Taxmann's Accounting (Accounts) | CRACKER

Contents

PA GE

l Chapter-wise Marks Distribution I-7

l Previous Exams Trend Analysis I-9

l Chapter-wise Comparison with Study Material I-13

Chapter 1 u Appli c a bili t y of acc o unti ng st a ndar ds 1.1

Chapter 2 u Fr a me wor k f or Pr e par ati o n & Pr es e nt ati o n of Fi na nci al St at eme nt s 2.1

Chapter 3 u Over vi e w of acc o unti ng st a ndar ds 3.1

Chapter 4 u Fi nal st at e me nt s of c o mpa ni es 4.1

Chapter 5 u Pr ofi t or l oss pri or t o i nc or por ati o n 5.1

Chapter 6 u Bo n us i ss ue & ri g ht i ss ue 6.1

Chapter 7 u Re de mpti o n of pr ef er e nce s har es 7.1

Chapter 8 u Re de mpti o n of de be nt ur es 8.1

Chapter 9 u I nvest me nt acc o unt s 9.1

Chapter 10 u I ns ur a nce Cl ai ms 10.1

Chapter 11 u H i r e Pur c has e 11.1

Chapter 12 u De part me nt al 12.1

Chapter 13 u Br a nc h Acc o unti ng 13.1

Chapter 14 u Acc o unti ng f r o mI nc o mpl et e Rec or ds [ Si ngl e Ent r y] 14.1

SOLVED PAPER : MAY 2022 (SUGGESTED ANSWERS) P.1

SOLVED PAPER : NOVEMBER 2022 (SUGGESTED ANSWERS) P.19

Year

PREVIOUS EXAMS TREND ANALYSIS

Question No.

Compulsory

Chapter Name Marks Category

Nov 2020 1( a) Yes AS 10 : Pr opert y, pl a nt a nd e q ui p me nt 5 Pr acti cal 1( b) Yes AS 12 : Gover n me nt gr a nt s 5 Pr acti cal 1( c) Yes AS 13 : Acc o unti ng f or i nvest me nt s 5 Pr acti cal 1( d) Yes AS 16 : Borr o w i ng c ost s 5 Pr acti cal 2( a) Br a nc h Acc o unti ng 10 Pr acti cal 2( b) Acc o unti ng f r o mi nc o mpl et e r ec or ds ( Si ngl e Ent r y) 10 Pr acti cal 3( a) AS 13: Acc o unti ng f or i nvest me nt s 10 Pr acti cal 3( b) I ns ur a nce Cl ai ms 10 Pr acti cal 4( a) AS 3: Cas h Fl o w St at e me nt 10 Pr acti cal 4( b) Re de mpti on of De be nt ur es 10 Pr acti cal 5( a) H i r e Pur c has e 8 Pr acti cal 5( b) Re de mpti on of Pr ef er e nce Shar es 12 Pr acti cal 6( a) De part me nt al 5 Pr acti cal 6( b) Fr a me wor k f or pr e par ati on of FS 5 The or y 6( c) Pr es e nt ati on of Fi na nci al St at e me nt s 5 Pr acti cal 6( d) AS 1: Di s cl os ur e of Acc o unti ng Poli ces 5 Pr acti cal 6( e) Pr ofi t or l oss Pri or t o I nc or por ati on 5 Pr acti cal

J a n 2021 1( a) Yes AS 12: Gover n me nt Gr a nt s 5 Pr acti cal 1( b) Yes AS13: Acc o unti ng f or I nvest me nt s 5 Pr acti cal 1( c) Yes AS 2: Val uati on of I nve nt ori es 5 Pr acti cal

Year Question No. Compulsory Chapter Name Marks Category

1( d) Yes AS 11: The Eff ect s of Cha nges i n For ei g n Exc ha nge Rat es 5 Pr acti cal

2( a) De part me nt al 10 Pr acti cal 2( b) Acc o unti ng f r o mI nc o mpl et e Rec or ds ( Si ngl e Ent r y) 10 Pr acti cal

3( a) I nvest me nt Acc o unt s 10 Pr acti cal 3( b) I ns ur a nce Cl ai ms 10 Pr acti cal 4( a) Re de mpti on of De be nt ur es 8 Pr acti cal 4( b) AS 3: Cas h Fl o w St at e me nt s 12 Pr acti cal 5( a) Re de mpti on of Pr ef er e nce Shar es 12 Pr acti cal 5( b) H i r e Pur c has e 8 Pr acti cal 6( a) Fr a me wor k f or Pr e par ati on 5 Pr acti cal 6( b) Pr es e nt ati on of FS 5 Pr acti cal 6( c) Br a nc h Acc o unti ng 5 Pr acti cal 6( d) Acc o unti ng St a ndar ds - Appli ca - bili t y of AS 5 Pr acti cal 6( e) Bonus I ss ue & Ri g ht I ss ue 5 Pr acti cal J ul y 2021 1( a) Yes AS 2: Val uati on of I nve nt ori es 5 Pr acti cal 1( b) Yes AS 10 : Pr opert y, Pl a nt a nd Eq ui pme nt 5 Pr acti cal

1( c) Yes AS 12: Gover n me nt Gr a nt s 5 Pr acti cal 1( d) Yes AS 3: Cas h Fl o w St at e me nt s 5 Pr acti cal 2 AS13: Acc o unti ng f or I nvest me nt s 20 Pr acti cal 3( a) Br a nc h Acc o unti ng 10 Pr acti cal 3( b) Acc o unti ng f r o mI nc o mpl et e Rec or ds ( Si ngl e Ent r y) 10 Pr acti cal 4 Pr es e nt ati on of FS 20 Pr acti cal 5( a) De part me nt al 10 Pr acti cal 5( b) Re de mpti on of De be nt ur es 10 Pr acti cal 6( a) Fr a me wor k f or Pr e par ati on 5 Pr acti cal 6( b) I ns ur a nce Cl ai ms 5 Pr acti cal 6( c) H i r e Pur c has e 5 Pr acti cal 6( d) Pr ofit or Loss Pri or t o I nc or por ati on 5 Pr acti cal 6( e) Bonus I ss ue & Ri g ht I ss ue 5 Pr acti cal

Year Question No. Compulsory Chapter Name Marks Category

Dec 2021 1( a) Yes AS 11 : The Eff ect s of Cha nges i n For ei g n Exc ha nge Rat es 5 Pr acti cal 1( b) Yes AS 3 : Cas h Fl o w St at e me nt s 5 Pr acti cal 1( c) Yes AS 13 : Acc o unti ng f or I nvestme nt s 5 Pr acti cal 1( d) Yes AS 1 : Di s cl os ur e of Acc o unti ng Poli ci es 5 Pr acti cal 2( a) I ns ur a nce Cl ai ms 10 Pr acti cal 2( b) AS 13 : Acc o unti ng f or I nvest me nt s 10 Pr acti cal 3( a) Br a nc h Acc o unti ng 10 Pr acti cal 3( b) De part me nt al 10 Pr acti cal 4 Re de mpti on of De be nt ur es 20 Pr acti cal 5( a) Pr ofi t or l oss Pri or t o I nc or por ati on 12 Pr acti cal 5( b) H i r e Pur c has e 8 Pr acti cal 6( a) Fr a me wor k f or Pr e par ati on 5 Pr acti cal 6( b) Pr es e nt ati on of Fi na nci al St at e me nt s 5 Pr acti cal 6( c) Fr a me wor k f or Pr e par ati on 5 The or y 6( d) Re de mpti on of De be nt ur es 5 Pr acti cal 6( e) Pr es e nt ati on of Fi na nci al St at e me nt s 5 Pr acti cal

May 2022 1( a) Yes AS- 12 5 Pr acti cal 1( b) Yes AS- 2 5 Pr acti cal 1( c) Yes AS- 10 5 Pr acti cal 1( d) Yes AS- 16 5 Pr acti cal 2( a) H i r e Pur c has e 10 Pr acti cal 2( b) I ns ur a nce Cl ai ms 10 Pr acti cal 3( a) Acc o unti ng f r o mI nc o mpl et e Rec or ds ( Si ngl e Ent r y) 12 Pr acti cal 3( b) De part me nt al 8 Pr acti cal 4 Pr ofi t or Loss Pri or t o I nc or por a - ti on 20 Pr acti cal 5( a) Re de mpti on of Pr ef er e nce Shar es 10 Pr acti cal 5( b) Br a nc h Acc o unti ng 10 Pr acti cal 6( a) Fi na nci al St at e me nt s of Co mpa - ni es 5 Pr acti cal

Year Question

No.

Compulsory Chapter Name Marks Category

6( b) Bonus I ss ue & Ri g ht I ss ue 5 Pr acti cal 6( c) AS- 1 5 The or y 6( d) AS- 7 5 Pr acti cal 6( e) AS- 13 5 Pr acti cal Nov. 2022 1( a) Yes AS 2 5 Pr acti cal 1( b) Yes AS 3 5 Pr acti cal 1( c) Yes AS 11 5 Pr acti cal 1( d) Yes AS 13 5 Pr acti cal 2( a) I ns ur a nce Cl ai ms 10 Pr acti cal 2( b) I nvest me nt Acc o unt s 10 Pr acti cal 3( a) Br a nc h Acc o unti ng 10 Pr acti cal 3( b) Acc o unti ng f r o mI nc o mpl et e Rec or ds ( Si ngl e Ent r y) 10 Pr acti cal 4 Fi na nci al St at e me nt s of Co mpa - ni es 20 Pr acti cal 5( a) Re de mpti on of De be nt ur es 12 Pr acti cal 5( b) De part me nt al 8 Pr acti cal 6( a) H i r e Pur c has e 5 Pr acti cal 6( b) Fr a me wor k f or Pr e par ati on 5 Pr acti cal 6( c) Re de mpti on of Pr ef er e nce Shar es 5 Pr acti cal 6( d) Fi na nci al St at e me nt s of Co mpa - ni es 5 Pr acti cal 6( e) I nt r oducti on t o Acc o unti ng St a n - dar ds 5 The or y

Chapter No.

CHAPTER-WISE COMPARISON WITH STUDY MATERIAL

Name of Chapter Study Material

Chapter

1 Appli ca bili t y of Acc o unti ng St a ndar ds Cha pt er 1

2 Fr a me wor k f or Pr e par ati o n & Pr es e nt ati o n of Fi na nci al St at e me nt s Cha pt er 2 3 Over vi e w of Acc o unti ng St a ndar ds Cha pt er 3 4 Fi na nci al St at e me nt s of Co mpa ni es Cha pt er 4 5 Pr ofi t or Loss Pri or t o I nc or por ati o n Cha pt er 5 6 Bo nus I ss ue & Ri g ht I ss ue Cha pt er 6 7 Re de mpti o n of Pr ef er e nce Shar es Cha pt er 7 8 Re de mpti o n of De be nt ur es Cha pt er 8 9 I nvest me nt Acc o unt s Cha pt er 9 10 I ns ur a nce Cl ai ms Cha pt er 10 11 H i r e Pur c has e Cha pt er 11 12 De part me nt al Cha pt er 12 13 Br a nc h Acc o unti ng Cha pt er 13 14 Acc o unti ng f r o mI nc o mpl et e Rec or ds ( Si ngl e Ent r y) Cha pt er 14

4

CHAPTER

FINAL STATEMENTS OF COMPANIES

SECTION I: QUESTIONS - PRESENTATION OF ITEMS IN SCHEDULE III (DIVISION I) + OPERATING CYCLE:

Q.1. State under which head the following accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act, 2013:

(i) Share application money received in excess of issued share capital.

(ii) Share option outstanding account.

(iii) Unpaid matured debenture and interest accrued thereon.

(iv) Uncalled liability on shares and other partly paid investments.

(v) Calls unpaid.

(vi) Intangible Assets under development.

(vii) Money received against share warrant.

(viii) Cash equivalents.

Ans.:

(RTP May 2015)/(MTP March 2019)/ (RTP May 2019)

(i ) Curr e nt Li a bili ti es / Ot her Curr e nt Li a bili ti es

(ii ) Shar e hol ders’ Fund/ Res er ve & Sur pl us

(iii ) Curr e nt li a bili ti es / Ot her Curr e nt Li a bili ti es

(iv ) Co nti nge nt Li a bili ti es a nd Co mm i t me nt s

( v ) Shar e hol ders’ Fund/ Shar e Ca pi t al

(vi ) Fi xe d Ass et s

(vii ) Shar e hol ders’ Fund/ Mo ne y r ecei ve d agai nst s har e warr a nt s

(viii ) Curr e nt Ass et s

Q.2. State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act:

(i) Share application money received in excess of issued share capital.

(ii) Share option outstanding account.

(iii) Unpaid matured debenture and interest accrued thereon.

(iv) Uncalled liability on shares and other partly paid investments.

(v) Calls unpaid.

(vi) Intangible Assets under development.

(vii) Money received against share warrant.

(viii) Long-term maturity of finance lease obligation.

(4 Marks) (May 2014)

Ans.: Classification for the presentation in Schedule III to the Companies Act, 2013

S. No. Accounts Head

(i ) Shar e a ppli cati o n mo ney r ecei ve d i n excess of i ss ue d s har e ca pi t al

Ot her Curr e nt Li a bili ti es

(ii ) Shar e opti o n o ut st a ndi ng acc o unt Res er ve & Sur pl us

(iii ) Unpai d mat ur e d de be nt ur e a ndi nt er est accr ue d t her e o n

(iv ) Uncall e d li a bili t y o n s har es a nd ot her partl y pai d i nvest me nt s

Ot her Curr e nt Li a bili ti es

Co nti nge nt Li a bili ti es a nd c o mm i tme nt s- c o mm i t me nt s t o t he ext e nt not pr ovi de d f or

( v ) Call s unpai d Shar e Ca pi t al (vi ) i nt a ngi bl e Ass et s under devel op me nt Fi xe d Ass et s (vii ) Mo ney r ecei ve d agai nst s har e warr a nt Shar e hol ders’ Fund

(viii ) Lo ng- t er m mat uri t y of fina nce l eas e o bli gati o n

Q.3.

Lo ng ter m Borr o w i ngs

(a) Futura Ltd. had the following items under the head “Reserves and Surplus” in the Balance Sheet as on 31st March, 2013:

Amount ` in lakhs

Securities Premium Account 80 Capital Reserve 60 General Reserve 90

The company had an accumulated loss of ` 250 lakhs on the same date, which it has disclosed under the head “Statement of Profit and Loss” as asset in its Balance Sheet.

Comment on accuracy of this treatment in line with Schedule III to the Companies Act, 2013.

(b) Sumedha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2013 of ` 1,00,000.

Determine how the loan will be classified in preparation of Financial Statements of Sumedha Ltd. for the year ended on 31st March, 2013 according to Schedule III.

(RTP November 2013)/(RTP November 2017)

Ans.: ( a ) part i of Sc he d ul e iii pr ovi des t hat de bi t bal a nce of St at e me nt of pr ofi t a nd Loss ( aft er all all oc ati o ns a nd a ppr opri ati o ns) s hall be s ho wn as a ne gati ve fi g ur e under t he he a d ‘ Sur pl us ’ . Si mil arl y, t he bal a nce of ‘ Res er ves a nd Sur pl us ’ , aft er a dj usti ng ne gati ve bal a nce of s ur pl us, s hall be s ho wn under t he he a d‘ Res er ves a nd Sur pl us ’ e ve ni f t he r es ul ti ng fi g ur e i s i n t he ne gati ve i n t hi s c as e, t he de bi t bal a nce of pr ofi t a nd l oss i e ` 250 l a k hs e xcee d t he t ot al of all t he r es er ves i. e. ` 230 l a k hs. ther ef or e, bal a nce of ‘ Res er ves a nd Sur pl us ’ aft er a dj usti ng de bi t bal a nce of pr ofi t a nd l oss i s ne gati ve by` 20 l a k hs, whi c h s ho ul d be di s cl os e d o n t he f ace of t he bal a nce s heet.

(b ) As per Sc he d ul e iii, a li a bili t y s hall be cl assi fie d as c urr e nt whe n i t s at - i s fies a ny of t he f oll o w i ng cri t eri a:

(i ) i t i s e x pect e d t o be s ettl e d i n t he c o mpa ny ’ s nor mal oper ati ng c ycl e;

(ii ) i t i s hel d pri maril y f or t he p ur pos e of bei ng t r a de d;

(iii ) i t i s d ue t o be s ettl e d w i t hi n t wel ve mo nt hs aft er t he r e porti ng dat e; or

(iv ) t he c o mpa ny does not have a n unc o ndi ti o nal ri g ht t o def er s ettl e me nt of t he li a bili t y f or at l e ast t wel ve mo nt hs aft er t he r e porti ng dat e.

i n t he gi ve n c as e, i nst al me nt s d ue o n 30. 09. 2013 a nd 31. 03. 2014 will be s ho wn under t he he a d ‘ ot her c urr e nt li a bili ti es ’ as per cri t eri a ( c ) ther ef or e, i n t he bal a nce s heet as o n 31 3 2013, ` 8, 00, 000 ( ` 1, 00, 000 × 8 i nst al me nt s) will be s ho wn under t he he a di ng ‘ Lo ng t er m Borr o w i ngs ’ a nd ` 2, 00, 000 ( ` 1, 00, 000 × 2 i nst al me nt s) will be s ho wn under t he he a di ng ‘ Ot her Curr e nt Li a bili ti es ’ as c urr e nt mat uri ti es of l oa n f r o m ba nk.

Q.4.

(i) Vasudha Ltd. provides following information:

Raw Material stock holding period: 3.5 months

Work-in-progress holding period: 1 month

Finished goods holding period: 4.5 months

Debtors collection period: 6 months

You are required to compute the operating cycle of Vasudha Ltd. What would happen if the trade payables of the company are paid in 14 months-whether these should be classified as current or non-current liability?

(ii) The management of Kshitij Ltd. contends that the work in progress is not valued since it is difficult to ascertain the same in view of the multiple processes involved. They opine that the value of opening and closing work in progress would be more or less the same. Accordingly, the management had not separately disclosed the work in progress in its financial statements. Comment in line with Schedule III. (5 Marks) (November 2013)

Ans.: (i )

Acc or di ng t o Sc he d ul e Vi “ An oper ati ng c ycl e i s t he ti me bet wee n t he ac q ui si ti o n of ass et s f or pr ocessi ng a nd t hei r r e ali z ati o n i n c as h or c as h e q ui val e nt s”.

ther ef or e, oper ati ng c ycl e of Vas udha Lt d. will be c o mp ut e d as: Ra w mat eri al st oc k hol di ng peri o d + Wor k-i n- pr ogr ess hol di ng peri o d + Fi ni s he d g oo ds hol di ng peri o d + De bt ors c oll ecti o n peri o d = 3. 5 + 1 + 4. 5 + 6 = 15 mo nt hs

A Li a bili t y s hall be cl assi fi e d as c urr e nt whe n i t i s e x pect e d t o be s ettl e d i n t he Co mpa ny ’ s nor mal oper ati ng c ycl e.

Si nce t he oper ati ng c ycl e of Vas udha Lt d. i s 15 mo nt hs, t r a de paya bl es e x pect e d t o be pai d i n 14 mo nt hs s ho ul d be t r e at e d as a c urr e nt li a bili t y.

(ii ) Sc he d ul e iii does not r e q ui r e W i p t o be di s cl os e d i n t he St at e me nt of pr ofi t a nd Loss, t h us a mo unt s f or whi c h W i p have bee n c o mpl et e d at t he be gi nni ng a nd at t he e nd of t he acc o unti ng peri o d may not be di s - cl os e d. ther ef or e, t he no n- di s cl os ur e i n t he fi na nci al st at e me nt s by t he c o mpa ny may not a mo unt t o vi ol ati o n of Sc he d ul e iii i f t he di ff er e nces bet wee n ope ni ng a nd cl osi ng W i p ar e not mat eri al.

SECTION II: PROBLEMS - MANAGERIAL REMUNERATION:

PART I: Theory Questions

Q.5. The Companies Act, 2013 limits the payment of managerial remuneration. What is the maximum managerial remuneration, which can be paid in case of a company consistently earning profits and has more than one managerial person? (2 Marks) (November 2009)

Ans.: Co mpa ni es Act, 2013 pr es cri bes t he over all maxi mu m ma nageri al r emuner ati o n paya bl e a nd al s o ma nageri al r e muner ati o n i n c as e of a bs e nce or i na de q uac y of pr ofi t s. i n t he gi ve n c as e, t he c o mpa ny i s e ar ni ng pr ofi t s c o nsi st e ntl y a nd has mor e t ha n o ne ma nageri al pers o n; t her ef or e, t he maxi mu mli m i t i s 10 % of net pr ofi t.

PART II:

Computation of Profits and Managerial Remuneration

Q.6. The Managing Director of A Ltd. is entitled to 5% of the annual net profits, as his remuneration, subject to a minimum of ` 25,000 per month. The net profits, for this purpose, are to be taken without charging income-tax and his remuneration itself. During the year, A Ltd. made net profit of ` 43,00,000 before charging MD’s remuneration, but after charging provision for taxation of ` 17,20,000.

Compute remuneration payable to the Managing Director.

(2 Marks) (June 2009)

Ans.:

Computation of remuneration of the Managing Director:

Particulars

` in Lacs net pr o fit as per books 43. 00

Add: pr ovi si o n f or t axati o n 17 20

Annual pr o fit f or t he p ur pos e of ma nageri al r e muner ati o n 60. 20

Ma nagi ng Di r ect or ’ s Re muner ati o n @ 5 % of a bove 3. 01 M i ni mu m r e muner ati o n t o be pai d t o t he Ma nagi ng Di r ect or 3 00 (` 25, 000 per mo nt h × 12)

ther ef or e, r e muner ati o n t o be pai d t o t he Ma nagi ng Di r ect or of A Lt d. = ` 3, 01, 000.

Q.7. From the following information of Alpha Ltd., calculate the managerial remuneration payable to the managing director of the company at the rate of 5% of the profits assuming that there is only one managing director in the company.

Particulars ` Net Profit 4,00,000 Net Profit is calculated after considering the following:

Depreciation 1,00,000 Tax provision 6,20,000 Director’s fees 16,000 Bonus 88,000 Profit on sale of fixed assets (original cost: `40,000 written down value: `22,000) 31,000 Managing Director’s remuneration paid 60,000 Other information: Depreciation allowable under the Companies Act, 2013 70,000 Bonus liability as per the Payment of Bonus Act, 1965 40,000 (RTP May 2013)

Ans.: Computation of Profits: [for the Purpose of Managerial Remuneration]

Particulars ` ` net pr o fit 4, 00, 000 Add: De pr eci ati o n ( t o be t r eat e d s e par at el y) 1, 00, 000 tax pr ovi si o n 6, 20, 000 Bo nus ( t o be t r eat e d s e par at el y) 88, 000 Ma nagi ng Di r ect or ’ s r e muner ati o n 60, 000 8, 68, 000 12, 68, 000

Less: De pr eci ati o n all o wa bl e under t he Co mpa ni es Act 70, 000 Bo nus li a bili t y as per pay me nt of Bo nus Act, 1965 40, 000 Ca pi t al pr o fit o n s al e of fixe d ass et s ( See Wor ki ng not e bel o w) 13, 000 ( 1, 23, 000) pr o fit under s ecti o n 349 11, 45, 000

Managerial Remuneration- M.D.: Re muner ati o n paya bl e t o Ma nagi ng Di r ect or @ 5 % of ` 11, 45, 000 = ` 57, 250.

Working Note:

Computation of Capital Profit on Sale of Fixed Assets:

Particulars ` Sal e pri ce ( ` 22, 000 + ` 31, 000) 53, 000

Less: Cost pri ce ( ori gi nal ) ( 40, 000) Ca pi t al pr o fit 13, 000

Q.8. The following is the Draft Profit & Loss A/c of M Ltd., the year ended on 31st March, 20X1:

To Administrative, Selling and By Balance b/d 5,72,350 distribution expenses 8,22,542 By Balance from Trading A/c 40,25,365

To Directors fees 1,34,780 By Subsidies received from Govt. 2,73,925

To Interest on debentures 31,240

To Managerial remuneration 2,85,350

To Depreciation on fixed assets 5,22,543

To Provision for Taxation 12,42,500

To General Reserve 4,00,000 To Investment Revaluation Reserve 12,500

To Balance c/d 14,20,185 48,71,640 48,71,640

Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was ` 5,75,345.

You are required to calculate the maximum limits of the managerial remuneration as per Companies Act, 2013.

(MTP August 2018)

Ans.:

Computation of Net Profit: ` `

Bal a nce f r o m tr a di ng A/c 40, 25, 365

Add: Subsi di es r ecei ve d f r o m Gover n me nt 2, 73, 925 42, 99, 290

Less: Ad m i ni st r ati ve, s elli ng a nd di st ri b uti o n e xpe ns es 8, 22, 542

` `

Di r ect or ’ s f ees 1, 34, 780 i nt er est o n de be nt ur es 31, 240 De pr eci ati o n o n fixe d ass et s as per Sc he d ul e ii 5, 75, 345 ( 15, 63, 907)

Profit 27,35,383 th us, Maxi mu m Ma nageri al r e muner ati o n = 11 % of ` 27, 35, 383 = ` 3, 00, 892

Q.9. Following is the draft Profit & Loss Account of × Ltd. for the year ended on 31st March, 2020:

Particulars Amount ( `) Particulars Amount ( `)

To Administrative Expenses 5,96,400 By Balance b/d 7,25,300

To Advertisement Expenses 1,10,500 By Balance from Trading A/c 42,53,650

To Sales Commission 1,05,550 By Subsidies received from Government 3,50,000

To Director’s fees 1,48,900

To Interest on Debentures -56,000

To Managerial Remuneration 3,05,580

To Depreciation on Fixed Assets 5,78,530

To Provision for taxation 12,50,600

To General Reserve 5,50,000 To Investment Revaluation Reserve 25,800

To Balance c/d 16,01,090 53,28,950 53,28,950

Depreciation on Fixed Assets as per Schedule II of the Companies Act, 2013 was ` 6,51,750.

You are required to calculate the maximum limits of the managerial remuneration as per Companies Act, 2013.

(5 Marks) (November 2020)

Ans.:

Computation of net profit of × Ltd. as per the Companies Act, 2013

Particulars ` ` Bal a nce f r o m tr a di ng A/c 42, 53, 650

Add : Subsi di es r ecei ve d f r o m Gover n me nt 3, 50, 000

Less : Ad m i ni st r ati ve ex pe ns es 5, 96, 400 46, 03, 650

Particulars ` ` Adverti s e me nt ex pe ns es 1, 10, 500 ( 16, 69, 100) Sal es c o mm i ssi o n 1, 05, 550 Di r ect or ’ s f ees 1, 48, 900 i nt er est o n de be nt ur es 56, 000 De pr eci ati o n o n fixe d ass et s as per Sc he dul e ii 6, 51, 750 pr o fit u/s 198 29, 34, 550 Maxi mu m Ma nageri al r e muner ati o n under Co mpa ni es Act, 2013 = 11 % of ` 29, 34, 550 = ` 3, 22, 800 ( r o unde d off).

Q.10. The following is the Draft Profit & Loss A/c of Brown Ltd. the year ended on 31st March,2020:

Particulars Amount ( `)

Particulars Amount ( `)

To Administrative expenses 4,99,200 By Balance b/d 6,27,550

To Advertisement 1,18,200 By Balance from To Commission on sales 95,225 Trading A/c 38,15,890

To Director’s Fees 1,35,940 By Subsidies

To Interest on debentures 28,460 received from Govt. 2,50,000

To Managerial remuneration 2,75,550 By Profit on sale of forfeited shares 20,000

To Depreciation on fixed assets 4,82,565

To Provision for Taxation 11,50,200

To General Reserve 4,50,000 To Investment Revaluation Reserve 52,800 To Balance c/d 14,25,300 47,13,440 47,13,440

Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was ` 5,15,675.

You are required to calculate the maximum limit of managerial remuneration as per Companies Act, 2013.

(5 Marks) (January 2021)

Ans.:

Computation of net profit u/s 198 of the Companies Act, 2013

Particulars ` ` Bal a nce f r o m tr a di ng A/c 38, 15, 890 Add : Subsi di es r ecei ve d f r o m Gover n me nt 2, 50, 000 40, 65, 890 Less : Ad m i ni st r ati ve, s elli ng a nd di st ri buti o n ex pe ns es 7, 12, 625 ( 4, 99, 200 + 1, 18, 200 + 95, 225) Di r ect or ’ s f ees 1, 35, 940 i nt er est o n de be nt ur es 28, 460 De pr eci ati o n o n fixe d ass et s as per Sc he dul e ii 5, 15, 675 ( 13, 92, 700) pr o fit u/s 198 26, 73, 190 Maxi mu m Ma nageri al r e muner ati o n under Co mpa ni es Act, 2013 = 11 % of ` 26, 73, 190 = ` 2, 94, 051

PART III:

Computation of Effective Capital for Managerial Remuneration in case of loss-making company

Q.11. The following extract of Balance Sheet of × Ltd. (a non-investment company) was obtained: Balance Sheet (Extract) as on 31st March, 2015

Liabilities `

Authorised capital: 15,000, 14% preference shares of ` 100 15,00,000 1,50,000 Equity shares of ` 100 each 1,50,00,000 1,65,00,000

Issued and subscribed capital: 15,000, 14% preference shares of ` 100 each fully paid 15,00,000 1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000 Capital reserves ( ` 1,50,000 is revaluation reserve) 1,95,000

Securities premium 50,000 15% Debentures 65,00,000 Unsecured loans: Public deposits repayable after one year 3,70,000 Investment in shares, debentures, etc. 75,00,000 Profit and Loss account (debit balance) 15,25,000

You are required to compute Effective Capital as per the provisions of Schedule V to Companies Act, 2013. (RTP May 2015) Ans.:

Computation of effective capital:

Particulars ` pai d- up s har e ca pi t al15, 000, 14 % pr ef er e nce s har es 15, 00, 000 1, 20, 000 eq ui t y s har es 96, 00, 000 Ca pi t al r es er ves ( excl udi ng r eval uati o n r es er ve) 45, 000 Sec uri ti es pr e m i u m 50, 000 15 % De be nt ur es 65, 00, 000 publi c De posi t s 3, 70, 000

( A) 1, 80, 65, 000 i nvest me nt s 75, 00, 000 pr o fit a nd Loss acc o unt ( Dr bal a nce) 15, 25, 000

( B) 90, 25, 000 eff ecti ve ca pi t al ( A- B) 90, 40, 000

Q.12. X Ltd. a non-investment company has been incurring losses for the past few years. The company provides the following information for the current year:

Particulars ` in lakhs

Paid up equity share capital 90

Paid up preference share capital 10 Reserves (including revaluation reserve ` 5 lakhs) 75

Securities premium 30

Long term loans 20 Deposit repayable after one year 10 Application money pending allotment 360 Accumulated losses not written off 40 Investment 90 X Ltd. has only one whole time director, Mr. Y. You are required to calculate the amount of maximum remuneration that can be paid to him if no special resolution is passed at the general meeting of the company in respect of payment of remuneration for a period not exceeding three years. (4 Marks) (December 2021)

Ans.:

Computation of effective capital and maximum amount of managerial remuneration:

Particulars ( ` In lakhs)

pai d up e q ui t y s har e ca pi t al 90 pai d up pr ef er e nce s har e ca pi t al 10 Res er ve excl udi ng Reval uati o n r es er ve ( 75 - 5) 70 Sec uri ti es pr e m i u m 30 Lo ng t er ml oa ns 20 De posi t s r e paya bl e aft er o ne year 10 230

Less : Acc u mul at e d l oss es not wri tt e n off ( 40) i nvest me nt s ( 90) eff ecti ve ca pi t al f or t he p ur pos e of ma nageri al r e muner ati o n 100

Note:Reval uati on r es er ve, a nd appli cati on money pe ndi ng all ot me nt ar e not i ncl ude d whil e c o mp uti ng eff ecti ve c a pi t al of Ku mar Lt d.

Remarks:

Si nce X Lt d. i s i nc urri ng l oss es a nd no s peci al r es ol uti o n has bee n pass e d by t he c o mpa ny f or pay me nt of r e muner ati o n, ma nageri al r e muner ati o n will be c al c ul at e d o n t he basi s of eff ecti ve c a pi t al of t he c o mpa ny as t he eff ecti ve c a pi t al i s l ess t ha n 5 cr or es. ther ef or e, maxi mu mr e muner ati o n paya bl e t o t he Ma nagi ng Di r ect or s ho ul d be @ ` 60, 00, 000 per a nn u m .

Ans.:

Computation of Effective Capital:

Particulars ` in ‘000 pai d- up ca pi t al 18, 000 Add: Res er ves a nd s ur pl us 7, 200 Sec uri ti es pr e m i u m 1, 200 Lo ng- t er ml oa ns 6, 000 32, 400 Less: i nvest me nt s 3, 600 pr eli m i nar y ex pe ns es 3, 000 ( 6, 600) eff ecti ve ca pi t al f or t he p ur pos e of ma nageri al r e muner ati o n 25, 800 As eff ecti ve c a pi t al i s l ess t ha n ` 5 cr or es b ut mor e t ha n ` 1 cr or e, t her ef or e maxi mu m r e muner ati o n paya bl e t o t he Ma nagi ng Di r ect or s ho ul d be @ ` 1, 00, 000 per mo nt h. th us, maxi mu mr e muner ati o n paya bl e t o t he Ma nagi ng Di r ect or f or t he ye ar ( ` 1, 00, 000 × 12) = ` 12, 00, 000

Q.14. Kumar Ltd., a non-investment company has been incurring losses for the past few years. The company provides the following information for the current year:

Particulars ( ` in lakhs)

Paid up equity share capital 120 Paid up Preference share capital 20 Reserves (including Revaluation reserve ` 10 lakhs) 150 Securities premium 40 Long-term loans 40 Deposits repayable after one year 20 Application money pending allotment 720 Accumulated losses not written off 20 Investments 180 Kumar Ltd. has only one whole-time director, Mr. X. You are required to calculate the amount of maximum remuneration that can be paid to him as per provisions of Part II of Schedule XIII, if no special resolution is passed at the general meeting of the company in respect of payment of remuneration for a period not exceeding three years.

(RTP Nov 2013)/(RTP November 2017)/ (RTP November 2018) (Figures 1.5 Times)

Ans.:

Particulars

Computation of effective capital:

( `in lakhs)

pai d up e q ui t y s har e ca pi t al 120 pai d up pr ef er e nce s har e ca pi t al 20 Res er ve excl udi ng Reval uati o n r es er ve ( 150 - 10) 140 Sec uri ti es pr e m i u m 40 Lo ng- t er ml oa ns 40 De posi t s r e paya bl e aft er o ne year 20 380

Less: Acc u mul at e d l oss es not wri tt e n off ( 20) i nvest me nt s ( 180) eff ecti ve ca pi t al f or t he p ur pos e of ma nageri al r e muner ati o n 180

Managerial remuneration: Si nce Ku mar Lt d. i s i nc urri ng l oss es a nd no s pe - ci al r es ol uti o n has bee n pass e d by t he c o mpa ny f or pay me nt of r e muner ati o n, ma nageri al r e muner ati o n will be c al c ul at e d o n t he basi s of s c al e i n whi c h maxi mu m ceili ng li m i t i s of ` 2, 00, 000 per mo nt h. eff ecti ve c a pi t al of t he c o mpa ny i s l ess t ha n ` 5 cr or es b ut mor e t ha n ` 1 cr or e, t her ef or e maxi mu m r e muner ati o n paya bl e t o t he Ma nagi ng Di r ect or s ho ul d be @ ` 1, 00, 000 per mo nt h. th us, maxi mu mr e muner ati o n paya bl e t o t he Ma nagi ng Di r ect or f or t he ye ar ( ` 1, 00, 000 × 12) = ` 12, 00, 000. Q.15. The following extract of Balance Sheet of × Ltd. (a non-investment company) was obtained: Balance Sheet (Extract) as on 31st March, 2017 Liabilities ` Issued and subscribed capital: 20,000,14% preference shares of ` 100 each fully paid 20,00,000 1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000 Capital reserves ( ` 1,50,000 is revaluation reserve) 1,95,000

Ans.:

Computation of Effective Capital:

Particulars ` pai d- up s har e ca pi t al 20, 000, 14 % pr ef er e nce s har es 20, 00, 000 1, 20, 000 eq ui t y s har es 96, 00, 000 Ca pi t al r es er ves ( excl udi ng r eval uati o n r es er ve) 45, 000 Sec uri ti es pr e m i u m 50, 000 15 % De be nt ur es 65, 00, 000 publi c De posi t s 3, 70, 000

( A) 1, 85, 65, 000 i nvest me nt s 75, 00, 000 pr o fit a nd Loss acc o unt ( Dr bal a nce) 15, 00, 000

( B) 90, 00, 000 eff ecti ve ca pi t al ( A- B) 95, 65, 000

Q.16. The following extract of Balance Sheet of Gaurav Ltd. was obtained: Balance Sheet (Extract) as on 31st March, 2018

Liabilities `

Authorised capital: 90,000, 14% preference shares of `100 90,00,000 9,00,000 Equity shares of `100 each 9,00,00,000 9,90,00,000

Issued and subscribed capital: 67,500, 14% preference shares of `100 each fully paid 67,50,000 5,40,000 Equity shares of `100 each, `80 paid-up 4,32,00,000 Share suspense account 90,00,000 Reserves and surplus Capital reserves ( `6,75,000 is revaluation reserve) 8,77,500 Securities premium 2,25,000 Secured loans: 15% Debentures 2,92,50,000 Unsecured loans: Public deposits 16,65,000

Liabilities `

Cash credit loan from SBI (short term) 5,92,500

Current Liabilities: Trade Payables 15,52,500 Assets: Investment in shares, debentures, etc. 3,37,50,000 Profit and Loss account (Dr. balance) 68,62,500 Share suspense account represents application money received on shares, the allotment of which is not yet made. You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if Gaurav Ltd. is an investment company? (RTP May 2019)

Ans.:

Computation of effective capital: Particulars Where Gaurav Ltd. is a non-investment company

Where Gaurav Ltd. is an investment company pai d- up s har e ca pi t al 67, 500, 14 % pr ef er e nce s har es 67, 50, 000 67, 50, 000 5, 40, 000 eq ui t y s har es 4, 32, 00, 000 4, 32, 00, 000 Ca pi t al r es er ves 2, 02, 500 2, 02, 500 Sec uri ti es pr e m i u m 2, 25, 000 2, 25, 000 15 % De be nt ur es 2, 92, 50, 000 2, 92, 50, 000 publi c De posi t s 16, 65, 000 16, 65, 000

( A) 8, 12, 92, 500 8, 12, 92, 500 i nvest me nt s 3, 37, 50, 000pr o fit a nd Loss acc o unt ( Dr. bal a nce) 68, 62, 500 68, 62, 500

( B) 4, 06, 12, 500 68, 62, 500 eff ecti ve ca pi t al ( A- B) 4, 06, 80, 000 7, 44, 30, 000

Q.17. The following extract of Balance Sheet of Prabhat Ltd. (Non-Investment Company) was obtained:

Balance Sheet (Extract) as on 31st March, 2019

Liabilities `

Issued and subscribed capital: 30,000,12% preference shares of `100 each (fully paid) 30,00,000 24,00,000 equity shares of `10 each, `8 paid up 1,92,00,000 Share suspense account 40,00,000

Reserves and Surplus: Securities premium 1,00,000 Capital reserves ( `3,00,000 is revaluation reserve) 3,90,000

Secured loans: 12% debentures 1,30,00,000 Unsecured loans: Public deposits 7,40,000

Current liabilities: Trade payables 6,90,000 Cash credit from SBl (short term) 9,30,000 Assets

Investments in shares, debentures etc. 1,50,00,000 Profit & loss account (Dr. balance) 30,50,000 Share suspense account represents application money received on shares, the allotment of which is not yet made.

You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if Prabhat Ltd. is an investment company? (4 Marks) (November 2019)

Ans.:

Computation of effective capital

Particulars

Where Prabhat Ltd. Is a noninvestment company `

Where Prabhat Ltd. is an investment company ` pai d- up s har e ca pi t al 30, 000, 12 % pr ef er e nce s har es 30, 00, 000 30, 00, 000 24, 00, 000 eq ui t y s har es of ` 8 pai d up 1, 92, 00, 000 1, 92, 00, 000 Ca pi t al r es er ves ( 3, 90, 000 - 3, 00, 000) 90, 000 90, 000 Sec uri ti es pr e m i u m 1, 00, 000 1, 00, 000 12 % De be nt ur es 1, 30, 00, 000 1, 30, 00, 000 publi c De posi t s 7, 40, 000 7, 40, 000

Particulars Where Prabhat Ltd. Is a noninvestment company `

Where Prabhat Ltd. is an investment company ` ( A) 36, 130, 000 36, 130, 000 i nvest me nt s 1, 50, 00, 000 pr o fit a nd Loss acc o unt ( Dr. bal a nce) 30, 50, 000 30, 50, 000 ( B) 1, 80, 50, 000 30, 50, 000

Effective capital(A-B) 1,80,80,000 3,30,80,000

SECTION III : PROBLEM - DIVIDEND:

Q.18. Due to inadequacy of profits during the year ended on 31st March, 20X2, XYZ Ltd. proposes to declare 10% dividend out of general reserves. From the following particulars, ascertain the amount that can be utilised from general reserves, according to the Companies (Declaration of dividend out of Reserves) Rules, 2014: `

17,500 9% Preference shares of `100 each, fully paid up 17,50,000 8,00,000 Equity shares of `10 each, fully paid-up 80,00,000 General Reserves as on 1.4.20X1 25,00,000 Capital Reserves as on 1.4.20X1 3,00,000 Revaluation Reserves as on 1.4.20X1 3,50,000 Net profit for the year ended on 31st March, 20X2 3,00,000 Average rate of dividend during the last five year has been 12%.

Ans.: Amount that can be drawn from Reserves: 10 % di vi de nd o n ` 80, 00, 000 ` 8, 00, 000 pr o fit s avail a bl e Curr e nt ye ar pr o fit 3, 00, 000 Less: pr ef er e nce di vi de nd ( 1, 57, 500) ( 1, 42, 500) A mo unt whi c h c a n be utili s e d f r o m r es er ves 6, 57, 500

SECTION IV : PROBLEM - APPROPRIATIONS:

Q.19. The Articles of Association of S Ltd. provide the following: (i) That 20% of the net profit of each year shall be transferred to reserve fund.

(ii) That an amount equal to 10% of equity dividend shall be set aside for staff bonus. That the balance available for distribution shall be applied: (a) in paying 14% on cumulative preference shares.

(b) in paying 20% dividend on equity shares.

(iii) one-third of the balance available as additional dividend on preference shares and 2/3 as additional equity dividend.

A further condition was imposed by the articles viz. that the balance carried forward shall be equal to 12% on preference shares after making provisions (i), (ii) and (iii) mentioned above. The company has issued 13,000, 14% cumulative participating preference shares of ` 100 each fully paid and 70,000 equity shares of ` 10 each fully paid up.

The profit for the year 2008 was ` 10,00,000 and balance brought from previous year ` 80,000. Provide ` 31,200 for depreciation and ` 80,000 for taxation before making other appropriations.

Prepare Profit and Loss Account below the line. (8 Marks) (Nov 2008)

Ans.: Important Note: it i s a n ol d e xa m i nati o n q uesti o n, t h us as ki ng us t o s ho w p &L bel o w t he li ne. As per t he Sc he d ul e iii no w , t her e i s no p &L Appr opri a - ti o n, b ut t he wor ki ngs ar e all r efl ect e d i n not es t o Acc o unt ( f or Res er ves a nd Sur pl us fi g ur e i n Bal a nce Sheet). the a ns wer i s bei ng pr es e nt e d f or r efl ecti ng t he not es t o Acc o unt.

Statement of Profit and Loss* for the year ended 2008:

Particulars ` pr o fit ( A) 10, 00, 000 ex pe ns es: ( 31, 200) De pr eci ati o n a nd a morti z ati o n ex pe ns e tot al ex pe ns es ( B) ( 31, 200) pr o fit bef or e t ax ( A- B) 9, 68, 800 pr ovi si o n f or t ax ( 80, 000) pr o fit ( Loss) f or t he peri o d 8, 88, 800 Bal a nce of pr o fit a nd Loss acc o unt br o ug ht f or war d 80, 000 tot al 9, 68, 800

Appropriations (made in Notes to Accounts) tr a nsf ers t o Res er ves ( 1, 77, 760) pr opos e d pr ef er e nce di vi de nd ( 1, 82, 000 + 93, 450) ( 2, 75, 450) pr opos e d e q ui t y di vi de nd ( 1, 40, 000 + 1, 86, 900) ( 3, 26, 900) Bo nus t o e mpl oyees ( 14, 000 + 18, 690) ( 32, 690) tot al ( 8, 12, 800) Bal a nce carri e d t o Bal a nce s heet 1, 56, 000

Working Note: A mo unt avail a bl e f or pr ef er e nce a nd eq ui t y s har e hol ders a nd Bo n us f or e mpl oyees: `

Cr e di t Si de 9, 68, 800 Less: De bi t si de [ 1, 77, 760 + 1, 82, 000 +1, 40, 000 +14, 000 + 1, 56, 000] ( 6, 69, 760) 2, 99, 040

Ass u m i ng t hat t he r e mai ni ng bal a nce will be = x Suppos e pr ef er e nce s har e hol ders will get s har e f r o mr e mai ni ng bal a nce = x × 1 3 × 1 3 x eq ui t y s har e hol ders will get s har e f r o m r e mai ni ng bal a nce = x × 2 3 × 2 3 x

Bo nus t o e mpl oyees = 2 3 x × 10 100 = 2 30 x thus, 2 3 x + 1 3 x + 2 30 x = 2, 99, 040 32 x = 89, 71, 200 x = 89, 71, 200/32 = ` 2, 80, 350

Shar e of pr ef er e nce s har e hol ders` 2, 80, 350 × 1 3 = ` 93, 450

Shar e of e q ui t y s har e hol ders` 2, 80, 350 × 2 3 = ` 1, 86, 900

Bo nus t o e mpl oyees = ` 2, 80, 350 × 2 30 = ` 18, 690

SECTION V: SIMPLE PROBLEMS - FINAL STATEMENTS:

Q.20. From the following particulars furnished by the Prashant Ltd., prepare the Balance Sheet as on 31st March, 2019 as required by Schedule III of the Companies Act, 2013:

Particulars

Debit (`) Credit (`)

eq ui t y s har e ca pi t al ( f ace val ue of ` 10 eac h) 15, 00, 000

Call s-i n- arr ears 5, 000 La nd 5, 50, 000

Buil di ng 4, 35, 000 pl a nt & mac hi ner y 5, 60, 000 Ge ner al r es er ve 2, 70, 000 Loa n f r o m St at e Fi na nci al Cor por ati o n 2, 10, 000 i nve nt ori es 3, 15, 000