REVISION

Chapter 2 COMPANY ACCOUNTS

Chapter 2, Unit 1 Statutory Financial Statements
uestion! 1
What are the limitations of Financial Statements?
Ans"er! 1
(a) Financial statements provide mostly historical data since its elements like
ssets ! lia"ilities etc are meas#red mostly #sin$ historical cost%
(") In India financial statements are prepared reco$ni&in$ le$al form of the
transactions and i$norin$ the s#"stance%
(c) 'hey are essentially "ased on $oin$ concern ass#mption( the applica"ility of
this may sometimes "e hi$hly illo$ical ! misleadin$%
(d) 'hey don)t reflect and incl#de a cash flo* report to e+plain movement of cash%
(e) 'hey are over $enerali&ed as sometimes interests of different sectors may "e
conflictin$ in nat#re%
(f) It can)t "e #nderstood "y all%
($) It doesn)t sho* all information at one place as they may also "e $iven in notes
! e+planation%
(h) It different companies follo* different acco#ntin$ policies comparison "ecomes
different%
uestion! 2
What are the advanta$es of Vertical Financial Statements?
Ans"er! 2
(a) Financial position can "e readily comprehended "y a layman%
(") ,rofit ! loss -c% clearly sho*s amo#nt of 'radin$ - Non 'radin$ profit earned
d#rin$ the year( previo#s year .-F fi$#res and appropriation proposed "y
directors%
(c) It clearly sho*s amo#nt of de"t "y shareholders e/#ity and correspondence
position of assets se$re$ated into F and W0%
Chapter 2, Unit # $est Presente% Accounts
uestion! 1
What are the conditions for entry to the ann#al competition for the .est ,resented?
cco#nts?
Ans"er! 1
(a) 'he entities are divided into 1 cate$ories23
(i) 0ate$ory I 4 Incl#des all non financial p#"lic-5oint sector companies an
also non financial stat#tory corporations%
(ii) 0ate$ory II 4 It incl#des all non financial private - 5oint sector%
(iii) 0ate$ory III 4 Incl#de financial instit#tions( "anks and financial companies
in p#"lic( private ! 5oint sectors%
(iv) 0ate$ory IV 4 it incl#des entities like ,ort 'r#sts( 6#nicipal 0orporation(
,#"lic 7tilities not re/d #nder the 0ompany cco#nts( 0o%3operative
sol#tion%
(") *ards are as follo*s23
0ate$ory I 3 silver (First) shield ! one pla/#e (8nd hi$hly commended)
0ate$ory II 3 3 do 3
0ate$ory III 3 silver shield for .est ,resent cco#nts
0ate$ory IV 3 pla/#e for the .est ,resented cco#nts%
(c) cco#nts sho#ld relate to any day "et*een 9st pril and :9st 6arch of ne+t
year%
(d) Si+ copies of the specified doc#ments have to "e sent "efore the specified date%
(e) 0yclostyled copies of cco#nts ! Reports *ont "e accepted e+cept far those
covered #nder cate$ory IV%
(f) ;ecision taken "y the panel of 5#d$es appointed "y the instit#te in their re$ard
*ill "e final%
uestion! 2
Important factors $enerally considered for the *ard of shields and pla/#e for the
.est ,resented cco#nts%
(a) 0ompliance *ith the le$al re/#irements in the preparation and presentation of
financial statements as specified "y the relevant stat#tory
(") .asic /#ality of cco#nts as 5#d$ed from the /#alification of a#ditors in their
reports etc ! compliance *ith reference to other S( S,( <#idance Notes etc
$iven "y the I0I%
(c) 'he nat#re /#ality of information presented in the acco#nts to make the
disclos#re meanin$f#l%
(d) =o* information one directors report and - or chairman)s statements%
(e) 'he /#ality of printin$ and $eneral presentation%
Chapter 2, Unit & Accountin' (or Amal'amations)
uestion! 1
;efine the term mal$amation%
Ans"er! 1
mal$amation is "lendin$ of t*o or more e+istin$ #ndertakin$s into one #ndertakin$(
the shareholders of each "lendin$ company "ecomin$ s#"stantially the shareholders
in the company *hich is to carry "lended #ndertakin$s% 'here may "e (shareholders
in the company) amal$amation either "y the transfer of 8 or more #ndertakin$s to
an e+istin$ company% 'he term amal$amation contemplates not only state of thin$s
in *hich too companies are so 5oined as to form a ne* company "#t also the
a"sorption ! "lendin$ of one "y the other%
uestion! 2
E+plain the types of mal$amation%
Ans"er! 2
.asically there are 8 types of mal$amation namely
(i) mal$amation in the nat#re of mer$er *here there is $en#ine poolin$ not
merely in ssets ! >ia"ilities "#t also in share holders interests of "#siness of
these companies% 'he follo*in$ conditions are a pre re/#isite%
(a) ll assets ! lia"ilities of 'ransferor 0ompany "ecome after amal$amation
assets ! lia"ilities of the transferee company respectively%
(") Shareholder holder holdin$ not ? @AB of the FV of the e/#ity shares of
the transferor 0o% "ecome e/#ity share holder of the transferee 0o% after
amal$amation%
(c) 'he consideration for the amal$amation is dischar$ed "y the transferee
*holly "y iss#e of e/#ity shares( e+cept that cash may "e paid in respect
of any fractional shares%
(d) 'he "#siness of transferor is intended to "e carried on after the ann#al
$eneration "y the transferee company%
(e) ll assets and lia"ilities are to "e taken over at .ook Val#es e+cept to
ens#re #niformity of cco#ntin$ policies%
(ii) mal$amation in the nat#re of p#rchases% 'hose amal$amations *hich don)t
satisfy any one or more of the conditions specified in (a) thro#$h (c) a"ove are
kno*n as mal$amation in the nat#re of p#rchases%
uestion! #
>ist do*n the methods of cco#ntin$ for mal$amation%
Ans"er ! #
(a) 'he poolin$ of Interests 6ethods and
(") 'he ,#rchase method%
Chapter 2, Unit * Corporate +estructurin'
uestion! 1
What are the different methods of Restr#ct#rin$?
Ans"er ! 1
Restr#ct#rin$ can "e "roadly classified into2
(a) ,-ternal +estructurin'23 'his #niform is f#rther classified into C (I) sset
.ased (,ortfolio) restr#ct#rin$ and (ii) Financial or 0apital restr#ct#rin$%
(") .nternal +estructurin'23 'his is t*in is f#rther divided into (I) portfolio
restr#ct#rin$ and (ii) Or$anisational restr#ct#rin$%
Its to "e noted that sset .ased restr#ct#rin$ is of vital importance as it incl#des the
follo*in$23
(9) 6er$ers and c/#isitions (6 ! )
(8) ;ivestitores and sset 4 S*ap%
(:) ;emer$ers or spin3offs%
Chapter # Unit 2 /aluation o( $usiness
uestion! 1
What is the need for val#ation of .#siness?
Ans"er! 1
'he follo*in$ represent the need for "#siness val#ation 4
(a) In 6er$er ! 'ake overs val#ation of "#siness plays a key role for settin$ the
p#rchase consideration and val#e of proportion that is taken over respectively%
(") In the case of sale of "#siness it)s needed to fi+ #p the "ar$ainin$ limit%
(c) t the time of li/#idation it)s needed to determine the amo#nt *hich the
shareholders *o#ld $et on li/#idation%
uestion! 2
What val#ation "o+ sho#ld yo# adopt *hile val#in$ a "#siness as $oin$ concern?
Ans"er! 2
7nder the $oin$ concern approach it is important to #nderstand *hat "enefit the
"#siness is a"le to $enerate in f#t#re o#t of its e+istin$ stock of e+ists altho#$h val#e
of e+istin$ assets is not i$nored "y the acco#ntants%
uestion! #
What are the different val#ation method #nder a $oin$ concern concept?
Ans"er! #
(i) =istorical cost val#ation
(ii) 0#rrent cost val#ation
(iii) Economic val#ation
(iv) sset val#ation
uestion! &
E+plain "riefly the relative advanta$e and disadvanta$es of val#ation of "#siness
follo*in$ economic val#ation or
(i) 0apitalisation of f#t#re maintaina"le ,rofit
(ii) ,%V of f#t#re earnin$s
(iii) ,V of f#t#re cash flo*s%
Ans"er! &
'he follo*in$ are the advanta$e ! disadvanta$e of the a"ove mentioned methods of
economic val#ation%
A%0anta'e!1
(i) Its may lo$ical and "ased on scientific principle%
(ii) If inp#ts are acc#rate then it can provide very acc#rate res#lts%
(iii) Its simple to calc#late and easy to #nderstand%
2isa%0anta'e23
(i) ;iffic#lties involved in estimatin$ f#t#re cash flo*s%
(ii) S#"5ectivity involved in choice of the f#t#re period for *hich cash flo*s to "e
estimated%
(iii) S#"5ectivity is involved in the selection of disco#nt rate%
uestion! *
Why does val#ation of "#siness differ if done is isolations compared to that *hen
done in com"ination of another "#siness? What is meant "y val#e of control?
Ans"er! *
(a) 6ain difference "et*een the val#e of a "#siness in isolation ! that of a
com"ination of another "#siness is the val#e of votin$ control%
(") 'he val#e of control is the present val#e of the chan$e in cash flo*s *hich *ill
"e realised 4 from e+ercisin$ control%
(c) 0ontrollin$ interests ena"le the o*ner of that interest to arran$e the affairs of
the "#siness in a *ay that "est s#its his o*n circ#mstances%
Chapter # Unit # /aluation o( 3oo%"ill
uestion! 1
;efine $ood*ill ! distin$#ish "et*een p#rchased ! interested <-W%
Ans"er! 1
In the *ords of >ord 6acna#$hton (In IR0 Vs 6#ller 9@@9) 4 D<ood*ill is a thin$
very easy of diso#le( very diffic#lt to define% In the "enefit and advanta$e of the
$ood name( rep#tation ! connection of a "#siness% In the attractive force *hich "rin$
in c#stomers% Its one thin$ *hich distin$#ishes an old esta"lished "#siness from a
ne* "#siness at its first start%E
C It can arise to t*o *ays% It co#ld "e either $enerate internally or he inherent to
the "#siness kno*n as inherent $ood*ill%
C It may also "e ac/#ired *hile p#rchasin$ any concern in the e+cess of fair val#e
of the p#rchase consideration over the fair val#e of the separa"le net assets
ac/#ired%
uestion! 2
;escri"e "riefly the contri"#tin$ factor of $ood*ill%
Ans"er! 2
Inherent ! ,#rchased <ood*ill ,#rchased $ood*ill only
(a) S#perior 6ana$ement 'eam 6arket dominance
(") O-s Sales mana$e or or$anisation Economic of seals( (,rod#ction( dvanta$e
etc%)
(c) Weakness in the mana$ement of
competitor
0ost solvin$
(d) Effective advertisement 0ost of financin$
(e) Secret or patented man#fact#rin$ Fiscal advanta$es
(f) <ood la"o#r relations Stron$ li/#id reso#rces
($) O-S credit ratin$ ,reliminary e+pense savin$s
(h) <ood p#"lic ima$e "ility to $#arantee s#ppliers
(i) Favo#ra"le ta+ conditions "ility to $#arantee market
(5) ;iscovery of talent or reso#rces 0ost of ac/#isition
(k) E+cellent rep#tation for /#ality and
relia"ility of prod#cts
Opinion of ac/#irer)s directors as to f#t#re
policy of ac/#ires%
uestion! #
;isc#ss vario#s methods of $ood*ill val#ation%
Ans"er! #
.asically there are t*o acco#ntin$ methods for $ood*ill val#ation namely
capitalisation method of s#per profit method% third method called ann#ity method
is a refine mat of the s#per profit method of $ood*ill val#ation%
(a) Capitalisation metho%2 3 F#t#re maintaina"le profit is capitalised applyin$
normal rate of ret#rn to arrive at the normal capital employed $ood*ill is
e+cess of normal capital employed over the act#al capital employed%
<ood*ill F Normal capital employed 4 ct#al closin$ capital employed
Normal 0apital Employed C F6, - Normal rate of ret#rn%
(") Super pro(it Metho%2 3 E+cess of F6, over normally e+pected profit is called
s#per profit% =ere <-W is taken as the a$$re$ate s#per profit of the f#t#re
years for *hich s#per profit is e+pected to "e maintained%
<-W F S#per ,rofit + No% of years
Where S#per ,rofit F F6, 4 (ct#al 0apital Employed + Normal Rate of Ret#rn)%
(c) Annuity Metho%2 3 Since S#per ,rofit is e+pected to arise as different f#t#re
time periods it *o#ld "e apt to disco#nt #sin$ appropriate disco#nt factor
f#t#re val#es of s#per profits and arrive at the present val#e%
<ood*ill C S#per ,rofit + No% of years
No% of years is to "e calc#lated *rt appropriate disco#nt rate and no% of years
correspondin$ly%
uestion! &
=o* do yo# find o#t capital employed for $ood*ill val#ation? Wo#ld yo# prefer G>on$
term F#nd) to Gshareholders f#nd) approach?
Ans"er! &
For $ood*ill val#ation capital employed is calc#lated #sin$2 3
0E C Net Worth 4 Non tradin$ assets% =ere $enerally shareholders F#nd approach is
preferred "eca#se the lenera$e advanta$e has "een taken into considerations *here
in #se of lo*er amo#nt of o*ned f#nd res#lts in hi$her ret#rn d#e to #sa$e of
"orro*ed f#nds advanta$eo#sly%
Chapter #, Unit & /aluation o( Shares
uestion! 1
What factors have to "e considered for val#ation of shares #nder Net ssets .asis?
Ans"er! 1
(a) Val#e of tan$i"le fi+ed asset sho#ld "e taken at c#rrent cost%
(") Val#e of intan$i"le sho#ld also "e taken at their c#rrent cost%
(c) Investments like shares ! sec#rities re$#larly traded to market price sho#ld "e
taken as c#rrent val#e of investments ! *rt others "ook val#e after makin$
ad5#stments for kno*n losses-$ains sho#ld "e taken%
(d) Inventories consistin$ of F< H 6arket price ! others at cost follo*in$ a
conservative approach%
(e) S#ndry ;e"tors m#st "e taken at Net realia"le val#e after makin$ proper
allo*ance for "ad ! do#"tf#l de"ts%
(f) ;evelopment e+penses and miscellaneo#s e+pendit#re ! loss are not
considered%
uestion! 2
What other special factors are to "e considered *hile doin$ val#ation of e/#ity
shares?
Ans"er! 2
(a) Importance of the si&e of the "lock of shares 4 *rt control%
(") Restricted transfera"ility as contained in the rticles of ssociation e+cept in
certain cases%
(c) ;ividends and val#ation also pay an important role is companies payin$ hi$h
dividends H a stready rates *ith hi$h share prices en5oy the confidence of the
p#"lic and vice versa as prices are lived to the rise factor primarily%
(d) .on#s ! ri$hts iss#e2 3 When s#ch iss#e are anno#nced shares val#es $o #p
$enerally%
uestion! #
What are the factors to "e considered for val#ation of preference shares?
Ans"er! #
'he follo*in$ factors are $enerally considered%
(a) Risk free rate ! small risk premi#m ie 6arked e+pectation rate
(") "ility of the company to pay dividend on a re$#lar "asis%
(c) "ility of the company to redeem preference share capital%
Chapter &, Unit 1 4ol%in' Company Accounts le'al +e5uirements in
.n%ia
uestion! 1
.riefly disc#ss the re/#irements of see 898 of the 0ompanies ct *rt disclos#re of
information re$ardin$ investment in s#"sidiaries%
Ans"er! 1
'he holdin$ company as v-s 898 is re/#ired to attach to its "alance sheet the
follo*in$ doc#ments in respect of each of its s#"sidiaries%
(i) copy of the .alance Sheet of the company
(ii) copy of its profit ! loss acco#nt
(iii) copy of the report of its .oard of directors%
(iv) copy of the report of its a#ditors%
(v) statement of the holdin$ 0o%)s interest in the s#"sidiary as specified in section
898(:)%
(vi) Statement referred to in Sec% 898(I)%
(vii) 'he report if any referred to in Section 898(J)%
(viii) If for any reason the .oard of directors in #na"le to o"tain information on any
of the matters re/#ired( a report in *oritin$ to that effect sho#ld "e attached
alon$ *ith the .alance sheet%
Chapter &, Unit 2 Accountin' (or .n0estments
uestion! 1
What are the methods for cco#ntin$ of Investment of e+plain them .riefly?
Ans"er! 1
When consolidated as *ell as separate financial statements are prepared then
"asically there are t*o methods namely the e/#ity method and the cost method%
(a) ,5uity Metho%23
(i) 'he investment is initially recorded at cost%
(ii) 'he carryin$ amo#nt is increased - decreased to reco$nise the investors
share of the profits or losses of the investee after the date of ac/#isition%
(iii) ;istri"#tion received from the investee red#ce the carryin$ amo#nt of the
investment%
(iv) d5#stments to the carryin$ amo#nt may also "e necessary for alterations
in the investor)s proportionate interest in the investee arisin$ from
chan$es in the investee)s e/#ity that have not "een incl#ded in the
income statement%
(") Cost Metho%23
(i) Investments in the shares of s#"sidiary are sho*n at cost%
(ii) =oldin$ 0ompany reco$nises income from investments in s#"sidiary only
if the distri"#tion from the acc#m#lated net profit of the investee
represents income earned s#"se/#ent to the date of ac/#isation to it%
(iii) ;istri"#tions received in e+cess of s#ch profits are considered as recovery
of investment ! recorded as red#ction in cost of investment%
Chapter &, Unit # Consoli%ate% Financial Statements
uestion! 1
What are the main advanta$es of consideration?
Ans"er! 1
'he follo*in$ as the advanta$es2 3
(i) 'he #sers of acco#nts earn $et an overall pict#re of the holdin$ company its
s#"sidiaries%
(ii) Intrinsic share val#e of the holdin$ 0o% can "e calc#lated directly%
(iii) 0onsolidated Financial Statements provide information for identifyin$ reven#e
profit for determinin$ ret#rn on investment%
(iv) 0FS sho*s the 6inority interest of o#tside shareholders incl#de can "e #sed as
the stat#tory point of "ar$ainin$ at the time of ac/#isitions of a s#"sidiary%
(v) 'he overall financial health of the =oldin$ 0o% can "e 5#d$ed #sin$ consolidated
financial statements%
uestion! 2
What are the proced#res to the #ndertaken for consolidation?
Ans"er! 2
'he follo*in$ are the consolidation proced#res2 3
(i) 'he financial statements of the parent ! its s#"sidiaries are com"ined on a line
"y line "asis "y addin$ to$ether like items of assets( lia"ilities etc%
(ii) 0arryin$ amo#nt of the parent)s investment in each s#"sidiary ! the parent
position of e/#ity of each s#"sidiary are eliminated%
(iii) Inter $ro#p transactions( incl#ded sales( dividend e+penses are eliminated in
f#ll%
(iv) 7nrealised losses res#ltin$ from intra$ro#p transactions that are ded#cted in
arrivin$ at the carryin$ amo#nt are also eliminated #nless cost cant "e
recovered%
(v) Similar to a"ove #nrealised profits incl#ded in the carryin$ amo#nt of assets(
s#ch as investin$ ! fi+ed assets are eliminated in f#ll%
(vi) 6inority Interest in the net income of consolidated s#"sidiaries are identified
and ad5#sted a$ainst the income of the $ro#p to arrive at the net income
attri"#ta"le to the o*ners of the parent%
(vii) 6inority interest in the Net ssets are identified separately from lia"ilities ! the
parent shareholders) e/#ity%
Chapter 1 * F.NANC.A6 +,PO+.N3 FO+ F.NANC.A6 .NST.TUT.ONS
uestion! 1
E+plain in "rief *hat do yo# #nderstand "y G6#t#al F#nd)?
Ans"er! 1
(a) 6#t#al F#nd is a f#nd esta"lished in the form of tr#st to raise monies "y sale of
#nits to p#"lic #nder one or more schemes for investin$ in sec#rities incl#din$
6oney 6arket instr#ments%
(") In typically promoted "y a sponoor( *ho appoints a tr#stee( 60 and astodian%
(c) 6#t#al F#nd sho#ld "e re$ister *ith the SE.I%
(d) 'he 60 mana$es the f#nds of the 6#t#al F#nd%
uestion! 2
Write short notes on 6oney 6arket Instr#ments%
Ans"er! 2
6oney 6arket instr#ments incl#des commercial papers( commercial "ills( 'reas#ry
"ills( $overnment sec#rities havin$ an #ne+pired mat#rity #pto one year( call or
notice money( certificate of deposit( #sance "ills( and any other the instr#ment as
specified "y the R.I from times to time2
uestion! #
Write short notes on Re$#lation of SE.I (6#t#al F#nds) Re$#lation 9@@J%
Ans"er! #
7nder Re$#lation IA 4 ct sset 6ana$ement company shall maintain and keep
proper "ooks of acco#nt( records and doc#ment( for each scheme so as to e+plain its
transaction ! disclose at any part of time the financial position of each schemes and
in partic#lar $ive a tr#e and fair vie* of the state of affairs of the f#nd ! intimate to
the .oard the place *here s#ch "ooks of acco#nt( records and doc#ments are
maintained%
uestion! &
.riefly e+plain the nn#al Reportin$ proced#res for 6#t#al F#nds%
Ans"er! &
(i) Re$#lation I9 provides for all scheme the year endin$ shall "e on :9st 6arch of
each year%
(ii) Scheme *ise ann#al reports in detailed or a"rid$ed form to "e advertised in
local ne*spaper less them J months from the date of clos#re of relevant
acco#ntin$ year%
(iii) 'he contents sho#ld incl#de23
(a) Report of .oard of 'r#stees on operations f#nd *ise ! f#t#re o#tlook%
(") .alance sheet and reven#es acco#nt
(c) #ditors report
(d) .rief statement of .oard of 'r#stees on lia"ilities ! responsi"ility of
tr#stees( investment o"5ective of each scheme etc%
(e) If scheme permits investment partly - *holly is shares - ;e"ent#re etc%
*hose val#e can fl#ctrate then a special statement to that effect%
(iv) Statement $ivin$ relevant perspective historical per #nit stat#tes%
(v) Statement that #nit holders - investors can $et a copy of ann#al report etc on
the payment of prescri"ed fee%
uestion! *
E+plain the provisionin$ for N.F0s%
Ans"er! *
'he provisionin$ for Non .ankin$ Finance 0ompanies may "e done the follo*in$%
(a) >oans ! advances and other credit facilities incl#din$ "ills p#rchased and
disco#nted%
(") >eased assets and ssets on =ire ,#rchase%
(a) With reference to loans ! dvances etc%
,artic#lars ,rovision Re/#ired
(i) >oss ssets 3 9AAB of the o#tstandin$
(ii) ;o#"tf#l ssets 3 9AAB of the #nsec#red position and
#pto 9 year 4 8AB of the Sec#red portion
9 year 4 : year 4 :AB of the Sec#red portion
(iii) S#"3standard ssets 3 9AB on 'otal o#tstandin$%
(") With reference to >eased and =, assets2
(i) 3eneral Pro0ision2 3 'otal d#es red#ced "y Finance char$es not credit to
, ! > acco#nt and carried for*ard and depreciated val#e of the #nderlyin$
asset%
sset first hand 4 0ost and depreciation H 8AB S>6
sset second hand 4 0ost of ac/#isition H 8AB S>6
(ii) A%%itional Pro0ision23
,rovision
(a) mo#nt overd#e ? 98 months 3 nil
(") S#" standard assets
6ore than 98 months "#t ? 81 months 3 9AB of Net .ook Val#e
(c) ;o#"tf#l ssets
6ore than 81 months "#t ? :J months 3 1AB of Net .ook Val#e
6ore than :J months "#t ? 1K months 3 LAB of Net .ook Val#e
(d) >oss ssets
6ore than 1K months 3 9AAB of Net .ook Val#e
Note! On e+piry of a period of 98 months of the d#e date of the "est installment of
=, or leased asset( the entire net "ook val#e shall "e f#lly provided for%
uestion! 7
E+plain the provisions *ith reference to 6erchant .ankers%
Ans"er! 7
(a) s per Re$#lation L the capital ade/#antly re/#irement of the merchant
"ankers shall not "e ? the Net *orth of the person makin$ the application for
$rant of re$istration%
6in Re/#irement
(i) 0ate$ory I 6erchant .anker *ho carries on iss#e
mana$ement the preparation of prospect#s and
other information relatin$ to iss#e( determin$
financial str#ct#re( tie of financiers( final
allotment ! ref#nd of s#"scription( and act as
advisor( cons#ltant( mana$er( 7W( portfolio
mana$er
I 0rores
(ii) 0ate$ory II 6erchant .ankers *ho act as advisor( IA lacs
cons#ltant( 0o%3mana$er( #nder*rite etc%
(iii) 0ate$ory III 6erchant .ankers *ho act as #nder *riters(
advisors ! cons#ltants to the iss#e
8A lacs
(iv) 0ate$ory IV 6erchant "anker *ho act as cons#ltant to iss#e NI>
(") Re$#lation 91 Stip#lates the maintenance of "ooks ! records( .alance Sheet( ,
! > a-c( #ditor)s report( statement of financial position to "e filed every year
and the place *here its kept m#st "e specified it sho#ld "e presented for a
minim#m of I years%
(c) Re$#lation 8K stip#lates ;isclos#res of information like responsi"ility in the
mana$ement of iss#e( chan$e of information previo#sly f#rnished *hich have a
"earin$ on the certificate $ranted( Names of "ody corporate *ho iss#e he *as
mana$ed( partic#lars of "reach of capital ade/#acy as in re$#lation L and
others%
(d) 'he merchant "ankers has a d#ty to asset the inspectin$ a#thority appointed
"y SE.I in all *ays%
uestion! 8
E+plain the provision *ith re$ard to stock "rokers%
Ans"er! 8
(a) 'he stock "rokers have to maintain the follo*in$ "ooks as prescri"ed in R#le
9I of sec#rities contract% (Re$#lation) R#les 9@IL ! R#le 9L of SE.I (Stock !
s#" "rokers) R#les 9@@8%
(") Some of the a"ove are Re$ister of transactions( chants led$er( $eneral led$er(
5o#rnal( 0ash "ook( .ank pass "ook( ;oc#ment in - o#t re$ister for sec#rities
reemed and declined( mem"ers contract "ook( co#nterfoils - d#plicate of
contract notes iss#ed to clients( mar$in deport "ooks a$reement *ith s#"
"rokers( Re$istered of sales "rokers etc%
(c) part from a"ove the additional re/#est are scrip*isc( cherterise list in respect
of scrips of specified $ro#p( chant #pto statement( copies of mar$in statement(
d#plicate copies of self certificates s#"mitted monthly( copies of val#e .alance
Sheet( ;etails of spot delivery transactions entered intoM che#t data"ase !
"roker chant a$reement( copies of pool act statement etc%
(d) 'he place *here "ooks are dept has to "e intimated to SE.I( ! the same has to
"e dept for a minim#m period of I years%
(e) 'hey have a d#ty to assist a#thorities appointed "y SE.I *ith re$ard to
investi$ation into "ook of acco#nts ! affairs of the "rokers%
(f) Fail#re to comply - contieration may lead to cancellation of re$istration or
s#spension of re$istration for certain period after en/#iry%
Chapter 7 2,/,6OPM,NTS .N ACCOUNT.N3
uestion! 1
What is a val#e added statement? Why s#ch statement is needed?
Ans"er! 1
Val#ed dded Statement sho*s val#e added *here is the *ealth a reportin$ entity
has "een a"le to create thro#$h the collect#re effort of capital( mana$ement and
employees% In economic terms V is the market price of the o#tp#t of an enterprise
less the price of the $oods and services ac/#ired "y transfer from other firms% V
can provide a #sef#l meas#re in $an$in$ performance and activity of the reportin$
entity%
uestion! 2
State the advanta$es of Net Val#e dded over $ross val#e added%
Ans"er! 2
Net val#e added is arrived at the ded#ctin$ depreciation from $ross val#e added and
is preferred over the latte "eca#se23
(i) Wealth creation - V *ill "e overstated if no provision for *earin$ off of fi+ed
assets or loss in val#e of assets made as ne* assets are created%
(ii) NV is a firmer "ase for calc#latin$ prod#ctivity "on#s as it $ives reco$nition for
depreciation *hen additional capital investment is made *hich res#lts in
Increase of prod#ctivity th#s helpin$ employees%
(iii) 'he concept of matchin$ demands that depreciation the ded#cted alon$ *ith
"o#$ht in costs to derive Net Val#e dded%
uestion! #
What are the advanta$es of Val#e dded Statement?
Ans"er! #
(i) Reportin$ on Val#e dded improves the attit#de of employees to*ards their
employin$ companies%
(ii) Its helpf#l in introd#ction of a scheme of .on#s listed to prod#ction on the "asis
of Val#e dded - ,ayroll Ratio%
(iii) V "ased ratios are #sef#l dia$nostic ! prod#ctive tools and facilitate intra and
interfirm comparisons%
(iv) V provides a $ood meas#re of the si&e ! importance of the company%
(v) V statement links a company)s financial acco#nts to National Income *here
company)s V is its contri"#tion to National Income%
(vi) V is "#ilt on the "asic concept#al fo#ndation *hich are c#rrently accepted in
.alance Sheet and income statement%
uestion! &
What are the limitation of Val#e dded Statements?
Ans"er! &
ltho#$h V Statement have a let of advanta$es they s#ffer from the follo*in$
limitations23
(i) 0oncept of sho*in$ V as applied to several interests $ro#p is "ein$ /#estioned
"y several academicians as shareholders fear entire risk%
(ii) It can in no case "e a s#"stit#te for the traditional profit ! loss acco#nt or
increase statement%
(iii) 'hey also s#ffer from a temporary criticism of not "ein$ standardi&ed%
uestion! *
What is meant "y V or Economic Val#e dded?
Ans"er! *
It)s a resid#al income meas#re of financial performance and it)s the operatin$ profit
after ta+ation less a char$e for the capital( e/#ity as *ell as de"t #sed in the
"#siness% It is a mana$ement tool to foc#s mana$ers on the impact of their decisions
in increasin$ shareholders) *ealth as they involve takin$ "oth strate$ic and
operational decisions%
uestion! 7
What is corporate social Reportin$? (0SR)
Ans"er! 7
(i) 0orporate social reportin$ is the information comm#ni/#N *ith reference to
dischar$e of social responsi"ility of the corporate entity%
(ii) Sterephases that the responsi"ility to report p#"licity is separate from !
"roader than the le$al o"li$ation to report%
(iii) 'he same arises from the c#stodial role% ,layed in the comm#nity "y economic
entity%
uestion! 8
E+plain "riefly I possi"le areas identified "y .r#mmet *here in social o"5ectives can
"e traced o#t%
Ans"er! 8
'he follo*in$ are the areas *here in social o"5ectives can "e traced o#t23
(i) Net Income 4 the economic o"5ectives is of primary importance%
(ii) =#man Reso#rce 4 it sho*s or$ani&ation stren$th( employee development !
"enefit pro$ram and payment of ta+es ! d#ties%
(iii) ,#"lic 4 7se of reso#rces( poll#tion( other etc%
(iv) ,rod#ct - service contri"#tion 4 0overs /#ality aspect( c#stomers foc#s(
$#arantee of /#ality( redressal of cons#mer $rievance( honest e+pos#re in
advertisements etc%
(v) Environment as a *hole%
uestion! 9
What is the present stat#s of 0%S%R( in India?
Ans"er! 9
It *as seen as early as 9@L@ 4 KA *here corporate *here 'IS0O and others like
N',0( 6R>( 0ement 0orporation of India( 66'0( ON<0( etc had p#"lished( social
.alance Sheet% <eneral response to*ards 0SR is not m#ch si$nificant in India% .#t is
most of the cases a special mention in the directors) report is seen%
uestion! :
>ist o#t the 6a5or heads #nder 0SR%
Ans"er! :
'he follo*in$ are the 6a5or heads #nder 0SR%
(i) Employment opport#nities%
(ii) Environment control 4 Factors the tree implantation( ,oll#tion control norms
stip#lated "y poll#tion control .oard( methods "y *hich *aste is disposed off
etc%
(iii) Forei$n e+chan$e transaction 4 For savin$s "y import - s#"sidy%
(iv) Ener$y conservation%
(v) Research and development
(vi) 0ontri"#tion to $overnment e+chan$er
(vii) Social pro5ects like schools( Roads etc%
(viii) 0ons#merism%
uestion! 1;
What is =#man Reso#rce cco#ntin$ and trace the need for =R?
Ans"er! 1;
(i) It)s the process of identifyin$ ! meas#rin$ data a"o#t =#man reso#rce and
comm#nicatin$ this information to interested parties%
(ii) Its necessity arose primarily d#e to the $ro*in$ concern for =#man Reso#rce
6ana$ement in the ind#stry since 9@JA)s%
(iii) .ehavio#ral s#entosts criticism on cco#ntants that Val#e of =#man reso#rce
*ere i$nored res#lted in a handicap for effective mana$ement%
uestion! 11
>ist o#t the vario#s models of =R
Ans"er! 11
(a) 6ost $ase% Mo%els23
(i) 0apitali&ation of =istorical cost 4 "y R% >ikes
(ii) Replacement cost 3 "y Flamholt&%
(") ,conomic /alue Mo%els23
(i) Opport#nity costs model 4 "y =eleimian of Oones
(ii) ;isco#nted *a$es ! Salaries 6odel 4 "y >ev ! Sch*art&
(iii) Stochastic process *ith service re*ards 4 "y Flamholt& (9@L9)
(iv) Val#ation on $ro#p "asis 4 "y Oa$$i and >a#%
uestion! 12
0omment #pon the >ev Sch*art& 6odel%
Ans"er! 12
(i) 'his model involves determinin$ the val#e of =#man Reso#rces as the present
val#e of the f#t#re estimated earnin$s of the employee disco#nted "y the rate
of Ret#rn on Investment%
(ii) In this model *a$es ! Salaries are taken as s#rro$ate for the val#e of =#man
assets%
(iii) 'h#s it provides a meas#re of f#t#re estimated cost%
(iv) It i$nored the effect of an individ#al)s kno*led$e and skills%
(v) 'he possi"ility of an employee ! pro"a"ility of them leavin$ the or$ani&ation
other than "y means of death - retirement *as not taken #p%
(vi) It i$nores the pro"a"ility of people makin$ role chan$es in their career%
uestion! 1#
What is meant "y Environment cco#ntin$ and e+plain its si$nificance?
Ans"er! 1#
(i) It)s a faithf#l attempt to identify and lon$ to li$ht reso#rces e+haled and the
costs rendered reciprocally to the environment "y a "#siness corporate%
(ii) It incl#des recordin$ of environment elements( val#ation of nat#ral reso#rces(
meas#rin$ the income ! costs relatin$ to them( provision for depreciation etc%
Si'ni(icance!
(iii) It #sef#l for disco#rsin$ ho* nat#ral reso#rces one a varia"le in co#ntry and
then ascertainin$ cost ! "enefits arisin$ there from%
(iv) It meas#res individ#al development social *elfare and f#lfillment of social
responsi"ility of companies%
(v) It also foc#ses on environmental protections on a $lo"al arena%