INDIAN ACCOUNTING STANDARD 34 2.

73

UNIT OVERVIEW

Contents of an Interim Financial Report

Minimum
Components
of Interim
Recognition and Measurement
Financial
Report

Significant
Events and Same
Transactions Accounting
Policies as Restatement of Previously
Annual
Reported Interim Periods
Revenues
Received
Seasonally,
Other Cyclically, or
Disclosures Occasionally
Costs incurred
Unevenly during Interim Financial
Disclosure in Annual
the Financial Reporting and
Year Financial Statements
Impairment

Materiality Use of Estimates

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 2. 88 FINANCIAL REPORTING

Solution
Amount of income tax expense reported in each quarter would be as below:

Expected total Income = ` 15,000 [60,000 - (15,000 x 3)]

Expected tax as per slabs = 15,000 x 20% = ` 3,000
Average Annual Income tax rate = 3,000 / 15,000 = 20%
Q1 Q2 Q3 Q4
Profit / (Loss) before tax 60,000 (15,000) (15,000) (15,000)
Tax charge / (credit) 12,000 (3,000) (3,000) (3,000)
*****
Illustration 2
ABC Ltd. presents interim financial report quarterly. On 1.4.20X1, ABC Ltd. has carried forward
loss of ` 600 lakhs for income-tax purpose for which deferred tax asset has not been recognized.
ABC Ltd. earns ` 900 lakhs in each quarter ending on 30.6.20X1, 30.9.20X1, 31.12.20X1 and
31.3.20X2 excluding the carried forward loss. Income-tax rate is expected to be 40%. Calculate
the amount of tax expense to be reported in each quarter.
Solution
Amount of income tax expense reported in each quarter would be as below:

The estimated payment of the annual tax on earnings for the current year:
` 3,000* x 40 / 100 = ` 1,200 lakhs.
*(3,600 lakhs - ` 600 lakhs) = ` 3,000 lakhs
Average annual effective tax rate = (1,200 / 3,600) × 100 = 33.33%
Tax expense to be shown in each quarter = 900 x 33.33% = ` 300 lakhs
*****
Illustration 3
Innovative Corporation Private Limited (or “ICPL”) is dealing in seasonal product and the sales
pattern of the product, quarter wise is as under during the financial year 20X1-20X2:

Qtr. I Qtr. II Qtr. III Qtr. IV

ending 30 June ending 30 September ending 31 December ending 31 March

10% 10% 60% 20%

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 INDIAN ACCOUNTING STANDARD 34 2.89

For the first quarter ending on 30 June, 20X1, ICPL has provided the following information :

Particulars Amounts (in crore)

Sales 70
Employees benefits expenses 25
Administrative and other expenses 12
Finance cost 4

ICPL while preparing interim financial report for first quarter wants to defer ` 16 crores expenditure
to third quarter on the argument that third quarter is having more sales therefore third quarter
should be debited by more expenditure. Considering the seasonal nature of business and that the
expenditures are uniform throughout all quarte `
Calculate the result of first quarter as per Ind AS 34 and comment on the company’s view.

Solution
Result of the first quarter ending 30 June
Particulars Amounts (in crore)
Sales 70
Total Revenue (A) 70
Less: Employees benefits expenses (25)
Administrative and other expenses (12)
Finance cost (4)
Total Expense (B) (41)
Profit (A-B) 29

Note- As per Ind AS 34, the income and expense should be recognized when they are earned and
incurred respectively. Seasonal incomes will be recognized when they occur. Therefore, the
argument of ICPL is not correct considering the priciples of Ind AS 34.
*****
Illustration 4
Fixed production overheads for the financial year is ` 10,000. Normal expected production for the year,
after considering planned maintenance and normal breakdown, also considering the future demand of
the product is 2,000 MT. It is considered that there are no quarterly / seasonal variations. Therefore,
the normal expected production for each quarter is 500 MT and the fixed production overheads for the
quarter are ` 2,500.

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 2. 90 FINANCIAL REPORTING

Actual production achieved Quantity (In MT)

First quarter 400
Second quarter 600
Third quarter 500
Fourth quarter 400
Total 1,900

Presuming that there are no quarterly / seasonal variation, calculate the allocation of fixed
production overheads for all the four quarters as per Ind AS 34 read with Ind AS 2.
Solution
If it is considered that there is no quarterly / seasonal variation, therefore normal expected
production for each quarter is 500 MT and fixed production overheads for the quarter are
` 2,500 .
Fixed production overhead to be allocated per unit of production in every quarter will be ` 5 per
MT (Fixed overheads / Normal production).
Quarters Allocations
First Quarter  Actual fixed production overheads = ` 2,500
 Fixed production overheads based on the allocation rate of ` 5 per
unit allocated to actual production = ` 5 x 400 = ` 2,000
 Unallocated fixed production overheads to be charged as expense as
per Ind AS 2 and consequently as per Ind AS 34 = ` 500
Second Quarter  Actual fixed production overheads on year-to-date basis = ` 5,000
 Fixed production overheads to be absorbed on year-to-date basis =
1,000 x ` 5 = ` 5,000
 Earlier, ` 500 was not allocated to production in the 1 st quarter. To
give effect to the entire ` 5,000 to be allocated in the second quarter,
as per Ind AS 34, ` 500 are reversed by way of a credit to the
statement of profit and loss of the 2 nd quarter.
Third Quarter  Actual production overheads on year-to-date basis = ` 7,500
 Fixed production overheads to be allocated on year-to-date basis =
1,500 x 5 = ` 7,500
 There is no under or over recovery of allocated overheads. Hence,
no further action is reuired.
Fourth Quarter  Actual fixed production overheads on year-to-date basis
= ` 10,000

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 INDIAN ACCOUNTING STANDARD 34 2.91

 Fixed production overheads to be allocated on year-to-date basis

1,900 x 5 = ` 9,500
 ` 500, i.e., [` 2,500 – (` 5 x 400)] unallocated fixed production
overheads in the 4th quarter, are to be expensed off as per the
principles of Ind AS 2 and Ind AS 34 by way of a charge to the
statement of profit and loss.
 Unallocated productions overheads for the year ` 500
(i.e ` 10,000 – ` 9,500) are expensed in the Statement of profit and
loss as per Ind AS 2.

The cumulative result of all the quarters would also result in unallocated overheads of ` 500, thus,
meeting the requirements of Ind AS 34 that the quarterly results should not affect the
measurement of the annual results.
*****

2.8 RESTATEMENT OF PREVIOUSLY REPORTED INTERIM

PERIODS
A change in accounting policy, other than one for which the transition is specified by a new
Ind AS, shall be reflected by:
(a) restating the financial statements of prior interim periods of the current financial year and
the comparable interim periods of any prior financial years that will be restated in the
annual financial statements in accordancewith Ind AS 8; or
(b) when it is impracticable to determine the cumulative effect at the beginning of the financial
year of applying a new accounting policy to all prior periods, adjusting the financial
statements of prior interim periods of the current financial year, and comparable interim
periods of prior financial years to apply the new accounting policy prospectively from the
earliest date practicable.
Under Ind AS 8, a change in accounting policy is reflected by retrospective application, with
restatement of prior period financial data as far back as is practicable. However, if the
cumulative amount of the adjustment relating to prior financial years is impracticable to
determine, then under Ind AS 8 the new policy is applied prospectively from the earliest date
practicable.
The effect of this alongwith respect to interim periods shall be that within the current financial
year any change in accounting policy is applied either retrospectively or, if that is not
practicable, prospectively, from no later than the beginning of the financial year.

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