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Capiii Advaccount June12
Capiii Advaccount June12
Capiii Advaccount June12
Attempt all questions. Working notes should form part of the answers.
1. The following are the summarized Balance Sheets of H Ltd. and S Ltd. as on 32nd
Ashad 2068.
b) On 1st Shrawan2067, the Capital Reserve and Profit and Loss Account balance in
the books of S Ltd. was Rs. 50,000 and Rs. 275,000 respectively.
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c) Building standing in the books of S Ltd. at Rs. 1,600,000 on 1st Shrawan 2067
was revalued at Rs. 2,000,000 on 1st Magh 2067. Furniture, which stood in the
books at Rs. 200,000 on 1st Shrawan 2067 was revalued at Rs. 150,000 on 1st
Magh 2067. In both the cases, the effects have not yet been given in the books.
There is no sales/purchase under Building and Furniture during the entire fiscal
years.
d) S Ltd. bought an item of machinery from H Ltd. on hire-purchase basis. The
following are the balances in respect of this machinery in the books on 32nd
Ashad 2068:
Installment due not paid Rs. 20,000
Installment not due Rs. 8,000
Hire-purchase stock reserve Rs. 1,600
The above items were included under appropriate heads in Balance Sheet.
Prepare Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 32nd
Ashad 2068. 20
Answer Consolidated Balance Sheet of H. Ltd. with its subsidiary S. Ltd. as on 32 Ashad 2068
Liabilities Rs. ‘000’ Rs. ‘000 Assets Rs. ‘000’ Rs. ‘000
Share Capital Fixed Assets
Authorized 70,00.00 Buildings
Issued and subscribed H. Ltd. 20,00.00
Equity shares of Rs. 10 each, fully S. Ltd. (W.N. 3) 19,50.00 39,50.00
paid up 50,00.00 Plant and machinery (W.N. 8) 27,94.40
Minority interest (W.N. 6) 6,14.00
Reserve and surplus:
Capital Reserve (W.N. 9) 12,18.00
Revenue Reserve (W.N. 10) 8,80.00
Profit and Loss Account (W.N.
11) 4,92.40
Current liabilities and provisions
Furniture
H. Ltd. 500.00
Current liabilities S. Ltd. (W.N. 3) 135.00 6,35.00
Sundry creditors (W.N. 8) 4,47.00 Current assets, loans and
advances
H. Ltd. 340.00
S. Ltd. 100.00
Bills payable
440.00
H. Ltd. 1,00.00 Less: Hire purchase installment
S. Ltd. 10.00 1,10.00 not due 8.00 4,32.00
Sundry debtors (W.N. 3) 5,40.00
Loans and advances
Bills receivable
H. Ltd. 50.00
S. Ltd. 40.00 90.00
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Cash and Bank Balances:
Bank
H. Ltd. 2,40.00
________ S. Ltd. 80.00 3,20.00
87,61.40 87,61.40
Working Notes:
1. Analysis of reserves and profits of S. Ltd. as on 32 Ashad 2068 (32-03-2068).
Pre-acquisition profit Post-acquisition profits
upto30 Poush 2067 Magh 2067 – 32 Ashad 2068)
(Capital profits) Capital Revenue Profit and
(Rs.) reserve (Rs.) reserve loss account
(Rs.) (Rs.)
Capital reserve as on 32 -3-2068 3,10,000
Less: Balance as on 1-4-2067 50,000 50,000
Created during the year 2,60,000 1,30,000 1,30,000
Revenue reserve as on 32 -3-2068
Revenue reserve as on 32.03.2068 75,000
Less: balance as on 1-4-2067 −
Created during the year 75,000 37,500 37,500
Profit and loss account as on 32 -3-2068
2,80,000
Add: Dividend paid on 1.10.2067( W.N 12) 2,50,000
(out of pre-acquisition profits) _______
5,30,000
Less: balance as on 1-4-2067 2,75,000
Earned during the year 2,55,000 1,27,500 1,27,500
Profit and Loss A/c as on 1-4-2067 2,75,000
Less: Dividend paid (W.N. 12)
2,50,00
0
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Add: Purchase - -
Less: sale - -
Less: closing value as on 32.03.2068 160,000 1,520,000
Depreciation for the year 40,000 80,000
Depreciation rate 20% 5%
3. Profit or loss on revaluation of assets in the books of S. Ltd. and their book values as on 32 Ashad 2068
Rs.
Buildings
Book value as on 1.4.2067 16,00,000
Depreciation at 5% p.a. for 6 months 40,000
15,60,000
Revalued on 1.10.2067 20,00,000
Profit on revaluation 4,40,000
Value as per balance sheet on 32 -3-2068 15,20,000
Add: Profit on revaluation 4,40,000
19,60,000
Less: Short Depreciation (W.N. 4) 10,000
Value as on 32 -3-2068 19,50,000
Furniture
Book value as on 1.4.2067 2,00,000
Less: Depreciation @ 20% p.a. for 6 months 20,000
1,80,000
Revalued on 1.10.2067 1,50,000
Loss on revaluation 30,000
Value as per balance sheet on 32 -3-2068 1,60,000
Less: Loss on revaluation 30,000
1,30,000
Add: Excess depreciation written back (W.N. 3) 5,000
Value as on 32 -3-2068 1,35,000
Note: In the question, the balance of capital reserve and profit and loss account of S. Ltd., as on 1.4.2067
only has been given and not of revenue reserve. Hence, it has been assumed in the above solution
that the revenue reserve is created during the year from current year’s profits.
2. A Ltd. and B Ltd. amalgamate from 1st Shrawan 2068 and a new company C Ltd.
formed to take over business of existing companies. Balance sheet of A Ltd. and B
Ltd. on 32ndAshad 2068 is as follows:
(Rs. in lakhs)
Liabilities A B Assets A B
Equity capital of Rs 100 800 750 Fixed assets:
each
12 % Preference shares 300 200 Land and Building 550 400
Reserves and surplus: Plant and machinery 350 250
Revaluation reserves 150 100 Investment 150 50
General reserve 170 150 Current assets
Investment reserve 50 50 Stock 350 250
Profit and Loss A/c 50 30 Sundry debtors 250 300
Secured loan Bills receivable 50 50
10 % Debenture of 60 30 Cash and bank 300 200
Rs.100 each
Current liabilities:
Sundry creditors 270 120
Bills payable 150 70
Total 2,000 1,500 Total 2,000 1,500
Additional information:
• 10 % Debenture of A Ltd. and B Ltd. are discharged by C Ltd. by issuing such
number of its 15% Debentures of Rs. 10 each so as to maintain the same amount
of interest.
• Preference shares of two companies are issued equivalent number of 15% shares
of C Ltd. at a price of Rs. 150 per shares (face value of Rs. 100 each.)
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• C Ltd. will issue 5 equity shares for each equity shares of A Ltd. and 4 equity
shares for each equity shares of B Ltd. The shares are to be issued at Rs. 30 each
having a face value of Rs. 10 per share.
• Investment reserve is to be maintained for 4 more years.
Prepare Balance Sheet of C Ltd. as on 1st Shrawan 2068 after amalgamation has been
carried out on the basis of amalgamation in the nature of purchase. 16
Answer C Ltd
Balance sheet as at 1/4/2011 ( Rs I Lakhs)
Liabilities Assets
Equity Share capital 700 Fixed assets
7,000,000 equity share of Rs 10 each (all the
above shares are allotted as fully paid up pursuant
to contract without payment being received in
cash)
500,000 preference share of Rs 100 each (all the 500 Goodwill (W.N. 2) 20
above shares are allotted as fully paid up pursuant
to contract without payment being received in
cash)
Reserve and surplus Land and building 950
Share premium (W.N. 4) 1,650 Plant and machineries 600
Investment reserve 100 Investment 200
Secured loans Current assets
15% Debentures (W.N. 3) 60 Stock 600
Current liabilities Sundry debtors 550
Sundry creditors 390 Cash & bank 500
Bills payable 220 Bills receivable 100
Miscellaneous expenses 100
(Amalgamation adjustment account
to the extent not written off)
Total 3,620 Total 3,620
3. The balance sheet of Exiel Shipping Ltd. for the years ended 32ndAshad 2067 and
32nd Ashad 2068 are as follows:
32ndAshad 2067 32ndAshad 2068
Liabilities Rs. 000 Rs. 000
Equity Share Capital 2,400 3,200
10% Preference Share Capital 800 560
Capital Reserve 0 80
General Reserve 1,360 1,600
Profit & Loss Account 480 600
9% Debentures 800 560
Current Liabilities 960 1,040
Proposed Dividend 240 288
Provision for Tax 720 680
Unpaid Dividend 0 32
Total 7,760 8,640
Assets
Fixed Assets 6,400 7,600
Less: Depreciation (1,840) (2,320)
4,560 5,280
Investment 800 640
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Cash and Bank 20 20
Other Current Assets 2,220 2,620
Preliminary Expenses 160 80
Total 7,760 8,640
Additional information:
a) The company sold one fixed assets for Rs. 200,000 the cost of which was
Rs. 400,000 and WDV was Rs. 240,000.
b) The company decided to write off another fixed asset costing Rs. 112,000 on
which depreciation amounting to Rs. 80,000 has been provided.
c) Depreciation on fixed assets provided for the fiscal year 2067/68 is Rs. 720,000.
d) The company sold some investment at a profit of Rs. 80,000 which was credited
to capital reserve.
e) Debentures and Preference share capital redeemed at 5% premium.
f) Company decided to value stock at cost, whereas previously the practice was to
value stock at cost less 10%. The stock according to books on 32nd Ashad 2067
was Rs. 432,000. The stock on 32nd Ashad 2068 was correctly valued at
Rs. 600,000.
Prepare Cash Flows Statement of Exile Shipping Ltd. for the fiscal year 2067/68 as
per Nepal Accounting Standards-indirect method. 16
Answer No. 3
Cash Flows Statement of Exile Ltd. for the year ended on 32 Asdad 2068
Working Notes
i. Revaluation of Stock will increase opening stock by; 432,000/90 X 10= Rs. 48,000.
Therefore, opening balance of other current assets would be as follows:
Rs. 2,220,000+ Rs.48,000= Rs. 2,268,000
Due to undervaluation of stock, the opening balance of profit and loss account be increased by Rs. 48,000.
The opening balance of profit and loss account after revaluation of stock will be:
Rs. 480,000+ Rs. 48,000 = Rs. 528,000.
ii. Investment Account
Rs. Rs.
Bal. B/d 800,000.00 Bank A/c (Bal. figure) 240,000.00
Capital Reserve A/c
(profit on sale of investment) 80,000.00 Balance c/d 640,000.00
880,000.00 880,000.00
v. Unpaid dividend is taken as non-current item and dividend paid is shown at:
Rs. 240,000- Rs. 32,000= Rs. 208,000.00
Student can present the unpaid dividend as current liability. Due to this cash flow from operating
activities and from financing activities shall be different.
4.
a) Given below the balance sheet of Jagadamba Co. Ltd. as on 32.03.2068:
Answer 4a)
Solution:
Jagadamba Co. Ltd.
Particulars. Rs.
Equity share capital – Existing 100,000
Share capital – Additions after conversion of debentures 50,000
Share premium – on conversion of debentures @ 10% premium 5,000
General Reserve 10,000
165,000
Less: P & L A/c (Debit balance) 20,000
145,000
Debt ( at 2:1) 290,000
Less; Existing 14% Debenture- after 25% redemption 37,500
Amount of fresh issue 252,500
So Kanchanjanga Co. Ltd should set aside Rs 252,500 for Proprietary ratio of Jagadamba
Co. Ltd after conversion, redemption and fresh issue of debentures:
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600,000
c)
Other not-for-profit organisations (other than Hospitals and Educational Institutions) include
Civic organisations, Cultural organisations, Labour unions, Political parties, Religious
associations etc. For these organisations, fund based accounting is used.
These mainly use four types of fund: Operating-Fund (restricted and unrestricted), Development
Fund, Endowment Fund and Life Membership Fund. For the operating funds, the accrual basis of
accounting is used to recognise revenue and expenses. While the unrestricted operating fund
accounts for all unrestricted resources received and expenses incurred for the primary purpose of
the organisation, the restricted operating fund accounts for resources received from donors with
restrictions imposed on their use. Development Funds are utilized for developmental purposes
like acquisition of building and equipments, major repairs to fixed assets etc. These fixed assets
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are shown in the balance sheet of development fund. The major sources of receipts for this fund
are government or private grants/gifts (restricted to acquisition of fixed properties), income and
gains of investments of unutilised fund (if any), transfers from other funds. Membership fees, the
main source of revenue, are directly taken to unrestricted operating fund. However, life time
contribution is directly credited to life membership fund which is simultaneously invested in
outside securities. Income from such investment is credited to unrestricted operating fund. When
a life member expires or his membership is terminated for some reasons, the proportionate fund
balance is transferred from life membership fund to unrestricted operating fund. As regards
contributions and transfers, they are directly credited to endowment fund.
The financial statements prepared by these organisations include balance sheets (fundwise),
statement of activities and statement of cash flows (fundwise). The primary operating statement
is the statement of activity which accounts for revenue and expenses and the resultant surplus or
deficit.
Rs. in '000
Contract Price (fixed) 4,800
Cost incurred to date 3,000
Estimated further cost to complete 2,000
b) The company received an actuarial valuation for the first time for its pension
scheme which revealed a surplus of Rs. 6 lakhs. It wants to spread the same
over the next 2 years by reducing the annual contribution to Rs. 2 lakhs instead
of Rs. 5 lakhs. The average remaining life of the employees is estimated to be 6
years. 4
c) The price of one of the raw materials purchased by the company at Rs. 120 per
Kg. declined immediately after purchase. Despite of decline in the price of the
raw material, the finished goods in which the raw material is incorporated is
expected to be sold above cost. As on Ashad end 2068, 10,000 Kg. of raw
material purchased were on stock and the replacement cost on that date was
Rs. 80 per Kg. How the inventory should be valued as on Ashad end 2068? 4
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b) As per NAS 24 ‘Accounting for Retirement Benefits in the Financial Statements of Employers’, the
surplus amount of Rs. 6 lakhs can be either credited to the profit and loss account of the current
year or, alternatively, spread over a period not more than the expected remaining life of the
participating employees i.e. 6 years. This change relating to actuarial valuation for its pension
scheme should be treated as a change in an accounting policy and disclosed in accordance with
relevant NAS. The financial statements should disclose: (a) the method for determination of these
retirement benefit costs; (b) whether the actuarial valuation was made at the end of the period or at
an earlier date (also specify date); and (iii) the method by which the accrual for the period has been
determined (if the same is not based on the report of the actuary).
Actuarial gains and losses should be recognized immediately in the statement of profit and loss as
income or expense. Therefore, surplus amount of Rs. 6 lakhs is required to be credited to the profit
and loss statement of the current year
c) As per para 31 of NAS 4 on Valuation of Inventories, materials and other supplies held for use in
the production of inventories are not written down below cost if the finished products in which they
will be incorporated are expected to be sold at or above cost. However, when a decline in the price
of materials indicates that the cost of finished products will exceed net realizable value, the
materials are written down to net realisable value. In such circumstances, the replacement cost of
the materials may be the best available measure of their net realisable value.
In the given case, though the price of the raw material has substantially decline, the company
expects that the finished goods in which the raw material will be incorporated will be sold above
cost. Hence, in the light of above provision of the NAS, the inventory should be valued at cost i.e.
at Rs 120 per Kg.
Answer
a) A number of different measurement bases are employed to different degrees and in varying
combinations in financial statements. They include the following:
a) Historical cost: Assets are recorded at the amount of cash or cash equivalents paid or the fair
value of consideration given to acquire them at the time of their acquisition. Liabilities are
recorded at the amount of proceeds received in exchange for the obligation, or in some
circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected
to be paid to satisfy the liability in the normal course of business.
b) Current Costs: Assets are carried at the amount of cash or cash equivalents that would have to be
paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the
undiscounted amount of cash or cash equivalents that would be required to settle the obligation
currently.
c) Realizable (settlement) value: Assets are carried at the amount of cash or cash equivalents that
could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at
their settlement values: that is, the undiscounted amounts of cash or cash equivalents expected to
be paid to satisfy the liabilities in the normal course of business
d) Present value: Assets are carried at the present discounted value of the future net cash inflows
that the item is expected to generate in the normal course of business. Liabilities are carried at
the present discounted value of the future net cash outflows that are expected to be required to
settle the liabilities in the normal course of business.
b)
1. Since the data are influenced by inflationary factors, it becomes difficult to segregate the
inflationary growth and real growth by trend analysis. Sometimes it is suggested to use price
deflator to iron out inflationary effect from the time series data. But choice of appropriate price
index is again a problem.
2. Selection of base for trend analysis is a critical point. A base year should be a normal business
year. If it is a year of boom, then obviously a downturn is forthcoming and if it is year of
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recession, then an upswing is obvious. And thereby the base would be either abnormally high or
low. But in practice it is really difficult to select such a normal year.
c) Currency Options give the client the right, but not the obligation, to buy/sell a specific amount of
currency at a specific price on a specific date. Currency options provide a tool for hedging foreign
exchange risk arising out of the firm’s operations. Currency options enable the business house to
remove downside risk without limiting the upride potential. Options can be put option or call option.
A put option is a contract that specifies the currency that the holder has the right to sell. A call option
is a contract that specifies the currency that the holder has the right to buy.
d)
Minority interest represents that part of the net results of operations and of net assets of a subsidiary
attributable to interests which are not owned, directly or indirectly through subsidiaries, by the
holding, parent, company. In short, minority interest represents the claims of the outside
shareholders of a subsidiary. Minority interest in the net income of consolidated subsidiaries for the
reporting period are identified and adjusted against the income of the group in order to arrive at the
net income attributable to the shareholders of the holding company.
Minority interest in the net assets of consolidated subsidiaries should be identified and presented in
the consolidated balance sheet separately from liabilities and the equity of the parents shareholders.
Minority interest in the net assets consists of:
i. the amount of equity attributable to minorities at the date on which investment in a subsidiary
is made, and
ii. the minorities share of movements in equity since the date the parent-subsidiary relationship
and into existence.
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