FINANCIAL REPORTING MAY 2018 (NEW COURSE) - PAPER SOLUTION
Solution 1 (a): CONSOLIDATION OF FINANCIAL STATEMENTS : MARKS: 15
BALANCE SHEET OF HOLD LTD. AND ITS SUBSIDIARY FOR 31st MARCH 2018
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Rs. |
Rs. |
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Assets |
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Non-current assets: |
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|
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Property, Plant, Equipment: |
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Land and Building (3000000+3600000+2000000) |
86,00,000 - |
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Current assets: |
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Inventory (2400000+728000+300000) |
34,28,000 |
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Trade receivables (1196000+800000) |
19,96,000 |
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Cash and Cash Equivalents (290000+160000) |
4,50,000 |
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Total assets |
23,07,4000 |
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Equity and liabilities |
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Equity |
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Ordinary shares of Rs. 10 each |
1,00,00,000 |
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Other Equity |
99,84,000 |
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Non - Current liabilities: |
- |
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Current liabilities: |
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Bank Overdraft |
16,00,000 |
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Trade payable (942000+348000+200000) |
14,90,000 |
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Total equity and liabilities |
23,07,4000 |
Calculation of Goodwill / Capital Reserves:
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Cost of investments in Sub Ltd. |
68,00,000 |
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Less: Pre - dividend wrongly credited to P/L (4000000*10%) |
(4,00,000) |
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(-) Share of Pre - net worth from Sub Ltd. |
(1,01,70,000) |
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Capital Reserves: |
37,70,000 |
Other Equity:
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Retained earnings of Hold Ltd. |
11,44,000 48,00,000 |
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+ Share of Post reserves from Sub Ltd. |
6,70,000 |
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Less: Pre - dividend wrongly credited to P/L (4000000*10%) |
(4,00,000) |
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Total: |
60,64,000 |
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+ Capital Reserves on Business Combination |
37,70,000 |
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Total: |
99,84,000 |
Analysis of Net Worth of Sub Ltd.
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Pre net worth |
Post net worth |
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Share Capital Revaluation of assets Depreciation (6 months) (4000000*5%) - 150000 old depn. |
40,00,000 32,50,000 - |
- - (50,000) |
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Total Equity = |
1,01,70,000 |
6,70,000 |
Hold Ltd holds 100% stake in Sub Ltd. Non - Controlling Interest is Nil. Hence entire net worth of Sub Ltd is Hold Ltd's share.
WN1) Plant and Machinery:
Hold Ltd Plant and Machinery 48,00,000
Sub Ltd Plant and Machinery 38,00,000 (4000000 - Depreciation 5%)
86,00,000
Solution 1 (b): INSURANCE CONTRACT - MARKS: 5
(i) It is an insurance contract unless the transfer of insurance risk is insignificant. The contract transfers mortality risk to the insurer at inception, because the insurer might have to pay significant additional benefits for an individual contract if the annuitant elects to take the life contingent annuity and survives longer than expected (unless the contingent amount is insignificant in all scenarios that have commercial substance).
(ii) It is not an insurance contract at inception, if the insurer can re-price the mortality risk without constraints.
(iii) The policyholder obtains an additional benefit because no MVA is applied on death or maturity. However, that benefit does not transfer insurance risk from the policyholder because it is certain that the policyholder will live or die and the amount payable on death or maturity is adjusted for the time value of money. The contract is an investment contract.
(iv) In individual or separate financial statements of entities: It is an insurance contract. In the consolidated financial statement of the entity: The transaction gets eliminated.
(v) The contract is an insurance contract if it transfers significant insurance risk from entity B to entity A, even if some or all of the individual contracts do not transfer significant insurance risk to entity B.
Solution 2 (a) IND AS 102: CORPORATE RESTRUCTURING - MARKS 10
(i) Journal entries in the books of Notorola Ltd.
Senovo Ltd A/C Dr.Rs. 50cr
Loan Funds A/C Dr.Rs. 600cr
Current Liabilities A/C Dr.Rs. 800cr
To Current Assets A/C 1,000
To Fixed Assets A/C 200 (net)
To Capital Reserve A/C 250 (gain)
(being transfer of assets and liabilities and consideration due)
Investments A/C Dr. Rs. 50cr
To Senovo Ltd. 50cr
(being consideration received)
Capital Reserve A/C Dr. Rs. 50 cr
To Investments A/C 50cr
(being consideration distributed to share - holders)
(ii) Balance Sheet of Notorola Ltd. after Demerger: (Rs. in crore)
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$ |
$ |
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Assets |
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Non-current assets: |
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Fixed Assets (Cost) |
500 |
50 |
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Current assets: |
400 |
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Total assets |
450 |
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Equity and liabilities |
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Equity |
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Ordinary shares of Rs. 10 each |
50 |
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Other Equity (150 + 250 - 50) |
350 |
450 |
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Current liabilities: |
50 |
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Total equity and liabilities |
450 |
Notes to Accounts:
Changes in Equity: OTHER EQUITY
Capital Reserve:
Opening balance 150
Addition:
Sale of Business 250
Utilisation:
Distribution of consideration (50) 350 cr
(iii) Balance Sheet of Senovo Ltd. after purchase: (Rs. in crore)
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$ |
$ |
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Assets |
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Non-current assets: |
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Fixed Assets (Cost) |
1,000 |
200 |
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Goodwill on Business Combination |
250 |
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Current assets: |
1,000 |
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Total assets |
1,450 |
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Equity and liabilities |
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Equity |
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Ordinary shares of Rs. 10 each |
20 |
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Other Equity |
30 |
50 |
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Non - Current liabilities: Loan |
600 |
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Current liabilities: |
800 |
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Total equity and liabilities |
450 |
Calculation of Goodwill:
Consideration - Net Assets = 50 - (200) = 250cr.
Share Capital in (iii):
2 crore Ordinary shares issued of face value Rs. 10 fully paid under the scheme of purchase of Business from Notorola Ltd.
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