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Humble Request for Help

sivaram (Asst Mgr-Taxation) (6918 Points)

12 January 2011

Dear Students

Can any one explain Adjustment 7 and Ajustment 4 in this Problem and explain the adjustment as carried out in adjusted Net Profit namely the Advertisement Expenditure Adjustment and Stock which i cant understand .please lend helping hand

Give Brief explantion for the treatment given

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3 Replies

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 12 January 2011

This May Help You

First of all Please Read Carefully Para 11 of AS 14 If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

Adjustment 4: For the purpose of uniform accouning policy, profit of Y Ltd. should be adjusted due to valuation of Stock As follows:-

As closing stock for the year 2002 and 2003 is over valued the profit for the period is increased that's why the profit is reduced for Rs. 12000 and 34000 respectively; And
As closing stock of 2002 is the opening stock of 2003 and if opening stock is over valued that's why profit for the year ended 2003 is reduced . Thus the profit should be increased for maintaining the uniform accounting policy.

Adjustment 7: As advertisement exp. is fully written off in 2002 by X Ltd., Y Ltd. should follow the uniform accounting policy with X Ltd. and for that reason Profit of Y Ltd. should be reduced by Rs. 60,000 fully in the year 2002 and the profit for the year 2003 will be added back by Rs. 30,000 as the advertisement exp of Rs. 30,000 had been already charged by Y Ltd. in the year 2003.

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