CA Final Financial Reporting

CHAPTER WISE TEST 12

Chapters: 13
(All Questions are compulsory)
(Time allowed: 1.5 Hours) (Unit : 40 Marks)

Multiple Choice Questions

1. Two investors, IG Ltd and C Ltd, subscribe to invest in company ZG Ltd, a producing mine. Each party
owns 50% of the issued share capital of ZG Ltd and appoint 2 of its members each to the board of ZG
Ltd. All mining operations are managed by the 'operator', IG Ltd. The terms of the operating
agreement state that the operator can only be replaced by the unanimous consent of the investors.
The operating agreement also states that unanimous approval is required for:
(i) Cessation of mining
(ii) Any disposal of the mine
(iii) The acquisitions of any capital equipment above INR 100 million.
The relevant activity of the arrangement is the rate at which mining activities are carried out, as the
amount of ore extracted in a given period will affect the amount of profit or loss generated by
company ZG. Which of the Investor (IG Ltd or C Ltd) controls ZG Ltd?
(a) IG Ltd
(b) C Ltd
(c) Both
(d) Either a) or b) (2 Marks)
Ans: (a)

2. IG Ltd owns 68% of C Ltd and the remaining 32% is owned by PG Ltd. IG Ltd appoints PG Ltd which is
a management company to run its investment entity C Ltd. PG Ltd was paid fixed and performance
fees in relation to the services provided. This, in combination with the return on investment creates
exposure to variability in return. IG Ltd has the right to remove PG Ltd as the management company
of C Ltd if it so wishes. Determine the control on C Ltd in accordance with Ind AS 110.
(a) IG Ltd
(b) PG Ltd
(c) Both
(d) Either a) or b) (2 Marks)
Ans: (a)

3. A Ltd acquired 40% stake in B Ltd for ₹ 10,000. The net assets of B Ltd on date of acquisition were ₹
18,000 (Fair value = ₹ 20,000). Dividend of ₹ 12,000 was distributed by B Ltd and DDT of ₹ 3,000 was
paid credit of which was utilized by A Ltd in payment of its own dividends. Discuss the accounting
treatment. Ind AS 28
(a) Reduce amount off investment by ₹ 4,800 and debit bank by equal amount.
(b) Reduce amount off investment by ₹ 6,000; debit bank by ₹ 4,800 and add ₹ 1,200 to DDT expense
in SOCIE.
(c) Reduce amount off investment by ₹ 6,000; debit bank by ₹ 4,800 and add NCI ₹ 1,200 to DDT
expense in P or L.
(d) Any of the above can be followed. (2 Marks)
Ans: (b)
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4. IG Ltd and NG Ltd entered into a contractual agreement for manufacture of bags and bag covers as
under:-
• NG Ltd will design, manufacture and sell bags;
• IG Ltd will design, manufacture and sell bag covers.
• Together they will sell bags matching with the colour of bag covers as a set;
IG Ltd and NG Ltd will take decisions independently when they sell the products independently.
However, when NG Ltd and IG Ltd sell products together in a set, all decisions in respect of the same
will be taken unanimously. How will the transactions for individual products and sets be accounted?
(a) All as per Ind AS 111.
(b) Individual products as per other Ind AS.
(c) Products sold in sets as per Ind AS 111.
(d) b) and c). (2 Marks)
Ans: (d)

5. IG Ltd. acquires 40% of the voting shares of BG Ltd. on 1 Apr 2021. The purchase consideration was
INR 20 crores, and IG Ltd. has joint control over BG Ltd. The retained earnings of BG Ltd. were INR 5
crores at the date of acquisition. The retained earnings of BG Ltd. at March 31, 2022 were INR10
crores. Calculate the carrying value of the investment in joint venture BG Ltd. in the group financial
statements of IG Ltd at 31 Mar 2022.
(a) INR 24.5 crores
(b) INR 35 crores
(c) INR 22 crores
(d) INR 25 crores (2 Marks)
Ans: (c)

Descriptive Questions

1(a) DEF Ltd. acquired 100% ordinary shares of Rs. 100 each of XYZ Ltd. on 1st October 20X1. On 31st
March, 20X2 the summarised Balance Sheets of the two companies were as given below:
DEF Ltd. XYZ Ltd.
Assets
Property Plant Equipment
Land & Buildings 15,00,000 18,00,000
Plant & Machinery 24,00,000 13,50,000
Investment in XYZ Ltd. 34,00,000 -
Inventory 12,00,000 3,64,000
Financial Assets
Trade Receivable 5,98,000 4,00,000
Cash 1,45,000 80,000
Total 92,43,000 39,94,000
Equity & Liabilities
Equity Capital (Shares of Rs. 100 each fully paid) 50,00,000 20,00,000
Other Equity
Other reserves 24,00,000 10,00,000
Retained Earnings 5,72,000 8,20,000

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Financial Liabilities
Bank Overdraft 8,00,000 -
Trade Payable 4,71,000 1,74,000
Total 92,43,000 39,94,000
The retained earnings of XYZ Ltd. showed a credit balance of Rs. 3,00,000 on 1st April 20X1 out of
which a dividend of 10% was paid on 1st November; 20X1 DEF Ltd. has recognised the dividend
received to profit or loss account; Fair Value of Plant & Machinery as on 1st October 20X1 was Rs.
20,00,000. The rate of depreciation on plant & machinery is 10%.
Following are the increases on comparison of Fair value as per respective Ind AS with Book value
as on 1st October 20X1 which are to be considered while consolidating the Balance Sheets.
Liabilities Amount Assets Amount
Trade Payables 1,00,000 Land & Buildings 10,00,000
Inventories 1,50,000
Notes:
1. It may be assumed that the inventory is still unsold on balance sheet date and the Trade
Payables are also not yet settled.
2. Also assume that the Other Reserves of both the companies as on 31st March 20X2 are the
same as was on 1st April 20X1.
3. All fair value adjustments have not yet started impacting consolidated post-acquisition
profits.
4. Investment in XYZ Ltd is carried at cost in the separate financial statements of DEF Ltd.
5. Appreciation of Rs.10 lakhs in land & buildings is entirely attributable to land element only.
6. Depreciation on plant and machinery is on WDV method.
7. Acquisition-date fair value adjustment to inventories of XYZ Ltd. existing at the balance sheet
date does not result in need for any write-down.
Prepare consolidated Balance Sheet as on 31st March, 20X2.
(15 Marks)

Answer 1 (a)
Consolidated Balance Sheet of DEF Ltd. and its subsidiary, XYZ Ltd. as on 31st March, 20X2
Particulars Note No. Rs.
I. Assets
(1) Non-current assets
(i) Property Plant & Equipment 1 86,00,000
(2) Current Assets
(i) Inventories 2 17,14,000
(ii) Financial Assets
(a) Trade Receivables 3 9,98,000
(b) Cash & Cash equivalents 4 2,25,000
Total Assets 1,15,37,000
II. Equity and Liabilities
(1) Equity
(i) Equity Share Capital 5 50,00,000
(ii) Other Equity 6 49,92,000
(2) Current Liabilities
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(i) Financial Liabilities

(a) Trade Payables 7 7,45,000
(b) Short term borrowings 8 8,00,000
Total Equity & Liabilities 1,15,37,000
Notes to Accounts
Rs.
1. Property Plant & Equipment
Land & Building 43,00,000
Plant & Machinery (W.N. 7) 43,00,000 86,00,000
2. Inventories
DEF Ltd. 12,00,000
XYZ Ltd. 5,14,000 17,14,000
3. Trade Receivables
DEF Ltd. 5,98,000
XYZ Ltd. 4,00,000 9,98,000
4. Cash & Cash equivalents
DEF Ltd. 1,45,000
XYZ Ltd. 80,000 2,25,000
7. Trade payable
DEF Ltd. 4,71,000
XYZ Ltd. 2,74,000 7,45,000
8. Shorter-term borrowings
Bank overdraft 8,00,000
Statement of Changes in Equity:
1. Equity share Capital
Balance at the beginning of the Changes in Equity share capital Balance at the end of the
reporting period during the year reporting period
50,00,000 0 50,00,000
2. Other Equity
Share Equity Reserves & Surplus Total
application component of Capital Retained Other
money compound reserve Earnings Reserves
pending financial
allotment instrument
Balance at the
beginning 0 24,00,000 24,00,000

Total
comprehensive
income for 0 5,72,000 5,72,000
the year
Dividends 0 (2,00,000) (2,00,000)
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Total 0 3,35,000 3,35,000

comprehensive
income
attributable to
parent
Gain on Bargain 18,85,000 18,85,000
purchase
Balance at the 18,85,000 7,07,000 49,92,000
end of reporting 24,00,000
period
It is assumed that there exists no clear evidence for classifying the acquisition of the subsidiary as a
bargain purchase and, hence, the bargain purchase gain has been recognized directly in capital reserve.
If, however, there exists such a clear evidence, the bargain purchase gain would be recognized in other
comprehensive income and then accumulated in capital reserve. In both the cases, closing balance of
capital reserve will be Rs. 18,85,000.
Working Notes:
1. Adjustments of Fair Value
The Plant & Machinery of XYZ Ltd. would stand in the books at Rs. 14,25,000 on 1st
October, 20X1, considering only six months’ depreciation on Rs. 15,00,000 total depreciation
being Rs. 1,50,000. The value put on the assets being Rs. 20,00,000 there is an appreciation to
the extent of Rs. 5,75,000.
2. Acquisition date profits of XYZ Ltd.
Rs.
Reserves on 1.4. 20X1 10,00,000
Profit & Loss Account Balance on 1.4. 20X1 3,00,000

Profit for 20X2: Total Rs. 8,20,000 less Rs. 1,00,000 (3,00,000 – 3,60,000
2,00,000) i.e. Rs. 7,20,000; for 6 months i.e. up to 1.10.20X1
Total Appreciation including machinery appreciation (10,00,000 1,50,000 + 16,25,000
5,75,000 – 1,00,000)
Share of DEF Ltd. 32,85,000
3. Post-acquisition profits of XYZ Ltd.
Rs.
Profit after 1.10. 20X1 [8,20,000-1,00,000]x 6/12 3,60,000
Less: 10% depreciation on Rs. 20,00,000 for 6 months less depreciation already (25,000)
charged for 2nd half of 20X1-20X2 on
Rs. 15,00,000 (1,00,000-75,000)
Share of DEF Ltd. 3,35,000
4. Consolidated total comprehensive income
Rs.
DEF Ltd.
Retained earnings on 31.3.20X2 5,72,000
Less: Retained earnings as on 1.4.20X1 Profits (0)
for the year 20X1-20X2 5,72,000
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Less: Elimination of intra-group dividend (2,00,000)

Adjusted profit for the year 3,72,000
XYZ Ltd.
Adjusted profit attributable to DEF Ltd. (W.N.3) 3,35,000
Consolidated profit or loss for the year 7,07,000

5. No Non-controlling Interest as 100% shares of XYZ Ltd. are held by DEF Ltd.
6. Gain on Bargain Purchase
Rs.
Amount paid for 20,000 shares 34,00,000
Par value of shares 20,00,000
DEF Ltd.’s share in acquisition date profits of XYZ Ltd. 32,85,000 (52,85,000)
Gain on Bargain Purchase 18,85,000
7. Value of Plant & Machinery
Rs.

DEF Ltd. 24,00,000

XYZ Ltd. 13,50,000

Add: Appreciation on 1.10. 20X1 5,75,000

19,25,000

Add: Depreciation for 2nd half charged on pre- revalued value 75,000

Less: Depreciation on Rs. 20,00,000 for 6 months (1,00,000) 19,00,000

43,00,000

2.(a) 'High Speed Limited' manufactures and sells cars. The Company wants to foray into the two-wheeler
business and therefore it acquires 30% interest in Quick Bikes Limited for ₹ 5,00,000 as at 1st
November, 20X1 and an additional 25% stake as at 1st January, 20X2 for ₹ 5,00,000 at its fair value.
Following is the Balance Sheet of Quick Bikes Limited as at 1st January, 20X2:
Carrying Fair Carrying Fair
Liabilities Assets
value value value value
Share capital 1,00,000 Plant and equipment 3,50,000 7,50,000
Reserves 5,50,000 Investment in bonds 4,00,000 5,00,000
Trade payables 1,50,000 1,50,000 Trade Receivables 50,000 50,000
Total 8,00,000 Total 8,00,000
Quick Bikes Limited sells the motorcycles under the brand name 'Super Start' which has a fair value
of ₹ 3,50,000 as at 1st January, 20X2; This is a self- generated brand therefore Quick Bikes Limited
has not recognized the brand in its books of accounts. Following is the separate balance sheet of High
Speed Limited as at 1st January, 20X2:
Liabilities Amount Assets Amount
Share capital 5,00,000 Plant and equipment 13,50,000
Reserves 15,00,000 Investment in Quick Bike 10,00,000
Short term loans 4,00,000 Trade Receivables 80,000

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Trade payables 3,00,000 Cash and bank balances 5,20,000

Other liabilities 2,50,000
Total 29,50,000 Total 29,50,000
In relation to the acquisition of Quick Bikes Limited, you are required to:
(i) Pass the necessary journal entries to give effect of business combination in accordance with
Ind AS 103 as at acquisition date 1st January, 20X2. NCI is measured by the entity at fair value.
Provide working notes, Ignore deferred tax implication; and
(ii) Prepare a consolidated balance sheet of High Speed Limited as at 1st January, 20X2.
(15 Marks)
Answer 2(a)
(i) Journal Entry
₹ ₹
Plant and Equipment Dr. 7,50,000
Investment in bonds Dr. 5,00,000
Trade Receivables Dr. 50,000
Brand Dr. 3,50,000
Goodwill (balancing figure) Dr. 5,00,000
To Investment in Quick Bikes 10,00,000
To Profit or loss A/c (W.N.1) 1,00,000
To Trade Payables 1,50,000
To NCI (W.N.3) 9,00,000
(Being assets and liabilities acquired at fair value and previous
investment considered at fair value on the acquisition date)
Working Notes:
1. Calculation of fair value of shares on the acquisition date 1 st January, 20X2
25% Shares purchase on 1st January, 20X2 (fair value) ₹ 5,00,000
30% Shares purchase on 1st November, 20X1 at ₹ 5,00,000
Fair value = [(5,00,000 / 25%) x 30%] ₹ 6,00,000
Total consideration at fair value on acquisition date ₹ 11,00,000
Less: Cost of investment (₹ 10,00,000)
Gain charged to Profit or Loss (5,00,000 + 5,00,000) ₹ 1,00,000

2. Computation of Net Identifiable Assets at fair value

₹
Plant and Equipment 7,50,000
Investment in bonds 5,00,000
Trade Receivables 50,000
Self-generated Brand 3,50,000
16,50,000
Less: Trade Payables (1,50,000)
Net Identifiable Assets at fair value 15,00,000
3. Measurement of Non-controlling Interest (on fair value basis)

Share of NCI (100- 30-25) 45%

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Taking fair value of shares on 1st January, 20X2 as a base [(11,00,000/ 55%) x ₹ 9,00,000
45%]

(ii) Consolidated Balance Sheet of High Speed Limited as at 1 st January, 20X2

Note No. ₹
Assets
Non-current assets
(a) Property, plant and equipment 1 21,00,000
(b) Intangible asset 2 8,50,000
(c) Investment in bonds 5,00,000
Current Assets
(a) Financial assets
(i) Trade receivables 3 1,30,000
(ii) Cash and cash equivalents 4 5,20,000
41,00,000
Equity and Liabilities
Equity
(a) Equity share capital 5,00,000
(b) Other Equity 5 16,00,000
Non-controlling Interest (W.N.3) 9,00,000
Current Liabilities
(a) Financial liabilities
(i) Borrowings 6 4,00,000
(ii) Trade Payables 7 4,50,000
(b) Other Current Liabilities 8 2,50,000
41,00,000

Notes to Accounts
S. No. ₹ ₹
1. Property, plant, and equipment
High Speed Ltd. 13,50,000
Quick Bikes Ltd. 7,50,000 21,00,000
2. Intangible asset
Goodwill 5,00,000
Brand value of Quick Bikes Ltd. 3,50,000 8,50,000
3. Trade Receivables
High Speed Ltd. 80,000
Quick Bikes Ltd. 50,000 1,30,000
4. Cash and cash equivalents
Quick Bikes Ltd. 5,20,000
5. Other Equity - Reserves
High Speed Ltd. 15,00,000

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Add: Gain on investment in Quick Bikes Ltd. 1,00,000 16,00,000

6. Borrowings
Short term loans of High-Speed Ltd. 4,00,000
7. Trade Payables
High Speed Ltd. 3,00,000
Quick Bikes Ltd. 1,50,000 4,50,000
8. Other Current Liabilities
High Speed Ltd. 2,50,000