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Friday, 5 October 2018

MCQ-F101-9 - Answer Key

MCQ-F101-9 - Answer Key

Sec 2(57) of Companies Act, 2013 defines Net Worth as : Net Worth means the aggregate value of the paid up share capital and all reserves created out of profits and securities premium account, after deducting aggregate value of the accumulated losses, deffered expenditure and miscellaneous expenditure not written off, as per audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

from this definition, it may be noted that all reserves created out of profits are included in the calculation of net worth

In given case, capital reserve has arisen pursuant to grant received from government, which is in the nature of promoter contribution.

Ona literal interpretation of definition, it may be concluded that capital reserve in nature of promoter contribution should not be included to calculate net worth as the same is not explicitly mentioned in definition. However, in substance, such capital reserve is a capital contribution by promoters and should be included in calculation of ner worth.

Further, AS 12 states that government grants in nature of promoter contribution are recognised in shareholder's funds. Therefor such reserve should be included for computation of net worth.

However, it may be noted that such capital reserve should be included in net worth only for the purpose of IndAS applicability. This definition should not be applied by analogy for determining net worth under provisions of Companies Act, 2013.