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PAPER – 1 : FINANCIAL REPORTING

PART-I
Answer all questions.
Case Study 1
Tara Ltd. is engaged in mining and many other industries and prepares its
financial statements following Indian Accounting Standards and follows
April- March as their financial year. During the year 2023-2024, the Company
has faced some issues and for their solution seeks your professional advice.
(i) Tara Ltd. and Zara Ltd. are partners of a joint operation engaged in the
business of mining precious metals. The entity uses a jointly owned drilling
plant in its operations. During the year ended 31st March, 2024, an inspection
was conducted by the government authorities in the mining fields. The
inspection authorities concluded that adequate safety measures were not
followed by the entity. As a consequence, a case was filed and a penalty of
` 100 crores has been demanded from Tara Ltd. on 1st September, 2023.
The legal counsel of the company has assessed the demand and opined that
appeals may not be useful, and the appeal orders will be unfavourable to the
joint arrangement. As per the terms of the joint operations agreement, out
of ` 100 crores (to be paid by Tara Ltd.), ` 60 crores will be reimbursed by
Zara Ltd. to Tara Ltd within three months from the date of any demand made
in respect of joint operations by any government authorities. However, till
the year end, actual reimbursement was not received from Zara Ltd.
(ii) On 1st April, 2023, Tara Ltd. leased a machine from Dara Ltd. on a three year
lease. The expected future economic life of the machine on 1st April, 2023
was eight years. If the machine breaks down, then under the terms of the
lease, Dara Ltd would be required to repair the machine or provide a
replacement.
Dara Ltd agreed to allow Tara Ltd. to use the machine for the first six months
of the lease without the payment of any rent as incentive to
Tara Ltd. to sign the lease agreement. After this initial period, lease rentals

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of ` 4,20,000 were payable six monthly in arrears, the first payment falling
due on 31st March, 2024.
(iii) Tara Ltd. has invested in debentures whose interest rate is floating in nature
and as per terms of the instrument, interest will be reset every month. As per
terms, rate of interest is MIBOR plus 2%.
(iv) On 1st January, 2024, Tara Ltd. took a contract for installation of new elevator
at a factory of its customer. The entity estimates the following with respect
to the contract:

Particulars Amount (`)

Transaction price 30,00,000
Expected costs:
(a) Elevators 10,00,000
(b) Other costs 12,00,000
Total 22,00,000

It purchased the elevator and delivered the same to the site six months before
it is required for installation. The entity uses an input method based on cost
to measure progress towards completion. Tara Ltd. has incurred actual other
costs of ` 3,00,000 by 31st March, 2024.
(v) Tara Ltd. has classified its business in 5 operating segments namely A, B, C,
D and E. The profit/(loss) of respective segments for the year ended
31st March, 2024, are as follow:

Segment Profit/ (Loss) (` in lakhs)

A 1,280
B 2,624
C (280)
D 315
E (2,620)
Total 1,319

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On the basis of the information provided above, you are required to choose
the most appropriate answer to the below-mentioned questions 1 to 5 in
line with the relevant Ind AS:
1. With respect to a joint operation engaged in the business of mining precious
metals, how will the liability be disclosed in the books of Tara Ltd.?
A. Provision for ` 40 crores and a contingent liability for ` 60 crores.
B. Contingent Liability for ` 100 crores.
C. Provision for ` 60 crores and a contingent liability for ` 40 crores.
D. Provision for ` 100 crores.
2. Classify the financial asset and determine the subsequent measurement for
the aforesaid debenture instrument?
A. Financial asset measured at amortised cost
B. Financial asset measured at FVOCI without recycling
C. Financial asset measured at FVTPL
D. Financial asset measured at FVOCI with recycling
3. Which of the following option will be considered as Reportable Segments for
Tara Ltd.?
A. A, B, D and E
B. A, B and E
C. A and E
D. B and E
4. Calculate the current liability for machine from Dara Ltd., to be shown in the
balance sheet as at 31st March, 2024.
A. ` 1,40,000
B. ` 2,80,000
C. ` 7,00,000
D. ` 8,40,000

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5. What is the amount of revenue to be recognized by Tara Ltd. for elevator

contract during the financial year 2023-2024?
A. ` 8,00,000
B. ` Nil
C. ` 15,00,000
D. ` 18,00,000 (5 x 2 = 10 Marks)
You are required to choose the most appropriate answer to the below
mentioned questions (6 to 8) in line with the relevant Ind AS:
6. When should the government grant be recognized by an entity according to
Ind AS 20?
A. As soon as the grant is offered by the government
B. Once the entity fulfills the conditions attached to the grant
C. When there is reasonable assurance that the entity will comply with the
conditions and receive the grants
D. After entity has received the grants (2 Marks)
7. What is the stance of a Chartered Accountant regarding conflicts of interest?
A. Conflicts of interest should not compromise professional or business
judgement
B. Conflicts of interest are acceptable if managed properly
C. Conflicts of interest are unavoidable and should be accepted
D. Conflicts of interest should be disclosed but can still compromise
judgement (2 Marks)
8. Following statements are given to you in context of Ind AS 101 ‘First Time
Adoption of Ind AS’:
(i) An entity shall not make estimates in accordance with Ind AS at the date
of transition to Ind AS that were not required at that date under previous
GAAP.

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(ii) In particular, estimates at the date of transition to Ind AS of market

prices, interest rates or foreign exchange rates shall reflect market
conditions at that date.
(iii) An entity may need to make estimates in accordance with Ind AS at the
date of transition in Ind AS that were not required at that date under
previous GAAP.
(iv) To achieve consistency with Ind AS 10, estimates in accordance with Ind
AS shall reflect conditions that existed at the date of transition to Ind AS.
Which of the above statements are true in context of Ind AS 101?
A. Only (i), (ii) and (iii) are true
B. Only (i) and (ii) are true
C. Only (ii), (iii) and (iv) are true
D. Only (iii) and (iv) are true (2 Marks)
Case Study 2
Planet Ltd. is a multinational company engaged into the business of
manufacturing of various products of different segments. One of the segments is
the manufacturing of agricultural equipment. The company raised a term loan
for ` 1 crore from a Nationalized Indian Bank to purchase certain plant and
machinery for agricultural segment during the year ended 31st March, 2023. The
loan is repayable over a period of 5 years. The terms and conditions of the loan
agreement is that the company should maintain a current ratio of 1.5:1 and debt-
equity ratio of 1:2. If these covenants fall below this level, then the bank has a
right to recall the entire loan.
The unpaid loan as on 31st March, 2024 was ` 85 lakhs. The current ratio of
Planet Ltd. was 0.9:1 and debt-equity ratio was 0.65:2. The bank has sent a notice
on 7th April, 2024 demanding repayment of loan, on account of breach of terms
of the loan agreement. The financials of the company were approved and signed
on 15th May, 2024.
After receiving the notice, the Chief Finance Officer of the company contacted the
bank and ensured to rectify the breach. Consequently, on 28th May, 2024, the
Bank agreed not to recall the loan and allowed the company to achieve the

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contracted current and debt equity ratio by the year ending on

31st March, 2025
Planet Ltd. has recently acquired shares in Bean Ltd. and Camel Ltd. and prepared
draft consolidated financial statements in accordance with Ind AS for the year
ended on 31st March, 2024. It is the group's policy to value its non-controlling
interests at fair value. The fair value of the non-controlling interest in Bean Ltd.
on the date of acquisition was measured at ` 1,430 lakhs. The following
information is relevant regarding the acquisition of shares in
Bean Ltd. and Camel Ltd.:

Date of acquisition Holding Retained Purchase

acquired earnings at consideration
acquisition date
% ` (in lakhs) ` (in lakhs)
Bean Ltd - 01.04.2023 85 5,400 10,200
Camel Ltd - 01.04.2023 40 6,240 5,760

In the draft Consolidated Financial Statements prepared on 31st March, 2024 the
financials relating to Bean Ltd. and Camel Ltd. appeared as follows:

Bean Ltd. Camel Ltd.

(` in lakhs) (` in lakhs)
Issued ordinary shares of ` 10 each 3,600 4,000
Retained earnings 7,200 7,400

Bean Ltd. and Camel Ltd. have not issued any share capital since the acquisition
of shareholding by Planet Ltd. The fair value of the net assets of Bean Ltd. and
Camel Ltd. were the same as their carrying amounts at the date of acquisition.
Planet Ltd. has significant influence over Camel Ltd. An impairment loss of
` 204 lakhs have been identified in respect of goodwill arising on the acquisition
of Bean Ltd. for the year ended on 31st March, 2024. The recoverable amount of
net assets of Camel Ltd. has been deemed to be ` 11,760 lakhs as on
31st March, 2024.
On 1st January, 2024, Planet Ltd. sold inventory costing ` 45 lakhs to Camel Ltd.
for ` 63 lakhs. The inventory was still unsold by Camel Ltd. at 31st March, 2024.
This inventory was sold by Camel Ltd. to third party on 8th April, 2024.

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Planet Ltd. has constructed a shopping mall earlier. The company renovated a
portion of mall by constructing a food court, spa and gaming zone. The food
court and gaming zone are expected to result in a significant increase in sales for
the shops and outlets of the mall.
On the basis of the information provided above, you are required to choose
the most appropriate answer to the below-mentioned questions 9 to 12 in
line with the relevant Ind AS:
9. After negotiation with the Nationalized Bank, how long-term loan has to be
classified in financials for the year ended on 31st March, 2024?
A. Non-current financial liability
B. Other non-current liability
C. Current financial liability
D. Other current liability
10. What will be the impairment loss from investment in associate for the year
ending 31st March, 2024?
A. ` 1,440 lakhs
B. ` 1,432.80 lakhs
C. ` 1,055.20 lakhs
D. ` 1,512.80 lakhs
11. What will be the amount of Goodwill as on 31st March, 2024, arising from
the acquisition of Bean Ltd.?
A. ` 2,530 lakhs
B. ` 2,630 lakhs
C. ` 2,426 lakhs
D. ` 2,326 lakhs

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12. What should be the accounting treatment for the cost incurred for the
renovation?

A. Expenses incurred for food court and gaming should be capitalized

B. Expenses incurred for food court, spa and gaming should be capitalized
C. Expenses incurred for food court and gaming zone should be charged to
statement of profit and loss
D. Expenses incurred for food court, spa and gaming zone should be
charged to statement of profit and loss (4 x 2 = 8 Marks)

Case Study 3
Nikhil Pvt. Ltd. acquired 100% of Pranav Pvt. Ltd. on 1st January, 2023. The fair
value of the purchase consideration was ` 20 crores consisting of ordinary shares
of ` 100 each of Nikhil Pvt. Ltd. The fair value of the net assets acquired was
` 15 crores. At the time of the acquisition, the value of the ordinary shares of
Nikhil Pvt. Ltd. and the net assets of Pranav Pvt. Ltd. were only provisionally
determined.
On 30th November, 2023, it was finally determined that the fair value of Nikhil
Pvt. Ltd.’s shares was ` 22 crores and the fair value of net assets of Pranav Pvt.
Ltd. was ` 16 crores.
However, the directors of Nikhil Pvt. Ltd. have seen the fair value of the company's
shares decline since 1st January, 2023, and wanted to adopt the fair value of the
shares as of 1st February, 2024, which will result in the fair value of consideration
at being value date ` 18 crores.
In addition to the above Purchase Consideration, the acquisition agreement states
that an additional ` 4 crores will be paid if Pranav Pvt. Ltd. achieves a turnover
of ` 160 crores in the next two years. On the date of acquisition, the fair value of
the said consideration was ` 3 crores. In February 2024, due to decline in
performance of Pranav Pvt. Ltd., it is determined that it is unlikely that it would
meet budgeted turnover of ` 160 crores.

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On the basis of the information provided above, you are required to choose the
most appropriate answer to the below mentioned questions 13 to 15 in line with
the relevant Ind AS:
13. The Net Assets Value will be-
A. ` 15 crores
B. ` 16 crores
C. ` 20 crores
D. ` 19 crores

14. The value of Purchase Consideration will be-

A. ` 18 crores
B. ` 20 crores
C. ` 22 crores
D. ` 25 crores
15. How should Nikhil Pvt. Ltd. treat the contingent consideration linked to
achieving sales?
A. Nikhil Pvt. Ltd. should not recognize the consideration as it is unlikely
that it would be paid.

B Nikhil Pvt. Ltd. should disclose the consideration as it is contingent

liability in its financial statements which will be met only upon
Pranav Pvt. Ltd. earning a turnover of ` 160 crores.
C Nikhil Pvt. Ltd. should recognise the fair value of the consideration as
part of the business combination, thus increasing goodwill and re-
measure it at the end of each reporting period. The impact of change in
fair value is recognised in the statement of profit and loss.
D. There is no specific treatment prescribed under Ind AS. Nikhil Pvt. Ltd.
should decide the appropriate accounting treatment based on the facts
and circumstances of the case. (3 x 2 = 6 Marks)

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Answer key
1. Option (D): Provision for ` 100 crores
2. Either Option (C): Financial asset measured at FVTPL
Or Option (A): Financial asset measured at amortised cost
Or Option (D): Financial asset measured at FVOCI with recycling
3. Option (B): A, B and E
4. No correct option
5. Option (C): ` 15,00,000
6. Option (C): When there is reasonable assurance that the entity will comply
with the conditions and receive the grants.
7. Option (A): Conflicts of interest should not compromise professional or
business judgement
8. Option (C): Only (ii), (iii) and (iv) are true
9. Option (C): Current financial liability
10. Option (D): ` 1,512.80 lakhs
11. Option (C): ` 2,426 lakhs
12. Option (A): Expenses incurred for food court and gaming zone should be
capitalised
13. Option (B): ` 16 crores
14. Option (D): ` 25 crores
15. Option (C): Nikhil Pvt. Ltd. should recognise the fair value of the
consideration as part of the business combination, thus increasing goodwill
and remeasure it at the end of each reporting period. The impact of change
in fair value is recognised in the Statement of Profit and Loss.

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PART-II
Question No.1 is compulsory. Candidates are required to answer any four
questions from the remaining five questions.
Working notes should form part of the answer.
Question 1
The balance sheets of H Ltd. and S Ltd. as on 31 st March, 2024 were as follows:

Particulars H Ltd. S Ltd.

` in Lakhs
Assets:
Non-Current Assets
Property, plant and equipment 14,800 6,000
Financial Assets: Investment
Investment in S Ltd. 5,800
1,000 Debentures in S Ltd. 1,500
Current Assets
Inventories 2,600 2,000
Financial Assets
Trade receivables 4,000 3,000
(due from S Ltd. ` 160 lakh)
Dividend receivable 320 -
Cash and cash equivalent 500 2,000
Total 29,520 13,000
Equity and Liabilities
Equity
Equity Share Capital (` 10 per share) 10,000 4,000
Other Equity (Retained Earnings) 16,320 5,000
Non-current Liabilities
13% Debentures of ` 100 each 3,000

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Current Liabilities
Financial Liabilities:
Trade Payables (due to H Ltd. ` 120 lakh) 1,700 600
Dividend Payable 400
Other Liabilities 1,500
Total 29,520 13,000

Additional Information:
(i) On 1st April, 2023, S Ltd. had 400 lakh shares of ` 10 each and ` 3,000 lakh
in its Retained Earnings in Other Equity. H Ltd. acquired 80% share of S Ltd.
on 1st April, 2023 at a consideration of ` 5,800 lakh in cash.
(ii) The following changes in book value of identifiable net assets of S Ltd. as on
1st April, 2023 are to be considered for arriving the fair value of identifiable
net assets and to record the changes in their fair value on the said date.
These changes in fair values are to be considered while drawing consolidated
Financial Statement of the Group.

Assets Book value Fair value

PPE ` 2,500 lakhs ` 2,800 lakhs
Inventory ` 500 lakhs ` 200 lakhs
The rate of depreciation on PPE is 10% p.a.
(iii) NCI was to be measured at fair value based on purchase consideration.
(iv) Goodwill was impaired by ` 100 lakh.
(v) H Ltd. sold goods worth ` 200 lakh to S Ltd. on credit at a profit of 20% on
sales. 50% of the goods were still lying unsold.
(vi) S Ltd. issued a cheque of ` 40 lakh in favour of H Ltd. as a part payment of
the goods purchased from it in March, 2024. The cheque is yet to be received
by H Ltd.
(vii) Dividend payable represents the dividend declared out of pre-acquisition
profit. H Ltd. credited its share of dividend from S Ltd. to its profits.
Prepare the Consolidated Balance Sheet of the Group as at 31st March, 2024.
(14 Marks)

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SUGGESTED ANSWER FINANCIAL REPORTING

Answer

Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd.

as at 31st March, 2024

Notes No. ` in lakhs

Assets
Non-current assets
Property, plant and equipment 1 21,070
Goodwill 2 150
Current assets
Inventory 3 4,275
Financial assets
Cash and cash equivalents 4 2,540
Trade receivables 5 6,840
Dividend receivable 6 Nil
Total 34,875
Equity and Liabilities
Equity
Share capital - Equity shares of ` 10 each 10,000
Other equity 7 16,292
Non-controlling interest (W.N.4) 1,824
Non-current liabilities
Financial liabilities
Borrowings- 13% Debentures 8 2,999
Current Liabilities
Financial liabilities
Trade payables 9 2,180
Dividend payable 10 80
Other liabilities 1,500
Total 34,875

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Notes to Accounts
1. Property, Plant and Equipment ` in lakhs

Particulars ` `
H Ltd. 14,800
S Ltd. 6,000
Add: Fair value gain 300
Less: Additional depreciation due to
fair value gain (30) 6,270 21,070

2. Goodwill ` in lakhs

Particulars ` `
Goodwill on acquisition of S Ltd. (Refer W.N.3) 250
Less: Impairment (100) 150

3. Inventory ` in lakhs

Particulars ` `
H Ltd. 2,600
S Ltd. 2,000
Less: Fair value loss (300)
Less: Unrealised gain (200/80% x 20% x 50%) (25) 1,675 4,275

4. Cash and cash equivalent ` in lakhs

Particulars ` ` `
H Ltd. 500
Add: Cheque in Transit 40 540
S Ltd. 2,000 2,540
5. Trade Receivable ` in lakhs

Particulars ` `
H Ltd. 4,000
Less: Mutual transaction (160) 3,840
S Ltd. 3,000 6,840

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6. Dividend Receivable ` in lakhs

Particulars ` `
H Ltd. 320
Less: Mutual transaction (320) Nil

7. Other Equity (Retained Earnings) ` in lakhs

Particulars ` `
H Ltd. 16,320
Less: Share of pre-acquisition dividend (400 x 80%) (320) 16,000
Post acquisition RE of S Ltd. (W.N.1) 2,370
Less: Share of NCI in post-acquisition RE of S Ltd.
(2,370 x 20%) (474) 1,896
Less: Impairment of goodwill (100 x 80%) (80)
Less: Loss on cancellation of debentures (mutual
holding) (W.N.5) (1,499)
Less: Unrealised gain (W.N.6) (25)
16,292

8. Borrowings (13% Debentures) ` in lakhs

Particulars ` `
S Ltd. 3,000
Less: Mutual holding by H Ltd.
(1,000 Debentures x ` 100) (1) 2,999

9. Trade Payables ` in lakhs

Particulars ` `
H Ltd. 1,700
S Ltd. 600
Less: Mutual transaction (120) 480 2,180

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10. Dividend Payables ` in lakhs

Particulars ` `
S Ltd. 400
Less: Mutual transaction (320) 80

Working Notes:
1. Analysis of Retained Earnings of S Ltd. ` in lakhs

Closing balance as on 31st March, 2024 5,000

Less: Pre-acquisition Retained Earnings as on 1st April, 2023
(3,000 – 400) (2,600)
2,400
Less: Additional depreciation (30)
Post-acquisition Retained Earnings 2,370

2. Computation of net worth (net identifiable assets) as on

1st April, 2023 ` in lakhs
Share Capital of S Ltd. 4,000
Pre-acquisition Retained Earnings 3,000
Fair value gain on PPE (2,800 – 2,500) 300
Fair value loss on inventory (500 - 200) (300)
Net Worth or Net Identifiable Assets 7,000
3. Computation of Goodwill on acquisition date of S Ltd. ` in lakhs
Purchase consideration 5,800
NCI (by fair value method) as on 1st April, 2023 [(5,800/80%) x 20%] 1,450
7,250
Less: Net worth or Net Identifiable Assets (W.N.2) (7,000)
Goodwill as on 1st April, 2023 250

4. Non-Controlling Interest as on 31st March, 2024 ` in lakhs

NCI (by fair value method) as on 1st April, 2023 1,450
Less: Share of pre-acquisition dividend (400 x 20%) (80)
Post-acquisition Retained Earnings (2,370 x 20%) 474

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Less: Share of impairment of Goodwill (100 x 20%) (20)

NCI as on 31 March, 2024
st
1,824

5. Loss on settlement of Debentures held by H Ltd. ` in lakhs

Investment in Debentures by H Ltd. 1,500
Less: Nominal value of debentures held by H Ltd. (1,000 x ` 100) (1)
Loss on settlement of investment in Debentures 1,499
6. Computation of unrealised gain by H Ltd. on sale of goods to S Ltd.
` in lakhs
Cost price of the goods sold 200
Sales price of the goods sold (200/80%) 250
Profit on sale of such goods 50
Unrealized gain on 50% unsold goods (50 x 50%) 25
Note: In the above solution, it is assumed that in additional information (v),
` 200 lakh is the cost price of the goods for H Ltd. which is sold to S Ltd. at
` 250 lakhs i.e. after 20% profit on sales. However, alternatively it may be
assumed that ` 200 lakhs is the sales price of the goods for H Ltd. profit will be
` 200 lakhs x 20% i.e. ` 40 lakhs. In such a situation, the answer will be as
follows:
Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd.
as at 31st March, 2024

Notes No. ` in lakhs

Assets
Non-current assets
Property, plant and equipment 1 21,070
Goodwill 2 150
Current assets
Inventory 3 4,280
Financial assets
Cash and cash equivalents 4 2,540
Trade receivables 5 6,840

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Dividend receivable 6 Nil

Total 34,880
Equity and Liabilities
Equity
Share capital - Equity shares of ` 10 each 10,000
Other equity 7 16,297
Non-controlling interest (W.N.4) 1,824
Non-current liabilities
Financial liabilities
Borrowings - 13% Debentures 8 2,999
Current Liabilities
Financial liabilities
Trade payables 9 2,180
Dividend payable 10 80
Other liabilities 1,500
Total 34,880

Notes to Accounts
1. Property, Plant and Equipment ` in lakhs

Particulars ` `
H Ltd. 14,800
S Ltd. 6,000
Add: Fair value gain 300
Less: Additional depreciation due to
fair value gain (30) 6,270 21,070

2. Goodwill ` in lakhs

Particulars ` `
Goodwill on acquisition of S Ltd. (Refer W.N.3) 250
Less: Impairment (100) 150

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3. Inventory ` in lakhs

Particulars ` `
H Ltd. 2,600
S Ltd. 2,000
Less: Fair value loss (300)
Less: Unrealised gain (W.N.6) (20) 1,680 4,280

4. Cash and cash equivalent ` in lakhs

Particulars ` ` `
H Ltd. 500
Add: Cheque in Transit 40 540
S Ltd. 2,000 2,540

5. Trade Receivables ` in lakhs

Particulars ` `
H Ltd. 4,000
Less: Mutual transaction (160) 3,840
S Ltd. 3,000 6,840

6. Dividend Receivables ` in lakhs

Particulars ` `
H Ltd. 320
Less: Mutual transaction (320) Nil

7. Other Equity (Retained Earnings) ` in lakhs

Particulars ` `
H Ltd. 16,320
Less: Share of pre-acquisition dividend
(400 x 80%) (320) 16,000
Post acquisition RE of S Ltd. (W.N.1) 2,370

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Less: Share of NCI in post-acquisition RE of

S Ltd. (2,370 x 20%) (474) 1,896
Less: Impairment of goodwill (100 x 80%) (80)
Less: Loss on cancellation of debentures
(mutual holding) (W.N.5) (1,499)
Less: Unrealised gain (W.N.6) (20)
16,297

8. Borrowings (13% Debentures) ` in lakhs

Particulars ` `
S Ltd. 3,000
Less: Mutual holding by H Ltd.
(1,000 Debentures x ` 100) (1) 2,999

9. Trade Payables ` in lakhs

Particulars ` `
H Ltd. 1,700
S Ltd. 600
Less: Mutual transaction (120) 480 2,180

10. Dividend Payables ` in lakhs

Particulars
S Ltd. 400
Less: Mutual transaction (320) 80
Working Notes:
1. Analysis of Retained Earnings of S Ltd. ` in lakhs

Closing balance as on 31st March, 2024 5,000

Less: Pre-acquisition Retained Earnings as on 1 April, 2023
st

(3,000 – 400) (2,600)

2,400
Less: Additional depreciation (30)
Post-acquisition Retained Earnings 2,370

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SUGGESTED ANSWER FINANCIAL REPORTING

2. Computation of net worth (net identifiable assets) as on 1 stApril, 2023

` in lakhs

Share capital of S Ltd. 4,000

Pre-acquisition Retained Earnings 3,000
Fair value gain on PPE (2,800 – 2,500) 300
Fair value loss on inventory (500 - 200) (300)
Net Worth or Net Identifiable Assets 7,000
3. Computation of Goodwill on acquisition date of S Ltd. ` in lakhs

Purchase consideration 5,800

NCI (by fair value method) as on 1 April, 2023
st

[(5,800 / 80%) x 20%] 1,450

7,250
Less: Net worth or Net Identifiable Assets (W.N.2) (7,000)
Goodwill as on 1 April, 2023
st
250
4. Non-controlling Interest as on 31st March, 2024 ` in lakhs

NCI (by fair value method) as on 1st April, 2023 1,450

Less: Share of pre-acquisition dividend (400 x 20%) (80)
Post-acquisition Retained Earnings (2,370 x 20%) 474
Less: Share of impairment of Goodwill (100 x 20%) (20)
NCI as on 31st March, 2024 1,824
5. Loss on settlement of Debentures held by H Ltd. ` in lakhs

Investment in Debentures by H Ltd. 1,500

Less: Nominal value of debentures held by H Ltd. (1,000 x ` 100) (1)
Loss on settlement of investment in Debentures 1,499

6. Computation of unrealised gain by H Ltd. on sale of goods to S Ltd.

` in lakhs

Sales price of the goods sold 200

Profit on sale of such goods (200 x 20%) 40
Unrealized gain on 50% unsold goods (40 x 50%) 20

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

Question 2
(a) On 1st January, 2023, Joe & Co Ltd., an Indian company which prepares its
financial statements on a quarterly basis has entered into a written put
option for USD ($) 40,000 with Box Ltd. to be settled in future on
31st December, 2023 for a rate equal to ` 78 per USD at the option of
Box Ltd. Joe & Co. Ltd. did not receive any amount upon entering into the
contract.
For the purpose of accounting, use the following information representing
marked to market fair value of put option contract at each reporting date.
As at 31st March, 2023 - ` (50,000)
As at 30th June, 2023 - ` (30,000)
As at 30th September, 2023 - ` NIL
Spot rate of USD on 31st December, 2023 - ` 76 per USD.
Evaluate and explain whether the above option meets the definition of
derivatives as laid down in Ind AS 109 and record the entries for each quarter
ended till the date of actual purchase of USD. (10 Marks)
(b) Spicer Ltd., a listed company, prepares interim financial reports at the end of
each quarter.
The following information is provided:
(i) On 1st April, 2023, Spicer Ltd. has brought forward losses of ` 620 lakh
under Income Tax Act. No Deferred Tax Asset has been recognized by
the management of the company for such losses in view of the
uncertainty over company's ability to earn profits in the foreseeable
future and set off these losses.
(ii) Due to sudden change in government policies, the company's business
turned around and it has reported quarterly earnings of ` 650 lakh and
` 360 lakh respectively for the first two quarters of financial year
2023-2024 and anticipates net earnings of ` 720 lakh in the coming half
year ended March 2024 of which ` 160 lakh will be the loss in the quarter
ended December 2023.
(iii) The tax rate for the company is 25% with a 10% surcharge.

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SUGGESTED ANSWER FINANCIAL REPORTING

You are required to calculate the amount of Tax Expenses to be reported for
each quarter of the financial year 2023-2024. (4 Marks)
Answer
(a) Assessment of the arrangement using the definition of derivative
included under Ind AS 109
Derivative is a financial instrument or other contract within the scope of
this Standard with all three of the following characteristics:
(a) its value changes in response to the change in a specified interest rate,
financial instrument price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit index, or other variable,
provided in the case of a non-financial variable that the variable is not
specific to a party to the contract (sometimes called the 'underlying').
(b) it requires no initial net investment or an initial net investment that is
smaller than would be required for other types of contracts that would
be expected to have a similar response to changes in market factors.
(c) it is settled at a future date.
The contract meets the definition of a derivative as follows:
(a) the value of the contract to purchase USD at a fixed price changes in
response to changes in foreign exchange rate.
(b) the initial amount received to enter into the contract is zero. A contract
which would give the holder a similar response to foreign exchange rate
changes would have required an investment of USD 40,000 on inception.
(c) the contract is settled in future
The derivative liability is a written put option contract.
As per Ind AS 109, derivatives are measured at fair value upon initial
recognition and are subsequently measured at fair value through profit and
loss.
• Accounting on 1st January, 2023
As there was no consideration paid and without evidence to the
contrary the fair value of the contract on the date of inception is
considered to be zero. Accordingly, no accounting entries shall be
recorded on the date of entering into the contract.

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

• Accounting on 31st March, 2023

The value of the derivative put option contract shall be recorded as a
derivative financial liability in the books of Joe & Co. Ltd. by recording
the following journal entry:

Particulars Dr. (`) Cr. (`)

Profit and loss A/c Dr. 50,000
To Derivative financial liability 50,000
(Being mark to market loss on the put
option contract recorded)

• Accounting on 30th June, 2023

The change in value of the derivative put option contract shall be
recorded as a derivative financial liability in the books of Joe & Co. Ltd.
by recording the following journal entry:

Particulars Dr. (`) Cr. (`)

Derivative financial liability A/c Dr. 20,000
To Profit and loss A/c 20,000
(Being partial reversal of mark to market loss
on the put option contract recorded)

• Accounting on 30th September, 2023

The change in value of the derivative option contract shall be recorded
at zero in the books of Joe & Co. Ltd. by recording the following journal
entry:

Particulars Dr. (`) Cr. (`)

Derivative financial liability A/c Dr. 30,000
To Profit and loss A/c 30,000
(Being gain on mark to market of put option
contract booked to make the value of the
derivative liability as zero)

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SUGGESTED ANSWER FINANCIAL REPORTING

• Accounting on 31stDecember, 2023

The settlement of the derivative put option contract by actual purchase
of USD 40,000 shall be recorded in the books of Joe & Co. Ltd. upon
exercise by Box Ltd. by recording the following journal entry:

Particulars Dr. (`) Cr. (`)

Bank (USD Account) (@40,000 x ` 76) Dr. 30,40,000
Profit and loss A/c Dr. 80,000
To Bank (@ 40,000 x ` 78) 31,20,000
(Being loss on settlement of put option
contract booked on actual purchase of
USD)

(b) It is assumed that net profit for all the quarters of the year 2023-2024
excludes the brought forward losses of ` 620 lakh.
Computation of estimated total earnings for the year 2023-2024

Quarter Earnings before

tax (in lakhs)
1 650 (actual)
2 360 (actual)
3 (160) (estimated)
4 720 + 160 = 880 (estimated)
1,730 (estimated)
Tax rate for the company = 25 x 110% = 27.5%
Computation of Average Annual Effective Tax Rate
The estimated payment of the annual tax on earnings for the current year:
= (1,730-620) x 27.5% = ` 305.25 lakhs.
As per Ind AS 34, income tax expense is recognised in each interim period
based on the best estimate of the weighted average annual income-tax rate
expected for the full financial year.
Thus, average annual effective tax rate = (305.25 / 1,730) × 100
= 17.645% (approx.)

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

Tax expense to be shown in each quarter.

Quarter Earnings before tax Tax expense

(in lakhs) @ 17.645%
1 650 (actual) 114.69
2 360 (actual) 63.52
3 (160) (estimated) (28.23)
4 720 + 160 = 880 (estimated) 155.27
1,730 (estimated) 305.25

Question 3
(a) Anand Ltd. owns a Building X which is specifically used for the purpose of
earning rentals. The Company has not been using the Building X or any of
its facilities for its own use for a long time. The company is also exploring the
opportunities to sell the building if it gets the reasonable amount in
consideration.
Following information is relevant for Building X for the year ending
31st March, 2024:
Building X was initially purchased at the cost of ` 120 crores. At that time,
the useful life of the building was estimated to be 10 years; out of which 5
years have been expired as on 1st April, 2023: The company follows straight
line method for depreciation.
During the year, the company has invested in another Building Y with the
purpose to hold it for capital appreciation. The property was purchased on
1st April, 2023 at the cost of ` 20 crores. Expected life of the building is
20 years. As usual, the company follows straight line method of depreciation
Further, during the year 2023-2024, the company earned/incurred the
following, directly relating to Building X and Building Y:
Rental income from Building X = ` 15 crores
Rental income from Building Y = ` 5 crores
Sales promotion expenses = ` 0.50 crores
Fees and Taxes = ` 0.10 crores
Ground Rent = ` 0.25 crores-

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SUGGESTED ANSWER FINANCIAL REPORTING

Repairs and Maintenance = ` 0.15 crores

Legal and Professional = ` 0.20 crores
Commission and Brokerage = ` 0.10 crores
The company does not have any restrictions and contractual obligations
against Property X and Y. For complying with the requirements of Ind AS,
the management sought an independent report from the specialists so as to
ascertain the fair value of buildings X and Y. The independent valuer has
valued the fair value of property as per the valuation model recommended
by international valuation standards committee. Fair value has been
computed by the method by streamlining present value of future cash flows
namely, discounted cash flow method.
The estimated rent per month per square feet for the period is expected to be
in range of ` 50 to ` 60. And it is further expected to grow at the rate of
10 percent per annum for each of 3 years. The weightage discount rate used
is 12% to 13%.
Assume that the fair value of properties based on discounted cash flow
method is measured at ` 105 crores. The treatment of fair value of properties
is to be given in the financials as per the requirements of Indian Accounting
Standards.
You are required to:
(i) Show how the Building X and Building Y would be the treated in the
Balance Sheet of Anand Ltd.?
(ii) Provide detailed disclosures and computations in line with relevant
Ind AS. (Treat it as if you are preparing a separate note or schedule of
the given assets in the Balance Sheet.) (8 Marks)
(b) Mahadev Ltd. has a block of assets with a written down value of ` 5,00,000
on 1st April, 2022 for tax purposes. The book value of the assets for
accounting purposes is also ` 5,00,000. Depreciation is charged on written
down value @ 20% p.a. for both accounting and tax purposes. Of the entire
block, assets costing ` 50,000 on 1st April, 2022 were sold for ` 1,00,000 on
31st March, 2024. You are required to compute the deferred tax asset/liability
assuming tax rate of 35%. (6 Marks)

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

Answer
(a) Investment property is held to earn rentals or for capital appreciation or
both. Ind AS 40 shall be applied in the recognition, measurement and
disclosure of investment property. An investment property shall be
measured initially at its cost. After initial recognition, an entity shall
measure all of its investment properties in accordance with the
requirements of Ind AS 16 for cost model.
The measurement and disclosure of Investment property as per Ind AS 40
in the balance sheet would be as follows:

INVESTMENT PROPERTIES: (` in crores)

Particulars Property Property Period ended
X Y 31 st March,
2024
Gross Amount:
Opening balance 120.00 120.00
Additions during
the year 20.00 20.00
Closing balance (A) 120.00 20.00 140.00
Depreciation:
Opening balance 60.00 60.00
Depreciation during
the year (12 + 1) 12.00 1.00 13.00
Closing balance (B) 72.00 1.00 (73.00)
Net balance (A-B) 48.00 19.00 67.00

The changes in the carrying value of investment properties for the year
ended 31st March, 2024 are as follows:
Amount recognized in Profit and Loss with respect to Investment
Properties (` in crores)

Particulars Period ending

31 st March,
2024
Rental income from investment properties 20.00
(15.00 + 5.00)

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SUGGESTED ANSWER FINANCIAL REPORTING

Less: Direct operating expenses generating rental

income (0.50 + 0.10 + 0.25 + 0.15 + 0.20 + 0.10) (1.30)
Profit from investment properties before
depreciation and indirect expenses 18.70
Less: Depreciation (13.00)
Profit from earnings from investment properties
before indirect expenses 5.70

Disclosure Note on Investment Properties acquired by the entity

The investment properties consist of Building X and Building Y. As at
31st March, 2024, the fair value of the properties is ` 105 crores. The
valuation is performed by independent valuers, who are specialists in
valuing investment properties. A valuation model as recommended by
International Valuation Standards Committee has been applied. The
Company considers factors like management intention, terms of rental
agreements, area leased out, life of the assets etc. to determine
classification of assets as investment properties.
The Company has no restrictions on the realisability of its investment
properties and no contractual obligations to purchase, construct or develop
investment properties or for repairs, maintenance and enhancements.
Description of valuation techniques used and key inputs to valuation
on investment properties:

Valuation Significant unobservable Range (Weighted

technique inputs average)
Discounted - Estimated rental value per - ` 50 to ` 60
cash flow sq. ft. per month - 10% every 3 years
(DCF) method - Rent growth per annum - 12% to 13%
- Discount rate

(b) Computation of tax base

Particulars Carrying Taxbase

amount (`) (`)
Carrying balance on 1st April, 2022 5,00,000 5,00,000
Less: Depreciation (1,00,000) (1,00,000)

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

Balance as on 31st March, 2023 4,00,000 4,00,000

No Temporary difference as on 31 March, 2023
st
-- --
Less: Carrying amount on the date of disposal
to be reversed (accounting record) (Refer W.N.) (32,000)
Less: Sale proceeds of the asset to be deducted
as per tax records (1,00,000)
Less: Depreciation
Accounting depreciation (80,000)
(4,00,000 x 20%)
Tax depreciation (60,000)
{(4,00,000 - 1,00,000) x 20%)}
Balance of the asset as on 31st March, 2024 2,88,000 2,40,000

Working Note:
Accounting book value on 31st March, 2024 = ` 50,000 - ` 10,000 - ` 8,000
= ` 32,000
Carrying amount is greater than Tax base which leads to Deferred Tax
Liability i.e. Temporary difference = ` 2,88,000 - ` 2,40,000 = ` 48,000
Deferred Tax Liability = ` 48,000 x 35% = ` 16,800
Question 4
(a) On 1st April, 2020, Peacock Ltd. started its manufacturing operations by
installing a machine in the rented premises. The estimated life of the
machine is 4 years. As per the terms of the rent agreement, Peacock Ltd. has
a present obligation to dismantle the machine and restore the premises into
its original shape. The company estimates to incur ` 6,00,000 at the end of
4th year to restore the premises into the original shape. The borrowing rate
applicable to the company is 8%.
(Note: PV Factor for 4th year discounted @ 8% = 0.735)
You are required to:
(i) Advise the accounting treatment of the above; and
(ii) Pass necessary journal entries across all four years. (6 Marks)

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SUGGESTED ANSWER FINANCIAL REPORTING

(b) Greater Ltd., in order to reward its employees launched a scheme effective
from 1st April, 2021, in which employees will be granted equity shares of the
company at a price less than the market price subject to satisfaction of
certain conditions. Following details are provided to you:
(a) According to scheme, each employee has an option to purchase 250
equity shares of the company at ` 45 per share provided that the
employee does not leave the company for 3 years from the date of launch
of the scheme i.e. up to 31st March, 2024.
(b) Once 3 years are completed by an employee, the employee can exercise
the option within 1 year i. e. by 31st March, 2025.
(c) The closing share price on stock exchange as at 1st April, 2021 is ` 91 per
share with face value of ` 10 per share. A registered valuer has been
appointed by the company who derived the price of option at ` 75 using
Black Scholes model of option pricing.
(d) There are 750 employees eligible for the scheme. As at 31st March, 2022,
25 employees left the company and further 35 employees are expected
to leave over the next 2 years. During the year 2022-2023, a foreign
based company entered into the market and started hiring experienced
employees and therefore retention of existing employees has been
problematic and a high attrition rate is observed in the market. 275
employees left the company during the year ended 31st March, 2023 and
further 135 employees are expected to leave in the next one year. As at
31st March, 2024, only 400 employees remained with the company out
of 750 employees.
(e) Out of it only 375 employees exercised the option to purchase the equity
shares during the year ended 31st March, 2024.
You are required to provide necessary accounting entries during the life of
share-based payment scheme to account the scheme implemented by the
company. (8 Marks)

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

Answer
(a) (i) Accounting Treatment
The present value of such decommissioning and site restoration
obligation at the end of 4th year is ` 4,41,000 [being 6,00,000 / (1.08)4].
Peacock Ltd. will recognize the present value of decommissioning
liability of ` 4,41,000 as an addition to cost of PPE and will also
recognize a corresponding decommissioning liability.
Further, the entity will recognize the unwinding of discount as finance
charge every year till the estimated life of the machine.
(ii) Journal Entries

Date Particular Dr. (`) Cr. (`)

1st April, 2020 Machine A/c (PPE) Dr. 4,41,000
To Provision for 4,41,000
decommissioning liability
(Being the present value of
decommissioning liability of
` 4,41,000 recognized as an
addition to cost of PPE with
corresponding recognition to
decommissioning liability)
31st March, 2021 Finance charge Dr. 35,280
To Provision for 35,280
decommissioning liability
(Being the unwinding of
discount as finance charge
recognized at the end of Year 1)
Profit and Loss A/c Dr. 35,280
To Finance charge 35,280
(Being Finance charge
transferred to Profit & Loss A/c)

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31st March, 2022 Finance charge Dr. 38,102

To Provision for 38,102
decommissioning liability
(Being the unwinding of
discount as finance charge
recognized at the end of Year 2)
Profit and Loss A/c Dr. 38,102
To Finance charge 38,102
(Being Finance charge
transferred to Profit & Loss A/c)
31st March, 2023 Finance charge Dr. 41,151
To Provision for 41,151
decommissioning liability
(Being the unwinding of
discount as finance charge
recognized at the end of Year 3)
Profit and Loss A/c Dr. 41,151
To Finance charge 41,151
(Being Finance charge
transferred to Profit & Loss A/c)
31st March, 2024 Finance charge Dr. 44,467
To Provision for 44,467
decommissioning liability
(Being the unwinding of
discount as finance charge
recognized at the end of Year 4)
Profit and Loss A/c Dr. 44,467
To Finance charge 44,467
(Being Finance charge
transferred to Profit & Loss A/c)
Provision for decommissioning 6,00,000
liability Dr.

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

To Bank A/c 6,00,000

(Being decommissioning liability
incurred at the end of the life of
the machine i.e. 4th year)

Working Note:
The following table shows the unwinding of discount (`)

Year Opening Unwinding of Closing

Decommissioning Interest Decommissioning
Liability @ 8% Liability
1 4,41,000 35,280 4,76,280
2 4,76,280 38,102 5,14,382
3 5,14,382 41,151 5,55,533
4 5,55,533 44,467* 6,00,000

*Difference of ` 24 (44,467- 44,443) is due to rounding off.

(b) Journal Entries

31 st March, 2022 ` `
Employee benefits expenses (W.N.1) Dr. 43,12,500
To Share-based payment reserve 43,12,500
(equity)
(Being 1/3 rdexpenses on share-based
payment recognised)
Profit and Loss A/c Dr. 43,12,500
To Employee benefits expenses 43,12,500
(Being employee benefits expenses
transferred to P/L)
31 st March, 2023
Share-based payment reserve Dr. 3,75,000
(equity) (W.N.1)
To Employee benefits expenses 3,75,000
(transferred to P/L)

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SUGGESTED ANSWER FINANCIAL REPORTING

(Being reversal of excess expenses

booked on computation of 2/3rd
expenses on share-based payment)
Employee benefits expenses Dr. 3,75,000
To Profit and Loss A/c 3,75,000
(Being employee benefits expenses
transferred to P/L)
31 st March, 2024
Employee benefits expenses (W.N.3) Dr. 35,62,500
To Share-based payment reserve 35,62,500
(equity)
(Being final recognition of expenses
on vesting of share-based options)
Profit and Loss A/c Dr. 35,62,500
To Employee benefits expenses 35,62,500
(Being employee benefits expenses
transferred to P/L)
31 st March, 2025
Share-based payment reserve Dr. 75,00,000
(equity) (W.N.4)
Bank A/c (W.N.4) Dr. 42,18,750
To Share Capital (W.N.4) 9,37,500
To Securities Premium (W.N.4) 1,03,12,500
To Retained Earnings (W.N.4) 4,68,750
(Being accounting on exercise of 375
options and lapse of 25 options)

Working Notes:
1. Calculation of Employee Benefit Expenses

31.3.2022 31.3.2023 31.3.2024

No of Employees 750 750 750

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FINAL EXAMINATION: NOVEMBER 2024

Less: Employees left (25) (300) (350)

Less: Employees expected (35) (135)
No of employees eligible 690 315 400
No of options per employee 250 250 250
Total options expected to vest 172,500 78,750 100,000
Fair value per option 75 75 75
Total FV 12,937,500 5,906,250 7,500,000
Cumulative expenses 1/3 2/3 3/3
4,312,500 3,937,500 7,500,000
Expense already recognised - 4,312,500 3,937,500
Expense to be recognised 4,312,500 -375,000 3,562,500

2. For the year ended 31st March, 2025

Bank = 375 employees x 250 options x ` 45 = ` 42,18,750
Share capital =375 employees x 250 options x ` 10 = ` 9,37,500
Securities Premium = 375 employees x 250 options x ` (75 + 35)
= ` 1,03,12,500
Retained Earnings = (400-375) employees x 250 options x ` 75
= ` 4,68,750
Question 5
(a) Big Deal Ltd. is a marketing company having its departmental stores in 'A'
class city of India. The company sells diversified products. For the purpose
of increasing sales and attract customers, the company during the financial
year 2023-2024, has adopted the following policy:
(i) For every purchase of ` 400 the customer is awarded with 6 points.
(ii) Each point is redeemable on any future purchases of company's same
departmental store situated in any of 'A' class city within 3 years i.e. up
to 31st March, 2026
(iii) Value of each award point is ` 0.60
During the financial year 2023-2024, the Big Deal Ltd:

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SUGGESTED ANSWER FINANCIAL REPORTING

(i) Assessed that the sales of the company during the year 2023-2024 is
` 150 lakhs.
(ii) Awarded 2,25,000 points to various customers during the year.
(iii) Estimated that out of the awarded points, 54,000 points will remain
unredeemed as at 31st March, 2024 which shall be eligible for redemption
till 31st March, 2026 and;
(iv) Expects only 75% points will be redeemed in the future.
As an accountant of the company, you are required to suggest accounting
treatment (Consolidated Journal Entries) in the following case:
How should the sales and redemption transactions be recognized and
recorded as independent transactions in the FY 2023-2024 as per Ind AS 115?
(5 Marks)
(b) Z Ltd. having net worth of ` 25 crores has opted voluntarily to adopt Ind AS
from 1st April, 2022 in accordance with the Companies (Indian Accounting
Standard) Rules 2015.
Mr. A, the senior manager, of Z Ltd. has identified following issues which need
specific attention of CFO so that opening Ind AS balance sheet as on the date
of transition can be prepared:
(i) As part of Property, Plant and Equipment, Company has elected to
measure land at its fair value and want to use this fair value as deemed
cost on the date of transition. The land was acquired for a consideration
of ` 5,00,000. However, the fair value of land as on the date of transition
was ` 6,00,000.
(ii) Company had taken a loan from another entity. The loan carries an
interest rate of 7% and it had incurred certain transaction costs while
obtaining the same. It was carried at cost on its initial recognition. The
principal amount is to be repaid in equal instalments over the period of
loan. Interest is also payable at each year end. The fair value of loan as
on the date of transition is ` 2,80,000 as against the carrying amount of
loan which at present equals ` 3,00,000,
Management wants to know the impact of Ind AS in the financial statements
of company for its general understanding. Prepare Ind AS Impact Analysis
Report (Extract) for Z Ltd. for presentation to the management wherein you

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SUGGESTED ANSWER
FINAL EXAMINATION: NOVEMBER 2024

are required to discuss the corresponding differences between Earlier IGAAP

(AS) and Ind AS against each identified issue and its impact there upon for
preparation of transition date balance sheet. Also pass journal entry for each
of the issues mentioned above. (5 Marks)
(c) Define the concept of 'Offsetting’. In offsetting permitted under the following
circumstances:
(a) Whether profit on sale of an asset against loss on sale of another asset
can be offset?
(b) Expenses incurred by a holding company on behalf of subsidiary, which
is reimbursed by the subsidiary - whether in the separate books of the
holding company, the expenditure and related reimbursement of
expenses can be offset?
(c) When services are rendered in a transaction with an entity and services
are received from the same entity in two different arrangements, can the
receivable and payable be offset?
Or
Explain how enhancing qualitative characteristics can improve the usefulness
of financial information. (4 Marks)
Answer
(a) Points earned on ` 1,50,00,000 @ 6 points on every ` 400
= [(1,50,00,000/400) x 6] = 2,25,000 points.
Out of 2,25,000 points, it is estimated that 54,000 points will remain
unredeemed in the current year. Further, it is expected that 75% of the
unredeemed points will be redeemed in the future.
Accordingly, value of points will be computed as follows:
Value of points redeemed in the current year
= (2,25,000-54,000) points x ` 0.6 each point = ` 1,02,600
Value of points estimated to be redeemed in future
= 54,000 points x 75% x ` 0.6 each point = ` 24,300
Total value of loyalty points = ` 1,02,600 + ` 24,300 = ` 1,26,900

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Revenue recognized for sale of goods

= ` 1,48,74,165 [1,50,00,000 x (1,50,00,000 / 1,51,26,900)]
Revenue for points = ` 1,25,835 [1,26,900 x (1,50,00,000 / 1,51,26,900)]
Journal Entry for the year 2023-2024
` `
Bank A/c Dr. 1,50,00,000
To Sales A/c 1,48,74,165
To Liability under Customer 1,25,835
Loyalty programme
(On sale of Goods)
Liability under Customer Loyalty Dr. 1,01,739
programme
To Sales A/c 1,01,739
(On redemption of (2,25,000 –
54,000) points)

Revenue for points to be recognized

Undiscounted points estimated to be recognized next year
= 54,000 x 75% = 40,500 points
Total points to be redeemed within 3 years
= [(2,25,000 – 54,000) + 40,500] = 2,11,500 points
Revenue to be recognised with respect to discounted points
= ` 1,25,835 x (1,71,000/2,11,500) = ` 1,01,739

Note:
The above answer is based on the consideration that 75% likelihood of
redemption of award points in future. Alternatively, the 75% likelihood of
redemption of award points in future might not be considered. In such a
case, the answer would be as follows:
Points earned on ` 1,50,00,000 @ 6 points on every ` 400.
= [(1,50,00,000/400) x 6] = 2,25,000 points.

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Out of 2,25,000 points, it is estimated that 54,000 points will remain

unredeemed in the current year.
Accordingly, value of points redeemed in the current year
= 2,25,000 points x ` 0.6 each point = ` 1,35,000
Revenue recognized for sale of goods
= ` 1,48,66,204 [1,50,00,000 x (1,50,00,000 / 1,51,35,000)]
Revenue for points = ` 1,33,796 [1,35,000 x (1,50,00,000 / 1,51,35,000)]
Journal Entry for the year 2023-2024
` `
Bank A/c Dr. 1,50,00,000
To Sales A/c 1,48,66,204
To Liability under Customer 1,33,796
Loyalty programme
(On sale of Goods)
Liability under Customer Loyalty Dr. 1,08,175
programme
To Sales A/c 1,08,175
(On redemption of (2,25,000 –
54,000) points)

Revenue for points to be recognized

Undiscounted points estimated to be recognized next year

=54,000 x 75% = 40,500 points

Total points to be redeemed within 3 years
= [(2,25,000 – 54,000) + 40,500] = 2,11,500 points
Revenue to be recognised with respect to discounted points
= ` 1,33,796x (1,71,000 / 2,11,500) = ` 1,08,175

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SUGGESTED ANSWER FINANCIAL REPORTING

(b) Assessment of Preliminary Impact Assessment on transition to Ind AS

of Z Ltd.’s Financial Statements
(i) Fair value as deemed cost for property plant and equipment:

Accounting Standards Ind AS Impact on Company’s

(Erstwhile IGAAP) financial statements
As per AS 10, Property, Ind AS 101 allows The company has
Plant and Equipment is entity to elect to decided to adopt fair
recognised at cost less measure Property, value as deemed cost in
depreciation. Plant and this case. Since fair value
Equipment on the exceeds book value, the
transition date at book value should be
its fair value or brought up to fair value.
previous GAAP The resulting impact of
carrying value fair valuation of land
(book value) as ` 1,00,000 should be
deemed cost. adjusted in other equity.

Journal Entry on the date of transition

Particulars Debit Credit

(`) (`)
Property, Plant and Equipment Dr. 1,00,000
To Revaluation Surplus (OCI- Other Equity) 1,00,000
(Being PPE recorded at fair value on the date of
transition to Ind AS)

(ii) Borrowings - Processing fees/transaction cost:

Accounting Ind AS Impact on Company’s

Standards financial statements
(Erstwhile IGAAP)
As per AS, such As per Ind AS, such Fair value as on the date of
expenditure is expenditure is transition is ` 2,80,000 as
charged to Profit amortised over the against its book value of
and loss account period of the loan. ` 3,00,000. Accordingly,
the difference of ` 20,000

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FINAL EXAMINATION: NOVEMBER 2024

or capitalised as Ind AS 101 states is adjusted through

the case may be that if it is retained earnings.
impracticable for an
entity to apply
retrospectively the
effective interest
method in Ind AS
109, the fair value of
the financial asset or
the financial liability
at the date of
transition to Ind AS
shall be the new
gross carrying
amount of that
financial asset or the
new amortised cost
of that financial
liability.

Journal Entry on the date of transition

Particulars Debit Credit

(`) (`)
Borrowings / Loan payable Dr. 20,000
To Retained earnings 20,000
(Being Borrowings recorded at fair value on date
of transition to Ind AS)

(c) Either
Concept of Offsetting: Offsetting refers to presenting an asset and a
liability net or income and expenses net as a single amount, in the financial
statements. As per Ind AS, an entity is required to report separately both
assets and liabilities, and income and expenses. Offsetting in the statement
of profit and loss or balance sheet is not permitted unless when offsetting
reflects the substance of the transaction or other event.
Scenarios for determining applicability of the concept of offsetting:

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(a) Paragraph 35 of Ind AS 1 requires an entity to present on a net basis gains

and losses arising from a group of similar transactions. Accordingly, gains
or losses arising from disposal of various items of property, plant and
equipment shall be presented on a net basis. However, gains or losses
should be presented separately if they are material.
(b) As per paragraph 33 of Ind AS 1, offsetting is permitted only when
offsetting reflects the substance of the transaction. In this case, the
agreement/arrangement, if any, between the holding and subsidiary
company needs to be considered. If the arrangement is to reimburse
the cost incurred by the holding company on behalf of the subsidiary
company, the same may be presented net. It should be ensured that
the substance of the arrangement is that the payments are actually in
the nature of reimbursement.
(c) Ind AS 1 prescribes that assets and liabilities, and income and expenses
should be reported separately, unless offsetting reflects the substance of
the transaction. In addition to this, as per paragraph 42 of
Ind AS 32, a financial asset and a financial liability should be offset if the
entity has legally enforceable right to set off and the entity intends either
to settle on net basis or to realise the asset and settle the liability
simultaneously. Accordingly, the receivable and payable should be offset
against each other and net amount is presented in the balance sheet if
the entity has a legal right to set off and the entity intends to do so.
Otherwise, the receivable and payable should be reported separately.
Or
The usefulness of financial information is enhanced if it is comparable,
verifiable, timely and understandable.
1. Comparability: Information about a reporting entity is more useful if
it can be compared with similar information about other entities and
with similar information about the same entity for another period or
another date. Comparability refers to the use of the same methods for
the same items, and uniformity implies that like things must look alike
and different things must look different.
2. Verifiability: Verifiability means that different knowledgeable and
independent observers could reach a consensus, although not

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necessarily complete agreement, that a particular depiction is a faithful

representation.
3. Timeliness: Timeliness means having information available to
decision-makers in time to be capable of influencing their decisions.
Generally, the older the information is the less useful it is. However,
some information may continue to be timely long after the end of a
reporting period because some users may need to identify and assess
trends.
4. Understandability: Classifying, characterising and presenting
information clearly and concisely makes it understandable.
Enhancing qualitative characteristics should be maximised to the extent
possible. However, the enhancing qualitative characteristics, either
individually or as a group, cannot make information useful if that
information is irrelevant or does not provide a faithful representation of
what it purports to represent.
Sometimes, one enhancing qualitative characteristic may have to be
diminished to maximise another qualitative characteristic. For example, a
temporary reduction in comparability as a result of prospectively applying
a new Ind AS may be worthwhile to improve relevance or faithful
representation in the longer term. Appropriate disclosures may partially
compensate for non-comparability.
Question 6
(a) An entity provides broadband services to its customers along with voice call
service. Customer buys modem from the entity. However, customer can also
get the connection from the entity and modem from any other vendor. The
installation activity requires Ltd. effort and the cost involved is almost
insignificant. It has various plans where it provides either broadband services
or voice call services or both.
Comment on how to identify whether the performance obligations under the
contract are distinct by using an automated process? (5 Marks)
(b) Creative Ltd. performed a revaluation of all of its plant and machinery at the
beginning of 1st April, 2024. The following information relates to one of its
Machinery:

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Amount in `
Gross carrying amount 4,00,000
Accumulated depreciation (straight-line method) 1,60,000
Net carrying amount 2,40,000
Fair Value 3,00,000
The useful life of the machinery is 10 years, and the company uses Straight
line method of depreciation. The revaluation was performed at the end of
4 years.
You are required to advise how the company should account for revaluation
of plant and machinery and depreciation subsequent to revaluation. Also
pass journal entries in relation to the above. (5 Marks)
(c) You are required to analyse the following cases and advise whether they are
related with prior period errors or change in accounting estimate
(a) As per the judgement of the court an arrear of salaries and wages
relating to previous year amounting to ` 15,00,000 will be paid in the
current year. At the end of the previous year, the management of the
company was of the opinion that arrears of salaries and wages would
not be required to be paid and accordingly no provision was made at the
end of previous year.
(b) Expenses of ` 1,50,000 of the previous year which were omitted from
books of accounts of the previous year due to an oversight
(c) The amount of provision for doubtful debts as at the end of the previous
year was ` 10,00,000 of which debts of ` 6,00,000 were realized during
the current year.
(d) Company had taken a Group Insurance policy. During the previous year
due to a mistake of Insurance Company the company paid less premium,
which insurance company is demanding to pay now. (4 Marks)
Answer
(a) To identify the performance obligations under the contract and determine
if they are distinct, an automated process can be implemented using
technology. The following steps can be taken:

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a. Analyze the clauses in the contract related to the services provided

(broadband services, voice call services, modem sales).
b. Each clause should be codified using appropriate parameters or tags
to capture the relevant information.
c. Assign Boolean values (0 or 1) to each parameter or tag in the codified
clauses.
d. Use "0" to represent "No" and "1" to represent "Yes" for each
parameter.
e. Define the criteria for evaluating the performance obligations based
on the parameters and their Boolean values.
f. Consider factors such as the type of service involved, benefits derived
by the customer, and promises made in the contract regarding the
transfer of goods or services.
g. Develop an automated algorithm or script that evaluates the Boolean
values of the parameters according to the defined criteria.
h. Calculate scores or weights for each parameter based on their
significance in determining performance obligations.
i. Utilize the scores or weights assigned to the parameters to determine
if the performance obligations are distinct.
j. If the total score exceeds a certain threshold, consider it a separate
performance obligation.
The automated process should flag and identify these distinct performance
obligations based on the evaluation results.
Considering the above facts, the following conclusion arises:
There are three separate obligations
• Broadband Service
• Voice Call Services
• Modem
(b) According to paragraph 35 of Ind AS 16, when an item of property, plant
and equipment is revalued, the carrying amount of that asset is adjusted to

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the revalued amount. At the date of the revaluation, the asset is treated in
one of the following ways:
(i) The gross carrying amount is adjusted in a manner that is
consistent with the revaluation of the carrying amount of the
asset.
The accumulated depreciation at the date of the revaluation is adjusted
to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account accumulated
impairment losses.
In such a situation, the revised carrying amount of the machinery will
be as follows:
Gross carrying amount ` 5,00,000 [(4,00,000/2,40,000) x 3,00,000]
Less: Net carrying amount (` 3,00,000)
Accumulated depreciation ` 2,00,000 (1,60,000 + 40,000)
Journal Entry

Plant and Machinery (Gross Block) Dr. ` 1,00,000

To Accumulated Depreciation ` 40,000
To Revaluation Reserve ` 60,000
(Being the value of gross block of the asset
restated to make it consistent with revalued
amount)

Depreciation subsequent to revaluation

Since the Gross Block has been restated, the depreciation charge will
be revised to ` 50,000 per annum (` 5,00,000 /10 years).
Journal Entry

Accumulated Depreciation Dr. ` 50,000

To Plant and Machinery (Gross Block) ` 50,000
(Being the revised depreciation after revalued
charged)

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(ii) The accumulated depreciation is eliminated against the gross

carrying amount of the asset.
The amount of the adjustment of accumulated depreciation forms part
of the increase or decrease in carrying amount that is accounted for in
accordance with paragraphs 39 and 40 of Ind AS 16.
In this case, the gross carrying amount is restated to ` 3,00,000 to
reflect the fair value and accumulated depreciation is set at zero.
Journal Entry

Accumulated Depreciation Dr. ` 1,60,000

To Plant and Machinery (Gross Block) `1,60,000
(Being the asset brought down to the
carrying value)
Plant and Machinery (Gross Block) Dr. ` 60,000
To Revaluation Reserve ` 60,000
(Being revaluation of the asset
recognised)
Depreciation subsequent to revaluation
Since the revalued amount is the revised gross block, the useful life
to be considered is the remaining useful life of the asset which results
in the same depreciation charge of ` 50,000 per annum as per Option
A (` 3,00,000 / 6 years).
Journal entry

Accumulated Depreciation Dr. ` 50,000

To Plant and Machinery (Gross Block) ` 50,000
(Being the revised depreciation charged to
the Gross Block)
(c) (a) In case, it is assumed that the judgement of court has been received
after the approval of previous year’s financial statements of the
reporting entity and the probability for payment of arrears of salaries
and wages was remote in the previous year because of which the entity
had neither made any provision or disclosure, then the liability for
arrears of salary and wages would be considered as a change in
accounting estimate in the current year.

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Alternatively, if it is assumed that in case the judgement of court has

been received before the approval of financial statements of the
previous year, then the entity should have adjusted the liability in that
year itself. In the absence of said accounting treatment in the previous
year, it will be considered a mistake and would be accounted for as a
prior period error.
(b) In the given case, since the information regarding expenses of
` 1,50,000 in the previous year was available with the entity, and was
omitted due to an oversight, it will be considered as a prior period
error.
(c) As per para 32 of Ind AS 8, a loss allowance for expected credit losses
(i.e. provision for doubtful debts) applying Ind AS 109, Financial
Instruments, is an example of accounting estimate. Hence, any change
in the previous year’s estimate on account of recovery of such loss
allowance in the current year would be a change in the accounting
estimate in the current year because of the uncertainties inherent in
business activities and it is not possible to measure the provision for
doubtful debts with precise accuracy.
(d) This is neither a case of prior period error nor a change in accounting
estimates. In the given case, the company did not have any
information as on the balance sheet date and it is the mistake
committed by the Group Insurance company and not the reporting
entity. Hence, the demand for an additional premium amount by the
Group Insurance Company will not be considered as a prior period
error for the reporting entity. Further, the entity had paid the premium
amount in the previous year, so no accounting estimate was involved
thereupon. Therefore, the additional demand cannot be considered as
a change in accounting estimate for the reporting entity.

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