Financial Reporting for

Financial Institutions
MUTUAL FUNDS & NBFCs

Question1
What do you mean by Net asset value (NAV) in
case of mutual fund units?

Answer
The net asset value (NAV) of a mutual fund
indicates the price at which the units of that
mutual fund are bought or sold. It represents the
fund's market value after subtracting the
liabilities. The NAV per unit is derived after
dividing the net asset value of the fund by the
total number of its outstanding units.
The formula for calculating NAV:

Question 2
Investors Mutual Fund is registered with SEBI and having
its registered office at Pune. The fund is in the process of
finalizing the annual statement of accounts of one of its
open ended mutual fund schemes. From the information
furnished below you are required to prepare a statement
showing the movement of unit holders funds for the
financial year ended 31st March, 2015.
Particulars
Opening Balance of net assets

Rs000
12,00,000

Net Income for the year (Audited)

85,000

8,50,200 units issued during 2014-15

96,500

7,52,300 units redeemed during 2014-15

The par value per unit is Rs. 100

71,320

Working Note:
Particulars

Units
Par value
Sale proceeds/Redemption value
Profit transferred to Reserve
/Equalisation Fund
Balance in Reserve/Equalisation Fund
(Issued & Redeemed)

Issued

Redeemed

8,50,200
7,52,300
Rs. 000 Rs 000
85,020
96,500
75,230
11,480
71,320
3,910
15,390

When in the case of an open-ended scheme units are sold, the difference between the sale price and the face
value of the unit, if positive, should be credited to reserves and if negative be debited to reserves, the face
value being credited to Capital Account. Similarly, when in respect of such a scheme, units are repurchased,
the difference between the purchase price and face value of the unit, if positive should be debited to reserves
and, if negative, should be credited to reserves, the face value being debited to the capital account.
5

Statement showing the Movement of Unit Holders Funds

for the year ended 31st March 2015
Particulars
Opening balance of net assets
Add: Par value of units issued (8,50,200 Rs. 100)
Net Income for the year
Transfer from Reserve/Equalisation fund (Refer working note)

(Rs. 000)
12,00,000
85,020
85,000
15,390
13,85,410

Less: Par value of units redeemed (7,52,300 Rs. 100)

Closing balance of net assets (as on 31st March, 2015)

(75,230)
13,10,180

Question 3
On 1.4.2014, a mutual fund scheme had 18
lakh units of face value of Rs. 10 each was
outstanding. The scheme earned Rs. 162
lakhs in 2014-15, out of which Rs. 90 lakhs
was earned in the first half of the year. On
30.9.2014, 2 lakh units were sold at a NAV of
Rs. 70.
Pass Journal entries for sale of units and
distribution of dividend at the end of 2014-15.

Solution

Allocation of Earnings

Old Unit
Holders

[18 lakhs
units]

New Total
Unit
Holders
[2 lakhs
units]
Rs. in
lakhs

Rs. in
lakhs

First half year (Rs. 5 per unit)

90.00

90

Second half year (Rs. 3.60 per unit)

64.80

7.20

72

Earning 2014-15

154.80

7.20

162

Add: Equalization payment recovered

10

Total available for distribution

172

Equalization Payment:-Rs. 90 lakhs 18 lakhs = Rs. 5 per unit.

In the case of an open-ended scheme, when units are sold and appropriate part of the sale proceeds should be
credited to an Equalisation Account and when units are repurchased an appropriate amount should be debited to
Equalisation Account
8

Solution
Particulars

Dividend distributed

Old Unit
Holders
8.60

Less: Equalization payment

New Unit
Holders
8.60
(5.00)

8.60

3.60

The net balance on this account should be credited or debited to the Revenue
Account. The balance on the Equalisation Account debited or credited to the
Revenue Account should not decrease or increase the net income of the fund
but is only an adjustment to the distributable surplus. It should, therefore, be
reflected in the Revenue Account only after the net income of the fund is
determined

Journal Entries
Date

Particulars

Debit

Credit

(Rs. in lakhs)
30.9.2014 Bank A/c

150

To Unit Capital

20

To Reserve

120

To Dividend Equalization

10

( Being the amount received on sale of 2 lakhs unit at

a NAV of Rs. 70 per unit)
31.3.2015 Dividend Equalization

10
10

To Revenue A/c
(Being the amount transferred to Revenue
Account)
30.9.2015 Revenue A/c

172
172

To Bank
(Being the amount distributed among 20 lakhs
unit holders @ Rs. 8.60 per unit)

10

Question 4
A Mutual Fund raised 100 lakh on April 1, 2015
by issue of 10 lakh units of Rs. 10 per unit. The
fund invested in several capital market
instruments to build a portfolio of Rs. 90 lakhs.
The initial expenses amounted to Rs. 7 lakh.
During April, 2015, the fund sold certain securities
of cost Rs. 38 lakhs for Rs. 40 lakhs and
purchased certain other securities for Rs. 28.20
lakhs. The fund management expenses for the
month amounted to Rs. 4.50 lakhs of which Rs.
0.25 lakh was in arrears.
11

 The dividend earned was Rs. 1.20 lakhs. 75% of

the realized earnings were distributed. The
market value of the portfolio on 30.04.2015 was
Rs. 101.90 lakh.
Determine NAV per unit.

12

Answer
Particulars

Rs. in lakhs

Opening bank balance [Rs. (100- 90-7) lakhs]

Add: Proceeds from sale of securities
Dividend received

3.00
40.00
1.20

Less: Cost of securities

Fund management expenses
[ Rs. (4.500.25) lakhs]
Capital gains distributed
[ 75% of Rs. (40.00 38.00) lakhs]
Dividends distributed (75% of Rs. 1.20lakhs)
Closing bank balance
Closing market value of portfolio

28.20

Less: Arrears of expenses

Closing net assets
Number of units ( in Lakhs)
Closing Net Assets Value (NAV)

Rs. in lakhs

Rs. in lakhs

44.20

4.25
1.50
0.90

(34.85)
9.35
101.90
111.25
(0.25)
111.00
10
11.10

13

Question 5
Ramesh Goyal has invested in three mutual
funds. From the details given below, find out
effective yield on per annum basis in respect of
each of the schemes to Ramesh Goyal upto 3103-2015.
Mutual Fund
Date of Investment
Amount of investment
(Rs.)
NAV at the date of
investment (Rs.)
Dividend received upto
31-3-2015 (Rs.)
NAV as on 31-3-2015
(Rs.)

1-12-2014

1-1-2015

1-3-2015

1,00,000

2,00,000

1,00,000

10.50

10.00

10.00

1,900

3,000

Nil

10.40

10.10

9.80

14

Calculation of effective yield on per annum basis in respect of three

mutual fund schemes of Ramesh Goyal upto 31.03.2015

S.N Particulars
o

Amount of Investment (Rs.)

1,00,000

2,00,000

1,00,000

Date of investment

1.12.2014

1.1.2015

1.3.2015

NAV at the date of investment

(Rs.)

10.50

10.00

10.00

No. of units on date of

investment [1/3]

9,523.809

20,000

10,000

NAV per unit on 31.03.2015

(Rs.)

10.40

10.10

9.80

Total NAV of mutual fund

investments on
31.03.2015 [4 x 5]

99,047.61

2,02,000

98,000

15

Calculation of effective yield on per annum basis in respect of three

mutual fund schemes of Ramesh Goyal upto 31.03.2015
X

Increase/ decrease of NAV

[6-1]

(952.39)

2,000

(2,000)

Dividend received upto

31.3.2015

1,900

3,000

Nil

Total yield [7+8]

947.61

5,000

(2,000)

10

Yield % [9/1] x 100

0.95%

2.5%

(2%)

11

Number of days

121

90

31

12

Effective yield p.a. [10/11] x 2.87%

365 days

10.14%

(23.55%)

16

Question 6
The investment portfolio of a mutual fund scheme
includes 5,000 shares of X Ltd. and 4,000 shares of
Y Ltd. acquired on 31-12-2013. The cost of X Ltd.s
shares is Rs. 40 while that of Y Ltd.s shares is Rs.
60. The market value of these shares at the end of
2013-14 were Rs. 38 and Rs. 64 respectively. On
30-06-2014, shares of both the companies were
disposed off realizing Rs. 37 per X Ltd. shares and
Rs. 67 per Y Ltd. shares. Show important
accounting entries in the books of the fund for the
accounting years 2013-14 and 2014-15.

17

Solution
Date

Particulars

31.12.2013

Investment in X Ltd.s
shares A/c (5,000 x Rs. 40)
Dr.
Investment in Y Ltd.s
shares A/c (4,000 x Rs. 60)
Dr.
To Bank A/c 4,40,000
(Being investment made in
X Ltd. and Y Ltd.)

31.3.2014

Revenue A/c [5,000 x Rs.

(40-38)] .
Dr.
To Provision for
Depreciation A/c
(Being provision created for
the reduction in the value
of X Ltd.s shares)

Debit

Rs.

Credit

Rs.

2 ,00,000

2,40,000
4,40,000

10,000
10,000

18

Debit

Date

Particulars

31.3.2014

Investment in Y Ltd.s
shares A/c
Dr.

Rs.

Credit

Rs.

16,000
[4,000 x

Rs. (64-60)]
To Unrealised Appreciation
Reserve A/c
(Being appreciation in the
market value of Y Ltd.s
shares transferred to
Unrealised Appreciation
Reserve A/c)
01.04.2014

Unrealised Appreciation
16,000
Reserve A/c
Dr.
To Investment
in Y Ltd.s shares A/c
(Being last years unrealised
appreciation reserve
balance reversed at the
beginning of the current
year)

16,000

16,000

19

Date

Particulars

Debit

30.6.2014

Bank A/c (5,000 x Rs. 37)

1,85,000

Dr.
15,000
Loss on disposal of
Investment A/c Dr.
To Investment in
X Ltd.s shares A/c
( 5,000
x Rs. 40)
(Being shares of X Ltd.
disposed off at a loss of
Rs. 15,000)
30.6.2014

Provision for Depreciation

A/c
Dr.
Revenue A/c
Dr.
To Loss on disposal
of Investment A/c 15,000
(Being net loss on disposal
of X Ltd.s shares charged
to revenue account)

Rs.

Credit

Rs.

2,00,000

10,000
5,000

15,000

20

Date

Particulars

Debit

30.6.2014

Bank A/c (4,000 x Rs. 67)

2,68,000

Dr.
To Investment in
Y Ltd.s shares A/c
(4,000 x Rs.

Rs.

Credit

Rs.

2,40,000

28,000

60)
To Revenue A/c
(Being shares of Y Ltd.
disposed off at a profit of
Rs. 28,000)

21

Question 7
A Mutual Fund Co has the following assets under it on the close of business
as on
2nd
Company
No of shares 1st
February ,
February ,
2015 Market
2015 Market price per
price per
share
share

L Ltd

20,000

20

20.50

M Ltd

30,000

312.4

360

N Ltd

20,000

361.2

383.10

P Ltd

60,000

505.10

503.90

Total value of Units 6,00,000

1. Calculate NAV of the Fund

2. Following information is given : Assuming Mr A submits a cheque of Rs 30,00,000 to the

mutual fund and the fund manager of this company purchases 8000 shares of M ltd and the
balance is held in bank . In such case what would be the position of fund
3. Find the new NAV as 2nd feb 2015

22

SOLUTION
COMPANY

1st February , 2015

No of shares

Market Price

Value

L Ltd

20,000

20

4,00,000

M Ltd

30,000

312.4

93,72,000

N Ltd

20,000

361.2

72,24,000

P Ltd

60,000

505.10

3,03,06,000
4,73,02,000

UNITS

6,00,000

NAV per Unit

78.8367
23

COMPANY

2nd

February , 2015

No of shares

Market Price

Value

L Ltd

20,000

20.50

4,10,000

M Ltd

38,000

360

1,36,80,000

N Ltd

20,000

383.10

76,62,000

P Ltd

60,000

503.90

3,02,34,000
5,19,86000

UNITS

Cash= 30,00,0002499200( 8000* 312.4)=

5,00,800

NAV per Unit

5,00,800

5,24,86,800
UNITS

638053.35

NAV

82.2608

Additional units will be issued to Mr A at Rs 78.8367 = 30,00,000/78.8367=

38053.35
24

COMPAN
Y

1st February , 2015

No of
shares

Market
Price

2nd

Value

February , 2015

No of
shares

Market
Price

Value

L Ltd

20,000

20

4,00,000

20,000

20.50

4,10,000

M Ltd

30,000

312.4

93,72,000

38,000

360

1,36,80,000

N Ltd

20,000

361.2

72,24,000

20,000

383.10

76,62,000

P Ltd

60,000

505.10

3,03,06,000

60,000

503.90

3,02,34,000

4,73,02,000
UNITS

6,00,000

NAV per
Unit

78.8367

5,19,86000
Cash= 30,00,0002499200( 8000*
312.4)= 5,00,800

5,00,800

5,24,86,800
UNITS

638053.35

NAV

82.2608

Additional units will be issued to Mr A at Rs 78.8367 = 30,00,000/78.8367=

38053.35
25

Question 8
A Mutual fund has a NAV of 8.5 at the
beginning of the year . At the end of the year NAV
increase to 9.10. Meanwhile fund distributes
0.90 as dividend and 0.75 as capital gains.
A) What is the funds return during the year ?
B) Assuming that the investor had 200 units and
also assuming that the distributions have been
reinvested at an average NAV of Rs 8.75 . What
is the return

26

 A) What is the funds return during the year ?

RETURN FOR THE YEAR

Amount

Change in price

0.60

Rs 9.10- Rs 8.50

Dividend received

0.90

Capital gain distribution

0.75

Total Return

2.25

HOLDING PERIOD RETURN

= 2.25/ 8.50= 26.47%

26.47%

27

 B) Assuming that the investor had 200 units and also assuming that the
distributions have been reinvested at an average NAV of Rs 8.75 . What is
the return
Amount

Particulars
Dividend + capital gain per unit

1.65

Total received from 200 units = 1.65 x 200

1.65
330

Additional Units acquired 330/ 8.75= 37.7 units

Value of 237.7 units x 9.10

2163

Price paid for 200 units at the beginning of the year = 200x
8.5

1700

Holding period return = (2163-1700)/1700

27.24%
28

Question 9
A Mutual Fund raised funds on 01.04.2014 by
issuing 10 lakhs units @ 15.00 per unit. Out of
this Fund, Rs. 140 lakhs invested in several
capital market instruments. The initial expenses
amount to Rs. 7 lakhs. During June, 2014, the
Fund sold certain securities worth Rs. 90 lakhs
for Rs. 120 lakhs and it bought certain securities
for Rs. 95 lakhs. The Fund Management
expenses amounting to Rs. 5 lakhs per month out
of which 2 lakhs was outstanding on 31.3.2015.

29

 The dividend earned was Rs. 10 lakhs. 60% of

the realised earnings were distributed among the
unit holders. The market value of the portfolio
was Rs. 175 lakhs. Determine Net Asset value
(NAV) per unit as on 31.03.2015.

30

Answer
Particulars

Rs. in lakhs

Opening bank balance [Rs. (150- 140-7) lakhs]

Add: Proceeds from sale of securities
Dividend received

3.00
120.00
10.00

Less: Cost of securities

Fund management expenses
[ Rs. (5.002.00) lakhs]
Capital gains distributed
[ 60% of Rs. (120 90) lakhs]
Dividends distributed (60% of Rs. 10 lakhs)
Closing bank balance
Closing market value of portfolio

95.00

Less: Arrears of expenses

Closing net assets
Number of units ( in Lakhs)
Closing Net Assets Value (NAV)

Rs. in lakhs

Rs. in lakhs

133.00

3.00
18.00
6.00

(122.00)
11.00
175.00
186.00
2.00
184.00
10
18.40

31

Question 10
Calculate the NAV of a mutual fund from the
following information:
On 1-4-2014 Outstanding units 1 crore of Rs. 10
each = Rs. 10 crores (Market Value Rs. 16
crores) Outstanding liabilities Rs. 5 crores.
Other information:
(i)20 lakhs units were sold during the year at Rs.
24 per unit.

32

 (ii) No additional investments were made during

the year and as at the year end 50% of the
investments held at the beginning of the year were
quoted at 80% of book value.
(iii) 10% of the investments have declined
permanently 10% below cost.
(iv) At the year end 31-3-15 outstanding liabilities
were Rs. 1 crore.
(v) Remaining investments were quoted at Rs. 13
crores.
33

Solution
Units at the end of the year 2014-2015

Units in
crores

Units as on 1/4/2014

1.00

Add units issued during the year

0.20
1.20

Net asset Value of the Mutual Fund

crores

Market value of investments

10 crores x 50% x80%

4.00

10 crores x 10% x 90%

0.90

Remaining investment at market value

13.00

Total market value of investments

17.90

Less liabilities

1.00

Net asset value

16.90

NAV per unit 16.90 crores / 1.2 crores =

14.08
34

Question 11
Sparrow Holdings is a S.E.B.I. Registered Mutual
Fund which made its maiden N.F.O. (New Fund
offer) on l0th April, 2014 @ Rs. 10/- Face Value per
unit. Subscription was received for 90 lakhs units:
An underwriting arrangement was also entered into
with Affinity Capital Markets Ltd that agreed to
underwrite the entire NFO of 100 lakh units on a
commission of 1.5%.Out of the monies received
Rs. 892.50 lakhs was invested in various capital
market instruments. The marketing expenses for
the N.F.O. amounted to Rs. 11.25 1akhs.
35

 During the F.Y. ended March, 2015 the Fund sold

securities having cost of Rs. 127.25 lakhs (FV
54.36 lakhs) for Rs. 141.25 lakhs. The fund in
turn purchased securities for Rs. 130 lakhs. The
management expenses of the fund are regulated
by S.E.B.I stipulations which state that the same
shall not exceed 0.25% of the average funds
invested during the year. The actual amount
spent towards management expenses was Rs.
2.47 lakhs of which Rs. 47,000 was in arrear.

36

 The dividends earned on the investments held

amounted to Rs. 2.51 Lakhs of which a sum of
Rs. 25,000 is yet to be collected. The fund
distributed 80% of realized earnings. The closing
Market Value of the Port folio was Rs. 1120.23
lakhs.
You are required to determine the closing per unit
NAV of the fund.

37

Computation of Management Expenses

chargeable
Actual Expenses incurred (A )

2.47

Opening investment made

892.50

Closing funds invested (892.50-127.25+130)

895.25

Total
Average Funds Invested 1787.75/2

1787.75
893.875

0.25% of average funds invested (B)

2.23

Lower of A or B

2.23

Less Amount unpaid

Management expanses paid

.47
1.76

38

 in lakhs

WORKING NOTES
1. Computation of opening cash balance
Proceeds of NFO in full including underwriters
commitment

1000.00

less Initial Purchase of securities

892.50
107.50

Less Underwriting Commission

Marketing Expenses
Opening Cash Balance

15.00
11.25

26.25
81.25

39

 in lakhs

WORKING NOTES
2 . Computation of closing cash balance
opening bank balance
Add Proceeds from sale of securities
Dividend received on investment (2.51. 25)

81.25
141.25
2.26

143.51
224.76

Less Cost of securities purchased

Management expenses
Capital Gains distributed ( 141.25-127.25) x 80%
Dividend distributed 2.26 x 80%
Closing cash balance

130.00
1.76
11.20
1.81

144.77
79.99

40

Calculation of closing per unit of NAV of the Fund

Net Assets of Sparrow holdings
Closing Cash balance
Closing Market value of Investments
Accrued Dividends ( collectable)

79.99
1,120.23
0.25
1200.47

Less Current liabilities

Outstanding management fee payable
Closing Net Assets A
Units outstanding ( in Lakhs)
NAV per Unit A/B

.47
1200.00
100
12.00

41

Question 12
Calculate the year-end NAV of the mutual fund
scheme on the basis of the information
(i) UTI launched a new fund scheme for 6,000
crore.
(ii) Underwriting commission is 1% of the fund
shared equally by SBI, PNB,Syndicate Bank and
UTI Bank.
(iii) The fund was launched on 1.4.2014 with face
value of 1,000 per unit(As per SEBI rules Face
value must be 10)
42

 (iv) Underwriting commission was paid in full.

(v) Management expense was allowed by SEBI
@ 1% of the fund raised. However during the
year management expense was 45 crore only.
The management decided to defer the payment
of 5 crore to the next financial year.
(vi) On 1.5.2014,the total fund received was
invested after deduction of underwriting
commission And 100 cr to meet day to day
management expenses.
43

 The investment fund received Yielded 10%

interest per annum. The interest was received for
3 quarters and the interest of Last quarter is yet
to receive. The interest realized in cash has been
distributed to the unit holders @ 80%. The
financial year runs from April to March. The
quarter starts from the date of investment
i.e.,1.5.2014.

44

Solution Working Notes

Calculation of year end cash balance
Sale of units

6000

Add interest for 3 quarters of investment 5840 x

10% x 9/12

438

Investments = (6000-60-100)= 5840

6438

Less underwriting commission

60

Management expenses paid in cash

40

Investment
Dividend paid 438 x 80%
Closing cash balance

5840
350.40

6290.40
147.60

45

Calculation of Net Asset Value of a Fund

in crore

Total Assets
Investments (6000-60-100)
Add : Closing Cash balance
Add : Interest for two months due to be received
(

5840
147.60
97.33 6084.93

5,840 x 10% 2/12 )

Less : Outstanding management expenses

5.00

Total value of the fund

No of Units
NAV per unit

6079.93

6,000 crore / 1000= 6 crore units

6079.93 / 6 crore units

1013.32

46

Question 13
The investment portfolio for a mutual fund
scheme includes 10,000 shares of A Ltd and
8,000 shares of B Ltd acquired on 30/10/2014.
The cost of A ltd shares is 20 while that of B ltd
is 30 . The market values of these shares at
the end of 2014-15 were 19 and 32
respectively .
Show important accounting entries in books of
the fund in the accounting year 2014-15

47

solution
000

Date
31/10/2014

Investment in A ltd Shares Dr

200

Investment in B Ltd shares Dr

240

To Bank

000

440

( Being purchase of A ltd 10,000 shares @ 20

and 8,000 shares of B ltd @ 30 each)
31/03/2015

Revenue a/c

10
To Provision for Depreciation

10

(Being market value of A ltd depreciated for 1

each for 10,000 shares
31/03/2015

Investment in B ltd shares Dr

To Unrealised appreciation reserve

16
16

( Being 8000 shares of B ltd appreciated @ 2

each per share on the closing date
48

Question 14
A fund purchased 10,000 debentures of a
company on June 1, 2012 for 10.7 lakh and
further 5,000 debentures on November 1, 2012
for 5.45 Lakh . The debenture carry fixed annual
coupon of 12% payable on every 31st March and
30th September . On Feburary 28, 2013 the fund
sold 6,000 of these debentures for 6.78 lakh .
Nominal value per debenture is 100
Show investment in Debentures A/c in books of
the Fund

49

Working Note
Note 1 10,000 x 100 x 12/100 x 2/12 = 0.20 Lakhs
Note 2 5000 x 100x 12/100x 1/12= .05 lakhs
Note 3 6000 x 100x 12/100x 5/12 = 0.30 lakhs
Note 4

= Cost of investments per unit (10,70,000 20,000 ) + 5,45,000-5000) / 15000 units

= 10,50,000+ 5,40,000 )/ 15000 = 106

COST OF INVESTMENTS SOLD = 106 x 6000 = 6,36,000
6,000 x 100 x 12/100 x 5/12 = 30,000
SALE PROCEEDS = 6,78,000- 30,000 ( interest ) = 6,48,000
PROFIT

6,48,000- 6,36,000= 12,000

50

solution
INVESTMENT IN DEBENTURES ACCOUNT :
lakhs

Date

Particulars

lakhs

Date

Particulars

June 1
2012

To Bank

10.70

June 1 By interest
2012 recoverable

.20

Nov 1
2012

To Bank

5.45

Nov 1 By interest
2012 recoverable

.05

Feb 28
2013

To Interest
Recoverable

.30

Feb 28
2013

Profit on
disposal

.12 March 31
2013

Feb 28 By bank
2013

By balance c/d
16.57

6.78

9.54
16.57
51

Question 15
On April 1, 2012 a Mutual Fund scheme had 9
Lakhs units of the face value of 10 outstanding.
The scheme earned 81 lakh in 2012-13 out
which 45 lakh was earned in the first half year .
1 lakh units were sold on 30/09/12 at NAV of
60 .
Show important entries for sale of units and
distribution of dividend at the end of 2012-13

52

Solution

Allocation of Earnings

Old Unit
Holders

[9 lakhs
units]

New Total
Unit
Holders
[1 lakhs
units]
Rs. in
lakhs

Rs. in
lakhs

First half year (Rs. 5 per unit)

45.00

Nil

45

Second half year (Rs. 3.60 per unit)

32.40

3.60

36

Earning 2012-13

77.40

3.60

81

Add: Equalization payment recovered

Total available for distribution

86

Equalization Payment:-Rs. 45 lakhs 9 lakhs = Rs. 5 per unit.

In the case of an open-ended scheme, when units are sold and appropriate part of the sale proceeds should be
credited to an Equalisation Account and when units are repurchased an appropriate amount should be debited to
Equalisation Account
53

Solution
Particulars

Dividend distributed

Old Unit
Holders
8.60

Less: Equalization payment

New Unit
Holders
8.60
(5.00)

8.60

3.60

The net balance on this account should be credited or debited to the Revenue
Account. The balance on the Equalisation Account debited or credited to the
Revenue Account should not decrease or increase the net income of the fund
but is only an adjustment to the distributable surplus. It should, therefore, be
reflected in the Revenue Account only after the net income of the fund is
determined

54

Journal Entries
Date

Particulars

Debit

Credit

(Rs. in lakhs)
30.9.2012 Bank A/c

65

To Unit Capital

10

To Reserve

50

To Dividend Equalization

( Being the amount received on sale of 1 lakhs unit at

a NAV of Rs. 60 per unit)
31.3.2013 Dividend Equalization

5
5

To Revenue A/c
(Being the amount transferred to Revenue
Account)
30.9.2013 Revenue A/c

86
86

To Bank
(Being the amount distributed among 10 lakhs
unit holders @ Rs. 8.60 per unit)

55

Question 16
A Mutual Fund raised 250 lakh on May 1, 2014 by
issue of 25 lakh units of Rs. 10 per unit. The fund
invested in several capital market instruments to
build a portfolio of Rs. 231 lakhs. The initial
expenses amounted to Rs. 10 lakh. During
September, 2014, the fund sold certain securities
of cost Rs. 83.75 lakhs for Rs. 105 lakhs and
purchased certain other securities for Rs. 78.20
lakhs. The fund management expenses for the
month amounted to Rs. 7.50 lakhs of which Rs.
0.55 lakh was in arrears.
56

 The dividend earned was Rs. 2.70 lakhs. 80% of

the realized earnings were distributed. The
market value of the portfolio on 30.05.2014 was
Rs. 259.70 lakh.
Determine NAV per unit.

57

Answer
Particulars

Opening bank balance [Rs. (250- 231-10) lakhs]

Add: Proceeds from sale of securities
Dividend received
Less: Cost of securities
Fund management expenses
[ Rs. (7.500.55) lakhs]
Capital gains distributed
[ 80% of Rs. (105.00 83.75) lakhs]
Dividends distributed (80% of Rs. 2.70lakhs)
Closing bank balance
Closing market value of portfolio
Less: Arrears of expenses
Closing net assets
Number of units ( in Lakhs)
Closing Net Assets Value (NAV)

Rs. in lakhs

9.00
105.00
2.70

Rs. in lakhs

Rs. in lakhs

116.7

78.20
6.95
17.00
2.16

104.31)
12.39
259.70
272.09
(0.55)
271.54
25
10.86

58

Question 17
Ms Vrinda has invested in three mutual funds.
From the details given below, find out effective
yield on per annum basis in respect of each of
the schemes to Ms Vrinda upto 31-03-2015.
Mutual Fund
Date of Investment
Amount of investment
(Rs.)
NAV at the date of
investment (Rs.)
Dividend received upto
31-3-2015 (Rs.)
NAV as on 31-3-2015
(Rs.)

1-11-2014

1-10-2014

12-9-2014

1,50,000

2,70,000

1,25,000

10.42

10.11

9.50

Nil

4600

1200

10.70

10.25

9.46

59

Calculation of effective yield on per annum basis in respect of three

mutual fund schemes of Ms Vrinda upto 31.03.2015

S.N Particulars
o

Amount of Investment (Rs.)

1,50,000

2,70,000

1,25,000

Date of investment

1.11.2014

1.10.2014

12.9.2014

NAV at the date of investment

(Rs.)

10.42

10.11

9.50

No. of units on date of

investment [1/3]

14395.3934

26706.2314

13157.894

NAV per unit on 31.03.2015

(Rs.)

10.70

10.25

9.46

Total NAV of mutual fund

investments on
31.03.2015 [4 x 5]

1,54,031

2,73,739

1,24,474

60

Calculation of effective yield on per annum basis in respect of three

mutual fund schemes of Vrinda upto 31.03.2015

Increase/ decrease of NAV

[6-1]

Dividend received upto

31.3.2015

Total yield [7+8]

10

Yield % [9/1] x 100

11

Number of days

12

Effective yield p.a. [10/11] x

365 days

4,031

3,739

-526

Nil

4600

1200

4031

8,339

674

2.69%

3.09%

.54%

151

182

201

6.50%

6.19%

.98%

61

Question 18
A Mutual Fund has launched a new scheme All
Purpose Scheme. The Mutual Fund's Asset
management company wishes to invest 25% of
the NAV of the Scheme in an unrated debt
instrument of a company Y Ltd. which has been
paying above average returns for the past many
years. The promoters of the company seek your
professional advice in light of the Regulations of
SEBI. Will the position change in case the debt
instruments of the company Y Ltd., is a rated.

62

solution
The Seventh Schedule of SEBI (Mutual funds)
Regulations, 1996 states that a mutual fund
scheme shall not invest more than 10% of its
NAV in unrated debt instruments issued by a
single issuer and the total investment in such
instruments shall not exceed 25% of the NAV of
the scheme. All such investments shall be made
with the prior approval of the Board of Trustees
and the Board of Asset Management Company.

63

Solution...Contd
It also states that a mutual fund scheme shall not
invest more than 15% of its NAV in debt
instruments issued by a single issuer which are
rated not below investment grade by an
authorised credit rating agency. Such investment
limit may be extended to 20% of the NAV of the
scheme with the prior approval of the Board of
Trustees and the Board of Asset Management
Company.

64

 Accordingly,
(i) If the debts instruments of Y Ltd. unrated then Mutual
funds Asset Management Company (AMC) cannot invest
more than 10% of its NAV in it.
(ii) If the debts instruments of Y Ltd are rated, then also,
Mutual Funds AMC cannot invest more than 20% of its
NAV in it. Therefore, investment of 25% of its NAV of the
scheme in debts instrument of Y Ltd. by Mutual Funds
AMC is not permissible as per the SEBI (Mutual Fund)
Regulation 1996.

65

Question 19
While closing its books of account on 31st March, 2015 a Non-Banking
Finance Company has its advances classified as follows:
Particulars

Standard assets
Sub-standard assets
Secured portions of doubtful debts:
upto one year
one year to three years
more than three years
Unsecured portions of doubtful debts
Loss assets

Amount
Rs
Lakhs

16,800
1,340
320
90
30

Calculate the amount of provision, which must be made against the Advances.

66

Solution
Calculation of provision required on advances as on 31st March, 2015:

Standard assets

Amount
Rs. in lakhs
16,800

Percentage
of provision
0.25

Provision
Rs. in lakhs
42

1,340

10

134

320

20

64

90

30

27

30

50

15

97

100

97

48

100

48
427

Sub-standard assets
Secured portions of doubtful debts
upto one year
one year to three
years
more than three
years
Unsecured portions
of doubtful debts
Loss assets

67

Question 20
Anischit Finance Ltd. is a non-banking
finance company. It makes available to
you the costs and market price of
various investments held by it as on
31.3.2015:

68

Scripts:
A.

Equity SharesA
B
C
D
E
F
G
Mutual fundsMF-1
MF-2
MF-3
Government
securitiesGV-1
GV-2

Cost

Market Price

60.00
31.50
60.00
60.00
90.00
75.00
30.00

61.20
24.00
36.00
120.0
105.00
90.00
6.00

39.00
30.00
6.00

24.00
21.00
9.00

60.00
75.00

66.00
72.00
69

 (i) Can the company adjust depreciation of a

particular item of investment within a category?
(ii) What should be the value of investments as
on 31.3.2015?
(iii) Is it possible to off-set depreciation in
investment in mutual funds against appreciation
of the value of investment in equity shares and
government securities?

70

Solution
(i) Quoted current investments for each category
shall be valued at cost or market value,
whichever is lower. For this purpose, the
investments in each category shall be considered
scrip-wise and the cost and market value
aggregated for all investments in each category. If
the aggregate market value for the category is
less than the aggregate cost for that category, the
net depreciation shall be provided for or charged
to the profit and loss account.

71

 If the aggregate market value for the category

exceeds the aggregate cost for the category, the
net appreciation shall be ignored. Therefore,
depreciation of a particular item of investments
can be adjusted within the same category of
investments.

72

Category
A.

Security
Equity Shares-

COST

Market value

60

61.2

31.5

24

60

36

60

120

90

105

75

90

30

Total

406.5

442.2

73

Category
B

Security
Mutual funds-

MF-1
MF-2
MF-3
Total

COST

Market value
39
30
6
75

24
21
9
54

Investment in units of mutual funds shall be valued at NAV declared

By the mutual fund in respect each particular scheme
Government
securities60

GV-1

GV-2
75
Total
135
Investments in Gsecs shall be valued at carrying cost
C

66
72
138

74

Type of Investment
Valuation

Valuation Principle
Value

Value
Rs. in lakhs

Equity Shares
(Aggregated)

Lower of cost or
market Value

406.50

Mutual Funds

NAV (Market value,

assumed)
Government securities Cost

54.00
135.00
595.50

Investment in units of mutual funds shall be valued at NAV declared

By the mutual fund in respect each particular scheme

75

 As per para 14 of AS 13 Accounting for

Investments, the carrying amount for current
investments is the lower of cost and market price.
Sometimes, the concern of an enterprise may be
with the value of a category of related current
investments and not with each individual
investment, and accordingly, the investments may
be computed at the lower of cost and market
value computed category-wise.

76

 (iii) Inter category adjustments of appreciation

and depreciation in values of investments cannot
be done. It is not possible to offset depreciation in
investment in mutual funds against appreciation
of the value of investments in equity shares and
Government securities

77