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FA7

Unit – 1Final Account for Electricity Company Q1) Portray the principle features and exemptions of the Double Account System according to electricity rules.A1) The main highlights of the Double Account System are as per the following: a)                 The common asset report is separated in two sections. One section contains fixed resources and fixed liabilities. It is designated "Receipt and Expenditure on Capital Account." On each side there are three segments for sum—one segment to show figures up to the start of the year, the subsequent section to show use (resources) or receipts (liabilities) during the year and the third segment to show all out. b)                The other part (called General Balance Sheet) contains different resources and liabilities and the equilibrium of the Receipts and Expenditure on Capital Account. If there should arise an occurrence of power organizations, be that as it may, the complete of the use according to Capital Account is appeared on the resources side and the all out of receipts is appeared on the liabilities side.c)                 A Revenue Account is readied which resembles the conventional' Profit and Loss Account. Likewise, a Net Revenue Account is readied which resembles the normal Profit and Loss Appropriation Account.  The exemptions are as per the following:— (a)Interest in all cases is charged or credited to Net Revenue Account and not to Revenue Account. In instances of Railways, lease on rented land, and so forth, is additionally charged to Net Revenue Account. (b)Depreciation is charged to Revenue Account and credited to Depreciation Reserve. Deterioration Reserve shows up on the risk side of the General Balance Sheet.  Receipts and Expenditure on Capital AccountFor the year ending 31st March, 20………….Dr.                                                                                                                                                                        Cr.

 

Expenditure up to end of previous year

Rs

Expended during the year

Rs

Total

Expenditure

Rs

Receipts

Receipts up to end of

Rs

Receipts

Rs

Total

Rs

  1.               To Preliminary Expenses to specified)
  2.               To Land including law charges incidental to acquisition.
  3.               To Buildings
  4.               To Plant
  5.               To Mains
  6.               To Service connections
  7.               To Transformer, etc.
  8.               To Meters and fees for certifying under Act
  9.               To General Stores
  10.           To Special items(to be specified)

 

 

 

By Equity Share of…..

By Preference share of……..

By Debentures stock

B Mortgages and Bonds

By Amount received in anticipation of calls

By Other receipts (to be specified)

 

 

 

General Balance Sheet

Liabilities

Rs

Assets

Rs

  1.               Capital account: amount received as per Account No. II
  2.               Sundry Creditors due on construction of plant and machinery, fuel, stores, etc.
  3.               Sundry Creditors on open accounts
  4.               Net Revenue Account: Balance at credit thereof
  5.               Reserve Fund Account: Balance at credit thereof
  6.               Depreciation Fund Account
  7.               Special Items (to be specified)

 

  1.               Capital Account: expended for works as per Account No. III.
  2.               Stores on hand
  3.               Sundry Debtors
  4.               Preliminary Expenses awaiting adjustment.
  5.               Securities as held (cost price)
  6.               Special Items (to be specified)
  7.               Cash at bankers
  8.               Cash on hand.

 

Total

 

Total

 

  Q2) What fundamental components utilized in the creation of final accounts according to power rules?A2) 1. Deterioration/Depreciation: Each fixed resource should be deteriorated; and with the end goal of devaluation, the existence of every resource is to be taken as expressed in the table given in the Seventh Schedule. As respects the devaluation technique that can be applied, the Act makes arrangement for just two, viz., (a) Compound Interest or Sinking Fund Method, and (b) Straight Line Method.  2. Possibility Reserve:Each power organization is needed to keep a possibilities save. Save is made by moving from the Revenue Account each year a sum comparable to at least 1/4 percent and not mutiple/2 percent of the first expense of the fixed resources until it rises to 5 percent of the first expense of the fixed resources. The sum is to be put resources into trust protections. It very well may be used with the endorsement of the State Government for the accompanying purposes:  (I) Meeting costs or loss of benefits emerging out of mishaps, strikes or conditions outside the ability to control of the administration.  (ii) Meeting costs of substitution or expulsion of plant or works other than the costs needed for ordinary support or restoration. (iii) Paying pay payable under law for which no other arrangement has been made.  3. Advancement Reserve: The hold is made by move of a sum identical to personal assessment and super-charge (determined at current rates) saved money by virtue of improvement discount permitted by the annual duty specialists. On the off chance that in any bookkeeping year the unmistakable benefit barring the exceptional allotments along with the gatherings, assuming any, in the Tariffs and Development Control Reserve miss the mark concerning sensible return, the allocations to this save can be diminished by the measure of setback. The measure of such save is to be put resources into a similar power undertaking and is to be given over to buyer of the business in the event that the business is sold away.  4. General Reserve: Segment 67 of the Act accommodates the production of a General Reserve. A yearly commitment at a rate not surpassing ½% of the first expense of the fixed resource can be made in the wake of accommodating revenue and devaluation. This Reserve can be made until the all out of such Reserve surpasses 8 percent of the first expense of the resources.  5. Taxes and Dividend Control Reserve: The save is made out of benefits in abundance of the sensible return procured by a power undertaking. This can be used at whatever point the unmistakable benefit is not exactly the sensible return. The equilibrium in the hold ought to be given over to the buyer in the event that the business is sold away.  6. Compensation:The compensation given to Managing Agents is, in any case, a level of net benefits. This rate can't surpass 10% of the principal Rs 5 lacs of such net benefits and 7% of all net benefits in abundance of Rs 5 lacs. In the subsequent spot, the sum paid to Managing Agents is dependent upon a base installment which ought not surpass Rs 2 p.a. for every Rs 1,000 of settled up offer and debenture capital.  The workplace recompense which Managing Agents can attract is to incorporate the compensations and wages of all people utilized in the workplace yet not the pay rates of the designing staff utilized for reasons for the endeavor.  7. Sensible Return: The Electricity (Supply) Act, 1948, forces limitations on power endeavors on procuring too high a benefit, by methods for the idea of sensible return, which specifies the accompanying:  
  •                  A yield at the standard rate which is the Bank Rate specified by the Reserve Bank of India every once in a while, in addition to 2% on the Capital Base.
  •                  Pay got from speculations barring ventures made against the Contingencies Reserve.
  •                  A sum equivalent to ½% on any advances progressed by the Board.
  •                  A sum equivalent to ½% on the sums acquired from associations or organizations affirmed by the State Government.
  •                  A sum equivalent to ½% on the sums acknowledged by the issue of debentures.
  •                  A sum equivalent to ½% on the collections in the Development Reserve.
  •                  Some other sum as might be permitted by the Central Government, having respect to the overarching charge structure in the country.
  •   Q3) Explain the Replacement of an asset under double entry system.A3) Replacement of an asset under double entry system. Under Single Account System, when another resource is supplanted instead of an old one, the old resource is discounted and the upgraded one is promoted.  Yet, under Double Account System, the technique is very unique. Under this strategy, there is no compelling reason to discount misfortune when a resource is deserted, i.e., devaluation isn't charged to the resource account.  All things considered, the sum is credited to Depreciation Reserve Account.  At the end of the day, the resource will proceed in the books at its book esteem (unique expense). The estimation of the resource will increment when augmentation or increases to the resources are made.  Along these lines, allotment to the sum Spent is to be made between:  (I) Capital—the estimation of expansion, and  (ii) Revenue — the genuine current expense of substitution of the first resource.  The methodology is counted:  (I) The first expense of the resource will stay flawless.  (ii) The assessed cost of substitution of the old resource is found out. Simultaneously, the assessed cost is decreased by the deal continues of old materials, assuming any, or by the estimation of materials reused in the new development. The equilibrium is charged to Revenue Account.  (iii) The contrast between the complete expense of the whole work and the assessed substitution cost of the old resource in unique way is charged to Capital Account, i.e., promoted.  Notwithstanding over, the increases and enhancements are promoted. Also, the helper mains, auxiliary, auxiliary perpetual ways, and so on are likewise to be capitalised. Improvement is the overabundance sum spent over the expense of supplanting with resource of equivalent effectiveness.  It could be referenced, notwithstanding, in this regard that current expense of the old resources might be resolved either from the market or from the value file. That is, value file which is appropriate to the kind of resource with same proficiency following 20-30 years might be basically out of date now. It could be applied basically to get the assessed current expense. On the off chance that the resource is in the idea of Construction Works, separate files must be applied to various components of cost. However, on the off chance that the gauge contrasts (between designing information and value records) the lesser sum might be promoted simply based on traditionalism.  Q4) Clarify Double Accounting framework according to electricity rules.A4) The Double Account System is a strategy for introducing the yearly last records/yearly fiscal reports of public utility endeavors, similar to Railways, Electricity, Gas, Water Supply, Tramways and so on These endeavors are typically consolidated under Special Acts and, accordingly, the type of records is recommended by, unique resolution. These public utility endeavors are for the most part run by Government or by neighborhood specialists (aside from Electric Supply Companies and Tramways). It ought to be recalled that records of Industrial endeavors, other than Railways and Electric Supply, are set up according to Indian Companies Act, 1956. The object of this framework isn't to show the monetary situation at a specific date however to unveil how the capital is being raised and the utilization of the equivalent, in the securing of various fixed resources. For this reason two-chamber Balance Sheet is readied—the initial segment being Receipts and Expenditure on Capital Account and the subsequent part being the General Balance Sheet.  Principle Features of Double Account System: The principle highlights of Double Account System are: (a) Generally, a public utility endeavor needs a lot of capital which is put resources into the procurement of fixed resources. Thusly, fixed resources, fixed liabilities and current resources, current liabilities are to be independently managed. Fixed Assets and fixed or long haul liabilities are recorded in Receipts and Expenditure on Capital Account. Essentially, current resources and current liabilities are recorded in the General Balance Sheet. (b) Revenue Account and Net Revenue Account are set up rather than Profit and Loss Account and Profit and Loss Appropriation Account. (c) Normally, no change of resource is made in the Capital Account. (d)Depreciation isn't deducted from the resource concerned yet the equivalent is appeared as a risk via an asset. What's more, in that capacity, fixed resources are recorded at book esteem. (e) Any sort of assets and hold — e.g., Sinking Fund, Depreciation Fund, General Reserve, Capital Reserve, the Balance of Revenue/Net Revenue Account — are appeared in the liabilities side of the General Balance Sheet. (f) Discount and Premiums are for all time treated as capital things. (g) Loan capital (debentures) Shares and Stocks are treated as capital things. (h) Interest on Loan and Debentures (i.e., every single fixed interest) are to be charged against Net Revenue Account. Q5) Explain Briefly
  •                  Receipt & Expenditure on Capital Account
  •                  General Balance Sheet
  • A5) Receipt & Expenditure on Capital Account  It is otherwise called Receipts and Expenditure on Capital Account. The motivation behind this record is to show the wellsprings of all out capital and the utilization of the equivalent in various fixed resources. It contains consumption of a capital in the left hand side (or charge side) including augmentations to fixed resources. Three segments are for the most part utilized for the reason—the primary section shows the use on every thing toward the finish of the most recent year, the subsequent one shows the increases which are made for the current year, and the third segment addresses the absolute capital use to date. Then again, the correct hand side (or credit side) uncovers the receipts on capital record including sum got from public for offers and debentures including the measure of fixed advances, assuming any. Premium got on offers and debentures or any calls paid ahead of time are likewise to be added and Calls-in-arrear is to be deducted. Three sections are additionally utilized the principal segment shows the receipts on every thing toward the finish of a year ago, the subsequent segment shows the receipts for the current year, and the third segment addresses the complete capital receipts to date. The equilibrium of Receipts and Expenditure on Capital Account is conveyed down and appeared in the separate side of the General Balance Sheet, or, the absolute of different sides of this record are indicated ort the two sides of the General Balance Sheet. However, if there should be an occurrence of Electricity Supply Companies, just the last one is contemplated. N.B. Fundamental costs spent on the arrangement of an endeavor, and Premium got on issue of offers and Debentures are treated as capital consumption and, henceforth, will show up in the charge side and credit side, individually, of capital record. Capital Account

     

    Expenditure up to the end of previous year

    Expenditure during the year

    Total Expenditure

     

    Expenditure up to the end of previous year

    Expenditure during the year

    Total Expenditure

     

    To Preliminary

             Expenses

      Land, including

                Additions

        Law Charges

       Buildings

        Plant

       Mains

      Transformers, 

            Motors, etc.       

       Meters

       General Stores

        Special Items

    Rs

    Rs

    Rs

     

    By Equity Shares

      Preference Shares

      Securities Premium

       Debentures

       Loans

       Calls in Advance

       Other Receipts

    Rs

    Rs

    RS

    Total Expenditure

    To Balance of Capital A/c

     

     

     

    Total Receipts

    By Balance of Capital A/c

     

     

     

    for the year ended…………….. General Balance Sheet: This is really the second piece of the Balance Sheet which contains current resources and current liabilities, along with the equilibrium or aggregates of each side (by and large) of capital record. Certain different things, for example any sort of hold, say, General Reserve, Capital Reserve and so on, or any sort of assets, for example Deterioration Fund, and so forth, likewise will show up yet to be determined Sheet. The resources are recorded in the correct hand side (resource side) and liabilities are recorded in the left hand side (liabilities side), for example it is set up in its typical structure. Form of General Balance SheetGeneral Balance Sheetas at………….

     

    Total amount received as per

    Capital A/c

    Sundry Creditors for Capital Expen.

    Sundry Creditors on Open A/c

    Net Revenue Account

    Reserve Fund

    Depreciation Fund

    Special Items

    Rs

     

     

     

     

     

     

     

     

     

    Total Capital Expenditure as per

    Capital A/c

    Stores in hand

    Sundry Debtors
    Securities

    Special items

    Cash at Bank

    Cash in hand

    Rs

     

     

      Q6) D Electricity Co. procured a benefit of Rs 26,98,500 subsequent to paying Rs 1,40,000 @ 14% as debenture premium for the year finished March 31,2012. The accompanying additional data is provided to you: 

     

    Fixed Assets

    Depreciation written off

    Loan from Electricity Board

    Reserve Fund Investment. At par. @ 10%

    Contingencies Reserve Investments, at par, @ 10%

    Tariff and Dividends Control Reserve

    Security deposits of customers

    Customer’s contribution to assets

    Preliminary Expenses

    Monthly average of current assets, including amount due to from customers, Rs 5,00,000

    Development Reserve

    RS

    3,60,00,000

    1,00,00,000

    8000,000

    20,00,000

    15,00,000

    2,000,000

    3,00,000

    1,00,000

    80,0000

    15,20,000

    5,00,000

    Show the disposal of profits mentioned above:Assume bank rate to be 10% A6)

    Reasonable Return

    12% on Capital Base, Rs 1,85,00,000

    ½ % on Loan from Electricity Board

    ½ % on Development Reserve

    ½ % qn Debentures

    Income from Reserved Fund Investments

     

    Clear Profit:

    Surplus:

    Rs 26,98,500 less Rs 24,67,500

    Disposal:

    ½ % for the company being less than 5% of Reasonable Return

    ½ % of the balance to be credited to Tariffs and Dividends Control Reserve

    ½ % of the balance to be credited to customers

    Total

    Rs

    22,20,000

    40,000

    2,500

    5,000

    2,00,000

    24,67,500

    26,98,500

     

    2,31,000

     

    77,000

    77,000

    77,000

    2,31,000

     

    The journal entry will be:

    Rs

    Rs

    Profit and Loss Account                                                                        Dr. 

    To Tariffs and Dividends Control Reserve

    To Benefits to Customers Account

    (Amount to be credited to the Tariffs and Dividends Control Reserve and to be refunded to consumers because of the excess of the clear profit over reasonable return)     

     

    Capital Base:

    Fixed Assets less Depreciation

    Preliminary Expenses
    Average Current Assets (other than customer’s debts)

    Contingencies Reserve Investments 

     

     

    Less: Rs

    Loan from Electricity Board

    Debentures

    Tariffs and Dividends Control Reserve

    Security Deposits

    Customer’s Contribution

    Development Reserve

    1,54,000

     

     

     

     

     

     

     

     

     

    10,20,000

     

     

     

     

    80,00,000

    10,00,000

    2,00,000

    3,00,000

    1,00,000

    5,00,000

     

    77,000

    77,000

     

     

     

     

    2,60,00,000

    80,000

     

     

    15,00,000

    2,86,00,000

     

     

     

     

     

     

     

     

    1,01,00,000

    1,85,00,000

      Q7) Accommodate the undermentioned devaluation, and set up a Receipts and Expenditure on Capital Account, Revenue Account, Net Revenue Account and Balance Sheet from the accompanying Trial Balance. A call of Rs 20 for each offer was payable on 30th September, 2011 and unfulfilled obligations are liable to premium @ 15% p.a. Devaluation to be accommodated on: Building @ 5%, Machinery @ 15%, Mains @ 20%, Transformers and so on, @ 10%, Meters and Electrical Instrument @ 15%. THE DYANMO ELECTRIC LIGHTING CO. LTD.Trial Balance as on March 31st March, 2012

    Amount on March 31st 2011

     

    RS

    RS

    Rs

    20,00,000

    15,00,000

    6,00,000

    -

    9,30,000

    4,00,000

    6,00,000

    5,00,000

    1,00,000

    50,000

    30,000

    1,60,000

    25,000

    Capital, Nominal, 50,000 share of Rs 100 each

    Subscribed, 25000 share of Rs 100 each

    14% Debentures

    Provision for Depreciation

    Calls in arrear

    Freehold Land

    Buildings

    Machinery at Station

    Mains

    Transformers etc.

    Meters

    Electrical Instruments

    General Stores (Cables, Mains, Meters etc.)

    Office Furniture

    Coal and Fuel

    Oil, Waste, Engine-room Stores

    Coal, Oil, Waste, etc. in Stock

    Wages at Station

    Repairs and Replacement

    Rates and Taxes

    Salaries of Secretary, Manager etc.

    Director’s Fees

    Stationery, Printing and Advertising

    Law and Incidental Expenses

    Sales by Meter

    Sale by contract

    Meters Rents

    Sundry Creditors

    Sundry Debtors

    Cash in hand and Bank

    Contingencies Reserve

     

    -

    -

    -

    1,00,000

    9,30,000

    5,00,000

    10,00,000

    8,00,000

    2,00,000

    1,50,000

    40,000

    2,35,000

    25,000

    1,90,000

    75,000

    10,000

    3,00,000

    50,000

    30,000

    1,50,000

    1,00,000

    60,000

    30,000

    -

    -

    -

    -

    5,50,000

    8,30,000

    -

     

    25,00,000

    15,00,000

    6,00,000

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    9,75,000

    5,00,000

    30,000

    1,00,000

     

     

    1,50,000

    63,55,000

    63,55,000

      A7)Receipts and Expensiture on Capital Accoutn for the year ended March 31,2012

    Expenditure

    Expenditure upto March 31.2011

    Expenditure during the year

    Total

    Receipts upto March 31.2011

    Receipts during the year

    Receipts

    Total

     

    To Freehold Land

    To Buildings

    To Machinery at astation

    To Mains

    To Transformers

    To Meters

    To General Stores

    To Electrical Instruments

    To OFFice Furniture

    RS

    9,30,000

    400,000

    6,00,000

    5,00,000

    1,00,000

    50,000

    1,60,000

    30,000

    25,000

    Rs

    -

    1,00,000

    4,00,000

    3,00,000

    1,00,000

    1,00,000

    75,000

    10,000

    -

    Rs

    9,30,000

    5,00,000

    10,00,000

    8,00,000

    2,00,000

    1,50,000

    2,35,000

    40,000

    25,000

     

    By Share Capital

    By 14% Debentures

    Rs

    20,00,000

    15,00,000

     

     

     

     

     

     

     

     

     

    Rs

    4,00,000

    -

     

     

     

     

     

     

     

     

     

    RS

    24,00,000

    15,00,000

     

     

     

     

     

     

     

     

     

    Total Expenditure

    To Balance of Capital Account

    27,95,000

     

    -

    10,85,000

     

    -

    38,80,000

     

    20,000

    27,95,000

    10,85,000

    39,00,000

    35,00,000

    4,00,000

    39,00,000

    *Calls in arrear has been deducted.Revenue Account for the year ended March 31,2012
    1.              Generation                                   Rs

    To Coal and Fuel                  1,90,000

    To Oil, Waste and

    Engine-Room Stores              75,000

    To Wages at Station               3,00,000

    To Repairs and

    Replacement                             50,000

    B.                Distribution

    C.               Public Lamps

    D.               Rent, Rates and Taxes:

    To Rates and Taxes

    E.                Management Expenses:

    To Director’s Fees                     1,00,000

    To Secretary’s and

    Manager’s Salaries                    1,50,000

    To Stationery, Printing

    and  Advertising                            60,000

    To Law and Incidental Charges  30,000

    F.                Depreciation:

    Depreciation on:

    Buildings                                      22,500

    Machinery                                 1,20,000

    Mains                                          65,000

    Transformers                            30,000

    Meters                                        15,000

    Electrical Instruments              5,250

    To Balancecarried to

    Net Revenue Account

     

     

     

     

     

     

    6,15,000

    -

    -

     

    30,000

     

     

     

     

     

     

    3,40,000

     

     

     

     

     

     

     

    2,57,750

     

    2,62,250

    By Sale of energy for

    lighting purpose

    By Sale of energy for power purpose

    By Sale of enrgy by contract

    By Meter Rent

    Rs

     

    9,75,000

     

    5,00,000

    30,000

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    15,05,000

    15,05,000

    **Depreciation on addition charged for 6 months.Q8) The Hindustan Gas Company remade and re-prepared piece of their works at an expense of Rs 5,00,000. The piece of the old works hence supplanted cost Rs 3,00,000. The limit of the new works is twofold the limit of the old works. Rs 20,000 is acknowledged by the offer of old materials, and old materials worth Rs 10,000 are utilized in the development of the new works and remembered for the complete expense of Rs 5,00,000 referenced previously. The expenses of work and materials are 25% higher than when the old works were assembled. Journalize the passages. A8)Journal                                                                                                                                              Dr.                                           Cr.                                                                                                                                              Rs                                           Rs                           

    Replacement Account                                                                        Dr.

    New Works Account                                                                           Dr.

    To Bank

    Being the amount written off (Rs 3,00,000 + 25%) and the amount capitalised out of the Rs 4,90,000, spent on reconstruction in cash, i.e., Rs 5,00,000 = Rs 10,000.

    3,75,000

    1,15,000

     

     

    4,90,000

    New Works Account                                                                          Dr.

    To Replacement Account

    Being the materials used in the new works.

    10,000

     

    10,000

    Bank                                                                                                     Dr.

    To Replacement Account

    Being the amount realised by the sale of old materials.

    20,000

     

    20,000

    Revenue Account                                                                               Dr.

    To Replacement Account

    Being the transfer of balance of Replacement Account to Revenue Account

    3,45,000

     

    3,45,000

     Working Notes:                                                                                                                                              Rs                            Cost of old works                                                                                                            3,00,000Add: Increase in cost  Rs 3,00,000 ×  25 / 100                                                                                        75,000Current cost of old works                                                                                                                          3,75,000 Cash cost of new works = Rs  5,00,000 - Rs 10,000 = Rs 4,90,000Account to be capitalised = Rs 4,90,000 – Rs 3,75,000 = Rs 1,15,000.                                                        Q9) The Gurgaon Electricity Company Limited chooses to supplant one of its old plants with an advanced one with a bigger limit. The plant when introduced in 1985 expense the organization Rs 24 lakhs, the segments of materials, work and overheads being in the proportion of 5:3:2. It is learned that the expenses of materials and work have gone up by 40% and 80% individually. The extent of overheads to add up to costs is relied upon to continue as before as in the past. The expense of the new plant according to improved plan is Rs 60 lakhs and also, material recuperated from the old plant of an estimation of Rs 2,40,000 has been utilized in the development of the new plant. The old plant was rejected and sold for Rs 7,50,000. The records of the organization are kept up under Double Account framework. Show what amount would be promoted and the sum that would be charged to income. Show the record accounts.A9)Dr.                        Gurgaon Electricity Company Limited Plant Account                                     Cr.

     

    To Balance b/fd

    To Bank Account

    (cost of new plant-capitalised)

    To Replacement Account (old parts)

     

    To Balance b/d

    Rs

    24,00,000

    22,80,000

     

    2,40,000

     

    By Balance c/d

    Rs

    49,20,000

     

     

     

    49,20,000

    49,20,000

    49,20,000

     

     Dr.                                                         Replacement Account                                                                 Cr.

     

    To Bank Account

    (current cost of replacement)

    Rs

    37,20,000

     

     

     

     

    By Bank Account

    (sale of scrap)

    By Plant Account (old material used)

    By Revenue Account (transfer)

     

    Rs

    7,50,000

     

    2,40,000

    27,30,000

    37,20,000

    37,20,000

     Working Notes:(1)              Cost to be incurred for placement of present plant:                                                             Cost of Existing Plant        Increase               Current Cost                                                                                Rs                             Rs                               RsMaterials                                                             12,00,000                 40%                       16,80,000Labour                                                                 7,20,000                     80%                       12,96,000                                                                                                                                                           29,76,000                                  Overhead (1/4 of above or 1/5 of total)                                                                          7,44,000Current Replacement Cost                                                                                                   37,20,000  Current Replacement Cost                                                                                                37,20,000Total Cash Cost                                                                                                                       60,00,000                 Amount capitalised, excluding old materials used                                                          22,80,000         Q10) The following balance have been extracted from the books of an electricity company at the end of an accounting year:

     

    RS

    Share Capital

    Reserve Fund invested in 8% Government securities acquires at par

    Contingencies reserve invested in 7% State Loan, at par

    Loans from State Electricity Board

    12%Debentures

    Development reserve

    Fixed Assets

    Depreciation reserve on fixed assets

    Consumer’s deposits

    Amount contributed by consumers towards cost of fixed assets

    Intangible assets

    Tariffs and dividend control reserve

    Current assets (monthly average)

    1,00,00,000

    60,00,000

    12,00,000

    25,00,000

    20,00,000

    8,00,000

    2,50,000

    30,00,000

    40,00,000

    2,00,0000

    8,00,000

    10,00,000

    15,00,000

    In the accounting year, the company earned a profit of Rs 28,00,000 after tax.Assuming that the bank rate is 10%, show how you will deal with the profits of the company.                                                                                                             [Adapted C.A. (PEC), May, 2010A10)                                                          

    Calculation of Capital Base:

    Original cost of fixed assets

    Less: Amount contributed by the customers

    Add: Cost of intangible assets

    Investments against contingency reserve

    Monthly average of current assets

    Total (i)

    Less: Amount written off on account of depreciation

    Loan from State Electricity Board

    12% Debentures

    Consumer’s deposit

    Balance of development reserve

    Balance of tariffs and dividend control reserve

    Total(ii)

    Capital Base (i) – (ii)

    Calculation of Reasonable Return:

    Yield at standard rate i.e., 10% + 2% on capital base, 12% of Rs 1,50,000

    Add: Income from reserve fund investments, 8% of Rs 60,00,000

    ½ of loans from State Electricity Board, ½ of Rs 25,00,000

    1/2 % of debentures, ½ of Rs 20,00,000

    ½% of development reserve, ½ of Rs 20,00,000

    Total

    Rs

    2,50,00,000

    2,00,000

    Rs

     

    2,48,00,000

    8,00,000

    12,00,000

    15,00,000

     

     

     

     

    30,00,000

    25,00,00

    20,00,000

    40,00,000

    8,00,000

    10,00,000

    2,83,00,000

     

     

     

     

     

     

    1,33,00,000

     

    1,50,00,000

    Rs

    18,00,000

    4,80,000

    12,500

    10,000

    4,000

    23,06,500

     

    Disposal of Surplus:

    Profit after, tax, given

    Less: Reasonable return, as calculated above

    Surplus

    Less: 20% of reasonable return, 20% of Rs 23,06,500

    Amount to be credited to customer rebate reserve

    Rs

    28,00,000

    23,06,500

    4,93,500

    4,61.300

    32,200