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Financial reporting

Anshu (Student) (71 Points)

16 January 2015

Please explain the meaning of following adjustment

The incremental profits earned by S ltd for the period Jan 09 to March 09 over that earned in the corresponding period 2008 is Rs 60000. Does it mean its the total profit earned for the three months or corresponding previous year profit + 60000= total profit earned for the three months.

In the answer, to arrive at the Profit earned till March 09, they have added the incremental profit to the profit as on 31st Dec 08. Is it correct?

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9 Replies

Mudala Srinivas Kumar (Head - Finance/Accounts) (42 Points)
Replied 16 January 2015

Dear Anshu

Your question is very clear.The word used is incremental. Thus the answer would be Profit for the period Jan'09 to Mar'09 + Rs 60,000

Illustration:

1) Profit earned during Jan'08-Mar'08 is Rs 30,000

2) Thus the profit earned during Ja'09-Mar;09 would be Rs 90,000(Rs30000+Rs60000)

Thus the total Profit earned during the F.Y April'08 to March'09 would be Profit earned upto Dec'08 + Rs 90,000

Hope the issue is clear.

Regards

M.Srinivas Kumar

Bangalore

-09986178069

Anshu (Student) (71 Points)
Replied 16 January 2015

Thank You Sir. If you could please look into the 4th Illustration in the following link.

The 6th Adjustment in the question and the treatment in Point (vii) of working note 1, where they have calculated the reserves as on 31.3.09

https://s3.amazonaws.com/caclubindia/cdn/forum/files/555789_715186_1_ca_final.pdf

Mudala Srinivas Kumar (Head - Finance/Accounts) (42 Points)
Replied 16 January 2015

Which chapter r u referring to? I am not clear

Anshu (Student) (71 Points)
Replied 16 January 2015

Consolidation of Financial Statements

Anshu (Student) (71 Points)
Replied 16 January 2015

The illustration is on Pg 15.

Mudala Srinivas Kumar (Head - Finance/Accounts) (42 Points)
Replied 16 January 2015

Yes the treatment is o.k.because it is a realized gain(realized in cash)

Anshu (Student) (71 Points)
Replied 17 January 2015

I get that! But they have only added the incremental profit i.e Profit of Jan 09 to March 09 (-) Profit of the previous corresponding year i.e Jan 08 to March 08. The total of both would be the profit according to the example you gave earlier.

Anshu (Student) (71 Points)
Replied 17 January 2015

I am not referring to how they arrived at the closing bank balance. I want to know how could they only add the incremental profit to arrive at the profit at the end of the year. Thank you.

Anshu (Student) (71 Points)
Replied 17 January 2015

Actually If you see the adjustment says "Except for the profits that resulted from the transactions with Aqua Ltd in the aforesaid period, the ENTIRE profits have been realised in cash" How does that entire profit mean only incremental profits?