Accounting for Assets and Liabilities Long Answer Type Questions
Question 1.
Explain the events occurring after the reporting period (Ind AS-10).
Answer:
1. Adjusting Events:
An event after the reporting date that provides further evidence of conditions that existed at the reporting date.
Examples:
- Events that indicate that the going concern assumption in relation to the whole or part of the entity is not appropriate.
- Settlement after reporting date of court cases that confirm the entity had a present obligation at reporting date.
- Bankruptcy of a customer that occurs after reporting date that confirms a loss existed at reporting date on trade receivables.
- Sales of inventories after reporting date that give evidence about their net realisable value at reporting date.
- Determination after reporting date of cost of assets purchased or proceeds from assets sold, before reporting date.
2. Non- Adjusting Events
An event after the reporting date that is indicative of a condition that arose after the reporting date.
Examples:
- Major business combinations or disposal of a subsidiary.
- Major purchase or disposal of assets, classification of assets as held for sale or expropriation of major assets by government.
- Destruction of a major production plant by fire after reporting date.
- Announcing a plan to discontinue operations.
- Announcing a major restructuring after reporting date.
- Major ordinary share transactions.
- Changes in tax rates or tax law.
Question 2.
Explain the recognition and measurement for property plant and equipment.
Answer:
Recognition:
The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
(a) It is probable that future economic benefits associated with the item will flow to the entity.
(b) The cost of the item can be measured reliably.
Spare parts and servicing equipment are usually carried as inventory and recognised in profit or loss as consumed. However, major spare parts, standby equipment and servicing equipment qualify as property, plant and equipment when an entity expects to use them during more than one period.
Measurement:
Measurement at recognition – An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.
Elements of cost:
The cost of an item of property, plant and equipment comprises:
(a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
(b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
(c) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.
Measurement after recognition:
An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.
(a) Cost model – After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.
(b) Revaluation model – After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Question 3.
Briefly explain the scope and disclosure requirements of Intangible assets as per Ind AS-38.
Answer:
The scope:
This Standard should be applied by all enterprises in accounting for intangible assets, except:
(a) Intangible assets that are covered by another Accounting Standard.
(b) Financial assets: A financial asset is any asset that is :
- cash
- a contractual right to receive cash or another financial asset from another enterprise
- a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable.
(c) Mineral rights and expenditure on the exploration for or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources; and
(d) Intangible assets arising in insurance enterprises from contracts with policyholders.
Disclosure requirements:
- Whether the useful lives are indefinite or finite and if finite, the useful lives or the amortisation rates used.
- The amortisation methods used for intangible assets with finite useful lives.
- The gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period.
- The live item(s) of the statement of profit and loss in which any amortisation of intangible assets is included.
Question 4.
Discuss the techniques for the measurement of cost.
Answer:
Two techniques are mentioned by the standard, both of which produce results which approximate to cost, and so both of which may be used for convenience.
(a) Standard costs are set up to take account of normal production values: account of raw materials used, labor time etc. They are reviewed and revised on a regular basis.
(b) Retail method: this is often used in the retail industry where there is a large turnover of inventory items, whish nevertheless have similar profit margins. The only practical method of inventory valuation may be to take the total selling price of inventories and deduct an overall average profit margin, thus reducing the value to an approximation of cost. The percentage will take account of reduce price lines. Sometimes different percentages are applied on a department basis.
Question 5.
Write short on Inventories as per IAS 2.
Answer:
The major area of contention is the cost value of inventory to be recorded. This is recognized as an asset of the entity until the related revenues are recognized i.e. the item is sold at which point the inventory is recognized as an expense i.e. cost of sales. Part or all of the cost of inventories may also be expensed if a write-down to net realizable value is necessary. The IAS also provides guidance on the cost formulas that are used to assign costs to inventories.
Inventories can include any of the following:
- Good purchased and held for resale, e.g. goods held for sale by a retailer, or land and buildings held for resale.
- Finished goods produced.
- Work in progress being produced.
- Materials and supplies awaiting use in the production process.
Question 6.
Explain the various Cost of Inventories.
Answer:
The cost of inventories will consist of all cost of:
1. Cost of Purchase:
The standard lists the following as comprising the cost of purchase of inventories.
- Purchase price ADD
- Import duties and other taxes ADD
- Transport, handling and any other cost directly attributable to the acquisition of finished goods, services and materials LESS.
- Trade discounts, rebates and other similar amounts
2. Costs of Conversion:
Costs of conversion of inventories consist of two main parts.
- Costs directly related to the units of production, example direct materials, direct labor.
- Fixed and variable production overheads that are incurred in converting materials into finished goods, allocated on a systematic basis.
The standard emphasizes that fixed production overheads must be allocated to items of inventory on the basis of the normal capacity of the production facilities. This is an important point.
- Normal capacity is the expected achievable production based on the average over several periods/seasons, under normal circumstances.
- The above figure should take account of the capacity lost through planned maintenance.
- If it approximates to the normal level of activity then the actual level of production can be used.
- Low production or ideal plant will not result in the higher fixed overhead allocation to each unit.
- Unallocated overheads must be recognized as an expense in the period in which they were incurred.
- When production is abnormally high, the fixed production overhead allocated to each unit will be reduced, so avoiding inventories being stated at more than cost.
- The allocation of variable production overheads to each unit is based on the actual se of production facilities.
3. Other Costs:
- Abnormal amounts of wasted materials, labour or other production costs.
- Storage costs (except costs which are necessary in the production process before a further production stage).
- Administrative overheads not incurred to bring inventories to their present location and conditions.
Question 7.
Explain the various types of operating leases.
Answer:
1. Accounting for operating leases:
Operating lease do not really pose an accounting problem. The lessee pays amounts periodically to the lessor and these are charged to the statement of profit or loss. Where the lessee is offered an incentive such as a rent-free period or cash back incentive, this is effectively a discount, which will be spread over the period of the operating lease in accordance with the accruals principle.
For instance, if a company entered into a four-year operating lease but was not required to make any payments until year 2, the total payments to made over years 2-4 should be charged evenly over years 1-4. Where a cash back incentive is received, the total amount payable over the lease tern, less the cash back, should be charged evenly over the term of the lease.
2. Accounting for finance leases:
For asset held under finance lease or hire purchase this accounting treatment would not disclose the really of the situation. If lessor lease out an asset on a finance lease, the asset will probably never be seen on his premises or used in his business again. It would be inappropriate for a lessor to record such an asset as a non-current asset. In reality, what he owns is a stream of cash flows receivable from the lessee.
The asset is an amount receivable rather than a non-current asset. The substance of the transaction is that he has acquired a non-current asset, and this is reflected in the accounting treatment prescribed by IAS 17, even though in law the lessee never becomes the owner of the asset.
Question 8.
Write short note on Impairment of Assets as per IAS 36.
Answer:
Impairment of Assets seeks to ensure that an entity’s assets are not carried at more than their recoverable amount i.e. the higher of fair value less costs of disposal and value in use. With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests where there is an indication of impairment of an asset, and the test may be conducted for a ‘cash-generating unit’ where an asset does not generate cash inflows that are largely independent of those from other asset.
Question 9.
Discuss the Recognition and Measurement of an Impairment Loss (Ind AS-36).
Answer:
Recognition and Measurement of an Impairment Loss
The rule for assets at historical cost is:
If the recoverable amount of an asset is lower than the carrying amount, the carrying amount should be reduced by the difference (i.e. the impairment loss) which should be charged as an expense in profit or loss. The rule for assets held at a revalue amount (such as property revalue under IAS 16) is: The impairment loss is to be treated as a revaluation decrease under the relevant IAS. Any excess should be charged to profit or loss.
Accounting treatment of an Impairment Loss:
The recoverable amount of an asset is less than its carrying amount in the statement of financial position, an impairment loss has occurred. This loss should be recognized immediately.
(a) The asset’s carrying amount should be reduced to its recoverable amount in the statement of financial position.
(b) The impairment loss should be recognized immediately in profit or loss (unless the asset has been revalued in which case the loss is treated as a revaluation decrease).
After reducing an asset to its recoverable amount, the depreciation charge on the asset should then be based on its new carrying amount, its estimated residual value (if any) and its estimated remaining useful life.
Practical Problems
Question 1.
T Ltd. has purchased an equipment for its manufacturing unit. The price paid for the equipment is 2,20,000 inclusive of GST of 39,600. The company gets a credit of GST while calculating tax payable on finished goods sold.
The additional cost incurred are:
Freight – 4,500
Customs duty – 4,000
Installation expenses – 3,000
Estimated cost of dismantling and removing the item would be 1,500. After the equipment was put into use 11,000 was spent for cleaning the spare parts.
Calculate the cost of PPE as per Ind AS-16.
Question 2.
Veena Traders purchased a plant from Sujay Ltd. 30-9-2015 with a quoted price of 200 lakhs.
Sujay Ltd. offer 3 months credit with a condition that discount of 1.5% will be allowed if the payment were made with in one month. VAT is 14% on the quoted price. Company incurred 2% on transportation cost and 3% on erection cost of the quoted price. Pre-operative cost amounted to 2 lakhs. Estimated life of the plant is 8 years. Residual value of the plant 20 lakhs.
a) Calculate the original cost of the plant
b) Carrying amount of the plant on 31.3.2016.
Question 3.
X Ltd. obtained a loan of 60,00,000 on 1st April, 2016 from Vijaya Bank, to be capitalized as under:
Construction of company building – 1 20,00,000
Purchase of Plant and Machinery – 15,00,000
Working capital required – 10,00,000
Purchase of vehicle – 15,00,000
In March 2017, construction of company building was completed and Plant and Machinery was ready for its intended use.
Total interest charged by Vijaya Bank for the financial year ending 31st march, 2017 was 7,20,000.
How do you treat the total interest charged on loan?
Question 4.
Ganesh Ltd. ordered a laptop in flip kart. The price of laptop is 40,000, allowed 10% discount at time of purchase and charged 18% GST which is not refundable. Shipping charges 500, software installation charges 3,000 and annual service charges 3,000. Calculate the initial cost of laptop and give reasons as per Ind. AS-16.
Question 5.
Hariprasada SakshiDhoni ltd; purchased a plant from Shreeshaks ltd; on 30/09/2015 with an estimated price of 1, 98,000. Suresh Raina suppliers offers 3 months credit with a condition that discount of 1.25% will be given if the payments were made within one month. VAT is charged on the estimated price.VAT should include the Swach Bharath cess and the Krishi kalyan cess.
The company incurred 2% on transportation costs and 3% on the establishment costs of the estimated price. Pre-operative costs amounts to 1, 65,000. To finance the machinery’s purchase, the company took a bank toan of 1, 37,500 at an interest rate of 14.50% p.a. The machine was ready for use on 01/04/2016. Ascertain the original cost?
Question 6.
Archita Co. receives a government grant representing 50% of the cost of a depreciating asset which cost 4,00,000. How will the grant be recognized if Archita Co. depreciates the assets:
1. Over four years straight line.
2. At 40% reducing balance.
The residual value is nil. The use full life is four years.
Solution:
The grant should be recognized in the same proportion as the depreciation.
1. Straight line
| Year | Depreciation | Grant income |
| 1 | 1,00,000 | 50,000 |
| 2 | 1,00,000 | 50,000 |
| 3 | 1,00,000 | 50,000 |
| 4 | 1,00,000 | 50,000 |
(b) Treating the grant as deferred income
| Year 1 | Year 2 | Year 3 | Year 4 | Total | |
| Profit before depreciation | 50,000 | 50,000 | 50,000 | 50,000 | 2,00,000 |
| Depreciation | (25,000) | (25,000) | (25,000) | (25,000) | (1,00,000) |
| Grant | 5,000 | 5,000 | 5,000 | 5,000 | 20,000 |
| Profit | 30,000 | 30,000 | 30,000 | 30,000 | 1,20,000 |
The depreciation charge on a straight line basis, for each year, is 1/4 of $ (10,000 – 20,000) = 20,000.
Statement of financial position of year end (extract)
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Non-current asset | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 |
| Depreciation 25% | (25,000) | (50,000) | (75,000) | (1,00,000) |
| Carrying amount | 75,000 | 50,000 | 25,000 | – |
| Government grant Deferred income [Carrying amount x 20%] | 15,000 | 10,000 | 5,000 | – |
Question 7.
Classify whether the following is tangible or an intangible asset:
(a) Operating system of a laptop
(b) Publishing software package
(c) Specialised software installed in the computer controlled machine tools
(d) A firewall controlling access to restricted section of an internet website
Solution:
(a) The O.S. of a laptop is an integral internal part of a laptop. lit is not an intangible asset. Thus, it is classified to be tangible asset.
(b) Computer software that is publishing software package is an intangible asset.
(c) Computer software is specialised software integrated to production. It is not an intangible asset Thus, it is classified to be a tangible asset.
(d) Companies developing firewall software to protect their own website may also sell technology to other organisations. Thus, it is grouped to be an intangible asset.
Question 8.
Shwetha kalmath ltd; is developing a new distribution system of its materials, following are the expenses undergone at various stages on research and development process.
Year – Phase – Amount ( )
2011 – Research – 8 crores
2012 – Research – 10 crores
2013 – Development – 30 crores
2014 – Development – 36 crores
2015 – Development – 40 crores
On 31/03/2016, Shwetha kalmath ltd, identified the level of cost savings at 16 crores p.a, expected to be achieved by the new system over a period of 5 years, in addition this system developed can be marketed by the way of consultancy which will earn a cash flow of 10 crores p.a., the company meets all the requirements of asset recognition on 01/01/2014.
Calculate the amount / cost which will be expensed and to be capitalised as intangible assets, presuming that no active market exists to determine the price of the system developed. The product shall be available for use from 2018, impairment testing can be done taking 10% discount factor.
Solution:
As per A.S – 26 research cost of 8 crores and 10 crores is to be expensed in respective financial years (that is 2011, 2012) respectively.
A. Calculation of the impairment assuming the discount factor @ 10%:
| Year | Cost Savings | Inflow | Total CIF | Disc factor @ 10% | PV CIF |
| 2018 | 16 | 10 | 26 | 0.909 | 23.634 |
| 2019 | 16 | 10 | 26 | 0.826 | 21.48 |
| 2020 | 16 | 10 | 26 | 0.751 | 19.53 |
| 2021 | 16 | 10 | 26 | 0.683 | 17.76 |
| 2022 | 16 | 10 | 26 | 0.621 | 16.15 |
| 98.54 |
Total PV of the Cash In Flows is = 98.54
B. The development expenses shall be capitalised from the date that the internally generated assets meets the requirements that is 01/01/2014. Thus, 106 crores (30 + 36 + 40) crores to be capitalised as an intangible asset.
C. Calculation of the Impairment Losses:
Capitalised cost of the total intangible asset (-) PVCIF
106 crores (-) 98.54 crores = 7.46 crores.
D. 98.54 crores would be carried to the Balance Sheet as an intangible asset
E. No amortisation of asset shall be done in 30/03/2016. As the asset is put in use only on 2018.
Question 9.
Krishnan India ltd; is developing a new production process. During the financial year 31/12/2015, the total expenditure incurred on this process was 25 lakhs. The production process met the criteria for recognition as an intangible asset on 01/09/2015. Expenditure incurred till this date was 11 lakhs.
Further the firm incurred expenditure on the process during the financial year ended on 31/12/2016 was 40 lakhs. As on 31/12/ 2011, the recoverable amount of Know- how embedded in the process is estimated to be 36 lakhs. This also includes the inflows as well as the outflows of the future cash.
Calculate:
A. What is the expenditure to be debited to the profit and loss account for the financial year ended on 31/12/2015?
B. What is the carrying amount of intangible asset as on 31/12/2015?
C. What is the expenditure to be debited to the profit and loss account for the year ended as on 31/12/2016?
D. What is the carrying amount of intangible asset as on 31/12/2016?
Solution:
A. Expenditure incurred up to 01/09/2015 is debited to the profit and loss account = 11 lakhs.
B. Carrying amount will be the expenditure incurred after 31/12/2015 = 14 lakhs (25 lakhs (-) 11 lakhs)
C. Book cost of the intangible asset as on 31/12/2016 is as follows:
| Carrying amount as on 31/12/2010 | 14,00,000 |
| (+) Expenditure as on 2015 | 40,00,000 |
| Total book cost | 54,00,000 |
(-) Recoverable amount as estimated 36,00,000
Amount to be debited to the profit and loss account 18,00,000 as on 31/12/2016
D. Carrying amount on 31/12/2016 will be (Cost (-) Impairment Loss) = 36,00,000
Question 10.
Dr.V Rajesh Kumar Ltd; got the licence to produce particular medicine for 10 years at a licence fee of’ 200 lakhs. Given below is the pattern of expected production and expected operating cash inflows.
| Year | Medicines (1000’s) | Net Operating CIF |
| 1 | 300 | 900 |
| 2 | 600 | 1800 |
| 3 | 650 | 2300 |
| 4 | 800 | 3200 |
| 5 | 800 | 3200 |
| 6 | 800 | 3200 |
| 7 | 800 | 3200 |
| 8 | 800 | 3200 |
| 9 | 800 | 3200 |
| 10 | 800 | 3200 |
Suggest the amortisation method.
Solution:
| Year | Net Op. CIF | Ratio | Amortisation Amount |
| 1 | 900 | 0.03 | 06 |
| 2 | 1800 | 0.06 | 12 |
| 3 | 2300 | 0.08 | 16 |
| 4 | 3200 | 0.12 | 24 |
| 5 | 3200 | 0.12 | 24 |
| 6 | 3200 | 0.12 | 24 |
| 7 | 3200 | 0.12 | 24 |
| 8 | 3200 | 0.12 | 24 |
| 9 | 3200 | 0.12 | 24 |
| 10 | 3200 | 0.11 (Bal. Fig) |
22 |
| Total | 27,400 | 1.0000 | 200 lakhs |
Ratio = (Net Op. CIF/ Production) / (100)
If the pattern of economic benefit in the form of Net Op. CIF is not determined reliably. Then, the Straight Line Method should be used. It is not the case here as the Net Op. CIF has increased from 4th year due to increase in the Production and reduction in the cots.
Question 11.
Bakuladevi Ltd; incurred the following expenditure on purchasing the technical-know-how for manufacturing a smart phone from Balaji Krishnan. Bakuladevi ltd; has paid 5 crores to Balaji Krishnan and it can be used for a period of 4 years, the firm estimates the production of mobiles as follows:
| Year | Number of mobiles (1000’s) |
| 1 | 25 |
| 2 | 50 |
| 3 | 75 |
| 4 | 100 |
Ongoing into production at the end of the 1st year it achieved its target production but considered to redraw the estimates for the next three years as follows:
| Year | Number of mobiles |
| 2 | 35 |
| 3 | 65 |
| 4 | 80 |
A. How will Bakuladevi Ltd; amortise the technical-know-how Fee as per the A.S-26?
B. Whether the amortisation be charged as an expenditure or should it form a part of the production cost of the mobiles?
Question 12.
Panduranga Rao ltd; has a single manufacturing plant which has a carrying amount of ’28, 80,000. A Govt, in Japan passed legislation in its parliament to restrict exports of the products produced by the company. As a result, PRR Ltd; production will be cut by 80%.
With the following information available, calculate the impairment loss?
| Year | Future Cash Flows |
| 1 | 80,000 |
| 2 | 35,000 |
| 3 | 22,000 |
| 4 | 1,00,000 |
| 5 | 9,00,000 |
Discount factor is @ 15%
Assume there is no deferred tax and general inflation effects.
Question 13.
Prathibha Ltd., acquired 100% of the ordinary share capital of PP Gopal Ltd; for 10,00,000 ON 01st January, 2015. The stated amount also includes goodwill worth 9,60,000. Prathibha Ltd; is preparing the group accounts from the 1st to 5th year on 31st December, 2015 and due to heavy market volatility, the company has decided to carry out an important review of the fixed assets and goodwill of PP Gopal Ltd.
Question 14.
Girish ltd; has identified an indication of impairment and is conducting a review.
The summarized information of the balance sheet of Girish ltd; is as follows:
| Goodwill | (lakhs) |
| Property | 600 |
| Plant | 820 |
| Net current assets | 730 |
| Total assets | 265 |
| Share capital reserve | 2415 |
| Total liabilities | 2415 |
→ Whole company is considered to be a cash generating unit
→ The present value of the future cash flows is estimated at 1.2 million
→ Assume net assets value is at the lower of the cost and the net realizable value
→ The net realizable value of the property is 9,00,000
Calculate:
(i) Impairment loss
(ii) Allocation of the impairment loss
Question 15.
From the following information given below, determine whether the lease is a financial lease or an operating lease?
Lessor’s cost of the leased asset – 80,000
Fair value of the leased asset at inception (01/01/2015) – 80,000
The lease is for four years and the rentals, which have to be paid in advance at the beginning of each year, are 40,000, 25,000, 15,000 and 10,000 respectively. The estimated residual value of the leased assets at the end of the lease term is 5% of the cost of the asset; the lessor expects a return of 18% on investment.
Question 16.
X Limited, was taken Machinery on lease from Y Limited, the information is as under:
Lease term 4 years, fair value at inception of lease 20,00,000, lease rent 6,25,000 p.a. at the end of year, guaranteed residual value 1,25,000, expected residual value 3,75,000, implicit interest rate 15%. Calculate the value of the lease liability.
Discount rate at 15%.
| Year : | 1 | 2 | 3 | 4 |
| Present Value : | 0.8696 | 0.7561 | 0.6575 | 0.5718 |
Question 17.
From the information given below, identify the lease category to which the assets belong to:
Rajalakshmi (Pvt) Ltd; has entered into a new lease agreement on building and a land. The fair value of the building is 50, 00,000 and the fair value of the land is 30, 00,000. The lease is for a period of twenty years, which is the expected life of the factory, with annual payments in arrears of 5, 00,000. The cost of capital is 8%.
Solution:
Computation of the present value of the building and the land: Building
The lease payment in arrears for the building is =
Total lease payment arrears = \(\frac { F.V. of the building }{ Total F.V. of building + land }\)
5,00,000 x \(\frac { 50.00,000 }{ 80,00,000 }\) = 3,12,500
Present value of the building: 3,12,500 x 9.818 = 30,68,125
Since the building is used as a leased asset for major part of its useful life (approx 90% in this case), thus it is classified as financial lease even though the PV of the building is not substantially equal to its future value.
Land:
The lease payment in arrears for the land is
(5,00,000) x (30,00,000) / (80,00,000) = 1,87,500.
The present value of the land is
1,87,500 x 9.818 = 18,40,875
The land is classified as a operating lease as its present value is not substantially equal to its fair value.
Question 18.
Calculate the borrowing cost of Excel Ltd.
(i) 8 crores arranged by issuing 8% debentures repayable after 10 years.
(ii) 3 crores by a loan from IDBI with 10 years term at interest of 10% p.a.
(iii) 3 crores overdraft from Canara Bank at interest of 10% p.a.
(iv) Cost of issue of debentures is 15,00,000
(v) Processing and counsultancy charges for IDBI loan – 5% of loan.
(vi) Debentures are repayable at 5% premium
Question 19.
PQR Co. constructing power generation plant. This project requires totally 12 crores, which are raised as follows:
(a) 4 crores from IFCI for 10 years at 11% interest rate.
(b) 2 crores of loan from HDFC bank for 6 years at 10% interest rate.
(c) 2 crores of loan from SBI bank for 4 years at 12% interest rate.
(d) 3 crores from 10% debentures for 5 years at 5% discount
(e) 1 crores as overdraft from corporation bank at 4% interest rate.
(f) Out of total borrowed fund 5 crores are kept in HUDCO bank as short term deposit for 6 months at 5% rate.
(g) IFCI bank loan is borrowed through consultation and the consultancy charges are 2% of total loan amount.
Calculate total borrowing cost accordance with Ind. AS-23.
Question 20.
Ravi Ltd. purchased equipment for its company the price paid for the equipment is 2,50,000 inclusive of value added tax of 60,000.
The entity gets a credit of VAT while calculating the tax payable on the finished goods sold.
Additional 10,000 customs duty 8,000
Installation expenses of 5,000
The estimate of dismantling and removing the item would be 5,000
After the equipment was put to use 5,000 was spent on cleaning the spare parts.
Calculate the cost of the asset according to Ind AS-16.
Solution:
Statement of calculation of cost of the asset
| Particulars | Amount |
| Purchase price (2,50,000-60,000) | 1,90,000 |
| Freight | 90,000 |
| Customs duty | 8,000 |
| Installation expenses | 5,000 |
| Add: Estimate of dismantling and removing item | 5,000 |
| Total cost as per Ind AS-16 | 2,18,000 |
Note: Cleaning charges of ‘ 5,000 should be charged to profit and loss A/c as it does not have any revenue generating capacity.
Question 21.
Sri Ram Ltd. purchased a machine costing 40,00,000 on 10.1.2015.
The company received grants from the govt, to the extent of 50% of the assets cost. The products are to be supplied to the govt, upto the extent of 50% of the production and at a price which is 20% below the average market price.
Average market price of the product
| Year | Price |
| 2015 | 37.5 |
| 2016 | 40 |
| 2017 | 42.5 |
| 2017 | 45 |
| 2019 | 47.5 |
The capacity utilisation of the machine in %
| Year | % capacity utilisation |
| 2015 | 50% |
| 2016 | 50% |
| 2017 | 60% |
| 2015 | 70% |
| 2019 | 80% |
The Production capacity is 1 lakh units per annum.
Calculate the (a) Revenue subsidy (b) Gain from grants
Question 22.
Prepare Stores Ledger under FIFO method from the following information.
June 07, 2007 Purchased 500 units @ 12 per unit.
June 13, 2007 Purchased 700 units @ 10 per unit.
June 22, 2007 Issued 1,000 units.
June 25, 2007 Purchased 1,500 units @ 8 per unit.
June 30, 2007 Issued 1,000 units.
Question 23.
From the following particular relating to Material A, show how the value of the issues should be arrived under FIFO Method.
1.1.2011 Opening stock 1000 units at 5 each
3.1.2011 Purchased 900 units at 6 each
7.1.2011 Issued on Job No. 10 1200 units
11.1.2011 Purchased 800 units at 6.20 each
13.1.2001 Issued 1000 units
Question 24.
The stock of materials on 1st Jan. 2009 ws 800 units at the rate of 2.00 per unit. Following purchases and issues of these items were made.
| Date | Receipts units | Rate per unit | Issues units |
| Jan. 6th | – | – | 350 |
| Jan. 9th | 600 | 2.25 | – |
| Jan. 15th | 450 | 2.50 | – |
| Jan. 18th | – | – | 750 |
| Jan. 21st | – | – | 300 |
| Jan. 24th | 750 | 2.60 | – |
| Jan.26th | – | – | 450 |
| Jan.30th | – | – | 300 |
Prepare Stores Ledger Account under FIFO Method.
Question 25.
Following is the history of receipts and issues of raw-material in Nitin Ltd., during April, 2008.
April 1 Opening balance 500 units at 25 per unit.
April 3 Issued 70 units
April 4 Issued 100 units
April 8 Issued 80 units
April 13 Purchased 200 units at 24.50 per unit
April 14 Return of surplus 15 units at 24 per unit
April 16 Issued 180 units
April 20 Purchased 240 units at 24.40 per unit April 24 Issued 304 units
April 25 Purchased 320 units at 24.30 per unit April 26 Issued 112 units
April 27 Return of surplus 12 units at 24.50 per unit
April 28 Purchased 100 units at 25 per unit and paid freight charges 200
The stock verification reveals that on the 155h April, 2008 there was a shortage of 5 units and on 27th April, 2008 another shortage of 8 units.
You are required to prepare Stores Ledger under LIFO method.
Question 26.
The following transactions occurred in purchases and issue of material in an organisation during October, 2009.
Receipts – Quantity – Rate
4-10-2009 – 200 units – 24 per unit
10-10-2009 – 150 units – 23 per unit
18-10-2009 – 100 units – 24 per unit
22-10-2009 – 100 units – 23.50 per unit.
Issues – Quantity
5-10-2009 – 250 units
12-10-2009 – 200 units
25-10-2009 – 250 units
The stock on 1-10-2009 was 200 units @ 25 per unit.
Prepare the Stores Ledger Accounts first by adopting FIFO method of charging material issued and secondly by LIFO method.
Question 27.
A firm furnishes the following store transactions for Dec. 2010.
Dec.
” 1 – Opening balance 50 units valued at 325
” 4 – Issue reQuestion No. 8-16 units
” 6 – Receipts, GRN No. 2 – 100 units at 5.75 per unit
” 7 – Issue ReQuestion No. – 24 units
” 10 – Returns to vendors (purchased on Dec. 6) – 20 units
” 12 – Issue ReQuestion No. 10 – 30 units
” 13 – Issue ReQuestion No. 11-40 units
” 15 – Receipts GRN No. 3-50 units at 6.10 per unit
” 17 – Issues ReQuestion No. 12 – 20 units
” 19 – Received replacement from vendors GRN No. 4-20 units (Returned on Dec. 10)
” 20 – Returned from Department 10 units
” 22 – Transfer from Job No. 123 to Job No. 145 in the department MTR No. 1 – 10 units
” 26 – Issues Req. No. 13 – 20 units
” 29 – Transfer from Dept. X to Dept. Y MTR No. 2-10 units
” 30 – Shortage in stock taking – 4 units
Write up the Stores Ledger A/c under FIFO method.
Question 28.
The following transactions occur in respect of a material:
Jan.02 Purchased 4000 units at 4 per unit’
Jan.20 Purchased 500 units at 5 per unit
Feb.05 Issued 2000 units
Feb.10 Purchased 6000 units at 6 per unit
Feb.12 Issued 4000 units
Mar.02 Issued 1000 units
Mar.05 Issued 2000 units
Mar.15 Purchased 4500 units at 5.50 per unit
Mar.20 Issued 3000 units
From the above prepare stores ledger account using weighted average price.
Question 29.
The following transactions took place in respect of material ‘B’.