Q1Research and development, production losses, investment recl
14 marks very hard
Answer the following questions on Research and Development, production wastage, and investment reclassification as per applicable accounting standards.
Q1(i)Capitalisation of borrowing costs and asset cost determinati
2 marks hard
Case: Mars Ltd. is a manufacturing enterprise which is starting a new manufacturing plant at X Village. It has commenced construction of the plant on April 1, 2023 and has incurred following expenses: It has acquired land for installing Plant for ` 50,00,000; It incurred ` 35,00,000 for material and direct labour cost for developing the Plant; The Company incurred ` 10,00,000 for head office expenses at New Delhi which included rent, employee cost and maintenance expenditure; The Company borrowed ` 25,00,000 for construction work of Plant @12% per annum on April 1, 2023. Director finance of the Comp…
Which of the following expenses cannot be included in the cost of plant:
(a) Cost of Land
(b) Construction material and labour cost
(c) Head office expenses
(d) Borrowing cost
Q1(ii)Borrowing cost capitalisation calculation
2 marks hard
Case: Mars Ltd. is a manufacturing enterprise which is starting a new manufacturing plant at X Village. It has commenced construction of the plant on April 1, 2023 and has incurred following expenses: It has acquired land for installing Plant for ` 50,00,000; It incurred ` 35,00,000 for material and direct labour cost for developing the Plant; The Company incurred ` 10,00,000 for head office expenses at New Delhi which included rent, employee cost and maintenance expenditure; The Company borrowed ` 25,00,000 for construction work of Plant @12% per annum on April 1, 2023. Director finance of the Comp…
How much amount of borrowing cost can be capitalised with the plant:
(a) ` 300,000
(b) ` 2,00,000
(c) ` 7,00,000
(d) ` 6,00,000
Q1(iii)Asset capitalisation and total cost determination
2 marks hard
Case: Mars Ltd. is a manufacturing enterprise which is starting a new manufacturing plant at X Village. It has commenced construction of the plant on April 1, 2023 and has incurred following expenses: It has acquired land for installing Plant for ` 50,00,000; It incurred ` 35,00,000 for material and direct labour cost for developing the Plant; The Company incurred ` 10,00,000 for head office expenses at New Delhi which included rent, employee cost and maintenance expenditure; The Company borrowed ` 25,00,000 for construction work of Plant @12% per annum on April 1, 2023. Director finance of the Comp…
The total cost of plant as on march 31, 2024 will be:
(a) ` 85,00,000
(b) ` 98,00,000
(c) ` 93,00,000
(d) ` 95,00,000
Q1(iv)Depreciation calculation during construction period
2 marks hard
Case: Mars Ltd. is a manufacturing enterprise which is starting a new manufacturing plant at X Village. It has commenced construction of the plant on April 1, 2023 and has incurred following expenses: It has acquired land for installing Plant for ` 50,00,000; It incurred ` 35,00,000 for material and direct labour cost for developing the Plant; The Company incurred ` 10,00,000 for head office expenses at New Delhi which included rent, employee cost and maintenance expenditure; The Company borrowed ` 25,00,000 for construction work of Plant @12% per annum on April 1, 2023. Director finance of the Comp…
The amount of depreciation to be charged for the year end March 31, 2024
(a) ` 4,30,000
(b) ` 9,30,000
(c) ` 9,80,000
(d) Nil
Q2Preparation of financial statements - profit and loss accoun
14 marks very hard
Based on the given trial balance of Oliva Company Ltd. as on 31-03-2024 with details of inventory, outstanding expenses, interest accrued, prepaid amounts, depreciation rates, and tax provision, prepare: (1) the company's Profit and Loss Account for the year ended 31st March, 2024, and (2) Company's Balance Sheet as on that date.
Q2(i)Cash flow statement classification for interest income
2 marks hard
Case: Beloved Finance Ltd. is a financial enterprise which is in the business of lending loan to small businesses and earn interest on loans. During the year the Company has lend 50 crores and earned ` 1.5 crore as interest on loans. The Company had surplus funds during the year and invested then in Fixed Deposits with bank and earned interest on fixed deposits of ` 20 lacs. The Company also acquired a gold loan unit for ` 10 crore during the year and the Company provided interest free loan of ` 15 crore to its wholly-owned subsidiary. The Company paid a total income tax of ` 75 lacs for the year.
In the Cash Flow Statement as per AS 3, the interest income of ` 1.5 crore earned on loans given by the Company will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
Q2(ii)Cash flow statement classification for interest on investmen
2 marks hard
Case: Beloved Finance Ltd. is a financial enterprise which is in the business of lending loan to small businesses and earn interest on loans. During the year the Company has lend 50 crores and earned ` 1.5 crore as interest on loans. The Company had surplus funds during the year and invested then in Fixed Deposits with bank and earned interest on fixed deposits of ` 20 lacs. The Company also acquired a gold loan unit for ` 10 crore during the year and the Company provided interest free loan of ` 15 crore to its wholly-owned subsidiary. The Company paid a total income tax of ` 75 lacs for the year.
In the Cash Flow Statement as per AS 3, the interest income of ` 20 lacs earned on fixed deposits with bank will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
Q2(iii)Cash flow classification for asset acquisitions
2 marks hard
Case: Beloved Finance Ltd. is a financial enterprise which is in the business of lending loan to small businesses and earn interest on loans. During the year the Company has lend 50 crores and earned ` 1.5 crore as interest on loans. The Company had surplus funds during the year and invested then in Fixed Deposits with bank and earned interest on fixed deposits of ` 20 lacs. The Company also acquired a gold loan unit for ` 10 crore during the year and the Company provided interest free loan of ` 15 crore to its wholly-owned subsidiary. The Company paid a total income tax of ` 75 lacs for the year.
In the Cash Flow Statement as per AS 3, amount paid for acquiring gold loan unit will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
Q2(iv)Cash flow statement classification for tax payments
2 marks hard
Case: Beloved Finance Ltd. is a financial enterprise which is in the business of lending loan to small businesses and earn interest on loans. During the year the Company has lend 50 crores and earned ` 1.5 crore as interest on loans. The Company had surplus funds during the year and invested then in Fixed Deposits with bank and earned interest on fixed deposits of ` 20 lacs. The Company also acquired a gold loan unit for ` 10 crore during the year and the Company provided interest free loan of ` 15 crore to its wholly-owned subsidiary. The Company paid a total income tax of ` 75 lacs for the year.
In the Cash Flow Statement as per AS 3, total income tax of ` 75 lacs paid for the year will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
Q2(v)Related party transaction disclosures
2 marks hard
Case: Beloved Finance Ltd. is a financial enterprise which is in the business of lending loan to small businesses and earn interest on loans. During the year the Company has lend 50 crores and earned ` 1.5 crore as interest on loans. The Company had surplus funds during the year and invested then in Fixed Deposits with bank and earned interest on fixed deposits of ` 20 lacs. The Company also acquired a gold loan unit for ` 10 crore during the year and the Company provided interest free loan of ` 15 crore to its wholly-owned subsidiary. The Company paid a total income tax of ` 75 lacs for the year.
Is any specific disclosures required to be made in relation to the interest free loan of ` 15 crore provided by the Company to its wholly-owned subsidiary, if yes, as per which Accounting Standard:
(a) Yes, disclosure is required to be made as per AS 3, Cash Flow Statements
(b) Yes, disclosure is required to be made as per AS 18, Related Party Disclosures
(c) Yes, disclosure is required to be made as per AS 13, Accounting for Investments
(d) No specific disclosures are required
Q3AS-29 provisions and contingencies; scheme of reorganisation
14 marks very hard
Questions on accounting treatment of warranty liabilities and scheme of reorganisation.
Q3(i)Debt-equity ratio test for share buyback
2 marks hard
Case: Kumar Ltd., a privately-held company, operates in the manufacturing industry. Founded in 2008, the company has steadily grown its operations. As of 31st March, 2023, the company's capital structure reflects: Equity Share Capital: ` 30,00,000 invested in equity shares, each valued at ` 10 and fully paid; Reserves & Surplus: ` 49,00,000, comprising General Reserve (` 32,50,000), Security Premium Account (` 6,00,000), Profit & Loss Account (` 4,30,000), and Revaluation Reserve (` 6,20,000); Loan Funds: ` 42,00,000. Kumar Ltd. has decided to initiate a share buy-back program at a price of ` 30 per…
What is the minimum equity Kumar Ltd. needs to maintain after buy-back, according to the Debt Equity Ratio Test?
(a) ` 12,95,000
(b) ` 21,00,000
(c) ` 32,50,000
(d) ` 6,00,000
Q3(ii)Maximum buyback calculation using debt-equity ratio
2 marks hard
Case: Kumar Ltd., a privately-held company, operates in the manufacturing industry. Founded in 2008, the company has steadily grown its operations. As of 31st March, 2023, the company's capital structure reflects: Equity Share Capital: ` 30,00,000 invested in equity shares, each valued at ` 10 and fully paid; Reserves & Surplus: ` 49,00,000, comprising General Reserve (` 32,50,000), Security Premium Account (` 6,00,000), Profit & Loss Account (` 4,30,000), and Revaluation Reserve (` 6,20,000); Loan Funds: ` 42,00,000. Kumar Ltd. has decided to initiate a share buy-back program at a price of ` 30 per…
What is the maximum permitted buy-back of equity for Kumar Ltd.?
(a) ` 38,85,000
(b) ` 42,00,000
(c) ` 12,95,000
(d) ` 59,85,000
Q3(iii)Share buyback quantity determination
2 marks hard
Case: Kumar Ltd., a privately-held company, operates in the manufacturing industry. Founded in 2008, the company has steadily grown its operations. As of 31st March, 2023, the company's capital structure reflects: Equity Share Capital: ` 30,00,000 invested in equity shares, each valued at ` 10 and fully paid; Reserves & Surplus: ` 49,00,000, comprising General Reserve (` 32,50,000), Security Premium Account (` 6,00,000), Profit & Loss Account (` 4,30,000), and Revaluation Reserve (` 6,20,000); Loan Funds: ` 42,00,000. Kumar Ltd. has decided to initiate a share buy-back program at a price of ` 30 per…
How many shares of Kumar Ltd. can be bought back at ` 30 per share according to the Debt Equity Ratio Test?
(a) 43,000
(b) 1,29,500
(c) 2,00,000
(d) 78,000
Q4Recognition of asset sale and gains under Ind AS
2 marks easy
Sahil Ltd agreed to sell its factory located in Assam to Kali Ltd on 4.12.2023. It entered into a sale deed (transferring all significant risks and rewards of ownership) on 1.2.2024. But the transaction was registered with the registrar on 30.5.2024. When should the sale and gain be recognized?
(a) Both sale and gain should be recognized as on the balance sheet date i.e. 31.3.2024
(b) Both sale and gain should be recognized on 30.5.2024
(c) The sale should be recognized as on balance sheet date but gain should be recognized on 30.5.2024
(d) Both sale and gain should be recognized on 4.12.2023
Q4Amalgamation of companies - share exchange and consolidated
14 marks very hard
Anu Ltd. and Banu Ltd. carry on business of similar nature and have agreed to amalgamate. A new Company, Anban Ltd. is formed to take over the Assets and Liabilities of both companies with specified valuations and adjustments. You are required to: (1) Compute the basis on which shares in Anban Ltd. will be issued to Shareholders of the existing Companies assuming nominal value of each share of Anban Ltd. is ` 10; (2) Draw up a Balance Sheet of Anban Ltd. as on 1st April, 2023, when Amalgamation is completed.
Q5Gain/loss on disposal of investments
2 marks easy
Pratham and Associates is a manufacturer of steel rods. It invests its profits by purchasing shares of listed companies in order to earn dividend income. It had purchased shares of Bharti Airtel Limited in FY 2018-19. However, it sold all the shares of Bharti Airtel Limited during the current year i.e. FY 2023-24. What amount would be disclosed in the profit and loss account for FY 2023-24?
(a) This transaction would not affect the profit and loss account since the primary business of the company is manufacturing, and not investment
(b) The carrying amount net of expenses would be disclosed in the profit and loss account
(c) The disposal proceeds net of expenses would be disclosed in the profit and loss account
(d) The difference between the carrying amount and the disposal proceeds, net of expenses, would be disclosed in the profit and loss account
Q5Goodwill calculation in business combinations; impact of ass
14 marks very hard
Consolidation and acquisition issues involving goodwill calculation and revaluation impact assessment.
Q6Finance lease accounting - unearned finance income
2 marks easy
As per Accounting Standards, difference between the Gross Investment and the present value of Minimum Lease Payments under finance lease (from the standpoint of the lessor) and Unguaranteed Residual Value accruing to the lessor is recorded as
(a) Unearned finance income
(b) Guaranteed Residual Value
(c) Profit on lease
(d) Loss on lease
Q6(a)(i)Qualitative characteristics of financial statements - neutra
4 marks medium
Do you agree with the statement that 'One of the characteristics of financial statements is neutrality'? Discuss.
Q6(a)(ii)Accounting equation and effects of transactions on balance s
4 marks medium
Opening Balance Sheet of Mr. Amit is showing the aggregate value of assets, liabilities and equity ` 16 lakh, ` 6 lakh and ` 10 lakh respectively. During accounting period, Mr. Amit has the following transactions: (1) Earned 10% dividend on 4,000 equity shares held of ` 100 each; (2) Paid ` 1,00,000 to creditors for settlement of ` 1,40,000; (3) Rent of the premises is outstanding ` 20,000; (4) Mr. A withdrew ` 18,000 for his personal use. You are required to show the effect of above transactions on Balance Sheet in the form of Assets - Liabilities = Equity after each transaction.
Q6(b)Share capital, conversion into stock, and reconversion into
4 marks medium
C Ltd. had ` 5,00,000 authorized capital on 31-12-2021 divided into shares of ` 100 each out of which 4,000 shares were issued and fully paid up. In June 2022 the Company decided to convert the issued shares into stock. But in June, 2023 the Company re-converted the stock into shares of ` 10 each, fully paid up. Pass entries and show how Share Capital will appear in Notes to Balance Sheet as on 31-12-2022 and 31-12-2023.
Q6(c)Branch accounting - stock account and debtor account
6 marks medium
Alfa of Chennai has a branch at Mumbai to which goods are sent @ 20% above cost. The branch makes both cash and credit sales. Branch expenses are met partly from H.O. and partly by the branch. The statement of expenses incurred by the branch every month is sent to head office for recording. Detailed information on cost of goods sent, goods received, sales, cash remitted, expenses, bad debts and opening/closing balances are provided. You are required to prepare Branch stock account and branch debtor account in the books of the head office for the year ended 31st December, 2023.