ABC was set up by a group of alums of XYZ in 1st April 2016 with an investment of `10 million to sale and service computer printers. The investment comprised of ` 60 lakhs equity capital with face value of `10 each and 10%, ` 40 lakhs convertible bonds with a face value of ` 100 each. The company acquired various machineries for ` 60 lakhs and furniture for ` 20 lakhs. The balance of money was to fund the working capital. Furniture had an estimated life of 15 years with an expected scrap of ` 0.5 lakhs. Machines had an estimated life of 10 years with an expected scrap of ` 4 lakhs.

The bonds were issued to few financial institutions at 4% discount and were tradable in the stock market. The coupon would be paid annually and duration of the bonds was 10 years. In case the investors present an option to convert their bonds into equity capital, then each bond would be converted into ten equity shares after completion of 5 years. As computed by the CFO, interest on bonds for 2019-2020 would be ` 413,177 and expected bond carrying amount as at Mar 31, 2020 to be ` 3,885,564

The annual report of the company reveals the following accounting policies adapted by the firm:

1. FIFO cost for inventory valuation,

2. WDV method for depreciation on fixed assets

3. Cost method for PPE accounting

4. 5% provision for doubtful debts.

5. 15 days credit from its suppliers and allows the same credit period to its customers

6. Purchases and sales occur evenly throughout the year.

The Revenues:

During the year 2019-20, the company’s sales revenue was ` 540 lakhs and service revenue was `100 lakhs. The selling price per printer was ` 6000, which was unchanged from the previous year 2018-19. This has enabled the company to sale 700 more printers during 2019-20 as compared to its previous year. One of the customers who owed ` 60000 to ABC became insolvent and requested the company to write off the debt.

The Expenses:

The operating expense during the year was ` 190 lakhs exclusive of depreciation. Procurements of printers, made at different prices during the year 2019-20, are presented below in chronological order:

Unit	Price (`)	Cost (`)
2000	3500	7000000
3000	3300	9900000
5000	3200	16000000

Additional Information:

The opening inventory of 2019-20 included 1000 printers in inventory bought at `3400 each

The retained earnings at the beginning of 2019-20 was ` 23,00,000

Keeping `35,00,000 as closing cash balance for working capital remaining amount has been invested in shares of different IT companies.

The fair value of machinery and furniture on March 31, 2020 were estimated to be ` 18,00,000 and ` 8,00,000 respectively

Half of the furniture was sold on 31 March 2020 for `4,00,000.

Assuming the transactions of the two companies were exactly same during last two years, prevailing tax rate 30% and 360 working days in a year, you are required to

1. Prepare the income statement for the year 2019-20

2. Complete the Balance Sheet of ABC as on March 31, 2020

3. In case ABC decides to change its inventory valuation basis from FIFO to LIFO as at March 31, 2020: compute the impact on profit for 2019-2020?

4. What are the GAAP assumptions as applied in preparation of above-mentioned FS?

Answer rating: 100% (QA)

ABC Ltd Income Statement for the year 201920 Particulars Amount Gross Revenue 64000000 Less Operating Expenses 19000000 Operating Profit 45000000 Add Interest Income 1200000 Profit before tax 46200000 ... View the full answer