IPCC ACCOUNTING & ADVANCED ACCOUNTING AMENDMENT CLASS FOR MAY 2015 EXAMS

(STUDENTS OF PREVIOUS BATCHES)

1

Schedule III The name of Schedule VI has been changed to schedule III, however the presentation requirements are

same.

DEPRECIATION

1. Depreciation for Corporate shall be provided using the provisions of schedule II of Companies Act 2013.

Therefore the earlier rates prescribed as per schedule XIV are no longer relevant.

2. Working life of each of the asset is prescribed by schedule II.

3. A corporate can select its own method based on pattern of consumption of the asset, but the life of the

asset has to be the same as prescribed by the schedule.

4. The scrap value of each asset will be 5% of the cost of the asset.

5. The WDV rate of depreciation shall be computed by the following formula:

1 - (s/c)1/N 6. The amount of depreciation for an asset that is used for double shift will be 50% more that the single shift

depreciation amount and that for an asset used for triple shift is 100% more than the single shift

depreciation amount.

7. In the first year of applicability of the companies Act 2013 i.e. in the year 2014- 15, if there is an asset

whose working life as per schedule II is over then the entire WDV of the asset (after deducting 5% scrap)

shall be written off against Retained Earnings. But if the life of the asset is still remaining, then the WDV of

the asset (after deducting 5% scrap) shall be depreciated over the remaining life of the asset.

MANAGERIAL REMUNERATION

Remuneration payable by Loss Making Companies

(1)(1)(1)(1) (2)(2)(2)(2)

Where the effective capital isWhere the effective capital isWhere the effective capital isWhere the effective capital is:::: Limit of yearly remuneration

payable shall not exceed (Rupees)

((((iiii) Negative or less than 5 crores) Negative or less than 5 crores) Negative or less than 5 crores) Negative or less than 5 crores 30 lakhs

((((iiiiiiii) 5 crores and above but less than 100 crores) 5 crores and above but less than 100 crores) 5 crores and above but less than 100 crores) 5 crores and above but less than 100 crores 42 lakhs

((((iiiiiiiiiiii) 100 crores and above but less than 250 crores) 100 crores and above but less than 250 crores) 100 crores and above but less than 250 crores) 100 crores and above but less than 250 crores 60 lakhs

((((iviviviv) 250 crores and above) 250 crores and above) 250 crores and above) 250 crores and above 60 lakhs plus 0.01% of the effective

capital in excess of Rs. 250 crores:

Provided that the above limits shall be doubled if the resolution passed by the shareholders is a special resolution.

However it can be more than that the amount as approved by the central government, if the approval of central

government is taken.

Explanation.It is hereby clarified that for a period less than one year, the limits shall be pro-rated.

IPCC ACCOUNTING & ADVANCED ACCOUNTING AMENDMENT CLASS FOR MAY 2015 EXAMS

(STUDENTS OF PREVIOUS BATCHES)

2

Level II Entities: For a level II enity the turnover limit is changed from 40 lakhs to 1 crore.

IFRS and IND AS are not applicable.

Use of Reserves in paying Dividends when profits during the year are inadequate.

Example 1

Due to inadequacy of profits during the year ended 31st March. 2015. XYZ Ltd. proposes to declare 10% dividend

out of general reserves. From the following particulars, ascertain the amount that can be utilized from general

reserves, according to the Companies (Declaration of dividend out of Reserves) Rules, 2014:

`

17,500 9% Preference shares of 100 each, fully paid up 17,50,000

8,00,000 Equity shares of 10 each, fully paid up 80,00,000

General Reserves as on 1.4.2014 25,00,000

Capital Reserves as on 1.4.2014 3,00,000

Revaluation Reserves as on 1.4.2014 3,50,000

Net profit for the year ended 31st March. 2015 3,00,000

Average rate of dividend during the last five year has been 12%.

Solution

Amount that can be drawn from reserves for 10% dividend

10% dividend on `80,00,000 `8,00,000

Profits available

Current year profit 3,00,000

Less: Preference dividend (1,57,500) (1,42,500)

Amount which can be utilized from reserves 6,57,500

Conditions as per Companies (Declaration of dividend out of Reserves) Rules, 2014:

Condition I

Since 10% is lower than the average rate of dividend (12%), 10% dividend can be declared.

Condition II

Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid

up capital plus free reserves i.e. `12,25,000 [10% of (80,00,000 + 17,50,000 + 25,00,000)]

Condition III

The balance of reserves after drawl `18,42,500 (`25,00,000 - `6,57,500) shall not fall below 15 % of its paid up

capital i.e. `14,62,500 (15% of `97,50,000)

Since all the three conditions are satisfied, the company can withdraw `6,57,500 from accumulated reserves. (as

per Declaration and Payment of Dividend Rules. 2014.)

IPCC ACCOUNTING & ADVANCED ACCOUNTING AMENDMENT CLASS FOR MAY 2015 EXAMS

(STUDENTS OF PREVIOUS BATCHES)

3

BUY BACK OF EQUITY SHARES

1. A listed company can pay an amount to its shareholders on buy back to the extent of 15% of the total

of paid up capital and free reserves. Earlier it was 25%. Therefore only the Resource Test has been

changed for the listed companies. Other two tests are the same.

BANKING CMPANIES

1. Statutory Liquidity Ratio is 22%

2. Cash Reserve Ratio is 4%

AS 11. The effects of changes in the Foreign Exchange Rates:

ICAI has extended the provisions of paragraph 46 A to non corporate entities also through paragraph no. 46. As

per that paragraph:

1. The forex fluctuation in long term borrowing taken to finance a capital asset can be treated in any of the

two ways:

a. To be transferred to the Profit and loss account

b. To be Capitalized

This is an irrevocable option and the option has to be disclosed in the notes on accounts as an accounting policy.

2. The forex fluctuation in long term borrowing taken for business in general can be treated in any of the

two ways:

c. To be transferred to the Profit and loss account

d. To be transferred to Foreign Currency Translation Difference account and amortized over the

remaining life of the loan.

This is an irrevocable option and the option has to be disclosed in the notes on accounts as an accounting policy.