CA Final - Financial Reporting
Question Paper
(Test on Financial Instruments)
(FRWITHAK)
Total Marks – 44 Marks
Date: 18/06/2021
Time: 9 PM to 10.30 PM
Question 1 – 10 Marks – 16 Minutes
On 1 April 2019, Shelter Ltd. issued 5,000, 8% debentures maturing on 31 March 2024. The
debentures are convertible at the option of the holder into equity shares of Shelter Ltd. at a
conversion price of ₹ 105 per share or redeemable at face value of Rs. 100 each. Interest is
payable annually in cash. At the date of issue, Shelter Ltd. could have issued non-convertible
debt with a 5 year term bearing a coupon interest rate of 12%. On 1 April 2022, the convertible
debentures have a fair value of ₹ 5,25,000. Shelter Ltd. makes a tender offer to debenture
holders to repurchase the debentures for ₹ 5,25,000, which the holders accepted. At the date
of repurchase, Shelter Ltd. could have issued non-convertible debt with a 2 year term bearing
a coupon interest rate of 9%.
Show accounting entries in the books of Shelter Ltd. for recording of equity and liability
component:
(1) At the time of initial recognition and
(2) At the time of repurchase of the convertible debentures.
The following present values of Re. 1 at 8%, 9% & 12% are supplied to you:
Interest Rate Year 1 Year 2 Year 3 Year 4 Year 5
8% 0.926 0.857 0.794 0.735 0.681
9% 0.917 0.842 0.772 0.708 0.650
12% 0.893 0.797 0.712 0.636 0.567
Test Designed by CA Aakash Kandoi
Question 2 – 12 Marks – 20 Minutes
Wheel Co. Limited borrowed ₹ 500,000,000 from a bank on 1 January 20X1. The original
terms of the loan were as follows:
• Interest rate: 11%
• Repayment of principal in 5 equal instalments
• Payment of interest annually on accrual basis
• Upfront processing fee: ₹ 5,870,096 Effective interest rate on loan: 11.50%
On 31 December 20X2, Wheel Co. Limited approached the bank citing liquidity issues in
meeting the cash flows required for immediate instalments and re-negotiated the terms of the
loan with banks as follows:
• Interest rate 15%
• Repayment of outstanding principal in 10 equal instalments starting 31 December
20X3
• Payment of interest on an annual basis
Record journal entries in the books of Wheel Co. Limited till 31 December 20X3, after giving
effect of the changes in the terms of the loan on 31 December 20X2.
Test Designed by CA Aakash Kandoi
QUESTION 3 – 6 MARKS – 10 Minutes
QA Ltd. issued 10,00,000 of 8% Long Term bond-A Series of Rs. 1 each on
1st April, 2016. The bond tenure is 3 years. Interest is payable annually on 1st April each year.
The investors expect an effective interest rate on the loan at 10%. QA Ltd. wants you to
suggest the suitable accounting entries for the issue of these bonds as per applicable Ind AS.
Consider the discounting factor 3 years, 10% discounting factor is 0.751315 and 3 years
cumulative discounting factor is 2.48685.
(i) What is the principal value of the bond at the initial recognition at the time of issue of bond
as per applicable Ind AS?
(ii) What is the present value of the interest payment to be recognised as part of the sale
price of the bond as per applicable Ind AS?
(iii) What are the proceeds of the sale of the bond to be recognized at the time of initial
recognition as per applicable Ind AS?
(iv) What is the accounting entry to be passed at the time of accounting for payment of interest
for the first year?
Test Designed by CA Aakash Kandoi
Question 4 – 8 Marks – 14 Minutes
Entity A (an INR functional currency entity) enters into a USD 1,000,000 sale contract on 1
January 20X1 with Entity B (an INR functional currency entity) to sell equipment on 30 June
20X1.
Spot rate on 1st January 20X1: INR/USD 45
Spot rate on 31 March 20X1: INR/USD 57
Three-month forward rate on 31 March 20X1: INR/USD 45
Six-month forward rate on 1 January 20X1: INR/USD 55
Spot rate on 30 June 20X1: INR/USD 60
Assume that this contract has an embedded derivative that is not closely related and requires
separation. Please provide detailed journal entries in the books of Entity A for accounting of
such embedded derivative until sale is actually made.
Test Designed by CA Aakash Kandoi
Question 5 – 8 Marks – 14 Minutes
As part of staff welfare measures, Y Co Ltd. has contracted to lend to its employees sums of
money at 5% per annum rate of interest. The amounts lent are to be repaid in five equal
instalments for principle along with the interest. The market rate of interest is 10% per annum
for comparable loans. Y lent ₹1,600,000 to its employees on 1st January 20X1.
Following the principles of recognition and measurement as laid down in Ind AS 109, you are
required to record the entries for the year ended 31 December 20X1, for the transaction and
also compute the value of loan initially to be recognised and amortised cost for all subsequent
years.
For the purpose of calculation, following discount factors at interest rate of 10% per annum
may be adopted –
At the end of year –
Year Present value factor
1 .909
2 .827
3 .751
4 .683
5 .620
Test Designed by CA Aakash Kandoi
