Financial Reporting and Analysis

Assignment 1

Question 1
Text Book ( 12th edition) Exercise 2.5 Page 69

Question 2
Problem 2.3A page 72

Question 3 Transaction Analysis

Delhi Chemical is a newly established joint stock company ( private

limited company) . It commenced business on And from 1.4.2012

1. Ten members contributed for 100 cr. equity share of Rs. 10 per
share at a premium of Rs. 10 each.

2. The company took term loan from bank amounting to Rs. 500 cr.
@ 12% interest p.a. Interest is payable annually on 31 March.
Interest is computed on day count basis. Term loan is repayable in
five equal annual installments commencing on 31 March , 2014.

3. The company also took working capital loan of Rs. 500 cr. @ 10%
p.a. It also enjoys overdraft facilities.

4. Purchase of assets :
Plant and machinery Rs. 800 Cr. cash Rs. 600 Cr. , due to vendor
Rs. 200 Cr.
Construction of building Rs. 100 Cr
Purchase of land Rs. 100 Cr.
Purchase of equipment Rs. 100 cr.
Purchase of patent right Rs. 200 cr
Purchase of software license Rs. 50 cr.

Estimate useful life and residual life of depreciable assets :

Assets Useful life ( Years) / Residual Value as %

License period to original cost
( Years)
Plant and Machinery 20 5%
Building 50 Nil
Equipment 10 5%
Patent right 10 Nil
Software 5 Nil

5. Purchase of raw material 10,00,000 tons @ Rs. 16000 per ton

excluding excise duty and VAT
- Excise duty 20% , VAT 5%
- of which 20% remains in godown
- Credit purchase 80%
- Payment to trade payables 90% of credit purchases
- Excise duty is refundable but VAT is non-refundable
- Transportation Rs. 50 lacs
- Insurance Rs. 5 lacs

6. Employee benefits Salaries and wages Rs. 300 Cr. , Expenses for
other fringe benefits Rs. 100 cr. , Contribution to PF & Pension Fund
Rs. 20 Cr.
Tax deducted at source ( TDS) Rs. 30 Cr. ( An employer is liable for
deduction of tax at source and depositing the same to the
Government ).
The company has also deposited the 90% of the TDS money to the
Government.

7. Factory expenses Rs. 100 Cr.

8. Audit Fees Rs. 1 Cr. , Legal expenses Rs. 3 cr. , Repairs and
maintenance Rs. 30 Cr. of which Rs. 5 cr. are not yet paid ,
Marketing and sales promotion Rs. 200 Cr. , Insurance Rs. 2 Cr. ,
office expenses Rs. 100 cr.

9. Manufacturing waste 20% . Output 6,40,000 tons

10. Unsold goods 10000 tons cost of unsold goods comprises of

proportionate cost of raw material , proportionate employee benefits
( 50% of the employee benefit expenses are for production) ,
proportionate factory expenses.

11. Selling price Rs. 42000 including excise duty but excluding VAT
Cash sales 50%
Credit collection 80% of credit sales are collected during the year.
2% of the uncollected trade receivables are doubtful.
VAT 4% on selling price
The company has already deposited 90% of the VAT collected.

12. Excise duty payable on finished goods @ 20% on ex-factory

price including profit

Company shall load administrative and other expenses including

interest on the basis of actual % to cost of production .
Company shall also load 20% profit on total cost.

13. Advance tax paid is Rs. 300 cr.

14. Create tax provision tax rate : 30% ; surcharge 5% on tax ;

education cess 3% on tax and surcharge.
Find out from Income tax Rules the rate of depreciation allowed for
tax purpose
In case depreciation and amortization as per income tax is higher
than that of accounting depreciation and amortization create
deferred tax liability for the difference.

Learn balance sheet liability method for this purpose.

15. Charge depreciation on tangible fixed assets applying straight

line method.
Also amortise intangible assets applying straight line method.

16. Interests on term loan and working capital loan was not paid on
31 March , 2013.

Required :
Transaction analysis showing journal entries
Cash Book and other ledger accounts
Trial Balance

Question 4

Prepare a comparative depreciation table for the following asset

applying straight line depreciation method and reducing balance
method.

Original cost of machinery Rs. 200 lacs

Estimated useful life 10 years
Scrap value 5% of original cost.

Question 5

From the following ledger account balances and other information ,

Prepare Trial Balance as on 31 . 3.2013 .

Balances of ledger Rs. lacs

accounts
Equity share capital of Rs.10 500
each
Equipment 1200
General Reserve 1000
Sales 5000
Purchase of stock in trade 2800
Investments in Government 1000
Bonds
Loans to Group Companies 200
Security Deposit with 100
suppliers
Advance from customers 25
Salaries and wages 400
Advertisements 100
Interest income 100
Repairs and Maintenance 100
Outstanding Repairs and 20
Maintenance
Trade Payables 120
Trade Receivables 300
Bank Balance 194
Office expenses 100
Audit fees 60
Legal expenses 80
Accumulated depreciation 120
Advance tax 425
Stock in trade in hand on 100
1.4.2012
VAT payable 5
12% Term Loan 200
Deferred tax Liabilities 69

Other Information:

1. IT depreciation rate for equipment is 15% on written down

value method. The asset is operating at its 3rd year.
2. Accounting depreciation charge for 2012-13 Rs. 60 lacs
3. Closing stock of stock in trade Rs. 125 lacs
4. Interest on term loan is outstanding as on 31.3.2013. Term
loan was taken on 1.10.2012.
5. Transfer to Reserve Rs. 300 lacs
6. Proposed dividend 50%. Dividend distribution tax Basic tax
15% , surcharge 5% on basic tax , education cess 3%.
7. Charge deferred tax expense for the year 2012-13.
8. Investments in Government Bonds are expected to be sold
within next 12 months
9. Security deposit with suppliers will not be collected within
next 12 months
10. Repayment schedule for Loans to Group Companies :
30.9.2013 25%
30.9.2014 50%
30.9.2015 25%
The loan is free of interest.

Show in the notes details of Reserves and Surplus , Other Current

Liabilities and Short term provisions. Also show tax computation.
You may prepare Trial Balance including current tax expense and
deferred tax expense, current depreciation and interest.