Q1. Kraft Inc. had acquired 90% stake in Mondelez Inc. in the year 1999.

The two companies have

presented their individual balance sheets to SEC for regulatory purposes as below: - (Note: Kraft is into
marketing & sales of chocolates by manufacturing them whereas this stands to be backward
integration as Mondelez was the key supplier of chocolate slabs and other essential inputs to Kraft.)

You have been hired as the chief investment banker to evaluate the key changes that would happen and
impact the shareholders of both the companies. Kraft Inc. refers to the balance sheet of Mondelez Inc. as
below:-

Figures in $M
Balance Sheet Kraft Mondelez
(50
Equity Share Capital (1,000) 0)
(20
Reserves and Surplus (300) 0)
4
Fixed Assets 1,000 00
4
Trade Receivables 300 00
3
Inventory 400 00
(10
Trade Payables (200) 0)
(30
Loans payable (200) 0)

Adjustments required in the books of Mondelez: -

It was observed that Fixed Assets had to be upward valued by 100$M and trade receivables were all due
from Kraft Inc. except 50% of them (intra-group). Inventory had to be valued at 305$M and Loans
payable were increased by 200$M. Trade payables had to be increased by 100% because of unrecorded
liabilities from the African Market for Cocoa. Mondelez has 500 Million shares trading in NASDAQ. Kraft
agrees to buy 90% of the shares for a consolidated valuation of $
2.5 per share. The shares of Mondelez are trading at 2$ a share and the face value of single share is 1$ of
Mondelez. You are required to:-

(a) Calculate the value of goodwill under ‘full goodwill method’:-

a. $0M
b. $920M
c. $850.50M
d. $720M
(b) Continuing under the full goodwill method what is the amount of normal premium paid?
a. $395M
b. $445.50M
c. $225M
 d. $1,174.50M
(c) Calculate the goodwill under partial value method
a. $670.50M
b. $850.50M
c. $1,174.50M
d. $49.50M
(d) Calculate the value of non-controlling interest under partial goodwill method
a. 50.50M
b. 30.50M
c. 8M
d. 36M
(e) Calculate the value of non-controlling interest under full goodwill method
a. 50.50M
b. 30.50M
c. 100M
d. 80M
(f) To get complete control over a company like Mondelez – Kraft will have to pay a lot extra what is
the amount of control premium paid by them hence?
a. 1125M
b. 100M
c. 225M
d. 80M

Q2 Nestle acquired 30% stake in Loreal in 2014-2015 (end of the year) for INR 50 crores. The net assets
of Nestle as on the date of acquisition (i.e. Assets – Liabilities) is INR 100 crores. However, a patent worth
Rs.20 crores has been ignored by Loreal filed in Swiss Patent Office for treating Acne. You may ignore the
depreciation amount on Swiss Patents filed.

The statement of comprehensive income for Loreal looks like below as on 2018: -

Figures in INR crores

1,00
Sales 0
COGS 200
Operating profit 800
Depreciation 100
Interest 100
S&G Expenses 250
Profit before tax 350
Taxes @ 40% 140
Profit after tax 210
You may assume that the amount of profit after tax for Loreal that they have earned has been growing
@10% every year since 2015-2016.

Nestle received a dividend of Rs.1 crores across the given time frame. Assume all received in the year
2018
You are required to calculate the amount of

(a) Investments in books of Nestle for Loreal as on 2018: -

a. Rs. 269.67 crores
b. Rs. 268.67 crores
c. Rs. 221.34 crores
d. Rs. 112 crores
(b) What is the journal entry to be passed in the year 2018 in the books of Nestle?
a. Investment in associate A/c Dr….63
To P/L….63
b. Investment in associate A/c Dr….210
To P/L….210
c. Investment in associate A/c Dr….63
To P/L….63
Bank A/c Dr………….1
To Investment in Associate A/c…. 1
d. Investment in associate A/c Dr….63
To P/L…...63
Investment in Associate A/c Dr…1
To Dividend Income A/c ……………….1
(c) Investments in books of Nestle for Loreal includes goodwill of how much?
a. Rs. 36 crores
b. Rs. 26 crores
c. Rs. 30 crores
d. Rs. 14 crores
(d) Assume if the patent had to be depreciated over a period of 10 years what would have been
the amount of investment in the associate as on 2018 in that case?
a. Rs. 263.67 crores
b. Rs. 262.67 crores
c. Rs. 219.54 crores
d. Rs. 112 crores

Q3. IKEA Hyderabad has the following items to be considered for its financial controller and tax
department dealings. Assume Tax Rate of 30%:-

o The amount of depreciation as per accounting records is Rs.45,000 while as per the tax
authorities the amount approved is only Rs. 30,000. The further amount would be
allowed to be depreciated in the coming years.
 o R&D is one of the most important unique propositions for IKEA. They have spent nearly
Rs.15,000 in R&D eligible for a weighted deduction of 150% under Section 35 of the
Income Tax Act,1961.
o License fee of Rs. 50,000 is expensed completely in accounting records but however the
same is not charged in tax records and is completely disallowable expense because the
same stands to be capital in nature.
o The accountant has provided for Allowance for Credit Losses as a percentage of sales.
The amount is Rs.16,000. There has been an actual write off against the provision of Rs.
5,000. Income tax Act allows for Credit losses only based on actual write offs and not
estimations.
o 100% energy saving devices have been commissioned by IKEA using Solar panels. These
are allowed @100% for depreciation as per the Income Tax Act,1961. The amount of
investment has been Rs.50,000. As per Accounting the asset is to be depreciated over a
period of 5 years.

 Calculate the amount of permanent differences arising based on above transactions: -

a) Rs. 57,500
b) Rs. 80,000
c) Rs. 62,500
d) Rs. 17,250
 What is the amount of originating timing differences in the given time frame which will
create a deferred tax asset?
a) Rs.26,000
b) Rs.32,000
c) Rs.31,000
d) Rs.40,000
 What is the amount of DTL originating in the given year?
a) Rs.12,000
b) Rs.15,000
c) Rs.7,800
d) NIL
 Pass journal entry for question for both DTA and DTL (if any) for the given year?

Q4. Walmart has a very strong consumer base with around 1Mn + key account customers. They are
planning to leverage on 51% single brand foreign investment regulation recently launched in India by
partnering with Bharti Group. They foresee a strong urban and rural consumption in India and hence
wish to expand in the region. Walmart has developed 20K+ key customers in India. It is the company’s
policy to charge 5% of the amount of sales as provision for credit losses. However, in the Income tax Act
the same is allowed as an expense only on paid basis. They have furnished the below to you: -

Rs in crores 2018 2019 2020

 Annual Sales 1,000 NA NA
Actual write offs
(as a % of NIL 30% 70%
provision)

You are required to pass journal entries for the same year wise and figure out whether there
would be a deferred tax asset/liability?

Q5. The Rothschild group has decided to set up its office in the newly constructed city of Vijayawada.
The city is well known for its capital allowances and rebates. The company is very new to the country and
hence wants has hired you as a consultant to analyze the amount to taxes to pay as per MAT or Income
Tax Act,1961.

Rs. In lakhs Year 1 Year 2 Year 3

100,0 150, 200,
Accounting profits 00 000 000
The rate at which MAT is charged is 20%. Rothschild has acquired another company which had a MAT
credit of Rs. 20,000 and the same can be carried forward ahead.

The taxable profits (Tax rate = 30%). The taxable profits as computed by the tax accountant for the three
years are as below: -

Rs. In lakhs Year 1 Year 2 Year 3

Tax profits 10,000 1,00,000 4,00,000
Calculate tax payable for every year and then pass journal entries for each year.

Q6. Nomura Financial Services Japan has been expanding its presence in multiple countries. They have
floated a new company in the United States and have provided you with the below details as follows: -

 They have issued 9% debentures worth fair value of $50,000 (issued on 1 st January 2018) and the
interest on the same is due on 31 st December and 30th June every year. Nomura files its financial
statements with United States Regulator US-SEC under Form 10K every 31 st March.
 Nomura has issued a yearly interest paying security at a coupon rate of 5%. However, the market
yield for the same is 8%. The face value of the debenture issue is $100 per debenture and
Nomura has issued 1,500 such instruments issued. The life of the debenture is 30 years. The
interest is to be paid at the beginning of each year unlike other US bonds where payments are
made at end of the year. The bonds are issued on 1 st April 2017. The debenture issue expense for
filing multiple ROC dockets with SEC have come to around 1,500$.
 You are required to calculate the amount of interest to be recognized in the books of Nomura to
be filed with SEC as on 31st March 2018.
(a) $ 9,612.84
(b) $ 6,430.00
© $ 6,354.90
 (d) $ 9,492.84

Q7. Reliance Industries issues a debenture with 20 semi-annual payments of interest @12%p.a
compounded semi-annually. The face value of the bond is Rs. 100 and the company has issued 1000
debentures. Also, the market yield of the bond is 16% p.a compounded semi-annually. The interest is to
be paid at the end of every year. What is the price at which the bond would be recorded in the books:-

(a) Rs. 80,000

(b) Rs.78,358
© Rs. 1,00,000
(d) Rs. 80,359
 What is the amount of interest to be recognized in the first year?
(a) Rs. 6,000
(b) Rs. 6,429
© Rs. 8,000
(d) Rs. 6,500
 Pass journal entries for the same.
 Assume the company liquidates the investment by the end of the 5 th term of the payment cycle.
The selling price is Rs. 1,00,000 what is the profit to be accounted for in the books?
(a) Rs. 17,126
(b) Rs. 17,709
© Rs. 10,000
(d) Rs. NIL

Q8. DSP Blackrock Japan Office has decided to take benefit of the depreciating Yen and reducing interest
rates in Japan. They are planning to borrow soft loans from the Bank of Japan and invest it in emerging
markets like India. They have received funds worth Rs.150 Crores and are planning to invest as below: -

Particulars Rs. crores

High Frequency Trading Stocks
(HFT) – Small Cap 100
Long term investments – Blue
chips 50

It’s the end of the year and they must report their investment portfolio as Key FIIs to Securities
Watchdog SEBI. The market value of the stocks as on 31 st March 2018 are Rs.140 crores for HFT and
Rs.67 crores for Long term investments. On 31 st May 2018 Nomura sells all HFT and Long-term stocks at
Rs.150 crores and Rs.70 crores respectively. You are required to calculate: -
 Amount in crores to be recognized in OCI and P/L respectively as on 31 st March 2018 (Note “- “means
loss recorded)?

(a)-33/100
(b)17/40
©40/17
(d)20/50

Pass journal entries for recording the above as on 31 st March 2018?

Amount in crores to be recognized in OCI and P/L respectively as on 31 st May 2018 (Note “- “means
loss recorded)?

(a)P/L – 13 / OCI – NIL

(b)P/L – 10 / OCI – 3
© P/L – 10 / OCI – 20
(d) P/L – 30 / OCI – NIL

Pass journal entries for recording the above entries?

Q9. Optimum Nutrition is one of the leading health company in the world. They have come up
with a strong marketing plan to position itself in India. They must list themselves on the BSE and
hence want to clear all the tax adjustments. You are required to calculate taxable profits based
on below mentioned adjustments: -
 The accounting profits disclosed by the company is Rs.50 crores.
 The allowable depreciation as per Income Tax Act is Rs.40 crores but however the same
charged in accounting is Rs.35 crores.
 Rental income of Rs.100 crores is recognized in accounts on accrual basis i.e. as of now
only 40% is recognized but however since the business is very new as per income tax
the same is to be accounted in full in the first year itself.
 The company has a strategic factory in Baddi where 100% profits are exempt. However,
for accounting purposes all the profits are accounted for and reported. The sales for the
year for Baddi factory from where sales also happen is 150 crores and profit margin is
10%.
 The company has written off Rs.5 crores during the year but however as per ACL policy
of the company provision created for the year is Rs.10 crores.
 The company has filed a sales tax return with the Delhi Office for Rs.4 crores and the
same has been paid before the due date of the return.
(a) (35) crores - loss
(b) 91 crores - profit
© 95 crores - profit
(d) 110 crores - profit