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Mock Test Paper - Series I: September, 2024
Date of Paper: 9 th September, 2024
Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP – I
PAPER – 1: FINANCIAL REPORTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario 1
A Ltd. is a diversified business group operating in multiple business segments
across different parts of the world. It maintains its books of accounts and
publishes its annual financial statements under Indian Accounting Standards.
The finance team has been working on closing the books of accounts and
generating financial statements for the year ended 31 st March 20X2 and are facing
issues in the following transactions while finalization of financial statements:
(i) A Ltd. owns 250 ordinary shares in X Ltd., an unquoted company. X Ltd.
has a total share capital of 5,000 shares with nominal value of ` 10. X Ltd.’s
after-tax maintainable profits are estimated at ` 70,000 per year. An
appropriate price/earnings ratio determined from published industry data is
15 (before lack of marketability adjustment). A Ltd.’s management estimates
that the discount for the lack of marketability of X Ltd.’s shares and
restrictions on their transfer is 20%. A Ltd. values its holding in X Ltd.’s
shares based on earnings.
(ii) A Ltd. has a telecom segment. It entered into an agreement with B Ltd.
which is engaged in generation and supply of power. The agreement
provided that A Ltd. will provide 1,00,000 minutes of talk time to employees
of B Ltd. in exchange for getting power equivalent to 20,000 units. A Ltd .
normally charges ` 0.50 per minute and B Ltd. charges ` 2.5 per unit.
(iii) A Ltd. began construction of a new building at an estimated cost of ` 7 lakh
on 1st April, 20X1. To finance construction of the building it obtained a
specific loan of ` 2 lakh from a financial institution at an interest rate of 9%
per annum.
The company’s other outstanding loans were:
Amount Rate of Interest per annum
` 7,00,000 12%
` 9,00,000 11%

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The expenditure incurred on the construction was:
April, 20X1 ` 1,50,000
August, 20X1 ` 2,00,000
October, 20X1 ` 3,50,000
January, 20X2 ` 1,00,000

The construction of building was completed by 31 st January, 20X2.

The construction of building started on 1 st April, 20X1 and all the
expenditures on construction of building had been incurred at the beginning
of the respective month.
Analyze the transactions mentioned above and choose the most appropriate
option in the below questions 1 to 6 in line with relevant Ind AS:
1. What is the value of a share of X Ltd.?
(a) ` 8,40,000
(b) ` 10,50,000
(c) ` 8,00,000
(d) ` 10,00,000
2. What is the fair value of A Ltd.’s investment in X Ltd.’s shares?
(a) ` 50,000
(b) ` 42,000
(c) ` 10,50,000
(d) ` 10,00,000
3. By what amount the revenue be measured and recognised by A Ltd. in case
of telecom segment?
(a) ` 10,000
(b) ` 2,50,000
(c) ` 2,00,000
(d) ` 50,000
4. What will be the capitalization rate for computation of borrowing cost on the
building based on general borrowings?
(a) 9%
(b) 11%
(c) 11.4375%
(d) 12%
5. What will be the total amount of borrowing cost on specific borrowing?
(a) ` 11,250
(b) ` 13,500

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(c) ` 15,000
(d) ` 37,875
6. What will be the total amount of borrowing cost on general borrowing?
(a) ` 22,875
(b) ` 15,000
(c) ` 37,875
(d) ` 13,500 (6 MCQs x 2 Marks each = 12 Marks)
Case Scenario 2
D Ltd. is a globally diversified business conglomerate with operations spanning
across various business sectors worldwide. The company adheres to Indian
Accounting Standards for maintaining its financial records and annually releases
its financial statements. As the finance team progresses towards finalizing the
financial statements for the fiscal year ending on 31 st March 20X2, the team is
stuck up in the accounting of the following transactions:
(i) D Ltd., for its dairy business, purchased cattle at an auction on 30 th June
20X1

Purchase price at 30 th June 20X1 ` 1,00,000

Costs of transporting the cattle back to the entity’s farm ` 1,000

Sales price of the cattle at 31 st March, 20X2 ` 1,10,000

The company would have to incur similar transportation costs if it were to

sell the cattle at auction, in addition to an auctioneer’s fee of 2% of sales
price. The auctioneer charges 2% of the selling price, from both, the buyer
as well as the seller.
Calculate the amount at which cattle is to be recognised in books on initial
recognition and at year end 31 st March, 20X2. Show corresponding journal
entries.
(ii) D Ltd. has certain financial instruments:
• Irredeemable preference shares with face value of ` 10 each and
premium of ` 90. These shares carry dividend @ 8% per annum,
however dividend is paid only when D Ltd declares dividend on equity
shares.
• Borrowings from Z Ltd. for ` 10,00,000 with settlement against issue of a
certain number of equity shares of D Ltd. whose value equals
` 10,00,000. Fair value per share (to determine total number of equity
shares to be issued) be determined based on the market price of the
shares of D Ltd. at a future date, upon settlement of the contract.

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Analyze the transactions mentioned above and choose the most appropriate
option in the below questions 7 to 10 in line with relevant Ind AS:
7. What will be the gain/(loss) on initial recognition of biological asset i.e. cattle
at the time of purchase on 30 th June 20X1?
(a) Gain on initial recognition of biological asset ` 9,800
(b) Loss on initial recognition of biological asset ` 9,800
(c) Gain on initial recognition of biological asset ` 6,000
(d) Loss on initial recognition of biological asset ` 6,000
8. What will be the gain/(loss) on remeasurement of biological asset i.e. cattle
at the time of sale on 31 st March 20X2?
(a) Gain on remeasurement of biological asset ` 9,800
(b) Loss on remeasurement of biological asset ` 9,800
(c) Gain on remeasurement of biological asset ` 6,000
(d) Loss on remeasurement of biological asset ` 6,000
9. Irredeemable preference shares would be accounted for in the books of
D Ltd. as
(a) Financial Asset
(b) Financial Liability
(c) Equity
(d) Will not be accounted for in the books
10. Borrowings from Z Ltd. for ` 10,00,000 with settlement against issue of a
certain number of equity shares of D Ltd. would be accounted for in the
books of D Ltd. as
(a) Financial Asset
(b) Financial Liability
(c) Equity
(d) Will not be accounted for in the books
(4 MCQs x 2 Marks each = 8 Marks)
Case Scenario 3
H Ltd. is a globally diversified business conglomerate with operations spanning
multiple business segments across various regions worldwide. For maintaining
its financial records, the company follows Indian Accounting Standards. As the
finance team diligently finalizes the books of accounts and prepares the financial
statements for the financial year ending on 31st March 20X2, it requires insights
and accounting suggestions on the following transactions:
(i) H Ltd. holds 12% of the voting shares in Z Ltd. Z Ltd.'s board comprises of
eight members and two of these members are appointed by H Ltd. casting
significant influence. Each board member has one vote at the meeting.

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(ii) H Ltd. holds 10% of the voting power of G Ltd. The balance 90% voting
power is held by nine other investors each holding 10%.
The decisions about the relevant activities (except decision about taking
borrowings) of G Ltd. are taken by the members holding majority of the voting
power. The decisions about taking borrowings are required to be taken by
unanimous consent of all the investors. Further, decisions about taking
borrowing are not the decisions that most significantly affect the returns of
G Ltd.
(iii) H Ltd. is also engaged in the business of pharmaceuticals. It has invested
in the share capital of Y Ltd. and is holding 15% of Y Ltd.’s total voting power.
Y Ltd. is engaged in the business of producing packing materials for
pharmaceutical entities. One of the incentives for H Ltd. to invest in Y Ltd.
was the fact that Y Ltd. is engaged in the business of producing packing
materials which is also useful for H Ltd. Since last many years, almost 90%
of the output of Y Ltd. is procured by H Ltd.
Analyze the transactions mentioned above and choose the most appropriate
option in the below questions 11 to 13 in line with relevant Ind AS:
11. What is the relationship of Z Ltd. with H Ltd.?
(a) Z Ltd. is a subsidiary of H Ltd.
(b) Z Ltd. is an associate of H Ltd.
(c) Z Ltd. is in joint arrangement with H Ltd.
(d) H Ltd. has invested in Z Ltd. with no further relationship as subsidiary,
associate or joint arrangement.
12. What is the relationship of G Ltd. with H Ltd.?
(a) G Ltd. is a subsidiary of H Ltd.
(b) G Ltd. is an associate of H Ltd.
(c) G Ltd. is in joint arrangement with H Ltd.
(d) H Ltd. has invested in G Ltd. with no further relationship as subsidiary,
associate or joint arrangement.
13. What is the relationship of Y Ltd. with H Ltd.?
(a) Y Ltd. is a subsidiary of H Ltd.
(b) Y Ltd. is an associate of H Ltd.
(c) Y Ltd. is in joint arrangement with H Ltd.
(d) H Ltd. has invested in Y Ltd. with no further relationship as subsidiary,
associate or joint arrangement.
(3 MCQs x 2 Marks each = 6 Marks)

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14. With respect to the best practices applicable to all companies, which of the
following statements is incorrect?
(a) Comply with the standards and regulations but also ensure that financial
statements are an effective part of wider communication with
stakeholders.
(b) Disclose complete information in the financial to avoid any further cross
questioning in the mind of the users.
(c) Reduce generic disclosures and focus on company specific disclosures
that explain how the company applies the policies.
(d) Do not disclose assumptions and bases, so that users are not misled.
(2 Marks)
15. Which of the following proactive measures do not mitigate cybersecurity
risks?
(a) Ensure that all passwords are simple and are not changed regularly.
(b) Include procedures for detecting, containing, and mitigating the impact
of a cyberattack
(c) Ensure that firewalls and other security measures are in place to
prevent unauthorized access to the network.
(d) Ensure that data backups are performed regularly and that backups are
stored securely (2 Marks)

PART – II DESCRIPTIVE QUESTIONS

Question No.1 is compulsory. Candidates are required to answer any
four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by
way of a note.
Working notes should form part of the answers.
Maximum Marks – 70 Marks
1. On 31st December, 20X1, Entity A issues 2.5 shares in exchange for each
ordinary share of Entity B. All of Entity B’s shareholders exchange their
shares in Entity B. Therefore, Entity A issues 150 ordinary shares in
exchange for all 60 ordinary shares of Entity B.
The fair value of each ordinary share of Entity B at 31 st December, 20X1 is
` 40. The quoted market price of Entity A’s ordinary shares at that date is
` 16.
The fair values of Entity A’s identifiable assets and liabilities at
31st December, 20X1 are the same as their carrying amounts, except that
the fair value of Entity A’s non- current assets at 31 st December, 20X1 is
` 1,500.

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The balance sheets of Entity A and Entity B immediately before the business
combination are:
Entity A Entity B
(legal (legal
parent, subsidiary,
accounting accounting
acquiree) acquirer)
Current assets 500 700
Non-current assets 1,300 3,000
Total assets 1,800 3,700
Current liabilities 300 600
Non-current liabilities 400 1,100
Total liabilities 700 1,700
Shareholders’ equity
Retained earnings 800 1,400
Issued equity
100 ordinary shares 300
60 ordinary shares 600
Total shareholders’ equity 1,100 2,000
Total liabilities and shareholders’ equity 1,800 3,700
Assume that Entity B’s earnings for the annual period ended
31st March, 20X1 were ` 600 and that the consolidated earnings for the
annual period ended 31 st March, 20X2 were ` 800. Assume also that there
was no change in the number of ordinary shares issued by Entity B during
the annual period ended 31 st March, 20X1 and during the period from 1 st
January, 20X1 to the date of the reverse acquisition on 31 st December, 20X1.
Calculate the fair value of the consideration transferred measure goodwill
and prepare consolidated balance sheet as on 31 st December, 20X1.
(14 Marks)
2. (a) XYZ Ltd. is a company incorporated in India. It provides
` 10,00,000 interest free loan to its wholly owned Indian subsidiary,
ABC Ltd. There are no transaction costs.
State how the loan be accounted for, in the separate financial
statements of XYZ Ltd., individual financial statements of ABC Ltd.
and consolidated financial statements of the group when the loan is
repayable after 3 years. The current market rate of interest for similar
loan is 10% p.a. for both holding and subsidiary. (10 Marks)

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(b) Either
One of the directors of Buildwell Ltd., Mr. Ben Jones has informed
Central Finance team that on 1 st January 20X3, his spouse acquired a
controlling interest in one of Buildwell Ltd.’s major suppliers,
Candour Ltd. Mr. Jones seemed to think that this would have
implications on the financial statements of Buildwell Ltd. Buildwell Ltd.
has been purchasing goods from Candour Ltd. ` 1·5 million per month
of the year ended 31 st March 20X3. As per the financial statements of
Buildwell Ltd., this is a significant amount. While checking all the
purchase transactions it was found that all the purchases from
Candour Ltd. were made at normal market rates.
How the effect of acquisition of controlling interest in Candour Ltd. by
Mr. Ben Jones is to be reflected in the financial statements for the year
ending 31 st March 20X3? (4 Marks)
Or
An entity uses the weighted average cost formula to assign costs to
inventories and cost of goods sold for financial reporting purposes, but
the reports provided to the chief operating decision maker use the First-
In, First-Out (FIFO) method for evaluating the performance of segment
operations.
State the cost formula to be used for Ind AS 108 disclosure purposes.
(4 Marks)
3. (a) One of the subsidiaries of B Ltd. submitted to Central Finance its
Summarized Statement of Profit and Loss and Balance Sheet.
Summarized Statement of Profit and Loss for the year ended
31 st March 20X3
Particulars Amount (`)
Net sales 2,52,00,000
Less: Cash cost of sales (1,92,00,000)
Depreciation (6,00,000)
Salaries & wages (24,00,000)
Operating expenses (14,00,000)
Provision for taxation (8,80,000)
Net Operating Profit 7,20,000
Non-recurring income – profit on sale of
equipment 1,20,000
8,40,000
Retained earnings and profit brought forward 15,18,000
23,58,000

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Dividends declared and paid during the year (7,20,000)
Profit & loss balance as on 31 st March 20X3 16,38,000
Summarized Balance Sheet
Assets 31 March 20X2 31 March 20X3
Non-current Assets
Property, Plant and Equipment:
Land 4,80,000 9,60,000
Buildings and Equipment 36,00,000 57,60,000
Current Assets
Cash 6,00,000 7,20,000
Inventories 16,80,000 18,60,000
Trade Receivables 26,40,000 9,60,000
Advances 78,000 90,000
Total Assets 90,78,000 1,03,50,000
Liabilities & Equity
Share capital 36,00,000 44,40,000
Surplus in profit & loss 15,18,000 16,38,000
Current liability
Trade Payables 24,00,000 23,40,000
Outstanding expenses 2,40,000 4,80,000
Income tax payable 1,20,000 1,32,000
Accumulated depreciation on
buildings and equipment 12,00,000 13,20,000
Total 90,78,000 1,03,50,000

The original cost of equipment sold during the year 20X2-20X3 was
` 7,20,000.
Work out a Statement of cash flows (as per indirect method) for the
year ended 31 st March 20X3. (8 Marks)
(b) SA Pvt Ltd is engaged in the business of retail having 100 retail outlets
across Northern and Southern India. The company’s head office is
located at Chennai.
SA Pvt Ltd is a subsidiary of SAG Ltd. SAG Ltd is listed on the National
Stock Exchange in India.
Following information is available for SA Pvt Ltd:
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Plan Assets
At 1st April, 20X1, the fair value of plan assets was ` 10,000.
Contribution to the plan assets done on 31 st March, 20X2 – ` 3,000
Amount paid on 31 st March, 20X2 – ` 300
At 31st March, 20X2, the fair value of plan assets was ` 14,700
Actual return on plan assets – ` 2,000
Defined Benefit Obligation
At 1st April, 20X1, present value of the defined benefit obligation was
` 12,000.
At 31st March, 20X2, present value of the defined benefit obligation was
` 15,500.
Actuarial losses on the obligation for the year ended 31 st March, 20X2
were ` 100.
Current Service Cost – ` 2,500
Benefit paid – ` 300
Discount rate used to calculate defined benefit liability - 10%.
Suggest the amount that would be taken to other comprehensive
income (with workings). Also compute net interest on the net defined
benefit liability (asset). (6 Marks)
4. (a) PQR Ltd., a manufacturing company, prepares consolidated financial
statements to 31 st March each year. During the year ended
st
31 March, 20X2, the following events affected the tax position of the
group:
i QPR Ltd., a wholly owned subsidiary of PQR Ltd., incurred a loss
adjusted for tax purposes of ` 30,00,000. QPR Ltd. is unable to
utilise this loss against previous tax liabilities. Income-tax Act
does not allow QPR Ltd. to transfer the tax loss to other group
companies. However, it allows QPR Ltd. to carry the loss forward
and utilise it against company’s future taxable profits. The
directors of PQR Ltd. do not consider that QPR Ltd. will make
taxable profits in the foreseeable future.
ii During the year ended 31 st March, 20X2, PQR Ltd. capitalised
development costs which satisfied the criteria as per Ind AS 38
‘Intangible Assets’. The total amount capitalised was ` 16,00,000.
The development project began to generate economic benefits for
PQR Ltd. from 1 st January, 20X2. The directors of PQR Ltd.
estimated that the project would generate economic benefits for
five years from that date. The development expenditure was fully
deductible against taxable profits for the year ended
31st March, 20X2.
iii On 1st April, 20X1, PQR Ltd. borrowed ` 1,00,00,000. The cost to
PQR Ltd. of arranging the borrowing was ` 2,00,000 and this cost

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qualified for a tax deduction on 1 st April 20X1. The loan was for a
three-year period. No interest was payable on the loan but the
amount repayable on 31 st March 20X4 will be ` 1,30,43,800. This
equates to an effective annual interest rate of 10%. As per the
Income-tax Act, a further tax deduction of ` 30,43,800 will be
claimable when the loan is repaid on 31 st March, 20X4.
Explain and show how each of these events would affect the deferred
tax assets / liabilities in the consolidated balance sheet of PQR Ltd.
group at 31 st March, 20X2 as per Ind AS. The rate of corporate income
tax is 30%. (8 Marks)
(b) An entity enters into a contract with a customer on 1 st April, 20X1 for
the sale of a machine and spare parts. The manufacturing lead time
for the machine and spare parts is two years.
Upon completion of manufacturing, the entity demonstrates that the
machine and spare parts meet the agreed-upon specifications in the
contract. The promises to transfer the machine and spare parts are
distinct and result in two performance obligations that each will be
satisfied at a point in time. On 31 st March, 20X3, the customer pays for
the machine and spare parts, but only takes physical possession of the
machine. Although the customer inspects and accepts the spare parts,
the customer requests that the spare parts be stored at the entity's
warehouse because of its close proximity to the customer's factory.
The customer has legal title to the spare parts and the parts can be
identified as belonging to the customer. Furthermore, the entity stores
the spare parts in a separate section of its warehouse and the parts are
ready for immediate shipment at the customer's request. The entity
expects to hold the spare parts for two to four years and the entity does
not have the ability to use the spare parts or direct them to another
customer.
How will the Company recognize revenue for sale of machine and spare
parts? Is there any other performance obligation attached to this sale
of goods? (6 Marks)
5. (a) ABC Ltd is a government company and is a first-time adopter of Ind AS.
As per the previous GAAP, the contributions received by ABC Ltd. from
the government (which holds 100% shareholding in ABC Ltd.) which is
in the nature of promoters’ contribution have been recognised in capital
reserve and treated as part of shareholders’ funds in accordance with
the provisions of AS 12, Accounting for Government Grants.
State whether the accounting treatment of the grants in the nature of
promoters’ contribution as per AS 12 is also permitted under Ind AS 20
Accounting for Government Grants and Disclosure of Government
Assistance. If not, then what will be the accounting treatment of such
grants recognised in capital reserve as per previous GAAP on the date
of transition to Ind AS. (4 Marks)

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(b) Feel Fresh Limited (the Company) is into manufacturing and retailing
of FMCG products listed on stock exchanges in India. One of its
products is bathing soap which the Company sells under the brand
name 'Feel Fresh'. The Company does not have its own manufacturing
facilities for soap and therefore it enters into arrangements with a third
party to procure the soaps. The Company entered into a long-term
purchase contract of 10 years with M/s. Radhey. Following are the
relevant terms of the contract with M/s. Radhey.
(i) M/s. Radhey has to purchase a machine costing ` 10,00,000 from
the supplier as specified by the Company. The machine will be
customized to produce the soaps as designed by the Company.
This machine cannot be used by M/s. Radhey to produce the
soaps for buyer other than the Company due to the design
specifications. The machine has a useful life of 10 years and the
straight line method of depreciation is best suited considering the
use of the machine.
(ii) The Company will pay ` 4.75 per soap for the first year of contract.
This is calculated based on the budgeted annual purchase of
7,00,000 soaps as follows:
Particulars Per soap price
Variable cost of manufacturing 4.00
Cost of machine (` 1,74,015/7,00,000 soaps) 0.25
M/s. Radhey's margin 0.50
Per soap cost to the Company 4.75

In case the Company purchases more than 7,00,000 (i.e.

budgeted number of soaps) soaps in the first year then the cost of
the machine (i.e. 0.25 per soap) will not be paid for soaps
procured in excess of 7,00,000 units. However, in case Company
procures less than budgeted number of soaps, then the Company
will pay the differential unabsorbed cost of the machine, at the end
of the year. For example, if the Company purchases only 6,00,000
soaps in first year then the differential amount of ` 24,015
(1,74,015 - (6,00,000 x 0.25)) will be paid by the Company to
M/s. Radhey at the end of the year. Variable cost will be
actualized at the end of the year.
(iii) The cost per soap will be calculated for each year in advance
based on the budgeted number of soaps to be produced each
year. An amount of ` 1,74,015 shall be considered each year for
the cost of machine for year 1 to year 8 while calculating the cost
per soap. Any differential under absorbed amount shall be paid
by the Company to M/s. Radhey at the end of that year. A charge
of ` 1,74,015 per annum for the machine is derived using
borrowing cost of 8% p.a. For year 9 and year 10, only variable
cost and margins will be paid.

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(iv) M/s. Radhey does not have any right to terminate the contract but
the Company has the right to terminate the contract at the end of
each year. However, if the Company terminates the contract, it
has to compensate M/s. Radhey for any unabsorbed cost of
Machine. For example, if the Company terminates the contract at
the end of second year then it has to pay ` 10,44,090 (i.e. 1,74,015
per year x 6 remaining years). If it terminates the contract after
the 8 th year then the Company does not have to pay the
compensation since the cost of the machine would have been
absorbed.
(v) In the first year, the Company purchases 5,50,000 soaps at ` 4.75
per soap.
Analyze the contract of the Company with M/s. Radhey and provide
necessary accounting entries for first year in accordance with Ind AS
with working notes. Assume all cash flows occur at the end of the year.
(10 Marks)
6. (a) Venus Ltd. is a multinational entity that owns three properties. All three
properties were purchased on 1 st April, 20X1. The details of purchase
price and market values of the properties are given as follows:
Particulars Property 1 Property 2 Property 3
Factory Factory Let-Out
Purchase price 15,000 10,000 12,000
Market value 31.03.20X2 16,000 11,000 13,500
Life 10 Years 10 Years 10 Years
Subsequent Measurement Cost Model Revaluation Revaluation
Model Model

Property 1 and 2 are used by Venus Ltd. as factory building whilst

property 3 is let-out to a non-related party at a market rent. The
management presents all three properties in balance sheet as
‘property, plant and equipment’.
The Company does not depreciate any of the properties on the basis
that the fair values are exceeding their carrying amount and recognise
the difference between purchase price and fair value in Statement of
Profit and Loss.
Analyse whether the accounting policies adopted by the Venus Ltd. in
relation to these properties is in accordance with Ind AS. If not, advise
the correct treatment alongwith working for the same. (9 Marks)
(b) Infostar Ltd. is a listed company engaged in the provision of IT services
in India. The directors are paid a bonus based on the profits achieved
by the company during the year as per the bonus table given below:

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Profit Range Bonus to Directors
NIL < Profit < ₹ 1 crore NIL
₹ 1 crore < Profit < ₹ 5 crores 2% of Net Profit
₹ 5 crores < Profit < ₹ 10 crores 4% of Net Profit
₹ 10 crores < Profit < ₹ 20 crores 6% of Net Profit
₹ 20 crores < Profit < ₹ 30 crores 8% of Net Profit
Profit > ₹ 30 crores 10% of Net Profit
The draft Statement of Profit and Loss for the year ended 31 March
20X2 currently shows a profit of ₹ 2 crores.
Issue:
The employees of Infostar Ltd. have historically been paid an
individual-performance-based discretionary incentive for the last
15 years. Based on the past trends and performance, the bonus
amount for the year 20X1-20X2 would be ₹ 3 crores. In view of the
possibility of the directors not receiving the bonus on account of the
company’s poor performance, Infostar Ltd.’s Chief Financial Officer
(CFO), who is a chartered accountant, has suggested that the
discretionary incentive usually payable to the employees could be
avoided in the current year, which would result in the company
reporting profits. As a part of its annual report, Infostar Ltd. reports
employee satisfaction scores, staff attrition rates, gender equality and
employee absenteeism rates as non-financial performance measures.
The CFO has also told the directors over mail that no stakeholder reads
the non-financial information anyway, and thus his aforesaid
suggestion of not paying the discretionary incentive would not impact
the company greatly.
Discuss the ethical and accounting implications of the above issues,
referring to the relevant Ind AS wherever appropriate from perspective
of CA. Sushil Bhupathy. (5 Marks)

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