Mukta Arts is a firm started by the well-known film director Mr. Subhas Ghai. The following data has been taken from the company’s website:

The above results were declared on June 30 of the latest year. Along with the above results, the company also attached the following notes:

The accounting period has been extended upto March 31, latest year (fifteen months) and in future, the company will follow the financial year (that is, April–March) as its accounting year.

The film “Ek Aur Ek Gyarah” was released worldwide, on March 28 of the Latest Year. The entire cost of production ₹1,248.45 lakh, is charged to revenue in the current quarter and business income ₹539.13 up to March 31 of latest year, is only accounted for.

The film ‘Joggers Park’ is almost complete. The music has already been launched and the film will be released theatrically, in August of this latest year.

The board of directors have recommended dividend at the rate of 40% (₹2 per share).

In an interview in a pink paper in April month of the latest year, Subhash Ghai had this to say ‘The company had not had a run-away success in the last few films … however, Mukta Arts is confident of ending with a profit on its latest release, ‘Ek Aur Ek Gyarah’. We have earned ₹2 crore from its music sales and we are hoping to recover more than ₹50 crore from its theatrical release,’ a spokesperson for the company said. Mukta Arts is also banking on the holiday season for extending the theatrical window for the film.

Based on the above data and discussion, answer the following questions:

1. At the end of the March, latest years accounting period, the film, ‘Ek Aur Ek Gyarah’ related rights will be part of ______ in Mukta Arts’ balance sheet.

(a) Work in Progress and Finished Goods Inventory

(b) Other Current Assets (except inventory)

(c) Fixed Assets

(d) None of the above

2. The expensing of the film production costs before earning revenue, is not in sync with the

(a) Matching concept

(b) Accrual concept

(c) Historical concept

(d) None of the above

3. Given the huge losses, the announcement of a 40% dividend by the company amounts to

(a) Contradicting the GAAP

(b) Not following the laws of the land, especially the Companies Act

(c) Using its past reserves to make dividend payments

(d) None of the above

4. The par value of each equity share of Mukta Arts is possibly:

(a) ₹5

(b) ₹10

(c) ₹50

(d) None of the above

5. If Mukta Arts were to diversify into producing news clips for the ‘AajTak’ TV Channel and hold rights over the same, the new clips will be part of ______ in its balance sheet.

(a) Work in progress and Finished goods inventory

(b) Other Current Assets (except inventory)

(c) Fixed Assets

(d) None of the above

Transcribed Image Text:

Mukta Arts Limited: Financial Results (all figures in lakh) PARTICULARS Net Sales / Income from Operations Other Income Total Income Total Expenditure a) Cost of Production/Distribn./Software/Worldrights b) Administrative and Office Expenses c) Other Expenditure Total Profit before Interest & Depreciation Interest and Financial Charges Depreciation Profit before Tax Quarter ended March Ending March Ending Current year Previous Year 654 271 925 1,322 128 1,450 (525) 1 89 (616) 154 652 806 158 158 647 1 76 570