By Goods sent to branch A/c (loading)	6,00,000
To Gross Profit c/d	5,67,500
	6,30,000		6,30,000
To Branch Expenses		By Gross Profit b/d	5,67,500
Discount & Bad Debts	12,500
Cash Expenses	2,67,500
To Branch Stock A/c Loss: Spoilage	7,500
To Net profit	2,80,000
	5,67,500		5,67,500

 

Question 2. 

DK Traders of Assam has a branch at Mumbai. The branch receives all supply of goods from the head office (Assam). From the following particulars relating to Mumbai Branch for the year ending Mar.31, 20X2. Prepare a Branch Accounts and a Goods Sent to Branch Account in the books of the Head office.

Particulars	(₹)	Particulars	(₹)
Stock at Branch on 1.04.20X1 (at cost):	8,400	Bills Receivable received from Debtor	20,000
Branch Debtor on 1.04.20X1	6,200	Cash sent to branch for exp.
Petty Cash at Branch on 1.04.20X1:	200	- Salaries	3,800
Goods Sent to Branch		- Petty exp.	400
during the year (at cost):	80,000	Stock at Branch on 31.3.20X2 (at cost)	6,400
Goods returned by the branch	800	Petty Cash at Branch on 31.3.20X2	300
Cash Sales during the year	72,000	Branch Debtor on 31.3.20X2	?
Credit Sales during the year	46,000
Cash received from Debtor	18,800

 Answer: 

For more download our app - Download App

Question 3.

Priya Sales Corporation of Jaipur has a Branch at Kota to which goods are sent @ 33 1/3% above cost. The Branch makes sales both for cash and on credit. Branch expenses are paid direct from Head Office and the Branch has to remit all cash received into the Head Office Bank Account at Kota. Following further details are given for the year ended 31st March, 20X2:

Particulars	(₹)
Goods sent to Branch (at invoice price)	18,00,000
Goods returned by Branch (at invoice price)	20,000
Stock at Branch on 1.4.20X1 (at invoice price)	2,40,000
Branch Debtors on 1.4.20X1	2,15,000
Sales during the year:
- Cash	5,80,000
-Credit	11,40,000
Cash received from Branch debtors	10,45,000
Discount allowed to by Branch to debtors	14,800
Bad debts	9,200
Sales return at Kota Branch	25,000
Salaries and wages at Branch	1,80,000
Rent, Rates and Taxes at Branch	42,000
Sundry expenses at Branch	15,000
Stock at Branch on 31.3.20X2 (at invoice price)	3,60,000

You are required to show Branch Stock Account, Branch Adjustment Account, Branch Expenses Account, Branch Debtors Account, Branch Goods sent to Branch Account and Branch Profit & Loss Account in the books of the Head Office.

Answer: 

For more download our app - Download App

---

Chapter 9: Accounting Standard 13 Accounting for Investment

Question 1. 

Mr. Z has made following transactions during the financial year 20X1-X2:

Investment 1: 8% Corporate Bonds having face value ₹ 100.

Date	Particulars
01-06-20X1	Purchased 36,000 Bonds at ₹ 86 cum-interest. Interest is payable on 30th September and 31st March every year
15-02-20X2	Sold 24,000 Bonds at ₹ 92 ex-interest

Interest on the bonds is received on 30th September and 31st March.

Investment 2 : Equity Shares of G Ltd having face value ₹ 10

Date	Particulars
01-04-20X1	Opening balance 8000 equity shares at a book value of ₹ 190 per share
01-05-20X1	Purchased 7,000 equity shares@ ₹ 230 on cum right basis; Brokerage of 1% was paid in addition.
15-06-20X1	The company announced a bonus issue of 2 shares for every 5 shares held
01-08-20X1	The company made a rights issue of 1 share for every 7 shares held at ₹ 230 per share. The entire money was payable by 31.08.20X1
25-08-20X1	Rights to the extent of 30% of his entitlements was sold @ ₹ 75 per share. The remaining rights were subscribed.
15-09-20X1	Dividend @ ₹ 6 per share for the year ended 31.03.20X1 was received on 16.09.20X1. No dividend payable on Right issue and Bonus issue.
01-12-20X1	Sold 7 ,000 shares @ 260 per share. Brokerage of 1% was incurred extra.
25-01-20X2	Received interim dividend @ ₹ 3 per share for the year 20X1-21.
31-:03-20X2	The shares were quoted in the stock exchange @ ₹ 260.

Both investments have been classified as Current investment in the books of Mr. Z. On 15th May 20X2, Mr. Z decides to reclassify investment in equity shares of G Ltd. as Long term Investment. On 15th May 20X2, the shares were quoted in the stock exchange @ ₹ 180. You are required to:

(i) Prepare Investment Accounts in the books of Mr. Z for the year 20X1-21, assuming that the average cost method is followed.

(ii) Profit and loss Account for the year 20X1-21, based on the above information.

(iii) Suggest values at which investment in equity shares should be reclassified in accordance with AS 13.

Answer: 

In the books of Mr. Z

Investment in 8% Corporate Bonds Account

For the period 01 April 20X1 to 31 March 20X2

Date	Particulars	Nos	Interest (₹)	Amount (₹)	Date	Particulars	Nos	Interest (₹)	Amount (₹)
1/6/X1	To Bank A/c (WN1)	36,000	48,000	30,48,000	30/9/X1	By Bank A/c (Interest 36,000 x 100 x 8% x 6/12)		1,44,000
15/2/X2	To Profit & Loss A/c (WN 3)			1,76,000	15/2/X1	By Bank A/c (WN2)	24,000	72,000	22,08,000
31/3/X2	To Profit & Loss A/c		2,16,000		31/3/X1	By Bank A/c (Interest 12,000 x 100 x 8% x 6/12)		48,000
						By Balance c/d (WN 4)	12,000		10,16,000
	Total	36,000	2,64,000	32,24,000		Total	36,000	2,64,000	32,24,000

Note: For computing the interest on the bonds sold on 15 Feb 20X2, if number of days (138 days) is taken instead of months, the interest received on 15.02.20X2 should be ₹72,592 and the total interest transferred to Profit & Loss Account should be ₹ 2,16,592.

Investment in Equity Shares of G Ltd
For the period 1st April 20X1 to 31 March 20X2

Date	Particulars	Nos	Dividend (₹)	Amount (₹)	Date	Particulars	Nos	Dividend (₹)	Amount (₹)
01/4/X1	To Balance b/d	8,000		15,20,000	16/9/X1	By Bank A/c (WN 7)		48,000	42,000
01/5/X1	To Bank A/c (WN 5)	7,000		16,26,100	1/12/X1	By Bank A/c (WN 8)	7000		18,01,800
15/6/X1	To Bonus Shares	6,000		4,83,000	25/1/X2	By Bank A/c (WN 10)		48,300
25/8/X1	To Bank A/c (Right Shares) (WN 6)	2,100		7,14,800
01/12/X1	To Profit & Loss A/c (Sale of shares) (WN 9)
31/3/X2	To Profit & Loss A/c		96,300		31/3/X2	By Balance c/d (WN 11)	16,100		25,00,100
	Total	23,100	96,300	43,43,900		Total	23,100	96,300	43,43,900

Working Notes

1. Computation of the Interest element in the bonds purchased on 01 June 20X1

No of Bonds purchased	36,000
Face value per bond	₹ 100
Face value of the bonds purchased	₹ 36,00,000
Interest Rate	8%
Interest Amount	36,00,000 x 8% x 2/12
	₹ 48,000
Cum-interest per bond	₹ 86
Value of bond excluding interest	36,000 x 86 – 48,000
	₹ 30,48,000

2. Computation of the Interest element in the bonds sold on 15 Feb 20X2

No of Bonds sold	24,000
Face value per bond	₹ 100
Face value of the bonds sold	₹ 24,00,000
Interest Rate	8%
Interest Amount	24,00,000 x 8% x 4.5/12
	= ₹ 72,000

3. Computation of Profit on Sale of Bonds on 15 Feb 20X2

No of Bonds sold	24,000
Face value per bond	₹ 100
Ex- interest Rate per bond	₹ 92
Sales proceeds	₹ 22,08,000
Average Cost of Bonds	(30,48,000/36,000) x 24,000
	₹ 20,32,000
Profit on sale of bonds	Sale Proceeds – Average Cost
	22,08,000 – 20,32,000
	₹ 1,76,000

4. Valuation of Bonds as on 31 March 20X2 

No of Bonds held as on 31 Mar 20X2	12,000
Average Cost of Bonds	(30,48,000/36,000) x 12,000
	₹ 10,16,000

5. Computation of the cost of the equity shares purchased on 01 May 20X1

No of shares purchased	7,000
Cum right price per share	₹ 230
Cost of purchase	₹ 16,10,000
Brokerage @1%	₹ 16,100
Cost including brokerage	₹ 16,26,100

6. Right Shares

No of Right Shares Issued	(8,000+7,000+6,000)/7 = 3,000 shares
No of right shares sold	3,000 shares x 30% = 900 shares
Proceeds from sale of right shares to be  credited to statement of profit & loss	900 shares x ₹ 75 = ₹ 67,500
No of right shares subscribed	3,000-900 = 2,100 shares
Amount of right shares subscribed	2,100 x 230 = ₹ 4,83,000

7. Computation of Dividend Received on 16 Sept 20X1

No of shares held during the period of dividend	8,000 shares
Dividend per share	₹ 6
Dividend Amount	8,000 x 6 = ₹ 48,000
No of shares received after the period of dividend (excluding bonus & right shares)	7,000 shares
Dividend per share	₹ 6
Dividend Amount	7,000 x 6 = ₹ 42,000

The amount of dividend for the period for which the shares were not held by the investor has been treated as capital receipt. Thus ₹ 42,000 shall be treated as capital receipt 

8. Sale Proceeds for the shares sold on 1st Dec. 20X1 

No of shares sold	7,000 Shares
Sale price per share	₹ 260
Proceeds from sale of share	7,000 x 260 = ₹ 18,20,000
Less: Brokerage @ 1%	₹ 18,200
Net Sale Proceeds	₹ 18,01,800

9. Profit on sale of shares on 1st Dec. 20X1

Sales Proceeds	₹ 18,01,800
Average Cost	(15,20,000+16,26,100+4,83,000+42,000)/23,100x7000
	= ₹ 10,87,000
Profit on sale of shares	Sales Proceeds – Average Cost
	= ₹ 18,01,800-10,87,000
	= ₹ 7,14,800

10. Computation of Amount of Interim Dividend

No of shares held	8,000+7,000+6,000+2,100-7,000
	= 16,100
Dividend per share	₹ 3 per share
Dividend Received	16,100 shares x ₹ 3 per share
	= ₹ 48,300

11. Valuation of Shares as on 31 March, 20X2

Cost of Shares	(15,20,000 + 16,26,100 + 4,83,000 – 42,000) / 23,100  x 16,100
	= 25,00,100
Market Value of Shares	₹ 260 x 16,100 = ₹ 41,86,000

Closing stock of equity shares has been value at ₹ 25,00,100 i.e. cost being lower than its market value. 

(II) Profit & Loss Account (Extract)

For the period 01 April 20X1 to 31 March 20X2

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	12,70,600	By Investment in 8% Corporate Bonds Account (Profit on sale of bonds)	1,76,000
		By Investment in 8% Corporate Bonds Account (Interest on bonds)	2,16,000
		By Sale of Right Shares	67,500
		By Investment in Equity Shares of G Ltd (Profit on sale of shares)	7,14,800
		By Investment in Equity Shares of G Ltd (Dividend Income)	96,300

(III) As per AS 13, when investments are classified from Current Investments to Long term Investments, transfer is made at Cost and Fair value, whichever is less (as on the date of transfer). So, in the given case, valuation shall be done as follows:

Date of reclassification/transfer – 15 May, 20X2

Per Unit Cost of 16,100 shares held – ₹ 25,00,100/16,100 shares – ₹ 155.29

Market Price/Fair Value per share – ₹ 180

As the cost per unit is lower than its fair value, the shares are to be transferred at its cost i.e., at ₹ 155.29 per share on 15 May 20X2

Note:

1. In the eight last line of the question, investment in equity shares of G Ltd. was wrongly printed as Z Ltd. in the question paper. In the above solution, it has been considered as investment in G Ltd. If considered as Investment in equity shares in Z Ltd. (some other investment and not investment in G Ltd.), then the cost of the investment for shares in Z Ltd. will not be available.

2. The entire amount of sale proceeds from rights has been credited to Profit and Loss account in the above solution. However, the sale proceeds of rights in respect of 7,000 shares (purchased cum right on 1.5.20) can be applied to reduce the carrying amount of such investments (without crediting it to profit and loss account) considering that the value of these shares has reduced after becoming their ex -right. In that case, ₹ 22,500 (67,500X 7/21) will be applied to reduce the carrying amount of investment and ₹ 45,000 will be credited to profit and loss account.

Question 2. 

Mr. Saurabh held 10,000 equity shares of BT Limited on 1st April, 2021. Nominal value of the shares is ₹ 2 each and their book value is ₹ 7 per share. 

− On 4th July, 2021 he purchased another 7,500 shares at ₹ 10 each. 

− On 31st July 2021 the company announced a Bonus and Right issue. 

− Bonus was declared of one share for every five shares held and was received on 5th August, 2021.

− Right issue to be issued on 12th September,2021, which entitled the holders to subscribe to additional 2 shares for every 7 shares held at ₹ 2 pershare. Shareholders were entitled to transfer their rights in full or part. Mr. Saurabh sold whole of his entitlements to Mr. Nihal at ₹ 1.50 per share. 

− Dividend was declared for the year ended 31st March,2021 @ 25% and received by Mr. Saurabh on 19th September 2021.

− On 11th December 2021 Mr. Saurabh sold 7,500 shares at ₹ 8 per share.

− The market price of the shares on 31st March,2022 was ₹ 7 per share.

You are required to prepare the Investment Account of Mr. Saurabh on 31st March,2022 considering the above-mentioned points, also state the value of shares held on that date. (Assume investment as current investment)

Answer: 

For more download our app - Download App

Question 3. 

Gopal holds 2,000, 15% Debentures of ₹ 100 each in Ritu Industries Ltd. as on April 1, 20X1 at a cost of ₹ 2,10,000. Interest is payable on June, 30 and December, 31 each year. On May 1, 20X1, 1,000 debentures are purchased cum-interest at ₹ 1,07,000. On November 1, 20X1, 1,200 debentures are sold ex-interest at ₹ 1,14,600. On November 30, 20X1, 800 debentures are purchased ex-interest at ₹ 76,800. On December 31, 20X1, 800 debentures are sold cum-interest for ₹ 1,10,000. You are required to prepare the Investment Account showing value of holdings on March 31, 20X2 at cost, using FIFO Method.

Answer: 

For more download our app - Download App

---

Chapter 10: Accounting Standard for Consolidated Financial Statement

Question 1. 

The Balance Sheets of Art Limited and Craft Limited as on 31 March 2024 are as below:

Particulars	Note No	Art Limited (₹)	Craft Limited (₹)
I. Equity and Liabilities
a. Shareholder's Fund
i. Share Capital	1	6,50,000	4,00,000
ii. Reserve & Surplus	2	3,12,000	2,48,000
b. Current Liabilities
i. Trade Payables
ii. Short term borrowings	3	1,45,000	92,000
		70,000	-
		11,77,000	7,40,000
II. Assets
a. Non-current Assets
i Property, Plant & Equipment	4	4,21,000	3,60,000
ii Non-current investment	5	4,32,000	-
b. Current Assets
i Inventories		1,66,000	2,05,000
ii Trade Receivables		1,33,500	1,68,300
iii Cash & Cash equivalent	6	24,500	6,700
		11,77,000	7,40,000

Notes to Accounts :

		Art Limited (₹)	Craft Limited (₹)
1	Share capital
	6,500 shares of 100 each	6,50,000	-
	4,000 shares of 100 each fully paid-up	-	4,00,000
	Total	6,50,000	4,00,000
2	Reserves and Surplus
	General Reserve	1,20,000	40,000
	Profit and Loss account	1,92,000	2,08,000
	Total	3,12,000	2,48,000
3	Short term borrowings
	Bank Overdraft	70,000	-
4	Property Plant & Equipment
	Land & Building	1,90,000	1,35,000
	Plant & Machinery	2,31,000	2,25,000
	Total	4,21,000	3,60,000
5	Non-current investments
	Investment in Craft Limited (Cost)	4,32,000
6	Cash & Cash equivalents Cash
	Cash	24,500	6,700

Additional information :

(i) Art Limited acquired 3,200 ordinary shares of Craft Limited on 1st October, 2023. The Reserve & Surplus and Profit & Loss Account of Craft Limited showed a credit balance of ₹ 40,000 and ₹ 58,700 respectively as on 1st April, 2023.

(ii) The Plant & Machinery of Craft Limited which stood at ₹ 2,50,000 as on 1st April, 2023 was considered worth ₹ 2,20,000 on the date of acquisition. The depreciation on Plant & Machinery is calculated @ 10% p.a. on the basis of useful life. The revaluation of Plant & Machinery is to be considered at the time of consolidation.

(iii) Craft Limited deducts 1% from Trade Receivables against doubtful debts. This policy is not followed provision Art Limited.

(iv) On 31 March 2024, Craft Limited's inventory includes goods which it had purchased from Art Limited for ₹ 1,03,500 which made a profit of  15% on cost price.

You are required to prepare a consolidated 2024. dated Balance Sheet as on 31st March.

Answer: 

Consolidated Balance Sheet of Art and Craft Ltd As on 31st March, 2024 

	Particulars	Note no.	₹
I	Equity & Liabilities
(1)	Shareholders’ fund
(a)	Share Capital	1	6,50,000
(b)	Reserves & Surplus	2	3,73,460
(2)	Minority Interest	3	1,26,740
(3)	Current Liabilities
(a)	Short term borrowings	4	70,000
(b)	Trade Payables (1,45,000 + 92,000)		2,37,000
	Total		14,57,200
II	Assets
(1)	Non-current Assets
(a)	Property, Plant & Equipment	5	7,65,000
(2)	Current Assets
(a)	Inventories	6	3,57,500
(b)	Trade Receivables	7	3,03,500
(c)	Cash & Cash Equivalents	8	31,200
	Total		14,57,200

Notes to Accounts 

Sr. No.	Particulars		₹
1.	Share Capital
	Issued, Subscribed & Paid-up Capital
	a) Equity Share Capital
	6,500 Equity Shares of ₹ 100 each		6,50,000
2.	Reserves & Surplus
	Profit & Loss A/c (WN 5)		2,40,100
	General Reserve (WN 5)		1,20,000
	Capital Reserve (W.N. 3)		13,360
			3,73,460
3.	Minority interest in Craft Ltd. (W.N.4)
4.	Short-term borrowings
	Bank Overdraft
5.	Property, Plant & Equipment
	Land & Building
	Art Ltd.	1,90,000
	Craft Ltd.	1,35,000	3,25,000
	Plant & Machinery
	Art Ltd.	2,31,000
	Craft Ltd.  (2,25,000-17,500+1,500)	2,09,000	4,40,000
			7,65,000
6.	Inventories
	Art Ltd.	1,66,000
	Craft Ltd.	2,05,000
	Less: unrealized profit	(13,500)	3,57,500
7.	Trade Receivables
	Art Ltd.	1,33,500
	Craft Ltd.	1,70,000	3,03,500
8.	Cash & Cash Equivalents
	Art Ltd.	24,500
	Craft Ltd.	6,700	31,200

Working Notes:

1. Shareholding Pattern

Total 4,000 shares
3,200 shares	800 shares
Art Ltd (80%)	20% Minority Interest

2. Analysis of Profit 

	General reserve	Profit and loss account
Opening balance	40,000	58,700
Closing balance	40,000	2,08,000
Changes during the year		1,49,300

 Analysis of Profit 

Particulars	Pre acquisition profit (6 months) (₹)	Post acquisition profit (6 months) (₹)
Opening Balances  (40,000 + 58,700)	98,700
Profit for 6 months  (1,49,300 x 6/12)	74,650	74,650
Provision reversed  (1,700) (W.N. 8)	850	850
Revaluation Loss (W.N. 6)	(17,500)	-
Savings in depreciation (W.N. 6)	-	1,500
Total	1,56,700	77,000
Holding (80%)	1,25,360	61,600
Minority Interest (20%)	31,340	15,400

3. Cost of Control 

Particulars	₹	₹
Cost of Investment (Given)
Less: Share in Net Assets:
a) Share Capital (3,200 shares × ₹100)	3,20,000
b) Capital Profit (W.N. 2)	1,25,360	(4,45,360)
Capital Reserve		13,360

4. Minority Interest 

Particulars	₹
Share Capital (800 shares × 100)	80,000
Capital Profit (W.N. 2)	31,340
Revenue Profit (W.N. 2)	15,400
Total	1,26,740

5. Consolidated Profit and General Reserve of Art Ltd 

Particulars	Profit and loss account ₹	General reserve ₹
Balance as per Balance Sheet	1,92,000	1,20,000
Revenue Profit	61,600	-
Unrealized Profit (Downstream)	(13,500)
Total	2,40,100	1,20,000

6. Calculation of Revaluation Profit /Loss

Particulars	₹
Balance as on 01.04.2023 (given)	2,50,000
Depreciation for 6 months (2,50,000 × 10% × 6/12)	(12,500)
WDV as on date of acquisition	2,37,500
Revalued amount	2,20,000
Revaluation Loss	17,500

7. Savings in Depreciation 

= Depreciation Provided for 6 months – Depreciation Should be

= 12,500 – (2,20,000 × 10% × 6/12) 

= 1,500 

8.  Calculation of provision reversed

Trade Receivable (Given) =1,68,300 it is after provision i.e 99%

So, 100% will be 1,70,000 therefor provision will be 1,700

As per para 20 and 21 of AS 21, Consolidated financial statements: Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. 

Question 2. 

The following data is provided to you:

Case	Subsidiary Company	% shares owned	Cost	Date of acquisition		Consolidation Date
				1.1.20X1		31.12.20X1
				Share Capital	Profit & Loss Account	Share Capital	Profit & Loss Account
				₹	₹	₹	₹
Case 1	A	90%	1,40,000	1,00,000	50,000	1,00,000	70,000
Case 2	B	85%	1,04,000	1,00,000	30,000	1,00,000	20,000
Case 3	C	80%	56,000	50,000	20,000	50,000	20,000
Case 4	D	100%	1,00,000	50,000	40,000	50,000	55,000

Determine in each case:

(1) Minority interest at the date of acquisition and at the date of consolidation.

(2) Goodwill or Capital Reserve.

Answer: 

For more download our app - Download App

Question 3. 

Chand Ltd. and its subsidiary Sitara Ltd. provided the following information for the year ended 31st March, 2023:

Particulars	Chand Ltd (Rs.)	Sitara Ltd (Rs.)
Equities and Liabilities:
Equity Share Capital	20,00,000	6,00,000
Finished Goods Inventory as on 01.04.2022	4,20,000	3,01,000
Finished Goods Inventory as on 31.03.2023	8,57,500	3,76,250
Dividend Income	1,68,000	43,750
Other non-operating Income	35,000	10,500
Raw material consumed	13,93,000	4,72,500
Selling and Distribution Expenses	3,32,500	1,57,500
Production Expenses	3,15,000	1,40,000
Loss on sale of investments	26,250	Nil
Sales and other operating income	33,25,000	19,07,500
Wages and Salaries	13,30,000	2,45,000
General and Administrative Expenses	2,80,000	1,22,500
Royalty paid	Nil	5,000
Depreciation	31,500	14,000
Interest expense	17,500	5,250

Additional Information:

Other information 

• On 1st September 2020 Chand Ltd., acquired 5,000 equity shares of ₹ 100 each fully paid up in Sitara Ltd.

• Sitara Ltd. paid a dividend of 10% for the year ended 31st March 2022. The dividend was correctly accounted for by Chand Ltd.

• Chand Ltd. sold goods of ₹ 1,75,000 to Sitara Ltd. at a profit of 20% on selling price. Inventory of Sitara Ltd. includes goods of ₹ 70,000 received from Chand Ltd.

• Selling and Distribution expenses of Sitara Ltd. include ₹ 21,250 paid to Chand Ltd. as brokerage fees.

• General and Administrative expenses of Chand Ltd. include ₹ 28,000 paid to Sitara Ltd. as consultancy fees.

• Sitara Ltd. used some resources of Chand Ltd. and Sitara Ltd. paid ₹ 5,000 to Chand Ltd. as royalty.

Consultancy fees, Royalty and brokerage received is to be considered as operating revenues.

Prepare Consolidated Statement of Profit and Loss of Chand Ltd. and its subsidiary Sitara Ltd. for the year ended 31st March, 2023 as per Schedule III to the Companies Act, 2013.

Answer: 

For more download our app - Download App