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 CMA Final - CFR

Expected paper pattern based on model question papers

and question papers since Dec 23 Exam and Revision
Plan
Q.No. Subpart Marks Chapters Revision Coverage
Separate session on MCQs
1 15 MCQs 30 All
scheduled on 8th Nov
2 a 7 Ind-AS Ind AS Marathon +
2 b 7 Ind-AS Additional Questions
Practice Session scheduled
3 a 7 Ind-AS on 21st Nov
3 b 7 Valuation
Financial Instruments
4 a 7
/ NBFC
Internal
4 b 7 Marathon (Concepts +
Reconstruction
PYQs + MQPs)
Business
5 NA 14
Combinations
6 NA 14 Consolidation
7 a 7 VAS / EVA / MVA
7 b 7 Recent Developments
Government
8 a 5 Theory Booster Session
Accounting
scheduled on 25th Nov
Government
8 b 5
Accounting
Business
Marathon (Concepts +
8 c 4 Combinations /
PYQs + MQPs)
Consolidation

CA BISHNU KEDIA 1 Important Questions

CORPORATE FINANCIAL REPORTING

Valuation of Goodwill and Shares

1. For calculating goodwill, we need:
a. Future maintainable profits (FMP)
b. Capital Employed (CE)

2. Future maintainable profits (FMP):

Particulars Year 1 Year 2 Year 3
PBT XX XX XX
Error rectification XX XX XX
Extraordinary items XX XX XX
Non-operating items XX XX XX
(E.g. Interest on investments)
Always SI unless Adjusted Profits XX XX XX
Q Specified
Average Adjusted Profits XX
(Total Profits/No. of Years)
Add: Income expected in future XX
Less: Expenses expected in future (XX)
Less: Additional depreciation on revaluation of assets (XX)
Adjusted average profit before tax XX
Less: Tax (Future tax rate) (XX)
Adjusted profit after tax XX
Less: Preference Dividend (XX)
Future maintainable profits (FMP) XX
Note: Weighted average to be done only if required by the question.

3. Capital Employed (From equity shareholder point of view):

a. Asset side approach:
Fair value of all assets XX
(Includes all assets EXCEPT Non-trade investments and fictitious
assets like accumulated losses, advertisement expenditure,
preliminary expenses)
Less: Fair value of all liabilities (XX)
(Including Taxes payable, Dividend payable, Preference share
capital)
Capital Employed XX

b. Liability side approach:

CMA Final – Dec 24 2 CA BISHNU KEDIA

 CMA Final - CFR
Equity share capital XX
Reserves XX
Revaluation effect of assets and liabilities XX
Less: Non-trade investments / Fictitious assets (XX)
Capital Employed XX

Average Capital = (Opening Capital Employed + Closing Capital Employed) / 2

Employed

OR
Average Capital Employed = Closing Capital Employed – ½ of PAT

4. Valuation of shares
a. Intrinsic Value (IV)/ Asset backing approach

Intrinsic = Net assets for equity shareholders / No. of equity shares

Value (IV)

Net assets available for equity shareholders (NAAFESH)

Fair value of all assets XX
(All assets including Non-trade investments and Goodwill
EXCEPT fictitious items)
Less: Fair value of all liabilities (XX)
(Including Taxes payable, Dividend payable, Preference share
capital)
Add: Notional call from partly paid shares XX
Net assets available for equity shareholders (NAAFESH) XX

Alternatively
Capital Employed XX
Add: Goodwill XX
Add: Non-trade investments XX
Add: Notional call from partly paid shares XX
Net assets available for equity shareholders (NAAFESH) XX

Note: For calculating value of partly paid shares, notional call is deducted.
In case of different class of equity shares (having different face value) valuation
is done proportionately.

CA BISHNU KEDIA 3 Important Questions

CORPORATE FINANCIAL REPORTING

b. Yield basis valuation

EPS fmp
Capitalised value of Equity = PAFESH / Cost of Equity i.e. Ke

Yield value per share = Capitalised value of Equity / No. of Equity shares
EPS
Note: PAFESH is FMP from equity shareholder from point of view i.e.
preference dividend is also deducted.

Note: For calculating value of partly paid shares or of different class of equity shares
(having different face value) valuation is done proportionately. No notional call
is done in case of yield basis valuation.

c. Fair Value

Fair Value = (Intrinsic Value + Yield Value)/2

June 2024 Q 3b
P Ltd. provides the following information as on 31.03-2024:
Equity share capital: 80,000 shares of ` 10 each fully paid and 50,000 shares of ` 10
each, 4 paid.
9% Preference share capital ` 6,00,000.
General Reserve ₹ 1,80,000
12% Debentures ₹ 5,00,000
Assets include a non-trade investment, the market value of which is 2,40,000 (Book
value being ₹ 2,80,000)
Before tax profits for last three years were ₹ 1,90,000, ₹ 2,50,000 and ` 2,80,000
respectively (including income from non-trade investment of ` 20,000 on an average).
Rate of income tax is 30%.
Fair return on capital employed in this type of business is estimated at 9% after tax.

You are required to calculate:

(i) The value of goodwill using 3 years' purchase of Super Profit method, and
(ii) The value of each fully paid-up equity shares under Asset Backing method.
Use closing trading capital employed for calculation of goodwill.

CMA Final – Dec 24 4 CA BISHNU KEDIA

 CMA Final - CFR

December 2023 Q 3b

The following figures have been extracted from the Balance Sheet of R Ltd. as on 31 st
March, 2023:
Particulars ₹
1,12,000 Equity Shares of ₹ 10 each 11,20,000
2,800, 13% Preference Shares of ₹ 100 each 2,80,000
Other Equity (Retained Earnings and Reserves) 7,00,000
12% Debentures (` 100) 2,80,000
Trade Payables 1,40,000
Total Equity and Liabilities 25,20,000
Property, Plant and Equipment 16,80,000
Goodwill 1,40,000
Non-Current Investments (Non Trading) 1,40,000
Current Assets 5,60,000
Total Assets 25,20,000

Additional Information:
(i) Profit before tax for the year 2022-23 amounted to ₹ 8,40,000 including ₹ 14,000 as
interest on investment.
(ii) An additional amount of ₹ 70,000 p.a. shall be required to be spent for smooth
running of the business.
(iii) Market value of property, plant and equipment are estimated at ₹ 26,60,000. In order
to match the above figures, a further depreciation to the extent of ₹ 56,000 should
be taken into consideration (additional depreciation is not tax deductible).
(iv) Income tax rate is 50%.
(v) Return on capital @ 20% before tax may be considered normal for this business at
the present stage.
(vi) For the purpose of determining the rate of return, the profit for this year after the
aforesaid adjustments may be taken as the expected average profit. Consider average
trading capital employed for determining the normal profit.

Based on the above details, you are required to compute the value of goodwill based on the 4
years' purchase of super profit. Working should form part of your answer.

CA BISHNU KEDIA 5 Important Questions

CORPORATE FINANCIAL REPORTING

Dec 23 MQP-1 Q 3b
The Capital Structure of M/s XYZ Ltd. on 31st March, 2022 was as follows:
Particulars ₹
Equity Capital 18,000 Shares of ₹100 each 18,00,000
12% Preference Capital 5,000 Shares of ₹100 each 5,00,000
12% Secured Debentures 5,00,000
Reserves 5,00,000
Profit earned before interest and taxes during the year 7,20,000
Tax Rate 40%
Generally, the return on equity shares of this type of Industry is 15%. Subject to:
(i) The profit after tax covers fixed interest and Fixed Dividends at least 4 times.
(ii) The Debt Equity ratio is at least 2:1
(iii) Yield on shares is calculated at 60% of distributed profits and 10% of
undistributed profits.
The Company has been paying regularly an Equity dividend of 15%. The risk
premium for Dividends is generally assumed at 1%. Find out the value of Equity
shares of the Company.

Dec 24 MQP-1 Q 3b
Following is the Balance Sheet of Z Ltd. as on 31st March, 2021: (₹ in Lakh)
Liabilities ₹ Assets ₹
1,00,000 Equity Shares of ₹10 10,00,000 Preliminary 5,00,000
each expenses
10,000 12% Preference Shares 10,00,000 Goodwill 15,00,000
of ₹100 each
General Reserve 6,00,000 Buildings & Plant 10,00,000
Profit and Loss Account 4,00,000 Investment in 10% 4,80,000
Stock
15% Debentures 10,00,000 Stock 6,00,000
Creditors 8,00,000 Stock-in – trade 4,00,000
Debtors 2,20,000
Cash 1,00,000
48,00,000 48,00,000

Additional information is given below:

CMA Final – Dec 24 6 CA BISHNU KEDIA

 CMA Final - CFR
Nominal value of investment is ₹5,00,000 and its market value is ₹5,20,000.
Following assets are revalued: (₹)
Building ₹32,00,000
i. Plant ₹18,00,000
ii. Stock-in-trade ₹4,50,000
iii. Debtors ₹3,60,000

a. Average profit before tax of the company is ₹12,00,000 and 12.50% of the
profit is transferred to general reserve, rate of taxation being 50%.
b. Normal dividend expected on equity shares is 8% while fair return on closing
capital employed is10%.
c. Goodwill may be valued at three year’s purchase of super profits.
d. Ascertain the value of each equity share under fair value method.

June 24 MQP-1 Q 3b
Forthcoming Year 1 ₹ in Lakhs
Data provided:
EBIT 700
Depreciation 120
CAPEX 180
Interest 60
Increase in Non-Cash Working Capital 100
Debt Capital 3,000
Tax Rate (t) 25%
WACC 10%
No. of Equity Shares 50,00,000
Compute:
a. NOPAT
b. CF
c. FCFF
d. Value of Business based on :
i. CF
ii. FCFF
e. Value of business when growth rate is 5% based on:
i. CF
ii. FCFF
f. Value per share based on FCFF when growth rate is 5%

CA BISHNU KEDIA 7 Important Questions

CORPORATE FINANCIAL REPORTING

Financial Instruments

June 2024 Q 4a
BEAS Ltd. borrows a sum of ` 20 crore from SINDHU Ltd. on 01.04.2023 repayable
as' a single bullet payment at the end of 5 years. The interest thereon @ 5% p.a. is
payable at yearly rests. Since the market rate of interest is 8%. BEAS Ltd. paid an
origination fee of ` 2.3954 crore to SINDHU Ltd. to compensate SINDHU Ltd. for
the lower rate of interest. Apart from the above, there are no other transactions
between the two parties.
You are required to calculate the amount at which BEAS Ltd. would recognize the
loan and SINDHU Ltd. would recognize the annual interest income thereon.
The following Present Values of ` 1 at 5% and at 8% are supplied to you.
Interest Year-1 Year-2 Year-3 Year-4 Year-5
Rate
5% 0.9524 0.9070 0.8638 0.8227 0.7835
8% 0.9259 0.8573 0.7938 0.7350 0.6806

December 2023 Q 4a
Moon Ltd. issued 1,00,000, 8% Debentures of face value ₹100 each on par value basis
on 1st January, 2023. These debentures are redeemable at 12% premium at the end of
2026 or exchangeable for ordinary shares of Moon Ltd. on 1:1 basis. The interest rate
for similar debentures that do not carry conversion entitlement is 12%.

You are required to calculate the value of the debt portion and equity portion of the
above compound financial instrument and show the journal entry at the inception of the
financial instrument.

The present value of Re. 1 at the end of years 1 to 4 at 8% and 12% discount rate are
supplied below:
8% 12%
End of year 1 0.926 0.893
End of year 2 0.857 0.797
End of year 3 0.794 0.712
End of year 4 0.735 0.636

CMA Final – Dec 24 8 CA BISHNU KEDIA

 CMA Final - CFR

June 2023 Q 5b
At the beginning of year 1, BLACK PEPPER TULSI LTD. issued 40,000 convertible
debentures with face value ₹100 per debenture, at par. The debentures have six-year
term. The interest at annual rate of 9% is paid half-yearly. The bondholders have an
option to convert half of the face value of debentures into 2 Equity Shares at the end of
year 3. The bondholders not exercising the conversion option will be repaid at par to
the extent of 50 per debenture at the end of year 3. The non-convertible portion will be
repaid at 10% premium at the end of year 6. At the time of issue, the prevailing market
interest rate for similar debt without conversion option was 10.25%.

Required: Compute Value of Embedded Derivative. Pass the Journal Entry at initial
recognition.
[Given PV of Annuity of 1 at 5% for 6 years 5.076, for 12 years 8.863, PV of 1 at 5%
at for 12th year end 0.557]

CA BISHNU KEDIA 9 Important Questions

CORPORATE FINANCIAL REPORTING

NBFC
Dec 24 MQP-1 Q 4a
Samvedan Ltd. is a non-banking finance company. It accepts public deposit and also
deals in the hire purchase business. It provides you with the following information
regarding major hire purchase deals as on 31.3.22 regarding few machines that were
sold on hire-purchase basis. The hire purchase price was set as ₹100 lakhs as against
cash price of ₹80 lakhs. The amount was payable as ₹20 lakhs down payment and
balance in 5 equal installments. The Hire-vendor collected first installment as on
31.3.23, but could not collect the second installment which was due on 31.3.24. The
company had to finalise accounts for the year ending 31.3.24 by 15.5.24 as it was the
date on which the Board of Directors were to sign the accounts. The second
installment was not collected. Presume IRR to be 10.42%.
Required:
i. What should be the principal outstanding on 1.4.23? Should the company
recognise finance charge for the year 2023-24 as income?
ii. What should be the net book value of assets as on 31.3.24 so far Samvedan Ltd.
is concerned as per NBFC prudential norms requirement for provisioning?
ii. What should be the amount of provision to be made as per prudential norms for
NBFC laid down by RBI?

Solution:
i.Since, the hire-purchaser paid the first installment due of 31.3.23, the notional
principal outstanding as on 01.04.2023 was ₹50.25 lakhs. [WN: I]
In the year ended 31.3.24, the installment due of ₹16 lakhs has not been received.
However, it was due on 31.3.24 i.e. on the Balance Sheet date, and therefore, it will be
classified as Standard Asset. Samvedan Ltd. will recognise ₹5.24 lakhs as interest
income included in that due installment.
ii. The net book value of the assets as on 31.3.2023
Particulars ₹
Lakhs

Overdue installment 16
Installments not due (₹16 lakhs x 3) 48

64

CMA Final – Dec 24 10 CA BISHNU KEDIA

 CMA Final - CFR
Less: Finance charge not matured and not credited to P/L A/c [4.11 + 2.88 + (8.51)
1.52]

55.49
Less: Provision as per NBFC prudential norms 7.49
⸫ Net Book Value of assets for Samvedan Ltd. 48.00
iii. Amount of Provision
Particulars ₹
Lakhs

Overdue installment 16
Installments not due (₹16 lakhs x 3) 48
64

Less: Finance charge not matured and not credited to P/L A/c [4.11 + 2.88 + (8.51)
1.52]

55.49

Less: Depreciated value (Cash Price Less Depreciation for 2 years on SLM 48
@ 20%)

Provision as per NBFC prudential norms 7.49

Since, the installment of ₹16 lakhs not paid, was due on 31.03.2023 only, the asset is
classified as standard asset. therefore, no additional provision has been made for it.
Workings:
It is necessary to segregate the installments into principal outstanding and interest
components by using IRR @10.42%
Time Opening Cash Interest @ Principal Closing
outstanding flow 10.42% (c) = repayment (d) = outstanding (e) =
amount (a) × 10.42% (b) – (c) (a) – (d)
(b)
(a)
31.3.22 80 20 — 20 60
31.3.23 60 16 6.25 9.75 50.25

31.3.24 50.25 16 5.24 10.76 39.49

31.3.25 39.49 16 4.11 11.89 27.6

CA BISHNU KEDIA 11 Important Questions

CORPORATE FINANCIAL REPORTING

31.3.26 27.6 16 2.88 13.12 14.48

31.3.27 14.48 16 1.52 14.48 0

Dec 23 MQP-1 Q 4a
While closing its books of accounts on 31.03.22 NBFC has its advances as follows:
Particulars ₹ Lakhs

Standard Assets 10,000

Sub Standard Assets 1,000

Secured Positions of Doubtful Debts:
- Up to one year 160

- one year to three years 70

- more than three years 20

Unsecured Portions of Doubtful debts 90

Loss Assets 30
Calculate the provision to be made against advances as per prudential norms.
Solution:
Particulars Loan Provision (%) Provision
(₹ Lakhs) (₹ Lakhs)

Standard Assets 10.000 0.40 40

Sub-Standard Assets 1,000 10% 100

Secured Portions of Doubtful Debts:

- Up to one year 160 20% 32
- 1 year to 2 years 70 30% 21

- more than three years 20 50% 10

Unsecured Portions of Doubtful Assets 90 100% 90

Loss Assets 30 100% 30

Total 323

CMA Final – Dec 24 12 CA BISHNU KEDIA

 CMA Final - CFR
Value Added Statements
The following is a general format of Value Added Statement.
Value Added Statement
For the year ended on ………
Particulars (₹) (₹)
Creation of Value Added
a. Sales (including sales tax and excise duty but net of rebate, XX
commission, returns, discounts and goods for self-consumption)
b. Income from services (e.g., royalty, dividend and interest, rent
XX
received etc.) other income
c. Cost of bought-in materials (consumption of raw materials,
consumables, packing materials, stationery, fuel and oil, (XX)
electricity, repairs etc.)
d. Cost of bought-in services (e.g., audit fees, insurance, rent paid,
(XX)
travelling expenses, advertisement, postage and telegram,
subscriptions, other expenses)
e. Interest on Working capital (Overdraft / Cash credit) (XX)
Gross Value Added [(a)+(b) –(c) – (d)] XX
Distribution of Value Added
(a) To Employees (e.g., wages and salaries, director’s fees, contribution XX
to P.F, ESI etc.)
(b) To Government (e.g., duties and taxes net of deferred tax)
XX
(c) To Providers of Capital (e.g., Interest and Dividend) providers of finance
XX
(d) Retained Earnings (e.g., depreciation and retained profit including
XX
transfers to reserves, deferred tax)
Disposal of Value Added [(a)+(b) +(c) + (d)] XX

CA BISHNU KEDIA 13 Important Questions

CORPORATE FINANCIAL REPORTING

December 2023 Q 7a
From the following information provided by Sun Ltd., prepare a Value Added Statement
for the financial year 2022-23.
Particulars ₹ in Lakhs
Sales 2,400
Plant and machinery (net) 1,100
Depreciation on Plant and Machinery 275
Dividends on ordinary shares 150
Sundry Debtors 195
Sundry Creditors 130
Opening stock (raw material, WIP, finished goods) 160
Closing stock (raw material, WIP, finished goods) 200
Raw material purchased 775
Cash at bank 100
Printing and Stationery 25
Auditor's remuneration 30
Retained earnings at the beginning of the year 990
Retained profits for the year 205
Rent, Rates and Taxes 170
Other expenses 90
Ordinary share capital issued 1,800
Interest on borrowing 40
Income tax for the year 280
Wages and salaries 330
Employees State Insurance 40
PF Contribution 30

December 2016 [10 Marks]

Aro Ltd. furnishes the following profit and loss Account:
Particulars Notes ₹ (000)
INCOME:
GVA Turnover 1 29,872
GVA Other income 1,042
Sub-total 30,914
EXPENDITURE: Adj - Salaries and weg 14781
GVA - Operating expenses gva - 2 26,741
Prf of fin Interest on 8% debentures 987

CMA Final – Dec 24 14 CA BISHNU KEDIA

 CMA Final - CFR
Gva -
Interest on cash credit 3 151
Govt Excise duty 1,952
Sub-total 29,831
Profit before depreciation 1,083
Retern EaLess: Depreciation (342)
Profit before tax 741
Govt Less: Provision for tax (376) - 54 reten
Profit after tax 365 earn
Reten Earn Less: Transfer to fixed assets replacement reserve (65)
Profit available for distribution 300
Prd of Fin Less: dividend paid (125)
Refe earn Retained profit 175
Notes
1. Turnover is based on invoice value and net of sales tax.
2. Salaries, wages and other employee benefits amounting to 14,761 (000) are included
in operating expenses. Employee
3. Cash credit represents a temporary sources of finance. It has not been considered as
a part of capital.
4. Transfer of ₹54 (000) to the credit of deferred tax account is included in provision
for tax. defered tax
Prepare value added statement for the year ended 31st march 2014 and reconcile total
value added with profit before taxation.

June 24 MQP-1 Q 7a
The following are the balances in the account statements of X Ltd. for the year ended
31st March, 2024: (₹ ‘000)
Particulars (₹)
Turnover 4,600
Plant and machinery net 2,160
Loss on sale of machinery 150 no where
Last me Likh lo after
Depreciation on plant and machinery 400 Retern Earning

Dividends to ordinary shareholders 292

Debtors 390
Creditors 254

CA BISHNU KEDIA 15 Important Questions

CORPORATE FINANCIAL REPORTING

Total stock of all materials, WIP and finished goods:

Opening stock 320
Closing stock 400
Raw materials purchased 1,250
Cash at bank 196
Printing and stationery 44
Auditor’s remuneration 56
Retained profits (opening balance) 1,998
Retained profits for the year 576
Rent, rates and taxes 330
Other expenses 170
Ordinary share capital issued 3,000
Interest on/borrowings 80
Income-tax for the year 552
Wages and salaries 654
Employees state insurance 70
P.F. contribution 56
Prepare a Value Added Statement for the company for the year 2023-24

CMA Final – Dec 24 16 CA BISHNU KEDIA

 CMA Final - CFR
Economic Value Added (EVA) and Market Value Added
(MVA) EVA = NOPAT - (WACC x Invested Capital)
Where NOPAT = EBIT x (1-t);
Stum Stivatern Company EBIT is Earnings Before Interest and Tax. t=
tax rate = Tax expenses/EBT
EVA = NOPAT – (Invested Capital X Cost of Capital i.e. Kc)EBT is Earnings Before Tax.
WACC Weighted Average Cost of Capital (WACC)
=We × Ke +Wd × Kd
NOPAT = EBIT x (1-t)
We = weight of Equity in capital structure
MVA = Market Value – Invested Capital Wd= weight of Debt in capital structure
Ke=Cost of Equity Capital
WACC=We × Ke +Wd × Kd Kd=Cost of Debt Capital

Note: Invested capital means capital employed which includes capital, reserves and
long term debt.
Kc is weighted average of Kd, Kp and Ke

CA Final Dec 21 SFM

Following is the information of M/s. DY Ltd. for the year ending 31/03/2021:
Particulars ₹ in Lakhs
Sales ₹ 1000
Operating Expenses Including Interest ₹ 620
8% Debentures ₹ 250
Equity Share Capital (Face value of ₹ 10 each) ₹ 250
Reserves and Surplus ₹ 250
Market Value of DY Ltd ₹ 900
Corporate Tax Rate 30%
Risk free Rate of Return 7%
Market Rate of Return 12%
Equity Beta 1.4
You are required to
i. Calculate Weighted Average Cost of Capital of DY Ltd.
ii. Calculate Economic Value Added
iii. Calculate Market Value Added

Solution:
(i) Weighted Average Cost of Capital of DY Ltd.

Cost of Equity as per CAPM

ke = Rf + β x Market Risk Premium
= 7% + 1.4 x [12% - 7%]

CA BISHNU KEDIA 17 Important Questions

CORPORATE FINANCIAL REPORTING

= 7% + 7% = 14%

Cost of Debt
kd = 8% (1 – 0.30) = 5.60%

WACC (ko) = (14.00 X500/750) + (5.60X 250/750)

= 9.33% + 1.87% = 11.20%

(ii) Economic Value Added (EVA) of DY Ltd.

Particulars ₹ in Lakhs
Sales ₹ 1,000
Operating Expenses (excluding interest) ₹ 600
EBIT ₹ 400
Less: Tax @ 30% ₹ 120
Net Operating Profit after Tax (NOPAT) ₹ 280

Calculation of Capital Employed

Particulars ₹ in Lakhs
Equity Share Capital 250
Reserves & Surplus 250
8% Debentures 250
Total Capital Employed 750

EVA = NOPAT – (WACC X Total Capital) EVA

= ₹ 280 Lakh – (0.1120 X ₹ 750 lakhs)

EVA = 196.00 lakhs

(iii) Determination of Market Value Added (MVA)

Particulars ₹ Lakh
Market value of DY Ltd. 900
Capital employed [₹ 250 Lakh + ₹ 250 Lakh + ₹ 250 Lakh] 750
Market Value Added 150

June 2024 Q 7a
Saurav Ltd. provides you with the following data based on which you are required to
calculate the Economic Value Added (EVA):
Equity share capital (42 crore equity shares of ` 10 each) ` 420 crore
15% preference share capital (1.40 crore shares of ` 100 each) ` 140 crore
15% debentures (11.20 crore debentures of ` 100 each) ` 1,120 crore

CMA Final – Dec 24 18 CA BISHNU KEDIA

 CMA Final - CFR
Income tax rate 30%
Beta 1.5
Market rate of return 15.5%
Equity Market risk premium 9%
Financial leverage 1.5 times
Land and building (held as investment) ₹140 crore

June 2023 Q 7a
KADI PATTA TULSI Ltd. provides you the following data to calculate theEconomic Value
Added: (June 23, Syllabus 2022, 8 Marks)
Particulars ₹ (in
Crores)
Equity Share Capital (₹10 each) ?
15% Preference Share Capital (₹ 100 each) ?
Reserves & Surplus 50
12% Debentures 800
Debt-Equity Ratio (Long-term Debt/Shareholders’ Funds) = 2:1
Capital Gearing Ratio (Funds bearing Fixed Payments to Equity Shareholders’
Funds)=3:1
Financial Leverage = 1.32 times
Tax Rate: 25%
Market Rate of Return:15.59r
Equity Market Risk Premium:9%
Beta for the last 5 years as follows:
Year 1 2 3 4 5
Beta 1.6 1.7 1.8 1.3 1.1

Dec 23 MQP-1 Q 7a
LG. and Co. provides you with the following as at 31st March, 2022 (₹ in lakhs)
Liabilities ₹ Assets ₹
Share Capital 1,000 Fixed Asset (Net) 3,000
Reserves and surplus 2,000 Investments 150
Long term debt 200 Current assets 100
Sundry creditors 50
Total 3,250 Total 3,250

Additional information provided is as follows:

CA BISHNU KEDIA 19 Important Questions

CORPORATE FINANCIAL REPORTING

i. Profit before interest and tax is ₹ 1,000 Lakhs

ii. Interest: ₹ 20 Lakhs
iii. Tax: 35.875%
iv. Risk Free Rate – 10%
v. Market Rate – 15%
vi. Beta (𝜷) Factor – 1.4
Compute economic value added

Additional Question on MVA

Trump Ltd has ₹ 80 crore Equity share capital, ₹ 70 crore in Reserves, ₹ 60 crore
Preference share capital, ₹ 40 crore Debentures.
No. of Equity shares = 50 Lakh
PE Ratio = 15
EPS = ₹ 40 / Share
Calculate MVA

CMA Final – Dec 24 20 CA BISHNU KEDIA

 CMA Final - CFR
Internal Reconstruction

June 2024 Q 4b
The summarized Balance Sheet of MEGHNA Ltd. as on 31st March, 2024 was as
follows:

Particulars Note No. Amount (₹)

A. Assets

1. Non-Current Assets

a) Property, Plant & Equipment

- (i) Tangible Assets 5 5,50,000

- (ii) Intangible Assets 6 1,50,000

2. Current Assets

(a) Inventories 1,50,000

(b) Financial Assets

- (i) Trade Receivables 1,25,000

- (ii) Loans & Advances 25,000

Total Assets 10,00,000

B. Equity and Liabilities

1. Equity

(a) Share Capital 1 7,50,000

(b) Other Equity 2 (10,00,000)

2. Non-Current Liabilities

(a) Long-Term Borrowings 3 5,00,000

3. Current Liabilities

(a) Short-Term Borrowings 4 5,00,000

CA BISHNU KEDIA 21 Important Questions

CORPORATE FINANCIAL REPORTING

Particulars Note No. Amount (₹)

(a) Trade Payables 2,50,000

Total Equity and Liabilities 10,00,000

Notes to Accounts:

Note No. Amount (₹)

1 Share Capital

- Authorized, Issued & Fully Paid

- 5,000 equity shares of ₹100 each 5,00,000

- 2,500 8% preference shares of ₹100 each 2,50,000

Total Share Capital 7,50,000

2 Other Equity (Retained Earnings i.e. P/L) (10,00,000)

3 Long-Term Borrowings

- 8% Debentures 5,00,000

4 Short-Term Borrowings

- Loan from Directors 3,00,000

- Bank Overdraft 2,00,000

5,00,000

5 Tangible Assets

- Freehold Property 4,00,000

- Plant 1,50,000

5,50,000

CMA Final – Dec 24 22 CA BISHNU KEDIA

 CMA Final - CFR
Note No. Amount (₹)

6 Intangible Assets

- Goodwill 1,00,000

- Trademark 50,000

1,50,000

Scheme of Internal Reconstruction:

i. The preference shares are to be written down to ₹25 each and the equity shares
to ₹20 each. Each class of shares will be converted into shares of ₹100 each after
reduction.
ii. The debenture holders will take over freehold property (book value ₹2,00,000)
at a valuation of ₹2,50,000 in part repayment of their holdings. Remaining
freehold property will be revalued at ₹6,00,000.
iii. Loan from directors will be waived off in full.
iv. Stock of ₹50,000 will be written off, and ₹12,500 will be provided for bad debts.
v. Profit and Loss account balance, Trademark, Goodwill, and Loans & Advances
will be written off.
Prepare necessary journal entries for all the above mentioned transactions.

Dec 23 Q 3b
The following is the Balance Sheet of SARASWATI Ltd. as at 31st March, 2023:

Particulars Note No. Amount (₹)

Assets

Non-Current Assets

Property, Plant & Equipment 1,25,00,000

Non-Current Investments 5 10,00,000

Current Assets 1,00,00,000

Total Assets 2,35,00,000

Equity and Liabilities

CA BISHNU KEDIA 23 Important Questions

CORPORATE FINANCIAL REPORTING

Particulars Note No. Amount (₹)

Equity

(a) Share Capital 1 1,50,00,000

(b) Other Equity 2 (6,00,000)

Non-Current Liabilities

Long-Term Borrowings 3 40,00,000

Current Liabilities

Trade Payables 50,00,000

Short term provisions 4 1,00,000

Total Equity and Liabilities 2,35,00,000

Notes to Accounts:

Note No. Amount (₹)

1 Share Capital

- Authorized, Issued & Fully Paid

- 1,00,000 equity shares of ₹100 each 1,00,00,000

- 50,000 12% preference shares of ₹100 each 50,00,000

Total Share Capital 1,50,00,000

2 Other Equity (Retained Earnings i.e. P/L) (6,00,000)

3 Long-Term Borrowings

40,000 10% Debentures of ₹100 each 40,00,000

4 Short-Term Provisions

Provision for taxation 1,00,000

CMA Final – Dec 24 24 CA BISHNU KEDIA

 CMA Final - CFR
Note No. Amount (₹)

5 Non Current Investments

Investments 10,00,000

The following scheme of reconstruction is duly approved and sanctioned by the

appropriate authority:
i. All the existing equity shares are reduced to ₹ 40 each.
ii. All preference shares are reduced to ₹ 60 each.
iii. The rate of interest on debentures is increased to 12%. The debenture holders
surrender their existing debentures of ₹ 100 each and exchange the same for fresh
debentures of ₹ 70 each for every debenture held by them.
iv. One of the creditors of the company to whom the company owes ₹ 20,00,000
decides to forgo 40% of his claim. He is allotted 30,000 equity shares of ₹ 40
each in full satisfaction of his claim.
v. Property, plant and equipment are to be written down by 30%.
vi. Current assets are to be revalued at ₹ 45,00,000.
vii. The taxation liability of the company is settled at ₹ 1,50,000.
viii. Investments are to be written down to their market value which is ₹ 9,50,000.
ix. It is decided to write off the debit balance of Profit and Loss Account in full.
Pass journal entries to give the effect of the scheme of reconstruction.

June 23 Q 2b
HALDI TULSI Ltd. provides you the following information as at March 31, 2023:
Particulars (₹ in lakhs)
Equity Shares of ₹10 each 5 each 500
6% Cum- Pref. Shares of ₹100 each 100
Profit and Loss Account (Dr) 15
10% First Debentures 60
10% Second Debentures 100
Debentures Interest outstanding 16
Trade Creditors 165
Plant & Machinery 719.6

Note: Dividend on Preference Shares is in arrears for three years.

The following scheme of internal reconstruction was approved and implemented:

CA BISHNU KEDIA 25 Important Questions

CORPORATE FINANCIAL REPORTING

(a) All the equity shares be converted into the same number of equity shares of ₹5 each,
₹2.50 paid up.
(b) The preference shares are converted from 6% to 15% but revalued in a manner in
which the total return on them remains unaffected. Four equity shares of ₹5 each,
₹2.50 paid up to be issued for each ₹100 of arrears of preference dividend.
(c) Mr. A holds 10% first debentures for ₹40 lacs and 10% second debentures for ₹60
lacs. He is also a creditor for ₹ 10 lakhs. Mr. 'A' is to cancel ₹ 60 lakhs of his total
debt and to pay ₹ 10 lakhs to the company and to receive new 12% Debentures for
the balance amount. Mr. B holds the remaining 10% first debentures and 10%
second debentures and is also a creditor for ₹ 5 lakhs. Mr. 'B' is to cancel ₹ 30 lakh
of his total debt and to accept new 12% Debentures for the balance amount.
(d) Trade Creditors (other than A and B) are given the option of either to accept equity
shares of ₹5, ₹2.50 paid up each, for the amount due to them or to accept 80% of
the amount due in cash. 40% Creditors accepted equity shares whereas the balance
accepted cash in full settlement.
(e) Any surplus after writing off the various losses should be utilized in writing down
the value of plant & machinery.
Required: Prepare the Reconstruction Account.

Dec 24 MQP-1 Q 4b
The following is the Balance Sheet as at 31st March, 2024 of Hopefull Ltd.
Liabilities (₹) Assets (₹)
Share Capital: Fixed Assets (including 11,80,000
goodwill of ₹1,00,000)
8,500 Equity Shares of ₹100 8,50,000 Investments 40,000
each fully paid up
4,000 Cumulative Preference 4,00,000 Stock in Trade 2,75,000
Shares of ₹ 100 each fully paid
up
Securities Premium 20,000 Trade Debtors 1,50,000
General Reserve 60,000 Bank Balances 65,000
Trade Creditors 3,80,000
17,10,000 17,10,000

Contingent liability: Preference Dividends in arrears ₹ 60,000.

The Board of Directors of the company decided upon the following scheme of
reconstructions, which was duly approved by all concerned and put into effect from 1st
April, 2024.
i. The Preference Shares are to be converted into 12% unsecured debentures of ₹100
each with regard to 70% of the dues (inducing arrears of dividends) and for the

CMA Final – Dec 24 26 CA BISHNU KEDIA

 CMA Final - CFR
balance Equity Shares of ₹50 paid up would be issued. The authorized Capital of
the company permitted the issue of additional shares.
ii. Equity Shares would be reduced to share of ₹50 each paid up.
iii. Since goodwill has no value, the same is to be written of the fully.
iv. The market value of investments are to be reflected at ₹60,000.
v. Obsolete items in Stock of ₹75,000 are to be written off. Bad Debts to the extent
of 5% of the total debtors would be provided for. Fixed assets to be written down
by ₹1,80,000.

The company carried on trading, for six months upto 30th September 2024, and made a
net profit of ₹1,00,000 after writing off depreciation at 25% p.a. on the revised value of
fixed assets. The half yearly working resulted in an increase of Sundry Debtors by
₹80,000, stock by ₹70,000 and Cash by ₹50,000.

You are required to show the Journal. Also prepare Balance Sheet as on 30th September,
2024.

CA BISHNU KEDIA 27 Important Questions

CORPORATE FINANCIAL REPORTING

Business Combinations and Consolidation

Dec 23 Q 5
Following are the extract from the Balance Sheets of two companies, BETA Ltd. and
DELTA Ltd. as at 31st March, 2023.

Particulars BETA Ltd. DELTA Ltd.

I. Assets
(1) Non-Current Assets
(i) Property, Plant & Equipment 10,00,000 5,00,000
(ii) Financial Assets
20,000 Shares in BETA Ltd. - 2,00,000
(2) Current Assets
(i) Inventories 2,00,000 1,00,000
(ii) Trade Receivables 3,00,000 1,00,000

Total Assets 15,00,000 9,00,000

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital (Rs. 10) 10,00,000 6,00,000
(ii) Other Equity (Reserve) 2,00,000 1,10,000

(2) Current Liabilities

(i) Trade Payables 3,00,000 1,90,000

Total Equity & Liabilities 15,00,000 9,00,000

BETA Ltd. was to absorb DELTA Ltd. on the basis of intrinsic value of the shares, the
purchase consideration was to be discharged in the form of fully paid shares. A sum of
Rs. 40,000 is owed by BETA Ltd. to DELTA Ltd. Also included in the stocks of BETA
Ltd. Rs. 60,000 goods supplied by DELTA Ltd. at cost plus 20%. Absorption was
completed on 31.03.2023
You are required to prepare the Consolidated Balance Sheet of BETA Ltd. after
acquisition of DELTA Ltd.
(Workings relating to fair value of shares of the companies, purchase consideration and
number of shares to be issued by BETA Ltd. and amount of goodwill or gain on bargain
purchase should form part of your answer)

CMA Final – Dec 24 28 CA BISHNU KEDIA

 CMA Final - CFR
Solution:
Company actually paying
the PC Acquirer BETA Ltd
Company to whom PC is
paid Acquiree DELTA Ltd
Transaction Absorbing entire company
Date of Acquisition 31st March 2023
Date of Consolidation 31st March 2023

Calculation of Fair Value of shares of BETA

Ltd.
Property, Plant & Equipment 10,00,000
Inventories 2,00,000
Trade Receivables 3,00,000
Less: Trade Payables -3,00,000
Net Assets of BETA Ltd. 12,00,000
No. of shares (10,00,000/10) 1,00,000
Intrinsic Value of shares of BETA Ltd. 12

Calculation of Fair Value of shares of DELTA

Ltd.
Property, Plant & Equipment 5,00,000
Investment in Beta Ltd. (20,000*12) 2,40,000
Inventories 1,00,000
Trade Receivables 1,00,000
Less: Trade Payables -1,90,000
Net Assets of DELTA Ltd. 7,50,000
No. of shares (6,00,000/10) 60,000
Intrinsic Value of shares of DELTA Ltd. 12.5

Calculation of Purchase Consideration

Net Assets of DELTA Ltd. 7,50,000
Less: Value of 20000 shares of Beta Ltd ` @ 12 (2,40,000)
Net Assets of Delta Ltd. acquired 5,10,000
Shares to be issued ` @ 12/share 42,500
Consideration (42500*12) 5,10,000

Calculation of Goodwill or Capital Reserve

Purchase Consideration 5,10,000
Less: Net Assets taken over of acquiree company
Net Assets of DELTA Ltd. 5,10,000
(-) Unrealised gain included in inventory of
(10,000) (5,00,000)
DELTA Ltd.
Goodwill/ (Capital Reserve) 10,000

CA BISHNU KEDIA 29 Important Questions

CORPORATE FINANCIAL REPORTING

Consolidated Balance Sheet

BETA DELTA
Adjustment Amount
Particulars Ltd. Ltd.
I. Assets
(1) Non-Current Assets
(i) Property, Plant &
10,00,000 5,00,000 15,00,000
Equipment
(ii) Goodwill 10,000 10,000
(iii) Financial Assets
20,000 Shares in BETA
- 2,00,000 (2,00,000) -
Ltd.
(2) Current Assets
(i) Inventories 2,00,000 1,00,000 (10,000 ) 2,90,000
(ii) Trade Receivables 3,00,000 1,00,000 (40,000) 3,60,000
Total Assets 15,00,000 9,00,000 21,60,000

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital
10,00,000 6,00,000 (1,75,000) 14,25,000
[(10,00,000+42,500)*10]
(ii) Other Equity (Reserve) 2,00,000 1,10,000 (1,10,000) 2,00,000
(iii) Securities Premium
85,000 85,000
(42,500*2)
(2) Current Liabilities
(i) Trade Payables 3,00,000 1,90,000 (40,000) 4,50,000
Total Equity & Liabilities 15,00,000 9,00,000 21,60,000

CMA Final – Dec 24 30 CA BISHNU KEDIA

 CMA Final - CFR
Dec 23 Q 6
The balance sheets of H Ltd. and S Ltd. as on 31.03.2023 were as follows:
Consolidated Balance Sheet Rs. Lakhs
Particulars H Ltd. S Ltd.
I. Assets
(1) Non-Current Assets
(i) Property, Plant & Equipment 7,400 3,000
(ii) Financial Assets
Investment in S Ltd. 2,900 -
(2) Current Assets
(i) Inventories 1,300 1,000
(ii) Trade Receivables 2,000 1,000
(iii) Dividend Receivable 160 -
Total Assets 13,760 5,000

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital 5,000 2,000
(ii) Other Equity (Retained Earnings) 8,160 2,500
(2) Non-Current Liabilities - -
(3) Current Liabilities
(i) Trade Payables 600 300
(ii) Dividend Payable - 200
Total Equity & Liabilities 13,760 5,000

(a) On 01.04.2022, S Ltd. had 200 lakh shares of 10 each and Rs. 1,500 lakh in its
Retained Earnings in Other Equity. H Ltd. acquired 80% share of S Ltd. on
01.04.2022 at a consideration of Rs. 2,900 lakh payable in cash.
(b) The fair values of identifiable assets and liabilities were not different from the book
values on the date of acquisition.
(c) NCI was to be measured at proportionate fair value of net identifiable assets.
(d) Dividend payable represents the dividend declared by S Ltd. out of pre-acquisition
profit. H Ltd. credited its share of dividend from Ltd. to its profits.
(e) H Ltd. sold goods to S Ltd. worth Rs. 100 lakh at a profit of 20% on sales. 50% of
the goods are still in stock of S Ltd.
Prepare the Consolidated Balance Sheet of the Group as on 31.03.2023. Workings
should form part of your answer

CA BISHNU KEDIA 31 Important Questions

CORPORATE FINANCIAL REPORTING

Solution:
Share of Parent Co. (%) in subsidiary on consolidation date 80%
Share of NCI (%) in subsidiary on consolidation date 20%
Date of Acquisition - 1st April 2022
Date of Consolidation - 31st March 2023

Statement of Net Assets of S Ltd.

Particulars Date of Post 31st
Acquisition Acquisition March
2023
Equity Share Capital 2,000 - 2,000
Retained Earnings 1,500 1,000 2,500
3,500 1,000
Dividend - 200
Total 3,500 1,200
Parent's Share (H Ltd.) - 80% 2,800 960
NCI’s Share - 20% 700 240

Calculation of Unrealised Gain on Inventory

(Downstream)
Inventory lying in stock of S Ltd. (100*80%*50%) 40
Unrealised gain (40*25%) 10

Calculation of NCI
NCI on Acquisition Date (S Ltd.) 700
Add: Share of NCI in Post Acquisition Reserves of S Ltd 240
Less: Dividend (200*20%) (40)
NCI on Consolidation Date 900

Calculation of Goodwill or Capital Reserve

Purchase Consideration 2,900
Add: NCI on Acquisition Date 700
Less: Net Assets taken over of acquiree company
(3,500)
(Acquisition date profits)
Goodwill/ (Capital Reserve) 100

Calculation of Consolidated Equity

Retained Earnings 8,160
Add: Post Acquisition share in profits 960
Less: Dividend (200*80%) (160)
Less: Unrealised Gain on sale of inventory (10)
Consolidated Equity 8,950

CMA Final – Dec 24 32 CA BISHNU KEDIA

 CMA Final - CFR
Consolidated Balance Sheet
Particulars H S Adjustment Amount
Ltd. Ltd. (Rs. In
Lakhs)
I. Assets
(1) Non-Current Assets
(i) Property, Plant &
7,400 3,000 10,400
Equipment
(ii) Goodwill 100
(iii) Financial Assets
Investment in S Ltd. 2,900 - -
(2) Current Assets
(i) Inventories 1,300 1,000 -10 2,290
(ii) Trade Receivables 2,000 1,000 3,000
(iii) Dividend Receivable 160 - -160 -
Total Assets 13,760 5,000 15,790

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital 5,000 2,000 5,000
(ii) Other Equity (Retained
8,160 2,500 8,950
Earnings)
(2) Non-Controlling Interest 900
(3) Non-Current Liabilities - - -
(4) Current Liabilities
(i) Trade Payables 600 300 900
(ii) Dividend Payable - 200 -160 40
Total Equity & Liabilities 13,760 5,000 -160 15,790

CA BISHNU KEDIA 33 Important Questions

CORPORATE FINANCIAL REPORTING

Dec 23 Q 8c
K Ltd. holds 30% stake in L Ltd. This investment in L Ltd. is accounted for as an
investment in an associate as per Ind AS 28 and the carrying amount of such investment
is Rs. 140 lakhs. K Ltd. purchases the remaining 70% stake in L Ltd. for a cash
consideration of Rs. 980 lakhs. The fair value of the previously held 30% interest in L
Ltd. is measured at Rs. 420 lakhs on the date of acquisition of 70% additional stake.
The value of L Ltd.'s identifiable net assets as per Ind AS 103 on that date is Rs. 1,120
lakhs. How should K Ltd. account for the acquisition of additional stake?

Solution:
Journal Entry
In the books of K Ltd.
Amount Amount
Particulars in Rs. in Rs.
Lakhs (Dr.) Lakhs (Cr.)
Net Identifiable Assets A/c Dr 1120
Goodwill A/c – refer working Dr 280
To Bank A/c – given 980
To Investment in Associate A/c – carrying amt 140
To Gain on Fair Value of Previously held stake (P/L) 280

Computation of Goodwill
Particulars Rs. In lakhs
Fair Value of Consideration 980
Fair Value of Previously held interest 420
Value of Identifiable Net Assets 1,120
Goodwill 280

CMA Final – Dec 24 34 CA BISHNU KEDIA

 CMA Final - CFR
June 24 Q 5
On 1st April, 2023, M Ltd. acquired 30% of the ordinary shares of N Ltd. For ₹ 8,000
crore. M Ltd. accounts for its investment in N Ltd. using equity method of accounting
as prescribed under Ind AS 28.
On 31st March, 2024, M Ltd. accounts for its share of net assets changes in N Ltd. as
per equity method of accounting as under:
Particulars ₹in crore
Share of profit 700
Share of exchange difference in other comprehensive income (OCI) 100
Share of revaluation reserve of PPE in other comprehensive income 50
(OCI)

The carrying amount of the investment of M Ltd. in associate, N Ltd. is, therefore, 8,850
crore (₹8,000 crore + ₹700 crore + ₹100 crore + ₹50 crore).
On 1st April, 2024, M Ltd. acquired further 70% of the ordinary shares of N Ltd. for
cash amounting to ₹25,000 crore.
The following additional pieces of information are relevant as on 1st April, 2024:
Particulars ₹in crore
Fair value of 30% interest of M Ltd. in N Ltd. as on 1st April, 2024 9,000
Fair value of net identifiable assets of N Ltd. as on 1st April, 2024 30,000
Based on the above pieces of information, you are required to:
(a) Determine the date of acquisition for M Ltd. Justify your answer.
(b) Determine the gain on previously held interest in N Ltd. and suggest the accounting
treatment on acquisition date as per Ind AS 103.
(c) Compute the amount of goodwill arising on the acquisition of N Ltd.
(d) Pass the necessary journal entry on the acquisition date.

Solution:
(a) Determination of the date of acquisition for M Ltd.
The date of which the acquirer obtains control of the acquiree is generally the
date on which the acquirer legally transfers the consideration, acquires the assets
and assumes the liabilities of the acquiree. In the given case, the acquisition
date is 1st April, 2024 i.e., the date on which M Ltd. acquires 100% holdings
of N Ltd.

(b) Computation of the gain on previously held interest and the accounting
treatment to be adopted on the acquisition date

CA BISHNU KEDIA 35 Important Questions

CORPORATE FINANCIAL REPORTING

An entity shall discontinue the use of equity method from the date when its
investment ceases to be an associate or joint venture. If the investment in an
associate becomes an investment in a subsidiary, the entity shall account for its
investment as per Ind AS 103 and Ind AS 110. Ind AS 103 provides that in a
business combination achieved in stages, the acquirer is required to remeasure
its previously held equity interest at its acquisition date fair value and recognize
any gain or loss in profit or loss, or other comprehensive income, as appropriate.
In prior reporting periods, the acquirer may have recognized changes in the value
of equity interest in the acquiree in other comprehensive income. If so, the
amount that was recognized in other comprehensive income shall be recognized
on the same basis as would be required if the acquirer had disposed directly of
the previously held equity interest.

Gain on previously held interest in N Ltd.

Fair value of 30% interest of M Ltd. in N Ltd. as on 1st April, 2024 9,000
(-) Carrying amount of the investment in associate N Ltd. (8,850)
Gain on Previously held interest 150

(c) Calculation of Goodwill or Capital Reserve

Particulars ` in crores
Purchase Consideration 25,000
Add: Fair value of previously held 30% interest 9,000
Less: Net Assets taken over of acquiree company (30,000)
Goodwill/ (Capital Reserve) 4,000

(d) Journal Entry – On Acquisition date

Amount Amount
Particulars in ` Lakhs in ` Lakhs
(Dr.) (Cr.)
Net Identifiable Assets A/c Dr 30,000
Goodwill A/c – refer (c) Dr 4,000
Foreign Currency Translation Reserve Dr 100
PPE Revaluation Reserve Dr 50
To Cash A/c – given 25,000
To Investment in Associate A/c – N Ltd. 8,850
To Retained Earnings A/c 50
To Gain on Previously held interest (P/L) 250

CMA Final – Dec 24 36 CA BISHNU KEDIA

 CMA Final - CFR
June 24 Q 6
The balance sheets of H Ltd. and S Ltd. as on 31.03.2024 were as follows:
₹ in lakhs
Particulars H Ltd. S Ltd.
I. Assets
(1) Non-Current Assets
(i) Property, Plant & Equipment 14,800 6,000
(ii) Financial Assets
Investment in S Ltd. 5,800 -
(2) Current Assets
(i) Inventories 2,600 2,000
(ii) Trade Receivables 4,000 2,000
(iii) Dividend Receivable 320 -
Total Assets 27,520 10,000

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital (Rs.10) 10,000 4,000
(ii) Other Equity (Retained Earnings) 16,320 5,000
(2) Non-Current Liabilities - -
(3) Current Liabilities
(i) Trade Payables (due to H Rs. 120 lakhs) 1,200 600
(ii) Dividend Payable - 400
Total Equity & Liabilities 27,520 10,000

(a) On 01.04.2023, S Ltd. had 400 lakh shares of ₹ 10 each and ₹ 3,000 lakh in its
Retained Earnings in Other Equity. H Ltd. acquired 80% share of S Ltd. on
01.04.2023 at a consideration of ₹ 5,800 lakh payable in cash.
(b) The aggregate identifiable net assets of S Ltd. as on 01.04.2020 included PPE and
inventory standing in the books of S Ltd. at ₹ 2,500 lakh and ₹ 500 lakh having fair
value of ₹ 2,800 lakh and ₹ 200 lakh respectively. The rate of depreciation on PPE
is 10% p.a.
(c) NCI was to be measured at fair value based on the purchase consideration.
(d) Goodwill was impaired by ₹100 lakh.
(e) H Ltd. sold goods worth ₹200 lakh to S Ltd. on credit at a profit of 20% on sales.
50% of the goods were still laying unsold.
(f) S Ltd. issued a cheque of ₹40 lakh in favour of H Ltd. as a part payment of the
goods purchased from it in March, 2024. The cheque is yet to be received by H Ltd.
(g) Dividend payable represents the dividend declared out of pre-acquisition profit. H
Ltd. credited its share of dividend from S Ltd. to its profits.
Prepare the Consolidated Balance Sheet of the Group on 31.03.2024.

CA BISHNU KEDIA 37 Important Questions

CORPORATE FINANCIAL REPORTING

Solution:
Share of Parent Co. (%) in subsidiary co. on consolidation date 80%
Share of NCI (%) in subsidiary co. on consolidation date 20%
Date of Acquisition 1st April 2023
Date of Consolidation 31st March 2024

Statement of Net Assets of S Ltd.

Particulars Date of Post 31st
Acquisition Acquisition March
2024
Equity Share Capital 4,000 - 4,000
Retained Earnings 3,000 2,000 5,000
7,000 2,000
Dividend - 400
Add/ Less: Changes in Fair Value
+ PPE 300
(-) Stock (300)
(-) Depreciation (300*10%) (30)
+ Consequential effect on sale of stock 300
Total 7,000 2,670
Parent's Share (H Ltd.) - 80% 2,136
Minority's Share - 20% 534

Calculation of Unrealised Gain on Inventory

(Downstream)
Inventory lying in stock of S Ltd. (200*80%*50%) 80
Unrealised gain (80*25%) 20

Calculation of NCI
NCI on Acquisition Date (S Ltd.) (5800/80%*20%) 1,450
Add: Share of NCI in Post Acquisition Reserves of S Ltd 534
Less: Dividend (400*20%) (80)
Less: Impairment of Goodwill (20)
NCI on Consolidation Date 1,884

Calculation of Goodwill or Capital Reserve

Purchase Consideration 5,800
Add: NCI on Acquisition Date 1,450
Less: Net Assets taken over of acquiree company (7,000)
Less: Impairment (100)
Goodwill/ (Capital Reserve) 150

CMA Final – Dec 24 38 CA BISHNU KEDIA

 CMA Final - CFR
Calculation of Consolidated Equity
Retained Earnings 16,320
Add: Post Acquisition share in profits 2,136
Less: Dividend (400*80%) (320)
Less: Unrealised Gain on sale of inventory (20)
Less: Impairment of Goodwill (100*80%) (80)
Consolidated Equity 18,036

Consolidated Balance Sheet

Amount
Particulars H Ltd. S Ltd. Adjustment (Rs. In
Lakhs)
I. Assets
(1) Non-Current Assets
(i) Property, Plant & Equipment 14,800 6,000 300-30=270 21,070
(ii) Goodwill 150
(iii) Financial Assets
Investment in S Ltd. 5,800 - -
(2) Current Assets
(i) Inventories 2,600 2,000 (20) 4,580
(ii) Trade Receivables 4,000 2,000 (160) 5,840
(iii) Dividend Receivable 320 - -
(iv) Cash & Cash Equivalents - - 40 40
Total Assets 27,520 10,000 31,680

II. Equity and Liabilities

(1) Equity
(i) Equity Share Capital 10,000 4,000 10,000
(ii) Other Equity (Retained
16,320 5,000 18,036
Earnings)
(2) Non-Controlling Interest 1,884
(3) Non-Current Liabilities - - -
(4) Current Liabilities
(i) Trade Payables 1,200 600 -120 1,680
(ii) Dividend Payable - 400 -320 80
Total Equity & Liabilities 27,520 10,000 31,680

CA BISHNU KEDIA 39 Important Questions

CORPORATE FINANCIAL REPORTING

June 24 Q 8c
On 01.04.2022, H Ltd. acquired 75% shares of S. Ltd. in cash at a premium of ₹500
lakh over market price per share of ₹26 each. i.e., at a fair value of ₹20,000 lakh. On
that date, S Ltd. had an issued and subscribed capital of 1,000 lakh shares of ₹10 each
fully paid and a balance of ₹10,000 lakh in its retained earnings under Other Equity.
The aggregate identifiable net assets of S Ltd. as on 01.04.2022 included an item of PPE
whose fair value was lower than the book value by ₹1,200 lakh. For other items, book
value and fair value were same. NCI was valued at fair value calculated at the market
price per share.
Determine the NCI and Goodwill on the date of acquisition. If the goodwill is impaired
by ₹1,540 lakh on 31.03.2023, how will the impairment loss be shared by H Ltd. and
NCI?

Solution:
On the date of Acquisition - 01-04-2022

Calculation of Goodwill Details Rs Lakhs

Purchase Consideration given 20,000
Add: NCI on acquisition date Note 1 6,500
Less: Identifiable Net Assets on acquisition date Note 2 18,800
Goodwill on the date of acquisition 7,700

Note 1
Calculation of NCI Details
No. of shares held by NCI (No. Lakhs) 1000*25% 250
Market price per share (Rs.) Given 26
Non-Controlling Interest 6,500

Note 2
Calculation of INA Details Rs Lakhs
Equity share capital Given 10,000
Retained Earnings Given 10,000
Less: Decrease in FV of PPE Given -1,200
Identifiable Net Assets on acquisition date 18,800

On 31-03-2023
Calculation of share of Goodwill impairment loss Details Rs Lakhs
H Ltd’s share = 1540 X 76.62% 1,180
NCI’s Share = 1540 X 23.38% 360

CMA Final – Dec 24 40 CA BISHNU KEDIA