CPZ4A/CPG4A/CPW4A/ CPC4A ADVANCED … · 2 CPZ4A/CPG4A/CPW4A/CPC4A-CORPORATE ACCOUNTING 2 UNIT I : Syllabus Amalgamation Absorption Reconstruction of companies

CPZ4A/CPG4A/CPW4A/

CPC4A ADVANCED CORPORATE

ACCOUNTING Unit : I - V

2 CPZ4A/CPG4A/CPW4A/CPC4A-CORPORATE ACCOUNTING 2

UNIT I : Syllabus Amalgamation Absorption Reconstruction of companies Types of Amalgamation Methods of Accounting for Amalgamation Calculation of Purchase Consideration

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AMALGAMATION MEANING:- When two or more existing companies combine together to form

a new company is known as Amalgamation . For e.g. If a new co XY Ltd. Is formed to take over the business of

two existing companies, X Ltd. and Y Ltd. ,it is a case of amalgamation

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ABSORPTION MEANING:- Term absorption is used when one or more existing company goes into liquidation and some existing company takes over its business. Foe e.g. if the business of existing co X Ltd. Is taken over by another co. Y Ltd. ,it is a case of absorption

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RECOSTRUCTION OF COMPANIES

MEANING:- Term is used when one existing company goes into liquidation and a new co. is formed to take over its business. Foe e.g. if a new company X (New) Ltd. Is formed to take over the business of an existing co. X Ltd. Then it is a case of External reconstruction

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Types of Amalgamation • Amalgamation in the nature of merger • Amalgamation in the nature of purchase

Amalgamation in the nature of merger includes:- 1. Transfer of all assets and liabilities 2. Same equity shareholders holding 90% 3. Purchase consideration in equity shares 4. Same business 5. Recording of Assets and liabilities at book value

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Methods of Accounting for Amalgamation in the nature of merger

POOLING OF INTEREST METHOD:- It includes:- Recording of assets and liabilities Recording of Reserves( whether capital or revenue or arising on revaluation) Recording of balance of profit & loss A/c Difference between the purchase consideration and the amount of share capital of the transferor Co. Uniform set of Accounting policies

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Amalgamation in the nature of purchase

It is an amalgamation which does not satisfy anyone or more of the condition specified for amalgamation in the nature of merger.

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CALCULATION OF PURCHASE CONSIDERATION

UNDER AMALGAMATION, ABSORBTION AND EXTERNAL RECONSTRUCTION 1. Lump-sum method 2. Net payment method 3. Net- asset method Intrinsic value method or shares exchange method. No. of shares Amount to be discharged by issue of shares to be issued = Issue Price of a share by purchasing co

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Statement showing the computation of purchase consideration

(According to Net Payment basis) Mode of discharging purchase consideration

No. of shares

Issue price

Rs.

A. Preference shares B. Cash for preference shareholders C. Equity shares D. Cash for equity shareholders E. Total Purchase consideration

(A+B+C+D)

xxx ---- xxx ----

xxx ---- xxx ----

xxx xxx xxx xxx xxx

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Statement showing the computation of purchase consideration

(According to Net Assets taken over basis)

Particulars Rs.

A. Total asset taken over at their agreed values Less: Total liabilities taken over at their agreed

amounts Purchase consideration

Xxx xxx ___ XXX

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IMPORTANT THINGS TO BE NOTED:- • The excess of purchase consideration over the value of net assets acquired should be treated as goodwill arising on amalgamation . Such goodwill should be amortized on a systematic basis over a period not exceeding 5 years unless longer period can be justified. • The excess of net assets acquired over the Purchase Consideration should be treated as Capital Reserve arising on Amalgamation.

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UNIT II : Syllabus

Holding company – Meaning. Subsidiary Company Consolidation of P&L A/c Consolidation of Balance sheet Calculation of Minority Interest


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A Holding company is one which controls one or more other companies by means of: a) Holding majority shares or b) Controlling the composition of Board of directors c) Controlling a holding company with subsidiary

Holding company

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Sec.4(4) of the Companies Act says A company shall be deemed to be the holding company of another, if, but only if, that other is its subsidiary https://youtu.be/8POAFKkZ0W8

Subsidiary Company

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The consolidated profit & loss a/c of the holding Company and it’s subsidiaries are prepared to show the operating activities of the Companies. The items appearing in the P&L a/c of both individual companies are aggregated in the consolidated P&L a/c.

Consolidation of P&L A/c

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Cont.. While consolidating, the following adjustments has to be made: profit and loss account in columnar form. Amounts relating to inter company transactions are entered in the adjustment column and are subtracted. All inter company operating transaction such as purchase and sale of goods, interest on loans among the companies are eliminated All inter company profits are adjusted.

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Cont.. Dividends received by the holding company from the subsidiary company should be eliminated. Interest accrued and outstanding on debenture of the subsidiary company held but the holding company should be accounted by both and then eliminated The balance in holding company columns will represent the total profit or loss made by the company as a whole

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It is where the balance sheet of the holding company and the subsidiary company is combined. Few points to be kept on mind when consolidating: Share of holding company and share of minority(outside shareholders) Date of balance sheet of the holding company and that of the various other subsidiary companies must be same. Inter company owing

Consolidation of Balance Sheet

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Minority interest is the share of the outsider in the following: Share in share capital of subsidiary. Share in reserves Share in accumulated loss should be deducted. Proportionate share of profit or loss on revaluation of assets.

Minority Interest

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The holding and the subsidiary company may have a number of inter company transactions. Some are: Loan advanced by the holding company to the subsidiary company or vice versa. Sale or purchase of goods on credit by the holding company from the subsidiary company or vice versa. Debentures issued by one company may be held by the other.

Inter Company Transactions


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UNIT III : Syllabus

Definition of Banking Features of banking company. Accounting System of a Banking Companies Principal Books Of Accounts Guidelines for Preparation of profit and Loss A/c Guidelines for Preparation of Balance sheet Regulation of Insurance Business in India Types of Insurance Various Book maintenance of Insurance companies

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Section 5 of banking regulation act defines banking as “the accepting, for the purpose of lending or investment, of deposit of money from the public repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise.

DEFINITION


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Features of banking company

• The borrowing, raising, or taking up of money. • The lending or advancing of money either upon or without security. • The granting and issuing of letters of credit, travellers cheques

and circular notes. • The buying and selling of bullion. • The buying and selling of foreign exchange including foreign bank

notes. • Contracting for public and private loans negotiating and issuing

the same. • Undertaking and executing trust


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Continued . . . . .

• The acquisition, constructing, maintenance and alternation of any building or works necessary or convenient for the purpose of the company.

• Carrying on and transacting every kind of guarantee and indemnity business.

• The collecting and transmitting of money and securities. • Undertaking the administration of estates as executor, trustee

or otherwise

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General Information

• No banking company can carry on business in India unless its subscribed capital is not less than one- half of the authorized capital and its paid up capital is not less than one – half of subs. Capital.

• A banking company cannot create any charge upon its uncalled capital.

• Every banking co. Shall transfer a sum equal to 25% of profits to statutory reserve.

• A bank can open a branch only at the permission of reserve bank

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Accounting System The accounting system of a banking company is different from

that of a trading or manufacturing company. A bank has a large number of customers whose acc are to be maintained in such a way so that these should be kept upto date.

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Features Of Banking Acc System

• Entries in the personal ledgers are made directly from vouchers.

• From such entries in personal acc each day summary sheets in total are prepared.

• The general ledger’s trial balance is extracted and agreed every day.

• A trial balance of detailed personal ledger is prepared periodically and get agreed with general ledger.

• Two vouchers are prepared for every transaction not involving cash- debit and credit voucher.


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Principal Books Of Accounts Are:

• Cash book: This book gives the summary of the receiving cashier’s counter cash

book and paying cashier’s cash book. • General ledger: This ledger contains control acc for subsidiary ledger listed above

and acc of expenses and assets not covered by the subsidiary ledger.

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Notes And Instruction For Compilation

• The formats of balance sheet and profit or loss account cover all items

likely to appear in these statement. • The words ‘current year’ and ‘previous year’ used in the formats are only

to indicate the order of presentation and may not appear in account. • Figures should be rounded off to nearest thousand.

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BANKING REGULATION ACT, 1949

THE FINAL ACCOUNTS OF BANK ARE IN VERTICAL FORMAT THE FINAL ACCOUNTS CONSIST OF :-

a) PROFIT and LOSS ACCOUNT b)PROFIT and LOSS APPROPRIATION ACCOUNT c) BALANCE SHEET

THERE ARE 16 SCHEDULES IN THE FINAL ACCOUNTS OF BANKS. https://youtu.be/Si87q8hVrgc

https://youtu.be/Si87q8hVrgc

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Balance Sheet PARTICULARS SCHEDULE NO.

Equity and Liabilities Capital 1 Reserves and surplus 2 Deposits 3 Borrowings 4 Other liabilities 5 Total

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Assets Cash in hand and with RBI 6 Balance with other banks and money at Call and short notice 7 Investments 8 Advances 9 Fixed assets 10 Other assets 11 Total CONTINGENT LIABILITIES 12

Cont…. PARTICULARS SCHEDULE NO.


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PROFIT AND LOSS ACCOUNT INCOMES:- Interest earned 13 Other incomes 14 TOTAL(A) EXPENDITURE:- Interest expanded 15 Operating expenses 16 Provision and contingencies TOTAL (B) PROFIT (A-B)

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TYPES OF INSURANCE

LIFE INSURANCE GENERAL INSURANCE Preparation of Final Accounts of Life Insurance:

The preparation of final accounts must be made in accordance with the provisions of the Insurance Act, 1938, together with its prescribed forms.

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FORMS of final accounts prescribed by the Insurance Act, 1938, are:

(i) FORM A: Form of Balance Sheet—both for Life and General Insurance.

(ii) FORM B: Form of Profit and Loss Account—both for Life and General Insurance.

(iii) FORM C: Form of Profit and Loss Appropriation—both for Life and General Insurance.

(iv) FORM D: Form of Revenue Account—for Life Insurance only. (v) FORM F: Form of Revenue Account—for General Insurance only.

(vi) FORM I: Valuation Balance Sheet.

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Life Insurance Revenue Account (a)Premium (Schedule 1)

It includes: (i) Premiums; (ii) Re-insurance ceded; (iii) Re-insurance accepted.

(b) Income from Investment: These include: (i) Interest Dividends; Rent; (ii) Profit on sale/redemption of investments; (iii) Loss on sale/redemption of investments; (iv) Transfer/Gain on revaluations, etc.

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Cont…. ( c) Commission (Schedule 2)

Commission is paid on premium paid by the policyholders on first year, or on renewal or on single premium. The life insurance companies pay premium to their agents. In case of re-insurance, commission is paid to other companies.

(d) Operating Expenses (Schedule 3) Operating expenses include office and administration, selling and distributions expenses and comes under the head Schedule 3. These expenses include: Rents, Rates and Taxes, Training Expenses, Depreciation, Repairs, Auditor Fees etc.

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Cont… (e) Benefits paid (Net) (Schedule 4) It includes: (i) Annuities; (ii) Surrenders; and (iii) Claims.

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Profit and Loss Account The incomes or expenses which are not related to any particular fund are recorded in this account (including tax payable to Government). It is practically the Profit and Loss Account of a business as a whole. It highlights the amount of profit paid to the shareholders and the amount that is transferred to any particular fund.

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Balance Sheet As per IRDA Regulation, a Balance Sheet is divided into two parts: (a) Sources of Fund; and (b) Application of Funds. Sources of Fund The first one under this head is the Shareholders’ Fund. Under the head, various classification of capital is to be shown separately (viz, Authorized Capital, Issued Capital, etc.).

Application of Funds It must be remembered that Shareholders’ Fund and Policyholders Fund are to be shown separately

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General Insurance

Types of General Insurance General insurance is sub-divided into: (a) Fire (b) Accident, and (c) Marine. General Insurance was controlled and conducted by General Insurance Corporation of India before the incorporation of Insurance Regulatory and Development Authority (IRDA) in 2002. General Insurance companies are to prepare accounts (Revenue) for each individual unit.

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UNIT IV : Syllabus

Meaning of Liquidation Modes of Winding up Liquidator’s Final Statement of Account Statement of Affairs

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Liquidation or winding up is a process by which a company is dissolved. The process of winding-up of a company is completed by selling all its assets and paying all creditors in preferential orders. For this purpose, a liquidator is appointed by the court to complete the liquidation process.

The duties of the liquidator are to realize the assets, discharge the liabilities and distribute the surplus, if any to the shareholders

Meaning of Liquidation

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Percentage On Assets Realized Here, assets realized means the amount collected if Percentage On Amount Distributed To Equity Shareholders For the calculation of this commission, firstly the amount available for equity shareholders should be ascertained. For finding out the amount available for equity share holders, the following equation can be used: Amount available = Total receipt - Total Payment ( up to the payment made to preference shareholders) If the amount available is sufficient for the payment of equity share capital amount: Commission = Equity share capital amount X Commission rate/100

Cont..

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If the amount available is sufficient for the payment of equity share capital amount: Commission = Equity share capital amount X Commission rate/100

If the amount available is not sufficient:

Commission = Amount available X Commission rate/100+ Commission raterom the realization of fixed assets, current assets and other assets, other than fictitious assets. The cash and bank balance should not be included in total assets for the calculation of remuneration. But in the question, if the cash and bank balance are given in the list of assets, then cash and bank balance should be included in the total assets for the calculation of remuneration

Cont..

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UNIT V : Syllabus

Meaning and definition of HR Accounts Concept of HR Accounts Approach relating to HR Accounts Methods of HR Accounts

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Cont… Concept of Inflation Accounting Inflation normally refers to the increasing trend in general price level. In other words, it is a state in which the purchasing power of money goes down.• Inflation Accounting is a system of accounting which shows the effect of changing costs and prices on affairs of a business unit during an accounting year.• While the cost in the traditional accounting refers to the historical cost, in inflation accounting it represents the cost that prevails at the time of reporting. https://youtu.be/V4bkgXPskJc

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Cont.. Why Inflation Accounting? In the traditional accounting, assets are shown at historical cost, year after year.• During the inflationary period, historical cost based depreciation would be highly insufficient to replace the existing assets at current cost. Moreover current revenues for the period are not properly matched with the current cost of operation. Thus, the problems created by price changes in the historical cost based accounts necessitated some method to take care of inflation into the accounting system.

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Methods of Inflation Accounting Some of the generally accepted methods of Inflation accounting are as follows – (a)Current Purchasing Power Method (CPP Method) (b) Current Cost Accounting Method (CCA Method)

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Methods of Human Resource Accounting

CPZ4A/CPG4A/CPW4A/ CPC4A ADVANCED … · 2 CPZ4A/CPG4A/CPW4A/CPC4A-CORPORATE ACCOUNTING 2 UNIT I : Syllabus Amalgamation Absorption Reconstruction of companies

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