FR Last 4 MTP

Merged By CA - Born To Fight
Test Series: April, 2023

MOCK TEST PAPER 2
FINAL COURSE: GROUP – I
PAPER – 1: FINANCIAL REPORTING
Question No.1 is compulsory. Candidates are required to answer any four questions from the
remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working notes should form part of the answers.
Time Allowed – 3 Hours Maximum Marks – 100
1. (a) Master Creator Private Limited (a subsidiary of listed company) is an Indian company to whom
Ind AS are applicable. Following draft balance sheet is prepared by the accountant for year
ending 31 st March 20X2.
Balance Sheet of Master Creator Private Limited as at 31 st March, 20X2
Particulars `
ASSETS
Non-current assets
Property, plant and equipment 85,37,500
Financial assets
Other financial assets (Security deposits) 4,62,500
Other non-current assets (capital advances) 17,33,480
Deferred tax assets 2,54,150
Current assets
Trade receivables 7,25,000
Inventories 5,98,050
Financial assets
Investments 55,000
Other financial assets 2,17,370
Cash and cash equivalents 1,16,950
TOTAL ASSETS 1,27,00,000
EQUITY AND LIABILITIES
Equity share capital 10,00,000
Non-current liabilities
Other Equity 25,00,150
Deferred tax liability 4,74,850
Borrowings 64,00,000
Long term provisions 5,24,436
Current liabilities
Financial liabilities
Other financial liabilities 2,00,564
© The Institute of Chartered Accountants of India join us t.me/caborntofight

Trade payables 6,69,180

Current tax liabilities 9,30,820
TOTAL EQUITY AND LIABILITIES 1,27,00,000
Additional Information:
1. On 1st April 20X1, 8% convertible loan with a nominal value of ` 64,00,000 was issued by
the entity. It is redeemable on 31 st March 20X5 also at par. Alternatively, it may be
converted into equity shares on the basis of 100 new shares for each ` 200 worth of loan.
An equivalent loan without the conversion option would have carried interest at 10%.
Interest of ` 5,12,000 has already been paid and included as a finance cost.
Present Value (PV) rates are as follows:
Year End @ 8% @ 10%
1 0.93 0.91
2 0.86 0.83
3 0.79 0.75
4 0.73 0.68
2. After the reporting period, the board of directors have recommended dividend of
` 50,000 for the year ending 31 st March, 20X1. However, the same has not been yet
accounted by the company in its financials.
3. ‘Other current financial liabilities’ consists of the following:
Particulars Amount (`)
Wages payable 21,890
Salary payable 61,845
TDS payable 81,265
Interest accrued on trade payables 35,564
4. Property, Plant and Equipment consists following items:
Particulars Amount (`) Remarks
Building 37,50,250 It is held for administration purposes
Land 15,48,150 It is held for capital appreciation
Vehicles 12,37,500 These are used as the conveyance for employees
Factory premises 20,01,600 The construction was started on 31 st March 20X2
and consequently no depreciation has been
charged on it. The construction activities will
continue to happen, and it will take 2 years to
complete and be available for use.
5. The composition of ‘other current financial assets’ is as follows:

Interest accrued on bank deposits 57,720
Prepaid expenses 90,000
Royalty receivable from dealers 69,650

6. Current Investments consist of securities held for trading which are carried at fair value
through profit & loss. Investments were purchased on 1 st January,20X2 at ` 55,000 and
accordingly are shown at cost as at 31 st March 20X2. The fair value of said investments as
on 31st March 20X2 is ` 60,000.
7. Trade payables and Trade receivables are due within 12 months.
8. There has been no changes in equity share capital during the year.
9. Entity has the intention to set off a deferred tax asset against a deferred tax liability as they
relate to income taxes levied by the same taxation authority and the entity has a legally
enforceable right to set off taxes.
10. Other Equity consists retained earnings only. The opening balance of retained earnings
was ` 21,25,975 as at 1 st April 20X1.
11. No dividend has been actually paid by company during the year.
12. Assume that the deferred tax impact, if any on account of above adjustments is correctly
calculated in financials.
Being Finance & Accounts manager, you are required to identify the errors and misstatements if
any in the balance sheet of Master Creator Private Limited and prepare correc ted balance sheet
with details on the face of the balance sheet i.e. no need to prepare notes to accounts, after
considering the additional information. Provide necessary explanations/workings for the treated
items, wherever necessary. (16 Marks)
(b) On the first day of a financial year, A Ltd. invested in the equity share capital of B Ltd. at a cost of
` 1,00,000 to acquire 25% share in the voting power of B Ltd. A Ltd. has concluded that B Ltd. is
an associate of A Ltd. At the end of the year, B Ltd. earned profit of ` 10,000 and other
comprehensive income of ` 2,000. In that year, B Ltd. also declared dividend to the extent of
` 4,000. Pass necessary entries in the books of A Ltd. to account for the investment in associate.
(4 Marks)
2. (a) During the financial year 20X1-20X2, Akola Limited have paid various taxes & reproduced the
below mentioned records for your perusal:
- Capital gain tax of ` 20 crore on sale of office premises at a sale consideration of
` 100 crore.
- Income Tax of ` 3 crore on Business profits amounting ` 30 crore (assume entire business
profit as cash profit).
- Dividend Distribution Tax of ` 2 crore on payment of dividend amounting ` 20 crore to its
shareholders.
- Income tax Refund of ` 1.5 crore (Refund on taxes paid in earlier periods for business profits).
You need to determine the net cash flow from operating activities, investing activities and
financing activities of Akola Limited as per relevant Ind AS. (5 Marks)
(b) A business has four items of inventory. A count of the inventory has established that the
amounts of inventory currently held, at cost, are as follows:
`
Cost Estimated Sales price Selling costs
Inventory item A1 8,000 7,800 500
Inventory item A2 14,000 18,000 200
Inventory item B1 16,000 17,000 200
Inventory item C1 6,000 7,500 150
Determine the value of closing inventory in the financial statements of a business. (4 Marks)
3

(c) Voya Limited issued 1,000 share options to each of its 200 employees for an exercise price of
` 10. The employees are required to stay in employment for next 3 years. The fair value of the
option is estimated at ` 18.
90% of the employees are expected to vest the option.
The Company faced severe crisis during the 2nd year and it was decided to cancel the scheme
with immediate effect. The market price of the share at the date of cancellation was ` 15.
The following information is available:
• Fair value of the option at the date of cancellation is ` 12.
• The company paid compensation to the employees at the rate of ` 13.50. There were only
190 employees in the employment at that time.
You are required to show how cancellation will be recorded in the books of the Company as per
relevant Ind AS. (6 Marks)
(d) On 1 January 20X8, entity J enters into a one-year contract with a customer to deliver water
treatment chemicals. The contract stipulates that the price per container will be adjusted
retroactively once the customer reaches certain sales volume, defined, as follows:
Price per container Cumulative sales volume

` 100 1 - 1,000,000 containers
` 90 1,000,001 - 3,000,000 containers
` 85 3,000,001 containers and above
Volume is determined based on sales during the calendar year. There are no minimum purchase
requirements. Entity J estimates that the total sales volume for the year will be 2.8 million
containers, based on its experience with similar contracts and forec asted sales to the customer.
Entity J sells 700,000 containers to the customer during the first quarter ended 31 st March 20X8
for a contract price of ` 100 per container.
How should entity J determine the transaction price? (5 Marks)
3. (a) Entity X is an Indian entity whose functional currency is Indian Rupee. It has taken a plant on
lease from Entity Y for 5 years to use in its manufacturing process for which it has to pay annual
rentals in arrears of USD 10,000 every year. On the commencement date, exchange rate was
USD = ` 68. The average rate for Year 1 was ` 69 and at the end of year 1, the exchange rate
was ` 70. The incremental borrowing rate of Entity X on commencement of the lease for a USD
borrowing was 5% p.a.
How will entity X measure the right of use (ROU) asset and lease liability initially and at the end
of Year 1? (8 Marks)
(b) ABC Company issued 10,000 compulsory cumulative convertible preference shares (CCCPS) as
on 1 April 20X1 @ ` 150 each. The rate of dividend is 10% payable every year. The preference
shares are convertible into 5,000 equity shares of the company at the end of 5 th year from the
date of allotment. When the CCCPS are issued, the prevailing market interest rate for similar
debt without conversion options is 15% per annum. Transaction cost on the date of issuance is
2% of the value of the proceeds.

Key terms:
Date of Allotment 01-Apr-20X1
Date of Conversion 01-Apr-20X6
Number of Preference Shares 10,000
Face Value of Preference Shares 150
Rate of dividend 10%
Market Rate for Similar Instrument 15%
Face value of equity share after conversion 10
Number of equity shares to be issued 5,000
Effective interest rate 15.86%
You are required to compute the liability and equity component and pass journal entries for entire
term of arrangement i.e. from the issue of preference shares till their conversion into equity
shares keeping in view the provisions of relevant Ind AS. (12 Marks)
4. (a) At 31st March, 20X1 the issued share capital of SB Limited consisted of 20,00,000 ordinary
shares of ` 1 each. On 1 st July 20X1, the Company issued ` 25,00,000 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:
• 31st March, 20X6: 135 Ordinary Shares
If the loan stock is not converted by 20X9, they would be redeemed at par.
It is assumed that the written equity conversion option is accounted for as a derivative liability
and marked to market through profit or loss. The change in the options fair value reported on
31st March 20X2 and 31st March 20X3 amounted to losses of ` 5,000 and ` 5,300 respectively.
Further, it is assumed that there are no tax consequences arising from these losses.
The profit before interest, fair value movements and taxation for the year ended 31 st March, 20X2
and 20X3 amounted to ` 16,50,000 and ` 17,90,000 respectively and relate wholly to continuing
operations. The rate of tax for both the periods is 33% (including cess and surcharge if any).
Calculate Basic and Diluted EPS for 31 st March 20X2 & 31st March 20X3. (8 Marks)
(b) Identify the type of joint arrangements in each of the following scenarios:
(i) X Ltd and Y Ltd, manufacturing similar type of mobile phones, form a joint arrangement to
manufacture and sell mobile phones. Under the terms of the arrangement, both X Ltd and Y
Ltd are to use their own assets to manufacture the mobile phones and both are responsible
for liabilities related to their respective manufacture. The arrangement also lays down the
distribution revenues from the sale of the mobile phones and expenses incurred thereof. X
Ltd however has exclusive control over the marketing and distribution functions and does
not require the consent of Y Ltd in this aspect. No separate entity is created for the
arrangement.

(ii) Continuing with (i) above, what would be the classification of the joint arrangement if X Ltd
and Y Ltd both jointly control all the relevant activities of the Joint arrangement including the
marketing and the distribution functions?
(iii) What would be the classification of the joint arrangement if under the terms of the
arrangement, a separate entity is created to manufacture the mobile phones.
(iv) Continuing with (iii) above, the joint arrangement is a means of manufacturing mobile
phones on a common platform but the output of the joint arrangement is purchased by b oth
X Ltd and Y Ltd in the ratio of 50:50. The joint arrangement cannot sell output to third
parties. The price of the output sold to X Ltd and Y Ltd is set by both the parties to the
arrangement to cover the production costs and other administrative costs of the joint
arrangement entity.
(v) Would your answer in (iv) above be different if X Ltd and Y Ltd sold their respective share of
output to third parties?
(vi) Assume that in (iv) above, the contractual terms of the arrangement were modified so that
the joint arrangement entity is not obliged to sell the output to X Ltd and
Y Ltd but was able to sell the output to third parties. (7 Marks)
(c) XYZ Ltd. has eight segments namely A, B, C, D, E, F, G and H. The information regarding
respective segments for the year ended 31 st March, 20X1 is as follows:
Segments A B C D E F G H
External sales 0 255 15 10 15 50 25 35
Inter-segment sales 100 60 30 5
Total 100 315 45 15 15 50 25 35
Segment result 5 (90) 15 (5) 8 (5) 5 7
Profit/(Loss)
Segment assets 15 47 5 11 3 5 5 9
Identify which of the above segments out of A to H would be considered as reportable segments
of XYZ Ltd. for the year ending 31 st March, 20X1? (5 Marks)
5. (a) E Ltd. owns a machine used in the manufacture of steering wheels, which are sold directly to
major car manufacturers.
• The machine was purchased on 1 st April, 20X1 at a cost of ` 5,00,000 through a vendor
financing arrangement on which interest is being charged at the rate of 10% per annum.
• During the year ended 31 st March, 20X3, E Ltd. sold 10,000 steering wheels at a selling
price of ` 190 per wheel.
• The most recent financial budget approved by E Ltd.’s management, covering the period
1st April, 20X3 – 31st March, 20X8, including that the company expects to sell each steering
wheel for ` 200 during 20X3-20X4, the price rising in later years in line with a forecast
inflation of 3% per annum.
• During the year ended 31 st March, 20X4, E Ltd. expects to sell 10,000 steering wheels. The
number is forecast to increase by 5% each year until 31 st March, 20X8.
• E Ltd. estimates that each steering wheel costs ` 160 to manufacture, which includes ` 110
variable costs, ` 30 share of fixed overheads and ` 20 transport costs.
6

• Costs are expected to rise by 1% during 20X4-20X5, and then by 2% per annum until
31st March, 20X8.
• During 20X5-20X6, the machine will be subject to regular maintenance costing ` 50,000.
• In 20X3-20X4, E Ltd. expects to invest in new technology costing ` 1,00,000. This
technology will reduce the variable costs of manufacturing each steering wheel from ` 110
to ` 100 and the share of fixed overheads from ` 30 to ` 15 (subject to the availability of
technology, which is still under development).
• E Ltd. is depreciating the machine using the straight line method over the machine’s
10 year estimated useful life. The current estimate (based on similar assets that have
reached the end of their useful lives) of the disposal proceeds from selling the machine is
` 80 000 net of disposal costs. E Ltd. expects to dispose of the machine at the end of
March, 20X8.
• E Ltd. has determined a pre-tax discount rate of 8%, which reflects the market’s assessment
of the time value of money and the risks associated with this asset.
Assume a tax rate of 30%. What is the value in use of the machine in accordance with
Ind AS 36? (10 Marks)
(b) On 1st April, 20X1, S Limited enters into a contract with Corp Limited to construct heavy -duty
equipment for a promised consideration of ` 20,00,000 with a bonus of ` 2,50,000 if the
equipment is completed within 24 months. At the inception of the contrac t, S Limited correctly
accounts for the promised bundle of goods and services as a single performance obligation in
accordance with Ind AS 115. At the inception of the contract, the Company expects the costs to
be ` 11,00,000 and concludes that it is highly probable that a significant reversal in the amount
of cumulative revenue recognised will occur. Completion of the heavy -duty equipment is highly
susceptible to factors outside of the Company’s influence, mainly due to difficulties with the
supply of components.
At 31st March, 20X2, S Limited has satisfied 65% of its performance obligation on the basis of
costs incurred to date and concludes that the variable consideration is still constrained in
accordance with Ind AS 115. However, on 4 June 20X2, the contract is modified with the result
that the fixed consideration and expected costs increase by ` 1,50,000 and ` 80,000
respectively. The time allowable for achieving the bonus is extended by six months with the
result that S Limited concludes that it is highly probable that the bonus will be achieved and that
the contract remains a single performance obligation.
S Limited wants your opinion on the accounting treatment of contract with Corp Limited in light of
Ind AS 115, for the year 20X1-20X2 and 20X2-20X3. (10 Marks)
6. (a) RKA Private Ltd is an old company established in 19XX. The company started with a very small
capital base and today it is one of the leading companies in India in its industry. The company
has an annual turnover of ` 11,000 crores and planning to get listed in the next year.
The company has a large employee base. The company provided a defined benefit plan to its
employees. Following is the information relating to the balances of the fund’s assets and
liabilities as at 1 st April, 20X1 and 31 st March, 20X2. ` in lacs
Particulars 1st April, 20X1 31st March, 20X2
Present value of benefit obligation 1,400 1,580
Fair value of plan assets 1,140 1,275
7

For the financial year ended 31 st March, 20X2, service cost was ` 55 lacs. The company made a
contribution of an amount of ` 111 lacs to the plan. No benefits were paid during the year.
Consider a discount rate of 8%.
You are required to -
(a) Compute the balance(s) of the company to be included its balance sheet as on
31st March, 20X2 and amounts to be recognized in the statement of profit and loss and other
comprehensive income for the year ended 31 st March, 20X2.
(b) Give the journal entries in respect of amount(s) to be recognized. (8 Marks)
(b) Government of India provides loans to MSMEs at a below-market rate of interest to fund the set-
up of a new manufacturing facility. Sukshma Limited's date of transition to Ind AS is
1st April 2020.
In financial year 2014-2015, the Company had received a loan of ` 2.0 crore at a below -market
rate of interest from the government. Under Indian GAAP, the Company had accounted for the
loan as equity and the carrying amount was ` 2.0 crore at the date of transition. The amount
repayable on 31 st March 2024 will be ` 2.50 crore.
The Company has been advised to recognize the difference of ` 0.50 crores in equity by
correspondingly increasing the value of various assets under property, plant & equipment by an
equivalent amount on proportionate basis. Further, on 31 st March 2024 when the loan has to be
repaid, ` 2.50 crore should be presented as a deduction from property, plant & equipment.
Discuss the above treatment and share your views as per applicable Ind AS. (7 Marks)
(c) Either
Solar Limited has an 80% interest in its subsidiary, Mars Limited. Solar Limited holds a direct
interest of 25% in Venus Limited. Mars Limited also holds a 30% interest in Venus Limited. The
decisions concerning relevant activities of Venus Limited require a simple majority of votes. How
should Solar Limited account for its investment in Venus Limited in its consolidated financial
statements?
OR
Company P Ltd., a manufacturer of textile products, acquires 40,000 equity shares of Company X
(a manufacturer of complementary products) out of 1,00,000 shares in issue. As part of the
same agreement, the Company P purchases an option to acquire an additional 25,000 shares.
The option is exercisable at any time in the next 12 months. The exercise price includes a small
premium to the market price at the transaction date.
After the above transaction, the shareholdings of Company X’s two other original shareholders
are 35,000 and 25,000. Each of these shareholders also has currently exercisable options to
acquire 2,000 additional shares. Assess whether control is acquired by Company P. (5 Marks)

Test Series: April, 2023

MOCK TEST PAPER 2
ANSWERS
1. (a) Balance Sheet of Master Creator Private Limited as at 31 st March, 20X2
Particulars Working/Note (`)
reference
ASSETS
Non-current assets
Property, plant and equipment 1 49,87,750
Capital work-in-progress 2 20,01,600
Investment Property 3 15,48,150
Financial assets
Other financial assets (Security deposits) 4,62,500
Other non-current assets (capital advances) 4 17,33,480
Current assets
Inventories 5,98,050
Financial assets
Investments (55,000 + 5,000) 5 60,000
Trade receivables 6 7,25,000
Cash and cash equivalents 7 1,16,950
Other financial assets 8 1,27,370
Other current assets (Prepaid expenses) 8 90,000
TOTAL ASSETS 1,24,50,850
Equity
Equity share capital A 10,00,000
Other equity B 28,44,606
8% Convertible loan 11 60,60,544
Long term provisions 5,24,436
Deferred tax liability 12 2,20,700
Current liabilities
Trade payables 13 6,69,180
Other financial liabilities 14 1,19,299
Other current liabilities (TDS payable) 15 81,265
Current tax liabilities 9,30,820
TOTAL EQUITY AND LIABILITIES 1,24,50,850

Statement of changes in equity

For the year ended 31 st March, 20X2
A. Equity Share Capital
Balance (`)
As at 31st March, 20X1 10,00,000
Changes in equity share capital during the year -
As at 31st March, 20X2 10,00,000
B. Other Equity
Retained Equity component Total (`)
Earnings of Compound
(`) Financial
Instrument (`)
As at 31st March, 20X1 21,25,975 - 21,25,975
Total comprehensive income for
the year (25,00,150 + 5,000 - 2,93,671 - 2,93,671
85,504- 21,25,975)
Issue of compound financial
instrument during the year - 4,24,960 4,24,960
As at 31 st March, 20X2 24,19,646 4,24,960 28,44,606
Disclosure forming part of Financial Statements:
Proposed dividend on equity shares is subject to the approval of the shareholders of the
company at the annual general meeting and not recognized as liability as at the Balance
Sheet date. (Note 9)
Notes/ Workings: (for adjustments/ explanations)
1. Property, plant and equipment are tangible items that: (a) are held for use in the
production or supply of goods or services, for rental to others, or for administrative
purposes; and (b) are expected to be used during more than one period. Therefore,
the items of PPE are Buildings (` 37,50,250) and Vehicles (` 12,37,500), since those
assets are held for administrative purposes.
2. Property, plant and equipment which are not ready for intended use as on the date of
Balance Sheet are disclosed as “Capital work-in-progress”. It would be classified from
PPE to Capital work-in-progress.
3. Investment property is property (land or a building—or part of a building—or both) held
(by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital
appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative
purposes; or
(b) sale in the ordinary course of business.
Therefore, Land held for capital appreciation should be classified as Investment
property rather than PPE.
4. Assets for which the future economic benefit is the receipt of goods or services,
rather than the right to receive cash or another financial asset, are not financial
assets.

5. Current investments here are held for the purpose of trading. Hence, it is a financial
asset classified as FVTPL. Any gain in its fair value will be recognised through profit
or loss. Hence, ` 5,000 (60,000 – 55,000) increase in fair value of financial asset
will be recognised in profit and loss.
6. A contractual right to receive cash or another financial asset from another entity is a
financial asset. Trade receivables is a financial asset in this case and hence should
be reclassified.
7. Cash is a financial asset. Hence it should be reclassified.
8. Other current financial assets:
Interest accrued on bank deposits 57,720
Royalty receivable from dealers 69,650
Total 1,27,370
Prepaid expenses does not result into receipt of any cash or financial asset.
However, it results into future goods or services. Hence, it is not a financial asset.
9. As per Ind AS 10, ‘Events after the Reporting Period’, If dividends are declared after
the reporting period but before the financial statements are approved for issue, the
dividends are not recognized as a liability at the end of the reporting period because
no obligation exists at that time. Such dividends are disclosed in the notes in
accordance with Ind AS 1, Presentation of Financial Statements.
10. ‘Other Equity’ cannot be shown under ‘Non-current liabilities’. Accordingly, it is
reclassified under ‘Equity’.
11. There are both ‘equity’ and ‘debt’ features in the instrument. An obligation to pay
cash i.e. interest at 8% per annum and a redemption amount will be treated as
‘financial liability’ while option to convert the loan into equity shares is the equity
element in the instrument. Therefore, convertible loan is a compound financial
instrument.
Calculation of debt and equity component and amount to be recognised in the
books:
S. No Year Interest amount Discounting factor Amount
@ 8% @ 10%
Year 1 20X2 5,12,000 0.91 4,65,920
Year 2 20X3 5,12,000 0.83 4,24,960
Year 3 20X4 5,12,000 0.75 3,84,000
Year 4 20X5 69,12,000 0.68 47,00,160
Amount to be recognised as a liability 59,75,040
Initial proceeds (64,00,000)
Amount to be recognised as equity 4,24,960
* In year 4, the loan note will be redeemed; therefore, the cash outflow would be
` 69,12,000 (` 64,00,000 + ` 5,12,000).

Presentation in the Financial Statements:

In Statement of Profit and Loss for the year ended on 31 March 20X2
Finance cost to be recognised in the Statement of Profit ` 5,97,504
and Loss (59,75,040 x 10%)
Less: Already charged to the Statement of Profit and Loss (` 5,12,000)
Additional finance charge required to be recognised in the
Statement of Profit and Loss ` 85,504
In Balance Sheet as at 31 March 20X2

Equity and Liabilities
Equity
Other Equity (8% convertible loan) 4,24,960
Non-current liability
Financial liability
[8% convertible loan – [(59,75,040+ 5,97,504– 5,12,000)] 60,60,544
12. Since entity has the intention to set off deferred tax asset against deferred tax
liability and the entity has a legally enforceable right to set off taxes, hence their
balance on net basis should be shown as:
Deferred tax liability 4,74,850
Deferred tax asset (2,54,150)
Deferred tax liability (net) 2,20,700
13. A liability that is a contractual obligation to deliver cash or another financial asset to
another entity is a financial liability. Trade payables is a financial liability in this case.
14. ‘Other current financial liabilities’:
Wages payable 21,890
Salary payable 61,845
Interest accrued on trade payables 35,564
Total 1,19,299
15. Liabilities for which there is no contractual obligation to deliver cash or other
financial asset to another entity, are not financial liabilities. Hence, TDS payable
should be reclassified from ‘Other current financial liabilities’ to ‘Other current
liabilities’ since it is not a contractual obligation.
(b) Following entries would be passed in the books of A Ltd.:
1) Initial entry to record investment done in associate
Investment in B Ltd. A/c Dr. 1,00,000
To Bank A/c 1,00,000

2) Recording of share in the profit of the associate

Investment in B Ltd. A/c Dr. 2,500
To Share in profit of investee (P&L) 2,500
[A Ltd. share in profit would be ` 2,500 (` 10,000 x 25%)]
3) Recording of share in the other comprehensive income (OCI) of the associate
Investment in B Ltd. A/c Dr. 500
To Share in OCI of investee (OCI) 500
[A Ltd. share in OCI would be ` 500 (` 2,000 x 25%)]
4) Recording of dividend distributed by associate
Dividend Receivable A/c Dr. 1,000
To Investment in B Ltd. A/c 1,000
[A Ltd. share in dividend would be ` 1,000 (` 4,000 x 25%)]
2. (a) Para 36 of Ind AS 7 inter alia states that when it is practicable to identify the tax cash flow with
an individual transaction that gives rise to cash flows that are classified as investing or financing
activities the tax cash flow is classified as an investing or financing activity as appropriate. When
tax cash flows are allocated over more than one class of activity, the total amount of taxes paid is
disclosed.
Accordingly, the transactions are analysed as follows:
Particulars Amount (in crore) Activity
Sale Consideration 100 Investing Activity
Capital Gain Tax (20) Investing Activity
Business profits 30 Operating Activity
Tax on Business profits (3) Operating Activity
Dividend Payment (20) Financing Activity
Dividend Distribution Tax (2) Financing Activity
Income Tax Refund 1.5 Operating Activity
Total Cash flow 86.5
Activity wise Amount (in crore)

Operating Activity 28.5
Investing Activity 80
Financing Activity (22)
Total 86.5
(b) The value of closing inventory in the financial statements:
Item of inventory Cost NRV (Estimated Sales Measurement base Value
price- Selling costs) (lower of cost or NRV)
A1 8,000 (7,800 – 500) 7,300 NRV 7,300
A2 14,000 (18,000 – 200) 17,800 Cost 14,000
B1 16,000 (17,000 – 200) 16,800 Cost 16,000
C1 6,000 (7,500 – 150) 7,350 Cost 6,000
Value of Inventory 43,300
5

(c) (A) Calculation of employee compensation expense

Year 1 Year 2
Expected employees to remain in
the employment during the vesting 180 190
period
Fair value of option 18 18
Number of options 1,000 1,000
Total 32,40,000 34,20,000
Expense weightage 1/3 2/3 Balance 2/3rd in full,
as it is cancelled
Expense for the year 10,80,000 23,40,000 Remaining amount
since cancelled
(B) Cancellation compensation to be charged in the year 2
Cancellation compensation
Number of employees (A) 190
Amount agreed to pay (B) 13.50
Number of options/ employee (C) 1,000
Compensation amount (A x B x C) 25,65,000
Less: Amount to be deducted from Equity
Number of employees (D) 190
Fair value of option (at the date of cancellation) (E) 12
Number of options / employee (F) 1,000
Amount to be deducted from Equity (D x E x F) (22,80,000)
Balance transferred to Profit and Loss 2,85,000
(d) The transaction price is ` 90 per container based on entity J's estimate of total sales volume for
the year, since the estimated cumulative sales volume of 2.8 million containers would result in a
price per container of ` 90. Entity J concludes that based on a transaction price of ` 90 per
container, it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty is resolved. Revenue is therefore recognised at a
selling price of ` 90 per container as each container is sold. Entity J will recognise a liability for
cash received in excess of the transaction price for the first 1 million containers sold at ` 100 per
container (that is, ` 10 per container) until the cumulative sales volume is reached for the next
pricing tier and the price is retroactively reduced.
For the quarter ended 31 st March, 20X8, entity J recognizes revenue of ` 63 million
(700,000 containers x ` 90) and a liability of ` 7 million [700,000 containers x (` 100 - ` 90)].
Entity J will update its estimate of the total sales volume at each reporting date until the
uncertainty is resolved.
3. (a) On initial measurement, Entity X will measure the lease liability and ROU asset as under:
Year Lease Present Present Value of Conversion INR
Payments Value factor Lease Payment rate (spot rate) value
(USD) @ 5%
1 10,000 0.952 9,520 68 6,47,360
6

2 10,000 0.907 9,070 68 6,16,760

3 10,000 0.864 8,640 68 5,87,520
4 10,000 0.823 8,230 68 5,59,640
5 10,000 0.784 7,840 68 5,33,120
Total 43,300 29,44,400
As per Ind AS 21 The Effects of Changes in Foreign Exchange Rates, monetary assets and
liabilities are restated at each reporting date at the closing rate and the difference due to foreign
exchange movement is recognised in profit and loss whereas non-monetary assets and liabilities
carried measured in terms of historical cost in foreign currency are not restated.
Accordingly, the ROU asset in the given case being a non-monetary asset measured in terms
of historical cost in foreign currency will not be restated but the lease liability being a monetary
liability will be restated at each reporting date with the resultant difference being taken to profit
and loss.
At the end of Year 1, the lease liability will be measured in terms of USD as under:
Lease Liability:
Year Initial Value (USD) Lease Payment Interest @ 5% Closing Value (USD)
(a) (b) (c) = (a x 5%) (d = a + c - b)
1 43,300 10,000 2,165 35,465
Interest at the rate of 5% will be accounted for in profit and loss at average rate of
` 69 (i.e., USD 2,165 x 69) = ` 1,49,385.
Particulars Dr. (`) Cr. (`)
Interest Expense Dr. 1,49,385
To Lease liability 1,49,385
Lease payment would be accounted for at the reporting date exchange rate, i.e. ` 70 at the
end of year 1
Lease liability Dr. 7,00,000
To Cash 7,00,000
As per the guidance above under Ind AS 21, the lease liability will be restated using the
reporting date exchange rate i.e., ` 70 at the end of Year 1. Accordingly, the lease liability will
be measured at ` 24,82,550 (35,465 x ` 70) with the corresponding impact due to exchange
rate movement of ` 88,765 (24,82,550 – (29,44,400 + 1,49,385 – 700,000) taken to profit and
loss.
At the end of year 1, the ROU asset will be measured as under:
Year Opening Balance (`) Depreciation (`) Closing Balance (`)
1 29,44,400 5,88,880 23,55,520
(b) This is a compound financial instrument with two components – liability representing present
value of future cash outflows and balance represents equity component.

a. Computation of Liability & Equity Component

Date Particulars Cash Discount Net present
Flow Factor Value
01-Apr-20X1 0 1 0.00
31-Mar-20X2 Dividend 150,000 0.870 130,500
31-Mar-20X3 Dividend 150,000 0.756 113,400
31-Mar-20X4 Dividend 150,000 0.658 98,700
31-Mar-20X5 Dividend 150,000 0.572 85,800
31-Mar-20X6 Dividend 150,000 0.497 74,550
Total Liability Component 502,950
Total Proceeds 1,500,000
Total Equity Component (Bal fig) 997,050
b. Allocation of transaction costs

Particulars Amount Allocation Net Amount
Liability Component 502,950 10,059 492,891
Equity Component 997,050 19,941 977,109
Total Proceeds 1,500,000 30,000 1,470,000
c. Accounting for liability at amortised cost:

- Initial accounting = Present value of cash outflows less transaction costs
- Subsequent accounting = At amortised cost, ie, initial fair value adjusted for interest
and repayments of the liability.
Opening Financial Interest Cash Flow Closing Financial
Liability Liability
A B C A+B-C
01-Apr-20X1 492,891 - - 4,92,891
31-Mar-20X2 492,891 78,173 150,000 4,21,064
31-Mar-20X3 421,064 66,781 150,000 3,37,845
31-Mar-20X4 337,845 53,582 150,000 2,41,427
31-Mar-20X5 241,427 38,290 150,000 1,29,717
31-Mar-20X6 129,717 20,283 150,000 -
d. Journal Entries to be recorded for entire term of arrangement are as follows:

Date Particulars Debit Credit
01-Apr-20X1 Bank A/c Dr. 1,470,000
To Preference Shares A/c 492,891
To Equity Component of Preference 977,109
shares A/c
(Being compulsorily convertible preference
shares issued. The same are divided into equity
component and liability component as per the
calculation)
8

31-Mar-20X2 Preference shares A/c Dr. 150,000

To Bank A/c 150,000
(Being Dividend at the coupon rate of 10% paid
to the shareholders)
31-Mar-20X2 Finance cost A/c Dr. 78,173
(Being interest as per EIR method recorded)
To Bank A/c 150,000
To Bank A/c 150,000
To Bank A/c 150,000
To Bank A/c 150,000
31-Mar-20X6 Equity Component of Preference shares A/c Dr. 977,109
To Equity Share Capital A/c 50,000
To Securities Premium A/c 927,109
(Being Preference shares converted in equity
shares and remaining equity component is
recognised as securities premium)

4. (a)
20X3 20X2
Trading results ` `
A. Profit before interest, fair value movements and tax 17,90,000 16,50,000
B. Interest on 8% convertible loan stock (20X2: 9/12 × (2,00,000) (1,50,000)
` 2,00,000)
C. Change in fair value of embedded option (5,300) (5,000)
Profit before tax 15,84,700 14,95,000
Taxation @ 33% on (A-B) (5,24,700) (4,95,000)
Profit after tax 10,60,000 10,00,000
Calculation of basic EPS
Number of equity shares outstanding 20,00,000 20,00,000
Earnings 10,60,000 10,00,000
Basic EPS 53 paise 50 paise
Calculation of diluted EPS
Test whether convertibles are dilutive:
The saving in after-tax earnings, resulting from the conversion of ` 100 nominal of loan stock,
amounts to (` 100 × 8% × 67%) + (` 5,300 / 25,000) = ` 5.36 + ` 0.21 = ` 5.57.
There will then be 135 extra shares in issue.
Therefore, the incremental EPS is 4 paise (ie. ` 5.57 / 135). As this incremental EPS is less than
the basic EPS at the continuing level, it will have the effect of reducing the basic EPS of 53
paise. Hence the convertibles are dilutive.
20X3 20X2
Adjusted earnings ` `
Profit for basic EPS 10,60,000 10,00,000
Add: Interest and other charges on earnings (2,00,000 + 5,300) (1,50,000 + 5,000)
saved as a result of the conversion 2,05,300 1,55,000
Less: Tax relief on interest portion (66,000) (49,500)
Adjusted earnings for equity 11,99,300 11,05,500
Adjusted number of shares

From the conversion terms, it is clear that the maximum number of shares issuable on conversion
of ` 25,00,000 loan stock after the end of the financial year would be at the rate of 135 shares
per ` 100 nominal (that is, 33,75,000 shares).
20X3 20X2
Number of equity shares for basic EPS 20,00,000 20,00,000
Maximum conversion at date of issue (33,75,000 × 9/12) - 25,31,250
Maximum conversion after balance sheet date 33,75,000 –
Adjusted shares 53,75,000 45,31,250
Adjusted earnings for equity 11,99,300 11,05,500
Diluted EPS (approx.) 22 paise 24 paise
10

(b) (i) In order to fit into the definition of a joint arrangement, the parties to the joint arrangement
should have joint control over the arrangement. In the given case, decisions relating to
relevant activities, ie, marketing and distribution, are solely controlled by X Ltd and such
decisions do not require the consent of Y Ltd. Hence, the joint control test is not satisfied in
this arrangement and the arrangement does not fit into the definition of a joint arrangement
in accordance with the Standard.
(ii) Where X Ltd and Y Ltd both jointly control all the relevant activities of the arrangement and
since no separate entity is formed for the arrangement, the joint arrangement is in the
nature of a joint operation.
(iii) Where under a joint arrangement, a separate vehicle is formed to give effect to the joint
arrangement, then the joint arrangement can either be a joint operation or a joint venture.
Hence in the given case, if:
(a) The contractual terms of the joint arrangement, give both X Ltd and Y Ltd righ ts to the
assets and obligations for the liabilities relating to the arrangement, and the rights to
the corresponding revenues and obligations for the corresponding expenses, then the
joint arrangement will be in the nature of a joint operation.
(b) The contractual terms of the joint arrangement, give both X Ltd and Y Ltd. rights to the
net assets of the arrangement, then the joint arrangement will be in the nature of a
joint venture.
(iv) Where the rights to assets and liabilities to obligations are not c lear from the contractual
arrangement, then other facts and circumstances also need to be considered to determine
whether the joint arrangement is a joint operation or a joint venture.
When the provision of the activities of the joint venture is primarily to produce output and the
output is available / distributed only to the parties to the joint arrangement in some pre -
determined ratio, then this indicates that the parties have substantially all the economic
benefits of the assets of the arrangement. The only source of cash flows to the joint
arrangement is receipts from parties through their purchases of the output and the parties
also have a liability to fund the settlement of liabilities of the separate entity. Such an
arrangement indicates that the joint arrangement is in the nature of a joint operation.
In the given case, the output of the joint arrangement is exclusively used by X Ltd . and Y
Ltd. and the joint arrangement is not allowed to sell the output to outside parties. Hence,
the joint arrangement between X Ltd. and Y Ltd. is in the nature of a joint operation.
(v) It makes no difference whether the output of the joint arrangement is exclusively for use by
the parties to the joint arrangement or the parties to the arrangement sold their share of the
output to third parties.
Hence, even if X Ltd. and Y Ltd. sold their respective share of output to third parties, the
fact still remains that the joint arrangement cannot sell output directly to third parties.
Hence, the joint arrangement will still be deemed to be in the nature of a joint operation.
(vi) Where the terms of the contractual arrangement enable the separate entity to sell the output
to third parties, this would result in the separate entity assuming demand, inventory and
credit risks. Such facts and circumstances would indicate that the arrangement is a joint
venture.
For a joint arrangement to be either a joint operation or joint venture, it depends on whether
the parties to the joint arrangement have rights to the assets and obligations for liabilities
(will be a joint operation) OR whether the parties to the joint arrangement have rights to the
net assets of the arrangement (will be joint venture).
11

(c) An entity has eight segments and the relevant information is as follows:
Criteria 1: Segment revenue is 10% or more of total external + intersegment sales
Segments A B C D E F G H Total
Total sales 100 315 45 15 15 50 25 35 600
% to total sales 16.7 52.5 7.5 2.5 2.5 8.3 4.2 5.8
Reportable segments A B - - - - - -
Criteria 2: 10% or more of segment result
Consider segment profit and loss separately in absolute terms
Profit 5 - 15 - 8 - 5 7 40
Segments loss - 90 - 5 - 5 - - 100
Since segment loss is greater, we select 100 as evaluating the segment percentage
% to segment loss 5 90 15 5 8 5 5 7
Reportable segments - B C - - - - -
Criteria 3: 10% or more of segment assets
Assets 15 47 5 11 3 5 5 9 100
% 15 47 5 11 3 5 5 9 100
Reportable segments A B - D - - - -
Based on the above 3 criteria, the Reportable Segments are A, B, C & D
However, 75% test for external sales should also be checked.
Reportable Segments A B C D TOTAL
External sales 0 255 15 10 280
Total entity’s sales (external) 405
% of reportable segments external sales to entity’s sales 69.14%
Required percentage 75%
Hence, in the above scenario, additional operating segments need to be identified as reportable
segments, till the 75% test is satisfied, even if those segments do not satisfy the quantitative
threshold limits.
5. (a) Calculation of the value in use of the machine owned by E Ltd. includes the projected cash inflow
(i.e. sales income) from the continued use of the machine and projected cash outflows that are
necessarily incurred to generate those cash inflows (i.e cost of goods sold). Additionally,
projected cash inflows include ` 80,000 from the disposal of the asset in March, 20X8. Cash
outflows include routing capital expenditures of ` 50,000 in 20X5-20X6.
As per Ind AS 36, estimates of future cash flows shall not include:
• Cash inflows from receivables
• Cash outflows from payables
• Cash inflows or outflows expected to arise from future restructuring to which an entity is not
12

yet committed
• Cash inflows or outflows expected to arise from improving or enhancing the asset’s
performance
• Cash inflows or outflows from financing activities
• Income tax receipts or payments.
Hence in this case, cash flows do not include financing interest (i.e. 10%), tax (i.e. 30%) and
capital expenditures to which E Ltd. has not yet committed (i.e. ` 1,00,000). They also do not
include any savings in cash outflows from these capital expenditures, as required by Ind AS 36.
The cash flows (inflows and outflows) are presented below in nominal terms. They include an
increase of 3% per annum to the forecast price per unit (B), in line with forecast inflation. Th e
cash flows are discounted by applying a discount rate (8%) that is also adjusted for inflation.
Note: Figures are calculated on full scale and then rounded off to the nearest absolute value.
Year ended 20X3-20X4 20X4-20X5 20X5-20X6 20X6-20X7 20X7-20X8 Value in
use
Quantity (A) 10,000 10,500 11,025 11,576 12,155
Price per unit ` 200 ` 206 ` 212 ` 219 ` 225
(B)
Estimated ` 20,00,000 ` 21,63,000 ` 23,37,300 ` 25,35,144 ` 27,34,875
cash inflows
(C=A x B)
Misc. cash ` 80 000
inflow disposal
proceeds (D)
Total ` 20,00,000 ` 21,63,000 ` 23,37,300 ` 25,35,144 ` 28,14,875
estimated cash
inflows
(E=C+D)
Cost per unit ` 160 ` 162 ` 165 ` 168 ` 171
(F)
Estimated (`16,00,000) (`17,01,000) (`18,19,125) (`19,44,768) (`20,78,505)
cash outflows
(G = A x F)
Misc. cash (` 50,000)
outflow:
maintenance
costs (H)
Total (`16,00,000) (`17,01,000) (`18,69,125) (`19,44,768) (`20,78,505)
estimated cash
outflows
(I=G+H)
Net cash flows ` 4,00,000 ` 4,62,000 ` 4,68,175 ` 5,90,376 ` 7,36,370
(J=E-I)
Discount factor 0.9259 0.8573 0.7938 0.7350 0.6806
8% (K)
Discounted ` 3,70,360 ` 3,96,073 ` 3,71,637 ` 4,33,926 ` 5,01,173 `20,73,169
future cash
flows (L=J x K)
13

(b) For the year 20X1-20X2

S Limited accounts for the promised bundle of goods and services as a single performance
obligation satisfied over time in accordance with Ind AS 115. At the inception of the contract, S
Limited expects the following:
Transaction price – ` 20,00,000
Expected costs – ` 11,00,000
Expected profit (45%) – ` 9,00,000
At contract inception, S Limited excludes the ` 2,50,000 bonus from the transaction price
because it cannot conclude that it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Completion of the heavy-duty equipment is highly
susceptible to factors outside the entity’s influence.
By the end of the first year, the entity has satisfied 65% of its performance obligation on the basis
of costs incurred to date. Costs incurred to date are therefore ` 7,15,000 and
S Limited reassesses the variable consideration and concludes that the amount is still
constrained. Therefore at 31 st March, 20X2, the following would be recognised:
Revenue (A) – ` 13,00,000 (` 20,00,000 x 65%)
Costs (B) – ` 7,15,000 (` 11,00,000 x 65%)
Gross profit (C) i.e.(A-B) – ` 5,85,000
For the year 20X2-20X3
On 4th June, 20X2, the contract is modified. As a result, the fixed consideration and expected
costs increase by ` 1,50,000 and ` 80,000, respectively.
The total potential consideration after the modification is ` 24,00,000 which is ` 21,50,000 fixed
consideration + ` 2,50,000 completion bonus. In addition, the allowable time for achieving the
bonus is extended by six months with the result that S Limited concludes that it is highly
probable that including the bonus in the transaction price will not result i n a significant reversal
in the amount of cumulative revenue recognised in accordance with Ind AS 115. Therefore, the
bonus of ` 2,50,000 can be included in the transaction price.
S Limited also concludes that the contract remains a single performance ob ligation. Thus, S
Limited accounts for the contract modification as if it were part of the original contract.
Therefore, S Limited updates its estimates of costs and revenue as follows:
S Limited has satisfied 60.60% of its performance obligation (` 7,15,000 actual costs incurred
compared to ` 11,80,000 total expected costs). The entity recognises additional revenue of
` 1,54,400 [(60.60% of ` 24,00,000) – ` 13,00,000 revenue recognised to date] at the date of
modification i.e. on 4 th June, 20X2 as a cumulative catch-up adjustment.
6. (a) Extract of the Balance Sheet of RKA Private Ltd. as at 31 st March, 20X2
` in lacs
Closing net defined liability (1,580 – 1,275) lacs 305
Extract of the Statement of Profit or Loss of RKA Private Ltd. for the year ended
31st March, 20X2
Particulars ` in lacs
Service cost 55
14

Net interest (Refer W.N.1) 21

Profit or loss 76
Other comprehensive income:
Remeasurements (Refer W.N.2) 80
Total 156
(b) Journal entries in the books of RKA Private Ltd.
Particulars ` in lacs ` in lacs
Profit & Loss Dr. 76
Other comprehensive income Dr. 80
To Cash (Contribution) 111
To Net defined benefit liability (Refer WN 3) 45
Working Notes:
1. Computation of Net interest taken to the Statement of Profit or Loss
= Discount rate x Opening net defined benefit liability
= 8% x (1,400 – 1,140) lacs
= 8% x 260 lacs = 21 lacs (Rounded off to nearest lacs)
2. Computation of Remeasurements
Defined Benefit Obligation Account
Particulars ` in lacs Particulars ` in lacs

To balance c/d (given) 1,580 By balance b/d (given) 1,400
(closing balance) (opening balance)
By Current Service Cost (given) 55
By Interest on Opening Liability 112
(1,400 x 8%)
By Actuarial loss (bal. figure) 13
1,580 1,580
OR
Statement to calculate Actuarial gain or loss on defined benefit liability:
Opening balance of liability 1,400
Current service cost 55
Interest on opening liability (1,400 x 8%) 112
Actuarial loss (Bal. fig) 13
Closing balance of liability 1,580
15

Plan Assets Account

Particulars ` in lacs Particulars ` in lacs
To balance b/d (given) 1,140 By balance c/d (given) 1,275
(opening balance) (closing balance)
To Bank Account 111
(contribution for the year)
To Surplus / Actual Return
(bal. figure) 24
1,275 1,275
OR
Statement to calculate Actual return on plan assets:
Opening balance of asset 1,140
Cash contribution 111
Actual return (Bal. fig) 24
Closing balance of asset 1,275
Net interest on opening balance of plan asset = ` 91 lacs (i.e. ` 1,140 lacs x 8%) (Rounded
off to nearest lacs)
Hence there is a decrease in plan assets due to remeasurement for which computation is as
follows:
Actual Return – Net interest on opening plan asset
= ₹ 24 lacs – ₹ 91 lacs = ₹ 67 lacs.
Net remeasurement would be computed as follows:
Actuarial loss on liability + Loss on return
= ` 13 lacs + ` 67 lacs = ` 80 lacs.
3. Computation of increase/ decrease in net defined benefit liability:
Opening net liability (` 1,400 lacs – ` 1,140 lacs) 260
Closing net liability (`1,580 lacs – ` 1,275 lacs) 305
Increase in liability 45
(b) Requirement as per Ind AS:
A first-time adopter shall classify all government loans received as a financial liability or an equity
instrument in accordance with Ind AS 32. A first-time adopter shall apply the requirements in Ind
AS 109 and Ind AS 20, prospectively to government loans existing at the date of transition to Ind
AS and shall not recognise the corresponding benefit of the government loan at a below -market
rate of interest as a government grant.
Treatment to be done:
Consequently, if a first-time adopter did not, under its previous GAAP, recognise and measure a
government loan at a below-market rate of interest on a basis consistent with Ind AS
16

requirements, it shall use its previous GAAP carrying amount of the loan at the date of transition
to Ind AS as the carrying amount of the loan in the opening Ind AS Balance Sheet. An entity
shall apply Ind AS 109 to the measurement of such loans after the date of transition to Ind AS.
In the instant case, the loan meets the definition of a financial liability in accordance with
Ind AS 32. Company therefore reclassifies it from equity to liability. It also uses the previous
GAAP carrying amount of the loan at the date of transition as the carrying amount of the loan in
the opening Ind AS balance sheet.
It calculates the annual effective interest rate (EIR) starting 1 st April 2020 as below:
EIR = Amount / Principal (1/t) i.e. 2.50/2(1/4) i.e. 5.74%. approx.
At this rate, ` 2 crore will accrete to ` 2.50 crore as at 31 st March 2024.
During the next 4 years, the interest expense charged to statement of profit and loss shall be:
Year ended Opening amortised Interest expense for the year Closing amortised
cost (`) (`) @ 5.74% p.a. approx. cost (`)
31st March 2021 2,00,00,000 11,48,000 2,11,48,000
31st March 2022 2,11,48,000 12,13,895 2,23,61,895
31st March 2023 2,23,61,895 12,83,573 2,36,45,468
31st March 2024 2,36,45,468 13,54,532 2,50,00,000
An entity may apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any
government loan originated before the date of transition to Ind AS, provided that the information
needed to do so had been obtained at the time of initially accounting for that loan.
The accounting treatment is to be done as per above guidance and the advice which the
company has been provided is not in line with the requirements of Ind AS 101.
(c) Either
In the present case, Solar Limited controls Mars Limited (since it holds 80% of its voting
rights). Consequently, it also controls the voting rights associated with 30% equity interest
held by Mars Limited in Venus Limited. Solar Limited also has 25% direct equity interest and
related voting power in Venus Limited. Thus, Solar Limited controls 55% (30% + 25%) voting
power of Venus Limited. As the decisions concerning relevant activities of Venus Limited
require a simple majority of votes. Solar Limited controls Venus Limited and should therefore
consolidate it in accordance with Ind AS 110.
Although, Solar Limited controls Venus Limited, its entitlement to the subsidiary’s economic
benefits is determined on the basis of its actual ownership interest. For the purposes of the
consolidated financial statements, Solar Limited's share in Venus Limited is determined as
49% [25% + (80% × 30%)]. As a result, 51% of profit or loss, other comprehensive income and
net assets of Venus Limited shall be attributed to the non-controlling interests in the
consolidated financial statements (this comprises 6% attributable to holders of non -controlling
interests in Mars Limited [reflecting 20% interest of non-controlling shareholders of Mars
Limited in 30% of Venus Limited] and 45% to holders of non-controlling interests in Venus
Limited).
OR
In assessing whether it has obtained control over Company X, Company P should consider not
only the 40,000 shares it owns but also its option to acquire another 25,000 shares (a so -called
potential voting right). In this assessment, the specific terms and conditions of the option
agreement and other factors are considered as follows:
17

• the options are currently exercisable and there are no other required conditions before such
options can be exercised
• if exercised, these options would increase Company P’s ownership to a controlling interest
of over 50% before considering other shareholders’ potential voting rights (65,000 shares
out of a total of 1,25,000 shares)
• although other shareholders also have potential voting rights, if all options are exercised
Company P will still own a majority (65,000 shares out of 1,29,000 shares)
• the premium included in the exercise price makes the options out-of-the-money. However,
the fact that the premium is small and the options could confer majority ownership indicates
that the potential voting rights have economic substance.
By considering all the above factors, Company P concludes that with the acquisition of the
40,000 shares together with the potential voting rights, it has obtained control of Company X.
18

Test Series: March, 2023

MOCK TEST PAPER 1
1. (a) Defense Innovators Limited is a public sector undertaking and is engaged in the construction of
warships and submarines. XYZ Private Limited approached Defense Innovators Limited for
construction of "specially designed" ships for it, which will be used by XYZ Private Limited for
transportation of specific goods. The offer was accepted by the Defense Innovators Limited
and both the companies entered into an agreement for the construction and delivery of 3
specially designed ships on 'Fixed Price' basis with variable component in respect to certain
items.
Base and depot (B & D) spares for all three ships shall be procured by Defense Innovators
Limited and will be paid on the cost of the item with certain percentage.
The contract states that "certain equipment" out of variable cost items, will be supplied by
XYZ Private Limited at 'free of cost' for installation on board of ship. It is, therefore, to be
noted as under:
(i) Some equipment are procured by Defense Innovators Limited in the presence of the
XYZ Private Limited's representative for technical scrutiny as well as negotiating the
prices. The vendors of these equipment are paid by Defense Innovators Limited. The cost
of the equipment along with the cost of installation and profit thereon is clai med and
reimbursed by XYZ Private Limited to Defense Innovators Limited.
(ii) There are certain other equipment for which orders are directly placed and also paid by
the XYZ Private Limited. These equipment are known as 'Buyer Furnished Equipment
(BFE)' and are delivered to the company 'free of cost' for installing in the ship. The labour
cost of Installation of these are already included in the price component of the contract.
BFEs are returned to the buyer after completion of the ship.
The period required for construction of one ship was approximately four years.
Whether the cost of Buyer Furnished Equipment's (BFE's) supplied by XYZ Private Limited to
Defense Innovators Limited for-installing the same in the ships can be considered as
'inventory' by Defense Innovators Limited and then on delivery of ship will be recognised as
revenue in its books of account? Elaborate. (6 Marks)
(b) On 1 April 20X1, an 8% convertible loan with a nominal value of ` 6,00,000 was issued at par. It
is redeemable on 31 March 20X5 also at par. Alternatively, it may be converted into equity shares
on the basis of 100 new shares for each ` 200 worth of loan.
An equivalent loan without the conversion option would have carried interest at 10%. Interest of
` 48,000 has already been paid and included as a finance cost.
Present value rates are as follows:

Year End @ 8% @ 10%

1 0.93 0.91
2 0.86 0.83
3 0.79 0.75
4 0.73 0.68
Explain how will the Company account for the above loan notes in the financial statements for the
year ended 31 March 20X2? (8 Marks)
(c) An entity opens a new factory and receives a government grant of ` 15,000 in respect of capital
equipment costing ` 1,00,000. It depreciates all plant and machinery at 20% per annum on
straight-line basis. Show the statement of profit and loss and balance sheet extracts in respect
of the grant for first year under both the methods as per Ind AS 20. (6 Marks)
2. (a) KUPA Ltd. borrowed·` 95 lakh as loan from XYZ Bank on 1 st April, 20X1 at an interest rate of
10% p.a. KUPA Ltd. spent ` 1,80,912 as loan processing charges. Principal amount of loan is to
be repaid in 5 equal instalments and the interest to be paid annually on accrual basis. Effective
interest rate on loan is 10.8%.
On 31st March, 20X3, KUPA Ltd. faced challenges in business because of sudden change in the
technology. It approached XYZ Bank and renegotiated the terms of the loan. Interest rate
changed to 15% p.a. Principal amount of loan is to be repaid in 8 equal instalments payable
annually starting 31 st March, 20X4 and the interest is to be paid annually on accrual basis.
Before approaching bank, KUPA Ltd. made the interest payment on 31 st March, 20X3.
You are required to record Journal entries in the books of KUPA Ltd. till 31 st March, 20X4, after
giving effect of the changes in the terms of the loan on 31 st March, 20X3. Workings should form
part of the answer.
PV of Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
`1
10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467
10.8% 0.903 0.815 0.735 0.664 0.599 0.540 0.488 0.440
15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327
(13 Marks)
(b) New Age Technology Limited has entered into following Share Based payment transactions:
(i) On 1st April, 20X1, New Age Technology Limited decided to grant share options to its
employees. The scheme was approved by the employees on 30 th June, 20X1. New Age
Technology Limited determined the fair value of the share options to be the value of the
equity shares on 1 st April, 20X1.
(ii) On 1st April, 20X1, New Age Technology Limited entered into a contract to purchase IT
equipment from Bombay Software Limited and agreed that the contract will be settled by
issuing equity instruments of New Age Technology Limited. New Age Technology Limited
received the IT equipment on 30 th July, 20X1. The share-based payment transaction was
measured based on the fair value of 'the equity instruments as on 1 st April, 20X1.
(iii) On 1st April, 20X1, New Age Technology Limited decided to grant the share options to its
employees. The scheme was approved by the employees on 30 th June, 20X1. The issue of
the share options was however subject to the same being approved by the shareholders in a
general meeting. The scheme was approved in the general meeting held on

30th September, 20X1. The fair value of the equity instruments for measuring the share -
based payment transaction was taken on 30 th September, 20X1.
Identify the grant date and measurement date in all the 3 cases of Share based payment
transactions entered into by New Age Technology Limited, supported by appropriate
rationale for the determination? (7 Marks)
3. (a) Sun Limited and Moon Limited amalgamated from 1 st April, 20X1. A new company Sunmoon
Limited with shares of ` 10 each was formed to take over the businesses of the existing
companies.
Summarised Balance Sheet as on 31 st March, 20X1
Particulars Note No. Sun Limited Moon Limited

(`) (`)
ASSETS
Non-current assets
Property, plant and equipment 1,70,00,000 1,50,00,000
Financial assets
Investment 21,00,000 11,00,000
Current assets
Inventory 25,00,000 55,00,000
Financial assets
Trade receivables 36,00,000 80,00,000
Cash and cash equivalent 9,00,000 8,00,000
Total 2,61,00,000 3,04,00,000
Equity
Equity share capital (FV ` 10 each) 1,20,00,000 1,40,00,000
Other equity 1 61,00,000 54,00,000
Liabilities
Borrowings (12% Debentures) 60,00,000 80,00,000
Current liabilities
Trade payables 20,00,000 30,00,000
Total 2,61,00,000 3,04,00,000
Notes to Accounts:
Sun Limited ` Moon Limited `
Other equity
General reserve 30,00,000 40,00,000
Profit & Loss 20,00,000 10,00,000

Investment allowance reserve 10,00,000 2,00,000

Export profit reserve 1,00,000 2,00,000
61,00,000 54,00,000
Sunmoon Limited issued requisite number of shares to discharge the claims of the equity
shareholders of the transferor companies. Also, the new debentures were issued in exchange of
the old series of both the companies.
Compute purchase consideration and advice discharge thereof by preparing a note and draft the
Balance Sheet of Sunmoon Limited assuming that Sun Limited and Moon Limited are not under
common control and management of larger entity out of Sun Limited and Moon Limited will take
over the control of the entity Sunmoon Limited.
The fair value of net assets as at 31 st March, 20X1 of Sun Limited and Moon Limited are as
follows:
Assets Sun Limited ` Moon Limited `
Property, Plant and Equipment 1,90,00,000 1,70,00,000
Inventory 26,00,000 58,00,000
Fair value of the Business 2,20,00,000 2,80,00,000
(14 Marks)
(b) On 1st April, 20X1, ABC limited gives options to its key management personnel (employees) to
take either cash equivalent to 1,000 shares or 1,500 shares. The minimum service requirement is
2 years and shares being taken must be kept for 3 years.
Fair values of the shares are as follows: `
Share alternative fair value (with restrictions) 102
Grant date fair value on 1 st April, 20X1 113
Fair value on 31 st March, 20X2 120
Fair Value on 31 st March, 20X3 132
The employees exercise their cash option at 31st March, 20X3. Pass the journal entries.
(6 Marks)
4. (a) Venus Ltd. is a multinational entity that owns three properties. All three properties were
purchased on 1st April, 20X1. The details of purchase price and market values of the properties
are given as follows:
Particulars Property 1 Property 2 Property 3
Factory Factory Let-Out
Purchase price 15,000 10,000 12,000
Market value 31.03.20X2 16,000 11,000 13,500
Life 10 Years 10 Years 10 Years
Subsequent Measurement Cost Model Revaluation Model Revaluation Model
Property 1 and 2 are used by Venus Ltd. as factory building whilst property 3 is let-out to a non-
related party at a market rent. The management presents all three properties in balance sheet as
‘property, plant and equipment’.
4

The Company does not depreciate any of the properties on the basis that the fair values are
exceeding their carrying amount and recognise the difference between purchase price and fair
value in Statement of Profit and Loss.
Required:
Analyse whether the accounting policies adopted by the Venus Ltd. in relation to these p roperties
is in accordance with Ind AS. If not, advise the correct treatment alongwith working for the same.
(10 Marks)
(b) An entity manufactures passenger vehicles. The time between purchasing of underlying raw
materials to manufacture the passenger vehicles and the date the entity completes the
production and delivers to its customers is 11 months. Customers settle the dues after a period
of 8 months from the date of sale.
(a) Will the inventory and the trade receivables be current in nature?
(b) Assuming that the production time was say 15 months and the time lag between the date of
sale and collection from customers is 13 months, will the answer be different? (4 Marks)
(c) Nikka Limited has obtained a term loan of ` 620 lacs for a complete renovation and
modernisation of its Factory on 1 st April, 20X1. Plant and Machinery was acquired under the
modernisation scheme and installation was completed on 30 th April, 20X2. An expenditure of
` 510 lacs was incurred on installation of Plant and Machinery, ` 54 lacs has been advanced to
suppliers for additional assets (acquired on 25 th April, 20X1) which were also installed on
30th April, 20X2 and the balance loan of ` 56 lacs has been used for working capital purposes.
Management of Nikka Limited considers the 12 months period as substantial period of time to get
the asset ready for its intended use.
The company has paid total interest of ` 68.20 lacs during financial year 20X1-20X2 on the
above loan. The accountant seeks your advice how to account for the interest paid in the books
of accounts. Will your answer be different, if the whole process of renovation and modernization
gets completed by 28 th February, 20X2? (6 Marks)
5. (a) ABC Limited supplies plastic buckets to wholesaler customers. As per the contract entered into
between ABC Limited and a customer for the financial year 20X1-20X2, the price per plastic
bucket will decrease retrospectively as sales volume increases within the stipulated time of one
year.
The price applicable for the entire sale will be based, on sales volume bracket during the year.
Price per unit (INR) Sales volume
90 0 - 10,000 units
80 10,001 - 35,000 units
70 35,001 units & above
All transactions are made in cash.

(i) Suggest how revenue is to be recognised in the books of accounts of ABC Limited as per
expected value method, considering a probability of 15%, 75% and 10% for sales volumes
of 9,000 units, 28,000 units and 36,000 units respectively. For workings, assume that ABC
Limited achieved the same number of units of sales to the customer during the year as
initially estimated under expected value method for the financial year 20X1-20X2.
(ii) In case ABC Limited decides to measure revenue, based on most likely method instead of
expected value method, how will be the revenue recognised in the books of accounts of
5

ABC Limited based on above available information? For workings, assume that
ABC Limited achieved the same number of units of sales to the customer during the year as
initially estimated under most likely value method for the financial year 20X1-20X2. Assume
that the sales volume of 28,000 units given under the expected value m ethod, with highest
probability is the sales estimated under most likely method too.
(iii) You are required to pass Journal entries in the books of ABC Limited if the revenue is
accounted for as per expected value method for financial year 20X1-20X2. (14 Marks)
(b) (i) Entity A owns 250 ordinary shares in company XYZ, an unquoted company. Company XYZ
has a total share capital of 5,000 shares with nominal value of ` 10. Entity XYZ’s after-tax
maintainable profits are estimated at ` 70,000 per year. An appropriate price/earnings ratio
determined from published industry data is 15 (before lack of marketability adjustment).
Entity A’s management estimates that the discount for the lack of marketability of company
XYZ’s shares and restrictions on their transfer is 20%. Entity A values its holding in
company XYZ’s shares based on earnings. Determine the fair value of Entity A’s
investment in XYZ’s shares.
(ii) Based on the facts given in the aforementioned part (i), assume that, Entity A estimates the
fair value of the shares it owns in company XYZ using a net asset valuation technique. The
fair value of company XYZ’s net assets including those recognised in its balance sheet and
those that are not recognised is ` 8,50,000. Determine the fair value of Entity A’s
investment in XYZ’s shares. (6 Marks)
6. (a) On 1st January, 20X1 an entity purchased an item of equipment for ` 600,000, including ` 50,000
refundable purchase taxes. The purchase price was funded by raising a loan of ` 605,000. In
addition, the entity has to pay ` 5,000 in loan raising fees to the Bank. The loan is secured
against the equipment.
In January 20X1 the entity incurred costs of ` 20,000 in transporting the equipment to the entity’s
site and ` 100,000 in installing the equipment at the site. At the end of the equipment’s 10 -year
useful life the entity is required to dismantle the equipment and restore the building housing the
equipment. The present value of the cost of dismantling the equipment and restoring the building
is estimated to be ` 100,000.
In January 20X1 the entity’s engineer incurred the following costs in modifying the equipment so
that it can produce the products manufactured by the entity:
• Materials – ` 55,000
• Labour – ` 65,000
• Depreciation of plant and equipment used to perform the modifications – ` 15,000
In January 20X1, the entity’s production staff were trained in how to operate the new item of
equipment. Training costs included:
• Cost of an expert external instructor – ` 7,000
• Labour – ` 3,000
In February 20X1 the entity’s production team tested the equipment and the engineering team
made further modifications necessary to get the equipment to function as intended by
management. The following costs were incurred in the testing phase:
• Materials, net of ` 3,000 recovered from the sale of the scrapped output – ` 21,000
• Labour – ` 16,000

The equipment was ready for use on 1 st March, 20X1. However, because of low initial order
levels the entity incurred a loss of ` 23,000 on operating the equipment during March. Thereafter
the equipment operated profitably.
What is the cost of the equipment at initial recognition? Also show the calculation or reason for
underlying treatment. (10 Marks)
(b) X Ltd owned a land property whose future use was not determined as at 31 March 20X1. How
should the property be classified in the books of X Ltd as at 31 M arch 20X1?
During June 20X1, X Ltd commenced construction of office building on it for own use. Presuming
that the construction of the office building will still be in progress as at 31 March 20X2
(a) How should the land property be classified by X Ltd in its financial statements as at
31 March 20X2?
(b) Will there be a change in the carrying amount of the property resulting from any change in
use of the investment property?
(c) Whether the change in classification to, or from, investment properties is a change in
accounting policy to be accounted for in accordance with Ind AS 8, Accounting Policies,
Changes in Accounting Estimates and Errors?
(d) Would your answer to (a) above be different if there were to be a management intention to
commence construction of an office building for own use; however, no construction activity
was planned by 31 March 20X2? (5 Marks)
(c) EITHER
Entity XYZ entered into a contract to supply 1000 television sets for ` 2 million. An increase in
the cost of inputs has resulted into an increase in the cost of sales to ` 2.5 million. The penalty
for non- performance of the contract is expected to be ` 0.25 million. Is the contract onerous and
how much provision in this regard is required? (5 Marks)
OR
Supplier, A Ltd., enters into a contract with a customer, B Ltd., on 1 st January, 20X1 to deliver
goods in exchange for total consideration of USD 50 million and receives an upfront payment of
USD 20 million on this date. The functional currency of the supplier is INR. The goods are
delivered and revenue is recognised on 31 st March, 20X1. USD 30 million is received on
1st April, 20X1 in full and final settlement of the purchase consideration.
State the date of transaction for advance consideration and recognition of revenue. Also state
the amount of revenue in INR to be recognized on the date of recognition of rev enue. The
exchange rates on 1 st January, 20X1 and 31st March, 20X1 are ` 72 per USD and ` 75 per USD
respectively. (5 Marks)

Test Series: March, 2023

MOCK TEST PAPER 1
ANSWERS
1. (a) Before any item can be recognised as an inventory, it should meet the definition of ‘asset’ as
given in the Conceptual Framework for Financial Reporting under Ind AS, issued by the Institute
of Chartered Accountants of India as follows:
“An asset is a present economic resource controlled by the entity as a result of past events and
economic resource is a right that has the potential to produce economic benefits”.
The orders in respect of Buyer Furnished Equipment’s (BFEs) are directly placed by the buyer
and payment in respect of them is made by the buyer. These are then supplied to the company
for installing in the ship and the buyer pays installation charges which are included in the contract
price. Thus, the company has neither incurred any cost on BFEs nor any amount is recoverab le
on account of such equipment except installation charges. Accordingly, such equipment are not
‘assets’ that may be considered as a part of its contract work-in progress.
In fact, after installation in the ship, BFEs are returned to the buyer after co mpletion of the ship.
Thus, these are only held by the company in the capacity of a bailee. Since, it cannot be
considered as an ‘asset’, therefore, it can neither be considered as ‘inventory’ nor as ‘work -in-
progress’.
Further, it can also not be considered as a part of sale value or revenue of the company as no
consideration would be receivable with respect to the cost of such equipment.
On the basis of the above, it can be concluded that:
(i) The BFEs cannot be considered as inventories / Work- in- progress for
Defense Innovators Limited.
(ii) The BFE’s cost cannot be considered as part of sales value / contract revenue to Defense
Innovators Limited.
(b) Step 1 - There is an ‘option’ to convert the loans into equity i.e. the loan note holders do not have
to accept equity shares; they could demand repayment in the form of cash.
Ind AS 32 states that where there is an obligation to transfer economic benefits there sh ould be a
liability recognised. On the other hand, where there is not an obligation to transfer economic
benefits, a financial instrument should be recognised as equity.
In the given case, we have both – ‘equity’ and ‘debt’ features in the instrument. There is an
obligation to pay cash – i.e. interest at 8% per annum and a redemption amount – this is
‘financial liability’ or ‘debt component’. The ‘equity’ part of the transaction is the option to convert.
So it is a compound financial instrument.
Step 2 - Debt element of the financial instrument so as to recognise the liability is the present
value of interest and principal The rate at which the same is to be discounted, is the rate of
equivalent loan note without the conversion option would have carried interest at 10%,
therefore this is the rate to be used for discounting
Step 3 - Calculation of the debt element of the loan note as follows:

8% Interest discounted at a rate of 10% Present Value (6,00,000 x 8%)

S. No Year Interest PVF Amount
amount
Year 1 20X2 48,000 0.91 43,680
Year 2 20X3 48,000 0.83 39,840
Year 3 20X4 48,000 0.75 36,000
1,19,520
Year 4 20X5 648,000 0.68 4,40,640
Amount to be recognised as a liability 5,60,160
Initial proceeds (6,00,000)
Amount to be recognised as equity 39,840
* In year 4, the loan note is redeemed therefore ` 6,00,000 + ` 48,000 = ` 6,48,000.
Step 4 The next step is to recognise the interest component equivalent to the loan that would
carry if there was no option to cover. Therefore, the interest should be recognised at 10%. As on
date ` 48,000 has been recognised in the statement of profit and loss i.e. 6,00,000 x 8% but we
have discounted the present value of future interest payments and redemption amount using
discount factors of 10%, so the finance charge in the statement of profit and loss must also be
recognised at the same rate i.e. for the purpose of consistency.
The additional charge to be recognised in the income statement is calculated as:
Debt component of the financial instrument ` 5,60,160
Interest charge (5,60,160 x 10%) ` 56,016

Already charged to the income statement (` 48,000)
Additional charge required ` 8,016
Journal Entries for recording additional finance cost for year ended 31 March 20X2
Particulars Dr. Amount (`) Cr. Amount (`)
Finance cost A/c Dr. 8,016
To Debt component A/c 8,016
(Being interest recorded for difference
between amount recorded earlier and that
to be recorded per Ind AS 32)
(c) (a) When grant is treated as deferred income
Statement of profit and loss – An extract
`
Depreciation (` 1,00,000 x 20%) (20,000)
Government grant credit (W.N.1) 3,000
Balance Sheet - An extract

`
Non-current assets
Property, plant and equipment 1,00,000
2

Less: Accumulated depreciation (1,00,000 x 20%) (20,000) 80,000

XX
Government grant [12,000 – 3,000 (current 9,000
liability)]
Current liabilities
Government grant (15,000 x 20%) 3,000
XX
Working Note:
1. Government grant deferred income account
` `
To Profit or loss 3,000 By Grant cash received 15,000
(15,000 × 20%)
To Balance c/f 12,000
15,000 15,000
(b) When grant is deducted from cost of the asset
Statement of profit and loss – An extract
`
Depreciation [(` 1,00,000 – 15,000) x 20%] (17,000)
Balance Sheet – An extract
`
Non-current assets
Property, plant and equipment (1,00,000-15,000) 85,000
Less: Accumulated depreciation (17,000) 68,000
2. (a) The following table shows the amortisation of loan based on effective interest rate:
Date Opening Cash flows Cash Total cash Interest Closing
Amortised (Principal) outflows flows @ EIR Amortised
(1) cost (3) (Interest @ (3 + 4 = 5) 10.80% cost
(2) 10% and (2 x 10.80% (2- 5+6= 7)
fee) (4) = 6)
1 st April, 20X1 (95,00,000) 1,80,912 93,19,088
31st March, 20X2 93,19,088 19,00,000 9,50,000 28,50,000 10,06,462 74,75,550
31st March, 20X3 74,75,550 19,00,000 7,60,000 26,60,000 8,07,359 56,22,909
31st March, 20X4 56,22,909 19,00,000 5,70,000 24,70,000 6,07,274 37,60,183
31st March, 20X5 37,60,183 19,00,000 3,80,000 22,80,000 4,06,100 18,86,283
31st March, 20X6 18,86,283 19,00,000 1,90,000 20,90,000 2,03,717*
* Difference of ` 2 (2,03,719 – 2,03,717) is due to approximation.

(i) On 1st April, 20X1

Bank A/c Dr. 93,19,088
To Loan from bank A/c 93,19,088
(Being loan recorded at its fair value less transaction
costs on the initial recognition date)
(ii) On 31st March, 20X2
Loan from bank A/c Dr. 18,43,538
Interest expense Dr. 10,06,462
To Bank A/c 28,50,000
(Being first instalment of loan and payment of
interest accounted for as an adjustment to the
amortised cost of loan)
(iii) On 31st March, 20X3– Before KUPA Ltd. approached the bank

To Loan from bank A/c 47,359
(Being loan payment of interest recorded by the
Company before it approached the Bank for
deferment of principal)
Reason for treating the modification as a fresh loan:

Upon receiving the new terms of the loan, KUPA Ltd., re-computed the carrying value of the loan
by discounting the new cash flows with the original effective interest rate and comparing the
same with the current carrying value of the loan. As per requirements of Ind AS 109, any change
of more than 10% shall be considered a substantial modification, resulting in fresh accounting for
the new loan.
The following table shows the present value (PV) of new contractual cash flows and percentage
of variation:
Date Cash flows Interest Total cash Discounting PV of cash
(principal) outflow @ outflow factor flows
15% @ 10.80%
31st March, 20X3 (76,00,000)
31st March, 20X4 9,50,000 11,40,000 20,90,000 0.903 18,87,270
31st March, 20X5 9,50,000 9,97,500 19,47,500 0.815 15,87,213
31st March, 20X6 9,50,000 8,55,000 18,05,000 0.735 13,26,675
31st March, 20X7 9,50,000 7,12,500 16,62,500 0.664 11,03,900
31st March, 20X8 9,50,000 5,70,000 15,20,000 0.599 9,10,480
31st March, 20X9 9,50,000 4,27,500 13,77,500 0.540 7,43,850
4

31st March, 20Y1 9,50,000 2,85,000 12,35,000 0.488 6,02,680

31st March, 20Y2 9,50,000 1,42,500 10,92,500 0.440 4,80,700
PV of new contractual cash flows discounted @ 10.80% 86,42,768
Carrying amount of loan (93,19,088 - 18,43,538 + 47,359) 75,22,909
Difference 11,19,859
Percentage of carrying amount 14.89%
Decision Making:
Considering a more than 10% change in PV of cash flows compared to the carrying value of the
loan, the existing loan shall be considered to have been extinguished and the new loan shall be
accounted for as a separate financial liability.
The accounting entries for the same are included below:
On 31 st March, 20X3 – Accounting for extinguishment
Loan from bank (old) A/c Dr. 75,22,909
Finance cost Dr. 77,091
To Loan from bank (new) A/c 76,00,000
(Being new loan accounted for at its principal amount in
absence of any transaction costs directly related to such loan
and corresponding derecognition of existing loan)
(iv) On 31st March, 20X4

Loan from bank A/c Dr. 9,50,000
To Bank A/c 20,90,000
(Being first instalment of the new loan and payment of
interest accounted for as an adjustment to the amortised cost
of loan)
(b) Ind AS 102 defines grant date and measurement dates as follows:
(a) Grant date: The date at which the entity and another party (including an employee) agree to a
share-based payment arrangement, being when the entity and the counterparty have a shared
understanding of the terms and conditions of the arrangement. At grant date the en tity confers
on the counterparty the right to cash, other assets, or equity instruments of the entity, provided
the specified vesting conditions, if any, are met. If that agreement is subject to an approval
process (for example, by shareholders), grant date is the date when that approval is obtained.
(b) Measurement date: The date at which the fair value of the equity instruments granted is
measured for the purposes of this Ind AS. For transactions with employees and others providing
similar services, the measurement date is grant date. For transactions with parties other than
employees (and those providing similar services), the measurement date is the date the entity
obtains the goods or the counterparty renders service.
Applying the above definitions in the given scenarios following would be the conclusion based on
the assumption that the approvals have been received prospectively:

Scenario Grant date Measurement Base for grant date Base for
date measurement date
(i) 30th June, 30th June, The date on which the For employees, the
20X1 20X1 scheme was approved by measurement date is
the employees grant date
(ii) 1 st April, 30th July, 20X1 The date when the entity The date when the
20X1 and the counterparty entity obtains the
entered a contract and goods from the
agreed for settlement by counterparty
equity instruments
(iii) 30th 30th The date when the approval For employees, the
September, September, by shareholders was measurement date is
20X1 20X1 obtained grant date
3. (a) 1. Determination of larger entity out of Sun Ltd. and Moon Ltd.
The management of a larger entity (out of Sun Limited and Moon Limited) will take the
control of the Sunmoon Ltd. Since, here Sun Ltd. and Moon Ltd. are not under common
control and hence accounting prescribed under Ind AS 103 for business combination will be
applied. As per the accounting guidance provided in Ind AS 103, sometimes the legal
acquirer may not be the accounting acquirer. In the given scenario although Sunmoon Ltd.
is issuing the shares but management of a larger entity out of Sun Ltd. and Moon Ltd. will
have control of Sunmoon Ltd.
This can be determined by the following table: (`)
Sun Ltd. Moon Ltd.
Fair Value A 2,20,00,000 2,80,00,000
Value per share B 10 10
Number of shares A/B = C 22,00,000 28,00,000
Total number of shares in Sunmoon
Ltd. will be 50,00,000 shares
(22,00,000 + 28,00,000)
Thus, % held by each company in [(C/50,00,000) 44% 56%

Sunmoon Ltd. x 100]
Note: It is a case of Reverse Acquisition. Since post-merger, Moon Ltd. is bigger in size
which is a clear indicator that Moon Ltd. will have control of Sunmoon Ltd. and will be
considered as an accounting acquirer. Accordingly, Moon Ltd.’s assets and liabilities will be
recorded at historical cost in the merged financial statements.
2. Computation of Purchase Consideration and the manner in which it will be
discharged
Number of shares to be issued by Moon Ltd. to Sun Ltd. to maintain the same percentage
i.e. 56%
Since 14,00,000 shares of Moon Ltd. (given in the balance sheet) represent 56%, the total
number of shares would be 25,00,000 shares (14,00,000 shares / 56%).
This implies Moon Ltd. would need to issue 11,00,000 shares (25,00,000 – 14,00,000) to
Sun Ltd.

Purchase Consideration = 11,00,000 shares x ` 20 per share (ie. 2,80,00,000 / 14,00,000

shares) = ` 2,20,00,000.
3. Balance Sheet of Sunmoon Ltd. as on 1.4.20X1 `
ASSETS Note No. Amount
Non-current assets
Property, Plant and Equipment 3,40,00,000
(1,90,00,000 + 1,50,00,000)
Goodwill (Refer Working Note) 18,00,000
Financial assets
Investment (21,00,000 + 11,00,000) 32,00,000
Current assets
Inventory (26,00,000 + 55,00,000) 81,00,000
Financial assets
Trade receivables (36,00,000 + 80,00,000) 1,16,00,000
Cash and Cash equivalent
(9,00,000 + 8,00,000) 17,00,000
6,04,00,000
Equity
Equity share capital (of face value of ` 10 each) 1 2,50,00,000
Other equity 2 1,64,00,000
Liabilities
Borrowings (12% Debentures) 1,40,00,000
3
(60,00,000 + 80,00,000)
Current liabilities
Trade payables (20,00,000 + 30,00,000) 50,00,000
6,04,00,000
Notes to Accounts
( `) ( `)
1. Share Capital
25,00,000 Equity Shares of ` 10 each (14,00,000 to
Moon Ltd. and 11,00,000 as computed above, to 2,50,00,000
Sun Ltd.)
2. Other Equity
General reserve of Moon Ltd. 40,00,000
7

Profit and loss of Moon Ltd. 10,00,000

Export profit reserve of Moon Ltd. 2,00,000
Investment allowance reserve of Moon Ltd. 2,00,000
Security premium (11,00,000 shares x ` 10) 1,10,00,000 1,64,00,000
3. Long Term Borrowings
12% Debentures 1,40,00,000
Working Note:
Computation of Goodwill
Assets: `
Property, plant and equipment 1,90,00,000
Investment 21,00,000
Inventory 26,00,000
Trade receivables 36,00,000
Cash & cash equivalent 9,00,000
Total assets 2,82,00,000
Less: Liabilities:
Borrowings (12% Debentures) (60,00,000)
Trade payables (20,00,000)
Net assets A 2,02,00,000
Purchase consideration B 2,20,00,000
Goodwill 18,00,000
(B-A)
3. (b)
1 st April, 20X1 31 st March, 20X2 31 st March, 20X3
` ` `
Equity alternative (1,500 x 1,53,000
102)
Cash alternative (1,000 x 1,13,000
113)
Equity option (1,53,000 – 40,000
1,13,000)
Cash option (cumulative) (1,000x120 x ½ ) 1,32,000
(using period end fair value 60,000
Equity option (cumulative) (40,000 x ½) 40,000
20,000
Expense for the period
Equity option 20,000 20,000
Cash Option 60,000 72,000
Total 80,000 92,000

Journal Entries
31st March, 20X2 `
Employee benefits expenses Dr. 80,000
To Share based payment reserve (equity)* 20,000
To Share based payment liability 60,000
(Recognition of Equity option and cash settlement option)
31 st March, 20X3
Employee benefits expenses Dr. 92,000
To Share based payment reserve (equity)* 20,000
To Share based payment liability 72,000
(Recognition of Equity option and cash settlement option)
Share based payment liability Dr. 1,32,000
To Bank/ Cash 1,32,000

(Settlement in cash)
*The equity component recognized (` 40,000) shall remain within equity. By electing to receive
cash on settlement, the employees forfeited the right to receive equity instruments. However,
ABC Limited may transfer the share based payment reserve within equity, i.e. a transfer from one
component of equity to another.
4. (a) The above issue needs to be examined in the umbrella of the provisions given in Ind AS 1
‘Presentation of Financial Statements’, Ind AS 16 ‘Property, Plant and Equipment’ in relation to
property ‘1’ and ‘2’ and Ind AS 40 ‘Investment Property’ in relation to property ‘3’.
Property ‘1’ and ‘2’
Para 6 of Ind AS 16 ‘Property, Plant and Equipment’ defines:
“Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or
for administrative purposes; and
(b) are expected to be used during more than one period.”
Paragraph 29 of Ind AS 16 states that:
“An entity shall choose either the cost model or the revaluation model as its accounting policy
and shall apply that policy to an entire class of property, plant and equipment ”.
Further, paragraph 36 of Ind AS 16 states that:
“If an item of property, plant and equipment is revalued, the entire class of property, plant and
equipment to which that asset belongs shall be revalued”.
“If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be
recognised in other comprehensive income and accumulated in equity under the heading of
revaluation surplus. However, the increase shall be recognised in profit or loss to the extent
that it reverses a revaluation decrease of the same asset previously recognised in profit or
loss”.


“Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as
long as the asset’s residual value does not exceed its carrying amount”.
Property ‘3’
Ind AS 40 defines ‘Investment property’ as:
“Investment property is property (land or a building—or part of a building—or both) held (by the
owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or
both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes; or
(b) sale in the ordinary course of business”.
“An entity shall adopt as its accounting policy the cost model to all of its investment property”.
Further, paragraph 79 (e) of Ind AS 40 requires that:
“An entity shall disclose the fair value of investment property”.
Further, paragraph 54 (2) of Ind AS 1 ‘Presentation of Financial Statements’ requires that:
“As a minimum, the balance sheet shall include line items that present the following amounts:
(a) property, plant and equipment;
(b) investment property;
As per the facts given in the question, Venus Ltd. has
(a) presented all three properties in balance sheet as ‘property, plant and equipment’;
(b) applied different accounting policies to Property ‘1’ and ‘2’;
(c) revaluation is charged in statement of profit and loss as profit; and
(d) applied revaluation model to Property ‘3’ being classified as Investment Property.
This accounting treatment is neither correct nor in accordance with provision of Ind
AS 1, Ind AS 16 and Ind AS 40.
Accordingly, Venus Ltd. shall apply the same accounting policy (i.e. either revaluation or cost
model) to entire class of property being property ‘1’ and ‘2”. It also required to depreciate these
properties irrespective of that, their fair value exceeds the carrying amount. The revaluation gain
shall be recognised in other comprehensive income and accumulated in equity under the heading
of revaluation surplus.
There is no alternative of revaluation model in respect to property ‘3’ being classified as
Investment Property and only cost model is permitted for subsequent measurement. However,
Venus ltd. is required to disclose the fair value of the property in the Notes to Accounts. Also the
property ‘3’ shall be presented as separate line item as Investment Property.
Therefore, as per the provisions of Ind AS 1, Ind AS 16 and Ind AS 40, the presentation of these
three properties in the balance sheet is as follows:
10

Case 1: Venus Ltd. has applied the Cost Model to an entire class of property, plant and
equipment.
Balance Sheet (extracts) as at 31 st March, 20X2 `
Assets
Non-Current Assets
Property, Plant and Equipment
Property ‘1’ 13,500
Property ‘2’ 9,000 22,500
Investment Properties
Case 2: Venus Ltd. has applied the Revaluation Model to an entire class of property, plant
and equipment.
Balance Sheet (extracts) as at 31 st March, 20X2 `
Assets
Non-Current Assets
Property, Plant and Equipment
Property ‘2’ 11,000 27,000
Investment Properties

Other Equity
Revaluation Reserve
Property ‘1’ [16,000 – (15,000 – 1,500)] 2,500
Property ‘2’ [11,000 – (10,000 – 1,000)] 2,000 4,500
The revaluation reserve should be routed through Other Comprehensive Income (subsequently
not reclassified to Profit and Loss) in Statement of Profit and Loss and shown in a separate
column under Statement of Changes in Equity.
(b) Inventory and debtors need to be classified in accordance with the requirement of Ind AS 1,
which provides that an asset shall be classified as current if an entity expects to realise the
same, or intends to sell or consume it in its normal operating cycle.
(a) In this case, time lag between the purchase of inventory and its realisation into cash is 19
months [11 months + 8 months]. Both inventory and the debtors would be classified as
current if the entity expects to realise these assets in its normal operating cycle.
(b) No, the answer will be the same as the classification of debtors and inventory depends on
the expectation of the entity to realise the same in the normal operating cycle. In this case,
11

time lag between the purchase of inventory and its realisation into cash is 28 months [15
months + 13 months]. Both inventory and debtors would be classified as current if the entity
expects to realise these assets in the normal operating cycle.
(c) As per Ind AS 23, Borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset form part of the cost of that asset. Other borrowing costs are
recognised as an expense.
Where, a qualifying asset is an asset that necessarily takes a substantial period of time to ge t
ready for its intended use or sale.
Accordingly, the treatment of Interest of ` 68.20 lacs occurred during the year
20X1-20X2 would be as follows:
(i) When construction of asset completed on 30 th April, 20X2
The treatment for total borrowing cost of ` 68.20 lakh will be as follows:
Purpose Nature Interest to be Interest to be charged to
capitalised profit and loss account
` in lakh ` in lakh
Modernisation and Qualifying [68.20 x (510/620)] =
renovation of plant asset 56.10
and machinery
Advance to suppliers Qualifying [68.20 x (54/620)] =
for additional assets asset 5.94
Working Capital Not a [68.20 x (56/620)] = 6.16
qualifying
asset
62.04 6.16
(ii) When construction of assets is completed by 28 th February, 20X2
When the process of renovation gets completed in less than 12 months, the plant and
machinery and the additional assets will not be considered as qualifying assets (until and
unless the entity specifically considers that the assets took substantial period of time for
completing their construction). Accordingly, the whole of interest will be required to be
charged off / expensed off to Profit and loss account.
5. (a) (i) Determination of how revenue is to be recognised in the books of ABC Ltd. as per expe cted
value method
Calculation of probability weighted sales volume
Sales volume Probability Probability-weighted
(units) sales volume (units)
9,000 15% 1,350
28,000 75% 21,000
36,000 10% 3,600
25,950
Calculation of probability weighted sales value
Sales volume Sales price per Probability Probability-weighted
(units) unit (`) sales value (`)
9,000 90 15% 1,21,500
12

28,000 80 75% 16,80,000

36,000 70 10% 2,52,000
20,53,500
Average unit price = Probability weighted sales value/ Probability weighted sales volume
= 20,53,500 / 25,950 = ` 79.13 per unit
Revenue is recognised at ` 79.13 for each unit sold. First 10,000 units sold will be booked
at ` 90 per unit and liability is accrued for the difference price of ` 10.87 per unit (` 90 – `
79.13), which will be reversed upon subsequent sales of 15,950 units (as the question
states that ABC Ltd. achieved the same number of units of sales to the custom er during the
year as initially estimated under the expected value method for the financial year 20X1-
20X2). For, subsequent sale of 15,950 units, contract liability is accrued at ` 0.87 (80 –
79.13) per unit and revenue will be deferred.
(ii) Determination of how revenue is to be recognised in the books of ABC Ltd. as per
most likely method
Transaction price will be:
28,000 units x ` 80 per unit = ` 22,40,000
Average unit price applicable = ` 80
First 10,000 units sold will be booked at ` 90 per unit and liability of ` 1,00,000 is accrued
for the difference price of ` 10 per unit (` 90 – ` 80), which will be reversed upon
subsequent sales of 18,000 units (as question states that ABC Ltd. achieved the same
number of units of sales to the customer during the year as initially estimated under the
most likely method for the financial year 20X1-20X2).
(iii) Journal Entries in the books of ABC Ltd.
(when revenue is accounted for as per expected value method for
financial year 20X1-20X2)
ft ` `
1. Bank A/c (10,000 x ` 90) Dr. 9,00,000
To Revenue A/c (10,000 x ` 79.13) 7,91,300
To Liability (10,000 x ` 10.87) 1,08,700
(Revenue recognised on sale of first 10,000 units)
2. Bank A/c [(25,950 x ` 80)- 9,00,000] Dr. 11,76,000
Liability Dr. 86,124
To Revenue A/c (15,950 x ` 79.13) 12,62,124
(Revenue recognised on sale of remaining 15,950
units (25,950 - 10,000). Amount paid by the
customer will be the balance amount after adjusting
the excess paid earlier since, the customer falls now
in second slab)
3. Liability (1,08,700 – 86,124) Dr. 22,576
To Revenue A/c [25,950 x (80-79.13)] 22,576
(On reversal of liability at the end of the financial year
20X1-20X2 i.e. after completion of stipulated time)
13

Alternatively, in place of first two entries, one consolidated entry may be passed as
follows:
Bank A/c (25,950 x ` 80) Dr. 20,76,000
To Revenue A/c (25,950 x ` 79.13) 20,53,424
To Liability (25,950 x ` 0.87) 22,576
(Revenue recognised on sale of 25,950 units)
Note: In 2nd journal entry, it is assumed that the customer had paid balance amount of `
11,76,000 after adjusting excess ` 1,00,000 paid with first lot of sale of 10,000 unit. However,
one can pass journal entry with total sales value of ` 12,76,000 (15,950 units x ` 80 per unit) and
later on pass third entry for refund. In such a situation, alternatively, 2 nd and 3rd entries would be
as follows:
Bank A/c (15,950 x ` 80) Dr. 12,76,000
To Revenue A/c (15,950 x ` 79.13) 12,62,124
To Liability 13,876
(Revenue recognised on sale of remaining 15,950
units (25,950 - 10,000))
Liability (1,08,700 + 13,876) Dr. 1,22,576
To Revenue A/c [25,950 x (80-79.13)] 22,576
To Bank 1,00,000
(On reversal of liability at the end of the financial
year 20X1-20X2 i.e. after completion of stipulated
time and excess amount refunded)
(b) (i) An earnings-based valuation of Entity A’s holding of shares in company XYZ could be
calculated as follows:
Particulars Unit
Entity XYZ’s after-tax maintainable profits (A) ` 70,000
Price/Earnings ratio (B) 15
Adjusted discount factor (C) (1- 0.20) 0.80
Value of Company XYZ (A) x (B) x (C) ` 8,40,000
Value of a share of XYZ = ` 8,40,000 ÷ 5,000 shares = ` 168

The fair value of Entity A’s investment in XYZ’s shares is estimated at ` 42,000 (that is, 250
shares × ` 168 per share).
(ii) Share price = ` 8,50,000 ÷ 5,000 shares = ` 170 per share.
The fair value of Entity A’s investment in XYZ shares is estimated to be ` 42,500 (250
shares × ` 170 per share).
6. (a)
Description Calculation or reason `
Purchase price ` 600,000 purchase price minus ` 50,000 550,000
refundable purchase taxes
Loan raising fee Offset against the measurement of the liability -
14

Transport cost Directly attributable expenditure 20,000

Installation costs Directly attributable expenditure 100,000
Environmental The obligation to dismantle and restore the 100,000
restoration costs environment arose from the installation of the
equipment
Preparation costs ` 55,000 materials + ` 65,000 labour + ` 15,000 135,000
depreciation
Training costs Recognised as expenses in profit and loss -
account. The equipment was capable of operating
in the manner intended by management without
incurring the training costs.
Cost of testing ` 21,000 materials (ie net of the ` 3,000 recovered 37,000
from the sale of the scrapped output) + ` 16,000
labour
Operating loss Recognised as expenses in profit and loss account -
Borrowing costs Recognised as expenses in profit and loss account -
Cost of equipment 9,42,000
(b) As per paragraph 8(b) of Ind AS 40, any land held for currently undetermined future use, should
be classified as an investment property. Hence, in this case, the land would be regarded as held
for capital appreciation. Hence the land property should be classified by X Ltd as investment
property in the financial statements as at 31 March 20X1.
As per Para 57 of the Standard, an entity can change the classification of any property to, and
from, an investment property when and only when evidenced by a change in use. A change
occurs when the property meets or ceases to meet the definition of investment property and there
is evidence of the change in use. Mere management’s intention for use of the property does not
provide evidence of a change in use.
Accordingly, the property in different cases would be classified as under:
(a) Since X Ltd has commenced construction of office building on it for own use, the property
should be reclassified from investment property to owner occupied as at
31 March 20X2.
(b) As per Para 59, transfers between investment property, owner occupied and inve ntories
do not change the carrying amount of the property transferred and they do not change the
cost of the property for measurement or disclosure purposes.
(c) No. The change in classification to, or from, investment properties is due to change in use
of the property. No retrospective application is required and prior period’s financial
statements need not be re-stated.
(d) Mere management intentions for use of the property do not evidence change in use. Since
X Ltd has no plans to commence construction of the office building during 20X1-20X2, the
property should continue to be classified as an investment property by X Ltd. in its
financial statements as at 31 March 20X2.
(c) Either
Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets” defines an onerous contract
as a contract in which the unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it.
15

Paragraph 68 of Ind AS 37 states that the unavoidable costs under a contr act reflect the least net
cost of exiting from the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfill it.
In the instant case, cost of fulfilling the contract is ` 0.5 million (` 2.5 million – ` 2 million) and
cost of exiting from the contract by paying penalty is ` 0.25 million.
In accordance with the above reproduced paragraph, it is an onerous contract as cost of meeting
the contract exceeds the economic benefits.
Therefore, the provision should be recognised at the best estimate of the unavoidable cost, which
is lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it,
i.e., at ` 0.25 million (lower of ` 0.25 million and ` 0.5 million).
(c) OR
A Ltd. will recognise a non-monetary contract liability amounting ` 1,440 million, by translating
USD 20 million at the exchange rate on 1 st January, 20X1 ie ` 72 per USD.
A Ltd. will recognise revenue at 31 st March, 20X1 (that is, the date on which it transfers the goods
to the customer).
A Ltd. determines that the date of the transaction for the revenue relating to the advance
consideration of USD 20 million is 1 st January, 20X1. Applying paragraph 22 of Ind AS 21, A Ltd.
determines that the date of the transaction for the remainder of the revenue as 31 st March, 20X1.
On 31st March, 20X1, A Ltd. will:
• derecognise the non-monetary contract liability of USD 20 million and recognise USD 20
million of revenue using the exchange rate as at 1 st January, 20X1 ie ` 72 per USD; and
• recognise revenue and a receivable for the remaining USD 30 million, using the exchange
rate on 31 st March, 20X1 ie ` 75 per USD.
• the receivable of USD 30 million is a monetary item, so it should be translated using the
closing rate until the receivable is settled.
16

Test Series: September, 2022

MOCK TEST PAPER 1
1. Company X is engaged in the business of exploration & development of Oil & Gas Blocks. It currently
holds participating interest (PI) along with other companies in below mentioned producing Block as
follows:
Block Name Company X Company Y Company Z Total
AWM/01 30% 60% 10% 100%
For the above Block, Company X, Y & Z has entered into unincorporated Joint Venture.
Company Y is the Operator of the Block AWM/01. Company X and Company Z are the Joint
Operators. Company Y incurs all the expenditure on behalf of Joint Venture and raise cash call to
Company X and Company Z at each month end in respect of their share of expenditure incurred in
Joint Venture. All the manpower and requisite facilities / machineries owned by the Joint venture and
thereby owned by all the Joint Operators.
For past few months, due to liquidity issues, Company Z defaulted in payment of cash calls to
operators. Therefore, company Y (Operator) has issued notice to company Z for withdrawal of their
participating right from on 1.4.20X1. However, company Z has filed the appeal with arbitrator on
30.4.20X1.
Financial performance of company Z has not been improved in subsequent months and therefore
company Z has decided to withdraw participating interest rights from Block AWM/01 and entered into
sale agreement with Company X and Company Y. As per the terms of the agreement, dated
31.5.20X1, Company X will receive 33.33% share & Company Y will receive 66.67% share of PI rights
owned by Company Z.
Company X is required to pay ` 1,00,000 against 33.33% share of PI rights owned by
Company Z.
After signing of sale agreement, Operator (company Y) approach Government of India for modification
in PSC (Production Sharing Contract) i.e. removal of Company Z from PSC of AWM/01 and
government has approved this transaction on 30.6.20X1. Government app roval for the modification in
PSC is essential for the given industry in which the joint-operators operate.

Balance Sheet of Company X and Company Z

Company X Company Z
Particulars
31.5.20X1 30.6.20X1 31.5.20X1 30.6.20X1
` ` ` `
Assets
Non-Current Assets
Property, Plant & Equipment 5,00,000 10,00,000 1,50,000 3,00,000
Right of Use Asset 1,00,000 2,00,000 10,000 20,000
Development CWIP 50,000 1,00,000 50,000 1,00,000
Financial Assets
Loan receivable 25,000 50,000 25,000 50,000
Total Non-Current Assets 6,75,000 13,50,000 2,35,000 4,70,000
Current assets
Inventories 1,00,000 2,00,000 15,000 30,000
Financial Assets
Trade receivables 1,50,000 3,00,000 50,000 1,00,000
Cash and cash equivalents 2,00,000 4,00,000 1,00,000 2,00,000
Other Current Assets 2,25,000 50,000 25,000 50,000
Total Current Assets 6,75,000 9,50,000 1,90,000 3,80,000
Total Assets 13,50,000 23,00,000 4,25,000 8,50,000
Equity
Equity share capital 3,00,000 3,00,000 1,00,000 1,00,000
Other equity 2,00,000 3,00,000 75,000 2,50,000
Total Equity 5,00,000 6,00,000 1,75,000 3,50,000
Liabilities
Non-Current Liabilities
Provisions 4,00,000 8,00,000 1,00,000 2,00,000
Other Liabilities 1,50,000 3,00,000 50,000 1,00,000
Total Non-Current Liabilities 5,50,000 11,00,000 1,50,000 3,00,000
Current Liabilities
Financial Liabilities
Trade Payables 3,00,000 6,00,000 1,00,000 2,00,000
Total Current Liabilities 3,00,000 6,00,000 1,00,000 2,00,000
Total Liabilities 13,50,000 23,00,000 4,25,000 8,50,000
Additional Information:
1. Fair value of PPE & Development CWIP owned by Company Z as per market participant approach
is ` 5,00,000 & ` 2,00,000 respectively.
2. Fair value of all the other assets and liabilities acquired are assumed to be at their carrying values
(except cash & cash equivalent). Cash and cash equivalents of Company Z are not to be acquired
by Company X as per the terms of agreement.
3. Tax rate is assumed to be 30%.
2

4. As per Ind AS 28, all the joint operators are joint venturers whereby each parties that have joint
control of the arrangement have rights to the net assets of the arrangement and therefore every
operator records their share of assets and liabilities in their books.
You need to determine the following:
1. Whether the above acquisition falls under business or asset acquisition as defined under business
combination standard Ind AS 103?
2. Determine the acquisition date in the above transaction?
3. Prepare Journal entries for the above-mentioned transaction?
4. Draft the Balance Sheet for Company X based on your analysis in Part 1 above as at acquisition
date.
5. Is this a case of step acquisition? Explain. (20 Marks)
2. (a) A Limited is engaged in the manufacturing of certain specialized chemicals. During the
manufacturing process, certain wastewater is produced which is released by A Limited in the
nearby river. To reduce pollution of the rivers, the state government has introduced a scheme
with the following salient features:
• If a manufacturer installs certain pre-approved wastewater treatment plant, the
government will provide an interest free loan equal to 50% of the cost of the plant;
• Such loan will be repayable to the government in 5 years from the date of disbursal;
• The manufacturer availing the benefit of this scheme must treat the wastewater of its
factory using the specified plant before releasing it to the river. If this condition is
violated, the entire loan shall become immediately repayable to the government along
with a penalty of ` 10 lakh.
Cost of the wastewater treatment plant to be installed to avail the benefit of the scheme is
` 50 lakh. A Limited decided to utilise this scheme because, if it were to obtain the similar loan
from a bank, it would be available at a market interest rate of 12% per annum. Accordingly,
A Limited applied for and obtained the government loan of ` 25 lakh on 1 st April, 20X1. A Limited
purchased and installed the plant such that it became ready for use on the same date.
A Limited has an accounting policy of recognising government grant in relation to depreciable
assets in the proportion of depreciation expense. It has determined that the plant will be
depreciated over a period of 5 years using straight-line method. In the month of March, 20X3,
government officials conducted a surprise audit, and it was found that A Limited was not using
the wastewater treatment plant as prescribed. Accordingly, on 31 st March, 20X3, the government
ordered A Limited to repay the entire loan along with penalty. A Limited rep aid the loan with
interest and penalty as per the order on 31 st March, 20X3.
Measure the amount of government grant as on 1 st April, 20X1. Determine the nature of the
government grant and its accounting treatment (principally) for the year ended 31 st March, 20X2.
Also determine the impact on profit or loss if any, on account of revocation of government grant
as on 31st March, 20X3. (12 Marks)
(b) From the following data of Galaxy Ltd., prepare statement of cash flows showing cash generated
from Operating Activities using direct method as per Ind AS 7:
31.3.20X2 31.3.20X1
(`) (`)
Current Assets:
Inventory 1,20,000 1,65,000
Trade receivables 2,05,000 1,88,000
Cash & cash equivalents 35,000 20,500
3

Current Liabilities:
Trade payable 1,95,000 2,15,000
Provision for tax 48,000 65,000
Summary of Statement of Profit and Loss `

Sales 85,50,000
Less: Cost of sales (56,00,000) 29,50,000
Other Income
Interest income 20,000
Fire insurance claim received 1,10,000 1,30,000
30,80,000
Depreciation (24,000)
Administrative and selling expenses (15,40,000)
Interest expenses (36,000)
Foreign exchange loss (18,000) (16,18,000)
Net Profit before tax and extraordinary income 14,62,000
Income Tax (95,000)
Net Profit 13,67,000
Additional information:
(i) Trade receivables and Trade payables include amounts relating to credit sale and credit
purchase only.
(ii) Foreign exchange loss represents increment in liability of a long-term borrowing due to
exchange rate fluctuation between acquisition date and balance sheet date. (8 Marks)
3. (a) A Ltd. is a company which is in the business of manufacturing engineering machines and
providing after sales services. The company entered into a contract with Mr. Anik to supply and
install a machine, namely 'model pi' on 1 st April 20X1 and to service this machine on
30th September 20X1 and 1st April 20X2. The cost of manufacturing the machine to A Ltd. was
` 1,60,000.
It is possible for a customer to purchase both the machine 'model pi' and the maintenance
services separately. Mr. Anik is contractually obliged to pay A Ltd ` 4,00,000 on 1 st April, 20X2.
The prevailing rate for one-year credit granted to trade customers in the industry is 5 percent per
six-month period.
As per the experience, the servicing of the machine 'model pi' sold to Mr. Anik is expected to
cost A Ltd. ` 30,000 to perform the first service and ` 50,000 to perform the second service.
Assume actual costs equal expected costs. When A Ltd. provides machine services to
customers in a separate transaction it earns a margin of 50% on cost. On 1 st April, 20X1, the
cash selling price of the machine 'model pi' sold to Mr. Anik is ` 2,51,927.
The promised supply of machine 'model pi' and maintenance service obligations are satisfactorily
carried out in time by the company.
You are required to:
(i) Segregate the components of the transaction that A Ltd. shall apply to the revenue
recognition criteria separately as per Ind AS 115;

(ii) Calculate the amount of revenue which A Ltd. must allocate to each component of the
transaction;
(iii) Prepare journal entries to record the information set out above in the books of accounts of
A Ltd. for the years ended 31 st March·20X2 and 31st March 20X3; and
(iv) Draft an extract showing how revenue could be presented and disclosed in the financial
statements of A Ltd. for the year ended 31 st March 20X2 and 31st March 20X3. (14 Marks)
(b) Analyse whether the following activities fall within the scope of Ind AS 41 with proper reasoning:
▪ Managing animal-related recreational activities like Zoo
▪ Fishing in the ocean
▪ Fish farming
▪ Development of living organisms such as cells, bacteria and viruses
▪ Growing of plants to be used in the production of drugs
▪ Purchase of 25 dogs for security purpose of the company’s premises. (6 Marks)
4. (a) HIM Limited having net worth of ` 250 crores is required to adopt Ind AS from 1 st April, 20X2 in
accordance with the Companies (Indian Accounting Standard) Rules 2015.
Rahul, the senior manager, of HIM Ltd. has identified following issues which need speci fic
attention of CFO so that opening Ind AS balance sheet as on the date of transition can be
prepared:
Issue 1: As part of Property, Plant and Equipment, Company has elected to measure land at its
fair value and want to use this fair value as deemed cost on the date of transition. The carrying
value of land as on the date of transition was ` 5,00,000. The land was acquired for a
consideration of ` 5,00,000. However, the fair value of land as on the date of transition was
` 8,00,000.
Issue 2: Under Ind AS, the Company has designated mutual funds as investments at fair value
through profit or loss. The value of mutual funds as per previous GAAP was ` 4,00,000 (at cost).
However, the fair value of mutual funds as on the date of transition was ` 5,00,000.
Issue 3: Company had taken a loan from another entity. The loan carries an interest rate of 7%
and it had incurred certain transaction costs while obtaining the same. It was carried at cost on
its initial recognition. The principal amount is to be repaid in equal instalments over the period of
loan. Interest is also payable at each year end. The fair value of loan as on the date of transition
is ` 1,80,000 as against the carrying amount of loan which at present equals ` 2,00,000.
Issue 4: The company has declared dividend of ` 30,000 for last financial year. On the date
of transition, the declared dividend has already been deducted by the accountant from the
company’s ‘Reserves & Surplus’ and the dividend payable has been grouped under
‘Provisions’. The dividend was only declared by board of directors at that time and it was not
approved in the annual general meeting of shareholders. However, subsequently when the
meeting was held it was ratified by the shareholders.
Issue 5: The company had acquired intangible assets as trademarks amounting to
` 2,50,000. The company assumes to have indefinite life of these assets. The fair value of the
intangible assets as on the date of transition was ` 3,00,000. However, the company wants to
carry the intangible assets at ` 2,50,000 only.
Issue 6: After consideration of possible effects as per Ind AS, the deferred tax impact is
computed as ` 25,000. This amount will further increase the portion of deferred tax liability.
5

There is no requirement to carry out the separate calculation of deferred tax on account of Ind AS
adjustments.
Management wants to know the impact of Ind AS in the financial statements of company for its
general understanding.
Prepare Ind AS Impact Analysis Report (Extract) for HIM Limited for presentation to the
management wherein you are required to discuss the corresponding differences between Earlier
IGAAP (AS) and Ind AS against each identified issue for preparation of transition date balance
sheet. Also pass journal entry for each issue. (14 Marks)
(b) On 1st January, 20X1 an entity accepted an order for 7,000 custom-made corporate gifts.
On 3rd January, 20X1 the entity purchased raw materials to be consumed in the production
process for ` 5,50,000, including ` 50,000 refundable purchase taxes. The purchase price was
funded by raising a loan of ` 5,55,000 (including ` 5,000 loan-raising fees). The loan is secured
by the inventories.
During January 20X1 the entity designed the corporate gifts for the customer.
Design costs included:
• cost of external designer = ` 7,000; and
• labour = ` 3,000.
During February 20X1 the entity’s production team developed the manufacturing technique and
made further modifications necessary to bring the inventories to the conditions specified in the
agreement. The following costs were incurred in the testing phase:
• materials, net of ` 3,000 recovered from the sale of the scrapped output = ` 21,000;
• labour = ` 11,000; and
• depreciation of plant used to perform the modifications = ` 5,000.
During February 20X1, the entity incurred the following additional costs in manufacturing the
customised corporate gifts:
• consumable stores = ` 55,000;
• labour = ` 65,000; and
• depreciation of plant used to manufacture the customised corporate gifts = ` 15,000.
The customised corporate gifts were ready for sale on 1 st March, 20X1. No abnormal wastage
occurred in the development and manufacture of the corporate gifts.
Compute the cost of the inventory? Substantiate your answer with appropriate reasons and
calculations, wherever required. (6 Marks)
5. (a) On 1st April, 20X1, Sun Limited guarantees a ` 10,00,000 loan of Subsidiary – Moon Limited,
which Bank STDK has provided to Moon Limited for three years at 8%.
Interest payments are made at the end of each year and the principal is repaid at the end of the
loan term.
If Sun Limited had not issued a guarantee, Bank STDK would have charged Moon Limited an
interest rate of 11%. Sun Limited does not charge Moon Limited for providing the guarantee.

On 31st March 20X2, there is 1% probability that Moon Limited may default on the loan in the next
12 months. If Moon Limited defaults on the loan, Sun Limited does not expect to recover any
amount from Moon Limited.
On 31st March 20X3, there is 3% probability that Moon Limited may default on the loan in the next
amount from Moon Limited.
Discuss the accounting treatment of financial guarantee as per Ind AS 109 in the books of
Sun Ltd., on initial recognition and in subsequent periods till 31 st March 20X3 and provide journal
entries for the same. (10 Marks)
(b) ABC Limited granted to its employees, share options with a fair value of ` 5,00,000 on
1st April, 20X0, if they remain in the organization upto 31 st March, 20X3. On 31 st March, 20X1,
ABC Limited expects only 91% of the employees to remain in the employment. On
31st March, 20X2, company expects only 89% of the employees to remain in the employment.
However, only 82% of the employees remained in the organisation at the end of March, 20X3 and
all of them exercised their options. Pass the Journal entries? (5 Marks)
(c) An entity has the following trial balance line items. How should these items be classified, i.e.,
current or non-current as per Ind AS 1?
(a) Receivables (viz., receivable under a contract of sale of goods in which an entity deals)
(b) Advance to suppliers
(c) Income tax receivables [other than deferred tax]
(d) Insurance spares (5 Marks)
6. (a) Super Sounds Limited had the following transactions during the Financial Year 20 X1-20X2.
(i) On 1st April 20X1, Super Sounds Limited purchased the net assets of Music Limited for
` 13,20,000. The fair value of Music Limited's identifiable net assets was ` 10,00,000.
Super Sounds Limited is of the view that due to popularity of Music Limited's product, the
life of goodwill is 10 years.
(ii) On 4th May 20X1, Super Sounds Limited purchased a Franchisee to organize musical shows
from Armaan TV for ` 80,00,000 and at an annual fee of 2% of musical shows revenue.
The Franchisee expires after 5 years. Musical shows revenue were ` 10,00,000 for
financial year 20X1-20X2. The projected future revenues for financial year 20X2-20X3 is
` 25,00,000 and ` 30,00,000 p.a. for remaining 3 years thereafter.
(iii) On 4th July 20X1, Super Sounds Limited was granted a Copyright that had been applied for
by Music Limited. During financial year 20X1-20X2, Super Sound Limited incurred
` 2,50,000 on legal cost to register the Patent and ` 7,00,000 additional cost to successfully
prosecute a copyright infringement suit against a competitor.
The life of the Copyright is for 10 years.
Super Sound Limited follows an accounting policy to amortize all intangible on SLM (Straight Line
Method) basis or any appropriate basis over a maximum period permitted by relevant
Ind AS, taking a full year amortization in the year of acquisition.
You are required to prepare:
(i) A Schedule showing the intangible section in Super Sound Limited Balance Sheet as on
31st March 20X2, and
7

(ii) A Schedule showing the related expenses that would appear in the Statement of Profit and
Loss of Super Sound Limited for the year ended 20X1-20X2. (10 Marks)
(b) The Company has entered into a lease agreement for its retail store as on 1 st April, 20X1 for a
period of 10 years. A lease rental of ` 56,000 per annum is payable in arrears. The Company
recognized a lease liability of ` 3,51,613 at inception using an incremental borrowing rate of
9.5% p.a. as at 1 st April 20X1. As per the terms of lease agreement, the lease rental shall be
adjusted every 2 years to give effect of inflation. Inflation cost index as notified by the Income
tax department shall be used to derive the lease payments. Inflation cost index was 280 for
financial year 20X1-20X2 and 301 for financial year 20X3-20X4. The current incremental
borrowing rate is 8% p.a.
Show the Journal entry at the beginning of year 3, to account for change in lease. (5 Marks)
(c) Either
While preparing an opening balance sheet on the date of transition, an entity is required to:
(a) recognise all assets and liabilities whose recognition is required by Ind AS;
(b) reclassify items that it recognised in accordance with previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset, liability or component of
equity in accordance with Ind AS; and
(c) apply Ind AS in measuring all recognised assets and liabilities.
Give 2 examples for each of the above categories. (5 Marks)
OR
ABC Ltd. 1 st January, 20X1 Shares in issue 10,00,000
31 st March, 20X1 (a) Rights issue 1 for 5 at 90 paise
(b) Fair value of shares ` 1 (cum-rights price)
Calculate the number of shares for use in the EPS calculation for the calendar year. (5 Marks)

Test Series: September, 2022

MOCK TEST PAPER 1
ANSWERS
1. (1) Ind AS 103 defines business as an integrated set of activities and assets that is capable of
being conducted and managed for the purpose of providing goods or services to customers,
generating investment income (such as dividends or interest) or generating other income from
ordinary activities.
For a transaction to meet the definition of a business combination (and for the acquisition method
of accounting to apply), the entity must gain control of business that is more than a collection of
assets or a combination of assets and liabilities.
To be capable of being conducted and managed for the purpose identified in the definition of a
business, an integrated set of activities and assets requires two essential elements —inputs and
processes applied to those inputs.
Therefore, an integrated set of activities and assets must include, at a minimum, an inp ut and a
substantive process that together significantly contribute to the ability to create output.
In the aforesaid transaction, Company X acquired share of participating rights owned by
Company Z for the producing Block (AWM/01). The output exist in this transaction (Considering
AWM/01) is a producing block. Also all the manpower and requisite facilities / machineries are
owned by Joint venture and thereby all the Joint Operators. Hence, acquiring participating rights
tantamount to acquire inputs (Expertise Manpower & Machinery) and it is critical to the ability to
continue producing outputs. Thus, the said acquisition will fall under ‘Business Acquisition’ and
hence standard Ind AS 103 is to be applied for the same.
(2) As per paragraph 8 of Ind AS 103, acquisition date is the date on which the acquirer obtains
control of the acquiree. Further, paragraph 9 of Ind AS 103 clarifies that the date on which the
acquirer obtains control of the acquiree is generally the date on which the acquirer legally
transfers the consideration, acquires the assets and assumes the liabilities of the acquiree —the
closing date. However, the acquirer might obtain control on a date that is either earlier or later
than the closing date.
An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.
Since Government of India (GOI) approval is a substantive approval for Company X to acquire
control of Company Z’s operations, the date of acquisition cannot be earlier than the date on
which approval is obtained from GOI. This is pertinent given that the approval from GOI is
considered to be a substantive process and accordingly, the acquisition is considered to be
completed only on receipt of such approval. Hence, acquisition date in the above scenario is
30.6.20X1.
(3) Journal entry for acquisition
Amount Amount
Particulars (`) (`)
Property Plant & Equipment (W.N.1) Dr. 1,66,650
Right-of-use Asset Dr. 6,666
Development CWIP (W.N.2) Dr. 66,660
Financial Assets - Loan Receivables Dr. 16,665
Inventories Dr. 9,999
1

Trade Receivables Dr. 33,330

Other Current Assets Dr. 16,665
To Provisions 66,660
To Other Liabilities 33,330
To Trade Payables 66,660
To Deferred Tax Liability (W.N.4) 29,997
To Cash & Cash Equivalent (purchase
consideration) 1,00,000
To Gain on bargain purchase (Other
Comprehensive Income) (W.N.3) (Bal. fig.) 19,988
(Being assets acquired and liabilities assumed from Company Z recorded at fair value
along gain on bargain purchase)
(4) Balance Sheet of Company X as at 30.6.20X1
(Pre & Post Acquisition of PI rights pertaining to Company Z)
Pre-Acquisition Adjustments Post-Acquisition
Particulars
30.6.20X1 33.33% Share 30.6.20X1
Assets
Non-Current Assets
Property Plant & Equipment 10,00,000 1,66,650 11,66,650
Right of Use Asset 2,00,000 6,666 2,06,666
Development CWIP 1,00,000 66,660 1,66,660
Financial Assets
Loan receivable 50,000 16,665 66,665
Total Non-Current Assets 13,50,000 2,56,641 16,06,641
Current assets
Inventories 2,00,000 9,999 2,09,999
Financial Assets
Trade receivables 3,00,000 33,330 3,33,330
Cash and cash equivalents 4,00,000 (1,00,000) 3,00,000
Other Current Assets 50,000 16,665 66,665
Total Current Assets 9,50,000 (40,006) 9,09,994
Total Assets 23,00,000 2,16,635 25,16,635
Equity
Equity share capital 3,00,000 3,00,000
Other equity 3,00,000 3,00,000
Capital Reserve (OCI) 19,988 19,988
Total Equity 6,00,000 19,988 6,19,988

Liabilities
Non-Current Liabilities
Provisions 8,00,000 66,660 8,66,660
Other Liabilities 3,00,000 33,330 3,33,330
Deferred Tax Liability 29,997 29,997
Total Non-Current Liabilities 11,00,000 1,29,987 12,29,987
Current Liabilities
Trade Payables 6,00,000 66,660 6,66,660
Total Current Liabilities 6,00,000 66,660 6,66,660
Total Equity and Liabilities 23,00,000 2,16,635 25,16,635
(5) As per Ind AS 103, in case an entity acquires another entity step by step through series of
purchase then the acquisition date will be the date on which the acquirer obtains control. Till the
time the control is obtained the investment will be accounted as per the requiremen ts of other
Ind AS 109, if the investments are covered under that standard or as per Ind AS 28, if the
investments are in Associates or Joint Ventures.
If a business combination is achieved in stages, the acquirer shall remeasure its previously held
equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or
loss, if any, in profit or loss or other comprehensive income, as appropriate.
Since in the above transaction, company X does not hold any prior interest in Company Z and
company holds only 30% PI rights in Block AWM/01 through unincorporated joint venture, this is
not a case of step acquisition.
Working Notes:
1. Fair Value of Property, plant and equipment
Fair Value of PPE in Company Z Books ` 5,00,000

33.33% Share acquired by Company X ` 1,66,650
2. Fair Value of Development CWIP:
Fair Value of PPE in Company Z Books ` 2,00,000

33.33% Share acquired by Company X ` 66,660
3. Computation Goodwill/Bargain Purchase Gain
Particulars As at 30.6.20X1 (`)

Total Non - Current Assets 2,56,641
Total Current Assets (Except Cash & Cash Equivalent of
59,994
` 66,660) (1,26,654 – 66,660)
Total Non-Current Liabilities (99,990)
Total Current Liabilities (66,660)
Total Deferred Tax Liability (Refer Working note 3) (29,997)
3

Net Assets acquired 1,19,988

Less: Consideration Paid (1,00,000)
Gain on Bargain Purchase* (To be transferred to OCI) 19,988
*In extremely rare circumstances, an acquirer will make a bargain purchase in a business
combination in which the value of net assets acquired in a business combination exceeds the
purchase consideration. The acquirer shall recognise the resulting gain in other comprehensive
income on the acquisition date and accumulate the same in equity as capital reserve, if the
reason for bargain purchase gain is clear and evidence exist. If there does not exist clear
evidence of the underlying reasons for classifying the business combination as a bargain
purchase, then the gain shall be recognised directly in equity as capital reserve. Since in above
scenario it is clearly evident that due to liquidity issues, Company Z has to withdraw their
participating right from AWM/01. The said bargain purchase gain should be transferred to other
comprehensive income on the acquisition date.
4. Computation of Deferred Tax Liability arising on Business Combination
Acquisition
Particulars
Date Value (`)
Total Non - Current Assets 2,56,641
Total Current Assets (Except Cash & Cash Equivalent of ` 66,660) 59,994
Total Non-Current Liabilities (99,990)
Total Current Liabilities (66,660)
Net Assets Acquired at Fair Value 1,49,985
Book value of Net Assets Acquired 49,995
Temporary Difference 99,990
DTL @ 30% on Temporary Difference 29,997
2. (a) As per the principles of Ind AS 20 “Accounting for Government Grants and Disclosure of
Government Assistance”, the benefits of a government loan at a below market rate of interest is
treated as a government grant. The loan shall be recognized and measured in accordance with
Ind AS 109 “Financial Instruments”. The benefit of the below market rate of interest shall be
measured as 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 in
accordance with Ind AS 20. As per Ind AS 109, the loan should be initially measured at its fair
value.
Initial recognition of grant as on 1 st April, 20X1
Fair value of loan = ` 25,00,000 x 0.567 (PVF @ 12%, 5 th year) = ` 14,17,500
A Limited will recognize ` 10,82,500 (25,00,000 – 14,17,500) as the government grant and will
make the following entry on receipt of loan:
Date Particulars Dr. (`) Cr. (`)
1.4.20X1 Bank account Dr. 25,00,000
To Deferred Grant Income 10,82,500
To Loan account 14,17,500
(Being grant initially recorded at fair value)

Accounting treatment for year ending 31 st March, 20X2

As per para 3 of Ind AS 20, grants related to assets are government grants whose primary
condition is that an entity qualifying for them should purchase, construct or otherwise acquire
long-term assets.
As per para 24-27 of Ind AS 20, Government grants related to assets, including non-monetary
grants at fair value, shall be presented in the balance sheet either by setting up the grant as
deferred income or by deducting the grant in arriving at the carrying amount of the asset.
One method recognises the grant as deferred income that is recognised in profit or loss on a
systematic basis over the useful life of the asset.
The other method deducts the grant in calculating the carrying amount of the asset. The grant is
recognised in profit or loss over the life of a depreciable asset as a reduced depreciation
expense.
A Ltd. has adopted first method of recognising the grant as deferred income that is recognised in
profit or loss on a systematic basis over the useful life of the asset. Here, deferred income is
recognised in profit or loss in the proportion in which depreciation expense o n the asset is
recognised.
Depreciation for the year (20X1-20X2) = ` 50,00,000 / 5 years = ` 10,00,000
As the loan is to finance a depreciable asset, ` 10,82,500 will be recognized in Profit or Loss on
the same basis as depreciation.
Since the depreciation is provided on straight line basis by A Limited, it will credit ` 2,16,500
(10,82,500 / 5) equally to its statement of profit and loss over the 5 years.
Journal Entries
31.3.20X2 Depreciation (Profit or Loss A/c) Dr. 10,00,000
To Property, Plant & Equipment 10,00,000
(Being depreciation provided for the year)
Deferred grant income Dr. 2,16,500
To Profit or Loss 2,16,500
(Being deferred income adjusted)
Impact on profit or loss due to revocation of government grant as on 31 st March 20X3

As per para 32 of Ind AS 20, a government grant that becomes repayable shall be accounted for
as a change in accounting estimate. Repayment of a grant related to income shall be applied
first against any unamortised deferred credit recognised in respect of the grant. To the extent
that the repayment exceeds any such deferred credit, or when no deferred credit exists, the
repayment shall be recognised immediately in profit or loss.
Amount payable to Government on account of principal loan = ` 25,00,000
Amount payable to Government on account of penalty = ` 10,00,000

Journal Entries
31.3.20X3 Deferred grant income Dr. 2,16,500
To Profit or Loss 2,16,500
(Being deferred income adjusted)
Loan account (W.N.1) Dr. 17,78,112
Deferred grant income (W.N.2) Dr. 6,49,500
Profit or Loss Dr. 72,388
To Government grant payable 25,00,000
(Being refund of government grant)
Profit or Loss Dr. 10,00,000
To Government grant payable 10,00,000
(Being penalty payable to government)
Therefore, total impact on profit or loss on account of revocation of government grant as on

31st March, 20X3 will be ` 10,72,388 (10,00,000 + 72,388).
Circumstances giving rise to repayment of a grant related to an asset may require consideration
to be given to the possible impairment of the new carrying amount of the asset.
Working Notes:
1. Amortisation Schedule of Loan
Year Opening balance of Loan Interest @ 12% Closing balance of Loan
31.03.20X2 14,17,500 1,70,100 15,87,600
31.03.20X3 15,87,600 1,90,512 17,78,112
2. Deferred Grant Income

Year Opening balance Adjustment Closing balance
31.03.20X2 10,82,500 2,16,500 8,66,000
31.03.20X3 8,66,000 2,16,500 6,49,500
(b) Statement of Cash Flows from Operating Activities (Direct Method)

of Galaxy Ltd. for the year ended 31 March 20X2
Particulars ` `
Operating Activities:
Cash received from Trade receivables (W.N. 3) 85,33,000
Less: Cash paid to Suppliers (W.N.2) 55,75,000
Payment for Administration and Selling expenses 15,40,000
Payment for Income Tax (W.N.4) 1,12,000 (72,27,000)
13,06,000

Adjustment for exceptional items (fire insurance claim) 1,10,000

Net cash generated from operating activities 14,16,000
Working Notes:
1. Calculation of total purchases
Cost of Sales = Opening stock + Purchases – Closing Stock
` 56,00,000 = ` 1,65,000 + Purchases – ` 1,20,000
Purchases = ` 55,55,000
2. Calculation of cash paid to Suppliers
Trade Payables
` `
To Bank A/c (balancing figure) 55,75,000 By Balance b/d 2,15,000
To Balance c/d 1,95,000 By Purchases (W.N. 1) 55,55,000
57,70,000 57,70,000
3. Calculation of cash received from Customers

Trade Receivables
` `
To Balance b/d 1,88,000 By Bank A/c (balancing figure) 85,33,000
To Sales 85,50,000 By Balance c/d 2,05,000
87,38,000 87,38,000
4. Calculation of tax paid during the year in cash

Provision for tax
` `
To Bank A/c (balancing figure) 1,12,000 By Balance b/d 65,000
To Balance c/d 48,000 By Profit and Loss A/c 95,000
1,60,000 1,60,000
3. (a) (i) As per para 27 of Ind AS 115, a good or service that is promised to a customer is distinct if
both of the following criteria are met:
(a) the customer can benefit from the good or service either on its own or together with
other resources that are readily available to them. A readily available resource is a
good or service that is sold separately (by the entity or another entity) or that the
customer has already obtained from the entity or from other transactions or events;
and
(b) the entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract.
Factors that indicate that two or more promises to transfer goods or services to a
customer are separately identifiable include, but are not limited to, the following:

(a) significant integration services are not provided (i.e. the entity is not using the goods
or services as inputs to produce or deliver the combined output called for in the
contract)
(b) the goods or services does not significantly modify or customize other promised
goods or services in the contract.
(c) the goods or services are not highly inter-dependent or highly interrelated with other
promised goods or services in the contract
Accordingly, on 1 st April, 20X1, entity A entered into a single transaction with three
identifiable separate components:
1. Sale of a good (i.e. engineering machine);
2. Rendering of services (i.e. engineering machine maintenance services on
30th September, 20X1 and 1st April, 20X2); and
3. Providing finance (i.e. sale of engineering machine and rendering of services on
extended period credit).
(ii) Calculation and allocation of revenue to each component of the transaction
Date Opening Finance Goods Services Payment Closing
balance income received balance
1 st April, 20X1 – – 2,51,927 – – 2,51,927
30 th September, 2,51,927 12,596 (Note 1) – 45,000 – 3,09,523
20X1
31 st March 20X2 3,09,523 15,477 (Note 2) – – – 3,25,000
1 st April, 20X2 3,25,000 – – 75,000 (4,00,000)
Notes:
1. Calculation of finance income as on 30 th September, 20X1
= 5% x 2,51,927 = ` 12,596
2. Calculation of finance income as on 31 st March, 20X2
= 5% x 3,09,523 = ` 15,477
(iii) Journal Entries
1 st April, 20X1 Mr. Anik Dr. 2,51,927
To Revenue - sale of goods (Profit or 2,51,927
loss A/c)
(Being revenue recognised from the sale of
the machine on credit)
Cost of goods sold (Profit or loss) Dr. 1,60,000
To Inventories 1,60,000
(Being cost of goods sold recognised)
30th September Mr. Anik Dr. 12,596
20X1 To Finance Income (Profit or loss) 12,596
(Being finance income recognised)

Mr. Anik Dr. 45,000

To Revenue- rendering of services 45,000
(Profit or loss)
(Being revenue from the rendering of
maintenance services recognised)
Cost of services (Profit or loss) Dr. 30,000
To Cash/Bank or payables 30,000
(Being the cost of performing maintenance
services recognised)
31st March Mr. Anik Dr. 15,477
20X2 To Finance Income (Profit or loss) 15,477
(Being finance income recognised)
1 st April, 20X2 Mr. Anik Dr. 75,000
To Revenue - rendering of services 75,000
(Profit or loss)
(Being revenue from the rendering of
maintenance services recognised)
Cost of services (Profit or loss) Dr. 50,000
To Cash/Bank or payables 50,000
(Being the cost of performing maintenance
services recognised)
Cash/Bank Dr. 4,00,000
To Mr. Anik 4,00,000
(Being the receipt of cash from the
customer recognised)
(iv) Extract of Notes to the financial statements for the year ended 31 st March, 20X2 and
31 st March, 20X3
Note on Revenue
20X2-20X3 20X1-20X2
` `
Sale of goods – 2,51,927
Rendering of machine - maintenance services 75,000 45,000
Finance income – 28,073
75,000 3,25,000
(b)
Activity Whether in the Remarks
scope of Ind AS 41?
Managing animal-related No Since the primary purpose is to
recreational activities like Zoo show the animals to public for
recreational purposes, there is no

management of biological
transformation but simply control of
the number of animals. Hence it will
not fall in the purview of agricultural
activity.
Fishing in the ocean No Fishing in ocean is harvesting
biological assets from unmanaged
sources. There is no management
of biological transformation since
fish grow naturally in the ocean.
Hence, it will not fall in the scope of
the definition of agricultural activity.
Fish farming Yes Managing the growth of fish and
then harvest for sale is agricultural
activity within the scope of Ind AS
41 since there is management of
biological transformation of
biological assets for sale or
additional biological assets.
Development of living Analysis required The development of living
organisms such as cells, organisms for research purposes
bacteria viruses does not qualify as agricultural
activity, as those organisms are not
being developed for sale, or for
conversion into agricultural produce
or into additional biological assets.
Hence, development of such
organisms for the said purposes
does not fall under the scope of Ind
AS 41.
However, if the organisms are being
developed for sale or use in dairy
products, the activity will be
considered as agricultural activity
under the scope of Ind AS 41.
Growing of plants to be used Yes If an entity grows plants for using it
in the production of drugs in production of drugs, the activity
will be agricultural activity. Hence it
will come under the scope of
Ind AS 41.
Purchase of 25 dogs for No Ind AS 41 is applied to account for
security purposes of the the biological assets when they
company’s premises relate to agricultural activity.
Guard dogs for security purposes
do not qualify as agricultural
activity, since they are not being
kept for sale, or for conversion into
agricultural produce or into
additional biological assets. Hence,
they are outside the scope of
Ind AS 41.
10

4. (a) Assessment of Preliminary Impact Assessment of Transition to Ind AS on Him Limited’s

Financial Statements
Issue 1: Fair value as deemed cost for property plant and equipment:
Accounting Standards Ind AS Impact on Company’s financial
(Erstwhile IGAAP) statements
As per AS 10, Property, Ind AS 101 allows entity to The company has decided to
Plant and Equipment is elect to measure Property, adopt fair value as deemed cost
recognised at cost less Plant and Equipment on the in this case. Since fair value
depreciation. transition date at its fair exceeds book value, so the book
value or previous GAAP value should be brought up to
carrying value (book value) fair value. The resulting impact
as deemed cost. of fair valuation of land
` 3,00,000 should be adjusted in
other equity.
Journal Entry on the date of transition
Particulars Debit (`) Credit (`)
Property Plant and Equipment Dr. 3,00,000
To Revaluation Surplus (OCI- Other Equity) 3,00,000
Issue 2: Fair valuation of Financial Assets:

As per Accounting On transition, financial All financial assets (other than
Standard, investments assets including Investment in subsidiaries,
are measured at lower investments are associates and JVs’ which are
of cost and fair value. measured at fair values
recorded at cost) are initially
except for investments in
recognized at fair value.
subsidiaries, associates
and JVs' which are The subsequent measurement of
recorded at cost. such assets are based on its
categorization either Fair Value
through Profit & Loss (FVTPL) or
Fair Value through Other
Comprehensive Income (FVTOCI)
or at Amortised Cost based on
business model assessment and
contractual cash flow
characteristics.
Since investment in mutual fund
are designated at FVTPL, increase
of ` 1,00,000 in mutual funds fair
value would increase the value of
investments with corresponding
increase to Retained Earnings.
11


Investment in mutual funds Dr. 1,00,000
To Retained earnings 1,00,000
Issue 3: Borrowings - Processing fees/transaction cost:

Accounting Standards Ind AS Impact on Company’s
(Erstwhile IGAAP) financial statements
As per AS, such As per Ind AS, such Fair value as on the date of
expenditure is charged to expenditure is amortised over transition is ` 1,80,000 as
Profit and loss account or the period of the loan. against its book value of
capitalised as the case ` 2,00,000. Accordingly, the
may be Ind AS 101 states that if it is difference of ` 20,000 is
impracticable for an entity to adjusted through retained
apply retrospectively the earnings.
effective interest method in
Ind AS 109, the fair value of
the financial asset or the
financial liability at the date of
transition to Ind AS shall be
the new gross carrying amount
of that financial asset or the
new amortised cost of that
financial liability.
Borrowings / Loan payable Dr. 20,000
To Retained earnings 20,000
Issue 4: Proposed dividend:

As per AS, provision for As per Ind AS, liability for Since dividend should be
proposed divided is made proposed dividend is deducted from retained earnings
in the year when it has recognised in the year in during the year when it has been
been declared and which it has been declared and approved.
approved. declared and approved. Therefore, the provision declared
for preceding year should be
reversed (to rectify the wrong
entry). Retained earnings would
increase proportionately due to
such adjustment

Provisions Dr. 30,000
To Retained earnings 30,000
12

Issue 5 : Intangible assets:

The useful life of an The useful life of an intangible Consequently, there would
intangible asset cannot be asset like brand/trademark can be no impact as on the date
indefinite under IGAAP be indefinite. Not required to of transition since company
principles. The Company be amortised and only tested intends to use the carrying
amortised brand / for impairment. amount instead of book
trademark on a straight- Company can avail the value at the date of
line basis over maximum exemption given in Ind AS 101 transition.
of 10 years as per AS 26. as on the date of transition to
use the carrying value as per
previous GAAP.
Issue 6: Deferred tax

As per AS, deferred taxes As per Ind AS, deferred On date of transition to
are accounted as per taxes are accounted as per Ind AS, deferred tax liability
income statement approach. balance sheet approach. would be increased by
` 25,000.

Retained earnings Dr. 25,000
To Deferred tax liability 25,000
(b) Statement showing computation of inventory cost
Particulars Amount (`) Remarks

Costs of purchase 5,00,000 Purchase price of raw material [purchase price
(` 5,50,000) less refundable purchase taxes
(` 50,000)]
Loan-raising fee – Included in the measurement of the liability
Costs of purchase 55,000 Purchase price of consumable stores
Costs of conversion 65,000 Direct costs—labour
Production overheads 15,000 Fixed costs—depreciation
Production overheads 10,000 Product design costs and labour cost for
specific customer
Other costs 37,000 Refer working note
Borrowing costs - Recognised as an expense in profit or loss
Total cost of inventories 6,82,000
13

Working Note:
Costs of testing product designed for specific customer:
` 21,000 material (ie net of the ` 3,000 recovered from the sale of the scrapped output) +
` 11,000 labour + ` 5,000 depreciation = ` 37,000
5. (a) 1st April, 20X1
A financial guarantee contract is initially recognised at fair value. The fair value of the
guarantee will be the present value of the difference between the net contractual cash flows
required under the loan, and the net contractual cash flows that would have been required
without the guarantee.
Particulars Year 1 Year 2 Year 3 Total
(`) (`) (`) (`)
Cash flows based on interest rate of 11% (A) 1,10,000 1,10,000 1,10,000 3,30,000
Cash flows based on interest rate of 8% (B) 80,000 80,000 80,000 2,40,000
Interest rate differential (A-B) 30,000 30,000 30,000 90,000
Discount factor @ 11% 0.901 0.812 0.731
Interest rate differential discounted at 11% 27,030 24,360 21,930 73,320
Fair value of financial guarantee contract (at
inception) 73,320
Journal Entry
Investment in subsidiary Dr. 73,320
To Financial guarantee (liability) 73,320
(Being financial guarantee initially recorded)
31 st March 20X2
Subsequently at the end of the reporting period, financial guarantee is measured at the higher of:
- the amount of loss allowance; and
- the amount initially recognised less cumulative amortization, where appropriate.
At 31st March 20X2, there is 1% probability that Moon Limited may default on the loan in the next
amount from Moon Limited. The 12-month expected credit losses are therefore ` 10,000
(` 10,00,000 x 1%).
The initial amount recognised less amortisation is ` 51,385 (` 73,320 + ` 8,065 (interest accrued
based on EIR)) – ` 30,000 (benefit of the guarantee in year 1) Refer table below. The unwound
amount is recognised as income in the books of Sun Limited, being the benefit derived by
Moon Limited not defaulting on the loan during the period.
Year Opening balance EIR @ 11% Benefits provided Closing balance
` ` `
1 73,320 8,065 (30,000) 51,385
2 51,385 5,652 (30,000) 27,037
3 27,037 2,963* (30,000) -
* Difference is due to approximation
14

The carrying amount of the financial guarantee liability after amortisation is therefore ` 51,385,
which is higher than the 12-month expected credit losses of ` 10,000. The liability is therefore
adjusted to ` 51,385 (the higher of the two amounts) as follows:
Financial guarantee (liability) Dr. 21,935
To Profit or loss 21,935
(Being financial guarantee subsequently adjusted)
31 st March 20X3
At 31st March 20X3, there is 3% probability that Moon Limited will default on the loan in the next
amount from Moon Limited. The 12-month expected credit losses are therefore ` 30,000
(` 10,00,000 x 3%).
The initial amount recognised less accumulated amortisation is ` 27,037, which is lower than the
12-month expected credit losses (` 30,000). The liability is therefore adjusted to ` 30,000 (the
higher of the two amounts) as follows:

Financial guarantee (liability) Dr. 21,385*
To Profit or loss (Note) 21,385
(Being financial guarantee subsequently adjusted)
* The carrying amount at the end of 31 st March 20X2 = ` 51,385 less 12-month expected credit
losses of ` 30,000.
(b)
Period Proportion Fair value To be Cumulative Expenses

vested expenses
a b c d= b x c x a e = d-previous period d
Period 1 1/3 5,00,000 91% 1,51,667 1,51,667
Period 2 2/3 5,00,000 89% 2,96,667 1,45,000
Period 3 3/3 5,00,000 82% 4,10,000 1,13,333
4,10,000
Journal Entries
31st March, 20X1
Employee benefits expenses Dr. 1,51,667
To Share based payment reserve (equity) 1,51,667
(1/3 of expected vested equity instruments value)
31st March, 20X2
(2/3 of expected vested equity instruments value)
15

31st March, 20X3

(Final vested equity instruments value)
Share based payment reserve (equity) Dr. 4,10,000
To Equity Share Capital 4,10,000
(re-allocated and issued shares)
(c) (a) As per paragraph 66(a) of Ind AS 1, an entity shall classify an asset as current when it
expects to realise the asset, or intends to sell or consume it, in its normal operating cycle.
Paragraph 68 provides the guidance that current assets include assets (such as inventories
and trade receivables) that are sold, consumed or realised as part of the normal operating
cycle even when they are not expected to be realised within twelve months after the
reporting period.
In accordance with above, the receivables that are considered a part of the normal
operating cycle will be classified as current asset.
If the operating cycle exceeds twelve months, then additional disclosure as required by
paragraph 61 of Ind AS 1 is required to be given in the notes.
(b) As discussed in point (a) above, advances to suppliers for goods and services would be
classified in accordance with normal operating cycle if it is given in relation to the goods or
services in which the entity normally deals. If the advances are considered a part the
normal operating cycle, it would be classified as a current asset. If the operating cycle
exceeds twelve months, then additional disclosure as required by paragraph 61 of Ind AS 1
is required to be given in the notes
(c) Classification of income tax receivables [other than deferred tax] will be driven by
paragraph 66(c) of Ind AS 1, i.e., based on the expectation of the entity to realise the asset.
If the receivable is expected to be realised within twelve months after the reporting period,
then it will be classified as current asset else non-current asset.
(d) Para 8 of Ind AS 16 states that items such as spare parts, stand-by equipment and servicing
equipment are recognised in accordance with this Ind AS when they meet the definition of
property, plant and equipment. Otherwise, such items are classified as inventory.
Accordingly, the insurance spares that are treated as an item of property, plant and
equipment would normally be classified as non-current asset whereas insurance spares that
are treated as inventory will be classified as current asset if the entity expects to consume it
in its normal operating cycle.
6. (a) (i) Super Sounds Limited
Balance Sheet (Extract relating to intangible asset) as at 31 st March 20X2
Note No. `
Assets
(1) Non- current asset
Intangible assets 1 69,45,000
16

(ii) Super Sounds Limited

Statement of Profit and Loss (Extract)
for the year ended 31 st March 20X2
Note No. `
Revenue from Operations 10,00,000
Total Revenue
Expenses:
Amortization expenses 2 16,25,000
Other expenses 3 7,20,000
Total Expenses
Notes to Accounts (Extract)
1. Intangible Assets
Gross Block (Cost) Accumulated amortisation Net block
Opening Additions Closing Opening Additions Closing Opening Closing
balance Balance balance Balance balance Balance
` ` ` ` ` ` ` `
1. Goodwill* - 3,20,000 3,20,000 - - - - 3,20,000
(W.N.1)
2. Franchise** - 80,00,000 80,00,000 - 16,00,000 16,00,000 - 64,00,000
(W.N.2)
3. Copyright
(W.N.3) - 2,50,000 2,50,000 - 25,000 25,000 - 2,25,000
- 85,70,000 85,70,000 - 16,25,000 16,25,000 - 69,45,000
*As per Ind AS 36, irrespective of whether there is any indication of impairment, an entity
shall test goodwill acquired in a business combination for impairment annually. This implies
that goodwill is not amortised annually but is subject to annual impai rment, if any.
**As per the information in the question, the limiting factor in the contract for the use is time
i.e., 5 years and not the fixed total amount of revenue to be generated. Therefore, an
amortisation method that is based on the revenue generated by an activity that includes the
use of an intangible asset is inappropriate and amortisation based on time can only be
applied.
2. Amortization expenses
Franchise (W.N.2) 16,00,000
Copyright (W.N.3) 25,000 16,25,000
3. Other expenses
Legal cost on copyright 7,00,000
Fee for Franchise (10,00,000 x 2%) 20,000 7,20,000
Working Notes:
`
(1) Goodwill on acquisition of business
Cash paid for acquiring the business 13,20,000
Less: Fair value of net assets acquired (10,00,000)
Goodwill 3,20,000
17

(2) Franchise 80,00,000

Less: Amortisation (over 5 years) (16,00,000)
Balance to be shown in the balance sheet 64,00,000
(3) Copyright 2,50,000
Less: Amortisation (over 10 years as per SLM) (25,000)
Balance to be shown in the balance sheet 2,25,000
(b) As per para 27 (b) of Ind AS 116, variable lease payments that depend on an index or a rate, are
initially measured using the index or rate as at the commencement date.
At the beginning of the third year, Lessee remeasures the lease liability at the pres ent value of
eight payments of ` 60,200 discounted at an original discount rate of 9.5% per annum as per
para 43 of Ind AS 116.
Year Revised lease rental Discount factor @ 9.5% Present value
3 [(56,000 / 280) x 301] = 60,200 0.913 54,963
4 60,200 0.834 50,207
5 60,200 0.762 45,872
6 60,200 0.696 41,899
7 60,200 0.635 38,277
8 60,200 0.580 34,916
9 60,200 0.530 31,906
10 60,200 0.484 29,137
3,27,127
Table showing amortised cost of lease liability

Year Opening balance Interest @ 9.5% Rental paid Closing balance
1 3,51,613 33,403 56,000 3,29,016
2 3,29,016 31,257 56,000 3,04,273
Difference of ` 22,854 (3,27,127 – 3,04,273) will increase the lease liability with corresponding
increase in ROU Asset as per para 39 of Ind AS 116.
Journal entry at the beginning of year 3 would be:
Right-of-use asset Dr. ` 22,854
To Lease liability ` 22,854
(c) Either
The examples of the items that an entity may need to recognise, derecognise, remeasure,
reclassify on the date of transition are as under:
(a) recognise all assets and liabilities whose recognition is required by Ind AS:
(i) customer related intangible assets if an entity elects to restate business
combinations
(ii) share-based payment transactions with non-employees
(b) reclassify items that it recognised in accordance with previous GAAP as one type of
asset, liability or component of equity, but is a different type of asset, liability or
component of equity in accordance with Ind AS:
18

(i) redeemable preference shares that would have earlier been classified as equity;
(ii) non-controlling interests which would have been earlier classified outside equity; and
(c) apply Ind ASs in measuring all recognised assets and liabilities:
(i) discounting of long-term provisions
(ii) measurement of deferred income taxes for all temporary differences instead of timing
differences.
OR
Rights issue bonus fraction
Shares ` per share `
Cum-rights 5 1 5.0
Rights 1 0.9 0.9
Ex-rights 6 5.9
Theoretical ex-rights price (5.9 / 6) = 0.983
Bonus fraction = Cum-rights price / Theoretical ex-rights price
= 1/0.983
Number of shares
1 January - 31 March (10,00,000 × 3/12 × 1/0.983) 2,54,323
1 April - 31 December (12,00,000 × 9/12) 9,00,000
Number of shares for the purpose of EPS calculation 11,54,323
19

Test Series: October, 2022

MOCK TEST PAPER 2
1. (a) Feel Fresh Limited (the Company) is into manufacturing and retailing of FMCG products listed on
stock exchanges in India. One of its products is bathing soap which the Company sells under the
brand name 'Feel Fresh'. The Company does not have its own manufacturing facilities for soap
and therefore it enters into arrangements with a third party to procure the soaps. The Company
entered into a long term purchase contract of 10 years with M/s. Radhey. Following are the relevant
terms of the contract with M/s. Radhey.
(i) M/s. Radhey has to purchase a machine costing ` 10,00,000 from the supplier as specified
by the Company. The machine will be customized to produce the soaps as designed by the
Company. This machine cannot be used by M/s. Radhey to produce the soaps for buyers
other than the Company due to the design specifications. The machine has a useful life of
10 years and the straight line method of depreciation is best suited considering the use of the
machine.
(ii) The Company will pay ` 4.75 per soap for the first year of contract. This is calculated based
on the budgeted annual purchase of 7,00,000 soaps as follows:
Particulars Per soap price
Variable cost of manufacturing 4.00
Cost of machine (` 1,74,015 / 7,00,000 soaps) 0.25
M/s. Radhey's margin 0.50
Per soap cost to the Company 4.75
In case the Company purchases more than 7,00,000 (i.e. budgeted number of soaps) soaps
in the first year then the cost of the machine (i.e. 0.25 per soap) will not be paid for soaps
procured in excess of 7,00,000 units. However, in case Company procures less than
budgeted number of soaps, then the Company will pay the differential unabsorbed cost of
the machine, at the end of the year. For example, if the Company purchases only 6,00,000
soaps in first year then the differential amount of ` 24,015 (1,74,015 - (6,00,000 x 0.25))
will be paid by the Company to M/s. Radhey at the end of the year. Variable cost will be
actualized at the end of the year.
(iii) The cost per soap will be calculated for each year in advance based on the budgeted
number of soaps to be produced each year. An amount of ` 1,74,015 shall be considered
each year for the cost of machine for year 1 to year 8 while calculating the cost per soap.
Any differential under absorbed amount shall be paid by the Company to M/s. Radhey at
the end of that year. A charge of ` 1,74,015 per annum for the machine is derived using

borrowing cost of 8% p.a. For year 9 and year 10, only variable cost and margins will be
paid.
(iv) M/s. Radhey does not have any right to terminate the contract but the Company has the
right to terminate the contract at the end of each year. However, if the Company terminates
the contract, it has to compensate M/s. Radhey for any unabsorbed cost of Machine. For
example, if the Company terminates the contract at the end of second year then it has to
pay ` 10,44,090 (i.e. 1,74,015 per year x 6 remaining years). If it terminates the contract
after the 8 th year then the Company does not have to pay the compensation since the cost
of the machine would have been absorbed.
(v) In the first year, the Company purchases 5,50,000 soaps at ` 4.75 per soap.
Evaluate the contract of the Company with M/s. Radhey and provide necessary accounting entries
for first year in accordance with Ind AS with working notes. Assume all cash flows occur at the
end of the year. (15 Marks)
(b) High Speed Ltd. has entered into a Share Purchase Agreement ("SPA") with the shareholders of
Fast Move Limited to purchase 30% stake in Fast Move Limited as at 1 st June, 20X1 at a price of
` 30 per share. As per the terms of SPA, High Speed Ltd. has an option to purchase additional
25% stake in Fast Move Limited on or before 15 th June, 20X1 at a price of ` 30 per share. Similarly,
the selling shareholder has an option to sell additional 25% stake in Fast Move Limited on or before
15.6.20X1 to High Speed Ltd. at a price of ` 30 per share. The decisions on relevant activities of
Fast Move Limited are made in Annual General Meeting / Extraordinary General Meeting (AGM /
EGM). A resolution in AGM / EGM is passed when more than 50% votes are casted in favor of the
resolution. An AGM / EGM can be called by giving atleast 21 days advance notice to all
shareholders.
With respect to the SPA entered by High Speed Ltd., you are required to determine whether High
Speed Ltd. has control over Fast Move Limited as at 1 st June, 20X1. (5 Marks)
2. (a) During 20X4-20X5, Cheery Limited discovered that some products that had been sold during
20X3-20X4 were incorrectly included in inventory at 31 st March, 20X4 at ` 6,500.
Cheery Limited’s accounting records for 20X4-20X5 show sales of ` 1,04,000, cost of goods sold
of ` 86,500 (including ` 6,500 for the error in opening inventory), and income taxes of ` 5,250.
In 20X3-20X4, Cheery Limited reported:
`
Sales 73,500
Cost of goods sold (53,500)
Profit before income taxes 20,000
Income taxes (6,000)
Profit 14,000
Basic and diluted EPS 2.8
The 20X3-20X4 opening retained earnings was ` 20,000 and closing retained earnings was
` 34,000. Cheery Limited’s income tax rate was 30% for 20X4-20X5 and 20X3-20X4. It had no
other income or expenses.
Cheery Limited had ` 50,000 (5,000 shares of ` 10 each) share capital throughout, and no other
components of equity except for retained earnings.
State how the above will be treated /accounted in Cheery Limited’s Statement of Profit and Loss,
Statement of Changes in Equity and in Notes wherever required for current period and earlier
period(s) as per relevant Ind AS. (12 Marks)
2

(b) An Indian entity, whose functional currency is rupees, purchases USD denominated bond at its fair
value of USD 1,000. The bond carries stated interest @ 4.7% p.a. on its face value. The said
interest is received at the year end. The bond has maturity period of 5 years and is redeemable at
its face value of USD 1,250. The fair value of the bond at the end of year 1 is USD 1,060. The
exchange rate on the date of transaction and at the end of year 1 are USD 1 = ` 40 and USD 1 =
` 45, respectively. The weighted average exchange rate for the year is 1 USD = ` 42.
The entity has determined that it is holding the bond as part of an investment portfolio whose
objective is met both by holding the asset to collect contractual cash flows and selling the asset.
The purchased USD bond is to be classified under the FVTOCI category.
The bond results in effective interest rate (EIR) of 10% p.a.
Calculate gain or loss to be recognised in Profit & Loss and Other Comprehensive Income for
year 1. Also pass journal entry to recognise gain or loss on above. (Round off the figures to nearest
rupees) (8 Marks)
3. (a) On 1st April 20X1, Investor Ltd. acquires 35% interest in another entity, XYZ Ltd. Investor Ltd.
determines that it is able to exercise significant influence over XYZ Ltd. Investor Ltd. has paid total
consideration of ` 47,50,000 for acquisition of its interest in XYZ Ltd. At the date of acquisition,
the book value of XYZ Ltd.’s net assets was ` 90,00,000 and their fair value was
` 1,10,00,000. Investor Ltd. has determined that the difference of ` 20,00,000 pertains to an item
of property, plant and equipment (PPE) which has remaining useful life of 10 years.
During the year, XYZ Ltd. made a profit of ` 8,00,000. XYZ Ltd. paid a dividend of ` 12,00,000 on
31st March, 20X2. XYZ Ltd. also holds a long-term investment in equity securities. Under
Ind AS, investment is classified as at FVTOCI in accordance with Ind AS 109 and XYZ Ltd.
recognized an increase in value of investment by ` 2,00,000 in OCI during the year. Ignore
deferred tax implications, if any.
Calculate the closing balance of Investor Ltd.’s investment in XYZ Ltd. as at 31 st March, 20X2 as
per the relevant Ind AS. (8 Marks)
(b) On 1st April, 20X1, QA Ltd. had granted 1,000 share options each to 2,000 employees. The options
are due to vest on 31 st March, 20X4 provided the employee remains in employment till
31st March, 20X4.
On 1st April, 20X1, the Directors of Company estimated that 1,800 employees would qualify for the
option on 31 st March, 20X4. This estimate was amended to 1,850 employees on 31 st March, 20X2
and further amended to 1,840 employees on 31 st March, 20X3.
On 1st April, 20X1, the fair value of an option was ` 1.20. The fair value increased to ` 1.30 as on
31st March, 20X2 but due to challenging business conditions, the fair value declined thereafter. In
September, 20X2, when the fair value of an option was ` 0.90, the Directors repriced the option
and this caused the fair value to increase to ` 1.05. Trading conditions improved in the second
half of the year and by 31 st March, 20X3 the fair value of an option was ` 1.25. QA Ltd. decided
that additional cost incurred due to repricing of the options on 30 th September, 20X2 should be
spread over the remaining vesting period from 30 th September, 20X2 to 31 st March, 20X4.
The Company has requested you to suggest the suitable accounting treatment for these transaction
as on 31st March, 20X3. (6 Marks)
(c) K Ltd prepares consolidated financial statements to 31 st March each year. During the year ended
31st March, 20X2, K Ltd entered into the following transactions:
(a) On 1st April, 20X1, K Ltd purchased an equity investment for ` 2,00,000. The investment was
designated as fair value through other comprehensive income. On 31 st March, 20X2, the fair
value of the investment was ` 2,40,000. In the tax jurisdiction in which K Ltd operates,
unrealised gains and losses arising on the revaluation of investments of this nature are not

taxable unless the investment is sold. K Ltd has no intention of selling the investment in the
foreseeable future.
(b) On 1st August 20X1, K Ltd sold products to A Ltd, a wholly owned subsidiary operating in the
same tax jurisdiction as K Ltd, for ` 80,000. The goods had cost to K Ltd for ` 64,000. By
31st March 20X2, A Ltd had sold 40% of these goods, selling the remaining during next year.
(c) On 31st October, 20X1, K Ltd received ` 2,00,000 from a customer. This payment was in
respect of services to be provided by K Ltd from 1 st November, 20X1 to 31 st July, 20X2.
K Ltd recognised revenue of ` 1,20,000 in respect of this transaction in the year ended
31st March, 20X2 and will recognise the remainder in the year ended 31 st March, 20X3. Under
the tax jurisdiction in which K Ltd operates, ` 2,00,000 received on 31 st October, 20X1 was
included in the taxable profits of K Ltd for the year ended 31 st March, 20X2.
Explain and show how the tax consequences (current and deferred) of the three transactions
would be reported in its statement of profit or loss and other comprehensive income for the
year ended 31 st March, 20X2. Assume tax rate to be 25%. (6 Marks)
4. (a) On 1st April, 20X1, S Limited enters into a contract with Corp Limited to construct heavy -duty
equipment for a promised consideration of ` 20,00,000 with a bonus of ` 2,50,000 if the equipment
is completed within 24 months. At the inception of the contract, S Limited correctly accounts for
the promised bundle of goods and services as a single performance obligation in accordance with
Ind AS 115. At the inception of the contract, the Company expects the costs to be ` 11,00,000
and concludes that it is highly probable that a significant reversal in the amount of cumulative
revenue recognised will occur. Completion of the heavy-duty equipment is highly susceptible to
factors outside of the Company’s influence, mainly due to difficulties with the supply of components.
At 31st March, 20X2, S Limited has satisfied 65% of its performance obligation on the basis of costs
incurred to date and concludes that the variable consideration is still constrained in accordance
with Ind AS 115. However, on 4 th June, 20X2, the contract is modified with the result that the fixed
consideration and expected costs increase by ` 1,50,000 and ` 80,000 respectively. The time
allowable for achieving the bonus is extended by six months with the result that S Limited concludes
that it is highly probable that the bonus will be achieved and that the contract remains a single
performance obligation.
S Limited wants your opinion on the accounting treatment of contract with Corp Limited in light of
Ind AS 115, for the year 20X1-20X2 and 20X2-20X3. (12 Marks)
(b) 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. Date Particulars No of
No. shares
1 1 st April, 20X1 Opening balance of outstanding equity 1,00,000
shares
2 15th June, 20X1 Issue of equity shares 75,000
3 8 th November, 20X1 Conversion of convertible preference shares 50,000
in Equity
4 22 nd February, 20X2 Buy back of shares (20,000)
5 31st March, 20X2 Closing balance of outstanding equity 205,000
shares
(4 Marks)

(c) X Ltd. purchased a franchise from a restaurant chain at a cost of ` 1,00,00,000 under a contract
for a period of 10 years. Can the franchise right be recognised as an intangible asset in the
books of X Ltd. under Ind AS 38? (4 Marks)
5. (a) Given below are the balance sheets of a group of companies comprising LX Limited, MX Limited
and NX Limited as on 31 st March 20X2: ` in lakh
Particulars LX Limited MX Limited NX Limited
Assets
Non-current Assets
Property, Plant and Equipment 1,500 1,600 1,400
Investment
17.0 lakh share in MX Limited 2,620 - -
9.6 lakh shares in NX Limited - 1,350 -
Current Assets
Inventories 1,230 730 1,180
Financial Assets
Trade Receivables 1,415 270 620
Bills Receivables 650 60 -
Cash in hand and at Bank 1,085 90 150
8,500 4,100 3,350
Shareholders' Equity
Share Capital (` 100 per share) 3,400 2,000 1,600
Other Equity
Reserves 1,150 810 580
Retained earnings 1,030 600 310
Current Liabilities
Financial Liabilities
Trade Payables 2,920 690 805
Bills Payable - -
MX Limited 55
8,500 4,100 3,350
LX Limited holds 85% shares in MX Limited, which were acquired on 1 st April 20X1 and
MX Limited holds 60% shares in NX Limited, which were acquired on 30 th September 20X1.
The following balances stood in the books of MX Limited and NX Limited as on 1 st April 20X1:
MX Limited NX Limited
` in lakh ` in lakh
Reserves 760 520
Retained earnings 480 150
The business activities of NX Limited are not seasonal in nature.

The parent company has adopted an accounting policy to measure non-controlling interest at fair
value applying Ind AS 103. The fair value is to be determined at quoted market price. The given
market price of MX Limited is ` 120 per share and NX Limited is ` 125 per share.
Prepare the consolidated Balance Sheet as on 31st March 20X2 of the group of companies
LX Limited, MX Limited and NX Limited. (14 Marks)
(b) With respect to Integrated Reporting, state whether following statements are true or false with
reason for your answer:
(i) An integrated report is necessarily to be a stand-alone report;
(ii) The framework of Integrated reporting is written primarily for private companies;
(iii) A report prepared as required by local law containing a management commentary or other
report that provides context for its financial statements can serve the purpose of Integrated
reporting; and
(iv) An integrated report should include only positive material matters. (6 Marks)
6. (a) Lovely Limited has a policy of providing subsidized loans to its employees for the purpose of buying
2 Wheelers and 4 Wheelers vehicle. Simran who is a Sales Executive, took a loan for a Four -
wheeler vehicle from the Company. The following were the terms of the loan:
- Principal amount : ` 9,00,000
- Interest: 5% p.a. for the first ` 3,00,000 and 8% p.a. for the remaining amount.
- Loan disbursed date: 1 st April 20X1
- Loan tenure: 3 Years
- Pre-payment : Full or Partial payment at the option of the employee.
- Simran shall remain in service till the term of the loan ends.
- The principal amount should be recovered in 3 equal installments at the end of each year and
will be first applied to 8% interest bearing principal.
- The accrued interest shall be paid on annual basis.
The market rate of a comparable loan available to Simran is 12% per annum.
Following table shows the expected contractual cash flows from the loan given to Simran : (In ` )
Inflows·
Date Outflows Principal Interest Interest Principal
Income 8% Income 5% Outstanding
01.04.20X1 (9,00,000) 9,00,000
31.03.20X2 3,00,000 48,000 15,000 6,00,000
31.03.20X3 3,00,000 24,000 15,000 3,00,000
31.03.20X4 3,00,000 - 15,000 -
Simran pre-pays ` 1,00,000 on 31 st March, 20X3.

Following table shows the actual cash flows from the loan, considering the prepayment on
31st March 20X3. (In `)
Inflows
Date Outflows Principal Interest Interest Principal
Income 8% Income 5% Outstanding
01.4.20X1 (9,00,000) 9,00,000
31.3.20X2 3,00,000 48,000 15,000 6,00,000
31.3.20X3 4,00,000 24,000 15,000 2,00,000
31.3.20X4 2,00,000 - 10,000 -
You are required to pass journal entries in the books of Lovely Limited considering the requirements
of Ind AS 109. (15 Marks)
(b) Either
State any 5 major differences between Ind AS 24 and AS 18. (5 Marks)
OR
What is Equity, Income and Expenses as per ‘Framework for Financial Reporting under Ind AS’?
How the information with respect to income and expenses helps the users in understanding of the
financial statements? (5 Marks)

Test Series: October, 2022

MOCK TEST PAPER 2
ANSWERS
1. (a) Identification of the contract (by applying para 9 of Ind AS 116)
(a) Identified asset
Feel Fresh Ltd. (a customer company) enters into a long-term purchase contract with
M/s Radhey (a manufacturer) to purchase a particular type and quality of soaps for 10 year
period.
Since for the purpose of the contract M/s Radhey has to buy a customized machine as per
the directions of Feel Fresh Ltd. and also the machine cannot be used for any other type of
soap, the machine is an identified asset.
(b) Right to obtain substantially all of the economic benefits from use of the asset
throughout the period of use
Since the machine cannot be used for manufacture of soap for any other buyer, Feel Fresh
Ltd. will obtain substantially all the economic benefits from the use of the asset throughout
the period of use.
(c) Right to direct the use
Feel Fresh Ltd. controls the use of machine and directs the terms and conditions of the
contract with respect to recovery of fixed expenses related to machine.
Hence the contract contains a lease.
Lease term
The lease term shall be 10 years assuming reasonable certainty. Though the lessee is not
contractually bound till 10th year, i.e., the lessee can refuse to make payment anytime without
lessor’s permission but, it is assumed that the lessee is reasonably certain that it will not exercise
this option to terminate.
Identification of lease payment
Lease payments are defined as payments made by a lessee to a lessor relating to the right to
use an underlying asset during the lease term, comprising the following:
(a) fixed payments (including in-substance fixed payments), less any lease incentives
(b) variable lease payments that depend on an index or a rate
(c) the exercise price of a purchase option if the lessee is reasonably certain to exercise that
option
(d) payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising an option to terminate the lease
Here in-substance fixed payments in the given lease contract are ` 1,74,015 p.a. The present
value of lease payment which would be recovered in 8 years @ 8% would be ` 10,00,000
(approx.)
Variable lease payments that do not depend on an index or rate and are not, in substance, fixed
are not included as lease payments. Instead, they are recognised in profit or loss in the period in
which the event that triggers the payment occurs (unless they are included in the carrying amount
of another asset in accordance with other Ind AS).
1

Hence, lease liability will be recognized by ` 10,00,000 in the books of Feel Fresh Ltd.
Since there are no payments made to lessor before commencement date less lease
incentives received from lessor or initial direct costs incurred by lessee or estimate of costs
for restoration / dismantling of underlying asset, the right of use asset is equal to lease
liability.
Journal Entries
On initial recognition
ROU Asset Dr. 10,00,000
To Lease Liability 10,00,000
To initially recognise the Lease Liability and the corresponding ROU Asset
At the end of the first year
Interest Expense Dr. 80,000
To Lease Liability 80,000
To record interest expense and accrete the lease liability using the effective interest
method ( ` 10,00,000 x 8%)
Depreciation Expense (10,00,000 / 10 years) Dr. 1,00,000
To ROU Asset 1,00,000
To record depreciation on ROU using the straight-line method ( ` 10,00,000 / 10 years)
Lease Liability Dr. 1,74,015
To Bank / M/s. Radhey 1,74,015
To record lease payment
Cost of soap Dr. 24,75,000
To Bank / M/s. Radhey {5,50,000 x (4 + 0.5)} 24,75,000
To record variable expenses paid as cost of the goods purchased
(b) Paragraph 10 of Ind AS 110 ‘Consolidated Financial Statements’, states that an investor has
power over an investee when the investor has existing rights that give it the current ability to
direct the relevant activities, i.e. the activities that significantly affect the investee’s returns.
As per the facts given in the question, High Speed Ltd. has 15 days to exercise the option to
purchase 25% additional stake in Fast Move Ltd. which will give it majority voting rights of 55%
(30% + 25%). This is a substantive potential voting rights which is currently exercisable.
Further, the decisions on relevant activities of Fast Move Ltd. are made in AGM / EGM. An AGM/
EGM can be called by giving atleast 21 days advance notice. A resolution in AGM / EGM is
passed when more than 50% votes are casted in favour of the resolution. Thus, the existing
shareholders of Fast Move Ltd. are unable to change the existing policies over the relevant
activities before the exercise of option by High Speed Ltd.
High Speed Ltd. can exercise the option and get voting rights of more than 50% at the date of
AGM/ EGM. Accordingly, the option contract gives High Speed Ltd. the current ability to direct
the relevant activities even before the option contract is settled. Therefore, High Speed Ltd.
controls Fast Move Ltd. as at 1 st June, 20X1.

2. (a) Cheery Limited

Extract from the Statement of Profit and Loss
(Restated)
20X4-20X5 20X3-20X4
` `
Sales 1,04,000 73,500
Cost of goods sold (80,000) (60,000)
Profit before income taxes 24,000 13,500
Income tax @ 30% (7,200) (4,050)
Profit 16,800 9,450
Basic and diluted EPS 3.36 1.89
Cheery Limited
Statement of Changes in Equity
Share Retained Total
capital earnings
Balance at 31 st March, 20X3 50,000 20,000 70,000
Profit for the year ended 31 st March, 20X4 as
restated 9,450 9,450
Profit for the year ended 31 st March, 20X5 16,800 16,800
Extract from the Notes
Some products that had been sold in 20X3-20X4 were incorrectly included in inventory at
31st March, 20X4 at ` 6,500. The financial statements of 20X3-20X4 have been restated to
correct this error. The effect of the restatement on those financial statements is summarized
below:
Effect on 20X3-20X4
(Increase) in cost of goods sold (6,500)
Decrease in income tax expenses (6,000 – 4,050) 1,950
(Decrease) in profit (14,000 – 9,450) (4,550)
(Decrease) in basic and diluted EPS (2.8 – 1.89) (0.91)
(Decrease) in inventory (6,500)
Decrease in income tax payable 1,950
(Decrease) in equity (4,550)
There is no effect on the balance sheet at the beginning of the preceding period i.e.
1st April, 20X3.
(b) Computation of amounts to be recognized in the P&L and OCI:
Particulars USD Exchange rate `
Cost of the bond 1,000 40 40,000
Interest accrued @ 10% p.a. 100 42 4,200
3

Interest received (USD 1,250 x 4.7%) (59) 45 (2,655)

Amortized cost at year-end 1,041 45 46,845
Fair value at year end 1,060 45 47,700
Interest income to be recognized in P & L 4,200
Exchange gain on the principal amount [1,000 x (45-40)] 5,000
Exchange gain on interest accrual [100 x (45 - 42)] 300
Total exchange gain/loss to be recognized in P&L 5,300
Fair value gain to be recognized in OCI [45 x (1,060 - 1,041)] 855
Journal entry to recognize gain/loss
Bond (` 47,700 – ` 40,000) Dr. 7,700
Bank (Interest received) Dr. 2,655
To Interest Income (P & L) 4,200
To Exchange gain (P & L) 5,300
To OCI (fair value gain) 855
3. (a) Calculation of Investor Ltd.’s investment in XYZ Ltd. under equity method:
` `
Cost of investment 47,50,000
Acquisition of investment in XYZ Ltd.
Share in book value of XYZ Ltd.’s net assets (35% of 31,50,000
` 90,00,000)
Share in fair valuation of XYZ Ltd.’s net assets [35% of
(` 1,10,00,000 – ` 90,00,000)] 7,00,000 38,50,000
Goodwill on investment in XYZ Ltd. (balancing figure) 9,00,000
Cost of investment 47,50,000

Profit during the year
Share in the profit reported by XYZ Ltd. (35% of ` 8,00,000) 2,80,000
Adjustment to reflect effect of fair valuation [35% of
(` 20,00,000/10 years)] (70,000)
Share of profit in XYZ Ltd. recognised in income by Investor 2,10,000
Ltd.
Long term equity investment
FVTOCI gain recognised in OCI (35% of ` 2,00,000) 70,000
Dividend received by Investor Ltd. during the year [35% of
` 12,00,000] (4,20,000)
Closing balance of Investor Ltd.’s investment in XYZ Ltd. 46,10,000
(b) Paragraph 27 of Ind AS 102 requires the entity to recognise the effects of repricing that increase
the total fair value of the share-based payment arrangement or are otherwise beneficial to the
employee.

If the repricing increases the fair value of the equity instruments granted paragraph B43(a) of
Appendix B requires the entity to include the incremental fair value granted (ie the difference
between the fair value of the repriced equity instrument and that of the original equity instrument,
both estimated as at the date of the modification) in the measurement of the amount recognised
for services received as consideration for the equity instruments granted.
If the repricing occurs during the vesting period, the incremental fair value granted is includ ed in
the measurement of the amount recognised for services received over the period from the
repricing date until the date when the repriced equity instruments vest, in addition to the amount
based on the grant date fair value of the original equity instruments, which is recognised over the
remainder of the original vesting period.
Accordingly, the amounts recognised in years 1 and 2 are as follows:
Year Calculation Compensation Cumulative
expense for compensation
period expense
` `
1 [1,850 employees× 1,000 options × ` 1.20] × 1/
3 7,40,000 7,40,000
2 (1,840 employees× 1,000 options × [(`1.20× 2/ 3)+ 8,24,000 15,64,000
{(`1.05 - 0.90) ×0.5/1.5}] – 7,40,000
Note: Year 3 calculations have not been provided as it was not required in the question.
(c) (a) Because the unrealised gain on revaluation of the equity investment is not taxable until sold,
there are no current tax consequences. The tax base of the investment is ` 2,00,000. The
revaluation creates a taxable temporary difference of ` 40,000 (` 2,40,000 – ` 2,00,000).
This creates a deferred tax liability of ` 10,000 (` 40,000 x 25%). The liability would be
non-current. The fact that there is no intention to dispose of the investment does not affect
the accounting treatment. Since, the unrealised gain is reported in other comprehensive
income, the related deferred tax expense is also reported in other comprehensive income.
(b) When K Ltd. sold the products to A Ltd., K Ltd. would have generated a taxable profit of
` 16,000 (` 80,000 – ` 64,000). This would have created a current tax liability for K Ltd and
the group of ` 4,000 (` 16,000 x 25%). This liability would be shown as a current liability
and charged as an expense in arriving at profit or loss for the period.
In the consolidated financial statements the carrying value of the unsold inventory would be
` 38,400 (` 64,000 x 60%). The tax base of the unsold inventory would be ` 48,000
(` 80,000 x 60%). In the consolidated financial statements there would be a deductible
temporary difference of ` 9,600 (` 38,400 – ` 48,000) and a potential deferred tax asset of
` 2,400 (` 9,600 x 25%). This would be recognised as a deferred tax asset since A Ltd. is
expected to generate sufficient taxable profits against which to utilise the deductible
temporary difference. The resulting credit would reduce consolidated deferred tax expense
in arriving at profit or loss.
(c) The receipt of revenue in advance on 1 st October 20X1 would create a current tax liability of
` 50,000 (` 2,00,000 x 25%) as at 31 st March 20X2. The carrying value of the revenue
received in advance at 31 st March 20X2 is ` 80,000 (` 2,00,000 – ` 120,000). Its tax base
is nil. The deductible temporary difference of ` 80,000 would create a deferred tax asset of
` 20,000 (` 80,000 x 25%). The asset can be recognised because K Ltd. has sufficient
taxable profits against which to utilise the deductible temporary difference.
4. (a) For the year 20X1-20X2
S Limited accounts for the promised bundle of goods and services as a single performance
obligation satisfied over time in accordance with Ind AS 115. At the inception of the contract,
5

S Limited expects the following:

Transaction price – ` 20,00,000
Expected costs – ` 11,00,000
Expected profit (45%) – ` 9,00,000
At contract inception, S Limited excludes the ` 2,50,000 bonus from the transaction price
because it cannot conclude that it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Completion of the heavy-duty equipment is highly
susceptible to factors outside the entity’s influence.
By the end of the first year, the entity has satisfied 65% of its performance obligation on the basis
of costs incurred to date. Costs incurred to date are therefore ` 7,15,000 and
S Limited reassesses the variable consideration and concludes that the amount is still
constrained. Therefore at 31 st March, 20X2, the following would be recognised:
Revenue (A) – ` 13,00,000 (` 20,00,000 x 65%)
Costs (B) – ` 7,15,000 (` 11,00,000 x 65%)
Gross profit (C) i.e.(A-B) – ` 5,85,000
For the year 20X2-20X3
On 4th June, 20X2, the contract is modified. As a result, the fixed consideration and expected
costs increase by ` 1,50,000 and ` 80,000, respectively.
The total potential consideration after the modification is ` 24,00,000 which is ` 21,50,000 fixed
consideration + ` 2,50,000 completion bonus. In addition, the allowable time for achieving the
bonus is extended by six months with the result that S Limited concludes that it is highly probable
that including the bonus in the transaction price will not result i n a significant reversal in the
amount of cumulative revenue recognised in accordance with Ind AS 115. Therefore, the bonus
of ` 2,50,000 can be included in the transaction price.
S Limited also concludes that the contract remains a single performance obligation. Thus,
S Limited accounts for the contract modification as if it were part of the original contract.
Therefore, S Limited updates its estimates of costs and revenue as follows:
S Limited has satisfied 60.60% of its performance obligation (` 7,15,000 actual costs incurred
compared to ` 11,80,000 total expected costs). The entity recognises additional revenue of
` 1,54,400 [(60.60% of ` 24,00,000) – ` 13,00,000 revenue recognised to date] at the date of
modification i.e. on 4 th June, 20X2 as a cumulative catch-up adjustment.
(b) The weighted average number of shares for calculation of EPS for the year 20X1 -20X2 will be
as follows:
S. Date Particulars No of No of days Weighted
No. shares shares were average no
outstanding of shares
1 1 st April, 20X1 Opening balance of
outstanding equity
shares 1,00,000 365 1,00,000
2 15th June, Issue of equity shares 75,000 290 59,589
20X1
3 8 th November, Conversion of
20X1 convertible preference
shares in Equity 50,000 144 19,726

4 22 nd February, Buy back of shares (20,000) (38)* (2,082)

20X2
5 31st March, Closing balance of
20X2 outstanding equity
shares 2,05,000 1,77,233
* These shares had already been considered in the shares issued. The same has been
deducted assuming that the bought back shares have been extinguished immediately.
(c) An intangible asset is an identifiable non-monetary asset without physical substance.
For considering an asset as an intangible asset, an entity must be able to demonstrate that the
item satisfies the criteria of identifiability, control over a resource and existence of future
economic benefits.
In the given case, the franchise right meets the identifiability criterion as it is arising from contract
to purchase the franchise right for 10 years. In addition, X Ltd. will have future economic benefits
and control over them from the franchise right. Accordingly, the franchise right meets the
definition of intangible asset. The same can be recognised if the following recognition criteria laid
down in para 21 of Ind AS 38 is met:
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset
will flow to the entity; and
(b) the cost of the asset can be measured reliably.
In the instant case, identifiability criterion is fulfilled, future economic benefits from franchise right
are expected to flow to the entity and cost can also be measured reliably . Therefore, X Ltd.
should recognise the franchise right as an intangible asset.
5. (a) Consolidated Balance Sheet of the Group as at 31 st March, 20X2
Particulars Note No. ` in lakh
ASSETS
Non-current assets
Property, plant and equipment 1 4,500.00
Current assets
(a) Inventories 2 3,140.00
(b) Financial assets
Trade receivables 3 2,305.00
Bills receivables 4 655.00
Cash and cash equivalents 5 1,325.00
Total assets 11,925.00
EQUITY & LIABILITIES
Equity attributable to owners of parent
Share Capital 3,400.00
Other Equity 6 2,893.10
Non-controlling interests (W.N.4) 1,216.90
7

LIABILITIES
Non-current liabilities Nil
Current liabilities
(a) Financial Liabilities
Trade payables 7 4,415.00
Total equity and liabilities 11,925.00
Notes to Accounts (` in lakh)
1. Property Plant & Equipment
LX Ltd. 1,500
MX Ltd. 1,600
NX Ltd. 1,400 4,500
2. Inventories
LX Ltd. 1,230
MX Ltd. 730
NX Ltd. 1,180 3,140
3. Trade Receivables
LX Ltd. 1,415
MX Ltd. 270
NX Ltd. 620 2,305
4. Bills Receivables
LX Ltd. 650
MX Ltd. (60-55) 5 655
5. Cash & Cash equivalents
LX Ltd. 1,085
MX Ltd. 90
NX Ltd. 150 1,325
6. Other Equity
Reserve (W.N.5) 1,207.80
Retained earnings (W.N.5) 1,172.80
Capital Reserve (W.N.3) 512.50 2,893.10
7. Trade Payables
LX Ltd. 2,920
MX Ltd. 690
NX Ltd. 805 4,415
Working Notes:
1. Analysis of Reserves and Surplus (` in lakh)
MX Ltd. NX Ltd.
Reserves as on 1.4.20X1 760 520
Increase during the year 20X1-20X2 (580 - 520) 60

Increase for the half year till 30.9.20X1 30

Balance on acquisition date (A) 760 550
Total balance as on 31.3.20X2 810 580
Post-acquisition balance 50 30
Retained Earnings as on 1.4.20X1 480 150
Increase during the year 20X1-20X2 (310 - 150) 160
Increase for the half year till 30.9.20X1 80
Balance on acquisition date (B) 480 230
Total balance as on 31.3.20X2 600 310
Post-acquisition balance 120 80
Total balance on the acquisition date (A+B) 1,240 780
2. Calculation of Effective Interest of LX Ltd. in NX Ltd.
Acquisition by LX Ltd. in MX Ltd. = 85%
Acquisition by MX Ltd. in NX Ltd. = 60%
Acquisition by Group in NX Ltd. (85% x 60%) = 51%
Non-controlling Interest = 49%
3. Calculation of Goodwill / Capital Reserve on the acquisition
MX Ltd. NX Ltd.
Investment or consideration 2,620.00 (1,350 x 85%) 1,147.50
Add: NCI at Fair value
[(2,000 / 100) x 120 x 15%] 360.00
[(1,600 / 100) x 125 x 49%] - 980.00
2,980.00 2,127.50
Less: Identifiable net assets (Share
Capital + Increase in the Reserves (2,000+760+480) (1,600+550+230)
and Surplus till acquisition date) (3,240.00) (2,380.00)
Capital Reserve 260.00 252.50
Total Capital Reserve (260 + 252.50) 512.50
4. Calculation of Non-controlling Interest
MX Ltd. NX Ltd.
At Fair Value (See Note 3) 360.00 980.00
Add: Post Acquisition Reserves (W.N.1) (50 x 15%) 7.50 (30 x 49%) 14.70
Add: Post Acquisition Retained Earnings
(W.N.1) (120 x 15%) 18.00 (80 x 49%) 39.20
Less: NCI share of investment in NX Ltd. (1,350 x 15%)
(202.50)* -
183.00 1,033.90
Total (183.00 + 1,033.90) 1,216.90
*Note: The non-controlling interest in MX Ltd. will take its proportion in NX Ltd. Therefore,
they have to bear their proportion in the investment by MX Ltd. (in NX Ltd.) also.

5. Calculation of Consolidated Other Equity

Reserves Retained Earnings
LX Ltd. 1,150.00 1,030.00
Add: Share in MX Ltd. (50 x 85%) 42.50 (120 x 85%) 102.00
Add: Share in NX Ltd. (30 x 51%) 15.30 (80 x 51%) 40.80
1,207.80 1,172.80
(b) (i) False. An integrated report may be prepared in response to existing compliance
requirements and may be either a standalone report or be included as a distinguishable,
prominent and accessible part of another report or communication.
(ii) True. 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.
(iii) True. 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.
(iv) False. An integrated report should include all material matters, both positive and negative,
in a balanced way and without material error. Both the increases and reductions in the
value of the important capital should be reflected. Where the information is not perfectly
accurate, estimates should be used and appropriate processes should be in place to insure
that the risk of material misstatement is reduced.
6. (a) As per requirement of Ind AS 109, a financial instrument is initially measured and recorded at its
fair value. Therefore, considering the market rate of interest of similar loan available to Simran is
12%, the fair value of the contractual cash flows shall be as follows: Amount in `
Inflows
Date Principal Interest Interest Total Discount PV
income 8% income 5% inflow factor @ 12%
31.03.20X2 3,00,000 48,000 15,000 3,63,000 0.893 3,24,159
31.03.20X3 3,00,000 24,000 15,000 3,39,000 0.797 2,70,183
31.03.20X4 3,00,000 - 15,000 3,15,000 0.712 2,24,280
Total (fair value) 8,18,622
Benefit to Simran, to be considered as part of employee cost for Lovely Ltd. ` 81,378
(9,00,000 – 8,18,622).
The deemed employee cost is to be amortised over the period of loan i.e. the minimum period
that Simran must remain in service.
The amortization schedule of the ` 8,18,622 loan is shown in the following table: Amount in `
Date Opening Total cash inflows Interest Closing
outstanding Loan (principal repayment + @ 12% outstanding Loan
interest
1.4.20X1 8,18,622 8,18,622
31.3.20X2 8,18,622 3,63,000 98,235 5,53,857
31.3.20X3 5,53,857 3,39,000 66,463 2,81,320
31.3.20X4 2,81,320 3,15,000 33,680* Nil
* Difference is due to approximation of discounting factor and interest amount.
10

Journal Entries to be recorded at every period end:

a. 1 st April, 20X1
Loan to employee A/c Dr. 8,18,622
Pre-paid employee cost A/c Dr. 81,378
(Being loan asset recorded at initial fair value)
b. 31 st March, 20X2
Bank A/c Dr. 3,63,000
To Interest income A/c 98,235
To Loan to employee A/c 2,64,765
(Being first instalment of repayment of loan accounted for
using the amortised cost and effective interest rate of 12%)
Employee benefit A/c Dr. 27,126
To Pre-paid employee cost A/c 27,126
(Being amortization of pre-paid employee cost charged to
profit and loss as employee benefit cost on straight line
basis)
c. On 31st March, 20X3, due to pre-payment of a part of loan by Simran, the carrying value
of the loan shall be re-computed by discounting the future remaining cash flows by the
original effective interest rate.
There shall be two sets of accounting entries on 31 st March, 20X3, first the realisation of the
contractual cash flow as shown below and then the accounting for the pre-payment of
` 1,00,000 included in (d) below:
31 st March, 20X3
Bank A/c Dr. 3,39,000
To Interest income A/c 66,463
(Being second instalment of repayment of loan accounted for
Employee benefit (profit and loss) A/c Dr. 27,126
profit and loss as employee benefit cost)
Computation of new carrying value of loan to employee:
Inflows
Date Principal Interest Interest Discount PV
income 8% income 5% factor @12%
31.3.20X4 200,000 - 10,000 0.893 1,87,530
Total (revised carrying value) 1,87,530
11

Less: Current carrying value (2,81,320)

Adjustment required 93,790
The difference between the amount of pre-payment and adjustment to loan shall be
considered a gain, though will be recorded as an adjustment to pre-paid employee cost,
which shall be amortised over the remaining tenure of the loan.
31 st March, 20X3 prepayment

Bank A/c Dr. 1,00,000
To Loan to employee A/c 93,790
(Being gain to Lovely Limited recorded as an adjustment
to pre-paid employee cost)
The amortisation schedule of the new carrying amount of loan shall be as follows:
Date Loan Total cash inflows (principal Interest
outstanding repayment + interest) @ 12%
31.3.20X3 1,87,530
31.3.20X4 - 2,10,000 22,470
Amortisation of employee benefit cost shall be as follows:
Date Opening Amortised to Adjustment Closing balance

Balance P&L
1.4.20X1 81,378 81,378
31.3.20X2 81,378 27,126 54,252
31.3.20X3 54,252 27,126 6,210 20,916
31.3.20X4 20,916 20,916 Nil
d. 31 st March, 20X4 –

Bank A/c Dr. 2,10,000
To Interest income (profit and loss) @ 12% A/c 22,470
(Being last instalment of repayment of loan accounted for
Employee benefit (profit and loss) A/c Dr. 20,916
profit and loss as employee benefit cost)
12

(b) Either
Note: Students may answer any 5 points out of the 11 points mentioned below.
S. Particulars Ind AS 24 AS 18
No.
1. Definition of Relative Ind AS 24 uses the term “a close AS 18 uses the term
member of the family of a person”. “relatives of an individual”
Definition of close members of family AS 18 covers the spouse,
as per Ind AS 24 includes those son, daughter, brother,
family members, who may be sister, father and mother
expected to influence, or be who may be expected to
influenced by, that person in their influence, or be influenced
dealings with the entity, including: by, that individual in his/her
(a) that person’s children, spouse dealings with the reporting
or domestic partner, brother, enterprise.
sister, father and mother;
(b) children of that person’s spouse
or domestic partner; and
(c) dependents of that person or
that person’s spouse or
domestic partner.
Hence, the definition as per
Ind AS 24 is much wider.
2. State Controlled Ind AS 24, there is extended AS 18 defines state-
Enterprise: coverage of Government controlled enterprise as “an
Enterprises, as it defines a enterprise which is under
government-related entity as “an the control of the Central
entity that is controlled, jointly Government and/or any
controlled or significantly influenced State Government(s)”.
by a government.” Further,
“Government refers to government,
government agencies and similar
bodies whether local, national or
international.”
3. Key Management Ind AS 24 covers KMP of the parent AS 18 covers key
Personnel as well. Ind AS 24 also covers the management personnel
entity, or any member of a group of (KMP) of the entity only
which it is a part, providing key
management personnel services to
the reporting entity or to the parent
of the reporting entity
4. Related Parties in Under Ind AS 24 there is extended As per AS 18, co-venturers
case of Joint coverage in case of joint ventures. or co-associates are not
Venture Two entities are related to each related to each other.
other in both their financial
statements, if they are either co-
13

venturers or one is a venturer and

the other is an associate.
5. Effect of influences Ind AS 24 does not specifically AS 18 mentions that where
which do not lead to mention this. there is an inherent
transactions difficulty for management to
determine the effect of
influences which do not
lead to transactions,
disclosure of such effects is
not required
6. Post-employment Ind AS 24 specifically includes post- AS 18 does not specifically
Benefits employment benefit plans for the cover entities that are post-
benefit of employees of an entity or employment benefit plans,
its related entity as related parties. as related parties.
7. Next Most Senior Ind AS 24 requires an additional AS 18 has no such
Parent disclosure as to the name of the next requirement.
most senior parent which produces
consolidated financial statements for
public use.
8. Disclosure for Ind AS 24 requires extended AS 18 does not specifically
Compensation disclosures for compensation of KMP require
under different categories.
9. Disclosure of Ind AS 24 requires “the amount of AS 18 gives an option to
‘Amount of the the transactions” need to be disclose the “Volume of the
Transactions’ vs disclosed. transactions either as an
‘Volume of the amount or as an
Transactions appropriate proportion”.
10. Government Related Ind AS 24 requires disclosures of AS 18 presently exempts
Entities: certain information by the the disclosure of such
government related entities. information.
11. Clarification of Ind AS 24 neither defines these AS 18 includes definition
Control, Substantial terms nor it includes such and clarificatory text,
Interest and clarificatory text and allows primarily with regard to
Significant Influence respective standards to deal with the control, substantial interest
same. (including 20% threshold),
significant influence
(including 20% threshold)
(b) OR
Equity: Equity claims are claims on the residual interest in the assets of the entity after
deducting all its liabilities. In other words, they are claims against the entity that do not meet the
definition of a liability.
Income and Expenses: Income is increases in assets, or decreases in liabilities, that result in
increases in equity, other than those relating to contributions from holders of equity claims.
14

Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to holders of equity claims.
Income and expenses are the elements of financial statements that relate to an entity’s financial
performance. Users of financial statements need information about both an entity’s financial
position and its financial performance. Hence, although income and expenses are defined in
terms of changes in assets and liabilities, information about income and expenses is just as
important as information about assets and liabilities.
Different transactions and other events generate income and expenses with different
characteristics. Providing information separately about income and expenses with different
characteristics can help users of financial statements to understand the entity’s financial
performance.
15

FR Last 4 MTP

Uploaded by

Copyright:

Available Formats

FR Last 4 MTP

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FR Last 4 MTP

Uploaded by

Copyright:

Available Formats

Merged By CA - Born To Fight

Test Series: April, 2023

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Trade payables 6,69,180

5. The composition of ‘other current financial assets’ is as follows:

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Price per container Cumulative sales volume

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Test Series: April, 2023

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Statement of changes in equity

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Presentation in the Financial Statements:

In Balance Sheet as at 31 March 20X2

© The Institute of Chartered Accountants of India join us t.me/caborntofight

2) Recording of share in the profit of the associate

Activity wise Amount (in crore)

© The Institute of Chartered Accountants of India join us t.me/caborntofight

(c) (A) Calculation of employee compensation expense

© The Institute of Chartered Accountants of India join us t.me/caborntofight

2 10,000 0.907 9,070 68 6,16,760

© The Institute of Chartered Accountants of India join us t.me/caborntofight

a. Computation of Liability & Equity Component

b. Allocation of transaction costs

c. Accounting for liability at amortised cost:

d. Journal Entries to be recorded for entire term of arrangement are as follows:

© The Institute of Chartered Accountants of India join us t.me/caborntofight

31-Mar-20X2 Preference shares A/c Dr. 150,000

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Adjusted number of shares

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

(b) For the year 20X1-20X2

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Net interest (Refer W.N.1) 21

Particulars ` in lacs Particulars ` in lacs

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Plan Assets Account

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Test Series: March, 2023

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Year End @ 8% @ 10%

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Particulars Note No. Sun Limited Moon Limited

© The Institute of Chartered Accountants of India join us t.me/caborntofight

Investment allowance reserve 10,00,000 2,00,000

© The Institute of Chartered Accountants of India join us t.me/caborntofight

All transactions are made in cash.

© The Institute of Chartered Accountants of India join us t.me/caborntofight

© The Institute of Chartered Accountants of India join us t.me/caborntofight