1: (a) ……………………Marks 12 [Ind AS 109: Financial Instr. and Analysis of Accounts]
On 1st April, 2020, Star Ltd. has advance a loan for Rs. 15 lakhs to one of its employees for an interest rate at 6% per annum (market rate 10%) which is repayable in 5 equal annual installments along with interest at each year end. Employee is not required to give any specific performance against this benefit. The accountant of the company has recognised the staff loan in the balance sheet equivalent to the amount disbursed i.e. Rs. 15 lakhs. The interest income for the period is recognised at the contracted rate in the Statement of Profit and Loss by the company i.e. Rs.90,000 (Rs. 15 lakhs x 6%). Analyse whether the above accounting treatment made by the accountant is in compliance with the Ind AS. If not, advise the correct treatment alongwith working for the same as per Ind AS for the year 2020-2021.
Solution:
The Accountant of Star Ltd. has recognised the staff loan in the balance sheet at Rs. 15 lakhs being the amount disbursed and Rs. 40,000 as interest income for the period is recognised at the contracted rate in the statement of profit and loss which is not correct and not in accordance with Ind AS 109 and Ind AS 19.
Accordingly, the staff advance being a financial asset shall be initially measured at the fair value and subsequently at the amortised cost. The interest income is calculated by using the effective interest method. The difference between the amount lent and fair value is charged as Employee benefit expense in statement of profit and loss.
Step 1: Calculation of Fair value of loan:
|
Year |
Cash flow |
PVF |
PVCF |
|
2020-21 |
390000 |
0.909 |
3,54,510 |
|
2021-22 |
372000 |
0.826 |
3,07,272 |
|
2022-23 |
354000 |
0.751 |
2,65,854 |
|
2023-24 |
336000 |
0.683 |
2,29,488 |
|
2024-25 |
318000 |
0.621 |
1,97,478 |
|
|
|
|
13,54,602 |
Step 2: Amortisation of loan:
|
Year |
Opening balance |
Effective interest |
Cash flows recd. |
Closing Balance |
|
2020-21 |
13,54,602 |
135,460 |
-390,000 |
11,00,062 |
|
2021-22 |
11,00,062 |
110,006 |
-372,000 |
8,38,068 |
|
2022-23 |
8,38,068 |
83,807 |
-354,000 |
5,67,875 |
|
2023-24 |
5,67,875 |
56,788 |
-336,000 |
2,88,663 |
|
2024-25 |
2,88,663 |
#29,337 |
-318,000 |
0 |
# approx..
Correct presentation: for 2020-2021
| Assets: Non-Current Assets: Financial Assets: (i) Loan |
8,38,068 |
Entries: Initial: Staff loan Dr. 13,54,602 Profit / loss Dr. 1,45,398 |
|
|
|
To Bank 15,00,000 |
| Current Assets: Financial Assets: (i) Loan (1100062-838068) |
2,61,994 |
Year end: Bank Dr. 3,90,000 To Interest 1,35,460 (P/L) To Staff cost 2,54,540 (balancing fig) |
1. (b) ……………..Marks 8 : [Ind AS 33: Earnings per share]
The following information is available relating to Space India Limited for the Financial Year 2019-20.
|
Net profit attributable to equity shareholders |
Rs. 90,000 |
|
No. of equity shares outstanding |
16,000 |
|
Average fair value of one equity during the year |
Rs. 90 |
Potential Ordinary Shares:
|
Options |
900 options with exercise price of Rs. 75 |
|
Convertible Preference Shares |
7,500 shares entitled to a cumulative dividend of Rs. 9 per share. Each preference share is convertible into 2 equity shares. |
|
Applicable corporate dividend tax |
8% |
|
10% Convertible Debentures of Rs. 100 each |
Rs. 10,00,000 & each debentures is convertible into 4 equity shares |
|
Tax rate |
25% |
You are required to compute Basic & Diluted EPS of the company for the financial Year 2019- 20.
Solution:
|
|
31.3.2020 |
|
Basic ESP = Net profit for equity / WANES |
90,000 16,000 Rs. 5.63. |
For Diluted EPS (ranking for series of issue):
|
|
Options |
CPS |
Cov.Debn. |
| Incremental EPS = Incremental earnings Incremental shares for no consideration |
0 |
72900 |
75000 |
|
Least ratio is most dilutive → |
I |
III |
III |
| For options: Incremental shares: Gross shares to be issued = 900 Less: Shares for fair consideration (750) (900*75) / 90 Shares for no consideration = 150 For Conv. Preference shares: Shares for no consideration = 7500*2 = 15,000 Savings post tax on conversion = 7500*9*1.08 (CDT) = 72,900 For Conv. Debentures: Shares for no consideration = 10000*4 = 40,000 Savings post tax on conversion = 10000*100*10%*(1-0.25) = 75,000 |
|||
|
Calculation of Diluted EPS: |
31.3.2020 |
|
Basic ESP = |
Rs. 5.63 |
|
Options for dilution: 90000+0 / 16000+150 ; |
Rs. 5.57 Dilutive |
|
Options + Convertible Debentures 90000+75000/16150 + 40000 |
Rs. 2.94 Dilutive |
|
Options + Convertible Debentures + Conv. Preference Shares 90000+75000+72900 / 16150 + 40000 + 15000 |
Rs. 3.34 Anti-dilutive |
Final reporting as per Ind AS 33:
|
Basic ESP = |
Rs. 5.63 |
|
Dilution: |
Rs. 2.94 |
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