1065 FR New Compiler by RM @CABornToFight
1065 FR New Compiler by RM @CABornToFight
FINANCIAL
REPORTING
COMPILER
PROF.RAHUL MALKAN
+91 8369095160
[email protected]
rahulmalkan
www.rahulmalkan.com
www.indasprep.com
INDEX
No. Chapter Name Page No.
IND AS 1 Presentation of Financial
1. 1–3
Statements
2. IND AS 2 – Inventories 4–6
3. IND AS 16 - Property, Plant and Equipment 7 – 16
4. IND AS 40 - Investment Property 17 – 19
5. IND AS 38 - Intangible Assets 20 – 24
IND AS 105 - Non current held for sale and
6. 25 – 32
discontinued operations
7. IND AS 23 - Borrowing Cost 33 – 37
8. IND AS 36 - Impairment of Assets 38 – 50
9. IND AS 41 - Agriculture 51 – 52
IND AS 21 - The Effect of changes in
10. 53 – 58
Foreign Exchange Rate
11. IND AS 7 - Statement of Cash Flow 59 – 65
12. IND AS 108 - Operating Segments 66 – 69
13. IND AS 34 - Interim Financial Reporting 70 – 72
IND AS 8 - Accounting Policies, Changes in
14. 73 – 77
Accounting Estimates and Errors
IND AS 37 - Provisions, Contingent
15. 78 – 82
Liabilities and Contingent Assets
16. IND AS 103 - Business combination 83 - 98
No. Chapter Name Page No.
2018
Solution :
As per para AS 1 “Presentation of Financial Statements” where there is a breach of a material provision
of a long-term loan arrangement on or before the end of the reporting period with the effect that the
liability becomes payable on demand on the reporting date, the entity does not classify the liability as
current, if the lender agreed, after the reporting period and before the approval of the financial
statements for issue, not to demand payment as a consequence of the breach.
In the given case, Company B (the lender) agreed for not to demand payment but only after the financial
statements were approved for issuance. The financial statements were approved for issuance in the
month of June 20X2 and both companies agreed for not to demand payment in the month of July 20X2
although negotiation started in the month of May 20x2 but could not agree before June 20X2 when
financial statements were approved for issuance.
Hence, the liability should be classified as current in the financial statement for the year ended March
31, 20X2.
No Question
No Question
No Question
pg. 1
FR COMPILER
2019
No Question
No Question
Solution :
Ind AS 1 defines current liabilities as follows:
An entity shall classify a liability as current when:
(i) it expects to settle the liability in its normal operating cycle;
(ii) it holds the liability primarily for the purpose of trading;
(iii) the liability is due to be settled within twelve months after the reporting period; or
(iv) it does not have an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity instruments do not affect its
classification.
An entity shall classify all other liabilities as non-current.
Accordingly, following will be the classification of loan in the given scenarios:
(a) The loan is not due for payment at the end of the reporting period. The entity and the bank have
agreed for the said roll over prior to the end of the reporting period for a period of 5 years. Since
the entity has an unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period, the loan should be classified as non-current.
(b) Yes, the answer will be different if the arrangement for roll over is agreed upon after the end of
the reporting period because as per Ind AS 1, “an entity classifies its financial liabilities as current
when they are due to be settled within twelve months after the reporting period.
pg. 2
FR COMPILER
(c) Yes, loan facility arranged with new bank cannot be treated as refinancing, as the loan with the
earlier bank would have to be settled which may coincide with loan facility arranged with a new
bank. In this case, loan has to be repaid within a period of 9 months from the end of the reporting
period, therefore, it will be classified as current liability.
(d) Yes, the answer will be different and the loan should be classified as current. This is because, as
per Ind AS 1, when refinancing or rolling over the obligation is not at the discretion of the entity
(for example, there is no arrangement for refinancing), the entity does not consider the potential
to refinance the obligation and classifies the obligation as current.
No Question
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 3
FR COMPILER
IND AS 2 - INVENTORIES
2018
Solution :
As per Ind AS 2 ‘Inventories’, inventory is measured at lower of ‘cost’ or ‘net realisable value’. Further,
as per Ind AS 10: ‘Events after Balance Sheet Date’, decline in net realisable value below cost provides
additional evidence of events occurring at the balance sheet date and hence shall be considered as
‘adjusting events’.
(a) In the given case, for valuation of inventory as on 31 March 20X1, cost of inventory would be
Rs.10 million and net realisable value would be Rs.7.5 million (i.e. Expected selling price Rs.8
million- estimated selling expenses Rs.0.5 million). Accordingly, inventory shall be measured at
Rs.7.5 million i.e. lower of cost and net realisable value. Therefore, inventory write down of Rs.2.5
million would be recorded in income statement of that year.
(b) As per para 33 of Ind AS 2, a new assessment is made of net realizable value in each subsequent
period. It Inter alia states that if there is increase in net realizable value because of changed
economic circumstances, the amount of write down is reversed so that new carrying amount is
the lower of the cost and the revised net realizable value. Accordingly, as at 31 March 20X2, again
inventory would be valued at cost or net realisable value whichever is lower. In the present case,
cost is Rs.10 million and net realisable value would be Rs.10. 5 million (i.e. expected selling price
pg. 4
FR COMPILER
Rs.11 million – estimated selling expense Rs.0.5 million). Accordingly, inventory would be
recorded at Rs.10 million and inventory write down carried out in previous year for Rs.2.5 million
shall be reversed.
No Question
No Question
No Question
2019
No Question
No Question
No Question
No Question
2020
pg. 5
FR COMPILER
How overhead costs are to be allocated to cost of goods sold and closing inventory?
Solution :
Hours taken to produce 1 unit = 6,500 hours / 6,500 units = 1 hour per unit.
Fixed production overhead absorption rate:
= Fixed production overhead / labour hours for normal capacity
= Rs.1,500 / 7,500
= Rs.0.2 per hour
Management should allocate fixed overhead costs to units produced at a rate of Rs.0.2 per hour.
Therefore, fixed production overhead allocated to 6,500 units produced during the year (one unit per
hour) = 6,500 units × 1 hour × Rs.0.2 = Rs.1,300.
The remaining fixed overhead incurred during the year of Rs.200 (Rs.1500 – Rs.1300) that remains
unallocated is recognised as an expense.
The amount of fixed overhead allocated to inventory is not increased as a result of low production by
using normal capacity to allocate fixed overhead.
Variable production overhead absorption rate:
= Variable production overhead/actual hours for current period
= Rs.2,600 / 6,500 hours = Rs.0.4 per hour
Management should allocate variable overhead costs to units produced at a rate of Rs.0.4 per hour.
The above rate results in the allocation of all variable overheads to units produced during the year.
Closing inventory = Opening inventory + Units produced during year – Units sold during year
= 2,500 + 6,500 – 6,700 = 2,300 units
As each unit has taken one hour to produce (6,500 hours / 6,500 units produced), total fixed and variable
production overhead recognised as part of cost of inventory:
= Number of units of closing inventory × Number of hours to produce each unit × (Fixed production
overhead absorption rate + Variable production overhead absorption rate) = 2,300 units × 1 hour ×
(Rs.0.2 + Rs.0.4) = Rs.1,380
The remaining Rs.2,720 [(Rs.1,500 + Rs.2,600) – Rs.1,380] is recognised as an expense in the income
statement as follows:
Rs.
Absorbed in cost of goods sold (FIFO basis) (6,500 – 2,300) = 4,200 × Rs.0.6 2,520
Unabsorbed fixed overheads, not included in the cost of goods sold 200
Total 2,720
INDASPREP.COM RAHULMALKAN.COM
pg. 6
FR COMPILER
2018
Solution :
1. Depreciation for year ended 2012, 2013 and 2014
PPE Original Cost Estimated life Depreciation PA
Building 1,50,00,000 15 years 10,00,000
Plant and Machinery 1,00,00,000 10 years 10,00,000
Furniture and Fixture 35,00,000 7 years 5,00,000
Total Depreciation 25,00,000
pg. 7
FR COMPILER
Solution :
(i) For classification of assets
As per Ind AS 16 ‘Property, Plant and Equipment’ states that Property, plant and equipment are
tangible items that are held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes.
As per Ind AS 40 ‘Investment property’, investment property is a property held to earn rentals or
for capital appreciation or both, rather than for use in the production or supply of goods or
services or for administrative purposes; or sale in the ordinary course of business.
According, to the facts given in the questions, since Property 1 and 2 are used as factory buildings,
their classification as PPE is correct. However, Property 3 is held to earn rentals; hence, it should
be classified as Investment Property. Thus, its classification as PPE is not correct. Property 3 shall
be presented as separate line item as Investment Property as per Ind AS 1.
(ii) For valuation of assets
Ind AS 16 states that an entity shall choose either the cost model or the revaluation model as its
accounting policy and shall apply that policy to an entire class of property, plant and equipment.
Also, Ind AS 16 states that If an item of property, plant and equipment is revalued, the entire class
of property, plant and equipment to which that asset belongs shall be revalued.
pg. 8
FR COMPILER
However, for investment property, Ind AS 40 states that an entity shall adopt as its accounting
policy the cost model to all of its investment property. Ind AS 40 also requires that an entity shall
disclose the fair value of investment property.
Since property 1 and 2 is used as factory building, they should be classified under same category
or class ie. ‘factory building’. Therefore, both the properties should be valued either at cost model
or revaluation model. Hence, the valuation model adopted by Stars Ltd. is not consistent and
correct as per Ind AS 16.
In respect to property 3 being classified as Investment Property, there is no alternative of
revaluation model i.e. only cost model is permitted for subsequent measurement. However, Stars
Ltd. is required to disclose the fair value of the investment property in the Notes to Accounts.
(iii) For changes in value on account of revaluation and treatment thereof
Ind AS 16 states that if an asset’s carrying amount is increased as a result of a revaluation, the
increase shall be recognised in other comprehensive income and accumulated in equity under
the heading ‘revaluation surplus’. However, the increase shall be recognised in profit or loss to
the extent that it reverses a revaluation decrease of the same asset previously recognised in profit
or loss. Accordingly, the revaluation gain shall be recognised in other comprehensive income and
accumulated in equity under the heading of revaluation surplus.
(iv) For treatment of depreciation
Ind AS 16 states that depreciation is recognised even if the fair value of the asset exceeds its
carrying amount, as long as the asset’s residual value does not exceed its carrying amount.
Accordingly, Stars Ltd. is required to depreciate these properties irrespective of that their fair
value exceeds the carrying amount.
(v) Rectified presentation in the balance sheet
As per the provisions of Ind AS 1, Ind AS 16 and Ind AS 40, the presentation of these three
properties in the balance sheet should be as follows:
Case 1: If Stars Ltd. has applied the Cost Model to an entire class of property, plant and
equipment.
Balance Sheet extracts as at 31st March 2017
Assets Rs.
Non-Current Assets
Property, Plant and Equipment
Property 1 (30,000-3,000) 27,000
Property 2 (20,000 – 2,000) 18,000 45,000
Investment Property
Property 3 (Fair value being Rs.27,000) (Cost = 24,000-2,400) 21,600
Case 2: If Stars Ltd. has applied the Revaluation Model to an entire class of property, plant
and equipment.
Balance Sheet extracts as at 31st March 2017
Assets Rs.
Non-current Assets
Property, Plant and Equipment
Property 1 32,000
Property 2 22,000 54,000
Investment Properties
pg. 9
FR COMPILER
Solution :
1) As per Ind AS 16 PPE should be depreciated from when it ready for use and not from when it is
put to use. i.e. Dep. Should start from 1/10/17.
2) As per Ind AS 37, provision should be made over if company has constructive obligation so A Ltd.
should provide for site restoration.
3) Cost of PPE on 1/10/17
Construction Cost 2,00,00,000
Site Restoration 14,20,000
2,14,20,000
4) Dep. For 17-18 to be charged to P&L
2,14,20,000 6
× = Rs.2,67,750
40 12
5) Closing PPE = 2,14,20,000
– Dep. 2,67,750
2,11,52,250
6) Finance cost on provision to be charged to P&L
6
14,20,000 × 5% × = 35,500
12
7) Provision at end of year
= 14,20,000 + 35,500 = 14,55,500
8) Extracts of Balance Sheet
pg. 10
FR COMPILER
Asset Liability
NCA NCL
PPE 2,11,52,250 Provision 14,55,500
Solution :
Ind AS 16 states that the cost of an item of property, plant and equipment shall be recognised as an asset
if, and only if:
(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.
In the given case, railway siding, road and bridge are required to facilitate the construction of the refinery
and for its operations. Expenditure on these items is required to be incurred in order to get future
economic benefits from the project as a whole which can be considered as the unit of measure for the
purpose of capitalisation of the said expenditure even though the company cannot restrict the access of
others for using the assets individually. It is apparent that the aforesaid expenditure is directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating
in the manner intended by management.
In view of this, even though ABC Ltd. may not be able to recognize expenditure incurred on these assets
as an individual item of property, plant and equipment in many cases (where it cannot restrict others
from using the asset), expenditure incurred may be capitalised as a part of overall cost of the project.
From this, it can be concluded that, in the extant case the expenditure incurred on these assets, i.e.,
railway siding, road and bridge, should be considered as the cost of constructing the refinery and
accordingly, expenditure incurred on these items should be allocated and capitalised as part of the items
of property, plant and equipment of the refinery.
pg. 11
FR COMPILER
Income received during the temporary use of the factory premises as a store during the 60,000
construction period.
The construction of the factory was completed on 31st December, 2017 and production began on 1st
February, 2018. The overall useful life of the factory building was estimated at 40 years from the date of
completion. However, it is estimated that the roof will need to be replaced 20 years after the date of
completion and that the cost of replacing the roof at current prices would be 25% of the total cost of the
building.
At the end of the 40 years period, Good Time Limited has a legally enforceable obligation to demolish
the factory and restore the site to its original condition. The company estimates that the cost of
demolition in 40 year's time (based on price prevailing at that time) will be Rs.3 crore. The annual risk
adjusted discount rate which is appropriate to this project is 8%. The present value of Rs.1 payable in 40
years time at an annual discount rate of 8% is 0.046.
The construction of the factory was partly financed. by a loan of Rs.1.4 crore taken out on 1st April, 2017.
The loan was at an annual rate of interest of 9%. During the period 1st April, 2017 to 30th September,
2017 (when the loan proceeds had been fully utilized to finance the construction), Good Time Limited
received investment income of Rs.1,25,000 on the temporary investment of the proceeds.
You are required to compute the cost of the factory and the carrying amount of the factory in the Balance
Sheet of Good Time Limited as at 31st March, 2018. (8 Marks)
Solution :
Computation of the cost of the factory
Rs.
Purchase of land 1,50,00,000
Preparation and levelling 4,40,000
Materials 92,00,000
Employment costs of construction workers (1,45,000 x 8 months) 11,60,000
Direct overhead costs (1,25,000 x 8 months) 10,00,000
Allocated overhead costs Nil
Income from use of a factory as a store Nil
Relocation costs Nil
Cost of the opening ceremony Nil
9
Finance costs (1,40,00,000 × 9% × ) 9,45,000
12
Investment income on temporary investment of the loan proceeds (1,25,000)
Demolition cost recognised as a provision (3,00,00,000 x 0.046) 13,80,000
Total 2,90,00,000
pg. 12
FR COMPILER
Less: Depreciation
On Land Nil
On Factory
Depreciation on roof component (1,40,00,000 × 25% × 43,750
1/20 x 3/12)
Depreciation on remaining factory (1,40,00,000 × 75% × 65,625 (1,09,375)
1/40 × 3/12)
Carrying amount of depreciable asset ie factory 1,50,00,000 1,38,90,625
Total cost 2,88,90,625
Note:
1. Interest cost has been capitalised based on nine month period. This is because, purchase of land
would trigger off capitalisation.
2. All of the net finance cost of Rs.8,20,000 (Rs.9,45,000 – Rs.1,25,000) has been allocated to the
depreciable asset i.e Factory. Alternatively, it can be allocated proportionately between land and
factory.
2019
Solution :
As per Ind AS 16 PPE can be revalued by using any one of the following 2 methods.
1) Adjust the gross carrying amount.
Current Revised
Gross 200 250
– Dep. 80 100
Net 120 150
JE PPE 50
To PFD 20
To Revaluation Res. 30
2) Adjust the Net Carrying Amount
JE PFD 80
pg. 13
FR COMPILER
To Asset 80
Asset 30
To Revaluation Res. 30
Note : 1) Revaluation Reserve will be routed through OCI.
250 150
2) Dep. For shall be 25 i.e. or
10 6
No Questions
No Questions
Solution :
2020
pg. 14
FR COMPILER
Solution :
According to paragraph 35 of Ind AS 16, when an item of property, plant and equipment is revalued, the
carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the
asset is treated in one of the following ways:
(a) The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the
carrying amount of the asset. For example, the gross carrying amount may be restated by
reference to observable market data or it may be restated proportionately to the change in the
carrying amount. The accumulated depreciation at the date of the revaluation is adjusted to equal
the difference between the gross carrying amount and the carrying amount of the asset after
taking into account accumulated impairment losses.
In such a situation, the revised carrying amount of the machinery will be as follows:
Gross carrying amount Rs.250 [(200/120) × 150]
Net carrying amount Rs.150
Accumulated depreciation Rs.100 (Rs.250 – Rs.150)
Journal Entry
Plant and Machinery (Gross Block) Dr. Rs.50
To Accumulated Depreciation Rs.20
To Revaluation Reserve Rs.30
(b) The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amount of the adjustment of accumulated depreciation forms part of the increase or
decrease in carrying amount that is accounted for in accordance with the paragraphs 39 and 40
of Ind AS 16.
In this case, the gross carrying amount is restated to ` 150 to reflect the fair value and
accumulated depreciation is set at zero.
Journal entry
Accumulated Depreciation Dr. Rs.80
To Plant and Machinery (Gross block) Rs.80
Plant and Machinery (Gross block) Dr. Rs.30
To Revaluation Reserve Rs.30
pg. 15
FR COMPILER
INDASPREP.COM RAHULMALKAN.COM
pg. 16
FR COMPILER
2018
No Question
No Question
Solution :
1) From 1st April, 2013, the property would be regarded as an investment property since it is being
held for its investment potential rather than being owner occupied or developed for sale.
pg. 17
FR COMPILER
The property would be measured under the cost model. This means it will be measured at
Rs.2,00,00,000 at each year end.
2) On 30th September, 2017, the property ceases to be an investment property. X Ltd. begins to
develop it for sale as flats. The increase in the fair value of the property from 31st March, 2017
to 30th September, 2017 of Rs.30,00,000 (Rs.29,00,000 –Rs.26,00,000) would be recognised in
P/L for the year ended 31st March, 2018.
Since the lease of the property is an operating lease, rental income of Rs.10,00,000 (Rs.20,00,000
x 6/12) would be recognised in P/L for the year ended 31st March, 2018.
When the property ceases to be an investment property, it is transferred into inventory at its
then fair value of Rs.2,90,00,000. This becomes the initial ‘cost’ of the inventory.
3) The additional costs of Rs.60,00,000 for developing the flats which were incurred up to and
including 31st March, 2018 would be added to the ‘cost’ of inventory to give a closing cost of
Rs.3,50,00,000.
The total selling price of the flats is expected to be Rs.5,00,00,000 (10 x Rs.50,00,000). Since the
further costs to develop the flats total Rs.40,00,000, their net realisable value is Rs.4,60,00,000
(Rs.5,00,00,000 – Rs.40,00,000), so the flats will be measured at a cost of Rs.3,50,00,000.
The flats will be shown in inventory as a current asset
No Question
2019
No Question
No Question
No Question
No Question
pg. 18
FR COMPILER
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 19
FR COMPILER
2018
No Question
No Question
Solution :
Ind AS 38 specifically prohibits recognising advertising expenditure as an intangible asset. Irrespective of
success probability in future, such expenses have to be recognized in profit or loss. Therefore, the
treatment given by the accountant is correct since such costs should be recognised as expenses.
However, the costs should be recognised on an accruals basis.
(a) For Year 17 - 18
pg. 20
FR COMPILER
Total Amt. paid = Rs.8,00,000 out of which Rs.7,00,000 should be charged to P&L for year 17-18
and Rs.1,00,000 should be show as prepaid expenses.
(b) For year 18-19
Further Amt. paid was Rs.4,00,000. Total Rs.5,00,000 should be charged to P&L for year 18-19.
No Question
2019
Solution :
As per para 13 of Ind AS 103 ‘Business Combination’, the acquirer's application of the recognition
principle and conditions may result in recognising some assets and liabilities that the acquiree had not
previously recognised as assets and liabilities in its financial statements. This may be the case when the
asset is developed by the entity internally and charged the related costs to expense.
Based on the above, the company can recognise following Intangible assets while determining Goodwill
/ Bargain Purchase for the transaction:
(i) Patent owned by ABR Ltd.: The patent owned will be recognised at fair value by KK Ltd. even
though it was not recognised by ABR Ltd. in its financial statements. The patent will be amortised
over the remaining useful life of the asset i.e. 8 years. Since the company is awaiting the outcome
pg. 21
FR COMPILER
of the trials, the value of the patent cannot be estimated at Rs.15 crore and the extra Rs.5 crore
should only be disclosed as a Contingent Asset and not recognised.
(ii) Patent internally developed by ABR Ltd.: lnd AS 38 ‘Intangible Assets’, after initial recognition, an
intangible asset shall be carried at revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated amortisation and any subsequent accumulated
impairment losses. For the purpose of revaluations under this Standard, fair value shall be
determined by reference to an active market.
From the information given in the question, it appears that there is no active market for patents
since the fair value is based on early assessment of its sale success. Hence it is suggested to use
the cost model and recognise the patent at the actual development cost of Rs.12 crore.
(iii) Grant of Licence to ABR Ltd. by the Government: As regards to the five-year license, Ind AS 38
requires to recognize grant asset at fair value. KK Ltd. can recognize both the asset (license) and
the grant at Rs.10 crore to be amortised over 5 years.
Hence the revised working would be as follows:
Fair value of net assets of ABR Ltd. Rs.15 crore
Add: Patent (10 + 12) Rs.22 crore
Add: License Rs.10 crore
Less: Grant for License (Rs.10 crore)
Rs.37 crores
Purchase Consideration Rs.35 crores
Bargain purchase Rs.2 crore
No Question
No Question
pg. 22
FR COMPILER
(ii) Akash Ltd. has developed and patented another new drug which has been approved for clinical
use. The cost of developing the drug was Rs.13 crores. Based on early assessment of its sales
success, a reputed values has estimated is market value at Rs.19 crores. However, there is no
active market for the patent.
(iii) Akash Ltd.’s manufacturing facilities have received a favourable inspection by a government
department. As a result of this, the company has been granted an exclusive five-year license on
1st April, 2018 to manufacture and distribute a new vaccine. Although the license has no direct
cost to the Company, its directors believe that obtaining the license is a valuable asset which
assures guaranteed sales and the cost to acquire the license is estimated at Rs.7 crores for
remaining period of life. It is expected to generate at least equivalent revenue.
Suggest the accounting treatment of the above transactions with reasoning under applicable Ind AS in e
books of MNC Ltd.
Solution :
Similar to - Question 4 : May 2019 RTP
Purchase Consideration 38 Crore
Less : Fair value of Net Assets
Already Included (68.50) 18
Add : Patent (8 + 13) 21
Add : Licence 7
Less : Grant (7) 39 Crore
Bargain Purchase 1 Crore
2020
pg. 23
FR COMPILER
Solution :
Ind AS 38 ‘Intangible Assets’ requires an intangible asset to be recognised if, and only if, certain criteria
are met. Regulatory approval on 1 June 20X5 was the last criterion to be met, the other criteria have
been met as follows:
• Intention to complete the asset is apparent as it is a major project with full support from board
• Finance is available as resources are focused on project
• Costs can be reliably measured
• Benefits are expected to exceed costs – (in 2 years)
Amount of Rs.15,00,000 (rs.18,00,000 x 10/12) should be capitalised in the Balance sheet of year ending
20X5-20X6 representing expenditure since 1 June 20X5.
The expenditure incurred prior to 1 June 20X5 which is Rs.3,00,000 (2/12 x Rs.18,00,000) should be
recognised as an expense, retrospective recognition of expense as an asset is not allowed.
Ind AS 36 ‘Impairment of assets’ requires an intangible asset not yet available for use to be tested for
impairment annually.
Cash flow of Rs.12,00,000 in perpetuity would clearly have a present value in excess of Rs.12,00,000 and
hence there would be no impairment. However, the research director is technically qualified, so
impairment tests should be based on her estimate of a four-year remaining life and so present value of
the future cost savings of Rs.9,60,000 should be considered in that case.
Rs.9,60,000 is greater than the offer received (fair value less costs to sell) of Rs.7,80,000 and so
Rs.9,60,000 should be used as the recoverable amount.
So, the carrying amount should be consequently reduced to Rs.9,60,000.
Calculation of Impairment loss:
Particulars Amount Rs.
Carrying amount (Restated) 15,00,000
Less: Recoverable amount 9,60,000
Impairment loss 5,40,000
Impairment loss of Rs.5,40,000 is to be recognised in the profit and loss for the year 20X5-20X6.
Necessary adjusting entry to correct books of account will be:
Rs. Rs.
Operating expenses- Development expenditure Dr. 3,00,000
Operating expenses–Impairment loss of intangible assets Dr. 5,40,000
To Intangible assets – Development expenditure 8,40,000
INDASPREP.COM RAHULMALKAN.COM
pg. 24
FR COMPILER
2018
pg. 25
FR COMPILER
Solution :
(a) As at 15th September, 20X1
The disposal group should be measured at Rs.18,30,000 (19,00,000 – 70,000). The impairment
write down of Rs.3,30,000 (Rs.21,60,000 – Rs.18,30,000) should be recorded within profit from
continuing operations.
The impairment of Rs.3,30,000 should be allocated to the carrying values of the appropriate non-
current assets.
Asset/ (liability) Carrying Impairment Revised
value as at carrying value
15 June as per IND AS
2004 105
Attributed goodwill 200 (200) -
Intangible assets 930 (62) 868
Financial asset measured at fair value 360 - 360
through other comprehensive income
Property, plant & equipment 1,020 (68) 952
Deferred tax asset 250 - 250
Current assets – inventory, receivables and 520 - 520
cash balances
Current liabilities (870) - (870)
Non-current liabilities – provisions (250 - (250)
pg. 26
FR COMPILER
No Questions
No Questions
pg. 27
FR COMPILER
The accountant of PB Limited decided to treat the plant as held for sale until the demand picks up and
accordingly measures the plant at lower of carrying amount and fair value less cost to sell. The
accountant has also stopped charging depreciation for rest of the period considering the plant as held
for sale. The fair value less cost to sell on 30th September, 2017 and 31st March, 2018 was Rs.13.5 lakh
and Rs.12 lakh respectively.
The accountant has made the following working:
Carrying amount on initial classification as held for sale Rs. Rs.
Purchase price of Plant 24,00,000
Less: Accumulated Depreciation [(Rs.24,00,000/8)x2.5 years] 7,50,000 16,50,000
Fair value less cost to sell as on 31st March, 2017 12,00,000
The value lower of the above two 12,00,000
Solution :
As per Ind AS 105 ‘Non-current Assets Held for Sale and Discontinued Operations’, an entity shall classify
a non-current asset as held for sale if its carrying amount will be recovered principally through a sale
transaction rather than through continuing use.
For an Asset to be classified as held for sale it should be
1) Available for immediate sale in present condition and
2) Sale must be highly probable.
The Asset should be available for sale in present condition. The terms that are usual and customary for
sale does not disqualify the Asset from being classified as held for sale. Its cannot be classified as held
for sale if entity intends to sell it in distant future.
Sale is highly probable if :
1) The appropriate level of management is committed to plan to sell.
2) An Active Programme to trade a buyer is in Place.
3) The Asset is marketed for sale at a price that is reasonable in relation to its current fair value.
4) The sale if expected to be completed within 1 year.
5) Significant charges or withdrawal from plan to sale the Asset are unlikely.
Ind AS 105 also states that entity shall not classify an Asset as held for sale if the Asset is abandoned.
The Accountant of PB has treated the plant as held for which is not correct and not in accordance to Ind
AS 105. It should not have stopped charging depreciation.
Instead entity should have impaired the Asset as per Ind AS 36.
Working :
Purchase Price 24,00,000
24,00,000
Accumulated dep. ×3 9,00,000
8
pg. 28
FR COMPILER
2019
Solution :
The decision to offer the division for sale on 1st April, 2018 means that from that date the division has
been classified as held for sale. The division available for immediate sale, is being actively marketed at a
reasonable price and the sale is expected to be completed within one year.
The consequence of this classification is that the assets of the division will be measured at the lower of
their existing carrying amounts and their fair value less cost to sell. Here the division shall be measured
at their existing carrying amount ie Rs.30,60,000 since it is less than the fair value less cost to sell
Rs.32,00,000.
The increase in expected selling price will not be accounted for since earlier there was no impairment to
division held for sale.
The assets of the division need to be presented separately from other assets in the balance sheet. Their
major classes should be separately disclosed either on the face of the balance sheet or in the notes.
pg. 29
FR COMPILER
The Property, Plant and Equipment shall not be depreciated after 1st April, 2018 so its carrying value at
30th June, 2018 will be Rs.20,00,000 only. The inventories of the division will be shown at Rs.9,00,000.
The division will be regarded as discontinued operation for the quarter ended 30th June, 2018. It
represents a separate line of business and is held for sale at the year end.
The Statement of Profit and Loss should disclose, as a single amount, the post-tax profit or loss of the
division on classification as held for sale.
Further, as per Ind AS 33, EPS will also be disclosed separately for the discontinued operation.
No Question
No Question
Solution :
pg. 30
FR COMPILER
1. The property cannot be classified as held for sale at the balance sheet date as it is not available
for sale immediately in its present condition. Although the renovations are expected to be
completed within a short span 2 months, this fact is not relevant for classification.
However, if the PPE meets the criteria for held for sale by 31st January, 20X2 (i.e., 2 months from
November 30, 20X1) and the accounts are not authorised by that date, then necessary disclosures
need to be given in the financial statements.
2. In this example, the factory ceases to meet the definition of held for sale post the balance sheet
date but before the financial statements are authorised for issue, as it is not actively marketed at
a reasonable price. But, since the market conditions deteriorated post the balance sheet date,
the asset will be classified as held for sale as at 31st March, 20X1.
3. Assessing whether the manufacturing unit can be classified as held for sale
The manufacturing unit can be classified as held for sale due to the following reasons:
(a) The disposal group is available for immediate sale and in its present condition. The
regulatory approval is customary and it is expected to be received in one year. The date
at which the disposal group must be classified as held for sale is 31st July, 20X1, i.e., the
date at which management becomes committed to the plan.
(b) The sale is highly probable as the appropriate level of management i.e., board of directors
in this case have approved the plan.
(c) A firm purchase agreement has been entered with the buyer.
(d) The sale is expected to be complete by 31st March, 20X2, i.e., within one year from the
date of classification.
Measurement of the manufacturing unit as on the date of classification as held for sale
Following steps need to be followed:
Step 1: Immediately before the initial classification of the asset (or disposal group) as held for sale, the
carrying amounts of the asset (or all the assets and liabilities in the group) shall be measured in
accordance with applicable Ind AS.
This has been done and the carrying value of the disposal group as on 31st July, 20X1 is determined at
Rs.5,600. The difference between the carrying value as on 31st December, 20X0 and 31st July, 20X1 is
accounted for as per the relevant Ind AS.
Step 2: An entity shall measure a non-current asset (or disposal group) classified as held for sale at the
lower of its carrying amount and fair value less costs to sell.
The fair value less cost to sell of the disposal group as on 31st July, 20X1 is Rs.3,500 (i.e.3,700 – 200). This
is lower than the carrying value of Rs.5,200. Thus an impairment loss needs to be recognised and
allocated first towards goodwill and thereafter pro-rata between assets of the disposal group which are
within the scope of Ind AS 105 based on their carrying value. Thus, the assets will be measured as under:
Particulars Carrying value Impairment Carrying value
as per Ind AS 105
31st July, 20X1 31st July, 20X1
Goodwill 1,000 (1,000) -
Plant and Machinery 1,800 (230) 1,570
Building 3,700 (470) 3,230
Debtors 2,100 - 2,100
Inventory 800 - 800
Creditors (500) - (500)
Loans (3,700) - (3,700)
5,200 (1,700) 3,500
Measurement of the manufacturing unit as on the date of classification as at the year end
pg. 31
FR COMPILER
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 32
FR COMPILER
2018
Solution :
Since the entity has only general borrowing hence first step will be to compute the capitalisation rate.
The capitalisation rate of the general borrowings of the entity during the period of construction is
calculated as follows:
Finance cost on Rs.20 lacs 10% debentures during September – December 20X1 Rs.66,667
Interest @ 15% on overdraft of Rs.5,00,000 in September 20X1 Rs.6,250
Interest @ 16% on overdraft of Rs.5,00,000 in October and November 20X1 Rs.13,333
Interest @ 16% on overdraft of Rs.750,000 in December 20X1 Rs.10,000
Total finance costs in September – December 20X1 Rs.96,250
Weighted average borrowings during period
=
(20,00,000 × 4) + (500,000 × 3) + (750,000 ×1) = Rs.25,62,500
4
Capitalisation rate = Total finance costs during the construction period / Weighted average borrowings
during the construction period
= 96,250 / 25,62,500 = 3.756%
No Question
pg. 33
FR COMPILER
Solution :
(i) Calculation of capitalization rate on borrowings other than specific borrowings
Amount of loan (Rs.) Rate of Amount of interest
interest (Rs.)
7,00,000 12% = 84,000
9,00,000 11% = 99,000
16,00,000 = 1,83,000
Weighted average rate of interest 11.4375%
(1,83,000/16,00,000) x 100
(ii) Computation of borrowing cost to be capitalized for specific borrowings and general
borrowings based on weighted average accumulated expenses
Date of Amount Financed through Calculation Rs.
incurrence of spent
expenditure
1st April, 2017 1,50,000 Specific borrowing 1,50,000 x 9% x 10/12 11,250
1st August, 2017 2,00,000 Specific borrowing 50,000 x 9% x 10/12 3,750
General borrowing 1,50,000 x 11.4375% x 6/12 8,578.125
1st October, 2017 3,50,000 General borrowing 3,50,000 x 11.4375% x 4/12 13,343.75
1st January, 2018 1,00,000 General borrowing 1,00,000 x 11.4375% x 1/12 953.125
37,875
Note : Since construction of building started on 1st April, 2017, it is presumed that all the later
expenditures on construction of building had been incurred at the beginning of the respective
month.
pg. 34
FR COMPILER
Rs.
Cost of building Rs.(1,50,000 + 2,00,000 + 3,50,000 + 1,00,000) 8,00,000
Add : Amount of interest to be capitalized 37,875
8,37,875
Note : In the above journal entry, it is assumed that interest amount will be paid at the year end.
Hence, entry for interest payable has been passed on 31.1.2018.
Alternatively, following journal entry may be passed if interest is paid on the date of
capitalization:
Date Particulars Rs. Rs.
31.1.2018 Building account Dr. 8,37,875
To Bank account 8,37,875
(Being expenditure incurred on construction of
building and borrowing cost thereon capitalized)
No Question
2019
No Question
No Question
pg. 35
FR COMPILER
Solution :
As per Ind AS 23, when an entity borrows funds specifically for the purpose of obtaining a qualifying
asset, the entity should determine the amount of borrowing costs eligible for capitalisation as the actual
borrowing costs incurred on that borrowing during the period less any investment income on the
temporary investment of those borrowings.
The amount of borrowing costs eligible for capitalization, in cases where the funds are borrowed
generally, should be determined based on the expenditure incurred in obtaining a qualifying asset. The
costs incurred should first be allocated to the specific borrowings.
Analysis of expenditure:
Date Expenditure Amount allocated in general Weighted for period outstanding
(Rs.’000) borrowings (Rs.’000) (Rs.’000)
1st April 20X1 200 0 0
30th June 20X1 600 100* 100 × 9/12 = 75
31st Dec 20X1 1,200 1,200 1,200 × 3/12 = 300
31st March 20X2 200 200 200 × 0/12 = 0
Total 2,200 375
*Specific borrowings of Rs.7,00,000 fully utilized on 1st April & on 30th June to the extent of Rs.5,00,000
hence remaining expenditure of Rs.1,00,000 allocated to general borrowings.
The expenditure rate relating to general borrowings should be the weighted average of the borrowing
costs applicable to the entity’s borrowings that are outstanding during the period, other than borrowings
made specifically for the purpose of obtaining a qualifying asset.
Capitalisation rate =
(10,00,000 ×12.5% ) + (15,00,000 ×10%) = 11%
10,00,000 + 15,00,000
Borrowing cost to be capitalized: Amount
(Rs.)
On specific loan 65,000
On General borrowing (3,75,000 × 11%) 41,250
Total 1,06,250
Less interest income on specific borrowings (20,000)
Amount eligible for capitalization 86,250
Therefore, the borrowing costs to be capitalized are ` 86,250.
pg. 36
FR COMPILER
December, 2018 (and is expected to go beyond a year). Directly attributable expenditure at the beginning
of the month on this asset are Rs.2 Lakhs in September 2018 and Rs.4 Lakhs in each of the months of
October to December 2018.
The entity has not taken any specific borrowings to finance the construction of the building but has
incurred finance costs on its general borrowings during the construction period. During the year, the
entity had issued 9% debentures with a face value of Rs.30 Lakhs and had an overdraft of Rs.4 Lakhs,
which increased to Rs.8 Lakhs in December 2018. Interest was paid on the overdraft at 12% until 1st
October, 2018 and then the rate was increased to 15%.
Calculate the Capitalization rate for computation of borrowing cost in accordance with Ind AS ‘Borrowing
Cost’.
Solution :
Since Entity has only general borrowing hence first step will be to compute the capitalisation rate.
1) Finance Cost :
9% on 30,00,000 from 1/9/2018 to 31/12/2018 90,000
12% on 4,00,000 in September 4,000
15% on 4,00,000 in October and November 10,000
15% on 8,00,000 in December 10,000
Total Finance Cost 1,14,000
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 37
FR COMPILER
2018
Solution :
1. (i) Calculation and allocation of impairment loss in 20X4
(Amount in Rs.lakhs)
Asset Goodwill Total
20X0 4,000 2,000 6,000
–Dep. (4 yrs.) 1,067 – 1,067
20X4 – Carrying amount 2,933 2,000 4,933
Recoverable Amt.
Impairment Loss 213 2,000 2,213
Carrying amount after impairment 2,720 – 2,720
Note: As per Ind AS 36 impairment loss should be first charged to goodwill.
pg. 38
FR COMPILER
No Question
Solution :
1. Allocation of building to CGU A, B and C.
It should be done on the basis of carrying amount × life.
A = Life (10) × Carrying amount (100) = 1,000
B = Life (20) × Carrying amount (150) = 3,000
C = Life (20) × Carrying amount (200) = 4,000
i.e. 1 : 3 : 4
1
i.e. 150 × = 18.75 to A
8
pg. 39
FR COMPILER
3
150 × = 56.25 to B
8
4
150 × = 75 to C
8
2. Check for impairment loss for CGU after allocation of building.
A B C
Carrying Amount 100 150 200
+Building 18.75 56.25 75
118.75 206.25 275
Recoverable amount 199 164 271
Impairment loss – 42.25 4
Impairment loss should be apply to building and CGU in rate of its carrying amount.
150
i.e. 42.25 × = 30.73 to CGU B
206.25
56.25
42.25 × = 11.52 to Building
206.25
200
4× = 2.91 to CGU C
275
75
4× = 1.09 to Building
275
3. Carrying amount after impairment :
A B C Total
Carrying amount before 100 150 200 150
– Impairment loss – 30.73 2.91 12.61
100 119.27 197.09 137.39
pg. 40
FR COMPILER
Its value in use has been computed at Rs.1.40 crore as on 1st April, 2018, which is expected to decrease
by 30 per cent by the end of the financial year. Assuming that other conditions of relevant Accounting
Standard for applicability of the impairment are satisfied:
(i) What should be the carrying amount of this machine as at 31st March, 2019?
(ii) How much will be the amount of write off (impairment loss) for the financial year ended 31st
March, 2019?
(iii) If the machine had been revalued ten years ago and the current revaluation reserves against this
plant were to be Rs.48 lakh, how would you answer to questions (i) and (ii) above?
(iv) If the value in use was zero and the company was required to incur a cost of Rs.8 lakh to dispose
of the plant, what would be your response to questions (i) and (ii) above?
Solution :
As per the requirement of the question, the following solution has been drawn on the basis of AS 28
Rs.in crore
(i) Carrying amount of plant (before impairment) as on 31st March, 2019 2.4
Working Notes:
(1) Calculation of Closing Book Value, as at 31st March, 2019
Rs. in crore
Opening book value as on 1.4.2018 (Rs.20 crore -16.60 crore) 3.40
Less: Depreciation for financial year 2018–2019 (1.00)
Closing book value as on 31.3.2019 (before impairment) 2.40
pg. 41
FR COMPILER
Rs.in crore
Estimated value in use as on 1.4.2018 1.40
Less: Estimated decrease during the year (30% of Rs.1.40 Cr.) (0.42)
Estimated value in use as on 31.3.2019 0.98
(4) Recoverable amount as on 31.3.2019 is equal to higher of Net selling price and value in use
Rs.in crore
Net selling price 0.96
Value in use 0.98
Recoverable amount 0.98
Impairment Loss [Carrying amount – Recoverable amount ie. (2.40 Cr. – 0.98 1.42
Cr)]
Revised carrying amount on 31.3.2019 is equal to Recoverable amount (after 0.98 Cr.
impairment)
Note : Since question requires computation of Impairment Loss on 31.3.2019, hence impairment
probability on 31.3.2018 has been ignored. However, since there is impairment probability at the
beginning of the year as well, one may calculate the carrying amount at the beginning of the year
after impairment and then calculate the impairment possibilities at the end of the year.
Accordingly the solution will be as follows:
Rs.in crore
Carrying amount before impairment on 1.4.2018 (20 - 16.60) 3.40
Recoverable amount ie. higher of NSP (1.20 cr) and Value in use (1.40 cr) 1.40
Impairment loss 2.00
Revised carrying amount after impairment as on 1.4.2018 1.40
Less: Depreciation for 2018-2019 (as given in the question) (1.00)
Carrying amount as on 31.3.2019 0.40
Recoverable amount as on 31.3.2019 (Refer W.N. 2, 3 and 4 above) 0.98
Impairment Loss as on 31.3.2019 (since carrying amount is less than recoverable NIL
amount)
XYZ Limited also has corporate assets having a remaining useful life of 20 years as given below:
Corporate Assets Carrying amount Remarks
(Rs.in lakh)
AU 800 The carrying amount of AU can be allocated on a
reasonable basis to the individual cash generating
units.
pg. 42
FR COMPILER
Solution :
(i) Allocation of corporate assets to CGU
The carrying amount of AU is allocated to the carrying amount of each individual cash- generating
unit. A weighted allocation basis is used because the estimated remaining useful life of Y’s cash-
generating unit is 10 years, whereas the estimated remaining useful lives of X and Z’s cash-
generating units are 20 years.
(Rs. in lakh)
Particulars X Y Z Total
(a) Carrying amount 800 1,000 1,200 3,000
(b) Useful life 20 years 10 years 20 years
(c) Weight based on useful 2 1 2
life
(d) Carrying amount after 1,600 1,000 2,400 5,000
assigning weight) (a x c)
(e) Pro-rata allocation of AU 32% 20% 48% 100%
(1,600/5,000) (1,000/5,000) (2,400/5,000)
(f) Allocation of carrying 256 160 384 800
amount of AU (32: 20:
48)
(g) Carrying amount after 1,056 1,160 1,584 3,800
allocation of AU) (a+f)
pg. 43
FR COMPILER
Step 2: Impairment loss for the larger cash-generating unit, i.e., XYZ Ltd. as a whole
Particulars X Y Z AU BU XYZ Ltd.
Carrying amount 800 1,000 1,200 800 400 4,200
Impairment loss (Step I) (420 - (139) (59)* - (240)
Carrying amount (after Step 758 1,000 1,061 741 400 3,960
I)
Recoverable amount 3,900
Impairment loss for the ‘larger’ cash-generating unit 60
*Rs.14 lakh + Rs.45 lakh = Rs.59 lakh.
2019
pg. 44
FR COMPILER
b) Compute the prospective depreciation for the year 2018-2019 on the above assets.
c) Compute the carrying value of CGU as at 31st March, 2019.
Solution :
(a) Computation of impairment loss and carrying value of each of the asset in CGU after
impairment loss
(i) Calculation of carrying value of Machinery A and B before impairment
Machinery A
Cost (A) Rs.10,00,000
Residual Value Rs.50,000
Useful life 10 years
Useful life already elapsed 5 years
Yearly depreciation (B) Rs.95,000
WDV as at 31st March, 2018 [A- (B x 5)] Rs.5,25,000
Machinery B
Cost (C) Rs.5,00,000
Residual Value -
Useful life 10 years
Useful life already elapsed 3 years
Yearly depreciation (D) Rs.50,000
WDV as at 31st March, 2018 [C- (D x 3)] Rs.3,50,000
pg. 45
FR COMPILER
Less: Recoverable Value ie higher of Value-in-use and Fair value less cost 4,89,650
of disposal
Impairment Loss 35,350
pg. 46
FR COMPILER
No Question
Solution :
Calculation of the value in use of the machine owned by East Ltd. (East) includes the projected cash
inflow (i.e. sales income) from the continued use of the machine and projected cash outflows that are
necessarily incurred to generate those cash inflows (i.e cost of goods sold). Additionally, projected cash
inflows include Rs.80,000 from the disposal of the asset in March, 20X8. Cash outflows include routing
capital expenditures of Rs.50,000 in 20X5-X6
As per Ind AS 36, estimates of future cash flows shall not include:
• Cash inflows from receivables
• Cash outflows from payables
• Cash inflows or outflows expected to arise from future restructuring to which an entity is not yet
committed
• Cash inflows or outflows expected to arise from improving or enhancing the asset’s performance
• Cash inflows or outflows from financing activities
pg. 47
FR COMPILER
No Question
2020
pg. 48
FR COMPILER
Solution :
Carrying amount of asset on 31st March 20X6 = Rs.6,60,000
Calculation of Value in Use :
Year ended Cash flow Rs. Discount factor @ 9% Amount Rs.
31st March, 20X7 2,76,000 0.9174 2,53,202
31st March, 20X8 1,92,000 0.8417 1,61,606
31st March, 20X9 1,20,000 0.7722 92,664
31st March, 20Y0 1,14,000 0.7084 80,758
Total (Value in Use) 5,88,230
pg. 49
FR COMPILER
The impairment loss of Rs.71,770 must first be set off against any revaluation surplus in relation to the
same asset. Therefore, the revaluation surplus of rs.36,000 is eliminated against impairment loss, and
the remainder of the impairment loss Rs.35,770 (Rs.71,770 – Rs.36,000) is charged to profit and loss.
INDASPREP.COM RAHULMALKAN.COM
pg. 50
FR COMPILER
IND AS 41 - AGRICULTURE
2018
No Question
No Question
Solution :
As at 31st March, 2017, the mature plantation would have been valued at 17,100 (171 x 100).
As at 31st March, 2018, the mature plantation would have been valued at 16,500 (165 x 100).
Assuming immaterial cash flow between now and the point of harvest, the fair value (and therefore the
amount reported as an asset on the statement of financial position) of the plantation is estimated as
follows:
As at 31st March, 2017: 17,100 x 0.312 = 5,335.20.
pg. 51
FR COMPILER
No Question
2019
No Question
No Question
No Question
No Question
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 52
FR COMPILER
2018
Solution :
Journal Entries
Purchase of Machinery on credit basis on 30th January 20X1:
Rs. Rs.
Machinery A/c (5,000 x $ 60) Dr. 3,00,000
To Creditors 3,00,000
(Initial transaction will be recorded at exchange rate on the date of
transaction)
Exchange difference arising on translating monetary item and settlement of creditors on 31st March
20X2:
pg. 53
FR COMPILER
Rs. Rs.
Creditors A/c (5,000 x $65) Dr. 3,25,000
Profit & loss A/c [(5,000 x ($ 67 -$ 65)] Dr. 10,000
To Bank A/c 3,35,000
Machinery A/c [(5,500*($ 67-$ 65)) Dr. 11,000
To Profit & loss A/c 11,000
No Question
Solution :
As per Ind AS 21
01/01/2018 Asset A/c Dr. 1,36,00,000
To Creditor A/c 1,36,00,000
($2,00,000 × 68)
31/03/2018 Asset – Non Monetary Item
– Carried at Cost
Creditor – Monetary Item
Creditor A/c Dr. 6,00,000
To FC gain (P/L) 6,00,000
($2,00,000 × (68 – 65)
31/03/2018 Depreciation A/c Dr. 8,50,000
To Asset 8,50,000
1 3
(1,36,00,000 × × )
4 12
The closing Balance of PPE on 31/03/2018 1,27,50,000.
No Question
pg. 54
FR COMPILER
2019
Solution :
01/01/2018 Bank A/c Dr. 1,440
To Advance from Customer 1,440
(20 × 72)
Note : Revenue will be recognised on
31/3/2018 as goods will be delivered on
31/3/2018
31/03/2018 Advance from Customer (20 × 72) Dr. 1,440
Customer A/c (30 × 75) Dr. 2,250
To Sales A/c 3,690
Note : balance 30 USD will be booked at
exchange rate existing as 31/3/2018.
01/04/2018 Bank A/c Dr. 2,250
To Customer A/c 2,250
No Question
pg. 55
FR COMPILER
(ii) Mark Limited sold goods costing 2.4 million EURO to Global Limited for 4.2 million EURO during
the year ended 31st March, 20X2. The exchange rate on the date of purchase by Global Limited
was Rs.83 / EURO and on 31st March, 20X2 was Rs.84 / EURO. The entire goods purchased from
Mark Limited are unsold as on 31st March, 20X2. Determine the unrealised profit to be eliminated
in the preparation of consolidated financial statements.
Solution :
(i) Ind AS 21 requires that goodwill arose on business combination shall be expressed in the
functional currency of the foreign operation and shall be translated at the closing rate. In this
case the amount of goodwill will be as follows:
Net identifiable asset Dr. 23 million
Goodwill(bal. fig.) Dr. 1.4 million
To Bank 17.5 million
To NCI (23 x 30%) 6.9 million
Thus, goodwill on reporting date would be 1.4 million EURO × Rs.84
= Rs.117.6 million
(ii)
Particulars EURO in million
Sale price of Inventory 4.20
Unrealised Profit [a] 1.80
Exchange rate as on date of purchase of Inventory [b] Rs.83 / Euro
Unrealized profit to be eliminated [a x b] Rs.149.40 million
As per Ind AS 21 “income and expenses for each statement of profit and loss presented (ie
including comparatives) shall be translated at exchange rates at the dates of the transactions”.
In the given case, purchase of inventory is an expense item shown in the statement profit and
loss account. Hence, the exchange rate on the date of purchase of inventory is taken for
calculation of unrealized profit which is to be eliminated on the event of consolidation.
Solution :
• An entity measures its assets, liabilities, equity, income and expenses in its functional currency.
• All transactions in currencies other than the functional currency are foreign currency
transactions.
Ind AS 21 requires each entity to determine its functional currency.
• In determining its functional currency, an entity emphasises the currency that determines the
pricing of the transactions that it undertakes, rather than focusing on the currency in which those
transactions are denominated.
• The following are the factors that may be considered in determining an appropriate functional
currency:
(a) the currency that mainly influences sales prices for goods and services; this often will be
the currency in which sales prices are denominated and settled;
(b) the currency of the country whose competitive forces and regulations mainly determine
the sales prices of its goods and services; and
pg. 56
FR COMPILER
(c) the currency that mainly influences labour, material and other costs of providing goods
and services; often this will be the currency in which these costs are denominated and
settled.
• Other factors that may provide supporting evidence to determine an entity’s functional currency
are:
(a) the currency in which funds from financing activities i.e., issuing debt and equity
instruments) are generated;
(b) the currency in which receipts from operating activities are usually retained.
2020
Solution :
Initial carrying amount of loan in books
Loan amount received = 60,00,000 FCY
Less: Incremental issue costs = 2,00,000 FCY
58,00,000 FCY
Ind AS 21, “The Effect of Changes in Foreign Exchange Rates” states that foreign currency transactions
are initially recorded at the rate of exchange in force when the transaction was first recognized.
Loan to be converted in INR = 58,00,000 FCY x Rs.2.50/FCY
= Rs.1,45,00,000
Therefore, the loan would initially be recorded at Rs.1,45,00,000.
pg. 57
FR COMPILER
Hence, the finance cost for FY 20X1-20X2 in INR is Rs.16,84,320 (6,96,000 FCY x Rs.2.42 / FCY)
The actual payment of interest would be recorded at 6,00,000 x 2.75 = INR 16,50,000
The loan balance is a monetary item so it is translated at the rate of exchange at the reporting date.
So the closing loan balance in INR is 58,96,000 FCY x INR 2.75 / FCY = Rs.1,62,14,000
The exchange differences that are created by this treatment are recognized in profit and loss.
In this case, the exchange difference is
Rs.[1,62,14,000 – (1,45,00,000 + 16,84,320 – 16,50,000)] = Rs.16,79,680.
This exchange difference is taken to profit and loss.
INDASPREP.COM RAHULMALKAN.COM
pg. 58
FR COMPILER
2018
Solution :
1) As per Ind AS 7, the aggregate cash flows arising from obtaining control of subsidiary shall be
presented separately and classified as investing activities.
2) As per Ind AS 7, the aggregate amount of the cash paid or received as consideration for obtaining
subsidiaries is reported in the statement of cash flows net of cash and cash equivalents acquired
or disposed of as part of such transactions, events or changes in circumstances.
Further, investing and financing transactions that do not require the use of cash or cash
equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed
elsewhere in the financial statements in a way that provides all the relevant information about
these investing and financing activities.
3) As per Ind AS 7, cash flows arising from changes in ownership interests in a subsidiary that do not
result in a loss of control shall be classified as cash flows from financing activities, unless the
subsidiary is held by an investment entity, as defined in Ind AS 110, and is required to be
measured at fair value through profit or loss.
4) Considering the above, for the financial year ended March 31, 20X2 total consideration of
Rs.15,00,000 less Rs.2,50,000 will be shown under investing activities as “Acquisition of the
subsidiary (net of cash acquired)”.
pg. 59
FR COMPILER
5) There will not be any impact of issuance of equity shares as consideration in the cash flow
statement however a proper disclosure shall be given elsewhere in the financial statements in a
way that provides all the relevant information about the issuance of equity shares for non-cash
consideration.
6) Further, in the statement of cash flows for the year ended March 31, 20X3, cash consideration
paid for the acquisition of additional 10% stake in Company B will be shown under financing
activities.
No Question
No Question
No Question
2019
Solution :
The profit and loss account was credited by Rs.1,00,000 (US$ 2000 × Rs.50) towards interest income. It
was credited by the exchange difference of US$ 100,000 × (Rs.50 – Rs.45) that is, Rs.500,000. In preparing
the cash flow statement, Rs.500,000, the exchange difference, should be deducted from the ‘net profit
before taxes, and extraordinary item’. However, in order to reconcile the opening balance of the cash
and cash equivalents with its closing balance, the exchange difference Rs.500,000, should be added to
the opening balance in note to cash flow statement.
Cash flows arising from transactions in a foreign currency shall be recorded in Z Ltd.’s functional currency
by applying to the foreign currency amount the exchange rate between the functional currency and the
foreign currency at the date of the cash flow.
No Question
pg. 60
FR COMPILER
pg. 61
FR COMPILER
Additional Information :
(1) Profit after tax for the year ended 31st March, 20X2- Rs.4,450 lacs
(2) Interim Dividend paid during the year – Rs.450 lacs
(3) Depreciation and amortisation charged in the statement of profit and loss during the current year
are as under
(a) Property, Plant and Equipment – Rs.500 lacs
(b) Intangible Assets – Rs.20 lacs
(4) During the year ended 31st March, 20X2 two machineries were sold for Rs.10 lacs. The carrying
amount of these machineries as on 31st March, 20X2 is Rs.60 lacs.
(5) Income taxes paid during the year Rs.105 lacs
Using the above information of Kuber Limited, construct a statement of cash flows under indirect
method. Other non-current / current assets and liabilities are related to operations of Kuber Ltd. and do
not contain any element of financing and investing activities.
Solution :
Statement of Cash Flows
Rs. in lacs
Cash flows from Operating Activities
Net Profit after Tax 4,450
Add: Tax Paid 105
4,555
Add: Depreciation & Amortisation (500 + 20) 520
Less: Gain on Sale of Machine (70-60) (10)
Less: Increase in Deferred Tax Asset (855-750) (105)
4,960
Change in operating assets and liabilities
Add: Decrease in financial asset (170 - 145) 25
Less: Increase in other non-current asset (800 - 770) (30)
Less: Increase in other current asset (195 - 85) (110)
Less: Decrease in other non-current liabilities (3,615 – 2,740) (875)
Add: Increase in other current liabilities (300 - 200) 100
Add: Increase in trade payables (150-90) 60
4,130
Less: Income Tax (105)
Cash generated from Operating Activities 4,025
pg. 62
FR COMPILER
No Question
2020
pg. 63
FR COMPILER
Liabilities
Trade payables 68,000 60,000
Income tax payable 12,000 11,000
Long term debt 1,00,000 64,000
Total liabilities 1,80,000 1,35,000
Shareholders’ equity 90,000 35,000
Total liabilities and shareholders’ 2,70,000 1,70,000
Other information :
All of the shares of entity B were acquired for Rs.74,000 in cash. The fair values of assets acquired and
liabilities assumed were:
Particulars Amount (Rs.)
Inventories 4,000
Trade receivables 8,000
Cash 2,000
Property, plant and equipment 1,10,000
Trade payables (32,000)
Long term debt (36,000)
Goodwill 18,000
Cash consideration paid 74,000
Prepare the Consolidated Statement of Cash Flows for the year 20X2, as per Ind AS 7.
Solution :
This information will be incorporated into the Consolidated Statement of Cash Flows as follows:
Statement of Cash Flows for the year ended 20X2 (extract)
Amount (Rs.) Amount (Rs.)
Cash flows from operating activities
Profit before taxation 70,000
Adjustments for non-cash items:
Depreciation 30,000
Decrease in inventories (W.N. 1) 9,000
Decrease in trade receivables (W.N. 2) 4,000
Decrease in trade payables (W.N. 3) (24,000)
Interest paid to be included in financing activities 4,000
Taxation (11,000 + 15,000 – 12,000) (14,000)
Net cash generated from operating activities 79,000
Cash flows from investing activities
Cash paid to acquire subsidiary (74,000 – 2,000) (72,000)
Net cash outflow from investing activities (72,000)
Cash flows from financing activities
Interest paid (4,000)
Net cash outflow from financing activities (4,000)
pg. 64
FR COMPILER
Working Notes:
1. Calculation of change in inventory during the year Rs.
Total inventories of the Group at the end of the year 30,000
Inventories acquired during the year from subsidiary (4,000)
26,000
Opening inventories 35,000
Decrease in inventories _9,000
INDASPREP.COM RAHULMALKAN.COM
pg. 65
FR COMPILER
2018
No Question
Solution :
(1) Segment revenues, results and other information
(Rs.in lakh)
Revenue Coating Others Total
1 External sales (gross) 1,00,000 35,000 1,35,000
pg. 66
FR COMPILER
pg. 67
FR COMPILER
No Question
No Question
2019
Solution :
The entity should use First-In, First-Out (FIFO) method for its Ind AS 108 disclosures, even though it uses
the weighted average cost formula for measuring inventories for inclusion in its financial statements.
Where chief operating decision maker uses only one measure of segment asset, same measure should
be used to report segment information. Accordingly, in the given case, the method used in preparing the
financial information for the chief operating decision maker should be used for reporting under Ind AS
108.
However, reconciliation between the segment results and results as per financial statements needs to
be given by the entity in its segment report.
No Question
No Question
No Question
2020
pg. 68
FR COMPILER
C (2,300)
D (4,500)
E 6,000
Total 1,480
Based on the quantitative thresholds, which of the above segments A to E would be considered as
reportable segments for the year ending March 31, 20X1?
Solution :
With regard to quantitative thresholds to determine reportable segment relevant in context of instant
case, paragraph 13(b) of Ind AS 108 may be noted which provides as follows:
“The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute
amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii)
the combined reported loss of all operating segments that reported a loss.”
In compliance with Ind AS 108, the segment profit/loss of respective segment will be compared with the
greater of the following:
(i) All segments in profit, i.e., A, B and E – Total profit Rs.8,280 crores.
(ii) All segments in loss, i.e., C and D – Total loss Rs.6,800 crores.
Greater of the above – Rs.8,280 crores.
Based on the above, reportable segments will be determined as follows:
Segment Profit/(Loss) (Rs.in crore) As absolute % of Rs.8,280 crore Reportable segment
A 780 9% No
B 1,500 18% Yes
C (2,300) 28% Yes
D (4,500) 54% Yes
E 6,000 72% Yes
Total 1,480
Hence B, C, D, E are reportable segments.
INDASPREP.COM RAHULMALKAN.COM
pg. 69
FR COMPILER
2018
No Question
No Question
No Question
Solution :
pg. 70
FR COMPILER
As per Ind AS 34, Interim Financial Reporting, the quarterly net profit should be adjusted and restated as
follows:
(i) Bad debts of Rs.1,64,000 have been incurred during current quarter. Out of this, the company
has deferred 75% i.e. Rs.1,23,000 to the next 3 quarters. This treatment is not correct as the
expenses incurred during an interim reporting period should be recognised in the same period
unless conditions mentioned in Ind AS 34 are fulfilled. Accordingly, Rs.1,23,000 should be
deducted from the net profit of the current quarter Rs.15,00,000.
(ii) Deferment of sales promotion expenses of Rs.4,50,000 is not correct. It should be charged in the
quarter in which the expenses have been incurred. Hence, it should be charged in the first quarter
only.
(iii) Recognising additional depreciation of Rs.3,50,000 in the same quarter is correct and is in tune
with Ind AS 34.
(iv) The treatment of extra-ordinary loss of Rs.1,36,000 being recognised in the same quarter is
correct.
Accordingly,
Net Profit Rs.15,00,000
Bad Debts Rs.1,23,000
Sales Promotion Expenses Rs.4,50,000
Rs.9,27,000
2019
No Question
No Question
Solution :
As per para 30 (c) of Ind AS 34 ‘Interim Financial Reporting’, income tax expense is recognised in each
interim period based on the best estimate of the weighted average annual income tax rate expected for
the full financial year.
pg. 71
FR COMPILER
Accordingly, the management’s contention that since the net income for the year will be zero no income
tax expense shall be charged quarterly in the interim financial report, is not correct.
The following table shows the correct income tax expense to be reported each quarter in accordance
with Ind AS 34:
Period Pre-tax earnings Effective tax rate Tax expense
(in Rs.) (in Rs.)
First Quarter 1,50,000 30% 45,000
Second Quarter (50,000) 30% (15,000)
Third Quarter (50,000) 30% (15,000)
Fourth Quarter (50,000) 30% (15,000)
Annual 0 0
No Questions
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 72
FR COMPILER
2018
No Question
No Question
No Question
No Question
2019
pg. 73
FR COMPILER
Solution :
Profit or loss under weighted average valuation method is as follows :
2018-2019 2017-2018
(Restated)
Revenue 324 296
Cost of goods (168) (159)
Gross profit 156 137
Expenses (83) (74)
Profit 73 63
No Question
pg. 74
FR COMPILER
Solution :
Cheery Limited
Extract from the Statement of profit and loss
(Restated)
20X4-X5 20X3-X4
Rs. Rs.
Sales 1,04,000 73,500
Cost of goods sold (80,000) (60,000)
Profit before income taxes 24,000 13,500
Income taxes (7,200) (4,050)
Profit 16,800 9,450
Basic and diluted EPS 3.36 1.89
Cheery Limited
Statement of Changes in Equity
Share Retained earnings Total
capital
Balance at 31st March, 20X3 50,000 20,000 70,000
Profit for the year ended 31st March, 20X4 as restated ______ 9,450 9,450
Balance at 31st March, 20X4 50,000 29,450 79,450
Profit for the year ended 31st March, 20X5 ______ 16,800 16,800
Balance at 31st March, 20X5 50,000 46,250 96,250
pg. 75
FR COMPILER
No Question
2020
Solution :
As per paragraph 41 of Ind AS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, errors
can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial
statements. Financial statements do not comply with Ind AS if they contain either material errors or
immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position,
financial performance or cash flows. Potential current period errors discovered in that period are
corrected before the financial statements are approved for issue. However, material errors are
sometimes not discovered until a subsequent period, and these prior period errors are corrected in the
comparative information presented in the financial statements for that subsequent period.
Accordingly, the stated issues in question are to dealt as under:
Issue 1
pg. 76
FR COMPILER
In accordance with para 41, the reclassification of liabilities from non-current to current would be
considered as correction of an error under Ind AS 8. Accordingly, in the financial
statements for the year ended March 31, 20X3, the comparative amounts as at 31 March 20X2 would be
restated to reflect the correct classification.
Ind AS 1 requires an entity to present a third balance sheet as at the beginning of the preceding period
in addition to the minimum comparative financial statements, if, inter alia, it makes a retrospective
restatement of items in its financial statements and the restatement has a material effect on the
information in the balance sheet at the beginning of the preceding period. Accordingly, the entity should
present a third balance sheet as at the beginning of the preceding period, i.e., as at 1 April 20X1 in
addition to the comparatives for the financial year 20X1-20X2.
Issue 2
In accordance with para 41, the reclassification of expenses from finance costs to other expenses would
be considered as correction of an error under Ind AS 8. Accordingly, in the financial statements for the
year ended 31 March, 20X3, the comparative amounts for the year ended 31 March 20X2 would be
restated to reflect the correct classification.
Ind AS 1 requires an entity to present a third balance sheet as at the beginning of the preceding period
in addition to the minimum comparative financial statements if, inter alia, it makes a retrospective
restatement of items in its financial statements and the restatement has a material effect on the
information in the balance sheet at the beginning of the preceding period.
In the given case, the retrospective restatement of relevant items in statement of profit and loss has no
effect on the information in the balance sheet at the beginning of the preceding period (1 April 20X1).
Therefore, the entity is not required to present a third balance sheet.
INDASPREP.COM RAHULMALKAN.COM
pg. 77
FR COMPILER
2018
No Questions
No Questions
pg. 78
FR COMPILER
4) The loss after tax of G Ltd. for the year ended 31st March 2018 was Rs.400 lakhs. G Ltd. made
further operating losses totalling Rs.60 lakhs till 30th April 2018.
How should U Ltd. present the decision to discontinue the business of G Ltd. in its consolidated statement
of comprehensive income as per Ind AS?
What are the provisions that the Company is required to make as per lnd AS 37?
Solution :
A discontinued operation is one that is discontinued in the period or classified as held for sale at the year
end. The operations of G Ltd were discontinued on 30th April 2018 and therefore, would be treated as
discontinued operation for the year ending 31st March 2019. It does not meet the criteria for held for
sale since the company is terminating its business and does not hold these for sale.
Accordingly, the results of G Ltd will be included on a line-by-line basis in the consolidated statement of
comprehensive income as part of the profit from continuing operations of U Ltd for the year ending 31st
March 2018.
As per para Ind AS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, restructuring includes
sale or termination of a line of business. A constructive obligation to restructure arises when:
(a) an entity has a detailed formal plan for the restructuring
(b) has raised a valid expectation in those affected that it will carry out the restructuring by starting
to implement that plan or announcing its main features to those affected by it.
The Board of directors of U Ltd have decided to terminate the operations of G Ltd. from 30th April 2018.
They have made a formal announcement on 15th February 2018, thus creating a valid expectation that
the termination will be implemented. This creates a constructive obligation on the company and requires
provisions for restructuring.
A restructuring provision includes only the direct expenditures arising from the restructuring that are
necessarily entailed by the restructuring and are not associated with the ongoing activities of the entity.
The termination payments fulfil the above condition. As per Ind AS 10 ‘Events after Reporting Date’,
events that provide additional evidence of conditions existing at the reporting date should be reflected
in the financial statements. Therefore, the company should make a provision for ` 520 lakhs in this
respect.
The relocation costs relate to the future conduct of the business and are not liabilities for restructuring
at the end of the reporting period. Hence, these would be recognised on the same basis as if they arose
independently of a restructuring.
The operating lease would be regarded as an onerous contract. A provision would be made at the lower
of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. Hence, a
provision shall be made for ` 410 lakhs.
Further operating losses relate to future events and do not form a part of the closure provision.
Therefore, the total provision required = Rs.520 lakhs + Rs.410 lakhs = Rs.930 lakhs
Solution :
pg. 79
FR COMPILER
2019
No Question
No Questions
pg. 80
FR COMPILER
• The manufacturer’s past experience and future expectations indicate that each year 80%
of the goods sold will have no defects. 15% of the goods sold will have minor defects, and
5% of the goods sold will have major defects.
Calculate the expected value of the cost of repairs in accordance with the requirements of Ind AS
37, if any. Ignore both income tax and the effect of discounting.
Solution :
(a) For a provision to be recognized, Para 14 of Ind AS 37 requires that:
a) an entity has a present obligation (legal or constructive) as a result of a past event;
b) it is probable that an outflow of resources embodying economic benefits will required to
settle the obligation, and
c) a reliable estimate can be made of the amount of the obligation.
Here, the manufacturer has a present legal obligation. The obligation event is the sale of the
product with a warranty.
Ind AS 37 outlines that the future sacrifice of economic benefits is probable when it is more likely
than less likely that the future sacrifice of economic benefits will required. The probability that
settlement will be required will be determined by considering the class of obligation (warranties)
as a whole. In accordance with para 24 of Ind AS 37, it is more likely than less likely that a future
sacrifice of economic benefits will be required to settle the class of obligations as a whole.
If a reliable estimate can be made the provision can be measured reliably. Past data can provide
reliable measures, even if the data is not firm specific but rather industry based. Ind AS 37 notes
that only in extremely rare cases, a reliable measure of a provision cannot be obtained. Difficulty
in estimating the amount of a provision under conditions of significant uncertainty does not
justify non-recognition of the provision.
Here, the manufacturer should recognize a provision based on the best estimate of the
consideration required to settle the present obligation as at the reporting date.
(b) The expected value of cost of repairs in accordance with Ind AS 37 is:
(80% × nil) + (15% × Rs.20,00,000) + (5% × Rs.50,00,000) = 3,00,000 + 2,50,000 = 5,50,000
No Question
2020
Solution :
Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets” defines an onerous contract as “a
contract in which the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it”. Paragraph 68 of Ind AS 37 states that “the
unavoidable costs under a co ntract reflect the least net cost of exiting from the contract, which is the
pg. 81
FR COMPILER
lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it”. In the
instant case, cost of fulfilling the contract is Rs.0.5 million (Rs.2.5 million – Rs.2 million) and cost of exiting
from the contract by paying penalty is rs.0.25 million. In accordance with the above reproduced
paragraph, it is an onerous contract as cost of meeting the contract exceeds the economic benefits.
Therefore, the provision should be recognised at the best estimate of the unavoidable cost, which is
lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it, i.e., at
Rs.0.25 million (lower of Rs.0.25 million and Rs.0.5 million).
INDASPREP.COM RAHULMALKAN.COM
pg. 82
FR COMPILER
2018
Solution :
1. Calculation of goodwill / gain on bargain purchase :
Consideration paid 300
+ NCI at fair value 84
384
– FV of net asset (500 – 100) 400
Gain from bargain purchase 16
2. Journal Entry :
Dr. Cr.
Assets A/c Dr. 500
To Liability 100
pg. 83
FR COMPILER
To Bank 300
To NCI 84
To Gain on bargain purchase (CR) 16
Solution :
(i) Journal of Notorola Ltd.
(Rs. In crore)
Dr. Cr.
Loan Funds Dr. 600
Current Liabilities Dr. 800
Provision for Depreciation Dr. 800
To Fixed Assets 1,000
To Current Assets 1,000
To Capital Reserve 200
pg. 84
FR COMPILER
(Being division B along with its assets and liabilities sold to Senovo Ltd. for
Rs.50 crore)
In the given scenario, this demerger will meet the definition of common control transaction. Accordingly,
the transfer of assets and liabilities will be derecognized and recognized as per book value and the
resultant loss or gain will be recorded as capital reserve in the books of demerged entity (Notorola Ltd).
Notes : Any other alternative set of entries, with the same net effect on various accounts, may also be
given.
Notes to Accounts
Rs. in crore
1 Equity Share Capital
5 crore equity shares of face value of Rs.10 each 50
Consequent to transfer of Division B to newly incorporated company Senovo
Ltd., the members of the company have been allotted 2 crore equity shares of
Rs.10 each at a premium of Rs.15 per share of Senovo Ltd., in full settlement
of the consideration in proportion to their shareholding in the company
2 Other Equity
Surplus (350 - 200) 150
Add: Capital Reserve on reconstruction 200
350
pg. 85
FR COMPILER
1,200
EQUITY AND LIABILITIES
Equity 1 20
Equity share capital (of face value of INR 10 each) 2 (220)
Other equity
Liabilities
Non-current liabilities
Financial liabilities
Borrowings 600
Current liabilities
Current liabilities 800
1,200
Notes to Accounts
(Rs. In crore)
1. Share Capital
Issued and Paid-up capital
2 crore Equity shares of Rs.10 each fully paid up 20
(All the above shares have been allotted to the members of Notorola Ltd. on
takeover of Division B from Notorola Ltd. as fully paid-up pursuant to contract
without payment being received in cash)
2. Other Equity
Securities Premium 30
Capital reserve [50 - (1,200 – 1,400)] (250)
(220)
pg. 86
FR COMPILER
During the nine months ended on 31st March, 2018, JKL Ltd. had a poorer than expected operating
performance. Therefore, on 31st March, 2018 it was necessary for ABC Ltd. to recognise an impairment
of the goodwill arising on acquisition of JKL Ltd., amounting to 10% of its total computed value.
Compute the impairment of goodwill in the consolidated financial statements of ABC Ltd. under both the
methods permitted by Ind AS 103 for the initial computation of the non-controlling interest in JKL Ltd. at
the acquisition date.
Solution :
Computation of goodwill impairment
NCI at fair value NCI at of net assets
Rs. in ‘000 Rs. in ‘000
Cost of investment
Share exchange (12,000 x 75% x 2/3 x Rs.6.50) 39,000 39,000
Deferred consideration (7,150 / 1.10) 6,500 6,500
Contingent consideration 25,000 25,000
Non-controlling interest at date of acquisition:
Fair value – 3000 x Rs.6 18,000
% of net assets – 68,000 (Refer W.N.) x 25% 17,000
Net assets on the acquisition date (Refer W.N.) (68,000) (68,000)
Goodwill on acquisition 20,500 19,500
Impairment @ 10% 2,050 1,950
Working Note:
Net assets on the acquisition date Rs. ’000
Fair value at acquisition date 70,000
Deferred tax on fair value adjustments [20% x (70,000 – 60,000)] (2,000)
68,000
pg. 87
FR COMPILER
Assets
Non-current assets
Property, plant and Equipment 15.00
15.00
Current Assets
(a) Financial assets
Trade Receivables 10.00
Cash and cash equivalents 10.00
Other current assets 8.00
28.00
Total 43.00
Equity and Liabilities
Equity
Equity Share Capital 45.00
Other Equity
Reserves and Surplus (Accumulated Losses)* (24.80)
20.20
Liabilities
Non-current Liabilities
Financial liabilities
Borrowings 2.80
Current Liabilities 20.00
22.80
Total 43.00
*The Tax Loss carried forward of the company is Rs.27.20 crores
On September 5, 2017, the merger got approved by the Directors. The purchase consideration payable
by MicroFly to Cloudustries was fixed at Rs.18.00 crores payable in cash and that MicroFly take over all
the assets and liabilities of Cloudustries.
Present the statement showing the calculation of assets/liabilities taken over as per Ind AS. Also mention
the accounting of difference between consideration and assets/liabilities taken over.
Solution :
Before the merger, Cloudustries and MicroFly are the subsidiary of Smart Technologies Inc. As the control
is not transitory, the proposed merger will fall under the category of Business combination of entities
under common control, it will be accounted as per Appendix C of Ind AS 103 “Business Combination” and
Pooling of Interest Method would be applied.
Statement showing the calculation of assets/liabilities taken over and treatment of difference between
consideration and assets/liabilities taken over:
(a) Net asset taken over: (Rs.in crore)
Assets taken over:
Property, Plant and Equipment 15.00
Cash and cash equivalents 10.00
Other current assets 8.00
Trade Receivables 10.00
Total - A 43.00
pg. 88
FR COMPILER
The difference between consideration and assets/liabilities taken over of ` 1.80 crore shall be transferred
to capital reserve.
Solution :
The amount of Star Ltd.’s identifiable net assets exceeds the fair value of the consideration transferred
plus the fair value of the NCI in Star Ltd.’s, resulting in an initial indication of a gain on a bargain purchase.
Accordingly, Moon Ltd. reviews the procedures it used to identify and measure the identifiable net assets
acquired, to measure the fair value of both the NCI and the consideration transferred, and to identify
transactions that were not part of the business combination.
Following that review, Moon Ltd. can conclude that the procedures followed and the resulting
measurements were appropriate.
Rs.
Identifiable net assets 90,00,000
Less: Consideration transferred (60,00,000)
NCI (90,00,000 × 25%) (22,50,000)
Gain on bargain purchase 7,50,000
2019
pg. 89
FR COMPILER
(i) On 1 April 2016, A Ltd. acquires 100% interest in B Ltd. As per the terms of agreement the
purchase consideration is payable in the following 2 tranches:
a. an immediate issuance of 10 lakhs shares of A Ltd. having face value of INR 10 per share;
b. a further issuance of 2 lakhs shares after one year if the profit before interest and tax of
B Ltd. for the first year following acquisition exceeds INR 1 crore.
i. The fair value of the shares of A Ltd. on the date of acquisition is INR 20 per share.
Further, the management has estimated that on the date of acquisition, the fair
value of contingent consideration is Rs.25 lakhs.
ii. During the year ended 31 March 2017, the profit before interest and tax of B Ltd.
exceeded Rs.1 crore. As on 31 March 2017, the fair value of shares of A Ltd. is Rs.25
per share.
(ii) Continuing with the fact pattern in (a) above except for:
c. The number of shares to be issued after one year is not fixed.
d. Rather, A Ltd. agreed to issue variable number of shares having a fair value equal to Rs.40
lakhs after one year, if the profit before interest and tax for the first year following
acquisition exceeds Rs.1 crore. A Ltd. issued shares with Rs.40 lakhs after a year.
Solution :
Paragraph 37 of Ind AS 103, inter alia, provides that the consideration transferred in a business
combination should be measured at fair value, which should be calculated as the sum of (a) the
acquisition-date fair values of the assets transferred by the acquirer, (b) the liabilities incurred by the
acquirer to former owners of the acquiree and (c) the equity interests issued by the acquirer.
Further, paragraph 39 of Ind AS 103 provides that the consideration the acquirer transfers in exchange
for the acquiree includes any asset or liability resulting from a contingent consideration arrangement.
The acquirer shall recognize the acquisition-date fair value of contingent consideration as part of the
consideration transferred in exchange for the acquiree.
With respect to contingent consideration, obligations of an acquirer under contingent consideration
arrangements are classified as equity or a liability in accordance with Ind AS 32 or other applicable Ind
AS, i.e., for the rare case of non-financial contingent consideration. Paragraph 40 provides that the
acquirer shall classify an obligation to pay contingent consideration that meets the definition of a
financial instrument as a financial liability or as equity on the basis of the definitions of an equity
instrument and a financial liability in paragraph 11 of Ind AS 32, Financial Instruments: Presentation. The
acquirer shall classify as an asset a right to the return of previously transferred consideration if specified
conditions are met. Paragraph 58 of Ind AS 103 provides guidance on the subsequent accounting for
contingent consideration.
(i) In the given case the amount of purchase consideration to be recognized on initial recognition
shall be as follows:
Fair value of shares issued (10,00,000 x Rs.20) Rs.2,00,00,000
Fair value of contingent consideration Rs.25,00,000
Total purchase consideration Rs.2,25,00,000
Subsequent measurement of contingent consideration payable for business combination
In general, an equity instrument is any contract that evidences a residual interest in the assets of
an entity after deducting all of its liabilities. Ind AS 32 describes an equity instrument as one that
meets both of the following conditions:
(a) There is no contractual obligation to deliver cash or another financial asset to another
party, or to exchange financial assets or financial liabilities with another party under
potentially unfavorable conditions (for the issuer of the instrument).
pg. 90
FR COMPILER
(b) If the instrument will or may be settled in the issuer's own equity instruments, then it is:
(i) a non-derivative that comprises an obligation for the issuer to deliver a fixed
number of its own equity instruments; or
(ii) a derivative that will be settled only by the issuer exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity instruments.
In the given case, given that the acquirer has an obligation to issue fixed number of shares on
fulfilment of the contingency, the contingent consideration will be classified as equity as per the
requirements of Ind AS 32.
As per paragraph 58 of Ind AS 103, contingent consideration classified as equity should not be re-
measured and its subsequent settlement should be accounted for within equity.
Here, the obligation to pay contingent consideration amounting to `25,00,000 is recognized as a
part of equity and therefore not re-measured subsequently or on issuance of shares.
(ii) The amount of purchase consideration to be recognized on initial recognition is shall be as
follows:
Fair value shares issued (10,00,000 × Rs.20) Rs.2,00,00,000
Fair value of contingent consideration Rs.25,00,000
Total purchase consideration Rs.2,25,00,000
Subsequent measurement of contingent consideration payable for business combination
The contingent consideration will be classified as liability as per Ind AS 32.
As per paragraph 58 of Ind AS 103, contingent consideration not classified as equity should be
measured at fair value at each reporting date and changes in fair value should be recognized in
profit or loss.
As at 31 March 2017, (being the date of settlement of contingent consideration), the liability would be
measured at its fair value and the resulting loss of Rs.15,00,000 (Rs.40,00,000 – Rs.25,00,000) should be
recognized in the profit or loss for the period. A Ltd. would recognize issuance of 160,000
(Rs.40,00,000/25) shares at a premium of Rs.15 per share.
No Question
pg. 91
FR COMPILER
pg. 92
FR COMPILER
Any amount which would be received in respect of the above undertaking shall not be taxable.
The tax bases of the assets and liabilities of S Ltd. is equal to their respective carrying values being
recognised in its Balance Sheet.
Carrying value of non-current asset held for sale of Rs.4 crore represents its fair value less cost to sell in
accordance with the relevant Ind AS.
In consideration of the additional stake purchased by H Ltd. on 1st January, 20X7, it has issued to the
selling shareholders of S Ltd. 1 equity share of H Ltd. for every 2 shares held in S Ltd. Fair value of equity
shares of H Ltd. as on 1st January, 20X7 is Rs.10,000 per share.
On 1st January, 20X7, H Ltd. has paid Rs.50 crore in cash to the selling shareholders of S Ltd. Additionally,
on 31st March, 20X9, H Ltd. will pay Rs.30 crore to the selling shareholders of S Ltd. if return on equity
of S Ltd. for the year ended 31st March, 20X9 is more than 25% per annum. H Ltd. has estimated the fair
value of this obligation as on 1st January, 20X7 and 31st March, 20X7 as Rs.22 crore and Rs.23 crore
respectively. The change in fair value of the obligation is attributable to the change in facts and
circumstances after the acquisition date.
Quoted price of equity shares of S Ltd. as on various dates is as follows:
As on November, 20X6 Rs.350 per share
As on 1st January, 20X7 Rs.395 per share
As on 31st March, 20X7 Rs.420 per share
On 31st May, 20X7, H Ltd. learned that certain customer relationships existing as on 1st January, 20X7,
which met the recognition criteria of an intangible asset as on that date, were not considered during the
accounting of business combination for the year ended 31st March, 20X7. The fair value of such customer
relationships as on 1st January, 20X7 was Rs.3.5 crore (assume that there are no temporary differences
associated with customer relations; consequently, there is no impact of income taxes on customer
relations).
On 31st May, 20X7 itself, H Ltd. further learned that due to additional customer relationships being
developed during the period 1st January, 20X7 to 31st March, 20X7, the fair value of such customer
relationships has increased to Rs.4 crore as on 31st March, 20X7.
On 31st December, 20X7, H Ltd. has established that it has obtained all the information necessary for the
accounting of the business combination and that more information is not obtainable.
H Ltd. and S Ltd. are not related parties and follow Ind AS for financial reporting. Income tax rate
applicable is 30%.
You are required to provide your detailed responses to the following, along with reasoning and
computation notes:
(a) What should be the goodwill or bargain purchase gain to be recognised by H Ltd. in its financial
statements for the year ended 31st March, 20X7. For this purpose, measure non-controlling
interest using proportionate share of the fair value of the identifiable net assets of S Ltd.
(b) Will the amount of non-controlling interest, goodwill, or bargain purchase gain so recognised in
(a) above change subsequent to 31st March, 20X7? If yes, provide relevant journal entries.
(c) What should be the accounting treatment of the contingent consideration as on 31st March,
20X7?
Solution :
(i) As an only exception to the principle of classification or designation of assets as they exist at the
acquisition date is that for lease contract and insurance contracts classification which will be
based on the basis of the conditions existing at inception and not on acquisition date.
Therefore, H Ltd. would be required to retain the original lease classification of the lease
arrangements and thereby recognise the lease arrangements as finance lease.
pg. 93
FR COMPILER
(ii) The requirements in Ind AS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, do not
apply in determining which contingent liabilities to recognise as of the acquisition date as per Ind
AS 103 ‘Business Combination’. Instead, the acquirer shall recognise as of the acquisition date a
contingent liability assumed in a business combination if it is a present obligation that arises from
past events and its fair value can be measured reliably. Therefore, contrary to Ind AS 37, the
acquirer recognises a contingent liability assumed in a business combination at the acquisition
date even if it is not probable that an outflow of resources embodying economic benefits will be
required to settle the obligation. Hence H Ltd. will recognize contingent liability of Rs.2.5 cr.
Since S Ltd. has indemnified for Rs.1 cr., H Ltd. shall recognise an indemnification asset at the
same time for Rs.1 cr.
As per the information given in the question, this indemnified asset is not taxable. Hence, its tax
base will be equal to its carrying amount. No deferred tax will arise on it.
(iii) As per Ind AS 103, non-current assets held for sale should be measured at fair value less cost to
sell in accordance with Ind AS 105 ‘Non-current Assets Held for Sale and Discontinued
Operations’. Therefore, its carrying value as per balance sheet has been considered in the
calculation of net assets.
(iv) Any equity interest in S Ltd. held by H Ltd. immediately before obtaining control over S Ltd. is
adjusted to acquisition-date fair value. Any resulting gain or loss is recognised in the profit or loss
of H Ltd.
Calculation of purchase consideration as per Ind AS 103
Rs. in lakh
Investment in S Ltd.
On 1st Nov. 20X6 15% [(12/100) × 395 × 15%] 7.11
On 1st Jan. 20X7 45%
Own equity given 10,000 × 12% × 45% × ½ 270
Cash 50
Contingent consideration 22
349.11
(v) Calculation of deferred tax on assets and liabilities acquired as part of the business combination,
including current tax and goodwill.
Item Rs. in crore
Book Fair value Tax Taxable Deferred tax
value base (deductible) assets
temporary (liability) @
difference 30%
Property, plant and 40 90 40 50 (15)
equipment
Intangible assets 20 30 20 10 (3)
Investments 100 350 100 250 (75)
Inventories 20 20 20 - -
Trade receivables 20 20 20 - -
Cash held in functional 4 4 4 - -
currency
Non-current asset held 4 4 4 - -
for sale
pg. 94
FR COMPILER
Indemnified asset - 1 1 - -
Borrowings 20 20 20 - -
Trade payables 28 28 28 - -
Provision for warranties 3 3 3 - -
Current tax liabilities 4 4 4 - -
Contingent liability 0.5 - (0.5) 0.15
Deferred tax Liability (92.85)
Less: Borrowings 20
Trade payables 28
Provision for warranties 3
Current tax liabilities 4
Contingent liability (2 + 0.5) 2.50
Deferred tax liability (W.N.2) 92.85 (150.35)
Net identifiable assets 368.65
(a) Calculation of NCI by proportionate share of net assets
Net identifiable assets of S Ltd. on 1.1.20X7 (Refer W.N.3) = 372.85 crore
NCI on 1.1.20X7 = 368.65 crore × 40% = 147.46 crore
Calculation of Goodwill as per Ind AS 103
Goodwill on 1.1.20X7 = Purchase consideration + NCI – Net assets
= 349.11 + 147.46 – 368.65
= 127.92 crore
(b) As per para 45 of Ind AS 103 ‘Business Combination’, if the initial accounting for a business
combination is incomplete by the end of the reporting period in which the combination
occurs, the acquirer shall report in its financial statements provisional amounts for the
items for which the accounting is incomplete.
During the measurement period, the acquirer shall retrospectively adjust the provisional
amounts recognised at the acquisition date to reflect new information obtained about
facts and circumstances that existed as of the acquisition date and, if known, would have
affected the measurement of the amounts recognised as of that date.
During the measurement period, the acquirer shall also recognise additional assets or
liabilities if new information is obtained about facts and circumstances that existed as of
pg. 95
FR COMPILER
the acquisition date and, if known, would have resulted in the recognition of those assets
and liabilities as of that date.
The measurement period ends as soon as the acquirer receives the information it was
seeking about facts and circumstances that existed as of the acquisition date or learns
that more information is not obtainable. However, the measurement period shall not
exceed one year from the acquisition date.
Further, as per para 46 of Ind AS 103, the measurement period is the period after the
acquisition date during which the acquirer may adjust the provisional amounts recognised
for a business combination. The measurement period provides the acquirer with a
reasonable time to obtain the information necessary to identify and measure the
following as of the acquisition date in accordance with the requirements of this Ind AS:
(a) the identifiable assets acquired, liabilities assumed and any non-controlling
interest in the acquiree;
(b) …..
(c) ……; and
(d) the resulting goodwill or gain on a bargain purchase.
Para 48 states that the acquirer recognises an increase (decrease) in the provisional
amount recognised for an identifiable asset (liability) by means of a decrease (increase) in
goodwill.
Para 49 states that during the measurement period, the acquirer shall recognise
adjustments to the provisional amounts as if the accounting for the business combination
had been completed at the acquisition date.
Para 50 states that after the measurement period ends, the acquirer shall revise the
accounting for a business combination only to correct an error in accordance with Ind AS
8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.
On 31st December, 20X7, H Ltd. has established that it has obtained all the information
necessary for the accounting of the business combination and the more information is not
obtainable. Therefore, the measurement period for acquisition of S Ltd. ends on 31st
December, 20X7.
On 31st May, 20X7 (ie within the measurement period), H Ltd. learned that certain
customer relationships existing as on 1st January, 20X7 which met the recognition criteria
of an intangible asset as on that date were not considered during the accounting of
business combination for the year ended 31st March, 20X7. Therefore, H Ltd. shall
account for the acquisition date fair value of customer relations existing on 1st January,
20X7 as an identifiable intangible asset. The corresponding adjustment shall be made in
the amount of goodwill.
Accordingly, the amount of goodwill will be changed due to identification of new asset
from retrospective date for changes in fair value of assets and liabilities earlier recognised
on provisional amount (subject to meeting the condition above for measurement period).
NCI changes would impact the consolidated retained earnings (parent’s share). Also NCI
will be increased or decreased based on the profit during the post-acquisition period.
Journal entry
Customer relationship Dr. 3.5 crore
To NCI 1.4 crore
To Goodwill 2.1 crore
However, the increase in the value of customer relations after the acquisition date shall
not be accounted by H Ltd., as the customer relations developed after 1st January, 20X7
pg. 96
FR COMPILER
represents internally generated intangible assets which are not eligible for recognition on
the balance sheet.
(c) Since the contingent considerations payable by H Ltd is not classified as equity and is
within the scope of Ind AS 109 ‘Financial Instruments’, the changes in the fair value shall be
recognised in profit or loss. Change in Fair value of contingent consideration (23-22) ` 1 crore will
be recognized in the Statement of Profit and Loss.
(Rs. in lakhs)
Assets David Ltd. Parker Ltd.
Non-Current Assets :
Property, plant and equipment 400 600
Investment 300 200
Current assets :
Inventories 300 100
Financial Assets
Traders receivables 400 200
Cash and cash equivalent 150 200
Others 300 300
Total 1,850 1,600
Equity and Liabilities
Equity
Share capital-Equity shares of Rs.100 each for Parker 500 400
Ltd & Rs.10 each for David Limited
Other Equity 700 275
Non-Current liabilities :
Long term borrowings 200 300
Long term provisions 100 80
Deferred Tax 20 55
Current Liabilities :
Short term borrowings 130 170
Trade payables 200 320
Total 1,820 1,600
Other information :
(i) David Ltd. acquired 70% shares of Parker Ltd. on 1st April, 2019 by issuing its own shares in the
ratio of 1 share of David Ltd. for every 2 shares of Parker Ltd. The fair value of the shares of David
Ltd. was Rs.50 per share.
(ii) The fair value exercise resulted in the following :
(1) Fair value of property, plant and equipment (PPE) on 1st April, 2019 was Rs.450 lakhs.
(2) David Ltd. agreed to pay an additional payment as consideration that is higher of Rs.30
lakh and 255 of any excess profits in the first year after acquisition, over its profits in the
preceding 12 months made by Parker Ltd. This additional amount will be due after 3 years.
pg. 97
FR COMPILER
Parker Ltd. has earned Rs.20 lakh profit in the preceding year and expects to earn another
Rs.10 Lakh.
(3) In addition to above, David Ltd. also has agreed to pay one of the founder shareholder-
Director a payment of Rs.25 lakhs provided he says with the Company for two years after
the acquisition.
(4) Parker Ltd. had certain equity settled share-based payment award (original award) which
got replaced by the new awards issued by David Ltd. As per the original term the vesting
period was 4 years and as of the acquisition date the employees of Parker Ltd. have
already served 2 years of service. As per the replaced awards, the vesting period has been
reduced to one year (one year from the acquisition date). The fair value of the award on
the acquisition date was as follows
Original award – Rs.6 lakhs
Replacement award – Rs.9 lakhs
(5) Parker Ltd. had a lawsuit pending with a customer who had made a claim of Rs.35 lakhs.
Management reliably estimated the fair value of the liability to be Rs.lakhs
(6) The applicable tax rate for both entities is 40%.
You are required to prepare opening consolidated balance sheet of David Ltd. as on 1st April, 2019 along
with workings. Assume discount rate of 8%.
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 98
FR COMPILER
2018
No Question
pg. 99
FR COMPILER
Solution :
Consolidated Balance Sheet of Hold Ltd. and its subsidiary, Sub Ltd.
As on 31st March, 2018
Particulars Rs.
Assets
(1) Non-current assets
Property, Plant & Equipment 1,72,00,000
Goodwill
(2) Current Assets
Inventories 34,28,000
Financial Assets
Trade Receivables 19,96,000
Cash & Cash equivalents 4,50,000
Total 2,30,74,000
Equity and Liabilities
Equity
Share Capital 1,00,00,000
Other Equity 99,84,000
Liability
(1) Non Current Liabilities
(2) Current Liabilities
Financial Liabilities
Short term borrowings 16,00,000
pg. 100
FR COMPILER
Working Notes :
1. Calculation of goodwill
Rs.
Consideration Paid 68,00,000
Fair value of Net Assets (40,00,000 + 4,00,000 + 61,70,000) 1,05,70,000
Goodwill gain from bargain purchase 37,70,000
3. Reserves of Subsidiary
Res. 20,00,000 Pre RF 16,40,000
4. PPE
L &B Hold 30,00,000
Sub. (36,00,000 + 20,00,000) 56,00,000
P & M Hold 48,00,000
Sub. (27,00,000 + 11,50,000 – 50,000) 38,00,000
1,72,00,000
CP RP
1/4/17 30,00,000
–Dep. 1,50,000
pg. 101
FR COMPILER
5. Inventory
Hold 24,00,000
Sub. (7,28,000 + 3,00,000) 10,28,000
34,28,000
6. Trade Payable
Hold 9,42,000
Sub. (3,48,000 + 2,00,000) 5,48,000
14,90,000
Solution :
1) Date of Acquisition 1/4/2010
Acquirer – XYZ Ltd.
Acquiree – TUV Ltd.
% Acquired = 705
NCI = 30%
3) NCI and Cost of Control at end of each year as per Ind AS 110.
Details P/L NCI Holding Goodwill
01/04/2010 - 6,48,000 - 4,88,000
2010-11 (5,00,000) (1,50,000) (3,50,000) -
31/3/2011 - 4,98,000 - 4,88,000
pg. 102
FR COMPILER
Note :
1) P/L in subsequent yrs after acquisition does not have any impact on goodwill. Goodwill should
be checked for impairment every year.
2) As per Ind AS 21 loss of subsidiary should be born by holding and minority interest will not be
shown negative.
pg. 103
FR COMPILER
Solution :
Consolidated Balance Sheet as on 31.3.2018
Particulars Note (Rs. in lakh)
No.
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 1,000
(b) Reserves and Surplus 2 2,206
(2) Current Liabilities 3 950
Total 4,156
II. Assets
(1) Non-current assets
Fixed Assets 4 1,060
Non-current investment (Investment in Associate Dharam Ltd.) 5 356
(2) Current assets 6 2,740
Total 4,156
Notes to Accounts
Rs. In lakhs
1 Share Capital
100 lakh Equity shares of Rs.10 each fully paid up 1,000
2 Consolidated Reserves and Surplus as on 31.3.2018
Balance of Reserves and surplus of Sumati Ltd. as on 31.3.2018 1,240
Add: Post-acquisition reserves and surplus of Sheetal Ltd. (subsidiary) 910
Profit accumulated over the years on investment of Sumati Ltd. (304- 4
300)
Post-acquisition reserves and surplus of Dharam Ltd. (640-480) x 40% 64
Less: Goodwill amortised for the period (24/2) 12 2,206
3 Current Liabilities
Sumati Ltd. 460
Sheetal Ltd. 490 950
4 Fixed Assets
Sumati Ltd. 640
Sheetal Ltd. 420 1,060
5 Non-current investment (Investment in Associate Dharam Ltd.)
Carrying amount of Investment in Associate. [W.N.2] 304
(Identified goodwill included in the above ` 24 lakh) [W.N.3]
pg. 104
FR COMPILER
Add: Increase in reserves and surplus during the year (640-480) x 40% 64
Less: Goodwill written off in the fourth year (` 24 lakh x ½) (12) 356
6 Current assets
Sumati Ltd. 1,260
Sheetal Ltd. 1,480 2,740
Working Notes:
1. Cost of Control on acquisition of shares in Dharam Ltd. and amortization of goodwill
Rs. In lakhs
Investment by Sumati Ltd. 600
Less: Share capital (300 x 80%) (240)
Capital profit (pre-acquisition) (300 x 80%) (240)
Goodwill 120
Less: Amortization for 3 years [(120/5) x3] (72)
Carrying value of goodwill after 3 years 48
2. Ascertainment of carrying value of investment in Dharam Ltd. disposed off and retained
Rs. In lakh
Net Assets of Dharam Ltd. on the date of disposal 700
Less: Minority’s interest in Dharam Ltd. on the date of disposal (700 x 20%) (140)
Share of Sumati Ltd. in Net Assets 560
Add: Carrying value of Goodwill (Refer W.N.1) 48
Total value of investment in Dharam Ltd. as on 1.4.2017 608
Less: Carrying Value of investment disposed off [Rs.608 lakh x (12 lakh /24 lakh)] (304)
Carrying Value of investment retained by Sumati Ltd. 304
pg. 105
FR COMPILER
(iv) Rs.5 Lakh included in the inventory figure of Nisha Limited, is inventory which has been purchased
from Sandhya Limited at cost plus 25%.
(v) The parent company has adopted an accounting policy to measure Non-controlling interest at
fair value (quoted market price) applying Ind AS 103. Assume market prices of Nisha Limited and
Sandhya Limited are the same as respective face values.
(vi) The capital profit preferably is to be adjusted against cost of control.
Note: Analysis of profits and notes to accounts must be a part of your answer.
Solution :
pg. 106
FR COMPILER
Working Notes :
1) Calculation of goodwill
Nisha Sandhya
Consideration paid 170 112
+ NCI
Nisha (200 × 20%) 40 64
Sandjya (160 × 40%) 210 176
Fair value of Net Assets
Nisha (200 + 62.5) 262.5 –
Sandhya (160 + 57.5) _____ 217.5
Goodwill / Capital Reserve 52.5 41.5
Total 94
pg. 107
FR COMPILER
3) Reserves of subsidiary
Nisha Ltd. Reserves 50
Pre 40 10
Pre 5 5 Post
Retained Earnings 25
Pre 10 15
Pre 30 10
Pre 5 5 Post
Retained Earnings 30
pg. 108
FR COMPILER
Pre 15 15
10 2.5
Holding NCI
2019
pg. 109
FR COMPILER
Little Angel Attended and voted as per Attended and voted as per Attended and voted as per
Ltd. directions of Angel Ltd. directions of Angel Ltd directions of Angel Ltd
Wealth Attended and voted in Attended and voted in Attended and voted in
Master favour of all the resolutions favour of all the resolutions favour of all the resolutions
Mutual Fund except for the except for the except for the
reappointment of the reappointment of the reappointment of the
retiring directors retiring directors retiring directors
Individuals 7% of the individual 8% of the individual 6% of the individual
shareholders attended the shareholders attended the shareholders attended the
AGM. All the individual AGM. All the individual AGM. All the individual
shareholders voted in shareholders voted in shareholders voted in
favour of all the favour of all the favour of all the
resolutions, except that resolutions, except that resolutions, except that
50% of the individual 50% of the individual 50% of the individual
Shareholders voted against Shareholders voted against Shareholders voted against
the resolution to appoint the resolution to appoint the resolution to appoint
the retiring directors. the retiring directors. the retiring directors.
Pharma Ltd. has obtained substantial long term borrowings from a bank. The loan is payable in 20 years
from 1st April, 2017. As per the terms of the borrowing, following actions by Pharma Ltd. will require
prior approval of the bank :
• Payment of dividends to the shareholders in cash or kind;
• Buyback of its own equity shares;
• Issue of bonus equity shares;
• Amalgamation of Pharma Ltd. with any other entity; and
• Obtaining additional loans from any entity.
Recently, the Board of Directors of Pharma Ltd. proposed a dividend of ` 5 per share. However, when the
CFO of Pharma Ltd. approached the bank for obtaining their approval, the bank rejected the proposal
citing concerns over the short-term cash liquidity of Pharma Ltd. Having learned about the
developments, the Directors of Angel Ltd. along with the Directors of Little Angel Ltd. approached the
bank with a request to re-consider its decision. The Directors of Angel Ltd. and Little Angel Ltd. urged the
bank to approve a reduced dividend of at least ` 2 per share. However, the bank categorically refused to
approve any payout of dividend.
Under IGAAP, Angel Ltd. has classified Pharma Ltd. as its associate. As the CFO of Angel Ltd., you are
required to comment on the correct classification of Pharma Ltd. on transition to Ind AS.
Solution :
To determine whether Pharma Limited can be continued to be classified as an associate on transition to
lnd AS, we will have to determine whether Angel Limited controls Pharma Limited as defined under Ind
AS 110.
An investor controls an investee if and only if the investor has all the following:
(a) Power over investee
pg. 110
FR COMPILER
(b) Exposure, or rights, to variable returns from its involvement with the investee
(c) Ability to use power over the investee to affect the amount of the investor's returns.
Since Angel Ltd. does not have majority voting rights in Pharma Ltd. we will have to determine whether
the existing voting rights of Angel Ltd. are sufficient to provide it power over Pharma Ltd.
Analysis of each of the three elements of the definition of control:
Elements / conditions Analysis
Power over investee Angel Limited along with its subsidiary Little Angel
Limited (hereinafter referred to as "the Angel group")
does not have majority voting rights in Pharma Limited.
Therefore, in order to determine whether Angel group
have power over Pharma Limited. we will need to analyse
whether Angel group, by virtue of its non-majority voting
power, have practical ability to unilaterally direct the
relevant activities of Pharma Limited. In other words, we
will need to analyse whether Angel group has de facto
power over Pharma Limited. Following is the analysis of
de facto power of Angel over Pharma Limited:
- The public shareholding of Pharma Limited (that is, 52%
represents thousands of shareholders none individually
holding material shareholding,
- The actual participation of Individual public
shareholders in the general meetings is minimal (that is,
in the range of 6% to 8%). - Even the public shareholders
who attend the meeting do not consult with each other
to vote.
- Therefore, as per guidance of Ind AS 110, the public
shareholders will not be able to outvote Angel group
(who is the largest shareholder group) in any general
meeting.
Based on the above-mentioned analysis, we can conclude
that Angel group has de facto power over Pharma
Limited.
Exposure, or rights, to variable returns Angel group has exposure to variable returns from its
from its involvement with the investee involvement with Pharma Limited by virtue of its equity
stake.
Ability to use power over the investee to Angel group has ability to use its power (in the capacity
affect the amount of the investor's of a principal and not an agent) to affect the amount of
returns returns from Pharma Limited because it is in the position
to appoint directors of Pharma Limited who would take
all the decisions regarding relevant activities of Pharma
Limited.
Here, it is worthwhile to evaluate whether certain rights
held by the bank would prevent Angel Limited's ability to
use the power over Pharma Limited to affect its returns.
It is to be noted that, all the rights held by the bank in
relation to Pharma Limited are protective in nature as
pg. 111
FR COMPILER
No Question
Solution :
Scenario 1: Since H Limited is holding 12,000 shares it has received Rs.1,20,000 as dividend from S
Limited. In the consolidated financial statements of H Ltd., dividend income earned by H Ltd. and
pg. 112
FR COMPILER
dividend recorded by S Ltd. in its equity will both get eliminated as a result of consolidation adjustments.
Dividend paid by S Ltd. to the 40% non-controlling interest (NCI) shareholders will be recorded in the
Statement of Changes in Equity as reduction of NCI balance (as shares are classified as equity as per Ind
AS 32).
DDT of Rs.40,000 paid to tax authorities has two components- One Rs.24,000 (related to H Limited’s
shareholding and other Rs.16,000 (40,000 × 40%) belong to non controlling interest (NCI) shareholders
of S Limited). DDT of Rs.16,000 (pertaining to non-controlling interest (NCI) shareholders) will be
recorded in the Statement of Changes in Equity along with dividend. DDT of Rs.24,000 paid outside the
consolidated Group shall be charged as tax expense in the consolidated statement of profit and loss of H
Ltd.
In accordance with the above, in the given case, CFS of H limited will be as under:
Transactions H Ltd. S Ltd. Consol CFS H
Adjustments Ltd.
Dividend Income (P&L) 1,20,000 - (1,20,000) -
Dividend (in Statement of Changes in Equity by - (2,00,000) 1,20,000 (80,000)
way of reduction of NCI)
DDT (in Statement of Changes in Equity by way of - (40,000) 24,000 (16,000)
reduction of NCI)
DDT (in Statement of P&L) - - (24,000) (24,000)
Scenario 2 (A) : If DDT paid by the subsidiary S Ltd. is allowed as a set off against the DDT liability of its
parent H Ltd. (as per the tax laws), then the amount of such DDT should be recognised in the consolidated
statement of changes in equity of parent H Ltd.
In the given case, share of H Limited in DDT paid by S Limited is Rs.24,000 and entire Rs.24,000 was
utilised by H Limited while paying dividend to its own shareholders.
Accordingly, DDT of Rs.76,000 (Rs.40,000 of DDT paid by S Ltd. (of which Rs.16,000 is attributable to NCI)
and Rs.36,000 of DDT paid by H Ltd.) should be recognised in the consolidated statement of changes in
equity of parent H Ltd. No amount will be charged to consolidated statement of profit and loss. The basis
for such accounting would be that due to Parent H Ltd’s transaction of distributing dividend to its
shareholders (a transaction recorded in Parent H Ltd’s equity) and the related DDT set-off, this DDT paid
by the subsidiary is effectively a tax on distribution of dividend to the shareholders of the parent
company.
In accordance with the above, in the given case, CFS of H limited will be as under:
Transactions H Ltd. S Ltd. Consol CFS H Ltd.
Adjustments
Dividend Income (P&L) 1,20,000 - (1,20,000) -
Dividend (in Statement of Changes in Equity ) (3,00,000) (2,00,000) 1,20,000 (3,80,000)*
DDT (in Statement of Changes in Equity ) (36,000) (40,000) - (76,000)*
*Dividend of Rs.80,000 and DDT of Rs.16,000 will be reflected as reduction from non-controlling interest.
Scenario 2(B): In the given case, share of H Limited in DDT paid by S Limited is Rs.24,000 out of which
only Rs.20,000 was utilised by H Limited while paying dividend by its own. Therefore, balance Rs.4,000
should be charged in the consolidated statement of profit and loss.
pg. 113
FR COMPILER
In accordance with the above, in the given case, CFS of H limited will be as under:
Transactions H Ltd. S Ltd. Consol CFS H Ltd.
Adjustments
Dividend Income (P&L) 1,20,000 - (1,20,000) -
Dividend (in Statement of Changes in Equity) (1,00,000) (2,00,000) 1,20,000 (1,80,000)*
DDT (in Statement of Changes in Equity) - (40,000) 4,000 (36,000)*
DDT (in Statement of P&L) - - (4,000) (4,000)
*Dividend of Rs.80,000 and DDT of Rs.16,000 will be reflected as reduction from non- controlling interest.
Scenario (3): Considering that as per tax laws, DDT paid by associate is not allowed set off against the
DDT liability of the investor, the investor’s share of DDT would be accounted by the investor company by
crediting its investment account in the associate and recording a corresponding debit adjustment
towards its share of profit or loss of the associate.
No Question
2020
Solution :
As per paragraph 4(a) of Ind AS 110, an entity that is a parent shall present consolidated financial
statements. This Ind AS applies to all entities, except as follows:
A parent need not present consolidated financial statements if it meets all the following conditions:
(i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other
owners, including those not otherwise entitled to vote, have been informed about, and do not
object to, the parent not presenting consolidated financial statements;
(ii) its debt or equity instruments are not traded in a public market (a domestic or foreign stock
exchange or an over-the-counter market, including local and regional markets);
(iii) it did not file, nor is it in the process of filing, its financial statements with a securities commission
or other regulatory organisation for the purpose of issuing any class of instruments in a public
market; and
pg. 114
FR COMPILER
(iv) its ultimate or any intermediate parent produces financial statements that are available for public
use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value
through profit or loss in accordance with this Ind AS.
In accordance with the above, it may be noted that as per paragraph 4(a)(i) above, a parent need not
present consolidated financial statements if it is a:
— wholly-owned subsidiary; or
— is a partially-owned subsidiary of another entity and all its other owners, including those not
otherwise entitled to vote, have been informed about, and do not object to, the parent not
presenting consolidated financial statements.
Although GD Limited is a partly-owned subsidiary of G Limited, it is the wholly-owned subsidiary of
Gamma Limited (and therefore satisfies the condition 4(a)(i) of Ind AS 110 without regard to the
relationship with its immediate owners, i.e. G Limited and D Limited). Thus, GD Limited being the wholly
owned subsidiary fulfils the conditions as mentioned under paragraph 4(a)(i) and is not required to
inform its other owner D Limited of its intention not to prepare the consolidated financial statements.
Thus, in accordance with the above, GD Limited may take the exemption given under paragraph 4(a) of
Ind AS 110 from presentation of consolidated financial statements.
In Alternative Scenario, where both G Limited and D Limited are owned by an individual Mr. X, then GD
Limited is ultimately wholly in control of Mr. X (i.e., an individual) and hence it cannot be considered as
a wholly owned subsidiary of an entity.
This is because Ind AS 110 makes use of the term ‘entity’ and the word 'entity’ includes a company as
well as any other form of entity. Since, Mr. X is an ‘individual’ and not an ‘entity’, therefore, GD Limited
cannot be considered as wholly owned subsidiary of an entity.
Therefore, in the given case, GD Limited is a partially-owned subsidiary of another entity. Accordingly, in
order to avail the exemption under paragraph 4(a), its other owner, D Limited should be informed about
and do not object to GD Limited not presenting consolidated financial statements. Further, for the
purpose of consolidation of G Limited and D Limited, GD Limited will be required to provide relevant
financial information as per Ind AS.
INDASPREP.COM RAHULMALKAN.COM
pg. 115
FR COMPILER
2018
Solution :
(i) At the time of initial recognition
Rs.
Liability component
Present value of 5 yearly interest payments of Rs.40,000, discounted at 12% 1,44,200
annuity (40,000 x 3.605)
Present value of Rs.5,00,000 due at the end of 5 years, discounted at 12%, 2,83,500
compounded yearly (5,00,000 x 0.567)
4,27,700
Equity component
(Rs.5,00,000 – Rs.4,27,700) 72,300
Total proceeds 5,00,000
pg. 116
FR COMPILER
Note:
1) Since rs.105 is the conversion price of debentures into equity shares and not the
redemption price, the liability component is calculated @ Rs.100 each only.
Journal Entry
Rs. Rs.
Bank Dr. 5,00,000
To 8% Debentures (Liability component) 4,27,700
To 8% Debentures (Equity component) 72,300
(Being Debentures are initially recorded a fair value)
Journal Entries
Rs. Rs.
8% Debentures (Liability component) Dr. 4,66,100
Profit and loss A/c (Debt settlement expense) Dr. 25,260
To Bank A/c 4,91,360
(Being the repurchase of the liability component recognised)
8% Debentures (Equity component) Dr. 72,300
To Bank A/c 33,640
To Reserves and Surplus A/c 38,660
(Being the cash paid for the equity component recognised)
pg. 117
FR COMPILER
Solution :
Applying Ind AS 109 a financial asset shall be recorded a fair value upon initial recognition.
According fair value of investment in S Ltd. shall be.
50,00,000 × 0.7118 = 3,55,90,000
Note : Divided is ignored as the amount is small making it insignificant.
∴Balance 5,00,000 = 3,55,90,000 = 1,44,10,000 shall be treated as equity
pg. 118
FR COMPILER
Solution :
1) Assessment of the arrangement using the definition of derivative included under Ind AS 109.
Derivative is a financial instrument or other contract within the scope of this Standard with all
three of the following characteristics:
(a) its value changes in response to the change in foreign exchange rate (emphasis laid)
(b) it requires no initial net investment or an initial net investment is smaller than would be
required for other types of contracts with similar response to changes in market factors.
(c) it is settled at a future date.
Upon evaluation of contract in question, on the basis of the definition of derivative, it is noted
that the contract meets the definition of a derivative as follows:
(a) the value of the contract to purchase USD at a fixed price changes in response to changes
in foreign exchange rate.
(b) the initial amount paid to enter into the contract is zero. A contract which would give the
holder a similar response to foreign exchange rate changes would have required an
investment of USD 40,000 on inception.
(c) the contract is settled in future
The derivative is a forward exchange contract.
As per Ind AS 109, derivatives are measured at fair value upon initial recognition and are
subsequently measured at fair value through profit and loss.
2) Accounting in each Quarter
(i) 1.1.2017 No Entry Fair Value is Nil
No Question
pg. 119
FR COMPILER
NAV Limited granted a loan of Rs.120 lakh to OLD Limited for 5 years @ 10% p.a. which is Treasury bond
yield of equivalent maturity. But the incremental borrowing rate of OLD Limited is 12%. In this case, the
loan is granted to OLD Limited at below market rate of interest. Ind AS 109 requires that a financial asset
or financial liability is to be measured at fair value at the initial recognition. Should the transaction price
be treated as fair value? If not, find out the fair value. What is the accounting treatment of the difference
between the transaction price and the fair value on initial recognition in the book of NAV Ltd.?
Present value factors at 12%:
Year 1 2 3 4 5
PVF 0.892 0.797 0.712 0.636 0.567
Solution :
Since the loan is granted to OLD Ltd at 10% i.e below market rate of 12%. It will be considered as loan
given at off market terms. Hence the Fair value of the transaction will be lower from its transaction price
& not the transaction price.
Calculation of fair value
Year Future cash flow (in lakh) Discounting factor @ 12% Present value (in lakh)
1 12 0.892 10.704
2 12 0.797 9.564
3 12 0.712 8.544
4 12 0.636 7.632
5 120+12=132 0.567 74.844
111.288
The fair value of the transaction be Rs.111.288 lakh.
Since fair value is based on level 1 input or valuation technique that uses only data from observable
markets, difference between fair value and transaction price will be recognized in Profit and Loss as fair
value loss i.e Rs.120 lakh– Rs.111.288 lakh= Rs.8.712 lakh.
Solution :
Present value of bonds at the market rate of debt
Present value of principal to be received in 5 years discounted at 6%
(75,00,000 x 0.747) = 56,02,500
Present value of interest stream discounted at 6% for 5 years
(3,37,500 x4.212) = 14,21,550
pg. 120
FR COMPILER
(ii) The stream of interest expense is summarised below, where interest for a given year is calculated
by multiplying the present value of the liability at the beginning of the period by the market rate
of interest, this is being 6 per cent.
Date Payment Interest Increase in Total bond liability (e
expense at 6% bond liability of previous year +d)
(e of previous (c-b)
year x 6%)
(a) (b) (c) (d) (e)
1st April, 2018 70,24,050
31st March, 2019 3,37,500 4,21,443 83,943 71,07,993
31st March, 2020 3,37,500 4,26,480 88,980 71,96,973
31st March, 2021 3,37,500 4,31,818 94,318 72,91,291
31st March, 2022 3,37,500 4,37,477 99,977 73,91,268
31st March, 2023 3,37,500 4,46,232* 1,08,732 75,00,000
* Difference is due to rounding off.
(iii) If the holders of the bond elect to convert the bonds to ordinary shares at the end of the fourth
year (after receiving their interest payments), the entries in the fourth year would be:
Dr.(Rs.) Cr.(Rs.)
31st March, 2022
Interest expense A/c Dr. 4,37,477
To Cash A/c 3,37,500
To Convertible bonds (liability) A/c 99,977
(Being entry to record interest expense for the period)
31st March, 2022
Convertible bonds (liability) A/c Dr. 73,91,268
Convertible bonds (equity component) A/c Dr. 4,75,950
pg. 121
FR COMPILER
Solution :
Since the liability is outstanding on the date of Ind AS transition, Growth Ltd. is required to split the
convertible debentures into debt and equity portion on the date of transition. Accordingly, first the
liability component will be measured discounting the contractually determined stream of future cash
flows (interest and principal) to present value by using the discount rate of 10% p.a. (being the market
interest rate for similar debentures with no conversion option).
Calculation of Equity & Liability component on initial recognition
Rs.
Present Interest payments for 5 years on debentures by applying annuity factor 13,26,500
[(50,000 × 7% × 100) × 3.79]
PV of principal repayment (including premium) (50,000 × 110 × 0.62) 34,10,000
Total liability component 47,36,500
Total equity component (Balancing figure) 2,63,500
Total proceeds from issue of Debentures 50,00,000
Thus, on the date of transition, the amount of ` 50,00,000 being the amount of debentures will split as
under:
Debt Rs.47,36,500
Equity Rs.2,63,500
2019
pg. 122
FR COMPILER
(i) The Loan given by KK Ltd. to its wholly owned subsidiary YK Ltd. is interest free and such loan is
repayable on demand.
(ii) The said Loan is interest free and will be repayable after 3 years from the date of granting such
loan. The current market rate of interest for similar loan is 10%. Considering the same, the fair
value of the loan at initial recognition is Rs.8,10,150.
(iii) The said loan is interest free and will be repaid as and when the YK Ltd. has funds to repay the
Loan amount.
Based on the same, KK Ltd. has requested you to suggest the accounting treatment of the above loan in
the stand-alone financial statements of KK Ltd. and YK Ltd. and also in the consolidated financial
statements of the group. Consider interest for only one year for the above loan.
Further the Company is also planning to grant interest free loan from YK Ltd. to KK Ltd. in the subsequent
period. What will be the accounting treatment of the same under applicable Ind AS?
Solution :
Scenario (i)
Since the loan is repayable on demand, it has fair value equal to cash consideration given. KK Ltd. and YK
Ltd. should recognize financial asset and liability, respectively, at the amount of loan given (assuming
that loan is repayable within a year). Upon, repayment, both the entities should reverse the entries that
were made at the origination.
Journal entries in the books of KK Ltd.
At origination
Loan to YK Ltd. A/c Dr. Rs.10,00,000
To Bank A/c Rs.10,00,000
On repayment
Bank A/c Dr. Rs.10,00,000
To Loan to YK Ltd. A/c Rs.10,00,000
Scenario (ii)
Applying the guidance in Ind AS 109, a ‘financial asset’ shall be recorded at its fair value upon initial
recognition. Fair value is normally the transaction price. However, sometimes certain type of instruments
may be exchanged at off market terms (ie, different from market terms for a similar instrument if
exchanged between market participants).
If a long-term loan or receivable that carries no interest while similar instruments if exchanged between
market participants carry interest, then fair value for such loan receivable will be lower from its
transaction price owing to the loss of interest that the holder bears. In such cases where part of the
consideration given or received is for something other than the financial instrument, an entity shall
pg. 123
FR COMPILER
measure the fair value of the financial instrument. The difference in fair value and transaction cost will
treated as investment in Subsidiary YK Ltd.
Both KK Ltd. and YK Ltd. should recognise financial asset and liability, respectively, at fair value on initial
recognition, i.e., the present value of ` 10,00,000 payable at the end of 3 years using discounting factor
of 10%. Since the question mentions fair value of the loan at initial recognition as ` 8,10,150, the same
has been considered. The difference between the loan amount and its fair value is treated as an equity
contribution to the subsidiary. This represents a further investment by the parent in the subsidiary.
Journal entries in the books of KK Ltd. (for one year)
At origination
Loan to YK Ltd. A/c Dr. Rs.8,10,150
Investment in YK Ltd. A/c Dr. Rs.1,89,850
To Bank A/c Rs.10,00,000
During period to repayment – to recognise interest
Year 1 – Charging of Interest
At origination
Loan to YK Ltd. A/c Dr. Rs.81,015
To Interest income A/c Rs.81,015
Transferring of interest to Profit and Loss
Interest income A/c Dr. Rs.81,015
To Profit and Loss A/c Rs.81,015
On repayment
Bank A/c Dr. Rs.10,00,000
To Loan to YK Ltd. A/c Rs.10,00,000
Note- Interest needs to be recognised in statement of profit and loss. The same cannot be adjusted
against capital contribution recognised at origination.
Scenario (iii)
Generally, a loan which is repayable when funds are available, cannot be stated as loan repayable on
demand. Rather the entity needs to estimate the repayment date and determine its measurement
accordingly by applying the concept prescribed in Scenario (ii).
In the consolidated financial statements, there will be no entry in this regard since loan and interest
income/expense will get set off.
pg. 124
FR COMPILER
In case the subsidiary YK Ltd. is planning to grant interest free loan to KK Ltd., then the difference
between the fair value of the loan on initial recognition and its nominal value should be treated as
dividend distribution by YK Ltd. and dividend income by the parent KK Ltd.
No Question
Solution :
On initial recognition
Debit (Rs.) Credit (Rs.)
Financial asset-FVOCI Dr. 1,000
To Cash 1,000
pg. 125
FR COMPILER
are due for redemption on 31st March, 2019 at a premium of 20%, convertible into equity shares to the
extent of 50% and balance to be settled in cash to the debenture holders. The interest rate on equivalent
debenture without conversion right was 12%. The conversion to equity qualifies as fixed for fixed.
You are required to separate the debt and equity component at the time of use and show the accounting
entries in Vedika Ltd.’s books at initial recognition only. The following present values of Rupee 1 at 8%
and 12% are provided for a period of 5 years.
Interest Rate Year 1 Year 2 Year 3 Year 4 Year 5
8% 0.923 0.853 0.789 0.731 0.677
12% 0.887 0.788 0.701 0.625 0.557
Solution :
In the books of Vedika Ltd.
Convertible debentures issued by Vedika are compound financial instrument. As per Ind AS 109, entity
should separate debt from equity and account accordingly.
Debt – FL
Year CF PV @ 12%
31/3/16 6,40,000 Int. @ 8% 5,67,680
31/3/17 6,40,000 Int. @ 8% 5,04,320
31/3/18 6,40,000 Int. @ 8% 4,48,640
31/3/19 6,40,000 Int. @ 8% 4,00,000
40,00,000 50% Municipal 25,00,000
8,00,000 POR 20% 5,00,000
49,20,640
Equity = TL – FL
= 80,00,000 – 49,20,640 = 30,79,360
pg. 126
FR COMPILER
Solution :
As per Ind AS 108 security deposit is a financial asset and should be recorded at amortised cost. It should
be recorded at fair value on initial date of recognition.
FV at 1/4/2014 = 20,00,000 × 0.567427 = 11,34,854
Journal Entry
Security deposit (FA) 11,34,854
Loss (P & L) 8,65,146
To Bank 20,00,000
2020
Solution :
The preference shares provide the holder with the right to receive a predetermined amount of annual
dividend out of profits of the company, together with a fixed amount on redemption.
Whilst the legal form is equity, the shares are in substance debt. The fixed level of dividend is interest
and the redemption amount is equivalent to the repayment of a loan.
Under Ind AS 32 ‘Financial Instruments: Presentation’ these instruments should be classified as financial
liabilities because there is a contractual obligation to deliver cash. The preference shares should be
accounted for at amortised cost using the effective interest rate of 18%.
Year 1 April, 20X5 Rs. Interest @18% Rs. Paid at 4% Rs. 31 March, 20X6 Rs.
20X5 - 20X6 4,80,000 86,400 (19,200) 5,47,200
Accordingly, the closing balance of Preference shares at year end i.e. 31st March, 20X6 would be
Rs.5,47,200.
Accountant has inadvertently debited interest of Rs.19,200 in the profit and loss. However, the interest
of Rs.86,400 should have been debited to profit and loss as finance charge.
Similarly, amount of rs.5,47,200 should be included in borrowings (non-current liabilities) and
consequently, Equity should be reduced by ` 480,000 proceeds of issue and Rs.67,200 (86,400 – 19,200)
i.e. total by 5,47,200.
pg. 127
FR COMPILER
Necessary adjusting journal entry to rectify the books of accounts will be:
Rs. Rs.
Preference share capital (equity) (Balance sheet) Dr. 4,80,000
Finance costs (Profit and loss) Dr. 86,400
To Equity – Retained earnings (Balance sheet) 19,200
To Preference shares (Long-term Borrowings) (Balance sheet) 5,47,200
INDASPREP.COM RAHULMALKAN.COM
pg. 128
FR COMPILER
2018
No Question
No Question
No Question
Solution :
(i) If Market A is the principal market
pg. 129
FR COMPILER
If Market A is the principal market for the asset (i.e., the market with the greatest volume and
level of activity for the asset), the fair value of the asset would be measured using the price that
would be received in that market, after taking into account transport costs.
Fair Value of the asset will be
Rs.
Price receivable 78
Less: Transportation cost (6)
Fair value of the asset 72
2019
No Question
No Question
pg. 130
FR COMPILER
(i) DS Limited holds some vacant land for which the use is not yet determined. the land is situated
in a prominent area of the city where lot of commercial complexes are coming up and there is no
legal restriction to convert the land into a commercial land.
The company is not interested in developing the land to a commercial complex as it is not its
business objective. Currently the land has been let out as a parking lot for the commercial
complexes around.
The Company has classified the above property as investment property. It has approached you,
an expert in valuation, to obtain fair value of the land for the purpose of disclosure under Ind AS.
On what basis will the land be fair valued under Ind AS?
(ii) DS Limited holds equity shares of a private company. In order to determine the fair value' of the
shares, the company used discounted cash flow method as there were no similar shares available
in the market.
Under which level of fair value hierarchy will the above inputs be classified?
What will be your answer if the quoted price of similar companies were available and can be used
for fair valuation of the shares?
Solution :
(i) As per Ind AS 113, a fair value measurement of a non-financial asset takes into account a market
participant’s ability to generate economic benefits by using the asset in its highest and best use
or by selling it to another market participant that would use the asset in its highest and best use.
The highest and best use of a non-financial asset takes into account the use of the asset that is
physically possible, legally permissible and financially feasible, as follows:
(a) A use that is physically possible takes into account the physical characteristics of the asset
that market participants would take into account when pricing the asset (eg the location
or size of a property).
(b) A use that is legally permissible takes into account any legal restrictions on the use of the
asset that market participants would take into account when pricing the asset (eg the
zoning regulations applicable to a property).
(c) A use that is financially feasible takes into account whether a use of the asset that is
physically possible and legally permissible generates adequate income or cash flows
(taking into account the costs of converting the asset to that use) to produce an
investment return that market participants would require from an investment in that
asset put to that use.
Highest and best use is determined from the perspective of market participants, even if
the entity intends a different use.
Therefore, the fair value of the land is the price that would be received when sold to a
market participant who is interested in developing a commercial complex.
(ii) As per Ind AS 113, unobservable inputs shall be used to measure fair value to the extent that
relevant observable inputs are not available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at the measurement date. The unobservable
inputs shall reflect the assumptions that market participants would use when pricing the asset or
liability, including assumptions about risk.
pg. 131
FR COMPILER
In the given case, DS Limited adopted discounted cash flow method, commonly used technique
to value shares, to fair value the shares of the private company as there were no similar shares
traded in the market. Hence, it falls under Level 3 of fair value hierarchy.
If an entity can access quoted price in active markets for identical assets or liabilities of similar
companies which can be used for fair valuation of the shares without any adjustment, at the
measurement date, then it will be considered as observable input and would be considered as
Level 2 inputs.
Solution :
(i) Fair value :
(a) If Mumbai is the principal market
If Mumbai is the principal market for the asset (i.e., the market with the greatest volume
and level of activity for the asset), the fair value of the asset would be measured using the
price that would be received in that market, after taking into account transport costs.
Fair Value of the asset will be
Rs.
Price receivable 290
Less: Transportation cost (30)
Fair value of the asset 260
pg. 132
FR COMPILER
Rs. Rs.
Mumbai Kolkata
Price receivable 290 280
Less: Transaction cost (40) (20)
Less: Transportation cost (30) (30)
Fair value of the asset 220 230
Since Kolkata has maximum return fair value will be calculated using Kolkata.
Fair value of the asset will be
Rs.
Price receivable 280
Less: Transportation cost (30)
Fair value of the asset 250
(ii) As per Ind AS 113 Fair Value should be determined from principal market. Principal market is the
one where highest volumes are traded.
So even if export market gives highest Net receivable value i.e. Rs.280 it cannot be considered as
fair value because only 15% of production is allowed to be sold in export market.
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 133
FR COMPILER
2018
No Question
No Question
No Question
No Question
2019
pg. 134
FR COMPILER
Solution :
With regard to going concern basis to be followed for preparation of financial statements, Ind AS 10
provides as follows:
1) An entity shall not prepare its financial statements on a going concern basis if management
determines after the reporting period either that it intends to liquidate the entity or to cease
trading, or that it has no realistic alternative but to do so.
2) Deterioration in operating results and financial position after the reporting period may indicate a
need to consider whether the going concern assumption is still appropriate. If the going concern
assumption is no longer appropriate, the effect is so pervasive that this Standard requires a
fundamental change in the basis of accounting, rather than an adjustment to the amounts
recognised within the original basis of accounting.”
In accordance with the above, an entity needs to change the basis of accounting if the effect of
deterioration in operating results and financial position is so pervasive that management determines
after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has
no realistic alternative but to do so.
In the instant case, since contract is expiring on 31st December 2017 and it is confirmed on 23rd April,
2017, i.e., after the end of the reporting period and before the approval of the financial statements, that
no further contact is secured, implies that the entity’s operations are expected to come to an end.
Accordingly, if entity’s operations are expected to come to an end, the entity needs to make a judgement
as to whether it has any realistic possibility to continue or not. In case, the entity determines that it has
no realistic alternative of continuing the business, preparation of financial statements for 2016-17 and
thereafter on going concern basis may not be appropriate.
No Question
Solution :
Ind AS 10 defines ‘Events after the Reporting Period’ as follows:
pg. 135
FR COMPILER
Events after the reporting period are those events, favourable and unfavourable, that occur between the
end of the reporting period and the date when the financial statements are approved by the Board of
Directors in case of a company, and, by the corresponding approving authority in case of any other entity
for issue. Two types of events can be identified:
(a) those that provide evidence of conditions that existed at the end of the reporting period
(adjusting events after the reporting period); and
(b) those that are indicative of conditions that arose after the reporting period (non-adjusting events
after the reporting period)
In the instant case, the demand notice has been received on 15th June, 2017, which is between the end
of the reporting period and the date of approval of financial statements. Therefore, it is an event after
the reporting period. This demand for additional amount has been raised because of higher rate of excise
duty levied by the Excise Department in respect of goods already manufactured during the reporting
period. Accordingly, condition exists on 31st March, 2017, as the goods have been manufactured during
the reporting period on which additional excise duty has been levied and this event has been confirmed
by the receipt of demand notice. Therefore, it is an adjusting event.
In accordance with the principles of Ind AS 37, the company should make a provision in the financial
statements for the year 2016-17, at best estimate of the expenditure to be incurred, i.e., Rs.15,00,000.
pg. 136
FR COMPILER
books if the company decides subsequent to end of the accounting year to restructure its
operations?
Solution :
(i) Ind AS 10 defines “Events After Reporting Period” as follows :
Events After the reporting period are those events favourable and unfavourable that occur
between the end of the reporting period and the date when financial statements are approved
by Board of Directors in case of company and by the corresponding approving authority in case
of any other entity for issue.
Two types of event can be identified :
a) those that provide evidence of conditions that existed at the end of the reporting period
i.e. Adjusting events.
b) those that are indicative of conditions that arose the reporting period i.e. Non adjusting
events.
In this case arbitration award i.e. adjusting event and should be reported. The management
argument is wrong. Even favourable event should be reported.
(ii) As per Ind AS 10, the selling price of inventory after reporting period but before approval of
financial statements is an adjusting event.
∴ Zoom Ltd. should adjust financial statement to value inventory at Rs.4,000 less expenses to
sale i.e. at lower of cost or NRV.
(iii) The debtor was declared solvent and therefore no provising is needed.
(iv) Management should not recognise a provision as no formal plan is in place of restructuring.
2020
Solution :
In the instant case, the condition of exceeding the specified turnover was met at the end of the reporting
period and the company was entitled for the duty drawback. However, the application for the same has
been filed after the stipulated time. Therefore, credit of duty drawback was discretionary in the hands
of the Department. Since the claim was to be accrued only after filing of application, its accrual will be
considered in the year 20X2-20X3 only.
pg. 137
FR COMPILER
Accordingly, the duty drawback credit is a contingent asset as at the end of the reporting period 20X1-
20X2, which will be realised when the Department credits the same.
As per para 35 of Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, contingent assets
are assessed continually to ensure that developments are appropriately reflected in the financial
statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and
the related income are recognised in the financial statements of the period in which the change occurs.
If an inflow of economic benefits has become probable, an entity discloses the contingent asset.
In accordance with the above, the duty drawback credit which was contingent asset for the F.Y. 20X1 -
20X2 should be recognised as asset and related income should be recognized in the reporting period in
which the change occurs. i.e., in the period in which realisation becomes virtually certain, i.e., F.Y. 20X2
- 20X3.
INDASPREP.COM RAHULMALKAN.COM
pg. 138
FR COMPILER
2018
No Question
No Question
No Question
Solution :
pg. 139
FR COMPILER
(i) The land and government grant can be recognized at Fair Value or Nominal Value i.e. at either
Rs.12,00,000 or Rs.8,00,000.
(ii) As per Ind AS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’,
loan at concessional rates of interest is to be measured at fair value and recognised as per Ind AS
109. Value of concession is the difference between the initial carrying value of the loan
determined in accordance with Ind AS 109, and the proceeds received. The benefit is accounted
for as Government grant.
(iii) Rs.25 lakh has been received by D Ltd. for immediate start-up of business. Since this grant is given
to provide immediate financial support to an entity, it should be recognised in the Statement of
Profit and Loss immediately.
(iv) Rs.10 lakh should be recognized by S Ltd. as deferred income and will be transferred to profit and
loss over the useful life of the asset. In this case, Rs.1,00,000 [Rs.10 lakh / 10 years] should be
credited to profit and loss each year over period of 10 years.
(v) As per Ind AS 20, the entire grant of Rs.25 lakh should be recognized immediately as deferred
income and charged to profit and loss over a period of two years based on the related costs for
which the grants are intended to compensate provided that there is reasonable assurance that U
Ltd. will comply with the conditions attached to the grant.
2019
No Question
No Question
No Question
pg. 140
FR COMPILER
Solution :
As per Ind AS 20 Government grant should be recognised when there is reasonable assurance that
(a) the entity will comply with condition attaching to them and
(b) grant will be received.
The entity is reasonably sure to comply with condition and they are correct to recognise grand in
proportionate amount i.e. 1/5 of 20,00,000 = Rs.4,00,000.
2020
Solution :
Accounting treatment for:
1. First Grant
The first grant for ‘Clear River Project’ involving research into effects of various chemicals waste
from the industrial area in Madhya Pradesh, seems to be unconditional as no details regarding its
refund has been mentioned. Even though the research has not been started nor any major steps
have been completed by Rainbow Limited to commence the research, yet the grant will be
recognised immediately in profit or loss for the year ended 31st March, 20X2.
Alternatively, in case, the grant is conditional as to expenditure on research, the grant will be
recognised in the books of Rainbow Limited over the year the expenditure is being incurred.
2. Second Grant
The second grant related to commercial development of a new equipment is a grant related to
depreciable asset. As per the information given in the question, the equipment will be available
pg. 141
FR COMPILER
for sale in the market from April, 20X3. Hence, by that time, grant relates to the construction of
an asset and should be initially recognised as deferred income.
The deferred income should be recognised as income on a systematic and rational basis over the
asset’s useful life.
The entity should recognise a liability on the balance sheet for the years ending 31st March, 20X2
and 31st March, 20X3. Once the equipment starts being used in the manufacturing process, the
deferred grant income of Rs.100,000 should be recognised over the asset’s useful life to
compensate for depreciation costs.
Alternatively, as per Ind AS 20, Rainbow Limited would also be permitted to offset the deferred
income of Rs.100,000 against the cost of the equipment as on 1st April, 20X3.
3. For flood related compensation
Rainbow Limited will be able to submit an application form only after 31st May, 20X2 i.e. in the
year 20X2-20X3. Although flood happened in September, 20X1 and loss was incurred due to flood
related to the year 20X1-20X2, the entity should recognise the income from the government
grant in the year when the application form related to it is submitted and approved by the
government for compensation.
Since, in the year 20X1-20X2, the application form could not be submitted due to adoption of
financials with respect to sales figure before flood occurred, Rainbow Limited should not
recognise the grant income as it has not become receivable as on 31st March,20X2.
INDASPREP.COM RAHULMALKAN.COM
pg. 142
FR COMPILER
2018
Solution :
1) Current Tax = Taxable Profit × Tax Rate
= 104 × 25% = 24 thousand
2) Deffered Tax :
A/c Tax
a) Asset - Cost 120 120
– Depreciation 2 6
CA 118 114 Tax bare
Taxable temporary difference = 4 × (118 – 114)
b) Charitable Donation
CA Nil
Tax bare Nil
∴ Total taxable difference = 4
Deferred tax liability = 4 × 25% = 1
3) Journal entries
a) Current tax
Profit & Loss A/c Dr. 25
To Current Tax 25
b) Deferred tax
pg. 143
FR COMPILER
No Question
pg. 144
FR COMPILER
Solution :
(i) The tax loss creates a potential deferred tax asset for the group since its carrying value is nil and
its tax base is Rs.30,00,000.
However, no deferred tax asset can be recognised because there is no prospect of being able to
reduce tax liabilities in the foreseeable future as no taxable profits are anticipated.
(ii) The provision creates a potential deferred tax asset for the group since its carrying value is
Rs.20,00,000 and its tax base is nil.
This deferred tax asset can be recognised because X Ltd. is expected to generate taxable profits
in excess of Rs.20,00,000 in the year to 31st March, 2019.
The amount of the deferred tax asset will be Rs.4,00,000 (Rs.20,00,000 x 20%).
This asset will be presented as a deduction from the deferred tax liabilities caused by the (larger)
taxable temporary differences.
(iii) The development costs have a carrying value of Rs.15,20,000 (Rs.16,00,000 – (Rs.16,00,000 x 1/5
x 3/12)).
The tax base of the development costs is nil since the relevant tax deduction has already been
claimed.
The deferred tax liability will be Rs.3,04,000 (Rs.15,20,000 x 20%). All deferred tax liabilities are
shown as non-current.
(iv) The carrying value of the loan at 31st March, 2018 is Rs.1,07,80,000 (Rs.1,00,00,000 – Rs.2,00,000
+ (Rs.98,00,000 x 10%)).
The tax base of the loan is Rs.1,00,00,000.
This creates a deductible temporary difference of Rs.7,80,000 (Rs.1,07,80,000 – Rs.1,00,00,000)
and a potential deferred tax asset of Rs.1,56,000 (Rs.7,80,000 x 20%).
Due to the availability of taxable profits next year (see part (ii) above), this asset can be recognised
as a deduction from deferred tax liabilities.
No Question
2019
pg. 145
FR COMPILER
• On 1st April, 2017, PQR Ltd. borrowed Rs.1,00,00,000. The cost to PQR Ltd. of arranging the
borrowing was Rs.2,00,000 and this cost qualified for a tax deduction on 1st April 2017. The loan
was for a three-year period. No interest was payable on the loan but the amount repayable on
31st March 2020 will be Rs.1,30,43,800. This equates to an effective annual interest rate of 10%.
As per the Income-tax Act, a further tax deduction of Rs.30,43,800 will be claimable when the
loan is repaid on 31st March, 2020.
Explain and show how each of these events would affect the deferred tax assets / liabilities in the
consolidated balance sheet of PQR Ltd. group at 31st March, 2018 as per Ind AS. The rate of
corporate income tax is 30%.
Solution :
Impact on consolidated balance sheet of PQR Ltd. group at 31st March, 2018
• The tax loss creates a potential deferred tax asset for the PQR Ltd. group since its carrying value
is nil and its tax base is Rs.30,00,000. However, no deferred tax asset can be recognised because
there is no prospect of being able to reduce tax liabilities in the foreseeable future as no taxable
profits are anticipated.
• The development costs have a carrying value of Rs.15,20,000 (Rs.16,00,000 – (Rs.16,00,000 × 1/5
× 3/12)). The tax base of the development costs is nil since the relevant tax deduction has already
been claimed. The deferred tax liability will be Rs.4,56,000 (Rs.15,20,000 × 30%). All deferred tax
liabilities are shown as non-current.
• The carrying value of the loan at 31st March, 2018 is Rs.1,07,80,000 (Rs.1,00,00,000 – Rs.200,000
+ (Rs.98,00,000 × 10%)). The tax base of the loan is 1,00,00,000. This creates a deductible
temporary difference of Rs.7,80,000 and a potential deferred tax asset of Rs.2,34,000
(Rs.7,80,000 × 30%).
No Question
pg. 146
FR COMPILER
The entity reviewed the carrying amount of the asset in accordance with para 56 of Ind AS 12 and
determined that it was probable that sufficient taxable profit to allow utilisation of the deferred tax asset
would be available in the future.
Show the revised amount of Deferred tax asset & Deferred tax liability and present the necessary journal
entries.
Solution :
Calculation of Deductible temporary differences :
Deferred tax asset = Rs.80,000
Existing tax rate = 40%
Deductible temporary differences = 80,000/40%
= Rs.2,00,000
Calculation of Taxable temporary differences:
Deferred tax liability = Rs.60,000
Existing tax rate = 40%
Deductible temporary differences = 60,000/40%
= Rs.1,50,000
Of the total deferred tax asset balance of Rs.80,000, Rs.28,000 is recognized in OCI
Hence, Deferred tax asset balance of Profit & Loss is Rs.80,000 – Rs.28,000 = Rs.52,000
Deductible temporary difference recognized in Profit & Loss is Rs.1,30,000 (52,000 / 40%)
Deductible temporary difference recognized in OCI is Rs.70,000 (28,000 / 40%)
The adjusted balances of the deferred tax accounts under the new tax rate are:
Deferred tax asset Rs.
Previously credited to OCI-equity Rs.70,000 x 0.45 31,500
Previously recognised as Income Rs.1,30,000 x 0.45 58,500
90,000
Deferred tax liability
Previously recognized as expense Rs.1,50,000 x 0.45 67,500
The net adjustment to deferred tax expense is a reduction of Rs.2,500. Of this amount, Rs.3,500 is
recognised in OCl and Rs.1,000 is charged to P&L.
An alternative method of calculation is : Rs.
DTA shown in OCI Rs.70,000 × (0.45 - 0.40) 3,500
DTA shown in Profit or Loss Rs.1,30,000 × (0.45-0.40) 6,500
DTL shown in Profit or Loss Rs.1,50,000 × (0.45 -0.40) 7,500
Journal Entries
Rs. Rs.
Deferred tax asset 3,500
OCI –revaluation surplus 3,500
Deferred tax asset 6,500
Deferred tax expense 6,500
pg. 147
FR COMPILER
No Question
2020
INDASPREP.COM RAHULMALKAN.COM
pg. 148
FR COMPILER
2018
Solution :
As per Ind AS 24, Related Party Disclosures, “Key management personnel are those persons having
authority and responsibility for planning, directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise) of that entity.”
Accordingly, key management personnel (KMP) includes any director of the entity who are having
authority and responsibility for planning, directing and controlling the activities of the entity. Hence,
independent director Mr. Atul and non-executive director Mr. Naveen are covered under the definition
of KMP in accordance with Ind AS.
Also as per Ind AS 19, ‘Employee Benefits’, an employee may provide services to an entity on a full-time,
part-time, permanent, casual or temporary basis. For the purpose of the Standard, Employees include
directors and other management personnel.
Therefore, an entity shall disclose key management personnel compensation in total i.e. disclosure of
directors’ fee of (Rs.10,00,000 + Rs.7,50,000) Rs.17,50,000 is to be made as employees benefits (under
various categories).
pg. 149
FR COMPILER
No Question
Solution :
XYZ Ltd. would include the total revenue of Rs.68,00,000 (Rs.60,00,000 + Rs.8,00,000) from ABC Ltd.
received / receivable in the year ended 31st March 2018 within its revenue and show Rs.18,00,000 within
trade receivables at 31st March 2018.
Mrs. P would be regarded as a related party of XYZ Ltd. because she is a close family member of one of
the key management personnel of XYZ Ltd.
From 1st June 2017, ABC Ltd. would also be regarded as a related party of XYZ Ltd. because from that
date ABC Ltd. is an entity controlled by another related party.
Because ABC Ltd. is a related party with whom XYZ Ltd. has transactions, then XYZ Ltd. should disclose:
– The nature of the related party relationship.
– The revenue of Rs.60,00,000 from ABC Ltd. since 1st June 2017.
– The outstanding balance of rs.18,00,000 at 31st March 2018.
In the current circumstances it may well be necessary for XYZ Ltd. to also disclose the favourable terms
under which the transactions are carried out.
No Question
2019
No Question
No Question
pg. 150
FR COMPILER
Solution :
(a) As per Ind AS 24, ‘Related Party Disclosures’, if an entity had related party transactions during the
periods covered by the financial statements, it shall disclose the nature of the related party
relationship as well as information about those transactions and outstanding balances, including
commitments, necessary for users to understand the potential effect of the relationship on the
financial statements.
However, as per standard a reporting entity is exempt from the disclosure requirements in
relation to related party transactions and outstanding balances, including commitments, with:
(i) a government that has control or joint control of, or significant influence over, the
reporting entity; and
(ii) another entity that is a related party because the same government has control or joint
control of, or significant influence over, both the reporting entity and the other entity
According to the above paras, for Entity P’s financial statements, the exemption applies to:
(i) transactions with Government Uttar Pradesh State Government; and
(ii) transactions with Entities PQR and ABC and Entities Q, A and B.
Similar exemptions are available to Entities PQR, ABC, Q, A and B, with the transactions with UP
State Government and other entities controlled directly or indirectly by UP State Government.
However, that exemption does not apply to transactions with Mr. KM. Hence, the transactions
with Mr. KM needs to be disclosed under related party transactions.
(b) It shall disclose the following about the transactions and related outstanding balances referred
to :
(a) the name of the government and the nature of its relationship with the reporting entity
(ie control, joint control or significant influence);
(b) the following information in sufficient detail to enable users of the entity’s financial
statements to understand the effect of related party transactions on its financial
statements:
(i) the nature and amount of each individually significant transaction; and
(ii) for other transactions that are collectively, but not individually, significant, a
qualitative or quantitative indication of their extent.
No Question
pg. 151
FR COMPILER
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 152
FR COMPILER
2018
Solution :
As per Ind AS 33 “Earnings per Share”, when an entity presents both consolidated financial statements
and separate financial statements prepared in accordance with Ind AS 110, Consolidated Financial
Statements, and Ind AS 27, Separate Financial Statements, respectively, the disclosures required by this
Standard shall be presented both in the consolidated financial statements and separate financial
statements. In consolidated financial statements such disclosures shall be based on consolidated
information and in separate financial statements such disclosures shall be based on information given in
separate financial statements.
Hence, the presentation of Basic EPS by the Accountant of P Ltd. on the basis of consolidated financial
statements in its separate financial statements is not correct. The correct presentation of Basic EPS would
be as follows:
Calculation of Basic EPS of P Ltd. in SFS
Net Profit after tax Rs.20,00,000
No. of share issued 2,00,000 shares
Basic EPS Rs.10 per share
pg. 153
FR COMPILER
No Question
No Question
No Question
2019
Solution :
Allocation of proceeds of the bond issue:
Liability component (Refer Note 1) Rs.1,848,122
Equity component Rs.151,878
Rs.2,000,000
The liability and equity components would be determined in accordance with Ind AS 32. These amounts
are recognised as the initial carrying amounts of the liability and equity components. The amount
assigned to the issuer conversion option equity element is an addition to equity and is not adjusted.
Basic earnings per share Year 1:
Rs.1,000,000
= Rs.0.83 per ordinary share
1,200,000
pg. 154
FR COMPILER
Rs.1,000,000 + Rs.166,331
= Rs.0.69 per ordinary share
1,200,000 + 500,000
Notes:
1. This represents the present value of the principal and interest discounted at 9% – Rs.2,000,000
payable at the end of three years; Rs.120,000 payable annually in arrears for three years.
2. Profit is adjusted for the accretion of Rs.166,331 (Rs.1,848,122 × 9%) of the liability because of
the passage of time. However, it is assumed that interest @ 6% for the year has already been
adjusted.
3. 500,000 ordinary shares = 250 ordinary shares × 2,000 convertible bonds
No Question
No Question
No Question
2020
pg. 155
FR COMPILER
present value of Rs.1 payable in four years is 0.74 and the cumulative present value of Rs.1
payable at the end of years one to four is 3.31.
In the year ended 31st March, 20X3, CAB Limited declared an ordinary dividend of 0.10 paise per
share and a dividend of 0.05 paise per share on the irredeemable preference shares.
Compute the following:
• the finance cost of convertible debentures and its closing balance as on 31st March, 20X3 to be
presented in the consolidated financial statements.
• the basic and diluted earnings per share for the year ended 31st March, 20X3.
Assume that income tax is applicable to CAB Limited and its subsidiaries at 25%.
Solution :
Calculation of the liability and equity components on 6% Convertible debentures:
Present value of principal payable at the end of 4th year (Rs.1,80,000 thousand x 0.74) = Rs.1,33,200
thousand
Present value of interest payable annually for 4 years (Rs.1,80,000 thousand x 6% x 3.31) = Rs.35,748
thousand
Total liability component = Rs.1,68,948 thousand
Therefore, equity component = Rs.1,80,000 thousand – Rs.1,68,948 thousand = Rs.11,052 thousand
Calculation of finance cost and closing balance of 6% convertible debentures
Year Opening balance Finance cost @ 8% Interest paid @ 6% Closing balance
Rs. in ’000 Rs. in ’000 Rs. in ’000 Rs. in ’000
a b = a x 8% c d=a+b-c
31.3.20X2 1,68,948 13,515.84 10,800 1,71,663.84
31.3.20X3 1,71,663.84 13,733.11 10,800 1,74,596.95
Finance cost of convertible debentures for the year ended 31.3. 20X3 is Rs.13,733.11 thousand and
closing balance as on 31.3. 20X3 is Rs.1,74,596.95 thousand.
pg. 156
FR COMPILER
INDASPREP.COM RAHULMALKAN.COM
pg. 157
FR COMPILER
2018
No Questions
Solution :
Applicability of cash settled share-based payment transactions
For cash-settled share-based payment transactions, the entity shall measure the goods or services
acquired and the liability incurred at the fair value of the liability.
1. When vesting conditions are attached to the share based payment plans
The recognition of such share based payment plans should be done by recognizing fair value of
the liability at the time of goods/ services received and not at the date of grant.
2. When no vesting period / condition is attached or to be fulfilled
Cash settled share based payment can be recognized in full at initial recognition itself.
Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of
each reporting period date and difference in fair value will be charged to profit or loss for the
period as employee benefit expenses.
pg. 158
FR COMPILER
At the date of settlement, the liability is paid in cash based on the fair value on the date of
settlement.
Calculation of expenses recognized during the year on account of change in the fair value of
SARs
Period Fair value To be Cumulative Expense / (benefit)
vested expenses for the current year
a b c = a x b x 20,000 d = c-of current
period – c of previous
period
1st April, 2015 95 100% 19,00,000 19,00,000
31st March, 2016 110 95% 20,90,000 1,90,000
31st March, 2017 107 92% 19,68,800 (1,21,200)
31st March, 2018 112 89% 19,93,600 24,800
19,93,600
Journal Entries
Date Dr.(Rs.) Cr.(Rs.)
1st April, Employee benefits expenses Dr. 19,00,000
2015 To Share based payment liability 19,00,000
(Fair value of the SAR recognized initially)
31st March, Employee benefits expenses Dr. 1,90,000
2016 To Share based payment liability 1,90,000
(Fair value of the SAR re-measured)
31st March, Share based payment liability Dr. 1,21,200
2017 To Employee benefits expenses 1,21,200
(Fair value of the SAR re-measured &
reversed)
31st March, Employee benefits expenses Dr. 24,800
2018 To Share based payment liability 24,800
(Fair value of the SAR remeasured &
recognized)
Share based payment liability Dr. 19,93,600
To Cash 19,93,600
(Settlement of SARs in cash)
pg. 159
FR COMPILER
What would be the difference if at the end of the second year of service (i.e. at 31st March 2019), P Ltd.
modifies the terms of the award to require only three years of service. Answer on the basis of relevant
Ind AS.
Solution :
a) Without modification of service period :
31/03/2018 31/03/2019 31/03/2020 31/03/2021
Options 400 400 400 400
Employees 75 75 75 75
Fair value 210 220 215 218
Life 4 Years 4 Years 4 Years 4 Years
400 × 75 × 210
31/3/18 = × 1 = 15,75,000
4
400 × 75 × 220
31/3/19 = × 2 = 33,00,000 – 15,75,000 = 17,25,000
4
400 × 75 × 215
31/3/20 = × 3 = 48,37,500 – 33,00,000 = 15,37,500
4
400 × 75 × 218
31/3/21 = × 4 = 65,40,000 – 48,37,500 = 17,02,500
4
Journal Entries :
31/3/18 Employee Comp. Exp. (P&L) 15,75,000
To Liability for SAR 15,75,000
31/3/19 Employee Comp. Exp. (P&L) 17,25,000
To Liability for SAR 17,25,000
31/3/20 Employee Comp. Exp. (P&L) 15,37,500
To Liability for SAR 15,37,500
31/3/21 Employee Comp. Exp. (P&L) 17,02,500
To Liability for SAR 17,02,500
400 × 75 × 210
31/3/18 = × 1 = 15,75,000
4
400 × 75 × 220
31/3/19 = × 2 = 44,00,000 – 15,75,000 = 28,25,000
4
pg. 160
FR COMPILER
400 × 75 × 215
31/3/20 = × 3 = 64,50,000 – 44,00,000 = 20,50,000
4
Journal Entries :
31/3/18 Employee Comp. Exp. (P&L) 15,75,000
To Liability for SAR 15,75,000
31/3/19 Employee Comp. Exp. (P&L) 28,25,000
To Liability for SAR 28,25,000
31/3/20 Employee Comp. Exp. (P&L) 20,50,000
To Liability for SAR 20,50,000
Solution :
Since the earnings of the entity is non-market related, hence it will not be considered in fair value
calculation of the shares given. However, the same will be considered while calculating number of shares
to be vested.
Calculation of yearly expenses to be charged :
2016 2017 2018
(a) Total employees 400 400 400
(b) Employees left (Actual) (22) 22+16=38 22+16+9=47
(c) Employees expected to leave in the next year (18) (14) -
(d) Year end – No of employees (a-b-c) 360 348 353
pg. 161
FR COMPILER
Journal Entries
Rs. Rs.
31st March, 2016
Employee benefits expenses A/c Dr. 5,49,000
To Share based payment reserve (equity) A/c 5,49,000
(Equity settled shared based payment based on conditional vesting
period)
Profit and Loss A/c Dr. 5,49,000
To Employee benefits expenses A/c 5,49,000
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2017
Employee benefits expenses Dr. 18,05,600
To Share based payment reserve (equity) 18,05,600
(Equity settled shared based payment based on conditional expected
vesting period)
Profit and Loss A/c Dr. 18,05,600
To Employee benefits expenses A/c 18,05,600
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2018
Employee benefits expenses Dr. 8,44,850
To Share based payment reserve (equity) 8,44,850
(Equity settled shared based payment based on conditional expected
vesting period)
Profit and Loss A/c Dr. 8,44,850
To Employee benefits expenses A/c 8,44,850
(Employee benefits expenses transferred to Profit and Loss A/c)
31st March, 2019
Employee benefits expenses Dr. 11,07,150
To Share based payment reserve (equity) 11,07,150
(Equity settled shared based payment based on conditional expected
vesting period)
Profit and Loss A/c Dr. 11,07,150
To Employee benefits expenses A/c 11,07,150
pg. 162
FR COMPILER
2019
Solution :
As required by Ind AS 102, over the two-year vesting period, the subsidiary measures the services
received from the employees in accordance, the requirements applicable to equity-settled share-based
payment transactions. Thus, the subsidiary measures the services received from the employees on the
basis of the fair value of the share options at grant date. An increase in equity is recognised as a
contribution from the parent in the separate or individual financial statements of the subsidiary.
The journal entries recorded by the subsidiary for each of the two years are as follows:
Year 1 Rs. Rs.
Remuneration expense Dr. 2,40,000
(200 × 100 employees × Rs.30 × 80% × ½)
To Equity (Contribution from the parent) 2,40,000
Year 2
Remuneration expense Dr. 2,46,000
[(200 x 81 employees x Rs.30) – 2,40,000]
To Equity (Contribution from the parent) 2,46,000
No Question
pg. 163
FR COMPILER
March, 20X3 the fair value of an option was Rs.1.25. QA Ltd. decided that additional cost incurred due to
repricing of the options on 30th September, 20X2 should be spread over the remaining vesting period
from 30th September, 20X2 to 31st March, 20X4.
The Company has requested you to suggest the suitable accounting treatment for these transaction as
on 31st March, 20X3.
Solution :
a) Year 11 – 12
1,850 × 1,000 × 1.2
= ×1 = 7,40,000
3
b) Year 12 – 13
1,840 × 1,000 × (1.05 − 0.9 )
= × 0.5 = 92,000
1.5
8,24,000
Solution :
Similar to - Question 3 : Nov 2018 RTP
500 × 80 × 110
31/3/18 = × 1 = 11,00,000
4
500 × 80 × 120
31/3/19 = × 2 – 11,00,000 = 13,00,000
4
pg. 164
FR COMPILER
500 × 80 × 115
31/3/20 = × 3 – 24,00,000 = 10,50,000
4
500 × 80 × 130
31/3/21 = × 4 – 34,50,000 = 17,50,000
4
Journal Entries :
31/3/18 Employee Comp. Exp. (P&L) 11,00,000
To Liability for SAR 11,00,000
31/3/19 Employee Comp. Exp. (P&L) 13,00,000
To Liability for SAR 13,00,000
31/3/20 Employee Comp. Exp. (P&L) 10,50,000
To Liability for SAR 10,50,000
31/3/21 Employee Comp. Exp. (P&L) 17,50,000
To Liability for SAR 17,50,000
500 × 80 × 110
31/3/18 = × 1 = 11,00,000
4
500 × 80 × 120
31/3/19 = × 2 – 11,00,000 = 21,00,000
3
500 × 80 × 115
31/3/20 = × 3 – 32,00,000 = 14,00,000
3
Journal Entries :
31/3/18 Employee Comp. Exp. (P&L) 11,00,000
To Liability for SAR 11,00,000
31/3/19 Employee Comp. Exp. (P&L) 21,00,000
To Liability for SAR 21,00,000
31/3/20 Employee Comp. Exp. (P&L) 14,00,000
To Liability for SAR 14,00,000
2020
pg. 165
FR COMPILER
with the right to receive (at the date when the rights are exercised) cash equal to the appreciation in the
entity’s share price since the grant date. All of the rights vest on 31st December 20X6; and they can be
exercised during 20X7 and 20X8. Management estimates that, at grant date, the fair value of each SAR
is Rs.11; and it estimates that overall 10% of the employees will leave during the two-year period. The
fair values of the SARs at each year end are shown below:
Year Fair value at year end
31 December 20X5 12
31 December 20X6 8
31 December 20X7 13
31 December 20X8 12
10% of employees left before the end of 20X6. On 31st December 20X7 (when the intrinsic value of each
SAR was Rs.10), six employees exercised their options; and the remaining 30 employees exercised their
options at the end of 20X8 (when the intrinsic value of each SAR was equal to the fair value of Rs.12).
How much expense and liability is to be recognized at the end of each year? Pass Journal entries.
Solution :
The amount recognized as an expense in each year and as a liability at each year end) is as follows:
Year Expense Rs. Liability Rs. Calculation of Liability
31 December 20X5 2,16,000 2,16,000 = 36 x 1,000 x 12 x ½
31 December 20X6 72,000 2,88,000 = 36 x 1,000 x 8
31 December 20X7 1,62,000* 3,90,000 = 30 x 1,000 x 13
31 December 20X8 (30,000)** 0 Liability extinguished
* Expense comprises an increase in the liability of Rs.102,000 and cash paid to those exercising their SARs
of Rs.60,000 (6 x 1,000 x 10).
** Difference of opening liability (Rs.3,90,000) and actual liability paid [Rs.3,60,000 (30 x 1,000 x 12)] is
recognised to Profit and loss i.e. Rs.30,000.
Journal Entries
31 December 20X5
Employee benefits expenses Dr. 2,16,000
To Share based payment liability 2,16,000
(Fair value of the SAR recognized)
31 December 20X6
Employee benefits expenses Dr. 72,000
To Share based payment liability 72,000
(Fair value of the SAR re-measured)
31 December 20X7
Employee benefits expenses Dr. 1,62,000
To Share based payment liability 1,62,000
(Fair value of the SAR recognized)
Share based payment liability Dr. 60,000
To Cash 60,000
(Settlement of SAR)
pg. 166
FR COMPILER
31 December 20X8
Share based payment liability Dr. 30,000
To Employee benefits expenses 30,000
(Fair value of the SAR recognized)
Share based payment liability Dr. 3,60,000
To Cash 3,60,000
(Settlement of SAR)
Note: Last two entries can be combined.
INDASPREP.COM RAHULMALKAN.COM
pg. 167
FR COMPILER
2018
No Question
No Question
pg. 168
FR COMPILER
Examine and present how the above event would be reported in the financial statements of A Ltd. for
the year ended 31st March, 2018 as per Ind AS.
Solution :
All figures are Rs. in ’000.
On 31st March, 2018, A Ltd. will report a net pension liability in the statement of financial position. The
amount of the liability will be 12,000 (68,000 – 56,000).
For the year ended 31st March, 2018, A Ltd. will report the current service cost as an operating cost in
the statement of profit or loss. The amount reported will be 6,200. The same treatment applies to the
past service cost of 1,500.
For the year ended 31st March, 2018, A Ltd. will report a finance cost in profit or loss based on the net
pension liability at the start of the year of 8,000 (60,000 – 52,000). The amount of the finance cost will
be 400 (8,000 x 5%).
The redundancy programme represents the partial settlement of the curtailment of a defined benefit
obligation. The gain on settlement of 500 (8,000 – 7,500) will be reported in the statement of profit or
loss.
Other movements in the net pension liability will be reported as remeasurement gains or losses in other
comprehensive income.
For the year ended 31st March, 2018, the remeasurement loss will be 3,400 (Refer W. N.).
Working Note:
Remeasurement of gain or loss
Solution :
EITHER
Capital Base = Rs.1,50,00,000
Actual Profit = Rs.17,00,000
Target Profit @ 14% = Rs.21,00,000
Expected Profit on employing the particular executive
= Rs.21,00,000 + Rs.3,00,000 = Rs.24,00,000
pg. 169
FR COMPILER
2019
Solution :
Under AS 15, a past service cost of Rs.60 million needs to be recognized immediately, as those benefits
are already vested. The remaining Rs.20 million cost is recognized on a straight line basis over the vesting
period, i.e., period to two and half years commencing from 1st April, 2015.
Under Ind AS 19, the entire past service cost of Rs.80 million needs to be recognized and charged in profit
or loss immediately. ABC Ltd. cannot defer any part of this cost.
No Question
pg. 170
FR COMPILER
from that date. During the year ended 31st March, 20X2, ABL Ltd. was in negotiation with employee
representatives regarding planned redundancies. The negotiations were completed shortly before the
year end and redundancy packages were agreed. The impact of these redundancies was to reduce the
present value of the defined benefit obligation by ` 8000. Before 31st March, 20X2, ABL Ltd. made
payments of ` 7500 to the employees affected by the redundancies in compensation for the curtailment
of their benefits. These payments were made out of the assets of the retirement benefits plan. On 31st
March, 20X2, the actuaries advised that the present value of the defined benefit obligation was
Rs.68,000. On the same date, the fair value of the assets of the defined benefit plan were Rs.56,000.
Solution :
(All numbers in Rs.’000 unless otherwise stated)
On 31st March 20X2, ABL Ltd. will report a net pension liability in the statement of financial position. The
amount of the liability will be Rs.12,000 (68,000 – 56,000).
For the year ended 31st March 20X2, ABL Ltd. will report the current service cost as an operating cost in
the statement of profit or loss. The amount reported will be Rs.6,200. The same treatment applies to the
past service cost of Rs.1,500.
For the year ended 31st March 20X2, ABL Ltd. will report a finance cost in profit or loss based on the net
pension liability at the start of the year of Rs.8,000 (60,000 – 52,000). The amount of the finance cost will
be Rs.400 (8,000 x 5%).
The redundancy programme represents the partial settlement of the curtailment of a defined benefit
obligation. The gain on settlement of Rs.500 (8,000 – 7,500) will be reported in the statement of profit
or loss.
Other movements in the net pension liability will be reported as remeasurement gains or losses in other
comprehensive income.
For the year ended 31st March 20X2, the remeasurement loss will be Rs.3,400 (refer W.N.).
Working Note:
Calculation of remeasurement gain or loss: Rs.‘000
Liability at the start of the year (60,000 – 52,000) 8,000
Current service cost 6,200
Past service cost 1,500
Net finance cost 400
Gain on settlement (500)
Contributions to plan (7,000)
Remeasurement loss (balancing figure) 3,400
Liability at the end of the year (68,000 – 56,000) 12,000
No Question
2020
pg. 171
FR COMPILER
service cost for the financial year ending 31 March 20X2 is Rs.5,10,000. An interest rate of 5% is to be
applied to the plan assets and obligations. The fair value of the planʼs assets at 31 March 20X2 was
Rs.23,80,000, and the present value of the defined benefit obligation was Rs.27,20,000. Provide a
reconciliation from the opening balance to the closing balance for Plan assets and Defined benefit
obligation. Also show how much amount should be recognised in the statement of profit and loss, other
comprehensive income and balance sheet?
Solution :
Reconciliation of Plan assets and Defined benefit obligation
Plan Assets Defined benefit
Rs. obligation Rs.
Fair value/present value as at 1st April 20X1 20,40,000 21,25,000
Interest @ 5% 1,02,000 1,06,250
Current service cost 5,10,000
Contributions received 4,25,000 -
Benefits paid (2,55,000) (2,55,000)
Return on gain (assets) (balancing figure) 68,000 -
Actuarial Loss (balancing figure) - 2,33,750
Closing balance as at March 31,20X2 23,80,000 27,20,000
INDASPREP.COM RAHULMALKAN.COM
pg. 172
FR COMPILER
2018
Solution :
Toy Ltd. had sold goods to Mac Ltd on credit worth for Rs.580 lakhs and the sale was completed in all
respects. Mac Ltd.'s decision to sell the same in the domestic market at a discount does not affect the
amount recorded as sales by Toy Ltd.
The price discount of 10% offered by Toy Ltd. after request of Mac Ltd. was not in the nature of a discount
given during the ordinary course of trade because otherwise the same would have been given at the time
of sale itself. However, there appears to be an uncertainty relating to the collectability of the debt, which
has arisen subsequent to sale. Therefore, it would be appropriate to make a separate provision to reflect
the uncertainty relating to collectability rather than to adjust the amount of revenue originally recorded.
Hence such discount should be charged to the Statement of Profit and Loss and not shown as deduction
from the sales figure.
With respect to sale of land, both sale and gain on sale of land earned by Toy Ltd. shall be recognized in
the books at the balance sheet date. In substance, the land was transferred with significant risk &
rewards of ownership to the buyer before the balance sheet date and what was pending was merely a
formality to register the deed. The registration post the balance sheet date only confirms the condition
of sale at the balance sheet date as per Ind AS 10 “Events after the Reporting Period.”
pg. 173
FR COMPILER
One of ABC’s contracts has an agreed price of Rs.250 crores and estimated total costs of Rs.200 crores.
The cumulative progress of this contract is:
Year ended 31st March 20X1 31st March 20X2
Cost incurred 80 145
Work certified and billed 75 160
Amount received against bills 70 150
ABC prepared and published its financial statements for the year ended 31st March 20X1. Relevant
extracts are:
Rs.in Crores
Revenue [(80/200) x 250] 100
Cost of sales (80)
Profit 20
Solution :
(i) ABC’s income statement (extracts) for the year ended:
31 March 20X2
Rs.Crores
Revenue (based on work certified) (160-100) 60
Cost of sales (balancing figure) (48)
Profit [(160/250) x (250-200)] - 20 12
pg. 174
FR COMPILER
Current assets
Amount due from customers
Contract cost to date 145
Profit recognized (20+12) 32
177
Progress billing (160)
Billing to be done 17
Contract assets (amount receivable) (160-150) 10
(ii) The relevant issue here is what constitutes the accounting policy for construction contracts.
Where there is uncertainty in the outcome of a contract, the appropriate accounting policy would
be the completed contract basis (i.e. no profit is taken until the contract is completed). Similarly,
any expected losses should be recognised immediately.
Where the outcome of a contract is reasonably foreseeable, the appropriate accounting policy is
to accrue profits by the percentage of completion method. If this is accepted, it becomes clear
that the different methods of determining the percentage of completion of construction
contracts are different accounting estimates. Thus the change made by ABC in the year to 31
March 20X2 represents a change of accounting estimate.
No Question
No Question
Solution :
As per Ind As 115 Zed Ltd. has sold two products viz Deluxe bike and the extended warranty. Revenue
earned on sale of each product should be recognised separately.
Calculation of Revenue attributable to both the components :
Total fair value of Deluxe bike and extended warranty (80,000+10,000) Rs.90,000
Less: Sale price of the Deluxe bike with extended warranty (Rs.87,300)
Discount Rs.2,700
Discount and revenue attributable to each component of the transaction:
Proportionate discount attributable to sale of Deluxe bike Rs.2,400
(2,700 x 80,000 / 90,000)
Revenue from sale of Deluxe bike (80,000 – 2,400) Rs.77,600
Proportionate discount attributable to extended warranty Rs.300
(2,700 x 10,000 / 90,000)
pg. 175
FR COMPILER
Solution :
Statement showing the amount to be charged to Revenue as per Ind AS 11
Rs.in lakh
Cost of construction incurred upto 31.03.2018 780
Add: Estimated future cost 520
Total estimated cost of construction 1,300
Degree of completion (780/1,300 x 100) 60%
Rs.in lakh
Revenue recognized (1,250 x 60%) 750
Total foreseeable loss (1,300 – 1,250) 50
Less: Expense for the current year (780 – 750) (30)
Loss to be provided for 20
2019
pg. 176
FR COMPILER
(a) How should the recognition be done for the sale of goods worth Rs.10,00,000 on a particular
day?
(b) How should the redemption transaction be recorded in the year 2017-2018? The Company has
requested you to present the sale of goods and redemption as independent transaction. Total
sales of the entity is Rs.5,000 lakhs.
(c) How much of the deferred revenue should be recognised for year 2018-19 / 19-20 because of
the estimation that only 80% of the outstanding points will be redeemed?
(d) In the next year 2018-2019, 60% of the outstanding points were discounted Balance 40% of the
outstanding points of 2017-2018 still remained outstanding. How much of the deferred
revenue should the merchant recognize in the year 2018-2019 and what will be the amount of
balance deferred revenue?
(e) How much revenue will the merchant recognized in the year 2019-2020, if 3,00,000 points are
redeemed in the year 2019-2020?
Solution :
(a) As per Ind AS 115
(i) On sale of Rs.10,00,000, 20,000 points shall be amended
10,00,000
× 10 = 20,000
500
(ii) Every point cost Rs.05, so 20,000 points shall be converted Rs.10,000.
(iii) So as sale the consideration shall be allocated to sale of goods and points in ratio of its
stand alone price.
Standalone Price Consideration Allocated
Sale of goods 10,00,000 9,90,099
Points (Rs.) 10,000 9,901
10,10,000 10,00,000
Allocation of Consideration
Price Allocated
Goods 50,00,00,000 49,50,49,505
Points 50,00,000 49,50,495
50,50,00,000 50,00,00,000
Bank 50,00,00,000
To Revenue (Sales) 49,50,49,505
To Points 49,50,495
pg. 177
FR COMPILER
(ii) Entity awarded 1,00,00,000 o customer out of which 18,00,000 remain undiscounted till
march, 2020.
∴Undiscounted points estimated to be recognized in next year = 18,00,000 × 80% =
14,40,000
∴Revenue to be recognised i.e. 1,00,00,000 – 18,00,000 + 14,40,000 = 96,40,000.
Points 5,54,620
To Revenue 5,54,620
(e) In the year 2019-2020 the merchant will be recognised the balance of Rs.1,84,873 irrespective of
points redeemed became it is last year.
Points 1,84,873
To Revenue 1,84,873
No question
pg. 178
FR COMPILER
intends to pay primarily from income derived from its food processing unit as it lacks any other major
source of income. The financing arrangement is provided on a non-recourse basis, which means that if P
Ltd. defaults then G Ltd. can repossess the machinery but cannot seek further compensation from P Ltd.,
even if the full value of the amount owed is not recovered from the machinery. The cost of the machinery
for G Ltd. is Rs.12,00,000. P Ltd. obtains control of the machinery at contract inception.
When should G Ltd. recognise revenue from sale of machinery to P Ltd. in accordance with Ind AS 115?
Solution :
As per Ind AS 115, “An entity shall account for a contract with a customer that is within the scope of this
Standard only when all of the following criteria are met:
(a) the parties to the contract have approved the contract (in writing, orally or in accordance with
other customary business practices) and are committed to perform their respective obligations;
(b) the entity can identify each party’s rights regarding the goods or services to be transferred;
(c) the entity can identify the payment terms for the goods or services to be transferred;
(d) the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash
flows is expected to change as a result of the contract); and
(e) it is probable that the entity will collect the consideration to which it will be entitled in exchange
for the goods or services that will be transferred to the customer. In evaluating whether
collectability of an amount of consideration is probable, an entity shall consider only the
customer’s ability and intention to pay that amount of consideration when it is due. The amount
of consideration to which the entity will be entitled may be less than the price stated in the
contract if the consideration is variable because the entity may offer the customer a price
concession”.
Paragraph (e) above, requires that for revenue to be recognised, it should be probable that the entity
will collect the consideration to which it will be entitled in exchange for the goods or services that will be
transferred to the customer. In the given case, it is not probable that G Ltd. will collect the consideration
to which it is entitled in exchange for the transfer of the machinery. P Ltd.’s ability to pay may be
uncertain due to the following reasons:
(a) P Ltd. intends to pay the remaining consideration (which has a significant balance) primarily from
income derived from its food processing unit (which is a business involving significant risk because
of high competition in the said industry and P Ltd.'s little experience);
(b) P Ltd. lacks sources of other income or assets that could be used to repay the balance
consideration; and
(c) P Ltd.'s liability is limited because the financing arrangement is provided on a non-recourse basis.
In accordance with the above, the criteria in Ind AS 115 are not met.
Further, it states that when a contract with a customer does not meet the criteria in paragraph 9 and an
entity receives consideration from the customer, the entity shall recognise the consideration received as
revenue only when either of the following events has occurred:
(a) the entity has no remaining obligations to transfer goods or services to the customer and all, or
substantially all, of the consideration promised by the customer has been received by the entity
and is non-refundable; or
(b) the contract has been terminated and the consideration received from the customer is non-
refundable.
In accordance with the above, in the given case G Ltd. should account for the non-refundable deposit of
Rs.1,00,000 payment as a deposit liability as none of the events described in paragraph 15 have
occurred—that is, neither the entity has received substantially all of the consideration nor it has
pg. 179
FR COMPILER
terminated the contract. Consequently, in accordance with paragraph 16, G Ltd. Will continue to account
for the initial deposit as well as any future payments of principal and interest as a deposit liability until
the criteria in paragraph 9 are met (i.e. the entity is able to conclude that it is probable that the entity
will collect the consideration) or one of the events in paragraph 15 has occurred. Further, G Ltd. will
continue to assess the contract in accordance with paragraph 14 to determine whether the criteria in
paragraph 9 are subsequently met or whether the events in paragraph 15 of Ind AS 115 have occurred.
2020
pg. 180
FR COMPILER
Solution :
(a) Entity I is likely to provide a price concession and accept an amount less than Rs.2 million in
exchange for the machinery. The consideration is therefore variable. The transaction price in this
arrangement is Rs.1.75 million, as this is the amount which entity I expects to receive after
providing the concession and it is not constrained under the variable consideration guidance.
Entity I can also conclude that the collectability threshold is met for Rs.1.75 million and therefore
contract exists.
(b) The transaction price is Rs.90 per container based on entity J's estimate of total sales volume for
the year, since the estimated cumulative sales volume of 2.8 million containers would result in a
price per container of Rs.90. Entity J concludes that based on a transaction price of Rs.90 per
container, it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty is resolved. Revenue is therefore recognised at a
selling price of Rs.90 per container as each container is sold. Entity J will recognise a liability for
cash received in excess of the transaction price for the first 1 million containers sold at Rs.100 per
container (that is, Rs.10 per container) until the cumulative sales volume is reached for the next
pricing tier and the price is retroactively reduced.
For the quarter ended 31st March, 20X8, entity J recognizes revenue of Rs.63 million (700,000
containers x Rs.90) and a liability of Rs.7 million [700,000 containers x (Rs.100 – Rs.90)].
pg. 181
FR COMPILER
Entity J will update its estimate of the total sales volume at each reporting date until the
uncertainty is resolved.
(c) Entity K records sales to the retailer at a transaction price of Rs.47.50 (Rs.50 less 25% of Rs.10).
The difference between the per unit cash selling price to the retailers and the transaction price is
recorded as a liability for cash consideration expected to be paid to the end customer. Entity K
will update its estimate of the rebate and the transaction price at each reporting date if estimates
of redemption rates change.
(d) The transaction price is Rs.950, because the expected reimbursement is Rs.50. The expected
payment to the retailer is reflected in the transaction price at contract inception, as that is the
amount of consideration to which the manufacturer expects to be entitled after the price
protection. The manufacturer will recognise a liability for the difference between the invoice
price and the transaction price, as this represents the cash that it expects to refund to the retailer.
The manufacturer will update its estimate of expected reimbursement at each reporting date
until the uncertainty is resolved.
INDASPREP.COM RAHULMALKAN.COM
pg. 182
FR COMPILER
2018
Solution :
Paragraph 2 of Ind AS 20, “Accounting for Government Grants and Disclosure of Government Assistance”
inter alia states that the Standard does not deal with government participation in the ownership of the
entity.
Since ABC Ltd. is a Government company, it implies that government has 100% shareholding in the entity.
Accordingly, the entity needs to determine whether the payment is provided as a shareholder
contribution or as a government. Equity contributions will be recorded in equity while grants will be
shown in the Statement of Profit and Loss.
Where it is concluded that the contributions are in the nature of government grant, the entity shall apply
the principles of Ind AS 20 retrospectively as specified in Ind AS 101 ‘First Time Adoption of Ind AS’. Ind
AS 20 requires all grants to be recognised as income on a systematic basis over the periods in which the
entity recognises as expenses the related costs for which the grants are intended to compensate. Unlike
AS 12, Ind AS 20 requires the grant to be classified as either a capital or an income grant and does not
permit recognition of government grants in the nature of promoter’s contribution directly to
shareholders’ funds.
Where it is concluded that the contributions are in the nature of shareholder contributions and are
recognised in capital reserve under previous GAAP, the provisions of paragraph 10 of Ind AS 101 would
be applied which states that, which states that except in certain cases, an entity shall in its opening Ind
AS Balance Sheet:
(a) recognise all assets and liabilities whose recognition is required by Ind AS;
pg. 183
FR COMPILER
(b) not recognise items as assets or liabilities if Ind AS do not permit such recognition;
(c) reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability
or component of equity, but are a different type of asset, liability or component of equity in
accordance with Ind AS; and
(d) apply Ind AS in measuring all recognised assets and liabilities.”
Accordingly, as per the above requirements of paragraph 10(c) in the given case, contributions
recognised in the Capital Reserve should be transferred to appropriate category under ‘Other Equity’ at
the date of transition to Ind AS.
No Question
No Question
No Question
2019
pg. 184
FR COMPILER
Solution :
As per paras D31AA and D31AB of Ind AS 101, when changing from proportionate consolidation to the
equity method, an entity shall recognise its investment in the joint venture at transition date to Ind AS.
That initial investment shall be measured as the aggregate of the carrying amounts of the assets and
liabilities that the entity had previously proportionately consolidated, including any goodwill arising from
acquisition. If the goodwill previously belonged to a larger cash-generating unit, or to a group of cash-
generating units, the entity shall allocate goodwill to the joint venture on the basis of the relative carrying
amounts of the joint venture and the cash-generating unit or group of cash-generating units to which it
belonged. The balance of the investment in joint venture at the date of transition to Ind AS, determined
in accordance with paragraph D31AA above is regarded as the deemed cost of the investment at initial
recognition.
Accordingly, the deemed cost of the investment will be
Property, Plant & Equipment 1,200
Goodwill (Refer Note below) 119
Long Term Loans & Advances 405
Trade Receivables 280
Other Current Assets 50
Total Assets 2054
Less: Trade Payables 75
Short Term Provisions 35
pg. 185
FR COMPILER
pg. 186
FR COMPILER
No Question
Solution :
Computation of balance total equity as on 1st April, 20X1 after transition to Ind AS
Rs. in
crore
Share capital- Equity share Capital 80
Other Equity
General Reserve 40
Capital Reserve 5
Retained Earnings (95-5-40) 50
Add: Increase in value of land (10 – 4.5) 5.5
Add: De recognition of proposed dividend (0.6 + 0.18) 0.78
Add: Increase in value of Investment 0.75 57.03 102.03
Balance total equity as on 1st April, 20X1 after transition to Ind 182.03
AS
Reconciliation between Total Equity as per AS and Ind AS to be presented in the opening balance sheet
as on 1st April, 20X1
Rs. in crore
pg. 187
FR COMPILER
No Question
2020
Solution :
Ind AS 32, ‘Financial Instruments: Presentation’, requires an entity to split a compound financial
instrument at inception into separate liability and equity components. If the liability component is no
longer outstanding, retrospective application of Ind AS 32 would involve separating two portions of
equity. The first portion is recognised in retained earnings and represents the cumulative interest
accreted on the liability component. The other portion represents the original equity component.
However, in accordance with Ind AS 101, a first-time adopter need not separate these two portions if
the liability component is no longer outstanding at the date of transition to Ind AS.
In the present case, since the liability is outstanding on the date of transition, Sigma Ltd. will need to split
the convertible debentures into debt and equity portion on the date of transition. Accordingly, we will
pg. 188
FR COMPILER
first measure the liability component by discounting the contractually determined stream of future cash
flows (interest and principal) to present value by using the discount rate of 10% p.a. (being the market
interest rate for similar debentures with no conversion option).
Rs.
Interest payments p.a. on each debenture 6
Present Value (PV) of interest payment on each debenture for years 1 to 4 (6 x 3.17) 19.02
(Note 1)
PV of principal repayment on each debenture (including premium) 110 x 0.68 (Note 2) 74.80
Total liability component on each debenture (A) 93.82
Total equity component per debenture (Balancing figure) (B) = (C) – (A) 6.18
Face value per debenture (C) 100.00
Equity component per debenture 6.18
Total equity component for 30,000 debentures 1,85,400
Total debt amount (30,000 x 93.82) 28,14,600
Thus, on the date of transition, the amount of Rs.30,00,000 being the amount of debentures will be split
as under:
Debt Rs.28,14,600
Equity Rs.1,85,400
Notes:
1. 3.17 is annuity factor of present value of Re. 1 at a discount rate of 10% for 4 years.
2. On maturity, Rs.110 will be paid (` 100 as principal payment + Rs.10 as premium)
INDASPREP.COM RAHULMALKAN.COM
pg. 189
FR COMPILER
2018
pg. 190
FR COMPILER
Note 1: The Company has achieved a major breakthrough in its consultancy services in South Asia
following which it has entered into a contract of rendering services with Floral Inc. for Rs.12 Billion during
the year. The termination clause of the contract is equivalent to Rs.14 Million and is payable in case
transition time schedule is missed from 15th December 20X5. The management however is of the view
that the liability cannot be treated as onerous.
Note 2 : The Company is not able to assess the final liability for a particular tax assessment pertaining to
the assessment year 20X1-20X2 wherein it has received a demand notice of Rs.12 Million. However, the
company is contesting the same with CIT (Appeals) as on the reporting date.
Statement of Profit & Loss
Particulars Note Year ended March 31, 20X1
Revenue from operations 11,000
Expenses
Employee Benefit Expense 2,400
Operating Costs 4,400
Depreciation 1,998
Total Expenses 8,798
Profit before tax 2,202
Tax Expense (300)
Profit after tax 1,902
Notes to Accounts:
Note 1 : Reserves and Surplus (INR in millions)
Capital Reserve 1,000
Surplus from P & L
Opening Balance 98
Additions 1,902 2,000
Reserve for foreseeable loss 1,000
Total 4,000
pg. 191
FR COMPILER
Additional Information:
(a) Share capital comprises of 200 million shares of Rs.10 each
(b) Term Loan from bank for Rs.11,110 million also includes interest accrued and due of Rs.11,110
million as on the reporting date.
(c) Reserve for foreseeable loss is created against a service contract due within 6 months.
Required :
(i) Evaluate and report the errors and misstatements in the above extracts; and,
(ii) Prepare the corrected Balance Sheet & Statement of Profit and Loss.
Solution :
(a) On evaluation of the financial statements, following was observed:
1. For foreseeable loss provision is made and not reserves. Hence, reserve for foreseeable
loss for INR 1000 million, (due within 6 months), should be a part of provision. Therefore,
it needs to be regrouped. If it was also a part of previous year’s comparatives, then a note
should be added in the notes to account for regrouping done this year.
2. Interest accrued and due of INR 1,110 million on term loan will be a part of current
liabilities since it is supposed to be paid within 12 months from the reporting date. Hence,
it should be shown under the heading “Other Current Liabilities”.
3. It can be inferred from Note 3, that the deferred tax liabilities and deferred tax assets
relate to taxes on income levied by the same governing taxation laws. Hence, these shall
be set off, in accordance with AS 22. The net DTA of INR 600 million shall be shown in the
balance sheet.
4. The note to trade receivables was incorrectly presented. The rectified note would be as
follows:
Trade receivables (Unsecured) INR in million
(a) Over six months from the date they were due for payment
i. Considered good 0
ii. Considered doubtful 80
Less: Provision for doubtful debts (10)
(A) 70
(b) Others
i. Considered good 2,130
ii. Considered doubtful 0
Less: Provision for doubtful debts 0
(B) 2,130
Total (A + B) 2,200
pg. 192
FR COMPILER
that a provision will be recognized when an enterprise has a present obligation as a result
of a past event.
Since there is nothing to show that there is a present obligation, no provision will be made.
As per para 27 of AS 29, a contingent liability is recognized only where the possibility of
an outflow of resources embodying economic benefits is not remote. Since there is no
onerous liability as on the reporting date, the possibility of an outflow becomes remote.
Therefore, no contingent liability will arise. In fact, the management has wrongly worded
it as ‘onerous liability’ in its notes to accounts. Onerous liability arises only when the
unavoidable costs of meeting the obligation under the contract exceeds the economic
benefits expected to be received from it. This note should be eliminated.
6. The demand notice from the tax department (that is under litigation) is a clear instance of
a ‘contingent liability’. Accordingly, the note should be revised as –
‘Contingent Liability:
There is a demand notice INR 12 Million, which is under CIT (Appeals) as on the reporting
date.
7. The Statement to Profit and Loss needs to represent earnings per share, as per AS 20.
pg. 193
FR COMPILER
No Question
pg. 194
FR COMPILER
transaction is carried out on normal commercial terms and is totally insignificant to ABC Ltd., as
it represents less than 1% of ABC Ltd.’s purchases.
(b) The notes to the financial statements say that plant and equipment is held under the ‘cost model’.
However, property which is owner occupied is revalued annually to fair value. Changes in fair
value are sometimes reported in profit or loss but usually in ‘other comprehensive income’. Also,
the amount of depreciation charged on plant and equipment as a percentage of its carrying
amount is much higher than for owner occupied property. Another note states that property
owned by ABC Ltd. but rent out to others is depreciated annually and not fair valued. Mr. Y is of
the opinion that there is no consistent treatment of PPE items in the accounts. Elucidate how all
these treatments comply with the relevant Ind AS.
(c) In the year to March, 2018, ABC Ltd. spent considerable amount on designing a new product. ABC
Ltd. spent the six months from April, 2017 to September, 2017 researching into the feasibility of
the product. Mr. X charged these research costs to profit or loss. From October, 2017, A Ltd. was
confident that the product would be commercially successful and A Ltd. is fully committed to
finance its future development. A Ltd. spent remaining part of the year in developing the product,
which is expected to start from selling in the next few months. These development costs have
been recognised as intangible assets in the Balance Sheet. State whether the treatment done by
Mr. X is correct when all these research and development costs are design costs. Justify your
answer with reference to relevant Ind AS.
Provide answers to the queries raised by the managing director Mr. Y as per Ind AS.
Solution :
Ongoing through the queries raised by the Managing Director Mr. Y, the financial controller Mr. X
explained the notes and reasons for their disclosures as follows:
(a) Related parties are generally characterised by the presence of control or influence between the
two parties.
Ind AS 24 ‘Related Party Disclosures’ identifies related parties as, inter alia, key management
personnel and companies controlled by key management personnel. On this basis, PQR Ltd. is a
related party of ABC Ltd.
The transaction is required to be disclosed in the financial statements of ABC Ltd. since Mr. Y is
Key Management personnel of ABC Ltd. Also at the same time, it owns 100% shares of PQR Ltd.
ie. he controls PQR Ltd. This implies that PQR Ltd. is a related party of ABC Ltd.
Where transactions occur with related parties, Ind AS 24 requires that details of the transactions
are disclosed in a note to the financial statements. This is required even if the transactions are
carried out on an arm’s length basis.
Transactions with related parties are material by their nature, so the fact that the transaction
may be numerically insignificant to ABC Ltd. does not affect the need for disclosure.
(b) The accounting treatment of the majority of tangible non-current assets is governed by Ind AS 16
‘Property, Plant and Equipment’. Ind AS 16 states that the accounting treatment of PPE is
determined on a class by class basis. For this purpose, property and plant would be regarded as
separate classes. Ind AS 16 requires that PPE is measured using either the cost model or the
revaluation model. This model is applied on a class by class basis and must be applied consistently
within a class. Ind AS 16 states that when the revaluation model applies, surpluses are recorded
in other comprehensive income, unless they are cancelling out a deficit which has previously been
reported in profit or loss, in which case it is reported in profit or loss. Where the revaluation
results in a deficit, then such deficits are reported in profit or loss, unless they are cancelling out
pg. 195
FR COMPILER
a surplus which has previously been reported in other comprehensive income, in which case they
are reported in other comprehensive income.
According to Ind AS 16, all assets having a finite useful life should be depreciated over that life.
Where property is concerned, the only depreciable element of the property is the buildings
element, since land normally has an indefinite life. The estimated useful life of a building tends
to be much longer than for plant. These two reasons together explain why the depreciation
charge of a property as a percentage of its carrying amount tends to be much lower than for
plant.
Properties which are held for investment purposes are not accounted for under Ind AS 16, but
under Ind AS 40 ‘Investment Property’. As per Ind AS 40, investment properties should be
accounted for under a cost model. ABC Ltd. had applied the cost model and thus our investment
properties are treated differently from the owner occupied property which is annually to fair
value.
(c) As per Ind AS 38 ‘Intangible Assets’, the treatment of expenditure on intangible items depends
on how it arose. Internal expenditure on intangible items incurred during research phase cannot
be recognised as an asset. Once it can be demonstrated that a development project is likely to be
technically feasible, commercially viable, overall profitable and can be adequately resourced,
then future expenditure on the project can be recognised as an intangible asset. The difference
in the treatment of expenditure upto 30th September, 2017 and expenditure after that date is
due to the recognition phase i.e. research or development phase.
Solution :
The loan to the supplier would be regarded as a financial asset. The relevant accounting standard Ind AS
109 provides that financial assets are normally measured at fair value.
If the financial asset in which the only expected future cash inflows are the receipts of principal and
interest and the investor intends to collect these inflows rather than dispose of the asset to a third party,
then Ind AS 109 allows the asset to be measured at amortised cost using the effective interest method.
If this method is adopted, the costs of issuing the loan are included in its initial carrying value rather than
being taken to profit or loss as an immediate expense. This makes the initial carrying value
Rs.2,10,00,000.
Under the effective interest method, part of the finance income is recognised in the current period rather
than all in the following period when repayment is due. The income recognised in the current period is
Rs.14,49,000 (Rs.2,10,00,000 x 6.9%)
In the absence of information regarding the financial difficulties of the supplier the financial asset at 31st
March, 2018 would have been measured at Rs.2,24,49,000 (Rs.2,10,00,000 + 14,49,000). The information
pg. 196
FR COMPILER
regarding financial difficulty of the supplier is objective evidence that the financial asset suffered
impairment at 31st March 2018.
The asset is re-measured at the present value of the revised estimated future cash inflows, using the
original effective interest rate. Under the revised estimates the closing carrying amount of the asset
would be Rs.2,05,79,981 (Rs.2,20,00,000 / 1.069). The reduction in carrying value of Rs.18,69,019
(Rs.2,24,49,000 – 2,05,79,981) would be charged to profit or loss in the current period as an impairment
of a financial asset.
Therefore, the net charge to profit or loss in respect of the current period would be Rs.4,20,019
(18,69,019 – 14,49,000).
No Question
2019
No Question
No Question
No Question
pg. 197
FR COMPILER
Non-current assets
Fixed Assets 5,000
Deferred Tax Assets 3 700
Current assets
Inventories 1,500
Trade receivables 5 1,100
Cash and bank balances 2,000
Total 10,300
Notes to Account :
Note 1 : Reserve and surplus
(Rs. in lakhs)
Capital Reserve 500
Surplus from P & L
Opening Balance 550
Additions 950
Reserves for foreseeable loss 400
Total 2,400
pg. 198
FR COMPILER
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 199
FR COMPILER
2018
No Question
Solution :
A. As per section 135 of the Companies Act 2013
Every company having either
❖ net worth of Rs.500 crore or more, or
❖ turnover of Rs.1,000 crore or more or
❖ a net profit of Rs.5 crore or more
during any financial year shall constitute a Corporate Social Responsibility (CSR) Committee of
the Board consisting of three or more directors (including at least one independent director).
pg. 200
FR COMPILER
No Question
Solution :
Baby Ltd. has earmarked 75 paise per pack to spend as CSR activities. However, only by earmarking the
amount from such sale for CSR expenditure, the company cannot show it as CSR expenditure. To qualify
pg. 201
FR COMPILER
the amount as CSR expenditure, it has to be spent. Hence, Rs.30,000 will not be automatically considered
as CSR expenditure till the time it is spent on CSR activities i.e it is deposited to ‘Swachh Bharat
Foundation’.
2019
Solution :
It has been clarified that ‘any financial year’ referred to under sub-section (1) of section 135 of the Act
read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.
A company which meets the net worth, turnover or net profits criteria in any of the preceding three
financial years, but which does not meet the criteria in the relevant financial year, will still need to
constitute a CSR Committee and comply with provisions of sections 135(2) to (5) read with the CSR Rules.
As per the criteria to constitute CSR committee -
1) Net worth greater than or equal to INR 500 Crores: This criterion is not satisfied.
2) Sales greater than or equal to INR 1000 Crores: This criterion is not satisfied.
3) Net Profit greater than or equal to INR 5 Crores: This criterion is satisfied in financial year ended
March 31, 2018.
Hence, the Company will be required to form a CSR committee.
No Question
No Question
No Question
pg. 202
FR COMPILER
2020
No Question
INDASPREP.COM RAHULMALKAN.COM
pg. 203
FR COMPILER
2018
No Question
No Question
Solution :
As provided in Ind- AS 111 - Joint Arrangements - this is a joint arrangement because two or more parties
have joint control of the property under a contractual arrangement. The arrangement will be regarded
as a joint operation because Alpha Ltd. and Gama Ltd. have rights to the assets and obligations for the
pg. 204
FR COMPILER
liabilities of this joint arrangement. This means that the company and the other investor will each
recognise 50% of the cost of constructing the asset in property, plant and equipment.
The borrowing cost incurred on constructing the property should under the principles of Ind AS 23
‘Borrowing Costs’, be included as part of the cost of the asset for the period of construction.
In this case, the relevant borrowing cost to be included is Rs.50,00,000 (Rs.10,00,00,000 x 10% x 6/12).
The total cost of the asset is Rs.40,50,00,000 (Rs.40,00,00,000 + Rs.50,00,000) Rs.20,25,00,000 crores is
included in the property, plant and equipment of Alpha Ltd. and the same amount in the property, plant
and equipment of Gama Ltd.
The depreciation charge for the year ended 31 March 2018 will therefore be Rs.1,01,25,000
(Rs.40,50,00,000 x 1/20 x 6/12) Rs.50,62,500 will be charged in the statement of profit or loss of the
company and the same amount in the statement of profit or loss of Gama Ltd.
The other costs relating to the arrangement in the current year totalling Rs.54,00,000 (finance cost for
the second half year of Rs.50,00,000 plus maintenance costs of Rs.4,00,000) will be charged to the
statement of profit or loss of Alpha Ltd. and Gama Ltd. in equal proportions- Rs.27,00,000 each.
No Question
2019
No Question
No Question
No Question
No Question
2020
pg. 205
FR COMPILER
Scenario 1: Where both investments in the associate result in significant influence on a stand-alone basis
- Subsidiary X and Y ownership interest in associate Z is 25% and 20% respectively.
Scenario 2: When neither of the investments in the associate results in significant influence on a stand-
alone basis, but do provide the parent with significant influence on a combined basis - Subsidiary X and
Y ownership interest in associate Z is 10% each.
Scenario 3: When one of the investments in the associate results in significant influence on a stand-alone
basis and the other investment in the associate does not result in significant influence on a stand-alone
basis - Subsidiary X and Y ownership interest in associate Z is 30% and 10% respectively.
Assume there is significant influence if the entity has 20% or more voting rights.
Solution :
Paragraph 18 of Ind AS 28 states that, “when an investment in an associate or a joint venture is held by,
or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust
and similar entities including investment-linked insurance funds, the entity may elect to measure
investments in those associates and joint ventures at fair value through profit or loss in accordance with
Ind AS 109. An entity shall make this election separately for each associate or joint venture, at initial
recognition of the associate or joint venture.”
Paragraph 19 of Ind AS 28 provides that, “‘when an entity has an investment in an associate, a portion
of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar
entities including investment-linked insurance funds, the entity may elect to measure that portion of the
investment in the associate at fair value through profit or loss in accordance with Ind AS 109 regardless
of whether the venture capital organisation has significant influence over that portion of the investment.
If the entity makes that election, the entity shall apply the equity method to any remaining portion of its
investment in an associate that is not held through a venture capital organisation”. Therefore, fair value
exemption can be applied partially in such cases.
Scenario 1: Where both investments in the associate result in significant influence on a stand-alone basis.
In the present case, in accordance with paragraph 19 of Ind AS 28, P must follow equity method of
accounting for its 20% interest held by Y. Under the partial use of fair value exemption, P may elect to
measure the 25% interest held by X at fair value through profit or loss.
Scenario 2: When neither of the investments in the associate results in significant influence on a stand-
alone basis, but do provide the parent with significant influence on a combined basis.
pg. 206
FR COMPILER
In the present case in accordance with the paragraph 19 of Ind AS 28, P must follow equity method of
accounting for its 10% interest held by Y, even though Y would not have significant influence on a stand-
alone basis. Under the partial use of fair value exemption, P may elect to measure the 10% interest held
by X at fair value through profit or loss.
Scenario 3: When one of the investments in the associate results in significant influence on a stand-alone
basis and the other investment in the associate does not result in significant influence on a stand-alone
basis
In the present case, in accordance with paragraph 19 of Ind AS 28, P must follow equity method of
accounting for its 10% interest held by Y, even though Y would not have significant influence on a stand-
alone basis. Under the partial use of fair value exemption, the P may elect to measure the 30% interest
held by X at fair value through profit or loss.
INDASPREP.COM RAHULMALKAN.COM
pg. 207
FR COMPILER
2018
No Question
No Question
No Question
No Question
2019
No Question
No Question
No Question
pg. 208
FR COMPILER
No Question
2020
Solution :
Paragraph 20 of Ind AS 111 states that “a joint operator shall recognise in relation to its interest in a joint
operation:
(a) its assets, including its share of any assets held jointly;
(b) its liabilities, including its share of any liabilities incurred jointly;
(c) its revenue from the sale of its share of the output arising from the joint operation;
(d) its share of the revenue from the sale of the output by the joint operation; and
(e) its expenses, including its share of any expenses incurred jointly.”
The rights and obligations, as specified in the contractual arrangement, that an entity has with respect
to the assets, liabilities, revenue and expenses relating to a joint operation might differ from its
ownership interest in the joint operation. Thus a joint operator needs to recognise its interest in the
assets, liabilities, revenue and expenses of the joint
operation on the basis (bases) specified in the contractual arrangement, rather than in proportion of its
ownership interest in the joint operation.
pg. 209
FR COMPILER
Thus, AB Limited would record the following in its financial statements, to account for its rights to the
assets of PQR and its obligations for the liabilities of PQR.
Rs. in crore
Assets
Cash 20
Building 1* 240
Building 2 100
Liabilities
Debt owned to XYZ (third party)** 240
Employees benefit plan obligation 50
* Since AB Limited has the rights to all of Building No. 1, it records the amount in its entirety.
** AB Limited has obligation for the debt owed by PQR to XYZ in its entirety.
INDASPREP.COM RAHULMALKAN.COM
pg. 210