CA FINAL – FINANCIAL REPORTING

NEW – SCHEME – RTP – MAY 2024

CASE SCENARIO - I
FA Ltd. is a company which manufactures aircraft parts and engines and sells them to large multinational
companies like Boeing and Airbus Industries. Following are the details of some of the transactions entered into
by the company:
i. On 1st April 20X2, the company began the construction of a new production line in its aircraft parts
manufacturing shed.
Costs relating to the production line are as follows:
Details Amount ` in
lakhs
Costs of the basic materials (list price ` 12.5 lakhs less 10.00
20% trade discount)
Recoverable goods and services tax incurred but not 1.00
included in the purchase cost
Employment costs of the construction staff for three 1.20
months till 30th June 20X2
Other overheads directly related to the construction 0.90
Payments to external advisors relating to the 0.50
construction
Expected dismantling and restoration costs 2.00
The production line took two months to make ready for use and was brought into use on 31st May 20X2.
The other overheads were incurred during the two-month period ended on 31st May 20X2. They
included an abnormal cost of
` 0.3 lakhs caused by a major electrical fault.
The production line is expected to have a useful economic life of eight years. After 8 years, FA Ltd. is
legally required to dismantle the plant in a specified manner and restore its location to an acceptable
standard. The amount of ` 2 lakhs included in the cost estimates is the amount that is expected to be
incurred at the end of the useful life of the production line. The appropriate discount rate is 5%. The
present value of ` 1 payable in 8 years at a discount rate of 5% is approximately ` 0.68.
Four years after being brought into use, the production line will require a major overhaul to ensure
that it generates economic benefits for the second half of its useful life. The estimated cost of the
overhaul, at current prices, is ` 3 lakhs.
No impairment of the plant had occurred by 31st March 20X3.
ii. During the year ended 31st March 20X3, FA Ltd. provided consultancy services to a customer regarding the
installation of a new production system related to aircraft parts. The system has caused the customer
considerable problems, so the customer has taken legal action against the Company for the loss of
profits that has arisen as a result of the problems with the system. The customer has claimed damages
to the tune of ` 1.6 lakhs.
The legal department of FA Ltd. considers that there is a 25% chance the claim can be successfully
defended. The legal department further stated that they are reasonably confident the Company is
covered by insurance against these types of loss. Th accountant feels nothing needs to be provided
for this claim as the Company is suitably covered against any possible losses.
iii. FA Ltd. has an associate company, Flynet Limited. Following are the information of Flynet Limited for the
year ended 31st March 20X3:

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 Particulars ` in lakhs
Net Income after taxes 120
Decrease in accounts receivables 20
Depreciation 25
Increase in inventory 10
Increase in accounts payable 7
Decrease in wages payable 5
Tax charge for the year (deferred tax liabilities) 15
Profit from sale of land 2
On the basis of the facts given above, chose the most appropriate answer to Questions 1 to 5 below
based on the relevant Indian Accounting Standards (Ind AS).
1. Which of the following items need to be capitalized in determining the cost of Production Line?
(a) Abnormal cost of ` 0.3 lakhs
(b) Recoverable GST of ` 1 lakhs
(c) Initial estimate of the costs of dismantling and removing the item and restoration of site of ` 2 lakhs
(d) Initial estimate of the costs of dismantling and removing the item and restoration of site of ` 1.36
lakhs
2. Calculate the company’s associate Flynet Ltd.’s cash flow from
operations.
(a) ` 158 lakhs
(b) ` 170 lakhs
(c) ` 174 lakhs
(d) None of the above
3. What accounting treatment should be done in FA Ltd.’s books for the year ending 31st March 20X3, as
the customer has taken legal action against the Company on the loss of profits that has arisen as a
result of the problems with the system?
(a) Nothing needs to be provided for claim instituted by the customer as the Company is suitably
covered against any possible losses.
(b) Provision of ` 1.6 lakhs should be recognised with a corresponding charge to profit or loss.
(c) Provision of ` 0.4 lakhs as per best possible outcome should be recognised with a corresponding
charge to profit or loss.
(d) Contingent Liability would be disclosed in the 31st March 20X3 financial statements. Charge to profit
or loss if any would be recognised in the period when the claim is settled.
4. Compute the total amount to be charged to the Statement of Profit and Loss with respect to
Production Line for the year ending 31st March 20X3 and the balance of Provision for Dismantling
Cost carried to Balance Sheet.
(a) ` 1.70 lakhs; ` 1.36 lakhs
(b) ` 1.42 lakhs; ` 1.70 lakhs
(c) ` 1.76 lakhs; ` 1.42 lakhs
(d) ` 1.42 lakhs; ` 1.76 lakhs
5. Compute the cost of the production Line to be capitalized initially on 31st May, 20X2.
(a) ` 13.26 lakhs
(b) ` 14.60 lakhs
(c) ` 13.96 lakhs
(d) ` 15.76 lakhs

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1.2 9667671155, 9766921860 RTP – MAY 2024
 ANSWER TO CASE SCENARIO I
1. Option (d): Initial estimate of the costs of dismantling and removing the item and restoration of site
of `1.36 lakhs
Reason:

As per para 16(c) of Ind AS 16, elements of cost of PPE includes the initial estimate of the costs
of dismantling and removing the item and restoring the site on which it is located, the obligation
for which an entity incurs either when the item is acquired or as a consequence of having used
the item during a particular period for purposes other than to produce inventories during
that period.
2. Option (b): ` 170 lakhs
Reason:
Cash flow from operating activities – Indirect method
Particulars ` in lakhs
Net Income after taxes 120
Add /(Less) No- cash or non-operating item:
Depreciation 25
Profit from sale of land (2)
Tax charges for the year (deferred tax liabilities) 15
158
Decrease in accounts receivables 20
Increase in inventory (10)
Increase in accounts payable 7
Decrease in wages payable (5)
Cash flow from operations 170

3. Option (b): Provision of ` 1.6 lakhs should be recognized with acorresponding charge to profit or loss.
Reason:
In accordance with Ind AS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, the claim made by
the customer needs to be recognised as a liability in the financial statements for the year ended 31st
March 20X3.
The standard stipulates that a provision should be made when, at the reporting date:
– An entity has a present obligation arising out of a past event.
– There is a probable outflow of economic benefits.
– A reliable estimate can be made of the outflow.
Since, all three of the above conditions are satisfied here, a provision isrequired to be made.
The provision should be measured at the amount the entity would rationally pay to settle the obligation
at the reporting date.
Where there is a range of possible outcomes, the individual most likely outcome is often the most
appropriate measure to use.
In this case, a provision of ` 1.6 lakhs seems appropriate, with acorresponding charge to profit or
loss.
4. Option (c): ` 1.76 lakhs; ` 1.42 lakhs

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1.3 9667671155, 9766921860 RTP – MAY 2024
5. Option (a): ` 13.26 lakhs
Reason for 4 & 5:
Statement showing computation of cost of production line
Particulars ` in lakhs
Purchase cost 10.00
GST – recoverable goods and services tax not included -
Employment costs during the period of getting the production line ready for use 0.80
[(1.2/3 month) x 2 month]
Other overheads – abnormal costs of ` 0.3 lakhs has been excluded (0.90- 0.30) 0.60
Payment to external advisors – directly attributable cost 0.50
Dismantling costs – recognized at present value (2 lakhs x 0.68) 1.36
Total 13.26
Provision for dismantling cost carried to Balance Sheet
Particulars ` in lakhs
Non-current liabilities (` 2 lakhs x 0.68) 1.36
Add: Finance cost (1.36 x 5% x 10/12) 0.06
Net book value – carried to Balance Sheet 1.42
Extract of Statement of Profit and Loss
Particulars ` in lakhs
Depreciation (W.N.) 1.70

Finance cost (1.36 x 5% x 10/12) 0.06

Amounts carried to Statement of Profit & Loss 1.76
Working Note:
Calculation of depreciation charge
Particulars ` in lakhs
The asset is split into two depreciable components out of the total capitalization
amount of 13.26 lakhs:
• Depreciation for ` 3 lakhs with a useful economic life of four years (3 lakhs x ¼ x 0.63
10/12).
(This is related to a major overhaul to ensure thatit generates economic benefits
for the second half of its useful life)
• Depreciation for ` 10.26 lakhs (13.26 – 3.00) with auseful economic 1.07
life of eight years will be: ` 10.26 lakhs x 1/8 x 10/12
• Total depreciation to be charged to Statement ofProfit and Loss for the year 1.70
ended 31st March 20X3

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CASE SCENARIO - II
HS Limited (HSL) is a car manufacturing company. During the year, HSL has entered into many transactions,
details of which are given below.
i. With the intention to expand, HSL has entered into a Share Purchase Agreement ("SPA") with the
shareholders of FM Limited to purchase 30% stake in FM Limited as at 1st June 20X2 at a price of `
30 per share. As per the terms of SPA, HSL has an option to purchase an additional 25% stake in FM
Limited on or before 15th June 20X2 at a price of ` 30per share. Similarly, the selling shareholder has
an option to sell additional 25% stake in FM Limited on or before 15th June, 20X2 to HSL at a price
of ` 30 per share. The decisions on relevant activities of FM Limited are made in Annual General
Meeting / Extraordinary General Meeting (AGM / EGM). A resolution in AGM / EGM is passed when
more than 50% votes are cast in favour of the resolution. An AGM / EGM can be called by giving
atleast 21 days advance notice to all shareholders.
ii. During the year, HSL issued Compulsory Convertible Debentures ("CCDs") on a private placement basis
for ` 100 lakh. Each CCD is convertible into 5 shares at the end of 4 years from the date of issue and
an annual interest is payable at the rate of 6% p.a. At initial recognition, HSL recognized a liability
component of compound instrument at ` 20,79,063. HSL also incurred expenses of ` 2,00,000 in
connection with the issue of the instrument. Nature of expenses includes fees paid to legal advisors,
registration and regulatory fees.
iii. HSL acquired a 40% stake in NM Limited as at 1st January, 20X2 for
` 8,00,000 and classified the investment in NM Limited as an associate. As at 1st January, 20X2, the
carrying amount and fair value of plant & equipment of NM Limited is ` 3,00,000 and ` 5,00,000
respectively with remaining useful life of 5 years (i.e. 20 quarters). From 1st January,
st
20X2 to 31 March, 20X2, NM Limited generated a profit of
` 50,000.
iv. While selling a car, HSL provides a trade discount of 1% on sale price which is mentioned on the invoice.
HSL provides a credit period of 7 days to its customers, however if paid upfront then HSL gives an
additional cash discount of 2%. HSL also provides a voucher worth
` 500 with a validity of 1 year which can be used at an apparel store.
On the basis of the facts given above, chose the most appropriate answer to Questions 6 to 10 below
based on the relevant Indian Accounting Standards (Ind AS).
6. At what amount HSL shall carry its investments in NM Limited in its consolidated financial statements as
at 31st March, 20X2?
(a) ` 8,00,000
(b) ` 8,20,000
(c) ` 8,16,000
(d) ` 8,10,000
7. How should HSL account for the trade discount, cash discount and voucher given to customers on sale
of a car?
(a) Trade discount shall be reduced from the revenue however cash discount and value of voucher shall
be charged as expenses.
(b) Trade discount and cash discount both shall be reduced from the revenue however value of voucher
shall be charged as expenses.
(c) Trade discount, cash discount and value of voucher shall be charged as expenses.
(d) Trade discount, cash discount and value of voucher shall be reduced from revenue.
8. What shall be the accounting treatment of directly attributable expenses of ` 2 lakh incurred in
connection with the issue of Compulsory Convertible Debentures?
(a) Entire ` 2,00,000 shall be recognized as expenses in the statement of profit and loss in the
current year.

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1.5 9667671155, 9766921860 RTP – MAY 2024
 (b) Entire ` 2,00,000 shall be reduced from equity in the current year.
(c) A proportion of ` 1,58,419 shall be reduced from equity and Balance of ` 41,581 shall be recognized
as interest cost over the period of 4 years using an effective interest method.
(d) Entire ` 2,00,000 shall be recognized as interest cost over the period of 4 years using effective
interest method.
9. With more acquisitions, at the end of the year, HSL has investments in 2 subsidiaries, 3 associates and
1 joint venture. Which of the following statements is correct in relation to accounting of these investments
in separate financial statements?
(a) HSL is required to measure all such investments at cost.
(b) HSL has an option to account for the investments in associates and joint ventures using equity
method of accounting and carrythe investments in subsidiaries at cost.
(c) HSL has an option for each investment to measure either at costor in accordance with Ind AS
109.
(d) HSL has an option to measure all such investments either at costor in accordance with Ind AS
109. The option is available for each category of investments separately (i.e. subsidiaries,
associates and joint venture).
10. With respect to the SPA entered by HSL, determine the date when HSL gained control over FM Limited
(a) 1st June, 20X2.
(b) 15th June, 20X2.
(c) On the date of AGM/EGM
(d) On the date when the resolution for AGM/EGM is issued.
ANSWER TO CASE SCENARIO II
6. Option (c): ` 8,16,000
Reason:
As per para 10 of Ind AS 28, under the equity method, on initial recognition the investment in an associate
or a joint venture is recognised at cost, and the carrying amount is increased or decreased to
recognise the investor’s share of the profit or loss of the investee after the date of acquisition.
Accordingly,
Cost of investment for 40% stake on acquisition date ` 8,00,000 Add: Share of post-acquisition profit and
loss (50,000 x 40%) ` 20,000 Less: Share of post-acquisition loss due to additional depreciation
[{(5,00,000 – 3,00,000)/20} x 40%] (` 4,000)
` 8,16,000
7. Option (d): Trade discount, cash discount and value of voucher be shall reduced from revenue
Reason
Discounts and vouchers are incentives given to customers. Forthat Incentives, Paragraph 70 of Ind
AS 115, inter-alia, states
consideration payable to a customer includes cash amounts that an entity pays, or expects to pay,
to the customer (or to other parties that purchase the entity’s goods or services from the customer).
Consideration payable to a customer also includes credit or other items (for example, a coupon
or voucher) that can be applied against
amounts owed to the entity (or to other parties that purchase the entity’s goods or
services from the customer). An entity shall account for consideration payable to a customer
as a reduction of the transaction price and, therefore, of revenue.
Therefore, cash incentives (payments given to the customer) would be considered as a
reduction in the transaction price and in the measurement of revenue when the goods are
delivered.

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1.6 9667671155, 9766921860 RTP – MAY 2024
 8. Option (c): A proportion of ` 1,58,419 shall be reduced from equity and balance of ` 41,581 shall be
recognised as interest cover over the period of 4 years using effective interest method
Reason
Compulsory convertible debentures with annual interest payout is a compound financial instrument. As
per the information given in the question the liability element to be initially recognised is ` 20,79,063.
Hence the equity element would be ` 79,20,937 (1,00,00,000 – 20,79,063). Transaction cost of `
2,00,000 will be apportioned in equity and liability component in the ratio of 79,20,937 : 20,79,063,
which would be as follows:
Transaction cost attributable to equity = 2,00,000 x (79,20,937 / 1,00,00,000) = ` 1,58,419
Transaction cost attributable to liability = 2,00,000 x (20,79,063 /1,00,00,000) = ` 41,581

9. Option (d): HSL has an option to measure all such investments either at cost or in accordance with
Ind AS 109. The option is available for each category of investments separately (i.e. subsidiaries,
associates and joint venture)
Reason
As per para 10 of Ind AS 27, when an entity prepares separate financial statements, it shall account
for investments in subsidiaries, joint ventures and associates either: (a) at cost, or (b) in
accordance with Ind AS 109. The entity shall apply the same accounting for each category of
investments.
In the present case, investment in subsidiaries, associates and joint ventures are considered to be
different categories of investments. Further, Ind AS 27 requires accounting for the investment
in subsidiaries, joint ventures and associates either at cost, or in accordance with Ind AS 109 for
each category of Investment. Thus, an entity can carry its investments in subsidiaries at cost and
its investments in associates or joint ventures as financial assets in accordance with Ind AS 109
in its separate financial statements

10. Option (a): 1st June, 20X2

Reason
Paragraph 10 of Ind AS 110 ‘Consolidated Financial Statements’, states that an investor has power over
an investee when the investor has existing rights that give it the current ability to direct the relevant
activities, i.e. the activities that significantly affect the investee’s returns.
As per the facts given in the question, HSL. has 15 days to exercise the option to purchase 25% additional
stake in FM Ltd. which will give it majority voting rights of 55% (30% + 25%). This is a substantive
potential voting rights which is currently exercisable.
Further, the decisions on relevant activities of FM Ltd. are made in AGM / EGM. An AGM / EGM can
be called by giving atleast 21 days advance notice. A resolution in AGM / EGM is passed when more than
50% votes are casted in favour of the resolution. Thus, the existing shareholders of FM Ltd. are unable to
change the existing policies over the relevant activities before the exercise of option by HSL. HSL can
exercise the option and get voting rights more than 50% at the date of AGM / EGM. Accordingly, the option
contract gives HSL the current ability to direct the relevant activities even before the option
contractis settled. Therefore, HSL controls FM Ltd. as at 1st June, 20X2.
PROBLEM : 11
Ind AS 103 ‘Business Combinations’
On 1st April 20X1, Pride Limited acquired 30% of the ordinary shares of Famous Limited for ` 4,000 crores. Pride
Limited accounts for its investment in Famous Limited using the equity method as prescribed under Ind AS 28.
On 31st March 20X2, Pride Limited recognized its share of the net asset changes of Famous Limited using
equity method accounting as follows:

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 Share of profit ` 350 crore
Share of exchange difference in OCI ` 50 crore
Share of revaluation reserve of PPE in OCI ` 25 crore
The carrying amount of the investment in the associate on31st March 20X2 is therefore ` 4,425 crore (4,000 + 350
+ 50 + 25).
On 1st April 20X2, Pride Limited acquired the remaining 70% ofFamous Limited for cash ` 12,500 crore.
The following additional information is relevant at that date:
Fair Value of 30% interest in Famous Limited as on1st April 20X2 ` 4,500 crore

Fair Value of Net Identifiable Assets ofFamous Limited as on 1st April ` 15,000 crore
20X2

You are required to

(i) Determine the acquisition date for Pride Ltd.
(ii) Determine the gain on previously held interest in Pride Ltd. and suggest the accounting treatment on
acquisition date as per Ind AS 103.
(iii) Compute the amount of goodwill arising on the acquisition of Famous Ltd.
(iv) Pass necessary journal entry on the acquisition date.
SOLUTION : 11
(i) Acquisition date for accounting of business combination is
The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer
legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree. In the
given case, the acquisition date is
1st April, 20X2 i.e. when Pride Ltd. acquired 100% holding of Famous Ltd.
(ii) Computation of gain on previously held interest
An entity shall discontinue the use of the equity method from the date when its investment ceases to be an
associate or a joint venture. If the investment in an associate becomes a investment in a subsidiary,
the entity shall account for its investment in accordance with Ind AS 103 and Ind AS 110.
Ind AS 103 provides that in a business combination achieved in stages, the acquirer is required to remeasure
the previously held equity interest at its acquisition date fair value and recognise any gain or loss in profit or
loss or other comprehensive income, as appropriate. In prior reporting periods, the acquirer may have
recognised changes in the value of its equity interest in the acquiree in other comprehensive income. If
so, the amount that was recognised in the other comprehensive income shall be recognised on the same
basis as would be required if the acquirer had disposed directly of the previously held equity interest.
The gain on previously held equity interest in Famous Ltd. is calculated as follows:
Fair value of 30% interest as on 1st April, 20X2 ` 4,500 crore
Carrying value of 30% investment as on31st March, 20X2 (` 4,425 crore)
Gain on previously held interest ` 75 crore
Unrealised gain previously recognised in OCI ` 50 crore
Total gain recognised in Profit and loss ` 125 crore
(iii) Computation of goodwill
For 70% share ` 12,500 crore

For 30% share ` 4,500 crore

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1.8 9667671155, 9766921860 RTP – MAY 2024
 Total amount of purchase consideration ` 17,000 crore

Less: Fair value of net identifiable assets (` 15,000 crore)

Goodwill ` 2,000 crore

(iv) Journal Entry on 1st April, 20X2

` in crore
Net Identifiable Assets Dr. 15,000
Goodwill (W.N.1) Dr. 2,000
Foreign currency translation reserve Dr. 50
PPE revaluation reserve Dr. 25
To Cash 12,500
To Investment in Associate – Famous Ltd. 4,425
To Retained Earnings (W.N.) 25
To Gain on previously held interest recognised in profit and loss (Refer 125
point (ii) above)
Working Note:
The credit to retained earnings represents the reversal of the unrealised gain of ` 25 crore in OCI
related to the revaluation of PPE. In accordance with Ind AS 16, this amount is not reclassified to
profit or loss.
PROBLEM : 12
Professional and Ethical Duty of a Chartered Accountant
Astra Ltd. is a listed entity which operates in the defence and fibre optics sector. It supplies fibre optic cables
and racks in the domestic country. This activity is only a trading activity for Astra Ltd. as it procures goods
from pre-approved suppliers, and after inspection, sells the goods to IT companies. The sale contract
requires Astra Ltd.to deliver these goods to the IT companies’ locations (i.e., delivery onsite). Payment
terms are 30 days after the invoice date to Astra Ltd.
Ms. Suparna Dasgupta, a chartered accountant, has recently joined Astra Ltd. as the Head of the Finance
Department.
The Chief Operating Officer (also the executive director) of Astra Ltd. isMs. Padmaja Srinivasan, a mechanical
engineer with an MBA from Harvard University, who rose through the ranks through her excellent skills in
project management, marketing, and customer management. Her remuneration includes a bonus computed as
a percentage of turnover achieved during the year, and an additional incentive for achieving an EBITDA in excess
of 15% of turnover.
Astra Ltd. has sold fibre optic cables amounting to ` 2 crores (invoice dated 31st March 20X2) to Ethernet Bullet
Ltd., a company providing high-speed internet connectivity services through fibre optic cables as well as dedicated
leased lines. The service unit of Ethernet Bullet Ltd. is located next to the factory of Astra Ltd. Though the
goods were not moved to Ethernet Bullet Ltd.’s service unit, Astra Ltd. recognized the sale for the year, based
on the contention that the service unit is adjacent, and hence the transfer can happen within few minutes.
The annual results are due for board approval, for the year ending 31st March, and require the sign-off of
Ms. Suparna Dasgupta.
Ms. Suparna Dasgupta has been given a 40% increment on joining Astra Ltd., which enables her to comfortably
pay off her housing loan mortgage every month. Additionally, she is also given perquisites in the form of
business class travel, an exclusive chauffeur-driven car and stock options of the company. Accordingly, she has
stated that she cannot afford to lose this job as the salary and perquisites are among the best in the country.
Ms. Padmaja Srinivasan has communicated to Ms. Suparna Dasgupta that many more benefits will accrue if
she agrees to present the numbers without any modifications. She has also said that the company would

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1.9 9667671155, 9766921860 RTP – MAY 2024
not hesitate to replace Ms. Suparna Dasgupta should she disagree with the contentions above.
Required:
Discuss the potential conflicts which are arising in the above scenario and the ethical principles that would guide
Ms. Suparna Dasgupta in responding to the situation.
SOLUTION : 12
Presentation of Revenue numbers:
Ind AS 115 ‘Revenue from Contracts with Customers’ requires revenue to be recognized only on satisfaction of
the performance obligations under the contract. It is crucial that the performance obligations be identified at the
commencement of the contract, so that the trigger points for revenue recognition become identifiable.
Management would always have an incentive to present higher revenue numbers. In the given case, the fact
that the COO is given an incentive for revenues and EBITDA indicates that revenue is a potential area for
material misstatement, given the personal interest of the COO in the same.
The sale of fibre optic cable cannot be recognized on 31 st March 20X2 as the goods are not yet transferred to
the customer Ethernet Bullet Ltd.’s factory premises, which is one of the critical obligations ofAstra Ltd.
The contention of the COO that it takes merely a few minutes to shift the goods, and hence the sale can
be recognized does not hold true. One can always cross-question as to why the movement of goods did not
happen, if it was merely a few minutes job. It could be a possibility that the goods may not be packed, or there
may still be some pending inspection of the goods before transferring the same etc. In view of this, the
performance obligation under this contract has not been completed, and hence booking the revenue has resulted
in an overstatement of revenue by ` 2 crores, and a consequent inflation of profits, assuming that Astra Ltd. is
making profit on this sale transaction. Additionally, booking this sale has resulted in an understatement of
inventory as at the reporting date of 31st March 20X2.
In view of the above, multiple conflicts of interest arise for Ms. Suparna Dasgupta:
(a) Pressure to present favourable revenue figures and chartered
accountant’s personal circumstances
The chartered accountant is under pressure to present favourable numbers, notably in favour of the COO,
thereby increasing the incentives to the COO, and in turn benefiting with the continued job prospects.
Thus, the ethical and professional standards required of the accountant are at odds with the pressures of
her personal circumstances.
(b) Duty to stakeholders
The directors have a duty to act in the best interests of the company’s stakeholders. While higher revenue
numbers do indicate a good growth trajectory of the company, recognizing the revenue before fulfilling
the performance obligations, or incorrectly booking grant income as revenue, results in misleading the
stakeholders about the actual performance of the entity, thereby actually becoming detrimental to the
stakeholders.
Ethical principles guiding the chartered accountant’s response
By exhibiting bias in reporting higher revenue figures due to the risk of losing the job, objectivity stands
compromised. Knowingly disclosing incorrect information compromises integrity, and erring in complying with
Ind AS requirements, though continuing to report so in the financial statements, results in displaying absence
of professional competence.
Appropriate action
In the given case, the chartered accountant faces an ethical dilemma, and must apply her moral and ethical
judgment. As a professional, sheis responsible for presenting the truth, and to avoid indulging in ‘creative
accounting practices’ due to pressure.
The chartered accountant accordingly must put the interests of the company and professional ethics first and insist
that the financial statements represent correct revenue numbers, in compliance with the relevant Ind AS. Being
an advisor to the directors, she must prevent deliberate misrepresentation / fraudulent financial reporting,
regardless of the personal consequences. The accountant should not allow any undue influence from the
directors to override her professional judgment or integrity. This is in the long-term interests of the company,
Further, knowingly providing incorrect information is regarded as professional misconduct. To prevent such

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1.10 9667671155, 9766921860 RTP – MAY 2024
misconduct, the chartered accountant should not sign off on the financial statements containing incorrect financial
information. By adhering to the ethical principles, the chartered accountant will maintain her professional
integrity and contribute to the trust and reliability placed in the work expected fromher.
However, if she signs the financial statements containing the inflated revenue numbers, Ms. Suparna Dasgupta
would be guilty of professional misconduct under Clause I of Part II of Second Schedule to the Chartered
Accountants Act, 1949. The Clause states that a member of the Institute, whether in practice or not, shall be
guilty of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made
thereunder, or any guidelines issued by the Council. As per the Council guidelines, a member of the Institute
who is an employee shall exercise due diligence and shall not be grossly negligent in the conduct of his duties.
PROBLEM : 13
Ind AS 22 ‘Income Taxes’
Joy Ltd. wishes to calculate tax base of its assets and liabilities as on31st March 20X5. The Balance Sheet has
been adjusted by current tax expense.
Summarised Balance Sheet as on 31st March 20X5:
ASSETS `
Non-current Assets
Property, Plant and Equipment 12,00,000
Intangible Assets-Product Development Costs 60,000
Investment in Subsidiary - Pall Ltd. 4,40,000
Current Assets
Trade Investments 2,08,000
Trade Receivables 6,26,000
Inventories 3,04,000
Cash and Cash Equivalents 1,80,000
TOTAL ASSETS 30,18,000
EQUITY & LIABILITIES `
Equity
Share Capital 12,00,000
Accumulated Profits 7,37,438
Revaluation Surplus 88,000
Non-current Liabilities
Deferred Income - Government Grants 40,000
Liability for Product Warranty Costs 16,000
Deferred Tax Liability (From 20X3-20X4) 22,162
Current Liabilities
Trade Payables 7,64,000
Health Care Benefits for Employees 70,000
Current Tax Liability 80,400
TOTAL EQUITY & LIABILITIES 30,18,000
Notes:
(e) Depreciation expense for the year 20X4-20X5 allowable in accordance with tax laws is ` 2,06,000. Accounting

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1.11 9667671155, 9766921860 RTP – MAY 2024
 depreciation included in operating costs is ` 1,70,000. Cost of PPE is
` 16,00,000 and Joy Ltd has deducted expenses of ` 4,16,000 in its tax returns prior to the financial year
20X4-20X5. Moreover, as on 31st March 20X5, Joy Ltd for the first time revalued its property, plant and
equipment to fair value of ` 12,00,000 (revaluation surplus = ` 88,000).
(f) In 20X1-20X2, Joy Ltd incurred product development costs of
` 1,00,000. These costs were recognized as an asset and being amortized over useful period of 10 years.
For tax purposes, Joy Ltd deducted full product development costs in 20X1-20X2.
(g) Trading investments were acquired in 20X3-20X4 with cost of
` 2,30,000. These investments are classified at fair value through profit and loss and thus recognized at their
fair value. Fair value adjustments are not tax deductible.
(h) Bad debt provision amounts to ` 1,30,000 and relates to2 debtors:
 Debtor A - ` 80,000 (receivable originated in 20X2-20X3 and 100% provision was recognized in
20X3-20X4) and
 Debtor B - ` 50,000 (receivable originated in 20X3-20X4 and 100% provision was recognized in 20X4-
20X5).
Tax law allows deduction of 20% of provision for debtors overdue for more than 1 year, another 30%
for debtors overdue for more than 2 years and remaining 50% for debtors overdue for more than 3
years.
(i) Joy Ltd accounts for inventory obsolescence provision. New provision created in 20X4-20X5 was ` 10,800
(total provision:
` 18,000). This provision is not tax deductible, as it is a general provision.
(j) Government grants are not taxable. Government grant received in 20X4-20X5 is appearing in the
balance sheet.
(k) In 20X4-20X5, Joy Ltd made a further provision for product warranty of ` 5,000. Such provisions for
product warranty costs are not tax deductible until the claims are paid or settled. During the year 20X4-
20X5, warranty claims were paid/settled for
` 6,200.
(l) During the year 20X4-20X5, Joy Ltd has introduced health care benefits for employees. The expenses are
allowable as deduction in tax only when benefits are paid but in line with Ind AS 19, such liability is recognized
in profit or loss when employees provide service.
Calculate temporary differences and deferred tax for Joy Ltd as on 31st March 20X5 assuming the tax rate is
32%.
SOLUTION : 13
Calculation of temporary differences and deferred tax for Joy Ltd. as on 31st March, 20X5 Amount in `
DTA /
Carrying Temporary Taxable/
Item Tax base (DTL) at
amount Difference Deductible
32%
Property Plant &Equipment 12,00,000 9,78,000 2,22,000 Taxable (71,040)
(W.N.1)
Product Development Costs 60,000 0 60,000 Taxable (19,200)
Trading investments 2,08,000 2,30,000 (22,000) Deductible 7,040
Trade receivables 6,26,000 7,06,000 (80,000) Deductible 25,600
(W.N.2)
Inventories 3,04,000 3,22,000 (18,000) Deductible 5,760
Deferred income
– Government grants (40,000) 0 (40,000) Excluded 0

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1.12 9667671155, 9766921860 RTP – MAY 2024
 Liability forproduct warranty costs (16,000) 0 (16,000) Deductible 5,120
Health care benefits for employees (70,000) 0 (70,000) Deductible 22,400
Total Deferred Tax Asset 65,920
Total Deferred Tax Liability (90,240)
Net Deferred TaxLiability (24,320)
Working Notes:
1. Property Plant & Equipment as per tax records
`
Cost of PPE 16,00,000
Less: Current tax depreciation (2,06,000)
Less: Previous year tax depreciation (4,16,000)
Tax base 9,78,000
2. Trade receivables – Provision for doubtful debts:
`
Calculation of cost for tax records
Carrying amount 6,26,000
Add back: Bad debt provision 1,30,000
Cost A 7,56,000
Debtor A – ` 80,000 from 20X2-20X3
 1 year – 20% deducted in 20X3-20X4 16,000
 2 years – 30% deducted in 20X4-20X5 24,000
Already deducted for tax 40,000
Debtor B- ` 50,000 from 20X3-20X4
 1 year – 20% deducted in 20X4-20X5 10,000
Total deduction for tax purpose B (50,000)
Tax base of trade receivables A-B 7,06,000
PROBLEM : 14
Ind AS 23 ‘Borrowing Costs’
PQR Limited is engaged in Tourism business in India. The company has planned to construct a Holiday
Resort (Qualifying Asset) at Shimla. The cost of the project has been met out of borrowed funds of ` 100
lakhs at the rate of 12% p.a. ` 40 lakhs were disbursed on 1st April 20X2 and the balance of ` 60
lakhs were disbursed on1st June 20X2. The site planning work commenced on 1st June 20X2, since the
Chief engineer of the project was on medical leave. The company commenced physical construction on 1st July
20X2 and the work of construction continued till 30th September 20X2 and thereafter the construction
activities stopped due to landslide on the road which leads to construction site. The road blockages have
been cleared by the government machinery by 31st December 20X2. Construction activities have resumed on
1st January 20X3 and has completed on 28th February 20X3.
The date of opening has been scheduled for 1st March 20X3, but unfortunately, the District Administration gave
permission for opening on 16th March 20X3, due to lack of safety measures like fire extinguishers which had
not been installed by then.
Determine the amount of borrowing cost to be capitalized towards construction of the resort when
(i) Landslide is not common in Shimla and delay in approval from District Administration Office is minor

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 administrative work leftover.
(ii) Landslide is common in Shimla and delay in approval from District Administration Office is major
administrative work leftover.
SOLUTION : 14
As per Ind AS 23 ‘Borrowing Costs’, the commencement date for capitalisation of borrowing cost on qualifying
asset is the date when the entity first meets all of the following conditions:
a) it incurs expenditures for the asset;
b) it incurs borrowing costs; and
c) it undertakes activities that are necessary to prepare the asset forits intended use or sale.
Further, an entity also does not suspend capitalising borrowing costs when a temporary delay is a necessary
part of the process of getting an asset ready for its intended use or sale. For example, capitalisation continues
during the extended period that high water levels delay construction of a bridge, if such high-water levels are
common during the construction period in the geographical region involved.
An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are complete.
Further, paragraph 23 explains that an asset is normally ready for its intended use or sale when the physical
construction of the asset is complete even though routine administrative work might still continue. If minor
modifications, such as the decoration of a property to the purchaser’s or user’s specification, are all that are
outstanding, this indicates that substantially all the activities are complete.
In the given case since the site planning work started for the project on 1st June, 20X2, the commencement of
capitalisation of borrowing costwill begin from 1st June, 20X2.
(i) When landslide is not common in Shimla and delay in approval from District Administration Office is
minor administrative work leftover
In such a situation, suspension of capitalisation of borrowing cost on construction work will be considered
for 3 months i.e. from October, 20X2 to December, 20X2 and cessation of capitalization of borrowing
cost shall stop at the time of completion of physical activities.
Accordingly, the borrowing cost to be capitalized will be effectively for 6 months i.e. from 1 st
June, 20X2 to 30th September, 20X2 and then from 1st January, 20X3 to 28th February, 20X3 i.e.
total 6 months. The amount of borrowing cost will be ` 6,00,000 (1,00,00,000 x 6/12 x 12%).
(ii) When landslide is common in Shimla and delay in approval from District Administration Office is major
administrative work leftover
Since landslides are common in Shimla during monsoon period, there shall be no suspension of
capitalisation of borrowing cost during that period.
Further, an asset can be considered to be ready for its intended use only on receipt of approvals and after
compliance with regulatory requirements such as “Fire Clearances” etc. These are very important to
declare the asset as ready for its scheduled operation.
In the given case, obtaining the safety approval is a necessary condition that needs to be complied with
strictly and before obtaining the same the entity will not be able to use the building. Accordingly, it is
appropriate to continue capitalisation until the said approvals are obtained.
Hence, the capitalisation of the borrowing cost will be for 9.5 months i.e. from 1st June, 20X2 till 15th
March, 20X3. The amount of borrowing cost will be ` 9,50,000 (1,00,00,000 x 9.5/12 x 12%).
PROBLEM : 15
Ind AS 10 ‘Events Occurring After the Balance Sheet Date’ and Ind AS 109 ‘Financial Instruments’
The company has made sales of ` 60,00,000 to a customer SS LLP on 31st December 20X2. The normal
credit is for one month. However, sometimes, it goes upto 2 months. The company expects to receive the
payment by 28th February 20X3. However, no payment has been received till 31st March 20X3. On 15th April
20X3, the sales department of the company became aware that the customer is passing through financial crisis
and has major cash flow problems.
The company has agreed to allow the customer to settle the debt by 31st March 20X4, by which time the

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1.14 9667671155, 9766921860 RTP – MAY 2024
customer is confident that the cashflow problem will be resolved.
The company expects that an annual interest of 9% (i.e. effective interest rate) can be received against any
money lent out, yet it allowed the customer an interest-free payment period.
Determine the amount to be shown as 'trade receivable' from SS LLP in the books of the company as on 31st
March 20X3.
SOLUTION : 15
Ind AS 10 ‘Events after the Reporting Date’, classify an event as adjusting if it provides additional evidence of
conditions existing at the reporting date. In this case the additional information relates to evidence of
impairment of a financial asset, since the customer had financial difficulties prior to 31st March 20X3.
Ind AS 109 ‘Financial Instruments’ requires financial assets to be reviewed at each reporting date for
evidence of impairment. Such evidence exists here because although the customer is expected to pay the
amount due the payment date has been deferred. As per para B5.5.33 of Ind AS 109, for a financial asset that is
credit-impaired at the reporting date, but that is not a purchased or originated credit- impaired financial asset,
an entity shall measure the expected credit losses as the difference between the asset’s gross carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s effective interest rate.
Any adjustment is recognized in the profit or loss as an impairment gain or loss. Further, para B5.5.44 of Ind
AS 109 provides that expected credit losses shall be discounted to the reporting date, not to the expected
default or some other date, using the effective interest rate determined at initial recognition or an approximation
thereof.
In such circumstances, Ind AS 109 requires that the financial asset bere-measured at the present value of the
expected future receipt, discounted (in the case of a trade receivable) using effective interest rate. Therefore,
in the financial statements for the year ended 31st March 20X3, asset should be measured at ` 55,04,587
(` 60,00,000
/ 1.09) and an impairment loss of ` 4,95,413 (` 60,00,000 – ` 4,95,413) recognised in profit and loss.
In the year ended 31st March 20X4, interest income of ` 4,95,413 (` 55,04,587 x 9%) should be recognised
in the profit and loss.
PROBLEM : 16
Ind AS 2 ‘Inventories’
B Limited has valued its Stock held for distribution as free items on claim by customers (on offers) at zero.
Customers have a right to claim the free item within 14 days from date of invoice. If the time limit of 14-day
exceeds, the claim is foregone by the customer.
The majority of the free items require online registration by the buyers for participation in the contest
conducted by the respective brand which needs to be done by the buyers within 3 days from the date of invoice.
Out of it, a few items under this category were found damaged. The replacement cost of such items would be `
2,50,000.
Determine whether the entity has to book loss of inventory or provide for replacement cost of the goods
that need to be given as free items to customers as per the principles of Ind AS.
SOLUTION : 16
Ind AS 2 deals with write-off in value of inventory. The stock of free items is valued at zero by the company. The
question of “Loss of Inventory ` 2,50,000” does not arise as the claim of free stock is subject to various conditions
like claim within 14 days, online registration within 3 days, etc. which are all contingent in nature.
However, provision is to be made for goods to be distributed in case claims from customers are received since
the customer can claim the free items within 14 days from the date of invoice. Hence provision of ` 2,50,000 is to
be made for.
PROBLEM : 17
Ind AS 7 ‘Statement of Cashflows’
Following is the Balance Sheet of Mars Ltd: ` in Lakhs
Particulars 31.3.20X3 31.3.20X2
ASSETS

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 Non-Current Assets
Property, Plant and Equipment 450 410
Intangible asset 90 90
Deferred Tax Asset (net) 45 45
Other Non-current Asset 95 85
Total Non-current Assets 680 630
Current Assets
Financial Asset
Investments 100 60
Trade Receivables 580 600
Cash and Cash Equivalents 300 300
Inventories 800 700
Other Current Assets 160 120
Total Current Assets 1,940 1,780
Total Assets 2,620 2,410
Equity and Liabilities
Equity
Equity Share Capital 280 250
Other Equity 980 820
Total Equity 1,260 1,070
Non-current Liabilities
Financial Liabilities
Borrowings 360 300
Other Non-current Liabilities 90 80
Total Non-current Liabilities 450 380
Current Liabilities
Financial Liabilities
Trade Payable 455 450
Bank Overdraft 410 420
Other current liabilities 45 90
Total Current Liabilities 910 960
Total Liabilities 1,360 1,340
Total Equity and Liabilities 2,620 2,410
Additional Information:
(a) Profit before tax for the year is ` 200 lakhs and provision for taxis ` 40 lakhs.
(b) Property, Plant and Equipment purchased during the year ` 100 lakhs.
(c) Current liabilities include Capital creditors of ` 25 lakhs as at 31st March 20X3 (Nil – 31st March 20X2)
(d) Long Term Borrowings raised during the year ` 120 lakhs.
From the information given, prepare a Statement of Cash Flows following Indirect Method. Assume that Bank
overdraft is an integral part of the entity’s cash management.
SOLUTION : 17
Statement of Cash Flows for the year ended 31 st March, 20X3

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 (` in (` in
lakhs) lakhs)
Cash flows from operating activities
Profit before taxation 200
Adjustments for non-cash items:
Depreciation [410 - (450 - 100)] 60
260
Increase in inventories (800 - 700) (100)
Decrease in trade receivables (600 - 580) 20
Increase in other non-current assets (95 - 85) (10)
Increase in other current assets (160 - 120) (40)
Increase in non-current liabilities (90 - 80) 10
Increase in trade payables (455 – 25 - 450) (20)
Other current liabilities (Refer Note 1) [(90 + 40) - 45] (85)
Net cash generated from operating activities 35
Cash flows from investing activities
Cash paid to purchase PPE (100-25) (75)
Cash paid to acquire investment (100-60) (40)
Net cash outflow from investing activities (115)
Cash flows from financing activities
Raising of equity share capital (280 - 250) 30
Long-term borrowings raised during the year 120
Long-term borrowings repaid during the year [(300 + 120) - 360] (60)
Net cash outflow from financing activities 90
Increase in cash and cash equivalents during the year 10
Cash and cash equivalents at the beginning ofthe year (420-300) (Refer Note 2)
(120)
Cash and cash equivalents at the end of theyear (410-300) (Refer Note 2) (110)
Note: Other current liabilities are assumed to consist of provision for taxation.
PROBLEM : 18
Ind AS 115 ‘Revenue from Contracts with Customers’
A property sale contract includes the following:
(a) Common areas
(b) Construction services and building material
(c) Property management services
(d) Golf membership
(e) Car park
(f) Land entitlement
Whether they could be considered as separate performance obligations as per the
requirements of Ind AS 115?

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1.17 9667671155, 9766921860 RTP – MAY 2024
SOLUTION : 18
Paragraph 22 of Ind AS 115 provides that at contract inception, an entity evaluates the promised goods or
services to determine which goods or services (or bundle of goods or services) are distinct and therefore
constitute a performance obligation.
A performance obligation is a promise in a contract to transfer to the customer either:
- a goods or service (or a bundle of goods or services) that is distinct; and
- series of distinct goods or services that are substantially the same and that have the same pattern of
transfer to the customer.
As per paragraph 27 of Ind AS 115, a goods or service that is promised to a customer is distinct if both of the
following criteria are met:
(c) the customer can benefit from the goods or service either on itsown or together with other resources
that are readily available tothe customer (i.e. the goods or service is capable of being distinct); and
(d) the entity’s promise to transfer the goods or service to the customer is separately identifiable from other
promises in the contract (i.e. the promise to transfer the goods or service is distinct within the context
of the contract).
Each performance obligation is required to be accounted forseparately. The facts and circumstances of each
contract should be carefully considered to determine the performance obligations.
However, based on the above guidance, the following table in general discusses whether the common goods and
services in property sale contract should be considered as separate performance obligation or not:
Goods/Service Whether aseparate Reason
performance
obligation (PO) or
not
Common areas Unlikely to be Common areas are unlikely to be a separate PO because the
separate PO interests received in common areas are typically undivided interests
that are not separable from the property itself.
However, if the common areas were sold separately by the
developer, then they could be considered as a separate PO provided
that it is distinct in the context of the contract.
Construction Unlikely to be Construction services and building materials can meet the first
services and separate PO criterion as they are items that can be used in conjunction with other
building materials readily available goods or services. However, the developer would be
considered to be providing a significant integration service as it
is bringing together all the separate elements to deliver a completed
building.
Property Likely to be Property management services and golf membership are likely to be
management separate PO separate PO as they may be used in isolation or with the property
services and already acquired, i.e., management services can be used with the
Golf membership property.
These types of services are not significantly customised, integrated
with, or dependent on the property. This is because there is no
change in their function with or without the property. Also, a
property management service could be undertaken by a third party.
Car park and Analysis required Items such as car parks and land entitlements generally meet the
Land entitlement first criterion – i.e., capable of being distinct – as the buyer benefits
from them on their own.
Whether the second criterion is met depends on the facts and
circumstances. For example, if the land entitlement can be sold
separately or pledged as security as a separate item, it may indicate

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 that it is not highly dependent on, or integrated with, other rights
received in the contract.
In an apartment scenario, the customer can receive an undivided
interest in the land on which the apartment block sits. This type of
right is generally considered a highly inter-related with the
apartment itself.*
*However, if title to the land is transferred to the buyer separately – for example in a single party development –
then the separately identifiable criterion may be met.
PROBLEM : 19
Ind AS 110 ‘Consolidated Financial Statements’
At the beginning of its current financial year, AB Limited holds 90%equity interest in BC Limited.
During the financial year, AB Limited sells 70% of its equity interest in BC Limited to PQR Limited for a total
consideration of ` 56 crore and consequently loses control of BC Limited.
At the date of disposal, fair value of the 20% interest retained by AB Limited is ` 16 crore and the net
assets of BC Limited are fair valued at ` 60 crore.
These net assets include the following:
(a) Debt investments classified as fair value through other comprehensive income (FVOCI) of ` 12 crore and
related FVOCI reserve of ` 6 crore.
(b) Net defined benefit liability of ` 6 crore that has resulted in a reserve relating to net measurement losses
of ` 3 crore.
(c) Equity investments (considered not held for trading) of ` 10 crore for which irrevocable
option of recognising the changes in fair value in FVOCI has been availed and related FVOCI reserve
of ` 4 crore.
(d) Net assets of a foreign operation of ` 20 crore and related foreign currency translation reserve of ` 8
crore.
In consolidated financial statements of AB Limited, 90% of the above reserves were included in equivalent equity
reserve balances, with the 10% attributable to the non-controlling interest included as part of the carrying amount
of the non-controlling interest.
What would be the accounting treatment on loss of control in the consolidated financial statements of AB Limited?
SOLUTION : 19
Paragraph 25 of Ind AS 110 states that, “if a parent loses control of a subsidiary, the parent:
(a) derecognises the assets and liabilities of the former subsidiary from the consolidated balance sheet.
(b) recognises any investment retained in the former subsidiary at its fair value when control is lost and
subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with
relevant Ind AS. That fair value shall be regarded as the fair value on initial recognition of a financial asset
in accordance with Ind AS 109 or, when appropriate, the cost on initial recognition of an investment in an
associate or joint venture.
(c) recognises the gain or loss associated with the loss of control attributable to the former controlling
interest.”
Paragraph B98(c) of Ind AS 110 states that, on loss of control over a subsidiary, a parent shall reclassify to profit or
loss, or transfer directly to retained earnings if required by other Ind AS, the amounts recognised in other
comprehensive income in relation to the subsidiary on the basis specified in paragraph B99.
As per paragraph B99, if a parent loses control of a subsidiary, the parent shall account for all amounts previously
recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if
the parent had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised
in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
liabilities, the parent shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment)
when it loses control of the subsidiary. If a revaluation surplus previously recognised in other comprehensive

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1.19 9667671155, 9766921860 RTP – MAY 2024
income would be transferred directly to retained earnings on the disposal of the asset, the parent shall transfer the
revaluation surplus directly to retained earnings when it loses control of the subsidiary.
In view of the basis in its consolidated financial statements, AB Limited shall:
(a) re-classify the FVOCI reserve in respect of the debt investments of ` 5.4 crore (90% of ` 6 crore) attributable
to the owners of the parent to the statement of profit or loss in accordance with paragraph B5.7.1A of Ind
AS 109, Financial Instruments which requires that the cumulative gains or losses previously recognised in
OCI shall be recycled to profit and loss upon derecognition of the related financial asset. This is reflected in
the gain on disposal. Remaining 10% (i.e., ` 0.6 crore) relating to non-controlling interest (NCI) is included
as part of the carrying amount of the non-controlling interest that is derecognised in calculating the gain or
loss on loss of control of the subsidiary.
(b) transfer the reserve relating to the net measurement losses on the defined benefit liability of ` 2.7 crore
(90% of ` 3 crore) attributable to the owners of the parent within equity to retained earnings. It is not
reclassified to profit or loss. The remaining 10% (i.e., ` 0.3 crore) attributable to the NCI is included as part
of the carrying amount of NCI that is derecognised in calculating the gain or loss on loss of control over the
subsidiary. No amount is reclassified to profit or loss, nor is it transferred within equity, in respect of the
10% attributable to the non-controlling interest.
(c) reclassify the cumulative gain on fair valuation of equity investment of ` 3.6 crore (90% of ` 4 crore)
attributable to the owners of the same parent from OCI to retained earnings under equity as per paragraph
B5.7.1 of Ind AS 109, Financial Instruments, which provides that in case an entity has made an irrevocable
election to recognise the changes in the fair value of an investment in an equity instrument not held for
trading in OCI, it may subsequently transfer the cumulative amount of gains or loss within equity. The
remaining 10% (i.e., ` 0.4 crore) related to the NCI are derecognised along with the balance of NCI and not
reclassified to profit and loss.
(d) reclassify the foreign currency translation reserve of ` 7.2 crore (90% × ` 8 crore) attributable to the owners
of the parent to statement of profit or loss as per paragraph 48 of Ind AS 21 ‘The Effects of Changes in
Foreign Exchange Rates’, which specifies that the cumulative amount of exchange differences relating to
the foreign operation, recognised in OCI, shall be reclassified from equity to profit or loss on the disposal of
foreign operation. This is reflected in the gain on disposal. Remaining 10% (i.e., ` 0.8 crore) relating to the
NCI is included as part of the carrying amount of the NCI that is derecognised in calculating the gain or loss
on the loss of control of subsidiary, but is not reclassified to profit or loss in pursuance of paragraph 48B of
Ind AS 21, which provides that the cumulative exchange differences relating to that foreign operation
attributed to NCI shall be derecognised on disposal of the foreign operation, but shall not be reclassified to
profit or loss.
SOLUTION : 19
The impact of loss of control over BC Limited on the consolidated financial statements of AB Limited
is summarised below: (` in crore)
Amount Amount P&L RE
Particular
(Dr) (Cr) Impact Impact
Gain / Loss on Disposal on Investments
Bank 56
Non-controlling interest (Derecognized) 6
Investment at FV (20% Retained) 16
Gain on Disposal (P&L) 18 18
balancing figure 60
De-recognition of total net assets of subsidiary
Reclassification of FVTOCI reserve on debt
instruments to profit or loss
FVTOCI reserve on debt instruments (6 cr. x
5.4 5.4 5.4
90%)

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1.20 9667671155, 9766921860 RTP – MAY 2024
 To Profit and loss
Reclassification of net measurement loss reserve to
profit or loss
Reserve and Surplus 2.7 2.7 -2.7
To Net measurement loss reserve (FVTOCI) [(3 cr. x 90%)]
Reclassification of FVTOCI reserve on equity
instruments to retained earnings
FVTOCI reserve on equity instruments (4 crux 90%) 3.6 3.6 3.6
To Reserve and Surplus
Foreign currency translationreserve reclassified to
profit or loss
Foreign currency translation reserve (FVOCI) [8 cr. x 90%] 7.2 7.2 7.2
To Profit and loss
Total 30.6 0.9
PROBLEM : 20
Ind AS 102 ‘Share-Based Payments’
Fashion India Ltd. (FIL) entered into an agreement with RFD Ltd. on 10th August, 20X2 for purchasing a
machinery. The agreement has a clause that FIL will have to settle the consideration of machinery purchased
by issuing its equity shares. FIL agreed to the clause and the order was confirmed. Machinery was supplied
vide invoice dated 25th October, 20X2 and delivered on 1st November, 20X2. Agreed purchase consideration
was ` 150 Lakhs and the fair value of the machinery supplied was estimated to be ` 160 Lakhs. As agreed, FIL
issued 1,00,000 equity shares of face value ` 100 each to RFD Ltd.
As per Ind AS 102 ‘Share Based Payment’, what should be the price and the date for recording the machinery
purchased from RFD Ltd.?
SOLUTION : 20
As per para 10 of Ind AS 102, for equity settled share-based payment transactions, the entity shall measure
the goods or services received, and the corresponding increase in equity, directly, at the fair value of
the goods or services received, unless that fair value cannot be estimated reliably. If the entity
cannot estimate reliably the fair value of the goods or services received, the entity shall measure
their value, and the corresponding increase in equity, indirectly, by reference to the fair value of
the equity instruments granted. Here, since the fair value of the asset received can be estimated reliably,
the price for recording the machinery would be ` 160 lakhs.
Further the control is assumed to be transferred on the date the delivery is received which is 1st
November, 20X2. Therefore, this will be the date for recognizing the machinery in the books.

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA FINAL - FR – NEW SCHEME

1.21 9667671155, 9766921860 RTP – MAY 2024