MCM2C06
MCM2C06
ADVANCED CORPORATE
ACCOUNTING
(MCM2C06)
STUDY MATERIAL
II SEMESTER
CORE COURSE
M.Com.
(2019 Admission onwards)
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
CALICUT UNIVERSITY P.O.
MALAPPURAM - 673 635, KERALA
190606
School of Distance Education
University of Calicut
STUDY MATERIAL
SECOND SEMESTER
M.Com.
(2019 Admission onwards)
CORE COURSE:
MCM2C06 : ADVANCED CORPORATE ACCOUNTING
Prepared by:
Dr. AFEEFA CHOLASSERI
Assistant Professors OF Commerce (On Contract)
School of Distance Education
University of Calicut
Scrutinized by:
Dr. B. JOHNSON
Professor
Department of Commerce & Management Studies
University of Calicut.
Disclaimer
"The author(s) shall be solely responsible
for the content and views expressed in this
book"
MCM2C06 : ADVANCED CORPORATE ACCOUNTING
CONTENT
Page No.
MODULE 1
Group Financial Statements 1 - 16
MODULE 2
Accounting for Corporate Restructuring 17 - 63
MODULE 3
Accounting for Taxation 64 - 71
MODULE 4
Accounting for Revenue and Leases 72 - 85
MODULE 5
Modern Concepts in Accounting 86 - 101
MCM2C06 : ADVANCED CORPORATE ACCOUNTING
MCM2C06 : ADVANCED CORPORATE ACCOUNTING
MODULE I
GROUP FINANCIAL STATEMENTS
BONUS SHARES
The Subsidiary company may issue Bonus shares either
at the time of acquisition of shares by the holding company or
after the acquisition of shares by the Holding company. For
issuing bonus shares, the accumulated profits in the Balance
Sheet of the subsidiary company are employed. These profits
may be capital or revenue in nature or a combination of both.
At the time of bonus issue the share of the Holding company
as well as the minorities increases proportionately (in terms of
the ration of bonus issue) but the proportion of their ownership
remains the same as before. If bonus shares are issued out of
capital profits are adjusted accordingly and bonus shares
transferred to cost of control. If bonus shares issued out of
revenue profit of subsidiary company to that extent revenue
profit stand capitalized and will affect capital reserve or
goodwill as the case may be.
DIVIDEND ON EQUITY SHARES
The Subsidiary company may declare dividend on its
equity shares and the following are the possibilities with
respect to it.
a) Intention to propose dividend: In such a case since the
proposal has not been approved in the meeting the
intention may be ignored and no adjustment is required (in
terms of calculation) with respect to this dividend
intention.
b) Proposed dividend: It is possible that dividend has been
proposed in a meeting on the closing date of the financial
MODULE II
ACCOUNTING FOR CORPORATE
RESTRUCTURING
3 Members A/c
Dr.
To Capital Reserve A/c
(Being balance in members A/c
transferred)
Diverse Ltd.
Balance Sheet after the scheme of arrangement
Note (Rs. in
No. crores)
I Equity and liabilities
(1) Share holders’ funds:
1 500
(a) Share Capital
(b) Reserves and surplus 2 740 1,240
(2) Current liabilities 300
Total 1,540
II
Assets
(1) Non-current Assets
(a) Fixed assets: 3 30
(b) Non-current 510
4
investments
(2) Current assets (1,500 – 1,000
500)
Total 1,540
1. Capital commitments Nil
2. Contingent Liability
Guarantee given in respect of:
Capital commitments by 700
Sunrise Ltd.
Liabilities transferred to 2100
Sunrise Ltd.
Liabilities transferred to 600
Khajana Ltd.
Notes to Accounts
(Rs. in crores)
1 Share capital:
Authorized capital:
100 crores Equity Shares of Rs.10 each 1,000
Issued, subscribed and paid up capital 50 500
crores Equity Shares of Rs.10 each fully
paid-up
Of the above shares, 25 crores fully paid
Equity Shares of Rs.10 each have been
issued as bonus shares by capitalization of
revenue reserves.
2 Reserves and Surplus:
1. Capital Reserve on transfer of:
Investments to Khajana Ltd. 200
Business of new project division to 40 240
Sunrise Ltd.
2. Surpluses (profit and loss Account):
As per last balance sheet 750
Less: Used for issue of fully paid 250 500
bonus shares
3 Fixed assets: 740
Gross block:
As per last balance sheet 800
Less: Transfer to Sunrise Ltd. (600) 200
Notes to Accounts
(Rs. in crores)
1 Share Capital
Authorized Capital
100 crores Equity Shares of Rs.10 each 1,000
Issued, Subscribed and Paid-up capital 1 crore
Equity Shares of Rs.10 each fully paid-up 10
(All the above shares have been issued for
consideration other than cash, on takeover of
new project division from Diverse Ltd.
All the above shares are held by the holding
company Diverse Ltd.)
2 Secured Loans
(a) Against fixed assets 300
(b) Against working capital 100
3 Unsecured Loans 400
Note (Rs. in
No. crores)
I. Equity and liabilities
(1) Share holders’ funds:
1
(a) Share Capital 200
(2) Non-current liabilities:
(a) Long term borrowings
Unsecured loans 600
Total 800
II. Assets
Non-current investments 800
Total 800
Guarantee given by Diverse Ltd. in
respect of unsecured loans
Notes to Accounts
(Rs.in
crores)
1 Share Capital
Authorized
50 crores Equity Shares of Rs.10 each 500
Issued, Subscribed and Paid-up
20 crores Equity Shares of Rs.10 each 200
fully paid-up
(All the above shares have been issued to
members of Diverse Ltd. for consideration
other than cash, on acquisition of investments
and taking over of liability for unsecured
loans from Diverse Ltd.)
Working Notes:
1. Amount Due from Khajana Ltd.
Investments 800
Less: Unsecured Loans (600)
Net Consideration 200
(Rs.in crores)
New
Established
Project Total
division division
1. Fixed assets:
Gross block 200 600 800
Less: Depreciation (170) (30) (200)
30 570 600
Dr. Cr.
Rs. Rs.
(1) Turnaround Ltd. Dr. 25
Loan Funds Dr. 300
Current Liabilities Dr. 400
Provision for Depreciation Dr. 400
To Fixed Assets 500
To Current Assets 500
To Capital Reserve 125
(Being division Mobiles along
with its assets and
liabilities sold to Turnaround
Ltd. for Rs.25 crores)
(2) Capital Reserve Dr. 25
To Turnaround Ltd. 25
(Being allotment of 1 crore
equity shares of Rs. 10 each
Notes:
(1) Any other alternative set of entries, with the
same net effect on various accounts, may be
given by the students.
(2) Profitonsaleofdivisionmay,alternatively,becredit
edtoProfitandLossAccountinsteadofCapital
Reserve,inaccordancewiththerequirementsofAS5
(Revised)onNetProfitorLossforthePeriod, Prior
Period Items and changes in Accounting
Policies.
Enterprise Ltd.
Balance Sheet after reconstruction
(Rs. in crores)
Note
No.
I. Equity and liabilities
(1) Share holders’funds
(a) Share Capital 25
(b) Reserves and surplus 1 175 200
(2) Current Liabilities 25
Total 225
II. Assets
(1) Non-current assets
(a) Fixed assets 25
(2) Current assets 200
Total 225
Notes to Accounts
(Rs. in
crores)
1. Reserves and Surplus 75
Add: Capital Reserve on reconstruction 100
175
Note to Accounts: Consequent on transfer of Division
Mobiles to newly incorporated company Turn around
Ltd., the members of the company have been allotted 1
crore equity shares of Rs.10 each at a premium of Rs. 15
per share of Turnaround Ltd., in full settlement of the
consideration in proportion to their shareholding in the
company.
Notes to Accounts
(Rs. in crores)
1. Share Capital:
Issued and Paid-up capital
1 crore Equity shares of ` 10 each 10
fully paid up
(All the above shares have been
issued for consideration other than
cash, to the members of Enterprise
Ltd. on takeover of Division
Mobiles from Enterprise Ltd.)
2. Intangibles Assets:
Goodwill (N.1) 125
Working Note
1. Calculation of Goodwill/Capital Reserve for
Turnaround Ltd. Assets taken over
Non-Current Assets 100
Current Assets 500
Total Assets (A) 600
Loan Funds 300
Current Liabilities 400
Total Liabilities (B) 700
Ans.
Journal of Kuber Ltd.
(Rs. in crores)
Dr. Cr.
Rs. Rs.
Redeemable preference share capitalDr. 75
Account
To Bank Account 75
(Being redemption of 12% preference
shares pursuant to capital re-
organisation)
Revenue reserves Account Dr. 75
To Capital redemption reserve 75
Account
(Being amount equal to par value of
preference shares redeemed out of profits
transferred to capital redemption reserve)
Equity share capital Account Dr. 5
Securities Premium Account Dr. 20
To Bank Account 25
(Being buy-back of 50 lakh equity
sharesof Rs.10 each from the members
at a price of ` 50 per share, premium
paid transferred to Securities Premium
Account) 5
Revenue reserves Dr. 5
To Capital redemption
reserve
(Being transfer to capital redemption reserve,
on buy-back out of reserves)
School of Distance Education, University of Calicut 48
MCM2C06 : ADVANCED CORPORATE ACCOUNTING
Kuber Ltd.
Balance Sheet (after reconstruction)
Note (Rs. in
No. crores)
I. Equity and liabilities
(1) Shareholders’funds
(a) Share Capital 1. 20
(b) Reserves and 2. 280 300
Surplus
(2) Current liabilities 40
Total 340
II. Assets
(1) Non-current Assets
(a) Fixed Assets – -
(100-100)
(b) Non-current 100
investments (market
value: Rs. 400 crores)
(2) Current assets 240
Total 340
Notes to Accounts
(Rs. in crores)
1. Share Capital
1. Authorised Capital 100
2. Issued, Subscribed and
Paid-up
200 lakhs Equity Shares of ` 20
10 each fully paid up
(50 lakhs Equity Shares of ` 10
each have been bought back out
of Securities Premium account
at ` 50 per share and 12% 75
lakhs Redeemable Preference
Shares of ` 100 each fully paid
up, have been redeemed on 1st
April, 2017)
2. Reserves and Surplus
(1) Capital Reserve 15
(2) Capital Redemption
Reserve
As per last account
Add: Transfer from 80
Revenue Reserves (75 + 5)
(3) Securities Premium 5
Equity capital 50
(fully paid up ` 10 shares)
Reserves and surplus 650
(B) 700
Total (A+B) 400 400 800
Ans.
Demerged Company: Mini Division of “Maxi Mini
Ltd.’’
Resulting Company: “Mini Ltd.”
(a) Journal of Maxi Mini Ltd. (Demerged Company)
(Rs.in crores)
Dr. Cr.
Rs. Rs.
Current liabilities A/c Dr. 100
Loan fund (secured) A/c Dr. 100
Provision for depreciation A/c Dr. 100
Loss on reconstruction (BalancingDr. 300
figure) 300
To Fixed Assets A/c
To Current assets A/c 300
(Being the assets and liabilities of Mini
division taken out of the books on transfer of
the division to Mini Ltd., the consideration
being allotment to the members of the
company of one equity share of ` 10 each of
that company at par for every share held in
the company vide scheme of reorganization)
(Rs. in crores)
Note After Before
No. reconstructionReconstruction
Notes to Accounts
After Before
reconstruction reconstruction
1. Reserves and Surplus 650 650
Less: Loss on (300) –
reconstruction
350 650
2. Fixed Assets 600 900
Less: Depreciation (500) (600)
100 300
Note to Accounts: Consequent on reconstruction of the
company and transfer of Mini division to newly
incorporated company Mini Ltd., the members of the
company have been allotted 5 crores equity shares of Rs.
10 each at part of Mini Ltd.
Mini Ltd.
Balance Sheet as at 1 November, 2017
Note (Rs. in crores)
No.
I. Equity and liabilities
(1) Shareholder’s funds
(a) Share Capital 1 50
(b) Reserves and 250
Surplus 300
(2) Non-current
liabilities
Secured loans 100
(3) Current iabilities 100
Total 500
II. Assets
(1) Non-current assets
(a) Fixed assets 200
(2) Current assets 300
Total 500
Notes to Account
(Rs.
in
crores)
1. Share Capital:
Issued and paid up :
5 crores Equity shares of ` 10 each fully paid
up 50
(All the above shares have been issued for
consideration other than cash, to the
members of Maxi Mini Ltd., on takeover of
Mini division from Maxi MiniLtd.)
Chopra 116
Karki 76
Amar Singh 72
Malhotra 28
Other individuals 8 (eight members holding one
shareeach)
300
It was agreed that A Ltd. will pay in cash for fractional shares
equivalent at agreed value of shares in B Ltd. i.e. ` 65 for five
shares of ` 50 paid.
Prepare a statement showing the purchase consideration
receivable in shares and cash.
Ans.
(a) Schedule of Fraction
Exchange
Holding Exchangeable in Preference Non
of in nearest equity Exchangeable (E)=
Shares multiple of (C) = (D) = (A) –
(A) five (B) (B) / 5 (B) / 5 X 1 (B)
X2
Chopra 116 115 46 23 1
Karki 76 75 30 15 1
Amarsingh 72 70 28 14 2
Malhotra 28 25 10 5 3
Others 8 - - - 8
300 285 114 57 15
No. No.
(i) 80,000–300 (Total A 79,700 2/5 there of 31,880
above)
300-15 (Total E Above) 285 2/5 there of 114
79,985 31,994
Shares held
as in b (i) 1/5 there of
as in b (ii) 1/5 there of 57
MODULE III
ACCOUNTING FOR TAXATION
fulfilled their tax-duties, it’s just that the taxes would be paid
on a different timescale. It is a tax to be paid in future. In
simple words, deferred tax liabilities are the opposite of
deferred tax asset, which occur when the taxable income is
lesser as compared to the income mentioned in the income
statements of the company.
The conditions that cause origin of deferred tax liability
are as follows:
In order to showcase great profits to the shareholders,
the companies often push their profits.
When companies keep more than one copies of the
financial statement, for their own personal use or for
furnishing the same to tax authorities. This is called
dual accounting.
Sometimes companies also push the current profits into
future, this gives them the opportunity to decrease the
tax amount. By doing this instead of paying the saved
money as taxes, they use that extra money for making
investments.
Deferred Tax Expense” refers to the income tax effect on a
balance sheet arising out of difference taxable income
calculated on the basis of the company’s accounting method
and the accounting income calculated on the basis of tax laws.
Further, it can also be termed as the income tax effect due to
timing differences – temporary or permanent, which is
basically taxes that are deferred. Deferred tax is a method of
accounting for tax on an accruals basis. Deferred tax expense
MODULE IV
ACCOUNTING FOR REVENUE AND LEASES
• the lease term is for the major part of the economic life
of the asset, even if title is not transferred
• at the inception of the lease, the present value of the
minimum lease payments amounts to at least
substantially all of the fair value of the leased asset
• the lease assets are of a specialised nature such that
only the lessee can use them without major
modifications being made
When a lease includes both land and buildings
elements, an entity assesses the classification of each element
as a finance or an operating lease separately. In determining
whether the land element is an operating or a finance lease, an
important consideration is that land normally has an indefinite
economic life. However, separate measurement of the land and
buildings elements is not required if the lessee's interest in both
land and buildings is classified as an investment property in
accordance with IAS 40 and the fair value model is adopted.
Finance lease is often used to buy equipment for the
major part of its useful life. The goods are financed ex GST
and have a balloon at the end of the term. Here, at the end of
the lease term, the lessee will obtain ownership of the
equipment upon a successful 'offer to buy' the equipment.
Traditionally this 'offer' is the balloon amount. On the other
hand, an operating lease agreement to finance equipment for
less than its useful life, and the lessee can return equipment to
the lessor at the end of the lease period without any further
obligation.
lower of the fair value of the asset and the present value
of the minimum lease payments (discounted at the
interest rate implicit in the lease, if practicable, or else
at the entity's incremental borrowing rate).
• Finance lease payments should be apportioned between
the finance charge and the reduction of the outstanding
liability (the finance charge to be allocated so as to
produce a constant periodic rate of interest on the
remaining balance of the liability).
• The depreciation policy for assets held under finance
leases should be consistent with that for owned assets.
If there is no reasonable certainty that the lessee will
obtain ownership at the end of the lease – the asset
should be depreciated over the shorter of the lease term
or the life of the asset.
• For operating leases, the lease payments should be
recognised as an expense in the income statement over
the lease term on a straight-line basis, unless another
systematic basis is more representative of the time
pattern of the user's benefit.
Incentives for the agreement of a new or renewed
operating lease should be recognised by the lessee as a
reduction of the rental expense over the lease term, irrespective
of the incentive's nature or form, or the timing of payments.
Accounting by lessors
The following principles should be applied in the
financial statements of lessors:
MODULE V:
MODERN CONCEPTS IN ACCOUNTING
ENVIRONMENTAL ACCOUNTING
Environmental accounting, also called green
accounting, refers to modification of the System of National
Accounts to incorporate the use or depletion of natural
resources. Environmental accounting is a vital tool to assist in
the management of environmental and operational costs of
natural resources. Environmental accounting principles and
practices are mainly used by organizations to more accurately
trace environmental costs back to specific activities.
Government agencies, private businesses, local communities
and individuals all take responsibility for conserving natural
resources and operating sustainably in most developed nations.
Governmental agencies and businesses are accountable to the
public for setting environmentally related efficiency goals that
lead to cost reductions and improved operational processes.
These organizations are more likely to implement methods
from environmental accounting which is a growing subset of
traditional accounting. While environmental accounting can
focus on environmental management accounting or financial
accounting, the most prominent benefits come from the
application of environmental management accounting
methods. This type of accounting focuses on gathering,
estimating and analyzing costs associated with the use of
energy and physical materials like timber, metal or coal.
Standard accounting practices tended to place these costs in the
catch all category of overhead, but environmental management
accounting allows accountants to apply activity based cost
principles to more accurately associate these costs to various