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Study Circle Company Accounts Cs Executive Refresher Course Financial Accounts
Profit Prior to Incorporation
Eeshan Ltd. was incorporated on 1st August, 2006 to acquire a business as on 1st April, 2006 the first accounts were closed on 31st March, 2007
The following items appeared in the Profit and Loss Account
Profit and Loss Account for the year ended 31st March, 2007 Particular Debit Rs. Particulars Credit Rs.
Director's Fees 49,000 By Gross Profit 9,60,000 Rent 85,500 Bad debts 12,000 Salaries 1,83,000 Interest on Debenture 24,000 Depreciation 66,000 Preliminary Expenses 42,000 General Expenses 49,200 Commission on Sales 36,000 Printing and Stationery 93,000 Advertising 1,20,500 Auditor's Fees 58,600 Electricity Charges 44,400 Insurance Premium 24,000
Net profit
72800 9,60,000
9,60,000
Additional Information:
1. Rent is paid on the basis of floor space occupied. Floor space occupied was doubled in the post incorporation period.
2. Sales for each month of December 2006 to March, 2007 were double the monthly sales of April to November, 2006.
3. Bad debts Rs. 500/- were in respect of sales effected two years ago.
4. Mr. Amit was working partner in the firm entitled to remuneration @ Rs. 12,000/- p.m. From 1st August, 2006 he was Managing Director of a Company entitled to salary @ Rs. 15,000/- p.m. The remaining salary is to two Clerks employed during the period 1st July to 30th November, 2006.
Study Circle Company Accounts Cs Executive Refresher Course
You are required to prepare profit and loss account for the year ended 31st March, 2007 and show 'Pre' and 'Post' incorporation period profit or loss.
Underwriting of Shares
Emeses Ltd. Issued 40,000 shares which were underwritten as:
P : 24,000 shares Q : 10,000 shares and R : 6,000 shares. The underwriters made applications for firm underwriting as under:
P: 3,200 shares; Q: 1,200 shares; and R: 4,000 shares. The total subscriptions excluding firm underwriting (including marked applications) were 20,000 shares.
The marked applications were P: 4,000 share; Q: 8,000 shares; and R: 2,000 shares.
Prepare a statement showing the net liability of underwriters.
Study Circle Company Accounts Cs Executive Refresher Course
Valuation of Shares & Intangible Assets
Following is the summarised Balance Sheet of M/s. Vijay Engineers as on 30.9.2006.
LIABILITIES Rs. ASSETS Rs.
Share Capital
30,000 Equity shares of Plant 50,000
Rs. 10 each 3,00,000 Property 1,20,000
Reserve and surplus Stock 3,10,000
General 1,20,000 Debtors 2,03,000
Capital 1,40,000 Bank 1,17,000
Profit & Loss A/c 1,20,000 2,80,000 Cash 1,700
Current Liabilities &
Provision
Creditors 93,700
I.T. payable 11,500
Proposed Dividend 34,000
Provision for Taxes 82,500 2,21,700
Total 8,01,700 Total 8,01,700
Net Profit before taxation for three years ended 30th September, 2004 Rs. 1,38,000 30th Sept.,
2005, Rs. 1,83,000; and 30th September, 2006, Rs. 1,98,000; freehold property was valued at Rs.
1,60,000. Average yield in this type of business is 10% capital employed. You are required to find
out the value of each equity share on :
(i) Net Assets basis
(ii) Yield basis.
(iii) Fair value basis
The company has a practice of transferring 20% of its yearly profit after tax to General
reserve. Assume tax at 50%.
Study Circle Company Accounts Cs Executive Refresher Course Valuation of shares
(i) Intrinsic value method Rs.
All Assets (AV) including Goodwill, Investments but excluding Fictitious Assets
Less: All Outside Liabilities (AV)
Net assets Available for Shareholders
Less: Preference Shareholders Claim a) Preference Share Capital b) Arrears of Preference Dividend
Net Assets available for ESHs
Intrinsic value of shares (each share) =
Yield value method
Net Assets No. of shares
Rs.
Total profit of last three year Add/Less: Any other Adjustment
Average profit before Tax
Less: Tax @ ----% Average Profit After Tax Less: Transfer to reserve @ __%
Study Circle Company Accounts Cs Executive Refresher Course Less: Current Year Preference Dividend Earnings Available for ESH ERR = EAESH X 100 Equity Share Capital
Yield Value of each share= ERR / N.R.R X paid up value of each shares
(iii)Fair value method
Fair value of each shares = Intrinsic value + Yield value
2
Study Circle Company Accounts Cs Executive Refresher Course
ISSUE OF SHARES
Journal Entries
1) For Equity Share Application Money Received Cash/Bank A/c Dr To Equity Share Application A/c
2) For Equity Share Application Money Transferred to Share Capital Equity Share Application A/c Dr To Equity Share Capital A/c
3) For Equity Share Allotment Due
At Par:
a) Equity Share Allotment A/c Dr
To Equity Share Capital A/c
At Premium
b) Equity Share Allotment A/c Dr
To Equity Share Capital A/c
To Securities Premium
At Discount
c) Equity Share Allotment A/c Dr Discount on issue of Shares A/c Dr
To Equity Share Capital A/c
4) For Equity Share Allotment Money Received Cash/Bank A/c Dr To Equity Share Allotment A/c
5) For Equity Share 1st
Equity Share 1
Call Due
st
6) For Equity Share 1
Call A/c Dr
To Equity Share Capital A/c
st Call Money Received
Study Circle Company Accounts Cs Executive Refresher Course Cash/Bank A/c Dr To Equity Share 1st
7) For Equity Share 2 Call A/c
nd
Equity share 2
& Final Call Money Due
nd
8) For Equity Share 2
& Final Call A/c Dr
To Equity Share Capital A/c
nd
Cash/Bank A/c Dr To Equity Share 2
Call money Received
nd
1) Equity Share Capital A/c Dr
& Final Call A/c
For Forfeiture of Shares If Premium is received
To Calls in Arrears A/c
To Share Forfeiture A/c
If Premium is not received
2) Equity Share Capital A/c Dr
Securities Premium A/c Dr
To Calls in Arrears A/c
To Share Forfeiture A/c
For Re-issue of Shares
1) Cash/Bank A/c Dr
Share Forfeiture A/c Dr
To Equity Share Capital A/c
2) Share Forfeiture A/c Dr
To Capital Reserve A/c
For issue of Shares for Consideration other than Cash
1) When Assets are acquired from Vendors
Sundry Assets A/c Dr
Study Circle Company Accounts Cs Executive Refresher Course To Vendors A/c
2) When Shares are issued to Vendors Vendors A/c Dr To Equity Share Capital
3) When Shares are issued to Promoters
Goodwill A/c Dr
To Equity Share Capital A/c
Other Entries
1) Interest on Calls in Arrears
Sundry Shareholders A/c Dr
To Interest on Calls in arrears A/c
2) Interest on Calls in Advance
Interest on Calls in Advance A/c Dr
To Sundry Shareholders A/c
Practical Problem
The quality product Ltd. issued 12, 000 Equity shares of Rs. 15 each at par. The amount is payable as under: On Application Rs.3 per share On Allotment Rs.7 per share On First Call Rs. 3 per share On Second Call Rs. 2 per share
The company received application for 20, 000 shares. The Directors rejected application for
1000 shares and allotted shares on pro-rata basis to the remaining applicants. 120 shares were allotted to Sachin who failed to pay first call and his shares were forfeited. 240 shares were allotted to saurav who failed to pay second call his shares were also forfeited. Journalize the above transaction in the book of kwality product Ltd.
Study Circle Company Accounts Cs Executive Refresher Course
REDEMPTION OF PREFERNCE SHARES
(1) Preference shares can be redeemed only if it is
POINTS TO BE NOTED
fully paid up
(2) Preference shares can be redeemed either out of proceeds of fresh issue or divisible profits.
. If the shares are partly paid up make them fully paid up by making a call.
(2a) Fresh issue means issue of equity shares or preference shares
(1) General Reserve (1) Capital Reserve
but not debentures. (2b) Face value Issue Price Proceeds 100 100 100 100 110 100 100 90 90
(2b) PROFITS. DIVISIBLE PROFITS NON DIVISIBLE PROFITS (Available for dividend redemption)
(2) Revenue Reserve (2) Capital Redemption Reserve (3) Dividend equalization Reserve (3) Security Premium (4) Reserve Fund (4) Share forfeited A/c (5) Sinking Fund (5) Revaluation Reserve (6) Profit & Loss FACE VALUE OF PREF. SHARES TO = PROCEEDS OF FRESH ISSUE + Divisible Profits Be REDEEMED (C.R.R)
(3) Face value of preference shares redeemed out of divisible profit should be transferred to a special Reserve called
(4) C.R.R. can be used only for the issue of CAPITAL REDEMPTION RESERVE (C.R.R)
(5) Preference shares can be redeemed either at par or at premium. If redeemed at premium such
fully paid BONUS SHARES.
PREMUIM ON REDEMPTION = SECURITIES PREMUIM + DIVISIBLE PROFITS (B/S + FRESH ISSUE)
premium on Redemption (loss) will be met either out of SECURITIES PREMUIM OR DIVISIBLE PROFITS.
Study Circle Company Accounts Cs Executive Refresher Course
JOURNAL ENTRIES
(A) IF THE SHARES ARE PARTLY PAID UP. (1) Making the final call.
Final call A/C Dr. To Pref. Share capital
(2) Receiving the final call Cash /Bank A/c Dr. Call in arrears Dr. To Final Call A/c.
(3) Receiving the calls in arrears Cash / Bank A/c Dr. To Calls in arrears A/c.
(4) Forfeiture of shares Preference share Capital (F. V) To call in arrears A/c (amt. unpaid) To Share forfeited A/c ( bal.fig.)
(5) Re issue of Forfeited share Cash/ Bank A/c (amt recd) Dr. Shares forfeited A/c (Amt unpaid) Dr. To Share Forfeited A/c (Bal fig)
(6) Transfer to Capital Reserve. Share forfeited A/c Dr. To Capital Reserve A/c.
(B) IF THE SHARES ARE FULLY PAID UP. (7) Sale of investment
Cash/ Bank A/c Dr. To Investment A/c.
(Any diff will be transferred to profit & loss A/c)
Study Circle Company Accounts Cs Executive Refresher Course (8) For Fresh issue of shares.
Cash /Bank A/c Dr. To equity share Capital A/c To security premium A/c
(9) Redemption of Preference shares Preference share capital A/c Dr. Premium on Redemption A/c Dr. To Preference shareholder A/c.
(10) Meeting the Premium on redemption. Security Premium A/c Dr. Divisible Profits A/c Dr. To Premium on redemption A/c
(11) Transfer to C.R.R. Divisible Profit A/c Dr. To C.R.R A/c.
(12) Pay off Preference Shareholder A/c Dr. To Cash / Bank A/c
(13) Declaration of Bonus. C.R.R A/c Dr. Security Premium A/C Dr. Capital Reserve A/c Dr. Divisible Profit A/c Dr. To Bonus to shareholder A/c.
Study Circle Company Accounts Cs Executive Refresher Course
The Balance Sheet of M. Ltd. as on 31.12.2006 is given below :
LIABILITIES Rs. ASSETS Rs.
9% Redeemable Preference Sundry Assets 9,50,000
Shares of Rs.100 each, Investments 2,75,000
fully paid up 6,50,000 Cash at Bank 67,500
Equity Shares of
Rs.5 each fully paid up 2,25,000
General Reserve 1,00,000
Profit & Loss Account 2,60,000
Sundry Creditors 57,500
12,92,500 12,92,500
The Preference Shares are to be redeemed on 1.1.2007, at a premium of 7%. In order to facilitate redemption, the company has decided :
i) To sell the Investments for Rs. 2,60,000.
ii) To finance part of the redemption from companys fund; and
iii) To issue sufficient equity shares at a premium of Rs1/- per share to raise
the balance of funds required.
iv) Minimum Bank Balance to be retained at Rs. 10,500. The investments were
sold, equity shares are fully subscribed and the shares were duly redeemed.
Show the entries and prepare the Balance Sheet. Note : Minimum reduction is to be made against Reserve.
Study Circle Company Accounts Cs Executive Refresher Course
Buy Back of Equity Shares
Buy back of equity shares can be done only if it is fully paid up.
If the shares are partly paid up they should be made fully paid up by making a final call.
Buy back of shares can be done either out of proceeds of fresh issue or out of free reserve
(a) Free Reserve means
(b) securities premium and divisible profit.
(i) If equity shares have to be bought back fresh Issue means Issue of Preference shares or Debentures.
Fresh Issue Means :-
(ii) If Preference shares have to be bought back fresh Issue means Issue of Equity shares or Debenture
Formula:-
Face value of Equity Shares to be bought back = Proceeds of Fresh Issue + Securities Premium
(B/s + F.I)
Premium of Buy back = Securities Premium + Divisible Profit
( B/s+F.I 1st Formula)
Study Circle Company Accounts Cs Executive Refresher Course
Journal Entries
A) If the shares are partly paid up. (1) Making a final call
Final Call A/c Dr To equity Share capital A/c
(2) Receiving a final call. Cash /Bank A/c Dr Calls in Arrears A/c Dr
To Final call A/c
(3) Receiving a Call in Arrears Cash /Bank Dr To Calls in arrears
(4) Forfeiture of shares. Equity Share capital A/c Dr To shares forfeited A/c To calls in Arrears A/c
(5) Re Issue of forfeiture shares Cash/Bank Dr. Share forfeited A/c Dr. To Equity share Capital A/c
(6) Transfer to Capital Reserve Share forfeited A/c Dr. To Capital Reserve A/c
B) If the shares are fully paid up (7) For sale of investment
Cash/ Bank A/c Dr To Investment A/c
(Any diff will be transferred to Profit and loss A/c)
(8) For Fresh Issue. Cash/ Bank A/c Dr To Equity share capital A/c To Securities Premium A/c
(9) Buy back of equity shares Equity share capital A/c Dr
Study Circle Company Accounts Cs Executive Refresher Course Premium on Buy Back A/c Dr To Equity share holders A/c
(10) Meeting the premium on Buy back Securities premium A/c Dr Divisible profit A/c Dr To premium on Buy back A/c
(11) Transfer to CRR. Securities Premium A/c Dr Divisible Profit A/c Dr To CRR A/c
(12) Pay off Equity share holders A/c Dr. To Cash/ Bank A/c
Study Circle Company Accounts Cs Executive Refresher Course Limits of Buy Back
(1) No. of shares to be bought back should not exceed (25% of paid up Equity share capital) divide by face value
(2) No. Of shares to be bought back should not exceed (25% of paid up share capital + Free Reserves) divide by Purchase Price
(3) After buy back the debt equity ratio should not exceeds 2:1
List of free Reserve
(1) General Reserve (2) Revenue Reserve (3) Dividend equalisation Reserve (4) Reserve Fund (5) Sinking Fund (6) Profit and loss A/c (7) Securities premium (8) Subsidiary Reserve (9) Investment Allowance (utilised) Reserve (10) Export Profit ( utilised) Reserve (11) Foreign Project ( utilised ) Reserve
Practical Problem
Infobyte Ltd. resolved to buy back 30,000 of its fully paid equity shares of Rs. 10 each at Rs. 12 per share. For this purpose, it issued 1,000 10% preference shares of Rs. 100 each at par. The Total amount was payable on application. The company has Rs. 85,000 balance to the credit of the Securities Premium Account, which was to be used for buy-back. The company had sufficient balance in the General Reserve to meet the legal requirements for buy-back. Pass the necessary journal entries.
Study Circle Company Accounts Cs Executive Refresher Course
Issue & Redemption of Debentures
The summarised Balance Sheet of Convertible Limited, as on 30th June, 2006, stood as follows : Liabilities Rs. Share Capital : 5,00,000 Equity shares of Rs. 10 each fully paid 50,00,000 General Reserve 75,00,000 Debentures Redemption Fund 50,00,000 13.5% Convertible Debentures 1,00,000 Debentures of Rs. 100 each 1,00,00,000 Other Loans 50,00,000 Current Liabilities and Provision 1,25,00,000 4,50,00,000 Assets Fixed Assets (at cost less depreciation) 1,60,00,000 Debentures Redemption Fund Investments 40,00,000 Cash and Bank Balance 50,00,000 Other Current Assets 2,00,00,000
4,50,00,000 The debentures are due for redemption on 1st July, 2006. The terms of issue of debentures provided that they were redeemable at a premium of 5% and also conferred option to the debenture-holders to convert 20% of their holding into equity shares at a predetermined price of Rs. 15.75 per share and the payment in cash. Assuming that : i) except for 100 debenture-holder holding totalling 25,000 debentures, the rest of them exercised the option for maximum conversion; ii) The investments realise Rs. 44 lakhs on sale; and iii) all the transactions are put through, without any lag, on 1st July, 2006. Redraft the Balance Sheet of the Company as on 1st July, 2006 after giving effect to the redemption. Show your calculation in respect of the number of equity shares to be allotted and the cash payment necessary.
Study Circle Company Accounts Cs Executive Refresher Course
Company Final Accounts
Particulars Maximum Limit 1 Overall Managerial remuneration
(Exclusive of fee for attending meetings) 11% of net profit
2 If the company has one managing director or whole-time director
5% of net profit
3 If the Company has more than one managing Director or whole time director (for all of them)
10% of net profit
4 Remuneration of part time director where the company has one or more managing director (for all of them)
3% of net profit
5 Remuneration of part time director where the company has one or more managing director (for all of them)
1% of net profit
6 Remuneration to the manager 5% of net profit
Section 349 and 350 of the companies act contain the provision relating to the manner of determination of net profits for the proposed of calculating the managerial remuneration.
The provisions of the above sections are require that in computing net profits of a company in any financial year for the purpose of calculating managerial remuneration the following points should be considered:
1. Credit shall be given for- Bounties and Subsidies received from any government
2. Credit shall not be given for the following sum-
or any public authority constituted or authorized in this behalf by the government unless the central Government otherwise directs.
a. Profit, by way of premium, on shares or debentures of the company which are issued or sold by the company;
b. Profit on sale by company of forfeited shares c. Profit from capital nature including profit from the sale of the undertaking or any of
the undertaking of the company, or of any part thereof; d. Profit from sale of any immovable property or fixed assets of a capital nature
comprised in the undertaking or any of the undertaking of the company unless the business of the company consist whether wholly or partly of buying and selling any such property or assets Provided that where the amount for which any fixed assets is sold exceeds the written down value thereof referred to in section 350, credit shall be given so much of the excess as is not higher than the difference between the original cost of that fixed assets and its written down value.
3. The following sums shall be deducted: a. All the usual working charges;
Study Circle Company Accounts Cs Executive Refresher Course b. Directors remuneration; c. Bonus or commission paid or payable to any member of the companys staff, or to any
engineer, technician or person employed or engaged by the company, whether on an whole-time or on a pat time or a part time or on a part time basis;
d. Any tax notified by the central government as being in the nature of a tax on excess or abnormal profit;
e. Any tax on business profit imposed for special reason or in special circumstances and notified by the central in this behalf;
f. Interest on debenture issued by the company; g. Interest on mortgages executed by the company and on loans and advances secured by a
charges on its fixed or floating assets; h. Interest on unsecured loans and advances; i. Expenses on repair, whether to immovable or to movable property, provided the repair
are not of a capital reserves j. Outgoing, inclusive of contribution made under clause (e) of subsection (1) of section
293 which states as follows: The board of Directors of a public company or of a private company which is subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting, contribute to charitable and other funds not directly relating to the business of the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed Rs. 50, 000 or 5% of its averages net profits as determine in accordance with the provision of section 349 and 350 during three financial years immediately proceeding, whichever is greater:
k. Depreciation to the extend specified in section 350 whichever allows following deductions: i. Normal depreciation including extra and multiple shift allowances calculated at
the rates specified in the schedule XIV ii. Excess of written down value over the sale proceed or scrap value of the assets if
it is sold, discarded, demolished or destroyed before the depreciation on such assets has been provided in full. But section 350 does not allow the following deduction- i. Special depreciation. ii. Initial depreciation. iii. Development rebate reserve or investment allowance reserve;
l. The excess of expenditure over income, which had been arisen in computing the net profit in accordance with section 349 in any year which begins at or after the commencement of this Act, in so far as such excess had not been deducted in any subsequent year preceding the year in respect of which the net profit have to be ascertain;
Study Circle Company Accounts Cs Executive Refresher Course 2. Any compensation or damage to be paid by virtue of any legal liability including a
liability arising from a breach of contract; 3. Any sum paid by way of insurance against the risk of meeting any liability such as is
referred to in clauses (m); 4. Debt considered bad and written off or adjusted during the year of account.
4. The following sums shall not be deducted; a. Income tax and super tax payable by the company under the income tax Act, 1961 or
any other tax on the income of the company not falling under clauses (d) and (e) of (3) above;
b. Any compensation, damages or payments made voluntarily that is to say, otherwise than in virtue of ability such as is referred to in clauses (m) of 3 above.
c. Loss of a capital nature including loss on sale of the undertaking or any of the undertaking of the company or of any part thereof not including any excess referred to in the company or of any section 350 of the written down value of any assets which is sold, discarded, demolished or destroyed over, its sale proceed or its scrap value. It is important to note here that the above provision do not apply to a private company, unless it is subsidiary of a public company.
The following is the Profit and Loss account of S.S. Ltd for the year ended 31st
PARTICULARS March 2008.
RS PARTICULARS RS To Salaries & wages 1,50,000 By Gross Profit 40,00,000 To Repairs to Fixed Assets 50,000 By Profit on sale of Machinery
(Cost Rs 8 lacs and WDV Rs 4 lacs)
4,50,000
To General Expenses 40,000 By Subsidy from the government
1,00,000
To Compensation for breach of Contract.
25,000
To Depreciation 2,40,000 To Loss on sale of investment 35,000 To expenditure on Scientific Research ( Cost of Setting up a new laboratory)
2,50,000
To debenture interest 75,000 To interest on unsecured loans 15,000 To Provision for tax 16,00,000 To Proposed dividends 10,00,000 To balance c/d 10,70,000 45,50,000 45,50,000
Calculate the overall managerial remuneration under section 198.
Study Circle Company Accounts Cs Executive Refresher Course
Given is the Trial Balance of Marathon Limited as on 31st March, 2012. You are require to
prepare the Profit and loss Account and Balance Sheet on 31st March, 2012
Authorised Share capital divided into 8,000,
6% preference shares of `100 each and 20,000
equity shares of `100 each 28,00,000
Subscribed Capital
5,000 6% preference shares of `100 each 5,00,000
Equity Share Capital 8,00,000
Capital Reserve 5,000
Purchases - Coco, Tea, Coffee 58,800
- Bakery products 36,200
Wages and Salary 15,300
Rent, Rates and Taxes 8,900
Laundry 750
Sales - Coco, Tea and Coffee 82,000
- Bakery products 44,000
Coal and Firewood 3,290
Carriage 810
Sundry Expenses 5,840
Advertising 8,360
Repair 4,250
Rent of Rooms 48,000
Study Circle Company Accounts Cs Executive Refresher Course Receipt from Billiards 5,700
Miscellaneous Receipts 2,800
Discount Received 3,300
Transfer Fee 700
Freehold Land and Building 8,50,000
Furniture and Fittings 86,300
Stock on hand, 1st April, 2011
Coco, Tea, Coffee 12,800
Bakery products 5,260
Cash in Hand 2,200
Cash with Bank 76,380
Preliminary and Formation Expenses 8,000
2000, 8% debentures of `100 each 2,00,000
Profit and Loss Account 41,500
Sundry Creditors 42,000
Sundry Debtors 19,260
Investment 2,72,300
Goodwill at Cost 5,00,000
General Reserve 2,00,000
19,75,000 19,75,000
Additional Information:
Wages and Salaries outstanding 4,280
Stock as on 31st march, 2012
Coco, Tea, Coffee 22,500
Bakery Products 16,400
Study Circle Company Accounts Cs Executive Refresher Course Provide 5% depreciation on Furniture and Fittings and 2% on Land and Building.
The equity capital on 1st April, 2011 stood at Rs 7, 20,000, that is 6,000 shares fully paid and 2,000 shares of Rs 60 paid. The directors made a call of Rs 40 per share on 1st October, 2011.
A shareholder could not pay the call on 100 shares and his shares were then forfeited and
reissued at Rs 90 per share as fully paid. The director proposes a dividend of 8% on equity
shares, transferring any amount that may be required from general reserve. Ignore taxation
Study Circle Company Accounts Cs Executive Refresher Course Consolidation of Accounts-AS 21 Following are the balance Sheets of H Ltd. and S Ltd. as at 31st March, 2008.
I .EQUITIES AND H Ltd. S Ltd.
LIABILITIES Amount (Rs.) Amount (Rs.)
1 Shareholders funds
(a) Share Capital
Authorised, Issued subscribed and
paid up capital
Equity shares of Rs.100 each, fully 5,00,000 2,00,000
called up and paid up
(b) Reserve & Surplus
General Reserve 1,00,000 60,000
Profit & Loss A/c 1,40,000 2,40,000 90,000 1,50,000
2 Current Liability
Bills payable 40,000
Trade payables 80,000 50,000 90,000
Total 8,20,000 4,40,000
II.ASSETS
1 Non-current assets
(a) Fixed Assets
Machinery 1,60,000 90,000
Land & Building 2,00,000 1,30,000
Goodwill 40,000 4,00,000 30,000 2,50,000
(b) Long term Investment 2,40,000 1,500 Shares in S Ltd.(at cost)
3. Current Asset
Trade Receivables 20,000 75,000
Stock 1,00,000
90,000
Cash at Bank
60,000 1,80,000 25,000 1,90,000 Total 8,20,000 4,40,000
Study Circle Company Accounts Cs Executive Refresher Course The Profit and Loss Account of S Ltd. showed a credit balance of Rs. 50,000 on 1st April 2007. A dividend of 15% was paid in December 2007 for the year 2006-07. This dividend was credited to Profit and Loss Account by H Ltd.
H Ltd. acquired the shares in S Ltd. on 1st October, 2007. The Bills Payable of S Ltd. were all issued in favour of H Ltd. which company got the bills discounted.
Included in the Creditors of S Ltd. is Rs. 20,000 for goods supplied by H Ltd. Included in the stock of S Ltd. are goods to the value of Rs. 8,000 which were supplied by H Ltd. at a profit of 331/2 on cost.
In arriving at the value of S Ltd. shares, the plant and machinery which then stood in the books at Rs. 1,00,000 on 1.4.2007 was revalued at Rs. 1,50,000. The new value was not incorporated in the books. No changes in these have been made since then.
Prepare the consolidated balance sheet as on that date.
Study Circle Company Accounts Cs Executive Refresher Course
ECONOMIC VALUE ADDED
A concept critical in evaluating the performance of any business is economic value added. It measures the economic rather than accounting profit created by a business after the cost of all resources including both debt and equity capital have been taken into account.
Economic value added (EVA) is a financial measures of what economists sometimes refer to as economic profit or economic rent. The difference between economic profit and accounting profit is essentially the cost of equity capital an accountant does not subtract a cost of equity capital in the computation of profit, so in fact an accountants measures of income or profit is in essence the residual return to that equity capital since all other costs have been deducted from the revenue stream. In contrast, an economist charges for all resources in his computation of profit including an opportunity cost for the equity capital invested in the business so an economists definition and computation of the profit is net above the cost of all resources.
HOW TO CALCULATE ECONOMIC VALUE ADDED (EVA)
The under given table gives a view for how to calculate Economic Value Added
Earnings before Interest and Taxes (EBIT) XXX
Less: Interest XXX
Net Income XXX
Less : Cost of Equity Capital XXX
Economic Value Added (EVA) XXX
Expressed as a formula:
EVA = Net Operating Profit after Taxes (Equity Capital X % Cost Of Equity Capital).
Study Circle Company Accounts Cs Executive Refresher Course
ILLUSTRATION
Balance Sheet of ABC Limited
As at 31st
I.EQUITY AND LIABILITIES
March, 2012
Rs.
1.Shareholders Funds Equity
40,00,000
2. Non- Current Liabilities Long Term Debt
60,00,000
3.Current Liabilities (a) Account Payables (b) Bank Overdraft
2,08,000 4,84,000
Total 1,06,92,000 II.ASSETS 1.Non-current assets (a) Fixed Assets
1,00,00,000
2.Current Assets (a) Inventories (i) Raw Material (ii)Finished Goods (b) Account Receivable (c) Cash
86,400 1,71,360 4,29,300
4,940 Total 1,06,92,000
STATEMENT OF PROFIT OF ABC LIMITED
Sales 28,62,000 Less: Operating Expenses 11,48,400 EBIT 17,13,600 Less: Tax Expenses 6,85,440 NOPAT 10,28,160
The average rate of return on similar types of companies is 20% while risk free is 12.5%. Rate of return as charges by bank is 18% and the tax rate is 40%.
Calculate Economic Value Added.
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VALUATION OF GOODWILL
ILLUSTRATION
A Ltd. Proposed to purchase the business carried on by M/s. X & co. Goodwill for this purpose is agreed to be valued at 3 years purchase of weighted average profit of the past four years. The appropriate weights to be used are:
2007-2008 1 2009-2010 3 2008-2009 2 2010-2011 4
The profit for these years are : 2007-2008- Rs.1,01,000; 2008-2009- Rs.1,24,000;
2009-2010- Rs. 1,00,000 and 2010-2011- Rs. 1,40,000
On a scrutiny of the accounts the following matters are revealed:
(i) On 1st
(ii) The closing stock for the year 2008-2009 was overvalued by Rs.12,000.
December, 2009 a major repair was mad in respect of the plan incurring Rs.30,000 which was charged to revenue. The said sum is agreed to the Capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
(iii) To cover management cost & annual charge of Rs.24,000 should be made for the purpose of goodwill valuation. Compute the value of goodwill of the firm.
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LIQUIDATION OF COMPANIES The following information is extracted from books of Mehsana Limited on 31st
July, 2012 on which date a winding up order was made.
Unsecured creditors 3,50,000
Salaries due for five months 20,000 Managing directors remuneration 30,000 Bills payable 1,06,000 Debtors - good 4,30,000 Doubt full (estimated to produce Rs.62,000) 1,30,000 - Bad 88,000 Bill Receivable(good Rs.10,000) 16,000 Bank Overdraft 40,000 Land(Estimated to produce Rs.5,00,000) 3,60,000 Stock (Estimated to produce Rs.5,80,000) 8,20,000 Furniture & fixtures 80,000 Cash in hand 4,000 Estimated Liabilities for Bills discounted 60,000 Secured Creditors holding first mortgage on land 4,00,000 Partly Secured Creditors Holding Second Mortgage on land 2,00,000 Weekly wages unpaid 6,000 Liabilities under work mens compensation act, 1925 2,000 Income Tax due 8000 5000 9% mortgage debentures of 100 each interest payable to 30th 5,00,000 June &
31st December, Paid 30th June 2012 Share Capital: 2,00,000 20,000 10 % Preference share of Rs. 10 each 50,000 Equity shares of Rs. 10 each 5,00,000 General reserve since 31
st December,2004 1,00,000 In 2009, the company earned profit of Rs.4,50,000 but thereafter it suffered trading losses totaling Rs.5,84,000. The company also suffered a speculation loss of Rs. 50,000 during the year 2010. Excise authorities imposed a penalty of Rs. 3,50,000 in 2011 for evasion of tax which was paid in 2012.
From the foregoing information, prepare the statement of Affairs and the Deficiency Account.
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Dr Jinesh Shah Andheri/Dadar-28272829 Page 30
CORPORATE RESTRUCTURING
Q.41)Under given is the balance sheet of Rajbhasha & co as on 31st
march,2012
I .EQUITIES AND LIABILITIES
1 Shareholders funds
(a)Share Capital
Authorised,issued subscribed & paid-up capital
12,500 9% Preference shares of Rs.8 each 1,00,000
1,50,000 equity shares of Rs. 1 each 2,50,000 1,50,000
(b)Reserve & Surplus
Profit & Loss account (98000)
2 Non-Current Liability
10% Debentures 60,000
3 Current Liability Trade payables 50,000
Bank Overdraft (Secured by land & building) 20,000
Debenture Interest 4,200 74,200
Total 2,86,200
II.ASSETS
1. Non-current assets
(a) Fixed Assets
Free hold land & building 34,000
Plant 96,000
Tools & dies 1,57,300 27,300
(b) Other non-current expenses
Research & development Expenses 18,000
2.Current Assets
Stock 42,500
Trade receivable 53,400
Investment 15000 Total 2,86,200
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The scheme of re-organisation detailed below has been agreed by the parties approved by the Court. You are required to prepare:
(a) Journal entries recording the transaction in the books. Including cash; (b) The balance sheet of the company as on 1st
April,2012 after the completion of the scheme.
(i) The following assets are to be revalued as shown below: plant Rs. 59,000 tools and dies Rs. 15,000; stock Rs.30,000 and debtors Rs.48,700.
(ii) The research and development expenditure and debit balance of Profit & loss account are to be written off.
(iii) Price of land recorded in the books at Rs. 6,000 is valued at Rs. 14,000 and is to be taken over by the debenture holders in part repayment of principal. The remaining freehold land and building are to be revalued at Rs.40,000.
(iv) A creditor for Rs. 18000 has agreed to accept a second mortgage debenture of 11% per annum secured on plant for Rs. 15,500 in settlement of his debt. Other creditors totaling Rs. 10,000 agreed to accept a payment of Rs.0.85 in the rupee for immediate settlement.
(v) The investment at a valuation of Rs.22,000 is to be taken over by the bank. (vi) The ascertained loss is to be met by writing down the equity shares to Rs. 1 each
and preference shares to Rs.8 each. The authorized share capital is to be increased immediately to the original amount.
(vii) The equity shareholders agree to subscribe for two new ordinary shares at par for every shares held. This cash is all received.
(viii) The costs of the scheme are Rs.3,500. These have been paid and are to be written off. The debenture interest has also been paid.
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The following are the balance sheet of A Co. Ltd. & B Co. Ltd as on 30th
September,2012
A Co. Ltd
I .EQUITIES AND LIABILITIES Amount(Rs.)
1. Shareholders funds
(a)Share Capital
Authorised issued subscribed & paid-up capital
50,000 Equity shares of Rs.10 each , 5,00,000
Fully called up & Paid up
(b)Reserve & Surplus 1,70,000
General Reserve
Profit & Loss account 30,000
2. Non-Current Liability
12% Debentures 1,00,000
Employee Provident Fund 15,000
3 Current Liability
Trade payables 50,000
Total 8,65,000
II.ASSETS
1) Fixed Assets
Building 1,50,000
Machinery 5,50,000 7,00,000
2.Current Assets
Stock 80,000
Trade receivable 70,000
Cash 1,65,000 15,000
Total 8,65,000
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B Co. Ltd
I .EQUITIES AND LIABILITIES Amount(Rs.)
1.Shareholders funds (a)Share Capital
Authorised issued subscribed & paid-up capital
30,000 Equity shares of Rs.10 each , 3,00,000
Fully called up & Paid up
2. Current Liability
Trade payables 40,000
Total 3,40,000
II.ASSETS
1. Non-Current Assets (a) Fixed Assets
Tangible assets
Machinery 2,50,000
2. Current Assets
Stock 40,000
Trade receivable 50,000
Less : Provision for Doubtful Debts 45,000 5,000
Cash & Cash equivalents 90,000 5000
3. Total 3,40,000
The Two Companies agree to amalgamate and from a new company called C Co.Ltd. Which takes over all the assets and liabilities of both the companies on 1st
The Purchase consideration is agreed at Rs. 6,61,500 and Rs. 3,15,000 for A Co. Ltd. And B Co. Ltd. Respectively.
October, 2012.
The entire purchase price is to be paid by C Co. Ltd. In fully paid equity shares of Rs. 10 each. The Debentures of A Co. Ltd. Will be converted into equivalent number of debentures of C CO. Ltd.
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Give journal entries to close the books of A Co. Ltd. And B Co. Ltd. And show the opening entries in the books of C Co. Ltd. Also prepare the opening Balance Sheet in the books of C Co. Ltd. As on 1st
October, 2012. The authorised capital of C Co. Ltd. Is 2,00,000 equity shares of Rs.10 each.
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AmalgamationDetermination of Purchase
Consideration Net Assets Method All Assets (AV) xx Less: All Liabilities (AV) (xx) Purchase Consideration xx Net Payment Method -By Equity Shares in New Co By Preference Shares in New Co. By Debentures in New Co By Cash/ Bank Lumpsum Method: One Single Amount will be given as
Purchase Consideration.
AMALGAMATIONSTEPS IN THE BOOKS OF OLD CO.
STEP 1: TRANFER EACH & EVERY ITEM OF BALANCE SHEET OF OLD CO. AS UNDER:
ASSETS SIDE TRANSFER TO a) fictitious assets Equity shareholders A/c (Dr Side) b) Cash/Bank -if taken over Realisation A/c ( Dr side) -if not taken over Cash/Bank A/c ( Dr side) c) All other assets Realisation A/c ( Dr side) (Whether taken over or { At Book Values} Not taken over)
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Continued Liabilities Side Transfer to a) Equity Share Capital Equity Shareholders A/c (Cr Side) b) Reserves & Surplus Equity Shareholders A/c (Cr side) c) Preference Share Capital Pref Share holders A/c ( Cr side) d) All other Liabilities: -if taken over Realisation A/c ( Cr side) -if not taken over Liabilities not taken over A/c (Cr side)
Step : 2 Entry for PC
Step: 3 Discharge of PC
Note: At the end of Step 3 New Company Account Should Tally
New Company A/c DrTo Realisation A/c
Equity Shares in New Co A/c DrPref Shares in New Co A/c DrDebentures in New Co A/c DrCash/Bank A/c Dr
To New Co A/c
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Step 4: Sale of Assets not Taken over
Step: 5: Realisation Expenses
( If reimbursed by new Co)
Step 6: Payment to Liabilities not taken over
Step : 7: Payment to Preference Share holders
Cash/Bank A/c DrTo Realisation A/c
Realisation Expenses A/c DrTo Cash/Bank A/c
Cash/Bank A/c DrTo Realisation A/c
Liabilities not taken over A/c DrTo Eq/Pref Shares in New CoTo cash/ bank A/c
(if any difference trf to RealisationA/c)
Preference Shareholders A/c DrTo Eq/Pref Shares in New Co.To Cash/ Bank A/c
(If any difference trf to Realisation A/c)
Step 8: Close Realisation A/c & Transfer the difference to Equity Shareholders A/c
Step 9: Close All other Accounts and transfer the Difference to Equity Shareholders A/c
Step 10: Equity Shareholders A/c Should TALLY
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Journal Entries in the Books of New Company
1) For issue of SharesCash/Bank A/c Dr
To Equity share capital A/cTo Securities Premium A/c
2) For Preliminary ExpensesPreliminary Expenses A/c Dr
To Cash/Bank A/c
3) For Business PurchaseBusiness Purchase A/c Dr
To Liquidator of Old Co.
Continued.. Step 4: For Take over Assets & Liabilities
All Assets taken over (At agreed Values) DrGood will A/c Dr
To All liabilities to taken over A/cTo Business Purchase A/cTo Capital Reserve A/c
Step 5: For Discharge of LiquidatorLiquidator of Old Co. A/c DrDiscount on issue on Shares A/c Dr
To Equity Share Capital A/cTo Preference Share capital A/cTo Debentures A/cTo Securities Premium A/cTo Cash/Bank A/c
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Continued.. Step 6: For Payment of Realisation expenses of Old Co. Goodwill/Capital Reserve A/c Dr
To Cash/Bank A/c
Step 7: For Cancellation of Mutual DebtsCreditors A/c Dr
To Debtors A/c
Step 8: For Cancellation of BillsBills Payable A/c Dr
To Bills Receivable A/c
Continued.. Step 9: For Elimination of Unrealised Profit in Stock
Good will/Capital Reserve A/c DrTo Stock A/c
Step 10: For Carry Forward of Statutory ReserveAmalgamation Adjustment A/c Dr
To Statutory Reserve A/c
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Note No. 31 March 2012 31 March 20112 3 4
I. EQUITY AND LIABILITIES
1 Shareholders funds(a) Share capital 1(b) Reserves and surplus 2(c) Money received against share warrants
2 Share application money pending allotment
3 Non-current liabilities(a) Long-term borrowings 3(b) Deferred tax liabilities (Net)(c) Other Long term liabilities 4(d) Long-term provisions 5
4 Current liabilities(a) Short-term borrowings 6(b) Trade payables(c) Other current liabilities 7(d) Short-term provisions 8
TOTAL
II. ASSETS
Non-current assets1 (a) Fixed assets
(i) Tangible assets(ii) Intangible assets(iii) Capital work-in-progress(iv) Intangible assets under development
(b) Non-current investments(c) Deferred tax assets (net)(d) Long-term loans and advances 11(e) Other non-current assets 12
2 Current assets(a) Current investments(b) Inventories 14(c) Trade receivables 15(d) Cash and cash equivalents 16(e) Short-term loans and advances 17(f) Other current assets 18
TOTAL
PART I Form of BALANCE SHEET
Particulars1
(in Rupees)Balance Sheet as at
0
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Refer Note No. 31 March 2012 31 March 2011
I. Revenue from operations 19
II. Other income 20
III. Total Revenue (I + II)
IV. Expenses:Cost of materials consumedPurchases of Stock-in-TradeChanges in inventories of finished goods work-in-progress and Stock-in-Trade
Employee benefits expense 21Finance costs 22Depreciation and amortization expenseOther expenses 23
Total expenses
V.Profit before exceptional and extraordinary items and tax (III-IV)
Particulars
PART II - Form of STATEMENT OF PROFIT AND LOSS
Profit and loss statement for the year ended 31.03.2012( ` in Rupees)