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

Israr Sheikh , 28 November 2020

## 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 0 150 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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Israr Sheikh
(Teaching)
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