CA FINAL NMQs Financial Reporting Chapter SHARE BASED PAYMENT CA FINAL NOV 2016

Share Based Payment
Ques -
PQ Ltd. grants 100 stock options to each of its 1,000 employees on 1-4-2013, conditional upon the employee remaining in the company for 2 years. The fair value of the option is ` 18 on the grant date and the exercise price is ` 55 per share. The other information is given as under:
(i) The no. of employees expected to satisfy service condition are 930 in the 1st year and 850 in the 2nd year.
(ii) 40 employees left the company in the 1st year of service and 880 employees have actually completed 2 year vesting period.
(iii) The profit of the enterprise before amortization of the compensation cost on account of ESOPs is as follows:
(A) ` 18,50,000
(B) ` 22,00,000
(iv) The fair value of share for these years was ` 80 and ` 88 respectively.
(v) The company has 6 lakhs shares of ` 10 each outstanding at the end of both years.
Compute basic and diluted EPS for both the years (ignore the tax impacts).

Answer

In attached pictures.

Profit before amortization of ESOP cost.    
                                              18,50,000 22,00,000
Less: ESOP cost amortised
                                             (7,65,000) (8,19,000)
Net profit for shareholders
                                              10,85,000 13,81,000
No. of shares outstanding 6,00,000 6,00,000
Basic EPS.                                     1.81 2.30
Potential equity.                     19,200 33,000
Total no. of equity shares 6,19,200 6,33,000
Diluted EPS.                                1.75 2.18

CA FINAL LAW , DIVIDEND CHAPTER

Never Miss Points in DIVIDEND Chapter---

1. Interim dividend is proposed as well as declared by board
2. Any amount can be transferred to reserves before declaration of dividend
3. Bonus shares and dividend are not substitutes i.e. bonus share cannot be issued in lieu of dividend
4. Default in  repayment of deposits and interest thereon or only DEPOSITS till such failure continues, leads to prohibition of Declaration of EQUITY dividend
5.  RULE 3 SUB RULE 5(set off losses and dep not provided for) has been omitted from rule and added as proviso to sec 123
6. OR is required for revocation of dividend once declared. Board will be justified in revocation of dividend in case its been illegally declared or intervening events leading to heavy losses and its advisable to conserve the remaining assets
7. Interest is 18 %p.a in case of late payment of dividend.  No shareholder can enforce higher rate even through court
8. Old sec 205C clarifies no claim will be entertained after 7 years while section 125(3) say that claim will be entertained even after 7 years and amount will be refunded back

CA Final FR AS 16 & 11 NMQs

Question --
Sun Co-operative Society Ltd. has borrowed a sum of US$12.50 million at the commencement of the financial year 2014-15 for its solar energy project at LIBOR (London Interbank Offered
Rate) of 1% + 4% . The interest is payable at the end of the respective financial year. The loan was availed at the then rate of ` 45 to the US dollar while the rate as on 31st March, 2015 is ` 48 to the US dollar. Had Sun Co-operative Society Ltd. borrowed the Rupee equivalent in India, the interest would have been 11%. You are required to compute Borrowing Cost‘. Also show the amount of exchange difference as per prevailing Accounting
Standards.
ANSWER--
Computation of Borrowing Cost as per para 4(e) of AS 16” Borrowing Costs” and Amount of Exchange Difference as per AS 11 “The Effects of Changes in Foreign Exchange Rates”:
(a) Interest for the period 2014-15
= US$ 12.5 million x 5% × ` 48 per US$ = ` 30 million
(b) Increase in the liability towards the principal amount
= US $ 12.5 million × ` (48 - 45) = ` 37.5 million
(c) Interest that would have resulted if the loan was taken in Indian currency
= US$ 12.5 million × ` 45 x 11% = ` 61.875 million
(d) Difference between interest on local currency borrowing and foreign currency borrowing = ` 61.875 million - ` 30 million = ` 31.875 million.

Therefore, out of ` 37.5 million increase in the liability towards principal amount, only ` 31.875 million will be considered as the borrowing cost.

Thus, total borrowing cost would be ` 61.875 million being the aggregate of interest of ` 30 million on foreign currency borrowings plus the exchange difference to the extent of difference between interest on local currency borrowing and interest on foreign currency borrowing of ` 31.875 million.

Hence, ` 61.875 million would be considered as the borrowing cost to be accounted for as per AS 16 and the remaining ` 5.625 million (37.5 - 31.875) would be considered as the exchange difference to be accounted for as per AS 11.

CA FINAL FR NOV 2016 NMQs

Ques :-
Opportunity Ltd. purchased an equipment costing ` 24,00,000 lakhs on 1.4.2013 and the same was fully financed by foreign currency loan (US Dollars) payable in four annual equal installments. Exchange rates were 1 Dollar = ` 60.00 and ` 62.50 as on 1.4.2013 and 31.3.2014 respectively. First installment was paid on 31.3.2014. The entire difference in
foreign exchange has been capitalized. You are required to state that how these transactions would be accounted for.
Ans:-
Solution
As per para 13 of AS 11 (Revised 2003) „The Effects of Changes in Foreign Exchange Rates‟, exchange differences arising on reporting an enterprise‟s monetary items at rates different
from those at which they were initially recorded during the period, should be recognized as income or expenses in the period in which they arise. Thus, exchange differences arising on
repayment of liabilities incurred for the purpose of acquiring fixed assets will be recognized as income or expense.
Calculation of Exchange Difference:
Foreign currency loan = ` 24,00,000/60 = 40,000 US Dollars
Exchange difference = 40,000 US Dollars x (62.50-60.00) = ` 1,00,000
(including exchange loss on payment of first instalment)Therefore, entire loss due to exchange differences amounting ` 1,00,000 should be charged to profit and loss account for the year.
Note: The above answer has been given on the basis that the company has not availed the option for capilisation of exchange difference as per para 46/46A of AS 11.
However, as per para 46A of the standard, the exchange differences arising on reporting of long term foreign currency monetary items at rates different from those at which they were initially recorded during the period, in so far as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset.
Accordingly, in case Opportunity Ltd. opts for capitalizing the exchange difference, then the entire amount of exchange difference of ` 1,00,000 will be capitalsied to „Equipment account‟. This capitalized exchange difference will be depreciated over the useful life of the asset.
Cost of the asset on the reporting date
Initial cost of Equipment ` 24,00,000
Add: Exchange difference as on 31.3.2014 ` 1,00,000
Total cost on the reporting date ` 25,00,000