Revision Test Paper

Question No.1
The following is the balance sheet of Minor Limited as on 31st December 2009:
Liabilities
Rs.
Assets
Share Capital
Fixed Assets
10,000 shares of Rs.10 each
1,00,000
Sinking Fund Investment
Share Premium as on 1.1.09
20,000
Current Assets
Sinking fund for redemption
of debentures
as on 1.1.09
12,000
transfer during year
3,000 15,000
General Reserve
as on 1.1.09
50,000
transfer during year
10,000 60,000
Profit & Loss A/c
as on 1.1.09
8,000
profit for the year
22,000
30,000
Less: Transfer to
Sinking Fund &
General Reserve
13,000
Dividend paid in
March 09 for 08
3,000
Proposed Dividend
10,000 4,000
9% Debentures
40,000
Current Liabilities
42,000
Proposed Dividends
10,000
2,91,000

Rs.
160,000
15,000
1,16,000

2,91,000

Major Limited acquired 7,500 shares in Minor Limited @ Rs.25 per share on 30th June 2009.
Calculate:
(a)
Cost of Control/ Capital reserve
(b)
Minority Interest
Answer/Hints
i. Cost of Control
Cost of Investment (7,500 25)
Less:
Pre-acquisition dividend (5500 75%)
Share in paid up capital (7,500 10)
Share in pre-acquisition (92,500 75%)
Goodwill

Rs.

4,125
75,000
69,375

Rs.
187,500

148,500
39,000

ii. Minority Interest

Share in paid up capital (2,500 Rs.10)
Share in pre-acquisition profit (92,500 25%)
Share in post acquisition profit- Sinking fund (1,500 25%)
Share in post-acquisition profit -General reserve (5,000 25%)
Share in dividend (10,000 25%)
Total

Rs.
25,000
23,125
375
1,250
2,500
52,250

Working Note:
1. Calculation of pre-acquisition profit
Security premium
Sinking Fund (opening)
Sinking Fund (1/2 of transfer during the year 3,000)
Profit and loss account
General Reserve (opening)
General Reserve (1/2 of transfer during the year 10,000)

20,000
12,000
1,500
4,000
50,000
5,000

Total

92,500

Question No.2
On 1st January 2009, Investments Ltd. a new company raised its first capital of Rs.3,00,000 from the issue of
30,000 shares of Rs.10 each at par, and on that date acquired the following shareholdings:
A Ltd. - 3,000 shares of Rs.10 each fully paid for Rs.35,000.
B Ltd. - 10,000 shares of Rs.10 each fully paid for Rs.72,000.
C Ltd. - 8,000 shares of Rs.10 each fully paid for Rs.92,000.
Apart from these transactions and those detailed below, Investment Ltd. neither paid nor received other monies
during 2009.
The following are the summarized balance sheets of Subsidiary companies on 31st December 2009:
A Ltd.
B Ltd.
C Ltd.
Rs.
Rs.
Rs.
Goodwill
4,000
----15,000
Freehold Property
18,000
41,000
50,000
Plant
16,000
30,000
12,000
Stock
11,000
32,000
21,000
Debtors
4,000
8,000
17,000
Cash at Bank
1,000
2,000
11,500
Profit & Loss Account
--18,000
---54,000
1,31,000
1,26,500
Share Capital
40,000
1,20,000
1,00,000
Reserves (as on 1.1.1999)
3,000
---7,500
Profit & Loss Account
6,000
----15,000
Creditors
5,000
11,000
4,000
54,000
1,31,000
1,26,500
Other relevant information:
(i)
The freehold property of C Ltd. is to be revalued at Rs.65,000 as on 1.1.2009.
(ii) Additional depreciation for the year 2009 of Rs.3,000 on the plant of B Ltd. is to be provided.
(iii) The stock of A ltd. as on 31st December 2009 has been undervalued by Rs.2,000 and is to be adjusted.
(iv) As on 31st December 2009 Investments Ltd. owed A Ltd. Rs.3,500 and is owed Rs.6,000 by B Ltd. C Ltd
is owed Rs.1,000 by A Ltd and Rs.2,000 by B Ltd.
(v)
The balances on Profit and Loss Account as on 31st December 2008 were A Ltd Rs.2,000 (credit); B
Ltd. Rs.12,000 (debit); and C Ltd. Rs.4,000 (credit).
The credit balances of A Ltd. and C Ltd were wholly distributed as dividends in March 2009.
(vi) During 2009 A Ltd and C Ltd. declared and paid interim dividends of 8 % and 10% respectively.
You are required to prepare the consolidated balance sheet of Investments Ltd and its subsidiary companies as
on 31st December 2009, ignore taxation.
Answer/Hints
Consolidated balance sheet of Investment Ltd and its subsidiary A Ltd, B Ltd and C Ltd as on 31st December
2009
Liabilities
Rs.
Rs.
Assets
Rs.
Rs.
Share capital
300,000 Goodwill
19,000
Capital Reserve
25,950
Freehold property
124,000
Profit & Loss a/c
Plant
55,000
Dividend
10,400
Stock
66,000
Post acquisition of A
6,000
Debtors
35,000
Post acquisition of B
(7,500)
Less: Mutual owing
(12,500) 22,500
Post acquisition of C
6,000
20,900
Cash at Bank
128,100
Creditors
23,500
Less: Mutual owing
(12,500)
11,000
Minority Interest
56,750
414,600
414,600
Working Note
1. Minority Interest
Share in paid up capital of A Ltd
Share in paid up capital of B Ltd

Rs.
10,000
20,000

Share in paid up capital of C Ltd

Share in pre-acquisition profit of A Ltd
Share in pre-acquisition profit of B Ltd
Share in pre-acquisition profit of C Ltd
Share in post-acquisition profit of A Ltd
Share in post-acquisition profit of B Ltd
Share in post-acquisition profit of C Ltd
Total
Cost of Control
Cost of Investment in A Ltd
Cost of Investment in B Ltd
Cost of Investment in C Ltd
Total
Less:
Pre-acquisition dividend from A Ltd
Pre-acquisition dividend from C Ltd
Share in paid up capital of A Ltd
Share in paid up capital of B Ltd
Share in paid up capital of C Ltd
Share in pre-acquisition profit of A Ltd.
Share in pre-acquisition profit of B Ltd.
Share in pre-acquisition profit of C Ltd.
Capital reserve

20,000
750
(2,000)
4,500
2,000
(1,500)
3,000
56,750

2.

35,000
72,000
92,000
199,000
1,500
3,200
30,000
100,000
80,000
2,250
(10,000)
18,000

224,950
25,950

Question No. 3
The following summarized balance sheet as on December 31, 2015 as given:
A Ltd.
B Ltd.
Share Capital (fully paid shares of Rs.100 each)
20,00,000
5,00,000
Reserve & surplus
6,00,000
2,40,000
Loans from B Ltd. (including interest)
2,25,000
--Bank Overdraft
---1,50,000
Sundry Creditors
2,40,000
2,10,000
30,65,000
11,00,000
Fixed Assets
16,00,000
5,00,000
Investments:
(i) In B Ltd.
4,72,500
(ii) Other
5,70,000
Loans to A Ltd
--2,00,000
Cash at Bank
1,20,000
12,000
Other Current Assets (including interest receivable)
3,02,500
3,84,000
30,65,000
11,00,000
The following other information are available:
1. The Reserve of the companies as on January 1, 2015 were: A Ltd. Rs.4,30,000 and B Ltd. Rs.2,50,000.
2. B Ltd. has advanced the loan to A Ltd on January 1, 2015.
3. On July 1, 2015 B Ltd issued fully paid bonus shares at the rate of one shares for every four held. On the
same date, a dividend of 10 percent was paid for 2014.
4. A Ltd has purchased 3,500 shares in B Ltd on April 1, 2015 but had disposed of 375 shares on October 31,
2015 at Rs.140 the sale proceeds of being credited to the concerned investment account which so far has
only this entry in addition to that made on the acquisition of the shares.
Prepare consolidated balance sheet.
Answer/hints
Consolidated Balance Sheet of A Ltd and its Subsidiary B Ltd as on 31st December 2015
Liabilities
Rs.
Rs.
Assets
Rs.
Share capital
2,000,000 Fixed assets
Reserve & Surplus:
Other investment
- of A Ltd
600,000
Bank

Rs.
2,100,000
570,000
136,000

- Post acquisition
- Pre-acquisition dividend
- profit on sale of shares
Bank overdraft
Creditors
Minority interest
Capital reserve

78,000
(35,000)
10,500

653,500
150,000
450,000
148,000
66,000
3,467,500

Working Note:
1. Analysis of profit of B Ltd as on 31.12.2015
Particulars
Balance on 1.1.15
250,000
Less; Bonus issue
100,000
Less: Dividend of 14
40,000
Profit of current year (130,000 in 3:9)
Total
H (80)
114,000
2. Minority Interest
Share in paid up capital
|Share in pre-acquisition profit
Share in post-acquisition profit
Total
3. Cost of Control
Gross cost of shares (472,500 + 52,500) 4,000/4,375
Less:
Share in paid up capital
Share in pre-acquisition dividend
Share in pre-acquisition profit
Capital Reserve
4. Profit /loss on sale of shares
Gross cost of shares (472,500 + 52,500) 375/4,375
Less: pre-acquisition dividend (35,000 375/4375)
Net cost
Sale proceeds (375 140)
Profit on sale

Other current assets:

- of A Ltd
- of B Ltd
- Interest

302,500
384,000
(25,000)

661,500

3,467,500

Pre-acquisition profit
(upto 31.3.15)

110,000
32,500
142,500
M (20)
28,500

Post acquisition profit

(1.4.15 to 31.12.15)

97,500
97,500
H (80)
78,000

M (20)
19,500

100,000
28,500
19,500
148,000

480,000
400,000
32,000
114,000

546,000
66,000

45,000
3,000
42,000
52,500
10,500

Question No. 4
The balance sheet of S Ltd and T Ltd as at 31st March 2014 were as follows:
S Ltd
Rs.
Liabilities:
Share Capital (shares of Rs.10 each)
5,00,000
Reserves
2,40,000
Profit and Loss Account
57,200
Bank overdraft
80,000
Bills payable
-Creditors
47,100
9,24,300
Assets:
Land and Buildings
1,50,000
Plant and Machinery
2,40,000
Investment in T Ltd
3,40,000
Stock
1,20,000
Sundry Debtors
44,000

T Ltd.
Rs.
2,00,000
1,00,000
82,000
-8,400
9,000
3,99,400
1,80,000
1,35,000
-36,400
40,000

Bills Receivable
Cash

15,800
-14,500
8,000
9,24,300
3,99,400
S Ltd had acquired 16,000 shares of T Ltd on 1st October 2013. The profit and loss account of T Ltd stood at
Rs.30,000 (Credit) on 31st March 2013 out of which a dividend of 10 percent was paid on 1st November 2013. S
Ltd had credited its share of dividends to its profit and loss account.
S Ltd had sold an item of machinery to T Ltd on Hire-Purchase basis. In respect of this machine, the following
were the balances in its books as of 31st March, 2014:
Rs.
Instalments due
5,000
Instalments not due
2,000
H P Stock Reserve
400
The above stood included under appropriate heads in the balance sheets.
Prepare the consolidated balance sheet of the two companies as on 31st March 2014.
Answer/hints

Consolidated balance sheet of S Ltd and its subsidiary T Ltd as on 31st March 2014
Liabilities
Rs.
Rs.
Assets
Rs.
Share capital
500,000
Goodwill
Reserves
240,000
Land and Building
Profit & Loss Account
Plant and Machinery
375,000
- of A Ltd
57,200
Less: Unrealized profit
(1,400)
- post acquisition
28,800
Stock
156,400
- pre-acquisition dividend
(16,000)
Less: unrealised profit
(1,600)
- unrealised profit
(1,000)
69,000
Debtors
84,000
Creditors
56,100
Hp debtors
(5,000)
Hp creditors
(7,000)
49,100
Bills receivable
Bills payable
8,400
Cash
Bank overdraft
80,000
Minority interest
76,400
1,022,900
Working Note
1. HP Trading Account
Particulars
To Goods sold on HP
To H P Reserve
To P & L Account

Rs.
7,000
400
1,000
8,400

2. Analysis of profit of T Ltd

Particulars
Profit & Loss b/l
30,000
Less: Dividend
20,000
General Reserve
Profit of current year (72,000 in 6:6 )
Total
H (80)
116,800
3. Cost of Control
Gross cost of investment
Less:
Share in paid up capital
Share in pre-acquisition dividend
Share in pre-acquisition profit
Goodwill
4. Minority Interest

Particulars
By Instalment Due (debtors)
By Instalment not due (stock)
By Goods sold on Hp (Loading)

Pre-acquisition profit
(upto 30.9.13)
10,000
100,000
36,000
146,000
M (20)
29,200

Rs.
340,000
160,000
16,000
116,800

292,800
47,200

373,600
154,800
79,000
15,800
22,500

1,022,900

Rs.
5,000
2,000
1,400
8,400

Post-acquisition profit
(1.10.13 to 31.3.14)

36,000
36,000
H (80)
28,800

Rs.
47,200
330,000

M (20)
7,200

Share in paid up capital

Share in pre-acquisition profit
Share in post-acquisition profit
Total

40,000
29,200
7,200
76,400

Question No. 5
The following is the balance sheet of Weak Ltd as on June 30, 2015:
Liabilities
Rs.
Assets
Share Capital: (2,000 shares
Goodwill
of Rs.100 each)
2,00,000
Land and Building
Reserve Fund
20,000
Plant and Machinery
5% Debentures
1,00,000
Stock
Loan from A (a director)
40,000
Debtors
Sundry Creditors
80,000
Cash at Bank
Discount on Debentures
4,40,000

Rs.
35,000
85,000
1,60,000
55,000
65,000
34,000
6,000
4,40,000

The business of the company is taken over by Strong Ltd. as on the date, on the following terms:
a. Strong Ltd to take over all assets except cash, to value the assets their book value less 10 percent except
goodwill which was to be valued at 4 years purchase of the excess of average (five years) profits over 8
percent of the combined amount of share capital and reserves.
b. Strong Ltd to take over trade creditors which were subject to a discount of five percent. Other outside
liabilities were discharged by Strong Ltd at their book values.
c. The purchase consideration was to be discharged in cash to the extent of Rs.10,000 and the balance in fully
paid equity shares of Rs.10 valued at Rs.12.50 per share.
The average of the five years profits was Rs.30,100. The expenses of liquidation amounted to Rs.4,000. Weak
Ltd had sold prior to 30th June 2015, goods costing Rs.30,000 to Strong Ltd for Rs.40,000. Debtors include
Rs.20,000 still due from Strong Ltd on the date of absorption, Rs.25,000 worth of the goods were still in stocks
of Strong Ltd. Show the important ledger accounts in the books of Weak Ltd and journal entries in the books of
Strong Ltd.
Answer/hints
Books of Weak Ltd
Realisation Account
Particulars
To Goodwill
To Land and Building
To Plant and Machinery
To Stock
To Debtors
To Cash (Realisation Exp)

Shareholders Account
Particulars
To Discount on Debentures
To Realisation Loss
To Cash
To Shares of Strong Ltd

Cash Account
Particulars
To Balance b/d
To Strong Ltd

Rs.
35,000
85,000
160,000
55,000
65,000
4,000
404,000

Particulars
By debentures
By Loan
By Creditors
By Strong Ltd (PC)
By Shareholders A/c (Realisation Loss)

Rs.
6,000
21,500
40,000
152,500
220,000

Particulars
By Share Capital
By Reserve

Rs.
34,000
10,000
44,000

Particulars
By Realisation Exp
By Shareholders A/c

Rs.
100,000
40,000
80,000
162,500
21,500
404,000

Rs.
200,000
20,000

220,000

Rs.
4,000
40,000
44,000

Books of Strong Ltd

Business Purchase
To Liquidator of Weak Ltd
(Purchase consideration due)
Liquidator of Weak Ltd
To Cash
To |Share Capital (12,200 10)
To security premium (12,200 2.5)
(Purchase consideration discharged)
Goodwill
Land and Building
Plant and Machinery
Stock
Debtors
To Liability for Creditors
To Liability for Loan
To Liability for Debentures
To Business Purchase
(Take over of assets and liabilities)
Creditors
To Debtors
(Cancelation of mutual owing)
Goodwill
To Stock Reserve
(Unrealised profit)

Working Note:
1. Valuation of goodwill
Excess profit
= Average profit 8% (capital + Reserve)
= 30,100 8% (200,000 + 20,000)
= 30,100 17,600
= 12,500
Goodwill
= 12,500 4
= Rs.50,000
2. Calculation of purchase consideration
Goodwill
Land and Building
Plant and Machinery
Stock
Debtors
Less: Creditors
Less: Loans
Less: debentures
PC
Discharge
Cash
Shares (152,500/12.5)

Dr.

162,500
162,500

Dr.

162,500
10,000
122,000
30,500

Dr.
Dr.
Dr.
Dr.
Dr.

50,000
76,500
144,000
49,500
58,500
76,000
40,000
100,000
162,500

Dr.

20,000
20,000

Dr.

6,250
6,250

50,000
76,500
144,000
49,500
58,500
(76,000)
(40,000)
(100,000)
162,500
Rs.10,000
12,200 shares

Question No.6
The balance sheet of X Ltd and Y Ltd as on 31.3.2015 are as below:
Liabilities
X
Y
Assets
Equity Shares
Fixed Assets other
Capital (Rs.10)
5,00,000
3,00,000 than goodwill
Reserve
40,000
20,000
Stock
P&L A/c
60,000
40,000
Debtors
Sundry Creditors
50,000
30,000
Cash at Bank

3,00,000
80,000
1,40,000
1,20,000

2,00,000
60,000
90,000
35,000

Preliminary Expenses
6,50,000

3,90,000

10,000
6,50,000

5,000
3,90,000

Y Ltd is taken over by X Ltd as on 1.1.2015. No balance sheet of Y Ltd is prepared as on 1.7.2015. But it is
estimated that Rs.20,000 profit has been earned in these three months after charging 10 percent depreciation p.a.
on fixed assets. Profit earned by X Ltd over these three months is estimated at Rs.40,000 after charging 10
percent depreciation p.a.
Both the companies have declared and paid 10 percent dividend in the meantime. Purchase consideration is to
be satisfied by X Ltd at par neglecting actual value of its share. Goodwill of Y Ltd is valued at Rs.20,000 and
fixed assets are valued Rs.10,000 above the estimated book value. Balance Sheet of X Ltd after absorption?
Answer/Hints
Books of X Ltd
Business Purchase
Dr.
375,000
To Liquidator of Y Ltd
375,000
(Purchase consideration due)
Liquidator of Y Ltd
Dr.
375,000
To Share Capital
375,000
(discharge of purchase consideration)
Goodwill
Dr.
20,000
Fixed Assets
Dr.
205,000
Net Working Capital
Dr.
150,000
To Business Purchase
375,000
(take over of assets and liabilities)
Balance sheet of X Ltd after take over
Liabilities
Rs.
Assets
Share Capital
875,000
Fixed Assets
Reserve
40,000
Goodwill
P&L
50,000
Net Working Capital
Preliminary Expenses
965,000

Working Note:
Since the balance sheet on date of dissolution is not given, it has to be prepared:
Balance sheet as on 1.7.2015
Liabilities
Rs.
Rs.
Assets
Share capital
500,000
300,000 Fixed assets
Reserve
40,000
20,000
Preliminary Exp
P& L
50,000
30,000
Net Working Capital (BF)
590,000
350,000

Rs.
497,500
20,000
437,500
10,000
965,000

Rs.
292,500
10,000
287,500
590,000

Calculation of Purchase consideration

Goodwill
20,000
Fixed Assets
205,000
Net working capital
150,000
PC
375,000
Discharge
37,500 shares @ Rs.10 per shares
Question No.7
Following are the balance sheets of two companies, Wye Ltd and Zee Ltd as at December 31, 2015
Wye Ltd
Zee Ltd.
Wye Ltd.
Zee Ltd
Rs.
Rs.
Rs.
Rs.
Creditors
1,50,000
95,000 1,000 shares in
Reserve
1,00,000
55,000 Wye Ltd
1,00,000
Share capital (Rs.100)
5,00,000
3,00,000 Sundry assets
7,50,000
3,50,000
7,50,000
4,50,000
7,50,000
4,50,000
Wye Ltd absorbed Zee Ltd on the basis of intrinsic value of shares, entries are to be made at par.

Rs.
195,000
15,000
150,000
350,000

Answer/Hints
Business Purchase
To Liquidator of Zee Ltd
(Purchase consideration due)
Liquidator of Zee Ltd
To Share Capital
(discharge of purchase consideration)
Sundry Assets
To Creditors
To Business purchase
To Capital Reserve
(Take over of assets and liabilities)

Books of Wye Ltd

Dr.
212,500
212,500
Dr.

212,500
212,500

Dr.

350,000
95,000
212,500
42,500

Books of Zee Ltd

Particulars
To Sundry Assets
To Investment

Particulars
To Realisation A/c (shares)
To Realisation loss
To Equity in Wye Ltd

Realisation Account
Rs.
Particulars
350,000
By Creditors
100,000
By Shareholders A/c
By Shareholders (Realisation loss)
450,000
|Shareholders Account
Rs.
Particulars
100,000
By Equity share capital
42,500
By Reserve
212,500
355,000

Rs.
95,000
100,000
42,500
450,000

Rs.
300,000
55,000
355,000

Working Note:
Calculation of Purchase consideration
Sundry Assets
350,000
Less: Creditors
(95,000)
Net assets taken over
255,000
Intrinsic value of shares of Wye Ltd (750,000-150,000)/5,000 = Rs.120 per share
No of shares to be issued (255,000/120)
2,125
Revised Purchase consideration 2,125 100 = Rs.212,500
Question No.8
A Ltd has acquired, as current asset, 60,000 shares in B Ltd for Rs.60,000 on 1st November 2014. On 1st January
2016 it agreed to absorb B Ltd. The consideration being:
(i)
The assumption of its liabilities.
(ii)
The discharge of the Rs.40,000 debentures held outside the company at a premium of 10 percent
by the issue of 6 percent. Debentures in A Ltd carrying a full six months interest payable 1st July
2016.
(iii)
A payment in cash of Re.0.50 per share in B Ltd; and
(iv)
The issue of shares of Re.1 each in A Ltd credited as fully paid to the members of B Ltd on the
basis of:
Two equity shares (valued at Rs.1.60 each) and one 7 cumulative preference share (valued at Rs.1.10) for
every five shares in B Ltd.
The summarized balance sheet of B Ltd as on 31st December 2015 was as follows:
Rs.
Rs.
Share capital:
Fixed assets
73,000
1,60,000 shares of Re.1
Stocks
85,800
each Re.0.75 paid
1,20,000
Debtors
45,000
General reserve
75,000
Investments:
Profit & Loss A/c
21,550
on account of
Insurance Fund*
10,000
Insurance Fund 10,000
5% Debentures
45,000
5% Debentures

Creditors

17,800

in B Ltd
Bank Balance
Goodwill

4,800

14,800
50,750
20,000
2,89,350
2,89,350
* The company had been carrying its own insurance risk crediting amounts equivalent to premium to the fund
and charging losses thereof.
It was agreed that for absorption purposes, 5 percent should be written off stocks and provision of 2 percent
made for doubtful debts. The remaining assets, other than goodwill, are considered to be properly valued for the
purpose of absorption.
Before passing entries in respect of the absorption, A Ltd decided to revalue shares in B Ltd on the same basis
as that of the absorption.
The absorption was completed on 1st March 2016 by the issue of necessary shares and debentures in A Ltd and
payment of cash B Ltd was thereupon wound be. Expenses amounted to Rs.750 and were paid by A Ltd.
Prepare Ledger of B and Journal of A.
Answer/Hints
Business purchase
Dr.
To Liquidator of B Ltd
(Purchase consideration due)
Investment
Dr.
To Capital Reserve
(Revaluation of investment in shares of B Ltd)
Liquidator of B Ltd
Dr.
To Investment in shares of B Ltd
To Cash
To Equity Shares
To Preference shares
`
To Security premium
(discharge of purchase consideration)
Fixed assets
Dr.
Stocks
Dr.
Debtors
Dr.
Investment
Dr.
Bank
Dr.
Goodwill
Dr.
To Liability for creditors
To Provision for bad debt
To Liability for Debentures
To Business Purchase
(Take over of assets and liabilities)
Goodwill
Dr.
To Bank
(Realisation expenses)
Liability for debenture
Dr.
To 6.5% Debentures
(discharge of debenture)
Books of B Ltd
Realisation Account
Particulars
To Fixed Assets
To Stock
To Debtors
To Investment
To Bank
To Goodwill

Shareholders Account

Books of A Ltd
217,600
217,600

Rs.
73,000
85,800
45,000
14,800
50,750
20,000
289,350

21,600
21,600
217,600
81,600
50,000
40,000
20,000
26,000
73,000
81,510
45,000
10,000
50,750
20,265
17,800
1,125
44,000
217,600
750
750
44,000
44,000

Particulars
By Creditors
By Debentures
By A Ltd (PC)
By Shareholder A/c (Realisation loss)

Rs.
17,800
45,000
217,600
8,950

289,350

Particulars
To Realisation Loss
To A Ltd
To Cash
To Equity of A Ltd
To Preference of A Ltd

Rs.
8,950
81,600
50,000
64,000
22,000
226,550

Working Note:
1. Calculation of purchase consideration
Payable
Cash
160,000 0.50
Equity
64,000 1.60
Preference
32,000 1.10
217,600

Particulars
By Share Capital
By General Reserve
By Profit & Loss
By Insurance Fund

Rs.
120,000
75,000
21,550
10,000
226,550

receivable
60,000 0.50
24,000 1.60
12,000 1.10
81,600

Net
50,000
64,000
22,000
136,000

Question No.9
Gloria and Swanson Ltd had to pass the hands of a receiver for debenture holders who held charge on all assets
except uncalled capital. The following is the positions prepared by the receiver:
Rs.
Share Capital:
20,000 shares of Rs.50 each fully paid up
10,00,000
1,00,000 shares of Rs.50 each, Rs.25 per share paid up
25,00,000
First debentures
25,00,000
Second debentures
50,00,000
Unsecured Creditors
40,00,000
Bank Balance
30,00,000
Building, Plant and Machinery (estimated to realize Rs.15,00,000)
40,00,000
The following is the interest of Gloria and Swanson in the company:

First Debentures
Second debentures
Unsecured Creditors
Share Capital:
Fully paid shares
Partly paid shares

Gloria
Rs.
20,00,000
30,00,000
6,00,000
56,00,000

Swanson
Rs.
5,00,000
20,00,000
9,00,000
34,00,000

5,00,000
10,00,000

5,00,000
10,00,000

The following scheme of reconstruction is proposed:

1.
Gloria is to cancel Rs.31,00,000 of his total debt, pay cash Rs.5,00,000 and he would be issued
Rs.30,00,000 first debentures in lieu of first and second debentures to be cancelled.
2.
(a)
Swanson is to cancel his total debt by accepting Rs.5,00,000 in cash and Rs.5,00,000 in first
debentures.
(b)
Swanson is to surrender for cancellation Rs.5,00,000 worth of fully paid up shares.
3.
Unsecured creditors, other than Gloria and Swanson, agree to reduce their debt by 20 percent and
accept in lieu thereof 1,00,000 shares of rs.10 each fully paid and the balance in cash payable five equal
annual instilments.
4.
Uncalled capital is to be called up in full and Rs.40 per share to be cancelled, thus making all shares of
Rs.10 each.
Assuming the scheme is duly approved by all parties concerned and by the court, show the reconstructed
Balance Sheet and the journal entries in the books of the company.
Answer/Hints
First Debenture
Second debenture

Dr.
Dr.

2,000,000
3,000,000

Unsecured creditors
Dr.
600,000
Bank
Dr.
500,000
To First Debenture
3,000,000
To Capital Reduction
3,100,000
(Liabilities towards Gloria Reconstructed)
First debenture
Dr.
500,000
Second Debenture
Dr.
2,000,000
Unsecured Creditors
Dr.
900,000
To bank
500,000
To First Debenture
500,000
To Capital reduction
3,400,000
(Liabilities towards Swanson reconstructed)
Equity share capital
Dr.
500,000
To Capital reduction
500,000
(surrender of share capital)
Unsecured creditors
Dr.
2,500,000
To Capital reduction
500,000
To Equity share of Rs.10
1,000,000
To Loan payable in instalment
1,000,000
(settlement with unsecured creditors)
Bank
Dr.
2,500,000
To Share Capital
2,500,000
(Uncalled amount called)
Share Capital
Dr.
5,500,000
To Equity of Rs.10
1,100,000
To Capital reduction
4,400,000
(Share of Rs.50 reduced to Rs.10)
Capital reduction
Dr.
10,500,000
To Profit & Loss
8,000,000
To Fixed Assets
2,500,000
(Loss written off)
Capital Reduction
Dr.
400,000
To capital reserve
400,000
(Balance in capital reduction transferred to capital reserve account)
Balance sheet after capital reduction
Liabilities
210,000 shares of Rs.10
Capital reserve
First debentures
Loan payable in instalments

Working Note:
Balance sheet before reconstruction
Liabilities
Share capital of Rs.50 paid
Share capital of Rs.25 paid
First debentures
Second debentures
Unsecured creditors

Rs.
2,100,000
400,000
3,500,000
1,000,000
7,000,000

Rs.
1,000,000
2,500,000
2,500,000
5,000,000
4,000,000
15,000,000

Assets
Building, plant
Bank

Rs.
1,500,000
5,500,000

7,000,000

Assets
Bank Balance
Building, plant etc
Profit & Loss (BF)

Rs.
3,000,000
4,000,000
8,000,000

15,000,000

Questions based on valuation of Goodwill, Shares and Business

Question No.10
From the following information supplied to you, ascertain the value of goodwill of A Ltd, which is carrying on
business as retail under super profit method

Balance sheet as on 31st March 2015

Rs.
Paid up capital
5,00,000
(5,000 shares of Rs.100
each fully paid)
Bank Overdraft
1,16,700
Sundry Creditors
1,81,000
Provision for taxation
39,000
Profit & Loss Appr. A/c
1,13,300
9,50,000

Goodwill at cost
Land and Building
Plant and Machinery
Stock in trade
Book debts less provision
for bad debts

Rs.
50,000
2,20,000
2,00,000
3,00,000
1,80,000
9,50,000

The company commenced operations in 2005 with a paid up capital of Rs.5,00,000. Profits for recent years
(after taxation) have been as follows:
Year ended 31st March
Rs.
2011
40,000 (Loss)
2012
88,000
2013
1,03,000
2014
1,16,000
2015
1,30,000
The loss in 2011 occurred due to a prolonged strike.
The income tax paid so far has been at the average rate of 40 percent but is likely to be 50 percent from
onwards. Dividends were distributed at the rate of 10 percent on the paid up capital in 2012 and 2013 and at the
rate of 15 percent in 2014 and 2015. The market price of shares is ruling at Rs.125 at the end of the year ended
31st March 2015. Profits till 2015 have been ascertained after debiting Rs.40,000 as remuneration to the
managing director. The government has approved remuneration of Rs.60,000 with effect from 1st April 2015.
The company has been able to secure a contract supply of materials at advantageous price. The advantage has
been valued at Rs.40,000 per annum for the next five years.
Answer/hints
Valuation of goodwill
Normal profit
= Average capital employed normal rate of return
= Rs.573,300 12%
= Rs.68,796
Super profit
= Future maintainable profit normal profit
= Rs.110,694 Rs.68796
= Rs.41,898
Goodwill
= Super profit 5 years
= Rs.41,898 v 5
= Rs.209,490
1. Closing capital employed
Land and Building
Plant and Machinery
Stock in trade
Book debts
Less:
Creditors
Bank overdraft
Taxation
Closing capital employed

Rs.
220,000
200,000
300,000
180,000
(181,000)
(116,700)
(39,000)
563,300

2. Average capital employed

= closing capital employed + dividend current year post tax profit
= Rs.563,300 + Rs.75,000 Rs.130,000
= Rs.573,300

3. Normal rate of return

= dividend rate/ market value of shares
= 15/125
= 12%
4. Future maintainable profit
Average profit { (103,000 100/60 1) + (116,000 100/60 2) + (130,000 100/60 3)}/6
= 201,388
Average pre-tax profit
Rs.201,388
Add: profit from contract
Rs.40,000
Less: Increase in remuneration
Rs.20,000
Rs.221,388
Less; Expected tax (50%)
Rs.110,694
Future maintainable profit
Rs.110,694
Note: Since there was a loss due to a prolonged strike in 2011, assuming affected the profit of 2012 also, future
maintainable profit calculated on the basis of profits of 2013,2014 and 2015. In the absence of no of years of
purchase, 5 years taken from the hint that the contract was beneficial for 5 years.
Question No. 11
Tee Ltd belongs to an industry in which equity shares sell at par on the basis of 9 percent dividend yield
provided the net tangible assets of the company are 250 percent of the paid up capital and provided that the total
distribution of profit does not exceed 50 percent of the profits. The dividend rate fluctuates from year to year in
the industry. The balance sheet of Tee Ltd stood as follows on 31.12.2015:
Liabilities
Rs.
Assets
Rs.
7% Preference Shares
Goodwill
1,00,000
fully paid (Rs.100)
6,00,000
F. A. less dep.
16,00,000
Equity shares of Rs.80
Investments
1,50,000
Paid (F.V. Rs.100)
8,00,000
C.A.
6,30,000
Revenue Reserve
4,00,000
Preliminary Expenses
20,000
6% debentures
4,00,000
Current liabilities
3,00,000
25,00,000
25,00,000
The company has been earning on the average Rs.4,00,000 as profit after debentures interest but before tax
which may be taken at 50 percent. The rate of dividend on equity shares has been maintained at 12 percent in
the past year and is expected to be maintained. Determine the probable market value of the equity shares of the
company. The fixed assets may be taken to be worth Rs.17,20,000.
Answer/hints
Market value of shares
= Paid up Value dividend rate/normal rate of return
= Rs.80 12/10
= Rs.96
Working Note
1. Adjustment in normal rate of return
Normal rate of return in industry
Adjustment for lower net tangible assets to paid up capital
Adjustment for lower retained profit
Adjustment for constant dividend rate
Adjusted normal rate of return for the firm
A. Net tangible assets
Fixed assets
Investments
Currents assets
Less; Debentures
Less: Current Liabilities

9%
+ 1%
+1%
- 1%
10%
Rs.
1,720,000
150,000
630,000
(400,000)
(300,000)

Net tangible assets

1,800,000

Paid up equity capital

Paid up preference capital
Total paid up capital

800,000
600,000
1,400,000

Percentage net tangible assets to paid up capital

= 1,800,000/1,400,000
= 128%
Net tangible asset of the company is less that 250% of the paid up capital. It is a negative feature of the
company.
B. Net profit before tax
Less; Tax 50%
Profit after Tax

Rs.400,000
Rs.200,000
Rs.200,000

Dividend Distribution
Preference dividend
Rs.42,000
Equity dividend
Rs.72,000
Total dividend
Rs.114,000
Profit distribution is more than 50% of the profits. It is also a negative feature of the company.
C. The company has maintained constant dividend rate. It is a positive feature.

Question No. 12
Following are the information relating to a manufacturing company:
Year
Average net worth
Adjusted taxed profits
Rs.
Rs.
2011-12
2,000,000
300,000
2012-13
2,250,000
370,000
2013-14
2,300,000
375,000
2014-15
2,400,000
400,000
a.

Average net worth does not include investments worth Rs.300,000 (at market value) on the valuation
date, the yield in respect of which has been excluded in computing the adjusted tax profits figures.
b.
The company has Rs.900,000 on equity shares of Rs.100 each and Rs.400,000 in 9 percent preference
shares of Rs.100 each.
c.
It is the usual practice of similar type of companies to set aside 20 percent of the taxed profits for
rehabilitation purposes.
d.
On the valuation day, the net worth (including investments) amounted to Rs.2,550,000.
e.
The normal expected rate of return is 10 percent.
f.
The company has paid dividends regularly within arrange of 9 percent to 10 percent on equity shares
over the past 6 years and expects to maintain the same.
Find out the value of equity shares on the basis of productivity. You may use weight factor: 1, 2, 3, 4 for four
years, assigning weight 1 to the year 2011-12 and so on.
Answer/hints
Rate of return in past years
Year
rate of return
2011-12
300,000/2,000,000
2012-13
370,000/2,250,000
2013-14
375,000/2,300,000
2014 -15
400,000/2,400,000

=15%
= 16.44%
= 16.30%
= 16.67%

Average rate of return (weighted)

= 16.35%

Profit on net worth excluding investment

Add: Return on investment (300,000 10%)
Total profit

= 2,250,000 16.35%

= Rs.367,875
= Rs.30,000
= Rs.397,875

Less: Transfer to reserve (20% of 397,875)

Less: preference dividend
Max possible dividend to equity

= Rs.70,575
= Rs.36,000
= Rs.282,300

Max possible dividend rate (282,300/900,000)

Value of shares (Rs.100 31.36/10)

= 31.36%
= Rs.313.60

Question No. 13
Compute the values of a preference share and an equity share of each of the companies A & B on the basis of
following information:
A
B
Rs.
Rs.
Profit after tax
10,00,000
10,00,000
12% Preference shares (Rs.100)
10,00,000
20,00,000
Equity shares (Rs.10)
50,00,000
40,00,000
Assume market expectation 15 percent and that 80 percent of profits are distributed.
Answer/hints
Let assume the rate of return given in the question relates to equity shares.
Preference shares carry lesser risk; hence normal rate of return of preference shares is generally lower than that
of equity shares. So let assume normal rate of return on preference shares at 13%.
In case of B Ltd the burden of preference dividend is higher than that of A Ltd. Considering this as negative
feature of B Ltd, assume that normal rate of return of preference of B Ltd at 13.5%.
Particulars
Profit after tax
Less: Transfer to reserve (20%)
Total Distribution
Less: preference dividend
Max dividend to equity
Max dividend rate (dividend/equity)

A Ltd
1,000,000
200,000
800,000
120,000
680,000
13.6%

B Ltd
1,000,000
200,000
800,000
240,000
560,000
14%

Value of equity

10 13.6/15
Rs.9.07
100 12/13
Rs.92.31

10 14/15
Rs.9.33
100 12/13.50
Rs.88.89

Value of preference

Question Based on Nepal Accounting Standards/ Nepal Financial Reporting Standards

Question No.14
From the following details of an asset:
1. Find out impairment loss
2. Treatment of impairment loss
3. Current year depreciation
Particulars of asset
Cost of asset
Useful life
Salvage value
Current carrying value
Useful life remaining
Recoverable amount
Upward revaluation done in last year

Rs.56 lakhs
10 years
Nil
Rs.27.30 lakhs
3 years
Rs.12 lakhs
Rs.14 lakhs

Answer
An impairment loss on a revalued asset is recognised as an expense in the statement of profit and loss. However,
an impairment loss on a revalued asset is recognised directly against any revulation surplus for the asset to the
extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset.

After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset should be
adjusted in future periods to allocate the assets revised carrying amount less its residual value (if any) on a
systematic basis over its remaining useful life.
In the given case, the carrying amount of the asset will be reduced to Rs.1,200,000 after impairment. This
amount is required to be depreciated over remaining useful life of 3 years (including current year). Therefore,
the depreciation for the current year will be Rs.400,000.
Question No.15
State which of the following is classified as financial asset:
a. Bank Deposit
b. Advance Tax
c. Advance against purchase of goods
d. Prepaid expenses
Answer/hints
a. Yes
b. No
c. No
d. No
Question No.16
A Ltd invested in equity shares of other companies. It intends to sell those shares within 12 months. Should
investment in equity shares be classified as current asset? The entitys operating cycle is 14 months.
Answer/ Hints
Operating cycle concept is applied to assets lie inventories, trade receivables, prepayments for operating
expenses, advances to suppliers of goods and services which are working capital items. For financial assets
including time deposit, loans to other entities, twelve months criterion is applied.
Thus the investment in equity should be classified as current assets.
Question No.17
AB Limited had entered into a contract to render repair the artworks of a damaged building at a total contract
price of Rs.100 million. It had originally estimated that its cost would be Rs.60 million. Since accurate time
estimation was not possible for the artworks, it employs a survey at the year end and estimated that 60% of the
works have been complete at a cost of Rs.47 million. The party has made a progress payment of Rs.50 million
through a separate assessment of work completion. Can the entity recognize revenue applying stage of
percentage completion method?
Answer/Hints
The answer is in affirmative since the revenue recognition criterion i.e. revenue is measurable, economic benefit
will flow to the entity out of rendering service, stage of completion has been assessed reliably and costs can be
reliably measured as well as estimated.
Revenue to be recognised

=
=
=

Contract price stage of completion

100 million 60%
60 million

Profit to be recognised

=
=
=

Contract revenue contract expenses

60 million 47 million
13 million

Question No.18
AD Limited purchased a plant for a gross price of Rs.200 million. The seller granted 0.5% rebate. The gross
price includes excise duty Rs.18 million for which the buyer entity will get tax refund and non-refundable VAT
of Rs.10 million. It has also incurred Rs.15 million for transportation costs, handling charges and insurance,
Rs.5 million for installation and Rs.3 million for testing and professional fees. It has earned Rs.0.2 million from
selling goods produced out of testing. The company borrowed Rs.100 million for financing the new purchase @
10%. The entire process of purchase upto making the asset operational took nearly 15 months. Borrowed money
was outstanding during this period. The company earned Rs.0.10 million from short term parking of the money
borrowed pending payment to supplier and meeting all costs.

What should be the initial cost of the plant?

Answer/Hints
Statement showing initial cost of machine
Cost element
Purchase price
Less: Rebate
Less: Refundable taxes
Transportation, handling and insurance
Installation charges
Testing and professional charges
Less: sale proceed of goods produced in testing
Borrowing cost capitalised
Less: earning from short term parking of the borrowed fund
Initial Cost

Rs. In million
200.00
1.00
18.00

3.00
0.20
12.50
0.10

Rs. In million

181.00
15.00
5.00
2.80
12.40
216.20

Question No.19
A plant was recognised initially at a cost of Rs.10 million as on 1.1.1997. Upto 1999, accumulated depreciation
charge was Rs.3 million (straight line depreciation assuming useful life of 10 years and residual value nil).
During 2000 the plant was revalued upward by Rs.3 million considering favourable market price of a second
hand plant of the same type. Depreciation charge during 2000 and 2001 was @1.43 million (computed on the
new carrying amount of Rs.10 million for 7 years).
During 2002, the net selling price of the plant was assessed at Rs.3 million and its value in use was Rs.2.5
million whereas the carrying amount of the asset was Rs.5.72 million. As per the depreciation policy, the
company would charge depreciation of Rs.1.43 million for the year 2002 as well.
Recoverable amount of the plant as on 31.12.2002 Rs.3 million (which is higher of the net selling price and
value in use)
Find out impairment loss. How should this impairment loss be accounted for?
Answer/hints
Carrying amount of the asset as on 31.12.2002 (after charging depreciation for the year 2002) Rs.5.71 million
(original cost Rs.10 million + revaluation surplus Rs.3 million accumulated depreciation upto 2002 Rs.7.29
million.)
Impairment loss:
Carrying amount
Rs.5.71 million
Recoverable amount
Rs.3.00 million
Impairment loss
Rs.2.71milliom
This impairment loss of Rs.2.71 million is to be adjusted against revaluation surplus of Rs.3 million.
Question No.20
X Ltd provides guarantee to all borrowings made by Y Ltd. As on 31.12.2008, financial condition of Y Ltd was
sound, whereas during the year 2009 the financial condition of the company deteriorates. On 30.06.2009, Y Ltd
files for protection from its creditors. How should X Ltd recognise provision and account for guarantee?
Answer/hints
As on 31.12.2008, there was no obligating event. Failure of Y Ltd to pay the debt will be the obligating event.
No provision was required in 2008. The guarantee is recognised at fair value.
As on 31.12.2009, the obligating event i.e. the failure of Y Ltd to pay debt has occurred. X Ltd has to recognise
a provision based which the best estimate of the payment to be made arising out of Y Ltds failure to pay the
borrowings.
The guarantee is subsequently measured at the higher of (a) the best estimate of the obligation and (b) the
amount initially recognised less cumulative amortisation, if any.
Question No.21
X Limited is required to fit a smoke filters to its factory by 30 June 2009. The entity has not fitted the smoke
filters as on 31.12.2008 which is the reporting period end of the entity. What will be the position as on
31.12.2009 if the entity does not fit the smoke filters?
Answer/hints

As on 31.12.2008, there is no obligating event, so no provision is required.

As on 31.12.2009, the obligating event (non-compliance with fitting smoke filters) has occurred. The possible
obligations could be fines and penalties. The entity has to make the best estimate of the amount of fine/penalty
under the law. Accordingly, provision shall be created.
Question No.22
X Co. Limited has obtained an institutional loan of Rs.680 lakhs for modernisation and renovation of its plant
and machinery. Plant and machinery acquired under the modernisation scheme and installation completed on
31.3.2008 amounted to Rs.520 lakhs, 30 lakhs has been advanced to supplier for additional assets and the
balance loan of Rs.130 lakhs has been utilized for working capital purpose. The total interest paid for the above
loan amounted to Rs.62 lakhs during 2007-2008.
You are required to calculate the amount of borrowing costs eligible for capitalisation as per the provisions of
Nepal Accounting Standard 23 on Borrowing Costs.
Answer/hints
As per NAS 23, borrowing cost that are directly attributable to the acquisition, construction or production of a
qualifying asset can be capitalized as a part of the cost of the assets and the other borrowing costs are to be
expensed in the period in which they are incurred.
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use
or sale.
The following treatment can be given:
(i)
Borrowing cost related to modernization of plant and machinery
Modernization of plant and machinery falls under a qualifying asset. The borrowing cost related to the cost on it
should be capitalized.
The amount to be capitalized
=
Rs.(62 / 680 ) 520 Lakhs
=
Rs.47.41 Lakhs
(ii)
Borrowing cost related to advance given to supplier for additional asset
The asset is qualifying asset. Interest on the amount of advance can be capitalized. The amount of interest
eligible for capitalization is
=
Rs. (62 / 680) 30 Lakhs
=
Rs.2.74 Lakhs
(iii)
Borrowing cost related to working capital
It is not a qualifying asset. The interest should be expensed in profit and loss account and the amount of interest
is
=
Rs. (62 / 680) 130 Lakhs
=
Rs.11.85 Lakhs
Question No.23
31st December 2009 is closing date of AB Limited. It purchased inventory costing US $ 10,000 on 15.4.2009
(when the rate was Rs.75 per US $). The rate of exchange on 31st December 2009 is Rs.76 per US $. And net
realizable value of the inventory on 31st December 2009 was US $ 10,200. Find out the value of inventories to
be included in financial statements as on 31st December 2009. (Assume functional currency is Rs.)
Answer/hints
As per NAS 21, carrying amount of non-monetary asset is first determined applying appropriate standards then
the provision of NAS 21 applies.
Inventories are valued at lower of cost and net realizable value i.e. at cost of US $ 10,000. The inventories are
then translated into rupees applying the rate when the cost was determined i.e. Rs.75. so the value of closing
inventories will be Rs.750,000.
Question No.24
AX Limited prepares its financial statement on 31st March each year. A client sued the company on 15th March
2009, for damages against companys failure to fulfill the warranty amounting Rs.500,000. The company made
a provision of Rs.300,000 on advice of the lawyer. The financial statements were authorized on 30th April 2009.
On 15th April 2005, the court decided against the company and a compensation of Rs.450,000 was awarded.
You are required to advise the treatment.
Answer/hints

The entity shall adjust the provision made and provide an additional provision of Rs.150,000 in the financial
statements of the financial year 31st March 2009. The company can not disclose only as a contingent liability as
the decision of court provides additional evidence of a present obligation on the balance sheet date.
Question No.25
The Board of directors of ABX Limited approved its financial statements for the financial year ended on 31st
March 2009 on 30th April 2009. It has investments held for trading and therefore valued at market price of 31st
March 2009 which is fair value of the investment. The market price of the investment was decreased on 12th
April 2009.
Answer/Hints
Subsequent decline in the market price does not reflect the conditions prevailing as on the balance sheet date.
And such event is non-adjusting event. So it should not be adjusted in the financial statement for the year ended
on 31st March 2009. But it should be disclosed in notes to accounts.

Questions based on latest development in Accounting

Question No.26
From the following profit and loss account of Kalyani Limited, prepare a gross value added statement. Show
also the reconciliation between gross value added and profit before taxation.
Profit and loss account for the year ended 31st March 2016
Income :

Notes

Amount
(Rs. in Lakhs)
206.42
10.20
216.62

Sales
Other Income
Expenditure:
Production and operational expenses
Administrative expenses (factory)
Interest and other charges
Depreciation
Profit before tax
Provision for tax

1
2
3

166.57
6.12
8.00
5.69

Investment allowances reserve written back

Balance as per last balance sheet
Transferred to:
General reserve
Proposed dividend
Surplus carried to balance sheet
Note:1 Production and operational expenses
Particulars
Increase in stock
Consumption of raw materials
Consumption of stores
Salaries, wages, bonus and other benefits
Cess and local tax
Other manufacturing expenses

24.30
3.00

186.38
30.24
3.00
27.24
0.46
1.35
29.05

27.30
29.05

Amount
(Rs. in Lakhs)
30.50
80.57
5.30
12.80
3.20
34.20
166.57

Note: 2
Administrative expenses include inter-alia Audit fees of Rs.1 lakh, Salaries and commission to directors Rs.2.20
lakhs and provision for doubtful debts Rs.2.50 lakhs.

Note: 3 Interest and other charges

Particulars

Amount
(Rs. in Lakhs)
3.90
1.80
2.30
8.00

On fixed loans from financial institutions

Debentures
On working capital loans from bank

Answer/Hints
Kalyani Limited
Value added statement
For the year ended 31st March 2016
Particulars
Sales
Less: Production and operational expense
- Increase in stock
- Consumption of raw materials
- Consumption of stores
- Other manufacturing expenses
Administrative expenses
- Audit fees
- Provision for bad debt
- Other expenses (6.12- 1 2.20 2.5)
Interest and other charges
- Interest on working capital loan
Value added from operating activities
Add: Other Income
Value added during the year

Rs. In lakhs

Rs. In lakhs
206.42

30.50
80.57
5.30
34.20

150.57

1.00
2.50
0.42

3.92

2.30

Reconciliation between value added and profit before taxation

Particulars
Rs. In lakhs
Profit before tax
Add:
- Depreciation
5.69
- Salaries, wages, bonus and other benefits
12.80
- Directors remuneration
2.20
- Cess and local taxes
3.20
- Interest on debentures
1.80
- Interest on fixed loans
3.90
Value added during the year
Question No.27
The following figures for a period were called out from the books of value for Value Corporation:
Rs.
Sales
24,80,000
Purchase of Raw Materials
10,00,000
Agents Commission
20,000
Consumable Stores
25,000
Packing Material
10,000
Stationery
10,000
Audit Fees
4,000
Staff Welfare Expenses
1,58,000
Insurance
26,000
Rent, Rates & Taxes
16,000
Managing Directors Remuneration
84,000
Traveling Expenses
21,000
Fuel and Oil
9,000
Electricity
5,000
Materials used in repairs:

2.30
49.63
10.20
59.83

Rs. In lakhs
30.24

29.59
59.83

(i)
(ii)

Materials to Plant & Machinery

Materials to Building

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Salaries & Wages
Postage & Telegram
Contribution to Provident Fund etc.
Directors Sitting fees and Travelling expenses
Subscription paid
Carriage
Interest on Loan taken
Dividend to Shareholders
Depreciation Provided
Income- Tax Provided
Retained Earnings
Opening Stock:
Raw Materials
Finished Goods
Closing Stock:
Raw Materials
Finished Goods

24,000
10,000
25,000
6,30,000
14,000
60,000
40,000
2,000
22,000
18,000
30,000
55,000
1,00,000
1,25,000
85,000
2,00,000
1,08,000
2,40,000

From the above you are required to prepare a statement detailing the source and disposal to added value. Does
your statement corroborate the assertion of the chairman of the company in the annual general meeting that 75
percent of added value is accounted by employee cost?
Answer/hints
Value added statement
Particulars
Sales
Add: increase in stock of finished goods
Less:
Material consumed
Agents commission
Consumable stores
Packing materials
Stationery
Audit fees
Insurance
Rent, rates and taxes
Travelling expenses
Fuel and oil
Electricity
Materials used in repairs
- Plant and machinery
- Building
Advertisement
Postage and telegrams
Subscription
Carriage
Value added during the year
Distribution of value added
Particulars
Employees
- Staff welfare
- Managing directors remuneration
- Salaries and wages
- Contribution to provident fund

Rs.
2,480,000
40,000

Rs.
2,520,000

977,000
20,000
25,000
10,000
10,000
4,000
26,000
16,000
21,000
9,000
5,000
24,000
10,000
25,000
14,000
2,000
22,000

Rs.
158,000
84,000
630,000
60,000

1,220,000
1,300,000

Percentage

- Directors sitting fees

Total (a)
Taxation
- Income tax provided
Total (b)
Capital
- Interest on loan
- Dividend to shareholders
Total (c)
Re-investment
- Depreciation
- Retained earning
Total (d)
Grand Total (a + b + c +d)

40,000
972,000

74.77

100,000
100,000

7.69

18,000
30,000
48,000

3.69

55,000
125,000
180,000
1,300,000

13.85
100

Evaluation
The employees are getting 74.77% of value added. The chairmans claim is that they are getting 75%. The
chairmans claim may be accepted as a valid one as the difference between the two amounts is just negligible.

Question No.28
From the following information taken from the books of F Ltd relating to staff and community benefits, prepare
a statement classifying the various items under the appropriate heads, required under corporate social reporting.

Environmental improvement
Medical facility
Training programs
Generation of job opportunities
Municipal taxes
Increase in cost of living in the vicinity due to a thermal power station
Concessional transport, water supply
Extra work put in by staff and officers for drought relief
Leave encashment and leave travel benefits
Educational facilities for children of staff members
Subsidised canteen facilities
Generation of business

Rs.
2,010,000
4,500,000
1,025,000
6,075,000
1,070,000
1,655,000
1,125,000
1,850,000
5,200,000
2,160,000
1,440,000
2,500,000

Answer/hints
F Ltd
Statement relating to staff and community benefits
Rs.
I. Social benefits and cost to staff
A. Social benefits to staff
Medical facilities
Training programs
Concessional transport, water supply
Leave encashment and leave travel benefits
Educational facilities for children of staff members
Subsidised canteen facilities
Total (A)
B. Social costs to staff
Extra work put in by staff and officers for drought relief
Total (B)
Net social benefits to staff (A B)
II. Social benefits and costs to community
A. Social benefits to community
Environmental improvement
Generation of job opportunities

4500,000
1,025,000
1,125,000
5,200,000
2,160,000
1,440,000
15,450,000
1,850,000
1,850,000
13,600,000

2,010,000
6,075,000

Municipal taxes
Generation of business

1,070,000
2,500,000
11,655,000

Total (C)
B. Social costs to community
Increase in cost of living in the vicinity due to a thermal power station
Total (D)
Net social benefits to community (C D)

1,655,000
1,655,000
10,000,000

Question N0.29
A University receives two grants one from the Ministry of Human Resources to be used for Aids Research.
This grant is for Rs.4,500,000 which includes Rs.300,000 to cover indirect expenses incurred in administrating
the grant. The second grant of Rs.3,500,000 received from a reputed trust is to be used to set up a centre to
conduct seminars on Aids related matters from time to time. During the year, it also received Rs.500,000 worth
of equipment donated by a well wisher to be used for Aids research. During the year 2015-2016, the university
spent Rs.3,225,000 of the government grant and incurred Rs.300,000 overhead expenses. Rs.2,800,000 were
spent from the grant received from the trust.
Show the necessary journal entries.
Answer/Hints
Date
Particulars
i.
Bank A/c
To Revenue Fund (restricted)
(Grant from the Government and Private organisation)
ii.
Expenses A/c
To Bank A/c
(Rs.3,225,000 spent from government grant and Rs.2,800,000
from private grant)
iii.
Equipment A/c
To Revenue Fund (restricted)
(Equipment received as grant)
iv.
Revenue Fund (restricted)
To Income & Expenditure A/c
(Recognition of fund as income to the extent actual expense
Rs.3,225,000 from govt grant and Rs.2,800,000 from private
grant)
v.
Revenue Fund (restricted)
To Bank
(overhead expenses incurred from restricted fund)

Lf

Dr. Rs.
8,000,000

Cr. Rs.
8,000,000

6,025,000
6,025,000

500,000
500,000
6,025,000
6,025,000

300,000
300,000