Smt. Dr.

Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Module 05- Developments in Financial Reporting

Value added Statement – Economic Value Added – Market Value Added Statement –
Shareholders Value Added – Human Resource Reporting and Inflation Accounting.

Dr Trading A/c Cr
Particulars Rs. Particulars Rs.
To Opening Stock xxx By Net Sales
To Net Purchase Sales xxx
Purchase xxx (-) Sales return xxx xxx
(-)Purchase return xxx xxx By Closing Stock xxx
To Direct Expenses xxx By G/L (if any) xxx
To G/P (if any) xxx
xxx xxx

Dr Profit and Loss A/c Cr

Particulars Rs. Particulars Rs.
To G/L (if any) xxx By G/P (if any) xxx
To Indirect Expenses xxx By Indirect Incomes xxx
Establishing expenses By N/L (if any) xxx
Establishing expenses
Establishing expenses
Establishing expenses
To Other Losses xxx
To Provisions xxx
To N/P (if any) xxx
xxx Xxx

Dr Profit and Loss Appropriation Cr

Particulars Rs. Particulars Rs.
To N/L (if any) xxx By Balance b/d (Last Xxx
Year Profit)
To Dividend xxx By N/P (Current Year Profit) Xxx
To Surplus xxx By Deficit Xxx
xxx Xxx

Treatment of Deficit Account: - Deficit should be adjusted with general reserve and the
unadjusted deficit will be shown under miscellaneous expenses and losses under asset side.
For Ex: - General Reserve - 100000
Then Deficit - 120000

Treatment 1: - Adjust to General reserve

General Reserve - 100000
Deficit - 100000
0

Corporate Financial Reporting Module 05 Page 1

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Treatment 2: - The unadjusted Deficit i.e. 20000 to be adjusted to be shown under

miscellaneous expenses and losses.

Value added Statement

 Just like P&L A/c.
 There is no mandatory to prepare Value Added Statement.
 It is prepared in addition to P&L A/c.
 Value Added Statement contains 2 main parts. They are: -
Part 1: - Value Added
Part 2: - Value Applied
 Both the Value Added and Value Applied should be balanced or tallied.
 If there is difference then value of deficit to be found.

Format of Value Added Statement

Particulars Rs.
Part A: - Value Added
Revenue
1. Sales xxx
2. Less: Cost of Bought out Goods & Services xxx
Value added from operations xxx
3. Add: Other incomes xxx
Gross Value Added xxx

Part B: - Value Applied

1. Towards Employees/Directors/Men xxx
2. Towards Government xxx
3. Towards Providers of fund xxx
4. Towards Replacement & Expenses xxx
Gross Value Applied xxx

Detailed format of Value Added Statement

Particulars Rs. Rs.

Part A: - Value Added
Revenue
1. Sales: -
Given Sales xxx
(-) Return xxx
(-) Bad debts xxx
(-) Provision for Bad debt xxx
(-) Indirect Taxes xxx xxx
2. Less: Cost of Bought out Goods & Services
Material consumed xxx
Stores consumed xxx
Increase or decrease in stock xxx

Corporate Financial Reporting Module 05 Page 2

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Manufacturing expenses xxx

Production & operational expenses xxx
Administration expenses xxx
Interest on working capital/short term loans/overdraft xxx
Telephone/Stationery/Legal charge xxx
Audit fees xxx
Other Miscellaneous expenses xxx xxx
Value added operations xxx
3. Add: Other incomes
Divided income xxx
Interest income xxx
Rent received from let out xxx
Surplus on sale/lease of F.A xxx
xxx
Less: Extra ordinary items
loss of cash by theft xxx xxx
Gross Value Added XXXX

Part B: - Value Applied

1. Towards Employees
Staff welfare expenses xxx
Salaries & Other benefits xxx
Bonus xxx
Director’s remuneration xxx xxx

2. Towards Government
Taxes paid xxx
Income tax xxx
Corporate tax xxx
Cess & local taxes xxx
Provision for taxes xxx xxx

3. Towards providers of funds

Interest on long term loans xxx
Finance charges xxx
Dividend to Shareholders xxx
Interest on Debentures xxx
Divided paid/payable xxx xxx

4. Towards Replacement & Expansion

Depreciation xxx
Retaing profits/reserves xxx
Loss on sale of fixed asset xxx
Preliminary expenses written off xxx
Transfers to Reserves xxx

Corporate Financial Reporting Module 05 Page 3

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Debenture Redemption reserve xxx

General reserve xxx
Fixed Asset Replace Reserve xxx
Deferred tax xxx xxx
Gross Value Applied XXXX
Part C: - Less: Value of Deficit xxx
Part D: - Total Value Applied XXXX

Reconciliation Statement of Value Added and Profit before Tax: - there are 2 steps:

Step 1:- Calculation of Profit before Tax: to calculate PBT recollect the items debited to P&L
appropriation A/c and also add provision for taxation.

Calculation of PBT

Particulars Rs.
Transfers to Reserves/funds xxx
Proposed dividend xxx
Provision for taxation xxx
Profit before Tax xxx

Step 2:- Preparation of Reconciliation Statement

Begin with PBT and add back the left out items of “value applied” like salary, depreciation
and other items.
Format of Reconciliation Statement

Particulars Rs.
PBT xxx
Add:- Towards Employees xxx
Towards Government xxx
Towards providers of funds xxx
Towards Replacement & Expansion xxx
Gross Value Added xxx

Corporate Financial Reporting Module 05 Page 4

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

PROBLEM -1
The following is an extract of the profit and loss a/c of Better and Best Ltd. for the year
ended 31st March, 2004.
Particulars Rs. In 000’s
Sales (including excise duty recoveries) 727
Other income 13
740
Materials 530
Excise duty 62
Salaries, wages and employee benefits 19
Other expenses 47
Interest and finance charges 7
Depreciation 5
Provision for taxation 31
Preliminary expenses written off 5
Transfer to debenture redemption reserve 5
Proposed dividend 5
Transfer to General reserve 24
740
Notes:
1. Other expenses include fees and commissions to whole time directors of Rs. 9000 and loss on
sale of fixed assets of Rs. 3000.
2. Interest and finance charges include interest on long term loans of Rs. 4000, balance being on
short-term borrowings.
You are required to prepare a Value Added Statement for the year ended 31st March 2004.
Solution:
Value Added Statement of Better and Best Ltd. for the year ending 31/3/2004

Particulars Rs. Rs.

A: - Value Added
Revenue
Sales 727000
(-) Excise duty 62000 665000
Less:- Cost of Bought out goods and services
Materials
Other expenses 530000
Short term borrowings 35000 568000
3000

Value added from operations 97000

Add:- Other incomes 13000
Gross Value Added 110000

Corporate Financial Reporting Module 05 Page 5

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

B: - Value Applied
1. Towards Employees
Salaries, wages and employee benefits 19000
Directors fees 9000 28000

2. Towards Government 31000

Provision for taxation
3. Towards Providers of funds
Proposed dividend 5000 9000
Interest on Long term Loans 4000

4. Towards Replacement and Expansion

Preliminary expenses written off 5000
Transfer to debenture redemption reserve 5000
Transfer to General reserve
Loss on sale of fixed asset 24000
Depreciation 3000
5000 42000

Gross Value Applied 110000

Working Note:-

1) Other income 47000 includes Directors fees 9000 and loss on Sale of fixed assets 3000.
2) Interest and finance charges 7000
3000: Short term borrowing 4000: Long term borrowings

Preparation of Reconciliation Statement

Step 1:- PBT

Particulars Rs. Rs.

Transfer to Debenture Redemption reserve 5000
Transfer G/R 24000 29000
Proposed Dividend 5000
Provision for taxation 31000

PBT 65000

Step 2:- Reconciliation Statement

Particulars Rs. Rs.

PBT 65000
(+) Salaries and Wages 19000
Directors fees 9000
Interest Long term loans 4000
Preliminary expenses written off 5000

Corporate Financial Reporting Module 05 Page 6

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Loss on sale of fixed asset 3000

Depreciation 5000 45000
Gross Value Added 110000

PROBLEM -2 (2003 15-marks)

From the following information prepare a Value Added Statement of Pratab Ltd., for the year
31/3/2004.
Rs. in Lakhs
Profit and loss A/c
Income
Turnover 40.19
Other income .55
40.74
Expenses:
Decrease in stock .24
Purchases 20.20
Wages and salaries 10.00
Manufacturing and other expenses 2.30
Finance charges 4.69
Depreciation 2.44
Profit before taxation 39.87
Income tax payments (for earlier years) (3)
Tax provision (40)
Balance brought forward .38

82
Appropriations
Debentures redemption reserve 10
General reserve 10
Proposed dividend 35
Balance carried to balance sheet 27

82
Solution:
Value Added Statement for the year ending 31/3/2004

Particulars Rs. Rs.

A: - Value Added
1. Turnover 40.19
2. (-) Cost of bought out Goods & Services
a) Goods Materials 20.20
b) Decrease in stock 0.24
c) Manufacturing & other expenses 2.30 22.74

Corporate Financial Reporting Module 05 Page 7

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Value added from operation 17.45

3. (+) Other Income 0.55
Gross Value added 18.00

B: - Value Applied
1. Towards Employee
a. Salaries, wages 10.00
2. Towards Government
a. Tax provisions 0.40
3. Towards Providers of funds
a. Finance Charge 4.69
b. Proposed dividend 0.35 5.04
4. Towards Replacement and Expansion
a. Depreciation 2.44
b. Debenture Redemption reserve 0.10
c. General reserve 0.10 2.64

Gross Value Applied 18.08

C: - Value of Deficit (B-A) 0.08
D: - Total Value Applied 18.00

Reconciliation of Value of Deficit

Particulars Rs.
a) Earlier retention 0.38
b) (-) past Income Tax 0.03
0.35
c) Net profit carried to balance sheet
0.27
d) Value of deficit 0.08

PROBLEM -3 (2007, 2008, 2011 08-marks)

Given below is the Profit and Loss A/c of Creamco Ltd.,

Profit and loss A/c for the year ended 31 st March, 2004
Notes Amount
(Rs. ‘000)
Income
Sales 1 28,525
Other income 756

29281

Corporate Financial Reporting Module 05 Page 8

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Expenditure
Operating cost 2 25,658
Excise duty 1,718
Interest on bank overdraft 3 93
Interest on 10% debentures 1,157

28626
Profit before depreciation 655
Less: Depreciation 255
Profit before tax 400
Provision for tax 4 275
Profit after tax 125
Less: Transfer to fixed asset replacement reserve 25
100
Less: Dividend paid and payable 45
Retained profit 55

Notes:
1. This represents the invoice value of goods supplied after deducting discounts, returns and
sales tax.
2. Operating cost includes Rs. (‘000) 10,247 as wages, salaries and other benefits to employees.
3. The bank overdraft is treated as a temporary source of finance.
4. The charge for taxation includes a transfer of Rs. (‘000) 45 to the credit of deferred tax
account.
You are required to:
a. Prepare a value added statement for the year ended 31 st march, 2004.
b. Reconcile total value added with profit before taxation.
Solution:
Value Added Statement for the year ending 31/3/2004

Particulars Rs. Rs.

A: - Value Added
Sales 28525
(-) Excise duty 1718 26807

Less: Cost of bought out goods & services

Operating cost 15411 (15504)
Interest on overdraft 93

Value Added from operations 11303

(+) other incomes 756
Gross Value Added 12059

B: Value Applied

Corporate Financial Reporting Module 05 Page 9

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Towards Employees
Salaries 10247
2. Towards Govt.
Provision for tax (275-45) 230
3. Towards providers of fund
Interest on debentures 1157
Dividend paid 45 1202
4. Towards Replacement and Expansion
Depreciation 255
Deferred tax 45
Transfer to fixed asset reserve 25
Retained profit 55 380

Gross Value Applied 12059

Reconciliation of Gross Value Added & PBT

Particulars Rs.
A:- Calculation of PBT
Provision for taxation 275
Dividend paid 45
Transfer to fixed asset reserve 25
Retained Earnings 55

PBT 400
B:- (+) Left out items
Depreciation 255
Salaries 10247
Interest on debentures 1157

C:- Gross Value Added 12059

PROBLEM -4

From the following information in respect of Pretext Ltd. prepare a value added statement:

Profit and loss Account for the year ended 31st March, 2004

Sales (Rs.’000) Notes Amount

Sales 8540
Trading profit 1 766
Less: Depreciation 121
Interest 56 2 (177)
Add: Rent from let out properties 33
Profit before tax 622
Provision for tax 3 275
Profit after tax 347

Corporate Financial Reporting Module 05 Page 10

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Less: Extraordinary items 4 (7)

340
Less: Dividend paid and payable (136)
Retained profit 204
Notes:

1. Trading profit is arrived at after charging the following:

(Rs. ‘000)
Salaries, wages etc, to employees 1475
Director’s remuneration 145
Audit fees 90
Hire of equipment 115

2. Interest figure is ascertained as below:

Interest paid on bank loan and overdrafts 65
Interest received (9) (56)

3. Provision for tax includes a transfer to the credit of 57

deferred tax account.

4. Extraordinary items:
Surplus on sale and lease back of properties 8
Loss of cash by theft (15) (7)

Solution:
Value Added Statement of Pretext Ltd. for the year ending 31/3/2004

Particulars Rs. Rs.

A: - Value Added
1. Sales 8540
2. Less: Bought out goods & services (6154)

Value added from operation 2386

3. Other Income
Interest received 9
Rent from let out properties 33
Surplus on sale & lease 8

(-) Extra ordinary items 50

Loss of cash by theft 35
15
Gross value added 2421

B: Value Applied

Corporate Financial Reporting Module 05 Page 11

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Towards Employees
Salaries to employees 1475
Directors fees 145 1620
2. Towards Government
Provision for tax (including deferred) 275
3. Towards providers of fund
Interest on loans 65
Dividend 136 201
4. Towards Replacement and Expansion
Depreciation 121
Retained profit 204 325

Gross Value Applied 2421

Working Note:-
Bought out goods & services

Particulars Rs.
Sales 8540
(-) Profit 766
Cost of production 7774
(-) Salaries 1475
(-) Directors Remuneration 145
Cost of bought out goods & services 6154

PROBLEM -5 (2002, 2005, 2010 12-marks)

From the following information in respect of X Ltd. prepare a value added statement:

Profit and loss Account for the year ended 31st March, 2004
(Rs. in Lakhs)
Particulars Amount Amount
Income
Sales 800
Other income 50
850
Expenditure:
Production and operational expenses 600
Administrative expenses 30
Interest and other charges 30
Depreciation 20 680
Profit before taxes 170
Provision for taxes 30
140
Balance as per last balance sheet 10
150

Corporate Financial Reporting Module 05 Page 12

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Transferred to:
General reserve 80
Proposed dividend 20
Surplus carried to balance sheet 50
150

Break-up of some of the expenditure is as follows:

Production and operational expenses
Consumption of raw materials and store 320
Salaries, wages and bonus 60
Cess and local taxes 20
Other manufacturing expenses 200
600

Administrative expenses
Audit fee 6
Salaries and commission to directors 8
Provision for doubtful debts 6
Other expenses 10
30
Interest and other charges:
On working capital loans from bank 10
On fixed loans from ICICI 15
On debentures 5
30
Solution:
Value Added Statement of ‘X Ltd.’ for the year ending 31/3/2002

Particulars Rs. Rs.

A: - Value Added
1. Revenue
Sales 800
2. Less: Cost of bought out goods & services
Consumption of raw materials 320
Other manufacturing expenses 200
Audit fees 6
Provision for doubtful debts 6
Other expenses 10
Interest on working capital 10 552

Value Added From Operation 248

Add:- Other Incomes 50
Gross value added 298

B:- Value Applied

Corporate Financial Reporting Module 05 Page 13

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Towards Employees
Salaries, wages and bonus 60
Salaries and commission to directors 8 68
2. Towards Government
Cess and local taxes 20
Provision for taxes 30 50

3. Towards providers of funds

Interest on fixed loans from bank 15
Interest on debentures 5
Proposed Dividend 20 40

4. Towards Replacement and Expansion

Depreciation 20
General reserve 80
Surplus (50-10) 40 140

Gross Value Applied 298

Surplus: Surplus of this year 50
(-) Last year balance 40
10
Notes:
1) Production & Operational expenses

600

320 60 20 200
consumption Salaries Cess & taxes other
(A2) manufacturing
(B1) (B2)
expenses (A2)

2) Administrative Expenses

30

6 6
8 10
Audit fees Doubtful debts
Salaries Other exp.
(A2) (A2)
(B1) (A2)

3) Interest & other charges

Corporate Financial Reporting Module 05 Page 14

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

30

10 5
15
Working capital denentures
fixed loans
(A2) (B3)
(B3)

Reconciliation of Gross Value Added

Particulars Rs. Rs.
a. Profit before tax 170
b. Add:-
Depreciation 20
Salaries, wages 60
Director’s remuneration 8
Cess & local taxes 20
Interest on debentures 5
Interest on fixed loans 15 128

Gross value added 298

PROBLEM -6 (1999, 2004, 2008, 2013 12-marks)

From the following Profit and loss a/c of Brightex Co.Ltd., prepare a gross value added
statement for the year ended 31/12/2002.

Show also the reconciliation between gross value added and profit before taxation.

Profit and loss Account for the year ended 31st March, 2004
(Rs. in Lakhs)
Particulars Notes Amount Amount
Sales 6240
Other income 55
6295

Corporate Financial Reporting Module 05 Page 15

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Expenditure:
Production and operational expenses 1 4320
Administrative expenses (factory) 2 180
Interest and other charges 3 624
Depreciation 16 (5140)

Profit before taxes 1155

Provision for taxes 55
1100
Balance as per last balance sheet 60
1160
Transferred to fixed assets replacement reserve 400
Dividend paid 160 560
Surplus carried to balance sheet 600
Notes:
(Rs. in Lakhs)
1. Production and operational expenses:
Consumption of raw materials 3210
Consumption of stores 40
Local tax 8
Salaries to administrative staff 620
Other manufacturing expenses 442

4320

2. Administration expenses include salaries and commission to directors 5

3. Interest and other charges include:

a. Interest on bank overdraft 109
(Overdraft is of temporary nature)
b. Fixed loan from I.C.I.C.I 51
c. Working capital loan from I.F.C.I 20
d. Excise duties amount to one-tenth of total value added by manufacturing
and trading activities.

Solution:
Value Added Statement of Brightex Co. of 31/3/2002

Particulars Rs. Rs.

A: - Value Added
1. Sales 6240
(-) Excise duty (WN) 180 6060

Corporate Financial Reporting Module 05 Page 16

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

2. Less: Cost of bought goods & service

Consumption of raw materials 3210
Consumption of stores 40
Other manufacturing expenses 442
Administration expenses (180-5) 175
Interest on bank overdraft 109
Working capital loan from I.F.C.I 20
Miscellaneous expenses (W.N) (444-180) 264 4260

Value added from operations 1800

3. (+) Other Income 55
Gross Value Added 1855

B:- Value Applied

1. Towards Employees
Salaries to administrative staff 620
Salaries and commission to directors 5 625
2. Towards Government
Provision for taxes 55
Local tax 8 63

3. Towards providers of funds

Interest on fixed loans 51
Dividend paid 160 211

4. Towards Replacement and Expansion

Depreciation 16
Transfer to F.A replacement reserve 400
Surplus (600-60) 540 956

Gross Value Applied 1855

Working Note:-
Calculation of Miscellaneous expenses & excise duty
Particulars Rs. Rs.
Interest and other charges 624
Less:- Interest on bank overdraft 109
Interest on fixed loan 51
Working capital loan from I.F.C.I 20 (180)

Miscellaneous expenses & excise duty 444

Assuming that these miscellaneous charges have to be taken for deriving at value added
Particulars Rs. Rs.

Corporate Financial Reporting Module 05 Page 17

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Sales 6240
(-) Consumption of Raw material 3210
Consumption of stores 40
Other manufacturing expenses 442
Administration expenses 175
Interest on bank overdraft 109
Interest on working capital 20
Miscellaneous expenses 444 4440

Value added from operations 1800

Excise duty (1800*1/10) 180

PROBLEM -7 (2015 12-marks)

Prepare a Gross Value Added Statement from the following P&L A/c of Dakshineshwar Ltd.,
show also the Reconciliation between Gross Value Added and Profit before Taxation.

Profit and loss Account for the year ended 31-03-2015

Particulars Rs. in Lakhs Rs. in Lakhs
Income: Sales - 610
Other Income - 25
Total Income 635
Less: Expenditure:
Production and Operational Expenses (465) -
Administration Expenses (19) -
Interest and other charges (27) -
Depreciation (14) (525)
Profit Before Tax - 110
Less: Provision for Tax - (16)
Profit After Tax - 94
Add: Balance as per last Balance sheet - 7
101

Transferred to :
General Reserve 60
Proposed Dividend 11 71
Surplus carried to Balance Sheet - 30

Corporate Financial Reporting Module 05 Page 18

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Total 101
Notes:
1) Production and Operational Expenses: (Rs. in Lakhs)
Increase in Stock 112
Consumption of Raw materials 185
Consumption of Stores 22
Salaries, Wages, Bonus and Other Benefits 41
Cess and Local Taxes 11
Other Manufacturing Expenses 94
Total 465
2) Administration expenses include inter-alia audit fees of Rs. 4.80 Lakhs, salaries and
commission to directors Rs.5 Lakhs and provision for doubtful debts Rs. 5.25 Lakhs.
3) Interest and other charges: (Rs. in Lakhs)
On working capital loans from Bank 8
On fixed loans from IDBI 12
On debentures 7
Total 27

Solution:
Value Added Statement of Dakshineshwar ltd. for the year 31/3/2015
(Rs. in Lakhs)
Particulars Rs. Rs.
A: - Value Added
1. Sales 610
Less: Cost of bought out goods & services
Administrative 3.95
Increase in stock 112
Consumption of raw materials 185
Consumption of stores 22
Manufacturing Expenses 94
Audit fees 4.80
Provision for doubtful debts 5.25
Interest on working capital loans 8 435

Value added from operations 175

Add:- Other Income 25
Gross value added 200

B: Value Applied

Corporate Financial Reporting Module 05 Page 19

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Towards Employees
Salaries, wages, bonus 41
Salaries & commission to directors 5 46
2. Towards Government
Provision for tax 16
Cess & local taxes 11 27

3. Towards providers of fund

Proposed dividend 11
Interest on fixed loans Dividend 12
Interest on debentures 7 30

4. Towards Replacement and Expansion

Depreciation 14
General reserve 60
Retained Earnings (30-7) 23 97

Gross Value Applied 200

Reconciliation Statement with PBT & GVA

Particulars Rs. Rs.
a) PBT
Proposed dividend 11
General reserve 60
Retained Earning 23
Provision for tax 16 110
(+) Salaries & wages
Salary to directors 41
Cess & local taxes 5
Interest on fixed loans 11
Interest on Debentures 12
Depreciation 7
14 90

Gross value added 200

PROBLEM -8 (2016 & 2017 12-marks)

ABC Co., Ltd. furnishes the following Profit and Loss A/c.
Profit and loss A/c for the year ended 31 st March, 2016
Particulars Notes Number Amount (Rs. ‘000)
Turnover 1 29872
Other income 1042
30914
Operating expenses 2 26741
Interest on 8% Debentures 987

Corporate Financial Reporting Module 05 Page 20

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Interest on cash credit 3 151

Excise duty 1952
29831
Profit before depreciation 1083
Less: Depreciation 342
Profit before Tax 741
Provision for Tax 4 376
365
Less: Transfer to Fixed Assets
Replacement Reserve 65
300
Less: Dividend paid 125
Retained profit 175
Note:
1) Turnover is based on invoice value and net of sales tax.
2) Salaries, wages and other employee benefits amounting to Rs. 14761 (‘000) are included in
operating expenses.
3) Cash credit represents a temporary source of finance. It has not been considered as a part of
capital.
4) Transfer of Rs. 54 (‘000) to the credit of Deferred Tax Account is included in Provision of
Tax.
Prepare Value Added Statement for the year ended 31 st March, 2016 and reconcile total value
added with profit before taxation.
Solution:
Value Added Statement of ABC Co. Ltd for the year 31/3/2016

Particulars Rs. Rs.

A: - Value Added
1. Sales 29872
(-) Excise duty (WN) 1952 27920
2. Less: Cost of bought goods & service
Interest on cash credit 151
Operating expenses 11980 12131

Value added from operations 15789

3. (+) Other Income 1042
Gross Value Added 16831

B:- Value Applied

1. Towards Employees
Salaries, wages and benefits 14761
2. Towards Government
Provision for tax (376-54) 322

Corporate Financial Reporting Module 05 Page 21

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

3. Towards providers of funds

Dividend paid 125
Interest on 8% Debentures 987 1112
4. Towards Replacement and Expansion
Depreciation 342
Transfer to F.A replacement reserve 65
Transfer to deferred tax 54
Retained profit 175 636

Gross Value Applied 16831

Reconciliation Statement of total value added with PBT

Particulars Rs. Rs.
a) PBT
Dividend paid 125 741
Retained Earnings 175
Transfer to F.A replace reserve 65
Provision for tax (including defer tax) 376

(+)
Salaries 14761
Depreciation 342
Interest on Debentures 987 16090

Gross value added 16831

PROBLEM -9 (2012 – 8 marks)

Hindustan Corporation Ltd (HCL) has been consistently preparing Value Added Statement
(VAS) as part of Financial Reporting. The Human Resource department of the Company has
come up with a new scheme to link employee incentive with Value Added as per VAS. As
per the scheme an Annual Index of Employee cost to Value Added annual of employee cost
to Value Added rounded off to nearest whole number) shall be prepared for the last 5 years
and the best index out of results of the last 5 years shall be selected as the ‘Target Index’. The
Target Index percentage shall be applied to the figure of ‘Value Added’ for a given year and
the target employee cost ascertained. Any saving in the actual employee cost for the given
year compared to the target employee cost will be rewarded as ‘Variable incentives’ to the
extent of 70% of the savings. From the given data, you are requested to ascertain the
eligibility of ‘Variable Incentive’ for the year 2011-2012 of employees of the HCL.

Value added statement of HCL for Last 5 years (Rs. Lakhs)

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 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Years 2006-07 2007-08 2008-09 2009-10 2010-11

Sales 3200 3250 2900 3800 4900
Less:
Bought Out Goods and Services 2100 2080 1940 2510 3200
Value added 1100 1170 960 1290 1700

Application of Value Added

2006-07 2007-08 2008-09 2009-10 2010-11
To Pay employees 520 480 450 600 750
To Providers of Capital 160 170 120 190 210
To Government Tax 210 190 220 300 250
For Maintenance and expansion 210 330 170 200 490

Summarized Profit and Loss A/c of the HCL for 2011-12 (Rs. in Lakhs)

Sales 5970
Less:
Material Consumed 1950
Wages 400
Production Salaries 130
Production Expenses 500
Production Depreciation 150
Administrative Salaries 150
Administrative Expenses 200
Administrative Depreciation 100
Interest 150
Selling and Distribution Salaries 120
Selling Expenses 350
Selling Depreciation 120
Profit 1650
Solution:

A) Computation of Target Index

Particulars 2006-07 2007-08 2008-09 2009-10 2010-11

a. Employee cost 520 480 450 600 750
b. GVA 1100 1170 960 1290 1700
c. Annual index (a/b*% rounded) 47% 41% 47% 47% 44%
(520/1110)
Target index: - Best index of the above = 41% (lower cost per value added)

B) Computation of Value Added of HCL for 2011-2012

Particulars Rs. Rs.

A: - Value Added

Corporate Financial Reporting Module 05 Page 23

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Sales 5970
2. Less: Cost of bought goods & service
Material Consumed 1950 2000
Production expenses 500
Administration expenses 200
Selling expenses 350

Value added from operations 2970

3. (+) Other Income -
Gross Value Added 2970

B:- Value Applied

1. Towards Employees
Incentives 293
Wages 400
Production Salaries 130
Administrative Salaries 150
Selling and Distribution Salaries 120 1093

2. Towards Government
3. Towards providers of funds
Interest 150
4. Towards Replacement and Expansion
Production Depreciation 150 1727
Administrative Depreciation 100
Selling Depreciation 120
Retained profit (1650-293)incentive 1357

5. Gross Value Applied 2970

C) Computation of variable incentive for 2011-12 as per Target Index

c) Calculation of employee cost as per Target Index
Employee cost = Value added * Target Index
= 2970 * 41/100
= 29.7 * 41/1
= 1217 = 1218

D) Actual employee cost = 800 (Towards Employees)

E) Savings in Employee cost:-
Employee cost as per target index 1218
(-) Actual employee cost 800
Savings 418

F) Variable incentive based on savings in employee cost

The Savings = 418 * 70/100

Corporate Financial Reporting Module 05 Page 24

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

= 41.8 * 7
= 292.6 = 293

PROBLEM -10 (2013 8-marks)

The Value Added Statements of Value Ltd. for the last 5 years are furnished below:
(Lakh Rs.)
Particulars 2007-08 2008-09 2009-10 2010-11 2011-12
Sales 6000 8000 10000 12000 14000
Cost of Bought in Material, services 2960 4400 5800 7200 8400
and expenses
Value Added 3040 3600 4200 4800 5600
Applied towards:
Employee costs 1368 1584 1680 1968 2240
Director Remuneration 30 44 40 48 50
Government for Taxes etc. 640 760 840 1000 1120
Providers of Capital 250 336 440 512 630
Maintenance and expansion 752 876 1200 1272 1560
(Total) Value Applied 3040 3600 4200 4800 5600

The Employee costs included Annual incentive that were decided and paid after negotiations
with Labour Unions as under:
100 108 118 130 150
From 2012-13 onwards it was agreed to introduce a Value Added Incentive Scheme (VAIS)
that would enable employees to have the opportunity to earn better incentives in case of
enhanced performances. The salient features of VAIS are as under:
i. The highest Contribution of the last 5 years shall be the Target Index.
ii. 50% of the excess of actual contribution in 2012-13 over target shall be paid to employees as
incentives.
iii. CONTRIBUTION shall mean the Value Added for the year reduced by Employee costs
before incentive and expressed as a percentage of Turnover for the year. The result so
obtained is to be rounded off to the nearest whole number.
The Profit and loss account summary for 2012-13 is given below from which you are
required to:
i. Calculate the amount of Incentive payable to the employees.
ii. Prepare statement of Application of Value Added for the year 2012-13 after payment of the
incentive.

Summarized Profit & loss account of Value Ltd. for the year ended 31.03.2013.
(Lakh Rs.)
Sales 17250
Less:
Material & services consumed 6400
Wages 1200

Corporate Financial Reporting Module 05 Page 25

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Production salaries 400

Production expenditure 1600
Depreciation on machinery 1000
Administrative salaries 600
Administrative expenses 700
Director remuneration 60
Administration depreciation 350
Interest on debentures 80
Advertisement and sales promotion 600
Salaries to sales team 125
Selling expenses 150
Sales dept. depreciation 120 13385
Profit before taxes 3865
Taxes 1190
Dividends proposed 800
Balance C/o 1875

Solution:
Step 1: Computation of Target Index based on contribution
(Contribution = Value Added – Employee cost before incentive)
Step 2: Computation of Value Added for the year 2012-13
Step 3: To calculate incentives excess contribution or
Target index = Actual contribution – target contribution index

A. Computation of Target Index based on Contribution

(Lakh Rs.)
Particulars 2007-08 2008-09 2009-10 2010-11 2011-12
Incentives 100 108 118 130 150
Annual employee costs 1368 1584 1680 1968 2240
Employee cost before Incentive 1268 1476 1562 1838 2090
(incentives-annual employee cost)
Value added (given) 3040 3600 4200 4800 5600
Contribution (in Rs.)
(value added – employee cost ) 1772 2124 2638 2962 3510
Sales 6000 8000 10000 12000 14000
Contribution (in %) 29.53% 27% 26% 25% 25%
(Contribution/Sales*100) (1772/6000 *
100)

Target Index based on Contribution = 30% (i.e. 29.53%)

The highest contribution
B. Value Added Statement
Particulars Rs. Rs.
A: - Value Added

Corporate Financial Reporting Module 05 Page 26

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

1. Sales 17250
2. Less: Cost of bought goods & service
Material & services consumed 6400
Production expenses 1600
Administration expenses 700
Advertisement and sales expenses 600
Selling expenses 350 9450

Value added from operations 7800

3. (+) Other Income -
Gross Value Added 7800

B:- Value Applied

1. Towards Employees
Wages 1200
Production Salaries 400
Administrative salaries 600
Director remuneration 60
Salaries to sales team 125
Incentives (part E) 173 2558

2. Towards Government 1190

3. Towards providers of funds
Interest on debentures 80
Proposed dividends 800 880
4. Towards Replacement and Expansion
Depreciation on machinery 1000
Administrative Depreciation 350
Sales Depreciation 120
Retained profit (1875-173) 1702 3172

5. Gross Value Applied 7800

C) Computation of Target Contribution based on Target Index

Particulars Rs.
Value Added 7800
(-) Employee Cost (2385-60) 2325
Contribution (in Rs.) 5475
Sales 17250

Contribution (in %) 5475/17250 *100 32%

Therefore, the Target Contribution is 32%.

D) Computation of excess in contribution

Particulars

Corporate Financial Reporting Module 05 Page 27

 Smt. Dr. Mahananda B Chittawadagi
Research Guide, Bengaluru City University
Associate Professor of commerce

Target Contribution 32%

(-) Actual Contribution 30%
Excess of Contribution 2%

E) Computation of Incentive payable i.e. 50% of excess Contribution on Sales

2%*50/100 = 1%
Sales = 17250
Therefore, incentives payable = 17250*1/100
= 172.5 = 173

Corporate Financial Reporting Module 05 Page 28