FH Examination (Summer) 2023

M.Com Sem IV (Choice Based) (2C00534)

Model Answer- Corporate Financial Accounting (Sub Code 67501)

Q.1 ABC Ltd

Intrinsic value

Marks
Land and Buildings 15,00,000
Plant and Machinery 12,00,000
Non -Trade Investment 8,00,000
Stock 7,00,000
Sundry Debtors 4,00,000
Bills receivable 10,00,000
Cash/Bank Balance 4,20,000
Total A 60,20,000 3.5
Less: liabilities
8% Debentures 10,00,000
Creditors 6,00,000
Bills Payable 1,00,000
Provision for tax 2,00,000
Proposed dividend 1,00,000
Total B 20,00,000 2.5
Net assets A-B 40,20,000
Less preference share capital 10,00,000 1
Net assets available to equity shareholder 30,20,000 1
No of shares 2,00,000
Intrinsic Value per share Rs.15.10 2Marks

Yield method
Avenge profit 4,35,000 +,4,55,000, + 4,70,000 +4,80,000/4

= 4,60,000 2 marks
Profit available for Equity shareholder= 4,60,000 – 1,00,000 (Pref. div.)

= 3,60,000
ERR= 3,60,000/20,00,000 *100 = 18% 1marks

Yield Value per Share = ERR/NRR* Paid up value per share

18/10*10 = Rs.18 1marks
Fair value = Intrinsic Value + Yield Value /2
 = (15.10+18)/2 = Rs.16.55 1marks

OR
Q.1 A) Cost of Machine as per Ind AS 16

₹ Lakhs Marks
Price of machine 400.00 1
Less trade discount (2% of 400) 8.00 1
392.00
Add GST 18% 70.56 1
462.56
Add transport charges (0.25%of 400) 1.00 0.5
Installation Charges (1%of 400) 4.00 0.5
467.56 1
Add: Borrowing cost (400* 0.15* 2/12) 10.00 1
477.56
Add: Expenses on trial run 0.83 1
Cost of the Machine 478.39 1

Q.1 B) AC Ltd- Reportable segment

Segment Cars Bikes Tractors Cranes Forklifts Cycles Total

Revenue
External sales 240 120 100 260 120 -- 840
Inter-segment 500 20 160 40 40 140 900
sales
Total 740 140 260 300 160 140 1740
% of segment 42.52 8.04 14.94 17.24 9.19 8.04 100
Revenue to
Total Revenue
Reportable Yes Yes Yes
Marks 1 1 1 1 1 1
Decision:

The reportable segment will be cars, tractors and cranes . Mark 1

Q.2 Rakesh and Vivek Ltd

Consolidated Balance of Rakesh Ltd and its Subsidiary Vivek Ltd
As on 31st March, 2023
Particulars Note Rs. Marks
No.
I. Equity and Liabilities
1. Equity
a) Share Capital 1 4,50,000 1
b) Reserves & Surplus 2 1,36,500 1
c) Minority Interest/NCI 63,000 1
2. Current Liabilities
a) Trade Payables 3 55,000 1

Total 7,04,500 1/2

II- Assets
1. Non-Current Assets
a) Fixed Assets/PPE(Tangible) 4 5,10,000 1

2. Current Assets
a) Inventories 5 74,500 1
b) Trade Receivables 6 55,000 1
c) Cash and Cash Equivalent 7 65,000 1
Total 7,04,500 1/2

Notes to Balance Sheet:

1. Share Capital:
Issued & Paid Up
Equity Shares of Rs.10 each 4,50,000
2. Reserves & Surplus/Other Equity
Capital Reserve 12,500
Reserve Fund 80,000
Consolidated P/L A/c 44,000 1,36,500
3. Trade Payables
Creditors (25,000 + 15,000) 40,000
Less: Mutual dues 7,500 32,500
Bills Payables (20,000 + 10,000) 30,000
Less: Mutual dues 7,500 22,500
55,000

4. Tangible Fixed Assets/PPE

Machinery ( 3,50,000 + 75,000) 4,25,000
Furniture (50,000 + 35,000) 85,000 5,10,000

5. Inventories (50,000 + 25,000 – 500 { 74,500

Unrealised Profit)
6. Trade Receivables
Debtors (30,000 + 17,500) 47,500
Less: Mutual Dues 7,500 40,000
Bills Receivable (12,500 + 10,000) 22,500
Less: Mutual Dues 7,500 15,000
55,000
7. Cash & Cash Equivalent
Bank (45,000 + 20,000) 65,000

Working Notes:
1. Proportion of Shareholdings Marks (1/2)
Particulars Shares Proportion Ratio
Equity shares held by Rakesh Ltd 7,500 60 3
Equity shares held by Vivek Ltd 5,000 40 2
Total 12,500 100 5

2. Ratio of Period: Marks (1/2)

1-4-2022 to 30-06-2022 1-7-2022 to 31-03-2023

3 Months 9 Months
1 3

3. Analysis of Profit/ Movement of Equity: Marks (2)

Particulars Capital Profits Revenue Profits
General Reserve 20,000 NIL
P/L as on 1.4.2022 2,500 Nil
P/L Current year 2,500 7,500
Total 25,000 7,500
Holding Co (Rakesh Ltd) {3/5} 15,000 4,500
Subsidiary Co (Vivek Ltd) {2/5} 10,000 3,000

4. Cost of Control/Goodwill: Mark (1)

Cost of Investment of Rakesh Ltd 77,500
Less: Paid up value of shares 75,000
Share of Capital Profit 15,000 90,000
Capital Reserve 12,500

5. Minority Interest/NC Interest: Mark (1)

Paid Up Value of Equity Share Capital 50,000
Add: Share in Capital Profit 10,000
Add: Share in Revenue Profit 3,000
Total 63,000
6. Consolidated Profit & Loss A/c: 1 Mark
Profit & Loss of Rakesh Ltd 40,000
Add: Share in Revenue Profit (4,500-500 {Unrealised Profit) 4,000
Total 44,000

OR
Q.2 Consolidated Balance Sheet of Honda Ltd. and its subsidiary Sony Ltd as on 31 st March,
2023

Particulars Note Amt. Marks

I Equity and Liabilities No
1. Equity
Equity attributable to shareholders of Honda Ltd.
Share Capital 1 2,40,00,000 1
Reserves and Surplus 2 90,95,000 1
Non-controlling Interest 3 47,25,000 1
2. Current liabilities

Trade Payable 4 52,00,000 1

Total 4,30,20,000
II Assets
1. Non-current Assets
PPE 5 2,93,00,000 1
2. Current Assets
Inventories 6 75,20,000 1

Trade Receivable 7 30,00,000 1

Cash and Cash Equivalent 8 32,00,000 1
Total 4,30,20,000

Notes to Account

No Particulars Amt Marks

1 Equity Share capital
Issued, subscribed and paid up:
18,00,000 Equity shares of ₹10 each fully paid 1,80,00,000
6,00,000 Preference Shares of ₹ 10 each, fully paid up 60,00,000
2,40,00,000
2 Retained Earnings
Credit balance of Honda Ltd.’s Profit & Loss Account 56,00,000
Less: Capital receipt wrongly credited 9,00,000
Add: Shares in Sony Ltd.’s Revenue Profit 4,20,000
 Less: Unrealized Profit 80,000
50,40,000
Reserves 1
Capital Reserve
Less Goodwill
26,55,000 55,000
General Reserve
26,00,000 40,00,000
40,55,000
90,95,000
3 Non-controlling Interest
Paid up value of 80,000 preference shares 8,00,000
Paid up value of 2,20,000 equity shares 22,00,000
1
Share in capital profit 15,85,000
Share in revenue profits 1,40,000
47,25,000
4 Trade payable
Honda Ltd. 32,00,000
Sony Ltd. 20,00,000 0.5
52,00,000
Less: Mutual Owings 8,00,000
44,00,000
Bills Payable Sony Ltd. 8,00,000
52,00,000
5 PPE
Land and Buildings (1,14,00,000 48,00,000) 1,62,00,000
Plant and Machinery (66,00,000+55,00,000) 1,21,00,000
Furniture (6,00,000+4,00,000) 10,00,000
2,93,00,000
6 Inventories (40,00,000+36,00,000 – U R Profit 80,000) 75,20,000
7 Trade receivable
Honda Ltd. 8,00,000
Sony Ltd. 30,00,000 0.5
38,00,000
Less: Mutual Owings 8,00,000
30,00,000
8 Cash and cash equivalent (24,00,000+8,00,000) 32,00,000

Working Notes: (4 Marks)

1) Current year Profit:

Opening Bal. of P & L Account 22,24,400

Less Preference Dividend 15% of 8,00,000 1,20,000
Less Equity Dividend 15% of 80,00,000 12,00,000
Less Dividend Distribution Tax 17% on 13,20,000 2,24,400
 6,80,000
Closing Balance P & L Account 36,00,000

Current Year Profit (Bal.Fig) 29,20,000

2) Revenue Profit:

Profit earned after 30th September 2022 = 29,20,000 x 6/12 = 14,60,000

Less Additional Depreciation on P&M 20,00,000x10/100x6/12= 1,00,000

Less Bonus issue 8,00,000

Net Revenue Profit 5,60,000

Honda Ltd.’s share 5,60,000 x 75/100 4,20,000

Non-controlling Shareholder Interest 5,60,000 x 25/100 1,40,000

3) Capital Profit:
Profit & Loss Account as on 1st April, 2022 22,24,400
Less: Dividend Paid 13,20,000

Tax paid 2,24,400

Cost of issue of shares 2,00,000 17,44,400

Add: General reserve as on 1st April, 2022 24,00,000

Profit earned till 30th Sept, 2022 14,60,000

Profit on revaluation of Plant 20,00,000 58,60,000

Capital Profit 63,40,000

Honda Ltd.’s share 63,40,000 x 75/100 47,55,000

Non-controlling Shareholder Interest (Capital Profit) 15,85,000

4) Calculation for Goodwill or Capital Reserve

Paid up value of (6,00,000+60,000) Equity Shares 66,00,000
Add Share in Capital Profit 47,55,000

Total Value 1,13,55,000

Less: Amount paid for acquiring shares 96,00,000

Less Dividend Received out of pre-acquisition 9,00,000 87,00,000

Capital Reserve 26,55,000
5)Unrealized Profit
 Closing stock 3,20,000 x 25/100 = ₹80,000
Q.3 Aqua Ltd.
1. Valuation of Goodwill
Solution Marks

Net Profit Before Tax 5,10,000 + 5,76,000 + 5,40,000

27,96,000 1
{FMP} +6,00,000 + 5,70,000 =

Average Profit = 27,96,,000/5 = Rs. 5,59,200 1

Capital employed

Assets

Land and Building 15,00,000

Machinery 9,00,000

Stocks 21,00,000
Debtors 9,30,000 54,30,000 2
Less: Liabilities
Bank overdraft 1,20,000
Creditors 4,62,000
Provision for Taxation 2,70,000
Proposed Dividend 4,50,000 13,02,000 2
Capital Employed 41,28,000 1

Normal Rate of Return is 10%

Capital Employed x NRR =
Normal Profit = Rs. 4,12,800 1
41,28,000x 10% =
Average Profit – Normal Profit =
Super Profit = Rs. 1,46,400 1
5,59,200 – 4,12,800

Super Profit x No. of year of

Goodwill = Rs. 7, 32,000 1
Purchase =
1,46,400 x 5 =
2. Net Asset Value of Equity Shares:

Net Assets 41,28,000 1

Add: Goodwill 7,32,000 1
Assets available for Equity 48,60,000 1
Shareholders
 Assets Available for Equityshareholders
= Number of Equity Shares

Intrinsic value of Share = 48,60,000 / 30,000 2

= Rs. 162

OR
Q.3 A) Calculation of weighted average number of shares

Particulars Date of Issue Period upto No. of shares Weighted Marks

31/03/2023 average shares
Opening 1/04/22 12 2,00,000 2,00,000 1
stock
Right shares 1/07/22 9 40,000 30,000 2
Bonus 1/10/22 12 40,000 40,000 2
Shares
Weighted 2,70,000 1
average

N.P. after Tax= 8,00,000 – 40% = 4,80,000 1Mark

Basic EPS = Earnings/Weighted Average Shares = 4,80,000/2,70,000 = Rs. 1.77 1Mark
Notes: As per IND AS 33, date of issue of Bonus Shares not to be considered and period is to
be taken from the date of commencement of the year

Q.3 B) X Ltd
The capitalization Rate is:
Total Borrowing cost/ Weighted average total borrowing *100

1,65,000 / 15,00,000 * 100 = 11% 2 Marks

Interest will be capitalized as under:

On Rs. 2,50,000 @11% p.a. for 9 months = Rs. 20,625 2 Marks

On Rs. 3,00,000 @11% p.a. for 4 months = Rs. 11,000 2 Marks

Total Borrowing cost to be capitalized= 31,625 1 mark

Q.4 A) Fill in the blanks with correct alternatives (Attempt any Eight) (08 Marks)

1 a. 2. c. 3. c. 4. a. 5. c.
6. d. 7. a. 8. c. 9. a. 10. b.

Q.4 B) Match the Following (Attempt any Seven) (07 Marks)

1 T 2. F 3. F 4. T 5. F
6. T 7. T 8. T 9. F 10. T

OR
Q.4) Short Notes on any three (15)
a. Financial Reporting Framework.

b. Scope of Ind AS 23
c. Balance Sheet method of Valuation of Shares.

d. International Financial Reporting Standard.

e. Measurement and treatment of Pre acquisition profit in Consolidated Financial
Statement.