Paper- 18: CORPORATE FINANCIAL REPORTING

Time Allowed: 3 Hours Full Marks: 100

Section – A
(Answer the following questions.)

1. Choose the most appropriate answer from the four alternatives given (1 marks for rightchoice and 1
mark for justification.): 2×15= 30

(i) Downsize Ltd. earned Rs. 800 lakhs pre-tax profit in the first quarter ended 30.06.2019 and it expects to
incur losses of Rs. 100 lakhs each of the three remaining quarters of 2019 -20. Tax rate is 30%. It has carried
forward loss of Rs. 300 lakhs for income tax purpose for which deferred tax asset is not recognized. The
amount of tax expenses reported in the first and second quarters of 2019 -20 are
(A) Rs. 240 lakhs and Rs. (30) lakhs
(B) Rs. 150 lakhs and Rs. (30) lakhs
(C) Rs. 15 lakhs and Rs. 15 lakhs
(D) Rs. 96 lakhs and Rs. (12) lakhs

(ii) An engineering goods company provides after sales warranty for 2 years to its customers. Based on past
experience the company has the following policy for making provision for warranties on the invoice
amount, on the remaining balance of warran tee period:
Less than 1 year: 2% provision, more than 1 year : 3% provision.
The company has raised invoices as under:
Invoi ce date Amount (Rs.)
19th January, 2017 40,000
29th January, 2018 25,000
15th October, 2018 90,000

The amount to be debited to Profit and Loss Account for the year ended 31st March2018 would be
(A) Rs. 1,650
(B) Rs. 3,200
(C) Rs. 1,550
(D) None of the above

(iii) A Company showed a net profit of Rs. 7,20,000 for the 3rd quarter of the year 2018 – 19after
incorporating the following:
(a) Bad Debts of Rs. 40,000 incurred during the quarter. 50% of the Bad Debts have beendeferred to
the next quarter.
(b) Extra Ordinary loss of Rs. 35,000 incurred during the quarter has been fully recognizedin the
quarter.
Correct Quarterly Income as per appli cable Ind AS will be
(A) Rs. 6,80,000
(B) Rs. 7,00,000
(C) Rs. 6,35,000
(D) None of the above

(iv) In a conglomerate merger of two companies the merging companies operate

(A) in related markets having similar products lines.
(B) in unrelated markets having no functional economic relationship.
(C) in related markets and merging companies are complimentary to each other.
(D) in two countries and one of them use the product of the others as raw materials.

(v) On April 1, 2018 May Ltd. purchased 40% of the shares of June Ltd. for Rs. 10 lakhs. At the time of the
purchased June Ltd. reported net assets of Rs. 20 lakhs. The fair value of identifiable assets and liabilities
of June Ltd. at the time of purchase was appr oximateto their book value except for Building which had
a fair value of Rs. 2,00,000 more than its book value stock May Ltd. has significant influence over
operating and financial policies of June Ltd. The amount of purchase price attributable to Goodwill is
(A) Rs. 0
 (B) Rs. 1,20,000
(C) Rs. 2,00,000
(D) Rs. 2,80,000

(vi) On April 1, 2018 Bob Ltd. Purchased a 30% interest in Dad Ltd. for Rs. 2,50, 000. On that date Dad’s share
holders equity was Rs. 5,00,000. The carrying value of Dad’s identifiable net assets was equal to book value. Bob
correctly reports this significant influence investment using equity methods. Both companies have a
March 31 year end. For the year ended 31.03. 2019. Dad reported net income of Rs. 1,50,000 and paid
total dividends of Rs. 40,000. Which of the following amount that Bob would report as its investment in
Dad on March 31, 2019?
(A) Rs. 2,50,000
(B) Rs. 2,83,000
(C) Rs. 2,95,000
(D) Rs. 3,60,000

(vii) On 01.04.2018 MB Ltd. acquired 80% shares of MC Ltd. at Rs. 20,00,000 when the fair value of the
identifiable net assets was Rs. 20,00,000. During 2018 – 19, MC Ltd. Reported Net income of Rs.
2,40,000. On that date MB Ltd. sold 20% of its holding to an outsider at Rs. 5,60,000. The amount of
gain to be credited to other equity by MB for sale of partial holding retaining control is
(A) Rs. 1,12,000
(B) Rs. 1,60,000
(C) Rs. 1,21,000
(D) None of these

(viii) Details for an Asset are as under:

Cost of Assets Rs. 60 lakhs, Useful life period 10 years, Salvage value Rs. 4 lakhs, Useful Life remaining 3
years. Upward revision done in last year by 50%. Current value in used is Rs. 12 lakhs, Current selling
price Rs. 11 lakhs, Current disposal cost Rs. 1 lakh. Impairment Loss to be charged to Profit and Loss
Account as per applicable Ind AS would be
(A) Rs. 18.7 lakhs
(B) Rs. 13.2 lakhs
(C) Rs. 5.5 lakhs
(D) None of the above

(ix) Statement – All NBFCs in India are required to maintain Tier I capital at 10% of risk - weighted assets.
Choose correct option:
(A) Statement is correct as per the RBI norms applicable to NBFCs.
(B) Statement is incorrect as certain categories of NBFCs are exempted from suchrequirement by the
RBI.
(C) Statement is incorrect as the Ministry of Finance, Government of India exempt allcategories of
NBFCs from capital adequacy norms.
(D) Statement is correct as the Ministry of Finance, Government of India by notificationhas imposed
such requirements to overcome liquidity problems.

(x) Which of the following is not a feature of Government Accounting?

(A) Reporting utilization of public funds
(B) Double Entry System
(C) Non-fund- b a s e d accounting
(D) Both (A) and (B)

(xi) Narmada Ltd. owns a machinery which is carried in its Balance Sheet at the carrying amount of 15
million. The fair value of the machinery is 22.5 million. It exchanges this machinery for a building having
a fair value of 30 million and pays additional cash of 4.5 million. As per the relevant Ind AS, the profit on
exchange of machinery is:
(A) 7.5 million
(B) 12 million
(C) 19.5 million
(D) None of the above

(xii) Harish Ltd. has taken a loan of USD 22,000 @ 5% p.a., for constructing a plant, interest payable on
which is annual. On 1st April, 2023, the exchange rate was 45 per USD. The exchange rate on 31st
March, 2024 is 48 per USD. Had Harish Ltd. borrowed the corresponding amount from Union Bank of
India, the rate of interest would have been 11% p.a. The borrowing cost to be capitalized for the year
ended 31st March, 2024 as per the relevant Ind AS is:
(A) 52,800
 (B) ₹ 1,08,900
(C) ₹56,100
(D) ₹66,000

(xiii) On 1st April, 2023, Rita Ltd. invested in the equity shares of Sita Ltd. at a cost of 2,00,000 to acquire
25% share in the voting power of Sita Ltd. Rita Ltd. concluded that Sita Ltd. is now an associate of Rita Ltd.
On 31st March, 2024, Sita Ltd. earned the net profit of 20,000 and other comprehensive income of 4,000. In
the year 2023-24, Sita Ltd. also declared dividend of 8,000. The carrying amount of investment in Sita Ltd. as
at 31st March, 2024 as per the relevant Ind AS is:
(A) ₹2,00,000
(B) ₹2,05,000
(C) ₹2,06,000
(D) 2,04,000

(xiv) Surendra Ltd., a parent, sold goods costing 400 lakh to its 80% subsidiary, Narendra Ltd. at 480 lakh.
50% of these goods are lying in stock as at 31st March, 2024, Narendra Ltd. has measured this inventory at
cost i.e.. at 240 lakh. The tax rate is 30%. The deferred tax to be shown in the consolidated financial
statements is:
(A) 12 lakh
(B) -60 lakh
(C) ₹72 lakh
(D) 120 lakh

(xv) Mohan Ltd. held 50% of the voting power of Sohan Ltd. which is a joint venture of Mohan Ltd. The
carrying value of the investment in Sohan Ltd. is 1,50,000. Now, out of the 50% stake. Mohan Ltd, sells 20%
stake in Sohan Ltd. to a third party for a consideration of 1,20,000. The fair value of the retained 30% interest
is 1,80,000 The gain or loss recorded by Mohan Ltd. in its profit or loss is:
(A) Gain of ₹1,50,000
(B) Loss of 1,50,000
(C) Gain of ₹ 90,000
(B) None of above
Section-B

Answer any five questions out of seven questions. 14×5= 70

(E) (a) Discuss the applicability of and disclosure requirement of AS 11. 7
(b) State with reference to accounting standard (AS 2), how you will value the inventoriesin the following
cases: 7
(i) Raw material was purchased at Rs. 100 per kilo. Price of raw material is on the decline. The
finished goods in which the raw material is incorporated is expected to be sold at below cost. 10,000
kg of raw material is on stock at the year end. Replacement cost is Rs. 80 per kg.
(ii) In a production process, normal waste is 5% of input 5,000 MT of input were put in process resulting
in a wastage of 300 MT. Cost per MT of input is Rs. 1,000. The entire quantity of waste is on stock
at the year end.
(iii) Per kg of finished goods consisted of –
Material cost – Rs. 100 per kg
Direct labour cost Rs. 20 per kg
Direct variable production overheads – Rs.10 per kg
Fixed production charges for the year on normal capacity of one lakh kg.areRs.10lakhs. 2,000 kg
of finished goods are on stock at the year end.

(F) (a) Describe what is meant by Joint arrangement as per Ind AS 111. 7
(b) Briefly explain how contingent consideration payable in relation to a business combination is accounted
for on initial recognition and at the subsequent measurement as per Ind AS in the following case: 7
On 1 April, 2018, Aaa Ltd. acquires 100% interest in Baa Ltd. As per the terms of agreement the purchase
consideration was payable in the following 2 tranches:
(i) an immediate issuance of 5 lakhs shares of Aaa Ltd. having face value of Rs. 10 per share.
(ii) a further issuance of 1 lakh shares after one year if the profit before interest and tax of Baa Ltd. for
the year following acquisition exceeds Rs. 1 crore.
The fair value of the shares of Aaa Ltd. on the date of acquisition is Rs. 20 per share. Further, the
Management has estimated that on the date of acquisition, the fair value of contingent consideration is Rs.
12.5 lakhs. During the year ended 31 March, 2019, the fairvalue of shares of Aaa Ltd. was 25 per share.

(G) (a) Following are the summarized Balance Sheets of Sun Ltd. and Moon Ltd. as on 31stMarch, 20109:
 Liabilities Sun Ltd. Moon Ltd. Assets Sun Ltd. Moon Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)

Equity Share Capital (Rs. 10,50,000 5,00,000 Building 9,25,000 3,00,000

10 each fully paidup)

General Reserve 8,16,900 2,23,300 Machinery 2,25,000 75,000

Profit & Loss A/c 1,00,000 1,00,000 Furniture 1,50,000 28,000

Trade 4,10,000 1,05,000

Receivables

Cash at Bank 3,37,900 85,300

23,47,900 9,83,300 23,47,900 9,83,300

On 1st October, 2019 Sun Ltd. decided to takeover Moon Ltd. No Balance Sheet was prepared on that
date. For six months period from 1st April, 2019 to 30th September,2019, Sun Ltd. and Moon Ltd.
earned a profit of Rs. 3,36,000 and Rs. 1,98,000 respectively after of Machinery and Furniture for both
the companies.
Sun Ltd. and Moon Ltd. paid equity dividend @ 8% on 15th July, 2019. Tax @ 10% on such payments
was also paid by each of them. Goodwill of Moon Ltd. was valued at Rs. 97,320 on the date of takeover.

For the purpose of takeover:

Inventory of both the companies would be appreciated by 12%. Trade Receivables of Sun Ltd. and Moon
Ltd. would be reduced by 5% and 6% respectively.

Sun Ltd. issued fully paid equity shares of Rs. 10 each to the shareholders’ of Moon Ltd., on the basis of
comparative intrinsic values of shares on the takeover date.
You are required to cal cul ate Intri nsi c val ue of Shar es of the two C ompani es, Pur chase consi derati on
to be paid and Number of Shares to be i ssued on the basi s of Intri nsi c value. 10
(b) Explain briefly the ‘principle of control’ as mentioned Ind AS 110. 4

(H) (a) Explain the concept of equity method in the context of Ind AS 28. 4
(b) Ganga Limited purchased 40,000 shares in Yamuna limited on 31 st march, 2017, at 505 premium over
face value by issue of 8% Debentures at 20% premium. The Balances of Assets, Liabilities, Equity etc.
of Ganga Limited and Yamuna Limited as on 31.03.2017, i.e., on the date of purchase were as under :
(inRs.)
Ganga Yamuna Ganga Ltd. Yamuna
Liabilities Ltd. Ltd. Assets Ltd.

Share Capital of Rs. 10 10,50,000 6,00,000 Fixed Assets 6,50,000 2,00,000

each
General Reserve 1,20,000 40,000 Inventory in Trade 3,00,000 1,80,000

Profit & Loss A/c 80,000 --- Trade Receivables 3,40,000 2,10,000

Trade Payables 1,00,000 60,000 Cash in hand 60,000 30,000

Profit & Loss A/c --- 80,000

13,50,000 7,00,000 13,50,000 7,00,000

(i) Particulars of Ganga Limited:

(I) Profits made: 2017 – 18 Rs. 1,60,000
2018 – 19 Rs. 2,00,000
(II) The above profit was made after charging depreciation of Rs. 60,000 and Rs. 40,000
respectively.
 (III) Out of profit shown above, every year Rs. 20,000 had been transferred to GeneralReserve.
(IV) 10% Dividend had been paid in both the year.
(V) It has been decided to write down investment to face value of shares in 10years and to
provide for share of loss to subsidiary.

(ii) Particulars of Yamuna Limited:

The company incurred losses of Rs. 40,000 and Rs. 60,000 in 2017 – 2018 and 2018 – 2019 after
charging depreciation of 10% p.a. on the book value of Fixed Assets as on 01.04.2017.

Prepare Consolidated Balance Sheet of Ganga Limited and its subsidiary as at 31 st

March, 2019 as per requirements of Schedul e III. 10

(I) (a) The summarized Balance Sheet of TMI Ltd. for the year ended on 31st March, 2017, 2018and
2019 are as follows:
` in thousand

2017 2018 2019

1,60,000 equity shares of Rs. 10 each fully paid 1,600 1,600 1,600
General Reserves 1,200 1,400 1,600
Profit and Loss Account 140 160 240
Trade Payable 600 800 1,000
3,540 3,960 4,440
Assets:
Goodwill 1,000 800 600
Building and machinery less depreciation 1,400 1,600 1,600
Inventory 1,000 1,200 1,400
Trade Receivable 20 160 440
Bank Balance 120 200 400
3,540 3,960 4,440

(i) Actual valuations were as under:

2017 2018 2019

Building and machinery less depreciation 1,800 2,000 2,200

Inventory 1,200 1,400 1,600

Net profit (including opening balance after writing off depreciation, 420 620 820
goodwill, tax provision and transfer to general reserve)
(ii) Capital employed in the business at market value at the beginning of 2016 – 2017 was Rs.36,60, 000
which included the cost of goodwill. The normal annual return on average capital employed in the line
of business engaged by T Ltd. is 12.5%.
(iii) The balance in the general reserve on 1st April, 2016 was Rs. 10 lakhs.

(iv) The goodwill shown on 31st March, 2017 was purchased on 1st April, 2016 for Rs. 10 lakhs on which
date the balance in the Profit and Loss Account was Rs. 1,20,000.

You are required to find out the average capital employed in each year. Also computegoodwill
to be valued at 5 years purchase of Super Profit (Simple average method). 7

(b) Jal Agni Ltd. provides you the following particulars in respect of stock options grade:
Grant Date April 1, 2015
Number of Employees covered 1050
Number of Options granted per Employee 50
Vesting Condition: Continuous employment for 3 years
Nominal Value per share (Rs.) 100
Exercise Price per share (Rs.) 125
Market Price per share on Grant Date (Rs.) 149
 Vesting Date March 1, 2018
Exercise Date March 31, 2019
Fair Value of Option per share on Grant Date (Rs.) 30

Position on 31.03.2016 31.03.2017 31.03.2019

Estimated Annual Rate of Departure 2% 3%
Number of employees left 30 20 16
Number of Employees entitled to exercise 984
option

On 31st March, 2019, 960 Employees exercised the option and 24 Employees did notexercise the option.
Required:
Compute Expenses to be recognized in each year and Value of Options Forfeited byFair Value
Method. 7

7. (a) Saurav Ltd. provides you with the following data based on which you are required to calculate the Economic
Value Added (EVA):

Equity share capital (42 crore equity shares of 10 each) 420 crore
15% preference share capital (1.40 crore shares of 100 each) 140 crore
15% debentures (11.20 crore debentures of 100 each) ₹1,120 crore
Income tax rate 30%
Beta 1.5
Market rate of return 15.5%
Equity Market risk premium 9%
Financial leverage 1.5 times
Land and building (held as investment) 140 crore
7

(b) Briefly mention the Corporate Social Responsibility reporting requirement as per Rule 8 of the Companies (CSR
Policy) Rules, 2014. 7

8. (a) What is Public Accounts Committee (P.A.C.)? What are its objectives? How is it constituted? 5

(b) Write a short note on Government Accounting Standards Advisory Board (GASAB) emphasizing on the structure of
GASAB. 5

(c) On 01.04.2022. H Ltd. acquired 75% shares of S Ltd. in cash at a premium of 500 lakh over market price per share of
26 each. ic., at a fair value of 20,000 lakh. On that date, S Ltd, had an issued and subscribed capital of 1,000 lakh shares
of 10 each fully paid and a balance of 10,000 lakh in its retained earnings under Other Equity. The aggregate identifiable
net assets of S Ltd. as on 01.04.2022 included an item of PPE whose fair value was lower than the book value by 1,200
lakh. For other items, book value and fair value were same. NCI was valued at fair value calculated at the market price
per share. Determine the NCI and Goodwill on the date of acquisition. If the goodwill is impaired by 1,540 lakh on 31
03.2023, how will the unpairment loss be shared by: H Ltd. and NCT 4