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Exam Question Paper

This document contains a 5 question exam on accounting for leases (Ind AS 116) and other assets (Ind AS 16, Ind AS 38) with the following key details: 1. The first question asks how to account for a lease modification that reduces future payments for the remaining term of a 10-year office space lease. 2. The second question asks to determine the lease term for an industrial machine lease based on various operational and economic factors. 3. The third question asks if a loss should be recognized for an ordered machine that will no longer be used due to a production change before delivery. 4. The fourth question involves accounting for changes in decommissioning liability estimates for a nuclear power

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110 views

Exam Question Paper

This document contains a 5 question exam on accounting for leases (Ind AS 116) and other assets (Ind AS 16, Ind AS 38) with the following key details: 1. The first question asks how to account for a lease modification that reduces future payments for the remaining term of a 10-year office space lease. 2. The second question asks to determine the lease term for an industrial machine lease based on various operational and economic factors. 3. The third question asks if a loss should be recognized for an ordered machine that will no longer be used due to a production change before delivery. 4. The fourth question involves accounting for changes in decommissioning liability estimates for a nuclear power

Uploaded by

sreyans banthia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINAL –FR

TEST-2:- IND AS -116. IND AS-16, IND AS-38


Duration:- 1 Hour Total Marks:-30

Question 1:- (7 Marks)


Lessee enters into a 10-year lease for 5,000 square metres of office space. At the
beginning of Year 6, Lessee and Lessor agree to amend the original lease for the
remaining five years to reduce the lease payments from Rs.1,00,000 per year to
Rs.95,000 per year. The interest rate implicit in the lease cannot be readily determined.
Lessee’s incremental borrowing rate at the commencement date is 6% p.a. Lessee’s
incremental borrowing rate at the beginning of Year 6 is 7% p.a. The annual lease
payments are payable at the end of each year.
How should the said modification be accounted for?

Question 2:- (4 Marks)


A Lessee enters into a lease of a five-year-old machine. The non-cancellable lease term
is 15 years. The lessee has the option to extend the lease after the initial 15-year period
for optional periods of 12 months each at market rents.
To determine the lease term, the lessee considers the following factors:
♦ The machine is to be used in manufacturing parts for a type of plane that the
lessee expects will remain popular with customers until development and testing
of an improved model are completed in approximately 15 years.
♦ The cost to install the machine in lessee’s manufacturing facility is significant.
♦ The non-cancellable term of lessee’s manufacturing facility lease ends in 19
years, and the lessee has an option to renew that lease for another twelve years.
♦ Lessee does not expect to be able to use the machine in its manufacturing
process for other types of planes without significant modifications.
♦ The total remaining life of the machine is 30 years.
What should be the lease term for lease accounting under Ind AS 116?

Question 3:- (4 Marks)


Sun Limited has entered into a binding agreement with Moon Limited to buy a custom-
made machine for Rs.4,00,000. At the end of 2017-18, before delivery of the machine,
Sun Limited had to change its method of production. The new method will not require
the machine ordered which is to be scrapped after delivery. The expected scrap value is
nil. Given that the asset is yet to be delivered, should any liability be recognized for the
potential loss? If so, give reasons for the same, the amount of liability as well as the
accounting entry.
Question 4:- (10 Marks)
An entity has a nuclear power plant and a related decommissioning liability. The nuclear
power plant started operating on April 1, 2015. The plant has a useful life of 40 years. Its
initial cost was Rs.1,20,000. This included an amount for decommissioning costs of
Rs.10,000, which represented Rs.70,400 in estimated cash flows payable in 40 years
discounted at a risk-adjusted rate of 5 per cent. The entity's financial year ends on
March 31. Assume that a market-based discounted cash flow valuation of Rs.1,15,000 is
obtained at March 31, 2018. It includes an allowance of Rs.11,600 for decommissioning
costs, which represents no change to the original estimate, after the unwinding of three
years' discount. On March 31, 2019, the entity estimates that, as a result of
technological advances, the present value of the decommissioning liability has
decreased by Rs.5,000. The entity decides that a full valuation of the asset is needed at
March 31, 2019, in order to ensure that the carrying amount does not differ materially
from fair value. The asset is now valued at Rs.1,07,000, which is net of an allowance for
the reduced decommissioning obligation.
How the entity will account for the above changes in decommissioning liability if it
adopts revaluation model?

Question 5:- (5 Marks)


CARP Ltd. is engaged in developing computer software. The expenditures incurred by
CARP Ltd. in pursuance of its development of software is given below:
(i) Paid Rs.1,50,000 towards salaries of the program designers.
(ii) Incurred Rs.3,00,000 towards other cost of completion of program design.
(iii) Incurred Rs.80,000 towards cost of coding and establishing technical feasibility.
(iv) Paid Rs.3,00,000 for other direct cost after establishment of technical feasibility.
(v) Incurred Rs.90,000 towards other testing costs.
(vi) A focus group of other software developers was invited to a conference for the
introduction of this new software. Cost of the conference aggregated to
Rs.60,000.
(vii) On March 15, 2018, the development phase was completed and a cash flow
budget was prepared.
Net profit for the year 2017-18 was estimated to be equal Rs.30,00,000.
How CARP Ltd. should account for the above mentioned cost as per relevant Ind
A.S?

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