ca final - fr question, may, 2016 - examsleague€¦ · 31.3.2016 5,00,000 +4.00 calculate minority...

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CA. Ranjay Mishra (FCA)

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Q.No. & Marks Reference of Topic Remarks Similar Questionof Paper Reference in Our Book

Q.1.(a) 5 Ind AS 23 / AS 16 Ans. is same under Ind AS & AS Q.9. Page No. 147 - AS Book

Q.1.(b) 5 AS 21 Q. is based on the fact that whether Covered in Classnegative minority interest shall

be presented or not

Q.1.(c) 5 Ind AS 2 / AS 2 Ans. is same under Ind AS & AS Q.24. Page No. 27 - AS Book

Q.1.(d) 5 Valuation Based on synergy concept Q.52. - FR Book

Q.2. 16 Amalgamation Simple Question Q.24. - FR Book

Q.3. 16 Holding Comprehensive Question Q.45. - FR Book

Q.4.(a) 8 Valuation Comprehensive Question Q.50. - FR Book

Q.4.(b) 4 Ind AS 109 Based on Valuation of Loan Q.1.Amendment Material of Ind AS

Q.4.(c) 4 Ind AS 18 / AS 9 Loan Transaction Q.8. Page No. 77 - AS Book

Q.5.(a) 8 Valuation Comprehensive Question Q.61. - FR Book

Q.5.(b) 4 Ind AS 109 Valuation of Option Covered in Class

Q.5.(c) 4 Ind AS 102 Share Based Payment (ESPP) Q.1. Page No. 297 - AS Book

Q.6.(a) 8 Value Added Statement Comprehensive Question Q.10. - FR Book

Q.6.(b) 8 Mutual Fund Comprehensive Question Q.11. - FR Book

Q.7.(a) 4 HRA Comprehensive Question Q.47. - FR Book

Q.7.(b) 4 Ind AS 109 Classification of Pref. Share Capital Q.8.Amendment Material of Ind AS

Q.7.(c) 4 Guidance Note on Excise Simple Question Q.16. Page No. 217 - AS Book

Q.7.(d) 4 Ind AS 8 Case Studies Q.3.Amendment Material of Ind AS 8

Q.7.(e) 4 Schedule III Classification Q.5. FR Book

Answer of Final - Financial Reporting Paper - May, 2016

By : CA. RANJAY MISHRAwith

Commentary, History and Chances of Error in Questions and Answers

Institute of Quality Studies

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2 FR Exam. paper solution May, 2016 by CA. RANJAY MISHRA

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Q.1.(a) - 5 Marks

Harish Construction Company is constructing a huge Building project consisting of four phases. It is expectedthat the full building will be constructed over several years but Phase I and Phase II of the Building will bestarted as soon as they are completed.

Following is the detail of the work done on different phases of the building during the current year :

Phase I Phase II Phase III Phase IV

`̀̀̀̀ `̀̀̀̀ `̀̀̀̀ `̀̀̀̀

Cash Expenditure 10 30 25 30

Building Purchased 24 34 30 38

Total Expenditure 34 64 55 68

Total Expenditure of all Phases 221

Loan taken @ 15% at the beginning of the year 200

During the current year, Phase I and Phase II have become operational.

Find out the total amount to be capitalised and to be expensed during the year.

Ans. :-

(I) Provision of AS 16/Ind AS 23

When the construction of a qualifying asset is completed in parts and a completed part is capable ofbeing used while construction continues for the other parts, capitalization of borrowing costs in relationto a part should ceases when substantially all the activities necessary to prepare that part for its in-tended use or sale are complete.

(II) Calculation of amount to be capitalised and expensed off

(a) Interest on Loan = 200 x 15% = 30 lakhs

(b) Statement of treatment of Interest

Phase Working Treatment

I30 x 34

221 = 4.61 Transferred to P&L

II30 x 64

221 = 8.69 Transferred to P&L

III30 x 55

221 = 7.47 Added in Value of Fixed Assets

IV30 x 68

221 = 9.23 Added in Value of Fixed Assets

Commentary :

(1) History : This question is first time framed in RTP, May, 2013.

(2) Chances of Error : If Any students has gone through this question, I don’t expect that there is anychances of error.



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Q.1.(b) - 5 Marks

Ram Ltd. holds 80% share in Shyam Ltd., its subsidiary. Share Capital of Shyam Ltd. is ` 25,00,000 Lakhs andReserves being ` 5,00,000 on the date of acquisition 31.3.2012.

Following is the results of Shyam Ltd. :

Year Ended Profit / (Loss) Net Worth (`̀̀̀̀ in lakhs)

31.3.2013 (15,00,000) +15.00

31.3.2014 (20,00,000) (5.00)

31.3.2015 4,00,000 (1.00)

31.3.2016 5,00,000 +4.00

Calculate Minority Interest for the period from 2012 to 2016 as per AS - 21.

Ans. :-

(I) Provision of AS 21

The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest inthe equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjustedagainst the majority interest except to the extent that the minority has a binding obligation to, and isable to make good the losses. If the subsidiary subsequently reports profit, all such profits are allocatedto the majority interest until the minority’s share of losses previously absorbed by the majority has beenrecovered.

(II) Calculation of Minority Interest

31.3.2012 31.3.2013 31.3.2014 31.3.2015 31.3.2016

Opening Balance --- 6,00,000 3,00,000 Nil Nil

Share in ESC 5,00,000 --- --- --- ---

Share in Capital Profit 1,00,000 --- --- --- ---

Share in revenue profit --- (3,00,000) (3,00,000) --- 80,000

Note 1 Note 2 Note 3

Closing Balance 6,00,000 3,00,000 Nil Nil 80,000

(III) Analysis of Profit

Capital Revenue

31.3.2012 31.3.2013 31.3.2014 31.3.2015 31.3.2016

Reserve & Profit 5,00,000 (15,00,000) (20,00,000) 4,00,000 5,00,000

Minority Interest @ 20% 1,00,000 (3,00,000) (4,00,000) 80,000 1,00,000

Ram Ltd. @ 80% 4,00,000 (12,00,000) (16,00,000) 3,20,000 4,00,000

Note 1 : Although share in loss is 4,00,000, but we have adjusted only 3,00,000, because minority interestcannot be negative.

Note 2 : Share in post profit is 80,000 but this is still less than unabsorbed minority loss of ` 1,00,000 ofprevious year, hence no amount is presented.

Note 3 : Although, share in post profit is 1,00,000, but earlier year unabsorbed minority loss is 20,000, hencebalance 80,000 is added.

Commentary :

(1) History : This question is newly framed.

(2) Chances of Error : There are chances of errors if student has not gone through AS 21 in depth.






Q.1.(c) - 5 Marks

The following information on Zenith Ltd. is given below.

You are required to

(1) Calculate the value of raw materials and finished goods at cost.

(2) Calculate the value of closing stock when

(a) Net realizable value of finished goods B is ` 800.

(b) Net realizable value of finished goods B is ` 600.

Raw Material A

Closing Balance 1000 units

`̀̀̀̀ per unit

Cost price including excise duty 400

Excise duty (Cenvat credit is receivable on excise duty paid) 20

Freight Inward 40

Unloading Charges 20

Replacement Cost 300

Finished Goods B

Closing Balance 2400 units

`̀̀̀̀ per unit

Raw materials consumed 440

Direct Labour 120

Direct Overhead 80

Raw material A is used for productions of finished Goods B. The total fixed overhead for the year was ` 4 lakhson normal capacity of 20,000 units.

Ans. :-

(1) (a) Calculation of Raw Material Cost

`̀̀̀̀

Cost price excluding excise dty (400 - 20) 380

Freight inward 40

Unloading charge 20

Cost per unit 440

(b) Calculation of Finished Goods at Cost

`̀̀̀̀

Cost of Raw Material 440

Direct Labour 120

Direct Overhead 80Fixed Overhead (4,00,000 / 20,000) 20Cost per Unit 660

(2) Calculation of Value of Closing Stock

Case - I (if NRV 800) Case - II (if NRV 600)

Raw Material Cost 440 300 (Note 1)

Direct Labour 120 120

Overhead 80 80

Fixed Overhead 20 20

Per unit cost 660 520



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(3) Valuation of Closing Stock

Case - I (if NRV 800) Case - II (if NRV 600)

Raw Material Cost 4,40,000 3,00,000

(1,000 x 440) (1,000 x 300)

Finished Goods 15,84,000 12,48,000

(660 x 2,400) (520 x 2,400)

Total 20,24,000 15,48,000

Note : When market value of finished goods is less than original cost then raw material is valued at re-placement cost.

Commentary :

(1) History : This question is First time asked in May, 2014 in IPCC Gr. I - Accounting

(2) Chances of Error : If students has not gone through this question than there may be chances of error.

Q.1.(d) - 5 MarksThe directors of Aqua Limited are considering the acquisition of an existing company Bose Limited engaged in aline of business suited to them. The financial data at the time of acquisition being :

Aqua Ltd. Bose Ltd.

Net profit after tax ` 36,00,000 ` 7,20,000

Number of shares 7,20,000 3,00,000

Market price per share ` 150 ` 50

Earnings per share ` 5 ` 2.50

Price earnings ratio 30 20

It is expected that the net profit after tax of the two companies would continue to be ` 43,20,000. Aqua Limitedwould pay the amount in the form of shares of Aqua Limited.

Explain the effect on EPS of the merged company if Aqua Limited offers to pay ` 60 per share to the shareholdersof Bose Limited.

Ans. :-

(a) Exchange Ratio = Price offered to Bose Ltd.

Market Price of Aqua Ltd.

= 60

150

= .4

(b) No. of share to be offered = 3,00,000 share x Exchange Ratio

= 3,00,000 x .4

= 1,20,000 shares

(c) Total No. of share post merger = 7,20,000 shares + 1,20,000 shares

= 8,20,000

(d) Post Merger EPS = 43,20,000

8,20,000 = 5.27






(e) Effect of EPS

A Ltd. B Ltd.

Pre-merger 5 2.5

Post - merger 5.27 (5.27 x .4)

.27 (increase) .392 (decrease)

Commentary :

(1) History : This question is first time asked in Nov. 2006 and then repeated in RTP, Nov. 2015.

(2) Chances of Error : The question is based on concept of Merger and Acquisition and I don’t think thatthere is any chances of error.

Q.2. - 16 Marks

Zee Limited and Dee Limited both engaged in the same chemical business since 2012. As part of its expansionstrategy Zee Limited proposes to absorb the business of Dee Limited. The summarized Balance Sheets of Zee Limitedand Dee Limited as on 31st March, 2015 are as follows :

Particulars Zee Ltd. Dee Ltd.

`̀̀̀̀ `̀̀̀̀

(I) Equity and Liabilities

(1) Shareholders Fund

(a) Share Capital

Equity Shares of ` 10 each 28,80,000 14,40,000

10% Preference share capital of ` 100 each 9,60,000

12% Preference share capital of ` 100 each 4,80,000

(b) Reserves and Surplus

Statutory reserve 80,000 80,000

General reserve 20,00,000 13,60,000

(2) Non-current Liabilities

Secured Loans

15% Debentures 4,00,000

12% Debentures 4,00,000

(3) Current Liabilities

Trade Payables 8,80,000 10,40,000

Total 72,00,000 48,00,000

(II) Assets

(a) Non-current Assets

Fixed Assets 40,00,000 24,00,000

Non-current Investments 4,00,000 4,00,000

(b) Current Assets

Inventories 14,40,000 9,60,000

Trade Receivables 12,40,000 9,68,000

Cash at Bank 1,20,000 72,000

Total 72,00,000 48,00,000



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The following terms and conditions were agreed for absorption :

(a) 12% preference shareholders of Dee Limited will receive 10% preference shares of Zee Limited in sufficientnumber to increase their present income by 20%.

(b) The equity shareholders of Dee Limited will receive equity shares in Zee Limited on the following terms :

(i) The equity share of Dee Limited will be valued at ` 24 per share.

(ii) The market price of Equity share of Zee Limited is ` 40 per share.

(iii) The number of shares to be issued to Equity shareholders of Dee Limited will be based on the 80% ofmarket price.

(c) 12% Debenture holders of Dee Limited are to be paid at 8% premium by 15% Debentures in Zee Limited issuedat a discount of 10%.

(d) Details of Trade payable and Trade receivables :

Zee Ltd. Dee Ltd.

( `̀̀̀̀) (`̀̀̀̀)

Trade payables

Bills payables 16,000 16,000

Sundry Creditors 8,64,000 10,24,000

8,80,000 10,40,000

Trade Receivables

Debtors 12,00,000 9,60,000

Bills Receivables 40,000 8,000

12,40,000 9,68,000

(e) Sundry Creditors of Dee Limited include ` 16,000 due to Zee Limited.

(f) ` 12,800 is to be paid by Zee Limited to Dee Limited for liquidation expenses.

(g) Fixed Assets of both the companies are to be valued at 20% above book value. Inventory in trade is takenover at 10% less than their book value.

(h) Statutory reserve has to be maintained for two more years.

(i) Liquidation expenses are to be considered as part of purchase consideration.

You are required to :

(1) Find out the purchase consideration.

(2) Prepare Balance Sheet of Zee Ltd. as at 31st March, 2015 after absorption as per Schedule III of the CompaniesAct, 2013 with Note to the accounts.

Ans. :-

(I) Calculation of Purcahse Consideration

Beneficiaries Mode Working `̀̀̀̀

12% Pref. shareholders 10% Pref. shares 4,80,000 x 12%

= 57,600 + 20%

= 69,120 /10% 6,91,200

Equity Shareholder Equity Shares 1,44,000 x 24 / 32

= 1,08,000 x 32 34,56,000

Liquidation Exp. Cash ---- 12,800

41,60,000






(II) Balance Sheet of Zee Ltd. as at 31.3.2015 (after absorption of Dee Ltd.)

Notes `̀̀̀̀

(I) Equity and Liabilities

(1) Shareholders Fund

(a) Share Capital 1 56,11,200

(b) Reserve & Surplus 2 52,88,000

(2) Non-current liabilities

(a) Long-term Liabilities 3 8,80,000

(3) Current Liabilities

(a) Trade Payable 4 19,04,000

1,36,83,200

(II) Assets

(1) Non-current Assets

(a) Fixed Assets

(i) Tangible 5 76,80,000

(ii) Intangible (WN 1) 4,48,000

(b) Non-current Investment 6 8,00,000

(c) Other Non-current Assets (amalgamation adj. statutory reserve) 80,000

(2) Current Assets

(a) Inventories 7 23,04,000

(b) Trade Receivable 8 21,92,000

(c) Cash and Cash Equivalent 9 1,79,2000

1,36,83,200

Notes to Account

Particulars `̀̀̀̀

(1) Share Capital

3,96,000 Equity Share @ 10 each 39,60,000

(Out of which 1,08,000 share issued under amalgamation)

16,512 10% pref. shares of 100 each 16,51,200

(Out of which 6912 share issued under amalgamation)

56,11,200

(2) Reserve and Surplus

General Reserve of Zee Ltd. 20,00,000

Statutory Reserve (80,000 + 80,000) 1,60,000

Revaluation reserve on revaluation of Fixed Assets of Zee Ltd. (40,00,000 x 20%) 8,00,000

Securities Premium on issue of equity shares (1,08,000 x 22) 23,76,000

Discount on issue of Debt (48,000)

52,88,000



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(3) Long-term Borrowing

15% Debenture 4,00,000

15% Debenture issued to Dee Ltd. (4,00,000 + 8%) / 90% 4,80,000

8,80,000

(4) Trade Payable

Sundry Creditors (8,64,000 + 10,24,000 - 16,000) 18,72,000

Bills Payable (16,000 + 16,000) 32,000

19,04,000

(5) Tangible Fixed Assets

Fixed Assets of Zee Ltd. after revaluation (40,00,000 + 20%) 48,00,000

Fixed Assets taken over from Dee Ltd. (24,00,000 + 20%) 28,80,000

76,80,000

(6) Non-current Investment

Non-current investment of Zee Ltd. 4,00,000

Non-current Investment of Dee Ltd. 4,00,000

8,00,000

(7) Inventories

Inventories of Zee Ltd. 14,40,000

Inventories takenover from Dee Ltd.(9,60,000 - 10%) 8,64,000

23,04,000

(8) Trade Receivable

Debtor (12,00,000 + 9,60,000 - 16,000) 21,44,000

Bills Receivable (40,000 + 8,000) 48,000

21,92,000

(9) Cash and Cash equivalent

Zee Ltd. Cash 1,20,000

Dee Ltd. Cash 72,000

Liquidation expenses paid (12,800)

1,79,200

WN 1 : Calculation of Goodwill

`̀̀̀̀

(a) Purchase consideration 41,60,000

(b) Net Assets

Fixed Assets 28,80,000

Investments 4,00,000

Inventories 8,64,000

Debtor 9,60,000

Bills Receivable 8,000

Cash 72,000

Bills Payable (16,000)

Sundry Creditor (10,24,000)

Debenture (4,00,000 + 8%) (4,32,000) 37,12,000

(c) Goodwill (a - b) 4,48,000






Commentary :

(1) History : This question is first time asked in May, 2002 and then repeated in May, 2007.

(2) Chances of Error : Generally there is no chances of error but if student has not prepared proper notesto account then there is chances of deduction of marks, because question specifically requires preparationof notes to account.

Q.3. - 16 MarksP Limited is a holding company and Q Ltd. and R Ltd. are subsidiaries of P Ltd. The summarized balance sheetsof all the companies as on 31.3.2016 are given below :

P Ltd. Q Ltd. R Ltd. P Ltd. Q Ltd. R Ltd.

Share Capital 200,000 200,000 120,000 Fixed Assets 40,000 120,000 86,000

Reserves 96,000 20,000 18,000 Investments :

Profit and Loss A/c 32,000 24,000 18,000 Shares in Q Ltd. 190,000

Trade payable 14,000 10,000 Shares in R Ltd. 26,000 106,000

P Ltd. balance 14,000 Inventory in Trade 24,000

R Ltd. balance 6,000 Q Ltd. - balance 16,000

Trade Receivables 52,000 42,000 64,000

P Ltd. balance 6,000

348,000 268,000 156,000 348,000 268,000 156,000

Additional Information :

(1) The share capital of all companies is divided into shares of ` 10 each.

(2) P Ltd. held 16000 shares of Q Ltd. and 2000 shares of R Ltd.

(3) Q Ltd. held 8000 shares of R Ltd.

(4) All the investments were made on 30.9.2015.

(5) The position on 31.3.2015 was as under :

Q Ltd. R Ltd.

(`̀̀̀̀) ( `̀̀̀̀)

Reserve 16,000 15,000

Profit and Loss Account 8,000 6,000

Trade Payables 10,000 2,000

Fixed Assets 120,000 86,000

Inventory in trade 8,000 71,000

Trade receivables 96,000 66,000

(6) The whole of inventory in trade of Q Ltd. as on 30.9.2015 (` 8,000) was later sold to P Ltd. for ` 8800 andremained unsold by P Ltd. as on 31.3.2016.

(7) Cash in transit from Q Ltd. to P Ltd. was ` 2,000 as at the close of business.

(8) All the companies proposed dividend of 10%.

Prepare the consolidated Balance Sheet of the group as on 31.3.2016 using direct method.



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Ans. :-Consolidated Balance Sheet of P Ltd. & its Subsidiary Q Ltd. & R Ltd. as at 31.3.2016

Particulars Notes `̀̀̀̀

(I) Equity & Liabilities

(1) Shareholder Fund

(a) Share Capital 2,00,000

(b) Reserve and Surplus (21,960 + 98,650) 1,20,610

(c) Minority Interest (24,000 + 45,640) 69,640

(2) Current Liabilities & Provision

(a) Trade Payables (14,000 + 10,000) 24,000

(b) Short term provision (20,000 + 4,000 + 2,000) 26,000

Total 4,40,250

(II) Assets

(1) Non-current Assets

(1) Fixed Assets

(a) Tangible (40,000 + 1,20,000 + 86,000) 2,46,000

(b) Intangible - Goodwill (7,000 + 1,250 + 2,800) 11,050

(2) Current Assets

(a) Stock [Inventories] (24,000 - 800) 23,200

(b) Trade Receivables (52,000 + 42,000 + 64,000) 1,58,000

(c) Cash & cash equivalent (cash in transit) 2,000

Total 4,40,250

WN 1 : Holding Pattern

WN 2 : Analysis of Profit of R Ltd.

Particulars Pre-acquisition Post Acquisition TotalCapital R P&L Rgr

General Reserve 15,000 --- 3,000 18,000

Profit & Loss 6,000 12,000 --- 18,000

Total 21,000 12,000 3,000

Time Adjustmet 7,500 (6,000) (1,500)

Total 28,500 6,000 1,500

Q Ltd. (4/6) 19,000 4,000 1,000

P Ltd. (1/6) 4,750 1,000 250

Minority Interest (1/6) 4,750 1,000 250

P Ltd. Q Ltd.

R Ltd.

80%

1/6

4/6






WN 3 : Analysis of Profit of Q Ltd.

Pre-acquisition Post Acquisition TotalCapital R P&L Rgr

General Reserve 16,000 --- 4,000 20,000

Profit & Loss 8,000 16,000 --- 24,000

Total 24,000 16,000 4,000

Time Adjustment 10,000 8,000 2,000

Total 34,000 8,000 2,000

Minority Interest @ 20% 6,800 1,600 400

P Ltd. @ 80% 27,200 6,400 1,600

WN 4 : Calculation of Cost of Control

Q in R Ltd. P in R Ltd. P in Q Ltd.

(4/6) (1/6) 80%

(A) Cost of Investment

Amount Invested 1,06,000 26,000 1,90,000

(B) Share of Net Assets

Share Capital 80,000 20,000 1,60,000

Capital Profit 19,000 4,750 27,200

Total 99,000 24,750 1,87,200

(C) Goodwill (A - B) 7,000 1,250 2,800

WN 5 : Calculation of Minority InterestR Ltd. Q Ltd.

(1/6) 20%

Share Capital 20,000 40,000

Revenue Profit & Loss 1,000 1,600

Capital Profit 4,750 6,800

Revenue General Reserve 250 400

Share of Minority Interest of Q Ltd. in post profit of R Ltd. 800

Share of minority interest of Q Ltd. in post reserve of R Ltd. 200

Less : Minority Interest in Equity Proposed Dividend (2,000) (4,000)

Less : Share in Stock Reserve (800 x 20%) (160)

Total 24,000 45,640

WN 6 : Calculation of Consolidated

Particulars P&L General Reserve

Own Balance 32,000 96,000

Share in Q Ltd. 6,400 1,600

Share in R Ltd. 1,000 250

Share of P Ltd. through Q Ltd. in post acquisition profit of R Ltd. (4,000 x 80%) 3,200

Share of P Ltd. through Q in post acquisition reserve of R Ltd. (1,000 x 80%) 800

Less : Share in Stock Reserve (800 x 80%) (640) ----

Less : Proposed Dividend (2,00,000 x 10%) (20,000) ----

Total 21,960 98,650



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Note 1 : Under Direct method post profit and reserve of lower subsidiary are not transferred to upper subsidiary butdirectly distributed between ultimate holding and minority.

Note 2 : This answer is prepare as per AS 21 under company AS Rule 2006. From Nov., 2016 onwards AS 21notified as per Company AS Rule, 2016 will be applicable and accordingly answer will change.

Commentary :(1) Histroy : This question is first time asked in May, 2002 without specifying any method then repeated in June,

2014 in CMA Final without specifying any method, but this time question requires direct method.

(2) Chances of Error : Since student has practice to solve question using indirect method. Hence, there is muchmore chances of error.

Q.4.(a) - 8 Marks

The capital structure of M/s. Global Limited on 31st March, 2015 was as follows :

Equity share capital (25,000 shares of ` 100 each) ` 25,00,000

12% Preference Share Capital (7,000 shares of ` 100 each) ` 7,00,000

12% Secured Debentures ` 7,00,000

Reserves ` 5,00,000

Profit earned before interest and taxes during the year was ` 9,90,000

Tax Rate was 40%.

Additional Information :

(1) The profit after tax covers fixed interest and fixed dividends at least 4 times.

(2) The Debt Equity ratio is at least 2.

(3) The rate of return on equity shares of this type of industry is 15%.

(4) Yield on shares is calculated at 60% of distributed profit and 10% of undistributed profits.

(5) The company has been paying regularly an Equity dividend of 15%.

(6) The risk premium for dividends is generally assumed at 2%.

Ans. :-

(I) Calculation of Capital Employed

`̀̀̀̀

Profit before interest and tax 9,90,000

Less : Interest (7,00,000 x 12%) (84,000)

Profit before tax 9,06,000

Less : Tax @ 40% (3,62,400)

Profit after tax 5,43,600

Less : Pref. dividend (84,000)

Profit for equity 4,59,600

Equity dividend 3,75,000

Retained profit 84,600

Yield = 3,75,000 x 60% + 84,600 x 10% 2,33,460

Earning Rate = 2,33,460

25,00,000 x 100 9.33%






(II) Calculation of NRR

Given NRR 15%

Debt Equity Test

Ratio = 7,00,000

25,00,000 7,00,000 5,00,000 .189 ---

Profit Test

Ratio = 5,43,600 + 84,000

84,000 84,000 3.73 2%

17%

(III) Value of Shares = Earning Rate

NRR x Paid up Value

= 9.33%

17% x 100

= 54.88 (app.)

Note 1 : Debt equity ratio is less than prescribed limit hence there is no risk and accordingly no increment in NRRis required.

Note 2 : Profit after tax and fixed interest fixed dividend ratio is less than prescribed limit hence, additional risk of2% is added.

Commentary :

(1) Histroy : The question is first time asked in 1993, then 1998, then 2004, then 2013 and now 2016.

(2) Chances of Error : Since this question is usual, hence I don’t think that there is any chances of error.

Q.4.(b) - 4 Marks

A company borrowed a sum of ` 85 lakhs for its expansion. The terms of loan were as follows :

(i) Tenure of the loan will be 10 years.

(ii) Interest is payable @ 12% p.a. and the principal is repayable at the end of 10th year.

The company defaulted in the payment of interest for the year 4, 5 and 6.

A loan reschedule agreement took place at the end of 7th year. As per the agreement the company is required topay ` 150 lakhs at the end of 8th year.

You are required to calculate the additional amount to be paid on account of rescheduling and also the book valueof the loan at the end of 8th year when reschedule took place assuming that interest will be compounded in caseof default.

Ans. :-

(i) Statement of Outstanding Amount at the end of 8th year


(a) Amount of Loan 85,00,000

(b) Cumulative interest (4th to 8th year i.e. 1.12 x 1.12 x 1.12 x 1.12 x 1.12) 1.76234

(c) Amount outstanding (a x b) 1,49,79,890



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(ii) Calculation of Additional amount to be paid due to rescheduling


Total amount paid on rescheduling 1,50,00,000

Less : Outstanding Amount 1,49,79,890

20,110

Commentary :

(1) Histroy : This question is framed by ICAI in supplementary study material on financial instrument as incorporationof Ind AS 109.

(2) Chances of Error : If student has not gone through Ind AS 109 and has studied old AS 30, then there is chancesof error. If student has gone through Ind AS then I don’t think that there is any chances of error.

Q.4.(c) - 4 Marks

AXE Limited is facing a financial crunch and entered into a contract with BXE Limited for sale of goods of ` 25lakhs at a profit of 20% cost on 1st January, 2015. On the same day, BXE Ltd. entered into an agreement withAXE Limited to resale the same goods at ` 31.50 lakhs on 1st July, 2015.

You are required to state the treatment of this transaction in the financial statements of AXE Limited assuming thatpredetermined reselling price covers the holding cost of BXE Limited. Also pass necessary journal entries in thebooks of AXE Limited if AXE Limited closes their books of accounts on 31st March, 2015.

Ans. :-

(I) Journal Entries in the boos of AXE Ltd.

Dr. Cr.

1.1.2015

Bank Account Dr. 30,00,000

To Advances from B Ltd. 30,00,000

(being transaction entered 25,00,000 + 20%)

31.3.2015

Finance Charge Dr. 75,000

To Advance from B Ltd. 75,000

(being interest expenses recorded 1,50,000 x 3 / 6)

Profit and Loss A/c Dr. 75,000

To Finance charge 75,000

(being expenses transferred to Profit and Loss)

(II) Balance Sheet (extract) 31.3.2015

Notes `̀̀̀̀

Current Assets

Short term loans and advances 25,00,000

(inventory under sale and repurchase agreement)

Liabilities (Secured Loan)

Advance from BXE LTd. 30,00,000

Finance Charges 75,000

30,75,000

Commentary :(1) Histroy : This question is first time asked in Nov. 2009 then repeated in Nov. 2013 and now in May, 2016.

(2) Chances of Error : If Student has gone through AS 9, Sale repurchase agreement then there is no chances oferror but if student has escaped AS 9 then there is chances of error.






Q.5.(a) - 8 Marks

From the following information of Aries Ltd. ascertain the Value of Business :

(1) The Company’s Equity Share Capital is ` 200 lakhs, divided into shares of ` 50 each.

(2) The company earned a profit after tax of ` 60 lakhs for the year ended March, 2016.

(3) Tax rate for the year 2016 is 40%. Future Tax rate is estimated at 45%.

(4) The company’s equity shares are quoted at ` 120 at the Balance Sheet date.

The profits for the year 2016 have been calculated after considering the following in the Profit and Loss Account :

(i) Subsidy of ` 4 lakhs is received from the Government towards fulfillment of certain social obligations. TheGovernment has withdrawn this subsidy and hence, this amount will not be received in future.

(ii) Interest ` 10 lakhs is on term loan. The final installment of this term loan was fully settled in this year.

(iii) Managerial remuneration is ` 18 lakhs. The shareholders have approved an increase of ` 8 lakhs in the overallmanagerial remuneration, from the next year onwards.

(iv) Loss on sale of fixed assets amounting to ` 10 lakhs.

Ans. :-

(I) Calculation of Future Maintainable Profit

`̀̀̀̀

Profit after tax 60,00,000

Tax @ 40% (60,00,000 x 40% / 60%) 40,00,000

Profit before tax 1,00,00,000

Less : Govt. subsidy not expected in future (4,00,000)

Add : Saving of Interest on term Loan 10,00,000

Less : Increase in remuneration (8,00,000)

Add : Loss on sale of fixed assets 10,00,000

Future maintainable profit before tax 1,08,00,000

Less : Tax @ 45% (48,60,000)

Future maintainable profit (FMP) 59,40,000

(II) Calculation of NRR (Capitalisation Rate)

Earning per share = 60,00,000

4,00,000= 15

PE Ratio = 120/15 = 8

Capitalisation Rate = 1

PE

1

8 = 12.5%

(III) Value of Business = FMP

NRR

= 59,40,000

12.5% = 4,75,20,000

Commentary :(1) Histroy : This question is framed by ICAI first time in RTP, May 2014.

(2) Chances of Error : If student has gone through this question then chances of error is negligible.



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Q.5.(b) - 4 Marks

Abhay furnishes the following information about all “Options” at the Balance Sheet date as on 31.3.2016. Determinethe Total amount of Provisions to be made in his books of account.

Securities A B C

Details of Options Bought

Premium paid 35000 15000 20000

Premium prevailing on Balance Sheet date 30000 5000 8000

Details of Options Sold

Premium received 20000 30000 20000

Premium prevailing on Balance Sheet date 25000 20000 15000

Ans. :-

Determination of Provision Required in the Books of Abhay

Particulars A B C

(1) For Options Bought

Premium paid on all Open Options bought 35000 15000 20000

Less : Total premium prevailing on Balance Sheet Date (30000) (5000) (8000)

5,000 10,000 12,000

(2) For Options Sold

Total premium prevailing on the Balance Sheet Date 25000 20000 15000

Less : Total premium received on all Call Options sold (20000) (30000) (20000)

5,000 (10,000) (5,000)

(3) Provision Required (1 + 2) 10,000 Nil 7,000

(4) Aggregate provision to be made (A + B + C) 17,000

Commentary :(1) Histroy : This question is based on Ind AS 109 asked in CMA June, 2014 first time and now in CA May, 2016.

(2) Chances of Error : If student has not gone through this question then there is certainty of error.

Q.5.(c) - 4 Marks

On 1st April, 2015, Krishna Limited offers 50 shares to each of its 1000 employees at ` 50 per share. The employeesare given a month time to decide whether or not to accept the offer. The shares issued under the plan (ESPP) shallbe subject to lock-in transfer for three years from grant date.

Other information :

(1) The market price of shares of the company on the grant date is ` 60 per share.

(2) Due to post vesting restrictions on transfer, the fair value of shares issued under the plan is estimated at `56 per share.

(3) On 30th April, 2015, 800 employees accepted the offer and paid ` 50 per share purchased.

(4) The nominal value of each share is ` 10 each.

You are required to record the issue of shares in the books of the company under aforesaid plan.






Ans. :-

Journal Entry

Dr. Cr.

30.4.2015

Bank A/c (800 x 50 x 50) Dr. 20,00,000

Employee Compensation (800 x 50 x 6) Dr. 2,40,000

To Equity share capital (800 x 50 x 10) 4,00,000

To Security premium (800 x 50 x 46) 18,40,000

(Being share issued under ESPP)

Commentary :(1) Histroy : This question is first time asked in Nov., 2011 then in May, 2013 and now in May, 2016.

(2) Chances of Error : If student has gone through this question then there is no chances of error.

Q.6.(a) - 8 Marks

Following information is provided in respect of Pradeep Ltd. as on 31st March, 2016 :

( `̀̀̀̀ in lakhs)

Turnover (including Discounts and Returns worth ` 35 lakhs) 2,500

Plant and Machinery (Net) 785

Depreciation on Plant and Machinery 132

Debtors 205

Dividend to Ordinary Shareholders 85

Creditors 180

Stock (Net) of all Raw Materials, WIP, Finished Goods

Opening Stock 180

Closing Stock 240

Raw Materials Purchased 714

Cash at Bank 98

Printing and Stationery 24

Auditor’s Remuneration 15

Retained Profit (Opening Balance) 998

Retained Profit for the year 445

Rent Paid 172

Other Expenses 88

Ordinary Share Capital (` 100 each) 1700

Interest on Borrowings 40

Income Tax for the year 280

Wages and Salaries 352

Employee State Insurance 32

Provident Fund Contribution 26

You are required to :

(i) Prepare Value Added Statement and its application for the period 31.3.2016.

(ii) Value Added per Employee (If 87 Employees work in Pradeep Ltd.)

(iii) Average Earnings per Employee (If 87 employees work in Pradeep Ltd.)

(iv) Sales per Employee (If 87 Employees work in Pradeep Ltd.).



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Ans. :-

(I) Value Added Statement of Pradeep Ltd.

(for the year 31.3.2016)

Particulars `̀̀̀̀(lakhs)

Turnover (excluding discount and returns) 2465

Less : Cost of bought in material and services

Raw material consumed (180 + 714 - 240) 654

Printing and stationery 24

Auditor remuneration 15

Rent paid 172

Other Expenses 88 (953)

Value Added 1,512

Application of Value Added

Towards Amount %

Employee

Wages and Salary 352

Employee state insurance 32

PF - contribute 26 410 27.10

Financer (Interest) 40 2.6

Government (taxes) 280 18.5

Shareholders (Dividend) 85 5.62

Entity

Depreciation 132

Retained profit 445

Transfer to Reserve (WN 1) 120 697 46.18

1512 100%

(II) Value Added per employee = Value Added

No. of Employee =

1512

87 = 17.37

(III) Average earning per employee :

(a) On Net profit basis = 650 / 87 = 7.47

(b) On employee earning basis = 410 / 87 = 4.71

(IV) Sale per employee (Net basis) = Sales / No. of Employee = 2465 / 87 = 28.33






WN 1 : Profit and Loss Account of Pradeep Ltd.

Particulars `̀̀̀̀ Particulars `̀̀̀̀

To Opening Stock 180 By Sales (Net) 2465

To Purchase 714 By Closing Stock 240

To Gross Profit (b/f) 1811

2705 2705

To Printing & Stationery 24 By Gross Profit 1811

To Auditor Remuneration 15

To Rent 172

To Other expenses 88

To Wages & Salary 352

To ESI 32

To Provident Fund 26

To Depreciation 132

To Interest 40

To Taxes 280

To Net Profit (b/f) 650

1811 1811

To Dividend 85 By Net Profit 650

To Reserve (b/f) 120 By Opening Balance 998

To Bal. c/d (998 + 445) 1443

1648 1648

Commentary :(1) Histroy : This question is framed by ICAI first time in RTP, Nov. 2006.

(2) Chances of Error : There is maximum possibility of error because Question does not prescribed amount transferredto reserve and that amount is required to be calculated.

Q.6.(b) - 8 Marks

On 1st April, 2016, Good Return Mutual Fund has the following assets and prices at 3.00 p.m.

Shares of No. of Shares Market price per Share

(`̀̀̀̀)

A Ltd. 10000 18.50

B Ltd. 35000 384.40

C Ltd. 10000 263.60

D Ltd. 75000 575.60

E Ltd. 20000 27.65

No. of Units of fund 5,00,000 Units

(a) Calculate the Net Assets Value (NAV) of the fund.

(b) Assuming Mr. Suresh, send a cheque of ` 75,00,000 to the fund on 1st April, 2016 and Fund Manager purchases15,000 shares of C Ltd. and balance is held in Bank. What will be the new position of the fund ?



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(c) Calculate the new Net Asset Value (NAV) of the fund, if on 2nd April, 2016, at 3.00 p.m. the market priceof shares is as follows :

Shares of Rate per Share (in `̀̀̀̀)

A Ltd. 21.30

B Ltd. 417.00

C Ltd. 289.80

D Ltd. 512.20

E Ltd. 35.00

Ans. :-

(I) Calculation of NAV of Fund

`̀̀̀̀

A Ltd. [10,000 x 18.5] 1,85,000

B Ltd. [35,000 x 384.4] 1,34,54,000

C Ltd. [10,000 x 263.4] 26,34,000

D Ltd. [75,000 x 575.6] 4,31,70,000

E Ltd. [20,000 x 27.65] 5,53,000

Total value of Investment 5,99,96,000

No. of Unit 5,00,000

NAV 119.992

(II) Calculation of New Position of Fund

`̀̀̀̀

Balance of Fund from (I) above 5,99,96,000

Purchase of Shares of C (1500 x 263.6) 39,54,000

Balance of Bank (75,00,000 - 39,54,000) 35,46,000

6,74,96,000

(III) Calculation of New NAV

`̀̀̀̀

A Ltd. [10,000 x 21.3] 2,13,000

B Ltd. [35,000 x 417] 1,45,95,000

C Ltd. [25,000 x 289.8] 72,45,000

D Ltd. [75,000 x 512.2] 3,84,15,000

E Ltd. [20,000 x 35] 7,00,000

Bank Balance 35,46,000

Total Net Assets 6,47,14,000

No. of units (5,00,000 + 62,504.1669] 5,62,504.1669

NAV 115.046

Additional Units = = 62,504.1669

Commentary :(1) Histroy : This question is framed by ICAI first time in RTP, May, 2012.







Q.7. Answer any four of the followings :

(a) - 4 Marks

Rose Limited provides you the following information on 31st March, 2016 :

Capital and Reserves

Equity share capital of ` 10 each of which ` 8 has been called up 8,00,000

Calls in arrears ` 1,00,000

General Reserve ` 7,50,000

50,000, 9% Debentures of ` 100 each ` 50,00,000

Profit/(Loss) for the year (` 2,50,000)

Industry Average Profitability rate 12.5%

The company is proposing to hire the services of Mr. Raman to turn around the company. You are required to determinethe maximum salary that could be offered to him if it is expected that after his appointment, the profits of the companywill increase by 10% over and above the target profit.

Ans. :-

(I) Calculation of Capital Employed

`̀̀̀̀

Paid up ESC (8,00,000 x 8) 64,00,000

Calls in arrear (1,00,000)

General Reserve 7,50,000

Debentures 50,00,000

Current year Loss (2,50,000)

Total Capital Employed 1,18,00,000

(II) Calculation of Maximum Salary

`̀̀̀̀

Target Profit (1,18,00,000 x 12.5%) 14,75,000

Expected increment @ 10% 1,47,500

Total expected profit 16,22,500

Maximum annual salary shall not exceed 16,22,500

Commentary :(1) Histroy : This question is framed by ICAI first time in RTP, Nov. 2008 then asked in May, 2012, May, 2014 and

May, 2016.


(b) - 4 MarksIn the following situations evaluate whether the preference shares are an equity instruments of a financial liabilityto the issuer entity.

Situation 1 : A company has issued 6% mandatorily redeemable preference shares with mandatory fixed dividends.

Situation 2 : A company issued non-redeemable preference shares with dividend payments linked to ordinary shares.Also state whether your answer will differ if the dividend payments are cumulative.



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Ans. :-

(i) Provision of Ind AS

An equity instrument is any contract that evidences a residual interest in the assets of an entity afterdeducting all of its liabilities.

In determining whether a preference share is a financial liability or an equity instrument, an issuer assessesthe particular rights attaching to the share to determine whether it exhibits the fundamental characteristic ofa financial liability.

(ii) Analysis and Conclusion

Case 1 :

Since payment of dividend and both principle are mandatory hence, pref. share capital is classified as liability.

Case 2 :

An entity issues a non-redeemable preference shares on which dividends are payable only if the entity alsopays a dividend on its ordinary shares.

The dividend payments on the preference shares are discretionary and not contractual, because no dividendscan be paid if no dividends are paid on the ordinary shares, which are an equity instrument.

As the perpetual preference shares contain no contractual obligation ever to pay dividends and there is noobligation to repay the principal, they should be classified as equity in their entirety.

Where the dividend payments are also cumulative, that is, if no dividends are paid on the ordinary shares,the preference dividends are deferred, the perpetual shares will be classified as equity only if the dividendscan be deferred indefinitely and the entity does not have any contractual obligations whatsoever to paythose dividends.

A liability for the dividend payable would be recognized once the dividend is declared.

Commentary :(1) Histroy : This question is based Ind AS supplementary issued by ICAI on Ind AS 109.


(c) - 4 Marks

Dark Ltd. purchased a Plant for ` 100 lakhs (excluding excise duty of 10 lakhs) from Mark Ltd. during 2015-16 andinstalled immediately. During 2015-16, the company produced excisable goods on which the excise authority chargedexcise duty to the extent of ` 9.00 lakhs. Show the necessary Journal entries explaining the treatment of CENVATcredit in the books of Dark Ltd. You are also required to indicate the value of Plant at which it should be recordedin Fixed Asset Register.






Ans. :- (`̀̀̀̀ in lakhs)

Date Particulars Dr. Cr.

2015-16 Machinery A/c Dr. 100

CENVAT Credit Receivable Dr. 5

Deferred CENVAT Credit Receivable Dr. 5

To Bank Account 110

(Being Capital asset purchased for which 50% of the credit

is admissable in current year and balance 50% in the next

year accordingly 50% of the Credit has been transferred

for next year).

Excisable Duty Payable Dr. 9

To CENVAT Credit receivable 5

To Bank 4

(Being Duty Paid after CENVAT Credit)

Commentary :(1) Histroy : This question is first time asked in May, 2013 and now in May, 2016.


(d) - 4 Marks

A machine was acquired in 1.4.2012 at a cost of ` 7,50,000. The expected working life of the machine is 10 yearsand it is expected to realize ` 75,000 at that time. The company charged depreciation on straight line at ` 67,500per year up to 2014-15. From 2015-16 the company switched to reducing balance method of depreciation @ 15%p.a., in respect of the machine. The revised useful life of machine is 15 years. The new rate shall apply with retrospectiveeffect from 1.4.2014.

How would you deal with the above in the annual accounts of the company for the year ended 31.3.2016 in thelight of Ind AS 8 ?

Ans. :-

(I) Calculation of Depreciation

WDV of asset at the end of year 2014-15 = ` 7,50,000 - ` 75,000 x 3 = ` 5,25,000.

WDV of asset at the end of year 2014-15 (by reducing balance method)

= ` 7,50,000 x 85% x 85% x 85% = ` 4,60,594.

Depreciation for the year 2015-16 @ 15% = 4,60,594 x 15% = 69,089.

Excess depreciation to be charged in year 2015-16 = 5,25,000 - 4,60,594 = 64,406.

Total depreciation to be charged in year 2015-16 = ` 64,406 + 69,089

= ` 1,35,495 (approx.)

(II) Conclusion

As per Ind AS 8 the revision of remaining useful life is a change in accounting estimate, and adoption ofreducing balance method of depreciation instead of the straight-line method is change in accounting policy.

Since it is difficult to segregate impact of these two changes, the entire amount of difference betweendepreciation at old rate and depreciation charged in 2015-16 is regarded as an effect of change in account-ing estimate as per provisions of para 35 of the standard.

The effect of this change in accounting estimate should be properly disclosed in the financial statements ofthe company for the year ended 31st March, 2016.

Commentary :(1) Histroy : This question is based on Ind AS module issued by ICAI of 270 pages in August, 2015.




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Amendment applicable from Nov. 2016 onwards

(1) Accounting Standard Rule, 2016 (Amended AS 2, 4, 6 & 10, 13, 14, 21 and 29)

(2) Ind AS Rule 2016 (Substitution of Ind AS 115 by Ind AS 18 & 11 and corresponding amendment in other Ind AS)

(3) Amendment in Holding Company due to amendment in AS 21.

(4) Amendment in Amalgamation due to amendment in AS 14.

Examination forecast for Nov. 2016 onwards

(1) This is the first attempt for Ind AS and exclusive 16 marks question based on Ind AS are asked which are totallycalculation and case study based (Share based payment is in addition to this 16 marks).

(2) No differences and carve are asked. This indicates that intention of institute is not to ask basic question from IndAS, but an In-depth study of Ind AS topic.

(3) Students are recommended to go through entire Ind AS with Practical Questions and Case Study in-depth forforthcoming examination because in subsequent attempt weight of Ind AS is expected to increase.

(4) Ind AS are now also made mandatory for Banks, Insurance companies and NBFCs apart from earlier requirementof only company.

(5) Wider applicability of Ind AS also show relevance of Ind AS in Industry and Profession.

(6) Students should not only read Ind AS for examination but also for interview, practice, consultancy, seminars andother intellectual forum.

For Upcoming Batches of Ind AS, Complete FR and IPCC Account

Refer Our

website : www.indasfundas.in

Facebook : www.facebook/Ranjay.IndAS

For Updated Book of

(1) Financial Reporting (FR) (2) Accounting Standards (AS) (3) Indian Accounting Standards (Ind AS)

Contact us :

9718057916, 9910865804, 9911986815

(d) - 4 MarksC Ltd. is a group engaged in manufacture and sale of industrial and FMCG products. One of their division alsodeals in Leasing of properties - Mobile Towers. The accountant showed the rent arising from the leasing of suchproperties as other income in the Statement of Profit and Loss.

Comment whether the classification of the rent income made by the accountant is correct or not in the light of ScheduleIII to the Companies Act, 2013.

Ans. :-

As per Schedule III other income does not include operating income. There is a separate head for operatingincome i.e. revenue from operations.

Rent income arising from leasing of real estate is an operating income as real estate is one of the division ofCombined Ltd. Hence Rental income is an operating income and should be classified as revenue from operations.

Treatment of the accountant to transfer rental income in the head of other income is incorrect as per classificationprescribed in Schedule III.

Commentary :

(1) Histroy : This question is based on study material of ICAI.




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