Solution please

Ance Philip (Admin Exe (MBA ) IPCC 2013) (80 Points)

19 March 2013

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

Notes to Accounts:

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

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

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

Additional Information:

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

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

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

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

Regards,

Ance

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