Company and Audit Notes Refersher

March 27, 2018 | Author: jesurajajoseph | Category: Equity (Finance), Balance Sheet, Share Repurchase, Expense, Dividend


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Study CircleCompany 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 Rs. 10 each 3,00,000 Reserve and surplus 50,000 Property 1,20,000 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 Cash 1,700 Total 8,01,700 2,80,000 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 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 ESH’s Intrinsic value of shares (each share) = Net Assets No. of shares Yield value method 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 @ __% Rs. 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 Discount on issue of Shares A/c Dr 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 Call Due Equity Share 1st Call A/c Dr To Equity Share Capital A/c 6) For Equity Share 1st Call Money Received . Study Circle Company Accounts Cash/Bank A/c Dr To Equity Share 1st Call A/c 7) For Equity Share 2nd & Final Call Money Due Equity share 2nd & Final Call A/c Dr To Equity Share Capital A/c 8) For Equity Share 2nd Call money Received Cash/Bank A/c Dr To Equity Share 2nd & Final Call A/c For Forfeiture of Shares If Premium is received 1) Equity Share Capital A/c Dr 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 Cs Executive Refresher Course . 120 shares were allotted to Sachin who failed to pay first call and his shares were forfeited.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. 240 shares were allotted to saurav who failed to pay second call his shares were also forfeited. The amount is payable as under: On Application Rs. 15 each at par. 3 per share On Second Call Rs. 2 per share The company received application for 20. . Journalize the above transaction in the book of kwality product Ltd.3 per share On Allotment Rs. issued 12. 000 Equity shares of Rs.7 per share On First Call Rs. The Directors rejected application for 1000 shares and allotted shares on pro-rata basis to the remaining applicants. 000 shares. (5) Preference shares can be redeemed either at par or at premium. can be used only for the issue of fully paid BONUS SHARES. (2b) Face value 100 100 100 Issue Price 100 110 90 (2b) DIVISIBLE PROFITS (Available for dividend redemption) (1) General Reserve (2) Revenue Reserve (3) Dividend equalization Reserve (4) Reserve Fund (5) Sinking Fund (6) Profit & Loss FACE VALUE OF PREF.R.R.R) (3) Face value of preference shares redeemed out of divisible profit should be transferred to a special Reserve called “ CAPITAL REDEMPTION RESERVE “ (C. If redeemed at premium such premium on Redemption (loss) will be met either out of SECURITIES PREMUIM OR DIVISIBLE PROFITS. SHARES TO Be REDEEMED = Proceeds 100 100 90 PROFITS. (2a) Fresh issue means issue of equity shares or preference shares but not debentures. (2) Preference shares can be redeemed either out of proceeds of fresh issue or divisible profits.R. PREMUIM ON REDEMPTION = SECURITIES PREMUIM + DIVISIBLE PROFITS (B/S + FRESH ISSUE) . NON DIVISIBLE PROFITS (1) Capital Reserve (2) Capital Redemption Reserve (3) Security Premium (4) Share forfeited A/c (5) Revaluation Reserve PROCEEDS OF FRESH ISSUE + Divisible Profits (C.R) (4) C.R. If the shares are partly paid up make them fully paid up by making a call.Study Circle Company Accounts Cs Executive Refresher Course REDEMPTION OF PREFERNCE SHARES POINTS TO BE NOTED (1) Preference shares can be redeemed only if it is fully paid up. (1) Making the final call. (4) Forfeiture of shares Preference share Capital (F. To Investment A/c. (Any diff will be transferred to profit & loss A/c) (Bal fig) . Share forfeited A/c Dr. Dr.Study Circle Company Accounts Cs Executive Refresher Course JOURNAL ENTRIES (A) IF THE SHARES ARE PARTLY PAID UP. To Calls in arrears A/c.) (5) Re issue of Forfeited share Cash/ Bank A/c (amt recd) Shares forfeited A/c (Amt unpaid) To Share Forfeited A/c Dr. (B) IF THE SHARES ARE FULLY PAID UP. V) To call in arrears A/c (amt.fig. (3) Receiving the calls in arrears Cash / Bank A/c Dr. (6) Transfer to Capital Reserve. (7) Sale of investment Cash/ Bank A/c Dr. Dr. Share capital (2) Receiving the final call Cash /Bank A/c Call in arrears To Final Call A/c. unpaid) To Share forfeited A/c ( bal. To Capital Reserve A/c. Final call A/C Dr. To Pref. Dr. R.R A/c Dr. To Bonus to shareholder A/c. To C. (10) (11) (12) (13) Meeting the Premium on redemption. To Cash / Bank A/c Declaration of Bonus. To Premium on redemption A/c Transfer to C.R. Pay off Preference Shareholder 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. Divisible Profit A/c Dr. Capital Reserve A/c Dr. Divisible Profit A/c Dr. C. Security Premium A/C Dr. Security Premium A/c Dr.Study Circle Company Accounts (8) For Fresh issue of shares.R. Cs Executive Refresher Course . Divisible Profits A/c Dr.R A/c. Premium on Redemption A/c Dr.R. Cash /Bank A/c Dr. To Preference shareholder A/c. 2007.2006 is given below : LIABILITIES Rs. iv) Minimum Bank Balance to be retained at Rs. Note : Minimum reduction is to be made against Reserve.1. at a premium of 7½%.75.5 each fully paid up 2.50.500 Equity Shares of Rs. In order to facilitate redemption.500 redeemed on 1. and iii) To issue sufficient equity shares at a premium of Rs1/.12. The investments were sold.000 Profit & Loss Account 2.500. 10.25. ii) To finance part of the redemption from company’s fund. as on 31. .500 12.60. Investments 2. ASSETS Rs.100 each.000 Sundry Creditors 57.500 The Preference Shares are to be 12. 2.000 Shares of Rs.60. 9% Redeemable Preference Sundry Assets 9.92.Study Circle Company Accounts Cs Executive Refresher Course The Balance Sheet of M. equity shares are fully subscribed and the shares were duly redeemed.000 fully paid up 6. the company has decided : i) To sell the Investments for Rs.per share to raise the balance of funds required. Show the entries and prepare the Balance Sheet.000.50.92.000 Cash at Bank 67.00.000 General Reserve 1. Ltd. I) Premium of Buy back = Securities Premium ( B/s+F.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.I – 1st Formula) + Divisible Profit . If the shares are partly paid up they should be made fully paid up by making a final call. (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. (b) Fresh Issue Means :(i) If equity shares have to be bought back fresh Issue means Issue of Preference shares or Debentures. Buy back of shares can be done either out of proceeds of fresh issue or out of free reserve (a) Free Reserve means securities premium and divisible profit. (1) Making a final call Final Call A/c Dr To equity Share capital A/c (2) Receiving a final call. 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. 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 Cs Executive Refresher Course . 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.Study Circle Company Accounts Journal Entries A) If the shares are partly paid up. Cash /Bank A/c Dr Calls in Arrears A/c Dr To Final call A/c (3) Receiving a Call in Arrears Cash /Bank To Calls in arrears Dr (4) Forfeiture of shares. Share forfeited A/c Dr. To Equity share Capital A/c (6) Transfer to Capital Reserve Share forfeited 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 To Cash/ Bank A/c Dr. Pass the necessary journal entries. 85. For this purpose.000 balance to the credit of the Securities Premium Account. The company had sufficient balance in the General Reserve to meet the legal requirements for buy-back.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. The company has Rs. 10 each at Rs. which was to be used for buy-back. it issued 1. .000 of its fully paid equity shares of Rs. resolved to buy back 30. 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.000 10% preference shares of Rs. The Total amount was payable on application. 100 each at par. 12 per share. 000 Debentures Redemption Fund 50.000 Other Current Assets 2.000 Debentures of Rs.Study Circle Company Accounts Cs Executive Refresher Course Issue & Redemption of Debentures The summarised Balance Sheet of Convertible Limited.60. and iii) all the transactions are put through.75 per share and the payment in cash.00.00.00.00. 2006. Share Capital : 5.000 debentures.00. The terms of issue of debentures provided that they were redeemable at a premium of 5% and also conferred option to the debentureholders to convert 20% of their holding into equity shares at a predetermined price of Rs. Show your calculation in respect of the number of equity shares to be allotted and the cash payment necessary. 2006. 100 each Other Loans Current Liabilities and Provision 1. as on 30th June.25.000 Assets Fixed Assets (at cost less depreciation) 1. 2006 after giving effect to the redemption.00.00. the rest of them exercised the option for maximum conversion. without any lag.000 4.000 1.50. 15.000 4.00.000 Debentures Redemption Fund Investments 40.00.50. ii) The investments realise Rs.000 50.000 The debentures are due for redemption on 1st July.00.00. Redraft the Balance Sheet of the Company as on 1st July.00.5% Convertible Debentures 1.000 General Reserve 75. Assuming that : i) except for 100 debenture-holder holding totalling 25. . 44 lakhs on sale. 10 each fully paid 50.00.000 Cash and Bank Balance 50.000 13. stood as follows : Liabilities Rs. 2006. on 1st July.00.000 Equity shares of Rs.00.00. Profit. 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. by way of premium. Profit on sale by company of forfeited shares c.Study Circle Company Accounts Cs Executive Refresher Course Company Final Accounts 1 2 3 4 5 6 Particulars Overall Managerial remuneration (Exclusive of fee for attending meetings) If the company has one managing director or wholetime director If the Company has more than one managing Director or whole time director (for all of them) Remuneration of part time director where the company has one or more managing director (for all of them) Remuneration of part time director where the company has one or more managing director (for all of them) Remuneration to the manager Maximum Limit 11% of net profit 5% of net profit 10% of net profit 3% of net profit 1% of net profit 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. on shares or debentures of the company which are issued or sold by the company. 3. The following sums shall be deducted: a. b. Profit from capital nature including profit from the sale of the undertaking or any of the undertaking of the company. All the usual working charges. 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 it’s written down value. 2. or of any part thereof. . Credit shall be given forBounties and Subsidies received from any government or any public authority constituted or authorized in this behalf by the government unless the central Government otherwise directs. Credit shall not be given for the following suma. d. 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. 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. 50. Bonus or commission paid or payable to any member of the company’s staff. whichever is greater:” k. Excess of written down value over the sale proceed or scrap value of the assets if it is sold. Depreciation to the extend specified in section 350 whichever allows following deductions: i. Expenses on repair.Study Circle Company Accounts Cs Executive Refresher Course b. technician or person employed or engaged by the company. Normal depreciation including extra and multiple shift allowances calculated at the rates specified in the schedule XIV ii. iii. provided the repair are not of a capital reserves j. Initial depreciation. The excess of expenditure over income. any amounts the aggregate of which will. except with the consent of such public company or subsidiary in general meeting. Interest on mortgages executed by the company and on loans and advances secured by a charges on its fixed or floating assets. But section 350 does not allow the following deductioni. . 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. Any tax notified by the central government as being in the nature of a tax on excess or abnormal profit. i. exceed Rs. Outgoing. c. shall not. Director’s remuneration. Special depreciation. Interest on debenture issued by the company. ii. whether to immovable or to movable property. g. or to any engineer. demolished or destroyed before the depreciation on such assets has been provided in full. whether on an whole-time or on a pat time or a part time or on a part time basis. Interest on unsecured loans and advances. 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. Development rebate reserve or investment allowance reserve. f. h. in any financial year. discarded. l. d. Any tax on business profit imposed for special reason or in special circumstances and notified by the central in this behalf. e. contribute to charitable and other funds not directly relating to the business of the welfare of its employees. 1961 or any other tax on the income of the company not falling under clauses (d) and (e) of (3) above.000 To Repairs to Fixed Assets 50.70. The following sums shall not be deducted. a. 4. It is important to note here that the above provision do not apply to a private company.000 To balance c/d 10. b.40. its sale proceed or its scrap value. damages or payments made voluntarily that is to say.00. Debt considered bad and written off or adjusted during the year of account.50. . Income tax and super tax payable by the company under the income tax Act. Any compensation or damage to be paid by virtue of any legal liability including a liability arising from a breach of contract.000 To Proposed dividends 10.50.000 By Gross Profit 40. demolished or destroyed over. unless it is subsidiary of a public company.000 (Cost Rs 8 lacs and WDV Rs 4 lacs) To General Expenses 40.000 To expenditure on Scientific 2. otherwise than in virtue of ability such as is referred to in clauses (m) of 3 above. Any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clauses (m).000 45.S.50.Study Circle Company Accounts Cs Executive Refresher Course 2. c.00.50. 4. PARTICULARS RS PARTICULARS RS To Salaries & wages 1.000 By Profit on sale of Machinery 4. 3.000 To interest on unsecured loans 15.000 To Loss on sale of investment 35. discarded.000 Research ( Cost of Setting up a new laboratory) To debenture interest 75.00. Ltd for the year ended 31st March 2008. Any compensation.000 To Provision for tax 16.000 Contract. 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. The following is the Profit and Loss account of S.000 By Subsidy from the 1.000 government To Compensation for breach of 25.00.000 Calculate the overall managerial remuneration under section 198.000 45.50. To Depreciation 2. 000 Purchases . Coffee 58.000 . You are require to prepare the Profit and loss Account and Balance Sheet on 31st March.000 equity shares of `100 each 28.Bakery products 36.840 Advertising 8.00.250 Rent of Rooms 48.300 Rent.00.000 Coal and Firewood 3.900 Laundry 750 Sales . Tea.Coco.000 Capital Reserve 5. 2012 Authorised Share capital divided into 8.Study Circle Company Accounts Cs Executive Refresher Course Given is the Trial Balance of Marathon Limited as on 31st March.000 .800 .Coco.290 Carriage 810 Sundry Expenses 5.000 Subscribed Capital 5. Rates and Taxes 8.000 6% preference shares of `100 each 5.200 Wages and Salary 15. 6% preference shares of `100 each and 20.000.000 Equity Share Capital 8. Tea and Coffee 82. 2012.Bakery products 44.360 Repair 4.00. 000 Additional Information: — Wages and Salaries outstanding 4.200 Cash with Bank 76.000 19.700 Miscellaneous Receipts 2.000 2000.400 19.260 Cash in Hand 2.300 Stock on hand.280 — Stock as on 31st march.000 .00.000 General Reserve 2. 8% debentures of `100 each 2.00. 2011 Coco.000 Furniture and Fittings 86.72. 1st April. Coffee 22.260 Investment 2.50.300 Transfer Fee 700 Freehold Land and Building 8. Tea.500 — Bakery Products 16.75. Coffee 12. 2012 — Coco.Study Circle Company Accounts Cs Executive Refresher Course Receipt from Billiards 5.800 Discount Received 3.75.000 Sundry Debtors 19.800 Bakery products 5.300 Goodwill at Cost 5.000 Profit and Loss Account 41.00. Tea.500 Sundry Creditors 42.380 Preliminary and Formation Expenses 8. 2011.000 shares fully paid and 2. 2011 stood at Rs 7. 20.000 shares of Rs 60 paid. The directors made a call of Rs 40 per share on 1st October.Study Circle Company Accounts Cs Executive Refresher Course — Provide 5% depreciation on Furniture and Fittings and 2% on Land and Building. that is 6. The director proposes a dividend of 8% on equity shares. The equity capital on 1st April.000. 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. Ignore taxation . transferring any amount that may be required from general reserve. 000 2.000 2.000 90.000 1.000 40. fully 5.) Amount (Rs.00. as at 31st March.40.000 1. 2008. Amount (Rs.000 75.000 90. Current Asset Trade Receivables Stock Cash at Bank Total 20.50.000 40.40.000 60.000 1. Issued subscribed and paid up capital Equity shares of Rs.00.500 Shares in S Ltd.Study Circle Company Accounts Cs Executive Refresher Course Consolidation of Accounts-AS 21 Following are the balance Sheets of H Ltd.000 2.000 .90.00.30.000 2 Current Liability Bills payable Trade payables Total II.000 Land & Building 2.000 Goodwill (b) Long term Investment 1.50.000 60.80.000 8.ASSETS 8.(at cost) 4.EQUITIES AND LIABILITIES H Ltd.40.20.000 3.000 4.00.000 4.40.) 1 Shareholder’s funds (a)Share Capital Authorised.000 50.000 1.00. I .60.000 Profit & Loss A/c 1.000 called up and paid up (b)Reserve & Surplus General Reserve 1. S Ltd.000 1 Non-current assets (a) Fixed Assets Machinery 1.000 2.000 80.000 25.40.000 1.100 each.000 90.000 90.00. and S Ltd.20.000 30. In arriving at the value of S Ltd. The Bills Payable of S Ltd. the plant and machinery which then stood in the books at Rs.Study Circle Company Accounts Cs Executive Refresher Course The Profit and Loss Account of S Ltd.000 for goods supplied by H Ltd. 20. Included in the Creditors of S Ltd. shares. Prepare the consolidated balance sheet as on that date. The new value was not incorporated in the books. are goods to the value of Rs. No changes in these have been made since then. 2007.4. A dividend of 15% was paid in December 2007 for the year 2006-07. Included in the stock of S Ltd. 1. acquired the shares in S Ltd. 1. 50. on 1st October. were all issued in favour of H Ltd. which company got the bills discounted. at a profit of 331/2 on cost.00. is Rs. This dividend was credited to Profit and Loss Account by H Ltd.2007 was revalued at Rs.000 on 1st April 2007.000 on 1. H Ltd. 8. .000 which were supplied by H Ltd.000.50. showed a credit balance of Rs. 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. 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 economist’s definition and computation of the profit is net above the cost of all resources. In contrast. 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.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. Economic value added (EVA) is a financial measures of what economists sometimes refer to as economic profit or economic rent. 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). . so in fact an accountant’s 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. Shareholder’s Funds Equity 2.360 4.48.92.Current Liabilities Long Term Debt 3.Current Assets (a) Inventories (i) Raw Material (ii)Finished Goods (b) Account Receivable (c) Cash Total 40.08.85.13. Non.000 2.92.28.00.000 1.000 86. 1.Current Liabilities (a) Account Payables (b) Bank Overdraft Total II.400 1.00.000 60.000 4. .300 4.000 1.ASSETS 1.00.EQUITY AND LIABILITIES Rs.29. Calculate Economic Value Added.160 The average rate of return on similar types of companies is 20% while risk free is 12.5%.600 6.000 11.06.71.Non-current assets (a) Fixed Assets 2.400 17. 2012 I.84.940 1.62. Rate of return as charges by bank is 18% and the tax rate is 40%.00.Study Circle Company Accounts Cs Executive Refresher Course ILLUSTRATION Balance Sheet of ABC Limited As at 31st March.000 STATEMENT OF PROFIT OF ABC LIMITED Sales Less: Operating Expenses EBIT Less: Tax Expenses NOPAT 28.440 10.06. a. Goodwill for this purpose is agreed to be valued at 3 year’s purchase of weighted average profit of the past four year’s.000 On a scrutiny of the accounts the following matters are revealed: (i) (ii) (iii) On 1st December.40.000 and 2010-2011.1.Rs. Proposed to purchase the business carried on by M/s.000. on reducing balance method. 1. The closing stock for the year 2008-2009 was overvalued by Rs.000 should be made for the purpose of goodwill valuation. X & co. To cover management cost & annual charge of Rs.01.Rs.Rs.Study Circle Company Accounts Cs Executive Refresher Course VALUATION OF GOODWILL ILLUSTRATION A Ltd.000. The appropriate weights to be used are: 2007-2008 2008-2009 1 2 2009-2010 2010-2011 3 4 The profit for these years are : 2007-2008. 2008-2009.000 which was charged to revenue. The said sum is agreed to the Capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.24. . 2009-2010.00.30.24.1.000. Compute the value of goodwill of the firm.12. 2009 a major repair was mad in respect of the plan incurring Rs. 1.Rs. the company earned profit of Rs.000 Equity shares of Rs.00. Unsecured creditors 3.62.5.84.80.000 Weekly wages unpaid 6. 3.000 Salaries due for five months 20.50.5.000 Stock (Estimated to produce Rs.000 Secured Creditors holding first mortgage on land 4.2004 1.30.000. The company also suffered a speculation loss of Rs.000 Doubt full (estimated to produce Rs.50.000) 8.00. 10 each 5.50.000) 16.30.000 Estimated Liabilities for Bills discounted 60.5.20. Paid 30 June 2012 Share Capital: 2.000 Partly Secured Creditors Holding Second Mortgage on land 2.000 In 2009.000 Managing director’s remuneration 30.06.000 st General reserve since 31 December.Bad 88. .00.000 Bills payable 1. 1925 2.Study Circle Company Accounts Cs Executive Refresher Course LIQUIDATION OF COMPANIES st The following information is extracted from books of Mehsana Limited on 31 July.000 Bill Receivable(good Rs.000 Bank Overdraft 40. 2012 on which date a winding up order was made.000 during the year 2010. 50.good 4. Excise authorities imposed a penalty of Rs.000) 1.000 10 % Preference share of Rs.000) 3.00. prepare the statement of Affairs and the Deficiency Account.000 Debtors .000 Cash in hand 4.000 Liabilities under work men’s compensation act.000 Income Tax due 8000 th 5000 9% mortgage debentures of 100 each interest payable to 30 June & 5.60.00.000 in 2011 for evasion of tax which was paid in 2012.00. From the foregoing information.000 st th 31 December.10. 10 each 50.4.000 .00.000 20.000 Land(Estimated to produce Rs.000 but thereafter it suffered trading losses totaling Rs.000 Furniture & fixtures 80. EQUITIES AND LIABILITIES 1 Shareholder’s funds (a)Share Capital Authorised.Current Assets Stock 42.000 2.50.000 3 Current Liability Trade payables 50.300 (b)Other non-current expenses Research & development Expenses 18.400 Investment 15000 Total Dr Jinesh Shah 2.000 equity shares of Rs. 1 each 1.8 each 1.000 Bank Overdraft (Secured by land & building) 20.issued subscribed & paid-up capital 12.200 2.000 Tools & dies 27.86.57.200 Andheri/Dadar-28272829 Page 30 .ASSETS 1.000 2.000 Plant 96.2012 I .000 (b)Reserve & Surplus Profit & Loss account (98000) 2 Non-Current Liability 10% Debentures 60.50.41)Under given is the balance sheet of Rajbhasha & co as on 31 march.500 9% Preference shares of Rs.300 1.86.000 1.Study Circle Company Accounts CS Executive Refresher Course CORPORATE RESTRUCTURING st Q.50.500 Trade receivable 53.000 Debenture Interest 4.200 Total 74.00.200 II. Non-current assets (a) Fixed Assets Free hold land & building 34. The debenture interest has also been paid. (ii) The research and development expenditure and debit balance of Profit & loss account are to be written off. Including cash.85 in the rupee for immediate settlement.0.000.48. (iii) Price of land recorded in the books at Rs. 10.700.22.30.000 tools and dies Rs. The investment at a valuation of Rs.Study Circle Company Accounts CS Executive Refresher Course The scheme of re-organisation detailed below has been agreed by the parties approved by the Court. 59.500 in settlement of his debt.40. 14. (v) (vi) The ascertained loss is to be met by writing down the equity shares to Rs.000 and debtors Rs. 18000 has agreed to accept a second mortgage debenture of 11% per annum secured on plant for Rs. (iv) A creditor for Rs. (vii) The equity shareholders agree to subscribe for two new ordinary shares at par for every shares held.000. The authorized share capital is to be increased immediately to the original amount. (i) The following assets are to be revalued as shown below: plant Rs.000 agreed to accept a payment of Rs. 6. st (b) The balance sheet of the company as on 1 April. (viii) The costs of the scheme are Rs.8 each.500. 15.000 is to be taken over by the bank. 15.2012 after the completion of the scheme. The remaining freehold land and building are to be revalued at Rs.000 and is to be taken over by the debenture holders in part repayment of principal.000 is valued at Rs. Dr Jinesh Shah Andheri/Dadar-28272829 Page 31 . These have been paid and are to be written off. This cash is all received. stock Rs. You are required to prepare: (a) Journal entries recording the transaction in the books. Other creditors totaling Rs.3. 1 each and preference shares to Rs. Ltd. & B Co. Non-Current Liability 12% Debentures 1.50.00.70.50.000 7.000 Andheri/Dadar-28272829 Page 32 .000 Employee Provident Fund 15.000 3 Current Liability Trade payables 50. 5.00.00.65.EQUITIES AND LIABILITIES 1.Study Circle Company Accounts CS Executive Refresher Course th The following are the balance sheet of A Co. Ltd as on 30 September.000 Machinery 5. Ltd Amount(Rs.65.000 Cash 15.000 Equity shares of Rs.000 8.2012 A Co.Current Assets Stock 80.000 II.10 each .000 2.000 Trade receivable 70. Shareholder’s funds (a)Share Capital Authorised issued subscribed & paid-up capital 50.000 2.) I .ASSETS 1) Fixed Assets Building 1.000 Total Dr Jinesh Shah 1.000 Fully called up & Paid up (b)Reserve & Surplus 1.000 Total 8.65.000 General Reserve Profit & Loss account 30. The Debentures of A Co.000 II. In fully paid equity shares of Rs.000 Less : Provision for Doubtful Debts 5.40. Respectively.10 each .40.) I . Ltd.50.Shareholder’s funds (a)Share Capital Authorised issued subscribed & paid-up capital 30. 6.Study Circle Company Accounts CS Executive Refresher Course B Co.000 for A Co. Will be converted into equivalent number of debentures of C CO. Which st takes over all the assets and liabilities of both the companies on 1 October.000 Trade receivable 50. Ltd. Non-Current Assets (a) Fixed Assets Tangible assets Machinery 2.000 Cash & Cash equivalents 45.000 Total 3.500 and Rs.ASSETS 1. Ltd. Ltd. Ltd Amount(Rs.000 2. And B Co. The entire purchase price is to be paid by C Co. Current Assets Stock 40.15. The Purchase consideration is agreed at Rs. Current Liability Trade payables 40.000 5000 3. 3.000 3.EQUITIES AND LIABILITIES 1.000 Fully called up & Paid up 2.Ltd.00.000 Equity shares of Rs. Ltd. 3. Total 90. 10 each. 2012. Dr Jinesh Shah Andheri/Dadar-28272829 Page 33 .000 The Two Companies agree to amalgamate and from a new company called C Co.61. Is 2. The authorised capital of C Co.10 each. Ltd.000 equity shares of Rs.00. Also prepare the opening Balance Sheet in the books of C Co. As on 1 October. Ltd. And show the opening entries in the books of C Co.Study Circle Company Accounts CS Executive Refresher Course Give journal entries to close the books of A Co. Ltd. And B Co. Dr Jinesh Shah Andheri/Dadar-28272829 Page 34 . st Ltd. 2012. Ltd. AS UNDER: • • • • • • • • ASSETS SIDE a) fictitious assets b) Cash/Bank -if taken over -if not taken over c) All other assets (Whether taken over or Not taken over) Dr Jinesh Shah TRANSFER TO Equity shareholders A/c (Dr Side) Realisation A/c ( Dr side) Cash/Bank A/c ( Dr side) Realisation A/c ( Dr side) { At Book Values} Andheri/Dadar-28272829 Page 35 .Study Circle • • • • • • • • • • Company Accounts CS Executive Refresher Course Amalgamation Determination of Purchase Consideration Net Assets Method All Assets (AV) xx (xx) Less: All Liabilities (AV) 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. • STEP 1: TRANFER EACH & EVERY ITEM OF BALANCE SHEET OF OLD CO. AMALGAMATION STEPS IN THE BOOKS OF OLD CO. Study Circle Company Accounts CS Executive Refresher Course Continued……………………………… • • • • • • • Liabilities Side a) Equity Share Capital b) Reserves & Surplus c) Preference Share Capital d) All other Liabilities: -if taken over -if not taken over • Step : 2 Entry for PC • • Step: 3 Discharge of PC Equity Shares in New Co A/c Dr Pref Shares in New Co A/c Dr Debentures in New Co A/c Dr Cash/Bank A/c Dr To New Co A/c • Note: At the end of Step 3 New Company Account Should Tally Transfer to Equity Shareholders A/c (Cr Side) Equity Shareholders A/c (Cr side) Pref Share holders A/c ( Cr side) Realisation A/c ( Cr side) Liabilities not taken over A/c (Cr side) New Company A/c Dr To Realisation A/c • Dr Jinesh Shah Andheri/Dadar-28272829 Page 36 . Study Circle • • Step 4: Sale of Assets not Taken over Step: 5: Realisation Expenses Company Accounts • CS Executive Refresher Course Cash/Bank A/c Dr To Realisation A/c Realisation Expenses A/c Dr To Cash/Bank A/c ( If reimbursed by new Co) Cash/Bank A/c Dr To Realisation A/c Step 6: Payment to Liabilities not taken over Liabilities not taken over A/c Dr To Eq/Pref Shares in New Co To cash/ bank A/c (if any difference trf to Realisation A/c) Step : 7: Payment to Preference Share holders Preference Shareholders A/c Dr To 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 Dr Jinesh Shah Andheri/Dadar-28272829 Page 37 . Continued……………………. • Step 4: For Take over Assets & Liabilities All Assets taken over (At agreed Values) Dr Good will A/c Dr To All liabilities to taken over A/c To Business Purchase A/c To Capital Reserve A/c Step 5: For Discharge of Liquidator Liquidator of Old Co.. A/c Dr Discount on issue on Shares A/c Dr To Equity Share Capital A/c To Preference Share capital A/c To Debentures A/c To Securities Premium A/c To Cash/Bank A/c Dr Jinesh Shah Andheri/Dadar-28272829 Page 38 .Study Circle Company Accounts CS Executive Refresher Course Journal Entries in the Books of New Company • 1) For issue of Shares Cash/Bank A/c Dr To Equity share capital A/c To Securities Premium A/c 2) For Preliminary Expenses Preliminary Expenses A/c To Cash/Bank A/c Dr 3) For Business Purchase Dr Business Purchase A/c To Liquidator of Old Co. • • Step 6: For Payment of Realisation expenses of Old Co...Study Circle Company Accounts CS Executive Refresher Course Continued……………………. • Step 9: For Elimination of Unrealised Profit in Stock Good will/Capital Reserve A/c Dr To Stock A/c Step 10: For Carry Forward of Statutory Reserve Amalgamation Adjustment A/c Dr To Statutory Reserve A/c Dr Jinesh Shah Andheri/Dadar-28272829 Page 39 . Goodwill/Capital Reserve A/c Dr To Cash/Bank A/c Step 7: For Cancellation of Mutual Debts Dr Creditors A/c To Debtors A/c Step 8: For Cancellation of Bills Dr Bills Payable A/c To Bills Receivable A/c Continued………………………. Note No. ASSETS Non-current assets 1 (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 (e) Other non-current assets 11 12 2 Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets 14 15 16 17 18 TOTAL Dr Jinesh Shah Andheri/Dadar-28272829 Page 40 .Study Circle Company Accounts CS Executive Refresher Course PART I – Form of BALANCE SHEET 0 Balance Sheet as at Particulars 1 I. 2 31 March 2012 3 (in Rupees) 31 March 2011 4 EQUITY AND LIABILITIES 1 Shareholders’ funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants 1 2 2 Share application money pending allotment 3 Non-current liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long-term provisions 3 4 5 4 Current liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions 6 7 8 TOTAL II. Study Circle Company Accounts CS Executive Refresher Course PART II .2012 ( ` in Rupees) Refer Note No.Form of STATEMENT OF PROFIT AND LOSS Profit and loss statement for the year ended 31. Other income 20 31 March 2012 31 March 2011 III. Particulars I. Revenue from operations 19 II.03. Expenses: Cost of materials consumed Purchases of Stock-in-Trade Changes in inventories of finished goods work-in-progress and Stock-in-Trade Employee benefits expense Finance costs Depreciation and amortization expense Other expenses 21 22 23 Total expenses Profit before exceptional and extraordinary items and V. Total Revenue (I + II) IV. tax (III-IV) Dr Jinesh Shah Andheri/Dadar-28272829 Page 41 .
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