Correcting a portfolio valuation before reporting

The case and its answers

Every question of this case, with its answer and why each other option is wrong.

An internal client-account worksheet reports ₹80 lakh of securities and ₹20 lakh cash, with no liabilities, for a total of ₹100 lakh. A reconciliation finds three errors: one securities price overstates assets by ₹3 lakh. An earned dividend receivable of ₹0.80 lakh was omitted. And ₹0.50 lakh of accrued unpaid fees was omitted. The account has 1,00,000 internal accounting units used only to allocate values and track performance, with no new units or external cash flows. These are bookkeeping units, not publicly traded fund units. All corrections are accepted and no tax adjustment is required. The next day the dividend is received in cash at exactly its recorded receivable amount. Nothing else changes.

Internal accounting units are used solely for this example. They do not imply a public fund or a legal redemption mechanism.

1. Q1What is the corrected total net account value?

   • A

     Option A. ₹97.30 lakh — Correct answer

   • B

     Option B. ₹98.30 lakh

     Why it is wrong: This adds the unpaid fee instead of subtracting the liability.

   • C

     Option C. ₹100.30 lakh

     Why it is wrong: This ignores the securities overvaluation.

   • D

     Option D. ₹96.50 lakh

     Why it is wrong: This corrects the price and fees but omits the dividend receivable.

   Answer: A. ₹100 lakh − ₹3 lakh + ₹0.80 lakh − ₹0.50 lakh = ₹97.30 lakh. Remember: Reconcile assets, receivables and liabilities before reporting net value.

   Hint, shown before you answer in practice mode: Subtract the asset overstatement, add the omitted asset and subtract the fee liability.

   XXIB-S3-C06-Q1mediumnumerical

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2. Q2What is the corrected value per internal accounting unit?

   • A

     Option A. ₹100.00

     Why it is wrong: This uses the uncorrected total.

   • B

     Option B. ₹9.73

     Why it is wrong: This divides by ten times the unit count.

   • C

     Option C. ₹973.00

     Why it is wrong: This divides by one-tenth of the unit count.

   • D

     Option D. ₹97.30 — Correct answer

   Answer: D. ₹97.30 lakh = ₹97,30,000. Dividing by 1,00,000 units gives ₹97.30 per unit. Remember: Keep currency units and accounting-unit counts consistent.

   Hint, shown before you answer in practice mode: Convert lakh rupees into rupees before dividing by units.

   XXIB-S3-C06-Q2easynumerical

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3. Q3For an allocation of 1,000 internal units, by how much did the original worksheet overstate value?

   • A

     Option A. ₹3,000

     Why it is wrong: This corrects only the securities price error and omits the other adjustments.

   • B

     Option B. ₹300

     Why it is wrong: This considers only the net omitted receivable and fee, not the price error.

   • C

     Option C. ₹27,000

     Why it is wrong: This overstates the unit-value difference by ten times.

   • D

     Option D. ₹2,700 — Correct answer

   Answer: D. 1,000 × (₹100−₹97.30) = ₹2,700. The original worksheet overstated the account rather than recording a new market loss. Remember: Distinguish correction of a reporting error from a new investment return.

   Hint, shown before you answer in practice mode: Compare the original ₹100 per unit with the corrected unit value.

   XXIB-S3-C06-Q3mediumnumerical

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4. Q4What happens to corrected net value when the ₹0.80 lakh dividend receivable is collected the next day?

   • A

     Option A. It falls to ₹96.50 lakh

     Why it is wrong: Collection does not destroy the asset.

   • B

     Option B. It stays ₹97.30 lakh because cash replaces the receivable — Correct answer

   • C

     Option C. It rises to ₹98.10 lakh

     Why it is wrong: This counts the already recognised dividend twice.

   • D

     Option D. It becomes ₹100 lakh

     Why it is wrong: Receiving the dividend does not reverse the other valuation corrections.

   Answer: B. Cash increases from ₹20 lakh to ₹20.80 lakh while the dividend receivable falls from ₹0.80 lakh to zero. Total assets and net value are unchanged. Remember: Do not recognise the same economic income twice.

   Hint, shown before you answer in practice mode: An already recognised receivable is exchanged for cash.

   XXIB-S3-C06-Q4mediumapplication

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5. Q5What reporting response best fits the accepted reconciliation findings?

   • A

     Option A. Delete the earlier worksheet so no audit trail remains

     Why it is wrong: Removing evidence obstructs reconciliation and accountability.

   • B

     Option B. Treat the overstatement as investment outperformance

     Why it is wrong: An accounting mistake is not earned investment return.

   • C

     Option C. Correct the records, retain the evidence and explain the material correction through the established reporting process — Correct answer

   • D

     Option D. Raise another security price to keep the old total unchanged

     Why it is wrong: This would replace a known error with an unsupported valuation.

   Answer: C. The manager should fix the identified amounts and preserve a clear record of the reason, impact and communication of the correction. Remember: Sound valuation controls require accuracy and a reviewable audit trail.

   Hint, shown before you answer in practice mode: Accurate reporting should remain traceable to the underlying evidence.

   XXIB-S3-C06-Q5mediumapplication

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