CORPORATE ACCOUNTING

Illustration 1
Prepare a balance sheet in vertical form as at 31 st March, 2012 from the
following information of ABC Ltd as required under Part I of Schedule VI of the
Companies Act, 1995:

`. `.
Term loan 10,00,000 Loss for the year 3,58,000
Sundry creditors 11,45,000 Sundry debtors 12,25,000
Advances 3,72,000 Loans from debtors 2,00,000
Cash & bank balance 2,75,000 Provision for doubtful debts 20,200
Staff advances 55,000 Stores 4,00,000
Taxes payable 1,70,000 Fixed assets (WDV) 51,50,000
Securities premium 4,75,000 Finished goods 7,50,000
Loose tools 50,000 General reserve 20,50,000
investments 2,25,200 Capital work-in-progress 2,00,000
Additional Information

1) Share capital consists of :

a. 3,000 equity shares of ` 100 each fully paid up.
b. 10,000 – 10% redeemable preference shares of ` 100 each fully paid
up.
2) Term loans are secured.
3) Depreciation on assets ` 5,00,000.
4) Schedules need not be given. However, groupings should form part of the
answer.

Solution:

ABC Limited’s Balance Sheet

as on March 31, 2012 (`. In 000)
Note No. As on As on
31-3-2012 31-3-2012
Equity and Liabilities ` `
1) Shareholder’s funds:
(a) Share Capital A 13,00,000
(b) Reserve and Surplus B 21,67,000 34,67,000

2) Non-Current Liabilities 10,00,000

Long-term Borrowings (secured loans)
3) Current Liabilities
Trade Payable (Sundry Creditors) 11,45,000
Other Current Liabilities G 3,70,000 15,15,000

1
 4) Suspense Account (Balancing Figure)
Total Equity and Liabilities 27,00,000
86,82,000
Assets
Non-Current Assets
(1) Fixed Assets: I 53,50,000
Tangible Assets K 2,25,000
Non-Current investments 55,75,200
(assumed)

(2) Current Assets: O 12,00,000

a) Inventories P 12,04,800
b) Sundry Debtors Q 2,75,000
c) Cash & Cash Equivalents R 4,27,000
d) Short-Term loans 31,06,800
and Advances 86,82,000
Accompanying Notes to the Balance Sheet
A. Share Capital: `
3,000 Equity Shares of Rs. 100 each 3,00,000
10,000 – 10% Redeemable Preference Shares of Rs. 100 each 10,00,000
13,00,000
B. Reserve & Surplus:
Securities Premium 4,75,000
General Reserve 20,50,000
25,25,000
Less: Loss for the year 3,58,000
21,67,000
G. Other Current Liabilities
Loan from Debtors 2,00,000
Taxes Payable 1,70,000
3,70,000
I. Tangible Assets
Fixed Assets at cost 56,50,000
Less: Depreciation 5,00,000
Capital Work-in-progress 2,00,000
53,50,000
O. Inventories:
Finished Goods 7,50,000
Stores 4,00,000
Lose Tools 50,000
12,00,000
P. Sundry Debtors: 12,25,000
Less: Provision for Doubtful Debts 20,200
12,04,800

2
 Q. Cash and Cash Equivalents:
Cash & Bank Balance 2,75,000
R. Loans & Advances:
Advances 3,72,000
Staff Advances 55,000
4,27,000

Illustration 2

The authorised capital of X Ltd is `5,00,000 consisting of 2,000 (6%)

preference shares of `100 each and 3,000 equity shares of `10 each. Following
was the trial balance sheet of X Ltd as on 31-03-2012:
TRIAL BALANCE
As on 31-03-2012
Dr. Cr.
` `
Investment in shares at cost 50,000
Purchases 4,90,500
Selling expenses 79,100
Stock as on 1-4-2011 1,45,200
Salaries & Wages 68,500
Cash on hand 12,000
Interim preference dividend for the half year to 30-09-2011 6,000
Bills receivable 41,500
Investment on bank overdraft 7,800
Investment on debentures upto 30-9-2011 3,750
Sundry debtors and creditors 50,100 87,850
Freehold property at cost 4,86,500
Furniture at cost less depreciation of ` 15,000 35,000
6% Preference share capital 2,00,000
Equity share capital fully paid up 2,00,000
5% Mortgage debentures secured on freehold properties 1,50,000
Income Tax paid in advance for 2011-12 10,000
Dividends 4,250
Surplus A/c (1-4-2011) 28,500
Sales (Net) 6,70,350
Bank Over-draft secured by hypothecation of stocks and
receivables 1,50,000
Audit fees 5,000
14,90,950 14,90,950
You are required to prepare the statement of P&L for the year ended 31-3-2012
and the balance sheet as on that date after taking into account the following:
(a) Closing stock was valued at `1,42,500
(b) Salaries and wages include `5,000 worth of goods and articles distributed
among valued customers
(c) Salaries and wages include `2,000 being wages incurred for installation of
electrical fitting which were recorded under “Furniture”.

3
 (d) Bills receivables include ` 1,500 being dishonoured bills 50% of which had
been considered irrecoverable.
(e) Bills receivable of `2,000 maturing after 31-3-2012 were discounted.
(f) Depreciation on furniture is to be charged at 10% on written down value.
(g) Interest on debentures for half year ending on 31-3-2012 was due on that
date.
(h) Provide provision for taxation `4,000.
(i) Salaries debtors include `6,000 debts due for more than six months.
(j) Corporate dividend tax is to be ignored.

Solution:

X Ltd
PART II – STATEMENT OF PROFIT & LOSS
For the year ending 31st March, 2012 (` in 000)
Note Years Year
Particulars No. Ending Ending
31-3-2012 31-3-2011
I. Revenue from operations 1 670.35
II. Other income: Dividends 4.25

III. Total Revenue (I+II) 674.60

IV. Expenses:
Cost of goods sold: 2 488.20
Employees Benefits Expenses 3 56.50
Finance Costs 4 15.30
Depreciation 5 3.70
Other expenses 6 99.85

Total Expenses 663.55

V. Profit before tax (III – IV) 11.05

VI. Tax expenses: Provision for taxation
4.00
VII. Profit for the period (V – VI)
7.05

Note Forming Part of Statement of Profit and Loss

Revenue from Operations(`. In 000)

Years Ending Years Ending
31-3-2012 31-3-2011
Sales (Net) 670.35

4
 Cost of Goods Sold(`. In 000)
Years Ending Years Ending
31-3-2012 31-3-2011
Opening Stock 145.20
Add: Purchases 490.50
Cost of goods distributed among valued
customers treated as advertisement - 5.00
485.50
630.70
Less: Closing Stock 142.50
488.20

Employees Benefits Expenses(`. In 000)

Years Ending Years
31-3-2012 Ending
31-3-2011
Salaries & Wages 68.50
Less: Wages for installation of electrical fittings 2.00
capitalised 66.50
10.00
Less; Closing Stock 56.50

Finance Costs(`. In 000)

Years Years Ending
Ending 31-3-2011
31-3-2012
Investment on Bank Overdraft 7.80
Interest on Debentures (3,750 + 3,750 Outstanding) 7.50
15.30

Depreciation and Amortisation Expenses (`. In 000)

Years Years Ending
Ending 31-3-2011
31-3-2012
Depreciation on Furniture – 10% on Rs. 37.00 3.70
Other Expenses (`. In 000)
Years Ending Years
31-3-2012 Ending
31-3-2011
Selling Expenses 79.10
Advertisement Expenses (Goods distributed among
valued customers) 5.00
Director’s Remuneration 10.00
Audit fees 5.00
Bad debts 0.75
99.85

5
 X Ltd.
PART I – BALANCE SHEET
As on 31-3-2012 (`. In 000)
Note Figures as at Figures as at
Particulars No. 31-3-2012 31-3-2011
I. Equity and Liabilities
(1) Shareholders’ Funds
Share capital A 400.00
Reserve & Surplus B 29.55
429.55
(2) Non-Current Liabilities
Long-term borrowings C 150.00
(3) Current Liabilities
Trade Payable (Creditors) 87.85
Other Current Liabilities 153.75
G 4.00
Short-term provisions
H 245.60
Total of Equity and Liabilities (1) +(2) + (3) 825.15
II. Assets
Non-Current Assets
1) Fixed Assets
Tangible Assets 519.80
Non-current Investments I 50.00
K 569.80
2) Current Assets
Inventories 142.50
Trade Receivables O 90.85
Cash and Cash Equivalents P 12.00
Other Current Assets Q 10.00
S 255.35
Total oaf all Assets (1) + (2) 825.15

Notes Forming Part of Balance Sheet

Share Capital(`. In 000)

31-3-2012 31-3-2011
Authorised
2,000 (6%) Preference Shares of Rs. 100 each 200.00
30,000 Equity Shares of Rs. 10 each 300.00
500.00
Issued, Subscribed & Paid up capital
2,000 (6%) Pref. Shares of Rs. 100 each fully paid up 200.00
20,000 Equity Shares of Rs. 10 each fully paid up 200.00
400.00

6
 Reserve and Surplus(`. In 000)
31-3-2012 31-3-2011
Surplus
Balance as on 1-4-2011 28.50
Net Profit for the year ending 31-3-2012
7.05
Less: Interim Preference Dividend 1.05
6.00 29.55
Long-term Borrowings(`. In 000)
31-3-2012 31-3-2011
5% Mortgage Debentures (Secured on Freehold Property) 150.00
Other Current Liabilities(`. In 000)
31-3-2012 31-3-
2011
Interest on debentures outstanding 3.75
Bank overdraft (secured by hypothecation of stocks and
re 150.00
ceivables) 153.75
Tangible Assets(`. In 000)
31-3-2012 31-3-2011
Freehold Property (at Cost) 48.50
Furniture at Cost (35 + 15 Dep. + Addition)
52.00
Less: Depreciation to date (15 + 3.7) 33.30
18.70 519.80
Non-Current Assets((`. In 000)
31-3-2012 31-3-2011
Investment in Shares (at Cost) 50.00
Inventories(`. In 000)
31-3-2012 31-3-2011
Closing Stock (Finished Goods assumed) 142.50

Trade Receivables(`. In 000)

31-3-2012 31-3-2011
Sundry Debtors:
a). Debtors Out standings for a period -----
--- exceeding 6 months 6.00
b). Other Debtors 44.100
Dishonored Bill 1.50
Less: Bad Debts (50%) 0.75
0.75044.85

Bills Receivables 41.50 50.85

Less: Bills Dishonoured 1.50
40.00
90.85

7
 Cash and Cash Equivalents(`. In 000)
31-3-2012 31-3-2011
Cash in Hand 12.00
Other Current Assets(`. In 000)
31-3-2012 31-3-2011
Advanced Income Tax 10.00

T. Contingent Liabilities and Commitments

1. A contingent liability for bills discounted ` 2,000 which will mature after
31-3-2012.
2. Fixed preference dividend for half year @ 6% p.a. on ` 2,00,000
preference capital is not provided for the accounts.
Working Note:
(1) Calculation of depreciation and Gross value of furniture
`.
Furniture at cost less depreciation as on 1-4-2011 35,000
Add: installation of electrical fittings 2,000
37,000
Less: Depreciation 10% for 2011-12 3,700
33,300
Book value as at 31-3-2012 `.
Add: Accumulated depreciation up to 31-3-201115,000
Depreciation for 2011-12 3,70018,700
Furniture at cost 52,000

8
 Issue of Bonus Shares

Illustration 1(Bonus in the form of fully paid shares at par)

A company has a share capital of ` 7,50,000 in Equity shares of `10 each. Out of
the above 50,000 shares were issued and fully paid up. The company’s General Reserves
amounts to ` 5,00,000. The directors now propose to utilise the necessary amount from
the general reserve for the purpose of declaring a bonus of ` 2,50,000 as fully paid bonus
shares. The Articles of the company permit such a course and necessary sanction has
been obtained.
You are required to give journal entries in the books to record the new issue of
bonus shares.
Solution:
Journal Dr. Cr.
` `
General Reserve Account Dr. 2,50,000
To Bonus to Shareholders account 2,50,000
( being bonus decleared)
Bonus to Shareholders account Dr. 2,50,000
To Share Capital account 2,50,000
(Being utilization of bonus towards issue of ` 25,000
shares of ` 10 each, and distribution in the ratio of one
share for every two share held)

Illustration 2 (Bonus in the form of fully paid shares at premium)

A company has a share capital of ` 7,00,000 in Equity Shares of `10 each which
are quote in the market at Rs 20. The company now declares a bonus share of ` 6,00,000
out of its reserve and this bonus is to be paid by issue of fully paid Equity Shares of `10
each at a premium of ` 5 per share. Give journal entries to record the transactions.

Solution:
Journal Dr. Cr.
`. `.
Reserve Account Dr. 6,00,000
To Bonus to Shareholders Account 6,00,000
(Being the declared)
Bonus to Shareholders Account Dr. 6,00,000
To Share Capital Account 4,00,000
To Share Premium Account 2,00,000
(Being 40,000 bonus shares of ` 10 each
Issued at ` 15 each)

9
Internal Reconstruction
Illustration
The following is the Balance Sheet of Downhill Ltd. as at 31st March, 2015:

10
 Liabilities ` Assets `

20,000 Equity shares of ` 100 each 20,00,000 Goodwill 25,000

12% Debentures
5,00.000 Land and buildings 1,50.000
Outstanding debentures interest 1,20,000 Plant and machinery 3,00,000
Creditors 3,00,000 Furniture 80,000
Stock 2,70,000
Debtors 60,000
Cash at 35,000
bank 20,000.
Preliminary expenses 19,80,000
Profit and loss A/c 29,20,000
29,20,000 29,20,000
The following scheme of reconstruction is executed:
(i) Equity shares are reduced by `95 per share. They are, then, consolidated into
10,000 equity shares of `10 each.
(ii) Debenture holders agree to forego outstanding debenture interest. As a
compensation 12% Debentures are converted into 14% Debentures, the amount
remaining `. 5,00,000
(iii) Creditors are given the option to either accept 50% of their claim in cash in full
settlement or to convert their claim into equity shares of ` 10 each. Creditors for
`2,00,000 opt for shares in satisfaction of their claims.

(iv) To make payment to creditors opting for cash payment and to augment working
capital, the company issues 50,000 equity shares of ` 10 each at par, the entire
amount being payable along with applications. The issue was fully subscribed,
(v) Land and Buildings are revalued at ` 2,00,000 whereas Plant Machinery is to be
written down to ` 2,10,000. A provision amounting to ` 5,000 is to be made for
doubtful debts. Pass journal entries and draft the company's balance sheet
immediately after the reconstruction.

Solution
JOURNAL ENTRIES

Particulars Dr. ` Cr. `

11
 Equity share capital (Rs 100) A/c Dr. 19,00,000
To Capital reduction A/c 19,00,000
(Being reduction in the value of equity shares by ` 95
ach)
Equity share capital (100) A/c Dr. 1,00,000
To Equity share capital (` 10) A/c 1,00,000
[Being conversion of 20,000 equity shares of ` 100
each (` 5 paid-up) into equity shares of ` 10 each
(fully paid-up)] 5,00,000 5,00,000
Outstanding Debentures interest A/c Dr. 1,20,000
To Capital reduction A/c 1,20,000
(Being outstanding debentures interest foregone by
debenture holders)
12% Debentures A/c Dr. 5,00,000
To 14% Debentures A/c 5,00,000
(Being conversion of 12% debentures into 14%
debentures) 1,20,000
Bank A/c Dr. 5,00,000
To Equity share capital A/c 5,00,000
(Being 50,000 equity shares of `10 each issued for
cash and subscribed in full)

Creditors A/c Dr. 3,00,000

To Equity share capital (` 10) 2,00,000
A/c To Bank A/c 50,000
To Capital reduction A/c 5,000
(Being creditors of `1,00,000 paid in cash
equivalent to 50% of their claims and the rest issued
equity shares of Rs 10 each in full settlement)

Land and buildings A/c Dr. 50,000

To Capital reduction A/c 50,000
(Being Land & Buildings revalued at ` 2,00,000)
Capital reduction A/c Dr. 21,20,000
To Plant and machinery A/c 90,000
To Provision for doubtful debts A/c 5,000
To Goodwill A/c 25,000
To Preliminary expenses A/c 20,000
To P & L A/c 19,80,000
(Being balance of Capital reduction account utilised for
writing off the fictitious assets and accumulated losses)

Note:Capital Reduction Account balance has been completely utilized.

M/s. Downhill Ltd. (And reduced)Balance Sheetas on March 31, 2015

12
 Note No. As on As on
31-3-2015 31-3-2015
Equity and Liabilities ` `
1) Shareholder’s funds:
(e) Share Capital A 8,00,000
(f) Reserve and Surplus B - 8,00,000

2) Non-Current Liabilities
Long-term Borrowings (secured loans) 5,00,000
3) Current Liabilities
Trade Payable (Sundry Creditors) Nil
Other Current Liabilities G
4) Suspense Account (Balancing Figure)
Total Equity and Liabilities 13,00,000

Assets
Non-Current Assets
(5) Fixed Assets:
Tangible Assets I 4,90,000
Non-Current investments K -
(assumed)
(6) Current Assets:
i) Inventories
j) Sundry Debtors O 2,70,000
k) Cash & Cash Equivalents P 55,000
l) Short-Term loans Q 4,85,000
and Advances R - 8,10,000
Total Assets 13,00,000

Illustration
The following was the Balance Sheet of Continental Construction Ltd. as on
st
31 March 2015:

Liabilities ` Assets `

Authorised capital: 2,00,000 Goodwill 10,000

20,000 Equity shares of ` 10 each Land and building 20,500
Issued, Subscribed and Paid-up Machinery 50,850
capital

13
12,000 Shares of ` 10 each 1,20,000 1,11,000 Stock 10,275
Less: Calls in arrear: Book debts 15,000
(`3 per share on3,000 shares) 9,000 Cash at Bank 1.500
Sundry creditors 15,425 Profit and loss A/c
Provision for taxes 4,000 Balance as per last
balance-sheet 22,900
Less: Profit for the year 2,100 20,800
Preliminary expenses 1,500
1,30,425 1,30,425

The directors have had a valuation made of the machinery and find it over-valued
by `10,000. 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 the adoption of the following course:

1. Forfeit the shares on which the call is outstanding.

2. Reduce the paid-up capital by ` 3 per share.

3. Reissue the forfeited shares at ` 5 per share.

4. Utilise the provision for taxation, if necessary.

The shares on which the calls were in arrear were duly forfeited and reissued on
payment of ` 5 per share. You are required to draft the journal entries necessary and the
Balance Sheet of the company after carrying out terms of the scheme as set above.

Solution
JOURNAL ENTRIES
Particulars Dr.` Cr.`
Equity share capital A/c Dr. 30,000
To Calls in arrear 9,000
To Forfeited shares A/c 21,000
(Being forfeiture of 3,000 equity shares as per Board's
Resolution dated...)
14
Equity share capital A/c Dr. 27,000
To Capital reduction A/c 27,000
(Being reduction of the paid amount on existing
Bank A/c Dr. 15,000
Forfeited shares A/c Dr. 6,000
To Equity share capital A/c 21,000
(Being reissue of 3,000 shares of `10 each `7 paid-
Forfeited shares A/c Dr. 15,000
Provision for taxation A/c Dr. 300
To Capital reduction A/c 15,300
(Being transfer of balance in forfeited shares account
and part of Provision for taxation account to Capital
reduction account)
Capital reduction A/c Dr. 42,300
To Machinery 10,000
To Profit and loss A/c 20,800
To Goodwill 10,000
To Preliminary expenses 1,500
(Being writing off losses, preliminary expenses and
goodwill and reduction in the value of machinery by
` 10,000 as per the reconstruction scheme)

15
 Continental Construction Ltd. Balance Sheet
as on 31stMarch, 2015 (after reconstruction)
Note No. As on As on
31-3-2015 31-3-2015
Equity and Liabilities ` `
1. Shareholder’s funds:
(g) Share Capital A 84,000
(h) Reserve and Surplus B - 84,000

2. Non-Current Liabilities
Long-term Borrowings (secured loans) -
3. Current Liabilities
Trade Payable (Sundry Creditors) 15,425
Other Current Liabilities G 3,700 19,125

4. Suspense Account (Balancing Figure)

Total Equity and Liabilities 1,03,125
Assets
Non-Current Assets
(7) Fixed Assets:
Tangible Assets
Non-Current investments I 61,350
(assumed) K -
(8) Current Assets:
a) Inventories
b) Sundry Debtors O 10,275
c) Cash & Cash Equivalents P 15,000
d) Short-Term loans and Advances Q 16,500
Total Assets R - 41,775
1,03,125

16
Illustration 6
Follow are the Balance-Sheets of P Co. Ltd. and V Co. Ltd as on 31st March 2014:

P Co.Ltd.BALANCE SHEET
Liabilities ` Assets `
Share Capital: Fixed assets 2,00,000
10,000 shares of ` 10 each 1,00,000 Current assets 1,00,000
General reserve 1,00,000
Creditors 50,000
Debentures 50,000
3,00,000 3,00,000

V Co. Ltd.
BALANCE SHEET
Liabilities ` Assets `
Share Capital: 50,000 Shares in PCo. 2,000 shares 30,000
5,000 shares of `10 each 30,000 Fixed assets 50,000
General reserve 20,000 Current assets 20,000
Creditors
1,00,000 1,00,00

P Co. takes over V Co. The purchase consideration is to be satisfied in the form of
equity shares of P Co. issued on the basis of intrinsic values of shares of companies.
Pass the jounal entries in both the company’s books.
Solution
Intrinsic Value o/P Co. s shares: `
Assets (Fixed Assets + Current Assets) 3,00,000
Less: Liabilities (Creditors + Debentures) 1,00,000
Net assets 2,00,000
No. of shares
Intrinsic value of a share 2,00,000 + 10,000 = `20. 10,000
Intrinsic value VCo. s shares:
Fixed assets 50,000
Current assets 20,000
Shares in P Co. Ltd. 40,000
1,10,000
Less: Liabilities Net assets 20,000
Value of a share = 90,000 + 5,000 = `18
Purchase Consideration:
Net assets of V Co.
Value of a share of P Co. 90,000
No. of shares to be issued by P Co. to V Co. 20
4,500

However, V Co. holds 2,000 shares in P Co. V Co. will be allowed to keep these
shares since To. cannot purchase its own shares. Hence the number of shares to be
issued by P Co. to VCo. for mg over business will be (4,500 - 2,000) = 2,500.
Purchase consideration = 2,500 x 20 = Rs 50,000.
17
 Books of VCo.
JOURNAL ENTRIES
Particulars Dr. ` Cr. `
RealisationA/c Dr. 70,000
To Fixed assets 50,000
To Current assets 20,000
(Transfer of assets)
Creditors A/c Dr. 20,000
To Realisation 20,000
(Transfer of liabilities)
PCo. Dr. 50,000
To Realisation 50,000
(Purchase consideration due)
Shares in P Co. Dr. 50,000 50,000
To PCo.
(Receipt of purchase consideration)
Shares in P Co. Dr. 10,000 10,000
To Realisation A/c
(Revaluation of shares, already held by VCo. in
PCo.)
Share capital A/c Dr. 50,000
General reserve A/c Dr. 30,000
To Shareholders 80,000
A/c
(Transfer of share capital and reserve to
shareholders A/c)
Realisation A/c Dr. 10,000
To Shareholders A/c 10,000
(Profit on realisation)
Shareholders A/c Dr. 90,000
To Shares in PCo. 90,000
(Payment to shareholders)

REALISATION ACCOUNT
Particulars ` Particulars `
To Fixed assets 50,000 By Creditors 20,000
To Current assets 20,000 By P Co. 50,000
To Shareholders (Profit) 10,000 By Shares held by PCo. 10,000
80,000 80,000
SHAREHOLDERS ACCOUNT
Particulars ` Particulars `
By Share capital 50,000
To Shares in PCo. 90,000 By General reserve 30,000
By Realisation A/c (profit) 10,000
90,000 90,000
SHARES IN P CO.
18
 Particulars ` Particulars `
To Balance b/d 30,000 90,000
To PCo. 50,000 By Shareholders A/c
To Realisation A/c 10,000
90,000 90,000

Books of P Co.
JOURNAL ENTRIES
Particulars Dr. ` Cr.`
Business purchases A/c Dr. 50,000
To Liquidator of VCo. 50,000
(For purchase consideration due)
Fixed assets Dr. 50,000
Current assets Dr. 20,000
To Creditors A/c 20,000
To Business purchase A/c 50,000
(Taking over of assets and liabilities)
Liquidator of V Co. Dr. 50,000
To Share capital 25,000
To Securities premium 25,000
(Payment of purchase consideration)

19
Preparation of Profit and Loss Account

Illustration
From the following particulars, prepare a Profit and Loss Account of Maruthi
BankLtd., for the year ended 31.03.2014.
` (in ‘000) ` (in ‘ 000)
Interest on loans 350 Interest on cash credits 250
Interest on fixed deposits 320 Rent and taxes 20
Rebate on bills discounted 60 Interest on overdrafts 35
Commission charged to customers 12 Directors’ and Auditor’s fees 4
Establishment expenses 66 Interest on saving bank accounts 85
Discount on bills discounted 250 Postage and telegrams 3
Interest on current accounts 65 Sundry charges 1
Printing and advertisements 5
Solution:
Maruthi Bank Ltd.
Profit and Loss Account for the year ended 31.03.2014
Sched Year ended Year ended
ule 31.03.2014 31.03.2013
No. ` (in ‘ 000) ` (in ‘ 000)
I. Income
Interest earned 13 885
Other income 14 12
Total 897
II. Expenditure
Interest expended 15
470
Operating expenses 16
93
Total
III. Profit/Loss: 563
Net Profit for the year (I-II)
Profit brought forward 334
Total -
IV. Appropriations: 334
Transfer to statutory reserve (25%of 334)
Transfer to other reserves 83.5
Transfer to Government/proposed - -
dividend -
250.5
Balance carried over to balance sheet
334
Working notes:

20
 Schedule 13: Interest earned
` (in ‘000)
Interest on loans 350
Discount on bills discounted 250
Interest on cash credits 250
Interest on overdraft 35
Total 885
Note: Rebate on bills is the closing rebate and it will be shown in schedule 5 in Balance Sheet
Schedule 14: Other income
Commission charged to customers 12
Total 12
Schedule 15: Interest expended
Interest on fixed deposits 320
Interest on current accounts 65
Interest on savings bank accounts 85
470
Schedule 16: Operating expenses
Establishment expenses 66
Printing and Advertisements 5
Rent and Rates 20
Director’s and Auditor’s fees 4
Postage & Telegrams 3
Sundry charges 1
Total 93
Provisions and Contingencies
Nil
Nil

Illustration
The following figures are extracted from the books of Deena Bank Ltd. as on
31.03.2014.
`in 000 `in 000
Interest and discount received 40,85,700 Rent received 75,000
Commission, exchange and brokerage 3,00,000 Salaries and allowances 2,50,000
Directors’ fees and allowances 70,000 Legal charges paid 74,600
Postage and telegrams 65,350 Depreciation on building 34,500
Preliminary expenses 20,000 Audit fees 5,500
Interest paid on deposits 27,55,500 Stationery 22,575
Profit on sale of investments 1,50,000

Additional information:

21
 (i) One of a customers to whom a sum of `7,00,000 thousand has been advanced has
become insolvent. It is expected that only 50% can be recovered from his private
(ii) For the remaining debts, a provision of ` 1,00,000 thousand was necessary.
(iii)Rebate on bills discounted as on 31.03.2013`10,000thousand and on 31.03.2014`
12,000thousand.
(iv) Provide `5,00,000 thousand for taxation.
(v) Write off all preliminary expenses.
Prepare Profit and Loss Account as per the legal requirement.

Solution:

Deena Bank Ltd.

Profit & Loss A/c for the year ended 31st March 2014
Year ended
Schedule 31.03.2014
No. (current year )
`in 000
I. Income
Interest earned 13 40,83,700
Other income 14 5,25,000
Total 46,08,700
II. Expenditure
Interest expended 15 27,55,500
Operating expenses 16 5,42,525
Provisions & 9,50,000
contingencies 42,47,025
Total
III. Profit/Loss 3,61,675
-
Net profit for the year (I-II)
Profit brought forward 3,61,675
Total
IV. Appropriations:
90,419
Transfer to statutory reserves
-
(25% of 3,61,675)
Transfer to other reserves
-
Transfer to Government/proposed
dividend 2,71,256
Balance carried over to Balance 3,61,675
Sheet

Working notes:

22
 Schedule 13: Interest earned
`in 000
Interest and discount received 40,85,700
Add Rebate on bills discounted on 31.12.86 10,000
40,95,700
Less: Renate on bills discounted on 31.12.87 12,000
40,83,700
Schedule 14: Other income
`in 000
3,00,000
Commission exchange & brokerage
75,000
Rent received
1,50,000
Profit on sale of investments
5,25,000

Schedule 15: Interest expended

`in 000
27,55,500
Interest paid on deposits
Schedule 16: Operating expenses
`in 000
Directors’ fees and allowances 70,000
Postage and telegrams 65,350
Stationery 22,575
Preliminary expenses 20,000
Salaries and allowances 2,50,000
Legal charges paid 74,600
Depreciation on building 34,500
Audit fees 5,500
Total 5,42,525
Provision and Contingencies
`in 000
3,50,000
Bad debts (7,00,000 x 50%)
1,00,000
Provision for bad debts
5,00,000
Provision for taxation
9,50,000
Total

23
Issue and Redemption of Debentures
Illustration

M Ltd issued 40,000 10% debentures of Rs.10 each to the public at par, to be paid Rs,3 on application and the
balance on allotment. Applications were received for 35,000 debentures. Allotment was made to all the
applicants and the amount due was received.
Pass journal entries to recode the transaction and show how they appear in the balance sheet of the
company.

Solution:

Journal entries

Date Particular’s L. F Debit Credit

1. Bank A/c Dr. 1,05,000
To Debenture Application A/c 1,05,000
(Being application money received @
RS. 3 per share for 35,000 debentures )
2. Debenture Application A/c Dr. 1,05,000
To 10% Debenture A/c 1,05,000
(Being transfer of application money to
debentures account)
3. Debentures Allotment A/c Dr. 2,45,000
To 10% Debenture A/c 2,45,000
(Being amount due on allotment)
4. Bank A/c Dr. 2,45,000
To Debenture Allotment A/c 2,45,000
(Being amount received on allotment)

Balance sheet of M Ltd (Includes)

Liabilities Amount
Non – Current Liabilities
Long – term Borrowings 10% Debentures 3,50,000
Assets
Current Assets:
Cash at Bank 3,50,000

24
 Valuation of Goodwill
1. The Net profit of a business after providing for fixation for the profit five years are:
Rs.40,000, Rs.42,500, Rs.46,000, Rs.52,500 and Rs.59,000.
The average capital employed in the beginning is Rs.4,00,000 and the normal rate of
return expected in this type of business is 10%. Calculate the goodwill on the basis of

a) five years purchase of super profits

b) annuity method, taking the present value of annuity of Re.1 for five years at 10% as
Rs.3.78 and
c) Capitalization of super profits

Solution
Average profit = 40,000 + 42500 + 46000 + 52500 + 59000
5
Normal Profit = Average capital Employed x Normal Rate of Return
= 400000 x 10 = Rs. 40000
100
Super Profit = 48000 – 40000 = Rs. 8000
Calculation of Goodwill

a) Purchase of super profit

Gw = SP x Purchase of No.of Yr’
= 8000 x 5 = Rs.40,000

b) Annuity Method
Gw = SP X Annuity table value
Gw = 8000 x 3.78 = Rs.30240

c) Capitalization of super profit

= SP x100
25
= 8000 x 100 = Rs.80,000
10

26
Valuation of shares

Net Asset Method

1. Balance sheet of Navin Company as on 31.12.2009.

Liabilities Rs Assets Rs
20,000 Equality shares of Rs.10 2,00,000 Goodwill 2,00,000
each 1,50,000 Investment at cost (Market value) 3,00,000
Employee‟s Saving fund 1,50,000 Rs.2,50,000 5,00,000
Employee‟s provident fund 6,00,000 Stock cost 4,00,000
Creditors 3,70,000 Debtors 70,000
Profit loss a/c Bank balance
14,70,000 14,70,000

The profits for the last five years were Rs.15,000/- Rs.20,000/- Rs.30,000/- and
Rs.35,000/- and the goodwill is to be valued on the basis of 3 years purchase of the
average annual profit for the last 5 years.

`Calculate the price of the share on the basis of net asset value.

Solution
AP = 15,000 + 20,000 + 25,000 + 30,000 + 35,000
5
=1,25,000 = Rs. 25,000
5
Good will = 25000 x = 75000

Calculation of Net Assets

Particulars Rs Rs
Goodwill 75,000
Investments 2,50,000
Stock 5,00,000
27
Debones 4,00,000
Bank Balance 70,000
 Total 12,95,000
Less:

Employee‟s savings fund 1,50,000

Employee’s Provident Fund 1,50,000
Creditors 6,00,000 9,00,000

Net Assets 395000

Net Assets = Net Assets for Equity Share holders

No.of Equity Shares
= 395000 = Rs.19.75 20000
2. From the following particulars, calculate the value per equity share

Particulars Rs.
2,000, 9% preference shares of Rs.100 each 2,00,000
50,000 Equity Shares of Rs.10 each Rs.8 per share paid 4,00,000
Expected profits per year before tax 2,18,000
Rate of Tax 50%
Transfer of General reserve every year 20% of the profit
Normal Rate of Earnings 15%

Solution
Calculation of profit to Equity shareholders
Expected profits per year before fax 218000
(-) Tax @ 50% 109000
Profit after tax 109000
(-) Transfer to General Reserve 21800
Profit available for preference Equity shareholders 87200
(-) Preference dividend 18000
Expected profit available to equity share holders 69200
Expected rate of return = Expected Profit x 100
28
Total paid up Equity share capital
= 69,200 x 100 = 17.03%
 4,00,000
Yield Value per share = Expected Rate of Return x paid up value per share
Normal rate of return
= 17.30 x 8 = Rs.9.23
15

29

Holding Company
Illustration 1 :

H Ltd. acquired as investment 15,000 shares in S Ltd. for Rs.

1,55,000 on 1st July, 1999. The balance sheets of the two companies on 31st March, 2000 were
as follows:-

Liabilities H Ltd S Ltd Assets H Ltd S Ltd

Rs Rs Rs Rs

Equity Machinery 7,00,000 1,50,000

Shares of
Furniture 1,00,000 70,000
Rs. 10
each fully 9,00,000 2,50,000 Investment 1,55,000 --
paid
Stock 1,00,000 50,000
General
Reserve 1,60,000 40,000 Debtors 60,000 35,000

Profit & Cash at 90,000 40,000

Loss Bank
80,000 25,000
Account
Bills
Receivable 25,000 20,000
Bills
Payable 40,000 20,000
Creditors 50,000 30,000

12,30,000 3,65,000

12,30,000 3,65,000

The following additional information is provided to you (i)General Reserve appearing

in the balance sheet of S Ltd. has remained unchanged since 31st March, 1999.

(ii) Profit earned by S Ltd. for the year ended 31st March, 2000 amounted to Rs.

20,000

(iii) On 1st February, 2000 H Ltd. sold to S Ltd. goods costing Rs. 8,000 for Rs.
30
10,000.25% of these goods remained unsold with S Ltd. on 31st March, 2000. Creditors of S
Ltd include Rs. 4,000 due to H Ltd. on account of these goods
(iv) Out of S Ltd.'s acceptances, Rs. 15,000 are those which have been accepted in favour
 of H Ltd. Out of these, H Ltd. had endorsed by 31st March, 2000 Rs. 8,000 worth of bills
receivable in favour of its creditors
You are required to draw a consolidated balance sheet as at 31st March, 2000

Solution:
(i) Capital Profits:Rs
General Reserve 40,000 Profit & Loss Account balance as on 31st March, 1999 (Rs. 25,000-
Rs. 20,000) = 5,000
Profit earned during the current year up to the date of acquisition ofshares Rs. 20,000 x 3/12=
Rs. 5,000

H Ltd.'s share= Rs. 50,000 x (15,000/25,000) =Rs. 30,000.

Minority shareholders' share = Rs. 50,000-Rs. 30,000= Rs. 20,000

(ii) Revenue Profit:
Profit earned during the current year subsequent to the acquisition of sharesRs. 20,000 x
9/12= Rs. 15,000
H Ltd.'s share Rs. 15,000 x (15,000/25,000)=Rs. 9,000
Minority shareholders' share Rs. 15.000-Rs. 9,000= Rs. 6,000
(iii) Capital Reserve on acquisition of shares:
Paid up value of 15,000 shares of S Ltd 1,50,000 H Ltd.'s share of capital profits 30,000
1,80,000

Less: Cost of shares 1,55,000

Capital Reserve 25,000

(iv)Minority Interest

Paid up value of 10,000 shares held by minority

Shareholders 1,00,000

Capital Profits 20,000

Revenue Profits 6,000

1,26,000

Alternatively:

Paid up value of 10,000 shares 1,00,000

General Reserve Rs. 40,000 x (10,000/25,000) 16,000

Profit & Loss Account Rs. 25,000 x (10,000/25,000) 10,000

31
1,26,000

(v) Unrealised profit in respect of stock:

(Rs. 10,000 - Rs. 8,000) x 25/100 = Rs. 500.

Consolidated Balance Sheet of H Ltd. and its

subsidiary S Ltd. as at 31st March, 2000
Liabilities Rs. Rs. Assets Rs. Rs.

Equity Share Machinery:

Capital
9,00,000 7,00,000
Minority
Interest H Ltd. 1,50,000 8,50,000

Capital 1,26,000 S Ltd.

Reserve 25,000 Furniture: 1,00,000
General H ltd: 70,000 1,70,000
Reserve
1,60,000 S ltd:
Profit &
Loss Stock 1,00,000
Account:
H ltd: 50,000
H Ltd.
80,000 S ltd: 1,50,000
Add: H
Ltd.‘s share
of Less:

32
S Ltd.‘S Unrealised 500 1,49,500
Post profit
acquisition 9,000
profits Debtors
89,000 60,000
Less: H ltd:
35,000
Unrealised S ltd:
profit 500 88,500 95,000

Bills
payable: Less:
40,000 Mutual
H ltd: Owings
20,000 4,000 91,000
S ltd: Cash at
60,000
Bank:
7,000 53,000
Less: H ltd:
90,000
Mutual S ltd:
owings 50,000 40,000
Bills
Creditors: 30,000 Receivable:
H ltd: 80,000 76,000 H ltd:
S ltd: S ltd: 25,000

4,000 20,000
Less: Less: 45,000
Mutual Mutual
Owings Owings

7,000 38,000

14,28,500 14,28,500
33
 Cash Flow Statement

From the following balance sheet of Star Mills Ltd., prepare a cash flow
statement.

Additional information is given as follows:

 Dividends paid during the year: $46,000

 Depreciation on written-off machinery: $28,000

 Provision for taxation: $66,000

Solution
Cash from operations

34
Cash flow statement

Working notes
1. Tax paid

35
2. Machinery purchased

3. Business premises

36