CA-Final

New Syllabus
May-2023
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Module-4

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
 Index
Chapter
Particulars Page Range
No.
1 CHAPTER 1 EMPLOYEE BENEFITS IND AS 19 1-42
Part -1 1-5
Part -2 6-10
Part -3 11-14
Part -4 14-20
Part -5 20-25
Part -6 26-32
Part -7 32-39
Part -8 40-42
2 CHAPTER 2A CONSOLIDATION IND AS 110 43-124
Part -1 43-46
Part -2 47-50
Part -3 51-52
Part -4 53-55
Part -5 55-57
Part -6 58-63
Part -7 63-66
Part -8 67-70
Part -9 70-75
Part -10 75-80
Part -11 80-89
Part -12 90-94
Part -13 94-107
Part -14 107-115
Part -15 116-118
Part -16 119-124
3 CHAPTER 2B ASSOCIATES IND AS 28 125- 142
Part -1 125-131
Part -2 132-133
Part -3 133-142
4 CHAPTER 2C JOINT ARRANGMENT IND AS 111 143-147
Part -1 143-144
 Part -2 144-147
5 CHAPTER 2D SEPARATE FINANCIAL STATEMENTS IND AS 27 148-148
Part -1 148-148
6 CHAPTER 2E DISCLOUSER IND AS 112 149-150
Part -1 149-150
7 CHAPTER 3 FIRST TIME ADOPTION OF IND AS 151-158
Part -1 151-155
Part -2 156-158
8 CHAPTER 4 INCOME TAXEX IND AS 12 159-189
Part -1 159-159
Part -2 159-166
Part -3 166-178
Part -4 178-179
Part -5 179-189
9 CHAPTER 5 FAIR VALUE IND AS 113 190-198
Part -1 190-194
Part -2 194-198
10 CHAPTER 6 ANLYSIS OF FINANCIAL STAEMENTS 199-208
Part -1 199-202
Part -2 202-204
Part -3 205-207
Part -4 208-208
11 CHAPTER 7 CONCEPTUAL FRAMEWORK FOR FINANCIAL 209-230
STATEMENTS
Part-1 209-212
Part -2 213-220
Part -3 220-228
Part -4 229-230

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CA-Final Financial Reporting CA Parveen Jindal Classes

Chapter 1 - Ind AS 19: Employees Benefits

*Part 1*

Basic Understanding of Some Useful Terms

A. Meaning of Employee: As per the provisions of Ind AS-19, An

Employee may be:
i) Temporary, Permanent or Casual Worker
ii) Full Time or Part Time Employee
Management

“An Employee includes worker(factory), staff(office) & Directors also

(management).” It means that Ind AS-19 covers all persons that are
providing their services to company at any level.

B. Meaning of Employee Benefit Expenses: As per the Provisions of Ind

AS-19, Employee Benefit expense is an Expense which is incurred by a
company in cash or kind in lieu of services rendered by the employees
[except payment in share based plans covered under Ind AS-102]. This
Expense can be paid directly to employees, their dependents (i.e.,
children, spouses etc) or to Insurance Companies. We can classify the
Employees Benefit Expenses under the following 4 headings:-

Employees Benefit Expenses

Unit I: Unit II: Unit III: Unit IV:

Employees Short Post Employment Other Long Termination
Term Benefits Benefit Term Benefits Benefits

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Unit I: Short Term Benefits (IMP)

As per the provisions of Ind AS-19, Short Term Benefits are the
Benefits which are already settled by Company in Current Financial or
Expected to be settled within 12 months after the end of Current
Reporting Period in which services are rendered by the employee. It can
also be said that payables (if any) can not be disclosed in 2 consecutive
Balance Sheet in relation to Employees Benefits otherwise payables
shall be considered as Long Term Benefits under Unit III. We can
classify short term benefits under the following headings:-

Short Term Benefits

Salaries, Wages, *Payments for *Profit Non-Monetary

Social Security Annual & sick sharing benefits (i.e, Rent
Contributions Etc. leaves (IMP) & Bonus Free house, Car
(Short Term (IMP) facility, Foods
Absences) etc)

Other special points to be considered

A. As per the Provisions of Ind AS-19, Short Term Benefits have the
following 2 Features:-
i) These Benefits are recognised on Undiscounted Basis (+)
ii) These Benefit are recognised without Actuarial Valuation.

B. These Expenses shall be recognised on Accrual Basis. If there is any

difference between payable amount & Actually paid amount then
difference will be considered as a prepaid exp/ outstanding exp. It
means that cash basis in not allowed.

C. If payment period exceeds the limit of 12 months from B/S date then
Re-classification will be required from Short Term to Long Term
Benefits.

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Additional Concepts to be covered under Unit I

Concept 1: Short Term Absences

(Leave Encashment) or (Annual & Sick Leaves)
(Absences may be for any reasons, i.e; Maternity, Paternity, Sick
Leaves, Social Work Leaves, Military Services Leaves etc.)

Short Term Absences

Accumulating Leaves Non Accumulating Leaves

(iii)
Vested Unvested
(i) (ii)

i) Accumulating Vested Leaves: If cash will be paid by the Company for

“Unavailed Leaves” to employees then it will be considered as a case of
Accumulating Vested Leaves. It can also be said that unavailed leaves
shall not be lapsed, but these will be carried forward & settled in cash.
The company will create a liability on B/S date if cash is not yet paid
for unavailed leaves as follows:-

Journal Entries:
Employees Benefit Exp. a/c…………..Dr xxxx
To Accrued Leave Encashment Exp.** xxxx
** Accrued Exp. = No. of Unavailed Leaves x Salary per Day

Q.1
Solution:
I) Calculation of Leave Encashment

i. Avg. Salary per working day = Rs.30,00,000/ 300 days = Rs.10,000 per
day
ii. Leave Encashment = (10 days – 8 days) x 10,000 = 20,000

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II) Total Employees Benefit Exp.

Total E.B. Exp = Annual Salary + Leave Encashment

= Rs.30,00,000 + Rs.20,000
= Rs.30,20,000

Journal:
E.B. Exp………………Dr 30,20,000
To Cash 30,20,000
(Being Exp. Paid)

ii) Accumulating Unvested Leaves: Under this concept, Company allows

carry forward of unavailed leaves in Next year. But there will be no
payment in cash for unavailed leaves as in vested accumulating leaves
concept. The Company will allow leaves in lien of leaves. “It means
that company will increase No. of leaves in future in lien of unavailed
leaves in Current year”.
As per the Provisions of Ind AS-19, Company should create a
Provision for this Constructive obligation as follows:-
Company’s Past Experience

i) Provision for leave = Leaves to be x *Probability x Salary per day

Encashment Carried forward of leaves to
Be availed

ii) Journal: Employees Benefit Exp………..Dr xxxx

(Current Year) To Provision for leave encashment xxxx
(Being Provision created for carried forward leaves)

Notes:
i. If there is discussion on company experience in question then we
will create full provision for unavailed leaves to be carried forward.
ii. If any change takes place in estimated provision in Next year due
to high or less availment of leaves then It will be considered as
change in Estimation & will be adjusted in Next year E.B. Exp.

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Journal (Next Year):

Employee Benefit Exp…………….Dr xxxx (Bal.)
Provision for Leaves………………Dr xxxx (P.Y)
To Bank xxxx

Q.2
Solution:
Accounting for 20X0-X1
i. Salary per day = Rs.30,00,000/300 days = Rs.10,000 per day
ii. Unavailed Leaves to be carried forward = 10 days – 7 days = 3 days
iii. Provision Required = 3 days x 100% x 10,000 = 30,000

iv. Journal: Empl. Benefit Exp…….Dr 30,30,000

To Bank 30,00,000
To Prov. For leave Encashment 30,000
(Being Expenses Recognised)

Accounting for 20X1-X2

i. There will be No Provision for Leave Encashment because there are
no unavailed leaves in this year.

ii. Journal: Empl. Benefit Exp……………Dr 29,70,0000 ([Link])

Provision for leave………..Dr 30,000
To Bank 30,00,000
(Being Expenses Recognised)

Comments: The Accounting Treatment which is suggested by the

Accountant of Company is not correct because Employee Benefit
Expenses cannot be recorded on Cash Basis. As we can see in above
entries that Expenses in X0-X1 is high, but in X1-X2, it is Low.

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*Part 2*

Q.3
Solution:
Accounting for 20X0-X1
(i) Avg. Salary per Day= Rs.30,00,000/300 days= Rs.10,000 per day
(ii) Prov. For Unavailed Leaves on = 2 days x 10,000 = Rs.20,000
Company’s past experience

(iii) Journal: Employees Benefit Exp………….Dr 30,20,000

To Bank 30,00,000
To Prov. For Leave Encashment 20,000
(Being Expenses Recognised)

Accounting for 20X1-X2

Journal: *Employees Benefit Exp**……… Dr 29,80,000
Prov. For Leave Encashment…Dr 20,000
To Bank 30,00,000
(Being Employee Benefit Exp Recognised)

** It includes the effect of Change in Estimation due to change in

Prov. For Leave Encashment. The Company had created Provision for 2
days in Previous year, but employee actually availed 3 days which is a
change in estimation & It has been adjusted on prospectively basis by
increasing the Employee Benefit Exp. In 20X1-X2.

Q.4
Solution:
In the given case, The Company should create Provision for
Accumulating Unvested leaves on the basis of its experience as follows:-

i) Prov. For Casual Leaves = 30 empl. X 5 days = 150 days

ii) Prov. For Sick Leaves = 10 empl. X 1 day = 10 days
Total Prov. Required = 160 days

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Q.5 (Imp)
Solution:
Calculation of Expenses for Leave Encashment under Both Assumptions

I. Vested Accumulation (Payment in Cash)

Expense = 100 employees x 2 unused leaves x 2500 per days = Rs.5,00,000
(Accrued Expenses will be booked for Rs.5,00,000)

II. Non Vested Accumulating (Leave for Leave)

Expenses = 100 employees x 20% x 1 day x 2500 = Rs.50,000
(Past experience (Provision for Leave Encashment will be created for
Of company) Rs.50,000)

Q.6 ([Link])
Solution:
Calculation of Provision for Non Vested Accumulating Leaves

i)Provision for Existing Employees [350-6%=329]

Unused Leaves [Carried forward] 3
Additional Leaves in Current Year 10
Total Allowed Leaves 13
Availed Leaves in Current Year (9)
Unused Leaves 4
Provision (1) = 329 x 4 x 16,500 = Rs.21,71,400

ii) Provision for New Employees [350-329=21]

Leaves Allowed in Current Year 10
Leaves Availed in Current Year (9)
Unused Leaves 1

Provision (2) = 21 emp. X 1 leave x 16500 per day salary = Rs.3,46,500

Total Provision (1+2) = 21,71,400 + 3,46,500 = Rs.25,17,900

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Journal Entries
A. Emp. Benefit Exp………….Dr 25,17,900
To Prov. For Leave Encashment 25,17,900
(Being Prov. Created for Unused Leaves)

B. Accrued Exp……………..Dr 65,00,000 Vested Accumulated for Xo-X1

To Bank 65,00,000
(Being Payment for liabilities relating to Previous Year)

Q.7
Solution:

Yes, the Company should create Provision for 12 days as Provision for
Leave Encashment because It is expected that 8 employees will avail 1.5
days of Unused Leaves.

Q.8 (Nov 2020)

Solution:
Accounting for Short Term Absences
i) Provision for PL = (200 emp. X 5 days) + (800 emp. X 10 days)
= 1000 days + 8000 days
= 9000 days

ii) Provision for SL = (200 emp. X 2 days) + (800 emp. X 5 days)

= 400 days + 4000 days
= 4400 days
Total Provision Required = 9000 + 4400 = 13,400 days

Comment: The Company should create Provision on the Basis of its Past
experience for 13,400 man days

Company Estimated Profit Sharing = 2000 crores x 3.5% = 70 crores

Journal: Emp. Benefit Exp………..Dr 70 crores

To Prov. For Profit Sharing 70 crores
(Being Liab. Created for profit sharing)
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(iii) Non Accumulating Leaves:

Under Non Accumulating Leaves, there will be no Payment in Cash or

Leave against Leave in Next year. It means that Company will pay
nothing for unavailed Leaves. It can also be said that the unavailed leave

shall be lapsed in the same year. There will be no Accounting entry for
Non-Accumulating leaves because there will be no Cash payment or carry
forward of Leaves.

Concept 2: Profit Sharing/ Bonus

As per the Provisions of Ind AS-19, the Company should provide for
Bonus/ Profit sharing only if the following conditions are satisfied:-

As per the any act(Bonus Payment Act)

Condition I: There should be some legal or constructive obligation on

company for payment of Bonus/ Profit sharing.

Company clear Company implied

Promise with promise on the basis
employees Regarding its Past trends of
of payment of Bonus/ these payments
Profit sharing
(+)
Condition II: There is a Reliable Estimate for the payment of these
liabilities

(1) (2) (3)

There should be a fixed Amt of liab. Has been The liab. Will be
formula which Can be used Finalised before approval settled within 12
for Computation of Liab. On Financial Statements months from
B/S Date

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Journal: Employees Benefit Exp………..Dr xxxx

To Prov. For Bonus/Profit sharing xxxx
(Being Liab. Created)

Q.9
Solution:

i) Expected Pay out = 200 crores (Profit) x 4.5% (Estimated payout)

= 9 crores
ii) Journal: Empl. Benefit Exp……….Dr 9 crore
To Prov. For Bonus 9 crore
(Being Liab. Created on the Basis of Expected Payout)

Q.10
Solution:

i) Company Provision for Bonus = (1,25,000+8.5%) x 329 employees

= 4,46,20,625 Bonus per emp.

ii) Journal: 31.03 Empl. Benefit Exp…………Dr 4,46,20,625

To Prov. For Bonus 4,46,20,625
(Being Prov. For Bonus created)
30.06 Prov. For Bonus…………Dr 4,46,20,625
To Bank 4,46,20,625
(Being liab. settled)

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*Part 3*

Unit II: Post Employment Benefits

(Retirement Benefits)

As per the Provisions of Ind AS-19, Post-Employment Benefits are the

formal or Informal Arrangement under which an Entity provides Post
Employment Benefits to its employees. These Benefits can be
classified under 2 different headings as follows:-

Concept 1: Defined Contribution Plans

(i.e; Provident Funds, Insurance Funds etc.)

Concept 2: Defined Benefits Plans

(i.e; Gratuity, Pension, Lump sum Benefits etc.)

Defined Contribution Plans Defined Benefits Plans

A. Under Defined Contribution A. Under Defined Benefit Plans,
Plans, Entity has constructive Entity has constructive or legal
or Legal obligation to the obligation to the extent of
extent of “Contribution to a “Agreed amount of Benefit” which
Plan/fund” which is Managed by is payable to Employee at the time
rd
3 party. of Retirement i.e; Promised
Examples:- Pensions, Gratuities, Lump sum
i) Contribution to Provident Payments etc.
fund which is managed by
Ministry of Employment
ii) Payment for Insurance
Premium to Insurance
Companies for Life Insurance/
Medical care etc.

B. Under these Plans, Actuarial B. Under these Plans, Actuarial &

Risk & Investment Risk falls on Investment Risk fall on Entity’s
Employee because Entity’s itself because Fund is managed by

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obligation ends after the Entity itself.

Contributing to the Plan.

C. There will be no Increase in C. The Entity’s Liability can be

liability because contributions Increased if Investments perform
are made upto a Fixed Amt. worse than the Expectation.

D. The Employee will get Post D. The Amount of Post-Employment

Employment Benefit According Benefit is “Pre-Decided” between
to “the Amount of Contribution Employer & Employee.
& Period of Service”

These funds are managed by These funds are managed by

3rd Parties. Entity itself

Examples of Defined Contribution Plans:

I. State Plans: These Funds are managed by Central, State or Local

Govt.
[P.F. is managed by Ministry of Labour & Employment]
II. Insurance Plans: These Funds are managed by the Insurance
Companies
[Premium is paid for Life Insurance & Medical care of Employees]
III. Multi-Employers Plans: These Funds are managed by a Trust (3rd
Party) which are created from Contribution made by different
Employees for their Employees in Common Pool.
 If Holding & Subsidiary Pool their funds then It will not be
considered as Multi-Employer Fund

Exceptions to Above:-

After making Contributions to above plans, If an Entity still

retains any Constructive obligation then Accounting for Plans will be
made as Defined Benefit Plans. [i.e; It may be possible that company has
promised/ guaranteed a Fixed Amount to employees from above plans &

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company has access to significant information relating to 3rd Party

Fund]

Concept 1 : Accounting for Defined Contribution Plans

As per the Provisions of Ind AS-19, Accounting for Defined Contribution

Plans is very Simple. The following points may be considered:-
1. These Plans are accounted for an Undiscounted Basis.
2. These Plans are accounted for without Actuarial Assumptions.
3. The Difference between Contribution Payable & Contribution paid will
be considered as Outstanding or Prepaid Expenses.
4. The Amount of Contribution Payable will be considered as an Expense
in P&L a/c / SOPL as follows:

Prepaid Expenses (Bal.)……Dr xxxxx

Employees Benefit Exp…….Dr xxxx
To Cash/Bank xxxx
To Outstanding Exp(Bal.) xxxx
(Being Expenses Recognised)

P&L………Dr xxxx
To Emp. Benefit Exp xxxx
(Being Exp. Written off)

Q.13
Solution:
In the given case, It is clearly specified that there is no further
obligation on Entity except contribution which indicates that funds are
managed by 3rd Party & there is no further involvement of Entity into
it. So, it will be Accounted for in the Books as Defined Contribution
Plans as follows:-

Journal: i) Employees Benefit Exp……….Dr 6 [50 x 12%]

To Bank 2.8
To Payables 3.2
(Being Exp. Recognised)
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ii) P&L …………………..….Dr 6

To Emp. Benefit Exp 6
(Being Exp. Written off)

Q.11 & 12
Solution: Homework

*Part 4*

Concept 2 : Accounting for Defined Benefit Plans [[Link]]

As per the Provisions of Ind AS-19, Accounting for Defined Benefit

Plans is complex due to the following reasons:-

I. Use of Acturial Assumptions for measurement of Defined

Benefit Obligations (Accumulated Cost) & Current Service Cost
(year’s cost)
II. Use of Discounting Model due to Promised Payments on a Future
date
III. Acturial Gain/ Loss

These Plans can be funded or unfunded in nature. In most of cases,

these plans are usually unfunded.
Plans

Funded Unfunded

3rd Party will manage the funds, but Entity will manage for
Entity has promised employees to Investments for payments
Compensate the shortfalls (if any) of Benefits
(Note: In this case, Defined Contribution
Plans shall be Accounted for Defined
Benefit Plans)

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Steps for Accounting under Complex Model

Step I: Recognition & Measurement of Current Service Cost & Present

Value of D.B.O
(Liability side of Balance Sheet)
Step I

A. PUCM B. Benefit Period C. Acturial Assumptions

A. Projected Unit Credit Method (Actuarial Method)

Examples:
i. Company’s Promised Benefit to Employee: 5% of Annual Salary for
each year of service
ii. Annual Salary of Emp.: Rs.50,000
iii. Expected Remaining Time of his service period: 5 years
iv. Discount Rate: 10% p.a
Required: 1) CSC, 2) Interest Cost, 3) PVDBo Statement for all 5 years

Solution:

Step I: Calculation of P.V. of Current Service Cost

(Annual Benefit= Rs.50,000 x 5% = Rs.2,500 p.a)

Year 1 2 3 4 5
Annual Benefit(At the 2500 2500 2500 2500 2500
end of year)
PVF @ 10% 0.683 0.751 0.826 0.909 1
P.V of CSC 1708 1878 2065 2273 2500

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Step II: Statement showing PVDBO Balance at the end of each year

Year 1 2 3 4 5
Opening Bal (PVDBO) Nil 1708 3757 6198 9091
Add: Interest (OB x 10%) Nil 171 376 620 909
Add: P.V. of CSC 1708 1878 2065 2273 2500
Cl. Bal (PVDBO) 1708 3757 6198 9091 12500

Step III: Journal Entries

1St year Current Service Cost………….Dr 1708

To PVDBo 1708
(Being Expense Recognised)

P&L a/c………………Dr 1708

To Current Service Cost 1708
(Being Expense written off)

2nd year Interest Cost………….Dr 171

CSC…………………………Dr 1878
To PVDBO A/c 2049
(Being Expense Recognised)
P&L……………….Dr 2049
To Current Service Cost 1878
To Interest 171
(Being Expense written off)

Under PUCM, Current Service Cost is Booked at Present Value due to

Promised obligation in later years. The following steps should be applied
under PUCM:-

Step I: First of all, we should compute Annual Gross Benefits during the
Service period of Employee

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Step II: Calculate Present Value of Annual Gross Benefit using an

appropriate discount rate & Recognise it as “Current Service
Cost” in each year.

Step III: Prepare a Statement for PVDBO in the following format:

Opening Obligation xxxx

PL Add: Interest (OB x %) xxx
Add: CSC xxx
B/s Closing Balance (Obligation) xxxx

*The above Statement will be prepared for each year during the Service
period of the employee.

Note: 1) We will Recognise CSC & Interest on PVDBO as Expenses in P&L

a/c
2) Balance in PVDBO will be disclosed in Balance sheet under Non-
Current Liabilities.

Step IV: Journal Entries

Accounting Entries for 1st year:

i) Current Service Cost………….Dr xxxx
To PVDBO xxxx
(Being Exp. Recognised)

ii) P&L a/c…………Dr xxxx

To Current Service Cost xxxx
(Being Exp. Written off)

Accounting Entries for 2nd & Subsequent years:

i) Interest Cost a/c………….Dr xxxx (OB x %)
Current Service Cost………….Dr xxxx
To PVDBo xxx
(Being Expenses Recognised)

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ii) P&L a/c………Dr xxxx

To Interest xxx
To CSC xxxx
(Being Expenses written off)

At the time of Payment to Employees

PVDBO…………….Dr xxxx
To Bank xxxx
(Being payment made)

Q.15 (PUCM)
Solution:
I. Calculation of Final Salary at the end of 5th year

PT 1st 2nd 3rd 4th 5th

year year year year year
Basic Salary 10,000 10,000 10,700 11,449 12,250
Increment @7% p.a N.A 700 749 801 858
Final Drawn Salary 10,000 10,700 11,449 12,250 13,107

II. Calculation of Gross Benefits year to year

Gross Benefits (Annual) = 13,107 x 1% = Rs.131 (Round off)

Gross Benefits (Total) = 131 x 5years = 655 (total)

III. Calculation of Present value of Annual Benefit (CSC)

PT I II III IV V
Gross Annual Benefits 131 131 131 131 131
PVF @10% p.a 0.683 0.751 0.826 0.909 1

P.V. of CSC 89 98 108 119 131

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IV. Statement Showing PVDBo

PT I II III IV V
Opening PVDBO - 89 196 324 475
Interest @10% - 9 20 32 48
CSC 89 98 108 119 131
Closing PVDBO 89 196 324 475 654

B. Benefits Period

As per the Provisions of Ind AS-19, Benefit Period is the period over
which Current Service Cost is allocated. The following points should be
considered under this concept:-

i. The Current Service Cost shall be allocated on “SLM” basis over the
Benefit period
ii. The Benefit period shall be divided under 2 headings as follows:-
Benefit Period

Higher Benefit Period Nominal Benefit Period

Note: The Amount of Current Service Cost will be different under the
specified periods. The Amount of Current Service Cost will be computed
separately for both periods according to different periods.

iii. If Benefits shall be vested on a Future date after completing

conditional service period then there will be no Impact on Current
Service Cost due to Future vesting. We can consider Probability
factor on No. of employees who are expected to complete the
condition.

iv. If vesting of Benefits is made year to year Basis then the vested
Amount will be considered as CSC over the remaining Service Period.
[No need to calculate SLM amt in this case]

{ Refer Q.16 to Q.26 : For this Concept}

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C Actuarial Assumptions

As per the Provisions of Ind AS-19, Actuarial Assumptions are entity’s

Best Estimates while providing the CSC for Post-Employment Benefits.
These Estimates should be Unbiased & Mutually Compatible. There are 2
types of Assumptions, which are used under Ind AS-19, as follows:-

Assumptions

Demographic Assumptions Financial Assumptions

i) Mortality Rate i) Discount Rate

(Govt Bond rate)
ii) Early Retirement Rate Related with ii) Salary Increment
No. of Empl. Rate
iii) Turnover Rate iii) Settlement Exp at
iv) Disability Rate etc. the time of Final
payment etc

*Part 5*

Step II: Adjustments in PVDBO ([Link])

Adjustments

1. Benefits 2. Past Service 3. Settlement 4. Re-measurement*

Paid Cost*

Cash Payment P&L A/c OCI

Adjustment 1: Accounting for Benefit Paid

At the time of Retirement of Employees, Entity will pay the Promised

Amount to the Employee for which it had created PVDBO A/c. The
following entry will be passed in the given case:-

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Journal: PVDBO a/c…………Dr xxxx

To Bank xxxx
(Being Benefits paid)

Statement showing Balance in PVDBO for Current Year

PT Rs.
Opening Balance (Obligation) xxxx
Add: Interest Cost (OB x %) xxxx
Add: Current Service Cost xxxx
Less: Benefits Paid (xxxx)
Closing Balance (Obligation) xxxx

Adjustment 2: Past Service Cost (Imp)

As per the Provisions of Ind AS-19, Past Service Cost is the Amount of
Changes in Existing Balance of PVDBO due to “Amendment in Plan” or
“Curtailment in Plan.” The following points may be considered while
making Accounting Entries for Past Service Cost:-

1. Under Amendment in Plan, Current Benefits may be Increased or

Decreased due to which existing Balance in PVDBO will be revised. The
Amendment in Plan also includes withdrawal of Existing Plan &
Introduction of New Plan. The Difference between Revised Balance in
PVDBO after Amendment & Existing Balance in PVDBO will be
Considered as “Past Service Cost.”

2. Under Curtailment, Entity can reduce No. of Employees due to

Discontinuation of a Factory, Plant or Segment. After Reducing No.
of Employees, there will be reduction in Balance of PVDBO a/c &
such reduction will also be treated as Past Service Cost.

3. The following calculation may be considered to compute Past Service

Cost due to Amendment or Curtailment in PVDBO A/c:-

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PT Rs.
Revised (New) Balance in PVDBO A/c after xxxx
Amendment/ Curtailment
Existing Balance in PVDBO A/c before Amendment/ (xxxx)
Curtailment
Past Service Cost +/- xxxx

Notes:
A. If Balance in PVDBO gets increased after Amendment/ Curtailment
then Past Service Cost will be considered as Positive PSC, but It will
be considered as Negative PSC in Vice versa situation.
B. As per the Rules, PSC will be transferred to P&L a/c on the Date of
Amendment or Curtailment

4. Accounting Entries:-
If PSC is “+” If PSC is “-“
(i) Past Service Cost……Dr xxxx (i) PVDBO………..Dr xxxx
To PVDBO xxxx To Past Service Cost xxxx
(Being Liab. Increased due to (Being Liab. reduced due to
Amendment in Plan) Amendment in curtailment)
(ii) P&L a/c……..Dr xxxx (ii), Past Service cost…..Dr xxxx
To Past Service Cost xxxx To P&L xxxx
(Being Exp. written off) (Being Income Recognised)

5. Statement Showing Balance in PVDBO

PT Rs.
Opening Balance (Obligation) xxxx
Add: Interest Cost (OB x %) xxxx
Add: Current Service Cost xxxx
Less: Benefits Paid (xxxx)
Add/ Less: Past Service Cost +/- xxxx
Closing Balance (Obligation) xxxx

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Adjustment 3: Profit/ Loss on Settlement of Plan (Imp)

As per the Provisions of Ind AS-19, Settlement means payment in cash

as Compensation in lieu of cancellation of Existing Plan. If payment is
made less than Balance in PVDBO then It will be considered as Gain on
settlement, but it will be treated as Loss on Settlement in vice versa
case. The difference between Curtailment & settlement can be analyzed
as follows:-

Curtailment V/S Settlement

Cancellation of PVDBO without Cancellation of PVDBO with

Compensation Compensation

It is related with unvested It is related to vested benefits

benefits which are related to which are vested year to year basis
vesting on Future date

It is recognised as past service It is recognised as Settlement

cost

Always Profitable Gain/ Loss may take place

Accounting Entries:-
Gain on Settlement Loss on Settlement

PVDBO………….Dr xxxx PVDBO…………………Dr xxxx

To Bank xxxx Loss on Settlement….Dr xxx
*To Gain on Settlement xxxx To Bank xxxx

(Being Settlement made) (Being Settlement made)

*Gain or Loss on Settlement will be transferred to P&L a/c.

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Special Points
A. If Amendment or Curtailment & settlement are made on same date
together then we consider it as Settlement. We will calculate Gain or
Loss on settlement instead of Recognising Past Service Cost.

B. Interest Cost: If Amendment, Curtailment or settlement has been

made during the year then calculation of Interest Cost will be made
separately for the Rest of year on Revised liability after Amendment/
Curtailment or Settlement.

Statement Showing Balance in PVDBO

PT Rs.
Opening Balance (Obligation) xxxx
Add: Interest Cost (OB x %) [P&L a/c] xxxx (+)
Add: Current Service Cost [P&L a/c] xxxx (+)
Less: Benefits Paid [Cash a/c] xxxx (-)
(it can be added to benefit paid)
Add/ Less: Past Service Cost [P&L a/c] xxxx (+/-)
Less: Amount paid on Settlement [Cash a/c] (xxxx)
Add/Less: Gain/ Loss on Settlement [P&L a/c] xxxx (+/-)
Closing Balance (Obligation) [ B/s: NCL] xxxx

Adjustment 4: Re-measurement of PVDBO

As per the Provisions of Ind AS-19, Changes in PVDBO due to change in

Acturial Assumption (Demographic or Financial) will be considered as Re-
measurement of PVDBO. The Gain or Loss due to Increase or Decrease
in PVDBO will be considered as Actuarial Gain or Actuarial Loss.
The Amount of Actuarial Gain or Loss will be transferred to “OCI”
instead of P&L a/c. This Balance of OCI will be considered as Non-
Recycling to P&L & It will be held under other Equity only. The
calculation of Actuarial Gain/ Actuarial Loss can be made as follows:-

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Calculation of Actuarial Gain/ Loss

PVDBO A/c
PT Rs. PT Rs.
To Past Service Cost (-) xxxx By Bal b/d (Opening) xxxx
To Bank (Benefits paid) xxxx By Interest (OB x Rate) xxxx
To Bank (Settlement) xxxx By Current Service Cost xxxx
To Gain on Settlement xxxx By Past Service Cost (+) xxxx
To Actuarial Gain ([Link]) xxxx* By Loss on Settlement xxxx
By Actuarial Loss xxxx*
To Bal c/d (given) xxxx ([Link])

xxxx xxxx

Journal: i) Actuarial Loss: a) Actuarial Loss……..Dr xxxx

To PVDBO xxxxx
b) OCI………………Dr xxxx
To Actuarial Loss xxxx
ii) Actuarial Gain: a) PVDBO………………Dr xxxx
To Actuarial Gain xxxx
b) Actuarial Gain………Dr xxxx
To OCI xxxx

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*Part 6*

e.g. Calculate closing balance in PVDBO at the end of year with the help of
following information:-(X1 –X2 )
i) Opening Balance in PVDBO : Rs.10,00,000
ii) Current Service cost : Rs.2,00,000
iii) Interest to be computed @10% p.a.
iv) Amendment in plan made on 1.7.X1 due to which there will be an
increase in PVDBO by Rs. 2,00,000
v) Settlement made with some employees on 31.3.X2 and a payment
was made of Rs.2,00,000 in settlement of PVDBO of Rs.2,50,000

Solution:
PVDBO A/c
31.3.X2 1.4.X1
To Bank (settlement) 2,00,000 By Bal b/d 10,00,000
1.7.X1
To Gain in Settlement 50,000 By Past service cost 2,00,000
(2,50,000-2,00,000) 31.3.X2
By Interest Cost:
To Bal C/d (Bal fig) 12,65,000 i) 10L *10%*3/12=25,000
ii) 12L *10%*9/12=90,000 1,15,000
By Current Service cost 2,00,000

15,15,000 15,15,000

Alternative Presentation
Opening Balance =10,00,000
Add: Past Service Cost =2,00,000
Add: Interest Cost =1,15,000
Add: Current Service Cost = 2,00,000
Less: Benefits paid on settlement = 2,00,000
Less: Gain on Settlement =50,000
Closing Balance 12,65,000

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Journal:
i. Past service cost---------Dr 2,00,000
Current Service cost----Dr 2,00,000
Interest------------------Dr 1,1,5,000
To PVDBO 5,15,000
( Being Exp. Recognised)

ii. PVDBO A/c---------------Dr 2,5,0,000

To Bank 2,00,000
To Gain on settlement 50,000
(Being settlement made)

iii. P&L A/c----------------Dr 5,15,000

To PSC 2,00,000
To CSC 2,00,000
To Interest 1,15,000
(Being expenses written off)

iv. Gain on settlement A/c……..Dr 50,000

To P& L 50,000
(Being Gain Recognised)

e.g. Calculate actuarial Gain or Loss in PVDBO with the help of given
information as below:-
i) Opening Balance in PVDBO : Rs.2,00,000
ii) Closing Balance in PVDBO : Rs.2,50,000
iii) Current service cost : Rs.40,000
iv) Interest @10% p.a.
At the end of year the following additional information is also available:-
a) Past service cost of Rs.10,000 due to increase in PVDBO
b) Reduction in PVDBO due to curtailment of Rs.50,000

Solution:

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PVDBO A/c
To P.S. Cost (Curtailment) 50,000 By Bal b/d 2,00,000
By Interest 10% 20,000
By C.S. Cost 40,000
To Bal c/d 2,50,000 By P.S.C. (Amendment) 10,000
By Actuarial Loss 30,000
(Bal. fig)
3,00,000 3,00,000

Journal:
i. Current service cost---------Dr 40,000
Interest cost------------Dr 20,000
P.S. Cost (Amend.)------------Dr 10,000
To PVDBO 70,000

ii. PVDBO A/c---------------Dr 50,000

To Past service cost (Curtailment) 50,000
(Being Curtailment made)

iii. Actuarial loss A/c--------Dr 30,000

To PVDBO 30,000
(Being loss due to re-measurement recognised)

iv. P&L A/[Link] 20,000 (bal)

PSC A/c------------------Dr 50,000
To CSC 40,000
To PSC 10,000
To Interest 20,000
(Being Expenses written off)

v. OCI A/c------------------Dr 30,000

To A. Loss 30,000
(Being Re-measurement loss transferred to OCI)

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Step III: Accounting for Plan Assets

(Investment Held for Retirements benefits)

As per the provisions of Ind AS 19, the following steps should be

applied while making Accounting for plan Assets:-

1. Accounting Entries for 1st year of Investments made:-

At the end of Year

Plan Assets A/c-------------------Dr XXXX
To Bank XXXX
(Being Investments acquired)

2. Accounting entries for 2nd year & Subsequent year

At the end of Year

i) Plan Assets A/c---------Dr [O.B. *%] XXXX
To Interest Income XXXX
(Being returns on Assets recorded)

ii) Plan Assets A/c-------------Dr XXXX

To Bank XXXX
(Being New contribution made)

iii) Interest Income A/c--------Dr XXXX

To P& L A/c XXXX
(Being Income recognized)

Statement of Plan Assets

Opening Balance (Assets) XXX
Add: Actual Return on Balance (OB*%) XXX
Add: New contribution XXX
Closing Balance XXX

OR

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Plan Assets A/c

To Bal b/d XXX By Bal c/d XXX

To Income XXX
To Bank XXX

XXX XXX

3. At the time of Benefit paid to employees:-

At the time of benefits to be paid to the employees, we need to sell

investments for the arrangements of cash. The following entry will be
recorded:-
Bank a/c………….Dr XXX
To Plan Assets XXX
(Being Investments sold)

Plan Assets A/c

To Bal b/d XXX By Bank (Sold) XXX

To Bank XXX
To Income XXX By Bal c/d XXX

XXX XXX

4. Gain/Loss on Re-measurement:-
(Actuarial Gain/Loss)

At the end of year, plan Assets are required to be valued at “fair

value” due to Which there will be re-measurement gain or loss in plan
Assets a/c and it will be recognised at actuarial gain or actuarial Loss. As
per provision of Ind AS 19 Actuarial Gain/loss will be transferred to “OCI”
and it will be non-transferable to P&L in Nature.

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If fair value of If fair value of

Investments get Investments get
increased decreased

i) Plan Assets A/c…Dr XXX i) A. Loss A/c…………Dr XXX

To A. Gain XXX To Plan Assets XXX
(Being Gain Recognized) (Being Loss Recognized)

ii) A. Gain A/c…………Dr XXX ii) OCI A/c……………Dr XXX

To OCI XXX To A. Loss XXX
(Being Gain transferred to OCI) (Being Loss transferred)

Plan Assets A/c

To Bal b/d XXX By Bank XXX

To Bank (Cont) XXX (Benefit paid)/SOI)
To Income (OB*%) XXX By Actuarial loss ([Link]) XXX
By Actuarial Gain XXX By Bal c/d XXX
([Link]) (Fair Value)

XXX XXX

e.g. Calculate actuarial gain/Loss on Plan Assets with the help of given
information as follows:-
i) OB (Fair value) : 10,00,000
ii) CB (Fair value) : 16,00,000
iii) Contribution : 2,00,000
iv) Income on Assets @8% p.a.
v) Benefits paid to employees : 4,00,000

Solutions

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Plan Assets A/c

To Bal b/d 10,00,000 By Bank 4,00,000

To Bank (Cont) 2,00,000 (Benefit paid)
To Income (10L *8%) 80,000
PL By Bal c/d 16,00,000
By Actuarial Gain 7,20,000 (Fair Value)
([Link])
“OCI”
20,00,000 20,00,000

*Plan Assets: These are investments which are held for payment of
retirement Benefits. It includes all investments which are
held for employees retirement benefits including qualifying
insurance policies as well.
Risk Free Other than Insurance plans
Investments Which are covered under
contribution plans

“Q.I.P.”: If it is held by en entity for payment of retirements benefits.

*Part 7*

Step IV: Presentation in financial statements

(excluding Asset ceiling)

As per the provisions of Ind AS 19, the presentation Rules

regarding Defined Benefit plans can be understood under the 3 different
headings:-

Rule 1: Presentation in Balance sheet

In B/S, we will disclose Defined Benefit obligation liability or Asset

on net Basis as follows:-

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Closing Balance in PVDBO XXXX

Closing Balance in Plan assets (XXXX)
Net Defined Benefit XXXX +
Liability (Asset)
“Subject to Asset ceiling”

Rule 2: Presentation in P& L statement & OCI Statement

i. Interest cost on PVDBO & Interest income on Plan Assets will be

disclosed On net basis [Interest cost-Interest Income =Net Int]

ii. Actuarial gain/loss in PVDBO & plans Assets will also be disclosed in
OCI on net Basis [Actuarial Gain/loss in PVDBO + Actuarial Gain/loss
in plan Assets= Total]

iii. All other items such as CSC,PSC & Gain or Loss on settlement shall
be treated Separately.

Rule 3: Presentation in Notes to A/c’s *Imp

In notes to A/c’s, reconciliation statements for PVDBO, plan

Assets & Net Asset/Liability will be given between opening balance &
closing balance as follows:-

Particulars PVDBO Plan Assets Net Balance

Opening Balance XXXX XXXX XXXX
(PVDBO-Plan Assets)
Interest Cost/Income XXXX XXXX XXXX (Cost-Incomes)
Current Service cost XXXX - XXXX
Past Service cost + XXXX - + XXXX
Settlement Gain/Loss + XXXX - + XXXX
Benefits Paid (XXXX) (XXXX) Zero
Contribution Paid - XXXX XXXX
Actuarial Gain/Loss + XXXX + XXXX + XXXX (Net)
Closing Balance XXXX XXXX XXXX

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Note: In practical questions, we will present the solution as per the

requirements. We will show net reconciliation statement only if
financial statements are required in questions.

In notes to A/c’s, entitles are required to prepare one more

statement showing Investments (plans Assets) as follows:-

i. Investments in equity instruments

ii. Investments in debt instruments
iii. Investments in Derivatives
iv. Investments in Govt. Securities
v. Investments in Real estate
vi. Investments in fixed deposit/ Insurance plans etc.

Question-28
Solution
(i) Presentation in B/S (31.3.X2)

Closing Balance in PVDBO A/c 1580

Closing Balance in Plan Assets A/c (1275)
Net D.B. Liability 305

(ii) Presentation in P&L & OCI

In P&L A/c : i) C.S. Cost 55

ii) Net Int. Cost (112-91) 21
Total Expenses 76

In OCI : i) A. Loss on PVDBO 13

ii) A. Loss on P. Assets 67
Total Loss 80

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(iii) Journal Entries

a) C.S. Cost Dr--------55 b) A. Loss A/c……Dr 13

Interest cost Dr---112 To PVDBO 13
To PVDBO 167 (Being loss on re-measurement
(Being exp recognised) recognised)

c) Plan Assets A/c------Dr 202 d) A. Loss A/c---------Dr 67

To Int, Income 91 To Plans Assets 67
To Bank 111 (Being re-measurement losses
(Being Plan Assets increased) booked)

e) P&L A/c-------------Dr 167 f) Interest Income A/c---Dr 91

To Interest cost 112 To PL 91
To CSC 55 (Being Income transferred )
(Being exp. Written off)

g) OCI A/c----------Dr 80
To A. Loss on PVDBO 13
To A. Loss on Plan Assets 67
(Being A. Losses written off)
OR
Net entry: Given in study Mat
PL-----Dr 76
OCI----Dr 80
To PVDBO 45
To Bank 111

W.N. #1 PVDBO A/c

By Bal B/d 1400

By C.S. Cost 55 1567
By Int. Cost (1400*8%) 112
To Bal C/d 1580 By A. Loss (Bal Fig) 13

1580 1580
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W.N. # 2 Plans Assets A/c

To Bal b/d 1140 By A. Loss ( Bal, fig) 67

To Int. Income 91
(1140*8%) By Bal c/d 1275
To Bank 111

1342 1342

Question-30
Solution

Calculation of Gain/Loss to be transferred to OCI

Actuarial Gain in plan assets 1000

Actuarial Loss in PVDBO 100
Net Gain to be transferred to OCI 900

Calculation of Net Interest cost in P&L

Interest cost on PVDBO 1200

Interest Income in Plan Assets (1000)
Net Interest cost 200

W.N. #1
Plan Assets A/c

To Bal b/d 10,00 By Bank 300

To Interest Income 1,000
(10,000*10%)
To Bank (Contn) 3,000 By Bal C/d 14700
To A. Gain ([Link]) 1000

15,000 15,000

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W.N. # 2 PVDBO A/c

To Bank 3,00 By Bal B/d 12,000
By Int. Cost (10%) 12,00
By C.S. Cost 2,500
To Bal C/d 15,500 By A. Loss (Bal Fig) 100

15800 15800

Question-31 (Imp)
Solution
i) Presentation in B/S (31.03)

Closing Balance in PVDBO A/c 6,80,00,000

Closing Balance in Plan Assets A/c (5,60,00,000)
Net Defined benefit Liability 1,20,00,000

ii) Presentation in P&L & OCI

P&L Statement : i) C.S. Cost 62,00,000

ii) Net Int. Cost 4,06,250
(30,06,250-26,00,000)
iii) Past service cost 15,00,000
iv) Gain on settlement (5,00,000)

In OCI : Net Actuarial loss due to 33,93,750

Re-measurement
(94,93,750-61,00,000)

Loss Gain

iii) Presentation in notes to A/c’s

Reconciliation Statement

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PVDBO A/c Plan Assets Net Liability

Opening Balance 6,00,00,000 5,20,00,000 80,00,000
Add: Interest 30,06,250 26,00,000 4,06,250
Add: C.S. Cost 62,00,000 - 62,00,000
Add: P.S. Cost 15,00,000 - 15,00,000
Less: benefits Paid (42,00,000) (42,00,000) 0
Less: Settlement (75,00,000) (75,00,000) 0
payment
Less: Gain on (5,00,000) - (5,00,000)
settlement
Add: Contribution made - 70,00,000 (70,00,000)
Actuarial Gain /Loss 94,93,750 61,00,000 33,93,750
(Loss) (Gain) (Net)
Closing Balance 6,80,00,000 5,60,00,000 1,20,00,000

W.N. #1 Plan Assets A/c

To Bal b/d 5,20,00,000 By Bank:
To Interest Income 26,00,000 Benefit Paid 42,00,000
(5,20,00,000*5%) Settlement 75,00,000
To Bank 70,00,000
To A. Gain (bal) 61,00,000 BY Bal C/d 56,00,000

6,77,00,000 6,77,00,000

W.N. # 2 PVDBO A/c

To Bank (Benefits) 42,00,000 By Bal b/d 600,00,000
To Bank (settlement) 75,00,000 By Interest:
To Gain on settlement 5,00,000 1.4.-28.02 30,06,250
[6 crores*5%*11/12]
1.3- 31.3
[6 crores*5%*1/12]
By C.S. Cost 62,00,000
To Bal c/d 680,00,000 By P.S. Cost 15,00,000
By A. Loss (Bal. fig) 94,93,750

802,00,000 802,00,000

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Question-32
Solution
Statement showing Reconciliation of Plan Assets

Opening Balance( Fair Value) 20,40,000

Interest Income (20,40,000*5%) 1,02,000
Contributions 4,25,000
Benefits Paid (2,55,000)
Actuarial Gain (Bal. fig) 68000
Closing Balance (fair Value) 23,80,0000

Statement showing Reconciliation of PVDBO

Opening Balance in PVDBO A/c 21,25,000

Interest cost (21,25,000*5%) 1,06,250
Current service cost 5,10,000
Benefits Paid (2,55,000)
Actuarial Loss (bal. fig) 233750
Closing Balance in PVDBO 27,20,000

Presentation in B/S

Net Defined benefit Liability (27,20,000-23,80,000) 3,40,000

Presentation in P&L

P&L : 1) CSC 5,10,000

2) Net Int. Cost(106,250-102,000) 4250

OCI: Net A. Loss on Re-measurement 1,65,750

(233,750-68,000)

Question-27 &29
Solution discussed at class

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*Part 8*

Step V: Asset Ceiling

As per the provisions of Ind As-19, the concept of Asset ceiling will
be applicable only if these are Net Defined Benefits Assets. The following
steps should be applied:-

Step I: Calculate Net defined Benefit Assets as follows:-

PVDBO (Closing Balance ) XXXX

Plan Assets (Closing Balance ) (XXXX)
Net Defined Benefit Assets XXXX

If the plan Assets become

Higher than Balance in PVDBP

It also indicates that plan Assets are Overfunded due to

high contributions Or there is Re-measurement Gain due to
increase in Fair value of Assets

Step II: Calculate Present value of expected Refunds or Reduction in

future Contributions due to increase in plan Assets after
settlement of PVDBO
It is called Amt of “Asset ceiling”

Step III: We will disclose Net Defined Benefit Assets in B/S to the
extent of Asset Ceiling “if step I value exceeds Step II value
then Difference will be reversed in OCI and it will also be
considered as Re-measurement.”

Step I : N.D.B. Asset or step II : Asset ceiling

Whichever is lower will

be carried in B/S

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Journal : If Step I exceeds Step II

OCI A/c…..Dr XXX

To Plan Assets XXX
(Being Re-measurement made due to Asset ceiling)

Example:
i. PVDBO= Rs.20,00,000
ii. Plan Assets= Rs.24,00,000
iii. Asset Ceiling= Rs.2,50,000
Show B/S Assets & Re-Measurement.

I) Net Defined Benefit Assets:

PVDBO Balance 20,00,000
Plan Assets Balance 24,00,000
Net Defined Benefit Assets 4,00,000

II)Application of Asset Ceiling:

Net Defined Benefit Assets 4,00,000
Asset Ceiling 2,50,000
Whichever is Lower 2,50,000

Comments: It means that we will disclose Rs.2,50,000 in B/S as Net

Defined Benefit Assets. These will be reversal of Rs.1,50,000 in
OCI as follows:-

OCI a/c…………….Dr 1,50,0000

To Plan Assets 1,50,000
(Being Re-measurement made)

Unit III: Accounting For “Other Long Term Benefits”

As per the Provisions of Ind-AS 19, Long Term Benefits are the
retirement benefits which are payable after 12 months from B/S date.
These Benefits are not Retirement Benefits such as Provident Fund,
Gratuity, Pension etc., but these are other payments which are to be paid

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after 12 months from B/S date. These Benefits may include Long Term
Absences, Long Term Payments of Bonus & Profit sharing etc.
The Accounting for these Benefits shall include:
i) Service Cost
ii) Interest Cost
iii) Re-measurement

Note: Due to Lower level of uncertainties, there is no concept of OCI, but

all Items shall be written off in P&L A/c.

Unit IV: Accounting For Termination Benefits

As per the Provisions of Ind AS-19, Termination Benefits are paid by an

Entity if:-
i) It wants an Employee to leave the Entity
OR
ii) It wants the Employee to take VRS

In the above cases, Compensation is required to be paid by the Entity for

early Termination of Employees service. As per the Provisions, the Amt
of Compensation will be written off in P&L a/c as an Expense.

Note: If payment of Compensation is expected within 12 months from

Balance Sheet date then A liability can be created. In case, payment
will be made after 12 months from Reporting date then we will
Account for it as other Long Term Benefits

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

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Chapter 2 – Ind AS 110 Consolidation of Financial Statements

*Part 1*

Coverage

Consolidated Separate
Financial Statements Financial Statements
of “Investors” of “Investors”

“Accounting for
Investments in
CFS with CFS with CFS with subsidiary,
Subsidiary Associates Joint Arrangements Associates,
Joint arrangements
Ind AS 110 Ind As 28 Ind AS 111/28 in SFS”

Ind –AS 27
Disclosures
Of CFS
(Ind AS 112)

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Unit I : Consolidation with subsidiary (Ind AS 110)

Sub- Division of Unit I

Simple Imp Imp Simple

Part 1 Part II Part III Part IV

Exemption Evaluation Accounting for Investment

of “Control” subsidiaries in Entities
From CFS CFS

Practical
Portion

Part I : Exemptions from CFS

As per the provisions of Ind AS 110, each parent company will

consolidate all of its Subsidiaries whether subsidiary is an Indian
company or foreign company.

“ A parent company can avail exemption from consolidation if all the

following Conditions are satisfied”.

Conditions I : It should be a wholly owned or partly owned subsidiary

of another Company [Note: it means that it should be
an intermediate parent which is itself a subsidiary
company of Another company]and it has informed to
all of Its members that it is not preparing CFS and no
member has raised any objection.

Condition II: It Equity or debt instruments are not traded in public

on any exchange
( Note : it should not be a listed company)

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Condition III: It should not be in listing process with SEBI

(Note: It will not be listed in future)

Condition IV: Its ultimate Holding or any other intermediate Holding

is preparing CFS as per Ind AS and report is available for
public.

Question 2:
Solution:

(i) In the given case, A Limited can avail exemption from

preparing CFS because all the conditions are satisfied as
follows:-

a) It is subsidiary of X Ltd and its members don’t have any

objection if it does not prepare CFS.
b) It is not a listed company as well as it is not in listing
process
c) Its ultimate Holding Company (X Ltd) is preparing CFS as per
Ind AS

(ii) In case B, A Ltd can not avail exemption because its ultimate
Holding (X Ltd)Is a foreign Co. and it will not prepare CFS as
per Ind AS.

(iii) In case C, A Ltd can not avail exemption because its ultimate
parent is an individual and Mr X will not prepare CFS as per Ind AS.

Question 3:
Solution:
(i) Yes, Company C can avail exemption from CFS only if its outside
members Holding 40% equity do not raise any objection on it.
All other conditions are already satisfied.
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(ii) In case B, B Limited is also a subsidiary of A Ltd. which is

ultimate parent of C as well. When A Ltd does not have any
objection then company B cannot raise objection. So there is no
need to inform company B about its intention of Not preparing
CFS.

Question 1:
Solution:

(i) Company Y can not avail exemption because its ultimate Holding
(X Ltd.) does Not have any objection if company M does not
prepare CFS which indicates that it has objection if Y does not
prepare CFS.
(ii) Company M can avail exemption from CFS if its outside
shareholders holding 20% equity in company don’t raise any
objection.

“Further Explanation on Exemption”

From CFS

Exemption can be availed by

Following entities as well

If an entity is Formed If Investor is an

to manage plan Assets Under investment Entity
Ind AS 19 and its control (Refer Part IV : Unit I)
is with the reporting entity

No CFS are required in this case

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*Part 2*

Unit II: Evaluation of Control (*V.V. Imp)

As per the provisions, subsidiary company is a company which is

controlled by other Company/its parent company. ( It can also be
said that Holding/Subsidiary relationship will exist only if an investor
has control over its investee)

As per the provisions of Ind AS 110, evaluation of control is

mandatory in a relationship before the Application of Ind AS 110.
There are 3 elements in control evaluation as follows which are
required to prove the existence of control:-

Investor Investor’s Ability to

power exposure/Rights use power
over the to the variable to Affect =Investor has control
Investee returns of Investor Over Investee
Investee Return

Yes Yes Yes Yes

Element 1: Explanation on Power

There are 3 elements which are required to be Assessed that whether

An investor Has power in Investee or not. All 3 elements should exist
in a relationship to prove existence of power which are as follows:-

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Elements in power

An Investor Existing Rights Ability to

Should have Provide ability Direct Relevant
“Existing Rights” to investor activities of
Investee

 Existing Right
 Ability All elements Investor has
 Relevant Activities if existed “Power”

Concept 1: Relevant Activities (* Imp)

As per the provisions of Ind AS 110, Relevant activities are the

activities of an Entity that “significantly affect” the returns of
Investee entity. There may be a Range of operating and financing
Activities that affect returns of the company. The following examples
may be understood for the meaning of Relevant activities: -

Example :i) Selling/ Purchasing of Goods/services

ii) Management of financial Assets (Investments) over the
maturity period
iii) R & D of New products
iv) Arrangement of funds
v) Capital decisions
vi) Appointment/Removal/Remuneration of Key management
personnel
vii) selection, Acquisition, Disposal of Investments by Mutual
funds/venture Capital funds etc..

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Key Note: Out of Range of Relevant activities Ind As 110 considers

only that Relevant activity that has most significant affect
on returns.
It’s a matter of Judgement

Concept 2: Explanation on Rights

As per the provisions of Ind AS 110, an investor must have existing

Rights that Give ability to direct the relevant activities of an
Investee. As per the provisions Different investors may have
different Rights, but we will consider only those rights that “give
ability to direct Relevant Activities those have most significant
Affect on returns of Investee”.

There may be different kind of example of Rights (Contractual/Non-

contractual) of Follows:-
i) An investor can have majority in “Voting Rights” of an Investee

ii) An investor can have the rights to form Board of directors of an

Investee (i.e It can appoint or remove majority of Directors
in BOD of Investee)

iii) An Investor can have the rights to Appoint/ Remove another

entity which Has ability to direct relevant activities of
investee company
( i.e An entity can appoint/remove fund manager that has
ability to direct relevant activities of a fund)

iv) An investor can have rights to direct an investee to sell its

output to Investor at a price which also decided by investor.

Note: The above specified example are not a complete list. There may
be other types of Rights as well. We need to Assess most powerful
rights.

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Concept 3: Explanation on Ability to exercise the existing Rights

As per the provisions of Ind AS 110, An investor should have

practical ability to Exercise rights to direct the relevant activities.
It means that Right should be “Substantive”. As per the provisions,
we can classify the ability of Rights under 2 Heading as follows:-

Rights Ability

(1) Substantive (2) Protective

Rights Rights

I) Substantive Rights:
As per the provisions of Ind As 110, only substantive Rights
provide practical Ability to exercise rights to direct relevant
activities . The Rights can classified as Substantive Rights only if
investor can exercise those Rights when there are needed. It means
that there should not be any barrier in exercise of substantive
rights. If there is any barrier in exercise of rights then it will be
considered that “Rights Are not substantive”.

The following examples may be considered as barrier in exercise of

Rights:-
i) Financial Barrier: (Huge Penalties may prevent the investor
from Exercising the power)

ii) Operational Barrier: (There may be no substitute of present

management)

iii) Legal Barrier: (Foreign Investor can be restricted from

voting power by Govt.)

iv) Potential voting Rights (If current becomes less than CMP
then Conversion may not be
considered as substantive)

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*Part 3*

II. Protective Rights:

As per the Provisions of Ind AS-110, Protective Right does not give
power to investors to Direct relevant Activities of Investee. These
Rights are exercised in rare situations only. These Rights are given to
Investors to Protect their Interest in Adverse Situations. These
rights are also given by a franchisee to its franchisor to protect
franchisor Brand name. The Protective Rights are never considered
for Evaluation of control. The following examples may be considered
for understanding of Protective Rights:-
(i) A Lender’s Right to claim on Assets of Borrower if it makes default
in the payment of Interest or Installments etc.
(ii) An Investor’s right if Investee makes any fraud or
misappropriation of Investor’s fund.
(iii) An Appointment of a nominee director in BOD of Investee by a
Lender to get Regular updated about working in Investee.
(iv) A franchisor’s right to bound franchisee to protect Brand Name
i.e; Uniform of Employees, Interior, Logos etc.

Exceptions to Substantive Rights

It may be possible that an Investor does not have substantive right

at present, but Rights shall become substantive at the time of their
Exercise. “It may be possible that potential shares become Actual
Shares before AGM in a Company AND Investor will be exercising its
voting power in AGM. These Potential Rights shall be considered
substantive because Rights are exercisable when they are needed.”

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Summary of Rights
Investor Other = Result
Investors

i) Substantive Right i) Protective “Investor has power over

Rights the Investee”

ii) Protective Rights ii)Substantive “Other Investor have power

Rights over the Investee”

iii) Substantive Rights iii)Substantive “Further Assessment

Rights Required”

Q.7
Solution: Discussion in Lecture

Q.8 (V.V. Imp)

Solution: Discussion in Lecture

Q.9 (Imp)
Solution: Discussion in Lecture

Q.10 & 11
Solution: Discussion in Lecture

Q.5, 4 & 6
Solution: Discussion in Lecture

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*Part 4*

“Further Explanation on Voting Rights”

Voting Rights

Rule 1: Majority in Rule 2: Voting Power Rule 3: Voting Power

Voting Power Less than Majority in not Relevant

Rule 1 : Majority in Voting Rights

As per the Provisions of Ind AS-110, It is a General Assumption in

Trade that An Investor, who has majority in Voting Power of an
Investee Company, has power over the Investee. It is assumed
because Relevant Activities are normally directed through voting
power. If it is proved that Direction of Relevant Activities comes
from BOD of the Company then such majority Investor will be
assumed to have power on Investee only if formation of BOD is
controlled through voting power which is true in Practical world.

Rule 2 : Investor has power over Investee “without” majority voting

rights (Imp) (Exception to Rule 1: Exceptional Cases)

As per the Provisions of Ind AS-110, there may be some cases where
“An Investor does not have” majority in the voting power, but even
though, It will be assumed that the Investor has Power over the
Investee. The following examples may be relevant:-

Case I : If Investor has contract with other Investor

If other Investor appoints the Investor to take decision on its
behalf to direct the relevant Activities of the Investee Company and
after getting such power from other Investors, the Investor gets
majority in Voting Power then It will be assumed that Investor has
power over Investee.

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Example:
Y Ltd. (Investee)

[Link] X Ltd. A Ltd. B Ltd. Other (not significant)

(7%) (45%) (8%) (5%) Individually)
(35%)
It will become 52%

If Mr. Ram contracts with X Ltd to take decision on his behalf.

Solution:
In the given case, X Ltd. Has contracted with other Investor to
obtain power to Direct Relevant Activities of Y Ltd. After such
contract, X Ltd. Has 52% of voting Power of Y Ltd. It indicates that X
Ltd. Has power over Y Ltd.

Case II : If Investor’s own voting power seems significant

practically in Total Voting Power even if such voting power is not in
majority. It can be possible only if there is no significant
shareholder in the company because all other shares are held by small
Investors.
BUT
We will test the voting pattern in Last meeting before arriving on
any conclusion. If small shareholders voted in Last meeting at large
level due to which Investors could not exercise its power then we will
not apply Rule 2.

Exception to Rule 2:
If other shares are held by few members then Rule 2 will not work.

Case III: It may be possible that an Investor does not have

majority in voting power at present, but Investor has a substantive
potential power then we will consider such Substantive potential
power to test his majority in voting power.

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Q.12, 13, 14, 15

Solution: Discussion in Lecture

Rule 3 : Voting Power “if” not Relevant for Direction of Relevant

Activities (Imp)
It may be possible that Design of Business of an Investee does not
require direction from shareholders because its function is Pre-
Determined. In the given case, Power of Voting Power will not work.
So, we need to identify Relevant Activities in such Business. We also
need to understand that who is directing such Relevant Activities. At
the end, we will come to know that who is taking benefits from such
company.

Q.18, 16, 17
Solution: Discussion in Lecture

*Part 5*

Element 2 : Explanation on “Variable Returns of Investee”

As per the Provisions of Ind AS—110, “An Investor should have

exposure in Variable Returns of an Investee in addition to having
power over the Investee.”
As per the Provisions, Variable Returns are the Returns which are not
fixed. These returns may be positive or negative or zero. There are
many examples under Variable Returns:-

I. Interest on Bonds cannot be taken as Fixed Return for Bondholders

because Payment of Interest can be varied if company does not
earn adequate profits. It is variable due to performance Risk.

II. Dividends Distribution to Shareholders is also depend upon

availability of surplus.

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III. Returns from Changes in Value of Investment in Company is

also Variable.

IV. Providing Credit/ Liquidity to a Company is subject to Credit Risk.

V. Remuneration of Management is also related with performance of

Entity etc.

Note: As per the Provisions, Exposure to Variable Returns is not the

Key Element for the Establishment of Control. Such Exposure should
be in line with having power over the Investee. It means that power &
Variable Returns (Both) are linked to each other.
Ex:- Bondholders are associated with Variable Returns, but they don’t
exercise power due to which control of Bondholders cannot be
established over the Entity.

Further Explanation on Link between Power & Returns (Imp)

As per the Provisions of Ind AS-110, An Investor should assess

whether it is working as a Principal or Agent of Investee. If it is
working as a Principal then It will be assumed that It has control
over the Investee. In case it is working as an Agent then we will say
that there is no Control relationship between Investor & Investee.
We have to Test Power & Returns as follows:-
“of Relevant Activities”
I. Test of Power: Can Decision Maker be removed by Single Investor*
or BOD “without any cause”

Yes No
Decision Maker is an Agent Decision Maker is a Principal

*If Removal is possible by Multiple Investors by taking Decision

together then It seems impractical that Decision Maker can be
removed.

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Note: Protective Rights are not considerable for Testing Removal

Rights

II. Test of Returns: Does Decision Maker has “Significant”* +

exposure to Variable Returns in Investee due to “Remuneration**
& other Interests”

Stake in investee “Total Exposure to Variable Returns”

Yes No
Decision Maker is a Principal Decision Maker in an Agent

*Note 1: The Meaning of Significant Exposure is nowhere mentioned.

Practically, 20% or more stake in a Company with Exercise of Power is
considered as a Substantial Interest/ Significant Interest.
 Without Power, 20% or more Investment is considered as
Investment in Associates.

**Note 2: The Remuneration itself is not considerable. It may be

charged at Market Rate (i.e; It may commensurate with Market). We
will Test it with other Interest on Total Basis.

Q.19, 21
Solution: Discussion in Lecture

Q.20 (Imp)
Solution: Discussion in Lecture

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*Part 6*

Part III : Accounting for Subsidiaries

(Full Consolidation Required)

i. Consolidated financial = Holding + Subsidiary = Group Financial

Statement Co. Co. statements
ii. Requirements in CFS : a) Consolidated B/s (H + S)
b) Consolidated P&L (H + S)
c) Consolidated Cash Flow statement
d) Consolidated SOCE
e) Consolidated Notes to A/cs

Unit I: Consolidated B/s *Imp

Concept 1: Accounting on the date of acquisition of shares
Part B: Business Combination by way of “Significant Equity Interest”
(Holding / Subsidiary Relationship)
As per the Provisions of Ind AS 103, Acquisition of Controlling
Interest by one Company into other company is also a type of
Business combination. The following Flow chart should be understood
carefully before learning Accounting Aspects in this case :-

Acquirer
(if Acquires controlling Interest in other Entity)

Acquirer Stand Alone Acquirer Consolidated

Financial Statements financial Statements
(Separate financial Statements) (Holding + Sub = CFS)

(Ind AS 109)
CFS on Date of Acquisition CFS in Post Acquisition
Period
Ind AS 103 Ind AS 110

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A. Accounting in Separate financial Statements of Acquirer

Step I : On the date of Acquisition of Shares

The Acquirer will debit Investment in Equity Investments as we

record Normal Purchase of Investments. These Investments shall be
recorded as per Ind AS 109 as Follows :-

Investment in Shares a/c Dr xxxx

To Bank xxxx
(Being Investments Acquired)

Step II : At each B/s, fair value measurement will be made as per

Given Choices in Ind AS 109 :-
i. FVPL
ii. FVOCI (Irrevocable)
Comments : At each B/s date, Changes in fair value of Investments
shall be Transferred to PL or OCI as per Opted model.

Ind AS 103 has No Guidance for Accounting in SFS of Acquirer in this

Regard

B. Accounting Treatment in CFS of Acquirer

(we will Discuss Accounting on D.O.A only)

 Refer Ind AS 110 for Accounting in CFS for Post acquisition Period
 Refer Ind AS 110 for detailed discussion on meaning of “controlling
Interest”

“Acquisition Method in CFS on D.O.A”

Aspect I: Identify fair value of Assets & Liab. of Subsidiary on date

of Acquisition of Shares which are to be incorporated in CFS
in the books of Acquirer.

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Aspect II : Identify the value of Non Controlling Interest which is

held by Outside Shareholders in Subsidiary Company.

NCI

Method I : Proportionate Method II : Fair Value

Method Method

“NCI = N. Asset in x % of shares NCI =No. of Shares x fair value Per

Subsidiary held by held by share in
Co. outside outsiders Subsidiary co.
Shareholders

Note : In Study material of ICAI, All Questions have been solved by

Proportionate Method due to which we will Prefer it in the
absence of any Specific Information.

Aspect 3 : Identify Goodwill/ Capital Reserve on D.O.A of shares by

the following Entry :-
Journal
Proportionate GW
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed by
To Liabilities xxxx (Fair value) Proportionate method then
To NCI xxxx (Method I) GW will belong to Holding only
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. acquired on Acquisition Date)

OR

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Full GW
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed at fair
To Liabilities xxxx (Fair value) value then It will belong to
To NCI xxxx (Method I) Holding & NCI.
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. taken over on Acquisition Date)

Statement Showing Calculation of Goodwill/ Capital Reserve

Cost of Investments made in Acquiree (PC) xxxx

NCI xxxx
Total xxxx
Net Assets (xxxx)
Goodwill/ Capital Res. xxxx

Solution of Q.54
Journal Entry

Assets a/c Dr 130 Crores

Goodwill a/c Dr 20 Crores (Bal Fig.) (Full GW)
To Investments 120 Crores
To NCI (130 x 20%) 30 Crores
(Being Acquisition of B Ltd. Recorded in CFS on DOA)

Solution of Q.55
Journal Entry

Assets a/c Dr 130 Crores

Goodwill a/c Dr 16 Crores (Proportionate GW)
To Investments 130 Crores
To NCI (130 x 20%) 26 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)

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Solution of Q.56
Journal Entry

Assets a/c Dr 130 Crores

To Investments 90 Crores (PC)
To NCI (130 x 20%) 26 Crores (130 x 20%)
To Capital Res. (Bal fig.) 14 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)

Solution of Q.57

Calculation of Goodwill/ Capital Res.

Method I Method I

Purchase Consideration 1500,000 Purchase Cosidera 1500,000

NCI (500,000 x 40%) 200,000 NCI (500,000 x 40%) 1000,000
Total 1700,000 Total 2500,000
Net Asset (500,000) Net Asset (500,000)
Goodwill 1200,000 Goodwill 2000,000

Q. 58. HW
Q. 59. HW
Q. 62. HW

Solution of Q.61

Calculation of Goodwill

Purchase Consideration 525

NCI (100000 Shares x 40% x 775) 310 fair Value
Total 835
N. Assets (640 – 50) (590)
GW 245 (Full)

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Solution 62

Method I : NCI by Proportionate Method

NCI = N. Assets (Fair Value) x % of Shares held by NCI in Subsidiary

= 100 Crores x 10%
= 10 Crores

Method II : NCI by fair Value Method

It is already Given in question at 15 Crores

Q. 63. HW
Q. 64. HW
Q. 65. HW

*Part 7*

Additional Concepts under PART B : Significant Equity Interest

Concept 1 : Step by Step Acquisition *[Link]

Step by Step Acquisition

Case I : If Previous Equity Case II : If Previous Equity

Interest Was 20% Interest was Less
or more in Acquiree than 20% in Acquiree

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Case I : If previous equity interest was 20% or more in acquiree *Imp

If Acquirer Obtains control over Acquiree through multiple

Acquisitions then It Will be considered as Step by Step Acquisition. In
this case, % of Earlier Investment is very Important which were held
by Acquirer before the Establishment of Holding/Subsidiary
Relationships.
If Earlier Investments in Equity Shares were for 20% or more then
consolidated financial statements would have been Prepared by the
Acquirer with its Acquiree as Per Ind AS 28 (Associates).
On Acquisition date, the Acquirer will have to De-Recognise
Investment in Associate. The following Points should be considered: -

I. Investment in Associates in CFS shall be de-Recognised at “Fair

value” which Prevails on “Acquisition Date”
II. Gain/ Loss on De-Recognition will also be computed as follows :-
Gain/Loss = Fair value of Investment – Carrying Amt of Investment
in Associate in Associate in CFS

Journal Entry

Assets a/c Dr xxxx (Fair value)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx (fair value)
To NCI xxxx
To PC xxxx (Current Acquisition)
To Investments in
Associates xxxx (Carrying Amount) Fair Value
To *Gain on De-Recog. xxxx (Fv – C. Amount)
To Bargain Purchase xxxx (Bal Fig)
(Being De- Recognition of Associate but Recognition of Subsidiary
made at fair value)

Notes:
1. If fair value becomes Less than Carrying Amount of Associates
then Loss on De-Recognition will be debited before Computing
Goodwill/C Res.
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2. Gain or Loss on De-Recognition of Associate will be transferred to

Consolidated P&L A/c .

Observation on Concept

If An Associate becomes Subsidiary due to increase in Investment of

Equity Interest of company then we will De-Recognise Investment in
Associate in CFS at Fair value before computing GW/CR on Acquisition
of Subsidiary.

Solution of Q.69

Journal Entry

i. Net Assets a/c Dr 880 Lacs

Goodwill a/c Dr 120 Lacs (Bal fig)
To Cash 600 Lacs (60%)
To Invest. in E (Associate) 40 Lacs (Carrying Amount in CFS)
To Gain on De-Recog. (400 – 40) 360 Lacs
(Being Acquisition of Subsidiary & De-Recognition of Associate made)
ii. Gain on De-Recognition of Associate a/c Dr 360
To P&L A/c 360
(Being Gain Recognised)

Solution of Q.70
Accounting in the books of A ltd.

i. Net Assets a/c Dr 60,00,000

Goodwill (Bal fig.) a/c Dr 3950,000
To NCI 750,000
PC To Cash (PC) 59,00,000
(65%) To E.S Capital (1L x 10) 10,00,000
To Contingent Consideration 300,000
(25%) To Investments 600,000
To Gain on Invest. 14,00,000
(Being Recognition of Subsidiary made)

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ii. Gain on Investments a/c Dr 14,00,000

To P&L 14,00,000
(Being Gain on De-Recognition recognised)

Note: Acquisition Cost will be written off in P&L A/c as per Ind AS 103.

Case II: If % of Investments (Earlier) are below 20% in Acquiree

In the Given Case, Accounting Entries shall be quite similar as we

passed in Case I Except De-Recognition of Investments. We will De-
recognise the carrying Amount of Earlier Investments which is
disclosed in Separate financial Statements Of Acquirer on Acquisition
Date as per Ind AS 109. The Difference between the Carrying Amount
of De-recognised Investments & fair value on these Investments On
Acquisition date will be considered as “Gain/ Loss on De-Recognition
of Investments.”

We will Transfer the above Gain/Loss De-Recognition to P&L/ OCI as

per opted Model of Accounting under Ind AS 109.

Assets a/c Dr xxxx (fair value)

Goodwill a/c Dr xxxx (Bal fig.)
To Liabilities xxxx (fair value)
To PC xxxx (Current Payment)
To NCI xxxx
To Investment (109) xxxx
To Gain xxxx (Fv- C. Amount)

PL or OCI

Opted Model

Solution of Q.84 *imp

(Discussed in Class)

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*Part 8*

Concept 2 : Investments in Associates with “OCI”

(Extra Concept in Step by Step)

In Case An Acquirer has share in OCI Reserves of an Associate in CFS

(Ind AS 28 : Equity Method) then the share of Acquirer in OCI
Reserves of the Associate will Also be De-Recognised by transferring
it to P&L or Retained Earning according to Nature of OCI Reserve on
Acquisition Date (i.e., Revaluation Res. to R.E / FCTR to P&L Etc.)
There will be no change in Rest of Accounting as we discussed in
Concept I

Journal :

1. Assets a/c Dr xxxx (F.V)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx
To NCI xxxx
To PC xxxx
To Invest. in Associates xxxx (Carrying Amount)
To Gain on Invest. xxxx
(Fair value – Carrying Amount)
(Being Acquisition of Subsidiary Recognised)

2. Gain on Investments a/c Dr xxxx

OCI Reserves a/c Dr xxxx De-Recognition of share
To P&L xxxx in OCI res. of Associates
To R.E xxxx on Acq. Date
(Being Profits recognised)

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Solution of Q.71 *[Link]

Journal Entry

i. N. Assets a/c Dr 30,000 Crores

Goodwill a/c Dr 4000 Crores (Bal fig)
To Cash 25000 Crores (PC : 70%)
To Investment in Associates 8850 Crores (Carrying Amount)
To Gain on Invest. 150 (9000 – 8850)
(Being Acquisition of Subsidiary made)

ii. Gain on Investment a/c Dr 150 Crores

OCI Reserves : FCTR a/c Dr 100 Crores
R. Res a/c Dr 50 Crores
To P&L (150 + 100) 250
To R.E (Rev. Res) 50
(Being OCI Res. & Gain on Invest. Recognised)

Solution of Q.72

Journal Entry

i. Assets a/c Dr 1200

Goodwill a/c Dr 104 (Bal fig)
To Liabilities 200
To D.T Liab 40
To NCI (960 x 40%) 384
To Cash (30% : New) 350
To Invest. in Associate 300 (Carrying Amount)
To Gain on Invest. 30 (330 – 300)
(Being Acquisition of Subsidiary made)

ii. Gain on Invest. a/c Dr 30

OCI Res. a/c Dr 100 (CFS : FVOCI)
To P&L 130
(Being Profit recognised on De-Recognition)

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Concept 3 : Acquiring Control Over an Enterprise “without

acquisition of Shares” *Imp

It may be Possible that An Acquirer obtains control over the other

Enterprise due to Buy Back of shares by other Enterprise. If an
Acquirer has significant influence Before Buy Back of shares by that
Entity, but after Buy Back of shares, Significant Influence converts
into Controlling Interest then Acquisition method will be Applicable
even if Acquirer has not made any further Investment for
Acquisition of Controlling Interest.
All Entries shall remain same as we recorded in case of Step by Step
method as Follows :-

Assets a/c Dr xxxx (fV)

Goodwill a/c Dr xxxx (Bal fig)
To Liab. xxxx
To NCI xxxx
To Invest in Asso. xxxx (carrying)
To Gain on Inv. Xxxx (FV- CA)

Solution of Q.73

1. Calculation of % of Controlling Interest after Buy Back

Total No. of Issued shares by Y ltd 100 million

Buy Back of shares (10 million)
No. of shares issued after Buy Back 90 million
No. of shares held by X Ltd in y ltd 46 million
% of Controlling Int. = 46 x 100 = 51.11%
90
% of NCI = 100 – 51.11 % = 48.89%

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2. Accounting under Acquisition Method

Assets a/c Dr 14,000

Cash a/c Dr 1800
To Liab. 2000
To NCI (13800 x 48.89%) 6747
To Invest. in Asso. 6900
To Bargain Purchase (Bal) 153
(Being Acquisition of Subsidiary made)

Note : In the Given question fair value of Associate is not given due
to which we have Not computed Gain/ Loss on De-Recognition
of Associate. We cannot use 110 Per share value for fair
valuation of Associate because its Buy Back Price which is
normally offered at higher value than fair value to make the
offer attractive.

Solution of Q.66
(Discussed in Class)

*Part 9*

Concept 4:Accounting for Post-Acqui Profits in Subsidiary *Imp

After Initial Recognition on DOA as per Ind AS 103, Post acquisition

Results of Subsidiary Company shall be adjusted in Consolidated
financial Statements with the Help of the following Points :-

1. The Post acquisition Profits/ Losses in Subsidiary Co. Should be

distributed Between Holding and NCI in the Proportion of their
Holdings. (i.e., Profits/ Loss is the Post acquisition change in the
Reserve & Surplus of Subsidiary company. It may be a change in P&L,
GR, Capital Res., OCI etc.)

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2. The holding co. will maintain the nature of Post-acquisition Profit.

It means that Share in Post-acquisition P&L will be added to PL of
Holding, share in Post acq. GR will be added to GR of Holding.
(Note : This Point is not Valid for NCI because we have to show NCI as
a consolidated Figure)

Solution of Q.44 *Imp

Case I

Assumption : SC + Res. = N. Assets …………………..On DOA

i. Post acq. Profits : Closing Balance in R.E - Opening Balance in R.E

(1.4.x1 – 31.3.x2)
= 70,000 – 50,000
= 20,000 Profit earned by Subsidiary
After DOA
ii. NCI (Proportionate Method) :

Net Assets on DOA (SC + Res) 150000

(100,000 + 50,000)
% of NCI 10%
NCI on 1.4.x1 (150,000 x 10%) 15000
Add : Share of NCI in Post acq
Profits (20,000 x 10%) 2000
NCI on 31.3.x2 17000

iii. GW/ C. Res (DOA) : Purchase Consideration (90%) 140,000

NCI on DOA (10%) 15000
155,000
N. Assets on DOA (SC + Res) 150,000
Goodwill 5000

iv. R.E of Holding : Stand Alone R.E of Holding 200,000

Add : Share in Post Acq. R.E of Sub (20000 x 90%) 18000
Closing Balance (Consolidated) 218000
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Case II

1. Post acq. Profit (Loss) = Closing Balance in R.E – Opening Bal in R.E
= 20,000 – 30,000
= 10,000 Losses (decline in R.E)

2. NCI : DOA (100,000 + 30,000) x 15% 19500

Post acq. Losses (10,000) x 15% (1500)
NCI on 31.3.x2 18,000

3. GW/ C. Res (DOA) = (Purchase Consideration + NCI) – N. Assets

= (104000 + 19500) – 130,000
= 6500 (Bargain Purchase)

4. Holding R.E (Consolidated) = Own R.E 200,000

share in Post acq Loss (8500)
(10000) x 85%
191500

Case III

i. Post acq. Profit/ Loss (Subsidiary) = Closing Bal. – opening

in R.E Bal. in R.E
= 20,000 – 20,000
=0
ii. NCI : Net Assets on DOA (SC + Res) 70,000
% of NCI 20%
NCI on DOA 14,000
Post acq. Results -
NCI on 31.3.x2 14,000

[Link]/ CR (DOA : 103) : (PC + NCI) – N. Assets

= (56000 – 14000) – 70,000
=0
iv. Holding R.E will be 200,000 because there is no Profit or Loss in
Post acq Period.
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Case IV

i. Post acq. Profits in Subsidiary = 56,000 – 40,000 = 16,000

(CB) (OB)
ii. GW = 100,000 – 90,000 = 10,000
(PC) - (NA)
iii. Holding R.E = 200,000 + (16,000 x 100%) = 216,000
 There will be no NCI because 100% shares are held by Holding.

Concept 5 : “Negative NCI”

As per the Provisions of Ind AS 110, Non Controlling Interest can be

shown at “Negative Value” if share of NCI in Post acquisition Losses
is more than its Earlier share in N. Assets of Subsidiary. The
disclosure of Negative NCI is not allowed under AS-21, but It is
allowed under 110.

Conclusion : Under Ind AS 110, NCI may be +, - or 0 as per Position of

Net Assets on B/s date.

Solution of Q.45

i. Calculation of Goodwill :
Purchase Consideration (70%) 10,00,000
NCI on DOA (1.4.x1) 324,000
(SC + Res. = N. Assets) (1080000 x 30%)
1324,000
N. Assets on 1.4.x1 (1080,000)
GW 244,000

ii. Calculation of NCI :

NCI on 1.4.x1 (1080000 x 30%) 324,000
Losses in X1 – X2 (250,000) x 30% (75,000)
NCI on 31.3.x2 249,000
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Losses in x2 – x3 (400,000) x 30% (120,000)

NCI on 31.3.x3 129,000
Losses in x3-x4 (500,000) x 30% (150,000)
NCI on 31.3.x4 (21,000)
Losses in x4 – x5 (120,000) x 30% (36,000)
NCI on 31.3x5 (57,000)
Profit in x5 – x6 (50,000 x 30%) 15,000
NCI on 31.3.x6 (42,000)
Profit in x6 – x7 (100,000 x 30%) 30,000
NCI on 31.3.x7 (12,000)
Profit in x7 – x8 (150,000 x 30%) 45,000
NCI on 31.3.x8 33,000

Concept 6 : Uniform Accounting Policies *Imp

As per the Provisions of Ind AS 110, Consolidated financial

statements should be Prepared on the basis of same Accounting
Policies. As per the Provisions, Accounting Policies of Holding co. and
its subsidiary company should be same if “Both have similar
Transactions and similar Events in similar circumstances.” If
Accounting Policies are different in Separate statements of Both
companies then It will be the Responsibility of subsidiary co. to
adjust its financial statements as per the Requirements of Holding
company.

Exception

If Nature of Business is not same of Both the Entities then Both will
not have Similar Transactions due to which Different Policies are
allowed for consolidation financial statements.

Solution of Q.46
As per the Provisions of Ind AS 16, Change in method of Depreciation
is not a Change in Policy, but It will be considered as change in
Estimation. In the Given case, MNC is Applying WDV, but PQR is
applying SLM which is allowed in CFS because Both Have different

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Estimations regarding life of Assets. There will be No requirement of

Any adjustment in financial statement for the Given difference.

Solution of Q.47

As per the Provisions of Ind AS 110, Uniform Accounting Policies are

mandatory in CFS if Holding company & Subsidiary Company (Both) have
similar nature of Transactions and Events in similar circumstances.
In the Given case, Nature of Business is different for all Entities
due to which the Given Entities shall not have Similar Transactions.
On the basis of above discussion, it can be said that different costing
formulas Can be applied for valuation of stock by all Entities.

*Part 10*

Concept 7 : Uniform Reporting Periods

As per the Provisions of Ind AS 110, Reporting Periods of Holding

company and Subsidiary company shall be same. Usually, Reporting
Periods are same if Holding & Subsidiary (Both) are Indian Entities.
The reporting Periods may be different only if Subsidiary company is
a foreign company. In such case, It will be the responsibility of
Subsidiary company to Prepare/ adjust its financial statements
according to the Reporting date of Holding company. If it is
impracticable for subsidiary to do so Then difference between
Reporting Periods cannot be for more than 3 months. The Following
Additional Points may also be considered in the Given case :-

i. The classification of Current and Non-Current Items of

Subsidiary company Will be changed/Adjusted from the Point of
view of date of consolidation if Different Reporting Period is
taken from Subsidiary Statements. It means that An item which is
non-Current for subsidiary according to its reporting date, may
Be considered as a current Item from the Point of view of
Reporting date of CFS.

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ii. If Subsidiary company is a foreign company, then Its financial

statements Would have been Prepared according to Local GAAP, but
local GAAP may be different From Ind AS. So financial statements
of subsidiary shall be adjusted from the Point of view of Ind AS in
CFS.

Solution of Q.48

If Reporting Periods are different of Holding & subsidiary then the

Gap between Reporting Periods cannot be more than 3 months. In
addition, Classification of Current and Non-Current Items will be
made from the Point of view of “Reporting Date of CFS.”

Solution of Q.49

In the Given case, Adjustment in financial statements of subsidiary

company will be Required for the disclosure of Long Term Loans. As
per Indian GAAP, the Specified Loan will still be considered as Non
Current Liability, because all the terms & Conditions have been fixed
as these were earlier in original contract before Approval on financial
statements. If consolidation is done in India, we should apply
Accounting rules as per Indian standards.

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Concept 8 : Elimination of Profits/ Loss on Inter Group

Transactions *Imp
(we will discuss this concept to the Extent it related with B/s)
Stock/Goods
Case I : Sale/ Purchase of Inventory” between Holding & Subsidiary

Transactions

Down Stream Transactions Upstream Transactions

If holding co. Sells Goods to If Subsidiary co. Sells Goods

Subsidiary co. to its Parent co.

Elimination of Unrealised Profit Elimination of Unrealised

on Closing stock held by Subsidiary Profit on Closing Stock held
will be made in Holding company by Holding company will be
PL as follows : made Proportionately against
Holding co. consolidated P&L
and NCI as follows :

Consolidated PL a/c Dr xxxx

To Inventory xxxx Cons. P&L a/c Dr xxxx
(Being Unrealised Profit cancelled NCI a/c Dr xxxx
or Eliminated) To Inventory xxxx
(Being Unrealised Profit
Eliminated)

Note : In Study material of ICAI, the Entries are Given from the
Point of view of Cons. P&L A/c which is Pending for discussion we
are covering B/s concepts here.

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Case II : Sale/ Purchase of PPE or Intangibles between Holding &

Subsidiary

The Entire concept will be same as we have discussed in case “Case I”

in above Except the calculation of Unrealised Profits. It may be
Possible that Buyer of Asset has Calculated Depreciation on it due to
which carrying Amount of the sold Assets Becomes Lower than Original
Transaction value. So, the following formula should be Applied for
calculating unrealised Profit in such Transaction :-

Unrealised Profit = Total Profit x Carrying Amount of Assets

Total Value

Down Stream Up Stream

Cons. P&L a/c Dr xxxx Cons. P&L a/c Dr xxxx

To PPE xxxx NCI a/c D xxxx
(Being Unrealised Profits Eliminated) To PPE xxxx
(Being Unrealised
Profits Eliminated)

Solution of Q.54

In the Given case, Subsidiary co. is Selling Goods to Holding co. So, the
Given Transaction is an Upstream Transaction. We will Eliminate
Unrealised Profit of Rs.15,000 as follows :-

Cons. P&L a/c Dr (15000 x 60%) 9000

NCI a/c Dr (15000 x 40%) 6000
To Inventory 15000
(Being Unrealised Profits Eliminated in B/s)

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Solution of Q.55

In the Given case, Holding co. has sold Goods to Subsidiary company
which indicates that the Given Transaction is down stream and Holding
co. will Eliminate in full as Follow :

Cons. P&L a/c Dr 15000

To Inventory 15000
(Being Unrealised Profits Eliminated)

Solution of Q.56

In the Given case, Transaction is downstream due to which Holding co.

will bear full Elimination. In the Given case, 50% of sold Goods are
lying with subsidiary due to Which unrealised Profit will be computed as
follows :

Unrealised Profit = 40 x 120 = 20 Lacs

240

Journal : Cons. P&L a/c Dr 20

To Inventory 20
(Being Unrealised Profit Eliminated)

Note : A DTA of 6 lac should be created for difference in Tax Base and
A/cs base in CFS After Elimination of Profit [(120 – 100) x 30%]

Solution of Q.57
The Given Transaction is an Upstream Transaction due to which the
following Calculations are required to be made :

I. Unrealised Profit = 20 x 60 = 10 Lacs

120
II. Journal : Cons. P&L a/c Dr (80%) 8
NCI a/c Dr (20%) 2
To Inventory 10
III. DTA = (60 – 50) x 30% = 3
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Solution of Q.58

I. Calculation of Carrying Amount of PPE in the books of Buyer

Purchase Cost for Subsidiary 120

Depreciation 120 (12)
10 y
Carrying Amount at B/s date 108

II. Unrealised Profit = 20 x 108 = 18 Lacs

120
III. Journal : Cons. P&L a/c Dr 18
To PPE 18
(Being Unrealised Profits Eliminated)

*Part 11*

Concept 9 : Changes in Interest without Losing Control in

Subsidiary Co. *[Link]

Cases

I II
If Holding co. acquires further If Holding Company Sells a
shares In Subsidiary co. small Portion of its Holding
in Subsidiary co.

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Case I : If Holding Buys shares in Subsidiary in addition to Existing

Holdings

A. In Stand Alone financial: Investments in Shares a/c Dr xxxx

statements Of Parent co. To Bank xxxx
(Being Investments made in Equity
Instruments)
“We will Apply rules Specified in Ind AS 109”

FVPL or FVOCI
Proportionate
B. In Consolidated Financial : NCI a/c Dr xxxx (Carrying Amt)
Statements Of To Bank xxxx (Payment)
Parent co. *Imp (Being Payment made to NCI for
Further Acquisition of shares)

 The Difference between carrying Amount of NCI and Payment made

to NCI will be Transferred to “Other Equity: R.E.” Such Profit or
Loss will not be routed through P&L A/c , but It will be
transferred to other Equity Directly.
Retained Earnings

Solution of Q.60

Journal Entries

In SFS of A ltd.: Investments in B Ltd. a/c Dr 4000 (200000 x 20%)

To Bank 4000
(Being Investment in Equity of B ltd. made)

In CFS of A ltd. : NCI a/c Dr 2000 (4000/40% x 20%)

Other Equity (Bal fig.) a/c Dr 2000
To Bank 4000
(Being NCI reduced from 40% to 20%)

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Solution of Q.61

Statement showing Changes in NCI

Payment made for Additional 10% shares 2600

Carrying Amount of NCI (6600/30% x 10%) (2200)
Loss on Acquisition 400

Note 1: The Amount of Loss on Acquisition will be transferred to

other Equity Directly without routing it through P&L A/c.
Note 2 : There will be no impact on Goodwill due to change in NCI
because we are Considering change in NCI at carrying Amount.

Solution of Q.62 *Imp

In SFS of A ltd.

Journal Entry : Investments in B Ltd a/c Dr 32

To Bank 32
(Being further Investments made in B ltd.)

B/s of A ltd. (after further Invest.)

Non Current Assets :

PPE 627
Financial Statements : (150 + 32) 182
Investments in B ltd.

Current Assets :
Cash (200 – 32) 168
Other C. Assets 23
Total 1000

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Equity :
S. Capital 200
Other Equity 800
Total 1000

In Consolidated financial Statements of A ltd.

Journal: NCI a/c Dr 30 (90/30% x 10%)

Other Equity a/c Dr 2
To Bank 32
(Being NCI reduced from 30% to 20%)

Consolidated B/s
Non Current Assets :
PPE 827
GW 10

Current Assets :
Cash 230–32 198
Other C. Assets 93
Total 1128
Equity :
S. Capital 200
Other Equity (870– 2) 868
NCI (90– 30) 60
Total 1128

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Case II : If Holding co. Sells stake in Subsidiary, but It retains the

control
A. In SFS of Holding co. :
*Bank a/c Dr xxxx (SP)
*To Investments xxxx (Carrying Amount in B/s)
(Being Investments Sold)

 Profit or Loss on sale of Investment will be transferred to P&L

(FVPL) or OCI (FVOCI) as per Opted model under Ind AS 109.

B. In CFS of Holding co. : Bank a/c Dr xxxx (SP)

To NCI xxxx
i. N. Assets (Excluding GW) x % *
ii. N. Assets (Including GW) x %*
(Being A Portion of Investments sold to NCI)

*Note 1 : While Computing changes in NCI, we will consider carrying

Amount of N. Assets on the date of sale of stake. We can
calculate N. Assets including GW As well as Excluding GW
assuming method of Initial Recognition of GW. “If We
assume that GW was recorded initially by Proportionate
method then we will not consider it in change in NCI, but if
we assume that It was recorded at full Value on DoA then
we can consider it while making changes in NCI.”

Note 2 : Difference between Selling Price of sold stake and changes

in NCI will be Transferred to “other Equity : R.E” as we did in
Case I.

Solution of Q.63

In the Given case, we cannot assume Proportionate Goodwill because

100% stake was With Holding company due to which GW was recorded at
its full value on DoA. So, we Will consider Goodwill in N. Assets while
making changes in NCI as follows :-

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In CFS of Holding co. : Bank a/c Dr 900,000

To NCI (18L x 40%) 720,000
To other Equity (Bal) 180,000
(Being NCI recorded due to sale of 40% stake)

In SFS of Holding : Bank a/c Dr 900,000

To Investments 400,000
(10,00,000/100% x 40%)
To Gain on Disposal 500,000

FVPL or FVOCI
109
(Being Investments sold)

Solution of Q.64

Statement Showing Changes in NCI

Selling Price for 30% sold Portion 500

NCI Share in Existing N. Assets including GW (450)
(1300 + 200) x 30%
*Gain on Sale 50

*It will be transferred to other Equity : R.E.

Note : We have included GW in Net Assets for Changes in NCI because

100% shares Were held by Holding co. at initial Recognition which
indicates that full Goodwill Was recorded at that time.
Additionally, It is also mentioned that valuation of NCI is
required at fair value method due to which full GW method has
adopted.

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Solution of Q.59
Journal Entry

Bank a/c Dr 100

To NCI (*300 x 20%) 60
To Other Equity (Bal) 40

(Being 20% stake sold by Holding to Outsiders)

Note = same Note will be Given as in Earlier 2 Questions on Wholly
Owned Subsidiaries.

Concept 10 : Accounting for “Loss of Control” *[Link]

In SFS of Investor :
*Bank a/c Dr xxxx (SP)
*To Investment xxxx (Carrying Amount)
(Being Investments Sold)
*Profit or Loss will be transferred to PL/ OCI as per Opted Model in
Ind AS 109

In CFS of Investor : We will De-Recognise Subsidiary from CFS as

follows :

Cash a/c Dr xxxx (SP)

NCI a/c Dr xxxx (Carrying Amount)
Investments a/c Dr xxxx (Fair value : Present) If some shares
are retained
To N. Assets xxxx (Carrying Amount)
To GW xxxx (Carrying Amount)
(Being Subsidiary De- Recognised)

*Difference in above Entry will be taken as Profit or Loss on De-

Recognition of Subsidiary and It will be transferred to “P&L A/c.”

It will be routed through Other Equity : R.E (Not allowed)

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Solution of Q.65

Calculation of % of Shares held by Holding co. (Prior and after Exercise

of Option)
i. Prior to Exercise of Option :-

% of Holding = 30,000 Shares x 100 = 60%

50,000 Shares

ii. After Exercise of Option

% of Holding = 30,000 Shares x 100 = 40%
75,000 Shares
Comments : After Exercise of option, It is Clearly indicated that
Holding co. has Lost its Control over its Subsidiary due to
increase in No. of shares held by NCI. We will have to De-
Recognise Subsidiary in this case.

Journal Entry for De- Recognition

*NCI (450,000 x 40%) a/c Dr 180,000

Investments (Retained) a/c Dr 360,000 (30,000 x 12) – F.V
To N. Assets 450,000
To GW (Partial) 20,000
To P&L (Bal fig.) 70,000
(Being Subsidiary De-Recognised)

*We will not include GW because it was calculated under Partial Method.

Solution of Q.66
In Separate financial Statements

Bank a/c Dr 200,000 (SP)

To Investments in
Subsidiary 160,000
To Gain on Disposal (Bal fig) 40,000
(Being Investments Sold)
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In Consolidated financial Statements

*NCI (225,000 x 20%) a/c Dr 45,000

Cash a/c Dr 200,000
To N. Assets 225,000
To GW (Partial) 12,000
To P&L (Bal fig.) 12,000 (Gain on De-recognition)
(Being Subsidiary De-Recognised)

Solution of Q.67

In Separate financial Statements of Investor

Bank a/c Dr 67,50,000 (SP)

To Investments 30,00,000 (50,00,000/100% x 60%)
To Gain on Sale 37,50,000
(Being Investments Sold)

In Consolidated financial Statements of Investor

Bank a/c Dr 67,50,000

Investment a/c Dr 45,00,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 22,50,000 (Bal)
(Being De-Recognised of Subsidiary made)

Solution of Q.68

In Separate financial Statements of Investor

Bank a/c Dr 85,50,000 (SP)

To Investments 45,00,000 (50,00,000/100% x 90%)
To Gain on Sale 40,50,000 PL 109
(Being Investments Sold) OCI

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In Consolidated financial Statements of Investor

Bank a/c Dr 85,50,000

Investment a/c Dr 950,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 500,000 (Bal)
(Being De-Recognised of Subsidiary made)

Exception to Concept 9 & 10 *Imp

If Loss of control takes place due to Multiple sale of shares, then it

may affect Other Equity in Place of PL. If it is Proved that Multiple
Disposals are related to Each other then we will consolidate all
disposals and we will take it as De-recognition Of Subsidiary.

Solution of Q.69

In the Given case, shares have been sold in 2 transactions within one
month due to Which we will not account for these transactions
Separately, but we will take it as a Single Transaction of De-
Recognition of Subsidiary as follows :-

Bank a/c Dr 800,000 (Total)

NCI a/c Dr 180,000
To N. Assets 900,000
To P&L (gain) 80,000
(Being De-Recognition of Subsidiary made)

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*Part 12*

Concept 11 : Accounting for Dividends Received from Subsidiary

Company
Accounting

Unit I Unit II
In SFS of Holding co. In CFS of Holding co.

Unit I : Stand Alone financial Statements

As per the Provisions of Ind AS 109, the Parent co. will credit its P&L
A/c for Received Dividend from its Subsidiary. There is no concept of
Pre- acq. Dividend or Post acq. Dividend in Ind AS 109. Whenever an
Investor receives Dividend from its Subsidiary then Dividend
Income will be credited to P&L A/c. The Following Entries may be
considered :-

Step I : At the time of “Declaration of Dividends in AM”

i. Dividend Receivable a/c Dr xxxx

To Dividend Income xxxx
(Being Income Recognised)
ii. Dividend Income a/c Dr xxxx
To SOPL xxxx
(Being Income transferred to P&L)

Step II : At the time of Collection of Dividend

Bank a/c Dr xxxx

To Dividend Receivable xxxx
(Being Dividend Received)

*As per the rules, there will be no Accounting in the books of

Investor if Dividend is Proposed by BoD and It is Pending for
Approval in AGM.

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Unit II : Adjustment of Dividends in CFS

E.g.
i. Holding co. acquired 90% shares in Subsidiary on 1.4.20 for Rs. 160,000
ii. Position of Subsidiary on 1.4.20 : Share Capital : 100,000
PL : 20,000
iii. Position of Subsidiary on 31.3.21 : Share capital : 100,000
PL : 30,000
iv. Sub. Paid Dividend of Rs. 10,000 during 20-21
v. Holding co. Own Balance in P&L : Rs.200,000
Show Balance in Consolidated P&L of Holding Company

Solution

I. Calculation of Post acq. Profits earned by Subsidiary before dividend

Closing Balance in PL of Subsidiary 30,000

Add : Paid Dividends during 20-21 10,000
Closing Balance before Dividends 40,000
Balance in PL on DoA (20,000)
Profits earned by Subsidiary after DoA
But before Dividends 20,000

II. Calculation of Consolidated Balance in PL of Holding co.

Balance in Holding co. 200,000

Share of Holding in Post acq Profits 18,000
Of Subsidiary (20000 x 90%)
Elimination of Received Dividend (10,000 x 90%) (9000)
Closing Balance 209000

Step I : Calculate Post acq. Profits Earned by Subsidiary after DOA as

follows :-
Closing Balance in P&L of Subsidiary co. xxxx
Add Back : Paid Amount of Dividends during the year xxxx
Closing Balance before Dividends xxxx
Balance in PL on DOA (xxxx)
Post acq changes in PL xxxx
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Step II : Calculate Consolidated Balance in PL of Holding co. as follows:

Own Balance of Holding co. in PL xxxx

Add : Share in Post acq changes xxxx
Elimination of Received Dividends from Sub. (xxxx)
Consolidated Balance in PL xxxx

*Concept of DDT/ CDT has not been discussed Now because It has
been withdrawn by Govt. “If there is any discussion in old RTP/MTP
on DDT then Please skip that Question.”

Solution of Q.50

I. Accounting for Dividends in the books of XYZ ltd.

At the time of Collection in Next year (X2- X3) :

1. Bank a/c Dr 24,000 30,000 x .8

To Dividends 24000
(Being Dividends Received)
2. Dividends a/c Dr 24,000
To P&L a/c 24,000
(Being Income recognised)

II. Acquisition Entry (DOA : 1.4.x1)

N. Assets a/c Dr 150,000 (fair value)

Goodwill a/c Dr 25,000 (Bal fig)
To NCI (140,000/80 x 20) 35,000
To Cash 140,000
(Being Controlling Int. initially Recog.)

III. Calculation of NCI

NCI on 1.4.x1 35000
Post acq Profits (20000 x 20%) 4000
NCI 39,000 (31.3.x2)
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Solution of Q.51

Acquisition Date (1.4.x1)

N. Assets a/c Dr 150,000

GW a/c Dr 20000 (Bal)
To NCI (150,000 x 20%) 30,000
To Cash 140,000
(Being Acq. Date Accounting made)

NCI = DOA 30,000

Post 4000 (20,000 x 20%)
34,000

Solution of Q.52

N. Assets a/c Dr 160,000

GW a/c Dr 15000 (Bal)
To NCI (140,000/80 x 20%) 35,000
To Cash 140,000

NCI = DOA 35,000

Post 4000
39,000

Solution of Q.53

Net Asset a/c Dr 160,000

GW a/c Dr 12,000 (Bal)
To NCI (160000 x 20%) 32000
To Cash 140,000

NCI = 32000 + 4000 = 360000

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Concept 12 : Treatment of Cumulative PSC held by NCI *Imp

If cumulative Pref. Shares (Held by NCI) which are classified as Equity

Instrument (Refer 109) are Given in Subsidiary B/s then Post acq
Profits will be distributed between Holding & NCI only after Providing
Dividend on Such Cumulative Capital.

Solution of Q.72

Profits Earned by Subsidiary 500,000

Cumulative Dividend (10,00,000 x 10%) (100,000)
Free Profit 400,000

Holding - .8 NCI - .2
320,000 80,000

*Part 13*

Solution of Q.3 (8 marks)

Application of Ind AS 103

(DOA) (In CFS)

Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
Goodwill a/c Dr 1300 (Bal fig)
To T.P 150
To Cash/ Invest. 6000 (100%)
(Being Initial Recognition made)

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Consolidated B/s for Blue heaven ltd. with its Subsidiary Orange
country limited

Particulars Rs.

Assets :

NCA : Goodwill (103) 1300

P.P.E (7000 + 3300) 10300

C.A : Inventories (700 + 600) 1300

T.R. (300 + 250) 550
Cash (1500 + 700) 2200
Total 15,650

Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200

Current Liab :
T. Payables (300 + 150) 450
Total 15650

Solution of Q.4 (8 marks)

Application of Ind AS 103

(DOA) (In CFS)

Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
Goodwill a/c Dr 975 (Bal fig)
To T.P 150
To Cash/ Invest. 4500 (75%)
To NCI (4700 x 25%) 1175 (25%)
(Being Initial Recognition made in CFS)
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Cons. B/s as at 31.3.2012

NCA : Goodwill (103) 975

P.P.E (7000 + 3300) 10300

C.A : Inventories 1300

T.R. 550
Cash 2200
Total

Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200
NCI 1175

Current Liab :
T. Payables 450
Total

Solution of Q.6 (6-8 Marks)

De-recognition of Subsidiary

Trade Payable a/c Dr 900

Cash a/c Dr 3000
(Bal fig.) To P&L 440 (Profit on sale)
To GW 180
To PPE 1340
To Inventory 40
To T.R 900
To Cash 1000
(Being Investments De-Recognised)

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B/S after De- Recognition

Not Current Assets :

1. GW (380 – 180 ) 200
2. Building (3240 – 1340) 1900

Current Assets :
1. Stock (140 – 40) 100
2. TR (1700 – 900) 800
3. Cash (3100 – 1000 + 3000) 5100
8100

Shareholders fund :
S. Capital 1600
R.E (4260 + 440) 4700

Current Liab. : T.P (2700 – 900) 1800

8100

Solution of Q.7

De-recognition

Trade Payable a/c Dr 450

Cash a/c Dr 1000 (90%)
Investment a/c Dr 128 (1730 – 450) 10%
P&L Dr 152 (Bal: Loss)
To GW 90
To Building 670
To Inventory 20
To T.R 450
To Cash 500

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Balance sheet

Not Current Assets :

GW (190 - 90) 100
Building (1620-670) 950
Invest. 128

Current Assets :
Stock (70 - 20) 50
TR (850 - 450) 400
Cash (1550 – 500 + 1000) 2050
3678

Share capital 800

RE (2130 – 152) 1978
TP (1350 – 450) 900
3678

Extra Questions
Solution of Q.1

W.N # 1 Calculation of F.V Adjust & Dep. Adj. in P&M (1.10.11) – DOA

I. F.V Adjust.
Carrying Amount of P&M (1.4.2011) (1350,000/90% x 100%) 15,00,000
Depreciation for 6 months (75000)
(1.4.11 – 1.10.11) (15L x 10% x 6/12)
Carrying Amount of P&M (1.10.11) 14,25,000
Fair value of P&M (1.10.11) 20,00,000
F.V Adj. + 575000

II. Dep. Adj.

Dep. On P&M in CFS 175,000
(15L x 10% x 6/12) + (20L x 10% x 6/12)
Dep. On P&M in SFS (150,000)
Dep 25,000

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W.N #2 Calculation of Post acq. Profits

(1.10.11 – 31.3.2012)

Closing Balance in R.E 820,000

Dividend Paid (20L x 10%) 200,000
Closing Balance before Dividends 1020,000
Opening Balance (1.4.11) (300,000)
Current year Profit (11-12) 720,000
Profits upto DOA (1.4. – 1.10) 6/12 (360,000)
Post acq Profits 360,000
Dep. Adjust on F.V Adj. (25000)
335,000

W.N #3 Calculation of Equity on DOA : 103

Share Capital 20,00,000

Reserves 10,00,000
R.E. : 1.4.11 300,000
1.4.11 – 1.10.11 360,000

F.V. Adjust : P&M 575000

L&B 10,00,000
Inventory 150,000
T. Payables (100,000)
Equity (DOA) 52,85,000

W.N # 4 Calculation of GW/ CR (103)

Investments made by DEF 3400,000

Share in N. Assets on DOA (52,85,000)
C Res 18,85,000

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W.N # 5 Other Equity (Cons.)

Res R.E Cap Res Total
Balance with DEF 24 lacs 572,000 - 29,72,000
Post acq. Adj. - 335,000 - 335000
Distributed Profit - (200,000) - (200,000)
By XYZ lltd.
Bargain Purchase - - 18,85,000 18,85,000
Total 24 lacs 707,000 18,85,000 49,92,000

W.N #6 PPE :

A. L&B
DEF 15,00,000
XYZ 18,00,000
F.V Adj. 10,00,000 43,00,000

B. P&M
DEF 24,00,000
XYZ 13,50,000
F.V Adj. 575,000
Dep. (25,000) 43,00,000
Total 86,00,000

W.N # 7 Inventory
DEF 12,00,000
XYZ 364,000
F.V Adj. 150,000 17,14,000

W.N. # 8 Trade Receivables

DEF 598000
XYZ 400,000 998,000

W.N # 9 C & CE
DEF 145,000
XYZ 80,000 225,000
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W.N # 10 Trade Payables

DEF 471,000
XYZ 174,000
F.V Adj. 100,000 745,000

Cons. B/s of DEF with its Subsidiary XYZ as on 31.3.12

Non Current Assets :

A. PPE 6 86,00,000

Current Assets :
A. Inventories 7 17,14,000
B. Financial Assets :
T. Receivable 8 998,000
C & C.E 9 225,000
Total 115,37,000

Equity :
A. Share Capital - 50,00,000
B. Other Equity 5 49,92,000

Current Liab :
A. Financial Liab :
Trade Payables 10 745,000
BOD - 800,000
Total 11,53,7000

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Solution of Q.2 *Imp

W.N # 1 Calculation of F.V Charges in P&M (1.10.11)

I. P&M :
Carrying Amount of P&M (1.4.2011) (270,000/90 x 100) 3,00,000
Depreciation @ 10% p.a (15000)
(1.4.11 – 1.10.11)
Carrying Amount of P&M (1.10.11) 285,000
Fair value of P&M 400,000
Appreciation 115000

II. Dep. Adj.

In CFS : (3L x 10% x 6/12) 15,000
(4L x 10% x 6/12) 20,000
35,000
In SFS : 3L x 10% x 12/12 (30,000)
Dep 5,000

W.N #2 Calculation of Post acq Profits in Krishna ltd.

(1.10.11 – 31.3.12)

Closing Balance in R.E 164,000

Dividend Paid to be added back 40,000
(400,000 x 10%) 204000
Opening Balance in R.E (1.4.11) (60,000)
C.Y Profits 144,000
R.E Upto DOA (1.4 – 1.10) 6/12 (72,000)
Post acq. Profit 72,000
Dep Adj. (5000)
Net Post Profit 67,000

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W.N # 3 Calculation of Equity on DOA in Krishna ltd.

Share Capital 4,00,000

Reserves 2,00,000
R.E. : 1.4.11 60,000
1.4.11 – 1.10.11 72,000

F.V. Adjust : P&M (W.N #1) 1,15,000

L&B 2,00,000
Inventory 30,000
T. Payables (20,000)
Equity (1.10.11) 10,57,000
i)Ram Ltd (.60) 6,34,200
ii)NCI (.40) 4,22,800

W.N #4 Calculation of NCI

Share in Equity (1.10.11) 422,800

Share in Post acq Profits (67000 x .4) 26800
Distributed Profits (40000 x .4) (16000)
433,600

W.N #5 Calculation of GW/ CR (DOA)

Investment made 800,000

Share in Equity on DOA (634,200)
GW 165,800

W.N #6 Other Equity (Consolidated)

Reserves R.E Total

Bal in Ram ltd. 600,000 114400 714,400
Post acq Profits - 40200 40200
(67000 x .6)
Distributed - (24000) (24000)
Profits-40000x .6
600,000 130,600 730,600
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W.N # 7 PPE

L&B
R 3,00,000
K 3,60,000
F.V Adj. 2,00,000 8,60,000
P&M
R 4,80,000
K 2,70,000
F.V Adj. 1,15,000
Dep. (5,000) 8,60,000
Total 17,20,000

W.N # 8 Inventory
R 2,40,000
K 72,800
F.V Adj. 30,000 342,800

W.N. # 9 Trade Receivables

R 119600
K 80000 199600

W.N # 10 C & CE
R 29,000
K 16,000 45,000

W.N # 11 Trade Payables

R 94,200
K 34,800
F.V Adj. 20,000 149,000

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Cons. B/s

Non Current Assets :

PPE 7 17,20,000
GW 5 165,800

CA: Inventory 8 342800

Financial Assets :
TR 9 199600
Cash & Cash Equ. 10 45000
24,73,200

Equity :
Share Capital - 10,00,000
Other Equity 6 730,600

NCI 4 433600

Current Liab :
Financial Liab :
TP 11 149,000
BOD - 160,000
24,73,200

Solution of Q.5 *Imp

W.N #1 Calculation of Post acq Profits

C.Y Profits (1.4.2012 – 31.3.2013) 550

Dep. On F.V. Adj (300/20Y) (15)

Inventory Sold with higher value in CFS (100)

435

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W.N # 2 NCI :
DOA (4700 x .25) 1175
Post (435 x .25) 108.75
1283.75

W.N # 3 Other Equity (Consolidated)

R.E (Blue heaven) 11000
Share in Post acq Profits 326.25
(435 x .75)
Amort. Of GW (975/10Y) (97.5)
11228.75

W.N # 4 PPE : B 6500

O 2750
FV Adj 300
Dep. (15) 9535

W.N # 5 GW : DOA 975

Amort. (97.5) 877.5

W.N # 6 Inventory
B 800
O 550 1350

W.N # 7 Trade Receivable

B 380
O 300 680

W.N # 8 C and CE
B 4170
O 1420 5590

W.N # 9 Trade Payable :

B 350
O 170 520

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Cons B/s (31.3.13)

NCA : A. PPE 4 9535

B. GW 5 877.5
CA : Inventories 6 1350
Financial Assets :
TR 7 680
CCE 8 5590
18032.5

Equity :
Share Capital - 5000
Other Equity 3 11228.75
NCI 2 1283.75
Current Liab : T.P 9 520
18032.5

*Part 14*

Solution of Q.8 *Imp (Elimination of Intra Group Transactions)

In the books of Airtel Infrastructure Pvt. Limited

1.4.x0 Building (PPE) a/c Dr 10,25,000

To Bank 10,25,000
(Being Building Purchased)

31.3.x1 Depreciation a/c Dr 25000 1025000 – 500000

21 years
To Building 25000
(Being Depreciation Charged)

1.4.x1 Bank a/c Dr 11,00,000

To Building (PPE) 10,00,000
To Gain on Disposal 1,00,000 (Bal)
(Being Building Sold to its Holding co.)
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In the books of Airtel Telecom

1.4.x1 Building a/c Dr 11,00,000

To Bank 11,00,000
(Being Building Purchased)

31.3.x2 Depreciation a/c Dr 37500 11,00,000 – 350,000

20Y
To Building 37500
(Being Depreciation Charged)

In consolidated financial Statements

i. Cons. P&L a/c Dr 100,000

To PPE 100,000
(Being Unrealised Profit fully Eliminated)
ii. PPE a/c Dr 5000*
To Cons. P&L 5000*
(Being Reversal of Dep made)
11,00,000 – 350,000 - 10,00,000 – 350,000
20Y 20Y

Solution of Q.9

In CFS of AB Ltd.

i. De- Recognised of Subsidiary :

Bank a/c Dr 56 (Sold)

Investment a/c Dr 16 (Fair value)
NCI a/c Dr 6 (60 x 10%)
To N. Assets 60
To Gain (PL) on De-recognition 18 (Bal fig)
(Being De- Recognition of Subsidiary made)

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ii. De- Recognition of OCI (Re- Cyclable in P&L) :

FVOCI Reserve (Deb Inst.) a/c Dr 5.4

FVOCI Reserve (FCTR) a/c Dr 7.2
To P&L 12.60
(Being OCI Recycled in P&L)

iii. De- Recognised of OCI (Non Recycable in P&L) :

FVOCI Res. (Equity Instrument) a/c Dr 3.6

To FVOCI (Loss) 2.70
To R.E Bal fig.) .90
(Being OCI de-recognised in R.E)

Unit II : Consolidated Cash flow statements

As per the Provisions of Ind AS 110, Preparation of consolidated CFS

is very Simple. We will consolidate all cash flows of Holding & Subsidiary
on line by line and on Item by Item basis. The following Points should
be considered additionally :-

i. We will Eliminate Intra Group Transactions while Preparing

Consolidated CFS.
ii. On Date of Acquisition of Shares (Initial Consolidation)
 Purchase of Controlling Interest will be reported by Holding under
Investing Activities.
 Purchase of Additional shares in Subsidiary after Buying controlling
Int. will Be reported under financing Activities
 On DOA, Cash Outflow will be reported under Investing Activities as
follows :
[Payment made for controlling Int. – Cash received from Subsidiary in
Net Assets on DOA]

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Solution of Q.10

i. The Acquisition of Initial Control will be reported under

Investing Activities On Net Basis. The Holding co. has paid 15 Lacs in
Cash for acquisition of 70% controlling Interest in Subsidiary co. ,
but Subsidiary cash Rs.250,000 in Cash Balance which will Be debited on
Initial consolidation. So, Net cash outflow of Rs.1250,000 will be
Reported under Investing Activities.
ii. The company has acquired further shares after buying
controlling Int. for Rs.800,000 and this Payment will be reported
under financing Activities.

Solution of Q.73

Consolidated Cash flow Statement of P ltd. with its Subsidiary Q ltd.

Cash from Operating Activities

Profit after Tax (30950 + 8960) 39,910
Add back :
Current Tax (15000 + 4000) 19,000
Deferred Tax (2000 + 1000) 3000
Depreciation (7000 + 4000) 11000
Finance Cost (2700+1000-1000 2700
Changes in Provision (1350 + 1960) (3310)
Reversal of Interest Income (1000) - 1000 0

Working Capital Adjustments :

Inventories (15000)+(5000) (20000)
Debtors (Decrease)* 18000 – 15000 3000
Payable (Increase)* 8000 – 9000 1000
Advance Tax (15000 + 4000) (19000)
Cash from OA (Total A) 37,300

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Cash from Investing Activities :-

Purchase of PPE (17000 + 5000) (22000)
Acquisition of Subsidiary (36000 – 1000) (35000)
Interest Income (1000 – 1000) 0
Dividend Income (1680 – 1680) 0
Cash from IA (Total B) (57000)

Cash from financing Activities :

Dividend Paid 8000+2400– 1680 (8720)
DDT Paid (1350 + 400) (1750)
Interest Paid 2700+1000– 1000 (2700)
Cash from FA (Total C) (13170)
DA + IA + FA (Changes) (32870)
Add : Opening Balance 38000
Closing Balance 5130

Note :
1. We have Eliminated Interest Paid/ Int. Received between P&Q
(Rs.1000)
2. We have also Eliminated Dividend Paid/ Dividend Received between
P&Q (Rs.1680)
3. *We have calculated Increase or Decrease in Trade Receivables and
Payables after Eliminating Inter company Balance of Rs.3000

Consolidated P&L
As per the Provisions of Ind AS 110, Consolidated P&L is Prepared by
Aggregating All incomes and Expenses of Holding & Its Subsidiary on
Line by Line and Item by Item basis but Subject to Elimination of
Inter Company Transactions.
Sale/ Purchase Int Exp./Int Income etc.

Note : we will also consolidate “OCI” Portion of Holding & Subsidiary

but subject to Elimination of Inter company Transactions.

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Consolidated statement of P&L of P ltd with its Subsidiary Q ltd.

Revenues :
A. Sales (200000 + 260,000
80000 – 20000)
B. Other Income (3000 – 3000) 0
260,000

Expenses :
A. Raw Material consumed (110,000 + 138,000
48000 – 20000)
B. Changes in Stock (5000 + 3000) (8000)
C. Employees Benefit Exp. (30000 + 10000) 40,000
D. Finance Cost (2700 + 1000 – 2700
1000)
E. Depreciation (7000 + 4000) 11000
F. Other Expenses (10350 + 6040 – 14390
2000)
Total B 198090
PBT (A-B) 61910
Current Tax (15000 + 4000) (19000)
D Tax (2000 + 1000) (3000)
PAT 39910

Share of P ltd (39910 – 2688) 37222

Share of NCI (8960 x 30%) 2688

Other Comprehensive Income :

i. Fair value Gain from Investments
in Subsidiary (1000 – 1000) 0
ii. Fair value Gain on other (500 + 250) 750
Investments
750
Share of P ltd. (750 – 75) 675
Share of NCI (250 x 30%) 75

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Consolidated SOCE *Imp

While Preparing consolidated SOCE, the following points should be
considered :-
A. We can Prepare it under 3 headings :
i. Share capital
ii. R & S (other Equity)
iii. NCI*
*NCI can be calculated in a separate Note also

B. Take Share capital & Opening Balance in other Equity of Holding

Company only.
(Note : we will ignore Capital & other Equity on DOA of Subsidiary co.
because these Balances Got Eliminated against Investments
made by Holding in Subsidiary Under 103 Acquisition method
resulting GW/ C. Res.

C. We will consider holding company Own Profits during the Period and
its share in Post acq Profits of Subsidiary company including OCI.

D. NCI Share in Profits and OCI will be added to NCI Column

E. Eliminate Unrealised Profits on Inventory and PPE (if any) out of

Holding PL and NCI according to Nature of Transaction
(upstream/ Down stream)

F. Holding co. will Eliminate its share in Dividend in Subsidiary which

has been received By it during the year because we take Profit in
subsidiary before dividends.

G. DDT on Dividend Paid by Subsidiary will be deducted before it is paid

after Distribution of Profits.

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Consolidated statement of changes in Equity of P ltd. with its

Subsidiary Q ltd.
Share GRes. P&L FV Total NCI
Capital (RE) Res. Other
OCI
(A) (B) (C) (D) Equity
(B + C + D)

Opening Balance
(1.4.x1) 20,000 100000 20,000 - 140,000 16500
Profits during (300 x 55)
the year X1-x2 - - 37222 - 37222 2688
Share in OCI :
X1 – x2 - - - 675 675 75
Elimination of
Dividend Rec. - - (1680) - - (720)
Dividend Paid
By P including
CDT - - (9350) - - -
Transfer to
Reserve - 20000 (20000) - - -
DDT Paid by
Subsidiary - - (280) - - (120)
Dividend
Income not
Yet Recorded in
PL of P - - 1680 - - -
20000 120000 27592 675 148267 18423

Consolidated B/S

I. Accounting on DOA

N. Assets a/c Dr 50,000

Goodwill a/c Dr 2500 (Bal fig)
To Cash 36000
To NCI 16500
(Being Initial Recognition made)
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II. Consolidated B/s of P ltd. with its Subsidiary Q ltd.

Non Current Assets :

i. PPE (17000 +45000) 162,000
ii. Goodwill (DOA) 2500
iii. Financial Assets :
Non Current Invest. (42500 + 1250 – 6750
37000)
Long Term Loan 10000 – 10000) 0

Current Assets :
1. Stock (35000 + 15000) 50,000
2. Financial Assets :
Receivables (10000 + 8000 – 15000
3000)
Cash (900 + 4230) 5130
Total 241380

Equity :
Share Capital SOCE 20000
Other Equity SOCE 148267
NCI SOCE 18423

Non Current Liab. :

Borrowings (30000 + 10000 30000
– 10000)
DTL (7000 + 2000) 9000
Long Provisions (4600 + 930) 5530

Current Liab. :
Trade Payable (8000 + 4000 – 9000
3000)
S.T Prov. (1050 + 110) 1160
241380

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*Part 15*

Part IV : Investment Entities

As per the Provisions of Ind AS 110, “Consolidated financial

statements are Exempted to An Investment Entity Even if It has a
Subsidiary.” An Investment Entity will measure its Investments in
Subsidiary as per Ind AS 109 at FVPL Model (FVOCI is not Allowed). The
Understanding about Investment Entities can be made only with the
Help of following Additional Concepts :-

Concept 1 : Meaning of Investments Entity

As per the provisions of Ind AS 110, An Entity can be classified as an

Investment Entity if It fulfils the following 3 conditions: -

Condition I: It takes funds from one or more Investors and It

Provides Investment Management services to its investors.
+
Condition II: It will Invest the raised funds from Investors in
Investments (e.g. Equity, debt etc) for “Capital
Appreciation & Investment Income”.
+
Condition III: It will measure its investments at fair value.

Concept 2 : Exit Strategy

As per the provisions of Ind AS 110, An Investment Entity does not

Plan to hold its Investments for indefinite period. So, It should have
Exit Strategy from perpetual Investments otherwise It cannot be
considered as an Investment Entity. If Investments have a
maturity date then Investment Entity will not require any Exit
Strategy.

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Concept 3 : Earning on Investments

As per the provisions of Ind AS 110, the main objective of an

investment Entity For buying investments should be Earning on
Investments “through Appreciation or Investment Income” but
there should not be Existence of any other Benefit. “It Means that
Investment Entity cannot take any other Benefit from
Investments For itself or for any other member in Group.” If it is
so then there will be no Exemption from consolidation.

Concept 3 : Rule for Parent of Investment Entity

If an Investment Entity has a Parent company which is not an

investment Entity itself then such Parent company will “consolidate
Investment Entity and all Subsidiaries of Such Investment Entity.”
It can also be said that Exemption is Available to an Investment co.
but not to its Parent co. which is non investment co.

E.g. A Ltd (Non Investment co.)

B ltd (Investment co.)

X Ltd ( .60) y Ltd ( .70)

Solution :
1. B ltd. is Exempted from consolidation
2. A ltd will consolidate B, X & Y (all)

Solution of Q.2, Q.3, Q.4 (Discussed in Class)

Solution of Q.1

All the conditions are satisfied in the Given case, So, It can be
classified as an Invest. Entity.

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Concept 4 : If An Entity becomes An Investment Entity *Imp

If a Parent company which is already preparing consolidated financial

statements With its Subsidiary and Such Parent company becomes an
Investment Entity then It Will Stop Preparing CFS from Such date.
It will derecognise its subsidiary as follows :

NCI a/c Dr xxxx (Carrying Amount)

*Investments a/c Dr xxxx (Fair value : Existing)
To N. Assets xxxx (Carrying Amount)
To GW xxxx (carrying Amount)
(Being Subsidiary de-recognised because Holding becomes An Invest.
Entity)
*Loss/ Gain in above Entry will be transferred to P&L A/c.

Solution of Q.5

Concept 5 : If an Entity ceases to be an Investment Entity

If an Investment Entity ceases to be an Investment Entity then

All Exemptions From CFS will stand withdrawn. The date of change in
Status will be considered as Deemed date of Acquisition and the
following Entry will be Passed :-

Apply 103 on Such Date : N. Assets a/c Dr xxxx (Fair value)

GW (Bal fig) a/c Dr xxxx
To NCI xxxx (I or II)
To Invest. xxxx (Fair value)

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*Part 16*

“Accounting for chain Holding”

E.g. A Ltd.
(A holds 80% Investment in B)
B Ltd
(B holds 70% Investment in c)
C Ltd
Calculate % of NCI in C ltd for consolidation in chain holding.

Solution

Calculation of NCI in C ltd.

Direct NCI (100% - 70%) 30%

Indirect NCI (70% x 20%) 14%
Total 44%

*The Remaining 56% will be given directly to A ltd.

Note : Now, we will not Give any share in C to B because we have

directly made Distribution of C to A & A’ NCI.

E.g. A Ltd. (80% in B ltd)

B Ltd (80% in c ltd)

C Ltd
Information relating to C : 1) DOA : SC + Res = 500,000
2) Post acq Profits : PL = 200,000
Information relating to B: 1) DOA : SC + Res = 1800,000
2) Post acq Profit : PL = 400,000

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Cost of Investments : A made in B = 10,00,000

B made in C = 10,00,000
Calculate GW/CR on DOA, Also calculate Holding company share in Post
Profits Assuming A’ R&S is having Balance of 15,00,000 and NCI on
closing Date.

Solution
Calculation of % of NCI in C ltd. & % of A ltd. in C ltd

Direct NCI in C ltd from B Point of view 20%

Indirect NCI in C ltd from A Point of view 16%
(80% from B in C x 20%) 36%
A share in C ltd (100 -36) 64%

Calculation of Required values in C limited

1. DOA (103) : N. Assets a/c Dr 500,000

Goodwill a/c Dr 480,000 (Bal Fig)
To NCI (36%) 180000
To Invest/ Cash (64%) 800,000
(10,00,000 x 80%)

Note : A NCI will sacrifice their share in B Investment in C because

they have taken Direct share in C

2. Calculation of NCI : initial DOA (36%) 180,000

Share in Post Profits 72000
(200000 x 36%) 252000

3. Holding PL : Own Balance of A 150,000

Share in C (200000 x 64%) 128000
1628000

Calculation of Required values in B ltd

DOA (103) : N. Assets a/c Dr 1800,000
To NCI x 20% 160000
(18L – 10L)
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To Investments 10,00,000
To C. Res 640,000
(Being Initial Recog. Made)
NCI = Initial 160,000
Share in Post (400,000 x 20%) 80,000
240,000

Holding PL = After Consolidation with C 1628000

Share in B (400000 x 80%) 320,000
19,58,000

DOA : bottom co. DOA : NCI of middle co.

Investment cost will be reduced (reduced by share in Investments

of Middle co. in Bottom co.)
From point of TOP Co.

Solution of Q.70*Imp

W.N # 1 Calculation of % of NCI in SS and share of P in SS

Direct NCI in SS ltd form Point of view of 25%

Indirect NCI in SS ltd from Point of view of P 15%
(75% of S in SS x 20% NCI in P)
Total NCI 40%

Share of P in SS ltd = 100% - 40% = 60%

Accounting Procedure for SS ltd.

i. Calculation of Post acq Profits

a) Reserves = Closing Balance 80 (31.3.x2)

Opening Balance 60 (1.4.x1)
Increase in x1 – x2 20 (12m)
Increase upto DOA (10) (20 x 6/12) 30.9.x1
Increase in Post acq Period 10
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b) P&L = Closing Balance 60 (31.3.x2)

Opening Balance (30) (1.4.x1)
Increase in X1- X2 30
Increase upto DOA (15) (30 x 6/12) (30.9.x1)
Increase in Post acq Period 15
Unrealised Profit (10L x 25/125) (2)
13

ii. Calculation of NCI in ss ltd

NCI on DOA (320 x 40%) 128

Share in Post acq Profits :
Res 10 x 40% 4
PL 13 x 40% 5.2
137.2

iii. Calculation of GW/ Cap Res. On DOA in SS

N. Assets a/c Dr 435 NA=Equity

To Cap Res. 83 (Bal fig) =SC + Res +PL
To NCI 128 =320+70+45=435
To Investments 224 (280 x 80%)
(Being initial Recognition made)

iv. P’ Share in Post acq Profits of SS

1. Reserves : 10L x 60% = 6
2. P&L : 13L x 60% = 7.80

Accounting Procedure for S ltd.

1. Calculation of Post acq Profits (30.9.x1 – 31.3.x2)

Res PL
Closing Balance (31.3.x2) 100 50
Opening Bal (1.4.x1) (80) (20)
Increase (X1-X2) 20 30
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Increase upto 30.9.x1 (6/12) (10) (15)

Increasing in Post acq 10 15

2. Calculation of NCI

NCI on DOA (400 x 20%) 80

Share in Post acq. : Res 10 x 20% 2
PL 15 x 20% 3
Share of NCI in Investment of S ltd. (56)
(280 x 20%)
NCI 29

3. Calculation of GW/ CR on DOA

N. Assets a/c Dr 525 NA= Equity

To NCI 80 = SC + Res + PL
To Investment 340 = 400 + 90 + 35 = 525
To C. Res (Bal) 105

(Being initial Recog made)

4. P share in Post acq Profit :

Res 10 x 80% = 8
Pl 15 x 80% = 12

Calculation of consolidated Balances

1. P Res = 180 + share in SS : 6 + share in S : 8 = 194

2. P PL = 160 + 7.8 + 12 = 179.8
3. Total NCI = 137.2 (ss) + 29 (s) = 166.20
4. Total C. Res = 83 + 105 = 188
5. Total Other Equity of P = 194 + 179.8 + 188 = 561.8
6. Trade Payable = 470 + 230 + 180 = 880
7. B/R – B/P (Net = 72 + 30 – 70 – 30) = 2
8. Cash = 228 + 40 + 40 = 308
9. Receivable = 260 + 100 + 220 = 580
10. Stock = 220 + 70 + 50 -2 = 338
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11. PPE = 320 + 360 + 300 = 980

12. Sc = P = 600

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

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Chapter 2B - ASSOCIATES IND AS 28

*Part 1*

Ind AS : 28
Accounting for Associates & Joint Ventures in consolidated
financial statements

Concept 1 : Coverage of Ind AS 28

Coverage

Unit I : Associates Unit II : Joint Ventures

Concept 2 : Accounting for Associates in CFS

A. Legal Understanding

As per the Provisions companies Accounting Rules 2014, consolidated

financial Statements are mandatory whether the Investor has
subsidiary or Associates or Joint ventures.

Note : It can also be said that CFS Should be prepared even if Subsidiary
company do not Exist in the relationship. If any Investor has an
Associate or JV then CFS should be prepared under the Guidance
of relevant Ind AS.

CFS H + S = 110
Investor + Associate = 28 = Situations under which CFS
Investor + JV = 28,111 can be Prepared
H+S+A+JV = 110,28,111

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B. Meaning of Associate *Imp

As per the Provisions of Ind AS-28, An Associate is a company in

which an Investor Can Exercise “Significant Influence.”

Significant Influence means Power to Participate in Operating &

Financial Decisions.

C. Identification of Significant Influence

In Normal Situations, S.I can be proved if An Investor has 20% - 50%

Voting Power of an Entity. These shares can be acquired directly or
Indirectly through Subsidiaries.

a) A ltd. b) A ltd
23% 60%
B ltd. B ltd.
Comments : B ltd. is an 40%
Associate for C ltd
A ltd. Comments : B ltd is a Subsidiary, but
C ltd is As Associate.

There are some Special cases in which we can identify the relationship of
Associate Company without acquiring 20% to 50% voting Power. These
cases may be considered as follows :-
1. Representation on BOD of other Entity
2. Material Transactions with other Entity
3. Technical Knowledge Assistance from other Entity
4. Interchange of Managerial Personnel.

Solution of Q.1, Q.2, Q.3, Q.4, Q.5, Q.6

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D. Accounting under Equity Method *Imp

In consolidated financial statements, we should apply Equity method to

disclose the Value of Investment in Associates. The following Steps
should be applied under Equity Method in CFS :-

Step I : Initial Recognition should be made at cost identifying GW/CR.

(Full consolidation is not allowed as in case of Subsidiary)

Journal (CFS) : Investment in Associates a/c Dr xxxx at Cost

To Bank xxxx
(Being Initial Recognition is made at cost)

E.g.
i. D.O.A : 1.4.2018
ii. % of shares acquired : 40%
iii. Amount paid by X ltd for 40% = 200,000
iv. N. Assets of Associate as at 1.4.18 = 400,000
Pass initial Entry in the books of X ltd while Preparing CFS.

Solution
a) GW/CR = 200,000 (–) (400,000 x 40%) = (40,000)
(Cost) (N. Assets) (GW)
b) Journal: Invest. in Associate a/c Dr 200,000
To Bank 200,000
(Being initial Recognition made identifying GW of Rs.40,000)

Cons. B/s (Extracts)

NCA: Financial Assets : Invest in Associate (GW 40,000) 200,000

Step II: Post Acquisition Adjustments after Initial Recognition *Imp

a) If Associate Earns Profits after Acquisition of Shares

In the Given case, we should increase the value of Investment in
Associate by Share in Profits of Associates as follows :-
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Investment in Associates a/c Dr xxxx

To Cons. P&L xxxx
(Being Investment Appreciated)
Post Acq. X % Share in
Profits Associates

b) If Associate incurs Losses after Acquisition of Shares

- Vice Versa as in above -

(It means that value of Investment will be decreased by Share in
Losses)

c) If Dividends are Paid by Associates

If Associate Company distributes dividends then It will be reduced from

Investment and Cons. P&L. It means that value of Investment will be
increased by Profits Earned by Associate, but It will be reduced by
Losses incurred or Profits Distribution.

Statement showing value of Investment in Associates

Initial Recognition at Cost xxxx

(+) Share in Post Acq. Profits xxxx
(-) Share in Post Acq. Losses xxxx
(-) Share in Distributed Dividend xxxx
Closing Value of Invest. xxxx

Solution of Q.7

In CFS of Amar ltd.

i. Investment in Ram ltd. a/c Dr 10,00,000

To Bank 10,00,000
(Being initial Recognition made)

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ii. Investment in Ram ltd. a/c Dr 40,000

To Cons. P&L a/c 40,000
(2L – 1L) 40%
(Being Investments Appreciated by Profits Earned in Post Acq.
Period)

E. Other Additional Adjustments

Adjustment 1 : Other Comprehensive Income of Associates

If any “OCI” is Earned by Associate Company after Acquisition of

Shares then Investment in Associate will be increased by share in OCI
as well, but It will be Credited by investor to Cons. OCI A/c instead of
Cons. P&L A/c.

Journal: Invest. in Associate a/c Dr xxxx

To Cons. OCI xxxx
(Being Invest. Appreciated)

Solution of Q.10

Statement Showing value of Invest. in Associate in CFS

Initial Recognition as at 1.4.2015 200 Lacs

[200L – (900 x 20%) = 20L = GW]
Post Acq. Adjustments :-
a) 2015-16 :- Profits (100 x 20%) 20L
OCI (10 x 20%) 2L
Dividends (100 x 20%) (20L)

b) 2016 -17 :- Losses (40L x 20%) (8L)

OCI (10L x 20%) 2L
Dividends (100 L x 20%) (20L)
Value of Investments 176

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Decline in Value = 200L - 176L = 24L

Cost Value Decline

Adjustment 2 : Intra Group Transactions

If any Sale or Purchase (Goods/Assets) is made by Investor Party to

Associate or Vice Versa then Unrealised Profits should be Eliminated
Subject to following Points :-

i. There will be no different treatment whether it is a down stream

transaction Or upstream Transaction.
ii. The calculation of Unrealised Profit will be made on Closing Stock
iii. The Elimination of Unrealised Profit will be made to the Extent of
share of Investor in Associates.
iv. The value of Investment will be reduced by Unrealised Profits.

Solution of Q.8

Calculation of Amount to be Eliminated as Unrealised Profits

Unrealised Profit = Unsold Inventory x GP Ratio x % Share in Associate
= (10,000 x 30%) x 40%
= 1200
*Rs.1200 Should be reduced from value of Investments.

Solution of Q.11 *Imp

Statement Showing value of Investments

Initial Recognition at Cost 210 Lacs

(GW = 210 – (1000 x 20%) = 10)
Post acq. Profits (80L x 20%) 16 Lacs
Dep. Diff on fair value (3.5)
(35/400 x 600 = (52.5 – 35) 20%)
Value of Invest. 222.5

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Solution of Q.9

Value of Investments

Initial Cost 250,000

(GW = 250,000 – (600,000 x 30%) = 70,000)
Post acq. Profit (100,000 x 30%) 30,000
Dividend Paid (9000 x 30%) (2700)

OCI (20,000 x 30%) (6000)

Extra Dep. (100,000/10 x 30%) (3000)
Value of Invest. 268,300

Notes : If fair value is different from carrying Amount of Assets held

by Associate On the date of Acquisition of Shares then Dep. Will
also be adjusted for the Difference between fair values.

Dep adj. = (fair value – carrying Amount) x Dep. Rate x % in Associates

 If fair value Exceeds = Extra Dep. Will be reduced from value of

Invest.
 If fair value Decrease : Reverse the Dep. to increase the value of
Invest.

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*Part 2*

Solution of Q.12
Calculation of Closing Value of Associates

A ltd. B ltd.
Cost of Investments 200 650
(GW : A ltd = 20, B ltd = 20)
Current year Profits 16 36
(80 x .20) (120 x .3)
Unrealised Profits (8) (3)
100 x 200 x 20% 30 x 100 x 30%
500 300
Closing Value 208 683

Solution of Q.13

Calculation of Closing Value of Investment in Associates

Cost of Investments 150

(GW = 150 – 130 = 20)
Share in Profit (100 x 20%) 20
Unrealised Profit in Plant & Equipment (10)
(150 – 100 = 50 x 20%) 160

FV Cost Profit

Important Points

1. Exemption from Equity Method :-

If any company is Exempted from consolidation of a subsidiary under

Ind AS 110then Such Enterprise is also Exempted from Application of
Ind AS 28.
(Refer Ind AS 110 for detailed Discussion)

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2. Discontinuation of Equity Method :-

As per the provisions, Equity method can be discontinued if Investor

party Ceases to Exercise significant Influence.

*Part 3*

New Questions

Solution of Q.3, Q.4, Q.2, Q.1 *Imp (Discussed in Class)

Solution of Q.6

Journal Entries in the books of A limited (Equity Method)

i. Investment in B limited a/c Dr 100,000

To Bank 100,000
(Being initial Recognition made at Cost)
ii. Investment in B limited a/c Dr 500 (2000 x 25%)
To other comprehensive income 500
(Being Post acquisition changes recorded in OCI of Associates)
iii. Investment in B ltd. a/c Dr 1500 (10,000 – 4000) 25%
To P&L 1500
(Being Post acq. Changes recorded in Retained Earnings of Associate)

Carrying Amount of Investment in B under = 100,000 + 500 + 1500

Equity method = 102,000

Solution of Q.8

Calculation of GW/ C Res. on DOA

Cost of Investments 125,000

Share in Net Assets of Associate (100,000)
(400,000 x 25%) GW 25000

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Journal : Investment in Associate a/c Dr 125,000

To Bank 125,000
(Being initial Recognition made at/ Cost identifying GW of 25,000)

Calculation of Investor share in Post acq. Profits of Associates

i.P&L : Profit Earned by Associate after DOA 40,000

Dep. on Increase in value of Assets (5000)
400,000 – 300,000
20 Y
NP 35,000
Investor share (25%) 8750

ii. OCI : 10,000 x 25% = 2500

Calculation of Carrying Amount of Investments

Initial Recognition 125,000

Share in P&L 8750
Share in OCI 2500
Carrying Amount 136,250

Solution of Q.9

Calculation of KL Ltd share in Post Profits of MN Ltd.

Profits Earned by MN ltd. 400,000

Dividend on Cumulative PSC (to be provided co. Act) (100,000)
Profits available for Equity holders 300,000

KL Ltd share (50%) 150,000

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Solution of Q.10

As per the Provisions of Ind AS 28, the changes in Post acquisition

Profits of an Associate are recorded by Investor in Cons. P&L in CFS
under Equity method.
The share of A in Profit on sale of Investment (Rs.20) will be
transferred to cons. P&L assuming Post acq. Change in Equity. The
following Entry will be recorded.

Investment in B ltd a/c Dr 20 (100 x 20%)

To Cons. P&L 20
(Being Share in Post acq Profit recorded)

Carrying Amount of Invest. = 200 + 20 = 220

New Points to be Discussed under Equity Method

A. If shares in Associate is held by an Investment Entity

As per the Provisions of Ind AS 28, Investment Entities are Exempted

from Applying Equity method if An Investment Entity has significant
influence in other Entity because Consolidated financial statements are
Exempted to an Investment Entity. Such an Entity Shall value
investment in Associate at fair value under Ind AS 109 : FVPL.

Exemption
Non-Investment Company
If an Investment Entity and its Parent or other member in Group
acquire Investment in Associates together then we will apply Ind AS
109. FVPL on Investments held by Investment company but Ind AS 28
will be applied on Investments held by Non-Investment company.

Solution of Q.7 (Discussed in Class)

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B. If Investments in Associates are classified as Held for Sale

If An Investor Plans to Sell its investment in Associate and classify it

as Held For sale then Investor Party should cease Application of Ind AS
28 for Such Investment because Application of Ind AS 105 will be made
from Such date.

Exemption

If Investor still retains some share in Investment in investee after

classifying a portion of Investment as Held for sale then the following
2 cases may be Existed :-

If Retained Portion of Investments

Less than 20% 20% - 50% Range

Apply 109 on Retained Invest. Continue Application of Ind

AS 28 Equity Method on
Retained Portion

Solution of Q.15

Ram ltd. will continue Application of Equity method for 40% shares in
Shyam.

C. Entry for De-Recognition of Associates in CFS :-

Bank a/c Dr xxxx (Consideration for Sold Portion)

Investments a/c Dr xxxx (Fair value : Retained Portion)
To Invest. in Assoc xxxx (carrying Amount in CFS)
(Being Invest. in Associate de-recognised)

*Gain or Loss in above Entry will be transferred to P&L A/c

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Solution Q.14
De-Recognition of Associate

Bank a/c Dr 80,000 (Sold Portion)

Investment a/c Dr 120,000 (fair value)
To Investment in Associate 100,000 (C. Amount)
To Gain on De-Recog. 100,000 (Bal fig.)
(Being De-Recognition of Associate made)

Solution of Q.11

In the Given case, Unrealised Profit will be computed on unsold

Inventory only which is Rs. 400,000.

1. Unrealised Profit = 400,000 x 10% x 40% = 16000

2. Investor will record the following Entry to Eliminate the unrealised
Profit :-
C. P&L a/c Dr 16000
To Invest in Associate 16000
(Being Unrealised Profit Reversed)

Case B : There will be no Change in above Solution even if Transaction is

downstream instead of Upstream because there is no Concept of
Down Stream or Upstream Under Ind AS 28.

Solution of Q.12
1. In the books of X ltd.

Bank a/c Dr 800,000

PL a/c Dr 200,000
To Assets 10,00,000
(Being Asset sold at market Price)

2. If the said Transaction would have taken Place in the books of Y ltd.
then there would have been a Loss of Rs.200,000 in the books of y in
which Investor (x) would have computed its share as follows :-
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Cons. P&L a/c Dr 100,000 (2L x 50%)

To Invest. in Assoc. 100,000
(Being Share in Loss Computed of Asso)

D. Potential Shares held by Investor

If An Investor has Potential Shares (i.e. Warrants options, Convertible

Instruments etc) then Potential shares can be included in Assessment
of Associate Relationship only if these Potential shares are currently
Exercisable. If these Shares are Exercisable on a future date then we
will not consider these shares in Assessment.

Note on Currently Exercisable

In the Provisions of Ind AS 28, there is no Explanation on meaning of

currently Exercisable as in Ind AS 110. It means that It is not
Necessary for Exercisable Potential shares to be Substantive. We will
not check liquidity Problems or management Intention about Practical
Exercise of conversions

Solution of Q.5 (Discussed in Class)

E. Accounting for Losses in Associate in CFS *Imp

Case I : If Share in Losses incurred by Associate Exceeds Carrying

Amount of Investments then Investor will disclose
Investment in Associate at “Nil Value”. Some Losses shall remain
Unrecognised.
In future, if Associate Earns Profits then Investor will write
off Unrecognised Losses against share in Profits. If Share in
Profit Exceeds Un-Recognised Losses then value of Investment
will be raised in the CFS.

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E.g.
i. 1.4.20 : Carrying Value of Investments in CFS in Associate =
Rs.20,00,000
ii. 31.3.21 : Share in Losses of Associate = Rs.25,00,000
iii. 31.3.22 : Share in Profits of Associate : Rs.600,000
Show Carrying Amount of Investment in CFS at the end of each year.

Solution
Calculation of Carrying Amount

Opening Balance (1.4.20) 20,00,000

Share in Losses (20 -21) (25,00,000)
Carrying Amount *Nil
(31.3.21 :*Unrecog. Loss – 500,000)
Share in Profits (21-22) (600,000 – 500,000) 100,000
Carrying Amount 100,000

Case II : Adjustment of Unrecognised Losses against other

Investments *Imp

If Investor has other Investments in Associate (Pref. Shares, Deb

etc) then Unrecognised Loss will be adjusted against carrying Amount
of other Investments Also. If Loss Exceeds carrying Amount of other
Investments as well then remaining Loss will be considered as
Unrecognised.
If Associate Earns Profits in Future then It will recover unrecognised
Losses First then Investments shall be reversed as per Sequence of
Solvency.

E.g.
i. Carrying Amount of Investments :
Equity 10,00,000
Pref. Shares 400,000
Debenture 200,000
ii. Share in Loss of Associate : 20,00,000

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iii. Share in Profit (Next year) : 24,00,000

Show carrying Amounts.

Solution :

Equity Pref. Deb

Carrying Amount 1000,000 400,000 200,000
Share in Loss (2000,000) - -
Carrying Amount Nil 400,000 200,000
(Unrecog. : 10L)
Adjust of Unrecog. (10L – 6L) - (400,000) (200,000)
Recovery Carry Amount Nil Nil Nil
(Unrecog. Loss : 4L)

Share in Profit : 24L

Unrecog. Loss (4)
20
Recovery of Deb (2) - - 20,000
Recovery of PSC (4) - 40,000 -
Recovery of Equity 14 14,00,000 - -
Carrying Amount 14,00,000 400,000 200,000

Case III* :
i. Carrying Amount of other Investments will be taken as per Ind AS
109 (fair Value measurement).
ii. We will reverse other Investments according to 109 valuation.

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Solution of Q.13 *Imp

Calculation of Carrying Amount of Invest. & Unrecog. Losses at the end

of Each year

Year I
Debent. Pref. Equity
Opening Balance 300,000 500,000 10,00,000
Changes in Value in SFS under (50,000) (50,000) -
109
Adjusted Carrying value 250,000 450,000 10,00,000
Share in Losses : 16L (150,000) (450,000) (10,00,000)
Carrying Amount at the end 100,000 Nil Nil
of year I

Year II

Opening Balances 100,000 Nil Nil

Share in Losses : 2L (100,000) - -
Carrying Amount at the End Nil Nil Nil
of Y2

Unrecognised Losses = Pref Shares 50,000

Shares in Losses 100,000
(2L – 1L) 150,000

Year III

Opening Balance Nil Nil Nil

Increase in fair Value Nil* *Nil Nil
Carrying Amount Closing Nil Nil Nil

*U.R Losses 150,000

Fair value Gain 150,000
Nil

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Year IV
Opening Balance Nil Nil Nil
Share in Profits : 10L 300,000 500,000 200,000 (Bal)
Fair value Gain - 50,000 -
Carrying Amount Closing 300,000 550,000 200,000

Year V
Opening Balance 300,000 550,000 200,000
Share in Profit - 30,000 10,00,000
Closing 300,000 580,000 12,00,000

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

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Chapter 2C - JOINT ARRANGMENT IND AS 111

*Part 1*

Ind AS 111 : Joint Arrangements

Coverage

Joint Arrangements

Joint Operations Joint Ventures

(Ind AS 111) (Ind AS 28)

Concept 1 : Meaning of Joint Arrangement

As per the Provisions of Ind AS 111,“Joint Arrangement is a contractual

Arrangement Whereby TWO or more Parties obtain Joint Control over
relevant Activities of an Entity.” The following Additional Definitions
should also be understood :-

A. Meaning of Contractual Arrangement : As per the Provisions of Ind

AS 111, Two or More Parties must be bound by a contractual
Arrangement. The contract may be in Written form between the
Parties or Evidenced by Articles of Association or Voting pattern
Agreement as per Recent meetings etc.

B. Meaning of Joint Control : As per the Provisions of Ind AS 111, Joint

control Means TWO or more Parties will take decisions about
“Relevant Activities” of an Entity with Unanimous Consent. It can
also be said that No Investor can take Decisions in his own capacity.
It means that one Investor can block other Investor From taking
decisions. So, Two or more Investors are required to Exercise
control.

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C. Meaning of Relevant Activities :

- We have already discussed it in Ind AS 110 -

“Refer Q.1 – Q.13 for Understanding of Joint Control”

Solution of Q.1, Q.2, Q.3, Q.4, Q.5, Q.6, Q.7, Q.8, Q.9, Q.10, Q.11, Q.12, Q.13

*Part 2*

Concept 2 : Types of Joint Arrangement

Types

Joint Operation Joint Venture

(Ind AS 111) (Ind AS 28)

How to Identify Joint Operation & Joint Venture in a Joint

Arrangement
Joint Arrangement

If Joint Arrangement is not If Joint Arrangement is a

a Separate Vehicle/Entity Separate Vehicle/ Entity

It means that Joint

Arrangement Cannot it’s a corporate it’s a non
hold Assets & Liab Entity corporate
in its Name Entity
It can hold Assets (i.e.,
Joint Arrangement is a & Liab. in its Name Partnership
“Joint Operation” & Because company is a firms)
Investors shall be called Separate Legal Entity
as “Joint Operators” It cannot hold
It’s a “Joint Assets & Liab.
Venture”And in its Name &
Investors are Partners are
“Venturers” Directly
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Responsible for
All Activities due
To unlimited Liab.

It’s a “Joint Operation”

Solution of Q.14, Q.15, Q.16, Q.17 (Discussed in Class)

Solution of Q.18

The Given Case is a Joint Operation because Investors have direct

share in Assets &Liab.

Exception to Corporate Entities *Imp

If the following 2 conditions are satisfied then we will assume a Joint

venture in the Form of Joint Operation even if Separate vehicle is a
company :-
I. If Output of company is directly shared by Investors (i.e., It
means that Investors have direct Involvement in Economic
Benefit of Company)
II. If Company is Economically dependent on Investors (i.e., Price of
output is Also Controlled by the Investors)

Solution of Q.19, Q.20 (Discussed in Class)

Concept 3 : Accounting for Joint Operations

(In SFS and CFS of Operators)

There is no Separate vehicle in case of Joint Operations due to which we

cannot show Investment in Shares in SFS as we show in case of
Investment in Subsidiaries, Associates or J.V. The Accounting will be
same in the books of Joint Operator Whether these are SFS or CFS. We
will Apply “Proportionate Consolidation method” For calculating
Proportionate share of Operator in Joint Operation.

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 Calculate Proportionate share in Assets of J.O

 Calculate Proportionate share in Liab of J.O
 Calculate Proportionate share in Incomes of J.O
 Calculate Proportionate share in Expenses of J.O

Solution of Q.21

Statement Showing P Share in Assets & Liab of PQ

Machinery (100%) 250,000

Cash (50000 x 50%) 25000
Bank Loan (75000 x 100%) 75000
Other Loan (75000 x 50%) 37500
Capital (As per Study Mat : 150000 x 50%) 75000

Solution of Q.22

Statement Showing AB ltd. Share in Assets & Liab of PQR

Building 1 (240 x 100%) 240

Building 2 (200 x 50%) 100
Cash (40 x 50%) 20
Employees Benefit Plan (100 x 50%) 50
Loan (XYZ) 1240 x 100%) 240
Equity (140 x 50%) 70

Concept 3 A : Accounting for Transactions between Operator &

Joint Operation *Imp

If A Joint Operator Sells or Purchase an Asset to/by Joint Operation

then Operator Will record the transaction to the Extent of other
Operator share in Joint Operation.

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Solution of Q.23
In the books of A

Bank/ other Operator a/c Dr 32 (80 x 40%)

Loss on sale a/c Dr 8 (20 x 40%)
To Asset 40 (100 x 40%)
(Being Asset Sold to other Operator)

Solution of Q.24

In the books of A

Asset a/c Dr 32 (80 x 40%)

To Bank 32 (80 x 40%)

Loss of 20 will be shared by Both Operators in ration of 60:40

Concept 4 : Accounting for Joint Venture

i. In SFS of Investor : Ind AS 109 FVPL or

FVOCI
ii. In CFS of Investor : Ind AS 28 (Equity Method)
(Refer all questions done for Associates)

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

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Chapter 2D - SEPARATE FINANCIAL STATEMENTS IND AS 27

*Part 1*

Ind AS 27 : Accounting for Investments in Subsidiary, Associate or J.V

in SFS of Investor
Investor

Separate financial Statements Consolidated financial Statements

For Accounting of Investments 1 If Investor has Subsidiary :

In SFS of Investor Apply 110
Whether it is a Subsidiary, 2 If Investor has an Associate:
Associate or J.V : Apply 27 Apply 28
3 If Investor has a J.V :
Apply 28
Accounting Rule

Rule : An Investor will Apply Ind AS 109 for Accounting for Investments
in SFS for S/A/JV “On fair value basis”

Exception

If any Investment is held for sale under Ind AS 105 then carrying
Amount will be taken as value

Accounting for Dividends from Investee

Investor will Transfer the Dividends to P&L as an Income whenever it

has certainty To collect the Dividends

Accounting for Investments held by Investment Entity

- Please watch video No. 15 Given in 110 -

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Chapter 2E - DISCLOSURES IND AS 112

*Part 1*

Ind AS 112 : Disclosures

(Note to A/c)

Disclosures (additional)

Separate financial statements Consolidated Financial Statements

I. Additional Disclosures in Notes to A/cs in SFS

a) If an Entity avails Exemption from consolidation then Disclosures

should be Given about such Exemptions.

b) List of Significant investment in :-

i. Subsidiaries
ii. Associates
iii. Joint Venture
iv. Joint Operation

c) Basic Information regarding Subsidiaries, Associates or Joint

Arrangements as Follows :-
i. Name
ii. Principal Place of Business
iii. Proportion of Ownership
d) Method of Accounting

II. Additional Disclosures in CFS to be made

a) Regarding Subsidiary
b) Regarding Associate & J.V

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a. Subsidiary
i. Name of Subsidiaries
ii. Principal Place of Business
iii. % of Ownership
iv. Method used to determine control
v. NCI (Method)
vi. Dividend Paid
vii. Inter Company Eliminations

b. J.V & Associate

i. Name
ii. Nature of Relationship
iii. Principal Place of Business
iv. % of Ownership
v. Equity Method or FV

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

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Chapter 3 - Ind AS 101: First Time Adoption of Ind AS (Imp)

*Part 1*

Concept 1 : Basic Knowledge about 101

As per the Provisions of Ind AS 101, First time adoption of Ind AS

means Preparation Of first time financial Statements as per Ind AS
by Giving an Explicit and Unreserved Statement about adoption of all
Ind AS. In Case the Entity applies Ind AS without Giving statement
then It will be assumed that Entity has not applied Ind AS. The
Following further Points should also be considered :-

I. First Ind AS statements should be presented with full

comparative Statements.
II. While Preparing Comparative statements, It is mandatory to
Prepare Opening B/s at “Transaction date” as per Ind AS.
 Transition date :- The beginning of Comparative Period.

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

Concept 2 : Transition Rules *Imp

As per the Provisions of Ind AS 101, Changes in Assets & liabilities

during Transitional Phase should not be considered as Change in Policy.
The Following Challenges can be Faced by an Entity during the
Transition Phase :-

Measurement of Assets Recognition of New Assets

& Liab or Liab. as per Ind AS
Challenges at Transition date
Reclassification of De- Recognition of Assets
Headings & Liab. which are not
Required as per Ind AS

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Concept 3 : Exceptions/ Exemptions *Imp

As per the transitional rules of various other Ind AS, It is

mandatory to Apply Retrospective changes at Transition date, but
Ind AS 101 Provides Exemptions from Retrospective Adjustments. The
following 2 types of Exemptions can be availed: -

I. Mandatory Exceptions (Entity is not allowed to apply

retrospective changes)
II. Optional Exemptions (Entity can choose either Prospective or
retrospective Changes)

Concept 4 Mandatory Exceptions

(Retrospective Adjustments Not Allowed)

Case I : Estimates

As per the Provisions of Ind AS 101, we can continue with the

Estimates which were Made as per Previous GAAP until unless there
are Errors in those Estimates. (e.g. Provisions can be continued
under Ind AS 37 which were created on the basis of Estimates in AS-
29)

Case II : Negative Non Controlling Interest

As per the Provisions of 101, NCI cannot be shown at negative Amount

at Transition date. It can also be said that value of minority
Interest under AS-21 will be shown as it is in B/S as per Ind AS 110 at
Transition date. The Entity can show Minority Int/ NCI at Negative
Amount under 110 only for future Losses on Prospectively Basis.

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Case III : Derivatives

As per the Provisions of Ind AS 101, all derivatives should be disclosed

in New B/s at “Fair value”.

Case IV : Government Loan at concessional Rates

As per the Provisions of 101, Govt. Loan at concessional Rate at

transition Date should be divided into 2 headings as follows:-

Govt. Loan

Fair value of Loan Balancing figure

Financial Liab. Govt. Grant due to

(Ind AS 109) concession in Rate (Ind AS- 20)

Concept 5 : Optional Exemptions *[Link]

Case I : Share Based Payment Reserve (ESOP’ o/s)

ESOP’ O/s A/c

Vested Options Unvested Options

Consider fair value at

Option I Option II : Transition date
We can continue we can also consider
With same consider its fair value
Balance (It will be Encouraged by 102)

Solution of Q.7 (Discussed in Class)

Case II : PPE & Intangible Assets

As per the Provisions of 101, PPE & I. Assets can be considered at fair
value Or Deemed Cost at transition date.
Carrying Amount
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Case III : Investment in Subsidiary/ Associate/ Joint Venture

 Transition can be at fair value or Carrying Amount

Case IV : Foreign Operation

Option I : Foreign Currency Translation Reserve can be carried at

carrying Amount From AS-11 to Ind AS-21
OR
Option II: We can transfer FCTR to retained Earnings for making it
Zero Balance. Now future differences shall be accumulated
as per Ind AS 21.

Case V : Long Term foreign Currency Loans (Para 46/ 46A AS-11)

Option I : We can continue with the Existing Policy under 46/46A in

Ind AS B/s.
OR
Option II: we can discontinue this Policy and Start applying Ind AS-21

Case VI : Business Combination *[Link]

Business Combination

Prior Transition date After Transition date

Option I : Option II : Apply 103

No Re-measurement If Re-measurement is
is required made for any Post
Business Combination
Carrying Amount as as per 103 then all
Per AS-14 is subsequent Business
Relevant combination shall also
be Re- Measured

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Solution of Q.3 (Discussed in Class)

Solution of Q.4

No, Negative NCI can be shown only Prospectively.

Solution of Q.5

1. SFS of A ltd. : At transition date, A ltd can show investment in

Subsidiary in Ind AS B/s at Cost or fair value at its
option.
2. CFS of Al ltd. : Opening Consolidated B/s will be Prepared at carrying
Amount of Assets & Liab of Subsidiary.
GW = N. Assets in Subsidiary – Investment Cost - NCI

Solution of Q.6

Case I : for the Purpose of CFS, It will be the responsibility of

Subsidiary company to Adjust its values as per the
requirements of A ltd.
Case II : There will be no adjustment by B ltd because Its B/s is
already as per Ind AS.

Solution of Q.9, Q.11 *Imp , Q.12, Q.15 *[Link] (Discussed in Class)

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*Part 2*

Test Your Knowledge

Solution of Q.1

If Past Business combinations are re-stated then we will Apply Ind

AS 103 : Acquisition method retrospectively for the measurement of
Goodwill or Bargain Purchase on Such date. So, we cannot take
Exemption of deemed cost for Past Business combination due to
incorrect measurement of GW/C Res. On Acquisition date It can also
be said that we can take Exemption only for those PPE which are not
Related or Acquired under Business combination.

Solution of Q.2

As per the Provisions of Ind AS 101, Adjustments in value of Assets &

Liabilities During transition Phase from Accounting standards into
Ind AS shall not be Reported as change in Policy, but these
Adjustments shall be considered as Transition adjustments.
In the Given case, company has adopted “fair value” for PPE as
deemed cost Which indicates that company has opted for revaluation
model on Transition date.
On the basis of above discussion, It can be
said that No disclosure will be required Because changes have been made
during Transition Phase. It should not be Treated as Change in
Accounting Policy.

Solution of Q.3

As per the Provisions of Ind AS 101, Company can continue with

Existing Policy defined in AS-11 and company can also discontinue
Existing Policy under AS-11 by Replacing with new Policy defined in Ind
AS 21.

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In the Given case, Company wants to Go with Ind AS 21 for which It

has to Transfer its Unamortised Balance in FCMITDA to Retained
Earnings to close this A/c. In Future, all Exchange Fluctuations in
Value of Foreign Currency Loan to P&L A/c as per Ind AS 21.

Solution of Q.4 *Imp

As per the Provisions of Ind AS 101, Carrying Amount of PPE can be

considered as Deemed cost on Transition date. It means that there
will be no need to adjust Exchange fluctuations which were capitalised
Earlier in the carrying Amount of PPE Under AS-11. If company wants
to apply Ind AS 21 on Its foreign Currency Loan after Transaction
date then All subsequent fluctuations shall be transferred to P&L A/c
But there will be no reversal of Earlier capitalised fluctuations.

Newly Added Questions

Solution of Q.1 (Discussed in Class)

Solution of Q.5

As per the Provisions of Ind AS 20, Grants in the nature of

Promoter Contribution shall be transferred to P&L A/c instead of
Capital Res. As in AS-12. So, The balance created in Capital Reserve will
be transferred to Retained Earnings on Transaction date under Ind
AS 20.

Note : If Govt. Company Receives funds from Govt. as Capital

contribution as an Owner then this concept is not covered in
Ind AS-20

Solution of Q. 6 (Discussed in Class)

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Solution of Q.7

In the Given case, Previous GAAP for Foreign Subsidiary will be

considered AS-11 According to which Translation was done from Foreign
Currency into RS. So, the Foreign Subsidiary statements shall be
considered under Transition Phase from AS-11to Ind AS 21. We cannot
consider IFRS as Previous GAAP because Application of IFRS is allowed
in foreign country only.

Solution of Q.8, Q.10 (Discussed in Class)

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

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Chapter 4 - Ind AS 12: Taxes on Income([Link])

*Part 1*
Message Given

*Part 2*
E.g. (Depreciable Assets)

i. Cost of Assets = 300,000

ii. Estimated useful life :-
a) Ind AS 16 = 3 years
b) Tax Rules = 2 years
iii. Tax Rate = 30%
Explain the calculation of Deferred Tax.

Solution:

a) Calculation of Carrying Amount of Assets

1 2 3
Opening Balance 300,000 200,000 100,000
Dep. (1/3) (100,000) (100,000) (100,000)
Closing Balance 200,000 100,000 0

b) Calculation of Tax Base of Assets

1 2
Opening Balance 300,000 150,000
Dep. (150,000) (150,000)
Closing Balance 150,000 0

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c) Calculation of Diff. between B/s values under Ind AS & Tax Rules

1 2 3
Carrying Amount (B/s) 200,000 100,000 0
Tax Base 150,000 0 0
Diff (cumulative) 50,000 100,000 0
Deferred Tax @ 30% 15000 30,000 0
D.T. Liab. Exp. 15,000 15,000 (30000)
(30,000 – 15,000) (0 – 30,000)

Journal Entries

Year1 Deferred Tax Exp. a/c Dr 15,000

To Deferred Tax Liab. 15,000
(Being D.T. Liab created)

Year2 Deferred Tax Exp. a/c Dr 15,000

To Deferred Tax Liab. 15,000
(Being DTL Created)

Year3 Deferred Tax Liab. a/c Dr 30,000

To Deferred Tax Income 30,000
(Being DTL Reversed)

E.g. with the help of Previous Example, Calculate Tax Expense assuming
Profits before Depreciation & Tax as per Ind AS & Tax Laws are Rs. 5L.

Calculation of Current Tax

Y1 Y2 Y3

Profits 500,000 500,000 500,000

Dep. (150,000) (150,000) -
Taxable Income 350,000 350,000 500,000
Tax @ 30% 105000 105000 150000
(Actual Tax)
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Calculation of Tax Exp.

(Tax Exp. = Current Tax + deferred Tax)

Y1 Y2 Y3
Current Tax 105000 105000 150000
Deferred Tax Exp. 15000 15000 -
Deferred Tax Inc. - - (30,000)
Tax Exp 120,000 120,000 120,000

E.g. As per the Provisions of Ind AS 37, Company has created Provision
for Pending Court case of Rs.10 lakhs in 1st year & Rs.5 Lacs in Second
year, but under Tax Laws Provisions are not allowed as allowed Exp
until It is paid on Actual basis. Tax 30%, Calculate Deferred Tax.
Provisions

Solution

Step I : Carrying Amount as per A/c Records

Y1 Y2
Provision for Court case 10 15
(Cumulative)

Step II : Tax Base as per Tax Laws

Y1 Y2
Provisions for Court Case 0 0

Step III : Difference between Carrying Amount & Tax Base

Y1 Y2
A/c Value Provisions for Pending 10 15
Tax Base Court case 0 0
Diff 10 15
Deferred Tax @ 30% 3 4.5
Deferred Tax Income/ Assets 3 1.5
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Y1

Deferred Tax Assets a/c Dr 3

To Deferred Tax Income 3

Deferred Tax Income a/c Dr 3

To P&L 3

Y2

Deferred Tax Assets a/c Dr 1.5

To Deferred Tax Income 1.5

Deferred Tax Income a/c Dr 1.5

To P&L 1.5

E.g. with the help of given information in previous Example, calculate

Tax Exp. Assuming Profits before Prov. For Court case is 20Lacs
under A/c & Tax.

Solution

Accounting Income Tax Income

Y1 = 20L – 10L = 10L Y1 = 20L – 0 = 20L
Y2 = 20L – 5L = 15L Y2 = 20L – 0 = 20L

Current Tax = Y1 = 20L x 30% = 6L

(T.I x T.R) Y2 = 20L x 30% = 6L

Tax Exp. = Y1 = 6L – 3L = 3L
Y2 = 6L – 1.5L = 4.5L

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E.g.
Carrying Amount Tax Base
Warranty Liab. (Prov.) 20,00,000 0
Tax Rate 30%, Calculate Deferred Tax

Solution

D.T Assets/ Income = 20,00,000 – 0 = 20,00,000 x 30%

= 600,000

D.T Assets a/c Dr 600,000

To D.T Income 600,000

D.T Income a/c Dr 600,000

To P&L 600,000

E.g. An Entity Purchased an Asset for Rs.30,00,000. Its Estimated

Accounting life is 3 years, but It can be written off 100% in first
year under Tax Laws. Tax Rate 30% calculate Deferred Tax.
(R&D)

Solution

Step I : Carrying Amount

Y1 Y2 Y3
Opening Balance 30L 20L 10L
Dep. (10L) (10L) (10L)
Closing Balance 20L 10L 0

Step II : Tax Base

Y1 Y2 Y3
Opening Balance 30L 0 0
Dep. (30L) 0 0
Closing Balance 0 0 0
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Step III : Diff between Tax Base & Carrying Amount

Y1 Y2 Y3
[Link] 20L 10L 0
Tax Base 0 0 0
Diff 20L 10L 0
D.T @ 30% 6L 3L 0
6L (3L) (3L)
Create Reverse Reverse

Journal :-

Y1

Deferred Tax Exp. a/c Dr 6 P&L a/c Dr 6

To D.T Liab 6 To D.T Exp 6

Y2

D.T Liab a/c Dr 3 D.T Income a/c Dr 3

To D.T Income 3 To P&L 3

Y3
- Do -

Concept 1 : Objective of Ind AS-12

As per the Provisions of Ind AS-12, the main objective of the

statement is to Compute Taxes on Accounting Income instead of
Taxable Income. Normally, we Calculate Income Tax on Taxable Income,
but this statement requires calculation of Deferred Tax to bridge the
differences between Accounting Income & Taxable Income.

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Concept 2 : Definitions

a) Meaning of Taxable Income : T.I is the income which is calculated as

per Tax Laws
b) Meaning of Accounting Income : A. I is the Income which is shown in
P&L statement, but before Tax.
c) Meaning of Carrying Amount of Asset & Liab : - B/s Value as per
Accounting Rules
d) Tax base of Assets/ Liab :- Value as per Income Tax Act
e) Meaning of Tax Expense :-
Tax Expense = Current Tax + Deferred Tax
f) Meaning of Current Tax :-
Current tax = Taxable Income x Tax Rate
g) Meaning of Deferred Tax :-
Deferred Tax = Temporary Diff. x Tax Rate
h) Meaning of Temporary Diff :-
Temporary Diff = (Carrying Amount – Tax Base) of Assets & Liab.
B/S Approach

i. Types of Temporary Diff :-

Types

Taxable Temporary Diff Deductible Temporary Diff.

Create DTL Create DTA

Deferred Tax Exp. a/c Dr DTA a/c Dr

To DTL To Deferred Tax Income

PL a/c Dr xxxx PL a/c Dr xxxx

To C.T xxxx To CT xxxx
To D.T Exp xxxx DTI a/c Dr xxxx
To P&L xxxx

(Tax Exp. = C.T + DTE – DTI)

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Concept 3 : Steps for Calculation of deferred Tax

Step I : Find Carrying Amount of Asset/ Liab

Step II : Find Tax Base for Assets/ Liab
Step III : Find Temporary Diff. (Step I – Step II)
Step IV : Calculate Deferred Tax
Step III x TR
(T.D) Deductible (DTA)
Taxable (DTL)

*Part 3*

Solution of Q.3

Calculation of Deferred Tax

a. Carrying Amount = 100 (Given)

b. Tax Base = 150 – 90
= 60
c. Temporary Diff. = C. A T.B
Assets 100 60
T.D 40
d. Deferred Tax Liab = (100 – 60) 25% = 10

D.T Exp a/c Dr 10

To D.T.L 10

Solution of Q.4

Step I : Calculation of Carrying Amount

1 2 3 4 5
Opening Bal 100,000 80,000 60,000 40,000 20,000
Depreciation (20,000) (20,000) (20,000) (20,000) (20,000)
Closing Bal 80,000 60,000 40,000 20,000 0

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Step II : Calculation of Tax Base

1 2 3 4 5
Opening Bal 100,000 75,000 50,000 25,000 0
Depreciation (25,000) (25,000) (25,000) (25,000) 0
Closing Bal 75,000 50,000 25,000 0 0

Step III : Calculation of Temporary Diff & Deferred Tax

1 2 3 4 5
Carrying Amt 80,000 60,000 40,000 20,000 0
Tax Base 75,000 50,000 25,000 0 0
Diff. 5000 10000 15000 20000 (20000)
(Cumulative)
Deferred Tax 1500 3000 4500 6000 (6000)
@30%
DTL 1500 1500 1500 1500 -
Reversal of - - - - (6000)
DTL

Solution of Q.8

Step I : Calculation of Carrying Amount

Y1 Y2 Y3
Opening Balance 150,000 100,000 50,000
Depreciation (50,000) (50,000) (50,000)
Closing Balance 100,000 50,000 0

Step II : Calculation of Tax Base

Y1 Y2 Y3
Opening Balance 150,000 0 0
Depreciation (150,000) 0 0
Closing Balance 0 0 0

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Step III : Calculation of Temporary Diff & Deferred Tax

Y1 Y2 Y3
Carrying Amount 100,000 50,000 0
Tax Base 0 0 0
Diff. 100,000 50,000 0
D.T.L @ 40% (Cumulative) 40,000 20,000 0
D.T.L (Year wise) 40,000 (20000) (20000)
(40000 – 20000) (20000 – 0)

Step IV : Calculation of Tax Exp.

Y1 Y2 Y3
PBDBT 200,000 200,000 200,000
Dep. (150000) - -
Tax Income 50000 200000 200000
Tax @ 40% 20000 80000 80000
D.T.L 40000 (20000) (20000)
Tax Exp. 60000 60000 60000

Solution of Q.11

Calculation of Deferred Tax

Assets Prepaid Exp. Warranty

Liab.
Carrying Amount 200000 75000 50000
Tax Base 120000 0 0
Diff 80000 75000 50000
Deferred Tax @ 40% 32000 30000 20000
DTL DTL DTA

Asset CA > TB = DTL

CA < TB = DTA
Liab CA > TB = DTA
CA < TB = DTL
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Concept 4 : Changes in Tax Rate

As per the Provisions of Ind AS-12, Calculation of Deferred Tax for

Current year Temporary Diff will be made at “Current Rate” which
Prevails at “B/s date” as per Tax Laws.

Solution of Q.9

Calculation of Deferred Tax Liab.

Y1 Y2 Y3
Carrying Amount 100,000 50000 0
Tax Base 0 0 0
Diff 100,000 50000 0
T.R 40% 35% 38%
DTL (Cumulative) 40000 17500 0
DTL (Actual) 40000 (22500) (17500)
(Reversal) (Reversal)

Y1
D.T Exp a/c Dr 40000
To DTL 40000

PL a/c Dr 40000
To D.T Exp 40000

Y2
DTL a/c Dr 22500
To DTI 22500

DTI a/c Dr 22500

To PL 22500

Y3
DTL a/c Dr 17500
To DTI 17500
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DTI a/c Dr 17500

To PL 17500

Concept 5 : If Entity has incurred “Taxable Losses”

If any company has incurred Taxable Losses which can be carried forward
& Set off Against future Income then DTA should be created on Such
Taxable Loss. If a company does not Estimation of future Income then
Such an Entity should not create DTA on Losses. There should be some
Estimation regarding future Income.

Solution of Q.10

Calculation of Deferred Tax

Y1 Y2 Y3
Taxable Loss 100,000 50,000 0
(Cumulative) (100000 – 50000) (50000 – 60000)
DTA @ 40% 40000 20000 0
(Cumulative)
Current 40000 (20000) (20000)
year DTA (Reversal) (Reversal)

Y1 = D.T Assets a/c Dr 40000

To DTI 40000

Y2 = D.T Exp a/c Dr 20000

To DTA 20000

Y3 = D.T Exp a/c Dr 20000

To DTA 20000

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Calculation of T. Exp

Y1 Y2 Y3
Current Tax 0 0 4000
(10000 x 40%)
D.T.I/ E (40000) 20000 20000
T. Exp (40000) 20000 24000

Concept 6 : Deferred Tax in Case of “Business Combination”

Ind AS 103

If any Business is acquired by an acquirer from acquiree at fair value

then there may be difference between fair value & Tax base of Assets &
liabilities taken over because Tax Base of Assets & liab do not change
Generally. As per the Provisions of Ind AS-12,the acquirer should
calculate Deferred Tax at the time of Business combination prior to
Computation of Goodwill.

E.g.

X ltd acquires y ltd. The following information is available with regard to

this :-
Fair value Tax Base
P&M 200,000 180,000
Stock 100,000 110,000
Debtors 90,000 100,000
Furniture 400,000 220,000
Payables (100,000) 100,000
N. Assets 690,000
PC 700,000
Assuming Tax Rate @ 30% calculate D. Tax at the time of Business
Combination & also Compute Goodwill.

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Solution:
Calculation of Deferred Tax

a) DTL on P&M 6000 (L)

(200,000 – 180000) 30%
b) DTA on Stock 3000 (A)
(100,000 – 110,000) 30%
c) DTA on Debtors 3000(A)
(90000 – 100000) 30%
d) DTL on Furniture 54000 (L)
(400000 – 220000) 30%
Net 54000 L

Journal Entry

P&M a/c Dr 200,000

Furniture a/c Dr 400,000
Debtors a/c Dr 90,000
Stock a/c Dr 100,000
GW a/c Dr 64000 (bal fig)
To Payables 60000
To DTL (Net) 54,000
To PL/ Cash 700,000
(Being Business taken over)

Solution of Q.5
Journal Entry (103)

P&M a/c Dr 250

Inventory a/c Dr 120
Debtors a/c Dr 200
DTA a/c Dr 7.50 (25 x 30%)
GW a/c Dr 22.50 (Bal fig.)
To Deb. 100
To Cash (PC) 500
(Being Business acquired)
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Concept 7 : Treatment of Issue Exp. (Preliminary Exp.)

If any Preliminary Exp. is Given in question then It may be written off

Immediately in P&L A/c in same year, but Under Tax Laws, It will be
written off Over the Period of 5 years. So, we should create DTA on this
difference.

E.g. A company issues Debentures having face value of Rs. 10,00,000, but
floatation Cost is Rs.100,000. While Computing Effective Rate of
Interest, Floatation Cost Was adjusted. But as per Tax Laws,
floatation Cost will be written off over the Period of 5 years. Tax
Rate 30% calculate Deferred Tax.

Solution :
Calculation of D. Tax

1 2 3 4 5
Carrying 0 0 0 0 0
Amount
Tax Base 80,000 60,000 40,000 20,000 0
Diff. 80,000 60,000 40,000 20,000 0
Tax Rate 30% 24000 18000 12000 6000 0
(cumulative)
D.T Asset 24000 (6000) (6000) (6000) (6000)
(DTA)

Creation of DTA Reversal of DTA

1) DTA a/c Dr 24000 1) D.T Exp a/c Dr 6000

To DTI 24000 To DTA 6000
2) DTI a/c Dr 24000 2) P&L a/c Dr 6000
To PL 24000 To D.T Exp 6000

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Concept 8 : R & D Exp.

As per the Provisions of Ind AS-12, DTL should be created on R&D Exp.
due to zero tax Base under Tax Laws.

E.g.
i. Cost of P&M : 600000
ii. 100% Deduction under Tax Laws in Ist year
iii. Accounting Life : 3 years
iv. Tax Rate : 30%
Show Deferred Tax.

Solution
Calculation of Deferred Tax
1 2 3
(Closing) Carrying Amount 400,000 200,000 0
Tax Base 0 0 0
Diff 400,000 200,000 0
DTL (Cumulative) @ 30% 120000 60000 0
Annual DTL 120000 (60000) (60000)

Create Reversal

Concept 9 : Assets held at fair value (Financial Assets/ Financial

Instruments)

As per the Provisions of Ind AS-12, It may be Possible that Entity has
some Financial Assets under Ind AS 109 which are required to be reported
at fair value at B/s date. There may be some fluctuation in Carrying
Amount due to change in fair Value, but Tax Base will not change as Tax
Laws do not Permit this type of Presentation. So, we may need to
calculate Deferred Tax on these differences. The Following Points may be
considered :-

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I. If fair value change is recorded in P&L A/c then Deferred Tax on

such change Will also be recorded in P&L A/c.
II. If fair value change is recorded in “OCI” then Deferred Tax on such
change will Also be recorded in “OCI”.

E.g.
1.4.2017 : Acquisition of 10,000 shares @ 115 Per share
31.3.2018 : fair value is 119
31.3.2019 : fair value is 118
Tax Rate @ 30%
Calculate Deferred Tax assuming that fair value change has been
recorded in “OCI”

Solution:
Calculation of Deferred Tax

31.3.18 31.3.19
Carrying Amount 11,90,000 11,80,000
Tax Base 11,50,000 11,50,000
Diff 40000 30,000
DTL @ 30% (Cumulative) 12000 9000
D.T Exp 12000 (3000)

D.T Exp a/c Dr 12000 DTL a/c Dr 3000

To DTL 12000 To DTI 3000

OCI a/c Dr 12000 DTI a/c Dr 3000

To D.T Exp 12000 To OCI 3000

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Concept 10 : Deferred Tax Calculations on Revaluation of Assets

*[Link]

E.g.
i. Original Cost of Asset : 10,00,000
ii. Salvage Value : 50,000
iii. Estimation of Life : 20 years
iv. Method of Dep in Books : SLM
v. After 7 years, It is revalued by increasing 20% to Carrying Amount.
vi. Revised Salvage Value : 80000
vii. Tax Rate 30%
viii. Dep as per Tax Laws : 13.9108% on WDV Basis
Show Impact of Revaluation on Deferred Tax.

Solution :
Calculation of Carrying Amount & Tax Base after 7 years

Carrying Amt Tax Base

Original Value 10,00,000 10,00,000
Dep. for 7 years (332,500) (649,538)
10,00,000 – 50,000 x 7 (@ 13.9108%)7
20
Value after 7 years 667500 350462

DTL Balance = (667500 – 350462) x 30% = 95,111

Calculation of Revaluation Surplus & its Deferred Tax

Carrying Tax Diff DTL

Amount Base
Revaluation Surplus 133,500 0 133,500 40050
(67500 x .20)

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Journal :
i. P&M a/c Dr 133500
To Rev. Res. 133500
(Being Rev. made)
ii. OCI a/c Dr 40050
To DTL 40050
(Being DTL Created on Rev. Res.)

At the end of 8th year :- Extra Dep. due to Revaluation = 133500 = 10269
13Y

Carrying Amount Tax Base DTL

(133500 – 10269) 0 123231 @ 30%
123231 = 36969
(40050 – 36969)
= 3081
DTL a/c Dr 3081
To OCI 3081
(Being DTL Reversed)

Note : As per the provisions of Ind AS-12, Deferred Tax on Revaluation

will be dealt Under OCI because Revaluation Surplus is disclosed
under OCI.

Concept 11 : Presentation & Disclosures

1. Off Set : a) we can off Set D.T Exp & D.T Income in P&L as a Net
figure if these are Payable to same Authorities.
b) We can off Set DTL & DTA in B/s as well if these are
Payable to same Authorities.

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2. Breakup : The following Breakup of Tax Exp. should be given :-

Tax Exp. Current Tax

Deferred Tax

D.T Exp D.T Income

Exp. due new Reversal of New DTA Reversal of DTA

DTL DTA

*Part 4*

Solution of Q.1
Calculation of Taxable future Income

Expected Income 60,000

Expected Cost (12,000)
Net Income 48,000

Comments : In the Given case, Company will have taxable Profit of

Rs.48,000 which can Be set off against Deductible Temporary
Differences
DTA = 48000 x 30% = 14,400

Solution of Q.2

In the Given Case, DTL should be created @25% on Rs.10,000 for X1. The
Following Points should be considered :
i. As per Ind AS 10, the Given Event should be classified as a Non
Adjusting Event because finance bill which states Tax Rate is 30%
was introduced on 28th Feb Which indicates that such Event was not
in Knowledge at B/s date.
ii. The application of Tax Rate of 30% will be considered in XZ as it is
considered As a Non Adjusting Event.
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Solution of Q.7

a) The entity can create DTL @ 30% on 9000 which will be Rs.2700 on
Taxable Timing Diff.
b) The Entity can create DTA on deductible Differences only if the
following Conditions (at least one) is satisfied :-
 There should be some Taxable Timing Diff. or
 There should be probability of future Income or
 Income can be generated from Tax Planning.

In the Given case, Taxable differences are in 3 years but not in 4th Year
and future Outlook is also Loss. So, DTA should be created @30% on 3000.

Note : DTA can be created on remaining 1000 only if Tax planning Income
can be Identified.

*Part 5*

Extra Questions

Solution of Q.12

As per the Provisions of Ind AS 12, Deferred Tax Assets on Taxable

Losses or Reversible differences can be created only if there is a
Probability for future taxable Income against which these Assets shall
be recovered. If Probability of future Taxable Income is low then we
should not recognise DTA in books. It can also be said That DTA can be
Created in the books to the Extent of Recovery against Taxable Income.
In the Given case, Taxable Losses can be carried forward for 2 years
only and Company is Expecting only Breakeven Point in up coming 2
years which indicates that Company will not have Taxable Income in
Carry forward Period.

Conclusion : On the basis of above discussion, It can be said that It

should not Recognise DTA on Taxable Loss of 250 Crores
because Probability of future Taxable Income is very low.
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Deferred Tax on Finance Lease (116 & 12)

The following statement shall be Prepared for the computation of

Deferred Tax in Finance Lease Diff. :-

ROU Assets (Carrying Amount : B/s) xxxx

Lease Liability (Carrying Amount : B/s) xxxx
Net Asset/ Liab xxxx
Tax Base of Net Asset/ Liab. 0
Diff xxxx
“Deduction of Rent
Is allowed only” DTL DTA

[Link] x TR N. Liab x TR

Solution of Q.13

Calculation of Deferred Tax on financial Lease

ROU 120 Crore – 120 Crore 96 Crore

5Y
Lease Liab. (120 crore + 8% - 30 Crore) 99.6 Crore
Net Liab. 3.6 Crore

Deferred Tax Asset = (3.6 Crore – Nil) 30% = 1.08 Crore

A/c Base Tax Base

Journal : DTA a/c Dr 1.08

To (P&L) Tax Exp 1.08
(Being DTA Created)

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Solution of Q.14 *Imp

Calculation of N. Assets on DOA

Carrying Amount of Assets held by B 23 Crore

Fair value Adjustments : Property 3 Crore
Plant 2 Crore
Stock .5 Crore
Fair value of N. Assets 28.5 Crore

Calculation of Deferred Tax

Increase in Accounting Base of Assets (3 + 2 + .5) 5.5

Tax Rate 20%
DTL (5.5 x 20%) 1.1. crore

Computation of Goodwill on DOA

N. Assets a/c Dr 28.5 Crores

*Goodwill (Bal fig) a/c Dr 3.6 Crore
To DTL 1.1 Crore
To Cash 25 Crore (PC)
TO NCI 6 Crore
12 Crore x 20% = 3 crore x 2/- shares
80%
(Being Business acquired)

*Statement can also be Prepared for Computation of GW.

DTL on Goodwill

If It is clearly specified in question that Tax Base of Goodwill is Zero

then we will Compute DTL on Goodwill as well and Ultimate Goodwill Get
Increased.

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Solution of Q.25

Journal Entry

N. Assets a/c Dr 65000

Goodwill a/c (Bal) Dr 45500
To Cash 100,000
To DTL on GW 10500
(100,000 – 65000) x 30%
(Being Business acquired)

Deferred Tax Explanation on increase in “Value of Investment due to

consolidation”*Imp

CFS

Ind AS 110 Ind AS 28

CFS with Subsidiary CFS with Associate & J.V

Full Consolidation Equity Method

1. Equity Method (Associate/JV) : If Investment in Associates or

Joint Ventures Gets increased due to share in Undistributed profits
then we should create DTL on Such Increase because Investor cannot
control dividend Policy of Investee due To which Tax can become
Payable on share in Distributed Profits by Investor or At the time
of sale of Investments, Tax can become payable on Appreciation in
value Of Investments.

2. Full Consolidation : If Increase in value of Investments get

increased due to Share in undistributed Profits of Subsidiary then No
DTL will be created because Dividend Policy can be controlled by Holding
of Subsidiary. So, It is not sure that Subsidiary will distribute
dividend and Holding will pay Tax on Dividend Income.

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Solution of Q.17 *[Link]

Case I : Investment in Associates

A. Calculation of Closing Balance in DTL A/c

Carrying Value of Investment as at 31.3.x2 75 Crores

Carrying value (Original) (45 Crore)
Total share in Undistributed Profits 30 crore
Tax Rate 20%
DTL 6 Crore

B. Increase in DTL during X1- X2

a) Opening Balance in DTL (1.4.x1)

Carrying Amount as at 31.3.x1 70 Crores

Carrying Amount (Original) 45 Crore
Income 25 Crore
DTL Balance on 31.3.x1 25 x 20% = 5 Crore

b) Increase in DTL (X1 – X2) = 6 Crore – 5 crore = 1

Journal : (P&L) Tax Exp a/c Dr 1

To DTL 1
(Being DTL created)

Case II : Revaluation of Assets

i. Closing Balance in DTL on Diff between A/cs & Tax :

Accounting Base as at 31.3.x2 45 Crore

Tax Base as at 31.3.x2 (22 -1.25) (20.75 Crore)
Diff. 24.25 Crore
Tax 20%
DTL Balance at 31.3.x2 4.85
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ii. Current year change in DTL

Accounting Base (31.3.x1) 40

Tax Base (31.3.x1) (22)
Diff 18
Tax 20%
DTL (31.3.x1) 3.60

Increase in C.Y = 4.85 – 3.60 = 1.25

Journal : OCI a/c Dr 1.25

To DTL 1.25
(Being DTL created through OCI on Revaluation)

Solution of Q.19

No Deferred Tax will be created for increase in value of Investment in

Subsidiary Because holding company can control dividend Policy of
Subsidiary.

Solution of Q.20

We should create DTL on (50 x 50%) increase in Value of Investment in

Asset/JV Because Investor cannot control dividend Policy of Investee.

“Concept on Reconciliation Statement “

Reconciliation

Statement I : Tax on Accounting Statement II : Effective Tax Rate

Profit & Tax Expense
(Numeric Reconciliation) (% Reconciliation)

*Presentation of either statement I or II or Both should be given by

each Entity.

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Explanation on Statement I

Tax Expense on Accounting Profit (A.I x TR) xxxx

Tax on Permanent Difference between A. Income
& Taxable Income xxxx +
Actual Tax Expense in P&L xxxx

Explanation on Statement II

i. Effective Tax Rate = Tax Exp (PL) x 100 = %

Accounting Profit
ii. Reconciliation of Tax Rate :
Actual Tax Rate %
“Tax Rate due to Permanent diff. + %
Effective Tax Rate %

Solution of Q.26

Reconciliation statement of Tax

Tax on Accounting Income (100,000 x 30%) 30,000

Increase in Tax due to disallowance of Exp. 3000 (10,000x30%)
Tax Exp. (110,000 x 30%) 33000
OR
Reconciliation of Tax Rate

Effective Tax Rate = 33,000 (Actual) x 100 = 33%

100,000 (AI)
Reconciliation of Tax Rate :
Actual Tax Rate 30%
“Increase in Tax Rate due to penalty 3%
Effective Tax Rate 33 %

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Solution of Q.16

A. Calculation of Current Tax & Deferred Tax

a) Calculation of Diff in A.I & T.I

Accounting Profit 100
Add: Disallowance of Donations 8
Less : Extra Dep. allowed in Tax Law (4)
120/10y = 12 x (6m – 2m)
12m
Taxable Profit 104

i. Current Tax = T.I x TR

= 104 x 25%
= 26
ii. Deferred Tax Liab. = 4 x 25% = 1
iii. Tax Exp. = 26 + 1 = 27
iv. Journal : PL a/c Dr 27
To C.T 26
To DTL 1
(Being Tax Exp charged)

B. Reconciliation statement

i. Numeric Form :
Tax on Accounting Income (100 x 25%) 25
Tax on Donation (8 x 25%) +2
Tax Exp 27

ii. % form :
a) Effective Rate = 27 x 100 = 27%
100
b) Actual Tax Rate 25%
Increase in rate due to Donation 2%
Effective Rate
27%
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Solution of Q.27

Reconciliation Statement

20X2 20x1
Tax on Total Income as Per 900 750
Domestic Rate (1500 + 1500) x (2000 + 500) x 30%
30%
Tax Relief in country B in Rate
by 10% (150) (50)
(1500 x 10%) (500 x 10%)
Increase in Tax due to
Disallowance of Exp. 30 60
(100 x 30%) (200 x 30%)
Tax Exp. 780 760

“DTA on Indexation of Capital Assets” *Imp

As per the Provisions of Ind AS-12, DTA can be created on increase in

cost of Assets Due to Indexation Benefit in Tax Laws. After
Indexation of Assets, Capital Gain will get reduced due to difference
between selling Price and Indexed Cost.

Condition: We can create DTA on Indexation Benefit only if sale of

Asset is probable. If sale of Asset is not Expected then we
should Ignore DTA on Indexation.

Solution of Q.24

A. DTA in 1st year = [(100,000 + 10%) – 100,000] x 30% = 3000

DTA in 2nd year = [(110,000 + 10%) – 110000] x 30% = 3300
= 6300

B. We will not create DTA if Asset is held for Long term purpose.

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Solution of Q.15

Calculation of Deferred Tax as at 31.3.x2

SBP Res. Balance in A/cs = 1.6 Crore x 1 y = .8 Crore

2Y
DTA = .8 x 30% = .24

Entry = DTA a/c Dr .24

To (PL) Tax Exp .24

Reversal of DTA on 31.3.x3

(PL) Tax Exp a/c Dr .24
To DTA .24
(Being DTA reversal as Exercise duty)

Solution of 18 *[Link]

a) In the Given case, Investment is held in FVOCI model due to which

Deferred Tax on fair value Gain/ Loss will also be routed through OCI.

DTL = (A/cs base of Invest – Tax base of Invest) x TR

= (240,000 – 200,000) x 25%
= 10,000

“Journal : OCI a/c Dr 10,000

To DTL 10,000
(Being DTL Created on fair value Gain on Invest)

b) Calculation of A/cs base of Inventory in CFS

Total Sale value 80,000
- Sold Inventory (80000 x 40%) (32000)
Unsold Stock 48000
Stock Res. (96000)
(16000/80000 x 48000)
A/c base 38400
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DTA = (Tax Base of stock is higher) = (48000 – 38400) x 25%

= 2400

DTA a/c Dr 2400

To P&L 2400

DTA on Difference in Liab :

Advance Income Liab in A/cs 80000

Tax Base of Liab 0
Diff 80000
DTA = 80000 x 25% = 20000

DTA a/c Dr 20000

To PL 20000

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

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Chapter 5 - Ind AS 113 : Fair Value Measurements

*Part 1*

Concept 1 : What is the need of “Fair Value”

As per the Provisions of Ind AS 113, Fair value for Assets & Liabilities
may be Required for initial Recognition, Subsequent measurements and
Disclosures Purpose Under other various Ind AS. The following
Examples may be Referred regarding need Of fair value under other
Ind AS :-

i. Ind AS 105 : fair value is required for initial Recognition of Held

for sale Assets
ii. Ind AS 109 : Fair value is required for initial Recognition &
Subsequent Measurements of financial Instruments
iii. Ind AS 41 : Fair value is required for initial Recognition and
Subsequent Measurement of Biological Assets &
Agricultural Produce
iv. Ind AS 16 : Fair value is required for Revaluation of PPE
v. Ind AS 40 : Fair value is required for Disclosure of Properties.

Out of scope of Ind AS 113 :

i. Fair value of Options under share based Payments

These are valued as per Option Price model

ii. NRV of Inventories under Ind AS 2
iii. VIU of Assets/ CGU under Ind AS 36

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Concept 2 : Meaning of “Fair value”

Meaning of fair value : Fair value is the Price which would be received to
sell the Assets Or would be Paid to Settle the
Liability in an Orderly Transaction between the
market Participants at the measurement date
in Current Market conditions.

Components in Fair value

Assets/Liab Transaction Market Participants Price

Components A : Assets / Liabilities

As per the Provisions of Ind AS 113, Fair value measurement will be

made after Considering “Location”, “Condition” and “Restriction to
sell or use” of Assets &Liabilities. If any Restriction has been
imposed on Entity then It will not be Considered for fair value
measurement. It means that Restriction of use/ Sell on
Assets & Liab. are only considered, but on Entity are not considered.

Example:

Restriction on Entity Restriction on Assets

If A company cannot construct If a Land can be used only for

Commercial Buildings on Land as Residential Purpose then It is a
per “AOA” Then It will not be restriction on land And It will
considered while fair Value affect fair value of land Because
measurement of land because land is not available for use for All
Restriction is not on land Purpose.

Summary

Restriction on Entity = Does it affect F.V of A/c = No

Restriction on A/c = Does it affect f.v = yes
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Component B : Transaction

As per the Provisions of Ind AS 113, Transaction may be conducted

through “Principal Market” or “Most Advantageous Market”. We can
consider most Advantageous market only in the absence of Principal
market.

i. Principal Market : It is the readymade Platform for sale of

Assets in which Identical and comparable Assets are Traded at
High volumn. For Example, Securities can be Trade through NSE/
BSE. These are Principal markets
Note : If more than one Principal markets are observed then we will
consider the Principal Market where volumn of Transaction is
very high.
ii. Most Advantageous Market : This market is observed only if we
don’t have principal market for Trade of Assets. In this market,
we consider maximum sale Proceeds that can be recovered from
sale of Asset

Example : we want to sell “ an old car”

No Principal market does Exist for old cars

We will Go in Most Advantageous Market

Offer A : offer B : OLX offer C :

Buyer = 200,000 250000 Exchange value 80000
(Cars 24. Com)
Maximum value in most
Advantageous Market

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Component C : Market Participants

As per the Provisions of Ind AS 113, Market Participants are Parties

which eventually Transact Assets/ Liab. in current Market conditions.
These Parties are not under any Pressure/ Force for Transaction and
these parties have sufficient Knowledge

Component D : “Price”

Price

Principal market Most Advantageous Market

i. Transaction Cost : No Yes

ii. Transportation Cost : Yes Yes

Notes :
A. While computing Price/ fair value, we should consider some
Expenses which are Related with sale of Assets
B. In Principal Market, we will not include Transaction cost because
these Expenses Are incurred according to market standards but
not related with particular Asset.

Solution of Q.1

i. If A Market is principal Market

Selling Price 26
Transaction Cost NA
Transportation Cost (2)
FV 24

Note :
1. Transaction Cost is not relevant for Principal market
2. We will not refer market B because volumn of Transaction is high
in Market A

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ii. None market is principal Market

Here we will consider maximum sale Proceeds as follows :

A B
SP 26 25
- TC (3) (1)
- TC (2) (2)
Fv 21 22

*Rs.22 is higher than 21, so we will consider market B if there is no

Principal Market.

*Part 2*

Concept 3 : Valuation Techniques

Fair value measurements techniques

i. Market Approach
ii. Income Approach
iii. Cost Approach (Less Popular)

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Summarised Presentation

Market Approach Income Approach Cost Approach

We use “Market We use “Discounted We use “Replacement

value” For similar cash flows” which Cost which is
/ Identical A/c are Expected Expected to be
in Future paid if we replace
Ist Preference the Existing Assets
IInd Preference
(if market value cannot be IIIrd Preference
Determined) (If Market value
is not Available for
similar items as well
as cash inflow can
Also not be identified)

Concept 4 : “Inputs for fair value Measurements” *Imp

Inputs

Observable Inputs Unobservable Inputs

Level III Input

Level I Level II
Discounted Cash flows
“Market Approach”

Level I : If there is an active market for similar or Identical Assets/

Liabilities and We can use “Market Value” of similar A/c
without any adjustment then It is Level I Input.
(i.e., we use closing Prices as market value for valuation of
Securities)

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Level II : i) If there is an active market for similar or identical A/c

and we can use Market value of identical items as fair value,
but Subject to some adjustment Then It will be taken as
Level II Input.

OR

ii) If there is no any active market, but we can Estimate maximum

sale Proceeds or Minimum payments for Assets or Liabilities in most
Advantageous market subject to Some Adjustments.

Level III : It is an Unobservable Input in market due to which we may

need to Estimate assets own cash flows for fair value
measurement.

Concept 5 : Unit of F.V measurement

i. If independent valuation can be made then single Asset/Liab will

be considered As unit of measurement.
ii. If Group of A/c is required to be valued together then Group will
be Considered as unit of Valuation (i.e., GU)

Solution of Q.4 , Q.5, Q.3 (Discussed in class)

Solution of Q.2

In the Given case, we will use Level II Input because we may require
some Adjustments to Obtain max. sale Proceeds. The best use of this
land may be higher of below two Outputs :-

1. We should measure sale Proceeds from Industrial factory

2. We should measure sale proceeds from sale of Plain land for
Residential Purpose.
While computing sale proceeds from Plain Residential land, we will
consider cost of Demolish the Building.

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Solution of Q.1

In the Given case, we cannot use Investment 3 for computing

Interest Rate Because It has Expected cash flow at the end of year
2, but we have Expected cash Flow in year I. so, we will use Investment
2 for the said Purpose.

1. Calculation of Interest Rate in Invest.2

Cash flow at the end of Ist year 1200

Market value (Existing) (1083)
Interest 117

IR = 117 x 100 = 10.80%

1083

2. F.V of Investment I = 800 x .902 = 722

Solution of Q.2

1. As per the provisions of Ind AS 113, Restrictions on use or sale of

Assets are Considered while fair value measurements, but
Restriction on Entities are not Considered.

In the given Entity is not interested in development of commercial

project Which is best use of Given land but there is no restriction on
conversion of Land.
So, valuation of land should be made assuming it will be used for
commercial Projects.

2. a) If company is using discounted cash flow method then It is

Level III input (Unobservable).
b) if company can have an idea from quoted prices of similar companies
in active Market then It will be classified under Level II input.

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

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Chapter 6 - Analysis of Financial Statements

*Part 1*
Case Studies Based on Ind AS

Solution of Case Study 1

In the Given case, Treatment of Staff Loan & Interest on Staff

Loan is not as Per Ind AS 109. The given case can be considered at off
market Terms because market Rate is 10%, but company is charging 4%
only. So, company should have computed Fair value of Loan at market
rate & Difference between Loan Given and fair value Should have been
Recognised as Prepaid salaries which are to be amortised on SLM basis
over 5 years. Further, calculation of Interest should also have been
made at Market rate on Amortised Balance. The following calculation
may be considered :-

I. Statement showing calculation of fair value of staff Loan

Period Cash Inflow PVF@ 10% Present value

(P + I) (Market Rate)
1 240,000 .909 218,160
2 232,000 .826 191,632
3 224,000 .751 168,224
4 216,000 .683 147,528
5 208,000 .621 129,168
Fair value of Loan 854,712

Prepaid Salaries = 10,00,000 – 854,712 = 145,288

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II. Statement showing Amortisation Table

Period Opening Interest Collections Closing Balance

Balance @10%
1 854,712 85471 (240,000) 700,183
2 700,183 70018 (232,000) 538,201
3 538,201 53820 (224,000) 368,021
4 368,021 36802 (216,000) 188,823
5 188,823 19177 (208,000) Nil
(Bal fig)

Journal Entries (Ist year)

1. Staff Loan a/c Dr 854,712

Prepaid salaries a/c Dr 145,288
To Bank 10,00,000
(Being Initial Recognition made at market Rate)

Comments : on the basis of above Entry, It is clearly Indicated that

Recognition of Loan at 10 lacs is wrongly done by
Accountant of company.

2. Staff Loan a/c Dr 85471

To Interest 85741
(Being Int. made due at Market Rate)

Comments : On the basis of above Entry, It can be said that

Treatment of Interest Is also wrong in the Given
question.

3. Bank a/c Dr 240,000

To staff Loan 240,000
(Being Collection made)

4. Interest a/c Dr 85471

To P&L a/c 85471
(Being Income Recognised)
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5. P&L a/c Dr 29058 (145288/5)

To Prepaid salaries 29058
(Being Salaries Amortised)

Solution of Case study 2

In the Given case, Classification of Asset under Held for sale is

completely Wrong because there is no intention of the Entity to sell
the Specified Asset. It is Clearly mentioned that the company will use
this Asset in future as demand of Product Pick up. The following
calculations should have been made by company :-

Statement Showing carrying of Calculation Amount of Asset as on

31.3.x4

Original Cost 600,000

Depreciation for 3 years* (600000/10 x 3) (180,000)
Carrying Amount of Asset as on 31.3.x4 420,000
Recoverable Amount 350,000
Impairment Loss 70,000

 Additional Comments :

1. The company cannot stop charging Depreciation on Asset as it

cannot be Classified as held for sale.
2. The Specified Asset should be reported under Non Current Assets
(PPE) as per Ind AS 16. It can be treated as Abandonment of Asset
only.

Solution of Case study 3

As per the Provisions of Ind AS 10, Events after B/s date can be
adjusted in Financial statements only if these Events are in
Knowledge of Enterprise at B/s date. In the Given case, Decline in
value of Inventory has taken place due to fire Which can not
considered as Known Event. So, NRV of 7.6 Lacs is not considerable for
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Valuation of stock.
The Goods have been sold on 15.5 at Rs.9 Lacs which is also more than
cost of Inventory. It means that there is no Hint for decline in value
of Inventory in Subsequent Sale as well.
So, Valuation of stock should be made by the Entity at Rs.8 Lacs at
B/s date.

Solution of Case study 4 (Discussed in Class)

*Part 2*

Solution of Case study 5 *Imp

In the Given case, the following mistakes have been made by Venus
limited while Preparing financial statements :-
A. As per the Provisions of Ind AS 16, Revaluation model can be opted
only if It is Chosen for entire class of Assets. It means that
Revaluation cannot be made selectively for a Particular Asset, but
It should be done for similar Assets on global Basis. In the Given
case, Venus Limited has opted Revaluation model on one factory
Building, but cost model for other one which is wrong. It should
apply cost model or Revaluation model as per choice on Both Assets.

B. As per Ind AS 40, Revaluation model is not allowed on Investment

Properties. In the Given case, Venus limited has opted Revaluation
model for I.P which is Completely wrong. So, we should Apply cost
model on Such Asset.

C. The Venus Limited has disclosed all the Property as PPE which is
correct for PI & PII, but It is incorrect in relation to PIII. The
third Property is held for Rental Purpose which should be reported
as Investment Property in B/s.

D. The Entity should have calculated Depreciation for Current year.

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Calculation of Carrying Amount of Properties if cost model is Opted.

Property I Property II Property III

Original Cost 15,000 10,000 12,000
Depreciation (1500) (1000) (1200)
Carrying Amount 13,500 9000 10,800

B/S (Extracts)

Non Current Assets :-

Property, Plant, Equipment :
Property I 13500
Property II 9000 22500

Investment Property 10800

Statement Showing Carrying Amount of Assets if Revaluation model is

opted
Property I Property Property
II III
Original Cost 15,000 10,000 12,000
Depreciation (1500) (1000) (1200)
Carrying Amount 13500 9000 10800
Market Value 16000 11000 -
Revaluation Reserve 2500 2000 -

B/s (Extracts)

Non Current Assets :-

Property, Plant & Equipment :
PI 16000
PII 11000 27000
Investment Property - 10800

Other Equity:-
Revaluation Res. : PI 2500
PII 2000 4500
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Solution of Case Study 6, 7 (Discussed in Class)

Solution of Case Study Q.8 *Imp

As per the Provisions of Ind AS 115, the Entity should consider Time
value of Money while Recognition of Revenue from customer. It
cannot recognise Rs.10 Lacs as Revenue because Amount is collected
over a Period of 2 years due to which assumed Interest is required to
be recognised as Time value of Money. This concept is Completely
different from AS-9 because there is no Explanation in AS-9 on Time
value Of money.

Calculation of Present value of Future Cash flows

Period CF PVF @5.36% Present value

0 333,333 1 333,333
1 333,333 .949 316,333
2 333,333 .900 300,000
949,667

1. Cash a/c Dr 333,333

Debtors a/c Dr 616,334
To Sales 949,667
(Being Goods Sold)
2. Debtors a/c Dr 33035 (616,334 x 5.36%)
To Interest 33035
(Being Interest made due)
3. Cash a/c Dr 333,333
To Debtors 333,333
(Being Collection made)

4. Debtors a/c Dr 17298

To Int. 17298
5. Bank a/c Dr 333,334
To Debtors 333,334
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*Part 3*

Solution of Case Study 9 *[Link] (Already Discussed in RTP)

Solution of Case Study 10

i. 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.
In the Given Case, the Sports company is constructing a
stadium which can be Considered as a Q. Asset because It will get
ready in Next financial year which Indicates that It is taking
Substantial time to get ready.
The company is availing overdraft facility for the construction of
stadium in the Given case. It means that Interest on Overdraft can
be considered for Capitalisation Purpose to the cost of stadium. The
following statement may be Prepared to calculate the amount of
Borrowing Cost which can be capitalised under Ind AS 23 :-

Statement showing Calculation of B. Cost

Month Bal. in overdraft A/c Interest @15% P.a. for

Respective Month
December X1 150 Crores 1.875 Crores
January X2 500 Crores 6.25 Crores
(150 + 350)
Feb. X2 850 Crores 10.625 Crores
(500 + 350)
March X2 1200 Crores 15 Crores
(850 + 350)
Interest on Overdraft 33.75 Crores

a. Interest a/c Dr 33.75

To Overdraft a/c 33.75
(Being Interest debited)
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b. Capital WIP/Q.A a/c Dr 33.75

To Interest 33.75
(Being Interest Capitalised)

ii. In the Given case, the following observations can be Given :-

a. At the time of Acquisition of Registration of Player, the company
can consider it as an Intangible Asset under Ind AS 38 because
company acquiring Rights from the Player. These rights can be sold
subsequently which indicates that conditions of Identifiability
& Economic Benefits are satisfied. The company has incurred
many Expenses in addition to Registration Rights such as
Agents fees, Transfer fees etc. Which can be capitalised to the
cost of Intangible Asset as per Ind AS 38 because these Exp. are
directly related with Acquisition of Intangible Assets.

b. At the end of year, if company decides to sell any Registration

then It will be Considered as Non Current Asset Held for sale under
Ind AS 105. It will be carried in B/s at carrying Amount or Net fair
value whichever is Lower.

c. If Any Registration is sold during the season then It will be

treated as Disposal Of I. Asset and Profit or Loss on Disposal will
be transferred to P&L A/c as per Ind AS 38.

d. In the Given case, A Registration Costing 49 crores has been sold

for 175 crores Which indicates Profit of Rs.126 Crores, but the
transaction has taken place in next Year after B/s date due to which
it will be recorded next year. It cannot be taken as An adjusting
Event under Ind AS 10.

iii.
a. The company can consider Naming Rights Benefits at the time of
Revaluation of Stadium because there is an Economic Benefit in
Naming Rights which can be Generated from stadiums.
b. There is no relationship between the Sports company and Airlines
company. As per the Provisions of Ind AS 24, common directors in 2
Entities do not create Relationship between the Entities. So,
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there will be no restriction on the Entities If they Enter into the

Transactions.

Solution of case Study 11

a.
i. The Agreement between two companies shall be considered as a
Joint Arrangement in the nature of Joint Operation under Ind AS
111. It can be treated as a joint Venture because No Separate Vehicle
is formed to take the benefits from Storage facility. We are taking
it as Joint Arrangement because Activity is subject to Joint
Control. No Entity can take decisions on its own.

ii. The following Points are to be considered before the

understanding of Accounting of Irrecoverable Gas :-
a) The Entities should consider storage facility as a PPE under Ind
AS 16 and Respective share in Ownership will be disclosed in B/s by
each Entity.
b) As per the Laws, Decommissioning is mandatory due to which
company should Create Provision for De-Commissioning Cost as
follows :-
PPE a/c Dr xxxx
To Provision for D. Cost xxxx
c) The company should consider cost of Irrecoverable Gas as a part
of cost storage facility and It will be depreciated over the useful
life of storage facility. If Gas is estimated to be recovered at
the end of life of Asset then its salvage Value will be adjusted
while computing Depreciation on storage facility.

b. In the Given case, Ind AS 109 cannot be applied because Non

Financial obligation is Delivered in the form of delivery of Gas.
There is no financial Asset or financial Liab. In the Given case,
one company is making Payment in cash, but other company is
delivering Goods. Further, difference in Price will be considered as
Change in Estimation, but not as a derivative contract. The Given
Transaction shall be Accounted under Ind AS 115.

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*Part 4*

Message (About RTP & MTP)

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

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Chapter 7 - Conceptual Framework For “Financial Reporting”

Under IND AS (Revised)

*Part 1*

Unit I: Basic Introduction

The conceptual framework for financial reporting under IND AS is not

a standard and it does not override any standard or any requirement
Of any standard. Therefore, it should not be considered as a part of
Set of standards which are prepared by standard setters. It only
Helps various parties in various ways as follows : -

A. It helps ICAI in formulation of IND AS

B. It helps preparers of financials statements in selection of
“Consistent Accounting policies” in the areas where entities do
Not have any guidance under any IND AS or Entities have
Multiple accounting policies.
C. It helps All parties ( i.e. Student, Professional, Industry, etc.)
to understand IND AS and to interpretate the IND AS

Important Notes

(i) The Revised conceptual framework for financial reporting under

Ind AS is applicable w.e.f. 1.4.2020, but it was revised by IASB in
2018
(ii) If there will be any deviation in any rule of Ind AS from
Conceptual framework the ICAI will show it in Appendix of such
Ind AS

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Unit II: Objective & Limitation of Financial Reporting

(i) Objective of FR
The Main objective of financial Reporting is to provide
financial Information of the entity to its existing or potential
Investors, Lenders and creditors in decision making relating to
providing finance. The decision making can be in the following forms: -

i) Buying, Selling or holding the equity or debt instruments

ii) Providing or settling the other forms of credit
iii) Exercising the voting power on management action that affect
Resources and Claims.

In addition to above, the following flow chart can be observed to

understand the objective of FR: -

Providing Assessment of Estimation of Decision

the financial timing, Amount Returns Making
Information or uncertainty i.e, Dividend, Process
Regarding net Interest, Loan
Cash inflows Repayment etc.

Financial Reporting

Present

Financial Position Transaction & event that

Affect Financial position

Economic Claims
Resources (Liab.) Financial Cash *Not Resulting
(Assets) Performance Flows from financial
{Comprehensive performance
Income as per SOPL}
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*Financial position can be affected by other reasons like new issue of

Shares, debentures etc.

(ii) Limitations of FR

A. The financial reporting provides useful information to the

Investor, Lenders and Creditors, but such an information
cannot said as Complete information because these parties also
depend on Other factor for there decision-making process such
as Political Climate, Political events, Company outlook, Industry
performance etc
B. The financial report does not provide “Current market value”
Of entity, But it only helps in estimating such value.

Unit III: Qualitative Characteristics of Financial Reporting

The financial information should have two basic Qualitative

Characteristic as follows: -
A. Relevance
B. Faithful representation

A. Relevance
The financial information should be relevant for its users. The
Financial information is assumed to be relevant only if it has the
Following Values: -
(i) Predictive Value: If financial information can be used as an input
to the process employed by the users for their
Predictions about the entity.

(ii) Confirmatory Value: If financial information can be used as a

Feedback i.e., Comparison of actual result in
Current year with past predictions
*Both the values are interrelated and it is usually assumed that
financial information with predictive value has Confirmatory Value
as Well
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B. Faithful Representation
It is assumed that the financial reporting has been faithfully
Represented only if the following feature are there in it: -

I. Complete: The financial report should be complete with all

Description and explanation so that users can use it
Fully in decision making.
II. Neutral: The financial report should not be biased. It means
that selection or deselection in any part of report
Should not happen.
III. Free from errors: The financial report should be free from
Error so that investors, Lenders and
Creditors can take correct decision.

C. Extra Characteristic for enhancement of Quality of Statement

I. Comparable: If financial statement provide comparison of the

Entity with other entities in same industry and
With itself by comparison with past performance then
it is assumed that financial reporting is comparable.
II. Verifiable: If information can be verified by direct and indirect
method then it is assumed that information is verifiable

Eg. Direct= Physical count

Inventory (Verification)
Indirect= Technique i.e., FIFO
[Link]
III. Timeliness: If Information is presented before the investors
On time then it will be very useful for them in
Decision making because older information may be
Useless to investors.
IV. Understadable: The financial Information should be clear and
Consise so that users with the basic knowledge of
Business can understand the presented information

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*Part 2*

Unit IV: Financial statements & Reporting Entity

(i) Financial Statements

As per the revised conceptual framework for financial reporting,
Financial satatement provide financial information about an Entity
on its financial position and financial performance. The financial
statement shall include:-
I. Balance sheet= Recognising Assets & Liabilities
II. Profit & Loss Statement= Recognising Income & Expenses
III. Other statement= i) Cash Flow Statement
ii) Statement of changes in Equity (SOCE)
IV. Notes to A/cs= i) Explanation on recognised Assets, Liab.,
Equity, Income & Expenses in the financial
Statement
ii) Explanation on unrecognised items in
Financials Statement
iii) Estimations, Assumtion & Judgements
Which are used in preparation of financial
Statements

As per the framework, It is also said that the following 2 points

should be kept in mind while preparing financial statement: -

I. Fixed Reporting Period: The Financial Statement should be

prepared for fixed reporting period so that users can assess
changes in trend or results by comparing different reporting
period. ( In india, companies follow financials year as reporting
period which begins from 1st of April and ends on 31st march)

II. Going concern: The financial statement shall be prepared on

the basis of assumption of going concern. Under going concern,
It is assumed that the entity has neither the intension to
enter liquidation nor to cease the trading in foresable future.
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It can also be said that entity will continue its business in

foresable future. If such assumption fails, Financial statements
shall be prepared on a different basis.

(ii) Reporting Entity

As per the framework, reporting entity is the entity which is
Required to prepare or chooses to prepare the financial
Statement. It may be a single entity or group of entities. If
an entity is a single entity then its financials statements are
recognised as “Stand Alone Financial Statement” OR
“Unconsolidated Financial Statement”. If financial statements
are prepared by group of companies ( i.e., Holding & Subsidiary)
then financial statement shall be recognised as “consolidated
Financial Statements”

Important Note

If group statements are prepared, but without existing holding/

subsidiary relationship then these statement shall be Recognised as
“ Combined financial statemens”.
Associate, Joint venture, etc

Unit V: Elements of Financial statements

Elements

Economic Claims Incomes Expenses

Resource
Elements on the Basis of
Asssets* Liability* Equity Financial Performance

Elements on the basis of

Financial position

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A. Meaning of an Asset*Imp

As per the framework, An asset is an economic resource for an

Entity which has the following 3 Features: -
(i) Right
(ii) Potential of economic benefits
(iii) Control

“Explanation on Right”
A Right can be defined in two ways as follows: -

Right

Obligation of Another party Or Legal or contractual Right

I. Obligation of another Party:

a) Right to Receive cash

(i.e., Debtors, Investment in Debentures, Loans, Investment in
FD etc.)
b) Right to Receive Goods or Capital goods
(i.e., Advances given for goods or PPE etc)
c) Right to Exchange an Economic Resource under favourable
Conditions
(i.e., Option contracts, futures, forwards etc.)

II. Legal or Contractual Rights :-

 Legal Rights mean ownership of physical objects such as PPE,

Investments properties etc.
 Contractual rights means RoU under Leased contracts etc.

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Explanation on Potential to Generate Economic Benefits

For the Existence of potential, it does not need it to be certain or

Even likely. It means that Assets may have low probability of
Potential to generate Economic Benefits. It is only required that
An Economic Resource has potential to Generate Economic Benefits.

Explanation on Control

Control means Power to direct the use of economic resources and to

Obtain benefits from it. If an Entity can Prevent any other Entity
From taking Benefits from the economic resource then It will be
Assumed that such an Entity has control over the Economic
Resource. It is the Present ability to enforce rights over the
Economic Resources.

B. Meaning of “Liability”

As per the Conceptual framework, A liability should have the following

3 features:-
a) It should be a “Present Obligation”
b) It should have “potential to transfer Economic Resurce”
c) It should be a “Result from Past Events”

a) Explanation on “Present Obligation”

As per the framework, An obligation is a duty or a responsibility

Which cannot be avoided. An obligation is also considered as Owings to
Other parties and other party may be a person, company or group of
Companies etc. It means that identification of other parties does
not matter,but It is important that there should be same owings.

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b) Potential to Transfer “Economic Resource”

An obligation must have Potential to require trhe entity to

Transfer an Economic Resource. For Potential Exists, It does not
Need to be certain or Even likely. It means that an obligation can be
Considered as a “liability” Even if the Probability of transfer of
Economic Resource is very low.

Examples of Transfer of Economic Resource :-

i. Transfer of cash (i.e., Creditors, Loans, Debentures, PSC etc.)
ii. Transfer of Goods or services (i.e., Advances taken)
iii. Exchange of Economic Resource under unfavourable conditions
etc.

c) Result of Past Events

An obligation should be a result from Past Events. It is assumed

that an Obligation is a result from Past Events only if :-
i. The Entity has already taken advantage from past transactions
Or has taken actions in the Past and
ii. As a Consequence of which, the Entity may or will require to
transfer its Economic Resource.

C. Meaning of “Equity”

As per the framework, Equity means residual Interest on the

Assets after deducting all liabilities. The claim on Equity can be
Excercised by its holders (i.e., Equityholders.)

D. Meaning of Incomes & Expenses

i. Incomes: An Income means Increases in Assets or Decreases in

Liability as a result increase in Equity

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ii. Expenses: An Expense means Decreases in Assets or increases in

Liability as a result Decrease in Equity

As per the framework, users of financial statement may also

be interested in knowing financial performance of entity in addition
to financial position of entity. The financial performance can be
Measured by incomes and Expenses only.

Unit VI : Recognition & Derecognition of Elements of Financial

Statements

Part A: Recognition *Imp

As per the conceptual framework, Recognition is a Process of

Capturing an Item for inclusions in statement of P&L and Balance
Sheet which meets the definition of Elements in financial statements
The amount, at which Assets & Liab. are recognised in B/s, is
Called carrying Amount.

Link between Elements of Statements

Opening Financial SOCE Closing

Equity Performance Equity
Assets - + Incomes - + Contributions by holders and = Assets -
Liabilities Expenses Distributions to holders Liabilities

As per the framework, the following flowchart can be understood for

Recognition Rules :-

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Recognition Rules

Rule 1 : Relevance Rule 2 : Faithful

Representation
Condition I : Existence Condition II : Existence
Of of Low Measurement
Uncertainity Probability Rules

Exist value Method Entry value method

Condition I : Existence of Uncertainity

If it is not certain that Entity has right over an Economic

Resource or It is not ceratin that Entity has a Present obligation
Then recognition cannot be made for these uncertain Items.

Condition II : Existence of Low Probability of Cashflow

If Probability of cash inflow for Assets and outflow for liabilities

Is very low then these Items cannot be recognised in Balancesheet of
Entity. The Correct location to disclose such items is “Notes to A/cs”.

Condition III : Measurement

We can recognise only those Items in B/s which can be measured

Reliably. We all know very well that financial statements are prepared
On the basis of some Estimations. The Estimations can be considered
Good only if Items can be measured. The following situations can be
Considered in which we can say that measurement principles are not
Workings:-

I. If items have exceptionally wide range of outcomes from the

Point of cash flows and Estimation of such wide Range is very
difficult.
II. If items are Exceptionally sensitive to changes in Prices.
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III. If it is Exceptionally difficult to allocate cash flows to outcomes

Of items

Part B : De-Recognition

As per the framework, De-recognition means removal of Assets

& Liabilities from financial statements. We can de-recognise Assets &
Liabilities if :-
i. Entity has lost its control over the Asset in full or in Part or
ii. Entity has transferred Economic Resource for its obligation in
Full or in part

Note: Incase of Part De-recognition, retained Asset or Liab. will be

Disclosed in Notes to A/cs Separately.

*Part 3*

Unit VII: Measurement

As per the framework, when we give a monetary value to a

Recognised Asset or Liability then It can be called as measurement of
Assets & liabilities. There are many types of measurement Basis for
Recognised Assets & Liabilities as follows :-

Measurement Methods

Historical Cost Method Current Value Method

Fair Value Value in use/fulfillment Current

value

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Method I : Historical Cost method

Assets Liabilities

Initial Recognition : Initial Recognition :

“Consideration + Transaction “ “Consideration + Transaction “
Paid Cost Received Cost

Changes: Changes:
i. Depreciation/ Amortisation i. Interest Accruals
ii. Impairment ii. Payments in Full/Part
iii. Interest Accural iii. Onerous Liabilities
iv. Full/Part collections

Method II : Fair Value Method

i. Under this method, It is estimated what will be realised if we sell

An asset or paid off if we settle a liability.
ii. An active market should be observed for realisable or payable
Values
iii. It is based on market participants perspective
iv. Transaction cost is not considered under this method whether it
is related with Acquisition or Disposal of Asset

Method III : VIU/ Fulfillment method

i. Value in Use: It is the present value of all future cash inflows

Which are expected to be generated by an Asset.
ii. Fulfillment Value: It is the Present value of all future cash
Outflows which are expected to be made related to a Liability.
iii. The value in use and fulfillment value are computed from entity
Perspective
iv. The transaction cost is not considered which is related with
Acquisition, but Transaction cost related with disposal is
Considered while Estimating Cash flows.
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Method IV: Current Cost Method

Under current cost method, measurement of Assets & liabilities is done

as follows:-

Assets :- What would be paid if similar Assets are acquired

(Estimation consideration required to be paid + Estimated
Transaction cost)

Liabilities :- What would be Received if similar Liab. are taken

(Estimation consideration to be received + Estimated
Transaction cost)

Factors to be considered While choosing measurement basis

Factors

Relevance Faithful Representation

Characteristics Contribution Certainity Consistency

Of Assets/Liab to cashflows

A. Characteristics Of Assets/Liabilities

As per the conceptual framework, Assets & Liabilities should be

Measured according to their characteristics. The following two
Characteristics should be identified before deciding the measurement
Rules:-
i. Variability of Returns Yes = Current value
ii. Sensetivity of A/L to market factors will be best

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Example:
The characteristics of a Derivative Instrument is completely
Different from an instrument which will be held till its maturity. So,
Ind AS 109 Guides Application of fair value model for Derivatives but
Amortised Cost (Historical) Model for the other one. The variability of
Returns and sensitivity to market factors of a derivative is different

B. Contribution to Cashflows

As per the conceptual framework, the entity should consider the

Contribution of items to cash flows. If Items are generating cash
Flows in a group then current value for individual Items may be
Difficult to decide the separate valuation. If items can generate cash
Flow without any dependence on other Items then we can find out
Individual current value for such Items.

Example : The Entity uses PPE & intangibles in a group to produce

Inventory. It indicates that all these Assets are dependent
On each other for Generating Cash flows. So, current value
Model may not be suitable for these Assets, but we should go
For Historical Cost model only.

C. Consistency * Imp

As per the framework, financial statement shall be assumed

Faithfully Represented only if measurement Rules are applied from one
Financial statement to other financial statement on consistent basis.
If measurement Rules are followed on consistent basis only then
Comparison can be made between 2 financials Periods. “If Assets and
Laibilities are related to each other then same measurement rule shall
Be applied for both.”

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D. Certainity

As per the framework, it should be certain that current value can be

observed by the entity from an active market. If Active market does
not exist for an Item, but It is measured on current value model then
Its value will not be assumed “certain” for faithful representation
Such an Item should be Presented on Historical Cost Basis.
Such value is not certain,
But highly Estimated

Guidance under framework for initial Recognition

Initial Recognition Rules

For Assets & Liab.

If Transaction is carried at If Transaction is carried at

market Terms off market terms

Initial Recognition will Initial recognition will be made

be made at at “ Fair Value”
“Transaction Price” (Diff between Transaction price
and Fair value will be Written
Transaction Price represents off in SOPL
Current value because there is
no concession in consideration “Price is Negotiated when
Transactions are undertaken
Between Related Parties”
Holding & Subsidairy
Transactions

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Unit VIII: Presentation & Disclosures

An entity communicates the information about Assets, Liabilities,

Incomes, Expenses and Equity by Presenting & Disclosing the
Financial statements. The Presentation & Disclosure should be based on
Following 4 Principles:-

i) The Entity should avoid Duplicate information in different parts

Of financial statements whenever such duplication is not
Necessary.
ii) The Presentation & Disclosure should be entity specific rather
Than standardised descriptions
iii) The Entity should provide Relevant information having faithful
Representation.
iv) The Entity should Provide comparable information

Classification of information in Presentation

A. Assets & Liab.

The presentation of Assets & Liab is required separately if the

Items are dissimilar from the point of view of their characteristics.
We can also say that aggregation can be made in presentation only
For similar items.

Important Point
If An Asset has different components and components are
Dissimilar then all the components shall be considered separate assets
And shall be reported separately.

B. Incomes & Expenses

As per the rules, the entity should report Incomes and Expense
Separately which are different from their characteristics. The similar
Items can be Aggregated.
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C. Equity

The conceptual framework requires separate presentation of

Equity if holders have different Rights for claims an Equity.

D. Total comprehensive Income

TCI
As we discussed in schedule III (Division II)

Upper part of SOPL Lower part of SOPL

Normal P&L OCI

Recyclable Non Recyclable

Unit IX : Concept of Capital maintenance *Imp

Capital Maintenance

Financial Capital Physical Capital

Concept Concept

Historical Capital Current Purchasing

Concept Power concept

Historical Capital = Closing Capital – Opening Capital

Maintenance (without any Indexation or
Current cost Adjust.)

Comments:- If difference between two capitals is zero or positive

Then It will be assumed that Entity is maintaining its
Capital
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Current purchasing = Closing Capital – Opening Capital x Closing Index

Power Concept Opening Index

Comments :- If difference between two capitals is negative then

Suggestion on reduction in drawings may be given to entity
Because entity is not maintaining its capital as per
Inflation rate.

Physical Capital :- Closing Capital – Opening Capital at current cost

concept

Comments:- If difference between 2 Capitals is negative then Entity

is not maintaining physical capital. So suggestions can be
Given on reducing the distributions and increasing savings
to meet the requirements of capital maintenance.

Solution of Q.11

Statement showing Capital Maintenance

A. Calculation of closing capital (Normal)

Opening capital 12000

Profits [(6000 units x 3) – (6000 units x 2)] 6000
Drawings (6000)
(Normal) Closing Capital 12000

B. Capital maintenance :-

Historical = Closing capital - Openig capital

= 12000 – 12000
= 0

Comments: The difference between two capitals is not negative which

Indicates that entity is maintaining capital.

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Solution of Q.12

CPP Capital = Closing capital – Opening Capital x Closing index

Opening Index
= 12000 - 12000 x 120
100
= 12000 – 14400
= (2400)

Comments:- The difference is negative which indicates that entity is

Not maintaining its capital. So, Drawings should have been
Upto 3600 only

Solution of Q.13

Physical = Closing capital – Opening capital at current cost

= 12000 – (6000 units x 2.5)
= (3000)

Comments:- The Entity is not maintaining its capital because diff in

Negative. So drawings should have been upto 3000 only.

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*Part 4*

Lecture -4 is for Knowledge Purpose only, following concept has been

removed from CA-Final and Shifted to CA-Inter.

Example

Statement of P&L

Case I Case II
(Going Concern) (Not Going Concern)

Revenues
Revenues from Operation 450,000 450,000
Total (A) 450,000 450,000

Expenses
Purchases 400,000 400,000
Changes in Inventories (2000) (10000)
(32000 – 30000) (40000 – 30000)
Employees Benefit Exp. 14900 14900
Finance charges 3500 6000
Depreciation & Amort. 15500 15500
65000 + 10000 (65000 – 60000 + 10000)
5 4
Other Expenses : PFDD 2000 6000
Total B 433900 431900
(a-b) NP 16100 18100

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Balance sheets

Case I Case II

Non Current Assets:

PPE 52000 60000

Current Assets:
Inventories 32000 40000
Financial Assets :
Trade Receivables 23000 19000
(Net off PFDD)
Other Assets 7500 -
C&CE 33600 33600
148100 152600
Equity : Share capital 60000 60000
Other Equity 41100 43100
NCI : 10% Loan 35000 37500
CL : T. Payables 12000 12000
148100 152600

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

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