No.

1 for CA/CWA & MEC/CEC MASTER MINDS

16. COMPANY FINAL ACCOUNTS

SOLUTIONS TO ASSIGNMENT PROBLEMS
PROBLEM NO.1

Journal Entries in the Books of CODIG Ltd.

Date Particulars Debit Credit
31.03.03 Profit and Loss A/c Dr. 2,10,000
To Provision for Income Tax A/c 2,10,000
(Being provision for income tax for 2002-03 made)

31.03.03 Profit and Loss Appropriation A/c Dr. 40,000

To Provision for Income Tax A/c 40,000
(Being previous year provision for income tax short fall charged
to Profit and Loss Appropriation A/c)

31.03.03 Provision for Income Tax A/c Dr. 2,40,000

To Income Tax Payable A/c 2,40,000
(Being Provision Transfer to Income Tax Payable A/c for final
settlement)

31.03.03 Income Tax Payable A/c Dr. 2,20,000

To Advance tax A/c 2,20,000
(Being the advance tax for 2001-02 adjusted against income
tax payable account)

Balance Sheet of CODIG Ltd. as at 31.03.2003 (Extract)

Particulars Amount
Current Liabilities:
Other Current Liabilities (Income Tax Payable) 20,000
Short term provision (Provision for Income tax) 2,10,000
Total 2,30,000
Current Assets:
Short term loans and advances (Advance tax) 2,30,000
Total 2,30,000

Working Note:
Dr. Provision for Income Tax A/c Cr.
Particulars Amount Particulars Amount
To Income Tax Payable A/c 2,40,000 By Balance b/d 2,00,000
To Balance c/d 2,10,000 By Profit & Loss Appropriation A/c 40,000
By Profit & Loss A/c 2,10,000
4,50,000 4,50,000

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To MASTER MINDS, Guntur

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Dr. Advance Tax A/c Cr.
Particulars Amount Particulars Amount
To Balance b/d 4,50,000 By Income Tax Payable A/c 2,20,000
By Balance c/d 2,30,000
4,50,000 4,50,000

Dr. Income Tax Payable A/c Cr.

Particulars Amount Particulars Amount
To Advance Tax 2,20,000 By Provision for Income Tax 2,40,000
To Balance c/d 20,000
2,40,000 2,40,000

Hint given in the question is wrong.

PROBLEM NO.2

Calculation of Managing Directors Remuneration:

Particulars Amount
Net Profit after charging for provision for tax 43,00,000
Add: Provision for tax 17,20,000
Net Profit 60,20,000

Managing Directors Remuneration (60,20,000 x 5/100) 3,01,000

PROBLEM NO. 3

(a) Calculation of Effective Capital** of the Company

Particulars Rs. In '000
Paid-up capital 18,000
Add: Reserves and surplus 7,200
Securities premium 1,200
Long term loans 6,000
32,400
Less: Investments 3,600
Preliminary expenses 3,000 (6,600)
Effective capital for the purpose of managerial remuneration 25,800

As effective capital is less than Rs.5 crores but more than Rs.1 crore, therefore maximum remuneration
payable to the Managing Director should be @ Rs.2,50,000 per month.
So, maximum remuneration payable to the Managing Director for the year (Rs.2,50,000 x 12) =Rs.30,00,000

PROBLEM NO. 4

According to Section 123 of the Companies Act, 2013 dividend out of reserves may be declared in
accordance with the Companies (Declaration of dividend out of Reserves) Rules, 2014. These rules
provided the following four conditions to be fulfilled.

Step-1 Maximum withdrawal of Reserve if condition (i) is satisfied

= 10% of Paid up Capital and free reserves
= 10% of (Rs.100 lakh + 20 lakh) = 12 lakh

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Step-2 Maximum withdrawal of Reserve if condition (ii) is satisfied
A. Opening Balance of Reserves in the beginning of the year 20,00,000
B. Less: Closing Balance of Reserve being 15% of paid up share capital 15,00,000
C. Reserve available (A – B) 5,00,000
Step-3 Permissible withdrawal of Reserve if conditions (i) and (ii) are satisfied
= Rs.5,00,000 (being lower of limits as per Step – 1 and Step – 2)
Step-4 Maximum Permissible Divisible Profits
A. Permissible withdrawal of Reserve (as per Step - 3) 5,00,000
B. Less: Loss to the extent of depreciation 1,00,000
C. Maximum Permissible Divisible profit [A – B] 4,00,000
Step-5 Actual Permissible Rate of Dividend
Rs.4 lakh
A. Maximum Permissible Rate of Dividend × 100 = 4%
Rs.100 lakh
B. Average Rate of Dividend based on last three years
[(11% + 10% + 9%)/3 ] 10%
C. Maximum Rate of Dividend as % of paid up capital 10%
D. Actual Permissible Rate of Dividend being lowest of three i.e. 4%

Comment: The Management can declare dividend only upto a rate of 4%. Here, the management’s
dividend decision of 8% is not in accordance with the Provisions of Section 123.

PROBLEM NO. 5

(1)
Particulars % Amount

 1,40,000 
Credit sales for the year  ×12  75% 8,40,000
 2 
Cash sales for the year 25% 2,80,000
Total Sales 100 % 11,20,000
(2)
Dr. Provision for Doubtful debts A/c Cr.
Particulars Amount Particulars Amount
To Bad debts A/c 10,000 By Balance b/d 51,000
To Balance c/d 63,000 By Profit and Loss A/c 22,000
73,000 73,000

Journal Entries
Particulars Debit Credit
Bad debts A/c Dr. 10,000
To Debtors A/c 10,000
(Being bad debts written off)
Provision for doubtful debts A/c Dr. 10,000
To Bad debts A/c 10,000
(Being Provision reduced to the extent of bad debts)
Profit and Loss A/c Dr. 22,000
To Provision for doubtful debts A/c 22,000
(Being Profit transferred to provision for doubtful debts A/c)
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PROBLEM NO. 6

Yes, Corporate Dividend Tax (CDT) is payable by the company which has provided for the payment of
dividend. CDT is payable even if no income tax is payable. This is payable by a domestic company on
distribution of profits to its shareholders.

In the given case, Corporate Dividend Tax would be worked out to Rs.1,65,000 [i.e. (Rs.10,00,000 x
15%) x 110%]. CDT should be accounted for in the same financial year in which provision for dividend
is recognized and made. CDT shall be disclosed in profit and loss account below the line just after the
provision for dividend. Such disclosure would give a proper picture regarding payments involved with
reference to dividends. Disclosure of CDT in the profit and Loss Account will be as follows:

Dividend XXXX
Corporate Dividend Tax XXXX XXXX

PROBLEM NO. 7

1. Computation of Finished Goods in Transit (Rs.000’s)

Particulars MP OJ Total

Goods sent by Factory (As per Factory Wise Statement – Chart 1) 3,380 1,860 5,240
Less: Received by Marketing Division (As per Chart 2 in Illustration) (3,365) (1,850) (5,215)
Finished Goods in Transit 15 10 25

2. Excess of Closing Inventory over Opening Inventory (Rs.000’s)

Particulars MP OJ Total

Opening Stock of Finished Goods:

- At Factory – given 8 2 10
- In Transit (Received during the year by Marketing Division) 10 5 15
- With Marketing Division – given 12 5 17
30 12 42
Add: Opening Work in Process – given 24 12 36

Opening Stock of Inventory (Finished Goods & WIP) (A) 54 24 78

Closing Stock Finished Goods:
- At Factory – given 5 8 13
- In Transit (Received during the year by Marketing Division (WN-1) 15 10 25
- With Marketing Division – given 7 10 17

27 28 55
Add: Closing work in Process – given 28 13 41
Closing Stock of Inventory (Finished Goods & WIP) (B) 55 41 96

Excess of Closing Inventory Over Opening Inventory (A) – (B) 1 17 18

3. Manufacturing and Other Cost (Rs.000’s)

Particulars MP OJ Total
Manufacturing Costs:

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No.1 for CA/CWA & MEC/CEC MASTER MINDS
Raw Material Consumption 2,500 1,000 3,500
Employee Cost 500 600 1,100
Power and Fuel 100 50 150
Consumable Stores 15 7 22
Rates and Taxes 14 9 23
Repairs to: Building 4 5 9
Machinery 80 50 130
Other Assets 3 1 4
Total Manufacturing Costs 3,216 1,722 4,938
Other Costs: Transport 50 60 110
Sales Commission 500 250 750
Sales Tax 400 125 525
Other Expenses 65 55 120
Total Other Costs 1,015 490 1505

st
4. Revenue Statement of Fruit Juice Ltd (Sectional and Consolidated) for the year ended 31
March
Mango Pulp (MP) Orange Juice (OJ) Total
Particulars
(Rs.000’s) % (Rs.000’s) % (Rs.000’s) %
Sales 5,000 99.98 2,500 99.32 7,500 99.76
Add: Increase in Inventory (WN-2) 1 0.02 17 0.68 18 0.24
Gross Revenue: 5,001 100.00 2,517 100.00 7,518 100
Less: Manufacturing Expenses (3,216) (64.31) (1,722) (68.41) (4,938) (65.68)
(WN-3) (1,015) (20.30) (490) (19.47) (1,505) (20.02)
Other Expenses(Depreciation) (100) (2.00) (90) (3.58) (190) (2.53)
Net Profit 670 13.39 215 8.54 885 11.77

PROBLEM NO. 8

Pioneer Ltd.
Balance Sheet as on 31st March, 2015
Particulars Note No. Amount
EQUITY AND LIABILITIES:
1. Shareholders' funds
a. Share capital 1 9,99,000
b. Reserves and Surplus 2 2,96,700
2. Non-current liabilities
a. Long-term borrowings 3 2,63,500
3. Current liabilities
a. Trade Payables 2,00,000
b. Other current liabilities 4 7,500
c. Short-term provisions 5 1,28,000
Total 18,94,700
ASSETS:
1. Non-current assets
a. Fixed assets
i. Tangible assets 6 11,25,000
2. Current assets
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a. Inventories 7 2,50,000
b. Trade receivables 8 2,00,000
c. Cash and cash equivalents 9 2,77,000
d. Short-term loans and advances 42,700
Total 18,94,700

Notes to Accounts:
Particulars Amount
1. Share Capital
Equity share capital
Issued & subscribed & called up
10,000 Equity Shares of Rs.100 each 10,00,000
(Of the above 2,000 shares have been issued
for consideration other than cash)
Less: Calls in arrears (1,000) 9,99,000
Total 9,99,000
2. Reserves and Surplus
General Reserve 2,10,000
Surplus (Profit & Loss A/c) 86,700
Total 2,96,700
3. Long-term borrowings
Secured
Term Loans
Financial Corporation 1,42,500
(Secured by hypothecation of Plant and Machinery)
Unsecured 1,21,000
Total 2,63,500
4. Other current liabilities
Interest accrued but not due on loans (SFC) 7,500
Total 7,500
5. Short-term provisions
Provision for taxation 68,000
Proposed Dividend 60,000
Total 1,28,000
6. Tangible assets
Land 2,00,000
Buildings 4,00,000
Less: Depreciation (50,000) 3,50,000

Plant & Machinery 7,00,000

Less: Depreciation (1,75,000) 5,25,000

Furniture & Fittings 62,500

Less: Depreciation (12,500) 50,000
Total 11,25,000
7. Inventories
Raw Material 50,000
Finished goods 2,00,000
Total 2,50,000
8. Trade receivables
Debts outstanding for a period exceeding six months 52,000
Other Debts 1,48,000
Total 2,00,000
9. Cash and cash equivalents
Cash at bank

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
with Scheduled Banks 2,45,000
with others (Perfect Bank Ltd.) 2,000 2,47,000
Cash in hand 30,000
Total 2,77,000
Notes: Estimated amount of contract remaining to be executed on capital account and not provided for
Rs.1,50,000.*
PROBLEM NO. 9

Statement of Profit and Loss of International Hotels Ltd.

for the year ended 31st March, 2015

Particulars Notes Amount

I. Revenue from operations 11 1,83,200
II. Other income (Discount received) 3,300
III. Total Revenue (I + II) 1,86,500
IV. Expenses:
Cost of materials consumed 12 25,060
Purchases of Inventory-in-Trade 13 45,800
Changes in inventories of finished goods work-in-progress and 14 (9,700)
Inventory-in-Trade
Employee benefits expense 15 29,580
Other operating expenses 16 18,000
Selling and administrative expenses 17 14,200
Finance costs 18 12,000
Depreciation and amortization expense 19 21,315
Other expenses 10 8,000
Total expenses 1,64,255
V. Profit (Loss) for the period (III - IV) 22,245

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Balance Sheet of International Hotels Ltd. as on 31 March, 2015

Particulars Notes Amount

EQUITY AND LIABILITIES:
1. Shareholders' funds
a. Share capital 1 13,00,000
b. Reserves and Surplus 2 1,74,745
2. Non-current liabilities 3 2,00,000
a. Long-term borrowings
3. Current liabilities
a. Trade Payables 4 42,000
b. Other current liabilities 5 13,280
c. Short-term provisions 6 94,000
Total 18,24,025
ASSETS:
1. Non-current assets
a. Fixed assets
i. Tangible assets 7 9,14,985
ii. Intangible assets (Goodwill) 5,00,000
b. Non-current investments 2,72,300
2. Current assets
a. Inventories 8 38,900
b. Trade receivables 19,260
c. Cash and cash equivalents 9 78,580
Total 18,24,025

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Notes to accounts:
Particulars Amount
1. Share Capital
Equity share capital
Authorized
10,000 Equity shares of Rs.100 each 10,00,000
Issued & subscribed
8,000 Equity Shares of Rs.100 each 8,00,000
Preference share capital
Authorised
5,000 6% Preference shares of Rs.100 each 5,00,000
Issued & subscribed
5,000 6% Preference shares of Rs.100 each 5,00,000
Total 13,00,000
2. Reserves and Surplus
Capital reserve 5,000
General reserve 2,00,000 1,69,745
Less: Amount used to pay dividend (30,255)
Surplus (Profit & Loss A/c) 22,245
Add: Balance from previous year 41,500
Transfer from General Reserve 30,255 -
Appropriations
Proposed Dividend (94,000) 0
Profit (Loss) carried forward to Balance Sheet Total 1,74,745
3. Long-term borrowings
Secured
6% Debentures 2,00,000
Total 2,00,000
4. Trade Payables 42,000
5. Other current liabilities
Wages and Salaries Outstanding 1,280
Interest on debentures 12,000 13,280
6. Short-term provisions
Proposed dividend
Preference Dividend 30,000
Equity Dividend 64,000
Total 94,000
7. Tangible assets
Freehold land & Buildings 8,50,000
Less: Depreciation (17,000) 8,33,000
Furniture and Fittings 86,300
Less: Depreciation (4,315) 81,985
Total 9,14,985
8. Inventories
Wines, Cigarettes & Cigars, etc. 22,500
Foodstuffs 16,400
Total 38,900

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No.1 for CA/CWA & MEC/CEC MASTER MINDS
9. Cash and cash equivalents
Cash at bank 76,380
Cash in hand 2,200
Total 78,580
10. Other expenses
Preliminary Expenses∗ 8,000
Total 8,000
11. Revenue from operations
Sale of products
Wines, Cigarettes, Cigars etc. 68,400
Food 57,600 1,26,000
Sale of services
Room Rent 48,000
Billiards 5,700
Miscellaneous Receipts 2,800
Transfer fees 700 57,200
Total 1,83,200
12. Cost of materials consumed
Opening Inventory 5,260
Add: Purchases during the year 36,200
Less: Closing Inventory (16,400) 5,060
Total 25,060
13. Purchases of Inventory-in-Trade
Wines, Cigarettes etc. 45,800
Total 45,800
14. Changes in inventories of finished goods work-in progress and Inventory-in-
Trade
Wines, Cigarettes etc.
Opening Inventory 12,800 (9,700)
Less: Closing Inventory (22,500) (9,700)
Total
15. Employee benefits expense
Wages and Salaries 28,300
Add: Wages and Salaries Outstanding 1,280 29,580
Total 29,580
16. Other operating expenses
Rent, Rates and Taxes 8,900
Coal and Firewood 3,290
Laundry 750
Carriage and Cooliage 810
Repairs 4,250
Total 18,000
17. Selling and administrative expenses
Advertising 8,360
Sundry Expenses 5,840
Total 14,200
18. Finance costs
Interest on Debentures 12,000
Total 12,000
19. Depreciation and amortization expense
Land and Buildings 17,000
Furniture & Fittings 4,315 21,315
Total 21,315

THE END
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