Question

X Ltd. carried forward balance of ₹ 20,50,000 as surplus for the year ended on 31st March, 2023. During the year 2023-24 it made a profit of ₹ 71,80,000 before making provision for income tax. Provision for income tax is to be made for ₹ 30,00,000. Following appropriations were proposed by the Directors:

1. Transfer ₹ 5,00,000 to the Dividend Equalisation Reserve.
2. Pay the year’s dividend on ₹ 5,00,000 10% cumulative Preference share capital.
3. Pay 20% dividend on ₹ 60,00,000 Equity share capital.
4. Pay ₹ 1,00,000 dividend to non-cumulative Preference Shares.
5. Transfer ₹ 7,50,000 to Debenture Redemption Fund.
6. Transfer 7.5% of Current year’s net profit to General Reserve.

Ascertain the net amount of ‘Surplus’.

Answer 1

a. Current Year Surplus (after tax):

Profit before tax (2023–24) = ₹ 71,80,000

Less: Provision for Income Tax = ₹ 30,00,000

Current Year Surplus = ₹ 41,80,000

b. Transfer to General Reserve:

7.5% of Current Year Surplus before appropriations

= 7.5% of ₹ 41,80,000

= ₹ 3,13,500

c. Dividends:

10% Cumulative Preference Dividend on ₹ 5,00,000 = ₹ 50,000

Equity Dividend @ 20% on ₹ 60,00,000 = ₹ 12,00,000

Non-cumulative Preference Dividend (given) = ₹ 1,00,000

Total Dividends = ₹ 13,50,000

d. Other Transfers:

Dividend Equalisation Reserve = ₹ 5,00,000

Debenture Redemption Fund = ₹ 7,50,000

e. Total Appropriations (from Current Year Surplus only):

Current Year’s Surplus
Net Profit after Tax	41,80,000
Less: Dividend Equalisation Reserve	(5,00,000)
Less: Debenture Redemption Fund	(7,50,000)
Less: Transfer to General Reserve	(3,13,500)
Current year Surplus	26,16,500

f. Balance of Current Year Surplus:

Current Year Surplus = ₹ 41,80,000

Less: Appropriations = ₹ 29,13,500

Balance of Current Year = ₹ 12,66,50

g. Net Surplus (Closing Balance):

Opening Surplus (1-4-2023) = ₹ 20,50,000

Add: Balance of Current Year = ₹ 12,66,500

h. Deductions from Current Year Surplus:

Dividends = ₹ 13,50,000

General Reserve = ₹ 3,13,500

Total deduction = ₹16,63,500

Balance of Current Year:

₹ 41,80,000 − ₹ 16,63,500

= ₹ 25,16,500

Net Surplus:

Opening Surplus = ₹ 20,50,000

Balance of Current Year = ₹ 25,16,500

Net Surplus = ₹46,66,50