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Solution Paper for FR (New Syllabus) - May 18 Exam

Israr Sheikh 
on 24 May 2018

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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


 

Rs.

Rs.

Assets

Non-current assets:

 

 

Property, Plant, Equipment:

Land and Building (3000000+3600000+2000000)
Plant and Machinery (WN1)

86,00,000
86,00,000

-

Current assets:

Inventory (2400000+728000+300000)

34,28,000

Trade receivables (1196000+800000)

19,96,000

Cash and Cash Equivalents (290000+160000)

4,50,000

Total assets

23,07,4000

Equity and liabilities

Equity

Ordinary shares of Rs. 10 each

1,00,00,000

Other Equity

99,84,000

Non - Current liabilities:

-

Current liabilities:

Bank Overdraft

16,00,000

Trade payable (942000+348000+200000)

14,90,000

Total equity and liabilities

23,07,4000


Calculation of Goodwill / Capital Reserves:


Cost of investments in Sub Ltd.

68,00,000

Less: Pre - dividend wrongly credited to P/L (4000000*10%)

(4,00,000)

(-) Share of Pre - net worth from Sub Ltd.

(1,01,70,000)

Capital Reserves:

37,70,000


Other Equity:


Retained earnings of Hold Ltd.
Other Reserves of Hold Ltd.

11,44,000  48,00,000

+ Share of Post reserves from Sub Ltd.

6,70,000

Less: Pre - dividend wrongly credited to P/L (4000000*10%)

(4,00,000)

Total:

60,64,000

+ Capital Reserves on Business Combination

37,70,000

Total:

99,84,000


Analysis of Net Worth of Sub Ltd.


 

Pre net worth

Post net worth

Share Capital
Retained earnings
Other reserves

Revaluation of assets
(1150000+2000000+300000-200000)

Depreciation (6 months) (4000000*5%) - 150000 old depn.

40,00,000
9,20,000
20,00,000 

32,50,000

-

-
7,20,000

-

(50,000)

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)


 

$

$

Assets

Non-current assets:

Fixed Assets (Cost)
Less: Depreciation

500
(450)

50

Current assets:

400

Total assets

450

Equity and liabilities

Equity

Ordinary shares of Rs. 10 each

50

Other Equity (150 + 250 - 50)

350

450

Current liabilities:

50

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)      


$

$

Assets

Non-current assets:

Fixed Assets (Cost)
Less: Depreciation

1,000
(800)

200

Goodwill on Business Combination

250

Current assets:

1,000

Total assets

1,450

Equity and liabilities

Equity

Ordinary shares of Rs. 10 each

20

Other Equity

30

50

Non - Current liabilities: Loan

600

Current liabilities:

800

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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