NMIMS BBA - B.Com Corporate Finance Solved Answer Assignment
Ans :
Corporate Accounting
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Q1. XYZ Ltd issued 10,000, 10% debentures of Rs.100 each on 1st January 2020. The debentures are redeemable at a premium of 10% after 3 years from the date of issue. On 31st December 2022, the company decided to redeem the debentures. Prepare the necessary journal entries and the balance sheet extract for XYZ Ltd as on 31st December 2022. (10 Marks)
SOLUTION:
Introduction:
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Debentures are a form of loan taken by the company which must be repaid in the specified manner on a given date. Generally, the repayment period and debentures’ mode of repayment is provided in the prospectus at the time of issue. Redemption of debentures refers to the repayment of debentures. It is the process of discharge of debenture repayment liability by the company.
Concept and application:
Debenture Redemption Reserve (DRR)
When a company issues debentures, it shall create an account named debenture redemption reserve. It shall transfer funds to it out of its otherwise distributable profits, and the company shall not utilize such amount except for the redemption of debentures. Section 71(1) of the Companies Act 2013 mandates the creation of a debenture redemption reserve to ensure that the company has enough funds to redeem its debentures when required.
Debentures can be redeemed:
Conclusion:
Companies issue debentures to meet their requirements for funds. They form a part of the capital structure of the company. Since debentures have characteristic features the same as a loan (as they must be repaid and carry an interest), they are shown on the liability side of the company.
Q2. The extract of the balance sheet of XYZ Ltd as at March 31, 2022, shows the following:
The market value of XYZ Ltd’s total assets as of March 31, 2022, is Rs. 25, 00, 00,000. The company has 8, 00,000 equity shares issued and outstanding.
Calculate the value of each equity share of XYZ Ltd using the net asset method. (10 Marks)
Solution:
Introduction:
The process of determining the value of a share is known as share valuation. It involves determining a business’s value based on its share capital. Share valuation helps in determining and evaluating a company’s net worth.
Conditions under which share valuation may be preferred.
A company may seek a valuation of its shares under the following conditions:
- Sale of business
- Acquisition of a loan against shares or securities
- Mergers, demergers, acquisitions, or reconstruction of the business
Concept and application:
Types of share valuation
Share valuation is of two types. These are:
- Absolute valuation- An absolute valuation is required to determine the intrinsic value of a share. It is calculated based on fundamental business aspects such as dividends, cash flow, etc.
- Relative valuation- This method involves using techniques like ratio analysis to determine a stock’s value compared to its competitors in the industry.
Conclusion:
The value of each equity shares of XYZ Limited using the net asset value is ₹2.25.
Q3. A) Assume you are a financial analyst working for a company in India. Your company is considering acquiring another company and wants to determine the value of its goodwill using the super profit method. The financial data of the target company for the past five years is available to you. Using this data, calculate the value of goodwill using the super profit method. (5 Marks)
Solution:
Introduction:
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Goodwill represents the brand value of the reputation of a business. It is usually calculated during acquisitions, mergers, demergers, or any other business combination. There are various methods of goodwill valuation. One such method is to determine the value of goodwill by calculating a super profit.
Concept and application:
The Super Profit Method calculates the goodwill of a business by comparing the company’s profit margins with that of similar businesses. Under this method, goodwill is calculated by multiplying super profits by the number of years of purchases.
The formula to calculate goodwill is:
Goodwill = Super Profit * Purchase Years
The super profit method helps determine the goodwill of the business due to increased profits.
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Steps to Calculate Goodwill
The calculation of goodwill under the super profit method contains the following steps:
Conclusion:
Goodwill is an intangible asset. It cannot be seen or felt but can be purchased or sold. The value of goodwill in the above case using the super profit method is ₹500000.
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Q3. B) How can a bank effectively manage its non-performing assets (NPAs) in the wake of economic uncertainty and changing regulatory requirements? (5 Marks)
Solution:
Introduction:
The first phase of economic liberalization in 1991 completely reformed the banking industry. Earlier, the Indian banking sector was primarily focused on objectives like opening wide networks, rural development, priority sector lending, employment generation, etc.
NMIMS BBA – B.Com Corporate Accounting Solved Answer Assignment
Concept and application:
Banks can adopt the following six strategies to manage their NPAs effectively.
- Accountability: Generally, a fresher or some junior executive is made accountable for lapses. But in reality, the loan decisions are taken by a senior-level committee. Thus, it is essential to make seniors accountable if banks need to tackle NPAs.
- Corporate Governance: Corporate governance in banks has yet to improve to the desired level even after the appointment Banks Board Bureau by the Central Government. Banks must look after these issues seriously and take steps to attract and retain the required talent. These issues must be resolved urgently.
Conclusion:
NPAs have become a big liability for banks and must be dealt with more strictness and caution.
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