[sguha]

So even when we apply separate entity concept while doing accounting, in case of sole proprietor, if owner takes out salary from business, it will not be considered expense of the business , rather it will be a drawings which will be reduced from the Capital a/c.
Am i right sir

[sguha]

another question if a parent co. estimate that at the date of acquisition the subsidiary co. has a fair value of contingent liability which they havent provided for …….then it will be incorporated in W2 of net asset of subsidiary…………….and in post-acq if contingent liab. increase…..the amount by which it increase we will charge it to cons. st. of p/l is it so?

[sguha]

another question if we are self constructing an asset…then along with direct material, direct labor n other direct expenses….we will also add the factory overhead based on absorption rate for its initial measurement right?

[sguha]

can u plz elaborate…i didnt got it….i mean to say when there is a govt. policy for which they need to fit the filter……once 2yrs has passed isnt that will become an obligation for the company now that they have to fit the filter….once its a obligation and still they havent fit it…then we need to provide for provision right for the filter. what is the reason behind not providing for it. is it because they can sell of the business n overcome the obligation….only they neeed to provide for the penalty….

[sguha]

another question if we are self constructing an asset…then along with direct material, direct labor n other direct expenses….we will also add the factory overhead based on absorption rate for its initial measurement right?

[sguha]

in ROCE cal. the books says cap employed can be calculated as Equity + long term liab

or u can take total asset – current liab.

but in Net Asset turnover we need to find cap employed…there the book says to find cap employed by net asset (total asset – total liab)

why this is different one says Total asset – c.l = cap emp
other one says total asset – total liab = cap emp.

[sguha]

another question if dividend declared after reporting date its a non adjusting event right but before reporting date we have to adjust it from retained earnings n create dividend payable…….and in case of proposed dividend we dont pass any entry as it can get changed…am i right?

[sguha]

isnt word estimate creates a thinking of uncertain amount…

[sguha]

allright its clear…..so incase the amount if thats uncertain in above case….we cud have created the provision……..since nothing is uncertain so just a standard liability…..and when they will actually pay the cash the liability will be sorted…..as i saw the word the amount is estimated so i thought provision to be created…..

[sguha]

there is a similar past question Shawler
On 1st april 2012, the govt. introduces a legislation which had the effect of requiring Shawler to fit anti-pollution filter to its furnace in 2 yrs.Whether shawler need to provide provision for cost of the filter on Sep 2012.

Now we know it is a future obligation cause the effect is not binding until 2 yrs has elapsed. and also shawler can avoid it by selling of that business. So no need to create the provision.

My question is what after the 2 yr has elapsed and shawler hasnt yet fitted the filter. That time will we create a provision with the cost of filter?

answer says if then also no need of provision why is it so?

[sguha]

another question if the company provide a new asset to an employee for use for first time and later gift it to him only, for calculation of transfer of gift will we treat it as first hand asset or second hand asset.

[sguha]

IAS 16

repairs cost are expense out from PnL.

But if the sentence says the asset got damaged and repairs need to be done to make it usable again……that repair cost can be capitalized.

[sguha]

as in ur lecture u said allowable deduction is on paid basis………….so incase the question tells rental income should be taken on accrual basis…..so in relation to that will we have to use allowable deduction on accrual or we can continue on cash basis

[sguha]

As per kaplan book it says:

Subsequent expenditure on property, plant and equipment should only be
capitalised if:

• it relates to an overhaul or required major inspection of the asset –
the costs associated with this should be capitalised and depreciated
over the time until the next overhaul or safety inspection

• it is replacing a component of a complex asset. The replaced
component will be derecognised. A complex asset is an asset made
up of a number of components, which each depreciate at different
rates, e.g. an aircraft would comprise body, engines and interior.

they used derocginition word in case of replacement of a component but not in overhauling…….so that means the overhauling cost gets added to the historical cost and its depreciatiated accordingly till next overhaul

am i right?
i read the kaplan book now…so i wanna confirm if i understood it right or not

[sguha]

and is the journal entry right when we are not selling the asset but removing from book

Cr asset
Dr Acc. depreciation
Dr. loss on disposal

[sguha]

or we will see it in other way that owner is using his property for business use….which is providing places for the guests to check-in as hotel
…….so whole property will be under IAS 16

[sguha]

so the parent company profit for the year already remain adjusted for acquisition cost as its already treated in the parent co’s p/l…..so the balance sheet. Retained earnings already adjusted at the balance sheet…….so no further reduction is required right while preparing consolidated financial statements.

[sguha]

so when subsidiary paid the dividend……..while doing consolidated st. of financial position

we reduce investment income from group retained earnings
and also the dividend amount reduced from cash balance as we are not showing any income

and the post acq profit of subsidiary will be shown at retained earning after reducting the dividend amount

am i right?

[sguha]

because when subsidiary paid the dividend they put entry

Dr retained earning
Cr cash

while the parent co will

Dr cash
Cr profit/loss st. (investment income)

so while preparing balance sheet (Consolidated st. of FP)

if we reduct income investment of parent co from group retained earnings….as adjustment …….where else we shld show it then that income as its sitting on the cash balance of parent co.

should we also need to add the figure back to post-acquisition of subsidiary

[sguha]

Bpp book says

(b) The parent company receives $600 of the dividend, debiting cash and crediting profit or loss. This will be cancelled on consolidation.

does that mean we will reduct it from bank balance of parent company and also reduct the group retained earnings while making the cons. st. of financial position

[sguha]

another question is in dividend yield is it always calculated at share price at start of the year or current ex div share price

[sguha]

ok i got it sir……in dartig co the question said what will be the value as per p/e ratio following the business proposal so we included the growth rate. am i right. unless we only use current eps x p/e = to get value

[sguha]

i seen ur lectures and i understand you, but one thing i didnt get , that since we are not saving any hours and taking that 2000 hrs from another job would cost me same running cost as using it on this project.If that so that means theres no effect in terms of cost changing. then why to show it in relevant costing.

is it cause variable cost wouldn’t have incurred if we hadnt done the project, so its happening cause of undertaking the project and so should be charged to the project as relevant cost, while in case of fixed cost we still would incur the cost irrespective of doing the project or not. is that the reason?

Thank u sir for explanation.

[sguha]

so just by specifying the demand for standard chairs in above question the examiner changes the solution from linear to throughput ….isnt that right sir

so in exam i can be lookout for such things…..just clarify me

[sguha]

yes i know demand isn’t required in case of throughput accounting.

but i want to segregate which problem can be solved by throughput accounting and which can be solved by linear programing.

how to know in a question, there is 1 limiting factor or more than 1 limiting factor.

in linear programming example

Peter makes two types of chair – the ‘Executive’ and the ‘Standard’.
The data relating to each as follows:
Standard Executive
Materials 2 kg 4 kg
Labour 5 hours 6 hours
Contribution $6 $9
There is a maximum of 80 kg of material available each week and 180 labour hours per week.
Demand for ‘Standard’ chairs is unlimited, but maximum weekly demand for ‘Executive’ chairs is 10.

since here demand for standard chair is unlimited and demand for executive is 10……..so we solve it though linear programming to get optimal production plan and cant use throughput here.

But suppose a specified demand is there in this particular question for standard chairs as well as executive chairs……..and available material and labour hr isnt enough to meet the required demand for both standard and executive chairs, then we can use the least available resources as bottleneck resource and could solve it through throughput accounting right by making use of bottleneck resource where throughput return per resource is high.

thats what im trying to make sure, in exam how do i segregate a limiting factor question……weather to be solve by throughput / linear.

[Author]

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