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Advance payment invoice format for Management

okay back I hope the screen and video both of them are visible good morning once again and today as a part of our marathon we will start with one of the most important chapters again that is Consolidated financial statement now this has been tested almost every attempt and there's no exception to it uh just that in the September 24 attempt they didn't ask a full balance sheet but it is a very very important chapter as far our examination is concerned 14 marks is a definite question plus another two to four marks you may get in terms of McQ and we should not be scared of this chapter we should learn it in a way such that we are able to score maximum in this particular chapter out of 14 I'll tell you the breakup of marks and how we can score at least 10 to 12 marks easily in this particular chapter now typically when it comes to consolidation question in the examination we will have a question like there are two companies a b balance sheet of both the companies are given with some assets liabilities and Equity here also we'll have assets liabilities and equity and the question would be to combine these two entities and prepare a Consolidated financial statement that is what is a requirement of the question all right now when they say prepare Consolidated financial statements in examination they want us to prepare B bance sheet this typically accounts for 3 to four marks then we will have working notes I'll come to each one of the working notes working notes generally will have four to five marks and then we'll have notes to accounts unless the question says prepare balance sheet without notes to accounts we will prepare notes to accounts and notes to accounts will have about four to five marks depending on the structure of the question now the best thing is because we have stepwise marking we can score good number in balance sheet and notes to accounts even if some of our working notes are wrong so even if you get a question where one adjustment might be tricky we should focus on attempting this question even if you want to attempt it towards the end you should attempt this question because here out of three to four marks two to three marks is easily scorable here also you can score two to three marks easily just by preparing the balance sheet and notes to accounts because of stepwise marking okay now coming to the question in the examination how we should approach this particular question on consolidation so we have balance sheet of two entities given in the question first thing we need to decide what is the payment done or what is what we call as purchase consideration which is made by the holding company to the subsidiary company or to the owners of subsidiary company or to acquire the subsidiary company this is the first step we need to do now this will be given to you in the question so no need to worry about that right then second thing that we need to do is compute the net assets or Equity plus free acquisition reserves so typically what happens is we have a holding company we have a subsidiary company say for example holding company has 75% stake in subsidiary company means holding company can make decisions on behalf of subsidiary company holding company can get subsidiary company to do certain things so the 75% holding whenever it is there we say HED controls s h controls s now when 75% is held by H what about the balance 25% this balance 25% is held by something called as minority interest minority interest interest all right now H to acquire s will make certain payment assume for a moment the payment is 10,000 how to do and all of that we'll come with specific questions and we're discuss in that H made a payment of 10,000 to acquire let us say 75% of s and the net assets and the net assets on the date of acquisition on date of acquisition of s is say 12,000 is how much 12,000 so what has happened H has 75% control over s h paid 12,000 to acquire 75% sorry Edge paid 10,000 to acquire 75% and the net asset on the balance sheet is net asset on the balance sheet is 12,000 net asset on the balance sheet is 12,000 now s net asset on date of acquisition is equal to 12,000 this represents 100% this represents 100% whereas our share the holding company share that you say just just allow me a minute pencil gotg even though I put it on charge in the morning so s has net asset on the date of acquisition the net asset of s is 12,000 this represents 100% now how much that holding company control holding company has 75% minority interest has 25% so what do we do out of this 12,000 we say that 75% 75% belongs to the holding company 75% belongs to the holding company so 12,000 multiplied by 75% when I do we get 9,000 so as on date of of acquisition H has 9,000 worth of Interest or H has net asset worth 9,000 in s or we can say if s has to liquidate H will get 9,000 now for this 9,000 how much did we pay we paid 10,000 so if we pay if payment is greater than net asset what do we get we get something called as Goodwill we get something called as Goodwill and just a minute and if payment is less than net asset we get something called as capital reserve same concept we have learned in Amal Mission also so if you have payment which is more than net asset means the other party is worth only is worth let us say you know 12,000 out of which I have share of only 9,000 but I still paid 10,000 that 1,000 10,000 minus 9,000 this extra amount is called Goodwill of 1,000 this is the most important step in your examination this is the most important step in your examination that is dependent on first and second step now that is where we have to pay more time out so what you will do you will check the payment you will calculate net asset or Equity Plus pre-acquisition reserve on the date of acquisition that is the second thing after you are done with this the third step as we did we will calculate Goodwill or capital reserve then after that we'll calculate what is the balance of something called as minority interest so typically what happens is we said assets minus liability net asset is equal to in this case 12,000 out of this 12,000 9,000 belongs to shareholders of holding company or you can say it belongs to holding company okay then the balance 3,000 this balance 3,000 belongs to whom this belongs to something called as minority interest means the holding company the company which controls it has your 9,000 of interest and minority interest is controlling 3,000 or minority interest is I will take ,000 so out of the net assets I I mentioned here out of the net assets of the subsidiary 12,000 this out of the net asset of subsidary of 12,000 9,000 is owned or 9,000 is the ownership or the net asset belonging to holding company 3,000 is what is belonging to minority interest so next step we will calculate minority interest here we will also need to check post acquisition reserves that will come to subsequently then we need to calculate something called as Consolidated pnl balance plus Reserve balance then we need to eliminate int group transaction also unrealized profit and very important revaluation adjustment after this we just need to add balance sheets of A and B to get to the Consolidated financial statement now in this the reason why I've noted down this seven or eight steps now you might have you know learned it in a different way Institute has maybe six steps your faculty would have taught you nine steps seven steps the only thing is there has to be a framework so quickly know the payment decide how much is the net asset on date of acquisition this is very important then calculate Goodwill we'll calculate minority interest I will come to each one of this then Consolidated balance of pnl this is holding plus subsidiary post acquisition eliminate int group transaction unrealized profit any revaluation adjustment and add balance sheets of in if you are able to do this for three or four questions comfortably consolidation will not be a challenge now when we combine the balance sheet holding company has assets liability is equity share Capital reserves subsidiary company has and here we have investment in subsidiary subsidiary has equity share Capital reserves assets okay now how do we add the balance sheet for assets you will take 100% of a holding and 100% of subsidiary means assets will be 100% of A and B this is subject to revaluation adjustment so which revaluation adjustment revaluation adjustment as on date of acquisition as the first thing then liabilities also this also will have some liabilities you will take 100% so liability is also you will take 100% okay then equity share capital you will take 100% of holding plus nil from subsidiary subsidiary is share Capital you will not consider reserves you will take 100% of holding company plus out of this reserves we'll prepare one working note called as analysis of reserves what we will do is we'll split this between pre and post pre and post whatever is there in Pre that you will not consider whatever is there in post that you will consider so 100% of hge plus post acquisition profits from s that is that is only with respect to H share so if H has 75% we will take 75% of post acquisition profit of subsidiary then what about balance 25% that balance 25% will add it to something called as minority interest so what will happen is out of these reserves whatever is the postacquisition pre-acquisition the one which belongs to the minority will be added as a separate line item called minority so you'll have minority interest you will take whatever is the share 25% of equity share Capital plus reserves that is what is a minority interest right so this reserves will split between free and post and again that will split between holding and minority that is what we will do then investment in subsidiary and this equity share capital and pre-acquisition Reserve so what will happen we have investment in subsidiary we have investment in subsidiary this whatever we paid in our case it was 10,000 this will be knocked off against equity share capital and pre-acquisition Reserve now equity share capital and pre-acquisition Reserve is equal to your net ass asset that net asset was 12,000 in our case so what you will do 10,000 you will not take this investment will not come out of this 12,000 9,000 will be knocked off against the investment and 1,000 will come as Goodwill so here you will have Goodwill component so what about 3,000 of minority interest that will be added to minority interest so this is how you'll combine the balance sheet even if you are not able to do adjustments because of shortage of time just by combining the two balance sheets quickly even half of the balance sheets to two three marks you can easily score any questions so far no question okay now first step as I told you payment is very clear second step is analysis of Reserve what is this analysis of Reserve basically if you look at the balance sheet in shareholders fund of s you are just looking at reserves of subsidiary so whatever reserves subsidiary has what we need to do is we need to see what is the pre-acquisition amount and what is the post post acquisition amount okay so for example you have pnl balance you have General Reserve balance all of this how much is pre-acquisition and how much is postacquisition all right that is one thing now as far as pre-acquisition is concerned either the question will tell you that on date of acquisition pnl was some 1,000 reserves was some 2,000 for example they will tell you directly in that case what you will do let us say we have the total balance on date of balance sheet this is 5,000 this is 3,000 the question itself told you that pre-acquisition Reserve is 1,000 and 2,000 so it will do 1,000 here 2,000 here so total balance is 5,000 out of 5,000 1,000 is pre-acquisition so 4,000 becomes postacquisition 3,000 was General Reserve 2,000 is postacquisition pre-acquisition 1,000 is post acquisition so this 1 + 2 3,000 this becomes a pre-acquisition and this 5,000 becomes postacquisition now here one tricky point where a lot of students make mistake is dividend adjustment especially when the investment has been made during the midle of the year so that when we do a question I'll tell you how to handle that for now just understand this 3,00 5,000 pre-acquisition postacquisition now what you will do what is holding companies what is minority interest holding company say 75% minority interest say 25% so 2250 is holding share and 750 is minority interest same way out of this 5,000 1250 is minority interest and 375 is holding company now once you have done this table correctly just a moment again I need to charge the pencil now once you have computed that Holdings pre-acquisition share is 2250 just give me a moment for so once you have calculated that holding company holding company share in the pre-acquisition is 2250 postacquisition is 3750 minority 750 and post acquisition 125 what we'll do is this component of 2250 which is pre-acquisition profit pre-acquisition profit what we do we will take it to some working note called as cost of control basically to calculate Goodwill or capital reserve whatever is the pre-acquisition then whatever is the postacquisition 37 750 this will be added to pnl what do I mean by that this 3750 will be added to our Consolidated reserves and the pre-acquisition profit will be considered in determining the net assets on date of acquisition or here okay so that is how you will split then whatever is left this 750 and 1250 these two what you will do is 750 and 1250 these two will be added to minority interest balance okay so that is how we will calculate what is the you know pre-acquisition profit what is the minority interest what is the post acquisation profit and that we will use to compute the goodwi this you have to do it very very carefully if you are lucky they will give date of acquisition pnl and reserves it is straightforward if a all you know they give media acquisition that is where we have to do certain adjustments and see how to compute that that we will do you know with the question instead of just putting it into theory that is what we will do at analysis of result now after we have done analysis of Reserve net asset on date of acquisition is nothing but equity share capital of subsidiary Plus pre acquisition Reserve now for calculation of Goodwill when we have to do what we will do we will see what is the H limited share in equity share Capital what is h limited share in pre-acquisition profit here we'll do a total in our example we assumed this was 9,000 then what is the purchase consideration or payment made that was 10,000 because we paid more because we paid more that results in Goodwill 10,000 minus 9,000 1,000 is Goodwill 10,000 - 9,000 1,000 is Goodwill with this we'll be able to compute the Goodwill as far as minority interest is concerned minority interest is equal to 25% of equity share Capital 25% of pre-acquisition profits and 25% of post acquisition profits free and post that is how we will do okay now when it comes to Consolidated reserves we will take 100% of holding plus 75% of post from subsidiary right then there are two very critical adjustments in fact three actually but one of that intra inter company you can handle it easily then what we will do we'll carry out some adjustments called as inter company balances inter company balances now what is this inter company balances let us say h limited has to pay 10,000 to S limited H limited has to pay 10,000 to S limited now in s financial statement you will have trade payable 10,000 and in subsidiaries financial statement you have trade receivable 10,000 now when we are preparing Consolidated financial statement basically we are preparing holding plus subsidiary as a family holding plus subsidiary as a family correct now when we are preparing holding plus subsidiary as a family this trade payable is holding to subsidiary subsidiary says I have to receive 10,000 now when you prepare holding plus subsidiary as a group will you go out and say that you know the parent has to pay something to the subsidiary or children children has to pay something to the parent we will not do that so we'll cancel out these two 10,000 10,000 now here one specific adjustment sometime comes in terms of bills payable they would say bills payable of subsidiary is equal to 10,000 to holding but in holding companies book bills receivable of holding shows only 2,000 and 8,000 has been endorsed or discounted in that case what do we do total bill payable of subsidiary is 10,000 holding had 10,000 but holding what they did was they have only 2,000 they transferred 8,000 to some other party so as far as the group is concerned this 8,000 is outside the group this 8,000 is outside the group so what we will do what we will do is we will take 10,000 total bills payable out of that 2,000 of bills disable that we have to pay to the holding company we will adjust that so net bills payable will be 10,000 minus 2,000 that is 8,000 this is 8,000 which has to be paid to Outsider so if at all there is an endorsement if at all there is discounting with the bank you will adjust the portion which the holding or the subsidiary has so for examination bills payable will be equal to balance minus bills receivable held by another party same way for bills receivable bills receivable minus whatever is held by the or whatever is due to the other party balance you will still show so in our example 10 ,000 was the total balance 2,000 is with the holding 8,000 is still bills payable in the financial statement or in the balance sheet that is one adjustment then we have an adjustment of unrealized profit a lot of time what happens is holding company sells Goods to subsidiary or subsidiary company sells Goods to holding okay subsidiary can sell to holding holding can sell to subsidiary in technical terms this is called Downstream coming from up to down and this is C this is called Upstream now what we are interested in is if holding sales to subsidiary let us say cost is equal to 10,000 selling price is equal to 12,000 now subsidiary company would say my inventory my inventory is how much it is 12,000 my inventory is 12,000 subsidiary company says my inventory is 12,000 but when I'm preparing holding plus subsidiary as a group as a group as a family I cannot say my inventory is 12,000 because the cost of my inventory is 10,000 only the cost of my inventory is 10,000 only so what we say in Consolidated financial statement inventory should be shown at 10,000 only but as for our discussion if you understand earlier we take 100% of holding plus 100% of subsidiary so here we'll have 12,000 this 12,000 cannot be shown at 12,000 we have to reduce the unrealized profit and show it at 10,000 only show it at 10,000 only so what do we do with this unrealized profit this unrealized profit will be removed from the Consolidated pnl this unrealized profit will be removed from Consolidated pnl so 12,000 minus 2,000 10,000 will be shown and 2,000 will be the unrealized profit which will be remove from the Consolidated pnl all right now sometime now students confusion would be sir when holding sales what is to be done when subsidiary done what when what is to be done and should we adjust it from Minority interest should we adjust this from Minority interest that is one more question or one more doubt now what you have to understand is who booked the profit what you have to understand who booked the profit if holding booked the profit you will reduce from reserves of holding only if subsidiary booked the profit means if subsidiary is hold it to holding company then you will adjust it from Post acquisition profit automatically minority interest will also get adjusted automatically minority interest will also get adjusted all right so far clear I always get confused between pre and post but now it is clear okay very good that is the purpose of this revision you know you should get 100% Clarity okay now one last critical adjustment before we take up questions is that sometimes what happens is We Carry Out revaluation of assets on date of acquisition so what do we mean by that say for example this is the subsidary balance sheet we have assets of 10,000 assets of 10,000 now for the purpose of consolidation or when we have acquired H limited has agreed that these assets will now be considered to be worth 12,000 so what what exited is saying is that these assets going forward or for our purpose for consolidation purpose for acquisition purpose it is 12,000 s continues to show it at 10,000 we are not doing revaluation as per accounting standard 10 s will continue to show it at 10,000 what H would do is H would say for my purpose for my acquisition purpose my number is 12,000 okay no problem now this will have two impact and you have to remember this every alternate question gets this adjustment every alternate question we have this adjustment and we should not be struggling for that okay okay first thing what happens is I have something called as net asset on date of acquisition on date of acquisition I have net asset or equity share Capital plus reserves equity share Capital plus reserves this is as per balance sheet of s so for example just for argument sake there are some other assets or let us say there are some liabilities of 2,000 so net asset is 8,000 net asset is 8,000 but what is h telling H is saying that for my consolidation purpose for my acquisation purpose this is not 10,000 this you should consider at 12,000 so my net asset will now become 10,000 12,000 minus 2,000 this has to be adjusted so how to adjust see first thing what you have to do is when you calculate this pre-acquisition reserves when you calculate this pre-acquisition Reserves or when you calculate the Goodwill component here you have to add revaluation of assets you need to increase so basically what you will do here you will add revaluation of 2,000 you will add we'll see with the question if you know now understand the format we'll see with the question here you will add revaluation of 2,000 what will happen because of that net asset will increase net asset will increase and when net assets increases what do what happens our Goodwill value will come down that is the first thing that is the first thing okay that is the first thing second thing what happens is when we are preparing Consolidated financial statement we will not take asset at 10,000 we will take subsidiar asset at 12,000 subsidiary will continue to show or calculate at 10,000 but for consolidation purpose we will say those assets are worth 12,000 those assets are worth 12,000 that is one more thing right then because this asset are worth 12,000 I have increased the value of asset should my depreciation not increase so my depreciation should increase by what number there are two types of again adjustment one is mid acquisition and one is you know beginning of the year acquisition depreciation should be increase or on the 2,000 I should charge extra depreciation let us say at 10% so this becomes 200 in the Consolidated financial statement one adjustment is we should increase the value of asset by 2,000 second adjustment is we should charge extra depreciation on that amount which works out to 200 so in the Consolidated financial statement in the balance sheet asset value will go up by 2,000 and accumulated depreciation will be shown at higher value by 200 so net impact is 1,800 now because I'm charging more depreciation my p&l balance should also reflect that so in the post acquisition column in the post acquisition column for this 2,000 I will charge depreciation of 200 which will be split between the holding and the minority okay this is one adjustment which keeps coming up in the examination any doubt on this of course I will take a full fles now we we'll now jump to questions and see how do we handle those questions in the examination now when we look at look at some questions what will happen is you will get that confidence of answering these questions in the examination okay [Music] now look at this question May 24 14 marks question now we'll see what are the tricky points we need to take care of you know when we are handling this question and how we can score maximums okay the balance sheet of art and craft limited as on 31st March is given below so that is what we have understood that is what they will give us then you have share capital reserve State payable shortterm borrowings PPE non-current investment inventory trade rebles cash and cash equ okay this is just moved upwards share Capital breakup has been given reserves breakup has been given short-term borrowings has been given PPE building and plan Machinery non-current investment in craft at Cost 4 lakh 32 so here you have 4 lakh 32 that is what non-current investment art into craft art into CFT now now this 432 is the first thing that I told you how much payment has been made this is what is relevant for our calculation purpose this is what is relevant for our calculation purpose then art limited acquired 3,200 ordinary shares of craft limited on 1st of October this is a medor acquisition when there is medor acquisition we have to be extra careful in calculating the you know pre-acquisition and post-acquisition profits the reserves and surplus and profit and loss account of craft limited showed a credit balance of 40, and 58700 on 1st of April so they have given us information on 1st of April of 22 23 balance they have given us information of 31st March of 24 balance but acquisition happened mid year so what we need to do is we need to calculate profit earned during this period and profit earned during this period and ingly split between reinforced the plan in Machinery of craft limited which stood at 250,000 on 1st of April was considered worth 220,000 on the date of acquisition now in the example that I gave you there was upward evaluation whereas in this case what you can see there is a downward devaluation there is a downward devaluation all right now when there is a downward revaluation what will happen we will will reduce we will reduce the value of pp now when we reduce the value of pp the other thing that happens is the depreciation part will also be reduced if it is upward revaluation PP value will increase depreciation value will increase if there is a downward evaluation the pp value will be reduced and depreciation will also be reduced okay now here if it is midor calculation one more thing you have to keep in mind don't take the difference and directly compute 5% it will not give you the correct number you have to do the balancing figure computation okay craft limited deducts 1% from trade receivable as a general provision against doubtful death this is not followed by R now one of the requirements of accounting standard 21 is that if there are differences in accounting policies we have to take the accounting policy of the holding company we have to take the accounting policy of holding company so who is deducting subsidiary is deducting holding is not deducting so this has to be added back on 31st March inventory includes Goods which it had purchased from art limited for 13,500 which made a profit of 15% on cost right this is unrealized inventry so four adjustments have been given okay now you're required to prepare Consolidated balance sheet on 31st of March of 2 now how do you solve in the examination First full page leave it for balance sheet the next one and a half page or two page leave for notes to accounts then after that you can put the working notes now if you want you can put the working notes in the beginning also it is up to you so when I was a student first I used to prepare the working notes and then I used to go to the preparation of balance sheet and notes right but if you have been used to like first we will PCH we will prepare the balance sheet then pnl then we'll do the working notes that is also fine both approaches are acceptable okay now you'll leave that page and when you prepare the balance sheet there generally if balance sheet isn't given in your schedule format same format you can use no problem mandatory notes for share Capital reserves and surplus compulsory minority interest you will have working notes okay then trade payables inventories trade receivables here in the bracket itself we can do the working no need to prepare a separate separate notes because that take more time you can do working like this for PP also mandatory notes to account so these three are mandatory and the remaining part if there is Goodwill because here you don't have Goodwill heading so here you have in ible assets that also you need to prepare a separate not to accounts okay that is the format now first thing coming to working Note coming to working mode the question says 3,200 shares out of how many shares out of we have shares of 4 lakhs that is 4,000 shares so what is the percentage percentage is 80% 80% is held by art and 20% is held by what we call as minority interest that is the first thing then in 99% of the questions what you will get is you will get you have to do analysis of profit sometimes they may say the balance sheet on date of acquisition but I have not seen so you know so many questions on that so you'll have questions with equity share capital and reserves on the date of acquisition that that is what you need to calculate now here one very important thing we have pnl balance of 1st of April and we have pnl balance of 31st of March in that situation what we will assume is whatever is the difference after adjusting for profits that difference is profit for the year that difference is profit for the year and this profit has been earned equally or evenly throughout the year what do I mean by that here we have 40, 58700 on 1st of April so what you can do either you can prepare a lger balance or you know a lger account like pnl account you can prepare and general Reserve account you can prepare where you will say buy balance brought down pnl opening balance is 58700 balance Carri down is 28,000 so the balancing Figure 1 49,3 is profit earned During the period if there is some dividend paid dividend also will be debited to pnl if there is is some transfer to reserves that will also be debited to pnl and this 149 300 in this case the difference between these two balances is the profit on during the period if there are no adjustments you can do the statement format if there are adjustments I would suggest you to prepare pnl and general Reserve account have opening balance now here opening balance is 40 closing is 40 means no movement in general Reserve there is nothing which is you know earned During the period or transferred During the period but if 40 Bec we can assume that 20 has been transferred to pnl that 20 again you will debit to pnl and the balancing figure will be perfect that is how you will work out okay if there are more adjustments between pnl and general Reserve try to prepare the pnl account in Ledger format the mistakes that you will do will actually reduce okay if you try to prepare in statement format a lot of time there can be mistakes now when you prepare in the statement format what you will do is you will take opening balance plus you will for reserves transferred from pnl then you will compare that with closing balance difference is post acquisition reserves During the period same way pnl what you will do you will take opening balance then add profit is not given so it will be less only less dividend paid less General Reserve this you will compare with closing balance difference will be the profit for the period but I would prefer for pnl in statement format but I'm not asking you to do the same thing up to you whether you want to prepare statement or whether you want to prepare lecture okay now this profit is what during the year profit this profit is what during the year profit what are we interested in because it is a media acquisition we need to know how much is the profit which is earned in the first part of the year and how much is the profit which is earned in the second part of the Year all right now if you see here this 40,000 is your pre-acquisition only and profit earned between 1st of April to 30 30th of September that is also pre-acquisition same thing is in case of pnl as well all right so how much is profit earned for 6 months period profit earned for 6 months period is 74 650 and 74650 sir how did we get this 74650 and 74650 is basically 1 14,300 divided by 2 14,300 divided by 2E this is pre-acquisition this is post acquisition then this opening balance of 40, 58700 opening balance has on 1st of April that entirely is a part of pre-acquisition that entirely is a part of pre-acquisition that is one thing okay now some of you may be used to doing like here you have General Reserve here you have pnl so what you do is you would be you would be doing in a particular format like you have threee you have post whatever is the opening balance of let us say for example pnl opening balance is how much 58 700 is anyways po pro pre and post post acquisition or in the current year you can can say current year current year also there are two components pre and post so current year profit is 149 300 out of this you would say 74650 is pre 74650 is post okay when it comes to General Reserve opening balance is 40,000 entirely it is free entirely it is free so if you're doing in this format also it is perfectly fine no problem at all okay then coming to adjustments adjustments is where we tend to miss out things one is they have said you have 1% trade reible deduction and second is planted Machinery revaluation okay now 1% deduction of trade receivable provision what is the trade receivable balance trade receivable balance is 168 300 this 168 300 is after deduction of 1% provision after deduction of 1% provision means this is 99% this is 99% so how much will be 100% you will simply do 168 300 divided by 99% if you do you will get the number so 168 300 divided by 99% it is 170 0 okay now 170 minus this provision is 1,700 this provision we have to write back this provision we have to write back write back means what it will increase my profit now out of the 1,700 850 is for the 6 months before acquisition and 850 is 6 months post acquisition so we will add back provision of 850 and 850 both in pre-acquisition as well as postacquisition then revaluation law the question has told us that there is a Machinery which stood at 2 lakh 5,000 on 1st of April we need to know the number on 1st of October what is this number 250 on 1st of April so on 1st of April it the balance is 250,000 what is the depreciation 10% perom or 5% so depreciation at 5% will be 12,500 this will be be 2 lak 37,500 now this 2 L 37,500 is now considered worth 220 so value considered is 220,000 the difference is 17,500 this is revaluation loss on date of acquisition the revaluation loss on date of acquisition has to be reduced from The pre-acquisition Profit now in this question two important adjustment reversal of provision and revaluation of loss so what if there was a revaluation of gain you will add it to the pre-acquisition profit column here okay that is one thing now the depreciation impact of this will be given in post acquisition column depreciation impact will be given in post acquisition column now please keep in mind if it is 1 of April acquisition directly you can take the difference and calculate the amount but if it is metor acquisition you have to see what is the depreciation charged by subsidiary now depreciation charge by subsidiary is how much depreciation charge by subsidiary for the full year will be 25,000 de child subsidary for the full year will be 25,000 out of this 25,000 12,500 is free and 12,500 is post so subsidiary charges 12,500 is as depreciation post AC position now what is the value we gave on on this Machinery we said it is worth 2 lakh how much did we consider 2 lakh 20,000 what is the worth 220,000 so our worth is 220,000 on this 220,000 what is the depreciation on this 225,000 our depreciation will be 220,000 into 5% right 220,000 into 5% that is what we will consider there as our you know depreciation for the 6 months period because we have acquired at 220 our 6 months period depreciation is 5% 6 months period depreciation is 5% so how much is this 1,1 11,000 is the depreciation we should charge 11,000 of depreciation subsidiary charg 12,500 of depreciation means what subsidiary charge extra depreciation if subsidiary charge extra depreciation we have to reverse that so we will add back that 1500 of depreciation which column post acation so whenever there is revaluation immediately next impact will be depreciation if it is revaluation gain you will add higher depreciation you will do a less here so if this is plus here it will be minus here if it is minus here it will be plus here so this gives us the pre-acquisition and postacquisition profit any question so far any question so far in this question clear okay right so two things again I'm repeating Pro different accounting policies and devaluation gain or loss we have discussed right now whatever is the pre- column total we will split between holding and minority interest holding 125 360 minority 31 350 and here 61600 15400 now where will it go please I know all of you be aware of it but still a quick recap holding this portion will go to cost of control or Goodwill calculation minority interest will get added to minority interest this will get added to minority interest this will go to post acquisition reserves right now coming to cost cost of control cost of investment already given what is our share in equity share Capital 320,000 this you can do by doing 80% into 3 lakh 20,000 Sorry 4 lakhs also then Capital profit what we calculated here or pre-acquisition profit 125 360 it is 445 360 now remember if we pay more it is Goodwill here we have paid less so this is capital reserve now whenever this cost of control comes immediately either go and posst in the balance sheet Goodwill and capital reserve basically in the notes to accounts if it is capital reserve immediately add it in reserves and surplus so that you don't forget okay after we are done with done with this next thing we need to calculate is minority interest what do we include in minority interest share capital for their share that is 20% Capital profit from here and revenue profit from here this is the total minority interest then Consolidated pnl what do we take we will take as per balance sheet 100% of holding plus Revenue profit of 61600 of subsidiary this 61600 comes from here then there is an inventory transaction now inventory transaction first thing you have to ask who sold craft limited includes Goods which purchased from art Who Sold art limited sold so if holding company sells you will reduce the profit from holding company how much 13,500 which is 15% on cost price so if cost is equal to 100 if cost is 100 profit is equal to 15 selling price is 115 this 13,500 represents 115 we need we need to know what is 15 so what we will do we will take 13,500 divided by 115 multiplied by 15 so 13,500 divided by 115 multiplied by 15 we get 13,500 this 13,500 this 13,500 we say that this is our unrealized profit in inventory and that will be eliminated when we say eliminated there is always a two-sided impact the impact is first you will remove from the inventory second you will remove from the pnl okay so 13,500 will remove from pnl whose pnl who has sold who has sold art has sold so art pnl sir what if subsidiary would have sold this to holding company then what you would have done is in this post acquisition column you would have one more line item called unrealized profit on inventory 13,500 this will split between holding company and subsidiary company this we have already done savings also we have already done now after doing this balance sheet is very very easy straightforward we may miss out on some adjustment so what I suggest is for example here plant and Machinery there is revaluation so here you put a small tick then 1% from trade receivable there is a adjustment you put a tick here and inventory also there is an adjustment so these three adjustment you should not miss out see we have done the working notes correctly in the balance sheet if you do not do it correctly then it becomes a okay now how to prepare the balance sheet shareholders fund share Capital you take 650 reserves and surplus we have already prepared the working note from the you will take the total but you will have a not to account for that this you don't need to take because this is split between pre and post already trade payables you add 100% short-term borrowings 100% non-current assets this plus this minus the adjustment now what is the adjustment see there was an adjustment of increase decrease 17500 and depreciation impact is plus 1550 00 so simple thing - 17500 +500 you will do the adjustment in the PPE - 17500 plus500 you will do the adjustment if it is revaluation positive revaluation you will take 17500 minus 1500 now this depreciation please keep in mind it is not only for the year if the subsidiary was acquired two years back three years back and all of that it is not only for the year it is for number of years from the date of activ that is what you have to consider then non-current investment this will not be taken if there is any other investment that will be taken but investment in subsidiary will not be taken inventories 166 plus 205 minus unrealized profit trade disable 133 + 168 here provision will be reversed so you will add back provision of I think 1,500 is what we had calculated cash and cash equivalent proof 24 + 67 you will take directly okay 24 + 67 you will take directly in the balance sheet now coming to notes as I told you notes to accounts this is important reserves and surplus now how we will take General reserve pnl and capital reserve capital reserve it is as per what we have calculated in cost of control General Reserve General Reserve is what general Reserve is your we done the total no somewhere Consolidated General Reserve 120 this is 100% of the holding if there is post acquisition of subsidiary we will have post acquisition profit of subsidiary also added okay so in notes to accounts important is equity share Capital compulsory this is also mandatory minority interest 126 you can directly show it here no need to uh you know add it back you can directly show it here this is not required for examination purpose if you skip that also it is okay current liability this we have done trade pbl this we have done as I told you you can directly show it here inventory also you can take Art Plus craft minus unrealized profit trade receivable Art Plus craft plus provision reversed okay that also can be done and cash and cash equivalence now what is the breakup of marks generally if you appear for this paper or if you if you have attempted this question three marks is for this typically half mark is for this one Mark is for this so 4 and a half 4 and a half 0.55 sir why are you showing Bank overdraft here because there in the balance sheet we don't have Bank overdraft you that's why we give work five this is one six this is 1 7 these two put together 7 then 18 + 2 10 + 1 11 + 1 12 + 1 13 + 1 14 somewhere around that okay or. 5.5 something like that question is slightly lenier earlier we used to get the same question for 16 marks now they're giving for 14 marks we have discussed earlier also that after the mcqs have been introduced they have actually you know uh increased the length of the question so this is a 14 marks your shot question if you see right there is no complicated adjustment and we'll be able to handle this in the examination okay is that clear okay all right e so uh one adjustment in case of interc company transaction is here when on 31st of March bills payable of 12,000 shown in s limited balance sheet had been accepted in favor of H limited so here if you see bills payable you have holding and subsidiary bills payable you have 60,000 and 14,800 B bills payable of 12,000 shown in s balance sheet had been accepted in favor of H limited so bills payable shown of 12,000 so what is the bills pable here out of 14400 12,000 has been shown as accepted in favor of H limited so H limited has a bills receivable of 1 lakh so from 1 lak he'll remove 12,000 okay so that is one adjustment which is normal but sometimes what happens is they would say out of this 12,000 for example s has accepted 12,000 10,000 has been endorsed in favor of credit so only 2,000 should be adjusted so that is one thing you have to keep in mind there is one thing you have to keep in mind okay then we'll look at this question uh this particular question we'll take a break before that and then we'll continue so we'll resume at 1120 okay so by the time my pencil also will get chared at 11:20 we'll we'll resume at 11 20 did to the e e e e e e e e e e e e e e okay I'mma I'm discussing the question again the following balance sheets of subsidiary MNT limited is given 17 18 18 19 the first adjustment says LTC values inventory on fif basis MNT uses Leo basis which means difference in accounting policies which means difference in accounting policies now if there is a difference in accounting policy what do we do we bring it to the accounting policy of the holding company okay so we'll have to bring it down to fif to bring a m limited inventories in line with those of LTC its value of inventory is required to be reduced by 5,000 at the end of 1718 and increased by 12,000 at the end of 189 means what for 1718 they're saying reduce it by 5,000 if I reduce closing inventry by 5,000 what will be the impact the impact will be that the profit will also be lower by 5,000 now if closing inventory is lower in the current year please understand in the next year opening inventory will be higher in the next year opening inventory will be higher if the closing sorry not higher lower opening inventory will be lower if opening inventory is lower in the next year what will happen to profit profit balance will increase okay then and it has to be increased by 12,000 at the end of 1819 increase by 18,000 means what in 1819 again you're increasing the closing inventory that will again increase the profit so you have to give both the impacts MN limited dedu 2% from trade disable as a general provision against downold debts prepaid expenses in MNT include sales promotion expenditure carried forward of 25,000 in 1718 12,5 1819 being part of initial sales promotion expense of 37,500 in 1718 now please understand any prepaid expenditure or any sales promotion expenditure as per account standard 26 you cannot defer so whatever is this 37500 fully have to wrting 1718 fully have to WR 1718 itself which is being written off over 3 years period we cannot do that we have to write it off in the year of incurring itself so this 12 30 25,000 whatever is the you know prepaid expenses that you're carrying it forward that has to be written off and 125 also has to be written off similar nature of sales proposal expenditure has been fully return off in 1718 this is what the accounting standard also requir reate the balance sheet of MN limited as on 31st March after considering the above information for the purpose of consolidation now what do we do simple Revenue reserves if you see in the question or the total revenue Reserve you see closing balance is 5 lak 5,000 now what what does the question say for 31st March 19 so we need to only reset the next year profit thing MN deduct 2% from trade receival as a general provision against doubtful de so trade receivable they are saying that we will deduct how much 2% on what value trade receivable we are doing only current year that is 1819 343,000 now this is after deducting 2% provision means this represents 98% we need to know how how much is 2% so what we will do 343 divided 98 multipli by 2 so 343 multipli by 2 divide by 98 343 multi by 2 divide by 98 we get reserves or provision is 7,000 provision is 7,000 now this provision of 7,000 is not required by the holding company this is not required by the holding company so we will add back then closing inventory has been increased by 12 ,000 so we'll add back now you may ask sir what about the opening inventory see what happened was opening inventory of 1819 is to be reduced by 5,000 so pnl will be higher by 5,000 but in the previous period that is 1718 you have to reduce the inventory by 5,000 which will reduce the pnl by 5,000 so this 5 ,000 and 5,000 impact will be net off and you will only consider 12,000 then sales promotion expenditure whatever is there as prepaid balance 12,500 you have to fully write off adjusted Reserve is 51,500 so adjusted reserves will show as 5 lak 11,500 51,500 apart from that what is to be done respective adjustments have to be done for example in inventories you will increase tradeable you will reate that is the second adjustment and there was a prepaid expense right prepaid expenses of 65,000 from that you will reduce from that you will reduce 12,500 and you will show the closing balance as 52,500 okay simple question but you can score good marks in this right for let's look at this particular question again a 15 marks question white limited acquire 2250 shares of black limited on 1st of October again a medeor acquisition summarized balance sheet of both the companies as on 31st March are given below shareholders fund share capital 100 each fully paid up reserves and surplus profit and loss account current liabilities trade payables amount due to White limited I think 30,000 in this question non-current assets PP Investments shares in Black limited 2250 shares current assets inventories due from black limited amount receivable and cash and cash equivalent during the year black limited fabricated a machine which is sold to White limited for 39,000 the transaction being completed on 30th September of 21 now this is one thing which has happened they have sold a machine on which date on 30th of March of 21 they have not given cost cost for this so we cannot adjust the depreciation had they given cost for this for example cost was 30,000 then depreciation has to be adjusted why adjusted because the white limited which is the you know holding company would have charged depreciation at a higher value we should reduce the depreciation for this purpose cash in transit from Black limited to White limited was 6,000 on 31st March profit during the year was earned evenly so cash and Transit is 6,000 means what black has sent to white black says trade payable uh the number is I think 30,000 when you do the solution we'll get to the number trade payable due to White limited so amount has to be paid to White limited that is what they're saying whereas black has sent 6,000 now what do we do with cash in transit for cash in transit what we will do is we will reduce from receivable we will reduce from receivable and show it independently as a cash in transit amount balance of reserves and profit and loss account on 1 of April where as follows 30,000 30,000 15,000 10,000 loss you required to prepare Consolidated balance sheet of the group as in 1 March as for the requirement of schedule three of the companies Act of 2013 now here what is happened balance of reserves are given 15,000 and 10,000 on which date 1st of April when are we preparing the balance sheet on 31st of March when did the acquisition happen acquisition happened on 1st of October acquisition happened on 1st of October right now if you see we need who black limited analysis black limited is showing that General Reserve is 30,000 and profit and loss account is 90,000 General Reserve is 30 and 10,000 loss General Reserve is 30,000 and 10,000 is loss year now can you tell me how much is the profit made during the year 2020 what is the profit made during 2020 what is the profit made during 2020 this is As on 1st of April of sorry not 20 2021 this is As on 1st of April of 20 this is As on 31st of March of 21 what is the profit made during the year The Profit made during the year is don't do 90 minus 10 it is 90 minus minus of 10,000 90 minus minus of 10,000 or 10,000 loss became 90,000 profit so profit for the period is 1 lakh that is how you have to calculate okay that is how you have to calculate now that one lakh is for the entire period so what we will do 50,000 pre-acquisition 50,000 postacquisition and as far as general Reserve is concerned the move there is no movement entirely it is pre-acquisition so when it comes to you know pre and post acquisition again no need to do in two different you know columns you can do in a single table itself so what you can do is you can have pre-acquisition here and postacquisition here now pre-acquisition General Reserve now whatever is there in general Reserve entirely it is pre-acquisition so General Reserve 30,000 pre-acquisition then pnl balance pnl balance is here it is - 10,000 - 10,000 so you will say - 10,000 is free then profit for 6 months 50,000 profit for 6 months 50,000 that is what that is your pre component that is your pre- component so you have 70,000 of pre-acquisition profit 70,000 of pre-acquisition profit are we clear how to calculate when there is a loss okay great then what is post acquisition post acquisition General Reserve there is no balance pnl there is a balance of 50,000 this is post acquisition then what we will do from post acquisition take 75% of this this will be added to reserves 25% here this will be added to minority interest here this will go to cost of control this will be added to minority interest now when it comes to minority interest interest will take their share of equity share capital and 12,500 and 17,500 you get minority interest here then while calculating cost of control amount paid 270 minus 2250 shares so much capital reserve so much you have capital reserve of 7,500 this immediately Post in reserves and surplus working note so that you don't forget now when it comes to Consolidated balance sheet share Capital only holding entity reserves and surplus General reserve of holding company pnl account of holding company 75% post acquisition profit and capital reserve then minority interest we have already calculated trade payables trade payable is 1 15,000 + 75,000 I'll just pull out the number this is missing here just give me a moment for so due to Y limited is 30,000 here okay so there there is a separate number trade payable 1ak 15,000 and 75,000 and 30,000 is there okay so this is 75 and there is one more number of 30,000 which is straight pable so this 30,000 is inter company you will not consider 30,000 is in company you will not consider 1 L5 + 75 1 lak 90,000 is what is the trade vehicle 1 lak 19,000 then due from black limited here we are showing 36,000 now out of this 36,000 30,000 is shown as trade payable already by the other party so you'll do minus 30,000 from trade payable you'll remove 30,000 from trade receival you will remove 30,000 and 6,000 is Cash in transit so what you will do you will remove 6,000 from here and you will add 6,000 to cash in cash equivalent that is one adjustment when there is Cash in transit so whenever there is cash in Transit what you will do is you will reduce cash in transit number from the receivable receivable part and you will show it as a separate line item so when it comes to cash you will take black white and cash in transit inventory bright black white total and that is how you will do it any questions in this simple question again you can score easily 15 out of 15 now whenever a difficult question comes in the examination especially in consolidation that is what you have to do it towards the end okay this one has adjustment of dividend this one has adjustment of dividend on 31st March H limited and S limited gave the following information equity share Capital issued Capital General Reserve profit and loss inome credit balance trade payables provision for tax and other provision plan Mach Furniture investment is the cost inventory trade disable cash and Bank sunry advances H limited purchase 90,000 Equity shares of s on 1st of April on this date General Reserve is500 pnl is 633 when did we purchase we purchased on 1st of April when did we purchase we purchased on 1st of April on 14th July s limited declared a dividend of 20% out of pre-acquisition profit H limited credited the dividend received to its pnl now this is a typical adjustment which comes where if it is pre-acquisition dividend what do we do we credit to investment we credit the amount to investment account if it is pre-acquisition what they have done here they have credited to pnl we have to rectify this rectification means what from this investment you will reduce that amount and from your pnl balance also you have to reduce the amount and one more thing that you have to keep in mind is this closing balance 810 that you see you will not compare with 633 because there is some dividend paid so that dividend part also needs to be considered on 1st November they issued three fully paid equity shares of 10 each for every five shares held at bonus held as bonus shares out of pre-acquisition General Reserve so pre-acquisition profit dividend paid and also bonuses issued now what is the treatment of bonus issue as far as bonus issue is concerned what it will do is you will add to equity share capital of subsidiary and you will reduce from pre-acquisition profit of subsidiary or pre-acquisition general reserve of subsidiary so dividend preac remove from the cost of investment of holding company and reduce from the pnl balance of the holding company if it is incorrectly done bonus issue what we will do bonus issue we will add it to the share capital of the subsidiary company if you know if they have not return done the adjustment and we will reduce it from the reserves okay now sir what do we assume have they may passed that entry or not we will assume they have passed that we will assume they have passed the entry unless the question says that the entry is not passed okay on 31st of March the inventory of s limited included Goods purchased from 50 on for 50,000 from H limited which had made a profit of 25% so this is closing inventory adjustment trade receivable trade payable details are given below prepare the Consolidated balance sheet the Consolidated balance sheet okay now here first thing do we have profit as a date of acquisition yes but out of this profit bonus has been paid or bonus has been issued how much they have issued bonus of three for every five shares held as bonus shares three out of five means if you have five shares you have to add three more shares and final number will be eight shares now this number in the balance sheets we assume this is post bonus so what if it is pre- bonus if it is pre- bonus then you will have to pass the adjustment of bonus also you have to remove from the general Reserve balance here and add it to the share Capital but this is post bonus this represents eight shares this represents eight shares so what is the bonus issue bonus issue is 2,400 divided by 8 multiplied by 3 I'm repeating once again if I have five shares I'll get three shares if I have five shares I will get three shares now these five shares and three shares totally now becomes eight share we need to know what is the bonus component sir why do we need to know so that from the opening reserves we can remove that amount from the opening reserves we can remove that amount to calculate the amount earned During the period okay so how much is that 3 2400 divid 8 multipli by 3 bonus issue is 900 bonus issue is 900 meaning to say the company has transferred 900 100 from General Reserve to Bon General Reserve to Capital account so what we will do and what I would like to do is prepare a ledger balance or Ledger account of General Reserve like this so in that what we will take Whenever there are bonus dividend and all I strongly suggest you to prepare the lger account I strongly suggest you to prepare The Ledger account okay so what is the general Reserve balance 1 1500 so what you will do he will say by balance brought down 1,500 by balance brought down 1,500 then to bonus issue how much is the bonus issue bonus issue is for 900 so you will say to equity share Capital 900 okay that is one thing then sorry uh General RES 1500 closing balance of General Reserve is 690 to balance carry down 690 1,500 and this said 900 + 690 so 90 is the balancing figure where will we get this balancing figure from this has come from our PML where will we get this balancing figure from this has come from pnl all right this has come from pnl now we'll also prepare the pnl account opening balance 633 that is as given in the question we have transferred 90 to General Reserve all right we have paid dividend of 300 very good balance carry down 810 from the balance sheet so the balancing figure is 567 what is this 567 this is the profit earned during the year this is the profit earned during the year this is a profit earned during the year now when it comes to calculation of your cost of control calculation of cost of control okay now when it comes to calculation of cost of control how we will do is that first you will take what is the opening balance opening balance of 1,500 in general reserve and 633 in PML so you have pre-acquisition 1,500 of General reserve and you have 633 of pnm this is the number that is given now what we need to do is out of this 900 has been issued as bonus so closing balance is opening balance remaining is 600 out of the 633 300 has been declared as dividend so close balance left is 333 so 600 + 333 is the pre-acquisition 600 + 333 is pre-acquisition the same thing can be received or derived from here also 1,500 - 900 600 is pre-acquisition number then here 633 minus 300 we can say 333 is pre-acquisition number okay that is the pre-acquisition profits okay now how how much did we pay we paid 1,500 to acquire this out of 1,500 we have received some dividend now how much of dividend has been received we have we would have received dividend to the extent of our share what is our share our we have purchased 90,000 shares currently here there are 2,000 2 40 0 1 2 2ak 40,000 Shares are there how many shares did we purchase 90 now on this 90 we would have received the bonus issue we would have rece we have we would have received the bonus so our holding will be 90 into currently we have five shares now our holding will be multiplied by 8 so this will be 90 into total of 8 original of five if you do we get 90,000 into 8 by 5 that works out to 1ak 144,000 now this 1 L 144,000 is our share that is our share which represents 60% which represents 60% now when we have to calculate the cost of control and good our share in the share capital is how much out of I'll just erase this it slightly become more comsy our share has become 144 zero that is our share capital a share of share capital in subsidiary then reserves we said, 1500 - 900 600 so 600 into 60% General Reserve share is 360 then 633 - 300 333 is the pnl balance out of that 80% 60% so 333 into 60% if I do I'll get 199.99 point8 I'm repeating once again this is 60% of share Capital this is 60% of pre-acquisition reserve and 198.50 of pnl balance so what is the total 1440 plus 360 plus 1 98.8 we get 1 n 98.8 that is the total net asset and there are no other adjustment apart from this Goods purchase we'll assume it is subsequent okay there are no other adjustment than this now out of this for 98.8 that is the you know total net asset what is the investment 1,500 this 1,500 is before dividend so what we will do we will say 1500 minus our dividend how much dividend did we receive we would have received dividend of how much they said 20% out of pre-acquisition on 14th July so on this 90,000 we would have received 20% so the dividend number if you see is 180 so how how 180 90,000 into 10 into 20% this we had credited to pnl now we will remove from the pnl we have credited to pnl now we will remove from the pnl 180 this will also be removed from the investment for cost of control so 1,500 minus this you have 12 sorry not 1200 1500 - 180 1500 - 180 1500 minus 180 if I do I get 1320 1320 net asset share is 1998 what I have paid is only 1320 the balance will represent my capital reserve so capital reserve is 6798 so if we do this 1 19 98.8 - 1320 1 1998 1 19 98.8 minus 1320 if I do I get 6 78.8 6 7 [Music] 9 e 333 I think 333 I did a mistake 333 into 333 into 60% 199.99 this is 1998 8 so this will become 199 9.8 so this will become 6798 the only complexity here is calculation of this capital reserve only complexity in this question