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Question 1 (a) XYZ Limited has provided you the following information as on 31st March,2024: Particulars ` Net profit (After Tax) ` 31,20,000 No. of shares outstanding as on 31-3-2024 of ` 10 each 8,00,000 Average fair value of one equity share during the year 2023-24 ` 25 Weighted average on. Of shares under option during the year 2023-24 80,000 Exercise price for shares under option during the year 2023-24 ` 20 12% Debentures of ` 100 each ` 30,00,000 (Each debenture is convertible into 4 equity shares) Tax rate 30% The company issued one equity share as bonus for every 5 equity shares outstanding as on 1st October, 2023. It further issued 2,00,000 equity shares of ` 10 each as on 1stJanuary, 2024. The Financial Year of the company ends on 31st March each year. You are required to calculate Basic and Diluted earnings per share as on 31st March, 2024 (round off your answer to 2 decimal places). (5 Marks) (b) J Limited availed an equipment on lease from K Limited. The conditions of the lease terms are as under: ADVANCED ACCOUNTING (i) Lease starts from 1st April, 2020 for a period of 4 Years and useful life of the equipment is 6 years. Both the cost and fair value of equipment are ` 12,50,000. (ii) The equipment reverts back to the lessor on termination of the lease. (iii) The unguaranteed residual value is estimated at ` 1,20,000 at the end of the financial year 2023-2024. (iv) The amount will be paid in 4 equal instalments at the end of each year. (v) Consider IRR = 8%. (vi) The present value of ` 1 at the end of 4th year at 8% of interest is ` 0.735. (vii) The present value of annuity of` 1 due at the end of 4th year at 8% IRR is ` 3.312 State whether this lease is operating lease or Finance lease (by applying two deterministic parameters). Also calculate unearned finance Income. (5 Marks) (c) What is the difference between Defined Contribution Plan and Defined Benefit Plan? From the following information calculate the amount of defined benefit liability /asset: Particulars ` in lakhs Present Value of Defined Benefit Obligation as on 31-3-2024 36.0 Fair Value of Plan asset 38.5 Past service cost not yet recognized 7.5 Present value of available future refund from the plan 6.0 (4 Marks)

Options

A
B
C
D
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Correct Answer

✅ Option descriptive — Correct Option

All Options:

  • A
  • B
  • C
  • D

Detailed Solution & Explanation

(a) Computation of Basic Earnings per Share Earnings ` No. of Shares EPS ` Earnings per share for the year 2023- 2024 31,20,000 6,50,000 (W.N 2) 4.80 Computation of Dilutive Earnings per Share Earnings ` Shares EPS ` Net profit for the year 31,20,000 Weighted average number of shares (W.N. 2) outstanding during year on 31.3.2024 (i) 6,50,000 Number of shares under option 80,000 Number of shares that would have been issued at fair value: (80,000 x 20.00)/25.00 (64,000) No. of incremental shares issued for no consideration (ii) 16,000 Diluted earnings per share after options 31,20,000 6,66,000 (i +ii) 4.68 12% Convertible Debentures (W.N. 3) 2,52,000 1,20,000 - Diluted earnings 33,72,000 7,86,000 4.29 Working notes: 1. Computation of shares issued on bonus No. of shares outstanding as on 31st March 2024 8,00,000 Less: Shares issued on 1st Jan 2024 (2,00,000) Outstanding shares as on 31st December 2023 6,00,000 Bonus shares (6,00,000 x 1/(1+5)) 1,00,000 Outstanding shares before bonus issue as on 1st April 2023 (6,00,000x5/6) 5,00,000 ADVANCED ACCOUNTING 2. Weighted Average number of Equity shares Shares Months Weighted average Opening balance as on 1.4.2023 5,00,000(W.N.1) 12/12 5,00,000 Bonus 1,00,000 12/12 1,00,000 Further issue of shares on 1.1.2024 2,00,000 3/12 50,000 6,50,000 3. 12% Convertible Debentures Increase in net profit {` 30,00,000 x 0.12 x ( 1 - 0.30)} ` 2,52,000 No. of incremental shares {30,000 x 4} 1,20,000 (b) Computation of annual lease payment: Particulars ` Cost of equipment 12,50,000.00 Unguaranteed residual value 1,20,000.00 Present value of unguaranteed residual value (` 1,20,000 x 0.735) 88,200.00 Present value of lease payments (` 12,50,000 -` 88,200) 11,61,800.00 Present value of annuity for four years is 3.312 Annual lease payment [11,61,800/3.312] 3,50,785.02 Classification of lease: Parameter 1: The present value of the lease payment i.e. ` 11,61,800 which equals 92.94% of the fair market value i.e. ` 12,50,000. The present value of minimum lease payments substantially covers the fair value of the leased asset. Parameter 2: The lease term (i.e. 4 years) covers the major part of the life of asset (i.e. 6 years). Therefore, it constitutes a finance lease. Computation of Unearned Finance Income: Particulars ` Total lease payments (Rs 3,50,785.02 x 4) 14,03,140.08 Add: Unguaranteed residual value 1,20,000.00 Gross investment in the lease 15,23,140.08 Less: Present value of lease payments and residual value i.e. Net Investment (` 88,200 + ` 11,61,800) (12,50,000.00) Unearned finance income 2,73,140.08 (c) Difference between Defined Contribution Plan and Defined Benefit Plan: S No. Defined Contribution Plan Defined Benefit Plan 1 Fixed Contributions are paid by the employer into a separate fund and will have no obligation to pay further contributions. Detailed actuarial calculation is performed to determine the charge. 2 The employer has no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits and the employee has to bear the investment and actuarial risk. The employer ensures that sufficient funds are available to meet the promised benefits regardless of fund performance and the actuarial and investment risk fall on the employer. ADVANCED ACCOUNTING Computation of defined benefit liability /Asset: Particulars ` in lakhs Present value of the defined benefit obligation as on 31.3.2024 36.00 Less: Past service cost not yet recognized (7.50) 28.50 Less: The fair value of plan assets (38.50) Defined benefit Asset 10.00 In case where fair value of plan assets is high, it may so happen that the net amount under defined benefit liability turns negative (giving rise to net assets). As per AS 15 the enterprise, in such a situation, should measure the resulting asset at the lower of: (i) the amount so determined, i.e. ` 10 lakh; and (ii) the present value of available future refunds from the plan i.e. ` 6 lakh. Therefore, defined benefit asset will be recognised at ` 6 lakhs.

Key Concepts to Understand

Annuity

A sequence of equal periodic payments made at equal intervals of time.

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