Solution please

IPCC 487 views 2 replies

Ance Philip

Admin Exe (MBA ) IPCC 2013

80 Points Joined January 2012

	Rs		Rs
Buildings	200	60 lacs Equity Shares of Rs. 10 each	600
³1ant and Equipment	100	50 lacs Equity Shares of Rs. 10 each,
Vehicles	25	Rs 8 paid up	400
-urniture and Fixtures	30	10%, 70 lacs Pref. Shares of Rs. 10 each	700
Brands	100	Profit and Loss Account	226
Computer Software	45	Profit before Interest & tax for the
3uildings under construction	100	year 2011-12	412
Computer Software under Development	40	General Reserve	80
Trade Investments		Capital Reserve	10
150 lacs Shares of X Ltd of Rs 10 each,		Capital Redemption Reserve	20
Rs 8 paid up	1200	Securities Premium	30
3 lacs,14% Debentures of Rs 100 each,		12% Debentures	100
Rs 80 paid up	240	Long term Loans and Advances (Cr)	3
Other Investments	13	Provision for Gratuity & Provident Fund	7.5
_ong-Term Loans and Advances (Dr)	17.6	Short-Term Borrowings	1
Discount/Loss on Issue of Debentures	1	Sundry Creditors	20
- nalgamation Adjustment A/c	2	Bills Payables	10
Current Investments	100	Bank Overdraft	5
C osing Stock of Materials	19.9	Unpaid Dividend	1
Cosing Stock of WIP	100	Outstanding Expenses	2
Cosing Stock of Finished Goods	200	Calls-in-Advance	1
-oose Tools	6	Provision for Doubtful Debts	4
£:ores & Spares	4	Provision for Depreciation:
Sjndry Debtors	40	Buildings	10
Bills Receivables	10	Plant and Equipment	20
Cash Balance	2	Vehicles	5
3ank Balance	8	Furniture and Fixtures	3
Cheques/Drafts on hand	2	Provision for Amortization :
Advance Payment of Tax	50	Brands	10
^repaid Expenses	1	Computer Software	27
iterest accrued on Investments	1
interim Dividend	50
	2707.5	■	2707.5

Notes to Accounts:

Authorised Capital 250 lacs shares of Rs 10 each		2,500
Issued Capital 110 lacs Equity Shares of Rs 10 each 70 lacs, 10% Pref. Shares of Rs 10 each		1,100 700

		1,800
Subscribed Capital and Fully paid up 60 lacs Equity Shares of Rs, 10 each 70 lacs 10%, Pref. Shares of Rs. 10 each		600 700

Subscribed Capital but not fully paid up 50 lacs Equity Shares of Rs. 10 each.Rs 8 paid up		400
		1,700
Reserves Surplus
Capital Reserve Capital Redemption Reserve Securities Premium Debenture Redemption Reserve General Reserve [80 + 14] Profit & Loss Account: Opening Balance Add: Profit for the period [(412 - 12) x (1 - 0.30)] Less: Transfer to Reserve @ 5% [since Rate of Equity Dividend is 15%]	226 280 (14)	10 20 30 50 94
Less: Interim Dividend Less: Proposed Preference Dividend Less: Proposed Equity Dividend [15% of( 600 lacs + 400 lacs) - 50 lacs] Less: Corporate Dividend Tax[20% of (50 + 70+ 100)] Less;Debenture Redemption Reserve [50% of Rs 100 lacs]	(50) (70) (100) (44) (50)	178
		382

Additional Information:

a) the directors' recommended: (a)An equity dividend of 15% including interim dividend (b) transfer to debenture redemption reserve @ 50% of debentures

b) income tax rate 30%, corporate dividend tax rate 20%

c) bills discounted but not yet matured Rs. 1 lac.

Kindly explain me how the notes of accounts had been derived.

Regards,

Ance

Replies (2)

Ance Philip

Admin Exe (MBA ) IPCC 2013

80 Points Joined January 2012

Can someone let me know how the Authorised Capital is derived to be 2500?

Jag Bhushan Sharma

Faculty in a B-School

633 Points Joined November 2009

First of all you must understand that Authorized Capital would not be in Trial Balance because no accounting entry is passed for it. In Balance Sheet figure of Authorized Capital is given for information only. In this question this figure has just been assumed to explain how it is shown in notes.

Profit & Loss A/c	226	This figure is from T.B. This is balance brought forward from last years Profit & Loss A/c
Add: Profit for the period [(412 - 12) x (1 - 0.30)]	280	412 is this years profit before making payment of interest and tax. In T.B. you have 12% Debentures of 100, hence interest payable is 12. Now you have to pay tax @ 30% on amount left after paying interest as given in question. Tax comes to 400 x .30 = 120. You are left with (412-12-120) 280.
Less: Transfer to Reserve @ 5% [since Rate of Equity Dividend is 15%] 280 x .05 = 14	(14)	As per Sec. 205(2A) of the Companies Act a company has to transfer a certain %age of it’s profits to reserve before paying or declaring dividends. The reserve cannot exceed 10% of profit. As per rules framed in this regard if proposed dividend exceeds 12.5% but not 15% of the paid up capital, then 5% of the current year’s profits must be transferred to Reserve.
Less: Interim Dividend	(50)	Interim Dividend is given on the debit side of T.B. This represents interim dividend paid during the year. This being an appropriation is debited to P & L Appropriation A/c.
Less: Proposed Preference Dividend 700 x .1 = 70	(70)	In T.B. you have 10 @ Prof. Shares of 700. So this is proposed preference dividend.
Less: Proposed Equity Dividend [15% of( 600 lacs + 400 lacs) - 50 lacs]	(100)	The paid up capital is 60 lac x 10 = 600 Plus 50 lac x 8 (being only Rs.8 = 400 Paid up) =1000 1000 x .15 = 150 – 50 = 100 (interim dividend of 50 paid during the year adjusted from final dividend)
Less: Corporate Dividend Tax[20% of (50 + 70+ 100)]	(44)	Corporate tax paid on total dividends paid during the year i.e 50 (interim dividend), 70 (preference dividend) and 100 (final dividend). Rate of 20% is given in the question.
Less;Debenture Redemption Reserve [50% of Rs 100 lacs]	(50)	As given in the question a reserve has been created equivalent to 50% of debentures outstanding i.e. 50% of 100.