DCM 6106 FINANCIAL ACCOUNTING & REPORTING JULY-AUG 2025

Description

SESSION	JULY-AUG 2025
PROGRAM	MASTER OF COMMERCE (M.COM)
SEMESTER	I
COURSE CODE & NAME	DCM 6106 FINANCIAL ACCOUNTING & REPORTING

 

 

 

 

Assignment Set -1

 

 

 

Q1. From the following information, prepare Income Statement and Balance Sheet (Position statement) of Kumari Ltd. as at 31st March 2025.

Particulars	Amount (₹)	Particulars	Amount (₹)
Equity Capital	450,000	Cash at Bank	137,000
Drawings	20,000	Salaries & other benefits	20,000
Plant & Machine	260,000	Repairs	4,500
Delivery Vehicle	60,000	Opening Stock	35,000
Sundry Debtors	90,000	Rent	12,000
Sundry Creditors	60,000	Audit Expenses	3,500
Purchases	50,000	Bills Payable	40,000
Sales	160,000	Bad Debts	8,000
Wages	18,000	Carriage Inwards	4,000

 

Additional information:

1.Closing stock at 31-03-2025 = ₹25,000.

2. Depreciate Plant & Machine @ 5% p.a. and Delivery Vehicle @ 25% p.a.
3. Unpaid rent amounting to ₹6,000 (outstanding) is to be provided.

Provision for doubtful debts = 5% on sundry debtors (make provision).

Ans 1.

Kumari Ltd. – Income Statement & Balance Sheet as at 31-03-2025

Step 1: Depreciation (Adjustment)

• Plant & Machinery @ 5% on ₹2,60,000

• Delivery Vehicle @ 25% on ₹60,000

Step 2: Provision for Doubtful Debts (Adjustment)

Provision = 5% of Sundry Debtors ₹90,000

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Q2.(A). ABC Limited is in the process of preparing its financial statements for   the first time in accordance with the new accounting standards. As part of its preparations, the company is reviewing the conceptual framework of accounting, focusing on the qualitative characteristics of financial information.

Elaborate on the different levels of the conceptual framework of accounting as per qualitative characteristics and justify the necessity for ABC Limited to adopt these standards for accurate financial reporting.

(B). MNO Ltd., a newly established manufacturing company, is preparing its first set of financial statements. During the process, the accountant records machinery at its original purchase price but ignores the cost of installation and transportation. Additionally, the company delays finalizing its financial statements by three months, citing staff shortage.

Question:
i. Identify which qualitative characteristics of financial information are being violated in the above scenario.

1. Explain how MNO Ltd. can ensure faithful representation and timeliness in future reporting.

 

Ans 2.

(A) Conceptual Framework of Accounting and Qualitative Characteristics

The conceptual framework of accounting provides a structured foundation for the preparation and presentation of financial statements. It guides standard-setters, preparers, and users by defining the objective of financial reporting and the qualitative characteristics that make financial information useful. For ABC Limited, which is preparing financial statements for the first time under new accounting standards, understanding this framework is essential for accurate and reliable reporting.

At the first level, the conceptual framework defines the objective of financial reporting, which is to provide financial information that is useful to investors, lenders, and other stakeholders in making economic decisions. This objective focuses on providing information about the financial position, performance, and cash flows of the entity.

 

 

Q3. (A)  ABC Ltd. purchased machinery costing ₹9,60,000 on 1 April 2024. Useful life for accounting (Companies Act) = 8 years (straight-line).

For Income-tax Act purposes the machinery is allowed to be depreciated over 4 years (straight-line).

ABC Ltd. is in a 30% tax bracket.

Net profit before depreciation and tax (i.e., profit before charging any depreciation and before tax) for FY 2024-25 = ₹7,20,000.

Using the data above, answer:

25. Accounting income (as per Companies Act) and Taxable income (as per Income Tax Act) for FY 2024-25.
26. Amount of Timing difference (if any).

iii. Amount of Deferred Tax (DTA or DTL).

25. Where these amounts will appear in the Income Statement and Balance Sheet for FY 2024-25.

 

(B). MNO Ltd., a mid-sized manufacturing company listed on the stock exchange, has been under pressure from investors to show higher quarterly profits. In response, the finance team has been considering certain accounting practices that could boost short-term performance. During the review, the auditor noticed the following:

1. Sales worth ₹25,00,000 were recorded in March 2025 even though the goods were delivered in April 2025.
2. Certain repair and maintenance expenses of ₹5,00,000 were capitalized as fixed assets.
3. A provision for doubtful debts of ₹3,00,000 was intentionally omitted to improve reported profit.
4. Management hesitated to disclose pending litigation of ₹10,00,000 that could impact future profits.

Required:
i. Identify and explain the ethical issues involved in financial accounting as observed in the case of MNO Ltd.

1. Suggest the general procedure to resolve such ethical issues in financial reporting.

 

Ans 3.

(A). Deferred Tax due to different depreciation (FY 2024-25)

Cost of machinery = ₹9,60,000

Profit before depreciation & tax = ₹7,20,000

Tax rate = 30%

1. i) Accounting income & Taxable income

Book depreciation (Companies Act, SLM 8 yrs):

Accounting income (PBT):

Tax depreciation (Income-tax, SLM 4 yrs):

Taxable income:

 

 

 

Assignment Set 2

 

 

 

Q4. A. List out reporting areas that may be relevant to a particular company or organization when considering matters related to Corporate Social Responsibility (CSR) and Sustainability reporting in financial reporting.

1. XYZ Ltd. is a growing tech company that has decided to grant share-based payment in the form of stock options to its employees as part of their incentive program. The company grants 2,000 stock options to an employee, allowing the employee to purchase shares at a price of ₹100 per share. The stock options will vest over a period of 5 years, with 1/5 of the options vesting each year. The fair value of the stock options at the grant date is estimated at ₹250 per option. XYZ Ltd. must determine the accounting treatment for this stock option grant.

Explain how XYZ Ltd. should:

1. Measure the fair value of the stock options granted to employees.
2. Recognize the expense related to the stock options in the financial statements over the vesting period.

iii. Present the share-based payment transaction in its financial statements.

Ans 4.

(A). CSR & Sustainability reporting areas

CSR/sustainability reporting areas commonly include: environmental impacts (energy, emissions, water, waste), employee well-being and labour practices, health & safety, diversity and inclusion, supply-chain ethics, community development/CSR spend, product responsibility and customer privacy, governance and anti-corruption, compliance and legal matters, climate risk and ESG targets, and reporting metrics/assurance for sustainability

 

 

 

Q5. Write short note on:

• Equity and Cost method of valuation of Investments.
• Triple Bottom Line
• Integrated Reporting
• Impairment of Non-Current Assets
• Elements of Revenue Account of Banking Company.

 

Ans 5.

1. Equity and Cost Method of Valuation of Investments

• The cost method of valuation of investments records investments at their acquisition cost. Income is recognized only when dividends are received, and such income is treated as revenue. Any decline in value is recognized only if it is permanent in nature. This method is generally applied when the investor does not have significant influence over the investee company.
• The equity method, on the other hand, is used when the investor has significant influence over the investee, usually when shareholding is between 20% and 50%. Under this method, investments are initially recorded at cost and subsequently adjusted for the investor’s share of post-acquisition profits

 

 

Q6. On 31st March 2025 the balance sheets of Maanu ltd and its subsidiary Pooni Ltd. stood as follows

Draw a consolidated balance sheet as at 31/3/2025 after taking into consideration the following information

1. Maanu Ltd acquired shares on 31/7/2024 on that date Profit and loss A/c and General Reserve of Pooni Ltd stood at Rs. 30,000 and Rs 40,000 respectively.
2. Pooni Ltd earned a profit of Rs 45000 for the year ended 31/3/2025
3. On 1/1/2025 Maanu ltd sold Pooni ltd goods costing Rs 15000 for Rs 30000.
4. On 31/3/2025 , 50% of the above goods were lying unsold in the godowns of Pooni Ltd.

Ans 6.

Consolidated Balance Sheet of Maanu Ltd. and its Subsidiary Pooni Ltd. as at 31-03-2025

Maanu Ltd. holds 75% shares in Pooni Ltd.; therefore Pooni Ltd. is a subsidiary and consolidation is required as per standard consolidation principles.

1. Holding and Minority Interest

• Holding company (Maanu Ltd.) = 75%
• Minority interest = 25%

2. Net Assets of Pooni Ltd. on Date of Acquisition (31-07-2024)

Formula: