Indian Institute of Management Kashipur

Programme : PGP (2018 - 20) Date : 14/08/2018

Exam : Mid - Term Duration : 2 hours
Course : Financial Reporting and Analysis Marks : 50
Note:

 Please write all the figures in Rs lacs with two decimal places.
 Exam an open book exam. You may carry your text book (AHM) and reading material distributed
by PGP in examination hall. Personal notes are not allowed.
 You may use calculator but use of laptop is not allowed.
 Prepare the financial statement in the given format in annexure. Please maintain the sequence of
items to given in each financial statement.
Kashi Enterprises Pvt Ltd is a well-known manufacturer of wooden furniture in Kashipur, Uttarakhand.
The business was started by Mr Kashi Prasad Gupta about three decades back as a proprietary firm. The
firm earned a good reputation over the years and expended its business. To meet out the financial
requirements for its expansion, Mr Gupta invited his close friends and relatives to invest in business and
converted the firm into Pvt Ltd company. During 2017-18, the company admitted more shareholders and
sold 10,00,000 shares of Rs 10 each at Rs 22.
The company recently recruited Mr Navin Kumar, a Commerce Graduate, as accountant and assigned him
the task to prepare the annual financial statements of the company. Navin found some of the transactions
difficult to treat, but using best of his understanding and acumen, he prepared the financial statement
presented in Annexure. After a close scrutiny of the transactions, the auditor of the company revealed the
following facts:
1. Company purchased a building with land for Rs 85 lakh on April 1, 2017. The value of the land
attached with this building is Rs 20 lakh. Company spend Rs 5.00 lakh (Rs 2.00 lakh on material
and Rs 3.00 lakh on labour) to make building fit its intended use. Building is subject to depreciation
at the rate of 10%. Navin made the following calculations (amounts in Rs Lakhs):
Building Account
Balance b/f 85
New Building Purchased 85
Total 170
Depreciation (10% on WDV) -17
Written Down Value 153

He included the material cost to the cost of Raw Material Consumed and the labour cost to Direct
Labour in Statement of Profit and Loss.

2. Navin made the following calculation for plant and Machine:

Plant and Machine Accounting
Balance b/f 348
Machine Sold -88
260
New Machine Purchased 440
Total 700
Depreciation (20% on WDV) -140
Written Down Value 560

1
 The machine which was sold, was purchased last year for Rs 100 lakh; its written down value was
Rs 80 lakh on March 31, 2017. Machine was sold for Rs 88 lakh in April 2, 2017 and a new machine
was purchased on the same day for Rs 440 lakh. 20% depreciation is charged on written down
value of plant and machinery.
3. The company has appointed franchisees in different cities. They are supplied furniture at list price.
The list price is decided after adding 40% mark-up on the cost of furniture. They sell the furniture
and send a statement of sales back to the company. They are paid 15% commission on sales. After
deducting their commission, they remit the sales proceeds to the company. The commission is
included in ‘sales and distribution expenses’. On March 31, 2018, furniture of Rs 70 lakh (list
price) was still unsold with franchisees. Navin treated this amount as credit sales and added this
amount to Revenue and Trade Receivables in financial statements.

4. Some furniture was returned by the customers as it was found defective. This defective furniture
is still laying as inventory. The cost of the furniture is Rs 25 lakh but the marketing executives of
the company are of the view that this piece of furniture can be sold only at Rs 10 lakh. Navin
included this piece of furniture in closing inventory at its cost.

Required:

1. What accounting treatment you recommend for above four items as per Ind AS. These information
may affect all financial statement, plz specify the impact on all statements separately.
(5 x 4 = 20 Marks)
2. Prepare revised Balance Sheet, Statement of Profit and Loss and Cash flow Statement making
corrections as per your recommendations in above (1). – (10 x 3 = 30Marks)
(Please prepare the correct financial statement in the same format as given in Annexure)

Annexure

Balance Sheet of Kashi Enterprises Pvt Ltd as on 31st March

(All the figures are in Rs Lakhs)
Equity and Liability 2018 2017 Assets 2018 2017
Equity: Fixed Assets:
Share Capital 500 400 Land 56 56
Retained Earnings 472 378 Building 153 85
Capital Reserve 120 - Plant and Machinery 560 348
Long-Term Liability: Investments 250 250
Long Term Loans 70 74 Current Assets:
Short Term Liability: Inventory 115 132
Trade Payable 87 78 Trade Receivable 168 85
Dividend Payable 12 10 Cash and Bank Balance 15 36
Provision for Tax 56 52
1317 992 1317 992

2
 Statement of Profit and Loss of Kashi Enterprises Pvt Ltd
for the year ended on 31st March 2018
(All the figures are in Rs Lakhs)
Revenue 3308
Cost of Goods Sold:
Material cost and purchases 1268
Direct Labour 876
Factory Expenses 452
Stock Adjustment (Opening Inventory- Closing Inventory) 17
Depreciation on Plant and Machinery 140 2753
Gross Margin 555
Office and Administrative Expenses 94
Sales and Distribution Expenses 276
Depreciation on Building 17
Interest Paid 8 395
Income before Tax 160
Provision for Tax 54
Profit After Tax 106

Cash flow Statement of Kashi Enterprises Pvt Ltd

for the year ended on 31st March 2018
(All the figures are in Rs Lakhs)
Cash Balance at the beginning 36
Cash from Operating Activities:
Profit before tax 160
Add: Depreciation 157
Add: Interest Paid 8
Change in Current Assets:
Inventory 17
Trade Receivable -83
Change in Current Liability:
Trade payable 9
Cash from operation before tax 268
Tax paid 50 218
Cash from Investing Activities:
Sale of Plant and Machinery 88
Purchase of Plant and Machinery -440
Purchase of Land and Building -85 -437
Cash from Financing Activity:
Issue of New Equity Shares 220
Long Term Loans Paid -4
Interest Paid -8
Dividend Paid -10 198
Net Change in Cash -21
Cash Balance at the end 15