Model Answer Corporate Financial Accounting As-2372

Transcription

1 Answer 1: I. Share holders II. Provisions III. Legal expenses IV. Model Answer Corporate Financial Accounting As-2372 Members voluntary winding-up can be resorted to by solvent companies and thus requires the filing of Declaration of Solvency by the Directors of the company with the Registrar. Creditors windingup, on the other hand, is resorted to by insolvent companies. In Members voluntary winding-up there is no need to have creditors meeting. But, in the case of creditors voluntary winding-up, a meeting of the creditors must be called immediately after the meeting of the members. Liquidator, in the case of members winding-up, is appointed by the members. But in the case of creditors voluntary winding-up, if the members and creditors nominate two different persons as liquidators, creditors nominee shall become the liquidator. In the case of Creditor s voluntary winding-up, if the creditors so wish, a Committee of Inspection may be appointed. In the case of Members voluntary winding-up, there is no provision for any such Committee. The remuneration of liquidator/(s) is fixed by the members in case of Members voluntary windingup (Section 490) whereas the same is to be fixed by the Committee of Inspection, if any, or by the creditors in case of Creditors voluntary winding-up (Section 504 V. Calculation of Goodwill/Capital Reserve: Purchase Value of Shares Less: 1. Face Value of Shares Purchased Share of Holding Co. in Pre-dated Reserve of Sub. Co Share of Holding Co. in Pre-dated Profit of Sub. Co Share of Holding Co. in Revaluation Profit on Assets of Sub. Co Share of Holding Co. in Bonus Shares Issued by Sub. Co Share of Holding Co. in Dividend before purchased Add: 1. Share of Holding Co. in Pre-dated Loss of Sub. Co Share of Holding Co. in Revaluation Loss on Assets of Sub. Co Share of Holding Co. in Goodwill/Preliminary Exp. Writtenoff Goodwill/Capital Reserve VI. Purchase consideration is the amount which is paid by the transferee company for the purchase of the business of the transferor company. In other words consideration for amalgamation means me aggregate of the shares and other securities issued and payment in cash or other assets by the transferee company to the shareholders of the transferor company. It should not include the amount of liabilities taken over by the transferee company, which will be paid directly by this company.

2 VII. Payments made to debenture-holders should not be considered as part of purchase consideration. While determining the amount of purchase consideration special care should be given to the valuation of assets and liabilities of the transferor company. The calculation of purchase consideration is very important and may be calculated in the following ways: Method to determine purchase consideration (i) Lump Sum Method. When the transferee company agrees to pay a fixed sum to the transferor company, it is called a lump sum payment of purchase consideration. For example, if X Ltd. purchases the business of Y Ltd. and agrees to pay Rs. 25,00,000 in all, it is an example of lump sum payment. (ii) Net Worth (or Net Assets) Method. According to this method, the purchase consideration is calculated by calculating the net worth of the assets taken over by the Transferee Company. The net worth is arrived at by adding the agreed value of assets taken over by the transferee company minus agreed value of liabilities to be assumed by the transferee company. June 2007 June 2008 Equity Share Capital (Rs.10)A/c..Dr To Equity Share Capital (Rs. 5)A/c (Being Rs 10 shares Sub divided into Rs 5 Shares) Equity Share Capital (Rs.5)A/c..Dr To Equity Share Capital (Rs. 100)A/c (Being Rs 5 shares consolidated into Rs 100 Shares) VIII. Unrealized Profit = 60,000 20/120 =10,000 4/5 = IX. Voyage accounting is the compilation of expenses and revenue for a maritime ship. It could apply to a single journey or for the duration of a lease on the vessel. Voyage related and vessel operating costs are expensed as incurred. Under time charters, specified voyage costs, such as fuel and port charges are borne and paid by the charterer and other non-specified voyage expenses, such as brokerage commission are paid by the Company. Vessel operating costs including crews, maintenance and insurance are paid by the Company. X. To know the profit or loss on the investment. Answer 2: Amalgamation: Amalgamation is defined as a simple arrangement or reconstruction of business. It is a process that involves combining of two or more companies as either absorption or as blend. Two or more companies can either be absorbed by an entirely new firm or a subsidiary powered by one of the basic firm. In such cases all the shareholders of the absorbed company automatically become the shareholders of the ruling company as the amalgamating company loses its existence. All the assets and liabilities are also transferred to the new entity. Merits and Demerits A primary advantage of the transaction is that a merger is legally simple and does not cost as much as other forms of acquisition. The reason is that the firms simply agree to combine their entire operations. Thus, for example, there is no need to transfer title to individual assets of the acquired firm to the acquiring firm. Besides that, merger also reduces the number of competition in the market and captures additional economic scales of the market. This will keep the company growth with the amalgamation of the competitive advantages of both firms. Merger also enables the company to restructuring and strengthening the organization as firms involved in the transaction share strategies to strengthen the organization, thus eliminate weaknesses in the firm. By the way, two heads are better than one. After the merger transaction took place, acquiring firm enables to make new investment with the surplus money available. Perhaps, the organization may invest in larger investment to yield more profit.

3 The transaction also allows the acquiring firm to gain more market share, thus results better confidence from its current customers as the firm seems more reliable. This also results increase of new customers and also attracts other parties to have relationshipswith the organization in loads of kinds. Merger also has its own disadvantages. One of the disadvantages is that a merger must be approved by votes of the stockholders of each firm. Typically, two-thirds (or even more) of the share votes are required for approval. Obtaining the necessary votes can be time-consuming and difficult. Furthermore, the cooperation of the target firm existing management is almost a necessity for a merger. This cooperation may not be easily or cheaply obtained. Moreover, the diseconomies of scale if business become too large which leads to higher unit costs. Its also will create clashes of culture between different types of business. Thus this reduces the effectiveness of the integration. Merger also may be creating a conflict of objective between different businesses, meaning decisions are more difficult to make and causing disruption in running of the business. It also results dissatisfaction among current staffs as positions will be limited and the management have to decide which staffs to hold the position after the transaction has taken place. Answer 3 Internal Reconstruction: Internal reconstruction means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. In internal reconstruction neither the existing company is liquidated, nor is a new company incorporated. It is a scheme in which efforts are made to bail out the company from losses and put it in profitable position. Internal reconstruction of a company is done through the reorganization of its share capital. It is a scheme of reorganization in which all interested parties in the capital structure volunteer to sacrifice. They are the company s shareholders, debenture holders, creditors etc. Under internal reconstruction, the accumulated trading losses and fictitious assets are written off against the sacrifice made by these interest holders in the form of reduction of paid up value of their interest. The following are the three situations generally responsible for the internal reconstruction of a company: (i) When the capital structure of a company is complex and it is required to make it simple. (ii) When there are huge accumulated losses and it is required to write off these losses to depict a better position of the company. (iii) When a part of the capital is not represented by available tangible assets. Internal reconstruction of a company can be carried out in the following different ways. These are as under: (A) Alteration of Share Capital; and (B) Reduction in Share Capital Reduction in capital may be either involving sacrifice of shareholders only or involving sacrifice from Shareholders and other stakeholders, viz., debenture holders and creditors. Learners should note that the sacrifice is made either by the shareholders only or by the Shareholders and other stakeholders jointly. It never happens that sacrifice is made by the creditors and debenture holders only Answer 4; Voyage Account Particular Amount Particular Amount

4 To Stores To Coal To wages To Port Charges To Depreciation To Sundry Expenses To Managers commission To Net Profit 10,000 12,000 30,000 1,000 4,000 2,737 27,367 By Freight outward 50,000 + Primage 2,500 By freight Inward 40,000 + Primage1,600 By stores & Coal 52,500 41,600 2,004 96,104 96,104 Answer 5; Analytical Table Year Output Royalty Min. Rent ,000 12, ,000 50,000 21,000 18, ,250 S/W Surplus S/W recoup 3,750 22,500 2,250 3,750 S/W Unrecoup S/W to A/c 13,500 1,500 2,250 Tr. P&L Payment to land lord 3 11,250 Royalty Account Year Particular Amount Year Particular Amount 1 To Landlords A/c 1 By Profit & Loss A/c 2 To Landlords A/c 2 By Profit & Loss A/c 3 To Landlords A/c 21,000 3 By Profit & Loss A/c 21,000 21,000 21,000 4 To Landlords A/c 18,750 4 By Profit & Loss A/c 18,750 18,750 18,750 5 To Landlords A/c 3 5 By Profit & Loss A/c To Landlords A/c 11,250 6 By Profit & Loss A/c 11,250 11,250 11,250 Short-working Account Year Particular Amount Year Particular Amount 1 To Landlords A/c 1 By balance c/d 2 To Balance b/d To Landlords A/c 2 By balance c/d 13,500 13,500 13,500 1,500 13,500 13,500 3 To Balance b/d 13,500 3 By land lord By Profit & Loss A/c By Balance c/d 4 To Balance b/d 4 By land lord By Profit & Loss A/c 3,750 2,250

5 Landlords Account Year Particular Amount Year Particular Amount 1 To Bank A/c 1 By Royalty A/c By Short Working A/c 2 To Bank A/c 2 By Royalty A/c By Short Working A/c 3 To Bank A/c 3 By Royalty A/c 21,000 To Short Working A/c 21,000 21,000 4 To Bank A/c 4 By Royalty A/c 18,750 To Short Working A/c 3,750 18,750 18,750 5 To Bank A/c 3 5 By Royalty A/c To Bank A/c 11,250 6 By Royalty A/c 11,250 11,250 11,250 Answer 6: Calculation of Purchase Consideration Rajul Ltd. Rahul Ltd. Total Assets Less: Creditors 230, ,000 2,000 Net Assets Value or Purchase Consideration 224, ,000 Journal Entries in the Book of Rohit Ltd. Business Purchase A/c..Dr. To Liquidator of Rajul Ltd. To Liquidator of Rahul Ltd. (being consideration payable to liquidator of both company) Land and Building A/c..Dr. 190,000 Plant and machinery A/c Dr. 8 Patents A/c..Dr. Stock A/c...Dr. 5 Debtors A/c..Dr. 6 Bills Receivables A/c..Dr. Cash at Bank A/c..Dr. 13,000 To Reserve To Creditors To business Purchase (Being various assets and liabilities taken over) Liquidator of Rajul Ltd. Dr. Liquidator of Rahul Ltd. Dr. To equity Share Capital (being purchase consideration discharged) 224, , , ,000 Nil Balance Sheet Liabilities Amount Assets Amount Share capital : Authorized Fixed Assets: Land and Building 190,000

6 Issued and Subscribed Reserve and Surplus: Reserve Secured Loans Current liabilities & Provisions: A. Current Liabilities Creditors B. Provisions Nil Plant and machinery Patents Current Assets, Loans & Advances: A. Current Assets: Stock Debtors Cash at Bank B. Loans & Advances: Bills Receivables , , ,000 Answer 7: Particulars Statement of Profit and Loss Note No. Figures for the current reporting period (Rs.) 4 I. Revenue from the operations II. Other Incomes III. Total Revenue (I + II) 4 IV. Expenses : Cost of material consumed Purchase of Stock in Trade Changes in inventory of finished goods, work in progress and stock in trade (195,000 75,000) Employee Benefit expenses (84, ,500) Finance cost (interest on deb.) Depreciation and amortization expenses Other expenses 185,000 (120,000) 99, ,220 38,635 Total Expenses 319,220 V. Profit before exceptional and extraordinary items and tax (III IV) VI. Exceptional items: Preliminary expenses written off VII. Profit before extraordinary items and tax (V - VI) VIII. Extraordinary Items IX. Profit before tax (VII VIII) X. Tax Expenses 1) Current Tax 2) Deferred Tax 95, , ,280 37,000 XI. Profit for the period (IX X) 58,280 Figures for the previous reporting period (Rs.) Answer 8 Less: Calculation of Goodwill/ Capital Reserve Purchase price of shares 55,000

7 Add: Face value of shares acquired 80,000 share of pre-acquisition loss (32,000) 4 Goodwill 7,000 Calculation of Minority Interest Share capital (100,000 ) 20,000 Less: Share of loss in subsidiary (25,000 ) 5,000 Calculation of Consolidated Profit Profit of Holding 35,000 Add: Post acquisition profit share ( ) 12,000 47,000 Consolidated Balance Sheet Liabilities Amount Assets Amount Capital Consolidated Profit Creditors 180,000 47, ,000 Goodwill Sundry Assets Debtors 7, ,000 65,000 Minority Interest 342, ,000