1. (a) SUGGESTED ANSWERS - Group 1 Accounting (Code HAL) Disclaimer (Read carefully) The answers given below are prepared by the faculty of Samvit Academy as per their views and experience. The working notes, notes and assumptions, if any stated, are purely the views of the respective faculty of Samvit Academy and students are encouraged to go through them and apply the same in the examination as a good practice. No assurance is given that the answer keys of the Institute of Chartered Accountants of India used for valuation are the same. However, utmost care has been taken while designing the below suggested answers. Feedback is welcome. For the questions, please refer to the question paper. As per AS-10 (revised), the following costs should be considered for a self-constructed asset: 1. Cost of construction 2. Any directly attributable costs 3. General overhead expenses incurred to the extent they are attributable to the asset 4. Decommissioning, restoration and similar liabilities In the given case, the costs incurred relate to the shifting of the production facility to a temporary location and are not related to the redevelopment of the existing freehold factory property. Therefore, these costs are not be included in the cost of the freehold factory property as they are not directly attributable to bringing the freehold factory property to the location and condition necessary for it to be capable of operating in the manner intended by management. (b) 1. Cost of Raw material X Rs per unit Cost price including excise duty 400 Less: Excise duty (Cenvat credit is receivable on the excise duty paid) (20) Add: Freight inward 40 Add: Unloading charges 20 Cost per unit of Raw Material X 440 2. Net Realisable Value of Raw Material X (Replacement cost) 350 (given) 3. Cost of Finished Goods Y Rs per unit Material consumed 440 Direct labour 60 Direct overhead 40 Fixed Cost per unit (Rs 2,00,000/20,000) 10 Cost per unit of Finished Goods Y 550 (1)
Case 1 - Net Realizable Value of the Finished Goods Y is Rs 500 As per AS-2, in the case of raw materials which are part of inventory and which would be used in finished goods which would sell below cost, raw materials should be valued at lower of COST or NRV. In this case, Cost of Finished Goods Y is Rs 550 and Net Realisable Value is Rs 500. Therefore, the Raw Material X should be valued at Lower of Cost or Net Realisable Value. Value of Raw Material X = Lower of Rs 440 or Rs 350 = Rs 350 Total Value of Raw Material X = 1,000 units * Rs 350 = Rs 3,50,000 ------- (1) Value of Finished Goods Y = Lower of Cost or Net Realisable Value Value of Finished Goods Y = Lower of Rs 550 or Rs 500 = Rs 500 Total Value of Finished Goods Y = 1,200 units * Rs 500 = Rs 6,00,000 ------- (2) Total Value of Closing Stock = 1 + 2 = Rs 9,50,000 Case 2 - Net Realizable Value of the Finished Goods Y is Rs 580 In the case of raw materials which are part of inventory and which would be used in finished goods which would sell at or above cost, the raw materials should be valued at COST In this case, Cost of Finished Goods Y is Rs 550 and Net Realisable Value is Rs 580. Therefore, the Raw Material X should be valued at Cost. Total Value of Raw Material X = 1,000 units * Rs 440 = Rs 4,40,000 ------- (3) Value of Finished Goods Y = Lower of Cost or Net Realisable Value Value of Finished Goods Y = Lower of Rs 550 or Rs 580 = Rs 550 Total Value of Finished Goods Y = 1,200 units * Rs 550 = Rs 6,60,000 ------- (4) Total Value of Closing Stock = 3 + 4 = Rs 11,00,000 Note: It is assumed that Raw Material X is used for producing Finished Goods Y. (c) According to AS 7, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized immediately. In the given case, there seems to be an overall loss on the contract. Hence, it must be fully recognised. (2)
(i) Calculation of Profit/Loss to be recognised (Rs) Total Contract Cost (21,00,000 + 31,50,000) 52,50,000 Less: Total contract price (50,00,000) Loss to be recognised 2,50,000 (ii) Revenue to be recognised during the year Percentage of completion 40% (Given) Revenue to be recognised during the year = 40% * 50,00,000 (A) Rs 20,00,000 Contract Cost incurred till now (given) (B) Rs 21,00,000 Loss on contract (B-A) Rs 1,00,000 Expected loss recognized as per AS 7 - As per (i) Rs 2,50,000 Further provision required in respect of Expected Loss Rs 1,50,000 (Rs 2,50,000 - Rs 1,00,000) Contract Profit and Loss Account for 2016-17 Particulars Rs Particulars Rs To Contract Cost 21,00,000 By Contract Revenue 20,00,000 To Provision for loss 1,50,000 By Net Loss 2,50,000 Total 22,50,000 Total 22,50,000 (d) (i) As per AS-13, long term investments are to be valued at Cost. Where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant reduction is charged to P&L Account. In the given case, the cost of the investment is Rs 3,00,000. However, the investee company has incurred cash losses with decline market share and investment of Paridhi Electronics Ltd. may not fetch more than Rs 45,000. Therefore, considering this decline to be other than temporary, it would be better to value the investment at Rs 45,000. Therefore, Paridhi Electronics Ltd. should re-state the investment at Rs 45,000 and charge Rs 2,55,000 to the P&L Account. Note: The reduction in carrying amount may be reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exists. (ii) As per AS-13, when a current investment has to be re-classified as a long-term investment, it should be valued at Cost or Fair Value, whichever is lower. The market value of these investments as on date of Balance Sheet is Rs 2.5 lakhs and cost is Rs 5 lakh. Hence, the investments should be valued at Market Value of Rs 2.5 lakh. (3)
2. Since, the values of certain assets and liabilities are changed on takeover, it is accounted as Amalgamation in the nature of Purchase. Calculation of Net Assets Taken Over Particulars A Ltd. B Ltd. Goodwill 1,40,000 40,000 Freehold property 3,00,000 2,40,000 Plant and Machinery 1,00,000 40,000 Motor vehicles 30,000 20,000 Trade receivables 2,00,000 80,000 Stock 2,30,000 1,80,000 Cash at Bank 80,000 40,000 Less: Liabilities taken over 10,80,000 6,40,000 6% Debentures (1,20,000 x 105%) - (1,26,000) Trade payables (2,10,000) (1,30,000) Net Assets taken over 8,70,000 3,84,000 Calculation of Purchase Consideration Since Purchase Consideration is not specifically given, we can assume the Purchase Consideration to be Net Assets Taken Over. Particulars A Ltd. B Ltd. Purchase Consideration (Net Assets) 8,70,000 3,84,000 Number of shares of Rs 10 each issued 87,000 38,400 (4)
Balance Sheet AB Ltd. as at 1st April, 2017 (Using Purchase Method) EQUITY AND LIABILITIES Schedule Amount (Rs) 1. Shareholders funds (a) Share capital 1 12,54,000 (b) Reserves and surplus - 2. Non-current liabilities 2 1,26,000 3. Current liabilities 3 2,60,000 ASSETS TOTAL 16,40,000 1. Non-current assets 4 9,40,000 2. Current assets 5 7,00,000 Schedule 1 - Share Capital 1. Equity Share Capital TOTAL 16,40,000 Authorised, Issued and Paid up Capital 1,25,400 Equity Shares of Rs 10 each, fully paid up 12,54,000 (Of the above, all equity shares have been issued for non cash consideration in a scheme of amalgamation) Schedule 2 - Non Current Liabilities Total Share Capital 12,54,000 Particulars Rs 10% Debentures 1,26,000 Total 1,26,000 Schedule 3 - Current Liabilities Particulars Rs Trade Payables (2,10,000+1,30,000-80,000) 2,60,000 Total 2,60,000 (5)
Schedule 4 - Non Current Assets Particulars Rs Goodwill (1,40,000+40,000+30,000) 2,10,000 Freehold property (3,00,000+2,40,000) 5,40,000 Plant and Machinery (1,00,000+40,000) 1,40,000 Motor Vehicles (30,000+20,000) 50,000 Total 9,40,000 Schedule 5 - Current Assets Particulars Rs Inventory (2,30,000+1,80,000) 4,10,000 Trade Receivables (2,00,000+80,000-80,000) 2,00,000 Cash and Bank (80,000+40,000-30,000) 90,000 Total 7,00,000 Journal entries in the books of AB Ltd (Purchase Method) 1. Business purchase A/c Dr. 12,54,000 To Liquidator of A Ltd. A/c 8,70,000 To Liquidator of B Ltd. A/c 3,84,000 (Being the amount of purchase consideration payable to liquidator of A Ltd. and B Ltd. for assets taken over) 2. Goodwill A/c Dr. 1,40,000 Freehold property A/c Dr. 3,00,000 Plant and Machinery A/c Dr. 1,00,000 Motor vehicles A/c Dr. 30,000 Trade receivables A/c Dr. 2,00,000 Inventory A/c Dr. 2,30,000 Cash at Bank A/c Dr. 80,000 To Trade payables A/c 2,10,000 To Business purchase A/c 8,70,000 (Being assets and liabilities of A Ltd. taken over) (6)
3. Goodwill A/c Dr. 40,000 Freehold property A/c Dr. 2,40,000 Plant and Machinery A/c Dr. 40,000 Motor vehicles A/c Dr. 20,000 Trade receivables A/c Dr. 80,000 Inventory A/c Dr. 1,80,000 Cash at Bank A/c Dr. 40,000 To Trade payables A/c 1,30,000 To Debenture Holders A/c 1,26,000 To Business purchase A/c 3,84,000 (Being assets and liabilities of B Ltd. taken over) 4. Debenture holders A/c Dr. 1,26,000 To 10% debentures A/c 1,26,000 (Being issue of 10% debentures to debenture holders of B Ltd.) 5. Liquidator of A Ltd. A/c Dr. 8,70,000 Liquidator of B Ltd. A/c Dr. 3,84,000 To Equity Share Capital A/c 12,54,000 (Being the allotment of equity shares of Rs 10 for discharge of purchase consideration) 6. Trade Payables A/c Dr. 80,000 To Trade Receivables A/c 80,000 (Being mutual owing cancelled) 7. Goodwill A/c Dr. 30,000 To Bank A/c 30,000 (Being payment of realisation expenses of transferor companies) (7)
3. (a) Investment in 13.5% Convertible Debentures in P Ltd. Account Note 1: Rs 3,713 received on 31.12.2016 represents interest on the debentures converted till date of conversion. (Rs 1,10,000*13.5%*3/12) Note 2: Cost being lower than Market Value, the debentures are carried forward at Cost. Working Note for calculation of Ex Interest, Interest and Cum Interest Date Transaction Ex Interest Interest Cum Interest May1 Purchase 5,19,375 (5,25,000-5,625) Aug 1 Purchase 2,45,000 (2,56,250-11,250) 5,625 5,00,000*13.5%*1/12 11,250 2,50,000*13.5%*4/12 5,25,000 (5,000*105) 2,56,250 (2,500*102.5) Oct 1 Sale 2,06,000 0 2,06,000 (2,000*103) (8)
Calculation of Profit or Loss on Sale of Investment Sale Value of 2,000 debentures Rs 2,06,000 Cost of 2,000 debentures (Average price) (5,19,375 + 2,45,000)*2,000/7,500 Cost of 2,000 debentures (Average price) Rs 2,03,833 Therefore, Profit on Sale (2,06,000-2,03,833) Rs 2,167 Conversion Value of equity shares Number of debentures before conversion = (5,000+2,500-2,000) 5,500 Book Value of above 5,500 debentures = (5,19,375 + 2,45,000-2,03,833) Rs 5,60,542 Number of debentures converted = 20%*5,500 1,100 Cost of 1,100 debentures (Average price) = 5,60,542*(1,100/5,500) Rs 1,12,108 (b) Statement showing split of profits between Pre-incorporation and post-incorporation Particulars Basis Pre Post Particulars Basis Pre Post To Director Fee Post 60,000 By Gross Profit Sales WN 1 78,160 7,03,440 To Bad Debts Sales WN 1 1,440 12,960 To Advertisement Time WN 2 12,000 36,000 To Salaries & General expenses Time WN 2 64,000 1,92,000 To Prelim expenses Post 20,000 To Donations Post 20,000 To Capital Reserve 720 (Pre-inc profit) To P&L A/c (Post-inc profit) 3,62,480 Total 78,160 7,03,440 Total 78,160 7,03,440 (9)
Working Notes: 1. Sales ratio Sales for period up to 30.06.2015 (9,60,000 x 3/6) Rs 4,80,000 Sales for period from 01.07.2015 to 31.03.2016 (48,00,000 4,80,000) Rs 43,20,000 Therefore, Sales Ratio = 48 : 432 or 1 : 9 2. Time ratio Pre-incorporation period = 1st April, 2015 to 30 June, 2015 = 3 months Post-incorporation period = 1st July, 2015 to 31st March, 2016 = 9 months Therefore, Time Ratio = 3 : 9 or 1: 3 4. (a) ABC Limited Cash Flow Statement for the year ended 31st March, 2017 (Rs in lakhs) (Rs in lakhs) Cash flows from operating activities Net profit before taxation (50,000+10,000) 60,000 Adjustments for : Depreciation 40,000 Loss on sale of assets (net) 80 Amortization of capital grant (12) Profit on sale of investments (200) Interest income on investments (5,012) Interest expenses 20,000 Operating profit before working capital changes 1,14,856 Less: Increase in working capital (excluding cash and bank balance) (1,12,150) Cash generated from operations 2,706 Income taxes paid (8,496) Net cash used in operating activities (5,790) Cash flows from investing activities Sale of assets (370 80) 290 Sale of investments (55,530 + 200) 55,730 Interest income on investments 5,012 Purchase of fixed assets (1,06,300) Net cash used in investing activities (45,268) (10)
Cash flows from financing activities Proceeds from calls in arrear 4 Receipts of grant for capital projects 24 Proceeds from long-term borrowings 51,960 Proceed from short-term borrowings 41,150 Interest paid (21,040) Dividend (including dividend tax) paid (17,070) Net cash generated from financing activities 55,028 Net increase in cash and cash equivalents 3,970 Cash and cash equivalents at the beginning of the period 10,006 Cash and cash equivalents at the end of the period 13,976 (b) Statement of Claim Items Cost Depreciation Salvage Claim (Rs) (Rs) (Rs) (Rs) A B C D E=B-C-D Stock (W.N. 2) 2,80,000 20,000 2,60,000 Buildings 3,75,000 1,25,000 + 9,375 4,000 2,36,625 Equipment 75,000 22,500 + 5,625 2,500 44,375 Total 5,41,000 Working note 1 (WN 1) Memorandum Trading Account for the Period from 1.1.2016 to 30.6.2016 Particulars Rs Particulars Rs To Opening Stock (1.1.2016) 1,50,000 By Sales 11,10,000 To Purchases 9,37,500 By Closing Stock 2,80,000 To Carriage Inwards 17,500 (Bal. Fig.) To Wages 7,500 To Gross Profit 2,77,500 (25% of Rs 11,10,000) Total 13,90,000 Total 13,90,000 Working note 2 (WN 2) Stock on date of fire 280,000 Less : Salvage 20,000 Stock destroyed by fire 260,000 (11)
5. Naina's Loan A/c Particulars Rs Particulars Rs To Bank A/c 114000 By Naina's Capital A/c 380000 By Interest 19000 To Bal c/d 299250 (April-Sep) By Interest 14250 (Oct-Mar) Total 413250 Total 413250 Partners Capital A/c's Particulars Naina Radha Khushi Asmita Particulars Naina Radha Khushi Asmita To Naina Cap A/c - 48000 32000 - By Bal b/d 300000 225000 150000 - To Bank A/c 25000 - - - By Radha's Cap A/c 48000 - - - To Naina's Loan A/c 380000 - - - By Khushi's Cap A/c 32000 - - - To Radha's Cap A/c - - 36000 By Current A/c 25000 - - - To Asmita's Cap A/c - 59000 - - By Radha's Cap A/c - - - 59000 To Bal c/d 0 154000 118000 23000 By Asmita's Cap A/c - 36000 - - Total 405000 261000 150000 59000 Total 405000 261000 150000 59000 Partners Current A/c's Particulars Naina Radha Khushi Asmita Particulars Naina Radha Khushi Asmita To Capital A/c 25000 - - - By Bal b/d 25000 12500 18750 - To Drawings A/c - 50000 41250 11250 By P&L App A/c - 120350 97140 25360 To Bal c/d - 82850 74640 14110 (WN 3) Total 25000 132850 115890 25360 Total 25000 132850 115890 25360 Bank A/c Particulars Rs Particulars Rs To Bal b/d 92700 By Creditors 775000 To Debtors 1125000 By Expenses 11250 To P&M 9000 By Salary 8000 By Drawings Radha 50000 Khushi 41250 Asmita 11250 By Naina's Capital A/c 25000 By Naina's Loan A/c 114000 By Bal c/d 190950 Total 1226700 Total 1226700 (12)
Balance Sheet of the Reconstituted Firm (Radha, Khushi, Asmita) Liabilities Rs Assets Rs Capitals Plant & Machinery 426000 Radha 154000 Less: Sale -7000 Khushi 118000 Less: Depreciation -30350 388650 Asmita 23000 Current A/c Debtors 150000 Radha 82850 Stock 171250 Khushi 74640 Bank 190950 Asmita 14110 Naina's Loan 299250 Creditors 135000 Total 900850 Total 900850 Working Notes to the solution WN 1 - Calculation of Profit Sharing Ratio Particulars Radha Khushi Asmita Old Ratio 3/5 2/5 - New Ratio 3/5-1/5 2/5 1/5 New Ratio 2/5 2/5 1/5 Note: Only Radha gives 1/3rd of her share to Asmita WN 2 - Adjustments for Goodwill (All adjustments done through Capital A/c's) 1. On retirement of Naina Radha's Cap A/c -dr 48000 Khushi's Cap A/c -dr 32000 To Naina's Cap A/c 80000 (Goodwill of Naina Rs 1,80,000*4/9 borne by Radha and Khushi in their Gain Ratio 3:2) 2. On admission of Asmita Asmita's Cap A/c -dr 36000 (Rs 1,80,000*1/5) To Radha's Cap A/c 36000 (13)
WN 3 - Calculation of profit for the year Sales 1144500 Add: Closing Stock 171250 Less: Opening Stock -185800 Less: Purchases -796250 Less: Expenses -21250 Less: Depreciation -30350 Profit earned evenly during the year 282100 Profit till October (50% of above) 141050 Add: Profit on sale of machine 2000 Less: Interest on loan till September -19000 Less: Manager Salary till September -8000 Profit earned till October 116050 Share of Profit (3:2) Radha 69630 Khushi 46420 Profit after October 141050 Less: Interest on Loan for second half -14250 Profit after October 126800 Share of Profit (2:2:1) Radha 50720 Khushi 50720 Asmita 25360 (14)
6. (a) Debtors A/c Particulars Rs Particulars Rs To Balance b/d 70,000 By Bills receivable 47,000 To Bills receivable dishonoured 5,000 By Cash 1,56,000 To Bills receivable dishonoured 3,000 By Discount allowed 9,000 (endorsed) By Sales return 11,000 To Bills receivable dishonoured 2,000 By Balance c/d 82,000 (discounted) To Credit sales (bal.fig.) 2,25,000 Total 3,05,000 Total 3,05,000 Creditors A/c Particulars Rs Particulars Rs To Bills payable 53,000 By Balance b/d 81,000 To Cash 1,72,000 By Bills receivable 3,000 To Discount received 7,000 dishonoured (endorsed) To Bills receivable (endorsed) 27,000 By Credit purchases 2,70,000 To Balance c/d 95,000 (bal.fig.) Total 3,54,000 Total 3,54,000 1. Total Sales = Cash sales + Credit sales = 1,68,500 + 2,25,000 = 3,93,500 2. Purchases = Cash Purchases + Credit Purchases= 1,97,800 + 2,70,000= 4,67,800 (15)
(b) Balance Sheet of Sports Club as at 31st March 2016 Liabilities Rs Assets Rs Capital Fund: Fixed Assets: Opening Balance (W.N.) 7,83,000 Club, Grounds & Pavilion 4,40,000 Add: Surplus 1,38,000 9,21,000 Furniture & Fixtures 40,000 Current Liabilities: Add: Additions 20,000 Outstanding Salary 5,000 Less : Depreciation -5,000 55,000 (15,000-10,000) Sports Equipments 2,50,000 Outstanding Audit Fees 5,000 Less: Depreciation -90000 1,60,000 Creditors for Printing & Stationery Investments 2,00,000 {22,000-(26,000 5,000)} 1,000 Accrued Interest [ 12,000-6,000] 6,000 Subscription received in advance 4,000 Current Assets: Accrued rent (28,000-24,000) 4,000 Subscription receivable For 2014-15 (8,000-6,000) 2,000 For 2015-16 {(1,56,000-(1,50,000 + 2,000)} 4,000 Entrance Fees receivable (1,05,000-1,00,000) 5,000 Prepaid Insurance (12,000-10,000) 2,000 Cash and bank 58,000 Total 9,36,000 Total 9,36,000 (16)
Working Note Balance Sheet of Sports Club As at 31st March 2015 Liabilities Rs Assets Rs Fixed Assets : Capital Fund (bal.fig.) 7,83,000 Club, Grounds & Pavilion 4,40,000 Current Liabilities: Furniture & Fixtures 40,000 Subscription received in advance 2,000 Sports Equipments 2,50,000 Creditors for Printing and stationery 5,000 Current Assets: Entrance Fees receivable 10,000 Subscription receivable 8,000 Cash and Bank 42,000 Total 7,90,000 Total 7,90,000 7. (a) (i) Price of two cars = Rs 2,00,000 x 2 4,00,000 Less: Depreciation for the first year @ 30% 1,20,000 2,80,000 Less: Depreciation for the second year = Rs 2, 80,000*30/100 84,000 Agreed value of two cars taken back by the hire vendor 1,96,000 (ii) Cash purchase price of one car 2,00,000 Less: Depreciation on Rs 2,00,000 @20% for the first year 40,000 Written drown value at the end of first year 1,60,000 Less: Depreciation on Rs 1,60,000 @ 20% for the second year 32,000 Book value of car left with the hire purchaser 1,28,000 (iii) Book value of one car as calculated in working note (ii) above 1,28,000 Book value of Two cars = Rs 1,28,000 x 2 2,56,000 Value at which the two cars were taken back, calculated in working note (i) above 1,96,000 Hence, loss on cars taken back 60,000 (iv) Sale proceeds of cars repossessed 1,70,000 Less: Value at which plant were taken back 1,96,000 Repair 10,000 2,06,000 Loss on resale 36,000 (17)
(b) Transaction date Due Date Amount No. of days from Base date (Base date 19.6.2016) Product 8.3.2016 11.7.2016 4,000 22 88,000 16.3.2016 19.6.2016 5,000 0 0 7.4.2016 10.9.2016 6,000 83 4,98,000 17.5.2016 20.8.2016 5,000 62 3,10,000 Total 20,000 8,96,000 Average due date = Base date + Total of Product Total of Amount = 19.6.2016 + Rs 8,96,000 / Rs 20,000 = 19.6.2016 + 44.8 days (or 45 days approximately) = 3.8.2016 Mehnaaz wants to earn interest of Rs 150. The yearly interest is Rs 20,000 * 18% = Rs 3,600. Assume that days corresponding to interest of Rs 150 are Y. Then, 3,600 * Y/365 = Rs 150 or Y = 150 * 365/3,600 = 15.2 days or 15 days (Approx.) Hence, if Mehnaaz wants to save Rs 150 by way of interest, she should prepone the payment of amount involved by 15 days from the Average Due Date. Hence, she should make the payment on 19.7.2016 (i.e. 03.08.2016 15 days). (c) Creditors Ledger General Ledger Adjustment Account for the year ended 31.3.2017 Particulars Rs Particulars Rs To Balance b/d 2,30,000 By Creditors ledger adjustment A/c: To Creditors ledger adjustment A/c: Bank 2,65,000 Purchases 3,00,000 Discount received 8,000 Cheque paid dishonoured 7,000 Returns 11,000 Bills receivable endorsed 30,000 By balance c/d 2,23,000 Total 5,37,000 Total 5,37,000 (d) 1. Hire Purchase Price = Down Payment + Installments = 3,00,000+( 4,20,000 + 3,90,000 + 3,60,000 + 3,30,000) = 18,00,000 2. Total Interest = H.P. Price Cash Price= 18,00,000 15,00,000 = 3,00,000 (18)
3. Calculation of ratio of hire purchase price outstanding in the beginning of each year Year Outstanding HP Price Instalment Paid Outstanding HP Price Beginning of the Year End of the Year 1 15,00,000 4,20,000 10,80,000 2 10,80,000 3,90,000 6,90,000 3 6,90,000 3,60,000 3,30,000 4 3,30,000 3,30,000 Nil Ratio of Outstanding Hire Purchase Price at the beginning of the year = 150:108:69:33 Interest for each year: Interest for 1st year = 3,00,000 x 150/360 = 1,25,000 Interest for 2nd year = 3,00,000 x 108/360 = 90,000 Interest for 3rd year = 3,00,000 x 69/360 = 57,500 Interest for 4th year = 3,00,000 x 33/360 = 27,500 (e) The disadvantages of using an ERP Package are the following: 1. Lesser flexibility: The user may have to modify their business procedure at times to be able to effectively use the ERP. 2. Implementation hurdles: Many of the consultants doing the implementation of the ERP may not be able to fully appreciate the business procedure to be able to do a good implementation of an ERP. 3. Very expensive: ERP are normally priced at an amount which is often beyond the reach of small and medium sized organisation. However, there are some ERP coming into the market which are moderately priced and may be useful to the small businesses. 4. Complexity of the software: Generally an ERP package has large number of options to choose from. Further the parameter settings and configuration makes it a little complex for the common users. (19)