Page 44 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 2: Price Level Accounting

Bank Overdraft 60 80 Notes
Cash 10 30
Paid-up Share Capital 150 200
Reserves 50 80
Cost of Sales Adjustment 20
Monetary Working Capital Adjustment 15
Depreciation Adjustment 5
Total of Adjustment 40 -
Solution:
Calculation of Net Borrowings: (`)
Opening Closing
Convertible Debentures 100 120
Bank Overdraft 60 80
Total Borrowings 160 200
Less: Cash (as this does not enter into MWCA) 10 30
Net Borrowings T50 170
Calculation of Shareholders' Funds:
Paid-up Share Capital 150 200
Reserves 50 80
Shareholders' Funds 200 280

Average Net borrowing = 15 + 170 / 2
or B = ` 160

Average Shareholders Interest = 200 + 280 / 2

S= ` 240
Gearing Adjustment = B / B+S

= 160/160 +240
As total of all the Adjustments = 40 (given)

= 160/400 x 40
= `16

Task A firm purchased machinery for a sum of `1 lakh on January 1, 2002. It has an
expected life of 10 years without any scrap value. The price indices for the asset were as
follows:

January 1, 2002 100
January 1, 2008 160
December 31, 2008 175

Contd...

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