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Solution of CA Final FR (New) Course Paper for Nov 20 Exams

Israr Sheikh 
on 28 November 2020

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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)
Solution of CA Final FR (New) Course Paper for Nov 20 Exams

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
150
0

72900
15000
4.86

75000
440000
1.88

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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