FINAL EXAMINATION SET - 1

MODEL ANSWERS TERM – JUNE 2024

PAPER –18 SYLLABUS - 2022
CORPORATE FINANCIAL REPORTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 × 2 = 30]

(i) Ind AS 113 deals with ________________________.

a. Fair Value Measurement
b. Share Based payments
c. Joint Arrangements
d. Statement of Cash Flows

(ii) Ind AS 16 does not apply to which of the following?

a. Biological assets (other than bearer plants) related to agricultural activity
b. Assets in exploration for and evaluation of Mineral Resources
c. Mineral rights and mineral reserves such as oil, natural gas etc.
d. All of the above

(iii) Property Plant and Equipment (PPE) are initially recognized at

a. purchase price
b. fair value
c. cost
d. future economic benefits

(iv) X Ltd. borrowed $6000 for construction of a qualifying asset at 3% interest p.a. on
01.04.2021 when $1 = ₹60, which is due for payment on 31.03.2023. The company
could borrow the amount in rupees at 12% interest p.a. Interest is payable on
31st2023. Construction of asset will continue till 31.03.2023. If on 31.03.2022 $1 =₹70
which of the following statements is not true?
a. Exchange loss=₹ (60– 70) × $6,000 = ₹60,000
b. Cost of borrowing in foreign currency = 3% × $6,000 ×₹70 = ₹12,600
c. Cost of borrowing in functional currency = 12% × $ 6,000 ×₹60 = ₹43,200
d. Cost of borrowing in foreign currency = 3% × $ 6000 ×₹60 =₹10,800

(v) The following details relates to M/s XYZ, a firm:

Average profit of last four years : ₹ 7,00,000
Average capital employed by the firm : ₹55,00,000
Normal rate of return : 10%
Present value of annuity of ₹1 for 4 years @ 10% : 3.1699
Determine the value of goodwill on the basis of annuity of super profit.

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a. ₹ 4,75,485
b. ₹4,85,585
c. ₹1,50,000
d. None of the above

(vi) Indian Accounting Standards relevant for recognition, measurement and disclosure
of financial instruments are:
a. Financial instruments: Presentation (Ind AS 32)
b. Financial instruments: Disclosure (Ind AS 107)
c. Financial instruments: (Ind AS 109)
d. All of the above

(vii) Q Ltd. acquired a 75% interest in R Ltd. on January 1, 2021. Q Ltd. paid ₹ 900 Lakhs
in cash for their interest in R Ltd. The fair value of R Ltd.’s assets is ₹ 2,000 Lakhs,
and the fair value of its liabilities is₹ 920 Lakhs. NCI valued at Fair Value and at
Proportionate Value are:
a. ₹ 300 lakhs and ₹ 360 lakhs
b. ₹ 225 lakhs and ₹ 270 lakhs.
c. ₹ 300 lakhs and ₹ 270 lakhs.
d. ₹ 225 lakhs and ₹ 360 lakhs.

(viii) On March 31,201X, A Ltd Absorbed B Ltd. A Ltd. issued 60,000 equity shares (₹10
par value) that were trading at ₹25 on March 31. The book value of B’s net assets was
₹12,00,000, Equity Share Capital ₹5,00,000 and Other Equity ₹7,00,000 on March 31.
The fair value of net assets of B Ltd. was assessed at ₹13,00,000. Compute purchase
consideration as per Ind AS 103.
a. ₹15,00,000
b. ₹17,00,000
c. ₹20,00,000
d. ₹18,00,000

(ix) On 1 January 2021 A Ltd. Acquires 80 percent of the equity interests of B Ltd in
exchange of cash of ₹ 600 lakhs. The identifiable assets are measured at ₹925 lakh
and the liabilities assumed are measured at ₹150 lakh. The fair value of the 20 per
cent non-controlling interest in P is ₹ 90 lakhs. The gain on bargain purchase will be:
a. ₹90 lakhs
b. ₹85 lakhs
c. ₹105 lakhs
d. ₹75 lakhs

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CORPORATE FINANCIAL REPORTING

(x) Consolidated financial statements are required to be prepared by an Ind AS complied

company if it holds shares in the investee company ________________.
a. Entailing 20% or more voting rights having significant influence over the investee
company (called Associate as per Ind AS 28)
b. Entailing joint control over the investee company (called a Joint Venture as per
Ind AS 28)
c. Entailing control over investee company (called subsidiary company as per Ind AS
110)
d. All of the above

(xi) On the year ended 31st March, 2024, a Non-Banking Financial Company (NBFC)
had following advances-
Assets Classification ₹ in lakhs
Standard 1050
Sub – standard 750
Doubtful up to one year 200
Doubtful for one year to two year 220
The amount of provision which must be made against the advances will be________.
a. ₹254.70 Lakhs
b. ₹159 Lakhs
c. ₹163 Lakhs
d. ₹181 Lakhs

(xii) A Company takes a Machinery on lease for a term of 6 years at a lease rent of
₹4,00,000 p.a. payable at end of each year with guaranteed and unguaranteed
residual value of ₹3,00,000. The gross investment will be ______________.
a. ₹24,00,000
b. ₹7,00,000
c. ₹1,00,000
d. ₹27,00,000

(xiii) XY Ltd, a partnership firm, earned profits during the past 5 years as follows:
Year 2017 2018 2019 2020 2021
Profits (₹) 27,000 36,000 37,200 42,000 46,800

Determine the value of goodwill on the basis of 3 years’ purchase of weighted average
profit of last five years giving maximum weightage to the recent results
a. ₹ 1,22,520
b. ₹1,15,000
c. ₹1,46,000

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d. ₹ 142,520
(xiv) The three pillars of sustainability are often referred to as
________________________.
a. Planet – People – Profit
b. People – Planet – Profit
c. People–Profit–Planet
d. People – Plant – Profit

(xv) NUPUR Ltd has equity share capital of ₹30 lakhs consisting of fully paid equity
shares of ₹10 each. Net profit for the year 2023-24 was ₹45 lakhs. It has also issued
27,000, 10% convertible Debentures of ₹50 each. Each Debenture is convertible into
5 equity shares. The applicable tax rate is 30%. Compute the diluted earnings.
a. ₹46,35,000
b. ₹44,59,500
c. ₹45,94,500
d. ₹45,00,000
Answer: 1.

i ii iii iv v vi vii viii ix x

a d c d a d c a b d
xi xii xiii xiv xv
a d a b c

SECTION-B
(Answer any 5 questions out of 7 questions given. Each question carries 14 marks.) [5×14 = 70]

2. (a) A company measured accounting profit of ₹80,000 after charging depreciation of

₹12,000. On interest receivable income tax is levied on cash basis. Included in
accounting profits Interest accrued ₹5,000, which is not included in taxable profit of
₹67,000. Tax rate is 30%. For tax purpose depreciation admissible is ₹20,000.
Carrying amount of fixed assets was ₹68,000 and tax base of fixed assets ₹60,000
before charging depreciation for the current year.
Find:
(i) Carrying amount and tax base of the fixed assets and tax base of Interest
accrued at the end of the year.
(ii) Temporary Differences for fixed assets and interest accrued
(iii) Current tax expenses and deferred tax expenses
(iv) Deferred tax liabilities and deferred tax assets, if any.

(b) An entity has the following assets with relevant data on the reporting date: (₹in
Lakhs)
Assets Carrying Amount Fair value less cost to sell Value-in-use
A 280 300 250

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CORPORATE FINANCIAL REPORTING
B 460 400 390
C 220 240 270
D 180 150 170
E 100 80 —
Assets C and D were revalued before. The carrying amounts of revaluation surplus
are ₹40 Lakhs and ₹30 Lakhs respectively. Asset E falls in the cash generating unit
consisting of goodwill ₹50 Lakhs and intangible asset ₹90 Lakhs. The fair value less
cost to sell of the CGU is ₹180 Lakhs and value-in-use is ₹170 Lakhs.
Determine impairment loss and revised carrying amount of all the assets stated
above. Show the accounting treatment. [7+7=14]

Answer:
2. (a)
Taxable Deferred
Carrying Tax Current Deferred Tax
Temporary
Particulars amount base tax Tax tax Expense
difference
₹ liabilities
₹ ₹ ₹ ₹ ₹
₹
(i) (ii) (ii) (iii) (iii) (iv) (v)
Fixed Assets (before 68,000 60,000
depreciation)
Less: Depreciation 12,000 20,000
Balance 56,000 40,000 16,000 4,800 4,800
Interest Accrued 5,000 0 5,000 1,500 1,500
Total 1,000 6,300 6,300
Taxable Profit 67,000 20,100
Accounting Profit 80,000 24,000

2. (b)

Asset Recoverable Amount Impairment Loss Revised Carrying Amount

(₹ in Lakhs) (₹ in Lakhs) (₹ in Lakhs)
A 300 — 280
B 400 60 400
C 270 — 220
D 170 10 β 170
CGU 180 60 180
Goodwill 50@ NIL
Intangible asset 4.47 85.26
E 5.26 94.74

Working Note:

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CORPORATE FINANCIAL REPORTING
CGU consist of : (₹ in lakhs)
Goodwill 50
In-Tangible 90
Asset E 100
Carrying Amount 240
Recoverable Amount 180

Difference in Impairment Loss is ₹ 60,00,000.

⸫ Impairment loss is charged to P & L a/c except β.
@ : First goodwill is reduced by the impairment loss of the CGU.
& : Next other assets are reduced impairment loss CGU pro-rata.
β : Impairment Loss is charged against revaluation surplus.

3. (a) On 31.03.2023 A Ltd. enter into a contract with a customer for sale of goods of ₹4,000
granting 50% discount voucher to be availed in future purchase up to ₹ 3,000 within
30 days. Ordinarily 10% discount is allowed on sales. Ordinary discount will not be
available to avail the 50% discount voucher. There is 60% probability that the
customer will redeem the discount voucher and the estimated amount of purchase is
₹2,000. In April 2023 the discount vouchers are redeemed for purchase of additional
goods of ₹2,800. Find revenue recognition in2022-23 and in 2023-24.

(b)
Forthcoming Year 1 ₹ in Lakh
Data provided:
EBIT 700
Depreciation 120
Capex 180
Interest 60
Increase in non-cash working capital 100
Debt Capital 3,000

Tax rate = t 25%

WACC 10%
No of equity shares 50,00,000

Compute:
(a) NOPAT,
(b) CF,
(c) FCFF,
(d) Value of business based on
(i) CF;

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(ii) FCFF,
(e) Value of business when growth rate is 5% based on
(i) CF;
(ii) FCFF,
(f) Value per share based on FCFF when growth rate id 5% and
(g) Value per share based on FCFE when constant growth rate is 5%.
[7+7=14]
Answer:
3. (a)
There are two performance obligations one for sale of goods and other for sale of discount
vouchers. Their standalone prices:

Goods ₹4,000 less 10% ordinary discount ₹3,600

Discount Vouchers ₹480
Total ₹4,080

[Value of vouchers = Discount in excess of ordinary rate of 10%× estimated Purchase amount
× probability of purchase = (50 – 10) % ×₹2,000 × 60% = ₹480]

Transaction price is ₹3,600 which is sale price less current discount of 10%. It is to be allocated
between performance obligations of goods and discount vouchers proportionately.

Allocation to goods ₹3,600 × (₹3,600/ ₹4,080) = ₹3,176

Allocation to Discount Voucher ₹3,600 × (₹480/₹4,080) = ₹424

Thus in 2022-23 Revenue is recognised for ₹3,176 only, which is transaction price less future
discount. Discount Voucher is carried as a liability at ₹424.

In 2023-24 this liability will be cancelled and revenue will be recognised for ₹424, when the
discount voucher is redeemed or expired.

The Transaction Price for additional sale is ₹2,800 less 50% discount voucher = ₹1,400;
Total Revenue recognised is ₹1,400 + ₹424 =₹1,824.

Thus we see that ₹424 is deducted from revenue of 2022-23 and added to revenue of 2023-24.

3. (b) (₹ in Lakhs)
(a) NOPAT = EBIT × (1 – t)
= 700 × (1 - 0.25)
= 525

(b) CF = NOPAT + Depreciation - Increase in non-cash working capital

= 525 + 120 – 100
= 545

(c) FCFF = CF – Capex

= 545 – 180
= 365
(d) Value of business based on -

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(i) CF:

Value of business = V0 = Continuing Value = CF/WACC (at constant cash flows assumption)
= 545/ 0.1 = 5450

Value of business based on:

(ii) FCFF

Value of business = V0 = Continuing Value = FCFF/WACC (at constant cash flows assumption)
= 365/0.1 = 3,650 Lakhs

(e) (i) CF;

Value of business = V0 = Continuing Value at growth rate of 5%
= CF/ (k – g) = 545/ (0.10 – 0.05)
= 545/ 0.05 = 10,900

(ii) FCFF;
Value of business = V0 = Continuing Value = FCFF/ (k – g)
= 365/ (0.10 – 0.05) = 365/ 0.05 = 7,300

(f) Value per share based on FCFF when constant growth rate is 5%
V0 = 7,300;
Equity = V0 – Debt Capital = 7,300 –3,000 = 4,300
No. of equity shares = 50 lakhs Value per share = 4,300/50 = 86

(g) FCFE = FCFF – Interest net of tax + Net Debt Issued

= 365 – 80× (1 – 0.25) + (140 – 90)
= 355
Value of equity = FCFE/ (Ke – g) = 355/ (0.125 – .05) = 355/0.075 = 4,733.33
Value per share = Equity/ n = 4,733.33/50 = 94.67

4. (a) While closing its books of accounts on 31st March, a NBFC has its advances classified
as follows:
Particulars ₹ Lakhs
Standard Assets 40,000
Sub Standard Assets 4,000
Secured Positions of Doubtful Debts:
- Up to one year 1000
- one year to three years 600
- more than three years 200
Unsecured Portions of Doubtful debts 160
Loss Assets 120

Calculate the amount of provision which must be made against the advances.

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(b) On 01.04.2021 the summarised balance sheets of S Ltd. and P Ltd. are provided as:

(₹’000)
S Ltd. P Ltd.
B/S (₹) Fair Value (₹) B/S (₹)
Equity Share Capital (₹10) 8,000 12000
Other Equity 6,000 4000
Borrowings 2,000 2,050 3000
Trade Payables 2,500 2,400 2000
Property, Plant and 9,000 10000 12000
Equipment
Investment Property 5,000 7000 1000
Investments 1,000 3500
Current Assets 3,500 3200 4500
Contingent Liabilities 800 750

Market price of equity shares of P Ltd. and S Ltd. are ₹ 16 and ₹ 15 respectively on
the day. P Ltd. and S Ltd. are amalgamated into SP Ltd. control of which retained
with the same parties as before. SP Ltd. issues 1050000 shares and 1250000 shares to
take over the businesses of S Ltd. and P Ltd. Respectively On the basis of the above
data, you are required to make the necessary accounting for the following case. Pass
journal entries and draft balance sheet in the books of the SP Ltd.
[7+7=14]
Answer:
4. (a)

Particulars Loan Provision Provision

(` in Lakhs) (%) (` in Lakhs)
Standard Assets 40,000 0.4 160
Sub-Standard Assets 4,000 10% 400
Secured Portions of Doubtful Debts:
- Up to one year 1,000 20% 200
- 1 year to 2 years 600 30% 180
- more than three years 200 50% 100
Unsecured Portions of 160 100% 160
Doubtful
Assets
Loss Assets 120 100% 120

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Total 1320

4. (b)
It is a business combination under common control and pooling of interest method of
accounting is followed in the books of the transferee. In the books of S Ltd.
Journal
(`’000)
Date Particulars Dr. Cr.
Property, Plant and Equipment Dr 21,000
Investment Property Dr. 6,000
Investments Dr. 4,500
Current Assets
Dr. 8,000
Goodwill (10,500 + 12,500 – 8,000 -12,000)
Dr. 3,000
To, Borrowings 5,000
To, Trade Payables 4,500
To, Other Equity (6,000 + 4,000) 10,000
To, Equity Share Capital 23,000

Summarized Balance sheet as at 01.04.2021 (after amalgamation) (` ’000)

Particulars (` ) (` )
Property, Plant and Equipment 12,000 + 9,000 21,000
Goodwill 3,000
Investment Property 1,000 + 5,000 6,000
Investments 3,500 + 1,000 4,500
Current Assets 4,500 + 3,500 8,000
Total Assets 42,500
Equity Share Capital 12,500 + 10,500 23,000
Other Equity 4,000 + 6,000 10,000
Borrowings 3,000 + 2,000 5,000
Trade Payables 2,000 + 2,500 4,500
Total of equity and liabilities 42,500
Note: Contingent Liabilities 800

5. On March 31,2021, P Ltd acquired Q Ltd. By issue of 3,00,000 equity shares (₹10) that were
trading at ₹16 on March 31. The summarized Balance Sheets of the companies as at March
31, 2021 (before acquisition):
[Amount in ₹]
(Book Value) (Market Value)
P Ltd. Q Ltd. P Ltd. Q Ltd.
Net Assets 80,00,000 42,00,000 110,00,0000 45,00,000

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Equity Sh. Cap 60,00,000 25,00,000
Other Equity 20,00,000 17,00,000

Show acquisition journal entry under Ind AS 103 and summarized balance sheet after
business combination. Also show the necessary accounting in the books of the Acquiree.
[14]
Answer:
5.
Purchase consideration (at fair value) = 3,00,000×`16 = ` 48,00,000; FV of Net Assets
` 45,00,000 Goodwill = Consideration – Net Assets = ` (48,00,000 – 45,00,000) = ` 3,00,000.

Journal (individual set of P Ltd.)

Particulars Dr. (`) Cr. (`)
Net Assets A/c Dr. 45,00,000
Goodwill A/c Dr. 3,00,000
To, Consideration A/c 48,00,000
Consideration A/c Dr. 48,00,000
To, Equity Share Capital A/c 30,00,000
To, Security Premium A/c 18,00,000

Summarized Individual Balance sheet of K Ltd. as at March 31 (Post-acquisition)

Workings:
(` ) (` )
Net Assets:
Carrying amount of Acquirer P Ltd. 80,00,000
Fair Value of Acquiree Q Ltd. 45,00,000
125,00,000
Goodwill 3,00,000
Total Net Assets 1,28,00,000
Equity:
Equity Share Capital
Existing 60,00,000
Issue for consideration 30,00,000
90,00,000
Other Equity:
Carrying amount 20,00,000
Security Premium (on issue of shares) 18,00,000

38,00,000

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Total Equity 1,28,00,000
No consolidated or separate set is required.

In books of Q:
Accounts are closed through Realisation Account

Particulars Dr.(`) Cr.(`)

Realisation A/c Dr. 42,00,000
To, Net Assets A/c 42,00,000
Equity Shares in K Ltd. A/c Dr. 48,00,000
To, Realisation A/c 48,00,000
Realisation A/c Dr. 6,00,000
To, Equity Shareholders’ A/c 6,00,000
Equity Share Capital A/c Dr. 25,00,000
Other Equity A/c Dr. 17,00,000
To, Equity Shareholders’ A/c 42,00,000
Equity Shareholders’ A/c Dr. 48,00,000
To, equity Shares in K Ltd. 48,00,000

Dr. Realisation Account Cr.

Particulars (` ) Particulars (` )
Net Assets A/c 42,00,000 Equity Shares in P A/c 48,00,000
Equity Shareholders’ A/c 6,00,000
48,00,000 48,00,000

Dr. Equity Shareholders’ Account

Cr.
Particulars (` ) Particulars (` )
Equity Shares in P Ltd. A/c 48,00,000 Equity Share Capital A/c 25,00,000
Other Equity A/c 17,00,000
Realisation A/c 6,00,000
48,00,000 48,00,000
Now, what changes take place in accounting in the books of the Acquirer and the Acquiree if the
following changes take place:
P Ltd acquired 100% shares of Q Ltd.
P Ltd acquired 80% shares of Q Ltd.
[for guidance you may also follow the solutions in illustration 1(b) and 1(c)]

6. The financial data of the companies’ P and S at 31.03.2023 and at 31.03.2024 are stated
below. (₹ in Lakhs)
On 31.03.2023 On31-3-2024
Particulars S (Individual Fair Value of P (Separate S (Individual
B/S) (₹) S (₹) B/S) (₹) B/S) (₹)
PPE 480 700 750 500

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Investment in S (60% shares 480
acquired on 01.04.2020 by issue
of Equity)
CA 350 300 540 400
1,770 900
Equity 300 1,070 360
Non-current Liability 300 310 360 330
Current Liability 230 200 340 210
1,770 900
Prepare Consolidated Balance Sheet. [14]

Answer:
6. (₹ in Lakhs)
WN 1: Purchase consideration = 480
WN 2: Fair value of net identified assets at the date of acquisition:
Fair Value of S (`) Revaluation profits (loss)
Non-Current (`) Current (`)
PPE 700 220
CA 300 (50)
Noncurrent Liability 310 (10)
Current Liability 200 30
Net assets 490 (20)

WN 3: Post-acquisition TCI of S:
Particulars (` in Lakhs)
Equity on 31.03.2024 360
Less Equity on 31.03.2023 300
TCI Post-Acquisition (assumed no fresh issue of shares) 60
Add: Reversal of Revaluation loss on Current items# 20
Adjusted Post-acquisition TCI 80
Share of Parent (60% × `80) 48
Share of NCI (40% × `80) 32
# Revaluation profit (loss) on current items at acquisition date is reverted against post
acquisition profits (loss) of subsidiary
WN 4: NCI at proportionate net assets at acquisition date = 40% × 490 = 196
Particulars (` in Lakhs)
Add: Share of NCI in post-acquisition TCI 32
NCI at reporting date 228

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WN 5: Goodwill = Consideration + NCI at acquisition – Net Assets = 480 + 196 – 490 = 186
WN 6: Consolidated Equity:

Particulars (` in Lakhs)
Equity of P 1,070
Share of P in Post-acquisition TCI of S 48
Consolidated Equity 1,118

Consolidated Balance Sheet of P and S on 31.03.2024 (` in Lakhs)

Book Value Adjustment on non- Consolidated
current items (FV – BV)
PPE 750 + 500 +220 1,470
Goodwill WN 5 186
CA 540 + 400 [revaluation loss 50]$ 940
Total Assets 2,596
Equity WN 6 1,118
NCI WN 4 228
Noncurrent Liability 360 + 330 +10 700
Current Liability 340 + 210 [revaluation gain 30]$ 550
Total of Equity and Liability 2,596
$ Net revaluation loss on current items `(50-30) Lakhs = `20 Lakhs is not adjusted in consolidated
value, rather it is reverted to Retained earnings and TCI of S is increased.

7. (a) The following are the balances in the account statements of X Ltd. for the year ended
31st March, 2024. (₹ ‘000)
Particulars (₹)
Turnover 4,600
Plant and machinery net 2,160
Loss on sale of machinery 150
Depreciation on plant and machinery 400
Dividends to ordinary shareholders 292
Debtors 390
Creditors 254
Total stock of all materials, WIP and finished goods:
Opening stock 320
Closing stock 400
Raw materials purchased 1,250
Cash at bank 196

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Printing and stationery 44
Auditor’ s remuneration 56
Retained profits(opening balance) 1998
Retained profits for the year 576
Rent, rates and taxes 330
Other expenses 170
Ordinary share capital issued 3,000
Interest on/borrowings 80
Income-tax for the year 552
Wages and salaries 654
Employees state insurance 70
P.F. contribution 56
Prepare a Value Added Statement for the company for the year 2023-24.

(b) Analyze the ESG criteria of corporate reporting. [7+7=14]

Answer:
7. (a)
Value Added Statement
For the year ended on 31.03.2022
Particulars (`) (`)
Generation of Value Added
Turnover 4,600
Add: Increase in Stock of raw materials, WIP and FG 80
4,680
Less. Cost of bought-in materials and services
Raw materials purchased 1,250
Printing and Stationery 44
Auditor’s remuneration 56
Rent, rates and taxes 330
Other expenses 170 1,850
Total Value Added 2,830
Distribution of Value Added
To Employees
Wages and salaries 654
Employees state insurance 70
P.F. contribution 56
780
To Government
Income-tax for the year 552

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2024
PAPER –18 SYLLABUS - 2022
CORPORATE FINANCIAL REPORTING
To Providers of Capital

Interest on borrowings 80
Dividends 292
372
Re-invested in Business
Depreciation on plant and machinery 400
Retained profit for the year 576
976
Loss on sale of machinery 150
Total Disposal of Added Value 2,830

7. (b) ESG reporting requires identification and reporting information about the three criteria in a
meaningful way. While, environmental criteria consider how a company performs as a
steward of nature, social criteria examine how it manages relationships with employees,
suppliers, customers, and the communities. Finally, governance deals with a company’s
leadership, executive pay, audits, internal controls, and shareholder rights. Accordingly, the
following criteria are largely used in this context.

(A) Environmental test criterion includes:

a. Conservation of the natural world
b. Climate change and carbon emissions
c. Air and water pollution
e. Biodiversity
f. Deforestation
g. Energy efficiency
h. Waste management
i. Water scarcity
(B) Social test criterion includes
a. Consideration of people & relationships
b. Customer satisfaction
c. Data protection and privacy
d. Gender and diversity
e. Employee engagement
f. Community relations
g. Human rights
h. Labor standards
(C) Governance test criteria includes consideration of:
a. Standards for running a company
b. Board composition
c. Audit committee structure
d. Bribery and corruption
e. Executive compensation

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2024
PAPER –18 SYLLABUS - 2022
CORPORATE FINANCIAL REPORTING
f. Lobbying
g. Political contributions
h. Whistle blower schemes

8. (a) Explain the role of Public Accounts Committee. [5]

(b) Describe the responsibilities of Government Accounting Standard Advisory Board

(GASAB). [5]

(c) Company P Ltd. (a listed company) acquires 20% shares (entitling 20% voting power
and significant influence) in company Q Ltd. on 1.4.2022 at a cost of ₹ 46,000, paid
by cash. During the financial year 2022-2023, Q made profits of ₹ 20,000 and other
comprehensive income of ₹ 10,000. Show the relevant accounting treatment at the
end of the year in (i) consolidated and (ii) separate financial statements of P.
[4]
Answer:
8. (a)
1. Role regarding examination of the C&AG report: The chief function of P.A.C. is to
examine the audit report of Comptroller and Auditor General (C&AG) after it is laid
in the Parliament. C&AG assists the Committee during the course of investigation.

2. Role regarding unauthorized expenditures or excess expenditures: In examining the

report of the Comptroller and Auditor General of India (C&AG), the committee has
to satisfy itself that:
 the expenditures made by the government, were authorized by the Parliament; and
 the expenditures under any head has not crossed the limits of parliamentary
authorization.
It is to be noted that, every expenditure made by the government must be sanctioned
by the Parliament. Thus, it is the role of the committee to bring to the notice of the
Parliament instances of unauthorized expenditures or expenditures beyond sanctioned
limits.

3. Role regarding spending of money by ministries: The committee not only ensures that
ministries spend money in accordance with parliamentary grants, it also brings to the
notice of the Parliament instances of extravagance, loss, in fructuous expenditure and
lack of financial integrity in public services. However, the committee cannot question
the polices of the government. It only concerns itself with the execution of policy on
its financial aspects.

4. Scrutinizing the audit reports of public corporations: A new dimension has been
added to the function of the P.A.C. by entrusting it with the responsibility of
scrutinizing the audit report of public corporations.

5. Scrutinizing the working process of ministries and public corporations: In examining

the accounts and audits of the ministries and public corporations, the Committee gets
the opportunity to scrutinize the process of their working. It points out the weakness
and shortcomings of the administration of ministries and public corporations

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2024
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CORPORATE FINANCIAL REPORTING
Criticisms of the P.A.C. draw national attention. This keeps the ministries and public
corporation’s sensitive to the criticisms of the P.A.C. Thus, it is wrong to suppose that
the P.A.C. is only an instrument of financial control, it is as well an instrument of
administrative control.

8. (b) GASAB, inter alia, has the following responsibilities:

(i) To formulate and improve standard of Government accounting and financial
reporting in order to enhance accountability mechanisms.
(ii) To formulate and propose standards that improve the usefulness of financial
reports based on the needs of the users.
(iii) To keep the standards current and reflect change in the Governmental
environment.
(iv) To provide guidance on implementation of standards.
(v) To consider significant areas of accounting and financial reporting that can be
improved through the standard setting process.
(vi) To improve the common understanding of the nature and purpose of
information contained in the financial reports.

8. (c) There will be two sets of accounting at the end the year, one for Consolidated Accounts
and the other For Separate Financial Statements.
(i) For consolidated accounts Ind AS 28 requires the recognition of investment
by equity method.
At the year-end in consolidated accounts of P Ltd., adjustments are made to
the Investment and income accounts as per equity method:

Working Note:
Change in investee’s net assets = `20,000 + `10,000 = `30,000;
Share of P = 20% of `30,000 = `6,000.
Investor’s Profit or loss includes 20% of `20,000 = `4,000
and other comprehensive income includes 20% of `10,000 = `2,000.

(ii) At the year-end for the Separate Financial Statements of P Investment is

valued at cost at ` 46,000 or at a value as per Ind AS 109.

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Directorate of Studies, The Institute of Cost Accountants of India