Time: 1 hr 15 mins

FINANCIAL STATEMENT ANALYSIS 40 MARKS SUGGESTED ANSWERS TO CP 2 (Numericals carry 2 marks each, Remaining 1 mark each)

1. On January 1, 2010, Swan Ltd. buys 90,000 shares of Duck Ltd.s common stock for Rs.5,40,000, the book value of the shares. This purchase gave Swan Ltd. 30% ownership in Duck Ltd. and the ability to significantly influence operating and financing decisions. During 2010, Duck Ltd. reported net income of Rs.3,00,000 and paid Rs.0.75 per share dividend. The balance in Investment account (accounted for under equity method of accounting for investment at December 31, 2010) is a. Rs.5,40,000 b. Rs.7,72,000 c. Rs.5,62,500 d. Rs.2,40,000 e. Rs.8,40,000. (c) Cost of purchase Rs.5,40,000 Add: Income accrual (Rs.3,00,000 x 30% ) Rs. 90,000 Less: Dividend received (Rs.90,000 x Rs.0.75) Rs. (67,500) = Investment in Brooke Ltd. Rs.5,62,500 2. An investment classified as trading security is to be reflected in the financial statement at its a. Fair value b. Cost to acquire the assets c. Accumulated income minus accumulated dividends minus acquisition d. Face value e. Lower of cost or market. (a) As per SFAS-115, trading securities are held principally for sale in the near term. These include debt as well as equity securities with easily available fair values. 3. Following information is available for the debt securities of Fox Company at the end of the 2nd and 3rd financial year. These securities were purchased on 1st April, 2009. They have no other investments. 31st March, 2010 Amortized Cost Fair Value Tisco Bonds 3,29,052 3,36,600 Telco Bonds 4,09,928 4,10,400 Reliance 6,11,570 5,70,400 Total 13,50,550 13,17,400 31st March, 2011 Tisco Bonds 3,05,130 2,95,200 Telco Bonds 3,87,600 4,09,000 Reliance 5,78,260 5,82,800 Total 12,70,990 12,87,000

The amounts reported in Income Statement and reported in Equity section for 2010-11 are Assume all the securities Income Statement Equity Section for both the period are: Nil Rs.30,400 unrealized loss Available For Sale Nil Nil Held to Maturity Rs.30,400 unrealized loss Nil Trading 4. East India Company leased a new machine from North Asia Company on May 1, 2010 for 10 years with annual lease payments of Rs.40,000 at the start of each lease year. The machine has an estimated useful life of 12 years. The appropriate discount rate to be used is 14% and the present value of Re.1 for 10 periods at 14% is 0.27. The present value of an annuity of Re.1 for 10 periods at 14% is 5.95. The lease contract included a residual value guarantee of Rs.50,000. East India should record a capitalized leased asset on their books at a. Rs.2,15,500 b. Rs.2,51,500 c. Rs.2,38,000 d. Rs.2,24,500 e. Rs.2,11,500. (b) Since it is guaranteed, the Rs.50,000 residual value is discounted as a lump sum for 10 years at 14%. The Rs.40,000 lease payment is an annuity that is discounted. The correct computation is [(Rs.50,000 x 0.27) + (Rs.40,000 x 5.95)] = Rs.13,500 + 2,38,000 or 2,51,500.

5. . On 1st April, 2009, Tiger Ltd. signed a 5-year non-cancelable capital lease contract with annual rental payment of Rs.1,00,000, starting from 31st March, 2010. The present value of 5 years rental value is Rs.3,79,000 as on 1st April, 2009 at 10% interest rate. As a lessee, the interest expenses reported by Tiger Ltd. for the year ended 31st March, 2010 will be a. Rs.37,900 b. Rs.27,900 c. Rs.24,200 d. Rs.25,100 e. Nil. (a) At the inception of the lease, the asset is to be recorded Rs.3,79,000, the present value of the lease payments. Since the first lease payment is due on 31st March, 2010, the interest amount is to be charged on the full value of Rs.3,79,000 at 10% i.e. Rs.37,900.

6. Which of the following ratios or group of ratios deteriorate(s) over the lease term when a firm structures its leases as capital leases rather than operating leases? a. The current ratio, debt-to-equity ratio, and return on assets ratio. b. No ratios deteriorate. 2

c. d. e.

The current ratio only. The current ratio and debt-to-equity ratio. The working capital ratio only.

(a) Short-term-liabilities increase for the current principal portion of the lease payment, so the current ratio deteriorates. Long-term liabilities increase, so the debt-to-equity ratio increases, which is unfavorable. The return on asset (ROA) ratio declines because total assets increase. 7. Cheeta Co. issued a three years bond with a face value of US$100,000 having a coupon rate of 10% payable semi-annually, while the market rate is 8%. What would be the proceeds received from the issue of the bond and the Interest expense for the first year. a. $100,000 and $5,000 b. $105,242 and $ 4,210 c. $100,000 and $5,705 d. $105,242 and $ 5,000 e. $95,083 and $ 5,705 Solution : (b) Calculation of proceeds : Present Value of annuity of $5,000 for 6 periods, discounted at 4% $5,000 x 5.2421 = $ 26,211 Present value of $100,000 in 6 periods at 4% $100,000 x 0.79031 = $79,031 $105,242 Amortisation schedule : Interest Op.Liability Exp 1 2 3 4 5 6 105242.0 104451.7 103629.7 102774.9 101885.9 100961.4 4209.7 4178.1 4145.2 4111.0 4075.4 4038.5 24757.8 Coupon Pay 5000.0 5000.0 5000.0 5000.0 5000.0 5000.0 30000.0 Chg in Liabi -790.3 -821.9 -854.8 -889.0 -924.6 -961.5 -5242.2 Closing Liab FMV Premium 105242.0 100000.0 5242.0 104451.7 100000.0 4451.7 103629.7 100000.0 3629.7 102774.9 100000.0 2774.9 101885.9 100000.0 1885.9 100961.4 100000.0 961.4 99999.8 100000.0 -0.2

Year

8. Ostrich Co. issued a US$100,000 equivalent local currency three years (semi- annual) zero coupon bond priced to yield 10% at maturity. What is the amount at which the liability is accounted for at the date of issue and what is the amount of closing liability reflected in the Balance Sheet at the end of third Year? a. $100,000 and $74,622 b. $78,353 and $100,000 c. $74,622 and $100,000 d. $74,622 and $ 86,384 e. $100,000 and $86,384

Solution (c ). Present value of $100,000 for 3 years at 10% discount rate = 100,000 x 0.74622 = $ 74,622
Interest Exp 3731.1 3917.7 4113.5 4319.2 4535.2 4761.9 25378.6 Coupon Chg in Pay Liabi 0.0 0.0 0.0 0.0 0.0 0.0 3731.1 3917.7 4113.5 4319.2 4535.2 4761.9 25378.6 Closing Liab FMV Discount 74622.0 100000.0 -25378.0 78353.1 100000.0 -21646.9 82270.8 100000.0 -17729.2 86384.3 100000.0 -13615.7 90703.5 100000.0 -9296.5 95238.7 100000.0 -4761.3 100000.6 100000.0 0.6

Year Op.Liability 1 2 3 4 5 6 74622.0 78353.1 82270.8 86384.3 90703.5 95238.7

9. The push-down concept of accounting is to reflect a revaluation based on a. Price paid for some or all of its shares by the acquirer b. Book value of net assets acquired c. Fair market value of the net assets acquired d. The percentage of control acquired e. Historical cost of net assets acquired. (a) The push-down concept of accounting is to reflect a revaluation of the assets and/or liabilities of the acquired company on its books based on price paid for some or all of its shares by the acquirer.

10. Which of the following best describes the lessees incremental borrowing rate in accordance with SFAS-13? a. The lessors rate of return implicit in the lease payments. 4

The rate the lessee would likely have paid if it had purchased the asset with external financing. c. The average rate on ten-year Aa rated bonds. d. The prime rate of borrowing plus 2%. e. The prime rate of borrowing plus 5%. (b) SFAS No.13 defines the lessees incremental borrowing rate as that which the lessee would have incurred to borrow the funds necessary to buy the asset on a secured loan basis. 11. Lock Ltd. floated a joint venture with Key Ltd. on 1:1 basis. A new venture Both Ltd. is floated. Balance sheet of three companies as on 31.03.2009 are given below: Lock Ltd. Key Ltd. (Rs.) Both Ltd. (Rs.) (Rs.) Share capital 14,000 10,000 4,000 Reserves & Surplus 24,000 26,000 2,000 Secured Loans 14,000 10,000 8,000 Total Sources 52,000 46,000 14,000 Fixed Assets Net 36,000 40,000 10,000 Investment in Joint 2,000 2,000 Venture Net Current Assets 14,000 4,000 4,000 Total Applications 52,000 46,000 14,000 The secured loans and Current Assets appearing in Consolidated Balance Sheet of Key Ltd. Is a. Rs.14,000 and Rs.14,000 b. Rs.24,000 and Rs. 18,000 c. Rs.18,000 and Rs.14,000 d. Rs.18,000 and Rs.16,000 e. Rs.14,000 and Rs.6,000 Solution (e).
Proportionate Consolidation Method Lock Ltd. (Rs.) 14,000 25,000 26,000+1,000 18,000 10,000+4,000 57,000 41,000 40,000+5,000 16,000 57,000 4,000+2,000 Key Ltd. (Rs.) 10,000 27,000 14,000 51,000 45,000 6,000 51,000

b.

Share capital Reserve & Surplus Secured Loans Total Sources Fixed Assets Net Investment in Joint Venture Net Current Assets Total Applications

24,000+1,000 14,000+4,000 36,000+5,000 14,000+2,000

12. Unearned finance income is the difference between 5

The gross investment in the lease and the net investment in the lease The aggregate of the minimum lease payments from the standpoint of lessor and the present value of the minimum lease payments at the interest rate implicit in the lease c. The gross investment in the lease and carrying amount of the leased property d. The net investment in the lease and the present value of the net investment in the lease at the interest rate implicit in the lease e. The aggregate of the minimum lease payments under a finance lease and any unguaranteed residual value accruing to the lessor (c) Unearned finance income is the difference between i. The aggregate of the minimum lease payments under a finance lease from the standpoint of the lessor and any unguaranteed residual value accruing to the lessor. This is also called Lessors gross investment in the lease. And the carrying amount of the leased property/ the cost 13. On 1st April, 2009, Zebra Company paid Rs.14,00,000 to acquire 2,00,000 shares of Deer Company to get 30% share of Deers outstanding shares. Zebr a Company made the following computation: Rs. Purchase price paid 14,00,000 30% equity in carrying amount of Doubts net 10,00,000 assets Excess cost over the carrying amount 4,00,000 The excess cost paid over the acquired net assets is termed as goodwill and it would be amortized over 20 years. The net income of the Deer Co. on 31st March, 2010 was Rs.6,00,000 and the company paid an interim dividend of Rs.2,00,000 on 1st October, 2009. If Zebra Company exercised significant influence over Deer Co. and the investment has been accounted for as a long-term investment under the equity method then the amount of net investment revenue Zebra Company should report from its investment is a. Rs.60,000 b. Rs.1,20,000 c. Rs.1,60,000 d. Rs.1,80,000 e. Rs.2,00,000. (d) As per the equity method the Zebra Company should recognize 30% of total income of Deer Company i.e., 30% of Rs.6,00,000 = Rs.1,80,000. The goodwill is also not amortized as per SFAS-142, thus the net income from investment would be Rs.1,80,000 only. The dividend income should be used to reduce the carrying amount of the investment and an increase in cash or bank. 6

a. b.

14. On 1st April, 2010, Giraffe Company leased three cars from Jessop Automobiles for five years with an equal annual rent of Rs.50,000 to be made on 1st April of each year. Giraffe guaranteed Rs.20,000 as a residual value to Jessop Automobiles at the end of the lease period. The lease fulfills all criteria as capital lease and the implicit rate is considered as 9%. Present values of 9% for different periods are For an annuity due with 5 payments 4.240 For an ordinary annuity with five payments 3.890 Present value of Re.1 for 5th period 0.650 Giraffes recorded capital lease liability immediately after the first require d payment should be a. Rs.2,25,000 b. Rs.1,75,000 c. Rs.2,07,500 d. Rs.1,87,500 e. Rs.2,02,500. (b) Before the payment was made on 1st April, 2010, the initial lease liability will be the present value of the five years lease rental together with the present value of the residual value i.e. Rs.(50,000 x 4.240 + 20,000 x 0.6500) = Rs.2,25,000. The payment made on 1st April, 2010, should be excluded from this value and the capitalized liability will be Rs.(2,25,000 50,000) = Rs.1,75,000. 15. The formula for the computation of interest on debt to be recorded by interest method is a. Effective market rate of interest x Net book value b. Effective market rate of interest x Gross book value c. Imputed interest rate x Net book value d. Imputed interest rate x Gross book value e. Discount rate x Gross book value. (a) Interest to be recorded under the interest method is always computed by Effective interest x Net book value. This formula is true for all applications of the interest method. The effective rate of interest times net book value is the actual interest revenue or expense for the period. Interest accrues at the effective market rate of interest multiplied by the Net book value.

16. Peacock Park Inc. started 2010 with two assets: Cash of 60,000 and Land which originally cost 100,000 when acquired on June 30, 2008. On August 18, 2010, the company rendered services to a customer for 160,000, an amount that was immediately paid-in cash. On November 15, 2010, the company incurred an operating expense of 26,000, which was 7

immediately paid. No other transactions occurred during the year. Currency exchange rates were as follows: Date Spot rate June 30, 2008 0.0080 = 1 January 01, 2010 August 18, 2010 November 15, 2010 December 31, 2010 1.0084 = 1 0.0090 = 1 0.0096 = 1 0.0102 = 1

Average for 2010 0.0098 = 1 Assume that this company is a Japanese subsidiary of an American company. Also assume that the US dollar is the functional currency of the parent and the subsidiary so that remeasurement is required. What is the remeasurement gain or loss for 2010? a. $210.40 b. $243.10 d. $ 134.40 c. $284.40 e. $132.50 (c) since land will be at historical rate, there is no translation gain or loss. The translation gain or loss is on account of monetary assets only. Net monetary assets cash 60,000 x $ 0.0084 $ 504.00 $ 1440.00 $ (249.60)

Increase in monetary asset revenue 160,000 x $ 0.0090 Decrease in monetary assets expense Net monetary assets @ Dec. 31, 01 Monetary assets are translated at Current Rate on Dec 31 Remeasurement gain 194,000 x $ 0.0102 (26,000) x $ 0.0096

$1694.40 $1978.80

$ 284.40

17. When a bond issue sells for less than its face value, the market interest rate is a. Dependent on the stated rate of interest b. Higher than the stated rate of interest c. Equal to the stated rate of interest d. Less than the stated rate of interest e. None of the above. (b) If the market rate exceeds the stated rate then the bond is said to sell less than its face value, i.e. at a discount.

18. Adolf Inc. (a German based company, whose functional currency is Deutschemark) is a subsidiary of Parklane Inc., a US based company. Parklane Inc. acquires inventory on October 10, 2009 for 150,000 DMs which is sold on January 10, 2010 for 200,000 DMs. Collection of the money takes place on February 10, 2010. Applicable exchange rates are as follows: Date Spot rate October 10, 2009 0.5075 = 1 DM December 31, 2009 0.5050 = 1 DM January 10, 2010 0.5000 = 1 DM The amount reported (the company uses Current Method) for this inventory on December 31, 2009 in the balance sheet of Parklane Inc. is a. $76,125.00 b. $75,750.00 c. $75,000.00 d. $75,937.50 e.$100,000 (b) A translation is appropriate since the DM is the functional currency of the subsidiary. Application of current method implies all assets are translated and reported using the current exchange rate, as of the balance sheet date. Translated value at December 31, 2009 = (150,000 DMs x $ 0.5050) = $ 75,750

19. As per SFAS 52, which method is applicable for translating the financial statements by foreign subsidiaries of US parent companies when the foreign entitys books and records are not maintained in functional currency? a. Remeasurement Method, with the Translation Gain or Loss to be reported as part of Comprehensive Income. b. Current Rate Method, with the Cumulative Translation Adjustment to be reported as part of Comprehensive Income. c. Remeasurement Method, with the Translation Gain or Loss to be reported as part of Net Income. d. Current Rate Method, with the Cumulative Translation Adjustment to be reported as part of Net Income. e. Equity Method, with the Translation Gain or Loss to be reported as part of Noncontrolling Interest in Subsidiary. (c) Remeasurement method is sometimes referred to as the monetary/non-monetary method. This is the approach required by SFAS-52 when the foreign entitys books and records are not maintained in the functional currency. Re-measurement gains and losses are taken immediately to the income statement

in the year in which they occur as they can be expected to have direct cash flow effects. They are not deferred in a translation adjustments account. 20. Bull Company is engaged in the business of leasing computer under direct financing lease. These computers have no residual value at the end of the lease period and lessee has no bargain purchase option. Bull Co. wants to earn 8% return on investment with a fair value of Rs.3,23,400. Total amount of interest revenue earned by Bull Co. over the life of the lessee will be (Assume that the present value on a 5-year lease of an annuity of Re.1 is 4.312) a. Rs.52,600 b. Rs.75,000 c. Rs.1,29,360 d. Rs.1,39,450 e. Rs.51,600. (e) The annual lease payment is Rs.75,000 (Rs.3,23,000/4.312). Bull Company will receive 5 x Rs.75,000 = Rs.3,75,000 over the five years. Thus the interest revenue will be the excess of lease payment over the present value of the asset i.e. Rs.(3,75,000 3,23,400) = Rs.51,600. 21. Which of the following is false in the case of Direct Finance Lease a. A sale is recognized at the inception of the lease b. No manufacturer profit is recognized c. Only financing income is recognized d. Unearned income is amortised to report a constant periodic return on the net investment in the lease e. No sale and no dealers profit is recognized.

Ans. A.

22. In case of transfer of debt securities from held-to-maturity portfolio to available-for-sale portfolio, which of the following statements is true? a. b. c. d. e. The unrecorded unrealized gain or loss will be added to the appropriate accumulated other comprehensive income account at the date of transfer. Securities must be restated to fair value. There will be no effect as securities are recorded at fair value. The change is to be accounted for as additional premium or discount. Both (a) and (b) above.

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(e) As per SFAS-115, if the debt security is transferred from held-to-maturity to the available-for-sale portfolio, the unrealized gain or loss not previously reflected in investment account will be added to the appropriate accumulated other comprehensive income account at the date of transfer and securities must be restated to fair value. 23. Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at a. Cost b. Amortised Cost c. Fair Value d. Lower of Cost or Market e. Higher of cost or Market (b). SFAS 115 requires that investments in debt securities be classified as held to maturity and measured at amortised cost in the balance sheet if the reporting entity has the positive intetn and ability to hold to maturity. 24. A company should report the marketable equity securities that it classified as trading at a. Lower of cost or market, with holding gains and losses included in earnings b. Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses. c. Fair value, with holding gains included in earnings only to the extent of previously recognized holding losses. d. Fair value with holding gains and losses included in earnings e. Higher of cost of market with holding gains and losses included in earnings. Ans. (d). TRADING securities are those held principally for sale in near term. They consist of debt securities and equity securities with readily determinable fair values. Unrealised holding gains and losses on trading securities are to be reported in earnings. 25. Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should be a. Disclosed but not accrued as a liability b. Disclosed and accrued as a liability c. Accrued as a liability but not disclosed d. Neither accrued as a liability nor disclosed. e. Any of the above. Ans. (a). A contingent loss that is reasonably possible but not probable is disclosed but not accrued (SFAS 5). 26. On January 1,2010, Moti Co. signed a 7 year lease for equipment havinga 10 year economic life. The present value of the monthly lease payments equaled 80% of the equipments fair 11

value. The lease agreement provides for neither a transfer of title to Moti nor a bargain purchase option. In its 2010 income statement, Moti Co. should report a. Rental expense equal to the 2010 lease payment b. Rental expense equal to the 2010 lease payment minus interest expense c. Lease amortization equal to 1/10th of the equipments fair value d. Lease amortization equal to 1/7th of 80% of the equipments fair value. e. Lease amortization equal to 80% of the equipments fair value. Ans. (a). The lease is not a capital lease as it does not fulfill any of the prerequisites. It is a operating lease. Under an operating lease , the lessee recognizes periodic rental expense but records neither an asset nor a liability. 27. Beans Inc. intends to lease a machine from Parkins Inc. Beans Inc. incremental borrowing rate is 14% . The prime rate of interest is 8%. Parkins implicit rate in the lease is 10% which is known to Beans Inc. Beans. Inc. computes the present value of the minimum lease payments using a. 8% b. 10% c. 12% d. 14% e. 13% Ans. (b). According to SFAS 13, a lessee in should compute the present value of minimum lease payments using its incremental borrowing rate unless the lessee knows the lessors implicit rate or implicit rate is less than the lessees incremental borrowing rate. 28. Bettle Inc. purchased 30% of Settle Inc.s outstanding common stock on December 31,2010 for $200,000. On that date Settle Inc.s equity was $500,000 and the fair value of the net assets were $600,000. On December 31,2010 , what amount of goodwill should Bettle Inc. attribute to this acquisition? a. $0 b. $20,000 c. $30,000 d. $50,000 e. $100,000 Ans. (b). Investment = $200,000 Less 30% of $600,000 = $180,000 Goodwill = $20,000 29. Consolidated financial statements as per AS-21 are financial statements of a. b. c. d. A group An enterprise A parent company and one subsidiary company A company and a partnership firm 12

e.

Two joint venture companies.

Ans (a) As per para 5 of AS-21, Consolidated financial statements are the financial statements of a group presented as those of a single enterprise. A group companies a parent and all its subsidiaries.

30. As per AS-11, foreign operations are classified as a. Internal foreign operations and external foreign operations b. Resident and non-resident foreign operations c. Integral foreign operations and non-integral foreign operations d. Integral foreign operations and external-foreign operations e. Either (a) or (d) above. (c) The method used to translate the financial statements of a foreign operation depends on the way in which it is financed and operates in relation to the reporting enterprise. For this purpose, foreign operations are classified as either integral foreign operations or non-integral foreign operations. That is, for the purpose of accounting, AS-11 (Revised) requires classification of foreign operations as those that are part of the enterprise termed integral foreign operations and those that are largely independent termed non- integral foreign operation. 31. As per AS-11, a transaction in foreign currency is recorded initially in financial records of an enterprise at a. b. c. d. e. Spot rate Average rate Notional rate Market rate Book value.

(a) As per para 9, a foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.(what is commonly called the spot rate. Note: AS-11 (Revised 2003) does not use this term spot rate. Alternatively average rate for the week or a month can be used if there is no significant fluctuation in the exchange rate.

32. A fixed charges coverage ratio of 4 signifies a. b. Pre-tax operating income is 4 times all fixed financial obligations Post-tax income plus depreciation is 4 times all financial obligations 13

c. d. e.

Pre-tax income before lease rentals is 4 times all fixed financial obligations Post-tax income less preference dividends is 4 times all fixed financial obligations Post-tax income plus debt interest and lease rentals is 4 times all fixed financial obligations.
Income before Interest and Tax Interest Charges =

(a) Fixed charge coverage ratio Pre-tax operating income Fixed financial obligations

= Income before Interest and tax = Fixed interest charges

Post-tax Operating Income = Financial Obligations

Therefore fixed coverage ratio

4 4 x Financial obligation = Post-tax operating income

Post-tax Operating Income = Financial Obligations

Therefore, post-tax operating income is 4 times all fixed financial obligations 33. The return on net worth ratio is obtained by dividing the net profits by a. b. c. d. e. Equity share capital Proprietors, funds (share capital both equity and preference and all accumulated profits) Only accumulated profits Net working capital All profits.

(b) Proprietors fund represents the sum of equity share capital, preference share capital, reserves and surplus minus accumulated losses. Return on net worth/proprietors fund ratio indicates the rate of the earning capacity of the firm. It indicates whether the proprietors funds has been used properly or not. The higher the ratio, the greater will be the return for the owners and the better the profitability. This ratio is also called Earning ratio. 34. Compute the NOPAT of Veda Inc. for 2010 and 2011 from the following information pertaining to 2009 2009 Other Information Net Income before Tax 28,000 Average Growth 18% R&D expensed in P& L 20,000 Average growth 17% Consumer Advertisement 50 Average Growth 10% Net Operating Assets 1,10,000 Average Growth 18% The company currently expensed its R&D expenses. However R&D would be amortised for 4 year period for EVA purpose. Also, Consumer advertisement which is currently expensed is to be amortised for 2 years for computation of EVA.

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a. b. c. d. e.

Rs.33040 and Rs.38987 Rs.48050 and Rs.56495 Rs.43025 and Rs.45592 Rs.56495 and Rs.66425 Rs.45592 and Rs.48673

Ans. E. 2009 Operating Profits Add bac k R&D Cons Advt Less Amor R&D Amor Cons NOPAT 28000 20000 50 48050 5000 25 43025 2010 33040 23400 55 56495 10850 52.5 2011 38987.2 2012 46004.9

27378 32032.26 60.5 66.55 66425.7 78103.71 17694.5 25702.57 57.75 63.525

45592.5 48673.45 52337.62

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