Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Paper – 18 - Corporate Financial Reporting

This paper contains 5 questions, divided in sub-questions. Each question represents the specified
weightage in sections as prescribed syllabus for this paper. Answers must be given against all
questions. However, students are requested to read the instructions against each individual
question also. All workings must form part of your answer. Assumptions, if any, must be clearly
indicated.

Question No. 1 is compulsory.

(a) What are the disclosure requirements of Contingent Liability as per AS-29? [5]
(b) (i) Describe Disposal group as per IFRS 5 (Non-Current Assets held for sale and discontinued
Operations) [3]
(ii) State the objective of IFRS-7 (Financial Instruments- Disclosures) [2]

Answer:

(a) An enterprise should disclose for each class of Contingent liability at the balance sheet date–
 A brief description of the nature of the contingent liability where practicable.
 An estimate of the amount as per measurement principles as prescribed for provision.
 An indication of the uncertainties about those outflows. Where necessary to provide
adequate information, an enterprise should disclose the major assumptions made
concerning future events.
 The amount of any expected reimbursement, stating the amount of any asset that has
been recognized for that expected reimbursement.
 Where any of the information required as above is not disclosed because it is not
practicable to do so, that fact should be stated.

(b) (i) Disposal group

 It is a group of assets (and directly associated liabilities) which are to be disposed of
through a single transaction.
 The group includes goodwill acquired in business combination if the group is a cash
generating unit to which goodwill has been allocated in accordance with the
requirements of Paras 80-87 of IAS-36 Impairment of Assets.
 A cash generating unit is the smallest identifiable group of assets that generates cash
inflow and that such cash inflow is largely independent of other assets or group assets
of the entity.

(ii) The objective of this IFRS is to require entities to provide disclosures in their financial
statements that enable users to evaluate:
(a) The significance of financial instruments for the entity’s financial position and
performance;
(b) The nature and extent of risks arising from financial instruments to which the entity is
exposed during the period and at the end of the reporting period, and how the
entity manages those risks.

Question No. 2 : Answer to Question No. 2(a) is Compulsory. Answer any two from the remaining
sub-questions.

(a) T Ltd was incorporated for the purpose of acquiring B Ltd. V Ltd. and S Ltd. The balances in the
books of these Companies as on 30th June of a Financial Year are as follows:

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Particulars B Ltd. V Ltd. S Ltd.

Tangible Fixed Assets at Cost Less Depreciation 5,00,000 4,00,000 3,00,000
Goodwill --- 60,000 ---
Other Assets 2,00,000 2,80,000 85,000
Total Assets 7,00,000 7,40,000 3,85,000
Liabilities:
Issued Ordinary Share Capital Shares of ` 10 each 4,00,000 5,00,000 2,50,000
Profit & Loss Account 1,50,000 1,10,000 60,000
10% Debentures 70,000 --- 40,000
Sundry Creditors 80,000 1,30,000 35,000
Total Liabilities 7,00,000 7,40,000 3,85,000

Particulars B Ltd. V Ltd. S Ltd.

Average Annual Profits before Debenture Interest 90,000 1,20,000 50,000
Professional Valuation of Tangible Assets on 30th June 6,20,000 4,80,000 3,60,000
1. The Directors in their negotiations agreed that (i) the recorded Goodwill of V Ltd. is
valueless, (ii) the Other Assets of the B Ltd. are worth ` 30,000, (iii) the valuation of 30th
June in respect of Tangible Fixed Assets should be accepted, (iv) these adjustments are
to be made by the individual Company before the completion of the acquisition.
2. The acquisition agreement provides for the issue of 12% Unsecured Debentures to the
value of the Net Assets of the Companies B Ltd, V Ltd. and S Ltd and for the issuance of `
10 nominal value ordinary shares for the capitalized average Profits of each acquired
Company in excess of the Net Assets contributed. The Capitalization Rate is taken at 10%.

You are required to calculate purchase consideration and show the purchase consideration as
discharged. [5]

Answer:

1. Computation of Net Assets and Debentures to be issued

Particulars B Ltd. V Ltd. S Ltd.
Tangible Fixed Assets (as per Valuation) 6,20,000 4,80,000 3,60,000
Other Assets (as per agreement) 30,000 2,80,000 85,000
Total Assets 6,50,000 7,60,000 4,45,000
Less: Sundry Creditors (80,000) (1,30,000) (35,000)
Debentures (70,000) --- (40,000)
Net Assets 5,00,000 6,30,000 3,70,000

2. Settlement of Purchase Consideration

Particulars B Ltd. V Ltd. S Ltd.
Average Annual Profits 90,000 - 7,000=83,000 1,20,000 50,000-4,000 = 46,000
(after Debenture Interest)
Capitalisation at 10% 8,30,000 12,00,000 4,60,000
Less: Net Assets as calculated above (5,00,000) (6,30,000) (3,70,000)
Excess to be settled by Shares 3,30,000 5,70,000 90,000
Issued by T Ltd
- Equity Shares (for the excess portion) 3,30,000 5,70,000 90,000
- 12% Debentures (for the Net Assets) 5,00,000 6,30,000 3,70,000
Total Purchase Consideration 8,30,000 12,00,000 4,60,000

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(b) The following was the Balance Sheet of V Ltd as on 31st March 2014:

Particulars Note Amount

No. (` in Lakhs)
Equity and Liabilities
(1) Shareholders' Funds (a) Share Capital 1 1,150
(b) Reserves and Surplus 2 (87)
(2) Non-Current Liabilities Long-Term Borrowings 3 630
(3) Current Liabilities Trade Payables 170
Total 1,863
Assets
(1) Non-Current Assets Tangible Assets 4 1,152
(2) Current Assets Inventories 380
Trade Receivables 256
Cash and Cash Equivalents 5 75
Total 1,863

Notes:
(1) Share Capital `
Authorised:
Issued, Subscribed and Paid up: 800
80 Lakh Equity Shares of ` 10 each, fully paid up 350
35 Lakh 12% Cumulative Preference Shares of ` 10 each, fully paid up
Total 1,150

(2) Reserves and Surplus: Debit Balance of Profit & Loss Account (87)
Total (87)

(3) Long-Term Borrowings

10% Secured Cumulative Debentures of ` 100 each, fully paid up 600
Outstanding Debenture Interest 30
Total 630

(4) Tangible Assets

Land and Buildings 445
Plant and Machinery 593
Furniture, Fixtures and Fittings 114
Total 1,152

(5) Cash and Cash

Equivalents Balance at Bank 69
Cash in Hand 6
Total 75

On 1st April 2014, P Ltd took over the entire business of V Ltd on the following terms:
V Ltd's Equity Shareholders would receive 4 fully paid Equity Shares of P Ltd of ` 10 each issued at
a Premium of ` 2.50 each for every Five Shares held by them in V Ltd.
Preference Shareholders of V Ltd would get 35 Lakh 13% Cumulative Preference Shares of ` 10
each fully paid up in P Ltd, in lieu of their present holding.

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All the Debentures of V Ltd would be converted into equal number of 10.5% Secured Cumulative
Debentures of ` 100 each, fully paid up after the takeover by P Ltd, which would also pay
Outstanding Debenture Interest in cash.
Expenses of Amalgamation would be borne by P Ltd. Expenses came to be ` 2 Lakh. P Ltd
discovered that its Creditors included ` 7 Lakh due to V Ltd for goods purchased.
Also P Ltd's Stock included goods of the Invoice Price of ` 5 Lakh earlier purchased from V Ltd,
which had charged profit at 20% of the Invoice Price.
You are required to:
(i) Prepare Realisation A/c in the books of V Ltd.
(ii) Pass Journal Entries in the books of P Ltd, assuming it to be an amalgamation in the nature of
Merger. [10]

Answer:

1. Computation of Purchase Consideration

Particulars ` Lakhs
4
Equity Shares: (issued at Premium ` 2.50) 80 Lakh Shares x = 64 Lakh Shares issued at `
5
12.50 per Share.
Therefore, Total Value of Equity Shares (including Premium) (64 Lakh
800
Shares x ` 12.50)
Preference Shares:13% Cumulative Preference Shares of `10 each (35 Lakh Shares x `10) 350
Total Purchase Consideration 1,150

2. Realisation Account
Particulars ` Lakhs Particulars ` Lakhs
To Land and Buildings A/c 445 By Trade payables A/c 170
To Plant and Machinery A/c 593 By 10% Debentures A/c 600
To Furniture, Fixtures & Fittings A/c 114 By Outstanding Debenture 30
To inventories A/c 380 interest A/c 1,150
To Trade Receivables A/c 256 By P Ltd A/c
To Cash in Hand A/c 6
To Cash at Bank A/c 69
To Equity Shareholders A/c (bal. figure) 87
Total 1,950 Total 1,950

3. Journal Entries in the books of P Ltd (` Lakhs)

S.N. Particulars Dr. Cr.
1 Business Purchase A/c Dr. 1,150
To Liquidator of V Ltd A/c 1,150
(Being Purchase Consideration Due)
2 Land and Building A/c Dr. 445
Plant and Machinery A/c Dr. 593
Furniture, Fixtures and Fittings A/c Dr. 114
Inventories A/c Dr. 380
Trade Receivables A/c Dr. 256
Cash in Hand A/c Dr. 6
Cash at Bank A/c Dr. 69
Profit and Loss A/c Dr. 87

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

To 10.5% Debentures A/c 600

To Outstanding Interest A/c 30
To Trade Payables A/c 170
To Business Purchase A/c 1,150
(Being Assets and Liabilities taken over from V Ltd under amalgamation)
3 Liquidator of V Ltd A/c Dr. 1,150
To Equity Share Capital A/c 640
To 13% Cumulative Preference Shares A/c 350
To Securities premium A/c. 160
(Being discharge of consideration, by allotment of 64 Lakh Equity Shares of `
10 each at a premium of ` 2.50 per Share & 35 Lakh 13% Cumulative Pref.
Shares of ` 10 each at par)
4 10% Secured Cumulative Debentures A/c Dr. 600
To 10.5% Secured Cumulative Debentures A/c 600
(Being Secured Cumulative Debentures of V Ltd converted into 10.5%
Secured Cumulative Debentures of P Ltd)
5 Outstanding Debenture Interest A/c Dr. 30
To Bank A/c 30
(Being Outstanding Debenture Interest Paid by P Ltd)
6 Trade Payables A/c Dr. 7
To Trade Receivables A/c 7
(Being settlement of mutual liability)
7 Amalgamation Expenses A/c Dr. 2
To Cash A/c 2
(Being Amalgamation Expenses met by P Ltd)
8 Profit and Loss A/c Dr. 1
To Inventories A/c (5 x 20%) 1
(Being unrealized profit on Stock eliminated from the Inventories of P Ltd)

(c) The following was the Balance Sheet of A Ltd as on 31st December –
Equity and Liabilities `
(1) Shareholders’ Funds:
(a) Share Capital
24,000 Shares of ` 10 each 2,40,000
Less: Calls Unpaid (` 3 per Share on 6,000 Sh) (18,000)
(b) Reserves & Surplus – P&L A/c
As per Last B/Sheet (Loss b/fd) 44,000
(Less) Profit for the Year 2,400 (41,600)
(2) Current Liabilities:
(a) Trade Payables –Sundry Creditors 30,850
(b)Short Term Provisions –Provision for Taxation 8,000

Total 2,19,250
Assets
(1) Non-Current Assets:
(a)Fixed Assets: (i)Tangible Assets
- Land & Buildings 41,000
-Machinery 1,01,700
(ii) Intangible Assets – Goodwill 20,000
(b)Other Non-Current Assets
- Preliminary Expenses 3,000

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(2) Current Assets:

(a) Inventories 20,550
(b) Trade Receivables–Book Debts 30,000
(c) Cash & Cash Equivalents 3,000
Total 2,19,250
Note: Authorised Capital is ` 4,00,000 being 40,000 Equity Shares of ` 10 each.

The Directors have had a valuation made for the Machinery and find it overvalues by ` 20,000. It
is proposed to write down this asset to its true value and to extinguish the deficiency in the Profit
and Loss Account and to write off Goodwill and Preliminary Expenses, by adoption of the
following course –
(i) Forfeit the Shares on which the Call is outstanding.
(ii) Reduce the Paid-up Capital by ` 3 per Share.
(iii) Reissue the Forfeited Shares at ` 5 per Share.
(iv) Utilize the Provision for Taxes, if necessary.
The Shares on which the Calls were in Arrears were duly Forfeited and reissued on payment of ` 5
per Share. Give the Journal Entries and the Balance Sheet of the Company after carrying out the
above scheme. [10]

Answer:

Journal Entries

Particulars Debit(`) Credit(`)

1. Equity Share Capital A/c Dr. 60,000
To Calls in Arrears A/c 18,000
To Share Forfeiture A/c 42,000
(Being 6,000 Shares forfeited for non-payment of calls)
2. Equity Share Capital (` 10) A/c Dr. 1,80,000
To Equity Share Capital (` 7) 1,26,00
To Reconstruction A/c 0
(Being par value and paid up value of Equity Shares brought down to 54,000
` 7 per share under the reconstruction scheme approved)
3. Bank A/c Dr. 30,000
Share Forfeiture A/c (Balancing figure) Dr. 12,000
To Equity Share Capital 42,000
(Forfeited shares reissued at ` 5 per share as ` 7 paid up. Balance
adjusted against Shares Forfeiture Account)
4. Share Forfeiture A/c Dr. 30,000
To Capital Reserve A/c 30,000
(Balance in Share Forfeiture Account transferred to Capital Reserve)
5. Reconstruction A/c Dr. 54,000
Capital Reserve A/c Dr. 30,000
Provision for Taxation A/c (Balancing figure A/c) Dr. 600
To Profit and Loss A/c 41,600
To Preliminary Expenses A/c 3,000
To Machinery A/c 20,000
To Goodwill A/c 20,000
(Being balance in Reconstruction A/c and Capital Reserve A/c
utilized to eliminate overvaluation of assets and write off balances in
Preliminary Expenses A/c and Profit and Loss A/c)

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Balance Sheet of A Ltd. (and Reduced) as at 31st December

Particulars as at 31st December Note This Year Prev. Yr.
I Equity and Liabilities
(1) Shareholders’ Funds: Share Capital 1 1,68,000
(2) Current Liabilities
(a)Trade Payables -Creditors 30,850
(b)Short Term Provisions -Provision for Taxation (8,000 - 600) 7,400
Total 2,06,250
II Assets
(1) Non-Current Assets -Fixed Assets (Tangible Assets) 2 1,22,700
(2) Current Assets
(a)Inventories 20,550
(b)Trade Receivables -Book Debts 30,000
(c)Cash & Cash Equivalents –(3,000 + 30,000) 33,000
Total 2,06,250

Notes to the Balance Sheet:

Note 1: Share Capital
Particulars This Year Prev. Yr.
Authorized: 20,000 Equity Shares of ` 10 each 4,00,000
Issued, Subscribed & Paid up: 24,000 Equity Shares of ` 7 each 1,68,000
Note: Reconciliation of Shares (Quantity & Value) will be provided by the Company along with
annual Financial Statements.

Note 2: Tangible Assets

Particulars This Year Prev. Yr.
(a)Land & Building 41,000
(b)Machinery 81,700
Total 1,22,700

(d)

The Balance Sheet of Sreejith Ltd having an Authorised Capital of ` 1,000 Crores as on 31st March
is -
Equity and Liabilities `Crores
(1) Shareholders’ Funds:
(a) Share Capital
-Equity Shares of ` 10 fully paid in cash 250
(b) Reserves & Surplus – (Revenue) 750
(2) Current Liabilities:
Long Term Borrowings(i)Secured against
-Fixed Assets 300
-Working Capital 100
(ii)Unsecured Loans 600
(3) Current Liabilities 2,000
Total 4,000
Assets
(1) Non-Current Assets:
(a)Fixed Assets: (i)Tangible Assets

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Gross Block 800

Less: Depreciation 200 600
(b)Non-Current Investments at Cost 400
(Market Value ` 1,000 Crores)
(2) Current Assets: 3,000
Total 4,000
Note: Capital Commitments: ` 700 Crores.

The Company consists of 2 Divisions-

1. Establishment Division whose Gross Block was ` 200 crores and Net Block was ` 30 Crores,
Current Assets were ` 1,500 Crores and Working Capital was ` 1,200 Crores, the entire
amount being financed by Shareholders’ Funds.
2. The Project Division to which the remaining Fixed Assets, Current Assets and Current Liabilities
related.

The following scheme of reconstruction was agreed upon:

1. Two new Companies Sunrise Ltd and Moonrise Ltd are to be formed. The Authorised Capital
of Sunrise Ltd is to be R.s 1,000 Crores. The Authroised Capital of Moonrise Ltd is to be ` 500
Crores.
2. Moonrise Ltd is to take over investments at ` 800 crores and Unsecured Loans at Balance
Sheet value. It is to allot Equity Shares of ` 10 each at par to the members of Sreejith Ltd in
satisfaction of the amount due under the arrangement.
3. Sunrise Ltd. is to take over the Fixed Assets and Net Working Capital of the new project
division along with the Secured Loans and Obligation for Capital Commitments for which
Sreejith Ltd. is to continue to stand guarantee at book values. It is to allot one Crore Equity
Shares of ` 10 each as consideration to Sreejith Ltd. Sunrise Ltd. made an issue of Unsecured
Convertible Debentures of ` 500 Crores. Carrying interest at 15% per annum and having a
right to convert into Equity Shares of ` 10 each at per five years hence. This issue was made
to the members of Sunrise Ltd as a right who grabbed the opportunity and subscribed in full.
4. Sreejith Ltd. is to guarantee all Liabilities transferred to the 2 companies.
5. Sreejith Ltd. is to make a Bonus issue of Equity Shares in the ratio of one Equity Share for every
Equity Share held by making use of the Revenue Reserves.

Assume that the above scheme was duly approved by the Honourable High Court and that there
are no other transactions, you are asked to (ignore taxation):
 Pass Journal Entries in the Books of Sreejith Ltd and
 Prepare the Balance Sheets of Sreejith Ltd. after the scheme of reconstruction. [10]

Answer:

1. Calculation of Assets/Liabilities transferred

Particulars Establishment Division New Project Division total
1.Fixed Assets: Gross Block 200 600 800
Less: Depreciation 170 30 200
Net Block 30 570 600
2.Current Assets 1,500 1,500 3,000
Less: Current Liabilities (balancing figure) 300 1,700 2,000
Net Current Assets 1,200 Balancing figure)(200) 1,000

2. Purchase Consideration:
(a) For Transfer to Moonrise (Net Assets) = Investments 800 Less Unsecured Loan 600 = ` 200 Crores

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Discharged to members of Sreejith Ltd. by issue of 20 Crore Shares of ` 10.

(b) For Transfer to Sunrise Ltd (Payment) = ` 10 Crores
Discharged to Sreejith Ltd by issue of 1 Crore Shares of ` 10 each.

3. Journal of Sreejith Ltd. (` in Crores)

Particulars Debit Credit
1. Moonrise Ltd A/c Dr. 800
To Investments A/c 400
To Members A/c 400
(Being transfer of Investments at agreed value of ` 800 Crores under the
scheme of reconstruction approved by the High Court)
2. Unsecured Loans A/c Dr. 600
To Moonrise Ltd A/c 600
(Being Unsecured Loans taken over by Moonrise Ltd under the scheme of
reconstruction approved by the High Court)
3. Members A/c Dr. 200
To Moonrise Ltd A/c 200
(Being allotment by Moonrise Ltd of ` 20 Crore Equity Shares of ` 10 each
to the members of the Company)
4. Members A/c Dr. 200
To Capital Reserve A/c 200
(Being balance in Members A/c transferred to Capital Reserve)
5. Sunrise Ltd A/c Dr. 10
Provision for Depreciation A/c Dr. 30
Secured Loans against Fixed Assets A/c Dr. 300
Secured Loans against Working Capital A/c Dr. 100
Current Liabilities A/c Dr. 1,700
To Fixed Assets A/c 600
To Current Assets A/c 1,500
To Capital Reserve A/c (balancing figure) 40
(Being Assets and Liabilities of New Project Division transferred to Sunrise
Ltd along with Secured Loans and Capital Commitments of ` 700 Crores,
the difference between Consideration and the Book values at which
transferred Assets and Liabilities appeared being credited to Capital
Reserve)
6. Equity Share of Sunrise Ltd A/c Dr. 10
To Sunrise Ltd A/c 10
(Being 1 Crore Equity Shares of ` 10 received from Sunrise Ltd in full
discharge of consideration on transfer of assets and liabilities of New
Project Division)
7. Revenue Reserves A/c Dr. 250
To Equity Share Capital A/c 250
(Being allotment of 25 Crores Equity Shares of ` 10 each as fully paid
Bonus Shares to the members of the Company by using Revenue
Reserves in the ratio of one Equity Share for every share for every share
held)
(Note: Any other alternative entries, with same net effect on Various Accounts may be given)

4. Balance Sheet of Sreejith Ltd after scheme of reconstruction

(` Crores)
Particulars as at 31st March Note This Year Prev. Yr.

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I Equity and Liabilities

(1) Shareholders’ Funds:
(a) Share Capital 1 500
(b) Reserves & Surplus 2 740
(2) Current Liabilities 300
Total 1,540
II Assets
(1) Non-Current Assets
(a) Fixed Assets -(Tangible Assets) 3 30
(b) Non-Current Investments 4 10
(2) Current Assets 1,500
Total 1,540
Details of Guarantees given 5 Note below

Notes to the Balance Sheet (` Crores)

Note 1: Share Capital
Particulars This Year Prev. Yr.
Authorized: 100 Crore Equity Shares of ` 10 each 1,000
Issued, Subscribed & Paid up: 50 Crore Equity Shares of ` 10 each, fully 500
paid up (of the above shares, 25 Crores Fully Paid Equity Shares of ` 10
each have been issued as Bonus by Capitalisation of Revenue Reserves)

Note 2: Reserves and Surplus

Particulars This Year Prev. Yr.
(a)Capital Reserve on transfer of:
- Investments to Moonrise Ltd 200
- Business of New Project Division to Sunrise 40 240
(b) Revenue Reserves (750 – 250 for Bonus Issue) 500
Total 740

Note 3: Tangible Assets

Particulars This Year Prev. Yr.
Gross Block 800
Less: Transfer to Sunrise (600)
Less: Provision for Depreciation (200 – Transfer to Sunrise 30) (170)
Total 30

Note 4: Non-Current Investments

Particulars This Year Prev. Yr.
In wholly owned Subsidiary Sunrise (1 Crore Equity Shares of ` 10 each) 800

Note 5: Contingent Liabilities, Guarantees and Capital Commitments

Particulars This Year Prev. Yr.
Guarantee by Sreejith Ltd against: 700
(a) (i)Capital Commitments
(ii) Liabilities transferred to Sunrise Ltd
Secured Loans against Fixed Assets 300
Secured Loans against Working Capital 100
Current Liabilities 1,700 2,100
(b)Liabilities transferred to Moonrise Ltd. 600

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Question No. 3: Answer to question No. 3(a) is Compulsory. Also answer any one from the
remaining sub-questions

(a) (i) The following balances are extracted from the Balance Sheets of Upul Ltd and Vipul
Ltd.
Particulars Upul Ltd Vipul Ltd
Bills Payable 1,50,000 90,000
Trade Creditors 1,00,000 1,40,000
Bills Receivable 70,000 1,00,000
Trade Debtors 1,60,000 1,40,000
Contingent Liability for Bills discounted 40,000 30,000
Additional Information –

(i) Vipul Ltd is wholly owned Subsidiary of Upul Ltd.

(ii) Creditors of Vipul Ltd include `50,000 due to Upul for goods supplied by it for `60,000. Debtors
of Upul however shows a Debit balance of ` 60,000 due from Vipul. Vipul had remitted
`10,000 by Demand Draft to Upul which was not received by Upul on the Balance Sheet date.
(iii) Bills Payable of Vipul include `60,000 drawn in favour of Upul Ltd. Upul had discounted Bills
worth ` 24,000 with its Bankers.
Determine how the above given balances will be disclosed in the Consolidated Balance Sheet
of Upul Ltd. [6]

Answer:

(i)
Particulars Bills P’ble Bills R’ble Creditors Debtors Cont. Liab.
Upul Ltd 1,50,000 70,000 1,00,000 1,60,000 40,000
Vipul Ltd 90,000 1,00,000 1,40,000 1,40,000 30,000
Total before adj. Mutual Owings 2,40,000 1,70,000 2,40,000 3,00,000 70,000
Less: Mutual Owings
For goods supplied --- --- (50,000) (60,000) ---
Bills drawn in favour of Upul (Only to the (36,000) (36,000) --- --- ---
extent not discounted is reduced)(60,000
– 24,000)
Bills Discounted (only Mutual Bills --- --- --- --- (24,000)
Discounted is reduced)
Balance for Consolidated Balance Sheet 2,04,000 1,34,000 1,90,000 2,40,000 46,000
Note: In addition to the above, in the Consolidated Balance Sheet, `10,000 will be shown as
“Remittance-in-Transit” under Current Assets after Trade Debtors and Bills Receivable.

(ii) Uniformity in Accounting Policies is necessary for consolidation purposes. [5]

Answer:

Uniformity in Accounting Policies:

 Uniform Accounting Policies: Consolidated Financial Statements should be prepared
using uniform accounting policies for like transactions and other events in similar
circumstances.
 Adjustment for Different Accounting Policies: If a member of the group uses accounting
policies other than those adopted in the Consolidated Financial Statements for like

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transactions and events in similar circumstances, appropriate adjustments are made to

its Financial Statements when they are used in preparing the Consolidated Financial
Statements.
 Adjustments not possible for different Accounting Policies: If it is not practicable to use
uniform accounting policies in preparing the Consolidated Financial Statements, that
fact should be disclosed together with the proportions of the items in the Consolidated
Financial Statements to which the different accounting policies have been applied.
 Adjustments in case of Consolidation for the first time: Any adjustments to Opening
Balances, consequent to applying uniform accounting policies to the entities in the
group, could be adjusted in the Opening Balances of Reserves. When a charge to
reserves is required, and there are inadequate reserves to support the charge, the
amount of shortfall in Reserves could be adjusted by charging the same to the Opening
Balance of Accumulated Losses.

(b) Mathi Ltd acquired 8,000 Shares of `100 each in Nidhi Ltd on 30.09.2012. The summarized
Balance Sheets of the two Companies as on 31.03.2013 were as follows –
(`’000)
Equity and Liabilities Mathi Nidhi
(1) Shareholders’ Funds:
(a)Share Capital (` 100) 3,000 1,000
(b)Reserves & Surplus
-Capital Reserve --- 550
-General Reserve 300 50
-Profit & Loss A/c 382 180
(2)Non-Current Liabilities:
-Long Term Borrowings
(Loan from Nidhi Ltd) 21 ---
(3)Current Liabilities:
Trade Payables
-Sundry Creditors 179 70
-Bills Payable --- 17
(incl. ` 5,000 to Mathi Ltd)
Total 3,882 1,867
Assets
(1) Non-Current Assets:
(a)Fixed Assets 1,500 1,447
(b)Non-Current Investments
-Investments in Nidhi Ltd 1,700 ---
(2)Current Assets:
(a)Inventories 400 200
(b)Trade Receivables
-Debtors 250 180
-Bills Receivable 12 ---
(incl. ` 5,000 to Nidhi Ltd)
(c)Cash & Cash Equivalents 20 20
(d)Short Term Loans & Adv.
-Loan to Mathi Ltd --- 20
Total 3,882 1,867

Contingent Liability (Mathi Ltd.): Bills discounted of ` 6,000.

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Additional information:
1. Nidhi Ltd made a Bonus issue on 31.03.2013 of one share for every two shares held, reducing
the Capital Reserve equivalently, but the accounting effect to this has not been given in the
above Balance Sheet.
2. Interest receivable for the year (`1,000) in respect of the loan due by Mathi Ltd. to Nidhi Ltd
had not been credited in the accounts of Nidhi Ltd.
3. The credit balance in Profit & Loss Account of Nidhi Ltd. on 01.04.2012 was `21,000.
4. The Directors decided on the date of the acquisition that the Fixed Assets of Nidhi Ltd were
overvalued and should be written down by `50,000. Consequential adjustments on
depreciation are to be ignored.
Prepare the Consolidated Balance Sheet as at 31.03.2013, showing your workings. [15]

Answer:
1. Basic Information
Company Status Dates Holding Status
Holding Company = Mathi Ltd Acquisition: 30.09.2012 Holding Company = 80%
Subsidiary = Nidhi Ltd Consolidation: 31.03.2013 Minority Interest = 20%

2. Analysis of Reserves and Surplus of Nidhi Ltd.

(a) Capital Reserve
Balance as on date of Consolidation ` 5,50,000 Remarks
Less: Bonus Issue (`10,00,000 x ½) ` 5,00,000 The entire balance is considered
Corrected Balance ` 50,000 as Capital Profit

(b) Revaluation of Assets: Loss (`50,000) = Capital Profit

(c) General Reserve

Balance as per B/s `50,000

As on 01.04.12 (Date of previous B/s) 01.04.09 to 31.03.13 (upto Consolidation)

`50,000. ` NIL (balancing figure)

Assumed that entire balance is available Revenue Reserve

on this date Capital Profit
(d) Profit and Loss Account

Balance as on date of Consolidation ` 1,80,000

Add: Interest on Loan to Mathi (Given) ` 1,000
Corrected Balance ` 1,81,000

Balance on 01.04.12 Profit for 2012 – 13 (Balancing Figure) ` 1,60,000

(Date of previous B/s)
` 21,000
Upto date of acquisition 01.04.12 to Acquisition to Consolidation 30.09.2012
30.09.12 `1,60,000 x 6/12 to 31.03.2013 `1,60,000 x 6/12

Capital Profit ` 80,000 Revenue Profit ` 80,000

Total Capital Profits: 21,000 + 80,000 = ` 1,01,000, Total Revenue Profits: ` 80,000.

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

3. Consolidation of Balances
Particulars Total Minority Pre- Post Acquisition
Nidhi Ltd (Holding 80%, Minority 20%) Interest Acquisition Gen. Res. P&L A/c
Equity Capital [` 10,00,000 + Bonus 15,00,000 3,00,000 12,00,000
Shares ` 5,00,000]
General Reserves 50,000 10,000 40,000
Profit and Loss A/c 1,81,000 36,200 80,800 64,000
Capital Reserve 50,000 10,000 40,000
Loss on Revaluation of Assets (50,000) (10,000) (40,000)
Minority Interest 3,46,200
Total [Cr] 13,20,800 64,000
Cost of Investment [Dr.] (17,00,000)
Parent’s Balances 3,00,000 3,82,000
For Consolidated Balance Sheet 3,46,200 (3,79,200) 3,00,000 4,46,000
(Goodwill)

4. Consolidated Balance Sheet of Mathi Ltd and its Subsidiary Nidhi Ltd as at 31.03.13

Particulars Note This Year Prev. Yr.

I EQUITY AND LIABILITIES
(1) Shareholders’ Funds:
(a) Share Capital 1 30,00,000
(b) Reserves & Surplus 2 7,46,000
(2) Minority Interest 3,46,200
(3) Current Liabilities: Trade Payables 3 2,61,000
Total 43,53,200
II ASSETS
(1) Non-current Assets
Fixed Assets: (i) Tangible Assets 28,97,000
(15,50,000+14,47,000-Revaln 50,000)
(ii) Intangible Assets – Goodwill on Consolidation 3,79,200
(2) Current Assets
(a) Inventories = 4,00,000 + 2,00,000 6,00,000
(b) Trade Receivables 4 4,37,000
(c) Cash & Cash Equivalents = 20,000 + 20,000 40,000
Total 43,53,200
Contingent Liability for Bills Discounted ` 6,000.

Notes to the Balance Sheet

Note 1: Share Capital
Particulars This Year Prev. Yr.
Authorized: ……………Equity Shares of ` 100 each
Issued, Subscribed & Paid Up: 30,000 Equity Shares of ` 100 each. 30,00,000

Note 2: Reserves and Surplus

Particulars This Year Prev. Yr.
(a) Other Reserves - General Reserve 3,00,000
(b) Surplus (Balance in P&L A/c) 4,46,000
Total 7,46,000

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Note 3: Trade Payables

Particulars This Year Prev. Yr.
(a) Sundry Creditors 2,49,000
(b) Bills Payable 12,000
Total 2,61,000

Note 4: Trade Receivables

Particulars This Year Prev. Yr.
(a) Sundry Debtors (2,50,000 + 1,80,000) 4,30,000
(b) Bills Receivable (12,000 – 5,000 Mutual Owings) 7,000
Total 4,37,000
Note: Fixed Assets have been revalued for the purpose of consolidation, and the depreciation
on the Revaluation Loss has been ignored as it is specifically stated in the question.

(c) On 31.03.2013, R Ltd. acquired 1,05,000 Shares of S Ltd. for ` 12,00,000. The Trial Balance of S
Ltd. on that date was as under -

Trial Balance as at 31.03.2013

Dr. Cr
Particulars Amount Amount
(`) (`)
Equity Shares (1,50,000 @ ` 10) - 15,00,000
Pre – incorporation Profits - 30,000
Profit and Loss Account - 60,000
Creditors - 75,000
Fixed Assets (Tangible) 10,50,000 -
Current Assets 6,15,000
16,65,000 16,65,000

On 31.03.2014, the Trial Balance of the two Companies were as follows -

Trial Balance as at 31.03.2014

R Ltd. S Ltd.
Particulars Amount Amount Amount Amount
(`) (`) (`) (`)
Equity Shares of ` 10 each fully paid (before Bonus
Paid) - 45,00,000 - 15,00,000
Securities Premium - 9,00,000 - -
Pre – incorporation Profits - - - 30,000
General Reserve - 60,00,000 - 19,05,000
Profit and Loss Account - 15,75,000 - 4,20,000
Creditors - 5,55,000 - 2,10,000
Fixed Assets (Tangible) 79,20,000 - 23,10,000 -
Investments (1,05,000 Equity Shares in S Ltd at cost) 12,00,000 - - -
Current Assets 44,10,000 - 17,55,000 -
1,35,30,000 1,35,30,000 40,65,000 40,65,000
Directors of S Ltd. made a bonus issue on 31.03.2014 in the ratio of one Equity Share of ` 10
each fully paid for every two Equity Shares held on that date.
Calculate as on 31.3.2014 (i) Cost of Control/Capital Reserve; (ii) Minority Interest; (iii)
Consolidated Profit and Loss Account in each of the following cases: (1) Before issue of Bonus

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Shares; (2) Immediately after the issue of Bonus Shares. It may be assumed that Bonus Shares
were issued out of Post-Acquisition Profits by using General Reserve.
Prepare a Consolidated Balance Sheet after the Bonus Issue. [15]

Answer:

1. Basic Information
Company Status Dates Holding Status
Holding Company =R Ltd. Acquisition: 31.03.2013 Holding Company = 70%
Subsidiary = S Ltd. Consolidation: 31.03.2014 Minority Interest = 30%

2. Analysis of Reserves and Surplus of S Ltd.

(a) Pre-lncorporation Profits = ` 30,000 – Capital Profit

(b) General Reserve
Before Bonus Issue After Bonus Issue

As 19,05,000 As on 31.3.2014 19,05,000

on 31.3.2014 Less: Bonus Issue 7,50,000 (15 Lacs x 1/2)
Corrected Bal 11,55,000
As on 01.04.13 Tfr between 01.04.13 &
NIL 31.3.2014
Capital 19,05,000 01.04.2013 Tfr between 1.4.13 & 3
Revenue NIL 1.3.14 11,55,000
Capital Revenue

(c) Profit & Loss Account

As on 31.03.2014 ` 4,20,000
As on 01.04.2013 60,000 Profits between 01.04.2013 & 31.03.20143,60,000
Capital Revenue
3. Analysis of Net Worth of S Ltd.
Before Bonus Issue After Bonus Issue
Particulars
Total R Minority Total R Minority
100% 70% 30% 100% 70% 30%
(a) Share Capital 15,00,000 15,00,000
Add: Bonus Issue – 10,50,000 4,50,000 7,50,000 15,75,000 6,75,000
15,00,000 22,50,000
(b) Capital Profits 63,000 27,000 63,000 27,000
30,000 30,000
Pre Incorporation Profits 13,33,500 5,71,500 8,08,500 3,46,500
NIL NIL
General Reserve 2,52,000 1,08,000 2,52,000 1,08,000
60,000 60,000
Profit and Loss Account
(c) Revenue Reserve: Gen. Reserve 90,000 90,000
(d) Revenue Profits: P & L A/c 19,05,000 11,55,000
3,60,000 3,60,000
Minority Interest 11,56,500 11,56,500

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

4. Cost of Control
Particulars Before Bonus Issue After Bonus Issue
Cost of Investment 12,00,000 12,00,000
Less: (a) Nominal Value of Share Capital (10,50,000) (15,75,000)
(b) Share in Capital Profits (63,000) (63,000)
Goodwill / Capital Reserve on Consolidation 87,000 (4,38,000)

5. Consolidation of Reserves & Surplus

Before Bonus Issue After Bonus Issue
Particulars
Gen. Res. P&L A/c Gen. Res. P&L A/c
Balance as per Balance Sheet of R Ltd. 60,00,000 15,75,000 60,00,000 15,75,000
Add: Share of Revenue 13,33,500 2,52,000 8,08,500 2,52,000
Consolidated Balance 73,33,500 18,27,000 68,08,500 18,27,000

Name of the Company: R Ltd. And its subsidiary S Ltd.

Consolidated Balance Sheet as at 31st March 2014
Ref Particulars Note As at 31st As at 31st
No. No. March, 2014 March, 2013
` `
A EQUITY AND LIABILITIES
1 Shareholders’ funds
(a) Share capital 1 45,00,000 -
(b) Reserves and surplus 2 99,73,500 -
(c) Money received against share - -
warrants
1,44,73,500 -
2 Minority Interest 11,56,500 -

3 Non-current liabilities
(a) Long-term borrowings - -
(b) Deferred tax liabilities (net) - -
(c) Other long-term liabilities - -
(d) Long-term provisions - -
- -
4 Current liabilities
(a) Short-term borrowings - -
(b) Trade payables - -
(c) Other current liabilities 3 7,65,000 -

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Ref Particulars Note As at 31st As at 31st

No. No. March, 2014 March, 2013
` `
(d) Short-term provisions - -
7,65,000 -

TOTAL (1+2+3+4) 1,63,95,000 -

B ASSETS

1 Non-current assets
(a) Fixed assets
(i) Tangible assets 4 1,02,30,000 -
(ii) Intangible assets - -
(iii) Capital work-in-progress - -
(iv) Intangible assets under development - -
(v) Fixed assets held for sale - -
(b) Non-current investments - -
(c) Deferred tax assets (net) - -
(d) Long-term loans and advances - -
(e) Other non-current assets - -
1,02,30,000 -
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 5 61,65,000 -
61,65,000 -
TOTAL (1+2) 1,63,95,000 -

Note 1. Share Capital

As at 31st As at 31st
March, 2014 March, 2013
Equity Shares 45,00,000

45,00,000

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Note 2. Reserve and Surplus :- Note 3. Current Liabilities :-

As at 31st As at 31st As at 31st As at 31st
March, 2014 March, 2013 March, 2014 March, 2013
General Reserve 68,08,500 - Bills Payable:-
Profit and loss 18,27,000 - - R Ltd 5,55,000 -
Capital reserve on 4,38,000 -
consolidation - S Ltd 2,10,000 -
Securities Premium 9,00,000 - 7,65,000 -
99,73,500 -

Note 4. Tangible Assets:- Note 5. Current Assets:-

As at 31st As at 31st As at 31st As at 31st
March, 2014 March, 2013 March, 2014 March, 2013
Fixed Assets Current Assets
- R Ltd 79,20,000 - - R Ltd 44,10,000 -
- S Ltd 23,10,000 - - S Ltd 17,55,000 -
1,02,30,000 - 61,65,000 -

Question No. 4: Answer to Question No. 4(a) is Compulsory. Also answer any two from the
remaining sub-questions.

(a) ‘An effective sustainability reporting cycle should benefit all reporting organizations.’ - Discuss.
[5]

Answer:

An effective sustainability reporting cycle should benefit all reporting organizations.

Internal benefits for companies and organizations can include:
 Increased understanding of risks and opportunities
 Emphasizing the link between financial and non-financial performance
 Influencing long term management strategy and policy, and business plans
 Streamlining processes, reducing costs and improving efficiency
 Benchmarking and assessing sustainability performance with respect to laws, norms, codes,
performance standards, and voluntary initiatives
 Avoiding being implicated in publicized environmental, social and governance failures
 Comparing performance internally, and between organizations and sectors

External benefits of sustainability reporting can include:

 Mitigating - or reversing - negative environmental, social and governance impacts
 Improving reputation and brand loyalty
 Enabling external stakeholders to understand company’s true value, and tangible and
intangible assets
 Demonstrating how the organization influences, and is influenced by, expectations about
sustainable development.

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 19
 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

(b) The capital structure of A Ltd. is as under:

 80,00,000 Equity shares of `10 each
 1,00,000 12% Preference shares of `250 each
 1,00,000 10% Debentures of `500 each
 Term loan from Bank (at 10%) = `450 lakhs.

The Company’s Profit and Loss Account for the year showed a balance PAT of `100 lakhs, after
appropriating Equity Dividend at 20%. The company is in the 40% tax bracket. Treasury Bonds
carry 6.5% interest, beta factor for the company may be taken at 1.5. The long run market rate of
return may be taken at 16.5%. Calculate EVA. [10]

Answer:

1. Profit and Loss Statement

Particulars Commutation ` lakhs
Profit before Interest and Taxes Balancing Figure 578.33
Less: Interest on Debentures 10% x `500 lakhs 50.00
Interest on Bank Term Loan 10% x `450 lakhs 45.00
Profit before tax 483.33
Less: Tax at 40% (`290.00 /60%) x 40% 193.33
Profit after tax Reverse Working 290.00
Less: Preference Dividend 12% x `250 lakhs 30.00
Residual Earnings for Equity Shareholders Reverse Working 260.00
Less: Equity Dividend 20% x `800 160.00
Net Balance in P&L Account Given 100.00

2. Computation of Cost of Equity (Ke) = Risk free rate + beta x ( market rate – risk free rate)
= 6.5% +1.5 (16.5% - 6.5%) =21.5%
3. Computation of WACC
Component Amount Ratio Individual Cost WACC
Equity `800 lakhs 800/2000=40% Ke =21.5% 8.60%
Preference `250 lakhs 250/2000=12.5% Kp = 12% 1.50%
Debt `950 lakhs 950/2000=47.5% Kd = Interest x (100 – tax rate) 2.85%
= 10% x (100% - 40%) = 6%
Total `2000 lakhs Ko 12.95%

4. Computation of EVA
Particulars ` lakhs
Profit before Interest and Taxes 578.33
Less: Taxes 193.33
Net Operating Profit After Taxes i.e. Return to providers of Capital 385.00
Less: Capital charge (Fair return to providers of capital) = WACC x 2,000 x 12.95% = 259
Capital Employed
Economic Value Added 126

(c) ADS Ltd. grants 1,000 employees stock options on 01.04.2010 at `40 (F.V. `10), when the
market price was `160.The vesting period is 2 ½ years and the maximum exercise period is
one year. 300 unvested options lapse on 01.05.2012. 600 options are exercised on 30.06.2013.
100 vested options lapse at the end of the exercise period. Pass Journal Entries giving
suitable narrations. [10]

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 20
 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Answer:

Journal Entries in the books of ADS Ltd.

Date Particulars Dr. (`) Cr.(`)
31.03.11 Employees compensation expenses account Dr. 48,000
To Employees stock option outstanding account 48,000
(Being compensation expenses recognized in respect of the
employees stock option i.e. 1,000 options granted to employees at
a discount of `120 each amortised on straight line basis over 2 ½
years)
Profit and loss account Dr. 48,000
To Employees compensation expenses account 48,000
(Being the transferred to profit and loss account at the end of the
year.)
31.03.12 Employees compensation expenses account Dr. 48,000
To Employees stock option outstanding account 48,000
( Being compensation expenses recognized in respect of the
employees stock option i.e. 1,000 options granted to employees at
a discount of `120 each amortised on straight line basis over 2 ½
years)
Profit and loss account Dr. 48,000
To Employees compensation expenses account 48,000
(Being the transferred to profit and loss account at the end of the
year.)
31.03.13 Employees stock option outstanding account Dr. 12,000
To General Reserve Account (W.N.1) 12,000
(Being excess of employees compensation expenses transferred to
general reserve account)
30.06.13 Bank account (600 x `40) Dr. 24,000
Employees stock option outstanding account Dr. (600 X `120) 72,000
To Equity Share capital account (600 x `10) 6,000
To Securities premium account (600 x `150) 90,000
( Being 600 employees stock option exercised at an exercise price
of `40 each)
01.10.13 Employees stock option outstanding account Dr. 12,000
To General Reserve Account 12,000
(Being Employees stock option outstanding account transferred to
General reserve account, on lapse of 100 options at the end of
exercise of option period.)

Working Notes (1):

On 31.03.2013, ADS Ltd. will examine its actual forfeitures and make necessary adjustments, if
any to reflect expenses for the number of options that have actually vested. 700 employees
stock options have completed 2½ years vesting period, the expense to be recognized during
the year is in negative
`
No. of options actually vested (700 x `120) 84,000
Less: Expenses recognized`(48,000+48,000) 96,000
Excess expenses transferred to general reserve 12,000

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

(d) (i) Discuss about the growing scope of Human Capital reporting. [5]
(ii) State the aspects covered in Corporate Environmental Accounting System. [5]

Answer:

(i) Growing scope of Human Capital Reporting:

 Recent Reporting Trends: In the recent years, there is a growing trend of shift from the
traditional focus on financial reporting of quantifiable resources (i.e. which can be
measured in monetary terms) to a more comprehensive approach of reporting under
which Human Resources are also considered as Measurable Assets of a Going Concern.
 Relevance: An organization is a dynamic entity and operates through the effort of its
human resources. The ratio of human to non-human capital indicates the degree of
labour intensity of an organisation. Comparison of the specific values of human capital
based on the organisation’s scales of wages and salaries with the general industry
standards can provide inputs on the Firm’s HR policies.
 Purpose: Human Capital Reporting provides scope for planning and decision-making in
relation to proper manpower planning. Such reporting can also bring out the effect of
various rules, procedure and incentives relating to work force. This can even act as an
eye opener for modifications of existing statutes, laws etc.
 Accounting: Business entities account for Fixed Assets on Historical Cost basis. Similarly,
employee related costs like cost of recruitment, training and orientation of employees,
etc. can be considered for the purpose of capitalization. An appropriate portion of such
capitalized costs can be amortised each year over the estimated years of effect of such
costs.
 Standards: Currently, there is no standard format for Human Capital Reporting. Generally,
the Human Capital Report contains data pertaining to number of employees,
employment and training policies, collective bargaining arrangements, industrial
disputes, pension and pay arrangement and number of disabled employees.

(ii) Environmental Accounting System should include aspects such as –

 Concept of National Income arising out of the use of Natural Resources;
 Concept of Costs incurred to make use of such Resources;
 Depreciation of Natural Resources;
 Valuation of Natural Resources;
 Disclosing the value of Natural Resources in the Balance Sheet;
 Contribution of Natural Resources to Industrial Development;
 Contribution of Industries to the Environment; and
 Extent to which changes in the environment due to business activities has affected social
well being.

Question No. 5 (Answer any three):

(a) Describe the working procedure of Public Accounts Committee. [5]

(b) Write a note on Indian Government Accounting Standards (IGAS) and list the IGAS Notified
by Government of India. [5]
(c) Discuss the objective and scope of IGAS 7 relating to Foreign Currency transactions and loss
or Gain by Exchange rate variation. [5]
(d) State the responsibilities of the Comptroller and Auditor General of India. [5]

Answer:

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 22
 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

(a) The representatives of the Ministries appear before the Committee when examining the
Accounts and Audit Reports relating to their Ministries. The Committee proceeds by way of
interrogation of witnesses.

The Comptroller and Auditor General is the “friend, philosopher and guide” of the
Committee. He attends the sittings of the Committee and assists it in its deliberations.

The Committee may appoint one or more Sub-Committees/ Sub Groups to examine any
particular matter. At the beginning of its term, the Committee appoints a few Working
Groups/Sub Committees to facilitate the examination of the various Accounts and Audit
Reports and Sub-Committee to consider the action taken by the Government on the
recommendations made by the Committee in its earlier Reports. If it appears to the
Committee that it is necessary for the purpose of its examination that an on the- spot study
should be made, the Committee may, either in its entirety or by dividing itself into Study
Groups decide to undertake tours to make an on-the-spot study of any project or
establishment. All discussions held during tour by the Committee/Study Groups, with the
representatives of the establishment, Ministries/Departments, non-official organisations,
Labour Unions etc. are treated as confidential and no one having access to the discussion,
directly or indirectly is to communicate to the Press or any unauthorized person, any
information about matters taken up during the discussions.

(b) GASAB is developing two types of Accounting Standards for the Government to address the
issues related with the existing cash system of accounting and its migration to the accrual
system of accounting in future. The standards being developed to make existing cash system
of accounting more transparent are called Indian Government Accounting Standards
(IGAS). The standards being developed for accrual system of accounting in the Government
are called Indian Government Financial Reporting Standards (IGFRS).
IGAS Notified by Government of India
• Guarantees given by Governments: Disclosure Requirements (IGAS1)
[Notified by the Govt. of India]
• Accounting and Classification of Grants-in-aid (IGAS2)
[Notified by the Govt. of India]
• Loans and Advances made by Governments (IGAS 3)
[Notified by the Govt. of India]
(c) Objective - Government may have foreign currency transactions and loss or gain arising due
to exchange rate variations. The objective of this standard is to provide accounting and
disclosure requirements of foreign currency transactions and financial effects of exchange
rate variations in terms of loss or gain in the financial statements. It also deals with the
requirements of disclosure of foreign currency external debts and the rate applied for
disclosure.

The principal issues in accounting and reporting for foreign currency transactions are to
decide which exchange rate to apply and how to recognise in the financial statements the
financial effects of exchange rate variations in terms of loss or gain.

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 Answer to MTP_Final_Syllabus 2012_Dec2014_Set 1

Scope - The Accounting Authority which prepares and presents the financial statements of
the Government under the cash basis of accounting, as defined in the Government
Accounting Rule 21 of GAR 1990 and Government Financial Rule 68 of GFR 2005 should
apply this Standard:
(a) in accounting and disclosure for transactions in foreign currencies;
(b) in accounting and disclosure for financial effects of exchange variations in terms of loss
or gain by exchange rate variation, and
(c) in disclosure of foreign currency external debts and the rate(s) applied for disclosure.

(d) Under section 10 of the Comptroller and Auditor General’s (Duties, Powers and Conditions of
Service) Act, 1971 (56 of 1971), the Comptroller and Auditor General shall be responsible-
(a) for compiling the accounts of the Union and of each State from the initial and subsidiary
accounts rendered to the audit and accounts offices under his control by treasuries,
offices or departments responsible for the keeping of such accounts; and
(b) for keeping such accounts in relation to any of the matters specified in clause (a) as may
be necessary;
Provided that the President may, after consultation with the Comptroller and Auditor General,
by order, relieve him from the responsibility for compiling-
(i) the said accounts of the Union (either at once or gradually by the issue of several orders); or
(ii) the accounts of any particular services or departments of the Union;
Provided further that the Governor of a State with the previous approval of the President and
after consultation with Comptroller and Auditor General, by order, relieve him from the
responsibility for compiling-
(i) the said accounts of the State (either at once or gradually by the issue of several orders); or
(ii) the accounts of any particular services or departments of the State;
Provided also that the President may, after consultation with the Comptroller and Auditor
General, by order, relieve him from the responsibility for keeping the accounts of any particular
class or character.
(2) Where, under any arrangement, a person other than the Comptroller and Auditor General
has, before the commencement of this Act, been responsible-
(i) for compiling the accounts of any particular service or department of the Union or of a
State, or
(ii) for keeping the accounts of any particular class or character, such arrangement shall,
notwithstanding anything contained in subsection (1), continue to be in force unless,
after consultation with the Comptroller and Auditor General, it is revoked in the case
referred to in clause (i), by an order of the President or the Governor of the State, as the
case may be, and in the case referred to in clause (ii) by an order of the President.

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 24