ICAI MCQs Bank
The Institute's own questions for this paper, reproduced word for word and grouped the way ICAI sets them. Graded instantly, with ICAI's own reasoning as the explanation.
Case Scenarios
63 scenarios · 258 questions
Case Scenario 1
Other Indian Accounting Standards
ABC Ltd. is a dynamic company engaged in strategic acquisitions to expand its business portfolio. As part of its growth strategy, the company has recently acquired PQR Ltd. and RST Ltd. While these acquisitions present growth opportunities, these acquisitions also include ongoing lawsuits against the acquired companies. However, ABC Ltd. has secured indemnities from the respective sellers to mitigate potential financial risks associated with these legal matters. Following acquisitions took place during the year. (i) ABC Ltd. acquired a beverage company PQR Ltd. from XYZ Ltd. At the time of acquisition, PQR Ltd. is the defendant in a court case whereby certain customers of PQR Ltd. have alleged that products of PQR Ltd. contain pesticides in excess of the permissible levels, which have caused them health damage. PQR Ltd. is being sued for damages of ₹ 2 crores. XYZ Ltd. has indemnified ABC Ltd. for the losses, if any, due to the case for amount up to ₹ 1 crore. The fair value of the contingent liability for the court case is ₹ 0.70 crore. (ii) ABC Ltd. pays ₹ 50 crores to acquire RST Ltd. from MN Ltd. RST Ltd. manufactured products containing fiber glass and has been named in 10 class actions concerning the effects of these fiber glass, MN Ltd. agrees to indemnify ABC Ltd. for the adverse results of any court cases up to an amount of ₹ 10 crores. The class actions have not specified amounts of damages and past experience suggests that claims may be up to ₹ 1 crore each, but that they are often settled for small amounts. ABC Ltd. makes an assessment of the court cases and decides that due to the potential variance in outcomes, the contingent liability cannot be measured reliably and accordingly no amount is recognised in respect of the court cases. On the basis of the facts given above, chose the most appropriate answer to Questions 1 to 5 below based on the relevant Indian Accounting Standards (Ind AS). © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 2
Other Indian Accounting Standards
Choose the most appropriate answer to Questions 1 to 5, based on below mentioned facts: Date Amount (₹) Event 1st January, 20X6 7,500 Asset acquired with depreciation to be charged based on useful life of 10 years On 31st December, 20X7 Indicators of impairment noted and impairment allowance accounted On 28th February, 20X9 Assets has been classified as held for sale On 28th February, 20X9 4,600 Fair value less costs to sell On 30th June, 20X9 5,300 Fair value less costs to sell
0/5 solved
Case Scenario 3
Ind AS on Presentation of General Purpose Financial Statements
M Ltd. is engaged in production and agricultural activities. It also runs a chain of gyms. M Ltd. prepares its financial statements following Indian Accounting Standards and follows April-March as its financial year. During the year 20X1- 20X2, the company has faced following issues and for their solution seeks your professional advice: (i) Fixed production overheads for the financial year is ₹ 10,000. Normal expected production for the year, after considering planned maintenance, normal breakdown and also considering the future demand of the product is 2,000 MT. It is considered that there are no quarterly / seasonal variations. Therefore, the normal expected production for each quarter is 500 MT and the fixed production overheads for the quarter are ₹ 2,500. Actual production achieved Quantity (In MT) First quarter Second quarter Third quarter Fourth quarter Total 1,900 There are no quarterly / seasonal variation. (ii) On 1st April, 20X1, M Ltd. sells gym memberships for ₹ 7,500 per member for 1st year to 100 customers, with an option to renew at a discount in 2nd and 3rd year at ₹ 6,000 per year. M Ltd. estimates an annual attrition rate of 50% each year. (iii) On 1st November, 20X1, M Ltd. purchased 100 goats of special breed from a market for ₹ 10,00,000 with a transaction cost of 2%. Goats fair value decreased from ₹ 10,00,000 to ₹ 9,00,000 as on 31st March, 20X2. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 4
Ind AS on Assets of the Financial Statements
P Ltd. is a multi-national company and prepares and presents its financial statements following Indian Accounting Standards as its securities are listed on National Stock Exchange. P Ltd. has a number of business segments and requires guidance on following matters. (i) Particulars Kg. ₹ Opening Inventory: Finished Goods 1,000 25,000 Raw Materials 1,100 11,000 Purchases 10,000 1,00,000 Labour 76,500 Overheads (Fixed) 75,000 Sales 10,000 2,80,000 Closing Inventory: Raw Materials Finished Goods The expected production for the year was 15,000 kg of the finished product. Due to fall in market demand the sales price for the finished goods was ₹ 20 per kg and the replacement cost for the raw material was ₹ 9.50 per kg on the closing day. Calculate the closing inventory as on that date. (ii) P Ltd has made a security deposit whose details are described below. The market interest rate for a deposit for similar period is 12% per annum. Particulars Details Date of Security Deposit (Starting Date) 1-Apr-20X1 Date of Security Deposit (Finishing Date) 31-Mar-20X6 Description Lease Total Lease Period 5 years Discount rate 12.00% © The Institute of Chartered Accountants of India Security deposit 10,00,000 Present value factor at the 5th year 0.567427 Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 5
Ind AS on Liabilities of the Financial Statements
ABC Ltd. acquires XYZ Ltd. in a business combination on 15th January, 20X1. Few days before the date of acquisition, one of XYZ Ltd.'s customers had claimed that certain amounts were due by XYZ Ltd. under penalty clauses for completion delays included in the contract. ABC Ltd. evaluates the dispute based on the information available at the date of acquisition and concludes that XYZ Ltd. was responsible for at least some of the delays in completing the contract. Based on the evaluation, ABC Ltd. recognises ₹ 1 crore towards this liability which is its best estimate of the fair value of the liability to the customer based on the information available at the date of acquisition. In October, 20X1 (within the measurement period), the customer presents additional information as per which ABC Ltd. concludes the fair value of liability on the date of acquisition to be ₹ 2 crore. ABC Ltd. continues to receive and evaluate information related to the claim after October, 20X1. Its evaluation doesn’t change till February, 20X2 (i.e. after the measurement period), when it concludes that the fair value of the liability for the claim at the date of acquisition is ₹ 1.9 crore. ABC Ltd. determines that the amount that would be recognised with respect to the claim under Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets as at February, 20X2 is ₹ 2.2 crore. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 3 in line with relevant Ind AS:
0/3 solved
Case Scenario 6
Ind AS 115 Revenue from Contracts with Customers
A Ltd. is engaged in multi production/construction and service activities. A Ltd. prepares its financial statements following Indian Accounting Standards and follows April-March as its financial year. During the year 20X1-20X2, the company has faced following issues and for their solution seeks your professional advice: (i) A Ltd. produces aircrafts. The length of time between first purchasing raw materials to make the aircrafts and the date the company completes the production and delivery is 9 months. The company receives payment for the aircrafts 7 months after the delivery. (ii) A Ltd. provides advertising services to its customers. A Ltd. enters into a sub-contract with a multinational online video sharing company, F Ltd. Under the sub-contract, F Ltd. places all of A Ltd.’s customers’ adverts. A Ltd. notes the following: – A Ltd. works directly with customers to understand their advertising needs before placing adverts. – A Ltd. is responsible for ensuring that the advert meets the customer’s needs after the advert is placed. – A Ltd. directs F Ltd. over which advert to place and when to place it. – A Ltd. does not bear inventory risk because there is no minimum purchase requirement with F Ltd. – A Ltd. does not have discretion in setting the price because fees are charged based on F Ltd.’s scheduled rates. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 3 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/3 solved
Case Scenario 7
Ind AS on Assets of the Financial Statements
X Ltd. is engaged in the construction industry and prepares its financial statements up to 31st March each year. (i) On 1st April, 20X1, X Ltd. purchased a large property (consisting of land) for ₹ 2,00,00,000 and immediately began to lease the property to Y Ltd. on an operating lease. Annual rentals were ₹ 20,00,000. On 31st March, 20X5, the fair value of the property was ₹ 2,60,00,000. Under the terms of the lease, Y Ltd. was able to cancel the lease by giving six months’ notice in writing to X Ltd. Y Ltd. gave this notice on 31st March, 20X5 and vacated the property on 30th September, 20X5. On 30th September, 20X5, the fair value of the property was ₹ 2,90,00,000. On 1st October, 20X5, X Ltd. immediately began to convert the property into ten separate flats of equal size which X Ltd. intended to sell in the ordinary course of its business. X Ltd. spent a total of ₹ 60,00,000 on this conversion project between 30th September, 20X5 to 31st March, 20X6. The project was incomplete at 31st March, 20X6 and the directors of X Ltd. estimate that they need to spend a further ₹ 40,00,000 to complete the project, after which each flat could be sold for ₹ 50,00,000. (ii) Mr. A is a domestic partner of Ms. B. Mr. A has an investment in X Limited and Ms. B has an investment in Z Limited. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 8
Ind AS on Assets of the Financial Statements
G Ltd. is currently engaged in different business segments and is also looking to expand its operations overseas. G Ltd. is also exploring investment from an overseas investor to carry out the expansion plan. (i) G Ltd has made an interest free security deposit against a lease of 5 years redeemable at the end of the lease term, when market interest rate for a deposit for similar period was 12% per annum. Following are the details of the deposit made by G Ltd.: Particulars Details Date of Security Deposit (Starting Date) 1st April, 20X1 Date of Security Deposit (Finishing Date) 31st March, 20X6 Discount rate 12.00% Security deposit 10,00,000 Present value factor at the end of 5th year 0.567427 (ii) G Ltd. acquired 25% of the equity share capital of R Ltd. on the first day of the financial year for ₹ 1,25,000. As of that date, the carrying value of the net assets of R Ltd. was ₹ 3,00,000 and the fair value was ₹ 4,00,000. The excess of fair value over the carrying value was attributable to one of the buildings owned by R Ltd. having a remaining useful life of 20 years. R Ltd. earned profit of ₹ 40,000 and other comprehensive income of ₹ 10,000 during the year. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 9
Ind AS on Disclosures in the Financial Statements
ABC Ltd. manufactures and sells healthcare products, and food and grocery products. (i) Three products namely A, B & C are manufactured. Product A is classified as healthcare product and product B & C are classified as food and grocery products. Products B & C are similar products. Discrete financial information is available for each manufacturing locations and for the selling activity of each product. There are two-line managers responsible for manufacturing activities of products A, B & C. Manager X manages product A and Manager B manages products B & C. The operating results of health care products (product A) and food and grocery products (products B & C) are regularly reviewed by the CODM. (ii) ABC Ltd provides you the following information: Raw material stock holding period : 3 months Work-in-progress holding period : 1 month Finished goods holding period : 5 months Debtors collection period : 5 months The trade payables of the Company are paid in 12.5 months. (iii) ABC Ltd. owns 30% of the share capital of XYZ Ltd. and has the ability to exercise significant influence over it. XYZ Ltd. holds the following investments: a. 70% of the share capital of its subsidiary, PQR Ltd.; and b. 30% of the share capital of LMN Ltd., with the ability to exercise significant influence. ABC Ltd. transacts with PQR Ltd. and LMN Ltd. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 4 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 10
Other Indian Accounting Standards
B Ltd. is engaged in many businesses including manufacturing and fitness clubs and sports gymnasium. It prepares its financial statements following Indian Accounting. During the year, the company has faced some issues and for their solution seeks your professional advice. (i) A gymnasium enters into a contract with a new member to provide access to its gym for a 12-month period at ₹ 4,500 per month. The member can cancel his or her membership without penalty after three months. (ii) The following information is gathered from B Ltd.: Full capacity is 10,000 labour hours in a year. Normal capacity is 7,500 labour hours in a year. Actual labour hours for current period are 6,500 hours. Total fixed production overhead is ₹ 1,500. Total variable production overhead is ₹ 2,600. Total opening inventory is 2,500 units. Total units produced in a year are 6,500 units. Total units sold in a year are 6,700 units. The cost of inventories is assigned by using FIFO cost formula. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 4 in line with relevant Ind AS:
0/4 solved
Case Scenario 11
Accounting and Reporting of Financial Instruments
Z Ltd. is a multi-national company and prepares and presents its financial statements following Indian Accounting Standards. (i) Z Ltd. makes sale of goods to customers on credit of 45 days. The customers are entitled to earn a cash discount @ 2% per annum if payment is made before 45 days and an interest @ 10% per annum is charged for any payments made after 45 days. (ii) Z Ltd. makes sale of goods to customers on credit. Goods are carried in large containers for delivery to the dealers’ destinations. All dealers are required to deposit a fixed amount of ₹ 10,000 as security for the containers, which is returned only when the contract with Company terminates. The deposits carry 8% per annum which is payable only when the contract terminates. If the containers are returned by the dealers in broken condition or any damage caused, then appropriate adjustments shall be made from the deposits at the time of settlement. (iii) Z Ltd. has following three types of interests in an associate: ▪ Equity shares: 25% of the equity shares to which equity method of accounting is applied ▪ Preference shares: Non-cumulative preference shares that form part of net investment in the associate. Such preference shares are measured at fair value as per Ind AS 109. ▪ Long-term loan: The loan carrying interest of 10% p.a. The interest income is received at the end of each year. The long-term loan is accounted as per amortised cost as per Ind AS 109. This loan also forms part of net investment in the associate. At the start of year 1, the carrying value of each of the above interests is as follows: ▪ Equity shares – ₹ 10,00,000 ▪ Preference shares – ₹ 5,00,000 ▪ Long-term loan – ₹ 3,00,000 © The Institute of Chartered Accountants of India Following table summarises the changes in the fair value of preference shares as per Ind AS 109, impairment loss on long-term loan as per Ind AS 109 and entity’s share in profit / loss of associate for year 1: ₹ End of Year Increase / (Decrease) in fair value of preference shares as per Ind AS 109 Impairment loss / (reversal) on long- term loan as per Ind AS 109 Entity’s share in profit / (loss) of associate (50,000) (50,000) (16,00,000) Throughout year 1 to 5, there has been no objective evidence of impairment in the net investment in the associate. The entity does not have any legal or constructive obligation to share the losses of the associate beyond its interest in the associate. Based on above, determine the closing balance of each of the above interests at the end of each year. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 12
Ind AS on Assets of the Financial Statements
X Ltd. is engaged in many businesses for which it is in the process of acquiring fixed assets and intangible assets. X Ltd. prepares its financial statements following Ind AS and follows April-March as its financial year. X Ltd. has paid an advance tax amounting to ₹ 5,30,000 during the current year. Out of the said paid tax, ₹ 30,000 is paid for tax on long term capital gains. X Ltd. acquires fixed asset of ₹ 10,00,000 from Y Ltd. by accepting the liabilities of ₹ 8,00,000 of Y Ltd. and balance amount it paid in cash. X Ltd. acquired a trademark on 31st March, 20X1 for ₹ 1,00,000. The asset was revalued at ₹ 1,20,000 on 31st March, 20X2 and ₹ 85,000 on 31st March, 20X3. X Ltd. acquired patent on 31st March, 20X1 for ₹ 1,00,000. The asset was revalued at ₹ 85,000 on 31st March, 20X2 and at ₹ 1,05,000 on 31st March, 20X3. X Ltd. uses the revaluation model. X Ltd. enters into a ten-year contract with A Ltd. for the use of rolling stock specifically designed for X Ltd. The rolling stock is designed to transport materials used in X Ltd.’s production process and is not suitable for use by other customers. The rolling stock is not explicitly specified in the contract but A Ltd. owns only one rolling stock that is suitable for X Ltd.’s use. If the rolling stock does not operate properly, the contract requires A Ltd. to repair or replace the rolling stock. The company has faced certain issues and for their solution seeks your professional advice. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 13
Ind AS 115 Revenue from Contracts with Customers
PQR Ltd. is engaged in providing a wide range of telecommunications services, including mobile connectivity, broadband and enterprise network solutions. It prepares its financial statements in accordance with Ind AS and follows the financial year for the purpose of accounting and reporting. A customer buys modem from PQR Ltd. However, customer can also get the connection from PQR Ltd. and modem from any other vendor. The installation activity requires limited effort and the cost involved is almost insignificant. It has various plans where it provides either broadband services or voice call services or both. PQR Ltd. has 350 employees (same as a year ago). The average staff attrition rates observed during past 10 years represents 6% per annum. PQR Ltd. provides to all its employees, paid vacation of 10 days per year regardless of date of hiring. Compensation for paid vacation is 100% of employee's salary and unused vacation can be carried forward for 1 year. As of 31st March, 20X1, unused vacation carried forward was 3 days per employee, average salary was ₹ 15,000 per day and accrued expense for unused vacation in 20X0-20X1 was ₹ 65,00,000. During 20X1-20X2, employees took 9 days of vacation in average. Salary increases in 20X1-20X2 was 10%. PQR Ltd. had taken 6-year term loan in April 20X0 from bank and paid processing fees at the time of sanction of loan. The term loan is disbursed in different tranches from April 20X0 to April 20X6. On the date of transition to Ind AS, i.e. 1.4.20X5, it has calculated the net present value of term loan disbursed upto 31.03.20X5 by using effective interest rate and proportionate processing fees has been adjusted in disbursed amount while calculating net present value. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 14
Other Indian Accounting Standards
ABC Ltd. prepares consolidated financial statements up to 31st March each year. On 1st July 20X1, ABC Ltd. acquired 75% of the equity shares of JKL Ltd. and gained control of JKL Ltd. The issued shares of JKL Ltd. is 1,20,00,000 equity shares. Details of the purchase consideration are as follows: - On 1st July, 20X1, ABC Ltd. issued two shares for every three shares acquired in JKL Ltd. On 1st July, 20X1, the market value of an equity share in ABC Ltd. was ₹ 6.50 and the market value of an equity share in JKL Ltd. was ₹ 6. - On 30th June, 20X2, ABC Ltd. will make a cash payment of ₹ 71,50,000 to the former shareholders of JKL Ltd. who sold their shares to ABC Ltd. on 1st July, 20X1. On 1st July, 20X1, ABC Ltd. would have to pay interest at an annual rate of 10% on borrowings. - On 30th June, 20X3, ABC Ltd. may make a cash payment of ₹ 3,00,00,000 to the former shareholders of JKL Ltd. who sold their shares to ABC Ltd. on 1st July, 20X1. This payment is contingent upon the revenues of ABC Ltd. growing by 15% over the two-year period from 1st July, 20X1 to 30th June, 20X3. On 1st July, 20X1, the fair value of this contingent consideration was ₹ 2,50,00,000. On 31st March, 20X2, the fair value of the contingent consideration was ₹ 2,20,00,000. On 1st July, 20X1, the carrying values of the identifiable net assets of JKL Ltd. in the books of that company was ₹ 6,00,00,000. On 1st July, 20X1, the fair values of these net assets was ₹ 7,00,00,000. The rate of deferred tax to apply to temporary differences is 20%. During the nine months ended on 31st March, 20X2, JKL Ltd. had a poorer than expected operating performance. Therefore, on 31st March, 20X2 it was necessary for ABC Ltd. to recognise an impairment of the goodwill arising on acquisition of JKL Ltd., amounting to 10% of its total computed value. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 3 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/3 solved
Case Scenario 15
Conceptual Framework for Financial Reporting under Indian Accounting Standards (Ind AS)
On 1st April, 20X1, S Ltd. issued 30,000 6% convertible debentures of face value of ₹ 100 per debenture at par. The debentures are redeemable at a premium of 10% on 31st March 20X5 or these may be converted into ordinary shares at the option of the holder. The interest rate for equivalent debentures without conversion rights would have been 10%. The date of transition to Ind AS is 1st April 20X3. 3.17 is present value of annuity factor of ₹ 1 at a discount rate of 10% for 4 years. On maturity, ₹ 110 will be paid (₹ 100 as principal payment + ₹ 10 as premium) Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 and 2 in line with relevant Ind AS:
0/2 solved
Case Scenario 16
Accounting and Reporting of Financial Instruments
Z Ltd. is engaged in manufacturing of Automobiles with its registered office in Pune and is listed on the Bombay Stock Exchange. It also owns a chain of retail stores across 20 different locations in the twin cities of Pune and Kolhapur. Following are the brief facts about the transaction entered into by the company for which accounting advice is sought by the CFO of Z Ltd. from you: Z Limited owns two vehicles on 1st July, 20X1 and a local statute was passed which necessitated Z Ltd. to undertake modifications to its vehicles to enable reduction of harmful emissions. The modifications should have been completed by 31st December, 20X1 at an estimated cost to Z Ltd. of ₹ 20 lakhs. Actually, by 31st March, 20X2, none of the vehicles had been modified although they continued to be used. It is quite likely that Z Ltd. will have to pay a penalty of ₹ 2 lakhs per month for the illegal usage of the vehicles. The directors of Z Ltd. intend to carry out the modifications only at the end of March, 20X3, due to paucity of funds. They expect that penalty will become payable very shortly as legal action has been initiated against Z Ltd. On 1st April, 20X1, Z Ltd. issued 1,00,000 Loan Notes of ₹ 5 each at par. The loan notes entitle the holders for an interest payment of 8% p.a., payable annually in arrears. The loan notes are repayable at par on 31st March, 20X5. As an alternative to repayment, the holders can elect to convert the notes into equity shares in A Ltd. On 1st April, 20X1, investors in non-convertible notes expect an annual return of 10%. You are given the following discount factors: Discount Rate Present Value of ₹ 1 payable At end of year 4 Cumulative at end of years 1-4 8% 73.50 paise ₹ 3.31 10% 68.30 paise ₹ 3.17 On 1st April, 20X1, Z Ltd. had two equity investments that it designated as “fair value through other comprehensive income” in accordance with Ind AS 109: © The Institute of Chartered Accountants of India Name Original Cost Fair Value 31.3.20X1 Fair Value 31.3.20X2 (₹ in 000) (₹ in 000) (₹ in 000) K Ltd. 30,000 37,500 NA H Ltd. 27,500 35,000 38,500 On 28th February, 20X2, Z Ltd. disposed off its investment in K Ltd. for ₹ 50,000 and shown a profit on sale as part of investment income. Apart from recording the receipt of dividend income, no other entries have been made in the financial statements for the year ended 31st March, 20X2 regarding the investment in H Ltd. Both investments had been correctly treated in the financial statements for the year ended 31st March, 20X1. Analyze the transactions mentioned above and choose the most appropriate option in the below mentioned questions 1 to 3 in line with the relevant Ind AS:
0/3 solved
Case Scenario 17
Other Indian Accounting Standards
C Ltd. is preparing its financial statements for the year ended 31 March 20X4. The Board is scheduled to approve the financial statements on 30th May 20X4. On 1st April, 20X3, C Ltd. issued 1,00,000 ₹ 10 bonds for ₹ 10,00,000. On 1st April, each year interest at the fixed rate of 8% per year is payable on outstanding capital amount of the bonds (i.e. the first payment will be made on 1st April, 20X4). On 1st April each year (i.e. from 1st April, 20X4), C Ltd. has a contractual obligation to redeem 10,000 of the bonds at ₹ 10 per bond. In its balance sheet at 31st March, 20X4, how should this be presented in the financial statements? C Ltd. sells a piece of machinery to the customer for ₹ 2 million, payable in 90 days. C Ltd. is aware at contract inception that the customer might not pay the full contract price. C Ltd. estimates that the customer will pay atleast ₹ 1.75 million, which is sufficient to cover C Ltd.'s cost of sales i.e. ₹ 1.5 million and which C Ltd. is willing to accept because it wants to grow its presence in this market. C Ltd. has granted similar price concessions in comparable contracts. C Ltd. concludes that it is highly probable that it will collect ₹ 1.75 million and such amount is not constrained under the variable consideration guidance. On 15th April, 20X4, the company discovers a significant fraud that actually occurred during the financial years 20X1–20X2. The fraud involved overstatement of revenue by manipulating sales invoices during those earlier years. C Ltd. has recognised goodwill worth ₹ 80,00,000 in the past for a business combination. During the current year, it has impaired the goodwill by ₹ 16,00,000 and the carrying amount of goodwill is ₹ 64,00,000. Amortisation or impairment of goodwill is not deductible as per the tax regulations applicable in the jurisdiction, where C Ltd. files its tax returns. Applicable tax rate is 30%. Analyze the transactions mentioned above and choose the most appropriate option in the below mentioned questions 1 to 4 in line with the relevant Ind AS: © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 18
Ind AS on Measurement based on Accounting Policies
ABC Ltd. acquired an asset 3 years ago at a cost of ₹ 5 million. The depreciation method adopted for the asset was 10 percent reducing balance method. At the end of Year 3, ABC Ltd. estimates that the remaining useful life of the asset is 8 years and determines to adopt straight–line method from that date so as to reflect the revised estimated pattern of recovery of economic benefits. Later ABC Ltd. acquires PQR Ltd. for a consideration of ₹ 1 crore. Four years ago, ABC Ltd. had granted a ten-year license allowing PQR Ltd. to operate in Europe. The cost of the license was ₹ 2,50,000. The contract allows either party to terminate the franchise at a cost of the unexpired initial fee plus 20%. At the date of acquisition, the settlement amount is ₹ 1,80,000 [(₹ 2,50,000 x 6/10) + 20%]. ABC Ltd. has acquired PQR Ltd., because it sees high potential in the European market and wishes to exploit it. ABC Ltd. calculates that under current economic conditions and at current prices it could grant a six-year franchise for a price of ₹ 4,50,000. The Accountant of ABC Ltd. has the following information in his possession for the purpose of calculating EPS-Diluted EPS, for the financial year 20X1-20X2: Particulars Amount Net profit attributable to ordinary shareholders ₹ 12,00,000 Weighted average number of equity shares 1,50,000 6% convertible debentures of ₹10,00,000 each 1,000 Convertible into 20 shares Dividend arrears (Cumulative preference shareholders) ₹ 10,000 Tax rate 25% Analyze the transactions mentioned above and choose the most appropriate option in the below mentioned questions 1 to 6 in line with the relevant Ind AS: © The Institute of Chartered Accountants of India
0/6 solved
Case Scenario 19
Ind AS on Assets of the Financial Statements
X Ltd. prepares its financial statements on the basis of Indian Accounting Standards. X Ltd. (lessee) enters into an agreement with Y Ltd. (lessor) to lease an entire floor of a building for a period of 10 years with an option to extend the lease for five years. At the commencement date, X Ltd. is not reasonably certain to exercise the option to extend the lease. Lease payments are ₹ 50,000 per year during the initial term and ₹ 55,000 per year during the optional period. As per the terms of contract, lease payments are required to be paid at the beginning of each year. To obtain the lease, X Ltd. incurred initial direct costs of ₹ 20,000, out of which ₹ 15,000 relates to a payment to a former tenant occupying that floor of the building and ₹ 5,000 relates to commission paid to the real estate agent that arranged the lease. As an incentive to X Ltd. for entering into the lease, Y Ltd. agrees to reimburse to X Ltd. the real estate commission of ₹ 5,000. The interest rate implicit in the lease is not readily determinable by X Ltd. X Ltd.'s incremental borrowing rate is 10%. Ltd. has deferred tax assets, recognised in the balance sheet at 31st March, 20X2 in respect of unused tax losses that can be used to reduce taxable income in future years. The income tax rate used to calculate the deferred tax asset was 40%, which was the current rate of tax applicable at the balance sheet date. A new government came to power on 1st April, 20X2 and passed legislation such that, on 17th April, 20X2, the income tax rate was reduced to 33% with immediate effect. On the basis of the facts given above, choose the most appropriate answer to Questions 1 to 5 below based on the relevant Ind AS.
0/5 solved
Case Scenario 20
Ind AS 115 Revenue from Contracts with Customers
A Ltd. enters into a 3-year contract to provide 1,000 hours of standard call center operator time per annum for ₹ 6,00,000 (₹ 2,00,000 per year); the stand- alone selling price at inception. At the end of the 1st Year, the contract is extended for another three years @ ₹ 6,60,000 as follows: (i) in accordance with the contractual provisions the fee for the 1st year is reduced by ₹ 90,000 because of highly defective service; and (ii) the contract is extended for another 3 years for ₹ 7,50,000 (₹ 2,50,000 per year); when the stand-alone selling price is ₹ 2,30,000. Further, Government G has significant influence over L Ltd. L Ltd. has significant influence over A Ltd. and controls K Ltd. All the entities have transactions with each other. On the basis of the facts given above, choose the most appropriate answer to Questions 1 to 5 below based on the relevant Ind AS.
0/5 solved
Case Scenario 21
Ind AS on Assets of the Financial Statements
ABC Ltd is a diversified company engaged in multiple lines of business and operates through several subsidiaries and associates. The Group has prepared its consolidated financial statements for the year ended 31st March 20X4 in accordance with the Indian Accounting Standards. During the preparation of these financial statements, the management identified certain accounting issues and errors relating to prior periods, along with revenue recognition implications under Ind AS. (i) ABC Ltd. has an investment property with an original cost of ₹ 1,00,000 which it inadvertently omitted to depreciate in previous financial statements. The property was acquired on 1st April, 20X1. The property has a useful life of 10 years and is depreciated using straight line method. Estimated residual value at the end of 10 year is Nil. (ii) While preparing the annual financial statements for the year ended 31st March, 20X4, ABC Ltd. discovers that a provision for constructive obligation for payment of bonus to selected employees in corporate office (material in amount) which was required to be recognised in the annual financial statements for the year ended 31st March, 20X2 was not recognised due to oversight of facts. The bonus was paid during the financial year ended 31st March, 20X3 and was recognised as an expense in the annual financial statements for the said year. (iii) ABC Ltd. sells gym memberships for ₹ 7,500 per year to 100 customers, with an option to renew at a discount in 2nd and 3rd year at ₹ 6,000 per year. Entity estimates an annual attrition rate of 50% each year. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 3 in line with relevant Ind AS: © The Institute of Chartered Accountants of India
0/3 solved
Case Scenario 22
Ind AS on Assets of the Financial Statements
MS Ltd., a diversified organisation with several subsidiaries and business lines, has prepared its financial statements for the year ended 31st March in accordance with the Indian Accounting Standards. During the preparation, the management of MS Ltd. are facing following issues: (i) MS Ltd. has acquired a heavy machinery at a cost of ₹ 1,00,00,000 (with no breakdown of the component parts). The estimated useful life is 10 years. At the end of the sixth year, one of the major components, the turbine requires replacement, as further maintenance is uneconomical. The remainder of the machine is perfect and is expected to last for the next four years. The cost of a new turbine is ₹ 45,00,000. The discount rate assumed is 5%. (ii) The rate of income tax applicable to MS Ltd. is 20%. The following information relates to transactions, assets and liabilities of MS Ltd during the year ended 31st March 20X6: 1. MS Ltd. has a 40% shareholding in L Ltd. MS Ltd purchased this shareholding for ₹ 45 Cr. The shareholding gives MS Ltd significant influence over L Ltd but not control and therefore MS Ltd. accounts for its interest in L Ltd using the equity method. The equity method carrying value of MS Ltd.’s investment in L Ltd was ₹ 70 Cr on 31st March 20X5 and ₹ 75 Cr on 31st March 20X6. In the tax jurisdiction in which MS Ltd operates, profits recognised under the equity method are taxed if and when they are distributed as a dividend or the relevant investment is disposed of. 2. MS Ltd. measures its head office building using the revaluation model. The building is revalued every year on 31st March. On 31st March 20X5, carrying value of the building (after revaluation) was ₹ 40 Cr and its tax base was ₹ 22 Cr. During the year ended 31st March 20X6, MS Ltd. charged depreciation in its statement of profit or loss of ₹ 2 Cr and claimed a tax deduction for tax depreciation of ₹ 1.25 Cr. On 31st March 20X6, the building was revalued to ₹ 45 Cr. In the tax jurisdiction in which MS Ltd. operates, © The Institute of Chartered Accountants of India revaluation of property, plant and equipment does not affect taxable income at the time of revaluation. Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 23
Accounting and Reporting of Financial Instruments
XYZ Ltd. prepares its financial statements as per Ind AS. The management requires your assistance in following cases: (i) XYZ Ltd. originates 2,000 bullet loans with a total gross carrying amount of ₹ 5,00,000. XYZ Ltd. segments its portfolio into borrower groups (Groups X and Y) on the basis of shared credit risk characteristics at initial recognition. Group X comprises 1,000 loans with a gross carrying amount per client of ₹ 200, for a total gross carrying amount of ₹ 2,00,000. Group Y comprises 1,000 loans with a gross carrying amount per client of ₹ 300, for a total gross carrying amount of ₹ 3,00,000. There are no transaction costs, and the loan contracts include no options, premiums or discounts, points paid, or other fees. Additional information Group Historic per annum average defaults Present value of observed loss assumed ₹ 600 Y ₹ 450 (ii) XYZ Ltd. has invested in 40% share capital of N Ltd. and hence N Ltd. is an associate of XYZ Ltd. During the year 20X5-20X6, N Ltd. sold inventory to XYZ Ltd. for a value of ₹ 10,00,000. This included profit of 10% on the transaction price i.e. profit of ₹ 1,00,000. Out the above inventory, XYZ Ltd. sold inventory of ₹ 6,00,000 to outside customers. Hence, the inventory of ₹ 4,00,000 purchased from N Ltd. is still lying with XYZ Ltd. (iii) XYZ Ltd. has also invested in 40% share capital of A Ltd. and hence A Ltd. is also an associate of XYZ Ltd. XYZ Ltd. sold the inventory to A Ltd. for a value of ₹ 10,00,000. This included profit of 10% on the transaction price i.e. profit of ₹ 1,00,000. Out the above inventory, A Ltd. sold inventory of ₹ 6,00,000 to outside customers. Hence, the inventory of ₹ 4,00,000 purchased from XYZ Ltd. is still lying with A Ltd. © The Institute of Chartered Accountants of India Analyze the transactions mentioned above and choose the most appropriate option in the below questions 1 to 5 in line with relevant Ind AS:
0/5 solved
Case Scenario 24
Ind AS on Liabilities of the Financial Statements
Tara Ltd. is engaged in mining and many other industries and prepares its financial statements following Indian Accounting Standards and follows April- March as their financial year. During the year 20X1-20X2, the Company has faced some issues and for their solution seeks your professional advice. (i) Tara Ltd. and Zara Ltd. are partners of a joint operation engaged in the business of mining precious metals. The entity uses a jointly owned drilling plant in its operations. During the year ended 31st March, 20X2, an inspection was conducted by the government authorities in the mining fields. The inspection authorities concluded that adequate safety measures were not followed by the entity. As a consequence, a case was filed and a penalty of ₹ 100 crores has been demanded from Tara Ltd on 1st September, 20X1. The legal counsel of the company has assessed the demand and opined that appeals may not be useful, and the appeal orders will be unfavourable to the joint arrangement. As per the terms of the joint operations agreement, out of ₹ 100 crores (to be paid by Tara Ltd.), ₹ 60 crores will be reimbursed by Zara Ltd. to Tara Ltd within three months from the date of any demand made in respect of joint operations by any government authorities. However, till the year end, actual reimbursement was not received from Zara Ltd. (ii) Tara Ltd. has invested in debentures whose interest rate is floating in nature and as per terms of the instrument, interest will be reset every month. As per terms, rate of interest is SOFR plus 2%. The entity does not intend to hold the instrument to receive contractual cash flows solely for payments of principal and interest on the principal amount outstanding. Also, the holder does not intend to measure the instrument at FVTOCI. (iii) On 1st January, 20X2, Tara Ltd. took a contract for installation of new elevator at a factory of its customer. The entity estimates the following with respect to the contract: © The Institute of Chartered Accountants of India Particulars Amount (₹) Transaction price 30,00,000 Expected costs: (a) Elevators 10,00,000 (b) Other costs 12,00,000 Total 22,00,000 It purchased the elevator and delivered the same to the site six months before it is required for installation. The entity uses an input method based on cost to measure progress towards completion. Tara Ltd. has incurred actual other costs of ₹ 3,00,000 by 31st March, 20X2. (iv) Tara Ltd. has classified its business in 5 operating segments namely A, B, C, D and E. The profit/(loss) of respective segments for the year ended 31st March, 20X2, are as follow: Segment Profit/ (Loss) (₹ in lakhs) A 1,280 B 2,624 (280) E (2620) Total 1,319 On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 5 in line with the relevant Ind AS:
0/4 solved
Case Scenario 25
Ind AS on Presentation of General Purpose Financial Statements
Planet Limited is a multinational company engaged into the business of manufacturing of various products of different segments. One of the segments is the manufacturing of agricultural equipment. The company raised a term loan for ₹ 1 crore from a Nationalized Indian Bank to purchase certain plant and machinery for agricultural segment during the year ended 31st March, 20X1. The loan is repayable over a period of 5 years. The terms and conditions of the loan agreement is that the company should maintain a current ratio of 1.5:1 and debt-equity ratio of 1:2. If these covenants fall below this level, then the bank has a right to recall the entire loan. The unpaid loan as on 31st March, 20X2 was ₹ 85 lakhs. The current ratio of Planet Ltd. was 0.9:1 and debt-equity ratio was 0.65:2. The bank has sent a notice on 7th April 20X2 demanding repayment of loan, on account of breach of terms of the loan agreement. The financials of the company were approved and signed on 15th May, 20X2. After receiving the notice, the Chief Finance Officer of the company contacted the bank and ensured to rectify the breach. Consequently, on 28th May, 20X2, the Bank agreed not to recall the loan and allowed the company to achieve the contracted current and debt equity ratio by the year ending on 31st March, 20X3 Planet Limited has recently acquired shares in Bean Ltd. and Camel Ltd. and prepared draft consolidated financial statements in accordance with Ind AS for the year ended on 31st March, 20X2. It is the group's policy to value its non- controlling interests at fair value. The fair value of the non-controlling interest in Bean Ltd. on the date of acquisition was measured at ₹ 1,430 lakhs. The following information is relevant regarding the acquisition of shares in Bean Ltd. and Camel Ltd.: Date of acquisition Holding acquired Retained earnings at acquisition date Purchase consideration % ₹ (in lakhs) ₹ (in lakhs) Bean Ltd - 1.4.20X1 5,400 10,200 Camel Ltd - 1.4.20X1 6,240 5,760 © The Institute of Chartered Accountants of India In the draft Consolidated Financial Statements prepared on 31st March, 20X2 the financials relating to Bean Ltd. and Camel Ltd. appeared as follows: Bean Ltd. (₹ in lakhs) Camel Ltd. (₹ in lakhs) Issued ordinary shares of ₹ 10 each 3,600 4,000 Retained earnings 7,200 7,400 Bean Ltd. and Camel Ltd. have not issued any share capital since the acquisition of shareholding by Planet Ltd. The fair value of the net assets of Bean Ltd. and Camel Ltd. were the same as their carrying amounts at the date of acquisition. Planet Ltd. has significant influence over Camel Ltd. An impairment loss of ₹ 204 lakhs have been identified in respect of goodwill arising on the acquisition of Bean Ltd. for the year ended on 31st March, 20X2. The recoverable amount of net assets of Camel Ltd. has been deemed to be ₹ 11,760 lakhs as on 31st March, 20X2. On 1st January, 20X2, Planet Ltd. sold inventory costing ₹ 45 lakhs to Camel Ltd. for ₹ 63 lakhs. The inventory was still unsold by Camel Ltd. at 31st March, 20X2. This inventory was sold by Camel Ltd. to third party on 8th April, 20X2. Planet Limited has constructed a shopping mall earlier. The company renovated a portion of mall by constructing a food court, spa and gaming zone. The food court and gaming zone are expected to result in a significant increase in sales for the shops and outlets of the mall. On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 4 in line with the relevant Ind AS:
0/4 solved
Case Scenario 26
Accounting and Reporting of Financial Instruments
Nikhil Private Limited acquired 100% of Pranav Private Limited on 1st January, 20X1. The fair value of the purchase consideration was ₹ 20 crores consisting of ordinary shares of ₹ 100 each of Nikhil Private Limited. The fair value of the net assets acquired was ₹ 15 crores. At the time of the acquisition, the value of the ordinary shares of Nikhil Private Limited and the net assets of Pranav were only provisionally determined. On 30th November, 20X1, it was finally determined that the fair value of Nikhil Private Limited Shares was ₹ 22 crores and the fair value of net assets of Pranav Private Limited was ₹ 16 crores. However, the directors of Nikhil Private Limited have seen the fair value of the company's shares decline since 1st January, 20X1, and wanted to adopt the fair value of the shares as of 1st February, 20X2, which will result in the fair value of consideration at being value date ₹ 18 crores. In addition to the above Purchase Consideration, the acquisition agreement states that an additional ₹ 4 crores will be paid if Pranav Private Limited achieves a turnover of ₹ 160 crores in the next two years. On the date of acquisition, the fair value of the said consideration was ₹ 3 crores. In February 20X2, due to decline in performance of Pranav Private Limited, it is determined that it is unlikely that it would meet budgeted turnover of ₹ 160 crores. On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 3 in line with the relevant Ind AS:
0/3 solved
Case Scenario 27
Other Indian Accounting Standards
Raja Limited, a leading public limited company engaged in the manufacture of pharmaceuticals, prepares its accounts as per Ind AS. The company has entered into the following transactions during the financial year ended 31st March, 20X2: (i) On 1st April, 20X1, Raja Limited held 35% of total equity shares of Volga Limited, which is an associate company. The carrying value of the investment in Volga Limited on 31st March, 20X1 is ₹ 1,50,00,000 in the consolidated financial statements of Raja Limited. During financial year 20X1-20X2, Raja Limited sold goods worth ₹ 3,50,000 to Volga Limited. The cost of goods sold is ₹ 3,00,000. Out of these, goods costing ₹ 1,00,000 to Volga Limited were lying unsold with it on 31st March, 20X2. During the year ended 31st March, 20X2, the Statement of Profit and Loss of Volga Limited showed a profit of ₹ 25,00,000. Volga Limited declared and paid a dividend of ₹ 10,00,000 to its equity shareholders during 20X1-20X2·. (ii) Raja Limited held 50% of the voting power of Sharp Limited, which is a Joint Venture of Raja Limited. The carrying value as on 1st April, 20X1 of the investment in Sharp Limited as per Equity Method is ₹ 50,00,000. On 1st July, 20X1, out of the 50% stake, Raja Limited sold 20% stake in Sharp Limited to an unrelated entity for a consideration of ₹ 40,00,000. The fair value of the retained 30% interest is ₹ 60,00,000. It is to be noted that Equity method accounting needs to be discontinued. (iii) On 1st August, 20X1, Raja Limited acquired 70% Equity Shares of S Limited by paying a cash consideration of ₹ 97,50,000 (including control premium). The fair value of net identifiable assets of S Limited is ₹ 1,30,00,000. The fair value of 30% of the shares owned by the non- controlling shareholders on the date of acquisition is ₹ 25,00,000. The carrying amount of net identifiable assets of S Limited is ₹ 1,20,00,000. Raja Limited choses to measure the interest of non-controlling shareholders at fair value. On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 3 in line with the relevant Ind AS. © The Institute of Chartered Accountants of India
0/3 solved
Case Scenario 28
Ind AS on Items Impacting the Financial Statements
XYZ Ltd. is a manufacturing company engaged in the manufacturing of home and kitchen appliance products. Following information is available in respect of XYZ Ltd. for the year ended on 31st March, 20X4: (i) During the year 20X3-20X4, XYZ Ltd. purchased a special type of packing material from an USA based company for $ 14,00,000 on 1st December, 20X3 when the exchange rate was $ 1= ₹ 75. The American company provided XYZ Ltd. with 5-month interest-free credit. At the reporting date i.e. 31st March, 20X4, the exchange rate was $ 1 = ₹ 77.5. As at 31st March, 20X4, 60% of the raw material purchased was still in inventory of XYZ Ltd. The functional currency of XYZ Ltd. is Indian Rupee. (ii) In order to motivate and retain employees, XYZ Ltd. announced on 1st April, 20X1, a scheme of granting 6 stock appreciation rights (SAR) to 400 employees who remain in the organization for the next 3 years. Other information available on the portal relating to this scheme is as under: Year ended Fair value of SAR (₹) Employees expected to remain in the organization as at year end 31-03-20X2 31-03-20X3 31-03-20X4 SARs are vested at the end of 3rd year based on the condition attached to the SARs scheme. (iii) The borrowings of XYZ Ltd. include 10% Optionally Convertible Debentures (OCD) issued on 1st October, 20X3 for ₹ 50 lakhs. These debentures are convertible into equity shares of XYZ Ltd. at the option of the holder at the end of the tenure of 5 years in the ratio of 1:1 i.e., each OCD will be converted to one equity share. Interest is paid annually on 31st March. The market rate for these debentures without a conversion option is 14% per annum. (iv) The share capital of XYZ Ltd. includes 10,00,000 12% cumulative preference shares of, ₹ 100 each. The Company has arrears of ₹ 2.40 crores of preference dividend as on 31st March, 20X4; it includes © The Institute of Chartered Accountants of India current year arrear of ₹ 1.20 crores. The Company did not declare any dividend for equity shareholders as well as for preference shareholders for the year ended on 31st March 20X4. On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 4 in line with the relevant Ind AS.
0/4 solved
Case Scenario 29
Ind AS on Assets of the Financial Statements
Savita Limited, a public listed company, is engaged in various types of manufacturing and retail activities. It is also engaged in the real estate business. You are provided with the following information: (i) Savita Limited had the following closing stock of finished goods as on 31.3.20X4: Item Quantity (No.) Cost (₹ per pc) Estimated Selling Price (₹ per pc) Selling Cost (₹ per pc) Wooden Boards Iron rods (ii) On 1st June, 20X1, Savita Ltd. purchased land at Kota for ₹ 1,45,60,000 whose future use was not determined. It remained vacant for more than two years. On 30th September, 20X3, the fair value of the property was ₹ 1,60,80,000 and on the same date Savita Ltd. began to convert the property into twenty separate flats of equal size which it intended to sell in the ordinary course of its business. Savita Ltd. spent a total of ₹ 1,82,68,000 on this conversion project till 31st March, 20X4. The project was incomplete as on 31st March, 20X4, and it was estimated that Savita Ltd. need to spend further ₹ 94,00,000 to complete the project, after which each flat could be sold for ₹ 20,00,000. (iii) Savita Ltd. developed a new drug that was in the final phase of clinical trials. Beta Ltd. had an equity investment in Savita Ltd.'s shares. Beta Ltd. determined that the shares had a readily determinable fair value and accounted for the investment at fair value through profit and loss. On 31st March, 20X4, the drug approval authority notified Savita Ltd.'s management that the drug was not approved. Savita Ltd.'s share closed at ₹ 112 on 31st March, 20X4. Savita Ltd. issued a press release after markets closed on 31st March, 20X4 announcing the failed clinical trial. Savita Ltd.'s share opened on the next working day at ₹ 85. © The Institute of Chartered Accountants of India (iv) Omega Ltd is one of the associate companies of Savita Ltd. Omega Ltd. provided you with the following information for the year ended 31st March, 20X4: Particulars ₹ Crores Net Profit after taxes 93.4 Decrease in accounts receivables 42.5 Depreciation 24.9 Increase in inventory 31.3 Increase in accounts payable 12.7 Decrease in wages payable 5.7 Increase in deferred tax asset 1.5 Tax paid 21.8 Profit from sale of land 3.4 Sale of land 85.2 On the basis of the information provided above, you are required to choose the most appropriate answer to the below mentioned questions 1 to 5 in line with the relevant Ind AS.
0/5 solved
Case Scenario 34
Other Indian Accounting Standards
A Ltd. is engaged in the business of manufacturing a number of products including moulds, dies and machinery. They have a wide customer base both within India and abroad. Typically, a contract is entered into for sale of each product and consideration is received on the event of delivery of goods to the customer place. The cost of each mould is ₹ 400 and the selling price is ₹ 450. The terms of the contract entitle the customer to return any unused moulds within 30 days and receive a full refund. The Company estimates that the costs of recovering the mould will be immaterial and expects that the returned moulds can be resold at a profit. The company has sold a total of 10,000 moulds during the month ended 31st March, 20X4. From past experience, A Ltd expects that 3% of the moulds will be returned during the current year.
0/6 solved
Case Scenario 35
Consolidated and Separate Financial Statements of Group Entities
All Limited holds 35% of total equity shares of M Limited, an associate company. The value of investments in M Limited on 31st March 20X3 is ₹ 3,00,00,000 in the consolidated financial statements of All Limited. All Limited sold goods worth ₹ 3,50,000 to M Limited. The cost of goods sold is ₹ 3,00,000. Out of these goods costing ₹ 1,00,000 to M Limited were in the closing stock of M Limited. M Limited declared a dividend of ₹ 75,00,000 to the equity shareholders of the Company. During the year ended 31st March 20X4 the statement of profit and loss of M Limited showed a profit of ₹ 1,50,00,000.
0/5 solved
Case Scenario 36
Other Indian Accounting Standards
A Ltd. is a diversified business group operating in multiple business segments across different parts of the world. It maintains its books of accounts and publishes its annual financial statements under Indian Accounting Standards. The finance team has been working on closing the books of accounts and generating financial statements for the year ended 31st March 20X2 and are facing issues in the following transactions while finalization of financial statements: (i) A Ltd. owns 250 ordinary shares in X Ltd., an unquoted company. X Ltd. has a total share capital of 5,000 shares with nominal value of ₹ 10. X Ltd.’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). A Ltd.’s management estimates that the discount for the lack of marketability of X Ltd.’s shares and restrictions on their transfer is 20%. A Ltd. values its holding in X Ltd.’s shares based on earnings. (ii) A Ltd. has a telecom segment. It entered into an agreement with B Ltd. which is engaged in generation and supply of power. The agreement provided that A Ltd. will provide 1,00,000 minutes of talk time to employees of B Ltd. in exchange for getting power equivalent to 20,000 units. A Ltd. normally charges ₹ 0.50 per minute and B Ltd. charges ₹ 2.5 per unit. (iii) A Ltd. began construction of a new building at an estimated cost of ₹ 7 lakh on 1st April, 20X1. To finance construction of the building it obtained a specific loan of ₹ 2 lakh from a financial institution at an interest rate of 9% per annum. The company’s other outstanding loans were: Amount Rate of Interest per annum ₹ 7,00,000 12% ₹ 9,00,000 11% © The Institute of Chartered Accountants of India The expenditure incurred on the construction was: April, 20X1 ₹ 1,50,000 August, 20X1 ₹ 2,00,000 October, 20X1 ₹ 3,50,000 January, 20X2 ₹ 1,00,000 The construction of building was completed by 31st January, 20X2. The construction of the building started on 1st April, 20X1 and all the expenditures on construction of building had been incurred at the beginning of the respective month.
0/6 solved
Case Scenario 37
Consolidated and Separate Financial Statements of Group Entities
H Ltd. is a globally diversified business conglomerate with operations spanning multiple business segments across various regions worldwide. For maintaining its financial records, the company follows Indian Accounting Standards. As the finance team diligently finalizes the books of accounts and prepares the financial statements for the financial year ending on 31st March 20X2, it requires insights and accounting suggestions on the following transactions: (i) H Ltd. holds 12% of the voting shares in Z Ltd. Z Ltd.'s board comprises of eight members and two of these members are appointed by H Ltd. casting significant influence. Each board member has one vote at the meeting. (ii) H Ltd. holds 10% of the voting power of G Ltd. The balance 90% voting power is held by nine other investors each holding 10%. The decisions about the relevant activities (except decision about taking borrowings) of G Ltd. are taken by the members holding majority of the voting power. The decisions about taking borrowings are required to be taken by unanimous consent of all the investors. Further, decisions about taking borrowing are not the decisions that most significantly affect the returns of G Ltd. (iii) H Ltd. is also engaged in the business of pharmaceuticals. It has invested in the share capital of Y Ltd. and is holding 15% of Y Ltd.’s total voting power. Y Ltd. is engaged in the business of producing packing materials for pharmaceutical entities. One of the incentives for H Ltd. to invest in Y Ltd. was the fact that Y Ltd. is engaged in the business of producing packing materials which is also useful for H Ltd. Since last many years, almost 90% of the output of Y Ltd. is procured by H Ltd.
0/3 solved
Case Scenario 38
Ind AS on Assets of the Financial Statements
Joy Ltd. wishes to calculate tax base of its assets and defer tax as on 31st March 20X5. The balance sheet has been adjusted by current tax expense. The extracts of the Assets part of the Balance Sheet as on 31st March 20X5 is as follows: ASSETS ₹ Non-current Assets Property, Plant and Equipment 12,00,000 Intangible Assets: Product Development Costs 60,000 Investment In Subsidiary - Pall Ltd. 4,40,000 Current Assets Trade Investments 2,08,000 Trade Receivables 6,26,000 Inventories 3,04,000 Cash and Cash Equivalents 1,80,000 TOTAL ASSETS 30,18,000 Notes: (a) Depreciation expense for the year 20X4-20X5 allowable in accordance with tax laws is ₹ 2,06,000. Accounting depreciation included in operating costs is ₹ 1,70,000. The cost of PPE is ₹ 16,00,000 and Joy Ltd has deducted expenses of ₹ 4,16,000 in its tax returns prior to the financial year 20X4-20X5. Moreover, as on 31st March 20X5, Joy Ltd for the first time revalued its property, plant and equipment to fair value of ₹ 12,00,000 (revaluation surplus = ₹ 88,000). (b) In 20X1-20X2, Joy Ltd incurred product development costs of ₹ 1,00,000. These costs were recognized as an asset and being amortized over a useful period of 10 years. For tax purposes, Joy Ltd deducted full product development costs in 20X1-20X2. © The Institute of Chartered Accountants of India (c) Trade investments were acquired in 20X3-20X4 with a cost of ₹ 2,30,000. These investments are classified at fair value through profit and loss and thus recognized at their fair value. Fair value adjustments are not tax deductible. Assuming the tax rate of 32% for the year 20X4-20X5.
0/7 solved
Case Scenario 39
Ind AS on Assets of the Financial Statements
Joy Ltd. wishes to calculate tax base of its assets and defer tax as on 31st March 20X5. The balance sheet has been adjusted by current tax expense. The extracts of the Assets part of the Balance Sheet as on 31st March 20X5 is as follows: ASSETS ₹ Non-current Assets Property, Plant and Equipment 12,00,000 Intangible Assets: Product Development Costs 60,000 Investment In Subsidiary - Pall Ltd. 4,40,000 Current Assets Trade Investments 2,08,000 Trade Receivables 6,26,000 Inventories 3,04,000 Cash and Cash Equivalents 1,80,000 TOTAL ASSETS 30,18,000 Notes: (a) Bad debt provision amounts to ₹ 1,30,000 and relates to 2 debtors: Debtor A ₹ 80,000 (receivable originated in 20X2-20X3 and 100% provision was recognized in 20X3-20X4) and Debtor B - ₹ 50,000 (receivable originated in 20X3-20X4 and 100% provision was recognized in 20X4-20X5). Tax law allows deduction of 20% of provision for debtors overdue for more than 1 year, another 30% for debtors overdue for more than 2 years and remaining 50% for debtors overdue for more than 3 years. © The Institute of Chartered Accountants of India (b) Joy Ltd accounts for inventory obsolescence provision. The new provision created in 20X4-20X5 was ₹ 10,800 (total provision: ₹ 18,000). This provision is not tax deductible, as it is a general provision. Assume the tax rate of 32% for the year 20X4-20X5.
0/4 solved
Case Scenario 40
Ind AS on Liabilities of the Financial Statements
Joy Ltd. wishes to calculate tax base of its liabilities and defer tax as on 31st March 20X5. The balance sheet has been adjusted by current tax expense. The extracts of equity and liabilities portion of the Balance Sheet as on 31st March 20X5 is as follows: EQUITY & LIABILITIES ₹ Equity Share Capital 12,00,000 Accumulated Profits 7,37,438 Revaluation Surplus 88,000 Long-term Liabilities Deferred Income - Government Grants 40,000 Liability for Product Warranty Costs 16,000 Deferred Tax Liability (From 20X3-20X4) 22,162 Current Liabilities Trade Payables 7,64,000 Health Care Benefits for Employees 70,000 Current Tax Liability 80,400 TOTAL EQUITY & LIABILITIES 30,18,000 Notes: (a) Government grants are not taxable. Government grants received in 20X4- 20X5 is appearing in the balance sheet. (b) In 20X4-20X5, Joy Ltd made a further provision for product warranty of ₹ 5,000. Such provisions for product warranty costs are not tax deductible until the claims are paid or settled. During the year 20X4-20X5, warranty claims were paid/settled for ₹ 6,200. (c) During the year 20X4-20X5, Joy Ltd introduced health care benefits for employees. The expenses are allowable as a deduction in tax only when © The Institute of Chartered Accountants of India benefits are paid but in line with Ind AS 19, such liability is recognized in profit or loss when employees provide service. Assume the tax rate of 32% for the year 20X4-20X5.
0/6 solved
Case Scenario 41
Ind AS on Assets of the Financial Statements
A Ltd. is a diversified business group operating in multiple business segments across different parts of the world. It maintains its books of accounts and publishes its annual consolidated financial statements under Indian Accounting Standards. The central finance team has been working on closing the books of accounts and generating consolidated financial statements for the year ended 31st March 20X3. You are the Finance Controller and your assistants want your views on following transactions for finalization of financial statements: (i) B Ltd., one of the subsidiaries of A Ltd., reported net income of ₹ 25 lakhs, which equals the company’s comprehensive income. The company has no outstanding debt. Following is the information from the comprehensive balance sheet (₹ in lakhs) related to cash flows: Extract of Balance Sheet 31.03.20X2 31.03.20X3 Equity share capital Further issue of equity shares Retained earnings Total shareholders’ equity (ii) A Limited also operates in the travel industry and incurs costs unevenly through the financial year. Advertising costs of ₹ 40 lakhs were incurred on 1st July, 20X2, and staff bonuses are paid at year-end based on sales. Staff bonuses are expected to be around ₹ 400 lakhs for the year; of that a sum of ₹ lakhs would relate to the period ending 30th September 20X2. (iii) An item of equipment X was acquired by A Ltd. on 1st April 20X1 for ₹ 1,00,000 having an estimated useful life of 10 years, with a residual value of zero. The asset is depreciated on a straight-line basis. The asset was revalued to ₹ 1,04,000 on 31st March 20X3. © The Institute of Chartered Accountants of India (iv) A Ltd. has spent ₹ 15,00,000 in developing a new product during the year ended 31st March, 20X3. The development costs incurred were recognised as an intangible asset as per Ind AS 38. For the purposes of computing the taxable income, these expenses are allowable in full in the year of incurring the expenses. At the year end, the Company recognised an impairment loss of ₹ 75,000 against the intangible asset. (v) The company has issued preference shares that are redeemable at the option of the holder. Three months before the end of the year, it was probable that the holders would require redemption.
0/5 solved
Case Scenario 42
Ind AS on Liabilities of the Financial Statements
U Ltd. is engaged in mining and many other industries and prepares its financial statements following Indian Accounting Standards and follows April-March as their financial year. During the year 20X2-20X3, the company has faced some issues and for their solution seeks your professional advice. (i) U Ltd. and F Ltd. are partners of a joint operation engaged in the business of mining precious metals. The entity uses a jointly owned drilling plant in its operations. During the year ended 31st March 20X3, an inspection was conducted by the government authorities in the mining fields. The inspection authorities concluded that adequate safety measures were not followed by the entity. As a consequence, a case was filed and a penalty of ₹ 50 crores has been demanded from U Ltd. The legal counsel of the company has assessed the demand and opined that appeals may not be useful, and the appeal orders will be unfavourable to the joint arrangement. Out of ₹ 50 crores (to be paid by U Ltd.), ₹ 30 crore will be reimbursed by F Ltd. later, as per the terms of the Joint Operation Agreement. At the year end, actual reimbursement was not received from F Ltd. (ii) U Ltd. has issued 10,00,000, 9% cumulative preference shares. The Company has arrears of ₹ 15 crores of preference dividend as on 31st March 20X3, it includes current year arrears of ₹ 1.75 crores. The Company did not declare any dividend for equity shareholders as well as for preference shareholders. Further U Ltd. has also issued certain optionally convertible debentures, which are outstanding as at the year end. (iii) On 1st January, 20X3, U Ltd. acquired 30% of the shares of T Ltd. The investment was accounted for as an associate in U Ltd.’s consolidated financial statements. Both U Ltd. and T Ltd. have an accounting year end of 31st March 20X3. U Ltd. has no other investments in associates. © The Institute of Chartered Accountants of India Net profit for the year in T Ltd.’s income statement for the year ended 31st March 20X3 was ₹ 0.23 crores. It declared and paid dividend of ₹ 0.1 crore on 1st March 20X3. No other dividends were paid in the year. (iv) On 1st January, 20X3, U Ltd. also acquired a 60% stake in S Ltd. The cash consideration payable was ₹ 1 crore to be paid immediately, and ₹ 1.21 crores after two years. The fair value of net assets of S Ltd. at acquisition date was ₹ 3 crores. U Ltd. has calculated that its cost of capital is 10%. Non-controlling interest is measured at the proportionate share of identifiable net assets.
0/3 solved
Case Scenario 43
Conceptual Framework for Financial Reporting under Indian Accounting Standards (Ind AS)
G Ltd. is a multi-national company and prepares and presents its financial statements following Indian Accounting Standards as its securities are listed on National Stock Exchange. G Ltd. has a number of business segments. (i) H Ltd. is one of the recently acquired Indian subsidiary of G Ltd. It has to adopt Ind AS for the first time as at 31st March, 20X4, with 1st April, 20X2 as the date of transition. As at 31st March, 20X2, the value of raw material inventories was incorrectly reported due to an error. The amounts are significant. (ii) G Ltd. is also engaged in software development. It enters into a contract with a customer to transfer a software license, perform an installation service and provide unspecified software updates and technical support (online and telephone) for a two-year period. G Ltd. sells the license, installation service and technical support separately. The installation service includes changing the web screen for each type of user (for example, marketing, inventory management and information technology). The installation service is routinely performed by other entities and does not significantly modify the software. The software remains functional without the updates and the technical support. (iii) G Ltd. sells a 20% interest in a wholly owned subsidiary K Ltd. to outside investors for ₹ 100 lakh in cash. The carrying value of K Ltd.’s net assets is ₹ 300 lakh, including goodwill of ₹ 65 lakh from the subsidiary’s initial acquisition.
0/3 solved
Case Scenario 44
Ind AS on Presentation of General Purpose Financial Statements
ABC Ltd. is a diversified business group operating in multiple business segments across different parts of the world. It maintains its books of accounts and publishes its annual financial statements under Indian Accounting Standards. The finance team has been working on closing the books of accounts and generating financial statements for the year ended 31st March 20X3 and are facing issues in the following transactions while finalization of financial statements: (i) One of the businesses of ABC Ltd. is manufacturing sugar and chemicals. The Company has taken a term loan for ₹ 5 crores from State Bank to buy certain plant and machinery during the year ended 31st March 20X2. The loan is repayable over a period of 5 years. The terms and conditions of the loan agreement requires the company to maintain a current ratio of 1.33 : 1 and debt-equity ratio of 1 : 2. If these loan covenants fall below this level, then the bank has a right to recall the entire loan. The loan outstanding as on 31st March, 20X3 was ₹ 4.25 crores. The current ratio of ABC Ltd. was 1 : 1 and debt equity ratio was 0.5 : 2. State Bank sent a notice on 5th April, 20X3 demanding repayment of loan, on account of breach of terms of the loan agreement. The financials were signed on 10th May, 20X3. On receiving the notice, the CFO of ABC Ltd. negotiated with the bank and ensured to rectify the breach. As a result, on 25th April, 20X3, the Bank has agreed not to recall the loan and allowed the Company to achieve the contracted current and debt-equity ratio by 20X5. (ii) ABC Ltd. has inventory of raw material Y of 10,000 units as at 31st March, 20X4 with a carrying amount of ₹ 100 each. The current market value of that raw material is ₹ 95 each. ABC Ltd. will use raw material to manufacture a component for a customer. The conversion cost for making the finished goods would be ₹ 130 each. ABC Ltd. estimates costs to completion and sale of ₹ 50 each and a selling price for the component is estimated to be ₹ 290 each. © The Institute of Chartered Accountants of India (iii) ABC Ltd. sold machinery Z for ₹ 900 thousand to a new customer. To get into long term relationship with the customer, the terms of sales also include after sales service to be provided for next three years free of cost. The company also sells the sales service contract separately where the customer buys it after the initial warranty period at ₹ 100 thousand.
0/4 solved
Case Scenario 45
Ind AS on Assets of the Financial Statements
DEF Ltd. is a globally diversified business conglomerate with operations spanning across various business sectors worldwide. The company adheres to Indian Accounting Standards for maintaining its financial records and annually releases its financial statements. As the finance team progresses towards finalizing the financial statements for the fiscal year ending on 31st March 20X3, the team is stuck up in the accounting of the following transactions: (i) On 1st June, 20X2, DEF Ltd. decided to dispose of the business and current and non-current assets of one of its divisions related to the specialty chemicals business which it had acquired several years ago. This disposal does not involve DEF Ltd. withdrawing from a particular market sector. The carrying values on 1st June, 20X2 of the assets to be disposed of were as follows: Particulars ₹ in Million Goodwill 10.0 Property, Plant and Equipment 20.0 Patents and trademarks 8.0 Inventories 15.0 Trade Receivables 10.0 None of the assets of the business had suffered impairment as at 1st June, 20X2. At that date the inventories and trade receivables of the business were already stated at no more than their recoverable amounts. DEF Ltd. offered the business for sale at a price of ₹ 46.5 million, which was considered to be reasonably achievable. DEF Ltd. estimated that the direct costs of selling the business would be ₹ 5,00,000. These estimates have not changed since 1st June, 20X2 and DEF Ltd. estimates that the business will be sold by 31st March, 20X3 at the latest. (ii) The government provided DEF Ltd. with a grant of ₹ 21 million to assist it in the development of the factory. This grant was provided in two parts: © The Institute of Chartered Accountants of India (1) ₹ 6 million of the grant was a payment by the government as an inducement to DEF Ltd. to begin developing the factory. No conditions were attached to this part of the grant. (2) ₹ 15 million of the grant related to the construction of the factory at a cost of ₹ 60 million. The ₹ 60 million is depreciable over the estimated 40-year useful life of the factory without adjustment of grant amount from the cost of the factory.
0/4 solved
Case Scenario 46
Ind AS on Assets of the Financial Statements
HIJ Ltd. is a globally diversified business conglomerate with operations spanning multiple business segments across various regions worldwide. For maintaining its financial records, the company follows Indian Accounting Standards. As the finance team diligently finalizes the books of accounts and prepares the financial statements for the financial year ending on 31st March 20X2, it requires insights and accounting suggestions on the following transactions: (i) On 1st October 20X1, HIJ Ltd. subscribed for 40 million ₹ 1 loan notes in Z Ltd. The loan notes were issued at 90 paise and were redeemable at ₹ 1.20 on 30th September 20X6. Interest is payable on 30th September in arrears at 4% of par value. This represents an effective annual rate of return for HIJ Ltd. of 9.9%. HIJ Ltd.’s intention is to hold the loan notes until redemption. (ii) On 1st April 20X1, HIJ Ltd. commenced joint construction of a property with G Ltd. For this purpose, an agreement has been entered into that provides for joint operation and ownership of the property. All the ongoing expenditure, comprising maintenance plus borrowing costs, is to be shared equally. The construction was completed on 30th September 20X1 and utilisation of the property started on 1st January, 20X2 at which time the estimated useful life of the same was estimated to be 20 years. Total cost of the construction of the property was ₹ 40 crores. Besides internal accruals, the cost was partly funded by way of loan of ₹ 10 crores taken on 1st January, 20X1. The loan carries interest at an annual rate of 10% with interest payable at the end of year on 31st December each year. The company has spent ₹ 4,00,000 on the maintenance of such property. The company has recorded the entire amount paid as investment in Joint Venture in the books of accounts. Suggest the suitable accounting treatment of the above transaction as per applicable Ind AS. © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 47
Ind AS on Assets of the Financial Statements
FA Ltd. is a company which manufactures aircraft parts and engines and sells them to large multinational companies like Boeing and Airbus Industries. Following are the details of some of the transactions entered into by the company: i. On 1st April 20X2, the company began the construction of a new production line in its aircraft parts manufacturing shed. Costs relating to the production line are as follows: Details Amount ₹ in lakhs Costs of the basic materials (list price ₹ 12.5 lakhs less 20% trade discount) 10.00 Recoverable goods and services tax incurred but not included in the purchase cost 1.00 Employment costs of the construction staff for three months till 30th June, 20X2 1.20 Other overheads directly related to the construction 0.90 Payments to external advisors relating to the construction 0.50 Expected dismantling and restoration costs 2.00 The production line took two months to make ready for use and was brought into use on 31st May, 20X2. The other overheads were incurred during the two-month period ended on 31st May, 20X2. They included an abnormal cost of ₹ 0.3 lakhs caused by a major electrical fault. The production line is expected to have a useful economic life of eight years. After 8 years, FA Ltd. is legally required to dismantle the plant in a specified manner and restore its location to an acceptable standard. The amount of ₹ 2 lakhs included in the cost estimates is the amount that is expected to be incurred at the end of the useful life of the © The Institute of Chartered Accountants of India production line. The appropriate discount rate is 5%. The present value of ₹ 1 payable in 8 years at a discount rate of 5% is approximately ₹ 0.68. Four years after being brought into use, the production line will require a major overhaul to ensure that it generates economic benefits for the second half of its useful life. The estimated cost of the overhaul, at current prices, is ₹ 3 lakhs. No impairment of the plant had occurred by 31st March 20X3. ii. During the year ended 31st March 20X3, FA Ltd. provided consultancy services to a customer regarding the installation of a new production system related to aircraft parts. The system has caused the customer considerable problems, so the customer has taken legal action against the Company for the loss of profits that has arisen as a result of the problems with the system. The customer has claimed damages to the tune of ₹ 1.6 lakhs. The legal department of FA Ltd. considers that there is a 25% chance the claim can be successfully defended. The legal department further stated that they are reasonably confident the Company is covered by insurance against these types of loss. The accountant feels nothing needs to be provided for this claim as the Company is suitably covered against any possible losses. iii. FA Ltd. has an associate company, Flynet Limited. Following are the information of Flynet Limited for the year ended 31st March 20X3: Particulars ₹ in lakhs Net Income after taxes Decrease in accounts receivables Depreciation Increase in inventory Increase in accounts payable Decrease in wages payable Tax charge for the year (deferred tax liabilities) Profit from sale of land © The Institute of Chartered Accountants of India
0/5 solved
Case Scenario 48
Accounting and Reporting of Financial Instruments
HS Limited (HSL) is a car manufacturing company. During the year, HSL has entered into many transactions, details of which are given below. i. With the intention to expand, HSL has entered into a Share Purchase Agreement ("SPA") with the shareholders of FM Limited to purchase 30% stake in FM Limited as at 1st June, 20X2 at a price of ₹ 30 per share. As per the terms of SPA, HSL has an option to purchase an additional 25% stake in FM Limited on or before 15th June, 20X2 at a price of ₹ 30 per share. Similarly, the selling shareholder has an option to sell additional 25% stake in FM Limited on or before 15th June, 20X2 to HSL at a price of ₹ 30 per share. The decisions on relevant activities of FM Limited are made in Annual General Meeting / Extraordinary General Meeting (AGM / EGM). A resolution in AGM / EGM is passed when more than 50% votes are cast in favour of the resolution. An AGM / EGM can be called by giving atleast 21 days advance notice to all shareholders. ii. During the year, HSL issued Compulsory Convertible Debentures ("CCDs") on a private placement basis for ₹ 100 lakh. Each CCD is convertible into 5 shares at the end of 4 years from the date of issue and an annual interest is payable at the rate of 6% p.a. At initial recognition, HSL recognized a liability component of compound instrument at ₹ 20,79,063. HSL also incurred expenses of ₹ 2,00,000 in connection with the issue of the instrument. Nature of expenses includes fees paid to legal advisors, registration and regulatory fees. iii. HSL acquired a 40% stake in NM Limited as at 1st January, 20X2 for ₹ 8,00,000 and classified the investment in NM Limited as an associate. As at 1st January, 20X2, the carrying amount and fair value of plant & equipment of NM Limited is ₹ 3,00,000 and ₹ 5,00,000 respectively with remaining useful life of 5 years (i.e. 20 quarters). From 1st January, 20X2 to 31st March, 20X2, NM Limited generated a profit of ₹ 50,000. © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 49
Ind AS on Items Impacting the Financial Statements
NM Ltd. is an Ind AS compliant multinational company which is engaged in various businesses. On 1st April 20X1, NM Ltd. issues a new instrument with the following characteristics: Face value 100, issue price 90. Cumulative dividend payable at 5% per annum for 10 years. After 10 years, the dividend is payable at the discretion of the issuer. The holder of the note has the option to convert to ordinary shares of NM Ltd. after 10 years, and conversion will be 10 ordinary shares for each instrument. The holder can demand redemption for the face value at any time, with six months’ notice up until the end of 10 years. After 10 years, redemption is at the discretion of the issuer. There is no fixed maturity date. S Limited is a subsidiary of H Limited which is an associate of T Ltd. T Ltd. is an associate of NM Limited. S Limited's functional and presentation currency is INR, while the functional currency of its parent is USD and its presentation currency is EUR. S Limited has a firm commitment to buy a commodity in EUR. It has entered into a forward contract to hedge the firm commitment against foreign exchange risk. It has to prepare its financial statements for the purpose of consolidation with its parent. NM Limited is a huge machine manufacturer. It has to overhaul its machinery every 3 years. It has purchased machinery worth ₹ 50,00,000. It is estimated that the overhaul costs will be ₹ 5,00,000. It is expected that the machine will have a useful life of 10 years.
0/3 solved
Case Scenario 50
Other Indian Accounting Standards
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. In order 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 1st 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.
0/4 solved
Case Scenario 52
Ind AS on Assets of the Financial Statements
FF Limited (the Company) is into manufacturing and retailing of FMCG products listed on stock exchanges in India. The Company and its one of subsidiaries have entered into various transactions, the accounting of which needs to be analysed in detail from the perspective of Ind AS implications. You being an Ind AS expert, CFO of the Company have appointed you to analyse the transaction based on following details: The Company has entered into a lease agreement for its retail store as on 1st April, 20X2 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 1st April 20X2. As per the terms of the 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. The inflation cost index was 280 for financial year 20X2-20X3 and 301 for financial year 20X4- 20X5. The current incremental borrowing rate is 8% p.a. Vikash Retail Private Limited, a subsidiary of the Company, had suffered heavy losses in previous periods. These losses are accumulated and eligible for setoff from future taxable income while calculating tax liabilities for future periods. However, there is no convincing evidence available which conveys that sufficient taxable profits will be available against which tax losses can be utilized. The Company has also launched a share-based payment plan under which it will grant Stock Appreciation Rights (SAR) to the employees of its subsidiary, Vikash Retail Private Limited. As per the terms of the plan, the Company (i.e. parent) will pay an amount per SAR which is the difference between the current stock price of the Company and stock price of the Company after 3 years. The amount will be paid by the Company directly to those employees of the subsidiary who complete 3 years from the launch of the plan. To ensure the availability of funds at the time of settlement of the scheme, the Company purchases its own shares from the open market. The Company will © The Institute of Chartered Accountants of India sell these shares in the market after 3 years when the Company will be required to pay cash to the employees of the subsidiary. The Company has issued share capital of ₹ 1 crore divided into 10,00,000 equity shares of ₹ 10 each. As of 1st June, 20X3, the Company had issued 3,60,000 convertible warrants of ₹ 10 each. 6 warrants will be converted into 1 equity share of the Company at the end of 18 months from issue date. Warrants will not be redeemed.
0/5 solved
Case Scenario 53
Consolidated and Separate Financial Statements of Group Entities
HS Limited ("the Company") is a car manufacturing company. During the year, the Company has entered into many transactions, details of which are given below. Finance controller of HS Limited requires your assistance in determining the accounting treatment of these transactions in accordance with Ind AS. During the year, the Company had issued Compulsory Convertible Debentures ("CCDs") on a private placement basis for ₹ 100 lakh. Each CCD is convertible into 5 shares at the end of 4 years from the date of issue and an annual interest is payable at the rate of 6% p.a. At initial recognition, the Company has recognized a liability component of compound instrument at ₹ 20,79,063. The Company also incurred expenses of ₹ 2,00,000 in connection with the issue of the instrument. Nature of expenses includes fees paid to legal advisors, registration and regulatory fees. The Company acquired a 40% stake in NM Limited as at 1st October, 20X2 for ₹ 8,00,000 and classified the investment in NM Limited as an associate. As at 1st October, 20X2, the carrying amount and fair value of plant & equipment of NM Limited is ₹ 3,00,000 and ₹ 5,00,000 respectively with remaining useful life of 5 years (i.e. 20 quarters). From 1st October, 20X2 to 31st December 20X2, NM Limited generated a profit of ₹ 50,000.
0/2 solved
Case Scenario 54
Other Indian Accounting Standards
New Age Technology Limited is an IT infrastructure Company which provides customize IT solutions to its customers. New Age Technology Limited issued additional shares on 31st March, 20X3. Cost associated with the issue of equity were ₹ 50,00,000 and recorded directly in equity. Under Indian tax laws, deduction can be claimed over five year period from the date of share issue. Assuming a tax rate of 30%. New Age Technology Limited is engaging with several investors to invest funds into the Company. As part of the negotiations several instruments are being considered depending on the yield each instrument would provide to the investor. New Age Technology Limited enters into a barter transaction to exchange its existing server for new high-end laptop with its vendor, Sunshine Limited. The server has a fair value of ₹ 2,00,000 and a carrying amount of ₹ 1,75,000. Whereas, the high-end laptop has a fair value of ₹ 2,50,000 and carrying amount of ₹ 2,10,000 in the books of Sunshine Limited. New Age Technology Limited acquired copyrights for certain patented software on 1st April, 20X1 for ₹ 50,00,000. The software would assist the Company to develop an entire new range of IT solutions to its customers. Management basis its internal assessment, determined the useful life of the acquired software to be 10 years from the date of purchase. Further management performed a fair value assessment of the acquired software based on the active market and determined it to be ₹ 48,00,000 as at 31st March, 20X2 and ₹ 43,00,000 as at 31st March, 20X3.
0/3 solved
Case Scenario 55
Ind AS on Presentation of General Purpose Financial Statements
Buildings & Co. Limited with a financial year ending at 31st March, entered into a contract with its customer, Radar Company Limited, to build a manufacturing facility. Buildings & Co. Limited determines that the contract contains one performance obligation satisfied over time. Construction is scheduled to be completed by the end of the 36th month for an agreed upon price of ₹ 25 crore. Buildings & Co. Limited has the opportunity to earn a performance bonus for early completion as follows: • 15% bonus of the contract price if contract is completed by 30th month (25% likelihood). • 10% bonus of the contract price if contract is completed by 32nd month (40% likelihood). • 5% bonus of the contract price if contract is completed by 34th month (15% likelihood). In addition to the potential performance bonus for early completion, Buildings & Co. Limited is entitled to a quality bonus of ₹ 2 crore if a health and safety inspector assigns the facility a gold star rating as defined by Radar Company Limited in terms of the contract. Buildings & Co. Limited concludes that it is 60% likely that it will receive the quality bonus. Buildings & Co. Limited has prepared interim financial statements for the third quarter ended 31st December, 20X2 for the purposes of submission to banks. The interim financial statements show a net profit of ₹ 20 crore for the third quarter ended 31st December, 20X2. Following adjustments have been made while computing the net profit: Bad debts of ₹ crore were incurred during the quarter ended 31st December, 20X2. 50% of the bad debt have been deferred to next quarter. Additional depreciation of ₹ 45,00,000 resulting from change in the method of depreciation. ₹ 5 crore expenditure on account of administrative expenses pertaining to the third quarter 31st December, 20X2 is deferred on the argument that the fourth © The Institute of Chartered Accountants of India quarter will have more sales; therefore, fourth quarter should be debited by higher expenditure. The expenditures are uniform all throughout the quarters.
0/2 solved
Case Scenario 56
Ind AS on Presentation of General Purpose Financial Statements
While preparing the annual financial statements for the year ended 31st March 20X2, Buildings & Co. Limited charged certain expenses as finance cost (assume the expenses to be material on overall level). While preparing the annual financial statements for the year ended 31st March 20X3, management discovered that these expenses should have been classified as other expenses instead of finance costs. The error occurred because the management inadvertently misinterpreted certain facts. The management restated the comparative amount for the prior period presented i.e. for the year ended 31st March, 20X2. On 15th November, 20X2, Buildings & Co. Limited acquired Concrete Mixers Private Limited for a purchase consideration of ₹ 10 crore. Concrete Mixers Private Limited is in the process of setting up a plant to make ready mix- concrete· and expects the plant to become operational by 30th April, 20X3. Other than the plant in construction, there are no other operations in the Concrete Mixers Private Limited. Buildings & Co. Limited has taken a loan of USD 15,00,000 as on 1st April 20X2 taken for construction of its fabrication plant at an interest rate of 6% per annum payable on annual basis. On 1st April, 20X2, the exchange rate between the currencies i.e. USD vs. Rupees was ₹ 72 per USD. The exchange rate on the reporting date i.e. 31st March, 20X3 is ₹ 76 per USD. The corresponding amount could have been borrowed by Buildings & Co. Limited from and Indian bank in Rupees at an interest rate of 11% per annum as on 1st April, 20X2.
0/3 solved
Case Scenario 57
Accounting and Reporting of Financial Instruments
Sun Enterprise Limited (SEL), whose functional currency FC is engaged in the business of manufacturing various items from metals. It prepares its financial statements as per Ind AS. It is considering raising funds for the expansion of its production capacity. However, its debt-equity ratio is under pressure. It has the following options before it: (i) SEL issues 6% cumulative, non-redeemable preference shares (6% CNRPS) with discretionary dividends that are subject to availability of distributable reserves. The directors of SEL can decide at each period end whether and the extent to which a dividend will be paid on the preference share. The terms of the preference shares provide that if no dividend is paid on the preference shares, then no dividend is paid on SEL ordinary shares. (ii) SEL issues 6% discretionary non-cumulative, non-redeemable preference shares (6% NCNRPS) that are subject to availability of distributable reserves. The directors of SEL can decide at each period end whether and the extent to which a dividend will be paid on the preference shares. The payment of dividends on SEL ordinary shares is also discretionary. The terms of the preference shares provide that if dividend is to be paid on SEL's ordinary shares, then a dividend must be paid on the preference shares.
0/2 solved
Case Scenario 58
Accounting and Reporting of Financial Instruments
Sun Enterprise Limited (SEL), whose functional currency FC is engaged in the business of manufacturing various items from metals. It prepares its financial statements as per Ind AS. It is considering raising funds for the expansion of its production capacity. However, its debt-equity ratio is under pressure. It has the following options before it: SEL issues 6% non - redeemable, fixed cumulative mandatory dividend preference shares (6% NRCMP). If earnings are not sufficient in any given year, such dividends will be paid in future years. Additional dividends may be declared but only if dividends of the same amount are declared on the other classes of shares. SEL issues 2000 convertible bonds with a 3-year term at a face value of FC 1,000 per bond resulting into a total proceed of FC 2.0 million. Interest is payable annually @ 6.00% per annum. Each bond is convertible, at the holder's discretion, at any time upto maturity into 250 shares. When the bonds are issued, the market interest rate for similar debt instrument without the conversion option is 9% per annum; SEL issues a 2-year mandatorily convertible instruments for FC 1 million. The instrument requires SEL to make cash coupon payments of FC 50,000 each at the end of year 1 and year 2. At the end of year 2, the instrument will mandatorily convert into 5,000 ordinary shares.
0/3 solved
Case Scenario 59
Ind AS on Assets of the Financial Statements
Mr. Deepak Goel, a chartered accountant with 10 years of experience was earlier working with a big Indian practicing firm having clientele of Ind AS and auditing assurance. Recently he left his job and started his own consultancy firm. He has received certain Ind AS based projects wherein his opinion and guidance on applicability of Ind AS has been sought for on following issues: 1. Narayan Ltd. requires to calculate the tax expense for each quarter, assuming that there is no difference between the estimated taxable income and the estimated accounting income: ₹ Estimated Gross Annual Income 33,00,000 (inclusive of Estimated Capital Gains of ₹ 8,00,000) Estimated Income of Quarter I 7,00,000 Quarter II 8,00,000 Quarter III (including estimated Capital Gain of ₹ 8,00,000) 12,00,000 Quarter IV 6,00,000 Tax Rates: On Capital Gains 12% On Other Income: First ₹ 5,00,000 30% Balance Income· 40% 2. C Ltd. is a construction company. It enters into a contract with Customer E to build an asset. Depending on when the asset is completed, C will receive either ₹ 1,10,000 or ₹ 1,30,000. Outcome Consideration (₹) Probability Project completes on time 1,30,000 90% Project is delayed 1,10,000 10% © The Institute of Chartered Accountants of India 3. In the financial year 20X1-20X2, X Ltd. incurred the following expenditure in acquiring property consisting of 6 identical houses each with separate legal title including the land on which it is built. The expenditure incurred on various dates is given below: On 1st April, 20X1 - Purchase cost of the property ₹ 1,80,00,000. On 1st April, 20X1 – Non-refundable transfer taxes ₹ 20,00,000 (not included in the purchase cost). On 2nd April, 20X1- Legal cost related to property acquisition ₹ 5,00,000. On 6th April, 20X1- Advertisement campaign to attract tenants ₹ 3,00,000. On 8th April, 20X1 - Opening ceremony function for starting business ₹ 1,50,000. Throughout 20X1-20X2, incurred ₹ 1,00,000 towards day-to-day repair maintenance and other administrative expenses. X Limited uses one of the six houses for office and accommodation of its few staffs. The other five houses are rented to various independent third parties. How X Limited will account for all the above-mentioned expenses in the books of account?
0/6 solved
Case Scenario 60
Ind AS on Assets of the Financial Statements
G Ltd. (herein after referred to as ‘the Company’) is currently engaged in different business segments and is also looking to expand its operations overseas. The Company is also exploring investment from an overseas investor to carry out the expansion plan. The functional currency of G Ltd. is Rupees. The Company is required to submit its financial statements for the year ended 31st March, 20X2 as per Ind AS. On 30th September, 20X1, the Company acquired 70% of the share capital of M Ltd., an entity registered as company in Germany. The fair value of the net assets of M Ltd. was 23 million EURO and the purchase consideration paid was 17.5 million EURO on 30th September, 20X1. The exchange rates as at 30th September, 20X1 was ₹ 82 / EURO and at 31st March, 20X2 was ₹ 84 / EURO. NCI is valued at proportionate share of fair value of net assets of M Limited. G Ltd has made an interest-free security deposit against a lease of 5 years redeemable at the end of the lease term, when the market interest rate for a deposit for similar period was 12% per annum. Following are the details of the deposit made by G Ltd.: Particulars Details Date of Security Deposit (Starting Date) 1st April, 20X1 Date of Security Deposit (Finishing Date) 31st March, 20X6 Discount rate 12.00% Security deposit 10,00,000 Present value factor at the end of 5th year 0.567427 The accountant of the company is facing a challenge in the accounting treatment of the above issues. © The Institute of Chartered Accountants of India
0/4 solved
Case Scenario 61
Consolidated and Separate Financial Statements of Group Entities
X Ltd. is a listed entity in India and prepares consolidated financial statements as per the requirements of Ind AS. X Ltd. has a wholly owned subsidiary A Ltd. which is an unlisted entity with a net worth of ₹ 280 crore. A Ltd. is not in the process of listing any of its instruments in public market. A Ltd. has two wholly owned subsidiaries B Ltd. and C Ltd.
0/3 solved
Case Scenario 62
Consolidated and Separate Financial Statements of Group Entities
Deepak started a new company S Pvt. Ltd. with T Ltd. wherein investment of 55% is done by T Ltd. and rest by Deepak. Voting powers are to be given as per the proportionate share of capital contribution. The new company S Pvt. Ltd. formed was the subsidiary of T Ltd. with two directors, and Deepak eventually becomes one of the directors of company. The company, S Pvt. Ltd. was incorporated on 1st April 20X1. The financials of T Ltd. are prepared as per Ind AS. However, S Pvt. Ltd. is preparing its financial statements as per Accounting Standards. Further, Deepak has started using accounting software and other tools to automate manual processes in S Pvt. Ltd. He is evidencing major change in accounting due to automation of the accounting process. However, at the same time, he also realised that automation comes with its own set of potential drawbacks and challenges.
0/2 solved
Case Scenario 63
Ind AS on Disclosures in the Financial Statements
Medicines India Limited (MIL) incorporated under the Companies Act, 1956 is a pharmaceutical company. It has its manufacturing plant at Pune in Maharashtra. Besides domestic sales, it also exports the medicines to various countries. Its net worth exceeded ₹ 1,000 crore as per the audited accounts for the year ended 31st March 20X1 & has remained above that since then. When preparing and finalizing the financial statements as at and for the year ended 31st March 20X7, the following issues required attention: MIL during the year ended 31st March 20X7 had invested in a 12-year bond with a face value of ₹ 6,00,000 by paying ₹ 2,31,500. The effective rate of interest is 10%. MIL recognizes proportionate interest income in its statement of profit and loss over the period of bond. MIL is not in the business of dealing in securities. MIL has a legal claim for damages filed by its customer of ₹ 2.50 million. There is a 40% chance that the entity will win the case, and no cost will be involved. However, there is a 60% chance that the decision will not be in the favour of the entity, and it will have to pay for the damages. MIL entered into a contract to supply 10,00,000 million strips of a particular medicine 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. The Finance & Accounts department had drawn the following calendar for finalization, approval & submission of financial statements for the year ended 31st March 20X7: Completion of preparation of financial statements 28th May, 20X7 Review & recommendation for approval by the Audit Committee 15th June, 20X7 Review & approval for issue by the Board of Directors 19th June, 20X7 Available to shareholders 1st July, 20X7 © The Institute of Chartered Accountants of India Annual General Meeting 15th September, 20X7 Filing with regulatory authority 6th October, 20X7 The calendar was duly adhered.
0/5 solved
Case Scenario 64
Ind AS on Assets of the Financial Statements
On 1st October, 20X1, Skywalk Ltd. signed a contract to purchase a machine from a foreign supplier on 31st March, 20X2. The purchase price of the machine, payable in cash on 31st March, 20X2, was USD 2 million. On 1st October, 20X1, Skywalk Ltd. entered into a forward contract to purchase USD 2 million on 31st March, 20X2 for ₹ 140.0 million. On 31st December, 20X1, a contract to buy USD 2 million on 31st March, 20X2 would have required a payment of ₹ 150·0 million. On 31st March, 20X2, the spot rate of exchange was ₹ 70 = USD 1. The forward contract was settled by the other party making a payment of ₹ 15 million to Skywalk Ltd. on that date. Skywalk Ltd. estimated that the useful economic life of the machine was five years from 31st March, 20X2, with no residual value. Skywalk Ltd. uses hedge accounting whenever permitted by Ind AS 109. The currency contract fully complies with the criteria and conditions for hedge accounting as set out in Ind AS 109.
0/4 solved
Case Scenario 65
Ind AS on Assets of the Financial Statements
Mr. H is a Chartered Accountant and is working in GHI & Co., Chartered Accountants as a Manager. GHI & Co. has recently been approached by A Ltd. for providing advice on certain accounting matters (discussed below). A Ltd. is an automotive supplier having a registered office in New Delhi and is listed on the Bombay Stock Exchange (BSE). (i) A Ltd. has a machinery costing ₹ 15,00,000 having a useful life 10 years. Estimated cost of major overhaul planned after 3 years is ₹ 2,00,000. (ii) A Ltd. received a subsidy of ₹ 15,00,000 from the Government in north- east India in return for setting up approved industrial activities in those states. One of the key conditions of the subsidy is that A Ltd. needs to employ the locals staying in those states for a period of 5 years. (iii) A Ltd. offers 400 shares to each of its 1000 staff if they stay with them for 3 years. The fair value of the shares on the date of offer was ₹ 50. At the end of year 1, 20 employees left and the entity estimates that total 25% of the employees at the beginning of the grant of shares will left at the end of the vesting period. During the second year, a further 20 employees left and the entity further revises its estimate of total departures over the vesting period from 25% to 28%. During the third year, a further 20 employees leave the entity.
0/3 solved
Case Scenario 66
Ind AS on Assets of the Financial Statements
Mr. H is a Chartered Accountant and is working in GHI & Co., Chartered Accountants as a Manager. GHI & Co. has recently been approached by A Ltd. for providing advice on certain accounting matters (discussed below). A Ltd. is an automotive supplier having a registered office in New Delhi and is listed on the Bombay Stock Exchange (BSE). (i) As on 1st April 20X1, A Ltd. has opening shares of 10,00,000. On 31st May, A Ltd. issued 2,00,000 shares. On 30th November, A Ltd. made a bonus issue of 1 for every 3 shares held. On 28th February, 20X2, A Ltd. issued another 2,50,000 shares. (ii) A Ltd. has agreed in a directors’ meeting to sell a building and has tentatively started looking for a buyer for the building. The price of the building has been fixed at ₹ 4 crore and a surveyor has valued the building based on market prices at ₹ 3.6 crore. A Ltd. will continue to use the building until another building has been found with equivalent facilities, and in a suitable location for the office staff, who will not be relocated until the new building has been found.
0/2 solved
Case Scenario 67
Ind AS on Disclosures in the Financial Statements
DEF Ltd. is a diversified business group operating in multiple business segments across different parts of the world with multiple subsidiaries. It maintains its books of accounts and publishes its annual financial statements under Indian Accounting Standards. The finance team has been working on closing the books of accounts and generating financial statements for the year ended 31st March 20X1 and are facing issues in the following transactions while finalization of financial statements: (i) Profit attributable to ordinary equity holders of the parent entity for year 20X1 ₹ 1,200,000 Weighted average number of ordinary shares outstanding during year 20X1 5,00,000 shares Average market price of one ordinary share during year 20X1 ₹ 20.00 Weighted average number of shares under option during year 20X1 100,000 shares Exercise price for shares under option during year 20X1 ₹ 15.00 (ii) DEF Ltd. enters into a contract to buy 100 tonnes of cocoa beans at 1,000 per tonne for delivery in 12 months. On the settlement date, the market price for cocoa beans is 1,500 per tonne. The contract cannot be settled net in cash and is entered for delivery of cocoa beans in line with DEF Ltd.’s expected purchase/ usage requirements. (iii) DEF Ltd. invests in compulsorily convertible preference shares (CCPS) issued by its subsidiary B Ltd. at ₹ 1,000 each (₹ 10 face value + ₹ 990 premium). Under the terms of the instrument, each CCPS is compulsorily convertible into one equity share of B Ltd at the end of 5 years. Such © The Institute of Chartered Accountants of India CCPS carry dividend @ 12% per annum, payable only when declared at the discretion of B Ltd.
0/4 solved
Case Scenario 68
Ind AS on Assets of the Financial Statements
PQR Ltd. is required to adopt Ind AS from 1st April, 20X1, with comparatives for one year, i.e., for 20X0-20X1. On 1st April, 20X1, PQR Ltd. acquired 30% of the voting ordinary shares of XYZ Ltd. for ₹ 8,000 crore. PQR Ltd. accounts its investment in XYZ Ltd. using equity method as prescribed under Ind AS 28. At 31st March, 20X2, PQR Ltd. recognised its share of the net asset changes of XYZ Ltd. using equity accounting as follows: (₹ in crore) Share of profit or loss Share of exchange difference in OCI Share of revaluation reserve of PPE in OCI The carrying amount of the investment in the associate on 31st March, 20X2 was therefore ₹ 8,850 crore (8,000 + 700 + 100 + 50). On 1st April, 20X2, PQR Ltd. acquired the remaining 70% of XYZ Ltd. for cash ₹ 25,000 crore. The following additional information is relevant at that date: (₹ in crore) Fair value of the 30% interest already owned 9,000 Fair value of XYZ's identifiable net assets 30,000
0/5 solved
1 question held back: ICAI published it without an answer key entry, so it cannot be scored.