Question 11.I.14: For the Hypothetical Finance Ltd. (HFL) in Illustration 11.1......

Management Accounting and Financial Analysis for CA Final Examination [995093]

For the Hypothetical Finance Ltd. (HFL) in Illustration 11.13, assume that the initial cost of structuring the deal is Rs 1.2 lakh. Using the effective rate of interest method for allocating finance income, show how the transaction will appear in the books of the HFL. You can make other assumptions, if necessary.

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Allocation of Unearned Finance Income (ERI: 26.1%) (Rs lakh)

$Capital\>recovery$	$Interest\>component$	$Instalment$	$Outstanding\>amount\>at\>the\>beginning$	$Year$
19.21	23.54	42.75	112.50	1
24.22	18.52	42.75	93.29	2
30.55	12.22	42.75	69.09	3
38.53	4.22	42.75	38.52	4

Record in Financial Statements:

Income Statement (Rs lakh)

$Amount$		$\qquad\qquad\,Income\qquad\qquad\qquad$	$Amount$		$Expenses\qquad\qquad\qquad$
$Year$ 2	$Year$ 1	$\qquad\qquad\,Income\qquad\qquad\qquad$	$Year$ 2	$Year$ 1	$Expenses\qquad\qquad\qquad$
18.52	23.54	Hire finance income	—	1.2	Direct costs

Balance Sheet (Rs Lakh)

$Amount$		$\qquad\qquad\qquad Assets \qquad\qquad\qquad$	$Amount$		$Liabilities\qquad\qquad\qquad\qquad$
$Year$ 2	$Year$ 1	$\qquad\qquad\qquad Assets \qquad\qquad\qquad$	$Year$ 2	$Year$ 1	$Liabilities\qquad\qquad\qquad\qquad$
		Current assets:			Current liabilities:
		Stock hire (agreement value less			Finance income/charge
85.49	128.24	amount/instalment received)	16.42	34.95	(unmatured/unearned)

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