CA Final May 2025 Suggested Answers Paper 1 Financial Reporting

FOR CA FINAL EXAM PREPARATION

CA Final 2025
Suggested Answers ·
Paper 1 Financial
Reporting
EXAM YEAR TYPE SUBJECT

CA Final 2025 Suggested Answers Paper 1 Financial Reporting
DATE

May 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1 : FINANCIAL REPORTING
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Case Study - I:
Raja a
l Limited, a leading public limited company engaged in the manufacture ofa g
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ainto the following transactions during the financial year ended 31 March, 2025:
pharmaceuticals, prepares its accounts as per Ind AS. The company has entered
st

(i) On 1st April, 2024, 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, 2024 is ` 1,50,00,000 in the
consolidated financial statements of Raja Limited. During financial year
2024-2025, Raja Limited sold goods worth ` 3,50,000 to Volga Limited. The

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cost of goods sold is ` 3,00,000. Out of these, goods costing ` 1,00,000 to

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Volga Limited were lying unsold with it on 31st March, 2025. During the year

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ended 31st March, 2025, the Statement of Profit and Loss of Volga Limited

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showed a profit of ` 25,00,000. Volga Limited declared and paid a dividend
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of ` 10,00,000 to its equity shareholders during 2024-2025.
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(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, 2024 of the
investment in Sharp Limited as per Equity Method is ` 50,00,000. On
1st July, 2024, 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.
(iii) On 1st August, 2024, Raja Limited acquired 70% Equity Shares of S Limited

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by paying a cash consideration of ` 97,50,000 (including control premium).

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The fair value of net identifiable assets of S Limited is ` 1,30,00,000. The fair
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value of 30% of the shares owned by the non-controlling shareholders on the

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date of acquisition is ` 25,00,000. The carrying amount of net identifiable

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assets of S Limited is ` 1,20,00,000. Raja Limited choses to measure the

ag 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.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

1. Determine the value of Investment in Volga Limited as on 31st March, 2025
in the Consolidated Financial Statements of Raja Limited, if equity method is
adopted for valuing the investment in associates.
(A) ` 1,55,25,000
(B) ` 1,58,75,000
(C) ` 1,55,10,714
(D) ` 1,55,20,000
2. Determine the amount of gain/loss to be recorded by Raja Limited on
disposal of its stake in Sharp Limited.
(A) ` 20,00,000
(B) Nil
(C) ` 50,00,000
(D) ` 30,00,000
3. Determine the amount of goodwill/gain on bargain purchase arising on the
acquisition of S Limited.
(A) Goodwill ` 2,50,000
(B) Gain on Bargain Purchase ` 7,50,000
(C) Goodwill ` 6,50,000
(D) Goodwill ` 16,50,000 (3 x 2 = 6 Marks)

Case Study - II
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, 2025:
(i) During the year 2024-2025, XYZ Ltd. purchased a special type of packing
material from an USA based company for $ 14,00,000 on 1st December, 2024
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, 2025, the exchange rate was $ 1 = ` 77.5. As at 31st March, 2025,
60% of the raw material purchased was still in inventory of XYZ Ltd. The
functional currency of XYZ Ltd. is Indian Rupee.

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SUGGESTED ANSWER FINANCIAL REPORTING

(ii) In order to motivate and retain employees, XYZ Ltd. announced on
1st April, 2022, a scheme of granting 6 stock appreciation rights (SAR) to

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400 employees who remain in the organization for the next 3 years. Other

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information available on the portal relating to this scheme is as under:
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Year .ended
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Fair value of Employees expected to remain in

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SAR the organization as at year end

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(` )
31.03.2023 100 400
31.03.2024 110 390
31.03.2025 116 380

(iii) The borrowings of XYZ Ltd. include 10% Optionally Convertible Debentures
(OCD) issued on 1st October, 2024 for ` 50 lakhs. These debentures are

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convertible into equity shares of XYZ Ltd. at the option of the holder at the
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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 paidm
for these debentures without a s
e annually on 31 March. The market rate
st

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gl includes 10,00,000 12% cumulative preference
conversion option is 14% per annum.

(iv) The share capital of XYZaLtd.
shares of ` 100 each. The Company has arrears of ` 2.40 crores of preference
dividend as on 31st March, 2025; it includes 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 2025.

On the basis of the information provided above, you are required to choose
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the most appropriate answer to the below mentioned questions 4 to 7 in
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las 4. Determine the amount of exchange loss/gain to be
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a material from the
ag 31 March, 2025 in relation to the purchase of raw
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American Company.

(A) ` 35,00,000 exchange loss

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

(B) ` 33,20,000 exchange loss

(C) ` 17,40,000 exchange loss

(D) Nil

5. With respect to share appreciation rights, determine the balance of liability
at the end of 31.3.2025 and expense for the financial year 2024-2025.

(A) ` 92,880 and ` 72,880 respectively

(B) ` 2,64,480 and ` 1,71,600 respectively

(C) ` 2,64,480 and ` 92,880 respectively

(D) ` 92,880 and ` 2,64,480 respectively

6. With respect to Optionally Convertible Debentures, determine the finance
cost that should be charged to Statement of Profit and Loss as per relevant
Ind AS for the year ended 31st March, 2025.

(A) ` 6,03,897

(B) ` 3,01,949

(C) ` 6,86,450

(D) ` 96,103

7. Determine the amount of preference share dividend to be reduced from profit
or loss for the year ended 31st March, 2025 to compute the basic Earnings per
Share.

(A) ` 2.40 crores

(B) ` 1.20 crores

(C) ` 3.60 crores

(D) Nothing, as no dividend has been declared by the company

(4 x 2 = 8 Marks)

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SUGGESTED ANSWER FINANCIAL REPORTING

Case Study - III
Savita Limited, a public listed company, is engaged in various types of
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manufacturing and retail activities. It is also engaged in the real estate business.

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You are provided with the following information:
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(i) Savita Limited had the following closing stock of raw material as on
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∗

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31.03.2025:
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a g Quantity Cost Estimated Selling
Selling Price Cost
(No.) (` per pc) (` per pc) (` per pc)
Wooden Boards 1000 88 110 5
Iron rods 300 458 495 46

(ii) On 1st June, 2022, Savita Ltd. purchased land at Kota for ` 1,45,60,000 whose

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future use was not determined. It remained vacant for more than two years.

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On 30th September, 2024, the fair value of the property was ` 1,60,80,000

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and on the same date Savita Ltd. began to convert the property into twenty

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separate flats of equal size which it intended to sell in the ordinary course of

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its business. Savita Ltd. spent a total of ` 1,82,68,000 on this conversion
project till 31st March, 2025. The project was incomplete as on
31 March, 2025, and it was estimated that Savita Ltd. need to spend further
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` 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
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c. o 31st March, 2025, the drug approval authority notified Savita Ltd.'s
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s em management that the drug was not approved. Savita Ltd.'s share closed at
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` 112 on 31st March, 2025. Savita Ltd. issued a press release after markets

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PS: Read ‘raw material’ as ‘finished goods’.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

closed on 31st March, 2025 announcing the failed clinical trial. Savita Ltd.'s
share opened on the next working day at ` 85.
(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, 2025:

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 8 to 12 in
line with the relevant Ind AS.
8. The value of closing inventory of raw material as on 31st March 2025 is:
(A) ` 2,22,700
(B) ` 2,39,700
(C) ` 2,25,400
(D) ` 2,41,500
9. What is the classification of land at Kota as on 31st March 2024?
(A) Property, Plant & Equipment
(B) Investment Property
(C) Inventory

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SUGGESTED ANSWER FINANCIAL REPORTING

(D) Not required to be disclosed in Books
10. Compute the value of flats to be disclosed in the financial statements for the
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year ended 31st March, 2025.

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(A) ` 3,43,48,000

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(B) ` 3,28,28,000
(C)s ` 3,06,00,000 l a
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l(D) ` 4,22,28,000 ag
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11. Assertion (I): Beta Ltd. will record the share at ` 85 and disclose the
investment as Level 2 measurement as per Ind AS 113 as on 31st March 2025.
Reason (II): Level 2 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the entity can access at the measurement
date.

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(A) Both (I) & (II) are true and (II) is the correct explanation of (I).

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(B) Both (I) & (II) are true but (II) is not the correct explanation of (I).
(C) (I) is true but (II) is false.
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(D) (I) is false but (II) is true.
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12. Omega Ltd.'s cash flow from Operations for financial year 2024-2025 is:
(A) ` 135.0 Crores
(B) ` 216.8 Crores
(C) ` 131.6 Crores
(D) ` 109.8 Crores (5 x 2 = 10 Marks)

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13. Bazar Ltd. enters into a contract for the sale of Product H for ` 2,000 per

m piece. As part of the contract, it gives the customer a 40% discount voucher
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c. o for any future purchase upto ` 1,000 in the next 30 days. Bazar Ltd. intends
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to offer a 10% discount on all sales during the next 30 days as part of a

las seasonal promotion. The 10% discount cannot be used in addition to the
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ag 40% discount voucher. Bazar Ltd. believes there is 90% likelihood that a
customer will redeem the voucher and, on an average, a customer will
purchase ` 1,000 of additional products.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

On the basis of above information, determine how many performance
obligations does Bazar Ltd. have and the allocated transaction price?
(A) 2 performance obligations, allocated price of product H is ` 1,762 and
discount voucher is ` 238.
(B) 1 performance obligation, allocated price of product H is ` 2,000.
(C) 2 performance obligations, allocated price of product H is ` 1,850 and
discount voucher is ` 150.
(D) 2 performance obligations, allocated price of product H is ` 1,900 and
discount voucher is ` 100. (2 Marks)
14. Win Limited is a first time adopter of Ind AS. The company has a financial
asset classified as held-to-maturity (HTM) under previous GAAP. Under
Ind AS 101, the company decides to classify the asset as a Financial Asset at
Fair Value through Profit or Loss. Determine the impact of this decision on
the first set of Ind AS financial statements of Win Limited.
(A) Win Limited must apply the fair value treatment retrospectively for all
the periods, restating the financial asset in the comparative periods.
(B) Win Limited must recognize the financial asset at fair value at the
transition date and the difference from the carrying amount under
previous GAAP is adjusted through Retained Earnings.
(C) Win Limited must classify all similar financial assets as financial assets
at Fair Value through Profit or Loss in future periods under Ind AS.
(D) Win Limited is required to recognize the financial asset at deemed cost
in the first Ind AS financial statements. (2 Marks)
15. Securities Limited is a financial institution that handles voluminous sensitive
data of its clients, such as personal information and records of their financial
transactions. At times it is also required by various regulatory bodies to
share its clients' data with them. Traditionally it involves reviewing the
transactions and extracting data from various sources which is time
consuming. Securities Limited wants to ensure secure and transparent
storage of its financial data, enhance data privacy and maintain the trust of
its stakeholders.
Which technology would be most suitable for Securities Limited to achieve
the above?

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SUGGESTED ANSWER FINANCIAL REPORTING

(A) Artificial Intelligence
(B) Blockchain
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(C) Cloud Computing
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(D) Robotic Process Automation (2 Marks)
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Answer Key
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1. la Option (D): ` 1,55,20,000 a
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a2. Either Option (A): ` 20,00,000 (When Equity method continued)
Or Option (C): ` 50,00,000 (When Equity method discontinued)

3. Option (B): Gain on Bargain Purchase ` 7,50,000

4. Option (A): ` 35,00,000 exchange loss

5. Option (C): ` 2,64,480 and ` 92,880 respectively
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6. Option (B): ` 3,01,949
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7. Option (B): ` 1.20 crores
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8. Option (A): ` 2,22,700

9. Option (B): Investment Property

10. Option (C): ` 3,06,00,000

11. Option (C): (I) is true but (II) is false

12. Option (C): ` 131.6 Crores

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13. Option (A): 2 performance obligations, allocated price of product H is

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` 1,762 and discount voucher is ` 238
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(B): Win Limited must recognize the financial asset at fair value

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at the transition date and the difference from the carrying

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under previous GAAP is adjusted though Retained Earnings

ag 15. Option (B): Blockchain

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

PART – II: Descriptive Questions
Question No.1 is compulsory. Candidates are required to answer any four
questions from the remaining five questions.
Working notes should form part of the answer.
Question 1
A Limited and B Limited are engaged in the manufacture of pharmaceuticals. On
1st June, 2024, A Limited acquired 15% of equity shares of B Limited. On
1st October, 2024, A Limited obtains control of B Limited when it acquires a further
55% of B Limited's shares, thereby resulting into a total holding of 70%. The fair
value of the shares of B Limited was ` 40 per share as on that date.
Prior to the acquisition of additional 55% stake by A Limited on 1st October, 2024,
the Balance Sheets of the two companies stood as under: (` in lakhs)

Particulars A Ltd. B Ltd.
Assets
Non-Current Assets
Property, Plant and Equipment 600 400
Investments 210 -
(6,00,000 Shares of B Ltd. acquired on
1st June, 2024)
Current Assets
Inventories 500 150
Financial Assets
Trade receivables 450 300
Cash and cash equivalents 400 100
Other Current Assets 200 230
Non-current assets held for sale - 250
Total 2,360 1,430
Equity and Liabilities
Equity
Share Capital – Equity Shares of ` 100 each 500 -

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SUGGESTED ANSWER FINANCIAL REPORTING

Share Capital – Equity Shares of ` 10 each - 400
Other Equity 810 225
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Non-Current Liabilities

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Financial Liabilities

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eLong-term Provisions
Long-term Borrowings 250 200
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50 70
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aCurrent Liabilities 40 -

Financial Liabilities
Short-term Borrowings 400 285
Trade Payables 310 250
Total 2,360 1,430

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In consideration of the additional stake acquired by A Limited on

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1st October, 2024, it agreed to pay to each selling shareholder of B Limited a sum

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of ` 15 per share in cash and issue 1 Equity Share of ` 100 each of A Limited in
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lieu of 8 Equity Shares of ` 10 each held by the selling shareholder in B Limited.
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The fair value of the shares of A Limited as on 1st October, 2024 is ` 160 per share.
In addition to the above:
(a) A Limited agreed to pay an additional payment as consideration that is
higher of ` 35 lakhs and 25% of any excess profit in the first year, after
acquisition over its profits in the preceding one year made by B Limited. This
additional amount would be due after 2 years. B Limited has earned
` 10 lakhs profit in the preceding year and expects to earn another ` 20 lakhs.

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(b) A Limited also agreed to pay one of the promoter shareholders of B Limited
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a payment of ` 15 lakhs provided he stays with the company for two years

c. o (c) A Limited had a certain equity settled share-based paymentsaward
after acquisition.
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e (Original
em award) which was replaced by the new award issued bygl
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la a as of the acquisition
B Limited . As per
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a the original terms, the vesting period was 4 years and

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PS: Read ‘A Limited’ as ‘B Limited’.
∗∗
PS: Read ‘B Limited’ as ‘A Limited’.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

date, the employees of B Limited have already served 2 years of service. As
per the replaced award, the vesting period is reduced to one year (one year
from the acquisition date). The fair value of the award on the acquisition
date was as under:
(i) Original Award: ` 5 lakhs
(ii) Replacement Award: ` 8 lakhs
(d) The fair value exercise resulted in the following:
(i) The fair value of Property, Plant and Equipment and Inventory of
B Limited as on 1st October, 2024 was ` 480 lakhs and ` 170 lakhs
respectively.
(ii) The carrying value of Non-Current Asset held for sale of ` 250 lakhs of
B Limited represents its fair value less cost to sell in accordance with the
relevant Ind AS.
(iii) B Limited has developed and patented a new drug for Parkinson disease
which has been approved for clinical use. The cost of developing the
drug was ` 140 lakhs. Based on early assessment of its sales success, the
valuer has estimated its market value at ` 200 lakhs.
(iv) B Limited had a lawsuit for infringement of Trademark pending with a
competitor who had made a claim of ` 50 lakhs. B Limited has disclosed
the same as a contingent liability as it is not probable that the amount
would be payable. Management reliably estimated the fair value of the
liability to be 10 lakhs. Any sum which would be paid in respect of the
lawsuit would be tax deductible.
(e) The cost of capital of A Limited is 10%. The appropriate discount factor for
` 1 @ 10% payable at the end of 1st year is 0.91 and 2nd year is 0.83.
(f) The applicable tax rate for both the entities is 30%.
Unless stated otherwise, all items have a fair value and tax base equal to their
carrying amounts at the acquisition date. A Limited chooses to measure the Non-
Controlling Interest in B Limited as per Proportionate Share of identifiable net
assets method.
You are required to prepare the opening Consolidated Balance Sheet of A Limited
as on 1st October, 2024 as per the applicable Ind AS. Working Notes should form
part of your answer. (14 Marks)

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SUGGESTED ANSWER FINANCIAL REPORTING

Answer
Consolidated Balance Sheet of A Ltd. and its subsidiary B Ltd. as at
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1st October, 2024

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s e
Assets
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a s
l Property, plant and equipment
Non-current
a g
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a Goodwill 1 1,080.00
2 461.95
Intangible assets (patents) 200.00
Current assets
Inventories 3 670.00
Financial assets

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Cash and cash equivalents 4 170.00
Trade receivables
. c 5 750.00
Other current assets
s em 6 430.00
Assets held for sale
g l a 250.00
Total a 4,011.95
Equity and Liabilities
Equity 7 775.00
Other equity 8 1007.50
Non-controlling interest (W.N.4) 248.40
Non-current liabilities

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Financial liabilities

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Long-term borrowings 9

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Long-term provisions 10
la se 149.05
las Deferred tax liabilities 11
a g 127.00

ag Current Liabilities
Financial liabilities
Short-term borrowings 12 685.00

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

Trade payables 13 560.00
Provision for lawsuit damages 10.00
Total 4,011.95

Notes to Accounts
1. Property, Plant and Equipment ` in lakhs

Particulars
A Ltd. 600.00
B Ltd. 400.00
Add: Fair value gain 80.00 480.00 1,080.00

2. Goodwill ` in lakhs

Particulars
Goodwill on acquisition of B Ltd. (Refer W.N.5) 461.95

3. Inventories ` in lakhs

Particulars
A Ltd. 500.00
B Ltd. 150.00
Add: Fair value given 20.00 170.00 670.00

4. Cash and cash equivalents ` in lakhs

Particulars
A Ltd. 400.00
Less: Paid to B Ltd.’s Shareholders (330.00) 70.00
B Ltd. 100.00 170.00

Note: The additional consideration paid to promoter shareholder is
contingent to him/her continuing in employment and hence this will be
considered as employee compensation and will be recorded as post
combination expense in the income statement by A Ltd.

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5. Trade receivables ` in lakhs

Particulars
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A Ltd.
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450.00
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B Ltd.
c. o 300.00 750.00
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s emcurrent assets l a
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6. Other ` in lakhs

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a A Ltd. 200.00
B Ltd. 230.00 430.00

7. Equity ` in lakhs

Particulars
Equity Share Capital

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7,75,000 Equity shares of ` 100 each
(Out of the above, 2,75,000 Equity oshares of ` 100 each
775.00

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allotted to shareholders of B Ltd for. consideration other than
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cash)

8. Other equity
a g ` in lakhs

Particulars
A. Retained earnings of A Ltd. 810.00
Add: Gain on previously acquired shares
of A Ltd. 30.00 840.00
B. Replacement award 2.50
C. Security premium (2,75,000 shares x ` 60) 165.00 1007.50
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9. Long-term borrowings ` in lakhs

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Particulars
la se
las A Ltd.
a g250.00

ag B Ltd. 200.00 450.00

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FINAL EXAMINATION: MAY 2025

10. Long term provisions ` in lakhs

Particulars
A Ltd. 50.00
Add: Deferred consideration 29.05 79.05
B Ltd. 70.00 149.05

11. Deferred tax liabilities ` in lakhs
Particulars
Deferred tax liability of A Ltd 40.00
Deferred tax liability (W.N. 2) 87.00 127.00

12. Short term borrowings ` in lakhs

Particulars
A Ltd. 400.00
B Ltd. 285.00 685.00

13. Trade payables ` in lakhs

Particulars
A Ltd. 310.00
B Ltd. 250.00 560.00

Working Notes:
1. Calculation of purchase consideration ` in lakhs
Investment in B Ltd.
Shares acquired
On 1st June, 2024 15% [(400/10) x 15% x ` 40] 240.00
On 1 October, 2024
st
55%
Own equity given (40 x 55%) x 1/8 x `160 440.00
Cash (40 x 55%) x ` 15 330.00
Contingent consideration (35 x 0.83) 29.05
Replacement award (5 x 2/4) 2.50
1041.55

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SUGGESTED ANSWER FINANCIAL REPORTING

2. Calculation of deferred tax on assets and liabilities acquired as part of
the business combination

m
c. o
Item ` in lakhs

m
co m
Book Fair Tax base Taxable Deferred

m . value value (deductible) tax assets
s e
s e temporary (liability)
l a
a
lProperty, plant and 400.00 480.00 ag
difference @ 30%

g
a equipment 400.00 80.00 (24.00)

Intangible assets 200.00 0.00 200.00 (60.00)
Inventories 150.00 170.00 150.00 20.00 (6.00)
Trade receivables 300.00 300.00 300.00 - -
Cash and cash 100.00 100.00 100.00 - -
equivalents

om
Other current assets 230.00 230.00 230.00 - -
Non-current asset held
. c 250.00
em 1,430.00
for sale 250.00 250.00 - -
(A) 1,430.00 s1,730.00
la 250.00 250.00
300.00 (90.00)
Trade payables
Long-term provisions
g
a70.00 70.00 70.00
250.00 -
-
-
-
Short-term borrowings 285.00 285.00 285.00 - -
Contingent liability - 10.00 - (10.00) 3.00
(B) 605.00 615.00 605.00 (10.00) 3.00
Deferred tax liabilities (87.00)
(A-B)

3. Calculation of fair value of identifiable net assets acquired
o m
m c
. lakhs
c. o m
` in lakhs ` in
480.00se
em la
Property, plant and equipment

las Intangible assets g
a170.00
200.00

ag Inventories
Trade receivables 300.00
Cash and cash equivalents 100.00

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FINAL EXAMINATION: MAY 2025

Non-current asset held for sale 250.00
Other current assets 230.00
Total assets 1,730.00
Less: Long-term borrowings 200.00
Trade payables 250.00
Long-term provisions 70.00
Short-term borrowings 285.00
Contingent liabilities 10.00
Deferred tax liabilities 87.00
Total liabilities (902.00)
Net identifiable assets 828.00

4. Calculation of NCI by proportionate share of identifiable net assets
Identifiable net assets of S Ltd. on 1st October, 2024 (Refer W.N.3) =
` 828.00 lakhs
NCI on 1st October, 2024 = 828.00 lakhs x 30% = 248.40 lakhs
5. Calculation of Goodwill

Particulars ` in Lakhs
Fair Value of Net Identifiable Assets 828.00
Less: NCI (248.40)
579.60
Less: Purchase Consideration (1041.55)
Goodwill on 1 October, 2024
st
461.95

Question 2
(a) On 1st April, 2023, Mera Limited raised a term loan of ` 5,00,00,000 from
Tera Finance Limited, a Non-Banking Finance Company on the following
terms and conditions:
- Rate of Interest: 11% per annum payable annually on accrual basis.
- Repayment: The term loan would be repaid in five annual instalments of
` 1,00,00,000 each commencing from 31st March, 2024.

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Mera Limited also incurred, upfront, a sum of ` 5,90,000 being loan
processing charges.

m
c. o
The effective rate of interest on loan was 11.50% per annum.
m
.co m
Due to liquidity constraints, Mera Limited was unable to honour its

m s e
a
obligation of repayment of the loan instalment which fell due on

se l
ag
31st March, 2025. Accordingly, it approached the lender on

l a
ag
31st March, 2025. Both the parties agreed to restructure the outstanding
term loan on the following terms:
- Rate of Interest: The revised rate of interest on the outstanding loan
would be 15% per annum payable annually on accrual basis.
- Repayment: The loan would be repaid in eight annual instalments
of ` 50,00,000 each commencing from 31st March, 2026.
No further cost is incurred by Mera Limited towards restructuring of the loan.

m
You are required to record the necessary journal entries in the books of

c. o
Mera Limited from 1st April, 2023 to 31st March, 2026 after giving effect to

m
The following present values ofs`e1 are provided:
the changes in the terms of the loan.

g l a
Interest
Rate
Year Year
1
a 2
Year Year Year Year Year Year
3 4 5 6 7 8
11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434
11.5% 0.897 0.804 0.721 0.647 0.580 0.520 0.467 0.419
15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327
(10 Marks)

m
(b) Hero Ltd. reported a profit before tax of ` 8 lakhs for the third quarter ending

m 31st December 2024. On enquiry, you observe the following:
c. o
c. o s em has been
em
(i) Dividend income of ` 8 lakhs received during the quarter

s
recognized to the extent of ` 2 lakhs only.
g la
gla (ii) 60% of sales promotion expenses of ` 30 lakhsaincurred in the third
a quarter has been deferred to the fourth quarter as the sales in fourth
quarter are expected to be high.

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FINAL EXAMINATION: MAY 2025

(iii) ` 4 lakhs extraordinary gain received in third quarter was allocated
equally to the third and fourth quarter.

(iv) Cumulative loss of ` 30 lakhs resulting from change in method of
inventory valuation was recognized in the third quarter. Out of this loss,
` 10 lakhs relate to previous quarters.
(v) Sale of investment in the first quarter resulted in a gain of ` 40 lakhs.
The company had apportioned this equally to the four quarters.
You are required to discuss the treatment of the above observations and
ascertain the adjusted profit /loss before tax for the third quarter. (4 Marks)
Answer
(a) On the date of initial recognition, the effective interest rate of the loan shall
be computed keeping in view the contractual cash flows and upfront
processing fee paid. The following table shows the amortisation of loan
based on effective interest rate:

Date Opening Cash Cash outflows Interest Closing Balance
Balance outflows (interest and [EIR @ (amortised
(principal) fee) 11.50%] cost)

(a) (b) (c) = (d)= [a x (e) = (a) – (b) –
[(5,00,00,000 - 11.50%] (c) + (d)
instalments
paid till
previous year)
x 11%]

1-Apr-2023 (5,00,00,000) 5,90,000 4,94,10,000

31-Mar-2024 4,94,10,000 1,00,00,000 55,00,000 56,82,150 3,95,92,150

31-Mar-2025 3,95,92,150 1,00,00,000 44,00,000 45,53,097 2,97,45,247

31-Mar-2026 2,97,45,247 1,00,00,000 33,00,000 34,20,703 1,98,65,950

31-Mar-2027 1,98,65,950 1,00,00,000 22,00,000 22,84,584 99,50,534

31-Mar-2028 99,50,534 1,00,00,000 11,00,000 11,49,466* (0)

*Difference of ` 5,155 (11,49,466 – 11,44,311) is due to rounding off.

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SUGGESTED ANSWER FINANCIAL REPORTING

a. 1st April, 2023
Particulars (`) (`)
m
Tom c. o
Bank A/c Dr. 4,94,10,000

c o
. loan recorded at its fair value less
Loan from Tera Finance Limited A/c 4,94,10,000
em
m(Being
e transaction l a s
s
la date)
costs on the initial recognition
ag
ag 31st March, 2024

Particulars (`) (`)
Loan from Tera Finance Limited A/c Dr. 98,17,850
Interest expense (profit and loss) Dr. 56,82,150
To Bank A/c (1,00,00,000 + 55,00,000) 1,55,00,000

m
(Being first instalment of loan and payment of

c. o
interest accounted for as an adjustment to the

em
amortised cost of loan)

31 March, 2025 – BeforesMera Limited approached the bank
l a
st

Particulars a g (`) (`)
Interest expense (profit and loss) Dr. 45,53,097
To Loan from Tera Finance Limited A/c 1,53,097
To Bank A/c 44,00,000
(Being loan payment of interest recorded by the
Company before it approached the Bank for

m
deferment of principal)

m .co
c. o
Upon receiving the new terms of the loan, Mera Limited, re-computed
m
em se
the carrying value of the loan by discounting the new cash flows with

s g
the original effective interest rate and comparing the same with the
la
gla a
current carrying value of the loan. As per requirements of Ind AS 109,

a any change of more than 10% shall be considered a substantial
modification, resulting in fresh accounting for the new loan:

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FINAL EXAMINATION: MAY 2025

Date Cash flows Interest Discount PV of cash
(principal) outflow factor @ flows
@15% 11.50%
(a) (b) (c) (a + b) x c
31-Mar-2025 (4,00,00,000)
31-Mar-2026 50,00,000 60,00,000 0.897 98,67,000
31-Mar-2027 50,00,000 52,50,000 0.804 82,41,000
31-Mar-2028 50,00,000 45,00,000 0.721 68,49,500
31-Mar-2029 50,00,000 37,50,000 0.647 56,61,250
31-Mar-2030 50,00,000 30,00,000 0.580 46,40,000
31-Mar-2031 50,00,000 22,50,000 0.520 37,70,000
31-Mar-2032 50,00,000 15,00,000 0.467 30,35,500
31-Mar-2033 50,00,000 7,50,000 0.419 24,09,250
PV of new contractual cash flows discounted at 11.50% 4,44,73,500
Carrying amount of loan (3,95,92,150 +1,53,097) 3,97,45,247
Difference 47,28,253
Percentage of difference to carrying amount 11.90%

Considering a more than 10% change in PV of cash flows compared to
the carrying value of the loan, the existing loan shall be considered to
have been extinguished and the new loan shall be accounted for as a
separate financial liability.
The accounting entries for the same are included below:
b. 31st March, 2025 – Accounting for Extinguishment

Particulars (`) (`)
Loan from Tera Finance Limited (old) A/c Dr. 3,97,45,247
Loss on modification of loan (profit and loss) Dr. 2,54,753
To Loan from Tera Finance Limited (new) A/c 4,00,00,000
(Being new loan accounted for at its principal
amount by correspondingly derecognising the
existing loan)

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31 March, 2026

Particulars (`) (`)
m
c. o
Loan from Tera Finance Limited A/c Dr. 50,00,000
m
c. Too Bank A/c m
Interest expense (profit and loss) Dr. 60,00,000

m s e
e(Being first instalment of the principal of a
1,10,00,000

s l
g a
l new loan and payment of interest ag
a accounted
(b) As per para 37 and para 39 of Ind AS 34 “Interim Financial Reporting”,
seasonal or occasional revenue and cost within a financial year should not
be anticipated or deferred as of interim date if it would not be appropriate
to anticipate or defer the same at the end of the entity’s financial year.
Therefore, dividend income, extraordinary gain, and gain on sale of
investment received during 3rd quarter should be recognised in the

m
co
3rd quarter only.

.
em
Similarly, sales promotion expenses incurred in the 3rd quarter should also

s
be charged in the 3rd quarter only.

g l a
Further, as per the standard, if there is change in the accounting policy
a
within the current financial year, then such a change should be applied
retrospectively by restating the financial statements of prior interim periods
of the current financial year.
The change in the method of inventory valuation is a change in the accounting
policy. Therefore, the prior interim periods’ financial statements should be
restated by applying the change in the method of valuation retrospectively.
Accordingly, the adjusted profit before tax for the 3rd quarter will be as
follows:
o m
m .c
c. o m
Statement showing Adjusted Profit Before Tax for the Third Quarter

s e
em la (` in lakhs)
ending 31 December, 2024
st

las a g
ag Profit before tax (as reported) 8
Add: Dividend income ` (8-2) lakhs 6
Extraordinary gain ` (4-2) lakhs 2

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Cumulative loss due to change in the method of
inventory valuation should be applied retrospectively 10
26
Less: Sales promotion expenses (60% of ` 30 lakhs) (18)
Gain on sale of investment (occasional gain should not
be deferred) (10)
Adjusted Profit before tax for the third quarter (2)

Question 3
(a) Tiny Ltd. deals in trading of cars across India. It became 100% subsidiary of
Any Ltd. on 1st April, 2022 at a purchase consideration of ` 64 crores. At the
time of acquisition, the fair value of the net identifiable assets of Tiny Ltd.
was ` 51 crores and goodwill was ` 13 crores.
The useful life of Tiny Ltd.'s assets as on 1st April, 2022 was estimated to be
15 years with no residual value. Any Ltd. follows straight line depreciation
method.
On 31st March 2024, the government issued new guidelines due to which
Tiny Ltd. had to close few of its showrooms. As a result, Tiny Ltd.'s revenue
was estimated to reduce by 30%. This adverse change in marketplace and
regulatory conditions indicated impairment. As a result, Any Ltd. had to
estimate the recoverable amount of goodwill and net assets of Tiny Ltd. on
31st March 2024. No independent cash inflows can be identified to any
individual assets. So, the entire operation of Tiny Ltd. was treated as a CGU.
Due to the regulatory entangle it was not possible to determine the selling
price of Tiny Ltd. as a CGU. Its value in use was estimated by the
management at ` 35 crores.
Recently, on 31st March, 2025, the government withdrew the guidelines issued
on 31st March, 2024. The management expects a favourable change in net
cash flows. The recoverable amount of Tiny Ltd.'s net asset is re-estimated.
The value in use is expected to be ` 52 crores and fair value less cost to
disposal is expected to be ` 48 crores.
You are required to:
(i) Calculate the impairment loss, if any, as on 31st March 2024.

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(ii) Also advise the accounting treatment for reversal of impairment loss and
the subsequent depreciation thereon. (8 Marks)

m
c. o
(b) Following information is given to you in respect of A Ltd. and B Ltd.:
m
.co
Particulars A Ltd. B Ltd.

s em
e m Amount Amount
l a
a s
l Income (loss) from continuing operations
(` ) (` )
ag
g
a Income (loss) from discontinued operations
5,04,000
(8,40,000)
(3,60,000)
6,51,840
Net income (loss) (3,36,000) 2,91,840
Weighted average number of shares
outstanding 1,60,000 1,92,000
Incremental common share outstanding
relating to stock options 32,000 51,200

m
From the above information, you are required to calculate the following:
(i) Basic and Diluted EPS of A Ltd. and
. co
em
las
(ii) Diluted EPS of B Ltd. (6 Marks)

ag
Answer
(a) Since the fair value less costs of disposal is not determinable the
recoverable amount of the CGU is its value in use. The carrying amount of
the assets of the CGU on 31st March, 2024 is as follows:
Calculation of Impairment loss

` in crores
Goodwill Other Total

o m
c
assets
m 51.00 . 64.00
c. o Historical Cost 13.00
s em (6.80)
s em Accumulated Depreciation [(51/15) x 2] -
g la 44.20 57.20
(6.80)

gla Carrying Amount a
13.00
a Impairment Loss (13.00) (9.20) (22.20)

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FINAL EXAMINATION: MAY 2025

Revised Carrying Amount
Impairment Loss = Carrying Amount – Recoverable Amount (` 57.20 crore
- ` 35 crore) = ` 22.20 crore is charged to Statement of Profit and Loss for
the period ending 31st March, 2024 as impairment loss.
Impairment loss is allocated first to goodwill ` 13 crore and remaining loss
of ` 9.20 crore (` 22.20 crore – ` 13 crore) is allocated to the other assets.
Reversal of Impairment loss
Reversal of impairment loss is recognised subject to that the impairment
loss on goodwill cannot be reversed.
The increased carrying amount of an asset after reversal of an impairment
loss not to exceed the carrying amount that would have been determined
had no impairment loss been recognised in prior year.
Calculation of carrying amount of identifiable assets had no
impairment loss is recognised

` in crore
Historical Cost 51.00
Accumulated Depreciation for 3 years [(51/15) x 3] (10.20)
Carrying amount had no impairment loss is recognised on
31st March, 2025 40.80

Carrying amount of other assets after recognition of impairment loss

` in crore
Carrying amount on 31st March, 2024 35.00
Accumulated Depreciation for 1 year [(35 /13) x 1]
[rounded off to nearest two decimal] (2.69)
Carrying amount on 31st March, 2025 32.31

1. Recoverable amount on 31st March, 2025 would be ` 52 crore [i.e.
higher of fair value less costs of disposal (` 48 crore) and value in use
(` 52 crore)]
2. The impairment loss recognised previously can be reversed only to the
extent of lower of re-estimated carrying amount (` 40.80 crore) and

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SUGGESTED ANSWER FINANCIAL REPORTING

recoverable amount (` 52 crore) i.e. ` 40.80 crore.
3. Impairment loss reversal will be ` 8.49 crore i.e. (` 40.80 crore –
m
c. o
` 32.31 crore). This amount is recognised as income in the statement
m
co
of profit and loss for the year ended 31st March, 2025.

. em
4.
e m
The carrying amount of other assets at 31st March, 2025 after reversal
l a s
l a s of impairment loss will be ` 40.80 crore.
5. From 1 April, 2025, the depreciation charge will be ` 3.40 crore i.e.a
g
ag (` 40.80 crore/12)
st

(b) (i) Basic EPS of A Ltd.
Basic EPS (Continued = Profit from continued
Operations) operations/Weighted average
number of shares outstanding
= ` 5,04,000 / 1,60,000 = ` 3.15

m
Basic Loss per share = Loss from discontinued
(Discontinued operations)
c. o
operations / Weighted average

em= (` 8,40,000) / 1,60,000 = (` 5.25)
number of shares outstanding

l a s
a g
Overall Basic Loss per share = (` 3,36,000) / 1,60,000 = (` 2.10)
Diluted EPS of A Ltd.
Diluted EPS = Profit for the year / Adjusted weighted average number
of shares outstanding

DEPS (Continued Operations) = Profit from continued operations /
Adjusted weighted average
number of shares outstanding

o m
c
= ` 5,04,000 / 1,92,000 = ` 2.625
m .
c. o Diluted Loss per share = Loss from

s
m
e weighted
discontinued

em la of shares
(Discontinued operations) operations/ Adjusted

las outstanding ag
average number

ag = (` 8,40,000) / 1,92,000 = (` 4.375)
Overall Diluted Loss per share = (` 3,36,000) / 1,92,000 = (` 1.75)

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FINAL EXAMINATION: MAY 2025

(ii) In case of B Ltd.’s loss from continuing operations, the potential shares
are excluded since including those shares would result into anti-
dilution effect on the control number (loss from continuing
operations).
Therefore, the Diluted EPS of B Ltd will be calculated as under:

Diluted EPS = Profit for the year / Adjusted weighted
average number of shares outstanding
Overall Profit = Loss from continuing operations + Gain
from discontinued operations
= (` 3,60,000) + ` 6,51,840 = ` 2,91,840
Weighted average = 1,92,000
number of shares
outstanding
Diluted EPS = ` 1.52

Question 4
(a) Chimney Ltd. purchased a machinery on 1.4.2019 for ` 18,00,000. The
machinery has no residual value. It was reflected in its books at ` 14,40,000
on 1.4.2021. The Company charges depreciation on straight line method.
The Company had estimated an upward revaluation of 8% on 1.4.2021 to
arrive at the fair value of the asset. Chimney Ltd. availed the option given
by Ind AS of transferring some of the surplus, as the asset is used by the
enterprise.
On 1.4.2023, the machinery was revalued downward by 10% and the
company also re-estimated the machinery's remaining life to be 8 years.
On 31.3.2025 the machinery was sold for ` 8,98,780.
You are required to prepare machinery account in the books of Chimney Ltd.
over its useful life to record the above transactions. (6 Marks)
(b) National Ltd. granted 1,000 stock appreciation rights (SAR) each to its
160 employees on 1st April, 2021 with a fair value of ` 100 each. The terms
of the award require the employees to provide service for four years to earn
the award. The SARs are expected to be settled in cash and it is expected

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that 100% of the employees will exercise the options. The fair value of each
SAR at each reporting date is as follows:

m
c. o
On 31st March, 2022 ` 120

o m m
c
. March, 2024
On 31 March, 2023 ` 130
e
st

m a s
seOn 31 March, 2025 l
On 31 st
` 135

l a a g
ag (i) You
st
` 140
are required to pass necessary journal entries across all the years for
recognition of expenses.
(ii) Would your answer be different, if at the end of the second year of service
i.e. at 31st March, 2023, National Ltd. modifies the terms of the award to
require only three years of total service instead of four years to earn the
award. The SARs are expected to be settled in cash and it is expected
that 100% of the employees will exercise the options. Pass revised
journal entries.
m (8 Marks)
Answer c. o
s emof Chimney Ltd.
la
(a) In the books

a g Machinery A/c
Date Particulars Amount Date Particulars Amount
1.4.2019 To Bank/ 18,00,000 31.3.2020 By Depreciation 1,80,000
Vendor (W.N.1)
31.3.2020 By Balance c/d 16,20,000
18,00,000 18,00,000
1.4.2020 To Balance b/d 16,20,000 31.3.2021 By Depreciation 1,80,000

m
c. o
31.3.2021 By Balance c/d 14,40,000

m
c. o 1.4.2021 To Balance b/d 14,40,000 31.3.2022 By Depreciation em 1,94,400
16,20,000 16,20,000

(W.N.2) as
s em glc/d 13,60,800
gla 1.4.2021 To Revaluation
a
31.3.2022 By Balance

a Reserve 1,15,200
15,55,200 15,55,200

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FINAL EXAMINATION: MAY 2025

1.4.2022 To Balance b/d 13,60,800 31.3.2023 By Depreciation 1,94,400
31.3.2023 By Balance c/d 11,66,400
13,60,800 13,60,800
1.4.2023 To Balance b/d 11,66,400 1.4.2024 By Revaluation 86,400
Reserve (W.N.4)
31.3.2024 By Profit and Loss 30,240
A/c (W.N.5)
31.3.2024 By Depreciation 1,31,220
(W.N.3)
31.3.2024 By Balance c/d 9,18,540
11,66,400 11,66,400
1.4.2024 To Balance b/d 9,18,540 31.3.2025 By Depreciation 1,31,220
31.3.2025 To Profit and 31.3.2025 By Bank A/c 8,98,780
Loss A/c
(bal. fig.) 1,11,460
10,30,000 10,30,000

Working Notes:
1. Calculation of useful life of machinery on 1.4.2019
Depreciation charge in 2 years =
(18,00,000 – 14,40,000) = ` 3,60,000
Depreciation per year as per Straight Line
method = 3,60,000/ 2 years
= ` 1,80,000
Remaining useful life = ` 14,40,000/` 1,80,000 = 8 years
Total useful life = 2 years + 8 years = 10 years
2. Depreciation after upward revaluation as on 1.4.2021 `

Book value as on 1.4.2021 14,40,000
Add:8% Upward revaluation 1,15,200
Revalued amount 15,55,200
Remaining useful life 8 years (Refer W.N.1)
Depreciation on revalued amount = 15,55,200 / 8
years = ` 1,94,400

30

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3. Depreciation after downward revaluation as on 1.4.2023 `

Book value as on 1.4.2023 11,66,400
m
m
Less:10% Downward revaluation
o
(1,16,640)
c. o
.c
Revalued amount 10,49,760
em
m
eDepreciation on revalued amount = 10,49,760 / 8 years l a s
s
Revised useful life 8 years

g l a 1,31,220
ag
a 4. Amount transferred from revaluation reserve
Revaluation reserve on 1.4.2021 (A) ` 1,15,200
Remaining useful life 8 years
Amount transferred every year (1,15,200 / 8) ` 14,400
Amount transferred in 2 years (14,400 x 2) (B) ` 28,800
Balance of revaluation reserve on 1.4.2023 (A-B) ` 86,400
m
5.
. co
Amount of downward revaluation to be charged to Profit and Loss

em
Account
s
`

g l a
Downward revaluation as on 1.4.2023 (W.N.3) 1,16,640
Less: Adjusted fromaRevaluation reserve (W.N.4) (86,400)
Amount transferred to Profit and Loss Account 30,240

(b) (i) Journal Entries in the books of National Ltd. (without modification
of service period of stock appreciation rights) (` in lakhs)

Date Particulars Debit Credit
31.3.2022 Employee Benefit Expenses Dr. 48.00
To Liability for SARs
o m
48.00
m c.
c. o em
(Being expenses liability for stock

em
appreciation rights recognised)
s
Employee Benefit Expenses Dr. la56.00
las 31.3.2023
ag
ag To Liability for SARs
(Being expenses liability for stock
56.00

appreciation rights recognised)

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FINAL EXAMINATION: MAY 2025

31.3.2024 Employee Benefit Expenses Dr. 58.00
To Liability for SARs 58.00
(Being expenses liability for stock
appreciation rights recognised)
31.3.2025 Employee Benefit Expenses Dr. 62.00
To Liability for SARs 62.00
(Being expenses liability for stock
appreciation rights recognised)

Working Note:
Calculation of expenses for issue of stock appreciation rights without
modification of service period

Period Fair To be Cumulative (`.) Expense (`)
value Vested a x 1000 awards x 160
(a) (b) employees x years of
service

Start 100

31st March 2022 120 100% 120 x 1000 x 160 x 1 48,00,000
years / 4 years of service
= 48,00,000

31st March 2023 130 100% 130 x 1000 x 160 x 2 = 1,04,00,000 –
years / 4 years of service 48,00,000
= 1,04,00,000 = 56,00,000

31st March 2024 135 100% 135 x 1000 x 160 x 3 = 1,62,00,000 –
years / 4 years of service 1,04,00,000
= 1,62,00,000 = 58,00,000

31st March 2025 140 100% 140 x 1000 x 160 x 4 = 2,24,00,000 –
years / 4 years of service 1,62,00,000
= 2,24,00,000 = 62,00,000

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(ii) Journal Entries in the books of National Ltd. (with modification of
service period of stock appreciation rights) (` in lakhs)

m
c. o
Date Particulars Debit Credit
m
.co em
31.03.2023 Employee Benefit Expenses Dr. 90.67

e m To Liability for SARs 90.67
l a s
l a s (Being expenses liability for stock
ag
ag 31.03.2024 Employee Benefit Expenses Dr.
appreciation rights recognised)
77.33
To Liability for SARs 77.33
(Being expenses liability for stock
appreciation rights recognised)

Working Note:

m
Calculation of expenses for issue of stock appreciation rights with
modification of service period
c. o Cumulative (`)
Period Fair To be
s em a x 1000 awards x 160 Expense (`)
value Vested

g l a
a
(a) (b) employees x years of service
1st April, 100
2021
31st March 120 100% 120 x 1000 x 160 x 1 years / 4 48,00,000
2022 years of service = 48,00,000
31st March 130 100% 130 x 1000 x 160 x 2 years / 3 =1,38,66,667 –
2023 years of service = 1,38,66,667 48,00,000
= 90,66,667

m
co
31st March 135 100% 135 x 1000 x 160 x 3 years / 3 =2,16,00,000 –

m .
c. o
2024 years of service = 2,16,00,000 1,38,66,667
m
se
= 77,33,333

s em Question 5
g l a
gla a and development of
a
(a) HaSo Ltd. deals in manufacture of computer hardware
software applications. Discuss the revenue recognition of HaSo Ltd. as per
Ind AS 115 in the following cases:

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

(i) Mr. Grahak purchases a software application license from HaSo Ltd. for
` 2,00,000. Under the agreement, HaSo Ltd. will provide updates or
upgrades on a when-and-if-available basis. Mr. Grahak can choose
whether to install them or not. HaSo Ltd. will undertake no other
activities that will change the functionality of the software application
license.
(ii) HaSo Ltd. licenses the right to operate its exclusive store in Madurai to
Franchisee Ltd. The store will bear HaSo Ltd. trade name and brand logo.
Franchisee Ltd. will have the right to sell HaSo Ltd.'s products for next
5 years from the date of agreement. Franchisee Ltd. pays an all-inclusive
up-front fixed fee on signing of the agreement. The franchise agreement
requires HaSo Ltd. to maintain the brand through product
improvements, marketing campaigns etc. (5 Marks)
(b) Tiger Gems Ltd. and Mammoth Minerals Ltd. are engaged in extraction of
coal and minerals from coal-fields, which they own and operate
independently of each other.
In May 2024, Tiger Gems Ltd. and Mammoth Minerals Ltd. jointly acquired
an underground ‘Luminuos’ Coal mine in the ratio of 55:45. Both the
companies agreed to share services and costs. Decisions relating to
'Luminuos' Coal mine requires unanimous agreement of both the parties. No
separate entity is incorporated.
The extraction of coal and minerals from Coal mine is done through huge
machines. These machines can extract only upto 95%. The remaining coal is
irrecoverable and remains in the Coal mine until the mine is
decommissioned. As per the laws in force, the Coal mine should be
decommissioned at the end of its useful life.
(i) Discuss whether the joint arrangement between Tiger Gems Ltd. and
Mammoth Minerals Ltd. is a Joint Operation or Joint Venture.
(ii) Discuss the accounting for the unextracted coal and mineral as per
Ind AS 16 and Ind AS 37 with respect to aforesaid 'Luminuous' Coal mine.
(5 Marks)

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(c) EITHER
Assume operating cycle to be of twelve months. Classify the following
m
c. o
deposits given by an entity in automobile industry during the year ended
m
co
31st March, 2025 either as current asset or non-current asset. Give reasons.

. em
(i)
e m
Electricity deposit paid to permanently enhance the power load of the
l a s
l a s factory.
(ii) Tender deposit. Tender is likely to be opened & awarded to the lowesta
g
ag bidder within next six months.
(iii) GST demand deposited with the department against which the entity has
filed an appeal before the appellate authorities. Appeal is likely to be
heard after 30th June, 2026.
(iv) Earnest money deposit on award of a long-term job contract to be
completed by 31st May, 2026. Earnest money is returnable only on
completion of the job work. (4 Marks)

o m
c
. financial reporting. (4 Marks)
OR

e m
s
(c) Discuss the limitations of general-purpose

l a
ag and upgrades will change the functionality of
Answer
(a) (i) Although the updates
the software, they are not considered in determining the nature of the
entity’s promise in granting the license. The activities of HaSo Ltd. to
provide updates or upgrades are not considered because they transfer
a promised goods or service to Mr. Grahak i.e. updates or upgrades are
distinct from the licence. Therefore, the software application license
` 2,00,000 provides a right to use the IP that is satisfied at a point in

m
time.

m .co
c. o
Hence, ` 2,00,000 will be recognised immediately in the income
m
se
statement by HaSo Ltd., on purchase of the software application license

em la
by Mr Grahak.

las a g
(ii) The licence provides Franchisee Ltd. access to the IP as it exists at any

ag point in time in the licence period. This is because:

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FINAL EXAMINATION: MAY 2025

– HaSo Ltd. is required to maintain the brand, which will significantly
affect the IP by affecting Franchisee Ltd.’s ability to obtain benefit
from the brand;
– Any action by HaSo Ltd. may have a direct positive or negative
effect on Franchisee Ltd.; and
– These activities do not transfer goods or service to Franchisee Ltd.
Therefore, HaSo Ltd. recognizes the up-front fee over the 5-year
franchise period.
(b) (i) Determination of Joint Arrangement
As per Ind AS 111 ‘Joint Arrangements’, a joint arrangement is an
arrangement of which two or more parties have joint control. Joint
control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control.
The structure and form of the arrangement determines the nature of
the relationship.
Joint Operation: A joint arrangement which is NOT structured through
a separate vehicle is a joint operation. In such a case, the contractual
arrangement establishes the parties’ rights and obligations.
Joint Venture: A Joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the
arrangement.
A joint operator accounts for the assets, liabilities, revenues and
expenses relating to its involvement in a joint operation in accordance
with the relevant Ind AS.
The arrangement between Tiger Gems Ltd. and Mammoth Minerals Ltd.
is a joint operation as no separate vehicle is formed and the companies
have agreed to share services and costs with decisions regarding the
underground ‘Luminous’ coal mine requiring unanimous agreement of
both the parties.
Both the companies should recognize their share of the asset as
Property, Plant and Equipment.

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SUGGESTED ANSWER FINANCIAL REPORTING

(ii) Accounting for the unextracted coal and mineral
As per para 16 of Ind AS 16 ‘Property, Plant and Equipment’, the cost
m
c. o
of an item of property, plant and equipment comprises the initial
m
co
estimate of the costs of dismantling and removing the item and

. e m
s
restoring the site on which it is located.
m
eContingent Assets’, provides that where the effect of the time value of gl a
a s Further, para 45 of Ind AS 37 ‘Provisions, Contingent Liabilities

l money is material, the amount of a provision shall be the present valuea
and

g
a of the expenditures expected to be required to settle the obligation.
Thus, costs incurred by an entity in respect of obligations for
dismantling, removing and restoring the site on which an item of
property, plant and equipment is situated are recognized and
measured in accordance with Ind AS 16 and Ind AS 37.
Each of the entities in the joint arrangement should recognize their

m
c. o
respective share of the cost of decommissioning of the underground
storage facility.

s
However, as per para 29 of Ind
em ASthe37 part
where an entity is jointly and

l a
severally liable for an obligation, of the obligation that is
gother parties is treated as a contingent liability.
a
expected to be met by
Accordingly, each of the entities in the joint arrangement should also
disclose the share of the cost of decommissioning of the underground
facility, to be borne by another joint arrangement entity, as a
contingent liability.
As per Ind AS 16, Property, Plant and Equipment are tangible items
that:

m
c. o
(a) are held for use in the production or supply of goods or services,
m
c. o
for rental to others, or for administrative purposes; and

s em
em Thus, both the entities should classify and accountla
(b) are expected to be used during more than one period.)

las a g for their share of

ag irrecoverable coal and minerals as property, plant and equipment, as
the irrecoverable coal and minerals is necessary for the storage facility
to perform its function. Therefore, the irrecoverable coal and minerals,
being a part of the storage facility, should be capitalized as a

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

component of the storage facility asset, and should be depreciated to
its residual value over the life of the storage facility.
Either
(c) (i) Electricity Deposit - At all points of time, the deposit is recoverable
on demand, when the connection is not required. However, practically,
such electric connection is required as long as the entity exists. Hence,
from a commercial reality perspective, an entity does not expect to
realise the asset within twelve months from the end of the reporting
period. Hence, electricity deposit should be classified as a non-current
asset.

(ii) Tender Deposit - In the given case, tender is likely to be opened and
awarded to the lowest bidder within six months. Therefore, it is
expected that the refund of tender deposit will also be received within
a few days or a month from the date of tender being opened and
awarded. Hence, tender deposit will be classified as current asset in
the books of the entity as on 31st March, 2025.
(iii) GST Demand Deposit paid under dispute - Since appeal is likely to
be heard after 30th June, 2026 i.e., 15 months from 31st March, 2025
(reporting date), it should classify such GST demand deposit as non-
current asset.
(iv) Earnest Money Deposit - Since the job contract is of long term in
nature and is expected to be completed by 31st May, 2026, i.e.,
14 months from 31st March, 2025 (reporting date), the earnest money
deposit should be classified as non-current asset.
Or

(c) Limitations of General-Purpose Financial Reporting:
♦ General-purpose Financial Reporting does not and cannot provide all
of the information that existing and potential investors, lenders and
other creditors need. Those users need to consider pertinent
information from other sources, for example, general economic

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SUGGESTED ANSWER FINANCIAL REPORTING

conditions and expectations, political events and political climate, and
industry and company outlooks;

m
c. o
General-purpose Financial Reporting is not designed to show the value
m
♦

co m
of a reporting entity; but they provide information to help existing and

m . s e
a
potential investors, lenders and other creditors to estimate the value

s e g l
a
of the reporting entity; and
l a
ag parties, such as regulators and members of the public other than
♦ General-purpose Financial Reporting is not primarily directed to other

investors, lenders and other creditors.
Question 6
(a) Discuss any five key impacts of Blockchain on Financial Reporting.
(5 Marks)

m
(b) In a manufacturing process of Milky Way Ltd., one by-product 'Universe'

. co
emerges besides two main products Galaxy 1 and Galaxy 2, apart from scrap.

em
Details of cost of production process are hereunder:

Item Unit
l a s
Amount Output (Units) Closing Stock as

a g ( ` ) on 31 March,
2025
st

Raw Material 14,500 1,50,000 Galaxy 1: 5,000 Galaxy 1: 100
Wages 90,000 Galaxy 2: 4,000 Galaxy 2: 250
Universe: 2,000
Fixed Overhead 65,000
Variable Overhead 50,000

o m
c
Average market price of Galaxy 1 and Galaxy 2 is ` 60 per unit and ` 50 per
m unit respectively, by-product is sold @` 20 per unit. There is a. profit of
c. o s emcharges of
em la from sale of
` 5,000 on sale of by-product after incurring separate processing

las g
` 8,000 and packing charges of ` 2,000. ` 5,000 was realized
a
ag scrap.

Calculate the value of closing stock of Galaxy 1 and Galaxy 2 as on
31st March, 2025. (5 Marks)

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

(c) Investors Ltd. is in the process of acquisition of shares of Glue Ltd. as part of
business reorganization plan. The projected free cash flows of Glue Ltd. for
the next 5 years are as follows: (` in lakhs)

Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Cash flows 420 418 272 606 777
Terminal value 8,919

The weighted average cost of capital of Glue Ltd. is 12%. The total debt as
on measurement date is ` 3,294 lakhs and the surplus cash and cash
equivalents is ` 240 lakhs. The total number of shares of Glue Ltd. as on the
measurement date is ` 20 lakhs ∗.
You are required to determine the value per share of Glue Ltd. as per Income
Approach as enunciated in Ind AS 113, Fair Value Measurement.
Compute value per share upto 2 decimal points.

Present value factor of ` 1 at 12% is as under:

Year 1 Year 2 Year 3 Year 4 Year 5
0.8929 0.7972 0.7118 0.6355 0.5674

(4 Marks)
Answer
(a) Key Impacts of Blockchain on Financial Reporting
1. Enhanced Transparency: Blockchain technology provides a
decentralized and immutable ledger, where transactions are recorded
and stored in a transparent and tamper-proof manner. This increased
transparency ensures that financial data is accurately captured and can
be easily audited, promoting trust and reliability in financial reporting.
2. Improved Data Integrity: Blockchain's distributed ledger ensures that
each transaction is verified and encrypted, preventing unauthorized
modifications or tampering. This feature enhances data integrity,

∗
PS: Read ‘ ` 20 lakhs’ as ‘20 lakhs’.

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SUGGESTED ANSWER FINANCIAL REPORTING

reducing the risk of fraudulent activities and errors in financial
reporting.

m
c. o
3. Streamlined Audit Processes: Blockchain technology enables real-
m
co m
time access to financial data, eliminating the need for time-consuming

m . s e
a
and manual data reconciliation processes. Auditors can directly access

s e g l
a
the blockchain ledger to verify transactions, reducing audit time and
l a
ag 4. Enhanced Security: Blockchain incorporates advanced cryptographic
enhancing efficiency in financial reporting.

algorithms, making it highly secure against unauthorized access or
data breaches. Financial data stored on the blockchain is encrypted
and protected, minimizing the risk of data manipulation or
unauthorized disclosure, thus strengthening the security of financial
reporting.
5.
m
Simplified Reconciliation: Blockchain's decentralized ledger

. co
eliminates the need for reconciling multiple versions of data across

em
different systems. With a single shared source of truth, financial
s
l a
reporting processes become more streamlined, reducing reconciliation
g
6.
a
efforts and potential errors.
Cost Reduction: By eliminating intermediaries and central authorities,
blockchain reduces the costs associated with traditional financial
reporting processes. It eliminates the need for third-party verification
and reconciliation, leading to cost savings for organizations.
7. Enhanced Audit Trail: Blockchain maintains a comprehensive and
immutable audit trail of all transactions, providing a transparent and
m
co
traceable record of financial activities. This audit trail simplifies the
m .
c. o m
identification and investigation of any irregularities or discrepancies,

em
improving the accuracy and reliability of financial reporting.

la se
las 8. Real-time Financial Reporting: With blockchain's real-time data
a g
ag availability and consensus mechanism, financial reporting can be
performed more frequently and with greater accuracy. Organizations
can generate up-to-date financial statements, enabling stakeholders to

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2025

make informed decisions based on the most current financial
information.

(b) As per Ind AS 2 ‘Inventories’, by-products as well as scrap or waste materials
which are immaterial in nature, are measured at net realisable value and
this value is deducted from the cost of the main product.
(1) Calculation of NRV of By-product Universe
`
Selling price of by-product 2,000 units x 20 per unit 40,000
Less: Separate processing
charges of by-product
Universe (8,000)
Packing charges (2,000)
Net realisable value of by-
product Universe 30,000

(2) Calculation of cost of conversion for allocation between joint
products Galaxy 1 and Galaxy 2
`
Raw material 1,50,000
Wages 90,000
Fixed overhead 65,000
Variable overhead 50,000
Less: NRV of by-product Universe (See
calculation 1) 30,000
Sale value of scrap 5,000 (35,000)
Joint cost to be allocated between Galaxy
1 and Galaxy 2 3,20,000

(3) Determination of “basis for allocation” and allocation of joint cost
to Galaxy 1 and Galaxy 2

Galaxy 1 Galaxy 2
Output in units (a) 5,000 4,000
Sales price per unit (b) ` 60 ` 50

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Sales value (a x b) ` 3,00,000 ` 2,00,000
Ratio of allocation 3 2

m
c. o
Joint cost of ` 3,20,000 allocated in the ` 1,92,000 ` 1,28,000

m
co
ratio of 3:2 (c)

. em
s
Cost per unit [c/a] ` 38.4 ` 32

e m l a
a s
(4) Determination of value of closing stock of Galaxy 1 and Galaxy 2
l Particulars ag
ag Galaxy 1 Galaxy 2
Closing stock in units 100 units 250 units
Cost per unit ` 38.4 ` 32
Value of closing stock ` 3,840 ` 8,000

(c) Determination of equity value of Glue Ltd. (` in lakhs)

Particulars Year 1 Year 2 Year 3 Year 4 Year 5

o m
c
Cash flows 420.0000 418.0000 272.0000 606.0000 777.0000
Terminal value
m . 8,919.0000
e
420.0000 s418.0000

g a
l 0.7972 0.7118 0.6355 0.5674
272.0000 606.0000 9,696.0000

a
Discount rate 0.8929
factor
Free cash flow 375.0180 333.2296 193.6096 385.1130 5,501.5104
available to the
firm
Total of all years 6,788.4806
discounted
cashflows

m
Less: Debt
om
c.240.0000
(3,294.0000)

c. o Add: Cash & cash equivalents
s em3,734.4806
s em Equity value of Glue Ltd.
gla(B) 20,00,000
(A)

gla Number of shares
a (A/B)
a Per share value 186.72403

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