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CORPORATE SOCIAL RESPONSIBILITY 1
GUIDANCE NOTE ON CORPORATE SOCIAL RESPONSIBILITY
CONCEPT 1:CORPORATE SOCIAL RESPONSIBILITY (CSR)

“Corporate Social Responsibility (CSR)” means and includes but is not limited to:
1. Projects or programs relating to activities specified in Schedule VII or
2. Projects or programs relating to activities undertaken by the board of directors of a
company (Board) in pursuance of recommendations of the CSR Committee of the Board
as per declared CSR Policy of the company.
WHICH COMPANY TO PERFORM CORPORATE SOCIAL RESPONSIBILITY?
Every company including its holding or subsidiary, and a foreign company defined under
clause (42) of section 2 of the Act having its branch office or project office in India which
fulfils the criteria specified in sub-section (l) of section 135 of the Act shall comply with
the provisions of section 135 of the Act and these rules:
Provided that net worth, turnover or net profit of a foreign company of the Act shall be
computed in accordance with balance sheet and profit and loss account of such company
prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381
and section 198 of the Act.
QUESTION 1 (SELF READING) (LAW ASPECT)
ABC Ltd. is a company which is formed with charitable objects under Section 8 of the
Companies Act, 2013. As a result, the management of the company believes that as all the
activities of the company will be with the intent of charity, the CSR provisions are not ap-
plicable to ABC Ltd. as these activities are activities in normal course of business.
Whether the provisions of CSR are applicable to ABC Ltd. provided it fulfils the criteria of
Section 135 of the Act?
SOLUTION
Section 135 of the Companies Act is applicable to every company meeting the specified cri-
teria. As per section 2(20) of the Companies Act, ‘company‛ means a company incorporated
under the Companies Act or under any other previous company law. This would imply that
companies set up for the purposes of CSR/public welfare are also required to comply with
the provisions of CSR.
2 CORPORATE SOCIAL RESPONSIBILITY
CONCEPT 2: STATUTORY PROVISIONS

In India, the Companies Act, 2013 has statutorily recognised the concept of CSR. Section
135 of the Companies Act, 2013 read with Schedule VII thereto and Companies (Corporate
Social Responsibility Policy) Rules, 2014 are the special provisions under the new company
law regime imposing mandatory CSR obligations.
Important Definitions
a) Any financial year: “Any financial year” referred under sub-section (1) of Section 135
of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘Immediately pre-
ceding financial year‛.
b) Average Net Profit: “Average Net Profit” is the amount as calculated in accordance
with the provisions of Section 198 of the Companies Act, 2013.
c) Financial Year: “Financial Year”, in relation to any company or body corporate, means
the period ending on the 31st day of March every year, and where it has been incorpo-
rated on or after the 1st day of January of a year, the period ending on the 31st day of
March of the following year, in respect whereof financial statement of the company or
body corporate is made up.
If a holding company or a subsidiary of a company incorporated outside India follows
a different financial year for consolidation of its accounts outside India, the Tribunal
may allow (on application) any period as its financial year, whether or not that period is
a year, provided it align its financial year as per the Act, within a period of two years.
d) Net Profit: “Net Profit” means the net profit of a company as per its financial statement
prepared in accordance with the applicable provisions of the Act, but shall not include
the following, namely:
(i) any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise; and
(ii) any dividend received from other companies in India, which are covered under and
complying with the provisions of section 135 of the Act:
e) Net worth:“ Net worth” means the aggregate value of the paid-up share capital and all
reserves created out of the profits and securities premium account, after deducting
the aggregate value of the accumulated losses, deferred expenditure and miscellaneous
expenditure not written off, as per the audited balance sheet, but does not include
reserves created out of revaluation of assets, write-back of depreciation and amalga-
mation.
f) Turnover: “Turnover” means the aggregate value of the realisation of amount made
from the sale, supply or distribution of goods or on account of services rendered, or
both, by the company during a financial year;
g) Spend: The term ‘spend‛ in accounting parlance generally means the liabilities incurred
during the relevant accounting period.
The Companies Act, 2013
A. As per section 135 of the Companies Act 2013
Every company having either
net worth of ` 500 crore or more, or
turnover of ` 1,000 crore or more or
a net profit of ` 5 crore or more
during any financial year shall constitute a Corporate Social Responsibility (CSR) Commit-
tee of the Board consisting of three or more directors (including at least one independent
director).
ABC Ltd. is a company which has a net worth of INR 200 crores, it manufactures rubber
parts for automobiles. The sales of the company are affected due to low demand of its
products.
The previous year‛s financials state:
(INR in Crores)
March 31, March 31, 20X3 March 31, March 31, 20X1
20X4 20X2
(current
year)
Net Profit 3.00 8.50 4.00 3.00
Sales (turnover) 850 950 900 800
Required
Does the Company have an obligation to form a CSR committee since the applicability crite-
ria is not satisfied in the current financial year?
SOLUTION
It has been clarified that ‘any financial year‛ referred to under sub-section (1) of section
135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three
preceding financial years‛
A company which meets the net worth, turnover or net profits criteria in immediately pre-
ceding financial year, will need to constitute a CSR Committee and comply with provisions of
sections 135 (2) to (5) read with the CSR Rules.
As per the criteria to constitute CSR committee -
1) Net worth greater than or equal to INR 500 Crores: This criterion is not satisfied.
2) Sales greater than or equal to INR 1000 Crores: This criterion is not satisfied.
3) Net Profit greater than or equal to INR 5 Crores: This criterion is satisfied in financial
year ended March 31, 20X3.
Hence, the Company will be required to form a CSR committee.
Role of Corporate Social Responsibility (CSR) Committee
The CSR Committee shall—
(a) formulate and recommend to Board-
a. a CSR Policy indicating the activities to be undertaken by the company as specified
in Schedule VII;
b. the amount of expenditure to be incurred on the above activities and
(b) monitor the CSR Policy of the company from time to time.
C. Role of Board
Board shall disclose-
(a) The composition of CSR Committee in its report
(b) Approve the recommended CSR Policy for the company
(c) Disclose the contents of such Policy in its report and place it on the company‛s
website
(d) Ensure that the activities included in CSR Policy of the company are duly execut-
ed by the company
(e) Ensure that the company spends, in every financial year, at least two per cent
of the average net profits of the company made during the three immediately
preceding financial years by giving preference to the local area and areas around
it where it operates
(f) In case the company fails to spend such amount, the Board shall specify the rea-
sons for not spending the amount [ and unless the unspent amount relates to any
ongoing project, transfer such unspent amount to a fund specified in Schedule
VII, within a period of six months of the expiry of the financial year]
(g) Any amount remaining unspent, pursuant to any ongoing project, undertaken by a
company in pursuance of its corporate social responsibility policy, shall be trans-
ferred by the company within thirty days from the end of financial year to a spe-
cial Account (opened by the company in that behalf for that financial year in any
scheduled bank) to be called the unspent corporate social responsibility account.
Such an amount shall be spent by the company in pursuance of its obligations to-
wards the corporate social responsibility policy within 3 years from the date of such
transfer, failing which, the company shall transfer the same to a fund specified in
schedule VII within thirty days from the date of completion to third financial year.
Special Note: if a company contravenes the above provisions, the company shall be punish-
able with fine which shall not be less than 50,000 but which may be extended to 25,00,000
and every defaulting officer of such company shall be punishable with imprisonment for a
term upto 3 years or with fine which shall not be less than 50,000 but which may be extend
to 5,00,000 or with both.
ABC Ltd. manufactures consumable goods like bath soap, tooth brushes, soap cases etc. As
part of its CSR policy, it has decided to that for every pack of these goods sold, INR 0.80
will go towards the ‘Save trees foundation‛ which will qualify as a CSR spend as per Schedule
VII. Consequently, at the year end, the company sold 25,000 such packs and a total of
INR 20,000 was recognised as CSR expenditure. However, this amount was not paid to the
foundation at the end of the financial year.
Required
Will the amount of INR 20,000 qualify to be a CSR expenditure?
SOLUTION
By earmarking the amount from such sale for CSR expenditure, the company cannot show
it as CSR expenditure. To qualify the amount to be CSR expenditure, it has to be spent.
Hence, INR 20,000 will not be automatically considered as CSR expenditure until and unless
it is spending on CSR activities.
CONCEPT 3 : IMPORTANT POINTS ON CSR ACTIVITIES

1. The CSR activities undertaken by the company shall exclude activities undertaken in
pursuance of its normal course of business.
2. A company may collaborate with other companies for undertaking projects or pro-
grams or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programs in
accordance with these rules.
How can companies with small CSR funds take up CSR activities in a project/ program mode?
SOLUTION
It has been clarified that companies can combine their CSR programs with other similar
companies by pooling their CSR resources.
As per Rule 4 of the CSR Rules, a company may collaborate with other companies for un-
dertaking projects or for CSR activities in such a manner that the CSR committees of the
relevant companies are in a position to report separately on such projects in accordance
with the prescribed Rules.
3. The CSR projects or programs or activities undertaken in India only shall amount to
CSR expenditure.
Due to immense loss to Nepal in the recent earthquake, one FMCG Company undertakes
various commercial activities with considerable discounts and concessions at the related
affected areas of Nepal for a continuous period of 3 months after earthquake. In the
Financial Statements for the year 20X1-X2, the Management has shown the expenditure
incurred on such activity as expenditure incurred to discharge Corporate Social Responsi-
bility.
Required
State whether the treatment done by the management of management is correct. Explain
with reasons.
SOLUTION
The Companies Act, 2013 mandated the corporate entities that the expenditure incurred
for Corporate Social Responsibility (CSR) should not be the expenditure incurred for the
activities in the ordinary course of business. If expenditure incurred is for the activities
in the ordinary course of business, then it will not be qualified as expenditure incurred on
CSR activities.
The statutory guidelines relating to CSR also require the deployment of funds for the ben-
efit of the local area of the Company. Since Nepal is another country the expenditure done
there i.e. in Nepal shall not qualify to be accounted as CSR expenditure.
Further, it is presumed that the commercial activities performed at concessional rates
are the activities done in the ordinary course of business of the company. Therefore, the
treatment done by the Management by showing the expenditure incurred on such commer-
cial activities in its financial statements as the expenditure incurred on activities undertak-
en to discharge CSR, is not correct.
4. The CSR projects or programs or activities that benefit only the employees of the
company and their Families shall not be considered as CSR activities in accordance
with section 135 of the Act.
5. Companies may build CSR capacities of their own personnel as well as those of their
Implementing agencies through Institutions with established track records of at
least three financial years but such expenditure (including expenditure on adminis-
trative overheads) shall not exceed five percent of total CSR expenditure of the
company in one financial year.
6. Contribution of any amount directly or indirectly to any political party, shall not be
considered as CSR activity.
7. The surplus arising out of the CSR projects or programs or activities shall not form
part of the business profit of a company.
8. CSR expenditure shall include all expenditure including contribution to corpus, for
projects or programs relating to CSR activities approved by the Board on the rec-
ommendation of its CSR Committee, but does not include any expenditure on an
item not in conformity or not in line with activities which fall within the purview of
Schedule VII of the Act.
The Board‛s Report of a company shall include an annual report on CSR containing
particulars as specified.
ABC Ltd. is a company which comes under the ambit of Section 135 and CSR Rules. The
Board of ABC Ltd did not appropriate the CSR funds and as a result there was no annual
report on CSR in the Board‛s report for financial year ended March 31, 20X1.
Required
Is this a non-compliance as per the Act?
SOLUTION
It has been clarified that as per Rule 9 of the CSR Rules, the Board‛s Report of a company
qualifying under section 135 shall include an annual report on CSR, containing particulars
specified in Annexure to CSR Rules. Reporting of CSR policy of the company in the Board‛s
Report is a mandatory requirement. If the disclosure requirements are not fulfilled, penal
consequences may be attracted under section 134(8) of the Companies Act
CONCEPT 4 :
PERMISSIBLE ACTIVITIES UNDER CORPORATE SOCIAL
RESPONSIBILITY POLICIES: SCHEDULE VII
As per Schedule VII of Companies Act 2013, following activities may be included by compa-
nies in their Corporate Social Responsibility Policies Activities relating to:
1. eradicating hunger, poverty and malnutrition, promoting health care including preven-
tive health care and sanitation including contribution to the Swach Bharat Kosh set-up
by the Central Government for the promotion of sanitation and making available safe
drinking water.
2. promoting education, including special education and employment enhancing vocation
skills especially among children, women, elderly and the differently abled and livelihood
enhancement projects.
3. promoting gender equality, empowering women, setting up homes and hostels for women
and orphans; setting up old age homes, day care centres and such other facilities for
senior citizens and measures for reducing inequalities faced by socially and economically
backward groups;
4. ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agroforestry, conservation of natural resources and maintaining quality
of soil, air and water including contribution to the Clean Ganga Fund set-up by the Cen-
tral Government for rejuvenation of river Ganga;
5. protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional arts and handicrafts;
6. measures for the benefit of armed forces veteran, war widows and their dependents;
7. training to promote rural sports nationally recognized sports and Olympic sports;
8. contribution to the Prime Minister‛s National Relief Fund or any other fund set up by
the Central Government for socio-economic development and relief and welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and wom-
en; and
9. contributions or funds provided to technology incubators located within academic insti-

tutions which are approved by the Central Government;
10. rural development projects.
11. slum area development.
Note: Additional items included in Schedule VII or clarified as already being covered
under Schedule VII of the Act is given as Appendix II of the chapter.
CONCEPT 5 : ACCOUNTING FOR CSR TRANSACTIONS

Revenue Expenditure made in the Current Financial Year
Debit (INR) Credit (INR)
CSR Expenditure (profit and loss statement) XXX
To Cash/Vendor XXX
CSR Expenditure is an item of profit and loss statement.
Item 5 (A)(k) of the General Instructions for Preparation of Statement of Profit and Loss
under Schedule III to the Companies Act, 2013, requires that in case of companies covered
under Section 135, the amount of expenditure incurred on ‘Corporate Social Responsibility
Activities‛ shall be disclosed by way of a note to the statement of profit and loss.
The treatment of revenue expenditure will be the same under AS and Ind AS.
CSR Expenditure made towards a Capital Asset
In case the expenditure incurred by the company is of such a nature that give rise to an
‘asset‛, it should be recognised by the company in its balance sheet, provided the control
over the asset is with the Company and future economic benefits are expected to flow to
the company.
Example
A school building is transferred to a Gram Panchayat for running and maintaining the school,
it should not be recognised as ‘an asset‛ in its books and such expenditure would need to be
charged to the statement of profit and loss as and when incurred.
1. Accounting treatment as per AS
Where any CSR asset is recognized in its balance sheet, the same may be classified un-
der natural head (e.g. Tangible assets or Intangible assets) with specific subhead of ‘CSR
Asset‛ if the expenditure satisfies the recognition criteria of ‘asset‛.
Debit (INR) Credit (INR)
CSR Asset (Balance Sheet) XXX
To Cash/Vendor XXX
2. Accounting treatment as per Ind AS

The accounting entry as given above remains the same. However, there is a difference in
the classification of Non-current asset under Ind AS.
Where any CSR asset is recognized in its balance sheet, the same may be classified under
natural head (e.g. Property plant and equipment, Intangible assets or Investment property)
with specific sub-head of ‘CSR Asset‛ if the expenditure satisfies the recognition criteria
of ‘asset‛.
The recognition criteria for asset under Ind AS i.e.,
 Ind AS 16 : Property, plant and equipment,
 Ind AS 40 : Investment Property
 Ind AS 38 : Intangible assets
is to be satisfied.
QUESTION 7
A building is used for CSR activities of the company. The same is capitalised as ‘an asset‛
in the books and depreciation is charged on the same as per the Companies Act, 2013. The
Company claims the cost of the building as ‘CSR expenditure‛ and also the depreciation
thereon.
Required
Is this the correct treatment as per the Act?
SOLUTION
In case the expenditure incurred by the company is of such nature which may give rise to
an ‘Asset‛, it should be recognised by the company in its balance sheet, provided the con-
trol over the asset is with the Company and future economic benefits are expected to flow
to the company. Where any CSR asset is recognized in its balance sheet, the same may be
classified under natural head (e.g. Building, Plant & Machinery etc.) with specific sub-head
of ‘CSR Asset‛ if the expenditure satisfies the definition of ‘asset‛.
For example, a building used for CSR activities where the beneficial interest has not been
relinquished for lifetime by a company and from which any economic benefits flow to a
company, may be recognised as ‘CSR Building‛ for the purpose of reflecting the same in the
balance sheet.
If an amount spent on an asset has been shown as CSR spend, then the depreciation on such
asset cannot be claimed as CSR spend again. Once cost of the asset is included for CSR
spend, then the depreciation on such asset will not be included for CSR spend even if the
asset is capitalized in the books of accounts and depreciation charged thereon.
Whether any Unspent Amount of CSR Expenditure is to be Provided for?
Facts
 Section 135 (5) of the Companies Act, 2013, requires that the Board of every eligible
company, “shall ensure that the company spends, in every financial year, at least 2% of
the average net profits of the company made during the three immediately preceding
financial years, in pursuance of its Corporate Social Responsibility Policy”. A proviso to
this Section states that “if the company fails to spend such amount, the Board shall, in
its report specify the reasons for not spending the amount”.
 Further, Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules,
2014, prescribes that the Board Report of a company under these Rules shall include an
Annual Report on CSR, in the prescribed format.
Analysis
 The above provisions of the Act/Rules clearly lay down that the expenditure on CSR
activities is to be disclosed only in the Board‛s Report in accordance with the Rules
made thereunder.
 In view of this, no provision for the amount which is not spent, (i.e., any shortfall in
the amount that was expected to be spent as per the provisions of the Act on CSR ac-
tivities and the amount actually spent at the end of a reporting period) may be made in
the financial statements.
 The proviso to section 135 (5) of the Act, makes it clear that if the specified amount
is not spent by the company during the year, the Directors‛ Report should disclose the
reasons for not spending the amount.
 However, if a company has already undertaken certain CSR activity for which a liability
has been incurred by entering into a contractual obligation, then in accordance with the
generally accepted principles of accounting, a provision for the amount representing the
extent to which the CSR activity was completed during the year, needs to be recognised
in the financial statements.
Whether the Excess Amount can be Carry Forward to set off against Future CSR Ex-
penditure?
Where a company spends more than that required under law, a question arises as to wheth-
er the excess amount ‘spent‛ can be carried forward to be adjusted against amounts to be
spent on CSR activities in future period.
Facts
As per Section 135 (5) of the Companies Act, the Board shall ensure that the company
spends, in every financial year, at least two per cent of the average net profits of the
company made during the three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy.
Analysis
Since 2% of average net profits of immediately preceding three years is the minimum
amount which is required to be spent under section 135 (5) of the Act, the excess amount
cannot be carried forward for set off against the CSR expenditure required to be spent in
future.
Conclusion under various Indian GAAP
1. Accounting treatment as per AS
It has been clarified that the Board is free to decide whether any unspent amount is to be
carried forward to the next year, and the same shall be over and above the next year‛s CSR
allocation equivalent to at least 2% of average net profits of the company. Any shortfall in
spending in CSR shall be explained in the directors‛ report and the Board of Directors shall
state the amount unspent and reasons for not spending that amount. Any shortfall is not
required to be provided for in the books of accounts.
2. Accounting treatment as per Ind AS
The query raised to the ITFG was to clarify whether a provision for unspent CSR expendi-
ture is required to be made under Ind AS. The ITFG considered the principles mentioned
in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Under Ind AS 37, a
provision would be recognised when all of the following conditions are satisfied:
 An entity has a present obligation (legal or constructive) as a result of a past event
 It is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation
 A reliable estimate can be made of the amount of the obligation.
 No provision is required to be made in case the above mentioned conditions are not met.
Considering the requirements of the Companies Act, 2013 (Section 135(5)) and Ind AS 37,
the ITFG clarified that the provision for any shortfall in the amount that was expected to
be spent on the CSR activities as per the Companies Act, 2013 on CSR activities and the
amount actually spent at the end of a reporting period, may not be required in the Ind AS
financial statements.
However, if a company has already undertaken certain CSR activity for which an obligation
has been created, for example, by entering into a contractual obligation, or either a con-
structive obligation has arisen during the year, then in accordance with Ind AS 37, a pro-
vision for the amount of such CSR obligation, should be recognised in the Ind AS financial
statements.
QUESTION 8
ABC Ltd is a Company which is covered under the ambit of CSR rules. As part of its CSR
contribution an amount of INR 15,00,000 was spent as CSR expense towards the educa-
tion of girl child. The average net profit of the company for the past three years was INR
70,00,000. As the Company incurred a CSR expense in excess of what is required by the
rules, it decided to utilise this expense as a carry forward to the next year and reduce next
year‛s CSR spend by INR 1,00,000.
Required
Can the excess expenditure towards CSR be carried forward to next financial year?
SOLUTION
There is no provision for carrying forward the excess CSR expenditure spent in a particular
year. Any expenditure over 2% could be considered as voluntary higher CSR spend for that
year.
Supply of Manufactured Goods/ Services by an Entity
In some cases, a company may supply goods manufactured by it or render services as CSR
activities. In such cases, the expenditure incurred should be recognised when the control
on the goods manufactured by it is transferred or the allowable services are rendered by
the employees.
 The goods manufactured by the company should be valued in accordance with the prin-
ciples prescribed in Accounting Standard (AS) 2, Valuation of Inventories.
 The services rendered should be measured at cost. Indirect taxes (like excise duty,
service tax, VAT or other applicable taxes) on the goods and services so contributed will
also form part of the CSR expenditure.
 Where a company receives a grant from others for carrying out CSR activities, the CSR
expenditure should be measured net of the grant.
QUESTION 9
After the havoc caused by flood in Jammu and Kashmir, a group of companies undertakes
during the period from October, 20X1 to December, 20X1 various commercial activities,
with considerable concessions/discounts, along the related affected areas. The manage-
ment intends to highlight the expenditure incurred on such activities as expenditure in-
curred on activities undertaken to discharge corporate social responsibility, while publish-
ing its financial statements for the year 20X1-20X2.
Required
State whether the management‛s intention is correct or not and why?
SOLUTION
Corporate Social Responsibility (CSR) Reporting is an information communiqué with respect
to discharge of social responsibilities of corporate entity. Through ‘CSR Report‛ the corpo-
rate enterprises disclose the manner in which they are discharging their social responsibil-
ities. More specifically, it is addressed to the public or society at large, although it can be
squarely used by other user groups also.
Section 135 of the Companies Act, 2013 mandated the companies fulfilling the criteria men-
tioned in the said section to spend certain amount of their profit on activities as specified
in the Schedule VII to the Act. Companies not falling within that criteria can also spend
on CSR activities voluntarily. However, besides the requirements of constitution of a CSR
committee and a CSR policy, the corporate entities should also take care that expenditure
incurred for CSR should not be the expenditure incurred for the activities in the ordinary
course of business. If expenditure incurred is for the activities in the ordinary course of
business, then it will not be qualified as expenditure incurred on CSR activities.
Here, it is assumed that the commercial activities performed at concessional rates are
the activities done in the ordinary course of business of the companies. Therefore, the
intention of the management to highlight the expenditure incurred on such commercial ac-
tivities in its financial statements as the expenditure incurred on activities undertaken to
discharge CSR, is not correct.
CONCEPT 6 : CSR EXPENDITURE IN THE INCOME TAX SCENARIO

1. CSR expenditure, being an application of income, is not incurred wholly and exclusively
for the purposes of carrying on business. As the application of income is not allowed
as deduction for the purposes of computing taxable income of a company, amount
spent on CSR cannot be allowed as deduction for computing the taxable income of the
company.
2. Based on the Explanatory Memorandum to the Bill, the CSR expenditure which is of
the nature described in section 30 to section 36 of the Income-tax Act shall be al-
lowed as deduction under those sections subject to fulfilment of conditions, if any,
specified therein. If the nature of CSR expenditure incurred is not covered under the
aforesaid sections of the Act and is covered under section 37(1) of the Act, being a
general deduction, the same is proposed to be disallowed by the Bill.
QUESTION 10
ABC Ltd. carries out CSR activities from rented premises in Pune. The rent paid for such
premises is disclosed as CSR expenditure and subsequently ABC Ltd. also claimed deduction
of the same under the Income-tax Act. Is this permissible?
SOLUTION
Based on the Explanatory Memorandum to the Bill, CSR expenditure which is of the nature
described under the section 30 to 36 of the Income-tax Act shall be allowed as a deduc-
tion. Rent expenses can be claimed under section 30 of the Act and hence it can be claimed
as a deduction.
CONCEPT 7: CESSATION FROM COMPLIANCE OF CSR

Every company which ceases to be a company covered under sub- section (1) of section 135
of the Act for three consecutive financial years shall not be required to –
a) constitute a CSR Committee; and
b) comply with the provisions contained in sub-section (2) to (5) of the said section‛ till
such time it meets the criteria specified in sub-section (1) of section 135.
Analysis
Four year lock-in period for a company fulfilling a CSR criterion in one year It may be noted
that once a company has fulfilled the net worth / turnover / net profit criterion for one
year it has to fulfil its CSR obligations for the subsequent three financial years, even if it
does not fulfil any of these criteria in those years.
For example, if ABC Ltd. fulfils the turnover criterion under section 135(1) in the financial
year 20X1-X2, it would continue to be within the scope of section 135(1) for the three fi-
nancial years from 20X2 -X3 to 20X3-X4, irrespective of fulfilment or otherwise of any
criterion in those years. If it has not fulfilled any of the three criteria in the three subse-
quent financial years, it would be outside the scope of CSR in the financial year 20X5-X6.
If in any of the three intermittent years, its average net profit figure is negative, it need
not comply with the CSR requirement for that year.
Particulars F.Y.20X1-X2 F.Y.20X2-X3 F.Y.20X3-X4 F.Y.20X4-X5 F.Y.20X5-X6
Net worth/turnover/ √ X X X X
Net Profit Criterion
Situation I
Average Net Profits Positive Positive Positive Positive Positive
CSR Obligation √ √ √ √ X
Situation II
Average Net Profits Positive Positive Positive Negative Positive
CSR Obligation √ √ √ X X
TEST YOUR KNOWLEDGE

QUESTIONS
1. A property is being constructed to operate CSR activities by a company. At the balance

sheet date, the cost of construction is treated as revenue expenditure. Are there any
additional disclosures required in the financials regarding this?
2. In the year 20X1, XYZ Ltd. falls within the purview of CSR provisions as per the Com-
panies Act, 2013 since its net profit for the financial year exceeded ` 5 crore. The com-
pany discharged CSR obligations in the year 20X2. However, the net profit of the year
20X2 was less than ` 5 crores. Also, it was also not satisfying the other two criteria of
the section 135 for CSR compliance. Therefore, the company stopped performing CSR
activities from the year 20X3 onwards. Comment on the company‛s accountability for
CSR.
ANSWERS
1. Item 5 (a) of the General Instructions for Preparation of Statement of Profit and Loss
under Schedule III to the Companies Act, 2013, requires that in case of companies
covered under Section 135, the amount of expenditure incurred on ‘Corporate Social Re-
sponsibility Activities‛ shall be disclosed by way of a note to the statement of profit and
loss. The note should also disclose the details with regard to the expenditure incurred
in construction of a capital asset under a CSR project.
2. Once a company has fulfilled the net worth / turnover / net profit criterion for one year
it has to fulfil its CSR obligations for the subsequent three financial years, even if it
does not fulfil any of these criteria in those years.
In the given case XYZ Ltd. falls in the ambit of CSR obligations by fulfilling the criteria of
net profit exceeding ` 5 crores in the year 20X1. So it has to discharge its CSR obligations
by spending two percent of its average profit every year starting from 20X2 till 20X4. It
cannot stop spending on CSR activities as per the Act after 20X2.
Appendices
Appendix 1
FORMAT FOR THE ANNUAL REPORT ON CSR ACTIVITIES TO BE INCLUDED IN
THE BOARD‛S REPORT
1. A brief outline of the company‛ CSR policy, including overview of projects or programs
proposed to be undertaken and a reference to the web-link to the CSR policy and proj-
ects or programs.
2. The Composition of the CSR Committee.
3. Average net profit of the company for last three financial years.
4. Prescribed CSR Expenditure (two per cent. Of the amount as in item 3 above)
5. Details of CSR spent during the financial year.
(a) Total amount to be spent for the financial year.
(b) Amount unspent, if any:
(c) Manner in which the amount spent during the financial year is detailed below.
(1) (2) (3) (4) (5) (6) (7) (8)
S. CSR Sector Projects Amount Amount Cumulative Amount
No Project or in which for pro- outlay spent on the expenditure spent: Direct
activity the grams (1) (budget) projects or upto to the or through
identified Project Local area project or programs reporting implementing
is cov- or other programms Sub-heads: period agency
ered (2) Specify wise
(1) Direct
the State expenditure
and dis- on projects
trict where or programs.
projects or
programs (2) Over-
was under- heads:
taken
Total
* Give details of implementing agency:
6. In case the company has failed to spend the two per cent of the average net profit
of the last three financial years or any part thereof, the company shall provide the
reasons for not spending the amount in its Board report.
7. A responsibility statement of the CSR Committee that the implementation and moni-
toring of CSR policy, is in compliance with CSR objectives and Policy of the company.
Sd/- Sd/- Sd/-
(Chief Executive Officer (Chairman CSR Commit- (Person specified under

or Managing Director or tee) clause (d) of sub-section
Director) (1) of section 380 of the
Act)
(Wherever applicable)
PAST EXAMINATION QUESTIONS

QUESTION 1 NEW EXAMINATION MAY-2018
What are the provisions of section 135 of the Companies Act, 2013 regarding constitution
of a Corporate Social Responsibility (CSR) Committee. Also explain the role of Corporate
Social Responsibility (CSR) Committee and Board.
XYZ Limited is a company which has net worth of ` 250 crore. It manufactures parts for
automobiles. The sales of the company are affected due to low demand of the products.
The previous year‛s financial state of company are as below:
(` in crore)
31st March 31st March 31st March 31st March

2018 (Cur- 2017 2016 2015
rent Year)
Net Profit 4.25 8.00 3.50 3.25
Turnover 500.00 900.00 400.00 350.00
Examine, whether the company has an obligation to form a CSR committee since the
applicability criteria is not satisfied in the current financial year.
SOLUTION
A. As per section 135 of the Companies Act 2013
Every company having either
 Net worth of ` 500 crore or more, or

 turnover of ` 1,000 crore or more or
 a net profit or ` 5 crore or more
during any financial year shall constitute a Corporate Social Responsibility (CSR)
Committee of Board consisting of three or more directors (including at least one
independent director)
B. Role of Corporate Social Responsibility (CSR) Committee
The CSR Committee shall-
(a) Formulate and recommend to Board-

a. a CSR Policy indicating the activities to be undertaken by the company as spec-
ified in Schedule VII;
b. the amount of expenditure to be incurred on the above activities and
(b) Monitor the CSR Policy of the company from time to time.
C. Role of Board
Board shall disclose-
(a) The composition of CSR Committee in its report
(b) Approve the recommended CSR policy for the company
(c) Disclose the contents of such policy in report and place it on the company‛s web-
site
(d) Ensure that the activities included in CSR policy of the company are duly execut-
ed by the company
(e) Ensure that the company spends, in every financial year, at least two percent
of the average net profits of the company made during the three immediately
preceding financial years by giving preference to the local area and areas around
it where it operates
(f) In case the company fails to spend such amount, the Board shall specify the rea-
sons for not spending the amount.
D. In the given scenario
The MCA has clarified that ‘any financial year‛s referred to under sub-section (1) of
Section 135 of the Act read with Rule 3 (2) of Companies CSR Rules, 2014, implies
“immediately preceding financial year”
A company which meets the ‘net worth‛, ‘turnover‛ or ‘net profits‛ criteria in immedi-
ately preceding financial year, but which does not meet the criteria in the relevant
financial year, is still required to constitute a CSR Committee and comply with provi-
sions of section 135 of the Companies Act. 2013.
As per the criteria to constitute CSR committee-
1) Net worth greater than or equal to ` 500 Crore: This criterion is not satisfied.
2) Sales greater than or equal to ` 1000 Core: This criterion is not satisfied.
3) Net. Profit greater than or equal to ` 5 Crore: This criteria is satisfied in financial
year ended March 31, 2017 when the net profit was ` 8 crore.
QUESTION 2 NEW EXAMINATION NOV-2018
Baby Limited manufactures consumable goods for infants like bath soap, cream, powder,
oil etc. As part of its CSR policy, it has decided that for every pack of these goods sold, `
0.75 will go towards the “ Swachh Bharat Foundation” which will qualify as a CSR spend as
per Schedule VII. Consequently, at the year end, the company sold 40,000 such packs and
a total of 30,000 was recognized as CSR expenditure. However, this amount was not paid
to the Foundation at the end of the financial year. Will the amount of ` 30,000 qualify to
be CSR expenditure?
SOLUTION
Baby Ltd. has earmarked 75 paise per pack to spend as CSR activities. However, only by
earmarking the amount from such sale for CSR expenditure, the company cannot show it as
CSR expenditure. To qualify the amount as CSR expenditure, it has to be spent. Hence, `
30,000 will not be automatically considered as CSR expenditure till the time it is spent on
CSR activities. i.e it is deposited to Swachh Bharat Foundation‛.
IND AS-108 OPERATING SEGMENT 23
IND AS-108 OPERATING SEGMENT
CORE PRINCIPLE
An entity shall disclose information to enable users of its financial statements to evaluate
the nature and financial effects of the business activities in which it engages and the
economic environments in which it operates.
Accordingly, the objective of segment reporting is to provide financial information on
the different business activities that an entity engages in and the different economic
environments under which it operates to help users of financial statements to:
(a) better understand the entity‛s performance;

(b) better assess its prospects for future net cash flows;
(c) make more informed judgments about the entity as a whole.
SCOPE
This Accounting Standard shall apply to companies to which Indian Accounting Standards
(Ind AS) notified under the Companies Act apply.
If an entity that is not required to apply this Ind AS chooses to disclose information about
segments that does not comply with this Ind AS, it shall not describe the information as
segment information.
If a financial report contains both the consolidated financial statements of a parent that
is within the scope of this Indian Accounting Standard as well as the parent‛s separate
fina ncial statements, segment information is required only in the consolidated financial
statements.
Operating Segments
An operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues and incur
expenses
(b) whose operating results are regularly reviewed by the entity‛s chief operating
decision maker to make decisions about resources to be allocated to the segment and
assess its performance, and for which discrete financial information is available.
An operating segment may engage in business activities for which it has yet to earn
revenues, for example, start-up operations may be operating segments before earning
revenues. Not every part of an entity is necessarily an operating segment or part of
an operating segment.
24 IND AS-108 OPERATING SEGMENT
For example: A corporate headquarters or some functional departments may not earn
revenues or may earn revenues that are only incidental to the activities of the entity and
would not be operating segments. For the purposes of this Ind AS, an entity‛s post-
employment benefit plans are not operating segments.
Reportable Segments
An entity shall report separately information about each operating segment that:
(a) has been identified or results from aggregating two or more of segments, and
(b) exceeds the quantitative thresholds as specified in the standard.
Aggregation Criteria
Operating segments often exhibit similar long-term financial performance if they have
similar economic characteristics.
Type or class of
customers
Nature of production Methods used to
processes distribute
Nature of product and Aggregation Nature of regulatory

services criteria envoirnment
Quantitative Thresholds
An entity shall report separately information about an operating segment that meets any of
the following quantitative thresholds:
(a) Its reported revenue, including both sales to external customers and intersegment
sales or transfers, is 10 per cent or more of the combined revenue, internal and
external, of all operating segments.
(b) The absolute amount of its reported profit or loss is 10 per cent or more of the
greater, in absolute amount, of
(i) the combined reported profit of all operating segments that did not report a
loss and
(ii) the combined reported loss of all operating segments that reported a loss.
(c) Its assets are 10 per cent or more of the combined assets of all operating segments.
Note:
1. Operating segments that do not meet any of the quantitative thresholds may be
considered reportable, and separately disclosed, if management believes that
information about the segment would be useful to users of the financial statements.
2. An entity may combine information about operating segments that do not meet the
quantitative thresholds with information about other operating segments that do
not meet the quantitative thresholds to produce a reportable segment only if the
operating segments have similar economic characteristics and share a majority of
the aggregation criteria listed in paragraph 12.
3. If the total external revenue reported by operating segments constitutes less than
75 per cent of the entity‛s revenue, additional operating segments shall be identified
as reportable segments (even if they do not meet the criteria in paragraph 13) until
at least 75 per cent of the entity‛s revenue is included in reportable segments.
General Information
The Standard requires an entity to report a measure of operating segment profit or loss
and of segment assets. It also requires an entity to report a measure of segment liabilities
and particular income and expense items if such measures are regularly provided to the
chief operating decision maker. It requires reconciliations of total reportable segment
revenues, total profit or loss, total assets, liabilities and other amounts disclosed for
reportable segments to corresponding amounts in the entity‛s financial statements.
The Standard requires an entity to report information about the revenues derived from
its products or services (or groups of similar products and services), about the countri
es in which it earns revenues and holds assets, and about major customers, regardless of
whether that information is used by management in making operating decisions. However,
the Standard does not require an entity to report information that is not prepared for
internal use if the necessary information is not available and the cost to develop it would
be excessive.
The Standard also requires an entity to give descriptive information about the way
the operating segments were determined, the products and services provided by the
segments, differences between the measurements used in reporting segment information
and those used in the entity‛s financial statements, and changes in the measurement of
segment amounts from period to period.
Major Changes in Ind AS 108 vis a vis Notified AS 17
(i) Identification of Segments: Identification of segments under Ind AS 108 is based

on ‘management approach‛ i.e. operating segments are identified based on the internal
reports regularly reviewed by the entity‛s chief operating decision maker. Existing
AS 17 requires identification of two sets of segments; one based on related products
and services, and the other on geographical areas based on the risks and returns
approach. One set is regarded as primary segments and the other as secondary
segments.
(ii) Basis of Measurement for Amounts to be Reported in Segments: Ind AS 108
requires that the amounts reported for each operating segment shall be measured on
the same basis as that used by the chief operating decision maker for the purposes
of allocating resources to the segments and assessing its performance. Existing AS
17 requires segment information to be prepared in conformity with the accounting
policies adopted for preparing and presenting the financial statements. Accordingly,
existing AS 17 also defines segment revenue, segment expense, segment result,
segment assets and segment liabilities.
(iii) Aggregation Criteria: Ind AS 108 specifies aggregation criteria for aggregation
of two or more segments and also requires the related disclosures in this regard.
Existing AS 17 does not deal specifically with this aspect.
(iv) Single Reportable Segment: An explanation has been given in the existing AS 17
that in case there is neither more than one business segment nor more than one
geographical segment, segment information as per this standard is not required
to be disclosed. However, this fact shall be disclosed by way of footnote. Ind AS
108 requires certain disclosures even in case of entities having single reportable
segment.
(v) Interest Expense: An explanation has been given in the existing AS 17 that interest
expense relating to overdrafts and other operating liabilities identified to a
particular segment should not be included as a part of the segment expense. It
also provides that in case interest is included as a part of the cost of inventories and
those inventories are part of segment assets of a particular segment, such interest
should be considered as a segment expense. These aspects are specifically dealt with
keeping in view that the definition of ‘segment expense‛ given in AS 17 excludes
interest. Ind AS 108 requires the separate disclosures about interest revenue and
interest expense of each reportable segment, therefore, these aspects have not
been specifically dealt with.
(vi) Disclosures: Ind AS 108 requires disclosures of revenues from external
customers for each product and service. With regard to geographical information,
it requires the disclosure of revenues from customers in the country of domicile
and in all foreign countries, non-current assets in the country of domicile and all
foreign countries. It also requires disclosure of information about major customers.
Disclosures in existing AS 17 are based on the classification of the segments as
primary or secondary segments. Disclosure requirements for primary segments are
more detailed as compared to secondary segments.
QUESTION NO 1
Rajesh Ltd. has ten segments. The share of revenue, profit/loss and assets of each of these
ten segments is given below. The company has identified segments H,I and J for reporting.
Comment on the adequacy of reporting, assuming there are no inter segment revenues.
Segments Revenues Profit (Loss) Assets

A,B,C,D,E,F,G, 5% each=35% 5% each=35% 8%each=56%
H,I, 20% each=40% 25% each=50% 20% each=40%
J 25% 15% 4%
QUESTION NO 2
Information relating to five segments of Sharma Ltd. is as under: (Rs. in lakhs)
Segment A B C D E Total
Segment revenue 150 200 200 50 300 900
Segment results 50 (70) 80 10 (25) 45
Segment assets 40 65 140 20 35 200
The company wishes to know which of the segments need to be reported. Advise.
QUESTION NO 3
ICS Ltd. has the following business / geographical segments. Examine which of these are
reportable Segments under IND AS-108. (information in Rs.‛000)
Segments Revenue Profit and loss Assets

A 9,600 1,750 4,100
B 300 180 450
C 100 70 450
QUESTION NO 4
Larson Ltd. has eight Segments A,B,C,D,E,F,G and H. The following information is available
in relation to these Segments. (information in Rs. lakhs)
Particulars A B C D E F G H Total
Segment
Revenue:
External Nil 510 30 20 30 100 40 70 800
Internal 200 120 60 10 nil nil 10 nil 400
Total revenue 200 630 90 30 30 100 50 70 1200
Segment
result:
profit(Loss) 10 (180) 30 (10) 16 (10) 10 14 (120)
Segment
Assets 45 141 15 33 9 15 15 27 300
Identify which of the above constitute reportable Segment if you were informed that
A,B,C and E were the reported Segments in the last financial year.
QUESTION NO 5
Following is the data regarding six Segments of Garg Ltd. (Rs in lakhs)
Segment A B C D E F
Segment revenue 150 310 40 30 40 30
Segment results 25 (95) 5 5 (5) 15
Segment assets 20 40 15 10 10 5
The finance director is of the view that it is sufficient that Segments A and B alone are
reported. Advice.
QUESTION NO 6
From the following information of Kristen Ltd. having two primary Segments, prepare a
statement classifying the same under appropriate heads: (Rs. in lakhs)
Particulars Segment Alpha Segment Beta Unallocated

Segment revenue 27,100 3,280
(See note)
Segment profit 4,640 (197)
Capital expenditure 1,300 16
Non cash expense 114 16
excluding
depreciation
Liabilities 3,430 770 2,200
Assets 19,450 2,700 6,550
Depreciation 110 15
Dividend income 285

Interest expenses 35
Tax provision 1675
Note: Segment revenue for Alpha includes inter Segment revenue of 50.
QUESTION NO 7
V Ltd. group has three divisions A,B and C. Details of their turnover, results and net assets
are given below (in Rs.‛000) prepare a Segmental report.
Division A:
(a) Sales to division B Rs.3050

(b) Local sales Rs.60
(c) Export sales Rs.4090
Division B:
(a) sales to division C Rs.30

(b) export sales to Europe Rs.200
Division C:
(a) Export sales to USA Rs.180

Other information:
Particulars Head A B C
office
Profit or loss before tax 160 20 (8)
Re allocated cost from Head office 48 24 24
Interest costs 4 5 1
Fixed assets 50 200 40 120
Net current assets 48 120 40 90
Long term liabilities 38 20 10 120
QUESTION NO 8
Prepare a Segmental report for publication in Diversifiers Ltd. from the following details of
the company‛ Segment three divisions and he head office.
Rs.‛000
Forging shop division
Sales to Bright Bar division 4,575
Other domestic sales 90
Export sales 6,135
10,800
Bright Bar division:
Sales to fitting division 45
Export sales to Rwanda 300
345
Fitting division:
Export sales to Maldives 270
Particulars Head Forging shop Bright bar Fitting

office division division division
Rs.‛000 Rs.‛000 Rs.‛000
Pre tax operating results 240 30 (12)
Head office cost reallocated 72 36 36
Interest costs 6 8 2
Fixed assets 75 300 60 180
Net current assets 72 180 60 135
Long term liabilities 57 30 15 180
QUESTION NO 9
Following details are given for Cheer Ltd. for the year ended 31.3.2003:
Rs.‘000 Rs. ‘000

Sales:
Food products 5650
Plastic and packaging 625
Health and scientific 345
Others 162 6782
Expenses:
Food products 3335
Others 200 4182
General corporate expenses 562
Income from investments 132
Identifiable Assets:
Food products 7320
Others 665 10355
General corporate Assets 722
Other information:
(a) Inter Segment sales are as below:
a. Food products 55000
b. Plastic and packaging 72000

c. Health and scientific 21000
d. Others 7000
(b) Operating profit included Rs.33000 on inter Segment sales.
(c) Information about inter Segment expenses are not available.
You are required to prepare a statement showing financial information about Cheer Ltd.
operations in different industry segments.
QUESTION NO 10
Rekfor Fontry Ltd. has 2 products making servers and making other software. Most of the
risk and reward factors are common. But the CODM wants to classify them as segment.
Comment as per IND AS-108 and Ind AS-108.
SOLUTION:
Ind AS-108: Ind AS-108 requires identification of ‘operating segments‛ based on internal
management reports that are regularly reviewed by the entity‛s “chief operating decision
maker” for the purposes of allocating resources to the segments and assessing their
performance. If as per the CODM the 2 products are 2 segments then yes the entity
should follow Segment reporting. Also one should check the 10% criteria.
QUESTION NO 11
Microtech Ltd. produces batteries for scooters, cars, trucks and specialized batteries for
invertors and UPS. Are these products different business segments or a part of the same
business segment.
SOLUTION
We can not aggregate the given products because all the given products are different by
nature. The production process and class of customers is totally different of each product
from other product.
QUESTION NO 12
Superb Ltd. is a multinational company having registered office in Mumbai. The following
details are available from the books and other records of the company for the year ended
31st March, 2014:
Rs.(‘000) Rs. (‛000)

Sales:
Domestic 7,625
Europe 1,676
America 2,325
Australia 766 12,392
Inter-unit sales between geographic areas (not included above)

Domestic 523
Europe
Operating Profit:
Domestic
Europe
America 1,262
Australia 344 5,943
Other Items:
General corporate expenses 362
Income from Investment 166
Identifiable assets:
Domestic 10,620
Europe 5,635
America 3,205
Australia 1,560 21,020
General corporate assets 750

Investments 675
Prepare a statement showing financial information about the operations of Superb Ltd. in
different geographical segments.
SOLUTION:
Information about Superb Ltd.‛s Operations in Different Geographical Segments.
Geographical Segments
(Fig. in Rs.‛000)
Item Domestic Europe America Australia Inter-Area Consolidated

Eliminations figs.
Revenues:
Sales to
unaffiliated
Customers 7,625 1,676 2,325 766 12,392
Inter Unit
Sales
between 523 760 (1,283)
geographic
areas
Total 8,148 2,436 2,325 766 (1,283) 12,392
Revenue
Item Domestic Europe America Australia Inter-Area Consolidated

Eliminations figs.
Operating 3,575 762 1,262 344 5,943
Profit
Other Items:
General (362)
Expenses
Interest
(274)
expenses
Income from
165
Investments
Net Profit 5,472

Assets
Identifiable to
geographical
10,620 5,635 3,205 1,560 21,020
area
General
corporate 750
assets
Investments 675
Total assets 22,445
QUESTION NO 13
A multinational enterprise by the name of Torrential International has business activities

located in three segments. The relevant details are as follows:
Allocation of net income and net assets
Location Relevant Percentage for Allocation of:

Revenue & Costs Assets & Liabilities (See note 2)
% %
Europe 60 40
North America 20 40
Asia 20 20
The allocation percentage to be applied to revenue and cost for net of inter-group revenue
(see note 3).
1. Details relating to head office

The head office procures all necessary finance for the enterprise‛s activities and
allocates this finance to operating units through current accounts. Some costs, assets
and liabilities relate solely to head office and cannot be allocated to segments on a
rational basis. These amounts are as follows:
  Operating costs of Rs. 80 Lakhs at 31st March 2015
  Non current financial assets
  Bank balance of Head Office is Rs. 140 Lakhs at 31st March 2015.
  All liabilities except trade payables.
2. Inter group revenues – year to 31st March 2015
Selling Inter Group Inter-Group Sales made to

Segment Sales
Europe North America Asia
Rs. ‘000 Rs.‛000 Rs.‛000 Rs.‛000
Europe 16,000 11,200 4,800
North America 12,800 8,800 4,000
Asia 10,400 5,600 4,800
Total 14,400 16,000 8,800
Extracts from the consolidated financial statements of Torrential International for the
year ended 31st March 2015:
Statement of Comprehensive Income –
year ended 31st Mach 2015
Rs.‛000
Revenue 532,000
Cost of Sales (249,600)
Gross Profit 282,400
Distribution Costs (79,200)
Administrative expenses (94,400)
Profit from operations 1,08,800
Income from Investments 4,800
Finance Costs (20,000)
Profit before tax 93,600
Income tax expenses (22,400)
Profit after tax 71,200
Non Controlling interest (64,00)
Net Profit for the period 64,800
Statement of Financial position as at 31st March 2015
Rs.‛000 Rs.‛000
Assets
Non-Current Assets
Property, Plant & Equipment 272,000
Financial Assets 40,000 312,000
Current Assets
Inventories 60,000
Trade receivables 83,200
Bank Balances 19,200 162,400
474,400
Equity and Liabilities

Capital and Reserves
Issued Capital 120,000
Accumulated profits 144,000 264,000
Non-current liabilities
Interest bearing borrowings 112,000
Deferred Tax 28,800 1,40,800
Current Liabilities
Trade and other payables 56,000
Short term borrowings 13,600 69,600
474,400
Required: Prepare a segment report for Torrential International for the year ended 31st
March, 2015 that complies with IND AS-108.
SOLUTION:
Segment report for Torrential International
Amount in Rs.‛000
Europe North America Asia Total

REVENUE
External Sales (60:20:20) 319,200 106,400 106,400 532,000
Inter-Segment Sales 16,000 12,800 10,400 39,200
Total Revenue 335,200 119,200 116,800 571,200
RESULT
Segment Result (W1) 71,680 20,160 24,960 116,800
Unallocated corporate (8,000)

expenses (H O Operating
Cost)
Profit from operations 1,08,800
Investment income 4,800
Finance cost (20,000)
Income taxes (22,400)
Non controlling interest __(6,400)
Net Profit 64,800
OTHER INFORMATION
Segment assets (WZ) 168160 168,160 84,080 420,400
Unallocated corporate assets 54,000
(40,000 + 14,000)
Consolidated assets 474,400
Segment liabilities (W3) 22,400 22,400 11,200 56,000
Unallocated corporate 154,400
Liabilities (140,800+13,600*)
Consolidated liabilities 210,400

* Total bank balance – amount allocated to segments =Rs. 19,200 – Rs. 5,2000 = Rs.14,000
(000)
Working (all figures in Rs.‛000)
W 1 Segment result
Europe North America Asia Total

Segment Revenue 335,200 118,200 116,800 571,200
Segment Cost (249,120) (83,040) (83,040) (415,200)
External*
Inter-Group (14,400) (16,000) (8,800) (39,200)
(Note 2 to question)
Segment Result 71,680 20,160 24,960 116,800
* Total operating costs (excluding Inter-group items) are 423,200 (249,600 + 79,200 +
94,400)
Head Office costs are 8,000
So costs to be allocated are 415,200 in the ratio (60:20:20)
W2 : Segment Assets all allocated in the ratio 40:40:20

Property, Plant & equipment (272,000) 108,800 108,800 54,400
Inventories (60,000) 24,000 24,000 12,000
Trade receivables (83,2000 33,280 33,280 16,640
Bank Balance (5,200) 2,080 2,080 1,040
168,160 168,160 84,080
W3: Segment liabilities all allocated in the ratio 40:40:20

Trade Payable (56,000) 22,400 22,400 11,200
QUESTION NO 14 (STUDY MATERIAL)
X Ltd. is operating in coating industry. Its business segment comprises coating and others
consisting of chemicals, polymers and related activities. Certain information for financial
year 20X1-20X2 is given below.
(` in lakhs)
Segments External Tax Other operating Result Asset Liabilities

sale Liabilities
Income
Coating 2,00,000 5,000 40,000 10,000 50,000 30,000
Others 70,000 3,000 15,000 4,000 30,000 10,000
Additional information:
1. Unallocated revenue net of expenses is ` 30,00,00,000

2. Interest and bank charges is ` 20,00,00,000
3. Income tax expenses is ` 20,00,00,000 (current tax ` 19,50,00,000 and deferred tax
` 50,00,000)
4. Investments ` 1,00,00,00,000 and unallocated assets ` 1,00,00,00,000.
5. Unallocated liabilities, Reserve & surplus and share capital are ` 2,00,00,00,000,
` 3,00,00,00,000 & ` 1,00,00,00,000 respectively.
6. Depreciation amounts for coating and others are ` 10,00,00,000 and ` 3,00,00,000
respectively
7. Capital expenditure for coating and others are ` 50,00,00,000 and ` 20,00,00,000
respectively.
8. Revenue from outside India is ` 3,00,00,00,000 and segment asset outside India
` 1,00,00,00,000
Based on the above information, how X Ltd. would disclose information about reportable
segment revenue, profit or loss, assets and liabilities for financial year 20X1-20X2?
PAST EXAMINATIONS QUESTIONS
QUESTION 1 : NEW EXAMINATION MAY-2018
Seeds Ltd. is operating in oil industry. Its business segments comprise crushing and refining.
Certain information for financial year 2017-18 is given below:
(₹ in lakh)
Segments E x t e r n a l Tax O t h e r Results Assets Liabilities

Sale Operating
Income
Crushing 1,00,000 2,500 20,000 5,000 25,000 15,000
Refining 35,000 1,500 7,500 2,500 15,000 5,000
Additional information: (₹ in lakh)
- Unallocated revenue net of expenses is ₹ 1,500.

- Interest and bank charges is ₹ 1,000
- Income-tax expense is 1,000 (current tax ₹ 975 and deferred tax ₹ 25)
- Investments ₹ 5,000 and unallocated assets ₹ 5,000
- Unallocated liabilities, Reserves & Surplus and Share capital are ₹ 10,000; ₹ 15,000
and ₹ 5,000 respectively.
- Depreciation amounts for crushing and refining are ₹ 500 and ₹ 150 respectively.
- Capital expenditure for crushing and refining are ₹ 2,500 and ₹ 1,000 respectively.
- Revenue from outside India is ₹ 15,000 and segment assets outside India ₹ 5,000.
Based on the above information, how Seeds Ltd. would disclose information about
reportable segment revenue, profit or loss, assets and liabilities for financial year
2017-18?
SOLUTION
Segment revenues, results and other information
(₹ in lakh)
Revenue Coating Others Total
1 External sales (gross) 1,00,000 35,000 1,35,000
Tax -2,500 -1,500 -4,000
External sales (net) 97,500 33,500 1,31,000

Other operating income 20,000 7,500 27,500
Total Revenue 1,17,500 41,000 1,58,500
2 Results
Segment results 5,000 2,000 7,000
Unallocated income (net of unallocated

1,500
expenses)
Profit from operation before interest,

8,500
taxation and exceptional items
Interest and bank charges -1,000
Profit before exceptional items 7,500
Exceptional items Nil
Profit before taxation 7,500
Less: Income Taxes
Current taxes -975
Deferred taxes -25
Profit after taxation 6,500
Other information
3 Assets
Segment Assets 25,000 15,000 40,000
Investments 5,000
Unallocated assets 5,000
Total Assets 50,000
(b) Liabilities/Shareholder‛s funds
Segment liabilities 15,000 5,000 20,000
Unallocated liabilities 10,000
Share capital 5,000

Reserves and surplus 15,000
Total liabilities/ shareholder‛s funds 50,000
(c) Other
Capital Expenditure 2,500 1,000 3,500
Depreciation 500 150 650
(2) Geographical information
(₹ in lakh)
India Outside India Total
Revenue 1,43,500 15,000 1,58,500
Segment assets 35,000 5,000 40,000
Capital expenditure 3,500 - 3,500

Note: Segment revenue, results, assets and liabilities include the respective amounts
identifiable to each of the segments.
NOTES
INDIAN ACCOUNTING STANDARD 20 45
INDIAN ACCOUNTING STANDARD 20
GOVERNMENT GRANTS AND DISCLOSURE

OF GOVERNMENT ASSISTANCE
QUESTION NO 1
Government gives a grant of ` 10,00,000 for research and development of H1N1 vaccine to
A Pharmaceuticals Limited. There is no condition attached to the grant. Examine how the
Government grant be realized.
SOLUTION
The entire grant should be recognized immediately in profit or loss.
QUESTION NO 2
Government gives a grant of 10,00,000 for research and development of H1N1 vaccine to
A Pharmaceuticals Limited even though similar vaccines are available in the market but are
expensive. The entity has to ensure by developing a manufacturing process over a period
of 2 year that the costs come down by at least 40% Examine how the Government grant be
realized.
SOLUTION
The entire grant should be recognized immediately as deferred income and charged to
profit or loss over a period of two years.
QUESTION NO 3
A Village of artisans in a district got devastated because of an earthquake. A Limited was

operating in that district and was providing employment to the artisans. The government
gave a grant of ` 10,00,000/- to A Limited so that 100 artisans are rehabilitated over a
period of 3 years. Government grant be realized.
SOLUTION
A limited will recognize ` 10,00,000 as government grant and set it up as a deferred income
and will recognize it in its profit or loss over the period of three years as per the principles
enuniciated in Ind AS 20.
46 INDIAN ACCOUNTING STANDARD 20
Once a government grant is recognized, any related contingent liability or contingent

asset is treated in accordance with Ind AS 37, Provisions, Contingent Liabilities and
Contingent Assets.
The manner in which a grant is received does not affect the accounting method to
be adopted in regard to the grant. Thus a grant is accounted for in the same manner
whether it is received in cash or as a reduction of a liability to the government or in
the form of non monetary asset.
QUESTION NO 4
A Limited received from the government a loan of 50,00,000 @ 5% payable after 5 years
in a bulleted payment. The prevailing market rate of interest is 12%. Interest is payable
regularly at the end of each year. Calculate the amount of government grant and Pass
necessary journal entry. Also examine how the Government grant be realized.
SOLUTION
The fair value of the loan is calculated at ` 37,38,328
Year Opening Interest Interest paid Closing Balance

Balance Calculated @ @ 5% on `
12% 50,00,000+
principal paid
(a) (b) (c) = (b) x 12% (d) (e) = (b) + (c) – (d)
1 37,38,328 4,48,600 2,50,000 39,36,928
2 39,36,928 4,72,431, 2,50,000 41,59,359
3 41,59,359 4,99,123 2,50,000 44,08,482
4 44,08,482 5,29,018 2,50,000 46,87,500
5 46,87,500 5,62,500 52,50,000 Nil
A Limited will recognize ` 12,61,672 (` 50,00,000 - ` 37,38,328 as the government grant

and will make the following entry on receipt of loan
Bank Account Dr. 50,00,000
To Deferred Income 12,61,672
To Loan Account 37,38,328
` 12,61,672 is to be recognized in profit or loss on a systematic basis over the periods in
which A Limited recognized as expenses the related costs for which the grant is intended
to compensate ( see QUESTION NO 5 in this regard)
QUESTION NO 5
Continuing with the facts given in the Question 4, state how the grant will be recognized in
the statement of profit or loss assuming.
a) The loan is an immediate relief measure to rescue the enterprise

b) The loan is a subsidy for staff training expenses, incurred equally, for a period of 4
years
c) The loan is to finance a depreciable asset.
SOLUTION
` 12,61,672 is to be recognized in profit or loss on a systematic basis over the periods in

which A Limited recognized as expenses the related costs for which the grant is intended
to compensate.
Assuming (a) the Loan is an immediate relief measure to rescue the emprises. ` 12,61,672
will be recognized in profit or loss immediately.
Assuming (b) the loan is a subsidy for staff training expenses, incurred equally, for a period
of 4 years ` 12,61,672 will be recognized in profit or loss over a period of 4 years.
Assuming (c), the loan is to finance a depreciable asset. 12,61,672 will be recognized in
profit or loss on the same basis as depreciation.
QUESTION NO 6
A Limited wants to establish a manufacturing unit in a backward area and requires 5
acres of land. The government provides the land on a leasehold basis at a nominal value
of ` 10,000 per acre. The fair value of the land is ` 100,000 per acre. Calculate the
amount of the Government grant to be recognized by an entity.
SOLUTION
A limited will recognize ` 450,000 ( ` 100,000 — ` 10,000) x 5) as government grant.
QUESTION NO 7
A Limited establishes solar panels to supply solar electricity to its manufacturing plant.
The cost of solar panels is ` 1,00,00,000 with a useful life of 10 years. The depreciation
is provided on straight line method basis. The government gives ` 50,00,000 as a
subsidy. Examine how the Government grant be realized.
SOLUTION
A Limited will set up ` 50,00,000 as deferred income and will credit ` 5,00,000 equally to
its statement of profit and loss over next 10 years.
QUESTION NO 8
Continuing with the facts given in the Illustration 7 above, state how the same will be
disclosed in the Statement of cash flows.
SOLUTION
A Limited will show ` 1,00,00,000 being acquisition of solar panels as outflow in investing
activities. The receipt of ` 50,00,000 from government will be shown as inflow under
financing activities.
TEST YOUR KNOWLEDGE
QUESTION NO 1
ABC Ltd. has received the following grants from the Government of Delhi for its newly
started pharmaceutical business:
 ` 20 Lakhs received for immediate start-up of business without any condition

 ` 50 Lakhs received for research and development of drugs required for the treatment
of cardiovascular diseases with following conditions:
 That drugs
 the drugs should be in accordance with quality prescribed by the World Health
Organization [WHO].
 Two acres of land (fair Value: ` 10 Lakhs) received for set up plant.
 ` 2 lakhs received for purchase of machinery of ` 10 lakhs. Useful life of machinery is
5 years. Depreciation on this machinery is to be charged on straight-line basis.
How should ABC Ltd. recognise the government grants in its books of accounts?
QUESTION NO 2
A Limited received from the government a loan of ` 1,00,00,000 @5% payable after 5
years in a bulleted payment. The prevailing market rate of interest is 12%. Interst is
payable regularly at the end of each year. Calculate the amount of government grant
and Pass necessary journal entry. Also examine how the Government grant be realized.
Also state how the grant will be recognized in the statement of profit or loss assuming
that the loan is to finance a depreciable asset.
Major Changes in Ind AS 20 vis-à-vis Notified AS 12
(i) Government Assistance which does not fall within the Definition of Government Grants:
Ind AS 20 deals with the other forms of government assistance which do not fall within the
definition of government grants. It requires that an indication of other forms of government
assistance from which the entity has directly benefited should be disclosed in the financial
statements. However, AS 12 does not deal with such government assistance.
(ii) Grant in respect of Non Depreciable Assets: AS 12 requires that in case the grant is
in respect of non-depreciable assets, the amount of the grant should be shown as capital
reserve which is a part of shareholders‘ funds. It further requires that if a grant related to
a non-depreciable asset requires the fulfilment of certain obligations, the grant should be
credited to income over the same period over which the cost of meeting such obligations is
charged to income. AS 12 also gives an alternative to treat such grants as a deduction
from the cost of such asset.
As compared to the above, Ind AS 20, is based on the principle that all government
grants would normally have certain obligations attached to them and these grants
should be recognised as income over the periods which bear the cost of meeting the
obligation. It, therefore, specifically prohibits recognition of grants directly in the
shareholders‘ funds .
(iii) Government Grants in the Nature of Promoters Contribution: AS 12 recognises that some
government grants have the characteristics similar to those of promoters‘ contribution.
It requires that such grants should be credited directly to capital reserv e and treated
as a part of shareholders‘ funds. Ind AS 20 does not recognise government grants of
the nature of promoters‘ contribution. As stated at (ii) above, Ind AS 20 is based on the
principle that all government grants would normally have certain obl igations attached to
them and it, accordingly, requires all grants to be recognised as income over the periods
which bear the cost of meeting the obligation.
(iv) Valuation of Non-monetary Grants given Free or at a Concessional Rate: AS 12 requires
that government grants in the form of non-monetary assets, given at a concessional rate,
should be accounted for on the basis of their acquisition cost. In case a non-monetary asset
is given free of cost, it should be recorded at a nominal value. Ind AS 20 requires to value
non-monetary grants at their fair value, since it results into presentation of more relevant
information and is conceptually superior as compared to valuation at a nominal amount.
(v) Accounting for Grant Related to Assets including Non-monetary Grant: Existing AS 12
gives an option to present the grants related to assets, including non-monetary grants at
fair value in the balance sheet either by setting up the grant as deferred income or by
deducting the grant from the gross value of asset concerned in arriving at its book value.
Ind AS 20 requires presentation of such grants in balance sheet only by setting up the
grant as deferred income. Thus, the option to present such grants by deduction of the
grant in arriving at its book value is not available under Ind AS 20.
(vi) Government Assistance: Ind AS 20 includes Appendix A which deals with Government
Assistance—No Specific Relation to Operating Activities.
(vii) Loans at Concessional Rate: Ind AS 20 requires that loans received from a government that
have a below-market rate of interest should be recognised and measured in accordance with
Ind AS 109 (which requires all loans to be recognised at fair value, thus requiring interest to
be imputed to loans with a below-market rate of interest) whereas AS 12 does not require
so.
EXTRA QUESTIONS TO BE COVERED
QUESTION NO 1
Ram Ltd. purchased a Machinery for Rs.1.00 Crore. The State Government granted the
Company a subsidy of Rs.40 Lakhs to meet partial cost of Machinery. The Company credited
the Subsidy received from the State Government to its Profit and Loss Account for the
year ended 31st March. Comment on the above.
SOLUTION
1. Principle: Where a Government Grant is received towards a specific depreciable Fixed

Asset, it should be accounted for either under Cost Reduction Method or Deferred
Income Method.
2. Conclusion: The accounting treatment of the Company, i.e. crediting P&L A/c. is
incorrect.
QUESTION NO 2
Haribhakti Ltd. acquired the Fixed Asset of Rs. 100 Lakhs on which it received a Grant of
Rs. 10 Lakhs. What will be the cost of the Fixed Assets as per IND AS 20 and how it will
be disclosed in the Financial Statements?
SOLUTION
Principle: Where a Government Grant is received towards a specific depreciable Fixed
Assets, it should be accounted for either under Cost Reduction Method or Deferred Income
Method. The accounting will be as under:-
1. Asset Reduction Method: Cost Rs. 100 Lakhs Less Grant Rs. 10 Lakhs = Rs. 90 Lakhs
will be the Carrying Amount, and written off over its useful life.
2. Deferred Income Method: Rs. 10 Lakhs in Deferred Income Account shall be shown
in Balance Sheet separately under an appropriate head. A portion of this Rs. 10
Lakhs will be credited to P&L A/c. every year, over the useful life of the asset.
QUESTION NO 3
Gowri Shankar Ltd. purchased a special machinery on 1st April of a Financial year, for Rs. 25
Lakhs. It received a Government Grant for 20% of the Price. The machine has an effective
life of 10 years. Advise the Company of the accounting treatment under both methods.
QUESTION NO 4
Kripanidhi Ltd. purchased a Fixed Asset for Rs. 75 Lakhs, which has an estimated useful
life of 5 years, with the Salvage Value of Rs. 7,50,000. On Purchase of the Asset, the
Government have the Company a grant of Rs. 15 Lakhs. Pass the necessary journal entries
in the books of the Company for the first two years under both methods which are specified
in ind as 20.
QUESTION NO 5
Supriya Ltd. received a grant of Rs. 2,500 Lakhs from the Government during the last
accounting year for welfare activities to be carried on by the Company for its Employees.
The Grant prescribed conditions for its utilization. However, during the current year, it
was found that the conditions of Grants wee not complied with and the Grant had to be
refunded to the Government in full. Explain the accounting treatment, under ind as 20.
SOLUTION
1. The above Grant is in the nature of Revenue Grant, since it is for welfare activities for
its Employees. Therefore, when received, it should have been credited to P&L Account.
2. Therefore, in the event of refund, the amount refunded should be debited to P&L
account.
QUESTION NO 6
Neelakanta Ltd. purchased a Machinery for Rs. 40 Lakhs (Useful Life 4 years and Residual
value Rs. 8 Lakhs). Government Grant received is Rs. 16 Lakhs. Due to non- compliance of
certain condition, the Grant become refundable in 3rd year to the extent of Rs. 12 Lakhs.
Show the Journal Entry to be passed at the time of refund of Grant and the value of the
Fixed Assets, if (a) the Grant is credited to Fixed Assets (b) the Grant is credited to
Deferred Grant A/c.
QUESTION NO 7
Srikanta Ltd. received a specific grant of Rs. 30 Lakhs for acquiring the Plant of Rs.150
Lakhs during 2010-11 having useful life of 10 years. The Grant received was credited to
Deferred Income in the Balance Sheet. During 2013-14, due to non-compliance of conditions
laid down, for the grant, the Company had to refund the whole grant to the Government
Balance in the Deferred Income on that date was Rs. 21 Lakhs and Written Down Value of
Plant was Rs. 105 Lakhs.
SOLUTION
If Grant is credited to Deferred Grant A/c. (i.e. Deferred Income Method)
Particulars Dr. (Rs.) Cr.(Rs.)
Deferred Government Grant A/c. Dr.(given) 21,00,000
Profit and Loss A/c. Dr.(balancing figure) 9,00,000
To Bank A/c. 30,00,000

(Being Grant refunded to Government, and excess provided
from Profit & Loss A/c).
Note: There will not be any change in the carrying Amount

of the Asset. Depreciation will be charged on the same
basis as charged in the earlier years.
QUESTION NO 8
Markandeya Ltd. applied for a Government Grant for purchase of a special machinery.
The machinery costs Rs. 80 Lakhs and the Grant was Rs. 30 Lakhs. The Machinery has a
useful life of 10 years and the Company follows SLM Depreciation. The Grant was promptly
received but certain conditions regarding production were attached to it. Four years later,
an amount of Rs. 4 Lakhs become refundable to the Government since the Company did not
adhere to the conditions imposed earlier. Explain the accounting treatment.
QUESTION NO 9
On 1st April 2010, Sundaram Ltd. received a Government Grant of Rs. 300 Lakhs for
acquisition of a Machinery costing Rs. 1,500 Lakhs. The Grant was credited to the cost of
the Asset. The life of the Machinery is 5 years. The Machinery is depreciated at20% on
WDV basis. The Company had to refund the Grant in May 2013 due to non-fulfillment of
certain conditions. How you would deal with the refund of Grant?
QUESTION NO 10
A Ltd. has set up its business in a designated backward area with an investment of Rs.200
Lakhs. The Company is eligible for 25% subsidy and has received Rs.50 Lakhs from the
Government. Explain the treatment of the Capital Subsidy received from the Government
in the books of the Company.
SOLUTION
The Government Grants may be in the nature of Promoters‛ Contribution i.e. -
(a) they are given with reference to the Total Investment in an undertaking, or
(b) by way of contribution towards its Total Capital Outlay,(e.g. Central Investment
Subsidy Scheme).
The correct treatment is to credit the Subsidy to Profit & Loss Statement immediately.
QUESTION 1 NEW EXAMINATION NOV-2018
How will you recognize and present the grants received from the Government in the following
cases as per Ind AS 20?
(i) A Ltd. received one acre of land to setup a plant in backward area (fair value of land ₹
12 lakh and acquired value by Government in ₹ 8 lakhs.)
(ii) B. Ltd. received an amount of loan for setting up a plant at concessional rate of interest
from the Government.
(iii) D. Ltd. received an amount of ₹ 25 lakh for immediate start-up a business without any
condition.
(iv) S Ltd. received ₹ 10 lakh for purchase of machinery costing ₹ 80 lakh. Useful life of
machinery is 10 years. Depreciation on this machinery is to be charged on straight line
basis.
(v) Government gives a of grant ₹ 25 lakh to U Limited for research and development of
medicine for breast cancer, even though similar medicines are available in the market
but are expensive. The company is to ensure by developing a manufacturing process
over a period of two years so that the dost comes down at least to 50%
SOLUTION
(i) The land and government grant should be recognized by A Ltd. at fair value of ₹
12,00,000 and this government grant should be presented in the books as deferred
income. (Refer footnote 1)
(ii) As per para 10A of Ind AS 20 ‘Accounting for Government Grants and Disclosure of
Government Assistance‛, loan at concessional rates of interest is to be measured at
fair value and recognised as per Ind AS 109. Value of concession is the difference
between the initial carrying value of the loan determined in accordance with Ind AS
109, and the proceeds received. The benefit is accounted for as Government grant.
(iii) ₹ 25 lakh has been received by D Ltd. for immediate start-up business. Since this
grant is given to provide immediate financial support to entity, it should be recognised
in the Statement of Profit and Loss immediately with disclosure to ensure that its
effect is clearly understood, as per para 21 of Ind AS 20.
(iv) ₹ 10 lakh should be recognized by S Ltd. as deferred income and will be transferred
to profit and loss over the useful life of the asset. In this case, ₹ 1,00,000 [₹ 10 lakh/
10 years] should be credited to profit and loss each year over period of 10 years.
Alternatively, Asset Reduction method can also be followed.
(v) As per para 12 of Ind AS 20, the entire grant of ₹ 25 lakh should be recognized
immediately as deferred income and charged to profit and loss over a period of two
years based on the related costs for which the grants are intended to compensate
provided that there is reasonable assurance that U Ltd. will comply with the conditions
attached to the grant.
QUESTION 2 NEW EXAMINATION MAY-2019
Mediquick Ltd. has received the following grants from the Central Government for its newly
started pharmaceutical business:
 ₹ 50 lakh received for immediate start-up of business without any condition.
 ₹ 70 lakh received for research and development of drugs required for the treatment
of cardiovascular diseases with following conditions:
(i) That drugs should be available to the public at 20% cheaper from current market
price and
(ii) The drugs should be in accordance with quality prescribed by the Govt. Drug
Control department.
 Three acres of land (fair value; ₹ 20 lakh) received for set up of plant.
 ₹ 4 lakh received for purchase of machinery of ₹ 10 lakh. Useful life of machinery is 4

years. Depreciation on this machinery is to be charged on straight-line basis.
How should Mediquick Ltd. recognize the government grants in its books of accounts as per
relevant Ind AS?
SOLUTION
Mediquick Ltd. should recognise the grants in the following manner:
 ₹ 50 lakhs have been received for immediate start-up of business. This should be
recognised in the Statement of Profit and Loss immediately as there are no conditions
attached to the grant.
 ₹ 70 lakhs should be recognised in profit or loss on a systematic basis over the periods
in which the entity recognises as expenses the related costs for which the grants are
intended to compensate. However, for this compliance, there should be reasonable
assurance that Mediquick Ltd. complies with the conditions attached to the grant.
 Land should be recognised at fair value of ₹ 20 lakhs and government grants should be
presented in the balance sheet by setting up the grant as deferred income.
Alternatively, since the land is granted at no cost, it may be presented in the books
at nominal value.
 ₹ 4 lakhs should be recognised as deferred income and will be transferred to profit
and loss account over the useful life of the asset. In this cases, ₹ 1,00,000 [ ₹ 4 lakhs/
4 years] should be credited to profit and loss account each year over the period of 4
years.
Alternatively, ₹ 4,00,000 will be deducted from the cost of the asset and depreciation
will be charged at reduced amount of ₹ 6,00,000 (₹ 10,00,000 – ₹ 4,00,000) i.e. ₹
1,50,000 each year.
IND AS-24 RELATED PARTY DISCLOSURES 59
IND AS-24 RELATED PARTY DISCLOSURES
UNSOLVED QUESTIONS
QUESTION NO 1
Entity P limited has a controlling interest in subsidiaries SA limited and SB limited and SC
limited. SC limited is a subsidiary of SB limited. P limited also has significant influence over
associates A1 and A2. Subsidiary SC limited has significant influence over associate A3
limited.
Examine related party relationship of various entities.
QUESTION 2
Mr. X has a 100% investment in A limited. He is also a member of the key management
personnel (KMP) of C limited. B limited has a 100% investment in C limited.
Required:
(a) Examine related party relationship from the perspective of C limited for A limited
(b) Examine related party relationship from the perspective of C limited for A limited if
Mr. X is a KMP of B limited and not C limited.
(c) Will outcome in (a) & (b) would be different if Mr. has joint control over A limited
(d) Will the outcome in (a) & (b) would be different if Mr. X has significant influence over
A limited.
QUESTION NO 3
Mr. X has an investment in A limited and B limited

Required:
(1) Examine when can related party relationship be established

a. From the perspective of A limited financial statement
b. From the perspective of B limited financial statement
(2) Will A limited and B limited be related parties if Mr. has only significant influence
over both A limited and B limited
60 IND AS-24 RELATED PARTY DISCLOSURES
QUESTION NO 4
Government G directly controls entity 1 and entity . It indirectly controls Entity A and
Entity B through Entity 1, and Entity C and Entity D through Entity 2. Person X is a member
of the key management personnel in Entity 1.
Required
Examine the entity to whom the exemption for disclosure to be given and for transaction
with whom.
QUESTION NO 5
Power limited is a producer of electricity. Transmission limited regularly purchases

electricity from Power limited. Power limited whose financial year ends on march 31, 20X2,
acquired 100% shareholding of Transmission Limited on July 15, 20X1 , However, the entire
shareholding is disposed of on March 21, 20X2 power Limited and Transmission Limited has
transactions when Transmission Limited was a subsidiary of power Limited and also in the
period when it was not a subsidiary or power Limited.
Required:
For which period related party disclosure should power Limited make in its financial
Statements for the year ended March 31, 20X2 with respect to transactions with
transmission Limited
QUESTION 6
A Limited has both (i) Joint control over B Limited and (ii) Joint control or significant
influence over C Limited
Required
(a) Examine related party relationship from the perspective of C Limited‛s financial
Statements:
(b) Examine related party relationship from the perspective of B Limited‛s financial
Statements:
SOLVED QUESTIONS FOR SELF READING
QUESTION NO 1
Will transactions with Related Parties, for services provided/received free of cost, be
required to be disclosed?
Adhiram Ltd. has a Corporate Communications Department, which centralizes the Pubic
Relations functions for the whole group of Adhiram Ltd. and its Subsidiaries. No charges
are however, levied by Adhiram Ltd. on its Subsidiaries and accordingly, these transactions
are not given accounting recognition. Would these constitute Related Party Transactions
requiring disclosure under IND AS 24 in the Separate Financial Statements of Adhiram
Ltd.?
SOLUTION
1. Principle: As per IND AS 24, a Related Party Transaction is ‘a transfer of resources or

obligations between related parties, regardless of whether or not a price is charged”.
2. Conclusion: In the given example, there is a transfer of resources from Adhiram Ltd.
to its Subsidiaries even though no price is charged for the same. These transactions
would require disclosure under IND AS 24 in the Separate Financial Statements of
Adhiram Ltd.
QUESTION NO 2
Bhima Ltd. sold to Arjun Ltd. goods having a Sale Value of rs. 25 Lakhs during a Financial
Year. Mr. Strength, the Managing Director and Chief Executive of Bhima Ltd. owns nearly
100% of the Capital of Arjun Ltd. The Sales were made to Arjun Ltd at the normal Selling
Price of Bhima Ltd. The Chief Accountant of Bhima Ltd. does not consider that these Sales
should be treated any differently from any other sale made by the Company despite being
made to a Controlled Company, because the sales were made at normal and, that too, at
arms length price. Comment.
SOLUTION
It should be treated a related party transaction because Bhima and Arjun limited are
related parties because they a common person Mr. Strength.
QUESTION NO 3
A husband and wife are controlling 34% of voting power in Mathura Limited. They have
a separate Partnership Firm, which supplies the main Material to the Company. The
Management says that the above transaction need not be disclosed. How will you deal with
the above situation?
SOLUTION
In the given case, Partnership firm and Mathura limited should be considered as related
parties because these entities have common person. So these transactions should be
reported in related party report.
QUESTION NO 4
Strong Ltd. holding 60% of the Equity Shares in Weak Ltd. purchased goods worth Rs. 60
Lakhs from Weak Ltd. during the Financial year. The Managing Director of Strong Ltd. is
of the opinion that it is normal business activity and there is no need to disclose the same
in the final accounts of the Company. Give your views of the above.
SOLUTION
1. Strong Ltd. is the Holding Company of Weak Ltd., as is holds more than 50% of the
voting power of Weak Ltd. and thus should be treated as Related Parties as per IND
AS 24.
2. As per IND AS 24, in the case of Related Party Transactions following facts should
be disclosed -
(a) Related Party Relationship, Name and Nature of Relationship.
(b) If there is transaction between the Related Parties then a description of the
Nature of Transaction, Volume of the Transaction outstanding at the Balance
Sheet date etc.
3. In the instant case, since there is Related Party Transaction, the contention of the
Managing Director of Strong Ltd is not correct. The Auditor should insist to make
proper disclosure as required by IND AS 24 and if the Management refuses, the
Auditor should express a qualified opinion.
QUESTION NO 5
A Firm of a Father and Son received Rs. 2 Lakhs towards job work done for Rama Ltd.
during the year ended 31st March. The total Job Work Charges paid by Rama Ltd. during
the year are over Rs. 50 Lakhs. The father is a Managing Director of Rama Ltd. having
substantial holding. The Managing Director told the Auditor that since he is not involved in
the activities of the Firm, and since the amount paid to it is insignificant there is no need to
disclose the transaction He further contended that such a payment made in the last year
was not disclosed. Is the M.D. right in his approach?
SOLUTION
Analysis and Conclusion: In the above case, the Managing Director of Rama Ltd. is a Partner
in the Firm with his son, and the Firm has been paid Rs. 2Lakhs as Job Work Charges. The
Managing Director has a substantial holding in the Firm. The Managing Director is also a
Key Management Personnel of Rama Ltd. Hence, there is a Related Party relationship &
transaction requiring disclosure under IND AS 24.
QUESTION NO 6
Is a Non-Executive Director on the Board of Directors of a Company, a Key Management

Person?
Can a Non-Executive Director be considered as a Related Party, when he participates in the
financial and/or operating policy decisions of the Reporting Enterprise?
Vamana Ltd. has two Non-Executive Directors in its Board. State whether IND AS 24
is applicable if – (1) A, a Non-Executive Director is in a position to exercise significant
influence by virtue of owning an interest in the voting power in the Company. (2) B, a Non-
Executive Director does not enjoy the authority and responsibility for planning, directing
and controlling the activities of the Company.
SOLUTION
1. Principles: IND AS 24 applies to Non-Executive Director as under:
IND AS 24 not applicable IND AS 24 applicable

(a) A Non-Executive Director of a A Non-Executive Director would be covered
Company should not be considered as by IND AS 24 if he is a Key Management
Key Management Person under IND Person when –
AS 24 by virtue of his merely being a
(a) he has the authority and responsibility
Director, directing and controlling the
for planning, directing and controlling
activities of the Reporting Enterprise.
the activities of the Reporting
(b) IND AS 24 should not be applied in Enterprise, or
respect of a Non-Executive Director
(b) he is in a position to exercise or
even if be participates in the financial
significant influence by virtue of
and/or operating policy decision, of the
owning an interest in the voting power.
Enterprise (Note: Mere participation
is different from authority to plan/
direct/control).
2. Conclusion for Vamana Ltd.‛s case: Disclosure under IND AS 24 will be required only
for Director A, and not for Director B.
QUESTION NO 7
Is Remuneration paid to Key Management Personnel or Non-Executive Director on the Board

of Directors, a Related Party Transaction?
SOLUTION
1. As per IND AS 24, Key Management Personnel are “Related Parties”. Hence,
remuneration paid to Key Management Personnel will be a related Party transaction
requiring disclosure under IND AS 24.
2. Non-Executive Directors on th Bard of Directors of a Company are not “related
parties” (See Question above) Hence, remuneration paid to Non-Executive Directors
will not be considered as a Related Party Transaction.
QUESTION NO 8
Arun Ltd. owns 60% of the voting power of Baskar Ltd. which in turn owns 60% voting
interest in Chandru Ltd. Karuna Ltd. owns the remaining voting share in Chandru Ltd. and is
considered to exercise significant influence over Chandru Ltd. During the reporting period,
Karuna Ltd. enters into transactions in the ordinary course of business with Arun Ltd.
Would Karuna Ltd. be a Related Party of Arun Ltd.?
SOLUTION
1. Analysis: Karuna Ltd. is not related to Arun Ltd. as co-investors/co-venturers are not
considered related parties.
2. Conclusion: Hence, Arun Ltd. and Karuna Ltd. are not considered as related party for
the purpose of IND AS 24.
QUESTION NO 9
A Ltd. owns 30% of the Equity Capital of B Ltd. B Ltd. in turn owns 35% of the Equity
Capital of C Ltd. and 40% of Equity Capital in D Ltd. Answer the following questions -
(1) is B Ltd. a Related Party to A Ltd.? (2) Is C Ltd. a Related Party to A Ltd.?
(3) Are C Ltd. and D Ltd. are Related Parties?
SOLUTION
1. Associates and Joint Ventures of the Reporting Enterprise are Related Parties. Since
A Ltd. holds more than 20% of the voting power in B Ltd. by virtue of this, it has
substantial interest and significant influence in B Ltd. So B Ltd. is an Associate, and
hence is Related Party to A Ltd.
2. An Associate of an Associate is not a Related Party.

3. C Ltd. and D Ltd. are Co-Associates. The case of Co-Associates, this common control
is missing, and therefore, they are not Related Parties.
QUESTION NO 10
Two Companies A and B have a common Executive Chairman As per IND AS 24, would these
Companies be considered to be Related parties on this account?
SOLUTION
1. Role: The Executive Chairman is one of the Key Management Personnel of both the
Companies as he is one of “those persons who have the authority and the responsibility
for planning, directing and controlling the activities of the Reporting Enterprise”.
2. Requirement: In the context of significant influence, mere existence of relationship
is not sufficient to classify enterprises as Related Parties. The ability to exercise
significant influence should exist during the reporting period.
3. Conclusion: Just because two Companies have a common Executive Director, they shall
not be regarded as Related Parties. There must be exercise of significant influence of
one of the other.
QUESTION NO 11
Is an Associate of an Associate a Related Party?

Anand Ltd. owns 30% of Share Capital of Bhanu Ltd. while Bhanu Ltd. own 25% of Share
Capital of Chandni Ltd. Would Chandni Ltd. be considered a Related Party in the Financial
Statements of Anand Ltd.?
SOLUTION
1. Principle: IND AS 24 refers to “Associates and Joint Ventures of the Reporting

Enterprise and the investing party or Venturer of which the Reporting Enterprise is
an Associate or a Joint Ventrue” as a Related Party relationship.
2. Conclusion: In the above case, Chandni Ltd. is not a Related Party of Anand Ltd. An
Associate of an Associate cannot be regarded as a Related Party only by virtue of this
relationship.
QUESTION NO 12
Would Co-Associates be considered to be Related parties?

Asha Ltd. has two Associates Basu Ltd. and Charan Ltd. and owns 25% of the voting power
of Basu Ltd. and 30% of the voting power of Charan Ltd. Would Basu Ltd be considered a
Related Party in the Financial Statements of Charan Ltd.?
SOLUTION
1. Analysis: Both Basu Ltd. and Charan Ltd. are ‘Associates‛ of Asha Ltd. However, as
Basu Ltd is not an associate of Charan Ltd. nor is it being controlled directly, by
Charan Ltd. or is not so controlling Charan Ltd. it is not a Related Party of C Limited.
2. Conclusion: Co-Associates cannot be regarded as Related Parties only by virtue of this
relationship.
QUESTION NO 13
In respect of a Key Supplier who is dependent on the Company for its existence
and the Company enjoys influence over the prices of the Supplier (which may not
be formally demonstrable), can the Supplier and the Company be considered to be
Related Parties?
SOLUTION
1. Principle: IND AS 24 states that “a single customer, Supplier, Franchiser, Distributor

or General Agent with whom an enterprise transacts or significant volume of business
merely by virtue of the resulting economic dependence” would not be deemed to be
Related Parties.
2. Conclusion: As the conditions for being classified as a Related Party are not satisfied
in the above case, the Supplier cannot be said to be related to the Company.
Format for disclosure under IND AS 24

List any 5 Related Party transactions which require disclosure under IND AS 24.
Particulars of Holding Subsi- Fellow Asso- Key Mgt Relatives Total

Related Party Co. diaries Subsi- ciates Personnel of Key
Transactions diaries Mgt.
Personnel
Purchases of
Goods
Sale of Goods
Purchase of
Fixed assets
Sale of Fixed
Assets
Rendering of
Services
Receiving of
Services
Agency
Arrangements
Leasing or
Hire Purchase
arrangements
Particulars of Holding Subsi- Fellow Asso- Key Mgt Relatives Total

Related Party Co. diaries Subsi- ciates Personnel of Key
Transactions diaries Mgt.
Personnel
Tender of
R&D
Licence
Agreements
Finance
(including
Loans & Equity
Contributions
in cash or in
kind)
Guarantees &
Collaterals
Management
Contracts incl.
deputation of
employees
Note:
Names of Related Parties and description of relationship:
1. Holding Company A Ltd.

2. Subsidiaries B Ltd. and C (P) Ltd.
3. Fellow Subsidiaries D Ltd. and Q Ltd.
4. Associates X Ltd. Y Ltd and Z (P) Ltd.
5. Key Management Personnel Mr. Y and Mr. Z
6. Relatives of Key Management Personnel Mrs. Y (wife of Mr. Y),
Mr. F (Father of Mr. Z)
Major Changes in Ind AS 24 vis-à-vis

IAS 24 Not Resulting in Carve Outs
1. Confidentially: In Ind AS 24, disclosures which conflict with confidentiality requirements

of statute/regulations are not required to be made since Accounting Standards cannot
override legal/regulatory requirements.
2. Additional Clarificatory Guidance Regarding Aggregation of Transactions: Paragraph 24A
(reproduced below) has been included in the Ind AS 24. It provides additional clarificatory
guidance regarding aggregation of transactions for disclosure.
―24A Disclosure of details of particular transactions with individual related parties
would frequently be too voluminous to be easily understood. Accordingly, items of a
similar nature may be disclosed in aggregate by type of related party. However, th is
is not done in such a way as to obscure the importance of significant transactions.
Hence, purchases or sales of goods are not aggregated with purchases or sales of
fixed assets. Nor a material related party transaction with an individual party is
clubbed in an aggregated disclosure.
3. Modification of Paragraph 14: Paragraph 14 of Ind AS 24 has been modified to explain the
rationale for disclosing related party relationship when control exists.
4. Management Contracts Including for Deputation or Employees: In Ind AS 24, ‗(k)
management contracts including for deputation or employees‘ has been added in the example
of transactions that are disclosed if they are with related party.
5. Definition of Close Members of the Family of a Person: ‘Definition of close members
of the family of a person‘ has been amended to include brother, sister, father and mother
in the category of family members who may be expected to influence, or be influenced.
TEST YOUR KNOWLEDGE

QUESTION 1
Mr. X is a domestic partner of Ms. Y. Mr. X has an investment in A Limited and Ms. Y has
an investment in B Limited.
Required
Examine when can a related party relationship is established, from the perspective of A
Limited‛s financial statements:
Examine when can related party relationship is established, from the perspective of B
Limited‛s financial statements:
Will A Limited and B Limited be related parties if Mr. X has only significant influence over
A Limited and Ms. Y also significant influence over B Limited:
QUESTION 2
A Limited has both (i) joint control over B Limited and (ii) joint control or significant
influence over C Limited
Required
Examine related party relationship from the perspective of C Limited‛s financial statements.
Examine related party relationship from the perspective of B Limited‛s financial statements.
QUESTION 3
ABC Ltd. is a long-standing customer of XYZ Ltd. Mrs. P whose husband is a director in
XYZ Ltd. purchased a controlling interest in entity ABC Ltd. on 1st June, 20X1. Sales of
products from XYZ Ltd. to ABC Ltd. in the two-month period from 1st April 20X1 to 31st
May 20X1 totalled ₹ 8,00,000. Following the share purchase by Mrs. P, XYZ Ltd. began to
supply the products at a discount of 20% to their normal selling price and allowed ABC Ltd.
three month‛s credit (previously ABC Ltd. was only allowed one month‛s credit, XYZ Ltd.‛s
normal credit policy). Sales of products from XYZ Ltd. to ABC Ltd. in the ten month period
from 1st June 20X1 to 31st March 20X1 totalled ₹ 60,00,000. On 31st March 20X2, the trade
receivables of XYZ Ltd. included ₹ 18,00,000 in respect of amounts owing by ABC Ltd.
Analyse and show (where possible by quantifying amounts) how the above event would be
reported in the financial statements of XYZ Ltd. for the year ended 31st March 20X2 as per
Ind AS. You are required to mention the disclosure requirements as well.
QUESTION 4
Mr. Atul is an independent director of a company X Ltd. He plays a vital role in the Management
of X Ltd. and contributes in major decision making process of the organisation. X Ltd. pays
sitting fee of ₹ 2,00,000 to him for every Board of Directors‛ (BOD) meeting he attends.
Throughout the year, X Ltd. had 5 such meetings which was attended by Mr. Atul
Similarly, a non-executive director, Mr. Naveen also attended 5 BOC meetings and charged ₹
1,50,000 per meeting. The Accountant of X Ltd. believes that they being not the employees
of the organisation, their fee should not be disclosed as per related party transaction in
accordance with Ind AS 24.
Examine whether the sitting fee paid to independent director and non-executive director
is required to be disclosed in the financial statements prepared as per Ind AS?
NOTES
INTEGRATED REPORTING 73
INTEGRATED REPORTING
CONCEPT 1: ORGANISATIONAL STRUCTURE/ ISSUING AUTHORITY

Integrated Reporting (<IR>) is a concept first introduced in South Africa. Later on, this
concept travelled to many countries like German, France, Spain, Brazil and UK and integrated
reporting was made along with their financial statements in one or the other manner. In
2010, the International Integrated Reporting Council (IIRC) was set up which aims to create
the globally accepted integrated reporting framework.
The International Integrated Reporting Council (IIRC) is a global coalition of:
 Regulators
 Investors
 Companies
 Standard setters
 The accounting profession and NGOs
Together, this coalition shares the view that communication about value creation should
be the next step in the evolution of corporate reporting. With this purpose they issued the
International Integrated Reporting (IR) Framework. The framework has been developed
keeping in mind the greater flexibility to be given to the entity and the management in the
reporting but at the same time should target to report the value created by the organisation
through various capital.
Integrated Reporting as the name suggest will integrate both financial and non- financial
information. In future, it will become the only report to be issued by the organisation.
CONCEPT2: INTEGRATED REPORTING <IR>?

Integrated reporting is a concept that has been created to better articulate the broader
range of measures that contribute to long -term value and the role organizations play in
society. Integrated Reporting is enhancing the way organizations think, plan and report the
story of their business. Central to this is the proposition that value is increasingly shaped
by factors additional to financial performance, such as reliance on the environment, social
reputation, human capital skills and others.
This value creation concept is the backbone of integrated reporting and is the direction
for the future of corporate reporting. In addition to financial capital, integrated reporting
examines five additional capitals that should guide an organization‛s decision-making and
long-term success — its value creation in the broadest sense.
74 INTEGRATED REPORTING
“Integrated Reporting reflects how our company thinks and does business. This approach
allows us to discuss material issues facing our business and communities and show how we
create value, for shareholders and for society as a whole. ”Dimitris Lois, CEO, Coca-
Cola HBC
Organizations are using <IR> to communicate a clear, concise, integrated story that explains
how all of their resources are creating value. <IR> is helping businesses to think holistically
about their strategy and plans, make informed decisions and manage key risks to build
investor and stakeholder confidence and improve future performance.
Integrated Reporting (<IR>) promotes a more cohesive and efficient approach to corporate
reporting and aims to improve the quality of information available to providers of financial
capital to enable a more efficient and productive allocation of capital.
Integrated Reporting (<IR>) is shaped by a diverse coalition including business leaders and
investors to drive a global evolution in corporate reporting.
An integrated report is a concise communication about how an organization‛s:
 Strategy
 Governance
 Performance And
 Prospects
in the context of its external environment
It leads to the creation of value over:
 Short
 Medium And
 Long term
It‛s a portal by which the organisation communicates a holistic view of:

 Its Current position
 Where it‛s going And
 How it intends to get there
The report enables readers to make an assessment of the organisation‛s ability to create
value in the future, with value creation referring to the value created for both the
organisation and for others.
PURPOSE OF INTEGRATED REPORTING

The primary purpose of an integrated report is to explain to providers of financial capital
how an organization creates value over time.
An integrated report benefits all stakeholders interested in an organization‛s ability to
create value over time, including:
 Employees
 Customers
 Suppliers
 Business partners
 Local communities
 Legislators
 Regulators and
 Policy-makers
CONCEPT 3: THE CAPITALS

The capitals are stocks of value that are increased, decreased or transformed through the
activities and outputs of the organization.
This is interrelated with the value the organization creates for stakeholders and society
at large through a wide range of activities, interactions and relationships. When these are
material to the organization‛s ability to create value for itself, they are included in the
integrated report.
The concept of capitals seeks to assist an organisation in identifying all the resources and
relationships it uses and affects to report in a comprehensive manner.
The Framework has categorise the capital into 6 main forms. However, at the same time,
it stresses upon that not necessary the same categorisation of capital be followed by the
entities in their integrated reporting.
CAPITAL
Financial Manufactured Intellectual Human Social and Relationship Natural

Financial Capital
The pool of funds
 available to an organization for use in the production of goods or the provision of services
 obtained through financing, such as:
 Debt, equity or grants; or
 Generated through operations or investments
Manufactured Capital
Manufactured physical objects (as distinct from natural physical objects) that are available
to an organization for use in the production of goods or the provision of services, including:
 Buildings
 Equipment
 Infrastructure (such as roads, ports, bridges, and waste and water treatment plants)
Note: Manufactured capital is often created by other organizations, but includes assets
manufactured by the reporting organization for sale or when they are retained for its
own use.
Intellectual Capital
Organizational, knowledge-based intangibles, including:
 Intellectual property, such as patents, copyrights, software, rights and licences
 “Organizational capital” such as tacit knowledge, systems, procedures and protocols
Human Capital
People‛s competencies, capabilities and experience, and their motivations to innovate,
including their:
 Alignment with and support for an organization‛s governance framework, risk management
approach, and ethical values
 Ability to understand, develop and implement an organization‛s strategy
 Loyalties and motivations for improving processes, goods and services, including their
ability to lead, manage and collaborate
Social and Relationship Capital

The institutions and the relationships within and between communities, groups of
stakeholders and other networks, and the ability to share information to enhance individual
and collective well-being.
Social and relationship capital includes:
 Shared norms, and common values and behavior
 Key stakeholder relationships, and the trust and willingness to engage that an organization
has developed and strives to build and protect with external stakeholders
 Intangibles associated with the brand and reputation that an organization has developed
 An organization‛s social licence to operate
Natural Capital
All renewable and non-renewable environmental resources and processes that provide goods
or services that support the past, current or future prosperity of an organization.
It includes:
 Air, water, land, minerals and forests
 Biodiversity and eco-system health
Note: Not all capitals are equally relevant or applicable to all organizations. While most
organizations interact with all capitals to some extent, these interactions might be
relatively minor or so indirect that they are not sufficiently important to include in the
integrated report.
CONCEPT 4: CONTENTS OF INTEGRATED REPORTING

An integrated report includes the eight Content Elements.
The Content Elements are fundamentally linked to each other and are not mutually exclusive.
The order of the Content Elements is not the only way they could be sequenced.
The Content Elements are not intended to serve as a standard structure for an integrated
report with information about them appearing in a set sequence or as isolated, standalone
sections. Rather, information in an integrated report is presented in a way that makes the
connections between the Content Elements apparent.
The content of an organization‛s integrated report will depend on the individual circumstances
of the organization. The Content Elements are therefore stated in the form of questions
rather than as checklists of specific disclosures. Accordingly, judgement needs to be
exercised in applying the Guiding Principles to determine what information is reported, as

well as how it is reported.
The eight content elements suggested by the Framework are:
Organizational Overview and External Environment

Question to be answered through this element in the integrated reporting is
“What does the organisation do and what are
the circumstances under which it operates?”
Organisational Overview
An integrated report identifies the organization‛s mission and vision, and provides essential
context by identifying matters such as:
A. The organization‛s:
 Culture, ethics and values
 Ownership and operating structure
 Principal activities and markets
 Competitive landscape and market positioning (considering factors such as the threat
of new competition and substitute products or services, the bargaining power of
customers and suppliers, and the intensity of competitive rivalry)
 Position within the value chain
B. KQI: Key quantitative information

Example:
 Number of employees
 Revenue
 Number of countries in which the organization operates
 Highlighting, in particular, significant changes from prior periods
C. Significant factors
 Significant factors affecting the external environment and the organization‛s response
External Environment
Significant factors affecting the external environment include aspects of:
 Legal
 Commercial
 Social
 Environmental
 Political context
That affects the organization‛s ability to create value in the short, medium or long term
Legal
Environmental Commercial
Inventories
are assets
Political Social
Note: They can affect the organization directly or indirectly (e.g., by influencing the
availability, quality and affordability of a capital that the organization uses or affects).
Governance
“How does the organisation‛s governance structure support
its ability to create value in the short, medium and long term?”
An integrated report provides insight about how such matters as the following are linked to
its ability to create value:
 The organization‛s leadership structure, including the skills and diversity (e.g., range of
backgrounds, gender, competence and experience) of those charged with governance
and whether regulatory requirements influence the design of the governance structure.
 Specific processes used to make strategic decisions and to establish and monitor the
culture of the organization, including its attitude to risk and mechanisms for addressing
integrity and ethical issues
 Particular actions those charged with governance have taken to influence and monitor
the strategic direction of the organization and its approach to risk management
 How the organization‛s culture, ethics and values are reflected in its use of and
effects on the capitals, including its relationships with key stakeholders.
 Whether the organization is implementing governance practices that exceed legal

requirements
 The responsibility those charged with governance take for promoting and enabling
innovation
 How remuneration and incentives are linked to value creation in the short, medium
and long term, including how they are linked to the organization‛s use of and effects on
the capitals.
Business Model
“What is the organisation‛s business model?”
An integrated report describes the business model, including key:
 Inputs
 Business activities
 Outputs
 Outcomes
Business
Activities
Inputs Business Outputs

Model
Outcomes
Inputs
An integrated report shows how key inputs relate to the capitals on which the organization
depends, or that provide a source of differentiation for the organization, to the extent
they are material to understanding the robustness and resilience of the business model.
Business Activities
An integrated report describes key business activities. This can include:
 How the organization differentiates itself in the market place?
Example
Through product differentiation, market segmentation, delivery channels and marketing

 The extent to which the business model relies on revenue generation after the initial
point of sale
Example
Extended warranty arrangements or network usage charges
 How the organization approaches the need to innovate?
 How the business model has been designed to adapt to change?
Outputs
An integrated report identifies an organization‛s key products and services. There might
be other outputs, such as by -products and waste (including emissions), that need to be
discussed within the business model disclosure depending on their materiality.
Outcomes
An integrated report describes key outcomes, including:
 Both internal outcomes (e.g., employee morale, organizational reputation, revenue and
cash flows) and external outcomes (e.g., customer satisfaction, tax payments, brand
loyalty, and social and environmental effects)
 Both positive outcomes (i.e., those that result in a net increase in the capitals and
thereby create value) and negative outcomes (i.e., those that result in a net decrease
in the capitals and thereby diminish value).
Risks and Opportunities

“What are the specific risks and opportunities that affect
the organisation‛s ability to create value over the short, medium
and long-term, and how is the organisation dealing with them?”
An integrated report identifies the key risks and opportunities that are specific to the
organization, including those that relate to the organization‛s effects on, and the continued
availability, quality and affordability of, relevant capitals in the short, medium and long
term.
Strategy and Resource Allocation

“Where does the organisation want to go and
how does it intend to get there?”

An integrated report ordinarily identifies:
 The organization‛s short, medium and long term strategic objectives
 The strategies it has in place, or intends to implement, to achieve those strategic
objectives
 The resource allocation plans it has to implement its strategy
 How it will measure achievements and target outcomes for the short, medium and long
term.
Performance
“To what extent has the organisation achieved its strategic objectives for the
period and what are its outcomes in terms of effects on the capitals?”
An integrated report contains qualitative and quantitative information about performance
that may include matters such as:
 Quantitative indicators with respect to targets and risks and opportunities, explaining
their significance, their implications, and the methods and assumptions used in compiling
them
 The organization‛s effects (both positive and negative) on the capitals, including
material effects on capitals up and down the value chain
 The state of key stakeholder relationships and how the organization has responded to
key stakeholders‛ legitimate needs and interests
 The linkages between past and current performance, and between current performance
and the organization‛s outlook
Outlook
“What challenges and uncertainties is the organisation likely
to encounter in pursuing its strategy, and what are the potential
implications for its business model and future performance?”
An integrated report ordinarily highlights anticipated changes over time and provides
information, built on sound and transparent analysis, about:
 The organization‛s expectations about the external environment the organization is
likely to face in the short, medium and long term
 How that will affect the organization
 How the organization is currently equipped to respond to the critical challenges and
uncertainties that are likely to arise.
Basis of Preparation and Presentation

“How does the organization determine what matters to include in the
integrated report and how are such matters quantified or evaluated?”
An integrated report describes its basis of preparation and presentation, including:
 A summary of the organization‛s
 Materiality determination process
 A description of:
 Reporting boundary and how it has been determined
 A summary of
Significant frameworks and methods used to quantify or evaluate material matters
 
General Reporting Guidance

The following general reporting matters are relevant to various Content Elements:
Disclosure of Material matters
Disclosures about Capitals
Time frames for short, medium and long term
Aggregation and disaggregation
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SEBI vide its circular no. SEBI/HO/CFD/CMD/CIR/P/2017/10 February 6, 2017 has advised
top 500 companies [to whom Business Responsibility Report (‘BRR‛) have been mandated
under Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements)
Regulations 2015 (“SEBI LODR”)], to adopt Integrated Reporting on a voluntary basis from
the financial year 2017-18.
The objective behind recommending voluntary adoption of Integrated Reporting is to improve
disclosure standards. An integrated report aims to provide a concise communication about
how an organisation‛s strategy, governance, performance and prospects create value over
time so that interested stakeholders may make investment decisions accordingly. Today an
investor seeks both financial as well as non-financial information to take a well-informed
investment decision.
Therefore, towards the objective of improving disclosure standards, in consultation with
industry bodies and stock exchanges, the listed entities are advised to adhere to the
following:
(a) The information related to Integrated Reporting may be provided in the annual report
separately or by incorporating in Management Discussion & Analysis or by preparing a
separate report (annual report prepared as per IR framework).
(b) In case the company has already provided the relevant information in any other report
prepared in accordance with national/international requirement / framework, it may
provide appropriate reference to the same in its Integrated Report so as to avoid
duplication of information.
(c) As a green initiative, the companies may host the Integrated Report on their website
and provide appropriate reference to the same in their Annual Report.
TEST YOUR KNOWLEDGE
Theoretical Questions
1. State the categories defined in the International IR Framework for capitals. Comment
whether an organisation has to follow these categories rigidly.
2. Can a Not-for Profit organisation do the Integrated Reporting as per the Framework?
3. Can an integrated reporting be done in compliance to the requirements of the local laws
to prepare a management commentary or other reports?
Answer to Theoretical Questions
1. Various categories of capital are:

  Financial
  Manufactured
  Intellectual
  Human
  Social and Relationship
  Natural
Organizations preparing an integrated report are not required to adopt this
categorization or to structure their report along the above lines of the capitals.
2. The Framework is written primarily in the context of private sector, for-profit
companies of any size but it can also be applied, adapted as necessary, by public sector
and not-for-profit organizations.
3. An integrated report may be prepared in response to existing compliance requirements.
For example, an organization may be required by local law to prepare a management
commentary or other report that provides context for its financial statements. If
that report is also prepared in accordance with this Framework it can be considered
an integrated report. If the report is required to include specified information beyond
that required by this Framework, the report can still be considered an integrated
report if that other information does not obscure the concise information required by
this Framework.
NOTES
IND AS-41 AGRICULTURE 87
IND AS-41 AGRICULTURAL ACTIVITIES
Ind AS 41 addresses following key issues:

(a) When should a biological asset or agricultural produce be recognised on the Balance
sheet?
(b) At what value should a recognised biological asset or agricultural produce be
measured?
(c) How should the differences in value of a recognised biological asset or agricultural
produce
(d) What should be the key disclosures?
CONCEPT 1: COVERAGE OF IND AS 41

This standard shall be applied to account for the following when they relate to agricultural
activity:
(a) Biological assets;

(b) Agricultural produce at the point of harvest: and
(c) Government grants
CONCEPT 2: OUT OF SCOPE OF IND AS 41
(a) Land related to agricultural activity: for example, the land on which the biological
assets grow, regenerate and/or degenerate (Ind AS 16 property, plant and Equipment
and Ind As 40 investment property);
(b) Bearer plants relate to agricultural activity. Such bearer plants covered within the
scope of Ind AS 16, property, plant and Equipment as accounted as per the provisions
of that standard. However, this standard applies to the produce on those bearer
plants.
(c) Intangible assets associated with the agricultural activity. For licenses and rights
are covered under Ind AS 38 intangible assets and provisions of this standard will be
applicable.
This standard is applied to agricultural produce. Which is the harvested product of the
entity‛s biological assets, only at the POINT of harvest. Thereafter, Ind AS 2 or another
applicable standard is applied
88 IND AS-41 AGRICULTURE
Example:
Processing of grapes into wine by a vintner who has grown the grapes while such processing
may be a logical and natural extension of agricultural activity. And the events place may
dear some similarity to biological transformation, such processing is not included within
the definition of agriculrtrual activity in this standard.
Example:
Agriculture produce after the point of harvest, for example wool, ,eat, frit rubber, logs
that are processed subsequently are not covered within Proview of this standard and Ind
as 2 inventories will apply.
The table below provides examples of biological assets. , agricultural produce, and products
that are the result of processing after harvest:
Biological assets Agricultural produce Products that the result

of processing after
harvest
Sheep Wool Felled Trees Yarn, carpet
Trees in a timber plantation Felled Trees Logs, lumber
Dairy cattle Milk Cheese
Pigs Carcass Sausages, cured hams
Cotton plants Harvested cotton Thread, clothing
Sugarcane Harvested cane Sugar
Tobacco plants Picked leaves Cured tobacco
Tea bushes Picked leaves Tea

Grape vines Picked grapes Wine
CONCEPT 3: DEFINITIONS
The following are the key agriculture-related definitions:
(a) Agricultural activity refers to the management by an entity of the biological

transformation and harvest of biological assets for sale or for conversion into
agricultural produce or into additional assets.
(b) Biological Asset is defined as a living animal or plant.
(c) Biological transformation comprises the processes of growth, degeneration, production,
and procreation that cause qualitative or qualitative changes in biological asset.
Biological Transformation
Processes
(Causing Qualitative Quantitative
changes in Biological Asset)
Growth Degeneration Production Procreation
An increase A decrease in
Of agricultural
in quantity or the quantity or Creation of
produce such as
improvement in deterioration in additional living
latex, tea leaf
quality of an quality or an animals or plants
wool, milk
animal or plant) animal or plant
(d) Agricultural produce is the harvested product of the entity‛s biological assets.
(e) Harvest is the detachment of produce form a biological asset or the cessation of a
biological asset‛s life processes.
(f) Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date.(the definition of Fair is as given in Ind AS 113, Fair value measurement)
(g) Costs to sell are the incremental costs directly attributable to the disposal of an
asset. excluding finance costs and income taxes.
(h) Bearer plant may be defined as a living plant that:
I. is used in the production of supply of agricultural produce:
II. is expected to bear produce for more than one period; and
III. has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales.
For example , tea bushes, grape vines, oil palms and rubber trees, usually meet the definition
of a bearer plant and are outside the scope Ind AS 41 and covered under Ind AS 16.
EXAMPLE
ABC Ltd grows vines, harvests the grapes and produces wine. Which of these activities are
in the scope of Ind AS 41?
SOLUTION
The grape vines are bearer plants that continually generate corps of grapes which are
covered by Ind AS 16, property, plant and Equipment.
When the entity harvests the grapes, their biological transformation ceases and they
become agricultural produce covered by Ind AS 41, Agriculture.
Vine involves a lengthy maturation period. This process is similar to the conversion of raw
materials to a finished product rather than biological transformation hence treated as
inventory in accordance with Ind As 2, inventories.
CONCEPT 4: RECOGNITION OF BIOLOGICAL ASSETS

Entities are required to recognise a biological asset or agricultural produce when, and only
when, all of the following conditions are met:
a) the entity controls the assent as a result of past events; (Control over biological assets
or agricultural produce may be evidenced by legal ownership or rights to control, for
example legal ownership of cattle and the branding or otherwise marking of the cattle
on acquisition, birth, or weaning)
b) it is probable that future economic benefits associated with the asset will to the
entity and
Future economic benefits are expected to flow is its ownership or control of the
asset. The future benefits are normally assessed by measuring the significant physical
attributes.
c) The fair value or cost of the asset con be measured reliably.
CONCEPT 5: MEASUREMENT OF BIOLOGICAL ASSETS

Biological Asset should be measured on initial recognition and at the end of each reporting
period at its value less costs to sell, except for the case where the fair value cannot be
measured reliably.
There is a presumption that fair value can be measured reliably for a biological assent.
In the following cases biological asset should be measured at it cost less any accumulated
depreciation. And any accumulated impairment losses in accordance with Ind AS 16 AS 36:
 quoted market prices are not available for the biological assets unreliable
 alternative fair value measurements are determined to be clearly unreliable.
Once the fair value of such a biological asset becomes reliably measurable, an entity shall
measure it at its fair value costs to sell.
The presumption can be rebutted only on initial recognition. An entity that has previously
measured a biological asset at its fair value less costs to sell continues to measure the
biological asset at its fair value costs to sell until disposal.
In all cases, an entity measures agricultural produce at the point of harvest at its fair
value less costs to sell. This standard reflects the view that the value of agricultural
produce at the point of harvest can always be measured reliably.
CONCEPT 6: MEASUREMENT OF AGRICULTURAL PRODUCE

Agricultural produce harvested from an entity‛s biological assents should be measured at
its fair value less costs to sell at the point of harvest. Such measurement is the cost at
that date when applying Ind AS 2 or another applicable Standard.
The fair value measurement of a biological asset or agricultural produce may be facilitated
by grouping biological assets or agricultural produce according to significant attributes; for
example, by age or quality. An entity selects the selects the attributes corresponding to
the attributes used in the market as a basis for pricing.
The fair value less cost to sell of a biological asset can change due to both physical changes
and price changes in the market.
Entities often inter into contacts to sell their biological assets or agricultural produce at a
future date. Contract prices are not necessarily relevant in measuring fair value, because
fair value reflects the current market conditions in which market participant buyers and
sellers would enter
Into a transaction. As a result, the fair value of a biological asset or agricultural produce is
not adjusted because of the existence of a contract.
Cost may sometimes approximate fair value, particularly when:
(a) little biological transformation has taken place since initial cost incurrence (for
example, for fruit tree seedlings planted immediately prior to the end of a reporting
period or newly acquired livestock):or
(b) the impact of the biological transformation on price is not expected to be material
(for example, for initial growth in a 30- year pine plantation cycle)
Biological assets are often physically attached to land (for example, trees in a plantation
forest).There may be no separate market for biological assets that are attached to
the land but an active market may exist for the combined assets, that is, the biological
assets, raw land, and land improvements, as a package. An entity may use information
regarding the combined assets to measure the fair value of the biological assets. For
example, the fair value of raw land and land improvement may be deducted from the
fair of the combined assets to arrive at the fair value of biological assets.
QUESTION NO 1
A farmer owned a dairy herd, of three years old cattle as at April 1, 20X1 With a fair value
of ` 13,750 and the number of cattle in the herd was 250.
The fair value of three year cattle as at March 31, 20X2 was `60 per cattle. The fair of
four year cattle as at March 31,20X2 is ` 75 per cattle.
Calculate the measurement of group of cattle as at March 31, 20X2 Stating price and
physical change separately.
QUESTION NO 2
XYZ ltd, on 1 December 20X3, purchased 100 sheep‛s from a market for ` 500,000 with a
transaction cost of 2% on market price of sheep was incurred which was paid by the seller.
sheep‛s fair value increased from ` 500,000 to ` 600,000 on 31 March 20X4. Transaction
cost would have to be incurred by the seller to get sheep to the relevant market.
Determine the fair value on the date of purchase and reporting date and pass journal
entries thereon.
CONCEPT 7: GAINS AND LOSSES
1) Biological Asset:
A gain or loss arising on initial recognition of a Biological Asset at fair val8ue less casts to
sell and from a change in fair value less costs to sell of a biological asset shall be included
in profit or Loss for the period in which it arises.
A loss may arise on initial recognition of a biological asset, because cost to sell are deducted
in determining fair value less cost to sell of a biological asset. A gain may arise on initial
recognition of a biological asset, such as when a calf is born,
EXAMPLE:
During the reporting period 20X1-20X2, an entity is having a cow which has given birth to a
calf. The fair value less estimated cost to sell for a calf is ` 5,000. The amount of ` 5,000
is, therefore, immediately recognised in Statement of profit or Loss,
2) Agriculture produce:
A gain or loss arising on initial recognition of Agricultural produce at Fair value less costs
to sell shall be included in profit of Loss for the period in which it arises.
A gain or loss may arise on initial recognition of agricultural produce as result of harvesting.
CONCEPT 8: GOVERNMENT GRANTS
1) Biological Asset measured at fair value less cost to sell.

a) Unconditional Grant
An unconditional government grant related to a biological asset measured at its
fair value less costs to sell shall be recognised in profit or Loss when, and only
when, the government grant becomes receivable.
b) Conditional Grant:
If a government grant related to a biological asset measured at its fair value less
costs to sell is conditional, including when a government grant requires an entity
not to engage to in specified agricultural activity, an entity shall recognise the
government grant in profit or loss when, and only when, the conditions attaching
to the government grant are met.
Terms and conditions of government grants vary. For example, a grant may require
an entity to farm in a particular location for five years. And require the entity to
return the entire grant if it farms for a period shorter than five years. In this
case, the grant is not recognised in profit or Loss until the five years have passed.
However, If the terms of the grant allow part of it to be retained according to
the time elapse, the entity recognises that part in profit or loss as time passes.
EXAMPLE:
Sun Ltd cultivated huge plot of land.The government offers a grant of ` 10 core under the
condition that the land is being cultivated for 5 years. If the land will be cultivated for
a shorter period, the entity is required to return the entire grant.
Therefore, the government grant will be recognised as income only after 5 years of
cultivation. The situation would be different if the returning obligation referred to the
years of not cultivating the land is with respect to retention of grant for the period
tell which the entity has cultivated the land. In this case, the amount of ` 10 crore
would be recognised as income, proportionately with the time period, meaning ` 2
crore per annum.
2) Biological Asset measured at its cost:-

If a government grant relates to a Biological asset measured at its cost less any
accumulated depreciation and accumulated impairment losses. i.e (i.e inability to
measure fair value reliably), Ind AS 20 is applied.
Biological Asset
Measured at fair value less cast to sell Measured at Cost
Conditional Grant
Unconditional Grant
Condition attaching to
Government Grant Ind AS 20
the government grant
Becomes Receivable
are Met
CONCEPT 8:DISCLOSURE
1) Description of biological assets and activates.

The entity is required to a description of each group of biological assent. This disclosure
may take the form of a narrative or quantified description. An entity is encouraged
to provide a quantified description of each group of biological asset, distinguishing
between consumable and bearer biological assets or between mature and immature
biological assets, as appropriate.
2) Gains and losses recognised during the period
An entity shall disclose the aggregate gain or loss arising during the current period on
initial recognition of biological assets and agricultural produce and from the change in
fair value less costs to sell of biological assets.
3) Reconciliation of changes in biological assets.
A detailed reconciliation is required of changes in the carrying in the carrying amount
of biological assets between the beginning and the end of the current period, which
includes:
a) gain or loss arising from changes in fair value less costs to sell;
b) Increases arising from purchases;
c) Decreases attributable to sales and biological assets classified as held for sale
(or included in a disposal group that is classified as held for sale) in accordance
with Ind AS 105;
d) Decreases due to harvest;
e) Increases resulting from business combinations;
f) net exchange differences arising on the translation of financial statements into
a different presentation currency, and on the translation of foreign operation
into the presentation currency to the reporting entity; and
g) Other changes.
4) Restricted assets, commitments and risk management strategies.

The entity should disclose:
a) The existence and carrying amounts of biological assets whose title is restricted,
and the carrying amount of biological assets pledged as security for liabilities;
b) The amount of commitments for the development or acquisition of biological
assets; and
c) Financial risk management strategies related to agricultural activity.
5) Additional disclosures when fair value cannot be measured reliably.
If biological assets within the scope of Ind AS 41 are measured at cost less any
accumulated depreciation and any accumulated impairment losses at the end of the
period, the following disclosures are required:
a) A description of the biological assets;
b) An explanation of why fair value cannot be measured reliably;
c) The range of estimates within which fair value is highly likely to lie;
d) The depreciation method use;
e) The useful lives or the depreciation rates used; and
f) The gross carrying amount and the accumulated depreciation and impairment
losses at the beginning and end of the period.
6) Government grants
The following disclosures are required for government grants relating to agricultural
activity;
a) The nature and extent of government grants recognised;
b) Unfulfilled conditions and other contingencies attaching to government grants;
and
c) Significant decreases expected in the level of government grants.
QUESTION NO 3
Moon Ltd prepares financial statements to 31 march each year. On 1 April 20X1 the company
carried out the following transactions:
Purchased a land for ` 50 Lakhs.

Purchased 200 dairy cows (average age at 1 April 20X1 two years) for ` 10 Lakhs.
Received a grant of ` 1 million towards the acquisition of the cows. This grant was
nonrefundable.
For the year ending 31 march 20X2, the company has incurred following costs:
` 6 Lakh to maintain the condition of the animals (food and protection).
` 4 lakh as breeding fee to a local farmer.
On 1 October 20X1, 100 calves were born. There were no changes in the number of animals
during the year ended 31 March 20X2, Moon Ltd had 3,000 liters of unsold milk in inventory.
Item Fair value less cost to sell
1 April 20X1 1 October 20X1 31 march 20X2

` ` `
Land 50 Lakhs 60 Lakhs 70 Lakhs
New born claves (per calf) 1,000 1,100 1,200
Six month old cows (per calf) 1,100 1,200 1,300
two year old cows (per cow) 5,000 5,100 5,200
Three year old cow (per cow) 5,200 5,300 5,500
Milk (per litre) 20 22 24
Prepare extracts from the balance Sheet and Statement of Profit & Loss that would be
reflected in the financial statements of the entity for the year ended 31 March 20X2.
QUESTION NO 4
An entity on adoption of Ind AS-41 has reclassified certain assets as biological assets. The
total value of the group‛s forest assets is ` 2,000 lakhs comprising:
Amt. (Thousands)
Freestanding trees 1,700
Land under trees 200
Roads in forests 100
2,000
Show how the forests would be classified in the financial statements.
QUESTION NO 5
An entity is considering the valuation of its harvested coffee beans. Industry Practice is
to value the coffee beans at market value the national accounting body has always used
this practice and uses as its source of reference “Accounting for successful Farms” a local
publication. The entity wishes to adopt Ind AS- 41 but does not know what the impact will
be on its inventory of coffee beans.
SOLUTION
AS PER THE PROVISIONS OF IND AS 41, VALUATION OF INVENTORIES SHOULD BE
MADE AT FAIR VALUE LESS COST TO SELL AT THE POINT OF HARVEST. THEREAFTER,
VALUATION WILL BE DONE AS PER IND AS 2
QUESTION NO 6
Company X purchased 100 sheep at an auction for ` 60,000 on 31st December 2015. The
transportation cost amounting to be ` 1500 and the auctioneer‛s fees amounted to be 1% of
purchase price. The same expenses are expected at the time of sale of sheep. Fair value at
balance sheet date 65,000.
At what value biological assets shall be recognized at the time of initial recognition and also
find out balance sheet measurement?
QUESTION NO 7
A herd of 15, 4-year old animals valued at ` 250 thousands were held in Marigold farms
as at 1st January 2016.The following transactions took place during the year. On 1st
July 2016:
 One animal aged 4.5 year was purchased for ` 260 thousand
 One animal was born.
 No animal was sold or disposed of
The per-unit fair values less cost of sell were as follows:

` In Thousand
4-year old animal on 1st January 2016 250
New born animal on 1st July 2016 200
4.5 year old animal on 1st July 2016 260
New born animal on 31st December 2016 205
0.5 year old animal on 31st December 2016 220

4 year old animal on December 2016 258
4.5 year old animal on 31st December 2016 270
5 year animal on 31st December 2016 280
EXTRA QUESTIONS ON IND AS – 41

QUESTION 1
ABC Ltd grows vines, harvests the grapes and produces wine. Which of these activities are
in the scope of Ind AS 41?
SOLUTION
The grape vines are bearer plants that continually generate crops of grapes which are
covered by Ind AS 16, Property, Plant and Equipment.
When the entity harvests the grapes, their biological transformation ceases and they
become agricultural produce covered by Ind AS 41, Agriculture.
Wine involves a lengthy maturation period. This process is similar to the conversion of raw
materials to a finished product rather than biological transformation hence treated as
inventory in accordance with Ind AS 2, Inventories.
QUESTION 2
As at 31st March, 20X1, a plantation consists of 100 Pines trees that were planted 10
years earlier. The tree takes 30 years to mature, and will ultimately be processed into
building material for houses or furniture. The enterprise‛s weighted average cost of
capital is 6% p.a.
Only mature trees have established fair values by reference to a quoted price in an
active market. The fair value (inclusive of current transport costs to get 100 logs to
market) for a mature tree of the same grade as in the plantation is:
As at 31st March, 20X1: 171
As at 31st March, 20X2: 165
Assume that there would be immaterial cash flow between now and point of harvest. The
present value factor of ` 1 @ 6% for
19th year = 0.331 20th year = 0.312
State the value of such plantation as on 31st March, 20X1 and 20X2 and the gain or loss to
be recognised as per Ind AS.
SOLUTION
As at 31st March, 20X1, the mature plantation would have been valued at 17,100 (171 x
100). As at 31st March, 20X2, the mature plantation would have been valued at 16,500
(165 x 100).
Assuming immaterial cash flow between now and the point of harvest, the fair value (and
therefore the amount reported as an asset on the statement of financial position) of the
plantation is estimated as follows:
As at 31st March, 20X1: 17,100 x 0.312 = 5,335.20.
As at 31st March, 20X2: 16,500 x 0.331 = 5,461.50.
Gain or loss
The difference in fair value of the plantation between the two year end dates is 126.30
(5,461.50 – 5,335.20), which will be reported as a gain in the statement or profit or loss
(regardless of the fact that it has not yet been realised).

QUESTION 1 (NEW EXAMINATION NOV-2019)
Arun Ltd. is an entity engaged in plantation and farming on a large scale and diversified
across India. On 1st April, 2018, the company has received a government grant for ₹ 20
lakh subject to a condition that it will continue to engage in plantation of eucalypts tree
for a coming period of five years.
The management has a reasonable assurance that the entity will comply with condition
of engaging in the plantation of eucalyptus trees for specified period of five years and
accordingly it recognizes proportionate grant for ₹ 4 lakh in Statement of Profit and
Loss as income following the principles laid down under Ind AS 20
Accounting for Government Grants and Disclosure of Government Assistance.
Required:
Evaluate whether the above accounting treatment made by the management is in
compliance with the applicable Ind AS. If not, advise the correct treatment.
SOLUTION
Arun Ltd. is engaged in plantation and farming on a large scale. This implies that it has
agriculture business. Hence, Ind AS 41 will be applicable.
Further, the government grant has been given subject to a condition that it will continue
to engage in plantation of eucalyptus tree for a coming period of five years. This implies
that it is conditional grant.
In the absence of the measurement base of biological asset, it is assumed that “ Arun
Ltd measures its Biological Asset at fair value less cost to sell”
(i) As per Ind AS 41, the government grant should be recognised in profit or loss when,
and only when, the conditions attaching to the government grant are met ie continuous
plantation of eucalyptus tree for coming period of 5 years. In this case the grant shall
not be recognised in profit or loss until the five years have passed. The entity has
recognised the grant in profit and loss on proportionate basis, which is incorrect.
(ii) However, if the terms of the grant allow of it to be retained according to the time
elapsed, the entity recognises that part in profit or loss as time passes. Accordingly,
the entity can recognise the proportionate grate for 4 lakh in the statement of profit
and Loss based on the terms of the grant.
NOTES
IND AS-33 : EARNING PER SHARE 103
IND AS-33 : EARNING PER SHARE
Objective
The objective of this Standard is to prescribe principles for the determination and
presentation of Earnings per share, so as to improve performance comparisons between
different entities in the same reporting period and between different reporting peri-
ods for the same entity.
Even though earnings per share data have limitations because of different accounting
policies that may be used for determining „earnings‟, a consistently determined denomina-
tor enhances financial reporting.
The focus of this Standard is on the denominator of the earnings per share calculation.
Scope
This Indian Accounting Standard shall apply to companies that have issued ordinary
shares to which Indian Accounting Standards (Ind ASs) notified under the Companies
Act apply.
An entity that discloses earnings per share shall calculate and disclose earnings per share
in accordance with this Standard.
When an entity presents both consolidated financial statements and separate financial
statements prepared in accordance with Ind AS 110, „Consolidated Financial Statements‟,
and Ind AS 27, „Separate Financial Statements‟, respectively, the disclosures required
by this Standard shall be presented both in the consolidated financial statements and
separate financial statements.
1. In consolidated financial statements such disclosures shall be based on consolidated

information and in separate financial statements such disclosures shall be based on
information given in separate financial statements.
2. An entity shall not present in consolidated financial statements, earnings per share
based on the information given in separate financial statements and shall not present
in separate financial statements, earnings per share based on the information given
in consolidated financial statements.
104 IND AS-33 : EARNING PER SHARE
Measurement
Basic Earnings Per Share
An ordinary share is an equity instrument that is subordinate to all other classes of

equity instruments.
A potential ordinary share is a financial instrument or other contract that may entitle
its holder to ordinary shares.
Examples of potential ordinary shares are:

a. financial liabilities or equity instruments, including preference shares, that are con-
vertible into ordinary shares;
b. options and warrants;
c. shares that would be issued upon the satisfaction of conditions resulting from con-
tractual arrangements, such as the purchase of a business or other assets.
An entity shall calculate basic earnings per share amounts for profit or loss attributable
to ordinary equity holders of the parent entity and, if presented, profit or loss from con-
tinuing operations attributable to those equity holders.
Basic earnings per share shall be calculated by:
Profit or loss attributable to ordinary equity holders of the parent entity

Weighted average number of ordinary shares outstanding during the period
For the purpose of calculating basic earnings per share, the amounts attributable to or-
dinary equity holders of the parent entity in respect of:
a. profit or loss from continuing operations attributable to the parent entity; and
b. profit or loss attributable to the parent entity
adjusted for the after-tax amounts of preference dividends, differences arising on
the settlement of preference shares, and other similar effects of preference shares
classified as equity.
Where any item of income or expense which is otherwise required to be recognised in

profit or loss in accordance with Indian Accounting Standards is debited or credited
to securities premium account/other reserves, the amount in respect thereof shall be
deducted from profit or loss from continuing operations for the purpose of calculating
basic earnings per share.
For the purpose of calculating basic earnings per share, the number of ordinary shares
shall be the weighted average number of ordinary shares outstanding during the period.
The weighted average number of ordinary shares outstanding during the period and for
all periods presented shall be adjusted for events, other than the conversion of potential
ordinary shares that have changed the number of ordinary shares outstanding without a
corresponding change in resources.
Ordinary shares may be issued, or the number of ordinary shares outstanding may be
reduced, without a corresponding change in resources. Examples include:
Diluted Earnings Per Share
An entity shall calculate diluted earnings per share amounts for profit or loss attribut-
able to ordinary equity holders of the parent entity and, if presented, profit or loss from
continuing operations attributable to those equity holders.
For the purpose of calculating diluted earnings per share, an entity shall ADJUST profit
or loss attributable to ordinary equity holders of the parent entity, and the weighted
average number of shares outstanding, for the effects of all dilutive potential ordinary
shares.
Diluted EPS shall be calculated by:

Adjusted Profit/loss attributable to ordinary Equity holders of the parent entity Adjusted
Weighted average number of ordinary shares outstanding during the period
For the purpose of calculating diluted earnings per share, an entity shall adjust profit
or loss attributable to ordinary equity holders of the parent entity, as calculated in ac-
cordance with Basic EPS, by the after-tax effect of:
a. any dividends or other items related to dilutive potential ordinary shares deducted
in arriving at profit or loss attributable to ordinary equity holders of the parent
entity;
b. any interest recognized in the period related to dilutive potential ordinary shares;
and
c. Any other changes in income or expense that would result from the conversion of
the dilutive potential ordinary shares.
For the purpose of calculating diluted earnings per share, the number of ordinary shares
shall be the weighted average number of ordinary shares plus the weighted average
number of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
Potential ordinary shares shall be treated as dilutive when, and only when, their conversion
to ordinary shares would decrease earnings per share or increase loss per share from
continuing operations.
Presentation
An entity shall present in the statement of profit and loss basic and diluted earnings per
share for profit or loss from continuing operations attributable to the ordinary equity
holders of the parent entity and for profit or loss attributable to the ordinary equity
holders of the parent entity for the period for each class of ordinary shares that has a
different right to share in profit for the period.
An entity shall present basic and diluted earnings per share with equal prominence for all
periods presented.
An entity that reports a discontinued operation shall disclose the basic and diluted amounts
per share for the discontinued operation either in the statement of profit and loss or in
the notes.
(a) An entity that reports a discontinued operation shall disclose the basic and dilut-
ed amounts per share for the discontinued operation either in the statement of
profit and loss or in the notes.
(b) An entity shall present basic and diluted earnings per share, even if the amounts
are negative (i.e. a loss per share).
Retrospective Adjustments
If the number of ordinary or potential ordinary shares outstanding increases as a result of
a capitalisation, bonus issue or share split, or decreases as a result of a reverse share split,
the calculation of basic and diluted earnings per share for all periods presented shall be
adjusted retrospectively. If these changes occur after the reporting period but before the
financial statements are approved for issue, the per share calculations for those and any
prio r period financial statements presented shall be based on the new number of shares.
Major Changes in Ind AS 33 vis-à-vis IAS 33 Not Resulting in Carve Outs
1. Consolidated Financial Statements and Separate Financial Statements: IAS 33

provides that when an entity presents both consolidated financial statements and
separate financial statements, it may give EPS related information in consolidated
financial statements only, whereas, Ind AS 33 requires EPS related information to be

disclosed both in consolidated financial statements and separate financial statements.
2. Applicability of the Standard: Paragraph 2 of IAS 33 requires that the entire
standard applies to:
(1) the separate or individual financial statements of an entity:
(i) whose ordinary shares or potential ordinary shares are traded in a public
market (a domestic or foreign stock exchange or an over-the-counter mar-
ket, including local and regional markets) or
(ii) that files, or is in the process of filing, its financial statements with a
Securities Regulator or other regulatory organisation for the purpose of
issuing ordinary shares in a public market; and
(2) the consolidated financial statements of a group with a parent:
(i) whose ordinary shares or potential ordinary shares are traded in a public
market (a domestic or foreign stock exchange or an over-the-counter mar-
ket, including local and regional markets) or
(ii) that files, or is in the process of filing, its financial statements with a
Securities Regulator or other regulatory organisation for the purpose of
issuing ordinary shares in a public market.
It also requires that an entity that discloses earnings per share shall calculate and disclose
earnings per share in accordance with this Standard.
The above requirements have been deleted in the Ind AS as the applicability or exemptions
to the Ind ASs are governed by the Companies Act and the Rules made there under.
3. Usage of Information: Paragraph 4 has been modified in Ind AS 33 to clarify that

an entity shall not present in separate financial statements, earnings per share based
on the information given in consolidated financial statements, besides requiring as in
IAS 33, that earnings per share based on the information given in separate financial
statements shall not be presented in the consolidated financial statements.
4. Adjustment of Securities Premium: In Ind AS 33, a paragraph has been added after
paragraph 12 on the following lines -
“Where any item of income or expense which is otherwise required to be recognized in

profit or loss in accordance with Indian Accounting Standards is debited or credited
to securities premium account/other reserves, the amount in respect thereof shall be
deducted from profit or loss from continuing operations for the purpose of calculating
basic earnings per share.”
5. Amortisation of Discount or Premium: In Ind AS 33 paragraph 15 has been amended

by adding the phrase, „irrespective of whether such discount or premium is debited
or credited to securities premium account‟ to further clarify that such discount or
premium shall also be amortised to retained earnings.
6. Disclosure of Amounts of per Share using a Reported Component : IAS 33 requires
disclosure of amounts of per share using a reported component, basic and diluted
earnings per share and basic and diluted earnings per share for discontinued opera-
tions in the separate income statement, where separate income statement is pre-
sented. This requirement is not provided in Ind AS 33 consequential to the removal
of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that the
components of profit or loss and components of other comprehensive income shall be
presented as a part of the statement of profit and loss.
Major Changes in Ind AS 33 vis a vis Notified AS 20
(i) Options held by the Entity on its Shares: Existing AS 20 does not specifically deal
with options held by the entity on its shares, e.g., purchased options, written put op-
tion etc. Ind AS 33 deals with the same.
(ii) Presentation of Basic and Diluted EPS from Continuing and Discontinued Opera-
tions: Ind AS 33 requires presentation of basic and diluted EPS from continuing and
discontinued operations separately. However, existing AS 20 does not require any
such disclosure.
(iii) Disclosure of EPS with and without Extraordinary Items: Existing AS 20 requires
the disclosure of EPS with and without extraordinary items. Since as per Ind AS 1,
„Presentation of Financial Statements‟, no item can be presented as extraordinary item,
Ind AS 33 does not require the aforesaid disclosure.
PRACTICAL QUESTIONS ON BASIC EPS
CONCEPT RELATED WITH PREFERENCE SHARES
QUESTION NO 1 (CONCEPT OF PREFERENCE DIVIDEND)
Genistar Tubes Inc had issued 10% Preference shares of face value $ 10. Premium on re-
demption will be 20% on the date of redemption (after 5 years). Net Profits after Tax $
750 million and $ 790 million for 20-16 and 2017 respectively. Number of equity shares
16 million and preference shares 3 million. Compute Basic EPS. (hit IRR for Cash flows =
11.59%).
QUESTION 2 (EARLY BUY BACK/REDEMTION OF PSC)
ABC Ltd. issues 9% preference shares of fair value of ` 10 each on 1.4.20X1. Total value of
the issue is 10,00,000. The shares are issued for a period of 5 years and would be redeemed
at the end of 5th year. The shares are to be redeemed at ` 11 each.
At the end of the year 3, i.e. on 31.3.20X4, company finds that it has earned good returns
than expected over last three years and can make the redemption of preference shares
early. To compensate the shareholders for two years of dividend which they need to forego,
company decided to redeem the shares at ` 12 each instead of original agreement of ` 11.
Comment on the impact of early conversion of preference shares at a premium on earnings
for the year 20X3-20X4 attributable to ordinary equity holders of ABC Ltd. for basic EPS.
Ignore the EIR impact in the solution and answer on the basis of Ind AS 33 only.
QUESTION 3 (DIFFERENT CASES RELATED WITH PREFERENCE SHARES
An entity has following preference shares in issue at the end of 20X4:

 5% redeemable, non-cumulative preference shares: These shares are classified as li-
abilities. During the year, a dividend was paid on the 5% preference shares- ` 100,000.
 Increasing–rate, cumulative, non-redeemable preference shares issued at a discount
in 20X0, with a cumulative dividend rate from 20X5 of 10%: The shares were issued
at a discount to compensate the holders, because dividend payments will no commence
until 20X5. The accrual for the discount in the current year, calculated using the effec-
tive interest method amounted to, say, ` 18,000. These shares are classified as equity
– ` 200,000.
 8% non-redeemable, non- cumulative preference shares: At the beginning of the
year, the entity had ` 100,000 8% preference shares outstanding but, at 30 June 20X4,
it repurchased ` 50,000 of these at a discount of ` 1,000 – ` 50,000.
 7% cumulative, convertible preference shares (converted in the year): These shares

were classified as equity, until their conversion into ordinary shares at the beginning of
the year. No dividend was accrued in respect of the year, although the previous year‛s
dividend was paid immediately prior to conversion. To induce conversion, the terms of
conversion of the 7% convertible preference shares were also amended, and the revised
terms entitled the preference shareholders to an additional 100 ordinary shares on
conversion with a fair value of ` 300 – Nil.
The profit after tax for the year 20X4 is ` 150,000.
Determine the adjustments for the purpose of calculating EPS.
QUESTION NO 4 (ITEMS ROUTED THROUGH SECURITIES PREMIUM)
X Ltd. earns net profit post tax for 2015-16 Rs. 33,000. During the year underwriting com-
mission is incurred Rs. 2,000 on issue of prefence shares. The same is adjusted in securities
premium a/. WANES = 1000 shares. Compute EPS for 2015-16.
CALCULATION OF WANS
QUESTION NO 5
Calculate the weighted average number of shares on the basis of following table:-
No of shares No of shares No of shares
issued bought back outstanding
1st January 99 Opening balance 1800 - 1800
31.5.99 Issue of shares - 2400

for cash
1.11.99 Buy back of 300 2100

shares
31.12.99 Balance at the 2100

end of year
SOLUTION
Computation of weighted average as per para 17 of IND AS 33 (refer point 20.2-1).
(1800x5/12) + (2400 x 5/12) + (2100 x 2/12) = 2100 shares.
The weighted average number of shares can alternatively be computed as follows:
(1800x12/12) + (600 x 7/12) – (300x2/12) = 2100 shares
QUESTION NO 6
Following is the data for company XYZ in respect of number of equity shares during the
financial year 20X1-20X2. Find out the number of shares for the purpose of calculation of
basic EPS as per Ind AS 33.
S.No Date Particulars No of shares
1 1-Apr-20X1 Opening balance of outstanding equity shares 100,000
2 15- Jun-20X1 Issue of equity shares 75,000
3 8- Nov- 20X1 Conversion of convertible preference shares 50,000

in Equity
4 22- Feb- 20X2 Buy back of shares (20,000)
5 31-Mar-20X2 Closing balance of outstanding equity shares 205,000
(ASSUME 365 DAYS IN A YEAR)
QUESTION NO 7
Given below are the details of equity share capital of ABC Limited for the year 2001:
Particulars No of shares in Face value:
lacs amount (Rs. in
lacs)
Balance if fully paid up equity as on 1.1.2001 100 1000
Convertible debentures converted into fully paid up

equity shares on 1.7.2001
50 500
Equity shares bought back on 1.11.2001
30 300
Net profit after tax Rs.240 Lacs.
ADJUSTMENT OF BONUS SHARES
QUESTION 8
On 31 March, 20X2 the issued share capital of a company consisted of ` 100,000,000 in

ordinary shares of ` 25 each and ` 500,000 in 10% cumulative non-redeemable preference
shares (classified as equity) of Re 1 each. On 1 October, 20X2, the company issued 1,000,000
ordinary shares fully paid by way of capitalisation of reserves in the proportion 1:4 for the
year ended 31 March, 20X3.
Profit for 20X1-20X2 and 20X2-20X3 is ` 450,000 and ` 550, 000 respectively.
Calculate the basic EPS for 20X1-20X2 and 20X2-20X3.
QUESTION 9
X Ltd.
1 January 1,000,000 shares in issue
28 February Issued 200,000 shares at fair value
31 August Bonus issue 1 share for 3 shares held
30 November Issued 250, 000 shares at fair value
Calculate the number of shares which would be used in the basic EPS calculation. Consider
reporting date as December end.
QUESTION NO 10 (BONUS ISSUE)
Net profit for the year 2000 Rs.18,00,000
Net profit for the year 2001 Rs.60,00,000
No of equity shares outstanding until 20,00,000

30.9.2001
2 equity shares for each equity share out-
Bonus issue 1.10.2001 standing at 30.9.2001
(ANSWER: BASIC EPS 2001:1, BASIC EPS RESTATED 2000:.3 PAISE)
QUESTION NO 11 (BOUNS ISSUE)
Given below equity shares capital details of XYZ Limited for the year 2000 and 2001:
Details No of shares Amount
Equity shares of Rs.10 each fully paid up on 1.1.2001 10,00,000 1,00,00,000
Bonus issue on 1.6.2001 10,00,000 1,00,00,000

Net profit 2000- Rs.45,00,000, Net profit 2001-Rs.60,00,000.
(ANSWER: BASIC EPS 2001:3, BASIC EPS RESTATED 2000:2.25)

QUESTION NO 12 (BONUS ISSUE)
As a statutory auditor for the year ended 31.3.2020 how would you deal with the follow-
ing: As on 31.3.2019 the equity share capital of Q Ltd. is Rs.10crores divided into shares
of Rs.10 each. During the financial year 2019-20, it has issued bonus shares in the ratio of
1:1. The net profit after tax for the years 31.3.2019 and 31.3.2020 is Rs.8.50crores and
Rs.11.50crores respectively. The EPS disclosed in the accounts for two years is Rs.8.50 and
5.75 respectively.
QUESTION NO 13
Calculate from the following information basic earning per share.

* Net Profit Rs. 50 Lakhs
* 10% preference share of Rs. 100 Lakhs
* Number of equity shares in the beginning of the year 10 Lakhs
* No. of Bonus shares issued in the middle of the year 5 Lakhs
ANS. RS. 2.67
ADJUSTMENT OF RIGHT SHARES
QUESTION 14
At 31 December 20X1, the issued share capital of a company consisted of 1.8 million ordinary
shares of ` 10 each, fully paid. The profits for the year ended 31 December 20X1 and 20X2
amounted to ` 630,000 and ` 875,000 respectively. On 31 March 20X2, the company made
a rights issue on a 1 for 4 basis at ` 30. The market price of the shares immediately before
the rights issue was ` 60.
Calculate BASIC EPS.
QUESTION NO 15 (RIGHT ISSUE)

Accounting Year is Calendar year
Net profit Year 2000: Rs.11,00,000
Year 2001: Rs.15,00,000
No of shares outstanding prior to right issue 5,00,000 shares
Right issue One new share for each five outstanding

(i.e., 1,00,000 new shares)
Right issue price:Rs.15 last date to
exercise rights: 1st March 2001
Fair value of one equity share immediately Rs.21

prior to exercise of rights on 1st March 2001
QUESTION NO 16 (RIGHT ISSUE)
Given below are the details of equity shares of MN Limited during 2000 and 2001:
Details No of shares Amount
(in lacs) (Rs. in lacs)

Equity shares fully paid up on 1.1.2000 1,000 10,000
Right issue on 1.7.2001 1,000 2,000
Closing market price on 30.6.2001 : Rs.35

Price of right : Rs.20
Net profit after tax (Rs. in lacs) for the year ended 31.12.2000 :2200
Reported basic EPS for the year ended 31.12.2000 : Rs.2.20
Net profit after tax (Rs.in lacs ) for the year ended 31.12.2001 :2400
ADJUSTMENT OF PARTLY PAID UP SHARES
QUESTION 17
An entity issues 100, 000 ordinary shares of Re 1 each for a consideration of 2.50 per share.
Cash of ` 1.75 per share was received by the balance sheet date. The party paid shares are
entitled to participate in dividends for the period in proportion to the amount paid.
Calculate number of shares for calculation of Basis EPS.
QUESTION NO 18
Particulars No. Amount

Equity shares of Rs.10 each fully paid up on 1.4.2020 10,00,000 99,00,000
Calls in arrears on 1.4.2020 1,00,000
Calls in arrears received on 1.6.2020 50,000
New issue (10 each) amount paid up on 1.10.2020 Rs.7.5 10,00,000 75,00,000
Calls in arrears received on 1.3.2021 50,000
PBT for the year ended on 31.3.2021: Rs.2,62,00,000, Tax provision: Rs.30,00,000. 10%
preference share capital issued on 1.7.2000: Rs.20,00,000.
QUESTION NO 19 (DIFFERENT DIVIDEND RIGHTS)
XYZ Limited has the following different classes of equity shares of Rs.10 each, outstanding
as at March 31, 2020 having disproportionate rights with respect to voting and dividends:
Number of shares Rights as to share in net profit to the ex-
tent of capital
1,00,000 “A” class equity shares Proportionate to capital
30,000 “B” class equity shares In the proportion of 3:2 with respect to “A”
class shares
30,000 “C” class equity shares In the proportion of 5:2 with respect to “A”
class share.
40,000 “D.” class equity shares In the proportion of 3:1 with respect to “A”
class shares.
Profit for the year ended March 31, 2020 was Rs.8,00,000. Calculate basic eps for each
class of shares
ADJUSTMENT OF SHARE SPLIT/SHARE CONSOLIDATION
QUESTION NO 20 (SHARE SPLIT/SHARE CONSOLIDATION)
COSY COMFORTS Limited earns a Net Profit for the year 2006-2007 Rs. 20, 00,000 after
tax. The corresponding figure for the last year was Rs. 16,00,000. Its Capital Structure
contains 80,000 Shares of Rs. 10 each. On 07.11.2006 it has decided to consolidate the
shares from Rs. 10 each to Rs. 100 each. Calculate Basic EPS and Restated EPS.
ADJUSTMENT OF SHARES ISSUED IN BUSINESS COMBINATION
QUESTION NO 21 (ACQUISITION OF BUSINESS)
Given below information relating to equity shares of A Limited and B Limited. Two compa-
nies amalgamated w.e.f. 1-10-2020. A Limited issued the required No. of shares on the basis
of the agreed valuation.
A Limited B Limited
No of outstanding equity shares as on 1.4.2020 (No. 500 200

in lakhs)
Agreed value per share for acquisition

Date of acquisition 1-10-2020 120 30
Profit after tax (Rs. In lakhs) 500 200
Profit after tax during 1-10-2020—31-3-2021 (Rs. In lakhs) 1200
QUESTION NO 22 (ACQUISITION OF BUSINESS)
On June 30, 2020, A limited acquired B limited

The following is the relevant information for the year ended 31st March 2021:
Particulars A Limited B Limited
Net profit (Rs.)

Until Acquisition 5,00,000 2,00,000
After Acquisition to year end 8,00,000
(March 31, 2021)
Number of shares (Rs.10 each)
At the start of the year 6,000 4,000
On the date of Acquisition 6,000 4,000
At year end (March 31, 2021) 10,000
Compute the E.P.S of A Limited at the year end, i.e., March 31, 2021
ADJUSTMENT OF CONVERTIBLE DEBENTURES
QUESTION 23
Entity A has in issue 25,000 4% debentures with a nominal value of Re 1. The debentures
are convertible to ordinary shares at a rate of 1: 1 at any time until 20X9. The entity‛s
management receives a bonus based on 1% of profit before tax.
Entity A‛s results for 20X2 showed a profit before tax of ` 80,000 and a profit after tax
of ` 64,000 (for simplicity, a tax rate of 20% is assumed in this example).
Calculate Earnings for the purpose of diluted EPS.
(Note: The given debentures are not mandatory convertible)
QUESTION 24
ABC Ltd. has 1,000,000 ` 1 ordinary shares and 1,000 ` 100 10% convertible bonds (issued
at par), each convertible into 20 ordinary shares on demand, all of which have been in issue
for the whole of the reporting period.
ABC Ltd.‘s share price is ` 4.50 per share and earnings for the period are ` 500,000. The
tax rate applicable to the entity is 21%
Calculate basis EPS, earnings per incremental share for the convertible bonds and diluted
EPS.
QUESTION 25
At 30 June 20X1, the issued share capital of an entity consisted or 1,500,000 ordinary
shares of ` 1 each. On 1 October 20X1, the entity issued ` 1,250,000 of 8% convertible loan
stock for cash at par. Each ` 100 nominal of the loan stock may be converted, at any time
during the years ended 20X6 to 20X9, into the number of ordinary shares set out below:
30 June 20X6: 135 ordinary shares;
30 June 20X7: 130 ordinary shares;
30 June 20X8: 125 ordinary shares; and
30 June 20X9: 120 ordinary shares.
If the loan stocks are not converted by 20X9, they would be redeemed at par.
This illustration assumes that written equity conversion option is accounted for as a derivative
liability and marked to market through profit or loss. The change in the option ‘fair value
reported in 20X2 and 20X3 amounted to losses of ` 2,500 and ` 2,650 respectively. It is
assumed that there are no tax consequences arising from these losses.
The profit before interest, fair value movements and taxation for year ended 30 June
20X2 and 20X3 amounted to ` 825,000 and ` 895,000 respectively and relate wholly to
continuing operations. The rate of tax both periods is 33%

Calculate Basic and Diluted EPS.
QUESTION 26
An entity issues 2,000 convertible bonds at the beginning of Year 1. The bonds have a three-
year term, and are issued at par with a face value of ` 1,000 per bond, giving total proceeds
of ` 2,000,000. Interest is payable annually in arrears at a nominal annual; interest rate of
6 per cent. Each bond is convertible at any time up to maturity into 250 ordinary shares.
The entity has an option to settle the principal amount of the convertible bonds in ordinary
shares or in cash.
When the bonds are issued, the prevailing market interest rate for similar debt without a
conversion option is 9 per cent. At the issue date, the market price of one ordinary share
is ` 3. Income tax is ignored.
Calculate basic and diluted EPS when
Profit attributable to ordinary equity holders of the parent entity Year1 ` 1,000,000
Ordinary shares outstanding 1,200,000
Convertible bonds outstanding 2,000
ADJUSTMENT OF PARTICIPATING EQUITY INSTRUMENTS
QUESTION 27
An entity has two classes of shares in issue:

 5,000 non- convertible preference shares
 10,000 ordinary shares
The preference shares are entitled to a fixed dividend of ` 5 per share before any dividends
are paid on the ordinary shares. Ordinary dividends are then paid in which the preference
Shareholders do not participate. Each preference share then participates in any additional
ordinary dividend above ` 2 at a rate of 50% of any additional dividend payable on an
ordinary share.
The entity‛s profit for the year is ` 100,000, and dividends or ` 2 per share are declared
on the ordinary shares.
Compute the allocation of earnings for the purpose of calculation of Basic EPS when an
entity has ordinary shares & participating equity instruments that are not convertible into
ordinary shares.
QUESTION 28
(This illustration does not illustrate the classification of the components of convertible
financial instruments as liabilities and equity or the classification of related interest and
dividends as expenses and equity as required by Ind AS 32).
Profit attributable to equity holders of the parent entity ` 100,000
Ordinary shares outstanding 10,000

Non-convertible preference shares 6,000
Non-cumulative annual dividend on preference shares (before any ` 5.50 per share
dividend is paid on ordinary shares)
After ordinary shares have been paid a dividend or ` 2.10 per share,
the preference shares participate in any additional dividends on a
20:80 ratio ordinary shares.
Compute the allocation of earnings for the purpose of calculation of Basic EPS when an
entity has ordinary shares & participating instruments that are not convertible into ordinary
shares.
ADJUSTMENT OF CONTINGENTLY ISSUABLE SHARES
QUESTION 29
Contingently issuable shares

Ordinary shares outstanding during 20X1 1,000,000 (there were no options, warrants or
Convertible instruments outstanding during period)
An agreement related to a recent business combination provides for the issue of additional
ordinary shares based on the following conditions:
5,000 additional ordinary shares for each new retail site opened during 20X1
1,000, additional ordinary shares for each ` 1,000 of Consolidated profit in excess of `
2,000,000 for the year ended 31 December 20X1
Retail sites opened during the year: One on 1 May 20X1
One on 1 September 20X1
Consolidated year-to-date profit ` 1,100,000 as of 31 March 20X1
attributable to ordinary equityholders of the parent entity:
` 2,300,000 at of 30 June 20X1
` 1,900,000 as of 30 September 20X1 (including a
` 450,000 loss from a discontinued operation)

` 2,900,000 as of 31 December 20X1
Calculate basic and diluted EPS.
QUESTION NO 30
ABC Company has issued contingently issuable on 1st January 20X1. The condition to be sat-
isfied is the average turnover of the company for last three quarters must exceed ` 100
million. If the condition is satisfied the company will issue the shares within a period of 6
months. The conditions will be effective from the quarter ending 31st March 20X1. Company
achieves the said target on ending 31st December 20X1.
ADJUSTMENT OF EMPLOYEE STOCK OPTION PLAN
QUESTION 31
Effects of share options on diluted earnings per share

Profit attributable to ordinary equity holders of the parent entity for ` 1,200,000
year 20X1
Weighted average number of ordinary shares outstanding during year 500,000 shares
20X1
Average market price of one ordinary share during year 20X1 ` 20.00
Weighted average number of shares under option during year 20X1 100,000 shares
Exercise price for shares under option during year 20X1 ` 15.00
ADJUSTMENT OF WRITTEN OPTION CONTRACTS
QUESTION 32
At 31 December 20X7 and 20X8, the issued share capital of an entity consisted of
4,000,000 ordinary shares of ` 25 each. The entity has granted options that give holders
the right to subscribe for ordinary shares between 20Y6 and 20Y9 at ` 70 per share.
Options outstanding at 31 December 20X7 and 20X8 were 630,000. There were no grants,
exercises or lapses of options during the year. The profit after tax, attributable to ordinary
equity holders for the years ended 31 December 20X7 and 20X8, amounted to ` 500,000
and ` 600,000 respectively (wholly relating to continuing operations).
Average market price of share:
Year ended 31 December 20X7 = ` 120
Year ended 31 December 20X8 = ` 160
QUESTION NO 33 (CALL OPTIONS)
K Limited has 4,00,000 ordinary shares outstanding of face value Rs. 2 each. The company
has written call options on own shares 6,000. Premium is already received on all option Rs.
12. The strike price was Rs. 100. The average market price Rs. 120. Total maturity of the
option is 3 months. Net profit to ordinary shareholder is Rs. 20,00,000. The option will be
settled gross delivery based. Compute EPS.
QUESTION NO 34 (PUT OPTIONS)
Cherry Berry Corp. has written put options on own shares 20,000 options. Premium is al-
ready received on option Rs. 75. The strike price was rs. 400. The average market price
Rs. 250. Net Profit for the year 2015-16 for ordinary shareholder is Rs. 76,42,000. On
1/4/2015 7,00,000 ordinary shares outstanding of face value Rs. 100 each. The options will
be settled gross delivery based. Compute EPS.
QUESTION NO 35 (PUT OPTIONS)
Global Paints Ltd. has purchased 60000 put options on own equity shares @ Rs. 600. The
Fair Value of the shares Rs. 450. Net Profit attributable to the equity shareholders Rs. 36
crores. WANES 9,00,000.
ANSWER:
No need to calculate diluted EPS because it would be Anti – dilutive. It‛s a case of pur-
chased options.
EPS CALCULATION IN CONSOLIDATED FINANCIAL STATEMENT
QUESTION NO 36 (CFS & SFS)
M Limited is a parent company of subsidiary H Limited wit 80% stake. For the year 2015-16
M Limited earns net profit for equity Rs. 7,00,000 and H earns profits of Rs. 2,00,000. M
Limited has 25,000 equity shares and H Ltd. has 10,000 equity shares. Compute EPS in the
books of 1) M Limited both as per SFS and CFS 2) H Limited only as per SFS.
QUESTION 37
Calculate Subsidiary‛s and Group‛s Basic EPS and Diluted EPS, when
Parent:
Profit attributable to ordinary equity ` 12,000 (excluding any earnings of, or
holders of the parent entity dividends paid by, the subsidiary)
Ordinary shares outstanding 10,000
Instruments of subsidiary owned by the 800 ordinary shares
parent
30 warrants exercisable to purchase
ordinary shares of subsidiary
300 convertible preference shares
Subsidiary:
Profit ` 5,400
Ordinary shares 1,000
outstanding
Warrants 150, exercisable to purchase ordinary shares of the subsidiary
Exercise price ` 10
Average market price of ` 20
one ordinary share
Convertible preference 400,each convertible into one ordinary share
shares
Dividend on preference Re 1 per share
shares
No inter – company elimination or adjustments were necessary except for dividends.
Ignore income taxes. Also, ignore classification of the components of convertible financial
instruments as liabilities and equity or the classification of related interest and dividends
as expenses and equity as required by Ind AS 32.
TEST YOUR KNOWLEDGE

QUESTION 1
ABC 1 January 20X1 Shares in issue 1,000,000

31 March 20X1 (a) Rights issue 1 for 5 at 90 paise
(b) Fair value of shares Re 1 (cum-rights price)
Calculate the number of shares of use in the EPS calculation for the calendar year.
QUESTION 2
1 January Shares in issue 1,000,000

5% Convertible bonds ` 100,000
(terms of conversion 120 ordinary shares for ` 100)
31 March Holders of ` 25,000 bonds converted to ordinary shares.
Profit for the year ended 31 December ` 200,000
Tax rate 30%
Calculate basic and diluted EPS. Ignore the need to split the convertible bonds into liability
and equity elements.
QUESTION 3
1 January Shares in issue 1,000,000

Profit for the year ended 31 December ` 100,000
Average fair value during period ` 8
The company has in issue 200,000 options to purchase equity ordinary shares
Exercise price ` 6
Calculate the diluted EPS for the period.
QUESTION 4
Calculate Basic EPS for period ending 20X0, 20X1 and 20X2, when
20X0 20X1 20X2
Profit attributable to ordinary equity ` 1,100 ` 1,500 ` 1,800
holders of the parent entity
Shares outstanding before rights issue 500 shares
Rights issue One new share for each five outstanding shares
Exercise price ` 5.00
Date of rights issue 1 January 20X1

Last date to exercise rights 1 March 20X1
Market price of one ordinary share im- ` 11.00
mediately before exercise on 1 March
20X1:
Reporting date 31 December
QUESTION NO 5 (DILUTED EPS IN LOSS MAKING COMPANY)
How would Diluted EPS be calculated for a loss making enterprise? To illustrate, at Decem-
ber 31, 20X2, a company has 2,000 shares of face value of Rs.10 each. The stock options
outstanding at December 31,20X2 were for 400 shares of face value Rs.10 each. The net
loss for the year 20X2 was Rs.1,200,000. The fair value of the shares on the date of grant
and the exercise price were Rs.100 and Rs.60 per share, respectively.
QUESTION NO 6
Undivided Ltd. having a net profit of Rs.40,000 from continuing operations and net loss of
Rs. 30,000 from discontinuing operations. The company has 20,000 equity shares and 500
Potential equity shares.
Compute Basic EPS & Dilutive EPS of Undivided Ltd.
SCHEDULE III 125
SCHEDULE III
Financial Statements for a company whose financial statements are drawn up in
compliance of the Companies (Indian Accounting Standards) Rules, 2015.
GENERAL INSTRUCTIONS FOR PREPARATION OF FINANCIAL

STATMENT OF A COMPANY
REQUIRED TO COMPLY WITH Ind AS

1. Every company to which Indian Accounting Standards apply, shall prepare its financial
statements in accordance with this Schedule or with such modification as may be
required under certain circumstances.
2. Where compliance with the requirements of the Act including Indian Accounting
Standards (except the option of presenting assets and liabilities in the order of
liquidity as provided by the relevant Ind AS) as applicable to the companies require
any change in treatment or disclosure including addition, amendment substitution or
deletion in the head or sub-head or any changes inter se, in the financial statements or
statements forming part thereof, the same shall be made and the requirements under
this Schedule shall stand modified accordingly.
3. The disclosure requirements specified in this Schedule are in addition to and not
in substitution of the disclosure requirements specified in the Indian Accounting
Standards. Additional disclosures specified in the Indian Accounting Standards shall
be made in the Notes or by way of additional statement or statements unless required
to be disclosed on the face of the Financial Statements. Similarly, all other disclosures
as required by the Companies Act, 2013 shall be made in the Notes in addition to the
requirements set out in this Schedule.
4. (i) Notes shall contain information in addition to that presented in the Financial
Statements and shall provide where required-
(a) narrative description or disaggregation of items recognised in those statements;
and
(b) information about items that do not qualify for recognition in those statements.
ach item on the face of the Balance Sheet, Statement of Changes in Equity and
E
Statement of Profit and Loss shall be cross-referenced to any related information
in the Notes. In preparing the Financial Statements including the Notes, a balance
shall be maintained between providing excessive detail that may not assist users of
Financial Statements and not providing important information as a result of too much
aggregation.
126 SCHEDULE III
5. Depending upon the turnover of the company, the figures appearing in the Financial
Statements shall be rounded off as below:
Turnover Rounding off

(i) less than one hundred crore rupees To the nearest hundreds, thousands, lakhs
or millions, or decimals thereof
(ii) one hundred crore rupees or more To the nearest, lakhs, millions or crores, or
decimals thereof.
Once a unit of measurement is used, it should be used uniformly in the Financial

Statements.
6. Financial Statements shall contain the corresponding amounts (comparatives) for the
immediately preceding reporting period for all items shown in the Financial Statement
including Notes except in the case of first Financial Statements laid before the
company after incorporation.
7. Financial Statements shall disclose all ‘material’ items, i,e, the items if they could.
individually or collectively, influence the economic decisions that users make on the
basis of the financial statements. Materiality depends on the size or nature of the
item or a combination of both, to be judged in the particular circumstances.
8. For the purpose of this Schedule, the terms used herein shall have the same meanings
assigned to them in Indian Accounting Standards.
9. Where any Act or Regulation requires specific disclosure to be made in the standalone
financial statement of a company, the said disclosure shall be made in addition to those
required under this Schedule.
Note: This Schedule sets out the minimum requirements for disclosure on the face of the
Financial Statements, i.e, Balance Sheet, Statement of Changes in Equity for the period,
the Statement of profit and Loss for the period (The term ‘Statement of Profit and Loss’
has the same meaning as Profit and Loss Account) and Notes. Cash flow statement shall
be prepared, where applicable, in accordance with the requirement of the relevant Indian
Accounting Standard.
Line items, sub-line items and sub-totals shall be presented as an addition or substitution on
the face of the Financial Statements when such presentation is relevant to an understanding
of the company’s financial position or performance to cater to industry or sector-specific
disclosure requirements or when required for compliance with the amendments to the
Companies Act, 2013 or under the Indian Accounting Standards.
SCHEDULE III 127
PART I - BALANCE SHEET

Name of the Company....................
Balance Sheet as at ......................
(Rupees in.........)
Particular Note Figures as Figures as at

No. at the end the end of
of current the previous
reporting reporting
period period
1 2 3 4
(1) ASSETS
Non-current assets
(a) Property, Plant and Equipment
(b) Capital work-in-progress
(c) lnvestment Property
(d) Goodwill
(e) Other Intangible assets
(f) Intangible assets under development
(g) B
iological Assets other than bearer
plants
(h) Financial Assets
(i) Investments
(j) Trade receivables
(k) Loans
(c) Deferred tax assets (net)
(d) Other non-current assets
(2) Current assets
(a) Inventories
(b) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Cash and cash equivalents
128 SCHEDULE III
(iv) Bank balances other than (iii) above

(v) Loans
(vi) Others (to be specified)
(c) Current Tax Assets (Net)
(d) Other current assets
Total Assets
Equity and liabilities
Equity
(a) Equity Share capital
(b) Other Equity
(1) Liabilities
Non-current liabilities
(a) Financial Liabilities
(i) Borrowings
(ii) Trade payables
Other financial liabilities (other than those
specified in item (b), to be specified)
(b) Provision
(c) Deferred tax liabilities (Net)
(d) Other non-current liabilities
(2) Current liabilities
(a) Financial Liabilities
(a) Borrowigns
(a) Trade payables
(a) ther findnical liabilities (other
O
than those specified in item (C)
(b) Other current liabilities
(c) Provision
(d) Current Tax Liabilities (Net)
Total Equity and Liabilities

SCHEDULE III 129
see accompanying notes to the financial statements
STATEMENT OF CHANGES IN EQUITY
Name of the Company..............

Statement of Changes in Equity for the period ended ............
A. Equity Share Capital
Balance at the beginning of Changes in equity share capital Balance at the end of the
the reporting period during the year reporting period
A. Other Equity
130
Reserve and Surplus Debt in-

strument
Share Equity Capital Secu- Other Retained through Equity Effec- Re- Exchange Other Money Total
applica- compo- Re- rities Re- Earning other Instru- tive valuation differ- items of re-
tion on nent of serve Premium serve compre- ment portion Surplus ence on other ceived
money com- Reserve (Spec- hensive through of cash translat- compre- against
pending pound ify income other flow ing the hensive share
allot- financial nature) compre- hedges financial income capital
ment instru- hensive state- (Specify
ment income ment nature )
Balance at the
beginning of the
reporting period
Changes in
accounting policy
or prior period
errors
Restated balance
at the beginning
of the reporting
period
Total
comprehensive
Income for the

year
Dividends
Transfer to
retained earnings
Any other change

(to be specified)
SCHEDULE III
Balance at the
end of the
reporting period
SCHEDULE III 131
Note: Re-measurement of defined benefit plans and fair value changes relating to own
credit risk of financial liabilities designated at fair value through profit or loss shall be
recognised as a part of retained earning with separate disclosure of such items alongwith
the relevant amounts in the Notes.
132 SCHEDULE III
GENERAL INSTRUCTIONS FOR

PREPARATION OF BALANCE SHEET
1. An entity shall classify an asset as current when-

(a) it expects to realise the asset, or intends to sell or consume it, in its normal
operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting period;
or
(d) the asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting period.
An entity shall classify all other assets as non-current.
2. The operating cycle of an entity is the time between the acquisition of assets for
processing and their realisation in cash or cash equivalents, when the entity’s normal
operating cycle is not clearly identifiable, it is assumed to be twelve months.
3. An entity shall classify a liability as current when-
(a) it expects to settle the liability in its normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the reporting period;
or
(d) it does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period. Terms of a liability that could,
at the option of the counterparty, result in it settlement by the issue of equity
instruments do not affect its classification.
An entity shall classify all other liabilities as non-current.
4. A receivable shall be classified as a ‘trade receivable’ if it is in respect of the amount
due on account of goods sold or services rendered in the normal course of business.
5. A payable shall be classified as a ‘trade payable’ if it is in respect of the amount due
on account of goods purchased or services received in the normal course of business.
6. A company shall disclose the following in the Notes:
A. Non-Current Assets
l. Property. Plant and Equipment:

(i) Classification shall be given as:
(a) Land
SCHEDULE III 133
(b) Buildings
(c) Plant and Equipment
(d) Furniture and Fixtures
(e) Vehicles
(f) Office equipment
(g) Bearer Plants
(h) Others (specify nature)
(ii) Assets under lease shall be separately specified under each class of assets
(iii) A reconciliation of the gross and net carrying amounts of each class of assets at the
beginning and end of the reporting period showing additions, disposals, acquisitions
through business combinations and other adjustments and the related depreciation
and impairment losses or reversals shall be disclosed separately.
al. Investment Property:

A reconciliation of the gross and net carrying amounts of each class of property at the
beginning and end of the reporting period showing additions, disposals, acquisitions through
business combinations and other adjustments and the related depreciation and impairment
losses or reversals shall be disclosed separately.
BI. Goodwill:
A reconciliation of the gross and net carrying amount of goodwill at the beginning and end
of the reporting period showing additions, impairments, disposals and other adjustments.
IV. Other Intangible assets
(i) Classification shall be given as:

(a) Brands or trademarks
(b) Computer software
(c) Mastheads and publishing titles
(d) Mining rights
(e) Copyright, patents, other intellectual property rights, services and operating
rights
(f) Recipes, formulae, models, designs and prototypes
(g) Licenses and franchises
(h) Others (specify nature)
134 SCHEDULE III
(ii) A reconciliation of the gross and net carrying amounts of each class of assets at the
beginning and end of the reporting period showing additions, disposals, acquisitions
through business combinations and other adjustments and the related amortization
and impairment losses or reversals shall be disclosed separately.
V. Biological Assets other than bearer plants:

A reconciliation of the carrying amounts of each class of assets at the beginning and end of
the reporting period showing additions, disposals, acquisitions through business combinations
and other adjustments shall be disclosed separately.
VI. Investment
(i) Investments shall be classified as:

(a) Investments in Equity Instruments;
(b) Investments in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms; or
(g) Other investments (specify nature)
Under each classification, details shall be given of names of the bodies corporate that
are-
(i) subsidiaries,
(ii) associates,
(iii) joint ventures, or
(iv) structured entities, in whom investments have been made and the nature and
extent of the investment so made in each such body corporate (showing separately
investments which are partly-paid). lnvestment in partnership firms alongwith
names of the firms, their partners, total capital and the shares of each partner
shall be disclosed separately.
(ii) The following shall also be disclosed:
(a) Aggregate amount of quoted investment and market value thereof:
(b) Aggregate amount of unquoted investment: and
Aggregate amount of impairment in value of investment
SCHEDULE III 135
VII. Trade Receivables:
(i) Trade receivables shall be sub-classified as;

(a) Secured, considered good;
(b) Unsecured considered good; and
(c) Doubtful.
(ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads
separately.
(iii) Debts due by directors or other officers of the company or any of them either
severally or jointly with any other person or debts due by firms or private companies
respectively in which any director is a partner or a director or a member should be
separately stated.
VIII. Loans;
(i) Loans shall be classified as-

(a) Security Deposits;
(b) Loans to related parties (giving details thereof); and
(c) Other loans (specify nature).
The above shall also be separately sub-classified as-
(b) Unsecured, considered good; and
(c) Doubtful. Allowance for bad and doubtful loans shall be disclosed under the relevant
heads separately.
(iv) Loans due by directors or other officers of the company or any of them either severally
or jointly with any other persons or amounts due by firms or private companies
separately stated.
IX. Bank deposits with more than 12 months maturity shall be disclosed under ‘Other
financial assets’;
X. Other non-current asset: Other non-current assets shall be classified as-

(i) Capital Advances; and
(ii) Advances other than capital advances;
136 SCHEDULE III
Advances other than capital advances shall be classified as

(b) Advances to related parties (giving details thereof; and
(c) Other advances (specify nature).
(2) Advances to directors or other officers of the company or any of them either severally
or jointly with any other persons or advances to firms or private companies respectively
in which any director is a partner or a director or a member should be separately
stated, ln case advances are of the nature of a financial asset as per relevant Ind AS,
these are to be disclosed under other financial assets separately.
(bi) Others (specify nature).
B. Current Assets
I. Inventories:
(i) Inventories shall be classified as-

(a) Raw materials;
(b) Work in-progress;
(c) Finished goods;
(d) Stock-in-trade (in respect of goods acquired for trading);
(e) stores and spares;
(f) Loose tools; and
(g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation shall be stated.
II. Investment;
(i) Investments shall be classified as-

(a) Investments in Equity lnstruments;
(b) lnvestment in Preference Shares;
(c) lnvestment in government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) lnvestment in partnership firms; and
(g) Other investments (specify nature).
SCHEDULE III 137
Under each classification, details shall be given of names of the bodies corporate that are-
(i) subsidiaries,
(ii) associates,
(iii) joint ventures, or
(iv) structured entities,
in whom investments have been made and the nature and extent of the investment so made
in each such body corporate (showing separately investments which are partly-paid)
(ai) The following shall also be disclosed

(a) Aggregate amount of quoted investments and market value thereof;
(b) Aggregate amount of unquoted investments;
(c) Aggregate amount of impairment in value of investments,
III. Trade Receivables
(i) Trade receivables shall be sub-classified as:

(b) Unsecured considered good; and
(c) Doubtful.:
(ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads
separately.
(iii) Debts due by directors or other officers of the company or any of them either
severally or jointly with any other person or debts due by firms or. private companies
separately stated.
IV. Cash and cash equivalents:

Cash and cash equivalents shall be classified as-
a. Balances with Banks (of the nature of cash and cash equivalents);
b. Cheques, drafts on hand;
c. Cash on hand; and
d. Others (specify nature).
V. Loans:
(i) Loans shall be classified as:

138 SCHEDULE III
(a) Security deposits;

(b) Loans to related parties (giving details thereof); and
(c) others (specify nature).
(ii) The above shall also be sub-classified as-
(b) Unsecured, considered good; and
(c) Doubtful.
(iii) Allowance for bad and doubtful loans shall be disclosed under the relevant heads
separately.
(iv) Loans due by directors or other officers of the company or any of them either
severally or jointly with any other person or amounts due by firms or private companies
respectively in which any director is a partner or a director or a member shall be
separately stated.
VI. Other current assets (specify nature): This is an all-inclusive heading, which
incorporates current assets that do not fit into any other asset categories. Other
current assets shall be classified as-
(i) Advances other than capital advances

(1) Advances other than capital advances shall be classified as:
(b) Advances to related parties (giving details thereof);
(c) Other advances (specify nature)
(2) Advances to directors or other officers of the company or any of them either
severally or jointly with any other persons or advances to firms or private companies
separately stated.
(a) Earmarked balances with banks (for example. for unpaid dividend) shall be
separately stated.
(b) Balances with banks to the extent held as margin money or security against the
borrowings, guarantees, other commitments shall be disclosed separately.
D. Repatriation restrictions, if any, in respect of cash and bank balances shall be separately
stated Equity
SCHEDULE III 139
I. Equity Share Capital: For each class of equity share capital:
(a) the number and amount of shares authorised;

(b) the number of shares issued, subscribed and fully paid, and subscribed but not fully
paid;
(c) par value per Share;
(d) a reconciliation of the number of shares outstanding at the beginning and at the end
of the period;
(e) the rights, preferences and restrictions attaching to each class of shares including
restrictions on the distribution of dividends and the repayment of capital;
(f) shares in respect of each class in the company held by its holding company or its
ultimate holding company including shares held by subsidiaries or associates of the
holding company or the ultimate holding company in aggregate;
(g) shares in the company held by each shareholder holding more than five per cent.
shares specifying the number of shares held;
(h) shares reserved for issue under options and contracts or commitments for the sale of
shares or disinvestment, including the terms and amounts;
(i) for the period of five years immediately preceding the date at which the Balance
Sheet is prepared aggregate number and class of shares allotted as fully paid up
pursuant to contract without payment being received in cash;
• aggregate number and class of shares allotted as fully paid up by way of bonus
shares; and
• aggregate number and class of shares bought back;
(j) terms of any securities convertible into equity shares issued along with the earliest
date of conversion in descending order starting from the farthest such date;
(k) calls unpaid (showing aggregate value of calls unpaid by directors and officers);
(l) forfeited shares (amount originally paid up).
II. Other Equity:
(i) Other Reserves’ shall be classified in the notes as-

(a) Capital Redemption Reserve;
(b) Debenture Redemption Reserve;
(c) Share Options Outstanding Account; and
(d) others- (specify the nature and purpose of each reserve and the amount in respect
thereof);
140 SCHEDULE III
(Additions and deductions since last balance sheet to be shown under each of the
specified heads)
(ii) Retained Earnings represents surplus i.e. balance of the relevant column in the
Statement of Changes in Equity;
(iii) A reserve specifically represented by earmarked investments shall disclose the fact
that it is so represented;
(iv) Debit balance of Statement of Profit and Loss shall be shown as a negative figure
under the head ‘retained earnings’. Similarly, the balance of ‘Other Equity’, after
adjusting negative balance of retained earnings, if any, shall be shown under the head
‘Other Equity’ even if the resulting figure is in the negative; and
(v) Under the sub-head ‘Other Equity’, disclosure shall be made for the nature and amount
of each item.
E. Non-Current Liabilities
I. Borrowings:
(i) borrowings shall be classified as-

(a) Bonds or debentures
(b) Term loans
(I) from banks
(II) from other Parties
(c) Deferred payment liabilities
(d) Deposits.
(e) Loans from related parties
(f) Long term maturities of finance lease obligations
(g) Liability component of compound financial instruments
(h) Other loans (specify nature);
(ii) borrowings shall further be sub-classified as secured and unsecured. Nature of
security shall be specified separately in each case.
(iii) where loans have been guaranteed by directors or others, the aggregate amount of
such loans under each head shall be disclosed;
(iv) bonds or debentures (along with the rate of interest, and particulars of redemption
or conversion, as the case may be) shall be stated in descending order of maturity or
conversion, starting from farthest redemption or conversion date, as the case may be,
where bonds/debentures are redeemable by installments, the date of maturity for
this purpose must be reckoned as the date on which the first installment becomes due;
SCHEDULE III 141
(v) particulars of any redeemed bonds or debentures which the company has power to
reissue shall be disclosed;
(vi) terms of repayment of term loans and other loans shall be stated; and
(vii) period and amount of default as on the balance sheet date in repayment of borrowings
and interest shall be specified separately in each case.
III. Provisions: The amounts shall be classified as-
(a) Provision for employee benefits; and

(b) Others (specify nature).
IV. Other non-current liabilities;
(a) Advances; and

(b) Others (specify nature).
F. Current Liabilities
I. Borrowings:
(i) Borrowings shall be classified as-

(a) Loans repayable on demand
(I) from banks
(II) from other parties
(b) Loans from related parties
(c) Deposits
(d) Other loans (specify nature);
(ii) borrowings shall further be sub-classified as secured and unsecured. Nature of
security shall be specified separately in each case;
(iii) where loans have been guaranteed by directors or others, the aggregate amount of
such loans under each head shall be disclosed; period and amount of default as on
the balance sheet date in repayment of borrowings and interest, shall be specified
separately in each case
II. Other Financial Liabilities: Other Financial liabilities shall be classified as-
(a) Current maturities of long-term debt;

(b) Current maturities of finance lease obligations;
142 SCHEDULE III
(c) Interest accrued;

(d) Unpaid dividends;
(e) Application money received for allotment of securities to the extent refundable and
interest accrued thereon;
(f) Unpaid matured deposits and interest accrued thereon;
(g) Unpaid matured debentures and interest accrued thereon; and
(h) Others (specify nature).
‘Long term debt is a borrowing having a period of more than twelve months at the time of
origination.
III. Other current liabilities:

The amounts shall be classified as-
(a) revenue received in advance;

(b) other advances (specify nature); and
(c) others (specify nature);
IV. Provisions: The amounts shall be classified as-
(i) provision for employee benefits; and

(ii) others (specify nature)
G. The presentation of liabilities associated with group of assets classified as held for
sale and non-current assets classified as held for sale shall be in accordance with the
relevant Indian Accounting Standards (Ind ASs)
H. Contingent Liabilities and Commitments: (to the extent not provided for)
(i) Contingent Liabilities shall be classified as-
(a) claims against the company not acknowledged as debt;
(b) guarantees excluding financial guarantees; and
(c) other money for which the company is contingently liable.
Commitments shall be classified as
(a) estimated amount of contracts remaining to be executed on capital account and
not provided for;
(b) uncalled liability on shares and other investments partly paid; and
(c) other commitments (specify nature).
SCHEDULE III 143
I. The amount of dividends proposed to be distributed to equity and preference

shareholders for the period and title related amount per share shall be disclosed
separately. Arrears of fixed cumulative dividends on irredeemable preference shares
shall also be disclosed separately.
J. Where in respect of an issue of securities made for a specific purpose the whole or
part of amount has not been used for the specific purpose at the Balance sheet date,
there shall be indicated by way of note how such unutilised amounts have been used or
invested.
7. When a company applies an accounting policy retrospectively or makes a restatement of
items in the financial statements or when it reclassifies items in its financial statements,
the company shall attach to the Balance Sheet, a “Balance Sheet” as at the beginning
of the earliest comparative period presented.
8. Share application money pending allotment shall be classified into equity or liability in
accordance with relevant Indian Accounting Standards. share application money to the
extent not refundable shall be shown under the head Equity and share application money
to the extent refundable shall be separately shown under ‘Other financial liabilities’.
9. Preference shares including premium received on issue, shall be classified and presented
as ‘Equity’ or ‘Liability’ in accordance with the requirements of the relevant Indian
Accounting Standards. Accordingly, the disclosure and presentation requirements in
that regard applicable to the relevant class of equity or liability shall be applicable
mutatis mutandis to the preference shares. For instance, redeemable preference
shares shall be classified and presented under ‘non-current liabilities’ as ‘borrowings’
and the disclosure requirements in this regard applicable to such borrowings shall be
applicable mutatis mutandis to redeemable preference shares.
10. Compound financial instruments such as convertible debentures, where split into equity
and liability components, as per the requirements of the relevant Indian Accounting
Standards, shall be classified and presented under the relevant heads in ‘Equity’ and
‘Liabilities’
11. Regulatory Deferral Account Balances shall be presented in the Balance Sheet in
accordance with the relevant Indian Accounting Standards.
144 SCHEDULE III
PART II - STATEMENT OF PROFIT AND LOSS

Name of the Company.........................
Statement of Profit and Loss for the period ended................
Particulars Note Figures as at the end Figures for

No. of current reporting the Previous
period reporting Period
I Revenue from operations
II Other Income
III Total Income (l + Il)
IV EXPENSES
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in inventories of finished
goods, Stock-in -Trade and work-in-
progress
Employee benefits expense
Finance costs
Depreciation
And amortization
expenses
Other expenses
Total expenses (lV)
V Profit/(loss) before exceptional
items
and tax (I-IV)
VI Exceptional Items
VII Profit/ (loss) before exceptions
items
and tax(V-VI)
VIII Tax expense:
(1) Current tax
(2) Deferred tax
SCHEDULE III 145
IX Profit (Loss) for the period from

continuing operations (VlI - VlII)
X Profit/(loss) from discontinued
operations
XI Tax expenses of discontinued
operations
XII Profit /(loss) from Discontinued
operations (after tax) (X-XI)
XIII Profit (loss) for the period (IX-
XII)
XIV Other Comprehensive Income
A. (i) Items that will not
be reclassified to
profit or loss
(ii) Income tax relating
to items that will not
be reclassified to
profit or loss
B (i) Item that will be
reclassified to profit
or loss
(ii) lncome tax relating
to items that will be
reclassified to profit
or loss
XV Total Comprehensive Income

for the period (XIII+XIV)
Comprising Profit (Loss) and other
comprehensive Income for the
period )
XVI Earnings per equity share (for
continuing operation):
(1) Basic
(2) Diluted
146 SCHEDULE III
XVII Earnings per equity share (for

discontinued operation)
(1) Basic
(2) Diluted
XVIII Earning per equity share for
discontinued & continuing
operation)
(1) Basic
(2) Diluted
GENERAL INSTRUCTIONS FOR PREPARING

OF STATEMENT OF PROFIT AND LOSS
1. The provisions of this Part shall apply to the income and expenditure account, in like
manner as they apply to a Statement of Profit and Loss,
2. The Statement of Profit and Loss shall include:
(1) Profit of loss for the Period;
(2) Other Comprehensive Income for the period
The sum of (1) and (2) above is “Total Comprehensive Income”
3. Revenue from operations shall disclose separately in the notes
(a) sale of products (including Excise Duty);
(b) sale of services; and
(c) other operating revenues.
4. Finance Costs: Finance costs shall be classified as-
(a) interest;
(b) dividend on redeemable preference shares;
(c) exchange differences regarded as an adjustment to borrowing costs; and
(d) other borrowing costs (specify nature).
5. Other income: other income shall be classified as-
(a) interest Income;
(b) dividend Income; and
(c) other non-operating income (net of expenses directly attributable to such income)
SCHEDULE III 147
6. Other Comprehensive Income shall be classified into-

(A) Items that will not be reclassified to profit or loss
(i) Changes in revaluation surplus;
(ii) Re-measurements of the defined benefit plans;
(iii) Equity Instruments through Other Comprehensive Income;
(iv) Fair value changes relating to own credit risk of financial liabilities designated at
fair value through profit or loss;
(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to the
extent not to be classified into profit or loss; and
(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to the
extent not to be classified into profit or loss; and
(vi) Others (specify nature).
(B) Items that will be reclassified to profit or loss;
(i) Exchange differences in translating the financial statements of a foreign
operation;
(ii) Debt instruments through Other Comprehensive Income;
(iii) The effective portion of gains and loss on hedging instruments in a cash flow
hedge;
(iv) Share of other comprehensive income in Associates and Joint Ventures, to the
extent to be classified into profit or loss; and
(v) Others (specify nature)
7. Additional Information: A Company shall disclose by way of notes, additional information
regarding aggregate expenditure and income on the following items:
(a) employee Benefits expense (showing separately (i) salaries and wages, (ii)
contribution to provident and other funds, (iii) share based payments to employees,
(iv) staff welfare expenses).
(b) depreciation and amortisation expense;
(c) any item of income or expenditure which exceeds one per cent of the revenue from
operations or ` 10,00,000, whichever is higher, in addition to the consideration of
‘materiality ‘as specified in clause 7 of the General Instructions for Preparation
of Financial Statements of a Company;
(d) interest Income;
(e) interest Expense
(f) dividend income;
(g) net gain or loss on sale of investments;
148 SCHEDULE III
(h) net gain or loss on foreign currency transaction and translation (other than
considered as finance cost);
(i) payments to the auditor as (a) auditor, (b) for taxation matters, (c) for company
law matters, (d) for other services, (e) for reimbursement of expenses;
(j) in case of companies covered under section 135, amount of expenditure incurred
on corporate social responsibility activities; and
(k) details of items of exceptional nature;
8. Changes in Regulatory Deferral Account Balances shall be presented in the Statement
of Profit and Loss in accordance with the relevant Indian Accounting Standards
PART III - GENERAL INSRUCTIONS FOR

THE PREPARATION OF CONSOLIDATED
FINANCIAL STATEMENTS
1. Where a company is required to prepare Consolidated Financial Statements, i.e,,
consolidated balance sheet, consolidated statement of changes in equity and
consolidated statement of profit and loss, the company shall mutatis mutandis follow
the requirements of this Schedule as applicable to a company in the preparation of
balance sheet, statement of changes in equity and statement of profit and loss .ln
addition, the consolidated financial statements shall disclose the information as per
the requirements specified in the applicable Indian Accounting Standards notified
under the Companies (lndian Accounting Standards) Rules 2015, including the following,
namely:
(i) Profit or loss attributable to ‘non-controlling interest ‘and to ‘owners of the
parent’ in the statement of profit and loss shall be presented as allocation for
the period Further, ‘total comprehensive income for the period attributable
to ‘non-controlling interest’ and to ‘owners of the parent shall be presented in
the statement of profit and loss as allocation for the period. The aforesaid
disclosures for ‘total comprehensive income shall also be made in the statement
of changes in equity. In addition to the disclosure requirements in the Indian
Accounting Standards, the aforesaid disclosures shall also be made in respect of
‘other comprehensive Income
(ii) ‘Non-controlling interests’ in the Balance Sheet and in the Statement of Changes
in Equity, within equity, shall be presented separately from the equity of the
‘owners of the parent’.
(iii) Investments accounted for using the equity method.
2. In Consolidated Financial Statement, the following shall be disclosed by the way of additional information
Name of the Net Asset i.e. total Share in profit or Share in other Share in total
entity in the assets minus total loss comprehensive income comprehensive income
Group liabilities
As % of Amount As % of Amount As % of Amount As % of total Amount
consolidated consolidated consolidated comprehensive
SCHEDULE III
net assets profit or other income

loss comprehensive
income
Parent
subsidiaries
Indian
1.
2.
3.
Foreign
1.
2.
3.
Non-
Controlling
Interest in
alls ubsidiaries
Associates
(Investmentas
per the equity
149
method) Indian
Name of the Net Asset i.e. total Share in profit or Share in other Share in total
150
entity in the assets minus total loss comprehensive income comprehensive income
Group liabilities
Indian
1.
2.
3.
Foreign
1.
2.
3.
Joint Venture
(Investment as
per the equity
method) Indian
1.
2.
3.
Foreign
1.
2.
3.
SCHEDULE III
Total
SCHEDULE III 151
3. All subsidiaries, associates and joint venture (whether Indian or Foreign) will be covered
under consolidated financial statement.
4. An entity shall disclose the list of subsidiaries or associates or joint venture which have
been consolidated in the consolidated financial statement along with the reason of not
consolidating.
152 SCHEDULE III
NOTES
QUESTIONS ON SCHEDULE 3 153
QUESTIONS ON SCHEDULE 3
QUESTION 1
What happens when requirements of schedule 3 contradicts with the Provisions of IND
AS?
SOLUTION:
Where compliance with the requirements of the Act including
IND AS applicable to the companies require any change in treatment or disclosure
including addition, amendment, substitution or deletion in the head or sub-head or
any changes, in the financial statements or statements forming part thereof, the
same shall be made and the requirements of this Schedule shall stand
modified accordingly. The disclosure requirements specified in this Schedule
are in addition to and not in substitution of the disclosure requirements specified in
the prescribed under the Companies Act, 2013. Additional disclosures specified in
the IND AS shall be made in the notes to accounts or by way of additional statement
unless required to be disclosed on the face of the Financial Statements.
NOTE: This part of Schedule sets out the minimum requirements for on the face of the
Balance Sheet, and the Statement of Profit and Loss (hereinafter referred to as —Financial
Statements || for the purpose of this Schedule) and Notes. Line items, sub-line items and
sub-totals shall be presented as an addition or substitution on the face of the Financial
Statements when such presentation is relevant to an understanding of the company’s financial
position or performance or to cater to industry/sector-specific disclosure requirements or
when required for compliance with the amendments to the Companies Act or under the
Accounting Standards.
QUESTION 2
ICAI Ltd provides you the following information :
1. Raw material stock holding period : 3 months

2. Work –in-progress holding perios : 1 month
3. Finished goods holding period : 4 monjths
4. Debtors collection period : 6 months
You are required to compute the operating cycle.
154 QUESTIONS ON SCHEDULE 3
SOLUTION
According to Schedule III “an operating cycle is the time between the acquisition of assets
for processing and their realization in cash or cash equivalents”.
Operating Cycle = Raw material stock holding period+work-in-progress holding period +
Finished goods holding period+Debtors Collection period = 3+1+4+6=14 months.
QUESTION 3
State giving reason whether the Trade Receivables are Current Assets or Non-Current
Assets as per Schedule III in the following cases.
Case Operating Cycle Period Expected Realization period

1 11 months 10 months
2. 11 months 12 months
SOLUTION
Case Current Assets or Reason

Non-Current Assets
1 Current Assets Expected Realization period
- Is less than the Operating Cycle period and
- Is within 12 months
2. Current Assets Expected Realization Period within 12 months although
it is more than the Operating Cycle period
3. Non-Current Assets Expected Realization period is more than the
Operating Cycle Period and 12 months Period.
4. Current Assets Expected Realization period is less than the Opeating
Cycle period although it is more than the 12 months
period.
5. Non-Current Assets Expected Realization period is more than the operating
cycle period and the 12 months period.
QUESTION 4
State giving reason whether the Trade payables are Current Liabilities or Non-Current
Liabilities as per schedule III in the following cases :
Case Operating Cycle Period Expected Payment Period

SOLUTION:
Case Operating Cycle Expected Payment Period

Period
1 Current Liabilities Expected Payment Period
- Is less than the Operating Cycle period and
- Is within 12 months
2. Current Liabilities Expected Payment period is within 12 months although

it in more than the Operating Cycle period.
3. Non-Current Expected Payment period is more than the operating
Liabilities Cycle period and 12 months period.
4. Non-Current Expected Payment period is more than the Operating
Liabilities Cycle Period and the 12 months period.
QUESTION 5 (MAY 14 8MARKS)
ICAI Ltd. Is in the process of finalizing its accounts for year ended 31st March, 2015 and
furnishes the following information:
i) Finished goods normally are held for 1 month before sale.

ii) Sales realization from Debtors usually takes 2 months from date of credit invoice.
iii) Raw materials are held in stock to cover 1 month’s production requirements.
iv) Packing materials, being specifically made for the company and having lead time of 3
months is held in stock for 3 months.
v) Being a monopoly KAY Ltd. Enjoys a credit period of 12.5 months from its suppliers
who sometimes at the end of their credit opt for conversion of their dues into long
term debt of KAY Ltd.
You are required to compute the operating cycle of ICAI Ltd. As per Schedule III of The
Companies Act, 2013. As the suppliers of the company are paid off after a credit period of
12.5 months should this be part of Current Liability ? Would your answer be the same if the
creditors are settled in 330 days ?
SOLUTION:
Operating Cycle: 1+1+3++2=7 months
(Credit Period given by Suppliers should not be deducted while computing operating cycle
as per Schedule 3)
a) When Credit period is 12.5 months : It will be treated as non-current liability since it
is not due to be settled within 12 months after the reporting date.
b) When credit period is 330 days (i.e. 11 months approx.) : It will be treated as current
liability since it is due to be settled within 12 months after the reporting date.
QUESTION 6
X Ltd. Provides you the following Information.

1. Raw material stock holding period : 4 months.
2. Work-in-progress holding period : 2 months.
3. Finished goods holding period : 3 months.
4. Debtors collection period : 4 months
You are required to compute the operating Cycle.
SOLUTION:
As per Schedule III “An operating Cycle is the time between the acquisition of Assets for
processing and their realization in cash or cash equivalents”.
Statement showing calculation of Operating Cycle
Raw material stock holding period =4 months
+ work-in-progress holding period =2 month
+ Finished goods holding period =3months
+ Debtors collection period =4months
---------------
13 months
---------------
QUESTION 7
H Ltd. engaged in the business of manufacturing lotus wine. The process of manufacturing
this wine takes around 18 months. Due to this reason H Ltd. has prepared its financial
statements considering its operating cycle as 18 months and accordingly classified the raw
material purchased and held in stock for less than 18 months as current asset. Comment
on the accuracy of the decision and the treatment of asset by H Ltd. As per Schedule III.
SOLUTION
• s per Schedule III, one of the criteria for classification of an asset as a current
A
asset is that the asset is expected to be realised in the company’s operating cycle or
is intended for sale or consumption in the company’s normal operating cycle.
• urther, Schedule III defines that an operating cycle is the time between the
F
acquisition of assets for processing and their realization in cash or cash equivalents.
• owever, when the normal operating cycle cannot be identified, it is assumed to
H
have duration of 12 months. As per the facts given in the question, the process of
manufacturing of lotus wine takes around 18 months; therefore, its realisation into
cash and cash equivalents will be done only when it is ready for sale i.e. after 18
months.
• his means that normal operating cycle of the product is 18 months. Therefore,
T
the contention of the company’s management that the operating cycle of the
product lotus wine is 18 months and not l2 months is correct. H. Ltd. will classify
the raw material purchased held in stock as current asset.
QUESTION 8
How can a liability be classified as a current liability?
SOLUTION:
(a) It is expected to be settled in the company normal operating cycle; or
(b) It is held primarily for the purpose of being traded; or
(c) It is due to be settled within twelve months after the reporting date; or
(d) The company does not have an unconditional right to defer settlement of the liability
for least twelve months after the reporting cm Terms of a liability that could, at the
option the counterparty, result in its settlement by the issue of equity instruments
do not affect its classification.
QUESTION 9
How can a liability be classified as a non current liability?
SOLUTION
The liability other than Current liability shall be classified as Non-Current.
QUESTION 10
Explain the meaning of share warrants?
SOLUTION
Meaning: A share warrant is a bearer document of title to shares and can be issued only by
public limited companies and that to against fully paid up shares only.
A share warrant cannot be issued by a private company, because the share warrant states
that its bearer is entitled to a number of shares mentioned there in. It is a negotiable
document and is easily transferable by mere delivery to another person. The holder of the
share warrant is entitled to receive dividend as decided by the company.
A share warrant is accompanied by attached coupons for the payment of future dividends.
There are three parts of a share warrant:
(1) The counter foil.
(2) Share Warrant proper.
(3) The dividend coupons.
Conditions for the issue of a share warrant:
(1)
Only public limited companies: Share warrant can be issued by the public limited
companies. It cannot be issued by private companies.
(2)
Against share certificate of fully paid up shares: A share warrant is only issued
against share certificate of fully paid up shares.
(3)
Provision in the Articles: There must be a provision in the Articles of Association
regarding the issue of share warrant. If there is a provision, the company can issue
a share warrant. If there is no provision in the Articles, the company cannot issue a
share warrant.
(4)
Permission of the Central Government: Prior permission from the Central Government
is necessary for the issue of share warrant.
(5)
Share warrant not issued originally: Share warrant are not issued originally at the
time of initial issue.
(6)
AT the request of the share holder: A share warrant is issued at the request of
the Shareholders / member and not by the company at its own initiative.
In simple terms, a warrant is like an option issued by a company that gives the
holder the right to buy stock from the company at a specified price within a certain
designated time period. Generally speaking, warrants are issued by the company whose
stock underlies the warrant and when an investor exercises a warrant, he or she
buys stock from the company. A stock warrant is a way for a company to raise money
through equity (stocks). A stock warrant is a smart way to own shares of a company
because a warrant usually is offered at a price lower than that of a stock option. ^1
Like an option, a warrant does not represent actual ownership in the stock of the company
and it is simply the right (but not the obligation) to buy shares at a certain price in the
future.
The main difference between warrants and call options is that warrants are issued and
guaranteed by the company, whereas options are exchange instruments and are not issued
by the company. Also, the lifetime of a warrant is often measured in years, while the
lifetime of a typical option is measured in months
1.
A share warrant can be issued only when the shares are fully paid up whereas a share
certificate can be issued at any stage without the shares being fully paid up.
2. A share warrant is a negotiable instrument but a share certificate is not.
3.
A share certificate is a document showing prima facie title to the shares represented
thereby but a share warrant is the share security itself capable of easy transfer.
4.
A holder of a share certificate is a member of the company but the holder of a share
warrant is not, unless the articles otherwise provide.
5.
A share certificate can be issued both by a public and a private company but a share
warrant is issued only by a public company.
QUESTION 11
The following trial balance has been extracted from the books of A Ltd as at 31 March
2017:
` 000 ` 000
Administration expenses 250
Distribution costs 295
Share capital (all ordinary shares of 1 each) 270
Share Premium
80
Revaluation surplus
20
Dividend paid 27
Cash at bank and in hand 3
Receivables 233
Interest paid 25
Dividends received
15
Interest received
1
Land and buildings at cost (land 380, buildings 100) 480
Land and buildings: accumulated depreciation 30
Plant and machinery at cost 400
Plant and machinery accumulated depreciation 170
Retained earnings account (at 1 April, 2016) 235
Purchases 1,260
Sales
2,165
Inventrouy at 1 April, 2016 140
Trade payables
27
Bank loan
100
3,113 3,113
Additional Information
(1) Inventory at 31 March, 2017 was valued at a cost of ` 95,000. Included in this
balance were goods that had cost ` 15,000. These goods had become damaged during
the year and it is considered that following remedial work the goods could be sold for
` 5,000.
(2) Depreciation for the year to 31 March, 2017 is to be charged against cost of sales as
follows:
Building 5% on cost (straignt line)
Plant and machinery 30% on carrying amount (reducing balance)
(3) Income tax of ` 165,000 is to be provided for the year to 31 March, 2017
(4) Land is be revalued upwards by ` 100,000.
Prepare the statement of profit or loss and other comprehensive inocme,

Statement of changes in equity and Balance sheet for year ended 31March 2017
QUESTION 12
The following trial balance related to B at 31 March 2017:

Dr. Cr
Revenue ` 000 ` 000
Cost of sales
5,300
Dividends received 1,350
Administration expenses
210
Distribution costs 490
Interest paid 370
Prepayments 190
Dividends paid 25
Property, Plant and equipment 390
Short-term investments 4,250
Inventory at31 March 2017 2,700
Trade receivables 114
Cash and cash equivalents 418
Trade payables 12
Lon-team loans (repayable 2025) 136
Share capital
1,200
Share premium
1,500
Retained earnings at 31 March, 2016 800

1,163
10,309 10,309
The following information should also taken into account:
(1) The tax charger for the year has been estimated at ` 4,70,000.
(2) The directors declared a final dividend of ` 2,70,000 on 3 April, 2017.
Required:
Prepare, the statement of profit or loss and other comprehensive income Balance Sheet and
statement of changes in equity for the year ended 31 March, 2017.
QUESTION 13 (MISTAKE IN FINAL ACCOUNTS)
Following are the Financial statements of SL Parvati Industries Ltd:

Balance Sheet
Particulars Note As at March 31, 20X1

(INR in million)
Equity And Liabilities

Shareholder’s funds
Share Capital 1,000
Reserves and Surplus 2,000
Non- current liabilities
Long-term borrowings 1 5,555
Deferred tax liabilities 2 200
Current liabilities
Trade payables 3 300
Short-term provisions 250
Other current liabilities 4 150
TOTAL 9,455
ASSETS
Non-current assets
Fixed assets 5,655
Deferred Tax Assets A 500
Current assets
Inventories 1,000
Trade receivables 6 1,100
Cash and bank balances 7 1,200
TOTAL 9,455
Statement of Profit & Loss
Particulars Note Year ended March 31, 20X1

Revenue from operations 5,500
Expenses
Employee Benefit Expense 1,200
Operating Costs 2,200
Depreciation 999
Total Expenses 4,399
Profit before Tax 1,101
Tax Expense (150)
Profit after tax 951
Notes to Accounts:
Note: Reserves and surplus (INR in millions)

Capital Reserves 500
Surplus from P & L
Opening Balance 49
Additions 951 1,000
Reserve for foreseeable loss 500
Total 2,000
Note 1: Long Term Borrowings
Term loan from Bank 5,555

Total 5,555
Note 2: Deferred Tax
Deferred Tax asset 500

Deferred Tax Liability (200)
Total 300
Note 3: Trade payables
MSME vendors 5
Other vendors 295
Total 300
Note 4: Other Current liabilities
Unclaimed Dividends 3
Billing in Advance 147
Total 150
Note 5: Trade Receivables
Considered Goods (outstanding within 6 months) 1,065

Considered doubtful (due from past 1 year) 40
Provision for doubtful debts (5)
Total 1,100
Note 6: Cash and Cash Equivalents
Balance with Banks 1,065

Cash on Hand 5
Earmarked balances with Banks 130
Total 1,200
Additional Information:
(a) Share capital comprises of 100 million shares of INR 10 each
(b) Term Loan from bank for INR 5555 million also includes interest accrued and due of
INR 555 million as on the reporting date.
(c) Reserve for forseeable loss is created against a service contract due within 6 months.
Required:
1. Identify and report the errors and misstatements in the above extract, if any: and
2. Prepare the corrected Balance Sheet & Statement of Profit and Loss
QUESTION NO 14
Inventory or trade receivables of X Ltd. are normally realized in 15 months. How should X
Ltd. classify such inventory/trade receivables: current or non-current or non-current if
these are expected to be realized within 15 months?
SOLUTION:
These should be classified as current.
QUESTION NO 15
B Ltd. produces aircrafts. The length of time between first purchasing raw materials to
make the aircrafts and the date the company completes the production and delivery is 9
months. The company receives payment for the aircrafts 7 months after the delivery.
(a) What is the length of operating cycle?
(b) How should it treat its inventory and debtors?
SOLUTION:
(a) The length of the operating cycle will be 16 months.
(b) Assuming the inventory and debtors will be realized within normal operating cycle,
i.e., 16 months, both the inventory as well as debtors should be classified as current.
QUESTION NO 16
X Ltd provides you the following information:

Raw material stock holding period : 3 months
Work-in-progress holding period : 1 months
Finished goods holding period : 5 months
Debtors collection period : 5 months
You are requested to compute the operating cycle of X Ltd.
SOLUTION:
The operating cycle of X Ltd. will be computed as under:
Raw material stock holding period ÷ Work-in progress holding period ÷ Finished goods holding
period ÷ Debtors Collection period = 3 + 1 + 5 + 5 = 14 months.
NOTES

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CORPORATE SOCIAL RESPONSIBILITY 1

GUIDANCE NOTE ON CORPORATE SOCIAL RESPONSIBILITY

CONCEPT 1:CORPORATE SOCIAL RESPONSIBILITY (CSR)

WHICH COMPANY TO PERFORM CORPORATE SOCIAL RESPONSIBILITY?

QUESTION 1 (SELF READING) (LAW ASPECT)

CONCEPT 2: STATUTORY PROVISIONS

QUESTION 2 (SELF READING) (LAW ASPECT)

QUESTION 3 (SELF READING) (LAW ASPECT)

CONCEPT 3 : IMPORTANT POINTS ON CSR ACTIVITIES

QUESTION 4 (SELF READING) (LAW ASPECT)

QUESTION 5 (SELF READING) (LAW ASPECT)

QUESTION 6 (SELF READING) (LAW ASPECT)

9. contributions or funds provided to technology incubators located within academic insti-

CONCEPT 5 : ACCOUNTING FOR CSR TRANSACTIONS

CSR Expenditure (profit and loss statement) XXX

Debit (INR) Credit (INR)

CSR Asset (Balance Sheet) XXX

2. Accounting treatment as per Ind AS

CONCEPT 6 : CSR EXPENDITURE IN THE INCOME TAX SCENARIO

CONCEPT 7: CESSATION FROM COMPLIANCE OF CSR

TEST YOUR KNOWLEDGE

1. A property is being constructed to operate CSR activities by a company. At the balance

Sd/- Sd/- Sd/-

(Chief Executive Officer (Chairman CSR Commit- (Person specified under

PAST EXAMINATION QUESTIONS

31st March 31st March 31st March 31st March

Turnover 500.00 900.00 400.00 350.00

Every company having either

 Net worth of ` 500 crore or more, or

B. Role of Corporate Social Responsibility (CSR) Committee

The CSR Committee shall-

(a) Formulate and recommend to Board-

As per the criteria to constitute CSR committee-

QUESTION 2 NEW EXAMINATION NOV-2018

IND AS-108 OPERATING SEGMENT

(a) better understand the entity‛s performance;

Nature of product and Aggregation Nature of regulatory

Major Changes in Ind AS 108 vis a vis Notified AS 17

(i) Identification of Segments: Identification of segments under Ind AS 108 is based

Segments Revenues Profit (Loss) Assets

Information relating to five segments of Sharma Ltd. is as under: (Rs. in lakhs)

Segments Revenue Profit and loss Assets

Particulars Segment Alpha Segment Beta Unallocated

Dividend income 285

(a) Sales to division B Rs.3050

(a) sales to division C Rs.30

(a) Export sales to USA Rs.180

Particulars Head Forging shop Bright bar Fitting

Rs.‘000 Rs. ‘000

b. Plastic and packaging 72000

Rs.(‘000) Rs. (‛000)

Inter-unit sales between geographic areas (not included above)

General corporate assets 750

Item Domestic Europe America Australia Inter-Area Consolidated

Item Domestic Europe America Australia Inter-Area Consolidated

Net Profit 5,472

A multinational enterprise by the name of Torrential International has business activities

Location Relevant Percentage for Allocation of:

1. Details relating to head office

2. Inter group revenues – year to 31st March 2015