Test Series: October, 2018 Mock Test Paper - 2 Final (New Course): Group I Paper 1 ... · 2018. 10. 17. · 1 Test Series: October, 2018 Mock Test Paper - 2 Final (New Course): Group

1

Test Series: October, 2018

Mock Test Paper - 2

Final (New Course): Group I

Paper 1: Financial Reporting

ANSWERS

1. (i) (Assumption: Common control transaction)

1. Calculation of Purchase Consideration

X Ltd. Y Ltd.

Rs. ’000 Rs. ’000

Assets taken over:

Property, Plant and Equipment 85,00 75,00

Investment 10,50 5,50

Inventory 12,50 27,50

Trade receivables 18,00 40,00

Cash & Cash equivalent 4,50 4,00

Gross Assets 130,50 152,00

Less: Liabilities

12% Debentures 30,00 40,00

Trade payables 10,00 (40,00) 15,00 (55,00)

Net Assets taken over 90,50 97,00

Less: Reserves and Surplus:

General Reserve 15,00 20,00

P & L A/c 10,00 5,00

Investment Allowance Reserve 5,00 1,00

Export Profit Reserve 50 (30,50) 1,00 (27,00)

Purchase Consideration 60,00 70,00

Total Purchase Consideration = 130,00 (60,00 of AX Ltd. & 70,00 of BX Ltd.)

2. Discharge of Purchase Consideration

No. of shares to be issued to X Ltd =

Net Assets taken over of X Ltd.

x Purchase ConsiderationNet Assets taken over of X Ltd. and Y Ltd.

No. of shares to be issued to Y Ltd =

Net Assets taken over of Y Ltd.

x Purchase ConsiderationNet Assets taken over of X Ltd. and Y Ltd.

© The Institute of Chartered Accountants of India

2

X Ltd. Y Ltd.

Rs. ’000 Rs. ’000

500,27,650,187

50,9000,130 Equity shares of Rs. 10 each 62,75

500,72,650,187

00,9700,130

Equity shares of Rs. 10 each

67,25

(3) Balance Sheet of XY Ltd. as on 1st April, 2018

INR in '000

ASSETS Note No. Amount

Non-current assets

Property, Plant and Equipment

16,000

Financial assets

Investment

1,600

Current assets

Inventories

4,000

Trade receivables

5,800

Cash and Cash equivalents

850

28,250

EQUITY AND LIABILITIES

Equity

Equity share capital (of face value of INR 10 each) 1 13,000

Other equity 2 5,750

Liabilities

Non-current liabilities

Financial liabilities

Borrowings 3 7,000

Current liabilities

Trade payables

2,500

28,250

Notes to Accounts

(Rs. 000) (Rs. 000)

1. Share Capital

13,00,000 Equity Shares of Rs. 10 each 130,00

2. Reserves and surplus

General Reserve (15,00 + 20,00) 35,00

Profit & Loss (10,00 + 5,00) 15,00

Investment Allowance Reserve (5,00 + 1,00) 6,00

The total purchase consideration is to be discharged by XY Ltd. in such a way that the rights of the shareholders of X Ltd. and Y Ltd. remain unaltered in the future profits of XY Ltd.


3

Export Profit Reserve (50 + 1,00) 1,50 57,50

3. Long Term Borrowings

12% Debentures 70,00

(ii) Assuming Y Ltd is a larger entity and their management will take the control of the entity

XY Ltd.

In this case Y Ltd. and X Ltd. are not under common control and hence accounting prescribed

under Ind AS 103 for business combination will be applied. A question arises here is who is the

accounting acquirer XY Ltd which is issuing the shares or X Ltd. or Y Ltd. As per the accounting

guidance provided in Ind AS 103, sometimes the legal acquirer may not be the accounting

acquirer. In the given scenario although XY Ltd. is issuing the shares but Y Ltd. post-merger will

have control and is bigger in size which is a clear indicator that Y Ltd. will be an accounting

acquirer. This can be justified by the following table:

(In ‘000s)

X Ltd. Y Ltd.

Fair Value 11,000 14,000

Value per share 10 10

No. of shares 1,100 1,400

i.e. Total No. of shares in XY Ltd. = 2,500 thousand shares

Thus, % Held by each Company in Combined Entity 44% 56%

Note: It is a case of Reverse Acquisition.

Accordingly, Y Ltd.’s assets will be recorded at historical cost in the merged financial statements.

(1) Calculation and discharge of Purchase Consideration (All figures are in thousands)

We need to calculate the number of shares to be issued by Y Ltd. to X Ltd. to maintain the

same percentage i.e. 56%:

Thus, 700 thousand shares of Y Ltd. (given in the balance sheet) represents 56%. This

means that total no. of shares would be 1,250 thousand shares ie 700 thousand shares /

56%.

This implies Y Ltd. would need to issue 550 thousand shares (1,250 - 700) to X Ltd.

Purchase Consideration = 550 thousand shares x Rs. 20 per share (ie. 14,000 thousand /

700 thousand shares) = Rs. 11,000 thousand.

(2) Balance Sheet of XY Ltd. as on 1st April, 2018

INR in '000

ASSETS Note No. Amount

Non-current assets

Property, Plant and Equipment (9500+7500) 17,000

Goodwill (Refer Working Note)

900

Financial assets

Investment (1050+550)

1,600

Current assets

Inventories (1300+2750)

4,050


4

Trade receivables (1800+4000)

5,800

Cash and Cash equivalents (450+400)

850

30,200

EQUITY AND LIABILITIES

Equity

Equity share capital (of face value of INR 10 each) 1 12,500

Other equity 2 8,200

Liabilities

Non-current liabilities

Financial liabilities

Borrowings (12% Debentures) 3 7,000

Current liabilities

Trade payables

2,500

30,200

Notes to Accounts

(Rs. 000) (Rs. 000)

1. Share Capital

1,250,000 Equity Shares of Rs. 10 each (700,000 to BX Ltd and 550,000 as computed above to AX LTD)

1,25,00

2. Reserves and Surplus

General reserve of BX Ltd 20,00

P&L of BX Ltd 5,00

Export Profit Reserve of BX Ltd 1,00

Investment Allowance Reserve of BX Ltd

Security Premium (550 shares x Rs. 10)

1,00

5,500

8,200

3. Long Term Borrowings

12% Debentures (Assumed that new debentures were issued in exchange of the old series)

70,00

Working Note:

Computation of Goodwill:

Assets: Rs. in 000s

Property, Plant and Equipment 9,500

Investment 1,050

Inventories 1,300

Trade Receivables 1,800

Cash & Cash Equivalents 450

Total Assets 14,100

Less : Liabilities:

Borrowings 3,000

Trade Payables 1,000

Net Assets 10,100

Purchase Consideration 11,000

Goodwill 900


5

2. (a) As per Ind AS 18, the revenue from sale of goods shall be recognised at the fair value of the

consideration received or receivable. The fair value of the consideration is determined by

discounting all future receipts using an imputed rate of interest where the receipt is deferred beyond

normal credit terms. The difference between the fair value and the nominal amount of the

consideration is recognised as interest revenue.

The fair value of consideration (cash price equivalent) of the sale of goods is calculated as

follows: INR

Year Consideration

(Installment)

Present value factor Present value of

consideration

Time of sale 3,33,333 - 3,33,333

End of 1st year 3,33,333 0.949 3,16,333

End of 2nd year 3,33,334 0.901 3,00,334

10,00,000 9,50,000

The Company that agrees for deferring the cash inflow from sale of goods will recognise the

revenue from sale of goods and finance income as follows:

Initial recognition of sale of goods INR

Cash Dr. 3,33,333

Trade Receivable Dr. 6,16,667

To Sale 9,50,000

Recognition of interest and receipt of second installment

Cash Dr. 3,33,333

To Interest Income 33,053

To Trade Receivable 3,00,280

Recognition of interest and payment of final installment

Cash Dr. 3,33,334

To Interest Income (Balancing figure) 16,947

To Trade Receivable 3,16,387

Balance Sheet (extracts) as at 31st March 2019 and 31st March 2020

As at Mar 31, 2019 As at Mar 31, 2020

Income

Sale of Goods 9,50,000 -

Other Income (Finance income) 33,053 16,947

Statement of Profit and Loss (extracts)

for the year ended 31st March 2019 and 31st March 2020

As at Mar 31, 2019 As at Mar 31, 2020

Assets

Current Assets

Financial Assets

Trade Receivables 3,16,387 XXX


6

(b) Hedge accounting may be required due to accounting mismatches in:

• Measurement – some financial instruments (non-derivative) are not measured at fair value

with changes being recognised in the statement of profit and loss whereas all derivatives,

which commonly are used as hedging instruments, are measured at fair value

• Recognition – unsettled or forecast transactions that may be hedged are not recognised on

the balance sheet or are included in the statement of profit and loss only in a future accounting

period, whereas all derivatives are recognised at inception.

Recognition mismatches include the hedge of a contracted or expected but not yet recognised

sale, purchase or financing transaction in a foreign currency and future committed variable

interest payments.

Types of hedge accounting

1. Fair value hedge accounting model

• A fair value hedge seeks to offset the risk of changes in the fair value of an existing asset

or liability or an unrecognised firm commitment that may give rise to a gain or loss being

recognised in the statement of profit and loss.

• A fair value hedge is a hedge of the exposure to changes in fair value of a recognised

asset or liability or an unrecognised firm commitment, or an identified portion of such an

asset, liability or firm commitment, that is attributable to a particular risk and could affect

the statement of profit and loss.

2. Cash flow hedge accounting model

• A cash flow hedge seeks to offset certain risks of the variability of cash flows in respect

of an existing asset or liability or a highly probable forecast transaction that may be

reflected in the statement of profit and loss in a future period.

• A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is

attributable to a particular risk associated with a recognised asset or liability (such as all

or some future interest payments on variable rate debt) or a highly probable forecast

transaction or a firm commitment in respect of foreign currency and (ii) could affect the

statement of profit and loss.

3. Net investment hedging

• An investor in a non-integral operation is exposed to changes in the carrying amount of

the net assets of the foreign operation (the net investment) arising from the translation

of those assets into the reporting currency of the investor.

(c) Profit or loss under weighted average valuation are as follows: Rs. in million

2017 2016 (Restated)

Revenue 324 296

Cost of sales (168) (159)

Gross profit 156 137

Expenses (83) (74)

Profit 73 63


7

Statement of changes in equity (extract) Rs. in million

Retained earnings Retained earnings (Original)

At 1st April, 2015 423 423

Change in inventory valuation policy 10 -

At 1st April, 2015 (Restated) 433 -

Profit for 2015-2016 63 58

At 31st March, 2016 496 481

Profit for 2016-2017 73 68

At 31st March, 2017 569 549

3. (a)

Period Fair value To be vested Cumulative Expense

Start 100 100% 11,00,000 11,00,000

Period 1 132 94% 13,64,880 2,64,880

Period 2 139 91% 13,91,390 26,510

Period 3 141 85% 13,18,350 (73,040)

13,18,350

Journal Entries

1-Apr-2016

Employee benefits expenses Dr. 11,00,000

To Share based payment liability

11,00,000

(Fair value of the SAR recognised) 31-Mar-2017

Employee benefits expenses Dr. 2,64,880


2,64,880

(Fair value of the SAR re-measured) 31-Mar-2018

Employee benefits expenses Dr. 26,510


26,510

(Fair value of the SAR re-measured) 31-Mar-2019

Share based payment liability Dr. 73,040

To Employee benefits expenses 73,040

(Fair value of the SAR reversed) Share based payment liability Dr. 13,18,350

To Cash 13,18,350

(Settlement of SAR)


8

(b) Either

1. Computation of goodwill on acquisition

Particular Amount (Rs. ‘000)

Cost of investment (8,00,000 x 2/5 x Rs. 4) 1,280

Fair value of non-controlling interest (2,00,000 x Rs. 1·4) 280

Fair value of identifiable net assets at date of acquisition (1,300)

So goodwill equals 260

Acquisition costs are not included as part of the fair value of the consideration given under

Ind AS 103, Business Combination.

2. Calculation of impairment loss

Unit Carrying value Recoverable

Amount

Impairment

Loss

Before

Allocation

Allocation of

goodwill (2:2:1)

After

Allocation

A 600 104 704 740 Nil

B 550 104 654 650 4

C 400* 52 452 400 52

* After writing down assets in the individual CGU to recoverable amount.

3. Calculation of closing goodwill

Goodwill arising on acquisition (W1) 260

Impairment loss (W2) (56)

So closing goodwill equals 204

4. Calculation of overall impairment loss

On goodwill (W3) 56

On assets in unit C (450 – 400) 50

So total loss equals 106

Rs. 21.2 (20%) of the above is allocated to the NCI with the balance allocated to the

shareholders of Sun ltd.

Or

Statement of Profit and loss

Equity Liabilities

Profit and loss

Other-comprehensive income

Equity Liabilities

2014-15

Translation Gain 2.00

Less: Deferred Tax Expenses (0.60)

1.40

Translation Reserve 1.40

Deferred tax liabilities 0.60


9

2015-16

Translation Gain 2.00

Less: Deferred Tax Expenses (0.60)

1.40



2016-17

Translation loss (1.00)

Less: Deferred Tax Expenses 0.30

(0.70)



2017-18

Translation loss (1.00)

Less: Deferred Tax Expenses 0.30

(0.70)



Reclassification adjustment credited to P&L

1.40

Current Tax (0.60)

Adjustment of deferred tax liabilities

0.60

(c) As per Ind 2 ‘Inventories’, most by-products as well as scrap or waste materials, by their nature,

are immaterial. They are often measured at net realizable value and this value is deducted from

the cost of the main product.

(1) Calculation of NRV of By-product BP

Selling price of by-product

Less: Separate processing charges of

by- product BP

Packing charges

2,000 units x 20 per

unit

40,000

(8,000)

(2,000)

Net realizable value of by-product BP 30,000

(2) Calculation of cost of conversion for allocation between joint products MP1 and MP2

Raw material

Wages

Fixed overhead

Variable overhead

Less: NRV of by-product BP (See calculation 1)

Sale value of scrap

30,000

5,000

1,50,000

90,000

65,000

50,000

(35,000)

Joint cost to be allocated between MP1 and MP2 3,20,000


10

(3) Determination of “basis for allocation” and allocation of joint cost to MP1 and MP2

Output in units (a)

Sales price per unit (b)

Sales value (a x b)

Ratio of allocation

Joint cost of Rs. 3,20,000 allocated in the ratio of 3:2 (c)

MP I

5,000

60

3,00,000

3

1,92,000

MP 2

4,000

50

2,00,000

2

1,28,000

Cost per unit [c/a] 38.4 32

(4) Determination of value of closing stock of MP1 and MP2

Particulars MP I MP 2

Closing stock in units

Cost per unit

Value of closing stock

250 units

38.4

9,600

100 units

32

3,200

4. (a) Two transactions are included in the above arrangement as per applicable Ind AS ie. sale of item

includes following transactions:

(i) Selling price of item

(ii) Two-years’ after sale service

Revenue attributable to both the components is calculated as follows:

Total fair value of item and two years’ service period

(7,00,000 + 1,40,000) 8,40,000

Less: Sale price of the item and two years’ service period (8,10,000)

Discount 30,000

Discount and revenue attributable to each component of the transaction:

Proportionate discount attributable to sale of item 25,000

(30,000 x 7,00,000 / 8,40,000)

Revenue from sale of item (7,00,000 – 25,000) 6,75,000

Proportionate discount attributable to two years’ service period 5,000

(30,000 x 1,40,000 / 8,40,000)

Revenue from two years’ service period (1,40,000 – 5,000) 1,35,000

Revenue in respect of sale of item should be recognised immediately and revenue from two years’

service period should be recognised over the 2 year period on monthly basis ie on 31st March, 2017

revenue for two years’ service period will be Rs. 5,625 (Rs. 1,35,000/24 months)

Amount of two years’ service period due within 12 months from the reporting date =

(1,35,000 / 24 months) x 12 months = Rs. 67,500 (Current).

Amount of two years’ service period due after 12 months from the reporting date =

(1,35,000 / 24 months) x 11 months = Rs. 61,875 (Non-current).

(b) As per paragraph 6 of Appendix C to Ind AS 17, “Determining whether an arrangement is, or

contains, a lease shall be based on the substance of the arrangement and requires an

assessment of whether:


11

(a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the

asset); and

(b) the arrangement conveys a right to use the asset.”

In the present case, the PPA with the State Government can be fulfilled by the use of the Wind

Turbine Equipment which is a specific asset. Accordingly, condition (a) above is satisfied.

With respect to condition (b), paragraph 9 of Appendix C to Ind AS 17 provides as below:

“An arrangement conveys the right to use the asset if the arrangement conveys to the purchaser

(lessee) the right to control the use of the underlying asset. The right to control the use of the

underlying asset is conveyed if any one of the following conditions is met:

(a) The purchaser has the ability or right to operate the asset or direct others to operate the

asset in a manner it determines while obtaining or controlling more than an insignificant

amount of the output or other utility of the asset.

(b) The purchaser has the ability or right to control physical access to the underlying asset

while obtaining or controlling more than an insignificant amount of the output or other utility

of the asset.

(c) Facts and circumstances indicate that it is remote that one or more parties other than the

purchaser will take more than an insignificant amount of the output or other utility that will

be produced or generated by the asset during the term of the arrangement, and the price

that the purchaser will pay for the output is neither contractually fixed per unit of output nor

equal to the current market price per unit of output as of the time of delivery of the output.”

Accounting of the PPA with the State Government under applicable Ind AS:

Continuing the rationale to the above, in the present case, criteria (c) above is fulfilled since:

• The entire output of Wind Turbine Equipment is estimated to be consumed by the purchaser

i.e. the State Government

• The price paid by the State Government includes an element of revision in price every year

which makes the price for the output variable.

Accordingly, the PPA with the State Government contains an embedded lease arrangement.

Further to determine whether the lease arrangement is an operating lease or a finance lease,

paragraph 10 of Ind AS 17 provides certain examples (that individually or in combination would

normally lead to a lease being classified as a finance lease) which can be analysed as below:

(a) the lease transfers ownership of the asset to the lessee by the end of the lease term - Not

fulfilled, as the ownership is not transferred to the State Government.

(b) the lessee has the option to purchase the asset after completion of the agreement - Not

fulfilled, as the State Government doesn’t have an option to purchase the Wind Turbine

Equipment after the completion of PPA.

(c) the lease term is for the major part of the economic life of the asset even if title is not

transferred - Not fulfilled, as the PPA is for 3 years whereas the useful life of the Wind

Turbine Equipment project is 20 years.

(d) at the inception of the lease the present value of the minimum lease payments amounts to

at least substantially all of the fair value of the leased asset – Cannot be determined since

the price per unit is not fixed for the entire tenure of the PPA. Definition of the ‘inception of

the lease’ (given in para 4 of Ind AS 17) inter alia states that in the case of a finance lease,


12

the amounts to be recognised at the commencement of the lease term are determined. This

implies that the given PPA is not a finance lease.

(e) the leased assets are of such a specialised nature that only the lessee can use them without

major modifications - Not fulfilled, as the asset is not specialised in nature.

Conclusion:

Based on the evaluation above, PPA with the State Government shall be accounted by UL Ltd.

as “Property, plant and equipment under an operating lease arrangement”.

5. (a) On the date of initial recognition, the effective interest rate of the loan shall be computed keeping

in view the contractual cash flows and upfront processing fee paid. The following table shows the

amortisation of loan based on effective interest rate:

Date Cash flows (principal)

Cash flows (interest and

fee)

Amortised cost

(opening + interest – cash flows)

Interest @ EIR (11.50%)

1-Jan-2016 (500,000,000) 5,870,096 494,129,904

31-Dec-2016 100,000,000 55,000,000 395,954,843 56,824,939

31-Dec-2017 100,000,000 44,000,000 297,489,650 45,534,807

31-Dec-2018 100,000,000 33,000,000 198,700,959 34,211,310

31-Dec-2019 100,000,000 22,000,000 99,551,570 22,850,610

31-Dec-2020 100,000,000 11,000,000 (0) 11,448,430

a. 1 January 2016

Particulars Dr. Amount (Rs.)

Cr. Amount (Rs.)

Cash A/c Dr.

To Loan from bank A/c

(Being loan recorded at its fair value less transaction costs on the initial recognition date)

494,129,904

494,129,904

b. 31 December 2016

Particulars Dr. Amount

(Rs.)

Cr. Amount

(Rs.)

Loan from bank A/c Dr.

Interest expense (profit and loss) Dr.

To Cash A/c

(Being first instalment of loan and payment of interest

accounted for as an adjustment to the amortised cost of

loan)

98,175,061

56,824,939

155,000,000

c. 31 December 2017 – Before Hello Limited approached the bank –

Particulars Dr.

Amount

(Rs.)

Cr.

Amount

(Rs.)


To Loan from bank A/c

To cash A/c

45,534,807

1,534,807

44,000,000


13

(Being loan payment of interest recorded by the Company

before it approached the Bank for deferment of principal)

Upon receiving the new terms of the loan, Hello Limited, re-computed the carrying value of

the loan by discounting the new cash flows with the original effective interest rate and

comparing the same with the current carrying value of the loan. As per requi rements of

Ind AS 109, any change of more than 10% shall be considered a substantial modification,

resulting in fresh accounting for the new loan:

Date Cash flows

(principal)

Interest outflow

@15%

Discount

factor

PV of cash

flows

31-Dec-2017 (400,000,000)

31-Dec-2018 40,000,000 60,000,000 0.8969 89,686,099

31-Dec-2019 40,000,000 54,000,000 0.8044 75,609,805

31-Dec-2020 40,000,000 48,000,000 0.7214 63,483,092

31-Dec-2021 40,000,000 42,000,000 0.6470 53,053,542

31-Dec-2022 40,000,000 36,000,000 0.5803 44,100,068

31-Dec-2023 40,000,000 30,000,000 0.5204 36,429,133

31-Dec-2024 40,000,000 24,000,000 0.4667 29,871,422

31-Dec-2025 40,000,000 18,000,000 0.4186 24,278,903

31-Dec-2026 40,000,000 12,000,000 0.3754 19,522,235

31-Dec-2027 40,000,000 6,000,000 0.3367 15,488,493

PV of new contractual cash flows discounted at 11.50% 451,522,791

Carrying amount of loan

397,489,650

Difference

54,033,141

Percentage of carrying amount

13.59%

Note: Above calculation have been done on full decimal, though in the table discount factor

is limited to 4 decimals.

Considering a more than 10% change in PV of cash flows compared to the carrying value

of the loan, the existing loan shall be considered to have been extinguished and the new

loan shall be accounted for as a separate financial liability. The accounting entries for the

same are included below:

d. 31 December 2017 – accounting for extinguishment


(Rs.)

Cr. Amount

(Rs.)

Loan from bank (old) A/c Dr

Finance cost (profit and loss) Dr

To Loan from bank (new) A/c

(Being new loan accounted for at its principal amount in

absence of any transaction costs directly related to such

loan and correspondingly a de-recognition of existing

loan)

397,489,650

2,510,350

400,000,000


14

e. 31 December 2018


(Rs.)

Cr. Amount

(Rs.)

Loan from bank A/c Dr.


To cash A/c

(Being first instalment of the new loan and payment of

interest accounted for as an adjustment to the

amortised cost of loan)

40,000,000

60,000,000

100,000,000

(b) According to Lev and Schwartz, the value of human capital embodied in a person of age is the

present value of his remaining future earnings from employment. Their valuation model for a

discrete income stream is given by the following formula:

V =

t

t tr

tI

)1(

)(

Where,

V󠄀 = the human capital value of a perso for …… years old

I(t) = the person’s annual earnings up to retirement

r = a discount rate specific to the person

t = retirement age

Value of skilled employees:

= -(65 62)

50,000

(1 0.15) +

- -(65 63) (65 64)

50,000 50,000

(1 0.15) (1 0.15)

Rs. 32,875.81 + Rs. 37,807.18 + Rs. 43,478.26 = Rs. 1,14,161.25

Total value of skilled employees is Rs. 1, 14,161.25 × 20 = Rs. 22,83,225.

Value of unskilled employees

(62 60) (62 61)

30,000 30,000

(1 0.15) (1 0.15)

=

2

30,000 30,000

(1 0.15) (1 0.15)

= Rs. 22,684.31 + Rs. 26,086.96 = Rs. 48,771.27

Total value of the unskilled employees = Rs. 48,771.27× 25 = Rs. 12,19,282

Total value of human resources (skilled and unskilled) = Rs. 22,83,225 + Rs. 12,19,282

= Rs. 35,02,507.

6. (a) When 90% shares sold to independent party

Consolidated Balance Sheet of Trust Ltd. and its remaining subsidiaries

as on 31st March, 2018

Particulars Note No. (Rs. In ‘000)

I. Assets

(1) Non-current assets

(i) Property Plant & Equipment

(ii) Goodwill

(iii) Financial Assets

1

2

950

100


15

(a) Investments

(2) Current Assets

(i) Inventories

(ii) Financial Assets

(b) Trade Receivables

(c) Cash & Cash equivalents

Total Assets

II. Equity and Liabilities

(1) Equity

(i) Equity Share Capital

(ii) Other Equity

(2) Current Liabilities

(i) Financial Liabilities

(a) Trade Payables

Total Equity & Liabilities

3

4

5

6

7

8

9

128

50

400

2,050

3,678

800

1,978

900 3,678

Notes to accounts:

(Rs. In ‘000)

1.

2.

3.

4.

5.

8.

Property Plant & Equipment

Land & Building

Less: Trust Infocomm Ltd.

Goodwill


Investments

Investment in Trust Infocomm Ltd. (WN 2)

Inventories

Group


Trade Receivables

Group


Cash & Cash equivalents

Group (WN 3)

Trade Payables

Group


1620

(670)

190

(90)

128

70

(20)

850

(450)

2,050

1,350

450

950

100

128

50

400

2,050

900

Statement of changes in Equity:

6. Equity share Capital

Balance at the beginning

of the reporting period

Changes in Equity share

capital during the year

Balance at the end of

the reporting period

800 0 800


16

7. Other Equity

Share application money

Equity component

Reserves & Surplus Total

Capital reserve

Retained Earnings

Securities Premium

Balance at the beginning

2,130 2,130

Total comprehensive income for the year

0

Dividends 0

Total comprehensive income attributable to parent

0

Loss on disposal

of Trust Infocomm Ltd.

(152) (152)

Balance at the end of reporting period

0 1,978 1,978

Working Notes:

1. When 90% being sold, the carrying amount of all assets and liabilities attributable to Trust

Infocomm Ltd. were eliminated from the consolidated statement of financial position and

further financial asset is recognized for remaining 10%.

2. Fair value of remaining investment (in ‘000):

Net Assets of Trust Ltd.

Less: 90% disposal

1,280

(1152)

Financial Asset 128

3. Cash on hand (in ‘000):

Cash before disposal of Trust Infocomm Ltd.

Less: Trust Infocomm Ltd. Cash

Add: Cash realized from disposal

1,550

(500)

1,000

Cash on Hand 2,050

4. Gain/ Loss on disposal of entity (in ‘000):

Proceeds from disposal

Less: Proportionate (90%) Net assets of Trust Infocomm

Ltd. (90% of 1,280)

1,000

(1,152)

Loss on disposal (152)

5. Retained Earnings (in ‘000):

Retained Earnings before disposal

Less: Loss on disposal

2,130

(152)

Retained earnings after disposal 1,978


17

(b) Calculation of Defined Benefit Obligation

Expected last drawn salary = Rs. 14,90,210 x 110% x 110% x 110% x 110% x 110%

= Rs. 24,00,000

Defined Benefit Obligation (DBO) = Rs. 24,00,000 x 25% x 5 = Rs. 30,00,000

Amount of Rs. 6,00,000 will be charged to Profit and Loss Account of the company every year

as cost for Defined Benefit Obligation.

Calculation of Current Service Cost

Year Equal apportioned amount of DBO

[i.e. Rs. 30,00,000/5 years]

Discounting @

8%

PV factor

Current service cost

(Present Value)

a b c d = b x c

1 6,00,000 0.735 (4 Years) 4,41,000

2 6,00,000 0.794 (3 Years) 4,76,400

3 6,00,000 0.857 (2 Years) 5,14,200

4 6,00,000 0.926 (1 Year) 5,55,600

5 6,00,000 1 (0 Year) 6,00,000

Calculation of Interest Cost to be charged per year

Year Opening balance Interest cost Current service

cost

Closing balance

a b c = b x 8% d e = b + c + d

1 0 0 4,41,000 4,41,000

2 4,41,000 35,280 4,76,400 9,52,680

3 9,52,680 76,214 5,14,200 15,43,094

4 15,43,094 1,23,447 5,55,600 22,22,141

5 22,22,141 1,77,859* 6,00,000 30,00,000

*Due to approximations used in calculation, this figure is adjusted accordingly.


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