Unit-II
Profits prior to Incorporation
From time to time, companies are made to buy a particular running or going concern. A company is born only after its registration, that is, its establishment. A company can only make a profit after it is founded, but not before it is founded. In many cases, the acquisition date of a business may not coincide with the establishment date.
For example, a company founded on May 1, 2004 may purchase a business from January 1, 2004, which is the start date of the fiscal year. In general, a going concern assumption is purchased based on the idea of the last record
It's more convenient for both-sellers, and therefore sellers. If you want to buy a business on a date other than the balance sheet date, you need to acquire and validate accounts such as stocks, assets, and liabilities. The process is a tedious task. To avoid this tedious task, you can also buy a business from the day the company creates its last final account.
Private companies can start their business immediately after they are established, but public companies can only start their business after obtaining a business start certificate. In other words, all profits earned before the establishment of a corporation in the case of a private company and before the start of a business in the case of a public company should be regarded as capital gains. However, keep in mind that the pre-establishment profit and loss calculation takes into account the date of establishment, not the date of business start.
For example, a company founded on January 4, 2004 agrees to require a business that has been running since January 1, 2004. The account will be closed on December 31st. The company is entitled to receive profits or losses from January 4, 2004 to December 31, 2004, as well as profits or losses from January 1, 2004 to 31.3.2004. The profits earned before incorporation, that is, from January 1, 2004 to 31.3.2004, are understood as pre-incorporation profits. This is not considered a profit, but it is a capital profit.
Such profits may be transferred to capital reserves or used to assess financial losses. If a loss occurs during the pre-establishment period, the loss must be debited to the goodwill account. The profits earned during the post period, that is, between January 4, 2004 and December 31, 2004 in the above example, are profits and profits that can be used for dividends.
Allocation of "profit / loss" to pre-establishment and post-establishment periods:
Pre-incorporated profits cannot be used for dividends and must be separated from divisible profits. This is possible if the income statement is prepared separately for the pre-establishment period and the post-establishment period. And this is only possible by closing the books and inventory for the two periods. These are tedious tasks. Therefore, profits or losses are estimated by allocating on a time, sales, impartial or practical reasonable basis.
In practice, an equivalent set of books is maintained throughout the fiscal year.
The P & L account is ready at the beginning of the year, after which profits or losses are allocated between the two periods.
- From the date of purchase to the date of establishment (pre-establishment period) and
- From the date of establishment to the end of the fiscal year (period after establishment).
Accounting method:
To find profits or losses before and after establishment:
1. We will have one trading account for the entire period. Do not consider the date of establishment. Therefore, you will receive one number of gross margins for the entire period.
2. Gross profit margin is distributed between two periods, pre-establishment and post-establishment, based on the concept of sales within the two periods.
The various costs shown on the income statement should be divided into pre-establishment and post-establishment periods on a logical and appropriate basis.
Sales ratio:
In a simple matter where sales are evenly distributed over the entire period, sales are distributed between pre-establishment and post-establishment periods at a rate of that period. However, in many cases sales fluctuate from time to time. Therefore, the sales ratio is recognized based on the concept of each sale, taking into account the pre-establishment and post-establishment periods. (Sales and time basis.)
Handling of pre-establishment results:
Profit or loss from the date of purchase of the business to the date of establishment belongs to the company. Such profits should not be considered transaction profits. Pre-establishment profits are treated as capital gains and cannot be distributed as dividends to the shareholders of the purchasing company.
The income statement is prepared at the end of the year and then the profit and loss are allocated between the two periods.
(I) from the date of purchase to the date of establishment (pre-establishment period) and
(II) From the date of establishment to the end of the fiscal year (period after establishment).
Accounting method:
To find profits or losses before and after establishment:
1. Set up one trading account for the entire period. Do not consider the date of establishment. Therefore, you will reach one figure of gross profit for the entire period.
2. Gross profit is distributed to two periods, pre-establishment and post-establishment, based on sales in the two periods.
3. The various costs shown on the income statement should be divided into pre-establishment and post-establishment periods on a logical and appropriate basis.
They are shown below.
Sales ratio:
In a simple matter where sales are evenly distributed over the entire period, sales are distributed between pre-establishment and post-establishment periods at a rate of that period. However, in many cases sales fluctuate from time to time. Therefore, the sales ratio is calculated based on each sale, taking into account the pre-establishment and post-establishment periods. (Sales and time basis.)
Handling of pre-establishment results:
Gains and losses from the date of purchase of the business to the date of establishment belong to the company. Such profits should not be considered transaction profits. Pre-establishment profits are treated as capital gains and cannot be distributed as dividends to the shareholders of the purchasing company.
The handling of the results before the establishment is as follows.
(A) Profit before establishment:
1. Profit has the nature of capital gains.
2. Do not use capital gains to pay dividends.
3. Can be used to evaluate goodwill or capital loss.
4. The unused portion of profit can be transferred to capital reserve.
(B) Loss before establishment:
1. You can treat it as goodwill and add it to your goodwill account.
2. It may also be treated as a deferred revenue expense and amortized on profits over the years.
3. The special account (loss before establishment of corporation) may be debited.
Key takeaways:
- Incorporation is a way for a business to be formally organized and formally established.
- The process of establishment involves creating a document called the Articles of Incorporation and listing the shareholders of the company.
- In a company, the assets and cash flows of an entity are separated from the assets and cash flows of the owner and investor, which is called limited liability.
- Profit or loss from the date of purchase of the business to the date of establishment belongs to the company.
- Pre-incorporated profits cannot be used for dividends and must be separated from divisible profits.
Preparation of separate, combined and columnar Profit and Loss Account including different basis of allocation of expenses/ incomes
The article below details how to calculate your pre-establishment profit and loss.
1. Introduction of profit / loss before establishment
2. Calculation method of profit / loss before establishment
3. Accounting method
4. Accounting treatment
Pre-establishment profit / loss summary:
If you take over the business from a date before the establishment / start, the profits earned by the establishment / start date (established for a private company, started for a public company) are called “Profit before establishment”
The same is treated as capital gains, as these are the profits earned before the company was founded. In short, profits earned after the date of purchase of a business are called "profit after incorporation or acquisition", and profits earned before the date of purchase of a business are called "profit before incorporation".
For example, X Ltd. Was founded on April 1, 2006, acquired the operating business Y Ltd. From January 1, 2006, and closed its account on December 31, 2006. Currently X Ltd. Is Y Ltd from April 1st to December 31st, 2006, Y Ltd. From January 1, 2006 to March 31, 2006, as well as profits / losses due to Profit / loss .
Therefore, profits and losses generated before establishment are called "profit (loss) before establishment", are treated as capital gains, and cannot be distributed as business profits. Therefore, it cannot be distributed as a dividend.
The same can be transferred to capital reserves or adjusted for goodwill. "Pre-establishment loss" is treated as a capital loss, so the same thing appears under the "Other Expenditures" heading on the asset side of the balance sheet.
How to calculate profit / loss before establishment:
You need to prepare an income statement on the date of establishment to confirm the profit before the establishment. But in reality, the same books are maintained throughout the fiscal year.
The income statement is prepared at the end of the year, after which profits (or losses) are allocated between the two periods.
- From the date of purchase to the date of establishment or the period before establishment.
- From the date of establishment to the end of the fiscal year or the period after establishment.
Accounting method for profit and loss before establishment:
Procedures may be suggested to identify profits or losses prior to establishment.
Step I:
In order to calculate the gross profit amount, you must first create a trading account for the entire term, from the purchase date to the last account date.
Step II:
Calculate the following two ratios.
- Sales ratio Sales must be calculated for the pre-establishment and post-establishment periods.
- Time ratio: It is calculated considering the period. That is, you need to calculate the period from the date of purchase to the date of establishment and the period from the date of establishment to the date of presentation of the final account.
Step III:
You need to make a statement to calculate the net income before and after the establishment individually based on the following principles.
- Gross profit must be allocated to the two periods based on the sales ratio that represents the gross profit for the two separate periods. Before and after incorporation of company.
- Fixed or time-based costs, such as rent, salary, depreciation, and interest, must be allocated in two periods based on a time ratio.
- Variable or sales-related expenses must be distributed over two periods based on the sales ratio.
- Certain costs, such as partner salaries, director salaries, reserves, and corporate bond interest, are not allocated as they are related to a particular period. For example, partner salaries are billed for pre-acquisition profits, and director compensation, corporate bond interest, etc. are billed for post-acquisition profits.
List of Expenses: Assigned based on sales / sales:
(A) Gross profit
(B) Selling expenses
(C) Advertising
(D) Outward transportation
(E) Warehouse rent
(F) Discounts are allowed
(G) Salesman salary
(H) Commission to salesman
(I) Sales promotion expenses
(J) Distribution cost (variable part)
(K) Free sample provided
(L) Costs for after-sales service, etc.
(M) The cost of the delivery van.
List of Expenses: Allotted based on time:
(A) Administrative and administrative expenses
(B) Salary to office staff
(C) Rent, charges, taxes
(D) Depreciation of fixed assets
(E) Printing and stationery
(F) Insurance
(G) Audit fee
(H) Miscellaneous expenses
(I) Distribution costs (fixed part)
(J) Travel expenses (general)
(K) Interest on corporate bonds
(L) General expenses
List of Expenses: Allotted based on time:
(A) Administrative and administrative expenses
(B) Selling expenses
(C) Advertising
(D) Outward transportation
(E) Warehouse rent
(F) Insurance
(G) Audit fee
(H) Miscellaneous expenses
(I) Distribution costs (fixed part)
(J) Travel expenses (general)
(K) Interest on corporate bonds
(L) General expenses
(M)Fixed costs in nature.
Pre-establishment profit / loss application / accounting:
(A) Profit before establishment:
Since "pre-establishment profit" is a capital gain, the same must be amortized for:
- Reserve expense account
- Formation cost account
- Clearing expense account
- If the fixed asset is worth it, write it down
- Goodwill account
- If there is a balance, it will be transferred to the capital reserve.
(B) Loss before establishment:
The same is adjusted because "pre-establishment loss" is a capital loss.
- Capital gains
- Debit the goodwill account
- Depreciation of fictitious assets
- Capital reserve.
Figure 1:
Problem 1:
S. Ltd was registered on January 1, 2000 to acquire the business of M / s P. Ltd. On October 1, 2008, and has a certificate of start of business on February 1, 2009. I got.
The company's accounting for the period ended September 30, 2009 disclosed the following facts:
- Sales for the entire period reached rupees. 3,000,000 rupees 50,000 related to the period from October 1, 2008 to February 1, 2009.
- The trading account showed gross profit of Rs. 1, 20,000.
- The following items are displayed in the income statement.
Note:
1. Sales-related costs are allocated based on sales (that is, 1: 5).
2. Other costs will be allocated based on time only (i.e. 1: 2).
3. From the profit before establishment, you can also charge a reserve cost for the capital reserve.
Problem 2:
Moon Ltd was established on June 1, 2009. He has taken over the business of N, which is the ownership of Rs, from January 1, 2009. All profits earned after January 1, 2009 are 100,000, provided they belong to the company. The following is the income statement data for the year ended December 31, 2009.
Gross profit Rs. 2,00,000; salary and bonus Rs. 15,000; Rent Rs. 1,000; Bad debt Rs. 5,000; Reserve Rs. 9,000; Committee of Sales Rs. 12,000; Interest paid on or against the purchase price Rs. 1,000; Board membership fee Rs. 3,000; Managing Director Reward Rs. 14,600; Establishment cost Rs. 21,000; Depreciation Rs. 10,000; and advertising Rs. 27,000.
(A) Sales for the first 6 months were rupees. 10, 00,000; Gross profit margin is 12% of sales. Gross profit margin was 8% in the second half. The sales commission was 6% throughout the year. Inventory and work in process issues do not occur in business.
(B) Until March 1, 2009, N was operating on its premises with only cash sales and no depreciable assets.
(C) The ads for the first 6 months were at Rs rates. 4,000 per month.
Create pre-incorporation and post-incorporation period profit accounts in a column format that provides the basis for separation for each item. How much was the profit before the establishment? It takes calendar months of the same length limit to the given data only.
How it works:
Therefore, the profit before the establishment reached rupees. 57,082. Gross profit reached rupees 2, 00,000 or 12 months. Profit for the first 6 months reached rupees. At 1,20,000 (Rs. 10,00,000 x 12/100), the profit for the next 6 months remains, that is, Rs. 80,000 (Rs. 2,00,000 – Rs. 1,20,000) is 8% of sales. Sales Rs for the next 6 month, assume 10, 00,000 (Rs. 80,000 x 100/8), sales evenly distributed by month. The sales ratio for the two periods is 5: 7. Sales commissions will be allocated accordingly.
Problem 3:
Mr. X founded a limited company under the name and style of Exe. Pvt. It will take over the existing business from April 1, 2006, but was not established until January 7, 2006. There was no mention of the business transfer in the books that continued until March 31, 2007.
As of March 31, 2007, the following balances have been extracted from the books.
You too:
(A) Shares on March 31, 2007 reached Rupees. 44,000.
(B) The gross profit margin is constant, and monthly sales in April 2006, February 2007, and March 2007 are twice the average monthly sales for the year.
(C) It was agreed that the purchase price would be met by the issuance of shares of Rs 3,000. 100 each
(D) Reserve costs are amortized.
(E) Outbound shipping and traveller fees must be assumed to change in direct proportion to sales.
You need to prepare a trading account and a profit and loss account for the fiscal year ending March 31, 2007, to allocate the profit and loss for the period before and after the establishment. Depreciation shall be provided at an annual rate of 25% about fixed assets.
Following information is given:
(A) Shares on March 31, 2007 reached Rupees. 44,000.
(B) The gross profit margin is constant, and monthly sales in April 2006, February 2007, and March 2007 are twice the average monthly sales for the year.
(C) It was agreed that the purchase price would be met by the issuance of shares of Rs 3,000 100 each.
(D) Reserve costs are amortized.
(E) Outbound shipping and traveller fees must be assumed to change in direct proportion to sales.
You need to prepare a trading account and a profit and loss account for the fiscal year ending March 31, 2007, to allocate the profit and loss for the period before and after the establishment. Depreciation shall be provided at an annual rate of 25% about fixed assets.
Therefore, the sales ratio before and after establishment is 4:11
(4) Outward transportation and Travellers’ Com. = Sales ratio, that is, 4:11.
(5) Other time-based costs:
Salary; Administration costs; Rent, fees, depreciation costs (Rs. 25,000, or Rs. 1, 00,000 x 25/100)
(6) The remaining costs will be charged for the profit after the acquisition.
Problem 4:
New Ventures Ltd. Was founded on January 1, 2008 and has authorized capital of Rs 5,000. R. Bros since October 1, 2007 10 each to take over the operating business of Bros. The following is a summary of the income statement for the fiscal year ended September 30, 2008.
The company handles one type of product. When compared to the pre-establishment period, the unit sales price for the post-establishment period decreased by 10%. Between the pre-establishment and post-establishment periods, the amount of net income that provides the basis for the apportionment must be apportioned.
Income statement before and after establishment
Problem 5:
Jalajga Ltd. Was established as a privately held company on March 1, 1995 to take over the business as a going concern from January 1, 2005. Vendors will receive 75% of the profits earned before March 1, 2015. The trading and P & L accounts for the year ended December 31, 2015 are as follows:
Sales in March and April are 1.5 times higher, with average monthly sales. Sales in September and October are twice the average monthly sales. Bad debt of 1,110 rs cases were amortized in June. Make statements showing pre- and post-establishment benefits. It also indicates the disposal of such profits.
To sum up:
(A) Gross profit must be distributed between pre-establishment and post-establishment periods based on the ratio of sales. If you're not given gross profit, you can do the same by creating a trading account.
(B) It is necessary to calculate the time ratio between the period before establishment and the period after establishment. Fixed costs are usually allocated based on a time ratio. Rent, taxes, insurance, depreciation, interest, salaries to clerical staff, etc.
(C) The ratio of sales must be known before and after the establishment, and selling, or variable costs are usually allocated based on the ratio of sales. Advertising, warehousing rent, storage and discount permits, freight costs, salesman salaries and commissions, etc.
(D) The costs excluding the period after establishment are as follows.
- Board membership fees, corporate bond interest, reserve funds, tax reserves, dividend proposals, etc.
(E) The costs excluding the period before establishment are as follows.
- Interest on the partner's capital, partner salary, etc.
(F) Expenses related to both pre-establishment and post-establishment must be billed for both periods on an hourly basis. Audit fees, interest paid to vendors, etc.
Problem 6:
The owners of a major retailer wanted to see the net income of the X, Y, and Z divisions individually for the three months ended March 31, 2006. It is not realistic to actually acquire the shares on that day, but the proper system accounting of the department is used, and the normal gross profit margin of the three departments involved is the sales before the direct cost is charged at 40%, 30%, and 20% respectively. Overhead is billed in proportion to the department's sales.
Below are the numbers for the department.
The total overhead costs during the period (including those related to other departments) were rupees. The total sale of Rs is 5,400 1, 08,000. Create a statement showing approximate net income with a 10% stock reserve for each sector against the March 31, 2006 estimate
Problem 7:
From the details below, you need to prepare a trading and P & L account for the year ended December 31, 2005, showing the gross and net income of each sector. Allocate general business expenses based on sales. You will also create a balance sheet. Stock in-hand inventory on December 31, 2005 Division A Rs 30.000 and B Rs 20,500.
The total sales are 1.20.000 rupees, that is, department A is 80.000 rupees and B is 40.000 rupees. Percentage of general or indirect expenses charged to A2 / 3 and B1 / 3. (B.Com. Madurai. MS. Bharathiar)
Solution:
Problem 8:
Department C – 2,496 units @ 25 rupees each
The gross profit margin is the same in both cases. Set up a department trading account.
Solution:
Problem 9:
The company has two divisions: piece goods and ready-made dresses. All merchandise purchased by the ready-made department from the Peace Merchandise Department will be billed at normal selling prices.
From the details below, create a departmental transaction and income statement for the year ended December 31, 2005.
Peace goods and ready-made
The ready-made department inventory is considered to consist of 75% cloth supplied by the Peace Goods department. And 25% cost and cloth from the outside. The Peace Goods division made gross profits in 2004 at the same rate as in 2005. The general cost of the entire business in 2005 was Rs 45,000.
Solution:
Problem 10:
From the following balances extracted from the company's books, create a department transaction and general profit and loss account for the year ended December 31, 2005, and a balance sheet for that day after adjusting for unrealized department profits.
Additional Information:
1. Close inventory in department A – Rs 13,000 including Rs 4,000 products at costs from department B to department A.
2. Final inventory of department B – Rs26,000-Includes goods from department AR 9,000 to department B.
3. Sales department A includes the transfer of goods worth 20,000 rupees to department B, and sales of department B include the transfer of goods worth 30,000 rupees to department A at the market price included.
4. The starting inventory of department A and department B includes goods from department B and department A worth Rs 1,000 and Rs 1,500 respectively at cost to the transfer department.
5. Depreciate land and buildings by 5% and depreciate furniture by 10% annually.
Solution:
No adjustment of opening inventory, including N.B. Inter-departmental transfers, is required. This is because the goods are valued at cost to the transfer department rather than the transferee department.
Problem 11:
The company has two departments. Peace goods and tailoring. All merchandise purchased by the tailoring department from the piece goods department will be sold at the same normal market price as the price charged to external customers.
From the details below, create a department transaction and income statement and balance sheet as of March 31, 2005.
Depreciate the machine by 10%. Typical unallocated costs are allocated in a ratio of piece merchandise-3 to tailoring-2.
Solution:
Calculation of reserve for unrealized gains:
The composition of the tailoring department's closing stock is not shown. The tailoring department owns a stake of Rs 14,000. There is no doubt that the inventory consists of piece products and external products. You can assume that your inventory consists of both piece goods and external types of goods.
Therefore, the value of the goods in the piece merchandise department in the final inventory of the tailoring department can be calculated as follows:
Problem 12:
Note: All costs will be split by sales ratio as instructed.
Sales ratio = A – Rs. 50.000, B – Rupee 30,000 C – Rupee 20,000 or 5: 3: 2
Key takeaways:
- The income statement is a financial statement that summarizes the income, costs, and expenses incurred over a specified period of time.
- The income statement, along with the balance sheet and cash flow statement, is one of three financial statements issued quarterly and annually by all public companies.
- It is important to compare the income statements for different accounting periods, as revenue, operating costs, R & D costs, and net income over time are more meaningful than the numbers themselves.
- The income statement, along with the balance sheet and cash flow statement, provides details of the company's financial performance.
- The income statement is one of the three main financial statements (along with the balance sheet and cash flow statement) that report a company's financial performance for a particular accounting period.
- Net Income = (Gross Income + Profit) – (Total Cost + Loss)
- Total revenue is the sum of operating revenue and non-operating revenue, and total costs include costs incurred by primary and secondary activities.
- Income is not a receipt. Revenue is earned and reported to the income statement. Receipts (receipt or payment of cash) are not.
- The income statement provides valuable insights into a company's operations, operational efficiency, poorly performing sectors, and performance compared to its peers.
Provisions Relating to Financial Statements as Per the Companies Act, 2013
- Section 129 of the Companies Act 2013 provides for the preparation of financial statements.
- 2.2 (40) includes the Balance Sheet, Income Statement / Income Statement, Cash Flow Statement, Statement of changes in Shareholders' Equity, and the description attached above.
- The new section 129 corresponds to the existing section 210. The financial statements shall provide a true and fair view of the company's situation and shall comply with the accounting standards notified in the new Section 133.
- It is also stipulated that the Financial Statements will be prepared in the format specified in the new Schedule III of the Companies Act 2013.
- Note that the new Schedule III provides Balance Sheet preparation and income statement provisions in the same row as the existing Schedule VI.
- In addition, the new Schedule III mandates the consolidation of subsidiary accounts in Section 129, which gives detailed instructions on the preparation of consolidated financial statements.
- Note that for the first time in new section 129 (3), a provision was created that if a company has one or more subsidiaries, the consolidated financial statements of the company and all of its subsidiaries must be prepared. In the format provided in the new Schedule III of the Companies Act 2013.
- The company must also attack its Financial Statements, along with other financial statements that contain the salient features of the subsidiary's finances in a manner as provided in the rules.
- In addition, if a company is interested in an affiliated company or joint venture, the accounting for that company and the joint venture shall be integrated.
- Affiliates are defined in the new Section 2 (6) for this purpose. The company has an important influence. Manages 20% of the company's total equity capital, or contractual business decisions.
- The Central Government has the authority to exempt companies from complying with any of the requirements created under this section.
General Instruction for Preparation of Balance Sheet and Statement of Profit and Loss of a Company (Section 129) | |||||||
General instructions | (1) where compliance with the requirements of the act including accounting standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, in the financial statements or statements forming part thereof, the same shall be made and the requirements of this schedule shall stand modified accordingly.(2) the disclosure requirements specified in this schedule are in addition to and not in substitution of the disclosure requirements specified in the accounting standards prescribed under the companies act, 2013. Additional disclosures specified in the accounting standards shall be made in the notes to accounts or by way of additional statement unless required to be disclosed on the face of the financial statements. Similarly, all other disclosures as required by the companies’ act shall be made in the notes to accounts in addition to the requirements set out in this schedule. (3) (i) notes to accounts shall contain information in addition to that presented in the financial statements and shall provide where required A) narrative descriptions or disaggregation’s of items recognized in those statements; and B) information about items that do not qualify for recognition in those statements. (ii) each item on the face of the balance sheet and statement of profit and loss shall be cross-referenced to any related information in the notes to accounts. In preparing the financial statements including the notes to accounts, a balance shall be maintained between providing excessive detail that may not assist users of financial statements and not providing important information as a result of too much aggregation (4) (i) depending upon the turnover of the company, the figures appearing in the financial statements maybe rounded off as given below: —
| ||||||
(ii) once a unit of measurement is used, it shall be used uniformly in the financial statements. (5) except in the case of the first financial statements laid before the company (after its incorporation) the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the financial statements including notes shall also be given. (6) for the purpose of this schedule, the terms used herein shall be as per the applicable | |||||||
Accounting standards. | Note: —this part of schedule sets out the minimum requirements for on the face of the balance sheet, and the statement of profit and loss (hereinafter referred to as —financial statements || for the purpose of this schedule) and notes. Line items, sub-line items and sub-totals shall be presented as an addition or substitution on the face of the financial statements when such presentation is relevant to an understanding of the company’s financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the amendments to the companies act or under the Accounting Standards. |
Part 1- format of balance sheet
Name of the company
Balance sheet as at
| Notes | Current year | Previous year |
(in rs.) | (in rs.) | ||
Equity and liabilities |
|
|
|
Shareholder’s fund |
|
|
|
Share capital | 1 |
|
|
Reserves & surplus | 2 |
|
|
Money received against warrants |
|
|
|
|
|
|
|
|
|
|
|
Share application money pending allotment |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
Long term borrowings | 3 |
|
|
Deferred tax liabilities (net) | 4 |
|
|
Other long-term liabilities | 5 |
|
|
Long term provisions | 6 |
|
|
|
|
|
|
Current liabilities |
|
|
|
Short term borrowings | 7 |
|
|
Trade payables | 8 |
|
|
Other current liabilities | 9 |
|
|
Short term provisions | 10 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Assets |
|
|
|
Non-current assets |
|
|
|
Fixed assets | 11 |
|
|
Tangible assets |
|
|
|
Intangible assets |
|
|
|
Capital work-in-progress |
|
|
|
Intangible assets under development |
|
|
|
Non-current investments | 12 |
|
|
Deferred tax assets (net) |
|
|
|
Long term loans & advances | 13 |
|
|
Other non-current assets | 14 |
|
|
|
|
|
|
Current assets |
|
|
|
Current investments | 15 |
|
|
Inventories | 16 |
|
|
Trade receivables | 17 |
|
|
Cash and cash equivalents | 18 |
|
|
Short term loans & advances | 19 |
|
|
Other current assets | 20 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Significant accounting policies |
|
|
|
The accompanying notes are an integral part of the financial statements |
|
|
|
General instructions for preparation of balance sheet
| Particulars |
|
|
1. | When an asset shall be classified as current? | If it satisfies any of the given criteria | (a) it is expected to be realised, or is intended for sale or consumption, in the company’s normal operating cycle; or (b) it is held primarily for the purpose of being traded; or (c) it is expected to be realised within twelve months after the reporting date; or (d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. |
2. | When an asset shall be classified as non-current? |
| Asset other than current asset shall be classified as non-current |
| Operating cycle | Time between the acquisition of assets for processing and Their realisation in cash or cash equivalents | Where the normal operating cycle cannot be identified: it is assumed to have a duration of 12 months |
| When liability shall be classified as current ? | If it satisfies any of thegiven criteria | (a) it is expected to be settled in the company normal operating cycle; or (b) it is held primarily for the purpose of being traded; or (c) it is due to be settled within twelve months after the reporting date; or (d)the company does not have an unconditional right to defer settlement of the liability for least twelve months after the reporting cm terms of a liability that could, at the option the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. |
| When a liability shall be classified as non-current? |
| Liability other than current liability shall be classified as non-current. |
| When receivable shall be classified as a “trade receivable”? | If it is in respect of the amount due on account of goods sold or services rendered | In the normal course of business |
| When payable shall be classified as a “trade payable”? | If it is in respect of the amount due on account of goods purchased or services received | In the normal course of business |
1 | Share capital | For each class of share capital (different classes of preference shares to be treated separately) | A. The number and amount of shares authorized. B. The number of shares issued, subscribed and fully paid, and subscribed but not fully paid. C. Par value per share. D. A reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period. E. The rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital. F. Shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate. G. Shares in the company held by each shareholder holding more than 5 per cent, shares specifying the number of shares held. H. Shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts. I. For the period of five years immediately preceding the date as at which the balance sheet is prepared. I. Aggregate number and class of shares allotted as fully paid-up pursuant to contract(s) without payment being received in cash. Ii. Aggregate number and class of shares allotted as fully paid-up by way of bonus shares. Iii. Aggregate number and class of shares bought back. J. Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date. K. Calls unpaid (showing aggregate value of calls unpaid by directors and officers). L. Forfeited shares (amount originally paid-up). |
2 | Reserves and surplus | Shall be classified as | 1) capital reserves; 2) capital redemption reserve; 3) securities premium reserve; 4) debenture redemption reserve; 5) revaluation reserve; 6) share options outstanding account; 7) other reserves (specify the nature and purpose of each reserve and the amount in respect thereof); 8) surplus i.e., balance in statement of profit and loss disclosing allocations and appropriations such as dividend, bonus snares and transfer to/from reserves, etc.; (Additions and deductions since last balance sheet to be shown under each of the specified heads); |
Reserve specifically represented | By earmarked investments shall be termed as a “fund”. | ||
Debit balance of statement of profit and loss | Shall be shown as a negative figure under the head “surplus”. Similarly, the balance of “reserves and surplus”, after adjusting negative balance of surplus, if any, shall be shown under the head “reserves and surplus” even if the resulting figure is in the negative. | ||
3. | Long-term borrowings | Shall be classified as | 1) bonds/debentures; 2) term loans: (i) from banks. (ii) from other parties 3) deferred payment liabilities; 4) deposits; 5) loans and advances from related parties; 6) long term maturities of finance lease obligations; 7) other loans and advances (specify nature) |
Shall be further sub-classified as | Secured and unsecured (nature of security shall be specified separately in each case) | ||
Where loans have been guaranteed by directors or others | The aggregate amount of such loans under each head shall be disclosed. | ||
|
| Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case maybe) | Shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by instalments, the date of maturity for this purpose must be reckoned as the date on which the first instalment becomes due. |
Particulars of any redeemed bonds/debentures | Which the company has power to reissue shall be disclosed | ||
Shall state | Terms of repayment of term loans and other loans | ||
Shall specify | Period and amount of continuing default as on the balance sheet date in repayment of loans and interest (separately in each case) | ||
4. | Other long-term liabilities | Shall be classified as | (1) trade payables; (2) others. |
5. | Long-term provisions | Shall be classified as | 1) provision for employee benefits; 2) others (specify nature). |
6. | Short-term borrowings | Shall be classified as | 1) loans repayable on demand; (i) from banks. (ii) from other parties. (2) loans and advances from related parties; (3) deposits; (4) other loans and advances (specify nature). |
Borrowings shall further be sub-classified as | Secured and unsecured (nature of security shall be specified separately in each case) | ||
Where loans have been guaranteed by directors or others | The aggregate amount of such loans under each head shall be disclosed. | ||
Shall specify | Period and amount of continuing default as on the balance sheet date in repayment of loans and interest (separately in each case) | ||
7. | Other current liabilities | Shall be classified as | 1) current maturities of long-term debt; 2) current maturities of finance lease obligations; 3) interest accrued but not due on borrowings; 4) interest accrued and due on borrowings; 5) income received in advance; 6) unpaid dividends; 7) application money received for allotment of securities and due for refund and interest accrued thereon. Share application money includes advances towards allotment of share capital. The terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorised capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head equity and share application money to the extent refundable, i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be separately shown under “other current liabilities”; 8) unpaid matured deposits and interest accrued thereon; 9) unpaid matured debentures and interest accrued thereon; 10) other payables (specify nature). |
8 | Short-term provisions | Shall be classified as | 1) provision for employee benefits 2) others (specify nature). |
9. | Tangible assets | Classification shall be given as | 1) land; 2) buildings; 3) plant and equipment; 4) furniture and fixtures; 5) vehicles; 6) office equipment; 7) others (specify nature). |
| Under lease shall be separately specified | Under each class of asset | |
| A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period | Showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. | |
|
| Where sums have been written-off on a education of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition | Shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. |
10 | Intangible assets | Classification shall be given as | 1) goodwill; 2) brands /trademarks; 3) computer software; 4) mastheads and publishing titles; 5) mining rights; 6) copyrights, and patents and other intellectual property rights, services and operating rights; 7) recipes, formulae, models, designs and prototypes; 8) licences and franchise; 9) others (specify nature). |
A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period | Showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. | ||
Where sums have been written-off on a education of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition | Shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. | ||
11. | Non-current investments | Shall be classified as trade investments and other investments and further classified as | 1) investment property; 2) investments in equity instruments; 3) investments in preference shares; 4) investments in government or trust securities; 5) investments in debentures or bonds; 6) investments in mutual funds; 7) investments in partnership firms; 8) other non-current investments (specify nature). Under each classification, details shall be given of names of the body’s corporate indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. |
Investments carried at other than at cost | Should be separately stated specifying the basis for valuation thereof; | ||
The following shall also be disclosed | 1) aggregate amount of quoted investments and market value thereof; 2) aggregate amount of unquoted investments; 3) aggregate provision for diminution in value of investments. | ||
12. | Long-term loans and advances | Loans and advances shall be classified as: | 1) capital advances; 2) security deposits; 3) loans and advances to related parties (giving details thereof); 4) other loans and advances (specify nature). |
The above shall also be separately sub-classified as: | 1) secured, considered good; 2) unsecured, considered good; 3) doubtful. | ||
Allowance for bad and doubtful loans and advances | Shall be disclosed under the relevant heads separately. | ||
Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other persons or amounts due by firms or private companies respectively in which any director is a partner or a director or a member | Should be separately stated. | ||
13. | Other non-current assets | Shall be classified as | 1) long-term trade receivables (including trade receivables on deferred credit terms); 2) others (specify nature); 3) long term trade receivables, shall be sub-classified as: |
| (i) secured, considered good; (ii) unsecured, considered good; (iii) doubtful Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. | ||
14. | Current investments | Shall be classified as | 1) investments in equity instruments; 2) investment in preference shares; 3) investments in government or trust securities: 4) investments in debentures or bonds; 5) investments in mutual funds; 6) investments in partnership firms; 7) other investments (specify nature). |
Under each classification | Details shall be given of names of the body’s corporate indicating separately whether such bodies are: (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. | ||
|
| Following shall also be disclosed: | 1) the basis of valuation of individual investments 2) aggregate amount of quoted investments and market value thereof; 3) aggregate amount of unquoted investments; 4) aggregate provision made for diminution in value of investments |
15. | Inventories | Inventories shall be classified as: | 1) raw materials; 2) work-in-progress; 3) finished goods; 4) stock-in-trade (in respect of goods acquired for trading); 5) stores and spares; 6) loose tools; 7) others (specify nature) |
Goods-in-transit | Shall be disclosed under the relevant sub-head of inventories | ||
Mode of valuation | Shall be stated | ||
16. | Trade receivables | Shall separately state shall be sub-classified as | Aggregate amount of trade receivables outstanding for a period exceeding six months from the date they are due for payment |
1) secured, considered good; 2) unsecured, considered good; 3) doubtful. Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. | |||
17. | Cash and cash equivalents | Shall be classified as | 1) balances with banks; 2) cheques, drafts on hand; 3) cash on hand; 4) others (specify nature) |
Earmarked balances with banks (for example, for unpaid dividend) | Shall be separately stated | ||
Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments | Shall be disclosed separately. | ||
|
| Repatriation restrictions, if any, in respect of cash and bank balances | Shall be disclosed separately. |
Bank deposits with more than twelve months maturity | Shall be disclosed separately. | ||
18. | Short-term loans and advances | Shall be classified as: | 1) loans and advances to related parties (giving details thereof); 2) others (specify nature). |
Above shall also be sub-classified as | 1) secured, considered good; 2) unsecured, considered good; 3) doubtful. | ||
Allowance for bad and doubtful loans and advances | Shall be disclosed under the relevant heads separately | ||
Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other person or amounts due by firms or private companies respectively in which any director is a partner or a director or a member | Shall be separately stated | ||
19. | Other current assets (specify nature) | An all-inclusive heading | Which incorporates current assets that do not fit into any other asset categories |
20. | Contingent liabilities (to the extent not | Shall be classified as | 1) claims against the company not acknowledged as debt; |
| Provided for) commitments (to the extent not provided for) | Shall be classified as | 2) guarantees; 3) other money for which the company is contingently liable. 1) estimated amount of contracts remaining to be executed on capital account and not provided for; 2) uncalled liability on shares and other investments partly paid; 3) other commitments (specify nature). |
Part 1- Format of Balance Sheet
Name of the company
Balance sheet as at
| Notes | Current year | Previous year |
(in rs.) | (in rs.) | ||
Equity and liabilities |
|
|
|
Shareholder’s fund |
|
|
|
Share capital | 1 |
|
|
Reserves & surplus | 2 |
|
|
Money received against warrants |
|
|
|
|
|
|
|
|
|
|
|
Share application money pending allotment |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
Long term borrowings | 3 |
|
|
Deferred tax liabilities (net) | 4 |
|
|
Other long-term liabilities | 5 |
|
|
Long term provisions | 6 |
|
|
|
|
|
|
Current liabilities |
|
|
|
Short term borrowings | 7 |
|
|
Trade payables | 8 |
|
|
Other current liabilities | 9 |
|
|
Short term provisions | 10 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Assets |
|
|
|
Non-current assets |
|
|
|
Fixed assets | 11 |
|
|
Tangible assets |
|
|
|
Intangible assets |
|
|
|
Capital work-in-progress |
|
|
|
Intangible assets under development |
|
|
|
Non-current investments | 12 |
|
|
Deferred tax assets (net) |
|
|
|
Long term loans & advances | 13 |
|
|
Other non-current assets | 14 |
|
|
|
|
|
|
Current assets |
|
|
|
Current investments | 15 |
|
|
Inventories | 16 |
|
|
Trade receivables | 17 |
|
|
Cash and cash equivalents | 18 |
|
|
Short term loans & advances | 19 |
|
|
Other current assets | 20 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Significant accounting policies |
|
|
|
The accompanying notes are an integral part of the financial statements |
|
|
|
General instructions for preparation of Balance Sheet
| Particulars |
|
|
1. | When an asset shall be classified as current? | If it satisfies any of the given criteria | (a) it is expected to be realised, or is intended for sale or consumption, in the company’s normal operating cycle; or (b) it is held primarily for the purpose of being traded; or (c) it is expected to be realised within twelve months after the reporting date; or (d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. |
2. | When an asset shall be classified as non-current? |
| Asset other than current asset shall be classified as non-current |
| Operating cycle | Time between the acquisition of assets for processing and Their realisation in cash or cash equivalents | Where the normal operating cycle cannot be identified: it is assumed to have a duration of 12 months |
| When liability shall be classified as current? | If it satisfies any of the given criteria | (a) it is expected to be settled in the company normal operating cycle; or (b) it is held primarily for the purpose of being traded; or (c) it is due to be settled within twelve months after the reporting date; or (d)the company does not have an unconditional right to defer settlement of the liability for least twelve months after the reporting cm terms of a liability that could, at the option the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. |
| When a liability shall be classified as non-current? |
| Liability other than current liability shall be classified as non-current. |
| When receivable shall be classified as a “trade receivable”? | If it is in respect of the amount due on account of goods sold or services rendered | In the normal course of business |
| When payable shall be classified as a “trade payable”? | If it is in respect of the amount due on account of goods purchased or services received | In the normal course of business |
1 | Share capital | For each class of share capital (different classes of preference shares to be treated separately) | A. The number and amount of shares authorized. B. The number of shares issued, subscribed and fully paid, and subscribed but not fully paid. C. Par value per share. D. A reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period. E. The rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital. F. Shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate. G. Shares in the company held by each shareholder holding more than 5 per cent, shares specifying the number of shares held. H. Shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts. I. For the period of five years immediately preceding the date as at which the balance sheet is prepared. I. Aggregate number and class of shares allotted as fully paid-up pursuant to contract(s) without payment being received in cash. Ii. Aggregate number and class of shares allotted as fully paid-up by way of bonus shares. Iii. Aggregate number and class of shares bought back. J. Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date. K. Calls unpaid (showing aggregate value of calls unpaid by directors and officers). L. Forfeited shares (amount originally paid-up). |
2 | Reserves and surplus | Shall be classified as | 1) capital reserves; 2) capital redemption reserve; 3) securities premium reserve; 4) debenture redemption reserve; 5) revaluation reserve; 6) share options outstanding account; 7) other reserves(specify the nature and purpose of each reserve and the amount in respect thereof); 8) surplus i.e., balance in statement of profit and loss disclosing allocations and appropriations such as dividend, bonus snares and transfer to/from reserves, etc.; (additions and deductions since last balance sheet to be shown under each of the specified heads); |
Reserve specifically represented | By earmarked investments shall be termed as a “fund”. | ||
Debit balance of statement of profit and loss | Shall be shown as a negative figure under the head “surplus”. Similarly, the balance of “reserves and surplus”, after adjusting negative balance of surplus, if any, shall be shown under the head “reserves and surplus” even if the resulting figure is in the negative. | ||
3. | Long-term borrowings | Shall be classified as | 1) bonds/debentures; 2) term loans: (i) from banks. (ii) from other parties 3) deferred payment liabilities; 4) deposits; 5) loans and advances from related parties; 6) long term maturities of finance lease obligations; 7) other loans and advances (specify nature) |
Shall be further sub-classified as | Secured and unsecured (nature of security shall be specified separately in each case) | ||
Where loans have been guaranteed by directors or others | The aggregate amount of such loans under each head shall be disclosed. | ||
|
| Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case maybe) | Shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by instalments, the date of maturity for this purpose must be reckoned as the date on which the first instalment becomes due. |
Particulars of any redeemed bonds/debentures | Which the company has power to reissue shall be disclosed | ||
Shall state | Terms of repayment of term loans and other loans | ||
Shall specify | Period and amount of continuing default as on the balance sheet date in repayment of loans and interest(separately in each case) | ||
4. | Other long-term liabilities | Shall be classified as | (1) trade payables; (2) others. |
5. | Long-term provisions | Shall be classified as | 1) provision for employee benefits; 2) others (specify nature). |
6. | Short-term borrowings | Shall be classified as | 1) loans repayable on demand; (i) from banks. (ii) from other parties. (2) loans and advances from related parties; (3) deposits; (4) other loans and advances (specify nature). |
Borrowings shall further be sub-classified as | Secured and unsecured(nature of security shall be specified separately in each case) | ||
Where loans have been guaranteed by directors or others | The aggregate amount of such loans under each head shall be disclosed. | ||
Shall specify | Period and amount of continuing default as on the balance sheet date in repayment of loans and interest (separately in each case) | ||
7. | Other current liabilities | Shall be classified as | 1) current maturities of long-term debt; 2) current maturities of finance lease obligations; 3) interest accrued but not due on borrowings; 4) interest accrued and due on borrowings; 5) income received in advance; 6) unpaid jividends; 7) application money received for allotment of securities and due for refund and interest accrued thereon. Share application money includes advances towards allotment of share capital. The terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorised capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head equity and share application money to the extent refundable, i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be separately shown under “other current liabilities”; 8) unpaid matured deposits and interest accrued thereon; 9) unpaid matured debentures and interest accrued thereon; 10) other payables (specify nature). |
8 | Short-term provisions | Shall be classified as | 1) provision for employee benefits 2) others (specify nature). |
9. | Tangible assets | Classification shall be given as | 1) land; 2) buildings; 3) plant and equipment; 4) furniture and fixtures; 5) vehicles; 6) office equipment; 7) others (specify nature). |
| Under lease shall be separately specified | Under each class of asset | |
| A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period | Showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. | |
|
| Where sums have been written-off on a eduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition | Shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. |
10 | Intangible assets | Classification shall be given as | 1) goodwill; 2) brands /trademarks; 3) computer software; 4) mastheads and publishing titles; 5) mining rights; 6) copyrights, and patents and other intellectual property rights, services and operating rights; 7) recipes, formulae, models, designs and prototypes; 8) licences and franchise; 9) others (specify nature). |
A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period | Showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. | ||
Where sums have been written-off on a eduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition | Shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. | ||
11. | Non-current investments | Shall be classified as trade investments and other investments and further classified as | 1) investment property; 2) investments in equity instruments; 3) investments in preference shares; 4) investments in government or trust securities; 5) investments in debentures or bonds; 6) investments in mutual funds; 7) investments in partnership firms; 8) other non-current investments (specify nature). Under each classification, details shall be given of names of the bodies corporate indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. |
Investments carried at other than at cost | Should be separately stated specifying the basis for valuation thereof; | ||
The following shall also be disclosed | 1) aggregate amount of quoted investments and market value thereof; 2) aggregate amount of unquoted investments; 3) aggregate provision for diminution in value of investments. | ||
12. | Long-term loans and advances | Loans and advances shall be classified as: | 1) capital advances; 2) security deposits; 3) loans and advances to related parties (giving details thereof); 4) other loans and advances (specify nature). |
The above shall also be separately sub-classified as: | 1) secured, considered good; 2) unsecured, considered good; 3) doubtful. | ||
Allowance for bad and doubtful loans and advances | Shall be disclosed under the relevant heads separately. | ||
Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other persons or amounts due by firms or private companies respectively in which any director is a partner or a director or a member | Should be separately stated. | ||
13. | Other non-current assets | Shall be classified as | 1) long-term trade receivables (including trade receivables on deferred credit terms); 2) others (specify nature); 3) long term trade receivables, shall be sub-classified as: |
| (i) secured, considered good; (ii) unsecured, considered good; (iii) doubtful Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. | ||
14. | Current investments | Shall be classified as | 1) investments in equity instruments; 2) investment in preference shares; 3) investments in government or trust securities: 4) investments in debentures or bonds; 5) investments in mutual funds; 6) investments in partnership firms; 7) other investments (specify nature). |
Under each classification | Details shall be given of names of the bodies corporate indicating separately whether such bodies are: (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. | ||
|
| Following shall also be disclosed: | 1) the basis of valuation of individual investments 2) aggregate amount of quoted investments and market value thereof; 3) aggregate amount of unquoted investments; 4) aggregate provision made for diminution in value of investments |
15. | Inventories | Inventories shall be classified as: | 1) raw materials; 2) work-in-progress; 3) finished goods; 4) stock-in-trade (in respect of goods acquired for trading); 5) stores and spares; 6) loose tools; 7) others (specify nature) |
Goods-in-transit | Shall be disclosed under the relevant sub-head of inventories | ||
Mode of valuation | Shall be stated | ||
16. | Trade receivables | Shall separately state shall be sub-classified as | Aggregate amount of trade receivables outstanding for a period exceeding six months from the date they are due for payment |
1) secured, considered good; 2) unsecured, considered good; 3) doubtful. Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. | |||
17. | Cash and cash equivalents | Shall be classified as | 1) balances with banks; 2) cheques, drafts on hand; 3) cash on hand; 4) others (specify nature) |
Earmarked balances with banks (for example, for unpaid dividend) | Shall be separately stated | ||
Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments | Shall be disclosed separately. | ||
|
| Repatriation restrictions, if any, in respect of cash and bank balances | Shall be disclosed separately. |
Bank deposits with more than twelve months maturity | Shall be disclosed separately. | ||
18. | Short-term loans and advances | Shall be classified as: | 1) loans and advances to related parties (giving details thereof); 2) others (specify nature). |
Above shall also be sub-classified as | 1) secured, considered good; 2) unsecured, considered good; 3) doubtful. | ||
Allowance for bad and doubtful loans and advances | Shall be disclosed under the relevant heads separately | ||
Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other person or amounts due by firms or private companies respectively in which any director is a partner or a director or a member | Shall be separately stated | ||
19. | Other current assets (specify nature) | An all-inclusive heading | Which incorporates current assets that do not fit into any other asset categories |
20. | Contingent liabilities (to the extent not | Shall be classified as | 1) claims against the company not acknowledged as debt; |
| Provided for) commitments (to the extent not provided for) | Shall be classified as | 2) guarantees; 3) other money for which the company is contingently liable. 1) estimated amount of contracts remaining to be executed on capital account and not provided for; 2) uncalled liability on shares and other investments partly paid; 3) other commitments (specify nature). |
Part 2- Format of Statement of Profit or Loss
| Notes | Current year | Previous year |
(in rs.) | (in rs.) | ||
Continuing operations |
|
|
|
|
|
|
|
Revenue | 2 |
|
|
Revenue from operations |
|
|
|
Less : excise duty |
|
|
|
Revenue from operations (net) | 21 |
|
|
Other income | 22 |
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
|
Expenses |
|
|
|
Cost of materials consumed | 23 |
|
|
Purchases of stock-in-trade | 24 |
|
|
(increase)/decrease in inventories of fg/wip/stock-in-trade | 25 |
|
|
Employee benefit expenses | 26 |
|
|
Finance cost | 27 |
|
|
Depreciation & amortisation expenses | 28 |
|
|
Other expenses | 29 |
|
|
Total expenses |
|
|
|
|
|
|
|
Profit before exceptional and extraordinary items & tax |
|
|
|
Exceptional income / expenses |
|
|
|
|
|
|
|
Profit before extraordinary items & tax |
|
|
|
Prior period items |
|
|
|
Extraordinary items |
|
|
|
|
|
|
|
Profit before tax |
|
|
|
Provision for taxation | 30 |
|
|
|
|
|
|
Profit/(loss) for the period from continuing operations |
|
|
|
|
|
|
|
Discontinuing operations |
|
|
|
|
|
|
|
Profit/(loss) from discontinuing operations |
|
|
|
Tax expense of discontinuing operations |
|
|
|
Profit/(loss) from discontinuing operations after tax |
|
|
|
|
|
|
|
Profit/(loss) for the period |
|
|
|
|
|
|
|
Earnings per share | 3 |
|
|
Basic eps (in rs.) |
|
|
|
Diluted eps (in rs.) |
|
|
|
Details to be disclosed in the notes
a. Amount of “Revenue from operations” will be divided in –
i. Sale of products (including excise duty)
Ii. Sale of services
Iii. Other operating revenues
b. Finance cost will be distributed in –
i. Interest
Ii. Dividend on redeemable preference shares
Iii. Exchange Differences regarded as an adjustment to borrowing costs, and
Iv. Other borrowing costs (if any)
c. Other Income will be distributed in –
i. Interest Income,
Ii. Dividend Income, and
Iii. Other non-operating income
d. Other Comprehensive Income shall be classified into –
i. Items that will not be reclassified to profit or loss
1. Changes in revaluation surplus
2. Remeasurements of the defined benefit plans
3. Equity Instruments through Other Comprehensive Income
4. Fair value changes relating to own credit risk of financial liabilities designated at fair value through profit or loss
5.Share of Other Comprehensive Income in Associates and Joint Ventures, to the extent not to be classified into profit or loss, and
6. Others
Ii. Items that will be reclassified to profit or loss
1. Exchange differences in translating the financial statements of a foreign operation;
2. Debt instruments through Other Comprehensive Income;
3. The effective portion of gains and loss on hedging instruments in a cash flow hedge;
4. Share of other comprehensive income in Associates and Joint Ventures, to the extent to be classified into profit or loss; and
5. Others
e. Employees benefit expense
i. Salaries and wages,
Ii. Contribution to provident and other funds,
Iii. Share-based payments to employees
Iv. Staff welfare expenses
f. Depreciation and amortisation expense,
g. Interest Income,
h. Interest Expense,
i. Dividend Income,
j. Net gain or loss on sale of investments,
k. Net gain or loss on foreign currency transaction and translation (other than considered as finance cost),
l. Payment to the auditor as
i. Auditor
Ii. For taxation matters
Iii. For company law matters
Iv. For other services
v. For reimbursement of expenses
m. Amount of expenses incurred on corporate social responsibility activities,
n. Details of items of exceptional nature
o. Any other expense or income which exceeds higher of Rs. 10,00,000 or 1% of revenue from operations.
SCHEDULES FORMING A PART OF BALANCE SHEET & PROFIT & LOSS ACCOUNT
Particulars | Current Year | Previous Year |
1. SHARE CAPITAL |
|
|
Authorised Share Capital : |
|
|
--- Equity Shares of Rs.-- each |
|
|
|
|
|
Issued Subscribed and Paid Up Capital : |
|
|
--- Equity Shares of Rs.-- each |
|
|
|
|
|
Less: Calls unpaid by Directors & Officers |
|
|
Less: Calls unpaid by Others |
|
|
Less: Shares Forfeited : |
|
|
Add: Forfeited Shares Reissued |
|
|
|
|
|
Total |
|
|
|
|
|
2. RESERVES & SURPLUS |
|
|
Capital Surplus |
|
|
As per last Balance Sheet |
|
|
Add : Additions during the year |
|
|
Less : Transfer / Adjustment during the year |
|
|
|
|
|
Profit & Loss Account |
|
|
As per last Balance Sheet |
|
|
Add : Transfer from General Reserves |
|
|
Add : Transfer from Capital Reserves |
|
|
Add : Transfer from Special Sources |
|
|
Add : Transfer from Other Reserves |
|
|
Add : Other Additions |
|
|
Less : Transfer to General Reserves |
|
|
Less : Transfer to Statutory Reserves |
|
|
Less : Transfer to Capital Reserves |
|
|
Less : Transfer to Capital Redemption Reserves |
|
|
Less : Transfer to Debenture Redemption Reserves |
|
|
Less : Transfer to Other Reserves |
|
|
Less : Appropriation for Interim Dividend |
|
|
Less : Appropriation for Final Dividend |
|
|
Less : Appropriation for Preference Dividend |
|
|
Less : Appropriation for Special Dividend |
|
|
Less : Appropriation for Dividend Distribution Tax on Equity Dividend |
|
|
Less : Appropriation for Dividend Distribution Tax on Preference Dividend |
|
|
Less : Other Deductions(Misc/Preliminary Exps not w/off) |
|
|
|
|
|
Surplus / (Deficit) during the year |
|
|
|
|
|
Total |
|
|
|
|
|
3. LONG TERM BORROWINGS |
|
|
Secured |
|
|
Bonds |
|
|
Debentures |
|
|
Loans from Banks |
|
|
Loans from Financial Institutions |
|
|
Loans from related parties |
|
|
Loans from Other |
|
|
Secured Deposits |
|
|
Loan from Subsidiaries |
|
|
Loan from Directors |
|
|
Loan from Managers |
|
|
Loan taken for Fixed Assets |
|
|
Hire Purchase Installment Payable |
|
|
Other Secured Borrowings |
|
|
|
|
|
Unsecured |
|
|
Bonds |
|
|
Debentures |
|
|
Loans from Banks |
|
|
Loans from Financial Institutions |
|
|
Loans from related parties |
|
|
Loans from Other |
|
|
Unsecured Deposits |
|
|
Loan from Subsidiaries |
|
|
Loan from Directors |
|
|
Loan from Managers |
|
|
Loan taken for Fixed Assets |
|
|
Hire Purchase Installment Payable |
|
|
Other Secured Borrowings |
|
|
Total |
|
|
|
|
|
|
|
|
4. DEFERRED TAX ASSET / LIABILITIES |
|
|
Deferred Tax Liabilities |
|
|
Branch Profit Tax |
|
|
Others |
|
|
|
|
|
|
|
|
Deferred Tax Assets |
|
|
Fixed Assets |
|
|
Others |
|
|
Total |
|
|
|
|
|
|
|
|
5. OTHER LONG TERM LIABILITIES |
|
|
Trade Payables |
|
|
Other Long Term Liabilities |
|
|
Total |
|
|
|
|
|
6. LONG TERM PROVISIONS |
|
|
Provision for Employee Related Liabilities |
|
|
Employee Health Insurance |
|
|
Other Long Term Provisions |
|
|
Others |
|
|
|
|
|
Total |
|
|
|
|
|
7. SHORT TERM BORROWINGS |
|
|
Secured |
|
|
Bonds |
|
|
Debentures |
|
|
Loans from Banks |
|
|
Loans from Financial Institutions |
|
|
Loans from related parties |
|
|
Loans from Other |
|
|
Secured Deposits |
|
|
Loan from Subsidiaries |
|
|
Loan from Directors |
|
|
Loan from Managers |
|
|
Loan taken for Fixed Assets |
|
|
Hire Purchase Installment Payable |
|
|
Other Secured Borrowings |
|
|
|
|
|
Unsecured |
|
|
Bonds |
|
|
Debentures |
|
|
Loans from Banks |
|
|
Loans from Financial Institutions |
|
|
Loans from related parties |
|
|
Loans from Other |
|
|
Unsecured Deposits |
|
|
Loan from Subsidiaries |
|
|
Loan from Directors |
|
|
Loan from Managers |
|
|
Loan taken for Fixed Assets |
|
|
Hire Purchase Installment Payable |
|
|
Other Secured Borrowings |
|
|
Total |
|
|
|
|
|
8. TRADE PAYABLES |
|
|
|
|
|
Creditors for Materials |
|
|
Creditors for Expenses |
|
|
Other Creditors |
|
|
|
|
|
Total |
|
|
|
|
|
9. OTHER CURRENT LIABILITIES |
|
|
Current Maturity of Long Term Debt |
|
|
Current Maturity of Finance Lease Obligation |
|
|
Interest Accrued but not Due |
|
|
Interest Accrued and Due |
|
|
Advances Received |
|
|
Unclaimed / Unpaid Amounts |
|
|
Share Application Money Refundable |
|
|
Other Payables |
|
|
|
|
|
Total |
|
|
|
|
|
10. SHORT TERM PROVISIONS |
|
|
Provision for Employee Related Liabilities |
|
|
Provision for Employees |
|
|
Provision for Dividend |
|
|
Provision for Dividend Distribution Tax |
|
|
Provision for Statutory Liabilities |
|
|
Other Short Term Provisions |
|
|
|
|
|
Total |
|
|
|
|
|
11. FIXED ASSETS |
|
|
Tangible |
|
|
Land & Building |
|
|
Add: Additions |
|
|
Less: Deductions |
|
|
Less: Depreciation |
|
|
|
|
|
Plant & Machinery |
|
|
Add: Additions |
|
|
Less: Deductions |
|
|
Less: Depreciation |
|
|
|
|
|
Furniture |
|
|
Add: Additions |
|
|
Less: Deductions |
|
|
Less: Depreciation |
|
|
|
|
|
Other Assets, etc |
|
|
Add: Additions |
|
|
Less: Deductions |
|
|
Less: Depreciation |
|
|
|
|
|
Intangible Assets |
|
|
Goodwill |
|
|
Brands / Trademarks |
|
|
Computer Software |
|
|
Mastheads and publishing titles |
|
|
Copyrights |
|
|
Patents |
|
|
Other intellectual property rights, |
|
|
Services & operating rights |
|
|
Less: Amortization |
|
|
|
|
|
Total Assets |
|
|
|
|
|
12. NON CURRENT INVESTMENTS |
|
|
A. Quoted Investments |
|
|
1. Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
Other Investments |
|
|
|
|
|
2. Non-Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
Other Investments |
|
|
|
|
|
3. Other Investments |
|
|
Investments in Associates |
|
|
Investments in Joint Venture |
|
|
Investments in Subsidiaries |
|
|
Investments in Controlled Special Purpose Entities |
|
|
|
|
|
B. Unquoted Investments |
|
|
1. Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
In Mutual Funds |
|
|
In Property |
|
|
Other Investments |
|
|
|
|
|
2. Non-Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
In Mutual Funds |
|
|
In Property |
|
|
Other Investments |
|
|
|
|
|
3. Other Investments |
|
|
Investments in Associates |
|
|
Investments in Joint Venture |
|
|
Investments in Subsidiaries |
|
|
Investments in Controlled Special Purpose Entities |
|
|
Investment in Capital of Partnership Firm |
|
|
|
|
|
Less : Provision for Diminution in Non-current Investments |
|
|
|
|
|
Total |
|
|
|
|
|
13. LONG TERM LOANS & ADVANCES |
|
|
Capital Advances |
|
|
Inter-Corporate Deposits |
|
|
Deposit with Statutory Authorities |
|
|
Other Security Deposits |
|
|
Given to Subsidiaries |
|
|
Given to Associates |
|
|
Given to Directors |
|
|
Given to Other Related Parties |
|
|
Given to Suppliers |
|
|
Given to Employees |
|
|
Other Long Term Loans & Advances |
|
|
Total |
|
|
14. OTHER NON-CURRENT ASSETS |
|
|
Long Term Trade Receivables |
|
|
|
|
|
Other Non-Current Assets |
|
|
Total |
|
|
|
|
|
15. CURRENT INVESTMENTS |
|
|
A. Quoted Investments |
|
|
1. Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
Other Investments |
|
|
|
|
|
2. Non-Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
Other Investments |
|
|
|
|
|
3. Other Investments |
|
|
Investments in Associates |
|
|
Investments in Joint Venture |
|
|
Investments in Subsidiaries |
|
|
Investments in Controlled Special Purpose Entities |
|
|
|
|
|
B. Unquoted Investments |
|
|
1. Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
In Mutual Funds |
|
|
In Property |
|
|
Other Investments |
|
|
|
|
|
2. Non-Trade Investments |
|
|
In Government Securities of Local Authorities |
|
|
In Debt Securities |
|
|
In Equity Securities |
|
|
In Preference Securities |
|
|
In Mutual Funds |
|
|
In Property |
|
|
Other Investments |
|
|
|
|
|
3. Other Investments |
|
|
Investments in Associates |
|
|
Investments in Joint Venture |
|
|
Investments in Subsidiaries |
|
|
Investments in Controlled Special Purpose Entities |
|
|
Investment in Capital of Partnership Firm |
|
|
|
|
|
Less : Provision for Diminution in Non-current Investments |
|
|
|
|
|
Total |
|
|
|
|
|
16. INVENTORIES |
|
|
Raw materials |
|
|
Work in progress |
|
|
Finished goods |
|
|
Stock in trade (in respect of goods acquired for trading) |
|
|
Stores & Spares |
|
|
Loose Tools |
|
|
Others (Specify) |
|
|
Consumables |
|
|
Packing materials |
|
|
|
|
|
Total |
|
|
|
|
|
17. TRADE RECEIVABLES |
|
|
Secured - Considered Good |
|
|
Outstanding for more than six months |
|
|
Others |
|
|
|
|
|
Unsecured - Considered Good |
|
|
Outstanding for more than six months |
|
|
Others |
|
|
|
|
|
Unsecured - Considered Doubtful |
|
|
Outstanding for more than six months |
|
|
Others |
|
|
|
|
|
Other Trade Receivables |
|
|
Less : Provision for Doubtful Debts |
|
|
|
|
|
Total |
|
|
18. Cash & Cash Equivalents |
|
|
Cash in Hand |
|
|
Balance at Banks |
|
|
Total |
|
|
19. SHORT TERM LOANS & ADVANCES |
|
|
Given to Subsidiaries |
|
|
Given to Associates |
|
|
Given to Directors |
|
|
Given to Other Related Parties |
|
|
Given to Suppliers |
|
|
Given to Employees |
|
|
Other Long Term Loans & Advances |
|
|
Total |
|
|
|
|
|
20. OTHER CURRENT ASSETS |
|
|
Interest Accrued on Investments |
|
|
Unbilled Revenue |
|
|
Payment of Taxes |
|
|
Dividend Receivable |
|
|
Recoverable from government agencies |
|
|
Export Incentives Receivables |
|
|
Interest Income Accrued but Not Due |
|
|
Assets Held up Disposal |
|
|
Derivative Assets |
|
|
Prepaid Expenses |
|
|
Notes Receivable |
|
|
Claims Recoverable |
|
|
Other Receivables |
|
|
Total |
|
|
|
|
|
21. REVENUE FROM OPERATIONS |
|
|
Revenue from Sale of Products |
|
|
Export Sales |
|
|
Domestic Sales |
|
|
Revenue from Sale of Services |
|
|
Revenue from Contract |
|
|
Works Contract |
|
|
Revenue from Intangible Assets |
|
|
Patents Charges |
|
|
Revenue from Other Operations |
|
|
Other Income |
|
|
Total |
|
|
|
|
|
Less : Service Tax Collected |
|
|
Less : Other Duties & Taxes Collected |
|
|
Less : Inter Division Tranfers |
|
|
Less : Brokerage Discounts & Rebates |
|
|
Less : Sales Return |
|
|
Less : Other Allowances & Deductions against Sales |
|
|
|
|
|
Total |
|
|
|
|
|
22. OTHER INCOME |
|
|
|
|
|
Rent Receipt |
|
|
Commission |
|
|
Dividend Income |
|
|
Interest Income |
|
|
Profit on sale of fixed assets |
|
|
Profit on sale of investment being securities chargeable to Securities Transaction Tax (STT) |
|
|
Profit on sale of other investment |
|
|
Profit on account of currency fluctuation |
|
|
Agriculture income |
|
|
Net gain / (loss) on sale of investment |
|
|
Other non operating income |
|
|
Other Income |
|
|
|
|
|
Total |
|
|
|
|
|
23. COST OF MATERIALS CONSUMED |
|
|
Raw Materials, Packing Materials, Stores & Spares |
|
|
Opening Stock |
|
|
Add: Purchases |
|
|
Add: Incidental Expenses on purchase |
|
|
Less: Purchase Returns |
|
|
Less: Closing Stock |
|
|
|
|
|
Total |
|
|
|
|
|
24. PURCHASE OF STOCK IN TRADE |
|
|
|
|
|
Traded Goods |
|
|
Finished Goods |
|
|
|
|
|
Total |
|
|
|
|
|
25. (INCREASE)/ DECREASE IN INVENTORIES |
|
|
Traded Goods |
|
|
Opening Stock |
|
|
Less: Closing Stock |
|
|
|
|
|
Finished Goods |
|
|
Opening Stock |
|
|
Less: Closing Stock |
|
|
|
|
|
Work in Progress |
|
|
Opening Stock |
|
|
Less: Closing Stock |
|
|
Total |
|
|
|
|
|
26. EMPLOYEE BENEFIT EXPENSES |
|
|
|
|
|
Salaries & Wages |
|
|
Overtime Wages |
|
|
Bonus |
|
|
Director’s Remuneration |
|
|
Managerial Remuneration |
|
|
Reimbursement of Medical Exp |
|
|
Leave Encashment |
|
|
Leave Travel Benefits |
|
|
Contribution to approved Superannuation fund |
|
|
Contribution to recognized Provident fund |
|
|
Contribution to recognized Gratuity fund |
|
|
Contribution to any other fund/ESI |
|
|
Any other benefit to employees in respect of which expenditure has been incurred. |
|
|
Gratuity |
|
|
Performance Pay |
|
|
Profit Share |
|
|
|
|
|
Total |
|
|
|
|
|
27. FINANCE COSTS |
|
|
|
|
|
Interest Expenses |
|
|
Other borrowing cost |
|
|
Net Loss / (Gain) on foreign currency transaction |
|
|
Forward cancellation |
|
|
Bank charges/Bank Guarantee Charges |
|
|
Total |
|
|
|
|
|
28. DEPRECIATION & AMORTISATION EXPENSE |
|
|
Depreciation Expense |
|
|
Amortization Expense |
|
|
Total |
|
|
29. OTHER EXPENSES |
|
|
|
|
|
Manufacturing & Service Cost |
|
|
Transportation charges/Freight |
|
|
Consumption of stores and spare parts: |
|
|
Oil |
|
|
Packing Materials |
|
|
Stores |
|
|
Other consumables |
|
|
Tools, Jigs & fixtures |
|
|
Power and fuel. (Electricity/Generator Exp) |
|
|
Repairs to buildings. |
|
|
Repairs to machinery |
|
|
Research & Development Expenditure |
|
|
Installation S/W |
|
|
Payment to Auditors |
|
|
As auditors - statutory audit |
|
|
For taxation matters |
|
|
For company law matters |
|
|
For management services |
|
|
For other services |
|
|
Reimbursement of expenses |
|
|
Selling/Marketing Expenses |
|
|
Sales promotion including publicity (other than advertisement) |
|
|
Advertisement |
|
|
Commission Paid |
|
|
Other Expenses |
|
|
Duties and taxes in respect of goods and services purchased |
|
|
Custom duty |
|
|
Countervailing duty |
|
|
Special additional duty |
|
|
Union excise duty |
|
|
Service tax |
|
|
VAT/ Sales tax |
|
|
Any other tax |
|
|
Rents |
|
|
Insurance |
|
|
Medical Insurance |
|
|
Life Insurance |
|
|
Key-man Insurance |
|
|
Other Insurance including factory, office, car, goods, etc |
|
|
Workmen and staff welfare expenses |
|
|
Entertainment |
|
|
Hospitality |
|
|
Conference |
|
|
Hotel, Boarding and Lodging |
|
|
Travelling expenses including foreign travelling |
|
|
Conveyance Expenses |
|
|
Telephone Expenses |
|
|
Guest House Expenses |
|
|
Club expenses |
|
|
Festival celebration expenses |
|
|
Scholarships |
|
|
Gift |
|
|
Donation |
|
|
Rates and taxes, paid or payable to Government or any local body (excluding taxes on income) |
|
|
Union Excise Duty |
|
|
Service Tax |
|
|
VAT/Sales Tax |
|
|
Cess |
|
|
Any other rate, tax, duty or cess |
|
|
Other Expenses |
|
|
Bad debts |
|
|
Provision for bad & doubtful debts |
|
|
Other Provisions |
|
|
|
|
|
30. PROVISION FOR TAX |
|
|
Tax Expense |
|
|
Deferred Tax expense |
|
|
Total |
|
|
Key takeaways:
- Nonprofits, companies, and small businesses use financial accountants.
- Financial reporting is done by using financial statements in five different areas. Accounting records are all documents involved in the preparation of financial statements of the company.
- Certain regulatory bodies require companies to keep accounting records for several years if they need to be reviewed.
- Accounting records can be used for audits, compliance checks, or other business-related necessities.
- Accounting record types include transactions, general ledgers, trial balances, journals, and financial statements.
- Here are four financial statements generated by accountants.
- The income statement reports the income and expenses of the enterprise and shows the profitability of its business organization for a certain period of time. The calculated net income (or loss) is used in the statement of retained earnings.
- The statement of retained earnings shows the change in retained earnings from the start of the period (such as the month) to the end. Year-end retained earnings are used by the balance sheet.
- The balance sheet lists the Assets, Liabilities and capital (including amounts) of the enterprise organization at a certain moment, which proves the accounting equation.
- Affiliates are defined in the new Section 2 (6) for this purpose. The company has an important influence.
Problem 1
Dinkar Ltd. The authorized capital of is Rs. Divided into shares of 50,00,000 rupees. 100 each. The company solicited 40,000 shares and accepted 36,000 shares. All calls were made and received properly, except for the 500 shares where the last call to Rs was made. 20 was not received. The company confiscated 200 shares that did not receive the final call. Shows how equity capital appears on a company's balance sheet according to the (revised) Schedule VI Part I of the Companies Act 1956. Also, prepare "Accounting Note" in the same way.
A1.
In the books of Dinkar Ltd
Balance Sheet as at __________
Particulars | Note No. | Amount (Rs.) |
I. Equity and Liabilities
a) Share capital |
1 |
35,90,000 |
Notes to Accounts:
Particulars | Amount (Rs.) | Amount (Rs.) | |
1. Share capital Authorised share capital 50,000 equity shares of Rs. 100 each Issued capital 40,000 equity shares of Rs. 100 each
Subscribed and fully paid up capital 35,500 equity shares of Rs. 100 each fully paid
Subscribed but not fully paid-up capital 300 equity shares of Rs. 100 each fully called up Less: Calls-in-arrears (300 x 20)
Add: Share forfeiture A/c (200 shares x Rs. 80) |
|
30,000 (6,000) 24,000 16,000 |
50,00,000 |
40,00,000 | |||
35,50,000
40,000 | |||
| 35,90,000 |
Problem 2
Show the following items in the balance sheet of Amba Ltd. As per revised schedule
VI as on March 31, 2013: | Rs. |
8% Debentures | 10,00,000 |
Equity share capital | 50,00,000 |
Securities premium | 20,000 |
Preliminary expenses | 40,000 |
Statement of Profit & Loss (cr.) | 1,50,000 |
Discount on issue of 8% debentures (Amount to be written in next 4 years approx.) | 40,000 |
Loose tools | 20,000 |
Bank balance | 60,000 |
Cash in Hand | 38000 |
A2.
In the Books of Amba Ltd
*Balance Sheet as on 31st March, 2013
Particulars | Note No. | Amount (Rs.) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
a) Share capital |
| 50,00,000 |
b) Reserve and surplus | 1 | 1,30,000 |
2. Non-current Liabilities |
|
|
a) Long-term borrowings | 2 | 10,00,000 |
II. Assets |
|
|
1. Non-current assets |
|
|
a) Other non-current assets | 3 | 30,000 |
2. Current assets |
|
|
a) Inventories | 4 | 20,000 |
b) Cash and cash equivalents | 5 | 98,000 |
c) Other current assets | 6 | 10,000 |
*Relevant items only
Notes to Accounts:
Securities premium 20,000 Less: Preliminary expenses (40,000)
Statement of profit and loss
2. Long term borrowings 8% debentures
3. Other non-current assets Discount on issue of 8% debentures ( of Rs. 40,000)
4. Inventory Loose tools
5. Cash and cash equivalents Bank balance Cash in hand
6. Other current assets Discount on issue of 8% debentures (40000/4) |
(20,000)
1,50,000
60,000 38,000
|
1,30,000
10,00,000
30,000
20,000
98,000
10,000 |
Important points:
- Preliminary expenses are to be written-off completely in the year in which such expenses are incurred. They should be written-off first from securities premium and the balance if any, from statement of profit & loss.
- Borrowing costs such as discount on issue of debentures could be written- off over loan
Problem 3
Sunfill Ltd as of March 31, 2013. On your balance sheet, display the following items according to the (revised) Schedule VI, Part I of the Companies Act 1956:
Particulars Amount (Rs.)
General Reserve (since 31 March 2012) 5,00,000
Statement of profit & loss (debit balance) for 2012-13 (3,00,000)
A3.
In the Books of Sunfill Ltd
*Balance Sheet as on 31st March, 2013
Particulars | Note No. | 31st March 2012 (Rs.) | 31st March 2013 (Rs.) |
I. Equity and Liabilities 1. Shareholders’ Funds Reserve and surplus |
1 |
2,00,000 |
5,00,000 |
Notes to Accounts:
Particulars | Amount (Rs.) |
1. Reserve and surplus |
|
General Reserve (1 April, 2012) | 5,00,000 |
Less: Statement of profit and loss (Dr Balance) | (3,00,000) |
|
|
| 2,00,000 |
Problem 4
From the given particulars of Shine and Bright Co. Ltd. as at March 31, 2013, prepare balance sheet in accordance to the (revised) Schedule VI:
Particulars | Amount Rs. | Particulars | Amount Rs. |
Preliminary expenses | 2,40,000 | Goodwill | 30,000 |
Discount on Issue of shares | 20,000 | Loose Tools | 12,000 |
10% Debentures | 2,00,000 | Motor vehicles | 4,75,000 |
Stock in trade | 1,40,000 | Provision for tax | 16,000 |
Cash at bank | 1,35,000 |
|
|
Bills receivables | 1,20,000 |
|
|
A4.
In the books of Shine & Bright Ltd
Balance Sheet as at 31st March, 2013
| Notes | Current Year | Previous Year |
(in Rs.) | (in Rs.) | ||
EQUITY AND LIABILITIES |
|
|
|
Non-current Liabilities |
|
|
|
Long Term Borrowings | 1 | 2,00,000 |
|
|
|
|
|
Current Liabilities |
|
|
|
Short Term Borrowings | 2 | 16,000 |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
ASSETS |
|
|
|
Non-current Assets |
|
|
|
Fixed Assets | 3 |
|
|
Tangible Assets |
| 4,75,000 |
|
Intangible Assets |
| 30,000 |
|
Other Non-current Assets | 4 | 2,60,000 |
|
|
|
|
|
Current Assets |
|
|
|
Inventories | 5 | 1,50,000 |
|
Trade Receivables | 6 | 1,20,000 |
|
Cash and Cash Equivalents | 7 | 1,35,000 |
|
|
|
|
|
Total |
|
|
|
Notes to accounts:
|
|
|
10% Debentures |
| 2,00,000 |
2. Short Term Borrowings |
|
|
Provision for Taxation |
| 16,000 |
3. Fixed Assets |
|
|
Tangible |
|
|
Motor Vehicle | 4,75,000 |
|
Intangible |
|
|
Goodwill | 30,000 | 5,05,000 |
4. Other Non-current Assets |
|
|
Preliminary expenses | 2,40,000 |
|
Discount on Issue of shares | 20,000 | 2,60,000 |
5. Inventories |
|
|
Stock in Trade | 1,40,000 |
|
Loose Tools | 12,000 | 1,52,000 |
6. Trade Receivables |
|
|
Bills Receivable |
| 1,20,000 |
7. Cash and Cash Equivalents |
|
|
Cash at Bank |
| 1,35,000 |
*It has been assumed that discount on issue of debentures is not written-off in the next 12 months of the reporting period.
Problem 5
From the following particulars, prepare Statement of profit and loss for the year ending March 2013, as per the revised Schedule VI:
Balances | Rs. | Rs. |
Plant and Machinery | 1,60,000 |
|
Land | 6,74,000 |
|
Depreciation on Plant and Machinery | 16,000 |
|
Purchases (Adjusted) | 4,00,000 |
|
Closing stock | 1,50,000 |
|
Wages | 1,20,000 |
|
Sales (Net) |
| 10,00,000 |
Salaries | 80,000 |
|
Bank overdraft |
| 2,00,000 |
10% debentures (issued on 1st April, 2012) |
| 1,00,000 |
Equity share capital– shares of Rs. 100 each (fully paid) |
| 2,00,000 |
Preference share capital– 1,000; 6% shares of Rs. 100 each (fully paid) |
| 1,00,000 |
|
|
|
16,00,000 | 16,00,000 |
Additional information
(i) Equity dividend @ 10% declared on paid up capital.
(ii) Dividend on the preference share capital paid in full.
(iii) Rs. 2,00,000 transferred to general reserve.
A5.
Statement of Profit & Loss for the year ended 31st March, 2013
Particulars | Note No. | Amount (Rs.) |
Revenue from operations (Sales) Total II. Expenses Cost of materials consumed (Adjusted purchase) Employees benefit expenses
Finance cost Depreciation and amortization Total Profit before tax (I-II) |
1 |
10,00,000 |
10,00,000 | ||
4,00,000 2,00,000
10,000 16,000 | ||
6,26,000 | ||
3,74,000 |
Notes to Accounts:
Particulars | Amount Rs. | Amount Rs. |
Employee Benefit Expenses |
|
|
(i) Wages | 1,20,000 |
|
(ii) Salary | 80,000 | 2,00,000 |
Problem 6
Given is the Trial Balance of Marathon Limited as on 31st March, 2012. You are require to prepare the Profit and loss Account and Balance Sheet on 31st March, 2012
| Dr. | Cr. | ||||
Authorized Share capital divided into 8,000, 6% preference shares of Rs100 each and 20,000 equity shares of Rs100 each |
|
28,00,000 | ||||
Subscribed Capital |
|
| ||||
5,000 6% preference shares of Rs100 each |
| 5,00,000 | ||||
Equity Share Capital |
| 8,00,000 | ||||
Capital Reserve |
| 5,000 | ||||
Purchases - Coco, Tea, Coffee | 58,800 |
| ||||
- Bakery products | 36,200 |
| ||||
Wages and Salary | 15,300 |
| ||||
Rent, Rates and Taxes | 8,900 |
| ||||
Laundry | 750 |
| ||||
Sales - Coco, Tea and Coffee |
| 82,000 | ||||
- Bakery products |
| 44,000 | ||||
Coal and Firewood | 3,290 |
| ||||
Carriage | 810 |
| ||||
Sundry Expenses | 5,840 |
| ||||
Advertising | 8,360 |
| ||||
Repair | 4,250 |
| ||||
Rent of Rooms |
| 48,000 | ||||
Receipt from Billiards |
| 5,700 | ||||
Miscellaneous Receipts |
| 2,800 | ||||
Discount Received |
| 3,300 | ||||
Transfer Fee |
| 700 | ||||
Freehold Land and Building | 8,50,000 |
| ||||
Furniture and Fittings | 86,300 |
| ||||
Stock on hand, 1st April, 2011 |
|
| ||||
Coco, Tea, Coffee | 12,800 |
| ||||
Bakery products | 5,260 |
| ||||
Cash in Hand | 2,200 |
| ||||
Cash with Bank | 76,380 |
| ||||
Preliminary Expenses | 8,000 |
| ||||
2000, 8% debentures of Rs100 each |
| 2,00,000 | ||||
Profit and Loss Account |
| 41,500 | ||||
Sundry Creditors |
| 42,000 | ||||
Sundry Debtors | 19,260 |
| ||||
Investment | 2,72,300 |
| ||||
Goodwill at Cost | 5,00,000 |
| ||||
General Reserve |
| 2,00,000 | ||||
| 19,75,000 | 19,75,000 | ||||
Additional information: |
|
| ||||
Coco, Tea & Coffee Rs 22,500 Bakery Products Rs 16,400 3. Provide 5% depreciation on Furniture and Fittings and 2% on Land and Building |
|
| ||||
The equity capital on 1st April, 2011 stood at Rs 7, 20,000, that is 6,000 shares fully paid and 2,000 shares of Rs 60 paid. The directors made a call of Rs 40 per share on 1st October, 2011. A shareholder could not pay the call on 100 shares and his shares were then forfeited and reissued at Rs 90 per share as fully paid. The director proposes a dividend of 8% on equity shares, transferring any amount that may be required from general reserve. Ignore taxation.
A6.
In the books of Marathon and Limited
Balance Sheet as on 31st March, 2012
| Notes | Current Year |
(in Rs.) | ||
EQUITY AND LIABILITIES |
|
|
Shareholders Fund |
|
|
Share Capital | 1 | 13,00,000 |
Reserves & Surplus | 2 | 1,75,745 |
Money Received against Warrants |
|
|
|
|
|
Share Application Money pending allotment |
|
|
|
|
|
Non-current Liabilities |
|
|
Long Term Borrowings | 3 | 2,00,000 |
|
|
|
Current Liabilities |
|
|
Trade Payables | 4 | 46,280 |
Short Term Provisions | 5 | 1,10,000 |
|
|
|
Total |
| 18,32,025 |
|
|
|
ASSETS |
|
|
Non-current Assets |
|
|
Fixed Assets | 6 |
|
Tangible Assets |
| 9,14,985 |
Intangible Assets |
| 5,00,000 |
Non-current Investments |
| 2,72,300 |
|
|
|
Current Assets |
|
|
Inventories | 7 | 38,900 |
Trade Receivables |
| 19,260 |
Cash and Cash Equivalents | 8 | 78,580 |
Other Current Assets | 9 | 8,000 |
|
|
|
Total |
| 18,32,025 |
Profit and Loss Account for the year ended on 31st March, 2012
Particulars | Notes | Amount (Rs) |
I Revenue from Operations | 10 | 1,79,700 |
II Other Receipts | 11 | 6,800 |
III Total Revenue (I + II) |
| 1,86,500 |
IV Expenses |
|
|
Purchase of Stock in Trade | 12 | 95,000 |
Change in Inventories of Finished Goods | 13 | (20,840) |
Employee Benefit Expenses | 14 | 19,580 |
Finance Costs | 15 | 16,000 |
Depreciation and Amortization Expenses | 16 | 21,315 |
Other Operating Expenses | 17 | 32,200 |
Total expenses |
| 1,63,255 |
|
|
|
V Profit(Loss) for the period (III-IV) |
| 23,245 |
Balance from Previous Years |
| 41,500 |
Transfer from General Reserve |
| 29,255 |
Less: Proposed Dividend |
|
|
- Preference Share Capital @6% |
| 30,000 |
- Equity Share Capital @ 8% |
| 64,000 |
Profit (Loss) carried to Balance Sheet |
| 0 |
Notes to Accounts
Particulars | Current Year | Previous Year |
1. SHARE CAPITAL |
|
|
Authorised Share Capital : |
|
|
20,000, Equity Shares of Rs.100 each | 20,00,000 |
|
8,000, 6% Preference Shares of Rs. 10 each | 8,00,000 | 28,00,000 |
Issued Subscribed and Paid Up Capital : |
|
|
8,000, Equity Shares of Rs.100 each | 8,00,000 |
|
5,000, 6% Preference Shares of Rs. 10 each | 5,00,000 |
|
Total |
| 13,00,000 |
|
|
|
2. RESERVES & SURPLUS |
|
|
Capital Reserve |
| 5,000 |
General Reserve | 2,00,000 |
|
Less: Amount used to pay dividend(Equity + Preference) | (29,255) | 1,70,745 |
|
|
|
Total |
| 1,75,745 |
|
|
|
3. LONG TERM BORROWINGS |
|
|
2,000, 8% Debentures of Rs 100 each |
| 2,00,000 |
|
|
|
4. TRADE PAYABLES |
|
|
|
|
|
Sundry Creditors |
| 42,000 |
Wages & Salaries Outstanding |
| 4,280 |
|
|
|
Total |
| 46,280 |
|
|
|
5. SHORT TERM PROVISIONS |
|
|
Interest on debentures |
| 16,000 |
Proposed Dividend- Preference |
| 30,000 |
Proposed Dividend- Equity |
| 64,000 |
|
|
|
Total |
| 1,10,000 |
|
|
|
6. FIXED ASSETS |
|
|
Tangible |
|
|
Freehold Land & Building | 8,50,000 |
|
Less: Depreciation | (17,000) | 8,33,000 |
|
|
|
Furniture | 86,300 |
|
Less: Depreciation | (4,315) | 81,985 |
|
| 9,14,985 |
Intangible Assets |
|
|
Goodwill |
| 5,00,000 |
|
|
|
Total Assets |
| 14,14,985 |
|
|
|
7. INVENTORIES |
|
|
Coco, Tea & Coffee |
| 22,500 |
Bakery Products |
| 16,400 |
|
|
|
Total |
| 38,900 |
|
|
|
8. Cash & Cash Equivalents |
|
|
Cash in Hand |
| 2,200 |
Balance at Banks |
| 76,380 |
|
|
|
Total |
| 78,580 |
|
|
|
9. OTHER CURRENT ASSETS |
|
|
Preliminary & Formation Expense |
| 8,000 |
|
|
|
10. REVENUE FROM OPERATIONS |
|
|
Revenue from Sale of Products |
|
|
- Coco, Tea & Coffee | 82,000 |
|
- Bakery Products | 44,000 | 1,26,000 |
Revenue from Sale of Services |
|
|
- Rent of Rooms | 48,000 |
|
- Receipt from Billiars | 5,700 | 53,700 |
|
|
|
Total |
| 1,79,700 |
|
|
|
11. OTHER INCOME |
|
|
|
|
|
Miscellaneous Receipts |
| 2,800 |
Discount Received |
| 3,300 |
Transfer Fee |
| 700 |
|
|
|
Total |
| 6,800 |
|
|
|
12. PURCHASE OF STOCK IN TRADE |
|
|
|
|
|
Coco, Tea and Coffee |
| 58,800 |
Bakery Products |
| 36,200 |
|
|
|
Total |
| 95,000 |
|
|
|
13. (INCREASE)/ DECREASE IN INVENTORIES |
|
|
Coco, Tea, Coffee |
|
|
Opening Stock | 12,800 |
|
Less: Closing Stock | (22,500) | (9,700) |
|
|
|
Bakery Products |
|
|
Opening Stock | 5,260 |
|
Less: Closing Stock | (16,400) | (11,140) |
|
|
|
Total |
| (20,840) |
|
|
|
14. EMPLOYEE BENEFIT EXPENSES |
|
|
|
|
|
Wages & Salaries |
| 15,300 |
Add: Outstanding Wages and Salaries |
| 4,280 |
|
| 19,580 |
Total |
|
|
|
|
|
15. FINANCE COSTS |
|
|
|
|
|
Interest on Debentures |
| 16,000 |
|
|
|
16. DEPRECIATION & AMORTISATION EXPENSE |
|
|
Land & Building |
| 17,000 |
Furniture & Fittings |
| 4,315 |
Total |
| 21,315 |
|
|
|
17. OTHER EXPENSES |
|
|
Rent Rates and Taxes |
| 8,900 |
Coal and Firewood |
| 3,290 |
Laundry |
| 750 |
Carriage |
| 810 |
Repair |
| 4,250 |
Sundry Expenses |
| 5,840 |
Advertising Expense |
| 8,360 |
Total |
| 32,200 |
Problem 7
You are required to prepare financial statements from the following trial balance of Mehul Company Ltd. For the year ended 31st March, 2012
Mehul Company Ltd.
Trial Balance as at 31st March, 2012
Particulars | Rs | Particulars | Rs |
Stock | 68,000 | Equity Shares Capital(Shares of Rs10 each) | 2,50,000 |
Furniture & Fixtures | 50,000 | 11% Debentures | 50,000 |
Discount | 4,000 | Bank Loans | 64,500 |
Loan to Directors | 8,000 | Bills Payable | 12,500 |
Advertisement | 2,000 | Creditors | 15,600 |
Bad Debts | 3,500 | Sales | 4,26,800 |
Commission | 12,000 | Rent Received | 4,600 |
Purchases | 231,900 | Transfer Fees | 1,000 |
Plant and Machinery | 86,000 | Profit & Loss Appropriation Account | 13,900 |
Rentals | 2,500 | Provision for Depreciation on Plant & Machinery |
14,600 |
Current Account | 4,500 |
|
|
Cash | 800 |
|
|
Interest on Bank Loan | 11,600 |
|
|
Preliminary Expenses | 1,000 |
|
|
Wages | 90,000 |
|
|
Consumables | 8,400 |
|
|
Freehold Land | 1,54,600 |
|
|
Tools and Equipments | 24,500 |
|
|
Goodwill | 26,500 |
|
|
Debtors | 28,700 |
|
|
Bills Receivables | 15,300 |
|
|
Dealer Aids | 2,100 |
|
|
Transit Insurance | 3,000 |
|
|
Trade Expenses | 7,200 |
|
|
Distribution Freight | 5,400 |
|
|
Debentures Interest | 2,000 |
|
|
| 8,53,500 |
| 8,53,500 |
Additional Information:
- Closing stock as on 31st March, 2012, Rs 82,300
- Depreciation on furniture & fixtures @5%, Freehold land @2% and Tools & Equipment’s @ 5% to be provided.
A7.
In the books of Mehul Company Ltd
Balance Sheet as on 31st March, 2012
Particulars | Note | Amount (Rs) | |
I Equity and Liabilities |
|
| |
1. Shareholders’ Fund |
|
| |
(a) Share Capital | 1 | 2,50,000 | |
(b) Reserve and Surplus | 2 | 68,183 | |
2. Non-Current Liabilities |
|
| |
(a) Long Term Liabilities | 3 | 1,14,500 | |
3. Current liabilities |
|
| |
(a) Trade Payables | 4 | 28,100 | |
TOTAL |
| 4,60,783 | |
II Assets |
|
| |
1. Non-Current Assets |
|
| |
(a) Fixed Assets |
|
| |
(i) Tangible Fixed Assets | 5 | 2,93,683 | |
(ii) Intangible Assets (Goodwill) |
| 26,500 | |
2. Current Assets |
|
| |
(a) Inventories |
| 82,300 | |
(b) Trade Receivables |
| 28,700 | |
(c) Cash and Cash Equivalents | 6 | 5,300 | |
(d) Short Term Loan and Advances | 7 | 23,300 | |
(e) Other Current Assets |
| 1,000 | |
TOTAL |
| 4,60,783 | |
|
|
| |
Statement of Profit & Loss for the year ended 31st March, 2012
Particulars Notes | Amount (Rs) |
I Revenue from Operations | 4,26,800 |
II Other Receipts 8 | 5,600 |
III Total Revenue (I + II) | 4,32,400 |
IV Expenses |
|
Purchase of Stock in Trade 9 | 2,31,900 |
Change in Inventories of Finished Goods 10 | (14,300) |
Employee Benefit Expenses 11 | 90,000 |
Finance Costs 12 | 13,600 |
Depreciation and Amortization Expenses 13 | 6,817 |
Other Operating Expenses 14 | 50,100 |
|
|
Total Expenses | 3,78,117 |
V Profit (Loss) for the Period (III-IV) | 54,283 |
Balance from Previous Years | 13,900 |
Profit (Loss) carried to Balance Sheet | 68,183 |
Notes to Accounts:
Notes to the Financial Statements
|
| |||||
Authorized Share Capital |
| |||||
25,000 equity shares of 10 each | 2,50,000 | |||||
|
| |||||
Issued and subscribed |
| |||||
25,000 equity shares of 10 each | 2,50,000 | |||||
| 2,50,000 | |||||
|
| |||||
2. Reserves & Surplus |
| |||||
Profit & Loss- Opening Balance | 13,900 | |||||
Add: Current Year’s Profit | 54,283 | |||||
| 68,183 | |||||
3. Long Term Borrowings |
|
|
|
| ||
11% Debentures of 100 each |
|
|
| 50,000 | ||
Bank Loan |
|
|
| 64,500 | ||
|
|
|
| 1,14,500 | ||
4. Trade Payables |
|
|
|
| ||
Sundry Creditors |
|
|
| 15,600 | ||
Bills Payables |
|
|
| 12,500 | ||
|
|
|
| 28,100 | ||
5. Tangible Assets |
|
|
|
| ||
| Book Value | Depreciation |
| Net value | ||
Freehold Land and Building | 1,54,600 | 3,092 |
| 1,51,508 | ||
Furniture and Fixtures | 50,000 | 2,500 |
| 47,500 | ||
Plant and Machinery | 86,000 | 14,600 |
| 71,400 | ||
Tools and Equipment’s | 24,500 | 1,225 |
| 23,275 | ||
| 3,15,100 | 14,600 |
| 2,93,683 | ||
6. Cash and Cash Equivalents |
|
|
|
| ||
Cash at Bank |
|
|
| 4,500 | ||
Cash in Hand |
|
|
| 800 | ||
|
|
|
| 5,300 | ||
7. Short Term Loans and Advances |
|
|
|
| ||
Loan to Directors |
|
|
| 8,000 | ||
Bills Receivables |
|
|
| 15,300 | ||
|
|
|
| 23,300 | ||
8. Other Income |
|
|
|
| ||
Rent Received |
|
|
| 4,600 | ||
Transfer Fee |
|
|
| 1,000 | ||
|
|
|
| 5,600 | ||
9. Purchase of Stock in Trade Purchases |
2,31,900 | |||||
10. Change in Inventories of Finished Goods |
| |||||
Closing Stock | 82,300 | |||||
Less : Opening Stock | (68,000) | |||||
| 14,300 | |||||
11. Employee Benefit Expenses Wages |
90,000 | |||||
12. Finance Expenses Interest on Bank Charges |
11,600 | |||||
13. Depreciation and Amortization Expenses Freehold Land and Building |
3,092 | |||||
Furniture and Fixtures | 2,500 | |||||
Tools and Equipment’s | 1,225 | |||||
| 6,817 | |||||
14. Other Operating Expenses Consumables |
8,400 | |||||
Bad Debts | 3,500 | |||||
Discount | 4,000 | |||||
Rentals | 2,500 | |||||
Commissions | 12,000 | |||||
Dealer’s Aid | 2,100 | |||||
Transit Insurance | 3,000 | |||||
Trade Expenses | 7,200 | |||||
Distribution Freight | 5,400 | |||||
Advertisements | 2,000 | |||||
| 50,100 | |||||
Meaning of Assets:
A valuable resource owned, owned or managed by an individual or organization that has economic value, is capable of generating future profits (income), and can be represented in monetary or monetary value.
Assets can be tangible or intangible in nature.
Meaning of Tangible Assets:
An asset that can be touched, felt, and seen because it has a clear physical form.
Meaning of the term Intangible:
Anything that is non-physical and can generate future economic benefits for a company is an intangible asset.
An asset that is not financially identifiable and cannot be seen, felt, or physically measured.
Definition of Accounting Standard for Intangible Assets (AS) 26:
Intangible assets are non-physical, identifiable, non-monetary assets held for the purpose of producing or supplying goods or services, renting to others, or for management purposes.
Characteristics of intangible assets:
1) Non-physical – There is no physical form. Therefore, it cannot be seen, felt or touched. It cannot be measured physically.
2) Identifiable – May be in the form of legal or contractual rights. It is separable from other assets and is sellable, transferable or exchangeable. Therefore, you can get a license and rent it. It can also take the form of a completely intangible right.
3) Manageable – An entity or individual manages an asset. The power to enjoy future financial benefits is given to the individual or group that owns it.
4) Future Economic Benefits-The ability to generate future economic benefits in the form of cost savings, profits, future markets and more.
5) Long-term useful life: These assets have the ability to generate long-term economic benefits.
6) Self-created or acquired separately from those acquired through business combination.
Meaning of Goodwill
Goodwill is an intangible but not fictitious assets which means it has some realizable value. From the accountants’ point of view goodwill, in the sense of attracting custom, has little significance unless it has a saleable value. To the accountant, therefore, goodwill may be said to be that element arising from the reputation, connection, or other advantages possessed by a business which enables it to earn greater profits than the return normally to be expected on the capital represented by the net tangible assets employed in the business. In considering the return normally to be expected, regard must be had to the nature of the business, the risks involved, fair management remuneration and any other relevant circumstances.
The Goodwill possessed by a firm may be due, inter alia, to the following:
- The location of the business premises, the nature of the firm’s products or the reputation of its service.
- The possession of favorable contracts, complete or partial monopoly, etc.
- The personal reputation of the promoters.
- The possession of efficient and contented employees.
- The possession of trade marks, patents or a well-known business name.
- The continuance of advertising campaigns.
- The maintenance of the quality of the firm’s product and development of the business with changing conditions
The need for evaluating goodwill may arise in the following cases:
- When the business or when the company is to be sold to another company or when the company is to be amalgamated with another company;
- When, stock exchange quotations not being available, shares have to be valued for taxation purposes, gift tax, etc.;
- When a large block of shares, so as to enable the holder to exercise control over the company concerned, has to be bought or sold; and
- When the company has previously written off goodwill and wants its write back. In valuation of goodwill, consideration of the following factors will have a bearing:
(a) Nature of the industry, its history and the risks to which it is subject to.
(b) Prospects of the industry in the future.
(c) The company’s history — its past performance and its record of past profits and dividends.
(d) The basis of valuation of asset of the company and their value.
(e) The ratio of liabilities to capital.
(f) The nature of management and the chance for its continuation.
(g) Capital structure or gearing.
(h) Size, location and reputation of the company’s products.
(i) The incidence of taxation.
(j) The number of shareholders.
(k) Yield on shares of companies engaged in the same industry, which are listed in the Stock Exchanges.
(l) Composition of purchasers of the products of the company.
(m) Size of block of shares offered for sale since large blocks very few buyers would be available and that has a depressing effect on the valuation. Question of control, however, may become important, when large blocks of shares are involved.
(n) The major factor of valuation of goodwill is the profits of the company. One who pays for goodwill looks to the future profit. The profits that are expected to be earned in future are extremely important for valuation of goodwill. The following are the important factors that have a bearing on future profits:
(i) Personal skill in management
(ii) Nature of business
(iii) Favorable location
(iv) Access to supplies
(v) Patents and trademarks protection
(vi) Exceptionally favorable contracts.
(vii) Capital requirements and arrangement of capital.
(viii) Estimation of the profits expected to be earned by the firm and the amount of capital employed to earn such profits, are to be computed carefully.
(ix) Market reputation which the company and its management enjoys.
(x) Returns expected by investors in the industry to which the firm or company belongs.
Concept of Goodwill
When one company buys another company, the purchasing company may pay more for the acquired company than the fair market value of its net identifiable assets (tangible assets plus identifiable intangibles, net of any liabilities assumed by the purchaser). The amount by which the purchase price exceeds the fair value of the net identifiable assets is recorded as an
Asset of the acquiring company. Although sometimes reported on the balance sheet with a descriptive title such as “excess of acquisition cost over net assets acquired”, the amount is customarily called goodwill.
Goodwill arises only part of a purchase transaction. In most cases, this is a transaction in which one company acquires all the assets of another company for some consideration other than an exchange of common stock. The buying company is willing to pay more than the fair value of the identifiable assets because the acquired company has a strong management team, a favorable reputation in the marketplace, superior production methods, or other unidentifiable intangibles.
The acquisition cost of the identifiable assets acquired is their fair market value at the time of acquisition. Usually, these values are determined by appraisal, but in some cases, the net book value of these assets is accepted as being their fair value. If there is evidence that the fair market value differs from net book value, either higher or lower, the market value governs.
Q1. Company X acquires all the assets of company Y, giving Company Y Rs 15 lakh cash. Company Y has cash Rs 50,000 accounts receivable that are believed to have a realizable value of Rs 60,000, and other identifiable assets that are estimated to have a current market value of Rs 11 lakhs.
Solution:
Particulars | Rs | Rs |
Total purchase price Less: Cash acquired Accounts receivable Other identifiable assets (estimated) Goodwill |
50,000 60,000 11,00,000 | 15,00,000
12,10,000 |
| 2,90,000 |
This extra amount of Rs 2,90,000 paid over and above, Net worth Rs 12,10,000 is goodwill, which is a capital loss for purchasing company and to be shown on assets side of Balance Sheet. This entire amount will be written off against revenue profit, i.e., Profit and Loss Account over period of time.
Methods of Valuing Goodwill
There are basically two Methods of valuing goodwill: (a) Simple/Average profit method and (b) Super profit method.
(a) Simple/Average Profit Method: Goodwill is generally valued on the basis of a certain number of years’ purchase of the average business profits of the past few years. While calculating average profits for the purposes of valuation of goodwill, certain adjustments are made. Some of the adjustments are as follows:
Trading Profit/Business Profit/Recurring Profit/Normal Profit (of Past Year)
Particulars | 1st Year | 2nd Year | 3rd Year |
Net Profit before Adjustment and Tax | Xx | Xx | Xx |
Less: Non-Trading Income (i.e., Income from investment Asset) |
Xx |
Xx |
Xx |
Less: Non-recurring Income (i.e., profit on sale of investment/Asset) |
Xx |
Xx |
Xx |
Add: Non-recurring Loss (i.e., Loss on sale of investment/Asset) |
(xx) |
(xx) |
(xx) |
Trading Profit after Adjustment and before Tax | Xx | Xx | Xx |
Calculation of Average profit:
(a) Simple Average Profit =
(b) Weighted Average profit:
Total profit of (past years)
Total number of past years
Years | Trading Profit (a) | Weight (b) | Product (a × b) |
2007 | Xx | 1 | Xx |
2008 | Xx | 2 | Xx |
2009 | Xx | 3 | Xx |
|
| 6 | Xxx |
Weighted Average Profit =
Particulars | Rs |
Simple/Weighted Average Profit before Tax | Xx |
Add: Expenses incurred in past not to be incurred in future (i.e., Rent paid in past not payable in future) |
Xx |
Less: Expenses not incurred in past to be incurred in future (i.e., Rent not paid in past payable in future) |
(xx) |
Less: Notional Management Remuneration Future Maintainable Profit before Tax | Xxx xx |
Less: Tax (if Rate is not given me 50%) | (xx) |
Future Maintainable Profit after Tax | Xxx |
Total product
Total of weight
After adjusting profit in the light of future possibilities, average profit is estimated and then the value of goodwill is estimated. If goodwill is to be valued at 3 years’ purchase of the average profits which come to Rs 50,000, the goodwill will be Rs 1,50,000, i.e., 3 × Rs 50,000.
This method is a simple one and has nothing to recommend since goodwill is attached to profits over and above what one can earn by starting a new business and not to total profits.
It ignores the amount of capital employed for earning the profit. However, it is usual to adopt this method for valuing the goodwill of the practice of a professional person such as a chartered accountant or a doctor.
Calculation of Capital Employed and Average Capital Employed
Tangible Trading Assets (At Agreed/Adjustment Value) (Except: Intangible, Non-trading/Fictitious Assets) |
|
|
Plant and Machinery | Xx |
|
Land and Building | Xx |
|
Furniture and Fixtures | Xx |
|
Stock | Xx |
|
Cash/Bank | Xx | Xx |
Less: External Liability (At Agreed/Adjust Value) |
|
|
(Except: Capital and Reserve and surplus) |
|
|
Loans | Xx |
|
Debentures | Xx |
|
Creditors | Xx |
|
Outstanding Expenses, etc | Xx | Xx |
Capital Employed |
| XX |
Average Capital Employed = Opening Capital Employed + Closing Capital Employed
2
= Closing Capital Employed – ½ of Current Years’ Profit+ Current Years’ Dividend
(b) Super Profit Method: The future maintainable profits of the firm are compared with the normal profits for the firm. Normal earnings of a business can be judged only in the light of normal rate of earning and the capital employed in the business. Hence, this method of valuing goodwill would require the following information:
(i) A normal rate of return for representative firms in the industry.
(ii) The fair value of capital employed.
The normal rate of earning is that rate of return which investors in general expect on their investments in the particular type of industry. Normal rate of return depends upon the risk attached to the investment, bank rate, market, need, inflation and the period of investment.
Normal Rate of Returns (NRR)
It is the rate at which profit is earned by normal business under normal circumstances or from similar course of business. Normal Rate of Returns means rate of profit on capital employed which is normally earned by others in a similar type of business. It will always be given in the problem in form of percentage.
Or NRR = Rate of Risk + Rate of Returns or Dividend per Share x 100
Market price per Share
As the capital employed may be expressed as aggregate of share capital and reserves less the amount of non-trading assets such as investments. The capital employed may also be ascertained by adding up the present values of trading assets and deducting all liabilities. Super profit is the simple difference between future maintainable operating profit and normal profit.
Q2 Rishi Computers Ltd. Gives you the following summarized balance sheet as at 31st December, 2009:
Liabilities | Rs | Assets | Rs | Rs |
Preference Share Capital | 5,00,000 | Fixed Assets: Cost | 50,00,000 |
|
Equity Share Capital | 20,00,000 | Depreciation | 30,00,000 | 20,00,000 |
Reserves and Surplus | 25,00,000 | Capital Work-in Progress |
| 40,00,000 |
Long-term Loans | 27,00,000 | Investment 10% | 5,00,000 | |
Current Liabilities and Provisions | 15,00,000 | Current Assets | 25,00,000 | |
|
| Underwriting Commission | 2,00,000 | |
| 92,00,000 |
|
| 92,00,000 |
The company earned a profit of Rs 18,00,000 before tax in 2009. The capital work-in-progress represents additional plant equal to the capacity of the present plant; if immediately operational, there being no difficulty in sales. With effect from 1st January, 2010, two additional Works Managers are being appointed at Rs 1,00,000 p.a. Ascertain the future maintainable profit and the capital employed, assuming the present replacement cost of fixed assets is Rs 1,00,00,000 and the annual rate of depreciation is 10% on original cost.
Solution:
Normal profit: Suppose investors are satisfied with a 180% return, in the above example, the normal profit will be Rs 11,34,000, i.e., 18% of Rs 63 lakhs.
The followings are some items which generally require adjustment in arriving at the average of the past earnings:
- Exclusion of material non-recurring items such as loss of exceptional nature through strikes, fires, floods and theft, etc., profit or loss of any isolated transaction not being part of the business of the company.
- Exclusion of income and profits and losses from non-trading assets.
- Exclusion of any capital profit or loss or receipt or expense included in the profit & loss account.
- Adjustments for any matters suggested by notes, appended to the accounts or by qualifications in the Auditor’s Report, such as provision for taxation and gratuities, bad debts, under provision or over provision for depreciation, inconsistency in valuation of stock, etc.
- Depreciation is an important item that calls for careful review. The valuer may adopt book depreciation provided he is satisfied that the tale was realistic and the method was suitable for the nature of the company and they were consistently applied from year to year. But imbalances do arise in cases where consistently written down value method was in use and heavy expenditure in the recent past has been made in rehabilitating or expanding fixed assets, since the depreciation charges would be unfairly heavy and would prejudice the seller. Under such circumstances, it would be desirable to readjust depreciation suitably as to bring a more equitable charge in the profits meant for averaging.
Another important factor comes up for consideration in averaging past profits and that is the trend of profits earned. It is imperative that estimation of maintainable profits be based on the only available record i.e., the record of past earnings, but indiscrete use of past results may lead to an entirely fallacious and unrealistic result.
Where the profits of a company are widely fluctuating from year to year, an average fails to aid future projection. In such cases, a study of the whole history of the company and of earnings of a fairly long period may be necessary. If the profits of a company do not show a regular trend upward or downward, an average of the cycle can usefully be employed for projection of future earnings.
In some companies, profits may record a distinct rising or falling trend from year; in these circumstances, a simple average fails to consider a significant factor, namely, trend in earnings.
The shares of a company which record a clear upward trend of past profits would certainly be more valuable than those of a company whose trend of past earnings indicates a downtrend. In such cases, a weighted average giving more weight to the recent years than to the past, is appropriate. A simple way of weighing is to multiply the profits by the respective number of the years arranged chronologically so that the largest weight is associated with the most recent past year and the least for the remotest.
Future Profitability Projections: Project is more a matter of intelligent guesswork since it is essentially an estimation of what will happen in the risky and uncertain future. The average profit earned by a company in the past could be normally taken as the average profit that would be maintainable by it in the future, if the future is considered basically as a continuation of the past. If future performance is viewed as departing significantly from the past, then appropriate adjustments will be called for before accepting the past average profit as the future maintainable profit of the company.
There are three methods of calculating goodwill based on super profit. The methods and formulae are as follows:
Purchase of Super Profit Method
Goodwill as per this method is: Super profit multiplied by a certain number of years. Under this method, an important point to note is that the number of years of purchase as goodwill will differ from industry to industry and from firm to firm. Theoretically, the number of years is to be determined with reference to the probability of a new business catching up with an old business. Suppose it is estimated that in two years’ time, a business, if started now will be earning about the same profits as an old business is earning now, goodwill will be equivalent to two times the super profits. In the example given above, goodwill will be Rs 12.12 1akhs, i.e., Rs 6.06 1akhs × 2 years.
Annuity Method of Super Profit
Goodwill, in this case, is the discounted value of the total amount calculated as per purchase method. The idea behind super profits methods is that the amount paid for goodwill will be recouped during the coming few years. But in this case, there is a heavy loss of interest. Hence, properly speaking what should be paid now is only the present value of super profits paid annually at the proper rate of interest. Tables show that the present value 18% of Re. 1 received annually two years is 1.566. In the above example, the value of goodwill under this method will be 1.3 × Rs 6.06 1akhs or Rs 9.49 lakhs.
Capitalization of Super Profit Method
This method tries to find out the amount of capital needed for earning the super profit.
The formula is Super Profit x 100
NRR
In above example, Goodwill will be = 6.06 lakhs x 100
18
= Rs. 33.67 lakhs
Given in the Problems
- Information of old firms’ assets and liabilities.
- Information regarding past or profit.
- Adjustment valuation of goodwill.
Required to Prepare
Valuation of goodwill by different methods.
Steps, Method and Formula for Calculation of Goodwill
(I) Goodwill by purchase of average profit method: Steps:
(a) Find out average trading profit.
(b) Find out the number of year purchase (it will always be given in problem).
(c) Goodwill: Number of year purchase × Average trading profit.
(II) Goodwill by purchase of future maintainable profit method: Steps:
(a) Find out future maintainable profit.
(b) Number of year purchase (given in problem).
(c) Goodwill: No of years purchase × Future maintainable profit.
(III) Goodwill by capitalization of future maintainable profit method: Steps:
- Find out future maintainable profit.
- Find out capitalized value of future maintainable profit.
Capitalization Value of Future Maintainable Profit = FMP x 100
NRR
c. Calculate capital employed.
d. Goodwill = Capitalized Value of E.M.P. – Capital Employed
(IV) Goodwill by purchase of super profit method: Steps:
(a) Find out average trading profit.
(b) Find out future maintainable profit.
(c) Find out capital employed.
(d) Find out Normal Rate of Return (always given in the problem in terms of %).
(e) Find out number of year purchase (given in the problem).
(f) Find out normal profit: = (Capital Employed x NRR) / 100
(g) Find out super profit:
Super Profit = Future Maintainable Profit – Normal Profit
(h) Goodwill = Number of year purchase × Super Profit.
(V) Goodwill by capitalization super profit method: Steps:
Calculate super profit as discussed above.
Goodwill = Annuity Rate × Super Profit
Notes: Annuity Rate will always be given in the problem.
Q3. M / s Mehta and his son have an average profit of Rs 60,000 with a capital of Rs 4,00,000. The normal rate of return for a business is 10%. Calculate the value of a company's goodwill using the capitalization of the super-profit method.
Solution:
Goodwill = Super Profit x 100 / Normal rate of return
= 20,000 × 100/10
= 2,00,000.
Working notes:
(I). Normal profit = Capital used * Normal rate of return / 100
= 4,00,000 × 10/100
= 40,000
(II) Super profit = average profit – normal profit
= 60,000 – 40,000
= 20,000
Q4. M / s Joe and John is a partnership company with Joe and John as a partner. They now have to decide to allow James to the company and therefore evaluate goodwill. The capital used at the end of the fourth year is 500,000. The normal rate of return is 15%. Suppose the interest rate is equal to the normal rate of return. Calculate goodwill using the pension law. Their interests over the last four years are:
Solution:
Goodwill = Super Profit x Discount Factor = 67500 x 2.855 = 192713
Working notes:
(I) Average profit = Total profit / Years = 570000/4 = 142500
(II) Normal profit = Capital used x (Normal rate of return / 100) = 500000 x (15/100) = 75000
(III) Super profit = average profit – normal profit = 142500 – 75000 = 67500
Q5. Following are the gain for of Rakesh Bakers.
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 52000 | 50000 | 68000 | 45000 | 75000 | 290000 |
The capital adopted in 2015 is Rs350000 /-and the normal rate of return is 10% p.a. Find the value of goodwill based on a three-year purchase of business super-profit.
Solution:
Step 1: Average profit = 5 years / 5 years gross profit
= 200000/5 = Rs40000 /-
Step 2: Normal profit = Capital used X Normal rate of return / 100
= Rs350000 X 10/100 = Rs35000 /-
Step 3: Super Profit = Average Profit – Normal Profit
= Rs40000 – Rs35000 = Rs5000 /-
Step 4: Goodwill = Super Profit X Years of Purchase
= Rs5000 X 3 = Rs15000 /-
Q6. The benefits of Bootwala & Sons are:
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 100000 | 134000 | 82000 | 103000 | 156000 | 575000 |
The capital adopted in 2015 is Rs900000 /-and the normal rate of return is 10% p.a.
Find the value of goodwill based on a three-year purchase of business super-profit.
Solution:
Step 1: Average profit = 5/5 years gross profit
= 575000/5 = Rs115000 /-
Step 2: Normal profit = Capital used X Normal rate of return / 100
= Rs900000 X 10/100 = Rs90000 /-
Step 3: SP=AP-NP
= Rs1150000 – Rs90000 = Rs25000 /-
Step 4: Goodwill = Super Profit X Years of Purchase
= Rs25000 X 3 = Rs75000 /-
Q7. Below are the benefits of Harsh Bakers
The capital adopted in 2015 is Rs400000 /-and the normal rate of return is 10% p.a.
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 52000 | 50000 | 68000 | 45000 | 75000 | 290000 |
Find the value of goodwill based on a three-year purchase of business super-profit.
Solution:
Step 1: Average profit = 5/5 years gross profit
= 290000/5 = Rs58000 /-
Step 2: Normal profit = Capital used X Normal rate of return / 100
= Rs400000 X 10/100 = Rs40000 /-
Step 3: SP = AP – NP
= Rs58000 – Rs40000 = Rs18000 /-
Step 4: Goodwill = Super Profit X Years of Purchase
= Rs18000 X 3 = Rs54000 /-
Q8. The value of the business's net worth is Rs.1240000 /-. This business has made an average profit of Rs150000 /-in the last few years. The normal rate of return for similar types of businesses is 10%. Find the value of goodwill in a capitalized way.
Solution:
Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 150000/10 X 100 = Rs. 1500000 /-
Step 2: Goodwill = Capital Value – Net Asset Value
= 1500000 – 1240000 = Rs260000 /-
Q9. The value of the business's net worth is Rs.460000 /-. The business has made an average profit of Rs90000 /-in the last few years. The normal rate of return for similar types of businesses is 15%. Find the value of goodwill by the capitalization method.
Solution:
Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 90000/15 X 100 = Rs. 600000 /-
Step 2: Goodwill = Capital Value – Net Asset Value
= 600000 – 460000 = Rs140000 /-
Q10. The value of the business's net worth is Rs.790000 /-. The business has made an average profit of Rs500000 /-in the last few years. The normal rate of return for similar types of businesses is 5%. Find the value of goodwill by the capitalization method.
Solution:
Step 1: Market capitalization of average profit = average profit / normal rate of return X 100 Market capitalization of average profit = 500000/5 X 100 = Rs. 1000000 /-
Step 2: Goodwill = Capital Value – Net Asset Value
= 1000000 – 790000 = Rs210000 /-
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 53000 | 50000 | 77000 | 41500 | 78500 | 300000 |
Q11. Find the value of goodwill from the capitalization of the super-profit method from the following details of Krishna Coffee House.
The capital adopted in 2015 is Rs250000 /-and the normal rate of return is 10% p.a. Solution:
Step 1: Average profit = 5/5 years gross profit
= 300000/5 = Rs60000 /-
Step 2: Normal profit = Capital used X Normal rate of return / 100
= Rs250000 X 10/100 = Rs25000 /-
Step 3: SP=AP-NP
= Rs60000 – Rs25000 = Rs35000 /-
Step 4: Goodwill = SP X 100 / NRR
= Rs35000 / -X 100/10 = Rs350000 /-
Q12. Find the value of goodwill according to the market capitalization of the Super Profit Act from the following details of Bihad & Sons.
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 26000 | 34000 | 44000 | 10000 | 10000 | 124000 |
The capital adopted in 2015 is Rs200000 /-and the normal rate of return is 10% p.a. Solution:
Step 1: Average profit = 5/5 years gross profit
= 124000/5 = Rs24800 /-
Step 2: Normal profit = Capital used X Normal rate of return / 100
= Rs200000 X 10/100 = Rs20000 /-
Step 3: SP=AP-NP
= Rs24800 – Rs20000 = Rs4800 /-
Step 4: Goodwill = SP X 100 / NRR
= Rs4800 / -X 100/10 = Rs48000 /-
Q13. Find the value of goodwill according to the present value of the Super Profit Act from the following details of Bashir & Sons.
Year End | 2020 | 2021 | 2022 | 2023 | 2024 | Total |
Estimated future profit | 150000 | 120000 | 130000 | 90000 | 110000 | 600000 |
Normal Profit | 80000 | 80000 | 80000 | 80000 | 80000 | 400000 |
PVF | 0.09091 | 0.8264 | 0.7513 | 0.683 | 0.6209 | 0 |
Solution:
Year End | 2020 | 2021 | 2022 | 2023 | 2024 | Total |
Estimated future profit | 150000 | 120000 | 130000 | 90000 | 110000 | 600000 |
Normal Profit | 80000 | 80000 | 80000 | 80000 | 80000 | 400000 |
Super Profit | 70000 | 40000 | 50000 | 10000 | 30000 | 200000 |
PVF | 0.9091 | 0.8264 | 0.7513 | 0.683 | 0.6209 |
|
Super Profit PV | 63637 | 33056 | 37565 | 6830 | 18627 | 159715 |
Goodwill Value = Rs159715 /-
Q14. Below are the five-year profits of Ambika Store.
Year End | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 90000 | 65000 | 35000 | 55000 | 85000 | 330000 |
Calculate the value of goodwill based on a two-year purchase of a five-year average profit.
Solution:
Step 1: Total profit for 5 years = Rs.330000 /-
Step 2: Average profit = 5/5 years gross profit.
= Rs330000 / 5 years = Rs.66000 /-Step 3: Goodwill = Average profit x 2 years
= Rs.66000 / -X 2 = Rs 132000 /-
Year End | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 100000 | 125000 | 215000 | 80000 | 285000 | 185000 | 990000 |
Q15. Below are the benefits of Girija Tea Depot.
There was an extraordinary increase in Rs45000 /-in 2016 and an extraordinary loss of Rs25200 /-in 2017.
Calculate the value of goodwill based on a 4-year purchase of a 6-year average profit.
Solution:
Year End | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Profits | 100000 | 125000 | 215000 | 80000 | 285000 | 185000 | 990000 |
Add: Abnormal Loss | 0 | 0 | 0 | 25200 | 0 | 0 | 25200 |
Less Abnormal profit | 0 | 0 | 45000 | 0 | 0 | 0 | 45000 |
Normal Profit | 100000 | 125000 | 170000 | 105200 | 285000 | 185000 | 970200 |
Step 1: Total profit for 6 years = Rs.970200 /-
Step 2: Average profit = 6/6 years gross profit.
= Rs970200 / 6 years = Rs.161700 /-Step 3: Goodwill = Average profit X 4 years
= Rs.161700 / - X 4 = Rs 646800 /-
Key takeaways:
- Goodwill is an intangible asset that describes the excess purchase price of another company.
- The items contained in goodwill are ownership or intellectual property and brand awareness and cannot be easily quantified.
- Goodwill is calculated by taking the purchase price of the company and subtracting the difference between the fair market values of assets and liabilities.
- Companies should check the value of goodwill in their financial statements and record impairment at least once a year. Goodwill, unlike most other intangible assets, has an indefinite useful life, but most other intangible assets have a finite useful life.
- Goodwill is an intangible asset and is offered in a variety of forms, including reputation, brand, domain name, and intellectual property.
- The need to determine goodwill often arises when one company acquires another.
- Goodwill is calculated as the difference between the amount of consideration transferred from the acquirer to the acquiree and the net identifiable assets acquired.
Valuation of Shares
Stock Valuation
For stocks listed on an approved stock exchange, the price listed on the stock exchange is usually used as the basis for the valuation of those stocks. However, stock exchange prices are generally determined based on the supply and demand position of stocks and the business cycle. The London Stock Exchange believes the stock exchange may be linked to a scientific record of registering the actions and options of private institutional investors in the country / world rather than its own actions and options. I am. These actions and options are the result of fear, guesswork, intellectual or other methods, good or bad investment policies, and many other considerations. The resulting estimates do not articulate a company's valuation with reference to asset and revenue potential. Therefore, accountants are required to value the stock in other ways.
The value of a company's stock depends on many factors, including:
- The nature of the business.
- Government economic policy.
- Supply and demand of stocks.
- Dividend rate paid.
- Yields on other related stocks on stock exchanges, etc.
- Company net worth.
- Profitability.
- Market price of stocks on the stock market.
- Profit gained over the years.
- Dividends paid on shares over the years.
- Growth outlook, increased earnings per share, etc.
Necessity and purpose of stock valuation
- The need for stock valuation can be felt by any company in the following situations:
- For assessment of wealth tax, real estate tax, gift tax, etc.
- Fusion, absorption, etc.
- To convert a share of one class to another.
- Proceed with lending related to stock collateral.
- Compensate shareholders for the acquisition of shares by the government under the nationalization scheme.
- Acquisition of equity of opposition shareholders based on reconstruction scheme, etc.
Factors Affecting Evaluation
The valuation of a company's stock is based, among other things, on the following factors:
- The current stock market price of the stock.
- Profit earned over the years and dividends paid:
- Reserve availability and future outlook for the company.
- Realizable value of the company's net worth.
- Company current and deferred liabilities.
- Age and status of company plants and machines.
- Company net worth.
- A record of the efficiency, integrity and integrity of management on the board of directors and other companies.
- The quality of top and middle management of the company and its professional ability.
- A record of the company's financial performance.
Stock Valuation Method
Specific methods are recognized for valuing a company's stock, including
- Open Market Prices,
- Stock Exchange Estimates,
- Net Worth Base,
- Earnings Per Share Method, And
- Yield Or Return Method,
- Net Worth Method,
- Split Value, Etc.
Intrinsic Value Method
This method is also known as the asset backing method, the real value method, the balance sheet method, or the split value method. In this method, the value of each share is calculated by dividing the company's net assets, including goodwill and non-trading assets, by the number of issued shares.
If the market value of the asset is available, the same is considered, and in the absence of such information, the book value of the asset is considered the market value. It should not be considered when reaching fictitious assets such as net worth, reserves and debit balances on the income statement. Liability paid to third parties and preferred shareholders is deducted from total assets to reach net assets. Shareholder-related funds such as general reserves, income statements, corporate bond redemption fund balances, dividend levelling reserves and reserves should not be deducted.
Key takeaways:
- For stocks listed on an approved stock exchange, the price listed on the stock exchange is usually used as the basis for the valuation of those stocks.
- However, stock exchange prices are generally determined based on the supply and demand position of stocks and the business cycle.
- If the market value of the asset is available, the same is considered, and in the absence of such information, the book value of the asset is considered the market value.
Q16. From the information given below and the balance sheet of Cipla Limited on 31st December, 2009, find the value of shares by Intrinsic value method.
Balance Sheet
Particulars | Rs | Particulars | Rs |
1000, 8% Preference Shares of Rs 100 |
| Buildings | 70,000 |
Each fully paid | 1,00,000 | Furniture | 3,000 |
4,000 Equity Shares of Rs 100 fully paid | 4,00,000 | Stock (Market value) | 4,50,000 |
Reserves | 1,50,000 | Investment at cost (face value 4,00,000) | 3,35,000 |
Profit and Loss account | 5,10,000 | Debtors | 2,80,000 |
Creditors | 48,000 | Bank | 60,000 |
|
| Preliminary Expenditure | 10,000 |
| 12,08,000 |
| 12,08,000 |
Building is now worth of Rs 3,50,000 and the Preferential shareholders are having preference as to capital and dividend.
Solution:
Valuation of Equity Share | Intrinsic Value Method |
Building | 3,50,000 |
Furniture | 3,000 |
Stock | 4,50,000 |
Investment | 3,35,000 |
Debtors | 2,80,000 |
Bank | 60,000 |
Total Assets | 14,78,000 |
Less: Creditors | (48,000) |
Net Assets | 14,30,000 |
Less: Preference Share Capital | (1,00,000) |
Assets Available for Equity Shareholders | 13,30,000 |
Value of Equity Shares = Net assets available for Equity share holders
No of Equity Shares
=13,30,000
4,000
= Rs 332.5
Intrinsic value of each equity share= Rs 332.50
Yield Method
The valuation of shares under the Yield Method may be done under two categories:
- Return on capital employed method: This method is applied for the purpose of valuation of the shares of majority shareholding. A big investor is more interested in what the company earns and not simply in what the company distributes. Even if the company does not distribute 100% of its earning among its shareholders, it, as a matter of fact, strengthens the financial position of the company. The value of the share under this method is calculated by the formula:
Return on C.E= Return of C.E x paid up value of shares
Normal Rate of Return
Valuation on the basis of dividend: This method is more suitable for valuation of small
Block of shares. The method of calculation is:
Expected Rate of Dividend x paid up value per share
Normal rate of Dividend
Normal Rate of Dividend Method
Q17. The following particulars are available in respect of Goodluck Limited:
(a) Capital 450, 60% preference shares of Rs 100 each fully paid and 4,500 equity shares of Rs 10 each fully paid.
(b) External liabilities: Rs 7,500.
(c) Reserves and Surplus Rs 35,000.
(d) The average expected profit (after taxation) earned by the company Rs 8,500.
(e) The normal profit earned on the market value of equity shares (full paid) of the same type of companies is 9%.
(f) 10% of the profit after tax is transferred to reserves.
Calculate the intrinsic value per equity share and value per equity share according to dividend yield basis.
Assume that out of total assets, assets worth of Rs 350 are fictitious.
Solution:
Intrinsic Value of Shares |
| Rs
|
6% Preference Share Capital (450 × 10) |
| 45,000 |
Equity Shares (4,500 × 10) |
| 45,000 |
Reserves and Surplus |
| 3,500 |
External Liabilities |
| 7,500 |
Total Liabilities |
| 1,01,000 |
As Total Liabilities = Total Assets |
|
|
Total Assets |
| 1,01,000 |
Less: Fictitious Assets | (350) |
|
External Liabilities | (7,500) |
|
Preference Shares | (45,000) | 52,850 |
Net Assets Available for Equity Shareholders |
| 48.150 |
Intrinsic Value of Shares = Net Assets available for Equity Shareholders
Number of Equity Shares
= 48,150/4,500
= 10.70
Yield Basic | 10.70 |
Average profit after taxation | 8,500 |
Transfer to General Reserves (10%) | (850) |
| 7,650 |
Less: Preference dividend (6% of 45,000) | (2,700) |
Profit available to equity shareholders | 4,950 |
Rate of Dividend = 4,950 x 10
45,000
= 11%
Value of Equity Shares = Rate of Dividend x paid up value of shares
Normal Rate of Return
=11/9 x 10 = 12.22
Q18. The capital structure of company as on 31st March, 2009 was as under:
Equity Share Capital | 5,00,000 |
11% Preference Share Capital | 3,00,000 |
12% Secured Debentures | 4,00,000 |
Reserves | 3,00,000 |
The company on an average earns a profit of Rs 4,00,000 annually before deduction of interest on Debentures and Income Tax, which works out to 45%. The normal return on equity shares on companies similarly placed is 15% provided:
(a) The profit after tax covered the fixed interest and fixed dividends at least four times.
(b) Equity capital and reserves are 150% of debentures and preference capital.
(c) Yield on shares is calculated at 60% of profits distributed and 5% on undistributed profits.
The company is regularly paying an equity dividend of 18%. Ascertain the value of equity share of the company.
Solution:
Particulars | Rs |
Average profit of the companies before interest and tax | 4,00,000 |
Less: Debenture interest (12% of 4,00,000) | 48,000 |
Profit after interest but before tax | 3,52,000 |
Less: Tax @ 45% | 1,58,400 |
Profit after Interest and Tax | 1,93,600 |
Evaluation of Conditions given in the question:
(a) Profit after tax whether covers fixed interest and fixed dividend at least four times. Profit after tax = 4,00,000 – 1,58,400 = 2,41,600
Fixed interest and fixed dividend interest:
Interest 48,000
Fixed dividend (11% of 3,30,000) 33,000
81,000
Fixed interest and fixed dividend interest= 2,41,600/81,000 = 2.9827 times
Fixed interest and dividend coverage is 2.98 times only and is less than the prescribed 4 times.
(b) Whether equity capital and reserves are of 150% of preference share capital and debentures.
Particulars | Rs | Particulars | Rs |
Equity shares Reserve | 5,00,000 3,00,000 | Preference shares Debentures | 3,00,000 4,00,000 |
8,00,000 | 7,00,000 |
Ratio =
8,00,000 x 100 = 114.28%
7,00,000
Ratio is less than the Prescribed Ratio of 150%.
(c) Yield on Profit:
Particulars | Rs | Rs |
Average Profit after Interest and Tax |
| 1,93,000 |
Less: Preference Dividend (11% of 3,30,000) | 33,000 |
|
18% Equity Dividend (Regularly Paying) = 5,00,000x18/100 |
90,000 |
1,23,000 |
:. Undistributed profits |
| 70,600 |
:. Yield = 60% of Distributed Profit = 60% of 90,000 | 54,000 | |
5% of on undistributed profit | 3,530 | |
| 57,530 |
Yield Rate = 57,530/5,00,000 =11.506%
Expected Yield of Equity Shares Normal Return if conditions (a) and (b) cited above fulfilled |
15% |
Add: For low coverage of fixed interest and dividend (assumed) | 0.5% |
For low ratio of Equity share capital and Reserves (assumed) | 0.5% |
| 16% |
Value of Equity Shares = Possible Yield Rate x paid up value of shares
Expected Yield Rate
= 11.506/16 x 100
= Rs 71.91
Q19. From the following information of Dell Ltd., calculate the value of share by yield basis.
Balance Sheet as on 3/12/09
Particulars | Rs | Particulars | Rs |
800 Equity shares of 100 each | 80,000 | Land and Building | 50,000 |
4,000 Preference shares of Rs 10 each | 40,000 | Plant and Machinery | 60,000 |
6% Debentures | 20,000 | Patents | 20,000 |
Sundry Creditors | 40,000 | Sundry Debtors | 30,000 |
|
| WIP and Stock | 50,000 |
|
| Cash and Bank | 10,000 |
| 2,20,000 |
| 2,20,000 |
Land and Building to be valued at Rs 90,000. The company’s earnings were as follows:
Year | Profit before Tax | Tax |
2005 | 30,000 | 8,000 |
2006 | 40,000 | 16,000 |
2007 | 10,000 | (Strike) 4,000 |
2008 | 50,000 | 23,000 |
2009 | 55,000 | 30,000 |
The company paid managerial remuneration of Rs 6,000 per annum but it will become Rs 10,000 in future. There has been no change in capital employed. The company paid dividend of Rs 9 per share and it will maintain the same in future. The company proposed to build up a plant rehabilitation reserve at 15% of profit after tax. Dividend rate in this type of company is fluctuating and the asset backing of the equity share is about 1½ times. The equity share with an average dividend of 8% sold at par.
Solution:
Average Maintainable Profits:
Year | Weights | Profit | Product |
2005 | 1 | 30,000 | 30,000 |
2006 | 2 | 40,000 | 80,000 |
2007 | (abnormal due to strike) | ||
2008 | 3 | 50,000 | 1,50,000 |
2009 | 4 | 55,000 | 2,20,000 |
| 10 |
| 4,80,000 |
Weighted Average Profit= 4,80,000/10= 48,000
Particulars | Rs |
Weighted Average Profit | 48,000 |
Less: Increase in the Managerial Remuneration (10,000 – 6,000) | 4,000 |
| 44,000 |
Less: Tax (assuming 50%) | 22,000 |
Profits available for distribution | 22,000 |
Less: Plant Rehabilitation Reserve | 3,300 |
| 18,700 |
Less: Preference Dividend (9% of Rs 40,000) | 3,600 |
| 15,100 |
Average Backing per Equity Share:
Tangible Trading Asset | Rs | Rs |
Land and Building |
| 90,000 |
Plant and Machinery |
| 60,000 |
Patents |
| 20,000 |
Sundry Debtors |
| 30,000 |
WIP and Stock |
| 50,000 |
Cash and Bank |
| 10,000 |
|
| 2,60,000 |
Less: Sundry Creditors | 40,000 |
|
Preference Share Capital | 40,000 |
|
6% Debentures | 20,000 | 1,00,000 |
Net assets available for equity shareholders |
| 1,60,000 |
Asset Backing = 1,60,000/80,000= 2 times
Dividend Rate: Normal Dividend Rate |
8.0% |
Less: For higher dividend rate of 9% | (0.5%) |
For higher asset backing (2 times compared to 1.5) | (0.5%) |
| 7.0% |
Capitalisation Factor= 100/7= 14.226
Value of equity share = Profit available for Equity share holders x Cap Factor
Number of Equity Shares
= 15,100/800 x 14.286
= 269.64
Fair Value of a Share
The fair value of a share is the average of the value obtained by the net asset method and the yield method.
Fair Value = Intrinsic Value + Yield Value
2
Q20. The following is the Balance Sheet of M/s. Mahendra Ltd., as at 31-3-2013.
Liabilities | Rs | Assets | Rs |
Share Capital: Authorised |
| Fixed Assets:
Land and Building Plant and Machinery Furniture Current Assets: Stock in Trade Debtors Cash and Bank Balance Miscellaneous Expenditure: Deferred Advertising Expenses |
|
50,000 8% Cumulative Preference Shares of Rs 10 each | 5,00,000 | 2,20,000 | |
40,000 Equity Shares of Rs 10 each | 4,00,000 | 4,40,000 | |
|
| 80,000 | |
Issued and Fully Paid up: |
|
| |
40,000 8% Cumulative Preference |
| 3,10,000 | |
Shares of Rs 10 each | 4,00,000 | 3,50,000 | |
30,000 Equity shares of Rs 10 each | 3,00,000 | 1,70,000 | |
General Reserve | 1,10,000 |
| |
Profit and Loss A/c | 1,00,000 |
| |
Current Liabilities and Provision: |
|
| |
Current Liabilities | 1,00,000 | 70,000 | |
Provision for Depreciation | 4,55,000 |
| |
Provision for Taxation | 90,000 |
| |
Proposed Dividend | 85,000 |
| |
| 16,40,000 | 16,40,000 |
The Turnover, Net Profit and Dividend paid on Equity shares of the last 3 years ended 31st March, 2012 are as given below:
Year | Turnover Rs | Net Profit Rs | % of Dividend on Equity Shares |
2009-2010 | 31,20,000 | 3,05,000 | 15% |
2010-2011 | 40,44,000 | 4,50,000 | 15% |
2011-2012 | 50,00,000 | 5,60,000 | 18% |
Calculate the fair value of Equity Shares of the company, assuming that the fair return in investment in the company doing similar business is 12%.
Solution:
M/s. Mahindra Ltd.
Particulars | Rs | Rs |
Land and Building |
| 2,20,000 |
Plant and Machinery |
| 4,40,000 |
Furniture |
| 80,000 |
Stock |
| 3,10,000 |
Debtors |
| 3,50,000 |
Cash and Bank |
| 1,70,000 |
Less: Current Liabilities | 1,00,000 |
|
Provision for Depreciation | 1,55,000 |
|
Provision for Tax Proposed Dividend | 90,000 85,000 |
7,30,000 |
|
| 8,40,000 |
Less: Preference Sheet Capital | 4,00,000 | |
Assets available for equity shareholders | 4,40,000 |
Intrinsic Value =
=
Profit Available to Equity Shareholders
Number of Equity Shares
4,40,000
30,000
= Rs 14.67.
Yield Value:
Average Net Profit =
3,05,000 + 4,50,000 + 5,60,000
3
= 13,15,000
3
= Rs 4,38,333.
Average Profit of Earning = 4,06,383/3,00,000 x 100 = 135.44%
Value of Equity Share = Average Rate of Return x paid up value of shares
Normal Rate of Return
= 135.44/12 x 100
= Rs 112.87(Earning Basis)
Value of Equity Share = Average Rate of Dividend x paid up value of shares
Normal Rate of Return
= (15+15+18)/3 x 10
12
= Rs 13.33
Q 8
On 31st March, 2012, the Balance Sheet of Gomati Ltd. Was as follows.
Liabilities | Rs | Assets | Rs | |
Share Capital Authorised 20,000 equity shares of Rs 100 each Issued and paid up 15,000 equity shares of Rs 100 each Less: Calls in arrears at Rs 20 each Profit and Loss Account Bank Overdraft Creditors Provision for Taxation Proposed Dividend Total |
15,00,000
(2,000) |
20,00,000
14,98,000 1,54,500 32,000 1,15,500 67,500 1,12,500 | Land and Buildings Plant and Machinery Stock Sundry Debtors Cash Bank | 3,00,000 1,72,500 4,50,000 9,07,500 20,000 1,30,000 |
| ||||
19,80,000 | 19,80,000 |
The Net profits of the company after providing for tax were as follows:
Year Ended | Rs |
31st March, 2012 | 1,72,500 |
31st March, 2011 | 1,50,000 |
31st March, 2010 | 1,87,500 |
31st March, 2009 | 1,80,000 |
31st March, 2008 | 1,35,000 |
On 31st March, 2012, Land and Building were valued at Rs 3,75,000 and Plant and Machinery were valued at Rs 2,25,000. Normal rate of return can be considered at 8%. Goodwill is to be valued at 3 years purchase of super profits based on average profit of last 5 years.
Find the intrinsic value of fully paid and partly paid equity shares Consider closing capital employed as average capital employed.
Solution:
Gomati Ltd.
Valuation of Goodwill
Step 1: Calculation of Average Profit
= 1,72,500 +1,50,000 + 1,87,500 + 1,80,000 + 1,35,000
5
= 1,65,000
Step 2: Calculation of Capital Employed
Revised value of all assets |
| ||||||
Land & Building | 3,75,0000 | ||||||
Machinery | 2,25,000 | ||||||
Stock | 4,50,000 | ||||||
Debtors | 9,07,500 | ||||||
Cash |
| 20,000 |
| ||||
Bank |
| 1,30,000 | |||||
|
|
|
| 21,07,500 | |||
Outside Liabilities Bank O/D |
|
32,000 |
|
| |||
Creditors |
| 1,15,500 |
|
| |||
Provision for Tax |
| 67,500 |
|
| |||
Proposed Dividend |
| 1,12,500 |
|
| |||
|
|
|
| 3,27,500 | |||
Capital Employed |
|
|
| 17,80,000 | |||
Step 3: Calculation of Normal Profit
Normal Profit = 17,80,000 × 8% = 1,42,400
Step 4: Calculation of Super Profit
Super Profit = 1,65,000 – 1,42,400 = 22,600
Step 5: Calculation of Goodwill
Goodwill = 22,600× 3 = 67,800
Valuation of Shares
Step 1: Net Assets available to Equity Shareholders
Capital Employed Add: Goodwill | 17,80,000 67,800 |
Add: Calls in arrears/uncalled | 18,47,800 |
| 2,000 |
Net assets available to Equity shareholders | 18,49,800 |
Step 2: Value per Share
Value per Share=18,49,800/15,000= 123.32
Totally paid-up share value = 123.32 – 30 = 103.32.
Q 9
The following particulars of Amber Ltd. As on 31st March, 2012 are available:
1. 1,00,000 Equity Shares of Rs 100 each fully paid | Rs 1,00,00,000 |
2. 10,000 12% Preference shares of Rs 100 each fully paid | Rs 10,00,000 |
3. Securities Premium | Rs 11,50,000 |
4. Profit and Loss Account | Rs 33,58,000 |
5. General Reserve | Rs 18,85,000 |
6. Current liabilities: |
|
Creditors Rs 31,20,000 |
|
Bills Payable Rs 10,60,000 | Rs 41,80,000 |
7. Average Profit after Tax (for last three years) Rs 5,85,000
8. 20% of profit after tax is transferred to General Reserve every year
9. Fictitious Assets Rs 80,000
10. Normal Rate of Return is 10%
Considering the above information, compute the value of equity share by:
- Assets Backing method
- Yield method
- Fair value method (ignore goodwill)
Solution:
Valuation of Shares
Particulars | Rs |
Net Assets Value Capital Employed |
|
Equity Capital | 1,00,00,000 |
12% Preference Capital | 10,00,000 |
Reserves and Surplus: |
|
General Reserve | 18,85,000 |
Securities Premium | 11,50,000 |
Profit & Loss Account | 33,58,000 |
| 1,73,93,000 |
Less: Fictitious Assets | 80,000 |
Net Assets | 1,73,13,000 |
Less: Preference | 10,00,000 |
Net Assets for Equity shareholders | 1,63,13,000 |
Value per share | 163.13 |
Yield Method |
|
Average Profit after Tax | 5,85,000 |
Less: Preference Dividend (10,00,000 × 12% ) | 1,20,000 |
| 4,65,000 |
Less: Transferred to General Reserve | 1,17,000 |
| 3,48,000 |
F.M.P. For Equity Shareholders | 3,48,000 |
Rate of F.M.P. = 3,48,000/1,00,00,000 × 100 | 3.48 |
F.M.P. Value per share = Rate of F.M.P. × 100/Paid-up Equity Capital |
|
= 3.48/10 x 100 | 34.8 |
Rate of F.M.P. × Amount paid per share |
|
N.R.R. = 10% |
|
Fair Value = Net Assets + Yield Value/2 = 163.13 + 34.8/2 | 197.93 |
| 98.965 |
Q 10
The Balance Sheet of Sagar Ltd. As on 31st March, 2011 was as follows:
Liabilities | Rs (in Lakhs) | Assets | Rs (in Lakhs) |
Equity Share Capital (Rs 10 each) | 1,000 | Building | 440 |
Profit & Loss A/c | 206 | Machinery | 190 |
Bank Overdraft | 40 | Stock | 700 |
Creditors | 154 | Debtors | 310 |
Provision for Tax | 90 |
|
|
Proposed Dividend | 150 |
|
|
| 1,640 |
| 1,640 |
The net profit of the company after deducting all working charges and providing depreciation and taxation were as under:
Year ending | Rs in Lakhs |
31-03-2007 | 170 |
31-03-2008 | 192 |
31-03-2009 | 180 |
31-03-2010 | 200 |
31-03-2011 | 190 |
On 31st March, 2011, Building was valued at Rs 500 lakhs and Machinery at Rs 300 lakhs. The other assets and liabilities have been correctly valued. In view of the nature of business, it is assumed that 10% is a reasonable return on tangible capital. Consider consider closing capital as average capital employed and simple average for computing average profit.
You are required to determine:
(a) Value of Goodwill on the basis of 5 year’s purchase of super profits.
(b) Intrinsic value of Equity Share.
Solution:
Sagar Ltd.
(a) Valuation of Goodwill by Super Profit Method
- Average Capital Employed
Particulars | Rs | Rs |
All assets at revised values excluding Goodwill, Non-trade |
|
|
Investments and Fictitious Assets: |
|
|
Building | 500 |
|
Machinery | 300 |
|
Stock | 700 |
|
Debtors | 310 | 1,810 |
Less: All liabilities at revised values excluding Share Capital |
|
|
And Reserves & Surplus: |
|
|
Bank Overdraft | 40 |
|
Creditors | 154 |
|
Provision for Tax | 90 |
|
Proposed Dividend | 150 | 434 |
Average Capital Employed |
| 1,376 |
2. Normal Rate of Return 10%
3. Normal Profit = A.C.E. × N.R.R. = 1376 × 10% = 137.60
4. Future Maintainable Profit
Average Profit for last 5 years ending 31st March | Rs |
2007 | 170 |
2008 | 192 |
2009 | 180 |
2010 | 200 |
2011 | 190 |
Total | 932 |
Average Profit = 932/5 = 186.40
5. Super Profit = F.M.P. – Normal Profit = 186.40 – 137.60 = 48.80
6. Goodwill = Number of years purchase × Super Profit = 5 × 48.80 = 244.00
(b) Intrinsic Value of Equity Share
- Net Assets available to Equity Shareholders
Particulars | Rs |
Net Assets as above | 1,376 |
Add: Goodwill | 244 |
| 1,620 |
2. Intrinsic value per Equity Share
= Net Assets Available to Equity Shareholder / No of Equity Shares
= 1,620/100 = 16.20
Q 11
Solve the following:
(i) Calculate basic EPS as per AS-20 from the following information:
Share capital as on 1-4-2009 1 lakh equity shares of Rs 10 each.
Issue of right shares for cash on 1-7-2009 in the ratio of 1 share for every 5 shares.
Issue of Bonus shares (excluding right shares) in the ratio of 1 share for every 5 shares.
Net profit (before tax) for 2009-10 Rs 4 lakhs. Income tax rate is 40%.
(ii) Capital employed Rs 8.05 lakhs. Normal rate of return is 12%
Net Profit (before tax) for 3 years: Rs 2.05 lakhs, Rs 3.10 lakhs and Rs 3.04 lakhs. Rate of Income Tax is 50 %.
Compute goodwill by capitalisation of F.M.P. Method.
(iii) On 31-3-2010, Holding Company acquired 75% of shares in subsidiary for Rs 3.60 lakhs. On that date, subsidiary had 25,000 shares of Rs 10 each and Reserves Rs 1.50 lakhs. What is the value of goodwill on acquisition?
Solution:
1. Calculation of Weighted Average Number of Shares.
Particulars | Date of Issue | Period upto 31.3.10 | No. Of Shares | Weighted Average Shares |
Opening Shares | 1.04.2009 | 12 | 1,00,000 | 100,000 |
Bonus Shares (5,000 × 1/5) | 1.10.2009 | 12 | 20,000 | 20,000 |
Right Shares | 1.07.2009 | 9 | 20,000 | 15,000 |
Weighted Average |
|
|
| 1,35,000 |
Basic E.P.S.
Notes:
Earnings = 2,40,000/1,35,000 = Rs 1.78
Weighted Average Number of Shares
(i) As per AS-20, Date of issue bonus shares not to be considered and period is to be taken from the date of commencement of the year.
(ii) Rate of tax is 40%, then earning = Rs 4,00,000 – 40% of 4,00,000 = Rs 2,40,000
2. (i) Average Capital Employed = Rs 8,05,000
(ii) Normal rate of Return = 12%
(iii) F.M.P
Net Profit after Tax= 2,50,000+3,10,000+3,04,000 / 3
Net Profit after Tax is Rs 1,44,000.
(iv) Value of Business by Capitalisation of F.M.P. At 12% = 1,44,000/12 ×100
= Rs 12,00,000
(v) Goodwill = Value of Business – Capital Employed = 12,00,000 – 8,05,000
= Rs 3,95,000
3. Cost of Control/Goodwill Rs
Cost of Investment of Holding Company 3,60,000
Less: Paid-up Value of Shares 1,87,500
Less: Share of Capital Profit 1,12,500
60,000
Q 12
The Balance Sheet of Adesh Ltd. As on 31st March, 2008 is given as under:
Balance Sheet as on 31st March, 2008
Liabilities | Rs in Lakhs | Assets | Rs in Lakhs |
Share Capital Equity Shares of Rs 10 each | 400 | Goodwill | 70 |
Rs 10% Preference Shares of Rs 100 each | 100 | Building (Cost) | 150 |
Reserve and Surplus | 115 | Machinery(Net) | 250 |
Creditors | 183 | Inventory | 330 |
Bank Loan | 115 | Debtors | 150 |
Provision for Tax | 37 |
|
|
| 950 |
| 950 |
The after tax profits during the immediately past 5 years were as follows:
Year | Rs in Lakhs | % Dividend |
2003-04 | 20 (Loss) | – |
2004-05 | 68 | 18 |
2005-06 | 133 | 20 |
2006-07 | 120 | 22 |
2007-08 | 135 | 25 |
(a) The loss of 2003-04 was due to strained industrial relations relations, which has since improved satisfactorily.
(b) The market price of equity shares at present is Rs 130 per share.
(c) The profit for 2007-08 was calculated after debiting the Profit & Loss A/c with Rs 50 lakhs for MD’s remuneration. In future, it will be Rs 6 lakhs for which necessary formalities have been completed.
(d) A tender submitted in 2006-07 has been accepted and the annual additional earnings for the contract is going to be Rs 80 lakhs for the next 5 years with an annual growth 5%. For this purpose, new machinery worth Rs 100 lakhs would be needed and it will be acquired by issuing paid-up shares.
The following revaluation have been agreed upon:
Buildings Rs 220 lakhs
Inventory Rs 350 lakhs
Debtors Rs165lakhs
You are required to calculate:
(a) Goodwill, if any on the basis of 5 year’s purchase of average annual super profits.
(b) Valuation of equity shares on Asset Backing Method (Net Assets Method).
(c) Valuation of equity shares on earnings basis when normal earnings in similar kind of business is 16%.
(d) Valuation of equity shares on yield basis.
Solution:
Working
(a) Calculation of Capital Employed
Particulars | Rs in Lakhs | Rs in Lakhs |
Assets: Building Machinery Inventory Debtors Total Assets Liabilities: Bank loan Creditors Provision |
220 250 350 165 |
985
(335) |
115 183 37 | ||
|
100 10 | 650 |
Add: Dividend Equity Preference
Less: On the Profit during the year (1/2 of Rs1,35,000) Net Tangible Assets |
110 760
(67.50) | |
| ||
692.50 |
(b) Normal Rate of Return
Average Dividend = 18+20+22+15/4 = 85/4 = 21.25%
NRR= Dividend/ Market Price x 100
= 21.25/130 x 100 = 16%
(c) Normal Profit of Average Capital Employed= 16% of 692.5 lakhs
= 110.8 lakhs
(d) Future Maintainable Profit= 68+133+120+135 = 456 lakhs
Average Profit= 456/4 = 114 lakhs
Annual Average Profit before Tax= 114/70 x 100 = 162.85 lakhs
Add: Increase in Earnings 80.00 lakhs
Less: Increase in MD’s remuneration (10.00) lakhs
232.85 lakhs
Less: Tax @ 30% (69.85) lakhs
FMP 163.00 lakhs
Super Profit = F.M.P. – Net Profit
= 163 lakhs – 110.8 lakhs
= 52.2 lakhs
(a) Goodwill = 5 × Super Profit
= 5 × 52.2 lakhs
= Rs 261 lakhs
(b) Value Per Share
Net Tangible Assets 692.50 lakhs
Add: Goodwill 261.00 lakhs
953.50 lakhs
Less: Preference Capital 100.00 lakhs
Net Assets 853.50 lakhs
Number of shares = 40 lakhs
Value per Share= Net Assets/ No of Shares = 853.50/40 = Rs 21.34
(c) Value per share on basis of earnings= ARR/NRR x paid up value per share
ARR = Avg Profit/C.E x 100
= 163/692.32 x 100 = 23.53%
Value per share = 23.53/16 x 10 = Rs 14.70
(d) Yield Value = Dividend per share/Normal rate x 100
= 2.5/16 x 100 = 15.62%
Or Alternatively
Workings:
Calculation of Capital Employed:
Total Assets 985 lakhs
Less: Liabilities 335 lakhs
650 lakhs
Less: 1/2 of Retained Earnings = 25 12.50 lakhs
637.50 lakhs
Average rate of dividend =21.25%
N.R.R= 16%
Normal Profit = 16% of 637.50 = Rs 102 lakh
Average Profit before Tax= 114/70 x 100 = 162.85%
Say 163 lakhs
Less: Normal Profit 102 lakhs
Super Profit 61 lakhs
(a) Goodwill = 5 × Selling Price = 5 × 61 = 305 lakhs.
(b) Value of Equity Share of Net Asset Basis:
Net Assets 760 lakhs
Add: Goodwill 305 lakhs
1065 lakhs
Less: Profit Capital 100 lakhs
Net Assets 965 lakhs
Value of Share= 965/40 = Rs 24.125 lakhs
(c) Value of Equity shares on earning basis = 135-10 (Pref Div) x 10
400
= 125/400 x 10 = Rs 31.25
Value per share = 31.25/16 x 10 = Rs 19.53
OR
= 135-10 x 100
Capital+ R&S-Deferred Revenue Exp
= 125/515 x 100 = Rs 24.27
Value per share= 24.57/16 x 10 = Rs 13.28
(d) Yield Basis = Average Yield/16 x 10
= 21.25/16 x 10 = Rs 13.28
References:
- Sehgal, Ashok and Deepak Sehgal. Corporate Accounting. Taxman Publication, New Delhi.
- Gupta, Nirmal. Corporate Accounting. Sahitya Bhawan, Agra.
- Jain, S.P. And K.L. Narang. Corporate Accounting. Kalyani Publishers, New Delhi.
- Compendium of Statements and Standards of Accounting. The Institute of Chartered Accountants of India, New Delhi.
- Bhushan Kumar Goyal, Fundamentals of Corporate Accounting, International Book House.