CA-Final

New Syllabus
May 2023
Onwards
Module 1& 2

The Handwritten Notes

Key Benefits of Handwritten
Notes:-
1) To Complete the
Financial Reporting in a
comprehensive Manner
with short duration
2) At the time of watching
lecture focus only on
Concept
&
3) Multiple Charts and
summary prepared for
better linkage of the
provision and to facilitate
its proper understanding
4) Boost the confidence to
crack the CA-Final Exam.
.

CA. PARVEEN JINDAL

As Per ICAI
Syllabus
Applicable
From May 2023
Exam Onwards
 Module 1 & 2
Index
Chapter
Particulars Page Range
No.
1 CHAPTER 1 BASIC KNOWLEDGE ON IND AS 1-4
2 CHAPTER 2 INVESTMENT PROPERTY IND AS 40 5-33
Part -1 5-7
Part -2 8-10
Part -3 11-16
Part -4 16-21
Part -5 21-25
Part -6 25-30
Part -7 30-31
Part -8 31-33
3 CHAPTER 3 BORROWING COST IND AS 23 34-71
Part -1 34-37
Part -2 38-40
Part -3 41-47
Part -4 47-53
Part -5 53-57
Part -6 58-63
Part -7 63-65
Part -8 65-65
Part -9 65-70
Part -10 70-71
4 CHAPTER 4 LEASE ACCOUNTING IND AS 116 72-134
Part -1 72-76
Part -2 76-80
Part -3 80-84
Part -4 85-87
Part -5 88-93
Part -6 94-102
Part -7 102-109
Part -8 110-114
Part -9 115-120
Part -10 120-126
 Part -11 126-129
Part -12 130-134
Part -13 134-134
5 CHAPTER 5 GOVT GRANTS IND AS 20 135-162
Part -1 135-139
Part -2 140-148
Part -3 149-151
Part -4 152-158
Part -5 159-162
6 CHAPTER 6 CORPORATE SOCIAL RESPONSIBILITY 163-173
Part -1 163-167
Part -2 167-172
Part -3 173-173
7 CHAPTER 7 AGRICULTURAL ACTIVITIES IND AS 41 174-195
Part -1 174-179
Part -2 180-185
Part -3 186-192
Part -4 192-195
8 CHAPTER 8 INVENTORIES (VALUATION) IND AS 2 196-216
Part -1 196-201
Part -2 202-207
Part -3 207-211
Part -4 212-216
Part -5 216-216
9 CHAPTER 9 PPE IND AS 16 217-247
Part -1 217-222
Part -2 222-227
Part -3 227-233
Part -4 234-241
Part -5 241-245
Part -6 245-247
Part -7 247--247
10 CHAPTER 10 IMPAIRMENT OF ASSETS IND AS 36 248-288
Part -1 248-258
Part -2 258-263
Part -3 263-271
 Part -4 272-278
Part -5 278-284
Part -6 285-287
Part -7 287-288
11 CHAPTER 11 INTANGIBLE ASSETS IND AS 38 289-307
Part -1 289-292
Part -2 293-300
Part -3 300-306
Part -4 306-307
12 CHAPTER 12 NON CURRENT ASSETS IND AS 105 308-333
Part -1 308-313
Part -2 314-319
Part -3 320-325
Part -4 325-330
Part -5 330-333
13 CHAPTER 13 INTEGRATED REPORTING 334-336
Part -1 334-336
14 CHAPTER 14 OPERATING SEGMENT IND AS 108 337-353
Part -1 337-341
Part -2 342-350
Part -3 350-350
Part -4 350-353
15 CHAPTER 15 RELATED PARTY DISCLOSURES IND AS 24 354-372
Part -1 354-359
Part -2 359-364
Part -3 364-368
Part -4 368-370
Part -5 371-371
Part -6 371-372
16 CHAPTER 16 EARNING PER SHARE IND AS 33 373-423
Part -1 373-376
Part -2 377-380
Part -3 380-384
Part -4 385-392
Part -5 392-401
Part -6 401-408
 Part -7 408-421
Part -8 421-423
17 CHAPTER 17 SCHEDULE III 424-453
Part -1 424-434
Part -2 434-445
Part -3 445-453

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

Join us on
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CA Parveen Jindal Classes
CA-Final Financial Reporting CA Parveen Jindal Classes

Chapter-1 - Basic Knowledge On Ind As

*Part 1*

Basic knowledge on Ind –AS Application in India

Application of Ind-AS

Application on Application on Application on Application on

Companies NBFC’ on Banking co. Insurance co.
(unit I) (unit II) (unit III) (unit IV)

Unit I: Application on companies

(Ind AS Rules 2015)

Phase I : Application w.e.f. 1.4.2015 (with comparatives)

Voluntary Application was permitted from above date

Phase II : Mandatory Application w.e.f. 1.4.2016 (with comparatives)

Section 2 Clause 57
A. Listed companies having Net worth of Rs.500 crores or more
B. Unlisted companies having Net worth of Rs.500 Crores or more
C. Holding, Subsidiary, Associates, Joint ventures of above companies
mentioned in A & B

Phase III: Mandatory Application w.e.f. 1.4.2017 (with comparatives)

A. All Listed companies having Net worth below 500 Crores

B. Unlisted companies having Net worth below 500 crores but upto 250
crores
(Note : All unlisted companies having Net worth below 250 crores
shall apply Companies AS Rules 2006)

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C. Holding, Subsidiary, Associates, Joint ventures of above companies

as specified in A & B

Additional points to be considered :-

1. If any Entity is listed on a small & medium Exchange then it will

not be Considered as a Listed company for the compliance of Ind AS.
(Note : If an Entity is listed on SME, but having Net worth of 250
Crores or more, then It will follow Application of Ind AS)

2. As per the rules, No entity can discontinue the application of Ind

AS in any way after starting of application of Ind AS. It can be said
that company cannot choose Application of Simple Accounting
Standards if It has started Applying Ind AS. (Application of Ind AS
will be made on Irrevocable basis)

3. As per the rules, consolidated financial statements shall also be

Prepared on the basis of Ind AS if separate financial statements
are prepared on the Basis of Ind AS.

4. If any Domestic Entity, which is applying Ind AS Rules 2015, is

having a Foreign Subsidiary then Separate financial statements of
foreign company Shall be prepared according to the Local standards
which are applicable in that Nation, But consolidated financial
statements shall be prepared according to Ind AS.

5. If an Entity is a subsidiary of foreign parent company then

consolidation Will be made according to rules Applicable in that
Nation in which foreign Company is operating its business.
Its Separate statements shall be prepared according to Indian Rules

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6. Section 2 clause 57 of companies act 2013 :-

Calculation of Net Worth

Paid up capital XXXX
Securities premium A/c XXXX
Reserves created out of profits XXXX
( i.e., General Reserve, P&L, CRR etc.)
(Revaluation Res is not allowed)
Accumulated Losses (XXXX)
Misc. Expenditure/ Deferred Revenue Expenditures (XXXX)
Net Worth XXXX

Explanation

On the basis of above Explanation, It is also clear that Application of

Ind AS will not be made on Partnership firms, Individuals, Charitable
Trust, co-operative Societies & unlisted company having Net worth Less
than 250 Crores. All these Entities shall Continue with co. AS Rules 2006.

Unit II : Application of Ind AS on NBFC’

Phase I : Mandatory Application w.e.f. 1.4.2018 (with comparatives )

A. All listed & unlisted companies having Net worth of 500 Crores or
More
B. Holding, Subsidiary, Associate or Joint Venture of above companies

Phase II : Mandatory Application w.e.f. 1.4.2019 (with comparatives)

A. All Listed companies having Net worth Less than 500 crores
B. All unlisted companies having net worth Less than 500 crores but
upto 250 Crores
C. Holding, Subsidiary, Associate, Joint venture of above companies

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 Voluntary adoption is not allowed to NBFC

 All other concepts are same as discussed in Unit I

Unit III : Banking companies

(Scheduled commercial banks excluding RRB)

As per Initial Notifications, Ind AS were Applicable on Banks w.e.f.

1.4.2018, but Later On Application was deferred till 1.4.2019. At Present,
Ind AS are not yet Applicable on Banks. We have to wait till further
Notification

Unit IV : Insurance Companies

As per the Initial Roadmap issued by MCA, Insurance companies had to

Apply Ind AS w.e.f. 1.4.2020, but Later on, Application was deferred. We
have to wait for further notifications.

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter 2- Ind-AS 40: Investment Property

*Part 1*

Concept 1 : Meaning of Investment Property

As per the provisions of Ind AS 40, An Investment property means

Land, Building or both which is held for Rental purpose or for Long
term Appreciation. (* Rental Income can be earned from Residential
Property, commercial Property or Industrial property. It means
that Nature of property does not matter.)

The following Land & Buildings cannot be considered as on Investment

property Under the scope of Ind AS 40 :-

i. If any Land & Building is used by an entity in production or

supply of Goods/Services during Normal course of business then
such property will be Considered under the heading of “ Ind AS 16
: PPE”. Such type of property is a Also called as “Owner
occupied Property”

ii. If any property is held for short Term Appreciation then It will
be covered Under Ind AS-2 as Inventory

iii. If any property is developed by Real Estate company for its sale
in future During normal course of Business then it will also be
covered under Ind As-2 (Inventories)

Note : If any property is Developed by Building or Real Estate

company with the Objective of Rental Income/ Letting it out
then Such property will be covered Under Ind AS 40.

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iv. If any property, which was used by an Entity in its business, but
is held for Sale now then It will be covered under Ind AS 105 :
Non current Assets Held for Sale

v. If any Property is held under Construction Contract by a

Contractor then It Will be discussed under Ind AS 115 (Revenue
from customer)

vi. If any Land or Building is used in Agricultural Activities then It

will be covered Under Ind AS 41

vii. If any Land is used for extraction of mineral oils or ores then
It will be Covered under Ind AS 106

Concept 2 : Relation of Ind AS 40 with Ind AS 116 ([Link] *)

Lease
As per the Provisions, Rental Income can be Earned as per the terms
& conditions in a Lease Agreement which is Entered into by the
Parties. A Lease Agreement can be Classified under 2 headings as
follows (Ind-AS 116) :-
i. Operating Lease
ii. Finance Lease

A. Operating Lease
Operating Lease

Lessor (owner) Lessee (Tenant)

For Accounting For Accounting No Property will Lease

Of Investment of Lease be Recognised Rentals
Property Rentals under OL

Ind AS 40 Ind AS 116 X Ind AS 116

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Note : Under operating Lease, Lessor will keep the ownership of I.P
due to which Application of Ind AS 40 will be made on Lessor.

B. Finance Lease

Finance Lease

Lessor (owner) Lessee (Tenant)

Lessor will For Lease Assumed owner Lease

De-recognise Rentals, we of I.P. the Rentals
I.P under Finance will Study 116
Lease due to which 116
No property will If Lessee will use If Lessee will
Exist in its books the I.P. in business Sub-Lease the I.P.

Lessee a/c Dr xxxx Ind AS : 16

To IP xxxx Finance Operating
Lease Lease
Ignore Application
Of 40 Ask New Lessee for Ind AS 40
Nature of use of IP

Note : Under Finance Lease, Lessee is Assumed as an owner due to

which property will be Recognised in its books. It means that
Application of Relevant Ind AS will Be made according Lessee
based on Intention of use of Such property.

Q .6 Discussed in class

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*Part 2*

Concept 3 : Various Issues

A. Mixed Property *Imp

If any property is used for Dual purpose means It is partly used in

Business and partly let out then Application of Relevant Ind- AS will
depend on following cases :-

Case I : If mixed Property is Separable

In case Property is Separable then Ind AS 16 will be applied on the

portion Which is used in Business, but Let out portion will be covered
by Ind AS 40. As per the Provisions, An Investment property can be
considered as Separable only if A portion can be sold or given on
Finance Lease without selling the other portion.

Case II : If property is not Separable

If portion of a property cannot be sold or Given on Finance Lease

without Selling the other portion then It will be considered as a case
of “Inseparable Property”. In the given case, the following flow chart
can be considered : -

Inseparable Property

If insignificant portion If Significant portion

is used in Business is used in Business

Apply Ind AS 40 Apply Ind AS 16

On whole Property on whole property

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 Significant = 20% or more

 Insignificant = Less than 20%

Solution of Q.1 & Q.2 (Discussed in Class)

B. If Property is Let out to Employees of company on Rent

As per the provisions of Ind AS 40, A property, which is Let out by a

company to its Employees, shall be considered as an “ owner occupied
Property” Under Ind AS 16: PPE whether Rent is charged at market
Rate or Not.

C. Ancillary Services :- *Imp

As per the Provisions, It may be possible that Lessor provides some

Ancillary Services in the form of maintenance or security service to
its Tenant. In the Given case, It will not have any Effect on
classification of Investment [Link] can also be said that we will
Keep applying Ind AS 40 on Let out properties even if ancillary
Services are provided by Lessor to Lessee.

Exception : - In Hotel Industry, Hotels also provide these services to

their Guests/Customers, but It is their Business. So, we
will Apply Ind AS 16 on Hotels

Solution of Q.4, Q.5, Q.3 (* Imp). Discussed in Class

D. Land with Undetermined Use : -

If an Entity holds ownership on Land which is acquired with

Undetermined use then we will Apply Ind AS 40 on such Land. It means
that Land with Undetermined use is considered as an Investment
Property.

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E. Transactions of Lease in consolidated financial statements or

Lease Transactions within the Group. :- (*[Link])

If Lease Transactions are undertaken within the group then these

transactions shall get eliminated in consolidated financial Statement
These Transactions shall be dealt in CFS on the basis of following flow
chart :-
I.P in CFS

OL/FL OL/FL
If Property is Let out If Property is Let out
& used within the group within the Group & Again
Let out to 3rd Party
We will Apply Ind AS 16 on
such Property in “CFS”
If 3rd Party If 3rd Party
Owner Occupied Lease is an“OL” Lease is an“FL”
Property
Apply Ind AS 40 Assumed owner is
On CFS is 3rd party, we
Cannot Apply 40
or 16 on CFS

Solution of Q.16

1. In SFS of S, we will Apply Ind AS 40 because It has Let out its

Property to S2 on Operating Lease.
2. In CFS, we will Apply Ind AS 16 because Property is Let out and still
in use within the group due to which It will be assumed as owner
occupied property.

Solution of Q.17
In the Given case, there will be similar Application in SFS & CFS. We will
Apply Ind AS-40 on Let out portion which is given to 3rd Party and
Ind AS 16 on used portion

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*Part 3*

Concept 4: Initial Recognition of Invest. Property (*Imp)

Initial Recognition

In the Books of In the books of

Actual Owner Assumed Owner

I.P Acquired on
Purchase Purchase on Self Exchange Finance Lease
By Cash DeFerred Construction of Assets
Credit

A. Purchase by cash

If an Investment Property is purchased by cash then cost of

property shall be computed as follows :-

Statement Showing calculation of Cost of I.P

Purchase Price xxxx

Stamp Duty/ Transfer cost xxxx
Brokerage/ Commissions xxxx
Any other Exp. which is directly
related with Acquisition of I.p xxxx
Total Cost xxxx

 Items /Expenses not to be included in the cost of I.P., but to be

written off in P&L as an Expense: -

i. Marketing & Promotional Expenses

(i.e., If any Expense is incurred on Advertisement for Letting
out the property then It will be transferred to P&L)

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ii. Start Up cost

(i.e., If any expense is incurred on Inauguration ceremony then
such an expense shall also be written off in P&L a/c)
iii. Operating Expenses/ Losses incurred for vacant property
(i.e., If any Expense is incurred for day to day maintenance of
vacant property then such an expense shall also be written
off in P&L)

Other Points to be Noted in Relation to Acquisition of Property :-

i. As per the provisions, Refundable duties or taxes shall not be

included while Computing cost of I.P. It can also be said that cost
of I.P shall include Non-Refundable Taxes & duties only.
ii. If any capital Expenditure on Renovation is made then such
Expenditure shall be included in the cost of I.P.
(i.e., Renovation may include expense on flooring walls, Ceiling etc.)

Journal Entry

Investment property a/c Dr xxxx Refer explanation as in above

To Cash/Bank xxxx
(Being I.P Acquired)

B. Self construction of I.P.

If any Investment property is self constructed then the following

statement shall Be prepared to find out the cost of I.P. :-

Purchase Price of Land xxxx

Stamp Duty xxxx
Brokerage/ commission xxxx
Expenditure on Development xxxx
(Material + Labour + Overhead
Which are incurred for construction)
Total Cost xxxx
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Solution of Q.15 (*[Link])

I. Calculation of Total cost

Purchase Price ₹ 180,00,000

Stamp Duty ₹ 20,00,000
Legal Cost ₹ 5,00,0000
Total Cost ₹ 205,o0,000

Note : As per the provisions of Ind AS-40, we cannot capitalise

Advertisement Expenses ceremony expenses & day to day
servicing expenses because these Expenses do not relate with
Acquisition of Property. These Expenses shall be Written off in
P&L A/c.

II. Initial Recognition

Property, Plant & Equip. a/c Dr 3416667 (1/6)
Investment Property a/c Dr 17083333 (5/6)
To Bank 20500000
( Being Assets acquired)

 We have capitalised cost of one house as PPE because this house has
been provided By company to its staff due to which It will be
considered as an owner occupied Property

C. Acquisition on Deferred Credit

If an entity acquires an Investment property on Deferred credit

then cost of such property shall not be considered equal to Gross
payment, but the following Steps shall be applied in this case for
Accounting :-

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Step I : Initial Recognition

Calculate Present value of all future payments at market Rate &

Recognise it as cost Of acquired Asset as follows :-

Journal : Investment Property a/c Dr xxxx

To payables xxxx
(Being I.P Acquired)
( Present value of all future Payments)

Step II : Subsequent Recognition

At the time of Instalment becomes due, the following entry shall be

recorded :-
i. Interest a/c Dr xxxx
To Payables xxxx
(Being Int. made due)
ii. Payables a/c Dr xxxx
To bank xxxx
(Being Payment made)

It will be written off in P&L A/c

Note : On the basis of given explanation as in above, It can be said
that we cannot consider Time value of money in the cost of I.P.

Example :
i. Purchase price of I.P. : ₹ 10,00,000
ii. Payment to be made after 1 year from date of purchase
iii. Market Rate : 10%
Apply Ind AS-40 for Recognition of I.P. & subsequent Recognition
For Payables.
Solution :
i. Present value of payment to be made = ₹ 10,00,000 x .909
= ₹ 9,09,000

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ii. Journal :
a) Investment Property a/c Dr 909000
To payables 909000
(Being property acquired on credit)

b) Interest a/c Dr 91000 (909000 x 10%)

To Payables 91000
(Being Interest made due on payables)

c) Payables a/c Dr 1000000

To Bank 1000000
(Being payment made)

Solution of Q.18

Calculation of cost of property

(Discounting Rate : 5.5 % for 6 months)

Down Payment = 50,00,000 x 1 = 50,00,000

First Payment = 1,20,00,000 x .948 = 1,13,76,000
Second Payment = 5,00,00,000 x .898 = 4,49,00,000
P.V of all payments 612,76,000

Initial Recognition = Investment property a/c Dr 61276000

To Payables 61276000
(Being property acquired on deferred credit)
Subsequent Recognition
Payables A/c
To bank (DP) 50,00,000 By Investment 6,12,76,000
Property
To Bank 1,20,00,000 By Interest 30,95,180(6m)
TO balance c/d 4,73,71,180 (61276000 – 5000000)
(Bal fig.) @ 5.5%
To Bank 500,00,000 By balance b/d 4,73,71,180
By Interest @ 5.5% 26,28,820
(Bal Fig) 6M
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Interest will be written off in P&L A/c

*Part 4*
D. Exchange of Assets

Example :-
i. Fair value of Assets Purchased : ₹ 20,00,000
ii. Fair value of given up Assets : ₹ 18,00,000
iii. WDV of Given up Assets : ₹ 15,00,000
Pass Journal Entries assuming there is a commercial substance in the
transaction.

Solution :

i. Cash Settlement = Fair value of taken - Fair value of given up

Up Assets Assets
= 20,00,000 – 18,00,000
= 200,000 Payment
ii. Gain/Loss on Exchange = Fair value of - WDV of Given
given up up Assets
= 18,00,000 – 15,00,000
= 300,000 (Profit)

Journal : New Asset a/c Dr 20,00,000 ( Taken up) WDV

To Old Asset 15,00,000 (Given up)
To Gain on Exchange 300,000 (18-15)
To Cash (Bal fig.) 200,000
(Being Assets Exchanged)

Example :
i. Fair value of Taken up Assets : ₹ 40,00,0000
ii. Fair value of Given up Assets : ₹ 70,00,0000
iii. WDV of Given up Assets : ₹ 90,00,000
Pass Journal Entry for Exchange of Assets if there is commercial
substance in the transaction

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Solution :
i. Cash Settlement = fair value of Assets – Fair value of Assets
Taken up Given up
= 40,00,000 – 70,00,000
= 30,00,000 (to be Received)
ii. Loss/Gain on Exchange = Fair value of given up– WDV of Given up
= 70,00,000 – 90,00,000
= 20,00,000 (Loss)

Journal : New Asset a/c Dr 40,00,000

Cash a/c Dr 30,00,000
Loss on Exchange a/c Dr 20,00,000
To old Asset 90,00,000
(Being Assets Exchanged)

Example 3: (Lack of commercial Substance)

Fair Value of Assets Taken up : ₹ 500,000

WDV of Given up Assets : ₹ 400,000
Fair value of given up Assets : ?

Solution :
New Asset a/c Dr 500,000 (fair value)
To old Asset 400,000 (WDV)
To Gain on Exchange 100,000 (Bal. Fig)
(Being Assets Exchanged)

Example 4 :
Fair value of Assets taken up : ?
Fair value of Given up Asset : ₹ 200,000
WDV of Assets Given up : ₹ 300,000
Pass Journal Entry for Exchange in Given case of Lack of commercial
Substance.
Solution :

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New Asset a/c Dr 200,000 ( Fair value)

Loss on Exchange a/c Dr 100,000 (Bal Fig)
To old Asset 300,000
(Being Assets Exchanged)

Notes on Concept :-

Exchange of Assets

If Exchange is undertaken If Exchange is undertaken

Under “Commercial Substance” under “No commercial substance”

Both fair values are Given Only one fair value is available
(Taken up & Given up Assets) either for taken up or given up

Case I : Commercial Substance

Step I : Calculate Diff. in fair value for cash Settlement

Cash = Fair value of Asset taken up – fair value of Asset Given up

= Diff. will be Paid/Received
(Refer Examples 1 & 2)

Step II : Calculate Gain/Loss on Exchange of Assets as follows :-

Gain/Loss = Fair value of Given up Assets – WDV of Given up Assets

Step III : Journal

Loss a/c Dr xxxx (Step II)

New Asset a/c Dr xxxx ( FV :Taken)
Cash a/c Dr xxxx (Step I)
To Old Asset xxxx (WDV)
To Cash xxxx (Step I)
To Gain xxxx (Step II)
(Being Assets Exchanged)
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Case II : No Commercial Substance

Step I : There will be no cash settlement as Both fair values for

Assets taken up & Given up are not available.

Step II : Calculate Gain/Loss on Exchange of Assets as follows :-

i. Fair value of taken up Asset is given but fair value of given up

Asset is not given
New Assets a/c Dr xxxx (F.V)
Los on Exchange a/c Dr xxxx (Bal Fig)
To Old Asset xxxx (WDV)
To Gain on Exchange xxxx (Bal Fig)
(Being Assets Exchanged)

ii. Fair Value of Assets taken up is not Given, but fair value of
given up is Known

New Asset a/c Dr xxxx (FV of Given up)

Loss a/c Dr xxxx (Bal )
To old Asset xxxx (WDV)
To Gain xxxx (Bal fig)
(Being Assets Exchanged)

Exceptional Case : Both fair values are not Given

Example :
Fair Value of Assets taken up : ?
Fair value of Assets Given up : ?
WDV of Given up Assets : 200,000

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Solution :
Assets a/c Dr 200,000 (New) WDV of old Asset
To Assets 200,000 (Old)
Note : In the Given case, WDV of old Assets shall be taken as cost for
New Assets because we do not know fair value of either Asset.

Example : [ Wrongly framed by ICAI ]

Example : Fair value of taken up Asset : ₹ 200,000

Fair Value of given up Asset : ₹ 150,000
Cash Payment : ₹ 40,000
WDV of Assets Given up : ₹ 190,000
Pass Journal Entry in above case

Solution: The given transaction should not be assumed in commercial

substance Because cash Payment does not match with the
diff. in fair value of Taken up Asset & Given up Asset. It
means that fair value of Taken up Asset is not Available even
if it is mentioned in the question.
Journal:

Loss on Exchange a/c Dr 40,000 (190000 – 150000)

New Asset a/c Dr 190,000 (Given up value) (150,000 + 40,000)
To cash 40,000 (FV + Cash)
To old Asset 190000 (WDV)
(Being Assets Exchanged in Lack of commercial substance)

Solution of Q.8 Discussed in Class

E. Initial Recognition in the books of Assumed owner

(In the books of Lessee under finance Lease/ Non Exempted
Lease) 116
In the Given, Lessee shall recognise the Asset/IP, which is acquired
under Non Exempted Lease, at present value of Lease Liability as
follows : -

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ROU : Investment Property a/c Dr xxxx P.V of all future payment

To Lease Liability xxxx
(Being I.P recognised in the books of Lessee under Non Exempted
Lease)

Solution of Q.11 Discussed in Class

*Part 5*

Concept 5 : Subsequent Recognition

Subsequent Expenditure on I.P

After Initial Recognition

Case I : Repairs & Case II : Replacements &

Maintenance Additions
Case I : If any Expense is incurred in the form of Repair &
maintenance (i.e., Day to Day servicing) on Investment
property then such an expense will be written Off in P&L A/c
in the same year in which it is incurred. Such an Expense can
Not be capitalised to the cost of property because It does
not contribute To the appreciation in value of I.P, but these
are incurred to maintain Normal Performance of an Asset.
(i.e., Lift maintenance, Property Tax, Repairs of walls, Repairs
of floors, paint etc.)

Case II : If any expenditure is incurred on replacement or additions

of Assets then Such an Expenditure can be capitalised to the
cost of Investment property because It is considered as a
capital Expenditure. Such Expenditure is made to increase
the value of property (i.e, Expenditure on New Lift,interiors,
Replacement of walls, Replacement of floor etc.)

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Calculation of Revised carrying Amount of I.P after Replacement/

Addition

Existing carrying Amount of I.P xxxx

Add : Expenditure on New Assets xxxx
Less : Scrap Realised from old Assets xxxx
Revised Carrying Amount xxxx

 Further Depreciation will be computed on Revised carrying Amount

on the basis of Remaining useful life of Assets.

Important Point to be considered :- (*Imp)

If any component is replaced of an Investment property then the

following Steps should be Applied :-

Step I : De-Recognition of old component

First of all, Existing carrying Amount for Replaced component should

Be de-recognised as follows :-

Bank a/c Dr xxxx (Scrap)

P&L a/c Dr xxxx (Loss)
To old Asset xxxx (B/s value)
(Being old Assets De- recognised)

Step II : Recognition of Expenditure on New Assets

Journal : New Assets a/c Dr xxxx

To Bank xxxx
(Being New Assets Recognised)

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Solution of Q.19 *Imp

I. Statement Showing carrying Amount of Assets at the end of 10th

year
Building Interiors Total
[Link] 38.80 crores 1.20 crores 40 crores
Depreciation ( 7.76 crores) (.8 crores) (8.56 crores)
(38.80 x 10 y) (1.2 cr x 10y)
50Y 15 Y
Carrying Amount 31.04 Crores .4 crores 31.44 Crores

Journal :

i. P&L a/c Dr 0.4 crores

To old Interiors 0.4 crores
( Being old Assets De-recognised)
ii. New Interiors a/c Dr 1.5 crores
To Bank 1.5 crores
(Being New Expenditure capitalised)

Statement Showing Depreciation for 11th year

Building New Total

Interior
Opening Balance 31.04 crores 1.5 crores 32.54 crores
Depreciation (.776 crores) ( .1 crore) ( .876 Crore)
31.04 crores 1.5 crores
40 Y 15 Y
Carrying Amount 30.264 crores 1.4 crores 31.664

Solution of Q .7 Discussed in class

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Concept 6 : Measurement of I.P

At Balance sheet date, Investment property can be reported under

“cost model”Only. It means that Revaluation model cannot be applied.
The following statement may Be presented under cost model :-
Original cost xxxx
Accumulated Depreciation (xxxx)
*Impairment Loss (xxxx)
Carrying Amount xxxx

 If fair value of I.P becomes Less than WDV then decline in value
can be recognised in Books as Impairment Loss.

i. Impairment Loss a/c Dr xxxx

To Investment property xxxx
ii. P&L a/c Dr xxxx
To Impairment Loss xxxx

Important Notes :-

a. If fair value of I.P at B/S date becomes higher than WDV then It
cannot be Recognised in Books. It means that upward Revaluation
is not allowed.
b. As per Ind AS 40, fair value can be reported in notes to A/cs. It
will be choice of Entity, but fair value disclosures are always
encouraged by ICAI.
c. If an Entity wants to report fair value then It has to follow Ind
AS 113 fair value Measurement Rules which are as follows : -
i. Fair valuation should be done by independent valuers
ii. It should be reported as a complete package inclusive of all
integral Assets i.e., Lift , A.C etc.
Value of other Assets cannot
be considered additionally

Solution of Q.13 Discussed in Class

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Solution of Q.20 *Imp

Statement showing fair value of Investment property.

i. Fair value of Air conditioning Plant ( 1m x 70%) * 0.7 million

ii. Fair value of Lifts (1.2 million x 50%) * 0.6 million
iii. Fair value of I.P (Bal fig.) 30.7 million
Total Fair value 32 million

 We have assumed that Depreciation has been charged by Entity on

SLM Basis

Note : The above statement can be disclosed in Note to A/c only.

*Part 6*

Concept 7 : Transfers *Imp

As per the Provisions of Ind AS 40, Transfer of I.P can be made from
one Ind AS to Other on the basis of its use. The following Transfer
can be made :-

Earlier After
I. Ind AS : 16 (PPE) Ind AS 40 : IP
(Held for use) (Held for Rental or Appreciation)
II. Ind AS : 40 (IP) Ind AS : 16 (PPE)
(Held for Rental) Put into sale ( Held for use in Business)
III. Ind AS :2 (Inventory) Ind AS : 40 (IP)
(It was held as stocks) (Held for Rentals)
IV. Ind AS : 40 (IP) Ind AS : 2 (Inventory)
(Held for Rentals) (Put into Sale)

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Notes :
1. There will be no Journal Entry in the books for such Transfer, but
Disclosures shall Be updated only according to Appropriate
heading.
2. The Transfer from one Ind AS to other will be made at “Carrying
Amount” only. It Means that there will be no measurement under
previous Ind AS before making Transfer of Assets.
3. After completing Transfer Process, measurement of property will
be made as per New Ind AS.

Solution of Q.12 (*Imp)

Statement Showing calculation of carrying Amount of factory as at

1.4.x5

Original cost (1.4.x1) 10 millions

Depreciation (4 years) (4 millions)
Carrying Amount 6 millions
Notes :
1. We will Transfer the Given factory from Ind AS 16 to Ind AS 40 at
6 millions which Is the carrying Amount of property on such date.
2. We cannot incorporate fair value of 8 millions in the books of A/Cs
because Ind AS 40 does not allow upward Revaluations.
3. The Disclosures of fair value of 8 millions can be made in Notes to
A/cs as per Measurement Rules.

Solution of Q.14

1. At 31.3.x1, the Given Investment Property will be transferred from

Ind AS 40 to Ind AS 16 at ₹ 15,00,000 which is its carrying Amount
on such date.
2. After such Transfer, we should write off ₹ 5 Lacs as Impairment
Loss under Ind AS 16 cost model. The Revised carrying amount of
such PPE will be considered at ₹ 10 Lacs & It Will be depreciated
over remaining useful Life.

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Solution of Q.21 (*Imp)

1. The Given office Building will be transferred from Ind AS 16 (PPE)

to Ind AS 40 (IP) at ₹ 10 crores which is carrying Amount on Such
date.
2. In the Given case, Property B will be transferred from Ind AS 40
(IP) to Ind AS 2 (Inventory) at ₹ 30 crores which is carrying
Amount of such property on that date.

Concept 8 : Disposal of I.P (Derecognition of I.P)

Sale of Investment Property

Transfer of ownership Transfer under

finance Lease

If Selling Price If Selling price

Is collected in Lump is collected in
sum Installments
(Deferred Sale)

Case I : If S.P is collected in Lump Sum

If I.P is sold for Lump Sum consideration then we will calculate Loss
or Profit On sale of Assets by the difference in Net selling Price &
carrying Amount of such I.P.
(Selling Price – Selling Exp.)

Note : the Amount of Loss/Profit will be transferred to P&L A/c.

Journal : Bank a/c Dr xxxx (N.s. Price)

Loss on Sale a/c Dr xxxx (Bal fig)
To I.P xxxx (carrying Amt)
To Profit on Sale xxxx (Bal fig)
(Being Investment property Sold)

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Example :
i. Carrying Amount : ₹ 10,00,000
ii. Sale consideration : ₹ 15,00,000
iii. Brokerage @ 1 % on S.P

Solution :
i. Bank a/c Dr 1485000 (15 L – 1%)
To I.P 10,00,000
To Profit on sale 485000 (Bal Fig)
(Being Investment property sold)
ii. Profit on sale a/c Dr 485000
To P&L 485000
(Being Profit Recognised)

Case II : If Selling price is collected in Installments *Imp

Step I : Calculate Present value of all cash Inflows which are Expected
from Sale of I.P.
Step II : Loss/Profit on Sale = P.V of Inflows (Step I) – Carrying
Amount
Step III : Calculate Interest Income on Receivables & Transfer it
P&L over the Period On Accrual basis.

Example :

a) Carrying Amount : ₹ 15,00,000

b) Sale consideration : ₹ 500,000 (Now)
₹ 15,00,000 (1Y)
₹ 500,000 (2Y)
c) Market Rate : 10%
Pass Journal Entries for 2 years in case of Given Transaction.

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Solution :

Step I : Calculation of P.V of Cash Inflows

Period Cash inflow P.V factors @ 10% Present value

0 500,000 1 5,00,000
1 15,00,000 .909 13,63,500
2 500,000 .826 413,000
P.V of Cash Inflow 22,76,500

Step II : Calculation of P/L on sale of I.P

Bank a/c Dr 5,00,000

Debtors a/c Dr 17,76,500 (22,76,500 – 5,00,000)
To I.P 15,00,000
To Profit on Sale 7,76,500 (Bal Fig)
(Being I.P sold on Credit)

Step III : Accounting for interest & Collection

Ist Year (At the End )

a) Debtors a/c Dr 177,650 (1776500 x 10%)

To Interest 177,650
(Being Interest made due on receivables)

b) Bank a/c Dr 15,00,000

To Debtors 15,00,000
(Being collection made)

IInd Year (At the End)

a) Debtors a/c Dr 45,850 (454150 x 10%)

To Interest 45,850 (Rounded off)
(Being Interest made due)
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b) Bank a/c Dr 500,000

To Debtors 500,000
(Being collection made)

*Part 7*
Case III : If I.P is sold on Finance Lease

If an Investment property is sold on finance Lease then

Lessor/Seller will de-recognise the Asset at fair value as follows :-

Lease Receivables a/c Dr xxxx Fair Value

Profit & Loss a/c Dr xxxx (Loss)
To Asset on Lease xxxx Carrying Amount
To Profit & Loss xxxx (Profit)
(Being Asset transferred on Finance Lease)

(Note : Accounting for Lease Rentals shall be discussed in Ind AS 116 )

Concept 9 : Disclosures
(Notes to A/Cs )

As per the provisions of Ind AS 40, the following disclosures are

required To be made in notes to A/Cs regarding an I.P. : -

1. The Entity has to disclose Accounting policy which has been adopted
while preparing B/S and Notes.
 Cost Model for B/S
 Fair value for Notes
2. The Method of depreciation should also be reported which has been
applied by the Entity while computing Depreciation i.e., SLM/WDV.

3. The Entity should also Disclose the amount of Expenditure that

has been incurred On Replacement/ Repairs during the year.
4. The Entity should also disclose Rental Income & operating Expense
related with I.P

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Net Income/Loss = Rental Income – Dep – operating Expense

Day to Day servicing

5. If any Disposal has been made during the year then profit/Loss on
Disposal should Also be reported.
6. Statement showing Reconciliation of I.P (cost)

Opening Additions Replacements Disposal Closing Bal.

Bal.
I.P. xxxx xxxx xxxx (xxxx) xxxx

7. Statement Showing Reconciliation of Dep. (Accumulated Dep)

Opening Depreciation in C.Y Disposal Closing Balance

Balance (Reversal)
xxxx xxxx (xxxx) xxxx

*Part 8*
New Question
Solution of Q.1

As per the Provisions of Ind AS 40, cost of an Investment property

shall include its Purchase Price & related Expenses which are directly
related with Acquisition Of such Property.
In the Given case, company has Purchase the Specified Property for 5
crores, but it has also Paid a membership fees which is related with
acquisition of such Property.
So, the company should capitalise such fees while computing cost of
property Instead of being transferring it to P&L A/c

Cost of property = 5 crores + 6.25 Lacs = ₹ 50625000

If the Given office would have acquired for adm. Work of company then
we would have Considered it PPE under Ind AS 16. The Answer would
have remained same because Calculation of cost of PPE would have
been made in same manner.

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Solution of Q.2 *Imp

I. Treatment of I.P (1.4.x5 – 30.9.x5)

For the first 6 months of financial year x5-x6, we will classify the
property as an Investment property because It has been given for
Rental purpose. The entity will Receive 10 lacs as Rentals for these 6
months (20L x 6/12).

II. Accounting at the time of transfers (1.10.x5)

On the specified date, I.P has been reclassified from Investment

property to Inventories. It means that we will Apply Ind AS-2 from
the date of such Re-classification.
As per the provisions of Ind AS 40, Transfer is made from one Ind AS
to Another at carrying Amount. The given fair values are not relevant
because we apply Cost model on Investment property. So, carrying
Amount will be considered at the Time of such transfer is 2 crores
which is the cost of property. It will be considered as cost of
Inventory under Ind AS 2.

III. Valuation of Inventory (31.3.x6)

A. Cost of Stock B. NRV of Inventory

Carrying Amount ₹ 200,00,000 Selling Price ₹ 500,00,000

of Land
Add :conversion cost ₹ 60,00,000 Expected Cost (₹ 40,00,000)
T. Cost ₹ 260,00,000 NRV ₹ 460,00,000

Cost or NRV whichever is Lower = ₹ 260,00,000

(valuation of stock as per Ind AS 2)

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Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter 3- Ind AS : 23
Accounting for Borrowing Cost

*Part 1*

Concept 1 : Important Definitions

a) Meaning of Borrowing cost

b) Meaning of Qualifying Assets
Loans
I. Meaning of Borrowing Cost
As per the provisions of Ind AS-23, Borrowing cost is the “Interest &
other Cost” which is directly incurred for arrangement of funds.
Ke Kp
Note : Ind AS 23 does not include cost of E.S. Capital or Cost of P.S.
Capital in the Meaning of borrowing cost.

Interest & other Cost

Components

(a) + (b) + (c)

*V.V.I
Interest Cost Finance Charges Exchange
as Per Effective under Finance Differences
rate Of Interest Lease as per para 6E
method

a) Interest Cost : Effective Rate of Interest method

As per the Provisions of Ind AS 23, Interest on borrowed funds should

be calculated by Effective Interest method. There may be some
Expenses at the time of issue or Redemption of borrowings like
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Discount on issue of Debentures, Premium on Redemption or other

Expenses in the form of underwriting comm., stamp duty etc. Then
these Expenses shall have adverse impact on arrangement of funds. It
can also be said that Net proceeds from arrangement of funds shall get
declined due to Which effective Rate of interest should be higher than
Actual Rate of Interest.

Important Note
If there are no Expenses as Specified in above then Actual Rate of
Interest would be effective rate of Interest.

 The Calculation of Effective Rate of Interest will be made as

Specified in Ind AS 109 on Financial Instrument.

Example :

i. No. of Deb. Issued : 10,000 @ 98 of 100 each

ii. Interest Rate : 10%
iii. Redeemable after 5 years at premium of 5 %
iv. Underwriting Comm. @ 2.5 % on face value of Deb.
Calculate Effective Rate of Interest

Solution :
Calculation of Net Proceeds

Face Value of debentures 10,00,000

Discount on issue @ 2% (20,000)
[Link] @ 2.5% on F.V. (25,000)
NP 955,000

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Calculation of IRR (Alternative I)

Period Cash flow PVF PVF P.V P.V

@ 10% @ 15% @ 10% @ 15%
1. 100,000 .909 .870
(10Lx10%) 316,900 285,600
2. 100,000 .826 3.169 .756 2.856
3. 100,000 .751 .658
4. 100,000 .683 .572
5. 11,50,000 .621 .497 714,150 571,550
(1L + 10L + .5L)
PV of Cash outflow 10,31,050 857,150
PV of cash Inflows 955,000 955,000
NPV 76,050 (97,850)

IRR = Lower Rate + LRNPV x Diff. in Rates

LRNPV - HRNPV
= 10 % + 76,050 x5
76,050 – (97,850)
= 10 % + 76,050 x5
173,900
= 12.19 % Ind AS 23

Alternative II : Interpolating Method

IRR = 10% + 10,31,050 – 955,000 x 5%

10,31,050 – 857,150
= 12.19 % Ind AS- 23

Debentures A/c (Loan A/c)

Particulars Amount Particulars Amount
Ist Year
To Bank 100,000 By Bank (NP) 955,000
(10L x 10%) B/s : NCL
To Balance c/d 971,414 By Interest (due) 116,414
(Bal Fig) (955,000 x 12.19%) Ind As 23
[Link]
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IInd Year
To Bank 100,000 BY Balance b/d 971,414
To Balance c/d 989,829 NCL
By Interest (12.19%) 118,415
Ind AS 23
IIIrd Year
To Bank 100,000 By Balance b/d 989,829
To Balance c/d 10,10,489 By Interest (12.19%) 120,660

IVth Year
To Bank 100,000 By Balance b/d 10,10,489
To Balance c/d 10,33,668 By Interest @ 12.19% 123,179

Vth Year
To Bank 11,50,000 By Balance b/d 10,33,668
By Interest @ 12.19% 116,332
(Bal fig.)

Interest will be accounted under Ind AS : 23

116,414, 118,415, 120,660, 123,179, 116,332

= 595,000 Int – 1L x 5y
Disc. – 20,000
Comm. – 25,000
Prem. – 50,000
595,000

b) Finance Charges under finance Lease

“we will Discuss it under Ind AS 116”

c) Exchange Differences under Para 6E

Refer Last Concept of this Topic

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*Part 2*

II. Meaning of Qualifying Assets

As per the provisions of Ind AS-23, Qualifying Asset is an Asset that

takes Substantial Period of time to get ready for its use or sale.

T.F.A I.A I.P Inventories

The Following Assets may take time for their Production, construction
& Acquisition :-
i. Buildings
ii. Investment Properties
iii. Inventories *
iv. Power Generation Plants
v. Manufacturing Plants
vi. Intangibles under Development Phase Trial Phase

Note : The meaning of substantial Period of time is not clearly

mentioned in Ind AS-23. It is clearly based on judgement &
circumstances. However, AS-16 clearly defines a period of 12 months
as substantial Time.

Important Points to be considered

1. Inventories :- As per the provisions of Ind AS-23, Inventories

which are Produced in a shorter period of time should not be
considered as Qualifying Assets.
 If any Inventory that takes substantial period of time but It is
produced in Large volume and on regular basis then It should not be
considered as a Qualifying Asset even though It is taking
substantial Time. (i.e., wines, Liquors)

It can be said that Inventory can be considered as a Qualifying

Asset only if the Following 2 conditions are satisfied :-

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i. It should take substantial time

ii. It should not be produced in larger Qty on regular basis.

2. Biological Assets: These Assets mean a living plant or Living Animal.

These are out of scope of Ind AS 23 These Assets shall be discussed
under Ind AS 41. But Bearer Plants (fruits Trees i.e., Apple, mango,
coconut etc) are not covered Under the definition of Biological
Assets. So, these Plants can be covered under Ind AS 23 as per the
meaning of [Link].

Qualifying Assets

Living Animal Living Plant Bearer Plant

X X

Ind AS 41 Ind AS 16 & 23

Concept 2 : Recognition Rules

As per the provisions of Ind AS-23, Borrowing cost, which is incurred

for const./Acquisition/ Production of Q. Assets, should be capitalised to
the cost Q. Assets, but Borrowing cost which is not incurred for
const./Acquisition/ Production of Q. Assets Should be Expensed in P&L
Statement in Same Year.

[Link] for Qualifying Assets [Link] for Business [Link]

i. B. Cost a/c Dr xxxx i. B. Cost a/c Dr xxxx

To Loans xxxx To Loans xxxx
(Being Interest made due by (Being Interest made due by
Effective Rate of Int.) Effective Rate)
ii. Q. Assets a/c Dr xxxx ii. P&L a/c Dr xxxx
To B. Cost xxxx To B. Cost xxxx
(Being B. Cost Capitalised) (Being B. Cost written off)
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iii. Loan a/c Dr xxxx iii. Loan a/c Dr xxxx

To Bank xxxx To Bank xxxx
(Being Actual Interest paid) (Being Actual Int. paid)

Concept 3 : Stages of Application of Ind AS 23

Stages

Stage one : Stage two : Stage three :

Commencement of Suspension of Cessation of
Capitalisation Capitalisation Capitalisation

Stage I : Commencement of Capitalisation

As per the provisions of Ind AS-23, the following conditions should be

satisfied to Commence the capitalisation of B. Cost :-

Condition I : Expenditure Should be incurred out of Borrowed funds.

(Note : It can also be said that B. Cost which is incurred on
unutilised Funds should be written off in P&L A/c.)
+
Condition II : Interest Cost should be Actual Cost.
(Note : It means that Notional Interest cannot be
capitalised. In Case, Expenditure on Q. Assets becomes
more than Borrowed funds then we cannot capitalise B.
Cost on Excess Expenditure made out of Shareholders
funds.)

Shortcut for max. Capitalisation = B. Cost on borrowed funds or

Expenditure Whichever is Lower.
+
Conditions III : Necessary Activities that are required for completion
of Q. Asset Should remain in continuation. These
Activity may be physical or Administrative.

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*Part 3*
Example :
i. Funds Borrowed (10%) : ₹ 10,00,000 (1.4.2017)
ii. Expenditure on Q.A : ₹ 600,000
Show the treatment of B. Cost.

Solution :
Journal Entries

i. Interest Exp. a/c Dr 100,000 (10L x 10%)

To Bank 100,000
(Being Interest paid)
ii. *Q. Assets a/c Dr 60,000 (6L x 10%)
P&L a/c Dr 40,000 (4L x 10%)
To Interest Exp. 100,000
(Being Interest Exp capitalised & written off)

 As per the provisions of Ind AS -23, Expenditure should be incurred

out of Borrowed funds. In the Given case, Expenditure on [Link] is
only 600,000 where Borrowings are of 10,00,000. So, Capitalisation has
been made upto Expenditure Only.

Example :
i. Fund Borrowed : ₹ 10,00,000 (10%)
ii. Exp. On Q. Assets : ₹ 25,00,000
Show the treatment of [Link].

Solution :
i. Interest Exp. a/c Dr 100,000
To Bank 100,000
(Being Interest paid)

ii. Qualifying Assets * a/c Dr 100,000

To Interest Exp. 100,000
(Being Interest Capitalised)

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 AS per the provisions of Ind AS 23, Interest cost Should be Actual

Cost. It means that we cannot capitalise Interest on Expenditure
which is made out of own Pocket i.e., Shareholder funds. So, we have
ignored Interest on ₹ 15,00,000 which is not related with Borrowed
funds.

Example :
i. Borrowed funds (10%) : 10,00,000 (1.4.2017)
ii. Expenditure on Q. Assets : 800,000
iii. Project Started w.e.f 1.7.2017 (Activities commenced)
Show the Treatment of B. Cost.

Solution :

Statement Showing Treatment of B. Cost

Total B .cost (10L x 10%) 100,000

Interest to be Capitalised (60,000)
(800,000 x 10% x 9/12)
Balance to be written off 40,000

i. We have capitalised Interest on Actual Expenditure because it is

Lower than Borrowed funds.
ii. We have capitalised Interest for 9 months, because Activities have
remained in Continuation for 9 months only.

Journal Entries

a) Interest a/c Dr 100,000

To Bank 100,000
(Being Interest Paid)
b) Q. Assets a/c Dr 60,000
P&L a/c Dr 40,000
To Interest 100,000

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Example :
i. Borrowed funds (10%) : 10,00,000 (1.4.2017)
ii. Expenditure on Q. Assets :-
a) ₹ 150,000 (1.4.2017)
b) ₹ 200,000 (1.7.2017)
c) ₹ 400,000 (1.9.2017)
Show the accounting treatment of B. cost for the F.y 2017-18 as per Ind
AS 23

Solution :

Statement Showing Treatment of B. Cost

Total B. Cost ( 10L x 10%) 100,000

B. Cost to be capitalised :-
i. First Exp . [150,000 x 10% x 12/12] (15,000)
ii. Second Exp [ 200,000 x 10% x 9/12] (15,000)
iii. Third Exp [ 400,000 x 10% x 7/12] (23,333)
Balance to be written off in SOPL 46,667

Journal :
1. Interest a/c Dr 100,000
To Bank 100,000
(Being Interest Paid)
2. Q. Assets a/c Dr 53,333
P&L a/c Dr 46,667
To Interest 100,000
(Being Interest cap. & written off)

Important Points to be considered for commencement of

Capitalisation *[Link]

a. Treatment of Grants/ Progress Payment :-

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As per the provisions of Ind AS -23 we should capitalise Interest on

Actual Expenditure, but It should be net Expenditure. If any incurred
Amount is received Back in the form of Grants or Progress Payment
then we should reduce the amount Of Expenditure by such an amount.

Net Expenditure = Total Exp. Till date – Grant/ Progress Payment

Ind AS -23

Example :
i. Borrowed funds : 10,00,000 (1.4.2017)
ii. Expenditure : 700,000 (1.5.2017) 4m
iii. Grant Received : 200,000 (1.9.2017)
iv. Rate of Interest : 10%
Apply Ind AS -23

Solution :

Statement Showing Treatment of B. Cost

Total B. Cost (10,00,000 x 10%) 100,000

To be Capitalised : -
(1.5.17 – 31.8.17) (700,000 x 10% x 4/12) (23,333)
(1.9.17 – 31.3.18) (500,000 x 10% x 7/12) (29,167)
Reduced by Grant P&L (Bal) 47,500
Note : We have reduced Expenditure by ₹ 200,000 w.e.f. 1.9.17 because the
enterprise has received its money back in the form of Grant. So,
Capitalisation will be Allowed on Net Expenditure only.

b. Treatment of Pre-Payment Premium :-

As per the Provisions of Ind AS-23, Pre-payment Premium/ Penalties

should Not be considered as Borrowings Cost, because It is not incurred
for arrangement Of funds, but it is incurred to switch over the
financer to save its B. Cost by Terminating Loan Agreement before its
maturity.

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 The amount of Pre-Payment Premium should be considered as an Exp.

And It is To be written off in P&L A/c.

c. Transfer of Assets : - *Imp

If an Existing Asset (Scrap from old Assets) is used in Construction or

Production of Q. Asset then It will be treated as an Expenditure, and
Capitalised on Such Expenditure.
Note: Scrap Should be valued at fair value.

 At the time of transfer of Assets, Diff. between fair value & WDV
of Used Assets should be transferred to P&L A/c.

Example :
i. Borrowed funds : 10,00,000 (10%)
ii. Expenditure : -
a. Cash Payment = 200,000
b. Transfer of Assets (fair Value) = 300,000
c. B. value for Transferred Assets = 500,000
Apply Ind AS-23.

Solution :

Statement Showing Treatment of B. Cost

Total B. Cost (10,00,000 x 10%) 100,000

Interest to be Capitalised :-
Expenditure ( 200,000 + 300,000) 10% (50,000)
To be written off (Bal) 50,000

Note : There is a Loss of ₹ 200,000 on Transfer of Assets because BV is

of ₹ 500,000, But MV is of ₹ 300,000. It Should be written off in
P&L A/c.

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Journal
1) Q. Assets a/c Dr 200,000
To Bank 200,000
(Being cash Payment made)

2) Q. Assets a/c Dr 300,000

Loss on transfer a/c Dr 200,000 (Bal)
To Assets 500,000
(Being Assets transferred)
3) Interest a/c Dr 100,000
To Bank 100,000
(Being Interest Paid )
4) Q. Assets a/c Dr 50,000
P&L a/c Dr 50,000
To Interest 100,000
(Being Interest Capitalised & written off)

4. Income on Investments made out of Borrowed funds (Temporary)

:-

In the Given case, we will reduce our Total Borrowing cost by income on
Temporary Invest. Before making any capitalisation. The following
statement may be Relevant:-
Total B. Cost xxxx
Temporary Income (xxxx)
Net B. cost xxxx

B. Cost to be B. Cost to be
Capitalised as per written off in P&L
Actual Expenditure ( Bal fig)

Stage II : Suspension of capitalisation

As per the Provisions of Ind AS-23, Capitalisation of B. Cost will be

suspended If Activities remain discontinued. The Period of Such

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discontinuation should be Recognised as period of Suspension. The

discontinuation of Activities may be due to Shortage of material,
strikes or other unexpected reasons. The following other Points should
also be noted :-

a) If any Suspension in work is of temporary in nature then It should

be ignored. It can also be said that Temporary Suspension of work
will not Affect Capitalisation in any way (i.e., Stoppage of work
during rains, changes in water Level in rivers while const. bridges etc.)
b) If Suspension is not temporary then we should not capitalise B. Cost
during such Period & It will be written off in P&L.

*Part 4*

Stage III : Cessation of Capitalisation

As per the Provisions of Ind AS – 23, Cessation means completion of

Work. As per the Provision of this Statement, Borrowing Cost cannot
be capitalised after the date of cessation of Activities. It can also be
said that Borrowing cost can be Capitalised upto the date at which Q.
Asset becomes ready for use or Sale.
(Note : No Interest can be Capitalised after cessation of Work.)

Cessation in Parts

Independant Dependant

If any Q. Asset is completed in Parts then It may be possible that any

part of Q. Assets becomes ready for use without completing other
parts. In this case, B. cost Which is related with such completed part of
Asset should be treated in the following 2 Situations :-
a) If Completed Part is independent in nature then B. Cost should not
be capitalised but It should be written off in P&L Statement. It will
be considered independent if It can be used without completing other
Parts.

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b) If completed Part is dependent in nature then It will be considered

that this Part is still a Q. Asset and B. Cost should be capitalised. It
will be considered as Dependant if it cannot be used without
completing others.

Solution of Q. 14 Discussed in Class

Concept 4 : Types of Borrowings * [Link]

Types

Specific Borrowings General borrowings

I. Specific Borrowings

If Direct relationship between Q. Assets & Borrowed funds can be

established then It will be considered as a case of Specific Borrowings.
In this case, we will Capitalise the total borrowing Cost to the related
Asset.

II. General Borrowings

In case there is no direct relationship between Q. Asset & Borrowed

funds then It will be considered as a case of General Borrowings. There
may be multiple Borrowings and multiple Q. Assets. Under this
situations, borrowings are not undertaken Specifically for an Asset, but
these are undertaken for a Project as a whole.

Step I : calculate Weighted Average Capital Rate (WACR) as follows :-

WACR = Total Borrowings cost x 100

Total borrowed or Total Expenditure
Funds On Q. Assets

Higher

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Step II: Allocate Borrowing cost over the Q. Assets on the basis of
WACR.

Example :
i. 10 % Bank Loan = ₹ 50,00,000
ii. 8 % Debentures = ₹ 40,00,000
iii. Q. Assets/ Expenditure made out of above funds : -
a) P&M = 45,00,000
b) Shed = 10,00,000
c) Roads = 15,00,000
Apply Ind AS-23 to show the treatment of Interest.

Solution :

Calculation of WACR

WACR = (50,00,000 x 10%) + (40,00,000 x 8%) x 100

90,00,000
= 500,000 + 320,000 x 100
90,00,000
= 9.11 %

Statement Showing Allocation of Interest

Items Expenditure WACR Interest Treatment

Plant 45,00,000 9.11% 409,950 Q.A

Shed 10,00,000 9.11% 91,100 Q.A
Roads 15,00,000 9.11% 136,650 Q.A
637,700

Interest to be written off on = 820,000 - 637,700 = 182,300

Unutilised funds ([Link]) (Q.A)

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Example :
i. General Borrowings : -
a) 10 % Bank Loan : 20,00,000
b) 15% NBFC Loan : 50,00,000
ii. Expenditure on Q. Assets out of above funds : -
a) Building = 50,00,000
b) P&M = 40,00,000
Show the Treatment of Interest.

Solution :

WACR = (20,00,000 x 10%) + (50,00,000 x 15%) x 100

90,00,000 *
 Expenditure is more than Borrowed funds
= 10.56%

Allocation of Interest

Total B. Cost 950,000

i. Building (50 L x 10.56%) 528,000
ii. P&M (40L x 10.56% ) 422,000

Solution of Q.8

Treatment of Specific B. Cost

In the Given Case, It is Clearly specified that 16% secured Loan is taken
For const. of Building. So, we will Capitalise B. Cost of ₹ 16 Lacs to the
cost of Building Directly. The following Entries may be recorded : -

i. Interest a/c Dr 16L

To Bank 16L
(Being Interest Paid)
ii. Building a/c Dr 16L
To Interest 16L
(Being Interest capitalised)
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Treatment of G.B Cost

a) W.A.C Rate = Total Interest x 100

T.B. Funds
= (28 + 36) x 100
(200 + 300)
= 12.8%
b) Treatment :-

Total B. cost (28 + 36) 64L

To be Capitalised : -
i. Plant 1 (200 x 12.8%) (25.60 L)
ii. Roads (100 x 12.8 %) (12.80 L)
iii. Plant 2 (100 x 12.8%) (12.80 L)
Balance to be written off 12.80 L

Journal :
i. Interest a/c Dr 64
To bank 64
(Being Interest paid)

ii. Plant 1 a/c Dr 25.60

Roads a/c Dr 12.80
Plant 2 a/c Dr 12.80
P&L a/c Dr 12.80
To Interest 64
(Being Interest capitalised & written off)

Solution of Q. 2 * Imp

Assumptions :
1) Phase I is independent in nature
2) It was completed in the beginning of year

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Statement Showing Treatment of B. Cost

a) W.A.C. Rate = Total B. Cost

Borrowed or Expenditure
Funds

Higher
= 22 L x 12 % =264,000 x 100
27,00,000
= 9.78 %

b) Treatment of G.B. Cost : -

Total B. cost 264,000

Phase I : To be written off in PL Statement (97,800)
(10,00,000 x 9.78%)
166,200
Phase II : To be Capitalised 88,020
(900,000 x 9.78%)
Phase III : To be capitalised 78,180 (Bal fig.)
(800,000 x 9.78%)

Journal

1) Interest a/c Dr 264,000

To Bank 264,000
(Being Interest Paid)
2) P&L a/c Dr 97,800
Phase II a/c Dr 88,020
Phase III a/c Dr 78,180
To Interest 264,000
(Being Interest capitalised & written off)

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Solution of Q 1
Calculation of Expenditure incurred till 31.3.01 (In Lacs)

Opening Balance in Q. Assets (1.4.2000) 474

(450 + 24)
Add : Expenditure during 2000-01
i. Transfer of Assets 100
ii. Cash Payment 78
Less : Progress Payment Received 300
Expenditure till 31.3.2001 352

Old-200 L New-200L

Comments : In the given Case, Total Borrowings are 400 Lacs, but
Expenditure on [Link] is ₹ 352 Lacs only. So, we cannot
Capitalise full Interest to the Cost of Q. Asset. The
following calculation may be considered : -

Total B. Cost (400 L x 12 %) 48 Lacs

B. Cost to be capitalised (352 L x 12%) (42.24 Lacs)
B. Cost to be written off in P&L A/c (Bal fig.) 5.76 Lacs

*Part 5*

Solution of Q.6

As per the Provisions of Ind AS-23, B. Cost can be capitalised to the

Cost Of Q. Assets only. A Q. Asset is an Asset that takes Substantial
period of time to get ready for its intended use or Sale. These Assets
may be in the form of L&B, P&M, I.P, Power Generation Plants or
Inventories etc.
In the given Situation, R ltd has acquired shares in A Ltd with the
amount Of Borrowed funds, But investment in Shares cannot be
considered as Q. Assets, Because the acquisition of shares does not take
substantial Period of time.

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Comments : On the basis of given Explanation in as above, R Ltd should

not capitalise Interest of ₹ 3 Crore to the Cost of
Acquisition of Investments. So, The company should write
off it in P&L A/c.

Solution of Q. 10

As per the Provisions of Ind AS-23, Biological Assets Except Bearer

Plants are Not covered under the Scope of this Statement. These
the Guidance of Ind AS-41.
(i.e., Biological Assets mean a Living Animal or Plant)

In the Given Case, Company has issued Debentures for Plantation of

Teak Trees. We cannot consider Teak trees as Q. Assets because these
are Biological Assets

Comments : The Treatment of company regarding B. Cost is not

correct. It should Not include B. cost to the Cost of
Inventory, But It should be written Off in P&L A/c.

Solution of Q. 13 (6-8 Marks) * Imp

I. Calculation of WACR

WAC Rate = Total B. Cost x 100

Total Borrowed Funds

= (1000 x 18% x 12/12) + (2000 x 14% x 6/12) + ( 3000 x 16% x 9/12) x 100
1000 + 1000 + 2250
(1000 x 12/12) (2000 x 6/12) (3000 x 9/12)
= 680 x 100
4250
= 16%
Note : While Computing WACR, Period of Interest Calculation should be
considered, Because calculation of used funds also depends upon it.
The following formula is relevant if funds are not used for full year : -
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WACR = Actual B. Cost during the year x 100

Actual used funds during the year
Borrowed funds x Period of O/S

II. Statement Showing Treatment of G.B. Cost

Total B. Cost 680 Lacs

B. Cost to be Capitalised : -
Factory Shed (2500 x 16% x 12/12) (400 Lacs)
Plant 1 (1500 x 16% x 9/12 ) (180 Lacs)
Plant 2 (1000 x 16% x 7/12) (93.33 Lacs)
Balance to be written off (Bal fig.) 6.67

Note : As per the Provisions of Ind AS-23, Activities should remain in

continuation Which are required to complete the work if an
enterprise wants to capitalise the interest. So, we have
capitalised interest according to Actual time as Given in question.

Solution of Q.12 (4 Marks)

Statement Showing Calculation of Estimated Cost of Asset at the end

of 5th Year

Period O. Balance Expenditure Interest C. Balance in

in Assets during (Ind AS 23) Asset A/c
A/c The year
(I) (II) (III) (IV) V=(II+III+IV)

1. NIL 100 7.2 107.20

(60 x 12%)
2. 107.20 100 14.40 221.60
(120 x 12%)
3. 221.60 80 19.20 320.80
(160 x 12%)
4. 320.80 60 24 404.80
(200 x 12%)
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5. 404.80 50 27.60 482.40

(230 x 12%) Ans

Solution of Q.4

Calculation of W.A.C. Rate/ Interest Rate

WACR/Interest Rate = 58.50 L x 100 = 9%

650 L

Statement Showing Treatment of B. Cost

Asset Expenditure Rate Interest Treatment

Building 120 9% 10.80 Note 1

P&M 350 9% 31.50
Advance for P&M 70 9% 6.30 Note 2
Working Cap. 110 9% 9.90 Note 3
650

Note :
1) In the Given question, It is Clearly specified that completion of
Building & Installation of P&M have been made at the end of year.
So, we should capitalise B. Cost of ₹ 10.80 L & ₹ 31.50 L to cost of
building & Plant respectively.
2) If we assume that Advances have been made for Q. Asset then we can
also Capitalise Interest of ₹ 6.30 Lacs to the Cost of Assets. Until
the Assets are Installed, we can keep this Interest in Interest
Suspense A/c. ( Vice versa case : write off this Interest in P&L A/c)
3) As per the provisions, Working Capital is not a Q. Asset. So,
Interest incurred For the arrangement of Working capital should
be written off P&L A/c.

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Solution of Q. 7 * Imp (10 Marks)

Statement Showing Calculation & Treatment of B. Cost

Months O. Balance in New Interest to C. Balance in

Assets A/c Exp. be Capitalised Assets A/c

April Nil 200,000 2000 202,000

(200,000 x 1%)
May 202,000 300,000 5020 507,020
(502,000 x 1%)
June 507,020 - - 507,020
(Notes)
July 507,020 - 5070 512,090
(507,020 x 1%)
August 512,090 100,000 NIL 612,090
(Notes)
September 612,090 700,000 13,121 13,25,211
(13,12,090 x 1%)
(Notes)

Notes :
1) In April & May, we have applied 1% Interest Rate on Expenditure
because Expenditure is Less than Borrowed funds. So, we cannot
Capitalise Interest on Unutilised funds.
2) In June, there was strike due to which No work was done in this
month. So, we Have considered it as Suspension of work due to which
we have not capitalised the Interest which is incurred on overdraft
in June.
3) In August, we have surplus cash due to which Borrowings do not Exist
in August.
4) In September, the enterprise has Borrowed funds in excess of 10
Lacs. So, we Have assumed that the entire expenditure is financed by
[Link].

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*Part 6*

Solution of Q 5 *Imp (10 marks)

Treatment of Specific B. Cost

Specific B. Cost incurred during 2001-02 3,85,00,000

(30 crores x 14 % x 11/12)
1.5.01 – 31.3.2002
To be Capitalised :
Project A (24 crores x 14 % x 7/12) (196,00,000)
Project B ( 6 Crores x 14 % x 6/12) (42,00,000)
To be written off in P&L A/c (SOPL) 147,00,000

Treatment of G.B. Cost

i. Calculation of [Link]

Particulars Utilised funds B. Cost

i. Debentures : -
1.4.2001 – 30.6.2001 20 Crores x 3/12 .55 Crores
= 5 Crores (5 x 11%)
1.7.2001 – 31.3.2002 15 crores x 9/12 1.2375 Crores
= 11.25 Crores (11.25 x 11%)
ii. Working Capital Loan :-
1.4.01 – 31.12.01 15 Crores x 9/12 1.575 Crores
= 11.25 crores (11.25 x 14%)
1.1.02 – 31.3.02 10 Crores x 3/12 .35 Crores
= 2.5 Crores
iii. Foreign Currency Loan :- (2.5 x 14%)
1.6.01 – 31.3.02 22.5 Crores 1.8 crores
( USD 60 Lacs x 45 x (22.5 x 8%)
10/12) Note
Total 52.5 Crores 5.5125 Crores

WACR = Interest during the Year x 100 = 5.5125 x 100 = 10.5%

Loss during the Year 52.5
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ii. Treatment of G.B. Cost

Total B. Cost 5,51,25,000

To be Capitalised :-
Project A (10 Crores x 7/12 x 10.5%) (61,25,000)
Project B (14 Crores x 6/12 x 10.5%) (73,50,000)
Project C (4 Crores x 10/12 x 10.5%) (35,00,000)
Project D (4 Crores x 9/12 x 10.5%) (31,50,000)
Project E (8 Crores x 10/12 x 10.5%) (70,00,000)
Balance to be written off in SOPL 2,80,00,000

Note : While Computing WACR under Ind AS-23, [Link] should always be
converted At Average Rate, because Interest is also calculated
at Average Rate.
If we are converting F.C Loans for B/S purpose then we should
always apply closing rate for True & Fair Presentation.

Solution of Q 3

As per the Provisions of Ind AS -23, B. Cost cannot be capitalised

from the date at which Q. Asset becomes ready for use or sale. This
Situation is also known as cessation of Capitalisation.
In the Given Situation, Power Plant is already used in commercial
production Which indicates that power plant is ready for use.

Comments : On the basis of Given Explanation as in above, the argument

of Management is not correct. The Borrowing cost should
not be capitalised As power Plant is already in use for
production. So, Interest cost should Be written off in SOPL.

Solution of Q.9 *Imp

As per the provisions of Ind AS-23, B. Cost can be capitalised to the

cost Of Q. Asset only. A Q. Asset is an Asset that takes substantial
period of time to get ready for its intended use or Sales, but other
than Biological Assets and inventories Produced in Large Volume.
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In the Given case, Time is not taken by company to produce the

inventory, But time is taken to sell the inventory. A Limited stock can
be realised in market For sale.

Comments : On the basis of Given Explanation as in above, It can be said

that sugar is not a Q. Asset because It is not taking time in
its production. So, interest cannot be capitalised.

Solution of Q.11

As per the provisions of Ind AS-23, B. Cost cannot be capitalised

from the date at which Q. Asset becomes ready for use or Sale.
In the Given Case, It is clearly specified that Building was put to
use in Jan 2005 which indicates that all the necessary Activities were
completed in Jan 2005.

Comments : So, the enterprise can capitalise Interest of ₹ 18 Lacs which

Was incurred. Upto Jan 2005, but the remaining Interest of
₹ 7 Lacs should be written off.

Concept 5 : Application of “Para 6E”

(Exchange Diff subject to Interest Adjust.)

If any Enterprise has Borrowed funds in foreign currency for the

acquisition, Production or construction of Q. Assets then Exchange
Loss at B/s date on Such Loan can also be capitalised as B. Cost. The
following Steps should be applied under Para 6E :-

Step I : Calculation of Notional Savings in Interest

Assumed Interest at Local Interest Rate assuming funds are xxxx

Borrowed in India ( It will be given in question)
Actual Interest on F.C. Loans in Indian currency xxxx
[F.C. Loans x % x Exchange Rate]
Notional Savings xxxx

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Step II : Calculation of Exchange Loss

F.C. Loans in Indian currency at B/s date xxxx

F.C. Loans in Indian currency at Actual Rate (xxxx)
Exchange Loss xxxx

Step III : 6E
As per the provisions, Exchange Loss can be capitalised to the cost of Q.
Assets But upto the amount of Notional savings.
Shortcut = Notional Saving or Exchange Loss

Whichever is Lower can be capitalised

Important Point

Para 6E is not applicable if there are Exchange Gains on reduction in F.C.

loans due to Decline in exchange Rate. Such Gain will be transferred to
P&L A/c only.

Example:-
i. F.C. Loans : USD 10,000
ii. Exchange Rate : 1.4.2017 = 58
31.3.2018 = 59
iii. Interest Rate : Local Rate 11%
Actual Rate 5%
iv. Interest is paid at the end of year
v. Loan was taken at 1.4.2017
Apply 6E

Solution :
Calculation of Exchange Loss

F.C. Loan at B/s date (10,000 x 59) ₹ 590,000

F.C. Loans at Actual Rate (10,000 x 58) (₹ 580,000)
Exchange Loss ₹ 10,000

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Calculation of Notional Savings

Assumed Interest (580,000 x 11%) 63,800

Actual Interest (10,000 x 5% = 500 x 59) (29,500)
Savings 34,300

Comments: In the given case. We can capitalise the Entire Exchange

Loss to the cost of Q. Asset because It is not Exceeding
the Limit of Indian Interest.

Journal : -
a) Exchange Loss a/c Dr 10,000
To F.C Loans 10,000
(Being Loss debited due to increase in F.C Loans )
b) Q. Asset a/c Dr 10,000
To Exchange Loss 10,000
(Being Exchange Loss capitalised as per Para 6E)

Example : with the help of previous/ last Example, apply 6E if closing

Rate is 64 per USD.

Solution :
a) Exchange Loss = (10,000 x 64) – (10,000 x 58) = 60,000
`` Closing Actual Loss
Rate Rate
b) Notional Savings = (580,000 x 11%) - (10,000 x 5% x 64) = 31800
Assumed Actual Savings
Indian Interest Interest
c) 6E : 60,000 or 31,800 whichever is Lower = 31,800

Journal :
a) Exchange Loss a/c Dr 60,000
To F.C. Loan 60,000
(Being Exchange Loss capitalised)

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b) Q. Asset a/c Dr 31,800 (6E)

SOPL a/c Dr 28,200 (Bal fig.)
To Exchange Loss 60,000
(Being Exchange Loss Capitalised & Written off)

Example: With the help of Previous case, Apply 6E if closing Rate is 56

per USD.

Solution :
There is no Exchange Loss, because Exchange Rate at B/s date is lower
than Actual rate due to which there will be exchange Gain of ₹ 20,000. So,
Para 6E will not be applied in this case. The Amount of Exchange Gain will
be transferred to SOPL.

*Part 7*

Concept 6 : Subsequent Recognition under “Para 6E”

As per the Provisions of Ind AS -23 (Para 6E), Exchange Gain can be
reduced from Cost of Q. Asset if the company had capitalised Exchange
Losses under 6E in Previous Years. The amount of Exchange Gain that
can be reversed, should not Exceed the Amount of Exchange Loss, which
was Previously capitalised.

Journal :
1) F. C .Loans a/c Dr xxxx
To Exchange Gain xxxx
(Being Liability reduced)
2) Exchange Gain a/c Dr xxxx
To Q. Assets xxxx
(Being Cost reduced)

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Example :
Y1 (2016) Y2 (2017) Y3 (2018)
i. Notional in Interest 20,000 16,000 18,000
ii. Exchange fluctuation in 48,000 11,000 19,000
FCL (Loss) (Gain) (Gain)
Apply 6E with Journal Entries in Each Year.

Solution :
2016
1) Exchange Loss a/c Dr 48,000
To F. C Loans 48,000
(Being Liab. Increased)
2) Q. Assets a/c Dr 20,000 (6E)
P&L a/c Dr 28,000 (Bal)
To Exchange Loss 48,000
(Being Exchange Loss capitalised & written off)

2017
1) F. C Loans a/c Dr 11,000
To Exchange Gains 11,000
(Being Liab Reduced)
2) Exchange Gain a/c Dr 11,000
To Q. Assets 11,000
(Being Exchange Loss reversed which was capitalised in P.Y)

2018
1) F.C Loans a/c Dr 19,000
To Exchange Gain 19,000
(Being Liab. reduced)
2) Exchange Gain a/c Dr 19,000
To Q. Asset 9000
To P&L 10,000
(Being Exchange gain recognised)
2016 20,000
2017 (11,000)
9000
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Concept 7 : Disclosures (Notes to A/c’s)

1) The Entity Should report “ W.A.C. Rate “ which has been used in Books
For Capitalisation of B. Cost.
2) The Accounting policy should also be reported

*Part 8*

Solution of Q. 32 Discussed in Class

*Part 9*

New Questions
Solution of Q.1

As per the Provisions of Ind AS-23, Borrowing cost can be capitalised to

the Cost of Inventory only if It is not Produced in large Quantity and
as a routine stock on Repetetive basis.
In the Given case, It is clearly specified that cheese takes substantial
time to get ready which indicates that It is not produced on Repetetive
basis.
So, the Entity can capitalise the Interest to the cost of cheese
because It Can be considered as a Qualifying Asset.

Solution of Q.2

i. As per the Provisions of Ind AS-23, Q. Asset is an Asset that takes

substantial Period of time to get ready for its intented use or sale.
In the Given case, It is Clearly mentioned that software will take
substantial time in its development. so, It can be considered as a Q.
Asset for the purpose of capitalisation of Interest.
ii. The intention of management is very important while assessment
of an Asset Whether It is Qualifying or not under Ind AS 23.
Sometimes Activities in relation to an Asset got completed but, its
use depend on completion of other Assets. So, We can Assess

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whether an Asset is qualifying or not, only with the help of

Management.

Solution of Q.3

As per the Provisions of Ind AS 23, Interest can be capitalised if funds

Have been Borrowed for Acquisition, Production or construction of Q.
Assets. As per the rules, Q. Asset is an Asset that takes substantial
time to get ready for its Intented use or sale.
In the Given case, 3G licence has been acquired for development of
network Which is a time taking Activity. We should not consider 3G
Licence as a separate Asset, but It should be taken as a part of
Network Development.
So, the Entity should capitalise Borrowing cost which has been incurred
for Acquisition of 3G Licence till completion of Network Development.

Solution of Q.4

As per the Provisions of Ind AS 23, B. Cost can be capitalised only if

It is Incurred for Q. Asset which takes time to get ready for use or
sale.
In the given case, Permit has been acquired specifically for a building
which is Not ready for use. So, we can capitalise B. Cost to the cost of
Building which has been incurred for acquisition of permit. But
Equipment can be used in many Buildings which Indicates that It is not
dependent on a particular Asset and It is considered as a Complete
Asset. So, we should not capitalise Interest which is incurred for
acquisition of Equipments.

“New Concept on Specific Borrowing”

If Specific Borrowing has been taken by an Entity for a Q. Asset and

that Asset has Become ready for use, but Specific Borrowing is still
Repayable and It is o/s in B/s then such Specific Borrowing will be
considered as General Borrowing and It will be Considered while
computing “WACR” with other Business.
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Solution of Q.5

As per the Provisions of Ind AS 23, Specific Borrowing will become

General Borrowing if It is not repaid even after completion of related
Asset.
In the Given case, Loan was taken for Building A which is ready for use,
but Company has not repaid its Borrowed funds of ₹50 Lacs. It has
started using these Funds in construction of Building B. So, It should
treat such Borrowing as General borrowing. The company will consider
this Loan while computing WACR as follows :-

WACR = (25,00,000 x 9%) + (15,00,000 x 7%) + (50,00,000 x 8%) x 100

25,00,000 + 15,00,000 + 50,00,000
= 225,000 + 105,000 + 400,000 x 100
90,00,000
= 8.11%

Solution of Q.6 *Imp

Calculation of G.B. Cost (Sep to Dec)

i. Interest on Deb. (20,00,000 x 10% x 4/12) 66667

ii. Interest on [Link]: Sep. 500,000 x 15%x 1/12 6250
Oct. 500,000 x 16%x 1/12 6667
Nov. 500,000 x 16%x 1/12 6667
Dec. 750,000 x 16%x 1/12 10000
G.B. Cost 96251

Calculation of O/s funds during the period

i. Debentures (20,00,000 x 4/12) 666667

ii. [Link] : (500,000 x 3/12) 125000
(750,000 x 1/12) 62500
854167
WACR = 96251 x 100 = 11.27%
854167
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Explanation on Specific Borrowing Cost Actual

As per study material at student level, Specific B. Cost will be capitalised

directly to the related Asset irrespective of Time Period & Amount of
Expenditure on Q. Asset.

Solution of Q.7

I. Calculation of Specific B. Cost (1.4.x1 – 31.1.x2)

Interest on Specific Borrowing (200,000 x 9% x 10/12) 15000

II. Calculation of G.B. Cost (1.4.x1 – 31.1.x2)

A. WACR = (700,000 x 12%) + (900,000 x 11%) x 100

16,00,000
= 11.4375%
B. G.B. Cost : 1.8 – 31.1 (150,000 x 11.4375% x 6/12) = 8578
1.10 – 31.1 (350,000 x 11.4375% x 4/12) = 13344
1.1 -31.1 (100,000 x 11.4375% x 1/12) = 953
22875
Total capitalisation = 15000 + 22875 = 37875

Journal

I.
Building a/c Dr 800,000
To Bank 800,000
(Being Expenditure made on Building)
II. Building a/c Dr 37875
To Interest payable 37875
(Being Int. capitalised)
III. Interest a/c Dr 37875
To Bank 37875
(Being Int. Paid)

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Solution of Q.8

Treatment of S.B. Cost

(10% 4 years Note)

Interest on Specific Borrowing 65,000

Interest Income (20,000)
Net B. Cost 45,000

*S.B. Cost of ₹45,000 will be capitalised directly

Treatment of G.B. Cost

A. WACR = (10,00,000 x 12.5%) + (15,00,000 x 10%) x 100

10,00,000 + 15,00,000
= 125,000 + 150,000 x 100
25,00,000
= 11%

B. G.B. Cost : 30.6 -31.3 = 100,000 x 11% x 9/12 = 8250

31.12 – 31.3 = 12,00,000 x 11% x 3/12 = 33,000
31.3 – 31.3 = 200,000 x 11% x 0 = 0
41250
Total capitalisation = 45000 + 41250 = 86250

New concept on Capitalisation in Group statement

If one Entity in the Group takes Loan, but other Entity in the Group
buys Q. Asset From such fund then capitalisation will be allowed in
consolidated financial statements On such Borrowed funds, because we
will see both the Entities as Single Entity. It will be assumed that A
Single Entity has Borrowed & Invested.

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Solution of Q.9 *Imp

P Company

A B C
(Real Estate) (Const.) (finance Co.)

Loan 10,00,000 @7% IP 15,40,000 B. Funds 20L @ 7%

Q.A 15,40,000 (including 10% Profit) but no Q.A
+
QA 10,00,000
B Funds NIL

Comments on SFS of Companies :-

I. Company A : It can capitalise 70,000 (10L x 7%) to the cost of

Asset because It has incurred 15,40,000 on Q. Asset.
II. Company B : There is no Borrowing in this company due to no
Interest is Incurred.
III. Company C = It has no Q. Asset due to which No capitalisation can
be made.

Comments on CFS :-
Total Borrowed funds in CFS = 10,00,000 + 20,00,000 = 30L @ 7%
Total Q. Assets = 15,40,000 x 100 + 10,00,000
110
= 24,00,000

Capitalisation on Q. Asset in CFS = 24,00,000 x 7%

*Part 10*

Solution of Q.4, Q.19, Q.21, Q.5, Q.6, Q.7, Q.12, Q.22, Q26, Q.33

Discussed in Class
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Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-4 Ind AS : 116

Leasing Accounting
{*[Link]}
*Part 1*

Concept 1 : Applicability & Objective of Ind AS 116

As per the Provisions, Ind AS 116 is mandatory for all Parties (Lessor
& Lessee) W.e.f. 1.4.2019 but Ind AS 17 stands withdrawn from the
respective date. There is no Significant change in the books of Lessor
under Ind AS 116, but there are some Changes in relation to
Accounting & Presentation in the books of Lessee under this Revised
Statement.

“The main objective of this statement is to set principles regarding

Accounting &Presentation for Lease contracts in the books of
Respective Parties”

Concept 2 : Assets out of Scope of Ind AS 116

As per the provisions of Ind AS 116, the following Assets are not
under the scope of this Statement : -

Assets Covered

A. Mineral oils, ores, Natural Gases or other Non Ind AS 106

Regenerative Resources
B. Patents & Copyrights, contracts for motion Pictures, Ind AS 38
Manu Scripts, video etc.
C. Biological Assets Ind AS 41
D. Service Concession Arrangements Ind AS 115
E. If contracts are made for Granting Licences of Ind AS 115
Intellectual Property Rights

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Concept 3 : Exemptions from Application of Ind AS 116 *[Link]

As per the Provisions of Ind AS 116, Lessee can avail Exemption from
application of Ind AS 116 Rules for Lease if any one condition out of
following 2 conditions is Satisfied :-

Condition I : It should be a “Short Term Lease”

OR
Condition II : It should be a “ Low Value Lease”

A. Short Term Lease

If any Lease contract is made for 12 months or Less than 12 months

then Lessee can avail Exemption from application of Ind AS 116 Rules.

Important Points

 If any contract was Classified as Long Term Lease on

Commencement date of Contract, but Subsequently, It is
reclassified into short term Lease then there Will be “ No
Exemption” for such type of short Term Lease.
Note : It means that Exemption is available for original Short
term Lease only.

 If Lease Contracts have been entered into for similar Assets then
such Asset Will be considered separately for short Term or Long
Term Lease
Note : It means that Exemption cannot be availed for Group of
Similar Assets. we Can Group similar Assets only if Same
contract has been made for all Assets.

Solution of Q.1 Discussed in Class

B. Low value Lease contracts *Imp

As per the provisions of Ind AS 116, Lessee can avail Exemption from
this Statement if It has Entered into a Lease contract for “Low
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value Asset”. There is no clear Explanation on these Assets from the

Point of view of value of Assets. The Following 2 conditions if
satisfied then An Asset can be Classified under Low value Asset : -

Condition I : It should not be dependent or highly inter-related

on/with other Assets from the point of View of its use
Example :
i. Mobile/ Laptop/Tablet : All are not Dependent on other Assets
for use
ii. Tyres of a Car : Tyres are dependent on use of Car
+
Condition II : Lessee can take Benefit from Low value Asset on its
own without Merging it with other sources

Important points

i. An Entity should consider value of New Asset while Assessing Low

value Asset While Assessing Low value Asset under 116 regardless
the age of Asset under Lease
ii. If Lease covers multiple Assets of Similar nature then Each Asset
will be Considered as Separate for such Assessment.
Example : If Lease has been made for 200 Laptops then It will be
considered as Low value Lease even if overall amount is
very high because Each Laptop is a Separate Asset and
qualify the Specified conditions. It means that We will
not focus on volume of transaction
iii. The Size of business of Lessee or Nature of Business shall not
impact such Assessment.
iv. Ind AS 116 provides some Examples for understanding of Low value
Assets :-
Mobiles, Laptops, Tablets, Office furniture etc.

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Concept 4 : Accounting in the books of Lessee if Exemptions are

availed
As per the Rules, lessee will write off Lease Rentals during the Lease
Period on SLM Basis or any other Systematic basis in P&L A/c.

Not yet Defined in Ind AS 116

Note : Difference between Actual Payment and SLM Rentals shall be

considered as Prepaid or outstanding Rent.

Example :

LR1 = 20,000 Pass Entries in the books of Lessee assuming

LR2 = 18,000 Lessee has availed Exemptions.
LR3 = 22,000

Solution :
SLM Rent = 20,000 + 18,000 + 22,000 = 20,000
3

Journal Entries :

Ist year
i. Lease Rental a/c Dr 20,000
To Bank 20,000
(Being Rental Paid)
ii. P&L a/c Dr 20,000
To Lease Rental 20,000
(Being Rental written off on SLM Basis)

IInd Year
i. Lease rental a/c Dr 18,000
To Bank 18,000
ii. P&L a/c Dr 20,000
To Lease Rental 18,000
To O/s Rent 2000

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IIIrd year
i. Lease rental a/c Dr 22,000
To Bank 22,000
ii. P&L a/c Dr 20,000
O/S Rent a/c Dr 2000
To Lease rental 22,000

*Part 2*

Concept 5 : Identification of Lease in a contract *[Link]

If all the conditions are satisfied in a contract as Specified in below

then we will Assume that contract contains a Lease Agreement : -

Condition I : There should be an Identified Asset in the contract

+
Condition II : The Customer will obtain Substantially all of the
Economic Benefits From the Asset throughout the
Lease Period
+
Condition III : The customer will have right to Direct “How and for
what purpose”The Asset will be used throughout the
Lease Period.
OR
Condition IV : If how & for what Purpose is Pre-determined in a
contract then Customer will operate or design the Asset

“If we find ‘yes’ for all above Conditions then we would “ say that
contract contains Lease

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Condition I : Identified Asset

As per the Provisions of Ind AS 116, there should be an Identified

Asset in the contract to classify it as a Lease contract. Such an
Asset may be Specified in the Contract “ Explicitily or Implicitily “

Clearly Specified Impression/ Presumption on the basis

(i.e., Asset is Specially customised as per
of facts customer Requirement)

Note : The Specified Asset may be ready on contract date or It will be

made available to customer on a future date, does not affect
the concept of identified Asset.

Solution of Q.2 , Q.3 Discussed in Class

Factors to be considered while identification of Asset : -

Factor I : Substantive Substitution Rights with Supplier

If supplier has “SSR” then It will be considered as there is no

Identified [Link] case the following 2 conditions are satisfied then
It will be proved that supplier has “SSR”

I. If Supplier can Substitute the Leased Asset with other Assets or

Alternative Assets at any time throughout the Lease Period.
Note : It can also be said that customer cannot Prevent supplier
from Replacement of Asset throughout the use of Asset

+
II. The Supplier has Economic Benefits from the Substitution of
Assets
Benefit from substitution Exceed cost of substitution
Note : If any Substitution is required to be made due to warranty
provisions then It Will not be covered under SSR

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Exceptions to above Rules :-

1) In case SSR shall become in power on occurrence of some future

Events or after a Specified period, but these rights do not Prevail
on Contract date then It will Be assumed that there are no SSR on
Contract date.
Note : These rights should Prevail on contract date

Examples of Future Events

 High Rentals from a future Customer

 Introduction of New technology in future
 Performance of Asset if does not meet as Expected in future etc.

2) Normally we will always assume that supplier does not have any SSR.

Solution of Q.4 Discussed in Class

Factor II : Identified Asset should be a distinct Asset *Imp

Distinct Asset

Physically distinct Not physically Distinct

It may be Entire Asset It may be in the form of or use of

Portion of Assets Capacity, but It should be
“ Substantial all” in the Period of use
 Substantial All is not defined in Ind AS 116
Approx. 100% .
Solution of Q.5, Q.6 Discussed in Class

Condition II : All Economic Benefits

As per the Provisions of Ind AS 116, Customer shall obtain
Substantially all Economic Benefits from the use of Asset
throughout the Period. The Benefit may include the Following cash
inflows :
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i. Primary output from the use of Asset

ii. By Products
iii. Commercial Substance (i.e., Rental from Sub-Leasing)

The following factor do not prevent customer from taking Economic

Benefits :-

 Supplier Protective Rights : If Supplier imposes any Restriction to

avoid damages To Asset or over consumption of Asset then It
does not mean that It will Affect Economic Benefit Concept.

No. of units to be Produced per day/

Movement of Asset in Risky Areas
 Supplier Benefit due to Ownership : If Supplier Gains some Tax
Benefits or other rewards due to ownership and these are not
related with use of Asset then It Will be assumed that Customer
still have all Economic Benefits.
Solution of Q.8 Discussed in Class

Condition III : Right to Direct *[Link]

“How & for what purpose”

As per the Provisions, Customer should have right to direct “How & for
What Purpose”the Asset will be used throughout the Period. It can be
said that decision making Rights in relation to Asset should be
Excercised by customer. The decision making Rights may include the
following :-
Customer will Decide

When to Where the How the Output whether the

Produce output will be will be produced output will be
the output Produced Produced or Not

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Notes :
1) “ How & for what Purpose” should be read as a Single Concept.
2) To Prove the right to direct, It does not require that Asset will be
operated by Customer itself. An Asset can be operated by
Personnel of Supplier on customer Direction.
OR
Condition IV : Operation/ Design of Asset

If “ How & for what Purpose” is Pre-determined in the contract then

operation/Design of Asset should be Excercised by customer
Otherwise we will assume that there is no lease contract.

Solution of Q.9, Q.10 , Q.11 Discussed in Class

*Part 3*

Concept 6 : Meaning of Lease

As per the Provisions of Ind AS 116, Lease is a contract whereby “

Supplier conveys to the customer right to control the use of an
identified Asset for agreed Period of time in Exchange of
consideration” There are many Issues which are to be Understood
with identification of Lease Contract which are as follows :-

Issue I : Identification of Each Lease component

Issue II : Identification of Non Lease component
Issue III : Combination of contracts
Issue IV : Portfolio Approach
Issue V : Inception Date of Lease
Issue VI : Commencement Date of Lease
Issue VII : Lease Term
Issue VIII : Re-Assessment of Lease Term
Issue IX : Lease Payments

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Issue I : Separate Lease component

If any Lease contract has been entered into for multiple Assets then
Each Asset will be taken as Separate Lease component if the following
conditions are Satisfied : -

1. Each Asset has its own Benefit

+
2. Each Asset is an Independent Asset (i.e., It is not inter-related
with other Assets)

Note 1 : If conditions for Separate Lease component are satisfied

then we will Account for Each Asset Separately.
Note 2 : If conditions are not satisfied then we will Account for all
Asset as a Single Lease Component.

Issue II : Non Lease Components *[Link]

As per the Provisions of Ind AS 116, It may be possible that there are
some Non Lease components in the contract in the form of
maintenance charges, Adm. Charges etc. for Leased Assets. We should
Separate Non Lease components from Lease components because both
have different Accounting Treatments in the books Of Parties.

Note : We will discuss Accounting for Non Lease components Later.

Allocation of Lease Payment :

As per the Rules, Allocation of Lease Payment over Lease component
and Non Lease component should be made in the Ratio of “ Stand Alone
Prices” which would have been paid if Both components are acquired
Separately. In case stand Alone Prices are Not available then
Estimated maximised values should be used.

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Optional Exemption for Lessee

As per the Rules under Ind AS 116, an optional Exemption has been
Given to Lessee as a Practical Expedient as an Accounting Relief that
Lessee can Account for Lease & Non Lease components as a single
components. It can also be said that Lessee does not require
Separation of Lease & Non Lease component in a contract.
 Lessor cannot avail this Exemption

Important Note :- As per the Ind AS 116, Property Tax, Insurance or

any other fixed Cost which is Associated with
Leased Asset should not be Considered as Non
Lease component. It can also be said that Variable
cost can only be considered as a Non Lease
component.

Solution of Q.12, Q.13, Q14, Q.15 Discussed in Class

Issue III : Combination of contracts

If there are multi – contracts with the same party then we can
combine all the Assets under multiple contracts as a “Single Lease
component” if following Conditions are satisfied :-

I. All Assets are Given as a Package OR

II. Rent of one Asset is dependent on other Asset OR
III. All Assets are Inter- related.

Issue IV : Portfolio Approach

(Accounting Relief )

We can combine Leased Assets even if these Assets are not inter –
related with each Other and Individual Asset has its own Benefits only
if these Assets are Similar Assets.

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Issue V : Inception of Lease

As per the Provisions of Ind AS 116, Inception of Lease is relevant

for Identification of a Lease in a contract. It will be as follows : -
a) The date of contract between the parties
Or
b) Mutual consent to Principal terms of contract
Whichever is Earlier

Issue VI : Commencement Date

As per the Provisions of Ind AS 116, Accounting for Lease will be

commenced in the books of Parties from commencement date of
Lease.
It is the date when right to Control the use of Asset is transferred
to Lessee.
 Note :
1. It may include Rent free Period also sometimes Possession of
Asset is Given to Lessee before agreed date to make ready the
Leased Asset without any Rent. In the Given case, Actual
Possession date is commencement date even if Rent is Not payable
during such Period.
2. It can also be said that Payment date does not affect
commencement date.

Issue VII : Lease term *Imp

(Lease Term means Lease Period = Accounting Period)

Calculation of Lease Term *

Non Cancellable Period xxxx

Add : If there is an option for Extension of Non cancellable
Period & Extension is certain from Lessee point of View xxxx
Add : Termination Period if It is certain that Lessee will
Not Exercise it xxxx
xxxx

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 Lease term shall not include cancellable Period

Any contract can be considered as

cancellable if :-
i. Lessor or Lessee can cancel the contract any time without other
Party Permission
+
ii. Penalty is Nominal

Solution of Q.16 Discussed in Class

Issue VIII : Re-Assessment of Lease Term

As per the Provisions, Lessee should Assess Lease term at the end of
each [Link] following factor may affect Lease Term :-

I. If Lessee has made major improvements in Leasehold Property

II. If Lessee has carried major modifications in the Asset
III. If Lessee has taken a business of related Assets
IV. If Lessee has sub –Leased the Leased Asset for beyond its non
cancellable Period
 Lessor will change its Lease term according to Lessee

Solution of Q.17, Q.18 Discussed in Class

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*Part 4*

Issue IX : Lease Payments *Imp

Lease Payment

Part I : For Lessee Part II : For Lessor

It is Calculated for Lessee to It is calculated for Lessor to

Record Asset & Liability record Investments in Lease

ROU Lessor

Part I : Lease Payment for Lessee

Lease payment : - As per the Provisions, Lease Payment is the

Amount which is paid Or Expected to be Paid by
Lessee to Lessor during the Lease Period For use of
underlying Asset. It should include : -
I. Fixed Rental (including in Substance fixed Amount) Less Lease
Incentive
II. Variable Rental which depends on CPI/ Rate
III. Payment for option of Purchase
IV. Termination Penalties
V. Residual Lease Guarantee

A. Fixed Rentals + Substance fixed – Incentive

a) Fixed Rental :-

It is the fixed Payment which is made by Lessee to Lessor as per

[Link] may remain fixed during the agreed Period or can
Increase over the time by fixed Amount.

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b) In Substance it is fixed :-

If increase in rental is mentioned on the basis of variable factors,

but in Substance it is fixed then such increase shall also be considered
in fixed rentals.
 If there are multiple variables in the contract then we should go
for that Variable which seems to be real.
 If there are more than one Realistic variable then we should go for
the variable With minimum Increase.

c) Incentives : -

If any Expense/ Cost to Lessee (i.e., transportation charges,

transit Insurance etc.) is reimbursed by Lessor to Lessee then It
should be deducted while computing Lease Payments on Commencement
date.

Non Lease Components : If Lessee does not avail optional Exemption

on Practical Expedient on Not to Separate
Non Lease Components then “fixed Rentals
should not include Payment for Non Lease
Components”.
Solution of Q.19 , Q.20, Q.21 , Q.22

B. Variable Lease Payments

If Lease Payments are based on consumer Price Index/ Market

Rental Rate/ Rate of Interest then the following Points should be
considered :
1. On commencement date, Lease Payments should be computed on
Prevailing Rates
2. If related factors changes in future then Lease payments shall be
re-measured in relevant Period.

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Important Exception

If Lease Payment increases in future due to other factors (i.e., %

Share in sales, % in Profits, Qty Produced etc.) then Such change will
be Transferred to P&L A/c in the Same Period and It will not Affect
Lease Payment.

Solution of Q.23, Q25

C. Purchase Option

If it is Certain that Lessee will Purchase the Asset at the end of

Lease Period at Given Price under Purchase option then It will be
included in Lease payment on Commencement date.

D. Termination Penalties

If it is certain that Lessee will pay penalties due to Termination of

Lease then It Will also be included in Lease Payment.

E. Residual Lease Guarantees *Imp

Residual Lease Guarantee is an Expected Amount which is payable by

Lessee at the end Of Lease Period to Lessor due to decrease in value
of Asset. It should also be Considered as Lease Payment on
commencement date as follows :-

RLG = Guaranteed value at the end of – Estimated value of Leased

Lease period Asset at the end of Lease period

If Estimated value is more than Guaranteed value then there

is no RLG And It will not be considered in Lease Payment

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*Part 5*

Solution of Q.26 Discussed in Class

Part II : Lease Payment in the books of Lessor

There is only single difference in the books of Lessor in compare to

Lessee Books While computing Lease Payment Which is in relation to
residual Lease Guarantee.

Lessor will consider Guaranteed residual Value at full Amount which is

Given By Lessee to Lessor at commencement of Lease.
 Lessee consider RLG to the extent of Estimated payment to be
made in Cash.
Explanation on Un-Guaranteed Residual Value

It is Relevant for Lessor only

(It should not be included in Lease Payment)

UGRV = If Lessor Estimates Residual value of Leased Asset at higher

Amount than Amount Guaranteed by Lessee then Diff. will be
additional inflow for the Lessor as “UGRV”. It Prevails only if
Lessor Estimation becomes higher than GRV, but in vice versa
situation , Lessor will consider only GRV.
UGRV = Lessor Estimated Residual – Lessee Guarantees Residual value
Value

Diff. should be UGRV if it becomes ‘+’

Concept 7 : Discount Rate

As per Ind AS 116, Discount Rate should be identified for identifying

Financing component in the Lease contract. The following Points
should be considered While computing Discount Rate : -

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1. It should be computed from Lessor point of View.

2. It should be IRR (Internal / Implicit Rate of Return)
3. It should be computed on the basis of same formula as we use in
SFM.
Example :
Compute IRR
Lease Period = 4 Y
Lease Rentals = 5L p.a Lease Payment = 21 L
GRV = 1 L
Lessor Estimated RV = 3L UGRV = 3 L – 1 L = 2 L
Fair Value of Assets = 16 Lakhs
Solution :
Assume any two Rate : 10% , 15%
a) NPV at 10%
Lease Rentals ( 5L x 3.17) 15,85,000
GRV (1L x .683) 68,300

UGRV (2L x .683) 136600

PV of Inflow 17,89,900
PV of Outflow (16,00,000)
NPV 189,900

b) NPV at 15%
Lease Rental ( 5 L x 2.855) 14,27,500
GRV (1 L x .572) 57,200
UGRV (2 L x .572) 114,400
15,99,100
(16,00,000)
(900)

IRR = Lower rate + LRNPV x Diff

LRNPV – HRNPV
= 10% + 189900 x5
189900 – (-900)
= 14.98%

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Meaning of IRR : It is the rate at which present value of Inflow will

be equal to Present value of Outflow.

At IRR = Lease Payment + UGRV = Fair value of Asset on

commencement date

Lessor Inflow Lessor outflow

“ Lessee Incremental Borrowing Rate “

If IRR does not provide real position for Interest in books then we
replace IRR with Lessee Incremental Borrowing Rate. It is the rate
at which Loan is available to Lessee in open market for same Period.

Concept 8 : Accounting in the books of Lessee

Step I : Initial Recognition

As per the provisions, Lessee will recognise An Asset & a Liability at

the time of Initial Recognition of Lease in its books on
commencement date. The following Journal Entry will be passed : -

ROU Asset a/c Dr xxxx Unit I

To Lessor a/c xxxx Unit II
(Being initial Recognition made)

 The Recognition of Asset & Liab is Exempted to Lessee for Low

value Assets &Short term Leases.

Step II : Recognition of Liab. to Lessor

Recognition of Liab to Lessor = Present value of Lease Payments at

IRR/IBR

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Unit I : Recognition of ROU Asset

As per the Provisions of Ind AS 116, ROU Asset should include the
following Amounts : -
Statement Showing Calculation of cost of ROU Asset

i. Present Value of Lease Payment xxxx

+
ii. Initial Direct cost if incurred by Lessee xxxx
(i.e., Commission, Legal fees, Stamp duty etc.)
+
iii. Lease Rentals if paid by Lessee to Lessor before xxxx
Commencement date
(i.e., Rentals during the period in which Asset was
Getting Ready )
+
iv. Provision for Dismentaling/ Restoration/ xxxx
Decommissioning Cost
(Refer Ind AS 16)
ROU xxxx

Correct Entry : ROU Asset a/c Dr xxxx (i + ii + iii + iv)

To Lessor A/c xxxx (i)
To Bank A/c xxxx (ii + iii)
To Provision xxxx (iv)
(Being initial Recognition made)

Solution of Q.27

Statement Showing Calculation of Lease Liab.

Year Rental PVF @ 5% Present Value

1. (Advance) 100,000 1 100,000
2. (Advance) 102,000 .952 97104
3. (Advance) 104,040 .907 94364
4. (Advance) 106,121 .864 91689
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5. (Advance) 108,243 .823 89084

6. (Advance) 110,408 .784 86560
7. (Advance) 112,616 .746 84012
8. (Advance) 114,869 .711 81672
9. (Advance) 117,166 .677 79321
10. (Advance) 119509 .645 77083
880889

Entry : ROU Asset a/c Dr 880889

To Liab. 880889
(Being initial recognition made)

Solution of Q. 28

Calculation of ROU Asset

Present Value of Lease Payment 8,50,000

Initial Direct Cost 1000
Rentals before commencement date 10,000
Incentives (50,000)
ROU Asset 811,000

Entry : Bank a/c Dr 50,000

ROU Asset a/c Dr 811,000
To Bank 11,000
To Lessor 850,000
(Being initial Recognition made)

Step II : Subsequent Recognition

Part I : ROU Asset

After initial Recognition, ROU Asset will be Carried in Books under Cost
model or Revaluation model as defined in Ind AS 16. The following
Additional points should be Considered : -

1. The Lessee shall calculate Depreciation on Leased Asset at the end

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of each year.
2. The Depreciation will be based on full life of Asset or Useful Life
during Lease Period.
Note 1 : If it is certain that Lessee will buy Asset at the end of
Lease period then Full Life should be considered for Dep.
Otherwise Lease Period is best option.
Note 2 : If question remains silent then Lease period shall be used.
3. IF method of Depreciation is not Specified then we will prefer
“SLM”.

Part II : Liab. To Lessor

As per Ind AS 116, Liab to Lessor will be dealt as a Normal Liability. We

will Accrue Interest and will record Payment as follows : -

Statement Showing Liab. To Lessor (After Initial Recog.)

Year Opening Balance Interest Payment Closing Balance

In Liab.
(I) (II) (III) (IV) (V)
(III = II x (II + III –
IRR) IV)

Entries :
a) Interest a/c Dr xxxx
To Lessor A/c xxxx
(Being Interest Accrued)
b) Lessor a/c Dr xxxx
To Bank xxxx
(Being Payment made as per contract)
c) Dep. a/c Dr xxxx
To ROU xxxx
(Being Dep Charged)
d) P&L a/c Dr xxxx
To Interest xxxx
To Dep xxxx
(Being Expense written off)
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*Part 6*

Solution of Q.30

Step I : Initial Recognition

Calculation of P.V of Lease Payments :-

Y1 20000 .893 17860
Y2 30000 .797 23910
Y3 50000 .712 35600
77370
Entry : ROU Asset a/c Dr 77370
To Lessor Liab. A/c 77370
(Being initial Recognition made)

Step II : Subsequent Recognition

a) Accounting for ROU :

Year Opening Deprn (SLM) Closing Balance

Balance
1 77370 25790 51580
2 51580 25790 25790
3 25790 25790 -

b) Accounting for Lessor Liab. : -

12%
Years Opening Interest Payments Closing
Balance Balance
(I) (II) (III) (IV) (V)
(II + III –
IV)
1 77370 9284 (20000) 66654
2 66654 7998 (30000) 44652
3 44652 5348 (50000) -
(Bal fig)
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Journal Entries : Ist Year

1) ROU Asset a/c Dr 77370

To Lessor 77370
(Being Initial Recognition made)
2) Interest a/c Dr 9284
To Lessor A/c 9284
(Being Interest Accrued)
3) Lessor a/c Dr 20000
To Bank 20000
(Being Lease payment made)
4) Depreciation on ROU Asset a/c Dr 25790
To ROU Asset 25790
(Being Depreciation Charged)
5) P&L a/c Dr 35074
To Interest 9284
To Depreciation 25790
(Being Exp. written off)

Notes to A/c’s

a) ROU Asset Initial I II III

At the end of year 77370 51580 25790 -
b) Liability
At the end of Year 77370 66654 44652 -
c) Expenses for each year
Dep. - 25790 - -
Int. - 9284 - -
35074

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Solution of Q.31 *Imp

Step I : Initial Recognition

Calculation of P.V of Lease Payments : -

Years Lease PVF @ 9.04% Present Value

Payments
1. 500000 1 500000
2. 315000 * .917 288855
3. 530450 .841 446108
4. 546364 .771 421247
5. 562754 .707 397867
6. 579637 .649 376184
7. 597026 .595 355230
8. 614937 .546 335756
9. 633385 .500 316693
10. 652387 .459 299446
(I) 3737386
Add : PV of option (II) Purchase
price at the end Of 1oth Year 1263000
(30,00,000 x .421)
PV of LP 5000386
Or 50,00,000 (Round off)
[*(500000 + 3%) – 200000]

Step II : Subsequent Recognition

I. Accounting for ROU Asset :

We will calculate Dep. On the basis of Economic Life (40Y) which is full
Life for Leased Asset because It is certain that Lessee will purchase
the Asset at the end of Lease Period.

Year Opening Balance Dep. Closing Balance

1. (40Y)
2. 5000000 125000 4875000
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3. 4875000 125000 4750000

4. 4750000 125000 4625000
5.
6.
7.
8. H.W
9.
10.
11.

II. Accounting for Lease Liab : -

Year Opening Int @ 9.04% Payment Closing Balance

1. Balance
2. 50,00,000 - 500000 45,00,000
3. 45,00,000 406800 315000 45,91,800
4. Beginning 45,91,800 415099 530450 44.76,449
5. 44.76,449 404671 546364 43,34,756
6. 43,34,756 391862 562754 41,63,864
7. 41,63,864 376413 579637 39,60,640
8. 39,60,640 358042 597026 37,21,656
9. Beginning 37,21,656 336438 614937 34,43,157
10. 34,43,157 311261 633385 31,21,033
11. 31,21,033 282141 652387 27,50,787
10th End 27,50,787 249213 30,00,000 NIL
(Bal Fig)

Step III : Re- measurement of Lease Liab. *[Link]

As per the provisions of Ind AS 116, Re-measurement of Lease Liab.

May take place Due to change in terms of Lease Payment. The
following points may be considered in Relation to Re-measurement of
Lease Liability : -
1. There may be four main reasons for change in Lease Liab. Which are
as follows : -
 Change in Lease term
(It may be extended due to Renewal option or It may be due to
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Early termination)
 Change in Decision of Purchase option
 Change in Guarantee Residual value
 Change in Rentals due to CPI/IR

2. If re-measurement takes place due to change in Lease Term or

Purchase option Then these Reasons shall have “Significant
impact” on Lease Payments due to Which Discount Rate will be
revised on Such date.
3. If Re-measurement in Liab takes place due to change in GRV or CPI
then these Changes shall not have significant Impact on Lease
Payments due to which we can Use original Discount rate without
any Change.
4. Re-measurement :-

Present value of Lease Payments as per New terms on re-

measurement date B/S Value xxxx
Carrying amount of Lease Liab in the books as per
original Terms on Re-measurement Date (xxxx)
Difference + xxxx

It will be transferred to ROU Asset

1) If Liab. Increases : ROU Asset a/c Dr xxxx

To Lessor xxxx
2) If Liab. Decreases : Lessor a/c Dr xxxx
To ROU Asset xxxx

Solution of Q.32
Step I : Initial recognition

P.V of Lease Payments without Renewal option :

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Years Rentals PVF @ 5% Present value

1. 100000 1 100000
2. 100000 .952 95200
3. 100000 .907 90700
4. 100000 .864 86400
5. 100000 .823 82300
PV of LP 454600

Entry : ROU Asset a/c Dr 454600

To Lessor 454600
(Being initial Recognition made)

Step II : Subsequent Recognition

a) ROU Asset :

Years Opening Dep. 5y Closing Balance

Balance
1. 454600 90920 363680
2. 363680 90920 272760
3. 272760 90920 181840

b) Liab to Lessor :

Year Opening Balance Interest Payment Closing

1. 5% Balance
2. 454600 - (100000) 354600
3. 354600 17730 (100000) 272330
4. 272330 13617 (100000) 185947

Step III : Re-Measurement

A. Present Value of New Lease payment on Re-measurement date : -

Year L.P PVF @ Present Value

6%
Y1 *104000 1 104000
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Y2 104000 .943 98072

Y3 114400 .890 101816
Y4 114400 .840 96096
Y5 114400 .792 90605
490589
*100000 + 4% = 104000 125-120
*110000 + 4% = 114400 125

B. Diff. between Revised Liab & Original Liab :-

Revised Liab. 490589

Original Carrying Amount (185947)
Increase * 304642

 It will be capitalised to ROU as follows :

ROU Asset a/c Dr 304642
To Lessor Liab 304642
(Being Re-measurement of Liab made)

Step IV : Modifications in the Contract

Modifications

Unit I : Unit II :
It Should be treated as a It should be treated as modification
Separate contract. to existing Contract

Re-Measurement Vs Modifications

If Changes in Lease Liability take place due to Pre-existing conditions

in the Contract then It will be considered as re-Measurement but
changes in Lease Liability Due to New Terms which were not Earlier in
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the contract then It will be considered as modification.

As per Ind AS 116, Lease Modification may be due to following Reasons :
1. Change in Consideration
2. Change in Scope of Lease Area +
Area -
3. Change in Lease period Extension
Termination

Unit I : Modifications as a Separate Contract * Imp

We can consider modification as a Separate contract only if the

following 2 Conditions are satisfied : -

1) Modification should be in relation to increase in Scope of Lease

contract
+
2) Lease Payment for such increase should be at its stand Alone Price

In the Given case, we will not change Lease Liab. Of original Existing
contract but we Will recognise such increase in scope of Lease as a
new contract.

Solution of Q.33 Discussed in Class

Unit II : If modification is considered as a change in Existing

contract
Cases

I II
If Increase in Scope of Lease If Scope of Lease is Decreased
has Been made for Lease in the form of Lease Term/Area
Term/Area
OR
Changes in consideration

Case I : If Scope of Lease is increased or consideration is changed

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Step I : Calculate Present value of Lease Liab. As per modified terms

on modification Date
Step II : Calculate book value of Lease Liab. Under Original contract on
modification Date
Step III : Step I –Step II = It will be transferred to ROU Asset
(+-)

 Under modified Terms, Discount factor will always be revised.

New rate on Modification date

*Part 7*

Solution of Q.34

Step I : Calculation of Lease Liab as per Revised Terms on modification

Date

Period Lease Payment Annuity factor P.V of Revised

@7% for 8 months Lease Liab.
7-14 Y 100,000 P.a. 5.971 597100

Step II : Calculation of Carrying Amount of Lease Liability as per

Original contract On modification date

A. Initial Recognition :
1-10Y 100000 P.a 7.360 736,000

Journal : ROU Asset a/c Dr 736000

To Lease Liab. 736000
(Being Asset recognised)

B. Subsequent Recognition :-

a) Lease Liab :

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Period Opening Balance Interest Payment Closing Balance

(6%)
1 736000 44160 (100000) 680160
2 680160 40810 (100000) 620970
3 620970 37258 (100000) 558228
4 558228 33494 (100000) 491722
5 491722 29503 (100000) 421225
6 421225 25274 (100000) 346499
7 346499

b) ROU Asset :
Initial Recognition 736000
Dep. For 6 years (736000/10 x 6) (441600)
Book Value (7th OB) 294400

Step III : Modification Impact on Lease Liab.

Modified Liab as per Revised Terms 597100

Carrying Amount as per original Terms (346499)
Increase in Liab 250601

Entry : ROU Asset a/c Dr 250601

To Lease Liab 250601
(Being Lease Liab. Revised)

Revised ROU Asset = 294400 + 250601 = 545001

It will be depreciated over 8 years during

Revised Lease period

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Solution of Q.36

Step I : Calculation of modified Lease Liab. ( In the beginning of 6th

year)
Period Lease Annuity @7% for 5 years Present val. of
Payment Lease Liab
6-10 95000 P.a. 4.100 389500

Step II : Calculation of Carrying Amount of Lease Liab

(In the beginning of 6th Year)

A. Initial Recognition

1-10Y 100000 P.a. 7.36 @ 6% for 10 year 736000

B. Carrying Amount :

Period Opening Balance Interest Payment Closing Balance

1 736000   
2
3 H.W
4
5
6 412225

Step III : Modification Impact on values

Modified Lease Liab 389500

Carrying Amount of Liab (421225)
Reduction in Lease Liab. (31725)

Entry : Lease Liab a/c Dr 31725

To ROU Asset 31725
(Being Liab. Reduced)

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Case II : Accounting for decrease in scope of Lease *Imp

Step I : Calculate carrying Amount of Original Contract on

Modification Date
Liab & ROU
Step II : Calculate Profit/Loss on Proportionate Surrendered/
Reduced Portion Under decrease in scope of Contract
Step III : Calculate Increase/ Decrease in Lease Liability due to
change in Terms of Continuing Portion of Lease Contract

Note : In case, Increase & Decrease are given in a contract together

then we will Adjust decrease in Scope first then we will consider
Increase in Scope.
Solution of Q.35

Step I : Calculation of carrying Amount of Lease Liab. & ROU Asset

( In the beginning of 6th Y)

A. Initial Recognition :

1 – 10Y 50,000 P.a. 7.36 @ 6% For 10 years 368000

B. Subsequent Recognition :
Liab.
Period Opening Balance Interest Payment Closing Balance
(6%)
1 368000 22080 (50000) 340080
2 340080 20405 (50000) 310485
3 310485 18629 (50000) 279114
4 279114 16747 (50000) 245861
5 245861 14752 (50000) 210613
6 210613

Asset 368000 – (36800/10 x5) = 184000

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Step II : Accounting for Decrease in Scope of Lease

Lease Liab ROU Asset

Carrying Amount 210613 Carrying Amount 184000

Surrendered Portion (105306) Surrendered Portion (92000)
(210613/5000 x 2500) (184000/5000 x 2500)
continuing Portion of 105307 Continuing Portion 92000
Lease

Entry : Lease Liab a/c Dr 105306

To Asset 92000
To P&L (Bal) 13307
(Being Cancellation of contract made for 2500 aq. Meters)

Step III : Modification impact on Lease Liab

Modified Lease Liab. (30,000 x 4.329) 129870

Carrying Amount for Cont. Portion (105307)
Increased in Liab. 24563

ROU Asset a/c Dr 24563

To Lease Liab. 24563
(Being ROU & Liab Increased due modification for continuing Portion)

Solution of Q.37 [Link]

I. Initial Recognition
(Original Lease)

P>V of Lease Liability (100000 x 7.36) @ 6% for 10 years 736000

Journal : ROU Asset a/c Dr 736000

To Lease Liab. 736000
(Being initial Recognition made)
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II. Statement Showing Balance in Lease Liability

Period Opening Balance Interest@6 Payment Closing Balance

%
1 736000 44160 (100000) 680160
2 680160 40810 (100000) 620970
3 620970 37258 (100000) 558228
4 558228 33494 (100000) 491722
5 491722 29503 (100000) 421225
6 421225*

III. Calculation of Balance in ROU Asset in the beginning of 6th Year

Initial Recognition 736000

Depreciation (736000/10y x 5y) (368000)
Book Value in the beginning of 6th year 368000

IV. Modification in Original Contract

a) Decrease in Leased Period (from 10Years to 8 Years)

i. P.V of Lease Liab for Original Contract

6th 100000 .943 94300

7th 100000 .890 89000
8th 100000 .840 84000
267300
Kept
ii. Changes/ Decrease in Original Liab. = 421225 – 267300
= 153925
To be Cancelled

iii. ROU to be cancelled = 368000 – (368000/5 x 3)

= 368000 – 220800
= 147200 To be cancelled
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Entry : Lease Liab. a/c Dr 153925

To ROU Asset 147200
To Gain (Bal) 6725
(Being Scope of Lease reduced from 10y to 8y)

V. Re-Measurement of Original remaining contract

P.V of Lease Liab @ 7% for 3 years 262400

100000 x (.935 + .873 + .816)
Present Lease Liab @ 6% (267300)
Reversal of Liab 4900

Lease Liab a/c Dr 4900

To ROU Assets 4900

Revised Liab = 267300 – 4900 = 262400

ROU Revised = 220800 – 4900 = 215900

VI. Additional Liab for 1500 Sq. mtr

7%
P.V of Additional Liab = 50000 x 2.624 = 131200
ROU A/c Dr 131200
To Lease Liab. 131200
( Being Additional Liab booked)

Revised ROU = 215900 + 131200 = 347100

Revised Liab = 262400 + 131200 = 393600

Concept 9 : Accounting in the books of Lessor

As per the Provisions of Ind AS 116, Lessor shall classify the Lease
contract into one of following contracts before making any
Recognition in the books : -
A. Operating Lease (Rental Model)
B. Finance Lease (Interest Model)
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Meaning of Operating Lease : If any Lease cannot be Specified as a

Finance Lease then It should be Classified as an Operating Lease.

Meaning of Finance Lease : As per the rules, Finance Lease is a

contract whereby Lessor Transfer all risks & rewards to Lessee
incidental to Ownership. The following Indications can be considered
(At Least one Indication) to Classify an Agreement Under Finance
Lease :- More than 50%
I. If Lease Period covers major part of Useful Life of LeasedAsset
OR
II. If there is an option with Lessee to Purchase the Leased Asset
at the end of Leased Period
OR
III. If Lessee is bound to acquire the Leased Asset at the end of
Lease Period
OR
IV. If Present value of Lease Payment becomes equal to or higher
than fair Value of asset
OR
V. If Nature of Asset is relevant for Lessee only

Additional Inicators those may lead to Finance Lease : -

 If Lease is Non- cancellable

(Note : Lessee will bear all Loses due to Cancellation of Lease)
 If Lessee can Extend the Lease Period at Lower Rates
 If Lessee has option to Purchase below the market Rates

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*Part 8*

Unit I : Accounting for Finance Lease

Step I : Initial Recognition

As per the Provisions of Ind AS 116, Lessor will Derecognise “Asset”

which is Given on
Lease, but will recognise “Lease Receivables” on Commencement date.

Journal Entry

Lease Receivables a/c Dr xxxx

To Asset xxxx
(Being initial Recognition made) Carrying Amount
Net Investments

 Diff. in Carrying Amount & N.I. will be considered as Profit or Loss

on Transfer Of Asset & It will be transferred to P&L A/c.

 Meaning of N.I. Present value of *Gross Investment at IRR

 Meaning of G.I “Lease Payment + UGRV”

Gross Inflow

 Note : If we discount G.I at IRR then N.I will be equal to fair Value
of Asset
Step II : Subsequent Recognition

After Initial Recognition, the following Entries shall be recorded each

year :-
a) Lease Receivables a/c Dr xxxx
To Interest Income xxxx
(Being Int. made due)

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b) Bank a/c Dr xxxx

To Lease Receivables xxxx
(Being Collection made)
c) Interest Income a/c Dr xxxx
To P&L xxxx
(Being Interest transferred to P&L as an Income)

Solution of Q.38

Step I : Initial Recognition

Calculation of Net Investment

Lease P.V of Lease Rentals (15,000 x 6.124) 91860

Payment P.V of GRV (30000 x .383) 11490
+
UGRV P.V of UGRV (20000 x .383) 7660
G.I. N.I 111010
N.I
Journal : Lease Receivables a/c Dr 111,000 (Round off)
To Asset 100,000 Carrying Amount
To Gain on transfer 11,000
(Being initial Recognition made)

Step II : Subsequent Recognition

a) Table Showing Finance Income

Period Opening Balance Interest Collection Closing Balance

(10.078%)
1 111000 11187 (15000) 107187
2 107187 10802 (15000) 102989
3 102989 10379 (15000) 98368
4 98368 9914 (15000) 93282
5 93282 9401 (15000) 87683
6 87683 8837 (15000) 81520
7 81520 8216 (15000) 74736
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8 74736 7532 (15000) 67268

9 67268 6779 (15000) 59047
10 59047 5951 (15000) 49998

GRV + UGRV

At the end of Lease Term

If Lessee returns the Asset If Lessee retains the Asset

Asset a/c Dr 49998 Cash/Bank a/c Dr 49998

To Receivable 49998 To Receivable 49998

Step III : Modifications

As per Ind AS 116, Lessor Recognises Net Investments as Lease

Receivables for Lease Contracts under Finance Lease. In case any
modification takes Place in Lease Contract then It will be treated as
modification in financial Asset and It will be Accounted as per Ind AS
109.
Step IV : If Lessor is a manufacturer or Dealer

If Lessor is a manufacturer or dealer then Lessor will calculate Total

Profit from the Transaction under 2 headings as follows :-

Normal Profit = fair value of Inventory - Cost of Inventory

Ind AS 115 N.I /P.V of GI

Outright Revenue

Interest Income = Gross Invest. – N. Investment

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Example :

a) Cost per car : 150000

b) Normal Selling Price : 180000
c) Lease Rentals : 37500 P.a in advance ( Lease Period 6 Years)
d) GRV : 22500
e) IRR : 16%
Calculate Normal Profit & Finance Income

Solution :

Step I : Calculation of Normal Profit

Normal Profit = NSP – Cost

= 180000 – 150000 Receivable a/c Dr 180,000
= 30000 To Sales 180,000

Step II : Calculation of F.I

Period Opening Balance

Interest (16%) Collection Closing Balance
1 180000 0 37500 142500
2 142500 22800 37500 127800
3 127800 20448 37500 110748
So on
Unit II : Accounting for Operating Lease

Under Operating Lease, Lessor recognises collections from Lessee as

Rental Income in P&L A/c on SLM Basis. If Actual Collection differs
from SLM Rent then Diff. will be recognised as Advance Income/
Outstanding Income.
Example :
Lease Period = 3Y
Lease Rentals = 1y = 60000
2y = 40000
3y = 20000
Pass Journal Entries assuming it as an OL

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Solution :

SLM Rent = 60000 + 40000 + 20000 = 40000

3

Ist Year :
i. Bank a/c Dr 60000
To Lease rental 60000
(Being Rental received)

ii. Lease Rental a/c Dr 60000

To PL 40000
To A. Rent 20000
(Being Income Recog.)

IInd Year
i. Bank a/c Dr 40000
To Lease Rental 40000
ii. Lease Rental a/c Dr 40000
To PL 40000

IIIrd Year
i. Bank a/c Dr 20000
To Lease Rental 20000
ii. Lease Rental a/c Dr 60000
A. Rent a/c Dr 20000
To PL 40000

Modification in OL

If modification is made in OL contract then It will be considered as a

new contract From such date & SLM Rent will be Revised from such
date.

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*Part 9*

Concept 10 : Sub-Lease Transactions

A B C Sub-Lessee
A

Lessor Lessee

Sub Lease
Lease Sub-Leases
Head Contract Leased Asset
Lease
Intermediate Lessor/ Sub-Lessor

As per the Provisions of Ind AS 116, Accounting for Sub- Lease

contracts Will be based on Nature of Head Lease. The following 2 cases
shall be considered for the Accounting of Sub-Lease contracts in the
books of Original Lessee/ Intermediate Lessor :-
Cases

If Head Lease is an If Head Lease is Long Term

Exempted Lease/ Operating Lease Lease/ finance Lease

Treatment in Case I

If Head Lease is an Operating Lease then sub Lease shall also be

considered as an Operating Lease. It means that Rental Income from
sub Lease shall be recognised on SLM Basis over the Lease Period. The
original Lessee will pay Rentals in original Contract, but will collect
rentals in Sub Lease contract. We cannot offset the Lease Rentals
under original & Sub Lease contract in Intermediate Lessor books
because Both the contracts are Separate contracts.

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Treatment in Case II

If Head Lease is a finance Lease then original Lessee/ intermediate

Lessor shall Consider the following points :-

1) First of all, Sub lease contract will be Classified under FL/OL based
on facts in Sub Lease contract.
2) If Sub- Lease contract is classified as an operating Lease then
Intermediate Lessor shall follow “Rentals on SLM” model without
derecognising any ROU Asset.
3) If Sub Lease contract is classified as a finance Lease then we will
de-recognise The ROU Asset and will recognise the Net
Investments as Follows :

N. Investments /receivable a/c Dr xxxx P&L

To ROU Asset xxxx
(Being Initial Recog. Made)

Solution of Q.39 ,Q.40, Q.41

Concept 11 : Sale & Lease Back Transaction *Imp

Lessee Lessor
Lease Back same Asset to
Mr. A Mr. B

Seller Buyer
Sells an Asset
Under Sale & Lease Back Transactions, we have to Understand
Accounting Aspects in the books of Lessor & Lessee Separately as
Follows : -
Unit I : In the books of Lessee

In the books of Seller/ Lessee, the following steps shall be applied

while making Accounting Adjustments for sale & Lease back
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transactions : -
Step I : First of all, Profit or Loss on Sale of Asset will be computed
by seller as Follow : -
Seller P/L = Selling Price – Carrying Amount

Step II : Calculate Present Value of Lease Liability as per Lease

contract
Lessee

Step III : Calculate carrying Amount which is retained by Lessee in

Lease contract in The form of ROU as follows :

Carrying Amount x P.V of Lease Liab. = C. Amt to be retained

Selling Price

Step IV : Carrying Amount to = Carrying Amount - Step III

be Transferred

Step V : Profit/Loss to be Recognised = Total Profit/Loss xStep IV

Carrying Amount

Example :
i. Carrying Amount = 10,00,000
ii. Selling Price = 15,00,000
iii. P.V of Liab. = 850,000
Calculate Profit to be Recognised on Sale & Lease back Transaction.

Solution :

Step I : Calculation of Profit on Sale of Asset

Profit = 15,00,000 – 10,00,000 = 500,000

(SP) (CA)

Step II : Calculation of P.V of Liab.

Given in Question
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Step III : Carrying Amount of Asset to be Retained

Carrying Amount to be Retained = 10,00,000 x 850,000 = 566,667

15,00,000
Step IV
Carrying Amount to be Transferred = 10,00,000 – 566,667 = 433,333

Step V : Profit to be Recognised

Profit = Total Profit x C. Amount transferred

Carrying Amount
= 500,000 x 433,333 = 216,667
10,00,000

Journal

Bank a/c Dr 15,00,000 (SP) 2066667

ROU Asset a/c Dr 566,667 (CA. Retained)
To Asset 10,00,000 (C. A)
To Lease Liab. 850,000 (P.V) 2066667
To Profit 216,667 (Transferred)

Note : It means that ROU will be recognised at Original Carrying

Amount instead of P.V of Lease Liab under sale & Lease Back
Transaction
Exceptional Cases

Case I : If Selling Price Exceeds fair Value

Case II : If selling Price becomes Lower than fair value

Case I : If selling Price Exceeds fair value

Step I : In the Given Case, Selling Price will be Reduced to fair value of
Asset & Calculation of Profit/Loss on Sale of Asset will be
computed as follows :
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Profit/Loss = fair value of Asset – Carrying Amount of Asset

(Note : Difference in SP & FV will be recognised as a Separate Liab.)

Step II : Calculate P.V of Lease Liab. As per Lease contract and Split
it in 2 Parts as follows :

P.V of Lease Liab

Additional Obligation (Step I) Normal Lease Payments

Additional Obligation x Lease Normal Lease Payment x Lease

P.V of Lease Liab Rental P.V of Liab Rental

Step III : Calculate carrying Amount of Asset which is to be retained

& transferred as follows : -
i. Retained = Carrying Amount x P.V of Normal Lease Payments
Fair value
ii. Returned = Total Carrying Amount – Retained Carrying Amount

Step IV : Profit to be Recognised = Profit/Loss x Returned C. Amount

Carrying Amount

Solution of Q.42

Step I : Profit/Loss on sale of Asset

Profit = Fair Value of Sold Asset - Carrying Amount

= 27,00,000 - 15,00,000
= 12,00,000
( Note : Advance Liab will be recognised at 300000 for diff. in selling
Price & fair value)
Step II : Calculation of P.V of Lease Liab.

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P.V of Liab = 200,000 x 7.469 = 14,94,000

(Round off)

Advance Liab. ROU Asset

300,000 11,94,000

Step III : Carrying Amount to be transferred or Retained

i. Retained = 1500000 x 1194000 = 663333

2700000
ii. Transferred = 1500000 – 663333 = 836667
iii. Profit to be Recog. = 1200000 x 836667
1500000
= 669334

Journal :

Bank a/c Dr 30,00,000 36,63,333

ROU a/c Dr 663,333
To Adv. Liab 300,000
To Lease Liab. 11,94,000 36,63,333
To Asset 15,00,000
To P&L 669,333

*Part 10*

Case II : If Selling Price becomes Less than fair value

Step I : Calculate Profit/Loss on sale of Asset as follows : -

Profit/Loss=*fair value of sold Asset –carrying Amount of sold Asset

We have increased selling Price

 Diff. between fair value & selling price will be considered as Pre-
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payment of Lease Liab.

Step II : Calculate P.V of Lease Liability and increase it by adding

prepayment of Lease liability.

Step III : Asset Retained = Carrying Amount x P.V of Liab

Fair value
Asset transferred = C. Amount – Asset retained

Step IV :Profit/Loss to be Recognised = P/L x Asset transferred

C Amount

Solution of Q.42

Assumption : If S.P. is 25L

Step I : Profit/Loss on sale

P/L = Fair value – carrying Amount Prepaid Balance

= 27L - 25L = 2L
= 2700000 – 1500000
= 12,00,000

Step II : P.V of Lease Liab.

P.V of Lease Liab. (Refer Previous solution) 14,94,000

Prepayments 200,000
16,94,000

Step III : Asset Retained & Transferred

i. Asset Retained = 1500000 x 1694000 = 941111

2700000
ii. Asset Transferred = 1500000 – 941111 = 558889
`
Profit to be recognised = 1200000 x 558889 = 447111
1500000
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Journal

Bank a/c Dr 25,00,000

ROU Asset a/c Dr 941,111 36,41,111
Prepayments a/c Dr 200,000
To Asset 15,00,000
To L. Liab 16,94,000 36,41,111
To PL (profit) 447,111
(Being Initial Recog. Made for Sale & Lease Back Transaction)

Unit II : In the books of Lessor

Step I : In the books of Buyer/Lessor, Initial Recognition for

Purchase of Asset will be made as per Ind AS 16 : PPE at fair
value. (Diff. between fair value & Payment will be Adjusted o/s
or Advance)
Step II : After Initial Recognition, Lease transaction will be
recognised as per Ind AS 116

Q.42 : SP =30L Q.42 : SP = 25L

Asset a/c Dr 27 Asset a/c Dr 27

Advances a/c Dr 3 To Bank 25
(Balfig)
To Bank 30 To o/s 2
(Being Initial recognition) (Being Initial Recognition made)

Concept 12 : Transitional Provisions *[Link]

If Lessor & lessee already have a Lease contract in their books under
Ind AS 17 on the date of Application of Ind AS 116 then we have to
adjust the balances from Ind AS 17 to Ind AS 116 under transitional
Provisions.
Unit I : Transition in the books of Lessee
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Under Ind AS 17, there may be 2 type of Leases with the Lessee as
follows :
i. Operating Lease
ii. Finance Lease

Part A : Operating Lease

Transition

Lessee has an operating Lease under

Ind AS 17

If Such Lease is an Exempted If Such Lease is not an Exempted

Lease under Ind AS 116 Lease under Ind AS 116

No transition is required Transition is Required

Full Retrospective Modified Retrospective

Approach Approach

Concept A : Full Retrospective Approach *[Link]

Under this Approach, we Calculate ROU & Liability at the beginning of

Preceding year Assuming it Ind AS 116 had been applying Since from
the very beginning of [Link] means that we adjust position of
Lease contract in B/S in Current year as well as in comparative
statements as per Ind AS 116.

Solution of Q.43

a) Initial & Subsequent Recognition if 116 is Applied under full Retro.

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Approach
i. P.V of Lease Liab : 200,000 x 2.402 = 480400
ii. Lease Liab : Subsequent Recognition
Period Opening Balance Interest Payment Closing Balance
2017-18 480400 57648 (200000) 338048
2018-19 338048 40566 (200000) 178614
2019-20 178614 21386 (200000) NIL
(Bal)

iii. ROU : Subsequent recognition

Period Opening Dep (3Y) Closing Balance
Balance
2017-18 480400 160133 320267
2018-19 320267 160133 160134
2019-20 160134 160134 -

Journal :
1.4.2018 : ROU a/c Dr 320267
Retained Earning a/c Dr 17781 (Bal)
To Liab. 338048
(Being Transition made from Ind AS 17 to Ind AS 116)

31.3.2019 : Interest a/c Dr 40566

To Liability 40566
(Being Interest made due on Lease Liab.)
Depreciation a/c Dr 160133
To ROU Asset 160133
(Being dep. Charged)
Liab. a/c Dr 200,000
To Bank 200,000
(Being Lease Payment made)

31.3.20 : Interest a/c Dr 21386

To Liab. 21386
Dep a/c Dr 160134
To ROU 160134
Liab. a/c Dr 200000
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To Bank 200000

Concept B Modified Approach

Alternative I : Under this Approach, we will not adjust comparative

Statements, but we will discount the Lease Liability
which is Payable after 1.4.2019 only. The Lessee will
recognise ROU & Lease liability at Discounted value as
Specified in above.

Solution of Q.43

a) Calculation of P.V of Liab. As on 1.4.2019

P.V of Lease Payment after (200000 x .909) = 181800

1.4.2019 : ROU a/c Dr 181800

To Lease Liab 181800
(Being initial Recog. Made)

31.3.20 : Interest a/c Dr 18180 (181800 x 10%)

To Liab 18180
Dep. a/c Dr 181800
To ROU 181800
Liab. a/c Dr 200000
To Bank 200000

Alternative II : under this Approach, the following Points should be

considered for Transition from Ind AS 17 to Ind AS 116 :-
1) The Calculation of Lease Liab. Will be made as in Alternative I for
Payments after 1.4.2019.
2) The Calculation of ROU on transition date can be made by
discounting Rate on Transition date assuming that It would have
been there in Normal situation.
i. P.V of Lease Liab. = 200000 x .909 = 181800
ii. ROU = (200000 x 2.487) = 497400 – (497400/3 x 2)
= 165800
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10%

1.4.19 : ROU Asset a/c Dr 165800

R.E a/c Dr 16000 (bal)
To Lease Liab. 181800
(Being Transition made)
31.3.20 : Interest a/c Dr 18180
To Lease Liab 18180
Lease Liab. a/c Dr 200000
To Bank 200000
Dep. a/c Dr 165800
To ROU 165800

Part B : If Lessee has finance Lease under Ind AS 17

There will be no transition for finance Lease. It means that carrying

amount Of Leased Asset and Liab. To Lessor shall be continued from
Ind AS 17 to Ind AS 116.
Unit II : Transition in the books of Lessor

All the concepts are same under Ind AS 17 & Ind AS 116 for the books
of Lessor due to which there will be no transition in this case.

*Part 11*

Solution of Q.1 ,Q.2, Q.3, Q.4, Q.5 Discussed in Class

Concept 13 : Presentation & Disclosures in financial Statements

Disclosures

I. Quantative II. Qualtitative

Relevant for students for Relevant Practically for

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Exam Purpose Annual Reports

Unit I : Disclosures for Lessee

Part A : Disclosures for Non Exempted Leases

A. Balance sheet :
i. ROU Asset should be disclosed Separately from other Assets
ii. Lease Liab. Should also be Presented as a Separate Liab. From
other Liabilities.

B. P & L Statement :
i. Depreciation on ROU Asset should be included in Dep &
Amortisation Exp.
ii. Interest Exp. on Lease Liab. Should also be included in finance
Cost
iii. Income from Sub- Leasing should be Included in other Income

OL : SLM Rent FL : Int

iv. Profit/ Loss on Sale & Lease back Transactions.

Other Income Other Exp.

v. Variable Lease Payments should also be included in Expense
Do not related with CPI

C. Cash Flow Statements :

i. Payment for Lease Liability including Int. will be shown under
Financing Activities.
ii. Variable Lease Payments should be disclosed in operating
Activities
iii. Payment for Non Lease Components Should also be disclosed
under operating Activities.

D. Notes to A/cs :
i. Maturity Analysis of Lease Liability
ii. ROU Asset should be disclosed in Notes with OB, Addition, Dep &
CB.
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Part B : Disclosures for Exempted Lease

A. B/S B. P&L C. CFS D. Notes

Prepaid/ a) Short Payment of Rent Details of
outstanding Term Exempted
Rentals due to Lease Under Operating Lease Rentals
Diff. Rent with
in Actual Expensed Activities Maturity
Payment Analysis
and SLM Rent b) Low
value
Lease
rent
Expensed

Unit II : Disclosures for Lessor

Part A . Disclosures for Finance Lease

A. Balance sheet :-
Net investment should be report separately from other investment
In Lease
B. P&L :
i. Finance Income should be included in other Income
ii. Income from variable Lease payments should also be considered
under other Incomes.
iii. Profit/Loss at the time of De-recognition of assets.

Notes to A/c’s : Maturity Analysis of Net Investments

CFS :
i. Collection From Lessee in the form of Lease payments will be
Disclosed under “Investing Activities”
ii. Variable Lease rentals should be disclosed under Operating
Activities

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Part B. Operating Lease

B/S : Assets Given on OL should be disclosed separately from other

Assets
PL : Rental Income on SLM Basis
CFS : Rental under operating Activities
Notes : i) Description of Assets which are Given on OL
ii) Maturity Analysis of OL rentals : Actual & SLM

Concept 13 : Lease Classification of “ Land & Building” for Lessors

If Land & Building has been Given on Lease by a Lessor then the
following Points Should be considered :-

1) The Lessor should deal with Land & Building separately and these 2
Elements Shall be tested individually from the Point of View of
Operating Lease & finance Lease
2) Lease Payments should also be divided between Land & Building in
the ratio of Their fair value

Exemptions

1) If Cost of Land is immaterial then we can consider it as a Single

unit and Classification of Lease shall be made according to Building.
2) If it is not Possible to Separate each other then we will deal Land
according to Classification of Building.

Concept 14 : Initial Direct Cost if paid by Lessor

IOC

Finance Lease Operating Lease

It will be adjusted while It will be written off on SLM

Computing IRR Basis over the Lease Period
LP + UGRV = FV + IDC
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*Part 12*

Impact on Accounting for Lease contracts due to Rent concessions

Given by Lessor to Lessee During Covid-19 Pandemic
(Amendments made by MCA dated 24.7.2020)

Explanation

Unit I : Books of Lesse Unit II : Books of Lessor

Unit I : In the Books of Lessee

As per the Amendments made by MCA dated 24.7.20 in Ind AS 116,

Lessee can take Exemption from Accounting of Modification in Lease
contracts due to change in Lease Consideration on Rent concessions/
waivers or Deferrals during the period of covid-19 Pandemic made by
Lessor only if All the Specified conditions as below are satisfied :-

Condition I : The concessions/ Waivers/ Deferrals should be due to a

consequence of Covid-19 Pandemic

Note : It means that Benefits in Payment of Rentals due to other

reason cannot be Considered under this Practical Expedient. In
other cases, Lessee will consider it as Modification in Lease
contract.
+
Condition II : The Revised consideration under New Terms should be
equal to/ Less than Original consideration which was as per
Original Terms.
Note : If Revised consideration Exceeds Original consideration then
It will be treated as Modification
+
Condition III : The concession/ Deferrals/ waivers in Rent should be
for the Period Before 30.6.2021
Note : If any Benefit is Given for Rentals Payable beyond 30.6.21 then
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It will be Considered as modification.

+
Condition IV : The other Terms & condition shall remain same as these
were in Original Contract.
Note : There should not be any *Substantive change in Original Terms
*It’s a matter of Judgement

Accounting Impact
As per Practical Expedient, Lessee will credit income statement at
the time of Reduction in Payment :-

Lease Liab. a/c Dr xxxx (Normal)

To Bank xxxx (Reduced)
To SOPL xxxx (Benefit)
“Reduction in Rental”
OR
Lease Liab. a/c Dr xxxx
To SOPL xxxx
“If whole Rent is waived off”
(Being Payment of Lease Liab. Recorded)

*In Future, if Any Rental is payable in Excess than Normal Payment

due to deferment of Rent then Excess Payment will be debited in P&L
Lease Liab. A/c Dr xxxx (Normal)
P&L a/c Dr xxxx (Excess)
To Bank xxxx (Increased)
(Being Payment of Rentals Recorded)

Solution of Q.4
In the Given case, Lessee Q can apply Practical Expedient Given by
MCA while making Accounting Entries for Payment of Lease Liability
because It has satisfied all required Conditions. It can record
deferment of Rental through P&L A/c instead of recording it as
Modifications
In the Given case, the following observations have been made :-
1. The Rent has been Deferred due to covid-19 Pandemic
2. The concession has been made for Rentals which are payable before
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30.6.2021
3. There is no increase in original Lease consideration because
Deferment is asked by Lessee.
4. There is no change in other Terms & conditions.

Solution of Q.5
Same Answer can be Referred as Given in Q.4

Solution of Q.6

In the Given case, Lessee T should not apply Practical Expedient

because Concession in rental is for Period which is beyond 30.6.2021.
The other conditions are Satisfied, but Practical Expedient can be
applied only if All conditions are satisfied. So, Lessee T should Treat
this concession as modification in contract.

Solution of Q.7

In the given case, Lessee can apply Practical Expedient because All
conditions are Satisfied. There is an Extension of 3 months in
original Lease Period which cannot be Considered as Substantive
change in original Terms.
Solution of Q.8

In the Given case, Lessee Z will recognise this concession in P&L

statement as a Income. The following Entity may be passed :-

Journal : Lease Liab. a/c Dr 100,000

To P&L (Income) 100,000
(Being Rental waived off by Lessor & Practical Expedient has
been Applied)

Unit II : In the books of Lessor

As per the Provisions of Amendments made by MCA dated 24.7.2020
there is no Practical Expedient for Lessor under Rent concessions/
Waivers/ Deferrals. It means that Lessor has to follow modification
Rules in the Given case.
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Lessor

Operating Lease Finance Lease

Allocate Revised consideration Revise the Lease Receivables due to

over Remaining Lease Period modifications as we learn in normal
Modifications
Solution of Q.1

In the Given case, there will be no change in Rental Income because

overall Lease Rental are same during the period due to which SLM
Rentals shall also remain same.

Solution of Q.2
As per the rules, the Lessor will compute Revised Income on SLM Basis
over the remaining Lease Period as follows :-

Rentals Per Annum (Normal) 180,000 (15000 P.m. x 12m)

Remaining Lease Period 5Y
Total Lease Rentals over the Lease Period 900,000
Concessions in Rental (15000 x 3) (45,000)
Revised Rentals 855,000

Revised Income on SLM Basis = 855000/5Y = 171,000 P.A

Monthly = 14,250
The Remaining Lease incentive of ₹ 300,000 will also be allocated over
remaining 5 years On SLM
Lease Incentive = 300,000 = 10000 = 5000 P.m.
5Y 12m
Net income = 14250 – 5000 = 9250

Solution of Q.3

1. In June 20, Termination of contract will be considered as major

modification. Lessor Will derecognise Lease Receivables & will Recognise
Asset assuming Termination on same.
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2. For the Period from June to Dec, It will be Accounted for as an

Operating Lease.

*Part 13*

Solution of Q.10, Q.13, Q.14, Q.28, Q.32 , Q.38, Q.39 Discussed in Class

Thank You 😊
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter - 5 : Government Grant (Ind-AS-20)

*Part 1*

Concept 1: Important Definitions

Definitions

 
Meaning of Govt Meaning of Grant

 Meaning of Government: As per the Provisions of Ind-AS-20,

Government means state Govt, Central Govt, Local Govt or an
International Govt. (Foreign Govt) etc.

 Meaning of Grants: As per the Provisions of Ind-AS-20, Grant

means financial assistance which is provided by government to an
entities which is provided by govt to entities on compliance of certain
condition attached to it.

Note: As per the provisions grant is s type of subsidy. It can also be

said that subsidy is a wider concept which also includes grants.

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Concept 2: Coverage of Ind-As 20

Coverage

Unit I : Monetary Grants Unit II: Non-Monetary Grants

(Paid by govt in cash) ( Paid by govt in other forms,
but not in cash)

A B C D E
Grants for Grants for Grants for Grants Forgivable
Assets Expenses New Set-up for Assets Loans

Depreciable Non-Depreciable
Assets Assets

Out of Coverage
As per the provisions of Ind-As 20 the following Grants shall not be
covered under the scope of Ind-AS 20

I. Agricultural Grants (Ind-AS 41)

II. Govt. Participation in ownership of an entity
III. Tax benefits provided by Govt in the form of Tax Holiday period,
deductions From taxable income or other Rebates.

Concept 3: Discussion on Approach for Accounting

As per the Provisions, Accounting approach for govt Grants is a very

Debatable issue. These are two different Approaches for the
Accounting of Grants as follows.
1. Capital Approach
2. Revenue/ Income Approach

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Capital Approach vs Income Approach

Under capital Approach, it is Under Income Approach it is
Said that grants should not be said that grants should be
Credited in P&L A/c, but these are treated as an income in the
to be transferred to “capital credit side of” P&L A/c
Reserves” directly. The following under the heading of other
Points are given by professional Incomes.” The following
In the favour of capital Approach:- facts have been mentioned
in the favour of Revenue
Approach:-

I. The Govt Grants are not earned I. The Grants are earned on
Like incomes during normal course compliance of certain
of business conditions Attached to it.
II. A Grants is a financial device II. The Grants are not
Which is provided by Govt like a provided by shareholders
source of fund. due to which it should
not be Considered as a
sources of fund.

Conclusion provided by Ind-AS 20 on above debate:-

As per the provisions of Ind-AS 20 Govt Grants should be
accounted for as per Income approach. It can be said that grants
shall be routed through P&L A/c.

May be OR May be
Immediately Over the periods

According to Nature
of Grants

Concept 4: Recognition of Grants

As per the Provisions of Ind-AS-20, Initial recognition of Grant can
be made on accrual basis if the following 2 conditions are satisfied:-

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Condition I: It should be certain that entity will comply with all

conditions which are attached to it.
(+)
Condition II: It should also be certain that the entity will receive
money from such Grant.

Journal: Receivables A/c ……………Dr XXXX

To Govt Grant XXXX
(Being Grants recognized on accrual Basis)

Exception: In the absence of reasonable certainty of compliance with

conditions or Collection of Grant then recognition of
Grant shall be made on cash basis as follows:-

Journal : Bank A/c…………………Dr XXXX

To G. Grants XXXX
(Being Grants Received)

Concept 5: Accounting Rules for Grants

Unit I: Accounting for Monetary Grants

A. Grants for Assets

Part I: Depreciable Assets
Part II: Non-Depreciable Assets

Part I: Depreciable Assets

Accounting Methods : 1) Assets Reduction Method
2) Amortisation Method

Notes:
1) Both methods are equally prominent and any method can be
selected for Accounting based on choice of entity.
2) In the absence of specific requirement in questions, student
may apply any method, but Assets Reduction Method is easy to
understand.

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Method I: Asset Reduction Method *Imp

Step I : At the time of receipt of Grant

a) Bank A/c………………………..Dr XXXX

To G. Grant XXXX
(Being Grant Received)

b) G. Grant A/c…………………Dr XXXX

To Assets A/c XXXX
(Being carrying Amt of Assets reduced by receipt of Grants)

Note:
As per the provisions of Ind-AS 20, it is clearly indicated in above
entries that grant Will be adjusted against cost of Assets or it can
also be said that cost of Assets will be reduced due to such Grants.

Step II: At Balance sheet date

At each B/s date, we will calculate depreciation on reduced cost of

Asset after Adjusting Amt of Grant. “ We should compute
depreciation on the basis of remaining useful life.”

Note:
If Amt of Grant becomes higher than carrying Amt of Assets then
excess of such Amt of Assets then excess of such Grant over carrying
Amt will be transferred to P&L.

Step III: If Refund takes place

If Grant is to be Refunded to Govt due to Non-compliance then the

following entry will be passed:
Assets A/c ……..Dr xxxx
To Bank xxxx
(Being Refund of Grant Made)

Note: After Refund of Grant, Depreciation will be increased in future.

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*Part 2*
Example:
i) Cost of P&M : Rs.10,00,000
ii) Useful life : 10 years
iii) Grant received after 2 years of
Acquisition of Asset : Rs.4,00,000
iv) Grant to be refunded due to Non
Compliance of conditions after 2 years
From the date of its collection
Calculate Revised Dep after Refund of Grant & Also prepare P&M A/c.

Solution:
Statement showing calculation Revised Depreciation
(After refund of Grant)
PT Rs.
Original Cost 10,00,000
Depreciation for 2 years (10,00,000 x 2)/10 (2,00,000)
Carrying amt of Asset after 2 years 8,00,000
Grant Received after 2 years of acquisition of Assets (4,00,000)
Revised carrying amt after Grant 4,00,000
Depreciation for 2 years after receipt of Grant (1,00,000)
(4,00,000 x 2)/8
Carrying amt of asset after 4 years of Acq. of Assets 3,00,000
Add: Grant Refunded to be added back 4,00,000
Revised Carrying Amount after refund of Grant 7,00,000

Revised Depreciation after refund = 7,00,000/ 6years= Rs.1,16,667p.a

P&M A/c
Particulars Amount Particulars Amount
st
1 Year
To Bank 10,00,000 By Depreciation (1/10) 1,00,000
By Bal C/d 9,00,000
10,00,000 10,00,000
nd
2 Year
To Bal b/d 9,00,000 By Depreciation (1/10) 1,00,000
By Bal C/d 8,00,000
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9,00,000 9,00,000
Beginning
rd
3 Year
To Bal b/d 8,00,000 By Govt Grant 4,00,000
By Depreciation 50,000
By Bal C/d 3,50,000

8,00,000 8,00,000

4th Year
To Bal b/d 3,50,000 By Depreciation 50,000
By Bal C/d 3,00,000

3,50,000 3,50,000

5th Year
To Bal b/d 3,00,000 By Depreciation (7 L/6 y) 1,16,667
To Bank(Refund) 4,00,000 By Bal C/d (Bal. fig) 5,83,333

7,00,000 7,00,000

Method II: Amortisation Method (Deferred Grant Method) (Imp)

Step I: At the time of Receipt of Grant

As per the provisions, grant will not be adjusted cost of Assets but
it will be transfer to a separate A/c ‘Deferred Grant A/c”. The
following entries shall be recorded as follows;

a) Bank a/c………Dr xxxx

To Govt Grant xxxxx
(Being Grant Received)
b) Govt Grant a/c…….Dr xxxx
To Deferred Grant a/c xxxx
(Being Grant transferred to separate A/c)

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Step II: Amortisation of Grant in Each year

As per the provision, balance in Deferred Grant A/c will be amortised

in P&L A/c each Year at B/S date according to method of Dep. Which
will be opted by the entity for the related Asset. The following
calculations may be relevant;

Case I: If method of Dep is SLM

Amortisation of Grant= Deferred grant Balance

No. of years of useful life of related Asset

Case II: If method of Dep is WDV

Amortisation of Grant= Deferred grant Balance x% of Dep (WDV)

Deferred Grant a/c……Dr xxxx

To SO P&L a/c xxxx
(Being Grant amortised)

Notes:
I. The Amortised amt shall be disclosed in P&L under the heading of
“other Income”
II. The Unamortised balance in Deferred Grant A/c shall be disclosed
under the heading of “other Equity “ in B/s.

Step III: Refund of Grant (Imp)

At the time of Refund of Grant, we will Reverse Deferred Grant A/c

first. If Refund of grant becomes more than o/s Balance in Deferred
Grant A/c then excess of refund will be debited in P&L A/c.

Deferred Grant a/c………Dr xxxx(unamortised)

P&L a/c……………………………Dr xxxx ([Link] If required)
To Bank xxxx
(Being Refund of Grant made)

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Note: If amount of refund is less than unamortised balance in

Deferred Grant A/c then remaining balance in Deferred Grant A/c will
be amortised in P&L A/c over the remaining useful life of related
Assets.

Example:

i) Cost of Assets acquired : Rs.10,00,000

ii) Depreciation is to be charged @10% p.a. on WDV basis
iii) Grant Received : Rs.4,00,000
iv) After 2 years, Grant is to be refunded fully.
Show the entry for refund of Grant & also show Amortisation of
Grant each year.

Solution:
Journal Entries
Ist Year
i) Bank A/c …………………Dr 4,00,000
To G. Grant 4,00,000
(Being Grant Received) In the beginning
Of the year
ii) G. Grant A/c………….Dr 4,00,000
To Deferred Grant A/c 4,00,000
(Being Grant transferred to Deferred A/c)

iii) Deferred Grant A/c ………Dr 40,000 (400000*10%) At the end

To P&L 40,000 of year
(Being Grant Amortised on WDV basis)

IInd Year
iv) Deferred Grant A/c…Dr 36,000 ({400000-40000}*10%) At
To P&L 36,000 the end
(Being Grant Amortised on WDV Basis)

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In the beginning of IIIrd Year

Deferred Grant A/c…………Dr 3,24,000
(Refund) P&L A/c …………………………..Dr 76,000 (Bal fig)
To Bank 4,00,000
(Being Refund of Grant Made)

Deferred Grant A/c

PT Rs. PT Rs.
To P&L 40,000 By Bank 4,00,000
To Bal c/d 3,60,000
4,00,000 4,00,000
To P&L 36,000 By Bal 3,60,000
To Bal c/d 3,24,000
3,60,000 3,60,000
To Bank 3,24,000 By Bal 3,24,000

3,24,000 3,24,000

Question-3
Solution:
Method I: Asset Reduction Method

Particulars Amount
Original Cost of Asset 25,00,000
Grant recd @20% of cost of asset (5,00,000)
Reduced/ Revised Cost 20,00,000
Useful Life of Asset 10years
Annual Depreciation 2,00,000
Comments: Under Asset Reduction method, we have adjusted against
cost of Asset & calculation of depreciation has been made on the basis
of reduced cost.

Method II: Deferred Grant Received

Under this method, Grant will be kept in a separate A/c and there will
be no impact on Asser A/c as follows;

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Particulars Machinery A/c Deferred Grant A/c

Original Balance 25,00,000 5,00,00
Useful life of Asset 10 years 10 years
Annual : Dep 2,50,000 -
Amortisation of - 50,000
Grant

Question-4 *Imp
Solution:
Journal Entries
(Asset Reduction Method)
1st Year
i) Assets a/c…………………Dr 75,00,000
To Bank 75,00,000
(Being Assets acquired)

ii) Bank a/c……………………….Dr 15,00,000

To G Grant 15,00,000
(Being Grant Received)

iii) G. Grant a/c………………….Dr 15,00,000

To Assets 15,00,000
(Being cost of Assets Reduced)

iv) Depreciation a/c……………..Dr 10,50,000

To Assets 10,50,000
(60,00,000-7,50,000)/5yrs
(Being depreciation charged)

v) P&L a/c………………………………Dr 10,50,000

To Dep 10,50,000
(Being depreciation written off)

2nnd Year
1) Depreciation a/c……………..Dr 10,50,000
To Assets 10,50,000
(Being depreciation charged)
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2) P&L a/c………………………………Dr 10,50,000

To Dep 10,50,000
(Being depreciation written off)

Journal Entries
Deferred Grant Method
1st Year
i) Assets a/c…………………Dr 75,00,000
To Bank 75,00,000
(Being Assets acquired)

ii) Bank a/c……………………….Dr 15,00,000

To G Grant 15,00,000
(Being Grant Received)

iii) G. Grant a/c………………….Dr 15,00,000

To Deferred Grant a/c 15,00,000
(Being transferred to a separate A/c)

iv) Depreciation a/c…………..Dr 13,50,000 (75lakhs-7.5 lakhs)/5 yrs

To Assets 13,50,000
(Being Depreciation charged)

v) Deferred Grant a/c………Dr 3,00,000 (15lakhs/5yrs)

To P&L A/c 3,00,000
(Being grant Amortised)

vi) P&L a/c…………………………….Dr 13,50,000

To Depreciation 13,50,000
(Being dep. Written off)

2nnd Year
i) Depreciation a/c……………..Dr 13,50,000
To Assets 13,50,000
(Being depreciation charged)

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ii) P&L a/c…………………………….Dr 13,50,000

To Depreciation 13,50,000
(Being dep. Written off)

iii) Deferred Grant a/c………Dr 3,00,000

To P&L A/c 3,00,000
(Being grant Amortised)

Question-6
Solution:
Asset Reduction Method
A. Calculation of value of Asset after Refund

Particulars Amount
Original cost of Asset 40,00,000
Grant Received (16,00,000)
Adjusted Cost 24,00,000
Depreciation for 2 years (8,00,000)
(24,00,000-8,00,000)x 2years
4 years
Carrying Amt after 2 years 16,00,000
Add: Refund of Grant 12,00,000
Revised value of asset after 28,00,000
Refund

Journal (For Refund):-

Assets a/c………………………Dr 12,00,000
To Bank 12,00,000
(Being carrying Amt of Asset increased due to refund)

Deferred Grant Method

Amount transferred to D.G. A/c 16,00,000
Amortisation of Grant to P&L A/c (8,00,000)
(16,00,000/4 years)x 2 years
Balance in D.G. A/c after 2 years 8,00,000

Journal: Deferred Grant a/c………………….Dr 8,00,000

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P&L a/c……………………………………….Dr 4,00,000 (Bal)

To Bank 12,00,000
(Being Refund of Grant recognised)

Question-8
Solution:
Case I : Asset Reduction Method
Under this method, grant of Rs.4,00,000 will be added back to carrying
Amt of Assets such a treatment will increase carrying amt in Assets
A/c due to which depreciation over the remaining useful life will also
get changed.

Case II: Deferred Grant Method

Under this method, Refund of grant will be debited to Deferred Grant
A/c which remains unamortised on such date.

Question-9
Solution:
In the given case, it is clearly specified that company is applying
Asset Reduction Method. So Refund of Grant of Rs. 300 Lakhs shall be
added back to the carrying Amt of Asset and carrying amt of Asset
will get increased after such Refund.

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*Part 3*

Part II: Grants for Non-depreciable Assets (*Imp)

Case I : Grants without condition

Case II : Grants with condition
Case I: Grants without condition:
If any Grant is received for Non-depreciable Assets (“Grants
for Land”)*without any conditions then the Grant should be credited
to P&L statement immediately as follows:-
* No Conditions to develop it

Journal: 1) Bank A/c……………………Dr XXXX

To Govt. Grant XXXX
(Being grant Received)

2) Govt. Grant k A/c……..Dr XXXX

To P&L A/c XXXX
(Being Income recognized)

Case II: Grants with condition:

If Grant for Non-depreciable Asset “Land” is received with the
conditions of its development means structure is mandatory to be
built on such Land within time limit then it will be transferred to
“Deferred Grant A/c” and it will be amortised over the period of
expenditure on construction.

Journal: 1) Bank A/c……………………Dr XXXX

To Govt. Grant XXXX
(Being grant Received)

2) Govt. Grant k A/c……..Dr XXXX

* To Deferred Grant A/c XXXX
(Being Grant deferred subject to conditions of Land development)

*Amortisation of Grant:

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Over the period Deferred Grant A/c……………..Dr XXXX

of development To P&L XXXX
of Land (Being Grant Amortised)

If Refund of Such Grant takes place

Unconditional conditional
(Case I) (Case II)

P&L A/c……….Dr XXXX Deferred Grant A/c..Dr XXXX

To Bank XXXX P&L A/c…………….……Dr XXXX
(Being Refund of Grant Made) To Bank XXXX
(Being Refund of Grant Made)

B. Grants For Expenses/ Grants for Incomes

If any Grant is received for expenses then the following 2 cases

may be considered For these Grants:-

Case I: If these Grants are received without any conditions [i.e , No

time Limit is Prescribed or any other condition of Results
from expenses etc.] then the Grant Will be credited to P&L A/c
immediately.

Case II: If any condition is imposed by Govt on these Grants then

we should Transfer these Grants to a separate A/c “Deferred
Grant A/c” and it will be amortised to P& L A/c over the
period of expenses out of such Grant.

Amortisation of Grant= Expenses incurred out of Grant during the

period

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Explanation on presentation of such Grant in P&L A/c

Presentation

Alternative I Alternative II
It can be disclosed in It can be set off against
P&L A/c under the expenses in debit side of P&L A/c
heading of “other Incomes”

Grants for Immediate financial Support

If any Grant is provided to loss making entity for immediate
financial help to recover from losses in public interest then receipt
of such Grant will be Transferred to P&L A/c immediately without any
deferment.

Question 1, 2 & 3 discussed in class.

C. Grants for immediate setup of Business

If any Grant is provided by Govt. to an entity for setting up a new

business then such Grant will be transferred to P&L A/c
“immediately”. These types of Grants are provided by Govt. to
promote industries in Backward Areas or to promote a particulars line
of Business. If these Grants are refunded due to non-compliance of
conditions then Refund will be debited to P&L A/c.

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*Part 4*

Unit II: Non-Monetary Grants

(Which are not paid by Govt. in cash)

D. Grants For Assets

If Assets are provided by Govt to the entities at concessional Rates

then such Grants are considered as Non-monetary Grants because
these Grants are not provided by Govt in cash, but Assets are
provided at reduced price directly. These are two methods for
Accounting of these Grants:-

Method I: fair Value Method

Method II: Nominal Value Method

[Note: Any Method can be applied by entity out of above 2 methods]

Method I: fair Value Method

Under this method, Acquired Asset and Grant (both) are to be reduced
at fair value. The following entry may be recorded:-

Assets a/c………………….Dr XXXX (Fair Value)

To Bank XXXX (Payment)
To Deferred Grant A/c XXXX (F.V. of Assets)
(Being Non-monetary Grants recorded at fair value)

It will be amortised on systematically basis

Method II: Nominal Value Method

Under this method Assets are directly recoded at acquisition price.

There is no need to record is at fair value.

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Journal : Assets A/c……………………….Dr XXXX

To Bank XXXX

Acquisition Price
(Being Asset acquired at nominal value)

Note:
If any Asset is received “Free of cost” then same accounting methods
shall be
applied as we discussed above.

Question-6
Solution:
In the Given case, Land is provided by the Govt. to entity at reduced
price. We can recognise it under methods as follows:-

Alternative I: Fair Value Method Alternative II: Nominal Value

Method
Land A/c……………………Dr 5,00,000 Land A/c……………………Dr 5,00,000
To Bank 50,000 To Bank 50,000
To Deferred Grant 4,50,000 (Being Assets recognised at
(Being Non-monetary Grant Nominal value)
recognised at fair value)

Test Your Knowledge

Question-1
Solution:
I. Grant for Land
In the given case, Land is given by the Govt. at Nil price. It
means there is No cost for such Land and it is 100% free.
It can be recorded at fair value of Rs.10 Lakhs and same amount will be
credited to Deferred Grant A/c. Alternatively it can also be recorded
at nominal value.
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II. Grant for Machinery:-

In the given case, machinery is a depreciable Asset and the
entity has Received Grant of Rs. 2 Lacs in cash. There are two
methods for recognition of this Grant as follows:-

I. Asset Reduction Method: Under this method Grant will be

adjusted against Cost of P&M. So the net cost of P&M will be of Rs. 8
Lacs (10L-2L).

Annual Depreciation=8,00,000/ 5yrs= 1,60,000 P.A.

II. Amortisation Method: Alternatively Grant can be transferred to

a Separate A/c “ Deferred Grant A/c” and it will be amortised in P&L
A/c over the Period of 5 years.

Annual Amortisation = Rs.2,00,000/ 5 years= 40,000 P.A .

III. Grant for Immediate Set-up: In the given case, Grant of Rs.
20lacs is in the Nature of promoter contribution which is made by
Govt. to promote a particulars Business. It will be credited to P&L
A/c immediately under the heading of “other Income”.

IV. Grant for Expenses (R&D): In the given case Grant of Rs. 50 lacs
will be Transferred to Deferred Grant A/c and it will be amortised on
systematically basis Over the Research period.

E. Forgivable Loans *V.V. Imp

It may be possible that Govt has provided Loans to the entity at

concessional Rate of interest. It means that Actual Rate of
Interest will be less than market Rate of interest. In the Given
case, Grant is provided by Govt in the form of saving in int. to the
entities. The following steps should be applied for recognition
&Amortisation of Grants.

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Step I : Identify all cash outflow at Actual Rate of Interest which will
be made by Entity to Govt. over the period of Borrowings.

Step II: Calculate Present value factors at market Rate of Interest

Step III: Calculate Present Value of all cash outflows by PVF at

Marker Rate and it will be considered as “Fair value of Loan”

Step IV: Grant element in = Amount Provided by Govt.- Fair Value of

Forgivable Loan (Principal) Loan

Initial Recognition
Journal
Bank A/c……………………..Dr XXXX (Principal)
To Govt Loan XXXX (Fair value)
To Deferred Grant XXXX (Bal. fig)
(Being Forgivable Loan recognized at fair value)

Example:
i) Government Loan= Rs.10,00,000
ii) Market Rate=10%
iii) Actual Rate=4%
iv) Loan is to be repaid at the end of 3rd year .

Requirement: a) Initial Recognition

b) Loan A/c for 3 years
c) Amortisation of Grant over 3 years.

Solution:
Calculation of Fair value of Govt Loan
Cash outflow 1 year 40,000*0.909 36,360
2 year 40,000*0.826 33,040
3 year 10,40,000*0.751 7,81,040
P.V. of C.O./F.V 8,50,440
Grant Element=10,00,000-8,50,440=1,49,560

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Journal (Initial)
Bank A/c……………………..Dr 10,00,000
To Govt Loan 8,50,440
To Deferred Grant 1,49,560
(Being Govt Loan recognized at fair value)

Govt Loan A/c

Particulars Amount Particulars Amount
Ist Year
To Bank 40,000 By Bank(FairValue) 8,50,440
To Bal C/d([Link]) 8,95,484 By Interest (10%) 85,044
P&L A/c
9,35,484 9,35,484
IInd Year
To Bank 40,000 By Bal B/d 8,95,484
To Bal C/d([Link]) 9,45,032 By Interest (10%) 89,548

9,85,032 9,85,032
IIIrd Year
To Bank 10,40,000 By Bal B/d 9,45,032
By Interest (10%) 94,968
(B.f)
10,40,000 10,40,000

Deferred Grant A/c

Particulars Amount Particulars Amount
st
I Year
To P&L 45,044 By Bank 1,49,560
(85044-40000)
To Bal C/d 1,04,516

1,49,560 1,49,560
nd
To P&L 49,548 II Year
(89548-40000) By Bal b/d 1,04,516
To Bal C/d 54,968

1,04,516 1,04,516
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IIIrd Year
To P&L 54,968 By Bal b/d 54,968
(94968-40000)

54,968 54,968

Step IV: Amortisation of Deferred Grant

Amortisation = Interest at Market Rate- Interest at Actual Rate

(saving in interest)

As per the provisions, Deferred Grant from forgivable Loans shall

be credited to P&L equal to saving in interest. (Refer above
calculations)

Test Your Knowledge

Question-2
Solution:
Calculation of Fair value of Loan

Cash outflows: Y1 5,00,000*0.893 446500

Y2 5,00,000*0.797 398500
Y3 5,00,000*0.712 356000
Y4 5,00,000*0.636 318000
Y5 1,05,00,000*0.567 5953500
F.V. Loan at MR 74,72,500

Grant= 1,00,00,000-74,72,500=25,27,500

Initial Recognition
Bank A/c……………………..Dr 1,00,00,000
To Govt Loan 74,72,500
To Deferred Grant * 25,27,500
(Being Govt Loan recognized at fair value)

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*It will be amortised over the period of 5 years equal to saving in

interest Annually by the difference of market Rate of Interest &
Actual Rate of Interest.

(b)
If forgivable loan is provided by Govt. for the acquisition of
depreciable Asset then Amortisation of deferred Grant will be made
in P&L according to method of Depreciation on acquired Asset.

Question-4
Homework

Question-5
Discussed at class

Concept 6: Disclosure requirement under Ind-As 20

(Notes to A/cs)
i) The entity should disclose the Accounting policy which has been
applied for Accounting of Grants.
ii) The entity should also mention how the Grants have been
presented in B/S and P&L.
iii) The nature & Amt of Grant which has been received during the
year should also be disclosed.

Concept 7: Treatment of Grants in cash flow statement

Monetary Grants: under the heading of financing Activities in cash

flow statement.

“ Assuming source of funds”

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*Part 5*

Solution of Q.5

Method I : Asset Reduction Method

Under the Specified method, Grant is directly reduced from cost of

Asset &Depreciation is charged on Net Cost. The following calculations
may be considered :-
Balance sheet (Extracts)

Non Current Assets :-

PPE (W.N#1) 68000

Profit & Loss (Extracts)

Depreciation & Amort. (W.N#1) 17000

W.N #1
Cost of Equipment 100,000
Grant Received (15000)
N. Cost 85000
Depreciation @ 20% (17000)
Carrying Amount 68000

Method II : Amortisation Method

Under this method, Grant is not deducted from cost of Asset, but It
is Transferred to a Separate A/c “Deferred Grant A/c” and It is
amortised in P&L A/c According to method of Depreciation of related
Asset.

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Balance sheet (Extracts)

Non Current Assets :-

PPE (W.N#2) 80000

Non Current Liab. :-

Deferred Grant (W.N#2) 9000

Current Liab.
Deferred Grant (W.N#2) 3000

W.N #2
i. Original Cost of Asset 100,000
Dep @ 20% (20,000)
Carrying Amount 80,000
ii. Deferred Grant 15000
Amortisation @20% (3000)
Balance o/s 12000

Next year Later

3000 9000
(CL) (NCL)

P&L Statement (Extracts)

Other Income :
Grant Amortisation (W.N#2) 3000

Dep & Amort. :

Cep on PPE (W.N#2) 20000

Solution of Q.6 *Imp

In the Given case, Grant is for 18 months which should be amortised
in the ratio Of 12:6 due to which we can amortise 20,000 in first year
and 10,000 in next year. The Given grant is for training Purpose due
to which it can be classified as Grant for Expenses. The following
Presentations may be followed :-
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Balance sheet (Extracts)

31.3.x1 31.3.x2 31.3.x3

Non Current Liab :
Deferred Grant 10,000 - -

Current Liab.
Deferred Grant 20,000 10,000 -

Profit & Loss Statement (Extract)

X1- X2 X2-X3
Method I : Separate Disclosure
Other Incomes :
Grant Amortisation 20,000 10,000

Other Expenses :
Training Exp. 50,000 25,000

Method II : Net Disclosures

Other Expenses :
Training Exp. (Net of Grant) 30,000 15,000

Solution of Q.1, Q.3 *Imp, (Discussed in Class)

Solution of Q.2 *Imp

As per the Provisions of Ind AS 20, Refund of grant can take place if
related Conditions, which are attached to it, do not get satisfied. In
the Given case, Grant Was recognised as income in past which should
be reversed in P&L at the time of Refund. The following Entries may
be recorded :-
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i. Govt. Grant a/c Dr 10 crores

To Grant Repayable 10 crores
(Being Repayable Grant Expensed)
ii. P&L a/c Dr 10 crores
To Govt. Grant 10 crores
(Being Expense written off)

*It will be disclosed in B/s under the heading of current Liabilities.

iii. Next year (20x6-x7)

Grant Repayable a/c Dr 10 Crores
To Bank 10 Crores
(Being Grant Refunded)

Solution of Q.4 (Discussed in Class)

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-6 : CORPORATE SOCIAL RESPONSIBILITY

(Section 135 of Companies Act 2013)
(Companies CSR Rules 2014)

*Part 1*

Concept 1: Applicability & Basic understanding of CSR

If an entity fulfils any of the following criteria during “Immediate

Preceding financial year” then it has to apply CSR Rules in current
financial year:-

I. IF Company has Turnover* 1000 Crores or More

OR
II. If Company has Net worth* of 500 Crores or more
OR
III. If Company has Net profits* of 5 crores or more

* Refer Definitions explained in Next video.

As per the provisions, the companies have to consider the following 3

special points in relation to CSR if it is Applicable due to above criteria:-

1. The Entity will spend on CSR Activities which are prescribed in

schedule VII of Companies Act 2013

2. If an Entity covers under application of section 135 then it will

have to spend under CSR activities for consecutive 3 years after
satisfying one of above Criteria whether entity fulfils or not any
criteria during these 3 years. We will check the criteria at the end
of 3rd year for compliance with CSR for next 3 yrs.

3. The entity has to spend at least 2% of its Avg. net profits* of 3

immediate Preceding years.

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 Avg Net profits shall be computed as per section 198, Refer Next video
for its Explanations.

Note:
If an entity does not have track of 3 preceding years because it is a
newly incorporated Company then we will consider No. of years for Avg.
profits from the date of its incorporation.

Concept 2 : Concept of CSR Committee

As per the rules, it is mandatory to form CSR committee with minimum

3 directors (including at least one independent director). It is the
responsibility of CSR Committee to perform following Actions/
functions:-
1. It will form CSR policy for the company and it will recommend its
formed policy to BOD of the company.
2. It will recommend the BOD:-
a) Amount of expenditure &
b) Activities (Schedule VII) where expenditure can be made
c) It will monitor CSR policy time to time.

Note: Where the amount to be spent by a company under sub-section

(5) does not exceed fifty lakh rupees, the requirement for
constitution of the Corporate Social Responsibility Committee
shall not be applicable and the functions of such Committee be
discharged by the Board of Directors of such company.

Concept 3 Role of BOD *V.V. Imp

As per the provisions, the following functions are to be performed by

BOD:-
I. It is the responsibility of BOD to approve Recommendations of
CSR committee.
II. It is also the responsibility of BOD to execute the Approved
CSR policy.

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III. The BOD Shall disclose in Directors Report the following:-

a) Composition of CSR Committee
b) CSR Policy
IV. The BOD shall also deal with “unspent Amount” out of Minimum
prescribed Amount as follows:-

If any Amt remains unspent

out of prescribed Amt

If any projects/ Programme If any projects/ Programme

Under CSR activities is not is going on under CSR
PMNRF,
Going on within the company Ganga activities with the company
Funds
etc.
Deposit unspent Amt within Transfer unspent Amt to a
6 months from the ending of separate A/c “Unspent CSR A/c”
Financial year in specified funds in a scheduled Bank and spend it
Which are mentioned in schedule VII. within 3 years. After 3 yrs if it
remains unspent then it will be
transferred to funds as
mentioned in schedule VII
within 30 days from the Expiry
of 3 years.

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V. Penalties & Prosecution

Penalties
(If failure in compliance is proved)

Penalties on Companies Penalties on Directors (In charge)

Twice the amount required to be 1/10th the amount required to

Transferred by the company to be Transferred by the company
the fund (Sch VII) or Unspent the fund (Sch VII) or Unspent
Amount CSR OR Amount CSR OR
Rs. 1 Crore Whichever is lower Rs. 2 lakh Whichever is lower

Concept 4: Other Important Points to be considered

i) If ant entity want to claim CSR expense then it should be spent in

India. If any expenditure is incurred outside India on social
activities then such an expense will not be claimed as CSR expense.

ii) If ant CSR policy is formed for the benefit of employees of

companies or for their families then it will not be treated as CSR
exp.

iii) If contributions have been made to political parties then it

will not be treated as CSR exp.

iv) If an entity has small CSR obligation then it can form its CSR
policy with Other small entity in an association but it has to
explain its expenditure out of Joint fund.

v) If any social activity is carried which is not mentioned in schedule

VII then It will be considered as voluntary exp.

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vi) The BOD should disclose CSR expenditure in Director report.

vii) IF any social Activity is carried which can not be separated from
Normal course of business it will not be treated as CSR expense.

Concept 5 : Schedule VII

Refer class Book for Schedule VII

*Not required to be learned.

Question -1,2,3,4 , 5 & 6

Discussed at Class

*Part 2*

Concept 6: Accounting for CSR expense

As per the provisions, the following entries should be recorded for

CSR expense :-

i) CSR Expense A/c…………………Dr XXXX

To Bank XXXX
(Being CSR expenses paid)

ii) P&L Statement A/c………………..Dr XXXX

To CSR expense * XXXX
(Being CSR exp. Written off)

*Notes (1) A separate heading should be created in P&L statement

(schedule III) for disclosing CSR expense in separate Line.
(The Specified requirement is applicable for those companies
only which are covered under sec. 135)

(2) A separate note should be prepared for explanation on CSR

expense debited in P&L A/c as follows:-

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CSR expenses on construction or acquisition of Assets * XXXX

CSR expense on other Activities XXXX
Total XXXX

*For Assets refer Concept 7

Concept 7: CSR Assets

If CSR expenditure is incurred on construction or acquisition of CSR

Assets then the following 2 cases may be considered in this case:-

Cases for CSR Assets

Case I : if control over Case II: if control over the

CSR Asset is not with Asset is still with
the entity company

We will treat Amt paid for CSR We will treat it as an Asset and it
Asset as CSR expense and it will will be disclosed in B/s under
be debited in P&L A/c. Appropriate heading According to
its nature
(i.e Ind-As 16, Ind- As 38 etc.)
“Only Depreciation or Amortisation
On these Assets can be claimed as
CSR exp in P&L A/c.

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Journal Entries
Case I Case II

i) CSR Exp. A/c …….Dr XXXX i) CSR Assets A/c…………….Dr XXXX

To Bank XXXX To Bank XXXX
(Being CSR Assets constructed (Being Assets acquired for CSR
but Control transferred to Activites)
other entity)
ii) P&L Statement A/c….Dr XXXX ii) Depreciation A/c………..Dr XXXX
To CSR exp. XXXX Amortisation A/c………..Dr XXXX
(Being Exp, written off) To CSR Asset XXXX
(Being CSR Asset depreciated)

iii) CSR Exp…………………Dr XXXX

To Dep. XXXX
To amortisation XXXX
(Being CSR exp. Recognised)

iv) P&L statement A/c……..Dr XXXX

To CSR Exp. XXXX
(Being exp. Written off)

Question-7
Solution

As per the provisions , expenditure on CSR Assets can be claimed as CSR

expense only if control over these Assets is not with the entity. If
control over the Assets is still with company then expenditure on these
Assets cannot be considered as CSR expense, but CSR Assets should be
recognised in the books.

In the given case, CSR Building has been recognized by company as an

Asset in its B/S due to which it can not be claimed as a CSR expense in
P&L statement, but Depreciation on such an Asset will be recognised as
CSR expense because Building is used in CSR Activities.

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Concept 8: Carry Forward of CSR exp.

If actual expense on CSR Activities becomes higher than 2% of Avg. net

profit then it will be considered as voluntary expense and it cannot be
carried forward as prepaid expense, but it will be written off in P&L in
same year.

Question-8
Discussed at class

Concept 9: Income Generated on CSR projects (Imp)

If any nominal income is generated from CSR Activities/ Projects/

programmes then the Following points should be considered for
treatment of such an Income:-

Step 1: For Nominal Income

Bank a/c……………Dr XXXX

To CSR Incomes XXXX
(Being CSR Income received)

CSR Income a/c……….Dr XXXX

To P&L Statement XXXX
(Being income credited to P&L)

Step II: Treatment of Income

CSR Expense a/c……………Dr XXXX

To CSR Liability XXXX
(Being exp. Debited equal to CSR income to contra the affect on P&L)

P&L Statement A/c….Dr XXXX

To CSR exp. XXXX
(Being Exp. written off as per contra)

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As per the provisions, CSR income will be credited to P&L statement but
an equal Amt Will also be debited in P&L statement as CSR expense to
contra to affect on P&L. In addition , CSR Liability will be created for
such CSR income because resources generated from CSR income shall also
be utilised for CSR Activities only.

Note: The CSR expense out of CSR Income will be considered in addition
to 2% of [Link] profits of past 3 years.

Concept 10: Distribution of Goods/ services in CSR Activities for

free

If free Goods/ Services are distributed by an entity under CSR

Activities then CSR Exp. Can be claimed equal to “Cost of such Goods/
Services”. The calculation of Cost of Goods will be subject to provisions
of Ind-As2.

Question-9
Discussed at class

Concept 11: CSR expenditure as a deduction in Income Tax Act

As per the provision , CSR expense can be claimed as an expense while

computing Taxable income only if it falls under sec.30 – Sec 36 of Income
Tax act. If it is an other expense which is outside the scope of section
30-section 36 then no deduction will be allowed.

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Concept 12: Important Definitions

1) Meaning of net Worth:

Net Worth= Paid up capital + All Reserves which are created out of
profits (i.e. G. Reserve, P&L , CRR Etc. ) + securities
premium –Accumulated Losses -Deferred Rev. exp.- Misc.
Exp.

2) Meaning of Net Profits:-

As per the provisions of sec.135, Net profit means profit disclosed

by entity in PL statement but we will not consider the following
Incomes under Net profits:-

I. Profits/ Incomes from foreign operations (Branch, Subsidiary

etc.)
[Link] Received from those companies which are covered under
section 135

3) Meaning of Turnover:-
Turnover means Gross collection from sale of Goods/Services.

4) Average Net profits [3 preceding years] for 2% Application:-

Avg Net profits shall be computed as per section 198.

Note: Those profits are the same profit which are computed to find the
maximum limit of managerial Remuneration u/s 197.

Q.10 (Discussed in Class)

Q.1 & Q.2 (Test Your Knowledge )

(Discussed in Class)

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*Part 3*

Illustration 5 , 8 (Discussed in Class)

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-7 : Ind AS-41 Agricultural Activities

*Part 1*

Concept 1: Coverage of Ind AS 41

Coverage

Biological Agricultural Govt Grants

Assets Produce for Agriculture
(Imp) (Imp)

Concept 2: Important Definitions

A. Meaning of Biological Assets

As per the Provisions, A Biological Asset is a Living Plant (Except

Bearer Plants which are already discussed in Ind AS 16) & A Living
Animal.
Biological Asset

A Living Plant A Living Animal

1. Crops (41): i) Cotton Plants i) Cows held in Dairy Farms

ii) Tobacco Plants ii) Sheeps, Goats etc
iii) Sugarcane Plants iii) Poultry farms etc.
iv) Wheat, Rice etc.

2. Woods (41): v) Pollar Trees

vi) Teak Trees Timbers
vii) Pinewood Trees

3. Bearer Plants (16): Apple trees, Mango trees,

All other fruits trees (these are considered as) PPE,
But not as Biological Assets under Ind AS 41.

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The following Assets are not considered as Biological Assets under the
scope of Ind AS 41:-
(Note: If any Asset is used to obtain Agricultural Produce from
Biological Assets then such an Asset will be covered under Natural head
of that Asset)
a) Agricultural Land (Refer Ind AS 16 PPE)
b) Other Fixed Assets used in Agricultural Activities (i.e; Tractors,
Equipments) (Refer Ind AS 16 PPE)
c) Bearer Plants (Ind AS 16)
d) Govt Grants for Bearer Plants (Ind AS 16)
e) Licenses or Permission for Agricultural Activities (Ind AS 38)
f) ROU Assets (i.e; Leasehold Land: Ind AS 16)

B. Meaning of Agriculture Produce

As per the provisions of Ind AS 41, Agriculture Produce is a harvested

product from Biological Asset at the time of Harvesting. A Harvested
Product is the detached product from Biological Asset. If any
processing is carried after Harvesting on Agricultural Produce then
processed goods shall be covered under the scope of Ind AS 2
(Inventories). The following table may be considered for
understanding the Difference between Agricultural Produce & further
processed Inventory:-

Biological Assets Agriculture Produce Processed Goods

(Ind AS 41) (Ind AS 41) (Ind AS 2)

(i) Cows Milk Ghee, Butter,

Buttermilk,Cheese etc.

(ii) Sheeps Wool Carpets, yarns etc.

(iii) Cotton Plants Picked Cotton Thread, Garments etc

(iv) Sugarcane Plants Sugarcane Sugar

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(v) Tobacco Leaves Picked Leaves Tobacco

(vi) Timber Trees Felled Trees Wood loys, Lumber etc.

(Poplar, Teak etc.)

Note: As per the provisions, Bearer Plants are covered under the
scope of Ind AS 16, but Agricultural Produce from these Plants shall be
covered under the heading of Ind AS 41.

(vii) Fruit Trees (16) Fruits (Raw) Processed Fruits

(viii) Rubber Plant (16) Latex Rubber Products

(ix) Tea Plants (16) Picked Leaves Tea

Concept 3: Recognition Rules for Biological Assets in Balance

Sheet

As per the Provisions of Ind AS41, the following 3 conditions should be

satisfied before any Recognition of Biological Asset in the Books of
Accounts:-

I. The Entity should have an undisputed ownership over the Asset.

(Note- It means that Biological Asset should be under the control of
Entity)

II. The Biological Asset should have some economic benefits and these
Benefits shall flow to the Entity

III. A Reliable Estimate of its Fair Value/ Cost should also be

available.

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Concept 4: Accounting for Biological Assets

Unit I: Accounting for Animals

Unit II: Accounting for Plants

Unit I: Accounting for Animals (Imp)

Step 1: Initial Recognition

Example: i) Animals purchased for Rs.10,00,000
ii) Acquisition Expenses= Rs.50,000
iii) Fair Value of Animals on the date of acquisition is
Rs.11,00,000 but subject to a commission on sales @ 5%.
Pass the Journal Entries for Acquisition of Animals at the time of
Initial Recognition

Solution:

1) As per the provisions of Ind AS 41, Acquisition expenses which are

incurred for acquiring Animals, should be written off in P&L a/c on
same date. It means that Expenses on Acquisition cannot be
capitalised to the Cost of Animals.

(a) Acquisition Exp on Animals………..Dr 50,000

To Bank 50,000
(Being Expenses paid)

(b) Income Statement (P&L)……Dr 50,000

To Acquisition Expenses 50,000
(Being Expenses w/off)

2) Initial Recognition of Animal should be made at NRV (Fair value less

cost to sell). It means that animals are not recognised at purchase
price, but NRV/NSP/FV less cost to sell is considered. “ The
difference between Fair Value less cost to sell & purchase price will be
considered as Loss or Profit at Initial Recognition”

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Animals a/c……….Dr 10,45,000 (11,00,000 – 5%)

To Bank 10,00,000
To Gain on Initial Rec. 45,000 (Bal)
(Being Initial Recognition made at Net Fair Value)

Gain on Initial Rec…….Dr 45,000

To Income Statement 45,000
(Being Gain transferred to P&L)

Example: With the help of given example as in above, Pass Journal

Entry if commission would have to be paid @ 10% instead of 5%

Solution:
1) Animals a/c………………….Dr 9,90,000 (11,00,000 – 10%)
Loss on Initial Recog….Dr 10,000 (Bal)
To Bank 10,00,000
(Being Initial Recogn. Made at Net Fair Value)

2) Income Statement………Dr 10,000

To Loss Initial Recogn 10,000
(Being Loss w/off)

Notes on Concept:

A. Initial Recognition of Animals should be made at Fair Value less cost

to sell. It means that purchase price of Animals is not relevant for
Initial Recognition.
B. Difference between Fair Value Less cost to sell & Purchase Price “On
Acquisition Date” will be considered as Loss or Gain at Initial
Recognition.
(The amount of Loss/Gain will be transferred to P&L a/c)

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C. If any expense is incurred at the time of Acquisition of Animals

(i.e, Transport charges, Loading/ Unloading Expenses, Commissions
etc.) then such an Expense should be written off in P&L a/c.
Normally, these expenses are capitalised to the cost of assets, but
these expenses shall be w/off in P&L.

Journal Entries

A. Acquisition Expenses…………Dr xxxx

To Bank xxxx
(Being Expenses incurred for Acquisition of Animals)
Biological Assets
B. Animals a/c………………..Dr xxxx (Net Fair Value)
Loss on Initial Recog..Dr xxx (Bal.)
To Bank xxx (Purchase Price)
To Gain on Initial Recogn. xxxx (Bal.)
(Being Initial Recognition made at Net Fair Value)

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*Part 2*

Step 2: Subsequent Valuation at Balance Sheet (Imp)

Example: A Ltd. purchased 500 cows @ Rs.11,00,000. At the time of

acquisition fair value less cost to sell for these cows was Rs.9,80,000.
All the cows were 3 years in Age at the time of Acquisition. At Balance
Sheet date, Fair Value Less cost to sell was measured for these cows
@ Rs.12,60,000. If we purchase cows of 3 years age at Balance Sheet
date then we would have to pay Rs.10,00,000 which equals to Net Fair
Value.
Pass Journal Entries for Initial Recognition & Also show Balance
Sheet Valuation.

Solution:
Initial Recognition

Cows a/c………………………………....Dr 9,80,000

Loss on Initial Recognition…Dr 1,20,000 ([Link])
To Bank 11,00,000
(Being Biological Assets initially recognised)

Balance sheet Valuation

Fair Value Less cost to sell for 500 cows at B/S date = Rs. 12,60,000
Fair Value Less Cost to sell for 500 cows at = (Rs.9,80,000)
Acquisition date
Changes in Fair Value = Rs.2,80,000

(i) Price Change [10,00,000 – 9,80,000] (20,000)

(ii) Physical Change Rs.2,60,000

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(a) Cows a/c……………..Dr 2,80,000

To Fair Value Changes: Price 20,000
Physical 2,60,000
(Being Biological Assets appreciated due to change in F.V)

(b) Fair Value Changes: Price 20,000

Physical 2,60,000
To Income Statement 2,80,000
(Being F.V changes recognised as on Income)

As per the provisions of Ind AS 41, Biological Assets (Animals) should

be valued at B/S date on Fair Value Less cost to sell. There may be
some difference between Net Fair Value at acquisition date & Balance
Sheet Date. Such a difference should be treated as change in Fair Value
& It should be transferred to P&L a/c (Income Statement).
The following Statement should be prepared for such calculation:-

Fair Value less cost to sell at B/S date = xxxx

Fair Value less cost to sell which was recorded earlier = xxxx
Changes in Fair Value* = xxxx

Changes in Fair Value

Price Change Physical Change

Animals of same age are Total Fair Value (-) Price change
Compared as follows: Change
Net Fair Value (-)Net Fair Value (Above statement)
At B/S date which was
recorded earlier

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Q.1
Solution:
Statement showing valuation of Cattle at 31.03.x2

Total Fair Value at B/S date (250 x Rs.75) Rs.18,750

Fair Value for 250 animals which was recorded earlier (Rs.13,750)
(01.04.x1)
Total Change Rs.5,000
(i) Price Change:
3 years cattle at B/S (250 x 60) Rs.15,000
3 years cattle at 01.04.x1 (Rs.13,750) Rs.1,250

(ii) Physical Change ([Link]) [(75-60) x 250] Rs.3,750

Q.2
Solution:

I. Calculation of Net Fair Value at Initial Recognition

Purchase Price (Reflects fair value) 5,00,000

Expenses to sell (Expected @2%) (10,000)
Net Fair Value 4,90,000

II. Valuation at B/S date

Fair Value less cost to sell at B/S date [6,00,000 –2%] Rs.5,88,000
Initial Recognition (Rs.4,90,000)
Changes in Value Rs.98,000

Journal Entries
1. Biological Assets…………………...Dr 4,90,000
Loss on Initial Recognition…Dr 10,000
To Bank 5,00,000
(Being Biological Assets acquired)

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2. Biological Assets……………….Dr 98,000

To Fair Value Change 98,000
(Being Appreciation in Value recorded at B/S date)

3. Fair Value Change……………..Dr 98,000

To Income Statement 98,000
(Being Income recognised)

Q.6 ([Link]) [Nov2020-RTP]

Solution:

I. Recognition of Biological Assets at the time of Initial Recognition

Purchase Price (Fair Value at Acquisition date) 60,000

Expenses to sell: Transportation (1,500)
Fees @1% (600)
Net Fair Value 57,900

Journal:
1) Acquisition Expenses…………Dr 2,100 (1,500 + 600)
To Bank 2,100
(Being Expenses paid for Acquisition of Biological Assets)

2) Biological Asset…………………..…..Dr 57,900

Loss on Initial Recognition…..Dr 2,100 ([Link])
To Bank 60,000
(Being Initial Recognition of Biological assets made at Net Fair Value)

II. Valuation of Biological Assets at B/S date

Fair Value at B/S date Rs.65,000

Expenses to sell (1,500 + 1% of Rs.65,000) (Rs.2,150)
Net Fair Value 62,850

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Net Fair Value (Initially Recognised) (57,900)

Change in Fair Value 4,950

Journal: P.C P.C

1) Biological Assets………..Dr 4,950
To Fair Value Change 4,950

2) Fair Value Changes…..Dr 4,950

To Income Statement 4,950

Step 3: Special Point on Accounting for “Calves”

As per the Provisions of Ind AS-41, the following Steps should be

applied for Accounting of Calves:-

A. New Born Calves-

Calves a/c…………..Dr xxxx
To Income Statement xxxx
(Being Calves Recognised)

Note: As per the provisions, New Born Calf will be recognised as “An
Income” at the time of its birth at Fair Value less cost to sell
because It is not acquired. It means that It will be an Asset without
any Acquisition Price.

B. Balance Sheet Valuation-

At B/S date, changes in Fair Value of Calves will be find out & will be
recognised in P&L a/c.

Fair Value less cost (-) Fair Value less cost to sell at
To sell at B/S date Initial Recognition

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Note: The change in Fair Value of Calves will be considered as Physical

change only. So, No need to split the Fair Value change into separate
headings of price change & physical change.

Q.7 (Imp)
Solution:
Valuation of 4 years age Animals which were held on 01.01.2016
Rs. (‘000)
Total Fair Value of 5 years animal at 31.12.16 [280x 15] 4,200
Fair Value in the beginning of year [250 x 15] (3,750)
Change in Fair Value 450
Price Change:
4 years animal at B/S [15 x 258] 3,870
4 years animal at opening [15 x 250] (3,750) 120

Physical change ([Link]) [(280-258) x 15] 330

Valuation of 4.5 years age animal which was acquired on 01.07.2016

Fair Value for 5 years age animal at B/S date Rs.280

Fair Value (Initial) (Rs.260)
Changes in Fair Value Rs.20

1) Price Change:
4.5 years animal at B/S 270
4.5 years animal at 01.07 (260) Rs.10
2) Physical Change ([Link]) [280-270] Rs.10

Valuation of Calves

Fair Value at B/S date for 6 months age calf 220

st
Fair Value for New Born calf on 1 July (200)
Changes in Fair Value* 20
*No need to split it under Price Change & Physical Change as per Rules.

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*Part 3*
Step 4: Accounting for Agriculture Produce(i.e; Milk from Cows,
Wool from Sheep, Meat from Goat etc.)

As per the provisions of Ind AS 41, the following steps should be

applied for Accounting for Agriculture produce obtained from Animals.

A. Initial Recognition: At the point of Harvest, Agriculture produce

shall be recorded at Fair Value less cost to sell as follows:-
Inventory
Agriculture Produce a/c………….Dr xxxx
To Income Statement xxxx 100% Income
(Being Income Recognised from Agriculture produce at the point of
Harvest)

B. Valuation of unsold Inventory at B/S date out of Agriculture

Produce: If any Inventory out of Agriculture Produce remains unsold
at B/S date then its valuation will be made as per Ind AS-2 (Cost or
NRV whichever is lower). The Value which was initially recorded at the
point of Harvest will be considered as “Cost” at B/S date.

Unit II: Accounting for Plants([Link])

Plants

Crops Wood
(i.e; wheat,Rice,cotton,sugarcane etc) (i.e;Teak,pollar,pinewood etc)

We will follow same rules as we (Refer Steps** as follows)

discussed in Step IV in Unit I
(No New Concept: It means that
Accounting For Crops is similar
as for Animal Agriculture Produce.)

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** Steps for Accounting of Wood Plants:-

Step I: Initial Recognition (At First B/S after cultivation)

Calculate Present Value of Net Fair Value of a Mature Tree at the

point of Harvest & consider it as an Income.

Wood Tree a/c………………Dr xxxx

To Income Statement xxxxx
(Being Initial Recognition made)

Step II: At each B/S date after Initial Recognition

Calculate Present Value of Net Fair Value of a Mature Tree at the

Point of Harvest at each B/S date & updation of value in B/S will be
made each year as follows:-

P.V of Net Fair Value of Mature Trees at Current xxxx

B/S date
P.V of Net Fair Value which was recorded Last year (xxx)
Changes* in Value xxxx

*Changes in value will be transferred to P&L

a) Wood Trees a/c……………..Dr xxxx
To Fair Value Changes xxxx

b) Fair Value Changes………..Dr xxxx

To Income Statement xxxx

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Q.2
Solution:
Valuation of Wood Trees

Fair Value as at 31.03.x2 (165 x 100 x 0.331) 5,461.50

Fair Value as at 31.03.x1 (171 x 100 x 0.312) (5,335.20)
Changes in Value 126.20

Comments: (i) As per the provisions of Ind AS-41, Changes in Fair

Value of Mature Tree will be transferred to P&L a/c. So, we
should transfer Rs.126.30 to Income Statement.
(ii) In the given question, Transportation Cost is not
mentioned due to which we cannot calculate Net Fair Value.
So we have calculated P.V of Gross Fair Value.

Concept 5: Accounting for Expenses

As per the provisions of Ind AS 41, All expenses which are incurred for
Growth & Maintenance of Biological Assets, should be charged to P&L
a/c. These expenses may be in the form of seeds, pesticides,
fertilisers, food, breeding etc.

Concept 6: Accounting for Government Grants

If any Grant is received for Agricultural purpose then It will not be

covered under Ind AS 20, but It will be treated as per Ind AS 41.
These Grants can be considered under 2 headings as follows:-
Grants

Unconditional Grants Conditional Grants

Transfer these Grants Amortise these grants

immediately to P&L a/c in P&L a/c according to
as an Income condition on Grant

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Concept 7: If Fair Value Less Cost to Sell is not available (Imp)

In case Fair Value less cost to sell is not available for Biological
Assets then we can recognise these Asset on Actual Cost Basis as well.
If cost model has been applied by the Entity then Accounting for
Grants will also be considered as per Ind AS 20.

Q.3 ([Link])
Solution:
Extracts of Income Statements

Incomes: 1) Income from Govt. Grants 10,00,000

2) Fair Value Change: Cows 1,00,000
3) Income from Calves: Initial 1,10,000
F.V. Change 20,000
4) Income from Agricultural Produce (Milk) 72,000

Total Incomes 13,02,000

Expenses: 1) Foods 6,00,000

2) Breeding 4,00,000
Total Expenses 10,00,000

Net Income Rs.3,02,000

(Extract) Balance Sheet

A. Non-Current Assets:
Property, Plant & Equipment (Land) 50,00,000
Biological Assets:
Cows 11,00,000
Calves 1,30,000 12,30,000

B. Current Assets:
Inventory (Milk) 72,000

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Notes to Accounts:-
1. Purchase of Land: As per the provisions of Ind AS-41, Land will be
covered under Ind AS-16 which is used in Agricultural Activities. So,
we will disclose it in B/S under the heading of Non-Current Assets &
Sub-Heading of PPE.

2. Accounting for Cows:

(a) Initial Recognition
There will be no Loss/Gain at the time of Initial Recognition of cows
because Acquisition Price & Net Fair Value are equal at the time of
Purchase. So Initial Recognition of Cows will be made at Rs.10,00,000.

(b) B/S Valuation

Net Fair Value for 3 years age (200 cows x 5,500) 11,00,000
Initially Recognised value (10,00,000)
Changes* in Value 1,00,000
i) Price Change for 2 years age [(5,200–5,000)x200] (40,000)

ii) Physical Change (Bal.) 60,000

*Rs.1,00,000 will be credited in P&L a/c as there is a Positive Change in

Value of Cows at B/S date.

3. Accounting for Calves:

Initial Recognition (1.10.x1)
Value of New Born Calves (1,100 x 100) 1,10,000
Comment: Recognise it as an Income

B/S Valuation
Value for 6 month age (1,300 x 100) 1,30,000
Initially Recognised (1,10,000)
Changes* 20,000
*Favourable Changes of Rs.20,000 shall be considered as an Income in
P&L
Total Income from Calves = 1,10,000 + 20,000 = Rs.1,30,000
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4. Accounting for Grants:

In the given case, Grant of Rs.10,00,000 should be credited in P&L a/c
because grants were given for Acquisition of Cows & Entity has
purchased cows. So, condition is already satisfied. So, Grant should be
treated as an Income.

5. Accounting for Milk (3,000 litres at 31.3.x2):

As per the rules, unsold Agriculture Produce should be valued at Cost

or NRV whichever is lower, but cost is missing in the given case. So, we
have to value 3,000 litres of Milk @24 which is Net Fair Value at B/S
date. There will be a credit of Rs.72,000 in P&L a/c as Income from
Agriculture Produce.

Q.4
Solution:

As per the provisions, Living Animals & Living Plants come under the
scope of Ind AS-41, but land or other assets do not come under its
scope. So the re-classification is not correctly made by the Entity.
The following table can be considered for such classification:

Asset Applicable Ind AS

1. Trees 41
2. Land 16
3. Roads 16

Q.5
Solution: Homework

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Concept 8: Disclosures (Notes to Accounts)

1. If the Entity has not followed Fair Value Model then Reason should
be disclosed.
2. The Entity should also disclose Accounting Policy which has been
opted for Accounting of Govt. Grants.

3. The Entity should report Gain/Loss from Changes in Fair Values at

B/S date from Animals, Plants or Agriculture Produce.

4. The Entity shall present a Reconciliation Statement for all

Biological Assets between Opening Balance & Closing Balance.

Addition, Disposal, Dead Etc

*Part 4*

New Question
Solution of Q.3
Journal Entries

30.9.x1
Loss (P&L) a/c Dr 520,000
To Biological Assets 520,000
[(27000 – 1000) x 20 cows]
(Being Loss debited due to death of 20 cows)

Note : No Benefit of fair value measurement of Dead cows

1.10.x1
Biological Assets (New cows) a/c Dr 400,000 (21000 – 1000) x 20
Loss at initial Recognition a/c Dr 20000 (1000 x 20)
To Bank 420,000 (Total)
(Being initial Recognition made for 20 new cows at fair value Less cost
to sell)

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31.3.x2
a) Fair value Loss (P&L) a/c Dr 288000
To Biological Assets 288000
(Being Decline in value recorded at B/s date for 480 cows)
b) Biological Assets a/c Dr 48000
To fair value Gain (P&L) 48000
(Being Appreciation in value at B/s date recorded for 20 cows)

Inventory : 1000 litres x (20 -1) = Rs.19000

W.N # 1 Fair value measurement of Biological Assets at B/s date

I Cows of 4 years Age

Fair value at B/s date 121,92,000
(26500 – 1100) x 480 Cows
Fair value in the beginning of year 124,80,000
(27000 – 1000) x 480 cows
Decline in value 288000

II cows of 1.5 years Age

Fair value at B/s date 448000
(23500 – 1100) x 20
Fair value (initial) (400000)
Appreciation 48000

Solution of Q.4 *Imp

Journal Entries

30.9.x1
Biological Assets a/c Dr 97000 (FV – Cost to sell)
Acquisition cost a/c Dr 1000 (Transportation)
Loss at initial Recog. a/c Dr 3000 (Exp. to Sell)
To Bank 101000
(Being initial Recognition of Biological Assets made at fair value Less
cost to sell)
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*97000 = 100,000 – 1000 – 2000

(Transp.) (fees :100000 x 2%)

31.3.x2
Biological Assets a/c Dr *9800
To fair value Gain (P&L) 9800
(Being valuation of Biological Assets at B/s made)
*[110000 – 1000 – 2200 (110000 x 2%)] – 97000
(B/s value) (Initial)

1.6.x2
Bank a/c Dr *19450
To Biological Assets 19224
106800 x 18
100
To Gain on sale (P&L) 226
(Being 18 cows sold)

[*20000 – 150 – 400 (20000 x 2%)]

15.9.x2
Inventory a/c Dr (48300 – 420) 47880
Fair value Loss a/c Dr (Bal fig) 1176
To Biological Asset 44856
106800 x 42
100
To Bank 4200
(Being Agricultural Produce recognised at fair value Less cost to sell)
30.9.x2
Biological Assets a/c Dr *784
To fair value Gain (P&L) 784
(Being valuation made for 40 cows)

*[44800 – 400 – 896 (44800 x 2%)] - 106800 x 40

100
(final value) (Previous value)
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Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter -8 - Ind AS : 2
Accounting for Inventories (Valuation)

*Part 1*

Concept 1 : Basic Objective

As per the Provisions of Ind AS -2, Valuation of Inventory is directly

Related with Profits & EPS of the company. If we over- value our
Inventory then It will increase our Profits or Vice-Versa. So, we
need to value the inventory at Correct value.

Concept 2 : Meaning of Inventories

As per the Provisions of Ind AS-2, we can Classify the Inventories

into 3 different Headings as follows : -
Inventories mean

Held for Sale Held in Process of Held for consumption

Production in Production

Finished Goods WIP Raw Materials &*Supplies

100% 0% - 100% 0%

 Supplies means consumables stores Ind AS-2 considers it as

an Inventory i.e., Loose Tools, Oils etc.

Important Note : Specific Loose Tools shall be covered under Ind AS

16 PPE, but General Supplies are covered under Ind AS-2
(Source : Ind AS 16 PPE)

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Concept 3 : Out of Scope of Ind AS-2

As per the Provisions of Ind AS-2, there are some Specific

Inventories which are Valued as per other Standards and these are
not covered under the coverage of Ind AS -2 : -

a) Financial Instruments (Ind AS 109)

b) Deferred Tax Assets (Ind AS 12)
c) Biological Assets (Ind AS-41)
d) Agricultural Produces after Harvest, Forest, mineral Oils etc.
e) Construction WIP held by Contractors (Ind AS 11)
f) Commodity Brokers/ Traders who are Valuing their Stocks at Cost
or Fair value Whichever is Lower

(i.e., Stock of Shares or Debentures held by Broker are valued at Cost

or Fair value Whichever is Lower)

Fair Value V/s NRV

Fair Value means Expected selling price at the time of Sale of Assets,
but NRV means Expected Price from the Sale of Goods in Ordinary
Course of Business.
Fair Value is based on NRV is fixed by owner
Market conditions of Goods

Concept 4 : Valuation Rule

Valuation Rule : Cost or Net Realisable Value

Whichever is Lower

Notes :
i. We cannot show inventory in the financial statements above
cost, because Unrealised profits cannot disclosed in the books as
a matter of “Prudence”.
ii. In case, Inventories are valued below Cost due to decline in

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Expected Price then the following Entries shall be recorded : -

a) Valuation Loss a/c Dr xxxx
To Inventory xxxx
(Being Inventory reduced)
b) P&L a/c Dr xxxx
To Valuation Loss xxxx
(Being Losses written off)

Reasons for decline in Value of Inventory : -

a) Defective/ Damaged Goods
b) Obsolete Goods
c) Less Demand etc

There are two Key factors to understand the valuation of Inventory

as follows :-
Unit I : Calculation of Cost
Unit II : Calculation of NRV

Unit I : Calculation of cost of Inventory

Cost

Direct material Conversation Cost

Direct wages Factory overheads Other cost

Fixed OH Variable OH

1) Cost of Direct Material

Purchase Price* xxxx

Taxes & Duties * xxxx
Transportation/ Freights xxxx
Loading/ Unloading Charges xxxx

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Transit Insurance xxxx

Any other Expense which is
directly related with
Purchase of Material xxxx
Cost of Raw material xxxx

 Rebates/ Trade discount, which is based on volume of Purchased

Goods, is received Then we should not consider it in cost of R.M,
but It will be reduced from total Cost.
 We will consider No Refundable or Non Adjustable duties only for
Cost of RM.

2) Direct Wages

There will be no Separate calculation of Wages, because we will consider

Direct Wages Directly from factory Record. Pay Roll Sheets OR
Wage payment Register

3) Variable Overheads

Variable OH = No. of Units Actually Produced x [Link] per units

Note : These Expenses shall be calculated as per Actual Production.

4) Fixed Overheads *[Link]

Example :
i. Fixed OH : ₹ 10,00,000
ii. Normal Output : 10,000 Units
iii. Actual Output : 8200 Units
Calculate the amount of Fixed OH for Cost Of Inventory.

Solution :
a) Recovery rate (P.U.) = 10,00,000 = 100 P.U
10,000 units
b) Recovered OH = 8200 x 100 = 820,000 to be included in Cost

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c) OH (Un-Recovered) = 1800 x 100 = 180,000 To be written off in

P&L A/c.
Example :
a) Fixed Oh : ₹ 20,00,000
b) Normal Output : 100,000 Units
c) Actual Output : 110000 Units
Calculate the amount of [Link] to be included in Cost.

Solution :
In the Given Case, we should not Calculate Recovery Rate per unit on
the Basis of Normal output, because we cannot Consider recovered OH
more than Actual [Link]. It can also be said that Over – Recovery is not
allowed under Ind AS-2. So, we should revise our Recovery Rate on the
basis of Actual Production as below:-
[Link] (P.U) = ₹ 20,00,000 = 18.18 P.U
110,000 units

As per the Provisions of Ind As-2, we should convert fixed OH from

fixed Amount into P.U OH. It will be done on the basis of following
Equation :-
Fixed OH (P.U) = Fixed overheads .
Normal Output or Actual Output

Higher

5) Other Cost (Specific Cost)

As per the Provisions of Ind AS-2, Any other Expense which is

incurred for Production of Goods, and It is not covered in the earlier
4 Expenses, then It can Also be included in the cost of Inventory.

Cost = RM + DW + [Link] + [Link] + O. Cost = Total Cost

Additional Concepts to be considered :-

Concept (a) : If Inventory is Purchased on Credit *[Link]

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As per the Provisions of Ind AS-2, we should discount the Purchase

Price Of Inventory if we buy it on credit. The Present Value of
Purchase price will be Considered as Cost of Inventory, but the
remaining amount will be taken as finance Cost/Unwinding Cost which
will be written off in P&L A/c.
Example :
i. Purchase Price : 10,00,000
ii. Payment to be made after 2 years
iii. Market rate of Interest : 10%
Pass Journal Entries under Ind AS-2.

Solution :
i. P.V of Purchase Price = 10,00,000 x .826
= 826,000
ii. Journal Entries
a) Purchases a/c Dr 826,000
To Creditors/Trade Payables 826,000
(Being Goods Purchased on Credit)

Interest
b) Unwinding cost a/c Dr 82600 (826000 x 10%)
To Creditors 82600
st
(Being Interest for I year debited)
c) P&L a/c Dr 82600
To U. Cost 82600
(being Exp. Written off)
d) Unwinding Cost a/c Dr 91400 (908600 x 10%)
To Creditors 91400
nd
(Being Interest debited for 2 Year )
e) P&L a/c Dr 91400
To U. Cost 91400
(Being Int. written off)
f) Creditors a/c Dr 10,00,000
To Bank 10,00,000
(Being Payment made)

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*Part 2*

Solution of Q.1

Calculation of Cost per Unit (Finished Goods)

Direct Material 100

Direct Wages 20
Variable OH 10
Fixed OH ₹ 10,00,000 10
100,000 Kgs
T. Cost P.U 140

Cost of Inventory = 2000 kgs x 140 = 280,000 /-

Solution of Q.2

Calculation of Fixed OH to be included in Cost of Stock

Case I : Actual Production = 42000 Units

Recovery Rate (P.U) = ₹ 500,000 = 10 P.U.

50,000 Units

Recovery OH = 42000 x 10 = 420,000 (To be included in cost of Stock)

Un-absorbed OH = 8000 x 10 = 80,000 (To be written off in PL A/c)

Case II : Actual Production = 50,000 Units

Recovery rate = ₹ 500,000 = 10 P.U

50,000 Units

Recovery OH = 50,000 U x 10 = ₹ 500,000

- No Unabsorbed/ No Over absorbed -

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Case III : Actual Production : 60,000 units

Recovery Rate P.U = ₹ 500000 = 8.33 P.U

60,000 U
Recovered OH = 60,000 Units x 8.33 P.U = ₹ 500,000

Note : In the Given Case, we should not use Normal Recovery of ₹ 10

P.U., Otherwise there will be over- recovery of OH due to high
Production.
Solution of Q.7 (2 marks)

Direct Material 500 P.U

Direct Wages 250 P.U
Fixed OH ₹ 20,00,000 20 P.U
100,000 Units
Cost P.U 770 P.U

Cost of Inventory = 10,000 x 770 = 7700,000

Note : [Link] & S. OH are not considered as a part of cost of Inventory

due to Which we Have ignored the Given amount of [Link].

Solution of Q.9

Calculation of Cost of R.M

Purchase Price ( 500 Units x 150) 75000

Trade Discount @ 10% (7500)
Net Price 67500
Add : GST @ 5% 3375
Less : Duty Credit (500 x 12) (6000)
Add : Transportation Exp. 1000
Add : Loading/ Unloading 500
T. Cost 66,375

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Solution of Q.10
Calculation of Cost of Inventory

Prime Cost (200,000 Units x 152) 304,00,000

Variable OH (20L x 60%) x 200,000 240,000
10,00,000
Fixed OH (20L x 40%) x 200,000 160000
10,00,000 * 30800000
 Actual Production is higher than Normal Production

Solution of Q.13 (2 marks)

Calculation of cost of Raw Material

Purchase Price (125000 – 2%) 122,500

Import Duty (25000 – 10000) 15,000
Ocean Freight 8000
Agent Charges 2000
Cost of Raw Material 147500

 Warehouse Rent & Watchman Salary are not incurred for acquisition
of RM.

Concept (b) : Treatment of Joint Cost

As per the Provisions of Ind As -2, Allocation of joint cost per Join
Products should be made in the ratio of Sales value at Separation
Point.
Solution of Q.3 ( Joint Cost)

a) Statement Showing Allocation of Joint cost

Products Qty. Produced Sale value for Qty. Allocation of J.

Produced Cost
L 10000 @ 13 = 130,000 78,000
M 12000 @ 17 = 204,000 122,400

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N 14000 @ 19 = 266,000 159,600

P 16000 @ 22 = 352,000 211,200
952,000 571200

b) Value of Closing Stock

L M N P
Share in J. Cost 78,000 122,400 159,600 211,200
Units Produced 10,000 12,000 14,000 16,000
Cost P.U Joint Cost 7.80 10.20 11.40 13.20
Units X X X
Closing Stock 1625 400 - 1550
Value of Closing Stock = 12,675 4,080 20,460

Concept (c) : Treatment of “By Product”

As per the Provisions of Ind AS -2, Net Realisable Value of By Product

will be reduced From the total Joint cost. It means that we will
consider Net Joint Cost (i.e., Joint Cost – NRV of By Product) for
Allocation over Joint Products.

Solution of Q.4 *Imp (4 marks) (Study Material)

Calculation of Net Joint Cost

Total Cost : Material 150,000

Wages 90,000
[Link] 65,000
[Link] 50,000
Total Joint Cost 355,000
i. Scrap Value Realised (5000)
ii. NRV from By-Product (30,000)
[2000 x 20] – 8000 -2000
Net Joint Cost 320,000

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Statement Showing Allocation of Joint Cost

Products Units Produced Sales Value Share in Jointcost

mP1 5000 @ 60 300,000 192,000

mP2 4000 @ 50 200,000 128,000
500,000 320,000

Closing Stock : mP1 = 192000 = 38.4 x 250 = 9600

5000
mP2 = 128000 = 32 x 100 = 3200
4000
Total Cost 12800

Concept (d) : Cost of Service by Service Providers

It was not in AS-2

As per the Provisions of Ind AS-2, Cost of Services can be calculated

by a Service Provider on the basis of following Points :-

1) Cost of Professionals ( Direct Personnel) who are directly included

in Providing of Services.
Notes : Salaries or Wages which are Paid to other Staff shall be
written off as an Expense in PL A/c.
+
2) Direct Expense which are incurred for the services means Expenses
attributable On Services.
Note : All other Expenses shall be written off PL Statement.

Concept (e) : Items not to be included in cost of Stock

(Exclusions from Costs)

As per the Provisions of Ind AS -2, the following Items should not be
included in the Cost of Inventory : -

i. Administration OH

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ii. Selling OH &

iii. Distribution OH
iv. Storage Cost
v. Abnormal Losses (PL A/c)
vi. B. Cost (unless it is allowed by Ind AS-23)
vii. Any other Exp. which is not related with Production of Goods

Unit II : Explanation on NRV

Net Realisable Value = Expected Selling price – Expected Cost of

Disposal of Goods
( Cost to Sell)

[Link] , [Link]

NRV is Calculated on the basis of an assumption

of sale of Goods directly from factory

*Part 3*

Concept 4 : Valuation of Inventories (step by Step)

Case I : Valuation of Finished Goods

Rule : Cost or NRV

Whichever is Lower
 If Valuation is made at NRV then Reduction in value of Stock will be
debited in P&L A/c as an Expense.

Case II : Valuation of Raw Materials & Supplies *[Link]

As per the provisions of Ind AS-2, Raw material is Purchased for

consumption Only. It is not held for sale, so we should not value these
inventories. It can also be Said that valuation of Raw materials &

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Supplies will be made “ at Cost only”

Exception

In case valuation of Finished Goods is made at NRV then Valuation of

Raw Material can be made on the basis of valuation Rule which is Cost
or NRV whichever is Lower
Summary
i. If FG is valued at cost : RM at Cost
ii. If FG is valued at NRV : Apply Valuation Rule for RM

Solution of Q.11 (4m) *Imp

Case I : FG @ 275

In the Given Case, Cost P.U of Finished Product is ₹ 250, but Its NRV
is 275 which indicates that valuation of Finished Product will be made
at Cost and there is no Loss on F.G. in this Case. So, we should value
Raw material directly at Cost.

Cost of RM = 1000 units x 120 P.U = 120,000

Case II : FG @ 230 P.U

In this case, NRV of FG is Lower than Cost due to which valuation of

F.G will be made at NRV. So, we need to apply valuation Rule on
valuation of Raw material, which is as Follows :

Cost (1000 x 120) or NRV (1000 x 110)

Whichever is Lower = 110,000

Case III : Valuation of WIP *Imp

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Valuation of WIP Goods will be made at Cost or NRV whichever is

Lower, but NRV for WIP Goods will be computed as follows :-

NRV = Selling Price – Expected Cost to – Expected Cost

sell the Goods of conversion
Solution of Q.16

Calculation of NRV of WIP

Selling Price 750

Brokerage @ 4% (30)
Expected conversion Cost (310)
NRV 410

Valuation = (Cost) 530 0r (NRV) 410 whichever is Lower = 410

Case IV : Valuation of Contract Sale Units

As per the Provisions of Ind AS-2, Valuation of Contract selling units

Should be made as follows :
Cost or Contract Price

Whichever is Lower
 Normal NRV which is based on Existing M.V will not Effect this
valuation.

Note : If there is Some Possibility about cancellation of contract due

to heavy Decline in market Price, then we can value all the
Goods on the basis of Normal NRV.

Solution of Q.15

Valuation of Stock

i. Contract Selling units = 150 or 200 whichever is Lower for 6000

Units = 900,000
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ii. Normal Units = 150 or 90 whichever is Lower for 4000 Units

= 360,000
Cost= 12,60,000 ( 900,000 + 360,000)

Solution of Q.5 (4 marks)

a) Valuation of Shirts

i. Cost of shirts (350 shirts @ 380) 133,000

ii. NRV of Shirts (350 U x 750 – 50% - 5%) 124,688
Whichever is Lower = 124,688

b) Valuation of Trousers

i. Cost of Inventory (700U x 520) 364,000

ii. NRV ( 700U x 950) – 3800 661200
Whichever is Lower = 364000

Total (a + b) = 488,688

c) Valuation of overall Stocks

Overall stocks 956,700

Less: Loss in shirts (8,312)
(133,000 – 124,688)
Cost NRV
Revised Stock 9,48,388

Concept 5 : Costing Formulas

Costing Formulas

Historical Cost Based Non Historical Based

FIFO Weighted Avg. Retail Standard Specific

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value Cost Identification

Method

i. Specific Identification Method : - It is used for only Expensive

Item (i.e., Jewellery etc.)
ii. Retail Value Method : -
Cost = Retail value of Stock - % of Estimated Gross margin
 This method is allowed for retailers only where physical valuation is
not Possible

Concept 6 : Reversal of Valuation Loss

(It was also not in AS-2)

As per the provisions of Ind AS-2, we can reverse the written down
Inventories in future if NRV of Such Goods improves. But, It should
be noted that Reversal of Valuation Loss cannot Exceed the amount
of Actual Loss which was Written off Previously.

Journal :
i. Inventory a/c Dr xxxx
To Reversal of Loss xxxx
ii. Reversal of Loss a/c Dr xxxx
To P&L xxxx

Concept 7 : Disclosures (Notes to A/cs)

i. Accounting Policy should be disclosed including Costing formula

ii. The amount of Valuation Loss which has been written off (if any)
should also be Reported
iii. Reversal of Valuation Loss (if any)
iv. Classification of Stock : RM, FG or WIP etc.
v. Inventories which are carrying at fair value should also be
disclosed

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*Part 4*

Solution of Q.1

Calculation of Cost of Inventory

Purchase Price [(1200 – 5%) x 1000 units] ₹1140,000

Import Duty (1000 Units x 60) ₹60,000
Transportation charges ₹5000
Cost of Inventory ₹1205000

Solution of Q.2

i. Calculation of Cost Per unit

Other Costs (P.U.) 126
Fixed OH (P.U.) 10,00,000 10
100000 unit
Cost P.U 136
ii. Under –Absorbed overheads which are required to be Expensed in
P&L as follows :-
Under Absorbed Exp. = [100,000 (unit:Normal)- 75000 (Unit:Actual)] x 10
= ₹250,000 (To be Expensed)

Solution of Q.3

Calculation of Cost Per unit

Direct Material Per unit : Component x 1205

Component y 800
Other materials 150
Direct wages (300 Per hour x 2 hours) 600
Production Fixed OH [(16500 + 7500)/ 1000 Hours) x 2H 48
Cost Per unit 2803

*Selling & Adm. OH shall be Expensed in P&L A/c.

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Solution of Q.4

Calculation of Required values

I Finance Cost Per Car : (25000 P.m. x 12) – 280000 = 20,000

II Inventory : 20 Cars x 280000 = ₹56,00,000
III COGS : 980 cars x 280000 = ₹27,44,00,000
IV *Finance Cost (Total) : 1000 Cars x 20000 = ₹200,00,000
*It will be Expensed in P&L because It is not incurred for Q. Assets.

Solution of Q.5

As per the Provisions of Ind AS 10, Decline in Selling Price of

Inventory after B/s date, but before Approval on statements by BOD
will be considered as an adjusting Event for the purpose of valuation
of Inventory on B/s date. In the Given case, the selling Price of
stock has been declined to ₹40 after B/s date, but Before Approval by
BOD on financial statements. So, we should consider this selling Price
for computing NRV on B/s date. The following calculations may be
referred:-
i. NRV of stock = Selling Price – Expected cost to be incurred
= 40 – 15
= 25
ii. Valuation Loss (P&L) = 50 – 25 = 25 per unit
(cost) (NRV)

Solution of Q.6

As per the provisions of Ind AS 2, valuation Rule for contract sale

unit shall be Based on contract selling price, but for Normal stock, we
use Normal selling Price Which prevails in market on B/s date. The
following calculations may be considered :-
I. Calculation of NRV
Contract units Normal Units
Selling Price 11 P.U 8 P.U
Expenses to be incurred (1 P.U) (1 P.U)

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NRV 10 7

II. Valuation of Stock

Contract Units Normal Units
Units 60 40
Cost or NRV 10/- 7/-
Whichever is lower (10 or 10) (10 or 7)
Value of stock 600 280

Total stock = 600 + 280 = 880

Solution of Q.7

Valuation of Closing Stock

Inventory Cost NRV Whichever is lower

A1 8000 (7800 – 500) = 7300 7300

A2 14000 (18000 – 200) = 17800 14000
B1 16000 (17000 – 200) = 16800 16000
C1 6000 (7500 – 150) = 7350 6000
Total 43300

Solution of Q.8

I. Valuation of Inventory as at 31.3.x1

As per the Provisions of Ind AS 10 : Events after B/s date, Decline in

value of Stock after B/s date, but before Approval on statements
shall be considered as an Adjusting Event. So, Decline in NRV of stock
in Given case shall be taken into Account as an adjusting Event. The
following calculations may be relevant :-
1) Cost of Inventories : 10 millions
2) NRV of Inventories (8-.5) : 7.5 million
Whichever is lower : 7.5 million

*Valuation Loss of ₹2.5 million shall be Expensed in P&L A/c.

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II. Valuation of stock as at 31.3.x2

In the Given case, NRV of Previously values stock has improved at B/s
date from 7.5 million to 10.5 million (11-.5). As per the Provisions of
Ind-AS 2, we can reverse the Previously written off valuation Loss in
case of subsequent improvement in NRV. So,We will Reverse the
previous valuation Loss & carrying Amount of stock will be 10 million
again

Solution of Q.9 *Imp

I. Calculation of Per unit Recovery Rate for [Link] & [Link]

i. Time taken Per unit = Actual Output = 6500 Units

Actual Hours 6500 H
= 1 Hour Per unit
ii. Recovery Rate Per hour/ Per unit
[Link] = ₹1500 = .20 Per Hour/ per unit
7500 Hours
(Normal)
[Link] = ₹2600 = .40 Per Hour/ Per Unit
6500 H
Total OH Per Unit = .20 + .40 = .60 P.U

II. Allocation of Overheads

Total Overheads (1500 + 2600) ₹4100
Overheads to be included in Inventory (₹1380)
(2500U + 6500U – 6700U = 2300 x .60)
Overheads to be Expensed in PL ₹2720
i. Under- Recovery (1000H x .20) (₹200) Other Exp.
ii. COGS ₹2520

Solution of Q.10

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Calculation of cost of stock

Cost of Purchase 500,000

Trade discount (10,000)
Import duty 200
Freight 250
Other Cost 100
Broker 300
Cost 490850

*Part 5*

Discussion of Solution of Q.3, Q.5, Q.9, Q.19, Q.25, Q.32, Q.42

Thank You 😊
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter - 9 - Ind As -16

Property, Plant & Equipment (4-5 marks)

*Part 1*

Concept 1 : Meaning of PPE

As per the Provisions of Ind AS-16, the following five conditions

should be Satisfied to Classify an Asset under the heading of PPE :-

Condition I: It should be a Tangible * fixed Asset.

Fixed Assets

Tangible * Intangible
(Ind As 16) (Ind AS 37)
(we will not discuss these
Assets in this statement)
 It means that this statement will cover all Tangible fixed Assets
i.e., Land, Building, furniture etc.
+
Condition II: It should be held for use in Production, Administration
or Selling DepH. Of Goods or Services.
(Note : It means that It should be a Tangible fixed Asset
whether it is Used in factory or showroom)
OR
Condition III: It should be held for Earning Rental purpose.

Rental

Ind AS 40 : IP Ind AS 17 : Leased Assets

 Accounting for rentals will be done as per Ind AS 40 or Ind AS 17,
but Accounting for Assets will be done under Ind AS :16 PPE.
+

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Condition IV: It should have some Economic Benefits for the

Enterprise.
+
Condition V : It’s Cost should be Known to the Enterprise

Important Issues Relating to meaning of PPE

Issue 1 : If any Enterprise installs safety & Pollution control

Equipment’s (i.e., fire Safety Equipment’s or Air Purifiers
etc.) then these Assets should also be considered as PPE,
because these Assets help other factors to Perform better.
Issue 2 : We can aggregate multiple Assets having “ insignificant
value” as a single Asset for simple Reporting such as moulds,
dies etc.
Issue 3 : If any Asset is not having material value then It can be
Expenses in same Year instead of its capitalisation.

Concept 2 : Assets out of Scope of Ind As 16

Out of Scope

*Biological Assets Mineral Oils, Retired Assets

(Ind AS 41) Mineral Ores or & held for Sale
Other wasting Assets (Ind As 105)
*other than (Ind As 106)
Bearer Plants These Assets are
Out of Active Use

“Important Note on Bearer Plants”

As per the Provisions of Ind AS-16, Bearer Plants are not Biological
Assets, but these Plants should be considered as PPE. The following
conditions should be satisfied to classify a Plant under the heading of
Bearer Plant :-

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Condition I: It should have some Agricultural Produce (i.e., fruits

etc.)
`
Apple Tree Mango Tree Coconut Tree
+
Condition II : It should have useful Life more than 1 Year
+
Condition III : These trees are not Grown with the intention of
getting Lumber

Wood Logs
 If any Tree/ Plant is Grown with the intention of Getting woods
or crops then It will be considered as a Biological Asset (i.e., Teak
Trees, Pine wood, Wheat crop, Maize Crops etc.

Concept 3 : “ Measurement of cost” of PPE at “initial Recognition”

As per the Provisions of Ind AS-16, Cost of PPE can be

measured at the time of Initial Recognition in the following 4 Cases :-
Case I : Payment by Cash
Case II : Exchange of Assets
Case III : Self Constructed Assets
Case Iv : Hire Purchase Acquisition

Case I : Acquisition by Cash

If any PPE is acquired by Payment in cash then the following 3

Expenses should be Considered as a Part of Cost of Assets :-

Cost

Components

Purchase Price Related Expenses Estimated Removal Cost

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Statement Showing Calculation of Cost

Purchase Price xxxx

Related Expenses : -
i. Non Refundable Duties or Taxes xxxx
ii. Transportation Exp. xxxx
iii. Loading/ Unloading xxxx
iv. Transit Insurance xxxx
v. Brokerage/Comm. xxxx
vi. Site Preparation Exp. xxxx
vii. Professional Fees xxxx
viii. Installation charges xxxx
ix. Cost of Sample units (M+L+O) xxxx
x. Any other Exp. Which is Directly related with
Acquisition of PPE xxxx
Present Value of Expected Cost of Removal or
Dismantaling at the end of Useful life of Assets xxxx
(i.e., Removal Cost on ships, Aircrafts, Nuclear Plants etc.)
Total Cost * xxxx

*It should not include :

i. Trade Discount
ii. Govt. Grant All these Items shall reduce
iii. Scrap from sale of Sample units the Cost of PPE
iv. Refundable duties/ Taxes

Example : A ltd. Purchased An Aircraft for use of Directors to save

time in travelling For Business meetings. It is Expected
that It will work for 5 years and A Ltd. Need to Pay ₹ 50
Lacs as Dismantling Cost at the end of 5th Year. Assuming
Discounting factor (Pre-Tax) 10%, show the Accounting for
Provision for Cost of Removal.

Solution:
i. P.V of Dismantling cost = 50,00,000 x .621 = 31,05,000
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ii. Journal : PPE (Air craft) a/c Dr 31,05,000

To Prov. For D. cost 31,05,000
(Being Prov. Created)

Subsequent Years

1 2 3 4 5
Opening Bal in 31,05,000 34,15,500 37,57,050 41,32,755 45,46,030
Prov.
Interest 310500 341550 375705 413275 454603
cost/
unwinding Cost (10%)
3415500 3757050 4132755 4546030 5000633

a) Int. a/c Dr Prov. a/c Dr

To Prov To Cash
b) P&L a/c Dr
To Int

Expenses out of Scope while Computing Cost of PPE :-

The Following Expenses are not be included while Computing Cost of

PPE :-

i. Advertisement Exp. For the Promotion of New These are

Product or Location not related
ii. Inauguration Expenses with PPE
iii. Staff training Cost
iv. General [Link]/ [Link] P&L A/c

Case 3 : Self Constructed Assets

If any Asset is constructed by the Entity itself then cost of

Such Asset Shall be computed as follows :-

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Direct Material xxxx

Direct Wages xxxx
Direct Expenses xxxx
Share in Common Exp. xxxx
(Reasonable Basis)
Cost of PPE xxxx

Important Point

If any Inter Department Transfer is made from stores to

construction then cost of such Transfer should be taken after
Elimination of Internal Profits.

*Part 2*

Solution of Q.2
Calculation of Cost of Assets

Purchase Price of Machine (80,00,000 – 10%) 7200,000

Related Expenses :
Import Duty 500,000
Delivery fees 100,000
Electrical Installation Cost 10,00,000
Pre Production Testing (Trial) 400,000 20,00,000
Cost of P&M 92,00,000

Notes :
i. Cash discount (72,00,000 x 5%) cannot be reduced from cost of
P&M, because It is not related with Purchase of P&M, but It is
related with Payment. So, It will be transferred to P&L A/c under
the heading of Other Income.
ii. The company has paid maintenance Charges for 5 Years in advance.
It will be Considered as a Prepaid Exp. and It will be written off
over the Period of 5 Years.

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Solution of Q.4 (self construction)

Calculation of cost for Self Constructed Assets

Purchase of Land 30,00,000

Stamp Duty & Legal fees 2,00,000
Architect fees 2,00,000
Site Preparation Cost 50,000
Direct Materials ( 10L – 2.5L *) 7,50,000
Direct Wages ( 4L - .22L) 3,78,000
Borrowing Cost (40L x 8% x 9*/12) 2,40,000
Cost of Self Const. 48,18,000

Notes :
1) General OH cannot be related with cost of Construction due to
which we should Transfer these Expenses to P&L A/c.
2) We cannot consider Abnormal Losses as a Part of Cost of Assets.
These Losses Should be transferred to P&L A/c. In the given case,
there is an abnormal Loss of ₹ 272,000 (2,50,000 + 22,000) on
account of wastage of material & wages.
3) We have assumed that suspension of work during 2 weeks is a
temporary Suspension.

Solution of Q.8

Calculation of Cost of Assets

Purchase Price 25,00,000
Transportation Charges 2,00,000
Site Preparation Exp. 6,00,000
Professional fees 7,00,000
Provision for dismantaling charges 3,00,000
Cost of P&M 43,00,000

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Note :
1) Interest can be capitalised to the cost of Q. Assets only. So,
Interest on Deferred credit will be written off in PL A/c.
2) Operating Losses due to Less demand of product is not related
with acquisition of P&M.

Case II : Exchange of Assets

- Refer IND -40 Class Notes – for this concept

Solution of Q.17 (2 marks)

Journal Entry

PPE (Private Jet) a/c Dr 1,80,00,000

To L&B 1,00,00,000
To Profit on Exchange 50,00,000 (15-10)
To Cash 30,00,000
(Being Assets Exchanged)

Case IV : Assets acquired on Hire Purchase

If any PPE is acquired on Hire Purchase then we should consider Cost

of Assets equal to Cash Price only. The Extra Payment above Cash
price will be transferred to P&L as an Expense which is Known as
Interest Expense.

Additional Cases to be considered for measurement of Cost :-

Case I : If PPE is acquired on Deferred Credit

If PPE is acquired on Deferred credit & No Interest is required to be

paid additionally then It will be assumed that Purchase Price is
inclusive of Interest. We Need to calculate Present value of Purchase
Price to identify Interest/ unwinding Cost.

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Solution of Q.16 (4 marks)

Calculation of Present value of future Payments

Period Payment PVF @ 5.36% P.V
0 33,33,333 1 33,33,333
1 33,33,333 .949 31,63,333
2 33,33,334 .901 30,03,334
P.V of Payments 95,00,000

Journal Entries

1.4.x1 PPE a/c Dr 95,00,000

To Payables 95,00,000
(Being Asset acquired on Credit)
1.4.x1 Payables a/c Dr 33,33,333
To Bank 33,33,333
(Being Payment made)
31.3.x2 Interest/ Unwinding Cost a/c Dr 330533
To Payables 330533
(95,00,000 – 33,33,333) 5.36%
(Being Interest made due)
31.2.x2 Payables a/c Dr 33,33,333
To Bank 33,33,333
(Being Payment made)
31.3.x3 Interest a/c Dr 169,583
To Payables 169,583
( 95,00,000 – 33,33,333 + 330,533 – 33,33,333) 5.36%
(Being Int. made due)
31.3.x3 Payables a/c Dr 33,33,334
To Bank 33,33,334

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Case II : Incidental Operation

As per the Provisions of Ind AS -16, Temporary Income on PPE form
its Incidental operations should not be reduced from cost of PPE,
but It will be Transferred to P&L A/c. It means that Income from
incidental operations will not Effect cost of PPE.
(i.e., Use of Land for Parking Area which was acquired for const. of
factory building Etc.) Alternative use than main use

Case III : Cost of PPE if It is Given of Lease

If any PPE is given or taken on Lease then cost of Leased Assets

should be Calculated as follows :-

Leased Assets

Operating Leased Assets Finance Leased Assets

Ind AS : 16 shall cover these Assets Ind AS : 17 will be applied

Apply Normal Principles PV of MLP or Fair Value

Lower
Solution of Q.6 (6 marks) [Link]

Calculation of Cost of factory

Purchase Price (1.4.x1) 100,00,000

Related Expenses :
i. Site Preparation 300,000
ii. Construction Exp. :-
a) Direct Material 60,08,000
b) Employees Cost (1.5 – 30.11) @ 2L P.m. 14,00,000
c) Direct OH @ 1L P.m for 1.5 – 30.11 700,000
d) Borrowing Cost 612,500
(175,00,000 x 6% x 7m)
1.5 – 30.11

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e) Income on Investments made out of Borrowed funds (100,000)

iii. Provision for Removal Cost 920,000
( 2 Crore x 4.67%)
Cost 1,98,40,500

 All other Expenses are not related with construction of factory

Calculation of Depreciation

a) Roof = 98,40,500 x 30% x 1/20 x 4/12 = 49,203

Component Life C.Y

b) Building = 98,40,500 x 70% x 1/40 x 4/12 = 57,403
106,606

*Part 3*

Concept 4 : Subsequent Recognition

Further Expenditure on Assets

Cases

Case I : Case II : Case III :

Repairs & maintenance Replacement Inspection &
Overhaul

Case I : Repairs & maintenance

As per the provisions of Ind AS-16, Repairs or maintenance is

incurred to Maintain the normal working condition of the Asset. It is
just like day to day Servicing. This Expenditure is Revenue
Expenditure in nature and It should be Written off in P&L A/c in the
same year. The following Entries should be recorded in books : -

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i. Repairs a/c Dr xxxx

To Bank xxxx
(Being repairs Paid)
ii. P&L a/c Dr xxxx
To Repairs xxxx
(Being Repairs written off)

Case II : Replacement of Assets *[Link]

As per the Provisions of Ind As -16, Replacement of Assets should be

considered as a Capital Expenditure. The following 2 steps should be
applied for Accounting for Replacement : -

Step I : De- recognise the Carrying Amount of Old Parts

It would be available by Component
Based Depreciation
Step II : Recognise Expenditure on new parts as capital Expenditure
in carrying Amount of total Asset.

Example :
i. Cost of P&M (10 years ) : 200,000
ii. Engine Part (main component) : 40% of Cost
iii. Life of Asset : 10years, but for component It is 2 years
iv. At the end of 2nd year, new Engine Replaced for 90,000
Show the revised carrying Amount of Asset at the end of 2nd year.

Solution :

Calculation of Carrying Amount of Asset at the end of 2nd Year

Particulars Engine Other Asset Total

component
Original Cost 80,000 120,000 200,000
Depreciation for Ist Year (40,000) (12,000) (52000)
(80,000/2) (120,000/10)
nd
Depreciation for II Year (40,000) (12,000) (52000)
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(80,000/2) (120000/10)
Carrying Amount at the
End of 2nd Year NIL 96000 96000
New Engine Purchased 90000 - 90000
Revised C. Amount 90,000 96,000 186,000

Example :
i. P&M : 20,00,000 (10 Years)
ii. Engine : 60% of Cost (4 years)
After 3 Years, replacement of Engine made at a cost of ₹ 15,00,000.
Pass Journal Entries for Replacement assuming ₹ 5000 realised from.
Scrap of old Engine

Solution :

Calculation of Carrying Amount of Asset at the end of 3rd Year

Engine Other Total

Component Component
Original Cost 12,00,000 800,000 20,00,000
Depreciation for 3 years (900,000) (240,000) (11,40,000)
[1200000 x3/4] [800000 x3/10]
Carrying Amount 300,000 560,000 860,000

Step I : De- Recognition : Bank a/c Dr 5000

P&L a/c Dr 295,000
To P&M 300,000
(Being De- Recognition of old parts made)
Step II : Recognition : P&M a/c Dr 1500,000
To Bank 15,00,000
(Being New Engine Bought)

Revised C. Amount = 860000 – 300000 + 1500000 = 2060000

C1 C2
15,00,000 (4Y) 560,000 (10Y)

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Case III : Inspections & Overhauls *Imp

As per the Provisions of Ind AS -16, Inspection Cost may be a major

component Of Total Cost of Asset in some cases (i.e., Ships, Cruises,
Aircrafts, Chemical boilers, Oil Refineries etc). In this Case,
Inspection Cost should be amortised over its Permit life. The
Accounting treatment would be same as for Replacement of Assets

Step I : De recognition Step II : Recognition

Solution of Q.15 (4marks) *Imp

Calculation of Actual Carrying Amount at the end of 5th Year

Inspection Other Total

Original Cost 50,00,000 150,00,000 200,00,000
Depreciation for 5 (50,00,000) (37,50,000) (87,50,000)
years
[5000000 x5/5) [15000000 x5/20]
Original C. Amount NIL 1,12,50,000 1,12,50,000
New Inspection 50,00,000 - 50,00,000
Revised carrying
Amount 50,00,000 1,12,50,000 1,62,50,000

Concept 5 : Models for Accounting

(Presentation)

Models

Cost Model Revaluation Model *Imp

Case I : Presentation at Cost Model

Under Cost Model, Presentation of PPE is to be made on the basis of

following Statement :-

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Original Cost xxxx

Accumulated Dep. xxxx
WDV of PPE xxxx
*Impairment Loss (xxxx)
Carrying Amount xxxx

*Impairment Loss is calculated when fair value of PPE becomes Less

than carrying Assets. It is also Known as Downward Revaluation.

Important Note

It can be said that Downward Revaluation can be made under Cost

model for True & Fair Presentation. (Upward is not allowed)

** Whenever Downward Revaluation is made, we should transfer the

amount of Impairment Loss to P&L A/c.
a) Impairment Loss a/c Dr
To Assets
b) P&L a/c Dr
To Impairment Loss

Case II : Revaluation Model *[Link]

As per the Provisions of Ind AS – 16, Entities can choose for

revaluation model for True & fair Presentation of Assets. The
following Concepts should be applied while Adopting revaluation model :-

Concept 1 : Accounting at the time of revaluation

Under Revaluation, we consider upward Revaluation due to increase in

fair value of Assets. The following Journal Entries shall take place :-

PPE a/c Dr xxxx fair value - WDV

To Revaluation Res. Xxxx
(Being Assets increased) Increase in value

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Concept 2 : After Increase in value of Assets, Depreciation will be

calculated on Revised carrying Amount, but New Depreciation
will be higher than original Depreciation. The difference
between Revised Depreciation & Actual Depreciation will be
recognised as “ Additional Depreciation”. The amount Of
Additional Depreciation will be transferred from
Revaluation Reserve to Retained Earnings to Compensate
Additional Depreciation, but It will not be routed through
P&L A/c.

Journal :
i. Depreciation a/c Dr Revised C. Amount
To PPE
ii. PL a/c Dr Dep. Written off as an Exp.
To Depreciation
iii. Rev. Res. a/c Dr Additional Dep compensated but not
To Retained Earning through PL A/c

Solution of Q.20 (2 marks)

Statement Showing Surplus on Revaluation

Original Cost 900,000

Depreciation for 2 years (900000/10 x 2) (180,000)
Book Value (31.3.x3) 720,000
Fair Value (1.4.x3) 960,000
Appreciation 240,000

i. Depreciation on Revised C. Amount = 960,000 = 120,000

8Y
ii. Depreciation on Original Value = 720,000 = 90,000
8Y
iii. Additional Dep. = 120,000 – 90,000 = 30,000

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Journal :
1.4.x3
a) PPE a/c Dr 240,000
To Revaluation Res. 240,000
(Being Assets increased)
31.3.x4
b) Dep. a/c Dr 120,000
To PPE 120,000
(Being Dep. Charged on revised value)

c) PL a/c Dr 120,000
To Dep. 120,000
(Being Dep. Written off)
d) Rev. Res a/c Dr 30,000
To Retained Earning 30,000
(Being Additional Dep. Compensated)

Concept 3 : Interval (minimum) for Revaluation

As per the Provisions of Ind AS-16, Revaluation is to be reviewed for

atleast once During 3-5 years. But It can be done annually if market is
not stable from the Point of view of prices.

Concept 4 : Class wise Revaluation

As per the Provisions of Ind AS-16, Revaluation model can be adopted

for a Class of Assets. It cannot be adopted for a Single Asset. It
means that :-
i. One Class of Assets can be covered under Revaluation model and
other Class on the basis of Cost model.
ii. Class of Assets can be formed by Grouping of Similar Assets.
iii. Class of Assets may be for L&B, P&M, Furniture, Motor vehicles
etc.

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*Part 4*

Concept 5 : Presentation at the time of Revaluation *Imp

At the time of Revaluation of Assets, Increase in Carrying Amount of

Assets Can be recorded by 2 methods as follows:-

Method I : Direct Method (Carrying Amount method)

Under this Method, O. Cost & Accumulated Depreciation are not

Revised, but we change the carrying Amount only.

Journal : PPE a/c Dr xxxx

To Rev. Res. xxxx

Method II : Original Cost Method

Under this method, we increase original cost and Accumulated

depreciation Proportionately as per the increase in Carrying Amount
of Assets.

Journal : PPE a/c Dr xxxx

To Accumulated Dep xxxx
To Rev. Res. xxxx
(Being Original Cost & A. Dep. Revised)

Example :
i. Original Cost : 600,000
A Dep : (240,000)
WDV/Carrying Amount 360,000
ii. Revalued Amount : 550,000

Pass Journal Entries for revaluation.

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Method I : C.A Method

PPE a/c Dr 190,000
To Rev. Res. 190,000
(Being upward Rev made)

Method II : O.C Method

*PPE a/c Dr 316667
To A. Dep. 126667
To Rev. Res 190,000
(Being Assets revalued)

*Calculation of Increase in O. Cost

a) WDV to O. Cost Ratio
= 360000 x 100 = 60%
600000
b) Revised O. Cost
= 550000 (New WDV)
60%
= 916667 New Existing
c) Changes = 916667 – 600000 = 316667

Solution of Q.18 *Imp (4 marks)

Method I : C.A . Method

PPE a/c Dr 20,000 (65,000 -45,000)

To Rev. Res. 20,000
(Being upward Rev. made)

Method II : O. Cost Method

a) Existing % of WDV to O. cost = 45000 x 100 = 45%
100,000
b) Revised O. Cost = 65000 = 144,444
45%
c) Changes in O. Cost = 144,444 -100,000 = 44,444

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d) Changes in A. Dep = (144,444 x 55%) – 55,000 =24,444

PPE a/c Dr 44,444

To A. Dep 24,444
To Rev. Res 20,000
(Being Rev made)

Concept 6 : Treatment in case of further Revaluation * [Link]

Case I : First Revaluation Upward, but further is Downward

31.3.2016 (WDV) : 200,000
31.3.2016 (FV) : 350,000
31.3.2017 (FV) : i) 250,000
ii) 180,000
Pass Journal Entries in Both Cases.

Case I Case II
a) PPE a/c Dr 150,000 a) PPE a/c Dr 150,000
To R. Res. 150,000 To R. Res. 150,000
(Being Upward Rev. made) (Being Upward Rev. made)
b) FV = 250000 b) FV = 180000
R. Res a/c Dr 100,000 R. Res a/c Dr 150,000
To PPE 100,000 PL a/c Dr 20,000
(Being Decline adjusted against R. Res.) To PPE 170,000
(Being Decline Adjusted)

If downward Revaluation is to be recognised under further

Revaluation, but It was recorded as upward earlier, then we should
reverse Revaluation Reserve First. If decline is higher than Rev.
Reserve then It will be Debited in P&L A/c.

Case II : First Revaluation Downward, but Further is Upward

Example :
31.3.2016 (WDV) : 200,000

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31.3.2016 (FV) : 150,000

31.3.2017 (FV) : i) 180,000
ii) 210, 000
Pass journal Entries.

Solution :
a) PL a/c Dr 50,000
To PPE 50,000
(Being Downward Rev. made)
b) (i) PPE a/c Dr 30,000
To PL 30,000
(Being reversal made)
(ii) PPE a/c Dr 60,000
To PL 50000
To R. Res 10000
(Being reversal made)

Concept 6 : Depreciation

a) Methods of Depreciation

SLM WDV UoP

(Straight Line method) (Written Down value (Units of Production
method) Method)
*Selection of Method is choice of management according to nature of
Assets.

b) Basic Points Related with Depreciation

As per the Provisions of Ind As-16, Dep. is just an allocation of cost

of PPE over its Useful life. The following Points should be considered :-
i. Dep. Should be calculated for each Asset separately. However,
Group of Assets Can also be formed only if Assets are similar.
ii. If an Asset is formed by different components that are having

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different life then component Based Depreciation can be charged.

iii. If L&B are acquired together then Depreciation can be Charged on
Building only.
(Land cannot be depreciated due to unlimited Life)
iv. We can commence Dep. On PPE only if Life of PPE is more than
one year and It is ready for use.
v. We can Cease Dep. On PPE only if It is De- Recognised or Held for
Sale (105).
Disposed off (sold)
c) Some changes in Accounting Related with Dep.

Changes

Estimated Useful Estimated Salvage Method of

Life Value Depreciation

All these changes are Recognised as change in

Estimation ( Ind AS 8)
Prospectively

Example : Change in Estimated Life

i. Original Cost 100,000

ii. Salvage Value 10,000
iii. Estimated Useful Life 10Y
After 2 years, It is Estimated that this Asset can be used for
further 10 years. Calculate Revised Dep. For 3rd Year.

Solution :
Statement Showing Revised Dep. For 3rd Year

Original Cost 100,000

Depreciation for 2 years (18,000)
(100,000 – 10,000/10y x 2Y)

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Carrying Amount at the end of 2nd year

& beginning of 3rd year 82,000
Depreciation for 3rd Year 7200
(82000 – 10000/10Y)
New Life

Solution of Q.10 (2 marks)

Calculation of revised Dep. For 9th Year

Original Cost 200,000

Dep. For 8 years (144,000)
(200,000 – 20,000/10Y) x 8Y
Carrying Amount 56,000

Dep. For 9th year 11,500

(56,000 – 10,000/4 y)
New Salvage Value

Example : (Change in estimated salvage Value)

i. Original Cost : 200,000
ii. Salvage Value : 20,000
iii. Life : 10 years
After 2 years , It is Estimated that company would realise only ₹ 5000
from Salvage Value. The company also Estimates that Asset can be
used for further 10 years.

Solution :

Calculation of Revised Dep. For 3rd Year

Original Cost 200,000

Depreciation for 2 Years (36,000)
(200,000 – 20,000/10y) x 2y
Carrying Amount after 2 years 164,000

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Depreciation for 3rd Year 15,900

(164,000 – 5,000/10y)
New Life

Example : Calculate Revised Dep. in above Example if Asset can be used

for further 6 years
Depreciation = (164,000 – 5000/6Y) = 26,500
New Life

Example : (Change in method of Depreciation)

Original Cost 20,00,000

Dep @ 10% P.a. on WDV Basis
After 1 year, SLM is to be Applied with useful Life of 12 years .
Calculate Depreciation for 2nd Year.

Solution :
Original Cost 20,00,000
Dep. For Ist Year @ 10% P.a. (200,000)
18,00,000

New Dep. = 1800,000 = 150,000 P.a

12 Y
New Method

Example : what will be revised Dep in above Example, if method is

changed after 2 Years

Solution :

WDV after 2 years = 20,00,000 – 10% - 10% = 16,20,000

(i) (ii)
New Dep. (SLM) = 1620000 = 135000 P.a.
12Y

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Concept 7 : De-Recognition of PPE

Sale of PPE

As per the Provisions of Ind AS-16, Profit or Loss on sale of Assets

should be transferred to PL statement.

Concept 8 : Disclosures in Notes to A/c s

a) Basic Disclosures :
i. Accounting Policy for the Measurement of cost
ii. Accounting Policy for the Subsequent cost
iii. Description about model for Presentation
iv. Class of Assets
v. Additions during the year
vi. Disposal during the year
vii. Reconciliation between opening & Closing values

b) Revaluation :
i. Class of Assets for revaluation made
ii. Treatment of further Revaluation
iii. Revaluation Res. in the beginning and at the end

c) Depreciation :
i. Method of Dep. : Class wise
ii. Basis for Selection of method
iii. Changes in Estimates during the year
`
Life SV Method

*Part 5*

Concept 9 : Change in Expected Cost of Dismantaling/ Removal/

De- Commissioning

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In case Provision for Dismantaling cost gets revised then It will also
Effect the carrying Amount of PPE. If Such Provision is increased
then Cost of PPE will also increase or vice- versa. There may be 2
reasons for change in such Provision :-
a) Change in Estimated Cost of Removal
b) Change in Discounting Rate

Example :
i. Asset acquired : 1.4.2017
ii. Cost of removal to be paid after 10 years (estimated) : ₹ 20,000
iii. Discounting Rate : 10%
As on 1.4.2019, It is Estimated that cost of Removal would be ₹ 25,000
at the time of Disposal of Asset. Show the effect of such Change on
cost of PPE.

Solution :
a) Calculation of balance in Provision for Cost of Removal A/c (As at
31.3.2019)
1) P.V of removal Cost = 20,000 x .386 = 7720
10%
2) Current Balance in Prov. A/c = 7720 + 10% = 8492 + 10% = 9341
(1.4.17) (31.3.18)
31.3.2019

b) Calculation of Provision on the basis of revised Cost as at 31.3.2019

1) P.V of Removal Cost = 25,000 x .386 = 9,650

2) Current Balance = 9,650 + 10% = 10,615 + 10% = 11,677

Increase in Prov. = 11,677 – 9341 = 2336

1.4.19 Asset (PPE) a/c Dr 2336

To Prov. For removal 2336
(Being Prov. Increased)

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Example : With the help of Given information in previous Example,

Calculate Change in Provision for removal Cost if Discount
Rate is also revised to 7%.

Solution :

Calculation of New Balance in Prov. A/c

1) Discounted Value = 25,000 x .508 = 12,700

(7% : 10Y)

2) Current Revised Bal. = 12,700 + 7% = 13,589 + 7% = 14,540

Original
Changes = 14,540 – 9,341 = 5,199
Revised
PPE a/c Dr 5199
To Prov. 5199

Step I : Calculate Original Balance in Provision for D.C A/c on the basis
of Original Estimate on the date of changes in Estimation.
Step II : Calculate Revised Balance in Provision for D.C A/c on the
basis of Revised estimate on the same date
Step III : Step I – Step II = Increase/ Decrease in Liability

Solution of Q.12

Calculation of Balance in Prov. A/c as at 31.3.2027

10y
Current Balance in Provision A/c = 10,000 + (5%) = 16,289
Revised Liab. = 16,289 – 8,000 = 8,289

Entry: Prov. For D. Cost a/c Dr 8,000

To PPE 8,000
(Being Cost of Asset reduced)

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Calculation of Depreciation for 11th Year

Original Cost 120,000

Dep. For 10 years (120,000/40 x10) (30,000)
90,000
Reduction in Prov. For Removal (8,000)
Revised carrying Amount 82,000
Remaining Useful Life 30Y (40-10)
Revised Dep. 2733

Solution of Q.13

I. Statement Showing Revaluation of Asset as at 31.3.x4

Fair Value of Asset (Net of Prov.) 115,000

Prov. For D.C Cost (10,000 + 5% + 5%+ 5%) 11,600
Total Fair value 126,600
Carrying Amount as at 31.3.x4 111,000
(120000/40Y x 37Y)
Revaluation Surplus 15,600

Journal : Asset a/c Dr 15,600

To Revaluation Res. 15,600
(being Asset Revalued)

II. Accounting for Changes in D. C. Cost

In the Given Case, we are Revising Provision for D.C. Cost under
Revaluation model. So we will consider changes in Prov. For D. cost in
Rev. reserve instead of changes in Asset A/c as we did in earlier cases.

Journal: Prov. For D. Cost a/c Dr 5000

To Rev. Res 5000
(Being Liab. Reduced)

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Revised Balance in Prov. = 11,600 + 5% = 12,200 – 5000 = 7200

(31.3.x4)

Statement Showing Revaluation of Asset as at 31.3.x5

Fair value as at 31.3.x5 (Net of Prov.) 107,000

Prov. For D.C cost (Revised) 7200
FV 114,200
Carrying Amount [126,600 – (126,600/37)] 123,180
Loss 8,980
31.3.x4

Journal: Revaluation Res. a/c Dr 8,980

To Asset 8,980
(Being Downward Rev. made)

*Part 6*

Solution of Q.1

Statement showing carrying Amount of Asset & Provisions at the end

of each year

i. Calculation of P.V of [Link] = 5 million x .463 = 2.315 m

ii. Initial Recognition of PPE = PPE a/c Dr 102.315 million
To Cash 100 million
To Prov. For D. Cost 2.315 million
(Being Asset Initially Recognised)
iii. Calculation of carrying Amount :-

PPE Provisions For D. Cost

Year O. Bal Dep. [Link] Year O. Bal Int. [Link]
(Cost/10) @ 8%
1. 102.315 10.23 92.085 1. 2.315 .185 2.5
2. 92.085 10.23 81.855 2. 2.5 .2 2.7
3. 81.855 10.23 71.625 3. 2.7 .216 2.916

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4. 71.625 10.23 61.395 4. 2.916 .233 3.149

5. 61.395 10.23 51.165 5. 3.149 .252 3.40
6. 51.165 10.23 40.935 6. 3.40 .272 3.672
7. 40.935 10.23 30.705 7. 3.672 .294 3.966
8. 30.705 10.23 20.475 8. 3.966 .317 4.283
9. 20.475 10.23 10.245 9. 4.283 .343 4.626
10. 10.245 10.245 NIL 10. 4.626 .374 5

Accounting for changes in Decommissioning Cost

I. At the end of 4th year = 8 million x .630 = 5.04 million

II. Increase in Provision = 5.04 million – 3.149 million = 1.891

Journal : PPE a/c Dr 1.891

To Prov. For D. cost 1.891
(Being changes in Liab. recognised)

III. Revised carrying Amount of PPE = 61.395 million + 1.891 million

= 63.286 million
IV. Revised Depreciation = 63.286/ 6 years = 10.55
V. Revised Provision = 3.149 million + 1.891 = 5.04 million

Solution of Q.2

I. Calculation of Annual Depreciation on the basis of original life of

Asset

Building (1,50,00,000/ 15 years ) 10,00,000

P&M (100,00,000/ 10 years) 10,00,000
Furniture (35,00,000/ 7 years) 500,000
Annual Dep. 25,00,000

II. Calculation of Annual Depreciation on the basis of Revised useful

life (After 3 years)

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Building [150,00,000 – (10,00,000 x 3)] / 10 years 12,00,000

P&M [ 100,00,000 – (10,00,000 x 3)] 7 years 10,00,000
Furniture [35,00,000 – (500,000 x 3)] 5 years 400,000
Revised Dep 26,00,000

Impact on P&L = 26,00,000 – 25,00,000 = 100,000

(New) (old) (Additional Dep.)
*Due to Additional Dep. , Future Profit shall get impaired by 100,000

Solution of Q.3

In the Given case, Mr. X will Explain the questions raised by Mr. Y as
follows :-
1. As per the Provisions of Ind AS 16, Revaluation is mandatory for all
Assets in some Class. In the Given case, P&M has been held at cost
model, but Property under Revaluation model because Both are
covered by different classes so, Different Policies Can be adopted.
2. If Revaluation is made of a Normal Asset then Revaluation surplus
will be disclosed in OCI, but in case Revaluation of an impaired Asset
is made then we will reverse Impairment loss in P&L first, then
Excess Profit will be shown in OCI.
3. The Depreciation on P&M is normally charged at higher Rate because
life of P&M is Usually low than Buildings. So, Dep on P&M is charged
at higher Amount in compare to Building.
4. We have disclosed Investment Property at cost model because Ind
AS 40 does not Allow Revaluation for I.P and Investment Property
shall be considered as a different Asset than owner occupied
Property.

*Part 7*

Solution of Q.14, Q.8, Q.6, Q.13 Discussed in Class

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter - 10 - Ind AS : 36 **V.V IMP

Impairment of Assets (5-10 Marks)

*Part 1*

Coverage

Unit I : Unit II :
Impairment of Individual Impairment of cash
Assets Generating units

Group of Assets

Unit I : Impairment of Individual Assets

Concept 1 : Meaning of Impairment of Assets

As per the Provisions of Ind AS-36, Impairment means Reduction in

Of Assets. Whenever carrying Amount of Assets Exceeds Recoverable
Amount of Assets, It is an Indication of impairment in value of
Assets. It is also Called Downward Revaluation. The Excess of Carrying
Amount over Recoverable Amount of Assets is Called Impairment Loss.

Impairment Loss = Carrying Amount > Recoverable Amount

Issue 1 : Meaning of carrying Amount of Assets

Carrying Amount means Book value/ B/s Value of Assets.

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Issue 2 : Meaning of Recoverable Amount

Recoverable Amount

Net Fair Value or Value in Use

Whichever is higher

Issue 3 : Net fair value = fair value of Asset (Expected) – Cost of

Disposal
Issue 4 : Value in Use = Present Value of all Expected cash inflows from
the Asset
(Including Salvage Value of Assets)

Issue 5 : Journal Entries

a) Impairment Loss a/c Dr xxxx
To Assets xxxx
(Being Value of Assets reduced)
b) P&L a/c Dr xxxx
To Impairment Loss xxxx
(Being Losses written off)

Note : After reducing the value of Assets, the future Depreciation will
decline due to
Reduction in Value of Assets.

Example :
i. Carrying Amount of Assets : 10,000
ii. Expected Useful Life : 5Y
iii. Fair Value of Assets : 8000
iv. Cost of disposal : 1000
v. Expected Cash Inflows :-
Y1 = 2000
Y2 = 2500
Y3 = 4000
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Y4 = 3000
Y5 = 1000
Salvage Value = 500
vi. Discount rate : 10% P.a.
Calculate I. Loss

Solution :
a) Calculation of Recoverable Amount

i. Net Fair value (8000 – 1000) 7000

OR
ii. Value in Use :-

Y1 2000 x .909 = 1818

Y2 2500 x .826 = 2065
Y3 4000 x .751 = 3004
Y4 3000 x .683 = 2049
Y5 1000 x .621 = 621
Y5 500 x .621 = 310 9867

Whichever is higher = 9867

b) Calculation of Impairment Loss

(if C. Amount > R. Amt)

Carrying Amount 10,000

Recoverable Amount (9867)
Impairment Loss 133

Journal :
i. Impairment Loss a/c Dr 133
To Assets 133
(Being I. Loss Recognised)
ii. P&L a/c Dr 133
To Impairment Loss 133
(Being Losses written off)

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Revised Carrying Amount

c) Future Dep. = 9867 = 1973.40
5 years

Solution of Q.3

a) Calculation of Recoverable Amount

i. Net Fair value 10,000

OR
ii. Value in Use :-
X4 – X5 2000 x .870 = 1740
X5 – X6 3000 x .756 = 2268
X6 – X7 3000 x .658 = 1974
X7 – X8 4000 x .572 = 2288
X8 – X9 2500 x .497 = 1242 9512
(Including Salvage)
Whichever is higher = 10,000

b) Calculation of carrying amount as at 31.3.X4

Cost of PPE as at 1.4.x1 20000

Depreciation for 3 Years (20000 – 500/8y) x 3Y (7312.50)
WDV of Assets as at 31.3.X4 12687.50

c) I. Loss = Carrying Amount – Recoverable Amount

= 12687.50 – 10000
= 2687.50 It will be written off in P&L A/c

New carrying Amt

d) Revised Depreciation = 10000 – 500 = 1900
5 years Salvage Value

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Solution of Q.5 (2 marks)

Calculation of Recoverable Amount

a) Net Fair Value 70 Crores

OR
b) Value in Use : -
X2 – X3 15 x .909 = 13.64
X3 – X4 30 x .826 = 24.78
X4 – X5 40 x .751 = 30.04
X5 –X6 10 x .683 = 6.83 75.29
Whichever is higher = 75.29

Calculation of carrying Amount

Cost of Asset (1.4.x1) 100 Crores

Depreciation for X1 – X2 (100/5 x1) (20 Crores)
Carrying Amount as at 31.3.x2 80 Crores

Impairment Loss = 80 Crores – 75.29 crores = 4.71 Crores

Revised Dep. = 75.29 = 18.83 Crores

4 Years

Concept 2 : Reversal of impairment Loss *[Link]

Example :
i. Cost of Asset (1.4.2017) : 10,000
ii. Estimated Useful Life : 10 years
iii. Salvage Value : 0
iv. Recoverable Amount as at 31.3.18 : 7000
v. Recoverable Amount as at 31.3.20 : 9000
Calculate Impairment Loss in 17-18 and Reversal of impairment Loss for
19-20.

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Solution :
Calculation of Impairment Loss for 17-18

Cost of Asset (1.4.17) 10,000

Depreciation for 17-18 (10000/10) (1000)
Carrying Amount as at 31.3.18 9000
Recoverable Amount as at 31.3.18 (7000)
Impairment Loss (17-18) 2000

Calculation of Reversal of I. Loss for 19-20

Carrying Amount as at 1.4.18 7000

Depreciation for 2 years (7000/9 x2) (1556)
Carrying Amount as at 31.3.20 5444

Recoverable Amount as at 31.3.20 9000

Original Carrying Amount as at 31.3.20 = 10000 – (10000/10 x 3) = 7000

As per the Provisions of Ind As-37, Reversal of I. Loss cannot Exceed

carrying Amt.
a) Total Appreciation = 9000 – 5444 = 3556
b) Max. allowed Reversal of I. Loss = 7000 – 5444 = 1556
Revaluation Res. 2000

i. Asset a/c Dr 3556

To Revaluation Res. 2000
To Reversal of I. Loss 1556
ii. Reversal of I. Loss a/c Dr 1556
To PL 1556

Example : With the given information in above Example Calculate I. Loss

& its Reversal If Dep. Is to be charged @ 10% P.a. on WDV
basis.

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Solution :

Calculation of I. Loss as at 31.3.18

Cost of Asset as at 1.4.17 10,000

Dep. For 17-18 @ 10% P.a. (1000)
WDV as at 31.3.18 9000
Recoverable Amount (7000)
Impairment Loss 2000

Calculation of Reversal of Impairment Loss

WDV of Assets as at 1.4.18 (Revised) 7000

Depreciation for 2 Years :
18-19 (7000 x 10%) (700)
19-20 (6300 x 10%) (630)
WDV as at 31.3.20 5670

Recoverable Amount as at 31.3.20 9000

Original WDV as at 31.3.20 = 10,000 – 10% - 10%- 10% = 7290

a) Max. Allowed Reversal = 7290 – 5670 = 1620

b) Total Appreciation = 9000 – 5670 = 3330
Revaluation Res. 1710

Asset a/c Dr 3330

To Revaluation Res. 1710
To Reversal 1620
Reversal a/c Dr 1620
To PL 1620
Note on Concept 2 :- If Recoverable Amount increases Subsequently
after Impairment of Assets, then we can Reverse
the impairment loss Which was Previously written
off. The following Journal Entries Shall be
recorded :-
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a) Assets a/c Dr xxxx

To *Reversal of I. Loss xxxx
(Being Loss Reversed)

b) *Reversal of I. Loss a/c Dr xxxx

To PL xxxx
9Being Income recognised)

*As per the provisions of Ind AS-36, Reversal of I. Loss cannot Exceed
Original Carrying Amount which would have been there without any
Impairment in Past. If Recoverable Amount Exceeds Original Carrying
Amount then It will be taken as Revaluation Reserve.

Solution of Q.6

Calculation of Recoverable Amount

Recoverable Amount = Fair Value or VIU whichever is higher

= 40 crores or 67.84 Crores
= 67.84 Crores

Calculation of Reversal of Impairment Loss

Carrying Amount as at 1.4.x2 75.29

Depreciation for x2-x3 (75.29/4) (18.83)
Carrying Amount as at 31.3.x3 56.46

Recoverable Amount as at 31.3.x3 67.84

Original Carrying Amount (31.3.X3) = 100 crores – (100/5x2) = 60 crores

Total Appreciation = 67.84 – 56.46 = 11.38

Max. Allowed Reversal = 60 – 56.46 = (3.54)
Revaluation Reserve 7.84

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Solution of Q.7

Statement Showing Calculation of I. Loss/ Reversal

X0 –X1
Original Cost 100 Lacs
Depreciation for X0- X1 (25 Lacs)
(100/4 x1)
Carrying Amount as at 31.3.x1 75 Lacs
Recoverable Amt as at 31.3.x1 (60 Lacs)
Impairment Loss 15 Lacs

X1 – X2
Revised Carrying Amount 60 Lacs
Depreciation for X1 – X2 (20 Lacs)
(60/3x1)
Carrying Amount at 31.3.x2 40 Lacs

Recoverable Amount at 31.3.X2 40 lacs

Impairment Loss NIL

X2 –X3 :-
Carrying Amount as at 1.4.X2 40
Depreciation (40/2 x 1) (20)
Carrying Amount as at 31.3.X3 20
Recoverable Amount as at 31.3. x3 28

Original Carrying Amount (31.3.X3) = 100L – (100/4 x3) = 25 Lacs

Max. Allowed Reversal = 25 – 20 = 5 Lacs

Note : As per Ind As-36, Reversal cannot be Exceeding its Original

Carrying Amount

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Solution of Q.14 (Impairment Loss for Revalued Assets)

Calculation of Impairment Loss & Its Treatment

a) Impairment Loss = C. Amount > R. Amount

= 27.30 – 12
= 15.30
Note : The Company has already Revaluation Reserve of ₹ 14 Lacs due
to Which we Cannot Set off Total I. Loss against PL A/c .

b) Treatment : - Impairment Loss a/c Dr 15.30

To Asset 15.30
(Being Downward Rev. made)
Revaluation Res. a/c Dr 14
PL a/c Dr 1.30
To I. Loss 15.30
(Being I. Loss written off)

Concept 3 : Assets out of Scope of Ind AS : 36

As per the Provisions of Ind AS -36, the following Assets are not
covered under the Scope of this Statement : -
i. Inventories (Ind AS -2)
ii. Const. Contracts (Ind AS-11)
iii. Investments held for Retirement of Employees (Ind AS-19)
iv. Deferred Tax Assets (Ind AS 12)
v. Biological Assets (Ind As 41)
vi. Financial Instruments / Assets (Ind AS 109)

Except
Investment in Subsidiary, Joint Venture & Associates can be Covered
under this Statement.
Ind As : 36 is Applicable

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vii. Non- Current Assets held for sale (Ind AS 105)

Assets can be Covered under Ind AS :36 i) Tangible F. Assets (PPE)

ii) Intangible F. Assets

*Part 2*

Concept 4 : Indications for Impairment

As per the Provisions of Ind AS-36, Application of Rules for

Impairment can be made Only if there are some Indications. These
Indications can be Classified under 2 Headings :-
Indications

External Indications Internal Indications

a) External Indications

i. If decline in value of Assets takes place than Expected decline

(Note : It may be due to change in technology of Assets etc.)
ii. If market Rate of Interest increases
(Note : It will Effect value in use due to Low P.V factors)
iii. If decline in value of Assets takes place Exceptionally due to
restriction Imposed on use of Assets (Note : Legal Environment)
iv. If Book value of Assets Exceeds market capitalisation
(Note : It may be due to decline in market Price per share)

b) Internal Indications

i. Physical Damage of an Asset indicates Reduction in Recoverable

Amount
ii. If manner of use of Assets is not Adequate
iii. If Expected Cash flows from the Assets declines

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Expectations to Indications

As per the Provisions of Ind As-36, there are some Assets which are
required to be Tested annually from the Point of impairment. Whether
there are indications or Not. These Assets are as follows :-

Annual Test
( It does not require any Indication)

Goodwill I. Assets which I. Assets which

(Acquired in are not in Use Definite Life
Business Combination)

Concept 5 : Basic Points relating to Cash Flows *[Link]

a) If Estimated Cash flows are Given in Range of values then

Recoverable Amount Should be calculated on the basis of Average cash
flow.
Average Cash Flow = High Range + Low Range
2
b) If Cash Flows are not Probable then we should consider cash flows
after applying Probability factor.
% of chances
c) If Assets are located in Foreign country then Cash flows can be
Estimated in Foreign currency, but Exchange Rate will be taken which
Prevails on the date of Impairment.

Note : It can also be said that we can consider cash flow on Estimation
basis, but Exchange Rates cannot be anticipated.

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Solution of Q.10

Calculation of Value in Use

Years CF Prob. factor Estimated CF PVF P.V

1 1000 10% 100 .952 (5%) 95.2
2 1000 60% 600 .903 (5.25%) 541.8
3 1000 30% 300 .852 (5.5%) 255.6
Value in Use 892.60

Solution of Q.11

Case I : Average Cash flow = 50 + 250 = 150

2
Case II : Average cash flow = 50 + 250 + 100 = 133.33
3
Case III : Expected Cash Flow = (50 x .10) + (250 x .30) + ( 100 x .60)
= 140

Solution of Q.8 (4 marks) *Imp

Calculation of VIU

Years CF PVF PV of CF Indian value @45

1 $80 .909 $72.72 3272.40
2 $100 .826 $82.60 3717
3 $20 .751 $15.02 675.90
7665.30
American CF American Rate Current Exchange Rate

d) As per the Provisions of Ind AS – 36, An Enterprise should not

Estimate Cash Flows beyond 5 Years. It can be said that Expected CF
can be taken as reliable upto 5 Years . If useful life of Assets is
higher than 5years then Salvage value should also be assumed at the
end of 5th Year.
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Note : While Solving Practical questions, we will use the total given
information Whether it is Less than 5 Years or more than 5
years.

e) As per the Provisions of Ind AS -36, Cash flows should be discounted

at Cost of Capital rate. In case, COC is not available then
discounting can be done at Incremental Borrowing Rate.

Concept 6 : Basic understanding of fair value

a) We should consider Net fair value while computing Recoverable

Amount of Asset.
Net fair value = Fair Value – Expected Cost to sell the Asset
b) We can identify fair value of an Asset from :-
1) Recent Transaction in Market
2) Active Market for Second hand Assets
c) If fair Value cannot be identified due to any reason then VIU will be
considered as Recoverable Amount.

Unit 2 : Impairment of Cash Generating Units (CGU)

Concept 1 : Meaning of C.G.U & its impairments

If Recoverable Amount of an Individual cannot calculated, because cash

flows are Generated by Interdependent Group of Assets then we
should Calculate Recoverable Amount for Such Group in Total instead of
Individual Cash Flows.
Such Group of Assets is Known as “Cash Generating unit” under this
Statement.
But
It should be the smallest Group of Assets for which individual
Recoverable Amount is not Available.

Solution of Q.17 , Q.18 Discussed in Class

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Concept 2 : Impairment of C.G Unit

Example :
i. Carrying Amount of Licence of Coal mine : ₹ 50,00,000
ii. Carrying Amount of roads constructed for mine : ₹ 10,00,000
iii. Net Fair value for CGU : ₹ 35,00,000
iv. C.I (p.a) for C.G.U for 5 Years : ₹ 15,00,000
v. Salvage Value of CGU : ₹ 200,000
vi. Discount Rate : 10 % P.a.
Calculate I. Loss.

Solution :

Calculation of recoverable Amount

i. Net fair Value ₹ 35,00,000

OR
ii. P.V of Cash Inflows :-
Annual = 15,00,000 x 3.79 = 5685000
SV = 200,000 x .621 = 124200
5809200
Whichever is Higher = 5809200

Calculation of I. Loss for C.G.U

Total Carrying Amount : Coal mine 50,00,000

Roads 10,00,000
60,00,000
Recoverable Amount (5809200)
Impairment Loss 190800

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Statement Showing Allocation of Asset wise Loss

Asset C. Amount Share in I. Loss Revised C. Amount

Coal Mine 50,00,000 (159000) (5/6) 4841000
Roads 10,00,000 (31800) (1/6) 968200
60,00,000 (190800) 5809200

Carrying Amount Ratio

Step I : Calculate Total Carrying Amount of all Assets which are related
to C.G Unit
Step II : Calculate Recovered Amount for C.G Unit
Step III : Calculate I. Loss for C.G unit
Step IV : Allocate Impairment Loss over the Assets in C.G.U in the
ratio of carrying Amount of Assets

H.W Q.1, 4, 15, 17, 18

*Part 3*

Concept 3 : Reversal of Loss to C.G.U

Example :
a) C.G. Unit formed : Asset1
Asset2
b) Carrying Amount : Asset1 = 400,000 (10y)
Asset2 = 600,000 (20y)
c) Recoverable Amount for C.G.U = 800,000
After 2 Years, Recoverable Amount for C.G.U is identified ₹ 10,00,000

Calculate :
i. Impairment Loss for C. G.U
ii. Revised Carrying Amount after I. Loss
iii. Max. Reversible Amount of I. Loss & its Allocation
Assume company follows Cost model for PPE.

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Solution :
a) Calculation of I. Loss

Carrying Amount for C.G.U : Asset1 400,000

Asset2 600,000
Total 10,00,000
Recoverable Amount (800,000)
Impairment Loss 200,000

b) Calculation of Revised Carrying Amount of Assets

Assets Original C. Amount Ratio Share in I. Revised C.

Loss Amount
Asset1 400,000 4 (80,000) 320,000
Asset2 600,000 6 (120,000) 480,000
10,00,000 10 (200,000) 800,000

c) Max. Reversible Amount *[Link]

(After 2 Years)

Carrying Amount of C.G.U after 2 years :-

Asset1 (320000/10 x 8) 256000
Asset2 ( 480000/20 x 18) 432000
Total carrying Amount 688000
Recoverable Amount after 2 Years 10,00,000

 Calculation of Original Carrying Amount

Asset1 = 400000 x 8 = 320000

10
Asset2 = 600000 x 18 = 540000
20
860000

a) Total Appreciation = 10,00,000 – 688,000 = 312,000

b) Allowed Limit for Reversal = 860,000 – 688000 = 172000
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Statement Showing Revised C. Amount after Reversal

Assets Existing C. Ratio Share in Revised C. Amount
Amt Reversal
Asset1 256000 256 + 64000 320000
Asset2 432000 432 +108000 540000
688000 688 172000 860000

Journal Entries

a) Asset1 a/c Dr 64000

Asset2 a/c Dr 108000
To Reversal of I. Loss 172000
(Being Reversal made)
b) Reversal of I. Loss a/c Dr 172000
To P&L A/c 172000
(Being Reversal Recognised)

Notes on Concept : If Reversal of I. Loss is required for a C.G.U in case

of Increase in Recoverable Amount of C.G.U then the following points
should be considered :-
a) As per the Provisions of Ind AS- 36, Reversal can be made upto
Original Carrying Amount assuming It will be the maximum Book Value
of Assets if No impairment Would not have been made.
b) As per the Provisions, Reversible Amount will be allocated to each
Asset in C.G.U in the ratio of carrying Amount of Assets on the date
of Reversal of Impairment Loss.

Concept 4 : Treatment of Goodwill *[Link]

(8-10 marks)

As per the Provisions of Ind AS-36, Goodwill debited in books of A/c s

at the time of Acquisition of business. It never Generates Cash flows
directly, but It helps in increasing Cash flows for other Cash
Generating Units by Synergy Effect from Acquisition of Business. We
Should Test impairment of Goodwill Annually, but in two Different
cases as follows:-
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Cases For Impairment of Goodwill

Ist Case : If Goodwill is not Allocable

IInd Case : If Goodwill is Allocable

Explanation on Case I : If Goodwill is unallocable *Imp

Example :
a) Goodwill recognised at the time of Business acquisition = ₹ 600,000
b) Cash Generating Unit to which it is related : X, Y & Z
c) Carrying Amount of Assets : X = 10,00,000
Y = 700,000
Z = 12,00,000
d) Goodwill will increase Cash flows for X, Y & Z, but Such an increase
cannot be valued / Quantified.
Give your Comments.

Solution :
In the Given Case, Goodwill will remain unallocable, because benefit
from Goodwill Cannot be qualified in Figures. We Know that Goodwill will
help X, Y & Z in Increasing their Profits even though we cannot
allocate goodwill over X, Y, & Z in the Absence of Reasonable Basis.

Note 1 : Goodwill will remain Un- allocable if Benefit from Goodwill

cannot be Quantified For related C.G.U.

Example : **Imp
i. Goodwill = ₹ 600,000
ii. Related C.G.U = X, Y & L
iii. Carrying Amount of Assets :
X = 2500,000
Y = 17,00,000
Z = 20,00,000
iv. Recoverable Amount : X = 17,00,000
Y = 20,00,000
Z = 21,00,000

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Assume it is a case of Un- allocable Goodwill, show the treatment of I.

Loss.
Solution :
Calculation of Impairment Loss

a) X = Carrying Amount > R. Amount

= 25,00,000 > 17,00,000
= 800,000
b) Y & Z = There will be no Impairment Loss for Y & Z because their
recoverable Amount are higher.

Application of Ind AS 36 :- As per the Provisions, Impairment Loss will

be adjusted Against Goodwill first. The
remaining Amount can be Adjusted against
Carrying Amount of Assets.
Treatment of Impairment Loss

Total Impairment Loss 800,000

Goodwill (600,000)
Remaining to be adjusted against X 200,000

Revised carrying Amount for x = 2500,000 – 200,000

= 23,00,000

Journal : Impairment Loss a/c Dr 800,000

To Goodwill 600,000
To X 200,000
P&L a/c Dr 800,000
To Impairment Loss 800,000

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Example : *[Link]
1) Goodwill = ₹ 600,000
2) C. G Units = Carrying Amount Recoverable Amount
X 25,00,000 17,00,000
Y 20,00,000 18,00,000
Z 15,00,000 12,00,000
Show Treatment of Impairment Loss.
(Assume Goodwill cannot be allocated)

Solution :
Calculation of Impairment Loss

a) X = 25,00,000 - 17,00,000 = 800,000

b) Y = 20,00,000 – 18,00,000 = 200,000
c) Z = 15,00,000 – 12,00,000 = 300,000
Total 13,00,000

Treatment of Impairment Loss

Total Impairment Loss 13,00,000
Goodwill to be written off (600,000)
Remaining for X, Y & Z 700,000

CGU CA Ratio Shares in IL Revised CA

X 25,00,000 5 291667 2208333
Y 20,00,000 4 233333 1766667
Z 15,00,000 3 175000 1325000
700,000

Note 2 : As per the Provisions of Ind As-36, the following Steps should
be applied to test the impairment of Goodwill :-
Step I : Calculate Impairment Loss for each C.G.U separately to which
goodwill is Related
Step II : Allocate Impairment Loss to Goodwill first
Step III : If Impairment Loss becomes higher than Goodwill then the
remaining loss Will be allocated over C.G.U in the ratio of
their carrying amount of Assets.
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Example : (Reversal of Impairment Loss)

a) Goodwill : ₹ 600,000
b) C.G.U : Carrying Amount R. Amount
A 20,00,000 15,00,000 (10y)
B 15,00,000 12,00,000 (20Y)
After 2 years, Recoverable Amount for A & B are 18,00,000 & 14,00,000
Respectively. Show the Treatment of impairment Loss and its Reversal
assuming Goodwill is Un-allocable.

Solution :
Calculation of Impairment Loss
A = 20,00,000 – 15,00,000 = 500,000
B = 15,00,000 - 12,00,000 = 300,000
Total Loss 800,000

Treatment of Loss

Total Impairment Loss 800,000

Goodwill to be written off First (600,000)
Remaining to be written off
Against A & B 200,000

Statement Showing Revised carrying Amount

A 20,00,000 4 114,286 1885714

B 15,00,000 3 85,714 1414286
7 200,000

Statement Showing Reversal of Impairment Loss

A B
Carrying Amount after 2 years 1508571 1272857
(1885714 /10 x8) (1414286 /20 x18)
Recoverable Amount after 2 years 18,00,000 14,00,000
Total Appreciation 291429 127143

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Original C. Amount

A = 20,00,000 x 8 = 1600,000
10
B = 15,00,000 x 18 = 13,50,000
20

Allowed Limit : A = 1600,000 - 1508571 = 91429

B = 1350,000 – 1272857 = 77143

 Goodwill cannot be reversed as per Ind AS -36

Note 3 : As per the provisions of Ind As- 36, reversal of Impairment

Loss cannot be Made for Goodwill, but Reversal for Other
Assets will be Same as we discussed Earlier.

Explanation on Case II : If Goodwill is Allocable

Format
CGU1 CGU2 CGU3
Carrying Amount of Assets xxxx xxxx xxxx
Share in Goodwill
(Ratio of Quantified xxxx xxxx xxxx
Synergy)
Carrying Amount including xxxx xxxx xxxx
Goodwill
Recoverable Amount xxxx xxxx xxxx
Impairment Loss xxxx xxxx xxxx

It Should be written off against Goodwill first. The remaining Amount

will be Adjusted against C. Amount.

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 Goodwill is allocated in the ratio of Quantified Benefit to related

C.G.U.
Example :

[Link] = ₹ 600,000
[Link] = A 10,00,000
B 15,00,000
iii. Benefit to A : 40%
Benefit to B : 60%
iv. Recoverable Amount : A = 900,000
B = 12,00,000
Show Impairment Loss.

Solution :

Calculation of Impairment Loss

A B
Carrying Amount 10,00,000 15,00,000
Share in Goodwill 240,000 360,000
(40%) (60%)
Total carrying Amount 12,40,000 18,60,000
Recoverable Amount 900,000 12,00,000
Impairment Loss 340,000 660,000
Goodwill (240,000) (360,000)
Balance 100,000 300,000

Revised Carrying Amount : A = 10,00,000 – 100,000 = 900,000

B = 15,00,000 - 300,000 = 12,00,000

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*Part 4*

Step I : First of all, Goodwill is allocated to respective C.G.U on Some

Reasonable basis
Step II : Calculate Recoverable Amount for each C.G.U Separately.
Step III : Calculate Impairment Loss for each C.G.U Separately.
Step IV : Adjust Impairment Loss against Goodwill first, but to the
Extent of Respective share in Goodwill.
( Note : Impairment Loss of one C.G.U cannot be adjusted
Goodwill of Other C.G.U.)

Solution of Q.13

In the Given question, Goodwill is related with a Single C.G.U due to

which It can be related directly with this Coal mine. So, It is a Case of
allocable [Link] following statement may be Prepared to Calculate
impairment Loss of Goodwill :-

Cost of Assets (1.4.x1) 320,000

Depreciation for 2 Years (320000/20 x 2) (32000)
Carrying Amount of CGU as at 31.3.x3 288,000
Add : Related Goodwill 80,000
Total Carrying Amount including Goodwill 368,000
Recoverable Amount (212,000)
Impairment Loss * 156,000

*It will be adjusted against Goodwill First

Treatment of Impairment Loss

Total I. Loss 156,000

GW to be impaired (80,000)
Remaining against C.G.U 76,000

Revised Carrying Amount of CGU = 288000 – 76000

= 212,000
18 Years
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Statement Showing Reversal of I. Loss

Carrying Amount as at 31.3.x5 188444

(212000/ 18 x 16)
Recoverable Amount as at 31.3.x5 304000
Total App. 115556

Original Carrying Amount

Carrying Amount = 320000 – (320000/20 x 4)

(31.3.X5) = 256000

Allowed Max. Reversal = 256000 – 188444 = 67556

 Goodwill cannot be reversed as per Ind AS -36

Solution of Q.23

Calculation of Impairment Loss

Carrying Amount of Assets (1.4.x1) 1000 Crores

Depreciation for C.Y (1000/10) (100 Crores)
Carrying Amount as at 31.3.X2 900 Crores
Goodwill (Allocable) 200 Crores
Total Carrying including Goodwill 1100 Crores
Recoverable Amount 600 Crores
Impairment Loss 500 Crores

Treatment Of I. Loss

Total I. Loss 500

Goodwill to be written off (200)
Balance against Plant A 300

Revised Carrying Amount for Plant A = 900 – 300 = 600

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Concept 5 : Corporate Assets *Imp

(i.e., H.O Building, R & D Centre etc.)
As per the Provisions of Ind AS-36, Company should Test impairment
for Corporate Assets also.
As per the Provisions, Corporate Assets are those Assets which do not
Generate cash flows, but these Assets are necessary to obtain cash
flow from other Assets & C.G.U. There may be 2 Cases to test the
impairment of Corporate Assets as Follows :-
Case I : If Corporate Assets can be Allocated over other Assets
Case II : If Corporate Assets cannot be Allocated

Case I : If Allocation of Corporate Assets is Possible

Example :
i. Corporate Building : ₹ 10,00,000
ii. Related CGU with Building :-
Carrying Amt A = 50,00,000
B = 75,00,000
iii. Recoverable Amount : A = 40,00,000
B = 60,00,000
Calculate Revised Carrying Amount for A, B & Corporate Building.

Solution :
Assumption : Useful Life of Assets is same for A & B.

Statement Showing I. Loss

A B
Carrying Amount 50,00,000 75,00,000
Corporate Building (50 :75) 400,000 600,000
54,00,000 81,00,000
Recoverable Amount (40,00,000) (60,00,000)
Impairment loss 14,00,000 21,00,000

A Building B Building
50/54 4/54 75/81 6/81
12,96,296 103,704 19,44,444 155,556

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Revised Carrying Amount :

A = 50,00,000 – 12,96,296 = 37,03,704
B = 7500,000 – 19,44,444 = 55,55,556
Building = 10,00,000 – 103,704 – 155,556 = 740,740

Step I : Allocate Corporate Asset in the ratio of Carrying Amount of

Related C.G.U.
Note : If Useful life is different for C.G.U then Allocation of Corporate
Assets will be Made on the basis of following weights :
Weights = Carrying Amount x Useful Life

Step II : Calculate I .Loss for each C.G.U after including share in

Corporate Assets
Step III : Divide I. Loss between CGU & Corporate Assets in the ratio
of their Carrying Amount.

Solution of Q.11

Statement Showing Impairment Loss

X Y
Carrying Amount 20 30
Office Building (2:3) 4 6
24 36
Recoverable Amount 18 38
Impairment loss 6 NIL

20/24 4/24
5 1

Revised C. Amount
1. X = 20 – 5 = 15
2. Y = 30 – 0 = 30
3. Building = 10 -1 = 9

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Case II : If Corporate Assets are Un-Allocable

Example :
i. Office Building : ₹ 10,00,000
ii. C.G.U : A ₹ 40,00,000
B ₹ 50,00,000
iii. Recoverable Amount : A ₹ 38,00,000
B ₹ 45,00,000
iv. Total Recoverable Amount for all : 90,00,000
CGU including Building
Calculate impairment Loss for Building.

Solution :

Calculation of Impairment Loss

A B Total
Carrying Amount 40,00,000 50,00,000 90,00,000
Recoverable Amount (38,00,000) (45,00,000) (83,00,000)
Impairment Loss 200,000 500,000 700,000
Revised C. Amount 3800,000 45,00,000 83,00,000
(40 – 2) (50-5)
Office Building - - 10,00,000
Carrying Amount of - - 93,00,000
Business
Recoverable Amount in - - 90,00,000
Total
Impairment Loss * 300,000

*This Loss should be adjusted against office Building.

Revised C. Amount = 10,00,000 – 300,000 = 700,000

Solution of Q.2 * V. Imp (Extra Question)

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a) Calculation of Weights for Allocation of X

(Weight = Carrying Amount x Useful life)

A = 500 x 10Y = 5000

B = 750 x 20Y = 15000 5 : 15 :22
C = 1100 x 20Y = 22000

b) Calculation of Impairment loss Excluding Y Unallocable

A B C
Carrying Amount 500 750 1100
x (5 : 15 :22) 71 214 314
571 964 1414
Recoverable Amount 600 900 1400
Impairment loss NIL 64 14

750 214 1100 314

964 964 1414 1414
50 14 11 3

Revised C. Amount = A = 500 – 0 = 500

B = 750 – 50 = 700
C = 1100 – 11 = 1089
B = 600 – 14 - 3 = 583

Calculation of Impairment Loss for Y

Calculation (Revised) (A + B + C + X) 2872

Add : Y 200
3072
Recoverable Amount for ABC Ltd. 3200
Loss for Y NIL

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Step I : calculate Impairment Loss for individual CGU without including

Carrying Amount of Corporate Assets
Step II : Revise the carrying Amount of all CGU after impairment Loss
Step III : Add the carrying Amount of unallocated Corporate Assets
to Total Carrying Amount of all CGU
Step IV : Identify Recoverable Amount for whole Business
Step V : Impairment Loss = Step III – Step IV

Un-allocable Corporate Assets

*Part 5*

Unit III : Additional Issues to be Discussed in Ind AS :36

Issue 1 : Annual Test for Impairment Assets

As per the provisions of Ind AS-36, the following Assets are to be

considered for Annual Test irrespective of Existence of Indications :-
a) I. Assets having Indefinite Life
b) I. Assets which are not in use at Present
c) Goodwill in Business Acquisition
The Following Important points are to be considered :-
i. The Company can Carry Annual Test at any time during the year,
but It will be done on same date in Next year. We cannot change
the date of Annual Test After first Test is done.
ii. If any indication for impairment takes place on an Earlier date
than Annual Test, then we should carry Impairment Test on the
date of Such Indication & we Should not wait for the date of Annual
Test.

Issue 2 : Inter Dept. Transfers *Imp

If output of one Process is input for other Process then It will be

considered as a Case of captive consumption/ IDT. The following
Points should be considered in this Case :-

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a) If Active market Exists for such Output then we will Estimate

Separate cash Flows for such Process and we will consider Separate
Impairment Test for this Process.
b) If Active market does not Exist for Output of such process then we
will Consolidate all Processes together and a Larger CGU will be
Formed for impairment Test.

Issue 3 : Disclosures (Notes to A/c s)

a) Individual Assets :-
i. Impairment Loss written off during Current year
ii. Reversal of Impairment Loss (if any) during Current Year

b) Cash Generating Unit :-

i. Impairment Loss (Current Year)
ii. Reversal of Impairment Loss (current Year)
iii. Carrying Amount of Assets covered in CGU
iv. Revised Carrying Amount of Assets
v. Basis of formation of CGU

c) Goodwill :-
i. Impairment Loss (C.Y)
ii. Method of Treatment of GW
(i.e., Allocable or Un-allocable)
iii. Basis of identification of related CGU

d) Corporate Assets :-
i. Carrying Amount of Corporate Assets
ii. Impairment Loss (CY)
iii. Reversal of I. Loss (CY)
iv. Revised Carrying Amount
v. Nature of corporate Assets
(Allocable/ Un-allocable)

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Issue 4 : Impairment of Investments in Subsidiaries *[Link]

(5-10 Marks)
Example :
i. Cost of Investments made by Holding : 14,00,000
ii. Net Assets held by Subsidiary on Same date : 10,00,000
iii. % of share of Holding co. : 70%
Calculate GW if any for Holding co.

Solution :
Identification of Goodwill

Net Assets of S ltd. 10,00,000

Share of Non controlling Int. (300,000)
Net Assets for Holding 700,000
Cost of Invest. 14,00,000
Goodwill 700,000

Example : With the help of given information, Identify Goodwill for

Holding & NCI as a Whole.
70% 30%
Solution :
a) Total COI (Holding + NCI) :
Holding 14,00,000
NCI (10L x 30%) 300,000
17,00,000
b) Total N. Assets 10,00,000
Goodwill 700,000

Whole

Example : With the help of Previous Example (Business as a whole) ,

calculate I. Loss If :-
a) Carrying Amount of Net Assets at B/S date : 12,00,000
b) Recoverable Amount : 900,000

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Solution :

Calculation of I. Loss

Carrying Amount of Net Assets 12,00,000

Add : Goodwill 700,000
19,00,000
Recoverable Amount (900,000)
Impairment Loss 10,00,000

1) Goodwill = 700,000 - 700,000 = 0

2) Other Assets = 12,00,000 – 300,000 = 900,000

Journal :-
a) I . Loss A/c Dr 10,00,000
To Goodwill 700,000
To Other Assets 300,000
b) P&L a/c Dr 600,000 (60%)
NCI a/c Dr 400,000 (40%)
To I. Loss 10,00,000

Example :
i. Cost of Investments :
a) Holding 400,000
b) NCI 200,000
ii. N. Assets on Same date 500,000
iii. B/S date :
a) Carrying Amount 300,000
b) Recoverable Amount 180000
Calculate I. Loss in consolidated B/S.

Solution :

a) Goodwill as a Whole = (400,000 + 200,000) – 500,000

= 100,000

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b) I. Loss = carrying Amount Present 300,000

Goodwill 100,000
400,000
Recoverable Amount (180,000)
Loss 220,000

Goodwill = 100,000 – 100,000 = 0

Other Assets = 300,000 – 120,000 = 180,000

Journal :
a) I. loss a/c Dr 220,000
To Goodwill 100,000
To Other Assets 120,000
b) P&L a/c Dr 176,000 80%
NCI a/c Dr 44,000 20%
To Impairment loss 220,000

Step I : Identify Goodwill in Subsidiary as a Whole from the point of

View of holding & Non-controlling Interest together.
Step II : Calculate Impairment Loss including Goodwill as a Whole
Step III : Divide I . Loss between holding & NCI in the ratio of their %
of Investment

Note : Ind AS 36 is Applicable on Consolidated B/S only. (Holding co. will

read Ind As 109 For its Separate statements)

Solution of Q.24 (6-8 marks)

Calculation of Goodwill as at 1.7.X1

Cost of Investments :
1) Made by Sun ltd. 12,80,000
(800,000/5 x 2 x4)
2) NCI 2,80,000

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800000 x 20% = 200000 @ 1.40

80%
Total investment 15,60,000
Assets as at 1.7.x1 (13,00,000)
Goodwill 260,000

Calculation of I. Loss

A B C
Carrying Amount 600,000 550,000 450,000
Goodwill ([Link]) 104,000 104,000 52,000
704000 654000 502000
R. Amount 740000 650000 400000
Impairment loss NIL 4000 102000
Goodwill to be written off - (4000) (52000)
first
Balance against Assets - - 50000

a) Impairment Loss a/c Dr 106000

To Goodwill 56000
To Assets 50000
b) P&L a/c Dr 84800 (80%)
NCI a/c Dr 21200 (20%)
To I. Loss 106000

Solution of Q.4 (4 marks)

Calculation of Goodwill

Cost of Investments :
Holding 2100
NCI (1500 x20%) 300
2400
Net Assets (1500)
Goodwill 900

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Statement Showing Impairment

Carrying Amount 1350

Goodwill (900 – 500*) 400
1750
Recoverable Amount (1000)
Loss 750

Goodwill = 400 -400 = 0

Assets = 1350 – 350 = 1000

a) I. Loss a/c Dr 750

To Goodwill 400
To Assets 350
b) P&L a/c Dr 600 (80%)
NCI a/c Dr 150 (20%)
To Impairment Loss 750

 Goodwill of ₹ 500 has already been Allocated by holding to its C.G.U

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*Part 6*
New Questions

Solution of Q.5

i. Calculation of carrying Amount of Machine at the end of 2nd year &

Revaluation surplus.

Original Cost (Ist jan : year I) 240,000

Depreciation for Y1 & Y2 (24,000)
240,000 x 2Y
20Y
Carrying Amount at the end of 2nd year 216,000
Recoverable Amount in the beginning of 3rd year 250,000
Revaluation Surplus 34,000

ii. Carrying Amount of Asset (Ist Jan :Y3) after revaluation 250,000
Depreciation for 3rd year (250,000/ 18Y) (13889)
Carrying Amount of Asset at the end of Y3 236111

iii. Impairment Loss = 236111 – 100000 = 136111

*The Impairment Loss will be adjusted against Rev. Surplus first, then
the remaining Loss will be transferred to P&L A/c.

Revaluation Reserve a/c Dr 34000

P&L a/c Dr 102111 (Bal fig.)
To Impairment Loss 136111
(Being Loss written off)
Impairment Loss a/c Dr 136111
To Assets 136111
(Being value of Asset reduced)

iv. Revised Dep (4th Year) = 100000/ 10years - 10000 P.a

(Revised c. Amt)
(Revised Life)

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Solution of Q.1 *Imp

Step I : Identification of GW (date of Acquisition)

N. Assets a/c Dr 3000

Goodwill (Bal fig.) a/c Dr 800
To NCI (20%) 600
To Cash (80% PC) 3200
(Being Initial Recognition made)

Goodwill as a whole = 800 x 100% = 1000

80%
800 200
(Recognised) (Not Recog.)

NCI at N. Assets

Case I : Calculation of Impairment Loss in CFS

Carrying Amount of Subsidiary Assets 2700

(without Goodwill)
Goodwill as a Whole 1000
Total Assets 3700
Recoverable Amount 2000
*I. loss 1700

*It will be adjusted against GW first to the Extent of ₹ 1000, but

remaining 700 will be adjusted against other Assets. The above Loss will
be shared by holding & NCI as Follows :-

Holding co. NCI Total

(80%) (20%) (100%)
Impairment Loss : 800 200 1000
GW
Others 560 140 700
Total 1360 340* 1700
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*Out of 340, we will recognise only 140 because GW for NCI was not
recognised on Initial date, so its impairment cannot be shown in Books

Case II : calculation of I. Loss

Carrying Amount of B ltd Assets (without GW) 2700

Add : GW as a whole 1000
Total Assets 3700
Recoverable Amount 2800
*I. loss 900

*It will be adjusted against GW only

Holding NCI Total

Impairment 720 *180 900

*It will not be disclosed in Books because Goodwill related to NCI is

not disclosed in Books.

*Part 7*

Solution of Q.9, Q.10, Q.8, Q.12, Q.11, Q.16 Discussed in Class

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Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter - 11 - Ind-AS: 38 ([Link])

Intangible Assets

*Part 1*

Concept 1 : Meaning of Intangible Assets

As per the Provisions of Ind AS-38, Intangible Assets can be recognised

in B/S only if the following 5 Conditions are satisfied :-

Condition I : It should not have any Physical Substance

Note: It should not be a Tangible Asset.
+
Condition II : It should be under the control of the Enterprise
Note : It means that It should be under undisputed Ownership
of the Enterprise. We can Establish undisputed rights
on Assets only if the enterprise can restrict others
from taking benefits from Controlled Assets.
+
Condition III : It should be an identifiable Asset which is separate
from others.
Note : An Asset can be identified Separately from others only
if It has Some Economic Benefits. Further, Economic
Benefits can be Identified only if Assets can be sold,
Exchanged or Given on Rent/Royalty.
+
Condition IV: It should be a Non-Monetary Asset.
Note : It means that It should not be held for Sale in Ordinary
Course of business, but It should be held for Use.
+
Condition V : The Enterprise should have reliable Estimate for the cost
of these Assets.

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Important Note

If any condition out of above specified condition is not Satisfied then

Such an Asset Will be transferred to P&L A/c as an Expense in the same
year. It means that all the Conditions are required to be satisfied to
recognise an Asset in B/S as an Intangible Asset.

The following Assets can be considered as Intangible Assets normally : -

i. Patents ii. Copy Rights iii. Trademarks/ Brand

iv. Scientific v. Technical
Knowledge Know How

Purchased
vi. Franchise Agreement
vii. Customer Database etc.
viii. Licenses for fishing, Imports etc
ix. Motion films etc.
x. Computer software
xi. Websites
xii. Domain Names etc.

Concept 2 : Intangible Assets which are out of Scope of Ind AS 38

As per the Provisions of Ind AS 38, the following Intangible Assets are
not covered Under the Scope of Ind AS 38 :-
i. C. Assets held for sale in Ordinary Course of Business (Ind As 2 :
Inventories)
ii. Deferred Tax Assets (Ind AS 12)
iii. Lease Contracts (Ind AS 116)
iv. Employees Benefits (Ind AS -19)
v. Goodwill (Ind 103) Business Combination
vi. Non current Assets held for Sale (105)
vii. Mineral oils, Ores (106)

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Concept 3 : Initial Measurement of Cost of Intangible Assets

Cases for Acquisition

Purchase by Exchange of Business Internally Govt.

Cash Assets Acquisition Generated Grants

Case I : Purchase by Cash

Statement Showing Cost of Intangible Assets

Purchase Price xxxx

Non- Refundable Duties xxxx
Brokerage/ Commission xxxx
Cost of testing xxxx
Any other Expense which is directly xxxx
Related with Acquisition
COIA xxxx

Expenses not to be included in Cost :- *[Link]

a) Staff Training Cost

Note : The company not control its staff because staff can resign
any time. So, It should be written off in P&L A/c in the same
Year.
b) Expenditure on Advertising
Note : It is not certain that Economic benefits will flow to the
Enterprise after Incurring Expenditure on Advertising. So It
will be written off in same year in P&L Statement.
c) Allocation of General & Selling Overheads P&L Statement
Note: These Expenses are not related directly with Acquisition of
Intangible Assets

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d) Start-up Cost
These Expenses are not incurred to acquire or Generate I. Assets,
but these are incurred to Establish the Product in the market. It
may include Cost of Exhibitions, Inaugrations, Ceremonies etc.
These Expenses should be Written off in PL A/c in Same year.
e) Operating Losses
(Initial losses at the time of adoption of New Technology)
f) Trade Discount, Refundable Duties or Taxes etc.
(These Items should be reduced from cost of I. Assets.)
g) Acquisition of I. Assets on Deferred Credit

In Case I. Assets are acquired on Deferred Credit then we will discount

the Purchase Price. We will Compute Interest Cost on Purchase Price
and we will write off it in PL Statement as an Expense.

Conclusion : It means that Interest cost on acquisition of I. Assets

will not be Considered as a Cost.

Case II : Exchange of Assets

- Refer Ind AS 40 & Ind AS 16 -

(Same Concept)

Case III : Acquisition in Business Combination *Imp

As per the Provisions of Ind AS-38, Intangible Assets of Vendor

Company can be incorporated in the books of P. Co only if fair value is
available for these I. Assets.
It can also be said that I. Assets of [Link] cannot be taken over at
Book Value by [Link].

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*Part 2*

Solution of Q.4

Calculation of Cost of Intangible Asset

Purchase Price :
i. Cash payment 600,000
ii. Deferred Credit 363,600
(400,000 x .909)
Purchase Tax 100,000
Legal fees 87,000 Professional fees
Consultancy fees 120,000
Cost of I. Assets 12,70,600

Extra Questions
Solution of Q.6 (2 marks)

Calculation of Cost of I. Assets

Purchase Price 30,00,000

Trade discount (5%) (150,000)
Taxes 50,000
Customisation Cost 700,000
COIA 36,00,000

Note : We should not Consider maintenance Cost as a Part of Cost of I.

Assets, Because It is paid for Smooth operation of Software. It
will be Considered as a Prepaid Expense and will be written off
over the Period of 5 Years.

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Solution of Q.10
Journal Entries
(In the books of X ltd)

Case I Case II

Patent a/c Dr 20,00,000 Patent a/c Dr 20,00,000

To I.P. Rights 18,00,000 To I.P. Rights 18,00,000
To Profit on Exchange 200,000 To cash 200,000
(Being Assets Exchanged) (Being Assets Exchanged)

Solution of Q.11

As per the Provisions of Ind AS- 38, Entities should not recognise
Expenditure On Advertising as an I. Asset, because Entity cannot
identify Benefit from sale Promotion Expense. It is also not certain
that Advertising will work.
So, the Entity should write off this Expense in P&L A/c as a Normal
Expense.

Solution of Q.5

In the Given Case, X ltd should recognise the obtained licence as an I.

Asset, Because It is satisfying all the conditions which are required to
identify an I. Asset.

Solution of Q.2

In the Given Case, We can recognise franchise fees of ₹ 1 Crore as an I.

Asset Because It is Just Like licence fees, but Share in Revenue
(Royalty) will be written off in PL Statement.

Solution of Q.4 Discussed in Class

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Solution of Q.6

Journal Entries

In the books of Sun Ltd. In the books of Earth Ltd.

(Owner : Licence) (Owner : Software)
Book Value = 500,000 Book Value = 10,000

Case I :

Software a/c Dr 520,000 Licence a/c Dr 500,000

To Licence 500,000 Cash a/c Dr 20,000
To Cash (Bal fig) 20,000 To Software 10,000
(Being Exchange made) To Profit on Exchange 510,000
(Being Exchange made)
Case II :
Software a/c Dr 490,000 Licence a/c Dr 490,000
Exchange Loss a/c Dr 10,000 To Software 10000
To Licence (BV) 500,000 To Profit on Exchange 480,000
(Being Assets Exchanged) (Being Assets Exchanged)

Fair value of Acquired Asset is

not available due to which fair
value of Given up Assets has
been considered

Case III :
Software a/c Dr 500,000 Licence a/c Dr 10000
To Licence 500,000 To Software 10000
(Being Assets Exchanged) (Being Assets Exchanged)

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Solution of Q.5

Statement Showing Calculation of Goodwill & Other I. Assets

Purchase Consideration 50,00,000

Assets : Tangible N. Assets (30,00,000)
Intangible Assets :
1) Trade Mark 180,000
2) Licence 654,000 (834,000)
(150000 x 4.36)
Goodwill 11,66,000
These I. Assets are Separately Recognised because fair value is available

Solution of Q.7 (Extra Question)

Statement Showing Calculation of GW

Purchase Consideration 400,000

Net Assets acquired : -
PPE 150,000
I.A 1 30,000
I.A 2 70,000
C &B 130,000
Payable (50,000) (330,000)
Goodwill 70,000

Important Note : *Imp

In case, I. Assets are not recognised Separately in the absence of fair

value then these I. Assets are recognised as Goodwill and These I.
Assets are amortised as GW is amortised.

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Case IV : Internally Generated I. Assets *[Link]

As per the Provisions of Ind AS -38, Internally Generated I.
Assets can be Classified into 2 headings as follows :-
a) Self Generated
b) In House research & Development

a) Self -Generated
If any I. Asset is generated automatically without incurring any
Expenditure then It is Known as Self- Generated Assets. These I.
Assets are Generated by Continous Efforts of Business for Customer
Satisfaction. These may be in the form Of :
 Goodwill
 Brand Name
 Customer List
 Publication Titles etc.

Treatment : As per the Provisions, these Assets are not recognised in

B/S, because These Items are free of cost. These Assets
do not satisfy the Basic Conditions which are required for
Initial recognition.
“ Reliable Estimate of Cost is not Available”

b) In House R & D
R&D

Research Activities Development Activities

(Identification of Technical (Testing Stage after
Feasibility) identifying Technical Feasibility)

Research Phase : If any Enterprise has incurred some Expenditure in

finding of new designs, formulas, technology etc. , but
findings are not yet Completed then It will be
recognised as research phase. Under this Phase,
feasibility of New technology New formulas or New
design Remain in Process.

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Treatment : The Enterprise should write off the total Expenditure in

PL statement Which is incurred during Research Phase.

Development Phase : After Identifying technical feasibility of a

Research, Testing is done which is Known Development Phase.

The Enterprise should Capitalise all the Expenses which are incurred
during this phase The following Expenses may be included in the cost of
I. Assets :-

Material Consumed xxxx

Employees Cost directly related with this phase xxxx
Title registration Cost xxxx
Master Copies Cost xxxx
Any other Expense which is directly related with
Trial Runs xxxx
COIA xxxx

Solution of Q.12
Calculation of Cost of I. Asset

Capitalisation Expense
F.Y : 2000 – 01
Research Expenditure - 20
2001 – 02
Development Expense:
Salaries 30 -
Overheads 12 -
Staff Training - 10
Adm. oH - 10
2002 – 03
Salaries & Wages 40 -
Total 82 40

 We will write off ₹ 40 Lacs in P&L Statement.

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Statement Showing I. Loss & Revised C. Amount

I . Loss = Carrying Amount > Recoverable Amount

= 82 > 70
= 12
Revised Carrying Amount = 82 – 12 = 70

Solution of Q.7
Accounting for 20x1 – x2

1.4.x1 – 31.12.x1 Research Phase 2700

To be written off in P&L statement 2700
1.1.x2 - 31.3.x2 Development Phase 900
Carrying Amount 900
Recoverable Amount as at 31.3.x2 1000
Intangible Loss 0

 No Change in Carrying Amount will take Place.

Accounting for 20x2- x3

Opening Balance (1.4.x2) 900

New Expenditure (x2 – x3) 6000
Carrying Amount 6900
Recoverable Amount (5000)
Intangible Loss 1900

Revised Carrying Amount = 6900 – 1900 = 5000

Solution of Q.9 (Extra Questions)

a) Cost of I. Asset : Acquired Research Cost 10L

Development Exp. 7L
17L
b) Exp. to be written off in PL : Research Exp. 5L
Technical fees 2L
7L
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Note : we have considered ₹ 10 Lacs as a Cost of I. Asset because It is

an acquired Research. It cannot be considered as in house
(Internal) Research.

Solution of Q.13 (Extra Questions)

Statement showing Calculation of Cost

Particulars Cost Expense

Research Phase :
Salary to designers - 200,000
Program design - 500,000
Coding - 200,000
Development :
Direct Cost 700,000 -
Testing 200,000 -
Master 300,000 -
Inaugration Exp - 70,000
Total 12,00,000 970,000
(B/S) (PL)

*Part 3*

Solution of Q.12 (Extra Question)

Statement Showing Cost & Valuation of I. Assets (20x1- x2)

Cost Expense
Expenditure made upto 1.3.x2 - 900
Expenditure made after 1.3.x2 but upto 31.3.x2 100 -
Total 100 900*
Recoverable Amount as at 31.3.x2 500
Intangible Loss NIL

 Expenditure of ₹ 900 will be written off in PL statement, because It

does not Fulfil the conditions which are required for recognition of AS-
26.

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Statement Showing Cost & Carrying Amount for X2 –X3

Opening Balance (1.4.x2) 100

New Expenditure (x2-x3) 2000
2100
Recoverable Amount 1900
Intangible Loss 200

Revised Carrying Amount = 2100 -200 = 1900

Solution of Q.14 (Extra Question)

Cost of I.A = 70,00,000 (1.7.x1 – 30.9.x1)

Expenses to be written off in PL = 30,00,000

Solution of Q.4

As per the Provisions of Ind AS-38, An Enterprise cannot control its

Human Resources/ Employees Benefits. So, It cannot be recognised as
an Asset, but Employees Benefits should be Expected in the same year.
The intention of company to record HRA as an Intangible is not valid.

Solution of Q.3 (Extra Question)

In the Given Case, Company is incurring Expenditure on Advertisement

to Generate customer List, but Ind AS-38 does not allow capitalisation
of Adv. Exp as an Intangible Asset. So, Identification of cost of
Customer List cannot be made due to Which It cannot be recognised as
an I. Asset.

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Solution of Q.1 (Extra Question)

Calculation of Goodwill

Purchase consideration 10,00,00,000

Net Assets Acquired (8,50,00,000)
Non Compete Agreement fees (50,00,000)
Goodwill 1,00,00,000
 Staff cost cannot considered as an I. Asset.

Case 5 : Acquisition of I. Assets by Govt. Grants

- Refer Ind AS -20 : Govt. Grants -

Concept 4 : Models for Presentation of I. Assets

It is not allowed
Models under As-26

Cost Model Revaluation Model

Refer Ind AS : 16 (PPE)

Solution of Q.8

Case I :
a) 31.3.x2 : I. Assets a/c Dr 20,000 (120,000 – 100,000)
To Rev. Res. 20,000
(Being Upward Rev. made)
b) 31.3.x3 : Revaluation Res. a/c Dr 20,000
P&L a/c Dr 15,000
To I. Asset 35,000 (120000 – 85000)
(Being downward rev. made)
Case II :
a) 31.3.x2 : P& L a/c Dr 15,000
To I. Asset 15,000
(Being I. Loss written off)

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b) 31.3.x3 : I. Asset a/c Dr 20,000

To PL 15,000
To Rev. Res 5000
(Being Reversal of I. Loss made)

Solution of Q.15 (Extra Question)

Method I : I. Asset a/c Dr 90,00,000

To Rev. Res. 90,00,000
(Being carrying Amount directly increased from 60L to 150L)
OR
Method II : * I. Asset a/c Dr 1,50,00,000
*To Accumulated Amort. 60,00,000
To Rev. res. 90,00,000
(Being cost, Accumulated Amort. & Rev. Res Increased
Proportionately)

 Existing Revalued Changes

Cost 100 L 100% 250 150 L
A. Amort. (40 L) 40% (100 L) (60 L)
C. Amount 60 L 60% 150 L 90 L

Concept 5 : Amortisation Policy *[Link]

Amortisation

Intangible Assets with Finite Intangible Assets with

Useful Life indefinite Life

Case I : Finite Life

Limited Life
As per the Provisions of Ind AS-38, the following Points should be
Considered while Calculating Amortisation Exp. For I. Assets with Finite
Life :-

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1) Amortisation method :-

Methods

Ratio of Expected Cash Inflows/ OR SLM, WDV or UoP over its

Economic Benefits over its useful life
(1st Preference) (2nd Preference)

Selection is 100% Judgemental

2) Useful life : As per the Provisions, Useful Life or Expected Benefits

from [Link] Shall be revised at the end of each year. If
any Change takes place Then we will consider it as change
in an Estimate.
3) Salvage Value : As per the Provisions of Ind AS -38, salvage Value will
always be Assumed ‘zero” for I. Assets.

Exception

If there is an Active market for disposal of I. Asset at the end of

useful Life then we can assume some salvage value.

4) Impairment : We will carry impairment Test for these I. Assets only

if there is An Indication.

Solution of Q.10
Statement Value of I. Asset at the end of Year

X1 – X2 : Patent acquired (1.4.x1) 300,000

Amortisation as at 31.3.X2 (60,000)
(300000/ 5 x 1)
Carrying Amount as at 31.3/1.4 240,0000
X2 – X3 : Impairment Loss as at 1.4.x2 (90,000)
Revised carrying Amount as at 1.4.x2 150,000
Amort. Exp. (150000/2 x 1) (75,000)
Carrying Amount as at 31.3.x3/1.4 75,000
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X3-X4 : Appreciation in Value 1.4.x3 225000

(300000 – 75000 = 225000

90000 135000

Reversal Rev. Res

Of I.L
Carrying Amount as at 1.4.x3 300,000
Amortisation (300,000/4Y) (75000)
Carrying Amount as at 31.3.x4 225000

Solution of Q.9
Calculation of Amortisation Exp.

Year 1 :
Amort. Exp = 10,00,00,000 x 50,000 U = 1,11,11,111
450,000 U
Revised carrying Amount = 10,00,00,000 = 1,11,11,111 = 8,88,88,889
Year 2 = 8,88,88,889 x 65,000 = 1,56,15,615
65 + 85 + 105 + 115
Revised Carrying Amount = 8,88,88,889 – 1,56,15,615 = 7,32,73,274

Case II : Indefinite Life

1) There will be no Amortisation Expense for these Assets in the

absence of Limited Life. These Assets are not amortised, but these
Assets are carried at cost only.
2) These Assets should be Tested Annually for impairment.

Concept 6 : De- Recognition of I. Assets

De- Recognition

Disposal OR Retired Ind AS 105

Whichever is Earlier
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Note : Profit or Loss at the time of Disposal of Assets should be

transferred to P&L A/c.

Concept 7 : Disclosures

1) General Disclosures :-
a) I. Assets with finite or Indefinite Life
b) Amortisation Method : Asset wise
c) Carrying Amount, Accumulated Amortisation at the beginning & at the
end
d) I. Assets with indefinite Life : Annual Impairment Test Effect
e) Revalued I. Assets with Reconciliation

OB & CB
f) Research Exp. that has been written off

Other Disclosures : If Management wants to disclose any other

information then Additional disclosures can also be made.

*Part 4*

Solution of Q.4 , Q.6, Q.20, Q.21, Q.23, Q.24

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Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-12 - Ind AS 105 :

Non-Current Assets held for sale & Discontinued Operation

*Part 1*

Coverage

Unit I : Unit II : Unit III :

NCA held for sale Disposal Group held Discontinued Sale
for sale

Unit I : NCA held for sale *V. Imp

As per the Provisions of Ind-AS 105, A Non- Current Asset

(i.e., PPE or Intangible Asset), which was held for use in normal Course
of Business, can be considered as held for Sale only if the following 2
conditions are satisfied :-

Condition I : It should be available for Immediate Sale in Present

Condition
+
Condition II : Sale of Such Assets should be highly Probable

Explanation on Condition I
Immediate Sale in Present condition

As per the Provisions of Ind AS 105, A Non- current Asset should be

Available for immediate sale in Present condition without any Excuse. If
it is Expected that NCA will be available for Sale in distant future then
Such an Asset should not be considered as Held for Sale under Ind-AS 105.

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Examples of Sale in Distant Future :-

1. If A Plant & Machinery is still used to complete pending orders then
it will be Available for Sale in Distant Future.
2. If A Property will be sold after its Renovation then It will be
available for sale in Distant future.
3. If A Building will be sold after Purchase of New Building then It will
also be a case Of Distant future.

Exception to Distant Future

If any sale takes time due to Customary Practices then It will not be
Considered as Distant Future.
(i.e., If customer will take time for Payment or small Repairs will be
undertaken at Customer request etc.)
+
Explanation on Condition II
Sale Should be highly Probable

As per the Provisions of Ind AS 105, A Non-current Asset can be

Classified as “Held for Sale” under Ind AS 105 only if It is available for
immediate sale in present Condition as well as sale is highly Probable. If
the following conditions are satisfied then It will be assumed that sale
is highly Probable :-

I. The Entity should have a Plan to sell the Asset

II. The Entity should start tracing a buyer
III. The Entity should Expect a reasonable Price which should be near
to fair value of NCA
IV. The Entity Expects the completion of Transaction within one Year
V. There should be no Certainty that Entity will withdraw the Plan or
Change the plan.

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Additional Concepts to be considered

Concept 1 : When to Apply Ind AS 105

As per the Provisions, Application Ind AS 105 can be made at any time
during the Period Subject to be Specified 2 Conditions in main Concept :

Concept 2 : How to Apply 105

Step I : First of all, Calculate depreciation/ Amortisation on NCA from

the beginning of year till the date of Classification of Held for
sale. So that carrying Amount of NCA on that date can be
calculated.

Calculation of carrying Amount on the date of Initial Application of Ind

AS 105

Opening Balance in Assets a/c in the beginning of Year xxxx

Depreciation till the date of Classification as HFS (xxxx)
Carrying Amount as on that date xxxx

Step II : Before Appling 105, check any impairment Loss under Ind AS 36
and Adjust the carrying Amount which is calculated in Step I.

Statement showing I. Loss under Ind AS 36

Carrying Amount (step I) xxxx

Recoverable Amount as per Ind AS 36 (xxxx)
Imp. Loss ++

 If Recoverable Amount becomes Less than Carrying Amount then It

will be Written off in P&L as Impairment Loss as Follows :
1. Imp. Loss a/c Dr xxxx
To N. C Asset xxxx
(Being downward Revaluation made)

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2. P&L a/c Dr xxxx

To Imp. Loss xxxx
(Being Loss written off)
Revised Carrying Amount = Carrying Amount (step I) (–) Imp. Loss

*Note : If Recoverable Amount becomes higher than Carrying amount

then we will Ignore such Appreciation.

Step III : Application of Ind AS 105 *V.V. Imp

While Classifying A Non- Current Asset as Held for Sale, the following
Rule should be applied :-

Revised Carrying OR Fair value Less Cost

Amount (Step II) to Sell of NCA On the date

Whichever is Lower will be the Amount at which NCA will

Be Disclosed as Held for Sale in B/S

Notes:
a) If fair value Less Cost to sell becomes Lower than Carrying Amount
then It will be written off as Loss as per Ind AS 105.
b) No Depreciation will be computed on such Asset after Classifying it as
held for Sale in future.

Example :
i. Accounting Year : 2021 – 22
ii. Book Value of PPE (1.4.2021) : 500,000
iii. PPE Classified as HFS on 1.7.2021
iv. Depreciation @ 10% P.a. WDV
v. Recoverable Amount as per Ind AS 36 on 1.7.2021 ₹ 440,000
vi. Fair Value Less Cost to sell on that date ₹ 370,000
Calculate Depreciation & Imp. Loss (Total under Ind AS 36 as well as Ind
AS 105)

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Solution :

Calculation of carrying Amount of PPE before Applying 105

Opening Balance (1.4.21) 500,000

Depreciation for 3m (5L x 10% x 3/12) (12,500)
C. Amount as on 1.7.21 487,500
Recoverable Amount as per Ind AS 36 (440,000)
Normal Imp. Loss 47,500
Revised C. Amount = 487,500 – 47,500 = 440,000

Calculation of Imp. Loss under Ind AS 105

Revised Carrying Amount (After Normal Impairment) 440,000

Less: Fair Value Less Cost to Sell (370,000)
Further Decline 70,000

Total Decline = 47,500 + 70,000 = 117,500

*NCA which is HFS will be disclosed in B/s at 370,000 and No Depreciation

will be charged On it in future.

Concept 3 : Reversal of Impairment Loss if Fair value Improves

Subsequently *Imp

If any Subsequent Valuation is made at B/S date before sale of NC

Assets Held for sale then there may be the following situations : -

Situation I : If Subsequent fair value Less cost to sell becomes Less

than the Previous Valuation as per 105 then Further
decline will be written off in P&L A/c and Carrying Amount
will be adjusted according to Subsequent Valuation.

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Example :
With the help of Given information in Previous Example, Adjust carrying
Amount of PPE as at 31.3.2022 if fair value Less Cost to sell is ₹ 350,000

Solution :

Carrying Amount (1.7.21) for HFS Asset 370,000

Fair Value as at 31.3.22 (350,000)
Further Decline 20,000

Revised Carrying Amount on 31.3.22 = 370,000 – 20,000 = 350,000

(1.7.21)

Situation II : If Subsequent fair value Less cost to sell becomes higher

than original Valuation then Improvement in fair value
can be Recorded by Reversal Of Impairment Loss but
subject to Extent of Total Impairment Loss Which was
Written off Earlier under Ind AS 36 & 105.

Example : with the help of Original Example, calculate the maximum

reversal of Imp. Loss as per Rules if fair value on B/S date
increases upto ₹ 490,000
Solution :
Calculation of Increase in Value of Assets

Increase = Subsequent F.V – Original f. Value

= 490,000 – 370,000
(31.3.22) (1.7.21)
= 120,000

Comments: In the Given Case, there is an Increase in Value of ₹120,000,

but Maximum limit of reversal is 117,500 (47500 + 70000). So
we can consider Increase in value by ₹ 117,500 which was
written off as Imp. Loss Earlier.
Revised C. Amount = 370,000 + 117,500 = 487,500 (max)

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*Part 2*

Concept 4 : Change in Plan *[Link]

Example :
i. Accounting Year : 2021 – 22
ii. PPE : Balance as on 1.4.21 = ₹ 10,00,000
iii. Depreciation @ 10% P.a. SLM
iv. Asset classified as Held for sale on 1.7.21
v. Recoverable Amount as per Ind AS 36 on 1.7.21 = ₹ 700,000
vi. Fair value Less cost to sell on 1.7.21 = ₹ 680,000
After 3 months, Entity Changes its mind and It has decided that it will
use this Asset instead of selling it in near future. Recoverable Amount
on 1.10.21 is to be Assumed ₹ 820,000. Show the Application of Ind AS 105.

Solution :

I. Application of Ind AS 105 on 1.7.21

a) Calculation of Carrying Amount of PPE (Before Applying 105)

Opening Balance (1.4.2021) ₹ 10,00,000

Depreciation ( 10,00,000 x 10% x 3/12) (₹ 25,000)
Apr – june
Carrying Amount as on 1.7.21 ₹975,000
Recoverable Amount as on 1.7.21 as per Ind AS 36 (₹ 700,000)
Imp. Loss ₹ 275,000

Revised C. Amount as per Ind AS 36 = 975,000 – 275,000 = 700,000

b) Calculation of value of Asset as per Ind AS 105

Revised carrying Amount (Ind AS 36) 700,000

Fair Value Less Cost to Sell 680,000
Decline 20,000

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Carrying Amount as per Ind AS 105 = 700,000 – 20000 = *680,000

*Depreciation will not be charged on ₹ 680,000 in future

Journal Entries

a) Depreciation a/c Dr 25,000

Imp. Loss a/c Dr 275,000 (Ind AS 36)
Decline in value a/c Dr 20,000 (Ind AS 105)
To PPE 320,000
(Being Loss on Classification of PPE into HFS recognised)
b) P& L a/c Dr 320,000
To Dep. 25,000
To Imp. Loss 275,000
To Decline 20,000
(Being Dep. & Losses written off)

 Max. Reversal Amount = 295,000 (275,000 +20,000)

II. Accounting for Change in Plan

Step I : Calculate Carrying Amount of NCA that would have been there if
we had not Applied Ind AS 105
Carrying Amount as on 1.7.21 before Applying 105 ₹ 700,000
Depreciation for 3 months (July, Aug, Sep) (17,500)
(700,000 x 10% x 3/12)
Normal C. Amount without Application of 105 ₹ 682,500

Step II : Identify Recoverable Amount of NCA on the date of Change in

Plan
(Given in Question = ₹ 820,000)

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Step III : Step I or Step II

682,500 820,000
Lower

At this value, HFS Assets shall be Reclassified as PPE/IA

= 682,500

Step IV : Changes in Value of NCA due to Change in Plan will be

transferred to P&L A/c
Changes = Value under 105 =680000 VS Value as per Step III = 682500

It will be transferred to P&L A/c = 2500

i. PPE a/c Dr 2500

To Reversal of Loss 2500
ii. Reversal of Loss a/c Dr 2500
To P&L 2500

 We will calculate Dep. On 682,500 in Ind AS 16

Solution of Q.3 *Imp (8-10Marks)

Calculation of Value of Asset as on 31.3.x3

A. Carrying Amount as on 31.3.x3 before Applying Ind AS 105

Original Cost (1.4.x1) ₹ 600,000

Depreciation for 2 Years (600,000/15 x 2) (₹ 80,000)
Normal Carrying Amount as on 31.3.x3 ₹ 520,000
Recoverable Amount as on 31.3.x3 ₹ 470,000
Normal Imp. Loss as per Ind AS 36 ₹ 50,000

Revised C. Amount before 105 = 520,000 – 50,000 = 470,000

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B. Value of Asset as on 31.3.x3 after Applying Ind AS 105

Revised C. Amount as per above Calculation 470,000

Fair value Less Cost to Sell 460,000
Whichever is Lower 460,000

Further Decline = 470,000 – 460,000 = ₹ 10,000

 Total Impairment = ₹ 50,000 + ₹ 10,000 = 60,000

(36) (105)

Calculation of Value of NCA as on 31.3.x4

(After Change in Plan)

(a) Calculation of carrying amount of NCA if we had not applied Ind

AS 105
Normal Carrying Amount before Applying 105 as on 31.3.x3 470,000
Depreciation for X3- X4 (36,154)
(470,000/13y x 1y)
Carrying Amount as on 31.3.x4 without applying 105 433,846

a) Recoverable Amount as on 31.3.x4 = ₹ 500,000

b) Whichever is Lower, It will be New carrying Amount after = 433,846
Change in Plan

Changes in Carrying Amount : Existing C. Amount under 105 ₹ 460,000

New Carrying Amount after
Change in Plan ₹ 433,846
Diff * 26,154
*It will be written off in P&L at the time of Change in Plan

Notes on concept:

An entity can Change its decision regarding Held for sale Assets. It can
Continue its use of Assets instead of being selling it near future. If

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there is a Change in plan then the following steps should be applied to

Calculate “ the carrying amount at which it will be Re- Classified from
Held for sale Assets to Normal Assets“ :

Step I : First of all, Calculate Normal Carrying Amount of such Assets

that would have been there without Applying 105
Step II : Find out Recoverable Amount as per Ind AS 36 on Same date
for Such Assets
Step III : Consider Lower Amount out of Step I & Step II as New
carrying Amount after Re- Classification
Step IV : find out Changes in Carrying Amount & Transfer it to P&L A/c

Changes = Value of NCA under 105 (–) New Carrying Amount as per Step
III

Concept 5 : Exception to “ one year Concept”

If Non- Current Asset held for sale is not sold by the entity within 12
months from the date of its classification as Held for sale then It will
be assumed Entity has Changed its mind and we will follow the Entire
Procedure which we have discussed in Concept 4. There is an Exception
to 12 months concept. It means that we can Continue NCA under 105
even if these Assets remain unsold for 12 months but Entity has to
fulfil the following conditions :-

I. The Entity has to Prove that Reason was beyond its control due
to which it Remained unsold.
+
II. It is still committed to Plan.

Concept 6 : Events after B/s date

As per the Provisions of Ind AS 105, Events after B/s date shall not be
Incorporated in any case which are related with Assets Held for sale.
The following 2 Cases may take place :-

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B/S date After B/s date But

Before Approval

Case I : There is no Asset under 105 Entity decides to sell NCA

Result : No Adjustment will be made in B/s

Case II : There is an Asset under 105 Entity changes its decision

Result: We will Still Apply 105 on B/S date. It means that

there will be no Adjustment on B/s date

 Disclosures can be Given for Events after B/S date in Notes to A/cs.

Concept 7 : Assets acquired with intention of Subsequent Disposal

*Imp

As per the Provisions of Ind AS 105, grace period of 3 months is

allowed for Renovations for Newly Acquired Assets if these Assets are
acquired for Subsequent Disposal.

Concept 8 : Out of Scope Assets

We cannot Apply 105 on following Assets :-

i. Deferred Tax Assets (Ind AS 12)

ii. Retirement Benefit Assets held for Employee Benefits (Ind AS 19)
iii. Financial Assets (Ind As 109)
iv. Agricultural Assets (Ind AS 41)

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*Part 3*

Unit II : Disposal Group Held for Sale

Example :
An Entity wants to sell the following Group of Assets & Liab. On 1.4.2021

Items Carrying Amount Recoverable/ NRV

(31.3.2021) (1.4.2021)
Goodwill 10,000 10,000
PPE 60,000 55,000
Imp. Assets 40,000 38,000
Inventories 20,000 18,000
Investments 10,000 9,000
Liabilities 20,000 20,000

In Addition to above information, Fair value Less Cost to sell of Entire

Group on 1.4.2021 in ₹ 60,000. Calculate Loss on Classification of Group
under Ind AS 105.

Solution : Before Applying 105

Calculation of Adjusted Carrying Amount of Disposal Group
(As per Original Ind AS)

Items Carrying Amt Revised C. Amt Impairment

(Given) As per Related Ind AS Loss
Goodwill 10,000 10,000 -
PPE 60,000 55,000 (Ind AS 16,36) 5000
Imp. Assets 40,000 38,000 (Ind AS 38,36) 2000
Inventories 20,000 18,000 (Ind AS 2) 2000
Investments 10,000 9000 (Ind AS 109) 1000
Liabilities (20000) (20000) -
Total 120,000 110,000 10,000

It will be written off in P&L A/c

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Calculation of carrying Amount of Disposal Group under 105

Carrying Amount of Disposal group as per Original Ind AS 110,000

Fair Value Less Cost to sell 60,000
Whichever is Lower 60,000

Impairment Loss under 105 = 110,000 – 60,000 = 50,000

It will also be written off in P&L

Example : With the help of Given information in above Example, Calculate

the amount Of I. Loss which can be reversed due to
Subsequent increase in fair value of Disposal Group.

Solution:
We can reverse the impairment Loss due to Subsequent increase in fair
value less Cost to sell to the Extent of “Total Loss” which was written
off under Original Ind AS & 105

Max. Limit for Reversal = 10,000 + 50,000 = 60,000

(Original) (Ind AS 105)

*Note : Reversal of I. Loss for goodwill is not allowed as per Rules due
to which max. Rev. will be ₹ 50,000

Example : With the help of above Original Example, show How the
impairment Loss Under 105 will be allocated on Assets in the
Disposal Group ? *[Link]

Solution :

Statement Showing Allocation of Loss in Disposal group

Total I. Loss under 105 50,000

Goodwill to be written off (10,000)
Remaining Loss 40,000
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PPE *(55/93)= 23,656

IA *(38/93) = 16,344
*Ratio of Carrying Amount

1) I. Loss a/c Dr 50,000

To Goodwill 10,000
To PPE 23,656
To IA 16,344
(Being I. Loss adjusted under 105)
2) P&L a/c Dr 50,000
To I. Loss 50,000
(Being Losses written off)

Statement Showing Disposal Group

Items Carrying Amount under Ind AS 105

Goodwill 10,000 – 10,000 = 0

PPE 55,000 – 23,656 = 31,344
I.A 38,000 – 16,344 = 21,656
Stock 18,000
Invest. 9,000
Liab. (20,000)
C Amount
Under Ind AS 105 60,000

Notes on Concept

If an Entity wants to sell “ A group of Assets & Liab.” Instead of a

Single Non-Current Asset then All Rules & conditions shall remain same
as in Unit II, but the following Additional Points are to be considered :-

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Step I : All Assets & Liab. in Disposal Group shall be measured as per
Original Ind AS to which the Asset & Liab. are related.
(Note : It means that carrying Amount will be adjusted according
to original Ind AS i.e.,
PPE, I.A = Ind AS 36
Stocks = Ind AS 2
Investment = Ind AS 109 etc.

Step II : After Applying Original Ind AS, we should go for application of

Ind AS 105.

Revised Carrying Amount OR Fair value Less cost to sell

(Original Ind AS )

Lower It will be New carrying

Amount under 105

 If fair value Less cost to sell becomes Lower than Carrying Amount
(step I) then I. Loss will be written off in P&L A/c

Step III : Allocation of I. Loss under 105 on Disposal Group will be made
as follows :-
1) First of all, Adjust the entire Loss against GW PPE
2) After writing off GW, remaining Loss will be allocated on Tangible & I.
Assets in the ratio of their carrying Amount. No Allocation will be
made on other Assets or Liab Because 105 is applicable on Non-current
Assets only

Note : If there is an increase in fair value subsequently then total I.

Loss which was Written off under Original Ind AS & Ind AS 105 can
be Reversed, but Reversal of GW Cannot be made.

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Solution of Q.2 *[Link]

Calculation of Carrying Amount of Disposal Group (Original Ind AS

Valuation) Before Ind AS 105

Items C Amount (Given) C Amount (original Imp Loss

Ind AS)
GW 1500 1500 -
PPE 4600 4000 600 (36)
Building 5700 5700 -
Stock 2400 2200 200 (2)
Investment 1800 1500 300 (109)
Total 16000 14900 1100

Journal: I . Loss a/c Dr 1100

To PPE 600
To Stock 200
To investments 300
(Being Decline in value recognised before applying 105)
P&L a/c Dr 1100
To I. Loss 1100
(Being I. Loss written off)

Calculation of Carrying Amount for Disposal Group under 105

Revised Carrying Amount 14900
Fair value Less Cost to Sell 13,000
Whichever is Lower 13,000

*Decline in value = 14900 – 13000 = 1900

Allocation of Decline :-
Total Decline 1900
Goodwill to be Written off (1500)
Remaining Decline 400
PPE (40/97) 165
Building (57/97) 235
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Revised carrying Amount

Goodwill NIL
PPE (4,000 – 165) 3,835
Building (5,700 – 235) 5,465
Stock 2,200
Invest. 1,500
Revised C. Amount 13,000

Comments on Reversal :-

A. Max. Allowed Reversal = Original I. Loss + Decline under 105

= 1100 + 1900
= 3000
B. Reversal of Goodwill cannot be made due to which Allowed Max. Reversal
will remain Upto 1,500 only (3,000 – 1,500)

In the ratio of carrying Amount of PPE & Building

*Part 4*

Solution of Q.5

As per the Provisions of Ind AS 105, A Non-Current Asset can be

Classified as Held for Sale only if It is available for immediate Sale in
Present condition & Sale is highly Probable.
In the Given Case, Property is not ready for immediate Sale in
Present Condition because It will take 2 Months for renovations. It
can also be said that Property will become ready for sale after 2 months
(i.e., after 31.1.x2)
On the basis of above facts, It can be said that the Given Property
should not be Classified as Held for sale as on 31.12.x1

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Solution of Q.6 *Imp

As per the Provisions of Ind AS 105, Events after B/s date, but before
Approval on Financial Statements should be ignored and there will be no
impact of these events on B/S reporting. However, the Entity may
provide disclosures in Notes to A/cs for these Events.
In the Given Case, price of factory has declined after B/s date
Which indicates that sale is not highly Probable on B/s date. But we will
not consider this Event while Preparing B/S.

Conclusion : We should Still disclose the Given factory as held for sale on
B/S date. The Entity may provide appropriate disclosures
regarding decline in value Of factory after B/S date in
Notes to A/c s .

Solution of Q.7 *[Link]

A. In the Given Case, Disposal Group should be Classified as held for sale
on 31.7.x1 Because of the following reasons :-
I. The management became committed to Plan to sell the disposal
Group on 31.7.x1 for immediate sale in present condition
II. The sale of Disposal Group is highly Probable within 12 months
because sale is Expected to be Completed before 31.3.x2 which is a 9
months period from 31.7.x1

*we have ignored Permission from Regulator because its just a

formality & It is highly Probable. If permission is not highly Probable
in the Given case then held for Sale date would have been identified
only after Getting permission.

B. Measurement of Disposal Group on 31.7.x1

Total Carrying Amount of Disposal Group 2600

Fair value Less cost to Sell (1850 -100) 1750
Whichever is Lower 1750
Decline in value = 2600 -1750 = 850
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Allocation of Loss :

Total Decline ₹ 850

Goodwill to be written off (₹ 500)
Remaining Loss ₹ 350

P&M (900/2750) ₹ 114

Building (1850/2750) ₹ 236

C. At B/s date, carrying Amount will be reduced by further decline in fair

value as it is clearly mentioned in the question that fair value on B/s
date has been declined.

Disclosures for Unit I & unit II in Financial Statements

A. Disclosures in B/s :-

Unit I : NCA held for sale

These Assets shall be disclosed in B/s under a “Separate heading “:
after current Assets as follows :-

Balance sheet

Non-Current Assets

Current Assets

Non Current Assets held for sale xxxx

(New Separate heading)

Unit II: Disposal Group (Assets & Liab.)

The disclosure of Assets & Liab in a Disposal Group will be made

Separately in Assets & Liab. side in B/s. we cannot show Net Assets in
Disposal group.

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Balance sheet (Ind AS)

Non-Current Assets xxxx

Current Assets xxxx
Assets held for sale in Disposal Group xxxx
(Separate New Heading)
Shareholders fund xxxx
Non-Current Liab Xxxx
Current Liab.
Liab. held for sale in Disposal Group xxxx
(Separate New heading)

B. Disclosures in Notes to A/cs :-

1) The Entity has to Maintain description of NCA held for Sale &
Disposal Group
2) The Entity has to maintain the Expected time of Completion of the
Disposal of Assets & Disposal Group
3) Gain/ Loss at the time of Classification of Assets or Group under
Ind AS 105 should also Be reported.
4) If any Change in Plan has taken place before reporting Period end
then It should be reported.

Unit III : Dis-Continued Operations *[Link]

As per the Provisions of Ind AS 105, Discontinued Operation is a

component of an Entity which has been Discontinued or is held for Sale,
but Subject to Following Conditions :-

I. It should be a Business Segment or Geographical Larger

Segment Product Area concept than
II. All other conditions are Same as we discussed in Disposal
Unit I & Unit II group
(Immediate Sale & Highly Probable Sale)

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In the Given Case, All Rules for Accounting & Disclosures are quite
similar as we Discussed in Unit I & Unit II, Except the following
Additional Disclosures :-

I. Disclosures in P&L A/c :-

The Entity has to report Profit or Loss from Discontinued

Operation in Statement of P&L under a Separate heading in *Single Line.
It means that Calculation of Profit/Loss from Discontinued Operation
will be reported in Notes to A/cs as Follows :-

Revenues xxxx
Expenses (xxxx)
PBT xxxx
Tax Exp. (xxxx)
Net xxxx
It will be reported in SOPL

II. Disclosures in Cash Flow Statement :-

The Entity will report cash flow from Discontinued Operations in Cash
flows statement separately from normal cash flows Under all heading of
Operating, Investing or financing

Solution of Q.4 Discussed in Class

Additional Discussion

1) Abandonment of Assets

If any Asset is retired from its use as well as it is not held for
Sale then It will be called as Abandonment of Assets. The Assets shall
not be covered by Ind AS 105, but Original Ind AS shall be continued for
disclosures.

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2) Investment in Subsidiary for Subsequent Disposal

If any Subsidiary is acquired for Subsequent Disposal then this

Investment will be treated as Discontinued operation.

*Part 5*

New Questions

Solution of Q.4

As per the Provisions of Ind AS 105, Non-current Assets can be

classified as held for sale only if the following 2 Basic conditions are
satisfied :-
i. If Asset is available for immediate sale &
ii. Sale is highly Probable

On the basis of above conditions, the following cases may be considered

:-

Case I : In the Given Case, intention to sell investment in subsidiary

cannot be Considered as Disposal Group held for sale because
Approval from shareholders Of Alpha is not Expected in near
future which indicates that It is not available For immediate
sale. Further, No Buyer is identified yet which indicates that
sale is not highly probable.

Case II: In the Given case, sale of vehicles can be considered as

Disposal Group held for sale because PQR has already Entered
into a contract with LMV which Indicates that vehicles are
already sold. It is also mentioned that Delivery of Vehicles will
take place in April which indicates that sale is highly probable.

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Case III : In the Given case, Retail Business can be classified as

Disposal Group held for sale because contract is already
Entered into and final Terms will be Finalised Soon. It clearly
indicates that Retail Business is available for Immediate sale &
sale is highly Probable

Solution of Q.3 *Imp

In the Given case, the following Points should be considered while

Preparing IFR Ending 30.6.x1 :-

A. As per the Provisions of Ind AS 105, Assets/ Disposal Group/

Discontinued Operation can be classified as held for sale only if
Assets are available for immediate sale & sale is highly Probable. In
the Given case, Company has decided that It will sell the division &
company has also started Receiving serious Enquiries Which indicates
that the specified Division can be considered as HFS.
B. As per the Provisions of Ind AS 105, Initial Recognition of HFS
Assets should be made at carrying Amount or fair value Less cost to
sell whichever is Lower. In the Given case, Carrying Amount of
related Assets on 1.4.x1 is 30,60,000, but fair value is 32,00,000 which
indicates that there is no Loss on initial Recognition.
C. As per the Provisions, Depreciation will be stopped on HFS Assets due
to which we Will not calculate any Dep for the Qtr on PPE. But other
Assets shall be valued as Per original Ind AS.
D. The company has sold Goods during this Period at Profit which will be
disclosed in P&L under the heading of Profit or Loss from
Discontinued Operations.
E. The Company should update carrying Amount of Inventories as on
30.6.x1 from 10 lacs to 9 lacs.

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Solution of Q.2 *[Link]

Statement showing value of Assets & Liab under Ind AS 105 on 15.9.x1

i. Initial Recognition : As per the Provisions of 105, initial Recognition

of Disposal Group will be made at carrying Amount or Net fair value
whichever is Lower
ii. If fair value Less cost to sell becomes Less than carrying Amount
then Impairment Loss at initial Recognition will be adjusted against
GW and Excess Loss Will be distributed among Non-current Assets in
the ratio of carrying Amount.
iii. Impairment Loss = 21,60,000 – 18,30,000 = *330,000
(carrying Amt) (Net fair value)

*It will be adjusted against goodwill first the remaining loss will be
allocated on I Assets & PPE in the ratio of carrying Amount of Assets.

Assets Carrying Impairment Loss Revised C.

Amount Amount
Goodwill 200,000 (200,000) NIL
I Assets 930,000 (130 x 930/1960) 61,684 868,316
Financial Assets 360,000 - 360,000
PPE 10,30,000 (130 x 1030/1960) 68,316 961,684
DTA 250,000 - 250,000
C. Assets 520,000 - 520,000
C Liab (870,00) - (870,00)
Prov. (250,000) - (250,000)
Revised C Amount 18,30,000

Statement showing changes in values on 31.3.x2

i. Total Decline = 18,30,000 – 16,50,000 = 180,000

(Initial) (B/s) (further loss)

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ii.
Assets Carrying Changes in values Revised
Amount Ind AS Other Ind AS C Amount
(15.9.x1) 105
I Assets 868,316 868316 x 60,000 839,847
1830000
= (28469)
F Assets (109) 360,000 50,000 - 410,000
PPE 961684 - (31,531) 930,153
C Assets (various) 520,000 (120000) - 400,000
DTA (Ind AS 12) 250,000 (20,000) - 230,000
CL (870,000) (30,000) - (900,000)
Provisions (250,000) - - (250,000)
1830,000 (120000) (60000) 1650000

C Amt Ratio of IA & PPE

Solution of Q.1 (Discussed in class)

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-13 : Integrated Reporting (4-6 marks)

(Theory)
*Part 1*

Concept 1: Legal Status of “Integrated Reporting” in India

At present, Integrated Reporting (IR) is not mandatory in India, but

SEBI has advised to its Top 500 companies to include this reporting in
their Annual Reports of 2017-18 on Feb, 2017. It clearly indicates the
acceptance of this Reporting by SEBI. It may Become mandatory for
Listed Company soon in Future.

History: This concept was initially introduced in South Africa & It

became mandatory for Listed Companies in 2009 in South Africa.
Thereafter, Prince of Wales (UK) established “International
Integrated Reporting Council” (IIRC) in 2010 to set up framework of
<IR>. This reporting became mandatory in UK in 2013 after signing MOU
between IIRC & IASB. [the [Link]]

Concept 2: Objective & Features of Integrated Report

(a) Objective
The Big Investors do not trust the Annual Reports which are prepared
as per Traditional AS/IndAS. Under this reporting, Financial & Non-
Financial (Both) factors are disclosed upon which big investment
decisions may be taken by Investors. The main objective of this report
is to explain the following 4 main areas of a Company:-
 Strategy of Companies
 Governance to apply the strategy
 Performance as per Strategy
 Prospective of Company

On the basis of above explanation, investors can judge value creation by

company in short, medium or Long term.
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The Main Drawback of these Reports is the transparency of Business

model of Entity.

(b) Salient Feature of this Report

(i) Classification of Capital

Capital

Financial Manufactured Intellectual Human Social Nature

Capital Capital Capital Capital Capital Capital

1. Financial Capital: Under this, entity has to explain its source of funds.
(i.e; Equity, Debt, Grant, Income or Investments or Profit from
Business operations)

2. Manufactured Capital: Under this, Entity has to explain its Tangible

Assets which are used in Production of Goods or providing of services.
These Assets may be in the form of Buildings, Plant & Machinery,
Equipments, Roads etc.

3. Intellectual Assets: Under this, Entity has to explain its Intangible

Assets. These Assets may be in the form of Patents, Copyrights,
Brands, Technical Know how etc.

4. Human Capital (Non Financial): Under this, Entity has to explain the
competencies, capabilities & Experiences, abilities to motivate &
understanding about the organisation of their Key Management
Personel.

5. Social & Relationship Capital: Under this, Entity has to explain about
their Social Activities. It may include spending on social programmes
etc.

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6. Nature Capital: Under this, Entity has to explain about their Natural
Assets which are held in Production of Goods. These Assets may be in
the form of Air, Water, Land, Forest, Minerals etc.

(ii) Supplementary Information

This report can be prepared as Standalone Report or It can be merged

with Annual Report. It indicates that It is flexible Supplementary
Report.

(iii) Fit with Local Laws

If any report is already prepared as per Local Laws of Presentation

then we can Slap this information under <IR>

(iv) The main feature of <IR> is that It includes Financial & Non-
Financial (Both) factors.

Discussion of Theoretical Questions

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-14 : Operating Segments Ind AS 108

(Important)
*Part 1*

Concept 1: Meaning of Operating Segment

As per the Provisions of Ind AS 108, Operating Segment may be a

Product/Service which is sold/ rendered by a Company or an Area in
which company operates its Business. There is no specific definition on
Business Segment (Product/Service) or Geographical Segment (Areas)
in Ind AS 108 as it is given in AS-17. Under Ind AS 108, A segment may be
an operating segment if the following 3 conditions are satisfied:-

Condition I: It should have capacity to generate Revenues.

Yes
Condition II: It should be reviewed by CODM*
Yes
Condition III: We have Financial Information (Sales, Expenses, Assets,
Liab etc) to Present for Segment
Yes
OPERATING SEGMENT

*CODM (Chief operating Decision Maker):

As per the Provisions of Ind AS 108, CODM may be a Person or Team of

Directors. If any Segment is to be identified as an Operating Segment
then It should be in the CODM Report for Decision Making. It can also
be said that Segment Report is prepared from Management Eyes.

Explanation on Non Profit Segments in CODM Report

(i.e; Headquarter Building, R&D Decisions etc.)

If any Segment is not related to Revenues Generation then we should

not include such segment in Operating Segments.
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Concept 2: Aggregation of Segments

If any Entity wants to Aggregate some Similar Segments to Report as

a Single Segment then we should consider the following factors before
Aggregating different segments:-
(a) Production Process should be same or
(b) Class of Customers should be same or
(c) Method to Distribute the services should be same or
(d) Regulatory Environment should be same.

Concept 3: Reportable Segments

As per the provisions, All the identified segments are not to be

Reported. We will report only those segments that would satisfy at
least one condition out of following specified conditions:-

Condition I: If Segment Revenue (Internal or External) is 10% or more

of total segment revenue.

Example:
Segments A B C D E Total
Revenues:
External 10,000 20,000 60,000 1,20,000 5,000 2,15,000
Internal - - 25,000 10,000 - 35,000
Total 10,000 20,000 85,000 1,30,000 5,000 2,50,000

% of Rev. 4% 8% 34% 52% 2% 100%

Status UR UR R R UR

Solution: C & D are Reportable on the basis of Revenues

OR

Condition II: If Segment Assets are 10% or more of total Segment

Assets

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Example:
Segments A B C D E Total
Assets 200,000 10,00,000 500,000 100,000 100,000 19,00,000

% of Seg. 10.52% 52.6% 26.32% 5.26% 5.26% 100%

Assets
Status R R R R UR

OR

Condition III: If Segment Results is 10% or more of total Segment

Results
(Total Result = Profit or Loss whichever is higher)

Example:
Segments A B C D E Total
Results 10,000 10,000 1,000 (20,000) (25,000) (24,000)

Segment =21000 Segment =(45000)

In profit In loss

Whichever is higher = 45,000

% of Result 22.22% 22.22% 2.22% 44.44% 55.55%
Status R R R R R

Additional Conditions to be considered:-

1. If any Segment becomes Unreportable in Current year, but it was

reportable in Previous year then we will include such segment in
Current year report for comparison purpose even if It is Un-
Reportable.

2. If any Segment becomes Reportable in Current Year, but It was

Unreportable in Previous year then we should revise Previous year
segment report by including such segment for comparison purpose.
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3. As per the provisions of Ind AS 108, Reportable Segment should cover

75% or more of Total External Sales in Segment Report otherwise
Additional Segments should be included in Segment Report. It can also
be said that Un-Reportable Segments will become Reportable to cover
75% sales. ([Link])

4. As per the Provisions of Ind AS 108, Any segment can be included in

Segment Report upon Management choice but up to Practical Limit.

Q.1
Solution:
In the given case, 3 segments (H, I & J) are reportable on the basis of
Quantative limits of 10%, but these segments are not covering 75% of
Total External Sales. The Total Revenue which is covered by these 3
segments is 65%. So we need to disclose more Segments to maintain
minimum disclosures of 75%. It will be choice of Management to report
segment out of A,B,C,D,E,F,G.

Q.2
Solution:
Statement showing Reportable Segments

Segment A B C D E Total

Seg Revenue 150 200 200 50 300 900

% of Rev. 16.67% 22.22% 22.22% 5.56% 33.33%

Status R R R UR R
OR
Results 50 (70) 80 10 (25) 45
Total Profits = 50+80+10 = 140 Whichever is Higher = 140
Total Loss = (70)+(25) = (95)

% of Result 35.71% 50% 57.14% 7.14% 17.86%

Status R R R UR R
OR
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Assets 40 65 140 20 35 300

% of Asset 13.33% 21.67% 46.67% 6.67% 11.67%
Status R R R UR R

Verification of Sales:-
(i) Required Reportable Sales (900 x 75%) 675
(ii) Sales covered by Reportable Segments:-
A 150
B 200
C 200
E 300 850

(No Additional Segment is required to be Reported)

Therefore, A, B, C & E are Reportable Segments

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*Part 2*

Q.4
Solution:
Statement Showing Reportable Segments
Segment A B C D E F G H Total
Revenue:
External - 510 30 20 30 100 40 70 800
Internal 200 120 60 10 - - 10 - 400
Total 200 630 90 30 30 100 50 70 1200

% of Rev. 16.67% 52.5% 7.5% 2.5% 2.5% 8.33% 4.17% 5.83%

Status R R UR UR UR UR UR UR
OR
Segment
Assets 45 141 15 33 9 15 15 27 300
% of As. 15% 47% 5% 11% 3% 5% 5% 9%
Status R R UR R UR UR UR UR
OR
Segment
Results:
Profits 10 - 30 - 16 - 10 14 80
Loss - (180) - (10) - (10) - - (200)
Whichever is higher = (200)
% of
Result 5% 90% 15% 5% 8% 5% 5% 7%
Status R R R R UR UR UR UR

(i) Reportable Segments = A,B,C,D

(ii) Segment E was a reportable segment in Previous year due to which
It should be included in Current Year report for Comparison
purpose.
(iii) Segment D is newly added in Current Year Report & It was not
included in Previous year report. So we need to restate previous
year segment report by including D for Comparison Purpose.

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(iv) Verification of 75% of External Sales:-

75% of External Sales (800 x 75%) 600
Reportable Segments:
A Nil
B 510
C 30
D 20
E 30 590

*Reported Segments are not covering 75% of Total External Sales. So,
we need to identify Additional Segments to cover minimum disclosure of
External Sales.

Q.5
Solution:
Statement Showing Reportable Segments
Segment A B C D E F Total

Revenue 150 310 40 30 40 30 600

% of Rev. 25% 51.67% 6.67% 5% 6.67% 5%

Status R R UR UR UR UR
OR
Results:
Profit 25 - 5 5 - 15 50
Loss - (95) - - (5) - (100)
%of Res. 25% 95% 5% 5% 5% 15%

Status R R UR UR UR R
OR
Assets: 20 40 15 10 10 5 100
%of 20% 40% 15% 10% 10% 5% 100
Assets
Status R R R R R R

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Comments:
In the given case, Finance Director is not right because All Segments
are reportable segments.

Concept 4: Treatment of Un-Reportable Segments

All the Unreportable Segments can be disclosed in Segment Report in

Total under the heading of “OTHERS”. It can also be said that we can
Aggregate all Unreportable Segments under the heading of others.

Concept 5: Disclosures in Segment Report ([Link])

As per the provisions of Ind AS 108, the following 3 contents should be

included in Segment Report:

I. General Information
II. Measurement of Segment Information
III. Reconciliation of Segment Information with Entity’s Information

I. General Information
i) The Management has to explain basis to organise its different
products or service.
ii) The Management has to explain basis to Aggregate the similar
products or services.
iii) Name of all different products/ services.
iv) Name of all different Areas.

II. Measurement of Segment Information

i) Measurement: We will not measure the required segment information

separately, but we will use same measurement as done
in “CODM” Report.

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ii) Required Segment Information: 1) Segment Revenue External

Internal
2) Segment Result
3) Segment Assets
4) Segment Liab.
5) Other Material Items

Explanation on Other Material Items: (Segment Wise)

a) Interest Income
b) Interest Expenses
c) Net Interest Revenue (a-b)
d) Depreciation & Amortisation Expenses
e) Other Non-Cash Expenses i.e; Impairment Loss etc.
f) Capital Expenditure on Assets during the year

III. Reconciliation

Segment Information Entity Information

+/- Adjustments

As per the Provisions of Ind AS 108, Segment Information should be

reconciled with Entity Information with regard to Results, Assets,
Liab.

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Q.6
Solution:
Segment Report for Kristen Ltd.
Particular Alpha Beta Inter Seg. Total
A. Revenues:
External 27,050 3,280 - 30,330
Internal 50 - 50 -
Total 27,100 3,280 50 30,330

B. Results:
Profit/(Loss) 4,640 (197) - 4,443
Dividend Inc. - - - 285
Interest Exp - - - (35)
Tax - - - (1,675)
Entity Profit - - - 3,018

C. Assets:
Segment Assets 19,450 2,700 - 22,150
Un-allocated - - - 6,550
Assets
Entity Assets - - - 28,700

D. Liabilities:
Segment Liab. 3,430 770 - 4,200
Un-allocated
Liab. - - - 2,200
- - - 6,400

E. Material
Items:
i) Depreciation 110 15 - 125
ii) Non Cash Exp 114 16 - 130
iii) Cap. Exp. 1,300 16 - 1,316

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Q.7
Solution:
Segment Report for V Ltd.
Particular A B C Inter Total
Segment
A. Revenues
External:
Local 60 - - - 60
Export 4,090 200 180 - 4,470
Internal 3,050 30 - 3,080 -
Total 7,200 230 180 3,080 4,530

B. Results
PBT 160 20 (8) - 172
H.O. Exp. - - - - (96)
Entity Profit - - - - 76

C. Assets
N.C. Assets 200 40 120 - 360
C. Assets 120 40 90 - 250
320 80 210 - 610
H.O. Assets: NCA - - - - 50
CA - - - - 48
Entity Assets - - - - 708

D. Liabilities
Segment 20 10 120 - 150
H.O. Liab - - - - 38
Entity Liab. - - - - 188

E. Material
Items:
Int. Exp. 4 5 1 - 10
Total 4 5 1 - 10

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Geographical Report:
USA (4090+180) 4270 (External)
Europe 200 (Internal)
India [(3080+4530)- 4270-200] 3140 (External + Internal)

Q.8,10,11,12,13 Homework

Solution: Q.9 (Imp)

Segment Report
Particular Food Plastic Health Others Inter Total
Segment
A. Revenue
External * 5595 553 324 155 - 6627
Internal 55 72 21 7 155 -
Total 5650 625 345 162 (155) 6627

Segment
Expenses 3335 425 222 200 (122) 4060
(155-33)
Segment
Results 2315 200 123 (38) (33) 2567

B. Results:
Segment 2315 200 123 (38) (33) 2567
General
Corp. Exp - - - - - (562)
Int. Exp - - - - - (65)
Int. Inc - - - - - 132
Entity
Profits - - - - - 2072

C. Assets
Segment 7320 1320 1050 665 - 10355
Corporate - - - - - 722
Entity - - - - - 11077
Assets
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Q.14
Solution:
Segment Report for X Ltd.
Particular Coating Others Inter Total
Segment
A. Revenues:
External 200,000 70,000 - 270,000
GST (5,000) (3,000) - (8,000)
Net Sales 195,000 67,000 - 262,000
Direct Inc. 40,000 15,000 - 55,000
Total 235,000 82,000 - 317,000

B. Results:
Segment 10,000 4,000 - 14,000
Unallocated Inc. - - - 3,000
Interest Exp. - - - (2,000)
Tax - - - (2,000)
Entity Profit - - - 13,000

C. Assets
Segment 50,000 30,000 - 80,000
Corporate
Assets:
Investments - - - 10,000
Unallocated - - - 10,000
Entity Assets - - - 1,00,000

D. Liabilities
Segment 30,000 10,000 - 40,000
Unallocable - - - 20,000
Entity Liab. - - - 60,000

E. Material
Items:
1) Depreciation 1,000 300 - 1,300
2) Cap. Exp. 5,000 2,000 - 7,000
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Geographical Report:-
I. Revenue: India 287,000 (317,000-30,000)
Foreign 30,000
317,000

II. Assets: India 70,000 (80,000-10,000)

Foreign 10,000
80,000

*Part 3*

Common Doubts Session

*Part 4*

Solution of Q.2

i. Calculation of Basis of Reportable Segment

(Profit or Loss whichever is Higher)

Profits = (A+B+E) = (780 + 1500 + 6000) = 8280

Losses = (C + D) = (2300 + 4500) = 6800
Whichever is higher = 8280

Statement showing Reportable Segments

Segment Result % on 8280

A. 780 9.42% Unreportable
B. 1500 18.11% Reportable
C. (2300) 27.78% Reportable
D. (4500) 54.34% Reportable
E. 6000 72.46% Reportable

(All Segments are Reportable Except A because its Revenue share is

below 10%)

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Solution of Q.7

As per the Provisions of Ind AS 108, Reportable segment should

satisfy 10% Limits either of Revenue, Assets or Profit/Loss. In the
Given case, segment share is not for more than 5% due to which all
segments should be considered as un-reportable.
As per Additional requirements, Reportable segments should cover
at least 75% of External sales in segment Report. On the basis of this
requirement, 15 segment (At least) should be reported covering 75% of
External Sales in Report because Each Segment has 5% share in External
Revenue.

Solution of Q.5

As per the Provisions of Ind AS 108, Geographical segments are

based on currency Risk, Political Boundaries, Economic Environment etc.
In the Given case, currency is same in france, Italy & Germany because
all these countries fall in same European Region. So, these places can be
Aggregated in Geographical report, but currency Risk &Political
Boundaries are different in UK & India from others. So, we cannot
Aggregate Uk & India with European Regions.
On the basis of Given Explanation, we can said that Europe, UK &
India should be reported Separately.

Solution of Q.6 *Imp

i. Aggregation of Segment 1 & 2 :-

As per the Provisions of Ind AS 108, Business Segments are identified
as Separate segments if we can identify the following factors :-
a) Nature of Products/ Services
b) Nature of Production/ Services Process
c) Class of Customers
d) Method of Distribution
e) Regulatory Environment

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On the basis of above factors, we cannot Aggregate Segment 1 &

Segment 2 because Both segments are different from the Point of view
of class of customers & Regulatory Environment.
In Segment 1, Prices are controlled by Local Authority, but in
segment 2, Prices are decided by company itself according to class of
Services. It clearly indicates that Risks & Reward are Separate for Both
Segments due to which Both should be reported Separately.

ii. The disclosure of Segment Report is very Beneficial for User of

statements Because this report helps users in making their
decisions regarding Investments in company based on Performance
of various Products and in various Areas.

Solution of Q.1

As per the Provisions of Ind AS 108, Operating Segment Report should

Be prepared in Line CODM Report. If FIFO is applied for stock valuation
in CODM then we will also Apply FIFO in Segment Report.

Solution of Q.3

As per the Provisions of Ind AS 108, A segment can be classified as an

operating Segment if 3 condition are satisfied as follows :-

I. It has Revenue Generating capacity (yes)

+
II. It is Reviewed by CODM (yes)
+
III. Its financial information can be Prepared (yes)

In the Given case, CODM is analysing Revenues of segments which is

Enough for Identification of segments because all these conditions are
satisfied.

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Solution of Q.4

CODM will use financial matrix for identifying segments.

Solution of Q.8 (Discussed in class)

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-15 : Ind AS-24 Related Party Disclosures

([Link])
*Part 1*

Concept 1: Important Definitions

(a) Meaning of Holding Co. (Parent): If any Entity controls the other
entity then the Controlling Enterprise is known as Holding Co.

(b) Meaning of Subsidiary Co.: If any Entity is controlled by other

Entity then such an Entity is known as Subsidiary Co.

(c) Meaning of Fellow Subsidiary Co.: If any Entity is under Common

Control with other Entity of same parent company then Subsidiary Co.
is to be recognised as fellow subsidiary to other Subsidiary.
[Subsidiaries under Common Control are fellow subsidiaries to each
other]

(d) Meaning of Control: Control means Power to govern the decisions of

other entity.
[General Sense : Share in more than 50% of voting power of other
Entity]

(e) Meaning of Significant Influence: S.I means power to participate in

Decision Making of other Enterprise.
[Share in 20% or more but upto 50% in voting power]

(f) Meaning of Associate Co.: If an Entity enjoys Significant Influence

over other Entity then It will be considered that the other Entity is
an Associate of the Investor Party.

(g) Meaning of Joint Venture: J.V is an Economic Activity which is

undertaken by 2 or more enterprises subject to Joint Control.

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(h) Meaning of Key Management: A person who is exercising 3 powers at

any level in Company i.e.; Planning, Directing & Controlling. It means
that Designation of a person is not important, but exercise of powers
is Important. A Non-Executive Director can also be considered as a Key
Management only if he is enjoying the specified 3 powers.
[Normally Directors, chairman, managers, CEO etc. are considered as Key
Management]

(i) Meaning of “Close Members to Family of a person”:-

i) Spouse
ii) Person Children
iii) Brother, Sister(person)
iv) Father, Mother(person)
v) Domestic Partner
vi) Domestic Partner Children
vii) Person Dependants
viii) Spouse Dependants
ix) Domestic Partner Dependants

Concept 2: Identification of Related Parties

As per the Provisions of Ind AS-24, Related Party of an Enterprise may

be a person or an Entity. The following explanation may be relevant:

Unit I: If Related Party is a “Person”

Case I: If a person controls Reporting Enterprise

Result: The Controlling Person & his family shall be reported as “Related
Party of R.E.”

Example:
Mr. Ram X Ltd.
56% Voting Power
Solution- Ram is a Related Party for X Ltd including his family.

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Case II: If a Person is enjoying significant influence over

Reporting Enterprise

Result: The Investor & his family shall be reported as Related Party of
R.E

Example:
Mr. Jindal X Ltd.
40% Voting Power
Solution- Mr. Jindal & his family are related parties for X Ltd.

Case III: If Reporting Enterprise is a Joint Venture of a Person

Result: The venturer & his family shall be reported as Related Parties
for J.V.

Example:
Mr. A (Person) Mr. B (person)

C Ltd: R.E
(Joint Venture)
Solution-
1) Mr. A & Mr. B with their families are related parties of C Ltd. because
C Ltd. is a Joint Venture of A & B.
2) There will be no Relationship between Co-Venturers (A & B).

Case IV: If any person is a Key Management in a Company

Result: All the Persons in Key Management & their families shall be
reported as Related parties for R.E.

Case V: If any person is a Key Management in Parent Company of R.E

Result: Key Management in Parent Co. & his family will be considered as
Related Party for Subsidiary Co.

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Example:
KMP
Mr. Ram X Ltd. (Parent)
(K.M)
60%
Y Ltd. (Subsidiary)
R.E
Solution-
Mr. Ram will be a Related Party for Y Ltd. including his family.

Case VI: *([Link])

(a) If a person enjoys control in one enterprise, but he/she enjoys

Significant Influence in other Enterprise then the Enterprises in
which such person is common shall also be Related Parties to each other

Example:
Mr. X
60% 40%
X Ltd. Y Ltd.
Solution-
In this case, Both Companies are related parties to each other along
with Mr. X.

(b) If a person is controlling 2 companies at one time then Common

Companies shall be considered as Related Parties to each other.

Example:
Mr. Ram
70% 60%
X Ltd. Y Ltd.
Solution-
X Ltd. & Y Ltd. (both) are related parties to each other along with Mr.
Ram.

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(c) If a person enjoys control in one company but he is a KMP in other

company then common enterprises will be considered as Related Parties
to each other.

Example:
Mr. Ram
60% KMP
X Ltd. Y Ltd.

Solution-
X Ltd. & Y Ltd. (both) are related parties to each other along with Mr.
Ram.

Important Note: We can consider Common Companies as Related Parties

only if Person is enjoying control in at least one company.

Example:
Mr. Ram Mr. Ram
KMP KMP KMP 40%

X Ltd. Y Ltd. X Ltd. Y Ltd.

No Relationship No Relationship

Mr. Ram
40% 45%

X Ltd. Y Ltd.

No Relationship

Solution:
(i) Ram is a Related Party for X & Y in all cases.
(ii) X & Y are not Related Parties to each other in all cases.
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Example:
Family
Mr. X Mrs. X
60% KMP

X Ltd. Y Ltd.

Solution:
X is enjoying control in X Ltd but his wife is a KMP in Y Ltd. So, X Ltd &
Y Ltd. should be considered as Related Party to each other.

*Part 2*

Unit II: Related Parties in the form of “Entity”

(a) All the companies in the “Same Group*” are to be considered as

Related Parties to each other.

*Same Group means Group of Holding & Subsidiary (whether Direct or

Indirect)

Example:
A Ltd.
60% = A Ltd. & B Ltd. are Related Parties to each
Other because Both are in same group.
B Ltd.

Example:
A Ltd.
60%
B Ltd. = A Ltd., B Ltd. & C Ltd. are Related Parties to
70% each Other because all the companies are in
C Ltd. same group.

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Example:
A Ltd.
70% 80%
B Ltd. C Ltd.
90% 100%
D Ltd. E Ltd.

All the companies are related to each other because all are in same group.

(b) If an Entity has an associate or Joint Venture then they will be

considered as Related parties.

Example:
X Ltd.
40% = Both are Related Parties to each other
Y Ltd.

Example:
X Ltd. Y Ltd.

J.V : Z Ltd.

 Z Ltd. is a Related Party to X Ltd. & Y Ltd.

 X Ltd. & Y Ltd. are not Related Parties because they are Co-
venturers.

(c) If a Member in Same Group has an Associate or J.V then all entities
shall be considered as Related Parties for such an Associate or J.V.
(V.V. Imp)

Example:
X Ltd.
80% 90%
Y Ltd. Z Ltd.
40%
A Ltd.
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A Ltd. is an Associate of Y Ltd. which is a member of Same Group of X, Y &

Z due to which it will be a Related Party of all members in same group.
A Ltd. is a Related for X Ltd., Y Ltd. & Z Ltd.

Example:
X Ltd.
80% 70%

Y Ltd. Z Ltd.
60% 59%
A Ltd. B Ltd.
35% 38%
L Ltd. M Ltd.

 Members in Same Group = X Ltd., Y Ltd., Z Ltd., A Ltd. & B Ltd.

 L Ltd. is an Associate of A Ltd. which is a Member of Same group. So, it
will be a Related for all members in Group.
 M Ltd. is an Associate of B Ltd. which is a member of Same Group. So,
It will also be related party to all members in Group.
 There will be no Relationship between L Ltd & M Ltd. because these
Companies are Co-Associates, but not a member in Same Group.

(d) If an Entity is common in Two Joint Ventures then the Joint

Ventures will be a Related Party in which such Entity is Common.

Example:
Common Entity
X Ltd. Y Ltd. X Ltd. A Ltd.

J.V: Z Ltd. J.V: B Ltd.

Solution:
X Ltd. is a Common Entity in Z Ltd. & B Ltd. due to which Z Ltd. & B Ltd.
are related Parties to each other.

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1) X Ltd = Z Ltd; B Ltd.

2) Y Ltd = Z Ltd.
3) Z Ltd = X, Y, B Ltd.
4) A Ltd = B Ltd.
5) B Ltd = X, A, Z Ltd.

(e) If an Entity has an Associate & a Joint Venture then Associate &
Joint Venture shall be related parties to each other.

Example:
X Ltd.

Y Ltd Z Ltd.
(Associate) (Joint Venture)

 Y Ltd. & Z Ltd. both are Related Parties to each other.

Q.1
Solution:
P Ltd.

SA SB A1 A2

SC

A3

Comments: i) Companies P Ltd., SA Ltd., SB Ltd. & SC Ltd. are related

parties to each other because these companies are
working in the same group.
ii) Companies A1, A2 & A3 are related parties of all members in
the same group [i.e; P, SA, SB, SC]
iii) Companies A1, A2 & A3 are not related parties to each other
because these companies are Co-Associates.

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Q.6
Solution:
A Ltd.

B [Joint Venture] C [JV/Associate]

Comments: i) If C Ltd. is a Reporting Entity then A Ltd. & B Ltd. (Both)

are Related Parties
ii) If B Ltd. is Reporting Entity then A Ltd. & C Ltd. (Both)
will be recognised as Related Parties.

Q.3 (Imp)
Solution:

(a) Control: Mr. X

A Ltd. B Ltd.
If Mr. X is having controlling Interest:-
A Ltd = Mr. X & B Ltd
B Ltd = Mr. X & A Ltd.

(b) Significant Influence: Mr. X

A Ltd. B Ltd.
(SI) (SI)
If Mr. X is having Significant Influence over A Ltd. & B Ltd.:-
A Ltd = Mr. X
B Ltd = Mr. X
[Co- Associates are not Related Parties]

Q.2 (Imp)
Solution:
Mr. X 100% B Ltd.

A Ltd. C Ltd.
(100%) (KMP)
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Case I: C Ltd is a Related Party of A Ltd. because Mr. X is common in

these 2 Companies.

Mr. X
C Ltd.(100%)

A Ltd. B Ltd.
(100%) (KMP)

Case II: KMP of Holding Co. is considered as Related Party for

Subsidiary Co. due to which Mr. X is still a common person
between C Ltd. & A Ltd. So, C Ltd. & A Ltd. are still Related
Parties.

Case III: It will not effect our Relationship as we have specified in

Case I & Case II because Mr. X is still having control on A Ltd.

Case IV: Yes, there will be no relationship between A Ltd. & C Ltd.
because Mr. X is not having control in any of Entity.

*Part 3*

Unit III: Special Type of Relationship

(a) If an Entity provides Key Management services to other Entity

Example:
X Ltd. Y Ltd.
X provides KMP to Y Ltd.
Solution:
X Ltd. & Y Ltd. (both) are Related Parties to each other.

(b) If an Entity provides Key Management Services to a Member of

Same Group then all Entities in same Group shall be considered Related
Parties of that Entity.

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Example:
X Ltd. Y Ltd.
X provides KMP to
60% 70%
A Ltd. B Ltd.
90% 100%
L Ltd. M Ltd.
Solution:
X Ltd. is a Related Party to Y Ltd., A Ltd., B Ltd., L Ltd, M Ltd.

(c) If an Entity established other Entity for Post-Employment

benefits of its Employees then such an entity will also be considered as
a Related Party.

Example:
X Ltd.
Related Parties
Established a Trust
(for employees retirement benefits)

Concept 3: Parties that are not “Related Parties”

The following Entities are not Related Parties even though these
Entities may have influence over the Enterprise:-
(i) Trade Unions
(ii) A Single Customer, Supplier, Franchise or Distributors etc.
(iii) Government Companies
(iv) Co- Venturers
(v) Co- Associates
(vi) Entities having Common KMP etc.

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Concept 4: Nature of Related Party Transactions

As per the Provisions of Ind AS-24, Related Party transaction is a

Transaction whereby Resources are transferred by one entity to other
Entity whether Price is charged or not. The following Transactions can
be taken as Related Party Transaction:-
i) Sale of Goods
ii) Purchase of Goods
iii) Rendering/Receiving of services
iv) Lease Agreements
v) Loan Arrangements
vi) HP Contracts etc.

Note: As per the Provisions, Payment of Remuneration to KMP should

also be considered as Related Party Transaction.

Concept 5: Related Party Disclosures ([Link])

As per the Provisions of Ind AS-24, the following 2 cases shall be

relevant:-

Case I: If Relationship is based on Control then we must prepare

Related Party Disclosure Report whether Transaction between
Related Parties has taken place or not.
[It can also be said that Transaction is not necessary between
Holding & Subsidiary for this Report]

Case II: If Relationship is not based on Control then there must be

some transaction between Reporting Entity & Related Party
otherwise this Report will not be prepared.

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Disclosures

If Control exists in If control does not exist in

Relationship Relationship

Transaction between Holding There should be some

& Subsidiary is not must Transaction otherwise they
will not be reported in report

Content of Report

a) Name of Related Party

b) Nature Relationship
c) Nature of Transaction
d) Volume of Transaction (Rs.)
e) Bad Debts (written off)
f) Provision for Doubtful debts
g) Outstanding Balance with Related Parties
h) Guarantees given on behalf of Related Parties
i) Payment of Remuneration to KMP:-
a) Short Term Benefits
b) Post Retirement Benefits
c) Termination Benefits
d) Share based Payments

Important Note:

As per the provisions of Ind AS-24, Related Parties are to be reported

in Disclosures even if they were in Relationship with Reporting
Enterprises for one day during the Current Year. It means that
Related Part Relationships are identified during the year

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Q.5
Solution:
In the given case, Power Ltd should consider transmission Limited as
Related Party for the period between 15.7 – 21.3. All the transactions
between these companies during 15.7-21.3 shall be considered as Related
Party Transactions.

Q.4
Solution:
As per the Provisions, Government Company cannot be considered as a
Related Party due to which all entities in the same group (i.e; I, II, A, B,
C & D) are exempted from disclosures related with Government
Company. All the transactions with Govt. Companies are also exempted
from Reporting. But disclosures related with KMP shall be made.

*Part 4*

Test Your Knowledge-ICAI

Question 1:
Solution:
1. Relationship required from the point of view of A Ltd. to establish
related party Relationship:

a)Mr X: If Mr. X exercises control, Joint Control or significant

influence then He & His Relatives can be Considered as related
Parties.
b)B Ltd. : IF Mr. X Controls A Ltd. & Ms. Y Control or exercises
significant Influence over B Ltd. then A Ltd. & B Ltd. shall be
related parties.
Mr. X (+) Ms. Y

Control : A Ltd Control : S.I. B Ltd

Related

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2. Relationship from the point of view of B Ltd.

i. Mr. Y: IF Ms. Y exercises control, joint control or significant

influence Over B Ltd. then she and her relatives shall be
considered as Related Parties.

ii. A ltd : If Ms. Y controls B Ltd. & Mr. X has control or S.I. in A Ltd
then A Ltd & B Ltd (both) shall be related parties.

3. In the Given case, there will be no relationship between A Ltd. & B Ltd
because Mr X & Ms Y (Both) have significant influence in both
Companies. At least one Investment should be controlling interest
for common entities relationships.

Mr. X Ms. Y
S.I. S.I.
A Ltd B Ltd

No Relationship between A & B

Question 2:
Solution

1. Relationship from C Point of View

i. A Ltd : C is Joint venture of A
ii. B Ltd : C is under common Joint control with B of A

2. Relationship from B Point of view:

Homework:

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Question 3:
Solution

In the Given case, Relationship between XYZ & ABC Ltd. get started
w.e.f. 01.06.20X1. On the specified date, director of XYZ acquires
controlling interest in ABC through his wife. So both companies can be
considered as common Related Parties. The company XYZ sold Goods
worth Rs. 60 Lakhs after starting Relationship with ABC, but it also sold
Goods of Rs.8 L prior to such Relationship in the current year. It means
that total sales which took place between ABC & XYZ in current year is
68L. The following disclosures are required in the report:-
i. Sales of Rs.60 lacs only is required to be reported which took place
during Relationship period.
ii. O/S Balance of Rs. 18 Lacs should also be disclosed which is still to be
recovered from Related party.

Question 4:
Solution
Yes, the Remuneration which has been paid by company to Mr. Atul & Mr.
Naveen during the year should be disclosed as a Related party
Transaction for the purposes of Related Party disclosure because these
persons are KMP for the company. So Rs. 17,50,000 (5*2 L +1.5L*5) should
be disclosed in report.
As per the provision of Ind-AS 24 designation of employees is not
important but their exercise of powers is important. Both are playing
vital Role in Management due to which we will not consider their
Designation.

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*Part 5*

Query Solving
Question -8
Solution:
As per the Provisions of Ind-As 24, Karuna Ltd. will be considered as a
related party of Arun Ltd. because Related Parties of any member in
same Group are to be assumed as Related party of all Members in same
Group. In the Given case, Chandru is an Associate of Karuna due to
which both are related parties. So karuna will also be assumed a Related
party for Arun & Bhasker who are in same group with Chandru.

Conclusion: Transaction with Arun & Karuna shall be disclosed in Related

party Report.

*Part 6*

Solution of Q.1

As per the Provisions of Ind AS-24, related Party Relationships and

Transactions should be reported in Related Party Disclosures. If any
Transaction has Taken place between Related Parties then Its
disclosure is mandatory whether price is charged or not. It is also
immaterial that Transaction size is significant or Insignificant.
In the Given case, Mr.Y is a KMP in ABC and he is controlling PQR
due to 100% Holdings. It indicates that Mr. Y is common between ABC &
PQR Limited. So, these Companies should be considered as Related
parties. Further, one company is purchasing Goods from other company.
It also indicates that Related party Transaction has taken place.
On the basis of Given Explanation as in above, It can be said that
Transaction (Purchase) shall be reported in Related Party Disclosure
even if full Price is charged and volume of transaction is insignificant.

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Solution of Q.2

i. As per the Provisions of Ind AS-24, Govt companies Transactions

are Exempted from Reporting in Related Party Disclosures. So,
Exemption is available for all company because all companies are
controlled by UP Govt.
(All companies i.e. PQR, ABC, P, Q, A, B)
But Transactions with KMP will be reported.
ii. The following disclosures are still required even if exemption from
reporting is available :-
A. Name & Relation with Govt.
B. Nature & Amount of transaction

Solution of Q.3

As per the Provisions of Ind AS 24, Related Party Transactions, which

have taken Place between Related Parties, shall be reported even if full
Price has been charged or Transaction size is insignificant.
In the Given case, S ltd is a subsidiary of P Ltd which indicates that
Both are Related parties. Further, S ltd is Supplying Electricity to its
Holding at Normal price. It indicates that Related Party Transaction
has taken place.
So, sale of Electricity by S to P should be reported in Related party
Disclosures.

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter-16 : Ind AS 33 : Earning Per Share

*Part 1*

Unit I : Objective of Ind AS 33

There are two main objectives for which Ind AS 33 has been formulated
which Are as follows :-
I. The Disclosure of EPS may help the investor to compare the
performance of 2 Entities in same Industry
(i.e., Ultratech vs Aditya Birla in Cements, Airtel vs Jio vs Idea in
Telecom etc.)
II. The disclosure of EPS may also help An Investor to compare of An
Entity With itself over a Period. It means that we can compare
Entity Performance in Current year with Previous Year
Performances

Note : It can be said that Ind AS on EPS has been formulated for
betterment of Investment decision which are taken by an
investor on the basis of operating Results of an Entity.

Unit II : Types of EPS & other Issues *Imp

As per the Provisions of Ind AS 33, Calculation of EPS can be made

under 2Headings as follows :-
I. Basic EPS
II. Diluted EPS

Additional Points :-

 As per the Provisions, Calculation & Presentation of EPS will be made

even if Company has “Negative Earnings” or “NIL Earnings” because
main objective of the Statement is to provide comparison of
Performance of the Entity between 2 Financial years.

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 The calculation & Presentation of Both EPS (Basic & Diluted) is

Equally Prominent. It means that we cannot Present EPS on
Selective Basis.
 The calculation & Presentation of EPS will be made for Stand alone
financial Statements & consolidated financial Statements
“Separately”. (*Imp)

Unit III : Explanation on Basic EPS

Basic EPS = Earning Available for Equity Shareholders (EAE)

Weighted Avg. No. of Shares (WANS)

Concept 1 : EAE

EAE = Incomes – Expenses – Tax Exp. – Adjustments relating to Pref.

Share capital
 OCI Part is not considerable for EPS

Explanation on Pref. Share Capital

Adjustment 1 : Cumulative/ Non-cumulative Dividends on PSC

Pref. Share Capital

Case I : Redeemable Pref. Case II : Irredeemable PSC

Share Capital

There will be no discussion on As per Section 55 of co. Act 2013,

it regarding Dividends because This Kind of PSC cannot be issued
It is considered as a Financial in India, But Discussions have
Liability under Ind AS 109. been made in Ind AS 33 due to
which we will have to learn its all
We would have calculated finance Aspects. *Refer the following
cost on it at IRR/ Market Rate Discussions on Dividends Which
and such finance cost Would is relating to it
have already been included in

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Expenses. (So, There will be No

Adjustments in Net Profits
regarding Dividend on PSC)

 Explanation on Adjustment of Pref. Dividend :-

Pref. Dividend

If PSC is cumulative in Nature If PSC is Non-Cumulative in Nature

Consider Dividend on *Accrual Consider it only if it is declared in

Basis whether it is declared or Current year & *Paid in current
not by the Entity. year

 Additional Points :-
1. In case of Cumulative Irredeemable PSC, Dividend on PSC will be
deducted out of Net Profits on Accurual Basis irrespective of Level
of Income (NP may +, - or 0, But cumulative Dividend will be
considered on Per Annum Basis)
Comments : It means that Previous year’ Dividend cannot be deducted
out of current Year’ Profits.

2. In Case of Non-cumulative PSC, Pref. Dividend will be deducted only

if It is declared & Paid in current year. It means that It will be
considered on cash Basis
Comments: As we know, Dividend is declared in AGM & AGM in current
year is held for Previous year. It means that Non-
Cumulative dividend for Previous Financial year will be
declared & Paid in current Year. While computing EAE C.Y, we
will deduct Non- Cumulative dividend which is paid in C.Y, but
related With Previous year because It would not have been
deducted in Previous Year Reporting.

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Example : Find mistakes in following Presentation

Net Profits (2020-21) Current Year xxxx

Pref. Dividend : Non-Cumulative (20-21) (xxxx)
Cumulative (20-21) (xxxx)
EAE xxxx

Solution :

1. Treatment of Cumulative dividend is correct because It has been

taken on Accrual Basis.
2. Treatment of Non-cumulative dividend is incorrect because It
cannot be Considered on Accrual Basis. We should have considered
Actually paid Dividend for 19-20 in 20-21. We cannot consider 20-21
dividend in 20-21.

Example: Net Profits (20-21) xxxx

Dividend : Cumulative (19-20) xxxx
Non-cumulative (19-20) xxxx
 Company Could not Provide Cumulative dividend due to Losses

Solution :

Treatment of Cumulative dividend is incorrect because it would have

been deducted in Previous year on Accrual Basis.

Assumptions on PSC

1. If Nature of PSC is not mentioned :

Always Assume it Redeemable
(No Dividend concept will be discussed in Questions)

2. If Nature of Irredeemable PSC is not mentioned :

Always Assume it as cumulative PSC

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*Part 2*

Adjustment 2 : Premium/ Loss on Early Redemption of PSC

(Concept related with Redeemable PSC)

As per the Provisions of Ind AS 33, Loss on Early Redemption (if any)
of PSC Will be adjusted while computing EAE for EPS Purpose. It may be
Possible that such Loss has been written off from securities Premium
or from other Reserves as per Law, but for EPS Purpose, It will be
routed through P&L A/c. It means that there will Be no change in
Accounting Books, but It will be considered for disclosures Purpose.

Loss on Early Redemption = Consideration Paid for – Carrying Amount

Redemption of PSC of PSC in Books
as per Amortisation
Method (Ind AS 109)
Adjustment 3 : Loss on *Early Converstion

As per the Provisions of Ind AS 33, Loss on Early conversion of PSC

shall also be Routed through P&L A/c for the purpose of calculation of
EPS.

Loss on Early conversion = Fair value of shares at the – fair value of

Time of Early conversion Shares as
Promised

Adjustment 4 : Increase/ Decrease in Rate of Dividend of PSC*[Link]

It may be Possible that Pref. Share capital is issued at Discount or

Premium. If Pref. Share capital is issued at Discount then It will be a
Loss for Entity, but in Vice versa situation (premium), It will be a
Loss for Shareholders. Sometimes Entity Pays Low Dividend or No
Dividend in Initial Year to compensate itself for Loss due to
Discounts or Entity Pays Dividends at higher Rate for some time to
compensate Pref. holders for Payment of Premiums.

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In case the Entity has followed above adjustments in Dividends then

Discount Or Premiums shall be Amortised in P&L A/c for Respective
Periods in which such Dividend Adjustment has been followed.
 Discount (Amortised Portion) will be deducted from NP
 Premiums (Amortised Portion) will be added to NP

Adjustment 5 : Income/ Expenses routed from security Premium/

Other Reserves

If any Expense, which is required to be written off in P&L A/c as per

Ind AS, Has been written off from other Reserves/ Security Premium
them we will deduct all These Expenses from Net Profits for EPS
Purpose. (i.e., Underwriting Comm., Preliminary Exp. etc)

Solution of Q.3
Statement Showing calculation of EAE

Net Profits (As given in Question) ₹ 1,50,000

Adjustments :
I. Discount to be Amortised (₹ 18,000)
II. Profit on Buy Back of Shares ₹ 1000
III. Loss on Conversion (₹ 300)
EAE ₹ 132,700

Explanation on Adjustment :-

A. A. We will ignore Any Adjustments on 5% Redeemable PSC because It is a

financial Liability and Finance Cost on it would have already been
recorded in P&L under the Heading of finance cost. There will be no
B. concept of Dividend on this Kind of capital.
C.
B. The Entity has issued Irredeemable PSC at Discount due to which It
is not paying Any dividend from 20x0 till 20x4. It indicates that
company has compensated Discount by adjustment in Dividend Rate.
So, Amortisation of Discount has been routed from P&L A/c.

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C. The Entity has bought back Pref. Shares at Profit due to which we
have routed it in P&L A/c. We have ignored dividend on these shares
because Pref. Share capital is Non-cumulative in Nature.

D. We have ignored 7% Dividend on cumulative PSC which has been

converted in the beginning of year because cumulative Dividend is
always taken on Accrual basis. The Company would have recorded it in
Previous year on Accrual Basis. We have Considered Loss on
Conversion assuming that Co. has not Provided it yet.

Solution of Q.2

In the Given case, Company is interested in Early Redemption of PSC.

So, we should calculate Loss on Early Redemption and we should reduce
Net Profit due To Loss on Early Redemption.
For the calculation of Loss on Early Redemption, we require Actual
Payment Which is made for Redemption & Carrying Amount as per Books
of A/cs of Such Liability. In the Given question, Carrying Amount of
Liability is missing. We will Calculate Loss on Early Redemption by the
difference of ₹ 12,00,000 which is the Actual Payment & ₹ 11,00,000
which is the original Promised Amount. So, there is a Loss of ₹ 100,000
which should be deducted from Net Profit for EPS Purpose.

Solution of Q.4

Calculation of Basic EPS

Net Profits ₹ 33,000

*Underwriting Comm. (₹ 1000)
EAE ₹ 32,000
WANS 1000
EPS ₹ 32

 We have routed U. Comm. From P&L for EPS Purpose.

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Solution of Q.1

Calculation of Basic EPS

2016 2017
PAT* 750 790
WANS 16 16
EPS 46.875 49.375

 In the Given Case, we have ignored Adjustment of finance Cost on

Redeemable PSC from Net Profits because company would have
recorded it under Expenses in P&L A/c.

*Part 3*

Concept 2 : WANS
(Weighted Avg. No. of Shares)

WANS=No. of Shares O/s during the Period xTime factor (Period of O/s)

Example :

Opening Balance (1.4.2020) = 10,000 shares

New Issue (1.7.2020) = 20,000 Shares)
EAE = ₹ 15,00,000
Calculation of WANS & EPS for the Period

Solution :

BEPS = EAE = ₹ 15,00,000 = ₹ 60

WANS *25,000 shares

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*Calculation of WANS :

Alternative I : Date Wise Calculation

1.4.2020 – 30.6.2020 10,000 x 3/12 = 2500 shares

1.7.2020 – 31.3.2021 30,000 x 9/12 = 22500 Shares
WANS 25,000 Shares

Alternative II : Class wise Calculation

Opening Bal. = 10,000 x 12/12 = 10,000 shares

(1.4 – 31.3)
N. issue = 20,000 x 9/12 = 15,000 Shares
(1.7 – 31.3)
WANS 25,000

*Alternative I is Preferable

Adjustment I : Buy Back of Shares

If an Entity Buys Back its Equity Shares then WANS should be reduced
from The date of Such Buy Back. The following Example may be
considered :-

Example : (A.Y : 1.4.2020 – 31.3.2021)

Opening Balance (1.4.20) : 200,000 Shares
N. Issue (1.7.20) : 100,000 Shares
Buy Back (1.2.21) : 50,000 Shares
EAE : ₹ 20,00,000

Calculate WANS & BEPS.

Solution :

BEPS = EAE = ₹ 20,00,000 = 7.50

WANS * 266,667

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*WANS :-
1.4.2020 – 30.6.2020 200,000 x 3/12 = 50,000
1.7.2020 – 31.1.2021 300,000 x 7/12 = 175,000
1.2.2021 – 31.3.2021 250,000 x 2/12 = 41,667
WANS 266.667

Solution of Q.7

Calculation of BEPS

BEPS = EAE = ₹ 240 Lacs = 2

WANS *120 Lacs

*Calculation of WANS (Lacs)

1.1.2001 – 30.6.2001 100 x 6/12 = 50
1.7.2001 – 31.10.2001 150 x 4/12 = 50
1.11.2001 – 31.12.2001 120 x 2/12 = 20
120

Solution of Q.6

Calculation of WANS

1.4.x1 – 14.6.x1 100,000 x 75/365 = 20548

15.6.x1 – 7.11.x1 175000 x 146/365 = 70,000
8.11.x1 – 21.2.x2 225,000 x 106/365 = 65342
22.2.x2 – 31.3.x2 205000 x 38/365 = 21342
WANS 177232

Adjustment 2 : If Bonus Shares are issued by Entity *Imp

If Bonus Shares have been Issued by the company during the year then
the Following Points Should be considered while Computing BEPS :-

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Impact of B. Issue on Current Year EPS :-

We will ignore Date of Bonus Issue while Computing WANS. We will Add
Bonus Shares directly to WANS without considering any Time factor
because there will be no Change in Resources after Bonus Issue.

BEPS = EAE Direct Addition, No Time factor

WANS + Bonus Shares

Impact of Bonus Shares on Previous year’ EPS :-

As per the Provisions, The main Objective of Ind AS 33 is to make

comparison Between Operating Results in 2 financial years. So,
Previous year’ EPS should be Re-stated by assuming Bonus Issue in
Previous year without considering Time factor.

Solution of Q.10

Calculation of BEPS

BEPS (2001) = ₹ 60,00,000 = 1/-

20,00,000 + (20,0,000/1 x 2)
Shares

BEPS (2000) :
Original BEPS = ₹ 18,00,000 = .90
20,00,000 Shares
Re-Statement = ₹ 18,00,000 = .30
Due to Bonus 60,00,000 Shares

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Solution of Q.8

Calculation of BEPS

X1 – X2 X2 –X3
Net Profits ₹ 450,000 ₹ 550,000
Cumulative Pref. Dividend (₹ 50,000) (₹ 50,000)
@ 10% P.a.
EAE ₹ 400,000 ₹ 500,000
WANS(Inclu. Bonus Issue) 50,00,000 50,00,000
BEPS .08 .1
(8 Paise) (10 Paise)
(Re-stated)

Solution of Q.9
Calculation of WANS

1.1 – 28.2 10,00,000 x 2/12 = 166,667

1.3 – 30.11 12,00,000 x 9/12 = 900,000
1.12 – 31.12 14,50,000 x 1/12 = 120,833
WANS 11,87,500
(Excluding Bonus Shares)
Bonus Shares 400,000
WANS (including Bonus) 15,87,500

Solution of Q.12

As per the Provisions of Ind AS 33, Re-statement of Basic EPS for

Previous Year is mandatory if Bonus shares have been issued in current
Year for comparison Purpose.
In the Given Case, Company has not re-stated Previous year’ EPS due
to Bonus shares which are issued in current year.
Re-statement = ₹ 8.50 Crore = ₹4.25 P.S
1 crore shares (original) + 1 crore shares (Bonus)

So the company should Present 4.25 Per share for Previous year.

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*Part 4*

Adjustment 3 : Partly Paid up Shares

As per the Provisions of Ind AS 33, the following steps should be

Applied for The adjustment of Partly Paid up Shares in Weighted Avg.
No. Shares :-

Step I : First of all, we should convert all Partly Paid up shares into
fully Paid up Shares before calculating WANS as follows :-
Partly paid up Shares x Paid up Value
Face Value Per Share
Step II : After Completing Step I, We should calculate WANS
considering Time factor
Step III : BEPS = EAE .
WANS (Step II)

Example : Accounting year : 2020-21

1.4.2020 (OB) : 200,000 Shares of 100 each fully paid up

1.7.2020 (NI) : 100,000 Shares of 100 each, 60 Paid up
1.10.2020 : Entity Received remaining 40 Per share (final Call)
Calculate WANS

Solution :

Calculation of fully Paid up Shares

1.4 200000 x 100 = 200,000

100
1.7 100000 x 60 = 60,000
100
1.10 100000 x 40 = 40,000
100
300,000

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Calculation of WANS

1.4.20 – 30.6.20 200000 x 3/12 = 50,000

1.7.20 – 30.9.20 260000 x 3/12 = 65,000
1.10.20 – 31.3.21 300000 x 6/12 = 150000
WANS 265,000

Solution of Q.18 *Imp

Calculation of fully Paid up Shares

1.4.2020 ₹ 99,00,000 / ₹ 10 = 990,000 Shares

1.6.2020 ₹ 50,000 / ₹ 10 = 5000 Shares
1.10.2020 ₹ 75,00,000 / ₹ 10 = 750,000 Shares
1.3.2021 ₹ 50,000 / ₹ 10 = 5000 Shares
1750000 Shares

Calculation of WANS

1.4.20- 31.5.20 990000 x 2/12 = 165000

1.6.20- 30.9.20 995000 x 4/12 = 331667
1.10.20-28.2.20 1745000 x 5/12 = 727083
1.3.21 - 31.3.21 1750000 x 1/12 = 145833
WANS 1369583

Calculation of EAE

PBT 2,62,00,000
Tax (30,00,000)
PAT 2,32,00,000

 We have ignored any adjustment on Pref. share capital because we

have considered it as a financial Liability and Interest on it would

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already have been recorded by Company while computing PBT.

BEPS = ₹ 2,32,00,000 = 16.94 Per Share

1369583 Shares

Solution of Q.17

Calculation of No. of Shares for EPS

No. of Shares = 100,000 Shares x 1.75 = 70,000 Shares

2.50

Adjustment 4 : Shares with Different Dividend Rights *Imp

It may be Possible that company has Promised different Dividend

Rights to Different Shareholders. If any Equityholder has Special Right
for higher Dividends in Compare to other Shareholders then No. of
Shares shall be adjusted according to Normal Shares before computing
WANS.

Solutions of Q.19

Calculation of Equal Shares on the basis of “ A Class”

A Class = 100,000 x 1/1 = 100,000 Shares

B Class = 30,000 x 3/2 = 45,000 Shares
C Class = 30,000 x 5/2 = 75,000 Shares
D Class = 40,000 x 3/1 = 120,000 Shares
340,000 Shares

Basic EPS (Normal) = ₹ 800,000 = 2.35 Per Share

340,000 Shares

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Calculation of EPS for Each Class of Shares

Class A Class B Class C Class D

2.35 x 1 2.35 x 1.5 2.35 x 2.5 2.35 x 3
1
= 2.35 = 3.525 = 5.875 = 7.05

Adjustment 5 : Shares issued in PC at the time of Business

Acquisition (Acquisition Method : 103)

If an Acquirer Entity issues New Shares in Settlement of Purchase

Consideration to Acquire company then we will consider these Shares in
WANS from “the date of Acquisition of Business”

Solution of Q.22

Calculation of WANS

1.4.2020 – 30.6.2020 6000 x 3/12 = 1500

1.7.2020 – 31.3.2021 10000 x 9/12 = 7500
9000

BEPS = ₹ 500,000 + ₹ 800,000 = 144.44

9000 Shares

Solution of Q.21

Calculation of BEPS (A ltd)

I. No. of Shares to be=No. of Shares in V. Co.x Value Per Share ([Link].)

Issued by A Ltd. Issue Price of P. Co.
= 200 x 30
120
= 50 Lacs

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II. WANS = 1.4.20 – 30.9.20 500 x 6/12 = 250

1.10.20 – 31.3.21 550 x 6/12 = 275
525
III. BEPS = ₹ 1200 + ₹ 1200 = 4.57 Per Share
525 Shares

Adjustment 6 : Share Split or Share Consolidation/ Reverse Share Split

It may be Possible that company has followed Share Split or Share

Consolidation During the year. The following Steps should be applied in
this Case :-
1. We will ignore date of Split/ Reverse Split while computing WANS. We
will assume That company has changed denomination Per Share in the
beginning of Year.
2. The entity will also restate EPS for Previous year by Changing No.
of Shares in Denominator assuming such Split/Reverse Split has
taken place in Previous year For comparison Purpose of EPS.

Solution of Q.20

Calculation of BEPS
(After Share Consolidation)

Current year = ₹ 20,00,000 = 250

8000 Shares
Previous Year : These are comparison
Original = ₹ 16,00,000 = 20
80000 Shares
Restated = ₹ 1600,000 = 200
8000 Shares

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Adjustment 7 : If “Right Shares” are Issued by Company

(4-6 Marks)
It can be asked in exams

Step I : Calculate Theoritical Ex-Right Price (Avg. MP) after Right

Issue by the following formula

Ex- Right Price =

No. of Shares O/s x Market Price per + No. of Shares` x Offered
Pre Right Share Pre Right in Right Issue Price
Total No. Of Shares

Step II : Calculate Right Adjustment Factor (RA factor) as follows :-

R.A Factor = Market Price Pre Right

Ex- Right Price as in Step I

Step III : Consider Adjustment factor on No. of Shares which were

o/s Pre- Right (Original Share) to make them Ex- Right form
Pre Right while computing WANS

Step IV : Re-State the EPS for Previous year by adjusting WANS after
Applying R.A Factor to make EPS comparable on Ex-Right Basis

Solution of Q.14

I. Calculation of Ex- right Price

Ex-Right Price = (18,00,000 x 60) + (450,000 x 30)

22,50,000 Shares
= 54/-

II. Calculation of Adjustment factor

Adjustment factor = Pre Right MP = 60 = 1.11

Ex- Right Price 54

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III. Calculation of WANS for 20x2

1.1.x2 – 31.3.x2 18,00,000 x 1.11 x 3/12 = 500,000

1.4.x2 – 31.12.x2 22,50,000 x 9/12 = 16,87,500
21,87,500

IV. Calculation of BEPS

Basic EPS (20x2) = ₹ 875000 =0.40 Paise

21,87,500 Shares

Basic Eps (20x1)

Original = ₹ 630,000 = 0.35 Paise
18,00,000 Shares
Re-Stated EPS = ₹ 630,000 = 0.315 Paise
18,00,000 x 1.11

Solution of Q.15

1. Ex- Right Price = (500,000 x 21) + (100,000 x 15) = 20

600,000 Shares
2. Adjustment factor = 21 = 1.05
20

3. WANS = 1.1 – 28.2 500,000 x 1.05 x 2/12 = 87500

1.3 – 31.12 600,000 x 10/12 = 500,000
587500
4. Basic EPS (20x1) = ₹ 15,00,000 = 2.55
587500

Basic EPS (20x0)

Original = 1100,000/ 500,000 = 2.2
Re-stated = 11,00,000/ 500,000 x 1.05 = 2.095

Q.16 , Q.1 (H.W)

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Solution of Q.4

1. Ex- Right Price (20x1) = (500 x 11) + (100 x 5) = 10

600
2. Adjustment factor = 11 = 1.1
10
3. WANS (20x1) = 1.1 = 28.2 500 x 1.1 x 2/12 = 91.67
1.3 – 31.12 600 x 10/12 = 500
591.67
4. BEPS (20x1) = 1500/ 591.67 = 2.535
(20x0) = 1100 = 2 (Re stated)
500 x 1.1
(20x2) = 1800 = 3
600

*Part 5*

Unit IV : Explanation on Diluted EPS

Meaning of Diluted EPS : As per the Provisions of Ind AS 33, Diluted

EPS means Reduction in Basic EPS due to
Potential Equity Shares.
(Note : If Basic EPS gets increased after
considering Potential shares then It will be
considered as “Anti-dillutive”EPS and It will
not be Reported as a matter of Prudence.

Meaning of Potential Equity Share : As per the Provisions of Ind AS 33

Potential Equity share is a contract which
Entitles its holder/May Entitle its holder
Equity shares in future. (i.e., Convertible
Bonds, Convertible PSC, ESOP, Warrants,
Written option contracts etc.)

To be learnt
Diluted EPS = Adjusted EAE
Adjusted WANS
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Adjustment I : Convertible Instruments

(Bonds, PSC etc.)

Conversion

Mandatory conversion Optional Conversion

No Cash can be paid , but It will be the Option/choice of

Payment will be made in holder that Cash or shares
Shares only (Any one) can be Given

Example :
i. 10% Convt. Instruments : ₹ 10,00,000 (10,000 Deb of 100)
ii. Market Rate : 12%
iii. Conversion will be made at the end of 3rd year @ 1:1 (1 Deb = 1 Share)
& conversion is mandatory
Apply Ind AS 109

Solution :

Calculation of Liab. & Equity Component

P.V of cash Outflows : Y1 100,000 x .893 89300

Y2 100,000 x .797 79700
Y3 100,000 x .712 71200
Liability Comp. 240200
(Bal fig.) Equity comp. 759800
10,00,000

Initial Recognition : Bank a/c Dr 10,00,000

To Liab. Comp 240200
To Equity Comp. 759800
(Being Convt. Deb. Issued)

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Liab. Component A/c

I
To Bank 100000 By Bank 240200
To Bal C/d 169024 By Interest (12%) 28824
II
To Bank 100000 By Bank 169024
To Bal C/d 89307 By Interest (12%) 20283
III
To Bank 100000 By Bal b/d 89307
By Interest 10693 (Bal)

Equity Component A/c

I
To Bal c/d 759800 By Bank 759800
II
To Bal c/d 759800 By Bal b/d 759800
III
To ESC(convert.) 759800 By Bal c/d 759800
(10000 Deb. Converted int0 10,000 Shares)

Concept of mandatory Conversion in Earning Per share

As per the Provisions of Ind AS 33, Mandatory convertible Bonds/

Shares shall be Considered in WANS while computing BEPS. These
securities do not link with Diluted EPS. It will be assumed that No. of
Shares Promised on conversion have been issued On the date of
Entering the contract.

Example :
i. EAE : 10,00,000
ii. Shares : OB 10000 Shares (1.4.20)
N. Issue 10000 Shares (1.7.20)
iii. On 1.10.20, Company issued mandatory convertible Bonds of 100
each (2000) Which are convertible into Equity Shares after 3 years
@ 1 Deb = 10 Shares
iv. Actual Interest = 10%, Market Rate 11%
Calculate BEPS.
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Solution :

Calculation of WANS

1.4.20-30.6.20 10000 x 3/12 = 2500

1.7.20-30.9.20 20000 x 3/12 = 5000
1.10.20-31.3.21 40000 x 6/12 = 20000
27500

BEPS = ₹ 10,00,000 = 36.36

27500 Shares

Example : (optional Conversion under 109)

i. 10,000 Convt. Debentures issued by Company having 10% Interest
Rate of 100 Each
ii. Market Rate : 12%
iii. After 3 Years, holder of debentures can demand cash or Equity
Shares @ 1 Deb=10 Shares
Apply Ind AS 109.

Solution :

Calculation of Equity & Liab. Comp.

P.V of Cash Outflow : Y1 100,000 x .893 89300

Y2 100,000 x .797 79700
Y3 11,00,000 x .712 783200
Liab. Component 952200
Equity Comp (Bal) 47800
10,00,000
It does not include Principal Amt

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Liab. Component A/c

I
To Bank 100000 By Bank 952200
To Bal c/d 966464 By Int. (12%) 114264
II
To Bank 100000 By Bal b/d 966464
To Bal c/d 982440 By Int. (12%) 115976
III
To Bank 100000 By Bal b/d 982440
To Bal c/d 1000000 By Int. (Bal) 117560

Concept of Optional Convertible Bonds/ Pref. Shares in EPS

As per the provisions of Ind AS 33, Optional conversion shall be

considered while Computing DEPS because It’s an outstanding Promise
by company for future Issue Of Shares. The following Points should be
considered while Adjusting optional Securities in DEPS :-

I. Adjustment in EAE : Take finance cost on Liability component

subject to Income Tax as saving assuming
there is no Liab. Component
Cancel Current Year interest on Liab. component Subject to Tax Adjust

II. Adjustment in WANS : Take Promised Issuable Shares if

conversion Option is Excercised
WANS + Increase in Shares subject to conversion

Solution of Q.26
Calculation of Current year Finance Cost

I. Equity Component & Liab. Component :-

P.V of Cash Outflow : Y1 120000 x .917 110040
Y2 120000 x .842 101040
Y3 2120000 x .772 1636640
Liab. Comp 1847720
Equity (Bal) 152280
2000000
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II. Finance Cost (Ist year) = 1847720 x 9% = 166295

Calculation of EPS

a) BEPS = EAE = ₹ 10,00,000 = .833

WANS 1200,000 Shares

b) DEPS :-
Step I : Incremental EPS

Incremental Savings = 166295 = .33*

Incremental Shares 500000 Shares
(2000/1 x 250)
 It will Give dilutive Result because it is Less than basic EPS

Step II : DEPS = ₹ 10,00,000 + ₹ 166295 = .69

1200,000 Shares + 500,000 Shares
If Debenture holders avail conversion option then BEPS will decline
from .833 to .69.
Note on Incremental EPS

As per the Provisions of Ind AS 33, Calculation of Incremental EPS is

mandatory for Each Potential share before its adjustment in DEPS.
Incremental EPS

Case I Case II
If it becomes Less than Basic If It becomes more than Basic
EPS Then it should be taken as EPS then It will be considered as
Dillutive Anti- Dillutive

Calculate DEPS by Adjusting BEPS No Need to Adjust these

For Potential Shares shares because we do not
calculate Anti-Dilutive EPS
(Step I & II : Both are mandatory) (We will not Go for Step II)

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Additional Points to be considered for Adjustment I

Point I : If market Rate is not Given in question *Imp

In the absence of Market Rate, we will consider saving in Interest at

Actual Rate While computing Incremental EPS & DEPS.

Solution of Q.24

Calculation of BEPS & DEPS

BEPS = ₹ 500000 (EAE) = .50 Paise Per Share
10,00,000 Shares

DEPS :
Step I : Incremental EPS
₹ 100000 x 10% x 79% = ₹ 7900 = .395*
1000 Deb x 20 2000 Shares
1
 It is Less than Basic EPS due to which It will give dilutive Effect.

Step II : DEPS = ₹ 500000 + ₹ 7900 = ₹ 507900 = .497

10,00,000 + 20,000 1020000 Shares

 We could not split off the Given instrument into Liability & Equity
Component because Market Rate is not Given.

Solution of Q.23

Calculation of Adjustment in EAE for Diluted EPS

Profit before Tax 80,000
(+) Saving in Interest if Deb. Are converted 1000
(₹ 25000 x 4%)
(-) Increase in Management Bonus (1000 x 1%) (10)
Adjusted PBT 80990
Tax @ 20% (16198)
Adjusted EAE 64792

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 We have taken saving at Actual Rate because market rate is not

Given.

Incremental EPS = (1000 x 80%) – (10 x 80%) = ₹ 792 = .031

25000 x 1 25000
1

Point 2 : If convertible Bonds/Shares have been Issued in Current

Year (V..Imp)
In Case Potential Equity Shares in the form of Convertible
Debentures/ Pref. Shares Have been issued in current year, but not in
the beginning of year then we will Consider Time factor on Savings and
shares while computing DEPS on Such convertible Instruments.

Example :
1. EAE = ₹ 25,00,000
2. WANS = 10,00,000
3. BEPS = 2.5
During the current year (1.10.2020), Company had issued 10% convt. Deb.
(No.10000 0f 100 each) which can be converted after 5 years @ 1 Deb =
100 Shares. Conversion is Optional. Calculate DEPS.

Solution :

Incremental EPS = 10,000 x 100 x 10% x 6/12

10000 x 100 x 6/12
1
= ₹ 50,000
500000 Shares
= .10 (Dillutive) (Less than BEPS)

DEPS = ₹ 25,00,000 + ₹ 50,000 = 1.70

10,00,000 + 500,000

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Point 3 : If conversion has been made during the year [Link]

If any conversion of Convert. Debentures/ Pref. Shares has taken

Place during The year then the following Points should be considered :-

1.4 31.3

Time period before conversion Time Period after conversion

It is considerable for DEPS & It is considerable for Basic EPS

Incremental EPS with Time factor While Computing WANS

Note : It can also be said that we will consider the Convertible

Securities in Basic EPS as well as Diluted EPS if conversion has
taken Place during the current year.

Solution of Q.2 *[Link]

Calculation of Basic EPS & Diluted EPS

A. Basic EPS

BEPS = EAE = ₹ 200,000 = .195

WANS * 1022500

*WANS
1.1 – 31.3 10,00,000 x 3/12 = 250,000
1.4 – 31.12 10,00,000 + 25000 x 120 x 9/12 = 772,500
100 10,22,500
Converted

B. DEPS
I. Incremental EPS :
a) Savings (25000 x 5% x 70% x 3/12) = 218.75
(75000 x 5% x 70%) = 2625.00
2843.75
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b) Shares
25000 x 120 x 3/12 = 7500
100
75000 x 120 = 90000
100 97500
c) Incremental = 2843.75 = 0.29 (Dillutive)
97500

II. DEPS = ₹ 200,000 + ₹ 2843.75 = 0.18 (Dillutive)

1022500 + 97500

*Part 6*
Adjustment 2 : ESOP’
(Employees Stock Option Plans)

If an Entity has Promised ESOP to its Employees at concessional

Rates them These shares shall be considered Dillutive to the Extent %
of Concession in Average Market Price. We should not focus on
Expected collection from ESOP’, but we should Consider concessional
Portion for which No Consideration is Expected. The following Steps
should be Applied while computing Dillutive EPS for Adjustment of
ESOP’ :-

Step I : Calculate No. of Free/ Concessional Shares/ Shares without

Consideration
Average Market Price – Exercise Price x ESOP
Average Market Price

Step II : Incremental EPS

Savings from ESOP = 0 =0
Free Shares free Shares

Step III : Diluted EPS

EAE + 0 = It will be Less than BEPS
WANS + Free Shares

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Example :
EAE = ₹ 50,00,000
WANS = 50,000
BEPS = 100

ESOP
i. Exercise Price = 60,
ii. Avg. MP (B/S) = 120
iii. ESOP = 100,000 Shares
iv. MP on Grant Date = 110
Calculate Diluted EPS

Solution :-
Step I : Calculation of Shares for No Consideration
120 – 60 x 100,000 Shares = 50,000 Shares
120

Step II : Incremental EPS = 0 =0

50000

Step III : Diluted EPS

₹ 50,00,000 + 0 = 50 Per share
50,000 + 50,000
(WANS)

Solution of Q.31

Calculation of EPS

I. BEPS : EAE = ₹ 12,00,000 = 2.4

WANS 500,000

I. DEPS :
a) Free Shares = 20 – 15 x 100,000 = 25000 Shares
20

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b) Incremental EPS = 0 =0
25000
c) DEPS = ₹ 12,00,000 + 0 =2.28
500000 shares + 25000

Solution of Q.3

Calculation of DEPS

1) Free shares = 8 – 6 x 200000 Options = 50,000 Options

8
2) Incremental EPS = 0 =0
50,000
3) DEPS = ₹ 100,000 + 0 = .09
10,00,000 + 50,000

Adjustment 3 : Option Contracts for Own Shares [Link]

(Company has written options on Own shares)

Cases

If company is an Option Buyer If company is an Option Seller

Company has bought Rights for Company has bought obligation

Purchasing/ Selling its Own Shares to buy/ Sell its own shares in
Unfavourable conditions
Ignore this case because option
Buyer Never bears Losses in future This situation may be dilutive
in Following different cases :
It will be Anti-dillutive situation - Call Option
(Rights are Excercised only in favourable - Put Option
Situation)

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Explanation on Call Option

Example :
1) Company has sold a Call Option to Mr. x for 500 Shares @ 160 Per
share after 3 Months

2) Market Price on B/s date :-

a) If it is 180
b) If it is 120
Calculate its Dilutive impact.

Solution :
a) If MP is 180 at B/S date
In this case,MP is higher on b/s date than exercise Price which indicate
that option Buyer will Exercise option. It also indicates that company
has issue its Own shares at concessional Rate. We will follow same steps
as we discussed in ESOP.

Free shares = 180 – 160 x 500 Shares = 56 Shares (Approx.)

180
DEPS = EAE + 0 =
Wans + 56 shares

b) If MP is 120 on B/s date

Mr. A will not Exercise the call option because market is not favourable
for him. So No Adjustment in Diluted EPS will be required.

Notes on Concept

Case I : If market Price on B/s date becomes higher than Exercise

Price/ Contract Price then company will calculate free share
which are Expected to be issued For No Consideration Like ESOP

1) Free Shares = MP (B/s) – Exercise Price x Shares Promised

MP
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2) DEPS = EAE + 0
WANS + free shares

Case II : If MP on B/s date becomes Less than Exercise Price then It

will be Anti- Dilutive case for company and It will be ignores
while computing

Summary : Call option

Company is an Option Seller

``
`
MP is higher than EP on B/s MP is Lower than EP on B/s

MP – EP x Options = Free Shares - No calculation is required

MP (Just ignore it)

Solution of Q.33

Calculation of EPS

1) BEPS = ₹ 20,00,000 = 5 Per Share

400,000 Shares
2) DEPS :
A. Free Shares = 120 – 100 x 6000 Shares = 1000
120
B. Incremental EPS = 0 = 0
1000
C. DEPS = ₹ 20,00,000 + 0 = 4.98
400,000 + 1000

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Solution of Q.32
Calculation of BEPS

20x7 20x8
EAE 500,000 600,000
WANS 40,00,000 40,00,000
BEPS 0.125 0.15

Calculation of DEPS

20x7 20x8
A. Free shares 120 – 70 x 630,000 160 – 70 x 630,000
120 160
= 262500 Shares 354375 Shares
B. DEPS 500,000 600,000
40,00,000 + 262,500 40,00,000 + 354375
= 0.11 = 0.13

Explanation on Put Option

Example :

Mr. A will sell 500 shares of X Ltd. To X Ltd under a Put option after 3
months @ 160 Per share. MP on B/s date : 1) 110 2) 170
Calculate Dilutive impact of this transaction.

Solution :
If MP is 110
In the Given case, MP is Low at B/s date which indicates that Mr. A will
Exercise Put Option because he can sell shares @ 160.
Step I : company will calculate No. of shares to be issued for
arrangement of funds which are required for Buy Back as
follows :-
No. of shares to be issued = 500 x 160 = 80,000 = 728 Shares (Approx.)
110
Free shares to be issued = 728 – 500 = 228

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Step II : DEPS = EAE + 0 =

WANS + 228

If MP is 170

 Ignore this situation because Mr. A will not Exercise the Option and
there will be no Buy Back by company

Notes on Concept

Case I : If MP on B/s becomes Less than Exercise Price then the

following Points May be considered :-
1) The company has to buy back its own shares from option holder
2) It will be assumed that company will Arrange the funds for buy back
by way of New Issue
3) N. Issue = No. of Shares under B. Back x Exercise Price
Market Price
4) Free Shares = N. Issue – B. Back
5) DEPS = EAE + 0
WANS + Free shares

Case II : If MP becomes higher than Exercise Price then there will be

no calculation Because there will be no Buy Back.

Summary

Company is an Option seller under Put Option

If MP is Less than EP on B/s If MP is higher than EP on B/s

(ignore this case)
1) N. Issue to be made = B. Back x EP
MP
2) Free shares = N. Issue – B. Back
3) DEPS = EAE + 0
WANS + Free shares

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Solution of Q.34 *[Link]

Calculation of EPS

1) BEPS = ₹ 76,42,000 = 10.92

700,000 Shares
2) DEPS :
A. Put Options
N. Issue to be made for Arrangement of Funds = 20000 x 400 = 32000
250
Free Shares = 32000 – 20000 = 12000

B. DEPS = 7642000 + 0 = 10.73

700,000 + 12000

*Part 7*

Adjustment 4 : Share Warrants

If any Entity has Promised Equity Shares in Lieu of share warrants

then we will Calculate free shares at each B/s date for the purpose of
Diluted EPS. The calculation Of free shares will be same as in ESOP. The
following calculation may be relevant :-

Free shares =
Avg. Market Price at B/s date – Exercise Price x Promised Shares
Avg. MP on B/s date

Example : Share warrants = 10,000

Exercise Price = 60
Avg. MP at B/s = 100
1 warrant = 1 Share
Calculate Incremental EPS for share warrants.

Solution :
Free Shares = 100 – 60 x 10,000 = 4000 Shares
100

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Incremental EPS = 0 = 0
4000
DEPS = EAE + 0 = Less than BEPS
WANS + 4000

Adjustment 5 : Contingently Issuable Shares *[Link]

If any Purchasing Company has Promised Additional shares to vendor

company in Business combination Transaction which is subject to
fulfilment of any contingency in future. These Promises can be
Classified into 2 headings as follows :-

Contingencies

If contingently Issuable shares If contingently Issuable

are subject to Target of Turnover/ Shares are subject to Other
Profits/ MP by the End of year Events (It is relevant for
(It is relevant for Diluted EPS only BEPS & DEPS if conditions
if conditions have been met on B/s have been met)
Date )

 If conditions do not met then ignore all cases for Adjustments.

(No Adjustment will be made in BEPS or DEPS)

Contingencies other than Sales/ Profits/ MP

If contingently issuable shares are based on contingency other than

Profit/Sales/ MP then following Points should be considered if
conditions have been met During the year :-

1) We will consider contingently issuable shares in BEPS from the date

of fulfilment Of conditions as follows :-
WANS (Normal Calculation) xxxx
Add : Contingently Issuable shares
X time factor xxxx
WANS (final) xxxx
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2) If the above shares are still issuable on B/s date then we will
consider these Shares in diluted EPS as well but without Time factor
as follows :-
WANS (Normal Calculation) xxxx
Add : Contingently Issuable Shares (fully) xxxx
Adjusted WANS xxxx

Important Notes :-

1) If conditions do not met during the year then Ignore the Specified
contingently Issuable shares in BEPS as well as in DEPS.
2) If contingently Issuable Shares are issued by company immediately
after meeting the conditions then we will not make any Adjustment
in DEPS.

Summary : Contingently Issuable Shares (Other contingency)

Conditions met Conditions do not met

Issuable Issued Ignore everywhere

Consider it in Consider it in
BEPS with TF DEPS only
and in DEPS
Without TF

Contingency related with Sales/ Profit/ MP

(Target to be Satisfied till year End)

These type of contingencies can be tested at year End only. So, there
will be no Adjustment for these contingencies in Basic EPS. These
contingencies are relevant for Diluted EPS only. The following flow
chart may be referred :-

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Conditions for contingencies

Conditions have been met on Conditions have not been met on

B/s date B/s date

Consider these contingencies Ignore Any Adjustment

in DEPS in DEPS

Solution of Q.29 *[Link]

Calculation of BEPS
(Qtrly & Annually)

Particulars Ist Q IInd IIIrd IVth Total

J–M A–J J–S O–D J-D
Profits (A) 11,00,000 12,00,000 (400,000) 10,00,000 29,00,000
WANS (B) :-
OB 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
Add: NIL 3333 6667 10000 5000
Contingently 5000 x 2 (5000 + (5000 + (5000 x
Issuable share 3 5000 5000) 8/12 + 5000
For Retail x 1/3) X 4/12)
Outlets
(B) 10,00,000 10,03,333 10,06,667 10,10,000 10,05,000
BEPS (A/B) 1.1 1.196 (0.397) 0.990 2.885

Calculation of DEPS

I II III IV Total
Profits (A) 11,00,000 12,00,000 (400,000) 10,00,000 29,00,000
Adjusted Shares:
OB 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
Retail Site - 5000 10,000 10,000 *10,000
Profit NIL 300,000 NIL 900,000 900,000
Target (23L – 20L) (29-20)
(B) 10,00,000 13,05,000 10,10,000 19,10,000 19,10,000
DEPS (A/B) 1.1 0.919 (0.396) 0.523 = 1.52
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Solution of Q.30

In the Given question, company has issued contingently issuable

shares on the basis Of Target of Turnover for which condition will be
verified at the end of year. So these Shares are relevant for DEPS if
conditions are met. It is clearly Specified that Conditions have been
met due to which Adjustment is required in DEPS.

Exception to Contingently Issuable Shares *Imp

If any future Issue is linked with Passage of Time then It will not be
treated as Contingently Issuable Shares. The following Points may be
considered :-
I. Treat it as a Normal Convertible Bond/ Share
II. Consider maximum offered shares at any time in DEPS

Solution of Q.25

Calculation of BEPS

X1 – X2 X2 – X3
EBIT 825,000 895,000
Interest (75,000) (100,000)
(1250000 x 8% x 9/12) (12,50,000 x 8%)
Loss on Derivative (2500) (2650)
PBT 747500 792350
Tax Exp. (247500) (262350)
(825000 – 75000) 33% (895000 – 100000) 33%
EAE 500,000 530,000
WANS 15,00,000 15,00,000
BEPS .33 .353
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Calculation of DEPS
X1 – X2 X2 – X3
EAE 500,000 530,000
Savings in Int. 50250 67000
(75000 x 67%) (100000 x 67%)
Derivative Loss Saving 2500 2650
Adjusted EAE 552750 599650
Adjusted Shares 2765625 3187500
1500000+*1687500x9/12) (1500000 + *1687500)
DEPS 0.199 0.188

1250000/100*135
 We have assumed Max. Conversion Ratio

Unit 5 : Other various concepts to be Discussed

Concept 1 : Adjustment of Participating Preference Shares *[Link]

It may be possible that company has Participating Pref. Shares (It is

Possible only in case of Irredeemable PSC) then Share of Pref. holders
in Undistributed Profits will be Computed in addition to fixed Pref.
Dividend. It means that BEPS for Equity Shareholders will get declined
due to Participation in Profits by Pref. holders.

Statement Showing Distribution of Net Profits

Net Profits xxxx

(Pref. Dividend (fixed %) (xxxx)
Dividend Prescribed in AOA for Equity holders (xxxx)
Undistributed Profits xxxx

Share of Pref. holders * Share of Equity holders

As per AOA
*BEPS will be computed on the basis of share of Equity holders in
Distributed + Undistributed Earnings.

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Solution of Q.27 *Imp

Statement Showing calculation of distribution of Earnings

Net Profits ₹ 100,000

Distributions as per AOA :-
Pref. Shares (5000 x 5) (₹ 25,000)
Equity Shares (10,000 x 2) (₹ 20,000)
Undistributed Profits ₹ 55,000

Allocation of undistributed Profits :-

Equity Shareholder Participation Per Share = x

Pref. Shareholder Participation Per Share = 50% of x
= .5x
(10000 X x) + (5000 X 0.5x) = 55,000
10000x + 2500x = 55000
X = 55000 = 4.4
12500
Participation of Pref. Shares = 4.4. x 50%
= 2.20

Calculation of EAE (BEPS)

Net Profit ₹ 100,000

Share of Pref. holders in NP :
i. Pref. Dividend (5000 x 5) (25,000)
ii. Undistributed Profit share (5000 x 2.2) (11,000)
EAE 64,000
[(2 + 4.4) x 1000]

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Solution of Q.28

Calculation of Share of Pref. Shareholders in Undistributed Profits

Net Profits ₹ 100,000

Pref. Dividend (6000 x 5.5) (33,000)
Equity Dividend (10000 x 2.1) (21,000)
Undistributed Profits 46,000

(10000 x X) + (6000 x 2.5x) = 46000

10000x + 1500x = 46000
11500x = 46000
X=4
Share in Undistributed Profit of Pref. holders = 4 x 25% = 1 Per Share

Calculation of EAE

Net Profit 100,000

Pref. Dividend (33,000)
Share in Undistributed Profits (6000)
(6000 x 1)
EAE 61,000
[(10000 x 2.1) + (10000 x 4)]

Concept 2 : BEPS & DEPS in Consolidated financial statements*[Link]

If we are calculating EPS for the purpose of CFS then holding co. will
compute its Consolidated EPS on the basis of Consolidated Profits. The
following formulas may be Considered :-

A. Consolidated BEPS

CBEPS = Holding Company own + Share of holding in Profits of

EAE Subsidiary on the
Basis of % of Invest.
Holding Co. WANS

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Example :

Holding Co. Subsidiary Co.

Net Profits ₹ 10,00,000 ₹ 500,000
WANS 10,000 2000 Shares

Additional Information :-

I. Holding Co. Own 80% in Equity Share capital of Subsidiary .

II. Subsidiary Co. has irredeemable PSC on which ₹ 80,000 cumulative
Pref. Dividend is required to be Provided
III. Holding co. also have 50% Investment in PSC of Subsidiary
company.
Solution :
Calculation of BEPS for Subsidiary company
Net Profit ₹ 500,000
Pref. Dividend (₹ 80,000)
EAE ₹ 420,000
WANS 2000
BEPS 210

Calculation of BEPS for Holding company

Stand Alone EPS :-

BEPS = ₹ 10,00,000 = 100 Per Share
10,000

Consolidated BEPS :-
Share in Pref. Earning
CBEPS = ₹ 10,00,000 + (1600 shares x 210) + (80,000 x 50%)
10,000 Shares
EPS Disclosed by subsidiary
= ₹ 1376000
10000 Shares
= 137.60

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Consolidated Diluted EPS

CDEPS = Holding Co. Own Adjusted + *Share of Holding in Adjusted EAE

EAE of Subsidiary Co
Adjusted WANS of Holding company

Example :
Holding Subsidiary
NP ₹ 10 Lacs ₹ 5 Lacs
WANS 1L .1 L
BEPS 1 /- 50/-

Additional Information :

I. Holding company own 80% shares in sub. Co.

II. Subsidiary company has share warrants :
Warrants 10,000
Exercise Price 60
Average Price 120
Calculate consolidated BEPS & DEPS.

Solution :-
Calculation of DEPS for Subsidiary

DEPS = ₹ 500,000 + 0 = 500000

10,000 + 120 – 60 x 10000 15000 Shares
120
= 33.33

Calculation of consolidated EPS

Consolidated BEPS = ₹ 10,00,000 + (8000 x 50)

100,000 Shares
= 14

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Consolidated DEPS = ₹ 10,00,000 + (8000 x 33.33)

100000 Shares
= ₹ 12,66,667
100000 Shares
= 12.67

Example :

With the help of Given information in above Example, Calculate DEPS

for consolidated Statements if holding has 50% warrants in subsidiary

Solution :

Cons. DEPS = ₹ 10,00,000 + (8000 x 33.33) + (2500 x 33.33)

100,000 Shares
= ₹ 1350,000
100,000 Shares
= 13.5

Solution of Q.36

Calculation of Standalone BEPS for M & H

M Ltd. H Ltd.
NP 700,000 200,000
Shares 25,000 10,000
BEPS 28 20

Calculation of consolidated BEPS

CBEPS = ₹ 700,000 + (8000 x 20) = 34.40

25,000 Shares

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Solution of Q.37 *[Link]

Calculation of EPS for subsidiary company

A. BEPS
Net Profit ₹ 5400
Pref. Dividend (₹ 400) (400 x 1)
EAE ₹ 5000
Shares 1000
BEPS 5 Per share

B. DEPS
DEPS = Adjusted EAE
Adjusted WANS
= ₹ 5000 + 400 + 0
(EAE) (Savings in Dividend ) (Savings in Warrants)
1000 Shares + 400 Shares + 20 – 10 x 150
20
= ₹ 5400
1475 Shares
= 3.66 Per share

Calculation of consolidated EPS

Consolidated BEPS :-
Earning from subsidiary
= ₹ 12000 + (800 x 5) + (300 x 1)
10000 Shares
= 16300 = 1.63
10000

Consolidated DEPS :-

= ₹ 12,000 + (800 x 3.66) + (300 x 3.66) + (15 x 3.66)

10000 Shares
= 16080.90 = 1.60
10000

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Concept 3 : Break up of EPS

As per the Provisions of Ind AS 33, Disclosure of EPS should be made

under 3 headings as follows :-
I. Continuing Operations
II. Discontinued Operations
III. EPS from continuing & Discontinued Operations

Solution of Q.6

Calculation of EPS

1) Basic EPS

Continuing Discontinuing Total

Operations Operations
Profits 40,000 (30,000) 10,000
WANS 20,000 20,000 20,000
EPS 2 (1.5) .50

2) Diluted EPS

Profits 40,000 (30,000) 10,000

WANS 20500 20500 20500
EPS 1.95 (1.46) .49

Concept 4 : Dillutive EPS for Loss making company

If Loss Per Share becomes Less than Basic Loss Per Share after
adjusting Potential Shares then It will be considered as Anti-dillutive
and its disclosure will not be made.

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Solution of Q.5

BEPS = (12,00,000) = (600)

2000 Shares
DEPS = (12,00,000) + 0 = (555.56)
2000 + 100 – 60 x 2000 Its anti-dilutive
100

Concept 5 : If any company does not have Potential Shares

If any company does not have Potential Equity share then BEPS and
DEPS shall become equal. In this case, company will disclose Both the
EPS in same Line/ Single Line. It means that Separate disclosure will
not be allowed.

*Part 8*

New Questions
Explanation of Disclosure of Dillutive EPS if Entity has Discontinued
Operations

As per the Provisions of Ind AS 33, Disclosure of Diluted EPS will be

made on the Basis of Results from the continued operations. The
following Points should be Considered in relation to this :-
A. If continuing Operations have positive Results then Disclosure of
Dillutive EPS Will be made even if It is Anti-dillutive due to effect of
Discontinued operations on Overall Results. It can be said that
Disclosure of Overall Anti- dilutive EPS will be Made if EPS is Dillutive
in case of continuing Operations.

Comments : Disclosure of Overall EPS will depend if continuing

operations are showing Dilutive Results.
Controlling factor
Controlling factor
B. If EPS for continuing Operations becomes Anti- dilutive then we will
not disclose Diluted EPS for company on overall Basis even if It is
dilutive due to Effect of Results from Discontinued Operations.
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Solution of Q.1

Case I

A. Calculation of BEPS

Continuing Discontinued Total (Overall)

Operations Operations
Profits 30,00,000 (36,00,000) (600,000)
WANS 10,00,000 10,00,000 10,00,000
BEPS 3 (3.6) (.6)

B. Calculation of DEPS

Continuing Discontinued Total

Profits 30,00,000 (36,00,000) (600,000)
(WANS + 12,00,000 12,00,000 12,00,000
Potential)
DEPS 2.5 (3) (.5)
(Dillutive) (Anti- dilutive) (Anti- dilutive)

Comments : In the Given case, continuing Operations are showing

Dilusion in BEPS Due to which we will disclose Dillutive EPS
for Discontinued operations as Well as for company even if
overall EPS is showing Anti-dillutive

Case II :

I. Calculation of BEPS

Continuing Discontinued Total

Profits (10,00,000) 36,00,000 26,00,000
WANS 10,00,000 10,00,000 10,00,000
BEPS (1) 3.6 2.6

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II. Calculation of DEPS

Continuing Discontinued Total

Profits (10,00,000) 36,00,000 26,00,000
(WANS + 12,00,000 12,00,000 12,00,000
Potential)
DEPS (.83) (3) 2.16
(Anti- dilutive) (Dilutive) (Dilutive)

Comments : In the Given case, continuing Operations are showing

Anti-dilutive EPS Due to which we will not show Dilutive EPS
in any case even if overall EPS is Dilutive.

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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Chapter - 17 : Schedule III: Division II

Ind-AS Rules Format
*Part 1*

Concept 1: General Instructions:

As per the provisions the following General Instructions are required

to considered before starting discussion on format in relation to
schedule III Division II:-
A. The provisions specified in schedule III, Division II are relevant
only for those Entities which are applying Ind-AS as per Ind AS Rules
2015.

B. The formats provided in schedule III Division II for B/s, P&L or

Notes are Flexible. It means that the given formats can be changed
if there is any Contradiction on any presentation between schedule
III &Ind-AS Rules. Any heading can be changed or substituted in B/S
or PL according to requirements Given in Ind-AS Rules.

Comments: We can also say that Ind-AS Rules are more powerful than
Schedule III For presentation requirements.

C. As per the provisions of schedule III Division II, the entity shall
give cross reference by suitable notes for each consolidated Amount
which is presented in B/S or P&L.

D. As per the provisions of schedule III Division II, formats of cash

follows Statements shall not be discussed here. The cash flow format
can be referred from Ind-AS 7 ( we will discuss B/S, PL, Changes in
equity & Notes in Division II).

E. The figures can be rounded off in financial statements on the basis

of following Rules:-

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Level of Company Rounded off (Allowed)

I. If Turnover is less than Nearest : Hundreds, Thousands,
100 crores Lacs or Millions.

II. If Turnover is 100 crores Nearest: Lacs, Millions, crores.

Or more

Concept 2: Coverage of Schedule III Division II

Coverage

B/S P&L Changes in Equity Notes to A/cs

Unit I: Explanation on Balance Sheet

(Format, Concepts & Notes on B/S)
Format: Balance Sheet Comparison
Name of Company……………
B/S as at…………………………..

Particulars Current Previous

F.Y. F.Y.
Assets:
Non Current Assets:
A. Property, Plant & Equipment xxxx xxxx
B. Capital WIP xxxx xxxx
C. Investment Property xxxx xxxx
D. Goodwill xxxx xxxx
E. Other Intangible xxxx xxxx
F. Biological Assets (Ex. Bearer Plant) xxxx xxxx
G. Financial Assets
a)Investments xxxx xxxx
b)Trade Receivables xxxx xxxx
c) Loans & Advances xxxx xxxx
d) Others Financial Assets xxxx xxxx
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H. Deferred Tax Assets (Net) xxxx xxxx

I. Other Non-Current Assets xxxx xxxx

Current Assets:- xxxx xxxx

A. Inventories xxxx xxxx
B. Financial Assets:-
1. Investments xxxx xxxx
2. Trade Receivables xxxx xxxx
3. Cash & Cash Equivalents xxxx xxxx
4. Bank Balance other than covered in xxxx xxxx
point 3
5. Loans xxxx xxxx
6. Other Financial Assets xxxx xxxx
C. Current Tax Assets xxxx xxxx
D. Other Current Assets xxxx xxxx
Total (A) xxxx xxxx

Equity & Liabilities:

Equity:
i) Equity Share Capital
ii) Other Equity (Reserves & Surplus)

Non Current Liabilities:

A. Financial Liabilities
1. Borrowings xxxx xxxx
2. Trade Payables
a) Payables to Micro, small or medium xxxx xxxx
enterprise
b) Other Payables xxxx xxxx
3. Other Financial Liabilities xxxx xxxx
B. Provisions (Long Term) xxxx xxxx
C. Deferred Tax Liability (Net) xxxx xxxx
D. Other Non-Current Liabilities xxxx xxxx

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A. Current Liabilities:
A. Financial Liabilities
1. Borrowings xxxx xxxx
2. Trade Payables
a) Payables to Micro, small or medium xxxx xxxx
enterprise
b) Other Payables xxxx xxxx
3. Other Financial Liabilities xxxx xxxx
B. Other Current Liabilities xxxx xxxx
C. Provisions (Short Term) xxxx xxxx
D. Current Tax Liabilities xxxx xxxx
Total (B) xxxx xxxx

Concept of Important Definitions:

Concept 1: Meaning of Operating cycle

RM Avg. Holding Period For Consumption

Drs WIP
[Processing] Time Taken for
Processing
FG
Time taken by
Debtors for Avg. Holding Period In warehouse
payment
[Avg. collection Period]

1) Under operating cycle, we calculate Total time which is taken by an

entity Form purchase of Raw Material till its collection from
customers after sales.

It can be calculated as follows:-

Avg. Period for consumption of RM XXXX
Avg. Period for Processing (WIP Period) XXXX
Avg. Period for Holding FG before Sale XXXX
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Avg. Collection period from Debtors XXXX

OC XXXX

It can vary according to nature of business

[may be less than 12 m or more than 12m]

2) If an entity is not able to identify its operating cycle, then it will

Be assumed 12 Months by default

3) While computing operating cycle, we will not deduct any credit

period which is provided by suppliers for Raw material. It means
that we will calculate Gross operating cycle period.

Concept 2: Meaning of Non-Current Asset

A Non-Current Asset is an Asset which is not a “Current Asset”.

Concept 3: Meaning of Current Asset*Imp

As per the provisions of schedule III, Any Asset can be classified

as a current Asset if any one condition is satisfied out of following 4
conditions:-

I. If any Asset is expected to be realised within 12 months from B/S

Date or within operating cycle of company.
(i.e. Investments, Trade Receivables, Loans etc.)
Conclusion: On the basis of above explanation, we will consider
collection within 12 m or operating cycle whichever is
higher. It can also be said that Classification of current
Assets on the basis of collection will be made according
to operating cycle if it becomes more than 12 months.

II. If any Asset is expected to be sold or to be consumed within

operating cycle
(i.e. Finished goods, Raw Material, WIP, Stores, Loose Tools etc.)

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III. If any asset is held for Trading

(i.e., Derivatives held in favourable portion at B/s date: Options,
futures, forward etc.)

IV. If any Asset is held in the form of cash & cash equivalents

Concept 4 : Meaning of Non-Current Liabilities:

If any Liability cannot be considered as “Current Liability then it

will be Assumed as Non-Current Liabilities.

Concept 5: Meaning of Current Liabilities:

If anyone conditions out of following conditions is satisfied then

liability will Be considered as a current Liability: -

1. If it is expected to be settled within 12 months form B/s date or

within Operating cycle then it will be a current Liability [12 m or
OC, whichever is higher, will be considered as settlement period]
(i.e. short term Borrowings, Trade Payables, Short Term
Provisions, current Tax Liability etc.)

2. If any Liability is held for Trading.

(Unfavourable position of Derivative: Option, future, forward etc.)

3. If any Liability cannot be deferred for which payment is expected

within 12Months from B/S date (Finance Lease Payment,
Redeemable Bonds or PSC which are due in next year for
Redemptions, Instalments on Loan to be paid in next year.

Question 1, 2,3,4,5,6,7,8 &9

Discussed at class

Question 14, 15 & 16

Homework.

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Explanation on Notes to A/cs related with B/S

Part I : Notes on Assets

Concept 1 : Notes on PPE

1) The entity shall disclose PPE under separate headings on the

basis of Nature of Assets as follows:-
Land, Building, Vehicles, Furniture & Fixtures ,P&M, Bearer
Plants etc.

2) If entity has acquired any PPE on finance lease then ROU

Assets shall be disclosed separately under relevant heading
according to nature of Asset.

3) A reconciliation statement between opening Balances & Closing

Balance Shall be prepared & disclosed to provide Reasoning of
changes in Balances. The following Reasons may be considered:-
i) Additions ii) Disposals iii) Acquired in Business combination
iv)Impairment v) Reversal of Impairment vi) Depreciation
Adjust.

Reconciliation statement on PPE

Particulars Land Building P&M Bearer Vehicles Furniture Etc.
Plants
O. Balance XXX XXX XXX XXX XXX XXX XXX
Addition XXX XXX XXX XXX XXX XXX XXX
Disposals (XXX) (XXX) (XXX) (XXX) (XXX) (XXX) (XXX)
Business XXX XXX XXX XXX XXX XXX XXX
Combination
Impairment (XXX) (XXX) (XXX) (XXX) (XXX) (XXX) (XXX)
Reversal of XXX XXX XXX XXX XXX XXX XXX
Impairment
Depreciation N.A. (XXX). (XXX). (XXX). (XXX). (XXX). (XXX).
C. Balance XXX XXX XXX XXX XXX XXX XXX

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Concept 2 : Note on Capital WIP

All the Assets which are is their construction or installation phase

then such Assets shall be disclosed capital WIP. These Assets may be in
the form of Building WIP, power plant WIP or P&M during installation
phase etc. A reconciliation phase etc. A reconciliation statement shall
also be given for differences between opening WIP &closing WIP.

Note: If any capital Advances has been made during the year for
construction commencement then it will be disclosed other Non-
current Assets until work is not commenced.

Concept 3: Investment Property, GW & Biological Assets

The entity shall prepare a Reconciliation statement in same

format as we have discussed in PPE.

Concept 4: Intangible Assets

1) As per the Rules, Intangible Assets shall be disclosed under

separate headings according to nature of Assets as follows:-
i)Trademarks, ii) Patents, iii) Copyrights, iv) software, v)
Franchises, vi) Mining rights etc.

2) If any Intangible has been taken on lease then it will be disclosed

separately under relevant headings.

3) A Reconciliation statement shall also be provided for changes in

O. Balances & Closing Balances in Intangible exactly in same way as
in case of PPE.

Concept 5: Non-Current & Current Investments

1) The entity will classify its Investments under the following

headings:-
a) Investment in equity shares
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b) Investment in Preference shares

c) Investment in Debentures shares
d) Investment in Govt. Securities
e) Investment in Mutual Funds
f) others

2) If any investment has been made in subsidiaries, Associates or

J.V. then the names of such companies shall also be reported.

3) The classification of investments shall also be reported under

following headings
 Investments in Listed Co. (Quoted)
 Investments in Unlisted Co. (Unquoted)
 Other

Concept 6: Notes on Trade Receivables (Current or Non-Current)

As per the provisions, the following presentation is required to be

given in relation to Trade Receivables in notes to A/cs:-

Trade Receivables (Good) : Secured XXXX

Unsecured XXXX

Trade Receivables : Increase in Credit Risk XXXX

Trade Receivables : Credit Impaired XXXX
XXXX
Provision for Doubtful/ Bad debtors (XXXX)
B/S XXXX
Notes:
If Goods were Sold to a director of entity or to a firm in which
director is a partner or to a company in which he has control then
Recovery from director should be disclosed Separately.

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Concept 7: Loans (Current or Non-Current)

If entity has given Loans to other parties then Loans should be

disclosed under Following headings:-
I) Loan to Related Parties
(i.e., Subsidiaries, Associate, JV, Director etc.)

II) Securities Deposits

III) Others (i.e. Loan to employees etc.)

For additional Disclosures, we will refer notes mentioned in Trade
Receivables.

Concept 8: Inventories

All Inventories should be disclosed under separate headings of

: Raw Material
: WIP
: Finished goods
: Loose Tools
: Stores & Spares etc.

*Mode of Valuation should also be reported

Concept 9: Cash & cash Equivalents (V.V. Imp)

Cash on Hand XXXX
Drafts in Hand XXXX
Changes in hand XXXX
Balances with Banks XXXX
Cash Equivalents XXXX
(i.e Investments upto 90 days) Marketable Securities
XXXX

*If entity has Bank Deposit which is expected to be matured after 3

months but within 12 months then it will be disclosed separately in
current Assets.

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**If any FD is made for more than 12 months then it will be disclosed
under Non-current Assets :Other Financial Assets.

Concept 10: Deferred Tax Assets (Net)

We cannot disclose DTL and DTA separately in B/S. We will calculate

Net Amt after Cancelling these Balances in Contra. If DTA becomes
higher than DTL then Net DTA Will be reported under Non-current
Assets.

Concept 11: Current Tax Assets

If Advance Tax exceeds current Tax after cancelling these Balances

in contra then Net Advance tax will be reported as current Tax Assets
under Current Assets.

*Part 2*

Explanation on Liabilities side

Concept 1: Equity Share capital

As per the Provisions, the following Disclosures in notes to A/cs are

mandatory in relation to ESC:-
I) Authorised Share capital (No. & Amt)
II) Issued & Subscribed share capital (No. & Amt)
III) Paid up capital:-
Fully Paid Up XXXX
Partly Paid up XXXX
Calls in Arrear XXXX
Share Forfeiture A/c XXXX
IV) If any shareholder has 5% or more shares in company then
details should be provided for such shareholders.
V) Reconciliation statement should be provided between opening

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ESC and closing for reasoning in change in capital.

(i.e. Right issue, Bonus Issue, Buy Back, Issue for PC in
Business combination, etc.)
VI) Shares Reserved for ESOP or convertible Debnt. Or convertible
Preference Share capital or for other promises.
VII) % of shares should also be disclosed which are held by holding
company.
VIII) A statement should be prepared additionally for a period of 5
years preceding The current financial having following
disclosures:-
a) Bonus Issue
b) Buy Back
c) Issue for Non-cash consideration

Concept 2: Other Equity

-Refer statement showing-

Changes in equity
(Discussed after P&L statement)

Concept 3: Non-Current Liabilities

A. Borrowings (Long term)

As per the Provisions, Borrowings should be classified under the

following headings;-
I) Debenture/Bonds From Banks
II) Term Loans
From other
III) Deposits
IV) Loan from Related Party
V) Finance lease obligations (Other than Current Maturity)
VI) Liability components in compound financial Instruments.
VII) Others

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Additional Disclosures:-
a) All the Borrowings should also be classified form the point of view of
secured & Unsecured.
b) If any borrowings have been made on director personal Guarantee
then it should also be reported.
c) If company has made any default in payment of principal or
interest on due date then such default should also be reported.

B. Trade Payables (Creditors for Goods)

If any amount is payable after 12 months from B/S date (if [Link] is
more than 12 months then it will replace 12 months) then such payable
Amt to trade payable will be classified under Non-current financial
Liabilities. The following classification is required in relation to Trade
Payables in Notes to A/cs:-

Trade Payables: Due to MSME* XXXX

Others XXXX
XXXX

*Due to MSEM:- 1) The Unpaid Amount at B/S date

2) The Unpaid matured Amt including interest at B/s
date
Enterprise Micro Small Medium
I. Investment in P&M upto 1 upto 10 crore upto 50 crore
Crore

II. Turnover upto 5 upto 50 crore upto 250 crore

Crore

Definitions Amended in July 2020 MSEM Development Act 2006

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C. Provisions (Non-Current) – [Expected to be paid after 12 m]

I) Provisions for employees Benefit XXXX

(Retirement Benefit Plans)
II) Provisions for De-Commissioning Cost XXXX
III) Others (Constructive/ Legal) XXXX
XXXX

D. Deferred Tax Liabilities:-

If balance in DTL A/c exceeds balances in DTA A/c then net Amount
will be reported under DTL.

Concept 4: Current Liabilities

A. Borrowings (Short Term) Expected to be paid within 12 months from

B/S date These Loans shall be classified under following headings:-

Banks (Overdraft CC etc.)

I) Repayable on Demand
Others
II) Deposits
III) Loans from Related Parties
IV) Others

Additional Disclosures:-

-----Same as we notes in-----

Non-Current Borrowings

B. Trade Payables (Short Term)

-----Same Notes as we noted-----

In Non-Current Trade Payables

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C. Other Financial Liabilities

If any contractual obligation, which is expected to be settled within 12

months from B/S date will be disclosed under this headings:-

Redeemable Debentures
I) Current Maturities Redeemable PSC
Others Loans

II) Current maturities of finance lease obligations

III) Unpaid Dividends/ Interest or other Exp.

IV) Unpaid maturities of Deb/PSC/Loans

V) Share Application Money pending for allotment which is

Refundable etc.

D. Provision (short Term):-

Leave, Bonus etc.

Provision for short term emp. Benefit XXX
Warranty provisions XXX
Others XXX

E. Current Tax Liabilities :-

If current Tax on Taxable Income becomes higher than Advance Tax Paid
During the year then Net Amount will be disclosed under Current Tax
Liab.

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Special Point on NCA Held for Sale

As per the Provisions, there is no discussion on NCA Held for sale in

Schedule III. So we Will Apply Ind AS 105 for these Assets.

Unit II : Format of Profit & Loss Statement

Statement of Profit & Loss Comparison Purpose

Current Previous
F.Y F.Y
A. Incomes :-
1. Revenues from Operations xxxx xxxx
2. Other Incomes Interest Income xxxx xxxx

Others Rental Income Dividend Income

Total (A) xxxx xxxx
B. Expenses
1. Cost of Material consumed RM (OB- P- CB) xxxx xxxx
2. Purchase of Stocks (FG) xxxx xxxx
3. Changes in Inventories (CS – OS) + xxxx + xxxx
4. Employees Cost = Salaries, Wages, P.F, xxxx xxxx
Welfare, Share Based Exp. etc.
5. Finance Cost = Int. on Deb, Int. Redeemable xxxx xxxx
PSC, Int. on Loans etc.
6. Depreciation & Amortisation xxxx xxxx

PPE, IP etc. Intangibles

7. Other Expenses xxxx xxxx
Total (B) xxxx xxxx
C. Profit before Tax before Exceptional Items Xxxx xxxx
(A- B)
+ Exceptional Items (Irregular) + xxxx + xxxx
D. Profit before tax xxxx xxxx
Tax Expense : Current Tax (xxxx) (xxxx)
Deferred Tax (Ind AS 12) (xxxx) (xxxx)
E. Profits from continuing Operations xxxx xxxx
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F. Profit (Loss) from Discontinued Operations :-

Profit before Tax xxxx xxxx
Tax Expense : Current Tax (xxxx) (xxxx)
Deferred Tax (xxxx) (xxxx)
Profit (Loss) from Discontinued Operations Xxxx xxxx

G. Profit (Loss) for the Entity (E + F) xxxx xxxx

H. Other Comprehensive Income (OCI) *Imp

I. Items which will not be Reclassified to P&L xxxx xxxx
II. Items which will be Reclassified to P&L xxxx xxxx
Total OCI xxxx xxxx
I. Total comprehensive Income (G + H) xxxx xxxx
It is not considerable for EPS calculation

J. Earning Per share from continuing

Operations :
Basic EPS xxxx xxxx
Diluted EPS xxxx xxxx

K. Earning Per share from Discontinuing

Operations :
Basic EPS xxxx xxxx
Diluted EPS xxxx xxxx
L. Total EPS (Continuing + Discontinuing) :
Basic EPS xxxx xxxx
Diluted EPS xxxx xxxx

Concept I : Important Disclosure

If any Income/ Expense is 1% or more of its Revenue from Operation

or It is 10,00,000Or more in Amount then It will be Reported Separately
in Notes to A/c’s.

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Concept II : Explanation on OCI

OCI

Items which can be Classified Items which cannot be classified

in P&L in P&L

Adjustment in Other Income Adjustment in Retained Earning

/ Other Exp. is Allowed in Statement of other Equity is
only allowed

As per the Provisions, other comprehensive Income is Generated from

fair value Measurements of Assets & Liabilities at B/s date. If any
Reserve is created during the Year or changes take place in Previous
Balance due to fair value measurements then It Will be reported in P&L
under “OCI”. It will be classified under 2 different headings as follows:-
I. Transferrable to P&L on Disposal of Related Asset or Liab.
II. Non-Transferrable to P&L in any case, but It can be taken to R.E
only
Examples

Transferrable Non Transferrable

(P&L) (Retained Earnings)
1) Debt Instruments under OCI 1) Revaluation Res.
option
2) Foreign Currency Translation 2) Defined Benefit obligation for
Reserve on Foreign Operations Employees : Re-measurement
3) Equity Invest With OCI option

*For Presentation, “Refer Statement showing changes in Equity”

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Unit III : Statement showing Changes in Equity *[Link]

A. Share Capital

Opening Balance Changes during the year Closing Balances

Reconciliation
N.I/ R.I/ Bonus/ B. Comb./ conversions/ ESOP etc.

B. Changes in Other Equity *[Link]

Continued below

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Particulars Share Money Reserve & Surplus Equity Other Comprehensive Income
Application Received Capital CRR DRR Sec. G. Retained Other Component Revaluation Debt Equity FCTR Others
Money which Against Res. Premium Res. Earning Res in Res. Inst: Invest
is Not Share Compound OCI OCI
Refundable Capital Financial
(Warran Inst.
ts)
Opening
Balance in
the
beginning
Of year xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
Change in
Policy/
Prior
Period
Items N.A N.A N.A N.A N.A N.A N.A + xxxx N.A N.A + xxxx N.A N.A N.A N.A
Re-Stated
Opening
Balance xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
Current
Year
Total
Comprehe-
nsive
Income N.A N.A N.A N.A N.A N.A N.A + xxx N.A N.A + xxx + xxx + xxx +xxx + xxx

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Dividends - - - - - - - (xxx) - - - - - - -
Transfer
From R.E - - - xxx xxx - xxx (xxx) - - - - - - -
Transfer
To R.E - - - - - - (xx) xxx - - (xxx) - (xxx) - -
Transfer
To P&L - - - - - - - - - - - (xxx) - (xx) -
Closing
Balances xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

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Unit IV : Consolidated financial Statements under Schedule III

 We will understand CFS in Ind AS 110

*Part 3*

Solution of Q.11

Balance sheet

Name of Company : A Ltd.

B/s as at 31.3.2017

Notes Rs.
Assets

Non-Current Assets :-
A. Property, Plant & Equipment 1 706

Current Assets :-
A. Inventory 2 85
B. Financial Assets :-
Trade Receivables - 233
Cash & cash Equivalents - 3
Total A 1027
Equity & liabilities

Equity :
1) Share Capital - 270
2) Other Equity Refer 465
SOCE
Non Current Liab.
A. Financial Liab.
1) Borrowings 3 100

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Current Liabilities :
A. Financial Liabilities
1) Trade Payables 4
B. Current Tax Liab. - 165
Total B 1027

Statement of P&L

Name of Company : A Ltd.

P&L for the year 2016 – 2017

Notes Rs.
Revenues :
A. Revenue from Operations - 2165
B. Other Income 5 16
Total(A) 2181

Expenses :
A. Purchase of Stock - 1260
B. Changes in Inventories 6 45
C. Finance Cost - 25
D. Depreciation 7 74
E. Other Expenses 8 555
Total B 1959
I (A-B) Profit before Tax 222
Tax Expense (165)
II Profit After Tax 57

III Other Comprehensive Income :-

a) Items Non transferrable to P&L :
Revaluation Res on Land - 100
b) Items transferrable to P&L - -
Total 100

Total Comprehensive Income (I + II) - 157

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Notes to A/cs :-
1) PPE
Land Building P&M Total
Opening balance (Cost) 380 100 400 880
Accumulated Dep. (OB) - (30) (170) (200)
Dep. For Current year - (5) (69) (74)
(100x5%) (230 x
30%)
Upward Revaluation 100 - - 100
WDV 480 65 161 706

2) Inventories :

Stock at Cost 95,000

Valuation Loss (15,000 – 5000) (10000)
85000

3) Borrowings (Non current)

Bank Loan 100

100

4) Trade Payables (Current)

Payable to MSME -
Payable to Others 27
27

5) Other Income
Dividend Received 15
Interest Received 1
16

6) Changes in Stock
Opening Stock 140
Closing Stock (95)
Changes 45
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7) Depreciation & Amort.

Dep. On Building (100 x 5%) 5
Dep. On P&M (230 x 30%) 69
74

8) Other Expenses
Adm. Exp. 295
Distribution Cost 250
Valuation Loss on Inventories 10
555

Statement Showing changes in Equity

Part I : Share Capital

Opening Bal. Changes during the year Closing Bal.

Equity share
capital 270 - 270
270 - 270

Part II : other Equity

Particulars Reserve & Surplus Other Total

comprehensive
Securities Retained Income
Premium Earnings Revaluation

Opening Balance 80 235 20 335

Total
comprehensive
Income : CY - 57 100
Dividend Paid - (27) - (27)
Total 80 265 120 465

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Solution of Q.12

Balance Sheet
Name of Company : B Ltd
B/s as at 31.3.2017

Notes Rs.
Assets

Non-Current Assets :-
A. Property, Plant & Equipment - 4250

Current Assets :
A. Inventories - 114
B. Financial Assets :
Current Investments - 2700
Trade Receivables - 418
Cash & Cash Equivalents - 12
C. Other Current Assets (Prepayments) - 25
Total-A 7519

Equity & Liabilities

Equity :
A. Equity Share Capital - 1500
B. Other Equity SOCE 4213

Non-Current Liabilities :
A. Financial Liabilities
Borrowings - 1200

Current Liabilities :
A. Financial Liabilities
Trade Payables - 136
B. Current Tax Liability - 470
Total-B 7519

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Statement Showing Changes in Equity

A. Changes in Share Capital

Opening Bal Changes during the year Closing Bal

S. Capital 1500 - 1500

B. Changes in Other Equity

Reserve & Surplus OCI Total

Share R.E
Premium
Opening Balance 800 1163 - 1963
Total Comprehensive - 2640 - 2640
Income : CY
Dividend Paid - (390) - (390)
Total 800 3413 - 4213

Statement of P&L
Name of company : B Ltd.
SOPL for the Period 2016 -17

Notes Rs.
Revenues
Revenue from Operation - 530
Other Income - 210
Total-A 5510

Expenses :
Cost of Sales - 1350
Finance Cost - 190
Other Exp. - 860
Total-B 2400
Profit before Tax 3110
Tax Exp. (470)
Profit after Tax 2640
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Solution of Q.13

Notes on Mistakes

1) In the Given case, Company has disclosed Long Term Loan including
Accrued Interest which is wrong because Accrued Interest should be
disclosed under current Liab : Other financial Liabilities. So, we will show
Rs.5000 under LTB and Rs.555 under Other financial Liabilities.

2) The company has disclosed DTL/DTA separately, but Schedule III

requires Disclosure of Net Amount. So, we will disclose Net Amount of
Rs.300 as DTA under Non Current Assets.

3) The company has disclosed unclaimed dividend under other current

Liab, but It will be Covered under other financial Liab.

4) In Notes to A/cs, Presentation of Trade Receivables is required to

be corrected as Per Ind AS requirement.

5) The company has disclosed Reserve for forseable future under the
heading of R&S, but It is a short-Term Provision.

Re-Stated Balance sheet

Notes Rs.
Assets

Non Current Assets :

A. Property, Plant & Equipment - 5655
B. Deferred Tax Assets - 300

Current Assets :
A. Inventory - 1000

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B. Financial Assets :-
Trade Receivables 1 1100
Cash & cash Equivalents - 1200
Total 9255
Equity & Liabilities

Equity :
A. Share Capital SOCE 1000
B. Other Equity SOCE 1500

Non Current Liabilities :

A. Long Term Borrowings - 5000

Current Liabilities :
A. Financial Liabilities
1) Trade Payable - 300
2) Other Financial Liab. 2 558
B. Other Current Liabilities - 147
C. Provisions 3 600
D. Current Tax Liabilities - 150
Total 9255

Statement Showing Changes in Equity

A. Equity Share Capital
Opening Bal Changes during the year Closing Bal
Equity S. Capital 1000 - 1000
(100 million shares
Of Rs.10 each)

B. Other Equity
R&S OCI Total
Capital PL
Res.
Opening Balance 500 49 - 549
Total Comprehensive - 951 - 951
Income : CY
Total 500 1000 - 1500
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CA-Final Financial Reporting CA Parveen Jindal Classes

Notes to A/c s :
1) Trade Receivables :
A. Good : Secured 1065
Unsecured -
B. Increase in Credit Risk 40
C. Credit Impaired -
1105
D. Provision for Doubtful/
Bad debts (5)
Net Amount 1100

2) Other Financial Liab. (Current) :

A. Unpaid Dividend 3
B. Interest Accrued 555
558

3) Provisions (Short Term)

Provisions Given in B/s 250
Tax Provision (150)
Forseable Loss 500
600

Thank You
Best of Luck…..!!!!!!
CA. Parveen Jindal

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