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ADDITIONAL QUESTIONS

In 12 Editions

QUESTION BANKS
NOV 2024 EXAM

CA FINAL – PAPER 1
FINANCIAL REPORTING
 ABOUT THE FACULTY
CA Chiranjeev Jain, qualified Chartered Accountancy course in 2005 and completed all the levels of
this course in his very first attempt. He was among the top rank holders in Delhi University and did
his graduation from Sri Ram College of Commerce. He scored more than 90% in Accounts at all levels
of CA and University examinations. He has done Diploma in Information System Audit conducted by
the ICAI. He has also done Masters in Business Administration (MBA) with specialization in Finance.

Career

After completing Academic & Professional Education, he worked with Deloitte Haskin & Sells as a
Chartered Accountant and developed immense skills in the practical application of various
Accounting Standards. Later he set up his own practice as Chartered Accountant and started teaching
Accounts (subject he is passionate about the most). He has conducted classes at Hyderabad,
Bangalore, Kolkata and Ahmedabad.

Teaching

He possesses vast experience in teaching accountancy to students of CA IPCC & Final. He has
conducted face to face classes at Hyderabad, Bangalore, Kolkata and Ahmedabad. His easy way of
teaching Accountancy from the very basic and his motivational lectures are very famous among CA
students' fraternity.

Skills:

He is an expert in both Indian Accounting Standards and International Financial Reporting

Standard.

He has published as book on IND AS named “IND AS Saaransh” which is highly appreciated by CA
final students.

He is also into Corporate Training in the industry and has addressed a number of courses and
seminars organized by Professional.

FOR MORE DETAILS WHATSAPP AT 7731007722

New Questions : Added In Question Bank (Edition 12)

NEW QUESTIONS
ADDED IN QUESTION BANK (EDITION 12)
INCORPAOTAED IN 12 EDITION

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING UNDER IND AS

Q11: Explain the criteria in the Conceptual Framework for Financial Reporting for the recognition and
de-recognition of an asset. [Exam May 24 (4 Marks)]

Ans: Recognition of assets

The Conceptual Framework for Financial Reporting defines an asset as a present economic
resource controlled by the entity as a result of past events. An economic resource is a right that
has the potential to produce economic benefits. Assets should be recognized if they meet the
Conceptual Framework definition of an asset and such recognition provides users of financial
statements with information that is useful i.e. with(a)relevant information; and(b)a faithful
representation of the asset.

(i) Relevance

Information about assets is relevant to users of financial statements. However,

recognition of a particular asset may not always provide relevant information like when:

(a) it is uncertain whether an asset exists; or

(b) an asset exists, but the probability of an inflow or outflow of economic benefits
is low

It may be a combination of factors and not any single factor that determines whether
recognition provides relevant information.

Whether or not the asset is recognised, explanatory information about the uncertainties
associated with it, may need to be provided in the financial statements.

(ii) Faithful representation

Recognition of a particular asset is appropriate if it provides not only relevant information,

but also a faithful representation of that asset and of any resulting income, expenses or
changes in equity. Whether a faithful representation can be provided may be affected by
the level of measurement uncertainty associated with the asset or by other factors.

Faithful representation of a recognised asset involves not only recognition of that item,
but also its measurement as well as presentation and disclosure of information about it.
Derecognition of assets

Derecognition is the removal of all or part of a recognised asset from an entity’s balance sheet.

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 New Questions : Added In Question Bank (Edition 12)

Derecognition normally occurs when that item no longer meets the definition of an asset i.e.
when the entity loses control of all or part of the recognised asset.

In some cases, an entity might appear to transfer an asset but derecognition of that asset is not
appropriate. For example, if an entity has apparently transferred an asset but retains exposure
to significant positive or negative variations in the amount of economic benefits that may be
produced by the asset, this sometimes indicates that the entity might continue to control that
asset. If an entity has transferred an asset to another party that holds the asset as an agent for
the entity1 the transferor still controls the asset.

IND AS - INTRODUCTION
Q11: List out the entities which were covered under Phase I & II under the Companies (Indian
Accounting Standards) Rules 2015 as notified by the MCA along with the specific date of coverage
with its exclusions, if any. [Exams May 2024 (4 Marks)]
Ans: MCA has notified the Companies (Indian Accounting Standards) Rules, 2015. Accordingly, it has
notified 39 Ind AS and has laid down mandatory Ind AS transition roadmap for companies and
non- banking finance companies excluding banking companies and insurance companies under
following two phases:

Phase I

Following companies were covered under Phase I for accounting periods beginning on or after
1st April 2016, with the comparatives for the periods ending on 31st March 2016:

(a) companies whose equity or debt securities are listed or are in the process of being listed
on any stock exchange in India or outside India and having net worth of rupees five
hundred crore or more;

(b) companies other than those covered by sub-clause (a) above and having net worth of
rupees five hundred crore or more;

(c) holding, subsidiary, joint venture or associate companies of companies covered by sub-
clause (a) and sub-clause (b) as mentioned above.

Phase II

Following companies were covered under Phase II for accounting periods beginning on or after
1st April 2017, with the comparatives for the periods ending on 31st March 2017:

(a) companies whose equity or debt securities are listed or are in the process of being listed
on any stock exchange in India or outside India and having net worth of less than rupees
five hundred crore;

(b) companies other than those covered in sub-clause (a) above i.e. unlisted companies
having net worth of rupees two hundred and fifty crore or more but less than rupees five
hundred crore.
(c) holding, subsidiary, joint venture or associate companies of companies covered by sub-
clause (a) and sub-clause (b) as mentioned above.

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New Questions : Added In Question Bank (Edition 12)

Exclusions:

The roadmap shall not be applicable to companies whose securities are listed or are in the
process of being listed on SME without initial public offering in accordance with the provisions of
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Ind AS would not be applicable to companies other than listed companies whose net worth is
less than ₹ 250 Crores and they will continue to follow AS. However, they can voluntary adopt
Ind AS any time.

PRESENTATION OF FINANCIAL STATEMENT (IND AS 1)

Q36: In December, 2022, X Limited entered into a loan agreement with a Bank. The loan is repayable
in five annual installments commencing from 1st October, 2024. One of the material
provisions of the loan agreement is that X limited should create an equitable mortgage on its
assets in favour of the Bank by 31st March, 2023 failing which the loan would become payable
on demand. X Limited is not able to create the equitable mortgage by 31st March, 2023. In April,
2023, X Limited started negotiation with the Bank and requested it not to demand payment due
to non-creation of the equitable mortgage.

Meanwhile the financial statements of X Limited for the year ended 31st March, 2023 were
approved for issue on 30th May, 2023. In the month of June, 2023, the Bank agreed that the
payment would not be demanded immediately as a consequence of breach of the material
provision. How would the loan liability be classified by X Limited as at 31st March, 2023?

[Exam May 2024 (4 Marks)]

Ans: As per Ind AS 1 “Presentation of Financial Statements”, where there is a breach of a material
provision of a long-term loan arrangement on or before the end of the reporting period with the
effect that the liability becomes payable on demand on the reporting date, the entity does not
classify the liability as current, if the lender agreed, after the reporting period and before the
approval of the financial statements for issue, not to demand payment as a consequence of the
breach.

An entity classifies the liability as non-current if the lender agreed by the end of the reporting
period to provide a period of grace ending at least twelve months after the reporting period,
within which the entity can rectify the breach and during which the lender cannot demand
immediate repayment.

In the given case, bank (the lender) agreed for not to demand payment but only after the
reporting date and the financial statements were approved for issuance. The financial statements
were approved for issuance on 30th May 2023 and the Bank agreed for not to demand payment
in the month of June 2023 although negotiation started in the month of April 2023 but could not
agree before May 2023 when financial statements were approved for issuance.

Hence, the liability should be classified as current in the financial statement as at 31st March,
2023.

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 New Questions : Added In Question Bank (Edition 12)

IMPAIRMENT OF ASSETS (IND AS 36)

Q45. At 31st March, 20X1, the assets of a CGU are being reviewed for impairment. The carrying
value of the CGU’s net assets is Rs.65 lakhs (excluding any restructuring provision), and
remaining useful economic life of recognised asset is eight years.

Management’s approved budgets at 31st March, 20X1 include restructuring costs of Rs.3,50,000
to be incurred in 20X2; the restructuring is expected to generate cost savings of Rs.1,00,000 per
annum from 20X3 onwards. Formal budgets have been prepared for the three years to 31st
March, 20X4. A zero-growth rate is assumed, because market conditions are extremely
competitive, and this is expected to continue for the foreseeable future. The future cash flow
estimates are as follows:
Year With restructuringconsideration Without restructuring consideration

20X1-20X2 5,20,000 8,70,000

20X2-20X3 10,00,000 9,00,000
20X3-20X4 10,50,000 9,50,000
20X4-20X5 10,50,000 9,50,000
20X5-20X6 10,50,000 9,50,000
20X6-20X7 10,50,000 9,50,000
20X7-20X8 10,50,000 9,50,000
20X8-20X9 10,50,000 9,50,000

In 20X2, the net cash flows without restructuring (Rs.8,70,000) exceed the net cash flows with
restructuring (Rs.5,20,000) by the amount of the restructuring costs (Rs.3,50,000).
The future cash flows (which exclude inflation) have been discounted at a rate of 4%. For
simplicity, it has been assumed that the cash flows arise at the end of each year.

Compute Impairment Loss at 31st March, 20X1 when-

(i) Restructuring costs is recognised in the financial statements at 31st March, 20X1

(ii) Restructuring costs is not recognised in the financial statements at 31st March, 20X1

[RTP Nov 2024]

Ans: Computation of present value of cash flows under both the following conditions:
(Amount in Rs.)
Year Discountfactor With restructuring consideration Without [Link]

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New Questions : Added In Question Bank (Edition 12)

Future netcash Presentvalue Future net Presentvalue

flows cash flows

(a) (b) (c)=(a)x(b) (d) (e)=(a)x(d)

20X1-20X2 0.962 5,20,000 5,00,000 8,70,000 8,36,000

20X2-20X3 0.925 10,00,000 9,25,000 9,00,000 8,32,000

20X3-20X4 0.889 10,50,000 9,33,000 9,50,000 8,45,000

20X4-20X5 0.855 10,50,000 8,98,000 9,50,000 8,12,000

20X5-20X6 0.822 10,50,000 8,63,000 9,50,000 7,81,000

20X6-20X7 0.790 10,50,000 8,30,000 9,50,000 7,51,000

20X7-20X8 0.760 10,50,000 7,98,000 9,50,000 7,22,000

20X8-20X9 0.730 10,50,000 7,67,000 9,50,000 6,94,000

Value in use 65,14,000 62,73,000

The impairment calculations at 31st March, 20X1 differ according to whether or not provision for
the restructuring costs is recognised in the financial statements. This will depend on whether the
requirements of Ind AS 37 have been met for recognition.

(i) Provision for restructuring costs recognised at 31st March, 20X1

If provision has been made for restructuring costs, the costs and benefits of the
restructuring are taken into account in determining the CGU’s value in use. Here, the post
– restructuring value in use (Rs.6,514,000) exceeds the CGU’s carrying value (Rs.6,500,000
less restructuring provision of Rs.350,000). Hence, there is no impairment of the CGU’s
assets.

In the year to 31st March, 20X1, the financial statements reflect the following charges.

Restructuring provision Rs. 350,000

Impairment loss Nil

(ii) No provision for restructuring costs recognised at 31st March, 20X1

If no provision for restructuring costs is permitted by Ind AS 37, the costs and benefits of
the restructuring have to be stripped out of the projections in determining the CGU’s
value in use. Here, the CGU’s carrying value (Rs.65,00,000) exceeds its pre- restructuring
value in use (Rs.62,73,000). Therefore, there is an impairment loss of Rs.2,27,000.

In the year to 31st March, 20X1, the financial statements reflect the following charges:

Restructuring provisions Nil

Impairment loss Rs.2,27,000

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 New Questions : Added In Question Bank (Edition 12)

FINANCIAL INSTRUMENTS (IND AS 32/107/109)

Q81. XYZ Ltd. is a company incorporated in India. It provides Rs. 10,00,000 interest free loan to its
wholly owned Indian subsidiary, ABC Ltd. There are no transaction costs.

State how the loan be accounted for, in the separate financial statements of XYZ Ltd., individual
financial statements of ABC Ltd. and consolidated financial statements of the group when the
loan is repayable after 3 years. The current market rate of interest for similarloanis10%[Link]
both holding and subsidiary. [MTP Nov 2024]

Ans: Ind AS 109 requires that financial assets and liabilities are recognized on initial recognition at its
fair value, as adjusted for the transaction cost. In accordance with Ind AS 113 Fair Value
Measurement, the fair value of a financial liability with a demand feature (e.g., a demand deposit)
is not less than the amount payable on demand, discounted from the first date that the amount
could be required to be paid.
Both parent and subsidiary recognize financial asset and liability, respectively, at fair value on
initial recognition. The difference between the loan amount and its fair value is treated as an
equity contribution to the subsidiary. This represents a further investment by the parent in the
subsidiary.

Accounting in the books of XYZ Ltd (Parent)

Particulars Amount Amount
On the date of loan
Loan to ABC Ltd(Subsidiary) Dr. 7,51,315
Deemed Investment (Capital Contribution) in ABC Ltd. Dr. 2,48,685
To Bank 10,00,000
(Being the loan is given to ABC Ltd and recognised at fair value)
Accrual of Interest income
Loan to ABC Ltd Dr. 75,131
To Interest income 75,131
(Being interest income accrued)–Year1
Loan to ABC Ltd Dr. 82,645
To Interest income 82,645
(Being interest income accrued)–Year-2
Loan to ABC Ltd Dr. 90,909
To Interest income 90,909
(Being interest income accrued)–Year-3
On repayment of loan

Bank Dr. 10,00,000

To Loan to ABC Ltd (Subsidiary) 10,00,000

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New Questions : Added In Question Bank (Edition 12)

LEASES (IND AS 116)

Q66: Sun Limited has entered into a Lease Agreement with Moon Limited for taking on lease an office
building of 1000 square feet at the rate of ₹ 500 per square feet per annum for a period of 10
years. The annual lease payments are payable at the end of each year. The interest rate implicit
in the lease cannot be readily determined. Sun Limited’s incremental rate of borrowing at the
commencement date is 6% per annum. At the beginning of the year 7, the lessor and the lessee
agree to amend the original lease by extending the contractual lease term by another four years.
The annual lease payments are unchanged for the extended period also. Sun Limited’s
incremental rate of borrowing at the commencement of Year is 7% per annum.

How should the said modification be accounted for in the books of Sun Limited? Give your
calculation by adopting the Present Value factor as under:

Year 1 2 3 4 5 6 7 8 9 10 Cumul.
7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 7.023
6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 7.359

[Exam May 24 (8 Marks)]

Ans: At the effective date of the modification (at the beginning of Year 7), Sun Ltd. (Lessee) re-
measures the lease liability based on:

a. An eight-year remaining lease term

b. Annual payments of ₹ 5,00,000 and

c. Lessee’s incremental borrowing rate of 7% p.a.

1. Calculation of Lease liability as at commencement date

Year Lease Payment Present valuefactor Present value of lease

(A) @ 6% (B) payments (A x B = C)
₹ ₹ ₹
1 5,00,000 0.943 4,71,500
2 5,00,000 0.890 4,45,000
3 5,00,000 0.840 4,20,000
4 5,00,000 0.792 3,96,000
5 5,00,000 0.747 3,73,500
6 5,00,000 0.705 3,52,500
7 5,00,000 0.665 3,32,500
8 5,00,000 0.627 3,13,500

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 New Questions : Added In Question Bank (Edition 12)

9 5,00,000 0.592 2,96,000

10 5,00,000 0.558 2,79,000
Lease liability as at commencement date 36,79,500

Alternatively,

Present Value of lease liability may be calculated as follows:

= ₹ 5,00,000 x 7.359 = ₹ 36,79,500.

2. Calculation of Lease liability immediately before modificationdate

Year Opening lease Interest@ 6% Lease Closing

liability (A) (B) =[A x 6%] payments liability
(C) (D) =
[A+B-C]
₹ ₹ ₹ ₹
1 36,79,500(W.N.1) 2,20,770 5,00,000 34,00,270

2 34,00,270 2,04,016 5,00,000 31,04,286

3 31,04,286 1,86,257 5,00,000 27,90,543
4 27,90,543 1,67,433 5,00,000 24,57,976
5 24,57,976 1,47,479 5,00,000 21,05,455
6 21,05,455 1,26,327 5,00,000 17,31,782
Lease liability as at modification date 17,31,782

3. Calculation of modified lease liability

Year Lease Payment (A) Present valuefactor Present value of
@ 7% (B) lease payments
(A x B=C)
₹ ₹
7 5,00,000 0.935 4,67,500
8 5,00,000 0.873 4,36,500
9 5,00,000 0.816 4,08,000
10 5,00,000 0.763 3,81,500
11 5,00,000 0.713 3,56,500
12 5,00,000 0.666 3,33,000
13 5,00,000 0.623 3,11,500
14 5,00,000 0.582 2,91,000

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New Questions : Income Taxes (IND AS 12)

Modified lease liability 29,85,500

Alternatively,

Present Value of lease payment of modified lease term may be calculated as follows:

= ₹ 5,00,000 x 5.971 = ₹ 29,85,500.

4. Adjustment to ROU asset ₹

Modified Lease liability (W.N.3) 29,85,500
Original Lease liability as at modification date(W.N.2)
(17,31,782)
Adjustment to ROU asset 12,53,718

The modified lease liability equals ₹ 29,85,500 (W.N. 3). The lease liability immediately before
the modification (including the recognition of the interest expense until the end of Year 6) is ₹
17,31,782 (W.N.2). Sun Ltd. (Lessee) recognises the difference between the carrying amount of
the modified lease liability and the carrying amount of the lease liability immediately before the
modification (i.e., ₹ 12,53,718) (W.N.4) as an adjustment to the ROU Asset.

The ROU asset will be increased by ₹ 12,53,718 on the date of modification.

INCOME TAXES (IND AS 12)

Q38. X Ltd., an Indian company owns a freehold land with carrying value of Rs.10,00,000 which is not
depreciated for tax purposes but is indexed for inflation. Indexed value and fair value of such
land is Rs.15,00,000 and Rs.22,00,000 respectively as of the reporting date. What will be the tax
base for such freehold land for measurement of deferred tax if:

a. X Ltd. intends to sell it as a part of slump sale of business eventually after using it for
business purpose

b. X Ltd. intends to sell the land individually and not on a slump sale basis
c. X Ltd. has classified such land as investment property and intends to sell it individually
and not on a slump sale basis

d. X Ltd. follows a revaluation model for freehold land and intends to sell it individually and
not on a slump sale

As per the applicable tax laws in the jurisdiction, indexation benefit is not available if the freehold
land is sold as a part of slump sale of business, but indexation benefit is available if freehold land
is sold individually. [RTP Nov 2024]

Ans: Paragraphs 51 and 51A of Ind AS 12, state that the measurement of deferred tax liabilities and
deferred tax assets shall reflect the tax consequences that would follow from the manner in
which the entity expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.

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 New Questions : Income Taxes (IND AS 12)

In some jurisdictions, the manner in which an entity recovers (settles) the carrying amount of an
asset (liability) may affect either or both of:

a. the tax rate applicable when the entity recovers (settles) the carrying amount of the asset
(liability); and

b. The tax base of the asset (liability).

In such cases, an entity measures deferred tax liabilities and deferred tax assets using the tax rate
and the tax base that are consistent with the expected manner of recovery or settlement.”

The expectation of the entity at the end of the reporting period with regard to the manner of
recovery or settlement of its assets and liabilities will require exercise of judgments based on
evaluation of facts and circumstances in each case. It may be relevant to consider that there is
substance to management’s expectation of the entity being able to recover the asset through
slump sale or otherwise.

Depending on the facts and circumstances, it is generally assumed that the Company will act in
the most economically advantageous way.

If a non-depreciable asset is measured using the revaluation model, then an entity is required to
measure the DTA/DTL considering the tax consequences of recovering the carrying amount
through sale.

Accordingly, based on assumption around supporting facts and circumstances to support

management expectation around recovery or settlement, following will be the tax base for
computing the deferred tax assets/ liability, in the given case:

(i) X Ltd. intends to sell it as slump sale eventually after using it for business purpose

If it is concluded based on evaluation of facts that the freehold land will be sold through
slump sale, then the tax base of the land will be the same as the carrying amount of the
land, as indexation benefit is not available in case of slump sale and hence there will not
be any temporary difference.
(ii) X Ltd. intends to sell the land individually and not on a slump sale basis

In the given scenario, the company intends to sell the land individually and not on a slump
sale such that the company would get indexation benefit.

Thus, book base of land, i.e. carrying amount of freehold land in the balance sheet is
Rs.10,00,000. As per paragraph 51A of Ind AS 12, the tax base (amount that will be
deductible for tax purposes against any taxable economic benefits that will flow to the
entity when it recovers the carrying amount of the asset) is the indexed valued of
Rs.15,00,000 since the company intends to sell the land individually and not on slump sale
and thus get indexation benefit. Deferred tax assets will be set up, subject to
recoverability, on a deductible tax difference of Rs.5,00,000.
(iii) X Ltd. has classified such land as investment property and intends to sell it individually
and not on a slump sale

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New Questions : Income Taxes (IND AS 12)

Paragraph 56 of Ind AS 40, Investment property, requires that after initial recognition, an
entity shall measure all of its investment properties in accordance with the requirement
for cost model as per Ind AS 16, other than those that meet the criteria to be classified as
held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and
Discontinued Operations. Ind AS 40 does not allow fair value model. Accordingly, freehold
land classified as investment property will be measured at cost.

Thus, book base of land, i.e. carrying amount of freehold land in the balance sheet is
Rs.10,00,000. The Company intends to sell the land individually and not on a slump sale
and thus get indexation benefit. Hence, as per paragraph 51A of Ind AS 12, the tax base
(amount that will be deductible for tax purposes against any taxable economic benefits
that will flow to the entity when it recovers the carrying amount of the asset) is the
indexed valued of Rs.15,00,000. Accordingly, deferred tax assets will be set up, subject to
recoverability, on deductible tax difference of Rs.5,00,000.

(iv) X Ltd. follows a revaluation model for freehold land and intends to sell it individually
and not on a slump sale.

If X Ltd. follows a revaluation model, carrying amount of freehold land in the balance
sheet would be Rs.22,00,000. Thus, book base of land is Rs.22,00,000.

The Company intends to sell the land individually and not on a slump sale and thus get
indexation benefit. Hence, as per paragraph 51A of Ind AS 12, the tax base (amount that
will be deductible for tax purposes against any taxable economic benefits that will flow
to the entity when it recovers the carrying amount of the asset) is the indexed valued of
Rs.15,00,000. Accordingly, deferred tax liability will be set up on taxable temporary
difference of Rs.7,00,000.

As per paragraph 39 of Ind AS 16, if an asset’s carrying amount is increased as a result of

a revaluation, the increase shall be recognised in other comprehensive income and
accumulated in equity under the heading of revaluation surplus. Accordingly, the effect
of deferred tax liability should also be recognised in other comprehensive income as per
paragraph 57 and 61A of Ind AS 12.

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 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
CONSOLIDATED AND SEPARATE FINANCIAL
STATEMENTS OF GROUP ENTITIES
UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS

Q61: The Accountant Mr. Ramesh Kanna of ‘H’ Limited submitted to you the following Stand alone
Balance Sheet extracts as at31stMarch2024:
H Ltd. S Ltd. A Ltd.
Assets
Non-current assets
(a)Property, Plant and 5,50,000 4,80,000 2,50,000
Equipment
(b)Financial Assets
Investments: 4,80,000 2,50,000
14,000sharesinS 5,60,000
Ltd.
4,000 shares in A 1,00,000 12,10,000
Ltd.
Current assets
(a)Inventory 4,85,000 3,82,500 2,45,500
(b)Financial Assets
Cash and cash 89,000 98,000 1,77,000
equivalents
Trade receivables 3,95,000 9,69,000 3,05,000 7,85,500 1,78,500 6,01,000
Total Assets 21,79,000 12,65,500 8,51,000
Equity & Liabilities
Shareholder’s Equity
(a)Equity Share Capital 5,00,000 2,00,000 1,00,000
(₹ 10 per share)
(b)Other Equity
Retained earnings 9,00,000 14,00,000 7,50,000 9,50,000 4,24,000 5,24,000
Non-current liabilities
(a)Financial Liabilities
Borrowing–Term 4,00,000 1,50,000 1,00,000
Loans
Current liabilities

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UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
(a)Financial Liabilities
Trade payables 3,79,000 1,65,500 2,27,000
Total Equity and 21,79,000 12,65,500 8,51,000
Liabilities
The following additional information is made available in respect of these companies:

(i) H Limited purchased the shares in S Limited on 31st October 2023 when retrained
earnings of S Limited was ₹500,000 and the shares in A Limited were acquired on 30th
June 2023 when its retained earnings stood at ₹1,75,000.
(ii) Inventory of A Limited as on 31st March, 2024 include inventory valued at ₹ 60,000 which
had been purchased from H Limited, on 1st January, 2024 at cost plus 20%.
(iii) Trade payable of H Limited includes ₹ 25,000 payable to A Limited, the amount receivable
being recorded in the receivables of A Limited.
(iv) Goodwill in respect of the acquisition of S Limited has been fully impaired. The
recoverable amount of the investment in A Limited exceeds its’ carrying value at 31st
March 2024. Non-controlling interest is valued at the proportionate share of the
identifiable net assets.
(v) 10% dividends we declared by both H Limited and S Limited whereas A Limited declared
15% dividend for the year 2023-24.
(vi) On 31st March, 2024, S Limited made a bonus issue of one equity share for every two
shares held by the shareholders of S Limited.
(vii) Dividends were declared but were not accounted for by all these companies in the books
before they earned. Similarly, the bonus issued by S Limited was not reflected in the
balance sheet as on 31st March, 2024.
You are required to take note of the above available information and draw the consolidated
Balance Sheet of H Limited as at 31st March 2024. Notes to accounts are not required.
[May 2024 Exam]
Ans: Note: Since adjustments (v) and (vii) of the question state that dividend has been declared by all
the entities but no information is provided whether it has been paid or due. In this regard, it may
be noted that since dividend is paid for the entire year 2023-2024, it is assumed as final dividend
which is approved in the Annual General Meeting conducted at later point time from the
reporting date.

Accordingly, following assumptions are possible based on which alternative solutions have been
provided:

(a) Ignored the adjustment for dividend completely as dividend has to be approved in the
Annual General Meeting.
(b) Considered dividend was declared but not paid.
(c) Considered dividend was declared and paid.

P a g e | 13.13
 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Alternative A: Ignore the adjustment for dividend completely as it has to be approved in the
AGM.

Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. and Associate A Ltd. as at 31st
March, 2024

₹
Assets
Non-current assets
Property, plant and equipment (₹ 5,50,000 + ₹ 4,80,000) 10,30,000
Goodwill (₹ 70,000- Impaired ₹ 70,000) Nil
Financial assets
Investment in A Ltd. (W.N.1 (iii)) 2,05,600
Current assets
Inventory (₹ 4,85,000+ ₹ 3,82,500) 8,67,500
Financial assets
Cash and cash equivalents (₹ 89,000 + ₹ 98,000) 1,87,000
Trade receivables (₹ 3,95,000+₹ 3,05,000) 7,00,000
Total 29,90,100
Equity and Liabilities
Equity
Share capital - Equity shares of ₹ 10 each 5,00,000
Other equity (W.N.4+ W.N.1(i)) 11,10,600
Non-controlling interest (W.N.3) 2,85,000
Non-current liabilities
Financial liabilities
Borrowings-term loans (₹ 4,00,000 + ₹ 1,50,000) 5,50,000
Current Liabilities
Financial liabilities
Trade payables (₹3,79,000+₹ 1,65,500) 5,44,500
Total 29,90,100
Working Notes:

1. Computation of Investment in Associate A Ltd. as per Equity method

(i) Capital reserve on the date of acquisition

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UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
The cost of the investment is lower than the net fair value of the investee’s
identifiable assets and liabilities. Hence there is capital reserve calculated as
follows:
₹
Cost of acquisition of investment 1,00,000
H Ltd.’s share in fair value of net assets of A Ltd.
on the date of acquisition [(1,00,000 + 1,75,000) X 40%] (1,10,000)
Capital Reserve
10,00
0
Capital reserve is recorded directly in equity.
(ii) Share in profit of A Ltd.

Share in post-acquisition profit of A Ltd. [(4,24,000 - 1,75,000) 99,600

X 40%]
(iii) Closing balance of investment of Associate A Ltd. at the endof the year

₹
Cost of acquisition of investment 1,00,000
Add: Capital reserve 10,000
Share in post-acquisition profit 99,600
Less: Unrealized gain on inventory [(60,000 X 20/120) x 40%] (4,000)
Closing balance of investment 2,05,600
2. Analysis of Retained Earnings of S Ltd.

(i) Retained Earnings (RE) of S Ltd. ₹

Closing balance as on 31st March, 2024 7,50,000

Less: Pre-acquisition as on 31st October, 2023 (5,00,000)
Post-acquisition Profit 2,50,000
(ii) st
Computation of net worth (net identifiable assets) as on31 October, 2023

Share Capital of S Ltd. 2,00,000

Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000
(iii) Computation of Goodwill on acquisition date of S Ltd.

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 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Purchase consideration 5,60,000
NCI as per proportionate share method
(7,00,000 X 30%) 2,10,000 7,70,000
Less: Net worth or Net IdentifiableAssets (7,00,000)
Goodwill 70,000
3. Non-Controlling Interest as on 31st March, 2024 ₹

NCI (by proportionate share method) as on 31st October,

2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 75,000
NCI as on 31st March, 2024 2,85,000
4. Consolidated Retained Earnings

Particulars H Ltd S Ltd.

₹ ₹
Opening Balance of Retained Earnings 9,00,000
Post-acquisition Retained Earnings(W.N.2(i)) 2,50,000
Less: Unrealised gain on downstream transaction with (4,000)
Associate A Ltd.
Less: Impairment of Goodwill onacquisition of S Ltd. (70,000)
Add: Share of profit and loss in AssociateA Ltd. 99,600
Less: Share of NCI in post-acquisition Retained Earnings (75,000)
[2,50,000 x 30%]
9,25,600 1,75,000
Total Consolidated Retained Earnings 11,00,600
Note: Bonus issue by a subsidiary is a transaction with owner in their capacity as owner.
Therefore, bonus issue is only a transfer from one component of equity to the other thereby not
changing the equity. Accordingly, though bonus issue shall be accounted in the individual
financial statements of subsidiary, the same shall not have any effect in consolidated financial
statements of the Group.

Alternative B: Considered dividend was declared but not paid

Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. And Associate A Ltd. as at 31st
March, 2024

₹
Assets
Non-current assets
Property, plant and equipment (₹ 5,50,000 + ₹ 4,80,000)

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UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
10,30,000
Goodwill (₹ 70,000- Impaired ₹ 70,000) Nil
Financial assets
Investment in A Ltd. (Refer W.N.1 (iii)) 1,99,600
Current assets
Inventory (₹ 4,85,000 + ₹ 3,82,500) 8,67,500
Financial assets
Cash and cash equivalents (₹ 89,000+ ₹ 98,000) 1,87,000
Trade receivables (₹ 3,95,000+₹ 3,05,000) 7,00,000
Other Receivables
(Dividend receivable from A Ltd. (₹ 15,000 x 40%) 6,000
Total 29,90,100
Equity and Liabilities
Equity
Share capital - Equity shares of ₹ 10 each 5,00,000
Other equity (W.N.4+W.N.1(i)) 10,60,600
Non-controlling interest (W.N.3) 2,79,000
Non-current liabilities
Financial liabilities
Borrowings- term loans (₹ 4,00,000 + ₹ 1,50,000) 5,50,000
Current Liabilities
Financial liabilities
Trade payables (₹ 3,79,000+₹ 1,65,500) 5,44,500
Other payables 56,000
[Dividend payable to NCI by S Ltd. (₹ 20,000 x 30%) ₹ 6,000+
Dividend payable by H Ltd. to its shareholders ₹50,000)
Total 29,90,100
Working Notes:

1. Computation of Investment in Associate A Ltd. as per Equity method

(i) Capital reserve on the date of acquisition

The cost of the investment is lower than the net fair value of the investee’s
identifiable assets and liabilities. Hence there is capital reserve calculated as
follows:

₹
Cost of acquisition of investment 1,00,000

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 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Less: H Ltd.’s share in fair value of net assets of A Ltd. on the date
of acquisition [(1,00,000 + 1,75,000) x 40%] (1,10,000)

Capital Reserve 10,000

Capital reserve is recorded directly in equity.
(ii) Share in profit of A Ltd.

₹
Share in post-acquisition profit of A Ltd. [(4,24,000-
1,75,000) x 40%] 99,600
Less: Dividend (1,00,000 x 15% x 40%) (6,000)
Share in profit of A Ltd. 93,600
(iii) Closing balance of investment of Associate A Ltd. at the endof the year

₹
Cost of acquisition of investment 1,00,000
Add: Capital reserve 10,000
Share in post-acquisition profit 93,600
Less: Unrealised gain on inventory[(60,000 x 20/120)
x 40%] (4,000)
Closing balance of investment 1,99,600
2. Analysis of Retained Earnings of S Ltd.

(i) Retained Earnings (RE) of S Ltd.

Closing balance as on 31st March, 2024 7,50,000

Less: Pre-acquisition as on 31st October, 2023 (5,00,000)
Post-acquisition Profit 2,50,000
(ii) st
Computation of net worth (net identifiable assets) as on31 October, 2023
₹

Share Capital of S Ltd. 2,00,000

Add: Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000
(iii) Computation of Goodwill on acquisition date of S Ltd. ₹

Purchase consideration 5,60,000

NCI as per proportionate share method
(7,00,000 x 30%) 2,10,000 7,70,000

P a g e | 13.18
UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Less: Net worth or Net IdentifiableAssets
(7,00,000)
Goodwill 70,000
3. Non-Controlling Interest as on 31st March, 2024 ₹

NCI (by proportionate share method) as on 31st October,

2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 69,000
NCI as on 31st March, 2024 2,79,000
4. Consolidated Retained Earnings

Particulars H Ltd. S Ltd.

₹ ₹
Opening Balance of Retained Earnings 9,00,000
Post-acquisition Retained Earnings (W.N.2(i)) 2,50,000
Less: Unrealised gain on downstream transaction with (4,000)
Associate A Ltd.
Less: Impairment of Goodwill on acquisitionof S Ltd. (70,000)
Add: Share of profit and loss in AssociateA Ltd. 93,600
Less: Dividend payable by H Ltd. (50,000) (20,000)
Add: Dividend Income receivable from S Ltd. 14,000
Add: Dividend income receivable from A Ltd. 6,000
Less: Share of NCI in post-acquisitionRetained Earnings (69,000)
[(2,50,000 - 20,000) x 30%]
8,89,600 1,61,000
Total Consolidated Retained Earnings 10,50,600

Note: Bonus issue by a subsidiary is a transaction with owner in their capacity as owner.
Therefore, bonus issue is only a transfer from one component of equity to the other thereby not
changing the equity. Accordingly, though bonus issue shall be accounted in the individual
financial statements of subsidiary, the same shall not have any effect in consolidated financial
statements of the Group.
Alternative C: Considered dividend was declared and paid

Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. and Associate A Ltd. as at 31st
March, 2024.

₹
Assets
Non-current assets

P a g e | 13.19
 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Property, plant and equipment (₹ 5,50,000 +
₹ 4,80,000) 10,30,000
Goodwill (₹ 70,000- Impaired ₹ 70,000) Nil
Financial assets
Investment in A Ltd. (Refer W.N.1 (iii)) 1,99,600
Current assets
Inventory (₹ 4,85,000+ ₹ 3,82,500) 8,67,500
Financial assets
Cash and cash equivalents [(₹ 89,000 - ₹ 50,000 +
₹ 14,000 + ₹ 6,000) + (₹ 98,000 - ₹ 20,000)] 1,37,000
Trade receivables (₹ 3,95,000+₹ 3,05,000) 7,00,000
Total 29,34,100
Equity and Liabilities
Equity
Share capital - Equity shares of ₹ 10 each 5,00,000
Other equity (W.N.4+W.N.1(i)) 10,60,600
Non-controlling interest (W.N.3) 2,79,000
Non-current liabilities
Financial liabilities
Borrowings- term loans (₹ 4,00,000 + ₹ 1,50,000) 5,50,000
Current Liabilities
Financial liabilities
Trade payables (₹ 3,79,000+₹ 1,65,500) 5,44,500
Total 29,34,100
Working Notes:

1. Computation of Investment in Associate A Ltd. as per Equity method

(i) Capital reserve on the date of acquisition

The cost of the investment is lower than the net fair value of the investee’s
identifiable assets and liabilities. Hence there is capital reserve calculated as
follows:

₹
Cost of acquisition of investment 1,00,000
Less: H Ltd.’s share in fair value of net assets ofA Ltd. on (1,10,000)
the date of acquisition [(1,00,000 + 1,75,000) x 40%]

P a g e | 13.20
UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Capital Reserve 10,000
Capital reserve is recorded directly in equity.
(ii) Share in profit of A Ltd.

₹
Share in post-acquisition profit of A Ltd. [(4,24,000 - 99,600
1,75,000) x 40%]
Less: Dividend (1,00,000 x 15% x 40%) (6,000)
Share in profit of A Ltd. 93,600
(iii) Closing balance of investment of Associate A Ltd. at the endof the year

₹
Cost of acquisition of investment 1,00,000
Add: Capital reserve 10,000
Share in post-acquisition profit 93,600
Less: Unrealised gain on inventory [(60,000 x20/120) x 40%]
(4,000)
Closing balance of investment 1,99,600
2. Analysis of Retained Earnings of S Ltd.

(i) Retained Earnings (RE) of S Ltd. ₹

Closing balance as on 31st March, 2024 7,50,000

Less: Pre-acquisition as on 31st October, 2023 (5,00,000)
Post-acquisition Profit 2,50,000
(ii) Computation of net worth (net identifiable assets) as on 31st October, 2023
₹

Share Capital of S Ltd. 2,00,000

Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000
(iii) Computation of Goodwill on acquisition date of S Ltd. ₹

Purchase consideration 5,60,000

NCI as per proportionate share method
(7,00,000 x 30%) 2,10,000 7,70,000

Less: Net worth or Net IdentifiableAssets

(7,00,000)

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 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Goodwill 70,000
4. Non-Controlling Interest as on 31st March, 2024 ₹

NCI (by proportionate share method) as on 31st October,

2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 69,000
NCI as on 31st March, 2024 2,79,000
5. Consolidated Retained Earnings ₹

Particulars H S
Ltd. Ltd.
Opening Balance of Retained Earnings 9,00,000
Post-acquisition Retained Earnings(W.N.2(i))
2,50,000
Less: Unrealised gain on downstream transaction with (4,000)
Associate A Ltd.
Less: Impairment of Goodwill onacquisition of (70,000)
S Ltd.
Add: Share of profit and loss in AssociateA Ltd. 93,600
Less: Dividend paid (50,000) (20,000)
Add: Dividend Income received fromS Ltd. 14,000
Add: Dividend income received fromA Ltd. 6,000
Less: Share of NCI in post-acquisitionRetained Earnings (69,000)
[(2,50,000 - 20,000) x 30%]
8,89,600 1,61,000
Total Consolidated Retained Earnings 10,50,600

Note: Bonus issue by a subsidiary is a transaction with owner in their capacity as owner.
Therefore, bonus issue is only a transfer from one component of equity to the other thereby not
changing the equity. Accordingly, though bonus issue shall be accounted in the individual
financial statements of subsidiary, the same shall not have any effect in consolidated financial
statements of the Group.

UNIT 2: IND AS 111: JOINT ARRANGEMENTS

Q9. P Limited and Q Limited enter into a contractual arrangement to buy a building that has 12 floors,
which they will lease to other parties. P Limited and Q Limited are authorised to lease five floors
each. P Limited and Q Limited can unilaterally make all decisions related to their respective floors
and are entitled to all of the income from those floors. The remaining two floors will be jointly
managed – all decisions concerning these two floors must be unanimously agreed to between P
Limited and Q Limited who will share net profits or net losses in respect of these two floors

P a g e | 13.22
UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
equally, i.e. they both have the rights to the net assets of the arrangement. The leasing of
property is determined to be the relevant activity.

Whether this arrangement is a joint operation or a joint venture? [RTP Nov 2024]

Ans: Paragraphs 15-17 of Ind AS 111 state that a joint operation is a joint arrangement whereby the
parties that have joint control of the arrangement have rights to the assets and obligations for
the liabilities, relating to the arrangement. Those parties are called joint operators.

Further, a joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called joint
venturers.

Furthermore, an entity applies judgments when assessing whether a joint arrangement is a joint
operation or a joint venture. An entity shall determine the type of joint arrangement in which it
is involved by considering its rights and obligations arising from the arrangement. An entity
assesses its rights and obligations by considering the structure and legal form of the
arrangement, the terms agreed by the parties in the contractual arrangement and, when
relevant, other facts and circumstances.

In the given case, accounting by P Limited and Q Limited would be as follows:

(i) Five floors that P Limited controls

Five floors that are controlled by P Limited shall be accounted for by P Limited as
investment property under Ind AS 40, Investment Property, which defines the term
‘investment property’ as property (land or a building—or part of a building—or both) held
(by the owner or by the lessee under a finance lease) to earn rentals or for capital
appreciation or both, rather than for:

i. use in the production or supply of goods or services or for administrative

purposes; or

ii. sale in the ordinary course of business.

(ii) Five floors that Q Limited controls

Five floors that are controlled by Q Limited shall be accounted for by Q Limited as
investment property under Ind AS 40.

(iii) Two floors that P Limited and Q Limited jointly control

For the two floors that are jointly controlled by P Limited and Q Limited, as per the
contractual arrangement, both P Limited and Q Limited will share net profits or net losses
equally i.e. they both have the rights to the net assets of the arrangement. Thus, the
arrangement in respect of these two floors is a joint venture and shall be accounted for
accordingly by P Limited and Q Limited.

P a g e | 13.23
 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
RELATED PARTY DISCLOSURES (IND AS 24)
Q17: One of the directors of Build well Ltd. Mr. Ben Jones has informed Central Finance team that on
1st January 20X3, his spouse acquired a controlling interest in one of Build well Ltd.’s major
suppliers, Candour Ltd. Mr. Jones seemed to think that this would have implications on the
financial statements of Build well Ltd. Build well Ltd. has been purchasing goods from Candour
Ltd. Rs. 1·5 million per month of the year ended 31st March 20X3.
As per the financial statements of Build well Ltd. This is a significant amount. While checking all
the purchase transactions it was found that all the purchases from Candour Ltd. Were made at
normal market rates.
How the effect of acquisition of controlling interest in Candour Ltd. By Mr. Ben Jones is to be
reflected in the financial statements for the year ending 31st March20X3? [MTP Nov 2024]
Ans: In accordance with Ind AS 24 ‘Related Party Disclosures’, effective 1st January 20X3, Candour Ltd.
Would be regarded as a related party of Build well Ltd. This is because Candour Ltd. Is controlled
by the close family member of one of Build well Ltd.’s key management personnel. This means
that from 1st January 20X3, the purchases from Candour Ltd. Would be regarded as related party
transactions.
As per the provisions of Para 18 of Ind AS 24, transactions with related parties need to be
disclosed in the notes to the financial statements, together with the nature of the relationship.
It is irrelevant whether or not these transactions are at normal market rates. As
perpara23ofthestandard, disclosures that related party transactions were made on terms
equivalent to those that prevail in arm’s length transactions are made only if such terms can be
substantiated.
The disclosure is required to state that Candour Ltd., controlled by the spouse of a director,
supplied goods to the value of Rs.4·5million (3 X Rs.1·5 million) in the current accounting period.

INTERIM FINANCIAL REPORTING (IND AS 34)

Q17: Dhruv Limited, a production company, sells television to various companies all over India.
Company's financial year ends on 31st March. For the financial year 2022-2023, the company had
a net profit after taxes of ₹ 2.4 crores. It prepares and publishes an interim financial report for
each quarter of the year. The net profit of the company for the second quarter of 2023-2024 is ₹
56 Lakhs.

Following adjustments are to be made while computing the net profit of second quarter:

(a) The company has a practice of declaring bonus of 5% of its profit after taxes of previous
financial year. It has a history of doing so and the amount is recognised equally in each
quarter. It declared bonus on 1st June 2023 but recognised the full amount in second
quarter.

(b) The company intends to incur major repair and renovation expense for the office building.
For this purpose, it has started seeking quotations from vendors. It also has tentatively
identified a vendor and expected costs are ₹ 34 lakhs. It provided for the same in this
quarter.

P a g e | 13.24
UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
(c) Exceptional loss of ₹ 4.2 Lakhs incurred during the second quarter due to workers’ strike.
50% of exceptional loss has been deferred to next quarter.

Ascertain the correct net profit with reasons to be shown in the Interim Financial Report of
second quarter to be presented to the Board of Directors. [Exam May 2024 (5 Marks)]

Ans: In the instant case, the quarterly net profit has not been correctly stated. As per Ind AS 34, Interim
Financial Reporting, the quarterly net profit should be adjusted and restated as follows:

a) A liability for bonus may arise out of legal agreement or constructive obligation because
of which it has no alternative but to pay the bonus and accordingly, needs to be accrued
in the annual financial statements. Bonus liability is accrued in interim financial
statements on the same basis as they are accrued for annual financial statements.

In the given case, since the company has past record of declaring annual bonus every
year, the same may be accrued using a reasonable estimate (applying the principles of
Ind AS 19, Employee Benefits) while preparing its interim results.

Accordingly, Bonus amount to be charged in the second quarter would be ₹ 2,40,00,000

X 5% X ¼ = ₹ 3,00,000.

Bonus of ₹ 9,00,000 (₹ 12,00,000 – ₹ 3,00,000) must be reversed.

b) The cost of a planned major repair and renovation that is expected to occur in later part
of the year is not considered for interim reporting purposes unless an event has caused
the entity to have a legal or constructive obligation. The mere intention or necessity to
incur expenditure related to the future is not sufficient to give rise to an obligation.

Hence, ₹ 34,00,000 provided in the second quarter must be reversed.

c) Treatment of exceptional loss is not as per the principles of Ind AS 34, as the
entire amount of ₹ 4,20,000 incurred during the second quarter should be recognized in
the same quarter.

Hence, ₹ 2,10,000 which was deferred should be deducted from the profits of second
quarter only.

Thus, considering the above, the correct net profits to be shown in Interim Financial Report of
the second quarter shall be: ₹ 96,90,000 (₹ 56,00,000 + ₹ 9,00,000 + ₹ 34,00,000 - ₹ 2,10,000).

FIRST-TIME ADOPTION OF IND AS (IND AS 101)

Q34: G Ltd. operates oil exploration and production facilities. It is preparing its transition date opening
balance sheet as per Ind AS.
There· is a significant decommissioning obligation in connection with several oil wells, but it's
previous GAAP did not require the obligation to be recognized.
Discuss the treatment of decommissioning obligation as per relevant Ind AS. [MTP May 2022]
Ans: De-commissioning Obligation of G Ltd. and recognition of decommissioning cost:

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 UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
Retrospective application of Ind AS 37 requires management to recognise the provision for
decommissioning cost on the opening Ind AS Balance Sheet. The provision should reflect the net
present value of the management’s best estimate of the amount required to settle the obligation.
Accounting Treatment:
The obligation should be capitalised as a separate component of property, plant and equipment,
together with the accumulated depreciation from the date when the obligation was incurred to
the transition date. The amount to be capitalised as part of the c ost of the asset is calculated by
discounting the liability back to the date when the obligation initially arose, using the best
estimate of historical discount rate. The associated accumulated depreciation is calculated by
applying the current estimate of the asset’s useful life, using the entity’s depreciation policy for
the asset.
Any difference between the provision and the related component of the property, plant and
equipment is adjusted against the retained earnings.
The entity could elect to apply the deemed cost exemption. Property, plant and equipment would
be restated to fair value, with the corresponding adjustment to the retained earnings.
Management would need to ensure that the fair value obtained was the gross fair value and not
net of the decommissioning obligation. Management would recognise the provision for
decommissioning costs in accordance with Ind AS 37. No cost in respect of provision should be
added to property, plant and equipment but such cost should be recognised in the entity’s
opening retained earnings.
Q35: G Ltd. operates oil exploration and production facilities. It is preparing its transition date opening
balance sheet as per Ind AS. G Ltd. has four assets, each in a different class under property, plant
& equipment.
Assets 1 and 2 are revalued under previous GAAP (AS). Assets 3 and 4 are not. Under previous
GAAP, at 31st March 20X1, immediately prior to the entity's date of transition to Ind AS, it Balance
Sheet (extract) is as follows:

Asset 1 Asset 2 Asset 3 Asset 4 Total

Valuation Valuation Cost Cost
₹ ₹ ₹ ₹ ₹
Cost or revaluation 5,000 2,000 4,000 4,500 15,500
Accumulated deprecation (1,000) (500) (2,000) (1,700) (5,200)
Net book value 4,000 1,500 2,000 2,800 10,300
Revaluation surplus 2,500 500 - - 3,000
On adoption of Ind AS, its management decides that, under Ind AS, it will:
o Continue to revalue asset 1. The fair value of asset 1 at the date of transition is not
materially different from its carrying value under previous GAAP;
o Use the previous valuation of asset 2 as deemed cost, and adopt a policy of cost less
depreciation under Ind AS;

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UNIT 1: IND AS 110 CONSOLIDATED FINANCIAL STATEMENTS :
Consolidated and Separate Financial Statements of group
entities
o Adopt a policy of revaluation for asset 3. The fair value of asset 3 at the entity's date of
transition is ₹ 5,000;
o Continue to use a policy of cost less depreciation for asset 4.
All depreciation methods are already in accordance with those required by Ind AS 16.
Discuss the treatment under Ind AS of valuation of assets 1, 2, 3 & 4, being part of property, plant
& equipment? [MTP May 2022]
Ans: Measurement basis for valuation of PPE: An entity has the following options with respect to
measurement of its property, plant and equipment (Ind AS 16) in the opening Ind AS Balance
Sheet:
 Measurement basis as per the respective standards applied retrospectively. This
measurement option can be applied on an item-by-item basis. For example, Plant A can be
measured applying Ind AS 16 retrospectively and Plant B can be measured applying the “fair
value” or “revaluation” options mentioned below.
 Fair value at the date of transition to Ind AS. This measurement option can be applied on
an item-by-item basis in similar fashion as explained above.
 Previous GAAP revaluation, if such revaluation was, at the date of revaluation, broadly
comparable to (a) fair value or (b) cost or depreciated cost in accordance with other Ind AS
adjusted to reflect changes in general or specific price index. This measurement option can
be applied on an item-by-item basis in similar fashion as explained above.
Analysis of given case:

Asset 1 Asset 2 Asset 3 Asset 4

Basis used in Revaluation Revaluation Cost Model Cost Model
previous GAAP Model Model
Intent of G Ltd. on To continue with Use previous Adopt a policyof Continue to use a
transition Revaluation valuation as revaluation policy of cost less
model deemed cost depreciation
Treatment at the Since fair value An entity may Fair value at the The entity is not
Time of transition to Ind at the transition elect to measure date oftransition availing any
AS date is not an item of to Ind AS is exemption given in
materially property, plant materially Ind AS 101. The
different from its and equipment at different from its entity can measure
carrying value the date of carrying Value applying Ind AS 16
under previous transition to Ind under previous retrospectively. It
GAAP, G Ltd. AS at its fair value GAAP. The asset is assumed that
Can carry and use that fair should be measurement bases
Forward with value as its revalued and for cost of asset as
revalued deemed cost at stated at its fair per previous GAAP
carrying value ₹ that date. In Ind valueof ₹ 5,000 on and Ind AS are

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4,000 as per AS financial the date of same so asset will
previous GAAPin statements, asset transition to Ind be shown in the Ind
Ind AS books will be carried AS. AS financial
and continue to forward at ₹ 1,500 A revaluation statements at
disclose a and previously surplus of ₹ ₹ 2,800.
revaluation disclosed 3,000 (5,000
surplus of revaluation – 2,000) will be
₹ 2,500. surplus is transferred to
transferred to revaluation
retained earnings reserve.
or another
component of
equity.

Q36: ABC Ltd is a government company and is a first-time adopter of Ind AS. As per the previous GAAP,
the contributions received by ABC Ltd. From the government (which holds 100% share holding in
ABC Ltd.) which is in the nature of promoters’ contribution have been recognised in capital
reserve and treated as part of shareholders’ funds in accordance with the provisions of AS12,
Accounting for Government Grants.
State whether the accounting treatment of the grants in the nature of promoters’ contribution
as per AS 12 is also permitted under Ind AS 20 Accounting for Government Grants and Disclosure
of Government Assistance. If not, then what will be the accounting treatment of such grants
recognised in capital reserve as per previous GAAP on the date of transition to Ind AS.
[MTP Nov 2024]
Ans: Paragraph 2 of Ind AS 20, “Accounting for Government Grants and Disclosure of Government
Assistance” inter alia states that the Standard does not deal with government participation in the
ownership of the entity.
Since ABC Ltd. is a Government company, it implies that government has 100% shareholding in
the entity. Accordingly, the entity needs to determine whether the payment is provided as a
shareholder contribution or as a government. Equity contributions will be recorded in equity
while grants will be shown in the Statement of Profit and Loss.
Where it is concluded that the contributions are in the nature of government grant, the entity
shall apply the principles of Ind AS 20 retrospectively as specified in Ind AS 101 ‘First Time
Adoption of Ind AS’. Ind AS 20 requires all grants to be recognised as income on a systematic
basis over the periods in which the entity recognises as expenses the related costs for which the
grants are intended to compensate. Unlike AS 12, Ind AS 20 requires the grant to be classified as
either a capital or an income grant and does not permit recognition of government grants in the
nature of promoter’s contribution directly to shareholders’ funds.
Where it is concluded that the contributions are in the nature of shareholder contributions and
are recognised in capital reserve under previous GAAP, the provisions of paragraph 10 of Ind AS
101 would be applied which states that except in certain cases, an entity shall in its opening Ind
AS Balance Sheet:

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a. Recognise all assets and liabilities whose recognition is required by Ind AS;
b. Not recognise items as assets or liabilities if Ind AS do not permit such recognition;
c. Reclassify items that it recognised in accordance with previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset, liability or component of
equity in accordance with Ind AS; and (d) apply Ind AS in measuring all recognised assets and
liabilities. Accordingly, as per the above requirements of paragraph 10(c) in the given case,
contributions recognised in the Capital Reserve should be transferred to appropriate
category under ‘Other Equity’ at the date of transition to Ind AS.

ACCOUNTING AND TECHNOLOGY

Q3: Discuss how "Cloud Computing" has positively impacted the accounting function and list out the
challenges faced by the users of it in cloud computing environment. [Exam May 2024 (5 Marks)]
Ans: Cloud computing refers to the delivery of computing services over the internet. It allows
accountants to access their data and software from any device with an internet connection.
Following are some of the ways in which Cloud Computing has positively impacted accounting:
(a) Improved accessibility: Cloud-based accounting software allows users to access their
financial data from any location with an internet connection. This has increased
accessibility and flexibility for accountants and business owners, allowing them to work
remotely and collaborate in real-time.
(b) Enhanced security: Cloud-based accounting software providers typically offer advanced
security features such as encryption, firewalls, and multi-factor authentication helping in
the protection of sensitive financial data from cyber threats and data breaches.
(c) Increased scalability: Cloud-based accounting software allows businesses to easily scale
up or down based on their changing needs. As a business grows, it can easily add new
users and features without having to invest in additional hardware or software.
(d) Reduced costs: Cloud-based accounting software typically requires less upfront
investment in hardware and software, as well as ongoing maintenance costs. This can help
businesses save money on IT expenses and redirect those funds to other areas of the
business. For example, the costs of installing Microsoft Office Suite on a laptop or desktop
is far more expensive than subscribing to the Office 365 Suite, which is a web-based
download. Further, the web-based download also provides the options of continuous free
updates unlike its Office Suite offline counterpart.
(e) Streamlined collaboration: Cloud-based accounting software allows multiple users to
collaborate in real-time, reducing the need for manual data entry and communication.
This can help to streamline workflows and reduce errors caused by miscommunication.
(f) Improved reporting and analytics: Cloud-based accounting software often includes
powerful reporting and analytics tools that allow businesses to gain deeper insights into
their financial performance. This can help businesses make more informed decisions and
identify areas for improvement.

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Challenges in Cloud Computing
Following are the potential challenges which may emerge in cloud computing:
(a) Since cloud-based software are completely online, they could be prone to hackers who
could ‘steal’ data or passwords or compromise the integrity of the processed data,
thereby causing disruptions to the businesses.
(b) Strong net connectivity is a must for cloud-computing to be a success. Though there has
been a huge surge in network and mobile connectivity in the past decade, connectivity in
non-metros, tier-2 or tier-3 cities is not well-developed, which could create accessibility
issues to the users of the cloud-based accounting software.

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NOT YET INCORPAOTAED IN 12 EDITION
IND AS 34
Q18: While preparing interim financial statements for the half-year ended 30th September 20X2, an
entity discovers a material error (an improper expense accrual) in the interim financial
statements for the period ended 30th September 20X1 and the annual financial statements for
the year ended 31st March 20X2. The entity does not intend to restate the comparative amounts
for the prior period presented in the interim financial statements as it believes it would be
sufficient to correct the error by restating the comparatives in the annual financial statements
for the year ended 31st March 20X3.
Is this acceptable? Discuss in accordance with relevant Ind AS.
Ans: Paragraph 42 of Ind AS 8, inter alia, states that an entity shall correct material prior period errors
retrospectively in the first set of financial statements approved for issue after their discovery by
restating the comparative amounts for the prior period(s) presented in which the error occurred.
Paragraph 28 of Ind AS 34 requires an entity to apply the same accounting policies in its interim
financial statements as are applied in its annual financial statements (except for accounting policy
changes made after the date of the most recent annual financial statements that are to be
reflected in the next annual financial statements).
Paragraph 15B of Ind AS 34 cites ‘corrections of prior period errors’ as an example of events or
transactions which need to be explained in an entity’s interim financial report if they are
significant to an understanding of the changes in financial position and performance of the entity
since the end of the last annual reporting period.
Paragraph 25 of Ind AS 34, Interim Financial Statements, states as follows:
“While judgement is always required in assessing materiality, this Standard bases the recognition
and disclosure decision on data for the interim period by itself for reasons of understandability
of the interim figures. Thus, for example, unusual items, changes in accounting policies or
estimates, and errors are recognised and disclosed on the basis of materiality in relation to
interim period data to avoid misleading inferences that might result from non-disclosure. The
overriding goal is to ensure that an interim financial report includes all information that is
relevant to understanding an entity’s financial position and performance during the interim
period.”
In view of the above, the entity is required to correct the error and restate the comparative
amounts in interim financial statements for the half-year ended 30th September 20X2.

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IND AS 115 (MODIFIED)
Q62: KK Ltd. runs a departmental store which awards 10 points for every purchase of ₹ 500 which can
be discounted by the customers for further shopping with the same merchant. Unutilised points
will lapse on expiry of two years from the date of credit. Value of each point is ₹ 0.50. During the
accounting period 20X1-20X2, the entity awarded 1,00,00,000 points to various customers of
which 18,00,000 points remained undiscounted. The management expects only 80% of the total
award points during the year will be discounted of which normally 60% - 70% are redeemed
during the next year.
The Company has approached your firm with the following queries and has asked you to suggest
the accounting treatment (Journal Entries) under the applicable Ind AS for these award points:
a) How should the recognition be done for the sale of goods worth ₹ 10,00,000 on a
particular day?
b) How should the redemption transaction be recorded in the year 20X1-20X2? The
Company has requested you to present the sale of goods and redemption as independent
transaction. Total sales of the entity is ₹ 5,000 lakhs.
c) How much of the deferred revenue should be recognised at the year-end (20X1- 20X2)
because of the estimation that only 80% of the outstanding points will be redeemed?
d) In the next year 20X2-20X3, 60% of the expected outstanding points were discounted
Balance 40% of the outstanding points of 20X1-20X2 still remained outstanding. How
much of the deferred revenue should the merchant recognize in the year 20X2-20X3 and
what will be the amount of balance deferred revenue?
e) How much revenue will the merchant recognized in the year 20X3-20X4, if 3,00,000 points
are redeemed in the year 20X3-20X4?
Ans:
a) Points earned on ₹ 10,00,000 @ 10 points on every ₹ 500 = [(10,00,000/500) x 10]
= 20,000 points.
It is expected that 80% of the award points will only be [Link], considering the
likelihood of the variable consideration,
Value of points = 20,000 points x ₹ 0.5 each point x 80% = ₹ 8,000

Revenue recognized for sale of goods ₹ 9,92,063 [10,00,000 x (10,00,000/10,08,000)]

Revenue for points deferred ₹ 7,937 [10,00,000 x (8,000/10,08,000)]

Journal Entry

₹ ₹
Bank A/c Dr. 10,00,000
To Sales A/c 9,92,063

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To Liability under Customer Loyalty programme 7,937

B) Points earned on ₹ 50,00,00,000 @ 10points on every ₹ 500= [(50,00,00,000/500) x 10] =

1,00,00,000 points.
Value of points considering future likelihood = 1,00,00,000 points x ₹ 0.5 each point x 80% = ₹
40,00,000
Revenue recognized for sale of goods = ₹ 49,60,31,746 [50,00,00,000 x (50,00,00,000 /
50,40,00,000)]
Revenue for points = ₹ 39,68,254 [50,00,00,000x (40,00,000 / 50,40,00,000)]
Journal Entry in the year 20X1

₹ ₹
Bank A/c Dr. 50,00,00,000
To Sales A/c 49,60,31,746
To Liability under Customer Loyalty programme 39,68,254

(On sale of Goods)

Liability under Customer Loyalty programme Dr. 32,53,968

To Sales A/c 32,53,968

(On redemption of [(100 lakhs -18 lakhs) x 80% points]

Revenue for points to be recognized

Undiscounted points estimated to be recognized next year 18,00,000 x 80%
= 14,40,000 points
Total expected points to be redeemed within 2 years = 1,00,00,000 x 80% - 80,00,000
Points redeemed in the previous year= (1,00,00,000 – 18,00,000) x 80% = 65,60,000
Revenue to be recognised with respect to discounted point
= 39,68,254 x (65,60,000/80,00,000) = 32,53,968
c) Revenue to be deferred with respect to undiscounted point in 20X1-20X2
= 39,68,254 – 32,53,968= 7,14,286
d) In 20X2-20X3, KK Ltd. would recognize revenue for discounting of 60% of expected outstanding
points as follows:
Outstanding points = 18,00,000 x 80% x 60% = 8,64,000 points
Total points discounted till date = 65,60,000 + 8,64,000 = 74,24,000 points

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Revenue to be recognized in the year 20X2-20X3 = [{39,68,254 x (74,24,000 / 80,00,000)} –
32,53,968] = ₹ 4,28,572.

Liability under Customer Loyalty programme Dr. 4,28,572

To Sales A/c 4,28,572
(On redemption of further 8,64,000 points)

The Liability under Customer Loyalty programme at the end of the year 20X2-20X3 will be ₹
7,14,286 – 4,28,572 = 2,85,714.
e) In the year 20X3-20X4, the merchant will recognized the balance revenue of ₹ 1,84,873
irrespective of the points redeemed as this is the last year for redeeming the points. Journal
entry will be as follows:

Liability under Customer Loyalty programme Dr. 2,85,714

To Sales A/c 2,85,714
(On redemption of further 5,76,000 points)

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IND AS 116 (DELETED)
Q39: Lessor L leases retail space to Lessee Z and classifies the lease as an operating lease. The lease
includes fixed lease payments of ₹ 10,000 per month.
Due to the COVID-19 pandemic, L and Z agree on a rent concession that allows Z to pay no rent
in the period from July, 2020 to September 2020 but to pay rent of 20,000 per month in the
period from January 2021 to March 2021. There are no other changes to the [Link] this will
be accounted for by lessor?
Ans: L determines that the reduction in lease payments in July 2020 to September 2020 and the
proportional increase in January 2021 to March 2021 does not result in an overall change in the
consideration for the lease.
L does not account for the change as a lease modification. L continues to recognise operating
lease income on a straight-line basis, which is representative of the pattern in which Z’s benefit
from use of the underlying asset is diminished.
Q40: Lessor M enters into a 10-year lease of office space with Lessee K, which commences on 1 April
2015. The rental payments are 15,000 per month, payable in arrears. M classifies the lease as an
operating lease. M reimburses K’s relocation costs of K of 600,000, which M accounts for as a
lease incentive. The lease incentive is recognised as a reduction in rental income over the lease
term using the same basis as for the lease income – in this case, on a straight- line basis over 10
years.
On 1 April 2020, during the COVID-19 pandemic, M agrees to waive K’s rental payments for May,
June and July 2020.
This decrease in consideration is not included in the original terms and conditions of the lease
and is therefore a lease modification.
How this will be accounted for by lessor?
Ans: M accounts for this modification as a new operating lease from its effective date – i.e. 1 April
2020. M recognises the impact of the waiver on a straight-line basis over the five-year term of
the new lease. M also takes into account the carrying amount of the unamortised lease incentive
on 1 April 2020 of ₹ 3,00,000. M amortises this balance on a straight-line basis over the five-year
term of the new lease
Q41: Lessor L enters into an eight-year lease of 40 lorries with Lessee M that commences on 1 January
2018. The lease term approximates the lorries’ economic life and no other features indicate that
the lease transfer or does not transfer substantially all of the risks and rewards incidental to
ownership of the lorries. Assuming that substantially all of the risks and rewards incidental to
ownership of the lorries are transferred, L classifies the lease as a finance lease.
During the COVID-19 pandemic, M’s business has contracted. In June 2020, L and M amend the
contract so that it now terminates on 31 December 2020.
Early termination was not part of the original terms and conditions of the lease and this is
therefore a lease modification. The modification does not grant M an additional right to use the
underlying assets and therefore cannot be accounted for as a separate lease.

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How this will be accounted for by lessor?
Ans: L determines that, had the modified terms been effective at the inception date, the lease term
would not have been for the major part of the lorries’ economic life. Furthermore, there are no
other indicators that the lease would have transferred substantially all of the risks and rewards
incidental to ownership of the lorries. Therefore, the lease would have been classified as an
operating lease.
In June 2020, L accounts for the modified lease as a new operating lease. The lessor L:
a) derecognises the finance lease receivable and recognises the underlying assets in its
statement of financial position according to the nature of the underlying asset – i.e. as
property, plant and equipment in this case; and
measures the aggregate carrying amount of the underlying assets as the amount of the net investment
in the lease immediately before the effective date of the lease modification.

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